London Capital Group Holdings Regulatory News (LCG)

22 August 2013

LONDON CAPITAL GROUP HOLDINGS PLC

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

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013

London Capital Group Holdings plc today announces interim results for the six months ended 30 June 2013.

Operating Summary

§ Return to profitability following challenging conditions of H2'12

§ Adjusted profit before tax* up 59% to £3.2 million (H1'12: £2.0 million)

§ Profit before tax from continuing operations down 61% to £0.3 million (H1'12: £0.8million)

§ Revenue from continuing operations down 9% to £16.3 million (H1'12: £17.8 million)

§ Appointment of Kevin Ashby as CEO

§ Disposal of Australian subsidiary completed

§ First migration of clients to new trading platform successfully completed

§ Additional exceptional charge of £1.1m recognised in relation to provision for Financial Ombudsman Service complaints to reflect expected liability

Commenting on the results, Kevin Ashby, Chief Executive, said:

"Our underlying business is robust and despite the lack of marketing investment, we continue to attract new clients. However, in order to drive longer-term growth, the Company needs to increase investment in marketing, sales and product development. We have the resources and the intellectual capital required to execute this mandate and I believe this will provide the platform for superior performance."

* Adjusted profit before tax is stated before recognising previously announced costs associated with the current change in IT platform of £0.9m, non-recurring restructuring costs of £0.7m, and provisions pertaining to the Financial Ombudsman Service complaints.

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Notes to Editors:

London Capital Group Holdings plc (hereafter "LCGH" or "London Capital Group" or "the Company" 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, 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 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. Its white label partners include TD Direct Investing, TradeFair, Bwin.party, and Saxo Bank.

ProSpreadsLimited, a wholly owned trading subsidiary of LCGH, 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.

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

I am pleased to announce that the Group returned to profitability in the first half of 2013 after a difficult second half in 2012. The first half of 2013 was a period of significant internal change for the Group. We announced at the beginning of the year that we planned to reduce our fixed cost base by 15% and I am pleased to report that we are on track to make the planned savings which will be realised in 2014. However we expect that these savings will be partially offset by reinvestment in sales, marketing and product development over the forthcoming 12 months. A significant portion of the savings will be achieved through disposal of our overseas subsidiaries, the last of which is due to complete, subject to regulatory approval, in the next few weeks.

As announced in July, Mark Slade resigned as CEO for personal reasons and was replaced by Kevin Ashby. I would like to welcome Kevin to his new role. Kevin brings considerable experience and expertise from across the financial services industry and has made a significant positive impact since he joined the Company's management team earlier this year.

Our Group Finance Director, Siobhan Moynihan, has decided after three years to seek a new challenge and will be leaving us towards the end of the year. I would like to thank her for her dedication and hard work over the past few years and we will appoint her successor in due course.

We have continued to challenge the complaints to the Financial Ombudsman Service ("FOS"). Although we are awaiting the final judgment, provisional correspondence regarding the total compensation that will be payable to complainants means we now believe the final provision required will be in the region of £4.7m. This has led to an additional exceptional charge of £1.1m being recognised. As previously disclosed the Group received a claim 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 fund which resulted in the complaints to the FOS. On the basis of legal and expert advice received, the Group views the claim as without merit. The current court timetable means the matter is expected to be resolved during the second half of the year.

Overall the Group continues to trade reasonably well and is appropriately capitalised. The Company's strategy continues to be a strong focus on improving its core businesses, including developing its successful white label programme and broadening its customer base.

Giles Vardey

Chairman 

Chief Executive's Statement

It gives me great pleasure to deliver my first statement as Chief Executive of the Company. I would like to start by expanding upon the Chairman's statement and providing further insight into the Company's financial position and business activities. My statement will then summarise the status of the current business, including an overview of the issues we are addressing and the Group's longer-term opportunities.

Financial Results

Following the difficult trading conditions experienced in the second half of last year, a change in market direction and increased volatility led to an increase in client trading activity in the first half of the year. Volatility generally offers greater trading opportunities for our clients and therefore improved revenue and profitability for the Group. Total revenue for the Group amounted to £17.1m (H1'12: £18.4m) of which £16.3m was derived from continuing operations, an increase of 70% over H2'12, a fall of 9% on H1'12. Adjusted profit before tax from continuing operations was £3.1m, compared to a loss of £1.7m for H2'12 and a profit of £2.7m for H1'12. Adjusted profit before tax is stated before previously announced costs associated with the current change in IT platform of £0.9m, non-recurring restructuring costs of £0.7m associated with the cost reduction plan, and an exceptional charge of £1.1m to provide for FOS claims.

The profit generated from discontinuing operations, which comprised the Australian and Gibraltar based subsidiaries, was £0.1m compared to a loss of £0.7m for the same period last year. In May, the Australian subsidiary's activities were wound down and the entity sold. Our Gibraltar based subsidiary ProSpreads, is due to be sold in the next few weeks.

Adjusted administrative costs from continuing operations were in line with the previous period. While a number of cost reductions were made earlier this year, the impact will only start to be fully realised in 2014.

The Group continues to incur a significant level of legal costs, mainly with respect to the ongoing FOS claims and associated litigation. In anticipation of a final adverse judgment from the FOS, we are increasing our provision by £1.1m to £4.7m and increasing our contingent liability by £0.4m to £1.4m.

UK Financial Spread betting and CFDs

Revenue derived from the UK Financial Spread betting and CFD business was £13.2m (H1'12 £12.8m). The division has maintained underlying trading statistics with average trades per day falling slightly to 25,900 (2012: 26,400) and Average Revenue Per User ("ARPU") up 15%. Gross margin improved slightly, increasing from 71% in 2012 to 73% in H1'13, primarily as a result of lower transaction costs.

In early August we successfully completed the first migration of clients to our new trading platform, and are on track to complete the migration in early 2014 as originally projected. We are still incurring dual running costs and accelerated depreciation for the former platform, which amounted to £0.9m in the period. These additional costs will continue throughout the rest of the year.

FX and Broking

The institutional foreign exchange business continues to suffer from falling volumes and commission rates. Revenue fell by 52% and contribution fell by 47%. The institutional broking division experienced better volumes, compared to the same period last year, resulting in divisional revenue of £1.0m compared to £0.5m in 2012.

Outlook

Private Client Business

Although the summer months have reflected the normal seasonal trends, I remain positive about the longer-term prospects for the Group.

The level of trading from existing clients remains encouraging, but a material reduction in the resources dedicated to marketing and private client sales activities in H1'13 has led to a material drop in the number of new clients acquired during the period. New client acquisition fell by 22% to 4,500 in H1'13 compared to 5,756 in H1'12. This fall demonstrates the need to reinvest in a more focussed and efficient approach to our private client marketing and sales activity, which is already underway, and I expect to see an improvement in the fourth quarter.

Institutional and White Label Business Development

Late 2012 and early 2013 saw the Company also reduce the level of resources dedicated to growing and developing its institutional and white label partnership business. The process of reversing this position is already underway, as is a plan to rejuvenate our institutional FX business. However, due to the long sales cycles associated with this business, I do not expect to see a material improvement in sales until the second quarter of 2014.

Product Development

Innovation is the key to developing an online business. However, the focus on upgrading our trading platform has resulted in an insufficient focus on enhancing our clients' trading experience. Although our various trading platforms are not materially behind those of our competitors, I do not believe we are offering the level of differentiation required to deliver material growth. We have already initiated a number of projects that will not only redress the situation, but also position LCG as an innovator in the sector.

Summary

LCG's underlying business is solid and despite the lack of marketing investment, the LCG brand continues to attract new clients. We have already restructured and improved the focus of the business, however, in order to drive longer-term growth the Company needs to increase investment in focussed marketing, sales and product development. LCG has the resources and the intellectual capital required to execute this mandate and this will provide a platform for superior performance in the future.

Kevin Ashby

Chief Executive

London Capital Group Holdings plc

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period ended 30 June 2013

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 June 2013

London Capital Group Holdings plc

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2013

London Capital Group Holdings plc

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 June 2013

London Capital Group Holdings plc

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the period ended 30 June 2013

London Capital Group Holdings plc

Notes to the condensed consolidated financial statements

For the period ended 30 June 2013 (unaudited)

1. General information

The condensed consolidated financial statements of London Capital Group Holdings plc and its subsidiaries for the six months ended 30 June 2013 were authorised for issue by the Board of Directors on 22 August 2013. The information for the year ended 31 December 2012 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

2. Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2013 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.

3. Segment information

Unaudited 6 months to 30 June 2013

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

3. Segment information (continued)

Unaudited 6 months to 30 June 2012

3. Segment information (continued)

Audited 12 months to 31 December 2012

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

4. Adjusted profit before tax and adjusted EBITDA from continuing operations

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, after deducting any own shares 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 year and the dilutive potential ordinary shares relating to share options.

From continuing and discontinued operations

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

The denominators used are the same as those detailed above for both basic and diluted earnings per share from continuing and discontinued operations

5. Earnings per share (continued)

Earnings per share

Diluted earnings per share

Adjusted earnings per share from continuing operations

6. Discontinued Operations

The Group has classified both London Capital Group Pty Limited, the Group's Australian subsidiary, and ProSpreads, the Group's Gibraltarian subsidiary, as discontinued operations at the balance sheet date.

The results of the discontinued operations, which have been included in the consolidated income statement, are as follows:

During the period the discontinued operations contributed the following cash flows:

6. Discontinued Operations (continued)

London Capital Group Pty Limited

On 3 May 2013 the Group entered into a sale agreement to dispose of London Capital Group Pty Limited, the Group's Australian entity. The trading operations were wound down and the subsequent disposal was effected in order for the Group to concentrate on core UK activities and minimise the losses from foreign subsidiaries. The disposal was completed on 16 May 2013, on which date control of London Capital Group Pty Limited passed to the acquirer.

The results of the discontinued operations for London Capital Group Pty Limited, which have been included in the consolidated income statement, were as follows:

A profit of £42,000 arose on the disposal of London Capital Group Pty Limited, being the proceeds of the disposal less the carrying amount of the subsidiary's net assets and foreign exchange differences transferred to the income statement on disposal.

6. Discontinued Operations (continued)

ProSpreads Limited

In February the board resolved to dispose of the Group's Gibraltarian operations and negotiations with several interested parties have subsequently taken place. This operation, which is expected to be sold within 12 months, has been classified as a disposal group held for sale and presented separately in the balance sheet. The proceeds of disposal are expected to exceed the book value of the assets and accordingly no impairment losses have been recognised on the classification of these operations as held for sale.

The results of the discontinued operations for ProSpreads Limited, which have been included in the consolidated income statement, were as follows:

The major classes of assets and liabilities comprising the operations of ProSpreads Limited, the subsidiary classified as held for sale are as follows:

7. Dividends

8. Trade and other receivables

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

9. Cash and cash equivalents

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

Segregated client funds include client funds held in segregated accounts or on short term deposits (under 3 months) in line with the FCA'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 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.

10. Trade payables and amounts due to clients

11. Other payables

12. Provisions and contingent liabilities