Lms Capital Regulatory News (LMS)

29 July 2013

LMS Capital plc

Half Year Results for the six months to 30 June 2013

The Board of LMS Capital plc, ("LMS Capital" or "the Company"), is pleased to announce the Company's half year results for the six months to 30 June 2013.

·; In June the Directors announced a second tender offer amounting to £35 million which, if approved at today's general meeting of shareholders, will bring the total returned to shareholders so far to £75 million.

·; Proceeds of realisations in the period were £29.9 million (2012: £10.1 million), including £20.8 million (2012: £0.6 million) from unquoted investments and £8.2 million (2012: £8.3 million) from funds.

·; Overheads in the investment management business were £1.8 million in the first half, down from £3.0 million in the corresponding period last year.

·; Net Asset Value per share at 30 June 2013 was 90p (31 December 2012: 85p). Net Asset Value was £203.1 million (31 December 2012: £192.1 million). Approximately 64% of the investment portfolio is denominated in US dollars (31 December 2012: 56%).

·; The investment portfolio showed a net gain of £12.6 million (2012: net loss of £1.2 million) including the effect of unrealised net currency gains of £7.4 million (2012: net losses of £1.2 million).

·; Outstanding commitments to funds were £8.8 million at the end of June 2013, down from £10.4 million at the end of 2012.

·; The consolidated profit for the period (including portfolio subsidiaries) was £10.5 million (2012: loss of £3.9 million).

Martin Knight, Chairman of LMS Capital, said:

"We are pleased to have achieved further realisations during the first half of 2013 and been able to announce a second tender offer for £35 million, bringing the total value returned to shareholders since the commencement of the realisation strategy to £75 million. In addition to the return of cash, over the same period of time the discount in the share price compared to NAV has narrowed considerably.

The investment portfolio is performing well and we believe that it has the potential to release significant cash to shareholders in the medium term."

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

Tim McCall

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 in the consumer, energy and business services sectors.

www.lmscapital.com

Half year review 2013

Overview

The Company's focus is to implement the strategy approved by shareholders at the general meeting on 30 November 2011, to conduct 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.

Accordingly, no investments have been or 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 portfolio as a whole is being managed with a view to progressively returning funds to shareholders over a period of time.

In June 2013 the Directors announced a second tender offer which, if approved at today's general meeting of shareholders, will bring the total returned to shareholders so far to £75 million.

The Company's performance to date in 2013 is in line with the Board's expectations. The Company's investments are continuing to perform satisfactorily and our focus is on transforming this performance into suitably timed realisations at appropriate valuations. The Directors continue to monitor opportunities within the secondary market (in particular for its fund interests) but do not currently believe that accepting significantly discounted values for investments to achieve earlier cash proceeds is in the best interests of shareholders within the overall objectives of the realisation strategy.

There are active sales processes underway on a number of the Company's investments. It is difficult to predict the outcome in terms of timing and proceeds; however the directors remain satisfied with progress to date.

Results

Realisation proceeds in the first half of 2013 were £29.9 million (2012: £10.1 million), including:

·; £16.0 million from the sale of Apogee;

·; £3.3 million from the sale of Pims Group;

·; Other receipts from the unquoted portfolio of £1.5 million;

·; distributions from our fund interests of £8.2 million (2012: £8.3 million);

·; £0.9 million from sales of quoted investments.

Additions to the portfolio in the first six months of 2013 were £3.7 million (2012: £4.5 million), principally capital calls by funds which amounted to £2.5 million (2012: £3.8 million).

At 30 June 2013 we had net cash of £43.8 million (31 December 2012: £20.1 million) and uncalled commitments to funds of £8.8 million (31 December 2012: £10.4 million).

For the six months to 30 June 2013, the gains and losses on our portfolio were as follows:

Approximately 64% of the portfolio at 30 June 2013 is denominated in US dollars (31 December 2012: 56%); it remains the Board's policy not to hedge the Company's underlying non-sterling investments.

The gain on our quoted portfolio reflects the impact of the changes in the capital markets during the period and includes £4.4 million attributable to our holding in Weatherford International.

The gain on direct investments reflects the results of the directors' valuation as at 30 June 2013 as well as a realised gain of £1.2 million on the sale of Apogee (compared to our closing 2012 carrying value). As set out above, the direct portfolio has continued to perform satisfactorily; the valuation exercise did not result in significant valuation changes in aggregate.

Details of our largest investments by valuation at 30 June 2013, representing about 74% of the total portfolio, are set out on page 6.

Consolidated results

The half year financial information includes the consolidation of portfolio companies which are also subsidiaries ("portfolio subsidiaries"). Note 2 to the financial information includes an analysis of the results and net assets of the investment management business and reconciles these to the consolidated results including the portfolio subsidiaries.

The increase in consolidated revenues for the first six months of 2013 compared to the corresponding period in 2012 reflects the overall improved performance of the portfolio subsidiaries, in particular Updata and Nationwide Energy Partners. The consolidated profit for the period (compared to the consolidated loss in the corresponding period last year) includes a contribution from the portfolio subsidiaries of £3.5 million (2012: £0.2 million). It also reflects that the return on the investment portfolio in the investment management business was a gain of £12.6 million (2012: loss of £1.2 million).

As regards the individual companies:

·; Updata - installation and management of high performance business networks. Revenues in the first half were £21.3 million, a 70% increase on the corresponding period last year. This reflects the company's recent success in winning new contracts, many of which have been installed and come on stream in the first half of 2013.

·; Nationwide Energy Partners - provision of energy services. Revenues grew by 38% compared to the first half of 2012, also a reflection of its recent success in winning and implementing new contracts.

·; Entuity - network management software. Revenues for the first six months of 2013 were 15% ahead of the corresponding period in 2012.

·; Wesupply - electronic data interchange managed service provider. Revenues were slightly higher than the first half last year; after a slow start to the year the company has seen momentum increase from the second quarter onwards.

·; 365iTMS- provider of managed IT services. Revenues were 4% ahead of the first half of 2012 and strict cost control has significantly improved profitability.

Principal risks and uncertainties

The principal risks and uncertainties that affect the Group are described on pages 19 and 20 of the Group's Annual Report for the year ended 31 December 2012. These are still considered the most relevant risks and uncertainties which the Group faces and they could have an impact on the Group's performance in the second half of the financial year.

There are a number of risks which could adversely affect the business of the Group, the most significant of which in the context of current market conditions are:

·; The Group is subject to economic factors (such as the market demands of the sectors in which its investments operate) which may negatively impact the performance and growth rates of the Company's investments which may result in the Company's Net Asset Value and net income declining.

·; A lack of liquidity in the capital markets and an increased aversion to risk on the part of potential buyers could mean that the Company may not be able to realise its investments in line with planned timings and values. This could impact the timing and amount of capital returned to shareholders under the Company's asset realisation strategy.

·; 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. It is the Board's current policy not to hedge the Company's underlying non-sterling investments.

·; Failure to maintain the appropriate investment management resource could adversely affect investment returns.

Outlook

The investment portfolio is performing well in terms of underlying trading and overall valuation. Following the disposal of sterling assets the portfolio is weighted around 64% to US dollar denominated investments. The realisation strategies around individual assets continue to progress and produce results.

Nick Friedlos

Director

29 July 2013

LMS Capital plc Appendix

Principal investments by valuation - 30 June 2013

*San Francisco Equity Partners manages these investments.

Condensed consolidated income statement

Condensed consolidated statement of

comprehensive income

Condensed consolidated statement

of financial position

The financial statements on pages 7 to 18 were approved by the Board on 29 July 2013 and were signed on its behalf by:

N Friedlos

Director

Condensed consolidated statement

of changes in equity

Six months ended 30 June 2013

Six months ended 30 June 2012

Condensed consolidated cash flow statement

Notes to the financial information

1. Principal accounting policies

Reporting entity

LMS Capital plc ("the Company") is domiciled in the United Kingdom. These condensed consolidated financial statements are presented in pounds sterling because that is the currency of the principal economic environment of the Company's operations. The condensed consolidated financial statements of the Company for the six months ended 30 June 2013 comprise the Company and its subsidiaries (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 2012 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor on the Company's statutory accounts for the financial year ended 31 December 2012 was (i) unqualified and (ii) drew attention by way of emphasis without qualifying their report to the accounts no longer 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 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.

The Company is an investment company but because it holds majority stakes in certain investments it is required to prepare group accounts that consolidate the results of such investments. The results of the Group's investment business on a standalone basis are set out in Note 2.

Statement of compliance

These condensed consolidated financial statements have been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the EU. They do not include all of the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2012 which were prepared in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRS").

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed consolidated financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2012.

On 30 November 2011 the 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 condensed consolidated financial statements have not been prepared on a going concern basis.

Taking account of the financial resources available to the Group, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries the directors have a reasonable expectation that the Company and the Group have adequate resources for the foreseeable future.

These condensed consolidated financial statements were approved by the Board of Directors on 29 July 2013.

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 2012.

Basis of consolidation

The financial statements comprise the financial statements of the Company and its subsidiary undertakings up to 30 June 2013. The Company's subsidiary undertakings fall into two categories:

o Investment companies through which the Group conducts its investment activities; and

o 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.

The European Union (EU) has indicated that it expects to endorse IFRS 10 in late 2013. IFRS 10 will then become mandatory with effect from 1 January 2014 with early adoption permitted. IFRS 10 will require the Company to account for its controlled portfolio companies at fair value, rather than consolidating these companies as subsidiary undertakings which is currently the case. The Company intends to early adopt this standard at the point it is endorsed by the EU and based on current indications this will apply to the consolidated financial statements for the year ending 31 December 2013.

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

2. Operating segments

The information below has been prepared using the definition of an operating segment in IFRS 8: Operating Segments. The Group determines and presents information on operating segments based on the information that is provided internally to the directors to enable them to assess performance and allocate resources.

As an investment company, the Group's primary focus is on the performance of its investment management business. Financial information for this segment is prepared 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 standalone 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 necessary to restate the portfolio subsidiaries from the basis included in the investment management segment (investments carried at fair value) to full consolidation in the Group's financial statements.

Segment profit or loss

Segment net assets

The net asset value of the investment management business is wholly attributable to the equity holders of the parent.

The carrying amount and gain and losses of the investments of the investment management business can be further analysed as follows:

Revenues

The Group's revenues to external customers comprise:

3. Earnings/(loss) per ordinary share

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

There was no dilution effect on the loss for the six months ended 30 June 2012.

4. Investments

The Group's investments comprise:

5. Capital commitments

The outstanding commitments to funds comprise unpaid calls in respect of funds where a member of the Group is a limited partner.

6. Related party transactions

Transactions with related parties during the period were consistent in nature and scope with those disclosed in Note 29 to the Group's annual financial statements for the year ended 31 December 2012.

Statement of directors' responsibilities

The Directors who served during the six months ended 30 June 2013 and their respective responsibilities are as set out on pages 10 and 11 of the Group's Annual Report for the year ended 31 December 2012. Mr Christou and Mr Sebba retired from the Board after the Annual General Meeting on 20 May; Mr Knight became Chairman and Mr Lerner was appointed a member of the Remuneration Committee on that date.

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 of important events that have occurred during the first six months of the current financial year and their impact on the condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining 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.

N Friedlos AC Sweet

Director Chief Financial Officer

29 July 2013

Independent review report to LMS Capital plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this 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 FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Iain Bannatyne

for and on behalf of KPMG Audit PlcChartered Accountants8 Salisbury Square

London EC4Y 8BB

29 July 2013