LOM [Holdings] Limited Releases 2013 Results
LOM [Holdings] Limited today announced the financial results to fiscal year end 31 December, 2013. In a letter to shareholders, the Company said they recorded a full-year profit of $180,284, which was a “significant improvement” over the loss of $774,748 in 2012.
The company said as “business conditions remain challenging, the Board has decided not to pay a dividend.”
LOM said, “The Bermuda economy continues to struggle. Although there has been a successful effort by the Government to polish our image as a place to invest and do business, and there is a real effort to attract capital and businesses to Bermuda, the island is facing two realities.
“Firstly, creating growth in any context takes much longer than destroying it. It can take 30 years to grow a tree, while chopping it down is the work of a morning. Secondly, Bermuda has experienced a technologically driven paradigm shift that will continue to significantly affect employment and job location.
“Anyone who works in an office at any level cannot have failed to notice over the last 10 years how the internet and computing have changed company work flows. Most if not all of the work interaction is now flowing through computer systems.
“Internet connectivity between offices, utilizing voice and video over the internet, have dramatically improved communication between offices in separate countries, and has resulted in face-to-face meetings being held where many of the attendees are thousands of miles apart. This has dramatically improved productivity; however it also means that any size company can re-locate executive, administrative or support jobs to more attractive jurisdictions.”
The full letter to shareholders is below:
To our Shareholders:
I am pleased to announce a full-year profit for the group of $180,284. This was achieved due to stronger market conditions in the second half of the year and a modest pickup in our brokerage activity, resulting in a profit of almost half a million dollars during that period. This turnaround in net profitability was the result of hard work by our staff in sourcing new business combined with very tight cost controls, and is a significant improvement over the loss of $774,748 we posted in 2012.
Western stock markets continue to be helped by very accommodative central bank policy, various forms of quantitative easing and a gradual recovery in economic activity. Going forward, the markets are going to face headwinds with the removal of this quantitative stimulus which will start with the US economy, as it is leading global growth. QE in the US will end this year and arguably should end now. We expect that by late summer, market debate will become very much focused upon the timing for rate rises. However we expect that the US Federal Reserve will very much lag economic recovery as far as rate rises are concerned, and looking further out in time this could become a real issue for their credibility with the market.
In 2013 the US market as measured by the S&P 500 advanced 31.3%, the UK as measured by the FTSE 100 advanced 13.6%, the Eurozone as measured by the EURO STOX 50 advanced 18.4%, while Japan, stimulated by Abenomics and as measured by the Nikkei 225, put in a roaring 56% return. China-centric markets, reflecting the slowdown and restructuring there, were much weaker. The Hang Seng index advanced only 3.3%, while the Chinese market as measured by the Shanghai Composite fell 6.5% over the year.
Our view looking forward for the global equity markets is somewhat mixed. We feel that the American and European economies will continue their recovery with the US in the lead, while Asia will be very mixed in terms of economic performance, mainly due to our growing fears that China will experience an economic hard landing during their attempt to reform the structure of their economy. We are generally bullish on equity markets, as we continue to expect profit growth and low interest rates in the West. We are optimistic that we have seen the last of the extreme weakness in the junior resource markets, and those markets should improve throughout the year.
The Bermuda economy continues to struggle. Although there has been a successful effort by the Government to polish our image as a place to invest and do business, and there is a real effort to attract capital and businesses to Bermuda, the island is facing two realities. Firstly, creating growth in any context takes much longer than destroying it. It can take 30 years to grow a tree, while chopping it down is the work of a morning. Secondly, Bermuda has experienced a technologically driven paradigm shift that will continue to significantly affect employment and job location.
Anyone who works in an office at any level cannot have failed to notice over the last 10 years how the internet and computing have changed company work flows. Most if not all of the work interaction is now flowing through computer systems. Internet connectivity between offices, utilizing voice and video over the internet, have dramatically improved communication between offices in separate countries, and has resulted in face-to-face meetings being held where many of the attendees are thousands of miles apart. This has dramatically improved productivity; however it also means that any size company can re-locate executive, administrative or support jobs to more attractive jurisdictions. Sometimes the decision is driven not by salaries, but due to ancillary benefits such as subsidies, office rents, medical costs, electricity, connectivity costs, lower friction costs (such as work permits and work visas), or even simply due to a perceived lower risk environment. So not only has technology made it possible to shift the production of services to more attractive centres, but governments around the world are actively competing for those jobs. There is a jobs creation war going on, with many developed nations implementing policies, tax breaks and subsidies in order to attract these now mobile and transportable service jobs.
Bermuda is a service-based economy that is now fully exposed to the winds of international competition in attracting service jobs. This is not only directly impacting job creation in Bermuda, and very much impacting the creation of well-paid middle management or entry-level jobs, but that competition also has the potential to quietly siphon jobs out of Bermuda. We have lost over 5,000 jobs over the last five years. Without a substantive change in productivity, to have economic growth we need to add workers. That will not be an easy task given the global environment. Bermudians will need to accept that the world has changed, and that necessitates dramatic and often uncomfortable changes for all of us.
As regards LOM, in 2013 we witnessed revenues from asset management outgrow brokerage fees to become the largest contributor to revenues. We have actually seen a small year-on-year growth in our brokerage revenues, which is the first increase since 2004. We continue to focus on our cost base, and in addition to tight cost controls, we are seeking ways to restructure in order to deliver better services in a more cost-effective manner. To that end, we are moving our London based subsidiary LOM (UK) Limited to the government enterprise zone in Bristol, and shifting some of our information technology staff and recruiting some support staff there.
Revenues had the following year-on-year changes:
• Management and advisory fee revenues rose 10.6% to $2.5 million (34% of revenues).
• Broking fees rose 2.9% to $2.35 million (32% of revenues).
• Fees from corporate finance work rose 14% to $118,109 (1.6% of revenues).
• Foreign Exchange revenues fell 28% to $422,242 (5.7% of revenues).
• Net interest income fell 12% to $481,784 (6.6% of revenues).
• Gain on securities held in inventory was $185,855 (2.5% of revenues).
• Total revenues rose 8.3% to $7,292,520.Costs for the group had the following year-on-year changes:
• Operating costs, ex-commission payments, were reduced 10%.
• Employee expenses fell 6.2%.
• Total operating expenses fell 5.3%.On other financial measures:
• LOM’s assets under administration were $587 million as of 31st Dec 2013 as compared to $674 million in assets at the end of 2012.
• LOM remains in a strong financial position, with net equity of $16.2 million and no debt.
• LOM increased its cash and cash equivalents to $3.52 million, representing 22% of shareholder equity.As business conditions remain challenging, the Board has decided not to pay a dividend.
Our current share price on the Bermuda Stock Exchange is $2.30, and our current market capitalization is $14.03 million. As of 31st December 2013, LOM’s book value was $2.65 per share.
LOM continues to buy back shares for cancellation, for a total not to exceed 150,000 shares. Over the whole of 2013, the Company purchased for cancellation 41,204 shares at an average price of $2.33.
Finally, I would like to express appreciation and thanks to all the staff at LOM, who I believe are the most professional, dedicated, loyal and hard-working group in the financial services industry in Bermuda and the Bahamas.
Scott Lines
President and CEO
