TIDMLMS
RNS Number : 0776S
LMS Capital PLC
12 March 2021
12 March 2021
LMS CAPITAL PLC
Final Results for the Year Ended 31 December 2020
The Board of LMS Capital plc (the "Company") is pleased to
announce the Company's annual results for the year ended 31
December 2020.
Financial Summary
31 December 31 December
2020 2019
------------- -------------
Net asset value (GBPm) GBP47.9m GBP56.0m
Cash available at
year end (GBPm) GBP20.6m GBP26.6m
Dividends paid GBP3.7m -
Portfolio losses (GBP2.1m) (GBP0.8m)
Running costs (GBP1.7m) (GBP2.1m)
Net asset value per
share (p) 59.4p 69.3p
Dividends paid per
share (p) 4.55p -
Financial Highlights
Net Asset Value
-- The net asset value ("NAV") at 31 December 2020 was GBP47.9
million, 59.4 pence per share (31 December 2019: GBP56.0 million,
69.3 pence per share); and
-- Adjusting for the impact of dividends to shareholders, NAV
over the year reduced by a net GBP4.4 million, 5.3 pence per share,
comprising a reduction of GBP6.1 million in the first half of the
year, in large part due to the impact of Covid-19 on portfolio
investment valuations, and an increase of GBP1.7 million in the
second half.
Dividends
-- The Company paid a special dividend to shareholders of 4.25
pence per share in January 2020; and
-- The Board announced the initiation of a progressive annual
dividend policy targeting a dividend initially equal to
approximately 1.5% of each financial year's closing NAV and
targeting that this should be fully covered by distributable
profits, subject to the Company's liquidity and market conditions.
The first interim dividend under this policy of GBP0.2 million (0.3
pence per share) was paid to shareholders in September 2020. A
final dividend of 0.6 pence per share is recommended by the Board
and subject to approval by shareholders at the Annual General
Meeting.
Rationalisation of the portfolio
-- The portfolio showed an overall net reduction in value on the
year of GBP2.1 million from net realised and unrealised losses and
foreign exchange movements (2019: GBP0.8 million); and
-- Continued cash proceeds from portfolio realisations in the
year totalled GBP9.3 million (2019: GBP13.2 million).
Running costs reduction (excluding non-recurring costs)
-- Running costs, including those incurred by subsidiaries, were
GBP1.7 million and there were an additional GBP0.2 million of
investment related costs, bringing total overheads to GBP1.9
million (2019: GBP1.8 million running costs and an additional
GBP1.4 million of non-recurring costs of legal and advisory fees,
bringing total 2019 overheads to GBP3.2 million).
Cash balances
-- Group cash balances at the year-end, including amounts held
by subsidiaries, were GBP20.6 million, representing 43.0% of the
NAV (2019: GBP26.6 million and representing 47.5% of the NAV). The
Company had no debt.
Key themes
-- The investment portfolio has been rationalised, dividends
have been paid, ongoing running costs have been reduced, first
stage investments have been made and cash resources have been
carefully husbanded, following the successful completion of the
transition to internal management;
-- The business has been reshaped, under the management of its
own team, to focus in its known areas of expertise in real estate,
energy and late stage private equity;
-- The Coronavirus pandemic has affected the valuation of some
of the Company's investments and has resulted in the Board taking a
cautious approach to ensuring the Company has available liquidity
to implement its investment policy, while estimates of the timing
and quantum of realisations from its existing portfolio have been
revised downwards; and
-- Looking forward, the Board sees opportunity to invest in its
chosen areas of expertise and expects to deploy more capital during
2021, and to encourage co-investment opportunities with our
partners. Foundations have been laid with the Company's real estate
and energy teams, creating a pipeline of opportunities including
GBP7.0 million deposited for the investment in Dacian, a Romanian
oil and gas production company, for which final approval by the
Romania authorities is pending. The Company continues to evaluate
opportunities in late stage private equity and expects to deploy
capital in this area also in 2021.
Robert Rayne, Chairman, commented:
"We have successfully completed our first year as an internally
managed investment company. While 2020 was a challenging year that
was significantly impacted by the Coronavirus pandemic, we were
still able to progress on our deal flow, principally in the energy
and real estate sectors. The previously announced Dacian Petroleum
transaction remains in the final stage of government approvals, and
we have backed two real estate teams, George Capital and Cavera,
that have a pipeline of opportunities. Our significant cash
balances will enable us to deploy capital in 2021, although we
remain cautious during these times of uncertainty."
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.
12 March 2021
For further information please contact:
LMS Capital PLC
Nick Friedlos, Managing Director
0207 935 3555
Shore Capital
Robert Finlay
0207 408 4050
Statement from the Chairman and the Managing Director
We are delighted to be writing to you having completed our first
year as a self-managed investment company.
It has been a turbulent year for communities, for individuals
and families and for business. The uncertainty looks set to
continue at least for some time and its effects will work their way
through all parts of our society over the coming months and
years.
Against this background we are pleased with the progress that
has been made in 2020 and believe we have laid strong foundations
to accelerate that progress in 2021. The Company has a strong
balance sheet and we see new opportunities in our areas of
endeavour, although we continue to adopt a cautious approach
mindful of an uncertain world.
FINANCIAL RESULTS FOR THE YEARED 31 DECEMBER 2020
Net Asset Value
The NAV of the Company at 31 December 2020 was GBP47.9 million,
59.4p per share (31 December 2019: GBP56.0 million, 69.3p per share
or GBP52.6 million, 65.1p per share including the special dividend
paid in January 2020). After adjusting for the special dividend in
January 2020 and for the first interim dividend in September 2020,
the NAV reduced by GBP4.4 million. This comprises a GBP6.1 million
reduction in the first half of the year, in large part due to the
estimated impact on valuations of the Coronavirus pandemic, and a
GBP1.7 million increase in the second half of the year.
Net reductions, both realised and unrealised, in the underlying
value of the portfolio over the year were GBP2.0 million (2019: net
reductions GBP0.3 million). Foreign exchange movements resulted in
a further net reduction, realised and unrealised, of GBP0.1 million
(2019: GBP0.5 million).
Principal movements in the underlying investment valuations
were:
-- Quoted stocks - Realised losses of GBP0.5 million from the
sale of all of the Company's holdings in Gresham House Asset
Management and Solaredge and unrealised losses of GBP0.6 million
principally in relation to IDE Group.
-- Medhost - Increase in valuation of GBP0.4 million. This is a
co-investment with Primus Capital who is the lead manager on the
investment. The company provides enterprise management software to
mid-sized hospitals in the US and the valuation reflects movements
in the valuation of comparable quoted companies;
-- Brockton Capital Fund 1 - Reduction in valuation of GBP1.4
million. This investment through Brockton Capital Fund 1 in a
central London high end residential development has been valued
conservatively reflecting the risk around the project as a result
of the Coronavirus pandemic;
-- Assets managed by San Francisco Equity Partners ("SFEP")
o YesTo - Reduction in valuation of GBP2.0 million. YesTo
experienced a difficult 2018 and 2019. In April 2020, its situation
was exacerbated by the Coronavirus pandemic, and the company sought
additional funding. Having reviewed the position, LMS decided not
to provide additional capital to the SFEP Fund to invest further in
YesTo. LMS restructured its management arrangements to incentivise
the manager to optimize the value of LMS' holding, notwithstanding
it was not participating in the April 2020 funding round. The
valuation of the investment has been reduced accordingly.
o ICU - Increase in valuation of GBP2.5 million from unrealised
gains, of which GBP0.7 million was received as a cash distribution.
In the early stages of the Coronavirus pandemic in the US, ICU's
main manufacturing partner for its established eyewear business -
who is also a major shareholder in ICU - commenced the manufacture
of masks and other personal protective equipment ("PPE"). ICU acted
as a sales agent in the US, and this has led to the development of
a PPE distribution business. This business has significantly
improved the cash generation of ICU during the year enabling it to
return capital to its shareholders. The increase in valuation
reflects the gains made by ICU during the year on the PPE business
and an estimate of the additional value of the PPE business going
forward.
-- Elateral - Reduction in value of GBP1.4 million. This
reduction reflects the ongoing financial losses, exacerbated by the
Coronavirus pandemic which has slowed the Company's sales
growth;
-- Weber Capital Partners - Increase in valuation of GBP0.6
million. This US micro-cap fund, with which the Company has had a
long-standing relationship, has performed exceptionally well during
the year, showing a valuation gain of more than 80%;
-- Other investments - Net increase in valuations GBP0.4
million, the bulk of which was due to the performance of the Opus
Capital Venture Partners fund interest.
Other movements in net asset value amounted to a net reduction
of GBP2.3 million and include group running costs for the year of
GBP1.7 million (2019: GBP3.5 million), including subsidiary
investment support costs (external diligence costs on Dacian and
Cavera support costs) of GBP0.2 million and non-portfolio foreign
exchange losses of GBP0.6 million. Interest income and other net
credits were GBP0.2 million.
Cash and liquidity
Cash balances in the Company and its subsidiaries at 31 December
2020 were GBP20.6 million (31 December 2019: GBP26.6 million).
Significant outflows of cash during the year were payments to
shareholders of the GBP3.4 million special dividend in January 2020
and GBP7.0 million funding of the Company's investment in Dacian in
September 2020.
At the outset of the Coronavirus pandemic, the Board considered
the risk to the Company's medium-term liquidity from its portfolio,
which might be adversely impacted in terms of both timing and
amounts realised. In order to reduce the risk of a lack of
liquidity and to implement its investment policy going forward, the
Company realised substantially all its quoted portfolio in the
first half of the year, generating proceeds of GBP7.7 million.
Dividend policy
The Company paid a special dividend of GBP3.4 million in January
2020.
During the first half of the year, the Board gave consideration
as to whether a further one-off return of capital should be made.
In light of market conditions generally, and in particular the
likely reduced near term liquidity from the existing portfolio, the
Board decided not to make any further one-off returns of capital in
the near term and concluded that liquidity should be retained in
the Company to enable it to implement its investment policy and
deliver target long- term returns to its shareholders.
The Board is however confident of the Company's ability to
generate income on an annual basis and therefore commenced payment
of an annual dividend. Initially the dividend payment will be
targeted in respect of each financial year as 1.5% per annum of the
year end NAV. The actual level of dividend each year will be
determined having regard to market conditions generally, the
financial position of the Company and the availability of
distributable reserves.
An interim dividend of 0.3p per share was paid on 7 September
2020. A final dividend of 0.6p per share is recommended by the
Board and, subject to approval by shareholders at the AGM on 12 May
2021, will be paid to shareholders in early June 2021
DEVELOPMENT OF DEAL FLOW
The Company has made progress developing deal flow during the
year, focusing initially on its energy and real estate sectors. In
relation to late stage private equity, the Company continues to
review opportunities and expects to deploy capital in 2021.
Energy
Dacian Petroleum ("Dacian")
In August 2020, the Company announced that it had led an
investor group to acquire an interest in Dacian, a Romanian oil and
gas production company. Dacian's initial transaction would be the
acquisition of a business operating some 40 onshore oil fields in
Romania.
LMS committed $9.0 million representing a 32% equity holding in
Dacian. LMS' co-investment group, including LMS directors, invested
a further $5.0 million representing an 18% equity holding. The
Dacian founder and management team will hold 50% of the remaining
equity. The investment by LMS and its co-investors is structured
primarily as debt with a 7-year maturity and a 14% per annum
coupon. The debt will be required to be repaid before any
distributions to equity holders.
As reported in the August announcement, the acquisition by
Dacian is conditional on obtaining certain regulatory and
government approvals in Romania ("the Approvals"). The Approvals
had been expected to be obtained during the third or fourth quarter
last year, but the process has moved more slowly than originally
expected primarily due to the impact of the Coronavirus
pandemic.
The Dacian team continue to have a high degree of confidence
that the Approvals will successfully be obtained. To the extent
that the team has visibility of the approval process, it has
evidence that progress is being made and no objections or concerns
have been raised by the Romanian authorities.
The investors deposited funds with Dacian during September 2020
in readiness for obtaining the Approvals and proceeding to
completion. Assuming the Approvals are obtained, and the
transaction completes, which as noted above is still the
expectation of the Dacian team, these funds will attract interest
at 14% per annum from 20 September 2020. For LMS, this would
represent interest income of GBP0.3 million to 31 December 2020,
not at present reflected in the financial results.
In the unlikely event that the Approvals are not obtained within
what the parties consider to be an acceptable timeframe, funds
would be returned to investors.
LMS' rationale for the acquisition is:
-- The opportunity to acquire a business that is cash flow positive from day one;
-- Attractive entry pricing based on the oil and gas reserves we believe are in place;
-- A founder team with extensive industry experience and a local
operational team with prior knowledge of the assets being
acquired;
-- The prospect of production gains from applying maintenance
and workover processes to the assets acquired, which have not been
a strategic focus for their current owner; and
-- A robust business plan that is expected to produce target
returns and can withstand volatility in energy prices.
We believe that this remains an attractive investment for the
Company and therefore at present our view is to continue to await
the conclusion of the approval process, albeit that it is moving
more slowly than expected.
Once the Approvals have been obtained and the transaction
completes, we will issue updated information on the investment.
Real Estate
The Company has backed two real estate teams each with
complementary skills and business plans.
George Capital ("George")
George is an asset manager specialising in acquiring income
producing assets, typically in the GBP5 million to GBP20 million
range, and through active management reworking and improving the
level, quality and duration of the income and also exploiting
opportunities to increase the density of use on the site.
George has previously raised and invested in two funds. The
George team is now working with LMS, unencumbered by legacy asset
positions, to identify and take advantage of market opportunities
likely to emerge in the coming months. The investment structure
being developed is intended to attract co-investment capital as
well as capital from LMS' balance sheet.
Cavera
Cavera is a wholly owned LMS subsidiary established as a vehicle
to work with a successful real estate development team. The team
previously ran Voreda, a development business that successfully
operated a development partnership with Imperial College London,
over a 10-year period obtaining some 1.6m square feet of planning
consents and jointly investing in and developing over 900,000
square feet of space in West London, including student and key
worker accommodation, commercial office, hotel and residential
space and specialist college facilities.
At present, LMS is funding Cavera's operating costs as the team
look to source development opportunities that can be structured as
"Project SPV's" providing investment for LMS and its
co-investors.
We have proceeded cautiously with both George and Cavera during
the year, mindful of the evolving demand for different types of
real estate, in particular as the consequences of the Coronavirus
pandemic work through the system.
However, in both cases the teams have a pipeline of
opportunities, and we believe that we will be in a position to
commit capital and also bring co-investors alongside us during
2021.
LONG-TERM OBJECTIVES AND NEAR-TERM GOALS
The Company's objective is the preservation and creation of
wealth for its shareholders over the longer term. Its target is to
deliver returns, net of all costs, of 12% to 15% per annum over
that longer period.
Its approach to selecting investments is to focus on those areas
where it has competitive advantage. In practice this means:
-- Concentrating on areas in which it has and can access depth
of knowledge and experience in energy, real estate and late stage
private equity;
-- Building on our relationships working with a small number of
outstanding management teams in our sectors. These are teams we
know well, have demonstrable success in their respective sectors
and have the ability to access and execute on deal
opportunities;
-- Seeking out "hard to access" assets, typically at the
smaller/medium end of their respective sectors, that offer more
attractive entry pricing and require a level of management
attention that larger funds and pure financial investors may not
wish to support.
An important part of the Company's approach, alongside its own
balance sheet capital, is to bring co-investors into the
opportunities in which it invests. For the Company, this helps
create scale in the capital pool it can access and allows it to
participate in a more diverse range of investments. For
co-investors, this provides the opportunity to invest in deals
which are unlikely to be available to them directly as a family
office or high net worth investors.
Achieving the longer-term objective requires meeting shorter
term goals. Entering its first year as a self-managed business, the
Board had three key goals:
-- As the impact of the Coronavirus pandemic unfolded, the
preservation of value in its existing assets, maintaining liquidity
and protection of its financial position;
-- Ensuring it had the necessary resources and systems to operate as a self-managed company; and
-- Building a pipeline of opportunities in its chosen investment
sectors going forward and commencing the deployment of capital.
We believe we have made good progress in the first year and
expect during 2021 to build on the foundations laid in 2020.
For 2021 we want to build on these foundations - ultimately the
benefit of our efforts needs to be reflected in the returns enjoyed
by our shareholders, and we expect to be able to demonstrate this
in a meaningful way in 2021. Our focus will be to:
-- Further develop our deal pipeline and deploy capital in our chosen sectors;
-- Expand our co-investment program; and
-- Identify routes to expand the capital base of the Company.
We would like to express our appreciation to our own team, the
management teams and others with whom we work and our shareholders
for your continued support. We look forward to reporting progress
to you during the coming year.
Robert Rayne
Chairman
Nicholas Friedlos
Managing Director
11 March 2021
PORTFOLIO MANAGEMENT REVIEW
Introduction
The Company and the Board became responsible for all aspects of
the portfolio management with effect from 30 January 2020,
following the Company's shareholder approval of a resolution to
return the Company to internal management in November 2019.
Cash in the group at 31 December 2020 was GBP20.6 million (31
December 2019: GBP26.6 million), including GBP16.4 million held by
the Company and GBP4.2 million held by subsidiaries. Significant
outflows have been GBP3.7 million of dividend payments, GBP7.0
million deposited for the investment in Dacian and an additional
GBP0.8 million invested in Weber Capital Partners. Cash proceeds
from realisations and distributions from funds have totalled GBP9.3
million. Other net cash movements amount to an outflow of GBP3.2
million.
Market background
2020 was a year dominated by the impact of the Coronavirus
pandemic on global markets. The spread of Covid-19 during the first
quarter profoundly affected global markets as equities suffered
steep declines while government bond yields fell. Sterling hit lows
against the U.S. Dollar as investors sought safety in cash.
Subsequent quarters of 2020 saw a market recovery as the Covid-19
restrictions eased and vaccine breakthroughs created some optimism
about the return to economic normality. Equities increased and the
sterling strengthened against the U.S. Dollar. The UK AIM 100 and
SmallCap indices ended the year up 19.6% and 4.5%,
respectively.
Domestically, the approval and rollout of multiple Covid-19
vaccines beginning in early 2021 could help extend the rally in
equities amongst a return to normalcy in the second half of the
year. Additionally, a Brexit trade agreement reached at the end of
the year removed some of the uncertainty over the future trading
relationship with the EU. However, there still remains uncertainty
around combatting the pandemic and how that will impact the pace of
economic recovery and the domestic and global markets.
The consequences of recent developments and impact of the
ongoing pandemic will continue to be monitored closely by the
Board.
Performance review
The movement in NAV during the year was as follows: 2020 2019
GBP'000 GBP'000
Opening NAV 55,958 60,275
Loss on investments (2,053) (1,199)
Dividends (3,673) -
Overheads and other net movements (2,309) (3,118)
------------------------------------------------------ --------- ---------
Closing NAV 47,923 55,958
------------------------------------------------------ --------- ---------
Cash realisations from the portfolio in 2020 were as
follows:
Year ended
31 December
--------------------
2020 2019
GBP'000 GBP'000
----------------------------------------------- --------- ---------
Proceeds from the sale of investments 8,011 12,411
Distributions from funds and loan repayments 1,304 788
----------------------------------------------- --------- ---------
Total - gross 9,315 13,199
New and follow-on investments (976) (426)
Fund calls (169) (898)
----------------------------------------------- --------- ---------
Total - net 8,170 11,875
----------------------------------------------- --------- ---------
Realisations of GBP9.3 million in 2020 include:
-- Proceeds of GBP7.7 million from the sale of the bulk of the Company's listed shares;
-- GBP0.7 million of distributions from ICU Eyewear related to
cash generated from their newly created Health business line that
sells personal protective equipment; and
-- GBP0.3 million of distributions from Eden Two LLP
-- Other realisations and fund distributions of GBP0.6 million.
A new investment of GBP0.8 million was made in Weber Capital
Partners in light of the continuing strong performance of this fund
over both short and longer-term horizons.
The follow-on investments are primarily in respect of an
additional GBP0.2 million of working capital funding for Elateral,
a UK direct investment.
The fund calls are primarily for SFEP management fees.
Below is a summary of the investment portfolio of the Company
and its subsidiaries:
Year ended 31 December
----------------------------------------------------------------------
2020 2019
---------------------------------- ----------------------------------
Asset type UK US Total UK US Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------- ---------- ---------- ---------- ---------- ----------
Quoted 119 78 197 6,687 1,734 8,421
Unquoted 1,226 8,912 10,138 2,428 7,285 9,713
Funds 5,808 6,050 11,858 7,795 6,312 14,107
------------- ---------- ---------- ---------- ---------- ---------- ----------
7,153 15,040 22,193 16,910 15,331 32,241
------------- ---------- ---------- ---------- ---------- ---------- ----------
Basis of valuation:
Quoted investments
Quoted investments for which an active market exists are valued
at the closing bid price at the reporting date.
Unquoted direct investment
Unquoted direct investments for which there is no 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 adopted the IPEV special valuation guidance
issued in March 2020 in response to the significant uncertainty
surrounding the Coronavirus pandemic.
Funds
Investments in managed funds are valued at fair value. The
general partners of the funds will provide periodic valuations on a
fair value basis, the latest available of which the Company will
adopt provided it is satisfied that the valuation methods used by
the funds are not materially different from the Company's valuation
methods. Adjustments will be made to the fund valuation where the
Company believes there is evidence available for an alternative
valuation.
Performance of the investment portfolio
The return on investments for the year ended 31 December 2020
was as follows:
Year ended 31 December
--------------------------------------------------------------------------------
2020 2019
------------------------------------------ ------------------------------------
Realised Realised Unrealised
gains/ Unrealised gains/ gains/
(losses) gains/ (losses) Total (losses) (losses) Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ----------- ------------------ --------- ----------- ------------ ---------
Quoted (335) (598) (933) 9 2,700 2,709
Unquoted 121 949 1,070 7,071 (3,870) 3,201
Funds - (2,190) (2,190) - (6,708) (6,708)
-------------------- ----------- ------------------ --------- ----------- ------------ ---------
(214) (1,839) (2,053) 7,080 (7,878) (798)
-------------------- ----------- ------------------ --------- ----------- ------------ ---------
Charge for
incentive plans - (401)
-------------------- ----------- ------------------ --------- ----------- ------------ ---------
(2,053) (1,199)
-------------------- ----------- ------------------ --------- ----------- ------------ ---------
Operating and
similar expenses
of subsidiaries (1,194) (527)
-------------------- ----------- ------------------ --------- ----------- ------------ ---------
(3,247) (1,726)
-------------------- ----------- ------------------ --------- ----------- ------------ ---------
The Company operates carried interest arrangements in line with
normal practice in the private equity industry. The charge for
incentive plans for the Company is GBP0.1 million and Subsidiaries
a credit of GBP0.1 million for carried interest and other
incentives relating to historic arrangements. The charge for
carried interest incentive plan is included in the Net losses on
Investments in the Income Statement.
Approximately, 68% of the portfolio at 31 December 2020 is
denominated in US dollars (31 December 2019: 48%) and the above
table includes the impact of currency movements. In the year ended
31 December 2020, the weakening of the US dollar against sterling
over the year as a whole resulted in an unrealised foreign currency
loss of GBP0.2 million (2019: unrealised loss of GBP0.5 million).
As a common practice in private equity investment, it is the
Board's current policy not to hedge the Company's underlying
non-sterling investments.
Quoted investments
31 December
--------------------
2020 2019
Company Sector GBP'000 GBP'000
------------------------ --------------- --------- ---------
IDE Group Holdings UK technology 118 781
Global Green Solutions US energy 62 -
Gresham House UK financial - 5,906
US renewable
Solaredge Technologies energy - 1,717
Others - 17 17
197 8,421
---------------------------------------- --------- ---------
The net (losses)/gains on the quoted portfolio arose as
follows:
Year ended 31 December
--------------------------
2020 2019
(Losses)/gains, net GBP'000 GBP'000
-------------------------------------------- ------------ ------------
Realised
Solaredge Technologies 265 -
Gresham House (716) 9
Realised foreign currency gain 116 -
-------------------------------------------- ------------ ------------
(335) 9
-------------------------------------------- ------------ ------------
Unrealised
Global Green Solutions 72 -
IDE Group Holdings (663) 436
Solaredge Technologies - 1,135
Gresham House - 1,437
Other quoted holdings 3 (235)
Unrealised foreign currency gains/(losses) (10) (73)
-------------------------------------------- ------------ ------------
(598) 2,700
Total net (loss)/ gain (933) 2,709
-------------------------------------------- ------------ ------------
Gresham House
The Company sold all of its shares in Gresham House during 2020,
resulting in a realised loss of GBP0.7 million.
Solaredge Technologies
The Company also sold all of its shares of Solaredge
Technologies during the year, resulting in a realised gain of
GBP0.3 million.
IDE Group Holding
The performance of IDE Group Holdings declined during 2020 as
the company was impacted by the Coronavirus pandemic and saw the
share price fall substantially, resulting in a GBP0.7 million
unrealised loss. In January 2021, the company announced that it
secured a GBP22.5 million multi-year contract with a new customer
to improve the pipeline of future revenue.
Unquoted investments
31 December
---------------------
2020 2019
Company Sector GBP'000 GBP'000
-------------- --------------- ---------- ---------
Medhost Inc US technology 5,704 5,460
ICU Eyewear* US consumer 3,143 1,508
Northbridge UK technology 755 730
Elateral UK technology 399 1,610
IDE Group UK technology 73 88
Yes To* US consumer 64 317
10,138 9,713
------------------------------ ---------- ---------
*These are co-investments with SFEP
The net gains and losses on the unquoted portfolio arose as
follows:
Year ended 31 December
--------------------------
2020 2019
Gains, net GBP'000 GBP'000
------------------------------------ ------------ ------------
Realised
Entuity 115 7,177
Penguin Computing 6 36
Brockton Capital LLP - (142)
121 7,071
------------------------------------ ------------ ------------
Unrealised
ICU Eyewear 2,459 -
Medhost 374 (2,672)
Northbridge 25 130
YesTo (268) (722)
Elateral (1,436) (400)
Unrealised foreign currency losses (205) (206)
------------------------------------ ------------ ------------
949 (3,870)
------------------------------------ ------------ ------------
Total net gain 1,070 3,201
------------------------------------ ------------ ------------
Valuations are sensitive to changes in the following two
inputs:
-- The operating performance of the individual businesses within the portfolio; and
-- Changes in the revenue and profitability multiples and
transaction prices of comparable businesses, which are used in the
underlying calculations.
Comments on individual companies are set out below.
Medhost
Medhost is a co-investment with funds of Primus Capital.
Medhost's financial performance was relatively flat in 2020, with
only a slight decline in both Revenue and EBITDA over the prior
year, resulting in a higher valuation by the fund manager Primus
Capital and an unrealised gain of GBP0.4 million for 2020.
Elateral
Additional working capital funding of GBP0.2 million was
required by the Company in 2020. Elateral experienced a net
reduction in revenue during 2020 due to the economic impact of the
Covid-19 pandemic, and overall the company ran at an EBITDA loss.
The valuation has been reduced by GBP1.4 million for the year.
ICU Eyewear
During 2020, the company created a new business line, Health,
for the distribution and sale of personal protective equipment. The
Health business line generated significant sales during 2020 due to
the Covid-19 pandemic, resulting in cash distributions to the
Company of GBP0.7 million during the year and an additional GBP1.5
million received in February 2021. The company's main business
line, Eyewear, has also continued to demonstrate its ability to
trade profitably. The valuation gain of GBP2.5 million reflects the
cash distribution received in February 2021 and the increased value
of the ongoing business lines.
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
was received, with part of the consideration held in escrow. The
remaining investment was fully written off in 2019 but a final
distribution of funds from the escrow account was received during
2020.
Fund interests
31 December
--------------------
2020 2019
General partner Sector GBP'000 GBP'000
------------------------ ---------------------------- --------- ---------
Brockton Capital Fund
1 UK real estate 4,107 5,529
Opus Capital Venture
Partners US venture capital 3,505 3,145
Weber Capital Partners US micro-cap quoted stocks 1,813 563
EMAC ILF UK 839 988
San Francisco Equity
Partners US consumer & technology 699 2,570
Eden Ventures UK venture capital 501 914
Simmons UK 361 363
Other interests - 33 35
------------------------ ----------------------------- --------- ---------
11,858 14,107
----------------------------------------------------- --------- ---------
Gains and losses on the Company's funds portfolio for the year
ended 31 December 2020 were as follows:
Year ended 31 December
--------------------------
2020 2019
Losses net GBP'000 GBP'000
---------------------------------------- ------------ ------------
Realised
Other funds - -
---------------------------------------- ------------ ------------
- -
---------------------------------------- ------------ ------------
Unrealised
Opus Capital Venture Partners 907 226
Weber Capital Partners 555 -
Simmons Parallel Energy (22) 81
Eden Ventures (157) (183)
San Francisco Equity Partners ("SFEP") (1,729) (6,798)
Brockton Capital Fund I (1,422) 607
Others (net) (315) (433)
Unrealised foreign currency losses (7) (208)
---------------------------------------- ------------ ------------
(2,190) (6,708)
---------------------------------------- ------------ ------------
Total net loss (2,190) (6,708)
---------------------------------------- ------------ ------------
LMS 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 - The fund carrying value of GBP0.6 million (31
December 2019: GBP2.8 million) was further reduced in 2020. A new
management team was appointed in 2020 and a plan to restore growth
and profitability was implemented. The 2020 sales were in line with
the budget but profitability was negatively impacted by higher
costs and the impact of Covid-19, resulting in lower than estimated
EBITDA. Further working capital was required during 2020, but the
Company elected not to participate in that round of funding. YesTo
is valued primarily on a sales multiple and the reduction reflects
a valuation that is sufficient to recover the outstanding loan
notes held by the Company but prescribes no value to the
equity.
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 31 December 2020, via its SFEP fund interest and its
co-investment is GBP0.7 million (31 December 2019: GBP3.1
million).
The Company also received from SFEP a GBP0.2 million final
distribution of amounts held in escrow related to the 2018 sale of
Penguin Computing.
Overhead Costs
Group overhead costs for the year (including GBP1.3 million
incurred by the Company and GBP0.6 million by subsidiaries) were
GBP1.9 million (2019: GBP3.2 million) and include running costs of
GBP1.7 million and investment support costs of GBP0.2 million for
transaction diligence and support costs for real estate and
co-investment activities.
Taxation
The Group tax provision for the year, all of which arose in the
subsidiaries, is GBP0.01 million (2019: GBPnil).
Financial Resources and Commitments
At 31 December 2020 cash holdings, including cash in
subsidiaries, were GBP20.6 million (31 December 2019: GBP26.6
million) and neither the Company nor any of its subsidiaries had
any debt (2019: nil debt).
At 31 December 2020, subsidiary companies had commitments of
GBP2.7 million (31 December 2019: GBP3.1 million) to meet
outstanding capital calls from fund interests.
LMS CAPITAL PLC
11 March 2021
Income Statement
For the year ended 31 December 2020
Year ended 31 December
2020 2019
Notes GBP'000 GBP'000
------------
Net losses on investments 2 (3,247) (1,726)
Interest income 3 94 180
Dividend income 4 - 30
------------------------------------ ------- ------------ ------------
Total loss on investments (3,153) (1,516)
Operating expenses 5 (1,243) (2,955)
------------ ------------
Loss before tax (4,396) (4,471)
Taxation 8 - -
Loss for the year (4,396) (4,471)
Attributable to:
Equity shareholders (4,396) (4,471)
------------ ------------
Loss per ordinary share - basic 9 (5.4)p (5.5)p
Loss per ordinary share - diluted 9 (5.4)p (5.5)p
------------ ------------
Statement of Other Comprehensive Income
For the year ended 31 December 2020
Year ended 31 December
2020 2019
GBP'000 GBP'000
------------ ------------
Loss for the year (4,396) (4,471)
Other comprehensive income - -
------------ ------------
Total comprehensive loss for the year (4,396) (4,471)
----------------------------------------- ------------ ------------
Attributable to:
Equity shareholders (4,396) (4,471)
----------------------------------------- ------------ ------------
Statement of Financial Position
As at 31 December 2020
31 December
-----------------------
2020 2019
Notes GBP'000 GBP'000
------------------------------------- ------- ---------- -----------
Assets
Non-current assets
Right of use assets 17 125 -
Investments 11 70,610 134,283
Total non-current assets 70,735 134,283
------------------------------------- ------- ---------- -----------
Current assets
Operating and other receivables 12 67 166
Cash and cash equivalents 13 16,385 25,079
------------------------------------- ------- ---------- -----------
Total current assets 16,452 25,245
Total assets 87,187 159,528
------------------------------------- ------- ---------- -----------
Current liabilities
Operating and other payables 14 (415) (1,585)
Amounts payable to subsidiaries (38,747) (101,985)
---------- -----------
Total current liabilities (39,162) (103,570)
---------- -----------
Non-current liabilities
Other long-term liabilities 14 (102) -
------------------------------------- ------- ---------- -----------
Total non-current liabilities (102) -
------------------------------------- ------- ---------- -----------
Total liabilities (39,264) (103,570)
---------- -----------
Net assets 47,923 55,958
------------------------------------- ------- ---------- -----------
Equity
Share capital 15 8,073 8,073
Share premium 508 508
Capital redemption reserve 24,949 24,949
Share-based Equity 34 -
Retained earnings 14,359 22,428
------------------------------------- ------- ---------- -----------
Total equity shareholders' funds 47,923 55,958
------------------------------------- ------- ---------- -----------
Net asset value per ordinary share 23 59.36p 69.30p
------------------------------------- ------- ---------- -----------
Statement of Changes in Equity
For the year ended 31 December 2020
Capital Share-
Share Share redemption based Retained Total
capital premium reserve equity earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- ------------ --------- ---------- ---------
Balance at 1 January
2019 8,073 508 24,949 - 26,745 60,275
Comprehensive loss
for the year
Prior year's tax adjustments - - - - 154 154
Loss for the year - - - - (4,471) (4,471)
--------- --------- ------------ --------- ---------- ---------
Equity after total
comprehensive loss
for the year 8,073 508 24,949 - 22,428 55,958
Contributions by and
distributions to shareholders
Share-based payments - - - - - -
Dividends - - - - - -
--------- --------- ------------ --------- ---------- ---------
As at 31 December 2019 8,073 508 24,949 - 22,428 55,958
========= ========= ============ ========= ========== =========
Comprehensive loss
for the year
Prior year's tax adjustments - - - - - -
Loss for the year - - - - (4,396) (4,396)
--------- --------- ------------ --------- ---------- ---------
Equity after total
comprehensive loss
for the year 8,073 508 24,949 - 18,032 51,562
Contributions by and
distributions to shareholders
Share-based payments - - 34 - 34
Dividends (note 10) - - - - (3,673) (3,673)
--------- --------- ------------ --------- ---------- ---------
As at 31 December 2020 8,073 508 24,949 34 14,359 47,923
========= ========= ============ ========= ========== =========
Cash Flow Statement
For the year ended 31 December 2020
Year ended 31 December
2020 2019
Note GBP'000 GBP'000
Cash flows from operating activities
Loss for the year (4,396) (4,471)
Adjustments for non-cash income and expense:
Equity settled share-based payment 34 -
Depreciation on right of use assets 17 14 -
Interest expense on lease 17 4 -
Losses on investments 2 3,247 1,726
Interest income (94) (180)
Other income (6) -
Adjustments to incentives plans (68) (710)
Dividend income - (30)
Exchange (gains)/losses on cash and cash equivalents (113) 197
(1,378) (3,468)
Change in operating assets and liabilities
Decrease/(increase) in operating and other receivables 91 (126)
(Decrease)/increase in operating and other payables (1,195) 1,120
(Decrease)/increase in amounts payable to subsidiaries (7,934) 12,100
------------- -----------
Net cash (used in)/from operating activities (10,416) 9,626
--------------------------------------------------------- ------ ------------- -----------
Cash flows from investing activities
Interest received 3 102 180
Other income received 6 -
Dividend received - 30
Proceeds from sale of investments 5,190 -
------------- -----------
Net cash from investing activities 5,298 210
--------------------------------------------------------- ------ ------------- -----------
Cash flows from financing activities
Dividends paid 10 (3,673) -
Repayment of lease liabilities 17 (16) -
--------------------------------------------------------- ------ ------------- -----------
Net cash (used in)/from financing activities (3,689) -
--------------------------------------------------------- ------ ------------- -----------
Net increase in cash and cash equivalents (8,807) 9,836
Exchange (gains)/losses on cash and cash equivalents 113 (197)
Cash and cash equivalents at the beginning of the year 25,079 15,440
------------- -----------
Cash and cash equivalents at the end of the year 16,385 25,079
--------------------------------------------------------- ------ ------------- -----------
Notes to the Financial Statements
1. Principal accounting policies
Reporting entity
LMS Capital plc ("the Company") is domiciled in the United
Kingdom. These Financial Statements are presented in pounds
sterling because that is the currency of the principal economic
environment of the Company's operations.
The Company was formed on 17 March 2006 and commenced operations
on 9 June 2006 when it received the demerged investment division of
London Merchant Securities.
The financial information for the year ended 31 December 2020
and the year ended 31 December 2019 does not constitute the
Company's statutory accounts for those years. Statutory accounts
for the year ended 31 December 2019 have been delivered to the
Registrar of Companies. The statutory accounts for the year ended
31 December 2020 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.
The auditors' reports on the accounts for 31 December 2020 and
31 December 2019 were unqualified, did not draw attention to any
matters by way of emphasis, and did not contain a statement under
498(2) or 498(3) of the Companies Act 2006.
Basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards in conformity with the
requirement of the Companies Act 2006 and adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
The Financial Statements have been prepared on the historical cost
basis except for investments which are measured at fair value, with
changes in fair value recognised in the income statement.
The Company's business activities and financial position are set
out in the Strategic Report on pages 10 to 19 and in the Portfolio
Management Review on pages 20 to 26. In addition, note 18 to the
financial information includes a summary of the Company's financial
risk management processes, details of its financial instruments and
its exposure to credit risk and liquidity risk. Taking account of
the financial resources available to it, the Directors believe that
the Company is well placed to manage its business risks
successfully. After making enquiries, the Directors have a
reasonable expectation that the Company has adequate resources for
the foreseeable future.
The Company is considered to be a going concern and the accounts
have been prepared on a going concern basis. In making this
assessment the Directors have considered for the Company's
financial position as at the 31 December 2020 and have prepared
liquidity forecasts for a three-year period from 1 January 2021. In
preparing this liquidity forecast, consideration has been given to
the expected impact of Covid-19 on the Company and the wider
Group.
Newly implemented standards and interpretations
There are no new standards, amendment to standards or
interpretations that are effective for the period beginning 1
January 2020 that may have a material effect on the Financial
Statements of the Company.
IFRS 16 - Leases
The Company implemented all of the requirements of IFRS 16 -
Leases during the year ended 31 December 2020, upon entering into
its first and only lease agreement in June 2020. IFRS 16 Leases was
issued in January 2016 and provides a single lessee accounting
model, requiring lessees to recognize assets and liabilities for
all leases unless the lease term is 12 months or less or the
underlying asset has a low value.
To determine the split between principal and interest in the
lease, the Company is required to estimate the interest it would
have to pay in order to finance payments under the new lease. The
interest rate used by the Company is based on the incremental
borrowing rate of 6.5%. The term of the lease is 5 years and when
the Company renegotiates the contractual terms of a lease with the
lessor, the accounting depends on the nature of the
modification:
-- If the renegotiation results in one or more additional assets
being leased for an amount commensurate with the standalone price
for the additional rights-of-use obtained, the modification is
accounted for as a separate lease in accordance with the above
policy;
-- In all other cases where the renegotiated increases the scope
of the lease (whether that is an extension to the lease term, or
one or more additional assets being leased), the lease liability is
remeasured using the discount rate applicable on the modification
date, with the right-of-use asset being adjusted by the same
amount; and
-- If the renegotiation results in a decrease in the scope of
the lease, both the carrying amount of the lease liability and
right-of-use asset are reduced by the same proportion to reflect
the partial of full termination of the lease with any difference
recognised in profit or loss. The lease liability is then further
adjusted to ensure its carrying amount reflects the amount of the
renegotiated payments over the renegotiated term, with the modified
lease payments discounted at the rate applicable on the
modification date. The right-of-use asset is adjusted by the same
amount.
IFRS 2 - Share-based payment
IFRS 2 - Share-based payment requires an entity to recognise
equity-settled share-based payments measured at fair value at the
date of grant. The fair value determined at the grant date of the
equity-settled share-based payments is expensed over the vesting
period, together with a corresponding increase in other capital
reserves, based upon the Company's estimate of the shares that will
eventually vest, which involves making assumptions about any
performance and service conditions over the vesting period. The
vesting period is determined by the period of time the relevant
participant must remain in the Company's employment before the
rights to the shares transfer unconditionally to them. The total
expense is recognised over the vesting period, which is the period
over which all the specified vesting conditions are to be
satisfied. At the end of each period, the Company revises its
estimates on the number of awards it expects to vest based on the
service conditions.
Any awards granted are to be settled by the issuance of equity
are deemed to be equity settled share-based payments, accounted for
in accordance with IFRS 2 "Share-Based Payment".
Where the terms of an equity-settled transaction are modified,
as a minimum, an expense is recognised as if the terms had not been
modified. In addition, an expense is recognised for any increase in
the value of the transaction as a result of the modification, as
measured at the date of modification.
Where an equity-settled transaction is cancelled, it is treated
as if it had vested on the date of the cancellation, and any
expense not yet recognised for the transaction is recognised
immediately. However, if a new transaction is substituted for the
cancelled transaction and designated as a replacement transaction
on the date that it is granted, the cancelled and new transactions
are treated as if they were a modification of the original
transaction, as described in the previous paragraph.
Per the management share plan, the vesting period for any awards
issued can be up to 5 years and subject to certain conditions. The
first awards were issued in the year with respect to the
performance period ended 31 December 2020.
Accounting for subsidiaries
The Directors have concluded that the Company has all the
elements of control as prescribed by IFRS 10 "Consolidated
Financial Statements" in relation to all its subsidiaries and that
the Company continues to satisfy the three essential criteria to be
regarded as an investment entity as defined in IFRS 10, IFRS 12
"Disclosure of lnterests in Other Entities" and IAS 27 "Separate
Financial Statements". The three essential criteria are such that
the entity must:
-- obtain funds from one or more investors for the purpose of
providing these investors with professional investment management
services;
-- commit to its investors that its business purpose is to
invest its funds solely for returns from capital appreciation,
investment income or both; and
-- measure and evaluate the performance of substantially all of
its investments on a fair value basis.
ln satisfying the second essential criteria, the notion of an
investment time frame is critical. An investment entity should not
hold its investments indefinitely but should have an exit strategy
for their realisation. Although the Company has invested in equity
interests that have an indefinite life, it invests typically for a
period of up to ten years. ln some cases, the period may be longer,
depending on the circumstances of the investment, however,
investments are not made with intention of indefinite hold. This is
a common approach in the private equity industry.
Subsidiaries are therefore measured at fair value through profit
or loss, in accordance with IFRS 13 "Fair Value Measurement" and
IFRS 9 "Financial instruments".
The Company's subsidiaries, which are wholly - owned and over
which it exercises control, are listed in note 22.
Use of estimates and judgements
The preparation of the financial statements require management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis; revisions to accounting estimates
are recognised in the period in which the estimates are revised and
in any future periods affected.
The areas involving significant judgements are:
-- valuation technique selected in estimating fair value of unquoted investments -
note 11
-- valuation technique selected in estimating fair value of investment held in Funds -
note 11
-- recognition of deferred tax asset for carried forward tax losses - note 8
-- recognition of share option for equity awards - note
The areas involving significant estimates are:
-- estimate inputs used in calculating fair value of unquoted investments - note 11
-- estimated inputs used in calculating fair value of investment held in Funds - note 11
-- estimates in calculating the fair value of equity awards - note 16
-- estimate percentage of incremental borrowing rate on lease liability - note 17
-- estimate percentage on impairment of financial assets - note 18
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.
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 earnings;
-- 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; and
-- 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.
-- the Company has adopted the updated IPEV guidelines which are
effective from 1 January 2019. The main changes of the new
guidelines are:
o price of a recent investment removed as a primary valuation
technique; and
o valuing debt investment is expanded;
-- the Company adopted the IPEV special valuation guidance
issued in March 2020 in response to the significant uncertainty
surrounding the Coronavirus pandemic.
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).
Impairment of financial assets (continued)
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.
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.
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.
2. Net losses on investments
Losses and gains on investments were as follows:
Year ended 31 December
------------------------------------------------------------------------
2020 2019
--------------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Investment portfolio of the Company Realised Unrealised Total Realised Unrealised Total
Asset type GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Quoted (716) - (716) - 1,437 1,437
Unquoted - 25 25 - 130 130
Funds - - - - - -
--------------------------------------- ---------- ------------ --------- ---------- ------------ ---------
(716) 25 (691) - 1,567 1,567
--------------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Charge for incentive plans (68) (710)
--------- ---------
(759) 857
--------- ---------
Investment portfolio of subsidiaries
Asset type
---------------------------------------
Quoted 381 (598) (217) 9 1,263 1,272
Unquoted 121 924 1,045 7,071 (4,000) 3,071
Funds - (2,190) (2,190) - (6,708) (6,708)
--------------------------------------- ---------- ------------ --------- ---------- ------------ ---------
502 (1,864) (1,362) 7,080 (9,445) (2,365)
--------------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Total (214) (1,839) (2,121) 7,080 (7,878) (1,508)
--------------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Credit for incentive plans 68 309
--------- ---------
(2,053) (1,199)
Operating and similar
expenses of subsidiaries* (1,194) (527)
(3,247) (1,726)
--------------------------------------- ---------- ------------ --------- ---------- ------------ ---------
In September 2020, a subsidiary of the Company deposited GBP7
million for an investment in Dacian Petroleum, a Romanian oil and
gas production company. The completion of the transaction is
subject to regulatory and local government approvals in Romania,
which are progressing. The GBP7 million investment is structured
primarily as debt with a 7-year maturity and bearing interest at
14% per annum from 20 September 2020. The subsidiary has not
recognised the interest income of GBP0.3 million during 2020 as the
transaction was not complete at 31 December 2020 but continues to
believe it is probable that the approvals will be obtained and the
transaction will close.
The Company operates carried interest arrangements in line with
normal practice in the private equity industry. The charge for
incentive plans for the Company is GBP0.07 million and Subsidiaries
a credit of GBP0.07 million for carried interest and other
incentives relating to historic arrangements. The credit for
subsidiaries is included in the Net losses on Investments in the
Income Statement.
*Includes operating and legal costs and taxation charges of
subsidiaries.
3. Interest income
Interest income comprises of interest earned on bank deposits
and on loans investments.
4. Dividend income
Dividend income received from quoted equity shares are accounted
for when the right to receive payments is established and the
amount of the dividend can be measured reliably.
5. Operating expenses
Operating expenses comprise administrative expenses and include
the following:
Year ended 31 December
--------------------------
2020 2019
GBP'000 GBP'000
---------------------------------------------- ------------ ------------
Directors remuneration (note 6) 708 101
Staff expenses (note 7) 169 149
Depreciation on right of use assets 14 -
Management fee - 1,284
Other administrative expenses 572 1,124
Foreign currency exchange differences (275) 174
Auditor's remuneration
Fees to Company auditor
- parent company 38 35
- subsidiary companies - 73
- interim review for LMS Capital plc 17 15
----------------------------------------------- ------------ ------------
1,243 2,955
---------------------------------------------- ------------ ------------
The audit fee comprises of GBP38,000 (2019: GBP35,000) for LMS
Capital plc, fees directly charged to subsidiaries in the current
year are GBP75,000 (2019: GBP72,500) and GBP17,000 (2019:
GBP15,000) for the interim review. The expenses in the table above
vary from these numbers due to adjustments for opening and closing
accruals.
6. Directors' Remuneration
Year ended 31 December
--------------------------
2020 2019
GBP'000 GBP'000
------------------------------------------------------------------------- ------------ ------------
Directors' remuneration 593 70
Directors' social security contributions 62 6
Directors' other benefit 53 25
708 101
------------------------------------------------------------------------- ------------ ------------
The highest paid director was Nicholas Friedlos (2019 - Martin Knight) 239 55
-------------------------------------------------------------------------- ------------ ------------
The average number of Directors and staff was as follows:
31 December 2020 31 December 2019
-------------------------------------------- ----------------------------------------------
Male Female Total Male Female Total
-------------------- ----------- ------------------ ----------- -------------- ------------------ ----------
Average number of
directors 5 - 5 4 - 4
-------------------- ----------- ------------------ ----------- -------------- ------------------ ----------
5 - 5 4 - 4
-------------------- ----------- ------------------ ----------- -------------- ------------------ ----------
7. Staff Expenses
Year ended 31 December
--------------------------
2020 2019
GBP'000 GBP'000
------------------------------------------- ------------ ------------
Wages and salaries 144 133
Employers' social security contributions 13 15
Employers' other benefits 12 1
-------------------------------------------- ------------ ------------
169 149
------------------------------------------- ------------ ------------
8. Taxation
Year ended 31 December
--------------------------
2020 2019
GBP'000 GBP'000
--------------------- ------------ ------------
Current tax expense
Current year - -
--------------------- ------------ ------------
Total tax expense - -
--------------------- ------------ ------------
Reconciliation of tax expense Year ended 31 December
--------------------------
2020 2019
GBP'000 GBP'000
-------------------------------------------------------------------------- ------------ ------------
Loss before tax (4,396) (4,471)
--------------------------------------------------------------------------- ------------ ------------
Corporation tax using the Company's domestic tax rate - 19% (2019: 19%) (835) (850)
Fair value adjustments not currently taxed 390 94
Non-deductible expenses 238 100
Non-taxable expense/ (income) 301 (6)
Deferred tax asset not recognised - 534
Transfer pricing (766) (700)
Company relief 672 828
--------------------------------------------------------------------------- ------------ ------------
Total tax expense - -
--------------------------------------------------------------------------- ------------ ------------
As at the year end, there are cumulative potential deferred tax
assets of GBP1.512 million (2019: GBP1.677 million) in relation to
the Company's cumulative tax losses of GBP7.956 million (2019:
GBP8.826 million). It is unlikely that the Company will generate
sufficient taxable profits in future to utilise these amounts and
therefore no deferred tax asset has been recognised in the current
or prior year.
9. Loss per ordinary share
The calculation of the basic and diluted earnings per share, in
accordance with IAS 33, is based on the following data:
Year ended 31 December
----------------------------------------
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- ------------- -------------------------
Loss
Loss for the purposes of loss per share being
net loss attributable to equity holders of the parent (4,396) (4,471)
--------------------------------------------------------- ------------- -------------------------
Number Number
------------- -------------------------
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 Pence Pence
-------------------------------------------------------- ------------- -------------------------
Basic (5.4) (5.5)
Diluted (5.4) (5.5)
--------------------------------------------------------- ------------- -------------------------
The Company has share awards issued not yet vested which were
not dilutive in 2020.
10. Dividends
Dividends declared during the year ending 31 December 2020 are
as follows.
Dividend
Dividend per share
Dividend date Payment Date GBP'000 GBP
------------------ ------------------- -------------------- ---------- ------------
First dividend 20 December 2019 09 January 2020 3,431 0.0425
Second dividend 14 August 2020 07 September 2020 242 0.0030
------------------ ------------------- -------------------- ---------- ------------
Total 2020 3,673 0.0455
------------------------------------------------------------- ---------- ------------
A final dividend of 0.6p per share is recommended by the Board
and, subject to approval by shareholders at the AGM on 12 May 2021,
will be paid out in early June 2021.
11. Investments
The Company's investments comprised the following:
Year ended 31 December
--------------------------
2020 2019
GBP'000 GBP'000
--------------------------------------- ------------ ------------
Total investments 70,610 134,283
--------------------------------------- ------------ ------------
These comprise:
Investment portfolio of the Company 755 6,636
Investment portfolio of subsidiaries 21,438 25,605
--------------------------------------- ------------ ------------
Investment portfolio - total 22,193 32,241
Other net assets of subsidiaries 48,417 102,042
--------------------------------------- ------------ ------------
70,610 134,283
--------------------------------------- ------------ ------------
The carrying amounts of the Company's and its subsidiaries'
investment portfolios were as follows:
31 December 2020 31 December 2019
-------------------- --------------------
Investment portfolio of the
Company
Asset type GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- --------- --------- --------- ---------
Quoted - 5,906
Unquoted direct 755 730
Funds - -
--------------------------------------- --------- --------- --------- ---------
755 6,636
Investment portfolio of subsidiaries
Asset type
--------------------------------------- --------- --------- --------- ---------
Quoted 197 2,515
Unquoted direct 9,383 8,983
Funds 11,858 14,107
Other net assets of subsidiaries 48,417 102,042
--------------------------------------- --------- ---------
69,855 69,855 127,647 127,647
--------------------------------------- --------- --------- --------- ---------
70,610 134,283
--------------------------------------- --------- --------- --------- ---------
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
Disposal proceeds (178) (7,694) (681) (8,853)
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
---------------------------------- ------------ ------------ --------- ---------
Quoted Unquoted
securities securities Funds Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------ --------- ---------
Balance at 1 January 2020 8,421 9,713 14,107 32,241
Purchases 424 249 906 1,579
Disposal proceeds (7,715) - - (7,715)
Distributions from partnerships - (894) (965) (1,859)
Fair value adjustments (933) 1,070 (2,190) (2,053)
------------ ------------ --------- ---------
Balance at 31 December 2020 197 10,138 11,858 22,193
---------------------------------- ------------ ------------ --------- ---------
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 18 - Financial risk management).
The Company's investments are analysed as follows:
31 December
--------------------
2020 2019
GBP'000 GBP'000
---------- --------- ---------
Level 1 - 5,906
Level 2 755 730
Level 3 69,855 127,647
------------ --------- ---------
70,610 134,283
---------- --------- ---------
Level 3 amounts include GBP21,438,000 (2019: GBP25,605,000)
relating to the investment portfolios of subsidiaries including
quoted investments of GBP197,000 (2019: GBP2,515,000) and
GBP48,417,000 (2019: GBP102,042,000) in relation to the other net
assets of subsidiaries.
There were no transfers between levels during the year ending 31
December 2020.
12. Operating and other receivables
31 December
--------------------
2020 2019
GBP'000 GBP'000
--------- ---------
Other receivables and prepayments 67 166
--------- ---------
67 166
------------------------------------ --------- ---------
13. Cash and cash equivalents
31 December
--------------------
2020 2019
GBP'000 GBP'000
---------------------- --------- ---------
Bank balances 2,221 10,951
Short-term deposits 14,164 14,128
------------------------ --------- ---------
16,385 25,079
---------------------- --------- ---------
At 31 December 2020, a balance of GBP14.164 million (2019:
GBP14.128 million) was held in short term deposit accounts with no
maturity date meaning it was immediately available. In accordance
with the definition of cash and cash equivalents, the amounts in
both the current and prior year are included as a current asset on
the face of the balance sheet.
14. Operating and other payables
31 December
--------------------
2020 2019
GBP'000 GBP'000
Carried interest provision 68 710
Trade payables 32 225
Other non-trade payables and accrued expenses 316 650
-------------------------------------------------- --------- ---------
415 1,585
Other long-term lease liabilities 102 -
------------------------------------------------ --------- ---------
517 1,585
------------------------------------------------ --------- ---------
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 2020, GBP68,000 (2019:
GBP710,000) has been accrued for in the Company and GBP424,000
(2019: GBP629,000) has been accrued for in the subsidiaries.
Carried interest accrued for in the subsidiaries is included in the
amounts owing to subsidiaries on the statement of financial
position.
15. Capital and reserves
Share capital
2020 2020 2019 2019
Ordinary shares Number GBP'000 Number GBP'000
--------------- --------- ------------------------ ---------
Balance at the beginning of the year 80,727,450 8,073 80,727,450 8,073
Repurchase of shares - - - -
------------------------ ---------
Balance at the end of the year 80,727,450 8,073 80,727,450 8,073
--------------------------------------- --------------- --------- ------------------------ ---------
The Company's ordinary shares have a nominal value of 10p per
share and all shares in issue are fully paid up.
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
There was no issue or repurchases of shares in the year (2019:
GBPnil).
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.
16. Share awards
On 24 June 2020, the Company established a long-term incentive
plan for the employees of the Company. The plan grants the Board
the authority to allot up to 1,000 Value Creation Plan ("VCP")
units with both performance and service conditions attached. The
VCP units can only be awarded at the end of the five-year vesting
period, 30 June 2025, if certain minimum performance conditions are
met. These minimum performance conditions include two performance
targets over the measurement period, including a minimum hurdle
rate such that the annualized total shareholder return ("TSR") over
the measurement period must be not less than 8% and a minimum share
price of 52.8p. If the minimum performance targets are met, the
amount that the plan participants will receive will depend on the
TSR performance of the Company achieved over the five-year vesting
period. The Board retains the right to settle these awards in
either shares or cash. As the Company does not have a present
obligation to settle in cash, the awards are all recognized as
equity settled share awards.
The first share awards were granted in 2020 with respect to the
performance period ended 31 December 2020.
Grant date Type of award Number of shares Fair value/ Vesting conditions Final vesting date
awarded share
GBP
------------------ --------------- ------------------- ------------- --------------------- ----------------------
30 June 2020 Shares 500 418.44 Awards vest 30 June 2025
quarterly over 5
years provided the
employee is still
in service of the
Company.
17 November 2020 Shares 125 393.63 Awards vest 30 June 2025
quarterly over 5
years provided the
employee is still
in service of the
Company.
------------------ --------------- ------------------- ------------- --------------------- ----------------------
The fair value of the option granted during the year has been
estimated using the Monte Carlo simulation. The principal
assumption used in the calculation were as follows:
2020 2019
--------------------------------- ----------- ------
Share price at 30 June 2020 GBP 0.328 -
Share price at 17 November 2020 GBP 0.299 -
Exercise price - -
Expected life 5 years -
Weighted average risk-free rate (0.04%) -
Dividend yield 2.0% -
--------------------------------- ----------- --------
Number of awards Weighted average of fair value of instrument
---------------------------------- -------------------- ----------------------------------------------
Outstanding at 1 January 2020 - -
Granted 625 413.48
Settled in equity - -
----------------------------------
Outstanding at 31 December 2020 625 413.48
------------------------------------ ------------------ ----------------------------------------------
17. Leases
Lease commitments
The Company leases rental space and information with regards to
this lease is outlined below:
Rental lease asset GBP'000
------------------------------------------------------- ---------
Leased asset recognised under IFRS 16 on 1 July 2020 139
Depreciation for the year (14)
------------------------------------------------------- ---------
At 31 December 2020 125
------------------------------------------------------- ---------
Rental lease liability GBP'000
------------------------------------------------------- ---------
Leased asset recognised under IFRS 16 on 1 July 2020 139
Unwinding of the discount on lease liability 4
Payments for lease (16)
------------------------------------------------------- ---------
At 31 December 2020 127
------------------------------------------------------- ---------
Further information regarding the adoption of IFRS 16 is
detailed in note 1.
18. Financial risk management
Financial instruments by category
The following tables analyse the Company's financial assets and
financial liabilities in accordance with the categories of
financial instruments in IFRS 9. Assets and liabilities outside the
scope of IFRS 9 are not included in the table below:
31 December
2020 2019
------------------------------------- -------------------------------------
Fair Fair
Value Value
through Measured at through Measured at
Profit or amortised profit or amortised
loss cost Total loss cost Total
Financial assets GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----------- ------------- --------- ----------- ------------- ---------
Investments 70,610 - 70,610 134,283 - 134,283
Operating and other receivables - 67 67 - 166 166
Cash and cash equivalents - 16,385 16,385 - 25,079 25,079
---------------------------------- ----------- ------------- ---------
Total 70,610 16,452 87,062 134,283 25,245 159,528
---------------------------------- ----------- ------------- --------- ----------- ------------- ---------
31 December
2020 2019
-------------------------------------- -------------------------------------
Fair Fair
Value Value
through Measured at through Measured at
profit or amortised profit or amortised
loss cost Total loss cost Total
Financial liabilities GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------- --------- ----------- ------------- ---------
Operating and other payables - 390 390 - 1,585 1,585
Amounts payable to subsidiaries - 38,747 38,747 - 101,985 101,985
Lease liabilities - 127 127 - - -
---------------------------------- ------------ ------------- --------- ----------- ------------- ---------
Total - 39,264 39,264 - 103,570 103,570
---------------------------------- ------------ ------------- --------- ----------- ------------- ---------
lntercompany 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
--------------------
2020 2019
GBP'000 GBP'000
---------------------------------- --------- ---------
Operating and other receivables 67 166
Debt Investments 600 600
Cash and cash equivalents 16,385 25,079
17,052 25,845
---------------------------------- --------- ---------
The Company limits its credit risk exposure by only depositing
funds with highly rated institutions. Cash holdings at 31 December
2020 and 2019 were held in institutions currently rated A or better
by Standard and Poor's. Given these ratings, the Company does not
expect any counterparty to fail to meet its obligations and
therefore, no allowance for impairment is made for bank
deposits.
The loss allowance as at 31 December 2020 and 31 December 2019
was determined as follows for trade receivables:
More than More than More than
Current 30 days past due 60 days past due 120 days past due Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------- ------------------ ------------------ ------------------- ---------
Expected loss rate - - - 100%
Trade receivables - - - 59 59
Other receivables 67 - - - 67
Prepayments
and accrued income - - - - -
Loss allowance - - - (59) (59)
Total 67 - - - 67
---------------------- --------- ------------------ ------------------ ------------------- ---------
More than More than More than
Current 30 days past due 60 days past due 120 days past due Total
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------- ------------------ ------------------ ------------------- ---------
Expected loss rate - - - 100%
Trade receivables - - - 59 59
Other receivables 166 - - - 166
Prepayments
and accrued income - - - -
Loss allowance - - - (59) (59)
Total 166 - - - 166
---------------------- --------- ------------------ ------------------ ------------------- ---------
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. Its financing
requirements are met through a combination of liquidity from the
sale of investments and the use of cash resources.
The following table shows an analysis of the financial assets
and financial liabilities by remaining expected maturities as at 31
December 2019 and 31 December 2020.
Financial assets:
Up to 3-12 1-5 Over
3 months months years 5 years Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------
Investment - - - 70,610 70,610
Operating
and other
receivables 67 - - - 67
Cash and
cash
equivalents 16,385 - - - 16,385
Total 16,452 - - 70,610 87,062
-------------- ----------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------
Up to 3-12 1-5 Over
3 months months years 5 years Total
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------
Investment - - - 134,283 134,283
Operating
and other
receivables 166 - - - 166
Cash and
cash
equivalents 25,079 - - - 25,079
Total 25,245 - - 134,283 159,528
-------------- ----------------------------------- -------------------------------- -------------------------------- ---------------------------------- -------------------------
Financial liabilities:
Up to 3-12 1-5 Over
3 months months years 5 years Total
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ------------------------------ -------------------------------- -------------------------------- --------------------------------------- -------------------------
Operating and
other
payables 390 - - - 390
Amount
payable to
subsidiaries - - - 38,747 38,747
Lease
liabilities 6 19 102 - 127
Total 396 19 102 38,747 39,264
--------------- ------------------------------ -------------------------------- -------------------------------- --------------------------------------- -------------------------
Up to 3-12 1-5 Over
3 months months years 5 years Total
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ------------------------------ -------------------------------- -------------------------------- ---------------------------------------- --------------------------
Operating and
other
receivables 1,585 - - - 1,585
Amount
payable to
subsidiaries - - - 101,985 101,985
Total 1,585 - - 101,985 103,570
--------------- ------------------------------ -------------------------------- -------------------------------- ---------------------------------------- --------------------------
In addition, certain of the Company's subsidiaries have uncalled
capital commitments to funds of GBP2,717,000 (31 December 2019:
GBP3,065,000) for which the timing of payment is uncertain (see
note 19).
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 68% of the investment portfolio is
denominated in US dollars.
The Company does not hedge the currency exposure related to its
investments. The Company regards its exposure to exchange rate
changes on the underlying investment as part of its overall
investment return and does not seek to mitigate that risk through
the use of financial derivatives.
The Company is exposed to translation currency risk on sales and
purchases which are denominated in a currency other than the
Company's functional currency. The currency in which these
transactions are denominated is principally US dollars.
The Company's exposure to foreign currency risk was as
follows:
31 December
-------------------------------------------------------------------
2020 2019
-------------------------------- ---------------------------------
GBP USD Other GBP USD Other
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ---------- --------- --------- ----------- --------- ---------
Investments 54,370 15,040 1,200 117,601 15,331 1,351
Right of use assets 125 - - - - -
Operating and other receivables 67 - - 166 - -
Cash and cash equivalents 15,830 555 - 24,498 581 -
Operating and other payables (39,264) - - (103,570) - -
---------------------------------- ---------- --------- --------- ----------- --------- ---------
Gross exposure 31,128 15,595 1,200 38,695 15,912 1,351
Forward exchange contracts - - - - - -
---------------------------------- ----------- --------- ---------
Net exposure 31,128 15,595 1,200 38,695 15,912 1,351
---------------------------------- ---------- --------- --------- ----------- --------- ---------
The aggregate net foreign exchange losses recognised in profit or loss were:
31 December
--------------------------
2020 2019
GBP'000 GBP'000
Net foreign exchange loss on investment (90) (478)
Net foreign exchange loss on non-investment (577) (272)
---------------------------------------------------------------------------------------- --------- ---------------
Total net foreign exchange losses recognised in profit before income tax for the year (667) (750)
---------------------------------------------------------------------------------------- ---------
At 31 December 2020, the rate of exchange was USD 1.37 = GBP1.00
(31 December 2019: USD 1.33 = GBP1.00). The average rate for the
year ended 31 December 2020 was USD 1.28 = GBP1.00 (2019: USD 1.28
= GBP1.00).
A 10% strengthening of the US dollar against the pound sterling
would have increased equity by GBP1.7 million at 31 December 2020
(31 December 2019: increase of GBP1.7 million) and decreased the
loss for the year ended 31 December 2020 by GBP1.7 million (2019:
decreased the loss by GBP1.7 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 GBP207,000 (31
December 2019: increase of GBP203,000) and decreased the loss for
the year by GBP207,000 (2019: GBP203,000). 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 2020 in
measuring investments categorised as level 3 in note 11 are
considered below:
1. Unquoted securities (carrying value GBP10.1 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 0.30-3.6 times, also dependent
on attributes at individual investment level; and
-- discounts applied of up to 30%, 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 GBP11.9 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 2020). The Company also carries out its own review
of individual funds and their portfolios to satisfy themselves that
the underlying valuation bases are consistent with the basis of
valuation and knowledge of the investments and the sectors in which
they operate. However, the degree of detail on valuations varies
significantly by fund and, in general, details of unobservable
inputs used are not available.
The valuation of the investments in subsidiaries makes use of
multiple interdependent significant unobservable inputs and it is
impractical to sensitise variations of any one input on the value
of the investment portfolio as a whole. Estimates and underlying
assumptions are reviewed on an ongoing basis, however, inputs are
highly subjective. Changes in any one of the variables, earnings or
revenue multiples or illiquidity discounts could potentially have a
significant effect on the valuation.
If the valuation for level 3 category investments declined by
10% from the amount at the reporting date, with all other variables
held constant, the loss for the year ended 31 December 2020 would
have increased by GBP7.0 million (2019: loss increased by GBP12.7
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 2020 was GBP48
million (31 December 2019: GBP56 million) comprising equity share
capital and reserves. The Company had borrowings at 31 December
2020 of GBPnil (31 December 2019: GBPnil).
In order to meet the Company's capital management objectives,
the Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. This review includes:
-- Working capital requirements and follow-on investment capital
for portfolio investments, including calls from funds;
-- Capital available for new investments; and
-- The annual dividend policy and other possible distributions to shareholders.
19. Capital commitments
31 December
--------------------
2020 2019
GBP'000 GBP'000
Outstanding commitments to funds 2,717 3,065
The outstanding capital commitments to funds comprise unpaid
calls in respect of funds where a subsidiary of the Company is a
limited partner.
As of 31 December 2020, the Company has no other contingencies
or commitments to disclose.
20. Related party transaction
The Directors fee paid for the year was GBP708,000 (2019:
GBP101,000).
Gresham House Asset Management Limited was appointed the
investment manager of LMS Capital plc on 16 August 2016 and the
agreement was terminated on 30 January 2020. Amount charged by the
Investment Manager in 2020 is GBPnil (2019: GBP1,284,000). During
the year, the Company accrued an additional GBP20,000 (2019:
GBP400,000) in relation to termination fees payable to Gresham
House Asset Management Limited. The Company made a payment of
GBP346,000 towards the prior year's accrual of GBP400,000 and the
remaining GBP54,000 credit was accounted for in the current year.
During the year ending 31 December 2020, the company received a sum
of GBP32,000 from Gresham House Asset Management Limited which
related to management fee true up of 2019.
With effect from 24 June 2020, the Company entered into a lease
agreement with The Rayne Foundation in respect of the premises
comprising its principal office. Under the terms of the lease, the
Company paid rent of GBP16,390 (2019: nil) to The Rayne Foundation.
Robert Rayne is the Chairman of The Rayne Foundation.
21. Subsequent events
There are no subsequent events that would materially affect the
interpretation of these Financial Statements.
22. Subsidiaries
The Company's subsidiaries are as follows:
Name Country of incorporation Holding % Activity
International Oilfield Services Limited Bermuda 100 Investment holding
LMS Capital (Bermuda) Limited Bermuda 100 Investment holding
LMS Capital (General Partner) Limited Bermuda 100 Investment holding
LMS Capital Group Limited England and Wales 100 Investment holding
LMS Capital Holdings Limited England and Wales 100 Investment holding
Lioness Property Investments Limited England and Wales 100 Investment holding
Lion Property Investments Limited England and Wales 100 Investment holding
Lion Investments Limited England and Wales 100 Investment holding
Lion Cub Property Investments Limited England and Wales 100 Investment holding
Tiger Investments Limited England and Wales 100 Investment holding
LMS Tiger Investments (II) Limited England and Wales 100 Investment holding
Westpool Investment Trust plc England and Wales 100 Investment holding
Cavera Limited England and Wales 100 Trading
LMS Co-Invest Limited England and Wales 100 Trading
For the year ended 31 December 2020, 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 were registered in
Bermuda were liquidated on 30 June 2020. In addition, LMS Capital
(ECI) Limited, LMS Capital (GW) Limited, LMS NEP Holdings Inc and
LMS Tiger Investments Limited were also liquidated by November
2020.
On 09 January 2020, Lion Cub Investment changed its name to
Cavera Limited.
On 10 January 2020, LMS Co-Invest Limited was incorporated as a
private company under the Company's subsidiaries.
The registered office address of the Company's subsidiaries is
as follow:
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.
23. Net asset value per share
The net asset value per ordinary shares in issue are as
follows:
31 December
2020 2019
NAV (GBP'000) 47,923 55,958
Number of ordinary shares in issue 80,727,450 80,727,450
NAV per share (in pence) 59.4 pence 69.3 pence
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END
FR FIFERVEIFLIL
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March 12, 2021 02:09 ET (07:09 GMT)
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