10 March 2022
LMS CAPITAL PLC
Final Results for the Year Ended 31 December 2021
The Board of LMS Capital plc (the "Company") is pleased to announce the Company's audited annual results for the year ended 31 December 2021.
Financial Summary
| 31 December 2021 | 31 December 2020 |
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Net asset value | £49.1m | £47.9m |
Cash available at year end | £20.1m | £20.6m |
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Portfolio gains/(losses) | £3.8m | (£2.1m) |
Running costs | (£1.8m) | (£1.7m) |
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Net asset value per share (p) | 60.8p | 59.4p |
Dividends paid per share (p) | 0.9p | 4.55p* |
Dividends declared/recommended by Board (p) | 0.925p | 0.9p |
*Includes special divided of 4.25p per share paid in January 2020
Financial Highlights
Net Asset Value
· The net asset value ("NAV") at 31 December 2021 was £49.1 million, 60.8 pence per share (31 December 2020: £47.9 million, 59.4 pence per share); and
· Adjusting for the impact of dividends to shareholders, the NAV over the year increased by a net £1.9 million, or 4.0%, from the gains on the mature asset portfolio and investment interest income and a net reduction of other items, mainly running costs.
Portfolio gains and realisations
· The portfolio showed an overall increase in value on the year of £3.8 million of which £2.6 million (11.6% return) was from net realised and unrealised gains on the mature asset portfolio and £1.2 million (18.5% return) from investment interest income on Dacian Petroleum ("Dacian"); and
· Cash proceeds from portfolio realisations in the year totalled £2.7 million (2020: £9.3 million).
Running costs
· Running costs, including those incurred by subsidiaries, were £1.8 million and there were an additional £0.3 million of investment related costs (2020: £1.7 million running costs and £0.2 million of investment related costs).
Dividends
· The Board continued its progressive annual dividend policy targeting a dividend initially equal to 1.5% of each financial year's closing NAV and targeting that this should be fully covered by distributable profits, subject to the Company's liquidity and market conditions. A final dividend of 0.6 pence per share on the 2020 year was paid in May 2021, and an interim dividend of 0.3 pence per share for the 2021 year was paid in September 2021. A final dividend on the 2021 year of 0.625 pence per share is recommended by the Board and subject to approval by shareholders at the Annual General Meeting.
Cash balances
· Group cash balances at the year-end, including amounts held by subsidiaries, were £20.1 million, representing 24.9 pence per share and 41.0% of the NAV (2020: £20.6 million and representing 25.5 pence per share and 43.0% of the NAV). The Company had no external debt.
Key themes
· Good returns in the mature investment portfolio - The mature investment portfolio of £23.0 million, which comprises investments originating from the Company's strategy pre-2012, achieved a return of 11.6% during 2021 and also had cash realisations of £2.7 million. The Company continues to focus on realising the mature asset portfolio over the next 1 to 3 years when appropriate opportunities arise;
· Completion of the new Dacian investment - The Company's new investment in Dacian is a cornerstone transaction, the first completed since return to internal management in early 2020 and demonstrates the ability of LMS to lead a co-investment group alongside its own investment strategy. The investment enabled Dacian to complete its first acquisition of onshore oil and natural gas production assets in Romania. The Company's investment in Dacian generated an unrealised return of 18.5% during the year;
· Control of costs - The Company continues to maintain strict control over its running costs and expects a reduction of 5% to 10% in 2022 as the benefits of income from co-investment activities begin to be realised; and
· Future investments - The Board recognises that 41.0% of the NAV is held in group cash balances with further realisations of the mature portfolio expected. In 2022, the Company is focused on using our board position to nurture the Dacian investment, develop the opportunities for additional capital deployment within the acquired Dacian portfolio, and more widely, and to bring forward opportunities with our real estate teams.
Robert Rayne, Chairman, commented:
"We are pleased with our 2021 results and the annual returns on both our mature investment portfolio and our new investment in Dacian. The completion of the Dacian transaction is a significant milestone for us which demonstrates our ability to lead a co-investment group in one of the two key sectors in which we seek to invest. Our significant cash balances will enable us to deploy further capital in 2022, and we remain focused on bringing forward the real estate opportunities in our current pipeline and seeking additional areas to expand our energy portfolio."
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
For further information please contact:
LMS Capital PLC
Nick Friedlos, Managing Director
0207 935 3555
Statement from the Chairman and the Managing Director
We are delighted to be introducing this, our second set of results, as a self-managed investment business. The Coronavirus pandemic meant that 2021 continued to be a year of disruption and uncertainty in society as a whole and for businesses.
Notwithstanding this, we have made progress in improving our NAV and completed our investment in Dacian, our first cornerstone investment since returning to self-management. Whilst the investment took longer to close than initially anticipated, its completion in November 2021 was a highlight and will create further opportunities for us in 2022.
We have considered the impact of the Russian invasion of Ukraine on our portfolio investments and our overall business. We do not hold any investments that have operations in Russia or Ukraine. Elateral, our investment in the digital marketing sector, utilises contract staff in Ukraine, Russia and Belarus for its software development and has developed a contingency plan to manage potential disruption. The situation remains highly uncertain, and we will monitor developments closely.
FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
Net Asset Value ("NAV") overview
The NAV of the company at 31 December 2021 was £49.1 million, 60.8 pence per share (31 December 2020 £47.9 million, 59.4 pence per share). This represents an increase of £1.2 million on the prior year and comprises:
· net increase of £2.6 million being realised and unrealised net gains on the mature asset portfolio;
· increase of £1.2 million being accrued interest on Dacian;
· net reduction of £1.9 million for other items including running costs, taxation, the investment costs principally associated with developing real estate deal opportunities and foreign exchange gains on non-portfolio assets; and
· reduction of £0.7 million for dividends paid to shareholders.
After adjusting for the 0.9 pence per share distributed as dividends during 2021, the NAV has shown an increase on the year of 4.0%.
The Company's NAV comprises three distinct groups of assets:
Mature Investments - 31 December 2021 NAV £23.0 million (28.5 pence per share)
· these comprise investments which originate from the Company's strategy pre-2012;
· the investments are managed with a view to optimising the realisation values. Where the investment case supports it, we may commit additional capital;
· most of these investments are managed by third parties. Whilst the Company has information rights and regular access to the managers it has no direct control of decision making;
· it is our expectation that these assets will be substantially realised over the next 1-3 years; and
· during the year, this group of investments:
o produced cash realisations of £2.7 million; and
o showed realised/unrealised gains of £2.6 million, representing an 11.6% return on the opening balance.
New Investments - 31 December 2021 NAV £7.9 million (9.9 pence per share)
· currently, this comprises the Company's investment in Dacian. The commitment to invest was made in Q3 2020, and funds were set aside; the transaction completed, following obtaining regulatory approvals in November 2021;
· Dacian is the Company's first new investment in accordance with the investment approach set out when it returned to self-management at the beginning of 2020;
· accrued interest on the loans through which the investment is structured, have added £1.2 million to NAV in 2021; and
· the background, rationale and prospects for the investment are discussed further below.
Liquidity - Cash less other net liabilities - 31 December 2021 NAV £18.2 million (22.4 pence per share)
· cash comprises £20.1 million, some 41.0% of the Company's total NAV;
· other net liabilities comprise £1.9 million and relate mainly to accruals for income taxes, historic carried interest liabilities for one remaining asset and other sundry costs; and
· this represents the "fire power" with which we intend to continue implementing the investment approach which is discussed in more detail in our approach to the deployment of capital below.
Overall, net increases, both realised and unrealised, in the underlying value of the portfolio over the year were £3.8 million.
Mature Assets - Portfolio overview
The four largest assets comprise 79% of the mature portfolio:
· Medhost - Co-investment, alongside Primus Capital, in this US software company serving the mid-sized hospital market in America. A mature business with strong and consistent revenues, earnings and cash flows. The unrealised increase in NAV for the year, excluding the impact of foreign exchange gains, was £0.2 million, a 4.1% return on opening NAV for this investment;
· Brockton Capital Fund I - The remaining asset in this real estate fund, of which the Company holds 16.7%, is a preferred debt investment in a "Super Prime" residential development in Mayfair, central London. Whilst the pandemic has created delays in both the construction and sales program for this project, work is nearing completion and sales are being achieved. The investment, which is valued on a discounted cash flow basis showed an unrealised increase in NAV for the year of £1.5 million, representing an unrealised 37.2% return on the opening NAV of the investment. This reflects the annual accrual of interest on the underlying preferred debt and unwind of the discount rate used in the valuation;
· Opus Capital Venture Partners - The Company holds 2.3% of this 2008 vintage US early-stage technology fund, managed by Opus Capital Venture Partners. The fund has two significant remaining investments. The fund life has now been exceeded, the manager is no longer charging annual fees, and the expectation is that an exit will be sought in the reasonably near term. The unrealised increase in NAV during the year was £0.4 million representing an unrealised return of 11.4% on the opening NAV of this investment; and
· Weber Capital Partners - This US micro-cap stock fund is run for the Company by Weber Capital Partners with whom the Company has worked closely for over 20 years. The theme is substantially but not exclusively around technology and medical stocks. Historic returns have been excellent. To September 2021, average rolling 5 year returns since 2006 and 3 year returns since 2002 have been 14.3% and 18.6% respectively. Prior to the return to self-management, Weber Capital Partners was instructed to realise and return much of the holding. In Q3 2020, additional capital of $1 million was committed, to rebuild the investment and allow greater diversity within the portfolio. The NAV increase on this investment during 2021 was £0.8 million, a return of 44.2% on the opening balance.
On other mature assets:
· during the year, we have achieved a restructure and injection of additional capital into Elateral (NAV £0.8 million) in conjunction with bringing in a new operating partner who has joined their Board. As noted above, Elateral has outsourced software development resources in Ukraine, Russia and Belarus which are being disrupted. The company has developed a contingency plan to help mitigate the consequences;
· ICU Eyewear (NAV £1.8 million), which produced an unexpected windfall in 2020 from its opportunistic move into distribution of PPE equipment, has returned largely to its core eyewear activity. This investment is managed by San Francisco Equity Partners ("SFEP") and options to exit the business are being explored; and
· the winding up of YesTo in Q4 was a significant disappointment. In April 2020, the Company declined to invest further capital in YesTo, but the indications at the time from the manager, SFEP, were that at least the historic debt investment should be recoverable, albeit the equity was unlikely to have any value. Accordingly, a write down was taken in 2020. A combination of factors, including the pandemic, put additional financial stress on the business and the YesTo board took the decision in Q4 2021 that it was unlikely to raise further debt or equity and to pursue an orderly winding up to repay external creditors. The Company has written off its remaining £0.7 million investment.
As noted above, notwithstanding the outcome on YesTo, the mature asset portfolio overall showed a return of 11.6% for the year on the NAV at 1 January 2021.
New Investments - Dacian
The Company has invested £6.7 million ($9.1 million) in Dacian, a newly formed Romanian oil and gas production company established to acquire and operate mature onshore energy production assets.
LMS assembled a funding package, comprising its own investment and co-investment, to enable Dacian to complete its first acquisition. The Company's $9.1 million investment is structured almost entirely as senior secured loan notes with a coupon of 14% per annum gross before a 10% withholding tax, plus a nominal payment for a 32% equity stake in Dacian.
Dacian was able to conclude its acquisition in November 2021, after a longer than anticipated delay in obtaining the necessary local regulatory approvals.
Under the terms of the August 2020 Dacian investment agreement, the senior secured loan notes carry an entitlement to interest running from the date of original funding by investors, which was in September 2020. Accordingly, accrued interest of £1.2 million ($1.7 million) has been added to the value of the investment. This generated an unrealised return of 18.5% for the year. The rationale for the investment in Dacian was:
· the business is operationally cash flow positive from day one;
· a business focused on the extension of life of existing production assets that has an environmentally important role to play in the world's transition away from carbon fuels; and
· it was evaluated and the investment decision taken on the basis of:
o attractive entry pricing;
o a founder team with extensive industry experience and a Romanian team with prior knowledge of the assets being acquired;
o a robust operating plan able to withstand volatility in energy prices;
o the opportunity for gains through production enhancing technology that can extend the productive life of mature assets; and
o overall, the potential to meet and exceed LMS's target investment returns.
It remains early days for Dacian, having operated for less than four months at time of writing, but initial indications are positive as the company continues to increase production with its workover programme and is generating positive cash flow from operations.
Liquidity - Cash less other net liabilities
Cash
Cash balances in the Company and its subsidiaries at 31 December 2021 were £20.1 million (31 December 2020: £20.6 million).
Outflows during the year amounted to £3.2 million, this includes £1.8 million of running costs, £0.3 million of investment related costs, £0.7 million of dividend payments and £0.4 million of new capital invested in Elateral.
Inflows were £2.7 million and include a £1.5 million distribution from ICU Eyewear, £0.8 million from the redemption of the Northbridge convertible debt, plus sundry fund distributions.
Net Liabilities
Net liabilities of £1.9 million consist primarily of accruals for income taxes, historic carried interest liabilities for one remaining asset and other sundry costs.
DIVIDEND POLICY
The Company paid £0.7 million in dividends during the year comprising a final dividend for the year ended 31 December 2020 of 0.6 pence per share, paid on 14 June 2021 and an interim dividend for the year ended 31 December 2021 of 0.3 pence per share paid on 3 September 2021.
A final dividend of 0.625 pence per share for the year ended 31 December 2021 is recommended by the Board. The increase reflects the increase in 2021 year end NAV compared to the prior year. Subject to approval by shareholders at the AGM in May 2022, the dividend will be paid to shareholders in early June 2022.
The 2020 dividend and, if the Board's recommendation is approved, the 2021 dividend payment will equate to approximately 1.5% of the respective year end NAV each year. This is in accordance with the policy laid out by the Board in 2020. Whilst the dividends currently exceed the net cash income, the Board is confident of the Company's ability to generate future annual income and has therefore continued the policy.
The Board's ambition is to increase the level of dividend and will keep the current policy under review. The actual level of dividend each year will take account of market conditions generally, the Company's financial position and its distributable reserves.
APPROACH TO THE DEPLOYMENT OF CAPITAL
Whilst the Dacian deal has now completed, the Company still has 41.0% of its NAV as uninvested cash. As the mature asset portfolio is realised further cash will be generated.
Our approach to the further deployment of capital is to seek opportunities, within our chosen sectors, which not only offer attractive returns on the direct investment but also allow LMS to have influence and, over time, to participate in developing and bringing further capital into the underlying business - both from its own balance sheet and its co-investment network. This potentially creates additional fee streams and equity opportunities for LMS.
This approach results in fewer, but more significant transactions. One consequence of this is that individual deals can take longer - Dacian has been an example of this. However, we believe this approach to be the most effective one given the current size of the Company and our ambition to grow.
Investment Themes
The Company has a widely drawn investment policy, but we are conscious of the importance of bringing forward investments where we have a track record of success and can offer distinct competitive advantage based on our knowledge, past experience and access to exceptional management teams. Our focus is on the following sectors:
Energy
· The Company has a history of investing in the energy sector and has connections with management teams that enable it to identify and execute on opportunities not readily accessible to others.
In relation to carbon-based energy, we see the extension of life of existing production assets as having a key and environmentally important role to play in the world's transition away from carbon fuels over the next few decades. Dacian has a portfolio of sunset life assets where the extension of life of these ageing assets allows for very low carbon footprint per barrel and molecule produced because the existing industrial infrastructure is put to further use. Dacian is the first investment in this area.
We also see opportunities in renewable energy and in the businesses that service the generation of that energy.
Real Estate
· Real estate has been a consistent theme in the LMS portfolio and is an area of deep expertise and access to opportunities and management.
In evaluating the opportunities we see, we remain cautious, noting continued high asset and site acquisition prices against a backdrop of continuing uncertainty, in particular around the inflationary pressures on construction costs.
We see opportunity in developing specialist-use real estate and by working in partnership with landowners and other third parties. We are working to bring opportunities forward.
Late-stage private equity
· Late-stage private equity covers a wide spectrum of opportunities and we are aware of the need to employ our resources efficiently and in areas where we can show some differentiation and relative competitive advantage.
Whilst we continue to see a range of opportunities, we have focused our resources on looking at those that have some cross over with our real estate or energy themes, for example industrial products whose market includes the energy sector or real estate service businesses.
Investment characteristics
The Company sees many opportunities during a typical year but focuses on those where not only the underlying investment merits are attractive, but also where LMS has a competitive advantage. The sources of advantage are:
· working with management teams we know well, who are respected in their sector, experienced and with a track record of successful execution;
· "hard to access" assets, typically at the smaller end of their respective sectors, allowing more attractive acquisition pricing and giving the opportunity for value creation through more intensive management; and
· the opportunity to introduce co-investment capital alongside our own balance sheet.
The Dacian transaction, which is our first deal since the return to self-management reflects the approach we seek to adopt and the above characteristics:
· backing a team with whom we have deep and longstanding relationships and who have outstanding experience in their sector;
· experience brought to bear to acquire assets at attractive entry prices and which, through operational know how, can be driven to produce excellent returns;
· creating a platform from which the management team and LMS can expand their exposure to the sector; and
· creating the opportunity for LMS to introduce co-investment partners.
LOOKING FORWARD
The Company's objective is the preservation and creation of wealth for its shareholders over the longer term. Its target is to deliver returns, net of costs, of between 12% and 15% over the longer period.
The completion of the Dacian transaction is an important milestone for all our activities. It allows us to demonstrate to shareholders, to co-investors and to the markets in which we wish to invest, the characteristics of the opportunities we seek to pursue and demonstrates our ability to execute on deals.
Looking forward in 2022, our focus is to:
· use our Board position to nurture the Dacian investment - still less than six months old - and to ensure that there is a clear operating plan to achieve the production objectives envisaged at the time the investment was made;
· develop the opportunities for additional capital deployment within the acquired Dacian portfolio, and more widely; and
· bring forward opportunities with our real estate teams.
We would like to express our appreciation for the support from our team and from the network of people with whom we work on a regular basis. We would also like to express our appreciation for the continued support of our shareholders. We look forward to reporting progress to you during 2022.
Robert Rayne
Chairman
Nicholas Friedlos
Managing Director
9 March 2022
PORTFOLIO MANAGEMENT REVIEW
Introduction
During 2021, the Company recorded an 11.6% return on its mature portfolio investments and an additional 18.5% on its first new investment under internal management, Dacian. Portfolio realisations totalled £2.7 million during 2021, primarily from cash distributions from ICU Eyewear and the redemption of the Northbridge convertible debt, funding the Company's overheads and follow-on investment in Elateral.
Cash in the group at 31 December 2021 was £20.1 million (31 December 2020: £20.6 million), including £14.5 million held by the Company and £5.6 million held by subsidiaries. Inflows, as noted above were £2.7 million. Significant outflows have been £0.7 million of dividend payments and £0.4 million invested in Elateral. Other net cash movements amount to an outflow of £2.1 million, include £1.8 million of running costs and £0.3 million of investment related costs.
Market background
Coming out of a volatile 2020 that was significantly impacted by the Covid-19 pandemic, 2021 was a year of uncertainty and anticipation for a return to normality. The rollout of vaccine programmes and easing of lockdown restrictions generated an overall economic recovery during 2021, although the identification of new Covid-19 variants during the year contributed to the continued volatility. The economic expansion was also impacted by global supply chain issues, labour shortages and rising inflation. Despite the economic growth and rising inflation, central banks continued to provide fiscal and monetary stimulus, although that began to taper at the end of the year. Sterling strengthened against the U.S. Dollar during the year and global equity markets improved, with the FTSE 100 having its best returns in 5 years, up over 14%, while the U.S. S&P 500 Index gained nearly 27%. The FTSE AIM 100 and SmallCap indices ended the year up 2.0% and 20.0%, respectively.
Domestically, continued economic growth is expected in 2022, albeit at a slower pace than the previous year. The year could face some continued uncertainty related to rising consumer prices due to inflation, increasing energy prices, sustained labour shortages and supply chain disruptions.
The consequences of recent developments and the impact of macroeconomic and domestic issues will continue to be monitored closely by the Board.
Performance review
The movement in NAV during the year was as follows: | 2021 | 2020 |
| £'000 | £'000 |
Opening NAV | 47,923 | 55,958 |
Profit/(loss) on investments | 2,556 | (2,053) |
Investment interest income | 1,241 | - |
Dividends | (727) | (3,673) |
Overheads and other net movements | (1,884) | (2,309) |
Closing NAV | 49,109 | 47,923 |
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Cash realisations and new and follow-on investments from the portfolio were as follows:
| Year ended 31 December | |
| 2021 | 2020 |
| £'000 | £'000 |
Proceeds from the sale of investments | - | 8,011 |
Proceeds from redemption of convertible debt | 750 | - |
Distributions from funds and loan repayments | 1,916 | 1,304 |
Total - gross cash realisations | 2,666 | 9,315 |
New and follow-on investments | (7,153) | (976) |
Fund calls | (43) | (169) |
Total - net | (4,530) | 8,170 |
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Realisations of £2.7 million in 2021 include:
· £1.5 million of distributions from ICU Eyewear related to cash generated in 2020 from their Health business line that sold personal protective equipment;
· proceeds of £0.8 million from the redemption of Northbridge convertible debt;
· £0.1 million of distributions from Eden Two LLP; and
· other realisations and fund distributions of £0.3 million.
The new and follow-on investments are primarily £6.7 million for Dacian and £0.4 million of additional equity and working capital funding for Elateral, a UK direct investment. The Dacian investment was initially cash funded in September 2020 and classified as other current assets in one of the Company's subsidiaries until the transaction closed in November 2021.
The fund calls are primarily for SFEP management fees.
Below is a summary of the investment portfolio of the Company and its subsidiaries, which reflects all investments held by the group:
| Year ended 31 December | ||||||
| 2021 |
| 2020 | ||||
Mature investment portfolio | UK £'000 | US £'000 | Total £'000 |
| UK £'000 | US £'000 | Total £'000 |
Quoted | 218 | 165 | 383 |
| 119 | 78 | 197 |
Unquoted | 924 | 7,744 | 8,668 |
| 1,226 | 8,912 | 10,138 |
Funds | 7,242 | 6,687 | 13,929 |
| 5,808 | 6,050 | 11,858 |
| 8,384 | 14,596 | 22,980 |
| 7,153 | 15,040 | 22,193 |
New investment portfolio | UK £'000 | US £'000 | Total £'000 |
| UK £'000 | US £'000 | Total £'000 |
Quoted | - | - | - |
| - | - | - |
Unquoted | - | 7,958 | 7,958 |
| - | - | - |
Funds | - | - | - |
| - | - | - |
| - | 7,958 | 7,958 |
| - | - | - |
Total investments | 8,384 | 22,554 | 30,938 |
| 7,153 | 15,040 | 22,193 |
Basis of valuation:
Quoted investments
Quoted investments for which an active market exists are valued at the closing bid price at the reporting date.
Unquoted direct investment
Unquoted direct investments for which there is no active 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:
· investments in an established business are valued using revenue or earnings multiples depending on the stage of development of the business and the extent to which it is generating sustainable revenue or earnings;
· investments in an established business which is generating sustainable revenue or earnings but for which other valuation methods are not appropriate are valued by calculating the discounted cash flow of future cash flows;
· investments in debt instruments or loan notes are determined on a standalone basis, with the initial investment recorded at the price of the transaction and subsequent adjustments to the valuation are considered for changes in credit risk or market rates; and
· convertible instruments are valued by disaggregating the convertible feature from the debt instrument and valuing it using a Black-Scholes model.
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, the latest available of which the Company will adopt provided it is satisfied that the valuation methods used by the funds are not materially different from the Company's valuation methods. Adjustments will be made to the fund valuation where the Company believes there is evidence available for an alternative valuation.
Performance of the investment portfolio
The return on investments for the year ended 31 December 2021 was as follows:
| Year ended 31 December | ||||||
| 2021 |
| 2020 | ||||
| Realised gains/ (losses) | Unrealised gains/ (losses) |
Total |
| Realised gains/ (losses) | Unrealised gains/ (losses) |
Total |
Asset type | £'000 | £'000 | £'000 |
| £'000 | £'000 | £'000 |
|
|
|
|
|
|
|
|
Quoted | - | 186 | 186 |
| (335) | (598) | (933) |
Unquoted | (5) | (90) | (95) |
| 121 | 949 | 1,070 |
Funds | - | 2,473 | 2,473 |
| - | (2,190) | (2,190) |
| (5) | 2,569 | 2,564 |
| (214) | (1,839) | (2,053) |
Charge for incentive plans |
|
| (9) |
|
|
| - |
|
|
| 2,555 |
|
|
| (2,053) |
Operating and similar income/ (expense) of subsidiaries |
|
| 1,282 |
|
|
| (1,194) |
|
|
| 3,837 |
|
|
| (3,247) |
The Company operates carried interest arrangements in line with normal practice in the private equity industry. The credit for incentive plans for the Company is £1,000 and for subsidiaries a charge of £10,000 for carried interest and other incentives relating to historic arrangements. The charge for carried interest incentive plan is included in the Net losses on Investments in the Income Statement.
Approximately 73% of the portfolio at 31 December 2021 is denominated in US dollars (31 December 2020: 68%) and the above table includes the impact of currency movements. In the year ended 31 December 2021, the weakening of the US dollar against sterling over the year as a whole resulted in an unrealised foreign currency gain of £0.02 million (2020: unrealised loss of £0.2 million). As a common practice in private equity investment, it is the Board's current policy not to hedge the Company's underlying non-sterling investments.
Quoted investments
|
|
| 31 December | |
|
|
| 2021 | 2020 |
Company | Sector |
| £'000 | £'000 |
IDE Group Holdings | UK technology |
| 218 | 118 |
Global Green Solutions | US energy |
| 139 | 62 |
Others | - |
| 26 | 17 |
|
|
| 383 | 197 |
|
|
|
|
|
The net gains and losses on the quoted portfolio arose as follows:
| Year ended 31 December | |
Gains/(losses), net | 2021 £'000 | 2020 £'000 |
Realised |
|
|
Solaredge Technologies | - | 265 |
Gresham House | - | (716) |
Realised foreign currency gain | - | 116 |
| - | (335) |
Unrealised |
|
|
IDE Group Holdings | 100 | (663) |
Global Green Solutions | 78 | 72 |
Other quoted holdings | 9 | 3 |
Unrealised foreign currency losses | (1) | (10) |
| 186 | (598) |
Total net gains/(losses) | 186 | (933) |
|
|
|
IDE Group Holding
The performance of IDE Group Holdings improved during 2021 as the company's share price began to recover after it was significantly impacted by the Coronavirus pandemic in 2020, resulting in a £0.1 million unrealised gain. In January 2022, the company announced that it had won several new customer contracts and expects further revenue growth in 2022.
Unquoted investments
|
|
| 31 December | |
|
|
| 2021 | 2020 |
Company | Sector |
| £'000 | £'000 |
Dacian | US energy |
| 7,959 | - |
Medhost Inc | US technology |
| 5,997 | 5,704 |
ICU Eyewear* | US consumer |
| 1,746 | 3,143 |
Northbridge | UK technology |
| - | 755 |
Elateral | UK technology |
| 817 | 399 |
IDE loan notes | UK technology |
| 107 | 73 |
Yes To* | US consumer |
| - | 64 |
|
|
| 16,626 | 10,138 |
\* These are co-investments with SFEP |
The net gains and losses on the unquoted portfolio arose as follows:
| Year ended 31 December | |
| 2021 | 2020 |
Gains/(losses), net | £'000 | £'000 |
Realised |
|
|
Entuity | - | 115 |
Penguin Computing | - | 6 |
Northbridge | (5) | - |
| (5) | 121 |
Unrealised |
|
|
Medhost | 235 | 374 |
IDE Group | 35 | - |
Elateral | 21 | (1,436) |
Northbridge | - | 25 |
YesTo | (74) | (268) |
ICU Eyewear | (313) | 2,459 |
Unrealised foreign currency gains/(losses) | 6 | (205) |
| (90) | 949 |
Total net (losses)/gains | (95) | 1,070 |
|
|
|
Valuations are sensitive to changes in the following two inputs:
· the operating performance of the individual businesses within the portfolio; and
· changes in the revenue and profitability multiples and transaction prices of comparable businesses, which are used in the underlying calculations.
Comments on individual companies are set out below.
Medhost
Medhost is a co-investment with funds of Primus Capital. Medhost's financial performance was relatively flat in 2021, with similar Revenue and EBITDA compared to the prior year. This resulted in a small increase to the valuation with an unrealised gain of £0.2 million for 2021.
Elateral
The Company invested an additional £0.4 million in Elateral during 2021, increasing its ownership from 50% to 62.5% from the purchase of additional shares for £0.1 million and providing working capital funding of £0.3 million. The additional capital provided by the Company was part of a buyout of another significant shareholder interest completed by LMS, the Elateral chairman and a new operating partner who also joined the board of Elateral. Elateral experienced a net reduction in revenue and EBITDA during 2021 as the economic impact of the Covid-19 pandemic continued to negatively impact the company. The increase in the valuation is mainly attributable to the new capital invested in 2021.
ICU Eyewear
During 2020, ICU was able to generate surplus cash flow from the U.S. distribution of PPE manufactured by one of its international suppliers. This was a one-off opportunity from which the company was able to benefit. The cash generated was used to repay shareholder debt to LMS during 2020 and a further cash distribution of £1.5 million was made in February 2021. The PPE business for ICU was an opportunistic response to the Covid-19 pandemic in 2020, and the ICU board has decided that this does not represent an ongoing line of business for the company, and further activity will cease. The reduction in carrying value arises principally from the distribution of £1.5 million, initially reflected in the December 2020 valuation and received in early 2021. The unrealised loss for the period reflects a valuation reduction following cessation of PPE activities, partly offset by an uplift in valuation of the eyewear business.
Northbridge
During 2021, Northbridge offered its convertible debt holders the option to redeem the outstanding principal at a 25% premium. The Company elected to redeem its convertible debt, receiving proceeds of £0.8 million and recognising a nominal realised loss on the conversion.
Fund interests
|
| 31 December | |
|
| 2021 | 2020 |
General partner | Sector | £'000 | £'000 |
Brockton Capital Fund 1 | UK real estate | 5,635 | 4,107 |
Opus Capital Venture Partners | US venture capital | 3,948 | 3,505 |
Weber Capital Partners | US micro-cap quoted stocks | 2,644 | 1,813 |
EMAC ILF | UK | 733 | 839 |
Eden Ventures | UK venture capital | 494 | 501 |
Simmons | UK | 381 | 361 |
San Francisco Equity Partners | US consumer & technology | 55 | 699 |
Other interests | - | 39 | 33 |
|
| 13,929 | 11,858 |
|
|
|
|
The net gains and losses on the Company's funds portfolio for the year ended 31 December 2021 were as follows:
| Year ended 31 December | |
Gains/(losses), net | 2021 £'000 | 2020 £'000 |
Realised |
|
|
Other funds | - | - |
| - | - |
|
|
|
Unrealised |
|
|
Brockton Capital Fund I | 1,528 | (1,422) |
Weber Capital Partners | 801 | 555 |
Opus Capital Venture Partners | 398 | 907 |
Eden Ventures | 118 | (157) |
Simmons Parallel Energy | 53 | (22) |
San Francisco Equity Partners ("SFEP") | (389) | (1,729) |
Others (net) | (51) | (315) |
Unrealised foreign currency gains/(losses) | 15 | (7) |
| 2,473 | (2,190) |
Total net gains/(losses) | 2,473 | (2,190) |
|
|
|
San Francisco Equity Partners
LMS is the majority investor in SFEP as opposed to the other fund interests where the Company has only a minority stake. SFEP's remaining investment carrying value is £0.1 million (31 December 2020: £0.7 million). SFEP's investment in YesTo carrying value is £nil (31 December 2020: £0.7 million). It was fully written off in 2021. The YesTo board decided to wind up the business by selling all assets of the company and repaying the senior secured lenders. The Company had previously written off all the equity of YesTo and with the winding up of the business has now written off the outstanding loan notes.
In addition to the fund investments noted above, the Company has a directly held co- investment in YesTo of £nil million (31 December 2020: £0.1 million). The Company's total investment in YesTo at 31 December 2021, via its SFEP fund interest and its co-investment was £nil (31 December 2019: £0.7 million), reflecting a £0.7 million unrealised loss for the write-off of YesTo.
The Company also received from SFEP a £0.2 million distribution related to the 2018 sale of Penguin Computing.
Other fund interests
· Brockton Capital Fund I - The Company's investment represents its share (via the Brockton Fund) of preferred debt investments in a Super Prime central London residential development. The investment showed an increase in the valuation of £1.5 million for 2021 due to unrealised gains from the unwinding of the discount rate as the investment is valued on a discounted cash flow basis;
· Weber Capital - holds U.S. publicly traded micro-cap securities and showed an unrealised gain of £0.8 million reflecting an increase in the underlying equity prices;
· Opus Capital - a U.S. venture fund, showed an unrealised gain of £0.4 million from valuation gains in its two main assets; and
· Eden Ventures - Eden has now sold all but one of its assets. The unrealised gain of £0.1 million reflects primarily the increase in value of its sole remaining asset;
Costs
Group costs for the year (including £1.8 million incurred by the Company and £0.3 million by subsidiaries) were £2.1 million (2019: £1.9 million) and include running costs of £1.8 million and investment related costs of £0.3 million for support costs for real estate and co-investment activities.
Taxation
The Group tax provision for the year, all of which arose in the subsidiaries, is £0.1 million (2020: £0.01 million).
Financial Resources and Commitments
At 31 December 2021 cash holdings, including cash in subsidiaries, were £20.1 million (31 December 2020: £20.6 million) and neither the Company nor any of its subsidiaries had any external debt (2020: nil external debt).
At 31 December 2021, subsidiary companies had commitments of £2.7 million (31 December 2020: £2.7 million) to meet outstanding capital calls from fund interests.
LMS CAPITAL PLC
9 March 2022
Income Statement
For the year ended 31 December 2021
|
| Year ended 31 December | |
|
| 2021 | 2020 |
|
|
| (Restated) |
| Notes | £'000 | £'000 |
Net gain/(loss) on investments | 2 | 3,837 | (3,247) |
Interest income | 3 | 23 | 94 |
Dividend income | 4 | - | 58,849 |
Reduction in carrying value of subsidiary due to distribution |
| - | (58,849) |
Total gain/(loss) on investments |
| 3,860 | (3,153) |
Operating expenses | 5 | (1,988) | (1,243) |
Profit/(loss) before tax |
| 1,872 | (4,396) |
Taxation | 8 | - | - |
Profit/(loss) for the year |
| 1,872 | (4,396) |
|
|
|
|
Attributable to: |
|
|
|
Equity shareholders |
| 1,872 | (4,396) |
|
|
|
|
Profit/(loss) per ordinary share - basic | 9 | 2.3p | (5.4)p |
Profit/(loss) per ordinary share - diluted | 9 | 2.3p | (5.4)p |
|
|
|
|
All activities of the Company are classed as continuing.
Statement of Other Comprehensive Income
For the year ended 31 December 2021
|
| Year ended 31 December | |
|
| 2021 | 2020 |
|
| £'000 | £'000 |
Profit/(loss) for the year |
| 1,872 | (4,396) |
Other comprehensive income |
| - | - |
Total comprehensive income/(loss) for the year |
| 1,872 | (4,396) |
Attributable to: |
|
|
|
Equity shareholders |
| 1,872 | (4,396) |
Company registration number 05746555
Statement of Financial Position
As at 31 December 2021
|
| 31 December |
| 1 January | |
|
| 2021 | 2020 |
| 2020 |
|
|
| (Restated) |
|
|
| Notes | £'000 | £'000 |
| £'000 |
Assets |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Right of use assets | 19 | 97 | 125 |
| - |
Investments | 11 | 68,461 | 65,235 |
| 132,454 |
Amounts receivable from subsidiaries | 14 | 5,191 | 5,375 |
| 1,829 |
Total non-current assets |
| 73,749 | 70,735 |
| 134,283 |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
Operating and other receivables | 12 | 51 | 67 |
| 166 |
Cash and cash equivalents | 13 | 14,518 | 16,385 |
| 25,079 |
Total current assets |
| 14,569 | 16,452 |
| 25,245 |
|
|
|
|
|
|
Total assets |
| 88,318 | 87,187 |
| 159,528 |
Liabilities |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Operating and other payables | 15 | (394) | (415) |
| (1,585) |
Amounts payable to subsidiaries | 16 | (38,740) | (38,747) |
| (101,985) |
Total current liabilities |
| (39,134) | (39,162) |
| (103,570) |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Other long-term liabilities | 15 | (75) | (102) |
| - |
Total non-current liabilities |
| (75) | (102) |
| - |
|
|
|
|
|
|
Total liabilities |
| (39,209) | (39,264) |
| (103,570) |
|
|
|
|
|
|
Net assets |
| 49,109 | 47,923 |
| 55,958 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital | 17 | 8,073 | 8,073 |
| 8,073 |
Share premium |
| 508 | 508 |
| 508 |
Capital redemption reserve |
| 24,949 | 24,949 |
| 24,949 |
Share-based equity | 18 | 75 | 34 |
| - |
Retained earnings |
| 15,504 | 14,359 |
| 22,428 |
Total equity shareholders' funds |
| 49,109 | 47,923 |
| 55,958 |
|
|
|
|
|
|
Net asset value per ordinary share | 25 | 60.83p | 59.36p |
| 69.30 |
Statement of Changes in Equity
For the year ended 31 December 2021
|
|
| Capital | Share- |
|
|
| Share | Share | redemption | based | Retained | Total |
| capital | premium | reserve | equity | earnings | equity |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
|
|
|
|
|
|
|
Balance at 1 January 2020 | 8,073 | 508 | 24,949 | - | 22,428 | 55,958 |
|
|
|
|
|
|
|
Comprehensive loss for the year |
|
|
|
|
|
|
Loss for the year | - | - | - | - | (4,396) | (4,396) |
Equity after total comprehensive loss for the year | 8,073 | 508 | 24,949 | - | 18,032 | 51,562 |
|
|
|
|
|
|
|
Contributions by and distributions to shareholders |
|
|
|
|
|
|
Share-based payments | - | - | - | 34 | - | 34 |
Dividends | - | - | - | - | (3,673) | (3,673) |
As at 31 December 2020 | 8,073 | 508 | 24,949 | 34 | 14,359 | 47,923 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income for the year |
|
|
|
|
|
|
Profit for the year | - | - | - | - | 1,872 | 1,872 |
Equity after total comprehensive income for the year | 8,073 | 508 | 24,949 | 34 | 16,231 | 49,795 |
|
|
|
|
|
|
|
Contributions by and distributions to shareholders |
|
|
|
|
|
|
Share-based payments | - | - | - | 41 | - | 41 |
Dividends | - | - | - | - | (727) | (727) |
As at 31 December 2021 | 8,073 | 508 | 24,949 | 75 | 15,504 | 49,109 |
|
|
|
|
|
|
|
Cash Flow Statement
For the year ended 31 December 2021
|
| Year ended 31 December | |
|
| 2021 | 2020 (Restated) |
| Notes | £'000 | £'000 |
Cash flows from operating activities |
|
|
|
Profit/(loss) before tax |
| 1,872 | (4,396) |
|
|
|
|
Adjustments for non-cash income and expense: |
|
|
|
Equity settled share-based payment | 18 | 41 | 34 |
Depreciation on right of use assets | 19 | 28 | 14 |
Interest expense on lease | 19 | 8 | 4 |
(Gains)/losses on investments | 2 | (3,837) | 3,247 |
Interest income | 3 | (23) | (94) |
Other income |
| - | (6) |
Adjustments to incentives plans | 2 | 1 | (68) |
Exchange gains on cash and cash equivalents |
| (4) | (113) |
|
| (1,914) | (1,378) |
|
|
|
|
Change in operating assets and liabilities |
|
|
|
Decrease in operating and other receivables |
| 16 | 91 |
Decrease in operating and other payables |
| (23) | (1,195) |
Decrease/(increase) in amounts receivable from subsidiaries |
| 119 | (3,545) |
Decrease in amounts payable to subsidiaries |
| (7) | (4,389) |
Net cash used in operating activities |
| (1,809) | (10,416) |
|
|
|
|
Cash flows from investing activities |
|
|
|
Interest received | 3 | 23 | 102 |
Other income received |
| - | 6 |
Proceeds from sale of investments |
| - | 5,190 |
Proceeds from redemption of convertible debt | 11 | 750 | - |
Investment in subsidiaries |
| (75) | - |
Net cash from investing activities |
| 698 | 5,298 |
|
|
|
|
Cash flows from financing activities |
|
|
|
Dividends paid | 10 | (727) | (3,673) |
Repayment of principal lease liabilities | 19 | (25) | (12) |
Repayment of lease interest | 19 | (8) | (4) |
Net cash used in financing activities |
| (760) | (3,689) |
|
|
|
|
Net decrease in cash and cash equivalents |
| (1,871) | (8,807) |
Exchange gains on cash and cash equivalents |
| 4 | 113 |
Cash and cash equivalents at the beginning of the year | 13 | 16,385 | 25,079 |
Cash and cash equivalents at the end of the year |
| 14,518 | 16,385 |
Notes to the Financial Statements
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 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 financial information for the year ended 31 December 2021 and the year ended 31 December 2020 does not constitute the Company's statutory accounts for those years. Statutory accounts for the year ended 31 December 2020 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2021 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
The auditors' reports on the accounts for 31 December 2021 and 31 December 2020 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Basis of preparation
LMS Capital Plc transitioned to UK-adopted International Accounting Standards in its Financial Statements on 1 January 2021. This change constitutes a change in accounting framework. However, the move to UK-adopted international accounting standards for accounting period starting from 1 January 2021, does not represent a change in the basis of accounting which would necessitate a prior year restatement, therefore, there is no impact on the recognition, measurement or disclosure in the period reported.
The Financial Statements have been prepared on the historical cost basis except for investments which are measured at fair value, with changes in fair value recognised in the income statement.
The Company's business activities and financial position are set out in the Strategic Report on pages 13 to 25 and in the Portfolio Management Review on pages 26 to 33. In addition, note 20 to the financial information includes a summary of the Company's financial risk management processes, details of its financial instruments and its exposure to credit risk and liquidity risk. Taking account of the financial resources available to it, the Directors believe that the Company is well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources for the foreseeable future.
The Financial Statements are prepared on a going concern basis and the Directors considered this and concluded that the use of the going concern basis continued to be appropriate. The Company's business activities, together with the factors likely to affect its future development, performance and financial position, are set out in the Strategic Report on page 13 and the Portfolio Management Review on page 26. The Directors have carried out a robust assessment of the emerging and principal risks and concluded that they have a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due over a three year period from the date of this report. This assessment included reviewing the liquidity forecasts of the Company that include the flexibility in the dividend policy and lack of any external debt, the significant cash balances on hand at 31 December 2021, the expected future expenditures and commitments and the latest report on the investment portfolio. In preparing this liquidity forecast, consideration has been given to the expected ongoing impact of Covid-19 on the Company and the wider Group as well as the potential impact on the underlying investee companies. The Directors have considered these factors for a period not less than twelve months from the date of this report.
New and revised accounting standards and amendments effective for the current period
New and revised accounting standards and amendments that are effective for annual periods beginning 1 January 2021 which have been adopted for the first time by the Company:
1. Amendments to IFRS 9: Interest Rate Benchmark Reform - Phase 2.
2. Amendment to IFRS 16, Leases: Covid-19-Related Rent Concessions beyond 30 June 2021.
The adoption of the standards and amendments listed above have no material impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
There are no other standards, amendments to standards or interpretations that are effective for annual periods beginning on 1 January 2021 that have had a material effect on the Company's Financial Statements.
New accounting standards, amendments and interpretations not yet effective, and which have not been early adopted
Other standards and amendments that are effective for subsequent reporting periods beginning on or after 1 January 2021 and have not been early adopted by the Company include:
3. Classification of Liabilities as Current or Non-current (Amendments to IAS 1) (effective 1 January 2023).
4. Annual Improvements 2018-2020 (effective 1 January 2022).
5. Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates (effective 1 January 2023).
6. Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies (effective 1 January 2023).
7. Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective 1 January 2023).
Upon preliminary assessment, these standards and amendments are not expected to have a significant impact on the Financial Statements in the period of initial application and therefore detailed disclosures have not been provided.
Amendment to IFRS 16 Leases: Covid-19-Related Rent Concessions beyond 30 June 2021
IFRS 16 Leases was issued in January 2016 and provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value.
In May 2020, the IASB issued its first amendment to IFRS 16, Leases to ease the accounting for lessees while still providing useful information to the users of the financial statements (Amendment to IFRS 16 Leases: Covid-19- related Rent Concessions).
The amendment, effective for annual reporting periods beginning on or after 1 June 2020, exempted lessees from having to consider individual lease contracts to determine whether rent concessions as a direct consequence of Covid-19 are lease modifications, hence allowing lessees to account for the concessions as if they were not lease modifications. Although IFRS 16 specifies how lessees should account for the change, this 'optional exemption' permitted in the amendment lessens the large volume of Covid-19-related rent concessions and stakeholders' difficulties and gives timely relief to lessees.
As the Covid-19 pandemic has persisted, on 31 March 2021 the IASB extended the period of application until 30 June 2022 via Amendment to IFRS 16, Leases: Covid-19-Related Rent Concessions beyond 30 June 2021. Such extension applies to accounting periods beginning on or after 1 April 2021.
The adoption of the amendments did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.
To determine the split between principal and interest in the lease, the Company is required to estimate the interest it would have to pay in order to finance payments under the new lease.
In June 2020, the Company entered into lease agreement with The Rayne Foundation. The interest rate used by the Company is based on the incremental borrowing rate of 6.5%. The term of the lease is 5 years and when the Company renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the modification:
8. if the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy;
9. in all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount; and
10. if the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial of full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount.
IFRS 2 - Share-based payment
IFRS 2 - Share-based payment requires an entity to recognise equity-settled share-based payments measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed over the vesting period, together with a corresponding increase in other capital reserves, based upon the Company's estimate of the shares that will eventually vest, which involves making assumptions about any performance and service conditions over the vesting period. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. The vesting period is determined by the period of time the relevant participant must remain in the Company's employment before the rights to the shares transfer unconditionally to them. The total expense is recognised over the vesting period, which is the period over which all the specified vesting conditions are to be satisfied. At the end of each period, the Company revises its estimates on the number of awards it expects to vest based on the service conditions.
Any awards granted are to be settled by the issuance of equity are deemed to be equity settled share-based payments, accounted for in accordance with IFRS 2 "Share-Based Payment".
Where the terms of an equity-settled transaction are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.
Where an equity-settled transaction is cancelled, it is treated as if it had vested on the date of the cancellation, and any expense not yet recognised for the transaction is recognised immediately. However, if a new transaction is substituted for the cancelled transaction and designated as a replacement transaction on the date that it is granted, the cancelled and new transactions are treated as if they were a modification of the original transaction, as described in the previous paragraph.
Accounting for subsidiaries
The Directors have concluded that the Company has all the elements of control as prescribed by IFRS 10 "Consolidated Financial Statements" in relation to all its subsidiaries and that the Company continues to satisfy the three essential criteria to be regarded as an investment entity as defined in IFRS 10, IFRS 12 "Disclosure of lnterests in Other Entities" and IAS 27 "Separate Financial Statements". The three essential criteria are such that the entity must:
• obtain funds from one or more investors for the purpose of providing these investors with professional investment management services;
• commit to its investors that its business purpose is to invest its funds solely for returns from capital appreciation, investment income or both; and
• measure and evaluate the performance of substantially all of its investments on a fair value basis.
Accounting for subsidiaries (continued)
ln satisfying the second essential criteria, the notion of an investment time frame is critical. An investment entity should not hold its investments indefinitely but should have an exit strategy for their realisation. Although the Company has invested in equity interests that have an indefinite life, it invests typically for a period of up to ten years. ln some cases, the period may be longer, depending on the circumstances of the investment, however, investments are not made with intention of indefinite hold. This is a common approach in the private equity industry.
Subsidiaries are therefore measured at fair value through profit or loss, in accordance with IFRS 13 "Fair Value Measurement" and IFRS 9 "Financial instruments".
The Company's subsidiaries, which are wholly - owned and over which it exercises control, are listed in note 24.
Use of estimates and judgements
The preparation of the Financial Statements require management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis; revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The areas involving significant judgements are:
· valuation technique selected in estimating fair value of unquoted investments -
note 11;
· valuation technique selected in estimating fair value of investments held in Funds -
note 11; and
· recognition of deferred tax asset for carried forward tax losses - note 8 .
The areas involving significant estimates are:
· estimate inputs used in calculating fair value of unquoted investments - note 11;
· estimated inputs used in calculating fair value of investments held in Funds - note 11;
· estimates in calculating the fair value of equity awards - note 18; and
· estimate percentage of incremental borrowing rate on lease liability - note 19.
Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that may have financial impact on the entity and that are believed to be reasonable under the circumstances.
Investments in subsidiaries
The Company's investments in subsidiaries are stated at fair value which is considered to be the carrying value of the net assets of each subsidiary. On disposal of such investments, the difference between net disposal proceeds and the corresponding carrying amount is recognised in the income statement.
Valuation of investments
The Company and its subsidiaries manage their investments with a view to profit from the receipt of dividends, interest income and increase in fair value of equity investments which can be realised on sale. Therefore, all quoted, unquoted and managed fund investments are designated at fair value through profit or loss which can be realised on sale and carried in the Statement of Financial Position at fair value.
Fair values have been determined in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") 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.
Quoted investments
Quoted investments for which an active market exists are valued at the bid price at the reporting date.
Unquoted direct investments
Unquoted direct investments for which there is no active 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:
· investments in an established business are valued using revenue or earnings multiples depending on the stage of development of the business and the extent to which it is generating sustainable revenue or earnings;
· investments in an established business which is generating sustainable revenue or earnings but for which other valuation methods are not appropriate are valued by calculating the discounted cash flow of future cash flows or earnings;
· investments in debt instruments or loan notes are determined on a standalone basis, with the initial investment recorded at the price of the transaction and subsequent adjustments to the valuation are considered for changes in credit risk or market rates;
· convertible instruments are valued by disaggregating the convertible feature from the debt instrument and valuing it using a Black-Scholes model; and
· the Company has adopted the IPEV guidelines which are effective from 1 January 2019. The main changes of the new guidelines are:
o price of a recent investment removed as a primary valuation technique; and
o valuing debt investment is expanded.
· the Company adopted the IPEV special valuation guidance issued in March 2020.
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, the latest available of which the Company will adopt provided it is satisfied that the valuation methods used by the funds are not materially different from the Company's valuation methods. Adjustments will be made to the fund valuation where the Company believes there is evidence available for an alternative valuation.
Carried interest
The Company historically offered its executives, including Board executives, the opportunity to participate in the returns from successful investments. A variety of incentive and carried interest arrangements were put in place during the years up to and including 2011. No new schemes have been introduced since. As is commonplace in the private equity industry, executives may, in certain circumstances, retain their entitlement under such schemes after they have left the employment of the Company. The liability under such incentive schemes is accrued if its performance conditions, measured at the reporting date, would be achieved if the remaining assets in that scheme were realised at their fair value at the reporting date. An accrual is made equal to the amount which the Company would have to pay to any remaining scheme participants from a realisation of the reported value at the reporting date.
Foreign currencies
Transactions in foreign currencies are recorded at the rate of exchange at the date of transaction. Monetary assets and monetary liabilities denominated in foreign currencies at the reporting date are reported at the rates of exchange prevailing at that date and exchange differences are included in the income statement.
Right of use assets
Right of use assets are initially measured at the amount of the lease liability. Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease.
Intercompany receivables
The Company measured intercompany receivables and other receivables at fair value less any expected credit losses. Expected credit losses are measured through a loss allowance at an amount equal to:
· the 12-month expected credit losses (expected credit losses from possible default events within 12 months after the reporting date); or
· full lifetime expected credit losses (expected credit losses from all possible default events over the life of the financial instrument).
A loss allowance for full lifetime expected credit losses is required for intercompany receivables and other receivables if the credit risk has increased significantly since initial recognition.
Impairment losses on financial assets carried at amortised cost are reversed in subsequent periods if the expected credit losses decrease.
Financial assets held at amortised cost
The Company recognises trade receivables as financial assets classified at amortised cost. These are recognised initially at fair value. Subsequent to initial recognition, these are measured at amortised cost, less any expected credit losses.
Expected credit losses for these financial assets are measured using the simplified approach to the credit loss model. Under the simplified credit loss model approach, a provision is recognised based on the expectation of default rates over the full lifetime of the financial assets without the need to identify significant increases on credit risk on these assets.
Cash and cash equivalents
Cash, for the purpose of the cash flow statement, comprises cash in hand and cash equivalents.
Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Financial liabilities
The Company's financial liabilities include operating and other payables. These are initially recognised at fair value. Subsequent measurement is at amortised cost using the effective interest method.
Dividend payable
Dividend distribution to the shareholders is recognised as a liability in Financial Statements when approved at an annual general meeting by the shareholders. Interim dividend approved during the year is recorded upon payment.
Income
Gains and losses on investments
Realised and unrealised gains and losses on investments are recognised in the income statement in the period in which they arise.
Interest income
Interest income is recognised as it accrues using the effective interest method.
Dividend income
Dividend income is recognised on the date the Company's right to receive payment is established.
Expenditure
Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognized in other comprehensive income or directly 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 liability approach, 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 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.
Prior period adjustments
Dividend income from subsidiary
For the year ending 31 December 2020, one of the subsidiaries, (LMS Capital Group Limited), declared dividends of £58,849,364 to the Company, resulting in an increase of income from dividends of £58,849,364 and a reduction in the carrying value of the subsidiaries due to this distribution of £58,849,364. In the prior year Financial Statements, this movement was incorrectly offset against each other and was not presented in the Income Statement. In the current year, this presentation has been restated as:
· Dividend income increased by £58,849,364.
· Carrying value of subsidiaries due to distribution decreased by £58,849,364.
There is no impact on the profit/(loss) for the year.
Amounts receivable from subsidiaries
In prior years, the Company's receivable from subsidiaries was incorrectly added against the investment in subsidiary balance. As a result, the Company's receivable from subsidiaries was understated by £5,375,914 and the investments balance was overstated by £5,375,914. This presentation was corrected during the current year Financial Statements, and the comparative figures in the Statement of Financial Position and Investment note (note 11) were restated as:
· Investments decreased by £5,375,914.
· Amount receivable from subsidiaries increased by £5,375,914.
Consequently, further changes were needed to the related 'Financial Risk Management' note (note 20). These comprised firstly, a change in the 'Financial instruments by category' note to show the 'amounts receivable from subsidiaries' of £5.375m separately as an asset measured at 'amortised cost' as opposed to being included in 'Investments' in the 'fair value through profit or loss' category. Secondly, the 'Credit Risk' note was restated to show the £5.375m 'Amounts receivable from subsidiaries' in this note. Thirdly, the 'Liquidity Risk' note was restated to show the £5.375m separately as 'Amounts receivable from subsidiaries' as opposed to being included in the 'investments' category. Finally, the 'Currency Risk' note was restated to show the £5.375m 'Amounts receivable from subsidiaries' separately as opposed to being included in the 'investments' figure.
As a result of the change stated above, the presentation in the Cash flow statement has also been updated. In the prior year, the net movement is presented in one line which was a decrease in amounts payable to subsidiaries. However, this year the comparatives were updated as per below:
· Amounts receivable from subsidiaries increased by £3,545,422.
· Amounts payable to subsidiaries decreased by £3,545,422.
This change does not have any impact on the overall change in operating assets and liabilities.
Reclassification of liquidity risk analysis for financial liabilities
In prior years, the amount payable to subsidiaries was incorrectly included in the 'Over 5 years' category in the financial liabilities liquidity risk note (note 20). Given that the amounts are repayable on demand, these amounts have been correctly restated to be included in the 'Up to 3 months' category. As such, in the 2020 comparative disclosure 'Amounts payable to subsidiaries' of £38,746,850 has been restated from the 'Over 5 years' category to the 'Up to 3 months' category.
2. Net gains/ losses on investments
Gains and losses on investments were as follows:
|
Year ended 31 December
| |||||
|
| 2021 |
|
| 2020 |
|
Investment portfolio of the Company | Realised | Unrealised | Total | Realised | Unrealised | Total |
Asset type | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Quoted | - | - | - | (716) | - | (716) |
Unquoted | (5) | - | (5) | - | 25 | 25 |
Funds | - | - | - | - | - | - |
| (5) | - | (5) | (716) | 25 | (691) |
Credit/(charge) for incentive plans |
|
| 1 |
|
| (68) |
|
|
| (4) |
|
| (759) |
Investment portfolio of subsidiaries |
|
|
|
|
|
|
Asset type |
|
|
|
|
|
|
Quoted | - | 186 | 186 | 381 | (598) | (217) |
Unquoted | - | (90) | (90) | 121 | 924 | 1,045 |
Funds | - | 2,473 | 2,473 | - | (2,190) | (2,190) |
| - | 2,569 | 2,569 | 502 | (1,864) | (1,362) |
Total | (5) | 2,569 | 2,565 | (214) | (1,839) | (2,121) |
(Charge)/credit for incentive plans |
|
| (10) |
|
| 68 |
|
|
| 2,555 |
|
| (2,053) |
Operating and similar income/(expense) of subsidiaries* |
| 1,282 |
|
| (1,194) | |
|
|
| 3,837 |
|
| (3,247) |
|
|
|
|
|
|
|
*Includes operating and legal costs and taxation charges of subsidiaries.
In September 2020, a subsidiary of the Company deposited £7.0 million for an investment in Dacian Petroleum, a Romanian oil and gas production company. On 19 November 2021, the transaction was completed, recognising investment acquisition cost of £6.7 million. The investment is structured primarily as debt with a 7-year maturity and bearing compounded interest at 14% per annum from 20 September 2020. During the year, a net interest of £1.2 million (2020: £nil) was recognised.
The Company operates carried interest arrangements in line with normal practice in the private equity industry. The credit for incentive plans for the Company is £1,000 and other incentives relating to historic arrangements. The charge for subsidiaries is included in the net gains/ losses on investments in the Income Statement.
3. Interest income
Interest income comprises of interest earned on bank deposits and on loan investments.
4. Dividend income
Dividend income received is accounted for when the right to receive payments is established and the amount of the dividend can be measured reliably.
5. Operating expenses
Operating expenses comprise administrative expenses and include the following:
|
| Year ended 31 December | |
|
| 2021 | 2020 |
|
| £'000 | £'000 |
Directors remuneration (note 6) |
| 716 | 708 |
Staff expenses (note 7) |
| 309 | 169 |
Depreciation on right of use assets |
| 28 | 14 |
Other administrative expenses |
| 752 | 572 |
Foreign currency exchange differences |
| 130 | (275) |
Auditor's remuneration |
|
|
|
Fees to Company auditor |
| 53 | 55 |
- parent company |
| 35 | 38 |
- interim review for LMS Capital Plc |
| 18 | 17 |
|
| 1,988 | 1,243 |
|
|
|
|
The audit fee comprises of £34,500 (2020: £38,000) for LMS Capital Plc, £18,250 (2020: £17,000) for the interim review. Audit fees for the subsidiaries of £72,500 (2020: £75,000) directly charged to subsidiaries.
6. Directors' Remuneration
|
| Year ended 31 December | |
|
| 2021 | 2020 |
|
| £'000 | £'000 |
Directors' remuneration |
| 570 | 593 |
Directors' social security contributions |
| 92 | 62 |
Directors' other benefit |
| 54 | 53 |
|
| 716 | 708 |
|
|
|
|
The highest paid Director was Nicholas Friedlos (2020 - Nicholas Friedlos) |
| 349 | 362 |
|
|
|
|
The average number of Directors was as follows:
| 31 December 2021 | 31 December 2020 | ||||
| Male | Female | Total | Male | Female | Total |
Average number of Directors | 5 | - | 5 | 5 | - | 5 |
| 5 | - | 5 | 5 | - | 5 |
7. Staff Expenses
|
| Year ended 31 December | |
|
| 2021 | 2020 |
|
| £'000 | £'000 |
Wages and salaries |
| 253 | 144 |
Employers' social security contributions |
| 30 | 13 |
Employers' other benefits |
| 26 | 12 |
|
| 309 | 169 |
Staff benefits includes pension and health insurance. These benefits are recognised as expenses on an accrual basis as they are incurred.
The average number of staff was as follows:
| 2021 | 2020 |
Average number of staff | 5 | 4 |
| 5 | 4 |
8. Taxation
|
| Year ended 31 December | |
|
| 2021 | 2020 |
|
| £'000 | £'000 |
Current tax expense |
|
|
|
Current year |
| - | - |
Total tax expense |
| - | - |
Reconciliation of tax expense |
| Year ended 31 December | |
|
| 2021 | 2020 |
|
| £'000 | £'000 |
Profit/(loss) before tax |
| 1,872 | (4,396) |
Corporation tax using the Company's domestic tax rate - 19% (2020: 19%) |
| 356 | (835) |
Fair value adjustments not currently taxed |
| (486) | 390 |
Non-deductible expenses/(income) |
| (214) | 238 |
Difference between taxable and accounting profit on disposal | 29 | 301 | |
Capital allowances |
| (3) | - |
Company relief |
| 406 | 672 |
Deferred tax asset not recognised |
| 155 | - |
Transfer pricing |
| (243) | (766) |
Total tax expense |
| - | - |
As at year end, there are cumulative potential deferred tax assets of £2.205 million (2020: £1.512 million) in relation to the Company's cumulative tax losses of £8.819 million (2020: £7.956 million). It is unlikely that the Company will generate sufficient taxable profits in future to utilise these amounts and therefore no deferred tax asset has been recognised in the current or prior year.
9. Profit/(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:
| Year ended 31 December | |
| 2021 | 2020 |
| £'000 | £'000 |
Profit/(loss) |
|
|
Profit/(loss) for the purposes of profit/(loss) per share |
|
|
being net profit/(loss) attributable to equity holders of the parent | 1,872 | (4,396) |
|
|
|
| Number | Number |
Number of shares |
|
|
Weighted average number of ordinary shares for the |
|
|
purposes of basic profit/(loss) per share | 80,727,450 | 80,727,450 |
|
|
|
|
|
|
Profit/(loss) per share | Pence | Pence |
Basic | 2.3 | (5.4) |
Diluted | 2.3 | (5.4) |
The Company share awards issued will be dilutive when vested.
10. Dividends paid
Dividends declared during the year ending 31 December 2021 are as follows.
| Dividend date | Payment Date | Dividend £'000 | Dividend per share £ |
First dividend payment for 2020 | 20 December 2019 | 09 January 2020 | 3,431 | 0.0425 |
Second dividend payment for 2020 | 14 August 2020 | 07 September 2020 | 242 | 0.0030 |
Total as at 31 December 2020 |
|
| 3,673 | 0.0455 |
|
|
|
|
|
Final dividend payment for 2020 | 21 May 2021 | 14 June 2021 | 484 | 0.6000 |
Interim dividend payment for 2021 | 13 August 2021 | 03 September 2021 | 243 | 0.3000 |
Total as at 31 December 2021 |
|
| 727 | 0.9000 |
A final dividend of 0.6p per share is recommended by the Board and, subject to approval by shareholders at the AGM on May 2022, will be paid out in early June 2022.
11. Investments
The Company's investments comprised the following:
| Year ended 31 December | |
| 2021
| 2020 (Restated) |
| £'000 | £'000 |
Total investments | 68,461 | 65,235 |
These comprise: |
|
|
Investment portfolio of the Company | - | 755 |
Investment portfolio of subsidiaries | 30,938 | 21,438 |
Investment portfolio - total | 30,938 | 22,193 |
Other net assets of subsidiaries | 37,523 | 43,042 |
| 68,461 | 65,235 |
The carrying amounts of the Company's and its subsidiaries' investment portfolios were as follows:
| 31 December 2021
| 31 December 2020 (Restated) | ||
Investment portfolio of the Company |
|
|
|
|
Asset type | £'000 | £'000 | £'000 | £'000 |
Quoted |
| - |
| - |
Unquoted direct |
| - |
| 755 |
Funds |
| - |
| - |
|
| - |
| 755 |
|
|
|
|
|
Investment portfolio of subsidiaries |
|
|
|
|
Asset type |
|
|
|
|
Quoted | 383 |
| 197 |
|
Unquoted direct | 16,626 |
| 9,383 |
|
Funds | 13,929 |
| 11,858 |
|
| 30,938 |
| 22,193 |
|
Other net assets of subsidiaries | 37,523 |
| 43,042 |
|
| 68,461 | 68,461 | 65,235 | 65,235 |
|
| 68,461 |
| 65,235 |
The movements in the investment portfolio were as follows:
| Quoted | Unquoted |
|
|
| securities | securities | Funds | Total |
| £'000 | £'000 | £'000 | £'000 |
Carrying value |
|
|
|
|
Balance at 1 January 2020 | 8,421 | 9,713 | 14,107 | 32,241 |
Purchases | 424 | 249 | 906 | 1,579 |
Disposal proceeds | (7,715) | - | - | (7,715) |
Distributions from partnerships | - | (894) | (965) | (1,859) |
Fair value adjustments | (933) | 1,070 | (2,190) | (2,053) |
Balance at 31 December 2020 | 197 | 10,138 | 11,858 | 22,193 |
| Quoted | Unquoted |
|
|
| securities | securities | Funds | Total |
| £'000 | £'000 | £'000 | £'000 |
Balance at 1 January 2021 | 197 | 10,138 | 11,858 | 22,193 |
Purchases | - | 8,394 | - | 8,394 |
Proceeds from disposal | - | (750) | - | (750) |
Distributions from partnerships | - | (1,586) | (445) | (1,916) |
Contribution to partnerships | - | 115 | 43 | 43 |
Fair value adjustments | 186 | (95) | 2,473 | 2,564 |
Reclassification of withholding tax* | - | 410 | - | 410 |
Balance at 31 December 2021 | 383 | 16,626 | 13,929 | 30,938 |
*As at 31 December 2020, unquoted securities investment fair value included a provision for withholding tax on distributions. This distribution was received in the first quarter of 2021 and the remaining estimated withholding tax liability of £0.4 million was reclassified to current liabilities as at 31 December 2021.
The following table analyses investments carried at fair value at the end of the year, by the level in the fair value hierarchy into which the fair value measurement is categorised. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets;
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3: inputs for the asset that are not based on observable market data (unobservable inputs such as trading comparables and liquidity discounts).
Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's view of market assumptions in the absence of observable market information (see note 20 - Financial risk management).
The Company's investments are analysed as follows:
|
|
| 31 December | |
|
|
| 2021
| 2020 (Restated) |
|
|
| £'000 | £'000 |
Level 1 |
|
| - | - |
Level 2 |
|
| - | 755 |
Level 3 |
|
| 68,461 | 64,480 |
|
|
| 68,461 | 65,235 |
Level 3 includes:
|
|
| 31 December | |
|
|
| 2021
| 2020 (Restated) |
|
|
| £'000 | £'000 |
Investment portfolio of subsidiaries |
|
| 30,938 | 21,438 |
Other net assets of subsidiaries |
|
| 37,523 | 43,042 |
|
|
| 68,461 | 64,480 |
Investment portfolio of subsidiaries includes quoted investments of £383,000 (2020: £197,000).
There were no transfers between levels during the year ending 31 December 2021.
12. Operating and other receivables
|
|
| 31 December | |
|
|
| 2021 | 2020 |
|
|
| £'000 | £'000 |
Other receivables and prepayments |
|
| 51 | 67 |
|
|
| 51 | 67 |
|
|
|
|
|
13. Cash and cash equivalents
|
|
| 31 December | |
|
|
| 2021 | 2020 |
|
|
| £'000 | £'000 |
Bank balances |
|
| 351 | 2,221 |
Demand deposits |
|
| 14,167 | 14,164 |
|
|
| 14,518 | 16,385 |
At 31 December 2021, the total Group's cash balance is £20.113 million (2020: £20.590) which includes cash held in subsidiaries of £5.595 million (2020: £4.205 million).
14. Amounts receivable from subsidiaries
|
|
| 31 December | |
|
|
| 2021 | 2020 |
|
|
| £'000 | £'000 |
Amounts receivable from subsidiaries |
|
| 5,191 | 5,375 |
|
|
| 5,191 | 5,375 |
|
|
|
|
|
15. Operating and other payables
|
|
| 31 December | |
|
|
| 2021 | 2020 |
|
|
| £'000 | £'000 |
Carried interest provision |
|
| 35 | 68 |
Trade payables |
|
| 43 | 32 |
Other non-trade payables and accrued expenses |
|
| 316 | 315 |
|
|
| 394 | 415 |
Other long-term lease liabilities |
|
| 75 | 102 |
|
|
| 469 | 517 |
The Company operates carried interest arrangements in line with normal practice in the private equity industry, calculated on the assumption that the investment portfolio is realised at its year end carrying amount. As at 31 December 2021, £35,000 (2020: £68,000) has been accrued for in the Company and £438,000 (2020: £424,000) has been accrued for in the subsidiaries. Carried interest accrued for in the subsidiaries is included in the amounts owing to subsidiaries on the Statement of Financial Position.
16. Amounts payable to subsidiaries
|
|
| 31 December | |
|
|
| 2021 | 2020 |
|
|
| £'000 | £'000 |
Amounts payable to subsidiaries |
|
| 38,740 | 38,747 |
|
|
| 38,740 | 38,747 |
|
|
|
|
|
17. Capital and reserves
Share capital
| 2021 | 2021 | 2020 | 2020 |
Ordinary shares | Number | £'000 | Number | £'000 |
Balance at the beginning of the year | 80,727,450 | 8,073 | 80,727,450 | 8,073 |
Repurchase of shares | - | - | - | - |
Balance at the end of the year | 80,727,450 | 8,073 | 80,727,450 | 8,073 |
The Company's ordinary shares have a nominal value of 10p per share and all shares in issue are fully paid up.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
Share premium account
The Company's share premium account arose on the exercise of share options in prior years.
Capital redemption reserve
The capital redemption reserve comprises the nominal value of shares purchased by the Company out of its own profits and cancelled.
18. Share awards
In the prior year, the Company established a long-term incentive plan for the employees of the Company. The plan grants the Board the authority to allot up to 1,000 Value Creation Plan ("VCP") units with both performance and service conditions attached. The VCP units can only be awarded at the end of the five-year vesting period, 30 June 2025, if certain minimum performance conditions are met. These minimum performance conditions include two performance targets over the measurement period, including a minimum hurdle rate such that the annualised total shareholder return ("TSR") over the measurement period must be not less than 8% and a minimum share price of 52.8p. If the minimum performance targets are met, the amount that the plan participants will receive will depend on the TSR performance of the Company achieved over the five-year vesting period. The Board retains the right to settle these awards in either shares or cash. As the Company does not have a present obligation to settle in cash, the awards are all recognized as equity settled share awards.
The first share awards were granted in 2020 with respect to the performance year ended 31 December 2020. There were no share awards granted for the year ending 31 December 2021.
Grant date | Type of award | Number of shares awarded | Fair value/ share £ | Vesting conditions | Final vesting date | ||
30 June 2020 | Shares | 500 | 418.44 | Awards vest quarterly over 5 years provided the employee is still in service of the Company. | 30 June 2025 | ||
17 November 2020 | Shares | 125 | 393.63 | Awards vest quarterly over 5 years provided the employee is still in service of the Company. | 30 June 2025 | ||
|
|
|
|
|
|
| |
The fair value of the option granted in 2020 has been estimated using the Monte Carlo simulation. The principal assumption used in the calculation were as follows:
|
| 2020 |
|
Share price at 30 June 2020 |
| £ 0.328 | |
Share price at 17 November 2020 |
| £ 0.299 | |
Exercise price |
| - | |
Expected life |
| 5 years | |
Weighted average risk-free rate |
| (0.04%) | |
Dividend yield |
| 2.0% |
| Number of awards | Weighted average of fair value of instrument | |||
Outstanding at 1 January 2020 |
|
| - | - | |
Granted |
|
| 625 | 413.48 | |
Settled in equity |
|
| - | - | |
Outstanding at 31 December 2020 |
|
| 625 | 413.48 | |
Granted |
|
| - | - | |
Settled in equity |
|
| - | - | |
Outstanding at 31 December 2021 |
|
| 625 | 413.48 | |
19. Leases
Lease commitments
The Company leases rental space and information with regards to this lease is outlined below:
Rental lease asset | £'000 |
Leased asset recognised under IFRS 16 at 1 July 2020 | 139 |
Depreciation for the year | (14) |
Balance at 31 December 2020 | 125 |
Depreciation for the year | (28) |
Balance as at 31 December 2021 | 97 |
Rental lease liability | £'000 |
Leased asset recognised under IFRS 16 at 1 July 2020 | 139 |
Unwinding of the discount on lease liability | 4 |
Payments for lease | (16) |
Balance at 31 December 2020 | 127 |
Unwinding of the discount on lease liability | 8 |
Payments for lease | (33) |
Balance as at 31 December 2021 | 102 |
Further information regarding the adoption of IFRS 16 is detailed in note 1.
20. Financial risk management
Financial instruments by category
The following tables analyse the Company's financial assets and financial liabilities in accordance with the categories of financial instruments in IFRS 9. Assets and liabilities outside the scope of IFRS 9 are not included in the table below:
| 31 December | |||||
| 2021 | 2020 (Restated) | ||||
| Fair |
|
| Fair |
|
|
| Value |
|
| Value |
|
|
| through | Measured at |
| through | Measured at |
|
| profit or | amortised |
| profit or | amortised |
|
| loss | cost | Total | loss | cost | Total |
Financial assets | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Investments | 68,461 | - | 68,461 | 65,235 | - | 65,235 |
Amounts receivable from subsidiaries | - | 5,191 | 5,191 | - | 5,375 | 5,375 |
Operating and other receivables | - | 41 | 41 | - | 67 | 67 |
Cash and cash equivalents | - | 14,518 | 14,518 | - | 16,385 | 16,385 |
Total | 68,461 | 19,750 | 88,211 | 65,235 | 21,827 | 87,062 |
| 31 December | |||||
| 2021 | 2020 | ||||
| Fair |
|
| Fair |
|
|
| Value |
|
| Value |
|
|
| through | Measured at |
| through | Measured at |
|
| profit or | amortised |
| profit or | amortised |
|
| loss | cost | Total | loss | cost | Total |
Financial liabilities | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Operating and other payables | - | 367 | 367 | - | 390 | 390 |
Amounts payable to subsidiaries | - | 38,740 | 38,740 | - | 38,747 | 38,747 |
Lease liabilities | - | 102 | 102 | - | 127 | 127 |
Total | - | 39,209 | 39,209 | - | 39,264 | 39,264 |
Intercompany payables to subsidiaries are all repayable on demand thus there are no discounted contractual cash flows to present.
The Company has exposure to the following risks from its use of financial instruments:
· credit risk;
· liquidity risk; and
· market risk.
This note presents information about the Company's exposure to each of the above risks, its policies for measuring and managing risk, and its management of capital.
Credit risk
Credit risk is the risk of the financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company's receivables and its cash and cash equivalents.
|
|
|
|
| 31 December | |
|
|
|
|
| 2021
| 2020 (Restated) |
|
|
|
|
| £'000 | £'000 |
Amounts receivable from subsidiaries |
|
|
|
| 5,191 | 5,375 |
Operating and other receivables |
|
|
|
| 41 | 67 |
Debt Investments |
|
|
|
| - | 600 |
Cash and cash equivalents |
|
|
|
| 14,518 | 16,385 |
|
|
|
|
| 19,750 | 22,427 |
The Company limits its credit risk exposure by only depositing funds with highly rated institutions. Cash holdings at 31 December 2021 and 2020 were held in institutions currently rated A or better by Standard and Poor's. Given these ratings, the Company does not expect any counterparty to fail to meet its obligations and therefore, no allowance for impairment is made for bank deposits.
The loss allowance as at 31 December 2021 and 31 December 2020 was determined as follows for trade receivables:
|
| More than | More than | More than |
|
| Current | 30 days past due | 60 days past due | 120 days past due | Total |
2021 | £'000 | £'000 | £'000 | £'000 | £'000 |
Expected loss rate | - | - | - | 100% | - |
Other receivables | 41 | - | - | - | 41 |
Total | 41 | - | - | - | 41 |
|
| More than | More than | More than |
|
| Current | 30 days past due | 60 days past due | 120 days past due | Total |
2020 | £'000 | £'000 | £'000 | £'000 | £'000 |
Expected loss rate | - | - | - | 100% | - |
Trade receivables | - | - | - | 59 | 59 |
Other receivables | 67 | - | - | - | 67 |
Loss allowance | - | - | - | (59) | (59) |
Total | 67 | - | - | - | 67 |
The Company recognised credit losses of the full value of receivable for trade receivables not recovered after 4 months. As at 31 December 2021, the Company does not have outstanding trade receivable (2020: £59,000).
For the year ending 31 December 2021, the Company did not witness significant increase in the credit risk since the initial recognition of the outstanding receivable from subsidiaries and other receivables, therefore, no expected losses were recognised during the year (2020: £nil).
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Its financing requirements are met through a combination of liquidity from the sale of investments and the use of cash resources.
The following table shows an analysis of the financial assets and financial liabilities by remaining expected maturities as at 31 December 2021 and 31 December 2020.
Financial assets:
| Up to 3 months | 3-12 months | 1-5 years | Over 5 years | Total |
2021 | £'000 | £'000 | £'000 | £'000 | £'000 |
Investment | - | - | - | 68,461 | 68,461 |
Amounts receivable from subsidiaries | - | - | - | 5,191 | 5,191 |
Operating and other receivables | 41 | - | - | - | 41 |
Cash and cash equivalents | 14,518 | - | - | - | 14,518 |
Total | 14,559 | - | - | 73,652 | 88,211 |
| Up to 3 months | 3-12 months | 1-5 years | Over 5 years | Total |
2020 (Restated) | £'000 | £'000 | £'000 | £'000 | £'000 |
Investment | - | - | - | 65,235 | 65,235 |
Amounts receivable from subsidiaries | - | - | - | 5,375 | 5,375 |
Operating and other receivables | 67 | - | - | - | 67 |
Cash and cash equivalents | 16,385 | - | - | - | 16,385 |
Total | 16,452 | - | - | 70,610 | 87,062 |
Financial liabilities:
| Up to 3 months | 3-12 months | 1-5 years | Over 5 years | Total |
2021 | £'000 | £'000 | £'000 | £'000 | £'000 |
Operating and other payables | 367 | - | - | - | 367 |
Amount payable to subsidiaries | 38,740 | - | - | - | 38,740 |
Lease liabilities | 6 | 21 | 75 | - | 102 |
Total | 39,113 | 21 | 75 | - | 39,209 |
| Up to 3 months | 3-12 months | 1-5 years | Over 5 years | Total |
2020 (Restated) | £'000 | £'000 | £'000 | £'000 | £'000 |
Operating and other payables | 390 | - | - | - | 390 |
Amount payable to subsidiaries | 38,747 | - | - | - | 38,747 |
Lease liabilities | 6 | 19 | 102 | - | 127 |
Total | 39,143 | 19 | 102 | - | 39,264 |
In addition, some of the Company's subsidiaries have uncalled capital commitments to funds of £2,665,000 (31 December 2020: £2,717,000) for which the timing of payment is uncertain (see note 21).
Market risk
Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The Company aims to manage this risk within acceptable parameters while optimising the return.
Currency risk
The Company is exposed to currency risk on those of its investments which are denominated in a currency other than the Company's functional currency which is pounds sterling. The only other significant currency within the investment portfolio is the US dollar; approximately 73% of the investment portfolio is denominated in US dollars.
The Company does not hedge the currency exposure related to its investments. The Company 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 Company is exposed to translation currency risk on sales and purchases which are denominated in a currency other than the Company's functional currency. The currency in which these transactions are denominated is principally US dollars.
The Company's exposure to foreign currency risk was as follows:
| 31 December | |||||
| 2021
| 2020 (Restated) | ||||
| GBP | USD | Other | GBP | USD | Other |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Investments | 44,794 | 22,554 | 1,113 | 48,995 | 15,040 | 1,200 |
Amounts receivable from subsidiaries | 5,172 | 11 | 8 | 5,375 | - | - |
Right of use assets | 97 | - | - | 125 | - | - |
Operating and other receivables | 41 | - | - | 67 | - | - |
Cash and cash equivalents | 14,018 | 500 | - | 15,830 | 555 | - |
Operating and other payables | (434) | (35) | - | (517) | - | - |
Amount payable to subsidiaries | (31,597) | (7,011) | (132) | (38,747) | - | - |
Gross exposure | 32,091 | 16,019 | 989 | 31,128 | 15,595 | 1,200 |
Forward exchange contracts | - | - | - | - | - | - |
Net exposure | 32,091 | 16,019 | 989 | 31,128 | 15,595 | 1,200 |
The aggregate net foreign exchange profit/(loss) recognised in profit or loss were: | ||
|
| |
| 31 December | |
| 2021 | 2020 |
| £'000 | £'000 |
Net foreign exchange profit/(loss) on investment | 21 | (90) |
Net foreign exchange profit/(loss) on non-investment | 172 | (577) |
Total net foreign exchange profit/(loss) recognised in profit before income tax for the year | 193 | (667) |
At 31 December 2021, the rate of exchange was USD $1.35 = £1.00 (31 December 2020: $1.37 = £1.00).
A 10% strengthening of the US dollar against the pound sterling would have increased equity and increased profit by £1.8 million at 31 December 2021 (31 December 2020: increased equity and increased profit by £1.7 million). This assumes that all other variables, in particular interest rates, remain constant. A weakening of the US dollar by 10% against the pound sterling would have decreased equity and decreased the profit for the year by £1.5 million (2020: decreased equity and increased the loss by £1.7 million). This level of change is considered to be reasonable based on observations of current conditions.
Interest rate risk
At the reporting date, the Company's cash and cash equivalents are exposed to interest rate risk and the sensitivity below is based on these amounts.
An increase of 100 basis points in interest rates at the reporting date would have increased equity by £155,000 (31 December 2020: increase of £207,000) and increased the profit for the year by £155,000 (2020: decreased the loss £207,000). A decrease of 100 basis points would have decreased equity and increased the loss for the year by the same amounts. This level of change is considered to be reasonable based on observations of current conditions.
Fair values
All items not held at fair value in the Statement of Financial Position have fair values that approximate their carrying values.
Other market price risk
Equity price risk arises from equity securities held as part of the Company's portfolio of investments. The Company's management of risk in its investment portfolio focuses on diversification in terms of geography and sector, as well as type and stage of investment.
The Company's investments comprise unquoted investments in its subsidiaries and investments in quoted investments. The subsidiaries' investment portfolios comprise investments in quoted and unquoted equity and debt instruments. Quoted investments are quoted on the main stock exchanges in London and USA. A proportion of the 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 significant unobservable inputs used at 31 December 2021 in measuring investments categorised as level 3 in note 11 are considered below:
· Unquoted securities (carrying value £16.6 million) are valued using the most appropriate valuation technique such as a revenue-based approach, an earnings-based approach, or a discounted cash flow approach. These investments are sensitive to both the overall market and industry specific fluctuations that can impact multiples and comparable company valuations. In most cases the valuation method uses inputs based on comparable quoted companies for which the key unobservable inputs are:
· EBITDA multiples of approximately 5 times dependent on the business of each individual company, its performance and the sector in which it operates;
· revenue multiples in the range 0.30-1.5 times, also dependent on attributes at individual investment level; and
· discounts applied of up to 40%, to reflect the illiquidity of unquoted companies compared to similar quoted companies. The discount used requires the exercise of judgement taking into account factors specific to individual investments such as size and rate of growth compared to other companies in the sector.
· Investments in funds (carrying value £14 million) are valued using reports from the general partners of the fund interests with adjustments made for calls, distributions and foreign currency movements since the date of the report (if prior to 31 December 2021). The Company also carries out its own review of individual funds and their portfolios to satisfy themselves that the underlying valuation bases are consistent with the basis of valuation and knowledge of the investments and the sectors in which they operate. However, the degree of detail on valuations varies significantly by fund and, in general, details of unobservable inputs used are not available.
The valuation of the investments in subsidiaries makes use of multiple interdependent significant unobservable inputs and it is impractical to sensitise variations of any one input on the value of the investment portfolio as a whole. Estimates and underlying assumptions are reviewed on an ongoing basis, however, inputs are highly subjective. Changes in any one of the variables, earnings or revenue multiples or illiquidity discounts could potentially have a significant effect on the valuation.
If the valuation for level 3 category investments declined by 10% from the amount at the reporting date, with all other variables held constant, the profit for the year ended 31 December 2021 would have decreased by £6.8 million (2020: loss increased by £6.5 million). An increase in the valuation of level 3 category investments by 10% at the reporting date would have an equal and opposite effect.
Capital management
The Company's total capital at 31 December 2021 was £49 million (31 December 2020: £48 million) comprising equity share capital and reserves. The Company had borrowings at 31 December 2021 of £nil (31 December 2020: £nil).
In order to meet the Company's capital management objectives, the Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:
· Working capital requirements and follow-on investment capital for portfolio investments, including calls from funds;
· Capital available for new investments; and
· The annual dividend policy and other possible distributions to shareholders.
21. Capital commitments
|
|
| 31 December | |
|
|
| 2021 | 2020 |
|
|
| £'000 | £'000 |
Outstanding commitments to funds |
|
| 2,665 | 2,717 |
The outstanding capital commitments to funds comprise unpaid calls in respect of funds where a subsidiary of the Company is a limited partner.
As of 31 December 2021, the Company has no other contingencies or commitments to disclose (2020: £nil).
22. Related party transaction
The Directors' fees paid for the year were £722,000 (2020: £708,000).
In the prior year, the Company entered into a lease agreement with The Rayne Foundation in respect of the premises comprising its principal office. Under the terms of the lease, the Company paid rent of £32,780 (2020: £16,390) to The Rayne Foundation. Robert Rayne is the Chairman of The Rayne Foundation.
23. Subsequent events
The Company is monitoring the impact of the Russian invasion of Ukraine on each of its portfolio investments and overall business. The ultimate outcome is highly uncertain and difficult to predict
Elateral, an investment in the digital marketing sector, utilises contract staff in Ukraine, Russia and Belarus for its software development and has developed a contingency plan to manage any disruption that may occur. The situation remains highly uncertain, and the Company will continue monitoring developments closely.
There are no other subsequent events that would materially affect the interpretation of these Financial Statements.
24. Subsidiaries
The Company's subsidiaries are as follows:
Name | Country of incorporation | Holding % | Activity |
International Oilfield Services Limited | Bermuda | 100 | Investment holding |
LMS Capital (Bermuda) Limited | Bermuda | 100 | Investment holding |
LMS Capital Group Limited | England and Wales | 100 | Investment holding |
LMS Capital Holdings Limited | England and Wales | 100 | Investment holding |
Lioness Property Investments Limited | England and Wales | 100 | Investment holding |
Lion Property Investments Limited | England and Wales | 100 | Investment holding |
Lion Investments Limited | England and Wales | 100 | Investment holding |
Lion Cub Property Investments Limited | England and Wales | 100 | Dormant |
Tiger Investments Limited | England and Wales | 100 | Investment holding |
LMS Tiger Investments (II) Limited | England and Wales | 100 | Investment holding |
Westpool Investment Trust Plc | England and Wales | 100 | Investment holding |
Cavera Limited | England and Wales | 100 | Trading |
LMS Co-Invest Limited | England and Wales | 100 | Trading |
During the year, LMS Capital (General Partner) Limited was liquidated.
The registered office addresses of the Company's subsidiaries are as follows:
Subsidiaries incorporated in England and Wales: 3 Bromley Place, London, United Kingdom, W1T 6DB.
Subsidiaries and partnerships incorporated in Bermuda: Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
25. Net asset value per share
The net asset value per ordinary shares in issue are as follows:
|
|
| 31 December | |
|
|
| 2021 | 2020 |
NAV (£'000) |
|
| 49,109 | 47,923 |
Number of ordinary shares in issue |
|
| 80,727,450 | 80,727,450 |
NAV per share (in pence) |
|
| 60.83 pence | 59.36 pence |
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