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 2015

Financial Highlights

· Adjusted loss before tax1 from continuing operations of £13.9 million (2014 restated: profit £1.2million)

· Statutory loss before tax from continuing operations of £14.5 million (2014 restated: £7.7 million)

· Statutory loss after tax from continuing operations of £14.9 million (2014 restated: £7.8 million)

· Revenue from UK financial spread betting ("FSB") and contracts for difference ("CFD") down 21% to £15.3 million (2014: £19.4 million)

· Revenue from continuing operations decreased 32% to £15.5 million (2014 restated: £22.7 million)

· Net cash and short term receivables2 of £16.1 million at year end (2014 restated: £32.9 million) including amounts due from brokers £3.7 million (2014: £6.1 million)

Operational Highlights

· UK FSB and CFD performance

- Divisional revenue down 21% to £15.3 million (2014: £19.4 million); divisional profit of £2.5 million (2014: £8.8 million)

- FSB average trades per day increased 48% to 29,581 (2014: 19,994)

- New client acquisitions decreased 37% to 3,539 (2014: 5,615)

· Institutional foreign exchange performance

- Business activity curtailed during the year

- Divisional revenue of £0.2 million (2014: £3.3 million); divisional loss of £0.6 million (2014: profit £1.1 million)

Charles-Henri Sabet, Chief Executive Officer said: "The Group starts the new financial year transformed. We have been successful in the integration of our new technology and are in the process of migrating our client base which we expect to be completed by the end of May.

This "brand new" LCG is centered on a new cutting-edge online trading platform and an enhanced marketing programme. We are already beginning to see the benefits and have made a strong start to 2016. I believe that all the elements are now in place for the Group to return to sustained growth."

1Adjusted (loss)/profit before tax represents (loss)/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.

2Net cash and short term receivables represents cash and cash equivalents, less unsegregated amounts due to clients, plus amounts due from brokers.

3Adjusted EBITDA represents (loss)/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 and the movement in the provision for FOS claims.

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About London Capital Group (http://ir.londoncapitalgroup.com/) 

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 division provides online foreign exchange trading services. 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 quoted 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 2015

I am pleased to report that the restructuring of the Group is complete and that LCG is now positioned to return to a period of sustained growth.

Organisational restructuring

As we have previously reported, the business has gone through a phase of consolidation in 2015 as management has been focused on getting the building blocks in place within the business in terms of technology, product offering, trading platforms, brand, customer service and, most importantly, people in order to position LCG for a return to profitability. This, however, has resulted in a lower level of trading revenue during the year as LCG limited its promotional activities in order to focus on the restructuring of the business.

During the fourth quarter of the previous financial year, we strengthened the board of the Company with the addition of non-executives, and we have continued, during 2015, to strengthen the senior management team to support our Group strategy of providing a more institutional-level of service and product offering to our retail clients.

In particular, the Group has now launched the new 'LCG' brand which took place in February 2016. This has included the production of an extensive range of marketing material, the launch of a new website (www.lcg.com) and, most importantly, the launch of our new trading platform, LCG Trader, and connected client service portal, MyLCG.

Also, during November the Group moved to new offices located in Knightsbridge. The new office space provides the benefit of being centrally located for our client needs as well providing a fresh and modern working environment for the people of LCG.

Outlook

As previously mentioned, the building blocks are in place for the business to return to growth and following the official launch of LCG Trader, the Group is ideally positioned to offer the right trading solutions to its clients at a time when it is anticipated that markets will be experiencing higher levels of volatility arising from the Brexit debate and referendum in the United Kingdom. Also, as referred to in our trading statement released on 27 January 2016, the Group will be seeking to increase its level of regulatory capital in the short term in order to take proper advantage of its new platform and to support the future growth of the business.

We will continue to invest in, and to develop, our people, products and services, to provide our clients with the service they expect in order to ensure that LCG is their provider of choice for their trading needs.

Charles Poncet

Non-Executive Chairman

28 April 2016

STRATEGIC REPORT

For the year ended 31 December 2015

Introduction

Following the strategic review that was undertaken following the arrival of new management in late 2014, the Group has now been restructured and is well positioned to return to growth.

This restructuring has included a major overhaul of the technology infrastructure used to support the Group's operations, the development of a new trading platform, LCG Trader, the launch of a new 'LCG' brand and the recruitment of specific personnel to support the delivery of a best-in-class approach to offer a competitive trading solution for our clients.

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 contracts for difference ("CFD") products based on financial market products, such as futures, equities and foreign exchange. It provides online trading to private, retail and high net worth and professional clients.

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 quoted on the London Stock Exchange's AIM market ("AIM").

Revenues are generated from the dealing spread - the difference between the buying and selling price of our CFD and spread betting products, commission income, exchange gains and interest.

The Group's future success is expected to be achieved by providing a high quality service to its customers and offering a variety of financial trading products and platforms. Clients are attracted to the Group through its value for money, ease of platform navigation, its industry leading new mobile app, tight dealing spreads and competitive margin requirements, in addition to high levels of customer service.

Strategy and objectives

Following the strategic review of the business and industry trends that was undertaken during the last quarter of 2014 and continued throughout 2015, and the subsequent decision by the senior management team to focus the business towards servicing the needs of active retail traders, LCG's aim is to provide an institutional level of service and product offering to its retail clients.

In order to first attract and then retain clients, and make LCG their provider of choice, the Group is committed to providing the following:

- Industry-leading platform

To provide an industry-leading trading platform on web, desktop, mobile and API ensuring that its offering fits in with the demands of the active trader.

- Service

To provide an industry-leading customer experience and a service tailored to individual customers' needs, both online and through telephone, email and 'live-chat' channels.

- Professional tools and news service

To provide expert in-house market analysis in order to keep clients up-to-date with market events, as well as offering access to professional third-party news and tools providers.

- Educational materials

To provide an enhanced education service catering to all levels of trading experience, including face-to-face seminars and live market webinars from a team of market analysts.

- Pricing

To deliver a value proposition to its clients without compromising adherence to quality products, platforms and service, in order to position the Group at the forefront of the industry's most competitive providers.

- Marketing

To promote the Group through building the LCG brand, consolidating online presence into a single LCG-led offering which incorporates all of the Group's products and services.

- Dealing execution

To provide a best-in-class dealing experience for clients across a broad range of markets and via multiple platform offerings. Clients will benefit from the Group's transparent and competitive dealing and execution services, for example through both liquidity providers, and the execution model on the MetaTrader4 platform.

In addition to the above core strategy , the Group is committed to:

- expanding the geographical footprint of the business by opening offices in key locations across Europe, the Middle East and Asia; and

- continuing to develop and expand the range of products offered in order to meet the needs of existing customers and attract new customers with a broader product reach and appeal.

Our people

Beginning in the last quarter of 2014 and continuing throughout 2015, the Group has strengthened the board of directors, senior management team and recruited best-in-class personnel to support the Group ambitions.

Employees are incentivised with a discretionary performance-related bonus scheme to reward performance and a range of other benefits are provided including pension contributions and private health insurance.

Environment

Given the nature of its activities, there is limited scope for the Group to have a major impact on environmental matters. Nevertheless, the Directors are mindful of their responsibilities in this regard and strive to seek opportunities where improvements may be made; these are generally concentrated in areas of energy conservation, recycling and waste control.

Equality and diversity

The Group is committed to promoting and developing equality of opportunity in all areas. Individuals are encouraged to achieve their full potential in every aspect of their employment and the Group supports fair and equitable treatment of our employees irrespective of gender, sexual orientation, religious beliefs, age, colour, ethnic or racial origin, nationality or disability.

Applications for employment by disabled persons are always fully considered and in the event of members of staff becoming disabled every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

Health and safety

The Group aims to provide and maintain a safe working environment for all its employees and visitors and seeks the involvement of its employees in improving health and safety throughout its operations. The Board keeps its health and safety policy under regular review to take account of changes in legislation, best practice and the working environment.

Principal risks and uncertainties

The principal risks and uncertainties to which the Group is exposed could each have a material impact on the Group's long-term performance and achievement of its strategic goals. The Group's risk appetite is set by the Board and is documented in the Risk Management Framework document.

The Group uses Key Risk Indicators to identify, monitor and measure risk in the business and maintains a Risk Register of all potential financial and operational risk events and the mitigating controls currently in place. This quantification process ensures that the Group operates within its risk appetite.

Ultimate responsibility for risk management lies with the Board, which has established an Audit and Risk Committee, chaired by an independent non-executive Director, which considers risk management in more detail. The principles and objectives of the Risk Management Framework are cascaded down through the Group. The responsibility for establishing specific internal control policies and procedures is overseen by the Credit and Risk Committee.

The effectiveness of internal controls is monitored by the Compliance function and specific areas may be reviewed by outsourced expert assessors and is also reported to the Audit and Risk Committee and the Board.

The main areas of risk for the Group are considered to be the following:

· Market risk: Market risk is the risk that changes in market prices will affect the Group's profit and loss or the value of financial instruments held and traded by clients. Although the Group does not directly enter into speculative proprietary positions, the effect of client trades does result in the Group retaining a net market risk. The Group has a formal risk policy and a methodology for setting limits for every financial market in which it operates. Market risk is managed on a day to day basis by the respective divisional heads with oversight provided by the Front Office Risk Management function, the Audit and Risk Committee and the Board. The risk limits determine the maximum net exposure arising from client activity which the Group is prepared to carry. If the Group's exposure to clients exceeds these limits, the policy requires that the positions are hedged reducing exposure to within defined limits.

· Credit risk and concentration risk: The Group has a credit exposure to the banks with which it deposits funds and the counterparties with which it hedges its market positions. The Group mitigates this risk by ensuring diversification of counterparties and setting minimum levels of credit worthiness for Group counterparties.

LCG does not actively offer credit to its clients but does, on occasion, offer credit to clients who meet specific criteria. LCG had adopted a Credit Risk Policy which sets out specific requirements that apply in the event that clients are offered credit.

The Group ensures client credit risk is minimised via real time monitoring, management of unrealised profit and loss, margin and net equity and supported by mandatory stops and guaranteed stop losses being made available to clients to manage their accounts.

· Operational risk: Operational risk is defined as the risk of loss arising from inadequate internal processes, people or systems. The most significant operational risks the Group is exposed to are:

o Technology risk and business continuity: Technology risk is the risk of a sustained loss of LCG's systems leading to an inability to provide online trading platforms to its clients. This will inevitably lead to a significant loss of customers and income. LCG operates backup for all its trading platforms in separately hosted environments and to support the loss of physical premises LCG also licenses disaster recovery premises. This is supported by ongoing business continuity planning and periodic testing of our disaster recovery facilities and procedures.

o Employee risk: LCG requires suitably skilled staff to operate, control, develop and manage its business. LCG has a wide range of skill requirements including IT, project management, dealing/market risk management, customer support, HR, compliance, finance, sales and marketing. Without adequate staff resources the Group would not be able to operate effectively or achieve its strategic aims. The risk is managed initially through the recruitment and selection of appropriately qualified employees, validated by a pre-employment screening process. Employee risk is also managed on an ongoing basis through training and development (both regulatory and non-regulatory), and reviews of performance to ensure that individual remuneration and performance is managed consistently and fairly. Finally, LCG ensures the continued success of the Group through the identification and retention of its key employees through share based payment awards under long term incentive plans.

o Legal, regulatory and compliance risk: Legal, regulatory and compliance risk is the risk of legal or regulatory sanctions, legal claims, defective contractual arrangements and the resulting financial loss, or damage to the reputation of the Group. LCG is a full scope firm and is therefore subject to close regulation. As such, regulatory risk is an important element of the risk assessment and management process. The regulatory landscape changes at an ever increasing pace and this imposes significant demands on the resources of the Group. The Group therefore continues to ensure sufficient investment is made in resources and training to ensure regulatory demands are met. The responsibility for compliance is spread throughout the Group, and results are monitored and reported to senior management by the Compliance Department.

· Liquidity risk: Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group has established policies and a liquidity risk management framework to manage its liquidity risk, including the daily production of liquidity reports that summarise current liquidity and liabilities. Liquidity is monitored daily by the board of London Capital Group Limited. The Group also undertakes various stress and scenario testing as part of its Individual Capital Adequacy Assessment Process ("ICAAP") that is a requirement of the FCA. These scenarios stress the effect on the Group's capital and liquidity adequacy of both an individual risk materialising or a series of risk events occurring within a short timeframe.

· Treasury risk: Treasury risk is the risk arising from the movements in the interest rates or exchange rates which affect the Group's profitability or net cash resources:

o Interest rate risk:  Interest rate risk arises from the loss of revenue from interest earned on client deposits and margined client positions, and the Group's own cash resources. While interest rates remain at their historic lows, interest income will not make a material contribution to Group profit. Conversely, as interest rates rise the Group should benefit. The Group's issued convertible loan note instrument charges a fixed interest rate of 5% and therefore no risk arises on this debt.

o Foreign currency risk: The Group faces currency exposures on translation of its monetary assets and liabilities. This risk is managed by daily monitoring of the Group's net foreign currency position as part of its liquidity risk management.

· Key supplier risk: Key supplier risk is the risk of failure of one of our principal business partners to provide contractual services. We conduct initial and ongoing due diligence on key suppliers, in addition to using multiple providers where available.

Key Performance Indicators

The Group uses the following key performance indicators to measure its financial and operational performance on delivering the strategic goals of the business:

· Revenue

· Adjusted profit before tax

· Cash

· Active trading clients

· Trades per day

· New client acquisitions

Review of the year

2015 was a year of transition for the Group resulting in revenues from continued operations falling by 32% to £15.5 million from £22.7 million in 2014.

The Group's principal business activity, UK financial spread betting and contracts for difference, saw divisional revenue fall by 21% to £15.3 million from £19.4 million in 2014 as a result of management's decision to reduce active promotional activity whilst the business focused on its restructuring activities. New client acquisition fell from 5,615 in 2014 to 3,539 in 2015, a drop of 37%. Funds on deposit increased slightly by 11% to £23.8 million (2014: £21.4 million) and average daily trading volumes increased by 48% to 29,581 (2014: 19,994). Gross margin decreased to 68% (2014: 74%) with white label commission payments remaining the largest direct cost at £5.0 million (2014: £3.8 million).

The activities of the institutional foreign exchange business were reduced during the year whilst the Group focused its efforts on the organisational restructure and as a result, divisional revenue fell 94% to £0.2 million (2014: £3.2 million).

Adjusted administrative expenses (continuing operations)

Adjusted administrative expenses, which excludes the exceptional items noted below increased by £8.6 million to £24.1 million (2014: £15.5 million).

Employee remuneration costs, inclusive of employer related taxes and pension costs, increased by 53% during the year and reflect the costs necessary for the Group to attract and employ the appropriate quality of staff to support the Group's strategy. The increase during the year also included a substantial increase in costs associated with the use of contract staff and as a result of the additional resource that LCG had to deploy in order to support its restructuring activities during the year. This cost is expected to reduce in the future.

Advertising and marketing investment has increased by 86% to £2.6 million from £1.4 million in 2014. This increase reflects the cost incurred by the Group to develop and roll-out the LCG brand. This included an increase in advertising spend towards the end of the year to increase the awareness of the LCG brand. It is anticipated that in future years, marketing spend will comprise a significant element of the Group's cost base in order to support client acquisition and retention.

The increase in premises costs relates to the relocation of the Group's office to 1 Knightsbridge compared to the preferential tenancy rates it had enjoyed at its old location (although these were due to cease in early 2016) and an overlap period whilst the new office space for the Group was fitted-out to support its future requirements.

The increase in other costs during the year was due to the level of client bad debts incurred by LCG in part due to the Swiss National Bank event in January 2015.

The increase in depreciation and amortisation reflects the increase in capital expenditure to comprehensively upgrade the hardware used by the Group and the development of new software systems to support the Group strategy such as LCG Trader and myLCG.

Exceptional items excluded from adjusted profit before tax

The charge for the FOS claims is a combination of the close out during the year of a pre-existing provision that existed at 31 December 2014 and the recognition of a new provision during 2015 relating to potential settlements that may occur in the future. This is explained in more detail within note 16.

The Group tests annually for impairment of goodwill. At 31 December 2014, before impairment testing, goodwill of £8.0 million was allocated to the London Capital Group Limited financial spread betting and contracts for difference ("CFDs"), UK business segment ("CGU"). The new management team considered the future business model and revised its forecasts in line with the changes that they planned to make over the short and medium term. The updated cash flow forecasts for the CGU when discounted at the pre-tax discount rate of 11%, resulted in a reduction of the recoverable amount from the CGU to nil, which resulted in an impairment loss against goodwill during 2014.

In November 2015, LCG relocated to new office space based in Knightsbridge and as a result of the move a review of the assets held by the business in respect of its old location in the City of London was required. This resulted in a write-down to nil in respect of the leasehold improvement costs associated with this location.

Due to low volatility and difficult market conditions during 2014 the previous management team implemented a redundancy program in summer 2014 to reduce headcount and salary costs. This was then followed by further restructuring under the new management team who were appointed in the second half of the year, to ensure a strong, knowledgeable team of staff with the right skill base to guide the business forward under the revised business model. During the year ended 31 December 2015, £900,000 was released as circumstances relating to the provision changed.

In 2012 the Group decided to invest in a new spread betting and CFD platform. The implementation of the system took longer and required more investment than originally envisaged and was not completed until April 2014. This resulted in duplicated platform costs for the old platform of £0.3 million during 2014 being treated as an exceptional expense.

Tax

The Group's effective tax rate increased to 3% (2014: -2%). This is primarily due to losses incurred within London Capital Group Limited. These losses will be carried forward and offset against future taxable profits and the Group has an unrecognised deferred tax asset of £3.0 million (2014: £0.1 million) in this respect.

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 (2014: 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 £990,000 (2014: £1,986,000) represents the provisions for FOS claims, market data and dilapidations (see note 16).

Available liquidity and cash flow

Available liquidity which comprises own cash held, title transfer funds, unsegregated funds and amounts due from brokers decreased by £16.8 million. This decrease was primarily due to the losses incurred by the Group during the year

Cash used in operating activities after adjustments for movements in working capital, amounted to £10.8 million (2014: £2.4 million). The working capital movement relates primarily to the loss recognised by the Group for the year. Net cash used in investing activities of £3.6 million reflects the capital investment made by the business in respect of a comprehensive update to the IT hardware employed by the Group and the capitalised development spend by the Group in the development of its new trading platform, LCG Trader (2014: £1.0 million).

Total client money at the year-end was £23.8 million (2014: £29.9 million) of which £23.8 million (2014: £27.8 million) was held in segregated bank accounts. These balances are excluded from the Balance Sheet. Unsegregated amounts held on behalf of clients under a Title Transfer Collateral Arrangement ("TTCA") are included on the Balance Sheet (see notes 10 and 11).

Return on assets

In accordance with the Capital Requirements Directive IV ("CRD IV") and the IFPRU prudential regulations the Group is required to disclose a return on assets metric. This has been calculated as 'profit for the year' divided by 'shareholders equity'.

Subsequent events

The Group notes that there have been no adjusting or non-adjusting balance sheet events since 31 December 2015.

Capital Resources

The following table summarises the Group's capital resources.

Preparation of the Strategic Report

This Strategic Report has been prepared solely to provide information to shareholders to assess how the Directors have performed their duty to promote the success of the Group.

The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking information.

By order of the Board

Charles-Henri Sabet

Chief Executive Officer

28 April 2016

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2015

1. Introduction

The final information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 December 2015 or 2014. The final information for the year ended 31 December 2014 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.

Statutory accounts for 2015 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.

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 2014 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. Business and geographical segments

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Segmental profit represents the profit earned by each segment without allocation of the share of central administration costs including central support salaries and expenses, investment revenue, finance costs and income tax expense. This is the measure reported to the Group's Chief Executive Officer for the purpose of resource allocation and assessment of segmental performance.

Geographical information

The Group's revenue arises in the UK.

The Capital requirements (Country-by-Country reporting) regulations 2013 introduced reporting obligations for institutions within the scope of the European Union's Capital requirements Directive (CRD IV). Article 89 of the CRD IV requires credit institutions and investment firms in the EU to disclose annually, specifying by Member State and by third country in which it has an establishment, the following information for the year ended 31 December 2015:

a) London Capital Group Holdings plc group, which is a provider of online trading services, has all of its operations based in England and its balance sheet entirely denominated in sterling;

b) Turnover and pre-tax profit are disclosed in the profit and loss account; and

c) No corporation tax was paid in the period.

The Group has not received any public subsidies.

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

4. 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 and Treasury, see note 21). 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 and the convertible loan notes.

5. Dividends

No dividends have been proposed or paid in 2015 (2014: nil).

6. Impairment charge

During the year an impairment charge of £1,321,000 has been recognised in respect of the carrying value of the leasehold improvements incurred on the Company's old offices at 6 Devonshire Square. The impairment charge has arisen following the Company's relocation to it's new offices at 1 Knightsbridge.

An impairment charge of £7,950,000 was recognised during the year ended 31 December 2014 in relation to the goodwill allocated to the UK Financial spread betting and CFDs Cost Generating Unit ("CGU"). There is no remaining goodwill on the Group's balance sheet. Further information is provided in note 19.

7. Intangible fixed assets

In 2014, software disposals include £5,428,000 of Ariel software fully depreciated and written off following the Group's completion of the migration of the UK financial spread betting and CFD business to a new trading platform which was completed in April 2014.

Domain name relates to the cost of acquiring www.lcg.com to support the Group brand, LCG.

Trademarks relates to the cost of acquiring various global trademarks in respect of the 'LCG' brand that was launched during the year.

8. Property, plant and equipment

The Group's obligations under finance leases (see note 12) are secured by the lessors' title to the leased assets, which have a carrying amount of £123,000 (2014 - £293,000).

9. Impairment of goodwill

Goodwill has previously been allocated for impairment testing purposes to two cash generating units (CGUs). Before recognition of impairment losses, the carrying amount of goodwill has been allocated as follows;

It is the policy of the Group to test goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

For the purposes of impairment testing of goodwill the carrying value of the CGU (including goodwill) are compared to the recoverable amount of the CGU and any deficits are provided for.

The carrying value of the CGU includes only those assets that can be attributed directly, or allocated on a reasonable and consistent basis in accordance with the segmental disclosure.

The estimated recoverable amount of the CGU was based on value in use calculated using the present value of projected five year future cash flows.

Key assumptions used in the value in use calculation related to the growth rate used to extrapolate cash flows beyond the budget period, discount rate, client recruitment rates and average revenue per client.

Projected future cash flows for the CGU, measured over a five year period, were based on previously Board approved five year forecasts, reflecting past experience as well as future expected trends.

The cash flows were discounted using the pre-tax discount rate of 11% (2014: 11%), derived from the Group's weighted average cost of capital.

Client recruitment rates and average revenue per client were based upon a combination of actual amounts measured in prior periods and industry averages which were projected forward in accordance with expected trends.

At 31 December 2014, before impairment testing, goodwill of £7,950,000 was allocated to the CGU. Client recruitment rates and revenue per client in this CGU were revised in light of an extended period of low market volatility and the impact of lower than expected marketing activity. The Group therefore updated its cash flow forecasts for this CGU, resulting in a reduction of the recoverable amount of the CGU of £7,950,000 which was recognised as an impairment loss against goodwill.

10. Trade and other receivables

The Directors consider that the carrying amount of trade receivables, amounts owed to Group undertakings and other receivables approximates to their fair value due to their short term maturity.

Amounts due from brokers represents the combination of open derivative positions and cash held at brokers.

11. Cash and cash equivalents

Gross cash and cash equivalents include Group cash and all client funds (segregated funds and funds under title transfer).

Own cash and title transfer funds include a client money 'Prudent Segregated Amount' of £195,118.

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. Obligations under finance leases

It is the policy of the Group to lease certain of its fixed assets under finance leases. The average lease term is 2.5 years (2014: 3 years). For the year ended 31 December 2015, the average effective borrowing rate was 4.8% (2014: 7.0%). Interest rates are fixed at the date of signing of the contract. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental repayments.

All finance lease obligations are denominated in sterling.

The fair value of the Group's lease obligations is approximately equal to their carrying amount.

The Group's obligations under finance leases are secured by the lessors' right over the leased assets disclosed in note 8.

13. Trade payables

14. Other payables

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. For most suppliers no interest is charged on the trade payables for the first 30-60 days from the date of the invoice.

The Directors consider that the carrying amount of trade payables, amounts due to clients, commission payments due, amounts owed to Group undertakings and other taxes and social security approximate to their fair values due to their short term maturity.

15. Derivative financial instruments

16. Provisions and contingent liabilities

Restructuring provision

During 2014, the Group carried out an extensive restructuring to ensure that the business had the correct skill set in place to enable it to expand in line with senior management's expectations. This resulted in a provision of £1,102,000 being carried at the year end to cover redundancy and other associated costs of the restructure. During the year ended 31 December 2015, £900,000 was released as circumstances regarding the provision changed and £200,000 was paid.

Provision and contingent liability against FOS claims

During the first half of the year ended 31 December 2014, the Group was recognising a provision in respect of amounts due to eligible claimants concerning of a number of commission rebate errors that occurred during the first half of 2009. The provision had been recognised based on a number of complaints from clients that were considered by the Financial Ombudsman Service ("FOS").

During the year, one final eligible claimant had been repaid, resulting in an utilisation of the provision in the period of £15,000. The provision of £490,000 and contingent liability of £1,142,000 release is due to claims not being made within the time limit prescribed by United Kingdom legislation.

In the second half of 2015, the Group received a complaint from a client seeking to recover losses that arose in 2013 from an agreement that they had entered into with investment manager who executed trades with the Group.

This complaint was ultimately forwarded to the FOS and following the decision by the FOS to uphold the original complaint, the Group has provided in full for the losses incurred by other clients who were managed by this individual together with accrued interest. The value of this provision totals £527,000 and the original complaint totalling £41,000 was settled prior to 31 December 2015.

Market data provision

Throughout 2014 and 2015, a number of exchanges used by the Group have been conducting audits in relation to data usage and redistribution. The provision of 403,000 is the Group's best estimate of the liability in relation to these open audits from the relevant exchanges.

During the year, a small settlement of £2,000 took place and a further £26,000 was recognised following agreement of the final liability with one of the exchanges (this balance has since settled in 2016).

Dilapidation provision

Following the office move to its current location at 1 Knightsbridge, the Group is required to recognise the future cost of returning the premises to its original state on the eventual conclusion of the lease.

This provision of £101,000 has been recognised within the additions to leasehold property in note 8 and will be depreciated over the life of the lease.

17. Convertible loan notes

On 16 October 2014, the Company raised £17,000,000 (before expenses) through the issue of 67,945,644 convertible loan notes, to GLIO Holdings Limited ("GLIO"), HSBC Global Custody Nominee (UK) Limited, on behalf of Hargreave Hale Limited, and JIM Nominees Limited, on behalf of Mr Tyler Rameson, at a conversion price of 25.02p. The proceeds (net of transaction costs) of the financing were £16,349,000. The conversion price is at a 15.9% discount to the share price of the ordinary shares at the date the convertible loan notes were issued.

Any notes that have not been converted will be redeemed at par on 16 October 2021. Interest of 5 per cent will be paid in the form of ordinary shares in the Company where the notes are converted up until that settlement date.

The net proceeds received from the issue of the convertible loan notes have been split between the financial liability element and an equity component, representing the fair value of the embedded option to convert the financial liability into equity of the Company, as follows:

The interest charged is calculated by applying an effective interest rate of 8 per cent to the liability component of the notes from date of issue on 16 October 2014 to year end. The liability component is measured at amortised cost.

In January 2015, the Group received notices from holders of convertible loan notes to convert 3,668,000 convertible loan notes at a conversion price of 25.02 pence in accordance with the terms of the convertible loan notes. Following the conversion, 19,791,367 ordinary shares in the Company were admitted to AIM.

At 31 December 2015, 13,332,000 convertible loan notes remain outstanding.

The results for the year ended 31 December 2014 have been restated to reflect the correct accounting treatment in respect of the convertible loan notes that were issued in October 2014. The restatement relates to the initial accounting for the equity element of the transaction whereby there is a future obligation on the Group to pay out interest by way of issued shares in 2021.

In accordance with the terms of the convertible loan notes, as further described in the circular to Shareholders dated 17 June 2014 (the "Circular"), those investors issued with the convertible loan notes have also been granted warrants and shall be entitled, upon the exercise of their convertible loan notes, to be issued ordinary shares (in satisfaction of the Minimum Interest Return, as defined in the Circular), as shown in the table below:

The warrants issued to GLIO Holdings Limited may be exercised in full or in part in minimum tranches of 5,000,000 and the warrants issued to Hargreave Hale and Mr Tyler Rameson may be exercised in full or in part in minimum tranches of 1,000,000 at any time upon 10 business days' notice up and until the maturity date, being 7 years from the date of issue, provided that the equivalent number of convertible loan notes have been converted.

18. Related party transactions

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Trading transactions

During the year, Group companies entered into the following transactions with related parties who are not members of the Group:

Loans from related parties

The following amounts were outstanding at the balance sheet date:

In 2014, a subsidiary Company entered into a licencing agreement with Algoweb S.A.R.L. ("Algoweb"). On 18 September 2015, this agreement was novated to Algoweb Trading Services FZE. The Licencing agreement will allow the Group to access Algoweb's retail distribution platforms and software, as well as connectivity to post trade services. Algoweb is a related party of the Group because Charles-Henri Sabet, Executive Chairman of London Capital Group Holdings plc and his wife, together own 50 per cent of the share capital in Algoweb.

GLIO Holdings Limited ("GLIO") is a related party of the Group because Charles-Henri Sabet, Executive Chairman of London Capital Group Holdings plc holds a 100 per cent interest in ILOG Investments Limited, GLIO's largest shareholder with a 22.9 per cent interest. The balance represents both the liability and equity components of this transaction (see note 17).

TTCM Traders Trust Capital Markets Limited ("TTCM") is a related party of the Group as Nicola Berardi, Chief Financial Officer of London Capital Group Holdings plc, holds a majority interest in the company. During the year, TTCM opened a trading account with LCG in accordance with LCG's standard terms and conditions. To date, no trades have been made by TTCM.

19. Directors' remuneration

The remuneration of the Directors who served during the year was as follows:

Benefits (which are taxable) comprise the provision of healthcare and company cars.

The highest paid Director was Charles-Henri Sabet.

Pension benefits

Pension contributions payable to the executive Director are payable by the Group at a rate of 10% of basic salary.

20. Share capital

Allotted, called up and fully paid:

Reconciliation of the movement in the number of shares:

The Company has one class of ordinary shares which carry no right to fixed income. The shares carry dividend rights, voting rights and rights to distribution of capital on a winding up.

21. Share premium

22. Own shares

The Group has a Joint Share Ownership Plan ("JSOP") to provide incentives to Directors and employees. At 31 December 2015, 12,480,000 ordinary shares of £0.10 each were held in the JSOP, 820,000 with an initial participation price of £1.57, 2,615,000 with an initial participation price of £0.49 and 9,045,000 with an initial participation price of £0.35.

In 2014, the Company purchased 1,000,000 ordinary shares of £0.10 each at a price of £0.33 per share. These shares were held in Treasury at year end.

23. Equity reserve

This reserve represents the equity component of convertible loan notes (see note 17).

24. Other reserves

Other reserves

The other reserves arose as a result of the business combination concerning the acquisition of Tradex Enterprises using the merger method. As noted in the accounting policies, the Group has taken advantage of the exemption permitted by IFRS 1 not to restate this business combination.

Retained earnings

Includes a credit for the excess of the tax deduction for the equity-settled share-based payments, the net adjustment for those options forfeited in the period and the charge for the estimated cost of equity-settled share options based on a straight-line basis over the vesting period.