25 Feb 2010 07:00
LONDON CAPITAL GROUP HOLDINGS PLC
PRELIMINARY RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2009
| LCG CONTINUES TO PROGRESS DESPITE ADVERSE MARKET CONDITIONS |
Highlights
Financial
·; Revenue decreased 4% to £27.6m
·; Adjusted PBT* down 49% to £6.0m
·; PBT down 46% to £5.8m
·; Profits impacted by unfavourable markets, lower interest income and increased costs to support growth
§ Debt free and highly cash generative
§ Strong cash position of £10.0m at year end (2008: £11.1m).
§ Final dividend waived**
Operational
·; Trading revenue*** maintained at £27.4m
§ Record level of UK Financial Spread Betting (FSB) live accounts up 53% to 51,240 in 2009 (2008: 33,560)
§ Record number of UK (FSB) account openings up 26% to 18,235 in 2009 (2008: 14,430)
§ Record volume of UK FSB trades per month up 25% to 0.5m (2008: 0.4m)
§ Total FSB client funds up 43% to £34.72m (2008: £24.22m)
§ Foreign exchange client funds down 13% to £19.13m (2008: £22.01m)
§ Signed five new White Label agreements including PartyGaming PLC
Board
After seven years Frank Chapman will step down from his current role of Chief Executive prior to the AGM in April 2010 but will remain on the Board as Non-Executive Vice Chairman. Simon Denham will take up the role of Chief Executive and Rachel Woodford will become Managing Director. Siobhan Moynihan will join the Board as Finance Director and Amanda Shields will join the Board as Chief Operating Officer.
| Year ended | Year ended | ||
| 31 December 2009 | 31 December 2008 | Change | |
| £000 | £000 (restated) | % | |
| Revenue | 27,645 | 28,878 | (4%) |
| Adjusted EBITDA**** | 8,107 | 12,605 | (36%) |
| Profit before tax | 5,848 | 10,850 | (46%) |
| Adjusted profit before tax | 6,005 | 11,857 | (49%) |
| Basic earnings per share | 9.95p | 19.86p | (50%) |
| Diluted earnings per share | 9.53p | 19.10p | (50%) |
| Dividend per share | 2.5p | 11.0p | (77%) |
*Adjusted profit before tax represents profit before tax excluding share based payment expense. Applied consistently hereafter.
**Anticipated 2010 dividend to be re-based on a one third/two thirds split on a progressive basis
**\* Trading revenue represents total revenue excluding interest income on client funds. Applied consistently hereafter
****Adjusted EBITDA represents profit before interest, tax, depreciation, amortisation and share based payment expense. Applied consistently hereafter.
Commenting Chief Executive Officer, Frank Chapman, said:
"I am pleased to report that trading in 2010 has started well, which is a reflection of more favourable markets and our increased client acquisition during 2009.
Whilst economic conditions remain uncertain and there is little visibility in forecasting Group revenues, we believe the Company is now in a strong position to benefit from our new trading platforms and a defined product development framework, which will carry us forward into the expected growth of the next few years."
| For further information, please contact: | www.londoncapitalgroup.com |
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| London Capital Group Holdings plc | 020 7456 7000 |
| Frank Chapman, Chief Executive Officer |
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| Smithfield Consultants | 020 7360 4900 |
| John Kiely, Gemma Froggatt
Cenkos Securities plc Nick Wells |
020 7397 8900 |
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Print resolution images are available for the media to view and download from www.vismedia.co.uk
Notes to Editors:
London Capital Group Holdings plc is the parent company of London Capital Group (LCG) Limited, one of the UK's leading financial services companies specialising in online trading services for retail and professional customers. Its core activity is the provision of spread betting products on the financial markets to retail clients under a variety of trading names including Capital Spreads and ProSpreads.com while its other divisions provide online foreign exchange trading services and derivatives and equities execution to institutional clients. LCG also uses its expertise and experience to develop White Label Partnerships and Joint Ventures with leading international brands including E\* TRADE (TD Waterhouse), PaddyPower, Saxo Bank, Tradefair and PartyGaming, providing financial spread betting capability.
Based in London, LCG Ltd is regulated and authorised by the Financial Services Authority, 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.
LCGH plc floated on the London Stock Exchange's AIM market in December 2005. 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 2009
The Group has undergone a difficult year and market conditions have not been favourable to our business model. This, coupled with increased costs to support the growth of the business, has meant that profits have been lower than initially expected.
While trading revenue has remained at the same level as last year, this has been on the back of increased client numbers and trades transacted. Our spread betting White Label model is such that increased trading volumes with no corresponding increase in revenue per client results in lower margins. The fall in interest income, due to the very low rates prevailing in 2009, has meant that total revenue has declined by 4% on the prior year to £27.6m. Adjusted profit before tax fell 49% to £6.0m as a result of increased administrative costs to support the Group's growth, higher IT and depreciation costs and commission payments to our partners.
Investment in our IT infrastructure has been crucial to the strength and development of the Group but following the year-end the Board has reviewed its IT strategy and has concluded that the current capitalised value is not supportable. It has therefore been decided that an impairment of £3.2m should be charged in relation to the Group's software assets which will be recognised as an expense in 2010. The impairment does not affect 2009 results nor the Group's cash or regulatory capital positions.
The Group plans to roll out a CFD platform in H1'10 to target a new client base. This, combined with increased regulatory capital requirements due to both higher client activity and a more onerous regulatory environment, requires that the Group hold more cash resources. For these reasons, the Board believes it prudent not to pay a final ordinary dividend for 2009, despite having a strong cash position. The Group has already paid an interim dividend in September 2009 of 2.5p per share and intends to continue to pay dividends from future available profits. Management continue to hold a substantial interest in the business and believe that under the current circumstances this strategy is in the best interests of the business.
Whilst we recognise that economic conditions remain uncertain and there is little visibility in forecasting Group revenues, the positive KPIs of client acquisition, customer funds on deposit, new White Label partnerships and the roll-out of two new trading platforms during 2010 means we remain confident of the Group's ability to grow. All these point to an improved position for the year ahead and I look forward to bringing you better results in future.
Richard Davey
Chairman
25 February 2010
CHIEF EXECUTIVE'S STATEMENT
For the year ended 31 December 2009
Summary
2009 has been a challenging year for the Group as outlined in the Chairman's Statement. However, I am pleased to report that in one of the harshest business environments experienced in the last few decades, we made an adjusted profit before tax of £6.0m (2008: £11.9m). We have achieved this result despite a number of factors being ranged against us, the most detrimental of which was the low interest environment which affected our ability to benefit from company and client funds on deposit. I believe that our results demonstrate the viability and strength of our business model supported by the dedication and loyalty of all our employees.
The business has grown the client base substantially during the year and, as a result, we have increased the number of our employees. Our new client acquisition has grown at a faster rate than last year and all our divisions continue to have excellent growth prospects. Meanwhile, we have spent much of the last six months increasing our resources to ensure that the Group's compliance and governance capabilities are sufficient not only for our current requirements, but also to carry us forward into the expected growth of the next few years.
Due to the expansion of our client base and the planned roll out of two new trading platforms in 2010 (detailed below), we have decided that it is prudent and sensible to build up our cash reserves. Whilst these new trading platforms provide the Group with new opportunities, they will also require increased regulatory capital. It will be appreciated that regulatory oversight has increased significantly in the past year which raises the barrier considerably to any new entrants. As a consequence of the new regulatory environment we believe that increased regulatory capital is likely to be imposed upon financial institutions in the future. These factors have contributed to our decision not to pay a final dividend for the year end. As has been the case to date, we intend to continue making regular dividend payments provided cash resources permit.
On a personal note, having reached sixty this year after a career spanning forty years in the City, I have decided to step back from the day to day running of the business and am extremely pleased to announce, subject only to regulatory approval, that I will be handing over the reins to Simon Denham, who will become CEO. Simon, together with Rachel Woodford and myself, has been responsible for building up the business over the last seven years. We expect the hand over process to be completed over the next few months and a further announcement will be made in due course. I intend to remain both as a shareholder in the business and on the Board as Non Executive Vice-Chairman. Released from CEO obligations, I plan to concentrate my efforts on bringing new business to the Group.
Simon will lead a very strong Board with Rachel Woodford as his Managing Director and Siobhan Moynihan promoted to Finance Director with a new appointment of Amanda Shields as Chief Operating Officer. Richard Davey and Jack Inglis will remain as Chairman and Non Executive Director respectively.
As a result of the reduced level of profit compared to last year the Executive Directors of London Capital Group PLC, namely Simon Denham, Rachel Woodford and myself have agreed to forego a bonus for 2009.
I am also pleased to report that trading in 2010 has started well, which is a reflection of our increased client acquisition during 2009 and more favourable market conditions.
Financial Spread Betting (FSB), UK
LCG's UK financial spread betting (FSB) business continues to flourish and still generates the significant portion of the Group's revenue.
According to a comprehensive survey conducted by Investment Trends in September 2009, London Capital Group has established itself as a significant financial spread betting provider and is now ranked third in the market by number of client accounts (Investments Trends 2009 UK Spread Betting and CFD Report). In addition to this, our own brand, Capital Spreads ranked number three as primary account provider and achieved the highest satisfaction rating of all UK providers in relation to spread value offered, with 89% or those surveyed responding that Capital Spreads offers either Good or Very Good value. This was the highest value based satisfaction level achieved by any financial spread betting business.
On average 39% of total clients were active during the year and funds on account rose by 35%. Average trades per day rose 14% to 23,975 (2008:20,967). Whilst this does not match the significant increase from 2007 to 2008, the trades volumes reflect the considerably reduced volatilitywhich has resulted in a reduced average net revenue per user falling 33% to £929 (2008: £1,383).
Unfortunately 2009 has shown that, in certain market conditions, activity does not always turn into profit. While the markets did have a very strong rally from March through to December, this was achieved, in the main, via a series of sharp increases with only very minor bear move retracements. More importantly, there were extended periods of restricted trading range activity. We had occasional large profit making days but these were countered by an increase in neutral income sessions.
Interest rates at 0.5% have not only affected revenue earned from client funds deposited, but has also considerably cut back on rolling charge revenue on client open positions. On leveraged books, revenue at 7% (5%+2%) of net open positions in 2008 was considerably more profitable than in 2009 where only 2.5% was earned (0.5%+2%).
Our business model has been proven and has attracted the very best partners from the Gaming and Financial Market sectors who now include Tradefair (a division of Betfair), PartyGaming, Paddy Power, E\* TRADE (TD Waterhouse) and Saxo Bank. In general, we approach partners with a significant target market client base, which provides us with access to normally brand-loyal clients. White Label and Marketing Agents produce very cost effective clients for LCG as they save us the cost of client acquisition which can be as much as £250 per lead. These customers are also sourced from a pool that would normally remain outside the scope of our usual marketing effort. The Group has not lost a trading partner to date and is confident of further new associations through 2010.
Financial Spread Betting, Gibraltar
ProSpreads has had a frustrating year that has incorporated a full re-launch of the brand from Futures Betting to ProSpreads. The company also moved to new offices providing a huge improvement in working environment, technology infrastructure as well as potential space for future growth.
Client acquisition remains slow, but has increased in recent months and the company was break even for the last two months of 2009, however the unit made a small overall loss of £0.25m in 2009 (2008: loss of £0.63m). A new marketing push will take place in earnest for 2010.
Institutional Foreign Exchange
Although total global FX market volumes were reported to be lower in 2009 when compared to 2008, I am pleased to report that LCG's Institutional FX division volumes actually rose over 10% year on year. We can also report that our volumes were more robust when compared to last year given they were spread over a wider range of our growing client base. Additionally, we have increased our depth of liquidity across a broader range of currency pairs, including Gold and Silver, with tightened spreads mainly as a result of fractional pricing.
Our client numbers have risen to approximately 741 during 2009, a 37% increase (2008: 539) on the previous year. Net earnings from the FX division have remained similar to last year with interest earned on client accounts being minimal during 2009. Interest earnings from client funds on deposit are ordinarily a material source of income for the division.
The FX division's model is an agency broking business specifically earning commission on trades from professional clients via online electronic trading platforms. Since the end of last year we have continued to attract some large new accounts and the division is looking forward to another year of expansion.
Institutional Broking
(previously known as Derivatives)
In 2009 the Institutional Broking division delivered lower trading volumes. These were down on the previous year due to the very low global interest rate environment which resulted in lower volatility.
In view of this we expanded our product suite into Equity Derivatives where we have attracted some important new customers.
Whilst the division was profitable in 2009, we expect 2010 to be an improvement on 2009 in terms of volumes and income and look forward to more active bond and interest rate markets to increase profitability.
IT
Our IT department made significant progress during the year, greatly improving back office systems and making a major investment in infrastructure resulting in a better service to our clients.
We launched four new White Label platforms in 2009 and signed a contract with PartyGaming who transferred their spread betting and CFD business from a competitor to LCG. Their financial spread betting service was launched in January 2010 under the brand name InterTrader.
2009 has seen considerable development of trading software for the spread betting unit and our new CFD product. Like many technology projects delivery target dates have slipped, but we confidently expect roll out of our new CFD platform in the next quarter. Our first CFD White Label is due to go live in April.
We have also worked hard to prepare for the launch of a new service through the MetaTrader (MT4) trading platform. This is also intended to go live in the 2nd quarter of 2010.
Employees
The success of our business largely relies on the reliability, functionality, efficiency and back up of our trading platforms. Each of these is operated by and delivered in great part by our employees. The head count in 2009 increased by 70% during the year to 83 employees.
This demonstrates the substantial investment we have made in people over the year to support the expansion of the company's business in 2009 and anticipating the further growth expected in 2010.
On behalf of the board, I would like to thank all our employees for their dedication, commitment and professionalism during what has been a difficult year.
Risk Management
The risks inherent in London Capital Group's business are constantly changing as a result of internal and external factors impacting on our business. We recognise the importance of promptly identifying and responding appropriately to manage and mitigate those risks.
The Board is responsible for managing the Group's risks, and has delegated day to day responsibility to employees. We continue to embed our risk management culture in the business and to enhance our risk management processes by introducing an Operations, Compliance and Control committee. At an operational level, this committee has specific oversight of the effectiveness of internal controls and risk management systems relating to non-financial risks. This forum supplements the Market and Credit Risk Control committee already in place.
We have maintained our policy of not offering credit to clients and placing automatic stop loss orders on all spread betting positions. In addition we have strict risk controls in place for our FX division. Consequently, we have had no bad or doubtful debts across the Group during the period.
Summary and Outlook
The Group has grown rapidly from a small, entrepreneurial business to a medium size organisation and therefore we must continue to invest in our infrastructure to ensure robust support for further growth. A great deal of this re-structuring has already been completed, and we plan to continue this program into 2010.
We will launch our new CFD and MetaTrader platforms in Q2'10, which will complement our current broking, FX and Spread Betting offerings.
Our operational KPI's remain strong - client acquisition and trade volumes for the start of 2010 have been robust and revenue flow has been more encouraging than it has been for some time.
The continued attraction of the LCG model for our White Label product has been demonstrated throughout 2009 by the acquisition of new major partners and we continue to be in discussion with a number of interesting potential associates.
We believe that the Company is now in a strong position, with new platforms and a defined new product development framework, to take advantage of European and Far East markets and to continue the growth of our UK client base.
Frank Chapman
Chief Executive Officer
25 February 2010
GROUP FINANCIAL REVIEW
For the year ended 31 December 2009
In retrospect, the extreme market conditions experienced in the second half of 2008 disproportionately impacted the Group's income, making 2008 an exceptionally profitable year. Despite the volatile market conditions of 2008 not being repeated, the Group has maintained similar levels of trading revenue in aggregate across its divisions as a result of increased client acquisition and higher trade volumes. However, the impact of lower interest income has meant total revenue has fallen by 4% on the prior year to £27.6m, compared to £28.9m in 2008.
Gross profit fell by 14% to £19.0m from £22.2m mainly as a result of proportionally higher White Label costs. The increase in customers and trade volumes from White Labels combined with lower net revenue per customer has lead to an increase in White Label costs both in absolute terms and as a proportion of revenue generated.
The investment in IT systems in the past 4 years has meant the Group is carrying a higher depreciation charge than previously, as well as the additional costs related to hosting and maintenance. This combined with higher administrative costs to accommodate growth has lead to a decline in adjusted EBITDA of 36% to £8.1m and adjusted profit before tax of 49% to £6m. Profit before tax which includes a charge for share based payment expense fell 46% to £5.85m.
Financial Position
The Group's intangible assets at 31 December of £15.8m comprised goodwill and other intangibles from business combinations of £9.9m and software of £5.9m. At the year-end the Group was satisfied with carrying value of these assets.
During Q4 2009 the Group began reviewing its IT strategy which it completed in February 2010. As a result of this review it was concluded in February that the Group would change the focus of its IT asset use in future.
Consequently, the Board has determined that that the current value is not supportable going forward and has decided that an impairment of £3.2m should be charged in relation to the Group's software assets. This charge will be recorded in the 2010 income statement and does not impact either the cash resources or regulatory resources of the Group.
Amounts due to clients include unrealised profits or losses on clients' open positions, as well as the cash balance on the account. The Group does not offer credit to clients and incurred no bad debts during the year.
Client money held by the two spread betting units increased by £10.5m to £34.72m, and client money held by the Forex unit fell by £2.9m to £19.1m.
As previously reported in our half-year results, there was an accounting error identified in the year. The error amounted to an accumulated after tax loss of £1.1m and affected the reported profits for 2006, 2007, and 2008.
Cash Flow
Cash and cash equivalents increased by £6.6m during the year while house cash resources declined by £1.1m to £10.0m. Significant cash outflows in the year included £3.4m on capital expenditure and acquisitions, £2.4m on taxation and £4.3m on dividend payments.
Going Concern
The Group has considerable financial resources at its disposal and currently has no external debt. The Directors therefore believe that the Group is well placed to manage its liquidity and financial risks despite uncertainty in the economic climate. After making due enquiries the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.
Regulatory Capital
The Group's UK operating subsidiary is regulated by the FSA and its Gibraltar subsidiary is regulated by the Financial Services Commission in Gibraltar. Both the FSA and FSC impose a minimum level of regulatory capital which must be retained by the Company and by the Group. As at 31 December the Group had a consolidated regulatory capital surplus.
Dividend Policy
The Company's dividend policy has been to pay out a dividend whilst leaving sufficient liquid and capital resources to meet the Group's working capital and regulatory requirements. During the year the Company paid an interim dividend of 2.5p per share amounting to £1.0m.
Financial Outlook
As previously emphasised, earnings in our business are difficult to predict with any certainty, as they rely to a large degree on market volatility and more recently on the interest rate environment, as we can earn a significant amount of interest income from client funds on deposit when rates are high. This was not the case last year and it is unlikely to be the case in 2010.
However trading has been robust during the start of 2010 with all our divisions trading well. We are working hard to launch our CFD and MetaTrader platforms which will target international markets, subject to regulatory approval, which we recognise to be an essential part of our future growth.
On behalf of the Board, I would also like to take this opportunity of thanking Frank for all his efforts over the last seven years. He has been central to building LCG from a small start up in 2003 into the established financial institution that it is today. He has assured the Board that he, his extensive knowledge and his network of contacts, will remain at the Company's disposal for the foreseeable future.
Simon Denham
Group Finance Director
25 February 2010
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2009
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CONSOLIDATED BALANCE SHEET
As at 31 December 2009
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| 2009 | 2008 (restated) | 2007 (restated) |
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| Notes | £'000 | £'000 | £'000 |
| Non-current Assets |
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| Intangible assets | 5 | 15,753 | 14,472 | 11,826 |
| Property, plant and equipment | 6 | 911 | 907 | 792 |
| Deferred tax asset |
| 3 | 515 | 67 |
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| 16,667 | 15,894 | 12,685 |
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| Current Assets |
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| Trade and other receivables |
| 1,325 | 2,782 | 1,096 |
| Cash and cash equivalents | 7 | 63,871 | 57,294 | 46,132 |
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| 65,196 | 60,076 | 47,228 |
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| Total Assets |
| 81,863 | 75,970 | 59,913 |
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| Current Liabilities |
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| Trade and other payables |
| 56,723 | 49,962 | 40,383 |
| Current tax liabilities |
| 773 | 1,495 | 1,206 |
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| 57,496 | 51,457 | 41,589 |
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| Total Liabilities |
| 57,496 | 51,457 | 41,589 |
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| Net Assets |
| 24,367 | 24,513 | 18,324 |
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| Equity |
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| Called-up equity share capital |
| 3,899 | 3,864 | 3,829 |
| Share premium account |
| 12,153 | 11,855 | 11,607 |
| Retained profits |
| 11,438 | 12,074 | 7,028 |
| Share based payment reserve |
| 2,221 | 2,064 | 1,204 |
| Other reserves |
| (5,344) | (5,344) | (5,344) |
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| Total Equity |
| 24,367 | 24,513 | 18,324 |
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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2009
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| Issued share capital
£'000 | Share premium account
£'000 | Retained profits
£'000 | Share based payment reserve £'000 | Other reserves
£'000 | Total equity
£'000 |
| At 1 January 2008 (as previously reported) |
3,829 |
11,607 |
7,639 |
1,204 |
(5,344) |
18,935 |
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| Prior year adjustment | - | - | (611) | - | - | (611) |
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At 1 January 2008 (restated) |
3,829 |
11,607 |
7,028 |
1,204 |
(5,344) |
18,324 |
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| Profit for the period (restated) | - | - | 7,638 | - | - | 7,638 |
| Dividends | - | - | (2,976) | - | - | (2,976) |
| Share based payment transactions including deferred taxation |
- |
- |
246 |
1,007 |
- |
1,253 |
| Issue of share capital | 35 | 248 | - | - | - | 283 |
| Exercise/forfeiture of share options | - | - | 138 | (147) | - | (9) |
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| At 31 December 2008 (restated) | 3,864 | 11,855 | 12,074 | 2,064 | (5,344) | 24,513 |
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| Profit for the period | - | - | 3,867 | - | - | 3,867 |
| Dividends | - | - | (4,267) | - | - | (4,267) |
| Share based payment transactions including deferred taxation |
- |
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(236) |
157 |
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(79) |
| Issue of share capital | 35 | 298 | - | - | - | 333 |
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| At 31 December 2009 | 3,899 | 12,153 | 11,438 | 2,221 | (5,344) | 24,367 |
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CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2009
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| 2009 | 2008 (restated) |
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| £'000 | £'000 |
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| Profit for the year |
| 3,867 | 7,638 |
| Adjustments for: |
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| Depreciation of property, plant and equipment |
| 473 | 338 |
| Amortisation of intangible assets |
| 1,833 | 811 |
| Equity settled share based payment |
| 157 | 1,007 |
| Loss on disposal of property, plant and equipment |
| - | 41 |
| Investment income |
| (149) | (401) |
| Current tax charge |
| 1,707 | 3,688 |
| Movement in deferred tax asset |
| 512 | (290) |
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| Operating cash flows before movements in working capital |
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8,400 |
12,832 |
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| Decrease/(increase) in receivables |
| 1,969 | (1,456) |
| Increase/(decrease) in payables |
| 5,788 | 8,428 |
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| Cash generated by operating activities |
| 16,157 | 19,804 |
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| Taxation paid |
| (2,430) | (3,213) |
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| Net cash from operations |
| 13,727 | 16,591 |
| Investing activities |
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| Investment income |
| 149 | 401 |
| Acquisitions of property, plant and equipment |
| (448) | (387) |
| Acquisitions of intangible assets |
| (2,564) | (2,474) |
| Acquisitions of subsidiaries and other business units |
| (353) | (276) |
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| Net cash used in investing activities |
| (3,216) | (2,736) |
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Financing activities |
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| Dividends paid |
| (4,267) | (2,976) |
| Cash from issue of share capital |
| 333 | 283 |
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| Net cash used in financing activities |
| (3,934) | (2,693) |
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| Net increase in cash and cash equivalents |
| 6,577 | 11,162 |
| Cash and cash equivalents at beginning of year |
| 57,294 | 46,132 |
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| Cash and cash equivalents at end of year |
| 63,871 | 57,294 |
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| Own money |
| 10,025 | 11,068 |
| Client monies held |
| 53,846 | 46,226 |
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63,871 |
57,294 |
NOTES TO THE FINANCIAL STATEMENTS
As at 31 December 2009
1. Introduction
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) 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"), asissued by the International Accounting Standards Board, and as adopted by the European Union. The accounting policies followed are the same as those detailed within the 2008 Report and 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.
In accordance with revised IAS 1, a third statement of financial position is presented at 1 January 2008 because of restatement.
2. Revenue and segmental information
|
| 2009 | |||||
|
| Financial spread betting, UK | Institutional foreign exchange |
Institutional brokerage | Financial spread betting, Gibraltar |
Total | |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Revenue |
|
|
|
|
| |
| Gross external revenue | 21,849 | 5,582 | 815 | 1,346 | 29,592 | |
| Spread betting brokerage and hedging costs |
(2,138) |
- |
- |
- |
(2,138) | |
|
|
|
|
|
|
| |
| Net segmental revenue | 19,711 | 5,582 | 815 | 1,346 | 27,454 | |
|
|
|
|
|
|
| |
| Foreign exchange gain |
|
|
|
| 191 | |
|
|
|
|
|
|
| |
| Net revenue |
|
|
|
| 27,645 | |
|
|
|
|
|
|
| |
| Result |
|
|
|
|
| |
| Segment operating profit/(loss) | 11,062 | 2,523 | 171 | (257) | 13,499 | |
|
|
|
|
|
|
| |
| Unallocated corporate expenses |
|
|
|
| (7,800) | |
|
|
|
|
|
|
| |
| Operating profit |
|
|
|
| 5,699 | |
| Net financing income |
|
|
|
| 149 | |
|
|
|
|
|
|
| |
| Profit before taxation |
|
|
|
| 5,848 | |
| Taxation expense |
|
|
|
| (1,981) | |
|
|
|
|
|
|
| |
| Profit for the year |
|
|
|
| 3,867 | |
|
|
|
|
|
|
| |
| Other information |
|
|
|
|
| |
|
|
|
|
|
|
| |
| Capital additions | 3,033 | 21 | - | 89 |
| |
| Depreciation and amortisation | 1,563 | 57 | - | 105 |
| |
|
|
|
|
|
|
| |
| Balance sheet |
|
|
|
|
| |
|
|
|
|
|
|
| |
| Segmental assets | 39,616 | 19,340 | 403 | 7,529 | 66,888 | |
|
|
|
|
|
|
| |
| Unallocated corporate assets |
|
|
|
| 14,975 | |
|
|
|
|
|
|
| |
| Consolidated total assets |
|
|
|
| 81,863 | |
|
|
|
|
|
|
| |
| Segmental liabilities | 30,178 | 19,130 | - | 5,084 | 54,392 | |
|
|
|
|
|
|
| |
| Unallocated corporate liabilities |
|
|
|
| 3,104 | |
|
|
|
|
|
|
| |
| Consolidated total liabilities |
|
|
|
| 57,496 | |
Revenue and segmental information (continued)
|
| 2008 (restated) | |||||||||
|
| Financial spread betting, UK | Institutional foreign exchange |
Institutional brokerage | Financial spread betting, Gibraltar |
Total | |||||
|
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Revenue |
|
|
|
|
| |||||
| Gross external revenue | 24,363 | 5,203 | 1,296 | 375 | 31,237 | |||||
| Spread betting brokerage and hedging costs |
(2,695) |
- |
- |
- |
(2,695) | |||||
|
|
|
|
|
|
| |||||
| Net segmental revenue | 21,668 | 5,203 | 1,296 | 375 | 28,542 | |||||
|
|
|
|
|
|
| |||||
| Foreign exchange gain |
|
|
|
| 336 | |||||
|
|
|
|
|
|
| |||||
| Net revenue |
|
|
|
| 28,878 | |||||
|
|
|
|
|
|
| |||||
| Result |
|
|
|
|
| |||||
| Segmental operating profit/(loss) | 15,768 | 2,358 | 367 | (626) | 17,867 | |||||
|
|
|
|
|
|
| |||||
| Unallocated corporate expenses |
|
|
|
| (7,418)
| |||||
|
|
|
|
|
|
| |||||
| Operating profit |
|
|
|
| 10,449 | |||||
| Net financing income |
|
|
|
| 401 | |||||
|
|
|
|
|
|
| |||||
| Profit before taxation |
|
|
|
| 10,850 | |||||
| Taxation expense |
|
|
|
| (3,212) | |||||
| Profit for the year |
|
|
|
| 7,638 | |||||
|
|
|
|
|
|
| |||||
| Other information |
|
|
|
|
| |||||
| Capital additions | 2,434 | 191 | - | 25 |
| |||||
| Depreciation and amortisation | 578 | 27 | 5 | 49 |
| |||||
|
Balance sheet |
|
|
|
|
| |||||
|
|
|
|
|
|
| |||||
| Segmental assets | 31,994 | 21,315 | 1,222 | 6,031 | 60,562 | |||||
| Unallocated corporate assets |
|
|
|
| 15,408 | |||||
| Consolidated total assets |
|
|
|
| 75,970 | |||||
|
|
|
|
|
|
| |||||
| Segmental liabilities | 21,256 | 21,613 | - | 3,900 | 46,769 | |||||
| Unallocated corporate liabilities |
|
|
|
| 4,688 | |||||
| Consolidated total liabilities |
|
|
|
| 51,457 | |||||
3. Earnings per ordinary share
|
| 2009
£'000 | 2008 (restated) £'000 |
|
|
|
|
| Basic EPS |
|
|
|
|
|
|
| Profit after tax | 3,867 | 7,638 |
| Weighted average no of shares | 38,865,569 | 38,465,000 |
| Weighted average basic EPS | 9.95p | 19.86p |
|
|
|
|
| Diluted EPS |
|
|
|
|
|
|
| Profit after tax | 3,867 | 7,638 |
| Weighted average no of shares | 40,559,908 | 39,983,935 |
| Weighted average fully diluted EPS | 9.53p | 19.10p |
|
|
|
|
Diluted earnings per share is the basic earnings per share after allowing for the dilutive effect of the conversion into Ordinary shares of the weighted average number of options outstanding during the period. Dilutive potential ordinary shares were 1,694,339 (2008: 1,518,935).
| Adjusted basic EPS |
|
|
|
|
|
|
| Adjusted profit after tax (as per note 4) | 3,980 | 8,363 |
| Weighted average no of shares | 38,865,569 | 38,465,000 |
| Weighted average basic EPS | 10.24p | 21.74p |
4. Adjusted profit before tax, adjusted operating profit and adjusted EBITDA
|
|
| 2009 | 2008 (restated) |
| ||
|
| £'000 | £'000 |
| |||
|
|
|
|
| |||
| Reported profit before tax | 5,848 | 10,850 |
| |||
| Add back - share based payment charge | 157 | 1,007 |
| |||
|
|
|
|
| |||
| Adjusted profit before tax | 6,005 | 11,857 |
| |||
| Tax as reported | (1,981) | (3,212) |
| |||
| Tax effect on add backs | (44) | (282) |
| |||
|
|
|
|
| |||
| Adjusted profit after tax | 3,980 | 8,363 |
| |||
|
|
|
|
| |||
|
|
|
|
| |||
|
|
|
|
| |||
| Reported operating profit | 5,699 | 10,449 |
| |||
| Add back - share based payment charge | 157 | 1,007 |
| |||
|
|
|
|
| |||
| Adjusted operating profit | 5,856 | 11,456 |
| |||
|
|
|
|
| |||
| Add back - other amortisation and depreciation | 2,251 | 1,149 |
| |||
|
|
|
|
| |||
| Adjusted EBITDA | 8,107 | 12,605 |
| |||
|
|
|
| ||||
5. Intangible fixed assets
|
| Customer relationship | Trade name |
Software |
Goodwill | Total |
|
| £'000 | £'000 | £'000 | £'000 | £'000 |
Cost
| At 1 January 2008 | - | - | 2,879 | 9,303 | 12,182 |
| Additions | 152 | 136 | 2,474 | 695 | 3,457 |
|
|
|
|
|
|
|
| At 1 January 2009 | 152 | 136 | 5,353 | 9,998 | 15,639 |
| Additions | - | - | 3,090 | - | 3,090 |
| Acquisitions | - | - | 324 | - | 324 |
| Adjustment to deferred consideration | - | - | - | (300) | (300) |
|
|
|
|
|
|
|
| At 31 December 2009 | 152 | 136 | 8,767 | 9,698 | 18,753 |
|
|
|
|
|
|
|
Amortisation
| At 1 January 2008 | - | - | 356 | - | 356 |
| Charge for the year | 29 | 16 | 766 | - | 811 |
|
|
|
|
|
|
|
| At 1 January 2009 | 29 | 16 | 1,122 | - | 1,167 |
| Charge for the year | 51 | 27 | 1,755 | - | 1,833 |
|
|
|
|
|
|
|
| At 31 December 2009 | 80 | 43 | 2,877 | - | 3,000 |
|
|
|
|
|
|
|
Net Book Value
| At 31 December 2009 | 72 | 93 | 5,890 | 9,698 | 15,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At 31 December 2008 | 123 | 120 | 4,231 | 9,998 | 14,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Property, plant and equipment
|
| Leasehold property | Plant & machinery | Total |
|
| £'000 | £'000 | £'000 |
| Cost At 1 January 2008 | 340 | 754 | 1,094 |
| Acquired as part of acquisition | - | 108 | 108 |
| Additions | 170 | 216 | 386 |
| Disposals | - | (121) | (121) |
|
|
|
|
|
| At 1 January 2009 | 510 | 957 | 1,467 |
| Acquired as part of acquisition | - | 29 | 29 |
| Additions | 37 | 411 | 448 |
| Disposals | - | - | - |
|
|
|
|
|
| At 31 December 2009 | 547 | 1,397 | 1,944 |
|
|
|
|
|
Depreciation
| At 1 January 2008 | 56 | 246 | 302 |
| Charge for the year | 87 | 251 | 338 |
| Disposals | - | (80) | (80) |
|
|
|
|
|
| At 1 January 2009 | 143 | 417 | 560 |
| Charge for the year | 130 | 343 | 473 |
| Disposals | - | - | - |
|
|
|
|
|
| At 31 December 2009 | 273 | 760 | 1,033 |
|
|
|
|
|
Net Book Value
| At 31 December 2009 | 274 | 637 | 911 |
|
|
|
|
|
|
|
|
|
|
| At 31 December 2008 | 367 | 540 | 907 |
|
|
|
|
|
|
|
|
|
|
7. Cash and cash equivalents
|
|
|
|
| |
|
|
|
| 2009 | 2008 |
|
|
|
| £'000 | £'000 |
|
|
|
|
|
|
| Cash at bank and in hand |
|
| 1,992 | 2,659 |
| Short-term deposits |
|
| 8,033 | 8,409 |
| Client money held |
|
| 53,846 | 46,226 |
|
|
|
|
|
|
|
|
|
| 63,871 | 57,294 |
|
|
|
|
|
|
8. Post balance sheet events
During Q4 2009 the Group began reviewing its IT strategy which it completed in February 2010. As a result of this review it was concluded in February that the Group would change the focus of its IT asset use in future.
Consequently, the Board has determined that that the current value is not supportable going forward and has decided that an impairment of £3.2m should be charged in relation to the Group's software assets