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18 Apr 2011 12:58
LMS CAPITAL PLC ("the Company")
2010 ANNUAL REPORT AND NOTICE OF 2011 ANNUAL GENERAL MEETING
The Company has today published the LMS Capital 2010 Annual Report and Shareholders Update & Notice of the 2011 Annual General Meeting. These documents are available in the Investor Relations section on the LMS Capital website, www.lmscapital.com. This follows the release on 28 March 2011 of the Company's Preliminary Results Announcement for the year ended 31 December 2010 ("the Preliminary Results").
In compliance with 9.6.1 of the Listing Rules the Company has submitted to the UK Listing Authority, via the National Storage Mechanism, copies of the LMS Capital 2010 Annual Report and Shareholders Update & Notice of the 2011 Annual General Meeting.
The LMS Capital 2010 Annual Report will be filed with the Registrar of Companies in due course and copies can be obtained from The Company Secretary, LMS Capital plc, 100 George Street, London, W1U 8NU.
The Annual General Meeting will take place on Thursday 12 May 2011 and the total of the votes cast by shareholders for or against and withheld on each resolution to be put to the meeting will be published in the Investor Relations section on the Company's website, www.lmscapital.com, on or shortly after Thursday 12 May 2011.
The Disclosure and Transparency Rules (DTR) require that an announcement of the publication of an Annual Report should include the disclosure of such information from the Annual Report as is of a type that would be required to be disseminated in a Half-yearly Report in compliance with the DTR 6.3.5(2) disclosure requirement. Accordingly, the following disclosures are made in the five Appendices below. References to page numbers and notes to the accounts made in the following five Appendices refer to page numbers and notes to the accounts in the LMS Capital 2010 Annual Report.
Appendix A - Audit Reports
The Preliminary Results include a condensed set of financial statements. Audited financial statements for 2010 are contained in the LMS Capital 2010 Annual Report. The Independent Auditor's Report on the financial statements is set out in full on pages 37 to 38. The audit report is unqualified and does not contain any statements under section 498(2) or section 498(3) of the Companies Act 2006.
Appendix B - Directors' Responsibility Statement
The following statement is extracted from page 36. This statement relates solely to the LMS Capital 2010 Annual Report and is not connected to the extracted information set out in this announcement nor to the Preliminary Results.
The directors' confirm that to the best of their knowledge:
• the financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the Directors' report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Appendix C - Principal Risks and Uncertainties
The following is extracted in a full and unedited form from pages 22 to 23:
This section provides a summary of the principal risks and uncertainties that could have a material adverse effect on the Group's strategy, performance and financial condition. The Group has an ongoing process for identifying, evaluating and managing risk with the aim of mitigating the impact of the risks and uncertainties to which the business is exposed. This process provides reasonable, rather than absolute, assurance in managing risk and cannot eliminate it.
The Group's risk profile is a combination of two elements - the Group's own strategy, including the actions taken within that strategic framework, and the effects of changes in the external economic environment in which it operates, including the impact on the companies in its investment portfolio. In reviewing and approving the Group's strategy, the Board took into account the risks which could have a material effect on the achievement of the Group's objectives, as well as the risks associated with alternative strategies. It then satisfied itself that the Group's risk management process was appropriate in the context of the agreed strategy.
The Audit Committee oversees the Group's risk management process and is provided with a report on risk management at each of its meetings. The management of specific risks is the responsibility of the executive directors and members of the Group's senior management team. The principal risks and uncertainties summarised below are not set out in order of probability of occurrence or materiality;
the Group may also be adversely affected by other risks and uncertainties besides those described here.
Economic and financial risk
The Group is subject to economic factors (such as the demand and output of the environments in which its investments operate) which may negatively impact the performance and growth rates of the Company's investments. The investment portfolio may not achieve the Company's growth targets which may result in the Company's Net Asset Value and net income declining. We seek to mitigate the potential impact of this by monitoring the trading performance and cash flows of our portfolio companies on a regular basis which allows us to act quickly should there be a need to do so.
Many of our investments produce little or no recurring income and the timing of realisations of unquoted investments (which itself may be a function of background economic conditions) cannot be ascertained with certainty. Accordingly, we rely on our detailed budgeting and forecasting procedures to ensure that the cash requirements of the Group are met.
A lack of liquidity in the capital markets could mean that the Company may not be able to raise funds for its corporate purposes, including the funding of new or existing investments. The Board regularly reviews the Company's funding requirements and believes it has sufficient funds to meet its expected cash obligations for the foreseeable future. The Company has a revolving credit facility of £15 million, which was almost fully drawn down at 31 December 2010. We can also raise funds from the sale of our quoted portfolio investments if required.
The Group is subject to the impact of changes in market prices for its quoted investments, as well as to movements in interest rates and exchange rates. A significant proportion of our investment portfolio is denominated in a currency other than pounds sterling, principally US dollars. Changes in the value of the US dollar affect the valuation of the Company's US investments, and therefore impact the valuation of the portfolio as a whole. The Group regards its exposure to exchange rate changes on the underlying investment as part of its overall investment return and monitors its overall exposure to foreign currencies at a portfolio level. Any realisations or distributions from US investments are retained in US dollars to be utilised for future investments.
The Group has made investments and by virtue of these investments may be obliged to make further capital contributions. Whilst the maximum amount of the future commitment is known, the timing of such capital calls cannot be predicted with certainty and the monitoring of this exposure is included in the Group's budgeting and forecasting procedures referred to above.
Investment risk
The Group's investment risk arises as a result of its investment strategy, individual investment decisions and the performance of its investments. Before the Group makes a new investment, we undertake rigorous diligence into the business concerned. We understand the company's business plan; evaluate information on its marketplace and competition; meet management, directors and existing shareholders and we commission reports from external experts as necessary. This includes consideration of potential exit routes from the proposed investment.
Our investment management process requires regular reporting of the performance and prospects of each investment. This is usually achieved by board representation or equivalent at each investment. The experience of the executive management team is a key factor in mitigating our risk of loss on individual investments. The progress of each investment is reported regularly to the Board.
There may not be a clear exit route for the Company from any individual investment which could result in negative liquidity and have a cash flow impact on the Company. If an investment is not performing well, and is absorbing too much of the Group's resources (both financial and human), the Company will seek an exit from that investment. If necessary, the Company will seek a solvent closure of any investment where we consider this to be in the Company's best interest.
Operational risk
The Group has a number of internal processes and systems to ensure that it complies with all legal and regulatory obligations, as well as internal controls designed to ensure the integrity of its financial information and reporting. The Audit Committee, on behalf of the Board, regularly reviews these systems, which include reports on the Company's risk management procedures.
The ability to recruit, develop and retain capable people is of fundamental importance to the Group's strategy and the loss of key staff could adversely affect investment returns. The Group operates in a competitive industry and aims to remunerate staff in line with market practice.
Appendix D - Related Party Transactions
The following is extracted in a full and unedited form from page 34:
In January 2011, the Company moved office to 100 George Street, London W1U 8NU. The landlord of this property is Derwent London plc. Robert Rayne is also non-executive Chairman of Derwent London plc. Weatherford International Limited, who were previously subletting a floor of Carlton House, 33 Robert Adam Street, London W1U 3HR (the Company's previous office) contributed £ 450,000 towards the Company's office move so that it could take on the lease for the whole of Carlton House. Both Robert Rayne and Bernard Duroc-Danner are directors of Weatherford International Limited and LMS Capital plc holds shares in Weatherford International Limited. Independent legal advice was sought by all parties on these transactions.
Appendix E - Important Events During The Year
The following is extracted in full from page 1:
The most significant developments during the year were:
A refined strategic focus for the Company:
(1) LMS Capital will pursue direct investments in growing, profitable businesses where we can use our expertise to contribute to their growth and performance;
(2) This focus will primarily be in the energy, consumer and business services sectors where our investment team has demonstrable expertise;
(3) Realisations from our existing quoted, direct and fund investments are expected to provide the liquidity required to implement this strategy;
We made the following new investments:
(1) Apogee, a fast growing UK print solutions company - we acquired a 32.8% interest for £7.9 million;
(2) Nationwide Energy Partners, an energy services company in the US - we invested $14.1 million (£9.7 million) for a 59.5% stake;
(3) Zoom Eyeworks was acquired by San Francisco Equity Partners - our investment was $7.0 million (£4.7 million);
We sold a number of quoted investments where gains of £1.1 million were realised; and
We exited certain legacy investments which were unable to sustain themselves as standalone businesses - Citizen (Vio) and Corizon - and Kizoom sold its software business.
Matthew JonesCompany Secretary
18 April 2011
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