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LOM (Holdings) Limited Issues Letter to Shareholders
Hamilton, Bermuda: 12th May 2005 - Scott Lines, Managing Director of LOM (Holdings) Limited today released to the Exchange the following Letter to Shareholders concerning the Group's Full Year Results for 2004:
The LOM Group achieved a net profit of US$2,064,683 or 32.3 cents per share in 2004, an 8% return on capital employed. Revenues for the group were US$17.4 million, a 1.7% increase over the previous year. Notable items were a 19.4% rise in brokerage fees, a 28% increase in net interest revenue, a 23% decline in foreign exchange revenues and a 70% decline in corporate finance income. There was also a 67% increase in lease interest revenues. Expenses for the group rose to US$15.3 million, up 9.3%. There was a 15% increase in employee compensation and employee benefits of which a large part related to higher staff numbers in our asset management subsidiary and costs due to the hurricanes shutting our offices in Grand Cayman and the Bahamas. It is expected that our staff compensation costs should decline somewhat in 2005. Professional fees increased 33% due to legal fees related to the SEC investigation.
LOM's performance was significantly hampered by legal costs related to the widely publicized SEC investigation of our Lines Overseas Management Limited and certain senior officers including myself. The SEC's allegations have included some very sensationalist and completely unsubstantiated statements that have generated press interest. This publicity, which at times has been excessive, has harmed the group's ability to attract new business and resulted in some business being withdrawn. Thus our net profits were down 34% versus 2003 despite a more positive market environment. Thankfully most of our customers have remained loyal to the group and we thank them wholeheartedly for their support and patience.
In addition to US$1.7 million of legal costs in 2004, the investigation by the SEC has now dragged on for two full years and cost a cumulative US$2.75 million. It remains a significant drag on earnings. It has taken significant time and effort away from many of our senior staff and I would like to thank our very loyal and hardworking employees for their fortitude throughout this extremely trying time.
Global equity markets in the second half of 2004 continued to rise, pushed by stronger profits despite generally rising interest rates and costs. Commodity prices, after consolidating their gains in the second quarter of 2004, rose strongly throughout the remainder of 2004 and into the first quarter of 2005, paced by very strong energy prices. Stronger economic growth combined with rising raw material costs have pushed inflation fears once again into policy makers' minds and the market's fears of aggressive interest rate rises have created a headwind for further equity market gains.
Commodity price increases are a China growth phenomenon as that region rapidly cements its 21st Century role as "workshop to the world". We expect that volatility in commodity prices will continue as the Chinese authorities attempt to slow growth to a more sustainable level. This will continue to raise investor fears of a hard landing and the consequent impact on global commodities demand. However in the longer term we believe that commodity prices will continue to rise due to a combination of 20 years of under investment in new resource production and rapidly growing industrial demand as per capita incomes in regions of China and India reach levels that cause a geometric expansion of demand for basic industrial and consumer goods.
LOM's broking operations have a strong niche in the commodity sector. However it will remain extremely difficult for LOM to attract new customers and assets to the group while the SEC continues their investigation and we continue to suffer negative publicity from their allegations. Given our difficulties in growing revenues we shall be once again reviewing our cost structure.
LOM's balance sheet remains strong with US$25.5 million in shareholders capital of which 56% is in cash. The group's assets under administration were effectively unchanged from the prior year at US$864 million. At year end, our book value per share was US$3.98. Since the end of 2004 LOM Holdings Limited has repurchased for cancellation an additional 20,600 shares. The group will pay our regular half yearly dividend on 1st June of 5 cents per share to shareholders of record on 18th May.
Scott Lines
LOM.