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Preserving
and creating
wealth
Annual Report &
Accounts 2020
For the year ended 31 December 2020
LMS Capital plc (‘LMS’ or the ‘Company’) is a
fully listed investment company. We harness
experience, capital and access to specialist
investment teams to create enhanced
shareholder returns for family offices, high net
worth investors and others.
We seek to achieve a balance between preserving
and growing wealth. We expect to deliver an
overall total return, net of costs, over the longer
term of 12% to 15% per annum, of which an
element will include an annual distribution.
IN THIS REPORT
Review
01 Highlights
02 Company Overview
04 Statement from the Chairman
and the Managing Director
08 Portfolio Overview
10 Strategic Report
14 Risk Management
16 Viability Statement
18 Portfolio Management Review
For further investor information:
www.lmscapital.com
Governance
26 Board of Directors
29 Corporate Governance Report
36 Audit Committee Report
39 Remuneration Report
54 Directors’ Report
57 Statement of Directors’
Responsibilities
59 Independent Auditor’s Report
Financial Statements
67 Income Statement
68 Statement of Other
Comprehensive Income
69 Statement of Financial Position
70 Statement of Changes in Equity
71 Cash Flow Statement
72 Notes to the Financial
Statements
93 Corporate Information
FINANCIAL HIGHLIGHTS
NET ASSET VALUE
(‘NAV’)
DIVIDENDS TO
SHAREHOLDERS
SECOND HALF NAV
INCREASE
NET REDUCTION IN
PORTFOLIO VALUE
£47.9m
4.55p
£1.7m
£2.1m
The NAV at 31 December 2020
was £47.9 million, 59.4p per
share (31 December 2019: £56.0
million, 69.3p per share).
The Company paid a special
dividend to shareholders of
4.25p per share in January 2020
and an interim dividend of 0.3p
per share in September 2020.
The portfolio showed an overall
net reduction in value on the year
of £2.1 million from net realised
and unrealised losses and foreign
exchange movements (2019:
£0.8 million).
Excluding the impact of
dividends to shareholders,
NAV over the year reduced by a
net £4.4 million, 5.3p per share,
comprising a reduction of
£6.1 million in the first half of
the year, in large part due to the
impact of Covid-19 on portfolio
investment valuations, and an
increase of £1.7 million in the
second half.
RUNNING
COSTS
CONTINUED
REALISATIONS
YEAR-END CASH
BALANCE
£1.7m
£9.3m
£20.6m
Continued cash proceeds from
portfolio realisations in the
year totalled £9.3 million
(2019: £13.2 million).
Group cash balances at the
year-end, including amounts
held by subsidiaries, were £20.6
million, representing 43.0% of
the NAV (2019: £26.6 million and
representing 47.5% of the NAV).
The Company had no debt.
Running costs, including those
incurred by subsidiaries, were
£1.7 million and there were an
additional £0.2 million of
investment related costs,
bringing total overheads to
£1.9 million (2019: £1.8 million
running costs and an additional
£1.4 million of non-recurring
costs of legal and advisory fees,
bringing total 2019 overheads
to £3.2 million).
NON-FINANCIAL HIGHLIGHTS
• successfully completed the first year of transition to internal management while maintaining tight control
over overhead costs;
• the Board announced the initiation of a progressive annual dividend policy targeting a dividend equal to
approximately 1.5% of each financial year’s closing NAV and targeting that this should be fully covered by
distributable profits, subject to the Company’s liquidity and market conditions. The first interim dividend under
this policy of £0.2 million (0.3p per share) was paid to shareholders in September 2020. A final dividend of 0.6p
per share is recommended by the Board and subject to approval by shareholders at the Annual General Meeting
(‘AGM’); and
• progressed with the Company’s real estate and energy teams, creating a pipeline of opportunities including
$9.0 million deposited for the investment in Dacian, a Romanian oil and gas production company, for which final
approval by the Romanian authorities is pending.
01
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Company Overview
LMS has a proven
record of successfully
providing opportunities
for wealth creation
through nurturing and
careful management.
SECTORS
Real estate
Energy
LMS has a long history
of investing in real estate
and providing cornerstone
funding to entrepreneurs
for the creation of niche
real estate businesses.
LMS has deep relationships
in the energy sector giving
it a competitive advantage
in sourcing opportunities.
Late-stage
private equity
LMS has a track record
of success in late-stage
private equity investment,
creating wealth for both
its shareholders and
entrepreneurs.
02
HOW WE OPERATE
Sector knowledge and experience
Focus in sectors where we have competitive advantage based on our long history of investing,
depth of understanding and relationships.
Hard to access assets
At the smaller end of their respective sectors where pricing inefficiencies typically allow for
more attractive entry pricing. Giving the opportunity for value creation through nurturing and
careful management, for which larger funds may have no appetite.
Collaborative and rigorous business model
A disciplined process of deal selection. Working alongside our management teams with
Investment Committee involvement and support of our Advisory Groups at all stages.
Outstanding management teams
Teams that have demonstrable success in their respective sectors and have the reputation and
experience to access and execute on exceptional opportunities.
High standards of corporate governance
As an internally managed business the Board takes full responsibility for the performance of
the Company. The Board and its committees provide rigorous challenge around all aspects of
the Company’s decision making and operations.
Co-investment
We have a network of partners who co-invest in deals alongside us. For every £ LMS invests we
aim to source at least as much through co-investment. This allows LMS to access a larger and
more diverse universe of deals and offers our partners the opportunity to invest directly in our
deal pipeline.
03
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Statement from the Chairman
and the Managing Director
It has been a turbulent year for communities,
for individuals and families and for business.
The uncertainty looks set to continue at least for
some time and its effects will work their way
through all parts of our society over the coming
months and years.
Against this background we are
pleased with the progress that has
been made in 2020 and believe we
have laid strong foundations to
accelerate that progress in 2021.
The Company has a strong balance
sheet and we see new opportunities
in our areas of endeavour,
although we continue to adopt
a cautious approach, mindful
of an uncertain world.
FINANCIAL RESULTS
FOR THE YEAR ENDED
31 DECEMBER 2020
NET ASSET VALUE
The NAV of the Company at
31 December 2020 was £47.9 million,
59.4p per share (31 December 2019:
£56.0 million, 69.3p per share or
£52.6 million, 65.1p per share
including the special dividend paid in
January 2020). After adjusting for
the special dividend in January 2020
and for the first interim dividend in
September 2020, the NAV reduced
by £4.4 million. This comprises a £6.1
million reduction in the first half of
the year, in large part due to the
estimated impact on valuations of
the Coronavirus pandemic, and a
£1.7 million increase in the second
half of the year.
Net reductions, both realised and
unrealised, in the underlying value
of the portfolio over the year were
£2.0 million (2019: net reductions
£0.3 million). Foreign exchange
movements resulted in a further net
reduction, realised and unrealised,
of £0.1 million (2019: £0.5 million).
Principal movements in the
underlying investment valuations
were:
• Quoted stocks – Realised losses
of £0.5 million from the sale of
all of the Company’s holdings in
Gresham House Asset
Management and Solaredge and
unrealised losses of £0.6 million
principally in relation to IDE
Group;
• Medhost – Increase in valuation
of £0.4 million. This is a co-
investment with Primus Capital
who is the lead manager on the
investment. The company
provides enterprise management
software to mid-sized hospitals
in the US and the valuation
reflects movements in the
valuation of comparable quoted
companies;
• Brockton Capital Fund 1 –
Reduction in valuation of £1.4
million. This investment through
Brockton Capital Fund 1 in a
central London high end
residential development has been
valued conservatively reflecting
the risk around the project as a
result of the Coronavirus
pandemic;
• Assets managed by San Francisco
Equity Partners (‘SFEP’)
– YesTo – Reduction in valuation
of £2.0 million. YesTo
experienced a difficult 2018
and 2019. In April 2020, its
situation was exacerbated by
the Coronavirus pandemic, and
the company sought additional
We are delighted to be
writing to you having
completed our first year
as a self-managed
investment company.
ROBERT RAYNE
CHAIRMAN
NICHOLAS FRIEDLOS
MANAGING DIRECTOR
04
funding. Having reviewed the
position, LMS decided not to
provide additional capital to
the SFEP Fund to invest further
in YesTo. LMS restructured its
management arrangements to
incentivise the manager to
optimize the value of LMS’
holding, notwithstanding it
was not participating in the
April 2020 funding round. The
valuation of the investment
has been reduced accordingly.
– ICU – Increase in valuation of
£2.5 million from unrealised
gains, of which £0.7 million
was received as a cash
distribution. In the early stages
of the Coronavirus pandemic in
the US, ICU’s main
manufacturing partner for its
established eyewear business
– who is also a major
shareholder in ICU –
commenced the manufacture
of masks and other personal
protective equipment (‘PPE’).
ICU acted as a sales agent in
the US, and this has led to the
development of a PPE
distribution business. This
business has significantly
improved the cash generation
of ICU during the year enabling
it to return capital to its
shareholders. The increase in
valuation reflects the gains
made by ICU during the year
on the PPE business and an
estimate of the additional
value of the PPE business
going forward.
• Elateral – Reduction in value
of £1.4 million. This reduction
reflects the ongoing financial
losses, exacerbated by the
Coronavirus pandemic which
has slowed the Company’s
sales growth;
• Weber Capital Partners –
Increase in valuation of £0.6
million. This US micro-cap fund,
with which the Company has
had a long-standing relationship,
has performed exceptionally
well during the year, showing a
valuation gain of more than 80%;
• Other investments – Net increase
in valuations of £0.4 million, the
bulk of which was due to the
performance of the Opus Capital
Venture Partners fund interest.
Other movements in net asset value
amounted to a net reduction of £2.3
million and include Group running
costs for the year of £1.7 million,
(2019: £3.5 million), including
subsidiary investment support costs
(external diligence costs on Dacian
and Cavera support costs) of £0.2
million and non-portfolio foreign
exchange losses of £0.6 million.
Interest income and other net
credits were £0.2 million.
CASH AND LIQUIDITY
Cash balances in the Company and
its subsidiaries at 31 December 2020
were £20.6 million (31 December
2019: £26.6 million).
Significant outflows of cash during
the year were payments to
shareholders of the £3.4 million
special dividend in January 2020
and £7.0 million funding of the
Company’s investment in Dacian
in September 2020.
At the outset of the Coronavirus
pandemic, the Board considered the
risk to the Company’s medium-term
liquidity from its portfolio, which
might be adversely impacted in
terms of both timing and amounts
realised. In order to reduce the risk
of a lack of liquidity and to
implement its investment policy
going forward, the Company
realised substantially all its quoted
portfolio in the first half of the year,
generating proceeds of £7.7 million.
DIVIDEND POLICY
The Company paid a special dividend
of £3.4 million in January 2020.
During the first half of the year,
the Board gave consideration as to
whether a further one-off return of
capital should be made. In light of
market conditions generally, and in
particular the likely reduced near
term liquidity from the existing
portfolio, the Board decided not
to make any further one-off returns
of capital in the near term and
concluded that liquidity should be
retained in the Company to enable it
to implement its investment policy
and deliver target long-term returns
to its shareholders.
The Board is, however, confident of
the Company’s ability to generate
income on an annual basis and
therefore commenced payment
of an annual dividend. Initially the
dividend payment will be targeted
in respect of each financial year as
1.5% per annum of the year end
NAV. The actual level of dividend
each year will be determined
having regard to market conditions
generally, the financial position of
the Company and the availability of
distributable reserves.
An interim dividend of 0.3p per
share was paid on 7 September
2020. A final dividend of 0.6p per
share is recommended by the
Board and, subject to approval
by shareholders at the AGM on
12 May 2021, will be paid to
shareholders in early June 2021.
05
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Statement from the Chairman
and the Managing Director
continued
DEVELOPMENT
OF DEAL FLOW
The Company has made progress
developing deal flow during the year,
focusing initially on its energy and
real estate sectors. In relation to
late-stage private equity, the
Company continues to review
opportunities and expects to deploy
capital in 2021.
ENERGY
DACIAN PETROLEUM (‘Dacian’)
In August 2020, the Company
announced that it had led an
investor group to acquire an interest
in Dacian, a Romanian oil and gas
production company. Dacian’s initial
transaction would be the acquisition
of a business operating some 40
onshore oil fields in Romania.
LMS committed $9.0 million
representing a 32% equity holding in
Dacian. LMS’ co-investment group,
including LMS directors, invested a
further $5.0 million representing an
18% equity holding. The Dacian
founder and management team will
hold 50% of the remaining equity.
The investment by LMS and its
co-investors is structured primarily
as debt with a seven-year maturity
and a 14% per annum coupon.
The debt will be required to be
repaid before any distributions
to equity holders.
As reported in the August
announcement, the acquisition by
Dacian is conditional on obtaining
certain regulatory and government
approvals in Romania (the
‘Approvals’). The Approvals had
been expected to be obtained during
the third or fourth quarter last year,
but the process has moved more
slowly than originally expected
primarily due to the impact of the
Coronavirus pandemic.
The Dacian team continue to have a
high degree of confidence that the
Approvals will successfully be
obtained. To the extent that the
team has visibility of the approval
process, it has evidence that
progress is being made and no
objections or concerns have been
raised by the Romanian authorities.
The investors deposited funds with
Dacian during September 2020 in
readiness for obtaining the
Approvals and proceeding to
completion. Assuming the
Approvals are obtained, and the
transaction completes, which as
noted above is still the expectation
of the Dacian team, these funds will
attract interest at 14% per annum
from 20 September 2020. For LMS,
this would represent interest
income of £0.3 million to
31 December 2020, not at present
reflected in the financial results.
In the unlikely event that the
Approvals are not obtained within
what the parties consider to be an
acceptable timeframe, funds would
be returned to investors.
LMS’ rationale for the acquisition is:
• the opportunity to acquire a
business that is cash flow positive
from day one;
• attractive entry pricing based on
the oil and gas reserves we
believe are in place;
• a founder team with extensive
industry experience and a local
operational team with prior
knowledge of the assets being
acquired;
• the prospect of production gains
from applying maintenance and
workover processes to the assets
acquired, which have not been a
strategic focus for their current
owner; and
• a robust business plan that is
expected to produce target
returns and can withstand
volatility in energy prices.
We believe that this remains an
attractive investment for the
Company and therefore at present
our view is to continue to await the
conclusion of the approval process,
albeit that it is moving more slowly
than expected.
Once the Approvals have been
obtained and the transaction
completes, we will issue updated
information on the investment.
REAL ESTATE
The Company has backed two
real estate teams each with
complementary skills and
business plans.
GEORGE CAPITAL (‘George’)
George is an asset manager
specialising in acquiring income
producing assets, typically in the £5
million to £20 million range, and
through active management
reworking and improving the level,
quality and duration of the income
and also exploiting opportunities to
increase the density of use on
the site.
George has previously raised and
invested in two funds. The George
team is now working with LMS,
unencumbered by legacy asset
positions, to identify and take
advantage of market opportunities
likely to emerge in the coming
months. The investment structure
being developed is intended to
attract co-investment capital
as well as capital from LMS’
balance sheet.
06
CAVERA
Cavera is a wholly owned LMS
subsidiary established as a vehicle to
work with a successful real estate
development team. The team
previously ran Voreda, a
development business that
successfully operated a
development partnership with
Imperial College London, over a
ten-year period obtaining some 1.6m
square feet of planning consents
and jointly investing in and
developing over 900,000 square
feet of space in West London,
including student and key worker
accommodation, commercial office,
hotel and residential space and
specialist college facilities.
At present, LMS is funding Cavera’s
operating costs as the team look to
source development opportunities
that can be structured as (‘Project
SPVs’) providing investment for LMS
and its co-investors.
We have proceeded cautiously with
both George and Cavera during the
year, mindful of the evolving
demand for different types of real
estate, in particular as the
consequences of the Coronavirus
pandemic work through the system.
However, in both cases the teams
have a pipeline of opportunities, and
we believe that we will be in a
position to commit capital and also
bring co-investors alongside us
during 2021.
LONG-TERM OBJECTIVES
AND NEAR-TERM GOALS
The Company’s objective is the
preservation and creation of wealth
for its shareholders over the longer
term. Its target is to deliver returns,
net of all costs, of 12% to 15% per
annum over that longer period.
Its approach to selecting
investments is to focus on those
areas where it has competitive
advantage. In practice this means:
• concentrating on areas in which it
has and can access depth of
knowledge and experience in
energy, real estate and late-stage
private equity;
• building on our relationships
working with a small number of
outstanding management teams
in our sectors. These are teams
we know well, have demonstrable
success in their respective sectors
and have the ability to access and
execute on deal opportunities;
• seeking out ‘hard to access’ assets,
typically at the smaller/medium
end of their respective sectors,
that offer more attractive entry
pricing and require a level
of management attention that
larger funds and pure financial
investors may not wish to support.
An important part of the Company’s
approach, alongside its own balance
sheet capital, is to bring co-investors
into the opportunities in which it
invests. For the Company, this helps
create scale in the capital pool it can
access and allows it to participate in
a more diverse range of
investments. For co-investors, this
provides the opportunity to invest in
deals which are unlikely to be
available to them directly as a family
office or high net worth investors.
Achieving the longer-term objective
requires meeting shorter-term
goals. Entering its first year as a
self-managed business, the Board
had three key goals:
• as the impact of the Coronavirus
pandemic unfolded, the
preservation of value in its
existing assets, maintaining
liquidity and protection of its
financial position;
• ensuring it had the necessary
resources and systems to operate
as a self-managed company; and
• building a pipeline of
opportunities in its chosen
investment sectors going forward
and commencing the deployment
of capital.
We believe we have made good
progress in the first year and expect
during 2021 to build on the
foundations laid in 2020.
For 2021 we want to build on these
foundations – ultimately the benefit
of our efforts needs to be reflected
in the returns enjoyed by our
shareholders, and we expect to be
able to demonstrate this in a
meaningful way in 2021. Our focus
will be to:
• further develop our deal pipeline
and deploy capital in our chosen
sectors;
• expand our co-investment
programme; and
•
identify routes to expand the
capital base of the Company.
We would like to express our
appreciation to our own team, the
management teams and others with
whom we work and our shareholders
for your continued support. We look
forward to reporting progress to you
during the coming year.
Robert Rayne
Chairman
Nicholas Friedlos
Managing Director
11 March 2021
07
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Portfolio Overview
INTRODUCTION
The following are the principal portfolio
investments of the Company, representing
nearly 90% of the total portfolio value:
Principal Unquoted Investments
Medhost
ICU Eyewear
Elateral
REGION: US | YEAR: 2008
% Holding 8.8% |
NAV £5.7 million
REGION: US | YEAR: 2010
% Holding 50% |
NAV £3.1 million
REGION: UK | YEAR: 2008
% Holding 50% |
NAV £0.4 million
Medhost, a co-investment
with funds of Primus Capital, is
a healthcare information
technology group that
provides cloud-based
enterprise, departmental and
healthcare engagement
solutions to over 1,000
community and specialty
hospitals. Its products include
cloud-based clinical, financial
and operational solutions as
well as maintenance, support
and consulting services.
ICU Eyewear (‘ICU’), a
co-investment managed by
San Francisco Equity partners,
is primarily a designer and
distributor of glasses and
sunglasses made from
reclaimed plastic, recycled
metal and bamboo. ICU
established a new product
line in 2020, ICU Health, to
distribute personal protective
equipment to key workers in
the United States in response
to the Coronavirus pandemic.
ICU Health made a significant
contribution to ICU’s financial
and cash flow performance
during 2020.
Elateral operates in the digital
marketing sector and has
developed cloud-based
software which allows
corporate marketing materials
to be distributed to local
marketing teams to enable
content to be tailored while
protecting brand identity.
Elateral targets large
international companies with
multi-language requirements
and has a high concentration
of leading global customers.
www.medhost.com
www.icueyewear.com
www.elateral.com
08
Principal Funds
Weber Capital
Partners
REGION: US | YEAR: 2008
NAV £1.8 million
Opus Capital Venture
Partners
REGION: UK | YEAR: 2008
NAV £3.5 million
Weber Capital GW 2001 is a fund that invests in
listed US microcap stocks, primarily in the
technology and medical sectors.
Opus is a US fund that invests in early-stage
technology opportunities with two principal
assets remaining.
www.webercapital.com
www.opuscapitalventures.com
Yes To (Managed by SFEP)
Brockton Capital Fund I
REGION: US | YEAR: 2008
NAV £0.7 million
REGION: UK | YEAR: 2008
NAV £4.1 million
YesTo, a California-based company, markets
skincare products derived from 95% natural
ingredients, primarily fruit and vegetables.
Their products are distributed in over 27,000
stores worldwide, including large US retail and
drug store chains.
Brockton is a UK real estate fund with one
remaining investment in a super prime London
residential development. The Company’s
investment represents its share of preferred
debt investments via the Brockton fund.
www.yesto.co.uk
www.brocktoneverlast.com
09
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Strategic Report
INTRODUCTION
LMS Capital is a listed investment company.
The Company’s first year of return to internal
management commenced in 2020. The termination
of its contract with its former external manager
became effective on 30 January 2020 from which
date the Company was entered by the FCA on the
Register of Small Registered AIFMs.
A new Board was appointed in November 2019 to
take the Company forward as an internally managed
investment business. Following its appointment,
the new Board set about concluding the necessary
formalities and ensuring the Company had the
necessary structures to operate on an internally
managed basis, and implementing the investment
policy, which remains unchanged from that adopted by
shareholders in August 2016.
This Strategic Report is set out in the following parts:
Investment policy
• Strategy
•
• Environmental, social and governance policy
• Company performance for the year ended
31 December 2020
• Risk management
• Viability statement
OUR INVESTMENT
OBJECTIVES
OUR INVESTMENT
APPROACH
HOW WE
OPERATE
OUR CO-INVESTMENT
ACTIVITY
OUTLOOK AND
PROSPECTS
To deliver financial returns for
our shareholders:
• an overall total return, net
of costs, over the longer-
term of 12% to 15% per
annum;
• the total return to include
an element of annual
distribution to shareholders;
and
We will focus on three areas:
• real estate;
• energy; and
• late-stage private equity.
These are the areas where we have a competitive advantage due to:
• our experience and knowledge;
• our track record of successful investing; and
• to broaden our shareholder
• our ability to access exceptional teams and opportunities.
base and develop the
Company into an attractive
investment for family
offices, high net worth
investors and institutions
attracted by the returns we
can achieve and our deal
flow.
The characteristics of individual deals will include:
• an opportunity for LMS to contribute expertise as well as
financial backing;
• assets at the smaller end of their respective sectors where pricing
inefficiencies allow attractive entry pricing;
• situations requiring a level of management attention which
larger funds are unable to support and is too complex for
direct investment by individual family offices or high net worth
investors; and
• controlling or influential minority positions
– Board or Investment Committee representation;
– Full information rights.
10
STRATEGY
Since December 2019 the business has been reshaped,
under the management of its own team, to focus on
investment in its known areas of expertise in real estate,
energy and late-stage private equity. The emphasis
across each of these themes is on deals with well-
protected downside and a target overall return of 12%
to 15% per annum net of all costs over the longer term.
It is the Company’s stated intention that part of that
return should be paid to shareholders by way of an
annual dividend and a dividend policy was announced
in August 2020.
The annual dividend has been set initially at 1.5% of
net asset value. The dividend policy is intended to be
progressive with a target to achieve a dividend equal
to 3% per annum of the Company’s net asset value,
fully covered by the Company’s net annual profits.
In paying any interim dividend and recommending a
final dividend, the Board will take account of progress
towards covering the dividend with income, other
circumstances relevant to the Company’s financial
condition and market conditions.
Dividend payments were commenced in September 2020
with an interim dividend of £0.2 million (0.3p per share)
for the year to 31 December 2020, and a final dividend
for the year of £0.5 million (0.6p per share) is being
recommended by the Board to shareholders at the AGM.
OUR INVESTMENT
OBJECTIVES
OUR INVESTMENT
APPROACH
HOW WE
OPERATE
OUR CO-INVESTMENT
ACTIVITY
OUTLOOK AND
PROSPECTS
We have assembled an
experienced Board to oversee the
development of the business and
also to function as the Investment
Committee. Information on our
Board is set out on pages 26 to 50
of this report.
We operate through a small core
team, working closely with the
management teams in our
investee businesses.
We have a network of investment
professionals, with whom our core
team work on individual
opportunities.
We have appointed Advisory
Groups in each of our three areas
of focus, real estate, energy and
late-stage private equity. These
groups comprise a combination of
individuals with whom we are
working on our investments and
third parties with sector expertise.
The groups provide additional
external perspective and guidance
for the Company. Details of our
Advisory Groups are on page 28.
The Company will seek to bring
co-investors to deals to invest
alongside its own capital. Each
deal will be different, but LMS
sees the opportunity for each
£1 of its own capital to bring at
least as much again from
co-investors.
Our co-investors gain the
opportunity to invest directly
in deals which they would be
unlikely to access directly.
LMS benefits from influencing
a larger pool of capital
allowing it to participate in a
more diversified range of larger
transactions than if operating
simply with its own resources.
Co-investment offers LMS the
possibility of enhanced
economics and the ability to
recover fees to offset against
its costs.
The Company has a strong
balance sheet with significant
holdings of cash. In managing
the Company’s finances, the
Board is planning for less
liquidity from the existing asset
pool over the next year or so
than might otherwise have been
the case.
The Company is cautious but
sees opportunity in its three core
sectors. The Company will be
looking at all new investments
to evaluate whether they meet
its long-term return
requirements through the lens
of the uncertainties and risks
created by the Coronavirus crisis.
The Company is also focused on
progressing the existing
portfolio, either through an
orderly realisation or through
financial support where the
investment case validates this
course of action.
11
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Strategic Report
continued
INVESTMENT POLICY
The Company’s investment
objective, stated in the current
investment policy approved by
shareholders in August 2016, is to
achieve total returns over the
medium to longer term, principally
through capital gains supplemented
with the generation of a longer-
term income yield. The Company is
targeting a return on equity, after
running costs, of 12% to 15% per
annum over the long term on new
capital invested.
The investment strategy is focused
predominantly on private equity
investment and alternative,
specialist asset classes:
• the Company will invest in
profitable and cash-generative
businesses and investments,
targeting an annual return on
equity of 12% to 15% net of costs
over the long term;
• the focus will primarily be on
smaller private investment
opportunities below £50 million
value where the Company
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
• the Company will optimise the
value of existing holdings and,
where growth prospects are
clear, to preserve and support
longer-term value creation.
12
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.
Whilst the Company has three focus
areas, it is not restricted to specific
sectors; its assets are and will
continue to be predominantly
invested in the United Kingdom,
Europe and North America.
The Company may put in place bank
facilities to help manage working
capital but indebtedness of the
Company will not exceed 25% of
NAV measured at the time of
drawdown. The Company had no
indebtedness, other than inter-
group indebtedness, at 31 December
2020 or at the date of this report.
RESPONSIBLE INVESTING
The origins of the Company lie in the
investment of family wealth, much
of it used to endow charitable
foundations focused on a wide
range of endeavours in our society.
The current Board understands its
responsibility to build on this history
and evolve it to ensure that the
Company adopts and adheres to an
approach to business that is
relevant to ESG standards today.
OUR APPROACH
As a small investment company,
much of our ESG impact is driven
by the companies in which we
choose to invest. As part of this
investment process, we aim to
integrate ESG considerations
throughout – from the time of
investment, throughout our
ownership and ultimately to exit.
Our evaluation of investments
includes, for example, consideration
of the business ethics of an investee
company, its human resource
practices, health and safety and
overall the way it monitors and
manages its own ESG impacts.
The relative significance of individual
factors will vary from business to
business according to the nature
of its operations.
We also believe that sound
investments and good business
performance enable us to uphold
material ESG principles. We work
closely with the management teams
of our investee businesses,
supported by our strong core team
and Advisory Groups with specific
sector knowledge, to drive
responsible, long-term decisions
and ensure alignment with our own
responsible investment principles.
CORE RESPONSIBLE
INVESTMENT PRINCIPLES
Our ESG considerations are guided
by our core responsible investment
principles:
•
integrate ESG considerations
throughout our investment
process;
• focus on making responsible,
long-term decisions, supported
by the expertise of our
network; and
• maintain high standards of
corporate governance.
GOVERNANCE
We are committed to maintaining
high standards of corporate
governance. As a fully listed
company on the London Stock
Exchange, we are diligent in our own
internal procedures and reporting
to shareholders.
COMPANY PERFORMANCE
FOR THE YEAR ENDED
31 DECEMBER 2020
A detailed review of the
management of the portfolio is set
out on pages 18 to 25 of this annual
report. The detailed financial results
are set out in the accounts on pages
67 to 92.
This review considers the overall
performance of the Company and
its progress during the year, towards
its overall objective which is, over
the longer term, to produce a return
of 12% to 15% per annum to
investors, net of costs.
2020 was the first year of operation
as a self-managed investment
company under the Board appointed
in November 2019. The year has
been dominated for society as a
whole by the impact of the
Coronavirus pandemic. For the
Company this has certainly had an
impact but at the same time it has
been able to make progress on its
goals and strategies.
The Company’s goals entering 2020,
and the outcomes achieved are set
out below:
Implementing the necessary
structure and processes to
transition to internal
management
• Overall, this is substantially
complete.
• During 2020, the Company has
developed its team and as the
business grows it expects this to
develop further. The Company has
during the year recruited two
individuals who jointly provide the
senior financial support for the
Company and also provide the
financial monitoring and support
required by the Company’s energy
and real estate investment
activities.
• The Company’s investment and
co-investment activities are also
supported by three individuals who
work on a consulting basis as
required but typically between one
and four days per month.
• The Company’s day-to-day
financial and Company secretarial
administration is outsourced to
IQ-EQ. The Company receives
specialist advice as required on
compliance and other matters
from its advisory team.
• Whilst not required to do so as a
small AIFM, the Company has
retained the services of INDOS
Financial Limited to act as its
depository.
Deployment of capital on new deals
and development of a deal pipeline
• Energy. The Company has funded
and continues to await final
Romanian government approval
for its investment in Dacian, the
Romanian oil and gas production
company. Although disappointing
that approval was not received
during Q4 2020, the Board, advised
by the Dacian team, continues to
expect approval to be received in a
reasonable period of time. The
deal, once approved, will form a
strong foundation for the
Company’s energy activities and is
expected to lead to further
opportunities in the sector.
• Real Estate. The Company has
worked with its two real estate
teams, Cavera and George Capital.
In both cases it has adopted a
cautious view until the impact of
the Coronavirus pandemic is
understood. A deal pipeline for both
teams is being built and is expected
to create opportunity to deploy
capital in 2021.
Monitoring and managing the
existing assets
• The remaining portfolio is largely
passive – LMS does not have any right
actively to control decision making.
The focus is on maintaining a
dialogue with the managers and
influencing and supporting decision
making where possible.
• Management arrangements with
SFEP were amended to promote
greater alignment of interest for the
remaining life of the SFEP funds.
• LMS nominee has now been
appointed to the board of ICU.
• Exit opportunities on three assets
continue to be supported.
PERFORMANCE INDICATORS
The Board is setting out to create
wealth in the Company over the
medium to longer term and takes
decisions through the lens of this longer
timeframe.
Progress towards the medium to longer-
term objective may not be reflected in
individual annual performance metrics.
However, the Board recognises the need
to report the Company’s annual
performance against these measures.
The Company’s NAV per share total
return, excluding the impact of
dividends, was minus 7.8% (2019: minus
7.1%) and its total shareholder return
was minus 22.3% for the year ended
31 December 2020. These measures
compare to the FTSE All Share Index
which showed a return of minus 9.8%
for the year ended 31 December 2020.
Further information on the Company’s
performance is provided in the Portfolio
Management Review on pages 18 to 25.
13
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Risk Management
On behalf of the Board, the Audit Committee has responsibility for ensuring that the Company has an effective process
to identify, assess and manage the various risks within its business.
The Company has carried out an assessment of the principal risks within its business and has considered the likelihood
and potential impact of each risk and the effectiveness of the procedures to mitigate each risk. In carrying out this
assessment in 2020 consideration has been given to any impact from the change to internal management.
A summary of the principal risks identified is set out below.
PRINCIPAL RISKS IN EACH CATEGORY
MITIGATION
Strategic risk
Risk that the business model does not deliver target long-term returns to shareholders or that
the Board is unable to implement the strategy.
Market risk
Risk that macro market and geo-political uncertainties (including the potential consequences of
the Coronavirus pandemic and Brexit outcomes) have an adverse impact on investment values,
liquidity and deal flow or otherwise disrupt the markets in which the Company operates.
Investment risk
Risk that the Company’s investments may perform below expectations or may not achieve
target exit valuations or timing. New investments may not meet investment criteria or fit with
the strategy set by the Board.
Financial risk
Risk that the valuation of the investment portfolio is misstated.
Operational and Governance risk
Risk that the Company does not have the appropriate resources in place to support the delivery
of its strategy. This includes risk of heavy reliance on a small core team and the risk that Board
makeup may no longer be appropriate.
Legal and Regulatory risk
The risk that the Company does not comply with the regulatory framework to which it is
subject. Risk that changes to the legal or regulatory framework could impact the
Company’s business.
14
The Board establishes both long-term and annual objectives against which it monitors the Company’s
performance. It also considers the Company’s performance in the context of investment market conditions and
developments generally.
Regular assessment at Board level of the macro environment on the Company’s business overall and at
individual asset level.
The current significant level of cash provides some protection against uncertainty in the short term.
Regular monitoring by the Board of underlying performance and realisation strategy for all investments.
Where the Company does not control the investment realisation decision, it maintains dialogue with external
managers and regularly considers alternative realisation routes.
New investments are subject to a rigorous multi-stage review and approval by the Investment Committee and
Board. This process includes diligence by external specialists where required.
The investment portfolio is valued at fair value in accordance with IPEV Guidelines and supported by third party
evidence where available. Valuation judgements are reviewed regularly by the Board and Audit Committee and
also subject to external auditor review.
The core team whilst small, is supported by advisers in key areas and outsourced providers. The Company,
through its Board, has a wide network of associates who provide additional input on an ‘as needs’ basis and who
could provide additional support were members of the core team to be unavailable.
The Board was appointed in November 2019 and will regularly review its effectiveness through a combination of
internal and externally driven reviews.
Compliance with the relevant legal and regulatory requirements is overseen by the Audit Committee and the
Board. The Company has in place the necessary procedures and policies required by the regulatory framework
and works with external advisers periodically to review its procedures and to ensure it is aware of relevant
legislative or regulatory changes.
PRINCIPAL RISKS IN EACH CATEGORY
MITIGATION
Risk that the business model does not deliver target long-term returns to shareholders or that
the Board is unable to implement the strategy.
Strategic risk
Market risk
Risk that macro market and geo-political uncertainties (including the potential consequences of
the Coronavirus pandemic and Brexit outcomes) have an adverse impact on investment values,
liquidity and deal flow or otherwise disrupt the markets in which the Company operates.
Investment risk
Risk that the Company’s investments may perform below expectations or may not achieve
target exit valuations or timing. New investments may not meet investment criteria or fit with
the strategy set by the Board.
Financial risk
Risk that the valuation of the investment portfolio is misstated.
Operational and Governance risk
Risk that the Company does not have the appropriate resources in place to support the delivery
of its strategy. This includes risk of heavy reliance on a small core team and the risk that Board
makeup may no longer be appropriate.
Legal and Regulatory risk
The risk that the Company does not comply with the regulatory framework to which it is
subject. Risk that changes to the legal or regulatory framework could impact the
Company’s business.
The Board establishes both long-term and annual objectives against which it monitors the Company’s
performance. It also considers the Company’s performance in the context of investment market conditions and
developments generally.
Regular assessment at Board level of the macro environment on the Company’s business overall and at
individual asset level.
The current significant level of cash provides some protection against uncertainty in the short term.
Regular monitoring by the Board of underlying performance and realisation strategy for all investments.
Where the Company does not control the investment realisation decision, it maintains dialogue with external
managers and regularly considers alternative realisation routes.
New investments are subject to a rigorous multi-stage review and approval by the Investment Committee and
Board. This process includes diligence by external specialists where required.
The investment portfolio is valued at fair value in accordance with IPEV Guidelines and supported by third party
evidence where available. Valuation judgements are reviewed regularly by the Board and Audit Committee and
also subject to external auditor review.
The core team whilst small, is supported by advisers in key areas and outsourced providers. The Company,
through its Board, has a wide network of associates who provide additional input on an ‘as needs’ basis and who
could provide additional support were members of the core team to be unavailable.
The Board was appointed in November 2019 and will regularly review its effectiveness through a combination of
internal and externally driven reviews.
Compliance with the relevant legal and regulatory requirements is overseen by the Audit Committee and the
Board. The Company has in place the necessary procedures and policies required by the regulatory framework
and works with external advisers periodically to review its procedures and to ensure it is aware of relevant
legislative or regulatory changes.
15
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Viability Statement
INTRODUCTION
The Directors have assessed the Company’s current position
and prospects as described in the Chairman and Managing
Director’s Statement and the Portfolio Management 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 2021
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 or more.
In performing their assessment, the
Directors considered principally:
• the Company’s liquidity forecast
for the three years from 1 January
2021;
• the significant cash balances on
• the potential impact on the
Company’s operations, portfolio
and liquidity from the ongoing
Coronavirus global pandemic.
The Directors’ consideration of
these reports was made against the
background of the following:
• many of the Company’s
investments are in private
companies for which the timing
and amount of income and/or
realisation is uncertain.
Although the fair value of some
investments declined in 2020 due
to the impact of the Coronavirus
pandemic on global markets, the
Company has sufficient sources
of liquidity from its available
cash balances;
hand at 31 December 2020;
• the Board has reviewed the
• the 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); and
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,
including the ongoing uncertainty
due to the impact of the
Coronavirus global pandemic,
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 the sterling of
the currency in which it is
denominated and uncertainty
about the timing of its
realisation; 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, including potential
impacts from the ongoing
Coronavirus global pandemic,
and has 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.
16
DIRECTORS’ RESPONSIBILITIES PURSUANT TO SECTION 172 OF THE COMPANIES ACT OF 2006
The Directors are responsible for acting in a way that they consider,
in good faith, is the most likely to promote the success of the
Company for the benefit of its members. In doing so, they should
have regard for the needs of stakeholders and the wider society.
The structure of the Board and
committees is designed to ensure
that the Board focuses on strategy,
monitoring the performance of the
portfolio, Company and governance,
risk and control issues. The Board
took the view that, given its
relatively recent appointment, it
would undertake an internal
evaluation of its effectiveness and
wait until the end of 2021 to
participate in an external evaluation
of itself and its committees to
ensure that it can focus on driving
transformational change. The Board
conducted this internal evaluation
of its effectiveness, facilitated by an
external consultant, in February
2021. The overall conclusion was
that the Board was operating
effectively with no significant areas
to be addressed.
For and on behalf of the Board.
Robert Rayne
Chairman
11 March 2021
The Company’s objective is to
provide investors with an annual
return of 12% to 15% per annum
over the long term through a
combination of share price
appreciation and distributions.
Key decisions are those that are
either material to the Company
or are significant to any of the
Company’s key stakeholders.
The Company’s engagement with
its key stakeholders is discussed
further in the Corporate Governance
Report. The below key decisions
were made or approved by the
Directors during the year, with the
overall aim of promoting the
success of the Company while
considering the impact on its
members and wider stakeholders.
DIVIDENDS
The Board approved a special
dividend of 4.25p per share which
was paid on 20 January 2020. It is
the Company’s stated intention that
a return should be paid to
shareholders by way of an annual
dividend of 1.5% of Net Asset Value.
Dividend payments were
commenced in September 2020
with an interim dividend of 0.3p
per share for the year to
31 December 2020, and a final
dividend for the year of 0.6p will be
recommended by the Board to
shareholders at the AGM.
In paying the interim dividend
and recommending a final dividend,
the Board will take account of
progress towards covering the
dividend with income, other
circumstances relevant to the
Company’s financial condition
and market conditions.
ACQUISITIONS
The Company has deposited
$9.0 million for the investment in
Dacian that is pending final
regulatory approvals for closure.
It has also invested an additional
£0.8 million in funds managed by
Weber Capital Partners. The Board
has an Investment Committee
that reviews and considers each
investment in the context of the
Company’s Investment Policy,
availability of financing and the
potential returns to investors
as well as the context of
sustainability and its impact on
the surrounding community.
BOARD COMPOSITION
The Board composition changed
significantly in November 2019 when
four new Directors were appointed
after the conclusion of the
Extraordinary General Meeting
whereby shareholders approved the
return to internal management.
17
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Portfolio Management Review
INTRODUCTION
The Company and the Board became responsible for all aspects
of the portfolio management with effect from 30 January 2020,
following the Company’s shareholder approval of a resolution to
return the Company to internal management in November 2019.
Cash in the Group at 31 December 2020 was
£20.6 million (31 December 2019: £26.6 million),
including £16.4 million held by the Company and
£4.2 million held by subsidiaries. Significant outflows
have been £3.7 million of dividend payments,
£7.0 million deposited for the investment in Dacian
and an additional £0.8 million invested in Weber
Capital Partners. Cash proceeds from realisations and
distributions from funds have totalled £9.3 million.
Other net cash movements amount to an outflow
of £3.2 million.
MARKET BACKGROUND
2020 was a year dominated by the impact of the
Coronavirus pandemic on global markets. The spread
of Covid-19 during the first quarter profoundly affected
global markets as equities suffered steep declines
while government bond yields fell. Sterling hit lows
against the US dollar as investors sought safety in
cash. Subsequent quarters of 2020 saw a market
recovery as the Covid-19 restrictions eased and vaccine
breakthroughs created some optimism about the
return to economic normality. Equities increased and
sterling strengthened against the US dollar. The UK
AIM 100 and SmallCap indices ended the year up
19.6% and 4.5%, respectively.
PERFORMANCE REVIEW
The movement in NAV during the year was as follows:
Opening NAV
Loss on investments
Dividends
Overheads and other
net movements
Closing NAV
2020
£’000
2019
£’000
55,958
(2,053)
(3,673)
60,275
(1,199)
–
(2,309)
(3,118)
47,923
55,958
Cash realisations from the portfolio in 2020 were as
follows:
Proceeds from the sale
of investments
Distributions from funds
and loan repayments
Total – gross
New and follow-on investments
Fund calls
Total – net
Year ended
31 December
2020
£’000
2019
£’000
8,011
12,411
1,304
9,315
(976)
(169)
788
13,199
(426)
(898)
8,170
11,875
Domestically, the approval and rollout of multiple
Covid-19 vaccines beginning in early 2021 could help
extend the rally in equities amongst a return to
normalcy in the second half of the year. Additionally,
a Brexit trade agreement reached at the end of the
year removed some of the uncertainty over the future
trading relationship with the EU. However, there still
remains uncertainty around combatting the pandemic
and how that will impact the pace of economic recovery
and the domestic and global markets.
Realisations of £9.3 million in 2020 include:
• proceeds of £7.7 million from the sale of the bulk of
the Company’s listed shares;
• £0.7 million of distributions from ICU Eyewear
related to cash generated from their newly created
Health business line that sells personal protective
equipment;
• £0.3 million of distributions from Eden Two LLP; and
The consequences of recent developments and impact
of the ongoing pandemic will continue to be monitored
closely by the Board.
• other realisations and fund distributions of
£0.6 million.
18
A new investment of £0.8 million was made in Weber Capital Partners in light of the continuing strong
performance of this fund over both short and longer-term horizons.
The follow-on investments are primarily in respect of an additional £0.2 million of working capital funding for
Elateral, a UK direct investment.
The fund calls are primarily for SFEP management fees.
Below is a summary of the investment portfolio of the Company and its subsidiaries:
Year ended 31 December
2020
US
£’000
78
8,912
6,050
Total
£’000
197
10,138
11,858
UK
£’000
6,687
2,428
7,795
2019
US
£’000
1,734
7,285
6,312
Total
£’000
8,421
9,713
14,107
15,040
22,193
16,910
15,331
32,241
UK
£’000
119
1,226
5,808
7,153
Asset type
Quoted
Unquoted
Funds
BASIS OF VALUATION:
QUOTED INVESTMENTS
Quoted investments for which an active market exists are valued at the closing bid price at the reporting date.
UNQUOTED DIRECT INVESTMENT
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 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 revenue 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 revenue 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;
investments in debt instruments or loan notes are determined on a standalone basis, with the initial investment
recorded at the price of the transaction and subsequent adjustments to the valuation are considered for changes
in credit risk or market rates. Convertible instruments are valued by disaggregating the convertible feature from
the debt instrument and valuing it using a Black-Scholes model; and
• the Company adopted the IPEV special valuation guidance issued in March 2020 in response to the significant
uncertainty surrounding the Coronavirus pandemic.
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, the latest available of 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.
Adjustments will be made to the fund valuation where the Company believes there is evidence available for an
alternative valuation.
19
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Portfolio Management Review
continued
PERFORMANCE OF THE INVESTMENT PORTFOLIO
The return on investments for the year ended 31 December 2020 was as follows:
Asset type
Quoted
Unquoted
Funds
Year ended 31 December
2020
Realised
gains/
(losses)
£’000
Unrealised
gains/
(losses)
£’000
(335)
121
–
(598)
949
(2,190)
Total
£’000
(933)
1,070
(2,190)
(214)
(1,839)
(2,053)
2019
Realised
gains/
(losses)
£’000
Unrealised
gains/
(losses)
£’000
9
7,071
–
7,080
2,700
(3,870)
(6,708)
(7,878)
Charge for incentive plans
Operating and similar expenses of subsidiaries
–
(2,053)
(1,194)
(3,247)
Total
£’000
2,709
3,201
(6,708)
(798)
(401)
(1,199)
(527)
(1,726)
The Company operates carried interest arrangements in line with normal practice in the private equity industry.
The charge for incentive plans for the Company is for carried interest and other incentives relating to historic
arrangements. The charge for carried interest incentive plan is included in the Net losses on Investments in the
Income Statement.
Approximately, 68% of the portfolio at 31 December 2020 is denominated in US dollars (31 December 2019: 48%)
and the above table includes the impact of currency movements. In the year ended 31 December 2020, the
weakening of the US dollar against sterling over the year as a whole resulted in an unrealised foreign currency loss
of £0.2 million (2019: unrealised loss of £0.5 million). As a common practice in private equity investment, it is the
Board’s current policy not to hedge the Company’s underlying non-sterling investments.
20
QUOTED INVESTMENTS
Company
Sector
IDE Group Holdings
Global Green Solutions
Gresham House
Solaredge Technologies
Others
UK technology
US energy
UK financial
US renewable energy
–
The net (losses)/gains on the quoted portfolio arose as follows:
(Losses)/gains, net
Realised
Solaredge Technologies
Gresham House
Realised foreign currency gain
Unrealised
Global Green Solutions
IDE Group Holdings
Solaredge Technologies
Gresham House
Other quoted holdings
Unrealised foreign currency gains/(losses)
Total net (loss)/gain
Year ended
31 December
2020
£’000
118
62
–
–
17
197
2019
£’000
781
–
5,906
1,717
17
8,421
Year ended
31 December
2020
£’000
2019
£’000
265
(716)
116
(335)
72
(663)
–
–
3
(10)
(598)
(933)
–
9
–
9
–
436
1,135
1,437
(235)
(73)
2,700
2,709
GRESHAM HOUSE
The Company sold all of its shares in Gresham House during 2020, resulting in a realised loss of £0.7 million.
SOLAREDGE TECHNOLOGIES
The Company also sold all of its shares of Solaredge Technologies during the year, resulting in a realised gain of
£0.3 million.
IDE GROUP HOLDING
The performance of IDE Group Holdings declined during 2020 as the company was impacted by the Coronavirus
pandemic and saw the share price fall substantially, resulting in a £0.7 million unrealised loss. In January 2021, the
company announced that it had secured a £22.5 million multi-year contract with a new customer to improve the
pipeline of future revenue.
21
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Portfolio Management Review
continued
UNQUOTED INVESTMENTS
Company
Medhost Inc
ICU Eyewear*
Northbridge
Elateral
IDE Group
Yes To*
Sector
US technology
US consumer
UK technology
UK technology
UK technology
US consumer
*These are co-investments with SFEP.
The net gains and losses on the unquoted portfolio arose as follows:
Gains, net
Realised
Entuity
Penguin Computing
Brockton Capital LLP
Unrealised
ICU Eyewear
Medhost
Northbridge
YesTo
Elateral
Unrealised foreign currency losses
Total net gain
Year ended
31 December
2020
£’000
5,704
3,143
755
399
73
64
10,138
2019
£’000
5,460
1,508
730
1,610
88
317
9,713
Year ended
31 December
2020
£’000
2019
£’000
115
6
–
121
2,459
374
25
(268)
(1,436)
(205)
7,177
36
(142)
7,071
–
(2,672)
130
(722)
(400)
(206)
949
(3,870)
1,070
3,201
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.
22
Comments on individual companies are set out below.
MEDHOST
Medhost is a co-investment with funds of Primus Capital. Medhost’s financial performance was relatively flat in
2020, with only a slight decline in both Revenue and EBITDA over the prior year, resulting in a higher valuation by
the fund manager Primus Capital and an unrealised gain of £0.4 million for 2020.
ELATERAL
Additional working capital funding of £0.2 million was required by the Company in 2020. Elateral experienced a net
reduction in revenue during 2020 due to the economic impact of the Covid-19 pandemic, and overall the company
ran at an EBITDA loss. The valuation has been reduced by £1.4 million for the year.
ICU EYEWEAR
During 2020, the company created a new business line, Health, for the distribution and sale of personal protective
equipment. The Health business line generated significant sales during 2020 due to the Covid-19 pandemic,
resulting in cash distributions to the Company of £0.7 million during the year and an additional £1.5 million received
in February 2021. The company’s main business line, Eyewear, has also continued to demonstrate its ability to trade
profitably. The valuation gain of £2.5 million reflects the cash distribution received in February 2021 and the
increased value of the ongoing business lines.
PENGUIN COMPUTING
The Company’s total interests are held through its investment in SFEP and directly through a co-investment with
SFEP. The amounts shown above relate to the directly held co-investment. As explained below, the business was
sold in June 2018 and initial consideration was received, with part of the consideration held in escrow. The remaining
investment was fully written off in 2019 but a final distribution of funds from the escrow account was received
during 2020.
23
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Portfolio Management Review
continued
FUND INTERESTS
General partner
Sector
Brockton Capital Fund 1
Opus Capital Venture Partners
Weber Capital Partners
EMAC ILF
San Francisco Equity Partners
Eden Ventures
Simmons
Other interests
UK real estate
US venture capital
US micro-cap quoted stocks
UK
US consumer & technology
UK venture capital
UK
–
Year ended
31 December
2020
£’000
4,107
3,505
1,813
839
699
501
361
33
2019
£’000
5,529
3,145
563
988
2,570
914
363
35
11,858
14,107
Gains and losses on the Company’s funds portfolio for the year ended 31 December 2020 were as follows:
Losses net
Realised
Other funds
Unrealised
Opus Capital Venture Partners
Weber Capital Partners
Simmons Parallel Energy
Eden Ventures
San Francisco Equity Partners (‘SFEP’)
Brockton Capital Fund I
Others (net)
Unrealised foreign currency losses
Total net loss
Year ended
31 December
2020
£’000
2019
£’000
–
–
–
–
907
555
(22)
(157)
(1,729)
(1,422)
(315)
(7)
226
–
81
(183)
(6,798)
607
(433)
(208)
(2,190)
(6,708)
(2,190)
(6,708)
LMS is the majority investor in SFEP as opposed to the other fund interests where the Company has only a minority
stake. SFEP has one remaining investment, YesTo.
• YesTo – The fund carrying value of £0.6 million (31 December 2019: £2.8 million) was further reduced in 2020. A
new management team was appointed in 2020 and a plan to restore growth and profitability was implemented.
The 2020 sales were in line with the budget but profitability was negatively impacted by higher costs and the
impact of Covid-19, resulting in lower than estimated EBITDA. Further working capital was required during 2020,
but the Company elected not to participate in that round of funding. YesTo is valued primarily on a sales multiple
and the reduction reflects a valuation that is sufficient to recover the outstanding loan notes held by the
Company but prescribes no value to the equity.
In addition, to the fund investments noted above the Company has a directly held co-investment in YesTo of £0.1
million (31 December 2019: £0.3 million). The Company’s total investment in YesTo at 31 December 2020, via its
SFEP fund interest and its co-investment is £0.7 million (31 December 2019: £3.1 million).
The Company also received from SFEP a £0.2 million final distribution of amounts held in escrow related to the
2018 sale of Penguin Computing.
24
OVERHEAD COSTS
Group overhead costs for the year (including £1.3 million incurred by the Company and £0.6 million by subsidiaries)
were £1.9 million (2019: £3.2 million) and include running costs of £1.7 million and investment support costs of £0.2
million for transaction diligence and support costs for real estate and co-investment activities.
TAXATION
The Group tax provision for the year, all of which arose in the subsidiaries, is £0.01 million (2019: £nil).
FINANCIAL RESOURCES AND COMMITMENTS
At 31 December 2020 cash holdings, including cash in subsidiaries, were £20.6 million (31 December 2019: £26.6
million) and neither the Company nor any of its subsidiaries had any debt (2019: nil debt).
At 31 December 2020, subsidiary companies had commitments of £2.7 million (31 December 2019: £3.1 million) to
meet outstanding capital calls from fund interests.
LMS CAPITAL PLC
11 March 2021
25
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Board of Directors
Key areas of focus this
year have been
considering our strategy,
articulating our purpose
and values, reviewing
our portfolio and
maintaining close
dialogue with our
shareholders, through
both formal and
informal interactions.
ROBERT RAYNE
CHAIRMAN
NICHOLAS FRIEDLOS
MANAGING DIRECTOR
ROBERT RAYNE
CHAIRMAN (NON-EXECUTIVE)
NICK FRIEDLOS
MANAGING DIRECTOR
COMMITTEE MEMBERSHIPS:
Chairman of the Investment
Committee and the Nomination
Committee
COMMITTEE MEMBERSHIPS:
Member of the Investment
Committee and the Nomination
Committee
DATE APPOINTED TO THE BOARD:
6 April 2006
DATE APPOINTED TO THE BOARD:
28 November 2019
DATE APPOINTED AS CHAIRMAN:
28 November 2019
DATE APPOINTED AS
MANAGING DIRECTOR:
28 November 2019
Directorships: Non-executive
Chairman of Derwent London plc;
Chairman of The Rayne Foundation
and a Non-Executive trustee of a
number of charitable trusts and
foundations.
Experience: Robert 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.
Role and experience: Managing
Director, with overall responsibility
of running the Company’s
operations going forward, working
with and supporting the activities of
the investment teams as well as
overseeing the administrative and
regulatory matters.
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.
26
GOVERNANCE
PETER HARVEY
NON-EXECUTIVE DIRECTOR
GRAHAM STEDMAN
NON-EXECUTIVE DIRECTOR
JAMES WILSON
SENIOR NON-EXECUTIVE DIRECTOR
COMMITTEE MEMBERSHIPS:
Chairman of the Audit Committee,
member of the Nomination
Committee, Remuneration
Committee and Investment
Committee
COMMITTEE MEMBERSHIPS:
Chairman of the Remuneration
Committee, member of the Audit
Committee, Nomination Committee
and Investment Committee
COMMITTEE MEMBERSHIPS:
Member of the Audit Committee,
Nomination Committee,
Remuneration Committee and
Investment Committee
DATE APPOINTED TO THE BOARD:
28 November 2019
DATE APPOINTED TO THE BOARD:
28 November 2019
DATE APPOINTED TO THE BOARD:
28 November 2019
DATE APPOINTED AS CHAIRMAN OF
AUDIT COMMITTEE:
28 November 2019
DATE APPOINTED AS CHAIRMAN OF
THE REMUNERATION COMMITTEE:
28 November 2019
Directorships: Peter has a number
of other roles with not for profit
organisations in Cornwall.
Experience: Peter is a chartered
accountant and, prior to his
retirement in 2010, was a partner
at PricewaterhouseCoopers. He has
been involved as Chairman of the
shareholder group in a private
company in the brewing sector and
has worked closely with the board
of this business.
Directorships: Graham fulfills a
number of advisory roles and has a
particular interest in mentoring
smaller organisations both in the
commercial and in the not for profit
sectors to develop their businesses.
Experience: Graham is a lawyer
and spent most of his career as a
corporate law partner in London
advising on mergers and
acquisitions, takeovers, and other
corporate transactions in both
public markets and private equity
and venture capital.
Directorships: Chairman and
Managing Partner of Source
Squared. Serves on the State Board
of Advisors for The Salvation Army,
and the Advisory Board of the
Cambridge Conservation Initiative
at Cambridge University in the UK.
Experience: James has expertise in
a wide range of sectors. He was
a founding partner of Boston
Ventures, one of the leading
US media private equity funds,
responsible for building the firm’s
practice in the information
services industries.
27
REVIEWFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Our Advisory Groups
REAL ESTATE
Chris Dancer
Real Estate Development
– development manager
for Cavera, previously joint
founder of Voreda.
Steve Dykes
Real Estate Development
– development manager
for Cavera, previously joint
founder of Voreda.
Ben Young
Real Estate Investment
– Founder George Capital
LLP, previously with
Delancey and British Land.
Anthony Wardle
Real Estate Investment
– Head of asset
management at George
Capital, previously a
director of Ashtenne
Investments and with
Property Fund
Management plc.
PRIVATE EQUITY
Richard Fidler
Strategic and M&A adviser
to private businesses. Has
previously worked for
Rothschild and Deutsche
advising in energy, utilities
and TMT sectors.
Keith Holdt
Joint managing Partner
Voyager Capital Partners.
Previously director at
LDC leading the Value
Enhancement Team.
Pardip Khroud
Joint managing partner
Voyager Capital Partners.
Previously investment
director Gresham House
and prior to that LDC
and KPMG.
Chris Wetherill
Experienced investor
in and adviser to private
businesses. Chairman
of Oakley Capital
Investments Ltd.
until September 2018.
ENERGY
Andy Becnel
Experienced energy
industry executive and
adviser to a number of
private projects. Previously
CFO of Weatherford
International.
Bernard Duroc Danner
Previously CEO of
Weatherford International
and currently consultant,
adviser and investor in a
number of energy projects
around the world.
28
Corporate Governance Report
The Board of LMS Capital plc
is committed to maintaining
high standards of corporate
governance and business ethics.
GOVERNANCE KEY EVENTS
• Over the course of the year, a review exercise was
undertaken to ensure that the Company has in place
documented policies and procedures, where required
to comply with the various areas of regulation.
The Company shall continue to formally review its
policies on an annual basis.
• The Company’s AGM is usually used as an
opportunity to engage directly with shareholders.
However, in 2020, the impact of the Coronavirus
crisis and restrictions on public gatherings resulted in
the Board concluding that it was not appropriate for
shareholders to attend the AGM in person. At the
2020 AGM, Shareholders were given the opportunity
to submit questions prior and post the meeting, and
shareholders were encouraged to vote by proxy. It is
intended that the 2021 AGM will be held as per the
normal process, but the Company shall continue to
monitor updates on the Coronavirus crisis. Further
details will be set out in the Notice of AGM that will
be circulated ahead of the meeting.
• A continuing review of the Code, with steps taken
towards full compliance.
Key areas of focus this year have been
considering our strategy, articulating
our purpose and values, reviewing our
portfolio and maintaining close dialogue
with our shareholders, through both
formal and informal interactions.
UK CORPORATE GOVERNANCE CODE
AND S172 REPORTING
The Board of LMS Capital plc is committed to
maintaining high standards of corporate governance
and business ethics. This report is made under the 2018
UK Corporate Governance Code (the ‘Code’). Copies of
the Code are available from the Financial Reporting
Council’s website at www.frc.org.uk.
The Board has adopted the voluntary AIC Code
of Corporate Governance issued in February 2019
(the ‘AIC Code’). Copies of the AIC Code are available
from the AIC’s website at https://www.theaic.co.uk.
This report sets out how the Company has applied the
principles in the Code, the AIC Code and the extent to
which it has complied with the detailed provisions set
out therein. The Board considers that the Company has
complied with all of the provisions of the Code, except
where explanatory statements have been included
below. The Board made good progress in the full
implementation of the Code and shall continue to
ensure that in 2021 any changes will be monitored to
ensure adherence of the Code is applied.
29
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Corporate Governance Report
continued
UK CORPORATE GOVERNANCE CODE –
EXPLICIT EXPLANATORY STATEMENTS
Provision 6 of the Code requires the Board to ensure
that there is a means in which the workforce may raise
concerns in confidence, and if they wish anonymously.
During 2020, the Company updated its Whistleblowing
policy and provided training to its staff.
Provision 9 of the Code requires the Chair should be
independent on appointment when assessed against
the circumstances set out in Provision 10. Robert Rayne
is not considered to be independent, as defined by the
Code, as he previously served as an Executive Director
and is a major shareholder in LMS Capital plc. While not
independent, the Board considers that Robert Rayne
remains to be the most appropriate person to chair the
Company to ensure the adherence of good governance
whilst the Company continues its transition to internal
management. The Board recognises that Robert Rayne
continues to offer substantive and intellectual challenge
to other Board members and strong leadership. The
Board is satisfied that Robert Rayne’s role as Chair is
clearly separated from that of the Managing Director,
and he therefore continues to be appointed accordingly.
Provision 13 of the Code requires the Chair to hold
meetings with the Non-Executive Directors without the
Executive Directors present. Following the appointment
of the Executive Director in November 2019, the Board,
in January 2021 reviewed the performance of the
Executive Director and agreed performance objectives,
and such meetings were held without the Executive
Director present.
Provision 19 of the Code requires the Chair should not
remain in post beyond nine years from the date of their
first appointment to the board. Robert Rayne has been
on the Board for over nine years and therefore the
Company is not in compliance with Provision 19. Robert
Rayne continues to be considered the most appropriate
person to chair the Board following the management
changes and he remains appointed accordingly.
Provision 20 of the Code requires that an open
advertising and/or an external search consultancy
should generally be used for the appointment of the
Chair and Non-Executive Directors. Given the
circumstance around the management changes in
November 2019 and detail in the EGM documents,
this Provision was not adhered to.
Provision 21 of the Code requires that there should be
a formal and rigorous annual evaluation of the
performance of the Board, its committees, the Chair
and individual Directors. Given the appointment of the
new Board towards the end of 2019, the Chairman
determined that it was not appropriate in 2020 for an
external evaluation of the Board and its committees.
An internal Board effectiveness review for the year to
December 2020, facilitated by an external consultant,
was undertaken in February 2021. In 2021, the Chairman
will engage an external evaluator to assess the
performance of the Board and its committees.
Provision 34 of the Code states that the remuneration
for all non-executive directors should not include share
options or other performance-related elements. This
Provision was not complied with as Robert Rayne still
retains a participation in the Company’s historic carried
interest plans. The carry interest relates to entitlements
earned during previous years when he was an executive
of the Company, and in this respect, he is not treated
differently than other former executives who in some
cases also retained carried interest entitlements.
ENGAGEMENT WITH STAKEHOLDERS
Provision 5 of the Code requires the Board to understand
the views of the Company’s key stakeholders.
The Board regularly engages with the Company’s
workforce. We regard our people as our most valuable
asset and are committed to responsible employment
practices, by promoting the fair treatment of our
workforce, providing equal opportunity, preventing
discrimination and upholding human rights.
Nick Friedlos is the Managing Director of the Company
and was appointed to the Board in November 2019.
The Senior Non-Executive Director, James Wilson
together with the Chairman, is available to meet with
shareholders as appropriate. During 2020, the Board
recognised that it would not be achievable to conduct
meetings in person due to the Coronavirus crisis, and in
order to protect the health and safety of those involved.
Nick Friedlos, our Managing Director, and each of our
Committee Chairman are available to engage with
shareholders on significant matters related to their area
of responsibility.
30
All Directors will be available at our AGM in 2021 to
answer any 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 Committee Chairmen are
available to answer questions from shareholders.
SHAREHOLDER COMMUNICATIONS
The Board has stayed in regular contact with its major
institutional shareholders and ensures that all its
members have an understanding of the views and
concerns of investors about the Company. This is
achieved by the Directors 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.
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.
REMUNERATION
The remuneration policy was approved at the AGM held
in 2020.
In accordance with the Code, the Remuneration
Committee determines the Executive Directors’
remuneration policy and practices and addresses the
following factors: clarity, simplicity, risk, predictability,
proportionality and alignment to culture.
When determining remuneration schemes and the
remuneration policy, the Committee considers the
use of discretion by the Committee to override
formulaic outcomes.
The Committee reviews at least annually the on-going
appropriateness and relevance of the remuneration
policy and consult with significant shareholders, as
appropriate, on the policy or any other aspects of
remuneration. In carrying out its role, the Committee
takes advice from external remuneration consultants.
The Committee is further entitled to invoke agreed
safeguards, for example, clawback or withholding the
payment of any sum or share award in certain
circumstances.
Detailed information on the remuneration
arrangements for the Directors can be found in the
Remuneration Report on pages 39 to 53.
ACCOUNTABILITY AND RISK
The Board formally reviews the Company’s risk profile
each year and periodically discusses principal and
emerging risks facing the Company and appropriate
controls. Risk identification and mitigation regularly
forms part of the Board’s deliberations on strategic
decisions. Monitoring the Company’s risk and assurance
systems is key to the business and forms part of Board
meeting discussions.
Detailed information on how the Company manages
risk can be found in the Strategic Report on pages 14 to
15 and the Audit Committee Report on pages 36 to 38.
DIVERSITY AND SUCCESSION PLANNING
The Board has reviewed the combination of skills and
experience on the Board, has evaluated its composition
looking at both the existing and desired skill sets. The
Nomination Committee recognises the need to keep
this under review and is cognisant in respect of the
diversity of the Board.
LEADERSHIP AND BOARD EFFECTIVENESS
The structure of the Board and committees is designed
to ensure that the Board applies its focus to the overall
objectives of the Company with emphasis on strategy,
monitoring the performance of the portfolio, risk and
control issues. The Board ensures that the right people
and leadership are employed and utilised to achieve the
strategy and plans of the Company.
As part of the implementation processes in order to
adopt the Code, in 2020, the Board had intended to
participate in an externally facilitated evaluation of
itself and its committees but subsequently determined
that an external evaluation in the first year of the new
Board was not appropriate. Therefore, the Board agreed
that an internal effectiveness review led by the Senior
Independent Director be conducted. This internal
review, which was facilitated by an external consultant,
was conducted in February 2021. The Chairman will
engage an external evaluator to assess the performance
of the Board and its committees in 2021 (see further
comments on this overleaf).
31
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Corporate Governance Report
continued
BOARD OF DIRECTORS
DIRECTORS’ CONFLICTS OF INTERESTS
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
governance framework detailed below.
COMPOSITION
The Board currently comprises five Directors. Brief
biographies of the Directors appear on pages 26 to 27.
The Board considers that it has an appropriate balance
of skills, knowledge and experience available to it.
Robert Rayne 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 the Board’s effectiveness is
regularly evaluated (see further comments on this
below). The role description of the Chairman was
reviewed by the Board and was documented and
approved by the Board in November 2020.
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, Peter Harvey, Graham
Stedman and James Wilson 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.
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.
Nick Friedlos is not considered to be independent as he
is the Managing Director of the Company.
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.
The Board is of the view that the Chairman and each of
the Non-Executive Directors who held office during
2020 committed sufficient time to fulfilling their duties
as members of the Board.
INDEPENDENT SENIOR NON-EXECUTIVE DIRECTOR
The Senior Non-Executive Director, James Wilson, acts
as a sounding board for the Chairman and acts as an
intermediary for other Directors. The Directors consider
that the Senior Non-Executive Director is able to ensure
significant engagement with shareholders.
DIRECTOR RE-ELECTION
In order to comply with the Code, all Directors will
offer themselves for re-election by shareholders at
each AGM.
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.
While no formal structured continuing professional
development programme has been established for the
Non-Executive Directors, every effort is made to ensure
that they are fully briefed before Board meetings on the
Company’s business and its investments. In addition,
they receive updates from time to time from the
Company’s advisers 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.
32
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. 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 considers the guidance on Board
Effectiveness issued by the FRC in July 2018.
As part of the implementation of the Code, an internal
evaluation led by the Senior Independent Director was
undertaken. The process was facilitated by an external
consultant. The overall conclusion was that the Board
was operating effectively with no significant areas
requiring to be addressed.
BOARD MEETINGS
Five scheduled Board meetings were held in 2020. 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
2020. They attended the following number of scheduled
meetings of the Board and (where they were members)
its committees during the year:
In addition to the scheduled Board meetings noted
above, the Board held one ad-hoc meeting during 2020
with all directors attending. The Remuneration
Committee also held one ad-hoc meeting during 2020
with full attendance by the Committee members.
The Directors maintain a regular dialogue regarding the
business of the Company outside of scheduled Board
and Committee meetings. In months where no such
meetings are scheduled, the Directors will arrange
informal meetings, generally by way of conference calls.
BOARD COMMITTEES
The Board has an Audit Committee, a Remuneration
Committee, a Nomination Committee and an
Investment Committee.
Each Board committee has established terms of
reference detailing its responsibilities and authority.
These are available in the Investor Relations section of
the Company’s website at www.lmscapital.com.
AUDIT COMMITTEE
The Audit Committee comprises: Peter Harvey
(Committee Chairman), Graham Stedman and James
Wilson. Peter Harvey 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.
2020
Meetings held
Robert Rayne
Nick Friedlos
Peter Harvey
Graham Stedman
James Wilson
Board
Audit
Nomination Remuneration
Investment
5
5
5
5
5
5
3
–
–
3
3
3
1
1
1
1
1
1
3
–
–
3
3
3
3
3
3
3
3
3
33
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Corporate Governance Report
continued
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 other Directors. A report on the
activities of the Audit Committee is set out on pages
36 to 38.
The terms of reference for the Committee, which are
reviewed on an annual basis, take into account the
requirements of the Code and the AIC Code. 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 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. 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.
A policy regarding the engagement of the external
auditor to supply non-audit services is in place. The
policy recognises the importance of maintaining the
objectivity and independence of the external auditor by
carefully monitoring their involvement in projects of a
non-audit nature. It is, however, also acknowledged
that, due to their detailed understanding of the
Company’s business, it may sometimes be necessary or
desirable to involve the external auditor in non-audit
related work to the extent permitted.
INTERNAL CONTROL AND RISK MANAGEMENT
IQ-EQ Administration Services (UK) Limited, appointed
in 2017 continues 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. IQ-EQ Corporate
Services (UK) Limited appointed in 2017 also continues
as Company Secretary and supports the Board in the
delivery of governance procedures, in particular the
planning of agendas for the annual cycle of Board and
Committee meetings.
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. When reviewing the
effectiveness of the internal controls, the Committee
considers the Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting
issued by the FRC in September 2014 and is comfortable
that these are adhered to. More information on the
results of these reviews during 2020 are set out in the
Audit Committee Report on pages 36 to 38. Details of
the principal risks and uncertainties potentially facing
the Company can be found in the Strategic Report on
pages 10 to 13.
34
Following the appointment of IQ-EQ Administration
Services (UK) Limited to manage the Company’s
day-to-day financial and administrative functions, the
Board continues to be reliant on third party reports to
gain comfort on internal controls operated by IQ-EQ.
The Company has no internal audit function. Although
not a regulatory requirement as a small self-managed
alternative investment fund, the Company has retained
the services of INDOS Financial Limited to act as
its depository.
NOMINATION COMMITTEE
All Directors are members of the Nomination
Committee, which is chaired by Robert Rayne.
The Committee is responsible for assisting the Board
in determining the composition, gender equality 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.
REMUNERATION COMMITTEE
The Remuneration Committee comprises: Graham
Stedman (Committee Chairman), Peter Harvey and
James Wilson. The Remuneration Committee has, under
its Terms of Reference been delegated the responsibility
of setting remuneration of the Directors. There is a
formal and transparent procedure for developing policy
on executive remuneration and for fixing the
remuneration packages of individual directors. The
Committee consults with external remuneration
consultants as part of its annual review process.
The Remuneration Committee meets as required, but at
least twice each year.
A report on the activities of the Remuneration
Committee is set out on pages 39 to 53.
FINANCIAL REPORTING
The Directors have acknowledged, in the Statement
of Directors’ Responsibilities set out on pages 57 to 58
their responsibility for preparing the financial
statements of the Company. The external auditor has
included, in the Independent Auditor’s Report set
out on pages 59 to 66, a statement about its
reporting responsibilities.
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.
Robert Rayne
Chairman
11 March 2021
35
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Audit Committee Report
INTRODUCTION FROM THE CHAIRMAN OF THE AUDIT COMMITTEE
I am pleased to present the report of the Audit Committee for 2020 which provides
shareholders with an overview of the activities of the Committee during the year.
These activities are focused on the following:
• the integrity of the Company’s financial reporting;
CORPORATE REPORTING
• the quality and effectiveness of the external
audit process, including the independence and
objectivity of the external auditor; and
The Committee had three scheduled meetings during
2020 and also met on 4 March 2021; each meeting was
attended by the external auditor.
• risk management and internal control. The
day-to-day accounting responsibilities are
undertaken by a third-party service provider,
IQ-EQ Administration Services (UK) Limited.
Whilst this Committee was only appointed in
November 2019, its initial task, during the first
quarter of the year, was to oversee the financial
reporting for the year to 31 December 2019.
The Committee has been in place throughout 2020
and has overseen the financial reporting process
and discharged its other responsibilities.
Since the publication of the 2019 annual report the
Committee has reviewed the following:
• the report from BDO LLP (‘BDO’) on the results
of their review of the half-year report for 2020;
• the 2020 half-year results and announcement;
• reports from BDO on the planning of their audit
for the year ended 31 December 2020;
• the report from BDO on their audit of the results
for the year ended 31 December 2020;
• the preliminary announcement of 2020 results; and
As Chairman of the Committee, I report to the full
Board at each scheduled Board meeting immediately
following a Committee meeting, and other times
as appropriate.
• the 2020 annual report.
ANNUAL REPORT 2020
A summary of how the both the Committee carried
out its responsibilities during 2020 as well as the
more significant issues addressed is set out in
the report.
Peter Harvey
Chairman, Audit Committee
11 March 2021
The Committee advises the Board on whether it
believes that the 2020 annual report and accounts, taken
as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to
assess the Company’s position and 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.
36
In formulating its report to the Board, the matters
considered by the Committee included the following:
• the roles of IQ-EQ 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;
• 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
• whether the information in the Strategic Report and
the Portfolio Management Review is consistent with
that reported to the Board throughout the year;
– the nature and reason for any adjustments made
to third party information for the Company’s
valuation purposes.
• 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.
In relation to the 2020 full year results, the Committee
has received relevant papers prepared by the internal
team. These papers were subject to challenge by
the Committee, as it considered appropriate in
the circumstances.
INVESTMENT PORTFOLIO VALUATION
The principal focus for the Committee is the investment
portfolio valuation; a full valuation is prepared and
reported to the Committee at least twice a year and
used for the preparation of the Company’s half-year
and full year financial reports.
As part of its review of each valuation report the
Committee receives comments on the valuation from
the external auditor – based on their review of the
30 June (half-year) valuation and audit of the
31 December (full year) valuation.
The following areas were of particular focus for the
Committee in its consideration of the approach to
investment valuation in 2020:
• ensuring that the valuation methodology complied
with both the International Private Equity and
Venture Capital Valuation Guidelines (December 2018
edition) and the Special Valuation Guidelines (March
2020) issued in response to the significant
uncertainties created by the Covid-19 pandemic, and
the Company’s stated accounting policy, and that the
Guidelines had been applied on a consistent basis;
The valuation of unquoted investments inevitably
requires the exercise of judgement and the Committee
studied in detail the variables underpinning the
valuation of each unquoted investment, in particular:
• consideration of current trading and future prospects
in determining the appropriate revenues or earnings
base for valuation purposes;
• consistency of approach in the valuation, satisfying
itself that any change made was appropriate;
• ensuring that metrics from comparable quoted
companies were appropriate and up to date; and
• 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.
At its meeting to consider the full year results, the
Committee considered a detailed report 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.
GOING CONCERN
The financial statements are prepared on a going
concern basis and the Committee considered this
and concluded that the use of the going concern basis
continued to be appropriate. The Committee primarily
considered the Company’s liquidity forecast for the
three years from 1 January 2021, the significant cash
balances on hand at 31 December 2020, the latest report
on the investment portfolio and the ongoing impact of
the Company’s operations, portfolio and liquidity from
the Coronavirus global pandemic.
37
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Audit Committee Report
continued
GOING CONCERN CONTINUED
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
corrected and uncorrected misstatements they had
found during the course of their work.
INTERNAL CONTROL AND RISK
MANAGEMENT
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 members of the
Company’s finance team 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;
Risk management and internal controls were reviewed
by the Committee at each of its scheduled meetings
during the year. Since its appointment, the Committee
has reviewed the Company’s detailed internal risk
analysis and the disclosures in relation to risks and
longer-term viability in the Strategic Report. The
Committee is of the view that:
• 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.
• risks have been properly identified;
• the systems were operating satisfactorily during 2020
and up to the date of this report; and
• mitigation of the risks identified is satisfactory and
appropriate to the Company’s circumstances.
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.
Reports presented to the Committee by BDO during
2020 and to the date of this report covered:
• the results of their audit of the 2019 financial
statements and annual report;
• the results of their review of the 2020 half-year
report;
• their plans and proposed audit scope for 2020; and
• the results of their audit of the 2020 financial
statements and annual 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 £17,000 (2019: £15,000).
These permissible audit related services are in respect of
the interim review for the six months to June.
BDO have been auditors for the Company for five years.
The audit Partner (Neil Fung-On) has also been the
responsible Individual (‘RI’) for five years therefore a new
audit partner will be rotated in the 2021 financial year.
AUDIT COMMITTEE EFFECTIVENESS
The annual Board evaluation described on page 16
included the work of the Committee and concluded that
it was working satisfactorily.
Peter Harvey
Chairman, Audit Committee
11 March 2021
38
GOVERNANCE
Remuneration Report
INTRODUCTION FROM THE CHAIRMAN
I am pleased to present our Remuneration Committee Report.
REMUNERATION COMMITTEE MEMBERSHIP
The members of the Remuneration Committee, their
dates of appointment and the number of meetings
attended during the year are as follows:
Member
Date appointed
G Stedman (Chair)
J Wilson
P Harvey
28 November 2019
28 November 2019
28 November 2019
Meetings
attended
(held)
3 (3)
3 (3)
3 (3)
It is the intention of the Committee to meet whenever
important matters of remuneration arise and for the
number of meetings to be not less than twice per year.
The Committee was first established by the Board in
November 2019 upon the Company’s return to internal
management, and I was appointed Chairman of the
Committee at that time.
Between August 2016 and the end of 2019, the Company
did not have any direct employees, and the only
remuneration was to the Non-Executive Directors. With
the return to self-management this situation changed,
and the Committee invested considerable time during
the first part of 2020 in developing and implementing
the remuneration policy for the Company. In doing this,
the Committee took specialist external advice from
MM&K Limited (‘MM&K’), acting solely as remuneration
consultants and who have no other relationship with the
Company. MM&K helped to apply principles set in
Provision 40 of the Code making the terms of the
remuneration policy transparent, simple and predictable.
We also consulted with some of our principal shareholders.
The remuneration policy developed was approved by
shareholders at the 2020 AGM held on 24 June 2020.
Shareholders voted to approve the Company’s
remuneration policy for the three years commencing
1 January 2020 as follows: votes in favour were 99.83%,
against 0.17%; 11,676 votes were withheld. The policy is
set out on page 46 of this document.
At the 2020 AGM the shareholders also approved the
new long-term incentive plan for Executive Directors
and senior management: votes in favour were 96.22%,
3.78% against and 349,288 votes were withheld.
The 2020 Directors’ Remuneration Report will be the
subject of an advisory vote at the 2021 AGM. It includes
information subject to audit.
The Committee has taken into account the principles of
the Code when putting together the Report in order to
maintain high corporate governance standards.
2020 PERFORMANCE AND
INCENTIVE OUTCOMES
Notwithstanding the impact of the global Coronavirus
pandemic and the economic environment that
surrounded us throughout the year, the Company made
good progress on its goals and strategies in 2020.
The performance criteria for the Managing Director’s
bonus for 2020 included implementing the necessary
structure and process to complete the Company’s
transition to internal management, developing a deal
pipeline, building the Company’s co-investment
capability, monitoring and managing the existing assets
through the Coronavirus pandemic and planning to
expand the Company’s capital base. The Committee has
reviewed the performance of the Managing Director in
2020 against these criteria, in conjunction with the
Chairman, and has approved a bonus equal to 55% of
the base salary of the Managing Director.
The Committee approved the grant of 625 VCP units
during 2020 under its long-term incentive plan, of which
500 VCP units were issued to the Managing Director and
125 VCP units to other employees.
The Committee was aware that, due to the Coronavirus
crisis, the long-term incentive plan was being
implemented at a time of considerable market
uncertainty. The design of the plan therefore sought to
avoid participants benefitting from a temporary decline
in share price during 2020 which corrected within a
reasonable period of time. The Committee reviewed the
share price at which VCP units were issued during 2020
and concluded that no upward adjustment to the price
was appropriate.
The Committee considers that these outcomes
appropriately reflect its ‘pay for performance’ principles,
given the Company’s performance as a whole for
the year.
Graham Stedman
Chairman, Remuneration Committee
11 March 2021
39
REVIEWFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Remuneration Report
continued
Part 1 – Annual Report on Remuneration for the year ended 31 December 2020
SINGLE TOTAL FIGURE OF REMUNERATION
The current fees of the Chairman and the Non-Executive Directors on implementation of the remuneration policy
are as follows:
Chairman Fee (including all committees)
Basic Non-Executive Director Fee
Additional Fee for being the Senior Independent Director
Additional Fee for being Chair of a Board Committee
Additional Fee for sitting on the Investment Committee
£75,000
£40,000
£5,000
£5,000
£5,000
The tables below (which have been subject to audit) set out amounts paid to each Director during the financial
years ended 31 December 2020 and 31 December 2019:
2020
R Rayne
N Friedlos
P Harvey
G Stedman
J Wilson
Fixed Remuneration
Variable Remuneration
Salary/Fees
£’000
2019
Accrued Fee
£’000
Taxable
Benefits
£’000
75.0
220.0
50.0
50.0
50.0
445.0
–
–
–
–
4.34
4.3
17.71
1.5
–
–
–
19.2
Pension
£’000
–
19.6
–
–
–
19.6
Carried
Interest
£’000
32.92
–
–
–
–
32.9
LTIP
£’000
–
–3
–
–
–
–
Bonus
£’000
–
121.0
–
–
–
121.0
Total
£’000
125.6
362.1
50.0
50.0
54.3
642.0
1 Amounts included for taxable benefits are insurance premiums for private healthcare.
2 See below. This payment was part of the run-off of previous carried interest arrangements.
3 The Company issued 500 VCP units to the Managing Director in July 2020. These units will vest in accordance with the rules of the VCP in July 2025. For IFRS 2 purposes these units are
estimated to have a fair value of £418.44 per unit, which will be recognized in the accounts evenly over the five-year vesting period. The charge in the year to 31 December 2020 was £32,200.
4 Annual fees of £4.3k were earned by James Wilson for the period from 29 November 2019 to 31 December 2019 and were paid in 2020 for administrative reasons.
2019
R Rayne
N Friedlos
P Harvey
G Stedman
J Wilson2
M Knight3
R Birkett4
N Lerner5
Fixed Remuneration
Variable Remuneration
Fees
£’000
40.0
18.8
4.3
4.3
–
55
36.6
41.2
200.2
Taxable
Benefits
£’000
Pension
£’000
Carried
Interest
£’000
Bonus
£’000
26.01
–
–
–
–
–
–
–
26.0
–
1.9
–
–
–
–
–
–
1.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
66.0
20.7
4.3
4.3
–
55.0
36.6
41.2
228.1
1 Amounts included for taxable benefits are insurance premiums for private healthcare.
2 Annual fees of £4.3k were earned by James Wilson for the period from 29 November 2019 to 31 December 2019 but had not been paid at the year end.
3 4 and 5 resigned on 28 November 2019.
There was no long-term incentive plan (‘LTIP’) in place during the 2019 financial year.
Robert Rayne had a consultancy agreement with the former AIFM for the provision of advice in relation to the
portfolio of investments and potential investments. He was entitled to a fee of £60,000 per annum under the
consultancy agreement. The agreement terminated on 28 November 2019.
40
CARRIED INTEREST
Robert Rayne, by virtue of his past executive roles with the business, participated in the carried interest
arrangements in place for staff involved in the management and development of the investment portfolio.
Mr Rayne’s participation in carried interest is in run-off.
At 31 December 2019, earned but unpaid carried interest was £32,900 relating to the sale of Entuity in 2019.
This amount was paid in 2020.
No other amounts of carried interest became payable to Mr Rayne in 2020. Following the sale of Entuity there is
only one remaining investment in respect of which carry could become payable to Mr Rayne. If this investment
was realised at its valuation at 31 December 2020, Mr Rayne would be entitled to further carried interest payments
of £258,000.
RELATIVE IMPORTANCE OF SPEND ON PAY
The Board recognises the importance of spend on pay for the current and previous years, and the percentage
change, relative to remuneration paid to all employees, amounts paid as dividends and any other significant
distributions. There were no employees in the Group for the 2019 financial year other than Mr Friedlos, who was
appointed as Managing Director on 28 November 2019. The increase in staff and staff costs in 2020 reflect
additional employees to support the Company’s return to internal management and a full year of the Managing
Director’s costs.
The table below shows the spend on staff costs in 2020 and 2019 and the percentage change between the years,
compared to the loss before tax and dividends:
Staff costs
Average number of staff
Loss before tax
Dividends
2020
£’000
2019
£’000
£877.0
9
£4,396.0
£3,673.0
£250.0
4
£4,471.0
–
%
change
250%
125%
(1.7%)
–
There were no dividends paid or declared during the year ended 31 December 2019 and no share buy-backs were
undertaken in either year.
PAYMENTS TO PAST DIRECTORS IN 2020
There were no payments to past Directors and no payments of compensation for loss of office.
41
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Remuneration Report
continued
Part 1 – Annual Report on Remuneration for the year ended 31 December 2020 continued
PERFORMANCE GRAPH
The Committee considers the FTSE All-Share Index a relevant index for Total Shareholder Return and comparison
disclosure as it represents a broad equity market index of which the Company is a member.
The performance graph below shows the Company’s Total Shareholder Return performance for the ten-year period
ended 31 December 2020 compared with that of the FTSE All-Share Index.
250
200
150
100
50
0
LMS Shareholder
return
FTSE All Share
return
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
DIRECTORS’ INTERESTS IN SHARES
The beneficial interests of the Directors in the ordinary shares of the Company are set out below:
R Rayne
N Friedlos
P Harvey
G Stedman
J Wilson
31 December
2020
2019
2,670,124
161,410
20,000
20,000
–
2,670,124
161,410
20,000
–
–
In addition, Robert Rayne has a non-beneficial interest in 6,549,473 ordinary shares held in trust.
There have been no changes in the above Directors’ interests between 31 December 2020 and the date of
this report.
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.
No share awards were vested in the year. In July 2020, the Company issued 500 VCP units to the Managing Director
at a share price of 33.816p. For accounting purposes, these units have a fair value of £418.44 per unit.
42
Part 2 – Directors’ Remuneration Policy
The remuneration policy for the three-year period commencing 1 January 2020 which the Committee developed
with advice from independent external advisers and which was approved by shareholders at the Company’s AGM
on 24 June 2020, is set out below.
The table below sets out the Company’s policy for each component of the Executive Directors’ remuneration.
Salary (fixed pay)
Purpose and link to
strategic objectives
Essential to provide a level of fixed cash income to support the recruitment and retention
of Executive Directors of the calibre required to manage and grow the Company
successfully and to deliver the Group strategy.
Operation
Reviewed annually with increases, if awarded, effective from 1 January each year.
Opportunity and
recovery or
withholding
provisions
Base salaries will be set by the Remuneration Committee taking into account a range of
factors. Salary increases are normally awarded by reference to any increase in the cost of
living but may take into account other factors such as external market positioning, change
in the scope of the individual’s responsibilities or level of experience and development in
the role. In deciding on any salary increases for an Executive Director, the Remuneration
Committee will not sanction an increase any greater than that applied to the Company’s
workforce generally other than in exceptional circumstances or where there is a change in
role and/or responsibilities justifying a larger increase.
Year on year increases in basic salaries will not exceed inflation by more than 3%, other
than in exceptional circumstances or where there is a change in role or responsibilities.
No recovery or withholding provisions.
Performance Metrics None, although the performance of the individual will be considered by the Committee
when reviewing salaries each year.
Pension (fixed pay)
Purpose and link to
strategic objectives
To provide a means of retirement saving as part of a range of benefits alongside basic
salary to help the recruitment and retention of high calibre Executive Directors.
Operation
Opportunity and
recovery or
withholding
provisions
Executive Directors are offered a defined contribution, based on a percentage of salary, to
a personal pension scheme or a cash salary supplement (or a combination of both) at
their choice. Only the base salary is pensionable.
Maximum pension contribution by the Company is 10%. This is in line with what is offered
to all employees in the Company.
No recovery or withholding provisions.
Performance Metrics None.
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REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Remuneration Report
continued
Part 2 – Directors’ Remuneration Policy continued
Benefits (fixed pay)
Purpose and link to
strategic objectives
To provide a competitive and attractive range of benefits alongside basic salary to help
recruit and retain high calibre individuals to Executive Director roles.
Operation
Executive Directors may be provided with family private medical insurance cover
and death-in-service insurance. This range may be amended or adjusted in line with
market practice.
The Executive Directors are also covered by the Company’s directors’ and officers’ liability
insurance policy and have the benefit of an indemnity in the form permitted under the
Company’s Articles of Association.
Executive Directors are also eligible to receive other minor benefits and expenses
payments in line with other employees of the Company.
Additional benefits, which may include relocation or expatriation benefits, housing
allowance or other benefits-in-kind, may be provided in certain circumstances if
considered appropriate and reasonable by the Committee, typically only as may be
required on a new recruitment.
Opportunity and
recovery or
withholding
provisions
The cost of the benefits that are provided fluctuates depending on market conditions
and will, therefore, determine the maximum value of benefits under the Policy in any
single year. There is therefore no overall maximum opportunity under this component of
the Policy.
No recovery or withholding provisions.
Performance Metrics None.
44
Short-term incentive (variable pay)
Purpose and link to
strategic objectives
To provide a simple, competitive short-term incentive plan to reward performance on an
annual basis against key financial, operational and individual objectives. A key purpose of
the annual bonus plan is to provide a real incentive to achieve the Company’s short-term
strategic objectives and KPIs.
Operation
Targets and weightings are set annually; performance is measured over a single year.
Bonus awards are determined by the Committee after the year-end based on achievement
against targets.
Opportunity and
recovery or
withholding
provisions
Performance Metrics
Bonus is not pensionable.
The maximum bonus payable in a 12-month period is up to 100% of base salary.
Exceptionally, the Committee may offer a bonus opportunity of up to 200% of salary to a
new incoming Executive Director in his or her first full financial year in order to help recruit
that executive.
The ability to receive the maximum bonus may be split across two or more Performance
Metrics. Other than for binary or milestone Performance Metrics, the intention will be
that 25% of maximum is payable for Threshold performance and 50% at Target.
All bonus payments are subject to the overriding discretion of the Remuneration
Committee who may adjust, downwards or upwards, the outcome of the annual bonus
plan in any year if it believes that it does not properly reflect overall corporate
performance.
In order to be entitled to receive an annual bonus, an Executive Director must normally be
in the Group’s employment and not under notice of termination (either given or received)
at the time the bonus is paid.
Malus and clawback provisions apply so that in certain circumstances such as serious
misconduct by a Director, the material misstatement of financial results or if bonus awards
are based on erroneous figures, the Company will be entitled not to pay a bonus in any year
or to claw back the value of any cash amount already paid under the annual bonus scheme,
for a period of three years following the year end to which the bonus related.
The Company’s long-term objectives are creating total shareholder return. Its
performance metrics on a year-to-year basis will typically be set around the necessary
steps to be taken to achieve the longer-term objective. Specific performance targets will
vary from year to year in accordance with the Company’s short-term KPIs.
Potential performance metrics are likely to include:
• Deployment of capital in new deals
• Performance of the underlying investment portfolio companies
• Realisations and cash generation
• Building the Company’s co-investment capability
• Development of a deal pipeline
• Putting in place appropriate financial structures to support the Company’s business
objectives, which might include securing access to debt and consideration of equity
structures to expand the capital base
• Developing an effective shareholder communication programme
• Attainment of personal objectives
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REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Remuneration Report
continued
Part 2 – Directors’ Remuneration Policy continued
Long-term incentive (variable pay)
Purpose and link to
strategic objectives
Operation
To provide a competitive long-term incentive plan to reward sustained performance over
the long term. A key purpose of the long-term incentive plan is to provide a real incentive
to achieve the Company’s main long-term strategic objective, to deliver a TSR for
Shareholders over five years that is exceptional. It is considered vital that the Company
has a truly competitive long-term incentive plan to enable it to recruit and retain the level
of talent it needs to deliver on its longer-term strategic plan.
The long-term incentive plan is structured as a value creation plan or VCP, under which
participants share in a pool of VCP Units, awarded at the discretion of the Committee. The
Committee may award up to 1,000 VCP units initially.
Participants receive a share, proportionate to their share of the pool, in positive TSR
generated by the Company measured over a period of five years from the award date. The
share is calculated in accordance with the bandings set out below.
If the Company raises additional capital, the Committee may award up to 1,000 additional
VCP units enabling participants to share proportionately in any positive TSR generated by
the Company on that additional capital over the period of five years from the award date
in excess of a hurdle rate of return to be set by the Committee.
Ordinarily, VCP units, subject to performance, will vest five years after the initial grant
date, at which point participants may be granted nil-cost share options to acquire ordinary
shares in the Company or receive a cash amount.
The VCP is governed by a set of rules approved by shareholders at the AGM on 24 June 2020.
Payments under the VCP are not pensionable.
Opportunity and
recovery or
withholding
provisions
For all awards under the Plan, there is a qualifying performance metric, such that if the TSR
achieved does not equal or exceed 8% on an annualised basis on the eventual vesting date,
then no VCP Units can vest and they will all then lapse on the vesting date. In addition, in
respect of any awards made under the Plan, no awards will vest unless the closing share
price on the vesting date, when added to the aggregated value of all dividends that are
declared on that share over the performance period, equals or exceeds 52.8p.
If the qualifying performance metric is met, the share that participants will receive will
depend on the TSR performance achieved over the five years commencing on the date of
the initial award of VCP Units. In respect of the initial awards, if all 1,000 units are
awarded, the share of TSR measured after five years which will be attributable to
participants is as follows:
TSR up to 6% per annum compound: £zero.
If the TSR achieved exceeds 6% per annum compound but does not exceed 12%: 8% of the
TSR performance above the 6% per annum hurdle.
If the TSR achieved exceeds 12% per annum compound but does not exceed 20%: 8% of
the TSR performance between the 6% per annum hurdle and 12% per annum plus 15% of
the TSR achieved above 12% per annum compound.
If the TSR achieved exceeds 20% per annum compound: 8% of the TSR performance between
the 6% per annum hurdle and 12% per annum, plus 15% of the TSR performance between
12% and 20% per annum, plus 17.5% of the TSR performance above 20% per annum.
46
Long-term incentive (variable pay) continued
Opportunity and
recovery or
withholding
provisions
(continued)
For the purposes of determining the TSR performance for the initial awards (made soon
after the 2020 AGM at which the Plan was approved) as well as the starting point from
which the value created is to be measured for these awards, the starting share price was
taken as the greater of the average closing share price of an ordinary share over the
previous six months and 30p (resulting in a starting price of 33.816p per share).
The closing share price, at the end of the performance period, will be taken as the average
closing share price of an ordinary share over the three-month period ending on the day
immediately preceding the vesting date. The dividend part of this calculation shall be
taken as the aggregate value of dividends per share declared over the five-year
performance period.
On vesting, the value of VCP Units will normally be settled by the Company granting
nil-priced options over new ordinary shares which will be exercisable for a period of one
year from the option grant date. However, the Remuneration Committee may choose to
settle the awards in cash if it considers that there are good reasons for doing so at the
time. The maximum value of VCP Units that may vest and therefore the maximum
number of shares that may be issued on the exercise of options will be capped so that the
shareholder dilution will not exceed 10% of the number of issued shares at the date the
initial award was made or the cash equivalent value thereof. Furthermore, this cap will
apply to each VCP Unit so that the value of 100 Units (in aggregate) may not exceed 1% of
the issued share capital of the Company at the initial award date.
Not all VCP Units may necessarily be awarded. If, for example, only 800 Units are awarded,
the cap on the maximum level of dilution will be reduced proportionately. Any Units
awarded more than 12 months after the initial award date will have the basis of the TSR
targets rebased at the then market price of an ordinary share in the Company or, if higher,
the market price of an ordinary share on the initial award date.
The value of VCP Units at the end of the five-year performance period will in any event be
subject to the overriding discretion of the Remuneration Committee who may adjust,
downwards or upwards, the outcome of the VCP at the vesting date if the Committee
believes that the formulaic outcome does not properly reflect overall corporate
performance.
Malus and clawback provisions apply so that in certain circumstances, such as serious
misconduct by a director, the material misstatement of financial results or if Unit awards
or option grants are based on erroneous figures, the Company will be entitled not to grant
or permit the exercise of an option in any year or to claw back the value of any shares
transferred or cash amount already paid under the VCP, for a period of three years
following the year end to which the award or option grant relates.
The dilution under all long-term incentives will not exceed 10% of the Company’s issued
ordinary share capital in any ten-year period.
Performance Metric
The Company’s TSR Performance over the five years commencing on the award date.
The TSR targets have been set by the Remuneration Committee with the aim of delivering
increasing reward for greater outperformance.
For the avoidance of doubt, the TSR Performance and the performance hurdles of the Plan
for a subsequent award, following a capital raise, will be set at that time by the
Remuneration Committee.
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REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Remuneration Report
continued
Part 2 – Directors’ Remuneration Policy continued
Long-term incentive (variable pay) continued
Rationale for choice
of LTIP Structure and
performance
measures for the
long-term incentive
and commentary
with regard to the
possible longer-term
effects of the
Coronavirus
The Remuneration Committee has chosen a VCP for the Company’s long-term incentive
structure because this type of structure most closely resembles a carried interest
plan which is the standard type of long-term incentive in the private equity industry.
The Company needs to be able to retain and recruit talent of the highest quality.
The Committee believes that only by offering participation in such a plan will the
Company be able to do this.
The choice of TSR performance as the long-term incentive performance measure is one
that creates a very strong alignment between participants and shareholders. It also
communicates a strong message to participants that over the longer term, the Company’s
TSR performance is its most important key performance indicator.
The Remuneration Committee was aware that, due to the Coronavirus crisis, the Plan was
being implemented at a time of considerable market uncertainty. The design of the Plan
therefore sought to avoid participants benefitting from a temporary decline in share price
during 2020 which corrected within a reasonable period of time. The Committee reviewed
the share price at which VCP units were issued during 2020 and concluded that no upward
adjustment to the price was appropriate. If there is a longer-term structural change in
markets, the Committee will have discretion, subject to consultation with the Company’s
principal shareholders, to amend the performance metrics and vesting criteria.
The table below sets out each component of the Chairman’s and the Non-Executive Directors’ remuneration and
the approach taken by the Company in relation thereto:
Chairman and Non-Executive Directors
Component
Approach
Chairman’s and
Non-Executive
Directors’ fees
The Chairman’s fee is determined by the Remuneration Committee and the Non-Executive
Directors’ fees are set by the Board. These are reviewed periodically taking into account
the responsibilities and time commitments required and Non-Executive Director fee
levels generally.
Other pay and
benefits
The Chairman and the Non-Executive Directors receive basic fees. In addition, special
fees are paid for the chairmanship of the Audit and Remuneration Committees and also
for the role of being on the Investment Committee and for the role of the Senior
Independent Director.
The Chairman previously participated as an executive in the Company’s carried interest
plans which are now in run off, but under which payments could still arise in relation
to unrealised historic investments and is covered under the Company’s health
insurance policy.
The Chairman and the Non-Executive Directors will not be able to participate in any
variable pay scheme operated by the Company.
48
REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS BASED ON FUTURE POLICY
The chart below illustrates remuneration for the Managing Director in 2021 for ‘Fixed’, ‘Expected’ and
‘Maximum’ scenarios.
Maximum
52.7%
47.3%
£466
Expected
69.1%
30.9%
£356
Fixed
100%
£246
Fixed
Bonus
LTI
0
50
100
150
200
250
£’000
300
350
400
450
500
The above illustrations are based on the following assumptions:
• the Fixed scenarios show the fixed level of remuneration, assuming there is no performance-related pay;
• the Expected scenarios illustrate the amounts receivable if performance is in line with expectations. Bonus
awards are 50% of maximum bonus opportunity. As the VCP does not pay out until year five and it is presumed
that there is no adjustment for share price movement, then it is modelled that there will be no return in year one
of the VCP.; and
• the Maximum scenarios illustrate the levels of remuneration which would be payable if maximum bonus awards
(100% of base salary). As the VCP does not pay out until year five and it is presumed that there is no adjustment
for share price movement, then it is modelled that there will be no return in year one of the VCP.
ILLUSTRATION OF OUTCOMES OVER THE LIFE OF THE LTIP AWARD
During 2020, 625 VCP units were awarded under the Plan at an initial share price of 33.816p per share, of which 500
VCP units were awarded to the Managing Director. If the Company’s share price was to increase by 50% from the
date of the initial awards under the Plan, then this would be below the minimum performance hurdle required
under the Plan. As a result, there would be no payout due to the Managing Director and other employees under the
LTIP awards.
OTHER SCENARIOS
The scenarios described below are based on the initial share price of 33.816p per share, for the 625 units issued
during 2020.
The total shareholder return, including dividends paid during the performance period plus closing share price,
would need to be 52.8p, representing a total shareholder return over the performance period of 9.65% per annum
before any payout could occur under the LTIP award. At this level, the value of the LTIP for all participants, assuming
the maximum number of 1,000 units were issued, would be £0.5 million, representing 1.2% dilution for shareholders.
If the closing price of the share at the end of the performance period plus dividends paid during the performance
period were 99p, this would represent a total shareholder return of 24.7% per annum compound over the
performance period. The value of the LTIP for all participants, assuming the maximum number of 1,000 units were
issued, would be £6.0 million, representing 8.4% dilution for shareholders.
49
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Remuneration Report
continued
Part 2 – Directors’ Remuneration Policy continued
If the closing price of the share at the end of the performance period plus dividends paid during the performance
period were 145p, this would represent a total shareholder return of 34.8% per annum compound over the
performance period. The value of the LTIP for all participants would exceed the 10% dilution limit and would
therefore be capped at that limit which would be £11.2 million for all participants, assuming all 1,000 units
were issued.
LETTERS OF APPOINTMENT AND SERVICE CONTRACT
The following table provides details of the Non-Executive Directors’ and Managing Director’s letters of
appointment and service contract. The documents are available on request at the Company’s registered office
during business hours.
Name
R Rayne
N Friedlos
P Harvey
G Stedman
J Wilson
Date of Appointment
6 April 2006
28 November 2019
28 November 2019
28 November 2019
28 November 2019
Date of expiry of current term
27 November 2022
28 November 2022
28 November 2022
28 November 2022
28 November 2022
TERMS OF THE EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
AND NED LETTERS OF APPOINTMENT
Executive Directors are engaged on rolling service contracts, which provide for six months’ written notice of
termination from either the individual or the Company – except where there is a change of control of the business.
In such circumstances, the notice period extends to 12 months, should the executive be given notice within the six
months following the date that the change of control occurs.
Non-Executive Directors are engaged by letter of appointment terminable on one month’s written notice from
either the individual or the Company – except where termination is due shareholder resolution. Under such
circumstances, termination will occur automatically from the date of ceasing to be a Director.
POLICY ON TERMINATION PAYMENTS
Any compensation payment made to an Executive Director for termination of employment will be determined with
reference to the terms of the individual’s service agreement and the rules of any incentive plan in which the
individual is a participant.
The Committee reserves the right to make additional payments, where such payments are made in good faith in
discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of
settlement or compromise of any claim arising in connection with the termination of an Executive Director’s office
or employment.
When deciding on the amount of any payment for loss of office, the Committee will seek to minimise the cost to
the Company to the extent permitted by the circumstances of the particular case.
50
APPROACH TO THE REMUNERATION OF NEWLY APPOINTED DIRECTORS
Where an Executive Director is appointed by way of an external hire, their remuneration will be in accordance with
the policy outlined above.
Where a suitable external candidate has been identified and can show that their transfer would lead to a loss of
incentive payments from their previous employer, the Committee reserves the discretion to ‘buy out’ the
candidate’s previous incentives if it deems it necessary to secure the candidate. The Committee will ensure that it
avoids paying out more than is necessary to secure the candidate.
Where an Executive Director is appointed by way of internal promotion, the policy described above will apply from
the date of promotion. Any pre-existing remuneration will continue until it expires or vests (as appropriate).
STATEMENT OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE GROUP
When making decisions about Directors’ remuneration, and particularly the remuneration of Executive Directors,
the Committee will take into account the Company’s remuneration policy for the wider workforce.
STATEMENT OF CONSIDERATION OF SHAREHOLDER VIEWS
The responsibility for creating the remuneration policy lies with the Committee and has been created by the
Committee based upon their experiences and having reviewed relevant market practices. However, as part of the
ongoing continual dialogue between the Company and its shareholders, a number of the shareholders were
consulted by the Chair of the Committee to ascertain their views in respect of planned remuneration.
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REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Remuneration Report
continued
Part 3 – Implementation of Remuneration Policy
BASE SALARIES AND BENEFITS
For 2021, there will be no change to the Managing Director’s annual salary of £220,000.
The Managing Director will continue to have access to Private Medical Insurance and, if implemented by the
Company, Life Assurance.
The Company’s employer pension contribution will be at 10% of pensionable salary.
ANNUAL BONUS – SUMMARY OF KPIS FOR 2020
The Remuneration Committee, in conjunction with the Board, establishes goals in respect of each year. Individual
goals are weighted according to their importance in determining the overall performance achieved in the year.
The performance criteria for 2020 included implementing the necessary structure and processes to complete the
Company’s transition to internal management, development of a deal pipeline, building the Company’s co-
investment capability, monitoring and managing the existing assets through the Coronavirus crisis and planning to
expand the Company’s capital base.
The Remuneration Committee has reviewed performance for the year, in conjunction with the Board, and without
the Managing Director present. The Committee has approved a bonus equal to 55% of base salary for the Managing
Director in respect of 2020.
The Committee in conjunction with the Board has also considered performance goals for 2021. The weighting given
to individual goals is changed compared to 2020, with much greater weighting on deal flow, capital deployment
and developing the Company’s co-investment strategy.
For 2021, goals relating to deployment of capital in new deals, raising co-investment capital and developing
opportunities to expand the capital base of the Company account for 55% of the weighting. Goals relating to
optimising the existing portfolio and developing shareholder and market communications account for a further
30%. Other goals relate to internal management objectives.
LTIP – VALUE CREATION PLAN
At the 2020 AGM, shareholders approved the rules of the LMS Capital Value Creation Plan (the ‘VCP’). Under the
VCP up to 1000 notional ‘units’ may be awarded to plan participants, at the discretion of the Remuneration
Committee. These units will not vest and result in any payment to participants until July 2025. However, for
accounting purposes a cost is recognised in the accounts each year based on the estimated value of the units at
point of award spread evenly over the vesting period. The units have been estimated to have a value at award for
accounting purposes of £418.44 per unit for the units issued in July 2020 and £393.63 for the units issued in
November 2020. The charge for the year ended 31 December 2020 was £33,600.
CHAIRMAN AND NON-EXECUTIVE DIRECTORS’ FEES
The current fees of the Chairman and the Non-Executive Directors on implementation of the remuneration policy
are as follows:
Chairman Fee (including all committees)
Basic Non-Executive Director Fee
Additional Fee for being the Senior Independent Director
Additional Fee for being Chair of a Board Committee
Additional Fee for sitting on the Investment Committee
These fees will remain at this level for 2021.
£75,000
£40,000
£5,000
£5,000
£5,000
52
EXTERNAL ADVISORS
During the year the Remuneration Committee received advice from MM&K. MM&K is a member of the
Remuneration Consultants Group and adheres to its Code in relation to executive remuneration consulting in
the UK.
MM&K assisted the Company with the design of the Directors’ Remuneration Policy at the beginning of the year,
including the design of the VCP and its documentation, and also assisted with the 2020 remuneration outcomes
and the preparation of this report. MM&K did not have any other relationship with the Company.
This Directors’ Remuneration Report was approved by the Board on 11 March 2021 and signed on its behalf by:
Graham Stedman
Chairman of the Remuneration Committee
11 March 2021
53
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
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 2020 are included in the Strategic Report
on page 10 and the Manager’s Review on page 18.
The Corporate Governance report set out on page 29 of the annual report form part of the Directors’ Report.
DIRECTORS
The names and biographical details of the current Directors of the Company are given on page 26. In addition,
further information about the Board is set out in the Corporate Governance Report on page 29.
Details of the current Directors’ letters of appointment, together with their interests in the Company’s shares, are
shown in the Remuneration Report on page 42. 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
PERSONNEL AND RESOURCES
The average number of Directors and staff was as follows:
Directors1
Staff
2020
2019
Male
Female
Total
Male
Female
Total
5
2
7
–
2
2
5
4
9
4
–
4
–
–
–
4
–
4
1 Following the Board changes on 28 November 2019, the Board size was increased to five Directors, of which one, the Managing Director, was an employee.
ENVIRONMENT
LMS Capital has a limited direct impact upon the environment and there are few environmental risks associated
with its activities.
From June 2020, the Company occupied office space under a rental agreement, which comprises 596 square feet.
From the end of March 2018 and through to June 2020, the Company did not occupy any office space as all of its
operations were outsourced. The table below includes greenhouse gas emissions by scope:
TOTAL EMISSIONS
Scope
Scope 1
Scope 2
Scope 3
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
Emissions from employee vehicles and commuting
Intensity – emissions per unit floor area
Per square metre
Year ended 31 December
2020
(tonnes CO2e)
2019
(tonnes CO2e)
0.00
0.00
1.65
0.01
1.66
kgCO2e
0.09
0.00
0.00
0.00
0.00
0.00
kgCO2e
0.0
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.
54
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. The Company is
considered as a low emission company.
CHARITABLE DONATIONS
The Company did not make any charitable contributions during 2020 (2019: £nil).
POLITICAL DONATIONS
The Company did not make any political donations during 2020 (2019: £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 page 10 and the Portfolio Management Review on page
18. The Directors have prepared liquidity forecasts for a three-year period from 1 January 2021. In preparing these
forecasts the Directors have considered the significant cash balances on hand at 31 December 2020, the expected
future expenditures and commitments and the latest report on the investment portfolio. In preparing this liquidity
forecast, consideration has been given to the expected impact of Covid-19 on the Company and the wider Group as
well as the potential impact on the underlying investee companies. The Directors have considered these factors for
a period not less than 12 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 included in the
Strategic Report on page 10.
CONTRACTUAL ARRANGEMENTS
Details of the Company’s contractual arrangements are given in the Strategic Report on page 10.
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 20 to the financial statements.
DIVIDENDS
A special interim dividend of 4.25p per share was paid on 15 January 2020 to shareholders on the register at close of
business on 20 December 2019 (2019: £nil); and an interim dividend of 0.3p per share was paid on 14 September
2020 to shareholders on the register at close of business on 14 August 2020 (2019: £nil).
SHARE CAPITAL
At 31 December 2020, 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.
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REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Directors’ Report
continued
SUBSTANTIAL SHAREHOLDINGS
As at 11 March 2021, the Company was aware of the following significant direct and indirect interests in the issued
share capital of the Company.
Name of shareholder
Rayne Family Holdings
Charles Stanley & Co Ltd
Armstrong Investment Management LLP
Rath Dhu Limited
Lady R Lacey1
Ms T Woods1
Schroders Plc
Robert Rayne1,2
A P Rayne1
Percentage of issued share capital
42.07
10.01
6.13
5.82
4.68
4.40
3.35
3.31
3.21
Notes:
1 There are common interests in certain of these shares, which are held within charitable trusts.
2 Robert Rayne holds a non-beneficial interest in 7,767,173 ordinary shares held in trust and a personal interest in 2,670,124 ordinary shares.
ANNUAL GENERAL MEETING
The Company intends to hold the AGM on 12 May 2021. The notice of meeting, which includes explanatory notes
and provides full details of the resolutions being proposed at the AGM will be provided separately in due course and
will also be available to view on the Company’s website at www.lmscapital.com in due course.
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.
By order of the Board.
IQ-EQ Corporate Services (UK) Limited
Company Secretary
11 March 2021
56
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the annual report and the financial
statements in accordance with international accounting standards in conformity with
the requirements of the Companies Act 2006 and applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the
Directors are required to prepare the financial statements in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. 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 the profit or loss for the Company for that period. The Directors are also required to prepare
financial statements in accordance with international financial reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, subject to any material departures disclosed and explained in
the financial statements;
• state whether they have been prepared in accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, 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, a strategic report and Directors’ remuneration report which comply with the
requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the
financial statements, Article 4 of the IAS Regulation.
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 ensuring that the
annual report and accounts, taken as a whole, are fair, balanced, and understandable and provides the information
necessary for shareholders to assess the position and performance, business model and strategy.
57
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Statement of Directors’ Responsibilities
continued
WEBSITE PUBLICATION
The Directors are responsible for ensuring the annual report and the financial statements are made available on a
website. Financial statements are published on the Company’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in
other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors.
The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.
DIRECTORS’ RESPONSIBILITIES PURSUANT TO DTR4
The Directors confirm to the best of their knowledge:
• The financial statements have been prepared in accordance with the applicable set of accounting standards and
Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit
and loss of the Company.
• The annual report includes a fair review of the development and performance of the business and the financial
position of the Company, together with a description of the principal risks and uncertainties that they face.
For and on behalf of the Board.
Robert Rayne
Chairman
11 March 2021
58
Independent Auditor’s Report
to the Members of LMS Capital plc
OPINION ON THE FINANCIAL STATEMENTS
In our opinion the financial statements:
• give a true and fair view of the state of the Company’s affairs as at 31 December 2020 and of the loss for the year
then ended;
• have been properly prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006; and
• have been properly prepared in accordance with international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
We have audited the financial statements of LMS Capital plc (the ‘Company’) for the year ended 31 December 2020
which comprise the Income Statement, the Statement of Other Comprehensive Income, the Statement of Financial
Position, the Statement of Changes in Equity, the Cash Flow Statement and the notes to the financial statements,
including a summary of significant accounting policies. The financial reporting framework that has been applied in
their preparation is applicable law and international accounting standards in conformity with the requirements of
the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
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 believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion. Our audit opinion is consistent with the additional report to the Audit Committee.
INDEPENDENCE
Following the recommendation of the Audit Committee, we were appointed by The Board of Directors in November
2016 and subsequently by the members at the Annual General Meeting held on 21 April 2017 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 to audit the financial statements for the year ended 31 December 2020 at the Annual
General Meeting held on 24 June 2020. The period of total uninterrupted engagement including retenders and
reappointments is five years, covering the years ending 31 December 2016 to 31 December 2020.
We remain 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. The non-
audit services prohibited by that standard were not provided to the Company.
The only non-audit services provided pertained to the interim review for LMS Capital plc for the period to June,
which is a permissible audit-related service.
59
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Independent Auditor’s Report to the
Members of LMS Capital plc
continued
CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’
assessment of the Company’s ability to continue to adopt the going concern basis of accounting included:
• obtaining management’s assessment of the going concern status and long-term viability of the Company;
• evaluating management’s method of assessing the going concern in light of market volatility and the present
uncertainties;
• challenging management’s assumptions and judgements made with regards to stress-testing forecasts; and
• calculating financial ratios to ascertain the financial health of the Company.
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the entity’s ability to continue as a going
concern for a period of at least 12 months from when the financial statements are authorised for issue.
In relation to the Company’s reporting on how it has applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the Directors’ statement in the financial statements about
whether the Directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the
relevant sections of this report.
OVERVIEW
Coverage
Key audit
matters
100% (2019: 100%) of Investments were in scope for testing
Valuation, existence and title of Investments
2020
3
2019
3
Materiality
Financial statements as a whole
£710,000 (2019: £480,000) based on 1.5% of net assets (2019: based on 1.5% of investments)
The change in the basis of materiality is to reflect that a large portion of the Company’s
investment portfolio is currently held in cash on the balance sheet.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company’s
system of internal control, and assessing the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including assessing whether there was evidence of bias
by the Directors that may have represented a risk of material misstatement.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, 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, including 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.
60
Key audit matter
How the scope of our audit addressed the key audit matter
Valuation and
existence of,
and rights to
Investments
(Note 1 and
Note 10)
We consider the
valuation, existence and
title of investments to be
the most significant audit
area as investments
represent the most
significant balance and
disclosures in the financial
statements and underpin
the principal activity of
the entity.
The valuation of
unquoted and fund
investments can be a
highly subjective
accounting estimate
where there is an inherent
risk of management
override arising from the
investment valuations as
it is the principal driver of
performance of the entity
and therefore is a key
audit matter.
Quoted investments
In respect of 100% of the quoted investment valuations we:
• Confirmed that bid price has been used, by obtaining the year
end bid prices from independent third party sources and
undertaking a recalculation of the valuations.
• Corroborated FX rates used by obtaining independent FX rates
from third party sources.
• 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
In respect of 100% of the unquoted investments, which were not
written down to nil, our procedures included, inter alia:
• Evaluating whether the valuation methodology adopted by the
Directors was the most appropriate in the circumstances under
the International Private Equity and Venture Capital (‘IPEV’)
Guidelines and IFRSs.
• Re-performing the calculation of the investment valuations,
having regard to the application of enterprise value across the
capital structures of the investee companies.
• Agreeing unquoted investments to supporting third party
valuation reports or third party data, where these were available.
These valuations were agreed to the valuation per the financial
statements. Variations were discussed with the Directors to
obtain their explanation and corroborated to supporting
evidence.
• Verifying and benchmarking key inputs and estimates, such as
discount rates and volatility to independent information and our
own research. Internal inputs such as revenue and earnings were
reviewed for consistency with other areas of the financial
statements and working projections.
• Evaluating the significant judgements made by the Directors in
making their assessments by agreeing them to corroborating
evidence where such evidence was available. Where
corroborating evidence was not available we used auditor
judgement to assess the reasonableness of the Directors’
assessment.
• Performing sensitivity analysis on the valuation calculations in
respect of investments where there was sufficient evidence to
suggest reasonable alternative inputs might exist.
61
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Independent Auditor’s Report to the
Members of LMS Capital plc
continued
Key audit matter
How the scope of our audit addressed the key audit matter
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.
• Challenging the appropriateness of any adjustments made by
the Directors 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.
• 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 valuations as a whole.
• Performing sensitivity analysis on the valuation calculations in
respect of investments where there is sufficient evidence to
suggest reasonable alternative inputs might exist.
We also considered the completeness and clarity of disclosures
regarding the valuation of investments in the financial statements
against the requirements of the accounting standards.
For 99.7% of fund investments and 91.8% of unquoted investments,
by value, we agreed existence and title to direct confirmation from
the underlying investee company.
For 100% of the quoted investments we agreed existence and title
to depositary confirmation.
We also agreed existence and title to other supporting documents
including share certificates or loan agreements as applicable.
Key Observations:
Based on the work undertaken, we consider the investment
valuations to be within a reasonable range, and did not identify any
material exceptions with regards to existence and title.
We consider the investment disclosures to be in line with the
requirements of the accounting standards.
62
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could
influence the economic decisions of reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we
use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
Materiality
Financial statements
2020
£
710,000
2019
£
480,000
Basis for determining materiality
1.5% of net assets
1.5% of investments
Rationale for the benchmark applied As an investment entity, the value
of net assets is the key measure of
performance, furthermore there is
an increasing ratio of cash to
investments in the balance sheet
as investment realisations
outweigh purchases and as such
utilising net assets as the basis
takes this into account
As an investment entity, the value
of investments is the key measure
of performance
Performance materiality
530,000
360,000
Basis for determining performance
materiality
REPORTING THRESHOLD
75% of materiality
75% of materiality
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of
£14,000 (2019: £9,000). We also agreed to report differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
OTHER INFORMATION
The Directors are responsible for the other information. The other information comprises the information 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. Our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.
63
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Independent Auditor’s Report to the
Members of LMS Capital plc
continued
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability
and that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of
the UK Corporate Governance Statement specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained
during the audit.
Going concern and
longer-term
viability
Other Code
provisions
• the Directors’ statement with regards the appropriateness of adopting the going concern
basis of accounting and any material uncertainties identified; and
• the Directors’ explanation as to its assessment of the entity’s prospects, the period this
assessment covers and why they period is appropriate.
• the Directors’ statement on fair, balanced and understandable;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and
principal risks;
• the section of the annual report that describes the review of effectiveness of risk
management and internal control systems; and
• the section describing the work of the Audit Committee.
OTHER COMPANIES ACT 2006 REPORTING
Based on the responsibilities described below and our work performed during the course of the audit, we are
required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report
and Directors’
report
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 in accordance with
applicable legal requirements.
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.
Directors’
remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006.
Matters on which
we are required to
report by
exception
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 by the Company, or returns adequate for
our audit have not been received from branches not visited by us; or
• the Company financial statements and the part of the Directors’ remuneration report to
be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
64
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, 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.
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.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in
line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including
fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
We gained an understanding of the legal and regulatory framework applicable to the Company and the industry in
which it operates, and considered the risk of acts by the Company which were contrary to applicable laws and
regulations, including fraud. These included but were not limited to compliance with the Companies Act 2006, the
FCA listing and DTR rules, the principles of the UK Corporate Governance Code and international accounting
standards in conformity with the requirements of the Companies Act 2006.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion.
We focused on laws and regulations that could give rise to a material misstatement in the Company financial
statements. Our tests included, but were not limited to:
• agreement of the financial statement disclosures to underlying supporting documentation;
• enquiries of management;
• testing of journal postings made during the year to identify potential management override of controls;
• considering the key judgements and estimates made in valuing the investment portfolio which is a key balance in
the financial statements and poses a risk of fraud;
• review of minutes of Board meetings throughout the period; and
• obtaining an understanding of the control environment in monitoring compliance with laws and regulations.
65
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Independent Auditor’s Report to the
Members of LMS Capital plc
continued
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events and transactions reflected in the
financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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.
Neil Fung-On (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
11 March 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
66
Income Statement
For the year ended 31 December 2020
Net losses on investments
Interest income
Dividend income
Total loss on investments
Operating expenses
Loss before tax
Taxation
Loss for the year
Attributable to:
Equity shareholders
Loss per ordinary share – basic
Loss per ordinary share – diluted
All activities of the Company are classed as continuing.
The notes on pages 72 to 92 form part of these financial statements.
Year ended 31 December
2020
£’000
(3,247)
94
–
(3,153)
(1,243)
(4,396)
–
(4,396)
2019
£’000
(1,726)
180
30
(1,516)
(2,955)
(4,471)
–
(4,471)
(4,396)
(4,471)
(5.4)p
(5.4)p
(5.5)p
(5.5)p
Notes
2
3
4
5
8
9
9
67
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Statement of Other
Comprehensive Income
For the year ended 31 December 2020
Loss for the year
Other comprehensive income
Total comprehensive loss for the year
Attributable to:
Equity shareholders
The notes on pages 72 to 92 form part of these financial statements.
Year ended 31 December
2020
£’000
(4,396)
–
(4,396)
2019
£’000
(4,471)
–
(4,471)
(4,396)
(4,471)
68
Statement of Financial Position
As at 31 December 2020
Assets
Non-current assets
Right-of-use assets
Investments
Total non-current assets
Current assets
Operating and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Operating and other payables
Amounts payable to subsidiaries
Total current liabilities
Non-current liabilities
Other long-term liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Share-based Equity
Retained earnings
Total equity shareholders’ funds
Net asset value per ordinary share
31 December
2020
£’000
2019
£’000
Notes
17
11
125
–
70,610 134,283
70,735 134,283
12
13
67
16,385
166
25,079
16,452
25,245
87,187 159,528
14
(415)
(1,585)
(38,747) (101,985)
(39,162) (103,570)
14
15
(102)
(102)
–
–
(39,264) (103,570)
47,923
55,958
8,073
508
24,949
34
14,359
8,073
508
24,949
–
22,428
47,923
55,958
23
59.36p
69.30p
The financial statements on pages 67 to 71 were approved by the Board on 11 March 2021 and were signed on its
behalf by:
Robert Rayne
Director
The notes on pages 72 to 92 form part of these financial statements.
69
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Statement of Changes in Equity
For the year ended 31 December 2020
Balance at 1 January 2019
Comprehensive loss for the year
Prior year’s tax adjustments
Loss for the year
Equity after total comprehensive loss
for the year
Contributions by and distributions to
shareholders
Share-based payments
Dividends
As at 31 December 2019
Comprehensive loss for the year
Prior year’s tax adjustments
Loss for the year
Equity after total comprehensive loss
for the year
Contributions by and distributions
to shareholders
Share-based payments
Dividends (note 10)
As at 31 December 2020
Share
capital
£’000
8,073
Share
premium
£’000
Capital
redemption
reserve
£’000
508
24,949
–
–
–
–
–
–
8,073
508
24,949
–
–
–
–
–
–
8,073
508
24,949
–
–
–
–
–
–
8,073
508
24,949
Share-
based
equity
£’000
–
–
–
–
–
–
–
–
–
–
Retained
earnings
£’000
Total
equity
£’000
26,745
60,275
154
(4,471)
154
(4,471)
22,428
55,958
–
–
–
–
22,428
55,958
–
(4,396)
–
(4,396)
18,032
51,562
–
–
–
–
–
–
8,073
508
24,949
34
–
34
–
(3,673)
34
(3,673)
14,359
47,923
The notes on pages 72 to 92 form part of these financial statements.
70
Cash Flow Statement
For the year ended 31 December 2020
Cash flows from operating activities
Loss for the year
Adjustments for non-cash income and expense:
Equity settled share-based payment
Depreciation on right-of-use assets
Interest expense on lease
Losses on investments
Interest income
Other income
Adjustments to incentives plans
Dividend income
Exchange (gains)/losses on cash and cash equivalents
Change in operating assets and liabilities
Decrease/(increase) in operating and other receivables
(Decrease)/increase in operating and other payables
(Decrease)/increase in amounts payable to subsidiaries
Net cash (used in)/from operating activities
Cash flows from investing activities
Interest received
Other income received
Dividend received
Proceeds from sale of investments
Net cash from investing activities
Cash flows from financing activities
Dividends paid
Repayment of lease liabilities
Net cash (used in)/from financing activities
Net increase in cash and cash equivalents
Exchange (gains)/losses on 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 72 to 92 form part of these financial statements.
Year ended 31 December
Notes
2020
£’000
2019
£’000
17
17
2
(4,396)
(4,471)
34
14
4
3,247
(94)
(6)
(68)
–
(113)
–
–
–
1,726
(180)
–
(710)
(30)
197
(1,378)
(3,468)
91
(126)
1,120
(1,195)
(7,934) 12,100
(10,416)
9,626
3
102
6
–
5,190
5,298
10
17
(3,673)
(16)
(3,689)
180
–
30
–
210
–
–
–
(8,807)
113
25,079
9,836
(197)
15,440
16,385
25,079
71
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
1. PRINCIPAL ACCOUNTING POLICIES
REPORTING ENTITY
LMS Capital plc (the ‘Company’) is domiciled in the United Kingdom. These financial statements are presented in
pounds sterling because that is the currency of the principal economic environment of the Company’s operations.
The Company was formed on 17 March 2006 and commenced operations on 9 June 2006 when it received the
demerged investment division of London Merchant Securities.
BASIS OF PREPARATION
These financial statements have been prepared in accordance with International Financial Reporting Standards
in conformity with the requirement of the Companies Act 2006 and adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union.
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 10 to 13 and in
the Portfolio Management Review on pages 18 to 25. In addition, note 18 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.
The Company is considered to be a going concern and the accounts have been prepared on a going concern basis. In
making this assessment the Directors have considered for the Company’s financial position as at the 31 December
2020 and have prepared liquidity forecasts for a three-year period from 1 January 2021. In preparing this liquidity
forecast, consideration has been given to the expected impact of Covid-19 on the Company and the wider Group.
NEWLY IMPLEMENTED STANDARDS AND INTERPRETATIONS
There are no new standards, amendments to standards or interpretations that are effective for the period
beginning 1 January 2020 that may have a material effect on the financial statements of the Company.
IFRS 16 – LEASES
The Company implemented all of the requirements of IFRS 16 – Leases during the year ended 31 December 2020,
upon entering into its first and only lease agreement in June 2020. IFRS 16 Leases was issued in January 2016 and
provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless
the lease term is 12 months or less or the underlying asset has a low value.
72
To determine the split between principal and interest in the lease, the Company is required to estimate the interest
it would have to pay in order to finance payments under the new lease. The interest rate used by the Company is
based on the incremental borrowing rate of 6.5%. The term of the lease is five years and when the Company
renegotiates the contractual terms of a lease with the lessor, the accounting depends on the nature of the
modification:
•
•
•
if the renegotiation results in one or more additional assets being leased for an amount commensurate with the
standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease
in accordance with the above policy;
in all other cases where the renegotiation increases the scope of the lease (whether that is an extension to the
lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount
rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount; and
if the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability
and right-of-use asset are reduced by the same proportion to reflect the partial of full termination of the lease
with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying
amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease
payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the
same amount.
IFRS 2 – SHARE-BASED PAYMENT
IFRS 2 – Share-based payment requires an entity to recognise equity-settled share-based payments measured at fair
value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments
is expensed over the vesting period, together with a corresponding increase in other capital reserves, based upon
the Company’s estimate of the shares that will eventually vest, which involves making assumptions about any
performance and service conditions over the vesting period. The vesting period is determined by the period of time
the relevant participant must remain in the Company’s employment before the rights to the shares transfer
unconditionally to them. The total expense is recognised over the vesting period, which is the period over which all
the specified vesting conditions are to be satisfied. At the end of each period, the Company revises its estimates on
the number of awards it expects to vest based on the service conditions.
Any awards granted are to be settled by the issuance of equity are deemed to be equity settled share-based
payments, accounted for in accordance with IFRS 2 ‘Share-Based Payment’.
Where the terms of an equity-settled transaction are modified, as a minimum, an expense is recognised as if the
terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction
as a result of the modification, as measured at the date of modification.
Where an equity-settled transaction is cancelled, it is treated as if it had vested on the date of the cancellation, and
any expense not yet recognised for the transaction is recognised immediately. However, if a new transaction is
substituted for the cancelled transaction and designated as a replacement transaction on the date that it is
granted, the cancelled and new transactions are treated as if they were a modification of the original transaction,
as described in the previous paragraph.
Per the management share plan, the vesting period for any awards issued can be up to five years and subject to
certain conditions. The first awards were issued in the year with respect to the performance period ended
31 December 2020.
73
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
1. PRINCIPAL ACCOUNTING POLICIES CONTINUED
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 continues to satisfy the
three essential criteria to be regarded as an investment entity as defined in IFRS 10, IFRS 12 ‘Disclosure of lnterests
in Other entities’ and IAS 27 ‘Separate Financial Statements’. The three essential criteria are such that the entity
must:
• obtain funds from one or more investors for the purpose of providing these investors with professional
investment management services;
• commit to its investors that its business purpose is to invest its funds solely for returns from capital
appreciation, investment income or both; and
• measure and evaluate the performance of substantially all of its investments on a fair value basis.
In satisfying the second essential criteria, the notion of an investment time frame is critical. An investment entity
should not hold its investments indefinitely but should have an exit strategy for their realisation. Although the
Company has invested in equity interests that have an indefinite life, it invests typically for a period of up to ten
years. In some cases, the period may be longer, depending on the circumstances of the investment, however,
investments are not made with intention of indefinite hold. This is a common approach in the private equity industry.
Subsidiaries are therefore measured at fair value through profit or loss, in accordance with IFRS 13 ‘Fair Value
Measurement’ and IFRS 9 ‘Financial instruments’.
The Company’s subsidiaries, which are wholly owned and over which it exercises control, are listed in note 22.
USE OF ESTIMATES AND JUDGEMENTS
The preparation of the financial statements require management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets and liabilities, income and
expense. Actual results may differ from these estimates. 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.
The areas involving significant judgements are:
• valuation technique selected in estimating fair value of unquoted investments – note 11
• valuation technique selected in estimating fair value of investment held in Funds – note 11
• recognition of deferred tax asset for carried forward tax losses – note 8
• recognition of share option for equity awards – note 16
The areas involving significant estimates are:
• estimate inputs used in calculating fair value of unquoted investments – note 11
• estimated inputs used in calculating fair value of investment held in Funds – note 11
• estimates in calculating the fair value of equity awards – note 16
• estimate percentage of incremental borrowing rate on lease liability – note 17
• estimate percentage on impairment of financial assets – note 18
74
Estimates and judgements are continually evaluated. They are based on historical experience and other factors,
including expectations of future events that may have financial impact on the entity and that are believed to be
reasonable under the circumstances.
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
increase in fair value of equity investments which can be realised on sale. Therefore, all quoted, unquoted and
managed fund investments are designated at fair value through profit and loss which can be realised on sale 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
(‘IPEV’) 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.
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 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 revenue or earnings;
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 revenue 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 debt instruments or loan notes are determined on a standalone basis, with the initial investment
recorded at the price of the transaction and subsequent adjustments to the valuation are considered for changes
in credit risk or market rates. Convertible instruments are valued by disaggregating the convertible feature from
the debt instrument and valuing it using a Black-Scholes model.
• the Company has adopted the updated IPEV guidelines which are effective from 1 January 2019. The main changes
of the new guidelines are:
– price of a recent investment removed as a primary valuation technique; and
– valuing debt investment is expanded;
• the Company adopted the IPEV special valuation guidance issued in March 2020 in response to the significant
uncertainty surrounding the Coronavirus pandemic.
75
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
1. PRINCIPAL ACCOUNTING POLICIES CONTINUED
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, the latest available of 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.
Adjustments will be made to the fund valuation where the Company believes there is evidence available for an
alternative valuation.
IMPAIRMENT OF FINANCIAL ASSETS
Expected credit losses are required to be measured through a loss allowance at an amount equal to:
• the 12-month expected credit losses (expected credit losses from possible default events within 12 months after
the reporting date); or
• full lifetime expected credit losses (expected credit losses from all possible default events over the life of the
financial instrument).
A loss allowance for full lifetime expected credit losses is required for a financial instrument if the credit risk of that
financial instrument has increased significantly since initial recognition, as well as to contract assets or trade
receivables that do not constitute a financing transaction.
For all other financial instruments, expected credit losses are measured at an amount equal to the 12-month
expected credit losses.
Impairment losses on financial assets carried at amortised cost are reversed in subsequent periods if the expected
credit losses decrease.
CARRIED INTEREST
The Company historically offered its executives, including Board executives, the opportunity to participate in the
returns from successful investments. A variety of incentive and carried interest arrangements were put in place
during the years up to and including 2011. No new schemes have been introduced since. As is common place in the
private equity industry, executives may, in certain circumstances, retain their entitlement under such schemes after
they have left the employment of the Company. The liability under such incentive schemes is accrued if its
performance conditions, measured at the balance sheet date, would be achieved if the remaining assets in that
scheme were realised at their fair value at the balance sheet date. An accrual is made equal to the amount which
the Company would have to pay to any remaining scheme participants from a realisation at the balance sheet value
at the balance sheet date. Employer’s national insurance, where applicable, is also accrued.
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. The assets held at
amortised cost are immaterial.
76
CASH AND CASH EQUIVALENTS
Cash, for the purpose of the cash flow statement, comprises cash in hand and cash equivalents.
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. These are initially recognised at fair value.
Subsequent measurement is at amortised cost using the effective interest method.
DIVIDEND PAYABLE
Dividend distribution to the shareholders is recognised as a liability in the Company’s financial statements when
approved at an Annual General Meeting by the shareholders for final dividends and interim dividends when paid.
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.
DIVIDEND INCOME
Dividend income is recognised on the date the Company’s right to receive payment is established.
EXPENDITURE
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 recognized in other comprehensive income or directly in equity.
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.
77
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
2. NET LOSSES ON INVESTMENTS
Losses and gains on investments were as follows:
Investment portfolio of the Company
Asset type
Quoted
Unquoted
Funds
Charge for incentive plans
Investment portfolio of subsidiaries
Asset type
Quoted
Unquoted
Funds
Total
Credit for incentive plans
Operating and similar expenses of subsidiaries*
* Includes operating and legal costs and taxation charges of subsidiaries
Year ended 31 December
2020
2019
Realised
£’000
Unrealised
£’000
Total
£’000
Realised
£’000
Unrealised
£’000
(716)
–
–
(716)
–
25
–
25
(716)
25
–
(691)
(68)
(759)
–
–
–
–
1,437
130
–
1,567
Total
£’000
1,437
130
–
1,567
(710)
857
381
121
–
502
(598)
924
(2,190)
(217)
1,045
(2,190)
(1,864)
(1,362)
(214)
(1,839)
(2,121)
9
7,071
–
7,080
7,080
1,263
(4,000)
(6,708)
1,272
3,071
(6,708)
(9,445)
(2,365)
(7,878)
(1,508)
68
(2,053)
(1,194)
(3,247)
309
(1,199)
(527)
(1,726)
In September 2020, a subsidiary of the Company deposited £7.0 million for an investment in Dacian Petroleum, a
Romanian oil and gas production company. The completion of the transaction is subject to regulatory and local
government approvals in Romania, which are progressing. The £7.0 million investment is structured primarily as
debt with a seven-year maturity and bearing interest at 14% per annum from 20 September 2020. The subsidiary
has not recognised the interest income of £0.3 million during 2020 as the transaction was not complete at
31 December 2020 but continues to believe it is probable that the approvals will be obtained and the transaction
will close.
The Company operates carried interest arrangements in line with normal practice in the private equity industry.
The charge for incentive plans for the Company is £0.07 million for carried interest and other incentives relating to
historic arrangements. The credit for subsidiaries is included in the Net losses on Investments in the Income
Statement.
3. INTEREST INCOME
Interest income comprises of interest earned on bank deposits and on loans investments.
4. DIVIDEND INCOME
Dividend income received from quoted equity shares are accounted for when the right to receive payments is
established and the amount of the dividend can be measured reliably.
78
5. OPERATING EXPENSES
Operating expenses comprise administrative expenses and include the following:
Directors remuneration (note 6)
Staff expenses (note 7)
Depreciation on right-of-use assets
Management fee
Other administrative expenses
Foreign currency exchange differences
Auditor’s remuneration
Fees to Company auditor
– parent company
– subsidiary companies
– interim review for LMS Capital plc
Year ended 31 December
2020
£’000
708
169
14
–
572
(275)
2019
£’000
101
149
–
1,284
1,124
174
38
–
17
35
73
15
1,243
2,955
The audit fee comprises £38,000 (2019: £35,000) for LMS Capital plc, fees directly charged to subsidiaries in the
current year are £75,000 (2019: £72,500) and £17,000 (2019: £15,000) for the interim review. The expenses in the
table above vary from these numbers due to adjustments for opening and closing accruals.
6. DIRECTORS’ REMUNERATION
Directors’ remuneration
Directors’ social security contributions
Directors’ other benefit
The highest paid director was Nicholas Friedlos (2019 – Martin Knight)
The average number of Directors and staff was as follows:
Year ended 31 December
2020
£’000
2019
£’000
593
62
53
708
239
70
6
25
101
55
Average number of Directors
31 December 2020
31 December 2019
Male
Female
Total
Male
Female
Total
5
5
–
–
5
5
4
4
–
–
4
4
79
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
7. STAFF EXPENSES
Wages and salaries
Employers’ social security contributions
Employers’ other benefits
8. TAXATION
Current tax expense
Current year
Total tax expense
RECONCILIATION OF TAX EXPENSE
Loss before tax
Corporation tax using the Company’s domestic tax rate – 19% (2019: 19%)
Fair value adjustments not currently taxed
Non-deductible expenses
Non-taxable expense/(income)
Deferred tax asset not recognised
Transfer pricing
Company relief
Total tax expense
Year ended 31 December
2020
£’000
144
13
12
169
2019
£’000
133
15
1
149
Year ended 31 December
2020
£’000
2019
£’000
–
–
–
–
Year ended 31 December
2020
£’000
2019
£’000
(4,396)
(4,471)
(835)
390
238
301
–
(766)
672
–
(850)
94
100
(6)
534
(700)
828
–
As at the year end, there are cumulative potential deferred tax assets of £1.512 million (2019: £1.677 million) in
relation to the Company’s cumulative tax losses of £7.956 million (2019: £8.826 million). It is unlikely that the
Company will generate sufficient taxable profits in future to utilise these amounts and therefore no deferred tax
asset has been recognised in the current or prior year.
80
9. 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:
Loss
Loss for the purposes of loss per share being net loss attributable to equity holders of
the parent
Year ended 31 December
2020
£’000
2019
£’000
(4,396)
(4,471)
Number
Number
Number of shares
Weighted average number of ordinary shares for the purposes of basic loss per share
80,727,450 80,727,450
Loss per share
Basic
Diluted
The Company has share awards issued not yet vested which were not dilutive in 2020.
10. DIVIDENDS
Dividends declared during the year ending 31 December 2020 are as follows.
First dividend
Second dividend
Total 2020
Dividend date
Payment Date
20 December 2019
14 August 2020
09 January 2020
07 September 2020
Pence
Pence
(5.4)
(5.4)
(5.5)
(5.5)
Dividend
£’000
3,431
242
3,673
Dividend
per share
£
0.0425
0.0030
0.0455
A final dividend of 0.6p per share is recommended by the Board and, subject to approval by shareholders at the
AGM on 12 May 2021, will be paid out in early June 2021.
11. INVESTMENTS
The Company’s investments comprised the following:
Total investments
These comprise:
Investment portfolio of the Company
Investment portfolio of subsidiaries
Investment portfolio – total
Other net assets of subsidiaries
Year ended 31 December
2020
£’000
2019
£’000
70,610 134,283
755
21,438
6,636
25,605
32,241
22,193
48,417 102,042
70,610 134,283
81
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
11. INVESTMENTS CONTINUED
The carrying amounts of the Company’s and its subsidiaries’ investment portfolios were as follows:
Investment portfolio of the Company
Asset type
Quoted
Unquoted direct
Funds
Investment portfolio of subsidiaries
Asset type
Quoted
Unquoted direct
Funds
Other net assets of subsidiaries
The movements in the investment portfolio were as follows:
Carrying value
Balance at 1 January 2019
Purchases
Disposal proceeds
Distributions from partnerships
Fair value adjustments
Balance at 31 December 2019
Balance at 1 January 2020
Purchases
Disposal proceeds
Distributions from partnerships
Fair value adjustments
Balance at 31 December 2020
31 December 2020
31 December 2019
£’000
£’000
£’000
£’000
–
755
–
755
5,906
730
–
6,636
197
9,383
11,858
48,417
2,515
8,983
14,107
102,042
69,855
69,855 127,647 127,647
70,610
134,283
Quoted
securities
£’000
Unquoted
securities
£’000
Funds
£’000
Total
£’000
5,761
–
(178)
–
2,838
8,421
18,324
514
(7,694)
–
(1,431)
20,798
573
(681)
(66)
(6,517)
44,883
1,087
(8,853)
(66)
(5,110)
9,713
14,107
32,241
Quoted
securities
£’000
Unquoted
securities
£’000
Funds
£’000
Total
£’000
8,421
424
(7,715)
–
(933)
9,713
249
–
(894)
1,070
14,107
906
–
(965)
(2,190)
32,241
1,579
(7,715)
(1,859)
(2,053)
197
10,138
11,858
22,193
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).
82
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 18 – Financial risk management).
The Company’s investments are analysed as follows:
Level 1
Level 2
Level 3
31 December
2020
£’000
2019
£’000
–
755
5,906
730
69,855 127,647
70,610 134,283
Level 3 amounts include £21,438,000 (2019: £25,605,000) relating to the investment portfolios of subsidiaries
including quoted investments of £197,000 (2019: £2,515,000) and £48,417,000 (2019: £102,042,000) in relation to
the other net assets of subsidiaries.
There were no transfers between levels during the year ending 31 December 2020.
12. OPERATING AND OTHER RECEIVABLES
Other receivables and prepayments
13. CASH AND CASH EQUIVALENTS
Bank balances
Short-term deposits
31 December
2020
£’000
67
67
2019
£’000
166
166
31 December
2020
£’000
2019
£’000
2,221
14,164
10,951
14,128
16,385
25,079
At 31 December 2020, a balance of £14.164 million (2019: £14.128 million) was held in short-term deposit accounts
with no maturity date meaning it was immediately available. In accordance with the definition of cash and cash
equivalents, the amounts in both the current and prior year are included as a current asset on the face of the
balance sheet.
83
REVIEWGOVERNANCEFINANCIAL STATEMENTS
LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
14. OPERATING AND OTHER PAYABLES
Carried interest provision
Trade payables
Other non-trade payables and accrued expenses
Other long-term lease liabilities
31 December
2020
£’000
68
32
316
415
102
517
2019
£’000
710
225
650
1,585
–
1,585
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 2020, £68,000 (2019: £710,000) has been accrued for in the Company and £424,000 (2019: £629,000)
has been accrued for in the subsidiaries. Carried interest accrued for in the subsidiaries is included in the amounts
owing to subsidiaries on the statement of financial position.
15. CAPITAL AND RESERVES
SHARE CAPITAL
Ordinary shares
Balance at the beginning of the year
Repurchase of shares
Balance at the end of the year
2020
Number
2020
£’000
2019
Number
80,727,450
–
8,073 80,727,450
–
–
80,727,450
8,073 80,727,450
2019
£’000
8,073
–
8,073
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.
There were no issue or repurchases of shares in the year (2019: £nil).
SHARE PREMIUM ACCOUNT
The Company’s share premium account arose on the exercise of share options in prior years.
CAPITAL REDEMPTION RESERVE
The capital redemption reserve comprises the nominal value of shares purchased by the Company out of its own
profits and cancelled.
84
16. SHARE AWARDS
On 24 June 2020, the Company established a long-term incentive plan for the employees of the Company. The plan
grants the Board the authority to allot up to 1,000 Value Creation Plan (‘VCP’) units with both performance and
service conditions attached. The VCP units can only be awarded at the end of the five-year vesting period, 30 June
2025, if certain minimum performance conditions are met. These minimum performance conditions include two
performance targets over the measurement period, including a minimum hurdle rate such that the annualized total
shareholder return (‘TSR’) over the measurement period must be not less than 8% and a minimum share price of
52.8p. If the minimum performance targets are met, the amount that the plan participants will receive will depend
on the TSR performance of the Company achieved over the five-year vesting period. The Board retains the right to
settle these awards in either shares or cash. As the Company does not have a present obligation to settle in cash,
the awards are all recognized as equity-settled share awards.
The first share awards were granted in 2020 with respect to the performance period ended 31 December 2020.
Type of award
Number of
shares
awarded
Fair value/
share
£
Vesting conditions
Grant date
30 June 2020
Shares
500
418.44 Awards vest quarterly over five years
provided the employee is still in
service of the Company.
393.63 Awards vest quarterly over five years
provided the employee is still in
service of the Company.
Final vesting
date
30 June 2025
30 June 2025
17 November 2020
Shares
125
The fair value of the option granted during the year has been estimated using the Monte Carlo simulation.
The principal assumption used in the calculation were as follows:
Share price at 30 June 2020
Share price at 17 November 2020
Exercise price
Expected life
Weighted average risk free rate
Dividend yield
Outstanding at 1 January 2020
Granted
Settled in equity
Outstanding at 31 December 2020
2020
2019
£ 0.328
£ 0.299
–
5 years
(0.04%)
2.0%
–
–
–
–
–
–
Number of
awards
Average of
fair value of
instrument
–
625
–
625
–
413.48
–
413.48
85
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
17. LEASES
LEASE COMMITMENTS
The Company leases rental space and information with regards to this lease is outlined below:
Rental lease asset
Leased asset recognised under IFRS 16 on 1 July 2020
Depreciation for the year
At 31 December 2020
Rental lease liability
Leased asset recognised under IFRS 16 on 1 July 2020
Unwinding of the discount on lease liability
Payments for lease
At 31 December 2020
£’000
139
(14)
125
£’000
139
4
(16)
127
Further information regarding the adoption of IFRS 16 is detailed in note 1.
18. 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 IFRS 9. Assets and liabilities outside the scope of IFRS 9 are not included in
the table below:
31 December
Financial assets
Investments
Operating and other receivables
Cash and cash equivalents
Total
Financial liabilities
Operating and other payables
Amounts payable to subsidiaries
Lease liabilities
Total
Fair Value
through profit
or loss
£’000
70,610
–
–
70,610
Fair Value
through profit
or loss
£’000
–
–
–
–
2020
Measured at
amortised
cost
£’000
–
67
16,385
16,452
2020
Measured at
amortised
cost
£’000
390
38,747
127
39,264
2019
Fair Value
through profit
or loss
£’000
Measured at
amortised
cost
£’000
134,283
–
–
134,283
31 December
–
166
25,079
25,245
2019
Fair Value
through profit
or loss
£’000
Measured at
amortised
cost
£’000
Total
£’000
70,610
67
16,385
87,062
Total
£’000
390
38,747
127
39,264
Total
£’000
134,283
166
25,079
159,528
Total
£’000
1,585
101,985
–
1,585
101,985
–
–
–
–
–
103,570
103,570
lntercompany payables to subsidiaries are all repayable on demand thus there are no undiscounted contractual
cash flows to present.
86
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
Debt Investments
Cash and cash equivalents
31 December
2020
£’000
67
600
16,385
17,052
2019
£’000
166
600
25,079
25,845
The Company limits its credit risk exposure by only depositing funds with highly rated institutions. Cash holdings at
31 December 2020 and 2019 were held in institutions 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.
The loss allowance as at 31 December 2020 and 31 December 2019 was determined as follows for trade receivables:
2020
Expected loss rate
Trade receivables
Other receivables
Prepayments
and accrued income
Loss allowance
Total
2019
Expected loss rate
Trade receivables
Other receivables
Prepayments
and accrued income
Loss allowance
Total
More than
30 days past
due
£’000
More than
60 days past
due
£’000
More than
120 days past
due
£’000
Current
£’000
–
–
67
–
–
67
–
–
–
–
–
–
–
–
–
–
–
–
100%
59
–
–
(59)
–
More than
30 days past
due
£’000
More than
60 days past
due
£’000
More than
120 days past
due
£’000
Current
£’000
–
–
166
–
–
166
–
–
–
–
–
–
–
–
–
–
–
–
100%
59
–
–
(59)
–
Total
£’000
–
59
67
–
(59)
67
Total
£’000
–
59
166
–
(59)
166
87
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
18. 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.
The following table shows an analysis of the financial assets and financial liabilities by remaining expected
maturities as at 31 December 2019 and 31 December 2020.
Financial assets:
2020
Investment
Operating and other receivables
Cash and cash equivalents
Total
2019
Investment
Operating and other receivables
Cash and cash equivalents
Total
Financial liabilities:
2020
Operating and other payables
Amount payable to subsidiaries
Lease liabilities
Total
2019
Operating and other receivables
Amount payable to subsidiaries
Total
Up to 3
months
£’000
–
67
16,385
16,452
Up to 3
months
£’000
–
166
25,079
25,245
Up to 3
months
£’000
390
–
6
396
Up to 3
months
£’000
1,585
–
1,585
Total
£’000
70,610
67
16,385
87,062
Total
£’000
134,283
166
25,079
Total
£’000
390
38,747
127
3-12 months
£’000
1-5 years
£’000
Over 5 years
£’000
–
–
–
–
–
–
–
–
70,610
–
–
70,610
3-12 months
£’000
1-5 years
£’000
Over 5 years
£’000
–
–
–
–
–
–
–
–
134,283
–
–
134,283
159,528
3-12 months
£’000
1-5 years
£’000
Over 5 years
£’000
–
–
19
19
–
–
102
102
–
38,747
–
38,747
39,264
3-12 months
£’000
1-5 years
£’000
Over 5 years
£’000
Total
£’000
–
–
–
–
–
–
–
101,985
1,585
101,985
101,985
103,570
In addition, certain of the Company’s subsidiaries have uncalled capital commitments to funds of £2,717,000
(31 December 2019: £3,065,000) for which the timing of payment is uncertain (see Note 19).
MARKET RISK
Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices
will affect the Company’s income or the value of its holdings of financial instruments. The Company aims to
manage this risk within acceptable parameters while optimising the return.
88
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 68% 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
Right-of-use assets
Operating and other receivables
Cash and cash equivalents
Operating and other payables
Gross exposure
Forward exchange contracts
Net exposure
GBP
£’000
54,370
125
67
15,830
(39,264)
31,128
–
31,128
2020
USD
£’000
15,040
–
–
555
–
15,595
–
15,595
31 December
Other
£’000
1,200
–
–
–
–
1,200
–
1,200
GBP
£’000
117,601
–
166
24,498
(103,570)
38,695
–
38,695
2019
USD
£’000
15,331
–
–
581
–
15,912
–
15,912
Other
£’000
1,351
–
–
–
–
1,351
–
1,351
The aggregate net foreign exchange losses recognised in profit or loss were:
Net foreign exchange loss on investment
Net foreign exchange loss on non-investment
Total net foreign exchange losses recognised in profit before income tax for the year
31 December
2020
£’000
(90)
(577)
(667)
2019
£’000
(478)
(272)
(750)
At 31 December 2020, the rate of exchange was USD 1.37 = £1.00 (31 December 2019: USD 1.33 = £1.00). The average
rate for the year ended 31 December 2020 was USD 1.28 = £1.00 (2019: USD 1.28 = £1.00).
A 10% strengthening of the US dollar against the pound sterling would have increased equity by £1.7 million at
31 December 2020 (31 December 2019: increase of £1.7 million) and decreased the loss for the year ended
31 December 2020 by £1.7 million (2019: decreased the loss by £1.7 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. This level of change is considered to be
reasonable based on observations of current conditions.
89
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
18. 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 £207,000
(31 December 2019: increase of £203,000) and decreased the loss for the year by £207,000 (2019: £203,000).
A decrease of 100 basis points would have decreased equity and increased the loss for the year by the same
amounts. This level of change is considered to be reasonable based on observations of current conditions.
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 and the US.
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 2020 in measuring investments categorised as level 3 in
note 11 are considered below:
1. Unquoted securities (carrying value £10.1 million) are valued using the most appropriate valuation technique
such as a revenue-based approach, an earnings-based approach, or a discounted cash flow approach. These
investments are sensitive to both the overall market and industry specific fluctuations that can impact multiples
and comparable company valuations. 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 4-8 times dependent on the business of each individual company, its
performance and the sector in which it operates;
– revenue multiples in the range 0.30–3.6 times, also dependent on attributes at individual investment level;
and
– discounts applied of up to 30%, 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 £11.9 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 2020). The Company also carries out its own review of individual funds and their
portfolios to satisfy itself that the underlying valuation bases are consistent with the basis of valuation and
knowledge of the investments and the sectors in which it operates. However, the degree of detail on valuations
varies significantly by fund and, in general, details of unobservable inputs used are not available.
90
CAPITAL MANAGEMENT
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. Changes in any one of the variables, earnings or revenue multiples or illiquidity discounts could
potentially have a significant effect on the valuation.
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 2020 would have increased by £7.0 million
(2019: loss increased by £12.7 million). An increase in the valuation of level 3 category investments by 10% at the
reporting date would have an equal and opposite effect.
The Company’s total capital at 31 December 2020 was £48 million (31 December 2019: £56 million) comprising
equity share capital and reserves. The Company had borrowings at 31 December 2020 of £nil (31 December
2019: £nil).
In order to meet the Company’s capital management objectives, the Board monitors and reviews 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; and
• the annual dividend policy and other possible distributions to shareholders.
19. CAPITAL COMMITMENTS
Outstanding commitments to funds
31 December
2020
£’000
2,717
2019
£’000
3,065
The outstanding capital commitments to funds comprise unpaid calls in respect of funds where a subsidiary of the
Company is a limited partner.
As of 31 December 2020, the Company has no other contingencies or commitments to disclose.
20. RELATED PARTY TRANSACTION
The Directors fee paid for the year was £708,000 (2019: £101,000).
Gresham House Asset Management Limited was appointed the investment manager of LMS Capital plc on
16 August 2016 and the agreement was terminated on 30 January 2020. Amount charged by the Investment
Manager in 2020 is £nil (2019: £1,284,000). During the year, the Company accrued an additional £20,000 (2019:
£400,000) in relation to termination fees payable to Gresham House Asset Management Limited. The Company
made a payment of £346,000 towards the prior year’s accrual of £400,000 and the remaining £54,000 credit was
accounted for in the current year. During the year ending 31 December 2020, the Company received a sum of
£32,000 from Gresham House Asset Management Limited which related to management fee true up of 2019.
With effect from 24 June 2020, the Company entered into a lease agreement with The Rayne Foundation in respect
of the premises comprising its principal office. Under the terms of the lease, the Company paid rent of
£16,390 (2019: nil) to The Rayne Foundation. Robert Rayne is the Chairman of The Rayne Foundation.
91
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes to the Financial Statements
continued
21. SUBSEQUENT EVENTS
There are no subsequent events that would materially affect the interpretation of these financial statements.
22. SUBSIDIARIES
The Company’s subsidiaries are as follows:
Name
Country of incorporation
Holding %
Activity
International Oilfield Services Limited
LMS Capital (Bermuda) Limited
LMS Capital (General Partner) Limited
LMS Capital Group Limited
LMS Capital Holdings Limited
Lioness Property Investments Limited
Lion Property Investments Limited
Lion Investments Limited
Lion Cub Property Investments Limited
Tiger Investments Limited
LMS Tiger Investments (II) Limited
Westpool Investment Trust plc
Cavera Limited
LMS Co-Invest Limited
Bermuda
Bermuda
Bermuda
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
England and Wales
England and Wales
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
Investment holding
Trading
Trading
For the year ended 31 December 2020, 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 were registered in Bermuda were
liquidated on 30 June 2020. In addition, LMS Capital (ECI) Limited, LMS Capital (GW) Limited, LMS NEP Holdings Inc
and LMS Tiger Investments Limited were also liquidated by November 2020.
On 09 January 2020, Lion Cub Investment changed its name to Cavera Limited.
On 10 January 2020, LMS Co-Invest Limited was incorporated as a private company under the
Company’s subsidiaries.
The registered office addresses of the Company’s subsidiaries are as follows:
Subsidiaries incorporated in England and Wales: Two London Bridge, London, SE1 9RA.
Subsidiaries and partnerships incorporated in Bermuda: Clarendon House, 2 Church Street,
Hamilton HM 11, Bermuda.
23. NET ASSET VALUE PER SHARE
The net asset value per ordinary shares in issue are as follows:
NAV (£’000)
Number of ordinary shares in issue
NAV per share (in pence)
92
31 December
2020
2019
47,923
55,958
80,727,450 80,727,450
69.3 pence
59.4 pence
Corporate Information
REGISTRARS
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Tel: (UK) 0371 664 0300
(Outside UK) +44 (0)371 664 0300
Email: shareholderenquiries@linkgroup.co.uk
www.linkgroup.eu
SOLICITORS
CMS Cameron McKenna Nabarro Olswang LLP
Cannon Place
78 Cannon Street
London
EC4N 6AF
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
FINANCIAL CALENDAR 2021
Annual General Meeting – 12 May
Half-year results – July
DIRECTORS
The Hon Robert Rayne
Nick Friedlos
Peter Harvey
Graham Stedman
James Wilson
SECRETARY
IQ-EQ Corporate Services (UK) Limited
Two
London Bridge
London
England
SE1 9RA
AUDITOR
BDO LLP
55 Baker Street
London
W1U 7EU
BROKERS
Shore Capital Ltd
Cassini House
57 St James’ Street
London
SW1A 1LD
REGISTERED OFFICE
Two London Bridge
London, England
SE1 9RA
Registered number 5746555
BANKERS
Barclays Bank plc
1 Churchill Place
London
E14 5HP
93
REVIEWGOVERNANCEFINANCIAL STATEMENTS LMS CAPITAL PLC | ANNUAL REPORT AND ACCOUNTS 2020
Notes
94
L
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LMS Capital plc
3 Bromley Place
London
W1T 6DB
0207 935 3555
info@lmscapital.com