London Capital Group Holdings Regulatory News (LCG)

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 £20.8m (2012: £20.5m)

§ Revenue from continuing operations decreased 5% to £25.2m (2012: £26.6m)

§ Adjusted profit before tax* from continuing operations of £2.2m (2012: £0.8m)

§ Statutory loss before tax from continuing operations of £4.8m (2012: £1.1m)

§ Statutory loss after tax from continuing and discontinued operations of £3.7m (£1.6m)

§ Cash and cash equivalents £17.2m at year end (2012: £22.2m)

§ Net cash and short term receivables** of £21.8m at year end (2012: £20.4m)

Operational Highlights

§ UK financial spread betting (FSB) and contracts for difference (CFDs) performance

- Divisional revenue up 2% to £20.8m (2012: £20.5m); divisional profit of £9.8m (2012: £7.4m)

- 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 £4.3m (2012: £6.1m); divisional profit of £1.3m (2012: £1.6m)

§ 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."

*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

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 £25.2m from £26.6m 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 £20.8m from £20.5m 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 £22.5m (2012: £26.3m) 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 £4.4m (2012: £5.0m).

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 £4.3m from £6.1m and divisional profit fell by 19% to £1.3m (2012: £1.6m). 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 £0.6m compared to a loss of £1.0m in 2012. A gain of £0.33m arose on the disposal of ProSpreads and £0.04m 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)

Adjusted administrative expenses for continuing operations, which exclude share based payment expense and the exceptional items noted below, were reduced by 5% to £15.7m (2012: £16.5m).

Employee remunerations costs, inclusive of employer related taxes and pension costs, rose 3% to £6.0m from £5.8m. 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

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 £9.3m 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 £1.4m 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 £0.90m of that platform in 2013 to nil. In addition the duplicated platform costs for the old platform of £0.83m during 2013 have been treated as exceptional with the ongoing IT hosting, maintenance and support costs of £0.79m 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 £350,000, 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 £0.3m 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 £0.47m to £0.06m;

· The current tax liability has been reduced from £0.21m to nil;

· a current tax receivable of £0.30m has been recognized; and

· the tax credit to the income statement for has been increased by £0.1m to £0.4m

This resulted in an increase of £0.1m 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 £4.7m (2011: £3.6m) represents the provision for FOS claims referred to above.

Available liquidity and cash flow

Available liquidity which comprises own cash held, title transfer funds, unsegregated funds and amounts due from brokers decreased by £7.8m. 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 £1.0m (2012: outflow of £11.1m). The working capital movement predominantly relates to a decrease in the amounts due from brokers. Net cash used in investing activities of £6.0m pertains to the disposal of ProSpreads, our investment in IT and the new spread betting platform, net of interest income received (2012: £1.6m).

Total client money at the year-end was £26.8m (2012: £43.0m) of which £26.5m (2012: £33.7m) 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 £11.4m of which £6.1m 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:

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2013

CONSOLIDATED BALANCE SHEET

As at 31 December 2013

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 December 2013

CONSOLIDATED CASHFLOW STATEMENT

For the year ended 31 December 2013

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

2. Revenue and segmental information

For the year ended 31 December 2012 (restated)

3. Adjusted loss before tax, adjusted operating loss and adjusted EBITDA from continuing operations

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;

During the year ProSpreads Ltd contributed -£0.99 million (2012: -£0.48 million) to the group's net operating cash flows and paid £0.03 million (2012: £0.04 million) in respect of investing activities.

A gain of £0.33 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 £0.05 million (2012: -£0.59 million) to the group's net operating cash flows and £0.03 million (2012: £0.00 million) in respect of investing activities.

A gain of £0.04 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 £0.30million (2012: £0.13 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).

6. Dividends

7. Intangible fixed assets

COST

AMORTISATION

NET BOOK VALUE

8. Impairment charge

An impairment charge of £1,353,000 has been recognised in the year in relation to the UK Financial spread betting and CFDs CGU. In 2012 an impairment of £395,000 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

COST

AMORTISATION

NET BOOK VALUE

10. Trade and other receivables

11. Cash and cash equivalents

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

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 £4.7m. The contingent liability decreased to £0.9m, 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.

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 £350,000 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 £0.47m to £0.06m

- The current tax liability has been reduced from £0.21m to nil

- A current tax receivable of £0.30m has been recognised

- The tax credit to the profit and loss for the year ended 31 December 2012 has been increased by £0.1m to £0.4m

This resulted in an increase of £0.1m in retained earnings.

Additionally, earnings per share from continuing operations increased by 0.19p.