LMS Capital plc

LMS Capital plc
Report and Accounts

For the year ended 31 December 2016

LMS Capital plc

Contents

1

2

3

5

Highlights

Corporate information

Chairman’s statement

Strategic report

10 Investment portfolio – principal holdings

11 Manager’s review

20 The Manager

23 Board of Directors

25 Corporate governance report

32 Audit Committee report

37 Remuneration Committee report

41 Directors’ remuneration policy

44 Directors’ report

47 Statement of Directors’ responsibilities

48 Independent auditor’s report

52 Financial statements and notes

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Highlights

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At the general meeting on 16 August 2016 shareholders voted in favour
of proposals to change the Company’s investment strategy so that the
Company may now make new investments focused on private equity
opportunities. On the same date the Company appointed Gresham
House Asset Management Limited to manage its investment portfolio.

The meeting also approved a further tender offer which returned
£6 million to shareholders, bringing to £161 million the amount returned
since the beginning of the realisation strategy in 2012. The Company also
undertook to return up to a further £11 million to shareholders on the
basis of realisations from the existing investment portfolio.

The net asset value at 31 December 2016 was £68.1 million, 71p per
share (31 December 2015: £95.1 million, 92p per share).

The 23% decline in NAV per share reflects a disappointing performance
from the investment portfolio particularly in the second half of 2016.
Net losses on the investment portfolio were £16.2 million (2015: gains
of £6.6 million) leading to an overall loss for the year of £20.8 million
(2015: profit of £0.5 million).

GHAM has initiated a staged approach to achieving the objectives
outlined in 2016 including: optimising the value of existing assets,
reducing costs and facilitating the return of capital to shareholders
before investing in line with the new investment policy and seeking to
grow the business.

Corporate Information

2

Directors
M Knight
R Birkett
B Duroc-Danner
N Lerner
The Hon RA Rayne

Secretary
Augentius Corporate Services Limited
2 London Bridge
London SE1 9RA

Investment Manager
Gresham House Asset Management Limited
Octagon Point
5 Cheapside
London EC2V 6AA
Tel: 020 3837 6270

AIFM
G10 Capital Limited
136 Buckingham Palace Road
London SW1W 9SA

Auditor
BDO LLP
55 Baker Street
London W1U 7EU

Brokers
J.P. Morgan Cazenove
25 Bank Street
London E14 5JP

Bankers
Barclays Bank plc
1 Churchill Place
London E14 5HP

Registrars
Capita Asset Services
The Registry 34 Beckenham Road
Beckenham Kent BR3 4TU
Tel: (UK) 0871 664 0300
(Outside UK) +44 (0)20 8639 3399
Email: ssd@capitaregistrars.com

Solicitors
Travers Smith
10 Snow Hill
London EC1A 2AL

Company website
The Company’s website provides further information on
the Company’s strategy and investments, as well as
information for shareholders.
www.lmscapital.com

Registered office
100 George Street
London W1U 8NU

Registered number 5746555

Financial calendar 2017
Annual General Meeting – 25 May
Half-year results – August

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Chairman’s Statement

2016 was a transformational year for the Company. In August shareholders voted to change the Company’s investment
policy and at the same time your Board, with the support of shareholders, took the decision to appoint Gresham House
Asset Management Limited (“GHAM”) or “the Manager” to manage the Company’s operations. The GHAM team has a
successful investment track record, underpinned by proven operating and technical expertise in private and public
equity investments.

The Company has also acquired shares in Gresham House plc (parent company of GHAM) to align the Company’s
interests in the long term with those of the Manager. The Company’s interest is currently 801,985 ordinary shares and
909,908 warrants to subscribe for ordinary shares exercisable at 323.27p per share no later than 30 June 2018.

Change of investment objective
The first seven months of the year saw the continuation of the realisation strategy which the Company had been following
since November 2011. However, your Board was aware that as the realisation strategy progressed and the Company reduced
in size, its expense ratio would likely deteriorate. The Company could also have been seen as a forced seller of its investments
impacting its ability to maximise value through longer term engagement. In consequence, potential shareholder returns
from continuing with the realisation strategy were therefore likely to be lower than those achieved historically.

Your Board believed that a change in the investment objective would present an attractive alternative to the existing
realisation strategy. At a general meeting on 16 August shareholders approved a change to a policy predominantly
focused on private equity investment whilst optimising the value of existing assets.

At the same time shareholders approved a return of capital of £6 million (by way of a tender offer and associated
repurchase of shares). This was completed on 1 September and brought to £161 million the amount returned to
shareholders since November 2011.

The Company has also undertaken to make two further tender offers up to a combined maximum of £11 million. The first
of these up to £6 million will be made when net realisation proceeds from the existing portfolio reach £12 million.
Realisations since the circular sent to shareholders on 27 July have totalled £6.9 million and your Board and GHAM are
focused on initiating and progressing sale processes for appropriate holdings.

Performance review
Net Asset Value per share at the end of 2016 was 71p, slightly higher than announced on 25 January, but a 23% decrease
from 92p a year ago.

Portfolio losses (realised and unrealised) for the year before carried interest charges were £16.2 million (2015: gains of
£6.6 million), the key elements of which were:

● Unquoted investments contributed net losses of £15.9 million (2015: net gains of £10.1 million), most of which arose

on three US investments – ICU Eyewear, Medhost and Nationwide Energy Partners;

● Quoted investments generated a net loss of £1.3 million for the year (2015: net loss of £1.0 million); and

● Our fund interests showed net gains of £1.0 million (2015: net loss of £2.5 million).

The portfolio losses for the year are stated after the impact of exchange gains of £11.6 million (2015: gains of £6.2
million), primarily due to the weakness of sterling against the US dollar.

Overhead costs were £3.3 million, similar to the previous year (2015: £3.2 million). One-off charges (including staff
redundancy and surplus property costs) were £2.2 million; as a result of these there will be future benefits from annual
overhead cost savings targeted at £1 million which are expected to start during the first half of 2017.

Board composition
In June we welcomed Rod Birkett as a non-executive Director. Rod has over 25 years’ experience in the investment
company sector.

Bernard Duroc-Danner has confirmed that he will not be standing for re-election at the forthcoming 2017 AGM and I
should like to take this opportunity to thank Bernard for his contribution to the Company over the last ten years.

Chairman’s Statement

4

Following the appointment of GHAM, Nick Friedlos and Tony Sweet resigned as Directors and I should like to thank
them for their role in the management of the Company. They now form part of the GHAM team managing the
Company’s operations.

As a result of these changes, your Board is now wholly non-executive.

Conclusion and outlook
2016 was a transformational year for the Company. The performance of the investment portfolio in the second half of the
year was disappointing but following the appointment of GHAM as investment manager the Board looks forward to
improved performance in 2017 and beyond.

Martin Knight
Chairman

14 March 2017

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Strategic Report

LMS Capital plc is an investment company whose shares are traded on the London Stock Exchange.

Investment objective and strategy
Until 16 August 2016 the Directors of the Company were conducting an orderly realisation of the assets of the Company,
in line with the strategy previously approved by shareholders at a general meeting in November 2011. The focus of
the Company was to optimise realisations from the investment portfolio and return the proceeds to shareholders.
No investments were made in new opportunities; follow-on investments were made in existing assets to honour
commitments made at the time of the initial investment and/or to which the Company was legally obligated, or where
the investment was made to protect or enhance the value of an existing asset or to facilitate its orderly realisation.

At a general meeting on 16 August 2016 shareholders voted to change the Company’s investment policy from the
realisation strategy to a new policy focused predominantly on private equity investment. At the same time Gresham
House Asset Management Limited (“GHAM” or “the Manager”) was appointed by the Board to manage the
Company’s assets.

The Company’s investment objective is to achieve total returns over the medium to longer term, principally through
capital gains and supplemented with the generation of a longer term income yield. The Company is targeting a return
on equity, after running costs, of between 12% and 15% per annum over the long-term on new capital invested.

The disposal proceeds of the Company’s existing portfolio less amounts required for working capital and net
of anticipated further returns of capital to shareholders (see below) will be invested in accordance with the
investment policy.

New investments will be primarily focused on direct private equity investments and specialist asset classes (including funds
managed by GHAM), with the majority of the portfolio expected to be invested in direct private equity opportunities.

No investment in any single company will (at the time of investment) represent more than 15% of the Company’s net
assets. Any investment in securities of a single company or investment fund, which represents more than 10% of the
Company’s net assets at the time the investment is made, requires the Board’s approval.

The Company may invest in public or private securities; investments may be made in the form of, inter alia, equity,
equity-related instruments, derivatives and indebtedness. The Company may hold controlling or non-controlling
positions and may invest directly or indirectly. The Company may also invest in Gresham House plc, to benefit from the
potential growth of GHAM.

The Company is not restricted to specific sectors; its assets are and will continue to be predominantly invested in the
United Kingdom, Europe and North America, with an increasing focus on the United Kingdom.

Indebtedness of the Company will not exceed 25% of net assets measured at the time of drawdown. The Company had no
indebtedness at 31 December 2016 or at the date of this report.

Further returns to shareholders
In the circular to shareholders dated 27 July 2016 the Company undertook to make two further returns of capital to
shareholders by way of tender offers. These returns of capital will in total represent 50% of the net proceeds of further
disposals of assets in the Company’s existing portfolio made after the date of the circular. These further tenders will be
for a maximum of £11 million and distributions of up to £6 million and up to £5 million are expected to be made. Both
these future tender offers will be at a 5% discount to the net asset value of the Company at the relevant time.

It is intended that the first of the tender offers will return up to £6 million to shareholders (after net realisation proceeds
from the Company’s existing portfolio, after the date of the Circular, exceed £12 million). It is intended that the second of
the tender offers will return up to £5 million to shareholders (after net realisation proceeds from the Company’s existing
portfolio, after the date of the Circular, exceed £22 million in total).

Strategic Report continued

6

Portfolio management
The Company’s operations are managed by Gresham House Asset Management Limited (“GHAM”) who was appointed
as the Manager on 16 August 2016. GHAM manages the Company’s assets and investments in accordance with guidelines
determined by the Directors and as specified in a formal portfolio management agreement. Further information about
GHAM can be found in the Manager’s Review on pages 11 to 19.

In order to comply with the requirements of the Alternative Investment Fund Managers Directive 2011, the Company has
appointed an alternative investment fund manager (“AIFM”). In due course, the Company’s AIFM will be GHAM, once
GHAM has obtained a variation of its permissions under Part 4A of the Financial Services and Markets Act 2000 to enable
it to act as a full-scope UK AIFM. For an initial period, however, before GHAM has obtained this permission, the Company
has appointed G10 Capital Limited (“G10 Capital”), a specialist provider of regulated services, as its initial AIFM and G10
Capital has delegated certain functions in relation to the portfolio management of the Company’s assets to GHAM.

The Company has appointed Ipes (UK) Limited as its depositary.

Under the AIFM and portfolio management agreement, the Manager is entitled to an annual management fee as follows:

a) 1.50% of the net asset value of the Company, to the extent that the Company’s net assets under management are £100

million or less;

b) 1.25% of the net asset value of the Company, to the extent that the Company’s net assets under management exceed

£100 million but are £150 million or less: and

c) 1.00% of the net asset value of the Company to the extent that Company’s net assets under management exceed

£150 million.

The Manager is also entitled to a performance fee on new investments which is designed to align the interests of GHAM,
as portfolio manager, with those of the Company. If certain hurdle return requirements are satisfied, GHAM earns a
performance fee of 15% of the gain in the net asset value of new investments made after 16 August 2016. No performance
fee will be payable in respect of investments held at the date of GHAM’s appointment.

GHAM is the regulated subsidiary of Gresham House plc, the specialist asset manager quoted on the Alternative
Investment Market of the London Stock Exchange. Its investment team has a successful track record, underpinned by
proven operating and technical expertise. GHAM adopts a differentiated and rigorous approach to private and public
equity investments through its specialist asset management strategies which are focused on capitalising on the growth in
demand for alternative investment strategies, illiquid assets and for discretionary co-investments.

A dedicated investment committee of GHAM is responsible for the Company’s portfolio and oversees the investment
appraisal process in relation to investments made in respect of the Company’s portfolio. The Company has the right to
nominate a member to this committee and as at the date of this report has exercised that right.

The committee assesses existing assets and new investment opportunities and is also responsible for approving due
diligence costs, abort costs exposure, capital allocation and appropriate risk management.

All investment opportunities are appraised by the investment team and a short list of deals progresses for review by the
Investment Committee. The Investment Committee assist in due diligence, investment appraisal and the team can
leverage their extensive network as required. The members of this committee are set out on page 20.

Representatives of GHAM are available to attend all meetings of the Board and provide regular reports on the investment
portfolio and the affairs of the Company generally. The performance of each underlying investment is monitored
regularly with commentary on trends and risks both company specific and market related. GHAM may also have
representatives on the boards of portfolio investment companies.

Distribution policy
In future the Company intends to return in the region of 30% of annual cash realised profits from new investments and in
so doing, to generate a dividend yield over the longer term.

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Performance
The following are the key performance indicators (“KPIs”) considered by the Board and the Manager in assessing the
Company’s performance against its objectives. These KPIs are:

Return on equity over the long-term

The Company’s objective is to achieve a return on equity (on new investments) of between 12% and 15% per year over the
long-term.

NAV per ordinary share total return

The Company’s net asset value per share total return was negative for the year ended 31 December 2016. This compared
with 16.8% for the FTSE All-Share Index.

Share price total return

The Company’s share price total return was negative over the year ended 31 December 2016.

Further information on the Company’s performance is given in the Chairman’s Statement on pages 3 to 4 and the
Manager’s Review on pages 11 to 19.

Personnel
The average number of Directors and staff was as follows:

Directors
Senior management
Other staff members

2016

2015

Male

Female

Total

Male

Female

Total

6
–
1

7

–
–
3

3

6
–
4

10

6
–
2

8

–
–
5

5

6
–
7

13

Environment
The Company has a limited direct impact upon the environment and there are few environmental risks associated with
the Company’s activities. Information on greenhouse gas emissions are set out in the Directors’ Report on pages 44 to 46.

Risk management and principal risks and uncertainties
On 16 August 2016 the Company appointed G10 Capital, an independent investment manager, as its AIFM to act in
accordance with the Company’s investment objective and the AIFMD rules. This includes portfolio management and risk
management services. At the same time GHAM was appointed to perform on behalf of G10 Capital day-to-day portfolio
management services.

GHAM is responsible for the ongoing process of identifying, evaluating, monitoring and managing the risks facing the
Company. The Board keeps G10 Capital’s and GHAM’s performance of these responsibilities under review as part of its
overall responsibility for ensuring that the Company has an effective risk management and internal control framework.

On behalf of the Board, the Audit Committee has responsibility for ensuring that the Company has an effective process
to identify, document and assess those risks which might impact the Company’s performance and its achievement of
its strategy.

The Board has carried out a robust assessment of the principal risks facing the Company throughout the year ended
31 December 2016, including those that would threaten its business model, future performance, solvency or liquidity. A
summary of the principal risks and uncertainties that could have a material adverse effect on the Company’s strategy,
performance and financial condition is set out below.

Strategic Report continued

8

Principal risks

Market risk

Economic instability, political uncertainty
and low growth in the markets where the
Company’s investments operate. Lack of
liquidity in capital markets.

Volatility in listed equity prices, foreign
currency rates and interest rates.

Consequences

Company procedures

Economic conditions may result in
reduced demand for the products
and services supplied by investee
companies. Such a negative impact
on performance and growth rates
may result in lower individual
company valuations resulting in a
decline of the Company’s NAV and
its failure to meet its return targets
and investment objective.

Regular monitoring of the trading,
cash flows and prospects (including
exit opportunities) of the
investment portfolio to identify the
impact on individual investments
and on the Company’s strategy.

At 31 December 2016 69% of the
Company’s investment portfolio
was denominated in US dollars.
Movements in the USD/GBP
exchange rate have a significant
impact on the Company’s NAV.

The Board regularly receives reports
on the Company’s foreign currency
exposure in its investment portfolio.
The Company does not currently
hedge its underlying non-sterling
investments.

Investment risk

Investments fail to perform in line with
original expectations or management’s
plans. Investment performance may be
impacted by competition, regulatory
changes or other market developments.

Where the Company has only minority
stakes in investments it may not be able to
influence performance initiatives or exit
strategy.

Poor performance by portfolio
companies may result in the
Company not meeting its
investment return objectives or its
realisation and cash distribution
plans. This could impact the NAV
and the market’s view of the
Company’s prospects, with a
consequent negative impact on its
share price.

Regular monitoring of the trading of
individual companies in the
investment portfolio as well as of
the Company’s overall investment
performance.

Financial risk

Many of the Company’s investments
produce little or no recurring income and
the timing of realisations to provide
working capital and liquidity cannot be
ascertained with certainty.

Failure to meet future financial
obligations (including capital calls
to funds) could expose the Company
to potential legal action and/or loss
of value (to a fund investment).

Working capital requirements
(including exposure to uncalled
fund commitments) are reviewed
regularly.

The Company has made investments in
private equity funds under the terms of
which it may be obliged to make further
capital contributions. Whilst the maximum
amount of the future commitment is
known, the timing of such capital
contributions cannot be predicted with
certainty.

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Principal risks

Consequences

Company procedures

Operational risk

Failure of the Company’s internal processes
and systems to ensure that it complies with
all legal, regulatory and financial reporting
obligations.

Reputational damage and/or
financial loss.

The Audit Committee, on behalf of
the Board, regularly reviews the
systems in respect of the principal
operational risks, as well as reports
on the Company’s related risk
management procedures.

Viability statement
The Directors have assessed the Company’s current position and prospects as described in the Chairman’s Statement and
the Manager’s Review, as well as the principal risks and uncertainties set out above.

The Directors concluded that the appropriate period for this assessment should be the three years commencing 1 January
2017 since this timeframe reflects the Company’s internal planning horizon as well as that of most of the companies in
which it is invested. Given the illiquid nature of much of its investment portfolio, investment/divestment decisions tend
to reflect a time period which can be up to three years.

In performing their assessment the Directors considered principally:

1. The Company’s liquidity forecast for the three years from 1 January 2017; and

2. The Manager’s latest report on the investment portfolio which includes (for every Board meeting) an assessment of
operational issues as well as broader market factors and each asset’s cash needs (if any) and likely future cash
generation (amount and timing).

The Directors’ consideration of these reports was made against the background of the following considerations:

● Many of the Company’s investments are in private companies for which the timing and amount of income and/or

realisation is uncertain;

● The Board has reviewed the liquidity of the Company and considered commitments to private equity investments,

long-term cash flow projections and the potential availability of gearing. It has also satisfied itself that assumptions
regarding future cash inflows are reasonable;

● The Company has undertaken to make further returns of capital to shareholders. These future returns will be made

only after ensuring that the Company has retained sufficient cash or other liquid resources to meet its working capital
requirements, including its obligations in the form of uncalled capital commitments to its fund interests;

● The Board has also considered likely downside risk in the value of marketable securities where realisations of these
form part of the liquidity forecast. This risk typically includes factors impacting the price of the security and the
exchange rate against £ sterling of the currency in which it is denominated;

● In making its assessment, the Board has taken into account the threats to the Company’s solvency or liquidity

incorporated in the principal risks and uncertainties and satisfied itself that they are being addressed as outlined
above.

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.

For and on behalf of the Board.

Martin Knight
Chairman

14 March 2017

Investment Portfolio – principal holdings

10

Carrying value – £12.1 million

Carrying value – £10.1 million*

% of NAV – 17.7%

Domicile – USA

% of NAV – 14.9%

Domicile – USA

Medhost provides technology services to the healthcare
sector in the US and focuses on optimising clinical
management and related administration, as well
as aiming to maximise revenue capture. It is a
co-investment with one of the Company’s fund interests,
Primus Capital, who are the lead investment manager.

Penguin Computing is one of the largest private suppliers
of enterprise and high-performance computing and cloud
computing solutions in North America. Its solutions
are based on open architectures and are made of
non-proprietary components from a variety of OEM
providers.

* includes the interest held by San Francisco Equity

Partners and the Company’s direct interest

Carrying value – £8.4 million

Carrying value – £3.9 million

% of NAV – 12.3%

Domicile – USA

% of NAV – 5.7%

Domicile – UK

Yes To develops innovative, natural, fun, and efficacious
beauty and personal care products that are free of all the
“nasties” and filled with all the “goodies.”

* includes the interest held by San Francisco Equity

Partners and the Company’s direct interest.

Elateral’s products enable marketing departments to
source content in any form and from any system. That
content can be customized in any size, shape, layout and
language to produce market-ready materials for
distribution, both online and offline.

Carrying value – £3.0 million

Carrying value – £2.1 million

% of NAV – 4.4%

Domicile – UK

% of NAV – 3.1%

Domicile – UK

Entuity has developed and sells an enterprise class
network management solution, with its target market
being businesses with medium to large enterprise
networks.

365iTMS is an IT services company that designs and
delivers information and communications technology
services and solutions for commercial and government
clients.

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Manager’s Review

Transition to external manager
GHAM has made significant progress since being appointed investment manager in August. With input from the LMS
Capital Board it has set out a staged approach towards achieving the objectives outlined in 2016.

The ‘first stage’ has been to transition to external management, including:

● Implementing a new investment process and governance structure, including the newly appointed Investment

Committee;

● Detailed review of portfolio holdings to frame future strategy and drive potential growth and liquidity opportunities;

● Significant engagement with the management teams of underlying portfolio investments in order to identify catalysts
for stabilisation, value creation and long term growth. This includes members of GHAM joining the boards of Entuity,
Elateral, Nationwide Energy Partners and 365iTMS;

● Appointing external administrators and driving targeted annualised cost savings.

The ‘second stage’ of development is focused on realisation and return of capital to shareholders alongside investing
appropriately to optimise the value of the portfolio where there is a clear plan for longer term value creation with
portfolio companies.

The ‘third stage’ will be focused primarily on new investment in direct private equity opportunities at the smaller end of
the market, leveraging the expertise, experience and network of the investment team and newly formed Investment
Committee. The team will also seek to scale the Company appropriately to generate additional shareholder value.

Investment approach
As a result of changes in 2016 to the investment policy, new investment is now focused predominantly on private equity
investment using the experience of the GHAM team in asset management, private equity and public markets:

● The manager will invest in and partner with management teams of profitable and cash generative businesses to create

value, targeting an annual return on equity of 12% -15% net of costs over the long-term;

● The focus will primarily be on smaller private companies below £50 million enterprise value where the manager

believes there to be significant market inefficiencies which create opportunities for superior long-term returns and to
leverage the experience of the investment team;

● The focus is on optimising the value of existing holdings and, where growth prospects are clear, to preserve and

support longer term value creation.

Market background
Equity markets were strong in 2016, especially in Q4, both in the UK and US, despite significant political uncertainty
with Brexit and the US presidential election, and pedestrian global growth. Expectations of fiscal loosening, increased
expenditure on infrastructure, a shift in focus to deregulation and reflationary pressures buoyed the stock markets in the
UK and US.

Last year also saw continued strong private equity activity. New capital raised for private equity has been significant over
the last three years as pension funds, endowments and institutions increase allocations to private equity, seeking above
market returns. Valuations have been driven to levels last seen in 2006/2007 with average multiples reaching around 14x
EBITDA in 2015 and remaining in excess of 10x in 2016.

A research study recently published by Preqin shows that 40% of investors surveyed intend to invest more capital in
private equity over the next year than in the last, compared with only 11% that plan to invest less. Almost half (48%) of
respondents plan to increase their allocations to private equity over the longer term; a further 46% will maintain their
allocations. Importantly these are some of the highest levels seen over the past six years.

12

Investors’ intentions for their private equity allocations over the long term, 2011 – 2016

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100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

27%

33%

39%

36%

52%

48%

61%

48%

49%

53%

43%

46%

19%

12%

16%

8%

6%

6%

Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Increase
Allocation

Maintain
Allocation

Decrease
Allocation

Source: Preqin 2017 Global Private Equity and Venture Capital report

This is driving increasing competition for deals, with the availability of debt resulting in continued high prices and
valuations, particularly we believe at the larger end of the market.

Median EBITDA Valuation

14

12

10

8

6

4

2

0

2006

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Bloomberg – Median EV/EBITDA for private equity buyouts valued at more than US$100 million

High valuations, increasing allocation and fund raising and increased competition for deals means private equity firms
have record levels of uninvested funds, particularly for the larger enterprise value deals.

However we believe that there are significant inefficiencies at the smaller end of the market, focusing on established
smaller private companies between £25 and £50 million enterprise value that are often overlooked, where there can be
less competition for deals and valuations are attractive. They tend to be off radar for venture and early stage funding
providers and sub-threshold for mid-market private equity investors. This creates an opportunity to generate superior
long-term returns.

Performance review
On 16 August 2016 GHAM was appointed to manage the affairs of the Company. This is the first Annual Report since
that appointment and since the change in investment strategy approved by shareholders at the general meeting on
16 August 2016.

This review covers:

1. The first seven months of the year during which the Company was undertaking a realisation strategy; and

2. Progress with implementation of the new investment objective since 16 August 2016.

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Change in accounting policy
With effect from 1 January 2016, the Company has adopted the amendment to IFRS 10 (Consolidated Financial
Statements) which requires it to report its operating subsidiaries (which act as the intermediate holding companies of
the investment portfolio) at fair value rather than consolidate them as previously. Amounts reported for the year ended
31 December 2015 have been restated – there was no change to 2015 reported net asset value.

Realisations in 2016
These were as follows:

Cash realisations from the investment portfolio – gross
Cash realisations from the investment portfolio – net
Cash returned to shareholders

Cash realisations from the portfolio were as follows:

Sales of investments
Capital restructurings and loan repayments
Distributions from funds

Total – gross

Fund calls
Other follow-on investments
Carried interest payments

Total – net

The principal follow-on investments were:

Year ended 31 December

2016
£’000

10,602
9,040
6,000

2016
£’000

5,927
–
4,675

10,602

(438)
(851)
(273)

2015
£’000

43,731
41,409
40,000

2015
£’000

29,350
2,756
11,625

43,731

(390)
(804)
(1,128)

9,040

41,409

● £522,000 (US$750,000) to ICU Eyewear to provide working capital and funding for new customer trials; and

● £300,000 to provide working capital for Elateral, a UK direct investment.

Net realisations of £9,040,000 in 2016 bring to £159.5 million the total of such net realisations since the commencement
of the realisation strategy on 1 January 2012. Including the £6.0 million returned to shareholders in 2016, total cash
returned during the same period was £161.0 million.

Realisations after the change in investment strategy were £1,974,000 to the end of 2016. To date in 2017 realisations
from the portfolio have been £4,925,000 including the following:

● The Company has concluded an agreement to a two stage sale of Nationwide Energy Partners for total consideration
of £7,703,000 (US$9,500,000), which was the Company’s carrying value at the end of 2016. The stage 1 payment of
US$4,500,000 was received on 23 January 2017. The second and final stage will be settled either as a one off
payment of US$5,000,000 in January 2018 or a loan note repayable with interest in instalments over 4 years.

● The Company has also agreed the realisation of its long-term and successful holdings in the Weber Capital funds at an
amount equal to the Company’s carrying value at the end of 2016. The realisation is expected to complete in stages
during the first half of 2017. The first stage has been completed and proceeds of US$1,300,000 have been received.
The balance is due to be paid in the second quarter of 2017.

Manager’s Review continued

14

Performance of the investment portfolio
Below is a summary of the Company’s investment portfolio:

Asset type

Quoted
Unquoted
Funds

31 December 2016

31 December 2015

UK
£’000

2,481
9,384
11,149

23,014

US
£’000

2,995
21,987
25,436

50,418

Total
£’000

5,476
31,371
36,585

73,432

UK
£’000

1,564
12,347
18,602

32,513

US
£’000

8,197
33,765
21,168

63,130

Total
£’000

9,761
46,112
39,770

95,643

The Company’s principal investments at 31 December 2016 comprising 80% of the total portfolio were:

Carrying value
31 December

% of Net
asset value

Name

Geography

Sector

Quoted investments
Weatherford International
Gresham House

Unquoted investments
Medhost Inc
Elateral
Entuity
365iTMS

Fund investments
San Francisco Equity Partners
Penguin Computing*
Yes To, Inc*

Others
Brockton Capital
Opus Capital Venture Partners
Eden Venture Partners

2016
£’000

2,909
2,481

12,070
3,900
3,000
2,100

US
UK

Energy
Financial

US Technology
UK Technology
UK Technology
UK Technology

US Technology
Consumer
US

10,133
8,387

UK
Property
US Technology
UK Technology

6,651
4,505
2,964

2015
£’000

8,064
–

14,157
4,250
4,500
3,500

6,834
7,089

12,339
5,424
4,085

2016

4.2%
3.6%

17.7%
5.7%
4.4%
3.1%

14.9%
12.3%

9.8%
6.6%
4.4%

*

includes holdings by SFEP and co-investments held by the Company

Basis of valuation:

● Quoted investments – bid price of security quoted on relevant securities exchange;

● Unquoted investments – multiple of revenues or earnings of comparable quoted companies with appropriate

discounts for marketability;

● Fund interests – based on amounts reported by the general partner unless the reported value is not in line with the

Company’s valuation policy.

The return on investments for 2016 was as follows:

2016

Restated
2015

Asset type

Quoted
Unquoted
Funds

Credit/(charge) for incentive plans

Operating and similar expenses of
subsidiaries

Realised

Unrealised
gains/(losses) gains/(losses)
£’000

£’000

(1,291)
(15,879)
492

9
–
491

500

Total
£’000

(1,282)
(15,879)
983

Realised

Unrealised
gains/(losses) gains/(losses)
£’000

£’000

1,511
8,948
2,518

12,977

(2,479)
1,142
(5,025)

(6,362)

(16,678)

(16,178)

737

(15,441)

(720)

(16,161)

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Total
£’000

(968)
10,090
(2,507)

6,615

(1,951)

4,664

(949)

3,715

The credit for incentive plans includes £737,000 (2015: charge £1,348,000) for carried interest and £nil (2015: charge
£603,000) in respect of the Executive Directors’ incentive plan.

Approximately 69% of the portfolio at 31 December 2016 is denominated in US dollars (31 December 2015: 66%) and the
above table includes the impact of currency movements. In the year ended 31 December 2016, the strengthening of the
US dollar against pound sterling (year on year) resulted in an unrealised foreign currency gain of £11,319,000 (2015:
unrealised gain of £3,565,000). 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.

Quoted investments

The loss on the quoted portfolio arose as follows:

Gains/(losses), net

Realised
Weatherford International
ChyronHego Corporation
Bond International
Other quoted holdings
Dividend income

Unrealised
Weatherford International
Bond International
Other quoted holdings
Unrealised foreign currency gains

Total net losses

2016
£’000

2015
£’000

(158)
–
155
10
2

9

(1,781)
71
(205)
624

(1,291)

(1,282)

709
777
–
–
25

1,511

(2,927)
93
(220)
575

(2,479)

(968)

During the year the Company sold 700,000 shares (2015: 426,000 shares) of its opening holding of 1,419,000 shares of a
long-term holding in Weatherford International for net proceeds of £3,820,000 (2015: £3,839,000). The losses on this
investment during the year (both realised and unrealised) reflect the continuing pressure on this company’s share price
during 2016.

Manager’s Review continued

16

Other sales during the year:

● The Company sold its entire holding in Imperial Innovations Group (now renamed Touchstone Innovations) for net

proceeds of £865,000, a £39,000 uplift on the 2015 closing value; and

● The Company sold 550,000 shares (around 70% of its holding) in Bond International Software for net proceeds of

£678,000, a gain of £155,000 over the opening 2016 value. This left 227,850 shares to participate in the liquidation of
the company; the first distribution from the liquidators – £287,000 – was received in January 2017; the final
distribution is not expected to be a significant amount.

The Company acquired its interest in Gresham House plc in line with the proposals set out in the circular to shareholders
dated 27 July 2016 and at the end of the year held:

● 801,985 ordinary shares; and

● 909,908 warrants to subscribe for ordinary shares exercisable at 323.27p per share. The warrants are exercisable no

later than 30 June 2018.

Unquoted investments

There were no purchases or sales of unquoted investments during 2016. The unrealised net loss was £15,879,000 (2015:
unrealised net gain of £1,142,000) after unrealised foreign currency gains of £6,454,000 (2015: gains of £1,959,000).

Valuations are sensitive to changes in the following two inputs:

● The operating performance of the individual businesses within the portfolio; plus

● Changes in the revenue and profitability multiples and transaction prices of comparable businesses, which are used in

the underlying calculations.

In most cases the multiples used this year are similar to those prevailing at the end of 2015 and therefore the unrealised
gains or losses set out in the table below arise principally as a result of the companies’ performance.

Valuation movements were as follows:

Name

ICU Eyewear
Medhost
Nationwide Energy Partners
Entuity
365iTMS
Elateral
Others, net
Unrealised foreign currency gains

Total net unrealised (losses)/gains

Unrealised gain/(loss)

2016
£’000

(9,165)
(4,878)
(3,521)
(1,878)
(1,400)
(650)
(841)
6,454

(15,879)

2015
£’000

–
–
(1,497)
40
1,000
(300)
(60)
1,959

1,142

Comments on individual companies are set out below.

Medhost

Medhost is a co-investment with one of the Company’s fund interests, Primus Capital, who are the lead investment
manager. The business faced challenging market conditions during 2016 which impacted its profitability and resulted in
a write down of the carrying value compared to last year. The Company has based its carrying value on the carrying value
reported by the general partner.

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ICU Eyewear

The business encountered difficult trading conditions in 2016 and has exited a potential sales process. It requires additional
capital, the source of which has not yet been determined. Consequently, the Company has fully written off its interest.

Nationwide Energy Partners (“NEP”)

In December 2016 the Company reached conditional agreement to sell its interest back to the founder in a two stage
transaction. The stage 1 payment of $4.5 million was due and received in January 2017. The second and final stage will be
settled either as a one off payment of $5 million in January 2018 or a loan note repayable with interest in instalments
over 4 years. The 31 December carrying value is based on amounts receivable under this two stage deal.

Entuity

The pressure on revenues seen in 2015 continued during 2016 and in the first quarter LMS Capital appointed an interim
chairman at Entuity to conduct a strategic review of the business which also led to the search for a new CEO. These issues
resulted in the write down of the Company’s carrying value at the half year.

The actions taken following the completion of the strategic review are expected to bring benefits in 2017 but were unable
to affect the decline in revenues in 2016. As a result the Company has made a further write down of its carrying value for
the business at the end of the year. The new CEO took up his post in February 2017 and GHAM has appointed a new
investment director to work with the board of Entuity to stabilise and focus on future value growth.

365iTMS

The company successfully completed its first acquisition in the first half of 2016 but experienced a slowdown in its core
business during the second half of the year. As a result of the impact of this on its profitability, the Company’s carrying
value has been reduced accordingly. The recently appointed GHAM investment director is focusing with management on
strategic options which would enable a return to profitable growth and maximise equity value.

Elateral

Elateral has invested heavily in recent years to re-engineer and upgrade its technology platform as a precursor to
retaining and growing its multinational client base. The company has made good progress in 2016 and is seeing year on
year growth in underlying recurring revenue in its financial year to March 2017.

The write down of the Company’s carrying value principally reflects changes to the funding structure in the second half of
the year whereby Elateral’s working capital funding has been supplemented by a short term loan from a third party,
reducing the need for additional capital from existing investors. GHAM has appointed an investment director to work
with management to maintain the growth momentum in revenues.

Fund interests

The return on the Company’s funds portfolio for the year was a net gain of £983,000 (2015: net loss of £2,507,000)
including unrealised foreign currency gains of £4,240,000 (2015: £1,031,000).

Fund investments are valued using latest general partner valuations.

Manager’s Review continued

18

The Company’s principal fund interests are:

General partner

Sector

San Francisco Equity Partners
Brockton Capital
Opus Capital Venture Partners
Weber Capital Partners
Eden Ventures
Other interests

US consumer & technology
UK property
US venture capital
US micro-cap quoted stocks
UK venture capital
–

Gains/(losses) on fund interests were as follows:

Gains/(losses), net

San Francisco Equity Partners
Brockton Capital
Opus Capital Venture Partners
Weber Capital
Eden Ventures
Amadeus Capital Partners
Boston Ventures
Voreda
Inflexion Private Equity
Other funds, net
Unrealised foreign currency gains

Total gains/(losses), net

31 December

2016
£’000

16,748
6,651
4,505
3,784
2,964
1,933

36,585

2016
£’000

1,993
(2,518)
(1,415)
459
(1,189)
–
4
86
184
(861)
4,240

983

2015
£’000

11,752
12,339
5,424
3,263
4,085
2,907

39,770

2015
£’000

(3,264)
(2,829)
1,245
526
276
(922)
(1,081)
1,527
608
376
1,031

(2,507)

San Francisco Equity Partners (“SFEP”)

LMS Capital is the majority investor in SFEP (as opposed to the other fund interests where the Company has only a
minority stake).

SFEP has two remaining investments:

● Penguin Computing – fund carrying value £8,685,000. The company’s revenues grew strongly (in line with

expectations), reflecting the benefit of a major contract win in the previous year;

● Yes To – fund carrying value £7,622,000. 2016 was the first year of a turnaround plan for the business under a new

CEO appointed in 2015. 2016 results were in line with that plan.

Other fund interests

● In April 2016 Brockton Capital completed the partial realisation of the principal remaining asset in the fund, a high
end central London residential development not due for completion for several years. As part of these arrangements
the fund was able to make a distribution to investors – the Company received £3,304,000. At the end of the year, the
carrying value of the Company’s interest in the fund was written down by £2,518,000 to reflect current market
circumstances resulting in uncertainty over the timing and value of future distributions;

● Opus Capital, a US venture fund, made stock distributions in kind during 2016 totalling £594,000; this and a

downward valuation of the portfolio reduced the Company’s interest by around £1.4 million and was partly offset by
unrealised foreign currency gains;

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● The Company’s interest in Weber Capital Partners includes two funds, both of which performed well in 2016. The
Company has agreed with the fund manager that its positions in both funds will be liquidated during the first half
of 2017;

● Eden Ventures’ portfolio performed below expectations during the year which is reflected in the reduction in the

carrying value of the Company’s interest compared to last year.

Other income statement items

As well as the investment portfolio return, the loss for the year of £20.8 million (2015: profit of £0.5 million) includes the
following:

● Directors’ and other fees from portfolio companies were £48,000 (2015: £55,000);

● The recurring overhead costs in 2016 (including amounts incurred by subsidiaries) were £3,301,000

(2015: £3,229,000);

● One-off costs associated with the change in investment strategy and transition to external management were

£2,157,000 (2015: £823,000);

● Interest income for the year was £20,000 (2015: £78,000).

Taxation

There is no tax charge for the year ended 31 December 2016 or 2015 – in both years tax deductible expenses exceed
taxable income. The excess of these tax deductible expenses has been surrendered to subsidiaries of the Company to
offset taxable income in those companies.

Financial resources and commitments

Including cash in subsidiaries, cash holdings were £1,632,000 (31 December 2015: £6,105,000) with no debt. Since the
end of 2016 to the date of this report cash realisations from the portfolio have been £4,925,000.

At 31 December 2016 subsidiary companies had commitments of £3,577,000 (31 December 2015: £3,961,000) to meet
outstanding capital calls from fund interests.

Outlook
GHAM has engaged with portfolio companies and is working with the management teams to identify catalysts for growth,
to drive long-term value. We are committed to return up to £11 million to shareholders from realisations of the existing
portfolio and are focused on progressing and initiating sale processes for certain holdings. Alongside any return to
shareholders we will look to access and reinvest primarily in direct private equity opportunities at the smaller end of the
market, leveraging the expertise and experience of our investment team and Investment Committee.

Gresham House Asset Management Limited

14 March 2017

The Manager

20

Investment committee

Tim Farazmand
Tim has a strong background in UK
mid-market private equity with over
30 years in the industry working with
a broad variety of companies such as
LDC, 3i, RBS PE and Catalyst Fund
Management during that time. Most
recently Tim was a MD at LDC, the
private equity subsidiary of Lloyds
Bank plc.

Tony Dalwood
Tony is CEO of Gresham House plc
and Chair of the Investment
Committee. He developed the
Strategic Public Equity process with
Graham Bird and shares fund
management responsibilities with
Graham and Pardip. Prior to Gresham
House he established SVGIM and
launched Strategic Equity Capital plc
and the Strategic Recovery Funds.
Tony is the former CEO of SVG
Advisers (Schroder Ventures
London), former chair of Downing
Active Management Investment
Committee and a member of the UK
Investment Committee at PDFM. He
is currently a non-executive director
of JP Morgan Private Equity Plc
(JPEL).

Graham Bird
Graham leads the Strategic Equity
division of GHAM. He was previously
Director of Strategic Investments at
SVGIM having helped launch the
Strategic Public Equity strategy with
Tony Dalwood. Graham has
considerable experience as a fund
manager and an adviser to quoted
companies having previously been a
director within the corporate finance
department at JP Morgan Cazenove.
More recently Graham held senior
positions in industry including
Paypoint plc as Strategic Planning and
Corporate Development Director and
PayByPhone President and executive
Chairman managing a growing
technology business.

Robert Rayne is the Company’s nominated member of the Investment Committee. His biographical details are on page 24.

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Investment team

Pardip Khroud
Pardip is Investment Director at
Gresham House. She shares fund
management responsibilities with
Tony Dalwood and Graham Bird. She
has 13 years’ experience in audit,
private equity transactions and global
tax restructuring at KPMG, as a Senior
Manager at Lloyds Banking Group and
most recently as an Investment
Manager at Lloyds Development
Capital where she managed numerous
investments and was also appointed to
the Board of portfolio companies
uSwitch and Bluestone.

Nick Friedlos
Nick joined LMS Capital in 2012 to
oversee the realisation strategy and
was instrumental in structuring the
Company’s new arrangements with
GHAM. Nick is a chartered
accountant and was a partner at
PriceWaterhouseCoopers. For the
last 20 years Nick has worked as a
consultant to and as CFO and CEO in
alternative asset investment
businesses including real estate,
private equity and renewable energy.

Tony Sweet
Tony joined LMS Capital in April
2006 as Chief Financial Officer. In
addition to his finance responsibilities,
he participates actively in investment
activities, particularly supporting
portfolio companies in formulating
strategic plans and funding
requirements. Prior to joining the
Company, he was the CFO of Systems
Union Group plc, an AIM-quoted
international software business, where
he was responsible for the group
finance function and was also involved
in a number of cross-border
acquisitions. Before that, Tony was a
partner at PricewaterhouseCoopers,
where he gained experience of a
variety of sectors and geographies.

The Manager continued

22

Investment team continued

Laurence Hulse
Laurence joined Gresham House after
graduating in Politics and Political
Economy from Warwick University.
He supports the investment team with
quantitative analysis and due
diligence. Prior to Gresham House he
interned with the M&A team at
Rothschild and on the Equities
trading floor at Barclays Capital.

Jonathan Dighe
Jonathan has over five years of UK
small cap equities experience,
working as both a research analyst
and as a director on the equity sales
desk at Charles Stanley Securities.
Prior to joining Charles Stanley
Jonathan worked for BP Plc and
Accenture UK Ltd as a management
consultant working on global business
transformation projects.

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Board of Directors

Martin Knight
Non-executive Chairman

Rod Birkett
Non-executive Director

Bernard Duroc-Danner
Non-executive Director

Directorships

Directorships

Directorships

Director of a number of oilfield
service sector companies; formerly
Chairman, President and Chief
Executive Officer of Weatherford
International plc.

Bernard has confirmed that he will be
standing down as a Director at the
conclusion of the 2017 AGM.

Chairman of Cambridge Mechatronics
Limited and Frontier Smart
Technologies Limited. Non-executive
director of Chrysalis VCT plc and a
trustee of the Royal Institution.

Experience

Martin was previously a director of
Morgan Grenfell & Co Limited and
subsequently became the principal
adviser to South Audley Street
Investments. He was a governor and
council member of Imperial College
from 1992 to 2010.

Trustee and Investment Committee
Chairman of Royal Navy Royal
Marines Charity; Investment
Committee Member of British Heart
Foundation; non-executive director of
Infiniti China Opportunities Fund.

Experience

Rod is a former investment manager
and investment company specialist
with over 30 years investment
experience, including equity long only
and hedge fund management. Since
2006, he has developed a ‘portfolio’ of
non-executive and consultancy roles.
His experience includes managing
JPMorgan Fleming’s investment
company business and he is former
director of the Association of
Investment Companies.

Board of Directors

24

Neil Lerner
Non-executive Director

Robert Rayne
Non-executive Director

Directorships

Directorships

Deputy Chairman at the Royal
Brompton & Harefield NHS
Foundation Trust and council
member of the RNLI.

Experience

Neil retired in September 2006 as
Risk Management partner for KPMG
where he had responsibilities for
managing all aspects of professional
risk and reputation. Until September
2009 he was Special Advisor to KPMG
International’s captive insurer.

Non-executive Chairman of Derwent
London plc and a non-executive
director of Weatherford International
plc, as well as a number of charitable
trusts and foundations.

Experience

Robbie has expertise in a wide range
of sectors, including real estate,
media, consumer, technology and
energy. He established the Company’s
investment activities in the early
1980s as Investment Director and
later Managing Director and Chief
Executive Officer of London Merchant
Securities.

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Corporate Governance Report

The Board of LMS Capital plc is committed to maintaining high standards of corporate governance and business ethics.
This report is made under the UK Corporate Governance Code published by the Financial Reporting Council in April
2016 (‘the Code’). Copies of the Code are available from the Financial Reporting Council’s website at www.frc.org.uk.

As set out in the Strategic Report, on 16 August 2016 shareholders approved a change to the investment policy of the
Company and the Board appointed GHAM as the Company’s investment manager. The impact of these changes
including, inter alia, that the Board is now wholly non-executive is set out in this report.

This report sets out how the Company has applied the principles in the Code and the extent to which it has complied with
the detailed provisions of the Code. The Board considers that the Company has complied with all of the provisions of the
Code throughout the year ended 31 December 2016, except as follows:

● Robert Rayne was previously Chief Executive Officer of the Company. As a consequence of having previously served

as an Executive Director, Mr Rayne was entitled to participate in the Company’s long-term incentive plans,
including the Performance Share Plan and the carried interest plans. Details of these arrangements are set out in the
Remuneration Committee Report.

● The Board has not appointed a Senior Independent Director.

● Until the appointment of Rod Birkett as a Director on 17 June 2016 the members of the Audit Committee and the
Remuneration Committee were the Chairman and one non-executive Director. On appointment as a Director,
Mr Birkett also became a member of the Audit and Remuneration Committees. The Chairman continues to chair the
Remuneration Committee, but in all other respects the Company now complies with the requirements of the Code
relating to Audit and Remuneration Committee composition.

Board of Directors
The Board is responsible to the Company’s shareholders for the performance of the Company and for its overall strategic
direction, its values and its governance. It provides the leadership necessary to enable the Company’s business objectives
to be met within the framework of the internal controls detailed below.

Composition

The Board currently comprises five Directors: the non-executive Chairman and four other non-executive Directors.
Brief biographies of the Directors appear on pages 23 to 24. The Board considers that it has an appropriate balance of
skills, knowledge and experience available to it.

Martin Knight is the Company’s non-executive Chairman and he is responsible for the effective running of the Board,
including setting the Board’s agenda and ensuring that all matters relating to performance and strategy are fully addressed
as required. He is also responsible for ensuring that that Board’s effectiveness is regularly evaluated (see further comments
on this below). The role description of the Chairman is documented and has been approved by the Board.

Executive Directors

Following the change in investment policy referred to above, and the appointment of GHAM as Manager, Mr Friedlos
and Mr Sweet stood down as Executive Directors. There are no longer any Executive Directors on the Board.

Non-executive Directors

Each non-executive Director is appointed for an initial term of three years. Subject to agreement, satisfactory
performance and re-election by shareholders, their appointments may be renewed for further terms of three years.

From time to time during the year the Chairman held meetings with the non-executive Directors without the Executive
Directors being present.

26

Director independence and commitment

In the opinion of the Board, Martin Knight, Rod Birkett and Neil Lerner are each considered to be independent in
character and judgement and there are no relationships or circumstances which are likely to affect (or could appear to
affect) the Directors’ judgement. In addition Martin Knight was independent upon his appointment as Chairman on
20 May 2013.

Bernard Duroc-Danner was a director of and Robert Rayne is currently chairman of Weatherford International plc; both
are shareholders in that company. They do not participate in Board discussions or decisions concerning the Company’s
investment in Weatherford International plc and no Board papers or minutes relating to the Company’s investment in
Weatherford International plc are circulated to Mr Duroc-Danner or Mr Rayne. In addition Mr Duroc-Danner has served
on the Board for more than nine years.

Notwithstanding these factors, the Board considers Mr Duroc-Danner to be independent in character and judgement. Given
his extensive business and energy sector experience, he provides a valuable contribution to Board discussions and is
knowledgeable about the Company’s investments and their markets. Robert Rayne is not considered to be independent.

The Board is of the view that the Chairman and each of the non-executive Directors who held office during 2016
committed sufficient time to fulfilling their duties as members of the Board.

Senior Independent Director

No Senior Independent Director has been appointed since January 2012. The Directors consider that the revised
composition of the Board provides sufficient channels of communication between the Board and shareholders and that
the independent non-executive Directors are able to fulfil this role.

Director re-election

In accordance with the Code and the Company’s Articles of Association, all Directors are subject to election by
shareholders at the first Annual General Meeting following their appointment. Mr Birkett was appointed a Director since
the 2016 AGM; he will retire at the 2017 AGM and, being eligible, will offer himself for re-election at the meeting.

With effect from the 2017 AGM, the Board has resolved that all Directors should retire and, being eligible, they will seek
re-election, with the exception of Bernard Duroc-Danner who has indicated his wish to step down as a Director at the
conclusion of the 2017 AGM.

Directors’ conflicts of interests

The Company’s Articles of Association allow the Directors to authorise conflicts of interest and a register has been set
up to record all conflict situations declared. All declared conflicts have been approved by the Board. The Company
has instituted procedures to ensure that Directors’ outside interests do not give rise to conflicts with its operations
and strategy.

Board procedures and support

There are agreed procedures for the Directors to take independent professional advice, if necessary, at the Company’s
expense. All Directors have access to the advice and services of the Company Secretary. In addition, newly appointed
Directors are provided with comprehensive information about the Company and its investee companies as part of their
induction process.

Whilst no formal structured continuing professional development programme has been established for the non-executive
Directors, every effort is made to ensure that they are fully briefed before Board meetings on the Company’s business and
its investments. In addition, they receive updates from time to time from the Manager on specific topics affecting the
Company and from the Company Secretary on recent developments in corporate governance and compliance. Each of the
non-executive Directors independently ensures that they update their skills and knowledge sufficiently to enable them to
fulfil their duties appropriately.

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The Board has adopted a schedule of matters reserved to it for approval. These include the approval of financial
statements, strategic plans and annual budgets, as well as acquisitions and disposals and major capital and operating
expenditure proposals above pre-determined limits agreed with the Manager. The Board delegates specific
responsibilities to the Audit, Nomination and Remuneration Committees, which operate within written terms of
reference approved by the Board. These Committees report regularly to the Board.

Operational matters and the responsibility for the day-to-day management of the business are delegated to the Manager.
During 2016 this was the responsibility of the Executive Directors until the appointment of the Manager in August 2016.

Management arrangements between the Company and GHAM are set out in a portfolio management agreement which
sets out the matters for which GHAM is responsible and over which it has authority. At the Board’s scheduled meetings,
GHAM reports on matters such as progress with the investment strategy, investment portfolio performance, and
communication with shareholders. The Board also monitors the performance of the Manager in the context of the
provisions of the portfolio management agreement.

Financial matters and the responsibility for the day-to-day financial aspects of the business were delegated to the Chief
Financial Officer until the Manager was appointed. The Company has retained its own financial team during 2016 acting
within delegated authority limits and in accordance with clearly defined systems of control and reporting to the Manager.
During 2017 the Company’s day-to-day financial and administrative functions will be outsourced to a third party. A
report on financial matters is presented at each Board meeting.

Board effectiveness
The Board carried out a board performance evaluation in December 2016. This encompassed a review of the performance
of the Board, its Committees and individual Directors (including the Chairman). It was conducted internally by the
Chairman, supported by the Company Secretary. The process involved the distribution of a questionnaire to each
Director; the responses were then analysed and a report was circulated to the Board. The outcomes of the evaluation were
discussed by the Board at the February 2017 Board meeting and it was agreed that the Board, its Committees and the
individual Directors were operating effectively.

Board meetings
Six scheduled Board meetings were held in 2016. At each scheduled meeting, the Board considers a report on current
operations and significant business issues, such as major investment or divestment proposals and strategy, as well as a
financial report. Papers for each scheduled Board meeting are usually provided during the week before the meeting.

Attendance at Board meetings

The following were Directors of the Company during 2016. They attended the following number of scheduled meetings of
the Board and (where they were members) its Committees during the year:

Meetings held
Martin Knight
Bernard Duroc-Danner
Neil Lerner
Robert Rayne
Rod Birkett (from 17 June 2016)
Nicholas Friedlos (until 16 August 2016)
Antony Sweet (until 16 August 2016)

Board

Audit

Nomination

Remuneration

6
6
3
6
6
3
4
4

3
3
–
3
–
2
–
–

1
1
1
1
1
1
–
–

1
1
–
1
–
–
–
–

Attendances set out above include attendance in person, or by telephone or video link. In addition to the scheduled Board
meetings specified above, the Board held six ad-hoc meetings during 2016.

Corporate Governance Report continued

28

Board committees
Each Board committee has established terms of reference detailing its responsibilities and powers. These are available in
the Investor Relations section of the Company’s website at www.lmscapital.com.

Audit Committee
The Audit Committee comprises: Neil Lerner (Committee Chairman), Rod Birkett and Martin Knight. Neil Lerner is
considered by the Board to have recent and relevant financial experience and the Committee as a whole has competence
relevant to the sector in which the Company operates.

From May 2013 until June 2016, the Committee membership included only one independent non-executive Director
(and not two as required under the Code). This arose as a consequence of the Company reducing the scale of its
operations during the period of the realisation strategy. The Nomination Committee and the Board regularly considered
committee composition and concluded that the reduction in the membership of the Audit Committee would not result in
a reduction in scope or effectiveness of the corporate governance processes otherwise required by the Code. Following the
appointment of Mr Birkett as a Director and member of the Committee from June 2016 the Company now complies in
full with the requirements of the Code relating to Audit Committee composition.

The Chairman of the Committee may invite non-members to attend Committee meetings and these typically include: a
representative of the Company’s external auditor, a representative of the Manager and other Directors. A report on the
activities of the Audit Committee is set out on pages 32 to 36.

The terms of reference for the Committee take into account the requirements of the Code and are available for inspection
at the registered office and can also be found on the Company’s website at www.lmscapital.com. The role of the
Committee is to assist the Board with the discharge of its responsibilities in relation to the Company’s financial
statements in the areas set out below.

The Audit Committee may request and receive reports from the Manager to enable it to fulfil its duties under its terms
of reference. The Committee Chairman reports to the full Board at each scheduled Board meeting immediately following
a Committee meeting.

Corporate reporting

The Committee monitors the integrity of the financial statements of the Company and any formal announcements
relating to the Company’s financial performance, with particular emphasis on reviewing significant financial reporting
judgements contained in them. It reviews the draft annual financial statements and half year results statement prior to
discussion and approval by the Board and reviews the external auditor’s detailed reports thereon.

It then reports to the Board any matters which it considers the Board should take into account in ensuring that published
financial reports provide a fair, balanced and understandable assessment of the Company’s position and prospects. In
identifying any such matters the Committee also takes into account the findings reported to it from the external
audit process.

External audit

The Audit Committee reviews the conduct of the external audit, including its effectiveness and independence, on an
annual basis and makes recommendations to the Board regarding the re-appointment or removal of the external auditor,
their terms of engagement and the level of their remuneration. The Committee also reviews the process which is in place
to ensure the independence and objectivity of the external auditor.

During the year the Committee monitors the external audit as it proceeds. At its December meeting the Committee
reviews, discusses and approves the external audit plan for the current financial year; the Committee then meets with the
external auditor prior to the Board’s consideration of the full year and half year results to consider their findings.

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A policy regarding the engagement of the external auditor to supply non-audit services is in place. The policy recognises
the importance of maintaining the objectivity and independence of the external auditor by carefully monitoring their
involvement in projects of a non-audit nature. It is, however, also acknowledged that, due to their detailed understanding
of the Company’s business, it may sometimes be necessary or desirable to involve the external auditor in non-audit
related work to the extent permitted.

Internal control and risk management

G10 Capital Limited (“G10 Capital”) was appointed by the Company in August 2016 as its Alternative Investment Fund
Manager (“AIFM”) to provide risk management, portfolio management, company secretarial, administration and other
services to the Company. Once GHAM is fully authorised, it will assume G10 Capital’s role as AIFM.

G10 Capital has delegated portfolio management functions to GHAM as well as company secretarial and administration
services, until the transfer of these responsibilities to a third party service provider has been completed. However, G10
Capital retains responsibility for risk management and the process of identifying, evaluating, monitoring and managing
the risks facing the Company in accordance with the Alternative Investment Fund Managers Directive.

The Board has delegated to the Audit Committee responsibility for monitoring the AIFM’s performance of these
responsibilities as part of the Board’s overall responsibility for the Company’s risk management and internal control.
Risk management and internal controls of the principal business risks is a standing agenda item for each Audit
Committee meeting.

The Committee reviews the effectiveness of the internal controls throughout the year and will take any necessary actions
should any significant failings or weaknesses be identified. More information on the results of these reviews during 2016
are set out in the Audit Committee Report on pages 32 to 36. Details of the principal risks and uncertainties potentially
facing the Company can be found in the Strategic Report on pages 5 to 9.

The Company has no internal audit department, relying on external advisers to gain comfort on internal controls. In the
Audit Committee’s view, taking into account the small size of the business and the limited operating locations, the
information it has is sufficient to enable it to review the effectiveness of the Company’s system of internal controls.

The Audit Committee also monitors the Company’s whistleblowing policy. Neil Lerner acts as the contact for staff who
may have a concern that they cannot raise under their normal chain of management.

Nomination Committee
All Directors are members of the Nomination Committee, which is chaired by Martin Knight. The Committee is
responsible for assisting the Board in determining the composition and make-up of the Board. It is also responsible for
periodically reviewing the Board’s structure and identifying potential candidates to be appointed as Directors, as the need
arises. The selection process is, in the Board’s view, both rigorous and transparent in order to ensure that appointments
are made on merit and against objective criteria set by the Committee. In reviewing potential candidates, the Committee
takes into account the need to consider the benefits of diversity on the Board, while ensuring that appointments are made
based on merit and relevant experience.

When considering succession planning, the Committee looks at the balance, structure and composition of the Board and
takes into account the future challenges and opportunities facing the Company.

The Nomination Committee normally meets as required, but at least once each year. During 2016, the Committee had
one scheduled meeting which included consideration of the composition of the Board and its committees.

Corporate Governance Report continued

30

Remuneration Committee
The current members of the Committee are: Martin Knight (Committee Chairman), Rod Birkett and Neil Lerner.

From May 2013 until June 2016, the Committee membership included only one independent non-executive Director
(and not two as required under the Code). This arose as a consequence of the Company reducing the scale of its
operations during the period of the realisation strategy. The Nomination Committee and the Board regularly considered
committee composition and concluded that the reduction in the membership of the Remuneration Committee would not
result in a reduction in scope or effectiveness of the processes otherwise required by the Code to monitor Directors’
remuneration. Martin Knight, the Chairman, is also chairman of this Committee.

Following the appointment of Mr Birkett as a Director and member of the Committee from June 2016 the Committee
now includes two independent non-executive Directors (as required by the Code).

The terms of reference for the Committee take into account the requirements of the Code and are available for inspection
at the registered office and can also be found on the Company’s website at www.lmscapital.com. The Board delegated to
the Remuneration Committee responsibility for reviewing and recommending the Company’s remuneration strategy and
policies and for setting the remuneration of the Executive Directors.

With effect from August 2016 the Company’s Board is wholly non-executive and the Committee’s future role will be
reviewed in due course.

The Committee takes advice, where it considers it appropriate, on technical aspects of compensation policy from
independent external consultants appointed by the Committee.

A report on the activities of the Remuneration Committee is set out on pages 37 to 40.

Shareholder communications
The Company communicates regularly with its major institutional shareholders and ensures that all the Directors have
an understanding of the views and concerns of investors about the Company. This is achieved by the Directors or the
Manager maintaining contact from time to time with representatives of institutional shareholders to discuss matters of
mutual interest relating to the Company and reporting back to the Board. Shareholders have the opportunity to meet any
of the Directors of the Company should they so wish.

Additionally, the Board uses the AGM as an occasion to communicate with all shareholders, including private investors,
who are provided with the opportunity to question the Directors. At the AGM the level of proxy votes lodged on each
resolution is made available, both at the meeting and subsequently on the Company’s website. Each substantially
separate issue is presented as a separate resolution. The chairmen of the Audit, Nomination and Remuneration
Committees are available to answer questions from shareholders and all Directors attend.

The interim and annual results of the Company, along with all other press releases, are posted on the Company’s website,
www.lmscapital.com, as soon as possible after they have been announced to the market. The website also contains an
archive of all documents sent to shareholders, as well as details on the Company’s investments, strategy and share price.

Financial reporting
The Directors have acknowledged, in the Statement of Directors’ Responsibilities set out on page 47, their responsibility
for preparing the financial statements of the Company. The external auditor has included, in the Independent Auditor’s
Report set out on pages 48 to 51, a statement about its reporting responsibilities.

The Directors are also responsible for the publication of an unaudited half year management statement for the Company,
which provides a balanced and fair assessment of the Company’s financial position for the first six months of each
accounting period.

Going concern
The Company’s business activities, together with the factors likely to affect its future development, performance and
financial position, are set out in the Strategic Report on pages 5 to 9 and the Manager’s Review on pages 11 to 19. The
Directors have considered these for a period not less than twelve months from the date of this report.

Following the change of investment objective in August 2016, the Directors have adopted the going concern basis of
accounting in preparing the financial statements. The Viability statement of the Company is in the Strategic Report
on page 9.

Martin Knight
Chairman

14 March 2017

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Audit Committee Report

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Introduction from the Chairman of the Audit Committee

I am pleased to present the report of the Audit Committee for 2016 which provides shareholders with an overview of the
activities of the Committee during the year. These activities are focused on the integrity of the Company’s financial
reporting, the quality of the external audit process, risk management and the effectiveness of the Company’s systems of
internal control. The Committee was also responsible for reviewing the Company’s arrangements on whistleblowing,
ensuring that appropriate arrangements are in place for employees to be able to raise, in confidence, matters of possible
impropriety, with suitable subsequent follow-up action.

The Audit Committee had three scheduled meetings during 2016; each meeting was attended by the Executive Directors
until August 2016 when the Board became wholly non-executive and from which date Committee meetings were attended
by representatives of the Manager. The external auditor also attended all meetings of the Committee. The Committee also
met without the Executive Directors but with the external auditor in attendance. The Committee met on 22 February
2017 to consider the 2016 results and Annual Report.

I report to the full Board at each scheduled Board meeting immediately following a Committee meeting.

A summary of how the Committee carried out its responsibilities during 2016 as well as the more significant issues it
addressed is set out in the report.

Neil Lerner
Chairman, Audit Committee

14 March 2017

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Corporate reporting
Since the publication of the 2015 Annual Report the Committee has reviewed the following:

● The 2016 half year report;

● The preliminary announcement of 2016 results;

● The 2016 Annual Report; and

● The report from KPMG LLP (“KPMG”) on the results of their review of the half year report for 2016; and

● Reports from BDO LLP (“BDO”) on the planning and outcome of their audit for the year ended 31 December 2016.

As explained more fully below, the Committee undertook a competitive audit tender process in the second half of 2016, as
a result of which BDO was appointed as external auditor in place of KPMG.

Annual Report 2016
The Board requested that the Committee advise it on whether the Committee believes that the 2016 Annual Report and
accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders
to assess the Company’s performance, business model and strategy. A report confirming this to be the case was presented
to the Board.

In formulating its report to the Board, the matters considered by the Committee included the following:

● The process underlying the preparation of financial and narrative information which is reported to the Board at each

of its meetings;

● Whether the information in the Strategic Report and the Manager’s Review is consistent with that reported to the

Board throughout the year;

● Ensuring that positive and negative factors affecting the Company’s performance are given equal prominence; and

● The appropriateness of the key performance indicators and comments on these.

Significant accounting judgements
During the year, the Committee considered the key accounting matters and judgements in respect of the financial
statements and these are described below. As part of this review, the Committee received papers from the Manager
setting out the assumptions used and conclusions reached, which were subject to challenge by the Committee as it
considered appropriate in the circumstances.

Investment portfolio valuation

The principal focus for the Committee is the investment portfolio valuation; a full valuation is prepared and reported
to the Committee at least twice a year and used for the preparation of the Company’s half year and full year
financial reports.

As part of its review of each valuation report the Committee receives comments on the valuation from the external
auditor – based on their review of the 30 June (half year) valuation and audit of the 31 December (full year) valuation.

The following areas were of particular focus for the Committee in its consideration of the approach to investment
valuation in 2016:

● Ensuring that the valuation methodology complied with the International Private Equity and Venture Capital

Valuation Guidelines (December 2015 edition) and the Company’s stated accounting policy, and that the Guidelines
had been applied on a consistent basis;

Audit Committee Report continued

34

● The availability of third party information to corroborate valuation results at individual investment level, including:

– Reports from general partners for the Company’s fund interests; and

– Market prices for its quoted investments; and

● The nature and reason for any adjustments made to third party information by the Company for its valuation

purposes.

The valuation of unquoted investments inevitably requires the exercise of judgement and the Committee studied in detail
the variables underpinning the valuation of each unquoted investment, in particular:

● Consideration of current trading and future prospects in determining the appropriate revenues or earnings base for

valuation purposes;

● Consistency of approach in the valuation, satisfying itself that any change made was appropriate;

● Ensuring that metrics from comparable quoted companies were appropriate and up to date;

● For co-investments, comparing the Company’s carrying value with (where available) the valuation used by the lead

investor and ensuring that there are proper explanations for any differences; and

● Confirming that the valuation takes account (where appropriate) of the Company’s divestment plans.

At its meeting in February 2017 the Committee considered a detailed report from the Manager on the year-end
investment valuation and concluded that the valuation process had been properly carried out and that the valuation
was appropriate in aggregate. In reaching this conclusion the Committee took into account the findings of the
external auditor.

Incentive schemes

The Company’s incentive schemes for Directors and senior management are explained in the Directors’ Remuneration
Policy on pages 41 to 43. At its meeting in February 2017 the Committee considered a paper prepared by the Manager
setting out the accounting treatment for each of the Company’s incentive plans. Based on this the Committee was
satisfied that the financial implications of each plan are properly reflected in the Company’s 2016 financial statements.

Going concern

Under the Company’s previous realisation strategy the financial statements were not prepared on a going concern basis.
Following the change in strategy in August 2016, the financial statements are now prepared on a going concern basis. The
Committee considered the appropriateness of this change in basis, including, inter alia, its impact (if any) on the
investment portfolio valuation, and concluded that the adoption of the going concern basis was appropriate.

As part of this review the Committee also satisfied itself that the Viability Statement in the Strategic Report and the
statement on going concern under Basis of preparation in note 1 to the financial information were appropriate.

External audit findings

The auditor reported to the Committee the misstatements they had found during the course of their work, which were
insignificant, and confirmed that in their opinion there were no material items remaining unadjusted in the 2016
financial statements.

Internal control and risk management

Risk management and internal controls of the principal business risks were reviewed by the Committee at each of its
scheduled meetings during the year and the Committee is of the view that:

● Risks have been properly identified;

● The systems of internal control were operating satisfactorily during 2016 and up to the date of this report; and

● Mitigation of the risks identified is appropriate to the Company’s circumstances.

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The Committee also reviewed in detail the disclosures in relation to risks and longer-term viability in the Strategic Report
to ensure that these are consistent with the findings of its own work on risk management during the year.

The Company has no internal audit department. To assist the Committee in its monitoring and review of internal
controls, KPMG was asked to test and report on the operation of material controls during 2015. Taking into account the
work performed by KPMG and its own review of controls and challenge of executive management, the Committee
concluded that the Company has an effective system of internal controls and risk management processes in place to
enable it to identify, evaluate and manage the principal risks. The Committee considers that this conclusion is still valid
for 2016.

The Committee notes that finance and administration services will be outsourced to a third party provider during
2017 and expects to spend time during the current year to satisfy itself that the new systems and controls are
operating effectively.

External audit
It is the responsibility of the Committee to review and monitor the external auditor’s independence and objectivity and the
effectiveness of the external audit process. The Committee also ensures that the Company complies with the EU audit
reform as now implemented in the UK.

Following completion of the maximum five years involvement by the KPMG audit partner and in order to ensure that
certain non-audit services from KPMG continued to be available to the Company, in the second half of the year the
Committee decided to undertake a competitive tender process. As a result of this tender process BDO was appointed as
external auditor.

Reports presented to the Committee by KPMG during the year covered:

● The results of their audit of the 2015 financial statements and annual report; and

● The results of their review of the 2016 half year report.

Following their appointment and to the date of this report BDO has reported to the Committee on the following:

● Their plans and proposed audit scope for 2016; and

● The results of their audit of the 2016 financial statements and annual report.

The Committee conducts a written assessment of the external audit process each year which includes members of the
Committee and certain representatives of the Manager providing their comments and evaluation to the Chairman of the
Committee on areas including:

● The procedures adopted by the external auditor to ensure their independence and objectivity;

● The appropriateness of risk identification in determining the external audit plan;

● Their conduct of the audit process, including the extent of challenge of judgement areas; and

● The nature and content of reports presented to the Committee.

During the year, the Committee also reviewed the Audit Quality Inspections Annual Report and the Public Report on
KPMG and BDO by the FRC’s Audit Quality Review Team. For 2016 the Committee was satisfied with the effectiveness
and quality of the external audit process as provided by both firms involved.

The Company has a formal policy governing the engagement of the external auditor to provide non-audit services, which
includes procedures designed to limit such services to areas which would comply with relevant legislation and not result
in potential conflict with the objectivity and independence of the external audit process. In addition BDO reported to the
Committee their procedures to ensure their independence and objectivity and confirmed the compliance of the partners
and staff assigned to the Company’s audit with those procedures.

Audit Committee Report continued

36

During the year the amount of non-audit services provided by BDO was £nil (2015: KPMG £98,000). The KPMG non-
audit services in 2015 comprised:

● Assurance services in connection with the tender offer in December 2015;

● Reporting to the Committee on the operation during 2015 of key controls over the principal risks the Company faces;

and

● Tax advisory services.

The Committee considers that the above items are such that these services could not easily or cost effectively be provided
by another accounting firm and are not of such a nature or scale as to impact auditor objectivity or independence.

Audit Committee effectiveness
The annual Board evaluation described on page 27 included the work of the Committee and concluded that it was
working satisfactorily.

Neil Lerner
Chairman, Audit Committee

14 March 2017

Remuneration Committee Report

Introduction from the Chairman of the Remuneration Committee

I am pleased to present our report on Directors’ remuneration for 2016 which includes amounts actually paid to
Directors in 2016 and on which shareholders will be asked to vote in an advisory manner at the AGM in May 2017. It
includes information subject to audit. The members of the Remuneration Committee during 2016 were Martin Knight
(Committee Chairman), Rod Birkett (appointed on 16 June 2016) and Neil Lerner.

The Company’s Directors’ remuneration policy was approved by shareholders at the AGM in May 2014 and that policy has
remained unchanged for the year ended 31 December 2016. The Company is only permitted to make a payment to a
Director (or former Director) if that payment is in line with the policy. A copy of the policy can be found on pages 41 to 43.

Following the appointment of GHAM as Manager on 16 August 2016, Mr Friedlos and Mr Sweet resigned as Directors and
from that date the Board has been wholly non-executive. A new remuneration policy will be proposed for approval by
shareholders at the AGM to be held in May 2017 and a copy of this proposed policy is on page 43.

Martin Knight
Chairman, Remuneration Committee

14 March 2017

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Remuneration Committee Report continued

38

Remuneration for the year ended 31 December 2016

The tables below (which have been subject to audit) set out amounts paid to each Director during the years ended 31
December 2016 and 2015:

N Friedlos
A Sweet

M Knight
R Birkett
B Duroc-Danner
N Lerner
R Rayne

Salary
and fees
£’000

Pension
Taxable
benefits contributions
£’000

£’000

Carried
interest
£’000

138
135

273
60
22
40
45
40

480

11
11

22
–
–
–
–
15

37

–
20

20
–
–
–
–
–

20

–
15

15
–
–
–
–
76

91

2016

Bonus
£’000

1,309
636

1,945
–
–
–
–
–

1,945

Compensation
loss of office
£’000

Consulting
fees
£’000

82
230

312
–
–
–
–
–

312

–
–

–
–
–
–
–
38

38

Total
£’000

1,540
1,047

2,587
60
22
40
45
169

2,923

On 16 August 2016 Mr Friedlos and Mr Sweet ceased to be employees of the Company and resigned as Directors. As part
of these arrangements, Mr Friedlos and Mr Sweet received payments of £81,500 and £230,000 respectively by way of
compensation for the termination of their employment with the Company. In addition, Mr Friedlos and Mr Sweet will
receive a total of £1,598,000 and £742,000 respectively, being the maximum outstanding amount of their bonus
entitlements (calculated in line with the arrangements set out on page 42 of the Company’s Directors’ Remuneration
Policy). Payment of the bonus amounts is in three instalments as set out below:

● 65% – being £1,038,700 for Mr Friedlos and £482,300 for Mr Sweet – was paid in September 2016 and is included in

the table of remuneration above;

● 17.5% – being £279,650 for Mr Friedlos and £129,850 for Mr Sweet – is payable on the earlier of the date of the first

subsequent tender offer of up to £6 million or 31 March 2017; and

● 17.5% – being £279,650 for Mr Friedlos and £129,850 for Mr Sweet – is payable on the earlier of the date of the

second subsequent tender offer of up to £5 million or 31 December 2017.

N Friedlos
A Sweet

M Knight
B Duroc-Danner
N Lerner
R Rayne

2015

Salary
and fees
£’000

Pension
Taxable
benefits contributions
£’000

£’000

Carried
interest
£’000

Bonus
£’000

Consulting
fees
£’000

220
215

435
60
40
45
40

620

15
15

30
–
–
–
11

41

–
32

32
–
–
–
–

32

–
91

91
–
–
–
14

105

132
154

286
–
–
–
–

286

–
–

–
–
–
–
60

60

Total
£’000

367
507

874
60
40
45
125

1,144

Amounts included for taxable benefits are insurance premiums for private healthcare, life assurance and income
protection, and gym membership.

Bonus payments are in accordance with the rules of the Executive Directors’ bonus scheme set out in the Company’s
Directors’ remuneration policy.

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Performance share plan

On 11 April 2014, share awards granted in 2011 under the Company’s performance share plan vested to the extent the
required performance conditions had been met. As a result, Mr Sweet was entitled to 63,028 shares and Mr Rayne
127,324 shares. In June 2014 these awards were settled in cash (as permitted under the rules of the plan) at 78.5 pence
per share.

No further awards have been made under this plan and consequently none is outstanding at 31 December 2016.

Deferred share bonus plan

Mr Sweet was granted an award of options and 100,000 shares under this plan on 13 April 2010. The performance
condition for the first release was satisfied and options over 33,333 shares with a then market value of £20,000 were
released on 13 April 2011 and remain outstanding at 31 December 2016. The performance condition for the second and
third releases was not satisfied and the related share awards lapsed during 2011 and 2012.

No further awards have been made under this plan.

Carried interest

Mr Rayne and Mr Sweet participate in the carried interest arrangements in place for staff involved in the management
and development of the investment portfolio. Amounts paid in 2016 were in accordance with these arrangements.

At 31 December 2016, there were no amounts earned but unpaid. If the Company’s investment portfolio were realised at
its valuation at 31 December 2016, under these arrangements Mr Rayne would be entitled to further carried interest of
£759,000 and Mr Sweet to £4,000.

Performance graph

The Committee considers the FTSE All-Share Index a relevant index for Total Shareholder Return and comparison
disclosure as it represents a broad equity market index of which the Company is a member.

The performance graph below shows the Company’s Total Shareholder Return performance for the ten year period ended
31 December 2016 compared with that of the FTSE All-Share Index.

LMS
All Share

180

160

140

120

100

80

60

40

Dec
06

Jun
07

Dec
07

Jun
08

Dec
08

Jun
09

Dec
09

Jun
10

Dec
10

Jun
11

Dec
11

Jun
12

Dec
12

Jun
13

Dec
13

Jun
14

Dec
14

Jun
15

Dec
15

Jun
16

Dec
16

Remuneration Committee Report continued

40

Directors’ letters of appointment
The following table provides details of the current non-executive Directors’ letters of appointment:

Name

M Knight
R Birkett
B Duroc-Danner
N Lerner
R Rayne

Date of appointment

Date of expiry of current term

4 January 2012
16 June 2016
7 April 2006
4 January 2012
6 April 2006

17 May 2018
16 June 2019
13 May 2019
17 May 2018
30 September 2019

Directors’ interests in shares
The beneficial interests of Directors at 31 December 2016 in the ordinary shares of the Company are set out below:

M Knight
R Birkett
B Duroc-Danner
N Lerner
R Rayne

31 December

2016

2015

52,490
25,000
139,009
37,787
3,076,866

59,907
–
139,009
49,435
3,076,866

In addition, Mr Rayne holds a non-beneficial interest in 7,791,115 ordinary shares held in trust.

Except as stated above:

● There have been no changes in the above Directors’ interests between 31 December 2016 and the date of this report;

and

● The Company is not aware of any other interests of any Director in the ordinary share capital of the Company.

There are no requirements or guidelines concerning share ownership by Directors.

2016 Annual General Meeting

At the AGM held on 19 May 2016 shareholders voted to approve the Remuneration Committee Report in an advisory
capacity as follows: votes in favour were 94.07%, against 5.93%; 94,774 votes were withheld.

This report has been approved by the Board.

Martin Knight
Chairman, Remuneration Committee

14 March 2017

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Directors’ Remuneration Policy

The Company’s remuneration policy set out below was approved by shareholders at the AGM in May 2014 and was for
the three years commencing 1 January 2014. Following the change in investment strategy with effect from 16 August
2016 and the appointment of GHAM as Manager, the Board is wholly non-executive; references below to the
remuneration policy for Executive Directors therefore cover the period up to 16 August 2016 as well as any payments
made to the former Executive Directors after leaving.

The proposed remuneration policy from 1 January 2017, on which shareholders will be asked to vote at the AGM to be
held in May 2017, is set out on page 43 below.

Executive Directors
The following table summarises the Company’s policy on Executive Directors’ remuneration for the three years
commencing 1 January 2014:

Link to strategy

Operation

Maximum potential value

Performance criteria

Base salary

Retention

Reviewed annually based
on general economic and
market conditions

Increases from 2014 levels
based on market changes

None

Allowances
and benefits

Retention

Pension
contributions

Retention

Health and related
insurances. Gym
membership

Base salary only is
pensionable

Based on market rates

None

Company contribution
maximum – 15%

None

Bonus

Motivation to
maximise returns
to shareholders

Based on value returned to
shareholders

£3 million

Carried
interest

Motivation to
maximise
investment
returns

Based on a proportion of
realised gains on
investments after a
preferred return or hurdle

No maximum

Value returned under the
realisation strategy must
exceed market cap at 1 Jan
2012 plus an annual
compound return (see
explanatory note below)

Pre-tax investment gains
must exceed 6% preferred
return or 8% hurdle before
any amounts are payable

Executive Directors’ annual base salaries for 2016 were £220,000 for Mr Friedlos and £215,000 for Mr Sweet –
unchanged from 2015.

Non-executive Directors
Annual fees for non-executive Directors in 2016 were as follows:

Name

M Knight
R Birkett
B Duroc-Danner
Neil Lerner
Robert Rayne

Annual fee
£

60,000
40,000
40,000
45,000
40,000

Mr Rayne also had a consulting agreement with the Company to provide advice in connection with the Company’s
realisation plans. He was entitled to a fee of £60,000 per annum under this consultancy arrangement, which came to an
end on 16 August 2016.

Directors’ Remuneration Policy continued

42

The fees for non-executive Directors are reviewed annually – increases will reflect market changes from the above levels.
With effect from 1 January 2017 Mr Duroc-Danner will not receive a fee for his services as a non-executive Director.

Mr Rayne was an Executive Director from 6 April 2006 to 1 October 2010, whereupon he became non-executive. Under
Mr Rayne’s letter of appointment he participated in the carried interest plan and share option schemes up to the end of
2011, and is entitled to cover under the Company’s various insurance policies. The Company will also provide a car, driver
and secretary if required in the future, but does not currently do so.

The other non-executive Directors do not participate in the Company’s incentive plans or share schemes or other
benefits.

Bonus arrangements
The Company operated the following bonus plan for Executive Directors:

1) Each Executive Director will receive a bonus linked to the outcome of the realisation strategy;

2) The lower threshold for payments requires returns to shareholders equal to the market capitalisation of the Company

at 1 January 2012 plus a compound return per annum of 5% (“the lower limit”);

3) Full pay-out of the bonus at the conclusion of the realisation strategy will be made if cumulative returns to

shareholders at least equal the market capitalisation of the Company at 1 January 2012 plus a compound return per
annum of 15% (“the upper limit”);

4) The maximum bonus amounts for each of the Executive Directors were £2 million for Mr Friedlos and £1 million for

Mr Sweet;

5) For value returned between the lower and upper limits, the bonus will be adjusted on a pro-rata basis equal to

[(A-L)/(U-L)] x P where:

A = Actual value returned

L = Lower performance threshold

U = Upper performance threshold

P = Potential bonus at Upper threshold;

6) The Remuneration Committee may approve annual performance bonus payments. Given the cash performance

metric underlying the Company’s bonus plan, any such payments will be deducted from any payment due at the end
of the realisation period, but are not subject to clawback.

In addition to the above arrangements Mr Sweet was entitled to a payment in connection with his duties as Company
Secretary up to a maximum of 15% of his base salary per annum.

Carried interest
Mr Rayne and Mr Sweet participate in the carried interest arrangements in place for staff involved in the management
and development of the investment portfolio. As a result of the implementation of the realisation strategy, no new carried
interest arrangements have been instituted, the last year of the arrangements being 2011.

The Company’s carried interest arrangements are based on annual capital pools for direct investments (i.e. excluding
third party funds). Entitlement to carried interest on these pools is calculated as follows:

● For the 2009 and prior pools, carried interest will be payable in respect of pre-tax net gains on investments in the

pool after a preferred return to the Company at the rate of 6% per annum. This preferred return is a threshold beyond
which carried interest is payable.

● For the 2010 and subsequent pools, carried interest will be payable in respect of pre-tax net gains on investments in
the pool after a hurdle of 8% is reached. The change was made to reflect more usual practice in the private equity
sector.

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The percentage of eligible gains which may be allocated to participants in aggregate may not exceed 20%. Participants are
allocated a proportion of the overall maximum at the commencement of each annual pool and may be diluted by new
joiners during the life of the pool up to a maximum of 20%. The rules also include provision for reduction in the
proportion allocated to any participant who ceases to be an employee.

The Remuneration Committee Report on pages 37 to 40 includes details of amounts paid to Mr Rayne and Mr Sweet
under these arrangements during 2016.

Share-based incentives
The Remuneration Committee determined that in the context of a realisation strategy, share-based awards were not an
appropriate form of incentive. Accordingly no further awards were made under the existing share incentive plans.

Mr Rayne and Mr Sweet retain their interests in awards made under these plans in prior years – details of amounts paid
during the year and any remaining entitlements as at 31 December 2016 are set out in the Remuneration Committee
Report.

Service agreements and letters of appointment
Service agreements for each Executive Director were terminated on 16 August 2016. Amounts paid to the Executive
Directors as compensation are set out in the Remuneration Committee Report.

Details of the current non-executive Directors’ letters of appointment are set out in the Remuneration Committee Report.

Recruitment
The Remuneration Committee determines all elements of the remuneration package for any new appointee to the Board.
The following factors are considered:

● The nature of the role;

● The experience of the individual concerned and current remuneration package; and

● Market data, including input from advisers involved in any recruitment process.

The package for a new Director will include all elements provided to current Directors. If necessary to complete the
appointment, it may also include compensation for the forfeiture of awards from a previous employer.

Remuneration policy – commencing 1 January 2017
The Directors of the Company are all non-executive and independent of the Manager and their fees reflect market rates
for their respective roles. These fees are reviewed annually – increases (or decreases) will reflect market changes from
current levels.

Directors’ fees for 2017 are as follows:

Name

M Knight
R Birkett
B Duroc-Danner
N Lerner
R Rayne

Annual fee
£

60,000
40,000
Nil
45,000
40,000

There are no pension arrangements for Directors.

Mr Rayne participates in the Company’s carried interest plans and is entitled to cover under the Company’s various
insurance policies. None of the other Directors receives any other benefits from the Company.

Directors’ Report

44

LMS Capital plc is an international investment company whose shares are traded on the London Stock Exchange. Details
of the Company’s strategy, risk management and performance in 2016 are included in the Strategic Report on pages 5
to 9 and the Manager’s Review on pages 11 to 19.

Directors
The names and biographical details of the current Directors of the Company are given on pages 23 to 24. Nick Friedlos
and Tony Sweet resigned as Directors on 16 August 2016. In addition, further information about the Board is set out in
the Corporate Governance Report on pages 25 to 31.

Details of the current Directors’ service contracts and letters of appointment, together with their interests in the
Company’s shares, are shown in the Remuneration Committee Report on pages 37 to 40. The Company maintains
directors’ and officers’ liability insurance and provides the Directors and officers with a qualifying third party indemnity
within the limits permitted by the Companies Act 2006.

The Directors may exercise all the powers of the Company subject to the provisions of relevant legislation and the
Company’s Articles of Association. The powers in the Articles of Association include those in relation to the issue and
buyback of shares.

Corporate social responsibility

Environment

LMS Capital plc has a limited direct impact upon the environment and there are few environmental risks associated with
the Company’s activities.

It does not own the building where it occupies floor space. Under the lease for these premises the Company and its
landlord have agreed to devise and comply with an energy management plan; to operate initiatives to reduce, re-use and
recycle waste; and to maintain and share data about energy and resource consumption to ensure that the premises are
used in accordance with the energy management plan and in a way which improves energy efficiency. Office waste is
recycled and segregated wherever possible, and staff are made aware of the importance of recycling.

The building is multi-tenanted and costs are apportioned to each tenant pro-rated according to space occupied. Water
and gas supplied into the building are metered centrally by the building management and costs apportioned to each
tenant. Electricity usage is separately monitored by tenant and energy efficient lighting is installed in the building with
sensors which turn lights off when no movement is detected.

Greenhouse gas emissions by scope:

Scope

Scope 1

Scope 2

Total

Source

Emissions from combustion of fuel
Process or fugitive emissions
Emissions from electricity, heat, steam and cooling purchased
for own use using location-based method

Intensity – emissions per unit floor area

Per square foot
Per square metre

Year ended 31 December

2016
(tonnes CO2e)

2015
(tonnes CO2e)

18.7
0.0

55.1

73.8

kgCO2e

10.1
108.6

15.7
0.0

65.0

80.7

kgCO2e

11.0
118.7

Note:

To meet the requirements of the GHG Protocol Scope 2 Guidance, the Company accounts for its Scope 2 emissions using a
market-based method as well as a location-based method. The Company’s Scope 2 emissions using the market-based method
were 64.6 tCO2e in 2016 and 56.0 tCO2e in 2015. This is based on emission factors for electricity supply, which were 0.48284
kgCO2/kWh in 2016 (UK residual mix) and 0.398 kgCO2/kWh in 2015 (supplier-specific emission factor). No supplier-specific
emission factor was available for 2016.

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The Company has reported on all the emissions sources required under the Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013. These sources fall within our financial statements. The Company has no
responsibility for any emissions sources that are not included in the financial statements.

The Company has used the GHG Protocol Corporate Accounting and Reporting Standard and the GHG Protocol Scope 2
Guidance, data gathered from its operations, emission factors from UK Government’s Conversion Factors for Company
Reporting 2015 and emission factors from the electricity supplier.

Charitable donations

The Company did not make any charitable donations during 2016 (2015: £nil). However the Company does provide
without charge office accommodation and services within its premises for The Rayne Foundation
(www.raynefoundation.org.uk). The estimated monetary value of this in 2016 was £65,000 (2015: £56,000).

The Rayne Foundation aspires to understand and engage with the needs of UK society, and to find ways and means to
help address those needs. It focuses on work which has wider than just local application or which is of national
importance. It does this within four sectors: the Arts; Education; Health & Medicine; and Social Welfare & Development.

In addition, LMS Capital provides the use of its meeting rooms and facilities to two charities: The Chicken Shed Theatre
Company (www.chickenshed.org.uk) and The Place2Be (www.theplace2be.org.uk), for their trustee meetings and other
functions.

Individual fund raising activities by employees are supported by the Company and their colleagues.

Political donations

The Company did not make any political donations during 2016 (2015: £nil).

Contractual arrangements
Details of the Company’s contractual arrangements are given in the Strategic Report on pages 5 to 9.

There are no other contracts or arrangements with third parties which the Board deem essential to the operation of the
Company, or which take effect, alter or terminate upon a change of control of the Company following a takeover bid.

Related party transactions
Details of related party transactions are set out in note 20 to the financial statements.

Dividends
The Board does not recommend the payment of a dividend in respect of the year ended 31 December 2016 (2015: £nil).

Subsequent events
There have been no events subsequent to 31 December 2016 that would materially affect the interpretation of the
financial statements included in this Annual Report.

Share capital
On 27 July 2016, the Company published a circular to shareholders setting out details of a tender offer to return up to
£6 million to shareholders. The tender offer was approved by shareholders at a general meeting of the Company held on
16 August 2016 and the results of the tender offer were announced on 1 September 2016. As a result, 7,142,857 ordinary
shares in the capital of the Company (with a nominal value of £714,285.70) were purchased by the Company through its
brokers. These shares were then cancelled, reducing the Company’s issued share capital from 103,584,592 ordinary
shares to 96,441,735 ordinary shares. The tender offer price was set at 84p and the total value of all ordinary shares
purchased was £6 million.

Directors’ Report continued

46

At 31 December 2016, the Company’s issued share capital remains at 96,441,735 ordinary shares of 10p each. Each share
carries one vote. No shares are currently held in treasury. There are no restrictions on the transfer of shares. There has
been no change in the issued share capital between the year-end and the date of this report.

Substantial shareholdings
As at 31 December 2016, the Company was aware of the following significant direct and indirect interests in the issued
share capital of the Company.

Name of shareholder

Asset Value Investors
Schroders plc
Robert Rayne1,2
Trustees of Lord Rayne’s Will Trust
Lady Jane Rayne1

Percentage of issued share capital

12.09
6.95
11.27
11.22
9.69

The Company has not been notified of any changes to these holdings up to the date of this report.

Notes:
1. There are common interests in certain of these shares, which are held within charitable trusts.
2. Robert Rayne holds a non-beneficial interest in 7,791,115 ordinary shares held in trust and a personal interest in 3,076,866

ordinary shares.

Annual General Meeting
The Company’s AGM will be held at Durrants Hotel, George Street, London W1H 5BJ at 12.00 noon on 25 May 2017. The
notice of meeting, which includes explanatory notes and provides full details of the resolutions being proposed at the
AGM, is available to view on the Company’s website at www.lmscapital.com.

Auditor
The auditor, BDO LLP, has indicated their willingness to continue in office and resolutions will be proposed at the AGM
for their reappointment and to authorise the Directors to fix their remuneration.

The Directors who held office at the date of approval of this report each confirm that, so far as they are aware, there is no
relevant audit information (as defined by Section 418 (3) of the Companies Act 2006) of which the Company’s auditor is
unaware; and each Director has taken all the steps that ought to have been taken as a Director to make himself aware of
any relevant audit information and to establish that the Company’s auditor is aware of that information.

By order of the Board.

Augentius Corporate Services Limited
Company Secretary

14 March 2017

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Statement of Directors’ Responsibilities

The Directors who served during the year ended 31 December 2016 and to the date of this Annual Report are as set out on
pages 23 to 24. The Directors are responsible for preparing the Annual Report and the financial statements in accordance
with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they are
required to prepare the financial statements in accordance with International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU) and applicable law.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing the financial
statements, the Directors are required to:

● select suitable accounting policies and then apply them consistently;

● make judgements and estimates that are reasonable and prudent;

● state whether they have been prepared in accordance with IFRSs as adopted by the EU;

● prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company

will continue in business; and

● prepare a Directors’ Report, Strategic Report and Directors’ Remuneration Report which comply with the Companies

Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies Act 2006. They have general
responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on
the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.

We confirm that to the best of our 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 taken as a whole;

● the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s performance, business model and strategy; and

● the Strategic Report and Manager’s Review include a fair review of the development and performance of the business
and the position of the Company taken as a whole, together with a description of the principal risks and uncertainties
that they face.

For and on behalf of the Board.

Martin Knight
Chairman

14 March 2017

Independent Auditor’s Report to the Members of LMS Capital plc

48

Opinion on financial statements

In our opinion:

● the financial statements give a true and fair view of the state of the Company’s affairs as at 31 December 2016 and of

its loss for the year then ended;

● the financial statements have been properly prepared in accordance with International Financial Reporting Standards

(“IFRSs”) as adopted by the European Union; and

● the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

The financial statements comprise the income statement, the statement of comprehensive income, the statement of
financial position, the statement of changes in equity, the cash flow statement and the related notes. The financial
reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union.

Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s (“FRC’s”)
Ethical Standards for Auditors.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s 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 and the Company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.

Our assessment of and response to the risks of material misstatement and overview of the
scope of our audit
A description of the scope of an audit of financial statements is provided on the FRC’s website at
www.frc.org.uk/auditscopeukprivate. Our audit approach was developed by obtaining an understanding of the
Company’s activities, the key functions undertaken on behalf of the Board by the investment manager and the overall
control environment. Based on this understanding we assessed those aspects of the Company’s financial statements
which were most likely to give rise to a material misstatement.

The valuation of investments in the underlying investment portfolio was the risk that had the greatest impact on our
audit strategy and scope, including the allocation of resources in the audit. The Audit Committee’s consideration of this
key matter is set out on pages 33 to 34.

49

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Risk description

How our audit addressed the risk

The valuation of investments
can be a highly subjective
accounting estimate where
there is an inherent risk of
management override arising
from the investment
valuations being prepared by
the investment manager, who
is remunerated based on the
net asset value of the
Company.

Quoted investments

In respect of quoted equity investments, we confirmed that bid price has been used
by obtaining the bid prices from an independent third party source. We also
confirmed that there were no contra indicators, such as liquidity considerations, to
suggest bid price is not the most appropriate indication of fair value.

Unquoted investments
Our testing was stratified according to risk, having regard to the subjectivity of the
inputs to the valuations. For the investments sampled our procedures included,
inter alia:

● Agreeing valuations where relevant through to a third party valuation report or

third party data

● Challenging whether the assumptions and underlying evidence supporting the

year-end valuations were reasonable

● Challenging whether the valuation methodology was the most appropriate in the

circumstances under the International Private Equity and Venture Capital
Valuation (“IPEV”) Guidelines and IFRSs

● Re-performing the calculation of the investment valuations, having regard to the

application of enterprise value across the capital structures of the investee
companies

● Verifying and benchmarking key inputs and estimates to independent

information and our own research

● Where appropriate, performing sensitivity analysis on the valuation calculations
where there is sufficient evidence to suggest reasonable alternative inputs might
exist

● Challenging the investment manager regarding significant judgements made

and obtaining corroborating evidence where available

● Considering the economic environment in which the investment operates to

identify factors that could impact the investment valuation.

The remainder of the portfolio was subject to analytical procedures, such as
confirming whether a nil value was appropriate.

Fund investments
We reviewed the underlying fund manager report and assessed the quality and
reliability of the information.

We challenged the appropriateness of any adjustments made by the investment
manager to the value of the investment holding (for instance where reports
available were not at the same year-end date or more relevant information
suggested an adjustment to the valuation). For a sample of funds this involved an
assessment of the underlying investments using the steps noted under unquoted
investments above.

Where necessary we considered the appropriateness of the key assumptions in the
valuation models and whether alternative reasonable assumptions could have been
applied. We considered each assumption in isolation as well as in conjunction with
other assumptions and the valuation as a whole. Where appropriate, we sensitised
the valuations where other reasonable alternative assumptions could have been
applied. We also considered the completeness and clarity of disclosures regarding
the valuation of investments in the financial statements.

Based on our procedures performed we concluded that the valuation of the
investment portfolio was considered to be within an acceptable range.

Independent Auditor’s Report to the Members of LMS Capital plc continued

50

Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions,
could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.
Importantly, misstatements below this level will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on
the financial statements as a whole.

The application of these key considerations gives rise to two levels of materiality, the quantum and purpose of which are
tabulated below.

Materiality measure

Purpose

Basis and key considerations

Quantum (£)

Based on 1.5% of total assets
considering the nature of the
investment portfolio and the level
of judgement inherent in the
valuation.

1,149,000

1.5% of total expenditure.

80,000

Financial statement
materiality.

Assessing whether the financial
statements as a whole present a
true and fair view.

Specific materiality –
classes of transactions
and balances which
impact on the realised
return.

Assessing those classes of
transactions, balances or
disclosures for which
misstatements of lesser amounts
than materiality for the financial
statements as a whole could
reasonably be expected to
influence the economic decisions
of users taken on the basis of the
financial statements.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £22,000, as
well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit;

● the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial

statements are prepared is consistent with the financial statements; and

● the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements.

Statement regarding the Directors’ assessment of principal risks, going concern and longer
term viability of the company
We have nothing material to add or to draw attention to in relation to:

● the Directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal risks
facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;

● the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated;

51

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● the Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them and their identification of any material uncertainties to the entity’s
ability to continue to do so over a period of at least twelve months from the date of approval of the financial
statements; or

● the Directors’ explanation in the Annual Report as to how they have assessed the prospects of the entity, over what

period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any relevant disclosures drawing attention to any necessary
qualifications or assumptions.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Directors’ Report.

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is:

● materially inconsistent with the information in the audited financial statements; or

● apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Company acquired in

the course of performing our audit; or

● is otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge
acquired during the audit and the Directors’ statement that they consider the Annual Report is fair, balanced and
understandable and whether the Annual Report appropriately discloses those matters that we communicated to the Audit
Committee which we consider should have been disclosed.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

● adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been

received from branches not visited by us; or

● the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with

the accounting records and returns; or

● certain disclosures of Directors’ remuneration specified by law are not made; or

● we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review the parts of the Directors’ statement relating to the Company’s
compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10 R(2). The Listing Rules also require that we review the Directors’ statements set out
on page 31 and page 9 regarding going concern and longer term viability.

We have nothing to report in respect of these matters.

Neil Fung-On (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom

14 March 2017

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)

Income Statement

52

Net (losses)/gains on investments

Directors’ and other fees from investments

Interest income

Operating expenses

(Loss)/profit before tax

Taxation

(Loss)/profit for the year

Attributable to:
Equity shareholders

(Loss)/earnings per ordinary share – basic

(Loss)/earnings per ordinary share – diluted

The notes on pages 57 to 78 form part of these financial statements.

Year ended
31 December
2016
£’000

Restated
Year ended
31 December
2015
£’000

(16,161)

3,715

48

20

(16,093)

(4,738)

(20,831)

–

(20,831)

(20,831)

(20.6)p

(20.6)p

55

78

3,848

(3,393)

455

–

455

455

0.3p

0.3p

Notes

3

4

5

7

8

8

Statement of Comprehensive Income

(Loss)/profit for the year

Other comprehensive income

Total comprehensive (loss)/profit for the year

Attributable to:

Equity shareholders

The notes on pages 57 to 78 form part of these financial statements.

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Year ended
31 December
2016
£’000

Restated
Year ended
31 December
2015
£’000

(20,831)

–

(20,831)

455

–

455

(20,831)

455

Statement of Financial Position

54

Non-current assets

Property, plant and equipment

Investments

Non-current assets

Current assets

Operating and other receivables

Cash and cash equivalents

Current assets

Total assets

Current liabilities

Operating and other payables

Amounts payable to subsidiaries

Current liabilities

Non-current liabilities

Provisions and other liabilities

Non-current liabilities

Total liabilities

Net assets

Equity
Share capital
Share premium
Capital redemption reserve
Retained earnings

Total equity shareholders’ funds

31 December
2016
£’000

Notes

Restated
31 December
2015
£’000

9

10

11

12

32

148,312

148,344

261

220,505

220,766

248

1,249

1,497

156

4,083

4,239

149,841

225,005

13

(4,078)

(1,472)

(76,743)

(125,622)

(80,821)

(127,094)

14

15

(904)

(904)

(2,820)

(2,820)

(81,725)

(129,914)

68,116

95,091

9,644
508
23,378
34,586

68,116

10,358
508
22,664
61,561

95,091

The financial statements on pages 52 to 78 were approved by the Board on 14 March 2017 and were signed on its behalf
by:

Martin Knight
Director

The notes on pages 57 to 78 form part of these financial statements.

Statement of Changes in Equity

Balance at 1 January 2015 as

previously reported

Effect of change in accounting

policy (note 2)

Share
capital
£’000

Capital
Share redemption
reserve
£’000

premium
£’000

Merger Translation
reserve
reserve
£’000
£’000

Retained
earnings
£’000

Total
equity
£’000

14,525

508

18,497

35,422

812

65,344

135,108

–

–

–

(35,422)

(812)

36,234

–

Balance at 1 January 2015 as restated

14,525

508

18,497

Total comprehensive income

for the year

Profit for the year

Transactions with owners, recorded

directly in equity

Repurchase of shares

–

(4,167)

–

–

–

4,167

Balance at 31 December 2015

10,358

508

22,664

Total comprehensive income

for the year

Loss for the year

Transactions with owners, recorded

directly in equity

Repurchase of shares

–

(714)

–

–

–

714

Balance at 31 December 2016

9,644

508

23,378

The notes on pages 57 to 78 form part of these financial statements.

–

–

–

–

–

–

–

–

101,578

135,108

–

–

–

455

455

(40,472)

(40,472)

61,561

95,091

–

(20,831)

(20,831)

–

–

(6,144)

(6,144)

34,586

68,116

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Cash Flow Statement

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Cash flows from operating activities

(Loss)/profit for the year

Adjustments for:

Depreciation

Losses/(gains) on investments

Interest income

Change in operating and other receivables

Change in operating and other payables

Change in amounts payable to subsidiaries

Net cash from operating activities

Cash flows from investing activities

Interest received

Purchase of investments

Acquisition of property, plant and equipment

Net cash (used in)/from investing activities

Cash flows from financing activities

Repurchase of own shares

Net cash used in financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

The notes on pages 57 to 78 form part of these financial statements.

Year ended
31 December
2016
£’000

Restated
Year ended
31 December
2015
£’000

Notes

(20,831)

455

9

9

233

16,161

(20)

(4,457)

(92)

(120)

9,585

4,916

19

(1,621)

(4)

(1,606)

127

(3,715)

(78)

(3,211)

(20)

(1,260)

45,792

41,301

78

–

(1)

77

(6,144)

(40,472)

(6,144)

(40,472)

(2,834)

4,083

1,249

906

3,177

4,083

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Notes to the Financial Statements

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 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.

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards as
adopted for use in the European Union (“Adopted IFRSs”). These financial statements were authorised for issue by the
Directors on 14 March 2017.

The financial statements have been prepared on the historical cost basis except for investments which are measured at
fair value, with changes in fair value recognised in the income statement.

On 16 August 2016, shareholders approved a change in the investment policy of the Company with the objective
predominantly focused on private equity investment. Prior to this the Company had been conducting an orderly
realisation of its assets and returning the cash to shareholders. Under the realisation strategy the financial statements
were not prepared on a going concern basis. Following the change in investment strategy these financial statements have
been prepared on a going concern basis.

The Company’s business activities and financial position are set out in the Strategic Report on pages 5 to 9 and in the
Manager’s Review on pages 11 to 19. In addition note 17 to the financial information includes a summary of the
Company’s financial risk management processes, details of its financial instruments and its exposure to credit risk and
liquidity risk. Taking account of the financial resources available to it the Directors believe that the Company is well
placed to manage its business risks successfully. After making enquiries the Directors have a reasonable expectation that
the Company has adequate resources for the foreseeable future.

Change in accounting policy and disclosure

The accounting policies adopted are consistent with those of the previous financial year except as follows:

In December 2014 the International Accounting Standards Board issued an amendment to IFRS 10 “Consolidated
Financial Statements” which considered certain application issues which had been raised in connection with the
standard. To comply with this amendment, which is effective from 1 January 2016, the Company now reports its
operating subsidiaries (which act as the intermediate holding companies of the investment portfolio) at fair value
through profit or loss rather than consolidating them as previously. The impact of this change in accounting policy is set
out in note 2 to the financial statements.

Accounting for subsidiaries

The Directors have concluded that the Company has all the elements of control as prescribed by IFRS 10 “Consolidated
Financial Statements” in relation to all its subsidiaries and that the Company satisfies the criteria to be regarded as an
investment entity as defined in IFRS 10, IFRS 12 “Disclosure of Interests in Other Entities” and IAS 27 “Consolidated and
Separate Financial Statements”. Subsidiaries are therefore measured at fair value through profit or loss, in accordance
with IFRS 13 “ Fair Value Measurement” and IAS 39 “Financial Instruments: Recognition and Measurement”.

The Company’s subsidiaries, which are wholly-owned and over which it exercises control, are listed in note 22.

Notes to the Financial Statements continued

58

1. Principal accounting policies – continued

New standards and interpretations not yet applied

The International Accounting Standards Board has issued the following standards, which are relevant to the Company’s
reporting but which have not yet been applied and have an effective date after the date of these financial statements:

(cid:2) IFRS 9 “Financial instruments” will not become effective until accounting periods beginning on or after 1 January

2018;

(cid:2) IFRS 15 “Revenue from contracts with customers” will not become effective until accounting periods beginning on or

after 1 January 2018;

(cid:2) IFRS 16 “Leases” is not yet endorsed and will not become effective until accounting periods beginning on or after

1 January 2019.

The adoption of the above standards is not expected to have a material impact on the Company’s reported net assets.

Use of estimates and judgements

The preparation of financial statements in conformity with Adopted IFRSs requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis; revisions to accounting estimates are recognised in the period in which the estimates
are revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that
have the most significant effect on the amounts recognised in the financial statements is included in note 1 – valuation
of investments.

Investments in subsidiaries

The Company’s investments in subsidiaries are stated at fair value which is considered to be the carrying value of the net
assets of each subsidiary. On disposal of such investments the difference between net disposal proceeds and the
corresponding carrying amount is recognised in the income statement.

Valuation of investments

The Company and its subsidiaries manage their investments with a view to profit from the receipt of dividends and
changes in fair value of equity investments. Therefore all quoted, unquoted and managed fund investments are
designated at fair value through profit and loss and carried in the Statement of Financial Position at fair value.

Fair values have been determined in accordance with the International Private Equity and Venture Capital Valuation
Guidelines. These guidelines require the valuer to make judgments as to the most appropriate valuation method to be
used and the results of the valuations.

Each investment is reviewed individually with regard to the stage, nature and circumstances of the investment and the
most appropriate valuation method selected. The valuation results are then reviewed and any amendment to the carrying
value of investments is made as considered appropriate. Where the value of an investment is considered to be impaired,
it is written down to its expected recoverable amount as part of the determination of its fair value.

Quoted investments

Quoted investments for which an active market exists are valued at the closing bid price at the reporting date.

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1. Principal accounting policies – continued

Unquoted direct investments

Unquoted direct investments for which there is no ready market are valued using the most appropriate valuation
technique with regard to the stage and nature of the investment.

Valuation methods that may be used include:

(cid:2) Investments in which there has been a recent funding round involving significant financing from external investors

are valued at the price of the recent funding, discounted if an external investor is motivated by strategic
considerations;

(cid:2) Investments in an established business are valued using revenue or earnings multiples depending on the stage of
development of the business and the extent to which it is generating sustainable profits or positive cash flows;

(cid:2) Investments in a business the value of which is derived mainly from its underlying net assets rather than its earnings

are valued on the basis of net asset valuation;

(cid:2) Investments in an established business which is generating sustainable profits or positive cash flows but for which

other valuation methods are not appropriate are valued by calculating the discounted cash flow of future cash flows or
earnings; and

(cid:2) Investments in early stage businesses not generating sustainable profits or positive cash flows and for which there has
not been any recent independent funding are valued by calculating the discounted cash flow of the investment to the
investors.

Funds

Investments in managed funds are valued at fair value. The general partners of the funds will provide periodic valuations
on a fair value basis which the Company will adopt provided it is satisfied that the valuation methods used by the funds
are not materially different from the Company’s valuation methods.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment loss. Cost includes
expenditure that is directly attributable to the asset, including where appropriate the cost of materials, direct labour and
any other costs directly attributable to bringing the asset to a working condition for its intended use.

Depreciation is charged using the straight-line method over the estimated useful lives of the assets as follows:

Plant and equipment
Fixtures and fittings

3 years
3–7 years

When parts of an item of property, plant and equipment have different useful lives, these components are accounted for
as separate items of property, plant and equipment. The useful lives of the items within property, plant and equipment
are reviewed regularly, including at each reporting date.

Impairment of financial assets

Loans and receivables are considered to be impaired if objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of loans and receivables measured at amortised cost is calculated as the difference between
their carrying amount and the present value of the estimated future cash flows discounted at the original effective interest
rate. Individually significant loans and receivables are tested for impairment on an individual basis. The remaining loans
and receivables are assessed collectively in groups that share similar credit risk characteristics.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss
was recognised.

Notes to the Financial Statements continued

60

1. Principal accounting policies – continued

Foreign currencies

Transactions in foreign currencies are recorded at the rate of exchange at the date of transaction. Monetary assets and
monetary liabilities denominated in foreign currencies at the reporting date are reported at the rates of exchange
prevailing at that date and exchange differences are included in the income statement.

Operating and other receivables

Operating and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured
at amortised cost using the effective interest method, less any impairment losses.

Cash and cash equivalents

Cash, for the purpose of the cash flow statement, comprises cash in hand and cash equivalents, less overdrafts payable
on demand.

Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.

Financial liabilities

The Company’s financial liabilities include operating and other payables. They are measured at cost which is the fair
value of the consideration to be paid in the future for goods and services received.

Provisions

A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risk specific to the liability.

Income

Gains and losses on investments

Realised and unrealised gains and losses on investments are recognised in the income statement in the period in which
they arise.

Interest income

Interest income is recognised as it accrues using the effective interest method.

Directors’ and other fees from investments

These principally comprise investment management fees receivable from portfolio companies.

Expenditure

Employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related services
are provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or carried interest
incentive arrangements if the Company has a present legal or constructive obligation to pay the amount as a result of past
service provided by the employee and the obligation can be estimated reliably.

Payments to defined contribution pension schemes are charged as an expense as they fall due.

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1. Principal accounting policies – continued

Share-based payments

The Company has issued share options and awards of performance shares to certain employees. Such options and awards
are treated as equity-settled share-based payments and measured at fair value at the date of grant and the fair value is
recognised as an expense with a corresponding increase in equity on a straight-line basis over the vesting period.

Fair value is calculated by use of a binomial option valuation model taking into account the terms and conditions under
which the equity-settled share-based payments were issued. Service and non-market performance conditions attached to
transactions are not taken into account in determining fair value.

Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of
the lease. Lease incentives received are recognised as an integral part of the total lease expense over the term of the lease.
Provision is made for all or part of an operating lease if it is considered to be onerous.

Income tax expense

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement
except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity as other
comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet liability approach, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is
recognised to the extent that it is probable that future taxable profits will be available against which temporary
differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to
pay the related dividend is recognised.

Notes to the Financial Statements continued

62

2. Change in accounting policy
With effect from 1 January 2016, the Company has adopted the amendment to IFRS 10 “Consolidated Financial
Statements” which requires it to report its operating subsidiaries (which act as the intermediate holding companies of the
investment portfolio) at fair value rather than consolidate them as previously.

The impact of this change in accounting policy on the income statement for the year ended 31 December 2015 is set
out below:

Net gains on investments
Directors’ and other fees from investments
Interest income

Operating expenses

Profit before tax
Taxation

Profit for the year

Attributable to:
Equity shareholders

Earnings per ordinary share – basic
Earnings per ordinary share – diluted

Year ended 31 December 2015

Consolidated
As previously
reported
£’000

Impact of
change in
accounting
policy
£’000

4,664
55
78

4,797
(4,052)

745
(294)

451

451

0.3p
0.3p

(949)
–
–

(949)
659

(290)
294

4

4

–
–

Company
Restated
£’000

3,715
55
78

3,848
(3,393)

455
–

455

455

0.3p
0.3p

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2. Change in accounting policy – continued
The impact of this change in accounting policy on the statement of financial position at 31 December 2015 is set out below:

Non-current assets
Property, plant and equipment
Investments

Non-current assets

Current assets
Operating and other receivables
Cash and cash equivalents

Current assets

Total assets

Current liabilities
Operating and other payables
Amounts payable to subsidiaries
Current tax liabilities

Current liabilities

Non-current liabilities
Provisions and other long-term liabilities

Non-current liabilities

Total liabilities

Net assets

Equity
Share capital
Share premium
Capital redemption reserve
Merger reserve
Foreign exchange translation reserve
Retained earnings

Total equity shareholders’ funds

31 December 2015

Consolidated
As previously
reported
£’000

Impact of
change in
accounting
policy
£’000

261
95,643

95,904

602
6,105

6,707

–
124,862

124,862

(446)
(2,022)

(2,468)

Company
Restated
£’000

261
220,505

220,766

156
4,083

4,239

102,611

122,394

225,005

(3,985)
–
(715)

2,513
(125,622)
715

(1,472)
(125,622)
–

(4,700)

(122,394)

(127,094)

(2,820)

(2,820)

–

–

(2,820)

(2,820)

(7,520)

(122,394)

(129,914)

95,091

–

95,091

10,358
508
22,664
23,918
816
36,827

95,091

–
–
–
(23,918)
(816)
24,734

–

10,358
508
22,664
–
–
61,561

95,091

Notes to the Financial Statements continued

64

2. Change in accounting policy – continued
The impact of this change in accounting policy on the statement of cash flows for the year ended 31 December 2015 is set
out below:

Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Net gains on investments
Translation differences
Interest income
Income tax expense

Change in operating and other receivables
Change in operating and other payables
Change in amounts payable to subsidiaries

Income tax paid

Net cash (used in)/from operating activities

Cash flows from investing activities
Interest received
Acquisition of property, plant and equipment
Acquisition of investments
Proceeds from sale of investments
Other income from investments

Net cash from investing activities

Cash flows from financing activities
Repurchase of own shares

Net cash used in financing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash held

Cash and cash equivalents at the end of the year

Year ended 31 December 2015

Consolidated
As previously
reported
£’000

Impact of
change in
accounting
policy
£’000

Company
Restated
£’000

451

4

455

127
(4,664)
(329)
(78)
294

(4,199)
(361)
(2,206)
–

(6,766)
(72)

(6,838)

78
(1)
(1,194)
43,731
1,310

–
949
329
–
(294)

988
341
946
45,792

48,067
72

48,139

–
–
1,194
(43,731)
(1,310)

43,924

(43,847)

127
(3,715)
–
(78)
–

(3,211)
(20)
(1,260)
45,792

41,301
–

41,301

78
(1)
–
–
–

77

(40,472)

(40,472)

(3,386)
9,158
333

6,105

–

–

(40,472)

(40,472)

4,292
(5,981)
(333)

(2,022)

906
3,177
–

4,083

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3. Net (losses)/gains on investments
Gains and losses on investments were as follows:

Asset type

Quoted
Unquoted direct
Funds

Year ended
31 December 2016

Restated
Year ended
31 December 2015

Realised Unrealised
£’000

£’000

Total
£’000

Realised Unrealised
£’000

£’000

Total
£’000

(1,291)

(1,282)
9
– (15,879) (15,879)
983

492

491

1,511
8,948
2,518

(2,479)
1,142
(5,025)

(968)
10,090
(2,507)

Credit/(charge) for incentive plans

Operating and similar expenses of subsidiaries*

500 (16,678)

(16,178)

12,977

(6,362)

6,615

737

(15,441)
(720)

(16,161)

(1,951)

4,664
(949)

3,715

* Includes operating and legal costs and taxation charges of subsidiaries.

Interest income

4.
Interest income comprises interest receivable on bank deposits.

5. Operating expenses
Operating expenses comprise administrative expenses and include the following:

Depreciation
Personnel costs (note 6)
Operating lease expense
Non-recurring costs
Auditor’s remuneration
Fees to auditor
– parent company
– subsidiary companies
Non-audit related services
– taxation advisory services
– other assurance services*

* relates to non-audit services provided by the previous auditor, KPMG LLP.

Year ended 31 December

2016
£’000

127
1,910
269
2,157

27
63

–
55

Restated
2015
£’000

127
3,470
137
823

105
35

43
40

Notes to the Financial Statements continued

66

5. Operating expenses – continued
The non-recurring costs comprise the following:

(cid:2) Professional charges in connection with the circular to shareholders dated 27 July 2016 – £866,000

(cid:2) Severance costs for Executive Directors and staff – £712,000

(cid:2) Premises costs for property expected to be surplus to requirements from the end of March 2017 – £579,000

(including £105,000 accelerated depreciation on fixtures and fittings).

The non-recurring costs in 2015 were incurred in connection with the proposals to change the investment strategy
announced in July 2015 and subsequently withdrawn.

6. Personnel expenses

Wages and salaries
Compulsory social security contributions
Contributions to defined contribution plans

Year ended 31 December

2016
£’000

1,722
125
63

1,910

Restated
2015
£’000

3,245
150
75

3,470

The wages and salaries expense includes a credit of £179,000 (2015: charge of £1,589,000) in relation to the following
incentive plans: (i) the executive incentive plan £nil (2015: £603,000 charge), and (ii) carried interest credit of £179,000
(2015: £986,000 charge).

The wages and salaries expense is shown in the income statement as follows:

Gains on investments
Operating expenses

Year ended 31 December

2016
£’000

(179)
1,901

1,722

Restated
2015
£’000

1,589
1,656

3,245

The executive incentive plan is described in the Remuneration Committee Report. The scheme was linked to amounts
returned to shareholders as a consequence of the Company’s realisation strategy and £904,000 is accrued at
31 December 2016 (31 December 2015: £2,820,000) in respect of amounts due to the former Executive Directors.

The Company operates carried interest arrangements in line with normal practice in the private equity industry; £nil is
accrued at 31 December 2016 (31 December 2015: £366,000) calculated on the assumption that the investment portfolio
is realised at its year-end carrying amount.

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2016

2015

Male

Female

Total

Male

Female

Total

6
–
1

7

–
–
3

3

6
–
4

10

6
–
2

8

–
–
5

5

6
–
7

13

6. Personnel expenses – continued
The average number of Directors and staff was as follows:

Directors
Senior management
Other employees

7. Taxation

Current tax expense
Current year

Total tax expense

Reconciliation of tax expense

(Loss)/profit before tax

Corporation tax using the Company’s domestic tax rate –20.00% (2015: 20.25%)
Fair value adjustments not currently taxed
Non-deductible expenses
Non-taxable income
Deferred tax asset not recognised
Group relief
Overseas tax paid
Prior year adjustment

Total tax expense

Year ended 31 December

2016
£’000

–

–

Restated
2015
£’000

–

–

Year ended 31 December

2016
£’000

(20,831)

(4,166)
3,811
(212)
27
686
(204)
39
19

–

Restated
2015
£’000

455

92
1,108
856
(782)
343
(1,625)
72
(64)

–

Notes to the Financial Statements continued

68

(Loss)/earnings per ordinary share

8.
The calculation of the basic and diluted earnings per share, in accordance with IAS 33, is based on the following data:

(Loss)/earnings
(Loss)/earnings for the purposes of (loss)/earnings per share being net
(loss)/profit attributable to equity holders of the parent

Number of shares
Weighted average number of ordinary shares for the
purposes of basic (loss)/earnings per share
Effect of dilutive potential ordinary shares:
Share options and performance shares*
Weighted average number of ordinary shares for the
purposes of diluted (loss)/earnings per share

(Loss)/earnings per share
Basic
Diluted

* There are no potentially dilutive shares in 2016 since the Company has made a loss.

9. Property, plant and equipment

Year ended 31 December

2016
£’000

Restated
2015
£’000

(20,831)

455

Number

Number

101,203,640

143,424,774

–

78,531

101,203,640

143,503,305

Pence

Pence

(20.6)
(20.6)

0.3
0.3

Cost
Balance at 1 January 2015
Additions

Balance at 31 December 2015

Balance at 1 January 2016
Additions

Balance at 31 December 2016

Depreciation and impairment losses
Balance at 1 January 2015
Depreciation charge for the year

Balance at 31 December 2015

Balance at 1 January 2016
Depreciation charge for the year

Balance at 31 December 2016

Carrying amounts
At 31 December 2015

At 31 December 2016

Plant and
equipment
£’000

Fixtures
and fittings
£’000

328
1

329

329
4

333

323
2

325

325
3

328

4

5

1,023
–

1,023

1,023
–

1,023

641
125

766

766
230

996

257

27

Total
£’000

1,351
1

1,352

1,352
4

1,356

964
127

1,091

1,091
233

1,324

261

32

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10. Investments
The Company’s investments comprised the following:

Total investments

These comprise:
Investment portfolio of the Company
Investment portfolio of subsidiaries
Other net assets of subsidiaries

31 December

2016
£’000

Restated
2015
£’000

148,312

220,505

2,481
70,951
74,880

–
95,643
124,862

148,312

220,505

The carrying amounts of the Company’s and its subsidiaries’ investment portfolios were as follows:

Asset type

Quoted
Unquoted direct
Funds

31 December 2016

31 December 2015

UK
£’000

2,481
9,384
11,149

US
£’000

Total
£’000

2,995
21,987
25,436

5,476
31,371
36,585

UK
£’000

1,564
12,347
18,602

US
£’000

8,197
33,765
21,168

Total
£’000

9,761
46,112
39,770

23,014

50,418

73,432

32,513

63,130

95,643

The movements in the investment portfolio were as follows:

Carrying value
Balance at 1 January 2015
Purchases
Disposals
Distributions from partnerships
Fair value adjustments

Balance at 31 December 2015

Balance at 1 January 2016
Purchases
Reclassification
Disposals
Distributions from partnerships
Fair value adjustments

Balance at 31 December 2016

Quoted
securities
£’000

Unquoted
securities
£’000

Funds
£’000

Total
£’000

20,352
–
(8,112)
–
(2,479)

9,761

9,761
2,618
(286)
(5,326)
–
(1,291)

49,951
804
(5,785)
–
1,142

46,112

46,112
852
286
–
–
(15,879)

62,572
390
–
(18,167)
(5,025)

39,770

39,770
438
–
–
(4,779)
1,156

132,875
1,194
(13,897)
(18,167)
(6,362)

95,643

95,643
3,908
–
(5,326)
(4,779)
(16,014)

5,476

31,371

36,585

73,432

Notes to the Financial Statements continued

70

10. Investments – continued
The following table analyses investments carried at fair value at the end of the year, by the level in the fair value hierarchy
into which the fair value measurement is categorised. The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets;

Level 2: inputs other than quoted prices included within level 1 that are observable for the asset, either directly (i.e. as

prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset that are not based on observable market data (unobservable inputs such as trading

comparables and liquidity discounts).

Fair value measurements are based on observable and unobservable inputs. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the
absence of observable market information (see note 17 – Financial risk management).

The Company’s investments are analysed as follows:

Level 1
Level 2
Level 3

31 December

2016
£’000

2,366
–
145,946

2015
£’000

9,761
–
210,744

148,312

220,505

Level 3 amounts include £70,951,000 (2015: £85,882,000) relating to the investment portfolios of subsidiaries
(including quoted investments of £2,995,000 (2015: £9,761,000)) and £74,880,000 (2015: £124,862,000) in relation to
the other net assets of subsidiaries.

11. Operating and other receivables

Trade receivables
Other receivables and prepayments

12. Cash and cash equivalents

Bank balances
Short-term deposits

31 December

2016
£’000

60
188

248

Restated
2015
£’000

63
93

156

31 December

2016
£’000

117
1,132

1,249

Restated
2015
£’000

145
3,938

4,083

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31 December

2016
£’000

1,470
–
2,608

4,078

Restated
2015
£’000

155
366
951

1,472

31 December

2016
£’000

904

Restated
2015
£’000

2,820

2016
Number

2016
£’000

2015
Number

103,584,592
(7,142,857)

10,358
(714)

145,251,258
(41,666,666)

96,441,735

9,644

103,584,592

2015
£’000

14,525
(4,167)

10,358

13. Operating and other payables

Trade payables
Carried interest (note 6)
Other non-trade payables and accrued expenses

14. Provisions and other liabilities

Executive incentive plan (note 6)

15. Capital and reserves
Share capital

Ordinary shares

Balance at the beginning of the year
Repurchase of shares

Balance at the end of the year

The Company’s ordinary shares have a nominal value of 10p per share and all shares in issue are fully paid up.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company.

The repurchase of shares was in connection with the tender offer in September 2016 for £6 million (2015: £40 million).

Share premium account

The Company’s share premium account arose on the exercise of share options in prior years.

Capital redemption reserve

The capital redemption reserve comprises the nominal value of shares purchased by the Company out of its own profits
and cancelled.

Treasury shares

The Company has no shares held in treasury.

Notes to the Financial Statements continued

72

16. Share-based payments
Executive share option plan

The Company has a share option plan that entitles certain employees to purchase shares in the Company at the market
price of the shares at the date of grant of the option, subject to Company performance criteria. Under the terms of the
scheme, options may be exercised between three and ten years after the date of grant. At 31 December 2016 there were no
option grants outstanding under this plan (2015: nil).

Deferred share bonus plan

The Company has a deferred share bonus plan for key executives. Shares awarded under this scheme are released over
three or four years (depending on the size of the award) and the first release may take place no earlier than the first
anniversary of the award subject to the increase in the Net Asset Value per share of the Company exceeding the increase
in the Retail Prices Index (“RPI”) by an average of at least 3% per annum.

At 31 December 2016 options over 49,999 ordinary shares were outstanding (2015: 49,999). There were no grants or
exercises of options under this plan during 2016 (2015: nil). These options are vested and available for exercise until
12 April 2020. The weighted average exercise price of the awards outstanding at 31 December 2016 was £nil
(31 December 2015: £nil).

Performance share plan

The Company has a performance share plan that entitles certain employees to receive an award of performance shares in
the Company. Performance shares granted under the plan are subject to the performance criteria set out below.

For 25% of the total award to vest, Total Shareholder Return (TSR) over the-three year measurement period must exceed
the median TSR of the FTSE All-Share Index. For the remaining 75% of the award, the increase in Net Asset Value per
share over the period must exceed the increase in the Retail Prices Index by at least 3% per annum. At RPI plus 3%,
18.75% of the total shares that are subject to the award will vest, rising on a straight-line basis to the remaining 75%
vesting if the increase in Net Asset Value per share exceeds RPI by 8% per annum.

At 31 December 2016 options over 28,352 ordinary shares were outstanding (2015: 28,352). There were no grants or
exercises of options under this plan during 2016 (2015: nil). These options are vested and available for exercise until
11 April 2021. The weighted average exercise price of the awards outstanding at 31 December 2016 was £nil (31 December
2015: £nil).

Recognition and measurement

The fair value of services received in return for grants and awards under the Company’s share-based incentive plans is
based on their fair value measured using a binomial valuation model. There were no awards of shares under the plans in
2016 or 2015 and there was no charge or credit recognised in the income statement in respect of share based incentive
plans in 2016 (2015: £nil).

73

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17. Financial risk management
Financial instruments by category

The following tables analyse the Company’s financial assets and financial liabilities in accordance with the categories of
financial instruments in IAS 39. Assets and liabilities outside the scope of IAS 39 are not included in the table below:

31 December

2016

Restated
2015

Assets

Investments
Operating and other receivables
Cash and cash equivalents

Liabilities

Operating and other payables
Provisions and other liabilities
Amounts payable to subsidiaries

Fair
value
through
profit or

Loans
and
loss receivables
£’000

£’000

Fair
value
through
profit or

Loans
and
loss receivables
£’000

£’000

Total
£’000

Total
£’000

148,312
–
–

– 148,312
248
1,249

248
1,249

220,505
–
–

–
156
4,083

220,505
156
4,083

148,312

1,497 149,809

220,505

4,239

224,744

31 December

2016

Loans
and
payables
£’000

4,078
904
76,743

Total
£’000

4,078
904
76,743

81,725

81,725

Fair
value
through
profit or
loss
£’000

–
–
–

–

Restated
2015

Loans
and
payables
£’000

1,472
2,820
125,622

Total
£’000

1,472
2,820
125,622

129,914

129,914

Fair
value
through
profit or
loss
£’000

–
–
–

–

The Company has exposure to the following risks from its use of financial instruments:

(cid:2) Credit risk;

(cid:2) Liquidity risk; and

(cid:2) Market risk.

This note presents information about the Company’s exposure to each of the above risks, its policies for measuring and
managing risk, and its management of capital.

Notes to the Financial Statements continued

74

17. Financial risk management – continued
Credit risk

Credit risk is the risk of the financial loss to the Company if a counterparty to a financial instrument fails to meet its
contractual obligations and arises principally from the Company’s receivables and its cash and cash equivalents.

Operating and other receivables
Cash and cash equivalents

31 December

2016
£’000

248
1,249

1,497

Restated
2015
£’000

156
4,083

4,239

The Company limits its credit risk exposure by only depositing funds with highly rated institutions. Cash holdings at
31 December 2016 and 2015 were in funds currently rated AAAm by Standard and Poor’s. Given these ratings the
Company does not expect any counterparty to fail to meet its obligations and therefore no allowance for impairment is
made for bank deposits.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Its financing
requirements are met through a combination of liquidity from the sale of investments and the use of cash resources.

Operating and other payables are due within six months or less.

In addition certain of the Company’s subsidiaries have uncalled capital commitments to funds of £3,577,000
(31 December 2015: £3,961,000) for which the timing of payment is uncertain (see note 19).

Market risk

Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices will
affect the Company’s income or the value of its holdings of financial instruments. The Company aims to manage this risk
within acceptable parameters while optimising the return.

Currency risk

The Company is exposed to currency risk on those of its investments which are denominated in a currency other than the
Company’s functional currency which is pounds sterling. The only other significant currency within the investment
portfolio is the US dollar; approximately 69% of the investment portfolio is denominated in US dollars.

The Company does not hedge the currency exposure related to its investments. The Company regards its exposure to
exchange rate changes on the underlying investment as part of its overall investment return, and does not seek to
mitigate that risk through the use of financial derivatives.

The Company is exposed to translation currency risk on sales and purchases which are denominated in a currency
other than the Company’s functional currency. The currency in which these transactions are denominated is principally
US dollars.

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17. Financial risk management – continued
The Company’s exposure to foreign currency risk was as follows:

Investments
Operating and other receivables
Cash and cash equivalents
Operating and other payables

Gross exposure
Forward exchange contracts

Net exposure

GBP
£’000

94,190
247
853
(80,821)

14,469
–

2016

USD
£’000

52,628
1
396
–

53,025
–

14,469

53,025

31 December

Other
£’000

GBP
£’000

151,481
1,494
156
–
–
1,796
– (127,074)

1,494
–

1,494

26,359
–

26,359

Restated
2015

USD
£’000

66,974
–
2,287
(20)

69,241
–

69,241

Other
£’000

2,050
–
–
–

2,050
–

2,050

At 31 December 2016, the rate of exchange was USD 1.23 = £1.00 (31 December 2015: USD 1.48 = £1.00). The average
rate for the year ended 31 December 2016 was USD 1.34 = £1.00 (2015: USD 1.52 = £1.00).

A 10% strengthening of the US dollar against the pound sterling would have increased equity by £5.4 million at
31 December 2016 (31 December 2015: increase of £6.8 million) and decreased the loss for the year ended 31 December
2016 by £5.4 million (2015: increased the profit by £6.8 million). This assumes that all other variables, in particular
interest rates, remain constant. A weakening of the US dollar against the pound sterling would have decreased equity and
increased the loss for the year by the same amounts.

Interest rate risk

At the reporting date the Company’s cash and cash equivalents are exposed to interest rate risk and the sensitivity below
is based on these amounts.

An increase of 100 basis points in interest rates at the reporting date would have increased equity by £27,000
(31 December 2015: increase of £76,000) and decreased the loss for the year by £27,000 (2015: increased the profit by
£76,000). A decrease of 100 basis points would have decreased equity and increased the loss for the year by the same
amounts.

Fair values

All items not held at fair value in the Statement of Financial Position have fair values that approximate their carrying values.

Other market price risk

Equity price risk arises from equity securities held as part of the Company’s portfolio of investments. The Company’s
management of risk in its investment portfolio focuses on diversification in terms of geography and sector, as well as type
and stage of investment.

The Company’s investments comprise unquoted investments in its subsidiaries and investments in quoted investments.
The subsidiaries’ investment portfolios comprise investments in quoted and unquoted equity and debt instruments.
Quoted investments are quoted on the main stock exchanges in London, USA and Canada. A proportion of the unquoted
investments are held through funds managed by external managers.

As is common practice in the venture and development capital industry, the investments in unquoted companies are
structured using a variety of instruments including ordinary shares, preference shares and other shares carrying special
rights, options and warrants and debt instruments with and without conversion rights. The investments are held for
resale with a view to the realisation of capital gains. Generally, the investments do not pay significant income.

Notes to the Financial Statements continued

76

17. Financial risk management – continued
The significant unobservable inputs used at 31 December 2016 in measuring investments categorised as level 3 in note 10
are considered below:

1.

Unquoted securities (carrying value £31.4 million) are valued using the most appropriate valuation technique such
as the price of recent investment, an earnings-based approach, or a discounted cash flow approach. In most cases
the valuation method uses inputs based on comparable quoted companies for which the key unobservable inputs
are:

(cid:2)

(cid:2)

(cid:2)

EBITDA multiples in the range 5-9 times dependent on the business of each individual company, its
performance and the sector in which it operates;

Revenue multiples in the range 0.5–1.5 times, also dependent on attributes at individual investment level;
and

Discounts applied of up to 65%, to reflect the illiquidity of unquoted companies compared to similar quoted
companies. The discount used requires the exercise of judgement taking into account factors specific to
individual investments such as size and rate of growth compared to other companies in the sector.

2.

Investments in funds (carrying value £36.6 million) are valued using reports from the general partners of the fund
interests with adjustments made for calls, distributions and foreign currency movements since the date of the
report (if prior to 31 December 2016). The Company also carries out its 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. However the degree of detail on valuations
varies significantly by fund and, in general, details of unobservable inputs used are not available.

The valuation of the investments in subsidiaries makes use of multiple interdependent significant unobservable inputs
and it is impractical to sensitise variations of any one input on the value of the investment portfolio as a whole. Estimates
and underlying assumptions are reviewed on an ongoing basis however inputs are highly subjective.

If the valuation for level 3 category investments declined by 10% from the amount at the reporting date, with all other
variables held constant, the loss for the year ended 31 December 2016 would have increased by £14.6 million (2015:
profit decreased by £21.1 million). An increase in the valuation of level 3 category investments by 10% at the reporting
date would have an equal and opposite effect.

Capital management

The Company’s total capital at 31 December 2016 was £68 million (31 December 2015: £95 million) comprising equity
share capital and reserves. The Company had borrowings at 31 December 2016 of £nil (31 December 2015: £nil).

In order to meet the Company’s capital management objectives, the Manager and the Board monitor and review the
broad structure of the Company’s capital on an ongoing basis. This review includes:

(cid:2)

(cid:2)

(cid:2)

(cid:2)

Working capital requirements and follow-on investment capital for portfolio investments, including calls from
funds;

Capital available for new investments;

The possible timing of returning capital to shareholders in line with the Company’s commitment to further capital
returns to shareholders; and

The annual dividend policy.

The Company’s objectives, policies and processes for managing capital reflect the change in strategy from 16 August
2016.

18. Operating leases
Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

Less than one year
Between one and five years

19. Capital commitments

Outstanding commitments to funds

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31 December

2016
£’000

406
–

406

31 December

2016
£’000

3,577

2015
£’000

289
361

650

2015
£’000

3,961

The outstanding capital commitments to funds comprise unpaid calls in respect of funds where a subsidiary of the
Company is a limited partner.

20. Related party transactions
Gresham House Asset Management Limited was appointed the investment manager of LMS Capital plc on 16 August
2016. Amounts charged by the investment manager in 2016 were £573,000.

With effect from January 2011 the Company entered into a lease agreement with Derwent London plc in respect of the
premises comprising its head office and registered office. Under the terms of the lease the Company pays an annual rent
of £406,000 (2015: £289,000) to Derwent London plc plus certain service charges. Robert Rayne is Chairman of
Derwent London plc.

Up to 16 August 2016 the Company paid fees of £60,000 per annum to SQP Limited for the provision of services by
Robert Rayne. From that date these fees are now paid by the Manager.

Compensation arrangements for Directors are set out in the Remuneration Committee Report on pages 37 to 40.

21. Subsequent events
There are no events subsequent to 31 December 2016 that would materially affect the interpretation of these financial
statements.

Notes to the Financial Statements continued

78

22. Subsidiaries
The Company’s subsidiaries are as follows:

Name

Country of incorporation

Holding %

Activity

International Oilfield Services Limited

LMS Capital (Bermuda) Limited

Bermuda

Bermuda

LMS Capital (ECI) Limited

England and Wales

LMS Capital (General Partner) Limited

LMS Capital (GW) Limited

LMS Capital Group Limited

LMS Capital Holdings Limited

Bermuda

Bermuda

England and Wales

England and Wales

LMS NEP Holdings Inc

United States of America

Lioness Property Investments Limited

England and Wales

Lion Property Investments Limited

England and Wales

Lion Investments Limited

Lion Cub Investments Limited

England and Wales

England and Wales

Lion Cub Property Investments Limited

England and Wales

Tiger Investments Limited

England and Wales

LMS Tiger Investments Limited

England and Wales

LMS Tiger Investments (II) Limited

England and Wales

Westpool Investment Trust plc

England and Wales

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

100

Investment holding

Investment holding

Investment holding

Investment holding

Investment holding

Investment holding

Investment holding

Investment holding

Investment holding

Investment holding

Investment holding

Dormant

Investment holding

Investment holding

Investment holding

Investment holding

Investment holding

In addition to the above, certain of the Company’s carried interest arrangements are operated through five limited
partnerships (LMS Capital 2007 LP, LMS Capital 2008 LP, LMS Capital 2009 LP, LMS Capital 2010 LP and LMS Capital
2011 LP) which are registered in Bermuda.

The registered addresses of the Company’s subsidiaries are as follows:

Subsidiaries incorporated in England and Wales: 100 George Street, London W1U 8NU.

Subsidiaries and partnerships incorporated in Bermuda: Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

Subsidiary incorporated in the United States of America: c/o 100 George Street, London W1U 8NU.

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LMS Capital plc
www.lmscapital.com