TIDMLMS
RNS Number : 5811A
LMS Capital PLC
12 September 2018
LMS Capital plc
Half Year Results for the six months ended 30 June 2018
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 2018.
-- Net proceeds of realisations to the group in the period were
GBP12.5 million, including initial consideration from the sale of
Penguin Computing;
-- Net cash in the group at 30 June 2018 was GBP14 million (31 December 2017: GBP4 million).
-- Net Asset Value at 30 June 2018 was GBP63.8 million, 79.0p
per share (31 December 2017: GBP64.5 million, 79.9p per share).
-- The investment portfolio showed a net gain in the first half
of GBP0.2 million (2017: net gain of GBP5.4 million) after
including unrealised net currency gains of GBP0.8 million (2017:
unrealised net losses of GBP1.9 million).
-- The loss for the period was GBP0.7 million (six months to 30
June 2017: profit of GBP3.5 million).
-- Cost reduction targets have been exceeded with run rate
savings in excess of GBP1.4 million per annum implemented since the
adoption of the new investment policy and the appointment of
Gresham House Asset Management ("GHAM").
-- Stage 3 of GHAM's transition plan for LMS was to restart
investment, which was initiated in the period through investment in
a private 8% convertible loan note in an AIM quoted oil services
and equipment business.
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 6270
Gresham House Asset Management Limited
Graham Bird 020 3837 6270
J.P. Morgan Cazenove (Corporate Broker)
Michael Wentworth-Stanley 020 7742 4000
Chairman's statement
I am pleased to present the Company's results for the six months
to 30 June 2018.
Performance review
There has been good progress realising value from the portfolio.
Following the sale of Penguin and Brockton Capital LLP, the Group's
cash at 30 June 2018 has increased to GBP14 million (Company
GBP10.9 million; subsidiaries GBP3.1 million) compared to GBP4
million at 31 December 2017.
The exercise by the Company of its warrants in shares of Gresham
House plc and realisation of approximately 80% of the shares so
acquired produced a net cash surplus of GBP0.1 million and at the
same time enabled the Company to maintain a 5% shareholding in
Gresham House plc which continues its positive growth momentum.
Net asset value per share at 30 June 2018 was 79.0p (31 December
2017: 79.9p) a reduction of 1.1% for the first half of the year.
For the 12 months to 30 June 2018 there has been an increase in net
asset value per share of 5.5% when adjusted for the impact of last
year's tender offer.
Portfolio gains (realised and unrealised) for the six months
were GBP0.2 million net (2017: net gains of GBP5.4 million), the
key elements of which were:
-- The sale of Brockton Capital LLP produced a realised gain of GBP0.6 million;
-- Within the quoted portfolio IDE Group incurred an unrealised
loss of GBP1.7 million.
The portfolio gains for the period are stated after the impact
of unrealised exchange gains of GBP0.8 million (six months to 30
June 2017: losses of GBP1.9 million). During the first quarter of
2018 Sterling strengthened against the US Dollar, but this reversed
during the second quarter and over the six month period Sterling
has weakened against the US Dollar by approximately 2%.
Overhead costs of the Company and its subsidiaries were GBP0.9
million (Company GBP0.7 million, Subsidiaries GBP0.2 million),
significantly lower than the previous year (six months to 30 June
2017: GBP1.6 million), reflecting the transition to external
management.
Conclusion and outlook
The Board and the Manager are now focused on growing the
Investment portfolio and net asset value and, in due course, paying
a dividend. Realisations in the first six months of the year have
created liquidity for the Company, and the Board sees a reasonable
prospect of further realisations in 2019.
It is pleasing to have restarted investment activity with an
investment sourced through the Gresham House network, in a company
operating in an area of historic LMS expertise. The Company is now
in the position to take advantage of a pipeline of investment
opportunities and the Board expects further investment
activity.
Martin Knight
Chairman
12 September 2018
Manager's Review - 30 June 2018
Introduction
Gresham House Asset Management ("GHAM") was appointed investment
manager in August 2016, and therefore the half year to 30 June 2018
brings to almost two 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 GBP11 million of capital to shareholders,
alongside targeting annual cost savings.
These objectives have been fully achieved, ahead of
expectations. New investment management processes have been
established, and an independent investment committee appointed.
Annualised cost savings in excess of GBP1.4 million have been
achieved. In August 2017, following investment realisations in the
first half of last year, the Company returned GBP11 million to its
shareholders, fulfilling its commitment made in 2016.
During the first six months of 2018, following further
investment realisations, the cash resources of the Company and its
subsidiaries have grown from GBP4 million to GBP14 million and the
Company is now positioned to commence investing in accordance with
the investment policy adopted in August 2016.
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 GBP50 million 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.
As a result, and having sourced an attractive investment in an
area of historic expertise, LMS has invested in a private 8%
yielding convertible loan note issued by Northbridge Industrial
Services PLC ("Northbridge"), an oil and gas equipment and services
group quoted on the London Stock Exchange AIM market. The
investment represents the recommencement of investment and the
culmination of the transition plans for LMS under GHAM
management.
Market background
2018 saw a bullish start to the year, notably in US markets,
followed by a correction and return of volatility in February as
markets reacted to rising inflation and the prospect of rising
interest rates as well as the threat of increased tariffs. US
10-year yields approached 3% and global equity markets pared back
from near record highs. The domestic environment continues to be
dominated by Brexit. Understandably some investors and commentators
have sought to call time on one of the longest bull markets in
history. However, taking an objective view of the global economy
and UK markets, there remains much to be positive about and we saw
some recovery into the second quarter. High valuations, fund
raising and increased competition for deals means private equity
firms have high levels of uninvested funds, particularly for the
larger enterprise value deals. We believe there are significant
inefficiencies at the smaller end of the market, focusing on
established smaller private companies below GBP50 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
2018 was as follows:
Six months
ended 30 June
2018
GBP'000
Opening Net Asset Value 1 January 2018 64,488
Return on investments 179
Net Costs (879)
---------
Closing Net Asset Value 30 June 2018 63,788
---------
Net cash realisations by the group from the portfolio were as
follows:
Six months ended
30 June
--------------------
2018 2017
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Net proceeds from investment realisations 12,498 19,906
-------------------------------------------- --------- ---------
Follow-on investments and fund calls (394) (307)
New investments (600) -
Total - net 11,504 19,599
-------------------------------------------- --------- ---------
Realisations in 2018 (of which Company GBP3 million;
Subsidiaries GBP9.5 million) include:
-- Proceeds of GBP9.0 million following the sale of Penguin;
-- GBP3.1 million of proceeds from the sale of the Company's interest in Brockton Capital LLP;
-- Net cash of GBP0.1 million received as a result of the
exercise by the Company's Gresham House share options; and
-- Other distributions and loan repayments amounted to GBP0.3 million.
The follow-on investments relate principally to a working
capital loan for Elateral, a UK direct investment, and
participation in a short term loan note issued by Medhost, a US
co-investment, as part of an arrangement to facilitate the
refinancing of its debt. There were also fund calls amounting to
GBP0.1 million.
The new investment is a GBP600,000 investment in Northbridge an
AIM quoted company that hires and sells specialist industrial
equipment to utilities, public sector and oil and gas industries.
The investment is via an 8% yielding convertible loan note and is
the Company's first investment, other than follow on investments,
since the conclusion of its realisation strategy and adoption of
its new investment policy in August 2016.
Below is a summary of the investment portfolio of the Company
and its subsidiaries:
30 June 2018 31 December 2017
---------------------------------- ----------------------------------
Asset type UK US Total UK US Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------- ---------- ---------- ---------- ---------- ----------
Quoted 5,412 2,115 7,527 6,874 1,770 8,644
Unquoted 6,500 14,075 20,575 8,400 14,504 22,904
Funds 7,966 16,339 24,305 7,806 24,464 32,270
------------- ---------- ---------- ---------- ---------- ---------- ----------
19,878 32,529 52,407 23,080 40,738 63,818
------------- ---------- ---------- ---------- ---------- ---------- ----------
The Company's 10 largest investments at 30 June 2018 comprising
71.6% of the net asset value are shown below. Group cash comprises
a further 21.9% of the net asset value.
Name Geography Sector Book value % of
Net
asset
value
-------------------------------- ------------ ------------- ------------------------ ---------
30 31 December 30 June
June 2017 2018
2018
GBP'000 GBP'000
Quoted investments
Gresham House plc UK Financial 4,331 4,123 6.8%
IDE Group Holdings (formerly
Coretx Holdings) UK Technology 1,080 2,751 1.7%
Weatherford International US Energy 1,346 1,669 2.1%
Unquoted investments
Medhost Inc US Technology 8,561 8,183 13.4%
Entuity UK Technology 3,600 3,600 5.6%
Nationwide Energy Partners US Energy 3,028 2,960 4.8%
Elateral UK Technology 2,300 2,300 3.6%
Fund investments
San Francisco Equity Partners
YesTo, Inc* US Consumer 9,133 9,437 14.3%
Penguin Computing* US Technology 4,330 12,895 6.8%
Others
Brockton Capital UK Property 4,758 4,603 7.5%
Opus Capital Venture Partners US Technology 3,206 3,671 5.0%
*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 - 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 2018
was as follows:
Six months ended 30 June
------------------------------------------------------------------------------------------------
2018 2017
----------------------------------------------- -----------------------------------------------
Realised Unrealised Realised Unrealised
gains/(losses) gains/(losses) Total gains/(losses) gains/(losses) Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ----------------- ----------------- --------- ----------------- ----------------- ---------
Quoted 43 (1,866) (1,823) 44 (180) (136)
Unquoted 770 1,259 2,029 2,488 (2,833) (345)
Funds 119 (146) (27) 3,572 2,333 5,905
------------------ ----------------- ----------------- --------- ----------------- ----------------- =========
932 (752) 179 6,104 (680) 5,424
------------------ ----------------- ----------------- ----------------- -----------------
Charge
for incentive
plans - (168)
------------------ ----------------- ----------------- --------- ----------------- ----------------- ---------
179 5,256
Operating
and similar
expenses
of subsidiaries (186) (224)
------------------ ----------------- ----------------- --------- ----------------- ----------------- ---------
(7) 5,032
------------------ ----------------- ----------------- --------- ----------------- ----------------- ---------
The charge for incentive plans in 2017 included GBP44,000 for
carried interest relating to historic schemes.
Approximately 62% of the portfolio at 30 June 2018 is
denominated in US dollars (31 December 2017: 63%) and the above
table includes the impact of currency movements. In the six months
ended 30 June 2018, the strengthening of the US Dollar against
sterling resulted in an unrealised foreign currency gain of
GBP812,000 (2017: unrealised loss of GBP1,939,000). 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 31 December
2018 2017
------------------------------ ---------------- --------- -------------
Company Sector GBP'000 GBP'000
------------------------------ ---------------- --------- -------------
Gresham House plc UK financial 4,331 4,123
IDE Group Holdings
(formerly Coretx Holdings) UK technology 1,080 2,751
Weatherford International US energy 1,346 1,669
Others - 770 101
7,527 8,644
----------------------------------------------- --------- -------------
The net loss on the quoted portfolio arose as follows:
Six months ended
30 June
----------------------
2018 2017
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
Realised
Weatherford International - 46
Gresham House plc 43 -
Other quoted holdings - (2)
43 44
--------------------------------------------- ---------- ----------
Unrealised
Gresham House 273 246
IDE Group Holdings (1,670) 147
Weatherford International (317) (449)
Other quoted holdings (172) 26
Unrealised foreign currency gains/(losses) 20 (150)
--------------------------------------------- ---------- ----------
(1,866) (180)
--------------------------------------------- ---------- ----------
Total net loss (1,823) (136)
--------------------------------------------- ---------- ----------
Gresham House plc
At 31 December 2017 the Company held 801,985 shares in Gresham
House plc and 909,908 warrants to acquire shares in Gresham House
plc.
The Gresham House share price increased from 412p at 31 December
2017 to 440p at 30 June 2018.
In May 2018 the Company exercised its 909,908 warrants to
acquire shares in Gresham House plc at a price of 323.27p per
share. At the time of exercise of the warrants, the Gresham House
plc share price was 443p per share. The Company retained 182,344 of
the shares acquired and sold 727,564 shares. The shares retained,
in conjunction with shares it already owned, leave the Company with
a holding of approximately 5% in Gresham House plc.
The 909,908 warrants had a carrying value of GBP0.8 million at
31 December 2017 and cost of exercise was GBP2.94 million. Proceeds
from the sale of 727,564 shares were GBP3.05 million and the value
of the 182,344 shares retained at 30 June was GBP0.8 million. The
net gain to the Company from the exercise of the warrants, based on
its carrying value at 31 December 2017 was GBP0.09 million.
The warrants had been acquired by the Company in October 2016,
at a price of 28p per warrant, as part of the arrangements put in
place to promote alignment between the Company and its new manager,
when it appointed GHAM as manager of its portfolio in August 2016.
Based on the acquisition cost of the warrants, the gain to the
Company from the warrant exercise has been GBP0.65 million.
IDE Group
The performance of IDE Group has been disappointing and the
share price fell substantially, following a number of announcements
in the first half of the year. The share price at 30 June 2018,
reflected above is 11p per share.
Subsequent to the half year balance sheet date the share price
has reduced further and, on 31 July 2018 the Company announced an
underwritten rescue financing package. This later share price
reduction is not included in the 30 June 2018 carrying value.
Other quoted
During the period the Company received distributions of shares
in Solaredge Inc, from its fund investment, Opus Capital Venture
Partners. These shares had a carrying value at 30 June 2018 of
GBP675,000 and are included above within "Other" above.
Unquoted investments
30 June 31 December
2018 2017
----------------------------- ------------------------- --------- -------------
Company Sector GBP'000 GBP'000
----------------------------- ------------------------- --------- -------------
Medhost Inc US technology 8,561 8,183
Entuity UK technology 3,600 3,600
Elateral UK technology 2,300 2,300
Nationwide Energy Partners US energy 3,028 2,960
Brockton Capital LLP UK Property - 2,500
Penguin Computing* US technology 833 1,747
ICU Eyewear US consumer 757 740
Yes To* US consumer 896 874
Northbridge UK industrial services 600 -
20,575 22,904
------------------------------------------------------- --------- -------------
*These are co-investments with SFEP
The net gain/(loss) on the unquoted portfolio arose as
follows:
Six months ended
30 June
--------------------
2018 2017
--------------------------------------------- --------- ---------
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Realised
365ITMS - 1,932
YesTo - 556
Brockton Capital LLP 617 -
Penguin 153 -
770 2,488
--------------------------------------------- --------- ---------
Unrealised valuation adjustments
Medhost - (1,632)
Elateral* - (650)
Nationwide Energy Partners - (785)
Entuity 187 671
Penguin Computing 833 441
YesTo 2 39
Unrealised foreign currency gains/(losses) 237 (918)
--------------------------------------------- --------- ---------
1,259 (2,833)
--------------------------------------------- --------- ---------
Total net gain/(loss) 2,029 (345)
--------------------------------------------- --------- ---------
*GBP125,000 was advanced during the period, this was accrued for
at December 2017.
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.
In most cases the multiples used at 30 June 2018 are similar to
those prevailing at the end of 2017 and therefore the unrealised
gains or losses set out in the table above arise principally as a
result of the companies' performance.
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. The Company has
based its carrying value on the valuation approach adopted by
Primus Capital. Medhost's financial performance is satisfactory and
is expecting to show growth in profitability and cash generation in
2018.
Brockton Capital LLP
The sale of Brockton Capital LLP was completed in March 2018.
The Company received total proceeds of GBP3.1 million for its
minority shareholding plus its share of excess cash in Brockton
Capital LLP at the time of sale.
The Company had originally acquired its minority holding in 2006
when, together with 3 other cornerstone investors, it backed the
establishment of Brockton Capital LLP, a private equity real estate
investment adviser, and became an investor in Brockton Capital Fund
I LP ("the Fund", a real estate investment fund. The investment in
Brockton Capital LLP gave the Company the right to participate in
entities that would receive a share of any carried interest in
relation to the performance of the Fund and subsequent
Brockton-advised funds. The Company still retains its interest in
Brockton Capital Fund I LP.
Nationwide Energy Partners ("NEP")
This investment comprises a US$5.0 million loan note repayable
(with interest) in instalments over 4 years. The loan note was
issued in December 2017 as part of the consideration in a
transaction whereby the Company sold its equity interest in NEP
back to the founder. The carrying value is the present value of the
Company's current estimate of amounts receivable from the loan
note.
Entuity
Following the appointment of a new CEO in 2016, the business is
performing satisfactorily and is focussed on future value growth.
Operating cash flows were sufficiently strong to enable it to repay
part of its shareholder loan in June 2018.
Elateral
The new leadership team at Elateral continues to look to grow
its revenues and improve profitability. Progress is expected during
the second half of the year.
Penguin Computing
The Company's total interests are held through its investment in
SFEP and directly through a co-investment with SFEP. The amounts
shown above relate to the directly held co-investment. As explained
below, the business was sold in June 2018 and initial consideration
has been received. The carrying value represents the estimated
further proceeds that may be received from earn out arrangements
and the release of amounts held in escrow.
Fund interests
30 June 31 December
2018 2017
------------------------- --------------------------- --------- -------------
General partner Sector GBP'000 GBP'000
------------------------- --------------------------- --------- -------------
San Francisco Equity
Partners US consumer & technology 12,171 20,048
Brockton Capital Fund
1 UK property 4,758 4,603
Opus Capital Venture
Partners US venture capital 3,206 3,671
US micro-cap quoted
Weber Capital Partners stocks 871 599
Eden Ventures UK venture capital 1,886 1,883
Other interests - 1,413 1,466
------------------------- ---------------------------- --------- -------------
24,305 32,270
----------------------------------------------------- --------- -------------
(Losses) and gains on the Company's funds portfolio for the six
months ended 30 June 2018 were as follows:
Six months ended
30 June
----------------------
2018 2017
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
Realised
Realised on distributions 119 3,572
119 3,572
--------------------------------------------- ---------- ----------
Unrealised valuation adjustments
San Francisco Equity Partners (1,272) 4,278
Eden Ventures (1) (1,325)
Brockton Capital 155 211
Simmons Parallel Energy - (59)
Opus Capital Venture Partners 174 229
Weber Capital Partners 248 -
Others (net) (4) (130)
Unrealised foreign currency gains/(losses) 554 (871)
--------------------------------------------- ---------- ----------
(146) 2,333
--------------------------------------------- ---------- ----------
Total net (losses)/gains (27) 5,905
--------------------------------------------- ---------- ----------
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 two remaining investments, YesTo and the remaining
interest in the further proceeds expected to be received following
the sale of Penguin Computing ("Penguin").
The sale of Penguin 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:
-- Penguin - fund carrying value GBP3,497,000 (31 December 2017:
GBP11,148,000). This investment was sold in June 2018, and an
initial payment of consideration received. The carrying value at 30
June 2018 relates to amounts of sale consideration estimated still
to be receivable from payments under an earn out arrangement and
the release of amounts retained in escrow. As noted above, the
valuation reflects an estimate of additional amounts of carried
interest that may become payable to the general partner of SFEP
.
In addition to the fund investments noted above the Company has
a co-investment in Penguin of GBP833,000 (31 December 2017:
GBP1,747,000) . The Penguin co-investment has been valued to
reflect proceeds received from the initial consideration plus an
estimate of potential further proceeds from the release of amounts
held in escrow and payments under the earn out arrangement. There
is no carried interest payable in relation to the
co-investment.
The Company's total investment in Penguin at 30 June 2018, via
its SFEP fund interest and its co-investment is GBP4,330,000 (31
December 2017: GBP12,895,000).
-- YesTo - fund carrying value GBP8,237,000 (31 December 2017:
GBP8,564,000) YesTo continues to perform strongly. The Investment
was revalued upwards in 2017 reflecting the valuation achieved at
the time of the partial exit in June 2017 and the continued
performance of the business. As noted above, the valuation reflects
an estimate of additional amounts of carried interest that may
become payable to the general partner of SFEP.
In addition to the fund investments noted above the Company has
a directly held co investment in YesTo of GBP896,000 (31 December
2017: GBP874,000).
The Company's total investment in YesTo at 30 June 2018, via its
SFEP fund interest and its co-investment is GBP9,133,000 (31
December 2017: GBP9,438,000).
Other fund interests
-- Eden Ventures - this early stage fund has performed below
expectations and remains valued by the Company at a discount to the
fund net asset value published by the general partner;
-- Brockton Capital -The Company's discounted cash flow
valuation methodology for this investment results in a small uplift
for its interest;
-- Opus Capital, a US venture fund, made stock distributions in
kind in the six months to 30 June 2018 of GBP815,000.
Overhead costs
Overhead costs for the six months to 30 June 2018 (including
amounts incurred by subsidiaries) were GBP862,000 - significantly
lower than the corresponding period last year (six months to 30
June 2017: GBP1,635,000). This reduction reflects the savings
achieved, now that the transition to external management is
complete.
Taxation
The Company has a tax charge amounting to GBP2,000 for the six
months ended 30 June 2018 (2017: nil).
Financial resources and commitments
Including cash in subsidiaries, cash holdings were GBP14,032,000
(31 December 2017: GBP3,960,000) with no debt.
At 30 June 2018 subsidiary companies had commitments of
GBP3,112,000 (31 December 2017: GBP3,133,000) to meet outstanding
capital calls from fund interests.
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. Based on the information available to it today,
GHAM sees a reasonable prospect of further liquidity in 2019.
The Company's increased cash following recent realisations
enables us 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
12 September 2018
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 2017. 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 2017
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
12 September 2018
Condensed income statement
Six months ended 30
June
2018 2017
Notes GBP'000 GBP'000
------------------------------------- ------- ----------- ----------
Net (loss)/gains on Investments 2 (7) 5,032
Interest income 18 5
----------- ----------
11 5,037
Operating expenses (713) (1,491)
----------- ----------
(Loss)/profit before tax (702) 3,546
Taxation 2 -
----------- ----------
(Loss)/profit for the period (700) 3,546
----------- ----------
Attributable to:
Equity shareholders (700) 3,546
----------- ----------
(Loss)/earnings per ordinary share
- basic 3 (0.9p) 3.7p
(Loss)/earnings per ordinary share
- diluted 3 (0.9p) 3.7p
------------------------------------- ------- ----------- ----------
The notes form part of these financial statements.
Condensed statement of other comprehensive income
Six months ended 30
June
2018 2017
GBP'000 GBP'000
------------------------------------ -------------------------- ---------
(Loss)/profit for the period (700) 3,546
Other comprehensive income - -
-------------------------- ---------
Total comprehensive (loss)/profit
for the period (700) 3,546
------------------------------------- -------------------------- ---------
Attributable to:
Equity shareholders (700) 3,546
------------------------------------- -------------------------- ---------
The notes form part of these financial statements.
Condensed statement of financial position
30 June 31 December
2018 2017
Note GBP'000 GBP'000
----------
Non-current assets
Investments 4 139,790 141,964
---------- -------------
Non-current assets 139,790 141,964
---------- -------------
Current assets
Operating and other receivables 84 281
Cash and cash equivalents 10,862 2,283
---------- -------------
Current assets 10,946 2,564
---------- -------------
Total assets 150,736 144,528
----------------------------------- ------ ---------- -------------
Current liabilities
Operating and other payables (646) (1,292)
Amounts payable to subsidiaries (86,302) (78,748)
---------- -------------
Current liabilities (86,948) (80,040)
---------- -------------
Total liabilities (86,948) (80,040)
----------------------------------- ------ ---------- -------------
Net assets 63,788 64,488
----------------------------------- ------ ---------- -------------
Equity
Share capital 8,073 8,073
Share premium 508 508
Capital redemption reserve 24,949 24,949
Retained earnings 30,258 30,958
-------------
Total equity shareholders' funds 63,788 64,488
----------------------------------- ------ ---------- -------------
The financial statements were approved by the Board on 12
September 2018 and were signed on its behalf by:
Neil Lerner
Director
The notes form part of these financial statements.
Statement of changes in equity
Six months ended 30 June 2018
Capital
Share Share redemption Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
----------------------- --------- --------- ------------ ---------- ---------
Six months ended 30 June 2017
Capital
Share Share redemption Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ---------------------- ---------------------- ---------------------------- ---------- ---------
Balance at 1
January
2017 9,644 508 23,378 34,586 68,116
Total
comprehensive
income
for the period
Profit for the
period - - - 3,546 3,546
Balance at 30
June
2017 9,644 508 23,378 38,132 71,662
----------------- ---------------------- ---------------------- ---------------------------- ---------- ---------
The notes form part of these financial statements.
Condensed cash flow statement
Six months ended 30
June
2018 2017
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit for the period (700) 3,546
Adjustments for:
Depreciation and amortisation - 32
Loss on investments 7 (5,032)
Interest Income (18) (5)
------------------------------------------------ ----------- ----------
(711) (1,459)
Dividends received - 12,720
Change in operating and other receivables 164 152
Change in operating and other payables (646) (2,522)
Change in amounts payable to and receivables
from subsidiaries 10,212 6,453
------------------------------------------------ ----------- ----------
Net cash generated from operating
activities 9,019 15,344
------------------------------------------------ ----------- ----------
Cash flows from Investing activities
Interest received 51 5
Purchase of investments (3,541) -
Proceeds from sale of investments 3,050 -
----------- ----------
Net cash from Investing activities (440) 5
------------------------------------------------ ----------- ----------
Net increase in cash and cash equivalents 8,579 15,349
Cash and cash equivalents at the
beginning of the period 2,283 1,249
----------- ----------
Cash and cash equivalents at the
end of the period 10,862 16,598
------------------------------------------------ ----------- ----------
The notes 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 2017 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 2017 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
2017 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 2017,
except as noted below.
New accounting standards effective during the Period
IFRS 9 "Financial instruments" is effective on or after
accounting periods beginning on 1 January 2018. The new standard
requires the Directors to evaluate the classification, measurement
and recognition of financial assets and financial liabilities.
The Company has adopted IFRS 9 with effect from 1 January 2018,
which has the following impact:
-- No effect on the classification and measurement of its
financial assets, as these are held at fair value through profit or
loss and will continue to be measured on the same basis under IFRS
9;
-- No impact on the accounting for financial liabilities, as the
new requirements only affect the accounting for financial
liabilities that are designated at fair value through profit or
loss. The Company has no such financial liabilities.
IFRS 15 "Revenue from contracts with customers" is effective on
or after accounting periods beginning on 1 January 2018.
The core principle of the new standard is for entities to
recognise revenue to depict the transfer of goods or services to
customers in amounts that reflect the consideration (that is,
payment) to which the Company expects to be entitled in exchange
for those goods or services.
The Company is not exposed to IFRS 15 given its business model
and therefore this has no impact on the Company.
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 2017 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. Gains on investments
The gains and losses on investments were as follows:
Six months ended 30 June Six months ended 30 June
2018 2017
--------------------------------------------- ---------------------------------------------
Realised Unrealised Realised Unrealised
gains/(losses) gains/(losses) Total gains/(losses) gains/(losses) Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ---------------- ---------------- --------- ---------------- ---------------- ---------
Quoted 43 (1,866) (1,823) 44 (180) (136)
Unquoted 770 1,259 2,029 2,488 (2,833) (345)
Funds 119 (146) (27) 3,572 2,333 5,905
---------------- ---------------- ---------
932 (753) 179 6,104 (680) 5,424
---------------- ---------------- --------- ---------------- ---------------- ---------
Charges for incentive
plans - (168)
--------- ---------
179 5,256
Operating and
similar expenses
of subsidiaries 186 (224)
---------------- ---------------- --------- ---------------- ---------------- ---------
(7) 5,032
-------------------- ---------------- ---------------- --------- ---------------- ---------------- ---------
3. (Loss) / earnings per ordinary share
The calculation of the basic and diluted (loss)/earnings per
share, in accordance with IAS 33, is based on the following
data:
Six months ended
30 June
30 June 2018 2017
GBP'000 GBP'000
-------------------------------------- --------------------- ---------------------
(Loss)/earnings
(Loss)/earnings for the purpose
of (loss)/earnings per
share being net (loss)/profit
attributable to equity
holders of the parent (700) 3,546
Number of shares
Weighted average number of ordinary
shares for the
purposes of basic (loss)/earnings
per share 80,727,450 96,441,735
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)/earnings
per share 80,805,981 96,520,266
--------------------------------------- --------------------- ---------------------
(Loss)/earnings per share
-------------------------------------- --------------------- ---------------------
Basic (0.9p) 3.7p
Diluted (0.9p) 3.7p
--------------------------------------- --------------------- ---------------------
*There were no potentially dilutive shares in the period to June
2018 since the Company made a loss.
4. Investments
The Company's investments comprised the following:
31 December
30 June 2018 2017
GBP'000 GBP'000
-------------- -------------
Total investments 139,790 141,964
--------------------------------------- -------------- -------------
These comprise:
Investment portfolio of the Company 4,931 4,123
Investment portfolio of subsidiaries 47,476 59,695
Other net assets of subsidiaries 87,383 78,146
139,790 141,964
--------------------------------------- -------------- -------------
The carrying amounts included in the investment portfolio were
as follows:
30 June 2018 31 December 2017
-------------------- -------------------------------
UK US Total UK US Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- --------- --------- --------- --------- --------- ---------
Quoted 5,412 2,115 7,527 6,874 1,770 8,644
Unquoted 6,500 14,075 20,575 8,400 14,504 22,904
Funds 7,966 16,339 24,305 7,806 24,464 32,270
--------- --------- --------- --------- --------- ---------
19,878 32,529 52,407 23,080 40,738 63,818
------------- --------- --------- --------- --------- --------- ---------
The following table analyses investments carried at fair value
at the end of the year, 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 2018 31 December 2017
GBP'000 GBP'000
---------- -------------- ------------------
Level 1 4,331 3,304
Level 2 - -
Level 3 135,459 138,660
-------------- ------------------
139,790 141,964
---------- -------------- ------------------
Level 3 amounts include GBP47,476,000 (2017: GBP59,695,000)
relating to the investment portfolios of subsidiaries (including
quoted investments of GBP3,196,000 (2017: GBP4,521,000)) and
GBP87,383,000 (2017: GBP78,146,000) in relation to the other net
assets of subsidiaries.
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 2018
would have decreased by GBP13.6 million (2017: GBP13.5 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 2018 31 December 2017
GBP'000 GBP'000
----------------------------------- -------------- ------------------
Outstanding commitments to funds 3,112 3,133
3,112 3,133
----------------------------------- -------------- ------------------
The outstanding commitments to funds comprise unpaid calls in
respect of funds where one of the Company's subsidiaries is a
limited partner.
6. Related party transactions
Gresham House Asset Management Limited, the investment manager
of LMS Capital plc charged GBP439,000 to 30 June 2018 (six months
to 30 June 2017: GBP437,000).
With effect from January 2011 the Company entered into a lease
agreement with Derwent London plc in respect of the premises
comprising its head office and registered office. The lease was
formally terminated on 24 March 2018. Under the terms of the lease
the Company paid rent of GBP104,000 (six months to 30 June 2017:
GBP203,000) to Derwent London plc. Robert Rayne is Chairman of
Derwent London plc.
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
United States
LMS NEP Holdings Inc 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 31 December
2018 2017
--------------------------------------- ------------- -----------------------------
Net asset value (GBP'000) 63,788 64,488
Number of ordinary shares in issue 80,727,450 80,727,450
Net asset value per share (in pence) 79.0p 79.9p
---------------------------------------- ------------- -----------------------------
Statement of Directors' responsibilities
The Directors listed on pages 18 of the Company's Annual Report
for the year ended 31 December 2017 continued in office during the
six months ended 30 June 2018.
We confirm that to the best of our knowledge:
a) the condensed financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU; and
b) the interim management report includes a fair review of the information required by:
i. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the current financial year and their impact on the
condensed financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
ii. DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
N Lerner
Director
12 September 2018
Independent review report to LMS Capital plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the condensed income
statement, condensed statement of other comprehensive income,
condensed statement of financial position, statement of changes in
equity, condensed cash flow statement and notes to the financial
statements.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and
has been approved by the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Company are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting its responsibilities in
respect of half-yearly financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with International Accounting Standard 34, as adopted by the
European Union, and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
BDO LLP
Chartered Accountants
LONDON, UK
12 September 2018
BDO LLP is a limited liability partnership registered n England
and Wales (with registered number OC305127).
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.
END
IR UURURWOAKAAR
(END) Dow Jones Newswires
September 12, 2018 08:15 ET (12:15 GMT)
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