TIDMLCG
RNS Number : 3558D
London Capital Group Holdings PLC
22 March 2011
LONDON CAPITAL GROUP HOLDINGS PLC
PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER
2010
Highlights
Financial
-- Total revenue increased 25% to GBP34.5m (2009: GBP27.6m)
-- Adjusted profit before tax* up 8% to GBP6.5m (2009:
GBP6.0m)
-- Adjusted profit before tax* is stated after CFD start up
costs of GBP0.8m; closure costs of our proprietary trading platform
of GBP0.7m and the recent FSCS levy of GBP0.3m. Excluding these
items adjusted profit before tax would have been GBP8.3m
-- H2 profits impacted by the return of range bound markets
which resulted in a fall in average revenue per user
-- Loss before tax of GBP66k (2009: profit of GBP5.8m) as a
result of GBP3.2m software impairment and a provision of GBP3.2m
for Financial Ombudsman Service ("FOS") revised assessment both
previously announced
-- The Board proposes to raise approximately GBP8.0m before
expenses, through the issue by way of a placing of 13,333,333 new
ordinary shares at 60 pence per share
-- Debt free and strong cash position of GBP13.9m at year end
(2009: GBP10.0m)
-- No final dividend proposed (2009: GBPnil)
Operational
-- Trading revenue** increased 25% to GBP34.4m (2009:
GBP27.5m)
-- Steady UK spread betting performance
- Net revenue per active UK Financial Spread betting (FSB)
client increased 38% to GBP1,279 (2009: GBP929) for the year
- FSB average trades per day increased 22% to 29,256 (2009:
23,975)
- New client acquisition down 34% to 12,036 (2009: 18,235)
- Retail FSB client funds up 16% to GBP24.9m (2009:
GBP21.4m)
-- Robust Forex performance
- Trade volumes increased to $429bn (2009: $427bn)
- 7% increase in revenue to GBP6.0 million (2009: GBP5.6
million)
- Foreign exchange client funds down 14% to GBP16.5m (2009:
GBP19.1m)
-- Successful launch of two new CFD platforms; Capital CFD's and
LCG Metatrader
-- Actively participating in a number of new White Label
opportunities
Year ended Year ended
31 December 2010 31 December 2009 Change
GBP000 GBP000 %
Revenue 34,491 27,645 25%
Adjusted EBITDA*** 8,491 8,107 5%
(Loss)/profit before tax (56) 5,848 (101%)
Adjusted profit before tax* 6,506 6,005 8%
Basic (loss)/earnings per
share (0.09)p 9.95p (101%)
Diluted (loss)/earnings per
share (0.09)p 9.53p (101%)
Dividend per share 1 p 2.5p (60%)
*Adjusted profit before tax represents profit before tax
excluding share based payment expense, exceptional software
impairment charge and provision for FOS claims. Applied
consistently hereafter.
**Trading revenue represents total revenue excluding interest
income on client funds. Applied consistently hereafter.
***Adjusted EBITDA represents profit before interest, tax,
depreciation, amortisation and share based payment expense and
excludes the exceptional software impairment charge and provision
for FOS claims. Applied consistently hereafter
Commenting on the results, Simon Denham, Chief Executive, said:
"It has been a challenging year on a number of fronts but we remain
positive about the future of the business. We have invested
significantly in our products, platforms and people and believe the
company is now well positioned to take advantage of these changes.
Whilst there is little visibility in forecasting earnings I am
pleased to report that trading in 2011 has started well."
For further information, please contact:
www.londoncapitalgroup.com
London Capital Group Holdings plc
Simon Denham, Chief Executive Officer
020 7456 7000
Cenkos Securities plc
Nicholas Wells
020 7397 8900
Smithfield Consultants
John Kiely
020 7360 4900
Notes to Editors:
London Capital Group Holdings plc (hereafter "LCGH plc" or "LCG"
or "London Capital Group" or "the Group") is a rapidly growing
financial services company offering online trading services.
London Capital Group Limited (LCG Ltd), a wholly owned trading
subsidiary of LCGH plc, is authorised and regulated by the
Financial Services Authority. Its core activity is the provision of
spread betting products on the financial markets to retail clients
under the trading name Capital Spreads. Its other divisions provide
online foreign exchange trading services to institutional and
professional clients and also institutional derivatives broking.
LCG Ltd is one of the leading providers of white label financial
spread trading platforms and its white label partners including
TradeFair, PartyGaming Plc, Saxo Bank, and TD Waterhouse.
LCG Ltd has a European passport and is a member of the London
Stock Exchange. London Capital Group Limited also has access to
international markets through its global clearing
relationships.
Prospreads.com is authorised and regulated by the Financial
Services Commission in Gibraltar and provides spread betting
products on financial markets to professional clients.
Capital CFDs (Australia) is a trading name of London Capital
Group Pty Limited, a wholly owned subsidiary of LCGH plc, which is
regulated by the Australian Securities and Investments
Commission.
LCGH plc is listed on the London Stock Exchange's AIM market.
LCG is included in the General Financial sector (8770) and
Speciality Finance sub sector (8775) and has a RIC code of
LCG.L.
CHAIRMAN'S STATEMENT
For the year ended 31 December 2010
The results for 2010 that we have now produced show some healthy
signs. The Group has been investing substantially for the future,
both in product and geographical expansion. In addition, we have
added significant resources to ensure the highest standards of
customer service, compliance and regulatory satisfaction.
The Group's revenue has increased by 25 %, but operating profits
have been held back by this necessary investment. However, the
results are overshadowed by two principal events; first, the
Financial Ombudsman Service ("FOS") issued a revised assessment in
relation to customer complaints originating from transactions first
initiated in 2009. As explained in our detailed statements, LCG
intends to challenge robustly the FOS assessment.
Additionally, we experienced a default by a professional client
who has so far failed to pay a loss deriving from a closed
position.
The former event has necessitated the making of an extraordinary
provision of GBP3.2 million, which in turn has made it
inappropriate to pay a final dividend. In consequence your Board
has made arrangements to raise approximately GBP8m before expenses
to strengthen the Group's financial position and regulatory capital
adequacy and to provide additional resources to support the Group's
growth through additional White Label partnerships and
international expansion. We are grateful for the support shown by
our investors through their participation in the placing.
These events marred what would otherwise have been a
satisfactory year, given markets which were not particularly suited
to our business model. Your Board regrets these blemishes and is
doubly determined to ensure that recurrences are avoided.
During the year there have been substantial changes to the
composition of the Board. I welcome Malcolm McCaig as a new
independent Non Executive Director. Thanks should also be extended
to Frank Chapman who retired from the position of CEO, a position
he had held from the time of the Group's flotation in 2005. We are
pleased that Frank has agreed to remain on the Board as a Non
Executive, given his profound understanding of the Group.
I also welcome Siobhan Moynihan as our new Group Finance
Director who has strengthened our capabilities in this area.
The current year has seen a continuation of reasonable trading
performance for the first two months and I am optimistic for the
future of the business.
Richard Davey
Chairman
22 March 2011
CHIEF EXECUTIVE'S STATEMENT
For the year ended 31 December 2010
Summary
This is my first statement to shareholders since I took the
position of CEO. Looking back over the past 7 years at LCG, I am
enormously proud of the business that we have built with the help
of our talented and ambitious staff. LCG has grown seven-fold in
terms of revenue over the past 5 years and four-fold in terms of
headcount. We are no longer a small, entrepreneurial business. We
are now independently recognised as the number two provider of
financial spread betting services* in the UK and we believe this is
an astounding achievement in such a short amount of time in what is
a highly competitive arena.
We have evolved organically over the years, but in 2010 we
started to build a more formal and structured organisation enabling
a more considered and strategic approach to growth. The Group spent
time formalising the operating subsidiary Boards which work
collaboratively and consist of operational department heads. In
2011 we plan to appoint a Chief Information Officer and expect to
appoint additional resources in the areas of risk, marketing and
sales. We are investing in and laying the foundations for
growth.
As mentioned in the Chairman's statement, Frank Chapman retired
and joined the Board as a non-executive Director. Due to other
commitments, non-executive Director, Jack Inglis offered his
resignation to the Board in September 2010. We would like to thank
Jack for his contribution to the business over the past 3 years. In
September 2010, Malcolm McCaig joined the Board as a non-executive
Director and brings with him a wealth of experience in compliance
and risk management and has made an immediate impact. Siobhan
Moynihan was promoted to Group Finance Director in April 2010 and
has established herself as an invaluable asset to the Group.
The current economic conditions present many challenges
including a low interest rate environment which continues to impact
our revenue and profit. In addition to this, our rapidly developing
businesses have encountered a number of difficulties throughout the
course of the year; despite this, LCG has again returned an
operating profit for the year.
Our growth story has not been without its difficulties - any
business that develops at such an exponential rate will always
experience growing pains. As a result, 2010 has been mixed for LCG.
We spent much of the year investing for the future and will
continue to do so to ensure that we strengthen our competitive
stance. We are delighted with our new CFD products which will focus
on international customers. The launch of our first mobile
application at the end of the year has been welcomed by our
customers and we will launch additional applications in 2011.
We achieved full regulatory status in Australia at a time when
CFD trading in that jurisdiction is under severe scrutiny. This is
our first international satellite office offering CFDs to retail
customers.
As discussed in the Chairman's statement, profit for the full
year has been hindered by a number of legacy issues which have
impacted the Group profits. I am however pleased to report that we
made an adjusted profit before tax of GBP6.5m. This includes a
recent levy from the FSCS of GBP341,000; excluding this the
adjusted profit before tax would have been GBP6.8m
* Investment Trends UK FSB/CFD Report 2010
Anyone reading the business pages of the broadsheets will
recognise that following the global financial crisis the financial
services industry has been subject to increased levels of
regulatory oversight causing the Group to divert more management
time and financial resource towards compliance and governance. The
new client money rules enforced from January 2011 do not adversely
affect LCG as the Group already segregates all client funds as a
matter of course. However, the new rules do appear to create a
barrier to new entrants and could also restrict the ability of some
of our existing competitors from growing apace.
Financial Spread Betting (FSB) and Contracts for Difference
(CFDs)
LCG's Spread Betting unit continues to generate the bulk of the
revenue for the Group and the company has continued to consolidate
its position in the market place. The recent Investment Trends
survey places LCG as the second largest financial spread betting
provider by account numbers with Capital Spreads (LCG's own brand
name) in third place overall*. Our platform and overall offering
continues to score well on client satisfaction and value for
money.
We believe that the robustness of our business model has been
proven in the most difficult of environments. Average trades per
day rose by 22% but client acquisition has been challenging for our
own brands and our White Label partners with numbers falling some
34% over the course of the year due in part to the late delivery of
technology upgrades. Despite this, we achieved a record month in
December for client acquisition, which is normally a difficult
month to attract new customers and active customer numbers for the
year held up strongly showing increased client retention and
industry low churn rates. Low market activity in the second half
saw the FSB business average revenue per user decrease 40% from H1
to H2, but for the year as a whole we have seen an increase of
38%.
Whilst this is disappointing in the short term, the level of
funds on account gives robust indications for future returns.
Capital Spreads (LCG's own brand Spread Betting platform) has
retained 42% of overall business with the remaining 17 White Label
partners delivering the remainder. Capital Spreads' client
retention numbers are an encouraging sign as gross profit from own
brand clients is significantly greater than White Label partner
income.
As announced on 7 March 2011 one of our long established and
proactive partners, Paddy Power, has decided to remove its brand
from the financial services sector. The current Paddy Power client
base will be invited to migrated to the Capital Spreads brand
name.
Our Gibraltar based Direct Market Access ("DMA") spread betting
unit, ProSpreads, has built a sustainable client base and
operationally positive returns have been recorded through the last
quarter. The regulatory environment in Gibraltar has also shifted
in recent months giving the unit more flexibility in its offering
by allowing de-segregation of margin monies on Professional Client
Account funds enabling the unit to gain volume whilst utilising
less of the Group's capital. The unit has attracted its first White
Label partners in the last quarter of 2010 and these are already
adding considerably to the volume/revenue of the unit.
* Investment Trends UK FSB/CFD Report 2010
International Expansion
As mentioned above the Group has made its first steps into
international expansion via CFDs. In October, we achieved
regulatory status with ASIC in Australia which will, in time,
provide us with further opportunities in Asia and the Far East. We
see enormous opportunity for the Group internationally but we have
adopted a considered approach to ensure that we have the right
people and strategic goals to ensure a profitable result.
Therefore, we do not expect material results from these ventures
until 2012.
Institutional Foreign Exchange
Our institutional FX division continues to grow apace under the
expert direction of Gavin Foster who launched the business in
November 2005. The unit is attracting clients at an impressive
rate; numbers have grown to 302 active accounts during 2010 an
increase of 43% on the previous year. In addition to this, we now
have up to 15 institutional market makers streaming their FX prices
in upwards of 70 currency pairs thereby establishing LCG FX as one
of the most competitive and liquid FX platforms in the market. This
unit is still relatively small in terms of head count and
overheads, so we watch with interest as its product continues to
evolve.
Technology
Technology is the backbone of our business and the Group must
continue to invest heavily to maintain its position in the market.
In Q2 2010, LCG closed one of its trading platforms (see note 6)
and consolidated its spread betting and CFD offerings onto one
platform. The closure incurred costs of GBP0.7m and the company
also wrote off GBP3.2m of capitalised expenditure. This decision
was made as result of the revised strategic direction approved by
the newly restructured Board.
We are committed to continued investment in IT development and
strengthening of our IT resources throughout 2011.
Risk Management
The inherent risks in our business are constantly evolving. In
Q2 the company unfortunately incurred its first serious bad debt as
a result of an exceptional (and non-recurring) extension of a White
Label customers. The Group is now in the process of claiming the
debt via legal proceedings. Spread betting debts are legally
binding and the Group expects full recovery of the outstanding sum
of GBP1.4m.
The company has several layers of risk oversight encompassing
all areas of exposure. All client activity is constantly screened
to attempt to identify any potential fraud, money laundering,
insider trading or market abuse incidents. The Group also has a
risk management structure in place which consists of risk
committees at both the operational and Board level.
Employees
We believe that we have a group of skilled and loyal staff who
have worked hard with us to build a highly successful and
profitable organisation. I am enormously proud of the team that has
developed over the years and I would personally like to thank them
all for their continued support and contribution in 2010.
In 2011, as part of our plans to lay the foundations for growth,
we will appoint a CIO and other staff with specialist skills to
enable us to grow in a more formal and strategic environment.
Summary and Outlook
As outlined above, the changes to the Board in early 2010 were
the catalyst for the change of strategic direction for the Group
and our long term investment for growth strategy. Going forward we
are confident that our reinforced Board will result in a more
considered approach and a greater focus on overall strategic
decision making. As a Group we are positive about 2011 and feel
that we will produce a strong set of results for our investors. The
unexpected liability resulting from the FOS assessment announced on
Monday 14 February has been a considerable disappointment to the
Board and we intend to challenge the assessment. It is with regret
that due to our regulatory capital requirements this contingent
liability has now made it impossible for us to pay a final
dividend.
The Company remains debt free with considerable net cash
resources. We believe that the Group remains in a strong position
with a solid product suite to offer to the retail and institutional
derivative market place. We are optimistic about the future and are
actively engaged in a number of new White Label opportunities.
In May 2011 we will move to a new office space in Devonshire
Square, a stone's throw from our current location. We have managed
to secure an excellent deal for a higher specification floor space
with considerable room for expansion, at minimal extra cost. The
new space will be an open plan trading floor which will benefit the
business enormously and I believe that we will all look forward to
this move as a part of a new and exciting chapter in the history of
the Group.
Simon Denham
Chief Executive Officer
22 March 2011
GROUP FINANCIAL REVIEW
For the year ended 31 December 2010
Trading revenue and operating profit
UK financial spread betting revenue increased 31% to GBP25.8m in
2010, and represented 75% of the Group's total revenue. The first
half of 2010 saw an improvement in market conditions driven by
volatility in Q2. Volatility boosted client activity and resulted
in an increase in average revenue per user of 75% to GBP1,051 in
H1. The second half of 2010 saw the return of more range bound
markets similar to those experienced in 2009 which resulted in a
fall in average revenue per user to GBP661. Gross profit for the
division increased to GBP18.1m (2009: GBP13.9m) as a result of the
increase in revenue, proportionately white label costs remained
consistent at 27% of net revenue at GBP7.0m (2009: GBP5.4m). Whilst
client acquisition was lower in 2010, retail funds on account
remained strong at GBP24.9m.
ProSpreads, our DMA financial spread betting business in
Gibraltar also saw improvements in revenue which increased 13% to
GBP1.5m. The business returned a loss of GBP0.5m for the year
(2009: GBP0.3m) however recent trading and KPIs have shown
significant improvement and we are optimistic for profitable return
in 2011.
2010 saw the launch of our two CFD businesses. As expected,
these incurred net losses of GBP0.9m for the year due to the start
up costs associated with the setting up of these divisions.
The institutional FX division has continued to show strong
growth increasing revenue 7% year on year to GBP6.0m and an
increase in volume from $427bn to $429bn.
Our institutional brokerage business saw an increase in revenue
of 33% to GBP1.1m (2009: GBP0.8m), and generated a contribution of
GBP0.3m (2009:GBP0.2m).
Administrative expenses
Administrative expenses excluding the exceptional items noted
below increased 27% to GBP16.9m (2009: 13.3m). Included within
administrative expenses are non-recurring costs of GBP0.70m to
close down our LCG Digital unit and costs to launch our CFD
platforms of GBP0.8m. They also include a provision for GBP0.34m
for an FSCS levy received on 25 January 2011 which had not been
anticipated. Excluding the effect of these items, administrative
expenses have increased by GBP1.8m on 2009 largely as a result of
increased staff costs including enhanced bonus awards.
Adjusted profit before taxation
Adjusted profit before taxation which excludes the exceptional
items noted below and share based payments, increased 8% to GBP6.5m
(2009: GBP6.0m). Excluding the recent FSCS levy, CFD start up costs
and closure costs of LCG Digital, would give an underlying adjusted
profit before tax of GBP8.3m demonstrating the strong trading
profitability of the Group.
Exceptional items
In February 2010 the Group completed a review of its IT Strategy
and concluded that it would change the focus of its IT asset use in
the future. As a result of this review an impairment of GBP3.2m was
incurred in relation to the Group's software assets. This charge
did not impact either the cash or regulatory resources of the
Group.
During H1'09 the Group made commission rebating errors whilst
preparing the customer statements of a managed spot FX fund. The
correction of these errors led to a series of complaints to the
FOS. The initial assessment from the FOS received in October 2010
led the Board to conclude that the impact of the claims to the FOS
would not be material to the business. However a revised assessment
received on 11 February 2011 has led to the Group recognising a
provision of GBP3.2m (GBP2.3m net of tax) at 31 December 2010 and
disclosing a further contingent liability of GBP3.2m (GBP2.3m net
of tax).
We have determined the valuation of the provision based on an
analysis of the losses incurred in the fund attributable to clients
under the protection of the FOS, the latest FOS assessment and the
FOS's rules on compensation. Whilst the Board are confident that
the provision represents a best estimate of the implications of the
latest FOS determination, there remains significant uncertainty as
to the eventual financial outcome. The Group is intending to
challenge the adjudicator's assessment and, although the Directors
are confident that there are grounds for challenge, the outcome of
this process remains uncertain.
As noted below, recognition of this liability has had a material
impact on the regulatory capital position of the Group.
Financial position, capital adequacy and going concern
Following the recognition of a GBP3.2m provision in relation to
the FOS assessment the Group had net assets of GBP24.2m (2009:
GBP24.4m) including intangible assets of GBP12.7m (2009: GBP15.8m)
at the year-end. Cash and cash equivalents were GBP61.6m (2009:
GBP63.9m) of which client deposits amounted to GBP47.6m (GBP53.8m)
and Group net cash resources amounted to GBP13.9m (2009:
GBP10.0m).
The Group's capital requirements fluctuate significantly
depending on the residual market risk it retains from unhedged
client positions. The Group has limits in place set by the Risk
Committee which determine the level of market risk on an aggregate
and individual product basis it can take. A key determinant of the
Group's profitability is the amount of risk it can take with
respect to unhedged client positions. This is dependent on the
capital resources at LCG's disposal.
If the Group had been utilising the full limit, as set by the
Risk Committee it would have had a regulatory deficit at 31
December 2010.
The Board has therefore decided to raise approximately GBP8.0m
before expenses through the issue by way of a placing of 13,333,333
new ordinary shares at 60 pence per share to ensure the continued
operating effectiveness and profitability of the Group. The placing
is conditional on shareholder approval to be obtained at a General
Meeting to be held on 7 April 2011. In light of this the Board has
decided not to pay a final dividend (2009: nil).
The Directors have reviewed the Group's forecasts and
projections. They have a reasonable expectation that the placing of
13,333,333 ordinary shares will be successful and, accordingly,
that the Group will have sufficient capital available for it to
continue in operational existence for the foreseeable future. The
financial statements of the Group have, therefore, been prepared on
a going concern basis.
Financial outlook
Whilst earnings are difficult to predict with any certainty,
2011 has started well for our UK spread betting and institutional
FX businesses. Our ProSpreads business is trading profitably so far
and we are working hard to develop our CFD offering
internationally.
Siobhan Moynihan
Group Finance Director
22 March 2011
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2010
2010 2009
Notes GBP'000 GBP'000
Revenue 2 34,491 27,645
Cost of sales (11,368) (8,671)
--------- -------------------
Gross profit 23,123 18,974
Administrative expenses (excluding
depreciation, amortisation and
share-based payment charge) (14,717) (10,867)
Depreciation and amortisation (1,985) (2,251)
Impairment charge 6 (3,194) -
Charge for provision against
Financial Ombudsman Service ("FOS")
claims 9 (3,200) -
Share-based payment charge (168) (157)
-------------------------------------- ------ --------- -------------------
Total administrative expenses (23,264) (13,275)
--------- -------------------
Operating (loss)/profit (141) 5,699
Investment revenue 85 149
(Loss)/profit before taxation (56) 5,848
Tax credit/(expense) 20 (1,981)
--------- -------------------
(Loss)/profit for the year (36) 3,867
(Loss)/profit for the year
attributable to owners of the
parent (36) 3,867
--------- -------------------
Earnings per share (pence)
- Basic 3 (0.09) 9.95
- Diluted 3 (0.09) 9.53
- Adjusted basic 3 12.02 10.24
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2010
2010 2009
GBP'000 GBP'000
(Loss)/profit before taxation (36) 3,867
------ --------
Exchange differences in translation of
foreign operations 14 -
Total comprehensive (loss)/income for
the year (22) 3,867
Total comprehensive (loss)/income for
the year attributable to owners of the
parent (22) 3,867
------ --------
CONSOLIDATED BALANCE SHEET
As at 31 December 2010
2010 2009
Notes GBP'000 GBP'000
NON-CURRENT ASSETS
Intangible assets 5 12,745 15,753
Property, plant and equipment 7 597 911
Available-for-sale investments 100 -
Deferred tax asset 168 3
-------- --------
13,610 16,667
CURRENT ASSETS
Trade and other receivables 3,233 1,325
Cash and cash equivalents 8 61,583 63,871
Current tax receivable 473 -
-------- --------
65,289 65,196
TOTAL ASSETS 78,899 81,863
CURRENT LIABILITIES
Trade and other payables 51,540 56,723
Current tax liabilities - 773
Provisions 9 3,200 -
-------- --------
54,740 57,496
TOTAL LIABILITIES 54,740 57,496
NET ASSETS 24,159 24,367
EQUITY
Share capital 3,985 3,899
Share premium account 13,390 12,153
Own shares held (1,287) -
Retained profits 13,415 13,659
Other reserves (5,344) (5,344)
-------- --------
TOTAL EQUITY 24,159 24,367
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2010
Share Own
Share premium shares Retained Other Total
capital account held profits reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2009 3,864 11,855 - 14,138 (5,344) 24,513
-------- -------- -------- --------- --------- --------
Total comprehensive
income for the
period - - - 3,867 - 3,867
Dividends - - - (4,267) - (4,267)
Share-based payment
transactions
including deferred
taxation - - - (79) - (79)
Issue of share
capital 35 298 - - - 333
At 31 December 2009 3,899 12,153 - 13,659 (5,344) 24,367
-------- -------- -------- --------- --------- --------
Total comprehensive
loss for the period - - - (22) - (22)
Dividends - - - (390) - (390)
Share-based payment
transactions
including deferred
taxation - - - 168 - 168
Share Ownership Plan 82 1,205 (1,287) - - -
Exercise/forfeiture
of share options in
the year 4 32 - - - 36
At 31 December 2010 3,985 13,390 (1,287) 13,415 (5,344) 24,159
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2010
2010 2009
Notes GBP'000 GBP'000
(Loss)/profit for the year (36) 3,867
Adjustments for:
Depreciation of property, plant and equipment 542 418
Amortisation of intangible assets 1,443 1,833
Equity settled share based payment 168 157
Software impairment 3,194 -
Charge for provision against Financial Ombudsman
Service ("FOS") claims 3,200 -
Investment income (85) (149)
Current tax charge 145 1,707
Movement in deferred tax asset (165) 512
Operating cash flows before movements in working
capital 8,406 8,345
(Increase)/decrease in receivables (1,908) 1,969
(Decrease)/increase in payables (5,183) 5,788
-------- --------
Cash generated by operating activities 1,315 16,102
Taxation paid (1,388) (2,430)
-------- --------
Net cash (used in)/from operations (73) 13,672
Investing activities
Investment income 85 149
Acquisitions of property, plant and equipment (228) (393)
Acquisitions of intangible assets (1,608) (2,564)
Acquisitions of investments (100) (353)
Net cash used in investing activities (1,851) (3,161)
Financing activities
Dividends paid (390) (4,267)
Cash from issue of share capital 26 333
-------- --------
Net cash used in financing activities (364) (3,934)
Net (decrease)/increase in cash and cash
equivalents (2,288) 6,577
Cash and cash equivalents at beginning of year 63,871 57,294
-------- --------
Cash and cash equivalents at end of year 8 61,583 63,871
Own money 13,948 10,025
Client monies held 47,635 53,846
-------- --------
61,583 63,871
NOTES TO THE FINANCIAL STATEMENTS
As at 31 December 2010
1. Introduction
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2010
or 2009, but is derived from those accounts. Statutory accounts for
2009 have been delivered to the Registrar of Companies and those
for 2010 will be delivered following the company's annual general
meeting. The auditors have reported on those accounts. Their
reports were unqualified. However their report for the year ended
31 December 2010 includes two emphasis of matter paragraphs. The
first emphasis of matter paragraph is in respect of the uncertainty
surrounding the eventual outcome of complaints to the FOS. The
second emphasis of matter paragraph is in respect of the ability of
the group to continue as a going concern should the proposed issue
of new ordinary shares not to be successful. Their opinion is not
qualified in respect of these matters.
The information included within the preliminary announcement has
been based on the consolidated financial statements, which are
prepared in accordance with the accounting policies adopted under
International Financial Reporting Standards ("IFRSs"), asissued by
the International Accounting Standards Board, and as adopted by the
European Union. The accounting policies followed are the same as
those detailed within the 2009 Report and Accounts which are
available on the Group's website www.londoncapitalgroup.com.
While the financial information included in this preliminary
announcement has been prepared in accordance with IFRSs, this
announcement does not itself contain sufficient information to
comply with IFRSs.
2. Revenue and segmental information For the year ended 12
Months to 31 December 2010
Financial
Institutional spread
Financial spread CFDs foreign Institutional CFDs betting,
betting, UK UK exchange brokerage Australia Gibraltar Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP000 GBP'000 GBP'000
Revenue Segmental
revenue 25,827 (67) 6,045 1,082 (2) 1,520 34,405
---------- -------- -------------- -------------- ------------ ---------- ---------
Foreign exchange
gain on trading 86
Total group
revenue 34,491
Segmental
operating
profit/(loss) 9,065 (532) 2,145 275 (323) (483) 10,147
---------- -------- -------------- -------------- ------------ ---------- ---------
Unallocated
corporate
expenses (10,288)
---------
Operating loss (141)
Finance income 85
Loss before
taxation (56)
Taxation credit 20
---------
Loss for the year (36)
=========
Segmental assets 29,254 316 16,743 281 445 8,432 55,471
---------- -------- -------------- -------------- ------------ ---------- ---------
Unallocated
corporate
assets 23,428
---------
Consolidated
total assets 78,899
=========
Segmental
liabilities 24,917 316 16,481 48 21 6,507 48,290
---------- -------- -------------- -------------- ------------ ---------- ---------
Unallocated
corporate
liabilities 6.450
---------
Consolidated
total
liabilities 54,740
=========
2. Business and Geographical Segments (continued)
For the year ended Months to 31 December 2009
Financial Financial
spread Institutional spread
betting, foreign Institutional betting,
UK exchange brokerage Gibraltar Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue
Segmental
revenue 19,711 5,582 815 1,346 27,454
---------- -------------- -------------- ---------- --------
Foreign
exchange gain
on trading 191
Total group
revenue 27,645
Segmental
operating
profit/(loss) 11,062 2,523 171 (257) 13,499
---------- -------------- -------------- ---------- --------
Unallocated
corporate
expenses (7,800)
--------
Operating
profit 5,699
Finance income 149
Profit before
taxation 5,848
Taxation
expense (1,981)
--------
Profit for the
year 3,867
========
Segmental
assets 39,616 19,340 403 7,529 66,888
---------- -------------- -------------- ---------- --------
Unallocated
corporate
assets 14,975
--------
Consolidated
total assets 81,863
========
Segmental
liabilities 30,178 19,130 - 5,084 54,392
---------- -------------- -------------- ---------- --------
Unallocated
corporate
liabilities 3,104
--------
Consolidated
total
liabilities 57,496
========
3. Earnings per ordinary share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted number of
ordinary shares in issue during the year, after deducting any own
shares (JSOP). Fully diluted earnings per share is calculated by
dividing the earnings attributable to ordinary shareholders by the
total of the weighted average number of shares in issue during the
year and the dilutive potential ordinary shares relating to share
options. Dilutive potential ordinary shares were 1,615,398 (2009:
1,694,339).
2010 2009
Basic EPS
(Loss)/profit after tax (GBP'000) (36) 3,867
Weighted average no of shares 38,994,692 38,865,569
Weighted average basic EPS (0.09)p 9.95p
Diluted EPS
Profit after tax (GBP'000) (36) 3,867
Weighted average no of shares 40,610,090 40,559,908
Weighted average fully diluted EPS (0.09)p 9.53p
Adjusted basic EPS
Adjusted profit after tax (see note 4) (GBP'000) 4,689 3,980
Weighted average no of shares 38,994,692 38,865,569
Weighted average basic EPS 12.02p 10.24p
4. Adjusted profit before tax, adjusted operating profit and
adjusted EBITDA
2010 2009
GBP'000 GBP'000
Reported (loss)/profit before tax (56) 5,848
Add back - software impairment charge 3,194 -
Add back - charge for provision against FOS
claims 3,200 -
Add back - share-based payment charge 168 157
---------- ----------
Adjusted profit before tax 6,506 6,005
Tax as reported 20 (1,981)
Tax effect on add backs (1,837) (44)
Adjusted profit after tax 4,689 3,980
========== ==========
5. Intangible fixed assets
Customer Trade Software Goodwill Total
relationship name
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2009 152 136 5,353 9,998 15,639
Additions - - 3,090 - 3,090
Acquisitions through business
combinations - - 324 - 324
Adjustment to deferred consideration - - - (300) (300)
At 1 January 2010 152 136 8,767 9,698 18,753
Additions - - 1,608 - 1,608
Impairment (note 6) - - (3,970) - (3,970)
At 31 December 2010 152 136 6,405 9,698 16,391
AMORTISATION
At 1 January 2009 29 16 1,122 -1,167
Charge for the year 51 27 1,755 -1,833
--- ----- -----
At 1 January 2010 80 43 2,877 -3,000
Charge for the year 51 27 1,365 -1,443
Eliminated on impairment
(note 6) - - (797) -(797)
At 31 December 2010 131 70 3,445 -3,646
NET BOOK VALUE
At 31 December 2010 21 66 2,960 9,698 12,745
At 31 December 2009 72 93 5,890 9,698 15,753
6. Impairment charge
In February 2010 the Group completed its IT strategy review, the
conclusion of which was that the Group would change the focus of
its IT asset use. Consequently, the Board determined that the value
of its Chaucer Digital software asset in relation to financial
spread betting was not supportable and therefore recognised an
impairment charge of GBP3.2m.
7. Property, plant and equipment
Leasehold Plant and Total
property machinery
GBP'000 GBP'000 GBP'000
COST
At 1 January 2009 510 957 1,467
Acquisitions through business
combinations - 29 29
Additions 37 356 393
At 1 January 2010 547 1,342 1,889
Additions 25 203 228
Disposals - (66) (66)
At 31 December 2010 572 1,479 2,051
DEPRECIATION
At 1 January 2009 143 417 560
Charge for the year 130 288 418
At 1 January 2010 273 705 978
Charge for the year 199 343 542
Eliminated on disposals - (66) (66)
At 31 December 2010 472 982 1,454
NET BOOK VALUE
At 31 December 2010 100 497 597
At 31 December 2009 274 637 911
8. Cash and cash equivalents
2010 2009
GBP'000 GBP'000
Cash at bank and in hand 5,651 1,992
Short-term deposits 8,297 8,033
Client money held 47,635 53,846
-------- --------
61,583 63,871
-------- --------
9. Provisions and contingent liabilities
During H1'09 the Group made commission rebating errors whilst
preparing the customer statements of a managed spot FX fund. The
correction of these errors led to a series of complaints to the
FOS. The Board reviewed the initial assessment from the FOS
received on 18 October 2010 and concluded that the impact of the
claims to the FOS would not be material to the business. A revised
assessment was received on 11 February 2011. Whilst LCG believes
its actions did not directly cause any loss to the client, the
revised assessment determined that LCG should repay the total
losses incurred by the client of GBP0.1m plus interest. LCG intends
to challenge the revised assessment.
The Board has assessed that a gross provision of GBP3.2m should
be booked and a contingent liability of a further GBP3.2m
disclosed. The Directors have made this assessment based on an
analysis of the losses incurred in the fund attributable to clients
under the protection of the FOS, the latest FOS assessment and the
FOS's rules on compensation. Whilst the Directors are confident
that the provision represents a best estimate of the implications
of the latest FOS determination, there remains significant
uncertainty as to the eventual financial outcome. The Group is
intending to challenge the adjudicator's assessment and, although
the Directors are confident that there are grounds for challenge,
the outcome of this process is uncertain. As a result of these
variables, the timing of any such payment is also uncertain.
10. Post balance sheet events
As previously discussed in Note 9, the Group received a revised
assessment in relation to complaints pertaining to a managed spot
FX fund from the Financial Ombudsman Service on 11 February 2011.
The effect of this revised assessment resulted in the Group having
to reassess its liability in relation to the complaints. The effect
of this reassessment has been disclosed in Note 9.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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