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10 Aug 2010 07:00
10 August 2010 LMS Capital plc Half Year Results for the six months to 30 June 2010
The Board of LMS Capital plc, ("LMS Capital" or "the Company"), is pleased toannounce the Company's half year results for the six months to 30June 2010. Themost significant developments during the first half of the year were asfollows: * A refined strategic focus for the Company: * + LMS Capital will pursue direct investments in growing, profitable
businesses where we can use our expertise to contribute to their growth
and performance; + This focus will primarily be in the energy, consumer and applied technology sectors where our investment team has demonstrable expertise; + Realisations from our existing quoted, direct and fund investments are
expected to provide the liquidity required to implement this strategy
in the medium term; * We made two new investments: *
+ Apogee, a fast growing UK print solutions company - we acquired a 32.8%
interest for £7.9 million, and
+ Nationwide Energy Partners, an energy services company in the US - we
invested $12.4 million (£8.4 million) for a 56.3% stake;
* We sold a number of quoted investments where gains of £0.8 million were
realised; * Glenn Payne joined as Chief Executive Officer from 1 March 2010; * Robert Rayne, formerly CEO, became Chairman following the retirement of Jonathan Agnew at the Company's AGM in May.
Financial performance was as follows:
Net Asset Value per share was 83p (31 December 2009: 84p). Net Asset Value was £225.9 million (31 December 2009: £227.7 million);
* The investment portfolio showed a net gain of £0.8 million after recording
unrealised currency gains of £9.6 million (six months ended 30 June 2009:
net loss of £10.7 million);
* The consolidated loss for the period (including portfolio subsidiaries) was
£7.3 million (six months ended 30 June 2009: loss of £13.6 million).
Glenn Payne, Chief Executive Officer of LMS Capital, said:
"LMS Capital has begun the change in focus which we expect to result inconsistent and superior growth in Net Asset Value. We offer a value propositionwhich differentiates us in the private equity industry - we provide long termcapital and an ability to work with management to create superior returns overthe near, medium and long terms. During the first half of 2010 we have continued to demonstrate our credentialsas a partner of choice with the acquisition of stakes in Apogee and NationwideEnergy Partners. Concurrent with a greater fiscal discipline for existingportfolio companies, we expect all funds invested to generate, over extendedperiods, annual returns in excess of 15%. Investors should expect to see moreof these new value adding deals where we deploy capital and follow on withgrowth equity to build businesses."
For further information please contact:
LMS Capital plc 020 7935 3555
Glenn Payne, Chief Executive Officer
Tony Sweet, Chief Financial Officer
J.P. Morgan Cazenove Limited 020 7588 2828
Michael Wentworth-Stanley
Brunswick Group LLP 020 7404 5959
Simon SporborgLeonora Burtenshaw About LMS CapitalLMS Capital is an investment company with over 30 years' experience in privateequity and development capital investment. Our objective is to deliver superiorabsolute returns for shareholders through a portfolio of direct investments;our focus is on small to medium sized companies in our preferred sectors ofconsumer and media, energy & utilities and applied technology, software &services.The Company has a portfolio valued at £230.3 million at 30 June 2010, most ofwhich we expect to realise in cash in the medium term. This harvesting of ourlegacy investments should produce the capital required to finance a number ofnew direct deals over the next five years.We seek to partner with experienced managers in profitable, growing companieswhere we expect to be able to add value. Our focus is on buying and investingin management teams and companies at favourable prices: on the assumption ofgradual economic improvement our outlook is positive on the investmentenvironment and we expect M&A activity to increase accordingly. We willcontinue to be cautious in our investment approach, aiming to grow ourinvestments (and NAV) by 15%+ per annum without undue risk or investing inunproven businesses.Our recent deal experience has confirmed to us that potential partners placegreat store on working with people who not only understand their business(typically through previous deals in the same sector) but also have themselvesworked in operational management positions and who therefore understand andempathise with the role of management in a business partnership. All members ofour investment team have prior experience as part of an operational managementteam. www.lmscapital.com Half year review 2010OverviewLMS Capital has effected a number of changes that we believe are positive tothe outlook of our underlying value proposition. Of most significance is afocus on pursuing one activity: the acquisition of either control or influencestakes in profitable and growing companies managed by experienced partners insectors where our people can add value. Our portfolio currently includes listedcompanies and non-quoted limited partnership interests in venture anddevelopment capital funds. Over the next few years our current quotedportfolio will provide us with liquidity and our fund investments will producematerial positive cash inflows. With this cash flow we will pursue directinvestments where we utilise our capital and the expertise of our team to growinvestee companies and, above all, add value.Our path to success, building on our history and the existing portfolio, willbe achieved one step at a time, aiming for a long term rate of growth in NetAsset Value of 15% pa. We have made a number of steps already this year:In March we invested £7.9 million to acquire a 32.8% stake in Apogee GroupLimited ("Apogee"). Apogee is one of the UK's leading independent digitalprinting solutions providers and offers sales and servicing of printers,photocopiers and multi-function devices to a diversified, growing client base.This is a business that is benefiting from sophisticated workflow managementsystems and the growth of colour printing. Results for the first half of 2010indicate that Apogee continues to grow sales and profitability in line with ourexpectations. Apogee was founded 17 years ago by the current management teamof Jason Collins and Barry Ferdinand and we expect to provide follow on fundingfor them as they grow the business. In May we acquired a majority stake in Nationwide Energy Partners ("NEP"), anenergy service provider in Columbus, Ohio that provides owners of multi unitresidential properties with outsourced meter reading, billing and collectionservices for water and electricity accounts. In addition to the purchase of theinitial stake for £8.4 million ($12.4 million, representing an enterprise valueof $23 million), LMS has agreed to fund up to an additional $15 million forinvestment in NEP's new business opportunities. NEP was founded by MikeDeAscentis in 2001 and he and his management team have grown the business to apoint where they see opportunities to acquire new earnings but were capitalconstrained. LMS Capital knows the energy sector well and demonstrated to NEPthat as a partner we work with our management teams to create value. We arealready seeing a number of growth opportunities, in part coming from theannouncement of our deal.For direct investments where we do not see adequate returns from our continuedinvolvement we are seeking to exit. In many cases these businesses are betterserved within a group that can provide a marketing channel alongside multipleother products. While no exits were crystallized in the first half, we expectto finalise a number during the second half of 2010.In the first half of the year we sold a number of our US quoted investments,realising proceeds of £4.6 million and a gain over December 2009 book of £0.8million. The most significant of these was the sale of our interest in BJServices for proceeds of £3.6 million and a gain over December 2009 book of £0.6 million.We have not made any new fund commitments. By focusing on direct deals we havemore control over our capital, we minimise fees to other managers and we playto our strength - we have permanent capital and will use the power of compoundreturns to our advantage. Our current fund commitments continue to decreaseand at 30 June stand at a maximum of £53.0 million; in our experience this willturn out to be less. In the first half we received distributions from funds of£4.2 million and consistent with the age of most of our limited partnershipinterests these distributions should increase in the next few years.
For the 6 months to 30 June 2010 the net effect of these changes is that our NAV has held broadly constant at 83p per share after the following key movements in the valuation of the investment portfolio:
recognising the success of the Updata deal by increasing our carrying value of
this investment,
writing down old non-performing investments, and
marking down quoted investments due to a decline in the public markets.
On balance:
we have a solid platform (£225.9 million NAV, 30 years of history);
we have a plan (pursuit of profitable control investments); and
we are executing against that plan (Updata in 2009, Apogee and NEP in the first
half of this year). ResultsThe half year financial information includes the consolidation of portfoliocompanies which are also subsidiaries ("portfolio subsidiaries"). Note 2 to thefinancial information shows the results and net assets of the investmentmanagement business separate from the results and net assets of the portfoliosubsidiaries.Investment managementIn the six months to 30 June 2010 net asset value declined slightly to £225.9million or 83p per share from £227.7 million or 84p per share at 31 December2009.
The return on the investment portfolio for the six months ended 30 June 2010 was a net gain of £0.8 million as follows:
6 months ended Year ended 30 June 31 December 2010 2009 2009 £'000 £'000 £'000 Realised gains/(losses) Quoted securities 837 799 2,503 Unquoted securities (5) - (1,867) Funds 237 (52) (755) 1,069 747 (119) Unrealised gains/(losses) Quoted securities (8,412) 10,485 9,741 Unquoted securities (1,207) (11,504) (8,491) Funds 9,362 (10,437) (6,007) (257) (11,456) (4,757) Total 812 (10,709) (4,876) The above figures include £9.6 million of unrealised foreign currency gains,principally in respect of the US dollar (six months ended 30 June 2009: loss of£16.5 million; year ended 31 December 2009: loss of £13.5 million). It is theBoard's current policy not to hedge the Company's underlying non-sterlinginvestments - our policy is to make good long-term investments wherever theyreside. The movements in the investment portfolio in the six months ended 30 June 2010were as follows: 6 months ended Year ended 30 June 31 December 2010 2009 2009 £'000 £'000 £'000 Opening balance 215,632 202,049 202,049 Additions 23,450 16,002 32,744 Realisations (8,555) (4,935) (14,398) Valuation adjustments (9,869) 5,008 8,795
Foreign currency gains /(losses) 9,612 (16,464) (13,558)
Closing balance 230,270 201,660 215,632
Additions to the portfolio in the first six months of 2010 were as follows:
6 months ended Year ended 30 June 31 December 2010 2009 2009 £'000 £'000 £'000 Quoted securities - - - Direct Investments New investments 16,274 405 7,617 Follow-on funding 2,245 6,375 10,336 Fund calls 4,931 9,222 14,791 23,450 16,002 32,744
Unrealised gains/(losses) in the first half of the year were as follows:
Valuation Currency Total £'000 £'000 £'000 Quoted securities (11,176) 2,764 (8,412) Direct Investments (3,040) 1,833 (1,207) Funds 4,347 5,015 9,362 (9,869) 9,612 (257)
The valuation losses on direct investments reflect the results of the directors' valuation as at 30 June 2010. They include:
an increase in the valuation of our interest in Updata by £5.0 million to £13.0
million. This reflects the performance of that business since we acquired it in
July 2009 - revenues have doubled and EBITDA has increased from £2.0 million to
in excess of £6 million;
write-downs on certain older investments principally Kizoom by £3.2 million to
£0.8 million, Coppereye by £1.7 million to nil, and Vio by £2.2 million to nil.
We are actively seeking to exit these three investments;
A number of the other older companies are also in active M&A processes and weexpect to realise greater than book value but broadly these investments haveunder-performed and have become a distraction to the Company where we cannotprovide the broader corporate support for what in some cases is a singletechnology. We will endeavour to find a willing buyer that can provide us somevalue while they take the technology forward.
Details of our largest investments by valuation at 30 June 2010, representing about 76% of the total portfolio, are set out on page 9.
Cash on hand at 30 June 2010 was £12.5 million; our borrowing facility of £15million has been fully drawn. The Company had uncalled commitments to funds of£53.0 million at that date although our experience suggests that the fullamount of each fund commitment is rarely drawn. We expect these funds to becalled over the next three to five years. Cash and other liquid assets(including the value of our quoted portfolio) were £52.8 million.
Portfolio subsidiaries
The increase in revenues for the first six months of 2010 compared to the corresponding period in 2009 reflects principally the inclusion of Updata (acquired in July 2009) in the figures for the current period. This company contributed revenues of £11.9 million and NEP, acquired at the end of May, contributed revenues of £1.0 million.
Revenues for the other portfolio subsidiaries declined in total from £13.3million to £11.3 million reflecting principally a fall in revenues at ITS (US)Holdings; this company has faced difficult trading conditions in the lasttwelve months as a result of lack of investment in its target market, the oiland gas sector. Although there are signs that the market is improving, thecompany will not benefit from this until the second half of the year at theearliest. Revenues at the other companies were broadly in line with theprevious year - three of these (Kizoom, CopperEye and Vio) are being activelymarketed for sale.The significantly reduced consolidated loss for the period is a result of:
the profit contribution by Updata of £2.7 million in the period;
a positive valuation result in the investment management business for its
investments excluding the portfolio subsidiaries;
lower operating costs in the other companies compared to the corresponding
period in 2009.
Principal risks and uncertainties
The principal risks and uncertainties that affect the Group are described onpages 30 and 31 of the Group's Annual Report for the year ended 31 December2009. These are still considered the most relevant risks and uncertaintieswhich the Group faces and they could have an impact on the Group's performancein the second half of the financial year.
Outlook
With our refined strategic focus we remain confident and well prepared for thefuture. Over the course of the next 5 years we expect to see a significantreduction in the level of third party funds in which we have invested ascapital is returned. We also expect a strong flow of liquidity from our quotedportfolio. As we receive these funds we will deploy them into directinvestments where we can control management and capital, provide insight andoversight and, subject to available opportunities, make follow on investmentsin these portfolio companies. We continue to see a number of investmentopportunities but are cautious in our approach. We seek to invest up to £30million (via initial investment and subsequent expansion capital) in companieswhich have a history of growth and profits, an experienced management team andare in the sectors of energy, consumer, or applied technology, software &services: these are areas where we can demonstrate we are the partner of choiceand can add real value.To date in 2010 we have begun the change that we expect to result in consistentand superior growth in NAV. We have acquired stakes in two excellent companies(Apogee and NEP) and expect these investments to be very valuable to ourshareholders. As we seek new investments we are ever conscious of themacroeconomic environment and are aware of the current difficulties facing theUS and the UK (our primary geographies of focus) but the deals we do are pricedto reflect the reality of 2010 not the hubris of 2007. Robert A Rayne ChairmanGlenn Payne Chief Executive Officer10 August 2010
LMS Capital plc - Major investments by valuation 30 June 2010
Name Geography Type of Investment Date of Book initial Value investment £000 Quoted investments Weatherford US Oilfield services 1984 17,944 Prostrakan UK Specialty pharmaceuticals 1999 11,793 Gulfmark Offshore US International offshore services 2008 4,367 Direct Investments Method Products* US Consumer products 2004 18,657 Updata Infrastructure UK Wide area networks 2009 13,000 Rave Reviews Cinemas US Cinema operations 2002 8,408 HealthTech Holdings US Hospital information systems 2007 8,364 Nationwide Energy Partners US Energy service provider 2010 8,088 Apogee Group UK Digital printing solutions 2010 7,902 Penguin Computing* US Linux server systems 2004 6,036 Wesupply Limited UK Supply chain connectivity software 2000 5,500 Luxury Link* US Internet commerce 2006 5,117 Entuity Limited UK Network management software 2000 5,000 Elateral Limited UK Marketing software 2000 4,500 Yes To, Inc* US Consumer products 2008 3,840 Fund Investments Brockton UK Real estate 2006 13,362 (Funds I & II) BV Investment Partners US Media and communications 1996 8,722 (Funds V, VI & VII) Weber Funds US Micro-cap listed technology companies 1999 6,259 (Funds GW 2001, I & II)
Spectrum Equity Investors US Communications, media,
information services 1999 5,851 (Funds III & IV) Brynwood Partners US Consumer products 2004 5,003 (Fund V) Scottish Equity Partners (Funds II & III) UK Information technology, healthcare and energy 2001 4,657 Amadeus Capital UK Technology 1998 4,045 (Funds I & II)
*San Francisco Equity Partners manages these investments
Condensed consolidated income statement
Six months Six months ended ended 30 June 2010 30 June £'000 2009 Notes £'000 Continuing operations
Revenue from sales of goods and
services 2 24,225 13,293 Gains and losses on investments 3,640 (4,665) Interest income 21 135 Dividend income 28 46 Other income from investments 281 89 28,195 8,898 Operating expenses (34,085) (22,198) Loss before finance costs (5,890) (13,300) Finance costs (641) (153) Loss before tax (6,531) (13,453) Taxation (784) (127) Loss for the period (7,315) (13,580) Attributable to: Owners of the Company (8,336) (13,580) Non-controlling interests 1,021 - (7,315) (13,580)
Basic and diluted loss per ordinary
share 3 (3.1)p (5.0)p
The notes on pages 15 to 23 form part of these financial statements.
Condensed consolidated statement of comprehensive income
Six months Six months ended ended 30 June 30 June 2010 2009 £'000 £'000 Loss for the period (7,315) (13,580)
Exchange differences on translation of foreign 118
(395)operations Total comprehensive loss for the period (7,197) (13,975) Attributable to: Owners of the Company (8,218) (13,975) Non-controlling interests 1,021 - (7,197) (13,975)
The notes on pages 15 to 23 form part of these financial statements.
Condensed consolidated statement of financial position
30 June 31 December 2010 2009 Notes £'000 £'000 Non-current assets Property, plant and equipment 11,743 7,057 Intangible assets 4 29,152 29,525 Investments 195,882 188,133 Other long term assets 17 80 Non-current assets 236,794 224,795 Current assets Inventories 711 812 Operating and other receivables 14,652 10,768 Cash and cash equivalents 16,715 16,950 Current assets 32,078 28,530 Total assets 268,872 253,325 Current liabilities Bank overdrafts (482) (369) Interest-bearing loans and borrowings 5 (18,134) (2,394) Operating and other payables (13,211) (7,921) Deferred income (7,051) (8,704) Current tax liabilities (1,839) (1,007) Current liabilities (40,717) (20,395) Non-current liabilities Interest-bearing loans and borrowings (5,021) (4,795) Deferred income (2,679) (2,116) Deferred tax liabilities (616) (401) Other long-term liabilities (183) - Non-current liabilities (8,499) (7,312) Total liabilities (49,216) (27,707) Net assets 219,656 225,618 Equity Share capital 27,265 27,265 Capital redemption reserve 5,635 5,635 Merger reserve 84,083 84,083 Foreign exchange translation reserve 1,130 1,012 Retained earnings 98,853 106,773 Equity attributable to owners of the 216,966 224,768Company Non-controlling interests 2,690 850 Total equity 219,656 225,618
The financial statements on pages 10 to 23 were approved by the Board on 10 August 2010 and were signed on its behalf by:
G PayneDirector
The notes on pages 15 to 23 form part of these financial statements.
Condensed consolidated statement of changes in equity
Six months ended 30 June 2010
Capital Redemption Merger Translation Non - Share Retained controlling Total capital Reserve Reserve Reserve earnings Total interests equity £'000 £'000 £'000 £'000 £'000` £'000 £'000 £'000 Balance at 1 January 2010 27,265 5,635 84,083 1,012 106,773 224,768 850 225,618 Loss for the - - - (8,336) (8,336) 1,021 (7,315)period Other comprehensive income - - - 118 - 118 - 118 Distribution to non-controlling interests - - - - - - (147) (147) Acquisition of portfolio subsidiary - - - - - - 966 966 Share based payments - - - - 416 416 - 416 Balance at 30 June 2010 27,265 5,635 84,083 1,130 98,853 216,966 2,690 219,656 Six months ended 30 June 2009 Capital Redemption Merger Translation Non - Share Retained controlling Total capital Reserve Reserve Reserve earnings Total interest equity £'000 £'000 £'000 £'000 £'000` £'000 £'000 £'000 Balance at 1 January 27,265 5,635 84,083 1,212 122,741 240,936 147 241,083 2009 Loss for the - - - - (13,580) (13,580) (13,580)period Other comprehensive income - - - (395) - (395) - (395) Share based - - - - 373 373 - 373 payments Balance at 30 June 2009 27,265 5,635 84,083 817 109,534 227,334 147 227,481
The notes on pages 15 to 23 form part of these financial statements.
Condensed consolidated cash flow statement
Six months Six months ended ended 30 June 2010 30 June £'000 2009 £'000
Cash flows from operating activities
Loss for the period (7,315) (13,580) Adjustments for: Depreciation and amortisation 1,130 591
Impairment of intangible assets 7,394
-
(Gains)/losses on investments (3,640)
4,665
Loss on disposal of property, plant and -
28equipment Translation differences (284) 370 Share based payments 416 373 Finance costs 641 153 Interest income (21) (135) Income tax expense 784 127 (895) (7,408) Change in inventories 99 (72) Change in trade and other receivables (1,202)
1,753
Change in trade and other payables 1,251 (2,646) (747) (8,373) Interest paid (641) (153) Income tax paid (131) - Net cash used in operating activities (1,519) (8,526)
Cash flows from investing activities
Interest received 21 135 Acquisition of property, plant and equipment (2,409)
(544)
Proceeds from disposal of property, plant and -
2equipment Acquisition of investments (14,041) (10,958) Acquisition of subsidiaries (7,450) - Proceeds from sale of investments 10,193
5,308
Net cash used in investing activities (13,686) (6,057)
Cash flows from financing activities Distribution to non-controlling interests (147)
-
Drawdown of interest bearing loans 14,881
(179) Net cash from financing activities 14,734 (179) Net decrease in cash and cash equivalents (471)
(14,762)
Effect of exchange rate fluctuations 123
(216)
Cash and cash equivalents at the beginning of 16,581 42,615the period Cash and cash equivalents at the end of the 16,233 27,637period
Cash and cash equivalents above comprise
Cash and cash equivalents 16,715 27,822 Bank overdrafts (482) (185) Cash and cash equivalents at the end of the 16,233 27,637period
The notes on pages 15 to 23 form part of these financial statements.
Notes to the financial information:
1. Principal accounting policies
Reporting entity
LMS Capital plc ("the Company") is domiciled in the United Kingdom. Thesecondensed consolidated financial statements are presented in pounds sterlingbecause that is the currency of the principal economic environment of theCompany's operations. The condensed consolidated financial statements of theCompany for the six months ended 30 June 2010 comprise the Company and itssubsidiaries (together "the Group").
These condensed consolidated financial statements do not constitute the statutory accounts of the Group within the meaning of section 434(3) and 435(3) of the Companies Act 2006.
The comparative figures for the financial year ended 31 December 2009 are notthe Company's statutory accounts for that financial year. Those accounts havebeen reported on by the Company's auditors and delivered to the registrar ofcompanies. The report of the auditors was (i) unqualified, (ii) did not includea reference to any matters to which the auditor drew attention by way ofemphasis without qualifying their report, and (iii) did not contain a statementunder section 498(2) of the Companies Act 2006.The Company was formed on 17 March 2006 and commenced operations on 9 June 2006when it received the demerged investment division of London MerchantSecurities. The consolidated financial statements are prepared as if the Grouphad always been in existence. The difference between the nominal value of theCompany's shares issued and the amount of the net assets acquired at the dateof demerger has been credited to merger reserve.The Company is an investment company but because it holds majority stakes incertain investments it is required to prepare group accounts that consolidatethe results of such investments. The results of the Group's investment businesson a stand alone basis are set out in Note 2. Statement of compliance These condensed consolidated financial statements have been prepared inaccordance with IAS 34: Interim Financial Reporting as adopted by the EU. Theydo not include all of the information required for full annual financialstatements and should be read in conjunction with the annual financialstatements for the year ended 31 December 2009 which were prepared inaccordance with International Financial Reporting Standards as adopted by theEU("Adopted IFRS").As required by the Disclosure and Transparency Rules of the Financial ServicesAuthority, the condensed consolidated financial statements have been preparedapplying the accounting policies and presentation that were applied in thepreparation of the Company's published consolidated financial statements forthe year ended 31 December 2009.Taking account of the financial resources available to the Group, the directorsbelieve that the Group is well placed to manage its business riskssuccessfully. After making enquiries the directors have a reasonableexpectation that the Company and the Group have adequate resources to continuein operational existence for the foreseeable future. Accordingly they continueto adopt the going concern basis in preparing the condensed consolidatedfinancial statements for the six months ended 30 June 2010.
These condensed consolidated financial statements were approved by the Board of Directors on 10 August 2010.
Notes to the financial information
1. Principal accounting policies (continued)
Significant accounting policies
Except as described below, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2009.
Accounting for business combinations
From 1 January 2010 the Group has applied IFRS 3: Business Combinations (2008)in accounting for business combinations. The change in accounting policy hasbeen applied prospectively and had no material impact on the loss per share forthe period. Transaction costs, other than those associated with the issue ofdebt or equity securities, that the Group incurs in connection with a businesscombination are expensed as incurred.
Under IFRS 3 (2008) the Group has elected to measure any non - controlling interest at the proportionate interest in the fair value of the identifiable assets and liabilities of the acquiree on a transaction by transaction basis.
Basis of consolidation
The financial statements comprise the financial statements of the Company and its subsidiary undertakings up to 30 June 2010. The Company's subsidiary undertakings fall into two categories:
* Investment companies through which the Group conducts its investment
activities; and
* Certain portfolio companies which form part of the Group's investment
activities but which, by virtue of the size of the Group's shareholding or
other control rights, fall within the definition of subsidiaries under Adopted IFRS ("portfolio subsidiaries"). The portfolio subsidiaries are included within the consolidated financial information although they continue to be managed by the Group as investments held for capital appreciation. Note 10 includes details of the companies concerned.
Use of estimates and judgements
The preparation of condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
Notes to the financial information
2. Operating segments
The information below has been prepared using the definition of an operatingsegment in IFRS 8: Operating Segments. The Group determines and presentsinformation on operating segments based on the information that is providedinternally to the directors to enable them to assess performance and allocateresources.As an investment company, the Group's primary focus is on the performance ofits investment management business. Financial information for this segment isprepared on the basis that all investments are accounted for at fair value.
The information set out below therefore presents summarised financial information for the investment management business on a stand alone basis, together with the adjustments arising from the summarised results and financial position of the portfolio subsidiaries.
The consolidation adjustments included below reflect the adjustments necessaryto restate the portfolio subsidiaries from the basis included in the investmentmanagement segment (investments carried at fair value) to full consolidation inthe Group's financial statements. Segment profit or loss Six months ended 30 June 2010 Reconciliation Investment Portfolio Consolidation Group management total subsidiaries adjustments £'000 £'000 £'000 £'000 Revenues from sales of - 24,225 - 24,225goods and services Gains and losses on 812 - 2,828 3,640investments Interest income 16 5 - 21 Dividend income 28 - - 28 Other income from 298 - (17) 281investments Impairment of intangible - - (7,394) (7,394)assets Finance costs (85) (3,469) 2,913 (641) Loss for the period (2,539) (3,065) (1,711) (7,315) Six months ended 30 June 2009 Reconciliation Investment Portfolio Consolidation Group management total Subsidiaries adjustments £'000 £'000 £'000 £'000 Revenues from sales of - 13,293 - 13,293goods and services Gains and losses on (10,709) - 6,044 (4,665)investments Interest income 133 2 - 135 Dividend income 46 - - 46 Other income from 89 - - 89investments Finance costs - (3,345) 3,192 (153) (Loss)/profit for the (15,474) (7,342) 9,236 (13,580)period
Notes to the financial information
2. Operating segments (continued)
Segment net assets 30 June 2010 Reconciliation Investment Portfolio Consolidation management subsidiaries Group total adjustments £'000 £'000 £'000 £'000 Property, plant and 101 11,642 - 11,743equipment Intangible assets - 11,760 17,392 29,152 Investments 230,270 - (34,388) 195,882 Other non-current - 17 - 17assets Non-current assets 230,371 23,419 (16,996) 236,794 Cash and cash 12,490 4,225 - 16,715equivalents Other current 515 15,016 (168) 15,363assets Total assets 243,376 42,660 (17,164) 268,872 Total liabilities (17,492) (88,625) 56,901 (49,216) Net assets/ 225,884 (45,965) 39,737 219,656(liabilities)
The net asset value of the investment management business at 30 June 2010 is wholly attributable to the equity holders of the Company.
31 December 2009 Reconciliation Investment Portfolio Consolidation Group management subsidiaries adjustments total £'000 £'000 £'000 £'000 Property, plant and 158 6,899 - 7,057equipment Intangible - 11,817 17,708 29,525assets Investments held at fair value through 215,632 1 (27,500) 188,133profit or loss Other non-current - 80 - 80assets Non-current 215,790 18,797 (9,792) 224,795assets Cash and cash 14,416 2,534 - 16,950equivalents Other current 462 11,182 (64) 11,580assets Total assets 230,668 32,513 (9,856) 253,325 Total (2,802) (79,519) 54,614 (27,707)liabilities Net assets/ 227,866 (47,006) 44,758 225,618(liabilities) The net asset value of the investment management business at 31 December 2009includes £227,719,000 attributable to the equity holders of the Company and £147,000 attributable to non-controlling interests.
Notes to the financial information
2. Operating segments (continued)
The carrying amount and gain and losses of the investments of the investment management business can be further analysed as follows;
30 June 2010 31 December 2009 UK US Total UK US Total Asset type £'000 £'000 £'000 £'000 £'000 £'000 Funds 31,064 82,130 113,194 30,259 73,194 103,453 Quoted 13,695 26,625 40,320 17,274 34,601 51,875 Unquoted 45,370 31,386 76,756 39,849 20,455 60,304 90,129 140,141 230,270 87,382 128,250 215,632 Six months ended 30 June 2010 Six months ended 30 June 2009 Realised Unrealised Realised Unrealised gains/ gains/ gains/ gains/ (losses) (losses) (losses) (losses) Total Total Asset £'000 £'000 £'000 £'000 £'000 £'000type Funds 237 9,362 9,599 (52) (10,437) (10,489) Quoted 837 (8,412) (7,575) 799 10,485 11,284 Unquoted (5) (1,207) (1,212) 18 (11,522) (11,504) 1,069 (257) 812 765 (11,474) (10,709) Revenues
The Group's revenues to external customers comprise:
Six months ended Six months ended 30 June 30 June 2010 2009 £'000 £'000 Continuing operations Software and related services 20,849 8,411 Specialist manufacturing 2,357 4,882
Meter reading and billing services 1,019
- 24,225 13,293
Notes to the financial information
3. Basic and diluted loss per ordinary share
The calculation of basic loss per ordinary share is based on the loss of £ 8,336,000 (six months ended 30 June 2009: loss of £13,580,000), being the loss for the period attributable to the owners of the Company, divided by the weighted average number of ordinary shares in issue during the period 272,640,952 (six months ended 30 June 2009: 272,640,952).
There was no dilution effect in either period.
4. Intangible assets Software Licence Goodwill Total £'000 £'000 £'000Cost Balance at 1 January 2009 and 30 June 2009 2,088 40,656 42,744 Balance at 1 January 2010 2,088 48,094 50,182 Acquisitions through business - 7,077 7,077combinations Balance at 30 June 2010 2,088 55,171 57,259 Accumulated impairment losses and amortisation Balance at 1 January 2009 57 15,889 15,946 Amortisation 57 - 57 Impairment loss - - - Balance at 30 June 2009 114 15,889 16,003 Balance at 1 January 2010 170 20,487 20,657 Amortisation 56 - 56 Impairment loss 1,862 5,532 7,394 Balance at 30 June 2010 2,088 26,019 28,107 Carrying amounts At 1 January 2009 2,031 24,767 26,798 At 30 June 2009 1,974 24,767 26,741 At 1 January 2010 1,918 27,607 29,525 At 30 June 2010 - 29,152 29,152 For the purpose of impairment testing, goodwill is allocated to each portfoliosubsidiary which represents the lowest level within the Group at which thegoodwill is monitored for internal management purposes. The recoverable amountof each unit has been determined on the basis of its fair value less costs tosell or value in use, whichever is the greater.
Notes to the financial information
4. Intangible assets (continued)
An analysis of goodwill is set out below:
Goodwill impairment recognised in the six months ended 30 June Carrying amount 2010 2009 30 June 31 December 2010 2009 £'000 £'000 £'000 £'000 ITS (US) Holdings Inc - - 1,508 1,508 Entuity Limited - - 4,981 4,981 Wesupply Limited - - 5,120 5,120 CopperEye Limited 1,426 - - 1,426 Kizoom Limited 3,388 - 1,733 5,121 Citizen Limited 718 - - 718 Updata Infrastructure - - 8,733 8,733UK Ltd Nationwide Energy - - 7,077 -Partners LLC 5,532 - 29,152 27,607 In the year ended 31 December 2009 the Group recognized a goodwill impairmentloss of £4,598,000, including £1,585,000 in respect of CopperEye Limited, £1,806,000 in respect of Kizoom Limited and £1,143,000 in respect of CitizenLimited.
5. Interest-bearing loans and borrowings
At 30 June 2010 interest-bearing loans and borrowings include £14,598,000 in respect of the drawdown by the Company of the full amount of its borrowing facility with The Royal Bank of Scotland (31 December 2009: Nil).
6. Capital commitments 30 June 2010 31 December 2009 £'000 £'000Outstanding commitments to funds 53,016 58,709 53,016 58,709
The outstanding commitments to funds comprise unpaid calls in respect of funds where a member of the Group is a limited partner.
7. Related party transactions
Transactions with related parties during the period were consistent in nature and scope with those disclosed in Note 28 to the Group's annual financial statements for the year ended 31 December 2009.
8. Contingent liabilities
The Company has guaranteed the indebtedness of certain of the Group's investments; the amount outstanding under these arrangements at 30 June 2010 was £1.7 million.
Notes to the financial information
9. Acquisition of subsidiary
The following acquisition was made during the period ended 30 June 2010:
Nationwide Energy Partners LLC
In May 2010 the Group acquired 56.3% of the issued share capital of Nationwide Energy Partners LLC ("NEP").
The acquisition had the following effect on the Group's assets and liabilitieson the acquisition date - the following values have been determined on aprovisional basis: Pre-acquisition carrying amounts £'000 Property, plant and equipment 3,331 Intangibles 1 Operating and other receivables 2,682 Loans and borrowings (1,086) Operating and other payables (2,761) Net identifiable assets 2,167 Group share of net identifiable 1,201assets Goodwill on acquisition 7,077 Consideration paid 8,278
No adjustments were made to pre-acquisition carrying amounts. The operating and other receivables comprise gross contractual amounts due of £2,922,551, of which £240,859 was expected to be uncollectable at acquisition date.
Of the total consideration, £7,450,000 was paid on completion and the remainder is payable in May 2011.
The goodwill is attributable to the expected profitability of the acquired business. None of the goodwill is expected to be deductible for tax purposes.
NEP is an energy service provider in Columbus, Ohio and provides owners ofmulti unit residential properties with outsourced meter reading, billing andcollection services for water and electricity accounts. In the one month to 30June 2010 the company contributed a profit of £173,000 to the consolidatedresults of the Group. If the acquisition had occurred on 1 January 2010,management estimates that consolidated revenue would have been £29,008,000 andthe consolidated loss for the period would have been £6,958,000.
Notes to the financial information
10. Subsidiaries
The subsidiaries comprising the Group's investment management business (as set out in Note 2) are as follows:
Holding Country of Name incorporation % Activity LMS Capital Group Limited England and Wales 100 Investment holding
Lion Cub Investments Limited England and Wales 100 Dormant Lion Cub Property Investments England and Wales 100 Investment
Limited holding
LMS Capital Holdings Limited England and Wales 100 Investment
holding LMS Capital (ECI) Limited England and Wales 100 Investment holding Lion Investments Limited England and Wales 100 Investment holding
LMS Capital (Bermuda) Limited Bermuda 100 Investment
holding LMS Capital (GW) Limited Bermuda 100 Investment holding
LMS Capital (General Partner) Bermuda 100 Investment
Limited holding Tiger Investments Limited England and Wales 100 Investment holding LMS Tiger Investments (II) England and Wales 100 Investment Limited holding
International Oilfield Services Bermuda 100 Investment
Limited holding Westpool Investment Trust plc England and Wales 100 Investment holding LMS Tiger Investments Limited England and Wales 100 Investment holding
Lion Property Investments Limited England and Wales 100 Investment
holding
Lioness Property Investments England and Wales 100 Investment
Limited holding LMS NEP Holdings, Inc United States of 100 Investment America holding
In addition to the above, the Group's carried interest arrangements are operated through three limited partnerships (LMS Capital 2007 LP, LMS Capital 2008 LP and LMS Capital 2009 LP) which are registered in Bermuda.
The following companies form part of the Group's investment activities but, byvirtue of the size of the Group's shareholding or other control rights, fallwithin the definition of subsidiaries under IFRS. These portfolio subsidiariesare included within the consolidated financial information although theycontinue to be managed by the Group as investments held for capitalappreciation. Holding Country of Name incorporation % Activity Citizen Limited England and 84 Services to the advertising, Wales publishing and graphic arts industries CopperEye Limited England and 76 Specialised search solutions for Wales business transaction data Entuity limited England and 68 Network management software Wales Kizoom Limited England and 94 Urban digital networks and Wales intelligent transport systems Nationwide Energy United States 56.3 Energy services provider Partners LLC of America ITS (US) holdings United States 100 Specialist engineering design and Inc of America fabrication Updata England and 53.3 Carrier-class networks Infrastructure Wales Holdings Limited Wesupply Limited England and 98 Supply chain management software Wales
Statement of directors' responsibilities
We confirm that to the best of our knowledge:
a) the condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and
b) the interim management report includes a fair review of the information required by:
i) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication ofimportant events that have occurred during the first six months of the currentfinancial year and their impact on the condensed consolidated financialstatements, and a description of the principal risks and uncertainties for theremaining six months of the year; and
ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.
G Payne Chief Executive Officer AC SweetChief Financial Officer 10 August 2010 ----
Independent review report to LMS Capital plc
Introduction
We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30 June2010 which comprises the condensed consolidated income statement, the condensedconsolidated statement of comprehensive income, the condensed consolidatedstatement of financial position, the condensed consolidated statement ofchanges in equity, the condensed consolidated cash flow statement and therelated explanatory notes. We have read the other information contained in thehalf-yearly financial report and considered whether it contains any apparentmisstatements or material inconsistencies with the information in the condensedset of financial statements.This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the Disclosureand Transparency Rules ("the DTR") of the UK's Financial Services Authority("the UK FSA"). Our review has been undertaken so that we might state to theCompany those matters we are required to state to it in this report and for noother purpose. To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the Company for our review work, forthis report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.
As disclosed in note 1, the annual financial statements of the Group areprepared in accordance with IFRSs as adopted by the EU. The condensed set offinancial statements included in this half-yearly financial report has beenprepared in accordance with IAS 34 Interim Financial Reporting as adopted bythe EU.Our responsibilityOur responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity issued by the AuditingPractices Board for use in the UK. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financialand accounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordancewith International Standards on Auditing (UK and Ireland) and consequently doesnot enable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express anaudit opinion.ConclusionBased on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended 30 June 2010 is not prepared, in allmaterial respects, in accordance with IAS 34 as adopted by the EU and the DTRof the UK FSA.Anthony Cecilfor and on behalf of KPMG Audit PlcChartered Accountants8 Salisbury SquareLondon EC4Y 8BB10 August 2010
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