Final Results- Part 2

LMS Capital PLC 15 March 2007 LMS Capital plc Consolidated Profit and Loss Account Â£000 Nine months ended 31 December Pro-forma year ended 31 March 2006 2006 Notes Revenue Capital Total Revenue Capital Total ------ ------- ------- -------- ------- ------ --------- Realised gains on investments - 5,051 5,051 7,638 7,638 Unrealised losses on investments 1 - (11,470) (11,470) (7,593) (7,593) Income from investments 1,384 - 1,384 196 196 ------- ------- -------- ------- ------ --------- 1,384 (6,419) (5,035) 196 45 241 Investment management fees 1 162 - 162 1,834 - 1,834 Administration expenses 1 (4,855) - (4,855) (7,855) - (7,855) Exceptional costs 2 (3,097) - (3,097) - - - Net finance income 3 1,290 - 1,290 1,849 - 1,849 ------- ------- -------- ------- ------ --------- (Loss)/profit before taxation 4 (5,116) (6,419) (11,535) (3,976) 45 (3,931) Taxation 6 - 688 688 - 15,686 15,686 ------- ------- -------- ------- ------ --------- (Loss)/profit after taxation (5,116) (5,731) (10,847) (3,976) 15,731 11,755 Equity minority interest - - - 766 - 766 ------- ------- -------- ------- ------ --------- (Loss)/profit for the period (5,116) (5,731) (10,847) (3,210) 15,731 12,521 ------- ------- -------- ------- ------ --------- (Loss)/earnings per ordinary share 7 (3.6)p 3.8p The total columns of this statement represent the consolidated profit and loss prepared in accordance with the Companies Act. The revenue and capital columns are supplementary to this and are prepared under guidance from the Association of Investment Trust Companies. The Revenue and Capital columns above for the nine months ended 31 December 2006 relate to continuing operations. The amounts for the year ended 31 March 2006 include discontinued operations - see Note 16. The notes on pages 5 to 30 form part of these financial statements. LMS Capital plc Balance Sheets Group Pro-forma Group Company 31 December 31 March 31 December 2006 2006 2006 Notes Â£000 Â£000 Â£000 -------------------- ------ --------- ------------ --------- Fixed assets Tangible fixed assets 8 9 - - Investments 9 234,910 226,600 293,510 -------------------- ------ --------- ------------ --------- 234,919 226,600 293,510 -------------------- ------ --------- ------------ --------- Current assets Debtors 10 1,472 1,172 16,791 Cash and short-term deposits 11 24,120 44,013 21,908 -------------------- ------ --------- ------------ --------- 25,592 45,185 38,699 Creditors: amounts falling due within one year 12 (1,331) (2,470) (74,369) -------------------- ------ --------- ------------ --------- Net current assets 24,261 42,715 (35,670) -------------------- ------ --------- ------------ --------- Total assets less current liabilities 259,180 269,315 257,840 Deferred taxation 13 - (1,364) - -------------------- ------ --------- ------------ --------- Net assets 259,180 267,951 257,840 -------------------- ------ --------- ------------ --------- Capital and reserves Called up share capital 14 28,643 32,900 28,643 Capital redemption reserve 15 4,257 - 4,257 Merger reserve 15 84,083 35,837 - Profit and loss account 15 141,478 182,356 224,940 -------------------- ------ --------- ------------ --------- 258,461 251,093 257,840 Minority interests 22 719 16,858 - -------------------- ------ --------- ------------ --------- Shareholders' funds 259,180 267,951 257,840 -------------------- ------ --------- ------------ --------- These financial statements were approved by the board of directors on 14 March 2007 and were signed on its behalf by RA Rayne Director The notes on pages 5 to 30 form part of these financial statements. LMS Capital plc Consolidated Cash Flow Statement Nine months Pro-forma year ended ended 31 December 31 March 2006 2006 Notes Â£000 Â£000 ---------------------- ------ ------------ ------------- Net cash outflow from operating activities 17a (9,374) (4,555) Returns on investments and servicing of finance Interest received 1,278 1,246 Interest paid (50) (87) Investment income received 1,384 195 ------------ ------------- Net cash inflow from returns on investments and servicing of finance 2,612 1,354 Taxation paid (676) (442) Capital expenditure and financial investment Acquisition of tangible fixed assets 8 (10) (514) Proceeds on disposal of tangible fixed assets - 555 Purchases of investments 9 (48,070) (72,465) Proceeds on realisations of investments 33,341 73,533 ------------ ------------- Net cash (outflow)/inflow from capital expenditure and financial investment (14,739) 1,109 ------------ ------------- Net cash outflow before management of liquid resources and financing (22,177) (2,534) ------------ ------------- Financing Distribution to minority shareholders (16,138) - Redemption of preference shares 14 (50) - Redemption of shares by tender offer 15 (30,239) - Funding from LMS Group 17b 48,661 25,330 Issue of Preference shares 14 50 - ------------ ------------- Net cash inflow from financing 2,284 25,330 ------------ ------------- (Decrease)/increase in cash in the period 17c (19,893) 22,796 ------------ ------------- The notes on pages 5 to 30 form part of these financial statements. LMS Capital plc Consolidated Statement of Total Recognised Gains and Losses Nine months Pro-forma year ended 31 ended 31 March December 2006 2006 Â£000 Â£000 ------------------------- ------------ ------------- (Loss)/profit for the financial period (10,847) 12,521 Waiver of inter-company debt - 22,500 Currency translation differences on foreign currency net investments 208 171 ------------------------- ------------ ------------- Total recognised (losses)/gains relating to the financial period (10,639) 35,192 ------------------------- ------------ ------------- Note of Consolidated Historical Cost Profits and Losses Nine months Pro-forma year ended 31 ended December 2006 31 March 2006 Â£000 Â£000 ------------------------- ------------ ------------- Profit on ordinary activities before taxation (11,535) (3,931) Realisation of investment revaluation (deficits)/surpluses of previous periods 3,012 4,747 ------------------------- ------------ ------------- Historical cost (loss)/profit on ordinary activities before taxation (8,523) 816 Historical cost (loss)/profit retained after taxation, minority interests and dividends (7,835) 17,268 ------------------------- ------------ ------------- Reconciliation of Movements in Shareholders' Funds Group Group Nine months Pro-forma year ended 31 ended December 2006 31 March 2006 Â£000 Â£000 ------------------------- ------------ ------------- Total recognised (losses)/gains relating to the financial period (10,639) 35,192 Repurchase of shares by tender offer (30,239) - Movement in merger reserve 48,246 (14,602) ------------------------- ------------ ------------- Movement in shareholders' funds 7,368 20,590 Minority interests 719 16,858 Shareholders' funds at beginning of period 251,093 230,503 ------------------------- ------------ ------------- Shareholders' funds at end of period 259,180 267,951 ------------------------- ------------ ------------- LMS Capital plc Notes to the Financial Statements 1. Principal Accounting Policies Basis of preparation On 9 June 2006, the Investment Division of London Merchant Securities plc was demerged to form the LMS Capital Group. The consolidated financial statements have been prepared in accordance with the principles of merger accounting as set out in the Financial Reporting Standard 6 'Acquisitions and Mergers', as if the LMS Capital Group had been in existence from 1 April 2005. The financial year-end for the Group has changed to 31 December with comparative figures for the year ended 31 March 2006. On demerger share capital of Â£32,900,151 was issued by the Company. On consolidation, 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 was formed on 17 March 2006 and commenced operations on 9 June 2006; accordingly it has no statutory comparative figures. The results for the Group for the year ended 31 March 2006, together with the financial position at that date, have been presented in these financial statements on a pro forma basis for comparative purposes. The principles set out below have been applied in preparing the consolidated financial statements. Accounting convention The financial information has been prepared under the historical cost convention, modified to include the revaluation of fixed asset investments and in accordance with applicable accounting standards and with the Companies Act. The accounting policies applied are consistent in dealing with items deemed material in relation to the Group's financial information. Basis of consolidation The consolidated financial statements comprise the financial statements of the Parent and its operating subsidiaries up to 31 December 2006. Operating subsidiary undertakings acquired as part of the demerger have been accounted for using merger accounting. All intra Group transactions and profit or losses are eliminated on consolidation. Certain subsidiary undertakings which are fixed asset investments are carried at valuation in accordance with the Group's normal accounting policy for such investments, and are not consolidated as required by FRS 2 'Accounting for Subsidiary Undertakings'. These investments within the LMS Capital Group portfolio are held for resale with a view to the realisation of capital gains. The LMS Capital Group's exposure to these companies is limited to its investment at the balance sheet date. Consequently, the Directors consider that consolidation would not give a true and fair view of the LMS Capital Group's interest in these investments. See note 9 on the effect of non-consolidation of certain subsidiaries. Under section 230(4) of the Companies Act 1985 the Company is exempt from the requirement to present its own profit and loss account. Investments Investments are included in the balance sheet at fair value. Fair values have been determined in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines require the valuer to make judgments as to the most appropriate valuation method to be used and the results of the valuations. Each investment is reviewed individually with regards to the stage, nature and circumstances of the investment and the most appropriate valuation method selected. The valuation results are then reviewed and any amendment to the carrying value of investments is made as considered appropriate. â€¢ Quoted investments Quoted investments for which an active market exists are valued at the closing bid price at the balance sheet date. â€¢ Unquoted direct investments Unquoted direct investments for which there is no ready market are valued using the most appropriate valuation technique with regard to the stage and nature of the investment. Valuation methods that may be used include: â€¢Recent investments are valued at cost subject to an impairment review. â€¢Investments in which there has been a recent funding round involving significant financing from external investors are valued at the price of the recent funding, discounted if an external investor is motivated by strategic considerations. â€¢Investments in an established business which is generating sustainable profits and positive cash flows are valued using earnings multiples. â€¢Investments in a business where the value of which is derived mainly from its underlying net assets rather than its earnings are valued on the basis of net asset valuation. â€¢Investments in an established business which is generating sustainable profits and positive cash flows but for which other valuation methods are not appropriate are valued by calculating the discounted cash flow of future cash flows or earnings. â€¢Investments in a business which is not generating sustainable profits or positive cash flows and for which there has not been any recent independent funding are valued by calculating the discounted cash flow of the investment to the investors. This valuation basis will primarily be used in determining whether there is any impairment to the carrying value of the asset. Due to the subjective nature of the calculation and the dependence on the outcome of unknown future events, will only give rise to a valuation increase in exceptional circumstances and where there is also additional evidence of an increase in value, such as additional funding or profit generation. â€¢ Funds Investments in managed funds are valued at fair value. The General Partners of the funds will provide periodic valuations on a fair value basis which the LMS Capital Group will adopt provided it is satisfied that the valuation methods used by the funds are not materially different from the Group's valuation methods. Tangible fixed assets These comprise computer equipment which is depreciated on a straight-line basis over its estimated useful life of between 3 and 5 years. Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange at the date of transaction. Assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date, and exchange differences are included in the profit and loss account. Investments denominated in foreign currencies are translated at the closing rates ruling at the balance sheet date as part of the fair value adjustment and are taken as a gain or loss in the current year's profit and loss account. The results and balance sheets of overseas operations are translated at the closing rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets are dealt with through reserves. Cash and liquid resources Cash, for the purpose of the cash flow statement, comprises cash in hand and short-term deposits, less overdrafts payable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources include short-term cash deposits. Taxation Corporation tax payable both in the UK and Overseas is provided on taxable profits at the current rate. Deferred tax assets and liabilities arise from timing differences between the recognition of gains and losses in the accounts and their recognition in a tax computation. In accordance with FRS 19 'Deferred Tax', deferred tax is provided in respect of all timing differences that have originated, but not reversed, at the balance sheet date that may give rise to an obligation to pay more or less tax in the near future. Deferred tax is measured on a non-discounted basis and is provided for at 30%. No deferred tax is recognised in the period to 31 December 2006, as its ability to recover the amounts in the near future is not certain. Unrealised losses on investments This represents fair value adjustments arising during the period. Investment management fees Investment management fees comprise fees receivable from investments. Administration costs Included in both the 31 December and pro-forma 31 March 2006 profit and loss accounts is an allocation of pre demerger expenses borne by London Merchant Securities plc. The allocation basis for historical purposes has been calculated as follows: Pre demerger Remuneration of directors and employees There were no staff or directors directly employed in LMS Capital plc prior to demerger. There were seven full time staff employed by London Merchant Securities who spent substantially all of their time on activities relating to the LMS Capital Group. 100 per cent of their remuneration has been recharged to the LMS Capital Group. Other administrative costs An allocation has been made and recharged, primarily based on staff costs, has been made to reflect estimated usage by the LMS Capital Group in respect of other administrative support such as office space and related costs, depreciation, insurance, staff welfare costs, legal and professional fees, etc. Post demerger Remuneration of directors and employees There are seven full time staff employed by London Merchant Securities who spend substantially all of their time on activities relating to the LMS Capital Group. 100 per cent of their remuneration has been recharged to the LMS Capital Group under the terms of a Transitional Services Agreement with London Merchant Securities. Other administrative costs These are based on agreed annual charges set out in the Transitional Services Agreement referred to above. Notes to the Financial Statements (continued) 2. Exceptional costs Nine months Year ended ended 31 December 31 March 2006 2006 Â£000 Â£000 ----------------------- ------------- ---------- Demerger costs 2,201 - Tender Offer costs 896 - ----------------------- ------------- ---------- 3,097 - ----------------------- ------------- ---------- The above costs relate to professional services incurred by the Company in connection with the Demerger in June 2006 and the repurchase of shares by tender offer in July 2006. 3. Net finance income Nine months Year ended ended 31 December 31 March 2006 2006 Â£000 Â£000 Interest payable ----------------------- ------------- ---------- Short term loan (50) (66) ----------------------- ------------- ---------- Interest receivable Cash and short term deposits 1,340 1,237 Exchange (loss)/gain on dollar deposits - 678 ----------------------- ------------- ---------- 1,340 1,915 ----------------------- ------------- ---------- ----------------------- ------------- ---------- 1,290 1,849 ----------------------- ------------- ---------- 4. Loss before taxation Nine months Year ended ended 31 December 2006 31 March 2006 Â£000 Â£000 ----------------------- ------------- ---------- Loss before taxation is stated after charging: Depreciation of fixed assets 1 64 Auditors' remuneration 102 61 Audit related services - to Parent company 40 - - to subsidiary companies 62 61 Non-audit related services - taxation advisory services 13 21 - audit and related services - 30 - demerger transactional services 156 - ----------------------- ------------- ---------- 5. Staff costs Nine months Year ended ended 31 December 2006 31 March 2006 Â£000 Â£000 ----------------------- ------------- ---------- - Wages and salaries 1,499 3,299 - Social security costs 150 388 - Pension contributions 137 377 ----------------------- ------------- ---------- 1,786 4,064 ----------------------- ------------- ---------- Number of employees 7 16 Staff costs provided in the table above include amounts recharged by London Merchant Securities plc for employees and directors. The reduction from last year in the average number of full time staff working for the LMS Capital Group reflects the sale by Inflexion plc of its business in March 2006 and that company's subsequent liquidation. Details of directors' remuneration are included in the Remuneration Report. 6. Taxation Year ended Year ended 31 December 31 March 2006 2006 Â£000 Â£000 ----------------------- ------------- ---------- Analysis of taxation credit for period UK corporation tax charge on profit for the period 46 137 Group relief receivable - (17,431) Adjustments relating to prior periods (6) (98) US taxation on disposal of venture capital investments 636 521 Other US taxation - 256 ----------------------- ------------- ---------- Total current tax 676 (16,615) Total deferred tax (credit)/charge (1,364) 929 ----------------------- ------------- ---------- Total tax credit for the period (688) (15,686) ----------------------- ------------- ---------- The group relief receivable of Â£17.4 million at 31 March 2006 relates to unrealised capital losses that were surrendered to the London Merchant Securities Group. Factors affecting the tax credit for the year Group Group Year ended Year ended 31 December 31 March 2006 2006 Â£000 Â£000 --------------------------- ----------- ---------- Loss before taxation (11,535) (3,931) Multiplied by the standard UK rate of corporation tax at 30% (3,461) (1,179) Capital profits sheltered by losses (465) (32) Group relief receivable - (17,431) Fair value adjustments not currently taxable 4,908 2,299 Overseas (profits)/losses not available for current deduction (2,004) 60 Non deductible expenditure 930 - Non taxable income (424) - Deferred tax asset not recognised (108) - Adjustments to tax charge in respect of prior periods (6) (98) Other items (58) 695 --------------------------- ----------- ---------- Current tax credit for the period (688) (15,686) --------------------------- ----------- ---------- 7. (Loss) /earnings per ordinary share The loss per share at 31 December 2006 of 3.6p (31 March 2006 earnings per share of 3.8p) is based on the loss for the period of Â£10,847,000 (31 March 2006 profit - Â£12,521,000) and the weighted number of shares in issue during the period of 303,383,617 (31 March 2006 - 329,001,513). There is no dilution effect in either period. 8. Tangible fixed assets Group Group Company 31 December 31 March 31 December 2006 2006 2006 Â£000 Â£000 Â£000 -------------------- ----------- ---------- ----------- Cost At the beginning of the period - 314 - Additions at cost 10 514 - Disposals - (828) - -------------------- ----------- ---------- ----------- At the end of the period 10 - - -------------------- ----------- ---------- ----------- Accumulated Depreciation At the beginning of the period - 209 - Charge for the period 1 64 - Disposals - (273) - -------------------- ----------- ---------- ----------- At the end of the period 1 - - -------------------- ----------- ---------- ----------- Net book value beginning of the period - 105 - -------------------- ----------- ---------- ----------- Net book value end of the period 9 - - -------------------- ----------- ---------- ----------- Tangible fixed assets at 31 December 2006 comprise computer equipment. 9. Investments Group Inflexion Total Funds Listed Unlisted Investments Group Â£000 Â£000 Â£000 Â£000 Â£000 ------------- ------- ------- ------- -------- -------- At 31 March 2005 46,331 29,269 128,116 24,509 228,225 Reclassification 8,557 13,296 (21,853) - - Additions at cost 24,909 9,712 23,305 13,540 71,466 Disposals (19,522) (8,212) (2,356) (38,049) (68,139) Revaluations 12,170 12,756 (29,878) - (4,952) ------------- ------- ------- ------- -------- -------- At 31 March 2006 72,445 56,821 97,334 - 226,600 Reclassification - 3,266 (3,266) - Additions at cost 15,909 14,526 17,635 48,070 Disposals (17,472) (2,677) (8,141) (28,290) Revaluations (4,705) (2,552) (4,213) (11,470) ------------- ------- ------- ------- -------- -------- At 31 December 2006 66,177 69,384 99,349 - 234,910 ------------- ------- ------- ------- -------- -------- The fund investment, listed investment and unlisted investment categories shown above comprise the portfolio of investments managed directly by the LMS Capital Group. The top 10 investments by valuation as at 31 December 2006 are provided in the table below. Name Activity Geography Stake Original cost Valuation % Â£'000 Â£'000 --------------- ---------- -------- ------ ------- ------- Energy Cranes Offshore crane International operations UK 82% 17,816 34,000 San Francisco Technology, media Equity Partners and retail US 99% 19,528 21,729 Weatherford Oilfield International services US <1% 11,833 19,704 Ltd ProStrakan Group Pharmaceuticals UK 9% 21,260 19,427 plc Cityspace Applied UK 81% 16,332 12,500 technologies Grant Prideco Oilfield US < 1% 8,641 8,233 Services Spectrum IV Communications US 1% 7,192 8,208 & IT Rave Review Cinema US 13% 6,406 7,854 Cinemas operator Citizen UK 84% 15,600 7,000 (Vio Worldwide) Software AssetHouse Applied UK 78% 9,933 6,000 technologies The LMS Capital Group's unquoted investments are structured using a number of different financial instruments, including loan notes, preference shares, ordinary equity and warrants. 'Stake' represents the LMS Capital Group's percentage share in the equity holding by the relevant investee company, assuming full dilution for options and warrants (assuming such options and warrants are vested and are in the money) after all fixed and preferred interests have been satisfied (including such interests owing to the LMS Capital Group). Such percentage shareholdings therefore do not reflect the Company's total economic interest in the underlying companies. For quoted investments, 'stake' means the number of shares held expressed as a percentage of the total issued share capital of the investee company as at 31 December 2006. For fund investments, 'stake' means the LMS Capital Group's total commitment to the fund expressed as a percentage of the fund's commitments. Unquoted Investments Additional information is provided below for the unquoted investments that are included in the top 10 investments table by valuation above. All amounts are in Â£'000. The financial information is based on the most recent audited accounts, or management accounts where not available. Energy Cranes International Limited Based in Aberdeen and Houston, ECI provides crane operation and management services to the offshore energy industry and also manufactures cranes under the American Aero and Titan brands. 31 December 31 March 2006 Year ended 31 December 2006 2006 Amounts invested 17,816 21,473 Sales 100,590 Valuation 34,000 21,473 Retained profit 2,321 Stake 82% 82% Net assets 24,295 Cityspace Limited Cityspace provides digital urban infrastructure solutions by providing street level access to modern digital services working with local authorities, transportation systems and wireless operators. 31 December 31 March Year ended 31 December 2006 2006 2006 Amounts invested 16,332 13,832 Sales 4,021 Valuation 12,500 5,000 Retained (loss) (2,330) Stake 81% 81% Net assets 468 Rave Review Cinemas Rave Motion Pictures constructs and operates megaplex cinemas in the South East and South West of the United States of America. 31 December 31 March 2006 Year ended 31 December 2006 2006 Amounts invested 6,406 6,406 Sales 78,787 Valuation 7,854 8,244 Retained (loss) (8,313) Stake 13% 13% Net assets 16,310 Citizen (Vio Worldwide) Vio provides network, network management and digital asset transportation software and services to the printing, publishing, advertising and graphics industries. 31 December 31 March Year ended 30 June 2006 2006 2006 Amounts invested 15,600 10,600 Sales 3,414 Valuation 7,000 7,819 Retained (loss) (1,839) Stake 84% 84% Net (liabilities) (15,757) AssetHouse Limited AssetHouse is a software and services company providing solutions to telecommunications providers to enable the packaging and wholesaling of digital content. 31 December 31 March Year ended 31 May 2006 2006 2006 Amounts invested 9,933 11,124 Sales 819 Valuation 6,000 6,694 Retained (loss) (3,520) Stake 78% 78% Net (liabilities) (2,352) Impact of non-consolidated subsidiaries There were a number of investments that were subsidiaries which were not consolidated. Investment Investment 31 31 December March 2006 2006 Stake % Stake % Energy Cranes Crane manufacture and crane-related services International to offshore energy industry Limited 82 82 Offshore Tool Specialist engineering design and fabrication and Energy Corporation ('OTE') 87 87 Entuity Network management software 68 68 Limited AssetHouse Content services infrastructure software Technology Limited 78 78 The impact of the non-consolidation of these subsidiaries for the relevant periods is set out in the table below. Nine months ended 31 December As Impact of Adjusted for 2006 Reported non-consolidation consolidation Â£000 Â£000 Â£000 ------------------------ --------- ----------- ---------- Profit and loss account Turnover 162 82,161 82,323 Loss before taxation (11,535) (1,532) (13,067) Loss for the period (10,847) (2,570) (13,417) Balance Sheet Net assets/(liabilities) 259,180 (10,496) 248,684 Statement of recognised gains and losses Loss for the year (10,847) (2,570) (13,417) Foreign exchange and other 208 (53) 155 ------------------------ --------- ----------- ---------- Total recognised loss related to the period (10,639) (2,622) (13,261) ------------------------ --------- ----------- ---------- Year ended 31 March 2006 As Impact of Adjusted for Reported non-consolidation consolidation Â£000 Â£000 Â£000 ----------------------- --------- ----------- ---------- Profit and loss account Turnover 1,834 17,125 18,959 Loss before taxation (3,931) (1,172) (5,103) Profit for the year 12,521 (2,288) 10,223 Balance Sheet Net assets/(liabilities) 48,590 (2,432) 46,158 Statement of recognised gains and losses Loss for the year 35,021 (2,288) 32,733 Foreign exchange and other 171 - 171 ----------------------- --------- ----------- ---------- Total recognised loss related to the period 35,192 (2,288) 32,904 ----------------------- --------- ----------- ---------- Company Investments These comprise the Company's investment in its operating subsidiary undertakings. 10. Debtors Group Group Company 31 December 31 March 2006 31 December 2006 2006 Â£000 Â£000 Â£000 --------------------- ------------ -------- ---------- Overseas taxation - 77 - Other debtors 1,427 1,074 167 Other prepayments and accrued income 45 21 - Amounts due by subsidiary undertakings - - 16,624 --------------------- ------------ -------- ---------- 1,472 1,172 16,791 --------------------- ------------ -------- ---------- 11. Cash and short-term deposits Group Group Company 31 December 31 March 31 December 2006 2006 2006 Â£000 Â£000 Â£000 --------------------- ------------ -------- ---------- Short-term deposits 22,999 43,979 21,030 Bank and cash balances 1,121 34 878 --------------------- ------------ -------- ---------- 24,120 44,013 21,908 --------------------- ------------ -------- ---------- The LMS Capital Group's cash and short-term deposits include Â£1.6 million as at 31 December 2006 (31 March 2006 - Â£43.1) held by Inflexion. Revolving facility agreement On 11 April 2006 a $53,000,000 revolving facility agreement was entered into with The Royal Bank of Scotland. Interest is payable on the loans made at the percentage rate per annum, which is the aggregate of the margin (0.9 per cent per annum), London Interbank Offered Rate (LIBOR) and the mandatory cost. The purpose of the facility is to fund the liquidity requirements of the LMS Capital Group. No part of the facility was used during the period. 12. Creditors: amounts falling due within one year Group Group Company 31 December 31 March 31 December 2006 2006 2006 Â£000 Â£000 Â£000 --------------------- ------------ -------- ---------- Other creditors 536 2,414 - Accruals 795 56 181 Amounts owed to subsidiary undertakings - - 74,188 --------------------- ------------ -------- ---------- 1,331 2,470 74,369 --------------------- ------------ -------- ---------- 13. Deferred Taxation Group Group Company 31 December 31 March 31 December 2006 2006 2006 Â£000 Â£000 Â£000 --------------------- ----------- -------- ---------- Opening balance 1,364 435 - Current period profit and loss movement (1,364) 929 - --------------------- ----------- -------- ---------- Closing balance - 1,364 - --------------------- ----------- -------- ---------- At 31 December 2006, the LMS Capital Group had capital losses of Â£6.3 million (31 March 2006 Â£3.8 million) available to offset future capital profits based on realisations in prior periods. In addition, were the LMS Capital Group to dispose of its investment portfolio at book value at 31 December 2006 it would realise further net capital losses of Â£32.2 million (31 March 2006 Â£24.8 million). This has not been reflected in the balance sheet. 14. Called up share capital Allotted called up and Authorised fully paid ----------------------- --------- ----------- Number of ordinary shares of 10p each At 31 March 2006 500,000,000 329,001,513 At 31 December 2006 500,000,000 286,429,228 ----------------------- --------- ----------- Nominal Value At 1 April 2005 and 31 March 2006 32,900,151 Repurchase of shares by tender offer (4,257,228) ----------------------- --------- ----------- At 31 December 2006 Â£28,642,923 ----------------------- --------- ----------- On incorporation the share capital of the Company was Â£50,000 divided into 50,000 ordinary shares of Â£1 each. On 6 April 2006 the authorised share capital was subdivided into ordinary shares of 10p each. On 11 April 2006 the Authorised ordinary share capital was increased to Â£50,000,000 by creating 499,500,000 ordinary shares of 10p each. On 9 June 2006 the Company issued 329,001,493 ordinary shares to the shareholders of London Merchant Securities as part of the demerger arrangements. On 13 July 2006 shareholders approved the tender offer by the Company to purchase shares of the company up to a maximum value of Â£35 million. On 14 July 42,572,285 shares were purchased with a strike price of 71.03 pence for a total consideration of Â£30,239,094. Following the completion of the tender offer a total 286,429,228 shares remain in issue. The Company is authorised to issue non-voting redeemable preference shares. On 7 April 2006 the Company issued 49,998 redeemable preference shares with a nominal value of Â£1 each. These preference shares were redeemed at nominal value in July 2006. 15. Reserves Group Profit/(loss) Merger reserve Capital account redemption reserve Â£000 Â£000 Â£000 ---------------- ------------ ---------- ------------ At 1 April 2005 147,164 50,439 - Exchange difference 171 - - Waiver of inter-company debt 22,500 - - Retained profit for the year 12,521 - - Movement in merger reserve - (14,602) - ---------------- ------------ ---------- ------------ At 31 March 2006 182,356 35,837 - Exchange difference 208 - - Share buyback (30,239) - 4,257 Retained (loss) for the year (10,847) - - Movement in merger reserve - 48,246 - ---------------- ------------ ---------- ------------ At 31 December 2006 141,478 84,083 4,257 ---------------- ------------ ---------- ------------ The reserves at 31 March 2006 have been adjusted to reflect the refinancing of the Group. As part of the demerger arrangements, the intra group funding within the former Group headed by LMS was waived. The group position reflects the current financing of the Group from 31 March 2006. Company Share Profit/(loss) Capital Premium Account redemption reserve Â£000 Â£000 Â£000 ------------------ ------ ------ ------ On incorporation - - - Arising on share issue in connection with demerger 259,646 - - Court sanctioned reduction in capital (259,646) 259,646 - Repurchase of shares by tender offer - (30,239) 4,257 Total recognised (losses)/gains relating to the financial period - (5,430) - Other - 963 - ------------------ ------ ------ ------ 31 December 2006 - 224,940 4,257 ------------------ ------ ------ ------ 16. Segmental analysis of profit and discontinued activities During the nine months ended 31 December 2006, LMS Capital Group derived its income from investments in shares, securities and investments managed directly by its management. The Directors consider this to be one business segment. During the year ended 31 March 2006, the Group's investment business was conducted through two business segments: those managed directly by its management and those managed by Inflexion. As set out in Note 22, on 16 March 2006 Inflexion disposed of its business and related assets and on 29 March 2006 its shareholders approved the voluntary liquidation of the company. Consequently, the comparative information set out in the tables below for the Inflexion segment relates to discontinued activities. The tables below provide details of the results and net assets of the two business segments for the year ended and as at 31 March 2006. Segmental analysis of net assets 31 March 2006 ---------------------- Managed Inflexion Group Total Â£000 Â£000 Â£000 ------------------ --------- -------- --------- Tangible assets - - - Investments 226,600 - 226,600 ------------------ --------- -------- --------- Fixed assets 226,600 - 226,600 Debtors 1,096 76 1,172 Cash and short-term deposits 870 43,143 44,013 Creditors: amounts falling due within one year (1,009) (1,461) (2,470) ------------------ --------- -------- --------- Total assets less current liabilities 227,557 41,758 269,315 Provisions for liabilities and charges (1,364) - (1,364) ------------------ --------- -------- --------- Net (liabilities)/assets 226,193 41,758 267,951 ------------------ --------- -------- --------- Segmental analysis of results Year ended 31 March 2006 ---------------------------------------- Managed Inflexion Group Total Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ---------------- ------- ------- ------- --------- ------ ------- ------- Realised gains on investments - 9,339 9,339 - (1,701) (1,701) 7,638 Unrealised (losses) on investments - (7,593) (7,593) - - - (7,593) Income from investments 3 - 3 193 - 193 196 ---------------- ------- ------- ------- --------- ------ ------- ------- 3 1,746 1,749 193 (1,701) (1,508) 241 Investment management fees 132 - 132 1,702 - 1,702 1,834 Administration expenses (4,402) - (4,402) (3,453) - (3,453) (7,855) ---------------- ------- ------- ------- --------- ------ ------- ------- Loss/profit before net finance income and taxation (4,267) 1,746 (2,521) (1,558) (1,701) (3,259) (5,780) The directors consider that the Group's business operates in two geographical segments - the UK and the US. Geographical analysis of results Year ended 31 December 2006 ---------------------------------------- UK US Group Total Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ----------------- ------- ------ ------ ------- -------- ------- -------- Realised gains on investments - 1,465 1,465 - 3,586 3,586 5,051 Unrealised (losses) on investments - 1,876 1,876 - (13,346) (13,346) (11,470) Income from investments 1,384 - 1,384 - - - 1,384 ----------------- ------- ------ ------ ------- -------- ------- -------- 1,384 3,341 4,725 (9,760) (9,760) (5,035) Investmen management fees 162 - 162 - - - 162 Administration expenses (3,897) - (3,897) (958) - (958) (4,855) Exceptional expenses (3,097) - (3,097) - - - (3,097) Net finance income 1,256 - 1,256 34 - 34 1,290 ----------------- ------- ------ ------- ------- -------- ------- -------- (Loss)/profit before taxation (4,192) 3,341 (851) (924) (9,760) (10,684) (11,535) Taxation - 1,397 1,397 - (709) (709) 688 ----------------- ------- ------ ------- ------- -------- ------- -------- (Loss)/profit after taxation (4,192) 4,738 546 (924) (10,469) (11,393) (10,847) Equity minority - - - - - - - interest ------- ------ ------- ------- -------- ------- -------- ----------------- (Loss) for the year (4,192) 4,738 546 (924) (10,469) (11,393) (10,847) ----------------- ------- ------ ------- ------- -------- ------- -------- Year ended 31 March 2006 ---------------------------------------- UK US Group Total Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ---------------- ------- ------- ------- --------- ------ ------- ------- Realised gains on investments - (417) (417) - 8,055 8,055 7,638 Unrealised (losses) on investments - (35,902) (35,902) - 28,309 28,309 (7,593) Income from investments 196 - 196 - - - 196 ---------------- ------- ------- ------- --------- ------ ------- ------- 196 (36,319) (36123) - 36,364 36,364 241 Investment management fees 1,834 - 1,834 - - - 1,834 Administration expenses (7,023) - (7,023) (832) - (832) (7,855) Net finance income 1,849 - 1,849 - - - 1,849 ---------------- ------- ------- ------- --------- ------ ------- ------- (Loss)/profit before taxation (3,144) (36,319) (39,463) (832) 36,364 35,532 (3,931) Taxation - 14,909 14,909 - 777 777 15,686 ---------------- ------- ------- ------- --------- ------ ------- ------- (Loss)/profit after taxation (3,144) (21,410) (24,554) (832) 37,141 36,309 11,755 Equity minority interest - 766 766 - - - 766 ---------------- ------- ------- ------- --------- ------ ------- ------- (Loss)/profit for the year (3,144) (20,644) (23,788) (832) 37,141 36,309 12,521 ---------------- ------- ------- ------- --------- ------ ------- ------- Geographical analysis of net assets Group 31 December 2006 Pro-forma Group 31 March 2006 UK US Group total UK US Group total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Fixed assets Tangible fixed assets 9 - 9 - - - Investments 124,565 110,345 234,910 114,297 112,303 226,600 ------- ------- --------- ------- ------- --------- 124,574 110,345 234,919 114,297 112,303 226,600 Current assets Debtors 555 917 1,472 1,155 17 1,172 Cash and short-term deposits 23,585 535 24,120 43,047 966 44,013 ------- ------- --------- ------- ------- --------- 24,140 1,452 25,592 44,202 983 45,185 Creditors: amounts falling due within one year (1,170) (161) (1,331) (2,417) (53) (2,470) ------- ------- --------- ------- ------- --------- Net current assets 22,970 1,291 24,261 41,785 930 42,715 ------- ------- --------- ------- ------- --------- Total assets less 147,544 111,636 259,180 156,082 113,233 269,315 current ------- ------- --------- ------- ------- --------- liabilities Deferred taxation - - - (1,364) - (1,364) ------- ------- --------- ------- ------- --------- Net assets 147,544 111,636 259,180 154,718 113,233 267,951 ------- ------- --------- ------- ------- --------- 17. Notes to consolidated cash flow statement (a) Reconciliation of operating loss to net cash inflow from operating activities Year ended Year ended 31 December 31 March 2006 2006 Â£000 Â£000 ---------------------- ---------- -------- Loss before taxation (11,535) (3,931) Depreciation 1 64 Realised gains on investments (5,051) (7,638) Unrealised gains on investments 11,470 7,593 Income from investments (1,384) (1,834) Net finance income (1,290) (1,849) Other non-cash movements - 2,761 Translation differences (208) (171) (Increase)/Decrease in debtors (238) 715 Increase/(decrease) in creditors (1,139) (265) ---------------------- ---------- -------- Net cash outflow from operating activities (9,374) (4,555) ---------------------- ---------- -------- (b) Funding from LMS Group Year ended Year ended 31 December 31 March 2006 2006 Â£000 Â£000 ----------------- ----------- ----------- Cash on demerger 70,106 - Inflexion distribution (23,877) - Final settlement of Loan Stock (958) - Other 3,390 - Financing - 25,330 ----------------- ----------- ----------- 48,661 25,330 ----------------- ----------- ----------- (c) Analysis of Group movement in net debt 31 December Cash flow 31 March 2006 2006 Â£000 Â£000 Â£000 --------------------- --------- --------- --------- Bank and cash balances * 1,121 1,087 34 Short-term deposits* 22,999 (20,980) 43,979 --------------------- --------- --------- --------- Net cash 24,120 (19,893) 44,013 --------------------- --------- --------- --------- *Totalled on balance sheet as cash and short-term deposits. 18. Capital commitments Group Group 31 December 31 March 2006 2006 Â£000 Â£000 --------------------- ----------- ---------- Outstanding commitments to Funds 45,580 54,034 --------------------- ----------- ---------- 19. Financial instruments The LMS Capital Group holds a portfolio of investments diversified by risk across industry sector, type of investment (listed investments, externally managed funds and directly managed investments) and geography. The LMS Capital Group's principal financial instruments comprise quoted investments (quoted on the main stock exchanges in London, US, Canada and AIM), and equity and debt instruments in unquoted businesses. A proportion of its unquoted investments are held through funds managed by external managers. As is common practice in the venture and development capital industry, the investments in unquoted companies are structured using a variety of instruments including ordinary shares, preference shares and other shares carrying special rights, options and warrants and debt instruments with and without conversion rights. The investments are held for resale with a view to the realisation of capital gains. Generally, the investments do not pay significant income. The principal risks associated with the LMS Capital Group's financial instruments are: â€¢liquidity risk; â€¢market price risk; and â€¢currency risk. Liquidity risk The LMS Capital Group's investment portfolio comprises investments at differing stages of maturity and with different levels of liquidity. The LMS Capital Group's also has cash resources available and will have access to bank facilities designed to provide additional working capital in order to help manage short-term variations in cash flow. Its financing requirements are met through a combination of liquidity from the sale of investments and the use of cash resources. Market price risk Market price risk arises from uncertainty about the future value of the LMS Capital Group's investments. It represents the potential loss the Group might suffer through holding positions in quoted or unquoted securities in the face of price movements. It is mitigated through stock selection and management of the portfolio. Currency risk Part of the LMS Capital Group's investment portfolio is held in assets denominated in US and Canadian dollars. The Group is therefore exposed to exchange rate risk arising from changes in the value of these currencies in relation to pound sterling, its reporting currency. The Group regards its exposure to exchange rate changes on the underlying investment as part of its overall investment return, and does not seek to mitigate that risk through the use of financial derivatives. The Group monitors its overall exposure to foreign currencies at a portfolio level. 20. Contingent liabilities Guarantees have been given in respect of warranties on the sale of certain subsidiaries and other liabilities in the ordinary course of business. The subsidiaries of LMS Capital Group have no guarantees in place in relation to the amounts owed to the Parent. 21. Principal subsidiary undertakings Name Country of Holding Activity ------------------ incorporation ------- ----------- -------------- LMS Capital Group Limited England and Wales 100 Investment holding LMS Capital Holdings Limited England and Wales 100 Investment holding Lion Investments Limited England and Wales 100 Investment holding LMS Capital (Bermuda) Limited Bermuda 100 Investment holding LMS Capital (GW) Limited Bermuda 100 Investment holding LMS Capital (General Partner) Limited Bermuda 100 Investment holding Tiger Investments Limited England and Wales 100 Investment holding LMS Tiger Investments (II) Limited England and Wales 100 Investment holding International Oilfield Services Bermuda 100 Investment holding Limited Westpool Investment Trust plc England and Wales 100 Investment holding LMS Tiger Investments Limited England and Wales 100 Investment holding 22. Inflexion Minority interest relates to the 42% of Inflexion not owned by the LMS Capital Group. On 16 March 2006 Inflexion disposed of its business and related assets for cash proceeds of Â£41.8 million. This resulted in a loss on disposal to the Group of Â£1.7 million. On 29 March 2006 the shareholders of Inflexion approved a member's voluntary liquidation of the company, the proceeds to the Group were Â£24.5 million, of which, under the terms of the Demerger, Â£22.8 million was payable to London Merchant Securities. 23. Related party transactions Debtors Group Group 31 December 2006 31 March 2006 Â£000 Â£000 -------------------- ----------- ---------- Due from London Merchant Securities 335 - -------------------- ----------- ---------- Creditors Group Group 31 December 2006 31 March 2006 Â£000 Â£000 -------------------- ----------- ---------- Due to London Merchant Securities 664 - -------------------- ----------- ---------- As set out in note 1, during the nine months ended 31 December 2006, the LMS Capital Group was charged by London Merchant Securities for payroll and administration costs under the Transitional services agreement. The amounts paid during the period were as follows: Transactions during the year Group Group 31 December 2006 31 March 2006 Â£000 Â£000 -------------------- ----------- ---------- London Merchant Securities - Payroll costs 1,433 - - Transitional services agreement 1,277 - - Loan interest 50 - 24. Ultimate Parent company LMS Capital plc is the ultimate parent company of the Group. This information is provided by RNS The company news service from the London Stock Exchange

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