LMS Capital has announced its annual results for the Year Ended 31 December 2020, its first as an internally managed investment company. We have provided the key highlights from the announcement below but note these comments from the trust’s chairman, Robert Rayne: “While 2020 was a challenging year that was significantly impacted by the Coronavirus pandemic, we were still able to progress on our deal flow, principally in the energy and real estate sectors. The previously announced Dacian Petroleum transaction remains in the final stage of government approvals, and we have backed two real estate teams, George Capital and Cavera, that have a pipeline of opportunities. Our significant cash balances will enable us to deploy capital in 2021, although we remain cautious during these times of uncertainty.”
Key highlights from the results as follows:
Net Asset Value
- The net asset value (“NAV”) at 31 December 2020 was £47.9 million, 59.4 pence per share (31 December 2019: £56.0 million, 69.3 pence per share); and
- Adjusting for the impact of dividends to shareholders, NAV over the year reduced by a net £4.4 million, 5.3 pence 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.
Dividends
- The Company paid a special dividend to shareholders of 4.25 pence per share in January 2020; and
- The Board announced the initiation of a progressive annual dividend policy targeting a dividend initially 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 (0.3 pence per share) was paid to shareholders in September 2020. A final dividend of 0.6 pence per share is recommended by the Board and subject to approval by shareholders at the Annual General Meeting.
Rationalisation of the portfolio
- 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); and
- Continued cash proceeds from portfolio realisations in the year totalled £9.3 million (2019: £13.2 million).
- Running costs reduction (excluding non-recurring costs)
- 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).
Cash balances
- 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.
Key themes
- The investment portfolio has been rationalised, dividends have been paid, ongoing running costs have been reduced, first stage investments have been made and cash resources have been carefully husbanded, following the successful completion of the transition to internal management;
- The business has been reshaped, under the management of its own team, to focus in its known areas of expertise in real estate, energy and late stage private equity;
- The Coronavirus pandemic has affected the valuation of some of the Company’s investments and has resulted in the Board taking a cautious approach to ensuring the Company has available liquidity to implement its investment policy, while estimates of the timing and quantum of realisations from its existing portfolio have been revised downwards; and
- Looking forward, the Board sees opportunity to invest in its chosen areas of expertise and expects to deploy more capital during 2021, and to encourage co-investment opportunities with its partners. Foundations have been laid with the Company’s real estate and energy teams, creating a pipeline of opportunities including £7.0 million deposited for the investment in Dacian, a Romanian oil and gas production company, for which final approval by the Romania authorities is pending. The Company continues to evaluate opportunities in late stage private equity and expects to deploy capital in this area also in 2021.
[QD comment: It is early days for the new approach. While LMS Capital lost money in 2020, it was a difficult year with the pandemic, although management was still able to progress some deal flow. We’ll have a better idea in 12 months’ time as to whether things are starting to pan out. However, it is worth remembering that the vote to remove Gresham House as manager was swung by interests aligned with the Rayne family (32.6m of the 40.1m shares voted in favour of the internalising management idea) and this led to the resignation of the independent board. It also effectively trapped the independent shareholders – click here to read more on that – so the new internal management team have a lot to live up to. It is perhaps not surprising that the trust lost money this year but, in contrast, Gresham House and its funds seem to be going from strength to strength.]