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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| London Cap | LSE:LCG | London | Ordinary Share | GB00B0RHGY93 | ORD 5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.80 | 0.75 | 0.85 | 0.00 | 00:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jan 2020 to Jan 2025
TIDMLCG
RNS Number : 5033J
London Capital Group Holdings PLC
29 June 2017
29 June 2017
LONDON CAPITAL GROUP HOLDINGS PLC
("LCG", the "Company" or the "Group")
AUDITED RESULTS FOR THE YEARED 31 DECEMBER 2016
LCG is pleased to announce its results for the year ended 31 December 2016.
A copy of the annual report and accounts will be posted to shareholders today and will be available from the Company's website, www.ir.lcg.com, shortly.
Financial Highlights
- Strong revenue growth of 50% to GBP23.2 million (2015: GBP15.5 million). - Gross profit margin increased 24% on prior year.
- Increased revenue retention, represented by an increase in gross profit of 86% (2015: GBP10.51 million).
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- Decreased adjusted EBITDA loss by 61% to GBP4.8 million (2015: GBP12.3 million).
Audited Audited
12 Months 12 Months
31 December 2016 31 December 2015
GBP'000 GBP'000
Revenue 23,242 15,489
Gross Profit 19,568 10,517
Adjusted EBITDA(1) (4,836) (12,315)
Statutory (loss) before tax (7,777) (14,503)
Basic loss per share from continuing operations (0.035p) (0.24p)
Diluted loss per share from continuing operations (0.033p) (0.24p)
Dividend per share 0.0p 0.0p
Commenting on the results, Charles-Henri Sabet, Group Chief Executive, said:
"Despite the tough trading conditions seen during the first half of the year, the Group has seen strong revenue growth as a result of increased revenue capture compared to prior periods. The integration of new technology, continued investment in innovative marketing and a focus on customer service and retention coupled with a resilient and loyal client base continues to see LCG grow both in existing and new markets. The results clearly demonstrate the success of the growth initiatives being deployed by the Group across the business and as LCG continues to develop we remain fully committed to ensuring the Company continues on this path to sustained long term growth".
Operational Highlights
- The number of new clients acquired per month grew by 47% year on year to 493 per month (2015:308) despite challenging trading conditions in the first half of the year, prior to Brexit.
- Growth in monthly open and funded and traded accounts - monthly average increased 34% to 413 (2015: 308 per month), demonstrating the increasing effectiveness of the brand, platform and marketing activities.
(1) Adjusted EBITDA represents (loss)/profit before interest, tax, depreciation, amortisation, 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 and market data provision.
For further information, please contact:
London Capital Group Holdings
plc
Charles-Henri
Sabet +44 (0)20 7456 7000
Allenby Capital Limited
Nominated Adviser and Broker
John Depasquale
Nick Naylor +44 (0)20 3328 5656
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 year ended 31 December 2016
2016 performance
Trading conditions in the first two months of 2016 were very positive. However, the year as a whole has been heavily affected by lower market volatility due primarily to the uncertainty in the lead up to the EU referendum and the subsequent result. This uncertainty had the effect of deterring market participation for both existing and new clients.
However, despite such challenging conditions, the Group, through its continued investment in innovation, IT, sales and marketing and the quality of people as well as an enhanced analytical approach to trading and risk, has been able to capture revenues far more efficiently than in prior periods. This approach has ensured that the Group is able to capitalise on significant trading opportunities as they present themselves whilst, at the same time, preserving the value of the enterprise through diligent risk management techniques.
We are confident the Group is now far better placed to derive a steady revenue stream during weak trading conditions and be in a position to take full advantage when conditions are favourable.
Organisational restructuring
As we have previously reported, the business had gone through a phase of consolidation as management has been focused on getting the building blocks in place within the business (in terms of technology, product offering, trading platforms, brand, customer service and, most importantly, people) in order to position LCG for a return to profitability. This effort has continued throughout 2016 and has now been largely concluded. We now have the right combination of both people and product in place with LCG now positioned to take advantage of growth opportunities. The full benefits of the cost savings associated with the restructuring exercise in 2016 are expected to materialise in the next financial year.
In addition, during 2016, the balance sheet of the Group was strengthened by the redemption of the outstanding Convertible Loan Notes ("CLNs") and the issue of new equity capital. This enhanced the capital position of the Group whilst, at the same time, reduced debt.
Outlook
We continue to invest in and develop our people, products and services, to provide our clients with the service they expect in order to ensure that LCG is their provider of choice for their trading needs. Part of that investment and growth has resulted in the Group further developing its product offering by improving its Meta Trader 4 and LCG Trader platforms, which the Board expects will create a greater appeal to markets outside of the Group's traditional UK market place.
The Group looks forward to benefiting from the refreshed marketing campaigns and brand awareness initiatives, that in addition to the enhanced product offering, the Board believes will 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 more importantly, internationally.
The regulatory landscape continues to evolve across multiple jurisdictions and particularly Europe. The recent announcements from the Financial Conduct Authority ("FCA") and other European regulators to protect clients through reduced leverage and enhanced risk warnings is in line with LCG's position 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 that the Group is well positioned to continue the strong growth in both client acquisition and revenue capture demonstrated thus far in spite of the regulatory uncertainty. 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 continue its growth trajectory in this changing environment.
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 June 2017
STRATEGIC REPORT
For the year ended 31 December 2016
Strategic Report
The directors, in preparing this strategic report, have complied with s414C of the Companies Act 2006.
Principal activities
London Capital Group Holdings plc operates through its principal subsidiary, London Capital Group Limited ("LCGL"). LCGL is a global provider of trading services and solutions, specialising in over-the-counter, or OTC markets to private, retail high net worth and professional clients. LCGL offers customers access to a diverse range of over 5,000 financial products, including foreign exchange (or forex), precious metals, contracts for differences ("CFDs")and financial spread betting, which are investment products with returns linked to the performance of an underlying commodity, index, equity or security. The Company is authorised and regulated by the Financial Conduct Authority ("FCA"). The Company's FCA Register Number is 182110, for further details see www.fca.gov.uk/register and its parent company London Capital Group Holdings plc is listed on AIM, a market operated by the London Stock Exchange.
Revenues are generated from the dealing spread - the difference between the buying and selling price of the CFD and spread betting products, commission income, exchange gains and interest.
The Company's success is expected to be achieved by providing a high quality service to its customers and offering a variety of financial trading products and platforms. Clients are attracted to the Company for its value for money, ease of platform navigation, its industry leading mobile app, tight dealing spreads and competitive margin requirements, in addition to high levels of customer service.
Business Review
The Company experienced a positive start to the trading year which coincided with a period of high volatility and market movements in January and February of 2016. January and February saw volatility at their highest levels for 6 months, 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 high levels. This resulted in positive trading conditions as markets across the majority of asset classes traded outside of their ranges. The increased volatility encouraged participation by clients with newly funded accounts which were 12% higher in the first three months of 2016 compared with the same period in 2015.
The Company was able to take advantage of the favourable trading conditions coupled with an enhanced analytical view of the Group's client trading activity and behaviour to ensure maximum revenue capture where opportunities allowed. As a result, revenues in the first three months were 105% higher than the same period in 2015.
From March 2016 and continuing into the second quarter of the year, there was a decrease in volatility in financial markets as a result of the increased uncertainty over the EU referendum vote as market participants chose to refrain from any short term position taking, resulting in a reduction in activity across all asset classes. As a result of the decrease in volatility and range bound market conditions, client trading volumes decreased 28% during the second quarter of 2016 versus the first quarter and 50% lower compared with the same period in 2015.
Despite the down-turn in overall market volatility - the Group was still able to capture revenue at a greater rate than compared to the previous year due to its analytical risk management policy. Revenues for the second quarter were 98% higher than the same period in 2015 and this shows that the investment by the Group in both the brand and trading platform as well as the implementation of the enhanced risk management analysis of client trading behaviour and patterns is starting to generate a return.
Following a benign third quarter for market volatility coinciding with the traditional quiet summer months, the fourth quarter saw a return in volatility to the financial markets as uncertainty over a number of events including the post EU referendum political and economic landscape and the US presidential elections brought attractive trading conditions for clients. New accounts opened, funded and traded were around10% higher than the same period in 2015 and the net inflow of client funds was approximately 125% higher than the previous quarter (Q3-16) as the favourable trading conditions encouraged clients to open accounts and trade. Total trades in the fourth quarter were approximately 32% higher than the third quarter and fourth quarter revenues were up 63% compared to the third quarter and approximately 74% higher than the same period in 2015 as the Company continued to capture revenues at a greater rate than in previous periods.
Overall, for the year ended 31 December 2016 revenues increased by 50% compared to the prior year. The Company has seen monthly average open and funded accounts up 34% on the previous year and, although total client funds decreased 20% over the same period due to the cessation of un-economic trade partnerships, it is anticipated that as the brand continues to gain traction through marketing activities, both the acquisition of clients (direct and indirect) will begin to have a positive impact as seen by the upward trend in net new funds into the company from Q3-2016 onwards.
Costs of sales for the period were GBP3.7m (2015: GBP5.0m) and gross profit was GBP19.6m which is 86% higher than 2015 and represents an 84% gross profit margin on revenues (2015: GBP10.5m gross profit and 57% gross profit margin). This increase in gross profit margin is the result of the increase in revenue capture the firm has seen since the introduction of the enhanced risk management analysis of client behaviour which has led to increased revenue capture without any incremental increase in cost of sales. This has additionally been supplemented by the termination of non-economic trading partnerships which has further increased revenue capture for the company.
Adjusted EBITDA for 2016 was a loss of GBP4.8m (2015: loss of GBP12.3m), a 61% improvement on the same period last year. Administrative costs remain on the higher side at GBP27.2m for the period (2015: GBP24.8m) but the Company expects to see the benefits of its significant cost reduction initiatives that took place during 2016 in the next financial year.
The loss before tax decreased to GBP7.8m (2015: loss of GBP14.5m) and demonstrates the improvements the Company has made to ensure that, despite poor trading conditions seen in Q2 and Q3 2016, there is a clear path toward sustainable long term profitability, through the Group's improved branding, technology and investment in people.
Adjusted EBITDA from continuing operations
2016 2015
GBP'000 GBP'000
Reported loss from continuing operations (7,443) (14,076)
Add back - amortisation and depreciation
from continuing operations 1,925 1,302
Add back - credit for release of (403) -
provision against market data costs
Add back - charge for provision against
FOS claims - 38
Add back - credit for restructuring
costs - (900)
Add back - other costs of changing 360 -
IT platform
Add back - impairment of leasehold
assets 725 1,321
-------- ---------
Adjusted EBITDA from continuing operations (4,836) (12,315)
======== =========
The net cash and amounts due from brokers decreased 39% to GBP9.8m (2015: GBP16.1m) primarily as a result of the losses for 2016 and capital investments during the year. Available liquidity which comprises own cash held, title transfer funds, unsegregated funds and amounts due from brokers decreased by GBP3.4m to GBP13.0m (2015: GBP16.1m).
Available liquidity and cash flow
Audited
Audited 31 31 December
December 2016 2015
GBP'000 GBP'000
Own cash held 4,360 12,458
Short term receivables: Amounts
due from brokers 5,393 3,657
------------------- -------------
Net cash and short term receivables 9,753 16,115
------------------- -------------
Title transfer funds and
unsegregated funds 3,247 -
------------------- -------------
Available liquid resources 13,000 16,115
------------------- -------------
Total client money at the year-end was GBP19.1 million (2015: GBP23.8 million) of which GBP15.9 million (2015: GBP23.8m) was held in segregated bank accounts. These balances are excluded from the Balance Sheet. Unsegregated amounts held on behalf of clients under a Title Transfer Collateral Arrangement ("TTCA") are included on the Balance Sheet (see notes 20 and 22).
Both client acquisition and client volumes are continuing to improve in 2017, with the first two months of the year showing newly funded accounts up 30% on the same period in 2016 and client trading volumes up 14% over the same period.
Customer trading volumes are driven by eight main factors. Four of these factors are broad external factors outside the Company's control and include:
-- 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.
Many of the above factors impact the volatility of financial markets, which have generally been positively correlated with client trading volume. The Company's customer trading volume is also affected by the following additional factors:
-- the effectiveness of sales activities;
-- the competitiveness of the Company's offerings;
-- the effectiveness of the customer service team; and
-- the effectiveness of the marketing activities.
In order to increase customer trading volume, the Company 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 Company'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 now looking to expand its offering beyond the UK and enhance its technology and product offering by developing both its existing Meta Trader 4 and LCG Trader platforms to ensure they are both market leading as well as being fit for purpose for the active trader. The Group has enlisted the services of a team of experts with a number of years of experience in both the target markets and the technology being offered, to ensure that the release is both suitable and scalable for the expected increase in client activity. This team is located in Cyprus and is able to take advantage of the local resources and talent pool to ensure the offering has the highest standard of technological requirements for the target market.
At the same time, the Company has also taken advantage of these resources and talent pool by re-locating many of its processing and operational functions to Cyprus which will additionally reduce costs for the Group. The full benefits of these cost saving initiatives are expected to be seen in 2017.
The Group looks forward to benefiting from the enhanced product offerings which will give the Company the opportunity to promote 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.
The Company's future success continues to be based on providing a high quality service to its customers and offering a variety of financial trading products and platforms. The Company will deliver a complete multi-asset experience for its clients.
The increased investment in technology will allow the Company to offer an intelligent new platform while still delivering industry leading spreads with instant, reliable execution. In addition, the Company's analysts will offer high quality analysis, research and financial news.
The Company's medium-term strategy will also continue to focus on the promotion and further development of its key selling points which include:
- Industry-leading platforms - Service - Professional tools and news service - Educational material - Pricing - Marketing - Dealing execution
Marketing is expected to attract active retail traders. This combined with improving the customer journey and technology will ensure that the Company continues to be in a strong position within its market.
The Financial Conduct Authority ("FCA") in line with other global regulatory bodies recently announced proposed changes to both leverage and risk disclosures as part of its aim to protect client interests. The changes being proposed are in consultation with the industry and as yet, no final terms or timing of implementation have been finalised. It is unclear at this time what the impact of these changes will be to LCG given the uncertainty over the final terms and timing of the implementation. LCG is fully supportive of the efforts by global regulators to protect client's best interests and despite the uncertainty, LCG through its loyal client base and increasing diversified operations, will continue to meet these challenges and remain focused on ensuring that its growth strategy is maintained.
Our people
Continuing throughout 2016, the Company has strengthened the board of directors, senior management team and recruited best-in-class personnel to support the Company's ambitions.
Employees are incentivised with a discretionary performance-related bonus scheme to reward performance, and a range of other benefits are provided including pension contributions and private health insurance.
Environment
Given the nature of its activities, there is limited scope for the Company to have a major impact on environmental matters. Nevertheless, the Directors are mindful of their responsibilities in this regard and strive to seek opportunities where improvements may be made; these are generally concentrated in areas of energy conservation, recycling and waste control.
Equality and diversity
The Company is committed to promoting and developing equality of opportunity in all areas. Individuals are encouraged to achieve their full potential in every aspect of their employment and the Company supports fair and equitable treatment of our employees irrespective of gender, sexual orientation, religious beliefs, age, colour, ethnic or racial origin, nationality or disability.
Applications for employment by disabled persons are always fully considered and in the event of members of staff becoming disabled every effort is made to ensure that their employment with the Company continues and that appropriate training is arranged. It is the policy of the Company that training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.
Health and safety
The Company aims to provide and maintain a safe working environment for all its employees and visitors and seeks the involvement of its employees in improving health and safety throughout its operations. The Board keeps its health and safety policy under regular review to take account of changes in legislation, best practice and the working environment.
Principal risks and uncertainties
The principal risks and uncertainties to which the Company is exposed could each have a material impact on the Company's long-term performance and achievement of its strategic goals. The Company's risk appetite is set by the Board and is documented in the Risk Management Framework document.
The Company uses Key Risk Indicators to identify, monitor and measure risk in the business and maintains a Risk Register of all financial and operational risk events and the mitigating controls. This quantification process ensures that the Company operates within its risk appetite.
Ultimate responsibility for risk management lies with the Board, which has established an Audit and Risk Committee, chaired by an independent non-executive Director of the Company, which considers risk management in more detail. The principles and objectives of the Risk Management Framework are cascaded down through the Company. The responsibility for establishing specific internal control policies and procedures is being overseen by the Credit and Risk Committee.
The effectiveness of internal controls is monitored by the Compliance function and outsourced expert assessors who report both to the Audit and Risk Committee and the Board.
The main areas of risk for the Company are considered to be the following:
-- Market risk: Market risk is the risk that changes in market prices will affect the Company's profit and loss or the value of financial instruments held and traded by clients. Although the Company does not directly enter into speculative proprietary positions, the effect of client trades does result in the Company retaining a net market risk. The Company has a formal risk policy and a methodology for
setting limits for every financial market in which it operates. Market risk is managed on a day-to-day basis by the respective divisional heads with oversight provided by the Risk Management function, the Audit and Risk Committee and the Board. The risk limits determine the maximum net exposure arising from client activity which the Company is prepared to carry. If the Company's exposure to clients
exceeds these limits, the policy requires that the positions are hedged reducing exposure to within defined limits.
-- Credit risk and concentration risk: The Company has a credit exposure to the banks with which it deposits funds and the counterparties with which it hedges its market positions. The Company mitigates this risk by ensuring diversification of counterparties and setting minimum levels of creditworthiness for Company counterparties. The Company does not ordinarily offer credit to its clients but does, on occasion, offer credit to clients who meet specific criteria. The Group has adopted a Credit Risk Policy which sets out specific requirements that will apply in the event that clients are offered credit. The Company ensures client credit risk is minimised via real time monitoring, management of unrealised profit and loss, margin and net equity and supported by mandatory stops and guaranteed stop losses being used by many clients to manage their accounts.
-- Operational risk: Operational risk is defined as the risk of loss arising from inadequate internal processes, people or systems. The most significant operational risks the Company is exposed to are:
o Technology risk and business continuity: Technology risk is the risk of a sustained loss of the Company's systems leading to an inability to provide online trading platforms to its clients. This will inevitably lead to a significant loss of customers and income. The Company operates backup for all its trading platforms in separately hosted environments and to support the loss of physical premises the Company also has a contract with a disaster recovery provider for disaster recovery premises. This is supported by ongoing business continuity planning and periodic testing of our disaster recovery facilities and procedures.
o Employee risk: The Company requires suitably skilled staff to operate, control, develop and manage its business. The Company has a wide range of skill requirements including IT, project management, dealing/market risk management, customer support, HR, compliance, finance, sales and marketing. Without adequate staff resources the Company would not be able to operate effectively or achieve its strategic aims. The risk is managed initially through the recruitment and selection of appropriately qualified employees, validated by a pre-employment screening process. Employee risk is also managed on an ongoing basis through training and development (both regulatory and non-regulatory), and reviews of performance
to ensure that individual remuneration and performance is managed consistently and fairly. Finally, we ensure the continued success of the Company through the proactive identification and retention of our key employees through share-based payment awards under long term incentive plans.
o Legal, regulatory and compliance risk: Legal, regulatory and compliance risk is the risk of legal or regulatory sanctions, legal claims, defective contractual arrangements and the resulting financial loss, or damage to the reputation of the Company. The Company is a full scope firm and is therefore subject to close regulation. As such, regulatory risk is an important element of the risk assessment and management process. The regulatory landscape changes at an ever increasing pace and this imposes significant demands on the resources of the Company. The
Company therefore continues to ensure sufficient investment is made in resources and training to meet regulatory demands. The responsibility for compliance is spread throughout the Company, and results are monitored and reported to senior management by the Compliance Department.
-- Liquidity risk: Liquidity risk is the risk that the Company will encounter difficulty in meeting its financial obligations as they fall due. The Company has established policies and a liquidity risk management framework to manage its liquidity risk, including daily production of liquidity reports that summarise current liquidity and liabilities. Liquidity is monitored daily by the LCGL Board. The Company also undertakes various stress and scenario testing as part of its Individual Capital Adequacy Assessment Process ("ICAAP") that is a requirement of the FCA. These scenarios stress the effect on the Company's
capital and liquidity adequacy of both an individual risk materialising or a series of risk events occurring within a short timeframe.
-- Treasury risk: Treasury risk is the risk arising from the movements in the interest rates or exchange rates which affect the Company's profitability or net cash resources.
o Interest rate risk: Interest rate risk arises from the loss of revenue from interest earned on client deposits and margined client positions, and the Company's own cash resources. While interest rates remain low, interest income will not make a material contribution to Company profit. Conversely, as interest rates rise the Company should benefit.
o Foreign currency risk: The Company faces currency exposures on translation of its monetary assets and liabilities. This risk is managed by daily monitoring of the Company's net foreign currency position as part of its liquidity risk management.
-- Key supplier risk: Key supplier risk is the risk of failure of one of our principal business partners to provide contractual services. The Company conducts initial and ongoing due diligence on key suppliers, in addition to using multiple providers where available.
Key Performance Indicators
The Company uses the following key performance indicators to measure its financial and operational performance on delivering the strategic goals of the business.
-- Revenue -- Gross profit -- Profit before tax -- Client assets under management -- Active trading clients -- Accounts opened, funded and traded
The following table shows the key performance indicators at 31 December 2016 against the same period in the prior year.
KPI 2015 2016 Change --------------------------- ---------------- --------------- ------- Revenue GBP15,489,000 GBP23,242,000 +50% --------------------------- ---------------- --------------- ------- Gross profit 10,517,000 19,568,000 +86% --------------------------- ---------------- --------------- ------- Loss before tax (GBP14,503,000) (GBP7,777,000) +46% --------------------------- ---------------- --------------- ------- Client assets under management including professional clients GBP23.8m GBP22.3m (6%) --------------------------- ---------------- --------------- ------- Active trading clients (Monthly average) 4,234 3,884 (8%) --------------------------- ---------------- --------------- ------- Accounts open, funded, traded (Monthly Average) 308 413 +34% --------------------------- ---------------- --------------- -------
-- Revenue up 50% year on year as a result of enhancements to the brand, marketing strategy and increased client acquisition.
-- Gross profit up 86% year on year as a result of greater revenue capture following the implementation of enhance risk management analysis of client trading behaviour.
-- Loss before tax 46% lower than prior year as a result of the increased revenues for the group.
-- Client assets and active trading clients down 6% and 8% respectively due in part to low volatility seen in financial markets during periods of 2016.
-- Accounts opened, funded and traded up 35% as the Group continues to improve the brand, proposition and expansion into new markets and territories.
Tax
The Group's effective tax rate is 0% (2015: 3%). This is primarily due to losses incurred within LCGL. These losses will be carried forward and offset against future taxable profits.
Dividend policy
The Board has reviewed its dividend policy during the year and has concluded that a policy of paying dividends from available profits while considering the current and future capital requirements of the business is the most appropriate policy going forward. The Board is not recommending a final dividend (2015: nil).
Return on assets
In accordance with the Capital Requirements Directive IV ("CRD IV") and the IFPRU prudential regulations the Group is required to disclose a return on assets metric. This has been calculated as profit for the year divided by shareholders equity.
2016 2015
Return on assets (57.5%) (132.0%)
Subsequent events
On 1st March 2017 the Group entered into an agreement for the occupation of new premises at 77 Grosvenor Street, W1K 3JR. The Group entered into a 5 year lease and surrendered the lease on 1 Knightsbridge to a 3rd party at nil cost to the Group.
As part of the office move the Group provided GBP725,000 as an impairment to reflect the true economic recoverability of the fixed assets on the balance sheet.
Capital Resources
The following table summarises the Group's capital resources.
2016 2015
GBP'000 GBP000
Total capital resources 9,075 8,425
Total risk exposure 76,814 80,336
Total capital ratio 12% 10%
The Group's Tier 1 capital resources increased following the redemption of the convertible loan note to equity. This increased Tier 1 capital by approximately GBP8.3m but was offset by the audited losses during the year of GBP7.4m. At 31 December 2016 the capital resources represented 12% of the capital resources requirement (2015: 10%).
Preparation of the Strategic Report
This Strategic Report has been prepared solely to provide information to shareholders to assess how the Directors have performed their duty to promote the success of the Group.
The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking information.
By order of the Board
Charles-Henri Sabet
Chief Executive Officer
28 June 2017
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2016
Note 2016 2015
GBP'000 GBP'000
Revenue 23,242 15,489
Operating expenses (3,674) (4,972)
--------- ---------
Gross profit 19,568 10,517
Other operating income 159 165
Administrative expenses (before
non-recurring items) (26,488) (24,291)
Non-recurring items:
Charge for provision against
FOS claims 21 - (38)
Credit for market data provision 21 403 -
Impairment of leasehold assets 11 (725) (1,321)
Restructuring credit 21 - 900
Other costs of changing IT
platform (360) (8)
Total administrative expenses 3 (27,170) (24,758)
Operating loss (7,443) (14,076)
Investment revenue 6 31 257
Finance costs 7 (365) (684)
--------- ---------
Loss before taxation 8 (7,777) (14,503)
Tax charge 8 - (433)
--------- ---------
Loss for the year attributable
to the owners of the parent (7,777) (14,936)
========= =========
Loss per share
Basic 9 (0.035) (0.24)
Diluted 9 (0.033) (0.24)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
2016 2015
GBP'000 GBP'000
Loss after taxation (7,777) (14,936)
-------- ---------
Other comprehensive income/(expense):
Currency translation differences 225 -
-------- ---------
Other comprehensive income/(expense) 225 -
for the year
-------- ---------
Total comprehensive income for
the year (7,552) (14,936)
-------- ---------
Total comprehensive income for
the year attributable to owner
of the parent (7,552) (14,936)
======== =========
BALANCE SHEET
For the year ended 31 December 2016
Group Company
Note 2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Intangible assets 12 3,768 2,903 249 273
Property, plant
and equipment 13 1,358 2,382 - -
Investments 14 150 - 43,835 43,835
5,276 5,285 44,084 44,108
--------- --------- -------- --------
Current assets
Financial investments
- held for trading 3,550 670 - -
Trade and other
receivables 16 8,356 6,456 853 -
Cash and cash equivalents 17 4,360 12,459 - -
--------- --------- -------- --------
16,266 19,585 853 -
--------- --------- -------- --------
Total assets 21,542 24,870 44,937 44,108
========= ========= ======== ========
Current liabilities
Trade and other 19,
payables 20 7,793 3,680 3,833 2,204
Obligations under
finance leases 18 66 93 - -
Other liabilities - 135 - 135
Provisions 21 587 990 - -
--------- --------- -------- --------
Total current liabilities 8,446 4,898 3,833 2,339
--------- --------- -------- --------
Net current assets 7,820 14,687 (2,980) (2,339)
--------- --------- -------- --------
Non-current liabilities
Convertible loan
notes 22 - 8,265 - 8,265
Obligations under
finance leases 18 - 149 - -
Deferred consideration 250 230 250 230
--------- --------- -------- --------
250 8,644 250 8,495
Total liabilities 8,696 13,542 4,083 10,834
--------- --------- -------- --------
Net assets 12,846 11,328 40,854 33,274
========= ========= ======== ========
Equity
Share capital 29 23,019 7,985 23,019 7,985
Share premium 30 23,744 23,819 23,744 23,819
Own shares held 31 (6,065) (6,065) (2,899) (2,899)
Equity reserve 32 1,384 3,967 1,384 3,967
Accumulated deficit
/ retained earnings 33 (24,430) (12,907) (4,757) 530
Merger reserve 33 (5,344) (5,471) - (127)
Share option reserve 538 - 363 -
--------- --------- -------- --------
Total equity 12,846 11,328 40,854 33,274
========= ========= ======== ========
The financial statements of London Capital Group Holdings plc, registration number 05497744, were approved and authorised for issue by the Board of Directors on 26 June 2017 and signed on its behalf by:
Charles-Henri Sabet
Director
As permitted by section 408 of the Companies Act 2006, the Company has not presented its own income statement or statement of comprehensive income. The loss for the year ended 31 December 2016 dealt within the financial statement of the Company was GBP1,312,992 (2015: loss of GBP1,085,211).
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2016
Own
Share Share shares Equity Accumulated Other Share Total
capital premium held reserve deficit/ Reserves Option equity
retained Reserve
earnings
(note (note (note (note (note (note
33) 34) 35) 36) 37) 37)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2015 5,580 20,592 (6,065) 6,809 1,887 (5,344) - 23,459
Issue of share
capital 2,405 3,227 - - - - - 5,632
Total
comprehensive
loss for the
year - - - (14,936) - - (14,936)
Equity settled
share-based
payment
transaction - - - - 142 - - 142
Equity component
of convertible
loan notes - - - (2,842) - - - (2,842)
Other movement - - - - - (127) - (127)
At 31 December
2015 7,985 23,819 (6,065) 3,967 (12,907) (5,471) - 11,328
Reclassification
of reserves - - - - (363) - 363 -
Issue of share
capital during
the year 1,307 - - - (1,307) - - -
Capital
restructure
- issue of
ordinary
shares 9,339 - - - - - - 9,339
Capital
restructure
- issue of
deferred
shares 3,993 - - - - - - 3,993
Redemption of
convertible loan
notes - - - - (4,884) - - (4,884)
Total
comprehensive
loss for the
year - - - - (7,552) - - (7,552)
Equity component
of convertible
loan notes
converted
to share capital - - - (2,583) 2,583 - - -
New shares issued - (75) - - - - - (75)
Equity settled
share-based
payment
transaction 395 - - - - - 175 570
Merger reserve
written off - - - - - 127 - 127
At 31 December
2016 23,019 23,744 (6,065) 1,384 (24,430) (5,344) 538 12,846
========== ========== ========= ========== ============== =========== ========== =========
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2016
Own
Share Share shares Equity Accumulated Merger Share Total
capital premium held reserve deficit/ Reserve Option equity
retained reserve
earnings
(note (note (note (note (note (note
33) 34) 35) 36) 37) 37)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2015 5,580 20,592 (2,899) 6,809 3,746 - - 33,828
Issue of share
capital 2,405 3,227 - - - - - 5,632
Total comprehensive
loss for the
year - - - - (1,085) - - (1,085)
Equity settled
share-based
payment transaction - - - - (2,131) - - (2,131)
Equity component
of convertible
loan notes - - - (2,842) - - - (2,842)
Other movement - - - - - (127) - (127)
---------- ---------- -------- ---------- -------------- ---------- ---------- ---------
At 31 December
2015 7,985 23,819 (2,899) 3,967 530 (127) - 33,274
Reclassification
of Other Reserves - - - - (363) - 363 -
Issue of share
capital 1,307 - - - (1,307) - - -
Capital restructure
- issue of
ordinary shares 9,339 - - - - - - 9,339
Capital restructure
- issue of
deferred shares 3,993 - - - - - - 3,993
Redemption
of convertible
loan notes - - - - (4,884) - - (4,884)
Total comprehensive
loss for the
year - - - - (1,314) - - (1,314)
Equity settled
share based
payments 395 - - - - - - 395
New shares
issued - (75) - - - - - (75)
Merger reserve
written off - - - - - 127 - 127
Equity component
of convertible
loan notes
converted to
share capital - - - (2,583) 2,583 - - -
========== ========== ======== ========== ============== ========== ========== =========
At 31 December
2016 23,019 23,744 (2,899) 1,384 (4,757) - 363 40,854
========== ========== ======== ========== ============== ========== ========== =========
CASHFLOW STATEMENT
For the year ended 31 December 2016
Group Company
Notes 2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Loss for the year (7,777) (14,936) (918) (1,085)
Adjustments for:
Depreciation of
property, plant
and equipment 16 579 584 - -
Amortisation of
intangible assets 15 1,346 718 28 13
Impairment of leasehold
improvements 725 1,321 - -
Share-based payments 27 175 142 - -
Loss on disposal
of property, plant
and equipment 18 39 - -
Provisions 25 (28) (836) - -
Investment income 9 (31) (257) - -
Finance costs 10 365 684 353 671
Current tax charge 11 - (2) - -
Movement in deferred
tax asset 11 - 435 - -
-------- --------- -------- --------
Operating cash flows
before movements
in working capital (4,650) (12,108) (537) (401)
(Increase)/decrease
in receivables (4,780) 1,849 (853) -
Increase/(decrease)
in payables 3,447 (640) 1,394 560
-------- --------- -------- --------
Cash (used in)/generated
by operating activities (5,983) (10,899) 4 159
Taxation received - 164 - -
-------- --------- -------- --------
Net cash (used in)/from
operations (5,983) (10,735) 4 159
-------- --------- -------- --------
Investing activities
Investment income 31 257 - -
Proceeds on disposal
of property, plant
and equipment 93 90 - -
Acquisitions of
property, plant
and equipment 16 (296) (1,200) - -
Acquisition of leasehold
assets (77) (940) - -
Acquisitions of
intangible assets 15 (2,211) (1,679) (4) (159)
Acquisitions of
trademarks 15 - (116) - -
Acquisition of investments (150)
-------- --------- -------- --------
Net cash used in
investing activities (2,610) (3,588) (4) (159)
-------- --------- -------- --------
Financing activities
Share Capital Transactions 855 628
Finance costs 10 (365) (11) - -
Net cash used in
financing activities 490 (11) - -
-------- --------- -------- --------
Net decrease in
cash and cash equivalents (8,103) (14,334) - -
Cash and cash equivalents
at the beginning
of year 12,459 26,793 - -
FX on transactions (18) - - -
-------- --------- -------- --------
Cash and cash equivalents
at end of year 20 4,360 12,459 - -
======== ========= ======== ========
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2016
1. Business and geographical segments
Products and services from which reportable segments derive their revenues
Information reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segment performance is focused on the Group's different product offerings and geographies. The Group's reportable segments under IFRS 8 are as follows:
-- UK financial spread betting and contracts for difference ("CFDs"); and
-- institutional foreign exchange.
Financial spread betting and contracts for differences 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. Information regarding the Group's operating segments is reported below.
For the year ended 31 December Financial Institutional Corporate Total
2016 spread foreign Centre
betting exchange
and
CFDs,
UK
GBP'000 GBP'000 GBP000 GBP'000
Revenue
Segmental revenue 23,141 101 - 23,242
---------- -------------- ---------- ---------
Segmental operating profit/(loss) 10,435 (42) - 10,393
Other operating income 159 159
Corporate expenses (17,995) (17,995)
---------
Operating loss (7,443)
Finance income 31 31
Finance costs (365) (365)
---------
Loss before taxation (7,777)
Taxation charge -
---------
Loss for the year (7,777)
=========
Included within revenue is interest income on client
money held.
Included within the corporate centre are costs
associated with maintaining the Group and support
functions.
For the year ended 31 December Financial Institutional Corporate Total
2015 spread foreign Centre
betting exchange
and
CFDs,
UK
GBP'000 GBP'000 GBP000 GBP'000
Revenue
Segmental revenue 15,285 204 - 15,489
---------- -------------- ---------- ---------
Segmental operating profit/(loss) 2,473 (631) - 1,842
Other operating income 157 157
Corporate expenses (16,075) (16,075)
---------
Operating loss (14,076)
Finance income 257 257
Finance costs (684) (684)
---------
Loss before taxation (14,503)
Taxation credit (433)
---------
Loss for the year (14,936)
=========
Included within revenue is interest income on client
money held.
Included within the corporate centre are costs
associated with maintaining the Group and support
functions.
The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Segmental profit represents the profit earned by each segment without allocation of the share of central administration costs including central support salaries and expenses, investment revenue, finance costs and income tax expense. This is the measure reported to the Group's Chief Executive Officer for the purpose of resource allocation and assessment of segmental performance.
2. Loss before tax
Loss before tax is stated after charging / (crediting):
2016 2015
GBP'000 GBP'000
Share-based payment charge 175 142
Depreciation of fixed assets 579 584
Amortisation of intangible assets
- software 1,346 718
Loss on disposal of fixed assets 18 39
Impairment of leasehold assets 725 1,321
Charge for provision against FOS
claims - 38
Credit for release of provision against (403) -
market data claims
Operating lease costs:
* Land and buildings 982 751
Net (gain)/loss on foreign currency
translation (838) 215
All of the above are included within administrative expenses apart from the net gain on foreign currency translations arising on balance sheet items held in foreign currencies, which is included in revenue.
3. Administrative Expenses
2016 2015
GBP'000 GBP'000
Staff costs 7,845 9,185
IT Costs 4,917 5,054
Data fees 956 880
Marketing costs 3,544 2,594
Premises 1,414 1,755
Legal and Professional fees 1,699 771
Regulatory fees 430 325
Depreciation and amortisation and
impairment of fixed assets 2,650 1,901
Other administrative expenses 3,033 1,826
-------- --------
Administrative expenses before non-recurring
items 26,488 24,291
Non-recurring items 682 467
-------- --------
Total administrative expenses 26,775 24,758
======== ========
4. Auditor's remuneration
The analysis of auditor's remuneration is as follows:
2016 2015
GBP'000 GBP'000
Fees payable to the Company's auditor
and their associates for the audit
of the Company's annual accounts 75 102
Fees payable to the Company's auditors
and their associates for other services
to the Group:
* The audit of the Company's subsidiaries 5 15
-------- --------
Total audit fees 80 117
======== ========
Regulatory assurance services 55 13
Audit related services pursuant to
legislation 15 11
Other services including tax 86 1
-------- --------
Total non-audit fees 156 25
======== ========
The auditor's remuneration in 2015 relates to the Group's previous auditors. The disclosure for 2016 relate to services provided by the Group's current auditors, BDO LLP.
5. Staff costs
The average number of employees in the Group during the financial year amounted to:
2016 2015
Number Number
Financial spread betting and CFDs 45 35
Institutional foreign exchange - 1
Central support and Directors 41 44
86 80
======= =======
The aggregate staff costs for the year including Directors were as follows:
2016 2015
GBP'000 GBP'000
Wages and salaries 6,866 8,239
Pension costs 153 158
Social security costs 826 788
7,845 9,185
======== ========
Wages and salaries include the following amounts in respect of performance related bonuses, commissions (both inclusive of national insurance) and share-based payments charged to the income statement:
2016 2015
GBP'000 GBP'000
Performance related bonuses 29 58
Commission payments 303 226
Share-based payment 175 142
507 426
======== ========
The Group operates a stakeholder pension scheme. Pension contributions were payable at a rate equal to the contribution made by the employee subject to a maximum employer contribution of 4% of basic salary.
Directors' remuneration
The remuneration of the Directors who served during the year was as follows:
Basic salary Annual Pension contributions
and fees Benefits bonus Total
Year to 31 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
December GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
Executive
Charles-Henri
Sabet(1) 525,214 260,000 109,851 139,371 - - 40,167 26,000 675,232 425,371
525,214 260,000 109,851 139,371 - - 40,167 26,000 675,232 425,371
-------- -------- -------- -------- ----- ----- ----------- ----------- -------- --------
Non-executive
Frank Chapman 43,040 60,000 6,960 - - - - - 50,000 60,000
Julien Cohen(6) - - - - - - - - - -
Rebecca Fuller(7) 55,000 55,000 - - - - - - 55,000 55,000
Dimitri - - - - - - - - - -
Goulandis(8)
Nicholas Lee(9) 55,000 43,000 - - - - - - 55,000 43,000
Charles
Poncet(11) 60,000 60,000 - - - - - - 60,000 60,000
-------- -------- -------- -------- ----- ----- ----------- ----------- -------- --------
213,040 218,000 6,960 - - - - - 220,000 218,000
-------- -------- -------- -------- ----- ----- ----------- ----------- -------- --------
Total 738,254 478,000 116,811 139,371 - - 40,167 26,000 895,232 643,371
======== ======== ======== ======== ===== ===== =========== =========== ======== ========
6. Investment revenue
2016 2015
GBP'000 GBP'000
Bank interest receivable 31 257
31 257
======== ========
Bank interest receivable represents that earned on Group funds. Interest earned on client deposits is included in revenue.
7. Finance costs
2016 2015
GBP'000 GBP'000
Interest on convertible loan notes 353 670
Interest on obligations under finance
leases 12 13
Interest on put option - 1
365 684
======== ========
Further information on interest on convertible loan notes is provided in note 22.
8. Taxation
(a) Tax on (loss) on ordinary activities
2016 2015
GBP'000 GBP'000
Current tax
Current tax on profits for the year - (1)
Total current tax - (1)
--------- --------
Deferred tax
Origination and reversal of temporary
differences - 497
Adjustment in respect of prior periods - (57)
Adjustment for change in corporation
tax rate - (6)
--------- --------
Total deferred tax charge - 434
--------- --------
Total tax per income statement - 433
========= ========
(b) Factors Affecting Total Tax Charge for the Current Period
The charge for the year can be reconciled to the profit per the income statement as follows:
2016 2015
GBP'000 GBP'000
Accounting loss before taxation (7,777) (14,936)
======== =========
Accounting loss multiplied by UK
standard rate of corporation tax
of 20.00% (2015: 20.25%) (1,555) (3,025)
Expenses not deductible for tax purposes 210 141
Goodwill impairment not deductible - -
for tax purposes
Non-taxable income 27 (23)
Movement in unprovided deferred tax 1,298 3,427
Change in deferred tax rate bought
forward - (6)
Chargeable gains 20 -
Adjustment in respect of prior years - (57)
Adjustment for differences in UK
and foreign tax rate - 3
-------- ---------
Total tax income reported in the
income statement - 460
======== =========
The tax charge in the income statement for the year just ended is the standard rate of corporation tax in the UK of 20.00% (2015: 20.25%) following a change in the corporation tax rate announced in the budget of 2013 and effective from April 2015.
(c) Deferred tax
2016 2015
GBP'000 GBP'000
Deferred tax assets - -
- -
======== ========
(d) Deferred tax assets
The deferred tax assets included in the balance sheet are as follows:
2016 2015
GBP'000 GBP'000
Property, plant and equipment - -
Temporary differences - -
Tax losses - -
- -
======== ========
The gross movement in the deferred income tax assets included in the balance sheet is as follows:
2016 2015
GBP'000 GBP'000
Deferred taxation asset brought forward - 435
Origination and reversal of temporary
differences - (492)
Adjustment in respect of prior years - 57
Effect of change in tax rate (20.25% - -
to 20.00%)
Deferred taxation asset carried forward - -
========= ========
(e) Deferred tax - income statement charge
The deferred tax charge / (credit) included in the income statement is made up as follows:
2016 2015
GBP'000 GBP'000
Depreciation in excess of capital
allowances - 403
Adjustment in respect of prior years - (57)
Temporary differences - 14
Tax losses - 74
Effect of change in corporation tax - -
rate (20.25% to 20.00%)
- 434
================================================ ========
At the balance sheet date the Group had an unrecognised deferred tax asset of GBP3,994,045 (2015: GBP3,038,712). This deferred tax asset relates to unused tax losses which have arisen within London Capital Group Holdings plc that have not been recognised due to the uncertain nature of the future profits in these businesses. These losses are available for offset against future profits and have no expiry date.
9. 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 year. 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.
2016 2015
Basic EPS
Loss after tax (GBP'000) (7,777) (14,936)
Weighted average number of shares 222,908,488 61,412,303
Weighted average basic EPS (0.035) (0.243)
Diluted EPS
Loss after tax (GBP'000) (7,777) (14,936)
Weighted average number of shares 235,304,335 61,412,303
Weighted average fully diluted EPS (0.033) (0.243)
The shares held under the Joint Share Option Programme (JSOP) are considered dilutive and are therefore included in the calculation of diluted earnings per share.
10. Dividends
No dividends have been proposed or paid in 2016 (2015: nil).
11. Dilapidations
Subsequent to year end the Group terminated its lease at 1 Knightsbridge, London, SW1X, 7LX and took up a lease a 77 Grosvenor Street, London, W1K 3JR. Consequently a leasehold improvements dilapidation charge relating to assets held at 1 Knightsbridge has been recognised for GBP725,000 at 31 December 2016.
12. Intangible fixed assets
COMPANY Domain
name Total
GBP'000 GBP'000
Cost
At 1 January 2015 - -
Additions 286 286
At 1 January 2016 286 286
Additions 4 4
At 31 December 2016 290 290
======== ========
Amortisation
At 1 January 2015 - -
Charge for the year 13 13
At 1 January 2016 13 13
Charge for the year 28 28
At 31 December 2016 41 41
======== ========
Net book value
At 31 December 2015 273 273
-------- --------
At 31 December 2016 249 249
======== ========
GROUP Domain
Trademarks Software name Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2015 - 2,558 - 9,698 12,256
Additions 116 2,074 286 - 2,476
At 1 January 2016 116 4,632 286 9,698 14,732
Additions - 2,207 4 - 2,211
At 31 December
2016 116 6,839 290 9,698 16,943
============= =========== ======== =========== ========
Amortisation
At 1 January 2015 - 1,413 - 9,698 11,111
Charge for the
year 7 698 13 - 718
At 1 January 2016 7 2,111 13 9,698 11,829
Charge for the
year 23 1,295 28 - 1,346
At 31 December
2016 30 3,406 41 9,698 13,175
============= =========== ======== =========== ========
Net book value
At 31 December
2015 109 2,521 273 - 2,903
------------- ----------- -------- ----------- --------
At 31 December
2016 86 3,433 249 - 3,768
============= =========== ======== =========== ========
Domain name relates to the cost of acquiring www.lcg.com to support the Group brand, LCG.
Trademarks relates to the cost of acquiring various global trademarks in respect of the 'LCG' brand that was launched during the year ended 31 December 2015.
13. Property, plant and equipment
GROUP Leasehold Motor Plant
property vehicles and Total
machinery
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2015 2,330 316 1,010 3,656
Additions 1,040 - 1,200 2,240
Disposals - (141) - (141)
---------- ---------- ----------- --------
At 1 January 2016 3,370 175 2,210 5,755
Additions 77 - 296 373
Disposals (2,330) (175) - (2,505)
---------- ---------- ----------- --------
At 31 December 2016 1,117 - 2,506 3,623
========== ========== =========== ========
Depreciation
At 1 January 2015 804 23 653 1,480
Charge for the year 223 41 320 584
Eliminated on disposal - (12) - (12)
Impairment losses for
the year 1,321 - - 1,321
---------- ---------- ----------- --------
At 1 January 2016 2,348 52 973 3,373
Charge for the year 113 30 436 579
Eliminated on disposal (2,330) (82) - (2,412)
Impairment losses for
the year 725 - - 725
At 31 December 2016 856 - 1,409 2,265
========== ========== =========== ========
Net book value
At 31 December 2015 1,022 123 1,237 2,382
---------- ---------- ----------- --------
At 31 December 2016 261 - 1,097 1,358
========== ========== =========== ========
The Group's obligations under finance leases (see note 18) are secured by the lessors' title to the leased assets, which have a carrying amount of GBPnil (2015 - GBP123,000).
14. Investments
COMPANY GBP'000
At 1 January 2015 21,833
Additions 22,002
Disposals -
--------
At 1 January 2016 43,835
Additions -
At 31 December 2016 43,835
========
Net book value
At 31 December 2015 43,835
At 31 December 2016 43,835
========
The investment additions during 2015 comprise the acquisition of (and subsequent capital contributions to Surecom Limited of GBP1,515,000, and an increased investment in Tradex Enterprises Limited of GBP20,487,000 in the year, being share capital in Tradex Enterprises Limited issued to the Company in exchange for the capitalisation of debt.
Details of investments in which the Company hold 100% of the nominal value of any class of share capital, included in the consolidated Group, are as follows:
Name of company Principal Registered office Country
activity of incorporation
Tradex Enterprises Holding 77 Grosvenor Street, UK
Limited Company Mayfair, London W1K
3JR
London Capital Financial 77 Grosvenor Street, UK
Group Limited Services Mayfair, London W1K
* 3JR
London Capital Service 205 Arch Makarious III Cyprus
Group (Cyprus) Company Avenue, Victory House,
Limited 5(th) Floor, Block A,
3030 Limassol, Cyprus
Elan Capital Partners Service Suite 3, 2(nd) Floor, Gibraltar
Limited * Company Icom House, 1/5 Irish
Town, PO Box 883, Gibralter
Surecom Limited Service Koronis, 19 3081, Limassol, Cyprus
* Company Cyprus
LCG Digital Limited Dormant 43/3 Habanaim, Herzliya, Israel
* Israel
Capital Spreads Dormant 77 Grosvenor Street, UK
Limited * Mayfair, London W1K
3JR
Capital Forex Dormant 77 Grosvenor Street, UK
Limited * Mayfair, London W1K
3JR
* These companies are owned indirectly via a subsidiary undertaking.
The issued share capital of all subsidiary undertakings is 100% owned, which also represents the proportion of the voting rights in the subsidiary undertakings.
15. Impairment of goodwill
Goodwill
GBP'000
Cost
At 1 January 2016 9,698
--------
At 31 December 2016 9,698
========
Accumulated impairment losses
At 1 January 2015 9,698
Impairment losses for the year -
--------
At 1 January 2016 9,698
Impairment losses for the year -
--------
At 31 December 2016 9,698
========
Carrying amount
At 1 January 2016 -
At 31 December 2016 -
========
16. Trade and other receivables
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Trade receivables 760 1,052 - -
Allowance for impairment (758) (939) - -
-------- -------- -------- --------
2 113 - -
-------- -------- -------- --------
Amounts due from brokers 5,393 3,657 - -
Amounts owed by Group - - 853 -
undertakings
Other receivables 654 297 - -
Prepayments 2,307 2,389 - -
-------- -------- -------- --------
8,356 6,456 853 -
======== ======== ======== ========
The Directors consider that the carrying amount of trade receivables, amounts due from brokers, amounts owed to Group undertakings and other receivables approximates to their fair value due to their short term maturity.
Trade receivables due from brokers includes amounts due from brokers and cash held with brokers.
17. Cash and cash equivalents
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Gross cash and cash
equivalents 20,275 36,262 - -
Less: Segregated client
funds (15,915) (23,803) - -
--------- --------- -------- --------
Own cash and title transfer
funds 4,360 12,459 - -
========= ========= ======== ========
Analysed as:
Cash at bank and in
hand 4,360 12,459 - -
4,360 12,459 - -
========= ========= ======== ========
Gross cash and cash equivalents include Group cash and all client funds (segregated funds and funds under title transfer).
The Group holds money on behalf of clients in line with the requirements of the Financial Conduct Authority (FCA) and other regulatory bodies. This money is held as 'cash and cash equivalents' unless the client is a retail client in which case the funds are held in 'segregated client funds accounts'. Segregated client money accounts hold statutory trust status restricting the Group's ability to control the funds and accordingly the amounts are not held on the Group's balance sheet. The Group's own funds exclude client segregated funds.
Title transfer funds are held by the Group's subsidiary 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.
18. Obligations under finance leases
Minimum lease
payments
2016 2015
GBP'000 GBP'000
Amounts payable under finance leases
Within one year 68 104
In the second to fifth years inclusive - 156
68 260
Less: future finance charges (2) (18)
-------- --------
Present value of lease obligations 66 242
======== ========
Present value
of minimum
lease payments
2016 2015
GBP'000 GBP'000
Amounts payable under finance leases
Within one year 66 93
In the second to fifth years inclusive - 149
After five years - -
-------- --------
Present value of lease obligations 66 242
-------- --------
Analysed as:
Amounts due for settlement within
12 months (disclosed under current
liabilities) 66 93
Amounts due for settlement after
12 months - 149
-------- --------
Present value of lease obligations 66 242
======== ========
It is the policy of the Group to lease certain of its fixed assets under finance leases. The average lease term is 2.5 years (2015: 2.5 years). For the year ended 31 December 2016, the average effective borrowing rate was 4.7% (2015: 4.7%). Interest rates are fixed at the date of signing of the contract. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental repayments.
All finance lease obligations are denominated in sterling.
The fair value of the Group's lease obligations is approximately equal to their carrying amount.
The Group's obligations under finance leases are secured by the lessors' right over the leased assets disclosed in note 18.
19. Trade payables
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 1,041 1,323 - -
Amounts due to clients:
Institutional FX clients 3,247 - - -
under TTCA
-------- -------- -------- --------
4,288 1,323 - -
======== ======== ======== ========
20. Other payables
Group Company
2016 2015 2016 2015
Restated Restated
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed to Group
undertakings - - 3,725 2,114
Other taxes and social
security 334 233 - -
Accruals 3,164 2,124 108 90
Other payables 7 - - -
-------- ---------- -------- ----------
3,505 2,357 3,833 2,204
======== ========== ======== ==========
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. For most suppliers no interest is charged on the trade payables for the first 30-60 days from the date of the invoice.
The Directors consider that the carrying amount of trade payables, amounts due to clients, commission payments due, amounts owed to Group undertakings and other taxes and social security approximate to their fair values due to their short term maturity.
21. Provisions and contingent liabilities
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Provision against FOS
claims 486 486 - -
Market data provision - 403 - -
Dilapidation provision 101 101 - -
587 990 - -
======== ======== ======== ========
Movements for the year:
GROUP Provision Marketing Dilapidation
against data provision Total
FOS provision
claims
GBP'000 GBP'000 GBP'000 GBP'000
At 31 December 2015 486 403 101 990
Release - (403) - (403)
At 31 December 2016 486 - 101 587
========== =========== ============= ========
Provision and contingent liability against FOS claims
Provision Contingency
against against
FOS FOS claims
claims
GBP'000 GBP'000
At 1 January 2015 505 1,142
Utilisation (56) -
Release (490) (1,142)
Recognised during the year 527 -
---------- ------------
At 31 December 2015 486 -
Utilisation - -
Release - -
---------- ------------
At 31 December 2016 486 -
========== ============
During the year ended 31 December 2014, the Group recognised a provision in respect of amounts due to eligible claimants concerning of a number of commission rebate errors that occurred during the first half of 2009. The provision had been recognised based on a number of complaints from clients that were considered by the Financial Ombudsman Service ("FOS").
During the year ended 31 December 2015, a number of eligible claimants had been repaid, resulting in an utilisation of the provision in the period of GBP56,000. The provision of GBP490,000 and contingent liability of GBP1,142,000 release is due to claims not being made within the time limit prescribed by United Kingdom legislation.
During 2015, the Group received a complaint from a client seeking to recover losses that arose in 2013 from an agreement that they entered into with an individual who turned out to be a convicted fraudster. This individual manged a number of clients under a Power of Attorney.
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 the claims totals GBP527,000 and the original complaint totalling GBP56,000 was settled prior to 31 December 2015. There were no further settlements during 2016 and the provision at 31 December 2016 is GBP486,000.
Market data provision
Throughout 2014 and 2015, a number of exchanges used by the Group have been conducting audits in relation to data usage and redistribution. The provision of GBP403,000 is the Group's best estimate of the liability in relation to these open audits from the relevant exchanges.
During 2015, a small settlement of GBP2,000 took place and a further GBP26,000 was recognised following agreement of the final liability with one of the exchanges (this balance was settled in 2016). At 31 December 2016, no further claims were outstanding and the previous provision of GBP403,000 was released.
Dilapidation provision
Following the office move to 1 Knightsbridge, the Company is required to recognise the future cost of returning the premises to its original state on the eventual conclusion of the lease.
This provision has been recognised within the additions to leasehold property in note 11 and will be released over the life of the lease.
22. Convertible loan notes
As at 31 December 2015, the Group had GBP13,332,000 of convertible loan notes outstanding. These notes would convert into 53,285,372 ordinary shares based on a conversion price of 25.02p , the liability component of these convertible loan notes at 31 December 2015 amounted to GBP8,265,000. Any notes that have not been converted will be redeemed at par on 16 October 2021. Interest of 5 per cent will be paid in the form of shares where the notes are converted up until that settlement date. The interest component to be settled in shares will be based on the amount of interest that would accrue up to maturity of the CLNs, regardless of when the CLNs are converted or repaid at maturity.
On July 2016, the Group decided to redeem the outstanding convertible loan notes as part of a capital reorganisation exercise to improve the Group's Tier 1 capital position. This redemption was funded through the issue of new ordinary shares (see note 33).
GBP'000
Liability component at 1 January 2015 9,705
Conversions during the year (2,110)
Interest charged (at effective interest
rate) 670
---------
Liability component at 31 December 2015 8,265
Adjustment to prior year (170)
---------
Revised Liability component at 1 January
2016 8,095
Interest charged (at effective interest
rate) 353
Accelerated interest charged on conversion 4,884
Conversions during the year (13,332)
Liability component at 31 December 2016 -
=========
The interest charged is calculated by applying an effective interest rate of 8 per cent to the liability component of the notes from date of issue on 16 October 2014 to year end. The liability component is measured at amortised cost.
GBP4,884,000 of accelerated interest, which included an amount of GBP170,000 relating to the prior year, being the remaining discount unwind on the liability component, was recognised directly in equity in the profit and loss reserve. A corresponding amount of GBP2,583,000 has been transferred between the profit and loss and equity reserves to reflect the equity component of the principal redemption.
In addition, a further 26,141,509 shares with a nominal value of 5.00p were issued in consideration of commission paid to the holder of the CLN and the Group's majority shareholder, GLIO as part of the redemption of the CLN. This transaction with the shareholder resulted in an amount of GBP1,307,000 being reflected in the profit & loss reserve.
Despite the redemption of the CLNs liability component, the obligation to issue the shares for the interest element of the CLN is still outstanding and these shares will be issued at a later date at GLIO's demand. The residual amount in the equity reserve relates to these shares. (see note 32).
23. Equity settled share-based payment
The Group has a share-based payment scheme for all employees (including Directors). Options are exercisable at a price equal to the average market price of the Company's shares on the date of grant. The vesting period for all options is three years. The options are settled in equity once exercised.
If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if the employee leaves the Company before the options vest. The weighted average exercise price (WAEP) of the share options outstanding at the year-end was 29.64 pence (2015: 51.1 pence).
Additional equity settled share based payments were issued in relation to payment obligations. 7,903,120 new ordinary shares were issued in November 2016 to settle the payment obligations with no net cash inflow. The cost of GBP395,000 is recognised in the income statement.
Joint Share Ownership Plan ("JSOP")
The Remuneration Committee approves share awards under the JSOP. Certain Executive Directors and employees received JSOP awards on 21 November 2016. Shares awarded under the JSOP confer a beneficial interest in shares that are legally held by the employee benefit trust ("EBT"). The participant's beneficial interest consists of a small proportion of each JSOP share at the outset but an interest in almost all of the growth in the value of the shares above a specific equity hurdle. The remaining beneficial interest in the shares is held by the EBT. The participants' economic interest in the shares therefore broadly only reflects the extent to which the company's share price exceeds a determined equity hurdle. The JSOP awards vest three years from the date of grant. [Once vested, the participant shall sell their interest in the JSOP shares to the EBT, if required to do so by the EBT]. In return for selling their interest to the EBT, the participant shall receive a whole number of shares equal to the market value of the interest previously held. [No performance conditions apply.]
The maximum number of shares that vest based on the awards made are as follows:
Award date Exercise At the Awarded Exercised Lapsed At the
price beginning during during during end
(pence) of the the the the of
year year year year the
year
13 March 2006 82 25,847 - - - 25,847
08 November
2007 390 130,000 - - - 130,000
26 May 2010 126 135,000 - - (25,000) 110,000
23 January 2015 46 8,725,000 - - (3,690,000) 5,035,000
30 June 2015 46 2,020,000 - - (1,520,000) 500,000
21 November
2016 7 - 6,595,000 - - 6,595,000
----------- ----------- ---------- ------------ -----------
Year ended 31 December
2016 11,035,847 6,595,000 - (5,235,000) 12,395,847
=========== =========== ========== ============ ===========
Year ended 31 December
2015 801,424 12,455,000 - (2,220,577) 11,035,847
----------- ----------- ---------- ------------ -----------
The weighted average exercise price in relation to the above movements was as follows:
At the Awarded Exercised Lapsed At the
beginning during during during end
of the the the the of
year year year year the
(pence) (pence) (pence) (pence) year
(pence)
Year ended 31
December 2015 162.69 46.00 - 62.70 51.11
----------- --------- ---------- --------- ---------
Year ended 31
December 2016 51.11 7.40 - 46.38 29.64
=========== ========= ========== ========= =========
Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous year. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Each tranche of share options was valued separately using the actual exercise price. The Group recognised total charge of GBP175,000 (2015: GBP142,000) related to equity-settled share-based payment transactions during the year.
The inputs into the Black-Scholes model used to fair value the options are as follows:
2016 2015
Weighted average share price 0.16 0.46
Expected volatility 54.83% 48.71%
Expected life 3 Years 3 Years
Risk free rate 0.96% 0.92%
Expected dividends 0.00% 0.00%
24. Cash settled share-based payment
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Deferred consideration 250 230 250 230
250 230 250 230
======== ======== ======== ========
The cash settled share-based payment recognised by the Group relates to a contractual agreement for the Group to pay an equity-based payment to the provider of the Group's new dealing platform. This payment is scheduled to take place in 2017 and will be calculated with reference to the market capitalisation of the Group.
25. Financial instruments
Accounting classifications and fair values
The table below sets out the classification of each class of financial assets and liabilities and their fair values valued using direct market quotes where applicable (excluding accrued interest). The Group considers the carrying value of all financial assets and liabilities to be a reasonable approximation of their fair value.
'Investments' held in the Company are shares in Group undertakings which are held at cost.
'Cash and cash equivalents' is cash held on demand or on deposit with financial institutions (note 20).
'Positions held at brokers at fair value through the profit and loss' represent shares which are held by the Company to hedge client market exposures.
'Trade receivables - due from brokers' represent balances with brokers where the combination of cash held on account (disclosed as loans and receivables) and the valuation of long financial derivative open positions (disclosed as held for trading) results in an amount due to the Group. These positions are reported net in the Group Balance Sheet within 'Trade payables - due to brokers' as the Group has the legal right and the intention to settle on a net basis. These positions are held to hedge client market exposures and held for trading hence are accounted for at fair value through profit and loss (FVTPL). The net balance of 'trade receivables - due from brokers' and 'trade payables - due to brokers' results in a balance of GBP5,393,000 representing the 'amounts due from brokers' has been classified as loans and receivables in the following table (see note 19).
'Trade receivables - other' represent outstanding commission income from the Group's institutional foreign exchange and broking divisions together with amounts due from clients which arise when a client's total funds deposited with the Group are insufficient to cover any trading losses incurred and are stated net of an allowance for impairment.
'Trade payables - due to brokers' represent balances with brokers where the combination of cash held on account and the valuation of short financial derivative open positions (disclosed as held for trading) results in an amount due to the Broker. These positions are reported net in the Group Balance Sheet with 'Trade receivables - due from brokers' as the Group has the legal right and the intention to settle on a net basis. These positions are held to hedge client market exposures and held for trading hence are accounted for at fair value through profit and loss (FVTPL). The net balance of 'trade receivables - due from brokers' and 'trade payables - due to brokers' results in a balance of GBP5,393,000 representing the 'amounts due from brokers' (see note 19).
'Other receivables' includes significant balances in relation to merchant services deposits.
'Amounts due to clients' represent amounts due to institutional foreign exchange clients with funds under Title Transfer Collateral Arrangement (TTCA) (note 22). These balances are calculated as a combination of the client cash on account and the valuation of their derivative open positions.
The nature of 'Obligations under finance leases' is disclosed in note 21.
'Trade and other payables' include accruals balances and trade payables that have arisen in the normal course of business (notes 22 & 23).
The nature of 'Provisions' is disclosed in note 25.
The nature of 'Convertible Loan Notes' is disclosed in note 26.
Group Fair value Loans and Available- Other financial Total Fair
through receivables for-sale liabilities carrying value
profit or amount
loss
As at 31 December 2016 GBP'000 GBP'000 GBP'000 GBP000 GBP'000 GBP'000
Financial assets
Investments - - 150 - 150 150
Financial investments -
held for trading 3,550 - - - 3,550 3,550
Trade receivables - due
from brokers - 5,393 - - 5,393 5,393
Trade receivables - other - 2 - - 2 2
Other receivables - 654 - - 654 654
Cash and cash equivalents - 4,360 - - 4,360 4,360
3,550 10,409 150 - 14,109 14,109
=========== ============= =========== ========================== ========== ========
Financial liabilities
Trade and other payables - - - 7,793 7,793 7,793
Trade payables - due to - - - - - -
brokers
Amounts due to clients - - - - - -
Obligations under finance
leases - - - 66 66 66
Derivative financial - - - - - -
instruments
- - - 7,859 7,859 7,859
=========== ============= =========== ========================== ========== ========
At 31 December 2015
Financial assets
Financial investments -
held for trading 670 - - - 670 670
Trade receivables - due
from brokers - 3,657 - - 3,657 3,657
Trade receivables - other - 113 - - 113 113
Other receivables - 297 - - 297 297
Cash and cash equivalents - 12,459 - - 12,459 12,459
----------- ------------- ----------- -------------------------- ---------- --------
670 16,526 - - 17,196 17,196
=========== ============= =========== ========================== ========== ========
Financial Liabilities - - - - - -
Trade payables - due to
brokers
Amounts due to clients - - - - - -
Obligations under finance
leases - - - 242 242 242
Trade and other payables - - - 3,680 3,680 3,680
Derivative financial
instruments - - - 135 135 135
Convertible loan notes - - - 8,265 8,265 8,265
- - - 12,322 12,322 12,322
=========== ============= =========== ========================== ========== ========
Company Fair value Other financial
through liabilities Total
profit or Loans and Available- carrying Fair
loss receivables for-sale amount value
As at 31 December 2016 GBP'000 GBP'000 GBP'000 GBP000 GBP'000 GBP'000
Financial assets
Investments - 43,835 - - 43,835 43,835
Intercompany receivables - 853 - - 853 853
Other receivables - - - - - -
- 44,688 - - 44,688 44,688
=========== ============== ============= ======================== =========== ========
Financial liabilities
Intercompany liabilities - - - 3,725 3,725 3,725
Trade and other payables - - - 108 108 108
Derivative financial - - - - - -
instrument
- - - 3,833 3,833 3,833
=========== ============== ============= ======================== =========== ========
Company Fair value Other financial
through liabilities Total
profit or Loans and Available- carrying Fair
loss receivables for-sale amount value
As at 31 December 2015 GBP'000 GBP'000 GBP'000 GBP000 GBP'000 GBP'000
Financial assets
Investments - 43,835 - - 43,835 43,835
Intercompany receivables - - - - - -
Other receivables - - - - - -
- 43,835 - - 43,835 43,835
=========== ============== ============= ======================== =========== ========
Financial liabilities
Intercompany liabilities - - - 2,114 2,114 2,114
Trade and other payables - - - 90 90 90
Derivative financial
instrument 135 - - 135 135
Convertible loan notes - - - 8,265 8,265 8,265
135 - - 10,469 10,604 10,604
=========== ============== ============= ======================== =========== ========
Fair value measurements recognised in the balance sheet.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into level 1 to 3 based on the degree to which the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities;
-- Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability. For example, where an active market does not exist for an identical financial instrument to the product offered by the Group to its clients or used by the Group to hedge its market risk; and
-- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or the liability that are not based on observable market data.
Group Level Level Level Total
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December
2016
Financial assets
at FVTPL
Financial investments
- held for trading 3,550 - - 3,550
3,550 - - 3,550
======== ======== ======== ========
Financial liabilities
at FVTPL
Put option over - - - -
own shares
- - - -
======== ======== ======== ========
As at 31 December
2015
Financial assets
at FVTPL
Financial investments
- held for trading 3,657 - - 3,657
3,657 - - 3,657
======== ======== ======== ========
Financial liabilities
at FVTPL
Put option over - - - -
own shares
- - - -
======== ======== ======== ========
There have been no changes in the valuation techniques for any of the Group's financial instruments held at fair value in the period. During the year ended 31 December 2016, there were no transfers (2015: nil) between level 1 and level 2 fair value measurements, and no transfers into or out of Level 3 fair value measurements.
Market risk
Market risk is the risk that changes in market prices will affect the Group's income or the value of financial instruments held. The Group does not directly enter into speculative proprietary positions however the effect of client trades does result in the Group retaining a net market risk. The Group has a formal risk policy and a methodology for setting limits for every financial market in which it trades. These limits determine the net exposure arising from client activity and hedging which the Group is prepared to carry. If the Group's exposure exceeds these limits, the policy requires that sufficient hedging is carried out to bring the exposure back within defined limits. The Group therefore has exposure to market risk to the extent that it has a residual un-hedged position.
Sensitivity analysis
The following sensitivity analysis shows the potential impact of large moves in index markets on revenue. The percentage applied is based on the Group's assessment of movements in index markets and is considered to represent a single day market fall that is reasonably possible.
Equity Market Potential
exposures movement revenue
applied impact
GBP'000 % GBP'000
As at 31 December
2016
Australian equities 36 5% 2
Asian equities 130 5% 7
US equities 3,384 5% 169
As at 31 December
2015
US equities 670 5% 34
----------- ---------- ----------
Foreign currency risk
Foreign currency exposures arise from offering markets and trading in a number of different currencies in the normal course of business. Management of this risk forms part of the Group's overall risk policy. Limits on the exposures which the Group will accept in each currency are set by the Risk Committee and the Group hedges its exposures as necessary. Foreign currency risk is managed on a Group-wide basis.
The Group's risk monitor measures foreign currency risks including bets and trades in foreign currencies and net balance sheet exposures arising from cash balances held in foreign currencies and amounts due to clients in foreign currencies. No sensitivity analysis has been presented for foreign exchange risk as the impact of reasonably possible market movements on the Group's revenue and equity are not significant due to the hedging and risk limits in place.
Interest rate risk
The Group has a small amount of interest rate risk arising from its trading activities but has a larger exposure relating to its cash deposits. Interest is not paid on client deposits.
The interest rate risk profile of the Group's financial assets and liabilities as at the balance sheet date is shown in the table below.
Group Within one More than Total
year five years
2016 2015 2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Floating rate
Gross cash
and cash equivalents
and amounts
due from brokers 29,218 39,919 - - 29,218 39,919
-------- -------- -------- -------- -------- --------
In addition to the interest rate exposure relating to cash deposits, the Group charges clients overnight financing charges for Rolling Daily contracts that are held overnight. This financing charge is based on the relevant base rate of the market. The effect of a change in interest rates on this income has not been included in the sensitivity analysis.
Sensitivity analysis
A non-trade interest rate risk sensitivity analysis has been performed on cash and cash equivalents, amounts due from brokers and client funds to ascertain the potential impact of reasonable possible moves in interest rates on revenue. A 1% increase and 1% fall has been modelled and is considered by management as a reasonable move in interest rates. A 1% fall in interest rates would have resulted in no interest being earned for the year:
Interest Market Potential
rate movement revenue
exposure applied impact
GBP'000 % GBP'000
As at 31 December
2016
Interest rate fall 29,218 - 1% (292)
Interest rate increase 29,218 + 1% 292
---------- ---------- ----------
As at 31 December
2015
Interest rate fall 39,919 -1% (399)
Interest rate increase 39,919 +1% 399
---------- ---------- ----------
Credit risk
Credit risk is the risk that a party to a financial instrument will cause financial loss to the other party by failing to discharge its obligation. The Group does not ordinarily offer credit to its clients. However, the Group is exposed to credit risk through its cash deposits and receivables with financial institutions and outstanding brokerage fees from its institutional derivatives business.
Credit risk is managed on a Group-wide basis. The Group's principal credit risk exposure arises through its cash deposits with financial institutions. The Group has set policies on minimum credit ratings of institutions that hold funds, and limits its exposure to each institution.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. At the reporting date the maximum credit risk was:
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash equivalents 4,360 12,459 - -
Amount due from brokers 5,393 3,657 - -
Trade receivables 2 113 - -
Other receivables 2,961 2,686 - -
-------- --------
12,716 18,915 - -
-------- -------- -------- --------
Included in cash and cash equivalents, the Group's largest credit exposure to any bank was GBP3,634,598 or 89.7% of the exposure to all banks (2015: GBP4,760,773 or 38.2%).
The table below presents further detail on the Group's exposure to credit risk. External credit ratings (Standard & Poor's short-term ratings or equivalent) are available for exposures to brokers and banks, and these are shown over leaf. No external credit rating of clients is available and therefore the balances are unrated.
Amounts due from clients are considered past due from the date that positions are closed and are aged from that date. If debtors arise on open positions the amounts due from clients are considered neither past due nor impaired.
Group Trade receivables Trade receivables Cash and cash
- due from -amount due equivalents
clients from brokers
2016 2015 2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Individually
Impaired
Gross exposure 758 939 - - - -
Allowance
for impairment (758) (939) - - - -
Past due but
not impaired
Ageing profile:
0 - 3 months - 113 - - - -
Trade receivables Trade receivables Cash and cash
- due from -amount due equivalents
clients from brokers
2016 2015 2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Neither past
due or impaired
A-1 - - - - 1,761 9,612
A-2 - - - 3,657 1,566 2,687
A-3 - - - - - -
B - - - - - -
Unrated - 113 2 - 1,033 160
Total carrying
amount - 113 2 3,657 4,360 12,459
========= ========= ========= ========= ======== ========
No equivalent table is presented for the Company since all balances are nil.
The table showing the details of the movement in the Group's provision for impairment of trade receivables is shown below:
2016 2015
GBP'000 GBP'000
Opening provision 939 20
Net debt provided 424 2,144
Debt written off (605) (1,225)
-------- --------
Closing provision 758 939
======== ========
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations arising from its financial liabilities.
Liquidity risk is managed centrally for the Group by the Finance department. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its broker margin requirements and liabilities when due, under both normal and stressed conditions.
All the Group's non-derivative financial liabilities are due within 1 month.
Capital Management
The Group's objectives for managing capital are as follows:
-- to comply with the capital requirements set by the financial market regulators to which the Group is subject;
-- to ensure that all Group entities are able to operate as going concerns and satisfy any minimum externally imposed capital requirements; and
-- to ensure that the Group maintains a strong capital base to support the development of its business.
The capital resources of the Group consists of equity, being share capital and share premium, reduced by own shares held, equity, share option and other reserves and retained earnings, which at 31 December 2016 totalled GBP12,846,000 (31 December 2015: GBP11,328,000).
The Group is supervised on a consolidated basis by the FCA.
The Group's Internal Capital Adequacy Assessment Process (ICAAP), prepared under the requirements of the FCA and the Capital Requirements Directive, is an on-going assessment of the Group's risks and risk mitigation strategies, to ensure that adequate capital is maintained against risks that the Group wishes to take to achieve its business objectives.
The outcome of the ICAAP is presented as an Internal Capital Assessment document covering the Group. It is reviewed and approved by the Board.
26. Commitments under operating leases
At 31 December 2016, the Group had future minimal rentals payable under non-cancellable operating leases, which fall due as follows:
Land and buildings
2016 2015
GBP'000 GBP'000
Within one year 204 887
In the second to fifth years inclusive - 3,547
After five years - 3,916
---------- ---------
Total 204 8,350
========== =========
Operating lease payments represent rentals payable by the Group for its office properties at 1 Knightsbridge, London SW1X 7LX. The Company entered into a new lease on the 1st March 2017 for the provision of new office property at 77 Grosvenor Street, London W1K 3JR.
27. Capital commitments
There were no contractual commitments for future capital expenditure as at 31 December 2016 (31 December 2015: GBPnil).
28. Related party transactions
Balances between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Balances outstanding at the reporting date were as follows.
Balances at 31 December 2016 2015
GBP'000 GBP'000
Company balances with LCGH plc group
companies
London Capital Group (Cyprus) Limited 853 -
- Receivables
London Capital Group Limited - Payables (3,725) (2,113)
(2,872) (2,113)
======== ========
Transactions during the year 2016 2015
GBP'000 GBP'000
Transactions with LCGH plc group
companies
Loan to affiliate - London Capital 853 -
Group (Cyprus) Limited
Expenses paid by London Capital Group
Limited (1,612) (1,193)
(759) (1,193)
======== ========
Trading transactions
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
2016 2015
GBP'000 GBP'000
Alogoweb Trading Services FZE (formerly
Algoweb S.A.R.L) - purchase of licence 1,200 1,080
1,200 1,080
======== ========
Loans from related parties
2016 2015
GBP'000 GBP'000
GLIO Holdings Limited - convertible
loan note - 13,332
- 13,332
=============================================== ========
The following amounts were outstanding at the balance sheet date:
Due to related Due from related
parties parties
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Alogoweb Trading Services - 300 - -
FZE (formerly Algoweb
S.A.R.L) - purchase of
licence
GLIO Holdings Limited - 13,332 - -
- convertible loan note
TTCM Traders Trust Capital
Markets Limited 82 101 - -
--------
82 13,733 - -
======== ======== ========= ========
In 2014, a subsidiary Company entered into a licencing agreement with Algoweb S.A.R.L. ("Algoweb"). On 18 September 2015, this agreement was novated to Algoweb Trading Services FZE. The Licencing agreement will allow the Group to access Algoweb's retail distribution platforms and software, as well as connectivity to post trade services. Algoweb is a related party of the Group because Charles-Henri Sabet, Chief Executive Officer of London Capital Group Holdings plc and his wife, together own 50 per cent of the share capital in Algoweb.
GLIO Holdings Limited ("GLIO") is a related party of the Group because Charles-Henri Sabet, Chief Executive Officer of London Capital Group Holdings plc holds a 100% interest in ILOG Investments Limited, GLIO's largest shareholder. The balance represents both the liability and equity components of this transaction (see note 26).
During the year TTCM Traders Trust Capital Markets Limited ("TTCM") was a related party of the Group as Nicola Berardi, former Chief Financial Officer of London Capital Group Holdings plc, held a majority interest in the company. During the year, TTCM opened a trading account with LCG in accordance with LCG's standard terms and conditions.
29. Share capital
Allotted, called up and fully paid:
2016 2015
Number GBP'000 Number GBP'000
Equity shares
Ordinary shares of GBP0.05
each (2015: GBP0.10
each) 380,531,519 19,026 79,846,889 7,985
Deferred shares of GBP0.05
each 79,846,890 3,993 - -
460,378,409 23,019 79,846,889 7,985
============ ======== =========== ========
Reconciliation of the movement in the number of shares 2016:
At 1 January Shares At 31 December
2016 issued 2016
in the
year
Ordinary shares 79,846,889 300,684,629 380,531,519
Deferred shares - 79,846,890 79,846,890
79,846,889 380,531,519 460,378,890
============= ============ ===============
Reconciliation of the movement in the number of shares 2015:
At 1 January Shares At 31 December
2015 issued 2015
in the
year
Ordinary shares 55,800,908 24,045,981 79,846,889
Deferred shares - - -
55,800,908 24,045,981 79,846,889
============= =========== ===============
The Company has one class of ordinary shares and each share carries the right to one vote at general meetings of the Company. The ordinary shares are listed on AIM of the London Stock Exchange. The Group issues shares from time to time in respect of long term incentive schemes. Details of shares held in trust are set out in note 35 of the financial statements. The ordinary shares carry no right to fixed income. The shares carry dividend rights, voting rights and rights to distribution of capital on a winding up.
The deferred shares do not carry voting rights or hold any dividend rights and only in extreme circumstances are the holders of deferred shares entitled to a return of payment on return of capital or on a winding up of the company. The deferred shares are not quoted on the AIM market or any other stock market and are not transferable without the written consent of the company.
In July 2016, the Company decided to redeem the convertible loan notes that it had outstanding. In order to fund this redemption, the Group issued 292,781,509 of new ordinary shares. To enable this issue to take place, the Group implemented a capital reorganisation to reduce the nominal value of the Company's ordinary shares from 10p to 5p. Following the conversion, a total of 372,628,399 ordinary shares at 5.00p and 79,846,890 deferred shares at 5.00p were in existence. In addition to the capital reorganisation, a further 7,903,120 new ordinary shares were issued to settle outstanding payment obligations.
30. Share premium
2016 2015
GBP'000 GBP'000
Balance at the beginning of the year 23,819 20,592
Premium arising on issue of equity
shares (75) 3,227
Balance at the end of the year 23,744 23,819
======== ========
31. Own shares
2016 2015
GBP'000 GBP'000
Balance at the beginning of the year 6,065 6,065
Acquired in the period - transferred - -
to JSOP
Acquired in the period - transferred - -
to Treasury
Balance at the end of the year 6,065 6,065
======== ========
The Group has a Joint Share Ownership Plan ("JSOP") to provide incentives to Directors and employees. At 31 December 2016, 12,130,000 ordinary shares of GBP0.05 each were held in the JSOP, 5,535,000 with an initial participation price of GBP0.045, 6,595,000 with an initial participation price of GBP0.074.
In 2014, the Company purchased 1,000,000 ordinary shares of GBP0.10 each at a price of GBP0.33 per share. These shares were held in Treasury at year end.
32. Equity reserve
2016 2015
GBP'000 GBP'000
Balance at the beginning of the year 3,967 6,809
Equity component of convertible loan
notes converted to share capital
(see note 26) (2,583) (2,842)
Balance at the end of the year 1,384 3,967
======== ========
33. Other reserves
Merger reserve
The other reserves arose as a result of the business combination concerning the acquisition of Tradex Enterprises using the merger method. As noted in the accounting policies, the Group has taken advantage of the exemption permitted by IFRS 1 not to restate this business combination.
Share option reserve
Includes a credit for the excess of the tax deduction for the equity-settled share-based payments, the net adjustment for those options forfeited in the period and the charge for the estimated cost of equity-settled share options based on a straight-line basis over the vesting period.
34. Post balance sheet events
On 1st March 2017 the Group entered into an agreement for the occupation of new premises at 77 Grosvenor Street, W1K 3JR. The Group entered into a 5 year lease and surrendered the lease on 1 Knightsbridge to a 3rd party at nil cost to the Group.
As part of the office move the Group provided GBP725,000 as an impairment to reflect the true economic recoverability of the fixed assets on the balance sheet.
35. Ultimate controlling party
The Group's ultimate controlling party is GLIO Holdings Limited ("GLIO") by virtue of their majority shareholding in London Capital Group Holdings plc. Charles-Henri Sabet, Chief Executive Officer of London Capital Group Holdings plc holds a 100% interest in ILOG Investments Limited, GLIO's largest shareholder.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEMFUAFWSELM
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June 29, 2017 02:00 ET (06:00 GMT)
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