London Capital Group Holdings plc (LCG) has reported a 25 per cent increase in total revenues to £34.5m for the year ended December 31st 2010, following strong growth in the company's UK financial spread betting business which now represents 75 per cent of total revenues.
The company announced that its spread betting division has delivered solid revenues in line with market expectations which is very satisfactory given the low volatility conditions experienced in the first two months of the year. The Forex division has witnessed a market increase in trading volumes and the newly launched CFD divisions are showing signs of breakeven much earlier than anticipated.
Adjusted pre-tax profits rose 8% to £6.5m while total turnover was up 25% at £34.5m from £27.65m a year ago. Adjusted earnings before interest, tax, depreciation and amortisation increased 5% to £8.5m. Adjusted profit after tax amounted to £4.69m or 12.02 pence per share versus £3.98m or 10.24 pence per share last year. However, the Group reported a pre-tax loss of £56,000 for the year to the end of December compared with a profit of £5.8m last year. This was attributed to a £3.2m software impairment charge and the provision of £3.2m for a Financial Ombudsman Service revised assessment - both of which had been announced previously.
In its trading update, the spread betting firm announced plans to bolster its balance sheet by raising up to about 8.0 million pounds through the issue of up to 13.33 million new ordinary shares at 60 pence per share.
While the Group has adequate financial resources to budget for current liabilities, the extra funds will help to satisfy capital adequacy requirements stipulated by the FSA and comes after a series of commission rebating errors led to a £3.2m provision in its financial results. London Capital Group has also set reserved a further £3.2m for extra contingent liabilities. Reported profits were also dented by a £3.2m non-cash impairment of software assets following the closure of one of its trading platforms. The company added that the extra funds will allow management to accelerate the Group's international expansion strategy and to pursue additional growth opportunities.
Chief Executive Officer Simon Denham stated: 'It has been a challenging year on a number of fronts but we remain positive about the future of the business. We have invested significantly in our products, platforms and people and believe the company is now well positioned to take advantage of these changes. Whilst there is little visibility in forecasting earnings I am pleased to report that trading in 2011 has started well.'
Financial services firm London Capital Group today posted results the interim results for the 6 months ended 30 June 2010.
In particular London Capital Group stated that first-half adjusted pretax profit rose 12%, boosted by strong spread betting performance. However, the company which offers online spread betting, foreign exchange and broking services, cut its interim dividend to 1 pence per share from 2.5 pence per share a year ago.
Pretax profit for the first half fell 74 percent to £856,000 due to an impairment charge of £3.2 million. For the six months ended June 30, adjusted pretax profit rose to £4.2 million from £3.8 million a year ago. Revenue increased 61 percent to 20.9 million pounds.
'UK financial spread betting generated 77% of Group revenue in the period (2009: 73%). Whilst revenue per client fell significantly in 2009, the period was highlighted for the recovery in active client numbers and funds on account from the low point of March 09 to new highs at the beginning of 2010.'
'2010 has started very encouragingly with Average Revenue per User "ARPU"
recovering from GBP599 to GBP1,051 and trade volumes also increasing by 22% to 31,950 per day (2009: 26,208). On our busiest day we handled almost 73,000 trades demonstrating the robustness of our systems. White label volumes continue to gain ground over Capital Spreads as a consequence of their overall numbers but Capital Spreads still remains the biggest single provider generating 42% of total trade volumes.'
'The FSA recently published a consultation paper on the treatment of Client
Money. The changes proposed do not impact on LCG's business since we have not
relied on the provisions which are now being amended. The changes will level the playing field against some spread betting and CFD providers who may now be required to find additional funds to support their business.'
The FX unit also delivered a solid performance producing a 29% increase in revenue on a 4% increase in trade volumes. Total active clients have increased 11% to 170, with 91 new accounts opened in the 6 months. This relatively small business unit is valuable to LCG and growth is heavily dependent on establishing institutional relationships. Volumes in global FX have been shrinking through 2010 so the Board considers that the performance of the unit in such an environment is exceptional and very encouraging.
'The first half of 2010 has been a challenging period for ProSpreads; the company delivered a stronger performance in Q2 and our expectation is for the business to continue to grow through to the end of the year. Revenue was up 37% to GBP0.85m (2009: GBP0.62m) and number of bets executed was also up 32% to 66,507.'
'In addition to PartyGaming which was signed in January 2010, we have launched a further four new white labels. LMAX Limited, the parent company of our white label partner Tradefair, has announced that it has received FSA authorisation and plans to launch and operate a multilateral trading facility (MTF) to trade CFDs. We do not see this as competing in our core market offering and indeed we expect their product launch, coupled with the continuing marketing expenditure of our existing competitors, to be of such size and scope as to materially increase the overall global market for CFDs.'
'The first half of 2010 saw the commencement of a price war as our major competitors tried to gain market share by significantly cutting their spreads. After lengthy consideration, and to retain our "value" rating we cut our spreads in a handful of our major markets but the vast majority of price spreads remained unchanged as, even after our competitor spread cuts, Capital Spreads still represents best value spread betting overall.'
'We believe the recent spread cuts by the larger spread betting providers
combined with the ever increasing regulatory and capital requirements for retail providers make it increasingly unlikely that a significant new entrant will be able to successfully launch into the financial spread betting/CFD market in the UK.'
'The board is confident that second half will continue along the same path as the first half ,' Chief Executive Simon Denham said. He said he was optimistic due to the continued growth in the company's core business and the launch of its CFDs platforms, which allows it to diversify its customer base in the United Kingdom and internationally.'
'Recently we have seen that much of our peer group growth has been heavily geared to non-UK CFD business. During Q2, the Group launched two CFD platforms which will enable LCG to focus more effort on international expansion primarily through our own brands and white label partnerships. Similar to our spread betting strategy our CFD offering will be a low cost, simplified alternative to the main providers.
'During the second quarter we launched two CFD platforms, namely our Capital CFD platform and an LCG branded Metatrader platform. The launch of CFDs allows the Group to significantly diversify its customer base both in the UK and internationally.'
'The first platform is an extension of our current UK spread betting offering and may be used by clients as either a CFD/Spread Bet multi-asset platform or a standalone CFD platform. The second platform is the increasingly popular Meta Trader CFD platform which we have launched with a team of highly experienced traders. The product will be focused towards retail clients in regions that are not economically accessible to LCG such as the Far and Middle East.'
'As part of our expansion plan we have recruited an experienced management team in Australia and have obtained initial regulatory approval for our own brand CFD product for the retail market.'
'Our IT development and hosting partner has signed a long term contract with us ensuring the ongoing stability of our overall product offering. We are also working towards delivery of a number of new developments in H2 including an iPhone application and new charting package.'
Gaming Intelligence - London Capital Group Holdings plc issued a trading update Wednesday that a significant increase in market volatility during the second quarter of 2010 helped the company achieve better than expected revenues for the six month period ended June 30th, earning the company a profit before tax and share-based payments in the region of £4.0m.
In a trading update yesterday afternoon, London Capital Group (LCG) said market volatility remained at a low level during the first quarter of 2010, following on from the second half of last year before picking up 'significantly' during the second quarter. As a result of the higher than expected revenues, LCG said it expects to earn a profit before tax and share-based payment expenses in the region of £4.0m, exceeding the result achieved in the same period last year.
The company warned however that this excludes the previously announced exceptional impairment of capitalised software costs, amounting to £3.2m. In addition, LCG said £1.8m became due from a professional client during the second quarter, although no provision has been made as the company’s directors have been advised that the amount is recoverable.
LCG’s key performance indicators continue to be robust with strong growth in client accounts, average daily trade volumes, and net revenue per active client. Total UK financial spread betting accounts were up 29 per cent to 57,890, with average trades per day increasing to 31,894 from 26,208 last year, and net revenue per active client rising 75 per cent to £1,051 for the half year period.
'LCG has had a strong first half with very encouraging growth in overall revenue,' said Simon Denham, CEO of LCG. 'We are also pleased to have launched two new platforms namely our Capital CFD platform and our LCG Metatrader platform targeting the international market. We look forward to the second half with anticipation for continued growth in our client base and to delivering solid second half results'. LCG remains debt free and ended the six month period with a strong cash position, the company added.
London Capital Group registered full-year pre-tax profit amounting to £5.8m compared to £10.8m in 2008, which the spread betting provider blamed for on unfavourable market conditions, lower interest income and increased development costs to support future growth.
The company successfully managed to retain similar levels of aggregate trading revenue across its different divisions against a very profitable 2008, but the impact of lower interest income meant that total revenue dipped 4% year-on-year to £27.6m, from £28.9m in 2008.
Chief Frank Chapman is to step down after 7 years on the board before the annual general meeting in April to be replaced by finance director Simon Denham. Frank Chapman will remain on the Board 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. Moreover, Siobhan Moynihan will join the Board as Finance Director and Amanda Shields will join the Board as Chief Operating Officer.
Frank Chapman commented: '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.'
Chapman however admitted that the London Capital Group has undergone a difficult year and market conditions have not been favourable to their business model. This, coupled with increased costs to support the growth of the business, has meant that profits have been lower than initially forecasted.
While trading revenue has been maintained at the same level as 2008, this has been due to increased client numbers and trades transacted. The spread betting white label business 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 their partners.
'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.'
London Capital Group has continued to invest in IT infrastructure which is 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.
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 volatility which 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.'
'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.'
'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.'
'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.'
The Group intends to roll out two new platforms in 2010, one being a CFD platform to be launched 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 London Capital 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 so as to continue building cash reserves. 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. London Capital Group has also stated that the regulatory framework has evolved significantly in the past year which raises the barrier considerably to any new entrants. As a consequence of the new regulatory environment London Capital Group believes 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.
The company recognises that economic conditions remain uncertain and that there is limited visibility in forecasting Group revenues, however 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 that the Group is confident that 2010 will be a year of growth.
London Capital Group
