Results for the six months ended 30 June 2019

RNS Number : 7630H
LMS Capital PLC
02 August 2019
 

LMS Capital plc

 

Half Year Results for the six months ended 30 June 2019

 

The Board of LMS Capital plc ("LMS Capital" or "the Company") is pleased to announce the Company's half year results for the six months to 30 June 2019.

 

·      Net cash held by the Company and its subsidiaries at 30 June 2019 was £16.4 million (31 December 2018: £17.7 million).

 

·      The carrying value of Entuity has been increased from £4.925 million at 31 December 2018 to £8.67 million. An uplift of 76% reflecting the sale proceeds expected to be received following exchange of contracts on 25 July 2019, to sell the company. Completion is expected to be before 30 September 2019.

 

·      Net Asset Value at 30 June 2019 was £59.1 million, 73.3p per share (31 December 2018: £60.3 million, 74.7p per share).

 

·      The investment portfolio showed a net loss in the first half of £0.3 million (30 June 2018: net gain of £0.2 million) after including unrealised net currency gains of £0.1 million (2018: unrealised net gains of £0.8 million).

 

·      Significant gains arising on Entuity (£3.7 million) and the Gresham House shares (£1.5 million) were offset by unrealised NAV reductions attributable principally to the Company's  investments with San Francisco Equity Partners, YesTo and Penguin (£4.8 million)

 

·      The loss for the period was £1.1 million (six months to 30 June 2018: loss of £0.7 million).

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

For further information please contact:

 

LMS Capital plc 

Martin Knight, Chairman

 

020 3837 6275

Gresham House Asset Management Limited

Graham Bird

 

020 3837 6275

J.P. Morgan Cazenove (Corporate Broker)

Michael Wentworth-Stanley

 

020 7742 4000

 

 

Chairman's statement

 

The results of the Company for the six months to 30 June 2019 are set out below.

 

The net asset value, disappointingly, has declined by £1.2 million, approximately 2%. Within this overall decline there are both positives and negatives. Most significantly, Entuity has shown a positive result, a contract for sale was exchanged on 25 July, the proceeds of which at completion will produce an uplift in carrying value of some 76% compared to the to the previously reported value. Completion is expected before 30 September 2019 and should generate further cash proceeds in excess of £8 million. On the negative side the US investments, particularly YesTo, performed very poorly.

 

The cash balances have reduced by £1.3 million compared to the year end. The movement reflects normal running costs and some additional follow on investments in legacy assets.

 

The Company has not made any new investments in the period.

 

Performance review

 

The net asset value per share at 30 June 2019 was 73.3 p. per share (31 December 2018: 74.7 p.)

 

Portfolio net losses (realised and unrealised) for the six months were £0.3 million (six months to 30 June 2018: net gains £0.2 million). These amounts are stated after the impact of unrealised exchange gains of £0.1 million (six months to 30 June 2018: gains of £0.8 million).

 

The major impacts on the portfolio were:

 

·      Entuity - an unrealised gain of £3.7m has been recognised on Entuity, one of the Company's directly held legacy technology investments.  Negotiations to sell Entuity have been in progress for some months and contracts for sale were exchanged on 25 July 2019. The increased valuation reflects the proceeds, net of transaction costs, expected to be received on completion prior to 30 September 2019. The increase in value represents a 76% gain on the previous carrying value.

·      Gresham House - the holding in shares of Gresham House has performed well, showing a gain in the six months of £1.5 million. The Company first acquired its interest in Gresham House shares in August and September 2016 at an average price of 294p per share, since which time the share price has more than doubled as the group has grown assets under management;

·      YesTo - an unrealised loss of £4.1 million has been recognised in relation to the investment in YesTo, which has experienced a slowdown in its growth compared to earlier years and required additional funding from shareholders in Q2 2019 in order to maintain adequate working capital;

·      Penguin - an unrealised loss of £0.7 million has been recognised being a reduction in the estimated additional proceeds to be received following the sale of this investment in June 2018.

·      Other - other net movements in the portfolio amounted to an unrealised loss of £0.7 million.

 

The overhead costs of the Company and its subsidiaries continue to be managed tightly and amounted to £0.7 million in the period.

 

The cash balances of the Company and its subsidiaries at 30 June 2019 were £16.4 million (31 December 2018: £17.7 million). Upon completion of the transaction to sell Entuity, cash balances will be increased by the consideration, currently expected to be in excess of £8 million.

 

Conclusion and outlook

 

GHAM continues to manage the existing portfolio to optimise value and, where appropriate, to take advantage of opportunities to realise assets whilst reducing costs and positioning the Company for growth

 

As reported in my statement in the 2018 Report and Accounts, the Board regards the deployment of the Company's cash in accordance with its investment policy, as a matter of priority.

 

As announced by the Company on 26 July 2019, ahead of the third anniversary of the appointment of GHAM, the Board has commenced a process to review its investment management arrangements on behalf of all shareholders and will report in due course on the outcome of the process.

 

Martin Knight

Chairman

02 August 2019

 

 

Manager's Review - 30 June 2019

 

Introduction

Gresham House Asset Management ("GHAM") was appointed investment manager in August 2016, and the half year to 30 June 2019 brings to almost three years its tenure as manager.

 

The objective for the first 12-18 months following appointment was to transition the Company to being externally managed and to fulfill the Company's commitment, made in July 2016, to return a maximum of a further £11 million of capital to shareholders, alongside targeting annual cost savings.

 

These objectives were fully achieved, ahead of expectations. New investment management processes were established, and an independent investment committee appointed. Annualised cost savings in excess of £1.4 million have been achieved.

 

During the period, our strategic focus has continued to be on maximizing value from existing investments and beginning the process of building pipeline to re-invest proceeds in accordance with the investment policy adopted in August 2016 and aiming to scale the Company.  Whilst the reduction in net asset value in the period has been frustrating, with weak performances from YesTo and Penguin in particular, masking a number of positive portfolio developments, the company now has significant cash resources with which to re-invigorate its strategy.

 

Shortly after the period end, we exchanged contracts for the sale of Entuity, one of LMS's directly held UK private investments.  The transaction, which is currently expected to complete before the end of September led to an uplift in the value of Entuity of £3.7 million., The sale follows a successful two years' of turnaround at the company.  A Gresham House representative joined the board and a new CEO was appointed in February 2017 and the following two years saw a resumption of growth and a significant improvement in profitability and cash generation which in turn has led to the attractive sale price and significant uplift in NAV. This will be a good result for LMS and an example of the manager driving value from the portfolio.

 

The portfolio also benefitted from strong performances of quoted holdings Solaredge and Gresham House, which contributed £520k and £1,486k to NAV respectively.  Solaredge shares were received from a distribution in specie from LMS's investment in Opus.  The shares rose from $35.07 at the end of December to $62.44 at the end of June.  In the case of Gresham House, which was first acquired as a strategic holding when GHAM took on the LMS management contract, the share price rose from 454p to 605p.

 

These positive developments, were more than offset by significant write downs in each of YesTo and Penguin, two of LMS's US investments held through San Francisco Equity Partners, and a reduction in carrying value of another US holding, Medhost.   Together, these three investments led to a £5.5 million reduction in NAV.  More details of each of these is provided later in this report.

 

Gresham House's recent acquisition of assets and teams from Livingbridge, including the Baronsmead VCT's and the respective teams, has provided further private equity resource and capability within GHAM.  Importantly, now that the teams have been fully integrated into GHAM, we expect to see increased deal flow providing new opportunities for LMS to scale and generate strong capital returns.

 

At 30 June 2019 the Group had £16.4 million of cash. This should increase by over £8 million when the Entuity deal closes.  The deployment of this cash is under active consideration by GHAM in conjunction with the Board, consistent with the investment policy and minimising additional fee layers

 

Investment approach

The investment approach is now focused predominantly on private equity investment and alternative, specialist asset classes using the experience of the GHAM team in asset management, private equity and public markets:

 

·      The Manager will invest in and partner with management teams of profitable and cash generative businesses and investments to create value, targeting an annual return on equity of 12% -15% net of costs over the long term;

·      The focus will primarily be on smaller private investment opportunities below £50 million enterprise value where the Manager believes there to be significant market inefficiencies which create opportunities for superior long term returns and to leverage the experience of the investment team;

·      Investments may include alternative, specialist asset classes which target long term, illiquid strategies both through co-investment and fund opportunities on preferred terms; and

·      The manager will seek to optimise the value of existing holdings and, where growth prospects are clear, to preserve and support longer term value creation.

 

Market background

2019 saw a strong start in markets, after the weakness and volatility which dominated much of 2018. The first few months of 2019 have seen a stabilization of economic data and political and monetary/fiscal initiatives designed to support market confidence. The domestic environment is likely to continue to be dominated by political uncertainty and Brexit until the end of the year. Although more positive in the short to medium term on the global economy, we remain cautious on a longer term view.

 

2018 represented another active year for private equity fund raising and transaction values, capping the strongest five-year stretch in history. As we entered 2019, the industry was coming off a backdrop of deal multiples at historic high levels and private equity 'dry powder' at record absolute levels, although not so when compared to recent deal values and volumes. Whilst this has led to greater competition in mid-market and larger private equity target markets, we continue to believe that there are significant inefficiencies at the smaller end of the market, focusing on established smaller private companies below £50 million enterprise value where there tends to be less competition for deals and where valuations are more attractive. This segment of the market is frequently off radar for venture and early stage funding providers and sub-threshold for mid-market private equity investors, creating an opportunity to generate superior long-term returns.

 

 

Performance review

The movement in Net Asset Value during the six months to 30 June 2019 was as follows:

 

 

  Six months ended 30 June 2019

 

 

£'000

 

 

Opening Net Asset Value 1 January 2019

60,275

Return on investments

(597)

Net Costs

(535)

Closing Net Asset Value 30 June 2019

59,143

 

 

Net cash movements in the group from the portfolio were as follows:

 

Six months ended

30 June

 

2019

 

2018

 

£'000

 

£'000

Net proceeds from investment realisations

40

 

12,498

Follow-on investments and fund calls

(584)

 

(394)

New investments

-

 

(600)

Total - net

(544)

 

11,504

 

There have been no significant realisations in the six months to 30 June 2019.

 

The follow-on investments and fund calls relate principally to a working capital loan for Elateral, a UK direct investment, and a capital call from San Francisco Equity Partners in connection with a working capital loan required by YesTo, described more fully on page 13.

 

Below is a summary of the investment portfolio of the Company and its subsidiaries:

 

 

30 June 2019

 

31 December 2018

Asset type

UK

£'000

US

£'000

Total

£'000

 

UK

£'000

US

£'000

Total

£'000

Quoted

6,082

1,251

7,333

 

4,814

947

5,761

Unquoted

11,155

10,006

21,161

 

7,223

11,101

18,324

Funds

7,508

9,246

16,754

 

7,375

13,423

20,798

 

24,745

20,503

45,248

 

19,412

25,471

44,883

 

 

The principal investments, with carrying values in excess of £2 million, at 30 June 2019 comprising 61.2% of the net asset value, and 80.1% of the remaining portfolio, are shown below. Group cash comprises a further 27.7% (31 December 2018: 29.3%) of the net asset value.

 

Name

Geography

Sector

Book value

 

 

% of

Net asset value

 

 

 

30

June

2019

31 December

2018

30

June

2019

 

 

 

£'000

£'000

 

Quoted investments

 

 

 

 

 

Gresham House plc

UK

Financial

5,955

4,469

10.1%

Unquoted investments

 

 

 

 

 

Entuity

UK

Technology

8,670

4,925

14.6%

Medhost Inc

US

Technology

7,711

8,276

13.0%

Fund investments

 

 

 

 

 

YesTo, Inc*

US

Consumer

5,798

9,265

9.8%

Brockton Capital

UK

Property

4,922

4,922

8.3%

Opus Capital Venture Partners

US

Technology

3,167

3,115

5.4%

 

*includes holdings by SFEP and co-investments held by the Company

 

Basis of valuation:

·      Quoted investments - bid price of security quoted on relevant securities exchange;

·      Unquoted investments - generally, unless alternative method is more appropriate, multiple of revenues or earnings of comparable quoted companies with appropriate discounts for marketability; and

·      Fund interests - based on amounts reported by the general partner unless the reported value is not in line with the Company's valuation policy.

 

Performance of the investment portfolio

The return on investments for the six months ended 30 June 2019 was as follows:

 

 

Six months ended 30 June

 

2019

 

2018

 

Realised gains/(losses)

Unrealised gains/(losses)

 

Total

 

Realised gains/(losses)

Unrealised gains/(losses)

 

Total

Asset type

£'000

£'000

£'000

 

£'000

£'000

£'000

 

 

 

 

 

 

 

 

Quoted

-

1,572

1,572

 

43

(1,866)

(1,823)

Unquoted

36

2,505

2,541

 

770

1,259

2,029

Funds

-

(4,372)

(4,372)

 

119

(146)

(27)

 

36

(295)

(259)

 

932

(753)

179

Charge

for incentive plans

 

 

(338)

 

 

 

-

 

 

 

(597)

 

 

 

179

Net gain/(loss) on foreign currency

 

 

354

 

 

 

(42)

Operating and similar income/(expenses) of subsidiaries

 

 

(25)

 

 

 

(144)

 

 

 

    (268)

 

 

 

(7)

 

There is a charge of £338,000 for incentive plans in the six months to 30 June 2019 (2018: nil). This represents provision for incentive payments, under legacy schemes, due on the sale of Entuity at its 30 June 2019 carrying value. The previous provision has been increased to reflect the increase in value. GHAM was appointed manager in August 2016 and is not entitled to performance fees or incentives on any of the investments in the portfolio prior to that date.

 

Approximately 45% of the portfolio at 30 June 2019 is denominated in US dollars (31 December 2018: 57%) and the above table includes the impact of currency movements. In the six months ended 30 June 2019, the strengthening of the US Dollar against sterling resulted in an unrealised foreign currency gain of £124,000 (2018: unrealised gain of £812,000). As is common practice in private equity investment, it is the Board's current policy not to hedge the Company's underlying non-sterling investments.

 

Quoted investments

 

 

 

 

30 June

2019

31 December 2018

Company

Sector

 

£'000

£'000

Gresham House plc

UK financial

 

5,955

4,469

Solaredge Inc.

US energy

 

1,179

659

IDE Group Holdings (formerly Coretx Holdings)

UK technology

 

127

345

Weatherford International

US energy

 

17

236

Others

-

 

55

52

 

 

 

7,333

5,761

The net gain on the quoted portfolio arose as follows:

 

 

Six months ended 30 June

 

2019

£'000

2018

£'000

Realised

 

 

Gresham House plc

-

43

 

-

43

Unrealised

 

 

Gresham House

1,486

273

Solaredge Inc.

515

(164)

Weatherford International

(221)

(317)

IDE Group Holdings

(218)

(1,670)

Other quoted holdings

2

(8)

Unrealised foreign currency gains

8

20

 

1,572

(1,866)

 

 

 

Total net gain/( loss)

1,572

(1,823)

 

 

Gresham House plc

At 30 June 2019 the Company held 984,329 shares in Gresham House plc. The Gresham House share price increased from 454p at 31 December 2018 to 605p at 30 June 2019.

 

Weatherford

Following a financial reconstruction at Weatherford in May 2019 which involved exchanging substantial amounts of debt for equity, the shares were delisted. No material value is expected to be recovered.

 

IDE Group

The performance of IDE Group has been disappointing and, as previously reported, the share price fell substantially during 2018. The Company continues to hold these shares in anticipation of recovery of at least part of the value.

 

Solaredge Inc

Solaredge Inc shares, received by the Company by way of distribution in specie from its fund investment, Opus Capital Venture Partners. These shares had a carrying value at 30 June 2019 of £1,179,000.

 

Other quoted

These shares have performed well.

 

Unquoted investments

 

 

 

 

30 June

2019

31 December

2018

Company

Sector

 

£'000

£'000

Entuity

UK technology

 

8,670

4,925

Medhost Inc

US technology

 

7,711

8,276

Elateral

UK technology

 

1,610

1,610

ICU Eyewear*

US consumer

 

1,576

1,568

Yes To*

US consumer

 

537

927

Penguin Computing*

US technology

 

181

329

Other interests

-

 

876

689

 

 

 

21,161

18,324

*These are co-investments with SFEP

 

The net gain on the unquoted portfolio arose as follows:

 

 

Six months ended 30 June

 

2019

2018

 

£'000

£'000

Realised

 

 

Brockton Capital LLP

-

617

Penguin

-

153

Other unquoted investments

36

-

 

36

770

Unrealised valuation adjustments

 

 

Medhost

(607)

-

Elateral

(250)

-

Entuity

3,745

187

Penguin Computing

(150)

833

YesTo

(478)

2

Northbridge

187

-

Unrealised foreign currency gains

58

237

 

2,505

1,259

 

 

 

Total net gain

2,541

2,029

 

Valuations are sensitive to changes in the following two inputs:

·      The operating performance of the individual businesses within the portfolio; and

·      Changes in the revenue and profitability multiples and transaction prices of comparable businesses, which are used in the underlying calculations.

 

Comments on individual companies are set out below.

 

Medhost

Medhost is a co-investment with funds of Primus Capital, in which the Company has previously had investments. Medhost's financial performance has been satisfactory in 2019 showing progress towards its goals of growth in recurring revenues, profitability and cash generation. The reduction in value reflect changes in the valuation multiples of comparable quoted companies which are part of the valuation assumption.

 

Entuity

Contracts were exchanged on 25 July 2019 for the sale of Entuity. Completion is conditional on certain legal formalities being satisfied and is expected to occur before 30 September 2019. Upon completion the contract price will result in net proceeds to the Company of approximately £8.67 million, net of all transaction costs, but before provision for incentive payments due under legacy LMS schemes. The exact amount of the final payment will be adjusted to reflect certain normal course of business movements in working capital between exchange and completion. The valuation of Entuity at 30 June 2019 has been increased to £8.67 million to reflect the expected proceeds at completion.

 

Elateral

The Company's re-engineered software platform continues to be well received by existing and new clients. Five significant new multi-national clients wins have been achieved over the last 12 months and there is a pipeline of further opportunities. The company sells its product to companies many times larger than itself and experiences a protracted sales cycle, however it expects the rate of new client signings to accelerate over the next 6 months.

 

Penguin Computing

The Company's interests are held both through its investment in SFEP and directly through a co-investment with SFEP. The amount shown above relates to the directly held co-investment. As explained below, the carrying value represents the estimated further proceeds that may be received following the sale of the business in June 2018. The estimate has been reduced at 30 June 2019 based on latest information received.

 

YesTo

The Company's interests are held both through its investment in SFEP and directly through a co-investment with SFEP. The amount shown above relates to the directly held co-investment. This holding has been valued on the same assumptions as used in the SFEP valuation as explained below.

 

Fund interests

 

 

 

 

 

 

 

 

30 June

2019

31 December 2018

General partner

Sector

 

£'000

£'000

San Francisco Equity Partners

US consumer & technology

 

5,549

9,534

Brockton Capital Fund 1

UK property

 

4,922

4,922

Opus Capital Venture Partners

US venture capital

 

3,166

3,115

Weber Capital Partners

US micro-cap quoted stocks

 

486

687

Eden Ventures

UK venture capital

 

1,126

1,100

Other interests

-

 

1,505

1,440

 

 

 

16,754

20,798

 

(Losses) and gains on the Company's funds portfolio for the six months ended 30 June 2019 were as follows:

 

 

Six months ended 30 June

 

2019

£'000

2018

£'000

Realised

 

 

Realised on distributions

-

 119

 

 

 

 

-

 119

Unrealised valuation adjustments

 

 

San Francisco Equity Partners

(4,240)

(1,272)

Eden Ventures

-

(1)

Brockton Capital

-

155

Opus Capital Venture Partners

73

174

Weber Capital Partners

(206)

248

Others (net)

(57)

(4)

Unrealised foreign currency gains

58

554

 

(4,372)

(146)

 

 

 

Total net losses

(4,372)

(27)

 

 

 

 

San Francisco Equity Partners ("SFEP")

LMS Capital is the majority investor in SFEP (as opposed to the other fund interests where the Company has only a minority stake).

 

SFEP has one remaining active investment, YesTo, plus an interest in the additional proceeds expected to be received following the sale of Penguin Computing ("Penguin").

 

The sale of Penguin in June 2018 has enabled the General Partner of SFEP to meet performance thresholds and become entitled to carried interest payments in accordance with the SFEP 1 fund agreement. An estimate of these payments has been included in arriving at the carrying values for the SFEP 1 fund interests in YesTo and Penguin below:

 

·      YesTo - fund carrying value £5,261,000 (31 December 2018: £8,338,000) After strong sales growth in 2017, the company experienced a flattening of revenues in 2018 which has continued into 2019 to date. Actions are in hand to restore sales growth and profitability. In April 2019 the company sought additional working capital funding from its investors. LMS' share of the additional funding was $700,000 ($637,000 via its SFEP fund interest and $63,000 via its co-investment interest).

 

The valuation recognises the debt investment but, in line with the approach of the General Partner of SFEP, has reduced the value of the equity to take account of the impact of the debt and to reflect a lower enterprise value until the successful outcome of the various actions can be demonstrated.

 

In addition to the fund investments noted above the Company has a directly held co- investment in YesTo of £537,000 (31 December 2018: £927,000) to which the same valuation approach has been applied.

 

The Company's total investment in YesTo at 30 June 2019, via its SFEP fund interest and its co-investment is £5,798,000 (31 December 2018: £9,265,000).

 

·      Penguin - fund carrying value £581,000 (31 December 2018: £1,176,000). Penguin was sold in June 2018, and an initial payment of consideration received. The carrying value at 30 June 2019 represents an estimate of the amounts of sale consideration still to be received from the release of initial purchase consideration amounts retained in escrow. This estimate has been revised downwards reflecting recent information received from the General Partner of SFEP.

 

In addition to the fund investments noted above the Company has a co-investment in Penguin of £181,000 (31 December 2018: £329,000) to which the same valuation approach has been applied.

 

The Company's total investment in Penguin at 30 June 2019, via its SFEP fund interest and its co-investment is £762,000 (31 December 2018: £1,505,000).

 

Other fund interests

·      Eden Ventures - Notwithstanding asset sales in Q4 2018, the fund has performed below expectations over its life. An extension has recently been agreed to allow the investments in the fund to be realised. The Company has valued its remaining interest at a discount to the fund net asset value published by the General Partner;

 

·      Brockton Capital -The Company's investment in this fund is represented by an interest in the preferred debt, in one of the Fund's development projects. The Company has adjusted the discount rate used in its discounted cash flow valuation of this asset, which results in the valuation being held at the 31 December 2018 level; and

 

·      Opus Capital, a US venture fund, is based on the valuation received from the General Partner and has not changed significantly since the year end.

 

Overhead costs

Overhead costs for the six months to 30 June 2019 (including amounts incurred by subsidiaries) were £708,000 (six months to 30 June 2018: £871,000).

 

Taxation

The Company has no tax charge for the six months ended 30 June 2019 (30 June 2018: £2,000).

 

Financial resources and commitments

Including cash in subsidiaries, cash holdings were £16,361,000 (31 December 2018: £17,680,000) with no debt.

 

At 30 June 2019 subsidiary companies had commitments of £3,478,000 (31 December 2018: £3,123,000) to meet outstanding capital calls from fund interests. The increase since the year end relates to additional management fees due to Eden Ventures where the fund life has been extended.

 

Outlook

GHAM is focussed on managing the existing portfolio. Whilst in many cases exits are under the control of third party managers, GHAM maintains a close dialogue and seeks to influence outcomes to the extent it can.

 

The Company's available cash enables it actively to access and reinvest in direct private equity opportunities at the smaller end of the market and alternative asset classes targeting long term, illiquid strategies in each case leveraging capabilities within GHAM. The Board and the Manager continue to evaluate strategic options for the Company.

 

Gresham House Asset Management Limited

02 August 2019

 

 

Principal risks and uncertainties

 

The principal risks and uncertainties that affect the Company are described on pages 6 to 7 of the Company's Annual Report for the year ended 31 December 2018. These are still considered the most relevant risks and uncertainties which the Company faces and they could have an impact on the Company's performance in the second half of the financial year.

 

For the near future, the market risk factors set out in the 2018 Annual Report are expected to be influenced by the UK's decision to leave the European Union. The volatility and uncertainty as negotiations continue in connection with that decision may include:

 

·      Reduction in the demand for the products and services of the Company's investments, which may negatively impact the performance, growth rates and overall value of those investments;

·      A lack of liquidity in the capital markets and an increased aversion to risk on the part of potential buyers could mean that the Company may not be able to realise its investments in line with planned timings and values; and

·      Changes in market prices for the Company's quoted investments, as well as movements in interest rates and exchange rates. A significant proportion of the investment portfolio is denominated in a currency other than pounds sterling, principally US dollars. It is the Board's current policy not to hedge the Company's underlying non-Sterling investments.

 

Going concern

As stated in note 1 to the condensed financial statements, the directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

 

Martin Knight

Chairman

 

02 August 2019

 

 

Condensed income statement

 

 

 

Six months ended 30 June

 

 

2019

2018

 

Note

£'000

 

 

 

 

Loss on Investments

2

(268)

(7)

Interest income

 

89

18

Dividend Income

 

30

 

 

(149)

11

Operating expenses

 

(617)

(768)

Net (loss)/gain on foreign currency

 

(366)

Loss before tax

 

(1,132)

(702)

Taxation

 

-

Loss for the period

 

(1,132)

 

 

 

 

Attributable to:

 

 

 

Equity shareholders

 

(1,132)

 

 

 

 

Loss per ordinary share - basic

3

(1.4p)

(0.9p)

Loss per ordinary share - diluted

3

(1.4p)

(0.9p)

 

The notes on pages 23 to 30 form part of these financial statements.

 

 

Condensed statement of other comprehensive income

 

 

 

Six months ended 30 June

 

 

2019

2018

 

 

£'000

£'000

 

 

 

 

Loss for the period

 

(1,132)

(700)

Other comprehensive income

 

-

-

Total comprehensive loss for the period

 

(1,132)

(700)

 

 

 

 

Attributable to:

 

 

 

Equity shareholders

 

(1,132)

(700)

 

The notes on pages 23 to 30 form part of these financial statements.

 

 

Condensed statement of financial position

 

 

 

30 June

31 December

 

 

2019

2018

 

Note

£'000

£'000

Non-current assets

 

 

 

Investments

4

134,714

135,092

Non-current assets

 

134,714

135,092

 

 

 

 

Current assets

 

 

 

Operating and other receivables

 

42

40

Cash and cash equivalents

 

14,847

15,440

Current assets

 

14,889

15,480

 

 

 

 

Total assets

 

149,603

150,572

 

 

 

 

Current liabilities

 

 

 

Operating and other payables

 

(248)

(465)

Amounts payable to subsidiaries

 

(90,212)

(89,832)

Current liabilities

 

(90,460)

(90,297)

 

 

 

 

Total liabilities

 

(90,460)

(90,297)

 

 

 

 

Net assets

 

59,143

60,275

 

 

 

 

Equity

 

 

 

Share capital

 

8,073

8,073

Share premium

 

508

508

Capital redemption reserve

 

24,949

24,949

Retained earnings

 

25,613

26,745

Total equity shareholders' funds

 

59,143

60,275

 

The financial statements on pages 18 to 22 were approved by the Board on 02 August 2019 and were signed on its behalf by:           

                                                           

Neil Lerner

Director

 

 

The notes on pages 23 to 30 form part of these financial statements.

 

 

Statement of changes in equity

 

Six months ended 30 June 2019

 

 

 

Capital

 

 

 

Share

Share

redemption

Retained

Total

 

capital

premium

reserve

earnings

equity

 

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Balance at 1 January 2019

8,073

508

24,949

26,745

60,275

Total comprehensive income

 

 

 

 

 

for the period

 

 

 

 

 

Loss for the period

-

-

-

(1,132)

(1,132)

Balance at 30 June 2019

8,073

508

24,949

25,613

59,143

 

Six months ended 30 June 2018

 

 

 

Capital

 

 

 

Share

Share

redemption

Retained

Total

 

capital

premium

reserve

earnings

equity

 

£'000

£'000

£'000

£'000

£'000

Balance at 1 January 2018

8,073

508

24,949

30,958

64,488

Total comprehensive income

 

 

 

 

 

for the period

 

 

 

 

 

Loss for the period

-

-

-

(700)

(700)

Balance at 30 June 2018

8,073

508

24,949

30,258

63,788

 

The notes on pages 23 to 30 form part of these financial statements.

 

 

Condensed cash flow statement

 

 

 

Six months ended 30 June

 

 

2019

2018

 

 

£'000

£'000

Cash flows from operating activities

 

 

 

 

 

 

 

Loss for the period

 

(1,132)

(700)

 

 

 

 

Adjustments for:

 

 

 

      Loss on investments

 

238

7

      Interest Income

 

(89)

(18)

 

 

(983)

(711)

Change in operating and other receivables

 

12

164

Change in operating and other payables

 

(217)

(646)

Change in amounts payable to subsidiaries

494

10,212

Net cash (utilised by)/generated from operating activities

 

(694)

9,019

 

 

 

 

Cash flows from Investing activities

 

 

 

Interest received

 

71

51

Dividend received

 

30

-

Purchase of investments

 

-

(3,541)

Proceeds from sale of investments

 

-

3,050

Net cash from/(used by) Investing activities

 

101

(440)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(593)

8,579

Cash and cash equivalents at the beginning of the period

 

15,440

2,283

Cash and cash equivalents at the end of the period

 

14,847

10,862

 

The notes on pages 23 to 30 form part of these financial statements.

 

 

Notes to the financial information

 

1. Principal accounting policies

 

Reporting entity

LMS Capital plc ("the Company") is domiciled in the United Kingdom. These condensed financial statements are presented in pounds sterling because that is the currency of the principal economic environment of the Company's operations.

 

These condensed financial statements do not constitute the statutory accounts of the Company within the meaning of section 434(3) and 435(3) of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2018 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor on the Company's statutory accounts for the financial year ended 31 December 2018 was (i) unqualified and (ii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

 

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.

 

Statement of compliance

These condensed financial statements have been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2018 which were prepared in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRS").

 

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published financial statements for the year ended 31 December 2018, except as noted below.

 

New accounting standards effective during the Period

IFRS 16 "Leases" is effective on or after accounting periods beginning on or after 1 January 2019.

 

The adoption of the above standard will have no impact on the Company's reported net assets.

 

Basis of preparation

These condensed financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union ("Adopted IFRS").

 

Consistent with the year ended 31 December 2018, the Directors have concluded that the Company has all the elements of control as prescribed by IFRS 10 "Consolidated Financial Statements" in relation to all its subsidiaries and that the Company satisfies the criteria to be regarded as an investment entity as defined in IFRS 10, IFRS 12 "Disclosure of Interests in Other Entities" and IAS 27 "Consolidated and Separate Financial Statements". Subsidiaries are therefore measured at fair value through profit or loss, in accordance with IFRS 13 "Fair Value Measurement" and IFRS 9 "Financial Instruments: Recognition and Measurement".

 

Taking account of the financial resources available to the Company, the directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries the directors have a reasonable expectation that the Company has adequate resources for the foreseeable future, a period of not less than twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

 

Use of estimates and judgements

The preparation of condensed financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis; revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

 

 

2. Gain/(loss) on investments

The gains and losses on investments were as follows:

 

 

 

Six months ended 30 June 2019

 

Six months ended 30 June 2018

 

Realised

Unrealised

 

 

Realised

Unrealised

 

 

gains

gains/(losses)

Total

 

gains

gains/(losses)

Total

Asset type

£'000

£'000

£'000

 

£'000

£'000

£'000

 

 

 

 

 

 

 

 

Quoted

-

1,572

1,572

 

43

(1,866)

(1,823)

Unquoted

36

2,505

2,541

 

770

1,259

2,029

Funds

-

(4,372)

(4,372)

 

119

(146)

(27)

 

36

(295)

(259)

 

932

(753)

179

 

 

 

 

 

 

 

 

Charges for incentive plans

 

(338)

 

 

 

-

 

 

 

(597)

 

 

 

179

Net gain/(loss) on foreign currency

 

 

354

 

 

 

(42)

Operating and similar       expenses of subsidiaries

 

 

(25)

 

 

 

(144)

 

 

 

(268)

 

 

 

(7)

                 

 

 

3. Loss per ordinary share

The calculation of the basic and diluted loss per share, in accordance with IAS 33, is based on the following data:

 

 

 

Six months ended

 

 

30 June 2019

30 June 2018

 

 

£'000

£'000

Loss

 

 

 

Loss for the purpose of loss per share being

 

 

 

net loss attributable to equity holders of the parent

 

(1,132)

(700)

 

 

 

 

 

 

 

 

Number of shares

 

 

 

Weighted average number of ordinary shares for the

 

 

 

purposes of basic loss per share

 

80,727,450

80,727,450

 

 

 

 

Effect of dilutive potential ordinary shares

 

 

 

Share options and performance shares*

 

78,531

78,531

Weighted average number of ordinary shares for the

 

 

 

purposes of diluted loss

 

80,805,981

80,805,981

 

 

 

 

Loss per share

 

 

 

Basic

 

(1.4p)

(0.9p)

 *There were no potentially dilutive shares in the period to June 2019 and June 2018 since the Company made a loss.

 

 

4. Investments

The Company's investments comprised the following:

 

 

30 June 2019

31 December 2018

 

£'000

£'000

 

 

 

Total investments

134,714

135,092

These comprise:

 

 

Investment portfolio of the Company

6,742

5,069

Investment portfolio of subsidiaries

38,506

39,814

Other net assets of subsidiaries

89,466

90,209

 

134,714

135,092

 

The carrying amounts of the Company and its subsidiaries investment portfolios were as follows:

 

 

30 June 2019

31 December 2018

Investment portfolio of the Company

 

 

 

 

Asset type

£'000

£'000

£'000

£'000

Quoted

 

5,955

 

4,469

Unquoted direct

 

787

 

600

Funds

 

-

 

-

 

 

6,742

 

5,069

Investments portfolio of subsidiaries

 

 

 

 

Asset type

 

 

 

 

Quoted

1,378

 

1,292

 

Unquoted direct

20,374

 

17,724

 

Funds

16,754

 

20,798

 

Other net assets of subsidiaries

89,466

 

90,209

 

 

127,972

127,972

130,023

130,023

 

 

134,714

 

135,092

 

The movements in the investment portfolio were as follows:

 

 

Quoted

Unquoted

 

 

 

securities

securities

Funds

Total

 

£'000

£'000

£'000

£'000

Carrying value

 

 

 

 

Balance at 1 January 2018

8,644

22,904

32,270

63,818

Purchases

4,133

1,072

51

5,256

Disposals

(3,007)

(6,353)

-

(9,360)

Distributions from partnerships

-

-

(8,495)

(8,495)

Fair value adjustments

(4,009)

701

(3,028)

(6,336)

Balance at 31 December 2018

5,761

18,324

20,798

44,883

 

 

 

 

 

Balance at 1 January 2019

5,761

18,324

20,798

44,883

Purchases

-

332

252

584

Disposals

-

-

-

-

Distributions from partnerships

-

-

-

-

Fair value adjustments

1,572

2,505

(4,296)

(219)

Balance at 31 June 2019

7,333

21,161

16,754

45,248

 

The following table analyses investments carried at fair value at the end of the period, by the level in the fair value hierarchy into which the fair value measurement is categorised. The different levels have been defined as follows:

 

Level 1: quoted prices (unadjusted) in active markets for identical assets;

 

Level 2: inputs other than quoted prices included within level 1 that are observable for the asset, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

Level 3: inputs for the asset that are not based on observable market data (unobservable inputs such as trading comparables and liquidity discounts).

 

Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's view of market assumptions in the absence of observable market information.

 

The Company's investments are analysed as follows:

 

 

30 June 2019

31 December 2018

 

£'000

£'000

Level 1

5,955

4,469

Level 2

787

600

Level 3

127,972

130,023

 

134,714

135,092

 

Level 3 amounts include £38,506,000 (2018: £39,814,000) relating to the investment portfolios of subsidiaries (including quoted investments of £1,378,000 (2018: £1,292,000)) and £89,466,000 (2018: £90,209,000) in relation to the other net assets of subsidiaries.

Basis of valuation:

•           Quoted investments - bid price of security quoted on relevant securities exchange;

•           Unquoted investments - generally, unless an alternative method is more appropriate, multiple of revenues or earnings of comparable quoted companies with appropriate discounts for marketability; and

•           Fund interests - based on amounts reported by the general partner unless the reported value is not in line with the Company's valuation policy.

 

If the valuation for level 3 category investments declined by 10% from the amount at the reporting       date, with all other variables held constant, the profit for the six months ended 30 June 2019 would have decreased by £12.8 million (2018: £13.6 million). An increase in the valuation of level 3 category investments by 10% at the reporting date would have an equal and opposite effect.

 

 

5. Capital commitments

 

 

 

30 June 2019

31 December 2018

 

 

£'000

£'000

 

 

 

 

Outstanding commitments to funds

 

3,478

3,123

 

 

 

 

 

 

3,478

3,123

 

The outstanding commitments to funds comprise unpaid calls in respect of funds where a subsidiary of the Company is a limited partner.

 

 

6. Related party transactions

Gresham House Asset Management Limited, the investment manager of LMS Capital plc charged £442,000 to 30 June 2019 (six months to 30 June 2018: £439,000).

 

 

7. Subsidiaries

The Company's subsidiaries are as follows:

 

 

 

Holding

 

Name

Country of incorporation

%

Activity

 

 

 

 

International Oilfield Services Limited

Bermuda

100

Investment Holding

LMS Capital (Bermuda) Limited

Bermuda

100

Investment Holding

LMS Capital (ECI) Limited

England and Wales

100

Investment Holding

LMS Capital (General Partner) Limited

Bermuda

100

Investment Holding

LMS Capital (GW) Limited

Bermuda

100

Investment Holding

LMS Capital Group Limited

England and Wales

100

Investment Holding

LMS Capital Holdings Limited

England and Wales

100

Investment Holding

LMS NEP Holdings Inc

United States of America

100

Investment Holding

Lioness Property Investments Limited

England and Wales

100

Investment Holding

Lion Property Investments Limited

England and Wales

100

Investment Holding

Lion Investments Limited

England and Wales

100

Investment Holding

Lion Cub Investments Limited

England and Wales

100

Dormant

Lion Cub Property Investments Limited

England and Wales

100

Investment Holding

Tiger Investments Limited

England and Wales

100

Investment Holding

LMS Tiger Investments Limited

England and Wales

100

Investment Holding

LMS Tiger Investments (II) Limited

England and Wales

100

Investment Holding

Westpool Investment Trust PLC

England and Wales

100

Investment Holding

 

 

 

 

 

In addition to the above, certain of the Company's carried interest arrangements are operated through five limited partnerships (LMS Capital 2007 LP, LMS Capital 2008 LP, LMS Capital 2009 LP, LMS Capital 2010 LP and LMS Capital 2011 LP) which are registered in Bermuda.

 

The registered addresses of the Company's subsidiaries are as follows:

 

Subsidiaries incorporated in England and Wales: Two London Bridge, London, SE1 9RA.

 

Subsidiaries and partnerships incorporated in Bermuda: Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

 

Subsidiary incorporated in the United States of America: c/o Two London Bridge London SE1 9RA.

 

 

8. Net asset value per share

The net asset value per ordinary shares in issue are as follows:

 

 

 

30 June 2019

31 December 2018

Net asset value (£'000)

 

59,143

60,275

Number of ordinary shares in issue

 

80,727,450

80,727,450

Net asset value per share (in pence)

 

73.3p

74.7p

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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