Interim Results

LMS Capital PLC 17 September 2007 17 September 2007 LMS Capital plc Interim Results for the six months to 30 June 2007 The Board of LMS Capital plc is pleased to announce its interim results for the six months to 30 June 2007. Financial highlights* â€¢ Â£256.0 million valuation of investment portfolio (31 December 2006 - Â£234.9 million) â€¢ 93p Net Asset Value per share (31 December 2006 - 90p) â€¢ Â£10.6 million net gains on investments for the six months ended 30 June 2007 (nine months ended 31 December 2006 - net loss of Â£6.4 million) â€¢ Â£7.6 million profit for the six months ended 30 June 2007 (nine months ended 31 December 2006 - loss of Â£10.8 million) Operational highlights â€¢ Significant progress in the underlying performance of our unquoted investments â€¢ Acquisition of an interest in Brockton Capital Fund I, a real estate opportunity fund â€¢ Energy Cranes International performing in line with expectations and expected to benefit from the increased scale provided by the acquisitions of Aberdeen Hydraulics and Marine & Mainland * Investment management business Robert Rayne, Chief Executive Officer, of LMS Capital, said: "During the first half of 2007 we have made steady progress in managing the portfolio, building the investment team and developing our network and deal flow. As financial and other markets adjust to a new environment, sentiment is likely to be more cautious than in the recent past. We believe that our strategy of risk diversification will serve us well in these conditions and we are well placed to deliver good medium to long-term returns to shareholders." For further information please contact: LMS Capital plc 020 7935 3555 Robert Rayne, Chief Executive Officer Martin Pexton, Managing Director Tony Sweet, Chief Financial Officer Arbuthnot Securities Limited 020 7012 2000 Alastair Moreton Brunswick Group LLP 020 7404 5959 Simon Sporborg Anisha Patel About LMS Capital LMS Capital plc is an independent investment company whose shares are traded on AIM. The investment portfolio comprises investments in both the US and UK, with a spread of early stage and second round technology investments, development capital and mature company buy-outs. www.lmscapital.com Half year review 2007 We are pleased to present LMS Capital's results for the six months to 30 June 2007. During our first full year of operation since the demerger in June 2006, we have made steady progress in managing the portfolio, building the investment team and developing our network and deal flow. Our objective is to deliver sustained medium to long-term growth for our shareholders: our time horizon for investments is generally longer than that of typical private equity investors operating through a fund structure. We invest in companies operating in industries we believe have the potential for superior growth. These include applied technology, energy, healthcare and medical, media and leisure and, more recently, real estate. Management has extensive prior experience in these areas, gained through several economic cycles. The valuation of our investments for these results has taken place against a background of turbulence in financial markets. We believe that the approach to valuation adopted by the Group is appropriate for current conditions. REPORTING The Group is for the first time reporting its results under International Financial Reporting Standards (IFRS), as adopted by the European Union ("adopted IFRS") which require the consolidation of portfolio companies which are also subsidiaries. Since the Board manages the Company as an investment business, we believe that we should focus on the results of our investment management operations. Note 2 to the financial information includes the results and net assets of the investment business without consolidation of portfolio subsidiaries. These are the figures referred to in this review. RESULTS Net Asset Value at 30 June 2007 was Â£266.2 million (31 December 2006 - Â£258.5 million), an increase of Â£7.7 million or 3%. The Net Asset Value per share was 93p (31 December 2006 - 90p). The value of the investment portfolio increased by Â£21.1 million (9%) to Â£256.0 million (31 December 2006 - Â£234.9 million). Profit for the six months to 30 June 2007 was Â£7.6 million, compared to a loss of Â£10.8 million in the nine months to 31 December 2006. Sales of investments totalled Â£21.1 million. North American quoted investments accounted for Â£13.9 million of sales, in particular oilfield services stocks Grant Prideco and Ivanhoe. The realised gain on quoted investments was Â£0.9 million. Fund distributions totalled Â£7.0 million, including Â£3.0 million from Spectrum and Â£1.4 million from Weiss, Peck & Greer. The realised gain on funds was Â£1.5 million. The overall fair value adjustment was an increase of Â£8.2 million. There were gains on US quoted stocks (notably oilfield services) and on funds, including Â£2.5 million in relation to San Francisco Equity Partners. These gains were offset by a reduction in the market value of ProStrakan, which was down by Â£5.2 million during the period, and by the impact of the further weakening of the US dollar. The exchange rate effect was a net unrealised loss of Â£2.5 million in the six months to 30 June 2007 (nine months to 31 December 2006 - net unrealised loss of Â£13.4 million). There have been no downward adjustments to the carrying value of UK unquoted investments (nine months to 31 December 2006 - net unrealised loss of Â£2.7 million). Additions to the portfolio during the period totalled Â£31.5 million, of which Â£19.7 million went into new investments and the balance was follow-on financing into the portfolio or capital calls from funds. The largest new investment was Â£7.9 million to acquire an interest in Brockton Capital Fund I, a real estate opportunity fund. This has an associated future funding commitment of Â£15.7 million. The Brockton team, which is well known to us, has a deep analytical understanding of property and how best to enhance value. As part of the development of our real estate interests we have made two further commitments. One is to a vehicle focusing on commercial property opportunities in California and the other to Illyrian Land Fund II, which concentrates on high growth or undervalued assets in South Eastern and Eastern Europe. The latter is managed by EMAC, in which we have an 8.8% interest. Purchases of quoted stocks totalled Â£8.1 million, with a focus on oilfield services: Â£3.6 million was invested in BJ Services, listed on the New York Stock Exchange, and Â£3.4 million in Venture Production, a UK company which is involved in acquiring, operating and revitalising oil and gas fields with proven yet untapped potential. Follow-on investment in the UK unquoted portfolio amounted to Â£5.7 million, including Â£2.6 million in Wesupply to support the planned growth of the company. PORTFOLIO Our top ten investments at 30 June 2007, comprising Â£146.3 million by value and 57% of our total portfolio, were: Name Activity Geography Valuation 30 June 31 December 2007 2006 Â£'000 Â£'000 Energy Cranes Offshore crane operations UK 34,000 34,000 San Francisco Equity Partners Technology, media and retail fund US 25,712 19,528 Weatherford International Oilfield services US 25,330 19,704 ProStrakan Group Pharmaceuticals UK 14,223 19,427 Cityspace Applied technology UK 12,500 12,500 Brockton Capital Real estate fund UK 7,950 - Citizen (Vio Worldwide) Software UK 7,000 7,000 Rave Reviews Cinemas Cinema operator US 6,978 7,854 Wesupply Software UK 6,650 4,000 Spectrum IV Communications and IT fund US 6,190 8,208 Energy Cranes, our largest investment, continues to perform well and is benefiting from the continuing strength of the oilfield services sector. Annual revenues now exceed Â£100 million and the group employs over 1,500 staff. Subsequent to the reporting period, Energy Cranes completed the acquisitions of Aberdeen Hydraulics in the UK and Marine & Mainland in the Gulf of Mexico, both of which are complementary to the company's existing activities and enhance earnings. San Francisco Equity Partners made follow-on investments during the period in Penguin Computing, ModViz and The Guild totalling Â£1.5 million. The Group's unquoted technology investments in the UK made steady progress during the period, with combined revenues increasing by 10% over the previous year and sales pipelines strengthening. Active management of the underlying companies, including some personnel changes and restructuring, has had positive results. DIVIDEND The Board does not propose an interim dividend. OUTLOOK As financial and other markets adjust to a new environment, sentiment is likely to be more cautious than in the recent past. The re-pricing of risk in global credit markets does not look like a short-term phenomenon. We believe that our strategy of risk diversification will serve us well in these conditions. Our portfolio is diversified by industry sector, by geography and by stage of investment, ranging from early stage companies to mature buyouts. While the bulk of our portfolio is in unquoted investments and in funds, our quoted securities give us sufficient liquidity if required. We are well placed to deliver good medium to long-term returns to shareholders. Jonathan Agnew Robert A Rayne Chairman Chief Executive Officer 17 September 2007 Consolidated income statement Notes Six months Nine months ended 30 June ended 31 2007 December 2006 Â£'000 Â£'000 ----------------------------------------------------------------------------------------------------------------- Revenue from sales of goods and services 61,288 82,109 Gains and losses on investments held at fair value through profit or loss 10,178 (13,369) Interest income 548 1,410 Investment and other income 26 157 ----------------------------------------------------------------------------------------------------------------- 72,040 70,307 Operating expenses (62,786) (84,039) Other expenses 3 - (3,097) ----------------------------------------------------------------------------------------------------------------- Profit/(loss) before finance costs 9,254 (16,829) Finance costs (820) (4,225) ----------------------------------------------------------------------------------------------------------------- Profit/(loss) before tax 8,434 (21,054) Taxation (1,048) (573) ----------------------------------------------------------------------------------------------------------------- Profit/(loss) for the period 7,386 (21,627) ----------------------------------------------------------------------------------------------------------------- Attributable to: Equity holders of the parent 7,127 (21,860) Minority interests 259 233 ----------------------------------------------------------------------------------------------------------------- 7,386 (21,627) ----------------------------------------------------------------------------------------------------------------- Basic earnings/(loss) per ordinary share 4 2.5p (7.6)p Diluted earnings/(loss) per ordinary share 4 2.5p (7.6)p ----------------------------------------------------------------------------------------------------------------- The notes on pages 9 to 22 form part of these financial statements. Consolidated balance sheet 30 June 31 December 2007 December 2006 Â£'000 Â£'000 ----------------------------------------------------------------------------------------------------------------- Non-current assets Property, plant and equipment 13,417 12,558 Intangible assets 42,327 35,714 Investments held at fair value through profit or loss 201,329 188,370 Investments in joint ventures 77 208 ----------------------------------------------------------------------------------------------------------------- Non-current assets 257,150 236,850 ----------------------------------------------------------------------------------------------------------------- Current assets Inventories 4,616 8,395 Operating and other receivables 37,253 30,978 Cash and cash equivalents 13,122 29,859 ----------------------------------------------------------------------------------------------------------------- Current assets 54,991 69,232 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Total assets 312,141 306,082 ----------------------------------------------------------------------------------------------------------------- Current liabilities Bank overdrafts (6) (293) Interest-bearing loans and borrowings - (2,188) Operating and other payables (22,444) (26,823) Deferred income (2,251) (1,441) Current tax liabilities - (203) ----------------------------------------------------------------------------------------------------------------- Current liabilities (24,701) (30,948) ----------------------------------------------------------------------------------------------------------------- Non-current liabilities Interest-bearing loans and borrowings (28,006) (23,866) Deferred income (861) - Deferred tax liabilities (31) (320) ----------------------------------------------------------------------------------------------------------------- Non-current liabilities (28,898) (24,186) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Total liabilities (53,599) (55,134) ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Net assets 258,542 250,948 ----------------------------------------------------------------------------------------------------------------- Equity Share capital 28,643 28,643 Capital redemption reserve 4,257 4,257 Merger reserve 84,083 84,083 Foreign exchange translation reserve (980) (927) Other reserves 288 - Retained earnings 137,675 130,548 ----------------------------------------------------------------------------------------------------------------- Equity attributable to owners of the parent 253,966 246,604 Minority interest 4,576 4,344 ----------------------------------------------------------------------------------------------------------------- Total Equity 258,542 250,948 ----------------------------------------------------------------------------------------------------------------- The financial statements on pages 5 to 22 were approved by the Board on 17 September 2007 and were signed on its behalf by: RA Rayne Director The notes on pages 9 to 22 form part of these financial statements. Consolidated statement of recognised income and expense Six months Nine months ended ended 30 June 31 December 2007 December 2006 Â£'000 Â£'000 ----------------------------------------------------------------------------------------------------------------- Exchange differences on translation of foreign operations (80) (809) ----------------------------------------------------------------------------------------------------------------- Net income/(loss) recognised directly in equity (80) (809) Profit/(loss) for the year 7,386 (21,627) ----------------------------------------------------------------------------------------------------------------- Total recognised income and expense 7,306 (22,436) ----------------------------------------------------------------------------------------------------------------- Attributable to: Equity holders of the parent 7,074 (22,446) Minority interests 232 10 ----------------------------------------------------------------------------------------------------------------- 7,306 (22,436) ----------------------------------------------------------------------------------------------------------------- The notes on pages 9 to 22 form part of these financial statements. Consolidated cash flow statement Six months Nine months ended ended 30 June 31 December 2007 December 2006 Â£'000 Â£'000 ----------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Profit (loss) for the period 7,386 (21,627) Adjustments for: Depreciation 942 1,258 (Gains)/losses on investments held at fair value (10,178) 13,369 Translation differences 299 1,322 Share based payments 288 - Finance costs 820 4,225 Interest income (548) (1,410) Income tax expense 1,048 573 ----------------------------------------------------------------------------------------------------------------- 57 (2,290) Change in inventories 3,779 (2,357) Change in trade and other receivables (5,718) (4,004) Change in trade and other payables (3,952) 6,931 ----------------------------------------------------------------------------------------------------------------- (5,834) (1,720) Interest paid (820) (4,225) Income tax paid (1,371) (2,181) ----------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (8,025) (8,126) ----------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Interest received 548 1,410 Acquisition of property, plant and equipment (1,924) (5,292) Acquisition of investments (28,066) (45,660) Acquisition of subsidiary (1,610) - Proceeds from sale of investments 20,675 30,174 ----------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (10,377) (19,368) ----------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Issue of preference shares - 50 Repurchase of own shares - (30,239) Redemption of preference shares - (50) Drawdown of interest bearing loans 1,952 10,041 Distribution to minority shareholders - (16,138) Funding from group pre-demerger - 48,661 ----------------------------------------------------------------------------------------------------------------- Net cash from financing activities 1,952 12,325 ----------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (16,450) (15,169) Cash and cash equivalents at the beginning of the period 29,566 44,735 ----------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period 13,116 29,566 ----------------------------------------------------------------------------------------------------------------- Cash and cash equivalents above comprise Cash and cash equivalents 13,122 29,859 Bank overdrafts (6) (293) ----------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period 13,116 29,566 ----------------------------------------------------------------------------------------------------------------- The notes on pages 9 to 22 form part of these financial statements. Notes to the financial information 1. Principal accounting policies Basis of preparation LMS Capital plc ("the Company") is domiciled in the United Kingdom. This financial information is presented in pounds sterling because that is the currency of the principal economic environment of the Company's operations. The consolidated interim accounts of the Company for the six months ended 30 June 2007 comprise the Company and its subsidiaries (together "the Group"). The AIM Rules require that the next annual consolidated financial statements of the Company, for the year ending 31 December 2007, be prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("adopted IFRS"). This interim financial information has been prepared on the basis of the recognition and measurement requirements of adopted IFRS as at 30 June 2007 that are effective (or available for early adoption) at 31 December 2007, the Group's first annual reporting date at which it is required to use adopted IFRS. Based on these adopted IFRS, the directors have applied the accounting policies, as set out below, which they expect to apply when the first annual IFRS financial statements are prepared for the year ending 31 December 2007. However, the adopted IFRS that will be effective (or available for early adoption) in the annual financial statements for the year ending 31 December 2007 are still subject to change and to additional interpretations and therefore cannot be determined with certainty. Accordingly, the accounting policies for that annual period will be determined finally only when the annual financial statements are prepared for the year ending 31 December 2007. In particular, the directors have assumed that the following IFRS issued by the International Accounting Standards Board and IFRIC Interpretations issued by the International Financial Reporting Interpretations Committee will be adopted by the European Union in sufficient time that they will be available for use in the annual IFRS financial statements for the year ending 31 December 2007: IFRS 8: Operating Segments. The interim financial statements do not include all of the information required for full annual financial statements. The Company was formed on 17 March 2006 and commenced operations on 9 June 2006 when it received the demerged investment division of London Merchant Securities. Consolidated financial statements were prepared for the nine months ended 31 December 2006 to reflect the two step demerger process: this comprised an initial common control transaction followed by a subsequent demerger of the Group.. Comparative figures in this interim financial information are for this nine month period. The consolidated financial statements are prepared as if the Group had always been in existence. The difference between the nominal value of the Company's shares issued and the amount of the net assets acquired at the date of demerger has been credited to merger reserve. The Company is an investment company but because it holds majority stakes in certain investments it is required to prepare group accounts that consolidate the results of such investments. In order to present information that is consistent with other investment companies, the results of the Group's investment business on a stand alone basis are set out in Note 2. In line with the Group's adoption of IFRS for the year ending 31 December 2007, the Group has decided to adopt early IFRS 8: Operating Segments ("IFRS 8"), which defines requirements for the disclosure of financial information of an entity's operating segments. IFRS 8 replaces IAS 14: Segment Reporting. It follows the 'management approach', which is the basis for managing the businesses. IFRS 8, which has not yet been endorsed by the European Union, was approved by the IASB in November 2006 and is effective for reporting periods beginning on or after 1 January 2009. Early adoption is permitted. The interim financial information was authorised for issue by the directors on 17 September 2007. It does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the six months ended 30 June 2007 and the nine months ended 31 December 2006 is unaudited; the amounts in respect of the nine months ended 31 December 2006 have been derived from the Group's statutory accounts for the nine months ended 31 December 2006 as adjusted to comply with IFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in Note 7. The comparative figures for the nine months ended 31 December 2006 are not the Company's statutory accounts for that financial period. Those accounts, which were prepared under UK GAAP, have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was: (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The Company was not required to and did not prepare financial information for the six months ended 30 June 2006 because the demerger referred to above did not take place until 9 June 2006. The first financial information prepared and published by the Company was for the nine months ended 31 December 2006 and therefore this financial information is provided in the interim financial information for the prior period. The accounting policies set out below have been applied consistently for all periods presented in this interim financial information and in preparing the opening IFRS balance sheet at 1 April 2006 for the purpose of transition to IFRS except as described in note 7. The interim financial information has been prepared on the historical cost basis except for the revaluation of investments held at fair value through profit or loss. Basis of consolidation The half year consolidated interim report comprises the interim reports of the Company and its subsidiary undertakings up to 30 June 2007. The Company's subsidiary undertakings fall into two categories: â€¢ Investment companies through which the Group conducts its investment activities; and â€¢ 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 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 8 includes details of the companies concerned. The results of these companies are shown as a separate business segment in Note 2. On acquisition the assets and liabilities of a subsidiary are measured at fair value and any excess of the cost of acquisition over the fair values of the identifiable net assets and contingent liabilities acquired is recognised as goodwill. If the cost of acquisition is lower than the fair value of the identifiable net assets and contingent liabilities acquired, the amount is credited to the income statement in the period of acquisition. The interest of minority shareholders is stated at their share of the fair value of the identifiable assets, liabilities and contingent liabilities recognised, except that any losses attributable to the minority interest, both at acquisition and subsequently, are allocated against the interest of the parent company. All intra Group transactions and profit or losses are eliminated on consolidation. Goodwill Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment. Investments Investments are included in the balance sheet at fair value, with subsequent changes in fair value recognised in the income statement. Fair values have been determined in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines require the valuer to make judgments as to the most appropriate valuation method to be used and the results of the valuations. Each investment is reviewed individually with regard to the stage, nature and circumstances of the investment and the most appropriate valuation method selected. The valuation results are then reviewed and any amendment to the carrying value of investments is made as considered appropriate. â€¢ Quoted investments Quoted investments for which an active market exists are valued at the closing bid price at the balance sheet date. â€¢ Unquoted direct investments Unquoted direct investments for which there is no ready market are valued using the most appropriate valuation technique with regard to the stage and nature of the investment. Valuation methods that may be used include: â€¢ Recent investments are valued at cost subject to an impairment review. â€¢ Investments in which there has been a recent funding round involving significant financing from external investors are valued at the price of the recent funding, discounted if an external investor is motivated by strategic considerations. â€¢ Investments in an established business which is generating sustainable profits or positive cash flows are valued using earnings multiples. â€¢ Investments in a business the value of which is derived mainly from its underlying net assets rather than its earnings are valued on the basis of net asset valuation. â€¢ Investments in an established business which is generating sustainable profits or positive cash flows but for which other valuation methods are not appropriate are valued by calculating the discounted cash flow of future cash flows or earnings. â€¢ Investments in a business which is not generating sustainable profits or positive cash flows and for which there has not been any recent independent funding are valued by calculating the discounted cash flow of the investment to the investors. This valuation basis will primarily be used in determining whether there is any impairment to the carrying value of the asset. Due to the subjective nature of the calculation and the dependence on the outcome of unknown future events, it will only give rise to a valuation increase in exceptional circumstances and where there is also additional evidence of an increase in value, such as additional funding or profit generation. â€¢ Funds Investments in managed funds are valued at fair value. The general partners of the funds will provide periodic valuations on a fair value basis which the Group will adopt provided it is satisfied that the valuation methods used by the funds are not materially different from the Group's valuation methods. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any impairment loss. Depreciation is charged using the straight line method over the estimated useful lives of the assets as follows: o Freehold property 50 years o Leasehold improvements the term of the lease o Plant and equipment 3 - 10 years When parts of an item of property, plant and equipment have different useful lives, these components are accounted for as separate items of property, plant and equipment. Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired by way of finance leases are stated at an amount equal to the lower of fair value and the present value of the future minimum lease payments at inception of the lease, less accumulated depreciation and any impairment loss. Impairment of assets Financial assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. Non-financial assets The carrying amounts of the Group's non-financial assets, other than investments held at fair value, inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset's recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash generating unit to which the asset belongs. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange at the date of transaction. Assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date and exchange differences are included in the profit and loss account. Investments denominated in foreign currencies are translated at the closing rates ruling at the balance sheet date as part of the fair value adjustment and are taken as a gain or loss in the current year's profit and loss account. On consolidation the assets and liabilities of the Group's overseas operations including goodwill and fair value adjustments arising on consolidation are translated at the closing rates ruling at the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising on these items are classified as equity and transferred to the Group's foreign exchange translation reserve. Such exchange differences are recognised as income or expense in the period in which the related overseas operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of an overseas operation are treated as assets and liabilities of the overseas entity and translated at the closing rate. Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes a share of overheads based on normal working capacity. Cash and cash equivalents Cash, for the purpose of the cash flow statement, comprises cash in hand and cash equivalents, less overdrafts payable on demand. Cash equivalents are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in anactive market. Cash equivalents include short-term cash deposits. Income tax expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. Income Revenue from sales of goods and services Revenue from sales of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from sales of services is recognised by reference to the stage of completion of the transaction at the reporting date. Revenue is estimated by applying to the total expected contract revenue, the proportion of total contract costs incurred to date over total expected costs for each contract. Interest income Interest income is recognised as it accrues using the effective interest method. Investment income Investment income comprises investment management fees receivable from portfolio companies and dividend income. Dividend income is recognised on the date the Group's right to receive payment is established. Dividends relating to pre-acquisition profits are not recognised as income but as a reduction of the carrying amount of the investment. Expenditure Employee benefits Payments to defined contribution pension schemes are charged as an expense as they fall due. Share based payments The Group has issued share options to certain employees. Such options are treated as equity-settled share based payments and measured at fair value at the date of grant and the fair value is recognised as an expense on a straight line basis over the vesting period. Fair value is calculated by use of a binomial option valuation model taking into account the terms and conditions under which the equity-settled share based payments were issued. Finance costs Finance costs comprise interest payable on borrowings calculated using the effective interest rate method. 2. Segment information Operating segments The condensed segment information has been prepared using the definition of an operating segment in IFRS 8: Operating Segments which sets out the requirements for the disclosure of financial information of an entity's operating segments. IFRS 8 requires an entity to present segment information on the same basis as the financial information which is reviewed regularly by management to assess performance and to allocate resources. As an investment company, the Group's primary focus is on the performance of its investment management business. Financial information for this segment is prepared on the basis that all investments are accounted for at fair value. The information set out below therefore presents summarised financial information for the investment management business on a stand alone basis as a single segment, together with the adjustments arising from the summarised results and financial position of the portfolio subsidiaries. Adjustments for Energy Cranes are shown separately because of the size of this business relative to the others. The consolidation adjustments included below reflect the adjustments necessary to restate the portfolio subsidiaries from the basis included in the investment management segment (investments carried at fair value) to full consolidation in the Group's financial statements. Consolidated income statement Six months ended 30 June 2007 ----------------------------------------------------------------------------------------------------------------------- Portfolio subsidiaries ---------------------- Investment Energy Consolidation Group management Cranes Other adjustments total ----------------------------------------------------------------------------------------------------------------------- Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenues from sales of goods and services to external customers - 55,030 6,258 - 61,288 Gains and losses on investments held at fair value through profit or loss 10,607 - (429) - 10,178 Interest income 546 - 2 - 548 Investment and other income 597 - - (571) 26 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Finance costs - (986) (405) 571 820 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Profit/(loss) for the period 7,585 2,003 (2,539) 337 7,386 ----------------------------------------------------------------------------------------------------------------------- Nine months ended 31 December 2006 ----------------------------------------------------------------------------------------------------------------------- Portfolio subsidiaries ---------------------- Investment Energy Consolidation Group management Cranes Other adjustments total ----------------------------------------------------------------------------------------------------------------------- Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Revenues from sales of goods and services to external customers - 74,827 7,282 - 82,109 Gains and losses on investments held at fair value through profit or loss (6,419) - 941 (7,891) (13,369) Interest income 1,340 63 7 - 1,410 Investment and other income 1,546 - - (1,389) 157 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Finance costs (50) (3,687) (488) - (4,225) ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Profit/(loss) for the period (10,847) 2,261 (3,761) (9,280) (21,627) ----------------------------------------------------------------------------------------------------------------------- Consolidated balance sheet 30 June 2007 ----------------------------------------------------------------------------------------------------------------------- Portfolio subsidiaries ---------------------- Investment Energy Consolidation Group management Cranes Other adjustments total ----------------------------------------------------------------------------------------------------------------------- Property, plant and equipment 20 11,550 1,847 - 13,417 Intangible assets - 18,688 - 23,639 42,327 Investments held at fair value through profit or loss 255,953 - 237 (54,861) 201,329 Interests in joint ventures - 77 - - 77 ----------------------------------------------------------------------------------------------------------------------- Non-current assets 255,973 30,615 2,084 (31,222) 257,150 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 10,250 1,681 1,191 - 13,122 ----------------------------------------------------------------------------------------------------------------------- Other current assets 2,305 34,785 4,779 - 41,869 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Total assets 268,528 66,781 8,054 (31,222) 312,141 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Total liabilities (1,570) (43,826) (28,677) 20,474 (53,599) ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Net assets (liabilities) 266,958 22,955 (20,623) (10,748) 258,542 ----------------------------------------------------------------------------------------------------------------------- Attributable to Owners of the parent 266,239 19,097 (20,623) (10,748) 253,965 Minority interest 719 3,858 - - 4,577 ----------------------------------------------------------------------------------------------------------------------- 266,958 22,955 (20,623) (10,748) 258,542 ----------------------------------------------------------------------------------------------------------------------- 31 December 2006 ----------------------------------------------------------------------------------------------------------------------- Portfolio subsidiaries ---------------------- Investment Energy Consolidation Group management Cranes Other adjustments total ----------------------------------------------------------------------------------------------------------------------- Property, plant and equipment 9 10,675 1,874 - 12,558 Intangible assets - 18,688 - 17,026 35,714 Investments held at fair value through profit or loss 234,910 - 760 (47,300) 188,370 Interests in joint ventures - 208 - - 208 ----------------------------------------------------------------------------------------------------------------------- Non-current assets 234,919 29,571 2,634 (30,274) 236,850 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 24,120 4,910 829 29,859 ----------------------------------------------------------------------------------------------------------------------- Other current assets 1,472 33,785 4,116 - 39,373 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Total assets 260,511 68,266 7,579 (30,274) 306,082 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Total liabilities (1,331) (47,161) (14,885) 8,243 (55,134) ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Net assets/ (liabilities) 259,180 21,105 (7,306) (22,031) 250,948 ----------------------------------------------------------------------------------------------------------------------- Attributable to Owners of the parent 258,461 17,480 (7,306) (22,031) 246,604 Minority interest 719 3,625 - - 4,344 ----------------------------------------------------------------------------------------------------------------------- 259,180 21,105 (7,306) (22,031) 250,948 ----------------------------------------------------------------------------------------------------------------------- The results and net assets of the investment management business can be further analysed as follows: As at and for the six months ended 30 June 2007 ------------------------------------------------------------------------------- Gains/(losses) Fair value at on investments the end of the held at fair value period ------------------------------------------------------------------------------- Â£'000 Â£'000 Type of security UK Quoted securities (4,723) 24,885 Unquoted securities - 93,109 Funds - 21,102 ------------------------------------------------------------------------------- Total UK (4,723) 139,096 ------------------------------------------------------------------------------- US Quoted securities 9,785 43,630 Unquoted securities (293) 12,460 Funds 5,838 60,767 ------------------------------------------------------------------------------- Total US 15,330 116,857 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Total portfolio 10,607 255,953 ------------------------------------------------------------------------------- As at and for the six months ended 30 June 2007 ------------------------------------------------------------------------------- Gains/(losses) Fair value at on investments the end of the held at fair value period ------------------------------------------------------------------------------- Â£'000 Â£'000 Type of security UK Quoted securities 2,377 25,658 Unquoted securities (1,157) 87,442 Funds 187 11,465 ------------------------------------------------------------------------------- Total UK 1,407 124,565 ------------------------------------------------------------------------------- US Quoted securities (4,256) 43,726 Unquoted securities (1,452) 11,907 Funds (2,118) 54,712 ------------------------------------------------------------------------------- Total US (7,826) 110,345 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Total portfolio (6,419) 234,910 ------------------------------------------------------------------------------- 3. Other expenses Other expenses in the nine months ended 31 December 2006 relate to professional services in connection with the demerger of the Company in June 2006 and the repurchase of shares by tender offer in July 2006. 4. Earnings/(loss) per ordinary share Basic The calculation of basic earnings per ordinary share is based on earnings of Â£7,127,000 (nine months ended 31 December 2006 - loss of Â£21,860,000), being the profit/(loss) for the period attributable to the parent, divided by the weighted average number of ordinary shares in issue during the period of 286,429,228 (nine months ended 31 December 2006 - 303,383,617). Diluted The calculation of diluted earnings per ordinary share is based on earnings of Â£7,127,000, divided by the weighted average number of ordinary shares in issue during the period of 290,759,266 after taking account of the dilutive potential effect of share options issued under the Company's share option plans. There was no dilution effect in the nine months ended 31 December 2006. 5. Reconciliation of movement in capital and reserves Capital Share Redemption Merger Translation Other Retained Minority Total capital Reserve Reserve Reserve reserves earnings Total interest equity Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 --------------------------------------------------------------------------------------------------------------------- Balance at 1 April 2006 32,900 - 35,837 (341) - 182,647 251,043 20,473 271,516 Total recognised income and expense - - - (809) - (21,860) (22,669) 233 (22,436) Minority interest share of exchange - - - 223 - - 223 (223) - movement Repurchase of (4,257) 4,257 - - - (30,239) (30,239) - (30,239) shares by tender offer Movement in merger - - 48,246 - - - 48,246 - 48,246 reserve Distribution to minority - - - - - - - (16,139) (16,139) --------------------------------------------------------------------------------------------------------------------- Balance at 31 28,643 4,257 84,083 (927) - 130,548 246,604 4,344 250,948 December 2006 Total recognised income and expense - - - (80) - 7,127 7,047 259 7,306 Share based payments - - - - 288 - 288 - 288 Minority interest share of exchange - - - 27 - - 27 (27) - movement --------------------------------------------------------------------------------------------------------------------- Balance at 28,643 4,257 84,083 (980) 288 137,675 253,966 4,576 258,542 30 June 2007 --------------------------------------------------------------------------------------------------------------------- 6. Financial instruments The Group holds a portfolio of investments diversified by risk across industry sector, type of investment (listed investments, externally managed funds and directly managed investments) and geography. The Group's principal financial instruments comprise quoted investments (quoted on the main stock exchanges in London, US, Canada and AIM) and equity and debt instruments in unquoted businesses. A proportion of its unquoted investments are held through funds managed by external managers. As is common practice in the venture and development capital industry, the investments in unquoted companies are structured using a variety of instruments including ordinary shares, preference shares and other shares carrying special rights, options and warrants and debt instruments with and without conversion rights. The investments are held for resale with a view to the realisation of capital gains. Generally, the investments do not pay significant income. The principal risks associated with the Group's financial instruments are: â€¢ liquidity risk; â€¢ market price risk; and â€¢ currency risk. Liquidity risk The Group's investment portfolio comprises investments at differing stages of maturity and with different levels of liquidity. The Group also has cash resources available and has access to bank facilities designed to provide additional working capital in order to help manage short-term variations in cash flow. Its financing requirements are met through a combination of liquidity from the sale of investments and the use of cash resources. Market price risk Market price risk arises from uncertainty about the future value of the Group's investments. It represents the potential loss the Group might suffer through holding positions in quoted or unquoted securities in the face of price movements. It is mitigated through stock selection and management of the portfolio. Currency risk Part of the Group's investment portfolio is held in assets denominated in US and Canadian dollars. The Group is therefore exposed to exchange rate risk arising from changes in the value of these currencies in relation to pound sterling, its reporting currency. The Group regards its exposure to exchange rate changes on the underlying investment as part of its overall investment return, and does not seek to mitigate that risk through the use of financial derivatives. The Group monitors its overall exposure to foreign currencies at a portfolio level. 7. Explanation of transition to adopted IFRS The financial information for the six months ended 30 June 2007 is the first period that the Company has presented its results under IFRS. IFRS 1: First time adoption of International Financial Reporting Standards sets out the rules for adopting IFRS in the Group's first statutory accounts under IFRS. The principal accounting policies set out in Note 1 have been applied to prepare the financial information for the six months ended 30 June 2007 and the nine months ended 31 December 2006 and for the preparation of the opening balance sheet under IFRS at 1 April 2006 (the Group's date of transition to IFRS). IFRS 1 contains certain optional exemptions in the transition to IFRS and the Group has elected to use the following: IFRS 3: Business combinations - The Group has taken advantage of the optional exemption not to apply the requirements of IFRS 3 to business combinations prior to the date of transition and to account for these business combinations based on the fair value at the date of transition of the assets and liabilities acquired. IAS 21: The effects of changes in foreign exchange rates - The Group has deemed cumulative translation differences relating to foreign operations as zero at the date of transition. The information below sets out the impact of the transition from UK GAAP to IFRS at the date of transition (1 April 2006) and for the nine months ended 31 December 2006. The most significant impact of the adoption of IFRS is the requirement for the Group to consolidate certain of its portfolio companies as subsidiaries. The operating results of these portfolio subsidiaries are included in the Group's consolidated income statement and their assets and liabilities are included in the consolidated balance sheet. The portfolio subsidiaries' UK GAAP financial statements are consolidated and restatements are made to comply with IFRS. The tables below summarise the adjustments made to the UK GAAP financial information in this regard. Reconciliation of net assets 31 December Pro forma 2006 1 April 2006 ------------------------------------------------------------------------------------------------------------ Â£'000 Â£'000 Previously reported - UK GAAP Net assets 259,180 267,951 ------------------------------------------------------------------------------------------------------------ Adjustments Increase in property, plant and equipment 12,549 9,262 Increase in intangible assets 35,714 36,613 Decrease in investments (46,332) (39,549) Increase in cash and cash equivalents 5,739 722 Increase in inventories 8,395 6,038 Increase in operating and other receivables 29,506 25,802 Increase in current liabilities (29,617) (19,310) Increase in non-current liabilities (24,186) (16,013) ------------------------------------------------------------------------------------------------------------ Net impact of consolidation of subsidiaries previously classified as investments (8,232) 3,565 ------------------------------------------------------------------------------------------------------------ Restated - IFRS Net assets 250,948 271,516 ------------------------------------------------------------------------------------------------------------ Reconciliation of loss after tax ------------------------------------------------------------------------------------------------------------ Nine months ended 31 December 2006 ------------------------------------------------------------------------------------------------------------- Â£'000 Previously reported - UK GAAP Loss on ordinary activities after taxation before minority interests (10,847) ------------------------------------------------------------------------------------------------------------ Adjustments Increase in revenue from sales of goods and services 82,109 Decrease in gains and losses on investments held at fair value through profit and loss (6,950) Increase in interest income 70 Decrease in investment and other income (1,389) Increase in operating expenses (79,184) Increase in taxation (1,261) Increase In finance costs (4,175) ------------------------------------------------------------------------------------------------------------ Net impact of consolidation of subsidiaries previously classified as investments (10,780) ------------------------------------------------------------------------------------------------------------ Restated - IFRS Loss for the period after tax (21,627) ------------------------------------------------------------------------------------------------------------ Reconciliation of net decrease in cash and cash equivalents Nine months ended 31 December 2006 ------------------------------------------------------------------------------------------------------------ Â£'000 Previously reported - UK GAAP Net decrease in cash and cash equivalents (19,893) ------------------------------------------------------------------------------------------------------------ Adjustments Increase in net cash used in operating activities (688) Increase in net cash used in investing activities (4,629) Increase in net cash from financing activities 10,041 ------------------------------------------------------------------------------------------------------------ Net impact of consolidation of subsidiaries previously classified as investments 4,724 ------------------------------------------------------------------------------------------------------------ Restated - IFRS Net decrease in cash and cash equivalents (15,169) ------------------------------------------------------------------------------------------------------------ 8. Subsidiaries The subsidiaries comprising the Group's investment management business (as set out in Note 2) are as follows: Name Country of Holding Activity incorporation % ----------------------------------------------------------------------------------------------------- LMS Capital Group Limited England and Wales 100 Investment 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) Limited Bermuda 100 Investment holding Tiger Investments Limited England and Wales 100 Investment holding LMS Tiger Investments (II) Limited England and Wales 100 Investment holding International Oilfield Services Limited Bermuda 100 Investment 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 Limited England and Wales 100 Investment holding 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. Name Country of Holding Activity incorporation % ------------------------------------------------------------------------------------------------------------------- Energy Cranes International Limited England and Wales 82 Crane manufacture and crane- related services to the offshore energy industry Offshore Tool and Energy Corporation United States of America 87 Specialist enginnering design and fabrication Entuity limited England and Wales 68 Network management software AssetHouse Technology Limited England and Wales 78 Content services infrastructure software Wesupply Limted England and Wales 98 Supply chain management software Independent review report to LMS Capital plc Introduction We have been instructed by the company to review the financial information for the six months ended 30 June 2007 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of recognised income and expense and the consolidated cash flow statement and the related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of our engagement. 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 interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the AIM Rules which require that the interim report must be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts. As disclosed in note 1 to the financial information, the next annual financial statements of the group will be prepared in accordance with IFRS as adopted by the European Union. The accounting policies that have been adopted in preparing the financial information are consistent with those that the directors currently intend to use in the next annual financial statements. There is, however, a possibility that the directors may determine that some changes to these policies are necessary when preparing the full annual financial statements for the first time in accordance with IFRS as adopted by the European Union. This is because, as disclosed in note 1, the directors have anticipated that certain standards, which have yet to be formally adopted by the European Union, will be so adopted in time to be applicable to the next annual financial statements. Review work performed We conducted our review having regard to the guidance contained in Bulletin 1999 /4: Review of interim financial information issued by the Auditing Practices Board for use in the UK. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007. KPMG Audit Plc Chartered Accountants 17 September 2007 This information is provided by RNS The company news service from the London Stock Exchange

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