London Bridge Software is to cut ten per cent of its workforce after a £5 million reduction in license fees in the first six months of 2002 fed through to reduced revenue and profit against the comparable period a year ago.
Revenue in the six months to 30 June 2002 will be approximately £32m, which is £5m below H1 2001. Profit before tax (after excluding amortisation of goodwill and a finance charge on deferred consideration) is down by nearly £2 million to £0.5m.
The company says it will incur a £1 million charge against job cuts and the closure of satellite office in July as it bids to drive profitability and cash generation for the second half of the year.
Shares in London Bridge slipped 26% on the news to 52.5 pence from the previous close of 71.5 pence. The stock was immediately downgraded to sell from hold by analysts Andrew Marsh and Graeme Clark at ING Financial Markets
LBS says recurring revenues are in line to meet targets for the year showing an increase of 26% over the same period last year. The vendor says it remains cash generative and that all new product developments have delivered on time and in budget including the development of the new US mortgage origination system, Diamond. The company says it has received five orders for this new product. LBS also claims a significant new order for the Phoenix banking system, which will show through in the second half.
Gordon Crawford, Chairman of LBSH says the trading environment is the hardest the company has encountered for several years.
"Many banks are either deferring projects or are taking a very incremental approach to any new development," he says. "In many cases, potential clients are reacting to bad experiences they have had as a result of large software projects of the last two years with other vendors which have either not delivered or failed to provide the financial paybacks anticipated in the initial investment appraisal."
As a result, new licence sales have been difficult to negotiate or conclude, he adds.
Despite the difficulties, Crawford says a number of new client bids are expected to be awarded in the coming months and higher levels of interest in new contracts and upgrades should be indicative of a better trading environment in the second half.