TIDMLCG
RNS Number : 8602X
London Capital Group Holdings PLC
22 February 2012
LONDON CAPITAL GROUP HOLDINGS PLC
("LCG", the "Company" or the "Group")
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
Financial Highlights
-- Revenue increased 13% to GBP39.0m (2010: GBP34.5m)
-- Adjusted profit before tax* increased 9% to GBP7.1m (2010:
GBP6.5m)
-- Volatility in H2 led to record trade volumes and increased
revenue
-- Losses incurred in relation to our Australian CFD business
amounted to GBP0.4m (2010: GBP0.3m)
-- Included within adjusted profit before tax* are exceptional
legal costs incurred in relation to the professional client debt
and FOS claims of GBP0.7m (2010: GBP0.2m), and non-recurring costs
in relation to the office move of GBP0.2m (2010: GBPnil). Excluding
the effect of these items adjusted profit before tax* would have
been GBP8.0m (2010: GBP6.7m)
-- Statutory profit before tax of GBP6.1m (2010: loss of
GBP56k)
-- Net cash and short term receivables of GBP25.1m at year end
(2010: GBP13.9m)
-- Final dividend of 2.6p per share (2010: GBPnil), bringing
total dividend for the year to 3.9p (2010: 1p)
Operational Highlights
-- Strong UK financial spread betting ("FSB") performance
- Average revenue per user ("ARPU") increased 7% to GBP1,370 (2010: GBP1,279) for the year
- FSB average trades per day increased 11% to 33,042 (2010: 29,832)
- New client acquisition totalled 10,398 (2010: 12,036)
- Robust regulatory capital position following placing in April 2011
- Successful launch of several new white label clients including TD Direct Investing
-- Good institutional foreign exchange performance
- Trade volumes increased to $544bn (2010: $429bn)
- 33% increase in revenue to GBP8.0m (2010: GBP6.0m)
- Divisional net profit up 14% to GBP2.4m (2010: GBP2.1m)
Commenting on the results, Simon Denham, Chief Executive, said:
"Despite a difficult start to 2011 the Group has delivered a strong
set of results and made positive inroads operationally and
financially. We are particularly delighted to have improved our
scalability, competitive position and to have developed our
international operations further. Whilst the uncertain economic
outlook both in the Eurozone and UK presents a challenging backdrop
we are confident in the robustness of our business model and our
future growth plans."
Year ended Year ended
31 December 2011 31 December 2010
GBP'000 GBP'000
Revenue 38,963 34,491
Adjusted EBITDA** 8,884 8,406
Adjusted profit before tax* 7,063 6,506
Statutory profit/(loss) before tax 6,141 (56)
Basic earnings/(loss) per share 8.64p (0.09)p
Diluted earnings/(loss) per share 8.64p (0.09)p
Dividend per share 3.9 p 1p
*Adjusted profit before tax represents profit before tax
excluding share based payment expense, exceptional software
impairment charge, provision for FOS claims, charge for onerous
lease provision and write off of professional client debt. Applied
consistently hereafter.
**Adjusted EBITDA represents profit before interest, tax,
depreciation, amortisation and share based payment expense and
excludes the exceptional software impairment charge, provision for
FOS claims, charge for onerous lease provision and write off of
professional client debt. Applied consistently hereafter.
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/Camilla Hume
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 include TD
Waterhouse, TradeFair, PartyGaming Plc, and Saxo Bank.
Prospreads Limited, a wholly owned trading subsidiary of LCGH
plc, 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 trading subsidiary of LCGH plc,
and is regulated by the Australian Securities and Investments
Commission.
LCG Ltd has a European passport and is a member of the London
Stock Exchange. LCG Ltd also has access to international markets
through its global clearing relationships.
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 2011
I am pleased to report that despite a difficult start, 2011 has
been a record year for the Group in terms of trading activity and
revenues achieved. Increased volatility in the second half of the
year has resulted in net revenue increasing by 13% to GBP39.0m.
This led to a 9% increase in adjusted profit before tax to GBP7.1m.
Given the difficult economic conditions, and particularly in a low
interest rate environment, the ability of the business to continue
to grow profitably demonstrates the robustness of our business
model. Based on the performance of the business, the Board believes
it is appropriate that the Group pays a final ordinary dividend of
2.6p per share. This will bring the total for the year to 3.9p, a
fourfold increase on last year, representing 29% of adjusted profit
before tax.
During the year the Group announced that it had settled the
professional client debt which arose in 2010. This has resulted in
an exceptional expense of GBP0.5m being recognised. We also
incurred GBP0.3m of legal costs finalising this matter.
Whilst we continue to work with our advisors to challenge the
decision by the Financial Ombudsman Service ("FOS") announced at
the beginning of last year, there has been no material change to
the assessment or where we are in the process and as such we have
not made any further disclosure or altered the level of provision
in the financial statements. Following the placing in April 2011,
for which we are grateful to our shareholders for their support,
the Group has sufficient capital should a liability crystallise. We
disagree with the FOS's assessment and will continue to challenge
robustly their assessment of the Group's liability. Legal costs
incurred in 2011 in relation to the FOS claims amounted to
GBP0.4m.
The Group has continued to invest for the future both in our
product offering and in developing our overseas operations and
partnership opportunities. Our new CFD businesses launched in 2010
which are key to our international growth programme are already
showing signs of profitability with only the Australian operation
incurring losses of GBP0.4m.
I am very pleased to welcome Bill Newton to the Board as Chief
Information Officer. Bill was previously CIO at ODL Securities and
brings considerable experience of financial trading systems to the
Group. He has made a significant contribution to the Company since
joining in April.
Whilst we recognise that economic conditions are still
uncertain, the ongoing projects and partnerships planned for 2012
mean we are confident that we will continue to grow and deliver
profitable results. Finally the Board and I would like to express
our gratitude to all of our employees, whose outstanding efforts
have enabled us to achieve these results.
Richard Davey
Chairman
22 February 2012
CHIEF EXECUTIVE'S REVIEW
2011 has seen the Group take significant steps to improve our
scalability and competitive position. As well as maintaining a
strong UK presence we have made significant progress towards
establishing our international business. We have launched a number
of new functionalities to our trading platforms and have relocated
our data centres to improve the resilience of our trading
environment.
2011 also saw considerable change in the competitive landscape
with a number of operators including MF Global ceasing to trade.
The Board will consider appropriate acquisitions should the
opportunity arise.
The ongoing uncertainty created by the Eurozone resulted in
considerable volatility in the financial markets during the second
half of the year as concerns were raised about financial stability.
Whilst extreme volatility such as that seen in August and September
can lead to technological issues in our industry, the Group had no
such issues and was able to report over 99.9% platform availability
throughout the period. The sophistication and speed of our system
has generally reached the level where further improvements have no
noticeable impact on our retail customers and as such our
developments are now more application driven. During the year LCG
deployed a number of new applications including new charting
functionality, multilingual platforms and our Android Mobile
trading platform which we are pleased to report was launched ahead
of most of our large competitors.
Despite mixed trading conditions and minimal interest revenue
from our cash deposits, the Group's business model remains robust.
Our increased capital base has meant the company can now derive
even greater profitability from client trading. Our year on year
revenue growth was 13%, with Group revenue reaching GBP39.0m in
2011, of which GBP0.75m was derived from our new CFD businesses
launched in 2010. Our revenue streams are much less at risk from
the loss of individual clients with no single client representing
more than 1% of our revenue.
Whilst we believe the economic situation in the UK and Europe is
unlikely to improve significantly in the medium term, LCG has shown
that it can build its business even in tough times.
In May 2011 we successfully relocated our London offices to
Devonshire Square. We can now accommodate all of our employees on
one floor and we have significant capacity to grow. Mindful of our
focus on international expansion, we have increased headcount in
the areas of IT, sales and multilingual customer support. My thanks
go to the employees of LCG for their continued commitment to the
business. Led by a strong management team, the positive
contribution of our employees has helped the Company to deliver
strong results as we work towards our continued expansion.
Divisional performance review
Financial Spread Betting (FSB), UK
LCG's Spread Betting unit continues to generate the majority of
Group revenue and we have consolidated our position in the market
place. The recent independent survey conducted by Investment Trends
places the Group second in terms of numbers of accounts with our
own brand Capital Spreads third. Our product offering continues to
score very highly on client satisfaction and value for money.
Although our major competitors have focused large amounts of
marketing resource on trying to encourage clients to switch
providers this has not had any noticeable impact on our level of
active clients or acquisitions.
During the year we secured partnerships with several major
financial institutions and continued to build our portfolio of
White Label partners. Although Paddy Power's decision to exit FSB
at the start of the year was a disappointment we have added in four
new White Label partners during the year including TD Direct
Investing (previously TD Waterhouse). We have managed to retain a
good proportion of the Paddy Power clients with 94% transferring
their accounts to Capital Spreads. The Paddy Power revenue sharing
agreement will cease in June 2012 from which point all revenue will
be retained by LCG. These clients represented 11% of our active
client base.
Whilst Q3 exhibited strong volatility in many of the financial
markets, the rest of the year was considerably less volatile. As
such revenues were more volume driven than directional in those
periods thereby reducing the revenue generated from client
activity. Nonetheless, the increased capital base resulted in an
improvement in profitability and return on spread increasing
Average Revenue Per User ("ARPU") to GBP1,370 (2010: GBP1,279).
We have launched a wide array of new products for our clients
including Guaranteed Stops, Trailing Stops, new language packs,
Fantasy Game functionality for newspaper competitions and our own
bespoke charting package which removes our reliance on a third
party supplier. This flow of new content will continue through 2012
with more languages and functionality planned to be added.
CFDs UK
We are pleased to report that our UK CFD businesses launched in
2010 became profitable in H2 2011 and that we have been recruiting
an institutional sales team that will focus on developing
international partnerships to deliver clients throughout Europe and
Asia.
CFDs Australia
Our Australian subsidiary is starting to gain traction in terms
of client numbers and trade volumes. During the year it generated
GBP0.2m of revenue and made a net loss of GBP0.4m, of which GBP0.3m
was incurred in H1. We are therefore seeing signs of the business
maturing to break even and are planning to increase our marketing
and sales resource in 2012 to boost revenue growth.
FSB Gibraltar
Our subsidiary in Gibraltar ProSpreads, disappointingly returned
a loss in H2 following a profitable H1. The business increased
revenue by 24% year on year but is still currently restricted to
only accepting 'professional' clients as defined by MiFID, which
has hindered growth substantially. As a result ProSpreads has been
in prolonged negotiations with the Gibraltar regulator and gaming
authorities to permit 'retail' client acquisition. If permission is
granted, we expect ProSpreads to see significant acceleration in
its growth and profitability.
Institutional Foreign Exchange
The institutional foreign exchange business delivered a 32%
increase in revenue in a market that was generally seen to be
stagnant by many participants. Volumes have increased steadily
through 2011 and the average daily trade numbers are now over $2
billion. The Currenex platform that we promote continues to attract
worldwide interest due to its exceptional liquidity and
resilience.
Whilst margins have been eroded over the last year with the
division returning a 14% increase in profit on a 32% increase in
revenue, the business has the highest return on capital in the
Group. We expect to see improved margins as worldwide FX volumes
return to more normal levels. Further, in 2012 LCG expects to focus
on increasing revenue and profitability through retail as well as
institutional product offerings.
Institutional Broking
The institutional broking division derives much of its business
from short term interest rates and this market has remained subdued
through 2011. However the other product streams held revenues up
and year on year this division increased revenue by 76% and
operating profit by 124%
Summary and Outlook
Despite a difficult start in 2011 with the adverse ruling from
the FOS adjudicator, 2011 has been another year of growth and
profitability. Following the completion of the placing in April
2011, the company is well capitalised to support its future growth
plans.
2012 has started well and we anticipate many changes within the
Group over the next 12 months. We will execute our international
sales strategy in earnest; we will continue to invest significantly
in our trading platforms, middle, back office and internal CRM
solutions to ensure that the Group can remain robust whilst
introducing both cost and time saving technological solutions.
We are extremely grateful to both our shareholders and our
employees for their continued support over the last year; with a
number of initiatives underway we look forward to a successful
2012.
Simon Denham
Chief Executive
22 February 2012
OPERATING AND FINANCIAL REVIEW
For the year ended 31 December 2011
Financial Review
A Group and divisional financial performance review is provided
in the Chairman's Statement and Chief Executive's Review.
Revenue and Gross Margin
Net trading revenue grew across all divisions in 2012. UK Spread
Betting remains the largest revenue contributor to the Group at 68%
however the percentage contribution to overall revenue has
decreased from 2010 due to the significant revenue growth seen in
all other divisions. The second half of 2011 saw an improvement in
market conditions driven by volatility in August and September
which boosted average daily trade volumes and revenue per client to
33,042 (2010: 29,832) and GBP1,370 (2010: GBP1,279) respectively.
Whilst client acquisition was lower in 2011, our other KPI's
remained strong with funds on deposit standing at GBP22.3m (2010:
GBP24.0m) as of 31 December. Gross margin remained stable at 66%
(2010: 67%) with White Label commission payments remaining the
largest direct cost at GBP7.3m (2010: GBP7.0m).
Our UK CFD businesses are showing strong signs of growth with
number of trades per day increasing to 723 (2010: 24) and net
revenue generated of GBP0.6m. These divisions have grown rapidly
since their launch in 2010 and are already profitable additions.
Currently 51% of the customer base is made up of non-UK customers
demonstrating our growing international presence.
The Australian CFD business is improving KPI's with average
trades per day now standing at 115 and net revenue for the year
increasing to GBP0.2m (2010: GBPnil). As expected, the business
returned a loss of GBP0.4m (2010: GBP0.3m), we anticipate this
business to achieve profitability in H2'12.
The institutional FX division has continued to show very strong
revenue growth with annual volumes standing at $544bn (2010:
$449bn) and revenue increasing 33% to GBP8.0m (2010: GBP6.0m).
There has however been ongoing pressure on margins resulting in a
lower increase to divisional profit of 14% to GBP2.4m (2010:
GBP2.1m).
ProSpreads, our Direct Market Access ("DMA") financial spread
betting business increased revenue by 24% to GBP1.9m. Margin
pressure resulted in a lower increase in gross profit of 22% to
GBP1.7m (2010: GBP1.4m) leading the business to return a loss of
GBP0.3m (2010: GBP0.4m) for the year. There are a number of new key
initiatives under way to support growth in this business and we are
therefore optimistic that it will return to profitability in
2012.
Adjusted Administrative Expenses
2011 2010
GBP'000 GBP'000
Employee remuneration costs 6,830 6,091
Advertising and marketing 2,251 1,651
IT and platform costs 3,139 3,103
Premises costs 587 441
Legal costs in relation to FOS claims and professional client debt 742 216
Non-recurring costs of relocating head office 188 -
Other costs 2,588 3,215
Adjusted administrative expenses 16,325 14,717
Adjusted administrative expenses, which excludes depreciation
and amortisation, share based payment expense and the exceptional
items noted below increased by 10.9% to GBP16.3m (2010: GBP14.7m).
The significant increases were seen in legal expenses as a result
of resolving the professional client debt dispute, and the ongoing
FOS claims and marketing expenses as we look to promote our
products to a wider customer base internationally. The Group has
also been impacted by the increase in UK VAT which is incurred on
IT and data costs, marketing costs and legal and professional
expenses. We do not expect our legal costs to continue at this
level through 2012.
Employee remuneration costs, inclusive of employer related taxes
and pensions costs, increased 12% to GBP6.8m (2010: GBP6.1m)
primarily as a result of an increase in headcount from 93 as at the
end of 2010 to 105 as at the end of 2011. As noted in the Chief
Executive's review the increases in headcount have primarily been
in the areas of IT, sales and multilingual customer support as we
look to expand the business internationally.
Marketing costs increased 35% to GBP2.3m (2010: GBP1.7m) which
reflect the Group's initiatives to develop an international
customer base. Marketing costs in the UK remained stable with the
increase entirely representing amounts spent in new
jurisdictions.
As noted in the Chief Executive's Review the Group moved its
London head office to a larger office space in Devonshire Square.
The move resulted in one-off move costs of GBP0.1m and accelerated
depreciation of GBP0.1m which were expensed in the period and an
onerous lease provision of GBP0.2m which has been separately noted
as an exceptional item. Whilst a large fit out cost was incurred in
taking on the premises, over the period of the lease term the new
premises are less expensive, more suitable to the business needs,
and provide additional space for growth.
Exceptional items excluded from adjusted profit before tax
2011 2010
GBP'000 GBP'000
Impairment of professional client debt 530 -
Onerous property lease provision 213 -
Software impairment charge - 3,194
Charge for provision against FOS claims - 3,200
Exceptional items excluded from adjusted profit before tax 743 6,394
During the year two exceptional items of expense arose: the
write off of GBP0.5m of the professional client debt and GBP0.2m
onerous lease provision in relation to the excess office space
arising from the overlap of the new lease.
Further to the GBP0.5m loss recognised in writing off the
professional client debt, legal costs of GBP0.3m were also expensed
in settling the issue.
Tax
The Group's effective tax rate increased to 31% following the
statutory loss realised by the Group in 2010. Due to losses
incurred in overseas jurisdictions and the effect of disallowable
expenses the effective tax rate remains higher than the current UK
corporation tax rate.
Dividend policy
The Board has recommended a final dividend of 2.6p per share
(2010: nil) bringing the total for the year to 3.9p (2010: 1p).
This will be paid on 4 May 2012 to shareholders on the register at
the close of business on 30 March 2012. It is the Board's policy to
pay a progressive, sustainable dividend out of available profits
whilst ensuring retention of sufficient capital to meet future
growth and regulatory requirements.
Financial Position
As discussed in the Chief Executive's review the Group has
continued to invest in its technology base during the year. Total
additions to software and hardware in the year amounted to GBP2.2m
(2010: GBP1.8m) and the carrying value at the year end was GBP3.9m
(2010: GBP3.4m). In 2012 we plan to continue to invest in the
development of applications and to enhance customer experience.
The head office relocation resulted in GBP2.0m of additions to
leasehold improvements. The lease term is for a period of 10 years
and provides a more suitable environment for both the business'
current needs and for longer term growth.
We have reclassified amounts due from brokers from cash and cash
equivalents to receivables in the year to more appropriately
reflect the nature of these balances which represent cash held with
counterparties as margin in relation to the Group's hedging
activities. This has lead to a restatement of the balance sheet of
GBP3.4m in 2010. As at 31 December 2011, amounts receivable from
brokers amounted to GBP3.5m, a slight increase on last year due to
greater hedging requirements at the year-end.
Total client money as at the year-end was GBP52.2m (2010:
GBP47.6m) of which GBP36.3m (2010: GBP30.2m) was held in segregated
accounts with banks. Segregated client funds were previously held
on the Group's balance sheet, with an asset in cash and cash
equivalents and a corresponding liability to clients held within
trade and other payables. The segregated client funds have been
reclassified to better reflect the legal "trust status" of these
funds, which are held in accordance with the Customer Asset (CASS)
rules of the Financial Services Authority which restrict the
Group's ability to control the funds. This treatment is in line
with the reporting of other financial services companies. Remaining
amounts held on behalf of clients are primarily held in relation to
the institutional foreign exchange business.
Trade and other payables comprise amounts due to clients where
funds are not held in segregated accounts and other trade payables
and accruals. The provisions balance of GBP3.3m (2010: GBP3.2m)
comprises the onerous lease provision and the provision for FOS
claims. There has been no material change to the assessment from
the FOS or where we are in the process and as such we have not
altered the level of provision since the previous year.
Available liquidity and cash flow
2011 2010
GBP'000 GBP'000
Net cash 21,543 10,510
Short term receivables: Amounts due from brokers 3,509 3,438
------- -------
Net cash and short term receivables 25,052 13,948
Title transfer funds and unsegregated client funds 15,886 17,394
Available liquid resources 40,938 31,342
Available liquidity which comprises own cash held and amounts
due from brokers increased by GBP11.1m primarily as a result of the
placing in April 2011 to GBP25.1m (2010: GBP13.9m). Net cash inflow
from operating activities after adjustments for movements in
working capital amounted to GBP9.5m (2010: net cash outflow
GBP2.5m). The leasehold improvements in relation to the new
premises, and our ongoing programme of IT developments resulted in
a net cash outflow from investing activities of GBP4.0m.
Capital Adequacy
Following the placing in April 2011 we have had significant head
room over our capital resource requirement. The following table
summarises the Group's capital adequacy, further details can be
found within the Pillar 3 Information section:
2011 2010
GBP'000 GBP'000
Total tier 1 capital 35,349 24,159
Less: Intangible assets (13,173) (12,745)
-------- --------
Total tier 1 capital resources (CR) 22,176 11,414
Capital resource requirements (CRR) (11,508) (11,338)
-------- --------
Surplus 10,668 76
CR expressed as a percentage of CRR 193% 101%
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2011
2011 2010
Notes GBP'000 GBP'000
Revenue 38,963 34,491
Cost of sales (13,754) (11,368)
--------- ----------
Gross profit 25,209 23,123
Administrative expenses (before certain
specific items) (16,325) (14,717)
Certain specific items:
Depreciation and amortisation (2,069) (1,985)
Provisions 11 (213) (3,200)
Impairment 7 (530) (3,194)
Share-based payment charge (179) (168)
------------------------------------------ ------ --------- ----------
Total administrative expenses (19,316) (23,264)
--------- ----------
Operating profit/(loss) 5,893 (141)
Investment revenue 248 85
Profit/(loss) before taxation 6,141 (56)
Tax (expense)/credit (1,922) 20
--------- ----------
Profit/(loss) for the year 4,219 (36)
Profit/(loss) for the year attributable
to owners of the parent 4,219 (36)
--------- ----------
Earnings per share (pence)
- Basic 4 8.64 (0.09)
- Diluted 4 8.64 (0.09)
- Adjusted basic 4 10.03 12.02
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
As at 31 December 2011
2011 2010
GBP'000 GBP'000
Profit/(loss) after taxation 4,219 (36)
------- -----------
Exchange differences in translation of
foreign operations (1) 14
Total comprehensive income/(loss) for
the year 4,218 (22)
Total comprehensive income/(loss) for
the period 4,218 (22)
------- -----------
CONSOLIDATED BALANCE SHEET
As at 31 December 2010
31 December 2011 31 December 2010 1
January
2010
Notes GBP'000 GBP'000 GBP'000
(restated) (restated)
NON-CURRENT ASSETS
Intangible assets 6 13,173 12,745 15,753
Property, plant and equipment 8 2,354 597 911
Available-for-sale investments 100 100 -
Deferred tax asset 110 168 3
----------------- ----------------- ------------
15,737 13,610 16,667
CURRENT ASSETS
Trade and other receivables 9 5,126 6,671 6,125
Current tax receivable - 473 -
Cash and cash equivalents 10 37,429 27,904 23,621
42,555 35,048 29,746
TOTAL ASSETS 58,292 48,658 46,413
CURRENT LIABILITIES
Trade and other payables 18,984 21,299 21,273
Current tax liabilities 647 - 773
Provisions 11 3,312 3,200 -
----------------- ----------------- ------------
22,943 24,499 22,046
TOTAL LIABILITIES 22,943 24,499 22,046
NET ASSETS 35,349 24,159 24,367
EQUITY
Share capital 5,318 3,985 3,899
Share premium 19,572 13,390 12,153
Own shares held (1,287) (1,287) -
Retained earnings 17,090 13,415 13,659
Other reserves (5,344) (5,344) (5,344)
----------------- ----------------- ------------
TOTAL EQUITY 35,349 24,159 24,367
The comparative Group balance sheet has been restated to reflect
the change in accounting policy for segregated client funds and
amounts due from brokers, Refer to note 12.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2011
Own
Share Share shares Retained Other Total
capital premium held earnings reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2010 3,899 12,153 - 13,659 (5,344) 24,367
--------- --------- --------- ---------- ---------- ---------
Total comprehensive loss
for the year - - - (22) - (22)
Equity dividends paid - - - (390) - (390)
Equity settled share-based
payment transactions
( including deferred
taxation) - - - 168 - 168
Issue of shares under
Joint Share Ownership
Plan ('JSOP') 82 1,205 (1,287) - - -
Exercise 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
--------- --------- --------- ---------- ---------- ---------
Issue of share capital 1,333 6,182 - - - 7,515
Total comprehensive income
for the year - - - 4,218 - 4,218
Equity dividends paid - - - (691) - (691)
Equity settled share-based
payment transactions
( including deferred
taxation) - - - 148 - 148
At 31 December 2011 5,318 19,572 (1,287) 17,090 (5,344) 35,349
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2011
2011 2010
GBP'000 GBP'000
(restated)
Profit/(loss) for the year 4,219 (36)
Adjustments for:
Depreciation of property, plant and equipment 458 542
Amortisation of intangible assets 1,611 1,443
Equity settled share based payment 179 168
Impairment - 3,194
Provisions 213 3,200
Investment income (248) (85)
Current tax charge 1,864 145
Movement in deferred tax asset 58 (165)
Operating cash flows before movements in working capital 8,354 8,406
Decrease/(increase) in receivables 1,545 (546)
(Decrease) in payables (2,448) 26
-------- -----------
Cash generated by operating activities 7,451 1,124
Taxation paid (744) (1,388)
-------- -----------
Net cash from/(used in) operations 6,707 6,498
Investing activities
Investment income 248 85
Acquisitions of property, plant and equipment (2,215) (228)
Acquisitions of intangible assets (2,039) (1,608)
Acquisitions of investments - (100)
Net cash used in investing activities (4,006) (1,851)
Financing activities
Dividends paid (691) (390)
Cash from issue of share capital 7,515 26
-------- -----------
Net cash from/(used in) financing activities 6,824 (364)
Net increase/(decrease) in cash and cash equivalents 9,525 4,283
Cash and cash equivalents at beginning of year 27,904 23,621
-------- -----------
Cash and cash equivalents at end of year 10 37,429 27,904
The comparative Group Cash Flow Statement has been restated to
reflect the change in accounting policy for segregated client funds
and amounts due to brokers. Refer to note xx for more
information.
NOTES TO THE FINANCIAL STATEMENTS
As at 31 December 2011
1. Introduction
The financial information set out in the announcement does not
constitute the company's statutory accounts for the years ended 31
December 2011, 2010 or 2009. The financial information for the year
ended 31 December 2009 and 31 December 2010 is derived from the
statutory accounts for those years which have been delivered to the
Registrar of Companies. The auditors reported on those accounts:
their report in respect of the year ended 31 December 2009 was
unqualified and did not draw attention to any matters by way of
emphasis. Their report in respect of the year ended 31 December
2010 was unqualified; however it did include two matters of
emphasis. The first emphasis of matter paragraph was in respect of
the uncertainty surrounding the eventual outcome of complaints to
the FOS. The second emphasis of matter paragraph was in respect of
the ability of the group to continue as a going concern should the
issue of new ordinary shares in 2011 not be successful. Their
opinions in respect of the years ended 31 December 2009 and 31
December 2010 did not contain a statement under s498(2) or (3) of
the Companies Act 2006.
Statutory accounts for 2011 will be delivered following the
company's annual general meeting. The auditors have reported on
those accounts: their reports were unqualified and did not contain
statements under s498 (2) or (3) of the Companies Act 2006.
However, their report for the year ended 31 December 2011 includes
an emphasis of matter paragraph in respect of the uncertainty
surrounding the eventual outcome of complaints to the FOS.
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"), as issued 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 2010 statutory accounts which are
available on the Group's website www.londoncapitalgroup.com with
the exception of the restatements discussed in Note 12.
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 31 December 2011
Financial CFDs Institutional Institutional CFDs Financial Total
spread betting, UK foreign brokerage Australia spread
UK exchange betting,
Gibraltar
GBP'000 GBP'000 GBP'000 GBP'000 GBP000 GBP'000 GBP'000
Revenue
Segmental revenue 26,594 589 7,983 1,904 160 1,881 39,111
--------- -------- -------------- ---------------- ------------- ----------- --------
Foreign exchange
loss on trading (148)
--------
Total group
revenue 38,963
Segmental operating
profit/(loss) 11,518 185 2,402 618 (436) (355) 13,932
--------- -------- -------------- ---------------- ------------- ----------- --------
Unallocated
corporate expenses (8,039)
--------
Operating Profit 5,893
Finance income 248
--------
Profit before
taxation 6,141
Taxation charge (1,922)
--------
Profit for the
year 4,219
========
Segmental assets 6,920 25 14,547 152 449 1,557 23,650
--------- -------- -------------- ---------------- ------------- ----------- --------
Unallocated
corporate assets 34,642
--------
Consolidated
total assets 58,292
Segmental liabilities 897 - 14,345 122 38 2,068 17,470
--------- -------- -------------- ---------------- ------------- ----------- --------
Unallocated
corporate
liabilities 5,473
Consolidated
total liabilities 22,943
========
2. Revenue and segmental information
For the year ended 31 December 2010
Financial CFDs Institutional Institutional CFDs Financial Total
spread betting, UK foreign brokerage Australia spread
UK exchange betting,
Gibraltar
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 7,771 - 16,743 281 434 2,522 27,751
--------- -------- -------------- -------------- ------------- --------- -----------
Unallocated
corporate assets 20,907
-----------
Consolidated
total assets 48,658
===========
Segmental liabilities 1,410 - 16,581 48 10 597 18,646
--------- -------- -------------- -------------- ------------- --------- -----------
Unallocated
corporate liabilities 5,853
-----------
Consolidated
total liabilities 24,499
===========
3. Adjusted profit before tax, adjusted operating profit and adjusted EBITDA
2011 2010
GBP'000 GBP'000
Reported profit/(loss) before tax 6,141 (56)
Add back - software impairment charge - 3,194
Add back - charge for provision against FOS
claims - 3,200
Add back - impairment of professional client 530 -
debt
Add back - onerous property lease provision 213 -
Add back - share-based payment charge 179 168
Adjusted profit before tax 7,063 6,506
Tax as reported (1,922) 20
Tax effect on add backs (244) (1,837)
-------- --------
Adjusted profit after tax 4,897 4,689
Reported operating profit/(loss) 5,893 (141)
Add back - share-based payment charge 179 168
-------- --------
Adjusted operating profit 6,072 27
Add back - other amortisation and depreciation 2,069 1,985
Add back - software impairment charge - 3,194
Add back - charge for provision against FOS
claims - 3,200
Add back - impairment of professional client 530 -
debt
Add back - onerous property lease provision 213 -
Adjusted EBITDA 8,884 8,406
4. 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. 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 12,532 (2010:
1,615,398).
2011 2010
Basic EPS
Profit/(loss) after tax (GBP'000) 4,219 (36)
Weighted average no of shares 48,822,529 38,994,692
Weighted average basic EPS 8.64p (0.09)p
Diluted EPS
Profit/(loss) after tax (GBP'000) 4,219 (36)
Weighted average no of shares 48,835,061 40,610,090
Weighted average fully diluted EPS 8.64p (0.09)p
Adjusted basic EPS
Adjusted profit after tax (see note 5) (GBP'000) 4,897 4,689
Weighted average no of shares 48,835,061 38,994,692
Weighted average basic EPS 10.03p 12.02p
5. Dividends
2011 2010
GBP'000 GBP'000
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December - -
2011 nil (2010:nil)
Interim dividend for the year ended 31 December
2011 of 1.3p (2010: 1.0p) 691 390
691 390
Dividends declared in respect of the period:
Interim dividend for the year ended 31 December
2011 of 1.3p (2010: 1.0p) 691 390
Final dividend for the year ended 31 December 1,383 -
2011 of 2.6p (2010: nil)
2,074 390
6. Intangible fixed assets
Customer Trade
relationship name Software Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2010 152 136 8,767 9,698 18,753
Additions - - 1,608 - 1,608
Impairment (note 7) - - (3,970) - (3,970)
--- --- ------- ----- -------
At 1 January 2011 152 136 6,405 9,698 16,391
Additions - - 2,039 - 2,039
Disposals - - - - -
At 31 December 2011 152 136 8,444 9,698 18,430
--- --- ------- ----- -------
AMORTISATION
At 1 January 2010 80 43 2,877 -3,000
Charge for the year 51 27 1,365 -1,443
Eliminated on impairment
(note 7) - - (797) -(797)
--- --- ----- -----
At 1 January 2011 131 70 3,445 -3,646
Charge for the year 21 66 1,524 -1,611
At 31 December 2011 152 136 4,969 -5,257
NET BOOK VALUE
At 31 December 2011 - - 3,475 9,698 13,173
At 31 December 2010 21 66 2,960 9,698 12,745
7. Impairment charge
The professional client debt of GBP1.4m that arose in 2010 was
settled in 2011 for GBP0.87m. The amount outstanding was impaired
by GBP0.53m as part of the settlement agreement.
In 2010 the Group recognised impairment on its Chaucer Digital
software as a result of a change in the focus of its IT asset use.
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.
8. Property, plant and equipment
Group Leasehold Plant and
property machinery Total
GBP'000 GBP'000 GBP'000
COST
At 1 January 2010 547 1,342 1,889
Additions 25 203 228
Disposals - (66) (66)
At 1 January 2011 572 1,479 2,051
Additions 2,031 184 2,215
At 31 December 2011 2,603 1,663 4,266
DEPRECIATION
At 1 January 2010 273 705 978
Charge for the year 199 343 542
Eliminated on disposals - (66) (66)
At 1 January 2011 472 982 1,454
Charge for the year 226 232 458
At 31 December 2011 698 1,214 1,912
NET BOOK VALUE
At 31 December 2011 1,905 449 2,354
At 31 December 2010 100 497 597
9. Trade and other receivables
Group
1 January
2011 2010 2010
GBP'000 (restated) GBP'000 (restated)
GBP'000 (note 30) (note 30)
Trade receivables 283 1,729 761
Amounts due from brokers 3,509 3,438 4,800
Amounts owed by Group undertakings - - -
Other receivables 814 1,074 209
Prepayments 520 430 355
------- ------------------ --------------------
5,126 6,671 6,125
The directors consider that the carrying amount of trade
receivables, amounts owed to group undertakings and other
receivables approximates to their fair value.
Trade receivables due from brokers represents the combination of
open derivative positions and cash in excess of required margin
available to call from brokers.
10. Cash and cash equivalents
Group
1 January
2011 2010 2010
GBP'000 GBP'000
(restated) (restated)
GBP'000 (note 30) (note 30)
Gross cash and cash equivalents 73,761 58,145 59,071
Less: Segregated client funds (36,332) (30,241) (35,450)
-------- ----------- -----------
Own cash, forex client cash and title
transfer funds 37,429 27,904 23,621
-------- ----------- -----------
Analysed as:
Cash at bank and in hand 29,394 19,607 15,588
Short-term deposits 8,035 8,297 8,033
-----------
37,429 27,904 23,621
Gross cash and cash equivalents include Group cash, all client
funds (segregated funds and funds under title transfer) and surplus
cash available to call from brokers.
Segregated client funds include client funds held in segregated
accounts or short term deposits (under 3 months) in line with the
FSA's Client Asset rules ('CASS') and similar rules of other
regulators in jurisdictions where the Group operates. The accounts
have been restated to exclude these funds from the Group's balance
sheet.
Title transfer funds are held by the Group's subsidiary under a
Title Transfer Collateral Arrangement (TTCA) by which the client
agrees that full ownership of such monies is unconditionally
transferred to the Group. Funds under TTCA and institutional
foreign exchange client funds are included on the balance
sheet.
11. Provisions and contingent liabilities
2011 2010
GBP'000 GBP'000
Provision against FOS claims 3,200 3,200
Onerous lease provision 112 -
3,312 3,200
As previously disclosed, during Half 1'09 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 Financial Ombudsman Service ("FOS").
The Board reviewed the initial assessment from the FOS 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 is challenging the revised
assessment.
The Board assessed that a gross provision of GBP3.2m should be
made and a contingent liability of a further GBP3.3m 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. This represents an increase of GBP0.1m on
the GBP3.2m previously disclosed as a contingent liability due to
the changes announced during the year in the FOS's compensation
limits. 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 including the extent of the FOS's
jurisdiction. The Group has challenged the 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.
Following the relocation of the Group's London offices in May
2011 a charge of GBP0.2m has been recognised in the income
statement for the onerous lease in relation to the Group's former
premises with a provision at the year-end of GBP0.1m following part
utilisation of GBP0.1m.
12. Prior period adjustment
The accounting policies adopted in the preparation of Financial
Statements are consistent with those followed in the preparation of
the Group's Annual Report for the year ended 31 December 2010,
other than:
-- Client Funds:segregated client funds were previously held on
the Group's balance sheet, with an asset in cash and cash
equivalents and a corresponding liability to clients held within
trade and other payables. The segregated client funds have been
reclassified to better reflect the legal "trust status" of these
funds, which are held in accordance with the Customer Asset (CASS)
rules of the Financial Services Authority which restrict the
Group's ability to control the funds.
-- Trade Receivables due from brokers: Trade receivables due
from brokers represents the combination of open derivative
positions and cash in excess of required margin available to call
from brokers. Previously these were disclosed as cash and cash
equivalents, however to better represent the nature of these
balances these have been reclassified in the balance sheet. These
positions are held to hedge client market exposures and hence are
considered to be held for trading and are accordingly accounted for
at fair value through profit and loss (FVTPL). These transactions
are conducted under terms that are usual and customary to standard
margin trading activities and are reported net in the Group balance
sheet as the Group has both the legal right and the intention to
settle on a net basis.
The impact of this adjustment on the reported comparative
figures was as follows:
31 December 2010 As previously Adjustment As restated
stated 31 31 December
December 2010
2010
GBP'000 GBP'000 GBP'000
Consolidated balance sheet
Trade and other receivables 3,233 3,438 6,671
ash and cash equivalents 61,583 (33,679) 27,904
-------------- --------- --------------------
Total assets 78,899 (30,241) 48,658
============== ========= ====================
Trade and other payables 51,540 (30,241) 21,299
-------------- --------- --------------------
Total liabilities 54,740 (30,241) 24,499
============== ========= ====================
31 December 2009 As previously Adjustment As restated
stated 31 31 December
December 2009
2009
GBP'000 GBP'000 GBP'000
Consolidated balance sheet
Trade and other receivables 1,325 4,800 6,125
Cash and cash equivalents 63,871 (40,250) 23,621
-------------- ----------- -------------
Total assets 81,863 (35,450) 46,413
============== =========== =============
Trade and other payables 56,723 (35,450) 21,273
-------------- ----------- -------------
Total liabilities 57,496 (35,450) 22,046
============== =========== =============
This information is provided by RNS
The company news service from the London Stock Exchange
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