Preliminary results for the year ended 31 Decem...
28 March 2011
LMS Capital plc
Preliminary Results for the year ended 31 December 2010
The Board of LMS Capital plc, ("LMS Capital" or "the Company"), is pleased to
announce the Company's unaudited preliminary results for the year ended 31
December 2010.
* Net Asset Value per share was 90p (31 December 2009: 84p), an increase of
7%;
* Net Asset Value was £245.0 million (31 December 2009: £227.7 million);
* The investment portfolio showed a net gain of £23.9 million (year ended 31
December 2009: net loss of £4.9 million) reflecting a recovery in prices of
our quoted holdings and improved valuations for our fund interests;
* The consolidated profit for the year (including portfolio subsidiaries)
from continuing operations was £15.2 million (year ended 31 December 2009:
loss of £12.4 million);
* Outstanding commitments to funds were £40.7 million at the end of the year,
down from £58.7 million at the end of 2009.
The most significant developments during the year were:
* A refined strategic focus for the Company:
*
+ LMS Capital will pursue direct investments in growing, profitable
businesses where we can use our expertise to contribute to their growth
and performance;
+ This focus will primarily be in the energy, consumer and business
services sectors where our investment team has demonstrable expertise;
+ Realisations from our existing quoted, direct and fund investments are
expected to provide the liquidity required to implement this strategy;
* We made the following new investments:
*
+ Apogee, a fast growing UK print solutions company - we acquired a 32.8%
interest for £7.9 million;
+ Nationwide Energy Partners, an energy services company in the US - we
invested $14.1 million (£9.7 million) for a 59.5% stake;
+ Zoom Eyeworks was acquired by San Francisco Equity Partners - our
investment was $7.0 million (£4.7 million);
* We sold a number of quoted investments where gains of £1.1 million were
realised;
* We exited certain legacy investments which were unable to sustain
themselves as stand alone businesses - Citizen (Vio) and Corizon - and
Kizoom sold its software business.
Glenn Payne, Chief Executive Officer of LMS Capital, said:
"2010 was a transitional year during which we have successfully implemented a
refined strategic focus; our results announced today demonstrate that the
benefits of this are already coming through. New investments in 2010 were in
profitable and growing businesses and we are no longer funding legacy
investments. We sold a number of our quoted holdings during 2010 and we expect
more realisations during 2011 as stocks hit the exit price we have established.
We shall use the proceeds of these sales to reinvest in direct investments.
LMS Capital has begun the change in focus which we expect to result in
consistent and superior value growth. We offer a value proposition which
differentiates us in the private equity industry - we provide long term capital
and an ability to work with management to create superior returns over the
near, medium and long terms."
For further information please contact:
LMS Capital plc 020 7935 3555
Glenn Payne, Chief Executive Officer
Tony Sweet, Chief Financial Officer
J.P. Morgan Cazenove Limited 020 7588 2828
Michael Wentworth-Stanley
Brunswick Group LLP 020 7404 5959
Simon Sporborg
Leonora Burtenshaw
About LMS Capital
LMS Capital is an investment company with experience in private equity and
development capital investment. Our objective is to deliver superior absolute
returns for shareholders through ownership of and involvement in a select
portfolio of direct investments; our focus is on small to medium sized
companies in our preferred sectors of consumer and media, energy & utilities
and applied technology, software & services.
The Company has a portfolio valued at £253.1 million at 31 December 2010, much
of which we expect to realise in cash in the medium term. This harvesting of
our legacy investments should produce the capital required to finance new and
exciting direct deals over the next five years.
We seek to partner with experienced managers in profitable, growing companies
where we expect to be able to add value. Our focus is on buying and investing
in management teams and companies at favourable prices: we will continue to be
cautious in our investment approach, aiming to grow our investments (and NAV)
by 15%+ per annum without undue risk or investing in unproven businesses.
Our recent deal experience has confirmed to us that potential partners place
great store on working with people who not only understand their business
(typically through previous deals in the same sector) but also have themselves
worked in operational management positions and who therefore understand and
empathise with the role of management in a business partnership. All members of
our investment team have prior experience as part of an operational management
team.
www.lmscapital.com
Chairman's statement
I am pleased to record that 2010 was a year of considerable progress for LMS
Capital. Against the backdrop of a slowly improving environment, your Board
approved a revised strategic approach for the business, the benefits of which
are already apparent in the year's results. After almost two years of focussing
on the existing investment portfolio to safeguard value in difficult market
conditions, the Company undertook a number of new transactions in 2010.
Net Asset Value per share at the end of 2010 was 90p, an increase of 7%
compared to last year, after two years of decline. Improving market conditions
are a significant contributor to this (as reflected in increased values for our
quoted holdings and fund interests) but this year the write downs we have taken
on non performing investments which do not fit our strategy are more than
covered by higher valuations on our core investments. To underline this, for
the first time our consolidated result (including portfolio subsidiaries) is
positive.
Results
The return on the investment portfolio for the year was a net gain of £23.9
million (2009: net loss of £4.9 million). Included in this is a realised net
loss for the year of £1.0 million (2009: realised net loss of £0.1 million): we
realised gains on sales of certain of our quoted holdings and on our fund
distributions but a loss on the sale of Citizen (Vio) which is shown in the
consolidated results as discontinued operations.
The investment portfolio at 31 December 2010 was valued at £253.1 million (31
December 2009: £215.6 million), an increase of £37.5 million or 17%.
The quoted portfolio performed well and we expect to make disposals as our
target prices are reached. We have continued to take a cautious view of the
carrying values of our unquoted holdings since the recovery in public markets
has not been reflected in private transactions.
The Group as a whole (including consolidation of the portfolio subsidiaries)
showed a consolidated profit for the year from continuing operations of £15.2
million (2009: loss of £12.4 million).
The Board is not recommending payment of a dividend for the year ended 31
December 2010 (year ended 31 December 2009: Nil).
Board and management
Glenn Payne was appointed Chief Executive with effect from 1 March 2010 and he
is now leading the implementation of our revised strategy. We also welcomed
Mark Sebba to the Board in September 2010; his experience in business services
and consumer products will be of great value to the Company.
The process of change begun in 2009 has continued and this places special
demands on all our people, particularly where cost pressures result in
headcount reductions at investee companies. Your Board would like to extend its
appreciation to all the Company's employees, as well as to the management teams
of our investee companies, for their contribution to the Group's progress in
2010.
Share capital
As in previous years, at the forthcoming Annual General Meeting the Company
will be seeking authority to purchase up to 14.99% of its issued share capital.
The Company also seeks, once again, to obtain a waiver in respect of the
Takeover Code obligations which a repurchase of shares above a certain limit
would place on the Rayne family shareholders.
There were no purchases of shares by the Company during 2010; the current
number of ordinary shares in issue is 272,640,952.
Outlook
2010 saw an increase in merger and acquisition activity in which the Company
was able to participate. At the same time our people responded positively to
the revised strategy and we have begun 2011 with a higher level of deal flow
than twelve months ago. We plan to complete the exits of non performing
businesses in 2011 and to focus on deploying capital to meet our stated growth
objectives.
The Company's plan to realise its fund of funds and its quoted holdings will
result in an increase in liquidity enabling it to invest in profitable and
growing businesses. Your Board is confident that the Company is well positioned
to take advantage of increased investment opportunities in the coming year and
beyond.
Robert A Rayne
Chairman
28 March 2011
Operating and financial review
LMS Capital is an investment company which, although only an independent entity
since 2006, has a pedigree which dates back to the 1980s. We are not therefore
a new company, but there are many exciting things that we are doing which are
new this year and which we expect will make us bigger, better and more
attractive as an investment to you our shareholders. I was appointed as your
Chief Executive Officer in March last year and I am happy to report that 2010
saw us map out the Company's strategic direction and commence its
implementation.
Our objective is simple: we aim to acquire controlling stakes or positions of
influence in profitable and growing companies run by experienced managers
operating in sectors we know and where we can add value.
We are now pursuing a refined strategy based on our assessment of who is "the
best owner" of the Company's current three investing themes: quoted securities,
third party funds and direct investments. We believe the best owners of quoted
securities are either our shareholders directly or hedge funds that can employ
leverage and sophisticated computer systems which require round the clock
monitoring. Similarly, the best owners of funds are entities that have access
to either a regular stream of cash flows (member contributions) or committed
capital (from investors) such as pension funds, or funds of funds. We are a
permanent capital company and we shall exploit the strengths and advantages
which this gives us.
We believe we have formulated a value proposition that is differentiable and
that over time we expect to deliver superior results. We offer two important
positives to our partners seeking a source of capital (usually the management
of the company we acquire a stake in): permanence and strength.
* We are not just another private equity fund (although we are similar and
compete with many) as unlike private equity funds we do not have to sell
and we can always invest more money into our investments. Founders of
companies typically have built their enterprise up over a period of time
(called experience) and now that they have validated their business model
(called profits) they are often in the position of needing capital to
capture new opportunities. Debt is not as freely available and so an equity
partner with similar style is sought. As a founder, selling part of the
business is traumatic; there are many sleepless nights and some degree of
seller's remorse. We do not pretend to make the transaction easy: we spend
a lot of time performing diligence on any acquisition so that we know what
we are buying, but we offer the comfort that we are not going to turn
around and sell the company in a short timeframe. We expect to create a
long-term partnership such that as the company grows we will be there to
provide intellectual and equity capital.
* We are also a publicly listed entity: just as you check our price and can
read our audited financial accounts, so can our partners and they receive a
lot of solace from the strength of our balance sheet and access to capital.
Our public nature provides transparency on our ability to meet our
promises.
We have exhibited in the past an ability to identify, acquire, manage and
crystallise gains from direct investments. We have an investment team with deep
experience in buyouts and from our current portfolio we expect to receive
significant net inflows of cash over the next few years to support this
strategy. We believe we are "the best owner" of operating companies: we shall
hold direct investments and actively engage in value creation. Recent
investments in Updata, Apogee, Nationwide and Zoom (by SFEP) confirm our
growing reputation as an equity partner of choice. As the acquirers and owners
of these companies, we can control the destiny of our assets.
LMS currently has investment professionals in the US and UK, so our focus will
be on those geographies. We have deep knowledge in three sectors: energy,
consumer and business services. Our relationships, networks and investments
provide a differential capability to identify and evaluate new investments in
these sectors and geographies and to create value at the portfolio company
level through active stewardship. We do what we are good at where we are
located.
We aim to own companies and make follow on investments in companies that have
and will produce profits that contribute to an increasingly valuable and
profitable LMS. Across the entire portfolio, where we are actively engaged in
the stewardship of the investments and can effect change as required, we are
targeting annual growth in excess of 15%.
We still need time to evolve but everything we are doing is with the objective
of creating value for shareholders. Our companies operate in economies that
continue to experience uncertainties and so earnings growth in 2010 has been
variable but there are signs 2011 will see a marked improvement and that our
companies' business models are appropriate.
Results
2010 was a year of transition but saw a number of highlights:
* An improvement in the value of our quoted portfolio as the prices of
ProStrakan and Weatherford grew. Our decision to hold those stocks through
the year has been vindicated.
* Realisations and improvements in third-party fund valuations have been
gratefully received as the ability of those funds to exit investments
opened up during the year.
* Our newer direct investments saw a number of upward revaluations -
confirmation that our strategy is beginning to work.
* We have turned around a number of the older businesses and can now focus on
upside rather than losses, however we did make the difficult decision to
write-down/off five old direct investments as their potential to create
value had passed.
* Combining the positive news we are delighted to announce that LMS Capital
produced a net profit of £17.6 million in 2010 (2009: loss of £12.7
million).
* Importantly that result was driven by positive "owned EBITDA" (our share in
the earnings of each of our direct portfolio companies) - we own profitable
and growing companies that are creating value
* Our NAV per share at the end of 2010 was 90 pence, (2009: 84 pence), an
increase of 7% in the year or 15% annualised from mid year when a number of
the key strategic decisions were first announced and implemented.
Further details are set out in the Financial Review section of this report.
We are pleased with our results for 2010 however there is much room for further
progress. It is good that we are profitable, that we own profitable companies
but we are targeting a better annual growth in value. Going forward we are
actively seeking to produce superior value and capture gains from the quoted
securities and funds to redeploy into direct investments. Our results are a
significant improvement on 2009 (which showed a decline in NAV per share
compared to the prior year) but the results continue to be burdened by losses
from write-downs on legacy investments; that stops this year. Under our revised
strategy we are seeking to invest in companies that should survive and thrive.
As a partner of choice we will work with them to ensure they continue to grow
as profitable businesses.
It is gratifying to report that a number of our consolidated portfolio
companies have made big strides during 2010 and more importantly expect to be
able to sustain this next year. The best performers in 2010 were:
* Updata continues to grow revenues and profits as local authorities need to
improve the extent and reliability of their broadband communication
infrastructure;
* Nationwide has performed in line with our expectations in the first seven
months of our ownership and is rapidly signing new customers;
* Entuity has grown its revenues and had its second year of profitability,
boosted by additions to its sales partner network;
* Wesupply achieved profitability in the fourth quarter after cutting costs
and redirecting its sales focus to the SME market place.
On the minus side:
* Citizen (Vio) was unable to build critical mass and was sold;
* Kizoom continues to experience similar difficulties - it sold its software
business in the third quarter and we are currently at an advanced stage to
sell the remaining hardware business;
* We are seeking to dispose of CopperEye - it needs an owner that can
incorporate their technology into a bigger platform;
* ITS has been unable to convert sufficient sales opportunities into orders
and management are preparing a report on the options for the business,
which will focus on maximizing value for shareholders.
Our key reportable metrics are:
2007 2008 2009 2010
Net profit (£m) (note 1) 29.8 (40.8) (12.7) 17.6
Owned EBITDA (£m) (note 2) (14.2) (9.9) (3.0) 7.5
NAV per share (pence) 101 89 84 90
Notes:
* This is the profit of our investment management business as defined in Note
2 to our financial statements.
* This is our share of the EBITDA of each of the investments in our
portfolio, including investments by San Francisco Equity Partners, based on
our % stake. It is not derived from the consolidated financial information.
Based on the 2011 plans of our direct investments, we expect continuing
improvement in these figures during 2011.
Review of investments
Quoted securities
We sold a number of our holdings during 2010 and you should expect to see more
realisations during 2011 as stocks hit the exit prices we have established. We
started 2010 with 20 different securities and ended with 13. Of course a few
stocks dominate this category, namely Weatherford and ProStrakan, in both of
which we were one of the original investors. The board of ProStrakan recently
announced that it was recommending to shareholders an offer at 130p per share,
a significant premium to the market (and to our December 2010 carrying value).
We shall use the proceeds of sales of our quoted holdings to reinvest in direct
investments. Our book value of quoted securities at year end was £63.2 million,
including sales an increase of 29% over last year's value.
31 December 2010
Share price Book value IRR
for the year
£'million
Weatherford $22.80 30.0 33% Energy
ProStrakan £1.03 18.1 19% Pharmaceuticals
GulfMark $30.40 4.9 12% Energy
Chyron $2.20 3.90 12% Media/technology
The above holdings represent 90% of the quoted portfolio.
Funds
We have 22 general partner relationships across 35 funds. Many of these funds
are in sectors we know and a number are the lead investor in co-investments we
hold. However committing to funds requires us to have access to cash or cash
equivalents to meet the uncertain timing of cash calls, and we have no or
limited access or influence over those investments. We have ceased to make new
fund commitments and because most of our funds are coming to the end of their
investment period, and in many cases are into the harvest period, we expect to
see cash returned to us over the next few years.
Book value of our Funds at year end was £114.5 million net of commitments and
realisations a gain of 4% over the past 12 months. Our outstanding commitments
at year end were £40.7 million (to be met from cash and equivalents), down from
£58.7 million at the end of 2009; with the reduction in size of one fund the
outstanding commitment today is £36 million.
31 December 2010
General partner Book value IRR
for the year
£'million
Brockton Capital 14.6 (3)% UK property
BV investments 9.4 18% US buyouts
Scottish Equity Partners 5.7 14% UK technology
Spectrum Equity 4.4 40% US technology
Investors
CMEA Ventures 4.0 24% US technology
Amadeus Capital Partners 3.9 (8)% UK venture
capital
Weber Capital Partners 3.1 65% US post IPO
technology
Brynwood Capital 3.1 40% US consumer
Partners
Cadent Energy 3.1 32% US energy
The above holdings represent 70% of the funds portfolio (excluding San
Francisco Equity Partners).
Direct investments
The number of our direct investments has been reduced throughout the year as we
actively seek to focus on winners and exit those that have another better
owner. We sold Vio, Corizon and Kizoom Software at a net loss in the year of £
3.2 million and are looking to dispose of the balance of Kizoom and Coppereye.
In order to succeed, these companies were in need of an owner that could fold
their technology into a bigger platform. These companies were start ups when we
invested and we do not intend to pursue this style of investing in the future.
We acquired stakes in three new companies during the year: Apogee (business
services), Nationwide Energy Partners (energy) and Zoom Eyeworks (consumer
products, via San Francisco Equity Partners). Total investment in these
businesses was £22.1m. In all cases our investment thesis foresees us investing
additional monies into these companies to finance growth. It is our intention
to seek similar opportunities: profitable and growing companies run by
experienced managers in those sectors where we can add value.
In addition we provided follow-on monies for ITS, 365iT and Wesupply. Our
direct investment portfolio at the year end was £75.4 million which was an
increase of £15.1 million over 2009, after further write downs on the legacy
portfolio following strategic reviews during the year. Our direct investment
portfolio is very lightly geared with third party debt at 0.4 x EBITDA.
31 December 2010
Book value IRR
for the year
£'million
Method Products 17.6 0% US consumer
Updata Infrastructure 14.0 84% UK technology
HealthTech Holdings 12.6 80% US technology
Nationwide Energy 9.7 0% US energy
Partners
Apogee Corporation 8.7 14% UK technology
Rave Reviews 7.3 3% US consumer
Penguin Computing 7.2 22% US technology
Entuity 5.5 21% UK technology
Luxury Link 5.1 4% US consumer
The above holdings represent 75% of the direct portfolio (including San
Francisco Equity Partners).
Summary
The evolution of LMS to a lead investor in private companies is on-going. Where
previously we had a variety of investment themes and sector appetites we are
now focused on direct investment only in three core sectors.
Over time you will see us exit some of our older holdings and acquire new ones.
We shall constantly review our investments as there may always be someone
willing to acquire our position at a value greater than we put on it and for
some holdings there may be a more natural owner. But because we do not have to
sell we spend our time thinking about growing and adding value rather than
simply exiting.
Our outlook for 2011 is positive: deal flow of profitable, growing companies is
good and most of our direct investments are forecasting revenue growth this
year as markets improve.
I have the pleasure of writing this report but the success of your company is
attributable to a team of professionals who are committed to growing LMS into a
bigger, better and successful company. I would like to thank the Board of LMS
and the team working on your behalf: Pieter, Scott, Ed, Jamie, Jamie, David,
Matthew, Tom, Alison, Dawn, Ela, Maia, Linda, Chris, Ray, Selina and Joe for
their assistance, effort and successes in this past year. We have achieved much
in 2010, and look forward to greater success in 2011.
Financial review
Basis of preparation of financial information
The Company reports its results under International Financial Reporting
Standards as adopted for use in the European Union ("Adopted IFRS"), and the
consolidated financial statements include the consolidation of portfolio
companies which are also subsidiaries ("portfolio subsidiaries"). Since the
Board manages the Company as an investment business, this financial review
focuses on the results of the investment management operations. Note 2 to the
financial information includes the separate results and net assets of the
investment management business. Where appropriate, this review includes
comments on the results and financial position of the portfolio subsidiaries.
Investment management
Net Asset Value at 31 December 2010 was £245.0 million (31 December 2009: £
227.7 million), an increase of £17.3 million or 7%. The Net Asset Value per
share was 90 pence (31 December 2009: 84 pence).
The Group's return on its investment portfolio for the year ended 31 December
2010 was a gain of £23.9 million (year ended 31 December 2009: loss of £4.9
million) as follows:
Year ended 31
December
2010 2009
£'000 £'000
Realised gains/
(losses)
Quoted securities 1,128 2,503
Unquoted (3,154) (1,867)
securities
Funds 1,037 (755)
(989) (119)
Unrealised gains/
(losses)
Quoted securities 14,100 9,741
Unquoted 1,293 (8,491)
securities
Funds 9,510 (6,007)
24,903 (4,757)
Total gain/(loss) 23,914 (4,876)
Approximately 61% of the portfolio at 31 December 2010 is denominated in US
dollars (2009: 60%) and the above table includes the impact of currency
movements. In the year ended 31 December 2010 the strengthening of the US
dollar against pound sterling resulted in an unrealised foreign currency gain
of £5.6 million. During the year ended 31 December 2009 there was a weakening
of the dollar against pound sterling and the unrealised loss for that year was
£13.5 million. It is the Board's current policy not to hedge the Company's
underlying non-sterling investments.
Realised gains on quoted securities include £0.7 million in connection with the
sale of our shares in BJ Services, with the balance arising on the sale of
other, smaller holdings during the year. The realised losses on unquoted
securities arose principally on the disposals of Citizen (trading as Vio) and
Corizon.
The unrealised gains on our quoted portfolio reflect the net impact of the
changes in the capital markets during the year. Of the total of £14.1 million,
£7.4 million is attributable to our holding in Weatherford International and £
2.9 million to ProStrakan Group.
The principal constituents of the net unrealised gain for the year on our
unquoted securities are as follows:
Unrealised
gain/(loss)
£'000
Updata 6,482
HealthTech Holdings 5,622
Kizoom (3,200)
Wesupply (2,750)
Coppereye (1,936)
ITS (US) Holdings (2,938)
1,280
Other investments (net) 13
Total unrealised gain, net 1,293
The unrealised gains/losses above reflect the impact on our valuation criteria
of changes in the revenue and profitability multiples of comparable businesses
which are used in the underlying calculations combined with the operating
performance of the individual businesses within the portfolio.
In most cases the multiples used are similar to those prevailing at the end of
2009. The unrealised gains or losses set out above for 2010 arise principally
as a result of the companies' performance. The results of Updata and HealthTech
Holdings have resulted in higher valuations for those businesses. Conversely,
following continued disappointing results from Kizoom and CopperEye, we are
actively seeking to exit these businesses and in the case of ITS a strategic
review of the business is in progress.
The unrealised valuation gain on our fund interests includes £6.6 million net
valuation increases and £2.9 million unrealised foreign currency gains. We
utilise reports from the general partners of our funds as at the end of the
third quarter in establishing our year end carrying value, with adjustments
made for calls, distributions and foreign currency movements since that date.
We also carry out our own review of individual funds and their portfolios to
satisfy ourselves that the underlying valuation bases are consistent with our
knowledge of the investments and the sectors in which they operate.
Income from investments in the year was £0.9 million (year ended 31 December
2009: £0.5 million) and comprises dividends on quoted securities and management
charges made to portfolio companies. Administration expenses for the year were
£6.9 million (year ended 31 December 2009: £8.0 million, which included a
number of one-off items); Net interest expense for the year was £0.2 million
(year ended 31 December 2009: net income of £0.2 million) reflecting the fact
that the Company drew down all of its loan facility during the year. The tax
charge for the year was £0.4 million (year ended 31 December 2009: £0.3
million).
Investments
The Group's investments are included in the balance sheet at fair values
determined in accordance with the International Private Equity and Venture
Capital Valuation Guidelines.
Additions to the investment portfolio during the year were £38.9 million (year
ended 31 December 2009: £32.7 million) of which £17.6 million (2009: £7.6
million) was for new investments, £17.1 million (2009: £14.8 million) to meet
capital calls from funds and £4.2 million (2009: £10.3 million) for follow on
investments. There were no purchases of quoted securities during the year
(2009: nil); the new investments were $14.1 million (£9.7 million) for our
stake in Nationwide Energy Partners and £7.9 million for our interest in Apogee
Group.
Proceeds of realisations were £24.3 million (2009: £14.3 million) including
sales of quoted securities of £6.2 million (2009: £6.9 million) and
distributions from funds of £13.7 million (2008: £5.6 million).
At 31 December 2010 the Group had commitments of £40.7 million (31 December
2009: £58.7 million) to meet capital calls from its fund interests which the
Directors estimate will be called over the next five years. In terms of
assessing the level of the Group's commitment in this area, the Directors do
not expect fund commitments to exceed liquid assets (being cash and quoted
securities); at 31 December 2010 liquid assets were £72.5 million.
Consolidated results
Consolidated revenues for the year from continuing operations were £47.9
million (2009: £29.8 million), all in the portfolio subsidiaries. The increase
over the previous year reflects the inclusion of Updata for a full year
(acquired in July 2009) and of NEP (from acquisition at the end of May 2010).
Consolidated operating expenses of continuing operations were £60.2 million
(2009: £46.1 million), including goodwill impairment charges of £7.7 million
(2009: £4.6 million). The increase in operating expenses (excluding goodwill
impairment charges) reflects principally the inclusion of Updata and NEP as set
out above.
The consolidated profit from continuing operations was £15.2 million (2009:
loss of £12.4 million); discontinued operations (being the impact of the sale
of Citizen in September) contributed a loss of £2.6 million (2009: loss of £2.4
million).
Financial position
The consolidated balance sheet at 31 December 2010 includes cash and cash
equivalents of £13.2 million (31 December 2009: £17.0 million) and borrowings
of £23.4 million (31 December 2009: £7.6 million). Cash in the investment
management business was £9.3 million (31 December 2009: £14.4 million) and
borrowings were £14.3 million under the Company's £15 million borrowing
facility with The Royal Bank of Scotland.
Glenn Payne
Chief Executive Officer
28 March 2011
Consolidated income statement
Notes Year ended Year ended
31 December 31 December
2010 2009
£'000 £'000
Continuing operations
Revenue from sales of goods and 2 47,869 29,819
services
Gains and losses on investments 2 29,331 3,998
Interest income 37 166
Dividend income 35 133
Other income from investments 939 840
78,211 34,956
Operating expenses (60,241) (46,102)
Profit/(loss) before finance 17,970 (11,146)
costs
Finance costs (1,234) (327)
Profit/(loss) before tax 16,736 (11,473)
Taxation (1,567) (926)
Profit/(loss) from continuing 15,169 (12,399)
operations
Discontinued operations
Loss from discontinued 3 (2,634) (2,352)
operations (net of taxation)
Profit/(loss) for the year 12,535 (14,751)
Attributable to:
Equity holders of the parent 10,984 (15,148)
Non-controlling interests 1,551 397
12,535 (14,751)
Earnings/(loss) per ordinary 4 4.0p (5.6)p
share - basic
Earnings/(loss) per ordinary 4 3.9p (5.6)p
share - diluted
Continuing operations
Earnings/(loss) per ordinary 4 5.0p (4.7)p
share - basic
Earnings/(loss) per ordinary 4 4.9p (4.7)p
share - diluted
Consolidated statement of comprehensive income
Year ended Year ended
31 December 31 December
2010 2009
£'000 £'000
Profit/ (Loss) for the year 12,535 (14,751)
Exchange differences on translation of foreign (113) (200)
operations
Total comprehensive profit/ (loss) for the 12,422 (14,951)
year
Attributable to:
Owners of the Company 10,871 (15,348)
Non-controlling interests 1,551 397
12,422 (14,951)
Consolidated statement of financial position
31 31
December December
2010 2009
£'000 £'000
Non-current assets
Property, plant and equipment 9,491 7,057
Intangible assets 28,123 29,525
Investments 220,703 188,133
Other long-term assets 43 80
Non-current assets 258,360 224,795
Current assets
Inventories 1,851 812
Operating and other receivables 12,818 10,768
Cash and cash equivalents 13,229 16,950
Current assets 27,898 28,530
Total assets 286,258 253,325
Current liabilities
Bank overdrafts - (369)
Interest-bearing loans and borrowings (18,812) (2,394)
Operating and other payables (13,859) (7,921)
Deferred income (5,014) (8,704)
Current tax liabilities (2,276) (1,007)
Current liabilities (39,961) (20,395)
Non-current liabilities
Interest-bearing loans and borrowings (4,597) (4,795)
Deferred income (2,084) (2,116)
Deferred tax liabilities (614) (401)
Other long-term liabilities (172) -
Non-current liabilities (7,467) (7,312)
Total liabilities (47,428) (27,707)
Net assets 238,830 225,618
Equity
Share capital 27,265 27,265
Capital redemption reserve 5,635 5,635
Merger reserve 84,083 84,083
Foreign exchange translation reserve 899 1,012
Retained earnings 117,827 106,773
Equity attributable to owners of the parent 235,709 224,768
Non-controlling interests 3,121 850
Total equity 238,830 225,618
Consolidated statement of changes in equity
Share Capital Merger Translation Retained Total Non-controlling Total
Capital redemption reserve reserve earnings £'000 Interests equity
£'000 reserve £'000 £'000 £'000 £'000 £'000
£'000
Balance at 1 27,265 5,635 84,083 1,212 122,741 240,936 147 241,083
January 2009
Total
comprehensive
income for the
period
Loss for the year - - - - (15,148) (15,148) 397 (14,751)
Other - - - (200) - (200) - (200)
comprehensive loss
Changes in
ownership
interests
Acquisition of - - - - - - 306 306
non-controlling
interest with a
change in control
Transactions with
owners, recorded
directly in equity
Share-based - - - - (820) (820) - (820)
payments
Balance at 31 27,265 5,635 84,083 1,012 106,773 224,768 850 225,618
December 2009
Total
comprehensive
income for the
period
Profit for the - - - - 10,984 10,984 1,551 12,535
year
Other - - - (113) (113) - (113)
comprehensive loss
Changes in
ownership
interests
Acquisition of - - - - - - 967 967
non-controlling
interest with a
change in control
Disposal of - - - - - - (247) (247))
non-controlling
interest without a
change in control
Transactions with
owners, recorded
directly in equity
Share-based - - - - 70 70 - 70
payments
Balance at 31 27,265 5,635 84,083 899 117,827 235,709 3,121 238,830
December 2010
Consolidated cash flow statement
Year ended Year ended
31 December 31 December
2010 2009
£'000 £'000
Cash flows from operating activities
Profit/ (Loss) for the year 12,535 (14,751)
Adjustments for:
Depreciation and amortisation 2,450 1,762
Impairment of intangible assets 7,665 4,598
(Gains)/losses on investments (29,331) (3,998)
Loss on sale of discontinued operations, net 2,015 -
of income tax
Loss on sale of property, plant and equipment - 56
Translation differences (280) 433
Share-based payments 70 (422)
Finance costs 1,234 342
Interest income (37) (166)
Income tax expense 1,567 939
(2,112) (11,207)
Change in inventories (1,039) (147)
Change in operating and other receivables (1,056) 1,396
Change in operating and other payables 1,317 (2,209)
(2,890) (12,177)
Interest paid (1,234) (342)
Income tax paid (298) (321)
Net cash used in operating activities (4,422) (12,840)
Cash flows from investing activities
Interest received 37 166
Acquisition of property, plant and equipment (3,737) (2,749)
Acquisition of intangible assets (1,433) -
Disposals of property, plant and equipment 85 3
Disposal of discontinued operations, net of 165 -
cash disposed of
Other disposals 1,560 -
Acquisition of investments (26,991) (18,853)
Acquisition of subsidiaries, net of cash (7,450) (6,116)
acquired
Proceeds from sale of investments 23,880 13,981
Net cash used in investing activities (13,884) (13,568)
Cash flows from financing activities
Drawdown of interest bearing loans 15,133 554
Disposal of non-controlling interest without (247) -
a change in control
Net cash from financing activities 14,886 554
Net decrease in cash and cash equivalents (3,420) (25,854)
Cash and cash equivalents at the beginning of 16,581 42,615
the period
Effect of exchange rate fluctuations on cash 68 (180)
held
Cash and cash equivalents at the end of the 13,229 16,581
year
Cash and cash equivalents above comprise
Cash and cash equivalents 13,229 16,950
Bank overdrafts - (369)
Cash and cash equivalents at the end of the 13,229 16,581
year
Notes
1. Principal accounting policies
Reporting entity
LMS Capital plc ("the Company") is domiciled in the United Kingdom. These
financial statements are presented in pounds sterling because that is the
currency of the principal economic environment of the Company's operations. The
consolidated financial statements of the Company for the year ended 31 December
2010 comprise the Company and its subsidiaries (together "the Group").
The Company was formed on 17 March 2006 and commenced operations on 9 June 2006
when it received the demerged investment division of London Merchant
Securities. The consolidated financial statements are prepared as if the Group
had always been in existence. The difference between the nominal value of the
Company's shares issued and the amount of the net assets acquired at the date
of demerger has been credited to Merger reserve.
The Company is an investment company but because it holds majority stakes in
certain investments it is required to prepare group accounts that consolidate
the results of such investments. In order to present information that is
comparable with other investment companies, the results of the Group's
investment business on a stand alone basis are set out in Note 2.
Basis of preparation
This financial information has been prepared in accordance with International
Financial Reporting Standards as adopted for use in the European Union
("Adopted IFRS") although the financial information in this announcement is not
sufficient to comply with Adopted IFRS.
The financial information set out in this unaudited preliminary statement does
not constitute the Company's statutory accounts for the years ended 31 December
2010 or 2009. The financial information for 2009 is derived from the statutory
accounts for 2009 which have been delivered to the registrar of companies. The
auditors have reported on the 2009 accounts; their report was (i) unqualified,
(ii) did not include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies Act 2006. The
statutory accounts for 2010 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and
will be delivered to the registrar of companies in due course.
The financial statements have been prepared on the historical cost basis except
for investments held at fair value through profit or loss which are measured at
fair value.
2. Operating segments
The information below has been prepared using the definition of an operating
segment in IFRS 8: Operating Segments. The Group determines and presents
information on operating segments based on the information that is provided
internally to the directors to enable them to assess performance and allocate
resources.
As an investment company, the Group's primary focus is on the performance of
its investment management business. Financial information for this segment is
prepared on the basis that all investments are accounted for at fair value.
The information set out below therefore presents summarised financial
information for the investment management business on a stand alone basis,
together with the adjustments arising from the summarised results and financial
position of the portfolio subsidiaries.
The consolidation adjustments included below reflect the adjustments necessary
to restate the portfolio subsidiaries from the basis included in the investment
management business (investments carried at fair value) to full consolidation
in the Group's financial statements. These adjustments include the elimination
of intra-group transactions and adjustments in relation to goodwill.
Segment profit or loss
Reconciliation
Investment Portfolio Discontinued Consolidation Group
management operations total
Subsidiaries adjustments
Year ended 31 £'000 £'000 £'000 £'000 £'000
December 2010
Revenues from sales - 47,869 - - 47,869
of goods and services
Gains and losses on 23,914 - - 5,417 29,331
investments
Interest income 24 13 - - 37
Dividend income 35 - - - 35
Other income from 920 (227) - 246 939
investments
Impairment of - - - 7,665 7,665
intangible assets
Finance costs (338) (3,202) - 2,306 (1,234)
Continuing operations 17,562 (2,745) - 352 15,169
Discontinued - - (2,634) - (2,634)
operations
Profit/ (loss) for 17,562 (2,745) (2,634) 352 12,535
the year
Reconciliation
Investment Portfolio Discontinued Consolidation Group
management operations total
Subsidiaries adjustments
Year ended 31 £'000 £'000 £'000 £'000 £'000
December 2009
Revenues from sales - 29,819 - - 29,819
of goods and services
Gains and losses on (4,876) - - 8,874 3,998
investments
Interest income 159 7 - - 166
Dividend income 133 - - - 133
Other income from 361 479 - - 840
investments
Impairment of - - - (4,598) (4,598)
intangible assets
Finance costs - (6,326) - 5,999 (327)
Continuing operations (12,660) 7,284 - (7,023) (12,399)
Discontinued - (2,352) - (2,352)
operations
(Loss)/profit for the (12,660) 7,284 (2,352) (7,023) (14,751)
year
Segment net assets
Reconciliation
Investment Portfolio Consolidation Group total
management subsidiaries
adjustments
31 December 2010 £'000 £'000 £'000 £'000
Property, plant and equipment 339 9,152 - 9,491
Intangible assets - 11,502 16,621 28,123
Investments 253,140 - (32,437) 220,703
Other non-current assets - 43 - 43
Non-current assets 253,479 20,697 (15,816) 258,360
Cash and cash equivalents 9,326 3,903 - 13,229
Other current assets 590 14,661 (581) 14,670
Total assets 263,395 39,261 (16,397) 286,259
Total liabilities (18,429) (60,802) 31,802 (47,429)
Net assets/(liabilities) 244,966 (21,541) 15,405 238,830
The net asset value of the investment management business at 31 December 2010
is wholly attributable to the equity holders of the parent.
Reconciliation
Investment Portfolio Consolidation Group total
Management subsidiaries adjustments
31 December 2009 £'000 £'000 £'000 £'000
Property, plant and equipment 158 6,899 - 7,057
Intangible assets - 11,817 17,708 29,525
Investments 215,632 1 (27,500) 188,133
Other non-current assets - 80 - 80
Non-current assets 215,790 18,797 (9,792) 224,795
Cash and cash equivalents 14,416 2,534 - 16,950
Other current assets 462 11,182 (64) 11,580
Total assets 230,668 32,513 (9,856) 253,325
Total liabilities (2,802) (79,519) 54,614 (27,707)
Net assets/(liabilities) 227,866 (47,006) 44,758 225,618
The net asset value of the investment management business at 31 December 2009
includes £227,719,000 attributable to the equity holders of the parent and £
147,000 attributable to non-controlling interests.
The carrying amount and gains and losses of the investments of the investment
management business can be further analysed as follows:
31 December 2010 31 December 2009
UK US Total UK US Total
Asset type £'000 £'000 £'000 £'000 £'000 £'000
Funds 35,164 79,371 114,536 30,259 73,194 103,453
Quoted 21,091 42,122 63,213 17,274 34,601 51,875
Unquoted 41,361 34,031 75,391 39,849 20,455 60,304
97,616 155,524 253,140 87,382 128,250 215,632
Year ended 31 December 2010 Year ended 31 December 2009
Realised Unrealised Total Realised Unrealised Total
gains/ gains/ gains/ gains/
(losses) (losses) (losses) (losses)
Asset type £'000 £'000 £'000 £'000 £'000 £'000
Funds 1,037 9,510 10,547 (755) (6,007) (6,762)
Quoted 1,128 14,100 15,228 2,503 9,741 12,244
Unquoted (3,154) 1,293 (1,861) (1,867) (8,491) (10,358)
(989) 24,903 23,914 (119) (4,757) (4,876)
Revenues
The Group's revenues from external customers comprise:
Year ended Year ended
31 December 31 December
2010 2009
£'000 £'000
Continuing operations
IT services and software 36,850 22,178
Specialist manufacturing 4,039 7,641
Energy and related services 6,980 -
47,869 29,819
Geographical information
Revenues Non-current assets
Year ended Year ended 31 December 31 December
2010 2009
31 December 31 December
2010 2009
£'000 £'000 £'000 £'000
Continuing
operations
United Kingdom 31,527 16,224 95,569 88,298
United States of 12,068 7,611 162,791 136,497
America
Other countries 4,274 5,984 - -
47,869 29,819 258,360 224,795
Geographical information on revenue is based on the location of customers and
on assets is based on the location of the assets.
Major customers
Revenues from one customer of the Group's Portfolio subsidiaries segment
represent approximately 12% of the Group's total revenues. In 2009, no single
customer contributed more than 10% of the Group's total revenues.
3. Discontinued operations
In September 2010 the Group sold its entire interest in Citizen Limited.
Results of discontinued operations
Year ended Year ended
31 December 31 December
2010 2009
£'000 £'000
Revenues 1,708 2,706
Expenses (2,324) (5,046)
Results from operating activities (616) (2,340)
Taxation (3) (12)
Results from operating activities, net (619) (2,352)
of tax
Loss on sale of discontinued operations, (2,015)
net
Tax on loss on sale of discontinued -
operations
Loss for the year (2,634) (2,352)
Basic and diluted loss per ordinary (1.0)p (0.9)p
share
Cash flows from/(used in) discontinued operations
Year ended Year ended
31 December 31 December
2010 2009
£'000 £'000
Net cash used in operating (82) (413)
activities
Net cash used in investing (17) (201)
activities
Net cash from financing - -
activities
Net cash used in discontinued (99) (614)
operations
Effect of disposal on the financial position of the Group
31 December
2010
£'000
Property, plant and equipment (157)
Intangible assets (2,561)
Trade and other receivables (338)
Cash and cash equivalents (54)
Bank overdrafts 475
Trade and other payables 770
Deferred Income 140
Net assets (1,725)
Consideration received, satisfied 219
in cash
Cash disposed of (54)
Net cash inflow 165
4. Earnings/(loss) per ordinary share
The calculation of basic earnings per ordinary share is based on the profit of
£10,984,000 (year ended 31 December 2009: loss of £15,148,000), being the
profit for the year attributable to the owners of the Company, divided by the
weighted average number of ordinary shares in issue during the year of
272,640,952 (year ended 31 December 2009: 272,640,952).
The calculation of earnings per ordinary share for continuing operations is
based on the profit of £13,618,000 (year ended 31 December 2009: loss of £
12,796,000), being the profit for the year from continuing operations
attributable to the owners of the Company, divided by the weighted average
number of ordinary shares in issue during the year of 272,640,952 (year ended
31 December 2009: 272,640,952).
The calculation of diluted earnings per ordinary share is based on the profit
of £10,984,000, being the profit for the year attributable to the owners of the
Company, divided by the weighted average number of ordinary shares in issue
during the year of 278,266,853 after taking account of the potential dilutive
effect of share options issued under the Company's share option plans.
The calculation of diluted earnings per ordinary share for continuing
operations is based on the profit of £13,618,000, being the profit for the year
from continuing operations attributable to the owners of the Company, divided
by the weighted average number of ordinary shares in issue during the year of
278,266,853 after taking account of the potential dilutive effect of share
options issued under the Company's share option plans.
There was no dilution effect in the preceding year.
5. Capital commitments
2010 2009
£'000 £'000
Outstanding commitments to funds 40,711 58,709
40,711 58,709
The outstanding commitments to funds comprise unpaid calls in respect of funds
where a member of the Group is a limited partner.
Wednesday, 15th May 2024
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