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 2012

Financial Highlights

§ As expected lack of volatility led to suppressed trading volumes and decreased revenue

§ Revenue decreased 27% to £28.6m (2011: £39.0m)

§ Adjusted loss before tax* of £0.2m (2011: adjusted profit of £7.1m)

§ Included within adjusted loss before tax* are exceptional legal costs of £0.5m (2011: £0.7m)

§ Aggregate losses incurred in relation to the Group's Australian CFD business and Gibraltar FSB business amounted to £1.2m (2011: £0.8m)

§ Statutory loss before tax of £2.1m (2011: profit of £6.1m)

§ Net cash and short term receivables of £20.4m at year end (2011: £25.1m)

§ No final dividend proposed (2011: 2.6p per share), bringing total dividend for the year to 1.3p (2011: 3.9p)

Operational Highlights

§ UK financial spread betting ("FSB") performance

- Divisional revenue down 26%

- FSB average trades per day decreased 24% to 25,029 (2011: 33,042)

- New client acquisition totalled 10,123 (2011: 10,398)

- Successful launch of new white label clients Selftrade, Victor Chandler and Goodbody Stockbrokers

§ Institutional foreign exchange performance

- Trade volumes decreased to $383bn (2011: $544bn)

- Divisional revenue of £6.1m (2011: £8.0m); divisional profit of £1.7m (2011: £2.4m)

Board changes

§ Simon Denham has stepped down as CEO and will be replaced by Mark Slade

*Adjusted (loss)/profit before tax represents (loss)/profit before tax excluding share based payment expense, impairment charges to goodwill, professional client debts, and the movement in the provision for FOS claims. Applied consistently hereafter.

**Adjusted EBITDA represents profit before interest, tax, depreciation, amortisation and share based payment expense and excludes the movement in the provision for FOS claims, impairment charges to goodwill and professional client debts. Applied consistently hereafter.

For further information, please contact: www.londoncapitalgroup.com

London Capital Group Holdings plc

Siobhan Moynihan

Group Finance Director

020 7456 7000

Cenkos Securities plc

Nicholas Wells/Camilla Hume

020 7397 8900

Smithfield Consultants

John Kiely

020 7360 4900

Notes to Editors:

London Capital Group Holdings plc (hereafter "LCGH plc" or "LCG" or "London Capital Group" or "the Group") is a financial services company offering online trading services.

London Capital Group Limited (LCG Ltd), a wholly owned trading subsidiary of LCGH plc, is authorised and regulated by the Financial Services Authority. Its core activity is the provision of spread betting 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, TradeFair, Bwin.party, and Saxo Bank.

ProSpreads Limited, a wholly owned trading subsidiary of LCGH plc, is authorised and regulated by the Financial Services Commission in Gibraltar and provides Direct Market Access ("DMA") spread betting products on financial markets that are aimed at professional clients.

Capital CFDs (Australia) is a trading name of London Capital Group Pty Limited, a wholly owned trading subsidiary of LCGH plc, and is regulated by the Australian Securities and Investments Commission.

LCG Ltd has a European passport and is a member of the London Stock Exchange. LCG Ltd also has access to international markets through its global clearing relationships.

LCGH plc is listed on the London Stock Exchange's AIM market. LCG is included in the General Financial sector (8770) and Speciality Finance sub sector (8775) and has a RIC code of LCG.L.

CHAIRMAN'S STATEMENT

For the year ended 31 December 2012

As anticipated, 2012 proved to be a difficult year for the Group. Financial results were disappointing with a marked decline in customer trading activity, especially in the second half of the year. Whilst it is often easy to blame market conditions, it remains true that lower levels of volatility in markets overall meant that there were less trading opportunities for LCG's customers to pursue. As a result revenues were 27% lower than 2011 and profits declined throughout the year leading to a £0.2m adjusted loss before tax for the year as a whole.

Given the results, and having paid a 1.3p dividend at the half year, the Board does not consider it appropriate to pay a final dividend. The Board's policy is to pay dividends from available profits whilst considering the current and future capital requirements of the business.

Against an unfavourable background, the Board decided to address three urgent problems in the last quarter of the year: firstly, it launched a review to ensure that the Group's costs were aligned to a possible lower revenue base, especially if lower market volatility persisted for a long time. As part of the review the Board identified potential savings of £4 million which will be implemented through 2013. Secondly, the Board concluded that LCG's current international operations will not meet the Group's return on investment expectations in 2013 and certain of these operations should therefore be sold or restructured. Thirdly, the Board review included an overall assessment of organisational effectiveness which will lead to changes in the structure of the operational management.

All of the above gives the Group the opportunity to focus on what it does best in terms of offering attractive products. LCG continues to expand its partnership programme with a growing pipeline of high quality domestic and international partners who wish to white label the Company's trading services and products. In addition, the Group continues to make improvements to its trading platform which allows LCG to remain at the forefront of improved customer trading experience.

After almost ten years of building London Capital Group's business, Simon Denham has decided to step down from his role as CEO with immediate effect. The Board would like to thank Simon for all of his work over many years in building London Capital Group into the great business it is today. We wish him well for the future. Whilst we are sad to see Simon go, we all agree it is the right time for fresh leadership, and I am delighted that Mark Slade has decided to join us as our new CEO. He has a long and enviable track record in growing financial businesses, and the Board is confident that he is the right person to take the Company forward. Mark, 51, has extensive knowledge of both trading in financial markets and risk management, gained in a 30 year career most recently as CEO of Marex Financial, and previously as Managing Director of Refco Overseas. He also served as a Director on the London Metal Exchange for seven years. It is intended that Mark will take up the role from 25 February 2013, the appointment will be subject to the normal FSA approval process and a further announcement will be made in due course.

In terms of other Board changes, as announced on 13 January, Rachel Woodford also decided to step down from her role as COO to pursue other interests and will leave the Board in July this year. The Board is very grateful for all her hard work over the last nine years and we wish her well.

2013 has started with stronger equity markets and the possibility of more activity in the currency and credit markets. The Group remains well capitalised and well positioned to take advantage of any major upswing in activity. The Board plans are to promote the Company's core businesses, and use the Group's partnership programmes to develop international business in a more cost effective manner. The Board believe that the fundamentals of the business remain sound but that some of the increases in costs and overall efficiency need correcting swiftly without cutting out the capacity for growth in the business.

Giles Vardey

Chairman

20 February 2013

CHIEF EXECUTIVE'S REVIEW

For the year ended 31 December 2012

The last year has been very difficult for most of the financial services industry especially for the mid to small scale companies. The increasing burdens of regulation, compliance and capital have fallen most onerously on the smaller scale firms and this has, unfortunately, coincided with a considerable fall in UK retail and institutional business volumes.

LCG's financial spread betting business continued the trend as the largest contributor to Group revenue. However, generally directionless markets meant that trade volumes were muted through the year resulting in a weakening in revenue and gross margin. Positively, the business retained all of its major partners, and has launched a number of new white labels in the year, and our own brand Capital Spreads still accounts for more than 45% of the Group's UK FSB revenue. Recent industry analysis indicates that when the Group's own brand Capital Spreads is combined with the Group's white labels, LCG is the second largest provider of financial spread betting.

The Group's other retail businesses experienced mixed results; the UK CFD business continues to grow successfully although the Australian CFD and ProSpreads businesses have not achieved the necessary revenue levels to be profitable.

Despite falling volumes throughout the industry the institutional businesses have maintained profitability and have focused considerable effort on business development which should stand both businesses in good stead for 2013.

As a business the Group has invested considerably in its technology over the last year. A new spread betting and CFD platform was launched which will provide a more stable, scalable and cost efficient technology solution for the business in the long term. It will also allow the business to consolidate much of its risk management and reporting processes ensuring a more efficient and automated front to back system. The Group decided to retire its original platform and as a result will incur hosting and maintenance costs for two platforms through 2013, as it did for the latter part of 2012, as well as an exceptional depreciation charge for 2013 of £0.8m. However, thereafter the Group anticipates a reduced ongoing cost base for its technology platforms.

Finally, a decade after founding the Company, I feel it is the right time to hand over to a successor. I am very proud of the part I played, together with my colleagues, in building London Capital Group from a small trading business to one operating globally, offering multiple products and partnered with some of the world's premier financial services and gaming brands. With the Company looking to achieve the next phase in its growth and development, I believe that a fresh perspective will be very valuable. Mark Slade has an excellent track record in managing and growing financial services businesses and I am pleased to leave the Company in good hands. I would like to wish Mark every success during his time as CEO.

I am extremely grateful to our shareholders and employees for their continued support and with so many initiatives now delivered, being delivered and underway the business can look forward to a successful 2013.

Simon Denham

Chief Executive

20 February 2013

OPERATING AND FINANCIAL REVIEW

For the year ended 31 December 2012

Financial Review

With the exception of the UK CFD business, net trading revenue fell across all divisions in 2012. The Group's largest division, UK Financial Spread Betting (UK FSB), saw divisional revenue fall by 26% to £19.6m from £26.4m in 2011. Whilst revenue in the first half of the year was up 12% on the comparative period, the second half of 2012 was particularly difficult and saw revenue fall by 50% on 2011. The fall in revenue was driven by a 24% drop in trade volumes and 18% fall in active clients due to low volatility and direction in the financial markets. Whilst client acquisition fell slightly from 10,398 in 2011 to 10,123 in 2012, funds on deposit increased 18% to £26.3m (2011: £22.3m). Gross margin remained stable at 66% (2011: 65%) with white label commission payments remaining the largest direct cost at £5.0m (2011: £7.3m).

The Group's UK CFD business continues to grow with number of trades per day increasing to 822 (2011: 723) and divisional revenue up 50% to £0.9m (2011: £0.6m). The growing customer base of this division is predominantly non-UK and driven by introducing brokers.

The Australian CFD business returned a loss for the year and the Board is currently considering the long term options for this area. The operating costs and head count of the operation have been reduced significantly in the interim.

ProSpreads the Group's Direct Market Access ("DMA") financial spread betting business, saw a 43% fall in revenue. Similar to the UK FSB business a combination of low volumes and active clients driven by low volatility resulted in lower revenue and profitability. As was done for Australia, the cost base of the business was restructured during the year, significantly reducing headcount and ongoing costs whilst a long term strategy is formed for the business.

The institutional foreign exchange business also suffered from falling volumes in 2012 as well as falling commission rates driven by an increasingly competitive environment. As a result, divisional revenue fell 24% and divisional profit fell further by 31%. The low cost base of the operation continues to ensure its ongoing profitability and more recently the business has signed up a number of key clients which should generate greater volumes and revenue from commission in the future.

The institutional broking business is impacted by the ongoing lack of interest rate activity. As with the institutional foreign exchange business, the division maintains a low cost base and has developed a strong pipeline of clients for 2013.

Adjusted Administrative Expenses

Adjusted administrative expenses, which exclude depreciation and amortisation, share based payment expense and the exceptional items noted below increased by 5.5% to £17.2m (2011: £16.3m). The significant increases were seen in IT and platform costs as a result of hosting and maintaining two spread betting platforms during H2 2012, as well as an increase in regulatory costs in relation to the FSCS levy, which remains outside of the business's control. The additional cost of running two platforms in 2012 amounted to £0.4m and in 2013 is expected to be £0.8m as the original platform is phased out. However, in the longer term, as a result of this change of platform, the Group expects cost of the IT platform to be reduced. In addition, following the decision to retire the original platform, there will be an additional depreciation charge of £0.8m incurred in 2013. This additional depreciation charge will not affect the Company's capital position.

Employee remunerations costs and consultancy costs, inclusive of employer related taxes and pension costs, remained stable at £6.8m

Advertising and marketing costs have remained stable year on year, with just over 20% of the cost representing amounts incurred in foreign jurisdictions.

Legal costs in relation to the Group's legal and FOS claims have reduced by 29% to £0.5m (2011: £0.7m). We do not anticipate these costs decreasing in 2013.

Exceptional items excluded from adjusted profit before tax and legal claims

During the year two exceptional items of expense arose: an additional charge for an increase in the provision held against FOS claims and the write off of the goodwill relating to the ProSpreads cash generating unit (CGU).

The group tests goodwill annually for impairment and compares the carrying value of the CGU. Given the losses incurred by the ProSpreads CGU, represented by the Gibraltar spread betting business segment, the goodwill attributed to this CGU of £0.4m has been written down to nil.

The 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 latest FOS assessment, the FOS's rules on compensation and ongoing progress of the settlement offer made.

In addition 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, the Company that introduced clients to the managed FX fund referred to above. On the basis of legal advice received, the Group views the claim as speculative and without merit. No provision has therefore been made in relation to the matter.

Tax

The Group's effective tax rate decreased to -15% (2011: 31%). This is primarily due to losses incurred in London Capital Group Limited. These losses will be carried forward to be offset against future taxable profits and a deferred tax asset of £414,000 has been recognised in this respect.

Dividend policy

The Board is not recommending a final dividend (2011: 2.6p) after paying an interim dividend of 1.3p in the year (2011: 1.3p). The Board has reviewed its dividend policy during the year and has concluded that a policy of paying dividends from available profits whilst considering the current and future capital requirements of the business is the most appropriate policy going forward.

Financial Position

As discussed in the Chief Executive's review the Group has taken the decision to invest in a new spread betting and CFD platform. Total additions to software and hardware in the year were £1.8m of which £0.5m related to the new platform. The addition of a new platform will lead to the accelerated depreciation of the existing platform in 2013. Once the contractual obligations relating to the existing platform have ceased, the ongoing IT hosting, maintenance and development costs of the Group will be lower than those incurred historically.

Total client money at the year-end was £43.0m (2011: £52.2m) of which £33.7m (2011: £36.3m) was held in segregated accounts with banks. Unsegregated amounts held on behalf of clients are primarily held in relation to the institutional foreign exchange business.

Trade and other payables comprise amounts due to clients where funds are not held in segregated accounts and other trade payables and accruals. The provisions balance of £3.6m (2011: £3.3m) 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 £11.3m. Net cash outflow from operating activities after adjustments for movements in working capital amounted to £11.1m (2011: inflow of £7.5m). This movement predominantly relates to a £6.6m decrease in title transfer funds and unsegregated funds presented within payables and a £3.9m increase in amounts due from brokers as a result of increased hedging requirements at the year end. Net cash used in investing activities of £1.6m pertains to our investment in IT and the new spread betting platform net of interest income received (2011: £4.0m).

Capital Adequacy

The following table summarises the Group's capital adequacy. The Group continues to have head room over our capital resource requirements:

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2012

CONSOLIDATED BALANCE SHEET

As at 31 December 2012

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 December 2012

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2012

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2012

1. Introduction

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2012 or 2011. The financial information for the year ended 31 December 2011 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 2011 did not contain a statement under s498(2) or (3) of the Companies Act 2006.

Statutory accounts for 2012 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 2012 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 2011 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 2012

Included within revenue is interest income earned on client money held.

2. Revenue and segmental information

For the year ended 31 December 2011

Included within revenue is interest income earned on client money held.

3. Adjusted profit before tax, adjusted operating profit and adjusted EBITDA

4. Earnings per ordinary share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted number of ordinary shares in issue during the year, after deducting any own shares. Fully diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of the weighted average number of shares in issue during the year and the dilutive potential ordinary shares relating to share options. Dilutive potential ordinary shares were nil (2011: 12,532).

5. Dividends

6. Intangible fixed assets 

7. Impairment charge

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.

The professional client debt of £1.4m that arose in 2010 was settled in 2011. The amount outstanding was impaired by £0.53m as part of the settlement agreement.

8. Property, plant and equipment

9. Trade and other receivables

The directors consider that the carrying amount of trade receivables and other receivables approximates to their fair value.

Trade receivables due from brokers represents the combination of open derivative positions and cash in excess of required margin available to call from brokers.

10. Cash and cash equivalents

Gross cash and cash equivalents include Group cash, all client funds (segregated funds and funds under title transfer) and surplus cash available to call from brokers.

Segregated client funds include client funds held in segregated accounts or breakable short term deposits (under 3 months) in line with the FSA's Client Asset rules ('CASS') and similar rules of other regulators in jurisdictions where the Group operates.

Title transfer funds are held by the Group's subsidiary under a Title Transfer Collateral Arrangement (TTCA) by which the client agrees that full ownership of such monies is unconditionally transferred to the Group. Funds under TTCA and institutional foreign exchange client funds are included on the balance sheet.

11. Provisions and contingent liabilities

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"). Whilst the Group believes its actions did not directly cause any loss to the clients, the assessment from the FOS determined that the Group should repay the total losses incurred by the clients plus interest.

During H2'12 the Group made a settlement offer to the outstanding complainants of which 26% accepted. This led to a net payment of £1.2m and the release of £0.7m of the provision made.

As at the date of this report the Directors have made an assessment of the provision and contingent liability based on an analysis of the losses incurred in the fund attributable to clients under the protection of the FOS, the latest FOS assessment, the FOS's rules on compensation and the settlements made. Whilst the provision of £3.6m (2011: £3.2m) represents a best estimate of the expected liability, there remains significant uncertainty as to the eventual financial outcome due to the ongoing FOS and court process.

With respect to those claimants that have rejected the settlement offer, the Group continues to challenge the FOS assessment, and although the Directors are confident that there are grounds for challenge, the outcome of this process is uncertain. As a result of these variables, the timing of any such payment is also uncertain.

A contingent liability of £1.0m (2011: £3.3m) has also been disclosed in relation to these claims.

The Group has 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, the Company that introduced clients to the managed FX fund referred to above.

On the basis of legal advice received, the Group views the claim as speculative and without merit. No provision has therefore been made in relation to the matter. Whilst there are a range of possible outcomes, the current court timetable means the matter is expected to be resolved during the course of 2013.

12. Subsequent events

Following the year end Simon Denham, CEO, resigned with effect from 20 February 2013 and Rachel Woodford, COO, notified the Board of her intention to resign with effect from 9 July 2013.