FINANCIAL SUMMARY

The NAV of the Company at 30 June 2024 was £36.5 million, 45.2 pence per share (31 December 2023: £42.1 million, 52.2 pence per share) and is summarised below:

 

	30 June		31 December
	2024 (unaudited)		2023 (audited)
	£'000		£'000
Mature Investment Portfolio
Quoted investments	130		145
Unquoted investments	1,731		1,717
Funds	5,739		9,469
	7,600		11,331
New Investment Portfolio
Energy - Dacian	9,701		10,989
Retirement Living - Castle View	6,130		6,130
	15,831		17,119
Total Investments	23,431		28,450
Cash	13,050		15,480
Other net assets / (liabilities/provisions)	31		(1,789)
Net Assets	36,512		42,141

 

The overall decrease of £5.6 million in the half year comprises:

·    Dividend payments £0.5 million;

·    Portfolio valuation movements - net reduction £4.2 million summarised below;

·    Bank interest £0.3 million;

·    Unrealised foreign exchange gains £0.2 million;

·    Running costs of £0.9 million, investment related costs of £0.5 million principally associated with developing the retirement living investment platform and the restructure of Dacian and other net income of £0.1 million.

 

PORTFOLIO

The Company's portfolio comprises three distinct groups of assets:

 

Mature Investments - 30 June 2024 NAV £7.6 million (9.4 pence per share)

The Mature Portfolio comprises investments which originate from the Company's strategy pre-2012 and are currently managed with a view to optimising the realisation values.

 

During the first half of 2024, this group of investments showed net unrealised underlying losses of £3.4 million, foreign exchange movements in the period were not material. The elements were:

 

 

 

 

·    Brockton Fund 1 (£nil at 30 June 2024; £2.5 million decrease in the half year) - As previously reported, administrators were appointed in January 2024 to the remaining asset in this fund. The value of the investment was reduced significantly at the year end. Based on discussions with the Brockton team we have decided prudently to write down the investment down to nil. Whilst the administrators are making progress and have sold additional units since January, the current pace of sales, and consequent additional interest costs, risks erosion of value of the fund's holding. We will continue to monitor progress and report.

·    Elateral: (£1.7 million at 30 June 2024; no change in valuation in the half year) - The company's financial performance has improved during 2024. It has shown some success at winning new business. We continue to support the management in their strategy to return to sustainable sales growth;

·    Opus (£3.3m at 30 June 2024; £0.8 million decrease in the half year) - As reported in our Q1 2024 NAV update this was driven by the fund manager's valuation primarily reflecting movements in public market comparables for the fund's two principal remaining assets;

·    Weber (£2.0 million at 30 June 2024; £0.2 million decrease in the half year) - Our investment in Weber decreased by £0.2 million reflecting the market price performance of the US listed microcap equities held in the fund;

·    Other assets (£0.6 million combined value at 30 June 2024; £0.1 million increase in the half year).

 

Energy - Dacian - 30 June 2024 NAV £9.7 million (12.0 pence per share)

It was announced on 15 July that agreement had been reached between investors and founders on changes to the governance and financing structure at Dacian and that those changes would be implemented subject to Romanian regulatory clearances, which are currently in the process of being sought.

 

The impact on the Company's NAV of those changes is a reduction of £0.8 million compared to the 31 December 2023 valuation (Note: Compared to the 31 March 2024 valuation the reduction is £1.3 million).

 

The agreed changes were set out in the 15 July note but in summary:

·    Certain of the original investor group, including two of the Company's directors although not the Company, will provide financing of $1 million to Dacian for one year on an unsecured basis with an entitlement to an equity subscription of 5% of Dacian's issued share capital, at nominal value;

·    The Company's existing interest in senior loan notes in Dacian, along with the interests of all its co-investors will convert into equity in Dacian with preferential distribution rights. The effect of the preferential rights will give the Company 61% of all distributions, and other investors 39% until the performance criteria have been met;

·    The investor group will have increased board representation rights and will be able to appoint a majority of the Dacian board; and

·    The Bridge Loan will take effect immediately but the Equity Swap, the entitlement of the Bridge Lenders to subscribe for equity and the changes to the board rights, remain subject to regulatory clearances in Romania.

 

 

The background to the changes is:

·    Dacian experienced a significant engineering issue in 2023 which adversely impacted gas production levels and postponed planned production enhancement projects. Due to this, Dacian has continued to experience lower than target production levels through 2024 and as such, revenues achieved by Dacian in 2023 and so far in 2024 have been significantly below expectations;

·    Notwithstanding its lower revenues, Dacian has been continuing to meet its financial obligations, of some $300,000 per month on third-party debt and $100,000 per month on Romanian Solidarity tax;

·    Free cash flow should increase significantly once the third-party debt is fully repaid which should be by the end of November 2024, and the Solidarity tax liability settled by April 2025, however it has become clear that Dacian would benefit from additional financing in the interim period to ensure it has sufficient working capital; and

·    In addition, as it currently stands, due to the total value of the Senior Loan Notes as at 30 June 2024 (with interest compounded) being $22.1 million, Dacian's capital structure is in a deficit position which under Romanian Law should be rectified.

 

Whilst the production levels have been below expectations for the reasons set out above, the Board considers the prospects for Dacian to be positive in the medium term. The current cashflow projections for Dacian underpinning the Restructuring have been rebased on the production levels currently being achieved and Dacian has also identified cost efficiencies which can be implemented in the short term which are not expected to impact its maintenance programme or production. As noted above, free cash flow should increase significantly during 2025.

 

Dacian's estate offers opportunities in alternative energy related uses. Whilst any such opportunities are still at a relatively early stage, the Board of the Company are optimistic about the potential additional benefit that this could bring.

 

Retirement Living - Castle View - 30 June 2024 NAV £6.1 million (7.6 pence per share)

Castle View retirement village was acquired in December 2023 and was LMS' first investment in the sector and is intended as the cornerstone for the creation of a larger retirement living sector investment platform.

 

Castle View is a retirement living scheme in Windsor comprising 64 apartments, which are being sold on the basis of 250 year leasehold interests in the individual apartments. LMS acquired:

·    The freehold interest in all the units sold and unsold, which entitles the freeholder to the annual service charges and deferred management fees; and

·    The leasehold interest in the 15 units unsold at the time of acquisition, those units having an estimated sale value of £8.3 million.

 

Financial returns are derived from the sale of units and, in the medium to longer term from the net deferred management fee income.

 

The acquisition price was £11.9 million, of which £6.0 million was provided by LMS and £5.9 million by way of a loan. The loan is paid down from the proceeds of the sale of the units.