THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT MAY CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE UK'S MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, SUCH INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

LEI: 2138004UJ1TW8UCELX08

23 February 2024

LMS CAPITAL PLC

NAV Estimate as at 31 December 2023

LMS Capital plc (the "Company") the listed investment company provides the following update and estimate of net asset value ("NAV") as at 31 December 2023.

KEY POINTS

·    The 31 December 2023 NAV estimate is £42.1 million (52.2p per share) and compares with NAV at the prior year end, 31 December 2022 of £46.5 million (57.7p per share). Adjusting for £0.7 million dividends paid during the year, the NAV has decreased by a net £3.7 million, 7.9%, during the year.

·    There was good progress on two fronts in December:

o  Our real estate activity in retirement living has enabled the group to acquire its first investment in the sector - Castle View Retirement Village, Windsor ("Castle View") - which we see as a foundation for further investment in this growth sector; and

o  The sale of Medhost represents a material realisation from our mature asset portfolio, generating $7.0 million cash in 2023, and a deferred payment of $1.7 million with a coupon of 11.25% due in December 2024. Total proceeds should exceed our book value by $1.9 million.

·    A significant contributor to the net decrease in NAV was the £3.5 million reduction in valuation of the Company's interest in Brockton Fund 1 ("Fund 1"), of which the only remaining asset is loan participation in a high-end residential development in Mayfair, London. This reduction reflects the risks for the development in the current market and, following the news on 26 January 2024 that the senior lender to the scheme had appointed a receiver, an allowance for the costs of the receivership process and potential disruption to sales. Brockton continues to expect that the scheme will generate a return for Fund 1 investors and we will keep the situation under review.

·    Notwithstanding the £6.1 million investment in Castle View and with the initial Medhost proceeds, cash at the year end was £15.5 million (19.2p per share) (2022: £17.9 million, 22.2p per share).

REAL ESTATE - RETIREMENT LIVING

Real estate activities in 2022 and 2023 have been focussed on opportunities to invest in specialist use real estate in the retirement living sector. During this time, we have developed our knowledge and understanding of the sector and evaluated potential acquisition opportunities.

The sector offers the opportunity for growth and allows us to deploy our real estate expertise alongside operating capability from partners.

·    Underlying demand is driven by demographics in the UK. The number of 75+ year old households is expected to increase by 77% in the 25 years to 2043;

·    The older population owns in excess of 40% of housing equity which can be released to finance retirement options and also free up stock for the wider family housing market;

·    The market is undersupplied, with relatively few developers or operators of scale and an increasing interest from institutional capital.

The acquisition of Castle View Retirement Village in Windsor, shortly before the end of the year, represents the first step in developing an investment platform focussed on retirement living.

There are a variety of business models in the sector. Our goal is initially to establish an investment platform based around integrated retirement communities, in which residents live independently in their own self-contained home, with access to communal facilities and amenities and the availability of optional support and care services, if needed.

Consideration will be given both to investment in development sites as well as in established operational businesses.

The business is capital intensive but has the capability to generate long-term income streams for investors which meet or exceed our return targets over the life of the investment. Our objective during 2024 is to identify further investment opportunities alongside funding partners to develop the investment platform.

NET ASSET VALUE ESTIMATE

The Company has commenced the year end valuation review process which is based on the latest performance updates from portfolio companies and third-party fund manager valuations.

The Board currently estimates that the year end NAV will be in the region of £42.1 million (2022: £46.5 million) which equates to 52.2p per share (2022: 57.7p per share). This NAV estimate, which represents a reduction of 7.9% on the prior year after adjusting for dividends paid, reflects information currently available to the Board on the performance and prospects of individual investments in the Company's portfolio and is subject to further evaluation as well as completion of the annual audit.

The estimated 31 December 2023 NAV is summarised below:

The valuation methodology and policy adopted is consistent with prior years and is in line with IPEV guidelines. The carrying value of the funds is based on the latest available information from the respective fund managers, generally the 30 September 2023 fund valuation reports except for Weber, which is based on a 31 December 2023 valuation and Brockton which is based on LMS' estimates.

The movement in NAV for the year based on the 31 December 2023 NAV estimate in summary is:

Portfolio performance

1.   Medhost: Realised gain £1.4 million - We had positive news on progress in the realisation of the mature portfolio, with the sale in December 2023, of Medhost, in which LMS had a co investment of 9.4%. The sale produced total proceeds for LMS of $8.7 million (£6.8 million) of which $7.0 million (£5.5 million) was received in cash before the year end and a further $1.7 million  (£1.3 million) is due in December 2024. Total proceeds will be $1.9 million (£1.5 million) in excess of LMS' Q3 2023 book value.

2.   Brockton Fund 1: Unrealised loss £3.5 Million - Brockton Fund 1's remaining investment is its participation in a "High End" Mayfair residential development. In reporting the Q3 NAV estimate, we reduced the valuation of our share of the fund by £1.1 million to reflect the risk of slower sales and higher interest costs in current market conditions. Following the decision of the senior lender to the development to appoint a receiver, we have made a further £2.4 million reduction in carrying value.

·    The 32 apartments in the scheme were completed in May 2023 and whilst prices on apartments sold to date have been good, the pace of sale has been slower than anticipated;

·    Brockton's current expectation is that all parties involved will continue to pursue an orderly sale of the remaining apartments and that there will ultimately be proceeds available to fund investors;

·    We have taken the view that at this stage, given the difficulty in estimating the likely outcome, that it is prudent to reduce the valuation to allow for the costs of the receivership process and any potential disruption to the sale process;

·    We will monitor and keep the position under review during the year.

3.   Dacian: Interest accrued £1.4 million - As noted in our half year and Q3 NAV updates, an engineering problem during the year created a serious interruption to gas production. The problem was resolved during Q3 but has resulted in performance below budget. Nonetheless Dacian has continued to service fully its third-party debt obligations (approximately 30% of the original acquisition cost was financed by a third party) which should be repaid by November 2024. Notwithstanding the difficulties of 2023, the Board expects the investor loan notes to be serviced in full.

4.   Other Mature assets portfolio: Unrealised gains £0.5 million

Unrealised foreign exchange losses were £1.2 million and net underlying gains were £0.6 million, the principal elements of which were:

·    Elateral - Unrealised gain £1.1 million, reflecting the improved financial performance, and progress in sales and marketing strategy;

·    GW 2001 Fund - Unrealised gain £0.2 million, reflecting market movements in the funds' portfolio of micro-cap US companies;

·    Opus Capital Venture Partners - Unrealised loss £0.9 million, reflecting reductions in the quoted market comparable companies for the fund's two principal remaining investments; and

·    Other investments - Unrealised gain £0.1 million

Running Costs

5.   Running costs, net of Dacian fee income, for the year were £1.8 million. Steps have been taken to make savings across a number of back office functions which are budgeted to result in reductions in 2024.

Investment Costs

6.   Investment costs include the cost of the advisory group we have assembled to help develop our presence in the retirement living sector, and professional costs associated with evaluating and investigating potential site and business acquisitions. The most significant element of cost this year was the transaction costs associated with the acquisition of Castle View.

OUTLOOK

The Company continues to have significant cash balances of £15.5 million (19.2p per share) at 31 December 2023 (31 December 2022: £17.9 million, 22.2p per share).

It's mature asset portfolio of £11.3 million comprises assets for the large part managed by third-party managers. The Board balances the goals of optimising realisation value of these investments and achieving liquidity within an acceptable time frame. The Board keeps under review progress by the third-party managers towards realisation and monitors opportunities to accelerate realisation of the Company's holdings in the secondary markets.

Looking forward for 2024 we envisage our focus will primarily be on real estate and retirement living. Having invested in Castle View the intention is to deploy further capital in conjunction with funding partners. 

Further information on the performance of the portfolio, underlying investment valuations and changes during the year will be included in the Company's audited results for the year ended 31 December 2023, which it expects to announce in March 2024.

The person responsible for the release of this announcement on behalf of the Company is IQ EQ Corporate Services (UK) Limited, the Company Secretary.

For further information please contact:

LMS Capital plc

Nick Friedlos, Managing Director

0207 935 3555

Note 1 - NAV changes and portfolio summary

Overall for the year as a whole, the Company's NAV, after adding back dividends paid, has decreased by £3.7 million, 7.9%. The principal components of the full year change are described below.

·    Foreign exchange net losses on the investment portfolio during the year were £1.2 million. 61% of the Company's investment portfolio is denominated in US Dollars.

·    Excluding the effect of foreign exchange rate changes, the mature asset portfolio showed a net reduction of £1.6 million in the year. The principal elements were:

o  An decrease of £3.5 million in Brockton reflecting the writing down of this investment;

o  An decrease of £0.9 million in the valuation of the Opus Capital Venture Partners fund. This fund has two principal remaining investments, both of which are performing well and the manager believes, subject to market conditions, have good prospects for realisation;

o  An increase of £0.2 million in Weber Capital Partners, a US listed small cap fund. The increase reflects quoted market price changes during the year;

o  Realised gains of £1.4 million resulting from the sale of Medhost by Primus, the lead manager;

o  A increase of £1.1 million in the valuation of Elateral; and

o  Other portfolio net gains were £0.1 million.

·    Interest accrued on Dacian amounted to £1.4 million.

·    Other movements were a net reduction of £2.3 million and include the following:

o  Full year running costs were £1.8 million;

o  Investment support costs including Castle View acquisition costs were £1.0 million; and

o  Other net income of £0.5 million, including unrealised foreign exchange losses of £0.1 million on non-portfolio assets, principally US Dollar bank accounts, taxation of £0.2 million and bank interest and other income received of £0.8 million.

Quoted Investments

Unquoted Investments

Funds