TIDMLCG
RNS Number : 6617D
London Capital Group Holdings PLC
01 April 2014
LONDON CAPITAL GROUP HOLDINGS PLC
("LCG", the "Company" or the "Group")
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2013
Financial Highlights
-- Revenue from UK financial spread betting and contracts for
difference (CFDs) up 2% to GBP20.8m (2012: GBP20.5m)
-- Revenue from continuing operations decreased 5% to GBP25.2m
(2012: GBP26.6m)
-- Adjusted profit before tax* from continuing operations of
GBP2.2m (2012: GBP0.8m)
-- Statutory loss before tax from continuing operations of
GBP4.8m (2012: GBP1.1m)
-- Statutory loss after tax from continuing and discontinued
operations of GBP3.7m (GBP1.6m)
-- Cash and cash equivalents GBP17.2m at year end (2012:
GBP22.2m)
-- Net cash and short term receivables** of GBP21.8m at year end
(2012: GBP20.4m)
Operational Highlights
-- UK financial spread betting (FSB) and contracts for
difference (CFDs) performance
- Divisional revenue up 2% to GBP20.8m (2012: GBP20.5m);
divisional profit of GBP9.8m (2012: GBP7.4m)
- FSB average trades per day decreased 12% to 22,008 (2012: 25,029)
- New client acquisition totalled 6,431 (2012: 10,123)
-- Institutional foreign exchange performance
- Trade volumes decreased to $242bn (2012: $383bn)
- Divisional revenue of GBP4.3m (2012: GBP6.1m); divisional profit of GBP1.3m (2012: GBP1.6m)
-- Successful settlement of the litigation brought by Life
Settlement Consulting Limited (Integrity)
-- Significant progress made with the FOS claims that allowed
the majority to be settled in Q1 2014
-- Sale of two previously loss making subsidiaries, LCG
Australia and ProSpreads (Gibraltar)
-- New management team in place with strategy to differentiate
the business and return to growth
Kevin Ashby, Chief Executive commented:
"Having addressed and resolved a number of material internal and
external issues, the Group emerged from 2013 in a much stronger
structural and operational position than could have been predicted
at the start of the year, and the general confidence of the
business has materially improved. We have a clear strategy to
reposition LCG and I am confident that we will make further
progress with the turnaround in 2014."
Continuing operations Year ended Year ended
31 December 2013 31 December 2012 Restated
GBP'000 GBP'000
Revenue 25,189 26,629
Adjusted EBITDA*** 4,169 2,700
Adjusted profit before tax* 2,196 844
Statutory (loss) before tax (4,800) (1,052)
Adjusted basic earnings per share from continuing operations 5.04p 1.50p
Basic loss per share from continuing operations (8.32)p (1.24)p
Basic loss per share from continuing and discontinued operations (7.11)p (3.14)p
Diluted loss per share from continuing and discontinued operations (7.11)p (3.14)p
Dividend per share 0.0p 1.3 p
*Adjusted profit before tax represents profit before tax
excluding share based payment expense, impairment charges to
goodwill and investments, non-recurring restructuring costs, costs
related to change in IT platform, the movement in the provision for
FOS claims and non-recurring legal fees. Applied consistently
hereafter.
**Net cash and short term receivables represents Cash and cash
equivalents, less unsegregated amounts due to clients, plus amounts
due from brokers
**Adjusted EBITDA represents profit before interest, tax,
depreciation, amortisation, share based payment expense, impairment
charges to goodwill and investments, non-recurring restructuring
costs, costs related to change in IT platform, the movement in the
provision for FOS claims and non-recurring legal fees.
For further information, please contact:
www.londoncapitalgroup.com
London Capital Group Holdings
plc
Kevin Ashby, Chief Executive
Officer
David Sparks, Chief Financial
Officer 020 7456 7000
Smithfield Consultants
John Kiely 020 7360 4900
Cenkos Securities plc
Nick Wells 020 7397 8900
Notes to Editors:
London Capital Group Holdings plc (hereafter "LCGH plc" or "LCG"
or "London Capital Group" or "the Group") is a 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 Conduct Authority. Its core activity is the provision of
spread betting and CFD products on the financial markets to retail
clients under the trading names Capital Spreads, Capital CFDs and
LCG MT. 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 and CFD platforms
and its white label partners include TD Direct Investing,
Bwin.party, and Saxo Bank.
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 2013
2013 was a year when the Board made significant changes to the
Group after a difficult year in 2012. As shareholders already know,
2012 produced a disappointing outcome and the need for substantial
changes in both management and strategy. As outlined below in our
Strategic Report, we launched a complete overhaul in most areas of
the business.
We disposed of our underperforming operations in Australia and
Gibraltar and reviewed the cost base overall. As previously stated,
while the majority of the Group's revenues are derived from UK
spread betting, we remain open to opportunities in foreign markets
working with local partners. New sales and marketing teams, as well
as product development, are now following up on all prospects with
renewed vigour. We have also refocused our marketing approach and
many of the support areas, ceasing non-core activities including
our institutional broking business.
Early in 2013, the Company received a number of approaches from
interested parties, but none resulted in any offers for the
Company. The Board also believed a change in leadership would move
the business forward and Mark Slade was appointed as CEO to succeed
Simon Denham. Sadly, Mark felt he could not continue as CEO in July
although he had already started a number of important changes. One
of those changes was to recruit senior managers including Kevin
Ashby, a highly experienced senior executive in the sector, who
agreed to become CEO as well as John Jones, who joined the Group as
Chief Operating Officer. Kevin set about completing a number of
important tasks for the Company including recruiting a new Chief
Financial Officer in David Sparks, to replace Siobhan Moynihan, and
a number of other senior managers. The Board's other focus has been
finishing the migration to our new trading platform which will be
completed in a matter of weeks.
Overall, after a period of significant change, which in some
ways was overdue, the Company is in far better shape to tackle the
commercial challenges it faces. The spread betting sector in the UK
remains very competitive, but we have a far more open view towards
partnerships and foreign growth opportunities as well as pursuing
new product innovations on the new platform, which in turn should
facilitate growth and more functionality.
The regulatory environment combined with substantial technical
change is a challenge for all businesses and the Group remains very
focused on ensuring that our policies and procedures remain in line
with best practice. The financial results will need to show more
progress before the Board can consider resuming dividend payments,
but the resolution of a number of legacy problems, including claims
made to the FOS relating to Integrity, should allow the Company to
move forward on a solid financial footing and we have started 2014
with renewed confidence.
During the year, there were a number of Board changes as
mentioned above, with the departure of Simon Denham, Rachel
Woodford, and Siobhan Moynihan and after the period end, Bill
Newton. I would like to wish them all well for the future and we
welcome Kevin Ashby, John Jones and David Sparks as executive
Directors. Malcolm McCaig recently informed the Board of his
retirement at the AGM due to personal circumstances and I would
like to thank Malcolm for his work on the Board.
Giles Vardey
Chairman
31 March 2014
STRATEGIC REPORT
For the year ended 31 December 2013
Introduction
As followers of the financial markets are aware the last few
years, particularly 2012, have been difficult for the spread
betting sector and given the UK centric nature of the Group's
business it was not cushioned by growth in other markets. 2012 was
also the year London Capital Group Limited embarked on a major
investment programme involving the complete replacement of the core
trading systems, which will be completed in April 2014. 2012 also
saw the materialisation of both the claims to the Financial
Ombudsman Service (FOS) and a related claim by Integrity, all of
which was reflected in the Group's share-price, which dropped from
a 2012 high of 85p to 36p by the end of the year.
For the Group to improve performance and results, 2013 needed to
be a transitional year. In late 2012 the Board instigated a
restructuring of the Group and in February 2013 appointed Mark
Slade as CEO at the same time announcing that a number of parties
had shown an interest in acquiring the Company, although these did
not result in an offer.
In March 2013, Mark introduced Kevin Ashby to the Group,
initially as an adviser, and set about developing a strategy for
the business and rebuilding the management team. For personal
reasons, Mark was unable to continue as CEO beyond July 2013.
The process of rebuilding the management team was underway
before Mark left and this was largely completed by the end of the
third quarter 2013. The organisation has been quick to adapt to
change and by the end of 2013 the Group's management structure and
operational models had been transformed to be further aligned with
those required of a regulated business, supported by a number of
process improvement exercises.
During 2013 the Group was also able to resolve matters that
overshadowed its development and withdraw from unprofitable and
non-core activities. These included:
-- the successful settlement of the litigation brought by Integrity;
-- significant progress made with the FOS claims, that will
allow the majority to be settled in early 2014;
-- the sale of two previously loss making subsidiaries, LCG
Australia and ProSpreads (Gibraltar);
-- exiting the non-core institutional broking operations.
In summary, having addressed and resolved a number of major
internal and external issues, the Group emerged from 2013 in a much
stronger structural and operational position than could have been
predicted at the start of the year, and the general confidence of
the business has materially improved. However, there are still a
number of significant challenges to overcome that are detailed in
this report, many of which are being addressed in the first half of
2014.
Business model
London Capital Group Holdings plc operates through its principal
subsidiary, London Capital Group Limited. Its core activity is the
provision of spread betting and contract for difference (CFD)
products based on financial market products. It provides online
trading to both retail and professional clients through its
financial spread betting brand, Capital Spreads. It also provides
foreign exchange trading services to institutional private clients
via LCGFX.
London Capital Group Limited is authorised and regulated by the
Financial Conduct Authority (FCA) in London and its parent company
London Capital Group Holdings plc is listed on the London Stock
Exchange Alternative Investment Market (AIM).
Revenues are generated from the net of the gains and losses on
the provision of the spread betting and CFD products, commission
income, exchange gains and interest.
The Group's success is driven by providing a high quality of
service to our customers and offering them a variety of financial
trading products and platforms. Capital Spreads is renowned for its
value for money, ease of platform navigation, tight dealing spreads
and competitive margin requirements in addition to high levels of
customer service.
London Capital Group is also a market leader in the provision of
strategic partnerships in the form of white label partnerships,
introducing broker arrangements and affiliate marketing agreements.
LCG has developed partnerships with a number of leading brands that
account for 40% of the company's trading volumes. Our strength in
partnerships differentiates us and is a key element in our ongoing
strategy.
Recent industry analysis indicates that the aggregate of Capital
Spreads and its white labels make the Group the second largest
provider of financial spread betting services in the UK.
LCG FX is an established and respected prime broker offering
direct access to a wide range of Electronic Communication Network
(ECN) multi bank platforms.
The non-core derivatives broking services ceased operations in
November 2013 and the previously loss-making overseas subsidiaries,
London Capital Group Pty Limited (Australia) and ProSpreads Limited
(Gibraltar), were sold in May and October 2013 respectively.
Strategy and objectives
2013 was a transitional year for the group and LCG enters 2014
with a streamlined business and a largely new, but strong,
management team that has already made an impact on the day-to-day
running of the business.
The challenges and opportunities facing the Group can be
categorised as:
-- Short term - tactical
-- Medium term - repositioning and differentiation
-- Long term - strategic
Short-term - tactical
In 2012 LCG made a decision to embark upon the wholesale change
of its core trading platform. This project has suffered numerous
delays and has therefore taken longer than anticipated to conclude.
A number of LCG's white label partners have already been migrated
to the new platform, but the final migrations will not be completed
until April 2014.
In 2012 and early 2013, LCG reduced marketing and sales
resources to a minimal level and in early 2013 cut back its
marketing budget while undertaking an operational restructuring of
the business. LCG operates in a mature market where, in any
one-year, 20% of existing traders change supplier and there are an
equivalent number of new entrants. While reducing investment in
sales, marketing and customer retention did not have an immediate
impact; by mid 2013 the level of client attrition and a lack of a
sales pipeline were evident. The new management team started to
address this issue and by the end of 2013 the situation was, at
best, stabilised. The challenge in 2014 is to re-grow the business,
but this cannot be achieved until the platform migration has been
completed, the new system bedded in and a new marketing campaign
initiated, which is planned for the second quarter of 2014.
Many of LCG's processes were not developed to reflect a market
that is international and extremely competitive. Over the last few
years customers have become better educated and have more
sophisticated needs. The operating environment has also changed and
the whole industry is being conducted under an increasingly complex
regulatory framework, placing new demands on market participants.
In order to respond to these challenges the Group has invested
significantly in process improvement, data analysis and developing
the client insights that are required to develop effectiveness and
improve governance still further. While LCG has made significant
strides in this respect, there is more to be done to support the
day to day operations of the business and develop the knowledge
base that will allow the Group to make better operational and
strategic decisions in the future.
In summary, our short-term focus is on completing the migration
process and undertaking the stabilising actions that are required
with any new system. In parallel we are focused on improving
processes and our analysis of the key business information, needed
to manage and develop the business better.
Medium Term - repositioning and differentiation
The UK Financial spread betting market is an extremely mature
and competitive market and the attractiveness of being an FCA
regulated entity draws many participants to the UK. As mentioned
above, around 20% of UK traders will move their primary accounts
each year and our challenge is to attract a significant share of
this transient group. It is fair to assume that a material
proportion of this group has already heard of Capital Spreads, and
many may already use Capital Spreads as a secondary account, or
have had an account with us previously.
LCG operates in an increasingly commoditised market and the
choice of platform is increasingly driven by the trader's view of
how a provider's technology advantages will enhance their trading.
The decision to change our principal trading platform has had the
consequence of limiting material platform and service / product
improvements until the migration is completed, a period of almost
two years.
Our challenge is to give experienced traders, who are minded to
move their account, a reason to choose Capital Spreads; which
inevitably leads to the need to show them something new -
differentiate by innovation. The need to innovate was recognised in
2013 and in the mid-year we set about developing a product roadmap
that will deliver new and innovative functionality. We are now on
track to deliver a material new capability in Q2 2014, and in each
quarter thereafter. Much of our marketing to this trading group
will be focused around promoting new innovation - giving a reason
to move to Capital Spreads.
For new traders, we need to grab their attention, and stand out
from the crowd. As with traders changing accounts, innovation will
play its part; but we need to present LCG as materially different
from our competitors. This will be achieved by both an innovative
marketing campaign and the promotion of our recognised core
strengths of ease of navigation, value for money and customer
service.
Although LCG has developed and promoted Capital Spreads in the
UK and established white label partnerships with a number of major
brands, the Company's client base is overly UK centric. In 2014 we
will start to address this issue by developing micro sites, run on
the current LCG trading platform, for a number of overseas markets
and also seek to increase the number of partnerships we have
outside the UK.
In summary, our medium term strategy is to re-position LCG as
different from the crowd and support this rhetoric with the regular
release of innovative technology solutions.
Long term - strategic.
The longer-term goals of the organisation are largely an
extension of the above. We operate in an online market and
innovative product development is at the core of LCG's advancement
for the foreseeable future. Our innovation will be orientated
around improving navigation and ease of use and delivering tools
and services that help clients reduce risk and make better trading
decisions.
Equally, there is a limit to which we can develop our business
if we remain UK centric. As an online business we will endeavour to
expand without the need to establish overseas operations, but there
is a limit to what can be achieved in distant time zones and
without a local regulated presence. Therefore, once we have
re-established momentum, the Company will seek to expand into Asian
and Latin American time zones, organically, via partnerships, joint
ventures and acquisitions.
However, our long-term growth is not just dependent on
innovation and geographic expansion it is also completely reliant
on delivering an excellent customer journey. Like most businesses
LCG is structured around a number of functional groups, some of
which are distinctly separated in order to comply with regulatory
requirements. However, customers do not respect organisational
structures; they expect high levels of service and rapid response.
LCG has made improving the customer journey a core long-term
objective. We have also determined that the best way of measuring
our progress is by measuring how many clients refer friends and
recommend us to others.
In summary, we will continue to drive innovations that
differentiate LCG and help our clients make better trading
decisions. We will also develop products and services that support
our international expansion, including overseas presence where
required. However, our long-term strategy will not succeed if we do
not put the customer at the centre of everything we do, and deliver
an excellent customer journey.
Review of the year
2013 was a difficult year and the Group's revenue from
continuing operations fell by 5% to GBP25.2m from GBP26.6m in 2012.
At the same time, as explained above, the Group was also able to
resolve matters that overshadowed its development and withdraw from
unprofitable and non-core activities and has emerged in a much
stronger structural and operational position.
The Group's principal business activity, UK financial spread
betting and contracts for difference, saw divisional revenue
increase by 2% to GBP20.8m from GBP20.5m in 2012. The second half
of 2013 saw revenues in line with the comparative period, after
revenue in the first half of the year was up 4% on 2012. Although
revenues were in line with the previous year, new client
acquisition fell significantly from 10,123 in 2012 to 6,431 in 2013
a drop of 36% due to a general industry downturn compounded by a
lack of marketing and sales activity in 2013. Funds on deposit fell
by 14% to GBP22.5m (2012: GBP26.3m) and average daily trading
volumes dropped by 12% to 22,008 (2012: 25,029). Gross margin
increased to 72% (2012: 66%) with white label commission payments
remaining the largest direct cost at GBP4.4m (2012: GBP5.0m).
During the second half of 2013 significant effort was focussed
on rebuilding our sales and marketing activity with the result that
by the end of the period the rate of client attrition was
stemmed.
The institutional foreign exchange business suffered from
falling volumes in 2013. As a result, divisional revenue fell 29%
to GBP4.3m from GBP6.1m and divisional profit fell by 19% to
GBP1.3m (2012: GBP1.6m). The second half of 2013 generated revenues
29% higher than in the second half of the comparative period.The
business derives revenue primarily from commission and operates on
a low cost base which underwrites its ongoing profitability. More
recently the business has signed up a number of key clients which
should generate greater volumes and revenue in the future.
The Group disposed of its interests in London Capital Group Pty,
the Australian CFD business, on 16 May 2013 and in ProSpreads the
Group's Direct Market Access ("DMA") financial spread betting
business based in Gibraltar on 31 October 2013. Prior to disposal
the cost base of both the previously loss making subsidiaries was
restructured, significantly reducing headcount and costs. The
non-core institutional broking business ceased to operate on 30
November 2013. These changes were undertaken to allow the Group to
focus on its core profitable business activities.
The 2013 profit generated from discontinued operations, which
comprise the Australia and Gibraltar based subsidiaries and the
institutional broking business, was GBP0.6m compared to a loss of
GBP1.0m in 2012. A gain of GBP0.33m arose on the disposal of
ProSpreads and GBP0.04m on London Capital Group Pty, being the
difference between the proceeds of disposal and the carrying amount
of the subsidiaries' net assets and attributable goodwill.
Adjusted administrative expenses (continuing operations)
2013 2012
GBP'000 GBP'000
Employee remuneration costs 5,978 5,847
Advertising and marketing 1,080 1,882
IT and platform costs 3,164 3,364
Regulatory costs 574 605
Premises costs 551 580
Legal costs in relation to FOS claims
and professional client debt - 532
Other costs 2,234 1,598
Ordinary depreciation and amortisation 2,081 2,125
Adjusted administrative expenses 15,662 16,533
Adjusted administrative expenses for continuing operations,
which exclude share based payment expense and the exceptional items
noted below, were reduced by 5% to GBP15.7m (2012: GBP16.5m).
Employee remunerations costs, inclusive of employer related
taxes and pension costs, rose 3% to GBP6.0m from GBP5.8m. During
2013 significant staff investment has been made in the areas of
sales, marketing and the middle office, strengthening each of these
areas within the Group.
In early 2013 the Group reduced marketing expenditure while
undertaking a review of the business strategy and objectives. As a
result advertising and marketing costs fell by 42%. Advertising and
marketing investment will increase in 2014 to at least 2012
levels.
Legal costs in relation to the Group's legal and FOS claims have
been treated as exceptional items in 2013.
The increase in other costs is principally due to higher
recruitment costs.
Exceptional items excluded from adjusted profit before tax
2013 2012
GBP'000 GBP'000
Additional charge for increased provision
against FOS claims 1,067 1,542
Impairment of goodwill 1,353 395
Impairment loss recognised on available 100 -
for sale equity investments
Restructuring costs 854 -
Costs related to change in IT platform including 1,730 -
accelerated amortisation
Non recurring legal fees associated with 1,879 -
the Integrity and FOS claims
Exceptional items excluded from adjusted
profit before tax 6,983 1,937
The additional charge for the FOS claims is a result of the
Directors' best estimate of the provision required based on an
analysis of the losses incurred in the fund attributable to
clients, the FOS ruling and ongoing progress of the settlements.
The 2013 increase in the provision is due to additional interest
and other charges payable.
The Group tests annually for impairment of goodwill and
investments. At 31 December 2013, before impairment testing,
goodwill of GBP9.3m was allocated to the London Capital Group
Limited financial spread betting and contracts for difference
(CFDs), UK business segment (CGU). Client recruitment rates and
revenue per client in this CGU have been revised in light of an
extended period of low market volatility and the impact of lower
than expected marketing activity in 2013. The updated cash flow
forecasts for this CGU, using the pre-tax discount rate of 11%,
resulted in a reduction of the recoverable amount of the London
Capital Group Limited CGU of GBP1.4m which has been recognised as
an impairment loss against goodwill. The Directors consider their
best estimate of the fair value of the investment held in unquoted
shares is nil.
The restructuring costs relate to the professional advice
received by the Group plus the resultant redundancy and one off
costs associated with the restructuring undertaken in early
2013.
In 2012 the Group decided to invest in a new spread betting and
CFD platform. The implementation of the system has taken longer and
required more investment than envisaged at the outset and will not
be completed until April 2014. The addition of a new platform and
the reduction in the useful life of the old platform has led to the
accelerated depreciation GBP0.90m of that platform in 2013 to nil.
In addition the duplicated platform costs for the old platform of
GBP0.83m during 2013 have been treated as exceptional with the
ongoing IT hosting, maintenance and support costs of GBP0.79m
forming part of the Group's administrative expenses.
The non recurring legal fees arose from a claim served against
the Group's subsidiary London Capital Group Limited in relation to
the termination of a fee sharing agreement with Integrity Financial
Solutions Limited, the Company that introduced clients to the
managed FX fund that subsequently led to the FOS complaints. In
addition to the legal fees incurred in defending the claim, the
Group settled the legal proceedings by making a payment to
Integrity of GBP350,000, which represented a contribution to their
legal expenses.
Tax
The Group's effective tax rate decreased to -11% (2012 Restated:
-15%). This is primarily due to losses incurred in London Capital
Group Limited. These losses will be carried forward and offset
against future taxable profits and a deferred tax asset of GBP0.3m
has been recognised in this respect.
While preparing financial statements for the Group for the
period a posting error related to taxation in the prior period was
identified and had resulted in the misstatement of the corporation
tax charge as well as the current and deferred tax items on the
balance sheet. As this error was made in the comparative financial
year the balance sheet and income statement have been restated as
follows:
-- the deferred tax asset has been reduced from GBP0.47m to GBP0.06m;
-- The current tax liability has been reduced from GBP0.21m to nil;
-- a current tax receivable of GBP0.30m has been recognized; and
-- the tax credit to the income statement for has been increased by GBP0.1m to GBP0.4m
This resulted in an increase of GBP0.1m in retained earnings.
Additionally, earnings per share from continuing operations
increased by 0.19p
Dividend policy
The Board has reviewed its dividend policy during the year and
has concluded that a policy of paying dividends from available
profits while considering the current and future capital
requirements of the business is the most appropriate policy going
forward. The Board is not recommending a final dividend (2012:
nil).
Financial position
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 GBP4.7m (2011: GBP3.6m)
represents the provision for FOS claims referred to above.
Available liquidity and cash flow
2013 2012
GBP'000 GBP'000
Own cash held 16,876 12,953
Short term receivables: Amounts due from
brokers 4,607 7,425
------- -------
Net cash and short term receivables 21,483 20,378
------- -------
Title transfer funds and unsegregated funds 329 9,241
------- -------
Available liquid resources 21,812 29,619
------- -------
Available liquidity which comprises own cash held, title
transfer funds, unsegregated funds and amounts due from brokers
decreased by GBP7.8m. From December 2013 Institutional FX client
funds have been treated as segregated, as required by the FCA,
except where a title transfer collateral arrangement (TTCA) is in
place. This is the principal reason for the fall in the title
transfer and unsegregated funds.
Net cash inflow from operating activities after adjustments for
movements in working capital, net of effects from disposal of
subsidiaries, amounted to GBP1.0m (2012: outflow of GBP11.1m). The
working capital movement predominantly relates to a decrease in the
amounts due from brokers. Net cash used in investing activities of
GBP6.0m pertains to the disposal of ProSpreads, our investment in
IT and the new spread betting platform, net of interest income
received (2012: GBP1.6m).
Total client money at the year-end was GBP26.8m (2012: GBP43.0m)
of which GBP26.5m (2012: GBP33.7m) was held in segregated bank
accounts. Unsegregated amounts held on behalf of clients are held
under a TTCA. The ProSpreads client funds at the date of disposal
of the subsidiary in October 2013 were GBP11.4m of which GBP6.1m
was held in segregated bank accounts.
Capital adequacy
The following table summarises the Group's capital adequacy. The
Group continues to have head room over our capital resource
requirements, further details can be found within the (unaudited)
Pillar 3 Information section:
2012
2013 Restated
GBP'000 GBP'000
Total Tier 1 Capital 27,939 31,602
Less: Intangible Assets (9,337) (12,495)
-------- ---------
Total tier 1 capital resources (CR) 18,602 19,107
-------- ---------
Capital resource requirement (CRR) (11,880) (11,473)
Capital resource requirement surplus 6,722 7,634
-------- ---------
CR expressed as a percentage of CRR 157% 167%
-------- ---------
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2013
2013 2012
Restated
Notes GBP'000 GBP'000
Continuing operations
Revenue 25,189 26,629
Cost of sales (7,438) (9,521)
--------- ----------
Gross profit 17,751 17,108
Administrative expenses (before certain
items) (15,662) (16,533)
Certain items:
Charge for provision against FOS claims 12 (1,067) (1,542)
Impairment of goodwill 8 (1,353) (395)
Impairment loss recognised on available-for-sale (100) -
equity investments
Restructuring costs (854) -
Costs related to change in IT platform (1,730) -
including accelerated amortisation
Non recurring legal fees (1,879) -
Share-based payment charge (13) 41
-------------------------------------------------- ------ --------- ----------
Total administrative expenses (22,658) (18,429)
--------- ----------
Operating loss (4,907) (1,321)
Investment revenue 107 269
--------- ----------
Loss before taxation (4,800) (1,052)
Tax credit 442 405
--------- ----------
Loss for the year from continuing operations (4,358) (647)
Discontinued operations
Profit/(loss) for the period from discontinued
operations 4 635 (998)
Loss for the period attributable to
owners of the parent (3,723) (1,645)
========= ==========
Earnings per share (pence)
From continuing operations: 2013 2012
Restated
- Basic 5 (8.32) (1.24)
- Diluted 5 (8.32) (1.24)
- Adjusted basic 5 5.04 1.50
From continuing and discontinuing operations
- Basic 5 (7.11) (3.14)
- Diluted 5 (7.11) (3.14)
- Adjusted basic 5 6.25 (0.41)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2013
2013 2012
Restated
GBP'000 GBP'000
Loss after taxation (3,723) (1,645)
-------- ----------
Exchange differences in translation of
foreign operations - (59)
Total comprehensive loss for the year (3,723) (1,704)
Total comprehensive loss for the year
attributable to owners of the parent (3,723) (1,704)
-------- ----------
CONSOLIDATED BALANCE SHEET
As at 31 December 2013
31 Dec 2013 31 Dec 2012
Restated
Notes GBP'000 GBP'000
NON-CURRENT ASSETS
Intangible assets 7 9,337 12,495
Property, plant and equipment 8 1,845 2,327
Available-for-sale investments - 100
Investments - -
Deferred tax asset 335 61
------------ ------------
11,517 14,983
CURRENT ASSETS
Trade and other receivables 10 6,735 9,247
Current tax receivables 470 302
Cash and cash equivalents 11 17,205 22,194
24,410 31,743
TOTAL ASSETS 35,927 46,726
CURRENT LIABILITIES
Trade and other payables 3,336 11,539
Provisions 12 4,652 3,585
------------ ------------
7,988 15,124
TOTAL LIABILITIES 7,988 15,124
NET ASSETS 27,939 31,602
EQUITY
Share capital 5,580 5,318
Share premium 20,592 19,572
Own shares held (2,569) (1,287)
Retained earnings 9,680 13,343
Other reserves (5,344) (5,344)
------------ ------------
TOTAL EQUITY 27,939 31,602
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2013
Share Share Own Retained Other Total
capital premium shares earnings reserves equity
(note (note held (note 31) (note GBP'000
30) 31) (note Restated 31)
GBP'000 GBP'000 30) GBP'000 GBP'000
GBP'000
At 1 January 2012 5,318 19,572 (1,287) 17,090 (5,344) 35,349
---------- ---------- ---------- ------------ ----------- ----------
Total comprehensive
loss for the year - - - (1,704) - (1,704)
Equity dividends paid
(note 13) - - - (2,032) - (2,032)
Equity settled share-based
payment transactions
( including deferred
taxation) - - - (11) - (11)
At 31 December 2012 5,318 19,572 (1,287) 13,343 (5,344) 31,602
---------- ---------- ---------- ------------ ----------- ----------
Issue of share capital 262 1,020 (1,282) - - -
Total comprehensive
loss for the year - - - (3,723) - (3,723)
Equity dividends paid - - - - - -
(note 13)
Reclassification of
foreign currency differences
on disposal of subsidiary - - - 47 - 47
Equity settled share-based
payment transactions
(including deferred
taxation) - - - 13 - 13
At 31 December 2013 5,580 20,592 (2,569) 9,680 (5,344) 27,939
CONSOLIDATED CASHFLOW STATEMENT
For the year ended 31 December 2013
2013 2012
Restated
Notes GBP'000 GBP'000
Loss for the year (3,723) (1,645)
Adjustments for:
Depreciation of property, plant and equipment 512 495
Amortisation of intangible assets 2,505 1,684
Write off of goodwill 1,353 395
Share based payments 13 (41)
Gain on disposal of discontinued operation (368)
Exchange differences in translation of foreign operation 34 -
Impairment of available for sale investments 100 -
Provisions 1,067 1,542
Investment income (134) (280)
Current tax charge (168) (455)
Movement in deferred tax asset (274) 50
Operating cash flows before movements in working capital 917 1,745
Decrease /(increase) in receivables 2,436 (4,120)
Increase/(decrease) in payables (2,287) (8,745)
------------ ---------
Cash generated by/(used in) operating activities net of effects from disposal of
subsidiaries 1,066 (11,120)
Taxation paid - (494)
------------ ---------
Net cash from/(used in) operations 1,066 (11,614)
Investing activities
Investment income 134 280
Disposal of a subsidiary, net of cash disposed of (5,330) -
Acquisitions of property, plant and equipment (51) (468)
Acquisitions of intangible assets (808) (1,401)
Net cash used in investing activities (6,055) (1,589)
Financing activities
Dividends paid 6 - (2,032)
Cash from issue of share capital - -
------------ ---------
Net cash used in financing activities - (2,032)
Net decrease in cash and cash equivalents (4,989) (15,235)
Cash and cash equivalents at beginning of year 22,194 37,429
------------ ---------
Cash and cash equivalents at end of year 11 17,205 22,194
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2013
1. Introduction
The financial information set out in the announcement does not
constitute the company's statutory accounts for the years ended 31
December 2013 or 2012. The financial information for the year ended
31 December 2012 is derived from the statutory accounts for that
year which have been delivered to the Registrar of Companies. The
auditor's report on those accounts was unqualified; however it did
include a matter of emphasis in respect of the uncertainty
surrounding the eventual outcome of complaints to the FOS. Their
opinion in respect of the year ended 31 December 2012 did not
contain a statement under s498(2) or (3) of the Companies Act
2006.
Statutory accounts for 2013 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 2013 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 adopted
by the European Union. The accounting policies followed are the
same as those detailed within the 2012 statutory 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 31 December 2013
Financial spread
betting and CFDs, Institutional
UK foreign exchange Total
GBP'000 GBP'000 GBP'000
Revenue
Segmental revenue 20,844 4,345 25,189
------------------- ------------------- ---------
Segmental operating
profit 9,806 1,340 11,146
------------------- ------------------- ---------
Unallocated corporate
expenses (16,053)
---------
Operating loss (4,907)
Finance income 107
---------
Loss before taxation (4,800)
Taxation credit 442
---------
Loss for the year (4,358)
=========
Segmental assets 9,549 6,057 15,606
------------------- ------------------- ---------
Unallocated corporate
assets 20,322
---------
Consolidated total
assets 35,928
Segmental liabilities 1,690 329 2,019
------------------- ------------------- ---------
Unallocated corporate
liabilities 5,969
---------
Consolidated total
liabilities 7,988
---------
Included within revenue is interest income earned on client money
held.
2. Revenue and segmental information
For the year ended 31 December 2012 (restated)
Financial spread Institutional
betting and foreign exchange
CFDs, UK
GBP'000 GBP'000 GBP'000
Revenue
Segmental revenue 20,528 6,101 26,629
----------------- ------------------ ---------
Segmental operating profit 7,354 1,647 9,001
----------------- ------------------ ---------
Unallocated corporate
expenses (10,322)
---------
Operating loss (1,321)
Finance income 269
---------
Loss before taxation (1,052)
Taxation credit 405
---------
Loss for the year (647)
=========
Segmental assets 10,677 7,602 18,279
----------------- ------------------ ---------
Unallocated corporate
assets 25,973
---------
Consolidated total assets 44,252
Segmental liabilities 979 11,321 12,300
----------------- ------------------ ---------
Unallocated corporate
liabilities 639
---------
Consolidated total liabilities 12,939
=========
3. Adjusted loss before tax, adjusted operating loss and
adjusted EBITDA from continuing operations
2013 2012
Restated
GBP'000 GBP'000
Reported loss before tax from continuing operations (4,800) (1,052)
Add back - charge for provision against FOS
claims 1,067 1,542
Add back - legal fees in relation to FOS claims 263 -
Add back - legal fees in Integrity case 1,266 -
Add back - Integrity case settlement 350 -
Add back - restructuring costs 854 -
Add back - accelerated depreciation of Ariel 895 -
platform
Add back - other costs of changing IT Platform 835 -
Add back - impairment of Sensatus investment 100 -
Add back - impairment of goodwill 1,353 395
Add back - share-based payment charge 13 (41)
Adjusted profit before tax from continuing
operations 2,196 844
Tax as reported 442 405
Tax effect on add backs - (465)
-------- ---------
Adjusted profit after tax from continuing operations 2,638 784
Reported operating loss before tax from continuing
operations (4,907) (1,321)
Add back - share-based payment charge 13 (41)
-------- ---------
Adjusted operating loss from continuing operations (4,894) (1,362)
Add back - amortisation and depreciation from
continuing operations 2,080 2,125
Add back - charge for provision against FOS
claims 1,067 1,542
Add back - legal fees in relation to FOS claims 263 -
Add back - legal fees in Integrity case 1,266 -
Add back - Integrity case settlement 350 -
Add back - restructuring costs 854 -
Add back - accelerated depreciation of Ariel 895 -
platform
Add back - other costs of changing IT Platform 835 -
Add back - impairment of Sensatus investment 100 -
Add back - impairment of ProSpreads goodwill 1,353 395
Adjusted EBITDA from continuing operations 4,169 2,700
4. Discontinued operations
On 16 May 2013 the Group disposed of its interest in London
Capital Group Pty Limited which carried out the Group's contracts
for difference operation in Australia and on 31 October 2013 the
Group disposed of its interest in ProSpreads Limited which carried
out the Group's spreadbetting operations in Gibraltar.
The Group ceased to operate institutional brokerage on 30
November 2013.
These changes were undertaken to allow the Group to focus on its
core businesses and consolidate its financial resources.
The results of the discontinued operations, which have been
included in the consolidated income statement, were as follows;
Year ended 31 December 2013 Financial
CFDs Spreadbetting Institutional
Australia Gibraltar Brokerage Total
Revenue 169 1,099 1,492 2,760
Expenses (124) (1,218) (1,119) (2,461)
----------- --------------- -------------- --------
Profit / (loss) before tax 45 (119) 373 299
----------- --------------- -------------- --------
Attributable tax expense (32) - - (32)
----------- --------------- -------------- --------
Net profit attributable to discontinued
operations (attributable to
owners) 267
--------
Gains on disposal (note 24) 368
--------
635
========
Year ended 31 December 2012 Financial
Spreadbetting Institutional
CFDs Australia Gibraltar Brokerage Total
Revenue 137 1,075 745 1,957
Expenses (658) (1,645) (616) (2,919)
--------------- --------------- -------------- --------
Profit before tax (521) (570) 129 (962)
--------------- --------------- -------------- --------
Attributable tax expense (36) - - (36)
--------------- --------------- -------------- --------
Net profit attributable to
discontinued operations (attributable
to owners) (998)
========
During the year ProSpreads Ltd contributed -GBP0.99 million
(2012: -GBP0.48 million) to the group's net operating cash flows
and paid GBP0.03 million (2012: GBP0.04 million) in respect of
investing activities.
A gain of GBP0.33 million arose on the disposal of ProSpreads
Ltd, being the difference between the proceeds of disposal and the
carrying amount of the subsidiary's net assets and attributable
goodwill.
During the year London Capital Group Pty contributed GBP0.05
million (2012: -GBP0.59 million) to the group's net operating cash
flows and GBP0.03 million (2012: GBP0.00 million) in respect of
investing activities.
A gain of GBP0.04 million arose on the disposal of London
Capital Group Pty, being the difference between the proceeds of
disposal and the carrying amount of the subsidiary's net assets and
attributable goodwill.
During the year institutional brokerage contributed
GBP0.30million (2012: GBP0.13 million) to the group's net operating
cash flows.
No gain or loss arose on the discontinuation of these
operations.
5. Earnings per ordinary share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
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
nil (2012: nil).
2013 2012 Restated
From continuing and discontinued operations
Basic EPS
Loss after tax (GBP'000) (3,723) (1,645)
Weighted average number of shares 52,365,908 52,365,908
Weighted average basic EPS (7.11) (3.14)
Diluted EPS
Loss after tax (GBP'000) (3,723) (1,645)
Weighted average number of shares 52,365,908 52,365,908
Weighted average fully diluted EPS (7.11) (3.14)
Adjusted basic EPS
Adjusted (loss)/profit after tax (GBP'000) 3,273 (214)
Weighted average number of shares 52,365,908 52,365,908
Weighted average basic EPS 6.25 (0.41)
From continuing operations
Basic EPS
Loss after tax (GBP'000) (4,358) (647)
Weighted average number of shares 52,365,908 52,365,908
Weighted average basic EPS (8.32) (1.24)
Diluted EPS
Loss after tax (GBP'000) (4,358) (647)
Weighted average number of shares 52,365,908 52,365,908
Weighted average fully diluted EPS (8.32) (1.24)
Adjusted basic EPS
Adjusted profit after tax (see note
5) (GBP'000) 2,638 784
Weighted average number of shares 52,365,908 52,365,908
Weighted average basic EPS 5.04 1.50
2013 2012
From discontinued operations
Basic EPS
Profit/(Loss) after tax (GBP'000) 635 (998)
Weighted average number of shares 52,365,908 52,365,908
Weighted average basic EPS 1.21 (1.91)
Diluted EPS
Profit/(Loss) after tax (GBP'000) 635 (998)
Weighted average number of shares 52,365,908 52,365,908
Weighted average fully diluted EPS 1.21 (1.91)
Adjusted basic EPS
Adjusted profit/(loss) after tax (GBP'000) 635 (998)
Weighted average number of shares 52,365,908 52,365,908
Weighted average basic EPS 1.21 (1.91)
6. Dividends
2013 2012
GBP'000 GBP'000
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December
2012 of nil (2011: 2.6p) - 1,351
Interim dividend for the year ended 31 December
2013 of nil (2012: 1.3p) - 681
- 2,032
7. Intangible fixed assets
Customer Trade
relationship name Software Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
COST
At 1 January 2012 152 136 8,444 9,698 18,430
Additions - - 1,401 - 1,401
Disposals - - - - -
At 1 January 2013 152 136 9,845 9,698 19,831
Additions - - 808 - 808
Disposals (152) (136) (2,304) - (2,592)
At 31 December 2013 - - 8,349 9,698 18,047
----- ----- ------- ----- -------
AMORTISATION
At 1 January 2012 152 136 4,969 - 5,257
Charge for the year - - 1,684 - 1,684
Eliminated on Impairment
(note 14) - - - 395 395
Eliminated on disposal - - - - -
At 1 January 2013 152 136 6,653 395 7,336
Charge for the year - - 2,505 - 2,505
Eliminated on Impairment
(note 14) - - - 1,353 1,353
Eliminated on disposal (152) (136) (2,196) - (2,484)
----- ----- ------- ----- -------
At 31 December 2013 - - 6,962 1,748 8,710
NET BOOK VALUE
At 31 December 2013 --1,387 7,950 9,337
At 31 December 2012 --3,192 9,303 12,495
8. Impairment charge
An impairment charge of GBP1,353,000 has been recognised in the
year in relation to the UK Financial spread betting and CFDs CGU.
In 2012 an impairment of GBP395,000 has been recognised in relation
to the goodwill allocated to the ProSpreads CGU which represents
the Gibraltar spread betting business.
9. Property, plant and equipment
Leasehold Plant and
property machinery Total
GBP'000 GBP'000 GBP'000
COST
At 1 January 2012 2,603 1,663 4,266
Additions 31 437 468
Disposals - - -
At 1 January 2013 2,634 2,100 4,734
Additions - 51 51
Disposals (574) (802) (1,376)
----- ----- -------
At 31 December 2013 2,060 1,349 3,409
AMORTISATION
At 1 January 2012 698 1,214 1,912
Charge for the year 209 286 495
Eliminated on disposal - - -
At 1 January 2013 907 1,500 2,407
Charge for the year 243 269 512
Eliminated on disposal (566) (789) (1,355)
At 31 December 2013 584 980 1,564
NET BOOK VALUE
At 31 December 2013 1,476 369 1,845
At 31 December 2012 1,727 600 2,327
10. Trade and other receivables
2013 2012
Restated
GBP'000 GBP'000
Trade receivables 212 295
Amounts due from
brokers 4,607 7,425
Amounts owed by Group
undertakings - -
Other receivables 953 659
Prepayments 963 868
------- --------
6,735 9,247
11. Cash and cash equivalents
2013 2012
GBP'000 GBP'000
Gross cash and cash equivalents 43,715 55,942
Less: Segregated client
funds (26,510) (33,748)
-------- --------
Own cash and title transfer
funds 17,205 22,194
-------- --------
Analysed as:
Cash at bank and in hand 17,205 20,119
Short-term deposits (three
months) - 2,075
17,205 22,194
Gross cash and cash equivalents include Group cash and all
client funds (segregated funds and funds under title transfer).
Segregated client funds include client funds held in segregated
accounts or breakable short term deposits (less than three months)
in line with the FCA's Client Asset rules ('CASS').
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 are included on the
balance sheet.
12. Provisions and contingent liabilities
2013 2012
GBP'000 GBP'000
Provision against FOS claims 4,652 3,585
4,652 3,585
Provision against FOS claims 2013 2012
GBP'000 GBP'000
At 1 January 2013 3,585 3200
Additional provision in the year 1,067 2,255
Release of provision - (713)
Utilisation of provision - (1,157)
---------
At 31 December 2013 4,652 3,585
During the first half of 2009 the Group made commission rebating
errors whilst preparing the customer statements of a managed FX
fund. The correction of these errors led to a series of complaints
to the Financial Ombudsman Service ("FOS"). While the Group
believes its actions did not directly cause any loss to the
clients, the Ombudsman has issued a final decision upholding the
complaints and ordering the Group to repay all losses incurred by
the clients plus interest.
The Directors have therefore determined the valuation of the
provision in accordance with the Ombudsman's directions and taken
into account expected associated costs including interest and other
charges. As a result, the provision has been increased to GBP4.7m.
The contingent liability decreased to GBP0.9m, being the balance of
the customers who have not claimed that is not included in the
provision.
Since the balance sheet date, the Group has made redress to a
sizeable number of complainants in accordance with the Ombudsman's
directions, and the recipients have formally withdrawn their
complaints from the FOS. Whilst the Directors are confident that
the provision and contingent liability represents the best estimate
of the expected liability as at the balance sheet date, there is a
degree of uncertainty as to the number of claimants due to be
paid.
Contingency against FOS Claims 2013 2012
GBP'000 GBP'000
At 1 January 1,045 3,300
Release of provision (162) (2,255)
-------- --------
At 31 December 883 1,045
In 2012, the Group received a claim served against its
subsidiary London Capital Group Limited in relation to the
termination of a fee sharing agreement with Integrity Financial
Solutions Limited ("Integrity"), the Company that introduced
clients to the managed FX fund referred to above. Legal proceedings
were settled in November 2013, as a result of which all claims made
against the Group were withdrawn by Integrity and LCG made a
GBP350,000 contribution towards Integrity's costs.
13. Correction of prior period error
While preparing financial statements for the Group for the
period ended 31 December 2013 it was noticed that a posting error
related to taxation in the year ended 31 December 2012 had resulted
in the misstatement of the corporation tax charge as well as the
current and deferred tax items on the balance sheet.
As this error was made in the comparative financial year the
balance sheet and profit and loss have been restated as
follows;
- The deferred tax asset has been reduced from GBP0.47m to GBP0.06m
- The current tax liability has been reduced from GBP0.21m to nil
- A current tax receivable of GBP0.30m has been recognised
- The tax credit to the profit and loss for the year ended 31
December 2012 has been increased by GBP0.1m to GBP0.4m
This resulted in an increase of GBP0.1m in retained
earnings.
Additionally, earnings per share from continuing operations
increased by 0.19p.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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