Preliminary results for the year ended 31 Decem...

23 March 2010 LMS Capital plc Preliminary Results for the year ended 31 December 2009 The Board of LMS Capital plc, ("LMS Capital" or "the Company"), is pleased to announce the Company's preliminary results for the year ended 31 December 2009. Financial highlights* * Net Asset Value per share was 84p (31 December 2008: 89p), a decrease of 6%, attributable in large part to foreign currency movements in the period * Net Asset Value was Â£227.7 million (31 December 2008: Â£241.5 million) * The return on the investment portfolio was a loss of Â£4.9 million after recording unrealised currency losses of Â£13.5 million (2008: loss of Â£36.7 million after unrealised currency gains of Â£45.5 million) * The loss for the year was Â£12.7 million (2008: loss of Â£40.8 million) * The business had cash of Â£14.4 million at 31 December 2009 and no debt * Investment management business Operational highlights: * Investment of Â£6.2 million for a 53.3% interest in Updata Infrastructure UK Limited in support of a management buyout * Sale of 7 Global Limited to 365 iT plc * Successful migration of the Company's shares to trading on the Main Market of the London Stock Exchange * Appointment of Glenn Payne as Chief Executive from 1 March 2010 Robert Rayne, Chairman Designate, said: "LMS Capital's risk diversified investment strategy has produced a resilient performance in 2009 in the context of an uncertain global economic environment. Our low levels of debt and broadly balanced investment portfolio position us well to take advantage of future investment opportunities, while safeguarding our existing assets where we are seeing encouraging signs of growth." For further information please contact: LMS Capital plc 020 7935 3555 Glenn Payne, Chief Executive Officer Robert Rayne, Chairman Designate Tony Sweet, Chief Financial Officer J.P. Morgan Cazenove Limited 020 7588 2828 Michael Wentworth-Stanley Brunswick Group LLP 020 7404 5959 Simon Sporborg Oliver Hughes About LMS Capital LMS Capital plc is an international investment company whose shares are listed on the London Stock Exchange. The investment portfolio comprises investments primarily in the US and the UK, with a spread of early stage and second round technology investments, development capital and mature company buyouts. www.lmscapital.com Chairman's statement 2009 was a year of uncertainty and instability in the financial markets and the effect on the private equity sector was to reduce fund raising and transaction activities to the lowest level seen for many years. The Company focussed its efforts on maintaining its strong balance sheet and on managing its existing portfolio. One acquisition was made through participation in a management buyout and there were some small disposals, both of quoted and unquoted interests. The Company ended 2009 with a Net Asset Value per share of 84p, a reduction of 6% compared to the end of 2008; much of this decline was attributable to a strengthening of Sterling against the US dollar. At the year end the Company's balance sheet showed net cash of Â£14.4 million and no borrowings. During the year there was also a reduction in the Company's outstanding commitments to funds from Â£71.1 million to Â£58.7 million and we expect this reducing trend to continue. Results The return on the investment portfolio for the year was a net loss of Â£4.9 million (2008: net loss of Â£36.7 million). Included in this is a small realised net loss for the year of Â£0.1 million (2008: realised gains of Â£17.3 million, most of which related to the sale of Energy Cranes) and net unrealised losses of Â£4.8 million, significantly reduced from Â£54.1 million last year. After overheads, the loss for the year ended 31 December 2009 was Â£12.7 million (year ended 31 December 2008: loss of Â£40.8 million). The investment portfolio at 31 December 2009 was valued at Â£215.6 million (31 December 2008: Â£202.0 million), an increase of Â£13.6 million or 7%. The quoted portfolio (to which there were no additions in 2009) recovered somewhat in value during the year, although our holdings in the oilfield services sector in particular have yet to benefit from a sustained increase in global demand for energy. We have continued to take a cautious view of the carrying values of our unquoted holdings since the recovery in public markets is not yet fully reflected in private transactions. For the Group as a whole (including consolidation of the portfolio subsidiaries) the consolidated loss for the year was Â£14.8 million (2008: loss of Â£6.1 million). The Board is not recommending payment of a dividend for the year ended 31 December 2009 (year ended 31 December 2008: Nil). Balance Sheet At the year end the Company had no direct debt. Further, as the primary method of funding development capital is equity, there is very little external debt in the unquoted portfolio. Board and management Last month the Company announced the appointment of Glenn Payne as Chief Executive with effect from 1 March 2010. His experience will provide impetus to the Company's next phase of development. The appointment of a new chief executive is an appropriate time for me to step down from your Board, which I shall do at the conclusion of the forthcoming Annual General Meeting. Your Board has appointed Robert Rayne to succeed me as Chairman. This appointment means that the Company will continue to benefit from his many contacts and long experience in the private equity sector and I wish Robbie Rayne and Glenn Payne in their new roles every success in taking the business forward. David Verey joined the Board in September 2009 and his considerable experience as an investment banker and in private equity will be of great value to the Company. Martin Pexton left the Company at the end of September and on behalf of the Board I should like to thank him for his contribution to the business since it became independent in 2006. 2009 was a year of change at LMS Capital when many of its investee companies were required to make significant reductions in headcount and overheads in order to adjust to a difficult operating environment. 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 continuing progress. 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 needs, 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 2009; the current number of ordinary shares in issue is 272,640,952. Outlook Although your Board does not expect a fundamental change in economic conditions in 2010, we are hopeful of a slow and steady recovery of the principal economies in which your Company invests; there are currently signs of merger and acquisition activity increasing in 2010. Your Board believes that our continued strategy of a risk diversified portfolio and our strong financial position will enable us to surmount these challenges. We shall continue to seek exit opportunities for selected investments and to ensure that capital outlays are subject to rigorous review and due diligence. Your Board is confident that the Company is well positioned to protect its existing assets and take advantage of increased investment opportunities in the short to medium term. Jonathan Agnew Chairman 23 March 2010 Operating Review The Company's resilience following the turbulence in international markets in the closing months of 2008 is a testimony to the key fundamentals of our investment strategy - a risk and geographically diversified portfolio of investments. This resilience also reflects the low levels of debt in the overall portfolio. These principles have enabled us to see out these recent economic difficulties while at the same time taking advantage of opportunities which the current environment presents. The last year has seen considerably reduced activity in the private equity arena and while we have maintained a satisfactory level of deal flow, transaction levels have been very low in the face of reduced liquidity in the financial markets. Consequently we have added only one new investment during the year and made relatively few realisations. Our primary focus during 2009 has been on managing our existing portfolio companies to ensure that each has adapted to the current business environment of reduced demand and reduced liquidity. Faced with the expectation that this environment will continue at least through 2010, we have also used this period to review our longer term strategy for each investment. Our objective remains unchanged. We aim to deliver sustained medium to long-term growth for our shareholders; we are not constrained by the fixed investment periods of most private equity funds and we are therefore able to hold investments for longer than many other funds where we believe that this will deliver greater shareholder value. We understand the drivers of demand in the sectors in which we invest and this enables us to recognise the potential of both new ideas and young companies requiring growth funding. Investment Portfolio The portfolio in the Group's core investment management business is risk diversified and comprises: * early stage companies; * companies requiring development or growth finance where the normal holding period has been three to five years but could now be seven or eight years; and * shorter term investments in the pre- and post-IPO market which usually provide liquidity within three to four years. Analysis of portfolio by investment stage 2009 2008 Â£ millions % Â£ % millions Early stage 20.0 9 24.5 12 Development 84.4 39 72.7 36 Growth 54.1 25 52.3 26 Post IPO 57.1 27 52.5 26 215.6 100 202.0 100 Analysis of portfolio by type of investment 2009 2008 Â£ millions Â£ millions Â£ millions Â£ millions UK US Total Total Quoted 17.3 34.6 51.9 46.5 Unquoted 39.8 20.5 60.3 53.2 Funds 30.2 73.2 103.4 102.3 87.3 128.3 215.6 202.0 Analysis of portfolio by sector 2009 2008 Â£ millions % Â£ millions % Applied technology 65.8 31 61.3 30 Media & consumer 52.3 24 50.1 25 Energy & water 39.8 18 30.8 15 Healthcare & medical 23.9 11 22.9 11 Real estate 18.7 9 15.9 8 Other 15.1 7 21.0 11 215.6 100 202.0 100 The movement in the investment portfolio during the year was as follows: 2009 2008 Â£ millions Â£ millions 1 January 202.0 282.1 Additions in the year 32.7 51.6 Realisations (14.3) (77.6) Valuation adjustments, net 8.7 (99.6) Foreign currency( losses)/ (13.5) 45.5 gains 31 December 215.6 202.0 Additions include Â£7.6 million (2008: Â£12.4 million) of new investments and Â£ 25.1 million (2008: Â£39.2 million) of follow on funding, including Â£14.8 million (2008: Â£15.8 million) of capital calls from funds. The figure for realisations relates principally to sales of quoted stocks and adjustments for fund distributions (the figure for 2008 included Â£65.0 million in respect of Energy Cranes International Limited). The foreign currency gains or losses are unrealised and reflect the weakening of the US dollar against the pound sterling, principally in the first part of the year. It is the Board's current policy not to hedge the Company's underlying non-sterling investments. Applied Technology In July we acquired a 53.3% interest in Updata Infrastructure UK Limited ("Updata") investing Â£6.2 million in a management buyout. Updata designs, builds and manages cost-effective high-capacity broadband networks for public sector organisations in the UK and differentiates itself from its competitors through its culture of excellence in customer service. In the first six months since our investment Updata has performed strongly with growth in revenues and profits which are in line with our expectations at the time of investment. In November we completed the sale of our interest in 7 Global Limited to 365 iT plc ("365iT"), a private company which provides a comprehensive suite of IT services and solutions to UK businesses. We received shares in 365iT in return for our 7 Global shares and since the end of the year we have participated in a fund raising by 365iT which has taken our holding to 15%. Wesupply Limited enjoyed strong sales growth in 2009 with revenues increasing by around 70% compared to 2008. In particular the company, in partnership with IBM, secured a contract with Sainsbury's to be its business-to-business ("B2B") platform for connectivity to 4,000 of its suppliers. Despite the increase in revenues the company traded at a loss in 2009 and we have taken steps to reduce the cost base of the business in 2010. Entuity Limited had a successful year - it increased revenues year on year by 16% and achieved a positive EBITDA result for the first time in its history. The company has a clear strategy and we expect further progress in 2010. Coppereye Limited had a disappointing performance in 2009 after a strong 2008. Its unique technology has a long sales cycle. Kizoom's revenues improved 20% over the prior year and this coupled with cost reductions resulted in a substantially reduced loss for the year. However this performance was below expectations and we are currently reviewing the strategic options for this business. In the USA, Penguin Computing, which provides high performance computing ("HPC") solutions using Linux cluster servers, continued to make good progress. In August the company launched HPC as a Service, offering on-demand access to high performance clusters over the Internet, thereby significantly reducing customers' capital outlays for HPC. Energy and water This sector was particularly affected by the difficult economic conditions in 2009 as activity levels fell in the face of reduced world demand. Most of our interests in this sector are in quoted stocks, in particular Weatherford International Ltd which experienced difficult trading conditions during 2009 in line with the oilfield services sector generally. However the company's share price recovered from a low of $9 around the end of 2008 to just under $18 at the end of 2009. We made no purchases or sales of shares in the company during the year. In August Venture Production plc was acquired by Centrica plc, a transaction that produced cash of Â£4.1 million for the Company. Pims Group Limited, a private UK-based company which designs, installs and services pumping systems for domestic and commercial water systems, performed well in a difficult trading environment. It has also continued to make bolt-on acquisitions to expand its presence in its chosen markets. Pims is a co-investment with Inflexion 2006 Buyout Fund. Offshore Tool and Energy Corporation, which specialises in fabrication projects for the oil and gas and water industries, made good progress during the first half of 2009 but could not sustain this in the second half of the year. Increasing order intake is a priority for the business in the first quarter of 2010, following rigorous cost cutting measures during the second half of last year. Healthcare and medical This sector has proved to be more resilient than most during 2009. We made no purchases or sales in this sector during the year but our existing portfolio has made strong progress. ProStrakan Group continues to report good progress in line with its strategic objectives and expects 2010 to be its first full year of operating profitability. This progress has not yet been reflected in a sustained improvement in the company's share price which, despite movements during 2009, was little changed at the end of the year compared to the end of 2008. However, the price improved during January 2010 on the back of an encouraging trading update for 2009 and positive expectations for 2010. HealthTech Holdings (formerly Healthcare Management Systems) which is based in the USA has enjoyed a successful 2009 as the hospital market in which it operates has shown resilience in the generally difficult trading environment. Since the end of the year it has acquired a complementary business which extends its offering to Accident & Emergency departments. Media and consumer Our principal interest in this sector is via San Francisco Equity Partners, the US fund in which we are the major investor. For Method Products, Inc, which sells environmentally friendly homecare products, 2009 was a year of consolidation, during which it reviewed and rationalised its various product lines. The company believes that the resulting improved product focus will drive significant growth in revenues and profitability in the medium term. The beginning of 2010 has seen the launch of its new laundry products with very positive media and consumer reaction to date. Yes To Inc has become one of the fastest growing brands in the worldwide natural personal-care market, and its award-winning products are currently sold by leading retailers across North America, Europe and Asia. The company is benefitting from consumers' growing preference for natural products over synthetic. Rave Reviews Cinemas, a co-investment with one of our fund interests, had a successful year in 2009, during which it improved revenues and cash flow. At the end of the year it completed a restructuring which substantially reduced its debt and which should result in the business paying dividends in the medium term. Other In July we sold part of our interest in Inflexion 2006 Buyout Fund for approximately Â£1 million in cash. This transaction also reduced our outstanding commitment to this fund by Â£1.4 million. Also in July, Viking Moorings, an investment in the Inflexion 2003 Buyout Fund, was sold in a secondary buyout, producing proceeds to the Company of Â£2.5 million. 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 2009 was Â£227.7 million (31 December 2008: Â£ 241.5 million), a decrease of Â£13.8 million or 6%. The Net Asset Value per share was 84p (31 December 2008: 89p). The Group's return on its investment portfolio for the year ended 31 December 2009 was a loss of Â£4.9 million (year ended 31 December 2008: loss of Â£36.7 million) as follows: Year ended 31 December 2009 2008 Â£'000 Â£'000 Realised gains/ (losses) Quoted securities 2,503 574 Unquoted (1,867) 14,620 securities Funds (755) 2,114 (119) 17,308 Unrealised gains/ (losses) Quoted securities 9,741 (31,122) Unquoted (8,491) (27,506) securities Funds (6,007) 4,572 (4,757) (54,056) Total gain/(loss) (4,876) (36,748) Approximately 60% of the portfolio at 31 December 2009 is denominated in US dollars (2008: 59%) and the above table includes the impact of currency movements. In the year ended 31 December 2009 the weakening of the US dollar against pound sterling resulted in an unrealised foreign currency loss of Â£13.5 million. During the year ended 31 December 2008 there was a significant strengthening of the dollar against pound sterling and the unrealised gain for that year was Â£45.5 million. Realised gains on quoted securities include Â£2.0 million in connection with the sale of our shares in Venture Production plc to Centrica plc, with the balance arising on the sale of other, smaller holdings during the year. The realised losses on unquoted securities arose on the sale of 7 Global to 365iT. 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 Â£9.7 million, Â£ 7.5 million is attributable to our holding in Weatherford International. The principal constituents of the net unrealised loss for the year on our unquoted securities are as follows: Unrealised gain/(loss) Â£'000 Coppereye (5,226) Kizoom (3,240) Offshore Tool & Energy (1,861) Updata 1,800 Rave Reviews Cinemas (1,745) HealthTech Holdings 3,580 (6,692) Other investments (net) (1,799) Total net unrealised loss (8,491) The unrealised losses above reflect the combined impact on our valuation criteria of changes in the revenue and profitability multiples of comparable businesses which are used in the underlying calculations and the operating performances of the individual businesses within the portfolio. In most cases the multiples used are either the same as or more favourable than those prevailing at the end of 2008. The unrealised gains or losses set out above for 2009 arise principally as a result of the companies' performance. In particular, the results of Kizoom and Coppereye in 2009 were below expectations, such that a strategic review of these businesses is in progress which is likely to result in exit by us. Conversely the performances of Updata and HealthTech Holdings have resulted in a higher valuation for those businesses. The unrealised valuation loss on our fund interests reflects the fact that many of these are US funds and the net decrease in our carrying value arises from the weakening of the US dollar against the pound sterling, principally in the first half of the year. The net unrealised loss for the year was Â£6.0 million, being unrealised foreign currency losses of Â£7.8 million offset by net valuation adjustments of Â£1.8 million. In line with other funds of funds we rely on reports from general partners 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 Â£0.5 million (2008: Â£0.6 million) and comprises dividends on quoted securities and management charges made to portfolio companies. Administration expenses for the year were Â£8.0 million (2008: Â£5.6 million); the current year includes a number of non-recurring charges (including Â£0.4 million for the costs of the Company moving to the Official List and Â£0.8 million as compensation for loss of office to a director) whereas 2008 benefitted from a one-off VAT refund of Â£1.1 million. Net interest income for the year was Â£0.2 million (2008: Â£1.8 million) reflecting the lower interest rates during the year as well as the lower levels of uninvested cash. The tax charge for the year was Â£0.3 million (2008: Â£0.6 million). Investments The Group's investments are included in the balance sheet at fair values determined in accordance with industry guidelines. Additions to the investment portfolio during the year were Â£32.7 million (2008: Â£51.6 million) of which Â£7.6 million (2008: Â£12.4 million) was for new investments and Â£25.1 million (2008: Â£39.2 million) for follow on investments including Â£14.8 million (2008: Â£15.8 million) for capital calls from funds. There were no additions to quoted securities during the year (2008: Â£17.5 million); the most significant new investment was Â£6.2 million for our stake in Updata. The follow on investments (excluding fund calls) included Â£9.5 million (2008: Â£12.0 million) for the UK unquoted portfolio and Â£0.8 million (2008: Â£ 0.9 million) for the US portfolio. Proceeds of realisations were Â£13.9 million (2008: Â£97.1 million, of which Â£ 82.9 million was from the sale of Energy Cranes), including sales of quoted securities of Â£6.9 million (2008: Â£3.9 million) and distributions from funds of Â£5.6 million (2008: Â£8.1 million). At 31 December 2009 the Group had commitments of Â£58.7 million (31 December 2008: Â£71.1 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 2009 liquid assets were Â£66.3 million. Consolidated results Consolidated revenues for the year were Â£32.5 million (2008: Â£19.8 million), all in the portfolio subsidiaries. The increase over the previous year reflects the inclusion of Updata for the first time (from acquisition in July 2009), the inclusion of Citizen Limited for a full year (2008: four months only) and the improved revenue performances by Entuity, Kizoom and Wesupply. Consolidated operating expenses were Â£51.1 million for the year (2008: Â£46.1 million), including goodwill impairment charges of Â£4.6 million (2008: Â£11.2 million). Excluding goodwill impairment, the increase in operating expenses reflects principally the inclusion of Updata and Citizen as set out above. Financial position The consolidated balance sheet at 31 December 2009 includes cash and cash equivalents of Â£17.0 million (31 December 2008: Â£42.6 million) and borrowings of Â£7.6 million (31 December 2008: Â£2.8 million) in the portfolio subsidiaries. Cash in the investment management business was Â£14.4 million (31 December 2008: Â£41.3 million). Part of the Company's cash has been and will be committed during 2010 to meets calls from funds and to provide further funding for existing unquoted investments. The business also has a Â£15 million borrowing facility with The Royal Bank of Scotland, which is due to expire in April 2011. The investment management business had no borrowings during 2009. Robert Rayne Chairman Designate 23 March 2010 LMS Capital plc - Top 20 investments by valuation 31 December 2009* Investment Geography Type of Date of initial Book % of net Investment investment Value assets Â£000 1 Weatherford US Quoted 2001 22,647 10% International Ltd Oilfield services 2 Method Products US Fund 2004 17,265 8% portfolio Consumer products company 3 Prostrakan Group plc UK Quoted 1999 15,226 7% Specialty pharmaceuticals 4 Updata Infrastructure UK Unquoted 2009 8,000 4% UK Limited Wide area networks 5 Rave Reviews Cinemas US Unquoted 2002 7,115 3% Cinema operations 6 HealthTech Holdings, US Unquoted 2007 7,000 3% Inc Hospital information systems 7 Penguin Computing US Fund 2004 5,586 2% portfolio Linux server systems company 8 Wesupply Limited UK Unquoted 2000 5,500 2% Supply chain connectivity software 9 Entuity Limited UK Unquoted 2000 4,500 2% Network management software 10 Elateral Limited UK Unquoted 2000 4,500 2% Marketing software 11 Gulfmark Offshore Inc US Quoted 2008 4,363 2% International offshore services 12 Luxury Link US Fund 2006 4,283 2% portfolio Internet commerce company 13 KizoomLimited UK Unquoted 1997 4,000 2% Transport information services 14 Yes To, Inc US Fund 2008 3,726 2% portfolio Consumer products company 15 Chyron Corporation US Quoted 1995 3,501 2% Media technology 16 Pims Group UK Unquoted 2008 2,905 1% Waste water systems and services 17 BJ Services US Quoted 2007 2,870 1% Oil and gas field services 18 Agilisys Holdings UK Unquoted 2000 2,000 1% Limited IT services and outsourcing 19 Vio Worldwide Limited UK Unquoted 2002 2,000 1% Advertising workflow services 20 Offshore Tool and US Unquoted 1998 2,000 1% Energy Corporation Specialist engineering * Investment management business Consolidated income statement Notes Year ended Year ended 31 December 31 December 2009 2008 Â£'000 Â£'000 Continuing operations Revenue from sales of goods and 2 32,526 19,790 services Gains and losses on investments 3,998 (32,137) Interest income 166 1,802 Investment and other income 973 582 37,663 (9,963) Operating expenses (51,133) (46,114) Loss before finance costs (13,470) (56,077) Finance costs (342) (221) Loss before tax (13,812) (56,298) Taxation (939) (579) Loss from continuing operations (14,751) (56,877) Discontinued operations Profit from discontinued 3 - 50,755 operations (net of taxation) Loss for the year (14,751) (6,122) Attributable to: Equity holders of the parent (15,148) (5,929) Minority interests 397 (193) (14,751) (6,122) Basic and diluted loss per 4 (5.6)p (2.1)p ordinary share Continuing operations Basic and diluted loss per 4 (5.6)p (20.1)p ordinary share Consolidated statement of comprehensive income Year ended Year ended 31 December 31 December 2009 2008 Â£'000 Â£'000 Loss for the year (14,751) (6,122) Exchange differences on translation of foreign (200) 1,083 operations Total comprehensive loss for the year (14,951) (5,039) Attributable to: Equity holders of the parent (15,348) (4,846) Minority interests 397 (193) (14,951) (5,039) Consolidated statement of financial position 31 December 31 December 2009 2008 Â£'000 Â£'000 Non-current assets Property, plant and equipment 7,057 3,216 Intangible assets 29,525 26,798 Investments 188,133 179,546 Other long-term assets 80 15 Non-current assets 224,795 209,575 Current assets Inventories 812 319 Operating and other receivables 10,768 8,309 Cash and cash equivalents 16,950 42,615 Current assets 28,530 51,243 Total assets 253,325 260,818 Current liabilities Bank overdrafts (369) - Interest-bearing loans and borrowings (2,394) (1,656) Operating and other payables (7,921) (10,335) Deferred income (8,704) (3,426) Current tax liabilities (1,007) (410) Current liabilities (20,395) (15,827) Non-current liabilities Interest-bearing loans and borrowings (4,795) (1,170) Deferred income (2,116) (2,697) Deferred tax liabilities (401) (41) Non-current liabilities (7,312) (3,908) Total liabilities (27,707) (19,735) Net assets 225,618 241,083 Equity Share capital 27,265 27,265 Capital redemption reserve 5,635 5,635 Merger reserve 84,083 84,083 Foreign exchange translation reserve 1,012 1,212 Retained earnings 106,773 122,741 Equity attributable to owners of the parent 224,768 240,936 Minority interests 850 147 Total equity 225,618 241,083 Consolidated statement of changes in equity Foreign Capital exchange Share redemption Merger translation Retained Minority Total capital reserve reserve Reserve earnings Total interests equity Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 28,643 4,257 84,083 (867) 133,047 249,163 5,283 254,446 January 2008 Total - - - 1,083 (5,929) (4,846) (193) (5,039) recognised income and expense Distribution to - - - - - - (575) (575) minority interests Disposal of - - - 996 3,372 4,368 (4,368) - portfolio subsidiaries Re-purchase of (1,378) 1,378 - - (8,638) (8,638) - (8,638) shares Share-based - - - - 889 889 - 889 payments Balance at 31 27,265 5,635 84,083 1,212 122,741 240,936 147 241,083 December 2008 Total - - - (200) (15,148) (15,348) 397 (14,951) recognised income and expense Acquisition of - - - - - - 306 306 portfolio subsidiary 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 Consolidated cash flow statement Year ended Year ended 31 December 31 December 2009 2008 Â£'000 Â£'000 Cash flows from operating activities Loss for the year (14,751) (6,122) Adjustments for: Depreciation and amortisation 1,762 1,199 Goodwill impairment 4,598 11,224 (Gains)/losses on investments (3,998) 32,137 Gain on discontinued operations, net of income - (49,436) tax Loss on sale of property, plant and equipment 56 - Translation differences 433 (1,958) Share-based payments (422) 889 Finance costs 342 221 Interest income (166) (1,802) Income tax expense 939 579 (11,207) (13,069) Change in inventories (147) (9,878) Change in operating and other receivables 1,396 13,342 Change in operating and other payables (2,219) (3,397) (12,177) (13,002) Interest paid (342) (221) Income tax paid (321) (183) Net cash used in operating activities (12,840) (13,406) Cash flows from investing activities Interest received 166 1,802 Acquisition of property, plant and equipment (2,749) (1,685) Proceeds from disposals of property, plant and 3 12 equipment Disposal of discontinued operations, net of - 80,543 cash disposed of Acquisition of investments (18,853) (40,019) Acquisition of subsidiaries, net of cash (6,116) (5,645) acquired Proceeds from sale of investments 13,981 11,503 Net cash (used in)/from investing activities (13,568) 46,511 Cash flows from financing activities Repurchase of own shares - (8,638) Drawdown of interest bearing loans 554 1,855 Distribution to minority interests - (575) Net cash from/(used in) financing activities 554 (7,358) Net (decrease)/increase in cash and cash (25,854) 25,747 equivalents Cash and cash equivalents at the beginning of 42,615 14,263 the period Effect of exchange rate fluctuations on cash (180) 2,605 held Cash and cash equivalents at the end of the 16,581 42,615 year Cash and cash equivalents above comprise Cash and cash equivalents 16,950 42,615 Bank overdrafts (369) - Cash and cash equivalents at the end of the 16,581 42,615 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 2009 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 2009 or 2008. The financial information for 2008 is derived from the statutory accounts for 2008 which have been delivered to the registrar of companies. The auditors have reported on the 2008 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 237 (2 ) or (3) of the Companies Act 1985. The statutory accounts for 2009 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. Operating segments The Group adopted IFRS 8: Operating Segments ("IFRS 8") early with effect from the financial year ended 31 December 2007. IFRS 8 defines requirements for the disclosure of financial information of an entity's operating segments and is effective for reporting periods beginning on or after 1 January 2009. 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. Adjustments for Energy Cranes International Limited ("Energy Cranes") are shown separately in the prior year because of the size of this business relative to the others. 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. Segment profit or loss Reconciliation Investment Portfolio Consolidation Group management subsidiaries adjustments total Year ended 31 December 2009 Â£'000 Â£'000 Â£'000 Â£'000 Revenues from sales of - 32,526 - 32,526 goods and services Gains and losses on (4,876) - 8,874 3,998 investments Interest income 159 7 - 166 Investment and other 494 479 - 973 income Goodwill impairment loss - - (4,598) (4,598) Finance costs - (6,341) 5,999 (342) (Loss)/profit for the (12,660) 2,177 (4,268) (14,751) year Reconciliation Discontinued operations Investment Portfolio Energy Consolidation Group management subsidiaries Cranes Other adjustments total Year ended 31 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 December 2008 Revenues from - 19,790 - - - 19,790 sales of goods and services Gains and losses (36,748) - - - 4,611 (32,137) on investments Interest income 1,754 48 - - - 1,802 Investment and 582 - - - - 582 other income Goodwill - - - - (11,224) (11,224) impairment loss Finance costs - (4,267) - - 4,046 (221) Continuing (40,796) (13,514) - - (2,567) (56,877) operations Discontinued - - 57,556 (6,801) - 50,755 operations (Loss)/profit for (40,796) (13,514) 57,556 (6,801) (2,567) (6,122) the year 2. Operating segments (continued) Segment net assets Reconciliation Investment Portfolio Consolidation Group management subsidiaries adjustments total 31 December 2009 Â£'000 Â£'000 Â£'000 Â£'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 Â£227,719,000 attributable to the equity holders of the parent and Â£ 147,000 attributable to minority interests. Reconciliation Investment Portfolio Consolidation Group Management subsidiaries adjustments total 31 December 2008 Â£'000 Â£'000 Â£'000 Â£'000 Property, plant and equipment 288 2,928 - 3,216 Intangible assets - 3,196 23,602 26,798 Investments 202,049 1 (22,504) 179,546 Other non-current assets - 15 - 15 Non-current assets 202,337 6,140 1,098 209,575 Cash and cash equivalents 41,293 1,322 - 42,615 Other current assets 309 8,319 - 8,628 Total assets 243,939 15,781 1,098 260,818 Total liabilities (2,283) (70,604) 53,152 (19,735) Net assets/(liabilities) 241,656 (54,823) 54,250 241,083 The net asset value of the investment management business at 31 December 2008 includes Â£241,509,000 attributable to the equity holders of the parent and Â£ 147,000 attributable to minority interests. 2. Operating segments (continued) The carrying amount and gains and losses of the investments of the investment management business can be further analysed as follows: 31 December 2009 31 December 2008 UK US Total UK US Total Asset type Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Funds 30,259 73,194 103,453 29,911 72,390 102,301 Quoted 17,274 34,601 51,875 19,409 27,097 46,506 Unquoted 39,849 20,455 60,304 33,686 19,556 53,242 87,382 128,250 215,632 83,006 119,043 202,049 Year ended 31 December 2009 Year ended 31 December 2008 Realised Unrealised Total Realised Unrealised Total gains/ gains/ gains/ gains/ (losses) (losses) (losses) (losses) Asset type Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Funds (755) (6,007) (6,762) 2,114 4,572 6,686 Quoted 2,503 9,741 12,244 574 (31,122) (30,548) Unquoted (1,867) (8,491) (10,358) 14,620 (27,506) (12,886) (119) (4,757) (4,876) 17,308 (54,056) (36,748) Revenues The Group's revenues from external customers comprise: Year ended Year ended 31 December 31 December 2009 2008 Â£'000 Â£'000 Continuing operations IT services and software 24,885 12,431 Specialist manufacturing 7,641 7,359 32,526 19,790 Geographical information Revenues Non-current assets Year ended Year ended 31 December 31 December 31 December 31 December 2009 2008 2009 2008 Â£'000 Â£'000 Â£'000 Â£'000 Continuing operations United Kingdom 17,640 7,066 88,298 99,378 United States of 8,925 6,521 136,497 110,197 America Other countries 5,961 6,203 - - 32,526 19,790 224,795 209,575 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 the ten largest customers represent approximately 39% of the Group's total revenues (year ended 31 December 2008: 33%). 3. Discontinued operations There were no disposals constituting discontinued operations in the year ended 31 December 2009. In March 2008 the Group sold its entire interest in Energy Cranes International Limited and in June 2008 the Group sold its entire interest in AssetHouse Technology limited. 4. Basic and diluted loss per ordinary share The calculation of basic loss per ordinary share is based on the loss of Â£ 15,148,000 (year ended 31 December 2008: loss of Â£5,929,000), being the loss for the year attributable to the parent, divided by the weighted average number of ordinary shares in issue during the year 272,640,952 (year ended 31 December 2008: 281,758,491). The calculation of basic loss per ordinary share for continuing operations is based on the loss of Â£15,148,000 (year ended 31 December 2008: loss of Â£ 56,684,000), being the loss for the year attributable to the parent, divided by the weighted average number of ordinary shares in issue during the year of 272,640,952 (year ended 31 December 2008: 281,758,491). There was no dilution effect on the loss for the year or the loss from continuing operations in either year. 5. Capital commitments 2009 2008 Â£'000 Â£'000 Outstanding commitments to funds 58,709 71,104 58,709 71,104 The outstanding commitments to funds comprise unpaid calls in respect of funds where a member of the Group is a limited partner.

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