LMS Capital plc 2010 Half-year statement
10 August 2010
LMS Capital plc
Half Year Results for the six months to 30 June 2010
The Board of LMS Capital plc, ("LMS Capital" or "the Company"), is pleased to
announce the Company's half year results for the six months to 30June 2010. The
most significant developments during the first half of the year were as
follows:
* A refined strategic focus for the Company:
*
+ LMS Capital will pursue direct investments in growing, profitable
businesses where we can use our expertise to contribute to their growth
and performance;
+ This focus will primarily be in the energy, consumer and applied
technology sectors where our investment team has demonstrable
expertise;
+ Realisations from our existing quoted, direct and fund investments are
expected to provide the liquidity required to implement this strategy
in the medium term;
* We made two new investments:
*
+ Apogee, a fast growing UK print solutions company - we acquired a 32.8%
interest for £7.9 million, and
+ Nationwide Energy Partners, an energy services company in the US - we
invested $12.4 million (£8.4 million) for a 56.3% stake;
* We sold a number of quoted investments where gains of £0.8 million were
realised;
* Glenn Payne joined as Chief Executive Officer from 1 March 2010;
* Robert Rayne, formerly CEO, became Chairman following the retirement of
Jonathan Agnew at the Company's AGM in May.
Financial performance was as follows:
Net Asset Value per share was 83p (31 December 2009: 84p). Net Asset Value was
£225.9 million (31 December 2009: £227.7 million);
* The investment portfolio showed a net gain of £0.8 million after recording
unrealised currency gains of £9.6 million (six months ended 30 June 2009:
net loss of £10.7 million);
* The consolidated loss for the period (including portfolio subsidiaries) was
£7.3 million (six months ended 30 June 2009: loss of £13.6 million).
Glenn Payne, Chief Executive Officer of LMS Capital, said:
"LMS Capital has begun the change in focus which we expect to result in
consistent and superior growth in Net Asset Value. We offer a value proposition
which differentiates us in the private equity industry - we provide long term
capital and an ability to work with management to create superior returns over
the near, medium and long terms.
During the first half of 2010 we have continued to demonstrate our credentials
as a partner of choice with the acquisition of stakes in Apogee and Nationwide
Energy Partners. Concurrent with a greater fiscal discipline for existing
portfolio companies, we expect all funds invested to generate, over extended
periods, annual returns in excess of 15%. Investors should expect to see more
of these new value adding deals where we deploy capital and follow on with
growth equity to build businesses."
For further information please contact:
LMS Capital plc 020 7935 3555
Glenn Payne, Chief Executive Officer
Tony Sweet, Chief Financial Officer
J.P. Morgan Cazenove Limited 020 7588 2828
Michael Wentworth-Stanley
Brunswick Group LLP 020 7404 5959
Simon Sporborg
Leonora Burtenshaw
About LMS Capital
LMS Capital is an investment company with over 30 years' experience in private
equity and development capital investment. Our objective is to deliver superior
absolute returns for shareholders through a portfolio of direct investments;
our focus is on small to medium sized companies in our preferred sectors of
consumer and media, energy & utilities and applied technology, software &
services.
The Company has a portfolio valued at £230.3 million at 30 June 2010, most of
which we expect to realise in cash in the medium term. This harvesting of our
legacy investments should produce the capital required to finance a number of
new direct deals over the next five years.
We seek to partner with experienced managers in profitable, growing companies
where we expect to be able to add value. Our focus is on buying and investing
in management teams and companies at favourable prices: on the assumption of
gradual economic improvement our outlook is positive on the investment
environment and we expect M&A activity to increase accordingly. We will
continue to be cautious in our investment approach, aiming to grow our
investments (and NAV) by 15%+ per annum without undue risk or investing in
unproven businesses.
Our recent deal experience has confirmed to us that potential partners place
great store on working with people who not only understand their business
(typically through previous deals in the same sector) but also have themselves
worked in operational management positions and who therefore understand and
empathise with the role of management in a business partnership. All members of
our investment team have prior experience as part of an operational management
team.
www.lmscapital.com
Half year review 2010
Overview
LMS Capital has effected a number of changes that we believe are positive to
the outlook of our underlying value proposition. Of most significance is a
focus on pursuing one activity: the acquisition of either control or influence
stakes in profitable and growing companies managed by experienced partners in
sectors where our people can add value. Our portfolio currently includes listed
companies and non-quoted limited partnership interests in venture and
development capital funds. Over the next few years our current quoted
portfolio will provide us with liquidity and our fund investments will produce
material positive cash inflows. With this cash flow we will pursue direct
investments where we utilise our capital and the expertise of our team to grow
investee companies and, above all, add value.
Our path to success, building on our history and the existing portfolio, will
be achieved one step at a time, aiming for a long term rate of growth in Net
Asset Value of 15% pa. We have made a number of steps already this year:
In March we invested £7.9 million to acquire a 32.8% stake in Apogee Group
Limited ("Apogee"). Apogee is one of the UK's leading independent digital
printing solutions providers and offers sales and servicing of printers,
photocopiers and multi-function devices to a diversified, growing client base.
This is a business that is benefiting from sophisticated workflow management
systems and the growth of colour printing. Results for the first half of 2010
indicate that Apogee continues to grow sales and profitability in line with our
expectations. Apogee was founded 17 years ago by the current management team
of Jason Collins and Barry Ferdinand and we expect to provide follow on funding
for them as they grow the business.
In May we acquired a majority stake in Nationwide Energy Partners ("NEP"), an
energy service provider in Columbus, Ohio that provides owners of multi unit
residential properties with outsourced meter reading, billing and collection
services for water and electricity accounts. In addition to the purchase of the
initial stake for £8.4 million ($12.4 million, representing an enterprise value
of $23 million), LMS has agreed to fund up to an additional $15 million for
investment in NEP's new business opportunities. NEP was founded by Mike
DeAscentis in 2001 and he and his management team have grown the business to a
point where they see opportunities to acquire new earnings but were capital
constrained. LMS Capital knows the energy sector well and demonstrated to NEP
that as a partner we work with our management teams to create value. We are
already seeing a number of growth opportunities, in part coming from the
announcement of our deal.
For direct investments where we do not see adequate returns from our continued
involvement we are seeking to exit. In many cases these businesses are better
served within a group that can provide a marketing channel alongside multiple
other products. While no exits were crystallized in the first half, we expect
to finalise a number during the second half of 2010.
In the first half of the year we sold a number of our US quoted investments,
realising proceeds of £4.6 million and a gain over December 2009 book of £0.8
million. The most significant of these was the sale of our interest in BJ
Services for proceeds of £3.6 million and a gain over December 2009 book of £
0.6 million.
We have not made any new fund commitments. By focusing on direct deals we have
more control over our capital, we minimise fees to other managers and we play
to our strength - we have permanent capital and will use the power of compound
returns to our advantage. Our current fund commitments continue to decrease
and at 30 June stand at a maximum of £53.0 million; in our experience this will
turn out to be less. In the first half we received distributions from funds of
£4.2 million and consistent with the age of most of our limited partnership
interests these distributions should increase in the next few years.
For the 6 months to 30 June 2010 the net effect of these changes is that our
NAV has held broadly constant at 83p per share after the following key
movements in the valuation of the investment portfolio:
recognising the success of the Updata deal by increasing our carrying value of
this investment,
writing down old non-performing investments, and
marking down quoted investments due to a decline in the public markets.
On balance:
we have a solid platform (£225.9 million NAV, 30 years of history);
we have a plan (pursuit of profitable control investments); and
we are executing against that plan (Updata in 2009, Apogee and NEP in the first
half of this year).
Results
The half year financial information includes the consolidation of portfolio
companies which are also subsidiaries ("portfolio subsidiaries"). Note 2 to the
financial information shows the results and net assets of the investment
management business separate from the results and net assets of the portfolio
subsidiaries.
Investment management
In the six months to 30 June 2010 net asset value declined slightly to £225.9
million or 83p per share from £227.7 million or 84p per share at 31 December
2009.
The return on the investment portfolio for the six months ended 30 June 2010
was a net gain of £0.8 million as follows:
6 months ended Year ended
30 June 31 December
2010 2009 2009
£'000 £'000 £'000
Realised gains/(losses)
Quoted securities 837 799 2,503
Unquoted securities (5) - (1,867)
Funds 237 (52) (755)
1,069 747 (119)
Unrealised gains/(losses)
Quoted securities (8,412) 10,485 9,741
Unquoted securities (1,207) (11,504) (8,491)
Funds 9,362 (10,437) (6,007)
(257) (11,456) (4,757)
Total 812 (10,709) (4,876)
The above figures include £9.6 million of unrealised foreign currency gains,
principally in respect of the US dollar (six months ended 30 June 2009: loss of
£16.5 million; year ended 31 December 2009: loss of £13.5 million). It is the
Board's current policy not to hedge the Company's underlying non-sterling
investments - our policy is to make good long-term investments wherever they
reside.
The movements in the investment portfolio in the six months ended 30 June 2010
were as follows:
6 months ended Year ended
30 June 31 December
2010 2009 2009
£'000 £'000 £'000
Opening balance 215,632 202,049 202,049
Additions 23,450 16,002 32,744
Realisations (8,555) (4,935) (14,398)
Valuation adjustments (9,869) 5,008 8,795
Foreign currency gains /(losses) 9,612 (16,464) (13,558)
Closing balance 230,270 201,660 215,632
Additions to the portfolio in the first six months of 2010 were as follows:
6 months ended Year ended
30 June 31 December
2010 2009 2009
£'000 £'000 £'000
Quoted securities - - -
Direct Investments
New investments 16,274 405 7,617
Follow-on funding 2,245 6,375 10,336
Fund calls 4,931 9,222 14,791
23,450 16,002 32,744
Unrealised gains/(losses) in the first half of the year were as follows:
Valuation Currency Total
£'000 £'000 £'000
Quoted securities (11,176) 2,764 (8,412)
Direct Investments (3,040) 1,833 (1,207)
Funds 4,347 5,015 9,362
(9,869) 9,612 (257)
The valuation losses on direct investments reflect the results of the
directors' valuation as at 30 June 2010. They include:
an increase in the valuation of our interest in Updata by £5.0 million to £13.0
million. This reflects the performance of that business since we acquired it in
July 2009 - revenues have doubled and EBITDA has increased from £2.0 million to
in excess of £6 million;
write-downs on certain older investments principally Kizoom by £3.2 million to
£0.8 million, Coppereye by £1.7 million to nil, and Vio by £2.2 million to nil.
We are actively seeking to exit these three investments;
A number of the other older companies are also in active M&A processes and we
expect to realise greater than book value but broadly these investments have
under-performed and have become a distraction to the Company where we cannot
provide the broader corporate support for what in some cases is a single
technology. We will endeavour to find a willing buyer that can provide us some
value while they take the technology forward.
Details of our largest investments by valuation at 30 June 2010, representing
about 76% of the total portfolio, are set out on page 9.
Cash on hand at 30 June 2010 was £12.5 million; our borrowing facility of £15
million has been fully drawn. The Company had uncalled commitments to funds of
£53.0 million at that date although our experience suggests that the full
amount of each fund commitment is rarely drawn. We expect these funds to be
called over the next three to five years. Cash and other liquid assets
(including the value of our quoted portfolio) were £52.8 million.
Portfolio subsidiaries
The increase in revenues for the first six months of 2010 compared to the
corresponding period in 2009 reflects principally the inclusion of Updata
(acquired in July 2009) in the figures for the current period. This company
contributed revenues of £11.9 million and NEP, acquired at the end of May,
contributed revenues of £1.0 million.
Revenues for the other portfolio subsidiaries declined in total from £13.3
million to £11.3 million reflecting principally a fall in revenues at ITS (US)
Holdings; this company has faced difficult trading conditions in the last
twelve months as a result of lack of investment in its target market, the oil
and gas sector. Although there are signs that the market is improving, the
company will not benefit from this until the second half of the year at the
earliest. Revenues at the other companies were broadly in line with the
previous year - three of these (Kizoom, CopperEye and Vio) are being actively
marketed for sale.
The significantly reduced consolidated loss for the period is a result of:
the profit contribution by Updata of £2.7 million in the period;
a positive valuation result in the investment management business for its
investments excluding the portfolio subsidiaries;
lower operating costs in the other companies compared to the corresponding
period in 2009.
Principal risks and uncertainties
The principal risks and uncertainties that affect the Group are described on
pages 30 and 31 of the Group's Annual Report for the year ended 31 December
2009. These are still considered the most relevant risks and uncertainties
which the Group faces and they could have an impact on the Group's performance
in the second half of the financial year.
Outlook
With our refined strategic focus we remain confident and well prepared for the
future. Over the course of the next 5 years we expect to see a significant
reduction in the level of third party funds in which we have invested as
capital is returned. We also expect a strong flow of liquidity from our quoted
portfolio. As we receive these funds we will deploy them into direct
investments where we can control management and capital, provide insight and
oversight and, subject to available opportunities, make follow on investments
in these portfolio companies. We continue to see a number of investment
opportunities but are cautious in our approach. We seek to invest up to £30
million (via initial investment and subsequent expansion capital) in companies
which have a history of growth and profits, an experienced management team and
are in the sectors of energy, consumer, or applied technology, software &
services: these are areas where we can demonstrate we are the partner of choice
and can add real value.
To date in 2010 we have begun the change that we expect to result in consistent
and superior growth in NAV. We have acquired stakes in two excellent companies
(Apogee and NEP) and expect these investments to be very valuable to our
shareholders. As we seek new investments we are ever conscious of the
macroeconomic environment and are aware of the current difficulties facing the
US and the UK (our primary geographies of focus) but the deals we do are priced
to reflect the reality of 2010 not the hubris of 2007.
Robert A Rayne
Chairman
Glenn Payne
Chief Executive Officer
10 August 2010
LMS Capital plc - Major investments by valuation 30 June 2010
Name Geography Type of Investment Date of Book
initial Value
investment £000
Quoted investments
Weatherford US Oilfield services 1984 17,944
Prostrakan UK Specialty pharmaceuticals 1999 11,793
Gulfmark Offshore US International offshore services 2008 4,367
Direct Investments
Method Products* US Consumer products 2004 18,657
Updata Infrastructure UK Wide area networks 2009 13,000
Rave Reviews Cinemas US Cinema operations 2002 8,408
HealthTech Holdings US Hospital information systems 2007 8,364
Nationwide Energy Partners US Energy service provider 2010 8,088
Apogee Group UK Digital printing solutions 2010 7,902
Penguin Computing* US Linux server systems 2004 6,036
Wesupply Limited UK Supply chain connectivity software 2000 5,500
Luxury Link* US Internet commerce 2006 5,117
Entuity Limited UK Network management software 2000 5,000
Elateral Limited UK Marketing software 2000 4,500
Yes To, Inc* US Consumer products 2008 3,840
Fund Investments
Brockton UK Real estate 2006 13,362
(Funds I & II)
BV Investment Partners US Media and communications 1996 8,722
(Funds V, VI & VII)
Weber Funds US Micro-cap listed technology companies 1999 6,259
(Funds GW 2001, I & II)
Spectrum Equity Investors US Communications, media, information services 1999 5,851
(Funds III & IV)
Brynwood Partners US Consumer products 2004 5,003
(Fund V)
Scottish Equity Partners (Funds II & III) UK Information technology, healthcare and energy 2001 4,657
Amadeus Capital UK Technology 1998 4,045
(Funds I & II)
*San Francisco Equity Partners manages these investments
Condensed consolidated income statement
Six months Six months
ended ended
30 June 2010 30 June
£'000 2009
Notes £'000
Continuing operations
Revenue from sales of goods and
services 2 24,225 13,293
Gains and losses on investments 3,640 (4,665)
Interest income 21 135
Dividend income 28 46
Other income from investments 281 89
28,195 8,898
Operating expenses (34,085) (22,198)
Loss before finance costs (5,890) (13,300)
Finance costs (641) (153)
Loss before tax (6,531) (13,453)
Taxation (784) (127)
Loss for the period (7,315) (13,580)
Attributable to:
Owners of the Company (8,336) (13,580)
Non-controlling interests 1,021 -
(7,315) (13,580)
Basic and diluted loss per ordinary
share 3 (3.1)p (5.0)p
The notes on pages 15 to 23 form part of these financial statements.
Condensed consolidated statement of comprehensive income
Six months Six months
ended ended
30 June 30 June
2010 2009
£'000 £'000
Loss for the period (7,315) (13,580)
Exchange differences on translation of foreign 118 (395)
operations
Total comprehensive loss for the period (7,197) (13,975)
Attributable to:
Owners of the Company (8,218) (13,975)
Non-controlling interests 1,021 -
(7,197) (13,975)
The notes on pages 15 to 23 form part of these financial statements.
Condensed consolidated statement of financial position
30 June 31 December
2010 2009
Notes £'000 £'000
Non-current assets
Property, plant and equipment 11,743 7,057
Intangible assets 4 29,152 29,525
Investments 195,882 188,133
Other long term assets 17 80
Non-current assets 236,794 224,795
Current assets
Inventories 711 812
Operating and other receivables 14,652 10,768
Cash and cash equivalents 16,715 16,950
Current assets 32,078 28,530
Total assets 268,872 253,325
Current liabilities
Bank overdrafts (482) (369)
Interest-bearing loans and borrowings 5 (18,134) (2,394)
Operating and other payables (13,211) (7,921)
Deferred income (7,051) (8,704)
Current tax liabilities (1,839) (1,007)
Current liabilities (40,717) (20,395)
Non-current liabilities
Interest-bearing loans and borrowings (5,021) (4,795)
Deferred income (2,679) (2,116)
Deferred tax liabilities (616) (401)
Other long-term liabilities (183) -
Non-current liabilities (8,499) (7,312)
Total liabilities (49,216) (27,707)
Net assets 219,656 225,618
Equity
Share capital 27,265 27,265
Capital redemption reserve 5,635 5,635
Merger reserve 84,083 84,083
Foreign exchange translation reserve 1,130 1,012
Retained earnings 98,853 106,773
Equity attributable to owners of the 216,966 224,768
Company
Non-controlling interests 2,690 850
Total equity 219,656 225,618
The financial statements on pages 10 to 23 were approved by the Board on 10
August 2010 and were signed on its behalf by:
G Payne
Director
The notes on pages 15 to 23 form part of these financial statements.
Condensed consolidated statement of changes in equity
Six months ended 30 June 2010
Capital
Redemption Merger Translation Non -
Share Retained controlling Total
capital Reserve Reserve Reserve earnings Total interests equity
£'000 £'000 £'000 £'000 £'000` £'000 £'000 £'000
Balance at
1 January 2010 27,265 5,635 84,083 1,012 106,773 224,768 850 225,618
Loss for the - - - (8,336) (8,336) 1,021 (7,315)
period
Other
comprehensive
income - - - 118 - 118 - 118
Distribution to
non-controlling
interests - - - - - - (147) (147)
Acquisition of
portfolio subsidiary
- - - - - - 966 966
Share based
payments
- - - - 416 416 - 416
Balance at 30
June 2010
27,265 5,635 84,083 1,130 98,853 216,966 2,690 219,656
Six months ended 30 June 2009
Capital
Redemption Merger Translation Non -
Share Retained controlling Total
capital Reserve Reserve Reserve earnings Total interest equity
£'000 £'000 £'000 £'000 £'000` £'000 £'000 £'000
Balance at
1 January 27,265 5,635 84,083 1,212 122,741 240,936 147 241,083
2009
Loss for the - - - - (13,580) (13,580) (13,580)
period
Other
comprehensive
income - - - (395) - (395) - (395)
Share based - - - - 373 373 - 373
payments
Balance at 30
June 2009
27,265 5,635 84,083 817 109,534 227,334 147 227,481
The notes on pages 15 to 23 form part of these financial statements.
Condensed consolidated cash flow statement
Six months Six months
ended ended
30 June 2010 30 June
£'000 2009
£'000
Cash flows from operating activities
Loss for the period (7,315) (13,580)
Adjustments for:
Depreciation and amortisation 1,130 591
Impairment of intangible assets 7,394 -
(Gains)/losses on investments (3,640) 4,665
Loss on disposal of property, plant and - 28
equipment
Translation differences (284) 370
Share based payments 416 373
Finance costs 641 153
Interest income (21) (135)
Income tax expense 784 127
(895) (7,408)
Change in inventories 99 (72)
Change in trade and other receivables (1,202) 1,753
Change in trade and other payables 1,251 (2,646)
(747) (8,373)
Interest paid (641) (153)
Income tax paid (131) -
Net cash used in operating activities (1,519) (8,526)
Cash flows from investing activities
Interest received 21 135
Acquisition of property, plant and equipment (2,409) (544)
Proceeds from disposal of property, plant and - 2
equipment
Acquisition of investments (14,041) (10,958)
Acquisition of subsidiaries (7,450) -
Proceeds from sale of investments 10,193 5,308
Net cash used in investing activities (13,686) (6,057)
Cash flows from financing activities
Distribution to non-controlling interests (147) -
Drawdown of interest bearing loans 14,881
(179)
Net cash from financing activities 14,734 (179)
Net decrease in cash and cash equivalents (471) (14,762)
Effect of exchange rate fluctuations 123 (216)
Cash and cash equivalents at the beginning of 16,581 42,615
the period
Cash and cash equivalents at the end of the 16,233 27,637
period
Cash and cash equivalents above comprise
Cash and cash equivalents 16,715 27,822
Bank overdrafts (482) (185)
Cash and cash equivalents at the end of the 16,233 27,637
period
The notes on pages 15 to 23 form part of these financial statements.
Notes to the financial information:
1. Principal accounting policies
Reporting entity
LMS Capital plc ("the Company") is domiciled in the United Kingdom. These
condensed consolidated financial statements are presented in pounds sterling
because that is the currency of the principal economic environment of the
Company's operations. The condensed consolidated financial statements of the
Company for the six months ended 30 June 2010 comprise the Company and its
subsidiaries (together "the Group").
These condensed consolidated financial statements do not constitute the
statutory accounts of the Group within the meaning of section 434(3) and 435(3)
of the Companies Act 2006.
The comparative figures for the financial year ended 31 December 2009 are not
the Company's statutory accounts for that financial year. Those accounts 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 auditor drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a statement
under section 498(2) of the Companies Act 2006.
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 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. The results of the Group's investment business
on a stand alone basis are set out in Note 2.
Statement of compliance
These condensed consolidated financial statements have been prepared in
accordance with IAS 34: Interim Financial Reporting as adopted by the EU. They
do not include all of the information required for full annual financial
statements and should be read in conjunction with the annual financial
statements for the year ended 31 December 2009 which were prepared in
accordance with International Financial Reporting Standards as adopted by the
EU("Adopted IFRS").
As required by the Disclosure and Transparency Rules of the Financial Services
Authority, the condensed consolidated financial statements have been prepared
applying the accounting policies and presentation that were applied in the
preparation of the Company's published consolidated financial statements for
the year ended 31 December 2009.
Taking account of the financial resources available to the Group, the directors
believe that the Group is well placed to manage its business risks
successfully. After making enquiries the directors have a reasonable
expectation that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Accordingly they continue
to adopt the going concern basis in preparing the condensed consolidated
financial statements for the six months ended 30 June 2010.
These condensed consolidated financial statements were approved by the Board of
Directors on 10 August 2010.
Notes to the financial information
1. Principal accounting policies (continued)
Significant accounting policies
Except as described below, the significant judgements made by management in
applying the Group's accounting policies and the key sources of estimation
uncertainty were the same as those applied to the consolidated financial
statements for the year ended 31 December 2009.
Accounting for business combinations
From 1 January 2010 the Group has applied IFRS 3: Business Combinations (2008)
in accounting for business combinations. The change in accounting policy has
been applied prospectively and had no material impact on the loss per share for
the period. Transaction costs, other than those associated with the issue of
debt or equity securities, that the Group incurs in connection with a business
combination are expensed as incurred.
Under IFRS 3 (2008) the Group has elected to measure any non - controlling
interest at the proportionate interest in the fair value of the identifiable
assets and liabilities of the acquiree on a transaction by transaction basis.
Basis of consolidation
The financial statements comprise the financial statements of the Company and
its subsidiary undertakings up to 30 June 2010. The Company's subsidiary
undertakings fall into two categories:
* Investment companies through which the Group conducts its investment
activities; and
* Certain portfolio companies which form part of the Group's investment
activities but which, by virtue of the size of the Group's shareholding or
other control rights, fall within the definition of subsidiaries under
Adopted IFRS ("portfolio subsidiaries"). The portfolio subsidiaries are
included within the consolidated financial information although they
continue to be managed by the Group as investments held for capital
appreciation. Note 10 includes details of the companies concerned.
Use of estimates and judgements
The preparation of condensed consolidated financial statements requires
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.
Notes to the financial information
2. Operating segments
The information below has been prepared using the definition of an operating
segment in IFRS 8: Operating Segments. The Group determines and presents
information on operating segments based on the information that is provided
internally to the directors to enable them to assess performance and 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,
together with the adjustments arising from the summarised results and financial
position of the portfolio subsidiaries.
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.
Segment profit or loss
Six months ended 30 June 2010
Reconciliation
Investment Portfolio Consolidation Group
management total
subsidiaries adjustments
£'000 £'000 £'000 £'000
Revenues from sales of - 24,225 - 24,225
goods and services
Gains and losses on 812 - 2,828 3,640
investments
Interest income 16 5 - 21
Dividend income 28 - - 28
Other income from 298 - (17) 281
investments
Impairment of intangible - - (7,394) (7,394)
assets
Finance costs (85) (3,469) 2,913 (641)
Loss for the period (2,539) (3,065) (1,711) (7,315)
Six months ended 30 June 2009
Reconciliation
Investment Portfolio Consolidation Group
management total
Subsidiaries adjustments
£'000 £'000 £'000 £'000
Revenues from sales of - 13,293 - 13,293
goods and services
Gains and losses on (10,709) - 6,044 (4,665)
investments
Interest income 133 2 - 135
Dividend income 46 - - 46
Other income from 89 - - 89
investments
Finance costs - (3,345) 3,192 (153)
(Loss)/profit for the (15,474) (7,342) 9,236 (13,580)
period
Notes to the financial information
2. Operating segments (continued)
Segment net assets
30 June 2010
Reconciliation
Investment Portfolio Consolidation
management subsidiaries Group total
adjustments
£'000 £'000 £'000 £'000
Property, plant and 101 11,642 - 11,743
equipment
Intangible assets - 11,760 17,392 29,152
Investments 230,270 - (34,388) 195,882
Other non-current - 17 - 17
assets
Non-current assets 230,371 23,419 (16,996) 236,794
Cash and cash 12,490 4,225 - 16,715
equivalents
Other current 515 15,016 (168) 15,363
assets
Total assets 243,376 42,660 (17,164)
268,872
Total liabilities (17,492) (88,625) 56,901 (49,216)
Net assets/ 225,884 (45,965) 39,737 219,656
(liabilities)
The net asset value of the investment management business at 30 June 2010 is
wholly attributable to the equity holders of the Company.
31 December 2009
Reconciliation
Investment Portfolio Consolidation Group
management subsidiaries adjustments total
£'000 £'000 £'000 £'000
Property,
plant and 158 6,899 - 7,057
equipment
Intangible - 11,817 17,708 29,525
assets
Investments
held at fair
value through 215,632 1 (27,500) 188,133
profit or
loss
Other
non-current - 80 - 80
assets
Non-current 215,790 18,797 (9,792) 224,795
assets
Cash and cash 14,416 2,534 - 16,950
equivalents
Other current 462 11,182 (64) 11,580
assets
Total assets 230,668 32,513 (9,856) 253,325
Total (2,802) (79,519) 54,614 (27,707)
liabilities
Net assets/ 227,866 (47,006) 44,758 225,618
(liabilities)
The net asset value of the investment management business at 31 December 2009
includes £227,719,000 attributable to the equity holders of the Company and £
147,000 attributable to non-controlling interests.
Notes to the financial information
2. Operating segments (continued)
The carrying amount and gain and losses of the investments of the investment
management business can be further analysed as follows;
30 June 2010 31 December 2009
UK US Total UK US Total
Asset type £'000 £'000 £'000 £'000 £'000 £'000
Funds 31,064 82,130 113,194 30,259 73,194 103,453
Quoted 13,695 26,625 40,320 17,274 34,601 51,875
Unquoted 45,370 31,386 76,756 39,849 20,455 60,304
90,129 140,141 230,270 87,382 128,250 215,632
Six months ended 30 June 2010 Six months ended 30 June 2009
Realised Unrealised Realised Unrealised
gains/ gains/ gains/ gains/
(losses) (losses) (losses) (losses)
Total Total
Asset £'000 £'000 £'000 £'000 £'000 £'000
type
Funds 237 9,362 9,599 (52) (10,437) (10,489)
Quoted 837 (8,412) (7,575) 799 10,485 11,284
Unquoted (5) (1,207) (1,212) 18 (11,522) (11,504)
1,069 (257) 812 765 (11,474) (10,709)
Revenues
The Group's revenues to external customers comprise:
Six months ended Six months ended
30 June 30 June
2010 2009
£'000 £'000
Continuing operations
Software and related services 20,849 8,411
Specialist manufacturing 2,357 4,882
Meter reading and billing services 1,019 -
24,225 13,293
Notes to the financial information
3. Basic and diluted loss per ordinary share
The calculation of basic loss per ordinary share is based on the loss of £
8,336,000 (six months ended 30 June 2009: loss of £13,580,000), being the loss
for the period attributable to the owners of the Company, divided by the
weighted average number of ordinary shares in issue during the period
272,640,952 (six months ended 30 June 2009: 272,640,952).
There was no dilution effect in either period.
4. Intangible assets
Software
Licence Goodwill Total
£'000 £'000 £'000
Cost
Balance at 1 January 2009
and 30 June 2009 2,088 40,656 42,744
Balance at 1 January 2010 2,088 48,094 50,182
Acquisitions through business - 7,077 7,077
combinations
Balance at 30 June 2010 2,088 55,171 57,259
Accumulated impairment losses and
amortisation
Balance at 1 January 2009 57 15,889 15,946
Amortisation 57 - 57
Impairment loss - - -
Balance at 30 June 2009 114 15,889 16,003
Balance at 1 January 2010 170 20,487 20,657
Amortisation 56 - 56
Impairment loss 1,862 5,532 7,394
Balance at 30 June 2010 2,088 26,019 28,107
Carrying amounts
At 1 January 2009 2,031 24,767 26,798
At 30 June 2009 1,974 24,767 26,741
At 1 January 2010 1,918 27,607 29,525
At 30 June 2010 - 29,152 29,152
For the purpose of impairment testing, goodwill is allocated to each portfolio
subsidiary which represents the lowest level within the Group at which the
goodwill is monitored for internal management purposes. The recoverable amount
of each unit has been determined on the basis of its fair value less costs to
sell or value in use, whichever is the greater.
Notes to the financial information
4. Intangible assets (continued)
An analysis of goodwill is set out below:
Goodwill impairment recognised in the six months ended
30 June Carrying amount
2010 2009 30 June 31 December
2010 2009
£'000 £'000 £'000 £'000
ITS (US) Holdings Inc - - 1,508 1,508
Entuity Limited - - 4,981 4,981
Wesupply Limited - - 5,120 5,120
CopperEye Limited 1,426 - - 1,426
Kizoom Limited 3,388 - 1,733 5,121
Citizen Limited 718 - - 718
Updata Infrastructure - - 8,733 8,733
UK Ltd
Nationwide Energy - - 7,077 -
Partners LLC
5,532 - 29,152 27,607
In the year ended 31 December 2009 the Group recognized a goodwill impairment
loss of £4,598,000, including £1,585,000 in respect of CopperEye Limited, £
1,806,000 in respect of Kizoom Limited and £1,143,000 in respect of Citizen
Limited.
5. Interest-bearing loans and borrowings
At 30 June 2010 interest-bearing loans and borrowings include £14,598,000 in
respect of the drawdown by the Company of the full amount of its borrowing
facility with The Royal Bank of Scotland (31 December 2009: Nil).
6. Capital commitments
30 June 2010 31 December 2009
£'000 £'000
Outstanding commitments to funds 53,016 58,709
53,016 58,709
The outstanding commitments to funds comprise unpaid calls in respect of funds
where a member of the Group is a limited partner.
7. Related party transactions
Transactions with related parties during the period were consistent in nature
and scope with those disclosed in Note 28 to the Group's annual financial
statements for the year ended 31 December 2009.
8. Contingent liabilities
The Company has guaranteed the indebtedness of certain of the Group's
investments; the amount outstanding under these arrangements at 30 June 2010
was £1.7 million.
Notes to the financial information
9. Acquisition of subsidiary
The following acquisition was made during the period ended 30 June 2010:
Nationwide Energy Partners LLC
In May 2010 the Group acquired 56.3% of the issued share capital of Nationwide
Energy Partners LLC ("NEP").
The acquisition had the following effect on the Group's assets and liabilities
on the acquisition date - the following values have been determined on a
provisional basis:
Pre-acquisition carrying
amounts
£'000
Property, plant and equipment 3,331
Intangibles 1
Operating and other receivables 2,682
Loans and borrowings (1,086)
Operating and other payables (2,761)
Net identifiable assets 2,167
Group share of net identifiable 1,201
assets
Goodwill on acquisition 7,077
Consideration paid 8,278
No adjustments were made to pre-acquisition carrying amounts. The operating and
other receivables comprise gross contractual amounts due of £2,922,551, of
which £240,859 was expected to be uncollectable at acquisition date.
Of the total consideration, £7,450,000 was paid on completion and the remainder
is payable in May 2011.
The goodwill is attributable to the expected profitability of the acquired
business. None of the goodwill is expected to be deductible for tax purposes.
NEP is an energy service provider in Columbus, Ohio and provides owners of
multi unit residential properties with outsourced meter reading, billing and
collection services for water and electricity accounts. In the one month to 30
June 2010 the company contributed a profit of £173,000 to the consolidated
results of the Group. If the acquisition had occurred on 1 January 2010,
management estimates that consolidated revenue would have been £29,008,000 and
the consolidated loss for the period would have been £6,958,000.
Notes to the financial information
10. Subsidiaries
The subsidiaries comprising the Group's investment management business (as set
out in Note 2) are as follows:
Holding
Country of
Name incorporation % Activity
LMS Capital Group Limited England and Wales 100 Investment
holding
Lion Cub Investments Limited England and Wales 100 Dormant
Lion Cub Property Investments England and Wales 100 Investment
Limited holding
LMS Capital Holdings Limited England and Wales 100 Investment
holding
LMS Capital (ECI) Limited England and Wales 100 Investment
holding
Lion Investments Limited England and Wales 100 Investment
holding
LMS Capital (Bermuda) Limited Bermuda 100 Investment
holding
LMS Capital (GW) Limited Bermuda 100 Investment
holding
LMS Capital (General Partner) Bermuda 100 Investment
Limited holding
Tiger Investments Limited England and Wales 100 Investment
holding
LMS Tiger Investments (II) England and Wales 100 Investment
Limited holding
International Oilfield Services Bermuda 100 Investment
Limited holding
Westpool Investment Trust plc England and Wales 100 Investment
holding
LMS Tiger Investments Limited England and Wales 100 Investment
holding
Lion Property Investments Limited England and Wales 100 Investment
holding
Lioness Property Investments England and Wales 100 Investment
Limited holding
LMS NEP Holdings, Inc United States of 100 Investment
America holding
In addition to the above, the Group's carried interest arrangements are
operated through three limited partnerships (LMS Capital 2007 LP, LMS Capital
2008 LP and LMS Capital 2009 LP) which are registered in Bermuda.
The following companies form part of the Group's investment activities but, by
virtue of the size of the Group's shareholding or other control rights, fall
within the definition of subsidiaries under IFRS. These portfolio subsidiaries
are included within the consolidated financial information although they
continue to be managed by the Group as investments held for capital
appreciation.
Holding
Country of
Name incorporation % Activity
Citizen Limited England and 84 Services to the advertising,
Wales publishing and graphic arts
industries
CopperEye Limited England and 76 Specialised search solutions for
Wales business transaction data
Entuity limited England and 68 Network management software
Wales
Kizoom Limited England and 94 Urban digital networks and
Wales intelligent transport systems
Nationwide Energy United States 56.3 Energy services provider
Partners LLC of America
ITS (US) holdings United States 100 Specialist engineering design and
Inc of America fabrication
Updata England and 53.3 Carrier-class networks
Infrastructure Wales
Holdings Limited
Wesupply Limited England and 98 Supply chain management software
Wales
Statement of directors' responsibilities
We confirm that to the best of our knowledge:
a) the condensed consolidated financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and
b) the interim management report includes a fair review of the information
required by:
i) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the current
financial year and their impact on the condensed consolidated financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the year; and
ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the Group during that period; and any changes in the related
party transactions described in the last annual report that could do so.
G Payne
Chief Executive Officer
AC Sweet
Chief Financial Officer
10 August 2010
----
Independent review report to LMS Capital plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2010 which comprises the condensed consolidated income statement, the condensed
consolidated statement of comprehensive income, the condensed consolidated
statement of financial position, the condensed consolidated statement of
changes in equity, the condensed consolidated cash flow statement and the
related explanatory notes. We have read the other information contained in the
half-yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed
set of financial statements.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Disclosure
and Transparency Rules ("the DTR") of the UK's Financial Services Authority
("the UK FSA"). Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work, for
this report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FSA.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the EU. The condensed set of
financial statements included in this half-yearly financial report has been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and consequently does
not enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2010 is not prepared, in all
material respects, in accordance with IAS 34 as adopted by the EU and the DTR
of the UK FSA.
Anthony Cecil
for and on behalf of KPMG Audit Plc
Chartered Accountants
8 Salisbury Square
London EC4Y 8BB
10 August 2010
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