Final Results

RNS Number : 3659Z

LMS Capital PLC

15 March 2012

 



15 March 2012

LMS Capital plc

Preliminary Results for the year ended 31 December 2011

The Board of LMS Capital plc, ("LMS Capital" or "the Company"), is pleased to announce the Company's preliminary results for the year ended 31 December 2011.

Highlights

·      Net Asset Value per share was 90p (31 December 2010: 90p);

·      The investment portfolio showed a net gain of £8.7 million (2010: £23.9 million) including realised gains of £6.4 million (2010: realised loss of £1.0 million);

·      The consolidated loss for the year (including portfolio subsidiaries) from continuing operations was £1.0 million (2010: profit of £25.1 million);

·      Proceeds of realisations in the year were £62.7 million (2010: £24.3 million) including sales of quoted securities of £31.6 million (2010: £6.2 million), proceeds from the secondary sales of funds of £14.6 million (2010: £nil) and distributions from funds of £11.7 million (2010: £13.7 million);

·      Outstanding commitments to funds were £18.9 million at the end of the year, down from £40.7 million at the end of 2010;

·      As at 31 December 2011 the investment management business had net cash of £30.6 million and no debt (31 December 2010: net debt of £5.0 million).

Strategy

On 30 November 2011 shareholders approved proposals to modify the Company's objectives and its investment policy. The revised investment policy is to conduct an orderly realisation of the assets of the Company, to be effected in a manner that seeks to achieve a balance between an efficient return of cash to shareholders and maximising the value of the Company's investments.

No investments will be made in new opportunities. Follow on investments will be made in existing assets to honour commitments made at the time of the initial investment and/or to which the Company is legally obligated, or where the investment is made to protect or enhance the value of an existing asset or to facilitate its orderly realisation.

Based on their realisation plan the Directors aim to make an initial return of cash to shareholders by the end of 2012, with a further distribution by the end of 2013. Whilst these are the best estimates of the Board as at the date of this report, they are subject to a number of uncertainties including general market conditions, the future performance of investee companies, and the actions of other shareholders in investee companies (where the Company is a minority investor).

Richard Christou, Chairman of LMS Capital, said: 

"During 2011 the investment portfolio has generally performed well and is in good shape as the Company now implements the asset realisation strategy approved by shareholders in November. There has been good progress by the Board and management towards the successful execution of the plan and webelieve that the investment portfolio has the potential to release significant cash to shareholders in the medium term.

We have acted to reduce costs and implemented a realisation plan for the portfolio with the aim of making a first distribution to shareholders in the latter part of this year. The economic background remains difficult, but the Board is focussed on optimising value and cash flow for the benefit of all shareholders."

For further information please contact:

LMS Capital plc                         Nick Friedlos, Director Tony Sweet, Chief Financial Officer	020 7935 3555
J.P. Morgan Cazenove            Michael Wentworth-Stanley	020 7588 2828
Brunswick Group LLP              Simon Sporborg Fiona Micallef-Eynaud	020 7404 5959

About LMS Capital

LMS Capital is an investment company focused on small to medium sized companies in its preferred sectors of consumer, energy and business services.  Following a General Meeting on 30 November 2011, the Company is undertaking a realisation strategy which aims to achieve a balance between an efficient return of cash to shareholders and optimising the value of the Company's investments.

www.lmscapital.com

Chairman's statement

2011 was a year of strategic change for the Company. On 30 November 2011 shareholders voted in favour of the asset realisation strategy recommended to them by the Board. The change of strategy was intended to provide liquidity for shareholders and achieve a balance between an efficient return of cash to shareholders and maximising the value of the Company's investments. More information on the implementation of this revised strategy is set out in the Operating Review.

Your Board has made significant progress in establishing a plan to implement this change in strategy and the Directors are satisfied that the Company's plans for the orderly wind-down of the business will achieve a successful outcome for shareholders.

Results

Net Asset Value per share at the end of 2011 was 90p, unchanged from the previous year. Improved performance by many of our unquoted investments led to increased valuations, but the share price of our principal quoted investment, Weatherford International, declined by 36% over the year.

The return on the investment portfolio for the year was a net gain of £8.7 million (2010: £23.9 million). Included in this is a realised net gain for the year of £6.4 million (2010: realised net loss of £1.0 million) which arose principally from gains on sales of certain of our quoted holdings. 

The investment portfolio at 31 December 2011 was valued at £218.5 million (31 December 2010: £253.1 million), a reduction of £34.6 million or 14% as proceeds from realisations during the year have not been reinvested. Net cash at 31 December 2011 was £30.6 million (31 December 2010: net debt of £5.0 million).

The Group as a whole (including consolidation of the portfolio subsidiaries) showed a consolidated loss for the year from continuing operations of £1.0 million (2010: profit of £25.1 million).

The Board is not recommending payment of a dividend for the year ended 31 December 2011 (2010: £nil).

Board and management

As a consequence of the change in strategy, Glenn Payne resigned from the Board on 9 December 2011 and left at the end of December. Nick Friedlos took the role of General Manager from 9 December 2011 and was appointed to the Board on 9 February 2012 as Executive Director with responsibility for overseeing the orderly realisation of the assets of the Company.

On 4 January 2012 Neil Lerner and Martin Knight were appointed as independent Non-executive Directors; on the same date John Barnsley and David Verey resigned from the Board. Robert Rayne stepped down as Chairman but remains on the Board and I was appointed Chairman. These changes completed the reconstitution of the Board agreed at the time of the general meeting. I look forward to working with the re-shaped Board to implement the change in strategy approved by shareholders.

The change in strategy has placed special demands on all our people. Your Board would like to extend its appreciation to all the Company's employees for their contribution in 2011.

Outlook

Your Board and management commenced the implementation of the Company's new strategy following the general meeting last November and believe that the investment portfolio has the potential to release significant cash to shareholders in the medium term. The economic background remains very difficult, particularly for small private companies of the type which makes up much of the portfolio, but on the basis that there is no significant worsening of the business environments in the UK and the US your Board expects to progress the orderly wind-down of the business in the coming year and will focus on optimising value and cash flow for the benefit of shareholders.

Richard Christou

Chairman

15 March 2012

Operating review

This review includes an update on developments following the change in the Company's strategy approved by shareholders in the latter part of the year and an outline of the Board's approach to the way forward, as well as a report on the Company's investment activities in 2011.

Corporate strategy and investment policy

At the general meeting on 30 November 2011 shareholders approved proposals to modify the company's objectives and its investment policy. The revised investment policy is to conduct an orderly realisation of the assets of the Company, to be effected in a manner that seeks to achieve a balance between an efficient return of cash to shareholders and maximising the value of the Company's investments.

Accordingly, no investments will be made in new opportunities. Follow on investments will be made in existing assets to honour commitments made at the time of the initial investment and/or to which the Company is legally obligated, or where the investment is made to protect or enhance the value of an existing asset or to facilitate its orderly realisation. The portfolio as a whole will be managed with a view to progressively returning funds to shareholders over a period of time.

In the period since the general meeting to the date of this report the Directors have:

·      reviewed the realisation prospects for each portfolio holding in the context of seeking to achieve a balance between an efficient return of cash to shareholders and maximising the value of the Company's investments;

·      established a plan to focus on the realisation of key investments over the next one to three years;

·      taken action to reduce the cost structure of the Company to a level considered more appropriate to the asset realisation strategy - this has principally taken the form of headcount reductions.

Initial conclusions from the results of this work are:

·      given the maturity of many of the investments within the Company's portfolio, the Directors will continue to monitor opportunities within the secondary market (in particular for its fund interests) but do not currently believe that accepting discounted values for investments to achieve earlier cash proceeds is in the best interests of shareholders within the overall objectives of the realisation strategy;

·      target prices at which to sell quoted investments will be set based on publicly available research data as well as the Company's internal analysis;

·      the Company's investment team will focus on selected direct investments to prepare them for sale within the next one to three years.

Based on this initial plan the Directors aim to make an initial return of cash to shareholders by the end of 2012, with a further distribution by the end of 2013. The Directors currently expect that the full realisation of the portfolio is likely to be completed in approximately three to five years.

Shareholders should note that whilst these are the best estimates of the Board as at the date of this report, they are subject to a number of uncertainties including general market conditions, the future performance of investee companies, the behaviour of other shareholders in investee companies (where the Company is a minority investor) and the level of activity in the mergers and acquisitions market.

The Board will keep shareholders informed on progress through the Company's half-yearly and annual reports; significant individual realisations will be announced as appropriate.

Results and review of portfolio

Our key reportable metrics are:

		2011	2010	2009
Net (loss)/profit (£m) (note 1)		(0.4)	17.6	(12.7)
Owned EBITDA (£m) (note 2)		8.9	7.5	(3.0)
NAV per share (pence)		90	90	84

Notes:

1          This is the result of our investment management business as defined in Note 2 to our financial statements.

2          This is our share of the EBITDA of each of the direct investments in our portfolio (including investments by San Francisco Equity Partners) based on our percentage stake. It is not derived from the consolidated financial information.

Owned EBITDA increased as a result of continued focus on profitability at each company. In aggregate the owned EBITDA of £8.9 million is an improvement of 19% on 2010.

Quoted investments

In 2011 we realised £31.6 million from our quoted portfolio, comprising:

·      £22.9 million from the sale of our interest in ProStrakan Group plc following that company's acquisition by KHK in April. This resulted in a gain of £4.7 million over our 31 December 2010 carrying value;

·      £6.4 million from the sale of our shares in Gulfmark Offshore, realising a gain of £1.5 million;

·      £2.3 million from the sale of other, smaller holdings, realising a loss of £0.5 million.

At the end of December our remaining quoted holdings were valued at £24.2 million (31 December 2010: £63.2 million), of which our interest in Weatherford International at £19.4 million is the principal element. The Weatherford share price performed poorly in 2011 - the price at the end of December 2011 was significantly lower than at 31 December 2010 and this reduced our NAV per share year on year by 4p.

Fund interests

We sold seven of our stakes in private equity funds located in the UK, US and Europe for an aggregate gross consideration of £14.6 million which represented 97% of book value at 31 December 2010.  Exiting these funds reduced our outstanding capital commitments by £6.8 million. Other distributions from funds were £11.7 million for the year.

Our uncalled fund commitments continue to decrease and at 31 December 2011 stood at a maximum of £18.9 million (down from £40.7 million at the end of 2010).

Our fund holdings at the end of 2011 had a book value of £63.5 million (excluding San Francisco Equity Partners) - the principal interests were:

		31 December 2011
General partner		Book value	IRR  for the year
		£ million
Brockton Capital		15.8	15%	UK property
BV investments		10.9	15%	US buyouts
Voreda Capital		5.3	0%	UK property
Primus Capital		4.7	32%	US buyouts
Amadeus Capital Partners		3.8	22%	UK venture capital
Brynwood Capital Partners		3.2	15%	US consumer
Opus Capital Venture Partners		3.2	4%	US venture capital

The above holdings represent 73% of the funds portfolio (excluding San Francisco Equity Partners).

Direct investments

The performance of our direct investments contributed an increase of £12.8 million to our Net Asset Value being a 17% increase over their valuation at 31 December 2010. Key contributors were:

·      HealthTech Holdings - accounts for £11.2 million of this increase - the business has continued to perform strongly with revenues and profits significantly ahead of the prior year.

·      Apogee - £2.7 million increase - has also generated revenues and profits significantly ahead of last year. This improvement combines organic growth and the benefit of small, internally funded bolt-on acquisitions.

·      Updata - £1.7 million increase - continued to perform strongly as well as completing a refinancing which enabled it to repay shareholder loans of £2.9 million and accrued interest of £1.4 million.

·      Entuity and Elateral - both experienced mixed trading conditions and we have reduced our carrying values for these two investments by a total of £2.3 million.

We completed the exits of the underperforming investments Kizoom and Coppereye, and ITS sold its trading operations - all with no significant impact on our Net Asset Value.

We made only one new investment during 2011 - in September we backed the buyout of the IT solutions business from 365iT plc, a business in which LMS Capital already has a small interest. We acquired a stake of 84% in the business at a cost of £2.6 million. Since renamed 365iTMS, the business is a UK IT services provider covering design, deployment and support of IT systems.

The principal direct investments are:

		31 December 2011
		Book value	IRR  for the year
		£ million
HealthTech Holdings		23.9	89%	US technology
Method Products*		18.9	7%	US consumer
Updata Infrastructure		12.7	22%	UK technology
Apogee Corporation		11.5	33%	UK technology
Nationwide Energy Partners		10.5	9%	US energy
Yes To, Inc*		8.3	72%	US consumer
Rave Reviews		7.4	0%	US consumer
Penguin Computing*		5.5	(23)%	US technology
Luxury Link*		5.1	0%	US consumer
Entuity		4.0	(18)%	UK technology

The above holdings represent 82% of the direct portfolio (including San Francisco Equity Partners). Items marked * are held by San Francisco Equity Partners.

Financial review

Basis of preparation of financial information

The financial statements have not been prepared on a going concern basis as the Company is seeking to realise the investment portfolio, return the capital to shareholders and then liquidate the Company, as outlined in the strategy approved by shareholders on 30 November 2011 - see note 1 to the consolidated financial information. No adjustments were necessary to the investment valuations included in these consolidated financial statements as a consequence of the change in the basis of preparation.

The Company reports its results under International Financial Reporting Standards as adopted for use in the European Union ("Adopted 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 consolidated financial information includes the separate results and net assets of the investment management business. Where appropriate, this review includes comments on the results and financial position of the portfolio subsidiaries.

Investment management

Net Asset Value at 31 December 2011 was £245.0 million, unchanged from a year ago (31 December 2010: £245.0 million). The Net Asset Value per share was 90 pence (31 December 2010: 90 pence). 

The Group's return on its investment portfolio for the year ended 31 December 2011 was a gain of £8.7 million (2010: £23.9 million) as follows:

				Year ended 31 December
				2011		2010
				£'000		£'000
Realised gains/(losses)
Quoted securities				5,758		1,128
Unquoted securities				(119)		(3,154)
Funds				719		1,037
				6,358		(989)
Unrealised gains/(losses)
Quoted securities				(13,486)		14,100
Unquoted securities				13,114		1,293
Funds				2,748		9,510
				2,376		24,903
Total				8,734		23,914

Approximately 65% of the portfolio at 31 December 2011 is denominated in US dollars (31 December 2010: 61%) and the above table includes the impact of currency movements. In the year ended 31 December 2011 the slight strengthening of the US dollar against pound sterling (year on year) resulted in an unrealised foreign currency gain of £0.3 million (2010: £5.6 million). It is the Board's current policy not to hedge the Company's underlying non-sterling investments. Realised gains on quoted securities include £4.7 million in connection with the sale of our shares in ProStrakan Group and £1.4 million on the sale of our Gulfmark Offshore holding.

The unrealised loss on our quoted portfolio reflects the net impact of the changes in the capital markets during the year. Of the total of £13.5 million, £10.7 million is attributable to our holding in Weatherford International and £1.4 million to Chyron Corporation.

The principal constituents of the net unrealised gain on our unquoted securities are as follows:

			Unrealised
			gain/(loss)
			£'000
HealthTech Holdings			11,243
Apogee Corporation			2,750
Updata			1,741
Nationwide Energy Partners			855
Elateral			(1,350)
Entuity			(928)
Other unquoted, net			(1,197)
Total unrealised gain, net			13,114

The unrealised gains/losses above reflect the impact on our valuations of changes in the revenue and profitability multiples of comparable businesses, which are used in the underlying calculations, combined with the operating performance of the individual businesses within the portfolio. 

In most cases the multiples used are similar to those prevailing at the end of 2010. The unrealised gains or losses set out above for 2011 arise principally as a result of the companies' performance. The results of HealthTech, Apogee and Updata in 2011 have resulted in valuation improvements for those businesses. Lower than planned results from Elateral and Entuity have resulted in write-downs of our carrying values for those investments.

For the valuation of our fund interests we utilise reports from the general partners of our funds as at the end of the third quarter in establishing our year end carrying value, with adjustments made for calls, distributions and foreign currency movements since that date. We also carry out our own review of individual funds and their portfolios to satisfy ourselves that the underlying valuation bases are consistent with our knowledge of the investments and the sectors in which they operate.

Income from investments in the year was £3.7 million (2010: £0.9 million) and comprises interest and dividends from portfolio companies, dividends on quoted securities and management charges made to portfolio companies.

Administration expenses for the year were £12.9 million (2010: £6.9 million). The figure for 2011 includes one-off costs of £5.0 million comprising £1.6 million of one-off charges for professional fees incurred in relation to the change in investment policy of the Company,  £0.9 million compensation payments to staff members who left before the end of the year and £2.5 million to provide for the costs of a management fee commitment regarded as onerous following the change in strategy.

Interest expense for the year was £0.2 million (2010: £0.3 million) reflecting the fact that the Company repaid its loan facility in May. There was a tax credit for the year of £0.2 million (2010: charge of £0.4 million).

Investments

The Group's investments are carried at fair values determined in accordance with the International Private Equity and Venture Capital Valuation Guidelines.

Additions to the investment portfolio during the year were £19.3 million (2010: £38.9 million) of which £2.6 million (2010: £17.6 million) was for a new investment, £13.1 million (2010: £17.1 million) to meet capital calls from funds and £3.6 million (2010: £4.2 million) for follow-on investments. There were no purchases of quoted securities during the year (2010: £nil); the new investment in 2011 was 365iTMS.

Proceeds of realisations were £62.7 million (2010: £24.3 million) including sales of quoted securities of £31.6 million (2010: £6.2 million), proceeds from the secondary sales of funds of £14.6 million (2010: £nil) and distributions from funds of £11.7 million (2010: £13.7 million). 

At 31 December 2011 the Group had commitments of £18.9 million (31 December 2010: £40.7 million) to meet outstanding capital calls from its fund interests. Cash in the investment management business was £30.6 million (31 December 2010: £9.3 million) with no debt (31 December 2010: borrowings of £14.3 million). 

Consolidated results

Consolidated revenues for the year from continuing operations were £47.3 million (2010: £38.1 million), all in the portfolio subsidiaries. The increase over the previous year reflects the inclusion of Nationwide Energy Partners for a full year (acquired in May 2010) and the acquisition of 365iTMS at the end of September, as well as increased revenues at Entuity and Wesupply of 9% and 15% respectively. 

Consolidated operating expenses of continuing operations were £55.9 million (2010: £40.6 million). The increase in operating expenses reflects principally the inclusion of NEP (for a full year) and the acquisition of 365iTMS as set out above, as well as the higher costs incurred in the investment management business.

The portfolio subsidiaries continued to make good progress during 2011:

·      Updata's revenues in 2011 were flat compared to last year but this masks a significant change in the mix of the business with a greater contribution from rental (contractual) revenues as installation revenues and margins have declined. Since our investment in 2009, the revenue stream from rental contracts has grown approximately four fold.

·      Nationwide Energy Partners grew revenues by 15% in 2011 and EBITDA by 9%. The company also invested in its business development function such that at the end of 2011 a large proportion of new units budgeted for 2012 are either contracted or close to signing.

·      Wesupply grew revenues by 7% but its order intake (bookings) increased by 50% over 2010, much of which is future contracted revenues. It posted a full year operating profit for the first time and has continued this momentum into 2012.

·      Entuity grew revenues by 11% year on year but experienced difficult market conditions in the second half. Further progress is expected in 2012.

·      365iTMS was acquired at the end of September and in its first few months of our ownership has performed in line with our expectations.

The consolidated loss from continuing operations was £1.0 million (2010: profit of £25.1 million), the downturn compared to last year being in the investment management business. Discontinued operations (being the impact of the sales of Kizoom Limited and Coppereye Limited in April and the sale by ITS Holdings, Inc of its trading subsidiaries in October) contributed a net gain of £2.2 million (2010: net loss of £12.6 million).

Financial position

The consolidated statement of financial position at 31 December 2011 includes cash and cash equivalents of £34.9 million (31 December 2010: £13.2 million) and borrowings of £11.8 million (31 December 2010: £23.4 million). Cash in the investment management business was £30.6 million (31 December 2010: £9.3 million) and borrowings were £nil (31 December 2010: £14.3 million).

N Friedlos                                                                                             A Sweet

Director                                                                                                Chief Financial Officer

15 March 2012

Consolidated income statement

		Notes	Year ended 31 December 2011 £'000	Year ended 31 December 2010 £'000
Continuing operations
Revenue from sales of goods and services		2	47,334	38,132
Gains and losses on investments		2	7,912	29,331
Interest income			65	34
Dividend income			801	35
Other income from investments			360	878
			56,472	68,410
Operating expenses			(55,903)	(40,589)
Profit before finance costs			569	27,821
Finance costs			(941)	(1,160)
(Loss)/profit before tax			(372)	26,661
Taxation			(595)	(1,567)
(Loss)/profit from continuing operations			(967)	25,094
Discontinued operations
Gain/(loss) from discontinued operations (net of taxation)		3	2,232	(12,559)
Profit for the year			1,265	12,535
Attributable to:
Equity holders of  the parent			561	10,984
Non-controlling interests			704	1,551
			1,265	12,535
Earnings per ordinary share - basic		4	0.2p	4.0p
Earnings per ordinary share - diluted		4	0.2p	3.9p
Continuing operations
Earnings/(loss) per ordinary share - basic		4	(0.6)p	8.6p
Earnings/(loss) per ordinary share - diluted		4	(0.6)p	8.5p

Consolidated statement of comprehensive income

		Year ended 31 December 2011 £'000	Year ended 31 December 2010 £'000
Profit for the year		1,265	12,535
Exchange differences on translation of foreign operations		216	(113)
Total comprehensive profit for the year		1,481	12,422
Attributable to:
Owners of the Parent		777	10,871
Non-controlling interests		704	1,551
		1,481	12,422

Consolidated statement of financial position

		31 December 2011 £'000	31 December 2010 £'000
Non-current assets
Property, plant and equipment		6,931	9,491
Intangible assets		33,381	28,123
Investments		185,201	220,703
Other long-term assets		20	43
Non-current assets		225,533	258,360
Current assets
Inventories		200	1,851
Operating and other receivables		14,881	12,818
Cash and cash equivalents		34,858	13,229
Current assets		49,939	27,898
Total assets		275,472	286,258
Current liabilities
Interest-bearing loans and borrowings		(2,420)	(18,812)
Operating and other payables		(10,163)	(13,859)
Deferred income		(7,221)	(5,014)
Current tax liabilities		(1,406)	(2,276)
Current liabilities		(21,210)	(39,961)
Non-current liabilities
Interest-bearing loans and borrowings		(9,406)	(4,597)
Deferred income		(1,777)	(2,084)
Deferred tax liabilities		(469)	(614)
Provisions and other long-term liabilities		(2,222)	(172)
Non-current liabilities		(13,874)	(7,467)
Total liabilities		(35,084)	(47,428)
Net assets		240,388	238,830
Equity
Share capital		27,268	27,265
Share premium		17	-
Capital redemption reserve		5,635	5,635
Merger reserve		84,083	84,083
Foreign exchange translation reserve		1,115	899
Retained earnings		118,794	117,827
Equity attributable to owners of the parent		236,912	235,709
Non-controlling interests		3,476	3,121
Total equity		240,388	238,830

Consolidated statement of changes in equity

	Share Capital £'000	Share Premium £'000	Capital redemption reserve £'000	Merger reserve £'000	Translation reserve £'000	Retained earnings £'000	Total £'000	Non-controlling Interests £'000	Total equity £'000
Balance at 1 January 2010	27,265	-	5,635	84,083	1,012	106,773	224,768	850	225,618
Total comprehensive income for the year
Profit for the year	-	-	-	-	-	10,984	10,984	1,551	12,535
Exchange differences on translation of foreign operations	-	-	-	-	(113)		(113)	-	(113)
Changes in ownership interests
Acquisition of non-controlling interest with a change in control	-	-	-	-	-	-	-	967	967
Disposal of non-controlling interest without a change in control	-	-	-	-	-	-	-	(247)	(247)
Transactions with owners, recorded directly in equity
Share-based payments	-	-	-	-	-	70	70	-	70
Balance at 31 December 2010	27,265	-	5,635	84,083	899	117,827	235,709	3,121	238,830
Total comprehensive income for the year
Profit for the year	-	-	-	-	-	561	561	704	1,265
Exchange differences on translation of foreign operations	-	-	-	-	216	-	216	-	216
Changes in ownership interests
Acquisition of non-controlling interest with a change in control	-	-	-	-	-	-	-	233	233
Transactions with owners, recorded directly in equity
Distributions to non-controlling interests	-	-	-	-	-	-	-	(582)	(582)
Share-based payments	-	-	-	-	-	406	406	-	406
Shares issued in the year	3	17	-	-	-	-	20	-	20
Balance at 31 December 2011	27,268	17	5,635	84,083	1,115	118,794	236,912	3,476	240,388

Consolidated cash flow statement

		Year ended 31 December 2011 £'000	Year ended 31 December 2010 £'000
Cash flows from operating activities
Profit for the year		1,265	12,535
Adjustments for:
Depreciation and amortisation		3,505	2,450
Impairment of intangible assets		-	7,665
Gains on investments		(7,912)	(29,331)
(Gain)/loss on sale of discontinued operations, net of income tax		(3,300)	2,015
Translation differences		557	(280)
Share-based payments		406	70
Finance costs		941	1,234
Interest income		(65)	(37)
Income tax expense		595	1,567
		(4,008)	(2,112)
Change in inventories		1,537	(1,039)
Change in operating and other receivables		(2,860)	(1,056)
Change in operating and other payables		4,563	1,317
		(768)	(2,890)
Interest paid		(941)	(1,234)
Income tax paid		(1,458)	(298)
Net cash used in operating activities		(3,167)	(4,422)
Cash flows from investing activities
Interest received		65	37
Acquisition of property, plant and equipment		(2,628)	(3,737)
Acquisition of deferred installation asset		(2,365)	(1,433)
Disposals of property, plant and equipment		39	85
Disposal of discontinued operations, net of cash disposed of		1,079	165
Other disposals		-	1,560
Acquisition of investments		(15,398)	(26,991)
Acquisition of subsidiaries, net of cash acquired		(2,651)	(7,450)
Proceeds from sale of investments		57,967	23,880
Net cash from/(used in) investing activities		36,108	(13,884)
Cash flows from financing activities
Issue of new shares		20	-
Drawdown of interest bearing loans		7,919	15,133
Repayment of interest bearing loans		(18,685)	-
Distributions paid to non-controlling interests		(582)	-
Disposal of non-controlling interest  without a change in control		-	(247)
Net cash (used in)/from financing activities		(11,328)	14,886
Net increase/(decrease) in cash and cash equivalents		21,613	(3,420)
Cash and cash equivalents at the beginning of the year		13,229	16,581
Effect of exchange rate fluctuations on cash held		16	68
Cash and cash equivalents at the end of the year		34,858	13,229
Cash and cash equivalents above comprise
Cash and cash equivalents		34,858	13,229
Bank overdrafts		-	-
Cash and cash equivalents at the end of the year		34,858	13,229

Notes

1.	Principal accounting policies

Reporting entity

LMS Capital plc ("the Company") is domiciled in the United Kingdom. These financial statements are presented in pounds sterling because that is the currency of the principal economic environment of the Company's operations. The consolidated financial statements of the Company for the year ended 31 December 2011 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. 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 comparable with other investment companies, the results of the Group's investment business on a standalone basis are set out in Note 2.

Basis of preparation

This financial information has been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union ("Adopted IFRS") although the financial information in this announcement is not sufficient to comply with Adopted IFRS.

In previous years, the consolidated financial statements have been prepared on a going concern basis. However, on 30 November 2011 the shareholders approved a change in the investment policy of the Company with the objective of conducting an orderly realisation of the assets of the Company in a manner that seeks to achieve a balance between an efficient return of cash to shareholders and maximising the value of the Company's investments. As the Directors intend to liquidate the Company following the realisation and settlement of the remaining net assets, which may be over a number of years, these consolidated financial statements have not been prepared on a going concern basis. No adjustments were necessary to the investment valuations included in these consolidated financial statements as a consequence of the change in the basis of preparation.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 2010 but is derived from those accounts. Statutory accounts for 2010 have been delivered to the registrar of companies, and those for 2011 will be delivered in due course. The auditor has reported on those accounts; their report on the accounts for 2011 was (i) unqualified and (ii) drew attention by way of emphasis without qualifying their report to the accounts no longer being prepared on a going concern basis and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Their report on the accounts for 2010 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) or (3) of the Companies Act 2006.

The consolidated income statement for the preceding year has been represented as if an operation discontinued during the current year had been discontinued from the start of the preceding year (see Note 3).

The financial statements have been prepared on the historical cost basis except for investments held at fair value through profit or loss which are measured at fair value.

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 standalone 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 business (investments carried at fair value) to full consolidation in the Group's financial statements.

Segment profit or loss

		Reconciliation
	Investment management	Portfolio subsidiaries	Discontinued operations	Consolidation adjustments	Group total
Year ended 31 December 2011	£'000	£'000	£'000	£'000	£'000
Revenues from sales of goods and services	-	47,334	-	-	47,334
Gains and losses on investments	8,734	-	-	(822)	7,912
Interest income	54	11	-	-	65
Dividend income	801	-	-	-	801
Other income from investments	2,861	3	-	(2,504)	360
Impairment of intangible assets	-	-	-	-	-
Finance costs	(179)	(3,081)	-	2,319	(941)
Continuing operations	(434)	112	-	(645)	(967)
Discontinued operations	-	-	2,232	-	2,232
Profit/(loss) for the year	(434)	112	2,232	(645)	1,265

		Reconciliation
	Investment management	Portfolio subsidiaries	Discontinued operations	Consolidation adjustments	Group total
Year ended 31 December 2010	£'000	£'000	£'000	£'000	£'000
Revenues from sales of goods and services	-	38,132	-	-	38,132
Gains and losses on investments	23,914	-	-	5,417	29,331
Interest income	24	10	-	-	34
Dividend income	35	-	-	-	35
Other income from investments	920	18	-	(60)	878
Impairment of intangible assets	-	-	-	(776)	(776)
Finance costs	(338)	(2,434)	-	1,612	(1,160)
Continuing operations	17,562	1,290	-	6,242	25,094
Discontinued operations	-	-	(12,559)	-	(12,559)
Profit/(loss) for the year	17,562	1,290	(12,559)	6,242	12.535

Segment net assets

		Reconciliation
	Investment Management	Portfolio subsidiaries	Consolidation adjustments	Group total
31 December 2011	£'000	£'000	£'000	£'000
Property, plant and equipment	759	6,172	-	6,931
Intangible assets	-	17,369	16,012	33,381
Investments	218,476	-	(33,275)	185,201
Other non-current assets	-	20	-	20
Non-current assets	219,235	23,561	(17,263)	225,533
Cash and cash equivalents	30,602	4,256	-	34,858
Other current assets	2,516	12,629	(64)	15,081
Total assets	252,353	40,446	(17,327)	275,472
Total liabilities	(7,360)	(46,775)	19,051	(35,084)
Net assets/(liabilities)	244,993	(6,329)	1,724	240,388

		Reconciliation
	Investment management	Portfolio subsidiaries	Consolidation adjustments	Group total
31 December 2010	£'000	£'000	£'000	£'000
Property, plant and equipment	339	9,152	-	9,491
Intangible assets	-	11,502	16,621	28,123
Investments	253,140	-	(32,437)	220,703
Other non-current assets	-	43	-	43
Non-current assets	253,479	20,697	(15,816)	258,360
Cash and cash equivalents	9,326	3,903	-	13,229
Other current assets	590	14,661	(582)	14,669
Total assets	263,395	39,261	(16,398)	286,258
Total liabilities	(18,429)	(60,802)	31,803	(47,428)
Net assets/(liabilities)	244,966	(21,541)	15,405	238,830

The net asset value of the investment management business at 31 December 2011 and at 31 December 2010 is wholly attributable to the equity holders of the parent.

The carrying amount and gains and losses of the investments of the investment management business can be further analysed as follows:

	31 December 2011				31 December 2010
	UK	US	Total		UK	US	Total
Asset type	£'000	£'000	£'000		£'000	£'000	£'000
Funds	32,610	72,361	104,971		35,164	79,371	114,535
Quoted	860	23,339	24,199		21,091	42,122	63,213
Unquoted	42,570	46,736	89,306		41,361	34,031	75,392
	76,040	142,436	218,476		97,616	155,524	253,140
	Year ended 31 December 2011				Year ended 31 December 2010
	Realised gains/(losses)	Unrealised gains/(losses)	Total		Realised gains/(losses)	Unrealised gains/(losses)	Total
Asset type	£'000	£'000	£'000		£'000	£'000	£'000
Funds	719	2,748	3,467		1,037	9,510	10,547
Quoted	5,758	(13,486)	(7,728)		1,128	14,100	15,228
Unquoted	(119)	13,114	12,995		(3,154)	1,293	(1,861)
	6,358	2,376	8,734		(989)	24,903	23,914

Revenues

The Group's revenues from external customers comprise:

			Year ended 31 December 2011		Year ended 31 December 2010
			£'000		£'000
Continuing operations
IT services and software			34,419		31,152
Energy and related services			12,915		6,980
			47,334		38,132

Geographical information

	Revenues			Non-current assets
	Year ended 31 December 2011	Year ended 31 December 2010		31 December 2011	31 December 2010
	£'000	£'000		£'000	£'000
Continuing operations
United Kingdom	28,810	26,635		75,278	93,924
United States of America	15,200	8,391		150,255	164,436
Other countries	3,324	3,106		-	-
	47,334	38,132		225,533	258,360

Geographical information on revenue is based on the location of customers and on assets is based on the location of the assets.

Major customers

No single customer contributed more than 10% of the Group's total revenues. In 2010, revenues from one customer of the Group's portfolio subsidiaries segment represented approximately 12% of the Group's total revenues.

3.	Discontinued operations

In April 2011 the Group sold its entire interests in CopperEye Limited and Kizoom Limited.

In October 2011 ITS (US) Holdings Inc, sold its entire interest in its two operating subsidiaries ITS Engineered Systems Inc, and ITS Water Solutions Inc.

In September 2010 the Group sold its entire interest in Citizen Limited.

Results of discontinued operations

		Year ended 31 December 2011		Year ended 31 December 2010
		£'000		£'000
Revenues		5,357		11,445
Expenses		(6,425)		(21,986)
Results from operating activities		(1,068)		(10,541)
Taxation		-		(3)
Results from operating activities, net of tax		(1,068)		(10,544)
Gain/(loss) on sale of discontinued operations		3,300		(2,015)
Tax on gain/(loss) on sale of discontinued operations		-		-
Gain/(loss) for the year		2,232		(12,559)
Earnings/(loss) per ordinary share - basic		0.8p		(4.6)p
Earnings/(loss) per ordinary share - diluted		0.8p		(4.6)p

Cash flows from/(used in) discontinued operations

		Year ended 31 December 2011		Year ended 31 December 2010
		£'000		£'000
Net cash used in operating activities		(62)		(683)
Net cash used in investing activities		-		(17)
Net cash from financing activities		106		68
Net cash from/(used in) discontinued operations		44		(632)

Effect of disposal on the financial position of the Group

			31 December  2011
			£'000
Property, plant and equipment			(2,160)
Inventories			(221)
Trade and other receivables			(2,825)
Cash and cash equivalents			(310)
Trade and other payables			2,147
Deferred Income			3,686
Interest bearing loans and borrowings			816
Net liabilities			1,133
Consideration received, satisfied in cash			1,389
Cash disposed of			(310)
Net cash inflow			1,079

Gain on sale of discontinued operations

				Year ended 31 December 2011
				£'000
Consideration received, satisfied in cash				1,389
Net liabilities disposed as at 31 December 2010				2,119
Loss from operating activities, net of tax				1,068
Other non-operating items - investment in the year				(1,276)
Gain on sale of discontinued operations				3,300

4.	Earnings/(loss) per ordinary share

The calculation of the basic and diluted earnings per share, in accordance with IAS 33, is based on the following data:

Group		Year ended 31 December 2011	Year ended 31 December 2010
		£'000	£'000
Earnings
Earnings for the purposes of earnings per share being net profit attributable to equity holders of the parent		561	10,984
(Loss)/earnings for the purposes of continuing earnings per share being net (loss)/profit from continuing operations attributable to equity holders of the parent		(1,671)	23,543
Number of shares		Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share		272,662,870	272,640,952
Effect of dilutive potential ordinary shares:
Share options and performance shares		4,230,301	5,625,901
Weighted average number of ordinary shares for the purposes of diluted earnings per share		276,893,171	278,266,853
Earnings per share
Basic		0.2p	4.0p
Diluted		0.2p	3.9p

Earnings per share - continuing operations
Basic		(0.6)p	8.6p
Diluted		(0.6)p	8.5p

There was no dilution effect on the loss from continuing operations in the year.

5.	Capital commitments

			2011		2010
			£'000		£'000
Outstanding commitments to funds			18,894		40,711

The outstanding commitments to funds comprise unpaid calls in respect of funds where a member of the Group is a limited partner.

 

END

 

 

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