LMS Capital plc

LMS CAPITAL PLC 
REPORT & ACCOUNTS

For the year ended 31 December 2017 

Investment portfolio – principal holdings

43 Statement of Changes in Equity

Financial Statements

40

Income Statement

41 Statement of Other Comprehensive Income

42 Statement of Financial Position

44 Cash Flow Statement

45

Financial statements and notes

Other Information

61 Notice of Annual General Meeting

65 Corporate information

IN THIS REPORT

Overview

Highlights

Chairman’s statement

Strategic report

1

2

4

8

9

Manager’s review

17 About the Manager

Governance

18 Board of Directors

19 Corporate governance report

23 Audit Committee report

27 Remuneration report

30 Remuneration policy

31 Directors’ report

34 Statement of Directors’ responsibilities

35

Independent auditor’s report

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

11

HIGHLIGHTS

The Board is pleased to announce the 2017 annual
results, the first complete year under the new
management arrangements with Gresham House
Asset Management.

(cid:2) Return

of

ahead

capital

completed

of
expectation – the tender offer in August 2017,
which returned £11 million to shareholders,
satisfied in full the undertaking to return further
capital to shareholders, which was set out in the
circular to shareholders dated 27July 2016.

(cid:2) The portfolio performed well during the year with

NAV per share rising 12.7%:

(cid:2)(cid:2) Net  gains  on  the  investment  portfolio  were
£9.9 million (2016: losses of £16.2 million);

(cid:2)(cid:2) The profit  for  the  year  was  £7.6  million 

(2016: loss of £20.8 million); and

(cid:2)(cid:2) Realisations for the year totalled £21.7 million

(2016: £10.6 million).

(cid:2) The net asset value at 31 December 2017 was
£64.5  million,  80p  per  share  (31  December
2016: £68.1 million, 71p per share).

(cid:2) The  improvement  in  NAV  per  share  includes
significant value increase from the Yes To partial
realisation, and further value potential exists.

lower 

last  year 

(cid:2) Overhead costs for the year (including amounts
incurred  by  subsidiaries)  were  £2.7  million
significantly 
(2016:
than 
£3.3 million,  excluding  reorganisation  costs),
reflecting  the  impact  of  planned  cost  savings
in  2018.
with 
costs  of
Overheads 
approximately  £1.0  million  which  are  not
expected  to  recur  now  that  the  transition  to
external management is complete.

further  savings  expected 
include 

in  2017 

(cid:2) The  Company  is  now  focused  on  re-investing
future realisation proceeds in line with the new
investment  policy overseen  by  the  Investment
Committee. 

(cid:2) The  Board  and  the  Manager  continue  to
evaluate  strategic  options  for  the  Company
enhance
to
shareholder value.

enable  greater  scale  and

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
22

CHAIRMAN’S STATEMENT

A  VERY  PRODUCTIVE
YEAR FOR
LMS CAPITAL PLC

I am pleased to report that 2017 was a 
year of progress for the Company – the
previous  realisation  strategy,  with  its
related  commitment  to  make  further
returns  of  capital  to  shareholders,  was
successfully  concluded  and
good
progress was made in implementing the
revised  investment  strategy  under  the
Investment
leadership  of 
Manager,  Gresham  House  Asset
Management Limited (“GHAM”).

the  new 

In  the  circular  to  shareholders  dated
27 July 2016 the Company announced a
tender  offer  to  return  £6  million  to
shareholders and undertook to make two
further returns of capital to shareholders
by way of tender offers for a maximum of
£11 million. After a successful period for
realisations in the first half of 2017 the
Company  undertook  a  tender  offer  in
August  2017  which  returned  the  full
£11 million to shareholders ahead of the
expected schedule. 

MARTIN KNIGHT CHAIRMAN

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

33

CHAIRMAN’S STATEMENT

PERFORMANCE REVIEW
Net Asset Value per share at 31 December 2017 was 80p,
slightly  higher  than  announced  on  8  February,  a  12.7%
increase from 71p at the end of 2016.

Portfolio gains (realised and unrealised) for the year before
carried interest charges were £10.5 million (2016: losses of
£16.2 million), the key elements of which were:

CONCLUSION AND OUTLOOK
With the final commitment to return capital to shareholders
fulfilled, the Company is now focused on implementing the new
investment  policy  and  growing  net  asset  value 
for
shareholders. As part of this implementation the Board and
GHAM continue to evaluate strategic options for the Company
to  enable  greater  scale  for  the  business  and  enhance
shareholder value.

Tony Sweet is leaving GHAM and I would like, on behalf of the
whole  Board,  to  acknowledge  our  appreciation  of  his
contribution to the Company. Tony was CFO from the time of
the Company’s beginnings in 2006 until August 2016, at which
time he joined the Gresham House team and has overseen the
transfer of the Company’s finance and administration to the new
externally managed structure. He will relinquish his role during
the  first  half  of  2018.  As  well  as  ensuring  a  sound  financial
management for the Company, Tony has been a valued source
of support and guidance to the Board in many ways over the
years. We wish him well in the future.

MARTIN KNIGHT
Chairman
15 March 2018

• The net gain on the funds’ portfolio of £10.1 million (2016:
£1.0  million)  is  principally  a  function  of  the  strong
performance during the year by investments held within San
Francisco Equity Partners;

• The net loss on the unquoted investments of £0.6 million

(2016: net loss of £15.9 million) includes:

o Gains on  the  sale  of  365iTMS  and  the  partial  sale
and recapitalisation of Yes To (a co-investment with San
Francisco Equity Partners);

o An unrealised gain on the Company’s interest in Brockton
Capital LLP, reflecting the sale of that business which is
expected to complete in March 2018; and

o Write downs on Medhost and Elateral; 

• The gain on the quoted portfolio of £1.0 million (2016: loss
of £1.3 million) includes a gain of £1.6 million in the value of
the Company’s interest in Gresham House plc, offset by
IDE  Group  Holdings  and  Weatherford
losses  on 
International.

The portfolio gains for the year are stated after the impact of
exchange losses of £3.2 million (2016: gains of £11.6 million),
primarily  due  to  the  strengthening  of  sterling  against  the
US dollar during 2017.

Overhead costs were £2.7 million, lower than the previous year
(2016:  £3.3  million).  In  line  with  the  new  Manager’s  plans,
overheads in 2017 include costs of approximately £1.0 million
which  are  not  expected  to  recur  now  that  the  transition  to
external management is complete. 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
44

STRATEGIC REPORT

LMS Capital plc is an investment company whose shares are
traded on the Main Market of 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.  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.

In  the  circular  to  shareholders  dated  27  July  2016  the
Company  announced  a  tender  offer  to  return £6  million  to
shareholders and undertook to make two further returns of
capital to shareholders by way of tender offers for a maximum
of £11 million. After a successful period for realisations in the
first  half  of  2017  the  Company  undertook  a  tender  offer 
in  August  2017  which  returned 
full  £11 million 
to shareholders. 

the 

With the final commitment to return capital to shareholders
fulfilled, the Company is now focused on re-investing future
realisation proceeds in line with the new investment policy,
including  private  equity  and  alternative,  specialist  asset
classes. 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  investment  strategy  is  now  focused  predominantly  on
private  equity  investment  and  alternative,  specialist  asset
classes  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 and
investments 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 investment
opportunities below £50 million 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; 

Investments  may  include  alternative,  specialist  asset
classes  which  target  long  term,  illiquid  strategies  both
through  co-investment  and 
fund  opportunities  on
preferred terms; and 

•

•

•

•

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 2017 or at the date of this report.

PORTFOLIO MANAGEMENT
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 9 to 16.

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

The  focus  is  also  on  optimising  the  value  of  existing
holdings  and,  where  growth  prospects  are  clear,  to
preserve and support longer term value creation. 

c) 1.00% of the net asset value of the Company to the extent
that Company’s net assets under management exceed
£150 million.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

55

STRATEGIC REPORT

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.

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.

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.

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.

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:

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

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 17.

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 annum over
the long term.

NAV per ordinary share total return

The Company’s net asset value per share total return was
12.7% for the year ended 31 December 2017. This compared
with 9% for the FTSE All-Share Index.

Share price total return

The Company’s share price total return was negative 12.6%
for the year ended 31 December 2017. 

Further information on the Company’s performance is given
in  the Chairman’s Statement  on  pages  2 and 3 and  the
Manager’s Review on pages 9 to 16.

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

Directors
Senior management
Other employees

Male

4
–
1

5

2017

Female

–
–
1

1

Total

Male

46
––
21

67

2016

Female

–
–
3

3

Total

6
–
4

10

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
66

STRATEGIC REPORT

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
is set out in the Directors’ Report on page 31.

RISK  MANAGEMENT  AND  PRINCIPAL  RISKS  AND
UNCERTAINTIES
The Company has 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 in all areas 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.

Throughout the year ended 31 December 2017, the Board has
carried out a robust assessment of the principal risks facing
the Company, including those that would threaten its business
model, future performance, solvency or liquidity. 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.

PRINCIPAL RISKS

CONSEQUENCES

COMPANY PROCEDURES

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. 

Investment risk

The  Company  may  not  be  able  to
implement  the  strategy  approved  by
shareholders  in  August  2016  if  it  has
insufficient available funds or is unable to
find suitable deals.

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.

result 

Economic  conditions  may 
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.

At  31  December  2017  64%  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.

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

impact  on 

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.

The Company may not be able to meet
the strategic objectives in its investment
strategy  resulting  in  a  decline  in  its  net
asset value and share price.

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.

The Board has retained the services of an
investment  manager 
experienced 
to source and execute deals to meet the
Company’s  strategic  objectives.  The
investment manager will also assist the
Board in seeking opportunities to scale
the business and ensure the necessary
funds for investment are available.

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

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

77

STRATEGIC REPORT

PRINCIPAL RISKS

CONSEQUENCES

COMPANY PROCEDURES

Financial risk

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

the 

Operational risk

the  Company’s 

Failure  of 
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  2018  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 2018; 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:

•

•

•

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 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; and

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.

• Many  of  the  Company’s  investments  are  in  private
companies for which the timing and amount of income
and/or realisation is uncertain;

MARTIN KNIGHT
Chairman
15 March 2018

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
88

INVESTMENT PORTFOLIO – PRINCIPAL HOLDINGS

Carrying value – £8.2 million

Carrying value – £12.9 million*

% of NAV – 12.7% 

Domicile – USA

% of NAV – 20.0% 

Domicile – USA

Medhost  provides  technology  services  to  the  healthcare
sector  in  the  US  (source:  company  website).  It  is  a  co-
investment with one of the Company’s fund interests, Primus
Capital, which is the lead investment manager.

Penguin  Computing  supplies  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. (source: company website).

* includes  the  interest  held  by  San  Francisco  Equity  Partners  and  the

Company’s direct interest.

Carrying value – £9.4 million

Carrying value – £2.3 million

% of NAV – 14.6% 

Domicile – USA

% of NAV – 3.6% 

Domicile – UK

YesTo develops and sells beauty and personal care products
(source: company website).

*  includes  the  interest  held  by  San  Francisco  Equity  Partners  and  the
Company’s direct interest.

Elateral’s products enable marketing departments to source
content that can be customised in any size, shape, layout and
language to produce market-ready materials for distribution,
both online and offline (source: company website).

Carrying value – £3.6 million

Carrying value – £4.6 million

% of NAV – 5.6% 

Domicile – UK

% of NAV – 7.1% 

Domicile – UK

Entuity has developed and sells an enterprise class network
management  solution,  with 
target  market  being
businesses  with  medium  to  large  enterprise  networks
(source: company website).

its 

The remaining asset in this fund is a “super prime” residential
development site in Mayfair (source: company website).

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

99

MANAGER’S REVIEW

TRANSITION TO EXTERNAL MANAGER
GHAM has made significant progress since being appointed
investment manager in August 2016. With input from the LMS
Capital Board it has carried out a staged approach towards
achieving the objectives outlined in 2016.

The  ‘first  stage’  has  been 
management, including:

to 

transition 

to  external

•

•

Investments  may  include  alternative,  specialist  asset
classes  which  target  long  term,  illiquid  strategies  both
through  co-investment  and 
fund  opportunities  on
preferred terms; and 

The  focus  is  also  on  optimising  the  value  of  existing
holdings  and,  where  growth  prospects  are  clear,  to
preserve and support longer term value creation. 

•

•

•

•

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

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

Appointing external administrators and driving targeted
annualised cost savings.

The ‘second stage’ of development was 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’  is  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
Committee.

team  and  newly 

investment 

formed 

INVESTMENT APPROACH
The investment approach is now focused predominantly on
private  equity  investment  and  alternative,  specialist  asset
classes  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 and
investments 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 investment
opportunities below £50 million 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; 

MARKET BACKGROUND
The first half of 2017 was characterised by uncertainty with
several significant political events in the UK, Europe and the
US. Investors had to navigate continued uncertainty over the
terms of Brexit, the impact of the US presidential election as
well as pockets of uncertainty in Europe and the snap election
in the UK. The latter part of 2017 was one defined by eventual
progress on Brexit and the global growth story. The FTSE All-
Share rose 4.2% in the final 3 months of the year, finishing
the year up 8.7% whilst the International Monetary Fund (IMF)
upgraded  its  global  growth  forecast  for  2017  from  3.2%  to
3.6% reflecting improved expectations for the global economy.
Commodities and Equities were both stand-out performers –
with  Oil  &  Gas  a  particularly  strong  sector;  sentiment  was
driven by the generally favourable economic conditions and
positive data for natural resources demand that emerged in
the period, particularly from China. 

The first two months of 2018 saw a bullish start to the year,
notably in US markets, followed by a correction and return of
volatility in February as markets reacted to rising inflation and
the  prospect  of  rising  interest  rates  and  also  the  threat  of
increased tariffs. The domestic environment continues to be
dominated by Brexit.

High valuations, fund raising and increased competition for
deals  means  private  equity  firms  have  high  levels  of
uninvested funds, particularly for the larger enterprise value
deals. We believe there are significant inefficiencies at the
smaller end of the market, focusing on established smaller
private companies below £50 million enterprise value where
there can be less competition for deals and valuations are
more attractive. This segment of the market tends to be off
radar for venture and early stage funding providers and sub-
threshold for mid-market private equity investors, creating an
opportunity to generate superior long term returns. 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
1100

MANAGER’S REVIEW

PERFORMANCE REVIEW
The  movement  in  Net  Asset  Value  during  the  year  was 
as follows:

The follow-on investments are in respect of working capital for
Elateral, a UK direct investment.

Realisations in 2017 include:

Opening Net Asset Value
Return on investments
Overheads, net of interest received

Tender offer, including costs

2017
£’000

2016
£’000

68,116
9,898
(2,298)

75,716
(11,228)

95,091
(16,161)
(4,670)

74,260
(6,144)

Closing Net Asset Value

64,488

68,116

Cash realisations from the portfolio in 2017 were as follows:

Sales of investments 
Distributions from funds 

Total – gross
Follow-on investments
Fund calls
Carried interest payments

Year ended
31 December

2017
£’000

6,812
14,902

21,714
(550)
(68)
(417)

2016
£’000

5,927
4,675

10,602
(851)
(438)
(273)

Total – net

20,679

9,040

•

•

•

•

•

A  distribution  from  San  Francisco  Equity  Partners  of
£9.0 million  following  the  recapitalisation  and  partial
realisation of its portfolio company, YesTo;

Distributions from other funds of £5.9 million;

£3.6 million forming the stage one payment on the sale
of Nationwide Energy Partners;

Proceeds of £1.1 million from the sale of 365iTMS; and

The sale of 176,850 shares in Weatherford International
for net proceeds of £0.7 million.

After a successful period for realisations in the first half of
2017 the Company undertook a tender offer in August 2017
which  returned  £11  million 
thereby
discharging  in  full  the  undertaking  given  to  shareholders
in July  2016  to  make  further  returns  of  capital  up  to
this amount.

to  shareholders, 

Below is a summary of the investment portfolio of the Company and its subsidiaries:

Asset type

Quoted
Unquoted
Funds

UK
£’000

6,874
8,400
7,806

2017

US
£’000

1,770
14,504
24,464

31 December

Total
£’000

8,644
22,904
32,270

UK
£’000

2,481
9,384
11,149

2016

US
£’000

2,995
21,987
25,436

Total
£’000

5,476
31,371
36,585

23,080

40,738

63,818

23,014

50,418

73,432

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

1111

MANAGER’S REVIEW

The principal investments at 31 December 2017 comprising 80% of the total portfolio were:

Name

Geography

Sector

Book value
31 December

% of
Net asset value

Quoted investments
Gresham House PLC
IDE Group Holdings (formerly Coretx Holdings)

Unquoted investments
Medhost Inc
Entuity
Elateral

Fund investments
San Francisco Equity Partners
Penguin Computing*
YesTo, Inc*
Others
Brockton Capital
Opus Capital Venture Partners

UK
UK

US
UK
UK

US
US

UK
US

Financial
Technology

Technology
Technology
Technology

Technology
Consumer

Property
Technology

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

Basis of valuation:

2017
£’000

4,123
2,751

8,183
3,600
2,300

12,895
9,437

4,603
3,671

2016
£’000

31 December
2017

2,481
–

12,070
3,000
3,900

10,133
8,387

6,651
4,505

6.4%
4.3%

12.7%
5.6%
3.6%

20.0%
14.6%

7.1%
5.7%

• 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; and

Fund interests – based on amounts reported by the general partner unless the reported value is not in line with the
Company’s valuation policy.

PERFORMANCE OF THE INVESTMENT PORTFOLIO
The return on investments for the year ended 31 December 2017 was as follows:

Asset type

Quoted
Unquoted
Funds

(Charge)/credit for incentive plans

Operating and similar expenses of subsidiaries

Year ended 31 December

2017

2016

Realised  Unrealised
gains/
(losses)
£’000

gains/
(losses)
£’000

Realised Unrealised
gains/
(losses)
£’000

gains/
(losses)
£’000

Total
£’000

Total
£’000

190
2,488
3,595

6,273

787
(3,077)
6,472

977
(589)
10,067

4,182

10,455

9
–
491

500

(1,291)
(15,879)
492

(1,282)
(15,879)
983

(16,678)

(16,178)

(44)

10,411
(513)

9,898

737

(15,441)
(720)

(16,161)

The (charge)/credit for incentive plans includes £44,000 (2016: credit of £737,000) for carried interest.

Approximately 64% of the portfolio at 31 December 2017 is denominated in US dollars (31 December 2016: 69%) and the
above table includes the impact of currency movements. In the year ended 31 December 2017, the strengthening of sterling
against the US dollar (year on year) resulted in an unrealised foreign currency loss of £3,248,000 (2016: unrealised gain of
£11,319,000). 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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
1122

MANAGER’S REVIEW

QUOTED INVESTMENTS

Company

Gresham House PLC
IDE Group Holdings (formerly Coretx Holdings)
Weatherford International
Others

Sector

UK financial
UK technology
US energy
–

The net gain on the quoted portfolio arose as follows:

Gains/(losses), net

Realised 
Solaredge
Weatherford International 
Bond International
Other quoted holdings
Dividend income

Unrealised
Gresham House
IDE Group Holdings
Weatherford International
Bond International
Other quoted holdings
Unrealised foreign currency (losses)/gains

Total net gain/(loss)

31 December

2017
£’000

4,123
2,751
1,669
101

8,644

2016
£’000

2,481
–
2,909
86

5,476

Year ended
31 December

2017
£’000

2016
£’000

155
35
–
–
–

190

1,642
(344)
(331)
–
24
(204)

787

977

(29)
(158)
155
39
2

9

–
–
(1,781)
71
(205)
624

(1,291)

(1,282)

During the year the Company received distributions of shares in Solaredge Inc, from its fund investment, Opus Capital Venture
Partners. These shares were all sold for net proceeds of £1,015,000.

The Company also sold 176,850 shares (2016: 700,000 shares) of its holding in Weatherford International for net proceeds of
£751,000 (2016: £3,820,000). The unrealised losses during the period reflect the continuing pressure on this company’s share
price in 2017.

The shares in IDE Group Holdings were received in part consideration for the sale of 365iTMS.

UNQUOTED INVESTMENTS

Company

Medhost Inc
Entuity
Elateral
Nationwide Energy Partners
Brockton Capital LLP
Penguin Computing*
ICU Eyewear
Yes To*
365iTMS
Other interests

*These are co-investments with SFEP

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

Sector

US technology
UK technology
UK technology
US energy
UK Property
US technology
US consumer
US consumer
UK technology
–

31 December

2017
£’000

8,183
3,600
2,300
2,960
2,500
1,747
740
874
–
–

2016
£’000

12,070
3,000
3,900
7,703
97
1,449
–
765
2,100
287

22,904

31,371

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

1133

MANAGER’S REVIEW

The net gain on the unquoted portfolio arose as follows:

Gains/(losses), net

Realised 
365ITMS
YesTo

Unrealised valuation adjustments
Medhost
Brockton Capital LLP
Elateral
Nationwide Energy Partners
ICU Eyewear
Entuity 
Penguin Computing
YesTo
365ITMS
Others
Unrealised foreign currency (losses)/gains

Total net losses

Year ended
31 December

2017
£’000

2016
£’000

1,932
556

2,488

(2,969)
2,403
(2,275)
(785)
740
671
441
445
–
(266)
(1,482)

–
–

–

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

(3,077)

(15,879)

(589)

(15,879)

In April the Company’s investment in 365ITMS was sold to IDE Group Holdings plc. The Company received gross cash proceeds
of £1.1 million plus 9,826,400 shares in IDE Group Holdings with a value on completion of £3.0 million. The shares are subject
to a 24-month orderly market agreement.

In June, YesTo (a portfolio company of SFEP) was the subject of a recapitalisation and partial sale. The amounts in the above
table for YesTo reflect the gains resulting from this transaction for the Company’s co-investment. More detail on YesTo is provided
within the commentary on SFEP below.

Valuations are sensitive to changes in the following two inputs:

•

•

The operating performance of the individual businesses within the portfolio; and

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 at 31 December 2017 are similar to those prevailing at the end of 2016 and therefore the
unrealised gains or losses set out in the table above arise principally as a result of the companies’ performance.

Comments on other individual companies are set out below.

Medhost

Medhost is a co-investment with one of the Company’s fund interests, Primus Capital, which is the lead investment manager.
Medhost has announced that an advisor has been appointed to find a buyer for the business. The Company has based its
carrying value on the carrying value reported by the general partner.

Brockton Capital LLP

In 2006 the Company, together with 3 other cornerstone investors, backed the establishment of Brockton Capital LLP, a private
equity  real  estate  investment  adviser,  and  became  an  investor  in  Brockton  Capital  Fund  I  LP  (“the  Fund”),  a  real estate
investment fund. The investment in Brockton Capital LLP gave the Company the right to participate in entities that would receive
a share of any carried interest in relation to the performance of the Fund and subsequent Brockton-advised funds.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
1144

MANAGER’S REVIEW

The interests in Brockton Capital LLP and the carried interest entities were previously reported at cost, this was equivalent to
fair value. Early in February 2018 the majority owners of Brockton Capital LLP agreed terms for the sale of the business,
completion of which is conditional on customary conditions including obtaining regulatory approval. Assuming the conditions
are  met,  the  sale  will  result  in  the  realisation  by  the  Company  of  its  minority  investment  for  proceeds  expected  to  be  in 
the  region  of  £2.5  million. The  carrying  value  at  31  December  2017  reflects  the  expected  outcome  for  the  Company  of 
this transaction.

ICU Eyewear

The Company fully wrote off its interest at the end of 2016. During 2017 the company’s financial position improved following a
restructuring of its liabilities and a programme of cost reductions. As a result LMS Capital has recognised a small positive
carrying value for the business at 31 December 2017.

Nationwide Energy Partners (“NEP”)

In January 2017 the Company reached agreement to sell its interest back to the founder in a two stage transaction. The stage
one payment of US$4.5 million was received in January 2017. The second and final stage has been settled through the issue
to LMS Capital of a US$5.0 million loan note repayable (with interest) in instalments over 4 years. The carrying value is the
present value of the Company’s current estimate of amounts receivable from the loan note. 

Entuity

Following completion of the strategic review in 2016 a new CEO was appointed and took up his post in February 2017. The new
team is performing satisfactorily and is focussed on future value growth.

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. There have been changes in the leadership team during 2017 and the company is looking
to grow its revenues and improve profitability. The write down in 2017 reflects the need to provide additional working capital to
provide a platform for future growth. 

Penguin Computing

This is a co-investment with SFEP. The business has made good progress in the last 18 months and the improved results are
reflected in the write up of its carrying value.

FUND INTERESTS

General partner

Sector

San Francisco Equity Partners
Brockton Capital Fund 1
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
–

31 December

2017
£’000

20,048
4,603
3,671
599
1,883
1,466

2016
£’000

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

32,270

36,585

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

1155

MANAGER’S REVIEW

Gains and losses on the Company’s funds portfolio for the year ended 31 December 2017 were as follows: 

Gains/(losses), net

Realised 
San Francisco Equity Partners (partial sale of YesTo)
Other funds

Unrealised valuation adjustments
San Francisco Equity Partners
Eden Ventures
Brockton Capital
Simmons Parallel Energy
Opus Capital Venture Partners
Weber Capital
Others (net)
Unrealised foreign currency (losses)/gains

Total net gains

San Francisco Equity Partners (“SFEP”)

Year ended
31 December

2017
£’000

2016
£’000

3,576
19

3,595

8,748
(1,128)
362
(180)
315
30
(113)
(1,562)

6,472

10,067

–
491

491

1,993
(1,189)
(2,518)
(439)
(1,613)
459
(441)
4,240

492

983

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:

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

•

•

Penguin Computing – fund carrying value £11,148,000. The company continues to make good progress and is performing
ahead of expectations; and

YesTo – fund carrying value £8,563,000. The above table includes the gains arising as a result of the recapitalisation 
and partial sale in June of SFEP’s interest at a significant premium to the previous book value. Total proceeds to the
Company  were  £9.0  million,  of  which  £8.2  million  was  received  in  respect  of  the  Company’s  interest  in  SFEP  and 
£0.8 million in relation to the Company’s co-investment with SFEP. 

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

In addition to the fund investments noted above the Company has a co investment in Penguin of £1,747,000 and in YesTo of
£874,000. Together with its fund interests described above the Company’s total investment in Penguin is £12,895,000 and in
YesTo is £9,437,000.

Other fund interests:

•

•

Eden Ventures’ portfolio performed below expectations during the year and this is reflected in the reduction in the carrying
value of the Company’s interest;

Brockton Capital – the overall decrease reflects distributions received in the first half of the year. The Company’s valuation
methodology for this investment results in a small uplift for its remaining interest;

• Opus Capital, a US venture fund, made stock distributions in kind during 2017 totalling £860,000; and

•

During 2017 the Company liquidated substantially all of its positions in the Weber Capital funds, leaving only a small interest
in one fund.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
1166

MANAGER’S REVIEW

OVERHEAD COSTS
Overhead costs for the year (including amounts incurred by subsidiaries) were £2,731,000 – significantly lower than last year
(2016: £3,301,000). Overheads in 2017 include costs of approximately £1.0 million which are not expected to recur now that
the transition to external management is complete.

TAXATION
The Company has no tax charge for the year (2016: nil) – in both years tax deductible expenses exceeded taxable income. 
The excess of these tax-deductible expenses will be surrendered to subsidiaries of the Company to offset taxable income in
those companies. 

FINANCIAL RESOURCES AND COMMITMENTS
Including cash in subsidiaries, cash holdings were £3,960,000 (31 December 2016: £1,632,000) with no debt. 

At 31 December 2017 subsidiary companies had commitments of £3,133,000 (31 December 2016: £3,577,000) 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 and
to drive long term value; we are also focused on progressing and initiating sale processes for certain holdings. We are looking
to access and reinvest in direct private equity opportunities at the smaller end of the market and alternative asset classes
targeting long term, illiquid strategies in each case leveraging them within GHAM. The Board and the Manager continue to
evaluate strategic options for the Company, to enable greater scale and enhance shareholder value.

GRESHAM HOUSE ASSET MANAGEMENT LIMITED
15 March 2018

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

1177

ABOUT THE MANAGER

the 

TONY DALWOOD
Tony  is  CEO  of  Gresham  House  plc 
and Chairman of 
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 Chairman of  Downing  Active
Investment  Committee
Management 
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 
launch 
at  SVGIM  having  helped 
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, Corporate
Development  Director, PayByPhone
President  and  executive  Chairman
technology
managing  a  growing 
business.

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.

Robert Rayne is the Company’s nominated member of the Investment Committee. His biographical details are on page 18.

transactions  and  global 

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

recently  as  an 

she  managed 

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.

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.

Nick  ceased  to  be  an  employee  and
director  of  LMS  Capital  on  16  August
2016, when he joined GHAM.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
1188

BOARD OF DIRECTORS

MARTIN KNIGHT
NON-EXECUTIVE CHAIRMAN

Directorships

Chairman of  Cambridge  Mechatronics  Limited,  Frontier  Smart  Technologies  Limited  and
Chrysalis VCT plc.

Experience

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

ROD BIRKETT
NON-EXECUTIVE DIRECTOR

Directorships

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 a former director of the Association
of Investment Companies.

NEIL LERNER
NON-EXECUTIVE DIRECTOR

Directorships

Vice-President of the RNLI.

Experience

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

ROBERT RAYNE
NON-EXECUTIVE DIRECTOR

Directorships

Non-executive Chairman of Derwent London plc; Chairman of The Rayne Foundation and a
non-executive director/trustee of 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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

1199

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.

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  2017,
except as follows:

•

•

Robert  Rayne  was  previously  Chief  Executive  Officer
of the Company. As an Executive Director, he 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 Report.

The  Board  has  not  appointed  a  Senior  Independent
Director, as explained in this report.

As the Board is wholly non-executive and has no employees,
the  Board  has  reviewed  the  committee  structure  and
concluded  that  a  Remuneration  Committee  is  no  longer
required. The Remuneration Committee which consisted of
Martin  Knight  (Committee  Chairman),  Rod  Birkett  and  Neil
Lerner  was  disbanded  on  14 November  2017.  Detailed
information  on  the  remuneration  arrangements  for  the
Directors  can  be  found  in  the  Remuneration  Report  on 
pages 27 to 30. 

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 four non-executive Directors.
Brief biographies of the  Directors appear on page 18. The
Board considers that it has an appropriate balance of skills,
knowledge and experience available to it.

Martin Knight is the 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. 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.

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.

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)  their
judgement. In addition, Martin Knight was independent upon
his appointment as Chairman on 20 May 2013.

Robert  Rayne  is  not  considered  to  be  independent  as  he
previously  served  as  an  executive  director  and  is  a  major
shareholder in LMS Capital plc.

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 actual and potential conflict situations which have
been 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.

Robert Rayne is a shareholder in Weatherford International
plc. He does 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 him.

The Board is of the view that the Chairman and each of the
non-executive  Directors  who  held  office  during  2017
committed  sufficient 
their  duties  as
to 
members of the Board.

fulfilling 

time 

SENIOR INDEPENDENT DIRECTOR
No Senior Independent Director has been appointed since
January 2012. The Directors consider that the independent
non-executive  Directors  are  able  to  ensure  significant
engagement with shareholders.

DIRECTOR RE-ELECTION
In order to comply with the UK Corporate Governance Code,
all  Directors  will  offer 
for  re-election  by
shareholders at each AGM.

themselves 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
2200

CORPORATE GOVERNANCE REPORT

BOARD 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.

formal  structured  continuing  professional
While  no 
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.

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 its
Committees, which operate within written terms of reference
approved by the Board. These Committees report regularly to
the Board.

BOARD EFFECTIVENESS
The  Board  carries  out  an  annual  board  performance
evaluation. It was conducted by the Chairman, supported by
the Company Secretary. The process involved the completion
of a questionnaire by each Director and the responses were
analysed. A report was made to the Board and the results
were discussed at a Board meeting. It was agreed that the
Board was operating effectively.

BOARD MEETINGS
Four scheduled Board meetings were held in 2017. 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 2017.
They attended the following number of scheduled meetings of
the Board and (where they were members) its Committees
during the year:

Board

Audit Nomination Remuneration1

Meetings held
Martin Knight
Bernard Duroc-Danner 
(until 25 May 2017)
Neil Lerner
Robert Rayne
Rod Birkett 

4
4

1
4
4
4

3
3

–
3
–
3

1
1

1
1
1
1

1
1

–
1
–
1

1 The Remuneration Committee was disbanded on 14 November 2017.

In addition to the scheduled Board meetings noted above, the
Board held five ad-hoc meetings during 2017.

BOARD COMMITTEES
The  Board  has  an  Audit  Committee  and  a  Nomination
Committee. The Board has considered the recommendations of
the AIC Code on Corporate Governance (the AIC Code) and
decided  that  the  Audit  Committee would also  undertake  the
duties  and  responsibilities  of  a  Management  Engagement
Committee. As the Board is wholly non-executive and has no
employees, the Remuneration Committee has been disbanded. 

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.

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  and
representatives of the Manager and other Directors. A report
on the activities of the Audit Committee is set out on pages
23 to 26.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

2211

CORPORATE GOVERNANCE REPORT

The terms of reference for the Committee take into account
the  requirements  of  the  Code  and  the  AIC  Code  and  are
available 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 on these.

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 November 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.

importance  of  maintaining 

A policy regarding the engagement of the external auditor to
supply non-audit services is in place. The policy recognises
the  objectivity  and
the 
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,  and  other  services  to  the  Company.  Once
GHAM is fully authorised, which is expected to be during the
first half of 2018, it will assume G10 Capital’s role as AIFM.

G10 Capital has delegated portfolio management functions to
GHAM. 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.

Operational matters and the responsibility for the day-to-day
management of the business are delegated to the Manager.
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.

In February 2017 Augentius Corporate Services Limited were
appointed  as  Company  Secretary  and  in  May  2017,  the
Company appointed Augentius (UK) Limited to manage the
Company’s day-to-day financial and administrative functions,
acting within delegated authority limits and in accordance with
clearly defined systems of control. 

Although the Board has overall responsibly for monitoring, 
it seeks advice from the Audit Committee on the issue of AIFM
performance.

Risk management and internal controls 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 2017 are set out in the Audit Committee Report on
pages 23 to 26. Details of the principal risks and uncertainties
potentially facing the Company can be found in the Strategic
Report on pages 4 to 7.

The Company has no internal audit function. Following the
appointment  of  Augentius  (UK)  Limited  to  manage  the
Company’s day-to-day financial and administrative functions,
the  Board  relies  on  third  party  reports  to  gain  comfort  on
internal controls operated by Augentius. 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
2222

CORPORATE GOVERNANCE REPORT

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 34,  their
responsibility  for  preparing  the  financial  statements  of  the
Company.  The  external  auditor  has 
the
Independent Auditor’s Report set out on pages 35 to 39, a
statement about its reporting responsibilities.

included, 

in 

The Directors are also responsible for the publication of a half
year report 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.

MARTIN KNIGHT
CHAIRMAN

15 March 2018

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 meets as required, but at least
once each year. 

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  ask
questions. 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
Chairs of the Committees are available to answer questions
from shareholders.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

2233

AUDIT COMMITTEE REPORT

INTRODUCTION  FROM  THE  CHAIRMAN OF  THE 
AUDIT COMMITTEE
I am pleased to present the report of the Audit Committee for
2017 which provides shareholders with an overview of the
activities of the Committee during the year. These activities
are focused on the following:

The Audit Committee had three scheduled meetings during
2017; each meeting was attended by representatives of the
Manager and the external auditor. The Committee also met
without  the  Manager  but  with  the  external  auditor  in
attendance. The Committee met on 8 March 2018 to consider
the 2017 results and Annual Report.

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

its
A  summary  of  how 
responsibilities during 2017 as well as the more significant
issues it addressed is set out in the report.

the  Committee  carried  out 

NEIL LERNER
CHAIRMAN, AUDIT COMMITTEE

15 March 2018

•

•

•

The integrity of the Company’s financial reporting;

The  quality  and  effectiveness  of  the  external  audit
process, including the independence and objectivity of the
external auditor; and

Risk management and internal control. In 2017 the day to
day accounting responsibilities were transferred from the
Company’s own team to a third party service provider,
Augentius (UK) Limited.

The  Committee  was  also  responsible  for  reviewing  the
Company’s arrangements on whistleblowing, ensuring that
appropriate arrangements were in place for employees to be
able to raise, in confidence, matters of possible impropriety,
with suitable subsequent follow-up action. The transfer of the
Company’s  administrative  functions  to  third  party  service
providers  is  now  complete  and  the  Company  now  has 
no  employees.  Consequently,  these  arrangements  are  no
longer required. 

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
2244

AUDIT COMMITTEE REPORT

CORPORATE REPORTING
Since  the  publication  of  the  2016  Annual  Report  the
Committee has reviewed the following:

•

•

•

•

•

The 2017 half year report;

The preliminary announcement of 2017 results;

The 2017 Annual Report;

The report from BDO LLP (“BDO”) on the results of their
review of the half year report for 2017; and

Reports  from  BDO  LLP  (“BDO”)  on  the  planning  and
results  of  their  audit  for  the  year  ended  31  December
2017.

ANNUAL REPORT 2017
The Committee advised the Board on whether it believes that
the 2017 Annual Report and accounts, taken as a whole, is
the
fair,  balanced  and  understandable  and  provides 
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 at the meeting where it considered the full year results
and annual report. 

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
2017:

•

•

•

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;

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; 

• Market prices for its quoted investments; and

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

•

The nature and reason for any adjustments made to third
party information for the Company’s valuation purposes.

•

•

The roles of GHAM, G10 Capital and Augentius in the
reporting process;

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 them.

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 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

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 
companies were appropriate and up to date;

that  metrics 

from  comparable  quoted

For co-investments, comparing the Company’s carrying
value  with  (where  available)  the  valuation  used  by  the
lead  investor  and  ensuring  that  there  were  proper
explanations for any differences; and

Confirming  that  the  valuation  takes  account  of  the
Company’s divestment plans, where appropriate.

At its meeting to consider the full year results, 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.

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

2255

AUDIT COMMITTEE REPORT

Incentive schemes

At its meeting in March 2018 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 were properly reflected in the Company’s 2017
financial statements.

Going concern

Following the change in investment strategy in August 2016,
the  financial  statements  are  prepared  on  a  going  concern
basis. The Committee considered this and concluded that the
use of the going concern basis continued to be 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 also 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  2017  financial
statements.

INTERNAL CONTROL AND RISK MANAGEMENT
Risk management and internal controls 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 were operating satisfactorily during 2017
and up to the date of this report; and

• Mitigation  of  the  risks  identified  is  satisfactory  and

appropriate to the Company’s circumstances.

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.

During 2017 the finance and administration functions were
outsourced to a third party provider. The Committee received
a  report  from  the  Manager  concerning  the  transfer  of
responsibilities which included consideration of the controls
operated by the third party provider (which are the subject of
a separate report by a third party). 

The Committee was satisfied that the transfer of responsibility
for finance and administration had not impacted the reliability
or integrity of the Company’s annual and periodic reporting.

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.

In  the  second  half  of  2016  the  Committee  decided  to
undertake a competitive tender process, as a result of which
BDO were appointed as external auditor.

Reports presented to the Committee by BDO during 2017 and
to the date of this report covered:

•

•

•

•

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

The results of their review of the 2017 half year report; 

Their plans and proposed audit scope for 2017; and

The results of their audit of the 2017 financial statements
and annual report.

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.

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 2016 Audit
Quality Inspections Annual Report and the Public Report on
BDO by the FRC’s Audit Quality Review Team. For 2017 the
Committee was satisfied with the effectiveness and quality of
the external audit process as provided by the firm.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
2266

AUDIT COMMITTEE REPORT

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. 

During the year the amount of fees paid for non-audit services
provided by BDO was £nil (2016: £nil). 

AUDIT COMMITTEE EFFECTIVENESS
The annual Board evaluation described on page 20 included
the work of the Committee and concluded that it was working
satisfactorily.

NEIL LERNER 
CHAIRMAN, AUDIT COMMITTEE 

15 March 2018

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

2277

REMUNERATION REPORT

INTRODUCTION FROM THE CHAIRMAN
I am pleased to present our report on Directors’ remuneration
for 2017, which includes amounts actually paid to Directors in
2017,  on  which  shareholders  will  be  asked  to  vote  in  an
advisory manner at the AGM in April. It includes information
subject  to  audit.  The  members  of  the  Remuneration
Committee  during  2017,  prior  to  its  being  disbanded  on
14 November  2017,  were  Martin  Knight  (Committee
Chairman), Rod Birkett and Neil Lerner.

The Board’s policy is to set Directors’ remuneration at a level
commensurate with the skills and experience necessary for
the effective stewardship of the Company and the expected
contribution of the Board as a whole in continuing to achieve
the investment objectives. The Company’s remuneration policy
was approved by shareholders at the AGM in May 2017 and
that  policy  has  remained  unchanged  for  the  year  ended
31 December 2017. The Company is only permitted to make
a payment to a Director if that payment is in line with the policy.
The policy is set out on page 30.

MARTIN KNIGHT
CHAIRMAN

15 March 2018

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
2288

REMUNERATION REPORT

REMUNERATION FOR THE YEAR ENDED 31 DECEMBER 2017 
The tables below (which have been subject to audit) set out amounts paid to each Director during the financial years ended 
31 December 2017 and 2016:

M Knight
R Birkett
B Duroc-Danner(1)
N Lerner
R Rayne

2017

Annual 
fees
£’000

Taxable
benefits
£’000

Carried Consulting
Fees
interest
£’000
£’000

Bonus
£’000

60
40
–
45
40

185

–
–
–
–
18(2)

18

–
–
–
–
119

119

–
–
–
–
–

–

–
–
–
–
–

–

Total
£’000

60
40
–
45
177

322

(1) On 25 May 2017 Mr Duroc-Danner resigned as a Director; with effect from 1 January 2017 Mr Duroc-Danner did not receive a fee for his services as a 

non-executive Director. 

(2) Amounts included for taxable benefits are insurance premiums for private healthcare and income protection.

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 were entitled
to receive a total of £1,598,000 and £742,000 respectively, being the maximum outstanding amount of their bonus entitlements.
Payment of the bonus amounts was 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 during the year ended 31 December 2016 below;

17.5% – being £279,650 for Mr Friedlos and £129,850 for Mr Sweet – was payable on the earlier of the date of the first
subsequent tender offer of up to £6 million or 31 March 2017. It was paid on 31 March 2017; and 

17.5% – being £279,650 for Mr Friedlos and £129,850 for Mr Sweet – was payable on the earlier of the date of the second
subsequent tender offer of up to £5 million or 31 December 2017. It was paid on 30 September 2017.

Salary
and fees
£’000

Taxable
benefits
£’000

Pension
contributions
£’000

Carried
interest
£’000

2016

N Friedlos
A Sweet

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

138
135

273
60
22
40
45
40

480

11
11

22
–
–
–
–
15

37

–
20

20
–
–
–
–
–

20

–
15

15
–
–
–
–
76

91

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

CARRIED INTEREST
Robert Rayne participated in the carried interest arrangements in place for staff involved in the management and development
of the investment portfolio. Amounts paid in 2017 were in accordance with these arrangements. At 31 December 2017, there
were no amounts earned but unpaid. If the Company’s investment portfolio was realised at its valuation at 31 December 2017,
under these arrangements he would be entitled to further carried interest of £474,000.

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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

2299

REMUNERATION REPORT

The performance graph below shows the Company’s Total Shareholder Return performance for the ten year period ended
31 December 2017 compared with that of the FTSE All-Share Index.

160

140

120

100

80

60

40

20

0
Jan/2013

Jan/2014

Jan/2015

Jan/2016

Jan/2017

Jan/2018

LMS

FTSE All Share Index

DIRECTORS’ LETTERS OF APPOINTMENT
The following table provides details of the non-executive Directors’ letters of appointment:

Name

M Knight 
R Birkett 
N Lerner 
R Rayne 

Date of Appointment 

Date of expiry of current term 

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

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

DIRECTORS’ INTERESTS IN SHARES
The beneficial interests of the Directors in the ordinary shares of the Company are set out below:

M Knight
R Birkett
N Lerner
R Rayne

31 December 

2017

2016

36,828
47,652
30,748
3,076,866

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

In addition, Robert 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 2017 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.

2017 ANNUAL GENERAL MEETING
At the AGM held on 25 May 2017 shareholders voted to approve the Remuneration Committee Report in an advisory capacity
as follows: votes in favour were 96.79%, against 3.21%; 47,196 votes were withheld.

This report has been approved by the Board.

MARTIN KNIGHT
CHAIRMAN

15 March 2018

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
 
3300

REMUNERATION POLICY

DIRECTORS’ REMUNERATION POLICY
At  the  AGM  held  on  25  May  2017  shareholders  voted  to
approve  the  Company’s  remuneration  policy  for  the  three
years  commencing  1  January  2017  (as  set  out  below)  as
follows:  votes  in  favour  were  99.77%,  against  0.23%;
1,570,457 votes were withheld.

REMUNERATION POLICY 
The  Board  is  composed  solely  of  non-executive  Directors
none of whom has a service contract with the Company. The
Board  has  therefore  concluded  that  there  is  no  need  for 
a  remuneration  committee.  There  is  no  provision  for
compensation  upon  early  termination  of  appointment. The
Directors’ letters of appointment are available on request at
the Company’s registered office during business hours and
will be available at the AGM from 15 minutes before the start
of the meeting until its conclusion. 

The Directors’ fees are reviewed annually and are set out in
the table below. Any alterations will reflect market changes
from current levels. 

Name

M Knight
R Birkett
B Duroc-Danner(1)
N Lerner
R Rayne

(1) retired on 25 May 2017.

Annual fee
£

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

Robert  Rayne  also  has  a  consultancy  agreement  with  the
Manager for the provision of advice in relation to the portfolio
of investments and potential investments. He is entitled to a
fee of £60,000 per annum under the consultancy agreement.

There are no pension arrangements for Directors.

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

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

3311

DIRECTORS’ REPORT

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  2017  are  included  in  the  Strategic  Report 
on  pages 4 to 7 and  the  Manager’s  Review  on  pages
9 to 16.

DIRECTORS
The names and biographical details of the current Directors of
the  Company  are  given  on  page 18.  In  addition,  further
information  about  the  Board  is  set  out  in  the  Corporate
Governance Report on pages 19 to 22.

Details  of  the  current  Directors’  letters  of  appointment,
together  with  their  interests  in  the  Company’s  shares,  are
shown  in  the  Remuneration  Report  on  pages 27 to 29.
Directors’  and  officers’  liability  insurance  is  maintained  by 
the Company.

The Directors may exercise all the powers of the Company
subject  to  the  provisions  of  relevant  legislation  and  the
Company’s Articles of Association. 

CORPORATE SOCIAL RESPONSIBILITY

Environment 

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

Greenhouse gas emissions by scope:

Total emissions

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. 

From  the  end  of  March  2018  the  Company  will  no  longer 
have  any  office  space  as  all of
its  operations  have
been outsourced.

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

Year ended
31 December

2017
(tonnes 
CO2e)

2016
(tonnes
CO2e)

17.8
0.0
42.3

18.7
0.0
55.1

60.1

73.8

kgCO2e

kgCO2e

8.2
88.3

10.1
108.6

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

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 17.8 tCO2e in 2017 and 83.3 tCO2e in 2016. This is
based on emission factors for electricity supply, which were 0.00 kgCO2/kWh in 2017 and 0.48284 kgCO2/kWh in 2016. 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
3322

DIRECTORS’ REPORT

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
the financial statements. The Company has no responsibility
for  any  emissions  sources  which  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 2017 and emission factors relating to
electricity supply and the UK grid mix. 

Charitable donations

For a number of years, the Company has provided without
charge office accommodation and services within its premises
for  The  Rayne  Foundation,  a 
registered  charity
(www.raynefoundation.org.uk). The estimated monetary value
of this for the first six months of 2017 was £30,000 (full year
2016: £65,000). 

The Company has been transitioning out of its former offices
during 2017 in line with the outsourcing of management and
administration  services  and,  as  a  result, 
the  Rayne
Foundation was required to find alternative office premises
from  1  July  2017.  To  compensate  the  Foundation  for  the
additional  costs  which  it  will  incur,  the  Company  made  a
one-off  contribution  to  these  additional  costs  of  £275,000. 
The Company will make no further payments to the Rayne
Foundation.

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.

Political donations

The  Company  did  not  make  any  political  donations  during
2017 (2016: £nil).

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
4 to 7 and  the  Manager’s  Review  on  pages 9 to 16.  The
Directors have considered these factors for a period not less
than twelve months from the date of this report.

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 7.

CONTRACTUAL ARRANGEMENTS
Details of the Company’s contractual arrangements are given
in the Strategic Report on pages 4 to 7.

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

RELATED PARTY TRANSACTIONS
Details of related party transactions are set out in note 19 to
the financial statements.

DIVIDENDS
The Board does not recommend the payment of a dividend in
respect of the year ended 31 December 2017 (2016: £nil).

SUBSEQUENT EVENTS
There have been no events subsequent to 31 December 2017
that would materially affect the interpretation of the financial
statements included in this Annual Report.

SHARE CAPITAL
On  26  July  2017,  the  Company  published  a  circular  to
shareholders setting out details of a tender offer to return up
to £11 million to shareholders. The tender offer was approved
by shareholders at a general meeting of the Company held on
11  August  2017  and  the  results  of  the  tender  offer  were
announced  on  15  August  2017.  As  a  result,  15,714,285
ordinary shares in the capital of the Company (with a nominal
value  of  £1,571,428.50)  were  purchased  by  the  Company
through  its  brokers.  These  shares  were  then  cancelled,
reducing the Company’s issued share capital from 96,441,735
ordinary shares to 80,727,450 ordinary shares. The tender
offer price was set at 70p and the total value of all ordinary
shares purchased was £11 million.

At 31 December 2017, the Company’s issued share capital
remains  at  80,727,450  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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

3333

DIRECTORS’ REPORT

SUBSTANTIAL SHAREHOLDINGS
As at 15 March 2018, the Company was aware of the following
significant  direct  and  indirect  interests  in  the  issued  share
capital of the Company.

Name of shareholder

Robert Rayne(1),(2)
Trustees of Lord Rayne’s Will Trust
Lady Jane Rayne(1)
Charles Stanley & Co Limited 
Rath Dhu Limited 
Armstrong Investment Management LLP 
Schroders plc 

Percentage of
issued share capital

13.46
13.40
11.57
7.19
5.20
5.10
3.59

AUDITORS
The auditors, BDO LLP, have indicated their willingness to
continue in office and a resolution 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 themselves aware
of  any  relevant  audit  information  and  to  establish  that  the
Company’s auditor is aware of that information.

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

Notes:

By order of the Board.

(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.

AUGENTIUS CORPORATE SERVICES LIMITED
COMPANY SECRETARY

15 March 2018

ANNUAL GENERAL MEETING
The  Company’s  AGM  will  be  held  at  the  offices  of Travers
Smith LLP, 10 Snow Hill, London, EC1A 2AL at 12.00 noon
on 27  April 2018.  The  notice  of  meeting,  which  includes
explanatory notes and provides full details of the resolutions
being  proposed  at  the  AGM,  is  included  at  the  end  of  this
document  and  is  also  available  to  view  on  the  Company’s
website at www.lmscapital.com.

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
3344

STATEMENT OF DIRECTORS’ RESPONSBILITIES

the  year  ended
The  Directors  who  served  during 
31 December 2017 and to the date of this Annual Report are
as  set  out  on  page 18.  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, subject to any material
departures  disclosed  and  explained  in  the  financial
statements;

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
requirements of the Companies Act 2006. 

for  keeping  adequate
The  Directors  are  responsible 
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 are also responsible for
safeguarding the assets of the company and hence for taking
reasonable steps for the prevention and detection of 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; and

the  Annual  Report  includes  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

15 March 2018

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

3355

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF LMS CAPITAL PLC

OPINION
We have audited the financial statements of LMS Capital Plc
(“the Company”) for the year ended 31 December 2017 which
comprise  the  Income  Statement,  Statement  of  Other
Comprehensive  Income,  Statement  of  Financial  Position,
Statement of Changes in Equity, Cash Flow Statement and
Notes to the Financial Statements, including a summary of
significant  accounting  policies.  The  financial  reporting
framework  that  has  been  applied  in  their  preparation  is
International  Financial  Reporting
applicable 
Standards (IFRSs) as adopted by the European Union. 

law  and 

In our opinion, the financial statements:

•

•

•

give a true and fair view of the state of the Company’s
affairs as at 31 December 2017 and of its profit for the
year then ended;

have been properly prepared in accordance with IFRSs
as adopted by the European Union; and 

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

BASIS FOR OPINION
We  conducted  our  audit  in  accordance  with  International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our  responsibilities  under  those  standards  are  further
described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are independent
of the Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard, as applied to listed
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.

USE OF OUR REPORT
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.

CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING
CONCERN AND VIABILITY STATEMENT
We  have  nothing  to  report  in  respect  of  the  following
information in the annual report, in relation to which the ISAs
(UK) require us to report to you whether we have anything
material to add or draw attention to:

•

•

•

•

•

the disclosures in the annual report set out on page 6 that
describe  the  principal  risks  and  explain  how  they  are
being managed or mitigated;

the directors’ confirmation set out on page 7 in the annual
report that they have carried out a robust assessment of
the principal risks facing the company, including those
future
that  would 
performance, solvency or liquidity;

its  business  model, 

threaten 

the directors’ statement set out on page 32 in the financial
statements  about  whether  the  directors  considered  it
appropriate  to  adopt  the  going  concern  basis  of
accounting in preparing the financial statements and the
directors’ identification of any material uncertainties to the
company’s ability to continue to do so over a period of at
least  twelve  months  from  the  date  of  approval  of  the
financial statements;

whether the directors’ statement relating to going concern
required  under  the  Listing  Rules  in  accordance  with
Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit; or

the directors’ explanation set out on page 7 in the annual
report as to how they have assessed the prospects of the
company, 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 company will be able to continue in
operation and meet its liabilities as they fall due over the
period  of  their  assessment,  including  any  related
disclosures  drawing  attention 
to  any  necessary
qualifications or assumptions.

AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our  audit  approach  was  developed  by  obtaining  an
understanding of the Company’s activities, the key functions
undertaken by the Board and the overall control environment.
Based on this understanding we assessed those aspects of
the Company’s transactions and balances which were most
likely to give rise to a material misstatement. 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
3366

INDEPENDENT AUDITOR’S REPORT

KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.

Matter

Audit response

Valuation of Investments

Quoted Investments

area 

We  consider  the  valuation  of
investments  to  be  the  most
as
audit 
significant 
investments represent the most
the
significant  balance 
financial 
and
underpin the principal activity of
the entity. 

statements 

in 

there 

The valuation of investments can
be a highly subjective accounting
estimate  where 
is  an
inherent  risk  of  management
override  arising 
the
investment  valuations  being
initially 
the
prepared 
Investment  Manager,  who  is
remunerated  based  on  the  net
asset value of the company. 

from 

by 

In respect of 100% of the quoted investment valuations we: 

• Confirmed the bid price has been used, by obtaining the year end bid prices from
independent third party sources and undertaking a recalculation of the valuations.

• Confirmed 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 through to a third party valuation report or third party data.

• 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 

investment  valuations,  having  regard 
to  the  application  of  enterprise  value  across  the  capital  structures  of  the
investee companies.

the  calculation  of 

the 

• Verifying  and  benchmarking  key  inputs  and  estimates  to  independent  information

and our own research.

• Challenging  the  investment  manager  regarding  significant  judgements  made  and

obtaining corroborating evidence where available.

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

• 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

Our  testing  was  stratified  according  to  risk.  For  the  fund  investments  sampled  our
procedures included, inter alia:

• Reviewing the underlying fund manager report and assessing the quality and reliability

of the information.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

3377

INDEPENDENT AUDITOR’S REPORT

Matter

Audit response

• Challenging 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). 

• Assessing the performance of the underlying investments using the steps noted under

the 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.

Observations

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

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 reasonably
influence the economic decisions of users that are taken on the basis of the financial statements.

The application of these key considerations gives rise to Financial Statement Materiality, Specific Materiality and Performance
Materiality; the quantum and purpose of which are tabulated below. In setting materiality, we had regard to the nature and
disposition of the investment portfolio. 

Materiality
Measure

Financial 
Statement 
Materiality

Performance 
Materiality

Purpose

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

Basis and key
considerations

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

In performing the audit we apply a lower Based on 75% of materiality.
level of materiality in order to reduce to 
an appropriately low level the probability 
that the aggregate of uncorrected and 
undetected misstatements exceeds 
financial statement materiality.

Specific 
Materiality – 
classes of 
transactions 
and balances 
which impact 
on the realised  users taken on the basis of the financial
return.

Assessing those classes of transactions, 1.5% of total expenditure.
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 

statements.

Quantum
YE 2017 
(£)

Quantum
YE 2016
(£)

955,000

1,149,000

717,000

861,000

37,000

80,000

We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess of £17,000
(2016: £22,000). 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
3388

INDEPENDENT AUDITOR’S REPORT

OTHER INFORMATION
The Directors are responsible for the other information. The
other information  comprises  the formation  included  in  the
annual  report,  other  than  the  financial  statements  and  our
auditor’s  report  thereon.  Our  opinion  on  the  financial
statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do
not express any form of assurance conclusion thereon.

the  other 

information 

In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider  whether 
is  materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated.  If  we  identify  such  material  inconsistencies  or
apparent  material  misstatements,  we  are  required  to
determine whether there is a material misstatement  in  the
financial statements or a material misstatement of the other
information.  If,  based  on  the  work  we  have  performed,  we
conclude that there is a material misstatement of this other
information, we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other  information  and  to  report  as  uncorrected  material
misstatements of the other information where we conclude
that those items meet the following conditions:

•

•

•

Fair, balanced and understandable set out on page 22 –
the statement given by the directors that they consider 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, is
materially inconsistent with our knowledge obtained in the
audit; or

Audit committee reporting set out on pages 23to 26 – the
section describing the work of the audit committee does
not appropriately address matters communicated by us
to the audit committee; or

Directors’ statement of compliance with the UK Corporate
Governance Code set out on pages 19 to 34 – the parts
of  the  directors’  statement  required  under  the  Listing
Rules 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  9.8.10R(2)  do  not  properly  disclose  a
departure from a relevant provision of the UK Corporate
Governance Code.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

OPINIONS 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 the directors’ report have been
prepared 
legal
requirements.

in  accordance  with  applicable 

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.

We have nothing to report in respect of the following matters
in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:

•

•

•

•

adequate  accounting  records  have  not  been  kept,  or
returns adequate for our audit have not been received
from branches not visited by us; or

the financial statements 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. 

RESPONSIBILITIES OF DIRECTORS
As  explained  more  fully  in  the  Statement  of  Directors’
Responsibilities  set  out  on  page  34,  the  directors  are
responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for
such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.

In  preparing  the  financial  statements,  the  directors  are
responsible for assessing the company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going  concern  and  using  the  going  concern  basis  of
accounting unless the directors either intend to liquidate the
company  or  to  cease  operations,  or  have  no  realistic
alternative but to do so.

3399

INDEPENDENT AUDITOR’S REPORT

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
FINANCIAL STATEMENTS
Our  objectives  are  to  obtain  reasonable  assurance  about
whether  the  financial statements as a whole are  free from
material  misstatement,  whether  due  to  fraud  or  error,  and
to issue  an  auditor’s  report  that  includes  our  opinion.
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.

Misstatements  can  arise  from  fraud  or  error  and  are
considered  material  if,  individually  or  in  the  aggregate,
they could reasonably be expected to influence the economic
decisions  of  users  taken  on  the  basis  of  these  financial
statements.

A further description of our responsibilities for the audit of the
financial  statements  is  located  on  the  Financial  Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.

OTHER  MATTERS  WHICH  WE  ARE  REQUIRED  TO
ADDRESS
Following  the  recommendation  of  the  audit  committee,  we
were appointed by The Board of Directors in November 2016
to  audit  the  financial  statements  for  the  year  ending
31 December 2016 and subsequent financial periods. 

We were reappointed by the members of the Company at the
Annual General Meeting held on 27 May 2017. The period of
total uninterrupted engagement is 2 years. 

The  non-audit  services  prohibited  by  the  FRC’s  Ethical
Standard were not provided to the company and we remain
independent of the company in conducting our audit.

Our audit opinion is consistent with the additional report to the
audit committee.

NEIL FUNG-ON (SENIOR STATUTORY AUDITOR) 
FOR AND ON BEHALF OF BDO LLP, STATUTORY AUDITOR
LONDON, UK

15 March 2018

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

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
4400

INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

Net gains/(losses) on investments
Directors’ and other fees from investments
Interest income

Operating expenses

Profit/(loss) before tax
Taxation

Profit/(loss) for the year

Attributable to:
Equity shareholders

Earnings/(loss) per ordinary share – basic
Earnings/(loss) per ordinary share – diluted

The notes on pages 45 to 60 form part of these financial statements.

Year ended 
31 December

2017
£’000

9,898
–
66

9,964
(2,364)

7,600 
– 

7,600

2016
£’000

(16,161)
48 
20 

(16,093)
(4,738)

(20,831)
– 

(20,831)

7,600

(20,831)

8.4p
8.4p

(20.6)p
(20.6)p

Notes

2

3

4

6

7
7

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

4411

STATEMENT OF OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

Profit/(loss) for the year
Other comprehensive income 

Total comprehensive profit/(loss) for the year

Attributable to:
Equity shareholders

The notes on pages 45 to 60 form part of these financial statements.

Year ended 
31 December

2017
£’000

7,600
– 

7,600

2016
£’000

(20,831)
– 

(20,831)

7,600

(20,831)

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
4422

STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

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

Year ended 
31 December

Notes

2017
£’000

2016
£’000

8
9

10
11

12

13

14

– 
141,964

141,964

32 
148,312 

148,344 

281
2,283

2,564

248 
1,249 

1,497 

144,528

149,841 

(1,292)
(78,748)

(80,040)

(4,078)
(76,743)

(80,821)

– 

– 

(904)

(904)

(80,040)

(81,725)

64,488

68,116 

8,073
508
24,949
30,958

64,488

9,644 
508 
23,378 
34,586 

68,116 

The financial statements on pages 40 to 44 were approved by the Board on 15 March 2018 and were signed on its behalf by:

MARTIN KNIGHT
DIRECTOR

The notes on pages 45 to 60 form part of these financial statements.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

4433

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

Balance at 1 January 2016
Total comprehensive income
for the year
Loss for the year

Transactions with owners,
recorded directly in equity
Repurchase of shares

Balance at 31 December 2016

Total comprehensive income
for the year
Profit for the year

Transactions with owners,
recorded directly in equity
Repurchase of shares

Balance at 31 December 2017

Share
capital
£’000

Share
premium
£’000

Capital
redemption
reserve
£’000

Retained
earnings
£’000

Total
equity
£’000

10,358 

508 

22,664 

61,561 

95,091 

– 

– 

– 

(20,831)

(20,831)

(714)

9,644 

– 

508 

714 

23,378 

(6,144)

34,586 

(6,144)

68,116 

– 

– 

– 

7,600 

7,600 

(1,571)

8,073 

– 

580 

1,571 

(11,228)

(11,228)

24,949 

30,958

64,488 

The notes on pages 45 to 60 form part of these financial statements.

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
4444

CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

Cash flows from operating activities
Profit/(loss) for the year
Adjustments for:
Depreciation
(Gains)/losses 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 from/(used in) investing activities

Cash flows from financing activities
Repurchase of own shares
Transaction costs relating to tender offer

Net cash used in financing activities

Net increase/(decrease) 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 45 to 60 form part of these financial statements.

Year ended 
31 December

Notes

2017
£’000

2016
£’000

7,600

(20,831)

4

32
(9,898)
(66)

(2,332)

(33)
(3,690)
18,296

12,241

21
–
–

21

(11,000)
(228)

(11,228)

1,034
1,249

2,283

233 
16,161 
(20)

(4,457)

(92)
(120)
9,585 

4,916 

19 
(1,621)
(4)

(1,606)

(6,144)
– 

(6,144)

(2,834)
4,083 

1,249 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

4455

NOTES TO THE FINANCIAL STATEMENTS

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

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 
15 March 2018.

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.

The Company’s business activities and financial position are set out in the Strategic Report on pages 4 to 7 and in the Manager’s
Review on pages 9 to 16. In addition note 16 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.

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 21.

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:

•

•

•

IFRS 9 “Financial instruments” addresses the classification, measurement and recognition of financial assets and financial
liabilities. The standard is effective for accounting periods beginning on or after 1 January 2018. It will not have a material impact
on the Company’s classification, measurement or disclosure of its financial assets and financial liabilities. 

IFRS 15, ‘Revenue from Contracts with Customers’ will supersede all current revenue recognition requirements under IFRS.
It is effective for periods beginning on or after 1 January 2018. The Company is not exposed to IFRS 15 given its business
model and it is not expected to have any impact.

IFRS 16 “Leases” primarily affects accounting by lessees and will result in the recognition of most leases in the statement
of financial position. The standard removes the current distinction between operating and finance leases and requires
recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts.
The standard is effective for accounting periods beginning on or after 1 January 2019. The Company’s lease of its premises
at 100 George Street, London W1U 8NU would fall to be accounted for under the new requirements but that lease expires
on 24 March 2018. At 1 January 2019 the Company is not expected to have any leases and for the 2018 comparative
period the amount will be insignificant in terms of impact.

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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
4466

NOTES TO THE FINANCIAL STATEMENTS

1. PRINCIPAL ACCOUNTING POLICIES continued
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.

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:

•

•

•

•

•

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;

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;

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;

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

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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

4477

NOTES TO THE FINANCIAL STATEMENTS

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

1. PRINCIPAL ACCOUNTING POLICIES continued
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.

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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
4488

NOTES TO THE FINANCIAL STATEMENTS

1. PRINCIPAL ACCOUNTING POLICIES continued

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.

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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

4499

NOTES TO THE FINANCIAL STATEMENTS

2. NET GAINS/(LOSSES) ON INVESTMENTS
Gains and losses on investments were as follows:

Asset type

Quoted
Unquoted
Funds

(Charge)/credit for incentive plans

Operating and similar expenses of subsidiaries*

Year ended 31 December

2017
Realised Unrealised
£’000

£’000

Total
£’000

2016
Realised Unrealised
£’000

£’000

Total
£’000

190 
2,488 
3,595 

6,273 

787 
(3,077)
6,472 

977 
(589)
10,067 

9 
– 
491 

(1,291)
(15,879)
492 

(1,282)
(15,879)
983 

4,182 

10,455 

500 

(16,678)

(16,178)

(44)

10,411 
(513)

9,898

737 

(15,441)
(720)

(16,161)

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

3. INTEREST INCOME
Interest income comprises interest receivable on bank deposits.

4. OPERATING EXPENSES
Operating expenses comprise administrative expenses and include the following:

Depreciation
Personnel costs (note 5)
Operating lease expense
Reorganisation costs
Management fees
Other administrative expenses
Foreign currency exchange differences
Auditor’s remuneration
Fees to Group auditor
– parent company
– subsidiary companies

Non-audit related services

– other assurance services*

Year ended 
31 December

2017
£’000

32
421
(22)
–
1,055
350
420

32
76

– 

2016
£’000

127 
1,198 
269 
2,157 
573
471
(202)

27 
63 

55 

2,364

4,738 

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

The reorganisation costs in 2016 comprised the following:

•

•

•

Professional charges in connection with the circular to shareholders dated 27 July 2016 – £866,000

Severance costs for Executive Directors and staff – £712,000

Premises costs for property that was surplus to requirements – £579,000 (including £105,000 accelerated depreciation on
fixtures and fittings).

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
5500

NOTES TO THE FINANCIAL STATEMENTS

5. PERSONNEL EXPENSES

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

Year ended 
31 December

2017
£’000

323
79
19

421

2016
£’000

1,010 
125 
63 

1,198 

The wages and salaries expense includes a credit of £nil (2016: credit of £179,000) in relation to carried interest. 

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

Gains on investments
Operating expenses

Year ended 
31 December

2017
£’000

– 
323

323

2016
£’000

(179)
189 

1,010 

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  £nil  is  accrued  at  31  December  2017 
(31 December 2016: £904,000) 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, calculated on
the assumption that the investment portfolio is realised at its year-end carrying amount. As at 31 December 2017, £nil has
been accrued (2016: £nil).

The average number of Directors and staff was as follows:

Asset type

Directors
Senior Management
Other employees

31 December 2017

31 December 2016

Male

Female

Total

Male

Female

Total

4 
– 
1 

5 

– 
– 
1 

1 

4 
– 
2 

6 

6 
– 
1 

7 

– 
– 
3 

3 

6 
– 
4 

10 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

5511

NOTES TO THE FINANCIAL STATEMENTS

6. TAXATION

Current tax expense
Current year

Total tax expense

Reconciliation of tax expense

Profit/(loss) before tax

Corporation tax using the Company’s domestic tax rate – 19.25% (2016: 20%)
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

2017
£’000

2016
£’000

– 

– 

– 

– 

Year ended 
31 December

2017
£’000

2016
£’000

7,600

(20,831)

1,463
516
6

(3,139) 
230
924
–
– 

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

– 

–

7. EARNINGS/(LOSS) PER ORDINARY SHARE
The calculation of the basic and diluted earnings per share, in accordance with IAS 33, is based on the following data:

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

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

Earnings per share
Basic
Diluted

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

Year ended 
31 December

2017
£’000

2016
£’000

7,600

(20,831)

Number

Number

90,457,391

101,203,640 

–

– 

90,535,922

101,203,640 

Pence 

Pence

8.4
8.4

(20.6)
(20.6) 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
5522

NOTES TO THE FINANCIAL STATEMENTS

8. PROPERTY, PLANT AND EQUIPMENT

Cost
Balance at 1 January 2016
Additions

Balance at 31 December 2016

Balance at 1 January 2017
Additions

Balance at 31 December 2017

Depreciation and impariment losses
Balance at 1 January 2016
Depreciation charge for the year

Balance at 31 December 2016

Balance at 1 January 2017
Depreciation charge for the year

Balance at 31 December 2017

Carrying amounts
At 31 December 2016

At 31 December 2017

9. INVESTMENTS
The Company’s investments comprised the following:

Total investments

Investment portfolio of the Company
Investment portfolio of the subsidiaries

Investment portfolio – total
Other net assets of subsidiaries

Plant and

Fixtures 
equipment and fittings
£’000

£’000

329 
4 

333 

333 
– 

333 

325 
3 

328 

328 
5 

333 

5 

– 

Total
£’000

1,352 
4 

1,356 

1,356 
– 

1,356 

1,091 
233 

1,324 

1,324 
32 

1,356 

1,023 
– 

1,023 

1,023 
– 

1,023 

766 
230 

996 

996 
27 

1,023 

27 

– 

32 

– 

Year ended 
31 December

2017
£’000

2016
£’000

141,964 148,312

4,123
59,695

63,818
78,146

2,481 
70,951 

73,432
74,880 

141,964 148,312 

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

Asset type

Quoted
Unquoted direct
Funds

31 December 2017

31 December 2016

UK
£’000

6,874 
8,400 
7,806 

US
£’000

Total
£’000

1,770 
14,504 
24,464 

8,644 
22,904
32,270 

UK
£’000

2,481 
9,384 
11,149 

US
£’000

2,995 
21,987 
25,436 

Total
£’000

5,476 
31,371 
36,585 

23,080 

40,738 

63,818

23,014 

50,418 

73,432 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

5533

NOTES TO THE FINANCIAL STATEMENTS

9. INVESTMENTS continued
The movements in the investment portfolio were as follows:

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

Balance at 31 December 2016

Balance at 1 January 2017
Purchases
Disposals
Distributions from partnerships
Fair value adjustments

Balance at 31 December 2017

Quoted Unquoted
securities
£’000

securities
£’000

Funds
£’000

Total
£’000

9,761 
2,618 
(286)
(5,326)
– 
(1,291)

46,112 
852 
286 
– 
– 
(15,879)

39,770 
438 
– 
– 
(4,779)
1,156 

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

5,476 

31,371 

36,585 

73,432 

5,476 
3,957 
(1,576)
– 
787 

31,371 
675 
(6,331)
– 
(2,811)

36,585 
68 
– 
(11,313)
6,930

73,432 
4,700 
(7,907)
(11,313)
4,906

8,644 

22,904 

32,270 

63,818 

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 16 – Financial risk management).

The Company’s investments are analysed as follows:

Level 1
Level 2
Level 3

Year ended 
31 December

2017
£’000

2016
£’000

3,304
–

2,366 
–
138,660 145,946 

141,964 148,312 

Level 3 amounts include £59,695,000 (2016: £70,951,000) relating to the investment portfolios of subsidiaries (including quoted
investments  of  £4,521,000  (2016:  £2,995,000))  and  £78,146,000  (2016:  £74,880,000)  in  relation  to  the  other  net  assets 
of subsidiaries.

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
5544

NOTES TO THE FINANCIAL STATEMENTS

10. OPERATING AND OTHER RECEIVABLES

Trade receivables
Other receivables and prepayments

11. CASH AND CASH EQUIVALENTS

Bank balances
Short-term deposits

12. OPERATING AND OTHER PAYABLES

Trade payables
Other non-trade payables and accrued expenses

13. PROVISIONS AND OTHER LIABILITIES

Executive incentive plan (note 5)

14. CAPITAL AND RESERVES
Share capital 

Ordinary shares

Balance at the beginning of the year
Repurchase of shares

Balance at the end of the year

31 December

2017
£’000

35
246

281

2016
£’000

60 
188 

248 

31 December

2017
£’000

40
2,243

2,283

2016
£’000

117 
1,132 

1,249 

31 December

2017
£’000

335
957

1,292

2016
£’000

1,470 
2,608 

4,078 

31 December

2017
£’000

–

2016
£’000

904 

2017
Number

2017
£’000

2016
Number

96,441,735 
(15,714,285)

9,644  103,584,592 
(7,142,857)
(1,571)

80,727,450 

8,073

96,441,735 

2016
£’000

10,358 
(714)

9,644 

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 August 2017 for £11 million (2016: £6 million).

Share premium account

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

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

5555

NOTES TO THE FINANCIAL STATEMENTS

15. SHARE-BASED PAYMENTS

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.

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 2017 there were no option
grants outstanding under this plan (2016: 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 2017 options over 49,999 ordinary shares were outstanding (2016: 49,999). There were no grants or exercises
of options under this plan during 2017 (2016: 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 2017 was £nil (31 December 2016: £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 2017 options over 28,352 ordinary shares were outstanding (2016: 28,352). There were no grants or exercises
of options under this plan during 2017 (2016: 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 2017 was £nil (31 December 2016: £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 2017 or
2016 and there was no charge or credit recognised in the income statement in respect of share based incentive plans in 2017
(2016: £nil).

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
5566

NOTES TO THE FINANCIAL STATEMENTS

16. 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:

Year ended 31 December

2017

2016

Assets

Investments
Operating and other receivables
Cash and cash equivalents

Total

Liabilities

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

Total

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

141,964 
– 
– 

–  141,964  148,312 
– 
– 

281 
2,283 

281 
2,283 

–  148,312 
248 
1,249 

248 
1,249 

141,964 

2,564  144,528  148,312 

1,497  149,809 

Year ended 31 December

2017

2016

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

– 
– 
– 

– 

1,292 
– 
78,748 

1,292
– 
78,748 

80,040 

80,040 

– 
– 
– 

– 

4,078 
904 
76,743 

4,078 
904 
76,743 

81,725 

81,725 

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

•

•

Credit risk;

Liquidity risk; and

• 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.

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

2017
£’000

281
2,283

2,564

2016
£’000

248 
1,249 

1,497 

The Company limits its credit risk exposure by only depositing funds with highly rated institutions. Cash holdings at 31 December
2017 and 2016 were in funds currently rated A or better 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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

5577

NOTES TO THE FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT CONTINUED
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 £3,133,000 (31 December 2016:
£3,577,000) for which the timing of payment is uncertain (see note 18).

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 64% 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.

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

Year ended 31 December

GBP
£’000

99,205 
281 
1,995 
(80,040)

21,441 
– 

2017

USD
£’000

41,441 
– 
288 
– 

41,729 
– 

Other
£’000

1,318 
–
–
– 

1,318
– 

GBP
£’000

94,190 
247 
853 
(80,821)

14,469 
– 

2016

USD
£’000

52,628 
1 
396 
– 

53,025 
– 

21,441 

41,729 

1,318

14,469 

53,025 

Other
£’000

1,494 
– 
– 
– 

1,494 
– 

1,494 

At 31 December 2017, the rate of exchange was USD 1.35 = £1.00 (31 December 2016: USD 1.23 = £1.00). The average rate
for the year ended 31 December 2017 was USD 1.32 = £1.00 (2016: USD 1.34 = £1.00).

A 10% strengthening of the US dollar against the pound sterling would have increased equity by £4.4 million at 31 December
2017 (31 December 2016: increase of £5.4 million) and decreased the loss for the year ended 31 December 2017 by £4.4 million
(2016: decreased the loss by £5.4 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.

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
5588

NOTES TO THE FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT CONTINUED
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 £18,000 (31 December
2016: increase of £27,000) and decreased the loss for the year by £18,000 (2016: decreased the loss by £27,000). 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.

The  significant  unobservable  inputs  used  at  31  December  2017  in  measuring  investments  categorised  as  level  3  in 
note 9 are considered below:

1. Unquoted securities (carrying value £22.9 million) are valued using the most appropriate valuation technique such as the price of
recent investment, an earnings or revenue 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:

•

•

•

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 £32.3 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 2017). 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 2017 would have increased by £13.9 million (2016: loss increased by
£14.6 million). An increase in the valuation of level 3 category investments by 10% at the reporting date would have an equal
and opposite effect.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

5599

NOTES TO THE FINANCIAL STATEMENTS

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

16. FINANCIAL RISK MANAGEMENT CONTINUED
Capital management

The Company’s total capital at 31 December 2017 was £64 million (31 December 2016: £68 million) comprising equity share
capital and reserves. The Company had borrowings at 31 December 2017 of £nil (31 December 2016: £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:

• 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.

17. OPERATING LEASES
Leases as lessee

Non-cancellable operating lease rentals are payable as follows:

Less than one year
Between one and five years

31 December

2017
£’000

139
–

139

2016
£’000

406 
–

406 

The operating lease obligations are significantly reduced, due to the termination of the lease on 24 March 2018.

18. CAPITAL COMMITMENTS

Outstanding commitments to funds

31 December

2017
£’000

2016
£’000

3,133

3,577 

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

19. 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 2017 were £1,055,000 (2016: £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 paid an annual rent of £406,000
(2016: £406,000) to Derwent London plc plus certain service charges. Robert Rayne is Chairman of Derwent London plc. The
lease will terminate on 24 March 2018.

For a number of years, the Company has provided without charge office accommodation and services within its premises for
The Rayne Foundation, a registered charity (www.raynefoundation.org.uk). The estimated monetary value of this for the first six
months of 2017 was £30,000 (full year 2016: £65,000). The Company has been transitioning out of its offices during 2017 in
line with the outsourcing of management and administration services and, as a result, the Rayne Foundation was required to
find alternative office premises from 1 July 2017. To compensate the Foundation for the additional costs which it will incur, the
Company made a one-off contribution to these additional costs of £275,000. The Company will make no further payments to
the Rayne Foundation. Robert Rayne is Chairman of the Board of Trustees of The Rayne Foundation.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
6600

NOTES TO THE FINANCIAL STATEMENTS

19. RELATED PARTY TRANSACTIONS CONTINUED
As part of the transition referred to above the Company gave notice on its annual contract with a financial news service. To
reduce the ongoing cost to the Company of this service, SQP Limited agreed to assume the Company’s obligations under its
contract with the news service provider. In connection with this transfer the Company paid SQP Limited £13,000 as a contribution
to the contract costs. Robert Rayne is the controlling shareholder and a director of SQP Limited 

Compensation arrangements for Directors are set out in the Remuneration Committee Report on pages 27 to 29.

20. SUBSEQUENT EVENTS
In February 2018 the majority owners of Brockton Capital LLP agreed terms for the sale of the business, completion of which
is conditional on customary conditions including obtaining regulatory approval. Assuming the conditions are met, the sale will
result in the realisation by the Company of its minority investment for proceeds expected to be in the region of £2.5 million. The
carrying value at 31 December 2017 reflects the expected outcome for the Company of this transaction.

21. SUBSIDIARIES
The Company’s subsidiaries are as follows:

Name

Country of incorporation 

Holding %

Activity

International Oilfield Services Limited
LMS Capital (Bermuda) Limited
LMS Capital (ECI) Limited
LMS Capital (General Partner) Limited
LMS Capital (GW) Limited
LMS Capital Group Limited
LMS Capital Holdings Limited
LMS NEP Holdings Inc
Lioness Property Investments Limited
Lion Property Investments Limited
Lion Investments Limited
Lion Cub Investments Limited
Lion Cub Property Investments Limited
Tiger Investments Limited
LMS Tiger Investments Limited
LMS Tiger Investments (II) Limited
Westpool Investment Trust plc

Bermuda
Bermuda
England and Wales
Bermuda
Bermuda
England and Wales
England and Wales
United States of America
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
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.

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

6611

NOTICE OF ANNUAL GENERAL MEETING

NOTICE  IS  GIVEN  that  the  Annual  General  Meeting  of
LMS Capital plc (the “Company”) will be held at 12 noon on
27 April 2018 at the offices of Travers Smith LLP, 10 Snow Hill,
London,  EC1A  2AL  to  transact  the  following  business.
Resolutions 1 to 9 will be proposed as ordinary resolutions
and  Resolutions  10  to  12 will  be  proposed  as  special
resolutions.

1. To receive the Company’s annual report and accounts for

the year ended 31 December 2017.

2. To approve the Remuneration report.

3. To re-elect Rod Birkett as a director.

4. To re-elect Martin Knight as a director.

5. To re-elect Neil Lerner as a director.

6. To re-elect Robert Rayne as a director.

7. To reappoint BDO LLP as auditor of the Company.

8. To  authorise 

the  Directors 

to  determine 

the

auditor’s remuneration.

9. That,  the  Directors  be  generally  and  unconditionally
authorised  in  accordance  with  section  551  of  the
Companies Act 2006 (the ‘Act’) and in substitution for all
existing authorities under that section, to exercise all the
powers of the Company to allot shares in the Company or
to grant rights to subscribe for, or to convert any security
into, shares in the Company (‘Rights’) up to an aggregate
nominal amount of £2,690,915 and this authority shall
expire at  the  conclusion  of  the  next  Annual  General
Meeting of the Company or on 30 June 2019, whichever
is earlier, and provided further that the Company shall be
entitled before such expiry to make an offer or agreement
which  would  or  might  require  shares  to  be  allotted  or
Rights to be granted after such expiry and the Directors
shall be entitled to allot shares and grant Rights under
such  offer  or  agreement  as  if  this  authority  had not
expired. 

10. That, subject to the passing of resolution 9 above, the
Directors be empowered under section 570 of the Act to
allot equity securities as defined in section 560 of the Act,
as if section 561(1) of the Act did not apply to any such
allotment, provided that this power shall be limited to the
allotment or allotments of equity securities up to a nominal
amount  or  (in  the  case  of  any  other  equity  securities)
giving the right to subscribe for or convert into relevant
shares  having  a  nominal  amount,  not  exceeding  in
aggregate £403,637 and this power shall expire, unless

previously revoked, renewed or varied, at the conclusion
of the next Annual General Meeting of the Company or
on 30 June 2019,  whichever  is earlier, except  that  the
Company  may  before  such  expiry  make  offers  or
agreements  which  would  or  might  require  equity
securities to be allotted after such expiry and the Directors
may allot securities under such offers or agreements as if
this power had not expired.

11. That  the  Company  be  generally  and  unconditionally
authorised for the purposes of section 701 of the Act to
make market purchases (within the meaning of section
693(4) of the Act) of ordinary shares of 10 pence each in
the capital of the Company, provided that: 

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

a.

b.

c.

d.

the  maximum  number  of  shares  which  may  be
purchased is 12,109,118; 

the minimum price (exclusive of expenses) that may
be paid for a share is 10 pence;

the maximum price, exclusive of expenses, which
may be paid for a share shall be an amount equal to
5%  above  the  average  market  value  for  the
Company’s  shares  for  the  five  business  days
immediately preceding the day on which the share
is contracted to be purchased; and

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

the authority conferred by this resolution shall, unless
previously  renewed,  expire  at  the  end  of  the  next
Annual  General  Meeting  of  the  Company,  or  on 
30  June  2019,  whichever  is  earlier,  save  that  the
Company  may,  before  such  expiry,  enter  into  a
contract for the purchase of shares which would or
might be completed wholly or partly after such expiry
and the Company may purchase shares under any
such contract as if this authority had not expired. 

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

12. That a general meeting of the Company (other than an
annual general meeting) may be called on not less than
14 clear days’ notice.

By Order of the Board

AUGENTIUS CORPORATE SERVICES LIMITED
COMPANY SECRETARY

Registered Office

Two London Bridge
London SE1 9RA

29 March 2018

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
6622

NOTICE OF ANNUAL GENERAL MEETING

NOTES:

Right to attend and vote

In  accordance  with  Regulation  41  of  the  Uncertificated
Securities Regulations 2001, only those shareholders entered
in  the  register  of  members  of  the  Company  as  at  close  of
business on 25 April 2018 or, if the meeting is adjourned, at
close of business two days (excluding non-working days) before
the day of any adjourned meeting, shall be entitled to attend,
speak and vote  at  the  meeting  in  respect  of  the  number  of
shares registered in their name at that time. Changes to entries
in the register of members after close of business on 25 April
2018 or, if the meeting is adjourned, after close of business two
days  (excluding  non-working  days)  before  the  day  of  the
adjourned meeting, shall be disregarded in determining the
rights 
of 
any person to attend, speak or vote at the meeting or at any
such adjournment.

Voting rights

At 29 March 2018, (being the latest practicable date prior to
the publication of this notice) the issued share capital of the
Company consisted of 80,727,450 Ordinary Shares of 10p
each in the capital of the Company. Each share carries one
vote. The Company held no shares in treasury, therefore the
total  voting  rights  in  the  Company  as  at 29  March 2017
were 80,727,450.

Proxies

A member of the Company is entitled to appoint a proxy to
attend, speak and vote instead of them. The proxy need not be
a member of the Company. A member may appoint more than
one proxy provided that each proxy is appointed to exercise
the rights attached to different shares.

To be effective, the instrument appointing a proxy and any
authority  under  which  it  is  executed  (or  a  copy  of  such
authority  notarially  certified  or  certified  in  some  other  way
approved  by  the  board)  must  be  deposited  with  the
Company’s 
registrars,  Link  Asset  Services, PXS1,
34 Beckenham Road, Beckenham, Kent BR3 4TU, not less
than 48 hours (excluding non-working days) before the time
for holding the meeting or, in the event of an adjournment, not
less than 48 hours (excluding non-working days) before the
time  of  the  adjournment.  A  form  of  proxy  and  a  reply-paid
envelope are enclosed. A member can also appoint a proxy
online using the service provided on the Company’s registrars’
website, www.signalshares.com, where full instructions are
given.  In  order  to  register  their  votes  online,  members  will
require  their  investor  code,  which  can  be  found  on  their
personalised proxy form.

If  a  shareholder  is  a  CREST  member,  they  can  use  the
electronic proxy service provided by Euroclear (see below).
Forms of proxy may not be submitted via the LMS Capital
website or via any email address given on the LMS Capital
website. The valid appointment of a proxy will not preclude

members from attending and voting in person at the meeting
or any adjournment of the meeting.

CREST

CREST  members  who  wish  to  appoint  a  proxy  or  proxies
through the CREST electronic proxy appointment service may
do so for the meeting (and any adjournment(s) of the meeting)
by  using  the  procedures  described  in  the  CREST  Manual.
CREST  personal  members  or  other  CREST  sponsored
members and those CREST members who have appointed a
voting  service  provider(s)  should  refer  to  their  CREST
sponsors or voting service provider(s), who will be able to take
the appropriate action on their behalf.

In order for a proxy appointment or instruction made by means
of CREST to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in
accordance  with  Euroclear  UK  & 
Ireland  Limited’s
specifications and must contain the information required for
such instructions, as described in the CREST Manual. The
message  must  be  transmitted  so  as  to  be  received  by  the
Company’s agent, Link Asset Services (CREST participant ID
RA10), no later than 48 hours (excluding non-working days)
before the time appointed for the meeting. For this purpose,
the time of receipt will be taken to be the time (as determined
by  the  time  stamp  applied  to  the  message  by  the  CREST
Application Host) from which the Company’s agent is able to
retrieve  the  message  by  enquiry  to  CREST  in  the  manner
prescribed by CREST.

CREST  members  and,  where  applicable,  their  CREST
sponsors  or  voting  service  provider(s)  should  note  that
Euroclear  UK  &  Ireland  Limited  does  not  make  available
special procedures in CREST for any particular messages.
Normal system timings and limitations will therefore apply in
relation  to  the  input  of  CREST  Proxy  Instructions.  It  is  the
responsibility of the CREST member concerned to take (or, if
the  CREST  member  is  a  CREST  personal  member  or
sponsored  member  or  has  appointed  a  voting  service
provider(s), to procure that their CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary
to  ensure  that  a  message  is  transmitted  by  means  of  the
CREST system by any particular time.

In this connection, CREST members and, where applicable,
their  CREST  sponsors  or  voting  service  provider(s)  are
referred in particular to those sections of the CREST Manual
concerning  practical  limitations  of  the  CREST  system  and
timings. The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation 35(5)(a)
of the Uncertificated Securities Regulations 2001.

Nominated persons

Any  person  to  whom  this  notice  is  sent  who  is  a  person
nominated under section 146 of the Companies Act 2006 (the
Act) to enjoy information rights (a “Nominated Person”) may
have  a  right,  under  an  agreement  between  them  and  the
member by whom they were nominated, to be appointed (or

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

O
V
E
R
V
I
E
W

G
O
V
E
R
N
A
N
C
E

I

I

F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S

O
T
H
E
R

I

N
F
O
R
M
A
T
I
O
N

6633

NOTICE OF ANNUAL GENERAL MEETING

which the annual report and accounts were laid in accordance
with section 437 of the Act.

The Company may not require the shareholders requesting
any such website publication to pay its expenses in complying
with either section 527 or 528. Where the Company is required
to place a statement on a website under section 527, it must
forward the statement to the Company’s auditor not later than
the time when it makes the statement available on the website.
The business which may be dealt with at the meeting includes
any statement that the Company has been required to publish
on a website under section 527.

Documents available for inspection

Copies  of  the  terms  of  appointment  of  the  non-executive
Directors will be available for inspection at the registered office
of  the  Company,  Two  London  Bridge,  London,  SE1 9RA
during normal business hours from the date of this notice until
the date of the meeting and also at the meeting for 15 minutes
before the meeting until its conclusion.

Company’s website

A copy of this notice of Annual General Meeting and any other
information required by section 311A of the Act can be found
in the investor relations section of the Company’s website,
www.lmscapital.com. The website also contains a copy of the
annual report.

to have someone else appointed) as a proxy for the meeting.
If a Nominated Person has no such proxy appointment right or
does not wish to exercise it, they may have a right, under such
an agreement, to give instructions to the member as to the
exercise of voting rights.

The statement of the above rights of the members in relation
to the appointment of proxies does not apply to Nominated
Persons. Those rights can only be exercised by members of
the Company.

Corporate representatives

Any corporation which is a member may appoint one or more
corporate representatives to exercise all of its powers as a
member  on  its  behalf,  provided  that  not  more  than  one
corporate representative may exercise powers over the same
share.

Right to ask questions

Under section 319A of the Act, shareholders (or their proxies)
have  the  right  to  ask  questions  in  relation  to  the  business
being dealt with at the meeting. However, the Company is not
obliged to answer a question raised at the meeting if: (i) to do
so would interfere unduly with the preparation for the meeting
or involve the disclosure of confidential information; (ii) the
answer has already been given on a website in the form of an
answer to a question; or (iii) it is undesirable in the interests of
the  Company  or  the  good  order  of  the  meeting  that  the
question be answered.

Website publication of audit concerns

Under  section  527  of  the  Act  shareholders  who  meet  the
threshold requirements that are set out in that section have
the right to require the Company to publish on a website a
statement setting out any matter relating to: (i) the audit of the
Company’s accounts (including the auditor’s report and the
conduct of the audit) that are to be laid before the meeting; or
(ii)  any  circumstances  connected  with  the  auditor  of  the
Company ceasing to hold office since the previous meeting at

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

 
 
6644

NOTICE OF ANNUAL GENERAL MEETING

EXPLANATION OF BUSINESS

Resolution 1: To receive the annual report and accounts

Company law requires the Directors to present the annual
report  and  accounts  of  the  Company  to  shareholders  in
respect of each financial year. 

Resolution 2: To approve the remuneration report

The  remuneration report is  set  out  on  pages  27  to 30 of
the annual  report.  It  describes  the  Group’s  policy  on
remuneration and gives details of Directors’ remuneration for
the year ended 31 December 2017. The vote is advisory and
does not affect the actual remuneration paid to any individual
Director.

Resolutions 3 to 6: To re-elect Directors

The purpose of Resolution 10 is to authorise the Directors to
allot ordinary shares in the Company, or sell treasury shares,
for cash (i) in connection with a rights issue; and, otherwise,
(ii) up to a nominal value of £403,637, equivalent to 5 per cent
of the total issued ordinary share capital of the Company as
at 29 March  2018  without  the  shares  first  being  offered  to
existing shareholders in proportion to their holdings. 

Resolution 11: Authority to buy back shares

Under company law, the Company requires authorisation from
shareholders  if  it  wishes  to  purchase  its  own  shares. The
resolution specifies the maximum number of shares that may
be purchased (approximately 15 per cent of the Company’s
issued share capital as at 29 March 2018) and the highest and
lowest prices at which they may be bought. 

In line with the recommendations set out in the UK Corporate
Governance Code, all Directors will be standing down and
offering  themselves  for  re-election  by  shareholders  at  this
year’s AGM. Directors’ biographical details are given on page
18 of the annual report.

If the Company buys back its own shares it may cancel them
immediately or hold them in treasury. Treasury shares may be
sold  for  cash  or  cancelled. The  Directors  believe  that  it  is
desirable for the Company to have this choice as it will give
flexibility in the management of its capital base. 

The  Directors  have  no  present  intention  of  exercising  this
authority but will keep under review the Company’s potential
to buy back its shares, taking into account other investment
and funding opportunities. The authority will only be used if in
the opinion of the Directors this would be in the best interests
of shareholders generally. 

No  dividends  will  be  paid  on,  and  no  voting  rights  will  be
exercised in respect of, treasury shares. 

Resolution  12: Authority  to  call  general  meetings  on
14 days’ notice

Under company law, the Company is required to give 21 clear
days’  notice  for  a  general  meeting  of  the  Company  unless
shareholders approve a shorter notice period, which cannot
be less than 14 clear days (AGMs must continue to be held on
at least 21 clear days’ notice).

Resolution  12 seeks  shareholder  approval  to  enable  the
Company to call general meetings, other than AGMs, on at
least 14 clear days’ notice. The approval will be effective until
the Company’s next AGM, when it is intended that a similar
resolution  will  be  proposed.  The  flexibility  offered  by  this
resolution  will  be  used  where,  taking  into  account  the
circumstances, the Directors consider it to be appropriate in
relation to the business to be considered at the meeting in
question and where it is thought to be to the advantage of
shareholders as a whole. In order to be able to call a general
meeting on less than 21 clear days’ notice, the Company must
make  a  means  of  electronic  voting  available 
to  all
shareholders for that meeting. 

Resolutions 7 and 8: To reappoint the auditor and
authorise the Board to determine their remuneration

The  Company  is  required  to  appoint  an  auditor  at  each
general  meeting  at  which  accounts  are  laid  before  the
members, to hold office until the conclusion of the next such
meeting. Resolution 7 is for members to reappoint BDO LLP
as auditor of the Company and resolution 8 proposes that
shareholders  authorise 
the
remuneration of the auditor. In practice, the audit committee
will  consider  the  audit  fees  and  recommend  them  to  the
Board.

to  determine 

the  Board 

Resolution 9: Directors’ authority to allot shares

Resolution 9 gives the directors authority until the conclusion
of the next AGM or 30 June 2019, whichever is earlier to allot
shares. The resolution would give the Directors authority to
allot  ordinary  shares,  and  grant  rights  to  subscribe  for  or
convert any security into shares in the Company, up to an
aggregate  nominal  value  of  £2,690,915.  This  amount
represents one-third of the issued ordinary share capital of
the Company as at 29 March 2018, the latest practicable date
prior to the publication of this document. The Directors have no
present intention to allot new shares. 

Resolution 10: Disapplication of pre-emption rights 

If Directors of a Company wish to allot shares in the Company,
or to sell treasury shares, for cash (other than in connection
with an employee share scheme) company law requires that
these shares are offered first to shareholders in proportion to
their existing holdings. 

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

6655

CORPORATE INFORMATION

DIRECTORS
Martin Knight
Rod Birkett
Neil Lerner
The Hon Robert 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
Link Asset Services
The Registry 34 Beckenham Road
Beckenham Kent BR3 4TU Tel: 
(UK) 0871 664 0300
(Outside UK) +44 (0)20 8639 3399
Email: enquiries@linkgroup.co.uk

SOLICITORS
Travers Smith LLP
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
Two London Bridge
London SE1 9RA
Registered number 5746555

LMS CAPITAL PLC / ANNUAL REPORT AND ACCOUNTS 2017

LMS CAPITAL PLC 

www.lmscapital.com