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

LMS CapitalAnnouncement

13/02/2025 07:00

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RNS Number : 9287W  LMS Capital PLC  13 February 2025

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

 

LEI: 2138004UJ1TW8UCELX08

 

 

 

 

 

 

 

 

 

 

13 February 2025

 

LMS CAPITAL PLC

 

Company Update and Net Asset value ("NAV") Estimate as at 31 December 2024

 

LMS Capital plc ("LMS" or the "Company") the listed investment company
provides the following update and estimate of net asset value ("NAV") as at 31
December 2024.

 

KEY POINTS

 

Financial Update

 

·      The 31 December 2024 NAV estimate is £36.2 million (44.8p per
share) and compares with £34.9 million (43.3p per share), being most recently
reported NAV estimate at 30 September 2024;

 

·      The increase of £1.3 million since 30 September 2024 is
principally the result of:

 

o  Net increases of £0.5 million in the underlying portfolio valuations;

o  Unrealised foreign exchange gains of £1.0 million on US Dollar
denominated investments;

o  Interest and other income of £0.3m; and

o  Net reduction of £0.5 million in running costs and investment costs minus
exchange gains on cash balances.

 

·      $1.8 million cash was received in December 2024, being the final
deferred consideration due on the sale of Medhost in line with the sale
agreement.

 

·      Cash at the year end was £13.5 million (16.2p per share) (2023:
£15.5 million, 19.2p per share).

 

Strategic Review

 

The Board is mindful of the challenges facing the Company in terms of its
size, limited secondary market liquidity and the discount to NAV at which the
Ordinary Shares have been trading and has determined to carry out a strategic
review of the Company's future direction. It will also review the Company's
cost base with the objective of reducing the ongoing costs.

 

The review may lead to a change in the Company's investment policy in
conjunction with asset realisations with a return of capital to shareholders
in due course.

 

The review process will cover the Company's investment mandate and focus in
all areas. In relation to retirement living, the Board continues to see
opportunity and may seek external investors into the Company's retirement
living subsidiary which could add additional assets to create a retirement
living platform and ultimately enhance realisation value.

 

 

The Board intends to seek shareholder views over the coming weeks.

 

NET ASSET VALUE ESTIMATE

 

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

 

The Board currently estimates that the year end NAV will be in the region of
£36.2 million which equates to 44.8p per share. This NAV estimate reflects
information currently available to the Board on the performance and prospects
of individual investments in the Company's portfolio and is subject to further
evaluation as well as completion of the annual audit.

 

The estimated 31 December 2024 NAV is summarised below:

 

                                  Estimated            Most recently reported 30 September 2024  Audited

                                  31 December 2024                                               31 December 2023
                                  £'m
 Mature Assets                    7.6                  7.3                                       11.3
 Dacian                           9.3                  9.1                                       11.0
 Retirement Living - Castle View  6.6                  6.1                                       6.1
 Total Investment Portfolio       23.5                 22.5                                      28.4

 Cash                             13.5                 12.4                                      15.5
 Other Net Liabilities            (0.8)                -                                         (1.8)

 Net Asset Value                  36.2                 34.9                                      42.1
 NAV per Share                    44.8p                43.3p                                     52.2p

 

The valuation methodology and policy adopted is consistent with prior years
and is in line with IPEV guidelines. The carrying value of the funds is based
on the latest available information from the respective fund managers,
generally the 30 September 2024 fund valuation reports except for Weber which
is based on a 31 December 2024 valuation.

 

The increase of £1.3 million in NAV during the last quarter of the year
comprises:

 

·      Net increase of £0.5 million in underlying portfolio valuations:

o  £0.5 million, increase in valuation of Castle View (see below);

o  £0.5 million, income from final distribution of profit share from former
real estate fund investment; and

o  £0.5 million further reduction in estimated valuation of Dacian
reflecting the company's need for further working capital (see below).

·      Unrealised foreign exchange gains on non sterling denominated
assets of £1.0 million;

·      Running costs of £0.4 million and investment costs of £0.2
million; and

·      Interest income and other foreign exchange gains £0.4 million.

 

For the year as a whole, the Company's estimated NAV, after adding back
dividends paid, has decreased by £5.2 million, most of which occurred in the
first half and was reported at 30 June 2024. The principal underlying
portfolio changes on a full year basis were:

 

·      A decrease of £2.5 million in Brockton Fund 1, reflecting the
decision reported at the half year to write down to nil the carrying value of
the investment following the appointment of receivers to the Fund's remaining
development asset in January 2024;

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

·      A decrease in Dacian of £1.3 million. This includes £0.8
million reduction reported at the half year stage following restructuring of
Dacian's balance sheet and a further reduction of £0.5 million In the second
half;

·      An increase in Castle View of £0.5 million. An update on
retirement living and Castle View is set out below.

 

Other full year movements include:

·      Full year running costs £1.8 million. Cost saving measures
during the year have reduced the annual run rate of costs to approximately
£1.6 million by December 2024.

·      Investment costs of £0.8m include the costs of the individuals
who are focussed entirely on the operation and development of the retirement
living business, together with some transitional costs associated with Castle
View and professional fees in connection with the Dacian restructuring in July
2024.

·      Other net income of £0.9 million, including unrealised foreign
exchange gains of £0.2 million on non-portfolio assets, principally US Dollar
bank accounts, bank interest of £0.6 million and other net income received of
£0.1 million.

 

Further information on the performance of the portfolio, underlying investment
valuations and changes during the year will be included in the Company's
audited results for the year ended 31 December 2024, which it expects to
announce in March 2025.

 

RETIREMENT LIVING

 

Castle View

 

LMS acquired its investment in Castle View Retirement Village ("Castle View")
in December 2023 and has now completed its first full year of operation.

 

Castle View is a retirement development comprising 64 self-contained
apartments close to Windsor town centre, together with communal facilities
including 24-hour reception, lounges, bars, library and a restaurant facility.

 

Residents acquire their apartments, and the right to use the communal
facilities, on 250-year leases and pay an annual service charge, which covers
the day to day running of the scheme, plus a deferred fee on resale of an
apartment. The deferred fee is designed to cover the costs of constructing the
communal facilities, their ongoing maintenance and updating, and to provide a
return on capital invested.

 

LMS acquired the freehold interest in Castle View, including 15 unsold
apartments in December 2023 together with the operations and the right to
receive the service charge fees and deferred fees in the future. The
acquisition was made for £6.1m of equity from LMS and £5.8 million of senior
debt to be repaid from the proceeds of apartment sales.

 

Progress during the first year has been broadly as expected. Apartment sales
were within the range of basic scenarios considered during the acquisition
process, albeit at the lower end. During the year, sales of 3 apartments have
been completed, and reservations have been taken on a further 3, anticipated
to complete in early 2025. As a result of the completed sales, debt plus
accrued interest has been reduced to £5.1 million.

 

The investment has been valued at the year-end using a discounted cash flow
model. The assumptions used are broadly consistent with those used to evaluate
the acquisition and result in a small increase in carrying value.

 

Retirement Living Outlook

 

The acquisition of Castle View represented the first step in developing an
investment platform focussed on retirement living.

 

Underlying demand in the sector is driven by demographics in the UK. The
number of 75+ year old households is expected to increase by 77% in the 25
years to 2043. This older population owns more than 40% of housing equity
which can be released to finance retirement options and also free up stock for
the wider family housing market.

 

The market for the retirement living properties is undersupplied, with
relatively few developers or operators of scale and an increasing interest
from institutional capital. A recent sale and leaseback transaction in the
sector is the first of its kind and provides a potential model for future
transactions which could provide an exit for investors.

 

The Board continues to see opportunity in the sector, particularly in the
acquisition of existing stock which offers long term value potential but also
provides attractive income. Accordingly, the Board may seek to attract outside
investment into the Company's retirement living subsidiary which could add
additional assets to create a retirement living platform and ultimately
enhance value in due course.

 

DACIAN

 

As announced on 15 July 2024, investors in Dacian, including the Company,
agreed to a restructuring of Dacian, the details of which are contained in
that announcement. As explained in the July announcement, the restructuring
required Romanian regulatory approval, which has been applied for and is still
awaited, but expected to be received.

 

At the time of the July restructuring, Dacian underwent a process to review
and reset achievable production targets and adjust its cost base to reflect
the reset production levels.

 

Production in the second half of 2024 was at an average monthly rate of 647
barrels of oil equivalent per day ("BOEPD") which was approximately 5% below
expectations due largely to an interruption to gas supply in December 2024.
Dacian continues to implement headcount reductions. Headcount at the end of
the year was 162 down from 191 in January 2024 without impacting its
operations.

 

Dacian has continued to meet external obligations. Its external debt, the
repayments of which were approximately $300,000 per month, was fully repaid in
November 2024. Obligations under a recently imposed Romanian Solidarity tax of
some $100,000 per month will be payable until March 2025.

 

Cash flow is expected to improve in Q2 2025, once the company is free of its
external debt obligations and after  the tax obligations are discharged.

 

Against this background Dacian has sought to manage its working capital to
ensure it can maintain access to supplies of spare parts, in particular
replacement rods and tubes for its wells, which will ultimately enable it,
through an enhanced maintenance program, to stabilise and increase its
production and operating cash.

 

To allow for inevitable energy pricing fluctuations and to manage its working
capital and plan with confidence for implementation of its production
enhancement projects, Dacian has requested further advances of $800,000 under
the Bridge Loan to which certain of the original Bridge Lenders, Robert Rayne
and James Wilson who are directors of the Company, have contributed. The
additional advances are provided on the same terms as the Bridge Loan, being
at an interest rate of 14% with a term of 30 June 2025 and an equity
subscription right of 4% which is pro rata the same basis as the original
terms announced on 15 July 2024.

 

Assuming that the regulatory approvals for the July 2024 restructuring are
received, and taking account of the additional subscription share rights
granted to the providers of the original July 2024 Bridge loan and the
additional $800,000, the capital structure will be:

·      the original investors will increase from 50% to 78.6%, of which
LMS's holding will increase from 32.3% to 50.8%;

·      the subscription shares for the Bridge Lenders 9.5%

·      the Founders will be diluted from 50% to 11.9%.

 

The 78.6% shares held by the original investor group has preferential
distribution rights versus the shares held by both the Bridge Lenders and the
Founders, the objective being, to the extent permissible under Romanian law,
to leave the original investors as close as possible, to the position they
would have been in had the Senior Loan Notes remained in place.

 

Outlook for Dacian

 

·      We are pleased to announce that John Burkhart, an experienced oil
industry executive will join the Dacian board as a non-executive director.
John has spent the last 17 years of his career in senior leadership roles at
Hunt Oil Company based in Texas. John's knowledge and experience will provide
support to the Dacian team.

·      Production stabilisation and enhancement:

o  Dacian has provided its shareholders with a costed project by project plan
to stabilise and increase production, primarily through additional investment
in maintenance to reduce break downs and lost production on active oil and gas
wells.

o  The program overall shows an increase in average  production from current
levels to in excess of 900 BOEPD by the end of 2026 (or earlier if additional
capital is raised).

o  Assuming the program is implemented in full, and at an oil price of
average $75 per barrel, the operating cash flow should be in excess of
$300,000 per month.

·      The alternative energy use opportunities for the Dacian estate
continue to be progressed and the Board continue to be optimistic that this
will bring additional benefits in due course.

·      The Bridge Lenders, Dacian and the Original Investor Group note
that the Bridge loan is due for repayment by 30 June 2025 and are exploring
the potential extension of the Bridge Loan term and/or the potential
conversion of the Bridge Loan with accrued interest into equity, in
circumstances where it makes commercial sense for Dacian to do so.

 

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

 

 

For further information please contact:

 

LMS Capital plc

Nick Friedlos, Managing Director

0207 935 3555

 

Shore Capital, Broker

Gillian Martin, Daphne Zhang, Sophie Collins
0207 408 4050

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