Final Results
LMS Capital PLC
26 March 2008
26 March 2008
LMS Capital plc
Preliminary Results for the year ended 31 December 2007
The Board of LMS Capital plc ("LMS Capital" or the "Company") is pleased to
announce its preliminary results for the year ended 31 December 2007.
Financial Highlights*
•Net Asset Value per share was 101p (31 December 2006: 90p), an increase
of 12%
•Shareholders' return on equity was 12% (nine months ended 31 December
2006: loss)
•Net Asset Value was £289.0 million (31 December 2006: £258.5 million)
•The valuation of the investment portfolio was £282.1 million (31 December
2006: £234.9 million)
•Net gains on investments were £36.7 million (nine months ended 31
December 2006: net loss of £6.4 million)
•Profit after tax was £29.8 million (nine months ended 31 December 2006:
loss of £10.8 million)
*investment management business
Operational Highlights
•Discussions are taking place regarding the sale of Energy Cranes
•The Company entered the real estate sector through investments in
Brockton Capital Fund I (UK), Illyrian Land Fund II (South Eastern and
Eastern Europe) and Patson VNO Holdings (USA)
•The investment in Gourmet Holdings plc was increased
Robert Rayne, Chief Executive Officer of LMS Capital, said:
"These strong results demonstrate the resilience of our business despite the
uncertain market conditions we have seen since the middle of 2007. We expect
market conditions to be harder in the future and we continue to take a cautious
approach to valuations, both in our existing portfolio and in assessing new
investment opportunities. We believe that with our risk diversification,
experienced management team and long-term outlook we are well placed to make
good progress. We also perceive the current conditions as being an opportunity
for us to make further investments at favourable prices."
For further information please contact:
LMS Capital plc 020 7935 3555
Robert Rayne, Chief Executive Officer
Martin Pexton, Managing Director
Tony Sweet, Chief Financial Officer
Arbuthnot Securities Limited 020 7012 2000
Alastair Moreton
Brunswick Group LLP 020 7404 5959
Simon Sporborg
Leonora Pou
www.lmscapital.com
Chairman's statement
During 2007 the Company continued to make good progress with its objectives for
the investment portfolio.
Results
The Group achieved realised gains on investments of £6.7 million for the year
ended 31 December 2007 (31 December 2006: £5.1 million). Net unrealised gains on
the investment portfolio were £30.0 million (nine months ended 31 December 2006:
losses of £11.5 million). The profit from our investment management business for
the year ended 31 December 2007 was £29.8 million (31 December 2006: loss of
£10.8 million). For the Group as a whole (including the portfolio subsidiaries)
the loss for the period was £0.4 million (nine months ended 31 December 2006:
loss of £21.6 million). The Board is not recommending payment of a dividend in
respect of the year ended 31 December 2007 (2006: Nil).
The valuation of the investment portfolio at 31 December 2007 was £282.1
million, an increase of £47.2 million, 20%, compared to 31 December 2006. The
net asset value per share of the Company at 31 December 2007 was 101p (31
December 2006: 90p).
Our quoted portfolio has performed well during 2007 and we have been able to
take advantage of price improvements to reduce the number of our holdings,
particularly where the holding was relatively small. Our directly managed
investments have undergone strategic reviews by the new investment managers and
we are already seeing the benefits in the companies' underlying performance. In
the US we have introduced a partner into San Francisco Equity Partners,
realising part of our investment and at the same time expanding the size of that
fund.
Board and management
On behalf of the Board I should like to record our thanks to the management and
staff of the Company for their efforts in consolidating the business and laying
the foundations for the future.
Share purchase authority
At the forthcoming Annual General Meeting the Company will be seeking authority
to purchase up to 14.99% of its issued share capital, as is usual practice by
investment companies. The Company also needs to obtain a waiver in respect of
the Takeover Code obligations that a repurchase of shares above a certain limit
would place on the Rayne family shareholders. Full details will be provided in
the Notice of Annual General Meeting which will accompany the Annual Report.
Your Board regularly reviews the possibility of purchasing shares in the market
and the Directors will use such authority only if they believe, at the relevant
time, that it is in the best interests of the shareholders and would result in
an increase in net asset value per share of the Company.
Outlook
The Company has a broadly-based, risk-diversified portfolio of investments in
sectors where the management team has considerable experience and we are seeing
a sustained inflow of new investment opportunities. The current economic
environment is uncertain but your Board is confident that the Company's strategy
will result in strong medium to long-term growth in shareholder value.
Jonathan Agnew
Chairman
26 March 2008
Business Review
Strategy
LMS Capital plc is an independent investment company. Our objective is to
deliver sustained medium to long-term growth for our shareholders through a
risk-diversified portfolio of investments in public and private companies.
We understand the drivers of demand in the sectors in which we invest and this
enables us to recognise the potential of both new ideas and young companies
requiring growth funding. These sectors currently include applied technology,
energy, healthcare and medical, media and leisure and real estate. We do,
however, retain the freedom to invest outside our core sectors in order to take
advantage of opportunities when they arise.
Investments are principally in the UK and US, although the Company is not
restricted from expanding into other markets.
A deep knowledge of our chosen sectors acquired over many years allows LMS
Capital to invest in and with leading management teams, however, the Company
undertakes rigorous inquiry and carries out full due diligence into new
investments to understand the investee company's business, evaluate information
on their market place and competition, meet their management, directors and
existing shareholders and if necessary commission reports from external experts.
We also understand the cyclical nature of the sectors in which we are working in
and through taking long-term positions are able to adjust our economic interest
to reflect the longer holding period. One of the principal characteristics of
LMS Capital which differentiates us from other private equity investors is the
time horizon over which we are able to invest. As an active, and supportive,
long-term investor we are not constrained by the fixed investment periods
(typically three to five years) of most private equity funds. It is not uncommon
for us to hold investments for longer than this where we believe that this will
deliver greater shareholder value.
The Board will continue to manage the Company's portfolio in line with its
overall objective. In this regard, we may make realisations from within the
existing portfolio where we believe that the proceeds of realisation could
generate better returns if deployed elsewhere.
Investment Portfolio
The portfolio is risk diversified and comprises:
•early stage companies where we expect high return multiples;
•companies requiring development finance where the normal holding period
would be three to five years; and
•shorter term investments in the pre- and post-IPO market which usually
provide liquidity within three to four years.
Analysis of portfolio by investment stage
2007 2006
______________ _____________
£ millions % £ millions %
Early stage 27.6 10 24.5 10
Development 77.2 27 64.6 28
Growth 106.7 39 71.2 30
Post IPO 70.6 24 74.6 32
_________ _________ _________ _________
282.1 100 234.9 100
_________ _________ _________ _________
Analysis of portfolio by type of investment
2007 2006
__________________ ______________
UK US Total Total
Quoted 17.5 46.3 63.8 69.4
Unquoted 116.5 15.4 131.9 99.3
Funds 28.6 57.8 86.4 66.2
_________ _________ _________ _________
162.6 119.5 282.1 234.9
_________ _________ _________ _________
At 31 December 2007, 42% of our portfolio was US based (31 December 2006: 47%),
which includes £57.8 million (31 December 2006: £54.7 million) in US private
equity funds.
Analysis of portfolio by sector
2007 2006
_____________ ______________
£ millions % £ millions %
Applied technology 84.2 30 84.8 36
Energy 105.7 37 66.6 28
Healthcare & medical 18.0 6 23.5 10
Media & leisure 44.5 16 46.5 20
Real estate 15.4 5 - -
Financial services 2.3 1 7.5 3
Funds 12 4 6.0 3
_________ _________ _________ _________
282.1 100 234.9 100
_________ _________ _________ _________
Operational Review
Additions to the investment portfolio during the year were £57.2 million (nine
months ended 31 December 2006: £48.1 million) of which £30.5 million was for new
investments and £26.7 million for follow on investments and capital calls on
funds.
Energy
Energy Cranes International ("Energy Cranes") is our largest investment by value
and the business has continued to make good progress during the year. It has
further consolidated its global position in the provision of offshore crane
services by acquiring Marine and Mainland, based in Houston and Aberdeen
Hydraulic Services, based in Aberdeen.
Weatherford International Limited remains our second largest investment; our
holding has a book value of £28.3 million at 31 December 2007. A quoted US
company, Weatherford is one of the world's largest diversified upstream oilfield
service companies. In September 2007, we sold part of our holding for £3.2
million.
During the year, we invested £3.6 million in BJ Services, a company whose core
business comprises cementing, stimulation, downhole tools and coiled tubing
services to the oil and gas industry worldwide. BJ Services also provides
tubular services, process and pipeline services, and specialty chemical services
in selected geographic markets. Its shares are listed on the New York Stock
Exchange.
We also purchased an interest in Venture Production plc at a cost of £3.4
million. The company is involved in acquiring, operating and revitalising
stranded oil and gas assets - fields with proven but untapped potential. We sold
half our holding in the third quarter and the closing value of our remaining
holding is £2.0 million.
Another new investment in the year is Stratic Energy Corporation, a
Canadian-incorporated international oil and gas company involved in the
production, development, appraisal and exploration of hydrocarbons. The
company's key interests are in the North Sea, Italy and the Black Sea, with
further interests in Syria, Tunisia, Slovenia, Romania and Morocco. The
company's asset portfolio encompasses near-term production, development,
appraisal and exploration properties.
We have also committed US$5 million to Energy Ventures Fund III, a Norwegian
fund focusing on upstream oil & gas technology and service companies with global
potential. The management team have an impressive track record in their first
two funds.
During 2007 ITS Engineered Systems Inc, which provides custom engineering and
fabrication services to the oil and gas industry, has significantly improved its
operating performance following a reappraisal of the business' strategy and
focus. New management has been appointed who have improved all aspects of
operational procedures including cost controls. The company has also continued
research into new processes within the energy sector, including development of a
new wastewater treatment and recycling process.
In December 2007, the Company invested £0.9 million in Global Green Solutions
Inc, which is a Canadian quoted company. Global Green is engaged in the
development of alternative energy activities to reduce greenhouse gas emissions
and to generate carbon credits.
Real estate
Capitalising on management's knowledge and experience of the real estate sector,
the Company acquired an interest in Brockton Capital Fund I, a UK real estate
opportunity fund, from Derwent London in June 2007 at a cost of £7.9 million.
There have been capital calls since then of £4 million with approximately an £11
million commitment remaining to be called. The fund focuses on UK direct
property and UK asset-backed private equity. The Brockton team, which is well
known to us, has a deep analytical understanding of property and how best to
enhance value.
As part of the development of our real estate interests we have made two further
commitments. We committed €5 million to Illyrian Land Fund II, which
concentrates on high growth or undervalued assets in South Eastern and Eastern
Europe. This fund is managed by Emerging Markets Advisory Corporation Limited in
which we have an 8.8% interest.
We also agreed a $5 million loan facility to Patson VNO Holdings. Patson,
managed by a team well known to us over a number of years, focuses on the
management and development of commercial property opportunities in California.
Media & leisure
The Company has been invested in this sector for a number of years. A long-term
investment is Rave Reviews Cinemas, an independent multiplex cinema operator in
the US. Rave is a co-investment with Boston Ventures, with whom we have been
partners for many years
The Company is invested in Gourmet Holdings plc, which is quoted on AIM. Gourmet
is the owner of the Richoux chain, four upmarket patisseries located in Central
London. During 2007, Gourmet underwent a management reorganisation and received
an injection of capital. As a result, we now own approximately 21% of Gourmet.
In September 2007, Gourmet acquired an Italian patisserie brand, Amato, and will
roll out new patisseries under this brand during 2008.
Since May 2006, the Company has been invested in Prime Foods Limited. Prime
Foods trades as Prime Star and is the leader in the sandwich sector in Moscow,
with 12 outlets. The fast food sector is one of the fastest growing in Moscow
and the Company owns 8.8% of the company.
Healthcare & medical
The Company owns approximately 9.0% of ProStrakan Group plc, a listed UK company
in the rapidly growing specialty pharmaceutical sector. The company is engaged
in the in-licensing, development and commercialisation of prescription medicines
for the treatment of unmet therapeutic needs in major markets. It continues to
make good progress in its chosen markets and we expect to continue to hold this
investment in expectation of increases in value in the medium term.
During 2007 we invested $1 million in O2 Medtech Investment Group LP, a single
purpose limited partnership created to invest in O2 Medtech which has developed
a new technique to measure oxygen flow to the blood during surgical procedures.
Applied technology
In September 2007, we invested US$5 million for an 8% interest in a buyout of
Healthcare Management Systems (HMS), a transaction led by Primus Capital Funds,
which is one of our US General Partners. HMS is a provider of integrated
IT solutions and business services to over 550 hospitals in the US. The company
offers clinical as well as financial solutions for hospitals.
During the year, the Company invested £0.6 million in Bond International
Software plc, a worldwide provider of software solutions in the field of human
capital management. It supplies staffing and talent management software for
recruitment consultancies and corporations of all sizes, and provides HR,
e-recruitment and payroll solutions to the public, education and publishing
sectors.
We sold our investments in Atheros Communications and Covad and reduced our
holding in Digital Generation Systems. A total of £4.4 million was raised from
these disposals.
Overall our UK unquoted investments in this sector made good progress during
2007. Each has recently evaluated its strategic options and formulated a clearly
defined plan. However, in the current uncertain market conditions we continue to
adopt a prudent approach to the valuation of these businesses.
Financial services
Following the takeover of Bridgewell Group plc by Landsbanki in August 2007, the
Company received shares in Landsbanki which it subsequently sold in the market.
Although this investment did not meet our original expectations in terms of
value on exit, we nevertheless achieved an internal rate of return of over 10%
on our investment.
Funds
During the year, the Company invested £28.3 million in various funds throughout
its core investment sectors. Income distributions received for the year from our
fund investments totalled £14.3 million.
Financial Review
Basis of preparation of financial information
The Company is for the first time reporting its full year results under
International Financial Reporting Standards (IFRS), and the consolidated
financial statements include the consolidation of portfolio companies which are
also subsidiaries ("portfolio subsidiaries"). Since the Board manages the
Company as an investment business, this financial review focuses on the results
of the investment management operations. Note 2 to the financial information
shows the separate results and net assets of the investment management business.
Where appropriate, this review comments on the results and financial position of
the portfolio subsidiaries.
The financial information of the Group for the year ended 31 December 2007 and
the nine months ended 31 December 2006 has been prepared on a merger accounting
basis as if it had been in existence in its current form throughout both these
periods. The Company was formed on 17 March 2006 and commenced operations on 9
June 2006. Further details of the basis of preparation are set out in Note 1 to
the financial information.
Results of operations
Net Asset Value at 31 December 2007 was £289.0 million (31 December 2006: £258.5
million), an increase of £30.5 million or 12%. The Net Asset Value per share was
101p (31 December 2006: 90p). The investment portfolio increased by £47.2
million (22%) to £282.1 million.
The Group's return on its investment portfolio for the year ended 31 December
2007 was £36.7 million, 16%, (nine months ended 31 December 2006: loss of £6.4
million) as follows:
Year ended Nine months
ended
31 December 2007 31 December 2006
£'000 £'000
Realised gains/
(losses)
Quoted securities 2,910 364
Unquoted securities - 1,913
Funds 3,794 2,774
____________ ____________
6,704 5,051
____________ ____________
Unrealised gains/
(losses)
Quoted securities 8,240 (2,552)
Unquoted securities 15,374 (4,213)
Funds 6,421 (4,705)
____________ ____________
30,035 (11,470)
____________ ____________
Total gain/(loss) 36,739 (6,419)
____________ ____________
There were no disposals of unquoted securities in 2007.
Approximately 42% of the portfolio at 31 December 2007 is denominated in US
dollars (2006: 47%) and the above table includes the impact of unrealised
currency movements. In the nine months ended 31 December 2006 the weakening of
the US dollar against pound sterling resulted in an unrealised foreign currency
loss of £13.4 million. During the year ended 31 December 2007, despite
fluctuations in the dollar/sterling exchange rate, the overall weakening of the
dollar was substantially less and the unrealised loss for the year was £1.4
million.
Unrealised gains on quoted securities reflect particularly the strength of the
oilfield services sector during 2007 - the increase in the share price of
Weatherford International during the year contributed £11.6 million to the gains
on quoted securities. Offsetting this, the weakness of the Pro-Strakan Group
share price resulted in an unrealised loss of £7.9 million.
The unrealised gains for the year on our unquoted securities arise as follows:
Unrealised
gain/
(loss)
£'000
Investments in the Top 20
Energy Cranes 31,000
AssetHouse (3,360)
Entuity (2,245)
Vio Worldwide (1,650)
Wesupply (1,029)
CopperEye (1,013)
--------
21,703
Other smaller investments (6,329)
--------
Total net unrealised gain 15,374
--------
Energy Cranes has enjoyed a successful 2007 - revenues for the year grew to
£113.9 million from £99 million for the full year 2006 and EBITDA increased from
£9.9 million to £12.2 million. It also completed the acquisitions of Aberdeen
Hydraulics and Marine & Mainland during the year such that it closed 2007 with
an annual run rate of revenues of £125 million. Our valuation of this business
at 31 December 2007 was £65 million, an increase of £31 million over 31 December
2006 to reflect this.
Whilst we are pleased with the progress made by most of the companies in our
portfolio of technology investments, we have continued to take a cautious
approach to valuation, particularly given the current uncertain investment
market.
AssetHouse has had a disappointing year and has not been able to improve its
sales performance. The write down includes £1.4 million in respect of additional
funds advanced during the year to cover operating costs and £2 million to reduce
the previously reported carrying value.
Entuity has also failed to make its sales plan - we have written off £0.9
million of additional funding provided during the year and reduced the carrying
value by £1.3 million.
Vio Worldwide has made good progress during the year - management changes have
resulted in delay to its planned performance but the changes are already being
reflected in improving results. We injected a further £1.7 million into the
company this year and consider it prudent not to reflect this in the current
carrying value.
Wesupply has made significant progress during 2007 and the additional funding we
introduced of £3.6 million during the year has enabled the company to generate
substantially higher levels of interest and orders from its target market.
However the company is currently behind plan and so the carrying value does not
reflect the full amount of the amount advanced during the year.
CopperEye was refinanced during the year following a strategic investment and
licensing program with In-Q-Tel, the investment firm that identifies technology
solutions for the US intelligence community. In total we invested a further £2.5
million in the company during the year and are confident in its future
direction. However at the end of 2007 we do not consider that the carrying value
yet supports this additional funding and so we have written off £1 million of
the new funds introduced.
Income from investments in the year was £1.5 million (nine months ended 31
December 2006: £1.4 million) and comprises preference dividends paid by Energy
Cranes and dividends on quoted securities. Administration expenses for the year
were £7.4 million (nine months ended 31 December 2006: £4.9 million). Net
interest income for the year was £0.8 million (nine months ended 31 December
2006: £1.3 million) reflecting the lower levels of cash during the year. The tax
charge for the year was £0.4 million (nine months ended 31 December 2006: credit
of £0.7 million).
Investments
The Group's investments are included in the balance sheet at fair values
determined in accordance with industry guidelines. Additions to the investment
portfolio during the year were £57.2 million (nine months ended 31 December
2006: £48.1 million) of which £30.5 million was for new investments and £26.7
million for follow on investments and capital calls on funds.
The largest new investment was £7.9 million to acquire an interest in Brockton
Capital Fund I, a real estate opportunity fund, including £0.3 million for an
interest in the managing general partner of the fund. Since the acquisition of
our interest in June 2007 the fund has called a further £4.1 million taking our
total investment in fund to £11.7 million at the end of the year.
As part of the development of our real estate interests we have made two further
commitments. One is to a vehicle focusing on commercial property opportunities
in California where our commitment is $5 million of which £0.6 million ($1.2
million) had been advanced by the end of 2007. The other is to Illyrian Land
Fund II, which concentrates on high growth or undervalued assets in South
Eastern and Eastern Europe. Our commitment to the fund is €5 million of which
£2.8 million (€3.7 million) had been drawn down by the end of the year.
Purchases of quoted stocks totalled £11.7 million, with a focus on the energy
sector, in particular oilfield services. £3.6 million was invested in BJ
Services, listed on the New York Stock Exchange, and £3.4 million in Venture
Production, a UK listed company which is involved in acquiring, operating and
revitalising oil and gas fields with proven yet untapped potential.
We invested £17.3 million in our unquoted investments of which £12.9 million was
follow-on funding for our UK portfolio. In the US we invested £2.5 million in
Healthcare Management Systems as a co-investment with one of our US fund
interests. HMS provides software systems and related services to community and
specialty hospitals in the US.
Proceeds of realisations were £46.8 million (nine months ended 31 December 2006:
£30.2 million) of which sales of quoted stocks provided £28.5 million.
Distributions from funds were £14.3 million. In addition in November 2007 we
received £4 million for 20% of our interest in San Francisco Equity Partners
which we sold to a leading European institution at book value. The price
received will increase to a premium based on a formula as future realisations
from the fund are achieved. There is no change in our capital commitment to the
fund following the sale and the buyer has agreed to commit additional capital to
increase the overall fund size.
At 31 December 2007 the Group had commitments to meet capital calls from its
fund interests in the US and the UK totalling £62.5 million.
Financial position
The consolidated balance sheet at 31 December 2007 includes cash and cash
equivalents of £14.5 million (31 December 2006: £29.9 million) and borrowings of
£44.7 million (31 December 2006: £26.3 million).
Cash in the investment management business of £8.2 million was £15.9 million
lower than at the end of 2006 reflecting the investment activity for the year.
This included quoted stocks which may be sold if needed to provide liquidity.
The business also has a US$53 million borrowing facility with the Royal Bank of
Scotland which was not used during the year.
The borrowings are in Energy Cranes and were taken out to finance the
acquisitions made by the business since 2003. Its borrowings were most recently
refinanced in August 2007 following its acquisitions of Aberdeen Hydraulics and
Marine and Mainland.
Outlook
We expect difficult market conditions in the future, but believe that with our
risk diversity, experienced management team and long-term outlook we are well
placed to address these. In addition, we perceive the current conditions as
being an opportunity for us to make further investments at favourable prices.
The Company has a broadly-based, risk-diversified portfolio of investments in
sectors where the management team has considerable experience. We are seeing a
sustained inflow of new investment opportunities and are pursuing a number of
these. The objective for the Company is to grow to net assets of £500 million
within five years, targeting an annual return of between 15% and 20%. There will
be fewer, but larger, investment positions within the portfolio with more direct
investments. The geographical breakdown will also change as we invest in
opportunities outside the UK and the US. We believe that the Company is well
placed to meet these objectives.
Robert Rayne
Chief Executive Officer
26 March 2008
Principal investments
The top 20 investments by valuation as at 31 December 2007 are provided in the
table below:
Book value
31 December
Name Country Activity 2007 2006
£'000 £'000
Energy Cranes UK Offshore crane operations 65,000 34,000
International
Weatherford US Oilfield services 28,349 19,630
International Inc
San Francisco US Technology, media and 21,731 21,729
Equity Partners retail
Cityspace Limited UK Urban information 12,902 12,500
networks
ProStrakan Group UK Speciality 11,705 19,427
plc pharmaceuticals
Brockton Capital UK Real estate opportunity 11,668 n/a
Fund fund
Chyron Corporation US Media technology 7,303 4,846
Rave Reviews US Cinema operator 7,253 7,854
Cinemas
Vio Worldwide UK Digital workflow 7,000 7,000
Limited management solutions
Wesupply Limited UK Supply chain execution 6,650 4,000
management software
Spectrum IV US Communications and IT 6,044 8,208
Amadeus II LP UK Early stage technology 5,634 4,994
Boston Ventures LP US Media and leisure 4,749 5,465
VI
AssetHouse UK Content services 4,000 6,000
Technology Limited infrastructure software
Entuity Limited UK Network management 4,000 5,300
software
CopperEye Limited UK Indexing technology 4,000 2,500
software
Inflexion Fund II UK Mid-market buyouts 3,666 2,248
Boston Ventures LP US Media, publishing, 3,389 3,511
V communications and
leisure
BJ Services US Oil and gas fields 3,056 n/a
services
7 Global Limited UK Software hosting services 3,000 3,000
Consolidated income statement
Notes Year Nine months
ended ended
31 December 31 December
2007 2006
£'000 £'000
___________________________ _______ _______________ ________________
Revenue from sales of goods 129,784 82,109
and services
Gains and losses on 10,899 (13,369)
investments held at fair
value through profit or
loss
Interest income 918 1,410
Investment and other income 507 157
___________________________ _______ _______________ ________________
142,108 70,307
Operating expenses (137,000) (84,039)
Other expenses - (3,097)
___________________________ _______ _______________ ________________
Profit/(loss) before 5,108 (16,829)
finance costs
Finance costs (2,445) (4,225)
___________________________ _______ _______________ ________________
Profit/(loss) before tax 2,663 (21,054)
Taxation (3,055) (573)
___________________________ _______ _______________ ________________
Loss for the period (392) (21,627)
___________________________ _______ _______________ ________________
Attributable to:
Equity holders of the (529) (21,860)
parent
Minority interests 137 233
___________________________ _______ _______________ ________________
(392) (21,627)
___________________________ _______ _______________ ________________
Basic loss per ordinary 3 (0.2)P (7.6)p
share
Diluted loss per ordinary 3 (0.2)P (7.6)p
share
___________________________ _______ _______________ ________________
Consolidated balance sheet
31 December
2007 2006
£'000 £'000
_________________________________________________________________________ ________ ________
Non-current assets
Property, plant and equipment 14,255 12,558
Intangible assets 71,257 35,714
Investments held at fair value through profit or loss 183,512 188,370
Interests in joint ventures 197 208
_________________________________________________________________________ ________ ________
Non-current assets 269,221 236,850
_________________________________________________________________________ ________ ________
Current assets
Inventories 5,738 8,395
Operating and other receivables 46,299 30,978
Cash and cash equivalents 14,548 29,859
_________________________________________________________________________ ________ ________
Current assets 66,585 69,232
_________________________________________________________________________ ________ ________
_________________________________________________________________________ ________ ________
Total assets 335,806 306,082
_________________________________________________________________________ ________ ________
Current liabilities
Bank overdrafts (285) (293)
Interest-bearing loans and borrowings (7,842) (2,188)
Operating and other payables (29,891) (26,823)
Deferred income (2,199) (1,441)
Current tax liabilities (601) (203)
_________________________________________________________________________ ________ ________
Current liabilities (40,818) (30,948)
_________________________________________________________________________ ________ ________
Non-current liabilities
Interest-bearing loans and borrowings (36,576) (23,866)
Deferred income (2,582) -
Deferred tax liabilities - (320)
Provision for liabilities and charges (1,384) -
_________________________________________________________________________ ________ ________
Non-current liabilities (40,542) (24,186)
_________________________________________________________________________ ________ ________
_________________________________________________________________________ ________ ________
Total liabilities (81,360) (55,134)
_________________________________________________________________________ ________ ________
Net assets 254,446 250,948
_________________________________________________________________________ ________ ________
Equity
Share capital 28,643 28,643
Capital redemption reserve 4,257 4,257
Merger reserve 84,083 84,083
Foreign exchange translation reserve (867) (927)
Retained earnings 133,047 130,548
_________________________________________________________________________ ________ ________
Equity attributable to owners of the parent 249,163 246,604
Minority interest 5,283 4,344
_________________________________________________________________________ ________ ________
Total Equity 254,446 250,948
_________________________________________________________________________ ________ ________
Consolidated statement of
recognised income and expense
Year Nine months
ended ended
31 December 31 December
2007 2006
£'000 £'000
________________________________________________________ _______________ ________________
Exchange differences on translation of foreign 56 (809)
operations
________________________________________________________ _______________ ________________
Net income/(loss) recognised directly in equity 56 (809)
Loss for the year (392) (21,627)
________________________________________________________ _______________ ________________
Total recognised income and expense (336) (22,436)
________________________________________________________ _______________ ________________
Attributable to:
Equity holders of the parent (469) (22,446)
Minority interests 133 10
________________________________________________________ _______________ ________________
(336) (22,436)
________________________________________________________ _______________ ________________
Consolidated cash flow statement
Year ended Nine months
ended
31 December
2007 31 December
2006
£'000
£'000
Cash flows from operating activities
Profit (loss) for the period (392) (21,627)
Adjustments for:
Depreciation 2,190 1,258
(Gains)/losses on investments held at fair value (10,899) 13,369
Translation differences 53 1,322
Share based payments 3,522 -
Finance costs 2,445 4,225
Interest income (918) (1,410)
Income tax expense 3,055 573
________________________________________________ __________ _________
(944) (2,290)
Change in inventories 4,224 (2,357)
Change in trade and other receivables (12,183) (4,004)
Change in trade and other payables 1,977 6,931
________________________________________________ __________ _________
(6,926) (1,720)
Interest paid (2,445) (4,225)
Income tax paid (2,997) (2,181)
Net cash provided by/(used in) operating (12,368) (8,126)
activities
________________________________________________ __________ _________
Cash flows from investing activities
Interest received 918 1,410
Acquisition of property, plant and equipment (4,764) (5,292)
Proceeds from disposals of property, plant and 2,757 -
equipment
Acquisition of investments (54,671) (45,660)
Acquisition of subsidiaries (12,388) -
Proceeds from sale of investments 46,849 30,174
Net cash used in investing activities (21,299) (19,368)
Cash flows from financing activities
Issue of preference shares - 50
Repurchase of own shares - (30,239)
Redemption of preference shares - (50)
Drawdown of interest bearing loans 18,364 10,041
Distribution to minority shareholders - (16,138)
Funding from group pre-demerger - 48,661
________________________________________________ __________ _________
Net cash from financing activities 18,364 12,325
________________________________________________ __________ _________
Net decrease in cash and cash equivalents (15,303) (15,169)
Cash and cash equivalents at the beginning of 29,566 44,735
the period
________________________________________________ __________ _________
Cash and cash equivalents at the end of the 14,263 29,566
period
________________________________________________ __________ _________
Cash and cash equivalents above comprise
Cash and cash equivalents 14,548 29,859
Bank overdrafts (285) (293)
________________________________________________ __________ _________
Cash and cash equivalents at the end of the 14,263 29,566
period
________________________________________________ __________ _________
Notes
1. Basis of preparation
LMS Capital plc ("the Company") is domiciled in the United Kingdom. This
financial information is presented in pounds sterling because that is the
currency of the principal economic environment of the Company's operations. The
consolidated financial statements of the Company for the year ended 31 December
2007 comprise the Company and its subsidiaries (together "the Group").
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.
Consolidated financial statements were prepared for the nine months ended 31
December 2006 to reflect the two step demerger process: this comprised an
initial common control transaction followed by a subsequent demerger of the
Group. The consolidated financial statements are prepared as if the Group had
always been in existence. The difference between the nominal value of the
Company's shares issued and the amount of the net assets acquired at the date of
demerger has been credited to merger reserve.
The Company is an investment company but because it holds majority stakes in
certain investments it is required to prepare group accounts that consolidate
the results of such investments. In order to present information that is
consistent with other investment companies, the results of the Group's
investment business on a stand alone basis are set out in Note 2.
This financial information has been prepared in accordance with International
Financial Reporting Standards as adopted for use in the European Union ("IFRS"),
although the financial information in this announcement is not sufficient to
comply with IFRS. The Group has prepared its financial information in accordance
with IFRS for the first time and has applied IFRS 1, First-time Adoption of
International Financial Reporting Standards. The disclosures required by IFRS 1
concerning the transition from UK GAAP to IFRS are given in Note 5.
The Group has decided to adopt early IFRS 8: Operating Segments ("IFRS 8"),
which defines requirements for the disclosure of financial information of an
entity's operating segments. IFRS 8 replaces IAS 14: Segment Reporting. It
follows the 'management approach', which is the basis for managing the
businesses. IFRS 8 is effective for reporting periods beginning on or after 1
January 2009. Early adoption is permitted.
Certain amendments to standards and interpretations are not yet effective for
the year ended 31 December 2007 and have not been applied in preparing these
consolidated financial statements: Revised IAS 23: Borrowing Costs and IFRIC 11:
IFRS 2 - Group and Treasury Share Transactions.
The financial information set out in this unaudited preliminary statement does
not comprise LMS Capital plc's statutory accounts within the meaning of section
240(5) of the Companies Act 1985. The statutory accounts of LMS Capital plc for
the year ended 31 December 2007, currently unaudited and to be published in due
course, will be finalised on the basis of the financial information presented by
the Directors in this unaudited preliminary statement and will be delivered to
the Registrar of Companies in due course and will also be sent to shareholders.
The comparative figures for the nine months ended 31 December 2006 are not the
Company's statutory accounts for that financial period. Those accounts, which
were prepared under UK GAAP, have been reported on by the Company's auditors and
delivered to the registrar of companies. The report of the auditors was: (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 237(2) or (3) of the Companies
Act 1985.
The financial statements have been prepared on the historical cost basis except
for the revaluation of investments held at fair value through profit or loss.
2. Operating segments
The information below has been prepared using the definition of an operating
segment in IFRS 8: Operating Segments which sets out the requirements for the
disclosure of financial information of an entity's operating segments. IFRS 8
requires an entity to present segment information on the same basis as the
financial information which is reviewed regularly by management to assess
performance and to allocate resources.
As an investment company, the Group's primary focus is on the performance of its
investment management business. Financial information for this segment is
prepared on the basis that all investments are accounted for at fair value.
The information set out below therefore presents summarised financial
information for the investment management business on a stand alone basis as a
single segment, together with the adjustments arising from the summarised
results and financial position of the portfolio subsidiaries. Adjustments for
Energy Cranes are shown separately because of the size of this business relative
to the others.
The consolidation adjustments included below reflect the adjustments necessary
to restate the portfolio subsidiaries from the basis included in the investment
management segment (investments carried at fair value) to full consolidation in
the Group's financial statements.
Consolidated income statement
Year ended 31 December 2007
Reconciliation
Portfolio subsidiaries
Investment Energy Other Consolidation Group
management Cranes adjustments total
£'000 £'000 £'000 £'000 £'000
___________ _________ _______ __________ ________
Revenues from sales of - 113,874 15,910 - (129,784)
goods and services
to external customers
Gains and losses on 36,739 - (260) (25,580) 10,899
investments held at fair
value through profit or
loss
Interest income 814 89 15 - 918
Investment and other income 1,508 - - (1,001) 507
_________ _______ ________ ________ _________
Finance costs - (2,943) (1,942) 2,440 (2,445)
_______ ________ ________ _________ _________
Profit/(loss) for the 29,836 1,425 (8,351) (23,302) (392)
period
_______ ________ ________ _________ _________
Nine months ended 31 December 2006
Reconciliation
Portfolio subsidiaries
Investment Energy Other Consolidation Group
management Cranes adjustments total
£'000 £'000 £'000 £'000 £'000
________ ________ ________ _________ _______
Revenues from sales of - 74,827 7,282 - 82,109
goods and services
to external customers
Gains and losses on (6,419) - 941 (7,891) (13,369)
investments held at fair
value through profit or
loss
Interest income 1,340 63 7 - 1,410
Investment and other income 1,546 - - (1,389) 157
________ ________ ________ _______ ________
Finance costs (50) (3,687) (488) - (4,225)
________ ________ ________ _______ ________
Profit/(loss) for the (10,847) 2,261 (3,761) (9,280) (21,627)
period
________ ________ ________ _______ ________
Consolidated balance sheet
31 December 2007
Reconciliation
Portfolio subsidiaries
Investment Energy Other Consolidation Group
management Cranes adjustments total
£'000 £'000 £'000 £'000 £'000
_______________________________________ ___________ ________ _______ __________ ________
Property, plant and equipment 311 11,197 2,747 - 14,255
Intangible assets - 32,497 - 38,760 71,257
Investments held at fair value through 282,120 - 200 (98,808) 183,512
profit or loss
Interests in joint ventures - 197 - - 197
_______________________________________ ___________ ________ _______ __________ ________
Non current assets 282,431 43,891 2,947 (60,048) 269,221
_______________________________________ ___________ ________ _______ __________ ________
Cash and cash equivalents 8,240 5,060 1,248 - 14,548
_______________________________________ ___________ ________ _______ __________ ________
Other current assets 1,557 43,878 6,602 - 52,037
_______________________________________ ___________ ________ _______ __________ ________
Total assets 292,228 92,829 10,797 (60,048) 335,806
_______________________________________ ___________ ________ _______ __________ ________
Total liabilities (2,504) (71,391) (40,954) 33,489 (81,360)
_______________________________________ ___________ ________ _______ __________ ________
Net assets/(liabilities) 289,724 21,438 (30,157) (26,559) 254,446
_______________________________________ ___________ ________ _______ __________ ________
The net asset value of the investment management business at 31 December 2007
includes £289,005,000 attributable to the equity holders of the parent and
£719,000 attributable to minority interests.
31 December 2006
Reconciliation
Portfolio subsidiaries
Investment Energy Other Consolidation Group
management Cranes adjustments total
£'000 £'000 £'000 £'000 £'000
_______________________________________ ___________ ________ _______ __________ ________
Property, plant and equipment 9 10,675 1,874 - 12,558
Intangible assets - 18,688 - 17,026 35,714
Investments held at fair value through 234,910 - 760 (47,300) 188,370
profit or loss
Interests in joint ventures - 208 - - 208
_______________________________________ ___________ ________ _______ __________ ________
Non current assets 234,919 29,571 2,634 (30,274) 236,850
_______________________________________ ___________ ________ _______ __________ ________
Cash and cash equivalents 24,120 4,910 829 - 29,859
_______________________________________ ___________ ________ _______ __________ ________
Other current assets 1,472 33,785 4,116 - 39,373
_______________________________________ ___________ ________ _______ __________ ________
Total assets 260,511 68,266 7,579 (30,274) 306,082
_______________________________________ ___________ ________ _______ __________ ________
Total liabilities (1,331) (47,161) (14,885) 8,243 (55,134)
_______________________________________ ___________ ________ _______ __________ ________
Net assets/(liabilities) 259,180 21,105 (7,306) (22,031) 250,948
_______________________________________ ___________ ________ _______ __________ ________
The net asset value of the investment management business at 31 December 2006
includes £258,461,000 attributable to the equity holders of the parent and
£719,000 attributable to minority interests.
3. Loss per ordinary share
Basic
The calculation of basic loss per ordinary share is based on the loss of
£529,000 (nine months ended 31 December 2006: loss of £21,860,000), being the
loss for the period attributable to the parent, divided by the weighted average
number of ordinary shares in issue during the period of 286,429,228 (nine months
ended 31 December 2006: 303,383,617).
Diluted
The calculation of diluted loss per ordinary share is based on the loss of
£529,000, divided by the weighted average number of ordinary shares in issue
during the period of 290,725,438 after taking account of the dilutive potential
effect of share options issued under the Company's share option plans.
There was no dilution effect in the nine months ended 31 December 2006.
4. Capital and reserves
Reconciliation of movement in capital and reserves
Share Capital Merger Translation Retained Total Minority Total
capital Redemption Reserve Reserve earnings interest equity
Reserv
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
__________ ______ _________ _______ _________ _______ ______ ________ _______
Balance at 1 32,900 - 35,837 (341) 182,647 251,043 20,473 271,516
April 2006
Total - - - (586) (21,860) (22,446) 10 (22,436)
recognised
income and
expense
Repurchase (4,257) 4,257 - - (30,239) (30,239) - (30,239)
of shares by
tender offer
Movement in - - 48,246 - - 48,246 - 48,246
merger
reserve
Distribution - - - - - - (16,139) (16,139)
to minority
__________ ______ _________ _______ _________ _______ ______ ________ _______
Balance at 28,643 4,257 84,083 (927) 130,548 246,604 4,344 250,948
31 December
2006
Total - - - 60 (529) (469) 133 (336)
recognised
income and
expense
Share based - - - - 3,028 3,028 494 3,522
payments
Minority - - - - - - 312 312
interest on
acquisitions
__________ ______ _________ _______ _________ _______ ______ ________ _______
Balance at 28,643 4,257 84,083 (867) 133,047 249,163 5,283 254,446
31 December
2007
__________ ______ _________ _______ _________ _______ ______ ________ _______
5. Explanation of transition to IFRS
The financial information for the year ended 31 December 2007 is the first
period that the Company has presented its results under IFRS. IFRS 1: First time
adoption of International Financial Reporting Standards sets out the rules for
adopting IFRS in the Group's first statutory accounts under IFRS. The Group has
applied consistent accounting policies to prepare the financial information for
the year ended 31 December 2007 and the nine months ended 31 December 2006 and
for the preparation of the opening balance sheet under IFRS at 1 April 2006 (the
Group's date of transition to IFRS).
IFRS 1 contains certain optional exemptions in the transition to IFRS and the
Group has elected to use the following:
IFRS 3: Business combinations - The Group has taken advantage of the optional
exemption not to apply the requirements of IFRS 3 to business combinations prior
to the date of transition and to account for these business combinations based
on the fair value at the date of transition of the assets and liabilities
acquired.
IAS 21: The effects of changes in foreign exchange rates - The Group has deemed
cumulative translation differences relating to foreign operations as zero at the
date of transition.
The information below sets out the impact of the transition from UK GAAP to IFRS
at the date of transition (1 April 2006) and for the nine months ended 31
December 2006.
The most significant impact of the adoption of IFRS is the requirement for the
Group to consolidate certain of its portfolio companies as subsidiaries. The
operating results of these portfolio subsidiaries are included in the Group's
consolidated income statement and their assets and liabilities are included in
the consolidated balance sheet. The portfolio subsidiaries' UK GAAP financial
statements are consolidated and restatements are made to comply with IFRS.
The tables below summarise the adjustments made to the UK GAAP financial
information in this regard.
Reconciliation of net assets
31 December Pro-forma
2006 1 April
2006
____________________________________________________________ __________ _________
£'000 £'000
Previously reported - UK GAAP
Net assets 259,180 267,951
___________________________________________________________ __________ _________
Adjustments
Increase in property, plant and equipment 12,549 9,262
Increase in intangible assets 35,714 36,613
Decrease in investments (46,332) (39,549)
Increase in cash and cash equivalents 5,739 722
Increase in inventories 8,395 6,038
Increase in operating and other receivables 29,506 25,802
Increase in current liabilities (29,617) (19,310)
Increase in non-current liabilities (24,186) (16,013)
____________________________________________________________ __________ _________
Net impact of consolidation of subsidiaries previously (8,232) 3,565
classified as investments
____________________________________________________________ __________ _________
Restated - IFRS
Net assets 250,948 271,516
____________________________________________________________ __________ _________
Reconciliation of loss after tax
Nine months
ended
31 December
2006
_________________________________________________________________ ________
£'000
Previously reported - UK GAAP
Loss on ordinary activities after taxation before minority (10,847)
interests
_________________________________________________________________ ________
Adjustments
Increase in revenue from sales of goods and services 82,109
Decrease in gains and losses on investments held at fair value (6,950)
through profit and loss
Increase in interest income 70
Decrease in investment and other income (1,389)
Increase in operating expenses (79,184)
Increase in taxation (1,261)
Increase In finance costs (4,175)
_________________________________________________________________ ________
Net impact of consolidation of subsidiaries previously classified (10,780)
as investments
_________________________________________________________________ ________
Restated - IFRS
Loss for the period after tax (21,627)
_________________________________________________________________ ________
Reconciliation of net decrease in cash and cash equivalents
Nine months
ended
31 December 2006
_____________________________________________________________ _____________
£'000
Previously reported - UK GAAP
Net decrease in cash and cash equivalents (19,893)
_____________________________________________________________ _____________
Adjustments
Increase in net cash used in operating activities (688)
Increase in net cash used in investing activities (4,629)
Increase in net cash from financing activities 10,041
_____________________________________________________________ _____________
Net impact of consolidation of subsidiaries previously 4,724
classified as investments
_____________________________________________________________ _____________
Restated - IFRS
Net decrease in cash and cash equivalents (15,169)
_____________________________________________________________ _____________
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