London Capital Group Holdings Regulatory News (LCG)

22 August 2012

LONDON CAPITAL GROUP HOLDINGS PLC

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

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012

London Capital Group Holdings plc, a leading online financial services company, announces interim results for the six months ended 30 June 2012.

Financial Highlights:

·; Revenue stable at £18.41 million (H1'11: £18.34 million)

·; Adjusted profit before tax* £2.05 million (H1'11: £3.01 million), reflecting lack of market volatility

·; Profit before tax of £0.15 million (H1'11: £2.69million) following recognition of additional provision for FOS claims of £1.9m

·; Company pursuing a settlement strategy with respect to outstanding FOS claims

·; Net cash and short term receivables up £3.06 million to £25.54 million (H1'11: £22.48 million)

·; Interim dividend 1.0p (H1'11: 1.3p)

Operational Highlights:

·; Robust UK financial spread betting and CFD performance

§ Net revenue per active client up 20% on H1'11 to £970 (H2'11: £807)

§ Divisional revenue up 12% to £12.8m

§ Client acquisition up 11% on H2'11 and 4% on H1'11

§ Six new White Label clients gained, including Selftrade, Victor Chandler and Goodbody Stockbrokers

·; Institutional FX

§ Consistent divisional revenue of £4.35 million (H1'11: £4.41 million)

§ 26% decrease in operating profit due to margin pressure from competitive environment

Commenting on the results, Simon Denham, Chief Executive, said:

"The business operated against a backdrop of difficult market conditions in the first half of the year. Notwithstanding a lack of market volatility, our core spread betting and CFD business has performed well and, in line with our growth strategy, we have signed a number of significant new White Label partnerships and continue to see growth opportunities in this market.

We believe that our settlement strategy in relation to the outstanding FOS claims will reach a satisfactory resolution. We remain very well capitalised, with a strong cash position, and are encouraged by the medium-term prospects for the Group."

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Notes to Editors:

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

London Capital Group Limited (LCG Ltd), a wholly owned trading subsidiary of LCGH plc, is authorised and regulated by the Financial Services Authority. Its core activity is the provision of spread betting and CFD products on the financial markets to retail clients under the trading name Capital Spreads and Capital CFDs and LCG MT. Its other divisions provide online foreign exchange trading services to institutional and professional clients and also institutional derivatives broking. LCG Ltd is one of the leading providers of white label financial spread trading and CFD platforms and its white label partners include TD Direct Investing, TradeFair, Bwin.party, Selftrade and Saxo Bank.

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

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

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

LCGH plc is listed on the London Stock Exchange's AIM market. LCGH plc 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

It gives me great pleasure to be delivering my first statement as Chairman of London Capital Group. I would like to thank my predecessor Richard Davey for his significant contribution to the business over the last five years as Chairman.

The first half of 2012 has shown mixed results for the Group's divisions. Whilst our core business, the UK Financial Spread betting (UK FSB) division, has demonstrated growth in both revenues and client acquisition over the last year, the institutional businesses and our overseas businesses have not performed as well as expected. Total revenue for the Group amounted to £18.4m (2011: £18.3m) and adjusted profit before tax totalled £2.05m (2011: £3.01m).

The contribution from our institutional broking and institutional foreign exchange businesses was down by £0.7m as volumes fell throughout the industry. ProSpreads, the Direct Market Access (DMA) financial spread betting business in Gibraltar, experienced a fall in volumes and volatility returning a net loss of £0.4m (2011: profit of £0.04m). As noted in our earlier trading statement the Group is currently restructuring this business to create greater efficiencies to ensure its future profitability.

Positively, the UK FSB division has successfully launched a number of new White Label partnerships including Selftrade, Goodbody Stockbrokers and a number of White Label partners gained from the Group's former competitor Worldspreads.

Encouragingly, the UK CFD business launched in 2010 has increased both revenue and volumes by five fold. Whilst the Australian CFD business has yet to establish itself we have seen signs of growing trade volumes and client numbers. The division generated a loss of £0.3m for the period (2011: £0.3m). The Board expects the business to be operating at a profitable level in the next 12 months.

As previously disclosed, the company received a judgement from the Financial Ombudsman Service ("FOS") that clients previously not determined to be under the protection of FOS would be considered for compensation. This led to the Company recognising £1.9m of the previously disclosed £3.3m contingent liability as a provision in the period. The charge has been recognised as an exceptional item in the income statement. After two years of defending the claims the Company has recently begun pursuing a settlement strategy with the complainants. We are pleased to report that 25% of the outstanding complainants have agreed to the proposed settlement, which equates to £0.75m of the outstanding liability. A further announcement will be made in due course once the outcome of the settlement is known.

Overall the Group continues to trade well given the present market conditions and is well capitalised. The company's strategy continues to be a strong focus on improving its core businesses, including developing its successful white label programme and to increase the quality and breadth of its international operations.

Based on the performance of the Group, the Board is recommending an interim dividend of 1.0p a share (2011: 1.3p) representing 26% of adjusted profit before tax and a total cost of £0.5m (2011: £0.7m). This will be paid on 28 September 2012 to shareholders on the register at the close of business on 7 September 2012.

Giles Vardey

Chairman

Chief Executive's Statement

On behalf of the board I would like to begin by thanking Richard Davey, who resigned earlier this month, for all the hard work and support that he has given me and the other Directors over his five years as Chairman of the Board. He has helped us through some of the critical issues that have emerged over the last few years and has been instrumental in growing our business to record levels of revenue.

In turn, I would like to welcome Giles Vardey to his new role as Chairman. Giles brings considerable experience and expertise from across the financial services industry and has been a valued member of the Board since he joined the Company as Non-Executive Director earlier this year.

As has been widely commented upon, market conditions for the first half of 2012 were particularly poor for much of the financial services industry with trading volumes being heavily depressed. Market direction and volatility, key drivers of our business, and trading activity were limited during the period. This has resulted in significantly lower revenue and profitability in both our professional spread betting offering and institutional foreign exchange and brokerage businesses. However, the retail businesses have continued to grow with UK spread betting increasing revenues by 7% and the new CFD businesses increasing revenues from £0.1m in the first half of 2011 to £0.8m in this half.

Adjusted administrative costs increased by £1.2m on the previous period; the increase can be attributed to an increase in marketing costs of £0.3m, increased regulatory fees and levies of £0.3m, increased IT and data usage costs of £0.3m and higher salary costs of £0.3m. These cost increases are mainly attributable to the UK FSB and CFD business which grew revenue by 12% on the comparative period. Also included within administrative expenses were £0.2m of legal costs incurred in relation to the outstanding FOS claims. The Board is closely monitoring the Group's cost base to ensure it does not continue to grow disproportionately to the growth in revenue. The Board believes those administrative costs which are controllable including salary costs are now stable.

Financial Spread Betting (FSB), UK

Retail Spread Betting continues to generate the majority of revenue for the Group. With the fall in revenue from the institutional businesses the proportion of Group revenue generated by retail spread betting has increased from 61% in the first half of 2011 to 66% in the first half of 2012. The division has produced encouraging growth, with client acquisitions up 4.2% and Average Revenue Per User ("ARPU") up 20% to £970 (2011: £807).

We continue to follow our strategy of building relationships with White Labels and Marketing Agents, signing up three significant new White Labels in the period in Selftrade, Victor Chandler and Goodbody Stock Brokers. We are in the process of negotiating further White Label contracts and believe that the addition of these new partners will contribute to an increase in client acquisition and trade volumes in the second half of the year.

CFDs UK

Our UK based CFD business which services mainly international customers, has grown revenue and contribution by £0.6m and £0.7m respectively over the previous period. This business is where the Group expects to generate a significant proportion of its future growth as it acquires more European based clients and partners.

CFD's, Australia

The Australian CFD business is showing positive signs of growth with both its client base and trade volumes doubling over the same period last year. As expected the division has generated a loss for the period in line with the loss generated last year of £0.3m. The Board is reviewing the current business strategy to ensure we are capitalising on the positive KPIs and has also taken the decision to launch a new platform and brand, "LCG Markets", to capitalise on the popularity of certain products and markets in the region.

Financial Spread Betting (FSB), Gibraltar

ProSpreads has recently been granted a retail licence which will open up the potential client base for this product. Whilst we are disappointed that the business returned a loss in the period of £0.4m (2011: profit £0.04m) our future strategy for the business should ensure its profitability.

Institutional Foreign Exchange

Although Global FX market volumes were reported to be lower in the first half of 2012 compared to the same period last year the institutional foreign exchange business has seen revenues remain stable compared to 2011. Over the past 18 months we have seen margins eroded due to the increased competition in the market, resulting in the division returning a 25% reduction in gross profit to 24% (2011: 32%) compared to the same period last year. During the second half of the year the division is focusing on increasing revenue through wider product and platform offerings.

Institutional Broking

The institutional broking division experienced lower volumes compared to the same period last year resulting in divisional revenue of £0.5m compared to £1.5m in 2011. We expect volumes to return to more normal levels towards the end of the year.

Outlook

Despite difficult market conditions, the Group has managed to grow its retail revenue streams and maintain total revenue at the same level as last year. We have continued to invest in our trading platforms ensuring we have a stable and scalable trading environment on which we can deliver future growth. The addition of a number of new partners as well as new sales initiatives we are currently implementing should ensure we deliver strong revenue growth in future years.

Simon Denham

Chief Executive

London Capital Group Holdings plc

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period ended 30 June 2012

All the Group's revenue and total comprehensive income for the financial period and prior financial periods relate to continuing activities.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 June 2012

London Capital Group Holdings plc

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2012

London Capital Group Holdings plc

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 June 2012

London Capital Group Holdings plc

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the period ended 30 June 2012

London Capital Group Holdings plc

Notes to the condensed consolidated financial statements

For the period ended 30 June 2012 (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 2012 were authorised for issue by the Board of Directors on 22 August 2012. The information for the year ended 31 December 2011 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 2012 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 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.

Changes in accounting policies

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 annual audited financial statements. These include changes implemented in the 31 December 2011 financial statements which were:

·; Client Funds: segregated client funds were previously held on the Group's balance sheet, with an asset in cash and cash equivalents and a corresponding liability to clients held within trade and other payables. The segregated client funds have been reclassified to better reflect the legal "trust status" of these funds, which are held in accordance with the Customer Asset (CASS) rules of the Financial Services Authority which restrict the Group's ability to control the funds.

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

Previously these were disclosed as cash and cash equivalents, however to better represent the nature of these balances these have been reclassified in the balance sheet. These positions are held to hedge client market exposures and hence are considered to be held for trading and are accordingly accounted for at fair value through profit and loss (FVTPL). These transactions are conducted under terms that are usual and customary to standard margin trading activities and are reported net in the Group balance sheet as the Group has both the legal right and the intention to settle on a net basis.

3. Segment information

Unaudited 6 months to 30 June 2012

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

3. Segment information (continued)

Unaudited 6 months to 30 June 2011

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

3. Segment information (continued)

Audited 12 months to 31 December 2011

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

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

5. Taxation

Income tax for the six month period is credited at 24.7% (six months ended 30 June 2011: charged at 34.5%; year ended 31 December 2011: charged at 31.3%), applied to the pre-tax income of the six month period.

6. Earnings per 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 (JSOP). Fully diluted earnings per share is calculated by dividing the earnings attributable to the ordinary shareholders by the total of the weighted average number of ordinary shares in issue during the year and the dilutive potential ordinary shares relating to share options.

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 FSA's Client Asset Rules ('CASS') and similar rules of other regulators in jurisdictions where the Group operates.

Title transfer funds are held by the Group's subsidiary under 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

During the first half of 2009 the Group made commission rebating errors whilst preparing the customer statements of a managed spot FX fund. The correction of these errors led to a series of complaints to the Financial Ombudsman Service ("FOS"). Whilst the Group believes its actions did not directly cause any loss to the clients, the assessment from the FOS determined that the Group should repay the total losses incurred by the clients plus interest.

The Group has recently begun pursuing a settlement strategy with the complainants. Currently 25% of the outstanding complainants have agreed to the proposed settlement.

As at the date of this report the Directors have made an assessment of the provision and contingent liability based on an analysis of the losses incurred in the fund attributable to clients under the protection of the FOS, the latest FOS assessment, the FOS's rules on compensation and ongoing progress of the settlement offer made. Whilst the provision of £5.1m (2011: £3.2m) represents a best estimate of the expected liability, there remains significant uncertainty as to the eventual financial outcome including the extent of the FOS's jurisdiction and the extent to which the settlement offer is taken up.

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

A contingent liability of £1.4m (2011: £3.2m) has also been disclosed in relation to these claims.

13. Related party transactions

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There have been no transactions between the company and other related parties, except for the key management personnel compensation.

14. Capital commitments

At 30 June 2012, the Group has capital commitments for the acquisition of software amounting to £nil (31 December 2011: £0.8m).

15. Events after balance sheet date

After the balance sheet date a settlement offer was made to clients who complained to the Financial Ombudsman Service ("FOS") about commission rebating errors whilst preparing the customer statements of a managed spot FX fund. Refer to note 12 for details.

INDEPENDENT REVIEW REPORT TO LONDON CAPITAL GROUP HOLDINGS PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Emphasis of matter - Uncertain outcome of complaints to Financial Ombudsman Service

In forming our opinion on the financial statements we have considered the adequacy of the disclosures made in Note 12 concerning certain complaints before the Financial Ombudsman Service ("FOS"). As explained in Note 12 there remains significant uncertainty as to the eventual financial outcome of this issue. Our opinion is not modified in respect of this matter.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London

22 August 2012