TIDMLMS
RNS Number : 3250E
LMS Capital PLC
10 March 2022
10 March 2022
LMS CAPITAL PLC
Final Results for the Year Ended 31 December 2021
The Board of LMS Capital plc (the "Company") is pleased to
announce the Company's audited annual results for the year ended 31
December 2021.
Financial Summary
31 December 2021 31 December 2020
------------------ ------------------
Net asset value GBP49.1m GBP47.9m
Cash available at year end GBP20.1m GBP20.6m
Portfolio gains/(losses) GBP3.8m (GBP2.1m)
Running costs (GBP1.8m) (GBP1.7m)
Net asset value per share (p) 60.8p 59.4p
Dividends paid per share (p) 0.9p 4.55p*
Dividends declared/recommended
by Board (p) 0.925p 0.9p
*Includes special divided of 4.25p per share paid in January
2020
Financial Highlights
Net Asset Value
-- The net asset value ("NAV") at 31 December 2021 was GBP49.1
million, 60.8 pence per share (31 December 2020: GBP47.9 million,
59.4 pence per share); and
-- Adjusting for the impact of dividends to shareholders, the
NAV over the year increased by a net GBP1.9 million, or 4.0%, from
the gains on the mature asset portfolio and investment interest
income and a net reduction of other items, mainly running
costs.
Portfolio gains and realisations
-- The portfolio showed an overall increase in value on the year
of GBP3.8 million of which GBP2.6 million (11.6% return) was from
net realised and unrealised gains on the mature asset portfolio and
GBP1.2 million (18.5% return) from investment interest income on
Dacian Petroleum ("Dacian"); and
-- Cash proceeds from portfolio realisations in the year
totalled GBP2.7 million (2020: GBP9.3 million).
Running costs
-- Running costs, including those incurred by subsidiaries, were
GBP1.8 million and there were an additional GBP0.3 million of
investment related costs (2020: GBP1.7 million running costs and
GBP0.2 million of investment related costs).
Dividends
-- The Board continued its progressive annual dividend policy
targeting a dividend initially equal to 1.5% of each financial
year's closing NAV and targeting that this should be fully covered
by distributable profits, subject to the Company's liquidity and
market conditions. A final dividend of 0.6 pence per share on the
2020 year was paid in May 2021, and an interim dividend of 0.3
pence per share for the 2021 year was paid in September 2021. A
final dividend on the 2021 year of 0.625 pence per share is
recommended by the Board and subject to approval by shareholders at
the Annual General Meeting.
Cash balances
-- Group cash balances at the year-end, including amounts held
by subsidiaries, were GBP20.1 million, representing 24.9 pence per
share and 41.0% of the NAV (2020: GBP20.6 million and representing
25.5 pence per share and 43.0% of the NAV). The Company had no
external debt.
Key themes
-- Good returns in the mature investment portfolio - The mature
investment portfolio of GBP23.0 million, which comprises
investments originating from the Company's strategy pre-2012,
achieved a return of 11.6% during 2021 and also had cash
realisations of GBP2.7 million. The Company continues to focus on
realising the mature asset portfolio over the next 1 to 3 years
when appropriate opportunities arise;
-- Completion of the new Dacian investment - The Company's new
investment in Dacian is a cornerstone transaction, the first
completed since return to internal management in early 2020 and
demonstrates the ability of LMS to lead a co-investment group
alongside its own investment strategy. The investment enabled
Dacian to complete its first acquisition of onshore oil and natural
gas production assets in Romania. The Company's investment in
Dacian generated an unrealised return of 18.5% during the year;
-- Control of costs - The Company continues to maintain strict
control over its running costs and expects a reduction of 5% to 10%
in 2022 as the benefits of income from co-investment activities
begin to be realised; and
-- Future investments - The Board recognises that 41.0% of the
NAV is held in group cash balances with further realisations of the
mature portfolio expected. In 2022, the Company is focused on using
our board position to nurture the Dacian investment, develop the
opportunities for additional capital deployment within the acquired
Dacian portfolio, and more widely, and to bring forward
opportunities with our real estate teams.
Robert Rayne, Chairman, commented:
"We are pleased with our 2021 results and the annual returns on
both our mature investment portfolio and our new investment in
Dacian. The completion of the Dacian transaction is a significant
milestone for us which demonstrates our ability to lead a
co-investment group in one of the two key sectors in which we seek
to invest. Our significant cash balances will enable us to deploy
further capital in 2022, and we remain focused on bringing forward
the real estate opportunities in our current pipeline and seeking
additional areas to expand our energy portfolio."
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
Nick Friedlos, Managing Director
0207 935 3555
Statement from the Chairman and the Managing Director
We are delighted to be introducing this, our second set of
results, as a self-managed investment business. The Coronavirus
pandemic meant that 2021 continued to be a year of disruption and
uncertainty in society as a whole and for businesses.
Notwithstanding this, we have made progress in improving our NAV
and completed our investment in Dacian, our first cornerstone
investment since returning to self-management. Whilst the
investment took longer to close than initially anticipated, its
completion in November 2021 was a highlight and will create further
opportunities for us in 2022.
We have considered the impact of the Russian invasion of Ukraine
on our portfolio investments and our overall business. We do not
hold any investments that have operations in Russia or Ukraine.
Elateral, our investment in the digital marketing sector, utilises
contract staff in Ukraine, Russia and Belarus for its software
development and has developed a contingency plan to manage
potential disruption. The situation remains highly uncertain, and
we will monitor developments closely.
FINANCIAL RESULTS FOR THE YEARED 31 DECEMBER 2021
Net Asset Value ("NAV") overview
The NAV of the company at 31 December 2021 was GBP49.1 million,
60.8 pence per share (31 December 2020 GBP47.9 million, 59.4 pence
per share). This represents an increase of GBP1.2 million on the
prior year and comprises:
-- net increase of GBP2.6 million being realised and unrealised
net gains on the mature asset portfolio;
-- increase of GBP1.2 million being accrued interest on Dacian;
-- net reduction of GBP1.9 million for other items including
running costs, taxation, the investment costs principally
associated with developing real estate deal opportunities and
foreign exchange gains on non-portfolio assets; and
-- reduction of GBP0.7 million for dividends paid to shareholders.
After adjusting for the 0.9 pence per share distributed as
dividends during 2021, the NAV has shown an increase on the year of
4.0%.
The Company's NAV comprises three distinct groups of assets:
Mature Investments - 31 December 2021 NAV GBP23.0 million (28.5
pence per share)
-- these comprise investments which originate from the Company's strategy pre-2012;
-- the investments are managed with a view to optimising the
realisation values. Where the investment case supports it, we may
commit additional capital;
-- most of these investments are managed by third parties.
Whilst the Company has information rights and regular access to the
managers it has no direct control of decision making;
-- it is our expectation that these assets will be substantially
realised over the next 1-3 years; and
-- during the year, this group of investments:
o produced cash realisations of GBP2.7 million; and
o showed realised/unrealised gains of GBP2.6 million,
representing an 11.6% return on the opening balance.
New Investments - 31 December 2021 NAV GBP7.9 million (9.9 pence
per share)
-- currently, this comprises the Company's investment in Dacian.
The commitment to invest was made in Q3 2020, and funds were set
aside; the transaction completed, following obtaining regulatory
approvals in November 2021;
-- Dacian is the Company's first new investment in accordance
with the investment approach set out when it returned to
self-management at the beginning of 2020;
-- accrued interest on the loans through which the investment is
structured, have added GBP1.2 million to NAV in 2021; and
-- the background, rationale and prospects for the investment are discussed further below.
Liquidity - Cash less other net liabilities - 31 December 2021
NAV GBP18.2 million (22.4 pence per share)
-- cash comprises GBP20.1 million, some 41.0% of the Company's total NAV;
-- other net liabilities comprise GBP1.9 million and relate
mainly to accruals for income taxes, historic carried interest
liabilities for one remaining asset and other sundry costs; and
-- this represents the "fire power" with which we intend to
continue implementing the investment approach which is discussed in
more detail in our approach to the deployment of capital below.
Overall, net increases, both realised and unrealised, in the
underlying value of the portfolio over the year were GBP3.8
million.
Mature Assets - Portfolio overview
The four largest assets comprise 79% of the mature
portfolio:
-- Medhost - Co-investment, alongside Primus Capital, in this US
software company serving the mid-sized hospital market in America.
A mature business with strong and consistent revenues, earnings and
cash flows. The unrealised increase in NAV for the year, excluding
the impact of foreign exchange gains, was GBP0.2 million, a 4.1%
return on opening NAV for this investment;
-- Brockton Capital Fund I - The remaining asset in this real
estate fund, of which the Company holds 16.7%, is a preferred debt
investment in a "Super Prime" residential development in Mayfair,
central London. Whilst the pandemic has created delays in both the
construction and sales program for this project, work is nearing
completion and sales are being achieved. The investment, which is
valued on a discounted cash flow basis showed an unrealised
increase in NAV for the year of GBP1.5 million, representing an
unrealised 37.2% return on the opening NAV of the investment. This
reflects the annual accrual of interest on the underlying preferred
debt and unwind of the discount rate used in the valuation;
-- Opus Capital Venture Partners - The Company holds 2.3% of
this 2008 vintage US early-stage technology fund, managed by Opus
Capital Venture Partners. The fund has two significant remaining
investments. The fund life has now been exceeded, the manager is no
longer charging annual fees, and the expectation is that an exit
will be sought in the reasonably near term. The unrealised increase
in NAV during the year was GBP0.4 million representing an
unrealised return of 11.4% on the opening NAV of this investment;
and
-- Weber Capital Partners - This US micro-cap stock fund is run
for the Company by Weber Capital Partners with whom the Company has
worked closely for over 20 years. The theme is substantially but
not exclusively around technology and medical stocks. Historic
returns have been excellent. To September 2021, average rolling 5
year returns since 2006 and 3 year returns since 2002 have been
14.3% and 18.6% respectively. Prior to the return to
self-management, Weber Capital Partners was instructed to realise
and return much of the holding. In Q3 2020, additional capital of
$1 million was committed, to rebuild the investment and allow
greater diversity within the portfolio. The NAV increase on this
investment during 2021 was GBP0.8 million, a return of 44.2% on the
opening balance.
On other mature assets:
-- during the year, we have achieved a restructure and injection
of additional capital into Elateral (NAV GBP0.8 million) in
conjunction with bringing in a new operating partner who has joined
their Board. As noted above, Elateral has outsourced software
development resources in Ukraine, Russia and Belarus which are
being disrupted. The company has developed a contingency plan to
help mitigate the consequences;
-- ICU Eyewear (NAV GBP1.8 million), which produced an
unexpected windfall in 2020 from its opportunistic move into
distribution of PPE equipment, has returned largely to its core
eyewear activity. This investment is managed by San Francisco
Equity Partners ("SFEP") and options to exit the business are being
explored; and
-- the winding up of YesTo in Q4 was a significant
disappointment. In April 2020, the Company declined to invest
further capital in YesTo, but the indications at the time from the
manager, SFEP, were that at least the historic debt investment
should be recoverable, albeit the equity was unlikely to have any
value. Accordingly, a write down was taken in 2020. A combination
of factors, including the pandemic, put additional financial stress
on the business and the YesTo board took the decision in Q4 2021
that it was unlikely to raise further debt or equity and to pursue
an orderly winding up to repay external creditors. The Company has
written off its remaining GBP0.7 million investment.
As noted above, notwithstanding the outcome on YesTo, the mature
asset portfolio overall showed a return of 11.6% for the year on
the NAV at 1 January 2021.
New Investments - Dacian
The Company has invested GBP6.7 million ($9.1 million) in
Dacian, a newly formed Romanian oil and gas production company
established to acquire and operate mature onshore energy production
assets.
LMS assembled a funding package, comprising its own investment
and co-investment, to enable Dacian to complete its first
acquisition. The Company's $9.1 million investment is structured
almost entirely as senior secured loan notes with a coupon of 14%
per annum gross before a 10% withholding tax, plus a nominal
payment for a 32% equity stake in Dacian.
Dacian was able to conclude its acquisition in November 2021,
after a longer than anticipated delay in obtaining the necessary
local regulatory approvals.
Under the terms of the August 2020 Dacian investment agreement,
the senior secured loan notes carry an entitlement to interest
running from the date of original funding by investors, which was
in September 2020. Accordingly, accrued interest of GBP1.2 million
($1.7 million) has been added to the value of the investment. This
generated an unrealised return of 18.5% for the year. The rationale
for the investment in Dacian was:
-- the business is operationally cash flow positive from day one;
-- a business focused on the extension of life of existing
production assets that has an environmentally important role to
play in the world's transition away from carbon fuels; and
-- it was evaluated and the investment decision taken on the basis of:
o attractive entry pricing;
o a founder team with extensive industry experience and a
Romanian team with prior knowledge of the assets being
acquired;
o a robust operating plan able to withstand volatility in energy
prices;
o the opportunity for gains through production enhancing
technology that can extend the productive life of mature assets;
and
o overall, the potential to meet and exceed LMS's target
investment returns.
It remains early days for Dacian, having operated for less than
four months at time of writing, but initial indications are
positive as the company continues to increase production with its
workover programme and is generating positive cash flow from
operations.
Liquidity - Cash less other net liabilities
Cash
Cash balances in the Company and its subsidiaries at 31 December
2021 were GBP20.1 million (31 December 2020: GBP20.6 million).
Outflows during the year amounted to GBP3.2 million, this
includes GBP1.8 million of running costs, GBP0.3 million of
investment related costs, GBP0.7 million of dividend payments and
GBP0.4 million of new capital invested in Elateral.
Inflows were GBP2.7 million and include a GBP1.5 million
distribution from ICU Eyewear, GBP0.8 million from the redemption
of the Northbridge convertible debt, plus sundry fund
distributions.
Net Liabilities
Net liabilities of GBP1.9 million consist primarily of accruals
for income taxes, historic carried interest liabilities for one
remaining asset and other sundry costs.
DIVID POLICY
The Company paid GBP0.7 million in dividends during the year
comprising a final dividend for the year ended 31 December 2020 of
0.6 pence per share, paid on 14 June 2021 and an interim dividend
for the year ended 31 December 2021 of 0.3 pence per share paid on
3 September 2021.
A final dividend of 0.625 pence per share for the year ended 31
December 2021 is recommended by the Board. The increase reflects
the increase in 2021 year end NAV compared to the prior year.
Subject to approval by shareholders at the AGM in May 2022, the
dividend will be paid to shareholders in early June 2022.
The 2020 dividend and, if the Board's recommendation is
approved, the 2021 dividend payment will equate to approximately
1.5% of the respective year end NAV each year. This is in
accordance with the policy laid out by the Board in 2020. Whilst
the dividends currently exceed the net cash income, the Board is
confident of the Company's ability to generate future annual income
and has therefore continued the policy.
The Board's ambition is to increase the level of dividend and
will keep the current policy under review. The actual level of
dividend each year will take account of market conditions
generally, the Company's financial position and its distributable
reserves.
APPROACH TO THE DEPLOYMENT OF CAPITAL
Whilst the Dacian deal has now completed, the Company still has
41.0% of its NAV as uninvested cash. As the mature asset portfolio
is realised further cash will be generated.
Our approach to the further deployment of capital is to seek
opportunities, within our chosen sectors, which not only offer
attractive returns on the direct investment but also allow LMS to
have influence and, over time, to participate in developing and
bringing further capital into the underlying business - both from
its own balance sheet and its co-investment network. This
potentially creates additional fee streams and equity opportunities
for LMS.
This approach results in fewer, but more significant
transactions. One consequence of this is that individual deals can
take longer - Dacian has been an example of this. However, we
believe this approach to be the most effective one given the
current size of the Company and our ambition to grow.
Investment Themes
The Company has a widely drawn investment policy, but we are
conscious of the importance of bringing forward investments where
we have a track record of success and can offer distinct
competitive advantage based on our knowledge, past experience and
access to exceptional management teams. Our focus is on the
following sectors:
Energy
-- The Company has a history of investing in the energy sector
and has connections with management teams that enable it to
identify and execute on opportunities not readily accessible to
others.
In relation to carbon-based energy, we see the extension of life
of existing production assets as having a key and environmentally
important role to play in the world's transition away from carbon
fuels over the next few decades. Dacian has a portfolio of sunset
life assets where the extension of life of these ageing assets
allows for very low carbon footprint per barrel and molecule
produced because the existing industrial infrastructure is put to
further use. Dacian is the first investment in this area.
We also see opportunities in renewable energy and in the
businesses that service the generation of that energy.
Real Estate
-- Real estate has been a consistent theme in the LMS portfolio
and is an area of deep expertise and access to opportunities and
management.
In evaluating the opportunities we see, we remain cautious,
noting continued high asset and site acquisition prices against a
backdrop of continuing uncertainty, in particular around the
inflationary pressures on construction costs.
We see opportunity in developing specialist-use real estate and
by working in partnership with landowners and other third parties.
We are working to bring opportunities forward.
Late-stage private equity
-- Late-stage private equity covers a wide spectrum of
opportunities and we are aware of the need to employ our resources
efficiently and in areas where we can show some differentiation and
relative competitive advantage.
Whilst we continue to see a range of opportunities, we have
focused our resources on looking at those that have some cross over
with our real estate or energy themes, for example industrial
products whose market includes the energy sector or real estate
service businesses.
Investment characteristics
The Company sees many opportunities during a typical year but
focuses on those where not only the underlying investment merits
are attractive, but also where LMS has a competitive advantage. The
sources of advantage are:
-- working with management teams we know well, who are respected
in their sector, experienced and with a track record of successful
execution;
-- "hard to access" assets, typically at the smaller end of
their respective sectors, allowing more attractive acquisition
pricing and giving the opportunity for value creation through more
intensive management; and
-- the opportunity to introduce co-investment capital alongside our own balance sheet.
The Dacian transaction, which is our first deal since the return
to self-management reflects the approach we seek to adopt and the
above characteristics:
-- backing a team with whom we have deep and longstanding
relationships and who have outstanding experience in their
sector;
-- experience brought to bear to acquire assets at attractive
entry prices and which, through operational know how, can be driven
to produce excellent returns;
-- creating a platform from which the management team and LMS
can expand their exposure to the sector; and
-- creating the opportunity for LMS to introduce co-investment partners.
LOOKING FORWARD
The Company's objective is the preservation and creation of
wealth for its shareholders over the longer term. Its target is to
deliver returns, net of costs, of between 12% and 15% over the
longer period.
The completion of the Dacian transaction is an important
milestone for all our activities. It allows us to demonstrate to
shareholders, to co-investors and to the markets in which we wish
to invest, the characteristics of the opportunities we seek to
pursue and demonstrates our ability to execute on deals.
Looking forward in 2022, our focus is to:
-- use our Board position to nurture the Dacian investment -
still less than six months old - and to ensure that there is a
clear operating plan to achieve the production objectives envisaged
at the time the investment was made;
-- develop the opportunities for additional capital deployment
within the acquired Dacian portfolio, and more widely; and
-- bring forward opportunities with our real estate teams.
We would like to express our appreciation for the support from
our team and from the network of people with whom we work on a
regular basis. We would also like to express our appreciation for
the continued support of our shareholders. We look forward to
reporting progress to you during 2022.
Robert Rayne
Chairman
Nicholas Friedlos
Managing Director
9 March 2022
PORTFOLIO MANAGEMENT REVIEW
Introduction
During 2021, the Company recorded an 11.6% return on its mature
portfolio investments and an additional 18.5% on its first new
investment under internal management, Dacian. Portfolio
realisations totalled GBP2.7 million during 2021, primarily from
cash distributions from ICU Eyewear and the redemption of the
Northbridge convertible debt, funding the Company's overheads and
follow-on investment in Elateral.
Cash in the group at 31 December 2021 was GBP20.1 million (31
December 2020: GBP20.6 million), including GBP14.5 million held by
the Company and GBP5.6 million held by subsidiaries. Inflows, as
noted above were GBP2.7 million. Significant outflows have been
GBP0.7 million of dividend payments and GBP0.4 million invested in
Elateral. Other net cash movements amount to an outflow of GBP2.1
million, include GBP1.8 million of running costs and GBP0.3 million
of investment related costs.
Market background
Coming out of a volatile 2020 that was significantly impacted by
the Covid-19 pandemic, 2021 was a year of uncertainty and
anticipation for a return to normality. The rollout of vaccine
programmes and easing of lockdown restrictions generated an overall
economic recovery during 2021, although the identification of new
Covid-19 variants during the year contributed to the continued
volatility. The economic expansion was also impacted by global
supply chain issues, labour shortages and rising inflation. Despite
the economic growth and rising inflation, central banks continued
to provide fiscal and monetary stimulus, although that began to
taper at the end of the year. Sterling strengthened against the
U.S. Dollar during the year and global equity markets improved,
with the FTSE 100 having its best returns in 5 years, up over 14%,
while the U.S. S&P 500 Index gained nearly 27%. The FTSE AIM
100 and SmallCap indices ended the year up 2.0% and 20.0%,
respectively.
Domestically, continued economic growth is expected in 2022,
albeit at a slower pace than the previous year. The year could face
some continued uncertainty related to rising consumer prices due to
inflation, increasing energy prices, sustained labour shortages and
supply chain disruptions.
The consequences of recent developments and the impact of
macroeconomic and domestic issues will continue to be monitored
closely by the Board.
Performance review
The movement in NAV during the year was as follows: 2021 2020
GBP'000 GBP'000
Opening NAV 47,923 55,958
Profit/(loss) on investments 2,556 (2,053)
Investment interest income 1,241 -
Dividends (727) (3,673)
Overheads and other net movements (1,884) (2,309)
------------------------------------------------------ --------- ---------
Closing NAV 49,109 47,923
------------------------------------------------------ --------- ---------
Cash realisations and new and follow-on investments from the
portfolio were as follows:
Year ended
31 December
--------------------
2021 2020
GBP'000 GBP'000
----------------------------------------------- --------- ---------
Proceeds from the sale of investments - 8,011
Proceeds from redemption of convertible debt 750 -
Distributions from funds and loan repayments 1,916 1,304
----------------------------------------------- --------- ---------
Total - gross cash realisations 2,666 9,315
New and follow-on investments (7,153) (976)
Fund calls (43) (169)
----------------------------------------------- --------- ---------
Total - net (4,530) 8,170
----------------------------------------------- --------- ---------
Realisations of GBP2.7 million in 2021 include:
-- GBP1.5 million of distributions from ICU Eyewear related to
cash generated in 2020 from their Health business line that sold
personal protective equipment;
-- proceeds of GBP0.8 million from the redemption of Northbridge convertible debt;
-- GBP0.1 million of distributions from Eden Two LLP; and
-- other realisations and fund distributions of GBP0.3 million.
The new and follow-on investments are primarily GBP6.7 million
for Dacian and GBP0.4 million of additional equity and working
capital funding for Elateral, a UK direct investment. The Dacian
investment was initially cash funded in September 2020 and
classified as other current assets in one of the Company's
subsidiaries until the transaction closed in November 2021.
The fund calls are primarily for SFEP management fees.
Below is a summary of the investment portfolio of the Company
and its subsidiaries, which reflects all investments held by the
group:
Year ended 31 December
----------------------------------------------------------------------
2021 2020
---------------------------------- ----------------------------------
UK US Total UK US Total
Mature investment portfolio GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Quoted 218 165 383 119 78 197
Unquoted 924 7,744 8,668 1,226 8,912 10,138
Funds 7,242 6,687 13,929 5,808 6,050 11,858
------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
8,384 14,596 22,980 7,153 15,040 22,193
UK US Total UK US Total
New investment portfolio GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Quoted - - - - - -
Unquoted - 7,958 7,958 - - -
Funds - - - - - -
--------------------------- ---------- ---------- ---------- ---------- ---------- ----------
- 7,958 7,958 - - -
--------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total investments 8,384 22,554 30,938 7,153 15,040 22,193
=========================== ========== ========== ========== ========== ========== ==========
Basis of valuation:
Quoted investments
Quoted investments for which an active market exists are valued
at the closing bid price at the reporting date.
Unquoted direct investment
Unquoted direct investments for which there is no active market
are valued using the most appropriate valuation technique with
regard to the stage and nature of the investment. Valuation methods
that may be used include:
-- investments in an established business are valued using
revenue or earnings multiples depending on the stage of development
of the business and the extent to which it is generating
sustainable revenue or earnings;
-- investments in an established business which is generating
sustainable revenue or earnings but for which other valuation
methods are not appropriate are valued by calculating the
discounted cash flow of future cash flows;
-- investments in debt instruments or loan notes are determined
on a standalone basis, with the initial investment recorded at the
price of the transaction and subsequent adjustments to the
valuation are considered for changes in credit risk or market
rates; and
-- convertible instruments are valued by disaggregating the
convertible feature from the debt instrument and valuing it using a
Black-Scholes model.
Funds
Investments in managed funds are valued at fair value. The
general partners of the funds will provide periodic valuations on a
fair value basis, the latest available of which the Company will
adopt provided it is satisfied that the valuation methods used by
the funds are not materially different from the Company's valuation
methods. Adjustments will be made to the fund valuation where the
Company believes there is evidence available for an alternative
valuation.
Performance of the investment portfolio
The return on investments for the year ended 31 December 2021
was as follows:
Year ended 31 December
--------------------------------------------------------------------------------
2021 2020
------------------------------------------ ------------------------------------
Realised Realised Unrealised
gains/ Unrealised gains/ gains/
(losses) gains/ (losses) Total (losses) (losses) Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ----------- ------------------ --------- ----------- ------------ ---------
Quoted - 186 186 (335) (598) (933)
Unquoted (5) (90) (95) 121 949 1,070
Funds - 2,473 2,473 - (2,190) (2,190)
------------------- ----------- ------------------ --------- ----------- ------------ ---------
(5) 2,569 2,564 (214) (1,839) (2,053)
------------------- ----------- ------------------ --------- ----------- ------------ ---------
Charge for (9)
incentive plans -
------------------- ----------- ------------------ --------- ----------- ------------ ---------
2,555 (2,053)
------------------- ----------- ------------------ --------- ----------- ------------ ---------
Operating and
similar income/
(expense) of
subsidiaries 1,282 (1,194)
------------------- ----------- ------------------ --------- ----------- ------------ ---------
3,837 (3,247)
------------------- ----------- ------------------ --------- ----------- ------------ ---------
The Company operates carried interest arrangements in line with
normal practice in the private equity industry. The credit for
incentive plans for the Company is GBP1,000 and for subsidiaries a
charge of GBP10,000 for carried interest and other incentives
relating to historic arrangements. The charge for carried interest
incentive plan is included in the Net losses on Investments in the
Income Statement.
Approximately 73% of the portfolio at 31 December 2021 is
denominated in US dollars (31 December 2020: 68%) and the above
table includes the impact of currency movements. In the year ended
31 December 2021, the weakening of the US dollar against sterling
over the year as a whole resulted in an unrealised foreign currency
gain of GBP0.02 million (2020: unrealised loss of GBP0.2 million).
As a 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
31 December
--------------------
2021 2020
Company Sector GBP'000 GBP'000
------------------------ --------------- --------- ---------
IDE Group Holdings UK technology 218 118
Global Green Solutions US energy 139 62
Others - 26 17
383 197
---------------------------------------- --------- ---------
The net gains and losses on the quoted portfolio arose as
follows:
Year ended 31 December
--------------------------
2021 2020
Gains/(losses), net GBP'000 GBP'000
------------------------------------ ------------ ------------
Realised
Solaredge Technologies - 265
Gresham House - (716)
Realised foreign currency gain - 116
------------------------------------ ------------ ------------
- (335)
------------------------------------ ------------ ------------
Unrealised
IDE Group Holdings 100 (663)
Global Green Solutions 78 72
Other quoted holdings 9 3
Unrealised foreign currency losses (1) (10)
------------------------------------ ------------ ------------
186 (598)
Total net gains/(losses) 186 (933)
------------------------------------ ------------ ------------
IDE Group Holding
The performance of IDE Group Holdings improved during 2021 as
the company's share price began to recover after it was
significantly impacted by the Coronavirus pandemic in 2020,
resulting in a GBP0.1 million unrealised gain. In January 2022, the
company announced that it had won several new customer contracts
and expects further revenue growth in 2022.
Unquoted investments
31 December
--------------------
2021 2020
Company Sector GBP'000 GBP'000
---------------- --------------- --------- ---------
Dacian US energy 7,959 -
Medhost Inc US technology 5,997 5,704
ICU Eyewear* US consumer 1,746 3,143
Northbridge UK technology - 755
Elateral UK technology 817 399
IDE loan notes UK technology 107 73
Yes To* US consumer - 64
16,626 10,138
-------------------------------- --------- ---------
*These are co-investments with SFEP
The net gains and losses on the unquoted portfolio arose as
follows:
Year ended 31 December
--------------------------
2021 2020
Gains/(losses), net GBP'000 GBP'000
-------------------------------------------- ------------ ------------
Realised
Entuity - 115
Penguin Computing - 6
Northbridge (5) -
(5) 121
-------------------------------------------- ------------ ------------
Unrealised
Medhost 235 374
IDE Group 35 -
Elateral 21 (1,436)
Northbridge - 25
YesTo (74) (268)
ICU Eyewear (313) 2,459
Unrealised foreign currency gains/(losses) 6 (205)
-------------------------------------------- ------------ ------------
(90) 949
-------------------------------------------- ------------ ------------
Total net (losses)/gains (95) 1,070
-------------------------------------------- ------------ ------------
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.
Medhost's financial performance was relatively flat in 2021, with
similar Revenue and EBITDA compared to the prior year. This
resulted in a small increase to the valuation with an unrealised
gain of GBP0.2 million for 2021.
Elateral
The Company invested an additional GBP0.4 million in Elateral
during 2021, increasing its ownership from 50% to 62.5% from the
purchase of additional shares for GBP0.1 million and providing
working capital funding of GBP0.3 million. The additional capital
provided by the Company was part of a buyout of another significant
shareholder interest completed by LMS, the Elateral chairman and a
new operating partner who also joined the board of Elateral.
Elateral experienced a net reduction in revenue and EBITDA during
2021 as the economic impact of the Covid-19 pandemic continued to
negatively impact the company. The increase in the valuation is
mainly attributable to the new capital invested in 2021.
ICU Eyewear
During 2020, ICU was able to generate surplus cash flow from the
U.S. distribution of PPE manufactured by one of its international
suppliers. This was a one-off opportunity from which the company
was able to benefit. The cash generated was used to repay
shareholder debt to LMS during 2020 and a further cash distribution
of GBP1.5 million was made in February 2021. The PPE business for
ICU was an opportunistic response to the Covid-19 pandemic in 2020,
and the ICU board has decided that this does not represent an
ongoing line of business for the company, and further activity will
cease. The reduction in carrying value arises principally from the
distribution of GBP1.5 million, initially reflected in the December
2020 valuation and received in early 2021. The unrealised loss for
the period reflects a valuation reduction following cessation of
PPE activities, partly offset by an uplift in valuation of the
eyewear business.
Northbridge
During 2021, Northbridge offered its convertible debt holders
the option to redeem the outstanding principal at a 25% premium.
The Company elected to redeem its convertible debt, receiving
proceeds of GBP0.8 million and recognising a nominal realised loss
on the conversion.
Fund interests
31 December
--------------------
2021 2020
General partner Sector GBP'000 GBP'000
------------------------ -------------------------- --------- ---------
Brockton Capital Fund
1 UK real estate 5,635 4,107
Opus Capital Venture
Partners US venture capital 3,948 3,505
US micro-cap quoted
Weber Capital Partners stocks 2,644 1,813
EMAC ILF UK 733 839
Eden Ventures UK venture capital 494 501
Simmons UK 381 361
San Francisco Equity
Partners US consumer & technology 55 699
Other interests - 39 33
------------------------ -------------------------- --------- ---------
13,929 11,858
--------------------------------------------------- --------- ---------
The net gains and losses on the Company's funds portfolio for
the year ended 31 December 2021 were as follows:
Year ended 31 December
--------------------------
2021 2020
Gains/(losses), net GBP'000 GBP'000
-------------------------------------------- ------------ ------------
Realised
Other funds - -
-------------------------------------------- ------------ ------------
- -
-------------------------------------------- ------------ ------------
Unrealised
Brockton Capital Fund I 1,528 (1,422)
Weber Capital Partners 801 555
Opus Capital Venture Partners 398 907
Eden Ventures 118 (157)
Simmons Parallel Energy 53 (22)
San Francisco Equity Partners ("SFEP") (389) (1,729)
Others (net) (51) (315)
Unrealised foreign currency gains/(losses) 15 (7)
-------------------------------------------- ------------ ------------
2,473 (2,190)
-------------------------------------------- ------------ ------------
Total net gains/(losses) 2,473 (2,190)
-------------------------------------------- ------------ ------------
San Francisco Equity Partners
LMS is the majority investor in SFEP as opposed to the other
fund interests where the Company has only a minority stake. SFEP's
remaining investment carrying value is GBP0.1 million (31 December
2020: GBP0.7 million). SFEP's investment in YesTo carrying value is
GBPnil (31 December 2020: GBP0.7 million). It was fully written off
in 2021. The YesTo board decided to wind up the business by selling
all assets of the company and repaying the senior secured lenders.
The Company had previously written off all the equity of YesTo and
with the winding up of the business has now written off the
outstanding loan notes.
In addition to the fund investments noted above, the Company has
a directly held co- investment in YesTo of GBPnil million (31
December 2020: GBP0.1 million). The Company's total investment in
YesTo at 31 December 2021, via its SFEP fund interest and its
co-investment was GBPnil (31 December 2019: GBP0.7 million),
reflecting a GBP0.7 million unrealised loss for the write-off of
YesTo.
The Company also received from SFEP a GBP0.2 million
distribution related to the 2018 sale of Penguin Computing.
Other fund interests
-- Brockton Capital Fund I - The Company's investment represents
its share (via the Brockton Fund) of preferred debt investments in
a Super Prime central London residential development. The
investment showed an increase in the valuation of GBP1.5 million
for 2021 due to unrealised gains from the unwinding of the discount
rate as the investment is valued on a discounted cash flow
basis;
-- Weber Capital - holds U.S. publicly traded micro-cap
securities and showed an unrealised gain of GBP0.8 million
reflecting an increase in the underlying equity prices;
-- Opus Capital - a U.S. venture fund, showed an unrealised gain
of GBP0.4 million from valuation gains in its two main assets;
and
-- Eden Ventures - Eden has now sold all but one of its assets.
The unrealised gain of GBP0.1 million reflects primarily the
increase in value of its sole remaining asset;
Costs
Group costs for the year (including GBP1.8 million incurred by
the Company and GBP0.3 million by subsidiaries) were GBP2.1 million
(2019: GBP1.9 million) and include running costs of GBP1.8 million
and investment related costs of GBP0.3 million for support costs
for real estate and co-investment activities.
Taxation
The Group tax provision for the year, all of which arose in the
subsidiaries, is GBP0.1 million (2020: GBP0.01 million).
Financial Resources and Commitments
At 31 December 2021 cash holdings, including cash in
subsidiaries, were GBP20.1 million (31 December 2020: GBP20.6
million) and neither the Company nor any of its subsidiaries had
any external debt (2020: nil external debt).
At 31 December 2021, subsidiary companies had commitments of
GBP2.7 million (31 December 2020: GBP2.7 million) to meet
outstanding capital calls from fund interests.
LMS CAPITAL PLC
9 March 2022
Income Statement
For the year ended 31 December 2021
Year ended 31 December
2021 2020
(Restated)
Notes GBP'000 GBP'000
-----------------
Net gain/(loss) on investments 2 3,837 (3,247)
Interest income 3 23 94
Dividend income 4 - 58,849
Reduction in carrying value of subsidiary due to distribution - (58,849)
Total gain/(loss) on investments 3,860 (3,153)
Operating expenses 5 (1,988) (1,243)
--------- -----------------
Profit/(loss) before tax 1,872 (4,396)
Taxation 8 - -
Profit/(loss) for the year 1,872 (4,396)
Attributable to:
Equity shareholders 1,872 (4,396)
--------- -----------------
Profit/(loss) per ordinary share - basic 9 2.3p (5.4)p
Profit/(loss) per ordinary share - diluted 9 2.3p (5.4)p
--------- -----------------
All activities of the Company are classed as continuing.
Statement of Other Comprehensive Income
For the year ended 31 December 2021
Year ended 31 December
2021 2020
GBP'000 GBP'000
------------ ------------
Profit/(loss) for the year 1,872 (4,396)
Other comprehensive income - -
------------ ------------
Total comprehensive income/(loss) for the year 1,872 (4,396)
-------------------------------------------------- ------------ ------------
Attributable to:
Equity shareholders 1,872 (4,396)
-------------------------------------------------- ------------ ------------
Company registration number 05746555
Statement of Financial Position
As at 31 December 2021
31 December 1 January
------------------------ -----------
2021 2020 2020
(Restated)
Notes GBP'000 GBP'000 GBP'000
--------------------------------------- ------- ---------- ------------ -----------
Assets
Non-current assets
Right of use assets 19 97 125 -
Investments 11 68,461 65,235 132,454
Amounts receivable from subsidiaries 14 5,191 5,375 1,829
Total non-current assets 73,749 70,735 134,283
--------------------------------------- ------- ---------- ------------ -----------
Current assets
Operating and other receivables 12 51 67 166
Cash and cash equivalents 13 14,518 16,385 25,079
--------------------------------------- ------- ---------- ------------ -----------
Total current assets 14,569 16,452 25,245
Total assets 88,318 87,187 159,528
--------------------------------------- ------- ---------- ------------ -----------
Liabilities
Current liabilities
Operating and other payables 15 (394) (415) (1,585)
Amounts payable to subsidiaries 16 (38,740) (38,747) (101,985)
Total current liabilities (39,134) (39,162) (103,570)
---------- ------------ -----------
Non-current liabilities
Other long-term liabilities 15 (75) (102) -
Total non-current liabilities (75) (102) -
--------------------------------------- ------- ---------- ------------ -----------
Total liabilities (39,209) (39,264) (103,570)
---------- ------------ -----------
Net assets 49,109 47,923 55,958
--------------------------------------- ------- ---------- ------------ -----------
Equity
Share capital 17 8,073 8,073 8,073
Share premium 508 508 508
Capital redemption reserve 24,949 24,949 24,949
Share-based equity 18 75 34 -
Retained earnings 15,504 14,359 22,428
--------------------------------------- ------- ---------- ------------ -----------
Total equity shareholders' funds 49,109 47,923 55,958
--------------------------------------- ------- ---------- ------------ -----------
Net asset value per ordinary share 25 60.83p 59.36p 69.30
--------------------------------------- ------- ---------- ------------ -----------
Statement of Changes in Equity
For the year ended 31 December 2021
Capital Share-
Share Share redemption based Retained Total
capital premium reserve equity earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- ------------ --------- ---------- ---------
Balance at 1 January
2020 8,073 508 24,949 - 22,428 55,958
Comprehensive loss for
the year
Loss for the year - - - - (4,396) (4,396)
--------- --------- ------------ --------- ---------- ---------
Equity after total comprehensive
loss for the year 8,073 508 24,949 - 18,032 51,562
Contributions by and
distributions to shareholders
Share-based payments - - - 34 - 34
Dividends - - - - (3,673) (3,673)
--------- --------- ------------ --------- ---------- ---------
As at 31 December 2020 8,073 508 24,949 34 14,359 47,923
========= ========= ============ ========= ========== =========
Comprehensive income
for the year
Profit for the year - - - - 1,872 1,872
--------- --------- ------------ --------- ---------- ---------
Equity after total comprehensive
income for the year 8,073 508 24,949 34 16,231 49,795
Contributions by and
distributions to shareholders
Share-based payments - - - 41 - 41
Dividends - - - - (727) (727)
--------- --------- ------------ --------- ---------- ---------
As at 31 December 2021 8,073 508 24,949 75 15,504 49,109
========= ========= ============ ========= ========== =========
Cash Flow Statement
For the year ended 31 December 2021
Year ended 31 December
2020
2021 (Restated)
Notes GBP'000 GBP'000
Cash flows from operating activities
Profit/(loss) before tax 1,872 (4,396)
Adjustments for non-cash income and expense:
Equity settled share-based payment 18 41 34
Depreciation on right of use assets 19 28 14
Interest expense on lease 19 8 4
(Gains)/losses on investments 2 (3,837) 3,247
Interest income 3 (23) (94)
Other income - (6)
Adjustments to incentives plans 2 1 (68)
Exchange gains on cash and cash equivalents (4) (113)
(1,914) (1,378)
Change in operating assets and liabilities
Decrease in operating and other receivables 16 91
Decrease in operating and other payables (23) (1,195)
Decrease/(increase) in amounts receivable from subsidiaries 119 (3,545)
Decrease in amounts payable to subsidiaries (7) (4,389)
---------- --------------
Net cash used in operating activities (1,809) (10,416)
-------------------------------------------------------------- ------------- ---------- --------------
Cash flows from investing activities
Interest received 3 23 102
Other income received - 6
Proceeds from sale of investments - 5,190
Proceeds from redemption of convertible debt 11 750 -
Investment in subsidiaries (75) -
---------- --------------
Net cash from investing activities 698 5,298
-------------------------------------------------------------- ------------- ---------- --------------
Cash flows from financing activities
Dividends paid 10 (727) (3,673)
Repayment of principal lease liabilities 19 (25) (12)
Repayment of lease interest 19 (8) (4)
-------------------------------------------------------------- ------------- ---------- --------------
Net cash used in financing activities (760) (3,689)
-------------------------------------------------------------- ------------- ---------- --------------
Net decrease in cash and cash equivalents (1,871) (8,807)
Exchange gains on cash and cash equivalents 4 113
Cash and cash equivalents at the beginning of the year 13 16,385 25,079
---------- --------------
Cash and cash equivalents at the end of the year 14,518 16,385
-------------------------------------------------------------- ------------- ---------- --------------
Notes to the Financial Statements
1. Principal accounting policies
Reporting entity
LMS Capital Plc ("the Company") is domiciled in the United
Kingdom. These Financial Statements are presented in pounds
sterling because that is the currency of the principal economic
environment of the Company's operations.
The Company was formed on 17 March 2006 and commenced operations
on 9 June 2006 when it received the demerged investment division of
London Merchant Securities.
The financial information for the year ended 31 December 2021
and the year ended 31 December 2020 does not constitute the
Company's statutory accounts for those years. Statutory accounts
for the year ended 31 December 2020 have been delivered to the
Registrar of Companies. The statutory accounts for the year ended
31 December 2021 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.
The auditors' reports on the accounts for 31 December 2021 and
31 December 2020 were unqualified, did not draw attention to any
matters by way of emphasis, and did not contain a statement under
498(2) or 498(3) of the Companies Act 2006.
Basis of preparation
LMS Capital Plc transitioned to UK-adopted International
Accounting Standards in its Financial Statements on 1 January 2021.
This change constitutes a change in accounting framework. However,
the move to UK-adopted international accounting standards for
accounting period starting from 1 January 2021, does not represent
a change in the basis of accounting which would necessitate a prior
year restatement, therefore, there is no impact on the recognition,
measurement or disclosure in the period reported.
The Financial Statements have been prepared on the historical
cost basis except for investments which are measured at fair value,
with changes in fair value recognised in the income statement.
The Company's business activities and financial position are set
out in the Strategic Report on pages 13 to 25 and in the Portfolio
Management Review on pages 26 to 33. In addition, note 20 to the
financial information includes a summary of the Company's financial
risk management processes, details of its financial instruments and
its exposure to credit risk and liquidity risk. Taking account of
the financial resources available to it, the Directors believe that
the Company is well placed to manage its business risks
successfully. After making enquiries, the Directors have a
reasonable expectation that the Company has adequate resources for
the foreseeable future.
The Financial Statements are prepared on a going concern basis
and the Directors considered this and concluded that the use of the
going concern basis continued to be appropriate. The Company's
business activities, together with the factors likely to affect its
future development, performance and financial position, are set out
in the Strategic Report on page 13 and the Portfolio Management
Review on page 26. The Directors have carried out a robust
assessment of the emerging and principal risks and concluded that
they have a reasonable expectation that the Company will continue
in operation and meet its liabilities as they fall due over a three
year period from the date of this report. This assessment included
reviewing the liquidity forecasts of the Company that include the
flexibility in the dividend policy and lack of any external debt,
the significant cash balances on hand at 31 December 2021, the
expected future expenditures and commitments and the latest report
on the investment portfolio. In preparing this liquidity forecast,
consideration has been given to the expected ongoing impact of
Covid-19 on the Company and the wider Group as well as the
potential impact on the underlying investee companies. The
Directors have considered these factors for a period not less than
twelve months from the date of this report.
New and revised accounting standards and amendments effective
for the current period
New and revised accounting standards and amendments that are
effective for annual periods beginning 1 January 2021 which have
been adopted for the first time by the Company:
1. Amendments to IFRS 9: Interest Rate Benchmark Reform - Phase 2.
2. Amendment to IFRS 16, Leases: Covid-19-Related Rent Concessions beyond 30 June 2021.
The adoption of the standards and amendments listed above have
no material impact on the amounts recognised in prior periods and
are not expected to significantly affect the current or future
periods.
There are no other standards, amendments to standards or
interpretations that are effective for annual periods beginning on
1 January 2021 that have had a material effect on the Company's
Financial Statements.
New accounting standards, amendments and interpretations not yet
effective, and which have not been early adopted
Other standards and amendments that are effective for subsequent
reporting periods beginning on or after 1 January 2021 and have not
been early adopted by the Company include:
3. Classification of Liabilities as Current or Non-current
(Amendments to IAS 1) (effective 1 January 2023).
4. Annual Improvements 2018-2020 (effective 1 January 2022).
5. Amendments to IAS 8 Accounting policies, Changes in
Accounting Estimates and Errors: Definition of Accounting Estimates
(effective 1 January 2023).
6. Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2: Disclosure of Accounting policies
(effective 1 January 2023).
7. Amendments to IAS 12 Income Taxes: Deferred Tax related to
Assets and Liabilities arising from a Single Transaction (effective
1 January 2023).
Upon preliminary assessment, these standards and amendments are
not expected to have a significant impact on the Financial
Statements in the period of initial application and therefore
detailed disclosures have not been provided.
Amendment to IFRS 16 Leases: Covid-19-Related Rent Concessions
beyond 30 June 2021
IFRS 16 Leases was issued in January 2016 and provides a single
lessee accounting model, requiring lessees to recognize assets and
liabilities for all leases unless the lease term is 12 months or
less or the underlying asset has a low value.
In May 2020, the IASB issued its first amendment to IFRS 16,
Leases to ease the accounting for lessees while still providing
useful information to the users of the financial statements
(Amendment to IFRS 16 Leases: Covid-19- related Rent
Concessions).
The amendment, effective for annual reporting periods beginning
on or after 1 June 2020, exempted lessees from having to consider
individual lease contracts to determine whether rent concessions as
a direct consequence of Covid-19 are lease modifications, hence
allowing lessees to account for the concessions as if they were not
lease modifications. Although IFRS 16 specifies how lessees should
account for the change, this 'optional exemption' permitted in the
amendment lessens the large volume of Covid-19-related rent
concessions and stakeholders' difficulties and gives timely relief
to lessees.
As the Covid-19 pandemic has persisted, on 31 March 2021 the
IASB extended the period of application until 30 June 2022 via
Amendment to IFRS 16, Leases: Covid-19-Related Rent Concessions
beyond 30 June 2021. Such extension applies to accounting periods
beginning on or after 1 April 2021.
The adoption of the amendments did not have any impact on the
amounts recognised in prior periods and are not expected to
significantly affect the current or future periods.
To determine the split between principal and interest in the
lease, the Company is required to estimate the interest it would
have to pay in order to finance payments under the new lease.
In June 2020, the Company entered into lease agreement with The
Rayne Foundation. The interest rate used by the Company is based on
the incremental borrowing rate of 6.5%. The term of the lease is 5
years and when the Company renegotiates the contractual terms of a
lease with the lessor, the accounting depends on the nature of the
modification:
8. if the renegotiation results in one or more additional assets
being leased for an amount commensurate with the standalone price
for the additional rights-of-use obtained, the modification is
accounted for as a separate lease in accordance with the above
policy;
9. in all other cases where the renegotiated increases the scope
of the lease (whether that is an extension to the lease term, or
one or more additional assets being leased), the lease liability is
remeasured using the discount rate applicable on the modification
date, with the right-of-use asset being adjusted by the same
amount; and
10. if the renegotiation results in a decrease in the scope of
the lease, both the carrying amount of the lease liability and
right-of-use asset are reduced by the same proportion to reflect
the partial of full termination of the lease with any difference
recognised in profit or loss. The lease liability is then further
adjusted to ensure its carrying amount reflects the amount of the
renegotiated payments over the renegotiated term, with the modified
lease payments discounted at the rate applicable on the
modification date. The right-of-use asset is adjusted by the same
amount.
IFRS 2 - Share-based payment
IFRS 2 - Share-based payment requires an entity to recognise
equity-settled share-based payments measured at fair value at the
date of grant. The fair value determined at the grant date of the
equity-settled share-based payments is expensed over the vesting
period, together with a corresponding increase in other capital
reserves, based upon the Company's estimate of the shares that will
eventually vest, which involves making assumptions about any
performance and service conditions over the vesting period.
Non-vesting conditions and market vesting conditions are factored
into the fair value of the options granted. The vesting period is
determined by the period of time the relevant participant must
remain in the Company's employment before the rights to the shares
transfer unconditionally to them. The total expense is recognised
over the vesting period, which is the period over which all the
specified vesting conditions are to be satisfied. At the end of
each period, the Company revises its estimates on the number of
awards it expects to vest based on the service conditions.
Any awards granted are to be settled by the issuance of equity
are deemed to be equity settled share-based payments, accounted for
in accordance with IFRS 2 "Share-Based Payment".
Where the terms of an equity-settled transaction are modified,
as a minimum, an expense is recognised as if the terms had not been
modified. In addition, an expense is recognised for any increase in
the value of the transaction as a result of the modification, as
measured at the date of modification.
Where an equity-settled transaction is cancelled, it is treated
as if it had vested on the date of the cancellation, and any
expense not yet recognised for the transaction is recognised
immediately. However, if a new transaction is substituted for the
cancelled transaction and designated as a replacement transaction
on the date that it is granted, the cancelled and new transactions
are treated as if they were a modification of the original
transaction, as described in the previous paragraph.
Accounting for subsidiaries
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 continues to satisfy the three essential criteria to be
regarded as an investment entity as defined in IFRS 10, IFRS 12
"Disclosure of lnterests in Other Entities" and IAS 27 "Separate
Financial Statements". The three essential criteria are such that
the entity must:
-- obtain funds from one or more investors for the purpose of
providing these investors with professional investment management
services;
-- commit to its investors that its business purpose is to
invest its funds solely for returns from capital appreciation,
investment income or both; and
-- measure and evaluate the performance of substantially all of
its investments on a fair value basis.
Accounting for subsidiaries (continued)
ln satisfying the second essential criteria, the notion of an
investment time frame is critical. An investment entity should not
hold its investments indefinitely but should have an exit strategy
for their realisation. Although the Company has invested in equity
interests that have an indefinite life, it invests typically for a
period of up to ten years. ln some cases, the period may be longer,
depending on the circumstances of the investment, however,
investments are not made with intention of indefinite hold. This is
a common approach in the private equity industry.
Subsidiaries are therefore measured at fair value through profit
or loss, in accordance with IFRS 13 "Fair Value Measurement" and
IFRS 9 "Financial instruments".
The Company's subsidiaries, which are wholly - owned and over
which it exercises control, are listed in note 24.
Use of estimates and judgements
The preparation of the Financial Statements require 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.
The areas involving significant judgements are:
-- valuation technique selected in estimating fair value of unquoted investments -
note 11;
-- valuation technique selected in estimating fair value of investments held in Funds -
note 11; and
-- recognition of deferred tax asset for carried forward tax losses - note 8 .
The areas involving significant estimates are:
-- estimate inputs used in calculating fair value of unquoted investments - note 11;
-- estimated inputs used in calculating fair value of investments held in Funds - note 11;
-- estimates in calculating the fair value of equity awards - note 18; and
-- estimate percentage of incremental borrowing rate on lease liability - note 19.
Estimates and judgements are continually evaluated. They are
based on historical experience and other factors, including
expectations of future events that may have financial impact on the
entity and that are believed to be reasonable under the
circumstances.
Investments in subsidiaries
The Company's investments in subsidiaries are stated at fair
value which is considered to be the carrying value of the net
assets of each subsidiary. On disposal of such investments, the
difference between net disposal proceeds and the corresponding
carrying amount is recognised in the income statement.
Valuation of investments
The Company and its subsidiaries manage their investments with a
view to profit from the receipt of dividends, interest income and
increase in fair value of equity investments which can be realised
on sale. Therefore, all quoted, unquoted and managed fund
investments are designated at fair value through profit or loss
which can be realised on sale and carried in the Statement of
Financial Position at fair value.
Fair values have been determined in accordance with the
International Private Equity and Venture Capital Valuation ("IPEV")
Guidelines. These guidelines require the valuer to make judgments
as to the most appropriate valuation method to be used and the
results of the valuations.
Each investment is reviewed individually with regard to the
stage, nature and circumstances of the investment and the most
appropriate valuation method selected. The valuation results are
then reviewed and any amendment to the carrying value of
investments is made as considered appropriate.
Quoted investments
Quoted investments for which an active market exists are valued
at the bid price at the reporting date.
Unquoted direct investments
Unquoted direct investments for which there is no active market
are valued using the most appropriate valuation technique with
regard to the stage and nature of the investment. Valuation methods
that may be used include:
-- investments in an established business are valued using
revenue or earnings multiples depending on the stage of development
of the business and the extent to which it is generating
sustainable revenue or earnings;
-- investments in an established business which is generating
sustainable revenue or earnings but for which other valuation
methods are not appropriate are valued by calculating the
discounted cash flow of future cash flows or earnings;
-- investments in debt instruments or loan notes are determined
on a standalone basis, with the initial investment recorded at the
price of the transaction and subsequent adjustments to the
valuation are considered for changes in credit risk or market
rates;
-- convertible instruments are valued by disaggregating the
convertible feature from the debt instrument and valuing it using a
Black-Scholes model; and
-- the Company has adopted the IPEV guidelines which are
effective from 1 January 2019. The main changes of the new
guidelines are:
o price of a recent investment removed as a primary valuation
technique; and
o valuing debt investment is expanded.
-- the Company adopted the IPEV special valuation guidance issued in March 2020.
Funds
Investments in managed funds are valued at fair value. The
general partners of the funds will provide periodic valuations on a
fair value basis, the latest available of which the Company will
adopt provided it is satisfied that the valuation methods used by
the funds are not materially different from the Company's valuation
methods. Adjustments will be made to the fund valuation where the
Company believes there is evidence available for an alternative
valuation.
Carried interest
The Company historically offered its executives, including Board
executives, the opportunity to participate in the returns from
successful investments. A variety of incentive and carried interest
arrangements were put in place during the years up to and including
2011. No new schemes have been introduced since. As is commonplace
in the private equity industry, executives may, in certain
circumstances, retain their entitlement under such schemes after
they have left the employment of the Company. The liability under
such incentive schemes is accrued if its performance conditions,
measured at the reporting date, would be achieved if the remaining
assets in that scheme were realised at their fair value at the
reporting date. An accrual is made equal to the amount which the
Company would have to pay to any remaining scheme participants from
a realisation of the reported value at the reporting date.
Foreign currencies
Transactions in foreign currencies are recorded at the rate of
exchange at the date of transaction. Monetary assets and monetary
liabilities denominated in foreign currencies at the reporting date
are reported at the rates of exchange prevailing at that date and
exchange differences are included in the income statement.
Right of use assets
Right of use assets are initially measured at the amount of the
lease liability. Subsequent to initial measurement, lease
liabilities increase as a result of interest charged at a constant
rate on the balance outstanding and are reduced for lease payments
made. Right-of-use assets are amortised on a straight-line basis
over the remaining term of the lease.
Intercompany receivables
The Company measured intercompany receivables and other
receivables at fair value less any expected credit losses. Expected
credit losses are measured through a loss allowance at an amount
equal to:
-- the 12-month expected credit losses (expected credit losses
from possible default events within 12 months after the reporting
date); or
-- full lifetime expected credit losses (expected credit losses
from all possible default events over the life of the financial
instrument).
A loss allowance for full lifetime expected credit losses is
required for intercompany receivables and other receivables if the
credit risk has increased significantly since initial
recognition.
Impairment losses on financial assets carried at amortised cost
are reversed in subsequent periods if the expected credit losses
decrease.
Financial assets held at amortised cost
The Company recognises trade receivables as financial assets
classified at amortised cost. These are recognised initially at
fair value. Subsequent to initial recognition, these are measured
at amortised cost, less any expected credit losses.
Expected credit losses for these financial assets are measured
using the simplified approach to the credit loss model. Under the
simplified credit loss model approach, a provision is recognised
based on the expectation of default rates over the full lifetime of
the financial assets without the need to identify significant
increases on credit risk on these assets.
Cash and cash equivalents
Cash, for the purpose of the cash flow statement, comprises cash
in hand and cash equivalents.
Cash equivalents are short-term highly liquid investments that
are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
Financial liabilities
The Company's financial liabilities include operating and other
payables. These are initially recognised at fair value. Subsequent
measurement is at amortised cost using the effective interest
method.
Dividend payable
Dividend distribution to the shareholders is recognised as a
liability in Financial Statements when approved at an annual
general meeting by the shareholders. Interim dividend approved
during the year is recorded upon payment.
Income
Gains and losses on investments
Realised and unrealised gains and losses on investments are
recognised in the income statement in the period in which they
arise.
Interest income
Interest income is recognised as it accrues using the effective
interest method.
Dividend income
Dividend income is recognised on the date the Company's right to
receive payment is established.
Expenditure
Income tax expense
Income tax expense comprises current and deferred tax. Income
tax expense is recognised in the income statement except to the
extent that it relates to items recognized in other comprehensive
income or directly in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognised using the balance sheet liability
approach, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is
measured at the tax rates that are expected to be applied to the
temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date. A
deferred tax asset is recognised to the extent that it is probable
that future taxable profits will be available against which
temporary differences can be utilised. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be
realised.
Additional income taxes that arise from the distribution of
dividends are recognised at the same time as the liability to pay
the related dividend is recognised.
Prior period adjustments
Dividend income from subsidiary
For the year ending 31 December 2020, one of the subsidiaries,
(LMS Capital Group Limited), declared dividends of GBP58,849,364 to
the Company, resulting in an increase of income from dividends of
GBP58,849,364 and a reduction in the carrying value of the
subsidiaries due to this distribution of GBP58,849,364. In the
prior year Financial Statements, this movement was incorrectly
offset against each other and was not presented in the Income
Statement. In the current year, this presentation has been restated
as:
-- Dividend income increased by GBP58,849,364.
-- Carrying value of subsidiaries due to distribution decreased by GBP58,849,364.
There is no impact on the profit/(loss) for the year.
Amounts receivable from subsidiaries
In prior years, the Company's receivable from subsidiaries was
incorrectly added against the investment in subsidiary balance. As
a result, the Company's receivable from subsidiaries was
understated by GBP5,375,914 and the investments balance was
overstated by GBP5,375,914. This presentation was corrected during
the current year Financial Statements, and the comparative figures
in the Statement of Financial Position and Investment note (note
11) were restated as:
-- Investments decreased by GBP5,375,914.
-- Amount receivable from subsidiaries increased by GBP5,375,914.
Consequently, further changes were needed to the related
'Financial Risk Management' note (note 20). These comprised
firstly, a change in the 'Financial instruments by category' note
to show the 'amounts receivable from subsidiaries' of GBP5.375m
separately as an asset measured at 'amortised cost' as opposed to
being included in 'Investments' in the 'fair value through profit
or loss' category. Secondly, the 'Credit Risk' note was restated to
show the GBP5.375m 'Amounts receivable from subsidiaries' in this
note. Thirdly, the 'Liquidity Risk' note was restated to show the
GBP5.375m separately as 'Amounts receivable from subsidiaries' as
opposed to being included in the 'investments' category. Finally,
the 'Currency Risk' note was restated to show the GBP5.375m
'Amounts receivable from subsidiaries' separately as opposed to
being included in the 'investments' figure.
As a result of the change stated above, the presentation in the
Cash flow statement has also been updated. In the prior year, the
net movement is presented in one line which was a decrease in
amounts payable to subsidiaries. However, this year the
comparatives were updated as per below:
-- Amounts receivable from subsidiaries increased by GBP3,545,422.
-- Amounts payable to subsidiaries decreased by GBP3,545,422.
This change does not have any impact on the overall change in
operating assets and liabilities.
Reclassification of liquidity risk analysis for financial
liabilities
In prior years, the amount payable to subsidiaries was
incorrectly included in the 'Over 5 years' category in the
financial liabilities liquidity risk note (note 20). Given that the
amounts are repayable on demand, these amounts have been correctly
restated to be included in the 'Up to 3 months' category. As such,
in the 2020 comparative disclosure 'Amounts payable to
subsidiaries' of GBP38,746,850 has been restated from the 'Over 5
years' category to the 'Up to 3 months' category.
2. Net gains/ losses on investments
Gains and losses on investments were as follows:
Year ended 31 December
-------------------------------------------------------------------------
2021 2020
------------------------------------------- ----------- ------------ --------- ---------- ------------ ---------
Investment portfolio of the Company Realised Unrealised Total Realised Unrealised Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- ----------- ------------ --------- ---------- ------------ ---------
Quoted - - - (716) - (716)
Unquoted (5) - (5) - 25 25
Funds - - - - - -
------------------------------------------- ----------- ------------ --------- ---------- ------------ ---------
(5) - (5) (716) 25 (691)
------------------------------------------- ----------- ------------ --------- ---------- ------------ ---------
Credit/(charge) for incentive plans 1 (68)
--------- ---------
(4) (759)
--------- ---------
Investment portfolio of subsidiaries
Asset type
-------------------------------------------
Quoted - 186 186 381 (598) (217)
Unquoted - (90) (90) 121 924 1,045
Funds - 2,473 2,473 - (2,190) (2,190)
------------------------------------------- ----------- ------------ --------- ---------- ------------ ---------
- 2,569 2,569 502 (1,864) (1,362)
------------------------------------------- ----------- ------------ --------- ---------- ------------ ---------
Total (5) 2,569 2,565 (214) (1,839) (2,121)
------------------------------------------- ----------- ------------ --------- ---------- ------------ ---------
(Charge)/credit for incentive plans (10) 68
--------- ---------
2,555 (2,053)
Operating and similar income/(expense) of
subsidiaries* 1,282 (1,194)
3,837 (3,247)
------------------------------------------- ----------- ------------ --------- ---------- ------------ ---------
*Includes operating and legal costs and taxation charges of
subsidiaries.
In September 2020, a subsidiary of the Company deposited GBP7.0
million for an investment in Dacian Petroleum, a Romanian oil and
gas production company. On 19 November 2021, the transaction was
completed, recognising investment acquisition cost of GBP6.7
million. The investment is structured primarily as debt with a
7-year maturity and bearing compounded interest at 14% per annum
from 20 September 2020. During the year, a net interest of GBP1.2
million (2020: GBPnil) was recognised.
The Company operates carried interest arrangements in line with
normal practice in the private equity industry. The credit for
incentive plans for the Company is GBP1,000 and other incentives
relating to historic arrangements. The charge for subsidiaries is
included in the net gains/ losses on investments in the Income
Statement.
3. Interest income
Interest income comprises of interest earned on bank deposits
and on loan investments.
4. Dividend income
Dividend income received is accounted for when the right to
receive payments is established and the amount of the dividend can
be measured reliably.
5. Operating expenses
Operating expenses comprise administrative expenses and include
the following:
Year ended 31 December
--------------------------
2021 2020
GBP'000 GBP'000
---------------------------------------------- ------------ ------------
Directors remuneration (note 6) 716 708
Staff expenses (note 7) 309 169
Depreciation on right of use assets 28 14
Other administrative expenses 752 572
Foreign currency exchange differences 130 (275)
Auditor's remuneration
Fees to Company auditor 53 55
- parent company 35 38
- interim review for LMS Capital Plc 18 17
1,988 1,243
---------------------------------------------- ------------ ------------
The audit fee comprises of GBP34,500 (2020: GBP38,000) for LMS
Capital Plc, GBP18,250 (2020: GBP17,000) for the interim review.
Audit fees for the subsidiaries of GBP72,500 (2020: GBP75,000)
directly charged to subsidiaries.
6. Directors' Remuneration
Year ended 31 December
--------------------------
2021 2020
GBP'000 GBP'000
-------------------------------------------------- ------------ ------------
Directors' remuneration 570 593
Directors' social security contributions 92 62
Directors' other benefit 54 53
716 708
-------------------------------------------------- ------------ ------------
The highest paid Director was Nicholas Friedlos
(2020 - Nicholas Friedlos) 349 362
--------------------------------------------------- ------------ ------------
The average number of Directors was as follows:
31 December 2021 31 December 2020
------------------------- -------------------------------
Male Female Total Male Female Total
------------------------------ ------ -------- ------- ------ ---------- -----------
Average number of Directors 5 - 5 5 - 5
------------------------------ ------ -------- ------- ------ ---------- -----------
5 - 5 5 - 5
------------------------------ ------ -------- ------- ------ ---------- -----------
7. Staff Expenses
Year ended 31 December
--------------------------
2021 2020
GBP'000 GBP'000
------------------------------------------- ------------ ------------
Wages and salaries 253 144
Employers' social security contributions 30 13
Employers' other benefits 26 12
-------------------------------------------- ------------ ------------
309 169
------------------------------------------- ------------ ------------
Staff benefits includes pension and health insurance. These
benefits are recognised as expenses on an accrual basis as they are
incurred.
The average number of staff was as follows:
2021 2020
Average number of staff 5 4
-------------------------- ------ ------
5 4
-------------------------- ------ ------
8. Taxation
Year ended 31 December
--------------------------
2021 2020
GBP'000 GBP'000
-------------------------------------------------------------------------- ------------ ------------
Current tax expense
Current year - -
-------------------------------------------------------------------------- ------------ ------------
Total tax expense - -
-------------------------------------------------------------------------- ------------ ------------
Reconciliation of tax expense Year ended 31 December
--------------------------
2021 2020
GBP'000 GBP'000
-------------------------------------------------------------------------- ------------ ------------
Profit/(loss) before tax 1,872 (4,396)
--------------------------------------------------------------------------- ------------ ------------
Corporation tax using the Company's domestic tax rate - 19% (2020: 19%) 356 (835)
Fair value adjustments not currently taxed (486) 390
Non-deductible expenses/(income) (214) 238
Difference between taxable and accounting profit on disposal 29 301
Capital allowances (3) -
Company relief 406 672
Deferred tax asset not recognised 155 -
Transfer pricing (243) (766)
Total tax expense - -
--------------------------------------------------------------------------- ------------ ------------
As at year end, there are cumulative potential deferred tax
assets of GBP2.205 million (2020: GBP1.512 million) in relation to
the Company's cumulative tax losses of GBP8.819 million (2020:
GBP7.956 million). It is unlikely that the Company will generate
sufficient taxable profits in future to utilise these amounts and
therefore no deferred tax asset has been recognised in the current
or prior year.
9. Profit/(loss) per ordinary share
The calculation of the basic and diluted earnings per share, in
accordance with IAS 33, is based on the following data:
Year ended 31 December
---------------------------
2021 2020
GBP'000 GBP'000
----------------------------------------------------------------------- ------------ -------------
Profit/(loss)
Profit/(loss) for the purposes of profit/(loss) per share
being net profit/(loss) attributable to equity holders of the parent 1,872 (4,396)
----------------------------------------------------------------------- ------------ -------------
Number Number
------------ -------------
Number of shares
Weighted average number of ordinary shares for the
purposes of basic profit/(loss) per share 80,727,450 80,727,450
----------------------------------------------------------------------- ------------ -------------
Profit/(loss) per share Pence Pence
----------------------------------------------------------------------- ------------ -------------
Basic 2.3 (5.4)
Diluted 2.3 (5.4)
----------------------------------------------------------------------- ------------ -------------
The Company share awards issued will be dilutive when
vested.
10. Dividends paid
Dividends declared during the year ending 31 December 2021 are
as follows.
Dividend
Dividend per share
Dividend date Payment Date GBP'000 GBP
------------------------------------ ------------------- -------------------- ---------- ------------
First dividend payment for 2020 20 December 2019 09 January 2020 3,431 0.0425
Second dividend payment for 2020 14 August 2020 07 September 2020 242 0.0030
------------------------------------ ------------------- -------------------- ---------- ------------
Total as at 31 December 2020 3,673 0.0455
Final dividend payment for 2020 21 May 2021 14 June 2021 484 0.6000
Interim dividend payment for 2021 13 August 2021 03 September 2021 243 0.3000
------------------------------------ ------------------- -------------------- ---------- ------------
Total as at 31 December 2021 727 0.9000
------------------------------------------------------------------------------- ---------- ------------
A final dividend of 0.6p per share is recommended by the Board
and, subject to approval by shareholders at the AGM on May 2022,
will be paid out in early June 2022.
11. Investments
The Company's investments comprised the following:
Year ended 31 December
--------------------------
2020
2021 (Restated)
GBP'000 GBP'000
--------------------------------------- ---------- --------------
Total investments 68,461 65,235
--------------------------------------- ---------- --------------
These comprise:
Investment portfolio of the Company - 755
Investment portfolio of subsidiaries 30,938 21,438
--------------------------------------- ---------- --------------
Investment portfolio - total 30,938 22,193
Other net assets of subsidiaries 37,523 43,042
--------------------------------------- ---------- --------------
68,461 65,235
--------------------------------------- ---------- --------------
The carrying amounts of the Company's and its subsidiaries'
investment portfolios were as follows:
31 December 2020
31 December 2021 (Restated)
-------------------- --------------------
Investment portfolio of the
Company
Asset type GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- --------- --------- --------- ---------
Quoted - -
Unquoted direct - 755
Funds - -
--------------------------------------- --------- --------- --------- ---------
- 755
--------------------------------------- --------- --------- --------- ---------
Investment portfolio of subsidiaries
Asset type
--------------------------------------- --------- --------- --------- ---------
Quoted 383 197
Unquoted direct 16,626 9,383
Funds 13,929 11,858
--------------------------------------- --------- --------- --------- ---------
30,938 22,193
Other net assets of subsidiaries 37,523 43,042
--------------------------------------- --------- ---------
68,461 68,461 65,235 65,235
--------------------------------------- --------- --------- --------- ---------
68,461 65,235
--------------------------------------- --------- --------- --------- ---------
The movements in the investment portfolio were as follows:
Quoted Unquoted
securities securities Funds Total
GBP'000 GBP'000 GBP'000 GBP'000
Carrying value
Balance at 1 January 2020 8,421 9,713 14,107 32,241
Purchases 424 249 906 1,579
Disposal proceeds (7,715) - - (7,715)
Distributions from partnerships - (894) (965) (1,859)
Fair value adjustments (933) 1,070 (2,190) (2,053)
------------ ------------ --------- ---------
Balance at 31 December 2020 197 10,138 11,858 22,193
---------------------------------- ------------ ------------ --------- ---------
Quoted Unquoted
securities securities Funds Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ ------------ --------- ---------
Balance at 1 January 2021 197 10,138 11,858 22,193
Purchases - 8,394 - 8,394
Proceeds from disposal - (750) - (750)
Distributions from partnerships - (1,586) (445) (1,916)
Contribution to partnerships - 115 43 43
Fair value adjustments 186 (95) 2,473 2,564
Reclassification of withholding tax* - 410 - 410
------------ ------------ --------- ---------
Balance at 31 December 2021 383 16,626 13,929 30,938
--------------------------------------- ------------ ------------ --------- ---------
*As at 31 December 2020, unquoted securities investment fair
value included a provision for withholding tax on distributions.
This distribution was received in the first quarter of 2021 and the
remaining estimated withholding tax liability of GBP0.4 million was
reclassified to current liabilities as at 31 December 2021.
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 (see note 20 - Financial risk management).
The Company's investments are analysed as follows:
31 December
------------------------
2020
2021 (Restated)
GBP'000 GBP'000
---------- ----- ----- --------- -------------
Level 1 - -
Level 2 - 755
Level 3 68,461 64,480
------------------------ --------- -------------
68,461 65,235
---------------------- --------- -------------
Level 3 includes:
31 December
------------------------
2020
2021 (Restated)
GBP'000 GBP'000
--------------------------------------- ----- ----- --------- -------------
Investment portfolio of subsidiaries 30,938 21,438
Other net assets of subsidiaries 37,523 43,042
----------------------------------------------------- --------- -------------
68,461 64,480
--------------------------------------------------- --------- -------------
Investment portfolio of subsidiaries includes quoted investments
of GBP383,000 (2020: GBP197,000).
There were no transfers between levels during the year ending 31
December 2021.
12. Operating and other receivables
31 December
--------------------
2021 2020
GBP'000 GBP'000
--------- ---------
Other receivables and prepayments 51 67
--------- ---------
51 67
------------------------------------ --------- ---------
13. Cash and cash equivalents
31 December
--------------------
2021 2020
GBP'000 GBP'000
------------------ --------- ---------
Bank balances 351 2,221
Demand deposits 14,167 14,164
-------------------- --------- ---------
14,518 16,385
------------------ --------- ---------
At 31 December 2021, the total Group's cash balance is GBP20.113
million (2020: GBP20.590) which includes cash held in subsidiaries
of GBP5.595 million (2020: GBP4.205 million).
14. Amounts receivable from subsidiaries
31 December
--------------------
2021 2020
GBP'000 GBP'000
--------- ---------
Amounts receivable from subsidiaries 5,191 5,375
--------- ---------
5,191 5,375
--------------------------------------- --------- ---------
15. Operating and other payables
31 December
--------------------
2021 2020
GBP'000 GBP'000
Carried interest provision 35 68
Trade payables 43 32
Other non-trade payables and accrued expenses 316 315
-------------------------------------------------- --------- ---------
394 415
Other long-term lease liabilities 75 102
-------------------------------------------------- --------- ---------
469 517
------------------------------------------------ --------- ---------
The Company operates carried interest arrangements in line with
normal practice in the private equity industry, calculated on the
assumption that the investment portfolio is realised at its year
end carrying amount. As at 31 December 2021, GBP35,000 (2020:
GBP68,000) has been accrued for in the Company and GBP438,000
(2020: GBP424,000) has been accrued for in the subsidiaries.
Carried interest accrued for in the subsidiaries is included in the
amounts owing to subsidiaries on the Statement of Financial
Position.
16. Amounts payable to subsidiaries
31 December
--------------------
2021 2020
GBP'000 GBP'000
--------- ---------
Amounts payable to subsidiaries 38,740 38,747
--------- ---------
38,740 38,747
---------------------------------- --------- ---------
17. Capital and reserves
Share capital
2021 2021 2020 2020
Ordinary shares Number GBP'000 Number GBP'000
------------ --------- ------------------------ ---------
Balance at the beginning of the year 80,727,450 8,073 80,727,450 8,073
Repurchase of shares - - - -
------------------------ ---------
Balance at the end of the year 80,727,450 8,073 80,727,450 8,073
--------------------------------------- ------------ --------- ------------------------ ---------
The Company's ordinary shares have a nominal value of 10p per
share and all shares in issue are fully paid up.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
Share premium account
The Company's share premium account arose on the exercise of
share options in prior years.
Capital redemption reserve
The capital redemption reserve comprises the nominal value of
shares purchased by the Company out of its own profits and
cancelled.
18. Share awards
In the prior year, the Company established a long-term incentive
plan for the employees of the Company. The plan grants the Board
the authority to allot up to 1,000 Value Creation Plan ("VCP")
units with both performance and service conditions attached. The
VCP units can only be awarded at the end of the five-year vesting
period, 30 June 2025, if certain minimum performance conditions are
met. These minimum performance conditions include two performance
targets over the measurement period, including a minimum hurdle
rate such that the annualised total shareholder return ("TSR") over
the measurement period must be not less than 8% and a minimum share
price of 52.8p. If the minimum performance targets are met, the
amount that the plan participants will receive will depend on the
TSR performance of the Company achieved over the five-year vesting
period. The Board retains the right to settle these awards in
either shares or cash. As the Company does not have a present
obligation to settle in cash, the awards are all recognized as
equity settled share awards.
The first share awards were granted in 2020 with respect to the
performance year ended 31 December 2020. There were no share awards
granted for the year ending 31 December 2021.
Grant date Type of award Number of shares Fair value/ Vesting conditions Final vesting date
awarded share
GBP
------------------ --------------- ------------------- ------------- --------------------- ----------------------
30 June 2020 Shares 500 418.44 Awards vest 30 June 2025
quarterly over 5
years provided the
employee is still
in service of the
Company.
17 November 2020 Shares 125 393.63 Awards vest 30 June 2025
quarterly over 5
years provided the
employee is still
in service of the
Company.
------------------ --------------- ------------------- ------------- --------------------- ----------------------
The fair value of the option granted in 2020 has been estimated
using the Monte Carlo simulation. The principal assumption used in
the calculation were as follows:
2020
---------------------------------- -----------
Share price at 30 June 2020 GBP 0.328
Share price at 17 November 2020 GBP 0.299
Exercise price -
Expected life 5 years
Weighted average risk-free rate (0.04%)
Dividend yield 2.0%
----------------------------------- -------------
Number of awards Weighted average of fair value of instrument
---------------------------------- -------------------- ----------------------------------------------
Outstanding at 1 January 2020 - -
Granted 625 413.48
Settled in equity - -
----------------------------------
Outstanding at 31 December 2020 625 413.48
------------------------------------ ------------------ ----------------------------------------------
Granted - -
Settled in equity - -
---------------------------------- ------------------ ----------------------------------------------
Outstanding at 31 December 2021 625 413.48
------------------------------------ ------------------ ----------------------------------------------
19. Leases
Lease commitments
The Company leases rental space and information with regards to
this lease is outlined below:
Rental lease asset GBP'000
------------------------------------------------------- ---------
Leased asset recognised under IFRS 16 at 1 July 2020 139
Depreciation for the year (14)
------------------------------------------------------- ---------
Balance at 31 December 2020 125
Depreciation for the year (28)
------------------------------------------------------- ---------
Balance as at 31 December 2021 97
------------------------------------------------------- ---------
Rental lease liability GBP'000
------------------------------------------------------- ---------
Leased asset recognised under IFRS 16 at 1 July 2020 139
Unwinding of the discount on lease liability 4
Payments for lease (16)
------------------------------------------------------- ---------
Balance at 31 December 2020 127
Unwinding of the discount on lease liability 8
Payments for lease (33)
------------------------------------------------------- ---------
Balance as at 31 December 2021 102
------------------------------------------------------- ---------
Further information regarding the adoption of IFRS 16 is
detailed in note 1.
20. Financial risk management
Financial instruments by category
The following tables analyse the Company's financial assets and
financial liabilities in accordance with the categories of
financial instruments in IFRS 9. Assets and liabilities outside the
scope of IFRS 9 are not included in the table below:
31 December
2020
2021 (Restated)
------------------------------------- -------------------------------------
Fair Fair
Value Value
through Measured at through Measured at
profit or amortised profit or amortised
loss cost Total loss cost Total
Financial assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- ------------- --------- ----------- ------------- ---------
Investments 68,461 - 68,461 65,235 - 65,235
Amounts receivable from subsidiaries - 5,191 5,191 - 5,375 5,375
Operating and other receivables - 41 41 - 67 67
Cash and cash equivalents - 14,518 14,518 - 16,385 16,385
--------------------------------------- ----------- ------------- ---------
Total 68,461 19,750 88,211 65,235 21,827 87,062
--------------------------------------- ----------- ------------- --------- ----------- ------------- ---------
31 December
2021 2020
-------------------------------------- -------------------------------------
Fair Fair
Value Value
through Measured at through Measured at
profit or amortised profit or amortised
loss cost Total loss cost Total
Financial liabilities GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------- --------- ----------- ------------- ---------
Operating and other payables - 367 367 - 390 390
Amounts payable to subsidiaries - 38,740 38,740 - 38,747 38,747
Lease liabilities - 102 102 - 127 127
---------------------------------- ------------ ------------- --------- ----------- ------------- ---------
Total - 39,209 39,209 - 39,264 39,264
---------------------------------- ------------ ------------- --------- ----------- ------------- ---------
Intercompany payables to subsidiaries are all repayable on
demand thus there are no discounted contractual cash flows to
present.
The Company has exposure to the following risks from its use of
financial instruments:
-- credit risk;
-- liquidity risk; and
-- market risk.
This note presents information about the Company's exposure to
each of the above risks, its policies for measuring and managing
risk, and its management of capital.
Credit risk
Credit risk is the risk of the financial loss to the Company if
a counterparty to a financial instrument fails to meet its
contractual obligations and arises principally from the Company's
receivables and its cash and cash equivalents.
31 December
------------------------
2020
2021 (Restated)
GBP'000 GBP'000
--------------------------------------- ----- ----- ----- ----- --------- -------------
Amounts receivable from subsidiaries 5,191 5,375
Operating and other receivables 41 67
Debt Investments - 600
Cash and cash equivalents 14,518 16,385
19,750 22,427
--------------------------------------------------------------- --------- -------------
The Company limits its credit risk exposure by only depositing
funds with highly rated institutions. Cash holdings at 31 December
2021 and 2020 were held in institutions currently rated A or better
by Standard and Poor's. Given these ratings, the Company does not
expect any counterparty to fail to meet its obligations and
therefore, no allowance for impairment is made for bank
deposits.
The loss allowance as at 31 December 2021 and 31 December 2020
was determined as follows for trade receivables:
More than More than More than
Current 30 days past due 60 days past due 120 days past due Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- ------------------ ------------------ ------------------- ---------
Expected loss rate - - - 100% -
Other receivables 41 - - - 41
Total 41 - - - 41
--------------------- --------- ------------------ ------------------ ------------------- ---------
More than More than More than
Current 30 days past due 60 days past due 120 days past due Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- ------------------ ------------------ ------------------- ---------
Expected loss rate - - - 100% -
Trade receivables - - - 59 59
Other receivables 67 - - - 67
Loss allowance - - - (59) (59)
Total 67 - - - 67
--------------------- --------- ------------------ ------------------ ------------------- ---------
The Company recognised credit losses of the full value of
receivable for trade receivables not recovered after 4 months. As
at 31 December 2021, the Company does not have outstanding trade
receivable (2020: GBP59,000).
For the year ending 31 December 2021, the Company did not
witness significant increase in the credit risk since the initial
recognition of the outstanding receivable from subsidiaries and
other receivables, therefore, no expected losses were recognised
during the year (2020: GBPnil).
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. Its financing
requirements are met through a combination of liquidity from the
sale of investments and the use of cash resources.
The following table shows an analysis of the financial assets
and financial liabilities by remaining expected maturities as at 31
December 2021 and 31 December 2020.
Financial assets:
Up to 3-12 1-5 Over
3 months months years 5 years Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- --------- --------- ---------- ---------
Investment - - - 68,461 68,461
Amounts receivable from subsidiaries - - - 5,191 5,191
Operating and other receivables 41 - - - 41
Cash and cash equivalents 14,518 - - - 14,518
Total 14,559 - - 73,652 88,211
--------------------------------------- ------------- --------- --------- ---------- ---------
Up to 3-12 1-5 Over
3 months months years 5 years Total
2020 (Restated) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- --------- --------- ---------- ---------
Investment - - - 65,235 65,235
Amounts receivable from subsidiaries - - - 5,375 5,375
Operating and other receivables 67 - - - 67
Cash and cash equivalents 16,385 - - - 16,385
Total 16,452 - - 70,610 87,062
--------------------------------------- ------------- --------- --------- ---------- ---------
Financial liabilities:
Up to 3-12 1-5 Over
3 months months years 5 years Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------------- --------- --------- ---------- ---------
Operating and other payables 367 - - - 367
Amount payable to subsidiaries 38,740 - - - 38,740
Lease liabilities 6 21 75 - 102
Total 39,113 21 75 - 39,209
--------------------------------- ------------- --------- --------- ---------- ---------
Up to 3-12 1-5 Over
3 months months years 5 years Total
2020 (Restated) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- ---------
Operating and other payables 390 - - - 390
Amount payable to subsidiaries 38,747 - - - 38,747
Lease liabilities 6 19 102 - 127
Total 39,143 19 102 - 39,264
--------- ---------
In addition, some of the Company's subsidiaries have uncalled
capital commitments to funds of GBP2,665,000 (31 December 2020:
GBP2,717,000) for which the timing of payment is uncertain (see
note 21).
Market risk
Market risk is the risk that changes in market prices such as
foreign exchange rates, interest rates and equity prices will
affect the Company's income or the value of its holdings of
financial instruments. The Company aims to manage this risk within
acceptable parameters while optimising the return.
Currency risk
The Company is exposed to currency risk on those of its
investments which are denominated in a currency other than the
Company's functional currency which is pounds sterling. The only
other significant currency within the investment portfolio is the
US dollar; approximately 73% of the investment portfolio is
denominated in US dollars.
The Company does not hedge the currency exposure related to its
investments. The Company regards its exposure to exchange rate
changes on the underlying investment as part of its overall
investment return and does not seek to mitigate that risk through
the use of financial derivatives.
The Company is exposed to translation currency risk on sales and
purchases which are denominated in a currency other than the
Company's functional currency. The currency in which these
transactions are denominated is principally US dollars.
The Company's exposure to foreign currency risk was as
follows:
31 December
2020
2021 (Restated)
GBP USD Other GBP USD Other
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investments 44,794 22,554 1,113 48,995 15,040 1,200
Amounts receivable from subsidiaries 5,172 11 8 5,375 - -
Right of use assets 97 - - 125 - -
Operating and other receivables 41 - - 67 - -
Cash and cash equivalents 14,018 500 - 15,830 555 -
Operating and other payables (434) (35) - (517) - -
Amount payable to subsidiaries (31,597) (7,011) (132) (38,747) - -
Gross exposure 32,091 16,019 989 31,128 15,595 1,200
Forward exchange contracts - - - - - -
Net exposure 32,091 16,019 989 31,128 15,595 1,200
The aggregate net foreign exchange profit/(loss) recognised in profit or loss were:
31 December
2021 2020
GBP'000 GBP'000
Net foreign exchange profit/(loss) on investment 21 (90)
Net foreign exchange profit/(loss) on non-investment 172 (577)
Total net foreign exchange profit/(loss) recognised in profit before income tax for the year 193 (667)
At 31 December 2021, the rate of exchange was USD $1.35 =
GBP1.00 (31 December 2020: $1.37 = GBP1.00).
A 10% strengthening of the US dollar against the pound sterling
would have increased equity and increased profit by GBP1.8 million
at 31 December 2021 (31 December 2020: increased equity and
increased profit by GBP1.7 million). This assumes that all other
variables, in particular interest rates, remain constant. A
weakening of the US dollar by 10% against the pound sterling would
have decreased equity and decreased the profit for the year by
GBP1.5 million (2020: decreased equity and increased the loss by
GBP1.7 million). This level of change is considered to be
reasonable based on observations of current conditions.
Interest rate risk
At the reporting date, the Company's cash and cash equivalents
are exposed to interest rate risk and the sensitivity below is
based on these amounts.
An increase of 100 basis points in interest rates at the
reporting date would have increased equity by GBP155,000 (31
December 2020: increase of GBP207,000) and increased the profit for
the year by GBP155,000 (2020: decreased the loss GBP207,000). A
decrease of 100 basis points would have decreased equity and
increased the loss for the year by the same amounts. This level of
change is considered to be reasonable based on observations of
current conditions.
Fair values
All items not held at fair value in the Statement of Financial
Position have fair values that approximate their carrying
values.
Other market price risk
Equity price risk arises from equity securities held as part of
the Company's portfolio of investments. The Company's management of
risk in its investment portfolio focuses on diversification in
terms of geography and sector, as well as type and stage of
investment.
The Company's investments comprise unquoted investments in its
subsidiaries and investments in quoted investments. The
subsidiaries' investment portfolios comprise investments in quoted
and unquoted equity and debt instruments. Quoted investments are
quoted on the main stock exchanges in London and USA. A proportion
of the unquoted investments are held through funds managed by
external managers.
As is common practice in the venture and development capital
industry, the investments in unquoted companies are structured
using a variety of instruments including ordinary shares,
preference shares and other shares carrying special rights, options
and warrants and debt instruments with and without conversion
rights. The investments are held for resale with a view to the
realisation of capital gains. Generally, the investments do not pay
significant income.
The significant unobservable inputs used at 31 December 2021 in
measuring investments categorised as level 3 in note 11 are
considered below:
-- Unquoted securities (carrying value GBP16.6 million) are
valued using the most appropriate valuation technique such as a
revenue-based approach, an earnings-based approach, or a discounted
cash flow approach. These investments are sensitive to both the
overall market and industry specific fluctuations that can impact
multiples and comparable company valuations. In most cases the
valuation method uses inputs based on comparable quoted companies
for which the key unobservable inputs are:
-- EBITDA multiples of approximately 5 times dependent on the
business of each individual company, its performance and the sector
in which it operates;
-- revenue multiples in the range 0.30-1.5 times, also dependent
on attributes at individual investment level; and
-- discounts applied of up to 40%, to reflect the illiquidity of
unquoted companies compared to similar quoted companies. The
discount used requires the exercise of judgement taking into
account factors specific to individual investments such as size and
rate of growth compared to other companies in the sector.
-- Investments in funds (carrying value GBP14 million) are
valued using reports from the general partners of the fund
interests with adjustments made for calls, distributions and
foreign currency movements since the date of the report (if prior
to 31 December 2021). The Company also carries out its own review
of individual funds and their portfolios to satisfy themselves that
the underlying valuation bases are consistent with the basis of
valuation and knowledge of the investments and the sectors in which
they operate. However, the degree of detail on valuations varies
significantly by fund and, in general, details of unobservable
inputs used are not available.
The valuation of the investments in subsidiaries makes use of
multiple interdependent significant unobservable inputs and it is
impractical to sensitise variations of any one input on the value
of the investment portfolio as a whole. Estimates and underlying
assumptions are reviewed on an ongoing basis, however, inputs are
highly subjective. Changes in any one of the variables, earnings or
revenue multiples or illiquidity discounts could potentially have a
significant effect on the valuation.
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 year ended 31 December 2021 would
have decreased by GBP6.8 million (2020: loss increased by GBP6.5
million). An increase in the valuation of level 3 category
investments by 10% at the reporting date would have an equal and
opposite effect.
Capital management
The Company's total capital at 31 December 2021 was GBP49
million (31 December 2020: GBP48 million) comprising equity share
capital and reserves. The Company had borrowings at 31 December
2021 of GBPnil (31 December 2020: GBPnil).
In order to meet the Company's capital management objectives,
the Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. This review includes:
-- Working capital requirements and follow-on investment capital
for portfolio investments, including calls from funds;
-- Capital available for new investments; and
-- The annual dividend policy and other possible distributions to shareholders.
21. Capital commitments
31 December
--------------------
2021 2020
GBP'000 GBP'000
Outstanding commitments to funds 2,665 2,717
The outstanding capital commitments to funds comprise unpaid
calls in respect of funds where a subsidiary of the Company is a
limited partner.
As of 31 December 2021, the Company has no other contingencies
or commitments to disclose (2020: GBPnil).
22. Related party transaction
The Directors' fees paid for the year were GBP722,000 (2020:
GBP708,000).
In the prior year, the Company entered into a lease agreement
with The Rayne Foundation in respect of the premises comprising its
principal office. Under the terms of the lease, the Company paid
rent of GBP32,780 (2020: GBP16,390) to The Rayne Foundation. Robert
Rayne is the Chairman of The Rayne Foundation.
23. Subsequent events
The Company is monitoring the impact of the Russian invasion of
Ukraine on each of its portfolio investments and overall business.
The ultimate outcome is highly uncertain and difficult to
predict
Elateral, an investment in the digital marketing sector,
utilises contract staff in Ukraine, Russia and Belarus for its
software development and has developed a contingency plan to manage
any disruption that may occur. The situation remains highly
uncertain, and the Company will continue monitoring developments
closely.
There are no other subsequent events that would materially
affect the interpretation of these Financial Statements.
24. Subsidiaries
The Company's subsidiaries are as follows:
Name Country of incorporation Holding % Activity
International Oilfield Services Limited Bermuda 100 Investment holding
LMS Capital (Bermuda) 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
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 Property Investments Limited England and Wales 100 Dormant
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
Cavera Limited England and Wales 100 Trading
LMS Co-Invest Limited England and Wales 100 Trading
During the year, LMS Capital (General Partner) Limited was
liquidated.
The registered office addresses of the Company's subsidiaries
are as follows:
Subsidiaries incorporated in England and Wales: 3 Bromley Place,
London, United Kingdom, W1T 6DB.
Subsidiaries and partnerships incorporated in Bermuda: Clarendon
House, 2 Church Street, Hamilton HM 11, Bermuda.
25. Net asset value per share
The net asset value per ordinary shares in issue are as
follows:
31 December
2021 2020
NAV (GBP'000) 49,109 47,923
Number of ordinary shares in issue 80,727,450 80,727,450
NAV per share (in pence) 60.83 pence 59.36 pence
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END
FR FIFFRVTIILIF
(END) Dow Jones Newswires
March 10, 2022 02:00 ET (07:00 GMT)
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