London Capital Group Holdings Regulatory News (LCG)

27 August 2014

LONDON CAPITAL GROUP HOLDINGS PLC

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

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014

London Capital Group Holdings plc today announces interim results for the six months ended 30 June 2014.

Operating Summary

§ Financing of up to £17.5 million approved by shareholders on 3 July 2014

§ Adjusted loss before tax* from continuing operations of £0.9 million (H1'13 profit: £2.9 million)

§ Loss before tax from continuing operations of £0.4 million (H1'13 profit: £0.1 million)

§ Revenue from continuing operations down 39% to £9.2 million (H1'13: £15.2 million)

§ Net cash and short term receivables, excluding amounts due to clients and £3.6m in settlement of FOS claims, down 11% to £16.5m (H1'13: £22.5m)

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

"The business has been operating in challenging market conditions throughout the first half of the year, with relatively low levels of volatility across financial markets for much of the period. We have been focused on completing the deployment of the new trading platform and a programme to rationalise the fixed cost base.

The Group welcomes the additional investment due in the second half of the year which will allow the business to drive its marketing, sales and product development. We also look forward to the proposed addition of Charles-Henri Sabet to the LCG Board as Executive Chairman in September and the attributes he will bring."

* Adjusted loss before tax represents loss 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.

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 (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 division provides online foreign exchange trading services to institutional and professional clients. 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, Bwin.party, and Saxo Bank.

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

Against the backdrop of challenging market conditions much has been accomplished in the first half of 2014. The Board and the executive team focused on completing the migration to the new trading platform, which was concluded in April this year, giving the business a strong base on which to develop innovative products and differentiate Capital Spreads in the market going forward.

The platform migration combined with broad market conditions being subdued, with relatively low levels of volatility across financial markets, and a drop in active client numbers resulted in revenue from continuing operations for the first half of the year falling 39% on the same period last year. Given the results for the first half year the board does not consider it appropriate to pay an interim dividend.

In July 2014 a resolution was passed by shareholders to approve the proposed investment by GLIO holdings Limited and possibly existing shareholders of up to £17.5 million. The Group looks forward to using these additional resources to build its capabilities and product offerings which will give us the opportunity to strengthen the brand, develop broader and more innovative products and service offerings, and attract a more diversified client base, both within the UK market and internationally. This in turn will allow the Group to realise its strategy set out in the 2013 annual report.

Many of the legacy problems relating to the business have now been addressed and the claims made to date to the FOS in relation to Life Settlement Consulting Limited (Integrity) have been settled in the period.

As announced in July, John Jones has resigned as Chief Operating Officer to pursue other interests and his resignation took effect immediately although he will remain as an advisor to the Company to ensure a smooth transition. Also David Sparks, Chief Financial Officer, has informed the Board that he intends to leave LCG in order to take up an opportunity with another company. Accordingly, the Board has agreed that David will leave the Company and the Board on 12 September 2014. He will remain available to the Board on a consultancy basis for a short time thereafter and Jenny Himsley, Group Financial Controller, will assume responsibility for the Finance function. The Board would like to thank John and David for their hard work and contribution to the Company.

There will be further board changes in September as I step down as Chairman to become the senior independent director, and Charles-Henri Sabet becomes Executive Chairman. We look forward to him leading the board and the focus on the growth and development of the Group in the second half of the year.

Giles Vardey

Chairman 

Chief Executive's Statement

As previously discussed, 2013 was a year of significant change for the Group, from a management, processes and systems perspective. The migration to the new core trading system completed in April has allowed the executive team to focus on delivering innovation to our clients.

I am delighted to confirm that we recently won the Best Platform award at the Money AM - Online Personal Wealth Management Awards 2014 and we were the highest ranked of the spread betting /CFD firms for best customer services.

Financial Results

The spread betting sector in the UK remains highly competitive; however the Group continues to pursue its strategy of product development and expansion into foreign markets. This combined with ensuring the customer experience is core to all we do will ensure the Group is well positioned as a preferred provider.

The first half of the year has been a difficult trading period, with market conditions not particularly conducive to the style of trading favoured by our retail derivative clients. A lack of market volatility has meant that trading volumes in the spread betting and CFD business was lower than H1 2013. This combined with reduced FX global trade volumes and squeezed commission rates has resulted in a loss before tax for the period of £0.4m (H1'13 profit from continuing operations: £0.1m).

Total revenue for the Group amounted to £9.2m (H1'13 from continuing operations: £15.2m), a decline of 8% on H2' 13 and 39% on H1'13. Adjusted administrative costs from continuing operations have fallen 17% due to careful cost control by management and further cost reductions are being made early in the second half of the year, which will make a positive contribution in 2014.

Adjusted loss before tax from continuing operations was £0.9m, compared to a loss of £0.7m for H2'13 and a profit of £2.9m for H1'13. Adjusted profit before tax is stated before recognising a small charge in relation to share based payments and a credit relating to the Financial Ombudsman Service (FOS) claims provision of £0.5m arising from a combination of claims rejected by the FOS, claims being settled more quickly than expected, thereby accruing less interest than anticipated, and an update to the Directors' best estimate of the level of possible future claimants.

UK Financial Spread betting and CFDs

Revenue derived from the UK Financial Spread betting and CFD business was £7.7m (H1'13: £13.2m). The division has experienced a difficult trading period with some weaker underlying trading statistics. Average trades per day have fallen to 18,595 (H1'13: 25,900) and average monthly unique active users decreased to 4,140 (H1'13: 5,984). Funds on deposit from the UK Financial Spread betting and CFD business fell by 10% to £22.0m from £22.5m at 31 December 2013.

FX

The institutional foreign exchange business continues to suffer from falling volumes predominantly due to subdued FX markets globally. This combined with squeezed commission rates resulted in a revenue fall of 29% and a contribution fall of 52%. However, average monthly volumes have held up well on the same period last year at $19.2bn (H1'13:$20.9bn) providing confidence that when FX global volumes increase so should the divisions revenue and operating profit.

Available liquidity and cash flow

Net cash and short term receivables after accounting for £3.6m in settlement of FOS claims, dropped 11% to £16.5m (H1'13: £22.5m). Available liquidity which comprises own cash held, title transfer funds, unsegregated funds and amounts due from brokers decreased by £4.1m. From December 2013 Institutional FX client funds have been treated as segregated, as required by the FCA, except where a title transfer collateral arrangement (TTCA) is in place. This is the principal reason for the fall in the title transfer and unsegregated funds between June 2013 and June 2014.

Strategy

The short term focus of the business has been the improvement of processes as well as delivery and analysis of key KPIs and business information. This is well under way and the executive team is using this detailed data to make significant business decisions, the results of which we expect to see in the second half of 2014 and beyond.

Now that the migration to the new trading platform is complete we are concentrating on delivering innovation to customers which will allow them to make better trading decisions. Innovation is the future business focus and will give customers a reason to move to Capital Spreads from our competitors. The new technology deployments will allow the Group to develop market leading applications allowing our clients to trade more easily across mobile devices, smart phones and tablets and as straightforwardly as on their desktops.

Our marketing is being aimed at attracting this new trading group by differentiating ourselves and giving a reason for the customer to move to Capital Spreads. This combined with improving our customer journey and remaining customer centric will ensure that the Group continues to be in a strong strategic position.

The level of resources dedicated to developing and growing the institutional and white label partnership area of the business was neglected in the latter half of 2012 and 2013, the results of which were felt towards the end of 2013 and the first half of this year. We are working to develop these areas of the business with stronger sales and partnerships teams now supporting this business. However, due to the long sales cycles associated with these areas of the business the upturn from this is taking longer to realise than initially anticipated.

Outlook

LCG has suffered from a lack of investment in innovation, sales and marketing over the past two years. We have made inroads into addressing these issues, however significant financial resources are required to drive the longer-term growth of the Company. The convertible loan note financing, secured from GLIO Holdings Limited and possibly existing shareholders of up to £17.5m, will allow the business to do this. The Board is confident that with this significant investment and the return to more volatile market conditions we will deliver strong client and revenue growth in the future.

Kevin Ashby

Chief Executive

London Capital Group Holdings plc

CONDENSED CONSOLIDATED INCOME STATEMENT

For the period ended 30 June 2014

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 June 2014

London Capital Group Holdings plc

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2014

London Capital Group Holdings plc

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 June 2014

London Capital Group Holdings plc

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the period ended 30 June 2014

London Capital Group Holdings plc

Notes to the condensed consolidated financial statements

For the period ended 30 June 2014 (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 2014 were authorised for issue by the Board of Directors on 27 August 2014. The information for the year ended 31 December 2013 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 2014 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

The Groups reportable segments are as follows:

· Financial spread betting and contracts for difference (CFDs), UK; and

· Institutional foreign exchange

Financial spread betting and contracts for difference segmental revenues are generated from the net of the gains and losses on the provision of the spread betting and CFD products, commission income, exchange gains and interest. Institutional foreign exchange segmental revenue is the commission income generated from the clients FX trading.

Segments that were reportable in the prior year which are now discontinued are as follows:

· Contracts for difference, CFDs, Australia;

· Financial spread betting, Gibraltar; and

· Institutional brokerage

Unaudited 6 months to 30 June 2014

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

3. Segment information (continued)

Unaudited 6 months to 30 June 2013

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

  3. Segment information (continued)

Audited 12 months to 31 December 2013

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

4. Adjusted (loss)/profit before tax and adjusted EBITDA from continuing operations

5. 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. Dilutive potential ordinary shares were nil (2013:nil)

From continuing and discontinued operations

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

5. Earnings per ordinary share (continued)

6. Dividends

No dividends were declared or paid in the period (H1'13:nil)

7. Trade and other receivables

The Directors consider that the carrying amount of the trade receivables, amounts owed to group undertakings and other receivables approximates to their fair value due to their short term maturity.

Amounts due from brokers represents the combination of open derivative positions and cash held at brokers.

8. Cash and cash equivalents

Gross cash and cash equivalents include Group cash and all client funds (segregated funds and funds under collateral title transfer).

Segregated client funds include client funds held in segregated accounts or breakable short term deposits (less than 3 months) in line with the FCA's Client Asset Rules ('CASS').

Title transfer funds are held under a 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 are included on the balance sheet.

9. Trade payables and amounts due to clients

10. Other payables

11. Provisions and contingent liabilities

During the first half of 2009 the Group made commission rebating errors whilst preparing the customer statements of a managed 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 Ombudsman issued a final decision upholding the complaints in 2013 and ordered the Group to repay all losses incurred by the clients plus interest.

At June 2014 all eligible claimants have been repaid their losses plus interest in accordance with the Ombudsman's directions resulting in a utilisation of the provision in the period of £3.6m. The provision release of £0.3m is a combination of claims rejected by the FOS and claims settled more quickly than expected, therefore accruing less interest than anticipated. The movement between the provision and contingent liability of £0.17m represents the update to the Directors' best estimate of the level of possible future claimants.

Whilst the Directors are confident that the provision and contingent liability represent the best estimate of the expected liability as at the balance sheet date, there remains a degree of uncertainty as to the number of claimants to be paid.

12. Related party transactions

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

In 2013 and H1 2014 no trading transactions were entered into with related parties who were not members of the Group.

The following loan amounts were outstanding at the balance sheet date:

The Group holds a £100,000 investment in Sensatus UK Limited, the current provider of London Capital Group Limited's on-line charts. To oversee this investment Simon Denham was appointed a Director of Sensatus UK Limited on 3 May 2012. Simon Denham resigned from the Group with effect from 05 February 2013 at which point Sensatus ceased to be a related party to the Group. The Directors' best estimate of the fair value of this investment is nil.

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. Amounts repayable to the Company carry an interest rate of 7 per cent per annum charged on the outstanding loan balance. The amount of the loan outstanding has been fully provided for.

13. Events after balance sheet date

On 3 July 2014 a resolution was passed at a general meeting of shareholders to approve a proposed Investment in the Group by GLIO Holdings Limited and possibly existing shareholders of up to £17.5m, through an increase in the authority for directors to allot shares and the disapplication of pre-emption rights.