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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.15 | 6.97% | 17.65 | 16.80 | 18.50 | 16.90 | 16.90 | 16.90 | 37 | 16:35:05 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Investment Advice | 96k | -1.87M | -0.0232 | -7.28 | 13.64M |
From Apr 2019 to Apr 2024
TIDMLMS
RNS Number : 6525T
LMS Capital PLC
22 March 2019
22 March 2019
LMS Capital plc
Preliminary Results for year ended 31 December 2018
The Board of LMS Capital plc, ("LMS Capital" or "the Company"), is pleased to announce the Company's annual results for the year ended 31 December 2018.
-- The net asset value at 31 December 2018 was GBP60.3 million, 74.7p per share (31 December 2017: GBP64.5 million, 79.9p per share);
-- The portfolio showed an overall net reduction in value on the year of GBP2.3 million (2017: net gain GBP10.5 million)
-- The loss for the year was GBP4.2 million (2017: profit GBP7.6 million)
-- Overhead costs, including those incurred by subsidiaries, showed a further reduction to GBP1.5 million (2017: GBP2.7 million) following the completion of the Company's transition to external management with Gresham House;
-- Continued successful realisations in the year totalled GBP17.6 million (2017: GBP21.7 million);
-- At the year end 29.3% (2017: 6.2%) of the NAV was in cash and a further 9.6% (2017: 13.4%) in quoted stocks; and
-- There are currently sale discussions underway on assets which could result in further significant realisation proceeds being received. The deployment of the cash in the group of some GBP17 million at the year end, plus any further realisation proceeds is under active consideration by the Board and Gresham House, the Manager.
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 020 3837 6275
Martin Knight, Chairman
Gresham House Asset Management Limited 020 3837 6275
Graham Bird
J.P. Morgan Cazenove 020 7742 4000
Michael Wentworth-Stanley
Chairman's statement
The results of the Company for the year ended 31 December 2018 show a reduction in net asset value, which is disappointing, but continued progress from the Manager in realising assets, has led to healthy cash balances.
The cash position of the Company and its subsidiaries has improved from GBP4.0 million at 31 December 2017 to GBP17.7 million at 31 December 2018, reflecting continued progress with realisations.
NET ASSET VALUE
Net asset value per share at 31 December 2018 was 74.7p. This was a reduction from 79.9p per share at 31 December 2017.
Overall portfolio net losses for the year, both realised and unrealised were GBP2.3 million (2017: Gains GBP10.5 million). This net result is stated after the impact of realised and unrealised exchange gains of GBP1.8 million (2017: exchange losses GBP3.2 million).
Despite the overall net reduction, a number of the portfolio assets, as noted below, have performed in line or ahead of our expectations.
The reductions in value, before the impact of exchange gains, arose principally on:
-- Assets managed by San Francisco Equity Partners ("SFEP") which reduced by net GBP2.8 million. This includes a write down of the estimated amount of consideration still to be received following the exit from Penguin Computing in June 2018. At the time of the sale, SFEP indicated that initial consideration plus payments from earn outs and escrow releases, should produce final proceeds close to pre-sale carrying value. This now appears unlikely and estimates have been revised downwards;
-- IDE Group, a quoted investment, which reduced by GBP2.6 million;
-- Weatherford, a quoted investment, which reduced by GBP1.5 million; and
-- Other net portfolio reductions were GBP1.3 million.
Portfolio gains, before the impact of exchange gains, arose principally on:
-- Entuity, part of the directly held UK portfolio has repaid loans during the year, and together with a valuation uplift is showing an overall gain of GBP1.7 million;
-- The sale of NEP in December 2018, which realised a gain of GBP0.6 million;
-- The sale of Brockton Capital LLP in March 2018, which realised a gain of GBP0.6 million;
-- The funds portfolio (excluding SFEP) which produced gains of GBP0.7 million; and
-- Shares in Gresham House showed a gain over the year of GBP0.5 million.
Other movements in net asset value were a net reduction of GBP1.9 million and include overhead costs of GBP1.5 million (2017: GBP2.7 million) and other movements amounting to a net reduction of GBP0.4 million.
CASH BALANCES
Cash balances during the year, including cash in subsidiaries, have increased to GBP17.7 million following continued realisations. Total proceeds were GBP17.6 million including GBP9.0 million initial consideration from Penguin, GBP3.1 million from the sale of Brockton Capital and GBP3.6 million from NEP. The remaining unquoted and funds portfolio, excluding SFEP, generated GBP1.9 million of proceeds.
CONCLUSION AND OUTLOOK
GHAM continues to manage the existing portfolio to optimise value and, where appropriate to take advantage of opportunities to realise assets.
Since the year end sale discussions have commenced on some other assets that could result in realisation proceeds that would further increase cash balances.
The deployment of the Company's cash is under active consideration by the Board and Gresham House, as Manager. We will keep shareholders informed of its deployment as appropriate.
Martin Knight
Chairman
22 March 2019
Manager's Review
Introduction
Gresham House Asset Management ("GHAM") was appointed investment manager in August 2016. The objectives for the first 12 to 18 month period following appointment were to transition the Company to being externally managed and to fulfil the Company's commitment made in July 2016, to return a maximum of a further GBP11.0 million of capital to shareholders, alongside targeting annual cost savings.
These objectives were fully achieved, ahead of expectations. Clear shareholder benefits are evident, annual costs in 2018 were GBP1.5 million compared to GBP2.7 million in 2017, a year of transition, from internal to external management.
2018 has been a year of building cash resources available to re start the Company's active investment plans. Cash in the group has grown from GBP4.0 million at the start of the year to GBP17.7 million at 31 December 2018, following realisations.
The remaining assets continue to be managed to optimise value and support long term shareholder value creation. The Manager is actively engaged on a number of investment opportunities which fulfil its investment policy and are in line with the resources within Gresham House, now including Baronsmead VCT investment team.
Investment approach
The investment approach is now focused predominantly on private equity investment and alternative, specialist asset classes using the experience of the GHAM team in asset management, private equity and public markets:
-- The Manager will invest in profitable and cash generative businesses and investments to create value, targeting an annual return on equity of 12% -15% net of costs over the long term;
-- The focus will primarily be on smaller private investment opportunities below GBP50 million value where the Manager believes there to be significant market inefficiencies which create opportunities for superior long term returns and to leverage the experience of the investment team;
-- Investments may include alternative, specialist asset classes which target long term, illiquid strategies both through co-investment and fund opportunities on preferred terms; and
-- The focus is also on optimising the value of existing holdings and, where growth prospects are clear, to preserve and support longer term value creation.
Market background
2018 saw a bullish start to the year, notably in US markets, followed by a correction and return of volatility in February as markets reacted to rising inflation, the prospect of rising interest rates and the threat of increased tariffs. The domestic environment has been dominated by Brexit throughout the year. It was an unnerving and at times volatile end to the year for global equity markets. An emerging global recessionary narrative coupled with Brexit negotiations in the UK, drove most equity indices into bear market territory - the UK AIM and Small-cap indices for example ended the year 22.5% and 14.4% respectively off their 52-week highs. A number of economic indicators have turned sluggish. On quoted markets declines were initially led by the technology sector, however this has now passed on to consumer discretionary and ultimately across all sectors, highlighting growing investor concerns about the state of the UK economy in the run up to Brexit. This negative outlook may continue during 2019 and investors may face continued market volatility until there is greater clarity around the outcome of UK Brexit negotiations and whether the Federal Reserve's implied rate-rise path shallows or even ends. This type of investment provides market dislocations and therefore attractive investment opportunities.
We continue to believe there are significant inefficiencies at the smaller end of the market, focusing on established smaller private companies below GBP50 million enterprise value where there can be less competition for deals and valuations are more attractive. This segment of the market tends to be off radar for venture and early stage funding providers and sub-threshold for mid-market private equity investors, creating an opportunity to generate superior long term returns.
Performance review
The movement in Net Asset Value during the year was as follows:
Hot Features
Premium
2018 2017
GBP'000 GBP'000
Opening Net Asset Value 64,488 68,116
(Loss)/return on investments (2,482) 10,411
Overheads, and other net movements (1,731) (2,811)
--------- ----------
60,275 75,716
Tender offer, including costs - (11,228)
--------- ----------
Closing Net Asset Value 60,275 64,488
--------- ----------
Cash realisations from the portfolio in 2018 were as follows:
Year ended
31 December
--------------------
2018 2017
GBP'000 GBP'000
------------------------------------ --------- ---------
Sales of investments 6,819 6,812
Distributions from funds and loan
repayments 10,815 14,902
------------------------------------ --------- ---------
Total - gross 17,634 21,714
------------------------------------ --------- ---------
New and follow-on investments (1,405) (550)
Fund calls (219) (68)
Carried interest payments - (417)
------------------------------------ --------- ---------
Total - net 16,010 20,679
------------------------------------ --------- ---------
Realisations in 2018 include:
-- Proceeds of GBP9.0 million following the sale of Penguin of which GBP7.2 million was received as a distribution from SFEP and GBP1.8 million was received by the Company for its direct interest in Penguin;
-- GBP3.1 million of proceeds from the sale of the Company's interest in Brockton Capital LLP;
-- GBP3.6 million from the sale by the Company of its remaining debt interest in Nationwide Energy Partners;
-- Loan repayments totalling GBP0.4 million by Entuity;
-- Net cash of GBP0.1 million from the exercise by the Company of its Gresham House plc warrants; and
-- Other fund distributions of GBP1.4 million.
The follow-on investments are in respect of working capital for Elateral, a UK direct investment, and participation in a short-term loan note issued by Medhost, a US co-investment, as part of an arrangement to facilitate the refinancing of that company's debt. Part of the Medhost loan note has been repaid, with interest in September 2018. In addition, the Company invested GBP0.3 million in the IDE Group refinancing in July 2018.
The new investment is a GBP600,000 investment in Northbridge Industrial Services PLC ("Northbridge") an AIM quoted Company that hires and sells specialist industrial equipment to utilities, public sector and oil and gas industries. The investment is via an unquoted 8% yielding convertible loan note and after the Gresham House plc investment, is the Company's first investment under the new investment committee, other than follow on investments, since the conclusion of its realisation strategy and adoption of its new investment policy in August 2016.
Below is a summary of the investment portfolio of the Company and its subsidiaries:
31 December
----------------------------------------------------------------------
2018 2017
---------------------------------- ----------------------------------
Asset type UK US Total UK US Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------- ---------- ---------- ---------- ---------- ----------
Quoted 4,814 947 5,761 6,874 1,770 8,644
Unquoted 7,223 11,101 18,324 8,400 14,504 22,904
Funds 7,375 13,423 20,798 7,806 24,464 32,270
------------- ---------- ---------- ---------- ---------- ---------- ----------
19,412 25,471 44,883 23,080 40,738 63,818
------------- ---------- ---------- ---------- ---------- ---------- ----------
The principal investments at 31 December 2018 comprising 60.7% of the net asset value shown below (81.5% of the remaining portfolio) are:
Name Geography Sector Book value % of
31 December Net asset
value
----------------------- ------------ ------------- -------------------- -------------
2018 2017 31 December
2018
GBP'000 GBP'000
Quoted investments
Gresham House plc UK Financial 4,469 4,123 7.4%
Unquoted investments
Medhost Inc US Technology 8,276 8,183 13.7%
Entuity UK Technology 4,925 3,600 8.2%
Elateral UK Technology 1,610 2,300 2.6%
Fund investments
YesTo, Inc* US Consumer 9,265 9,437 15.4%
Others
Brockton Capital UK Property 4,922 4,603 8.2%
Opus Capital Venture
Partners US Technology 3,115 3,671 5.2%
*includes holdings by SFEP and co-investments held by the Company
Basis of valuation:
-- Quoted investments - bid price of security quoted on relevant securities exchange;
-- Unquoted investments - generally, unless an alternative method is more appropriate, multiple of revenues or earnings of comparable quoted companies with appropriate discounts for marketability; and
-- Fund interests - based on amounts reported by the general partner unless the reported value is not in line with the Company's valuation policy.
Performance of the investment portfolio
The return on investments for the year ended 31 December 2018 was as follows:
Year ended 31 December
------------------------------------------------------------------------------------------------
2018 2017
----------------------------------------------- -----------------------------------------------
Realised Unrealised Total Realised Unrealised Total
gains/(losses) gains/(losses) gains/(losses) gains/(losses)
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ----------------- ----------------- --------- ----------------- ----------------- ---------
Quoted 43 (4,009) (3,966) 190 787 977
Unquoted 1,930 1,912 3,842 2,488 (3,077) (589)
Funds 242 (2,441) (2,199) 3,595 6,472 10,067
---------------- ----------------- ----------------- --------- ----------------- ----------------- =========
2,215 (4,538) (2,323) 6,273 4,182 10,455
---------------- ----------------- ----------------- --------- ----------------- ----------------- ---------
Charge for
incentive
plans (159) (44)
---------------- ----------------- ----------------- --------- ----------------- ----------------- ---------
(2,482) 10,411
Operating
and similar
expenses of
subsidiaries (862) (513)
---------------- ----------------- ----------------- --------- ----------------- ----------------- ---------
(3,344) 9,898
---------------- ----------------- ----------------- --------- ----------------- ----------------- ---------
The charge for incentive plans includes GBP159,000 (2017: charge of GBP44,000) for carried interest and other incentives relating to historic arrangements. GHAM was appointed manager in August 2016 and is not entitled to performance fees or incentives on any of the investments in the portfolio prior to that date.
Approximately 57% of the portfolio at 31 December 2018 is denominated in US dollars (31 December 2017: 64%) and the above table includes the impact of currency movements. In the year ended 31 December 2018, the strengthening of the US dollar against sterling over the year as a whole resulted in an unrealised foreign currency gain of GBP1,792,000 (2017: unrealised loss GBP3,248,000) 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
31 December
2018 2017
----------------------------- --------------- --------- ---------
Company Sector GBP'000 GBP'000
----------------------------- --------------- --------- ---------
Gresham House plc UK financial 4,469 4,123
IDE Group Holdings
(formerly Coretx Holdings) UK technology 345 2,751
Weatherford International US energy 236 1,669
Others - 711 101
5,761 8,644
--------------------------------------------- --------- ---------
The net (losses)/gains on the quoted portfolio arose as follows:
Year ended 31 December
--------------------------
(Losses)/gains net 2018 2017
GBP'000 GBP'000
-------------------------------------------- ------------ ------------
Realised
Solaredge - 155
Weatherford International - 35
Gresham House plc 43 -
43 190
-------------------------------------------- ------------ ------------
Unrealised
Gresham House plc 411 1,642
IDE Group Holdings (2,615) (344)
Weatherford International (1,470) (331)
Other quoted holdings (421) 24
Unrealised foreign currency gains/(losses) 86 (204)
-------------------------------------------- ------------ ------------
(4,009) 787
-------------------------------------------- ------------ ------------
Total net (loss)/gain (3,966) 977
-------------------------------------------- ------------ ------------
Gresham House plc
The Gresham House share price rose from 412p at 31 December 2017 to 454p at 31 December 2018, following a year of substantial growth for the group in which assets under management grew to GBP2.3 billion and it became the largest UK forestry asset manager and took on the Baronsmead Private Equity Investment team and funds.
At 31 December 2018 the Company held 984,329 shares in Gresham House plc (31 December 2017: 801,985 shares and 909,908 warrants to acquire shares).
In May 2018 the Company exercised its 909,908 warrants to acquire shares in Gresham House plc at a price of 323.27p per share. At the time of exercise of the warrants, the Gresham House plc share price was 443p per share. The Company retained 182,344 of the shares acquired and sold 727,564 shares. The shares retained, in conjunction with shares it already owned, leave the Company with a holding of 984,329 shares, approximately 4% in Gresham House plc.
The 909,908 warrants had a carrying value of GBP0.8 million at 31 December 2017 and cost of exercise was GBP2.94 million. Proceeds from the sale of 727,564 shares were GBP3.05 million and the value of the 182,344 shares retained at 30 June was GBP0.8 million. The net gain to the Company from the exercise of the warrants, based on its carrying value at 31 December 2017 was GBP0.09 million.
The warrants had been acquired by the Company in October 2016, at a price of 28p per warrant, as part of the arrangements put in place to promote alignment between the Company and its new manager, when it appointed GHAM as manager of its portfolio in August 2016. Based on the acquisition cost of the warrants, the gain to the Company from the warrant exercise has been GBP0.65 million.
IDE Group
The performance of IDE Group has been disappointing and the share price fell substantially, following a number of announcements in the first half of the year. On 31 July 2018 IDE Group announced an underwritten rescue financing package. Following this announcement the share price fell further. The Company invested GBP0.3 million in the July 2018 refinancing in a combination of equity and convertible loan notes, this being its pro rata share, in the knowledge that the major shareholders, represented on the Board, were planning to invest significant amounts in the refinancing. Shortly after year end, IDE announced a further rescue financing following a request from its bankers to repay its outstanding bank facilities. The financing, totalling GBP10 million in secured loan notes was provided in two tranches subscribed for / underwritten by two of IDE's largest shareholders. The second tranche of the rescue funding, totalling GBP4.7 million was made available to all shareholders through an open offer. The Company elected not to participate in this refinancing.
Weatherford
The Company significantly reduced its holding in Weatherford during 2016 and 2017. The unrealised losses in the year reflect the continuing pressure on the share price due to uncertainties around Weatherford's ability to meet its debt obligations.
Other quoted
During the year the Company received distributions of shares in Solaredge Inc, from its fund investment, Opus Capital Venture Partners. These shares had a carrying value at 31 December 2018 of GBP658,000 and are included above within "Other" above.
Unquoted investments
31 December
--------------------
2018 2017
---------------------------- --------------- --------- ---------
Company Sector GBP'000 GBP'000
---------------------------- --------------- --------- ---------
Medhost Inc US technology 8,276 8,183
Entuity UK technology 4,925 3,600
Elateral UK technology 1,610 2,300
ICU Eyewear* US consumer 1,568 740
Yes To* US consumer 927 874
Penguin Computing* US technology 329 1,747
Other interests - 689 -
Sold in year
Nationwide Energy Partners US energy - 2,960
Brockton Capital LLP UK Property - 2,500
18,324 22,904
-------------------------------------------- --------- ---------
*These are co-investments with SFEP
The net gains/(losses) on the unquoted portfolio arose as follows:
Year ended 31 December
--------------------------
2018 2017
--------------------------------------------- ------------ ------------
Gains/(losses), net GBP'000 GBP'000
--------------------------------------------- ------------ ------------
Realised
365ITMS - 1,932
YesTo - 556
Penguin Computing 153 -
Brockton Capital LLP 617 -
Nationwide Energy Partners 633 -
Others 527 -
1,930 2,488
--------------------------------------------- ------------ ------------
Unrealised
Medhost (552) (2,969)
Brockton Capital LLP - 2,403
Elateral (890) (2,275)
ICU Eyewear 784 740
Entuity 1,711 671
Penguin Computing 300 441
YesTo 1 445
Others - (266)
Unrealised foreign currency gains/ (losses) 558 (1,482)
Sold in year
Nationwide Energy Partners - (785)
--------------------------------------------- ------------ ------------
1,912 (3,077)
--------------------------------------------- ------------ ------------
Total net gain/(loss) 3,842 (589)
--------------------------------------------- ------------ ------------
Valuations are sensitive to changes in the following two inputs:
-- The operating performance of the individual businesses within the portfolio; and
-- Changes in the revenue and profitability multiples and transaction prices of comparable businesses, which are used in the underlying calculations.
Comments on individual companies are set out below.
Medhost
Medhost is a co-investment with funds of Primus Capital, in which the Company has previously had investments. Medhost's financial performance has been satisfactory in 2018 showing growth in profitability and cash generation.
Brockton Capital LLP
The sale of Brockton Capital LLP was completed in March 2018. The Company received total proceeds of GBP3.1 million for its minority shareholding plus its share of excess cash in Brockton Capital LLP at the time of sale.
The Company had originally acquired its minority holding in 2006 when, together with 3 other cornerstone investors, it backed the establishment of Brockton Capital LLP, a private equity real estate investment adviser, and became an investor in Brockton Capital Fund I LP ("the Fund", a real estate investment fund. The investment in Brockton Capital LLP gave the Company the right to participate in entities that would receive a share of any carried interest in relation to the performance of the Fund and subsequent Brockton-advised funds. The Company still retains its interest in Brockton Capital Fund I LP.
ICU Eyewear
This investment, which was loss making had been written off in 2016, was restructured and refinanced with new investors in 2017 and as a result the Company recognised a small positive carrying value at 31 December 2017. During 2018 the company has continued to demonstrate its ability to trade profitably. The valuation has been increased from $1.0 million to $2.0 million.
Nationwide Energy Partners ("NEP")
This investment comprised an interest bearing loan note, repayable over 4 years and issued in December 2017 as part of the consideration in a transaction whereby the Company sold its equity interest in NEP back to the founder.
The carrying value of the investment at 31 December 2017 was GBP3.0 million, reflecting an underlying US dollar value of $4.0 million. This was below its face value of $5.0 million, reflecting the Company's estimate of amounts receivable from the loan note. NEP defaulted on the first three instalments due under the note in 2018. Following the detailed negotiations between the Manager and the shareholder partner, an agreement was reached November 2018 with the founder of NEP to sell back the loan note for $4.6m. The transaction was completed in December 2018 and realised GBP3.6 million, a premium of GBP0.6 million to the 31 December 2017 carrying value.
Entuity
The company has performed well in 2018, increasing its recurring revenues, streamlining its cost base and diversifying its mix of clients. Operating cash flows were sufficiently strong to enable the company to repay GBP0.4 million in part repayment of its shareholder loans. The manager has a representative on the Board to influence and support the value plan for the company.
Elateral
Gresham House has had significant focus on this investment due to its long-term issues. The new team at Elateral has now largely completed the process of re-engineering and upgrading its technology platform. It has secured additional multinational "household" names as clients during the second half of the year. It has also reduced its cost base and is positioned to grow in 2019. The company is a relatively small organisation dealing with large multinational clients and has a long sales cycle. The write down reflects the likely need to provide additional working capital in the first half of 2019 whilst the company builds its sales pipeline. This company remains under review regularly, and the manager has been heavily engaged with the Board.
Penguin Computing
The Company's total interests are held through its investment in SFEP and directly through a co-investment with SFEP. The amounts shown above relate to the directly held co-investment. As explained below, the business was sold in June 2018 and initial consideration has been received. The carrying value represents the estimated further proceeds that may be received. As explained below, the estimate initially made following the sale in June has been reduced based on latest information received.
Fund interests
31 December
--------------------
2018 2017
------------------------ -------------------------- --------- ---------
General partner Sector GBP'000 GBP'000
------------------------ -------------------------- --------- ---------
San Francisco Equity
Partners US consumer & technology 9,534 20,048
Brockton Capital Fund
1 UK property 4,922 4,603
Opus Capital Venture
Partners US venture capital 3,115 3,671
Eden Ventures UK venture capital 1,100 1,883
US micro-cap quoted
Weber Capital Partners stocks 687 599
Other interests - 1,440 1,466
------------------------ --------------------------- --------- ---------
20,798 32,270
--------------------------------------------------- --------- ---------
Losses and gains on the Company's funds portfolio for the year ended 31 December 2018 were as follows:
Year ended 31 December
--------------------------
(Losses)/gains, net 2018 2017
GBP'000 GBP'000
--------------------------------------------- ------------ ------------
Realised
San Francisco Equity Partners (partial sale
to Yes To) - 3,576
Other funds 242 19
242 3,595
--------------------------------------------- ------------ ------------
Unrealised
San Francisco Equity Partners (4,072) 8,748
Eden Ventures 421 (1,128)
Brockton Capital 319 362
Simmons Parallel Energy 8 (180)
Opus Capital Venture Partners 154 315
Weber Capital - 30
Others (net) (419) (113)
Unrealised foreign currency gains/(losses) 1,148 (1,562)
-------------------------------------------- --------- ---------
(2,441) 6,472
-------------------------------------------- --------- ---------
Total net (loss)/gains (2,199) 10,067
-------------------------------------------- --------- ---------
LMS Capital is the majority investor in SFEP (as opposed to the other fund interests where the Company has only a minority stake).
SFEP has two remaining investments, YesTo and an interest in the further proceeds expected to be received following the sale of Penguin Computing ("Penguin").
The sale of Penguin has enabled the general partner of SFEP to meet performance thresholds and become entitled to carried interest payments in accordance with the SFEP 1 fund agreement. An estimate of these payments has been included in arriving at the carrying values for the SFEP 1 fund interests in YesTo and Penguin below:
-- Penguin - fund carrying value GBP1,176,000 (31 December 2017: GBP11,148,000). This investment was sold in June 2018, and an initial payment of consideration received. The carrying value at 31 December 2018 relates to amounts of sale consideration estimated still to be receivable from payments under an earn out arrangement and the release of amounts retained in escrow.
At 30 June 2018, shortly after the sale, an estimate of further proceeds was made based on discussions with SFEP. The latest information from SFEP indicates that the likely amount of any future proceeds will be substantially lower than originally anticipated, principally due to the earn out targets not being achieved. Accordingly, in its year end valuation the Company has reduced its estimates of further proceeds.
In addition to the fund investments noted above the Company has a co-investment in Penguin of GBP329,000 (31 December 2017: GBP1,747,000). The Penguin co-investment has been valued on a consistent basis with the Fund interest to reflect estimated further proceeds. There is no carried interest payable in relation to the co-investment.
The Company's total investment in Penguin at 31 December 2018, via its SFEP fund interest and its co-investment is GBP1,505,000 (31 December 2017: GBP12,895,000).
-- YesTo - fund carrying value GBP8,338,000 (31 December 2017: GBP8,563,000) continues to show year on year sales growth. The Investment was revalued upwards in 2017 reflecting the valuation achieved at the time of the partial exit in June 2017 and the continued performance of the business. As noted above, the valuation reflects an estimate of additional amounts of carried interest that may become payable to the general partner of SFEP.
In addition to the fund investments noted above the Company has a directly held co investment in YesTo of GBP927,000 (31 December 2017: GBP874,000).
The Company's total investment in YesTo at 31 December June 2018, via its SFEP fund interest and its co-investment is GBP9,265,000 (31 December 2017: GBP9,437,000).
Other fund interests
-- Eden Ventures - Eden realised two of the fund's larger assets in Q4 2018, at a surplus to the carrying value. The company received a distribution of GBP1.2 million which has significantly reduced its net investment in this fund. Notwithstanding the recent asset sales the fund has performed below expectations over its life. The Company has valued its remaining interest at a discount to the fund net asset value published by the general partner;
-- Brockton Capital -The Company's discounted cash flow valuation methodology for this investment results in a small uplift for its interest as the discount is unwound; and
-- Opus Capital, a US venture fund, made stock distributions in kind during the year of GBP822,087.
Overhead costs
The manager has continued to focus on the objective of reducing costs. Overhead costs for the year (including amounts incurred by subsidiaries) were GBP1,549,000 - significantly lower than last year (2017: GBP2,731,000). Overheads in 2017 included costs of approximately GBP1.0 million associated with the historic self managed arrangements.
Taxation
The Group tax charge for the year, all of which arose in the subsidiaries, is GBP0.3 million (2017: GBP0.2 million).
Financial resources and commitments
At 31 December 2018 cash holdings, including cash in subsidiaries, were GBP17,680,000 (31 December 2017: GBP3,960,000) and neither the Company or any of its subsidiaries had any debt (2017: nil debt).
At 31 December 2018 subsidiary Companies had commitments of GBP3,123,000 (31 December 2017: GBP3,133,000) to meet outstanding capital calls from fund interests.
Outlook
GHAM is focused on progressing the existing portfolio through realisations for value, that clearly require input to preserve or maximise value. GHAM has substantial private equity resources to support the disciplined investment process in place, and the experienced Investment Committee decision-making forum. Whilst in many cases exits are under the control of third party managers, GHAM maintains a close dialogue and seeks to influence outcomes to the extent it can. GHAM sees a reasonable prospect of further realisations in 2019.
Approximately 39% of the net asset value is held in cash and quoted stocks (29.3% cash; 9.6% quoted stocks). This positions the Company well to restart its investment activities following the investment policy and processes previously described to shareholders, and focusing on areas of undervalued opportunity. A number of opportunities are currently under review from a pipeline of potential opportunities that is being developed. GHAM is focused on shareholder value and would expect new investments to be made in 2019 in line with the investment policy and investment return objectives.
Gresham House Asset Management Limited
22 March 2019
Income Statement
For the year ended 31 December 2018
Year ended 31 December
2018 2017
Notes GBP'000 GBP'000
------------
Net (losses)/gains on investments 2 (3,344) 9,898
Interest income 3 86 66
------------ ------------
Total income (3,258) 9,964
Operating expenses 4 (955) (2,364)
------------ ------------
(Loss)/profit before tax (4,213) 7,600
Taxation 6 - -
(Loss)/profit for the year (4,213) 7,600
Attributable to:
Equity shareholders (4,213) 7,600
------------ ------------
(Loss)/earnings per ordinary share
- basic 7 (5.2)p 8.4p
(Loss)/earnings per ordinary share
- diluted 7 (5.2)p 8.4p
------------
Statement of Other Comprehensive Income
For the year ended 31 December 2018
Year ended 31 December
2018 2017
GBP'000 GBP'000
------------ ------------
(Loss)/profit for the year (4,213) 7,600
Other comprehensive income - -
------------ ------------
Total comprehensive (loss)/profit for
the year (4,213) 7,600
----------------------------------------- ------------ ------------
Attributable to:
Equity shareholders (4,213) 7,600
------------
Statement of Financial Position
As at 31 December 2018
31 December
----------------------
2018 2017
Notes GBP'000 GBP'000
----------
Non-current assets
Investments 8 135,092 141,964
---------- ----------
Current assets
Operating and other receivables 9 40 281
Cash and cash equivalents 10 15,440 2,283
---------- ----------
Current assets 15,480 2,564
---------- ----------
Total assets 150,572 144,528
---------- ----------
Current liabilities
Operating and other payables 11 (465) (1,292)
Amounts payable to subsidiaries (89,832) (78,748)
---------- ----------
Current liabilities (90,297) (80,040)
---------- ----------
Total liabilities (90,297) (80,040)
---------- ----------
Net assets 60,275 64,488
----------------------------------- ------- ---------- ----------
Equity
Share capital 12 8,073 8,073
Share premium 508 508
Capital redemption reserve 24,949 24,949
Retained earnings 26,745 30,958
---------- ----------
Total equity shareholders' funds 60,275 64,488
----------
Statement of Changes in Equity
For the year ended 31 December 2018
Capital
Share Share redemption Retained Total
capital premium reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- -------------------- ------------ ---------- ----------
Balance at 1 January
2017 9,644 508 23,378 34,586 68,116
Total comprehensive
income
for the year
Profit for the year - - - 7,600 7,600
Transactions with
owners,
recorded directly
in equity
Repurchase of shares (1,571) - 1,571 (11,228) (11,228)
--------- -------------------- ------------ ---------- ----------
Balance at 31 December
2017 8,073 508 24,949 30,958 64,488
Total comprehensive
income
for the year
Loss for the year - - - (4,213) (4,213)
----------
Balance at 31 December
2018 8,073 508 24,949 26,745 60,275
------------------------- ----------
Cash Flow Statement
For the year ended 31 December 2018
Year ended 31 December
2018 2017
Notes GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit for the year (4,213) 7,600
Adjustments for:
Depreciation - 32
Losses/(gains) on investments 2 3,344 (9,898)
Interest income (86) (66)
--------------------------------------------- ------- ------------ ------------
(955) (2,332)
Change in operating and other receivables 204 (33)
Change in operating and other payables (827) (3,690)
Change in amounts payable to subsidiaries 15,102 18,296
------------ ------------
Net cash from operating activities 13,524 12,241
--------------------------------------------- ------- ------------ ------------
Cash flows from Investing activities
Interest received 3 124 21
Purchase of investments (3,541) -
Proceeds from sale of investments 3,050 -
------------ ------------
Net cash (used in)/from investing
activities (367) 21
--------------------------------------------- ------- ------------ ------------
Cash flows from financing activities
Repurchase of own shares - (11,000)
Transaction costs relating to tender
offer - (228)
------------ ------------
Net cash used in financing activities - (11,228)
--------------------------------------------- ------- ------------ ------------
Net increase in cash and cash equivalents 13,157 1,034
Cash and cash equivalents at the beginning
of the year 2,283 1,249
------------ ------------
Cash and cash equivalents at the end
of the year 15,440 2,283
--------------------------------------------- ------- ------------ ------------
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.
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union ("Adopted IFRSs"). These financial statements were authorised for issue by the Directors on 22 March 2019.
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 Manager's Review. In addition note 13 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.
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 18.
New standards effective in the year
IFRS 9 "Financial instruments" is effective on or after accounting periods beginning on 1 January 2018. The new standard requires the Directors to evaluate the classification, measurement and recognition of financial assets and financial liabilities.
The company has adopted IFRS 9 with effect from 1 January 2018, which has the following impact:
-- The company has adopted IFRS 9 with effect from 1 January 2018, which has the following impact: No effect on the classification and measurement of its financial assets, as these are held at fair value through profit or loss and will continue to be measured on the same basis under IFRS 9; and
-- No impact on the accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss. The Company has no such financial liabilities.
IFRS 15 "Revenue from contracts with customers" is effective on or after accounting periods beginning on 1 January 2018.
The core principle of the new standard is for entities to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the Company expects to be entitled in exchange for those goods or services.
The Company is not exposed to IFRS 15 given its business model and therefore this has no impact on the Company.
New standards and interpretations not yet applied
IFRS 16 "Leases" will not become effective until accounting periods beginning on or after 1 January 2019.
The adoption of the above standard does not have an impact on the Company's reported net assets.
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.
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 changes in fair value of equity investments. Therefore all quoted, unquoted and managed fund investments are designated at fair value through profit and loss 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 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. Where the value of an investment is considered to be impaired, it is written down to its expected recoverable amount as part of the determination of its fair value.
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 which there has been a recent funding round involving significant financing from external investors are valued at the price of the recent funding, discounted if an external investor is motivated by strategic considerations.
The Company has chosen not to early adopt the IPEV guidelines which are effective from 1 January 2019. The core principles of the new guidelines are:
a) Price of a recent investment removed as a valuation technique; and b) Valuing debt investment is expanded;
The Company is still in the process of accessing the full impact of the IPEV guidelines and will adopt the amendment when it becomes effective;
-- 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 early stage businesses not generating sustainable revenue or positive cash flows and for which there has not been any recent independent funding are valued by calculating the discounted cash flow of the investment to the investors.
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.
Impairment of financial assets
Loans and receivables are considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of loans and receivables measured at amortised cost is calculated as the difference between their carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant loans and receivables are tested for impairment on an individual basis. The remaining loans and receivables are assessed collectively in groups that share similar credit risk characteristics.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised.
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, less overdrafts payable on demand.
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. They are measured at cost which is the fair value of the consideration to be paid in the future for goods and services received.
Provisions
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the liability.
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.
Expenditure
Employee benefits
With effect from 31 March 2018 following the completion to being externally managed, the company has no employees.
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 recognised directly in equity, in which case it is recognised in equity as other comprehensive income.
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.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their report on the accounts for 2018 was (i) unqualified and (ii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The auditor's report on the accounts for 2017 was (i) unqualified (ii) drew attention by way of emphasis without qualifying their report to the accounts not being prepared on a going concern basis and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
2. Net (losses)/gains on investments
Losses and gains on investments were as follows:
Year ended 31 December
------------------------------------------------------------------------
2018 2017
---------- ------------ --------- ---------- ------------ ---------
Investment portfolio Realised Unrealised Total Realised Unrealised Total
of the Company
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- ------------ --------- ---------- ------------ ---------
Quoted 43 411 454 - 1,642 1,642
Unquoted - - - - - -
Funds - - - - - -
---------------------------- ---------- ------------ --------- ---------- ------------ ---------
43 411 454 - 1,642 1,642
---------------------------- ---------- ------------ --------- ---------- ------------ ---------
Investments portfolio
of subsidiaries
Asset type
----------------------------
Quoted - (4,420) (4,420) 190 (855) (665)
Unquoted 1,930 1,912 3,842 2,488 (3,077) (589)
Funds 242 (2,441) (2,199) 3,595 6,472 10,067
---------------------------- ---------- ------------ --------- ---------- ------------ ---------
2,172 (4,949) (2,777) 6,273 2,540 8,813
---------------------------- ---------- ------------ --------- ---------- ------------ ---------
Total 2,215 (4,538) (2,323) 6,273 4,182 10,455
---------------------------- ---------- ------------ --------- ---------- ------------ ---------
Charge for incentive
plans (159) (44)
--------- ---------
(2,482) 10,411
Operating and similar
expenses of subsidiaries* (862) (513)
(3,344) 9,898
---------------------------- ---------- ------------ --------- ---------- ------------ ---------
* Includes operating and legal costs and taxation charges of subsidiaries.
3. Interest income
Interest income comprises interest receivable on bank deposits and interest on loans.
4. Operating expenses
Operating expenses comprise administrative expenses and include the following:
Year ended 31 December
--------------------------
2018 2017
GBP'000 GBP'000
---------------------------------------- ------------ ------------
Depreciation - 32
Personnel expenses (note 5) 230 421
Operating lease expense 69 (22)
Management fee 915 1,055
Other administrative expenses (109) 350
Foreign currency exchange differences (220) 420
Auditor's remuneration
Fees to Group auditor
- parent company 21 32
- subsidiary companies 49 76
----------------------------------------- ------------ ------------
955 2,364
---------------------------------------- ------------ ------------
The audit fee comprises GBP27,000 for LMS Capital plc, GBP63,000 for the subsidiaries and GBP10,000 for the interim review, consistent with prior year. The expenses in the table above vary from these numbers due to adjustments for opening and closing accruals.
Included within operating expenses are the following non-recurring costs:
-- Severance costs for Executive Directors and staff of GBP60,000 (2017: GBP712,000).
5. Personnel expenses
Year ended 31 December
--------------------------
2018 2017
GBP'000 GBP'000
------------------------------------------- ------------ ------------
Wages and salaries 206 323
Compulsory social security contributions 23 79
Contribution to defined contribution
plans 1 19
-------------------------------------------- ------------ ------------
230 421
------------------------------------------- ------------ ------------
The wages and salaries expense is shown in the income statement as follows:
Year ended 31 December
--------------------------
2018 2017
GBP'000 GBP'000
--------------------- ------------ ------------
Operating expenses 206 323
---------------------- ------------ ------------
206 323
--------------------- ------------ ------------
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 2018, GBP939,000 has been accrued (2017: GBP745,000).
The average number of Directors and staff was as follows:
31 December 2018 31 December 2017
------------------------------------------------ -------------------------------------------------
Asset type Male Female Total Male Female Total
----------------- ------------- ------------------ ------------- ------------- ------------------ --------------
Directors 4 - 4 4 - 4
Other employees - - - 1 1 2
----------------- ------------- ------------------ ------------- ------------- ------------------ --------------
4 - 4 5 1 6
----------------- ------------- ------------------ ------------- ------------- ------------------ --------------
The other employee left on 28 February 2018.
6. Taxation
Year ended 31
December
--------------------
2018 2017
GBP'000 GBP'000
--------------------- --------- ---------
Current tax expense
Current year - -
--------------------- --------- ---------
Total tax expense - -
--------------------- --------- ---------
Reconciliation of tax expense
Year ended 31
December
--------------------
2018 2017
GBP'000 GBP'000
------------------------------------------ --------- ---------
(Loss)/profit before tax (4,213) 7,600
------------------------------------------- --------- ---------
Corporation tax using the Company's
domestic tax rate - 19% (2017: 19.25%) (800) 1,463
Fair value adjustments not currently
taxed 1,056 516
Non-deductible expenses - 6
Non-taxable income (421) (3,139)
Deferred tax asset not recognised - 230
Transfer pricing (708) -
Group relief 873 924
--------- ---------
Total tax expense - -
------------------------------------------- --------- ---------
7. (Loss)/earnings 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
------------------------------------------
2018 2017
GBP'000 GBP'000
------------------------------------------- ------------ ----------------------------
(Loss)/earnings
(Loss)/earnings for the purposes of
(loss)/earnings per share being
net (loss)/profit attributable to equity
holders of the parent (4,213) 7,600
-------------------------------------------- ------------ ----------------------------
Number Number
------------ ----------------------------
Number of shares
Weighted average number of ordinary
shares for the
purposes of basic (loss)/earnings per
share 80,727,450 90,457,391
Effect of dilutive potential ordinary
shares:
Share options and performance shares* - -
Weighted average number of ordinary
shares for the
purposes of diluted (loss)/earnings
per share 80,727,450 90,535,922
-------------------------------------------- ------------ ----------------------------
Earnings per share Pence Pence
------------------------------------------- ------------ ----------------------------
Basic (5.2) 8.4
Diluted (5.2) 8.4
-------------------------------------------- ------------ ----------------------------
* There are no potentially dilutive shares in 2018 since the Company has made a loss.
8. Investments
The Company's investments comprised the following:
Year ended 31 December
--------------------------
2018 2017
GBP'000 GBP'000
--------------------------------------- ------------ ------------
Total investments 135,092 141,964
--------------------------------------- ------------ ------------
These comprise:
Investment portfolio of the Company 5,069 4,123
Investment portfolio of subsidiaries 39,814 59,695
--------------------------------------- ------------ ------------
Investment portfolio - total 44,883 63,818
Other net assets of subsidiaries 90,209 78,146
--------------------------------------- ------------ ------------
135,092 141,964
--------------------------------------- ------------ ------------
The carrying amounts of the Company's and its subsidiaries' investment portfolios were as follows:
31 December 2018 31 December 2017
-------------------- ----------------------
Investment portfolio
of the Company
Asset type GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- --------- ---------
Quoted 4,469 4,123
Unquoted direct 600 -
Funds - -
------------------------ --------- --------- --------- ---------
5,069 4,123
Investments portfolio
of subsidiaries
Asset type
------------------------ --------- --------- --------- ---------
Quoted 1,292 4,521
Unquoted direct 17,724 22,905
Funds 20,798 32,269
Other net assets of
subsidiaries 90,209 78,146
------------------------ --------- --------- --------- ---------
130,023 130,023 137,841 137,841
------------------------ --------- --------- --------- ---------
135,092 141,964
------------------------ --------- --------- --------- ---------
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 2017 5,476 31,371 36,585 73,432
Purchases 3,957 675 68 4,700
Disposals (1,576) (6,331) - (7,907)
Distributions from partnerships - - (11,313) (11,313)
Fair value adjustments 787 (2,811) 6,930 4,906
------------ ------------ ---------- ----------
Balance at 31 December 2017 8,644 22,904 32,270 63,818
---------------------------------- ------------ ------------ ---------- ----------
Balance at 1 January 2018 8,644 22,904 32,270 63,818
Purchases 4,133 1,072 51 5,256
Disposals (3,007) (6,353) - (9,360)
Distributions from partnerships - - (8,495) (8,495)
Fair value adjustments (4,009) 701 (3,028) (6,336)
------------ ------------ ---------- ----------
Balance at 31 December 2018 5,761 18,324 20,798 44,883
---------------------------------- ------------ ------------ ---------- ----------
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 13 - Financial risk management).
The Company's investments are analysed as follows:
31 December
--------------------
2018 2017
GBP'000 GBP'000
---------- --------- ---------
Level 1 4,469 3,304
Level 2 600 -
Level 3 130,023 138,660
------------ --------- ---------
135,092 141,964
---------- --------- ---------
Level 3 amounts include GBP39,814,000 (2017: GBP59,695,000) relating to the investment portfolios of subsidiaries (including quoted investments of GBP1,292,000 (2017: GBP4,521,000)) and GBP90,209,000 (2017: GBP78,146,000) in relation to the other net assets of subsidiaries.
9. Operating and other receivables
31 December
--------------------
2018 2017
GBP'000 GBP'000
--------- ---------
Trade receivables - 35
Other receivables and prepayments 40 246
--------- ---------
40 281
------------------------------------ --------- ---------
10. Cash and cash equivalents
31 December
--------------------
2018 2017
GBP'000 GBP'000
---------------------- --------- ---------
Bank balances 4,096 40
Short-term deposits 11,344 2,243
------------------------ --------- ---------
15,440 2,283
---------------------- --------- ---------
11. Operating and other payables
31 December
--------------------
2018 2017
GBP'000 GBP'000
------------------------------- ---------
Trade payables 41 335
Other non-trade payables and
accrued expenses 424 957
--------------------------------- --------- ---------
465 1,292
------------------------------- --------- ---------
12. Capital and reserves
Share capital
2018 2018 2017 2017
Ordinary shares Number GBP'000 Number GBP'000
------------- --------- -------------- ---------
Balance at the beginning
of the year 80,727,450 8,073 96,441,735 9,644
Repurchase of shares - - (15,714,285) (1,571)
-------------- ---------
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.
There were no repurchase of shares in the year (2017: GBP11 million).
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.
Treasury shares
The Company has no shares held in treasury.
13. 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 IAS 39. Assets and liabilities outside the scope of IAS 39 are not included in the table below:
31 December
2018 2017
----------------------------------- -----------------------------------
Fair Fair
Value Value
through Cash through Cash
profit and profit and
or or
loss receivables Total loss receivables Total
Assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- ------------- --------- --------- ------------- ---------
Investments 135,092 - 135,092 141,964 - 141,964
Operating and other
receivables - 40 40 - 281 281
Cash and cash equivalents - 15,440 15,440 - 2,283 2,283
---------------------------- --------- ------------- ---------
Total 135,092 15,480 150,572 141,964 2,564 144,528
---------------------------- --------- ------------- --------- --------- ------------- ---------
31 December
2018 2017
--------------------------------- ---------------------
Fair Fair
Value Value
through Loans through Loans
profit and profit and
or or
loss payables Total loss payables Total
Liabilities GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------- ---------- --------- --------- ---------- ---------
Operating and other
payables - 465 465 - 1,292 1,292
Provisions and other - - - - - -
liabilities
Amounts payable to
subsidiaries - 89,832 89,832 - 78,748 78,748
----------------------- ---------- ---------- --------- --------- ---------- ---------
Total - 90,297 90,297 - 80,040 80,040
----------------------- ---------- ---------- --------- --------- ---------- ---------
Intercompany payables to subsidiaries are all repayable on demand thus there are no undiscounted 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
--------------------
2018 2017
GBP'000 GBP'000
---------------------------- ---------
Operating and other
receivables 40 281
Cash and cash equivalents 15,440 2,283
-------------------------------- ---------
15,480 2,564
---------------------------- --------- ---------
The Company limits its credit risk exposure by only depositing funds with highly rated institutions. Cash holdings at 31 December 2018 and 2017 were in funds 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.
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.
Operating and other payables are due within six months or less.
In addition certain of the Company's subsidiaries have uncalled capital commitments to funds of GBP3,123,000 (31 December 2017: GBP3,133,000) for which the timing of payment is uncertain (see note 15).
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 57% 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
------------------------------------------------------------------
2018 2017
-------------------------------- --------------------------------
GBP USD Other GBP USD Other
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ---------- --------- --------- ---------- --------- ---------
Investments 107,579 26,160 1,353 99,205 41,441 1,318
Operating and other
receivables 40 - - 281 - -
Cash and cash equivalents 14,668 772 - 1,995 288 -
Operating and other
payables (90,297) - - (80,040) - -
----------------------------- ---------- --------- --------- ---------- --------- ---------
Gross exposure 31,990 26,932 1,353 21,441 41,729 1,318
Forward exchange contracts - - - - - -
----------------------------- ---------- --------- ---------
Net exposure 31,990 26,932 1,353 21,441 41,729 1,318
----------------------------- ---------- --------- --------- ---------- --------- ---------
At 31 December 2018, the rate of exchange was USD 1.28 = GBP1.00 (31 December 2017: USD 1.35 = GBP1.00). The average rate for the year ended 31 December 2018 was USD 1.33 = GBP1.00 (2017: USD 1.32 = GBP1.00).
A 10% strengthening of the US dollar against the pound sterling would have increased equity by GBP2.8 million at 31 December 2018 (31 December 2017: increase of GBP4.4 million) and decreased the loss for the year ended 31 December 2018 by GBP2.8 million (2017: decreased the loss by GBP4.4 million). This assumes that all other variables, in particular interest rates, remain constant. A weakening of the US dollar against the pound sterling 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.
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 GBP89,000 (31 December 2017: increase of GBP18,000) and decreased the loss for the year by GBP89,000 (2017: GBP18,000). 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 2018 in measuring investments categorised as level 3 in note 8 are considered below:
1. Unquoted securities (carrying value GBP18.3 million) are valued using the most appropriate valuation technique such as the price of recent investment, an earnings-based approach, or a discounted cash flow approach. 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 5-9 times dependent on the business of each individual company, its performance and the sector in which it operates;
-- Revenue multiples in the range 0.5-1.5 times, also dependent on attributes at individual investment level; and
-- Discounts applied of up to 65%, 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 GBP20.8 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 2018). 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.
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 loss for the year ended 31 December 2018 would have increased by GBP13.0 million (2017: loss increased by GBP13.9 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 2018 was GBP60.3 million (31 December 2017: GBP64.5 million) comprising equity share capital and reserves. The Company had external borrowings at 31 December 2018 of GBPnil (31 December 2017: GBPnil) excluding the amounts payable to subsidiaries.
In order to meet the Company's capital management objectives, the Manager and the Board monitor and review 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;
-- The possible timing of returning capital to shareholders in line with the Company's commitment to further capital returns to shareholders; and
-- The annual dividend policy.
The Company's objectives, policies and processes for managing capital reflect the change in strategy from 16 August 2016.
14. Operating leases
Leases as lessee
Non-cancellable operating lease rentals are payable as follows:
31 December
---------------------
2018 2017
GBP'000 GBP'000
----------------------------- ---------- ---------
Less than one year - 139
Between one and five years - -
----------------------------- ---------- ---------
- 139
---------------------------------------- ---------
The operating lease rentals are significantly reduced, due to the termination of the lease on 24 March 2018 and future payments are expected to be nil.
15. Capital commitments
31 December
--------------------
2018 2017
GBP'000 GBP'000
----------------------------- --------- ---------
Outstanding commitments to
funds 3,123 3,133
------------------------------- --------- ---------
The outstanding capital commitments to funds comprise unpaid calls in respect of funds where a subsidiary of the Company is a limited partner.
16. Related party transactions
Gresham House Asset Management Limited was appointed the investment manager of LMS Capital plc on 16 August 2016. Amounts charged by the investment manager in 2018 were GBP915,000 (2017: GBP1,055,000).
The Directors fee paid for the year was GBP185,000 (2017:GBP185,000).
With effect from January 2011 the Company entered into a lease agreement with Derwent London plc in respect of the premises comprising its head office and registered office. The lease was formally terminated on 24 March 2018. Under the terms of the lease the Company paid rent of GBP104,000 (2017: GBP406,000) to Derwent London plc. Robert Rayne is the Chairman of Derwent London plc.
17. Subsequent events
There are no subsequent events that would materially affect the interpretation of these financial statements.
18. Subsidiaries
The Company's subsidiaries are as follows:
Name Country of incorporation Holding Activity
%
------------------------------- -------------------------- --------- ------------
International Oilfield Bermuda 100 Investment
Services Limited holding
LMS Capital (Bermuda) Limited Bermuda 100 Investment
holding
LMS Capital (ECI) Limited England and Wales 100 Investment
holding
LMS Capital (General Partner) Bermuda 100 Investment
Limited holding
LMS Capital (GW) Limited Bermuda 100 Investment
holding
LMS Capital Group Limited England and Wales 100 Investment
holding
LMS Capital Holdings Limited England and Wales 100 Investment
holding
LMS NEP Holdings Inc United States 100 Investment
of America holding
Lioness Property Investments England and Wales 100 Investment
Limited holding
Lion Property Investments England and Wales 100 Investment
Limited holding
Lion Investments Limited England and Wales 100 Investment
holding
Lion Cub Investments Limited England and Wales 100 Dormant
Lion Cub Property Investments England and Wales 100 Investment
Limited holding
Tiger Investments Limited England and Wales 100 Investment
holding
LMS Tiger Investments Limited England and Wales 100 Investment
holding
LMS Tiger Investments (II) England and Wales 100 Investment
Limited holding
Westpool Investment Trust England and Wales 100 Investment
plc 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.
19. Net asset value per share
The net asset value per ordinary shares in issue are as follows:
31 December
--------------------------
2018 2017
---------------------------- ------------ ------------
Net asset value (GBP'000) 60,275 64,487
Number of ordinary shares
in issue 80,727,450 80,727,450
Net asset value per share
(in pence) 74.7p 79.9p
------------------------------ ------------
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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