REG - LMS Capital PLC - Net Asset Value(s)

LMS CapitalAnnouncement

23/02/2024 07:00

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RNS Number : 2474E  LMS Capital PLC  23 February 2024

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT MAY CONSTITUTE INSIDE
INFORMATION AS STIPULATED UNDER THE UK'S MARKET ABUSE REGULATION. UPON THE
PUBLICATION OF THIS ANNOUNCEMENT, SUCH INSIDE INFORMATION IS NOW CONSIDERED TO
BE IN THE PUBLIC DOMAIN.

 

LEI: 2138004UJ1TW8UCELX08

 

 

 

 

 

 

 

 

 

 

23 February 2024

 

LMS CAPITAL PLC

NAV Estimate as at 31 December 2023

 

LMS Capital plc (the "Company") the listed investment company provides the
following update and estimate of net asset value ("NAV") as at 31 December
2023.

 

KEY POINTS

·    The 31 December 2023 NAV estimate is £42.1 million (52.2p per share)
and compares with NAV at the prior year end, 31 December 2022 of £46.5
million (57.7p per share). Adjusting for £0.7 million dividends paid during
the year, the NAV has decreased by a net £3.7 million, 7.9%, during the year.

 

·    There was good progress on two fronts in December:

o  Our real estate activity in retirement living has enabled the group to
acquire its first investment in the sector - Castle View Retirement Village,
Windsor ("Castle View") - which we see as a foundation for further investment
in this growth sector; and

o  The sale of Medhost represents a material realisation from our mature
asset portfolio, generating $7.0 million cash in 2023, and a deferred payment
of $1.7 million with a coupon of 11.25% due in December 2024. Total proceeds
should exceed our book value by $1.9 million.

 

·    A significant contributor to the net decrease in NAV was the £3.5
million reduction in valuation of the Company's interest in Brockton Fund 1
("Fund 1"), of which the only remaining asset is loan participation in a
high-end residential development in Mayfair, London. This reduction reflects
the risks for the development in the current market and, following the news on
26 January 2024 that the senior lender to the scheme had appointed a receiver,
an allowance for the costs of the receivership process and potential
disruption to sales. Brockton continues to expect that the scheme will
generate a return for Fund 1 investors and we will keep the situation under
review.

 

·    Notwithstanding the £6.1 million investment in Castle View and with
the initial Medhost proceeds, cash at the year end was £15.5 million (19.2p
per share) (2022: £17.9 million, 22.2p per share).

 

REAL ESTATE - RETIREMENT LIVING

Real estate activities in 2022 and 2023 have been focussed on opportunities to
invest in specialist use real estate in the retirement living sector. During
this time, we have developed our knowledge and understanding of the sector and
evaluated potential acquisition opportunities.

 

The sector offers the opportunity for growth and allows us to deploy our real
estate expertise alongside operating capability from partners.

 

·    Underlying demand is driven by demographics in the UK. The number of
75+ year old households is expected to increase by 77% in the 25 years to
2043;

·    The older population owns in excess of 40% of housing equity which
can be released to finance retirement options and also free up stock for the
wider family housing market;

·    The market is undersupplied, with relatively few developers or
operators of scale and an increasing interest from institutional capital.

 

The acquisition of Castle View Retirement Village in Windsor, shortly before
the end of the year, represents the first step in developing an investment
platform focussed on retirement living.

 

There are a variety of business models in the sector. Our goal is initially to
establish an investment platform based around integrated retirement
communities, in which residents live independently in their own self-contained
home, with access to communal facilities and amenities and the availability of
optional support and care services, if needed.

 

Consideration will be given both to investment in development sites as well as
in established operational businesses.

 

The business is capital intensive but has the capability to generate long-term
income streams for investors which meet or exceed our return targets over the
life of the investment. Our objective during 2024 is to identify further
investment opportunities alongside funding partners to develop the investment
platform.

 

NET ASSET VALUE ESTIMATE

The Company has commenced the year end valuation review process which is based
on the latest performance updates from portfolio companies and third-party
fund manager valuations.

 

The Board currently estimates that the year end NAV will be in the region of
£42.1 million (2022: £46.5 million) which equates to 52.2p per share (2022:
57.7p per share). This NAV estimate, which represents a reduction of 7.9% on
the prior year after adjusting for dividends paid, reflects information
currently available to the Board on the performance and prospects of
individual investments in the Company's portfolio and is subject to further
evaluation as well as completion of the annual audit.

 

The estimated 31 December 2023 NAV is summarised below:

                                  Preliminary          Unaudited      Audited

                                  31 December 2023     30 June 2023   31 December 2022
                                  £'m
 Mature Assets                    11.3                 20.5           20.8
 Dacian                           11.0                 9.7            10.1
 Retirement Living - Castle View  6.1                  -              -
 Total Investment Portfolio       28.4                 30.2           30.9

 Cash                             15.5                 16.5           17.9
 Other Net Assets/Liabilities     (1.8)                (2.1)          (2.3)
 Net Asset Value                  42.1                 44.6           46.5
 NAV per Share                    52.2p                55.2p          57.7p

 

The valuation methodology and policy adopted is consistent with prior years
and is in line with IPEV guidelines. The carrying value of the funds is based
on the latest available information from the respective fund managers,
generally the 30 September 2023 fund valuation reports except for Weber, which
is based on a 31 December 2023 valuation and Brockton which is based on LMS'
estimates.

 

The movement in NAV for the year based on the 31 December 2023 NAV estimate in
summary is:

                                                                                Note  £'m
 Opening NAV                                                                          46.5
 Dividends paid                                                                       (0.7)
 Realised gains                                                                 1     1.4
 Unrealised loss on Brockton                                                    2     (3.5)
 Dacian accrued interest                                                        3     1.4
 Unrealised net gains on other mature assets                                    4     0.5
 Unrealised foreign exchange losses on investment portfolio                     4     (1.2)
 Running costs                                                                  5     (1.8)
 Investment costs (including Castle View acquisition costs)                     6     (1.0)
 Other net movements including non-portfolio foreign exchange losses, taxation        0.5
 and bank interest receivable
 Overall movement                                                                     42.1

 

Portfolio performance

1.   Medhost: Realised gain £1.4 million - We had positive news on progress
in the realisation of the mature portfolio, with the sale in December 2023, of
Medhost, in which LMS had a co investment of 9.4%. The sale produced total
proceeds for LMS of $8.7 million (£6.8 million) of which $7.0 million (£5.5
million) was received in cash before the year end and a further $1.7 million
 (£1.3 million) is due in December 2024. Total proceeds will be $1.9 million
(£1.5 million) in excess of LMS' Q3 2023 book value.

 

2.   Brockton Fund 1: Unrealised loss £3.5 Million - Brockton Fund 1's
remaining investment is its participation in a "High End" Mayfair residential
development. In reporting the Q3 NAV estimate, we reduced the valuation of our
share of the fund by £1.1 million to reflect the risk of slower sales and
higher interest costs in current market conditions. Following the decision of
the senior lender to the development to appoint a receiver, we have made a
further £2.4 million reduction in carrying value.

·    The 32 apartments in the scheme were completed in May 2023 and whilst
prices on apartments sold to date have been good, the pace of sale has been
slower than anticipated;

·    Brockton's current expectation is that all parties involved will
continue to pursue an orderly sale of the remaining apartments and that there
will ultimately be proceeds available to fund investors;

·    We have taken the view that at this stage, given the difficulty in
estimating the likely outcome, that it is prudent to reduce the valuation to
allow for the costs of the receivership process and any potential disruption
to the sale process;

·    We will monitor and keep the position under review during the year.

 

3.   Dacian: Interest accrued £1.4 million - As noted in our half year and
Q3 NAV updates, an engineering problem during the year created a serious
interruption to gas production. The problem was resolved during Q3 but has
resulted in performance below budget. Nonetheless Dacian has continued to
service fully its third-party debt obligations (approximately 30% of the
original acquisition cost was financed by a third party) which should be
repaid by November 2024. Notwithstanding the difficulties of 2023, the Board
expects the investor loan notes to be serviced in full.

 

4.   Other Mature assets portfolio: Unrealised gains £0.5 million

Unrealised foreign exchange losses were £1.2 million and net underlying gains
were £0.6 million, the principal elements of which were:

·    Elateral - Unrealised gain £1.1 million, reflecting the improved
financial performance, and progress in sales and marketing strategy;

·    GW 2001 Fund - Unrealised gain £0.2 million, reflecting market
movements in the funds' portfolio of micro-cap US companies;

·    Opus Capital Venture Partners - Unrealised loss £0.9 million,
reflecting reductions in the quoted market comparable companies for the fund's
two principal remaining investments; and

·    Other investments - Unrealised gain £0.1 million

 

Running Costs

5.   Running costs, net of Dacian fee income, for the year were £1.8
million. Steps have been taken to make savings across a number of back office
functions which are budgeted to result in reductions in 2024.

 

Investment Costs

6.   Investment costs include the cost of the advisory group we have
assembled to help develop our presence in the retirement living sector, and
professional costs associated with evaluating and investigating potential site
and business acquisitions. The most significant element of cost this year was
the transaction costs associated with the acquisition of Castle View.

 

OUTLOOK

The Company continues to have significant cash balances of £15.5 million
(19.2p per share) at 31 December 2023 (31 December 2022: £17.9 million, 22.2p
per share).

 

It's mature asset portfolio of £11.3 million comprises assets for the large
part managed by third-party managers. The Board balances the goals of
optimising realisation value of these investments and achieving liquidity
within an acceptable time frame. The Board keeps under review progress by the
third-party managers towards realisation and monitors opportunities to
accelerate realisation of the Company's holdings in the secondary markets.

 

Looking forward for 2024 we envisage our focus will primarily be on real
estate and retirement living. Having invested in Castle View the intention is
to deploy further capital in conjunction with funding partners.

 

Further information on the performance of the portfolio, underlying investment
valuations and changes during the year will be included in the Company's
audited results for the year ended 31 December 2023, which it expects to
announce in March 2024.

 

The person responsible for the release of this announcement on behalf of the
Company is IQ EQ Corporate Services (UK) Limited, the Company Secretary.

 

For further information please contact:

 

LMS Capital plc

Nick Friedlos, Managing Director

0207 935 3555

 

 

 

Note 1 - NAV changes and portfolio summary

Overall for the year as a whole, the Company's NAV, after adding back
dividends paid, has decreased by £3.7 million, 7.9%. The principal components
of the full year change are described below.

 

·    Foreign exchange net losses on the investment portfolio during the
year were £1.2 million. 61% of the Company's investment portfolio is
denominated in US Dollars.

·    Excluding the effect of foreign exchange rate changes, the mature
asset portfolio showed a net reduction of £1.6 million in the year. The
principal elements were:

o  An decrease of £3.5 million in Brockton reflecting the writing down of
this investment;

o  An decrease of £0.9 million in the valuation of the Opus Capital Venture
Partners fund. This fund has two principal remaining investments, both of
which are performing well and the manager believes, subject to market
conditions, have good prospects for realisation;

o  An increase of £0.2 million in Weber Capital Partners, a US listed small
cap fund. The increase reflects quoted market price changes during the year;

o  Realised gains of £1.4 million resulting from the sale of Medhost by
Primus, the lead manager;

o  A increase of £1.1 million in the valuation of Elateral; and

o  Other portfolio net gains were £0.1 million.

·    Interest accrued on Dacian amounted to £1.4 million.

·    Other movements were a net reduction of £2.3 million and include the
following:

o  Full year running costs were £1.8 million;

o  Investment support costs including Castle View acquisition costs were
£1.0 million; and

o  Other net income of £0.5 million, including unrealised foreign exchange
losses of £0.1 million on non-portfolio assets, principally US Dollar bank
accounts, taxation of £0.2 million and bank interest and other income
received of £0.8 million.

 

Quoted Investments

 Investment                        31 Dec 2023  30 June 2023  31 Dec 2022

                                   £'m          £'m           £'m
 Tialis                            0.1          0.1           0.1
 Other           2 small holdings  0.1          0.1           0.1
 Total                             0.2          0.2           0.2

 

 

Unquoted Investments

 Investment         Currency                                                                                   31 Dec 2023  30 June 2023  31 Dec 2022

                                                                                                               £'m          £'m           £'m
 Dacian Petroleum   USD        Onshore oil and gas production assets in Romania                                11.0         9.7           10.2
 Castle View        Sterling   Retirement living village in Windsor                                            6.1          -             -
 Medhost            USD        Provides cloud based enterprise and departmental management and healthcare      -            5.9           5.7
                               engagement solutions to community hospitals in the US.
 Elateral           Sterling   UK/US software company in the digital marketing sector providing marketing      1.7          0.6           0.6
                               content management solutions
 ICU                USD        Design and distribution of eyewear, principally reading glasses, through large  -            -             0.2
                               US retailers

 Other investments  USD/                                                                                       -            0.1           0.1

                    Sterling
 Total                                                                                                         18.8         16.3          16.8

 

 

Funds

 Investment                   Currency                                                                                31 Dec 2023  30 June 2023  31 Dec 2022

                                                                                                                      £'m          £'m           £'m
 Brockton Capital Fund 1      Sterling   UK real estate fund, the remaining asset of which is a debt investment in a  2.5          6.4           6.0
                                         high end London residential development
 Opus Venture Capital Fund 2  USD        Early-stage technology fund with two principal remaining assets              4.1          4.3           5.3
 Weber Capital Partners       USD        US listed microcap investment fund focussed primarily on medical and         2.2          2.3           2.0
                                         technology sectors
 Other investments            USD/                                                                                    0.6          0.7           0.7

                              Sterling
 Total                                                                                                                9.4          13.7          14.0

 

 

 

 

 

 

 

 

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