REG - LMS Capital PLC - Final Results for the Year Ended 31 December 2021
10/03/2022 07:00
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RNS Number : 3250E LMS Capital PLC 10 March 2022
10 March 2022
LMS CAPITAL PLC
Final Results for the Year Ended 31 December 2021
The Board of LMS Capital plc (the "Company") is pleased to announce the
Company's audited annual results for the year ended 31 December 2021.
Financial Summary
31 December 2021 31 December 2020
Net asset value £49.1m £47.9m
Cash available at year end £20.1m £20.6m
Portfolio gains/(losses) £3.8m (£2.1m)
Running costs (£1.8m) (£1.7m)
Net asset value per share (p) 60.8p 59.4p
Dividends paid per share (p) 0.9p 4.55p*
Dividends declared/recommended by Board (p) 0.925p 0.9p
*Includes special divided of 4.25p per share paid in January 2020
Financial Highlights
Net Asset Value
· The net asset value ("NAV") at 31 December 2021 was £49.1 million,
60.8 pence per share (31 December 2020: £47.9 million, 59.4 pence per share);
and
· Adjusting for the impact of dividends to shareholders, the NAV over
the year increased by a net £1.9 million, or 4.0%, from the gains on the
mature asset portfolio and investment interest income and a net reduction of
other items, mainly running costs.
Portfolio gains and realisations
· The portfolio showed an overall increase in value on the year of
£3.8 million of which £2.6 million (11.6% return) was from net realised
and unrealised gains on the mature asset portfolio and £1.2 million (18.5%
return) from investment interest income on Dacian Petroleum ("Dacian"); and
· Cash proceeds from portfolio realisations in the year totalled £2.7
million (2020: £9.3 million).
Running costs
· Running costs, including those incurred by subsidiaries, were £1.8
million and there were an additional £0.3 million of investment related costs
(2020: £1.7 million running costs and £0.2 million of investment related
costs).
Dividends
· The Board continued its progressive annual dividend policy targeting
a dividend initially equal to 1.5% of each financial year's closing NAV and
targeting that this should be fully covered by distributable profits, subject
to the Company's liquidity and market conditions. A final dividend of 0.6
pence per share on the 2020 year was paid in May 2021, and an interim dividend
of 0.3 pence per share for the 2021 year was paid in September 2021. A final
dividend on the 2021 year of 0.625 pence per share is recommended by the Board
and subject to approval by shareholders at the Annual General Meeting.
Cash balances
· Group cash balances at the year-end, including amounts held by
subsidiaries, were £20.1 million, representing 24.9 pence per share and 41.0%
of the NAV (2020: £20.6 million and representing 25.5 pence per share and
43.0% of the NAV). The Company had no external debt.
Key themes
· Good returns in the mature investment portfolio - The mature
investment portfolio of £23.0 million, which comprises investments
originating from the Company's strategy pre-2012, achieved a return of 11.6%
during 2021 and also had cash realisations of £2.7 million. The Company
continues to focus on realising the mature asset portfolio over the next 1 to
3 years when appropriate opportunities arise;
· Completion of the new Dacian investment - The Company's new
investment in Dacian is a cornerstone transaction, the first completed since
return to internal management in early 2020 and demonstrates the ability of
LMS to lead a co-investment group alongside its own investment strategy. The
investment enabled Dacian to complete its first acquisition of onshore oil and
natural gas production assets in Romania. The Company's investment in Dacian
generated an unrealised return of 18.5% during the year;
· Control of costs - The Company continues to maintain strict control
over its running costs and expects a reduction of 5% to 10% in 2022 as the
benefits of income from co-investment activities begin to be realised; and
· Future investments - The Board recognises that 41.0% of the NAV is
held in group cash balances with further realisations of the mature portfolio
expected. In 2022, the Company is focused on using our board position to
nurture the Dacian investment, develop the opportunities for additional
capital deployment within the acquired Dacian portfolio, and more widely, and
to bring forward opportunities with our real estate teams.
Robert Rayne, Chairman, commented:
"We are pleased with our 2021 results and the annual returns on both our
mature investment portfolio and our new investment in Dacian. The completion
of the Dacian transaction is a significant milestone for us which demonstrates
our ability to lead a co-investment group in one of the two key sectors in
which we seek to invest. Our significant cash balances will enable us to
deploy further capital in 2022, and we remain focused on bringing forward the
real estate opportunities in our current pipeline and seeking additional areas
to expand our energy portfolio."
The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulation (EU) No.
596/2014. Upon the publication of this announcement, this inside information
is now considered to be in the public domain.
For further information please contact:
LMS Capital PLC
Nick Friedlos, Managing Director
0207 935 3555
Statement from the Chairman and the Managing Director
We are delighted to be introducing this, our second set of results, as a
self-managed investment business. The Coronavirus pandemic meant that 2021
continued to be a year of disruption and uncertainty in society as a whole and
for businesses.
Notwithstanding this, we have made progress in improving our NAV and completed
our investment in Dacian, our first cornerstone investment since returning to
self-management. Whilst the investment took longer to close than initially
anticipated, its completion in November 2021 was a highlight and will create
further opportunities for us in 2022.
We have considered the impact of the Russian invasion of Ukraine on our
portfolio investments and our overall business. We do not hold any investments
that have operations in Russia or Ukraine. Elateral, our investment in the
digital marketing sector, utilises contract staff in Ukraine, Russia and
Belarus for its software development and has developed a contingency plan to
manage potential disruption. The situation remains highly uncertain, and we
will monitor developments closely.
FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
Net Asset Value ("NAV") overview
The NAV of the company at 31 December 2021 was £49.1 million, 60.8 pence per
share (31 December 2020 £47.9 million, 59.4 pence per share). This represents
an increase of £1.2 million on the prior year and comprises:
· net increase of £2.6 million being realised and unrealised net gains
on the mature asset portfolio;
· increase of £1.2 million being accrued interest on Dacian;
· net reduction of £1.9 million for other items including running
costs, taxation, the investment costs principally associated with developing
real estate deal opportunities and foreign exchange gains on non-portfolio
assets; and
· reduction of £0.7 million for dividends paid to shareholders.
After adjusting for the 0.9 pence per share distributed as dividends during
2021, the NAV has shown an increase on the year of 4.0%.
The Company's NAV comprises three distinct groups of assets:
Mature Investments - 31 December 2021 NAV £23.0 million (28.5 pence per
share)
· these comprise investments which originate from the Company's
strategy pre-2012;
· the investments are managed with a view to optimising the realisation
values. Where the investment case supports it, we may commit additional
capital;
· most of these investments are managed by third parties. Whilst the
Company has information rights and regular access to the managers it has no
direct control of decision making;
· it is our expectation that these assets will be substantially
realised over the next 1-3 years; and
· during the year, this group of investments:
o produced cash realisations of £2.7 million; and
o showed realised/unrealised gains of £2.6 million, representing an 11.6%
return on the opening balance.
New Investments - 31 December 2021 NAV £7.9 million (9.9 pence per share)
· currently, this comprises the Company's investment in Dacian. The
commitment to invest was made in Q3 2020, and funds were set aside; the
transaction completed, following obtaining regulatory approvals in November
2021;
· Dacian is the Company's first new investment in accordance with the
investment approach set out when it returned to self-management at the
beginning of 2020;
· accrued interest on the loans through which the investment is
structured, have added £1.2 million to NAV in 2021; and
· the background, rationale and prospects for the investment are
discussed further below.
Liquidity - Cash less other net liabilities - 31 December 2021 NAV £18.2
million (22.4 pence per share)
· cash comprises £20.1 million, some 41.0% of the Company's total NAV;
· other net liabilities comprise £1.9 million and relate mainly to
accruals for income taxes, historic carried interest liabilities for one
remaining asset and other sundry costs; and
· this represents the "fire power" with which we intend to continue
implementing the investment approach which is discussed in more detail in our
approach to the deployment of capital below.
Overall, net increases, both realised and unrealised, in the underlying value
of the portfolio over the year were £3.8 million.
Mature Assets - Portfolio overview
The four largest assets comprise 79% of the mature portfolio:
· Medhost - Co-investment, alongside Primus Capital, in this US
software company serving the mid-sized hospital market in America. A mature
business with strong and consistent revenues, earnings and cash flows. The
unrealised increase in NAV for the year, excluding the impact of foreign
exchange gains, was £0.2 million, a 4.1% return on opening NAV for this
investment;
· Brockton Capital Fund I - The remaining asset in this real estate
fund, of which the Company holds 16.7%, is a preferred debt investment in a
"Super Prime" residential development in Mayfair, central London. Whilst the
pandemic has created delays in both the construction and sales program for
this project, work is nearing completion and sales are being achieved. The
investment, which is valued on a discounted cash flow basis showed an
unrealised increase in NAV for the year of £1.5 million, representing an
unrealised 37.2% return on the opening NAV of the investment. This reflects
the annual accrual of interest on the underlying preferred debt and unwind of
the discount rate used in the valuation;
· Opus Capital Venture Partners - The Company holds 2.3% of this 2008
vintage US early-stage technology fund, managed by Opus Capital Venture
Partners. The fund has two significant remaining investments. The fund life
has now been exceeded, the manager is no longer charging annual fees, and the
expectation is that an exit will be sought in the reasonably near term. The
unrealised increase in NAV during the year was £0.4 million representing an
unrealised return of 11.4% on the opening NAV of this investment; and
· Weber Capital Partners - This US micro-cap stock fund is run for the
Company by Weber Capital Partners with whom the Company has worked closely for
over 20 years. The theme is substantially but not exclusively around
technology and medical stocks. Historic returns have been excellent. To
September 2021, average rolling 5 year returns since 2006 and 3 year returns
since 2002 have been 14.3% and 18.6% respectively. Prior to the return to
self-management, Weber Capital Partners was instructed to realise and return
much of the holding. In Q3 2020, additional capital of $1 million was
committed, to rebuild the investment and allow greater diversity within the
portfolio. The NAV increase on this investment during 2021 was £0.8 million,
a return of 44.2% on the opening balance.
On other mature assets:
· during the year, we have achieved a restructure and injection of
additional capital into Elateral (NAV £0.8 million) in conjunction with
bringing in a new operating partner who has joined their Board. As noted
above, Elateral has outsourced software development resources in Ukraine,
Russia and Belarus which are being disrupted. The company has developed a
contingency plan to help mitigate the consequences;
· ICU Eyewear (NAV £1.8 million), which produced an unexpected
windfall in 2020 from its opportunistic move into distribution of PPE
equipment, has returned largely to its core eyewear activity. This investment
is managed by San Francisco Equity Partners ("SFEP") and options to exit the
business are being explored; and
· the winding up of YesTo in Q4 was a significant disappointment. In
April 2020, the Company declined to invest further capital in YesTo, but the
indications at the time from the manager, SFEP, were that at least the
historic debt investment should be recoverable, albeit the equity was unlikely
to have any value. Accordingly, a write down was taken in 2020. A combination
of factors, including the pandemic, put additional financial stress on the
business and the YesTo board took the decision in Q4 2021 that it was unlikely
to raise further debt or equity and to pursue an orderly winding up to repay
external creditors. The Company has written off its remaining £0.7 million
investment.
As noted above, notwithstanding the outcome on YesTo, the mature asset
portfolio overall showed a return of 11.6% for the year on the NAV at 1
January 2021.
New Investments - Dacian
The Company has invested £6.7 million ($9.1 million) in Dacian, a newly
formed Romanian oil and gas production company established to acquire and
operate mature onshore energy production assets.
LMS assembled a funding package, comprising its own investment and
co-investment, to enable Dacian to complete its first acquisition. The
Company's $9.1 million investment is structured almost entirely as senior
secured loan notes with a coupon of 14% per annum gross before a 10%
withholding tax, plus a nominal payment for a 32% equity stake in Dacian.
Dacian was able to conclude its acquisition in November 2021, after a longer
than anticipated delay in obtaining the necessary local regulatory approvals.
Under the terms of the August 2020 Dacian investment agreement, the senior
secured loan notes carry an entitlement to interest running from the date of
original funding by investors, which was in September 2020. Accordingly,
accrued interest of £1.2 million ($1.7 million) has been added to the value
of the investment. This generated an unrealised return of 18.5% for the year.
The rationale for the investment in Dacian was:
· the business is operationally cash flow positive from day one;
· a business focused on the extension of life of existing production
assets that has an environmentally important role to play in the world's
transition away from carbon fuels; and
· it was evaluated and the investment decision taken on the basis of:
o attractive entry pricing;
o a founder team with extensive industry experience and a Romanian team with
prior knowledge of the assets being acquired;
o a robust operating plan able to withstand volatility in energy prices;
o the opportunity for gains through production enhancing technology that can
extend the productive life of mature assets; and
o overall, the potential to meet and exceed LMS's target investment returns.
It remains early days for Dacian, having operated for less than four months at
time of writing, but initial indications are positive as the company continues
to increase production with its workover programme and is generating positive
cash flow from operations.
Liquidity - Cash less other net liabilities
Cash
Cash balances in the Company and its subsidiaries at 31 December 2021 were
£20.1 million (31 December 2020: £20.6 million).
Outflows during the year amounted to £3.2 million, this includes £1.8
million of running costs, £0.3 million of investment related costs, £0.7
million of dividend payments and £0.4 million of new capital invested in
Elateral.
Inflows were £2.7 million and include a £1.5 million distribution from ICU
Eyewear, £0.8 million from the redemption of the Northbridge convertible
debt, plus sundry fund distributions.
Net Liabilities
Net liabilities of £1.9 million consist primarily of accruals for income
taxes, historic carried interest liabilities for one remaining asset and other
sundry costs.
DIVIDEND POLICY
The Company paid £0.7 million in dividends during the year comprising a final
dividend for the year ended 31 December 2020 of 0.6 pence per share, paid on
14 June 2021 and an interim dividend for the year ended 31 December 2021 of
0.3 pence per share paid on 3 September 2021.
A final dividend of 0.625 pence per share for the year ended 31 December 2021
is recommended by the Board. The increase reflects the increase in 2021 year
end NAV compared to the prior year. Subject to approval by shareholders at the
AGM in May 2022, the dividend will be paid to shareholders in early June 2022.
The 2020 dividend and, if the Board's recommendation is approved, the 2021
dividend payment will equate to approximately 1.5% of the respective year end
NAV each year. This is in accordance with the policy laid out by the Board in
2020. Whilst the dividends currently exceed the net cash income, the Board is
confident of the Company's ability to generate future annual income and has
therefore continued the policy.
The Board's ambition is to increase the level of dividend and will keep the
current policy under review. The actual level of dividend each year will take
account of market conditions generally, the Company's financial position and
its distributable reserves.
APPROACH TO THE DEPLOYMENT OF CAPITAL
Whilst the Dacian deal has now completed, the Company still has 41.0% of its
NAV as uninvested cash. As the mature asset portfolio is realised further cash
will be generated.
Our approach to the further deployment of capital is to seek opportunities,
within our chosen sectors, which not only offer attractive returns on the
direct investment but also allow LMS to have influence and, over time, to
participate in developing and bringing further capital into the underlying
business - both from its own balance sheet and its co-investment network. This
potentially creates additional fee streams and equity opportunities for LMS.
This approach results in fewer, but more significant transactions. One
consequence of this is that individual deals can take longer - Dacian has been
an example of this. However, we believe this approach to be the most effective
one given the current size of the Company and our ambition to grow.
Investment Themes
The Company has a widely drawn investment policy, but we are conscious of the
importance of bringing forward investments where we have a track record of
success and can offer distinct competitive advantage based on our knowledge,
past experience and access to exceptional management teams. Our focus is on
the following sectors:
Energy
· The Company has a history of investing in the energy sector and has
connections with management teams that enable it to identify and execute on
opportunities not readily accessible to others.
In relation to carbon-based energy, we see the extension of life of existing
production assets as having a key and environmentally important role to play
in the world's transition away from carbon fuels over the next few decades.
Dacian has a portfolio of sunset life assets where the extension of life of
these ageing assets allows for very low carbon footprint per barrel and
molecule produced because the existing industrial infrastructure is put to
further use. Dacian is the first investment in this area.
We also see opportunities in renewable energy and in the businesses that
service the generation of that energy.
Real Estate
· Real estate has been a consistent theme in the LMS portfolio and is
an area of deep expertise and access to opportunities and management.
In evaluating the opportunities we see, we remain cautious, noting continued
high asset and site acquisition prices against a backdrop of continuing
uncertainty, in particular around the inflationary pressures on construction
costs.
We see opportunity in developing specialist-use real estate and by working in
partnership with landowners and other third parties. We are working to bring
opportunities forward.
Late-stage private equity
· Late-stage private equity covers a wide spectrum of opportunities and
we are aware of the need to employ our resources efficiently and in areas
where we can show some differentiation and relative competitive advantage.
Whilst we continue to see a range of opportunities, we have focused our
resources on looking at those that have some cross over with our real estate
or energy themes, for example industrial products whose market includes the
energy sector or real estate service businesses.
Investment characteristics
The Company sees many opportunities during a typical year but focuses on those
where not only the underlying investment merits are attractive, but also where
LMS has a competitive advantage. The sources of advantage are:
· working with management teams we know well, who are respected in
their sector, experienced and with a track record of successful execution;
· "hard to access" assets, typically at the smaller end of their
respective sectors, allowing more attractive acquisition pricing and giving
the opportunity for value creation through more intensive management; and
· the opportunity to introduce co-investment capital alongside our own
balance sheet.
The Dacian transaction, which is our first deal since the return to
self-management reflects the approach we seek to adopt and the above
characteristics:
· backing a team with whom we have deep and longstanding relationships
and who have outstanding experience in their sector;
· experience brought to bear to acquire assets at attractive entry
prices and which, through operational know how, can be driven to produce
excellent returns;
· creating a platform from which the management team and LMS can expand
their exposure to the sector; and
· creating the opportunity for LMS to introduce co-investment partners.
LOOKING FORWARD
The Company's objective is the preservation and creation of wealth for its
shareholders over the longer term. Its target is to deliver returns, net of
costs, of between 12% and 15% over the longer period.
The completion of the Dacian transaction is an important milestone for all our
activities. It allows us to demonstrate to shareholders, to co-investors and
to the markets in which we wish to invest, the characteristics of the
opportunities we seek to pursue and demonstrates our ability to execute on
deals.
Looking forward in 2022, our focus is to:
· use our Board position to nurture the Dacian investment - still less
than six months old - and to ensure that there is a clear operating plan to
achieve the production objectives envisaged at the time the investment was
made;
· develop the opportunities for additional capital deployment within
the acquired Dacian portfolio, and more widely; and
· bring forward opportunities with our real estate teams.
We would like to express our appreciation for the support from our team and
from the network of people with whom we work on a regular basis. We would also
like to express our appreciation for the continued support of our
shareholders. We look forward to reporting progress to you during 2022.
Robert Rayne
Chairman
Nicholas Friedlos
Managing Director
9 March 2022
PORTFOLIO MANAGEMENT REVIEW
Introduction
During 2021, the Company recorded an 11.6% return on its mature portfolio
investments and an additional 18.5% on its first new investment under internal
management, Dacian. Portfolio realisations totalled £2.7 million during 2021,
primarily from cash distributions from ICU Eyewear and the redemption of the
Northbridge convertible debt, funding the Company's overheads and follow-on
investment in Elateral.
Cash in the group at 31 December 2021 was £20.1 million (31 December 2020:
£20.6 million), including £14.5 million held by the Company and £5.6
million held by subsidiaries. Inflows, as noted above were £2.7 million.
Significant outflows have been £0.7 million of dividend payments and £0.4
million invested in Elateral. Other net cash movements amount to an outflow of
£2.1 million, include £1.8 million of running costs and £0.3 million of
investment related costs.
Market background
Coming out of a volatile 2020 that was significantly impacted by the Covid-19
pandemic, 2021 was a year of uncertainty and anticipation for a return to
normality. The rollout of vaccine programmes and easing of lockdown
restrictions generated an overall economic recovery during 2021, although the
identification of new Covid-19 variants during the year contributed to the
continued volatility. The economic expansion was also impacted by global
supply chain issues, labour shortages and rising inflation. Despite the
economic growth and rising inflation, central banks continued to provide
fiscal and monetary stimulus, although that began to taper at the end of the
year. Sterling strengthened against the U.S. Dollar during the year and global
equity markets improved, with the FTSE 100 having its best returns in 5 years,
up over 14%, while the U.S. S&P 500 Index gained nearly 27%. The FTSE AIM
100 and SmallCap indices ended the year up 2.0% and 20.0%, respectively.
Domestically, continued economic growth is expected in 2022, albeit at a
slower pace than the previous year. The year could face some continued
uncertainty related to rising consumer prices due to inflation, increasing
energy prices, sustained labour shortages and supply chain disruptions.
The consequences of recent developments and the impact of macroeconomic and
domestic issues will continue to be monitored closely by the Board.
Performance review
The movement in NAV during the year was as follows: 2021 2020
£'000 £'000
Opening NAV 47,923 55,958
Profit/(loss) on investments 2,556 (2,053)
Investment interest income 1,241 -
Dividends (727) (3,673)
Overheads and other net movements (1,884) (2,309)
Closing NAV 49,109 47,923
Cash realisations and new and follow-on investments from the portfolio were as
follows:
Year ended
31 December
2021 2020
£'000 £'000
Proceeds from the sale of investments - 8,011
Proceeds from redemption of convertible debt 750 -
Distributions from funds and loan repayments 1,916 1,304
Total - gross cash realisations 2,666 9,315
New and follow-on investments (7,153) (976)
Fund calls (43) (169)
Total - net (4,530) 8,170
Realisations of £2.7 million in 2021 include:
· £1.5 million of distributions from ICU Eyewear related to cash
generated in 2020 from their Health business line that sold personal
protective equipment;
· proceeds of £0.8 million from the redemption of Northbridge
convertible debt;
· £0.1 million of distributions from Eden Two LLP; and
· other realisations and fund distributions of £0.3 million.
The new and follow-on investments are primarily £6.7 million for Dacian and
£0.4 million of additional equity and working capital funding for Elateral, a
UK direct investment. The Dacian investment was initially cash funded in
September 2020 and classified as other current assets in one of the Company's
subsidiaries until the transaction closed in November 2021.
The fund calls are primarily for SFEP management fees.
Below is a summary of the investment portfolio of the Company and its
subsidiaries, which reflects all investments held by the group:
Year ended 31 December
2021 2020
Mature investment portfolio UK US Total UK US Total
£'000 £'000 £'000 £'000 £'000 £'000
Quoted 218 165 383 119 78 197
Unquoted 924 7,744 8,668 1,226 8,912 10,138
Funds 7,242 6,687 13,929 5,808 6,050 11,858
8,384 14,596 22,980 7,153 15,040 22,193
New investment portfolio UK US Total UK US Total
£'000 £'000 £'000 £'000 £'000 £'000
Quoted - - - - - -
Unquoted - 7,958 7,958 - - -
Funds - - - - - -
- 7,958 7,958 - - -
Total investments 8,384 22,554 30,938 7,153 15,040 22,193
Basis of valuation:
Quoted investments
Quoted investments for which an active market exists are valued at the closing
bid price at the reporting date.
Unquoted direct investment
Unquoted direct investments for which there is no active market are valued
using the most appropriate valuation technique with regard to the stage and
nature of the investment. Valuation methods that may be used include:
· investments in an established business are valued using revenue or
earnings multiples depending on the stage of development of the business and
the extent to which it is generating sustainable revenue or earnings;
· investments in an established business which is generating
sustainable revenue or earnings but for which other valuation methods are not
appropriate are valued by calculating the discounted cash flow of future cash
flows;
· investments in debt instruments or loan notes are determined on a
standalone basis, with the initial investment recorded at the price of the
transaction and subsequent adjustments to the valuation are considered for
changes in credit risk or market rates; and
· convertible instruments are valued by disaggregating the convertible
feature from the debt instrument and valuing it using a Black-Scholes model.
Funds
Investments in managed funds are valued at fair value. The general partners of
the funds will provide periodic valuations on a fair value basis, the latest
available of which the Company will adopt provided it is satisfied that the
valuation methods used by the funds are not materially different from the
Company's valuation methods. Adjustments will be made to the fund valuation
where the Company believes there is evidence available for an alternative
valuation.
Performance of the investment portfolio
The return on investments for the year ended 31 December 2021 was as follows:
Year ended 31 December
2021 2020
Realised gains/ (losses) Unrealised gains/ (losses) Realised gains/ (losses) Unrealised gains/ (losses)
Total Total
Asset type £'000 £'000 £'000 £'000 £'000 £'000
Quoted - 186 186 (335) (598) (933)
Unquoted (5) (90) (95) 121 949 1,070
Funds - 2,473 2,473 - (2,190) (2,190)
(5) 2,569 2,564 (214) (1,839) (2,053)
Charge for incentive plans (9) -
2,555 (2,053)
Operating and similar income/ (expense) of subsidiaries 1,282 (1,194)
3,837 (3,247)
The Company operates carried interest arrangements in line with normal
practice in the private equity industry. The credit for incentive plans for
the Company is £1,000 and for subsidiaries a charge of £10,000 for carried
interest and other incentives relating to historic arrangements. The charge
for carried interest incentive plan is included in the Net losses on
Investments in the Income Statement.
Approximately 73% of the portfolio at 31 December 2021 is denominated in US
dollars (31 December 2020: 68%) and the above table includes the impact of
currency movements. In the year ended 31 December 2021, the weakening of the
US dollar against sterling over the year as a whole resulted in an unrealised
foreign currency gain of £0.02 million (2020: unrealised loss of £0.2
million). As a common practice in private equity investment, it is the Board's
current policy not to hedge the Company's underlying non-sterling investments.
Quoted investments
31 December
2021 2020
Company Sector £'000 £'000
IDE Group Holdings UK technology 218 118
Global Green Solutions US energy 139 62
Others - 26 17
383 197
The net gains and losses on the quoted portfolio arose as follows:
Year ended 31 December
Gains/(losses), net 2021 2020
£'000 £'000
Realised
Solaredge Technologies - 265
Gresham House - (716)
Realised foreign currency gain - 116
- (335)
Unrealised
IDE Group Holdings 100 (663)
Global Green Solutions 78 72
Other quoted holdings 9 3
Unrealised foreign currency losses (1) (10)
186 (598)
Total net gains/(losses) 186 (933)
IDE Group Holding
The performance of IDE Group Holdings improved during 2021 as the company's
share price began to recover after it was significantly impacted by the
Coronavirus pandemic in 2020, resulting in a £0.1 million unrealised gain. In
January 2022, the company announced that it had won several new customer
contracts and expects further revenue growth in 2022.
Unquoted investments
31 December
2021 2020
Company Sector £'000 £'000
Dacian US energy 7,959 -
Medhost Inc US technology 5,997 5,704
ICU Eyewear* US consumer 1,746 3,143
Northbridge UK technology - 755
Elateral UK technology 817 399
IDE loan notes UK technology 107 73
Yes To* US consumer - 64
16,626 10,138
*These are co-investments with SFEP
The net gains and losses on the unquoted portfolio arose as follows:
Year ended 31 December
2021 2020
Gains/(losses), net £'000 £'000
Realised
Entuity - 115
Penguin Computing - 6
Northbridge (5) -
(5) 121
Unrealised
Medhost 235 374
IDE Group 35 -
Elateral 21 (1,436)
Northbridge - 25
YesTo (74) (268)
ICU Eyewear (313) 2,459
Unrealised foreign currency gains/(losses) 6 (205)
(90) 949
Total net (losses)/gains (95) 1,070
Valuations are sensitive to changes in the following two inputs:
· the operating performance of the individual businesses within the
portfolio; and
· changes in the revenue and profitability multiples and transaction
prices of comparable businesses, which are used in the underlying
calculations.
Comments on individual companies are set out below.
Medhost
Medhost is a co-investment with funds of Primus Capital. Medhost's financial
performance was relatively flat in 2021, with similar Revenue and EBITDA
compared to the prior year. This resulted in a small increase to the valuation
with an unrealised gain of £0.2 million for 2021.
Elateral
The Company invested an additional £0.4 million in Elateral during 2021,
increasing its ownership from 50% to 62.5% from the purchase of additional
shares for £0.1 million and providing working capital funding of £0.3
million. The additional capital provided by the Company was part of a buyout
of another significant shareholder interest completed by LMS, the Elateral
chairman and a new operating partner who also joined the board of Elateral.
Elateral experienced a net reduction in revenue and EBITDA during 2021 as the
economic impact of the Covid-19 pandemic continued to negatively impact the
company. The increase in the valuation is mainly attributable to the new
capital invested in 2021.
ICU Eyewear
During 2020, ICU was able to generate surplus cash flow from the U.S.
distribution of PPE manufactured by one of its international suppliers. This
was a one-off opportunity from which the company was able to benefit. The cash
generated was used to repay shareholder debt to LMS during 2020 and a further
cash distribution of £1.5 million was made in February 2021. The PPE business
for ICU was an opportunistic response to the Covid-19 pandemic in 2020, and
the ICU board has decided that this does not represent an ongoing line of
business for the company, and further activity will cease. The reduction in
carrying value arises principally from the distribution of £1.5 million,
initially reflected in the December 2020 valuation and received in early 2021.
The unrealised loss for the period reflects a valuation reduction following
cessation of PPE activities, partly offset by an uplift in valuation of the
eyewear business.
Northbridge
During 2021, Northbridge offered its convertible debt holders the option to
redeem the outstanding principal at a 25% premium. The Company elected to
redeem its convertible debt, receiving proceeds of £0.8 million and
recognising a nominal realised loss on the conversion.
Fund interests
31 December
2021 2020
General partner Sector £'000 £'000
Brockton Capital Fund 1 UK real estate 5,635 4,107
Opus Capital Venture Partners US venture capital 3,948 3,505
Weber Capital Partners US micro-cap quoted stocks 2,644 1,813
EMAC ILF UK 733 839
Eden Ventures UK venture capital 494 501
Simmons UK 381 361
San Francisco Equity Partners US consumer & technology 55 699
Other interests - 39 33
13,929 11,858
The net gains and losses on the Company's funds portfolio for the year ended
31 December 2021 were as follows:
Year ended 31 December
Gains/(losses), net 2021 2020
£'000 £'000
Realised
Other funds - -
- -
Unrealised
Brockton Capital Fund I 1,528 (1,422)
Weber Capital Partners 801 555
Opus Capital Venture Partners 398 907
Eden Ventures 118 (157)
Simmons Parallel Energy 53 (22)
San Francisco Equity Partners ("SFEP") (389) (1,729)
Others (net) (51) (315)
Unrealised foreign currency gains/(losses) 15 (7)
2,473 (2,190)
Total net gains/(losses) 2,473 (2,190)
San Francisco Equity Partners
LMS is the majority investor in SFEP as opposed to the other fund interests
where the Company has only a minority stake. SFEP's remaining investment
carrying value is £0.1 million (31 December 2020: £0.7 million). SFEP's
investment in YesTo carrying value is £nil (31 December 2020: £0.7 million).
It was fully written off in 2021. The YesTo board decided to wind up the
business by selling all assets of the company and repaying the senior secured
lenders. The Company had previously written off all the equity of YesTo and
with the winding up of the business has now written off the outstanding loan
notes.
In addition to the fund investments noted above, the Company has a directly
held co- investment in YesTo of £nil million (31 December 2020: £0.1
million). The Company's total investment in YesTo at 31 December 2021, via its
SFEP fund interest and its co-investment was £nil (31 December 2019: £0.7
million), reflecting a £0.7 million unrealised loss for the write-off of
YesTo.
The Company also received from SFEP a £0.2 million distribution related to
the 2018 sale of Penguin Computing.
Other fund interests
· Brockton Capital Fund I - The Company's investment represents its
share (via the Brockton Fund) of preferred debt investments in a Super Prime
central London residential development. The investment showed an increase in
the valuation of £1.5 million for 2021 due to unrealised gains from the
unwinding of the discount rate as the investment is valued on a discounted
cash flow basis;
· Weber Capital - holds U.S. publicly traded micro-cap securities and
showed an unrealised gain of £0.8 million reflecting an increase in the
underlying equity prices;
· Opus Capital - a U.S. venture fund, showed an unrealised gain of
£0.4 million from valuation gains in its two main assets; and
· Eden Ventures - Eden has now sold all but one of its assets. The
unrealised gain of £0.1 million reflects primarily the increase in value of
its sole remaining asset;
Costs
Group costs for the year (including £1.8 million incurred by the Company and
£0.3 million by subsidiaries) were £2.1 million (2019: £1.9 million) and
include running costs of £1.8 million and investment related costs of £0.3
million for support costs for real estate and co-investment activities.
Taxation
The Group tax provision for the year, all of which arose in the subsidiaries,
is £0.1 million (2020: £0.01 million).
Financial Resources and Commitments
At 31 December 2021 cash holdings, including cash in subsidiaries, were £20.1
million (31 December 2020: £20.6 million) and neither the Company nor any of
its subsidiaries had any external debt (2020: nil external debt).
At 31 December 2021, subsidiary companies had commitments of £2.7 million (31
December 2020: £2.7 million) to meet outstanding capital calls from fund
interests.
LMS CAPITAL PLC
9 March 2022
Income Statement
For the year ended 31 December 2021
Year ended 31 December
2021 2020
(Restated)
Notes £'000 £'000
Net gain/(loss) on investments 2 3,837 (3,247)
Interest income 3 23 94
Dividend income 4 - 58,849
Reduction in carrying value of subsidiary due to distribution - (58,849)
Total gain/(loss) on investments 3,860 (3,153)
Operating expenses 5 (1,988) (1,243)
Profit/(loss) before tax 1,872 (4,396)
Taxation 8 - -
Profit/(loss) for the year 1,872 (4,396)
Attributable to:
Equity shareholders 1,872 (4,396)
Profit/(loss) per ordinary share - basic 9 2.3p (5.4)p
Profit/(loss) per ordinary share - diluted 9 2.3p (5.4)p
All activities of the Company are classed as continuing.
Statement of Other Comprehensive Income
For the year ended 31 December 2021
Year ended 31 December
2021 2020
£'000 £'000
Profit/(loss) for the year 1,872 (4,396)
Other comprehensive income - -
Total comprehensive income/(loss) for the year 1,872 (4,396)
Attributable to:
Equity shareholders 1,872 (4,396)
Company registration number 05746555
Statement of Financial Position
As at 31 December 2021
31 December 1 January
2021 2020 2020
(Restated)
Notes £'000 £'000 £'000
Assets
Non-current assets
Right of use assets 19 97 125 -
Investments 11 68,461 65,235 132,454
Amounts receivable from subsidiaries 14 5,191 5,375 1,829
Total non-current assets 73,749 70,735 134,283
Current assets
Operating and other receivables 12 51 67 166
Cash and cash equivalents 13 14,518 16,385 25,079
Total current assets 14,569 16,452 25,245
Total assets 88,318 87,187 159,528
Liabilities
Current liabilities
Operating and other payables 15 (394) (415) (1,585)
Amounts payable to subsidiaries 16 (38,740) (38,747) (101,985)
Total current liabilities (39,134) (39,162) (103,570)
Non-current liabilities
Other long-term liabilities 15 (75) (102) -
Total non-current liabilities (75) (102) -
Total liabilities (39,209) (39,264) (103,570)
Net assets 49,109 47,923 55,958
Equity
Share capital 17 8,073 8,073 8,073
Share premium 508 508 508
Capital redemption reserve 24,949 24,949 24,949
Share-based equity 18 75 34 -
Retained earnings 15,504 14,359 22,428
Total equity shareholders' funds 49,109 47,923 55,958
Net asset value per ordinary share 25 60.83p 59.36p 69.30
Statement of Changes in Equity
For the year ended 31 December 2021
Capital Share-
Share Share redemption based Retained Total
capital premium reserve equity earnings equity
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2020 8,073 508 24,949 - 22,428 55,958
Comprehensive loss for the year
Loss for the year - - - - (4,396) (4,396)
Equity after total comprehensive loss for the year 8,073 508 24,949 - 18,032 51,562
Contributions by and distributions to shareholders
Share-based payments - - - 34 - 34
Dividends - - - - (3,673) (3,673)
As at 31 December 2020 8,073 508 24,949 34 14,359 47,923
Comprehensive income for the year
Profit for the year - - - - 1,872 1,872
Equity after total comprehensive income for the year 8,073 508 24,949 34 16,231 49,795
Contributions by and distributions to shareholders
Share-based payments - - - 41 - 41
Dividends - - - - (727) (727)
As at 31 December 2021 8,073 508 24,949 75 15,504 49,109
Cash Flow Statement
For the year ended 31 December 2021
Year ended 31 December
2021 2020
(Restated)
Notes £'000 £'000
Cash flows from operating activities
Profit/(loss) before tax 1,872 (4,396)
Adjustments for non-cash income and expense:
Equity settled share-based payment 18 41 34
Depreciation on right of use assets 19 28 14
Interest expense on lease 19 8 4
(Gains)/losses on investments 2 (3,837) 3,247
Interest income 3 (23) (94)
Other income - (6)
Adjustments to incentives plans 2 1 (68)
Exchange gains on cash and cash equivalents (4) (113)
(1,914) (1,378)
Change in operating assets and liabilities
Decrease in operating and other receivables 16 91
Decrease in operating and other payables (23) (1,195)
Decrease/(increase) in amounts receivable from subsidiaries 119 (3,545)
Decrease in amounts payable to subsidiaries (7) (4,389)
Net cash used in operating activities (1,809) (10,416)
Cash flows from investing activities
Interest received 3 23 102
Other income received - 6
Proceeds from sale of investments - 5,190
Proceeds from redemption of convertible debt 11 750 -
Investment in subsidiaries (75) -
Net cash from investing activities 698 5,298
Cash flows from financing activities
Dividends paid 10 (727) (3,673)
Repayment of principal lease liabilities 19 (25) (12)
Repayment of lease interest 19 (8) (4)
Net cash used in financing activities (760) (3,689)
Net decrease in cash and cash equivalents (1,871) (8,807)
Exchange gains on cash and cash equivalents 4 113
Cash and cash equivalents at the beginning of the year 13 16,385 25,079
Cash and cash equivalents at the end of the year 14,518 16,385
Notes to the Financial Statements
1. Principal accounting policies
Reporting entity
LMS Capital Plc ("the Company") is domiciled in the United Kingdom. These
Financial Statements are presented in pounds sterling because that is the
currency of the principal economic environment of the Company's operations.
The Company was formed on 17 March 2006 and commenced operations on 9 June
2006 when it received the demerged investment division of London Merchant
Securities.
The financial information for the year ended 31 December 2021 and the year
ended 31 December 2020 does not constitute the Company's statutory accounts
for those years. Statutory accounts for the year ended 31 December 2020 have
been delivered to the Registrar of Companies. The statutory accounts for the
year ended 31 December 2021 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.
The auditors' reports on the accounts for 31 December 2021 and 31 December
2020 were unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under 498(2) or 498(3) of the
Companies Act 2006.
Basis of preparation
LMS Capital Plc transitioned to UK-adopted International Accounting Standards
in its Financial Statements on 1 January 2021. This change constitutes a
change in accounting framework. However, the move to UK-adopted international
accounting standards for accounting period starting from 1 January 2021, does
not represent a change in the basis of accounting which would necessitate a
prior year restatement, therefore, there is no impact on the recognition,
measurement or disclosure in the period reported.
The Financial Statements have been prepared on the historical cost basis
except for investments which are measured at fair value, with changes in fair
value recognised in the income statement.
The Company's business activities and financial position are set out in the
Strategic Report on pages 13 to 25 and in the Portfolio Management Review on
pages 26 to 33. In addition, note 20 to the financial information includes a
summary of the Company's financial risk management processes, details of its
financial instruments and its exposure to credit risk and liquidity risk.
Taking account of the financial resources available to it, the Directors
believe that the Company is well placed to manage its business risks
successfully. After making enquiries, the Directors have a reasonable
expectation that the Company has adequate resources for the foreseeable
future.
The Financial Statements are prepared on a going concern basis and the
Directors considered this and concluded that the use of the going concern
basis continued to be appropriate. The Company's business activities, together
with the factors likely to affect its future development, performance and
financial position, are set out in the Strategic Report on page 13 and the
Portfolio Management Review on page 26. The Directors have carried out a
robust assessment of the emerging and principal risks and concluded that they
have a reasonable expectation that the Company will continue in operation and
meet its liabilities as they fall due over a three year period from the date
of this report. This assessment included reviewing the liquidity forecasts of
the Company that include the flexibility in the dividend policy and lack of
any external debt, the significant cash balances on hand at 31 December 2021,
the expected future expenditures and commitments and the latest report on the
investment portfolio. In preparing this liquidity forecast, consideration has
been given to the expected ongoing impact of Covid-19 on the Company and the
wider Group as well as the potential impact on the underlying investee
companies. The Directors have considered these factors for a period not less
than twelve months from the date of this report.
New and revised accounting standards and amendments effective for the current
period
New and revised accounting standards and amendments that are effective for
annual periods beginning 1 January 2021 which have been adopted for the first
time by the Company:
1. Amendments to IFRS 9: Interest Rate Benchmark Reform - Phase 2.
2. Amendment to IFRS 16, Leases: Covid-19-Related Rent Concessions
beyond 30 June 2021.
The adoption of the standards and amendments listed above have no material
impact on the amounts recognised in prior periods and are not expected to
significantly affect the current or future periods.
There are no other standards, amendments to standards or interpretations that
are effective for annual periods beginning on 1 January 2021 that have had a
material effect on the Company's Financial Statements.
New accounting standards, amendments and interpretations not yet effective,
and which have not been early adopted
Other standards and amendments that are effective for subsequent reporting
periods beginning on or after 1 January 2021 and have not been early adopted
by the Company include:
3. Classification of Liabilities as Current or Non-current (Amendments
to IAS 1) (effective 1 January 2023).
4. Annual Improvements 2018-2020 (effective 1 January 2022).
5. Amendments to IAS 8 Accounting policies, Changes in Accounting
Estimates and Errors: Definition of Accounting Estimates (effective 1 January
2023).
6. Amendments to IAS 1 Presentation of Financial Statements and IFRS
Practice Statement 2: Disclosure of Accounting policies (effective 1 January
2023).
7. Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and
Liabilities arising from a Single Transaction (effective 1 January 2023).
Upon preliminary assessment, these standards and amendments are not expected
to have a significant impact on the Financial Statements in the period of
initial application and therefore detailed disclosures have not been provided.
Amendment to IFRS 16 Leases: Covid-19-Related Rent Concessions beyond 30 June
2021
IFRS 16 Leases was issued in January 2016 and provides a single lessee
accounting model, requiring lessees to recognize assets and liabilities for
all leases unless the lease term is 12 months or less or the underlying asset
has a low value.
In May 2020, the IASB issued its first amendment to IFRS 16, Leases to ease
the accounting for lessees while still providing useful information to the
users of the financial statements (Amendment to IFRS 16 Leases: Covid-19-
related Rent Concessions).
The amendment, effective for annual reporting periods beginning on or after 1
June 2020, exempted lessees from having to consider individual lease contracts
to determine whether rent concessions as a direct consequence of Covid-19 are
lease modifications, hence allowing lessees to account for the concessions as
if they were not lease modifications. Although IFRS 16 specifies how lessees
should account for the change, this 'optional exemption' permitted in the
amendment lessens the large volume of Covid-19-related rent concessions and
stakeholders' difficulties and gives timely relief to lessees.
As the Covid-19 pandemic has persisted, on 31 March 2021 the IASB extended the
period of application until 30 June 2022 via Amendment to IFRS 16, Leases:
Covid-19-Related Rent Concessions beyond 30 June 2021. Such extension applies
to accounting periods beginning on or after 1 April 2021.
The adoption of the amendments did not have any impact on the amounts
recognised in prior periods and are not expected to significantly affect the
current or future periods.
To determine the split between principal and interest in the lease, the
Company is required to estimate the interest it would have to pay in order to
finance payments under the new lease.
In June 2020, the Company entered into lease agreement with The Rayne
Foundation. The interest rate used by the Company is based on the incremental
borrowing rate of 6.5%. The term of the lease is 5 years and when the
Company renegotiates the contractual terms of a lease with the lessor, the
accounting depends on the nature of the modification:
8. if the renegotiation results in one or more additional assets being
leased for an amount commensurate with the standalone price for the additional
rights-of-use obtained, the modification is accounted for as a separate lease
in accordance with the above policy;
9. in all other cases where the renegotiated increases the scope of the
lease (whether that is an extension to the lease term, or one or more
additional assets being leased), the lease liability is remeasured using the
discount rate applicable on the modification date, with the right-of-use asset
being adjusted by the same amount; and
10. if the renegotiation results in a decrease in the scope of the lease,
both the carrying amount of the lease liability and right-of-use asset are
reduced by the same proportion to reflect the partial of full termination of
the lease with any difference recognised in profit or loss. The lease
liability is then further adjusted to ensure its carrying amount reflects the
amount of the renegotiated payments over the renegotiated term, with the
modified lease payments discounted at the rate applicable on the modification
date. The right-of-use asset is adjusted by the same amount.
IFRS 2 - Share-based payment
IFRS 2 - Share-based payment requires an entity to recognise equity-settled
share-based payments measured at fair value at the date of grant. The fair
value determined at the grant date of the equity-settled share-based payments
is expensed over the vesting period, together with a corresponding increase in
other capital reserves, based upon the Company's estimate of the shares that
will eventually vest, which involves making assumptions about any performance
and service conditions over the vesting period. Non-vesting conditions and
market vesting conditions are factored into the fair value of the options
granted. The vesting period is determined by the period of time the relevant
participant must remain in the Company's employment before the rights to the
shares transfer unconditionally to them. The total expense is recognised over
the vesting period, which is the period over which all the specified vesting
conditions are to be satisfied. At the end of each period, the Company revises
its estimates on the number of awards it expects to vest based on the service
conditions.
Any awards granted are to be settled by the issuance of equity are deemed to
be equity settled share-based payments, accounted for in accordance with IFRS
2 "Share-Based Payment".
Where the terms of an equity-settled transaction are modified, as a minimum,
an expense is recognised as if the terms had not been modified. In addition,
an expense is recognised for any increase in the value of the transaction as a
result of the modification, as measured at the date of modification.
Where an equity-settled transaction is cancelled, it is treated as if it had
vested on the date of the cancellation, and any expense not yet recognised for
the transaction is recognised immediately. However, if a new transaction is
substituted for the cancelled transaction and designated as a replacement
transaction on the date that it is granted, the cancelled and new transactions
are treated as if they were a modification of the original transaction, as
described in the previous paragraph.
Accounting for subsidiaries
The Directors have concluded that the Company has all the elements of control
as prescribed by IFRS 10 "Consolidated Financial Statements" in relation to
all its subsidiaries and that the Company continues to satisfy the three
essential criteria to be regarded as an investment entity as defined in IFRS
10, IFRS 12 "Disclosure of lnterests in Other Entities" and IAS 27 "Separate
Financial Statements". The three essential criteria are such that the entity
must:
• obtain funds from one or more investors for the purpose of providing
these investors with professional investment management services;
• commit to its investors that its business purpose is to invest its
funds solely for returns from capital appreciation, investment income or both;
and
• measure and evaluate the performance of substantially all of its
investments on a fair value basis.
Accounting for subsidiaries (continued)
ln satisfying the second essential criteria, the notion of an investment time
frame is critical. An investment entity should not hold its investments
indefinitely but should have an exit strategy for their realisation. Although
the Company has invested in equity interests that have an indefinite life, it
invests typically for a period of up to ten years. ln some cases, the period
may be longer, depending on the circumstances of the investment, however,
investments are not made with intention of indefinite hold. This is a common
approach in the private equity industry.
Subsidiaries are therefore measured at fair value through profit or loss, in
accordance with IFRS 13 "Fair Value Measurement" and IFRS 9 "Financial
instruments".
The Company's subsidiaries, which are wholly - owned and over which it
exercises control, are listed in note 24.
Use of estimates and judgements
The preparation of the Financial Statements require management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates. Estimates and
underlying assumptions are reviewed on an ongoing basis; revisions to
accounting estimates are recognised in the period in which the estimates are
revised and in any future periods affected.
The areas involving significant judgements are:
· valuation technique selected in estimating fair value of unquoted
investments -
note 11;
· valuation technique selected in estimating fair value of investments
held in Funds -
note 11; and
· recognition of deferred tax asset for carried forward tax losses -
note 8 .
The areas involving significant estimates are:
· estimate inputs used in calculating fair value of unquoted
investments - note 11;
· estimated inputs used in calculating fair value of investments held
in Funds - note 11;
· estimates in calculating the fair value of equity awards - note 18;
and
· estimate percentage of incremental borrowing rate on lease liability
- note 19.
Estimates and judgements are continually evaluated. They are based on
historical experience and other factors, including expectations of future
events that may have financial impact on the entity and that are believed to
be reasonable under the circumstances.
Investments in subsidiaries
The Company's investments in subsidiaries are stated at fair value which is
considered to be the carrying value of the net assets of each subsidiary. On
disposal of such investments, the difference between net disposal proceeds and
the corresponding carrying amount is recognised in the income statement.
Valuation of investments
The Company and its subsidiaries manage their investments with a view to
profit from the receipt of dividends, interest income and increase in fair
value of equity investments which can be realised on sale. Therefore, all
quoted, unquoted and managed fund investments are designated at fair value
through profit or loss which can be realised on sale and carried in the
Statement of Financial Position at fair value.
Fair values have been determined in accordance with the International Private
Equity and Venture Capital Valuation ("IPEV") Guidelines. These guidelines
require the valuer to make judgments as to the most appropriate valuation
method to be used and the results of the valuations.
Each investment is reviewed individually with regard to the stage, nature and
circumstances of the investment and the most appropriate valuation method
selected. The valuation results are then reviewed and any amendment to the
carrying value of investments is made as considered appropriate.
Quoted investments
Quoted investments for which an active market exists are valued at the bid
price at the reporting date.
Unquoted direct investments
Unquoted direct investments for which there is no active market are valued
using the most appropriate valuation technique with regard to the stage and
nature of the investment. Valuation methods that may be used include:
· investments in an established business are valued using revenue or
earnings multiples depending on the stage of development of the business and
the extent to which it is generating sustainable revenue or earnings;
· investments in an established business which is generating
sustainable revenue or earnings but for which other valuation methods are not
appropriate are valued by calculating the discounted cash flow of future cash
flows or earnings;
· investments in debt instruments or loan notes are determined on a
standalone basis, with the initial investment recorded at the price of the
transaction and subsequent adjustments to the valuation are considered for
changes in credit risk or market rates;
· convertible instruments are valued by disaggregating the convertible
feature from the debt instrument and valuing it using a Black-Scholes model;
and
· the Company has adopted the IPEV guidelines which are effective from
1 January 2019. The main changes of the new guidelines are:
o price of a recent investment removed as a primary valuation technique; and
o valuing debt investment is expanded.
· the Company adopted the IPEV special valuation guidance issued in
March 2020.
Funds
Investments in managed funds are valued at fair value. The general partners of
the funds will provide periodic valuations on a fair value basis, the latest
available of which the Company will adopt provided it is satisfied that the
valuation methods used by the funds are not materially different from the
Company's valuation methods. Adjustments will be made to the fund valuation
where the Company believes there is evidence available for an alternative
valuation.
Carried interest
The Company historically offered its executives, including Board executives,
the opportunity to participate in the returns from successful investments. A
variety of incentive and carried interest arrangements were put in place
during the years up to and including 2011. No new schemes have been introduced
since. As is commonplace in the private equity industry, executives may, in
certain circumstances, retain their entitlement under such schemes after they
have left the employment of the Company. The liability under such incentive
schemes is accrued if its performance conditions, measured at the reporting
date, would be achieved if the remaining assets in that scheme were realised
at their fair value at the reporting date. An accrual is made equal to the
amount which the Company would have to pay to any remaining scheme
participants from a realisation of the reported value at the reporting date.
Foreign currencies
Transactions in foreign currencies are recorded at the rate of exchange at the
date of transaction. Monetary assets and monetary liabilities denominated in
foreign currencies at the reporting date are reported at the rates of exchange
prevailing at that date and exchange differences are included in the income
statement.
Right of use assets
Right of use assets are initially measured at the amount of the lease
liability. Subsequent to initial measurement, lease liabilities increase as a
result of interest charged at a constant rate on the balance outstanding and
are reduced for lease payments made. Right-of-use assets are amortised on a
straight-line basis over the remaining term of the lease.
Intercompany receivables
The Company measured intercompany receivables and other receivables at fair
value less any expected credit losses. Expected credit losses are measured
through a loss allowance at an amount equal to:
· the 12-month expected credit losses (expected credit losses from
possible default events within 12 months after the reporting date); or
· full lifetime expected credit losses (expected credit losses from all
possible default events over the life of the financial instrument).
A loss allowance for full lifetime expected credit losses is required for
intercompany receivables and other receivables if the credit risk has
increased significantly since initial recognition.
Impairment losses on financial assets carried at amortised cost are reversed
in subsequent periods if the expected credit losses decrease.
Financial assets held at amortised cost
The Company recognises trade receivables as financial assets classified at
amortised cost. These are recognised initially at fair value. Subsequent to
initial recognition, these are measured at amortised cost, less any expected
credit losses.
Expected credit losses for these financial assets are measured using the
simplified approach to the credit loss model. Under the simplified credit loss
model approach, a provision is recognised based on the expectation of default
rates over the full lifetime of the financial assets without the need to
identify significant increases on credit risk on these assets.
Cash and cash equivalents
Cash, for the purpose of the cash flow statement, comprises cash in hand and
cash equivalents.
Cash equivalents are short-term highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant
risk of changes in value.
Financial liabilities
The Company's financial liabilities include operating and other payables.
These are initially recognised at fair value. Subsequent measurement is at
amortised cost using the effective interest method.
Dividend payable
Dividend distribution to the shareholders is recognised as a liability in
Financial Statements when approved at an annual general meeting by the
shareholders. Interim dividend approved during the year is recorded upon
payment.
Income
Gains and losses on investments
Realised and unrealised gains and losses on investments are recognised in the
income statement in the period in which they arise.
Interest income
Interest income is recognised as it accrues using the effective interest
method.
Dividend income
Dividend income is recognised on the date the Company's right to receive
payment is established.
Expenditure
Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is
recognised in the income statement except to the extent that it relates to
items recognized in other comprehensive income or directly in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet liability approach,
providing for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is measured at the tax rates that are expected to be
applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date. A deferred
tax asset is recognised to the extent that it is probable that future taxable
profits will be available against which temporary differences can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be
realised.
Additional income taxes that arise from the distribution of dividends are
recognised at the same time as the liability to pay the related dividend is
recognised.
Prior period adjustments
Dividend income from subsidiary
For the year ending 31 December 2020, one of the subsidiaries, (LMS Capital
Group Limited), declared dividends of £58,849,364 to the Company, resulting
in an increase of income from dividends of £58,849,364 and a reduction in the
carrying value of the subsidiaries due to this distribution of £58,849,364.
In the prior year Financial Statements, this movement was incorrectly offset
against each other and was not presented in the Income Statement. In the
current year, this presentation has been restated as:
· Dividend income increased by £58,849,364.
· Carrying value of subsidiaries due to distribution decreased by
£58,849,364.
There is no impact on the profit/(loss) for the year.
Amounts receivable from subsidiaries
In prior years, the Company's receivable from subsidiaries was incorrectly
added against the investment in subsidiary balance. As a result, the Company's
receivable from subsidiaries was understated by £5,375,914 and the
investments balance was overstated by £5,375,914. This presentation was
corrected during the current year Financial Statements, and the comparative
figures in the Statement of Financial Position and Investment note (note 11)
were restated as:
· Investments decreased by £5,375,914.
· Amount receivable from subsidiaries increased by £5,375,914.
Consequently, further changes were needed to the related 'Financial Risk
Management' note (note 20). These comprised firstly, a change in the
'Financial instruments by category' note to show the 'amounts receivable from
subsidiaries' of £5.375m separately as an asset measured at 'amortised cost'
as opposed to being included in 'Investments' in the 'fair value through
profit or loss' category. Secondly, the 'Credit Risk' note was restated to
show the £5.375m 'Amounts receivable from subsidiaries' in this note.
Thirdly, the 'Liquidity Risk' note was restated to show the £5.375m
separately as 'Amounts receivable from subsidiaries' as opposed to being
included in the 'investments' category. Finally, the 'Currency Risk' note was
restated to show the £5.375m 'Amounts receivable from subsidiaries'
separately as opposed to being included in the 'investments' figure.
As a result of the change stated above, the presentation in the Cash flow
statement has also been updated. In the prior year, the net movement is
presented in one line which was a decrease in amounts payable to subsidiaries.
However, this year the comparatives were updated as per below:
· Amounts receivable from subsidiaries increased by £3,545,422.
· Amounts payable to subsidiaries decreased by £3,545,422.
This change does not have any impact on the overall change in operating assets
and liabilities.
Reclassification of liquidity risk analysis for financial liabilities
In prior years, the amount payable to subsidiaries was incorrectly included in
the 'Over 5 years' category in the financial liabilities liquidity risk note
(note 20). Given that the amounts are repayable on demand, these amounts have
been correctly restated to be included in the 'Up to 3 months' category. As
such, in the 2020 comparative disclosure 'Amounts payable to subsidiaries' of
£38,746,850 has been restated from the 'Over 5 years' category to the 'Up to
3 months' category.
2. Net gains/ losses on investments
Gains and losses on investments were as follows:
Year ended 31 December
2021 2020
Investment portfolio of the Company Realised Unrealised Total Realised Unrealised Total
Asset type £'000 £'000 £'000 £'000 £'000 £'000
Quoted - - - (716) - (716)
Unquoted (5) - (5) - 25 25
Funds - - - - - -
(5) - (5) (716) 25 (691)
Credit/(charge) for incentive plans 1 (68)
(4) (759)
Investment portfolio of subsidiaries
Asset type
Quoted - 186 186 381 (598) (217)
Unquoted - (90) (90) 121 924 1,045
Funds - 2,473 2,473 - (2,190) (2,190)
- 2,569 2,569 502 (1,864) (1,362)
Total (5) 2,569 2,565 (214) (1,839) (2,121)
(Charge)/credit for incentive plans (10) 68
2,555 (2,053)
Operating and similar income/(expense) of subsidiaries* 1,282 (1,194)
3,837 (3,247)
*Includes operating and legal costs and taxation charges of subsidiaries.
In September 2020, a subsidiary of the Company deposited £7.0 million for an
investment in Dacian Petroleum, a Romanian oil and gas production company. On
19 November 2021, the transaction was completed, recognising investment
acquisition cost of £6.7 million. The investment is structured primarily as
debt with a 7-year maturity and bearing compounded interest at 14% per annum
from 20 September 2020. During the year, a net interest of £1.2 million
(2020: £nil) was recognised.
The Company operates carried interest arrangements in line with normal
practice in the private equity industry. The credit for incentive plans for
the Company is £1,000 and other incentives relating to historic arrangements.
The charge for subsidiaries is included in the net gains/ losses on
investments in the Income Statement.
3. Interest income
Interest income comprises of interest earned on bank deposits and on loan
investments.
4. Dividend income
Dividend income received is accounted for when the right to receive payments
is established and the amount of the dividend can be measured reliably.
5. Operating expenses
Operating expenses comprise administrative expenses and include the
following:
Year ended 31 December
2021 2020
£'000 £'000
Directors remuneration (note 6) 716 708
Staff expenses (note 7) 309 169
Depreciation on right of use assets 28 14
Other administrative expenses 752 572
Foreign currency exchange differences 130 (275)
Auditor's remuneration
Fees to Company auditor 53 55
- parent company 35 38
- interim review for LMS Capital Plc 18 17
1,988 1,243
The audit fee comprises of £34,500 (2020: £38,000) for LMS Capital Plc,
£18,250 (2020: £17,000) for the interim review. Audit fees for the
subsidiaries of £72,500 (2020: £75,000) directly charged to subsidiaries.
6. Directors' Remuneration
Year ended 31 December
2021 2020
£'000 £'000
Directors' remuneration 570 593
Directors' social security contributions 92 62
Directors' other benefit 54 53
716 708
The highest paid Director was Nicholas Friedlos 349 362
(2020 - Nicholas Friedlos)
The average number of Directors was as follows:
31 December 2021 31 December 2020
Male Female Total Male Female Total
Average number of Directors 5 - 5 5 - 5
5 - 5 5 - 5
7. Staff Expenses
Year ended 31 December
2021 2020
£'000 £'000
Wages and salaries 253 144
Employers' social security contributions 30 13
Employers' other benefits 26 12
309 169
Staff benefits includes pension and health insurance. These benefits are
recognised as expenses on an accrual basis as they are incurred.
The average number of staff was as follows:
2021 2020
Average number of staff 5 4
5 4
8. Taxation
Year ended 31 December
2021 2020
£'000 £'000
Current tax expense
Current year - -
Total tax expense - -
Year ended 31 December
Reconciliation of tax expense
2021 2020
£'000 £'000
Profit/(loss) before tax 1,872 (4,396)
Corporation tax using the Company's domestic tax rate - 19% (2020: 19%) 356 (835)
Fair value adjustments not currently taxed (486) 390
Non-deductible expenses/(income) (214) 238
Difference between taxable and accounting profit on disposal 29 301
Capital allowances (3) -
Company relief 406 672
Deferred tax asset not recognised 155 -
Transfer pricing (243) (766)
Total tax expense - -
As at year end, there are cumulative potential deferred tax assets of £2.205
million (2020: £1.512 million) in relation to the Company's cumulative tax
losses of £8.819 million (2020: £7.956 million). It is unlikely that the
Company will generate sufficient taxable profits in future to utilise these
amounts and therefore no deferred tax asset has been recognised in the current
or prior year.
9. Profit/(loss) per ordinary share
The calculation of the basic and diluted earnings per share, in accordance
with IAS 33, is based on the following data:
Year ended 31 December
2021 2020
£'000 £'000
Profit/(loss)
Profit/(loss) for the purposes of profit/(loss) per share
being net profit/(loss) attributable to equity holders of the parent 1,872 (4,396)
Number Number
Number of shares
Weighted average number of ordinary shares for the
purposes of basic profit/(loss) per share 80,727,450 80,727,450
Profit/(loss) per share Pence Pence
Basic 2.3 (5.4)
Diluted 2.3 (5.4)
The Company share awards issued will be dilutive when vested.
10. Dividends paid
Dividends declared during the year ending 31 December 2021 are as follows.
Dividend date Payment Date Dividend Dividend
£'000 per share
£
First dividend payment for 2020 20 December 2019 09 January 2020 3,431 0.0425
Second dividend payment for 2020 14 August 2020 07 September 2020 242 0.0030
Total as at 31 December 2020 3,673 0.0455
Final dividend payment for 2020 21 May 2021 14 June 2021 484 0.6000
Interim dividend payment for 2021 13 August 2021 03 September 2021 243 0.3000
Total as at 31 December 2021 727 0.9000
A final dividend of 0.6p per share is recommended by the Board and, subject to
approval by shareholders at the AGM on May 2022, will be paid out in early
June 2022.
11. Investments
The Company's investments comprised the following:
Year ended 31 December
2021 2020
(Restated)
£'000 £'000
Total investments 68,461 65,235
These comprise:
Investment portfolio of the Company - 755
Investment portfolio of subsidiaries 30,938 21,438
Investment portfolio - total 30,938 22,193
Other net assets of subsidiaries 37,523 43,042
68,461 65,235
The carrying amounts of the Company's and its subsidiaries' investment
portfolios were as follows:
31 December 2021 31 December 2020
(Restated)
Investment portfolio of the Company
Asset type £'000 £'000 £'000 £'000
Quoted - -
Unquoted direct - 755
Funds - -
- 755
Investment portfolio of subsidiaries
Asset type
Quoted 383 197
Unquoted direct 16,626 9,383
Funds 13,929 11,858
30,938 22,193
Other net assets of subsidiaries 37,523 43,042
68,461 68,461 65,235 65,235
68,461 65,235
The movements in the investment portfolio were as follows:
Quoted Unquoted
securities securities Funds Total
£'000 £'000 £'000 £'000
Carrying value
Balance at 1 January 2020 8,421 9,713 14,107 32,241
Purchases 424 249 906 1,579
Disposal proceeds (7,715) - - (7,715)
Distributions from partnerships - (894) (965) (1,859)
Fair value adjustments (933) 1,070 (2,190) (2,053)
Balance at 31 December 2020 197 10,138 11,858 22,193
Quoted Unquoted
securities securities Funds Total
£'000 £'000 £'000 £'000
Balance at 1 January 2021 197 10,138 11,858 22,193
Purchases - 8,394 - 8,394
Proceeds from disposal - (750) - (750)
Distributions from partnerships - (1,586) (445) (1,916)
Contribution to partnerships - 115 43 43
Fair value adjustments 186 (95) 2,473 2,564
Reclassification of withholding tax* - 410 - 410
Balance at 31 December 2021 383 16,626 13,929 30,938
*As at 31 December 2020, unquoted securities investment fair value included a
provision for withholding tax on distributions. This distribution was received
in the first quarter of 2021 and the remaining estimated withholding tax
liability of £0.4 million was reclassified to current liabilities as at 31
December 2021.
The following table analyses investments carried at fair value at the end of
the year, by the level in the fair value hierarchy into which the fair value
measurement is categorised. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets;
Level 2: inputs other than quoted prices included within level 1 that are
observable for the asset, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and
Level 3: inputs for the asset that are not based on observable market data
(unobservable inputs such as trading comparables and liquidity discounts).
Fair value measurements are based on observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect the Company's view of market assumptions in the
absence of observable market information (see note 20 - Financial risk
management).
The Company's investments are analysed as follows:
31 December
2021 2020
(Restated)
£'000 £'000
Level 1 - -
Level 2 - 755
Level 3 68,461 64,480
68,461 65,235
Level 3 includes:
31 December
2021 2020
(Restated)
£'000 £'000
Investment portfolio of subsidiaries 30,938 21,438
Other net assets of subsidiaries 37,523 43,042
68,461 64,480
Investment portfolio of subsidiaries includes quoted investments of £383,000
(2020: £197,000).
There were no transfers between levels during the year ending 31 December
2021.
12. Operating and other receivables
31 December
2021 2020
£'000 £'000
Other receivables and prepayments 51 67
51 67
13. Cash and cash equivalents
31 December
2021 2020
£'000 £'000
Bank balances 351 2,221
Demand deposits 14,167 14,164
14,518 16,385
At 31 December 2021, the total Group's cash balance is £20.113 million (2020:
£20.590) which includes cash held in subsidiaries of £5.595 million (2020:
£4.205 million).
14. Amounts receivable from subsidiaries
31 December
2021 2020
£'000 £'000
Amounts receivable from subsidiaries 5,191 5,375
5,191 5,375
15. Operating and other payables
31 December
2021 2020
£'000 £'000
Carried interest provision 35 68
Trade payables 43 32
Other non-trade payables and accrued expenses 316 315
394 415
Other long-term lease liabilities 75 102
469 517
The Company operates carried interest arrangements in line with normal
practice in the private equity industry, calculated on the assumption that the
investment portfolio is realised at its year end carrying amount. As at 31
December 2021, £35,000 (2020: £68,000) has been accrued for in the Company
and £438,000 (2020: £424,000) has been accrued for in the subsidiaries.
Carried interest accrued for in the subsidiaries is included in the amounts
owing to subsidiaries on the Statement of Financial Position.
16. Amounts payable to subsidiaries
31 December
2021 2020
£'000 £'000
Amounts payable to subsidiaries 38,740 38,747
38,740 38,747
17. Capital and reserves
Share capital
2021 2021 2020 2020
Ordinary shares Number £'000 Number £'000
Balance at the beginning of the year 80,727,450 8,073 80,727,450 8,073
Repurchase of shares - - - -
Balance at the end of the year 80,727,450 8,073 80,727,450 8,073
The Company's ordinary shares have a nominal value of 10p per share and all
shares in issue are fully paid up.
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company.
Share premium account
The Company's share premium account arose on the exercise of share options in
prior years.
Capital redemption reserve
The capital redemption reserve comprises the nominal value of shares purchased
by the Company out of its own profits and cancelled.
18. Share awards
In the prior year, the Company established a long-term incentive plan for the
employees of the Company. The plan grants the Board the authority to allot up
to 1,000 Value Creation Plan ("VCP") units with both performance and service
conditions attached. The VCP units can only be awarded at the end of the
five-year vesting period, 30 June 2025, if certain minimum performance
conditions are met. These minimum performance conditions include two
performance targets over the measurement period, including a minimum hurdle
rate such that the annualised total shareholder return ("TSR") over the
measurement period must be not less than 8% and a minimum share price of
52.8p. If the minimum performance targets are met, the amount that the plan
participants will receive will depend on the TSR performance of the Company
achieved over the five-year vesting period. The Board retains the right to
settle these awards in either shares or cash. As the Company does not have a
present obligation to settle in cash, the awards are all recognized as equity
settled share awards.
The first share awards were granted in 2020 with respect to the performance
year ended 31 December 2020. There were no share awards granted for the year
ending 31 December 2021.
Grant date Type of award Number of shares awarded Fair value/ Vesting conditions Final vesting date
share
£
30 June 2020 Shares 500 418.44 Awards vest quarterly over 5 years provided the employee is still in service 30 June 2025
of the Company.
17 November 2020 Shares 125 393.63 Awards vest quarterly over 5 years provided the employee is still in service 30 June 2025
of the Company.
The fair value of the option granted in 2020 has been estimated using the
Monte Carlo simulation. The principal assumption used in the calculation were
as follows:
2020
Share price at 30 June 2020 £ 0.328
Share price at 17 November 2020 £ 0.299
Exercise price -
Expected life 5 years
Weighted average risk-free rate (0.04%)
Dividend yield 2.0%
Number of awards Weighted average of fair value of instrument
Outstanding at 1 January 2020 - -
Granted 625 413.48
Settled in equity - -
Outstanding at 31 December 2020 625 413.48
Granted - -
Settled in equity - -
Outstanding at 31 December 2021 625 413.48
19. Leases
Lease commitments
The Company leases rental space and information with regards to this lease is
outlined below:
Rental lease asset £'000
Leased asset recognised under IFRS 16 at 1 July 2020 139
Depreciation for the year (14)
Balance at 31 December 2020 125
Depreciation for the year (28)
Balance as at 31 December 2021 97
Rental lease liability £'000
Leased asset recognised under IFRS 16 at 1 July 2020 139
Unwinding of the discount on lease liability 4
Payments for lease (16)
Balance at 31 December 2020 127
Unwinding of the discount on lease liability 8
Payments for lease (33)
Balance as at 31 December 2021 102
Further information regarding the adoption of IFRS 16 is detailed in note 1.
20. Financial risk management
Financial instruments by category
The following tables analyse the Company's financial assets and financial
liabilities in accordance with the categories of financial instruments in IFRS
9. Assets and liabilities outside the scope of IFRS 9 are not included in the
table below:
31 December
2021 2020
(Restated)
Fair Fair
Value Value
through Measured at through Measured at
profit or amortised profit or amortised
loss cost Total loss cost Total
Financial assets £'000 £'000 £'000 £'000 £'000 £'000
Investments 68,461 - 68,461 65,235 - 65,235
Amounts receivable from subsidiaries - 5,191 5,191 - 5,375 5,375
Operating and other receivables - 41 41 - 67 67
Cash and cash equivalents - 14,518 14,518 - 16,385 16,385
Total 68,461 19,750 88,211 65,235 21,827 87,062
31 December
2021 2020
Fair Fair
Value Value
through Measured at through Measured at
profit or amortised profit or amortised
loss cost Total loss cost Total
Financial liabilities £'000 £'000 £'000 £'000 £'000 £'000
Operating and other payables - 367 367 - 390 390
Amounts payable to subsidiaries - 38,740 38,740 - 38,747 38,747
Lease liabilities - 102 102 - 127 127
Total - 39,209 39,209 - 39,264 39,264
Intercompany payables to subsidiaries are all repayable on demand thus there
are no discounted contractual cash flows to present.
The Company has exposure to the following risks from its use of financial
instruments:
· credit risk;
· liquidity risk; and
· market risk.
This note presents information about the Company's exposure to each of the
above risks, its policies for measuring and managing risk, and its management
of capital.
Credit risk
Credit risk is the risk of the financial loss to the Company if a counterparty
to a financial instrument fails to meet its contractual obligations and arises
principally from the Company's receivables and its cash and cash equivalents.
31 December
2021 2020
(Restated)
£'000 £'000
Amounts receivable from subsidiaries 5,191 5,375
Operating and other receivables 41 67
Debt Investments - 600
Cash and cash equivalents 14,518 16,385
19,750 22,427
The Company limits its credit risk exposure by only depositing funds with
highly rated institutions. Cash holdings at 31 December 2021 and 2020 were
held in institutions currently rated A or better by Standard and Poor's. Given
these ratings, the Company does not expect any counterparty to fail to meet
its obligations and therefore, no allowance for impairment is made for bank
deposits.
The loss allowance as at 31 December 2021 and 31 December 2020 was determined
as follows for trade receivables:
More than More than More than
Current 30 days past due 60 days past due 120 days past due Total
2021 £'000 £'000 £'000 £'000 £'000
Expected loss rate - - - 100% -
Other receivables 41 - - - 41
Total 41 - - - 41
More than More than More than
Current 30 days past due 60 days past due 120 days past due Total
2020 £'000 £'000 £'000 £'000 £'000
Expected loss rate - - - 100% -
Trade receivables - - - 59 59
Other receivables 67 - - - 67
Loss allowance - - - (59) (59)
Total 67 - - - 67
The Company recognised credit losses of the full value of receivable for trade
receivables not recovered after 4 months. As at 31 December 2021, the Company
does not have outstanding trade receivable (2020: £59,000).
For the year ending 31 December 2021, the Company did not witness significant
increase in the credit risk since the initial recognition of the outstanding
receivable from subsidiaries and other receivables, therefore, no expected
losses were recognised during the year (2020: £nil).
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. Its financing requirements are met
through a combination of liquidity from the sale of investments and the use of
cash resources.
The following table shows an analysis of the financial assets and financial
liabilities by remaining expected maturities as at 31 December 2021 and 31
December 2020.
Financial assets:
Up to 3-12 1-5 Over Total
3 months months years 5 years
2021 £'000 £'000 £'000 £'000 £'000
Investment - - - 68,461 68,461
Amounts receivable from subsidiaries - - - 5,191 5,191
Operating and other receivables 41 - - - 41
Cash and cash equivalents 14,518 - - - 14,518
Total 14,559 - - 73,652 88,211
Up to 3-12 1-5 Over Total
3 months months years 5 years
2020 (Restated) £'000 £'000 £'000 £'000 £'000
Investment - - - 65,235 65,235
Amounts receivable from subsidiaries - - - 5,375 5,375
Operating and other receivables 67 - - - 67
Cash and cash equivalents 16,385 - - - 16,385
Total 16,452 - - 70,610 87,062
Financial liabilities:
Up to 3-12 1-5 Over Total
3 months months years 5 years
2021 £'000 £'000 £'000 £'000 £'000
Operating and other payables 367 - - - 367
Amount payable to subsidiaries 38,740 - - - 38,740
Lease liabilities 6 21 75 - 102
Total 39,113 21 75 - 39,209
Up to 3-12 1-5 Over Total
3 months months years 5 years
2020 (Restated) £'000 £'000 £'000 £'000 £'000
Operating and other payables 390 - - - 390
Amount payable to subsidiaries 38,747 - - - 38,747
Lease liabilities 6 19 102 - 127
Total 39,143 19 102 - 39,264
In addition, some of the Company's subsidiaries have uncalled capital
commitments to funds of £2,665,000 (31 December 2020: £2,717,000) for which
the timing of payment is uncertain (see note 21).
Market risk
Market risk is the risk that changes in market prices such as foreign exchange
rates, interest rates and equity prices will affect the Company's income or
the value of its holdings of financial instruments. The Company aims to manage
this risk within acceptable parameters while optimising the return.
Currency risk
The Company is exposed to currency risk on those of its investments which are
denominated in a currency other than the Company's functional currency which
is pounds sterling. The only other significant currency within the investment
portfolio is the US dollar; approximately 73% of the investment portfolio is
denominated in US dollars.
The Company does not hedge the currency exposure related to its investments.
The Company regards its exposure to exchange rate changes on the underlying
investment as part of its overall investment return and does not seek to
mitigate that risk through the use of financial derivatives.
The Company is exposed to translation currency risk on sales and purchases
which are denominated in a currency other than the Company's functional
currency. The currency in which these transactions are denominated is
principally US dollars.
The Company's exposure to foreign currency risk was as follows:
31 December
2021 2020
(Restated)
GBP USD Other GBP USD Other
£'000 £'000 £'000 £'000 £'000 £'000
Investments 44,794 22,554 1,113 48,995 15,040 1,200
Amounts receivable from subsidiaries 5,172 11 8 5,375 - -
Right of use assets 97 - - 125 - -
Operating and other receivables 41 - - 67 - -
Cash and cash equivalents 14,018 500 - 15,830 555 -
Operating and other payables (434) (35) - (517) - -
Amount payable to subsidiaries (31,597) (7,011) (132) (38,747) - -
Gross exposure 32,091 16,019 989 31,128 15,595 1,200
Forward exchange contracts - - - - - -
Net exposure 32,091 16,019 989 31,128 15,595 1,200
The aggregate net foreign exchange profit/(loss) recognised in profit or loss
were:
31 December
2021 2020
£'000 £'000
Net foreign exchange profit/(loss) on investment 21 (90)
Net foreign exchange profit/(loss) on non-investment 172 (577)
Total net foreign exchange profit/(loss) recognised in profit before income 193 (667)
tax for the year
At 31 December 2021, the rate of exchange was USD $1.35 = £1.00 (31 December
2020: $1.37 = £1.00).
A 10% strengthening of the US dollar against the pound sterling would have
increased equity and increased profit by £1.8 million at 31 December 2021 (31
December 2020: increased equity and increased profit by £1.7 million). This
assumes that all other variables, in particular interest rates, remain
constant. A weakening of the US dollar by 10% against the pound sterling would
have decreased equity and decreased the profit for the year by £1.5 million
(2020: decreased equity and increased the loss by £1.7 million). This level
of change is considered to be reasonable based on observations of current
conditions.
Interest rate risk
At the reporting date, the Company's cash and cash equivalents are exposed to
interest rate risk and the sensitivity below is based on these amounts.
An increase of 100 basis points in interest rates at the reporting date would
have increased equity by £155,000 (31 December 2020: increase of £207,000)
and increased the profit for the year by £155,000 (2020: decreased the loss
£207,000). A decrease of 100 basis points would have decreased equity and
increased the loss for the year by the same amounts. This level of change is
considered to be reasonable based on observations of current conditions.
Fair values
All items not held at fair value in the Statement of Financial Position have
fair values that approximate their carrying values.
Other market price risk
Equity price risk arises from equity securities held as part of the Company's
portfolio of investments. The Company's management of risk in its investment
portfolio focuses on diversification in terms of geography and sector, as well
as type and stage of investment.
The Company's investments comprise unquoted investments in its subsidiaries
and investments in quoted investments. The subsidiaries' investment portfolios
comprise investments in quoted and unquoted equity and debt instruments.
Quoted investments are quoted on the main stock exchanges in London and USA. A
proportion of the unquoted investments are held through funds managed by
external managers.
As is common practice in the venture and development capital industry, the
investments in unquoted companies are structured using a variety of
instruments including ordinary shares, preference shares and other shares
carrying special rights, options and warrants and debt instruments with and
without conversion rights. The investments are held for resale with a view to
the realisation of capital gains. Generally, the investments do not pay
significant income.
The significant unobservable inputs used at 31 December 2021 in measuring
investments categorised as level 3 in note 11 are considered below:
· Unquoted securities (carrying value £16.6 million) are valued
using the most appropriate valuation technique such as a revenue-based
approach, an earnings-based approach, or a discounted cash flow approach.
These investments are sensitive to both the overall market and industry
specific fluctuations that can impact multiples and comparable company
valuations. In most cases the valuation method uses inputs based on comparable
quoted companies for which the key unobservable inputs are:
· EBITDA multiples of approximately 5 times dependent on the business
of each individual company, its performance and the sector in which it
operates;
· revenue multiples in the range 0.30-1.5 times, also dependent on
attributes at individual investment level; and
· discounts applied of up to 40%, to reflect the illiquidity of
unquoted companies compared to similar quoted companies. The discount used
requires the exercise of judgement taking into account factors specific to
individual investments such as size and rate of growth compared to other
companies in the sector.
· Investments in funds (carrying value £14 million) are valued using
reports from the general partners of the fund interests with adjustments made
for calls, distributions and foreign currency movements since the date of the
report (if prior to 31 December 2021). The Company also carries out its own
review of individual funds and their portfolios to satisfy themselves that the
underlying valuation bases are consistent with the basis of valuation and
knowledge of the investments and the sectors in which they operate. However,
the degree of detail on valuations varies significantly by fund and, in
general, details of unobservable inputs used are not available.
The valuation of the investments in subsidiaries makes use of multiple
interdependent significant unobservable inputs and it is impractical to
sensitise variations of any one input on the value of the investment portfolio
as a whole. Estimates and underlying assumptions are reviewed on an ongoing
basis, however, inputs are highly subjective. Changes in any one of the
variables, earnings or revenue multiples or illiquidity discounts could
potentially have a significant effect on the valuation.
If the valuation for level 3 category investments declined by 10% from the
amount at the reporting date, with all other variables held constant, the
profit for the year ended 31 December 2021 would have decreased by £6.8
million (2020: loss increased by £6.5 million). An increase in the valuation
of level 3 category investments by 10% at the reporting date would have an
equal and opposite effect.
Capital management
The Company's total capital at 31 December 2021 was £49 million (31 December
2020: £48 million) comprising equity share capital and reserves. The Company
had borrowings at 31 December 2021 of £nil (31 December 2020: £nil).
In order to meet the Company's capital management objectives, the Board
monitors and reviews the broad structure of the Company's capital on an
ongoing basis. This review includes:
· Working capital requirements and follow-on investment capital for
portfolio investments, including calls from funds;
· Capital available for new investments; and
· The annual dividend policy and other possible distributions to
shareholders.
21. Capital commitments
31 December
2021 2020
£'000 £'000
Outstanding commitments to funds 2,665 2,717
The outstanding capital commitments to funds comprise unpaid calls in respect
of funds where a subsidiary of the Company is a limited partner.
As of 31 December 2021, the Company has no other contingencies or commitments
to disclose (2020: £nil).
22. Related party transaction
The Directors' fees paid for the year were £722,000 (2020: £708,000).
In the prior year, the Company entered into a lease agreement with The Rayne
Foundation in respect of the premises comprising its principal office. Under
the terms of the lease, the Company paid rent of £32,780 (2020: £16,390) to
The Rayne Foundation. Robert Rayne is the Chairman of The Rayne Foundation.
23. Subsequent events
The Company is monitoring the impact of the Russian invasion of Ukraine on
each of its portfolio investments and overall business. The ultimate outcome
is highly uncertain and difficult to predict
Elateral, an investment in the digital marketing sector, utilises contract
staff in Ukraine, Russia and Belarus for its software development and has
developed a contingency plan to manage any disruption that may occur. The
situation remains highly uncertain, and the Company will continue monitoring
developments closely.
There are no other subsequent events that would materially affect the
interpretation of these Financial Statements.
24. Subsidiaries
The Company's subsidiaries are as follows:
Name Country of incorporation Holding % Activity
International Oilfield Services Limited Bermuda 100 Investment holding
LMS Capital (Bermuda) Limited Bermuda 100 Investment holding
LMS Capital Group Limited England and Wales 100 Investment holding
LMS Capital Holdings Limited England and Wales 100 Investment holding
Lioness Property Investments Limited England and Wales 100 Investment holding
Lion Property Investments Limited England and Wales 100 Investment holding
Lion Investments Limited England and Wales 100 Investment holding
Lion Cub Property Investments Limited England and Wales 100 Dormant
Tiger Investments Limited England and Wales 100 Investment holding
LMS Tiger Investments (II) Limited England and Wales 100 Investment holding
Westpool Investment Trust Plc England and Wales 100 Investment holding
Cavera Limited England and Wales 100 Trading
LMS Co-Invest Limited England and Wales 100 Trading
During the year, LMS Capital (General Partner) Limited was liquidated.
The registered office addresses of the Company's subsidiaries are as follows:
Subsidiaries incorporated in England and Wales: 3 Bromley Place, London,
United Kingdom, W1T 6DB.
Subsidiaries and partnerships incorporated in Bermuda: Clarendon House, 2
Church Street, Hamilton HM 11, Bermuda.
25. Net asset value per share
The net asset value per ordinary shares in issue are as follows:
31 December
2021 2020
NAV (£'000) 49,109 47,923
Number of ordinary shares in issue 80,727,450 80,727,450
NAV per share (in pence) 60.83 pence 59.36 pence
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