LOM Financial Limited Releases 2016 Results

April 25, 2017

In a filing with the Bermuda Stock Exchange [BSX] LOM Financial Limited announced their financial results to fiscal year end 31 December 2016.

In a letter to shareholders, the Company’s CEO stated:

To our Shareholders:

During 2016 LOM managed to win new clients, raise additional assets and improve our financial performance. Our assets under administration [AUA] rose from $635 million at the beginning of the year to $684 million by the end of 2016. I am pleased to report that this success has continued with AUA rising to $769 million as of today. This success in winning new business is a testament to the hard work of all of our staff and validates the focus we have placed on delivering top performance with a very high level of service. Though our return on equity is not yet at the level we would like we feel that we are moving towards that target in a sustainable manner. In 2016 our asset management revenues rose 7.5% with the performance of all of our mutual funds and our investment mandates being very good. I am very proud of the consistent achievements of our asset management personnel.

In 2016 both the LOM Stable Income Fund and LOM Euro Fixed Income Fund achieved exceptional rankings of four stars each, while the LOM USD Fixed Income Fund earned the highest ranking of five stars as measured by Morningstar Inc., an independent rating agency. Over the past year, the USD Fixed Income Fund outperformed all of its local Bermuda-based peers and stacked up well against the index of offshore funds with similar mandates. The LOM USD Fixed Income Fund outperformed the Bloomberg Government/Corporate Offshore Fund Universe by 2.89% over the past year and outperformed the index by 0.32% over the past five years with a shorter duration and less than half the index’s volatility. Also during the past five years, the LOM Equity Growth Fund achieved a total cumulative return of 38.89% for our investors, or an average of 6.78% annually, while the Bloomberg Global Equity Offshore Universe, comprised of our peer group of competitors returned just 5.43% annually for the same period. Similarly, the LOM Balanced Fund delivered a net return of 15.36% compared to an average return of 2.90% for our peer group of funds in this category.

We remain committed to being very careful with our costs, however we have continued to invest in our staff, our IT systems and infrastructure in order to give customers the best possible service and security while increasing efficiencies. Our operations are now very scalable without a significant increase in marginal costs. In 2016 we very cost-effectively opened a representative office in Manila to give us a marketing footprint in Asia as well as house our search engine optimization and social media staff. We have contracted to purchase an office building in Nassau for the use of our Bahamas office who are in the process of bringing on board additional financial advisors. Furthermore we are very close to opening a branch office of LOM Financial Bermuda Limited in an additional Caribbean jurisdiction. Our IT and systems infrastructure enable us to now add a new location and on board new revenue streams in an extremely efficient manner.

In addition to upgrading our systems we have made significant efforts expanding and deepening our corporate governance, risk management and compliance functions in order to meet and exceed the best practice regulatory environment in our jurisdictions.

A safe, sound financial industry serves more than just its clients and shareholders, it is also a crucial part of Bermuda’s and our other jurisdictions ability to compete in the global financial markets. Every organization in our industry has an obligation and duty to conduct itself according to best practices and regulations. We thought that our investors and clients might appreciate knowing how we strive to fulfill these obligations.

We have made intense efforts to build an effective compliance and risk management environment. This starts with strong governance, with expectations and the tone set by our Board. We have an Audit Committee composed entirely of independent directors that is charged with oversight of the board and management, and works with our external auditors to identify and manage controls and risks across our group. We also advocate a strong, inclusive regulatory environment to help build a robust, safe place for everyone to conduct their financial business.

Our team includes a professional Compliance Manager who monitors compliance with regulations and internal controls. We work closely with the Bermuda Monetary Authority and all our other authorities on regulatory matters. We have recently contracted with an external firm to conduct independent reviews of our compliance regime to ensure that we adhere to our regulatory obligations in every jurisdiction where we do business.

Cyber-risk has emerged as one of the top issues of concern for all financial institutions. We have employed considerable resources to strengthen the integrity of our systems, including having external audits of our technology systems, and professional resources to manage our systems.

Our COO and CFO are tasked with managing risk and controls properly across the group. By having top management work as a team, to bring their different views into the business builds strength in our controls.

We will continue to build the controls and compliance that a prudent firm must have. It is not enough just to have capital and liquidity, but also to have an appropriate blend of products and services, making sound decisions on managing assets and the financial well-being of the firm. Our board, executive, and management spend considerable time looking at the fiscal performance of the company and seeking ways to build our business properly; balancing opportunity against risk and our promise to serve our clients and community faithfully.

The Financial Market Environment

2016 was the year of political shocks. First the UK voted to leave the European Union, setting off an earthquake of realignments that are still resonating today and will for several years to come. Then the US presidential election was unexpectedly won by Donald Trump who ran on a platform of trade restrictions, tax reform and putting American interests first and only. His unexpected victory set off a strong rise in the S&P 500 which from Jan to election day had only gained 3.9% but after his victory rose another 7.3%. By the end of the year US markets had rallied 11.2%. The UK as measured by the FTSE 100 rose a strong 14.4% as the sharp drop in the pound created a very positive effect on large UK companies with significant US$ earnings. But that was the end of the good news. The Eurozone as measured by the EURO STOX 50 was essentially flat at up 0.7%, as was Japan and Hong Kong, both up 0.4%. The Shanghai Composite fell 11.3% over the year.

For LOM, these are the highlights of our financial performance during 2016.

Revenues had the following year-on-year changes:

  • Management and advisory fee revenues rose 7.5% to $3.111 million [39% of revenues].
  • Broking fees fell 8.8% to $2.060 million [26% of revenues].
  • Fees from corporate finance work rose 22% to $92,656 [1.2% of revenues].
  • Foreign Exchange revenues rose 44% to $302,971 [3.8% of revenues].
  • Net interest earnings rose 45% to $990,981 [12.4% of revenues].
  • Gain on securities held in inventory was $279,636
  • Total revenues rose 8.5% to $7,991,610.

Costs for the group had the following year-on-year changes:

  • Operating costs, ex commission payments, rose 3.7%
  • Employee expenses rose 3.2%.
  • Total operating expenses rose 3%.

On other financial measures:

  • LOM posted net income of $553,758 for 2016, up from $141,528 for 2015, an increase of 291%.
  • LOM’s assets under administration were $684 million as of 31st December 2016 as compared to $635 million in assets at the end of 2015.
  • LOM remains in a strong financial position with net equity of $17.01 million and no debt.
  • LOM had a net return on equity of 3.2% in 2016.
  • LOM increased its cash and equivalents to $4.67 million, representing 27% of shareholder equity.
  • LOM’s book value as at 31st December 2016 was $2.85 per share.

As LOM continues to focus on investing in its businesses the Board of Directors of LOM have decided not to pay a dividend.

Our current share price on the Bermuda Stock Exchange is $2.50 which equates to 88% of LOM’s book value as at 31st December 2016.

The Board has given approval for LOM to continue to buy back shares for cancellation for a total not to exceed 200,000 shares. Over the whole of 2016, the Company purchased for cancellation 24,372 shares.

As always I would like to express appreciation and thanks to our customers for their business and the employees at LOM for their dedication and professionalism.

Scott GS Lines

Chairman & CEO

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