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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lms Capital Plc | LSE:LMS | London | Ordinary Share | GB00B12MHD28 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.50 | -2.76% | 17.60 | 17.60 | 18.70 | 17.60 | 17.60 | 17.60 | 89,324 | 16:29:57 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Investment Advice | -1.54M | -3.73M | -0.0462 | -3.81 | 14.21M |
From May 2019 to May 2024
TIDMLMS
RNS Number : 0711V
LMS Capital PLC
04 August 2020
4 August 2020
LMS CAPITAL PLC
Half year results for the six months ended 30 June 2020
Key themes
Financial
Hot Features
Premium
-- Net Asset Value ("NAV") at 30 June 2020 of GBP46.5 million, 57.5p per share;
-- This compares to GBP52.6 million (65.1p per share) being the 31 December 2019 NAV (after adjustment for the special dividend of GBP3.4 million declared in December 2019 and paid in early January 2020);
-- The reduction in NAV, excluding the effect of the special dividend, arises principally as a result of the impact of the Coronavirus pandemic on portfolio valuations; and
-- Cash at 30 June 2020 was GBP29.0 million, 35.9p per share, (31 December 2019: GBP26.6 million), including GBP4.4 million held in subsidiaries .
Investments
-- Continued progress in refocusing the Company's investment strategy on three specialist sectors: property, energy and late stage private equity;
-- In April the Company announced two deals in the property sector, both unencumbered by legacy asset positions and positioned to take advantage of market opportunities:
o George Capital - GBP2.5 million commitment to team seeking UK regional mixed use city centre opportunities;
o Cavera -seed funding to the team seeking to identify development projects which will create opportunities for the Company and its co-investors to deploy capital; and
-- The Company is at an advanced stage of discussions on a further investment opportunity, and subject to conclusion of its negotiations, hopes to be in a position to make a further announcement in the coming weeks.
Dividend policy
-- The company will institute a progressive annual dividend policy. The Board is initially targeting a dividend in respect of each financial year of approximately 1.5% of that year's closing NAV. The amount of dividend will be reviewed each year in light of the Company's liquidity, the investment income generated, distributable profits and market conditions;
-- The first payment will be an interim dividend in respect of the Company's financial year to 31 December 2020 of 0.3 pence per share. The dividend will be paid on 11 September 2020 to shareholders on the share register at close of business on 14 August 2020 (with an ex-dividend date of 13 August 2020); and
-- The dividend payment to be split approximately one third as an interim dividend in August/September each year and approximately two thirds as a final dividend following the publication of the year's accounts and conclusion of the Annual General Meeting in April/May following the year end.
Robert Rayne, Chairman, commented
"The first six months of 2020 have been challenging, however I am pleased with the progress the Company has made, in commitments to new investments and realisations from its existing portfolio, and in being able to initiate a dividend."
4 August 2020
Enquiries:
LMS Capital PLC
0207 935 3555
Email address
Robert Rayne, Chairman
Nick Friedlos, Managing Director
Statement from the Chairman and Managing Director
We are pleased to present the financial results for the first six months of the year and to provide an update on the progress of the Company towards its longer term goals, following its return to internal management at the end of 2019.
The year to date has been dominated at every level in society by the Coronavirus pandemic. Our priority has been to take steps to protect our people and those with whom we work, whilst continuing so far as possible to make progress towards the Company's business objectives.
-- In financial terms our portfolio valuations have reduced as a result of the Coronavirus pandemic. Overall portfolio valuations for the current investments are approximately 16% lower than the level reported at 31 December 2019, although 12% ahead of the 31 March 2020 NAV estimates;
-- In April, in order to de-risk our portfolio and preserve liquidity, we realised substantially all our quoted company holdings and have cash balances of GBP29.0 million at 30 June 2020;
-- We have continued refocusing our investment strategy on our chosen sectors: property, energy and late stage private equity. In April we announced backing for two property opportunities. The Company is also at an advanced stage of discussions in relation to a further investment opportunity and hopes to conclude negotiations and be in a position to make a further announcement in the coming weeks;
-- We continue to build our pipeline of opportunities; and
-- Given the progress made with investment commitments in the first six months, the Board feels that it is an appropriate signal of its confidence in the future, to declare a dividend. This is set initially at a sustainable level, with a view to establishing a progressive dividend policy going forward.
UNAUDITED RESULTS FOR THE SIX MONTHSED 30 JUNE 2020
The net asset value ("NAV") at 30 June 2020 was GBP46.5 million (57.5p per share). This represents a reduction of GBP6.1 million (7.5p per share) compared to an adjusted GBP52.6 million (65.1p per share) being the 31 December 2019 reported NAV of GBP56.0 million reduced for the payment of the Special Dividend of GBP3.4 million, declared in December 2019 but paid in early January 2020. The reduction in NAV over the period arises principally from realised and unrealised reductions in the portfolio valuations as a result of the Coronavirus pandemic and its impact on financial markets.
Overall portfolio realised and unrealised losses were GBP5.2 million. This is stated after recognising realised and unrealised exchange gains of GBP1.1 million primarily from the strengthening of the US Dollar over the sterling during the first six months of 2020.
The principal changes in the portfolio, excluding realised and unrealised foreign exchange impact, were:
-- Quoted shares
o Overall our quoted portfolio showed net losses, realised and unrealised, of GBP0.6 million, during the first half of 2020; and
o Our holdings in Gresham House and Solaredge, together representing over 90% of our quoted holdings at 31 December 2019, were realised producing GBP7.7 million of cash proceeds;
-- Unquoted shares
o Our unquoted holdings reduced by net GBP1.7 million, excluding the impact of foreign currency, or 17% compared to the 31 December 2019 valuations.
o The principal reductions were on Medhost and Elateral. The reductions are discussed in the portfolio review below and are a function of both downward movements in market comparable valuation data and reduced estimates of performance of the underlying businesses as a result of the Coronavirus pandemic; and
o The reductions are partly offset by an increase in value of ICU due to its improved cash position and a debt repayment received in July 2020.
-- Fund investments
o Valuations, excluding the impact of foreign currency gains, reduced by a net GBP3.8 million, or 27%;
o Our investment in Brockton has reduced in value by GBP1.7 million, reflecting increased uncertainty in the Central London residential markets;
o Our investment in YesTo, managed by SFEP, has reduced in value by GBP2.0 million. The company was in the process of resetting its strategy following poor performance in 2018 and 2019, but the financial situation has been exacerbated by the Coronavirus pandemic; and
o Other fund interests have reduced in value by GBP0.1 million
Non-portfolio reductions in NAV were GBP0.9 million and include overhead costs of GBP0.9 million and GBP0.2 million of net income tax adjustments, offset by GBP0.1 million of non-portfolio foreign exchange gains and GBP0.1 million of interest and other income.
NEW INVESTMENTS AND LIQUIDITY
The Company has made two new investment commitments since returning to internal management, both in the property sector. It also has a pipeline of further opportunities in its chosen sectors and as noted above is currently at an advanced stage of discussion with respect to one of these.
Property sector
In the property sector the Company has invested in two opportunities, in both cases, unencumbered by existing assets and well positioned to take advantage of market opportunities which play to the respective strengths of the two teams. Both opportunities have the potential to deliver attractive risk adjusted returns to LMS.
George Capital
LMS has committed to provide GBP2.5 million of cornerstone investment for a niche strategy based on regenerating income producing mixed use assets in regional UK city centres. The George Capital team has a track record of success in this area and sees opportunities to create value in the market going forward. The strategy targets a total return of 12% to 15% per annum, net of all costs, including an annual income distribution of 5% per annum.
As a cornerstone investor, LMS will have two seats on the investment committee plus certain other rights and enhanced economics. LMS' commitment can only be drawn against specific projects which LMS has approved.
Cavera
LMS has established Cavera as a wholly owned subsidiary to work with a successful real estate development team. The team were founders of Voreda, a management business that obtained planning consent and developed over 90,000 sq. metres of space in West London for its partners including student and key worker accommodation, residential, commercial space and specialist buildings.
The Cavera team will seek development situations where the risks can be appropriately allocated and managed and which can be structured as investment opportunities for LMS and its co investment partners.
Liquidity
After taking account of its commitments to George Capital and Cavera, and without taking account of possible realisations from the existing portfolio, the Company has approximately GBP27 million available to cover its costs and make further new investments, including projects which Cavera might bring forward. The Company, with its current cash balances, has more than sufficient liquidity to meet its planned investments and operating costs.
The Company's co-investment program will aim to increase this pool of capital for investment alongside LMS.
DIVID POLICY
The Company will adopt a progressive dividend policy, commencing with an interim dividend for the year to 31 December 2020. The interim dividend of 0.3 p per share will be paid on 11 September 2020.
In setting the dividend policy the Board has taken into account the general market conditions, the likely liquidity from the existing unquoted investments and the ability to generate income from new investments. In all cases the impact of the Coronavirus pandemic has increased the risk and uncertainty surrounding these factors.
In these circumstances, and in particular in light of the likely reduced near term liquidity from the existing portfolio, the Board believes it is not appropriate at this time to pursue a further one off return of capital. It believes that the liquidity should be retained within the Company to enable it to implement its investment policy and generate its target returns.
The Board is however confident of the Company's ability to generate investment income on an annual basis and is therefore proposing to commence the payment of an annual dividend. The initial dividend target for each financial year is 1.5% of the year end NAV to be paid approximately one third as an interim dividend in September and the balance as a final dividend in the second quarter following the year end. The dividend has initially been set at a level the Board believe is sustainable and offers the opportunity for progression.
CONCLUSION AND OUTLOOK
As stated in its announcements in April, the Board has reviewed its objectives in light of the Coronavirus pandemic; it has concluded that its long term strategy and objectives in returning to internal management have not changed, although the landscape in which it operates has changed and is likely to continue to do so.
The Board seeks to broaden the Company's shareholder base and develop the Company into an attractive investment for family offices, high net worth investors, institutions and others attracted by the returns it achieves and the character of its investments. In order to achieve this, it will:
-- Focus investment on sectors and situations where it has competitive advantage as a result of its knowledge and experience and its relationships;
-- Search out "hard to access" assets that give the opportunity for wealth creation through nurturing and careful management;
-- Offer investors exposure to assets not accessible through larger funds; and
-- Actively promote co -investment alongside its own balance sheet investment and look for opportunities to expand its capital base.
The impact of the Coronavirus pandemic has yet to be fully felt. The Company remains cautious about liquidity and is looking at all new opportunities through the lens of a prolonged period of economic uncertainty.
The first six months of 2020 have been challenging, but we are encouraged by the Company's progress to date and believe it is well placed. We would like to express our appreciation to all those with whom we work, our staff, service providers, adviser firms, management teams and our Board colleagues for their support and efforts in these challenging times.
We look forward to reporting to you further on our progress.
Robert Rayne
Chairman
Nick Friedlos
Managing Director
4 August 2020
Portfolio Management Review
INTRODUCTION
In November 2019, the Company's shareholders approved a resolution to return the Company to internal management and the Company's contract with the former external manager has now been terminated. All formalities were completed and the Company and the new Board became responsible for all aspects of the portfolio management with effect from 30 January 2020.
INVESTMENT APPROACH
The new investment approach under internal management is now focused predominantly on three areas: property, energy and late stage private equity investments. The Company will focus on investment opportunities where it has a competitive advantage due to the Company's long history, including sectors in which the team has deep knowledge and experience, a track record of successful investing and access to exceptional teams and opportunities.
The Company will invest in and partner with management teams of profitable and cash generative businesses and investments to create value, targeting an annual return on equity of 12% -15%, including an annual distribution to shareholders.
The Company will also seek to optimise the value of existing holdings and, where growth prospects are clear, to preserve and support longer term value creation.
MARKET BACKGROUND
The first half of 2020 has been an extremely volatile period as global financial markets and businesses have been dominated by the impact of the Coronavirus pandemic. In the UK, the economic uncertainty from the Coronavirus pandemic was compounded by the ongoing Brexit trade negotiations with the European Union. UK equities hit a year-to-date low on 23 March when the UK government announced the lockdown over the pandemic. Both the UK Aim and Small-cap indices declined over 28% during the first quarter. The Bank of England has provided massive stimulus packages through the expansions of its bond repurchase policy and reduction in interest rates, and the UK government has supported employment through state-funded furlough schemes. The domestic markets rebounded during the second quarter, but the UK Aim and Small-cap indices are still down 8% and 16%, respectively, from their end of 2019 levels. The US Dollar also strengthened against the sterling during the first half of 2020.
The Board and Company continue to closely monitor its portfolio investments, including the impact that the current market volatility has on the valuations.
PERFORMANCE REVIEW
The movement in Net Asset Value during the six months to 30 June 2020 was as follows:
Six months ended 30 June 2020
GBP'000
---------------------------------
Opening NAV 55,958
Loss on investments (5,207)
Special dividend to shareholders (3,431)
Overheads, tax and other net movements (862)
Closing NAV 46,458
---------------------------------
Cash realisations from the portfolio were as follows:
Six months ended 30 June
----------------------------
2020 2019
GBP'000 GBP'000
----------------------------------------------- ------------- -------------
Proceeds from the sale of investments 7,897 40
Distributions from funds and loan repayments 256 -
Total - gross 8,153 40
New and follow-on investments (225) (584)
Fund calls (59) -
----------------------------------------------- ------------- -------------
Total - net 7,869 (544)
----------------------------------------------- ------------- -------------
Net cash realisations of GBP7.9 million in the six months ended 30 June 2020 include:
-- Proceeds of GBP7.7 million from the sale of quoted securities, including the sale of the entirety of the Company's shares in Gresham House Asset Management (GBP5.2 million) and Solaredge (GBP2.5 million);
-- Proceeds of GBP0.2 million from the sale of other investments; and -- Fund distributions of GBP0.3 million from Eden and Opus.
The follow-on investment is in respect of additional working capital funding for Elateral, a UK direct investment. The fund calls are primarily in respect of SFEP management fees.
Below is a summary of the investment portfolio of the Company and its subsidiaries:
30 June 2020 31 December 2019
---------------------------------- ----------------------------------
Asset type UK US Total UK US Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------- ---------- ---------- ---------- ---------- ----------
Quoted 472 66 538 6,687 1,734 8,421
Unquoted 1,141 7,626 8,767 2,428 7,285 9,713
Funds 5,401 4,634 10,035 7,795 6,312 14,107
------------- ---------- ---------- ---------- ---------- ---------- ----------
7,014 12,326 19,340 16,910 15,331 32,241
------------- ---------- ---------- ---------- ---------- ---------- ----------
The principal investments at 30 June 2020 comprising 34% of the NAV and 82% of the remaining portfolio, are shown below:
Name Geography Sector Book value % of NAV
----------------------- ------------- ------------- ------------------------ ----------
30 June 31 December 30 June
2020 2019 2020
GBP'000 GBP'000
Unquoted investments
Medhost Inc US Technology 5,073 5,460 10.9%
Northbridge UK Technology 619 730 1.3%
Fund investments
Brockton Capital UK Property 3,860 5,529 8.3%
Opus Capital
Venture Partners US Technology 3,051 3,145 6.6%
ICU Eyewear* US Consumer 2,487 1,514 5.4%
YesTo, Inc* US Consumer 775 3,096 1.7%
*includes holdings by SFEP and co-investments held by the Company
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 investments
Unquoted direct investments for which there is no ready market are valued using the most appropriate valuation technique with regard to the stage and nature of the investment. Valuation methods that may be used include:
-- 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 positive cash flows;
-- Investments in a business the value of which is derived mainly from its underlying net assets rather than its earnings are valued on the basis of net asset valuation;
-- Investments in an established business which is generating sustainable revenue or positive cash flows but for which other valuation methods are not appropriate are valued by calculating the discounted cash flow of future cash flows or earnings; and
-- 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.
-- The Company has adopted the updated IPEV guidelines which are effective from 1 January 2019.
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 evidenc e available for an alternative valuation.
Performance of the investment portfolio
The return on investments for the six months ended 30 June 2020 was as follows:
Six months ended 30 June Six months ended 30 June
2020 2019
--------------------------------------- ---------------------------------------
Realised Unrealised Realised Unrealised
gains gains/(losses) Total gains gains/(losses) Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- ---------------- --------- ---------- ---------------- ---------
Quoted (335) (257) (592) - 1,572 1,572
Unquoted 6 (1,171) (1,165) 36 2,505 2,541
Funds - (3,450) (3,450) - (4,372) (4,372)
---------- ---------------- ---------
(329) (4,878) (5,207) 36 (295) (259)
---------- ---------------- --------- ---------- ---------------- ---------
Credit/(charge) for
incentive plans 64 (338)
--------- ---------
(5,143) ( 597)
Net gain on foreign
currency 672 354
Operating and similar
expenses of subsidiaries (325) (25)
---------- ---------------- --------- ---------- ---------------- ---------
(4,796) (268)
---------------------------- ---------- ---------------- --------- ---------- ---------------- ---------
The Company still has some historic carried interest arrangements, which have yet to run off, in respect of a small number of its investments. The credit for incentive plans during the six months ended 30 June 2020 for is GBP64,000.
Approximately 64% of the portfolio at 30 June 2020 is denominated in US dollars (31 December 2019: 48%) and the above table includes the impact of currency movements. In the six months ended 30 June 2020, the strengthening of the US dollar against sterling over the year as a whole resulted in an unrealised foreign currency gain of GBP1.0 million (2019: unrealised gain of GBP124,000). As is common practice in private equity investment, it is the Board's current policy not to hedge the Company's underlying non-sterling investments.
Quoted investments
30 June 31 December
2020 2019
-------------------- --------------------- --------- ------------
Company Sector GBP'000 GBP'000
-------------------- --------------------- --------- ------------
IDE Group Holdings UK technology 472 781
Others - 66 17
Gresham House plc UK financial - 5,906
Solaredge US renewable energy - 1,717
538 8,421
------------------------------------------ --------- ------------
The net gains/(losses) on the quoted portfolio arose as follows:
Six months ended 30 June
----------------------------
2020 2019
GBP'000 GBP'000
----------------------------------- ------------- -------------
Realised
Gresham House plc (716) -
Solaredge Inc. 381 -
----------------------------------- ------------- -------------
(335) -
----------------------------------- ------------- -------------
Unrealised
IDE Group Holdings (309) (218)
Weatherford International (6) (221)
Gresham House - 1,486
Solaredge Inc. - 515
Other quoted holdings 57 2
Unrealised foreign currency gains 1 8
----------------------------------- ------------- -------------
(257) 1,572
----------------------------------- ------------- -------------
Total net (loss)/gain (592) 1,572
----------------------------------- ------------- -------------
Gresham House plc
The Company sold all of its 984,329 shares in GHAM during the first half of 2020. The shares generated cash proceeds of GBP5.2 million and a realised loss of GBP0.7 million.
Solaredge
All shares of Solaredge were also sold during the six months ended 30 June 2020 as the share price increased from $95.09 at 31 December 2019 to a high of $153.60 during the first half of the year. The sales generated cash proceeds of GBP2.5 million and a realised gains, including foreign exchange, of GBP0.4 million.
IDE Group
During the first half of 2020, the share price declined in March as markets reacted to the Coronavirus impact, resulting in the unrealised loss of GBP0.3 million.
Unquoted investments
30 June 31 December
2020 2019
-------------- --------------- --------- ------------
Company Sector GBP'000 GBP'000
-------------- --------------- --------- ------------
Medhost Inc US technology 5,073 5,460
ICU Eyewear* US consumer 2,484 1,508
Northbridge UK technology 619 730
Elateral UK technology 402 1,610
IDE Group UK technology 120 88
Yes To* US consumer 69 317
8,767 9,713
------------------------------ --------- ------------
*These are co-investments with SFEP
The net gains on the unquoted portfolio arose as follows:
Six months ended 30 June
----------------------------
2020 2019
Gains, net GBP'000 GBP'000
----------------------------------- ------------- -------------
Realised
Other 6 36
----------------------------------- ------------- -------------
6 36
----------------------------------- ------------- -------------
Unrealised valuation adjustments
ICU Eyewear 871 784
IDE Group 31 -
Entuity - 3,745
Penguin Computing - (150)
Northbridge (111) 187
YesTo (269) (478)
Medhost (764) (607)
Elateral (1,433) (250)
Unrealised foreign currency gains 504 58
----------------------------------- ------------- -------------
(1,171) 2,505
----------------------------------- ------------- -------------
Total net (loss)/gain (1,165) 2,541
----------------------------------- ------------- -------------
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.
Elateral
Additional funding of GBP0.2 million was required by the Company in the first half of 2020. The new team at Elateral has largely completed the process of re-engineering and upgrading its technology platform and reducing its cost structure. The reduction in value reflects the impact of Coronavirus pandemic which has slowed down the company's ability to grow revenues and increase the risk that further funding will be required to achieve growth and profitability. This has resulted in a significant GBP1.4 million reduction in the valuation for the first half of 2020.
Medhost
Medhost is a co-investment with the funds of Primus Capital. Medhost's financial performance in 2020 is expected to be flat with 2019, but overall market conditions have resulted in a reduction in the valuation of GBP0.8 million by the fund manager Primus Capital.
ICU Eyewear
During 2020 the company has been able to generate surplus cash flow since April from the U.S. distribution of personal protective equipment ("PPE") manufactured by one of its international suppliers. The company is still evaluating the future impact of the PPE business line, but the valuation has increased by GBP0.9 million in the first half of 2020 due to the PPE sales.
Fund interests
30 June 31 December
2020 2019
------------------------ -------------------------- --------- ------------
General partner Sector GBP'000 GBP'000
------------------------ -------------------------- --------- ------------
Brockton Capital Fund
1 UK property 3,860 5,529
Opus Capital Venture
Partners US venture capital 3,051 3,145
US micro-cap quoted
Weber Capital Partners stocks 797 563
San Francisco Equity
Partners US consumer & technology 753 2,570
EMAC ILF UK property 736 988
Eden Ventures UK venture capital 506 914
Simmons UK energy 299 363
Other interests - 33 35
------------------------ --------------------------- --------- ------------
10,035 14,107
--------------------------------------------------- --------- ------------
Losses on the Company's funds portfolio for the six months ended 30 June 2020 were as follows:
Six months ended 30 June
----------------------------
2020 2019
(Losses)/gains GBP'000 GBP'000
----------------------------------- ---------------- ----------
Realised - -
----------------------------------- ---------------- ----------
Unrealised
Weber Capital Partners 195 (206)
Opus Capital Venture Partners 130 73
Simmons Parallel Energy (89) -
Eden Ventures (152) -
Brockton Capital Fund I (1,669) -
San Francisco Equity Partners (1,992) (4,240)
Others (net) (375) (57)
Unrealised foreign currency gains 502 58
----------------------------------- ---------------- ----------
(3,450) (4,372)
----------------------------------- ---------------- ----------
Total net loss (3,450) (4,372)
----------------------------------- ---------------- ----------
LMS Capital is the majority investor in SFEP (as opposed to the other fund interests where the Company has only a minority stake).
SFEP has one remaining investment, YesTo.
-- YesTo - fund carrying value GBP0.8 million (31 December 2019: GBP2.6 million). The company experienced a difficult 2018 and 2019 following an over aggressive growth plan which resulted in loss of sales volumes and the need to dispose of unwanted inventory. Additional working capital funding was required from investors in 2019. A new management team has been appointed in mid-2019 and is following a plan to restore growth and profitability during 2020, but the company has been negatively impacted by the current market conditions. In April 2020, the company sought further working capital funding from its investors. LMS, having reviewed the company's prospects, decided not to participate. It has agreed a new financial arrangement with SFEP, the fund manager, whereby SFEP will, notwithstanding LMS' non-participation, seek to protect to the extent possible, any future value of LMS' equity interest in YesTo. The company is valued primarily on a sales multiple. Based on current sales levels, LMS has attributed no value to its equity interest and has valued only its debt holding in YesTo.
In addition to the fund investments noted above the Company has a directly held co investment in YesTo of GBP0.1 million (31 December 2019: GBP0.3 million). The Company's total investment in YesTo at 30 June 2020, via its SFEP fund interest and its co-investment is GBP1.0 million (31 December 2019: GBP3.1 million).
Other fund interests
-- Eden Ventures - Eden has sold all but two of its assets during January 2020 in a secondary transaction. The unrealised loss reflects primarily the write down of its key remaining asset that has been impacted by the market uncertainty in the first half of 2020;
-- Brockton Capital Fund I -The Company's investment represents its share (via the Brockton Fund) of preferred debt investments in "High End" central London residential development. The investment showed a decrease in the valuation for the six months ended 30 June 2020 as the Coronavirus pandemic has delayed construction progress and unit sales, resulting in increased project costs and a potential extension of debt maturities currently under negotiation;
-- Weber Capital holds US publicly traded mid-cap securities and showed an unrealised gain of GBP0.1 million on an increase in the underlying equity prices; and
-- Opus Capital, a US venture fund, showed an unrealised gain of GBP0.1 million from improvements in its main assets.
Overhead costs
Overheads for the six months to 30 June 2020 (including amounts incurred by subsidiaries) were GBP0.9 million, and were partially offset by GBP0.1 million of non-portfolio foreign exchange gains (six months to 30 June 2019: GBP0.7 million).
Taxation
The Group tax charge for the year is GBP0.3 million (2019: nil tax charge).
Financial resources and commitments
At 30 June 2020 cash holdings, including cash in subsidiaries, were GBP29.0 million (31 December 2019: GBP26.6 million) and neither the Company nor any of its subsidiaries had any debt. The Company is considered to be a going concern and the accounts have been prepared on a going concern basis. The Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook and have prepared liquidity forecasts for a three-year period from 1 July 2020. In preparing this liquidity forecast consideration has been given to the expected impact of Covid-19 on the Company and the wider group.
At 31 December 2019 subsidiary Companies had commitments of GBP5.5 million (31 December 2019: GBP3.1 million) to meet outstanding capital calls from fund interests.
LMS Capital plc
4 August 2020
Condensed income statement
Six months ended 30
June
------------------------------------ ------ -----------------------
2020 2019
Note GBP'000 GBP'000
------------------------------------ ------ ----------- ----------
Loss on Investments 2 (4,796) (268)
Interest income 66 89
Dividend Income - 30
Other Income 2 -
----------- ----------
(4,728) (149)
Operating expenses (770) (617)
Net loss on foreign currency (571) (366)
----------- ----------
Loss before tax (6,069) (1,132)
Taxation - -
----------- ----------
Loss for the period (6,069) (1,132)
----------- ----------
Attributable to:
Equity shareholders (6,069) (1,132)
----------- ----------
Loss per ordinary share - basic 3 (7.5p) (1.4p)
Loss per ordinary share - diluted 3 (7.5p) (1.4p)
------------------------------------ ------ ----------- ----------
The notes on pages 21 to 34 form part of these Financial Statements.
Condensed statement of other comprehensive income
Six months ended 30
June
----------------------------------- -------------------------------------
2020 2019
GBP'000 GBP'000
----------------------------------- -------------------------- ---------
Loss for the period (6,069) (1,132)
Other comprehensive income - -
-------------------------- ---------
Total comprehensive loss for the
period (6,069) (1,132)
------------------------------------ -------------------------- ---------
Attributable to:
Equity shareholders (6,069) (1,132)
------------------------------------ -------------------------- ---------
The notes on pages 21 to 34 form part of these Financial Statements.
Condensed statement of financial position
30 June 31 December
2020 2019
Note GBP'000 GBP'000
-----------
Non-current assets
Investments 5 124,732 134,283
----------- -------------
Non-current assets 124,732 134,283
----------- -------------
Current assets
Operating and other receivables 55 166
Cash and cash equivalents 24,560 25,079
----------- -------------
Current assets 24,615 25,245
----------- -------------
Total assets 149,347 159,528
----------------------------------- ------ ----------- -------------
Current liabilities
Operating and other payables (366) (1,585)
Amounts payable to subsidiaries (102,523) (101,985)
----------- -------------
Current liabilities (102,889) (103,570)
----------- -------------
Total liabilities (102,889) (103,570)
----------------------------------- ------ ----------- -------------
Net assets 46,458 55,958
----------------------------------- ------ ----------- -------------
Equity
Share capital 8,073 8,073
Share premium 508 508
Capital redemption reserve 24,949 24,949
Retained earnings 12,928 22,428
-------------
Total equity shareholders' funds 46,458 55,958
----------------------------------- ------ ----------- -------------
The Financial Statements on pages 16 to 20 were approved by the Board on 4 August 2020 and were signed on its behalf by:
Nick Friedlos
Director
The notes on pages 21 to 34 form part of these Financial Statements.
Statement of changes in equity
Six months ended 30 June 2020
Capital
Share Share redemption Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January
2020 8,073 508 24,949 22,428 55,958
Total comprehensive
income
for the period
Loss for the period - - - (6,069) (6,069)
Dividends paid - - - (3,431) (3,431)
Balance at 30 June
2020 8,073 508 24,949 12,928 46,458
----------------------- --------- --------- ------------ ---------- ---------
Six months ended 30 June 2019
Capital
Share Share redemption Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------------------- --------------------- ------------ ---------- ---------
Balance at 1 January
2019 8,073 508 24,949 26,745 60,275
Total comprehensive
income
for the period
Loss for the period - - - (1,132) (1,132)
Balance at 30 June
2019 8,073 508 24,949 25,613 59,143
----------------------- ---------------------- --------------------- ------------ ---------- ---------
The notes on pages 21 to 34 form part of these Financial Statements.
Condensed cash flow statement
Six months ended 30
June
---------------------------------------------- -----------------------
2020 2019
GBP'000 GBP'000
Cash flows from operating activities
Loss for the period (6,069) (1,132)
Adjustments for:
Loss on investments 4,796 238
Other Income (2) -
Interest Income (66) (89)
----------------------------------------------- ----------- ----------
(1,341) (983)
Exchange loss on cash and cash equivalents 40 -
Decrease in operating and other
receivables 105 12
Decrease in operating and other
payables (1,219) (217)
Increase in amounts payable to subsidiaries 105 494
----------------------------------------------- ----------- ----------
Net cash used in operating activities (2,310) (694)
----------------------------------------------- ----------- ----------
Cash flows from Investing activities
Interest received 72 71
Dividend received - 30
Proceeds from sale of investments 5,190 -
----------- ----------
Net cash from investing activities 5,262 101
----------------------------------------------- ----------- ----------
Cash flows from Financing activities
Dividend paid (3,431) -
Net cash from financing activities (3,431) -
---------------------------------------------- ----------- ----------
Net decrease in cash and cash equivalents (479) (593)
Exchange loss on cash and cash equivalents (40) -
Cash and cash equivalents at the
beginning of the period 25,079 15,440
----------- ----------
Cash and cash equivalents at the
end of the period 24,560 14,847
----------------------------------------------- ----------- ----------
The notes on pages 21 to 34 form part of these Financial Statements.
Notes to the financial information
1. Principal accounting policies
Reporting entity
LMS Capital plc ("the Company") is domiciled in the United Kingdom. These condensed Financial Statements are presented in pounds sterling because that is the currency of the principal economic environment of the Company's operations.
These condensed Financial Statements do not constitute the statutory accounts of the Company within the meaning of section 434(3) and 435(3) of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2019 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor on the Company's statutory accounts for the financial year ended 31 December 2019 was (i) unqualified and (ii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
The Company was formed on 17 March 2006 and commenced operations on 9 June 2006 when it received the demerged investment division of London Merchant Securities.
Statement of compliance
These condensed Financial Statements have been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual Financial Statements and should be read in conjunction with the annual Financial Statements for the year ended 31 December 2019 which were prepared in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRS").
As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed Financial Statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published Financial Statements for the year ended 31 December 2019.
Basis of preparation
These condensed Financial Statements have been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union ("Adopted IFRS").
Consistent with the year ended 31 December 2019, the Directors have concluded that the Company has all the elements of control as prescribed by IFRS 10 "Consolidated Financial Statements" in relation to all its subsidiaries and that the Company satisfies the criteria to be regarded as an investment entity as defined in IFRS 10, IFRS 12 "Disclosure of Interests in Other Entities" and IAS 27 "Consolidated and Separate Financial Statements". Subsidiaries are therefore measured at fair value through profit or loss, in accordance with IFRS 13 "Fair Value Measurement" and IFRS 9 "Financial Instruments: Recognition and Measurement".
Notes to the financial information
1. Principal accounting policies (continued)
Basis of preparation (continued)
The Company is considered to be a going concern and the accounts have been prepared on a going concern basis. The Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook and have prepared liquidity forecasts for a three-year period from 1 July 2020. In preparing this liquidity forecast consideration has been given to the expected impact of Covid-19 on the Company and the wider group.
Accounting for subsidiaries
The Directors have concluded that the Group 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 interests in Other Entities" and IAS 27 "Consolidated and 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.
In 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. In 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 8.
Use of estimates and judgements
The preparation of condensed Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis; revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Notes to the financial information
1. Principal accounting policies (continued)
Use of estimates and judgements (continued)
The areas involving significant judgements are:
-- valuation techniques selected in estimating fair value of unquoted investments - note 5 -- valuation techniques selected in estimating fair value of investments held in Funds - note 5
The areas involving significant estimates are:
-- estimate inputs used in calculating fair value of unquoted investments - note 5 -- estimated inputs used in calculating fair value of investments held in Funds - note 5
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 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 and 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 closing bid price at the reporting date.
Notes to the financial information
1. Principal accounting policies (continued)
Unquoted direct investments
Unquoted direct investments for which there is no ready market are valued using the most appropriate valuation technique with regard to the stage and nature of the investment. Valuation methods that may be used include:
-- 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 positive cash flows;
-- investments in a business the value of which is derived mainly from its underlying net assets rather than its earnings are valued on the basis of net asset valuation;
-- investments in an established business which is generating sustainable revenue or positive cash flows but for which other valuation methods are not appropriate are valued by calculating the discounted cash flow of future cash flows or earnings;
-- 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 updated IPEV guidelines which are effective from 1 January 2019. The main changes arising from the new guidelines are:
o price of a recent investment removed as a primary valuation technique; and
o valuing debt investment is expanded.
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.
Impairment of financial assets
Expected credit losses are required to be 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 a financial instrument if the credit risk of that financial instrument has increased significantly since initial recognition, as well as to contract assets or trade receivables that do not constitute a financing transaction.
Notes to the financial information
1. Principal accounting policies (continued)
Impairment of financial assets (continued)
For all other financial instruments, expected credit losses are measured at an amount equal to the 12-month expected credit losses.
Impairment losses on financial assets carried at amortised cost are reversed in subsequent periods if the expected credit losses decrease.
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 common place 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 balance sheet date, would be achieved if the remaining assets in that scheme were realised at their fair value at the balance sheet date. An accrual is made equal to the amount which the Company would have to pay to any remaining scheme participants from a realisation at the balance sheet value at the balance sheet date. Employer's national insurance, where applicable, is also accrued.
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.
Operating and other receivables
Operating and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. The assets held at amortised cost are immaterial.
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.
Notes to the financial information
1. Principal accounting policies (continued)
Dividend payable
Dividend distribution to the shareholders is recognised as a liability in the Company's Financial Statements when approved at an annual general meeting by the shareholders for final dividends and interim dividends when paid.
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.
Notes to the financial information
2. Loss on investments
The gains and losses on investments were as follows:
Six months ended 30 June Six months ended 30 June
2020 2019
--------------------------------------- ---------------------------------------
Realised Unrealised Realised Unrealised
gains gains/(losses) Total gains gains/(losses) Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- ---------------- --------- ---------- ---------------- ---------
Quoted (335) (257) (592) - 1,572 1,572
Unquoted 6 (1,171) (1,165) 36 2,505 2,541
Funds - (3,450) (3,450) - (4,372) (4,372)
---------- ---------------- ---------
(329) (4,878) (5,207) 36 (295) (259)
---------- ---------------- --------- ---------- ---------------- ---------
Credit/(charge) for
incentive plans 64 (338)
--------- ---------
(5,143) (597)
Net gain on foreign
currency 672 354
Operating and similar
expenses of subsidiaries (325) (25)
---------- ---------------- --------- ---------- ---------------- ---------
(4,796) (268)
---------------------------- ---------- ---------------- --------- ---------- ---------------- ---------
3. Loss per ordinary share
The calculation of the basic and diluted loss per share, in accordance with IAS 33, is based on the following data:
Six months ended
-----------------------------------
30 June 2020 30 June 2019
GBP'000 GBP'000
-------------------------------------- ---------------- -----------------
Loss
Loss for the purpose of loss
per share being
net loss attributable to equity
holders of the parent (6,069) (1,132)
Number of shares
Weighted average number of ordinary
shares for the
purposes of basic loss per share 80,727,450 80,727,450
Loss per share
-------------------------------------- ---------------- -----------------
Basic (7.5p) (1.4p)
--------------------------------------- ---------------- -----------------
4. Dividends
The Company paid GBP3,431,000 (2019: GBP nil) during the period which represents an interim dividend in January 2020.
Notes to the financial information
5. Investments
The Company's investments comprised the following:
31 December
30 June 2020 2019
GBP'000 GBP'000
-------------- -------------
Total investments 124,732 134,283
--------------------------------------- -------------- -------------
These comprise:
Investment portfolio of the Company 619 6,636
Investment portfolio of subsidiaries 18,721 25,605
--------------------------------------- -------------- -------------
Investment portfolio total 19,340 32,241
Other net assets of subsidiaries 105,392 102,042
124,732 134,283
--------------------------------------- -------------- -------------
The carrying amounts of the Company and its subsidiaries investment portfolios were as follows:
30 June 2020 31 December 2019
-------------------- ----------------------
Investment portfolio
of the Company
Asset type GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- --------- ---------
Quoted - 5,906
Unquoted 619 730
Funds - -
------------------------ --------- --------- --------- ---------
619 6,636
Investments portfolio
of subsidiaries
Asset type
------------------------ --------- --------- --------- ---------
Quoted 538 2,515
Unquoted 8,148 8,983
Funds 10,035 14,107
Other net assets of
subsidiaries 105,392 102,042
------------------------ --------- --------- --------- ---------
124,113 124,113 127,647 127,647
------------------------ --------- --------- --------- ---------
124,732 134,283
------------------------ --------- --------- --------- ---------
Notes to the financial information
5. Investments (continued)
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
2019 5,761 18,324 20,798 44,883
Purchases - 514 573 1,087
Disposals (178) (7,694) (681) (8,553)
Distributions from partnerships - - (66) (66)
Fair value adjustments 2,838 (1,431) (6,517) (5,110)
---------------- ---------------- ----------------- -----------------
Balance at 31 December
2019 8,421 9,713 14,107 32,241
---------------------------------- ---------------- ---------------- ----------------- -----------------
Balance at 1 January
2020 8,421 9,713 14,107 32,241
Purchases 424 225 - 649
Disposals (3,987) - - (3,987)
Distributions from
partnerships - - (680) (680)
Fair value adjustments (4,320) (1,171) (3,392) (8,883)
---------------- ---------------- ----------------- -----------------
Balance at 30 June
2020 538 8,767 10,035 19,340
---------------------------------- ---------------- ---------------- ----------------- -----------------
The following table analyses investments carried at fair value at the end of the period, by the level in the fair value hierarchy into which the fair value measurement is categorised. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets;
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset that are not based on observable market data (unobservable inputs such as trading comparables and liquidity discounts).
Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's view of market assumptions in the absence of observable market information.
Notes to the financial information
5. Investments (continued)
The significant unobservable inputs used at 30 June 2020 in measuring investments categorised as level 3 in this note are considered below:
1. Unquoted securities (carrying value GBP8.8 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 in the range 4-8 times dependent on the business of each individual company, its performance and the sector in which it operates;
-- revenue multiples in the range 0.75-3.5 times, also dependent on attributes at individual investment level; and
-- discounts applied of up to 50%, 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.
2. Investments in funds (carrying value GBP10.0 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 30 June 2020). The Company also carries out its own review of individual funds and their portfolios to satisfy ourselves that the underlying valuation bases are consistent with our 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.
The Company's investments are analysed as follows:
30 June 2020 31 December 2019
GBP'000 GBP'000
---------- -------------- ------------------
Level 1 - 5,906
Level 2 619 730
Level 3 124,113 127,647
---------- -------------- ------------------
124,732 134,283
---------- -------------- ------------------
Notes to the financial information
5. Investments (continued)
Level 3 amounts include GBP18,721,000 (2019: GBP25,605,000) relating to the investment portfolios of subsidiaries (including quoted investments of GBP538,000 (2019: GBP2,515,000)) and GBP105,392,000 (2019: GBP102,042,000) in relation to the other net assets of subsidiaries.
If the valuation for level 2 category investments declined by 10% from the amount at the reporting date, with all other variables held constant, the profit for the six months ended 30 June 2020 would have decreased by GBP61,900 (2019: GBP73,000). An increase in the valuation of level 2 category investments by 10% at the reporting date would have an equal and opposite effect.
If the valuation for level 3 category investments declined by 10% from the amount at the reporting date, with all other variables held constant, the profit for the six months ended 30 June 2020 would have decreased by GBP12.4 million (2019: GBP12.8 million). An increase in the valuation of level 3 category investments by 10% at the reporting date would have an equal and opposite effect.
6. Capital commitments
31 December
30 June 2020 2019
GBP'000 GBP'000
----------------------------------- -------------- -------------
Outstanding commitments to funds 5,496 3,065
5,496 3,065
----------------------------------- -------------- -------------
The outstanding commitments to funds comprise unpaid calls in respect of funds where a subsidiary of the Company is a limited partner and the Company's commitments to George Capital..
7. Related party transactions
The related parties of LMS Capital plc are its Directors.
The salary paid for the Directors of the Company for the period was GBP210,097 (June 2019:105,707) and the Directors fee of the subsidiaries was GBP24,177 (June 2019: GBP24,400).
As at 30 June 2020, the following shareholder of the Company that is related to LMS Capital Plc had the following interests in the issued shares of the Company:
R Rayne 2,670,124 Ordinary Shares
N Friedlos 161,410 Ordinary Shares
P Harvey 20,000 Ordinary Shares
G Stedman 20,000 Ordinary Shares
Notes to the financial information
8. Subsidiaries
The Company's subsidiaries are as follows:
Holding
Name Country of incorporation % Activity
------------------------------- -------------------------- --------- --------------------
International Oilfield
Services Limited Bermuda 100 Investment Holding
LMS Capital (Bermuda)
Limited Bermuda 100 Investment Holding
LMS Capital (ECI) Limited England and Wales 100 Investment Holding
LMS Capital (General
Partner) Limited Bermuda 100 Investment Holding
LMS Capital (GW) Limited Bermuda 100 Investment Holding
LMS Capital Group Limited England and Wales 100 Investment Holding
LMS Capital Holdings
Limited England and Wales 100 Investment Holding
United States
LMS NEP Holdings Inc of America 100 Investment Holding
LMS Co-Invest 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
Cavera Limited England and Wales 100 Dormant
Lion Cub Property Investments
Limited England and Wales 100 Investment Holding
Tiger Investments Limited England and Wales 100 Investment Holding
LMS Tiger Investments
Limited England and Wales 100 Investment Holding
LMS Tiger Investments
(II) Limited England and Wales 100 Investment Holding
Westpool Investment Trust
PLC England and Wales 100 Investment Holding
In addition to the above, certain of the Company's carried interest arrangements are operated through five limited partnerships (LMS Capital 2007 LP, LMS Capital 2008 LP, LMS Capital 2009 LP, LMS Capital 2010 LP and LMS Capital 2011 LP) which are registered in Bermuda.
The registered addresses of the Company's subsidiaries are as follows:
Subsidiaries incorporated in England and Wales: Two London Bridge, London, SE1 9RA.
Subsidiaries and partnerships incorporated in Bermuda: Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
Subsidiary incorporated in the United States of America: c/o Two London Bridge London SE1 9RA.
9. Net asset value per share
The net asset value per ordinary shares in issue are as follows:
30 June 31 December
2020 2019
--------------------------------------- ------------- -------------
Net asset value (GBP'000) 46,458 55,958
Number of ordinary shares in issue 80,727,450 80,727,450
Net asset value per share (in pence) 57.5p 69.3 pence
---------------------------------------- ------------- -------------
Notes to the financial information
10. Subsequent Event
San Francisco Equity Partners, L.P. (the "Fund") made a distribution of $345,418to LMS Capital (Bermuda) Limited on 17 July 2020. The distribution represents payment received from the escrow of Penguin Computing.
The Company will adopt a progressive dividend policy, commencing with an interim dividend for the year to 31 December 2020. The interim dividend of 0.3p per share will be paid on 11 September 2020.
There are no other subsequent events that would materially affect the interpretation of these Financial Statements.
Statement of Directors' responsibilities
The Directors listed on pages 18 of the Company's Annual Report for the year ended 31 December 2019 continued in office during the six months ended 30 June 2020.
We confirm that to the best of our knowledge:
a the condensed Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and
b the interim management report includes a fair review of the information required by:
i DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the current financial year and their impact on the condensed Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
ii DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party
transactions described in the last annual report that could do so.
Nick Friedlos
Director
4 August 2020
Independent review report to LMS Capital plc
Introduction
We have been engaged by the Company to review the condensed set of Financial Statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises the condensed income statement, the condensed statement of other comprehensive income, the condensed statement of financial position, the statement of changes in equity and the condensed cash flow statement.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Financial Statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual Financial Statements of the Company are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of Financial Statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
4 August 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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