Lms Capital Regulatory News (LMS)

18 March 2016

LMS Capital plc

Preliminary Results for the year ended 31 December 2015

The Board of LMS Capital plc, ("LMS Capital" or "the Company"), is pleased to announce the Company's preliminary results for the year ended 31 December 2015.

Martin Knight, Chairman of LMS Capital, said:

"In 2015 the Board made further progress in implementing the asset realisation strategy approved by shareholders in November 2011 and we were able to make a fourth distribution to shareholders. This distribution brought to £155 million the amount returned so far to shareholders and equates to 100% of the Company's market capitalisation at the beginning of the realisation strategy.

As the Company's investment portfolio reduces in size, your Board is focussed on optimising shareholder value in a cost effective manner."

For further information please contact:

LMS Capital plc 020 7935 3555

Nick Friedlos, Director

Tony Sweet, Chief Financial Officer

J.P. Morgan Cazenove 020 7742 4000

Michael Wentworth-Stanley

MHP Communications 020 3128 8794

Katie Hunt

About LMS Capital

LMS Capital is an investment company which, following a general meeting on 30 November 2011, is undertaking a realisation strategy with the aim of achieving a balance between an efficient return of cash to shareholders and optimising the value of the Company's investments. Its investment portfolio consists of small to medium sized companies across a range of sectors.

www.lmscapital.com

The Company's ten largest investments by valuation at 31 December 2015 were as follows:

*A portfolio company of San Francisco Equity Partners.

The above represent 83% of the investment portfolio.

Chairman's statement

In 2015, your Board has continued to progress the realisation strategy approved by shareholders at the general meeting on 30 November 2011.

Realisation proceeds to date

This year, realisations from the portfolio were £43.7 million and, in December, £40.0 million was returned to shareholders by way of a tender offer.

At the commencement of the realization strategy, the market capitalisation of the Company was approximately £153.0 million and the Net Asset Value at the end of 2011 was £245.0 million. Since then, a total of £155.0 million has been returned to shareholders by way of tender offers; the Net Asset Value of the Company at 31 December 2015 was £95.1 million.

The capital returned equates to 100% of the Company's market capitalisation at the time of the November 2011 general meeting and around 63% of the Net Asset Value at the end of 2011.

At the year end the Company had cash of £6.1 million; the Board will consider a further return of capital in the light of realisations in the coming year. The Board is not recommending payment of a dividend for the year ended 31 December 2015 (2014: £nil).

Portfolio performance

Net Asset Value per share at the end of 2015 was 92p, a 1% decrease from 93p a year ago.

Total portfolio net gains (realised and unrealised) for the year before carried interest charges were £6.6 million (2014: £16.6 million), the key elements of which were:

The portfolio net gains for the year include unrealised exchange gains of £3.6 million (2014: £5.9 million).

Managing the portfolio

Your Board regularly reviews the realisation plan for the portfolio on an asset by asset basis to ensure that there is a clear plan which balances the twin aims of concluding the realisation process and optimising value for shareholders. For its direct investments, the Company generally has control of or significant influence over a realisation process and monitors the performance of each company directly with its management. For funds and co-investments the Company may have a degree of influence but no control. The Company monitors these investments by maintaining regular dialogue with the fund manager or lead investor and actively monitors opportunities to realise value in established secondary markets.

Your Board will continue to take measures to contain overheads as part of its consideration of how best to manage the portfolio as it continues to reduce in size.

Conclusion and outlook

The realisation strategy has placed special demands on a smaller management team and your Board would like to extend its appreciation to all the Company's employees for their contribution in 2015.

Your Board believes that the investment portfolio will continue to release cash to shareholders in the medium term. World markets continue to exhibit volatility against the background of uncertain conditions in a number of global economies and your Board will follow developments closely as it continues the orderly wind-down of the business in the coming year.

Martin Knight

Chairman

18 March 2016 

Strategic report

LMS Capital plc is an international investment company whose shares are traded on the London Stock Exchange. At the general meeting on 30 November 2011 shareholders approved proposals to modify the Company's objectives and its investment policy. The revised investment policy is to conduct an orderly realisation of the assets of the Company, to be effected in a manner that seeks to achieve a balance between an efficient return of cash to shareholders and maximising the value of the Company's investments.

This report is in four parts:

1. Objectives and strategy

The focus of the Company's Directors is to optimise realisations from the investment portfolio and return the proceeds to shareholders. The investment portfolio comprises publicly quoted and private company investments in the UK and the US held directly and through funds. To date returns to shareholders have taken the form of tender offers and the Directors expect the use of tender offers to continue as the realisation strategy progresses.

Under the terms of the realisation strategy, no investments will be made in new opportunities. Follow-on investments will be made in existing assets to honour commitments made at the time of the initial investment and/or to which the Company is legally obligated, or where the investment is made to protect or enhance the value of an existing asset or to facilitate its orderly realisation.

The Company's investment portfolio is managed by appropriately qualified and experienced investment professionals. Since the change in strategy at the end of 2011, the Company has sought to reduce its overall costs and this process has included headcount reductions.

Overall management of the business is the responsibility of the two Executive Directors. Mr Friedlos has responsibility for overseeing the orderly realisation of the assets of the Company; financial and secretarial matters are the responsibility of Mr Sweet. Both act within delegated authority limits and in accordance with clearly defined systems of control.

The Board regularly reviews reports prepared by the Executive Directors on the realisation prospects for each portfolio holding in the context of the Company's overall objectives, including the factors affecting the likely amount and timing of the realisations. These factors include:

The Directors' intention is that the realisation of the portfolio should be substantially complete within the next two years. However, recent uncertainty in financial markets may significantly impact the timing of future realisations and hence this overall target timetable. Shareholders should note that as well as general market conditions progress with the realisation strategy is subject to a number of other uncertainties including the future performance of investee companies, the actions of other shareholders in investee companies (in particular where the Company is a minority investor) and the level of mergers and acquisitions activity across the geographies relevant to the Company's assets. The Board will keep shareholders informed on progress through the Company's half-yearly and annual reports, and significant individual realisations will be announced as appropriate.

2 Review of performance in 2015

The following are the key performance indicators for 2015:

Notes

1. The cumulative column refers to the four years from 1 January 2012.

2. Market capitalisation at the time of the November 2011 general meeting to approve the realisation strategy.

3. Net Asset Value at the end of 2011.

Net cash realisations from the portfolio in the year were as follows:

The principal follow-on investments during 2015 were:

· £0.4 million to Nationwide Energy Partners as part funding for an acquisition; and

· £0.3 million to provide working capital for Elateral, one of our UK direct investments.

In December 2015, the Directors made the fourth return of cash to shareholders under the realisation strategy by way of a tender offer.

The principal factor in the results for the year is the return on the investment portfolio which was as follows:

Approximately 66% of the portfolio at 31 December 2015 is denominated in US dollars (31 December 2014: 64%) and the above table includes the impact of currency movements. In the year ended 31 December 2015, the strengthening of the US dollar against pound sterling (year on year) resulted in an unrealised foreign currency gain of £3.6 million (2014: unrealised gain of £5.9 million). As is common practice in private equity investment, it is the Board's current policy not to hedge the Company's underlying non-sterling investments.

Charges for incentive plans include £1.4 million (2014: £2.7 million) for carried interest and £0.6 million (2014: credit of £0.2 million) in respect of the Executive Directors' incentive plan.

Quoted investments

The loss on the quoted portfolio reflects the net impact of the changes in the capital markets during the year. The total net loss of £1.0 million (2014: loss of £0.8 million) arose as follows:

The share price of Weatherford International continued to be impacted significantly by low world oil prices.

 At the end of 2015 our quoted holdings were valued at £9.8 million (31 December 2014: £20.3 million), of which our interest of 1,419,000 shares (31 December 2014: 1,845,000 shares) in Weatherford International, at £8.1 million (31 December 2014: £13.6 million), continues to be the principal element.

Direct investments

The realised net gain on our direct investments was £8.9 million (2014: £11.5 million), including £8.3 million (2014: £10.3 million) on sales of investments and £0.6 million (2014: £1.2 million) interest and dividend income. In 2015 the most significant contributor to this was the sale of Wesupply which realised a gain of £6.5 million (2014: all related to the sale of Updata).

The unrealised net valuation increase was £1.1 million (2014: £3.8 million), of which unrealised foreign currency gains were £2.0 million (2014: £2.1 million). Changes in valuations reflect a combination of two factors:

In most cases the multiples we used this year are similar to those prevailing at the end of 2014 and therefore the unrealised gains or losses set out in the table below arise principally as a result of the companies' performance or other market-related factors.

Valuation adjustments were as follows:

Factors reflected in the valuation of individual companies in the table above were as follows:

Other companies:

Fund interests

The return on our funds portfolio for the year was a net loss of £2.5 million (2014: net gain of £2.0 million). Unrealised currency gains were £1.0 million (2014: £1.9 million). The principal valuation movements in 2015 were:

The maturity of our funds portfolio is reflected in the related cash flows during 2015. Distributions from funds were £11.6 million (2014: £10.4 million) and calls paid were £0.4 million (2014: £1.7 million). The principal distributions were from Voreda (which completed the sale of its principal asset) £6.5 million, SFEP (which sold The Guild and received escrow proceeds from an earlier disposal) £2.0 million and Inflexion £1.4 million.

We are the majority investor in SFEP (as opposed to our other fund interests where we have only a minority stake) and at the end of 2015 the carrying value of our interest was £11.8 million (31 December 2014: £16.3 million). The principal remaining investments in its portfolio at 31 December 2015 are Yes To (£6.2 million (2014: £7.1 million) - consumer sector) and Penguin Computing (£5.2 million (2014: £5.0 million) - technology sector).

Our other fund holdings at the end of 2015 (excluding SFEP) had a book value of £28.0 million (31 December 2014: £46.3 million), and include the following principal interests:

The above holdings represent 90% of the funds portfolio (excluding SFEP).

For the valuation of our fund interests we utilise reports from the general partners of our funds as at the end of the third quarter in establishing our year end carrying value, with adjustments made for calls, distributions and foreign currency movements since that date. We also carry out our own review of individual funds and their portfolios to satisfy ourselves that the underlying valuation bases are consistent with our basis of valuation and knowledge of the investments and the sectors in which they operate.

Other income statement items

As well as the investment portfolio return, the profit for the year of £0.5 million (2014: £10.3 million) includes the following:

· Directors' and other fees from portfolio companies were £0.1 million (2014: £0.1 million);

· The recurring overhead costs in 2015 were £3.3 million (2014: £3.6 million);

· One off costs associated with the proposed change in investment strategy were £0.8 million;

· Interest income for the year was £78,000 (2014: £26,000); and

· The tax charge for the year was £0.3 million (2014: £0.4 million).

Financial resources and commitments

Cash holdings were £6.1 million (31 December 2014: £9.2 million) with no debt. At 31 December 2015 the Group had commitments of £4.0 million (31 December 2014: £7.0 million) to meet outstanding capital calls from its fund interests.

Employees

The number of employees (including directors) was as follows:

The Directors do not consider that information on environmental matters and social, community and human rights issues is necessary for an understanding of the development, performance or position of the Company's business; this information is therefore included in the Directors' Report.

3 Principal risks and uncertainties

The Board is responsible for risk management and for ensuring that the Group has an effective internal control framework. On behalf of the Board the Audit Committee has responsibility for ensuring that the Group has an effective process to identify, document and assess those risks which might impact the Group's performance and its achievement of its strategy. This process, which is overseen by the Executive Directors, includes reporting the mitigating action taken to address the risks identified.

The Group's risk profile derives from 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. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity and a summary of the principal risks and uncertainties that could have a material adverse effect on the Group's strategy, performance and financial condition is set out below.

4 Viability statement

Taking into account the Company's current position (as set out in the Chairman's statement and this Strategic report) and the principal risks and uncertainties set out above, the Directors have assessed the Company's prospects and viability over a period longer than twelve months from the date of approval of this Annual report.

The Directors concluded that the appropriate period for this assessment should be the two years commencing 1 January 2016 since this period is expected to see the Company's realisation strategy substantially complete. This assessment has included consideration of the following:

Taking account of the above factors the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of this assessment. However the nature of the realisation strategy means that the Company is not a going concern but it has viability during the period of the implementation of that strategy.

By order of the Board

Nicholas Friedlos

Director

18 March 2016

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated cash flow statement

Notes

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 consolidated financial statements of the Company for the year ended 31 December 2015 comprise the Company and its subsidiaries (together "the Group").

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 consolidated financial statements are prepared as if the Group had always been in existence. The difference between the nominal value of the Company's shares issued and the amount of the net assets acquired at the date of demerger has been credited to merger reserve.

Basis of preparation

This financial information has been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union ("Adopted IFRS") although the financial information in this announcement is not sufficient to comply with Adopted IFRS.

On 30 November 2011 shareholders approved a change in the investment policy of the Company with the objective of conducting an orderly realisation of the assets of the Company in a manner that seeks to achieve a balance between an efficient return of cash to shareholders and maximising the value of the Company's investments. As the Directors intend to liquidate the Company following the realisation and settlement of the remaining net assets, which may be over a number of years, these consolidated financial statements have not been prepared on a going concern basis. The accounting policies adopted are consistent with those of the previous financial year.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2015 or 2014 but is derived from those accounts. Statutory accounts for 2014 have been delivered to the registrar of companies, and those for 2015 will be delivered in due course. The auditor has reported on those accounts; their report on the accounts for 2015 was (i) unqualified and (ii) drew attention by way of emphasis without qualifying their report to the accounts not being prepared on a going concern basis and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. Their report on the accounts for 2013 was (i) unqualified, (ii) drew attention by way of emphasis without qualifying their report to the accounts not being prepared on a going concern basis and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The financial statements have been prepared on the historical cost basis except for investments held at fair value through profit or loss which are measured at fair value

2. Net gains on investments

Gains and losses on investments were as follows:

Charges for incentive plans include £1,348,000 (2014: £2,723,000) for carried interest and £603,000 (2014: £261,000 credit) in respect of the Executive Directors' incentive plan.

3. Earnings per ordinary share

The calculation of the basic and diluted earnings per share, in accordance with IAS 33, is based on the following data:

4. Capital commitments

The outstanding commitments to funds comprise unpaid calls in respect of funds where a member

of the Group is a limited partner.