London Capital Group Holdings Regulatory News (LCG)

20 Feb 2008 07:00

London Capital Group Holdings PLC20 February 2008 20 February 2008 LONDON CAPITAL GROUP HOLDINGS PLC ("LCG", the "Company" or the "Group") PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2007 London Capital Group Holdings plc, a leading online financial spread betting and trading company, announces preliminary results for the year ended 31 December 2007. 2007 Highlights: • Turnover up 119% to £18.98 million (2006: £8.65 million) • EBITDA up 138% to £9.61 million (2006:£4.03 million) • Strong EBITDA margin of 51% (2006: 47%) • Operating profit before tax (before share option reserve) up 138% to £9.31 million (2006: £3.91 million) • Basic EPS up 149% to 15.69p (2006: 6.3p) • Debt free and net cash of £10.28 million (2006: £3.35 million) • Final dividend of 5.25p per share (2006: 1.70p), giving a full year dividend of 6.50p per share • Group dividend cover 2.41 (2006: 3.70) • Spread betting client funds +126% to £16.79 million (2006: £7.43 million) • Foreign exchange client funds +158% to £19.03 million (2006: £7.38 million) • Current trading is strong Commenting on the results, Chief Executive Officer, Frank Chapman, said: "The results for 2007 reflect a very strong performance from our core products and markets. Our business model has delivered improved profit margins and robust operating cash flows. Two major White Label partners, launched late in 2007, are already delivering good new client acquisitions which should bolster 2008 expectations. Many opportunities for expansion remain in all our business divisions and we will be focusing on these during 2008." * EBITDA represents earnings before exceptional administration costs, depreciation, taxation, interest receivable on corporate cash balances and includes interest receivable on clients' money net of interest payable to clients. For further information, please contact: www.londoncapitalgroup.com London Capital Group Holdings plc 020 7456 7000Frank Chapman, Chief Executive Officer Smithfield Consultants 020 7360 4900George Hudson Print resolution images are available for the media to view and download fromwww.vismedia.co.uk Notes to Editors: London Capital Group Holdings plc is a rapidly growing financial servicescompany offering online trading services. Its core activity is the provision of spread betting products on the financial markets to retail clients under the trading name Capital Spreads. Its other divisions provide online foreign exchange trading services to institutional and intermediate clients under the Capital Forex brand and institutional derivatives and equities broking under the name Capital Derivatives. Based in London, LCG is regulated and authorised by the Financial ServicesAuthority, has a European passport and is a member of the London Stock Exchange. LCG also has access to other international and domestic markets through its global clearing relationships. LCG floated on the London Stock Exchange's AIM market on 22nd December 2005 at an issue price of 82p. LCG is included in the General Financial sector (8770) and Speciality Finance sub sector(8775) and has a RIC code of LCG.L. Chairman's Statement I am pleased to report that the business performed extremely well throughout 2007 and is well positioned for further growth. Our primary objective as a group is to win and retain client mandates and toservice our clients to a very high level of satisfaction. We believe we have been successful in meeting this objective through 2007 and intend to build further on this into 2008 and beyond. Results All our businesses continued to perform robustly in 2007 as they did in 2006.Group turnover increased 119% to £18.98 million. Profit before tax rose by 138%to £9.31 million in 2007 from £3.91 million in the previous year. EBITDA also increased by 138% to £9.61 million. Both the operating profit before tax and the EBITDA are stated before recognising total expenses of £0.74 million which represents the share option reserve, the comparable figure in 2006 being £0.54 million. Dividend As a result of the performance of the business, and the confidence the Boardhas in the Company's prospects, the Board believes it is appropriate thatthe Company pays a final dividend. The directors intend to declare a finalordinary dividend for 2007 of 5.25p per share amounting to some £2.01 million.This together with the interim dividend paid in 2007 of 1.25p per share gives atotal dividend of 6.50p per share for the full year amounting to £2.49 million. We plan to pay the final dividend on 28 April 2008 to shareholders on the register on 29 February 2008. The payment will follow approval of the final dividend at the Annual General Meeting to be held on 23 April 2008. Going forward, the intention is to pay a sustainable flow of ordinary dividendsout of recurring profits which reflect the earnings, cash flow and potential ofthe Group. The Board believes that the Group's existing business model providesa solid base for such a dividend policy. Risk Management The Group's Risk Committee meets regularly to discuss and manage theoperational and financial risks of the Group. These include, amongst otherfinancial risks, liquidity levels, overall trading limits and financialparameters in hedging policy. Any risks identified are reported to the GroupRisk Committee with an assessment of the implications and a recommendation formitigation. The Risk Committee is chaired by a non-executive director. The future We will continue to seek profitable opportunities to grow our business bothorganically and by forging new alliances. Our results for 2007 reflect the ongoing success of our strategy and I remainconfident that the Group will continue to deliver success into the future. Richard DaveyChairman20 February 2008 Chief Executive Officer's Statement Introduction I am delighted to be able to report strong and improved financial resultsagain for 2007. We are also pleased to have delivered an increased performancein all of our key business metrics including revenues, profit, cash generation and earnings per share. Our performance continues to demonstrate the benefits of our longer term approach to the development of the business combined with strict cost controls. We continue to improve financial performance through growing our white label offering, developing new products and services to meet the evolving needs of our clients whilst continually investing in IT, infrastructure and key personnel. Operating Review Overall, the Group has continued to pursue its strategy of controlled growthin its own brands and by expanding via new White Label partnerships and jointventures. Capital Spreads Capital Spreads, our financial spread betting business, continues to grow at arapid pace. During 2007, the number of live accounts has grown significantly(see KPI table below). We have devoted increased resource into our marketing activity during the yearto further build our client base. However, it is also remains the case that in excess of 50% of Capital Spreads clients continue to be acquired via wordof mouth and recommendation. Clients are attracted to our spread betting platform due to both our commitment to some of the tightest spreads in the industry and to our exceptional customer service team. We use a number of KPIs in spread betting to monitor the success and quality of our business operations. Spread Betting KPI's 2007 2006 No of live accounts 19,125 8,708 New client acquisitions 10,417 4,244 No of trades per day 9,858 4,314 Average value per trade £5.31 £4.56 Average trades per month 210,000 92,000 % Active 37.3% 43.2% Binary Bets Binary betting is a hybrid of spread and fixed odds betting. We have an activebinary platform within our spread betting site and are developing this offering both through our own brand and with external partners. We are also continuing to monitor and looking to capitalise, where we can, onthe impact of MiFID (Markets in Financial Instruments Directive) which came into force during the latter part of 2007. It remains our policy not to accept bets from US resident clients. Capital Forex Capital Forex has successfully completed its first full financial year of trading having commenced its trading activity in the middle of 2006. The division has grown substantially during this period and now regularly achieves daily turnover in excess of two billion dollars. This has resulted in animprovement in profitability of the division and new clients continue to beattracted to the platform. Trading turnover in Capital Forex has risen toUS$74.5 billion in fourth quarter of 2007 compared to US$38.7 billion in samequarter in 2006. As in the previous year, the marketing budget for 2007 has been minimal yet thedivision has now signed up in excess of 240 institutional and professionalclients rising from a level of 100 in 2006, of which 105 are active clientscompared to 60 in 2006. Capital Derivatives Capital Derivatives experienced growth in 2007, particularly in the second halfof the year where it turned over record volumes, albeit in difficult marketconditions arising from sub-prime market fallout. Trading turnover in Capital Derivatives has risen to 2.74 million lots in 2007compared to 2.60 million lots in 2006. The division was further strengthened by the arrival of experienced new personnelin institutional sales. Growth Strategy We remain focussed on our strategy of measured growth and becoming one of themainstream European on-line financial trading services companies. We aim tocontinue to deliver this via on-line state-of-the-art comprehensive tradingsolutions to our retail customer base, together with low risk and high marginbroking and execution services to our institutional clients. Longer term, we plan to continue to expand our operations across continentalEurope and also into Asia. As on-line financial trading becomes more widespread outside the UK, we planto offer white label solutions to partners in other jurisdictions (otherthan the US) rather than to set up our own operations. This will providecheaper and faster access to these markets. During the latter part of 2007 we launched significant white labels withPaddy Power and Betfair and are encouraged by early trading volumes.With the implementation of new European directives during 2007, the Group plansto market its spread betting and trading products throughout Europe withassociated growth arising from this region in 2008. As the benefits of trading via spread betting and trading platforms become more evident globally, Capital Spreads is well placed to take advantage of its strong brand name, reputation and quality product offering and will continue to be a major player in this sector. The forex division will continue to concentrate on its institutional customer growth, marketing its platform to major institutions internationally. We have invested in personnel to increase sales in this division and intend to continue to build on this in 2008. Capital Derivatives is highly respected in the industry for its optionsexpertise and plans to continue to capitalise on this during 2008. The division aims to achieve further growth by focussing on interest rate options and by recommending bespoke solutions to clients to help them achieve their aims, be it directional, hedging or volatility trading. We will also be looking to broaden our offering in 2008 by growing our in-house sales team. Employees We recognise that the core of our brand and the continued provision of a highquality service are our people. On behalf of the Board, I would like to thank all our employees for theircommitment, hard work and support during the past year. Our business would nothave achieved these impressive results without their effort and dedication. Ouremployee numbers have risen from 33 to 42 during 2007, in line with theexpansion of the business. We firmly believe that our employees are our most valuable asset and, inrecognition of this, newcomers to the business continue to be introduced tothe Group share option scheme. My thanks also go to my fellow Board members and senior management for theirexceptional efforts during the year. Current Trading and Outlook All the key drivers of our business remain positive and with targeted investment in people, infrastructure, sales and marketing and we are well placedto sustain future growth and improve our strong financial position. We remainconfident of continued progress in 2008 and beyond. Frank ChapmanChief Executive Officer20 February 2008 Group Finance Director's Review Our strong trading results for 2007 reflect continued growth in revenues, profitability and cash flow. Group turnover rose 119% to £18.98 million (2006: £8.65 million). Profit beforetax also rose by 138% to £9.31 million in 2007 from £3.91 million in theprevious year. EBITDA increased by 138% to £9.61 million (2006: £4.03 million). Both the operating profit before tax and the EBITDA are stated beforerecognising an expense of £0.74 million (2006 - £0.54 million) relating to theshare option reserve. This reserve arises from the adoption of FRS 20: ShareBased Payment. EBITDA represents earnings before exceptional administration costs, share optionreserve, depreciation, taxation, interest receivable on corporate cash balancesand includes interest receivable on clients' money net of interest payable toclients. The EBITDA margin was 51% up from 47% in 2006 and represents EBITDA as apercentage of turnover. Cash and cash equivalents at the end of 2007 were £46.13 million (2006: £18.12million), an increase of £28.01 million. This increase mainly arises from thetotal client money held of £35.81 million at the end of 2007 (2006: £14.82million). We are again pleased to report the Group had no debt at the year end, the same as in previous years, and had cash resources of £10.28m up from £3.35 million in 2006. This is after allowing for normal business running costs, capital expenditure, dividends and corporation tax. This demonstrates a high conversion rate of profit into cash. Basic earnings per share also increased by 149% to 15.69p (2006: 6.3p). Both the Capital Forex and the Capital Derivatives divisions are operated undera profit share arrangement with managers who head up each division. As a resultthe profit generated by the turnover is shared and the operating profit isstated after the deduction of such profit share. The Group continues to maintain a low cost operation by comparison with othercompanies in our sector because of the continuing use of an outsourcing model. The Group will seek approval, at its Annual General Meeting to be held on 23 April 2008, for its final dividend for 2007 of 5.25p per share. This willresult in total dividends for the year of 6.50p per share, equating to £2.49million (2006: 1.70p totaling £0.65m). This represents Group dividend cover of2.41 (2006: 3.70). The final dividend will be paid on 28 April 2008 toshareholders on the register on 29 February 2008. Finally, the company has prepared 2007 financial statements in accordance withInternational Financial Reporting Standards (IFRSs) for the first time. These IFRSs have been adopted by the European Union (EU) and therefore comply with EU IAS regulation. Raj GandhiGroup Finance Director20 February 2008 GROUP INCOME STATEMENTFor the year ending 31 December 2007 2007 2006 Notes £000 £000 Revenue 2 18,980 8,651 Cost of sales 3,774 1,798 -------- -------- Gross Profit 15,206 6,853 Administrative expenses (excluding depreciation and share-based payments) 5,595 2,819 -------- -------- EBITDA 9,611 4,034 Depreciation 434 164 -------- -------- Operating Profit (before share-based payments) 9,177 3,870 Share-based payments 737 541 -------- -------- Operating Profit 8,440 3,329 Finance revenue 134 45Finance costs - (2) -------- -------- Profit before taxation 8,574 3,372 Tax expense 2,566 968 -------- -------- Profit for the year 6,008 2,404 ======== ======== Profit for the year attributable to: Equity holders of the parent 6,008 2,404 -------- --------Earnings per share (pence) - Basic 3 15.69 6.3- Diluted 3 13.91 5.8 -------- -------- GROUP BALANCE SHEETAs at 31 December 2007 Year to 31 Year to 31 December December 2007 2006 Notes £'000 £'000 NON-CURRENT ASSETSIntangible assets 5 11,826 9,303Property, plant and equipment 6 792 1,655Deferred tax asset 67 43 -------- -------- 12,685 11,001 -------- --------CURRENT ASSETSTrade and other receivables 1,096 2,182Cash and cash equivalents 7 46,132 16,622 -------- -------- 47,228 18,804 -------- --------TOTAL ASSETS 59,913 29,805 -------- -------- CURRENT LIABILITIESTrade and other payables 39,511 15,872Current tax liabilities 1,467 592 -------- -------- 40,978 16,464 -------- -------- LONG TERM LIABILITIESDeferred tax liability - - -------- -------- - - -------- -------- TOTAL LIABILITIES 40,978 16,464 -------- --------NET ASSETS 18,935 13,341 ======== ======== EQUITYCalled-up equity share capital 3,829 3,829Share premium account 11,607 11,607Retained profits 7,639 2,708Share option reserve 1,204 541Other reserves (5,344) (5,344) -------- --------TOTAL EQUITY 18,935 13,341 ======== ======== GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYFor the year ending 31 December 2007 Issued Share Share share premium Retained option Other Total Capital account profits reserve reserves equity £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2007 3,829 11,607 2,708 541 (5,344) 13,341Total recognised income and expense forthe year - - 6,008 - - 6,008Recognition of equity-settled share-basedpayments in the year - - - 737 - 737Forfeiture of share options - - 52 (74) - (22)Equity dividends paid - - (1,129) - - (1,129) -------- -------- -------- ------- -------- -------At 31 December 2007 3,829 11,607 7,639 1,204 (5,344) 18,935 ======== ======== ======== ======= ======== ======= GROUP CASH FLOW STATEMENTFor the year ending 31 December, 2007 Year to 31 Year to 31 December December 2007 2006 Notes £'000 £'000 Operating profit from continuing operations 6,008 2,404Adjustments for:Depreciation of property, plant and equipment 434 164Equity settled share based payment 737 541Finance income (134) (45)Finance expense - 2Current tax charge 2,612 1,093Deferred tax asset (46) (125)Deferred tax liability - -------- ---------Operating cash flows before movements in working capital 9,611 4,034(Increase)/decrease in receivables (410) 359Increase/(decrease) in payables 23,639 10,328 -------- ---------Cash generated by operations 32,840 14,721 Taxation paid (1,737) (695) -------- ---------Net cash from operations 31,103 14,026 -------- --------- Investing activitiesInterest received 134 45Interest paid - (2)Acquisitions of property, plant and equipment (2,094) (1,543) -------- ---------Net cash used in investing activities 29,143 12,526 -------- --------- Financing activitiesDividends paid 4 (1,129) - -------- ---------Net increase/(decrease) in cash and cash equivalents 28,014 12,526 Cash and cash equivalents at beginning of year 18,118 5,592 -------- ---------Cash and cash equivalents at end of year 7 46,132 18,118 ======== ========= Notes to consolidated interim financial statements 1. Basis of preparation The last financial statements published under UK GAAP were for the year ended 31December 2006. In 2007, the company will prepare final financial statements inaccordance with International Financial Reporting Standards (IFRSs) for thefirst time. These IFRSs have been adopted by the European Union (EU) andtherefore comply with EU IAS regulation. In terms of IFRS 1, First-time Adoption of International Financial Reporting Standards, the date of transition for the 2007 financial statements is 1January 2006. Financial information in this report has been prepared in accordance withaccounting policies consistent with those adopted within the half yearreporting for 2007 concerning the change from UK GAAP to IFRS. The results for the year ended 31 December 2007 do not constitute statutory accounts as defined in section 240 (5) of the companies Act 1985. Theyare extracted from the full statutory accounts for the year which wereapproved by the Board of Directors on 19 February 2008, but which have not beendelivered to the Registrar of Companies. The report of the Auditors on theseaccounts is unqualified and does not contain a statement under section 237(2) or 237 (3) of the Companies Act 1985. 2. Revenue and Segmental information 2007 2006 £'000 £'000RevenueSpread betting 16,162 7,112Forex 3,943 1,380Brokerage 1,080 905 -------- --------Gross group revenue 21,185 9,397Spread betting brokerage and hedging costs (2,205) (746) -------- --------Net group revenue 18,980 8,651 Unallocated corporate expenses 10,540 5,322 -------- --------Operating profit 8,440 3,329Net financing income 134 43 -------- --------Profit before taxation 8,574 3,372Taxation expense (2,566) (968) -------- --------Profit for the period 6,008 2,404 ======== ======== 3. Earnings per ordinary share 2007 2006 £'000 £'000 Basic EPS Profit after tax 6,008 2,404Weighted average no of shares 38,292,683 38,292,683Weighted average basic EPS 15.69p 6.3p Diluted EPS Profit after tax 6,008 2,404Weighted average no of shares 43,199,989 41,119,304Weighted average fully diluted EPS 13.91 5.8p Diluted earnings per share is the basic earnings per share after allowing forthe dilative effect of the conversion into Ordinary shares of the weightedaverage number of options outstanding during the period. 4. Dividends 2007 2006 £'000 £'000 Declared and paid during the year:Final dividend for 2006 at 1.70p per share (2005 - nil) 650 -Interim dividend for 2007 at 1.25p per share (2006 - nil) 479 - -------- -------- 1,129 - ======== ======== Proposed for approval by shareholders at the AGM:Final dividend for 2007 at 5.25p per share (2006 - 1.70p) 2,010 650 5. Intangible fixed assets Software Goodwill Total £000 £000 £000 COSTAt 1 January 2007 - 9,303 9,303Transfers 2,879 - 2,879 ------- ------- -------At 31 December 2007 2,879 9,303 12,182 ------- ------- ------- AMORTISATIONAt 1 January 2007 and 31 December 2007 - - -Transfers 356 - 356 ------- ------- --------At 31 December 2007 356 - 356 ------- ------- -------- NET BOOK VALUEAt 31 December 2007 2,523 9,303 11,826 ------- ------- -------- At 31 December 2006 - 9,303 9,303 ------- ------- -------- Following the continued development of the trading platform, the company hasreclassified this as an intangible asset from the previous Plant & Machinery andEquipment. (see Note 6). 6. Property, plant and equipment Leasehold Plant & Equipment Total Property Machinery £000 £000 £000 £000 COSTAt 1 January 2007 339 1,068 472 1,879Additions 1 1,314 779 2,094Transfers - (1,628) (1,251) (2,879) -------- -------- -------- --------At 31 December 2007 340 754 - 1,094 -------- -------- -------- -------- DEPRECIATIONAt 1 January 2007 18 206 - 224Charge for the year 38 297 99 434Transfers - (257) (99) (356) -------- -------- -------- -------- At 31 December 2007 56 246 - 302 -------- -------- -------- -------- NET BOOK VALUEAt 31 December 2007 284 508 - 792 -------- -------- -------- -------- At 31 December 2006 321 862 472 1,655 -------- -------- -------- -------- 7. Cash and cash equivalents 2007 2006 £000 £000 Cash at bank and in hand 454 2,061Short-term deposits 9,865 1,239Client money held:Spread Betting Clients 16,785 7,435Forex Clients 19,028 7,383 -------- -------- 46,132 18,118 -------- -------- This information is provided by RNS The company news service from the London Stock Exchange