London Capital Group Holdings Regulatory News (LCG)

21 Feb 2007 07:01

London Capital Group Holdings PLC21 February 2007 Wednesday 21 February 2007 LONDON CAPITAL GROUP HOLDINGS PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 London Capital Group Holdings plc ("LCG", the "Company" or the "Group")announces preliminary results for the year ended 31 December 2006. LCG is arapidly growing financial services company offering online trading services. 2006 Highlights: •Turnover up 78% to £8.65 million (2005: £4.86 million) •EBITDA* up 144% to £4.03 million (2005: £1.66 million) •Operating profit (before share option reserve) up 142% to £3.87 million (2005: £1.60 million) •Strong EBITDA margin of 47% up from 35% in 2005 •Adjusted earnings per share up 122% to 7.3p (2005: 3.3p) •Maiden dividend of 1.7p per share •No debt and cash resources of £3.35 million up from £1.67 million in 2005 •Average daily spread betting trades up 120% to 4,314 •Number of live financial spread betting client accounts increased 95% to 8,708 •Forex monthly trading volumes increased significantly during the year rising from US$1.3 billion in January 2006 to US$13.2 billion in December 2006 •Current trading is strong Commenting on the results, Frank Chapman, Chairman and Chief Executive Officer,said: "2006 was a year of significant expansion for LCG. We have enhanced thescalability of our various businesses and have laid the foundations for thefuture growth of the Group. At the same time we have contained overheads,delivered improved shareholder value and proposed a maiden dividend." *EBITDA represents earnings before exceptional administration costs, shareoption reserve, depreciation, taxation, interest receivable on corporate cashbalances and includes interest receivable on clients' money net of interestpayable to clients. For further information, please contact: www.londoncapitalgroup.com London Capital Group Holdings plc 020 7456 7000Frank Chapman, Chief Executive Officer Smithfield Consultants 020 7360 4900George Hudson Print resolution images are available for the media to view and download fromwww.vismedia.co.uk Notes to Editors: London Capital Group Holdings plc (LCG) is a rapidly growing financial servicescompany offering online trading services. Its core activity is the provision ofspread betting products on the financial markets to retail clients under thetrading name Capital Spreads. Its other divisions provide online foreignexchange trading services to institutional and intermediate clients under theCapital Forex brand and institutional derivatives broking under the name CapitalDerivatives. London Capital Group Limited, a wholly owned trading subsidiary of LCG isregulated and authorised by the Financial Services Authority. It has a Europeanpassport and is a member of the London Stock Exchange, Liffe, Eurex andEuronext, giving it direct access to all European markets. London Capital GroupLimited also has access to international markets through its global clearingrelationships. LCG floated on the London Stock Exchange's AIM market on 22nd December 2005 atan issue price of 82p. LCG is included in the General Financial sector (8770)and Speciality Finance sub sector (8775) and has a RIC code of LCG.L. Chairman and Chief Executive Officer's Statement Introduction The Group has had another successful and very exciting year in 2006, both interms of profit and business development. We have laid the foundations for thefuture expansion of the company, having invested substantially in people, IT andinfrastructure during the year. Simultaneously, we have more than doubled ourEBITDA and operating profit compared to 2005. Results Our businesses all performed robustly in 2006 with Group turnover rising by 78%to £8.65 million. EBITDA was up 144% to £4.03 million and operating profit alsorose by 142% to £3.87 million. Both the EBITDA and the operating profit arestated before recognising expenses of £0.54 million relating to the creation ofa share option reserve for the first time in 2006. Net cash inflow fromoperating activities increased to £13.23 million from £5.63 million in 2005. This performance reflects the increased number of spread betting accounts andtrades, which averaged 278,000 trades per quarter during the year (2005: 129,000trades per quarter), a like for like increase of 115%. Furthermore, the CapitalForex division which commenced activities in late 2005 has generated significantmomentum during the year. In the second half of the year the average tradeticket size was over US$2 million and trading activity increased from US$2.1billion in the fourth quarter of 2005 to US$38.7 billion in the same quarter of2006. The Capital Derivatives division had a good year in an increasingly competitivemarket, showing an increase in volumes of 20% over 2005. We appointed a Group Finance Director in the fourth quarter of 2006 and hisfuller financial review follows this statement. Dividend The Group's policy is to pay dividends which reflect the earnings, cash flow andpotential of the Group. The Board confirms that the Group proposes to pay a full year dividend of 1.7pper share on 20 April 2007 to ordinary shareholders on the register on 30 March2007. The dividend is subject to approval at the Annual General Meeting to beheld on 19 April 2007. Operating Review Capital Spreads and Binary Bets Capital Spreads, our financial spread betting business, has continued to enjoyexceptional growth during the period with the number of live accounts havinggrown from 4,456 at 31 December 2005 to 8,708 at 31 December 2006 and tradingvolumes were also up 115% in 2006. Whilst our marketing activity plays a significant part in building our clientbase, our reputation means that in excess of 50% of Capital Spreads clients areacquired via word of mouth or recommendation. These clients are attracted to ourhighly regarded and popular service due in great part to our commitment to someof the tightest spreads in the industry. It remains our policy not to accept bets from US resident clients. Capital Forex Capital Forex has enjoyed an excellent year with substantial growth in trading,culminating in a large increase in month-on-month volumes from the middle of2006 through to the end of the year. The division achieved daily turnover inexcess of one billion dollars on several occasions in November and December,leading to an impressive increase in profitability along with a large influx ofnew enquiries from potential clients of all sizes. Trading activity in CapitalForex increased to US$38.7 billion in the fourth quarter of 2006 from US$2.1billion in the same quarter in 2005. Capital Forex with its excellent liquidity, pricing and hands-on personalcustomer support, has generated favourable reviews throughout the forexcommunity leading to significant interest in the product. Notably, the marketing budget for the year was minimal yet the division signedup in excess of 100 new institutional and professional clients. The averagetrade ticket size of over US$2 million in the second half of the year isparticularly pleasing and should encourage more institutional customers to openaccounts. Given these facts, the Board reasonably expects the forex division to enjoycontinued growth throughout 2007 and beyond. Capital Derivatives In an increasingly competitive market Capital Derivatives increased volumes by20% during 2006. In the third quarter of 2006 some major new institutional clients were signed upand the division was further strengthened by the arrival of experienced newpersonnel. During the first quarter of 2007 expansion into the institutional equitiesmarket is planned by offering both cash and equity derivative broking. This willbroaden the reach and client base of the division with further growth expectedin 2007. Growth Strategy Our growth strategy in spread betting remains organic, augmented by white labelpartnerships and global expansion. During 2006 we launched white labels in South Africa, Scandinavia and Greece andhave now translated the spread betting platform into German, French, Dutch andChinese. With the implementation of new European directives during 2007, theGroup plans to market Capital Spreads products throughout Europe with associatedgrowth arising from this region in 2008. As the benefits of trading via a spreadbetting platform become more evident globally, Capital Spreads is very wellplaced to take advantage of its strong brand name, reputation and qualityproduct offering and will continue to be a major player in this sector. The forex division will continue to concentrate on its institutional customergrowth, marketing its platform to major institutions internationally. Inaddition, we plan to launch a more retail-focused forex trading platform in thesecond quarter of 2007 delivering our superb liquidity to a more broadly-basedmarket. Capital Derivatives is highly respected in the industry for its optionsexpertise and plans to continue to capitalise on this during 2007. We are also preparing for the impact of the new European MiFID (Markets inFinancial Instruments Directive) and Capital Adequacy directives which will comeinto force during the latter part of 2007. Employees On behalf of the Board, I would like to thank all our employees includingdivisional heads for their continued contribution, hard work and support duringthe past year. Our business would not have achieved these impressive resultswithout their effort and dedication. Our employee numbers have risen from 17 to33 during 2006, in line with the expansion of the business. The increase in employee numbers, together with the expiry of our lease,prompted the requirement for improved office space and facilities. As a result,in August 2006, the Group relocated offices to 12 Appold Street, London where wewere able to build and install the new IT infrastructure needed to support thescalability of our predominantly electronic businesses going forward. We firmly believe that our employees are our most valuable asset and, inrecognition of this, we have introduced the Group share option scheme. My thanks also go to my fellow Board members and senior management for all theirefforts. I would also like to take this opportunity to welcome Raj Gandhi, ournew Group Finance Director, to the team. Pending the appointment of new non-executive directors, both the Audit Committeeand the Remuneration Committee will be chaired by Rachel Woodford with thesupporting member for each committee being Simon Denham and Raj Gandhirespectively. Current Trading and Outlook 2006 was a year of significant momentum for LCG, with strong organic growth inits main trading divisions and major investment in scalable infrastructure,preparing the platform for continued future growth in 2007 and beyond. Capital Spreads continues to attract new customers at an encouraging rate and CapitalForex is also growing rapidly in an expanding market. Overall we are delighted with the progress made by the Group and we remainconfident that 2007 will deliver further shareholder value. Frank ChapmanChairman and Chief Executive Officer 21 February 2007 Group Finance Director's Review Firstly, I would like to thank Frank and my fellow directors for welcoming me tothe Board. I am delighted to report on the financial performance of the Group for 2006, itsfirst full year of reporting as a quoted company. These are exciting times forLCG with many opportunities for growth and expansion ahead. The Group continues to grow at a rapid pace across its main divisions and thisis reflected in all key financial metrics. The turnover from our continuingbusiness rose by 78% to £8.65 million from £4.86 million last year. As a result, EBITDA increased by 144% to £4.03 million (2005: £1.66 million) andis stated before recognising an expense of £0.54 million (2005 - Nil) relatingto the share option reserve. This reserve was created for the first time duringthe year and arises from the adoption of FRS 20: Share Based Payment. EBITDA represents earnings before exceptional administration costs, share optionreserve, depreciation, taxation, interest receivable on corporate cash balancesand includes interest receivable on clients' money net of interest payable toclients. The EBITDA margin was 47% up from 35% in 2005 and represents EBITDA as apercentage of turnover. This clearly demonstrates our ability to benefit fromoperational gearing. The operating profit, before the expense relating to the share option reserve,rose to £3.87 million (2005: £1.60 million) representing an increase of 142%.After adjusting for the share option reserve, operating profit rose by 108% to£3.33 million (2005: £1.60 million). Net cash inflow from operating activities increased to £13.23 million from £5.63million in 2005. Earnings per share also increased by 122% to 7.3p from 3.3p in2005. Both the Capital Forex and the Capital Derivatives divisions are operated undera profit share arrangement with managers who head up each division. As a resultthe profit generated by the turnover is shared and the operating profit isstated after the deduction of such profit share. The Group maintains a low cost operation by comparison with other companies inour sector because of the continuing use of an outsourcing model. We are pleased to report the Group had no debt at the year end, the same as in2005, and cash resources of £3.35 million up from £1.67 million in 2005, afterallowing for normal business running costs and large payments made for capitalexpenditure and corporation tax. This demonstrates a high conversion rate ofprofit into cash. The Group will seek approval, at its Annual General Meeting, for its maidenfinal dividend for 2006 of 1.7p per share resulting in total dividends for theyear of £650,000. This represents a dividend cover of 4.3. These results have been reported under UK GAAP. The Group will be adoptinginternational accounting standards in 2007 and future results will therefore bereported under IFRS. Raj GandhiGroup Finance Director 21 February 2007 GROUP PROFIT & LOSS ACCOUNTFor the period ending 31 December 2006 2006 2005 Note £'000 £'000 Turnover - continuing 8,651 4,861 ---------------- GROUP TURNOVER 2 8,651 4,861 Cost of sales 1,798 1,085 ---------------- GROSS PROFIT 6,853 3,776 Administrative expenses excluding depreciation 2,819 2,117 ---------------- EBITDA 4,034 1,659 Depreciation 164 56 ---------------- OPERATING PROFIT BEFORE SHARE OPTION RESERVE 3,870 1,603 Equity - settled share based payment: recognitionof expense 541 - ---------------- OPERATING PROFIT 3,329 1,603 Interest receivable 45 21Interest payable and similar charges (2) (1,121) ----------------PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 3,372 503 Tax on profit on ordinary activities 968 199 ----------------RETAINED PROFIT FOR THE FINANCIAL PERIOD 2,404 304 ================ GROUP BALANCE SHEETAs at 31 December 2006 2006 2005 £'000 £'000FIXED ASSETSIntangible assets 9,303 9,303Tangible assets 1,655 276 ----------------- 10,958 9,579 ----------------- CURRENT ASSETSDebtors 2,225 1,044Cash at bank 16,622 5,592 ----------------- 18,847 6,636CREDITORS: Amounts falling due within one year 16,464 5,737 -----------------NET CURRENT ASSETS 2,383 899 ----------------- TOTAL ASSETS LESS CURRENT LIABILITIES 13,341 10,478 PROVISIONS FOR LIABILITIESDeferred taxation - 82 ----------------- 13,341 10,396 ================= CAPITAL AND RESERVESSHAREHOLDERS' FUNDS 13,341 10,396 ================= GROUP CASH FLOW STATEMENTFor the period ended 31 December 2006 2006 2005 £'000 £'000 NET CASH INFLOW FROM OPERATING ACTIVITIES 13,225 5,627 RETURNS ON INVESTMENTS AND SERVICING OF FINANCEInterest received 45 21Interest paid (2) (1,121) --------------- NET CASH INFLOW/(OUTFLOW) FROM RETURNS ON INVESTMENTS ANDSERVICING OF FINANCE 43 (1,100) TAXATION (695) - CAPITAL EXPENDITUREPayments to acquire intangible fixed assets - (9,303)Payments to acquire tangible fixed assets (1,543) (132) --------------- NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (1,543) (9,435) ACQUISITIONSPayments to acquire group companies - (6,324) --------------- NET CASH OUTFLOW FROM ACQUISITIONS - (6,324) EQUITY DIVIDEND PAID - (242) ---------------CASH INFLOW/(OUTFLOW) BEFORE FINANCING 11,030 (11,474) FINANCINGIssue of equity share capital - 3,829Share premium on issue of equity share capital - 11,607 --------------- NET CASH INFLOW FROM FINANCING - 15,436 ---------------INCREASE IN CASH 11,030 3,962 =============== RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROMOPERATING ACTIVITIES 2006 2005 £'000 £'000Operating profit 3,329 1,603Depreciation 164 56Increase in debtors (1,138) 38Increase in creditors 10,329 3,930Share option reserve 541 - ---------------Net cash inflow from operating activities 13,225 5,627 =============== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2006 2005 £'000 £'000Increase in cash in the period 11,030 3,962 --------------- Movement in net funds in the period 11,030 3,962 =============== Net funds at 1 January 5,592 1,630 --------------- Net funds at 31 December 16,622 5,592 =============== ANALYSIS OF CHANGES IN NET FUNDS At At 1 Jan 2006 Cash flows 31 Dec 2006 £000 £000 £000Net cash:Cash in hand and at bank 5,592 11,030 16,622 -------------------------------------- Net funds 5,592 11,030 16,622 ====================================== Notes to Financial Statements 1. Basis of preparation Financial information in this report has been prepared in accordance withaccounting policies consistent with those adopted in the 2005 financialstatements. The results for the year ended 31 December 2006 do not constitute statutoryaccounts as defined in section 240 (5) of the Companies Act 1985. They areextracted from the full statutory accounts for the year which were approved bythe Board of Directors on 20 February 2007, but which have not been delivered tothe Registrar of Companies. The report of the Auditors on these accounts isunqualified and does not contain a statement under section 237 (2) or 237 (3) ofthe Companies Act 1985. 2. Turnover is stated net of spread betting brokerage and hedging costs: 2006 2005 £000 £000 Spread betting income 7,112 4,242Forex income 1,380 -Brokerage income 905 1,066 ------------------- Turnover - continuing 9,397 5,308 ------------------- Gross group turnover 9,397 5,308Spread betting brokerage and hedging costs (746) (447) ------------------- Net group turnover 8,651 4,861 =================== 3. Earnings per share Basic EPS Pro forma 2006 2005 £ £Profit after tax 2,404,000 304,000Weighted average no of shares 38,292,683 38,292,683Weighted average basic EPS 6.3p 0.8p =============================== Diluted EPS Pro forma 2006 2005 £ £Profit after tax 2,404,000 304,000Weighted average no of shares 41,199,304 38,360,251Weighted average fully diluted EPS 5.8p 0.8p =============================== Diluted earnings per share is the basic earnings per share after allowing forthe dilative effect of the conversion into Ordinary shares of the weightedaverage number of options outstanding during the period. The 2005 comparatives for both the basic and diluted EPS have been stated on apro forma basis as they provide a more meaningful number, given the Group wasfloated in December 2005. On a non-pro forma basis, EPS would have been 16.1p(basic) and 15.5p (diluted). Adjusted EPS 2006 2005 £ £Profit after tax 2,404,000 304,000Add:Share option reserve 541,000Exceptional items - 262,000Interest payable - 1,121,000Tax effect on the above adjustments (162,000) (415,000) --------------------------- Adjusted profit after tax 2,783,000 1,272,000 =========================== Issued no of shares at the period end 38,292,683 38,292,683Adjusted EPS 7.3p 3.3p =========================== The adjusted EPS has been calculated using normalised earnings per share andusing the shares in issue at the end of the year, as this will be morecomparable with future years. Normalised earnings represent earnings adjusted,net of tax, for the share option reserve, exceptional items and non-recurringinterest payable. This information is provided by RNS The company news service from the London Stock Exchange