London Capital Group Holdings Regulatory News (LCG)

28 September 2017

LONDON CAPITAL GROUP HOLDINGS PLC

("LCG", the "Company" or the "Group")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2017

LCG is pleased to announce its interim results for the six months ended 30 June 2017.

A copy of the interim results will be available from the Company's website, www.ir.lcg.com, shortly.

Operational Highlights

· Client volumes up 25% (2016 H2: 102bn, 2017 H1: 127bn)

This demonstrates the increased quality of client now trading with LCG.

· Client net deposits per month up 71% (2016 H2: £1.4m, 2017 H1: £2.4m)

This demonstrates the increasing effectiveness of the new trading platform and the increased product offering by LCG.

· New Funded Clients up 9% (2016 H2: 2,437, 2017 H1: 2,662)

This demonstrates the increasing effectiveness of the new brand, sales and marketing activities deployed by LCG.

· Assets Under Management up 17% (2016 H2: £14.8m, 2017 H1: £17.3m)

Further demonstrates the increasing effectiveness of the new brand, platform, sales and marketing activities.

Commenting on the results, Charles-Henri Sabet, Group Chief Executive, said:

"The results are extremely encouraging and continue to demonstrate how LCG's performance is improving following its investment in technology, product offering and branding. This improvement has been achieved against the background of challenging trading conditions in the first half of 2017. During this period, the Group has seen strong revenue growth primarily due to increased client acquisition and participation as well as revenue capture compared to prior periods. This has enabled LCG to grow despite the lack of volatility in the market resulting in a benign trading environment.

LCG's ability to capture and take advantage of trading opportunities means that the Group is now better positioned to be resilient during periods when trading conditions are weak and we remain fully focused on our goal of returning LCG to profitability.

The outlook for the industry continues to remain uncertain given the changing regulatory landscape. This is anticipated to have an impact on the industry and affect the services that can be offered to clients, particularly with regard to the levels of leverage that can be offered. However, the precise impact of this will not be known until the regulatory authorities have finalised their conclusions. LCG remains committed to ensuring the highest standards of regulatory compliance and welcomes changes that will improve and protect client outcomes".

1Adjusted 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.

2Adjusted (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.

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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 period ended 30 June 2017

H1 performance

For the six months ended 30 June 2017, trading conditions have been affected by lower market volatility. However, against this backdrop, LCG has continued to deliver increased revenues and has demonstrated that it remains on track to reach its objective of increasing client acquisition, client activity and ultimately of returning the Group to profitability.

Despite such challenging conditions, the Group has continued its upward trajectory in delivering increased revenues compared with previous periods, whilst ensuring that it continues to invest and innovate. The Group's efforts to improve its technology, sales and marketing as well as retain and add to the quality of its people means that the Group remains on the path of improvement. The Group is now far better placed to derive both a steady revenue stream when trading conditions are weak and be in a position to take full advantage when conditions are favourable.

Regulation

As we have previously reported, the regulatory landscape continues to evolve across multiple jurisdictions, particularly in Europe. The recent announcements from the Financial Conduct Authority ("FCA") and other European regulators to protect clients through reduced leverage and enhanced risk warnings are in line with LCG's values of ensuring that the customer is protected and to improve customer outcomes. LCG is fully supportive of the efforts of global regulatory bodies to ensure that client interests are served at all times.

Although no final announcement has been issued by the FCA, LCG remains committed to ensuring that the Group continues to operate to the highest regulatory standards and has further developed its processes to ensure that all appropriate clients are protected and aware of the risks and rewards of trading leveraged products.

Whilst the outlook remains uncertain, it is hoped that the regulatory changes being proposed will ultimately improve client outcomes and provide the industry and established operators with long term sustainability.

LCG, as one of the leading providers in the industry with an established history of over 20 years and with a loyal client base, is well placed to benefit and continue its growth trajectory in this changing environment.

Outlook

The work and investment by LCG continues to result in improvement across all areas of the Group, particularly in our people, products and services, which will ultimately provide our clients with the service they expect in order to ensure that LCG is their provider of choice for their trading needs.

Such investment will drive and deliver long term growth and ensure that LCG continues to improve and ultimately return to profitability. The Group remains cognisant of the changing regulatory environment and is ready to embrace changes that are intended to enhance client outcomes. Such values remain at the core of LCG to ensure it retains and expands on an already loyal client base.

The financial year has started well and with actions already taken to manage costs and to drive further investment for future growth I, the other Board members and the senior management team remain confident about the prospects for the business in the coming periods and are fully committed to ensuring that LCG continues on the path to sustained long-term growth.

Charles Poncet

Non-Executive Chairman

28 September 2017

UK CHIEF EXECUTIVE OFFICER'S STATEMENT

For the period ended 30 June 2017

Financial Results

Following investment made by the Group in prior periods to improve its technology, product and people, as well as expand its offering from both a product and geographical perspective, the Group has experienced a positive start to the trading year. This is despite the difficult trading conditions seen in the first half of the year when volatility has remained at historical lows with the CVIX (Chicago Board Options Exchange Market Volatility Index, which is a measure of the implied volatility of the S&P 500) gauging at historically low levels. This resulted in benign trading conditions as markets across the majority of asset classes traded within their ranges.

Despite such challenging trading conditions, the Group has seen improvements across a number of key operating metrics with trading volumes up significantly at 25% compared with the previous period, demonstrating that LCG is now attracting significantly higher quality clients with a greater propensity to trade a greater number of asset classes.

A key objective for LCG in the second half of 2016 was to improve the trading platform and increase its product offering to provide clients with greater choice. Successful work in this area has led to a significant increase in clients now trading LCG's new and enhanced FX offering with volumes in this product up 66% compared to H2-16.

Another key objective for LCG was to improve the branding, sales and marketing initiatives deployed by the Group and this has yielded positive results with new funded clients up 9% from H2-16, monthly client net deposits up 71% from H2-16 and overall assets under management (AUM) up 17% since H2-16.

The Group continued with its enhanced analysis of client trading activity and behaviour to ensure maximum revenue capture where opportunities allowed. As a result, revenues in the first 6 months of 2017 were 7% higher than the same period in 2016 despite the weaker trading conditions. Gross profit for the first 6 months of 2017 was 18% higher than the same period in 2016.

The improvements to technology and product offering as well the expanded market penetration to focus on markets outside LCG's traditional UK offering, has resulted in greater revenue stability than in prior periods with monthly revenues of approximately £2m per month. This stability will ensure LCG is better equipped than in previous periods to withstand the challenging trading conditions that have been present in the first 6 months of this year.

Cost of sales for the period is £1.1m (2016 H1: £1.9m) and gross profit is £10.9m which represents a 91% gross profit margin on revenues (2016 H1: £9.2m gross profit and 82% gross profit margin). This increase in gross profit margin is the result of the increase in revenue capture the Group has seen since the introduction of the enhanced risk management analysis of client behaviour without any incremental increase in cost of sales.

EBITDA for the six month period is a loss of £0.9m (2016 H1: loss of £2.1m) and is approximately a 55% improvement on the same period last year. Administrative costs have stabilised at £12.7m for the period (2016 H1: £12.4m) and the Group expects to see further benefits of its cost reduction initiatives in the second half of the year.

The loss before tax was £1.8m (2016 H1: loss of £3.5m) and demonstrates the improvements the Group have made to ensure that, despite poor trading conditions seen in Q2-2016, there is a clear path of improvement and move toward sustainable long term profitability, through its improved branding, technology and investment in people.

The net cash and short term receivables, decreased 20% to £7.8m (2016:£9.7m) primarily as a result of the losses for the first half of 2017. Available liquidity which comprises own cash held, title transfer funds, unsegregated funds and amounts due from brokers decreased by £2.7m from 31 December 2016.

The results for the period and the financial position at 30 June 2017 were considered satisfactory by the directors. The directors expect client acquisition to remain strong, and expect the third quarter will show open and funded accounts remaining at levels seen in the first two quarters of 2017.

Regulation

As we have previously reported, the regulatory landscape continues to evolve across multiple jurisdictions, particularly in Europe. The recent announcements from the FCA and other European regulators to protect clients through reduced leverage and enhanced risk warnings is in line with LCG's values of ensuring that the customer is protected and to improve customer outcomes. LCG is fully supportive of the efforts of global regulatory bodies to ensure that client interests are served at all times.

Although no final announcement has been issued by the FCA, LCG remain committed to ensuring that the Group continues to operate to the highest regulatory standards and has further developed its processes to ensure that all appropriate clients are protected and aware of the risks and rewards of trading leveraged products.

It is hoped that the regulatory changes being proposed will ultimately improve client outcomes and in the long term provide the industry and established operators with long term sustainability. The changes being proposed by the FCA will improve industry practices which LCG welcome and will ultimately lead to market consolidation and a growth in market share as those operators unable to conform to the new regulations are forced out of the industry.

LCG, as one of the leading providers with an established history of over 20 years and with a loyal client base, is well placed to benefit and continue its growth trajectory in this changing environment.

Strategy

Customer trading volumes are driven by eight principal factors. Four of these are broad external factors outside the Group's control:

• changes in the financial strength of market participants;

• economic and political conditions;

• changes in the supply, demand and volume of foreign currency transactions; and

• regulatory changes.

The above factors can impact the volatility of financial markets, which has generally been positively correlated with client trading volume. The Group's customer trading volume is also affected by the following additional factors:

• the effectiveness of sales activities;

• the competitiveness of the Group's offerings;

• the effectiveness of the customer service team; and

• the effectiveness of the marketing activities.

In order to increase customer trading volume, the Group will continue to focus its marketing and its customer service and education activities on attracting new customers and increasing overall customer trading activity.

Historically, the Group's business model has been predominantly driven by retail client transactions focusing on the UK market with client trading focused on its spread betting and CFD offering. The Group is continually looking to expand its offering beyond the UK and enhance its technology and product offering. To achieve this, the Group is developing and enhancing its existing Meta Trader 4 platform to ensure it is both market leading as well as being fit for purpose for the active trader. This strategy has already yielded positive results in terms of client acquisition and client trading metrics and this work will continue to ensure LCG achieves its strategic objectives of increasing client AUM and client trading volumes, across all products and asset classes.

The Group looks forward to benefiting further from the enhanced product offering which will provide an opportunity to promote the brand, develop broader and more innovative products and service offerings. It is expected that this will attract a more diversified client base, both within the UK market and internationally.

The Group's future success continues to be based on providing a high quality service to our customers and offering a variety of financial trading products and platforms. We are seeking to deliver a complete multi-asset experience for our clients.

Our increased investment in technology allows us to offer an intelligent new platform while still delivering industry leading spreads with instant, reliable execution. In addition, our analysts will offer high quality analysis, research and financial news.

The Group's medium-term strategy will also continue to focus on the promotion and further development of our key selling points:

- Industry-leading platforms

- Service

- Professional tools and news service

- Educational material

- Pricing

- Marketing

- Dealing execution

Our marketing is focused on attracting active retail traders. This, combined with improving the customer journey and technology will ensure that the Group continues to be in a strong strategic position.

Outlook

With the new initiatives being employed by the Group to expand its already robust product offering through its enhanced and client focused technology, the Board is confident the business can continue to build on what has been a strong first half performance.

The regulatory landscape continues to present a high degree of uncertainty, both domestically and internationally, whilst proposals for regulatory changes are finalised. The impact of the proposals remains unclear until they have been issued to the industry. LCG continues to support the work by all National Competent Authorities to ensure the best outcome for clients and we continue to operate to the highest regulatory standards.

The positive first half performance bodes well for the future and LCG will continue the hard work and investment to improve its capacity to expand into new markets and geographies.  The Board and senior management team remain excited about the prospects for the business in the coming periods and are fully committed to ensuring that LCG continues on the path to sustained long-term growth.

Mukid Chowdhury

UK Chief Executive Officer

28 September 2017

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period ended 30 June 2017

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 June 2017

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2017

NOTES TO THE FINANCIAL STATEMENTS

For the period ended 30 June 2016

1. Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2017 have been prepared using accounting policies consistent with International Financial Reporting Standards as adopted by the EU (IFRS) and in accordance with IAS 34 Interim Financial Reporting.

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited financial statements.

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis for preparing the financial statements.

2. Adjusted (loss)/profit before tax, adjusted operating (loss)/profit and adjusted EBITDA from continuing operations

3. 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 period, after deducting any own shares held. 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 period and the dilutive potential ordinary shares relating to share options and the convertible loan notes.

From continuing operations

 The calculation of the basic and diluted earnings per share is based on the following data:

The diluted EPS excludes 74,128,826 in shares as this decreases the loss per share and thus these are anti-dilutive.

4. Dividends

No dividends were declared or paid in the period (2016:H1:nil)

5. Provisions and contingent liabilities

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 an 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 £486,000.

6. Deferred Consideration

Further to the 30 September 2015 announcement of the Company's acquisition of Surecom Limited, a Cypriot based software developer, the final deferred consideration payment will be made by the Company on 2 October 2017. This cash payment will be equivalent to 2.5% of the market value of the Company's AIM listed equity, at close of business in London on 29 September 2017. An amount of £249,000 has been included as a provision as at 30 June 2017 in respect of this payment.