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Annual Report 2010 Annual Report 2010 London Capital Group Holdings plc
Annual Report 2010
Annual Report 2010London Capital Group Holdings plc
Highlights
Financial• Totalrevenueincreased25%to£34.5m(2009:£27.6m)• Adjustedprofitbeforetax*up8%to£6.5m(2009:£6.0m)• Adjusted profit before tax* is stated after CFD start up costs of £0.8m; closure costs of our proprietary trading
platformof£0.7mandtherecentFSCSlevyof£0.3m.Excludingtheseitemsadjustedprofitbeforetaxwouldhavebeen£8.3m
• H2profitsimpactedbythereturnofrangeboundmarketswhichresultedinafallinaveragerevenueperuser• Lossbeforetaxof£56k(2009:profitof£5.8m)asaresultof£3.2msoftwareimpairmentandaprovisionof£3.2m
fortheFinancialOmbudsmanService(“FOS”)revisedassessmentbothpreviouslyannounced• The Board proposes to raise approximately £8.0m before expenses, through the issue by way of a placing of
13,333,333newordinarysharesat60pencepershare• Debtfreeandstrongcashpositionof£13.9matyearend(2009:£10.0m)• Nofinaldividendproposed(2009:£nil)
Operational• Tradingrevenue**increased25%to£34.4m(2009:£27.5m)• SteadyUKspreadbettingperformance
-NetrevenueperactiveUKFinancialSpreadbetting(FSB)clientincreased38%to£1,279(2009:£929)fortheyear-FSBaveragetradesperdayincreased22%to29,256(2009:23,975)-Newclientacquisitiondown34%to12,036(2009:18,235)-RetailFSBclientfundsup16%to£24.9m(2009:£21.4m)
• RobustForexperformance-Tradevolumesincreasedto$429bn(2009:$427bn)-7%increaseinrevenueto£6.0million(2009:£5.6million)-Foreignexchangeclientfundsdown14%to£16.5m(2009:£19.1m)
• SuccessfullaunchoftwonewCFDplatforms;CapitalCFD’sandLCGMetatrader• ActivelyparticipatinginanumberofnewWhiteLabelopportunities
Year ended 31 December 2010
£000
Year ended 31 December 2009
£000
Change%
Revenue 34,491 27,645 25%
AdjustedEBITDA*** 8,406 8,107 4%
(Loss)/profitbeforetax (56) 5,848 (101%)
Adjustedprofitbeforetax* 6,506 6,005 8%
Basic(loss)/earningspershare (0.09)p 9.95p (101%)
Diluted(loss)/earningspershare (0.09)p 9.53p (101%)
Dividendpershare 1p 2.5p (60%)
*Adjustedprofitbeforetaxrepresentsprofitbeforetaxexcludingsharebasedpaymentexpense,exceptionalsoftwareimpairmentchargeandprovisionforFOSclaims.Appliedconsistentlyhereafter.**Tradingrevenuerepresentstotalrevenueexcludinginterestincomeonclientfunds.Appliedconsistentlyhereafter.***AdjustedEBITDArepresentsprofitbeforeinterest,tax,depreciation,amortisationandsharebasedpaymentexpenseandexcludestheexceptionalsoftwareimpairmentchargeandprovisionforFOSclaims.Appliedconsistentlyhereafter.
Annual Report 2010
Contents
Who We Are 5
Chairman’s Statement 6
Chief Executive’s Statement 8
Group Financial Review 12
Executive Directors 14
Non-Executive Directors 15
Directors’ Report 16
Corporate Governance Report 26
Directors’ Responsibilities 29
Independent Auditor’s Report 30
Financial Statements 33
Notes to the Financial Statements 38
Notice of Annual General Meeting 72
Proxy Form 75
Officers and Advisors 77
6
Our HistoryFounded in London in 1996 as a proprietary tradingbusiness,LCGbecameafinancialspreadbettingproviderwith the launch of CapitalSpreads in 2003. In2005welaunchedourinstitutionalForexoperation,LCGFX(CapitalForex)andtheproprietarytradingbusinesswashivedoff.
Followingamanagementbuyoutin2005,LondonCapitalGroup Holdings floated on AIM. We launched our firstfinancialspreadbetting(FSB)whitelabelinthesameyearandnowsupportFSBandCFDsolutionsforawidevarietyofbrands. LCGstillprovidetheonlyfullycomprehensivefront to back end white label service in the FSB/CFDmarketplace.
In 2008, LCG expanded its professional investorcustomer base with the acquisition of FuturesBetting.com, which was rebranded as ProSpreads in June 2009.In 2010, we launched our CFD offerings via our ownbrand Capital CFDs in the UK and Australia and via theMetaTrader4platform.
Our Products & Services
Financial Spread Betting & CFDsLCG provide low margin requirements and consistentlytight spreads via our spread betting and CFD service toawiderangeofretailcustomersthroughourownbrandsCapital Spreads and Capital CFDs. We also use ourexpertiseandexperiencetoprovideaseamlesscustomerexperiencetoanumberofinternationalbrands,includingTD Waterhouse, bwin.party, Saxo Bank, and Tradefair,undertheirownbrands.
Ourfinancialspreadbettingservicehasbeenindependentlyrecognised as a market leader by the 2010 InvestmentTrends UK Financial Spread Betting and CFD report* forbothourownbrandandourwhitelabelofferings.WehaverecentlyachievedregulatorystatusinAustraliaandofferaretailCFDserviceunderthebrandnameCapitalCFDs.
ProSpreadsisourown-brandDirectMarketAccess(DMA)spreadbettingbusinesswhichoperatesfromGibraltarandis regulated by the Financial Services Commission (FSC).In2010,ProSpreadslauncheditsfirstwhitelabelofferingtothirdparties.
LCG Metatrader launched in June 2010 to provide CFDtrading on Currencies, Commodities and Indices via thisincreasinglypopularplatform. Wearealsoable toofferwhitelabelsolutionsviathisservice.
Institutional ForexOur Institutional Forex division, LCG FX (also known asCapital Forex) is an established and respected secondtierprimebrokerofferingfullaccesstoall theECNmultibank platforms including Currenex. Our fully integratedprimebrokerageserviceisabletomeetawidenumberofinstitutionaldealingrequirements.
Institutional BrokingOur Institutional Broking division has been operatingsince 2002 and provides execution services on index,fixedincomeandsingleequityproducts.
WhoWeAre
London Capital Group Holdings plc is the parent company of London Capital Group Ltd (LCG), which is authorised and regulated in the UK by the Financial Services Authority (FSA). We are one of the UK’s leading financial services companies specialising in online trading services for retail and professional customers.
Who are we?
*InvestmentTrendsUKFSB/CFDReport2010
Annual Report 2010
Chairman’sStatementFor the year ended 31 December 2010
8
The results for 2010 that we have now produced show some healthy signs.
TheGrouphasbeeninvestingsubstantiallyforthefuture,bothinproductandgeographicalexpansion.Inaddition,wehaveaddedsignificantresourcestoensurethehigheststandardsofcustomerservice,complianceandregulatorysatisfaction.TheGroup’s revenuehas increasedby25%,butoperatingprofitshavebeenheldbackbythisnecessaryinvestment.However,theresultsareovershadowedbytwoprincipal events; first, the Financial Ombudsman Service(“FOS”)issuedarevisedassessmentinrelationtocustomercomplaintsoriginatingfromtransactionsfirst initiated in2009.Asexplainedinourdetailedstatements,LCGintendstochallengerobustlytheFOSassessment.
Additionally, we experienced a default by a professionalclient who has so far failed to pay a loss deriving fromaclosedposition.
The former event has necessitated the making of anextraordinary provision of £3.2 million, which in turnhas made it inappropriate to pay a final dividend. Inconsequence your Board has made arrangements toraise approximately £8m before expenses to strengthenthe Group’s financial position and regulatory capitaladequacyandtoprovideadditionalresourcestosupportthe Group’s growth through additional White Labelpartnershipsandinternationalexpansion.Wearegratefulfor the support shown by our investors through theirparticipationintheplacing.
Theseeventsmarredwhatwouldotherwisehavebeenasatisfactoryyear,givenmarketswhichwerenotparticularlysuited to our business model. Your Board regrets theseblemishes and is doubly determined to ensure thatrecurrencesareavoided.
During the year there have been substantial changesto the composition of the Board. I welcome MalcolmMcCaig as a new independent Non Executive Director.Thanks should also be extended to Frank Chapmanwho retired from the position of CEO, a position he hadheld fromthe timeof the Group’sflotation in2005.WearepleasedthatFrankhasagreedtoremainontheBoardas a Non Executive, given his profound understandingoftheGroup.
I also welcome Siobhan Moynihan as our new GroupFinance Director who has strengthened our capabilitiesinthisarea.
The current year has seen a continuation of reasonabletrading performance for the first two months and I amoptimisticforthefutureofthebusiness.
Richard DaveyChairman22March2011
Chairman’s StatementChairman’s Statement
Annual Report 2010
ChiefExecutive’sStatementFor the year ended 31 December 2010
10
LCG has grown seven-fold in terms of revenue over thepast5yearsandfour-foldintermsofheadcount.Weareno longer a small, entrepreneurial business. We are nowindependentlyrecognisedasthenumbertwoprovideroffinancialspreadbettingservicesintheUK*andwebelievethisisanastoundingachievementinsuchashortamountoftimeinwhatisahighlycompetitivearena.
We have evolved organically over the years, but in2010 we started to build a more formal and structuredorganisation enabling a more considered and strategicapproachtogrowth.TheGroupspenttimeformalisingtheoperating subsidiary Boards which work collaborativelyand consist of operational department heads. In 2011we plan to appoint a Chief Information Officer andexpecttoappointadditionalresourcesintheareasofrisk,marketing and sales. We are investing in and laying thefoundationsforgrowth.
AsmentionedintheChairman’sstatement,FrankChapmanretiredandjoinedtheBoardasanon-executiveDirector.Due to other commitments,non-executiveDirector, JackInglis offered his resignation to the Board in September2010.Wewould liketothankJackforhiscontributiontothe business over the past 3 years. In September 2010,Malcolm McCaig joined the Board as a non-executiveDirector and brings with him a wealth of experience incompliance and risk management and has made animmediate impact. SiobhanMoynihanwaspromoted toGroupFinanceDirectorinApril2010andhasestablishedherselfasaninvaluableassettotheGroup.
Thecurrenteconomicconditionspresentmanychallengesincludingalowinterestrateenvironmentwhichcontinuesto impact our revenue and profit. In addition to this,our rapidly developing businesses have encountered anumber of difficulties throughout the course of theyear; despite this, LCG has again returned an operatingprofitfortheyear.
Ourgrowthstoryhasnotbeenwithoutitsdifficulties–anybusiness that develops at such an exponential rate willalways experience growing pains. As a result, 2010 hasbeenmixedforLCG.Wespentmuchoftheyearinvestingforthefutureandwillcontinuetodosotoensurethatwestrengthenourcompetitivestance.Wearedelightedwithour new CFD products which will focus on internationalcustomers. The launch of our first mobile application attheendoftheyearhasbeenwelcomedbyourcustomersandwewilllaunchadditionalapplicationsin2011.
We achieved full regulatory status in Australia at a timewhen CFD trading in that jurisdiction is under severescrutiny. This is our first international satellite officeofferingCFDstoretailcustomers.
As discussed in the Chairman’s statement, profit for thefullyearhasbeenhinderedbyanumberoflegacyissueswhich have impacted the Group profits. I am howeverpleasedtoreportthatwemadeanadjustedprofitbeforetax of £6.5m. This includes a recent levy from the FSCSof£341,000;excludingthistheadjustedprofitbeforetaxwouldhavebeen£6.8m
Anyone reading the business pages of the broadsheetswillrecognisethatfollowingtheglobalfinancialcrisisthefinancial services industry has been subject to increasedlevelsofregulatoryoversightcausingtheGrouptodivertmore management time and financial resource towardscomplianceandgovernance.Thenewclientmoneyrulesenforced from January 2011 do not adversely affectLCG as the Group already segregates all client funds asamatterofcourse.However,thenewrulesdoappeartocreate a barrier to new entrants and could also restrictthe ability of some of our existing competitors fromgrowingapace.
This is my first statement to shareholders since I took the position of CEO. Looking back over the past 7 years at LCG, I am enormously proud of the business that we have built with the help of our talented and ambitious staff.
Thelaunchofourfirstmobileapplicationattheendoftheyearhasbeenwelcomedbyourcustomers
*InvestmentTrendsUKFSB/CFDReport2010
Chief Executive’s Statement
Annual Report 2010
Financial Spread Betting (FSB) and Contracts for Difference (CFDs)LCG’sSpreadBettingunitcontinuestogeneratethebulkoftherevenuefortheGroupandthecompanyhascontinuedtoconsolidate itsposition inthemarketplace.TherecentInvestmentTrendssurveyplacesLCGasthesecondlargestfinancialspreadbettingproviderbyaccountnumberswithCapital Spreads (LCG’s own brand name) in third placeoverall*.Ourplatformandoverallofferingcontinuestoscorewellonclientsatisfactionandvalueformoney.
Webelievethattherobustnessofourbusinessmodelhasbeenproveninthemostdifficultofenvironments.Averagetrades per day rose by 22% but client acquisition hasbeenchallengingforourownbrandsandourWhiteLabelpartnerswithnumbersfallingsome34%overthecourseoftheyeardueinparttothelatedeliveryoftechnologyupgrades. Despite this, we achieved a record month inDecemberforclientacquisition,whichisnormallyadifficultmonth to attract new customers and active customernumbersfortheyearheldupstronglyshowingincreasedclientretentionandindustrylowchurnrates.Lowmarketactivity inthesecondhalfsawtheFSBbusinessaveragerevenueperuserdecrease40%fromthefirsthalfoftheyear to the second half, but for the year as a whole wehaveseenanincreaseof38%.Whilst this is disappointing in the short term, the level offundsonaccountgivesrobustindicationsforfuturereturns.CapitalSpreads(LCG’sownbrandSpreadBettingplatform)has retained 42% of overall business with the remaining17 White Label partners delivering the remainder. CapitalSpreads’clientretentionnumbersareanencouragingsignasgrossprofitfromownbrandclientsissignificantlygreaterthanWhiteLabelpartnerincome.
Asannouncedon7March2011oneofourlongestablishedand proactive partners, Paddy Power, has decided toremove itsbrand fromthefinancial services sector. ThecurrentPaddyPowerclientbasewillbeinvitedtomigratetotheCapitalSpreadsbrandname.
OurGibraltarbasedDirectMarketAccess(“DMA”)spreadbettingunit,ProSpreads,hasbuiltasustainableclientbaseand operationally positive returns have been recordedthrough the last quarter. The regulatory environment inGibraltarhasalsoshiftedinrecentmonthsgivingtheunitmoreflexibility in itsofferingbyallowingde-segregationof margin monies on Professional Client Account fundsenablingtheunittogainvolumewhilstutilisinglessoftheGroup’scapital.TheunithasattracteditsfirstWhiteLabelpartnersinthelastquarterof2010andthesearealreadyaddingconsiderablytothevolumeandrevenueoftheunit.
International ExpansionAsmentionedabovetheGrouphasmadeitsfirststepsintointernationalexpansionviaCFDs.InOctober,weachievedregulatorystatuswithASIC inAustraliawhichwill, in time,provideuswithfurtheropportunitiesinAsiaandtheFarEast.WeseeenormousopportunityfortheGroupinternationallybutwehaveadoptedaconsideredapproachtoensurethatwe have the right people and strategic goals to ensure aprofitableresult.Therefore,wedonotexpectmaterialresultsfromtheseventuresuntil2012.
Institutional Foreign Exchange OurinstitutionalFXdivisioncontinuestogrowapaceunderthe expert direction of Gavin Foster who launched thebusinessinNovember2005.Theunitisattractingclientsatanimpressiverate;numbershavegrownto302activeaccountsduring2010anincreaseof43%onthepreviousyear.Inadditiontothis,wenowhaveupto15institutionalmarketmakersstreamingtheirFXpricesinupwardsof70currencypairstherebyestablishingLCGFXasoneofthemostcompetitiveand liquidFXplatforms in themarket.This unit is still relatively small in terms of head countand overheads, so we watch with interest as its productcontinuestoevolve.
*InvestmentTrendsUKFSB/CFDReport2010
Ourplatformandoverallofferingcontinuestoscorewellonclientsatisfactionandvalueformoney.
12
TechnologyTechnology is the backbone of our business and theGroup must continue to invest heavily to maintain itsposition in the market. In Q2 2010, LCG closed one ofits trading platforms (see note 14) and consolidated itsspread betting and CFD offerings onto one platform.The closure incurred costs of £0.7m and the companyalso wrote off £3.2m of capitalised expenditure.Thisdecisionwasmadeas resultof the revisedstrategicdirectionapprovedbythenewlyrestructuredBoard.
We are committed to continued investment in ITdevelopment and strengthening of our IT resourcesthroughout2011.
Risk ManagementTheinherentrisksinourbusinessareconstantlyevolving.InQ2thecompanyunfortunatelyincurreditsfirstseriousbaddebtasaresultofanexceptional(andnon-recurring)extensionofcredittoaWhiteLabelcustomer.TheGroupis now in the process of claiming the debt via legalproceedings.SpreadbettingdebtsarelegallybindingandtheGroupexpectsfullrecoveryoftheoutstandingsumof£1.4m.The company has several layers of risk oversightencompassing all areas of exposure. All client activity isconstantlyscreenedtoattemptto identifyanypotentialfraud,moneylaundering,insidertradingormarketabuseincidents.TheGroupalsohasariskmanagementstructurein place which consists of risk committees at both theoperationalandBoardlevel.
EmployeesWebelievethatwehaveagroupofskilledandloyalstaffwhohaveworkedhardwithustobuildahighlysuccessfuland profitable organisation. I am enormously proud oftheteamthathasdevelopedovertheyearsandIwouldpersonallyliketothankthemallfortheircontinuedsupportandcontributionin2010.
In 2011, as part of our plans to lay the foundationsfor growth, we will appoint a CIO and other staff withspecialistskillstoenableustogrowinamoreformalandstrategicenvironment.
Summary and OutlookAs outlined above, the changes to the Board in early2010 were the catalyst for the change of strategicdirection for the Group and our long term investmentfor growth strategy. Going forward we are confidentthatourreinforcedBoardwillresultinamoreconsideredapproach and a greater focus on overall strategicdecisionmaking.AsaGroupwearepositiveabout2011and feel that we will produce a strong set of resultsfor our investors. The unexpected liability resultingfrom the FOS assessment announced on 14 Februaryhas been a considerable disappointment to the Boardand we intend to challenge the assessment. It is withregret that due to our regulatory capital requirementsthis contingent liability has now made it impossible forustopayafinaldividend.
The Company remains debt free with considerable netcash resources. We believe that the Group remains in astrong position with a solid product suite to offer to theretail and institutional derivative market place. We areoptimistic about the future and are actively engaged inanumberofnewWhiteLabelopportunities.
In May 2011 we will move to a new office space inDevonshire Square, a stone’s throw from our currentlocation.Wehavemanagedtosecureanexcellentdealforahigherspecificationfloorspacewithconsiderableroomforexpansion,atminimalextracost.ThenewspacewillbeanopenplantradingfloorwhichwillbenefitthebusinessenormouslyandIbelievethatwewillall lookforwardtothismoveasapartofanewandexcitingchapterinthehistoryoftheGroup. Simon DenhamChiefExecutiveOfficer22March2011
Chief Executive’s Statement
Annual Report 2010
Trading revenue and operating profitUK financial spread betting revenue increased 31% to£25.8m in 2010, and represented 75% of the Group’stotalrevenue.Thefirsthalfof2010sawanimprovementin market conditions driven by volatility in Q2. Volatilityboosted client activity and resulted in an increasein average revenue per user of 75% to £1,051 in H1.The second half of 2010 saw the return of more rangeboundmarketssimilartothoseexperiencedin2009whichresultedinafallinaveragerevenueperuserto£661.Grossprofitforthedivisionincreasedto£18.1m(2009:£13.9m)asaresultoftheincreaseinrevenue,proportionatelywhitelabelcostsremainedconsistentat27%ofnetrevenueat£7.0m(2009:£5.4m).Whilstclientacquisitionwaslowerin2010,retailfundsonaccountremainedstrongat£24.9m.
ProSpreads, our DMA financial spread betting businessin Gibraltar also saw improvements in revenue whichincreased13%to£1.5m.Thebusinessreturnedalossof£0.5mfortheyear(2009:£0.3m)howeverrecenttradingandKPIshaveshownsignificantimprovementandweareoptimisticforprofitablereturnin2011.
2010 saw the launch of our two CFD businesses. Asexpected,theseincurrednetlossesof£0.9mfortheyearduetothestartupcostsassociatedwiththesettingupofthesedivisions.
TheinstitutionalFXdivisionhascontinuedtoshowstronggrowth increasing revenue 7% year on year to £6.05mandanincreaseinvolumefrom$427bnto$429bn.
Our institutional brokerage business saw an increase inrevenueof33%to£1.1m(2009:£0.8m),andgeneratedacontributionof£0.3m(2009:£0.2m).
Administrative expensesAdministrative expenses excluding the exceptional itemsnoted below increased 27% to £16.9m (2009: 13.3m).Includedwithinadministrativeexpensesarenon-recurringcosts of £0.70m to close down our LCG Digital unit andcosts to launch our CFD platforms of £0.8m. They alsoincludeaprovisionfor£0.34mforanFSCS levy receivedon 25 January 2011 which had not been anticipated.
GroupFinancialReviewFor the year ended 31 December 2010
14
Excluding the effect of these items, administrativeexpenses have increased by £1.8m on 2009 largely asa result of increased staff costs including enhancedbonusawards.
Adjusted profit before taxationAdjusted profit before taxation which excludes theexceptionalitemsnotedbelowandsharebasedpayments,increased 8% to £6.5m (2009: £6.0m). Excluding therecent FSCS levy, CFD start up costs and closure costsof LCG Digital, would give an underlying adjusted profitbefore tax of £8.3m demonstrating the strong tradingprofitabilityoftheGroup.
Exceptional itemsInFebruary2010theGroupcompletedareviewofitsITStrategy and concluded that it would change the focusofitsITassetuseinthefuture.Asaresultofthisreviewan impairment of £3.2m was incurred in relation to theGroup’ssoftwareassets.ThischargedidnotimpacteitherthecashorregulatoryresourcesoftheGroup.
During H1’09 the Group made commission rebatingerrors whilst preparing the customer statements of amanaged spot FX fund. The correction of these errorsled to a series of complaints to the FOS. The initialassessment from the FOS received in October 2010 ledthe Board to conclude that the impact of the claimstotheFOSwouldnotbematerialtothebusiness.Howevera revised assessment received on 11 February 2011 hasledtotheGrouprecognisingaprovisionof£3.2m(£2.3mnetoftax)at31December2010anddisclosingafurthercontingentliabilityof£3.2m(£2.3mnetoftax).
WehavedeterminedthevaluationoftheprovisionbasedonananalysisofthelossesincurredinthefundattributabletoclientsundertheprotectionoftheFOS,thelatestFOSassessmentandtheFOS’srulesoncompensation.Whilstthe Board is confident that the provision representsa best estimate of the implications of the latest FOSdetermination, there remains significant uncertainty astotheeventualfinancialoutcome.TheGroupisintendingtochallengetheadjudicator’sassessmentand,althoughthe Directors are confident that there are grounds forchallenge,theoutcomeofthisprocessremainsuncertain.As noted below, recognition of this liability has had amaterial impact on the regulatory capital position oftheGroup.
Financial position, capital adequacy and going concernFollowingtherecognitionofa£3.2mprovisioninrelationto the FOS assessment the Group had net assets of£24.2m (2009: £24.4m) including intangible assets of£12.7m (2009: £15.8m) at the year-end. Cash and cashequivalentswere £61.6m (2009: £63.9m) of which clientdeposits amounted to £47.6m (£53.8m) and Group netcashresourcesamountedto£13.9m(2009:£10.0m).
The Group’s capital requirements fluctuate significantlydepending on the residual market risk it retains fromunhedged client positions. The Grouphas limits in placeset by the Risk Committee which determine the level ofmarketriskonanaggregateandindividualproductbasisitcantake.AkeydeterminantoftheGroup’sprofitabilityistheamountofriskitcantakewithrespecttounhedgedclientpositions.ThisisdependentonthecapitalresourcesatLCG’sdisposal.
IftheGrouphadbeenutilisingthefulllimit,assetbytheRiskCommitteeitwouldhavehadaregulatorydeficitat31December2010.
The Board has therefore decided to raise approximately£8.0m before expenses through the issue by way of aplacing of 13,333,333 new ordinary shares at 60 pencepersharetoensurethecontinuedoperatingeffectivenessandprofitabilityoftheGroup.TheplacingisconditionalonshareholderapprovaltobeobtainedataGeneralMeetingtobeheldon7April2011.In lightofthistheBoardhasdecidednottopayafinaldividend(2009:nil).
The Directors have reviewed the Group’s forecasts andprojections.Theyhaveareasonableexpectationthattheplacing of 13,333,333 ordinary shares will be successfuland,accordingly,thattheGroupwillhavesufficientcapitalavailableforittocontinueinoperationalexistencefortheforeseeablefuture.ThefinancialstatementsoftheGrouphave,therefore,beenpreparedonagoingconcernbasis.
Financial outlookWhilstearningsaredifficulttopredictwithanycertainty,2011 has started well for our UK spread betting andinstitutional FX businesses. Our ProSpreads businessis trading profitably so far and we are working hard todevelopourCFDofferinginternationally. Siobhan MoynihanGroupFinanceDirector22March2011
Group Financial Review
Annual Report 2010
Simon DenhamChiefExecutiveOfficer(Age49)
Co-founderofCapitalSpreads,SimonjoinedtheGroupinMarch2003.Hehasextensiveexperienceofbuildingandrunningderivativesbusinessesandinthepracticalapplicationofderivativepricingandriskmodels.SimonpreviouslybuiltandrantheoptionsmodelsforbothCantorIndexandChristianaBank.SimonwasCOOatLCGfrom2005until2008whenhewasappointedCFO.In2010heacceptedthepositionofCEO.
Rachel WoodfordChiefOperatingOfficer(Age41)
Rachelhasovertenyearsexperienceofthespreadbettingarenacoveringoperations,sales,marketingandproductlaunches.ShejoinedtheGroupinOctober2003andwasaco-founderofCapitalSpreads.RachelwastheMarketingandSalesDirectorfrom2005to2008whenshewasappointedCOO.ShehasanMAinMarketingManagement.
Siobhan MoynihanGroupFinanceDirector(Age32)
ACharteredAccountant,SiobhanspentnineyearswithDeloitte,workinginboththeUKandSydney,latterlyasaSeniorManagerwithintheauditdivision.ShejoinedLCGin2009asFinancialControllerbeforebecomingGroupFinanceDirectorin2010.
ExecutiveDirectors
16
Richard DaveyNon-executiveChairman(Age62)
RichardspentmuchofhisbusinesscareeratNMRothschild&SonsLimitedfromwhichheretiredasHeadofInvestmentBankingandChairmanoftheExecutiveCommitteein1999.HewasoriginallywithSlaterWalker,fromwherehemovedtoRothschildsin1977.HethenspentperiodsasPresidentofExcoInternationalInc.andDirectorofFinanceforExcoInternationalplc,aswellasHeadofEuropeanMergersandAcquisitionsatMerrillLynchInternationalLimited,beforereturningtoRothschildsin1989.HeiscurrentlyViceChairmanofYorkshireBuildingSocietyandanon-executiveDirectorofAmlinplcandSevernTrentplcwhereheisalsoseniorindependentDirector.
Malcolm McCaigNon-executiveDirector(Age55)
MalcolmjoinedtheBoardinAugust2010.HehasworkedextensivelyintheFinancialServicessectorandhasvaluableexperienceintheareasofriskmanagement,regulatorycomplianceandIT.MalcolmwasapartneratbothErnst&YoungandDeloitteandhasheldseniormanagementpositionsatPrudential,NationalAustraliaBankandCIGNA.InadditionMalcolmiscurrentlytheChairmanofKentRelianceProvidentSociety,ChairmanofOneSavingsBankPlcandanAuditCommitteememberattheHouseofLords.HisNon-ExecutiveDirectorportfolioalsoincludesUnum,Caley,RenaissanceCapitalandCrestNicholson.
Frank ChapmanNon-IndependentNon-ExecutiveDirector(Age60)
FrankjoinedtheBoardinOctober2003andwasChiefExecutiveOfficerfromMay2004toApril2010whenheretiredfromthisroletobecomeaNon-IndependentNon-ExecutiveDirector.Hehasover30years’experienceintheLondonderivativeandFXmarkets,havingpreviouslybeenaDirectorormanagingDirectorofanumberofcompaniesincludingLondonInvestmentTrust,BaringSecurities,DeutscheMorganGrenfellandAmerexPetroleum.
Non-ExecutiveDirectors
Directors
Annual Report 2010
Principal activities and business reviewLondon Capital Group Holdings plc operates throughits principal subsidiaries, London Capital Group Limited,ProSpreadsLimitedandLondonCapitalGroupPtyLimited.ItscoreactivityistheprovisionofspreadbettingandCFDproducts on financial markets to retail and professionalclients.Italsoprovidesforeignexchangetradingservicesto institutional clients and retail brokers and derivativesbrokingtoinstitutionalcustomers.
DevelopmentsaffectingtheGroupduringtheyearanditsprospectsforthefutureareevaluated intheChairman’sStatement and in the Chief Executive’s Statement onpages6to11.ThisincludesananalysisofthepositionoftheGroupattheyearendandkeyperformanceindicators.
Employment of disabled personsFull and fair consideration is given to employmentapplications from disabled persons having regard to theirparticular aptitudes and abilities. So far as is practical,arrangements are made to continue the employment ofanindividualwhobecomesdisabled.Disabledemployeesaregivenfairconsiderationfortraining,careerdevelopmentandpromotion.
Employment policiesThedevelopmentofemployeeinvolvementintheGroup’sbusinessiskeptunderregularreviewandtheDirectorsarecommittedtoencouraginginvolvementbyallemployees.Formal and informal briefing of employees takes placeasappropriate.
The Group takes all reasonable steps to ensure thatemploymentconditionsareequal inallrespectsforbothmenandwomen.
EmployeesbenefitdirectlyfromthesuccessofthebusinessthroughtheGroup’sperformance-relatedbonusschemesandshareoptionplans.
Charitable and political donationsDuring the year the Group made charitable donationsof £14,600 (2009: £14,500) predominantly to gamblingsupport charities and charities that have been involvedwithemployees’friendsandfamilies.
TheGroupdidnotmakeanypoliticaldonationsduringtheyear(2009:£nil).
Directors’ReportThe Directors present their annual report on the affairs of the group, together with the financial statements and the auditors’ report, for the year ended 31 December 2010. The Corporate Governance Statement set out on pages 26 to 28 forms part of this report.
The Business and its management
18
Share capitalDuring the year, a total of 863,347 new ordinary shareswere issued as a result of the exercise of share optionsand creation of a Joint Share Ownership Plan (“JSOP”).The820,000JSOPsharesareheldintrust,furtherdetailscanbefoundinthenote29totheFinancialStatements.Asat31December2010,therewere39,852,575ordinarysharesof10peach in issue.Thecompanyhasoneclassofordinaryshareandeachsharecarriestherighttoonevoteatgeneralmeetingsof thecompany. TheordinarysharesarelistedontheAlternativeInvestmentMarketoftheLondonStockExchange.
DividendGroup loss after tax for the year amounted to £0.36m(2009: profit of £3.9 million) all of which is attributabletomembersoftheCompany.
The Directors do not recommend payment of a finaldividend(2009:£nil).Theinterimdividendwas1.0p(2009:2.5p).Thereforethetotaldividendfortheyearamountsto1.0por£0.4million(2009:2.5por£1.0million)
Substantial interests in sharesDetails of substantial holdings in the issued ordinarysharecapitalof thecompanynotifiedasat28February2011were:
Directors’ share optionsDetails of Directors’ share options are provided in theDirectors’remunerationreportonpage23.
Health and SafetyTheGroupaimstoprovideandmaintainasafeworkingenvironment for all its employees and visitors and seeksthe involvement of its employees in improving healthand safety throughout its operations. The Board keepsits health andsafetypolicyunder regular review to takeaccount of changes in legislation, best practice and theworkingenvironment.
EnvironmentGiven the nature of its activities, there is limited scopefor theGrouptohaveamajor impactonenvironmentalmatters. Nevertheless, the Directors are mindful oftheir responsibilities in this regard and strive to seekopportunities where improvements may be made; thesearegenerallyconcentratedinareasofenergyconservationandwastecontrol.
Principal risks and uncertaintiesThere are a number of principal risks and uncertainties,eachofwhichcouldhaveamaterialimpactontheGroup’slong-termperformanceandachievementof its strategicgoals. The Risk Committee, which is chaired by MalcolmMcCaig, reviews all aspects of financial risk and reportstotheBoardonaquarterlybasis.TheAuditCommittee,which ischairedbyRichardDavey, reviewsallaspectsofoperationalrisk.AmoreregularreviewofspecificriskareasiscarriedoutbytheFinancialMarketRiskCommittee,theOperationalRiskComplianceandControlCommitteeandthereisareviewofKeyRiskIndicatorsbytheBoard.
The Group maintains a Risk Register of all financial andoperational risk events, the mitigating controls, historiclossesandunexpectedlosses.ThisquantificationprocessensuresthattheGroupoperateswithinitsriskappetite.
The Group also undertakes various stress and scenariotesting as part of its Individual Capital AdequacyAssessment Process (ICAAP) under the requirements oftheFSA.Thesescenariosstress theeffectonourcapitaland liquidity adequacy of a series of combined riskeventsoccurringatthesamepointintime.
Statutory and other compliance
Number of Shares
% of Total
SimonDenham 5,967,720 14.99
FrankChapman 4,000,000 10.00
RachelWoodford 3,365,000 8.63
Legal&GeneralInvestmentManagementLtd
6,241,770 15.66
SchroderInvestmentManagement
2,879,000 7.22
AXAS.A. 1,700,000 4.27
FOURCapitalPartners 1,499,583 3.76
HargreaveHale 1,408,950 3.54
Directors’ Report
Annual Report 2010
Market risk: Marketriskistheriskthatchangesinmarketprices will affect the Group’s profit and loss or the valueoffinancial instrumentsheld.TheGroupdoesnotdirectlyenter into speculative proprietary positions. However theeffect of client trades does result in the Group retaininganetmarket risk.TheGrouphasa formal riskpolicyandamethodologyforsettinglimitsforeveryfinancialmarketin which it operates. Market risk is managed on a day todaybasisbytherespectivedivisionalheadswithoversightprovided by the operating subsidiary financial market riskcommittee, the Group Risk Committee and the Board.TherisklimitsdeterminethenetexposurearisingfromclientactivitywhichtheGroupispreparedtocarry.IftheGroup’sexposuretoclientsexceedstheselimits,thepolicyrequiresthathedgingiscarriedouttobringtheexposurebackwithindefinedlimits.
Credit risk and concentration risk: TheGrouphascreditexposuretothebankswithwhichitdepositsfundsandthecounterparties with which it hedges its market positions.The Group mitigates this risk by ensuring diversificationof counterparties and setting minimum levels of creditworthiness for Group counterparties. LCG does notordinarilyoffercreditbut in limitedcircumstances,WhiteLabel partners will introduce large customers that willrequest credit. In most circumstances up to £100,000 isoffered which must be underwritten by the White Labelpartner.Currentlytherearefiveclientswithcreditaccounts;theaveragecreditprovidedis£50,000.TheGroupcurrentlyhasaprofessionalclientdebtoutstandingof£1.4mwhichisbeingpursuedthroughlegalaction(seenote3).
Operational risk: Operationalriskisdefinedastheriskoflossarisingfrominadequateinternalprocesses,peopleorsystems.ThemostsignificantoperationalriskstheGroupisexposedtoare:
• Technology risk: TechnologyRiskistheriskofaseriouslossofLCG’sabilitytoofferitsonlinetradingplatformstoitsclientsleadingtoasignificantlossofcustomersand income. LCG operates backup for all its tradingplatformsinseparatelyhostedenvironmentsandalsolicenses disaster recovery offices. LCG has perpetuallicensesonitsspreadbettingandCFDplatforms.
• Employee risk: LCG requires suitably skilled staff tooperate, control, develop and manage its business.LCG has a wide range of skill requirements includingIT,dealing,riskmanagement,HR,compliance,finance,and marketing. Without adequate staff resourcestheGroupwouldnotbeabletooperateeffectivelyorachieve its strategic aims. The risk is managed firstlyin the recruitment and selection of appropriatelyqualified employees, validated by a pre-employmentscreeningprocess;secondlytheriskismanagedonanongoingbasisthroughtraininganddevelopment(bothregulatoryandnon-regulatory),andbi-annual reviewsofperformancetoensurethatindividualremunerationand performance is managed consistently and fairly.Finally,weensurethecontinuedsuccessoftheGroupthrough the identification and retention of our highpotentialemployees.
• Legal, Regulatory and Compliance risk: Regulatoryriskistheriskoflegalorregulatorysanctions,financialloss, or damage to reputation of the Group. LCG is afull scope firm and is therefore heavily regulated. Assuch,regulatoryriskisanimportantelementoftheriskassessmentandmanagementprocess.Theregulatorylandscape changes at an increasing pace and thisimposes significant demands on the resources of theGroup.TheGroupthereforeneedstoensuresufficientinvestmentismadeintoresourceandtrainingtoensureregulatory demands are met. The responsibility forcomplianceisspreadthroughouttheGroup,andresultsaremonitoredandreportedtoseniormanagementbytheComplianceDepartment.
• Fraud and Reconciliation risk: The Groups financialcontrolfunctionsdependonkeyreconciliationsbeingperformed on a daily basis with exceptions beingresolvedinatimelymanner.
The main areas of risk for the Group are considered to be the following:
20
Liquidity risk: LiquidityriskistheriskthattheGroupwillencounterdifficultyinmeetingitsfinancialobligationsastheyfalldue.TheGrouphasinplaceestablishedpoliciesandaliquidityriskmanagementframeworktomanageitsliquidityriskincludingproductionofdailyliquidityreportsthatsummarisecurrentliquidityandliabilities.
Treasury risk: Treasury risk is the risk arising from themovementsintheinterestratesorexchangerateswhichaffecttheGroup’sprofitabilityornetcashresources.
• Interest rate risk: As the Group has no debt itsinterestrateriskarisesfromthelossofrevenuefrominterestearnedonclientdepositsandmarginedclientpositions,andtheGroup’sowncashresources.Whilstinterestratesremainlow,interestincomewillnotmakeamaterialcontributiontoGroupprofit.
• Foreign currency risk: The Group faces currencyexposures on translation of its monetary assets andliabilities.Thisriskismanagedbydailymonitoringofthe Group’s net foreign currency position as part ofitsliquidityriskmanagement.During2010theGrouprealised a foreign exchange gain of £0.1m (2009:£0.2m)whichisreflectedinrevenue.
Key Supplier risk: Key supplier risk is the risk of failureof one of our principal business partners to providecontractualservices.Weconductinitialandongoingduediligence on key suppliers, in addition to using multipleproviderswhereavailable.
Payment of commercial debtsTheGroupdoesnotfollowanystatedcodeonpaymentpractice. It is the Group’s policy to agree terms ofpayment with suppliers when agreeing the termsofeachtransactionandtoabidebythoseterms.Standardterms provide for payment of all invoices within 30days after the date of the invoice except where differenttermshavebeenagreedwiththesupplierattheoutset.
The number of days’ purchases (“creditor days”)outstanding for payment by the Group at the year endwas26days(2009:30days).
Disclosure of information to the auditorsEach of the persons who is a Director at the date ofapprovalofthisannualreportconfirmsthat:
• so far as the Director is aware, there is no relevantaudit information of which the company’s auditorsareunaware;and
• the Director has taken all steps that they ought tohave taken as a Director to make themselves awareofanyrelevantauditinformation(asdefined)andtoestablish that the company’s auditors are aware ofthatinformation.
This information is given and should be interpreted inaccordance with the provisions of Section 418 of theCompaniesAct2006.
Directors’ Report
Annual Report 2010
Going concernThe Group’s business activities and financial position;the factors likely to affect its future development andperformance;anditsobjectivesandpoliciesinmanagingthe financial risks to which it is exposed and its capitalarediscussedintheGroupFinancialReview.AssetoutintheChiefExecutive’sStatementandtheGroupFinancialReview, the revised Financial Ombudsman Service(“FOS”) assessment pertaining to commission rebatingof a managed spot FX fund has resulted in the Grouprecognising a provision of £3.2m (£2.3m net of tax) at31 December 2010 and disclosing a further contingentliabilityof£3.2m(£2.3mnetoftax).
The Group’s funding and capital plans are determinedon a Group basis. Whilst the Group has sufficient cashresources to meet the above-mentioned liability shoulditcrystallise,whollyorinpart,thereducedcapitalavailabletotheGroupintheinterimperiodwouldlimittheGroup’soperationsandabilitytogenerateprofits.
The Group’s capital requirements fluctuate significantlydepending on the residual market risk it retains fromunhedged clientpositions. The Grouphas limits in placeset by the Risk Committee which determine the level ofmarketriskonanaggregateandindividualproductbasisitcantake.AkeydeterminantoftheGroup’sprofitabilityistheamountofriskitcantakewithrespecttounhedgedclientpositions.ThisisdependentonthecapitalresourcesatLCG’sdisposal.
IftheGrouphadbeenutilisingthefulllimitassetbytheRiskCommitteeitwouldhavehadaregulatorydeficitat31December2010.
The Board has therefore decided to raise approximately£8.0m before expenses through the issue by way of aplacingof13,333,333newordinarysharesat60pencepershare tocertainDirectorsand institutional investors (the“Placing”)toensurethecontinuedoperatingeffectivenessandprofitabilityof the Group.Theplacing is conditionalon shareholder approval to be obtained at the GeneralMeetingtobeheldon7April2011.
The directors have reviewed the Group’s forecasts andprojections.Thedirectorshaveareasonableexpectationthat the placing of 13,333,333 ordinary shares will besuccessful and, accordingly, that the Group will havesufficientcapitalavailableforittocontinueinoperationalexistence for the foreseeable future. The financialstatementsof theGrouphave, therefore,beenpreparedonagoingconcernbasis.
22
In accordance with current guidelines, the Directorsseek authority to allot up to a maximum of 17,728,636relevant securities. This represents approximately 33%of the projected issued ordinary share capital followingthe proposed placing of 13,333,333 ordinary shares of10peach(“thePlacingShares”)asdescribedinthecircularto shareholders dated 22 March 2011 (“the Placing”),which is conditional inter alia, upon the passing ofresolutions by shareholders to authorise the Directors toallot the Placing Shares for cash on a non-pre-emptivebasis at the general meeting convened for 7 April 2011and assumes the Placing is fully subscribed. To theextent that the number of new ordinary shares issuedunder the Placing is less than the maximum numberofnewordinarysharesthatmaybeissued(i.e.13,333,333),theDirectorswillonlyusetheauthoritiesreferredtoabovetoallotfurthernewordinarysharesuptoanamountequaltoonethirdoftheactualamountoftheissuedordinarysharecapitaloftheCompanyasenlargedbythePlacing.
Annual General Meeting
The 2011 annual general meeting will be held at 12 noon on Tuesday 24 May 2011 at 2nd Floor, 6 Devonshire Square, London, EC2M 4WQ. The notice of meeting is set out on pages 72 to 74 of this document and a form of proxy is enclosed.
Details of the resolutions to be considered at the meeting in relation to the Company’s share capital are given below.
Further,inordertoretainsomeflexibility,theDirectorsseekpower to allot 2,659,295 equity securities wholly for cashotherthanonapre-emptivebasistocurrentshareholderspro-ratatotheirexistingholdings.Thisamountrepresents5%oftheprojectedissuedordinarysharecapitalfollowingthePlacing.TotheextentthatthenumberofnewordinarysharesissuedunderthePlacingis lessthanthemaximumnumber of new ordinary shares that may be issued(i.e.13,333,333),theDirectorswillonlyallotequitysecuritiesonanon-pre-emptivebasisuptoanamountequalto5%oftheactualamountoftheissuedordinarysharecapitaloftheCompanyasenlargedbythePlacing.
TheseauthoritieswillcontinueinforceuntiltheAGMtobeheldin2012or30June2012,whicheveristheearlier.
Authority of directors to allot shares (Resolutions 7 and 8)
Directors’ Report
Annual Report 2010
Authority for the Company to purchase its own shares (Resolution 9) Resolution 9 authorises the Company, until the earlier ofnextyear’sAGMor30June2012,topurchaseinthemarketuptoamaximumof7,977,886ordinaryshares(equivalenttoapproximately15%oftheprojectedissuedsharecapitalof the Company following the Placing) for cancellation ata minimum price of 10p per share and a maximum priceper shareofanamountequal to105%of theaverageofthe middle market quotations for an ordinary share (asderivedfromtheDailyOfficialList)forthefivebusinessdaysimmediatelybeforethedateofpurchase.TotheextentthatthenumberofnewordinarysharesissuedunderthePlacingis less than the maximum number of new ordinary sharesthat may be issued (i.e. 13,333,333), the Directors will onlyrepurchaseordinarysharesuptoanamountequalto15%oftheactualamountoftheissuedordinarysharecapitaloftheCompanyasenlargedbythePlacing.
TheCompaniesAct2006allowstheCompanytoholdanyrepurchasedsharesintreasury,insteadofcancellingthemimmediately.IftheCompanybuysbackitsownsharesandholds them in treasury it may then deal with some or alloftheminseveralways.Itmaysellthemforcash;transferthemundertheprovisionsofanemployeesharescheme;cancelthem;orcontinuetoholdthemintreasury.HoldingsharesintreasuryinthiswaywouldallowtheCompanytoreissue themquicklyandcosteffectively,giving increasedflexibilitytothemanagementofitscapitalbase.Dividendsarenotpaidonsharesheldintreasury,nordotheycarry
votingrightswhiletheyremainthere.Thedirectorsintendto decide at the time of any share buyback, whether tocancelthesharesimmediatelyortoholdthemintreasury,depending on the interests of the Company and itsshareholdersasawhole,at the time.TheCompanydoesnotcurrentlyholdanysharesintreasury.
This proposal should not be taken as an indication thattheCompanywillpurchasesharesatanyparticularpriceorindeedatall,andthedirectorswillonlyconsidermakingpurchasesiftheybelievethatsuchpurchaseswouldresultin an increase in earnings per share and are in the bestinterestsofshareholders.
It is intended to renew each of the above authorities ateachannualgeneralmeeting.
AuditorsDeloitteLLPhaveexpressedtheirwillingnesstocontinueinofficeasauditorsandaresolutiontore-appointthemwillbeproposedattheforthcomingAnnualGeneralMeeting.
24
Directors, their remuneration and their interests
DirectorsThe names of the current Directors together with briefbiographical details are shown on pages 14 and 15.On21April2010SiobhanMoynihanandAmandaShieldswereappointedasDirectorsandFrankChapmanresignedfromhispositionasChiefExecutiveOfficertotakeaNon-ExecutiveRoleontheBoard.AmandaShieldsresignedasaDirectoron29September2010andJackInglisresignedas a Non-Executive director on 13 September 2010. AllotherDirectorshaveservedthroughouttheyear.
Inaccordancewiththecompany’sarticlesofassociation,Malcolm McCaig, having been appointed by the Boardduring the year, offers himself for reappointment byshareholdersattheAGM.Inaddition,RichardDaveyandRachel Woodford retire by rotation and, being eligible,offer themselves for reappointment. Ms Woodford hasa service contract which is terminable by the companyonnotlessthansixmonths’notice.
TheBoardrecommendsthereappointmentofeachoftheaboveDirectors.
No Director had any material interest in any contractof significance with the Group throughout the periodunderreview.
Directors’ service agreementsThe non-executive Directors are each appointed for fixedtermsoftwelvemonthsandthesetermsmaybeextendedbymutualagreementforfurtherperiodsoftwelvemonths.Non-executive Director appointments are terminable onthree months’ notice except in the case of the companybeing taken over or the individual concerned becomingprohibitedby lawfromactingasaDirector inwhichcaseterminationisimmediate.AllDirectorsaresubjecttoregularreappointmentbyshareholders.
Non-executive Directors’ remunerationThe remuneration for non-executive Directors is set bythe full Board on the recommendation of the executiveDirectors. Remuneration comprises an annual fee.Non-executive Directors are not eligible to participateinanyofthecompany’sbonusschemes.
Remuneration policyItisthecompany’spolicytoprovideforeachofitsexecutiveDirectors a remuneration package which is adequate toattract,retainandmotivateindividualsoftheappropriatecaliber whilst at the same time not paying more than isnecessaryforthispurpose.
Executive Directors’ remunerationTheremunerationoftheexecutiveDirectorsisdeterminedbytheRemunerationcommittee.
ThefollowingcomprisedtheprincipalelementsofexecutiveDirectors’remunerationfortheperiodunderreview:
• basic salary - this is not performance-related andis normally reviewed with effect from 1 January ineachyear.
• annualcashbonus - this isperformance-relatedandispaidinfullwithinthreemonthsoftheyearend.
• healthcare for the executive Director, spouse anddependentchildren.
Share OptionsThe Group currently operates the London Capital GroupHoldings plc Enterprise Management Incentive Scheme,theLondonCapitalGroupHoldingsplcUnapprovedShareOption Plan 2005 and the Joint Share Ownership Plan(“JSOP”)whichwascreatedduringtheyear.
Directors’ Report
Annual Report 2010
Directors’ contracts
Executive Directors Date of contract Notice period
SimonDenham 15December2005 6months
RachelWoodford 15December2005 6months
SiobhanMoynihan 21April2010 6months
Directors’ emoluments
Summary remuneration tableThevariouselementsofremunerationreceivedbyeachDirectorwereasfollows:
Year to 31 December
Basic salary and fees Benefits Annual Bonus
Compensation for loss of office
Payment in lieu of notice Total
2010£
2009£
2010£
2009£
2010£
2009£
2010£
2009£
2010£
2009£
2010£
2009£
Executive
AmandaShields1 69,423 – 624 – – – – – 75,000 – 145,047 –
SimonDenham 175,000 175,000 2,206 1,978 – – – – – – 177,206 176,978
RachelWoodford 175,000 150,000 1,043 1,186 – – – – – – 176,043 151,186
SiobhanMoynihan5 81,108 – 429 – 25,000 – – – – – 106,537 –
FrankChapman2 58,333 175,000 980 3,179 – – 62,500 – – – 121,813 178,179
RajGandhi4 – 30,000 – 1,985 – – – 65,000 – – – 96,985
Subtotal 558,864 530,000 5,282 8,328 25,000 – 62,500 65,000 75,000 726,646 603,328
Non executive
RichardDavey 65,000 65,000 – – – – – – – – 65,000 65,000
FrankChapman2 34,794 – 2,650 – – – – – – – 37,444 –
JackInglis3 26,250 35,000 – – – – – – – – 26,250 35,000
MalcolmMcCaig 13,708 – – – – – – – – – 13,708 –
Subtotal 139,752 100,000 2,650 – – – – – – – 142,402 100,000
TOTAL 698,616 630,000 7,932 8,328 25,000 – 62,500 65,000 75,000 869,048 703,328
1AmandaShieldswasappointedasaDirectoron21April2010andresignedasaDirectoron29September20102FrankChapmanresignedasaDirectorandappointedasaNon-IndependentNon-ExecutiveDirectoron22April20103JackInglisresignedasaNonexecutiveDirectoron13September20104RajGandhiresignedasaDirectoron9April20095SiobhanMoynihanwasappointedasaDirectoron21April2010
Benefits(whicharetaxable)comprisetheprovisionofhealthcare.ThehighestpaidDirectorwasSimonDenham.
Non-executive Directors Date of letter of appointment Period of appointment
RichardDavey 14May2010 12months
MalcolmMcCaig 25August2010 12months
FrankChapman 22April2010 12months
26
Pension benefits NoDirectorhasanentitlementtopensionbenefitsfromthecompany.
Directors’ interests in options
Number of options
Date of grant
At 1 Jan 2010
Granted during
the year
Exercised and sold
in year Waived Lapsed
At 31Dec
2010Exercise
price
Date from which
exercisableExpiry
date
SimonDenham 08.11.07 60,000 – – – – 60,000 389.83p 08.11.10 08.11.17
RachelWoodford 08.11.07 60,000 – – – – 60,000 389.83p 08.11.10 08.11.17
SiobhanMoynihan 18.06.10 – 500,000 – (300,000) – 200,000 157.00p 18.06.13 17.06.20
AmandaShields 18.06.10 – 500,000 – – (500,000) – 157.00p 18.06.13 17.06.20
FrankChapman 08.11.07 60,000 – – – – 60,000 389.83p 08.11.10 07.11.17
Total 180,000 1,000,000 – (300,000) (500,000) 380,000
Directors’ interests in shares
At 31 December 2010 At 31 December 2009
Ordinary shares Beneficial Non-beneficial Beneficial Non-Beneficial
SimonDenham 5,967,720 – 6,617,720 –
RachelWoodford 3,365,000 – 3,315,000 –
SiobhanMoynihan 200,000 – – –
FrankChapman 4,000,000 – 5,540,000 –
RichardDavey – – – –
MalcolmMcCaig – – – –
ThecompanymaintainsappropriateDirectors’andofficers’liabilityinsurance.
ByorderoftheBoard
Simon DenhamDirectorLondonCapitalGroupHoldingsplc22March2011RegisteredNumber5497744
Directors’ Report
Annual Report 2010
Board Audit Committee Risk Committee Remuneration Committee
Nominations Committee
Director Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended
RichardDavey 10 10 3 3 3 3 1 1 1 1
FrankChapman 10 9 – – 3 3 – – 1 1
JackInglis 8 6 2 1 2 2 – – 1 –
MalcolmMcCaig 2 2 1 1 1 1 1 1 – –
SimonDenham 10 9 – – 3 3 – – – –
RachelWoodford 10 8 – – – – – – – –
SiobhanMoynihan 7 6 – – 2 2 – – – –
AmandaShields 5 5 – – 1 1 – – – –
Board effectivenessTheDirectorsbelievetheBoardissoundlyconstitutedandthat it provides entrepreneurial leadership for the Groupwithin a framework of prudent and effective controlswhichenablerisktobeassessedandmanaged.
The Board has an Audit Committee, a RemunerationCommittee, a Nominations Committee and a RiskCommittee. The committees facilitate the Board settingstrategic aims and ensuring that the necessary financialandhumanresourcesareinplacefortheGrouptomeetitsstrategicobjectives.TheBoardsetstheGroup’svaluesand standards and ensures that its obligations to itsshareholdersandothersareunderstoodandmet.
As part of their role as members of the Board, non-executive Directors constructively challenge and helpdevelop proposals on strategy. Non-executive Directorschallenge management in meeting agreed goals andobjectivesandmonitorthereportingofperformance.
Attendance at Board and Committee MeetingsThe Directors have determined that it is appropriateto fix the number of regular Board meetings at aminimum of ten, spread throughout the year. One ofthese is a meeting devoted solely to corporate strategy.The Directors are confident that this enables themto exercise adequate control over the activities oftheGroup.
Directors
CorporateGovernanceReportWhilst not required to do so, the Directors are pleased to provide certain corporate governance disclosures similar to those that would be required of a listed company.
28
Chairman and Chief ExecutiveThere is a clear distinction between the role of theNon-executive Chairman in running the Board and theChiefExecutiveinrunningthebusiness.
TheChairman is responsiblefor leadershipoftheBoard,ensuring its effectiveness in all aspects of its role andsetting its agenda. The Chairman is also responsible forensuring that the Directors receive accurate, timely andclear information. The Chairman ensures effective andclearcommunicationwithshareholderswhilstfacilitatingtheeffectivecontributionofNon-executiveDirectorsandensuring constructive relations between executive andNon-executiveDirectors.
Board balance and independenceThe Board includes a balance of executive and non-executiveDirectors,includingindependentnon-executiveDirectors;thisensuresthatnoindividualorsmallgroupofindividualscandominatetheBoard’sdecision-taking.
The Board consists of two independent non-executiveDirectors, one non-independent non-executive DirectorandthreeexecutiveDirectors.
Appointments to the BoardThere is a formal, rigorous and transparent procedurefor the appointment of new Directors to the Board.Appointments to the Board are made on merit andagainstobjectivecriteria.
The Nominations Committee leads the process andmakes recommendations for appointment to the Board,after consideration of any additional skills required toenhance the balance and effectiveness of the Boardandtimecommitmentsrequiredfortherole.
Information and professional developmentThe Chairman is responsible for ensuring that theDirectors continually update their skills and theirknowledge and familiarity with the company thatis required to fulfil their role both on the Board andontheBoardcommittees.
Under the direction of the Chairman, the companysecretary’s responsibilities include ensuring goodinformation flows within the Board and its committeesand between senior management and non-executiveDirectors, as well as facilitating induction andassisting with professional development as required.All Directors have access to the advice and servicesof the company secretary and they are able to takeindependent professional advice, as and when required,attheGroup’sexpense.
Re-electionThe Nominations Committee considers whether or notDirectors retiring by rotation should be put forward forreappointmentattheAnnualGeneralMeeting.
Each Director is submitted for reappointment at leastonce every three years, subject to continued satisfactoryperformance.ThenamesanddetailsofDirectorssubmittedforreappointmentisdealtwithintheDirectors’report.
RemunerationThe primary function of the Remuneration Committeeis to review the salary levels, discretionary bonuses,equity/option awards and terms and conditions ofservice of the Executive Directors. The Committee alsoreviews the compensation contracts and compensationdecisions made in respect of other senior managementand/or Group employees with significant remunerationpackages,aswellastheGroupbonusandshareincentivedistributionpolicy.
The Remuneration Committee comprises Richard Davey(Chairman) and Malcolm McCaig and meets at leasttwiceeachyear.
AlthoughtheGroupisnotcurrentlycoveredbytheFSA’sremunerationproposals,theCommitteemakesreferencetothemasgoodpracticewhenmakingdecisions.
Corporate Governance Report
Annual Report 2010
Financial ReportingTheBoardrecognisesthatitisresponsibleforpresentingabalancedandunderstandableassessmentoftheGroup’spositionandprospects.Thisisevidencedbythebusinessreviewprovidedonpage16.
Audit Committee and auditorsTheAuditCommitteeisappointedbytheBoardfromthenon-executiveDirectorsoftheGroupandmeetsfourtimesayear.ThetermsofreferenceareconsideredannuallybytheAuditCommitteeandarethenreferredtotheBoardforapproval.Theseareavailableonrequest.
The Audit Committee is responsible for:• monitoring the integrity of the financial statements
oftheGroupandanyformalannouncementsrelatingto the Group’s financial performance and reviewingsignificant financial reporting judgements containedtherein;
• reviewingtheGroup’sinternalfinancialcontrolsandtheGroup’sinternalcontrolandriskmanagementsystems;
• monitoring and reviewing the effectiveness of theGroup’soutsourcedinternalauditfunction;
• overseeingtheGroup’swhistleblowingarrangements;• making recommendations to the Board, for a
resolution to be put to shareholders at a generalmeeting,fortheappointmentoftheexternalauditorsand the determination of their remuneration andtermsofengagement;
• reviewing and monitoring the external auditorsindependence and objectivity and the effectivenessoftheauditprocess,takingintoconsiderationrelevantUKprofessionalandregulatoryrequirements;
• and, maintaining oversight of the OperationsComplianceandControlCommittee.
TheAuditCommitteecomprisesalloftheNon-ExecutiveDirectors, with Richard Davey being the Chairman.The executive Directors and representatives of theexternal and internal auditors attend meetings byinvitationasrequired.
ThecommitteemeetsatleastthreetimeseachyearandreceivesreportsfromtheGroup’smanagementrelatingtoaccounting and internal controls, reviews the scope andfindingsofbothexternalandinternalaudits,assessestheindependenceandobjectivityoftheexternalauditorsandmakes recommendations concerning the reappointmentor removal of the external auditors. The committee hasdirectandunrestrictedaccesstotheexternalauditors.
Internal controlsThe Group has established processes and proceduresfor identifying, evaluating and managing the significantrisks faced by the Group. Risk is monitored by the RiskCommittee and Audit Committee. The Committeesmeet regularly to discuss and manage the financialand operational risks of the Group. The main areas ofattention are set out in the Directors’ report on pages16to20.
TheBoardisultimatelyresponsiblefortheGroup’ssystemofinternalcontrolsandforreviewingitseffectiveness.TheroleofmanagementistoimplementBoardpoliciesonriskandcontrol.Thesystemofinternalcontrolsisdesignedtomanageratherthantoeliminatetheriskoffailureoftheachievementofbusinessobjectives,andcanonlyprovidereasonableandnotabsoluteassuranceagainstmaterialmisstatementorloss.
The Board’s monitoring covers all controls, includingfinancial, operational and compliance controls andriskmanagement.
The Board established an outsourced internal auditfunction in the year to gain further assurance that itsobligationsandresponsibilitiesarebeingmet.
Relations with ShareholdersIn regular meetings with shareholders and analysts theChiefExecutiveandGroupFinanceDirectorcommunicatethe Group’s strategy and results, disclosing suchinformation as is permitted within the guidelines of theAIM Rules. All shareholders are encouraged to attendthe Annual General Meeting at which the Chairmanof the Audit, Remuneration and Risk Committees willbe available to answer questions. Major shareholdersare also invited to briefings following the half year andannual results. The Group website contains electronicversions of the latest Annual report and accounts, half-year reports, biographical information on key DirectorsandOfficers,andsharepriceinformation.
Simon DenhamDirector22March2011
Accountability and Audit
Company law requires the Directors to prepare financialstatements for each financial year. Under that lawthe Directors are required to prepare group financialstatements in accordance with International FinancialReporting Standards (IFRSs) as adopted by theEuropean Union and Article 4 of the IAS Regulationand have also chosen to prepare the parent companyfinancial statements under IFRSs as adopted by theEuropean Union. Under company law the Directorsmust not approve the financial statements unless theyare satisfied that they give a true and fair view of thestateofaffairsof thecompanyandof theprofitor lossof the company for that period. In preparing thesefinancial statements, the Directors are required to:
• properlyselectandapplyaccountingpolicies;• present information, includingaccountingpolicies, in
amannerthatprovidesrelevant,reliable,comparableandunderstandableinformation;
• provide additional disclosures when compliancewiththe specific requirements in IFRSs are insufficient toenable users to understand the impact of particulartransactions, other events and conditions on theentity’sfinancialpositionandfinancialperformance;
• and,makeanassessmentofthecompany’sabilitytocontinueasagoingconcern.
The Directors are responsible for keeping properaccounting records that are sufficient to show andexplain the company’s transactions and disclose withreasonableaccuracyatanytimethefinancialpositionofthecompanyandenablethemtoensurethatthefinancialstatements comply with the Companies Act 2006. Theyare also responsible for safeguarding the assets of thecompany and hence for taking reasonable steps for thepreventionanddetectionoffraudandotherirregularities.
The Directors are responsible for the maintenance andintegrity of the corporate and financial informationincluded on the company’s website. Legislation inthe United Kingdom governing the preparation anddissemination of financial statements may differ fromlegislationinotherjurisdictions.
Directors’ResponsibilitiesThe Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
30Directors’ responsibilities
We have audited the financial statements of LondonCapital Group Holdings plc for the year ended 31December2010whichcomprisetheConsolidatedIncomeStatement, Consolidated Statement of ComprehensiveIncome, the Consolidated and Parent CompanyStatements of Changes in Equity, the Consolidatedand Parent Company Balance Sheets, the ConsolidatedCash Flow Statement and the related notes 1 to 31.Thefinancial reportingframeworkthathasbeenappliedin their preparation is applicable law and InternationalFinancial Reporting Standards (IFRSs) as adopted bytheEuropeanUnionand,asregardstheparentcompanyfinancial statements, as applied in accordance withtheprovisionsoftheCompaniesAct2006.
This report is made solely to the company’s members,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.Ourauditworkhasbeenundertakenso that we might state to the company’s membersthose matters we are required to state to them in anauditor’s report and for no other purpose. To the fullestextent permitted by law, we do not accept or assumeresponsibility to anyone other than the company andthe company’s members as a body, for our audit work,forthisreport,orfortheopinionswehaveformed.
Respective responsibilities of directors and auditorAs explained more fully in the Directors’ ResponsibilitiesStatement, the directors are responsible for thepreparation of the financial statements and forbeing satisfied that they give a true and fair view.Our responsibility is to audit and express an opinion onthe financial statements in accordance with applicablelaw and International Standards on Auditing (UK andIreland). Those standards require us to comply with theAuditingPracticesBoard’sEthicalStandardsforAuditors.
Scope of the audit of the financial statementsAnauditinvolvesobtainingevidenceabouttheamountsand disclosures in the financial statements sufficient togive reasonable assurance that the financial statementsarefreefrommaterialmisstatement,whethercausedbyfraud or error. This includes an assessment of: whetherthe accounting policies are appropriate to the group’sand the parent company’s circumstances and havebeen consistently applied and adequately disclosed;the reasonableness of significant accounting estimatesmade by the directors; and the overall presentation ofthe financial statements. In addition, we read all thefinancial and non-financial information in the annualreporttoidentifymaterialinconsistencieswiththeauditedfinancialstatements.Ifwebecomeawareofanyapparentmaterial misstatements or inconsistencies we considertheimplicationsforourreport.
IndependentAuditor’sReportto the members of London Capital Group Holdings plc
Annual Report 2010
32
Opinion on financial statements
In our opinion:• thefinancial statementsgivea trueandfairviewof
thestateofthegroup’sandoftheparentcompany’saffairsasat31December2010andofthegroup’slossfortheyearthenended;
• the group financial statements have been properlypreparedinaccordancewithIFRSsasadoptedbytheEuropeanUnion;
• theparentcompanyfinancialstatementshavebeenproperlypreparedinaccordancewithIFRSsasadoptedbytheEuropeanUnionandasappliedinaccordancewiththeprovisionsoftheCompaniesAct2006;and
• the financial statements have been prepared inaccordancewiththerequirementsoftheCompaniesAct2006.
Emphasis of matter – Uncertain outcome of complaint to Financials Ombudsman ServiceIn forming our opinion on the financial statements wehave considered the adequacy of disclosures made innotes 2, 3 and 23 concerning certain complaints beforetheFinancialOmbudsmanService(“FOS”)inrespectofamanaged spot FX fund. As explained in notes 3 and 23there remains significant uncertainty as to the eventualfinancialoutcomeofthisissue.Ouropinionisnotmodifiedinrespectofthismatter.
Emphasis of matter – Going concernIn forming our opinion on the financial statements wehave considered the adequacy of the disclosure madein note 2 to the financial statements concerning thecompany’s ability to continue as a going concern as aresultofthepotentialfinancialobligationsarisingoutoftheFOSassessmentassetoutabove.Assetoutinnote2,althoughtheGrouphassufficient resources tomeet theaforementionedpotentialfinancialobligationsshouldtheycrystallise,whollyorinpart,thereducedcapitalavailabletotheGroupwouldmateriallyimpairtheGroup’sregulatorycapitalposition.Inordertoaddressthisissuenote2setsouttheCompany’splantoraiseapproximately£8mthrougha placing. The placing is conditional on shareholderapprovaltobeobtainedattheGeneralMeetingtobeheldon7April2011.Innote2thedirectorsstatetheyhaveareasonableexpectationthattheplacingwillbesuccessfulandhavepreparedtheaccountsonagoingconcernbasisaccordingly.Despitethedirectorsdeclaredexpectation,theabsenceoflegallybindingcommitmentstotakinguptheplacingrepresentsamaterialuncertaintyastothefuturefundingofthebusiness.Iftheplacingisunsuccessfulforwhateverreasontherewouldbeasignificantdoubtaboutthe company’s ability to continue as a going concern.Ouropinionisnotmodifiedinrespectofthismatter.
Independent Auditor’s Report
Annual Report 2010
Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Directors’Report for the financial year for which the financialstatements are prepared is consistent with thefinancialstatements.
MattersonwhichwearerequiredtoreportbyexceptionWe have nothing to report in respect of the followingmatters where the Companies Act 2006 requires us toreporttoyouif,inouropinion:
• adequateaccountingrecordshavenotbeenkeptbytheparentcompany,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or
• the parent company financial statements are not inagreementwiththeaccountingrecordsandreturns;or
• certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or
• we have not received all the information andexplanationswerequireforouraudit.
Other mattersIn our opinion the part of the Directors’ RemunerationReport to be audited has been properly prepared inaccordance with the provisions of the Companies Act2006thatwouldhaveappliedwerethecompanyaquotedcompany.
Although not required to do so, the directors havevoluntarily chosen to make a corporate governancestatement detailing the extent of their compliancewiththeJune2008CombinedCode.Wereviewed:
• the directors’ statement, contained within thedirector’sreport,inrelationtogoingconcern;
• the part of the Corporate Governance Statementrelating to the company’s compliance with thenine provisions of the June 2008 Combined Codespecifiedforourreview;and
• certain elements of the report to shareholders bytheBoardondirectors’remuneration.
Mark Rhys (Senior statutory auditor)forandonbehalfofDeloitteLLPCharteredAccountantsandStatutoryAuditorLondon,UK22March2011
34
FinancialStatementsFor the year ended 31 December 2010
Consolidated Income Statement fortheyearended31December2010 Notes
2010£’000
2009£’000
Revenue 4 34,491 27,645
Costofsales (11,368) (8,671)
Gross profit 23,123 18,974
Administrativeexpenses(excludingdepreciation,amortisationandshare-basedpaymentcharge)
(14,717) (10,867)
Depreciationandamortisation (1,985) (2,251)
Impairmentcharge 14 (3,194) –
ChargeforprovisionagainstFinancialOmbudsmanService(“FOS”)claims 23 (3,200) –
Share-basedpaymentcharge (168) (157)
Totaladministrativeexpenses (23,264) (13,275)
Operating (loss)/profit (141) 5,699
Investmentrevenue 9 85 149
(Loss)/profit before taxation (56) 5,848
Taxcredit/(expense) 10 20 (1,981)
(Loss)/profit for the year (36) 3,867
(Loss)/profitfortheyearattributabletoownersoftheparent (36) 3,867
Earnings per share (pence)
–Basic 11 (0.09) 9.95
–Diluted 11 (0.09) 9.53
–Adjustedbasic 11 12.02 10.24
AlltheGroup’srevenuefortheyearandprioryearrelatetocontinuingactivities.
Consolidated Statement of Comprehensive Incomefortheyearended31December2010
2010£’000
2009£’000
(Loss)/profit before taxation (36) 3,867
Exchangedifferencesintranslationofforeignoperations 14 –
Total comprehensive (loss)/income for the year (22) 3,867
Totalcomprehensive(loss)/incomefortheyearattributabletoownersoftheparent (22) 3,867
Financial Statements
Annual Report 2010
Consolidated Statement of Changes in Shareholders’ Equityfortheyearended31December2010
Share capital (note 29)
£’000
Share premium account
(note 30) £’000
Own shares held
(note 29) £’000
Retained profits
(note 30) £’000
Other reserves (note 30)
£’000Total equity
£’000
At 1 January 2009 3,864 11,855 - 14,138 (5,344) 24,513
Totalcomprehensiveincomefortheperiod
– – – 3,867 – 3,867
Dividends – – – (4,267) – (4,267)
Share-basedpaymenttransactionsincludingdeferredtaxation
– – – (79) – (79)
Issueofsharecapital 35 298 – – – 333
At 31 December 2009 3,899 12,153 – 13,659 (5,344) 24,367
Totalcomprehensivelossfortheperiod
– – – (22) – (22)
Dividends – – – (390) – (390)
Share-basedpaymenttransactionsincludingdeferredtaxation
– – – 168 – 168
ShareOwnershipPlan 82 1,205 (1,287) – – –
Exercise/forfeitureofshareoptionsintheyear
4 32 – – – 36
At 31 December 2010 3,985 13,390 (1,287) 13,415 (5,344) 24,159
Company Statement of Changes in Shareholders’ Equityfortheyearended31December2010
Share capital (note 29)
£’000
Share premium account
(note 30) £’000
Retained profits
(note 30) £’000
Total equity £’000
At1January2009 3,864 11,855 9,204 24,923
Lossandtotalcomprehensiveincomefortheperiod – – (1,952) (1,952)
Dividendspaid – – (4,267) (4,267)
Issueofsharecapital 35 298 – 333
Share-basedpaymenttransactionsincludingdeferredtaxation – – 157 157
At31December2009 3,899 12,153 3,142 19,194
Profitandtotalcomprehensiveincomefortheperiod – – 312 312
Dividendspaid – – (390) (390)
Share-basedpaymenttransactionsincludingdeferredtaxation – – 168 168
ShareOwnershipPlan 82 1,205 – 1,287
Exercise/forfeitureofshareoptionsintheyear 4 32 – 36
At31December2010 3,985 13,390 3,232 20,607
36
Consolidated Balance Sheet fortheyearended31December2010 Notes
2010£’000
2009£’000
NON-CURRENT ASSETS
Intangibleassets 13 12,745 15,753
Property,plantandequipment 16 597 911
Available-for-saleinvestments 17 100 –
Deferredtaxasset 10 168 3
13,610 16,667
CURRENT ASSETS
Tradeandotherreceivables 19 3,233 1,325
Cashandcashequivalents 20 61,583 63,871
Currenttaxreceivable 473 –
65,289 65,196
TOTAL ASSETS 78,899 81,863
CURRENT LIABILITIES
Tradeandotherpayables 21,22 51,540 56,723
Currenttaxliabilities – 773
Provisions 23 3,200 –
54,740 57,496
TOTAL LIABILITIES 54,740 57,496
NET ASSETS 24,159 24,367
EQUITY
Sharecapital 29 3,985 3,899
Sharepremiumaccount 30 13,390 12,153
Ownsharesheld 29 (1,287) –
Retainedprofits 30 13,415 13,659
Otherreserves 30 (5,344) (5,344)
TOTAL EQUITY 24,159 24,367
The financial statements of London Capital Group Holdings, registration number 05497744, were approved andauthorisedforissuebytheBoardofDirectorson22March2011andsignedonitsbehalfby:
Simon DenhamDirector
Financial Statements
Annual Report 2010
Company Balance Sheet fortheyearended31December2010 Notes
2010£’000
2009£’000
NON-CURRENT ASSETS
Investments 17 7,528 7,360
CURRENT ASSETS
Tradeandotherreceivables 19 14,966 18,017
TOTAL ASSETS 22,494 25,377
CURRENT LIABILITIES
Tradeandotherpayables 22 1,887 6,183
NET ASSETS 20,607 19,194
EQUITY
Sharecapital 29 3,985 3,899
Sharepremiumaccount 30 13,390 12,153
Retainedprofits 30 3,232 3,142
TOTAL EQUITY 20,607 19,194
AspermittedbySection408oftheCompaniesAct2006,theindividualincomestatementofLondonCapitalGroupHoldingsplchasnotbeenpresentedinthesefinancialstatements.TheamountofprofitaftertaxationforthefinancialyeardealtwithintheCompanyfinancialstatementsofLondonCapitalGroupHoldingsplcis£312,000(2009:lossaftertaxof£1,952,000).
Therearenoitemswhichwouldberecognisedinaseparatestatementofcomprehensiveincomeotherthanthenetprofitfortheyearandtherefore,theillustrativeparentcompanyonlyaccountshaveadoptedtheapproachallowableinIAS1.81(a)topresentonestatementofcomprehensiveincome.
ThesefinancialstatementswereapprovedandauthorisedforissuebytheBoardofDirectorson22March2011andsignedonitsbehalfby:
Simon DenhamDirector
38
Consolidated Cash Flow Statement fortheyearended31December2010 Notes
2010£’000
2009£’000
(Loss)/profit for the year (36) 3,867
Adjustmentsfor:
Depreciationofproperty,plantandequipment 542 418
Amortisationofintangibleassets 1,443 1,833
Equitysettledsharebasedpayment 168 157
Softwareimpairment 3,194 -
ChargeforprovisionagainstFinancialOmbudsmanService(“FOS”)claims 3,200 -
Investmentincome (85) (149)
Currenttaxcharge 145 1,707
Movementindeferredtaxasset (165) 512
Operating cash flows before movements in working capital 8,406 8,345
(Increase)/decreaseinreceivables (1,908) 1,969
(Decrease)/increaseinpayables (5,183) 5,788
Cash generated by operating activities 1,315 16,102
Taxationpaid (1,388) (2,430)
Net cash (used in)/from operations (73) 13,672
Investing activities
Investmentincome 85 149
Acquisitionsofproperty,plantandequipment (228) (393)
Acquisitionsofintangibleassets (1,608) (2,564)
Acquisitionsofinvestments 17 (100) (353)
Netcashusedininvestingactivities (1,851) (3,161)
Financing activities
Dividendspaid (390) (4,267)
Cashfromissueofsharecapital 26 333
Netcashusedinfinancingactivities (364) (3,934)
Net(decrease)/increaseincashandcashequivalents (2,288) 6,577
Cashandcashequivalentsatbeginningofyear 63,871 57,294
Cashandcashequivalentsatendofyear 20 61,583 63,871
Ownmoney 13,948 10,025
Clientmoniesheld 21 47,635 53,846
61,583 63,871
ACompanyCashflowstatementhasnotbeenpresentedastheCompanydoesnotholdanycash.
Financial Statements
Annual Report 2010
NotestotheFinancialStatementsLondon Group Capital Holdings plc is a company incorporated in Great Britain under the Companies Act 2006. The nature of the Group’s operations and its principal activities are set out in the Directors’ Report on pages 16 to 20.
1. Adoption of new and revised Standards
Standards not affecting the reported results nor the financial positionTheadoptionofthefollowingnewandrevisedStandardsand Interpretations has not had any significant impactontheamountsreportedinthesefinancialstatementsbutmay impact the accounting for future transactions andarrangements.
Standards in issue but not yet effectiveAtthedateofauthorisationofthesefinancialstatements,the following Standards and Interpretations which havenot been applied in these financial statements were inissuebutnotyeteffective(andinsomecaseshadnotyetbeenadoptedbytheEU):
Theadoptionof IFRS9which theGroupplans toadoptfortheyearbeginningon1January2013willimpactthedisclosureofFinancialInstruments.
ThedirectorsdonotexpectthattheadoptionoftheotherStandardslistedabovewillhaveamaterialimpactonthefinancialstatementsoftheGroupinfutureperiods.
The following new and revised Standards and Interpretations have been adopted in the current year.
IFRS9 FinancialInstruments
IAS24(amended) RelatedPartyDisclosures
IAS32(amended) ClassificationofRightsIssues
IFRIC19 ExtinguishingFinancialLiabilitieswithEquityInstruments
IFRIC14(amended) PrepaymentsofaMinimumFundingRequirement
ImprovementstoIFRSs(May2010)
IFRIC17DistributionofNon-cashAssetstoOwners
TheInterpretationprovidesguidanceonwhentheentityshouldrecogniseanon-cashdividendpayable,howtomeasurethedividendpayableandhowtoaccountforanydifferencebetweenthecarryingamountofthedividendpayablewhenthepayableissettled.
IFRS2(amended)GroupCash-settledShare-basedPaymentTransactions
Theamendmentclarifiestheaccountingforshare-basedpaymenttransactionsbetweengroupentities.
40
Basis of accountingThefinancialstatementshavebeenpreparedinaccordancewith International Financial Reporting Standards (IFRS)asadoptedforuse intheEuropeanUnionandthereforecomplywithArticle4oftheEUIASRegulation.
Theconsolidatedfinancialstatementshavebeenpreparedon the historical cost basis using pounds sterling as thepresentationcurrency.
Basis of consolidationTheGroup’sconsolidatedfinancialstatementsincorporatethe financial statements of London Capital GroupHoldings plc (the “Company”) and entities controlled bytheCompany(itssubsidiaries)madeupto31Decembereach year. Control is achieved where the Company hasthepowertogovernthefinancialandoperatingpoliciesofaninvesteeentitysoastoobtainbenefitsfromitsactivities.
Theresultsofsubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidatedincomestatementfromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposal,asappropriate.
Wherenecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheaccountingpoliciesusedintolinewiththoseusedbytheGroup.
All intra-group transactions, balances, income andexpensesareeliminatedonconsolidation.
Going concernThe Group’s business activities and financial position;the factors likely to affect its future development andperformance;anditsobjectivesandpoliciesinmanagingthe financial risks to which it is exposed and its capitalarediscussedintheGroupFinancialReview.AssetoutintheChiefExecutive’sStatementandtheGroupFinancialReview, the revised Financial Ombudsman Service(“FOS”) assessment pertaining to commission rebatingof a managed spot FX fund has resulted in the Grouprecognising a provision of £3.2m (£2.3m net of tax) at31 December 2010 and disclosing a further contingentliabilityof£3.2m(£2.3mnetoftax).
The Group’s funding and capital plans are determinedon a Group basis. Whilst the Group has sufficient cashresourcestomeettheabove-mentionedliabilityshoulditcrystallise,whollyorinpart,thereducedcapitalavailabletotheGroupintheinterimperiodwouldlimittheGroup’soperationsandabilitytogenerateprofits.
The Group’s capital requirements fluctuate significantlydepending on the residual market risk it retains fromunhedged client positions. The Grouphas limits in placeset by the Risk Committee which determine the level ofmarketriskonanaggregateandindividualproductbasisitcantake.AkeydeterminantoftheGroup’sprofitabilityistheamountofriskitcantakewithrespecttounhedgedclientpositions.ThisisdependentonthecapitalresourcesatLCG’sdisposal.
IftheGrouphadbeenutilisingthefulllimitassetbytheRiskCommitteeitwouldhavehadaregulatorydeficitat31December2010.
The Board has therefore decided to raise approximately£8.0m before expenses through the issue by way of aplacingof13,333,333newordinarysharesat60pencepershare tocertainDirectorsand institutional investors (the“Placing”)toensurethecontinuedoperatingeffectivenessandprofitabilityof the Group.Theplacing is conditionalon shareholder approval to be obtained at the GeneralMeetingtobeheldon7April2011.
The directors have reviewed the Group’s forecasts andprojections.Thedirectorshaveareasonableexpectationthat the placing of 13,333,333 ordinary shares will besuccessful and, accordingly, that the Group will havesufficientcapitalavailableforittocontinueinoperationalexistence for the foreseeable future. The financialstatementsof theGrouphave, therefore,beenpreparedonagoingconcernbasis.
The principal accounting policies adopted are set out below. These have been applied consistently to all periods presented in the IFRS financial statements.
2. Accounting policies
Notes to the Financial Statements
Annual Report 2011
Business CombinationsAcquisitionsofsubsidiariesandbusinessesareaccountedfor using the purchase method. The cost of the businesscombination is measured as the aggregate of the fairvalues(atthedateofexchange)ofassetsgiven,liabilitiesincurredorassumed,andequityinstrumentsissuedbytheGroup in exchange for control of the acquiree, plus anycostsdirectlyattributabletothebusinesscombination.
Theacquiree’sidentifiableassets,liabilitiesandcontingentliabilities that meet the conditions for recognition underIFRS 3 Business Combinations are recognised at theirfairvaluesattheacquisitiondate,exceptfornon-currentassetsthatareclassifiedasheldforsaleinaccordancewithIFRS5Non-currentAssetsHeldforSaleandDiscontinuedOperations, which are recognised and measured at fairvaluelesscoststosell.
UpontransitiontoIFRS,theGrouptookadvantageoftheoptionalexemptionaffordedbyIFRS1nottorestatethebusinesscombinationconcerningtheacquisitionofTradexEnterprisesLimitedusingthepurchasemethod.
Goodwill Goodwillarisinginabusinesscombinationisrecognisedasanassetatthedatethatcontrolisacquired(theacquisitiondate).Goodwill ismeasuredas theexcessof the costofacquisitionovertheGroup’sinterestinthenetfairvalueofthe identifiable assets, liabilities and contingent liabilitiesofthesubsidiaryor jointlycontrolledentityrecognisedatthedateofacquisition.Goodwillisinitiallyrecognisedasanassetatcostandissubsequentlymeasuredatcostlessanyaccumulatedimpairmentlosses.
Impairment testing of goodwillGoodwillisnotamortisedbutisreviewedforimpairmentat leastannually.Forthepurposeof impairmenttesting,goodwill is allocated to each of the Group’s cash-generatingunitsexpectedtobenefitfromthesynergiesofthecombination.Cash-generatingunitstowhichgoodwillhasbeenallocatedaretestedforimpairmentannually,ormorefrequentlywhenthereisanindicationthataspecificunitmaybeimpaired.
If the recoverable amount of a cash-generating unit islessthanthecarryingamountoftheunit,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentotheotherassetsoftheunitpro-rataonthebasisofthecarryingamountofeachassetwithintheunit.Animpairmentlossrecognisedforgoodwillisnotreversibleinasubsequentperiod.
On disposal of a subsidiary, the attributable amount ofgoodwill is included in thedeterminationof theprofitorlossondisposal.
Revenue recognitionRevenue is recognised to the extent that economicbenefits will flow to the Group and the revenue can bereliablymeasured.
Rendering of services includes gains and losses on therunning of betting and trading in financial markets, netof commission expensed, exchange gains and interestincludinginterestearnedonclientdeposits.Openpositionsarecarriedatfairmarketvalueandgainsandlossesarisingonthisvaluationarerecognisedinrevenueaswellasgainsandlossesonpositionsthathaveclosed.
Foreign currenciesThe individual financial statements of each groupcompany are presented in the currency of the primaryeconomicenvironmentinwhichitoperates(itsfunctionalcurrency). For the purpose of the consolidated financialstatements, the results and financial position of eachgroup company are expressed as in pounds sterling,which is the functional currency of the Company,and the presentation currency for the consolidatedfinancialstatements.
In preparing the financial statements of the individualcompanies, transactions in currencies other than theentity’s functional currency (foreign currencies) arerecognised at the rates of exchange prevailing on thedates of the transactions. At each balance sheet datemonetary assets and liabilities that are denominatedin foreign currencies are retranslated at the ratesprevailing at that date. Non-monetary items carried atfair value that are denominated in foreign currenciesare translated at the rates prevailing at the date whenthe fair value was determined. Non-monetary itemsthataremeasuredintermsofhistoricalcost inaforeigncurrencyarenotretranslated.
For the purpose of presenting consolidated financialstatements,theassetsandliabilitiesoftheGroup’sforeignoperations are translated at exchange rates prevailingon the balance sheet date. Income and expense itemsare translated at the average exchange rates for theperiod,unlessexchangeratesfluctuatesignificantlyintheperiod, in which case the exchange rates at the date ofthetransactionsareused.Exchangedifferencesarising,ifany, are recognised in other comprehensive income andaccumulatedinequity.
42
TaxationThetaxexpense represents thesumofthetaxcurrentlypayableanddeferredtax.
Current taxationThetaxcurrentlypayableisbasedontaxableprofitfortheyear.Taxableprofitmaydifferfromthenetprofitshownin the income statement because it excludes income orexpensesthataretaxableordeductibleinotheryearsandfurthermore it might exclude other items that are nevertaxableordeductible.
Currenttaxisprovidedatamountsexpectedtobepaidorrecoveredusingtaxratesandlawswhichareinforceatthebalancesheetdate.
Deferred taxationDeferredtaxisprovidedinfull,usingtheliabilitymethod.It represents the tax payable on temporary differencesbetween the amount recoverable in respect of anydifferences between the carrying amounts of assetsand liabilities in the financial statements as comparedto corresponding tax bases used in the computation oftaxableprofit.
Deferred tax liabilities are generally recognised for alltaxable temporary differences and deferred tax assetsarerecognisedtotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheassetcanbeutilised.Suchassetsandliabilitiesarenotrecognisedifthetemporarydifferencearisesfromtheinitialrecognitionofgoodwillorfromtheinitialrecognition(otherthaninabusiness combination) ofotherassetsand liabilities inatransactionthataffectsneitherthetaxableprofitnortheaccountingprofit.
The carrying amount of any deferred tax assets arereviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.
Deferredtaxassetsandliabilitiesaremeasuredusingtheratesthatareexpectedtoapplytotheperiodwhentheasset is realised or the liability is settled. Deferred tax ischarged or credited to the income statement, exceptwhen it relates to items charged or credited in othercomprehensive income, inwhichcasethedeferredtax isalsodealtwithinothercomprehensiveincome.
Deferred tax assets and liabilities are offset when thereisa legallyenforceablerighttosetoffcurrenttaxassetsagainst current tax liabilities and when they relate toincometaxes leviedby thesametaxationauthorityandthe Group intends to settle its current tax assets andliabilitiesonanetbasis.
Property, plant and equipmentProperty, plant and equipment are stated at cost lessaccumulateddepreciationandanyprovisionforimpairment.
Depreciation is recognised so as to write-off the costof assets less any residual value over their useful lives,usingthestraight-linemethod,onthefollowingbasis:
PlantandEquipment 25%straight-line
LeaseholdProperty overtheusefuleconomiclifeoftheassetorovertheleaseterm,whicheverisshorter
There has been a change in accounting estimate forleasehold property, from the shorter of the lease termor 25% straight line. The new accounting estimate isdesigned to better reflect the useful economic lives ofleaseholdpropertyassets.
Theassets’estimatedresidualvaluesandusefullivesarereviewed, and adjusted if appropriate, at each balancesheetdate.
Thegainorlossarisingonthedisposalorscrappageofanasset is determined as the difference between the salesproceeds and the carrying amount of the asset and isrecognisedinincome.
Intangible assets excluding goodwillSoftwareSoftware assets are reported at cost less accumulatedamortisationandaccumulatedimpairmentlosses.
Amortisation is charged on a straight-line basis overfouryears.
The estimated useful life and amortisation method arereviewedattheendofeachannualreportingperiod,withtheeffectofanychangesinestimatebeingaccountedforonaprospectivebasis.
Included within software are capitalised costs related totheGroup’stradingplatforms.
Notes to the Financial Statements
Annual Report 2010
Intangible assets acquired in a business combinationIntangibleassetsacquiredinabusinesscombinationareidentifiedandrecognisedseparatelyfromgoodwillwheretheysatisfythedefinitionofanintangibleassetandtheirfairvaluescanbemeasuredreliably.Thecostofsuchanintangibleassetistheirfairvalueattheacquisitiondate.
Subsequent to initial recognition, intangible assetsacquired in a business combination are reported atcost less accumulated amortisation and accumulatedimpairmentlosses,onthesamebasisasintangibleassetsacquiredseparately.
Intangibleassetswithafinitelifeareamortisedonastraightlinebasisovertheirexpectedusefullivesasfollows:
Customerrelationship overtheexpectedtradelifeofthreeyears
Tradename overfiveyears
Thecarryingvaluesof intangibleassetsare reviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethecarryingvaluemaynotberecoverable.
Impairment testing of tangible and intangible assets excluding goodwillAteachbalancesheetdate,theGroupreviewsthecarryingamountsofitstangibleandintangibleassetstodeterminewhether there is any indication that those assets havesufferedanimpairmentloss.Ifanysuchindicationexists,the recoverable amount of the asset is estimated todeterminetheextentof the impairment loss (ifany).Anintangibleassetwithanindefiniteuseful lifeistestedforimpairment at least annually and whenever there is anindicationthattheassetmaybeimpaired.
The recoverable amount of an asset is the greater ofits fair value less costs to sell, and its value in use.In assessing value in use, the estimated future cashflows are discounted to their present value using apre-tax discount rate that reflects current marketassessments of the time value of money and the risksspecifictotheassetforwhichthefuturecashflowshavenot been adjusted. Where the asset does not generatecash flows that are largely independent from otherassets,therecoverableamountisassessedbyreferencetothecashgeneratingunittowhichtheassetbelongs.
Iftherecoverableamountofanasset(orcashgeneratingunit)isestimatedtobelessthanitscarryingamount,thecarryingamountof theasset (or cashgeneratingunit) isreduced to its recoverableamount.An impairment loss isrecognisedimmediatelyinprofitorloss,unlesstherelevantasset is carried at a revalued amount, in which case theimpairmentlossistreatedasarevaluationdecrease.
Cash and cash equivalentsCash and cash equivalents comprise cash balances, calldepositsandclientmoney.
Financial instrumentsFinancialassetsandfinancial liabilitiesare recognised inthe Group’s balance sheet when the Group becomes apartytothecontractualprovisionsoftheinstrument.
Financial assetsAllfinancialassetsarerecognisedandderecognisedonatradedatewherethepurchaseorsaleofafinancialassetis under a contract whose terms require delivery of thefinancial asset within the timeframe established by themarketconcerned,andareinitiallymeasuredatfairvalue,plus transaction costs, except for those financial assetsclassifiedasatfairvaluethroughprofitorloss,whichareinitiallymeasuredatfairvalue.
Financialassetsareclassifiedintothefollowingspecifiedcategories:financialassets‘atfairvaluethroughprofitorloss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’(AFS)financialassetsand‘loansandreceivables’.Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.
Effective interest methodTheeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofadebtinstrumentandofallocatinginterest income over the relevant period. The effectiveinterest rate is the rate thatexactlydiscountsestimatedfuturecashreceipts(includingallfeesandpointspaidorreceivedthatformanintegralpartoftheeffectiveinterestrate, transactioncostsandotherpremiumsordiscounts)throughtheexpectedlifeofthedebtinstrument,or,whereappropriate,ashorterperiod,tothenetcarryingamountoninitialrecognition.
IncomeisrecognisedonaneffectiveinterestbasisfordebtinstrumentsotherthanthosefinancialassetsclassifiedasatFVTPL.
44
Financial assets at FVTPLFinancial assets are classified as at FVTPL when thefinancialassetiseitherheldfortradingoritisdesignatedasatFVTPL.
Afinancialassetisclassifiedasheldfortradingif:
• it has been acquired principally for the purpose ofsellinginthenearterm;or
• on initial recognition it is a part of a portfolio ofidentified financial instruments that the groupmanagestogetherandhasarecentactualpatternofshort-termprofit-taking;or
• itisaderivativethatisnotdesignatedandeffectiveasahedginginstrument.
FinancialassetsatFVTPLarestatedatfairvalue,withanygains or losses arising on remeasurement recognised inprofitor loss.Thenetgainor loss recognised inprofitorloss incorporates any dividend or interest earned on thefinancialasset.
Derecognition of financial assetsThe Group derecognises a financial asset only when thecontractualrightstothecashflowsfromtheassetexpire,orwhenittransfersthefinancialassetandsubstantiallyalltherisksandrewardsofownershipoftheassettoanotherentity.
Financial liabilitiesFinancialliabilitiesareclassifiedaseitherfinancialliabilities‘atFVTPL’or‘otherfinancialliabilities’.
Financial liabilities at FVTPLFinancial liabilities are classified as at FVTPL when thefinancialliabilityiseitherheldfortradingoritisdesignatedasatFVTPL.
Afinancialliabilityisclassifiedasheldfortradingif:
• it has been incurred principally for the purpose ofrepurchasingitinthenearterm;or
• oninitialrecognitionitispartofaportfolioofidentifiedfinancial instruments that the Group managestogetherandhasarecentactualpatternofshort-termprofit-taking;or
• itisaderivativethatisnotdesignatedandeffectiveasahedginginstrument.
Financial liabilities at FVTPL are stated at fair value, withanygainsorlossesarisingonremeasurementrecognisedinprofitorloss.Thenetgainorlossrecognisedinprofitorlossincorporatesanyinterestpaidonthefinancialliabilityandisincludedintherevenuelineitemintheincomestatement.
Other financial liabilitiesOtherfinancialliabilities,includingborrowings,areinitiallymeasuredatfairvalue,netoftransactioncosts.
Other financial liabilities are subsequently measured atamortisedcostusing theeffective interestmethod,withinterestexpenserecognisedonaneffectiveyieldbasis.
Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialliabilityandofallocatinginterest expense over the relevant period. The effectiveinterest rate is the rate thatexactlydiscountsestimatedfuture cash payments through the expected life of thefinancialliability,or,whereappropriate,ashorterperiod,tothenetcarryingamountoninitialrecognition.
Derecognition of financial liabilitiesTheGroupderecognisesfinancialliabilitieswhen,andonlywhen,theGroup’sobligationsaredischarged,cancelledortheyexpire.
Held-to-maturity investmentsBillsofexchangeanddebentureswithfixedordeterminablepaymentsandfixedmaturitydatesthattheGrouphasthepositiveintentandabilitytoholdtomaturityareclassifiedasheld-to-maturityinvestments.Held-to-maturityinvestmentsaremeasuredatamortisedcostusingtheeffectiveinterestmethod lessany impairment,with revenue recognisedonaneffectiveyieldbasis.
Available for sale financial assetsThe Group has investments in unlisted shares that arenot traded in an active market but that are classified asAFS financial assets and stated at fair value (becausethe directors consider that fair value can be reliablymeasured). Gains and losses arising from changes in fairvaluearerecognised inothercomprehensive incomeandaccumulated in the investments revaluation reserve withthe exception of impairment losses, interest calculatedusingtheeffectiveinterestmethodandforeignexchangegainsandlossesonmonetaryassets,whicharerecogniseddirectlyinprofitorloss.Wheretheinvestmentisdisposedoforisdeterminedtobeimpaired,thecumulativegainorloss previously recognised in the investments revaluationreserveisreclassifiedtoprofitorloss.
Dividends on AFS equity instruments are recognised inprofitorlosswhentheGroup’srighttoreceivethedividendsisestablished.
Notes to the Financial Statements
Annual Report 2010
Loans and receivablesTradereceivables, loans,andother receivablesthathavefixed or determinable payments that are not quoted inanactivemarketareclassifiedas‘loansandreceivables’.Loans and receivables are measured at amortised costusingtheeffectiveinterestmethod,lessanyimpairment.Interest income is recognised by applying the effectiveinterest rate, except for short-term receivables when therecognitionofinterestwouldbeimmaterial.
Operating lease agreementsRentalpaymentsunderoperatingleaseswheresubstantiallyall of the benefits and risks of ownership remain with thelessorarechargedtotheincomestatementonastraightlinebasisoverthetermofthelease.
Share-based payment transactionsThe Group operates three share based paymentprogrammes that allows employees to acquire shares oftheCompany.Inaccordancewiththetransitionalprovisionsof IFRS 2, Share-based payment, the requirements ofthestandardhavebeenappliedretrospectivelytoalltheoptions granted after 7 November 2002 that were notyetvestedasat1January2005.
Equity-settled share-based payments to employeesaremeasuredatthefairvalueoftheequityinstrumentsatthegrantdate.Thefairvalueexcludestheeffectofnon-marketbasedvestingconditions.
The fair value of options granted is recognised as anemployee expense with a corresponding increase inequity. The fair value determined at the grant date ofthe equity-settled share-based payments is expensedon a straight-line basis over the vesting period, basedon the Group’s estimate of equity instruments that willeventually vest. At each balance sheet date, the Grouprevises itsestimateof thenumberofequity instrumentsexpectedtovestasaresultoftheeffectofnonmarket-based vesting conditions. The impact of the revision ofthe original estimates, if any, is recognised in profit orloss such that the cumulative expense reflects therevised estimate, with a corresponding adjustment totheequity-settledemployeebenefitsreserve.
For cash-settled share-based payments, a liability isrecognised for thegoodsor servicesacquired,measuredinitially at the fair value of the liability. At each balancesheetdateuntiltheliabilityissettled,andatthedateofsettlement, the fair value of the liability is remeasured,withanychangesinfairvaluerecognisedinprofitorlossfortheyear.
Where the company grants rights to its equityinstrumentstoemployeesof itssubsidiariesandhastheobligation to settle the transaction with the employeesofthesubsidiarybyissuingitsownequityinstruments:
• Thesubsidiaryinitsownseparatefinancialstatementsmeasures the services received in accordance withthe requirements applicable to equity-settled share-basedpaymenttransactions.Thereisacorrespondingincrease inequityasacapital contribution from theparent.
• The parent measures its obligation in accordancewith the requirements applicable to equity share-based payment transactions. The parent recognisesa credit to equity and corresponding contribution toits subsidiary by increasing the carrying value of itsinvestmentinitssubsidiary.
ProvisionsProvisions are recognised when the Group has a presentobligation as result of a past event, and it is probablethat the Group will be required to settle that obligationand a reliable estimate can be made of the amount ofthatobligation.
Theamountrecognisedasaprovisionisthebestestimateof the consideration required to settle the presentobligationatthebalancesheetdate,takingintoaccountthe risks and uncertainties surrounding the obligation.Where a provision is measured using the cash flowsestimated to settle the present obligation, its carryingamountisthepresentvalueofthosecashflows.
When some or all of the economic benefits required tosettle theprovisionareexpectedtobe recoveredfromathird party, a receivable is recognised as an asset if it isvirtuallycertainthatreimbursementistobereceivedandtheamountofthereceivablecanbemeasuredreliably.
46
The estimates and associated assumptions are basedon historical experience and other factors that areconsideredtoberelevant.Actual resultsmaydifferfromtheseestimates.
Theestimatesandunderlyingassumptionsare reviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognised in theperiod inwhichtheestimate is revisediftherevisionaffectsonlythatperiodorintheperiodoftherevisionandfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.
Thekeyassumptionsconcerningthefuture,andotherkeysourcesofestimationuncertaintyatthebalancesheetdate,thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow.
Impairment of goodwillDetermining whether goodwill is impaired requires anestimationofthevalueinuseofthecash-generatingunitsto which the goodwill has been allocated. The value inusecalculationrequirestheentitytoestimatefuturecashflows expected to arise from the cash-generating unitandasuitablediscountrateinordertocalculatepresentvalue. The carrying amount of goodwill at the balancesheetdatewas£9.7million.Detailsregardingthegoodwillcarryingvalueandassumptionsused incarryingouttheimpairmentreviewsareprovidedinnote18.
Impairment of software assetsSoftwareassetsareheldonthebalancesheetatcostlessaccumulatedamortisation.Anannualreviewofsoftwareassetsisperformedtodeterminewhetherimpairmentsareappropriate.Asoftwareassetisimpairedifmanagementdeemitseconomiclifetobeexpired,orreducedinrelationtoitsoriginalexpectedlife.
During the year the Group reviewed its IT strategy.AsaresultofthisreviewitwasconcludedthattheGroupwouldchangethefocusofitsITassetuseinfuture.
Consequently, the Board determined that the currentvalueisnolongersupportablegoingforwardandthatanimpairmentof£3.2mshouldbechargedinrelationtotheGroup’s software assets. This charge has been includedintheincomestatementanddoesnotimpacteitherthecashresourcesorregulatoryresourcesoftheGroup.
Recoverability of spread betting debtorsTheGroupcurrentlyhas£1.6mofspreadbettingdebtorsagainst which there are provisions of £0.1m. Of thisamount,£1.4mrelatestoaprofessionalclient,introducedby a white label partner that was permitted to tradewithoutautomaticstoplossesontheiraccount.Thisdebtis currently being pursued by the Group; it remains dueandpayablewithnoprovisionagainstitastheDirectorsbelievethattheamountisrecoverable.
Provisions and contingent liabilitiesAsreferredtointheChiefExecutive’sStatementandtheFinancial review, the Group has recognised a provisionandnotedacontingent liability inrelationtocomplaintsmadetotheFOSpertainingtoacommissionrebatingofamanagedspotFXfund.TheDirectorshavedeterminedthevaluationoftheprovisionbasedonananalysisofthelosses incurred in the fund attributable to clients undertheprotectionoftheFOS,thelatestFOSassessmentandtheFOS’srulesoncompensation.WhilsttheDirectorsareconfident that the provision represents a best estimateof the implications of the latest FOS determination,there remains significant uncertainty as to the eventualfinancial outcome. The Group is intending to challengetheadjudicator’sassessmentand,althoughtheDirectorsare confident that there are grounds for challenge, theoutcomeofthisprocessisuncertain.
In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
3. Critical accounting judgements and key sources of estimation uncertainty
Notes to the Financial Statements
Annual Report 2010
4. Business and geographical segments
Information reported to the Group’s Chief Executive forthe purposes of resource allocation and assessment ofsegmentperformanceisfocusedontheGroup’sdifferentproductofferingsandgeographies.TheGroup’sreportablesegmentsunderIFRS8areasfollows:
• Financialspreadbetting,UK• Contractsfordifference(CFDs),UK• Institutionalforeignexchange• Institutionalbrokerage• Contractsfordifference(CFDs),Australia• Financialspreadbetting,Gibraltar
CFDs are a new product offering and are thereforeincludedasanewsegmentin2010.ThisCFDbusinesshasbeensplitbetweenAustraliaandtheUKtoreflecthowthebusinessismanagedandreportedtotheBoard
InformationregardingtheGroup’soperatingsegmentsisreportedbelow.
fortheyearended31December2010
Financial spread
betting, UK
£’000
CFDs UK
£’000
Institutional foreign
exchange £’000
Institutional brokerage
£’000
CFDs Australia
£’000
Financial spread
betting, Gibraltar
£’000Total
£’000
Revenue
Segmentalrevenue 25,827 (67) 6,045 1,082 (2) 1,520 34,405
Foreignexchangegainontrading 86
Totalgrouprevenue 34,491
Segmentaloperatingprofit/(loss) 9,065 (532) 2,145 275 (323) (483) 10,147
Unallocatedcorporateexpenses (10,288)
Operating loss (141)
Financeincome 85
Loss before taxation (56)
Taxationcredit 20
Loss for the year (36)
Segmental assets 29,254 316 16,743 281 445 8,432 55,471
Unallocatedcorporateassets 23,428
Consolidatedtotalassets 78,899
Segmental liabilities 24,917 316 16,481 48 21 6,507 48,290
Unallocatedcorporateliabilities 6.450
Consolidatedtotalliabilities 54,740
Products and services from which reportable segments derive their revenues
Includedwithinrevenueisinterestincomeearnedonclientmoneyheld.
48
fortheyearended31December2009
Financial spread betting, UK
£’000
Institutional foreign
exchange £’000
Institutional brokerage
£’000
Financial spread betting, Gibraltar
£’000Total
£’000
Revenue
Segmentalrevenue 19,711 5,582 815 1,346 27,454
Foreignexchangegainontrading 191
Totalgrouprevenue 27,645
Segmentaloperatingprofit/(loss) 11,062 2,523 171 (257) 13,499
Unallocatedcorporateexpenses (7,800)
Operating profit 5,699
Financeincome 149
Profit before taxation 5,848
Taxationexpense (1,981)
Profit for the year 3,867
Segmental assets 39,616 19,340 403 7,529 66,888
Unallocatedcorporateassets 14,975
Consolidatedtotalassets 81,863
Segmental liabilities 30,178 19,130 – 5,084 54,392
Unallocatedcorporateliabilities 3,104
Consolidatedtotalliabilities 57,496
TheaccountingpoliciesofthereportablesegmentsarethesameastheGroup’saccountingpoliciesdescribedinnote2.SegmentprofitrepresentstheprofitearnedbyeachsegmentwithoutallocationoftheshareofcentraladministrationcostsincludingDirectors’salaries,investmentrevenueandfinancecosts,andincometaxexpense.ThisisthemeasurereportedtotheGroup’sChiefExecutiveforthepurposeofresourceallocationandassessmentofsegmentalperformance.
Animpairmentchargeof£3.2mwasrecognisedintheFinancialSpreadBetting,UKsegmentandisinrelationtotheimpairmentonsoftwareintangibles;thisisdisclosedinnote14.
Yearended31December2010
UK £’000s Rest of Europe £’000s Australia £’000s Total £’000s
Netrevenue 32,973 1,520 (2) 34,491
Segmentassets 70,022 8,432 445 78,899
Yearended31December2009
UK £’000s Rest of Europe £’000s Total £’000s
Netrevenue 26,299 1,346 27,645
Segmentassets 74,604 7,259 81,863
Geographical information
The majority of the Group’s revenue arises in the UK. Revenues arise in Europe through ProSpreads and Australiathrough London Capital Group Pty Limited; these companies are based in Gibraltar and Australia respectively.TheGeographicalsegmentdataforrevenueispresentedonthisbasis.Thedataforsegmentassetsarebasedontheassetlocation.TheGroup’srevenuefromexternalcustomersandinformationaboutitssegmentassetsbygeographicallocationaredetailedbelow:
Notes to the Financial Statements
Annual Report 2010
5. Adjusted profit before tax, adjusted operating profit and adjusted EBITDA
2010£’000
2009£’000
Reported(loss)/profitbeforetax (56) 5,848
Addback–softwareimpairmentcharge 3,194 –
Addback–chargeforprovisionagainstFOSclaims 3,200 –
Addback–share-basedpaymentcharge 168 157
Adjustedprofitbeforetax 6,506 6,005
Taxasreported 20 (1,981)
Taxeffectonaddbacks (1,837) (44)
Adjusted profit after tax 4,689 3,980
Reportedoperating(loss)/profit (141) 5,699
Addback–share-basedpaymentcharge 168 157
Adjusted operating profit 27 5,856
Addback–otheramortisationanddepreciation 1,985 2,251
Addback–softwareimpairmentcharge 3,194 –
Addback–chargeforprovisionagainstFOSclaims 3,200 –
Adjusted EBITDA 8,406 8,107
50
6. (Loss)/profit before tax
2010£’000
2009£’000
Share-basedpayments 168 157
Depreciationofownedfixedassets 542 418
Amortisationonintangibleassets–software 1,365 1,755
Amortisationonintangibleassets–other 78 78
Impairmentcharge-software 3,194 –
ChargeforprovisionagainstFOSclaims 3,200 –
Operatingleasecosts:
–landandbuildings 348 307
Netprofitonforeigncurrencytranslation (77) (191)
Financialservicescompensationscheme(“FSCS”)levy 341 –
Alltheaboveareincludedwithinadministrationcostsapartfromthenetprofitonforeigncurrencytranslation,whichisincludedincurrentyear’srevenue.
7. Auditor’s remuneration
2010£’000
2009£’000
Feespayabletothecompany’sauditor’sfortheauditofthecompany’sannualaccounts
24 23
Theauditofthecompany’ssubsidiariespursuanttolegislation 47 44
Otherservicespursuanttolegislation 34 34
Otherfeestotheauditor – 30
Totalfees 105 131
Theanalysisofauditor’sremunerationisasfollows:
Otherservicescomprisedacontrolsreviewin2009.
Notes to the Financial Statements
(Loss)/profitbeforetaxisstatedaftercharging/(crediting)
Annual Report 2010
8. Staff costs
2010No
2009No
SpreadbettingandCFD,UK 27 20
Institutionalforeignexchange 5 4
Institutionalbrokerage 3 3
CFD,Australia 2 –
Financialspreadbetting,Gibraltar 11 8
Administrative 32 22
Directors 3 3
83 60
TheaveragenumberofemployeesintheGroupduringthefinancialyearamountedto:
2010£’000
2009£’000
Wagesandsalaries 5,400 4,518
Socialsecuritycosts 691 578
6,091 5,096
Theaggregatestaffcostsfortheyearincludingdirectorswereasfollows:
2010£’000
2009£’000
Performancerelatedbonuses 1,046 109
Equitysettledshare-basedpaymentschemes 168 157
1,214 266
Wages and salaries include the following amounts in respect of performance related bonuses, inclusive of nationalinsuranceandshare-basedpaymentschargedtotheincomestatement:
The directors’ emoluments for the year ended 31 December 2010 and the comparative year can be found in theDirectors’Reportonpages24and25.
Remuneration of key management personnel
Theremunerationoftheexecutivedirectors,whoarethekeymanagementpersonneloftheGroup,issetoutbelowinaggregateforeachofthecategoriesspecifiedinIAS24RelatedPartyDisclosures.Further informationabouttheremunerationofindividualdirectorsisprovidedintheDirectors’Reportonpages24and25.
2010£’000
2009£’000
Short-termemployeebenefits 589 638
Terminationbenefits 138 65
Share-basedpaymentbenefits 58 84
785 787
52
2010£’000
2009£’000
Bankinterestreceivable 85 149
85 149
9. Investment revenue
Bank interest receivable represents thatearnedoncompanyfunds. Interestearnedonclientdeposits is included inrevenue.
2010£’000
2009£’000
Current tax:
Chargeforcurrentperiod 1,240 1,840
Adjustmentinrespectofpriorperiods (1,095) (133)
Totalcurrenttaxexpense 145 1,707
Deferred tax:
Originationandreversaloftemporarydifferences (815) 196
Adjustmentinrespectofpriorperiods 649 78
Adjustmentforchangeincorporationtaxrate(28%to27%) 1 –
Totaldeferredtax(credit)/expense (165) 274
Totaltax(credit)/expenseinincomestatement (20) 1,981
10. Taxation
(a) Tax on (loss)/profit on ordinary activities
Tax(credited)/chargedintheincomestatement:
Notes to the Financial Statements
Annual Report 2010
2010£’000
2009£’000
Accounting(loss)/profitbeforetaxation (56) 5,848
Accounting(loss)/profitmultipliedbyUKstandardrateofcorporationtaxof28% (16) 1,639
Expensesnotdeductiblefortaxpurposes 31 44
Nontaxableincome – (8)
Shareoptions–releaseofdeferredtaxinexcessofdeductionavailable 182 289
Overseaslossesnotutilised 206 72
ChangeinCTrate(28%to27%) 23 –
Adjustmentinrespectofprioryears (446) (55)
Total tax (income)/expense reported in the income statement (20) 1,981
(b) Reconciliation of the total tax charge
The tax expense in the income statement for the year is the standard rate of corporation tax in the UK of 28%(2009:28%).Thedifferencesarereconciledbelow:
Group
2010£’000
2009£’000
Deferredtaxassets 240 196
Deferredtaxliabilities (72) (193)
168 3
(c) Deferred tax
Group
2010£’000
2009£’000
Share-basedpayments 53 196
Property,plantandequipment 187 –
240 196
(d) Deferred tax assets
Thedeferredtaxassetsincludedinthebalancesheetareasfollows:
Group
2010£’000
2009£’000
Deferredtaxationassetbroughtforward 196 794
Credit/(charge)toprofitorloss 43 (362)
Effectofchangeintaxrate(28%to27%) 1 –
Taxchargeddirectlytoequity – (236)
Deferredtaxationassetcarriedforward 240 196
Thegrossmovementinthedeferredincometaxassetsincludedinthebalancesheetisasfollows:
10. Taxation (continued)
54
2010£’000
2009£’000
Intangibleassets 24 61
R&Daccelerationonsoftware 48 –
Property,plantandequipment – 132
72 193
(e) Deferred tax liabilities
Thedeferredtaxliabilitiesincludedinthebalancesheetareasfollows:
2010£’000
2009£’000
Deferredtaxationliabilitybroughtforward 193 279
Credittoprofitorloss (768) (164)
Adjustmentinrespectofprioryear 649 78
Effectofchangeintaxrate(28%to27%) (2) –
Deferredtaxationliabilitycarriedforward 72 193
Thegrossmovementinthedeferredtaxliabilitiesincludedinthebalancesheetisasfollows:
2010£’000
2009£’000
Amortisationofintangibleassetsarisingonacquisition (38) (7)
Depreciationinexcessofcapitalallowances (318) (79)
Other 48 –
Sharebasedpayments 143 362
Thedeferredtaxdebiteddirectlytoequityintheyearis: (165) 276
Share-basedpayments – 236
(f) Deferred tax – income statement charge
Thedeferredtax(credit)/chargeincludedintheincomestatementismadeupasfollows:
AtthebalancesheetdatetheGrouphadanunrecogniseddeferredtaxassetof£204,241(2009:£211,000)relatedtounusedtaxlossesavailableforoffsetagainstfutureprofits.
Notes to the Financial Statements
Annual Report 2010
2010 2009
BasicEPS
(Loss)/profitaftertax(£’000) (36) 3,867
Weightedaveragenoofshares 38,994,692 38,865,569
WeightedaveragebasicEPS (0.09)p 9.95p
DilutedEPS
Profitaftertax(£’000) (36) 3,867
Weightedaveragenoofshares 40,610,090 40,559,908
WeightedaveragefullydilutedEPS (0.09)p 9.53p
AdjustedbasicEPS
Adjustedprofitaftertax(seenote5)(£’000) 4,689 3,980
Weightedaveragenoofshares 38,994,692 38,865,569
WeightedaveragebasicEPS 12.02p 10.24p
11. Earnings per ordinary shareBasicearningspershareiscalculatedbydividingtheearningsattributabletoordinaryshareholdersbytheweightednumberofordinarysharesinissueduringtheyear,afterdeductinganyownshares(JSOP,seenote29).Fullydilutedearnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of theweightedaveragenumberofsharesinissueduringtheyearandthedilutivepotentialordinarysharesrelatingtoshareoptions.Dilutivepotentialordinaryshareswere1,615,398(2009:1,694,339).
2010£’000
2009£’000
Declared and paid during the year:
Finaldividendfor2009atnilpershare(2008–8.5p) – 3,291
Interimdividendfor2010at1.0ppershare(2009–2.5p) 390 976
390 4,267
12. Dividends
56
13. Intangible fixed assets
Group
Customerrelationship
£’000Tradename
£’000Software
£’000Goodwill
£’000Total
£’000
COST
At1January2009 152 136 5,353 9,998 15,639
Additions – – 3,090 – 3,090
Acquisitionsthroughbusinesscombinations(note15)
– – 324 – 324
Adjustmenttodeferredconsideration – – – (300) (300)
At1January2010 152 136 8,767 9,698 18,753
Additions – – 1,608 – 1,608
Impairment(note14) – – (3,970) – (3,970)
At 31 December 2010 152 136 6,405 9,698 16,391
AMORTISATION
At1January2009 29 16 1,122 – 1,167
Chargefortheyear 51 27 1,755 – 1,833
At1January2010 80 43 2,877 – 3,000
Chargefortheyear 51 27 1,365 – 1,443
Eliminatedonimpairment(note14) – – (797) – (797)
At 31 December 2010 131 70 3,445 – 3,646
NET BOOK VALUE
At 31 December 2010 21 66 2,960 9,698 12,745
At31December2009 72 93 5,890 9,698 15,753
On27May2009,theGroupacquiredtheassetsofChaucerDigital,whichgaverisetotheadditionofsoftwareinthatyear,seenote15.
ThedeferredconsiderationpayableontheacquisitionofProSpreadswasrevisedin2009from£300,000to£nilasitwasnotconsideredprobablethattheearn-outtargetsofthebusinessuponwhichtheconsiderationwaspayable,wouldbeachieved.
IncludedwithinsoftwarearecapitalisedcostsrelatedtotheGroup’stradingplatforms.
InFebruary2010theGrouprecognisedanimpairmentinrelationtosoftwareof£3.2m,seenote14.
At31December2010,thegrouphadenteredintocontractualcommitmentsfortheacquisitionofsoftwareamountingto£2million.
Notes to the Financial Statements
Annual Report 2010
Book value£’000
Fair value£’000
Property,plantandequipment 29 29
Intangibleassets(a) – 324
29 353
Goodwill –
Totalconsideration 353
Satisfiedby:
Cash 334
Directlyattributablecosts 19
353
Netcashoutflowarisingonacquisition
Cashconsideration 353
353
14. Impairment charge
InFebruary2010theGroupcompleteditsITstrategyreview,theconclusionofwhichwasthattheGroupwouldchangethefocusofitsITassetuse.Consequently,theBoarddeterminedthatthevalueofitsChaucerDigitalsoftwareassetinrelationtofinancialspreadbettingwasnotsupportableandthereforerecognisedanimpairmentchargeof£3.2m.
15. Acquisition of Chaucer DigitalOn27May2009,theGroupacquiredtheassetsofChaucerDigital(“Chaucer”)foracashconsiderationof£353,000.
(a)Thefairvalueadjustmenttointangibleassetsisthevalueattributabletotheidentified“know-how”andintellectualpropertyacquiredwhichisincorporatedintothesoftwarebalance.
58
Leasehold property£’000
Plant and machinery£’000
Total£’000
COST
At1January2009 510 957 1,467
Acquisitionsthroughbusinesscombinations – 29 29
Additions 37 356 393
At1January2010 547 1,342 1,889
Additions 25 203 228
Disposals – (66) (66)
At 31 December 2010 572 1,479 2,051
DEPRECIATION
At1January2009 143 417 560
Chargefortheyear 130 288 418
At1January2010 273 705 978
Chargefortheyear 199 343 542
Eliminatedondisposals – (66) (66)
At 31 December 2010 472 982 1,454
NET BOOK VALUE
At 31 December 2010 100 497 597
At31December2009 274 637 911
16. Property, plant and equipment
Group
Notes to the Financial Statements
Annual Report 2010
Group £’000
Cost
At1January2009 –
Additions –
At1January2010 –
Additions 100
At31December2010 100
NET BOOK VALUE
At 31 December 2010 100
At31December2009 –
17. Investments
Company £’000
Cost
At1January2009 7,203
Additions 157
At1January2010 7,360
Additions 168
At31December2010 7,528
NET BOOK VALUE
At31December2010 7,528
At31December2009 7,360
Name of company Principal activity Country of incorporation
TradexEnterprisesLimited Holdingcompany GreatBritain
LondonCapitalGroupLimited* Spreadbetting GreatBritain
ElanCapitalPartnersLimited* Servicecompany Gibraltar
ProSpreadsLimited* Spreadbetting Gibraltar
LondonCapitalGroupPtyLimited* Spreadbetting Australia
Futuresbetting.comLimited* Dormant GreatBritain
CapitalSpreadsLimited* Dormant GreatBritain
CapitalForexLimited* Dormant GreatBritain
CapitalEquitiesLimited* Dormant GreatBritain
CapitalGlobalDerivativesLimited* Dormant GreatBritain
CapitalInvestmentManagementlimited* Dormant GreatBritain
DetailsofprincipalinvestmentsinwhichtheCompanyhold100%ofthenominalvalueofanyclassofsharecapitalareasfollows:
*Thesecompaniesareownedindirectlyviaasubsidiaryundertaking.
60
Goodwill2010
£’0002009
£’000
LondonCapitalGroupLimited 9,303 9,303
ProSpreads 395 395
Total 9,698 9,698
18. Impairment of goodwill
Goodwillhasbeenallocatedforimpairmenttestingpurposestotwocashgeneratingunits(CGUs).
TheProSpreadsCGUrepresentstheGibraltarspreadbettingbusinesssegment.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill mightbeimpaired.
TherecoverableamountsoftheCGUsaredeterminedfromvalueinusecalculations.ForthepurposesofimpairmenttestingofgoodwillthecarryingvalueoftheCGUs(includinggoodwill)arecomparedtotherecoverableamountoftheCGUsandanydeficitsareprovided.ThecarryingvalueoftheCGUsincludesonlythoseassetsthatcanbeattributeddirectly,orallocatedonareasonableandconsistentbasisinaccordancewiththesegmentaldisclosure.
The estimated recoverable amount of each CGU was based on value in use calculated using the present value ofprojectedfiveyearfuturecashflows.
Keyassumptionsusedinthevalueinusecalculationrelatetothegrowthrateusedtoextrapolatecashflowsbeyondthebudgetperiod,discountrate,clientrecruitmentratesandaveragerevenueperclient.
ProjectedfuturecashflowsforeachCGU,measuredoverafiveyearperiod,werebasedonBoardapprovedfiveyearbudgets,reflectingpastexperienceaswellasfutureexpectedtrends.
Thecashflowswerediscountedusingthepre-taxdiscountrateof12.5%,derivedfromtheGroup’sweightedaveragecostofcapital.
Clientrecruitmentratesandaveragerevenueperclientwerebaseduponactualamountsmeasured inpriorperiodswhichwereprojectedforwardinaccordancewithexpectedtrends.
The directors have performed sensitivity analysis around the cash flow assumptions and have concluded thatno reasonably possible change in key assumptions would cause the carrying amount of the CGUs to exceed itsrecoverableamount.
Onthebasisoftheresultsoftheaboveanalysistherewasnoimpairmentofgoodwillduringtheyear.
TheLondonCapitalGroupLimitedCGUrepresentsthefollowingbusinesssegments:
• Financialspreadbetting,UK• Contractsfordifference(CFDs),UK• Institutionalforeignexchange• Institutionalbrokerage
Notes to the Financial Statements
Annual Report 2010
19. Trade and other receivables
Group Company
2010 £’000
2009 £’000
2010 £’000
2009 £’000
Tradereceivables 1,729 761 – –
AmountsowedbyGroupundertakings – – 14,955 18,016
Otherreceivables 1,074 209 11 1
Prepayments 430 355 – –
3,233 1,325 14,966 18,017
Includedinthecurrentyeartradereceivablesisanamountinrelationtoaprofessionalclientdebt,seenote3.Thedirectorsconsiderthatthecarryingamountoftradereceivablesapproximatestotheirfairvalue.
20. Cash and cash equivalents
Group Company
2010 £’000
2009 £’000
2010 £’000
2009 £’000
Cashatbankandinhand 5,651 1,992 – –
Short-termdeposits 8,297 8,033 – –
Clientmoneyheld 47,635 53,846 – –
61,583 63,871 – –
21. Amounts due to clients
Group Company
2010 £’000
2009 £’000
2010 £’000
2009 £’000
Amountsduetoforexclients 16,481 19,130 – –
Amountsduetospreadbettingclients 30,826 34,716 – –
AmountsduetoCFDclients 328 – – –
47,635 53,846 – –
Amountsduetoclientsrepresentsclientmoneyheldandisrepayableondemand(seenote20).
62
22. Trade and other payables
Group Company
2010 £’000
2009 £’000
2010 £’000
2009 £’000
Tradepayables 1,067 461 – –
Amountsduetobrokers 48 – – –
AmountsowedtoGroupundertakings – – 1,887 6,183
Othertaxesandsocialsecurity 182 172 – –
VATpayable 527 527 – –
Accruals 2,081 1,717 – –
3,905 2,877 1,887 6,183
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. Theaveragecreditperiodtakenfortradepurchasesis26days(2009:30days).Formostsuppliersnointerestischargedonthetradepayablesforthefirst30-60daysfromthedateoftheinvoice.
Thedirectorsconsiderthatthecarryingamountoftradepayablesapproximatestotheirfairvalue.
23. Provisions and contingent liabilities
DuringH1’09theGroupmadecommissionrebatingerrorswhilstpreparingthecustomerstatementsofamanagedspotFXfund.ThecorrectionoftheseerrorsledtoaseriesofcomplaintstotheFOS.TheBoardreviewedtheinitialassessmentfromtheFOSreceivedon18October2010andconcludedthattheimpactoftheclaimstotheFOSwouldnotbematerialtothebusiness.Arevisedassessmentwasreceivedon11February2011.WhilstLCGbelievesitsactionsdidnotdirectlycauseanylosstotheclient,therevisedassessmentdeterminedthatLCGshouldrepaythetotallossesincurredbytheclientof£0.1mplusinterest.LCGintendstochallengetherevisedassessment.
TheBoardhasassessedthatagrossprovisionof£3.2mshouldbebookedandacontingent liabilityofa further£3.2mdisclosed.TheDirectorshavemadethisassessmentbasedonananalysisofthelossesincurredinthefundattributabletoclientsundertheprotectionoftheFOS,thelatestFOSassessmentandtheFOS’srulesoncompensation.WhilsttheDirectorsareconfidentthattheprovisionrepresentsabestestimateoftheimplicationsofthelatestFOSdetermination,thereremainssignificantuncertaintyastotheeventualfinancialoutcome.TheGroupisintendingtochallengetheadjudicator’sassessmentand,althoughtheDirectorsareconfidentthattherearegroundsforchallenge,theoutcomeofthisprocessisuncertain.Asaresultofthesevariables,thetimingofanysuchpaymentisalsouncertain.
Notes to the Financial Statements
Annual Report 2010
24. Equity settled share-based payment
TheGrouphasthreesharebasedpaymentschemesforallemployees(includingdirectors).OptionsareexercisableatapriceequaltotheaveragemarketpriceoftheCompany’ssharesonthedateofgrant.Thevestingperiodisusuallythreeyears.Theexerciseofanumberofoptionsisalsodependentoncertainexecutivesmeetingspecificperformancecriteria.Theoptionsaresettledinequityonceexercised.
Iftheoptionsremainunexercisedafteraperiodof10yearsfromthedateofgrant,theoptionsexpire.OptionsareforfeitediftheemployeeleavestheGroupbeforetheoptionsvest.Theweightedaverageexerciseprice(WAEP)oftheshareoptionsoutstandingattheyear-endwas146.5pence(2009:166.9pence).Theshareoptionsoutstandingattheendoftheyearhaveaweightedaverageremainingcontractuallifeof7.30years(2009:6.69years).In2010optionsweregrantedon26May,18Juneand6September(2009:nooptionsweregranted).
Themaximumnumberofsharesthatvestbasedontheawardsmadeareasfollows:
Award date
Exercise price
Pence
At the beginning
of the yearNo.
Awarded during
the yearNo.
Exercised during
the yearNo.
Lapsed during
the yearNo.
At the end of the year
No.
21December2005 82.0 805,988 – 43,347 50,000 712,641
13March2006 82.0 25,847 – – – 25,847
22June2006 82.0 804,146 – – – 804,146
21September2006 116.5 35,000 – – – 35,000
23March2007 208.0 90,000 – – – 90,000
8November2007 389.8 615,000 – – 125,000 490,000
26May2010 126.0 – 1,300,000 – 65,000 1,235,000
21June2010 157.0 – 820,000 – 500,000 320,000
6September2010 126.0 – 106,000 – – 106,000
Yearended31December2010 2,375,981 2,226,000 43,347 740,000 3,818,634
Yearended31December2009 3,762,892 – 351,911 1,035,000 2,375,981
Theweightedaverageexercisepriceinrelationtotheabovemovementswasasfollows:
Award date
At the beginning
of the yearNo.
Awarded during
the yearNo.
Exercised during
the yearNo.
Lapsed during
the yearNo.
At the end of the year
No.
Yearended31December2010 166.9 137.4 82.0 188.5 146.5
Year-ended31December2010 196.2 – 247.1 94.7 166.9
64
TheBlack-Scholesmodelhasbeenadoptedasthedirectorsbelieveitprovidesareasonableapproximationtothefairvaluesoftheoptionsconcerned.Theinputsintothemodelwereasfollows:
Grant date 23/03/07 24/05/07 08/11/07 23/05/08 26/05/10 21/06/10 06/09/10
Currentshareprice 208.0p 232.5p 398.5p 360.0p 126.0p 135.0p 108.0p
Expectedlife 3yrs 3yrs 3yrs 3yrs 3yrs 3yrs 3yrs
Expectedvolatility 33% 31% 31% 40% 55% 55% 55%
Risk-freerate 5.25% 5.50% 5.75% 5.00% 2.5% 2.5% 2.5%
Expecteddividends 4.2% 3.7% 2.2% 3.2% 1.98% 1.85% 1.98%
ExpectedvolatilitywasdeterminedbycalculatingthehistoricalvolatilityoftheGroup'ssharepriceoverthepreviousyear.Theexpectedlifeusedinthemodelhasbeenadjusted,basedonmanagement'sbestestimate,fortheeffectsofnon-transferability,exerciserestrictionsandbehaviouralconsiderations.Eachtrancheofshareoptionswasvaluedseparatelyusingtheactualexerciseprice.TheGrouprecognisedtotalexpensesof£168,000(2009:£157,000)relatedtoequity-settledshare-basedpaymenttransactionsduringtheyear.
Notes to the Financial Statements
Annual Report 2010
Asat31December2010
Fair value through
profit or loss £’000
Loans and receivables
£’000
Other amortised
cost £’000
Available- for-sale
£’000
Total carrying amount
£’000Fair value
£’000
Financial assets
Investments – – – 100 100 100
Cashandcashequivalents – 61,583 – – 61,583 61,583
Tradereceivables – 1,729 – – 1,729 1,729
Prepaymentsandotherreceivables – 1,504 – – 1,504 1,504
– 64,816 – 100 64,916 64,916
Financial liabilities
Amountsduetoclients (691) – 48,326 – 47,635 47,635
Tradeandotherpayables – – 3,905 – 3,905 3,905
Provisions – – 3,200 – 3,200 3,200
(691) – 55,431 – 54,740 54,740
25. Financial instruments
Accounting classifications and fair values
Thetablebelowsetsouttheclassificationofeachclassoffinancialassetsandliabilitiesandtheirfairvalues,valuedusingdirectmarketquoteswhereapplicable(excludingaccruedinterest):
Asat31December2010
Fair value through
profit or loss £’000
Loans and receivables
£’000
Other amortised
cost £’000
Available- for-sale
£’000
Total carrying amount
£’000Fair value
£’000
Financial assets
Cashandcashequivalents – 63,871 – – 63,871 63,871
Tradereceivables – 761 – – 761 761
Prepaymentsandotherreceivables – 564 – – 564 564
– 65,196 – – 65,196 65,196
Financial liabilities
Amountsduetoclients (1,565) – 55,411 – 53,846 53,846
Otherpayables – – 2,877 – 2,877 2,877
(1,565) – 58,288 – 56,723 56,723
Group
66
Asat31December2010
Loans and Receivables
£’000
Other amortised cost
£’000
Available- for-sale
£’000
Total carrying amount
£’000Fair value
£’000
Financial assets
Investments – – 7,528 7,528 7,528
Intercompanyreceivables 14,955 – – 14,955 14,955
Otherreceivables 11 – – 11 11
14,966 – 7,528 22,494 22,494
Financial liabilities
Intercompanypayables – 1,887 – 1,887 1,887
Asat31December2010
Loans and Receivables
£’000
Other amortised cost
£’000
Available- for-sale
£’000
Total carrying amount
£’000Fair value
£’000
Financial assets
Investments – – 7,360 7,360 7,360
IntercompanyandOtherreceivables 18,017 – – 18,017 18,017
18,017 – 7,360 25,377 25,377
Financial liabilities
Intercompanypayables – 6,183 – 6,183 6,183
Use of financial instrumentsThe Group’s principal financial instruments, other thanderivativetransactions,comprisecashbalanceswithprimebrokers,clientmoneyowedandotherdebtorsorcreditorsthat arise through the normal course of business, othercashandshort-termdeposits.Derivativetransactionswithbrokersareenteredintointhenormalcourseofbusinessinordertohedgemarketexposuresresultingfromderivativetransactionsplacedbyclients.
TheBoardreviewsandagreespoliciesformanagingtheserisksandtheyaresummarisedbelow.
The Group’s computerised trading system enablesexposuretomarketrisktobemonitoredinrealtimeandmanagementtakeactiontomanagetheseexposuresaslimitsareapproached.
Fair value measurements Financial instruments that are measured subsequent toinitialrecognitionatfairvalue,aregroupedintoLevels1to3basedonthedegreetowhichthefairvalueisobservable.All of the Group’s such financial instruments are Level 1wherebyfairvaluemeasurementsarethosederivedfromquotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.
Market riskMarket risk is the risk that changes in market priceswill affect the Group’s income or the value of financialinstruments held. The Group does not directly enterinto speculative proprietary positions however theeffect of client trades does result in the Group retaininganetmarket risk.TheGrouphasa formal riskpolicyandamethodologyforsettinglimitsforeveryfinancialmarketinwhichittrades.TheselimitsdeterminethenetexposurearisingfromclientactivityandhedgingwhichtheGroupisprepared to carry. If the Group’s exposure exceeds theselimits, thepolicyrequiresthatsufficienthedging iscarriedout to bring the exposure back within defined limits.The Group therefore has exposure to market risk to theextentthatithasaresidualun-hedgedposition.
ChangestothemarketriskpolicyrequireapprovalbytheGroup’s Risk Committee, which comprises the Chairman,the non executive directors, the Chief Executive Officerand the Finance Director. Changes to the market riskpolicywhichmayresultinasignificantincreaseinmarketriskrequireapprovalfromtheBoard.
Company
Notes to the Financial Statements
Annual Report 2010
Asat31December2010Equity exposures
£’000
Market movement applied
%
Potential revenue impact
£’000
Indices 4,503 5% 225
Asat31December2010Equity exposures
£’000
Market movement applied
%
Potential revenue impact
£’000
Indices 1,445 5% 72
Sensitivity analysis Thefollowingsensitivityanalysisshowsthepotentialimpactoflargemovesinindexmarketsonrevenue.ThepercentageappliedisbasedontheGroup’sassessmentofmovementsinindexmarketsandisconsideredtorepresentasingledaymarketfallthatisreasonablypossible.
Foreign currency riskForeigncurrencyexposuresarisefromofferingmarketsandtradinginanumberofdifferentcurrenciesinthenormalcourseofbusiness.ManagementofthisriskformspartoftheGroup’soverallriskpolicy.LimitsontheexposureswhichtheGroupwillacceptineachcurrencyaresetbytheRiskCommitteeandtheGrouphedgesitsexposuresasnecessary.ForeigncurrencyriskismanagedonaGroup-widebasis.
TheGroup’sriskmonitormeasuresforeigncurrencyrisksincludingbetsandtradesinforeigncurrenciesandnetbalancesheetexposuresarisingfromcashbalancesheldinforeigncurrenciesandamountsduetoclientsinforeigncurrencies.No sensitivity analysis has been presented for foreign exchange risk as the impact of reasonably possible marketmovementsontheGroup’srevenueandequityarenotsignificant.
Interest rate riskTheGrouphasasmallamountofinterestrateriskarisingfromitstradingactivitiesbuthasalargerexposurerelatingtoitscashdeposits.Interestisnotpaidonclientdeposits.
TheinterestrateriskprofileoftheGroup’sfinancialassetsandliabilitiesasatthebalancesheetdatewasasshowninthetablebelow.
Inadditiontotheinterestrateexposurerelatingtocashdeposits,theGroupchargesclientsovernightfinancingchargesforRollingDailycontractsthatareheldovernight.Thisfinancingchargeisbasedontherelevantbaserateofthemarket.Anincreaseof2%oninterestrateswouldresultinapotentialincreaseinrevenueof£1.1m.
Within one year More than five years Total
2010 2009 2010 2009 2010 2009
Floating rate
Cashandcashequivalents 61,583 63,871 – – 61,583 63,871
Group
68
Sensitivity analysis Thefollowingsensitivityanalysisshowsthepotentialimpactoflargemovesininterestratesonrevenue.A2%increaseand2%fallhasbeenmodelledfortheyear-ended31December2010.A2%fallininterestrateswouldhaveresultedinnointerestbeingearnedfortheyear:
Interest rate exposure 2010
£’000
Market movement applied
%
Potential revenue impact
£’000
Interestratefall 61,583 -2% (308)
Interestrateincrease 61,583 +2% 1,232
Interest rate exposure 2009
£’000
Market movement applied
%
Potential revenue impact
£’000
Interestratefall 63,871 -2% (358)
Interestrateincrease 63,871 +2% 1,432
Credit riskCreditriskistheriskthatapartytoafinancialinstrumentwillcausefinanciallosstotheotherpartybyfailingtodischargeitsobligation.TheGroupdoesnotordinarilyoffercredittoitsclients,apartfromexceptionalcases(seenote3).HowevertheGroupisexposedtocreditriskthroughitscashdepositswithfinancialinstitutionsandoutstandingbrokeragefeesfromitsinstitutionalderivativesbusiness.
CreditriskismanagedonaGroup-widebasis.TheGroup’sprincipalcreditriskexposurearisesthroughitscashdepositswithfinancialinstitutions.TheGrouphassetpoliciesonminimumcreditratingsofinstitutionsthatholdfunds,andlimitsitsexposuretoeachinstitution;thesearemonitoredthroughtheGroup’sKeyRiskIndicatorsthatarereportedtheboardmonthly.
Exposure to credit riskThecarryingamountoffinancialassetsrepresentsthemaximumcreditexposure.Atthereportingdatethemaximumcreditriskwas:
Group Company
2010 £’000
2009 £’000
2010 £’000
2009 £’000
Cashandcashequivalents 61,583 63,871 – –
Tradereceivables 1,729 761 – –
Otherreceivables 1,074 209 – –
64,386 64,841 – –
Includedincashandcashequivalents,theGroup’slargestcreditexposuretoanybankwas£17,661,000or29%oftheexposuretoallbanks(2009:£17,520,000or27%).
ThetablebelowpresentsfurtherdetailontheGroup’sexposuretocreditrisk.Externalcreditratings(Standard&Poor’sshort-term ratings or equivalent) are available for exposures to brokers and banks, and these are shown below. Noexternalcreditratingofclientsisavailableandthereforethebalancesareunrated.
Amountsduefromclientsareconsideredpastduefromthedatethatpositionsareclosedandareagedfromthatdate.Ifdebtorsariseonopenpositionstheamountsduefromclientsareconsideredneitherpastduenorimpaired.
Notes to the Financial Statements
Annual Report 2010
Trade receivables - due from clients Cash and cash equivalents
2010 £’000 2009 £’000 2010 £’000 2009 £’000
Individually impaired
Grossexposure 1,851 761 61,583 63,871
Allowanceforimpairment (122) – – –
Past due but not impaired
Ageingprofile:
0-3months 40 – – –
4-12months 1,444 133 – –
Morethan12months 17 – – –
Neither past due nor impaired
A-1 – – 61,583 63,871
A-2 – – – –
A-3 – – – –
B – – – –
Unrated 1,729 761 – –
Totalcarryingamount 1,729 761 61,583 63,871
NoequivalenttableispresentedfortheCompanysinceallbalancesarenil.
Liquidity riskLiquidityriskistheriskthattheGroupwillencounterdifficultyinmeetingobligationsarisingfromitsfinancialliabilities.
LiquidityriskismanagedcentrallyfortheGroupbytheFinancedepartment.TheGroup’sapproachtomanagingliquidityistoensure,asfaraspossible,thatitwillalwayshavesufficientliquiditytomeetitsbrokermarginrequirementsandliabilitieswhendue,underbothnormalandstressedconditions.
70
26. Commitments under operating leases
At31December2010,theGrouphadfutureminimalrentalspayableundernon-cancellableoperatingleases,whichfalldueasfollows:
Land and buildings
2010 £’000
2009 £’000
Withinoneyear 265 304
Insecondtofifthyearinclusive 936 209
Afterfiveyears 61 –
1,262 513
Operatingleasepaymentsrepresentrentalspayablebythegroupforitsofficeproperties.AleasewasnegotiatedinDecember2010fornewofficepremises.
27. Capital commitments
Therewerenocontractualcommitmentsforfuturecapitalexpenditureasat31December2010(31December2009:£nil)exceptthecontractwithoursoftwaredeveloperasexplainedinnote13.
28. Related party transactions
Other than as disclosed in note 8, no transactions with related parties were undertaken such as are required to bedisclosedunderIAS24.
Notes to the Financial Statements
Annual Report 2010
29. Share capital
Authorised share capital:
2010 £’000
2009 £’000
55,000,000ordinarysharesof£0.10each 5,500 5,500
2010 2009
No £’000 No £’000
Ordinarysharesof£0.10each 39,852,575 3,985 38,989,228 3,899
Allotted, called up and fully paid:
DuringtheyeartheGroupsetupaJointShareOwnershipPlan(“JSOP”)toprovideincentivestoDirectorsandemployees.TheCompany issuedordinary shares of10peach to the LondonCapitalGroupHoldingsEmployee Benefit Trust inrelationtotheJointShareOwnershipPlan(“JSOP”).At31December2010820,000shareswereheldintheJSOPallwithaninitialparticipationpriceof£1.57.ThisresultsinatotalmidmarketvalueoftheOwnSharesheldinreserveof£1,287,400.
Duringtheyearthecompanyissued43,347shares,withanominalvalueof£4,334,inrespectoftheexerciseofshareoptions.
TheCompanyhasoneclassofordinaryshareswhichcarriesnorighttofixedincome.
72
30. Reserves
Share premiumThesharepremiumarosefromsharesissuedontheflotationoftheCompany.
Other reservesTheotherreservesaroseasaresultofthebusinesscombinationconcerningtheacquisitionofTradexEnterprisesusingthemergermethod.Asnotedintheaccountingpolicies,theGrouphastakenadvantageoftheexemptionpermittedbyIFRS1nottorestatethisbusinesscombination.
Retained earningsIncludesacreditfortheexcessofthetaxdeductionfortheequitysettledsharebasedpayments,thenetadjustmentforthoseoptionsforfeitedintheperiodandthechargefortheestimatedcostofequitysettledshareoptionsbasedonastraight-linebasisoverthevestingperiod,adjustedforthoseoptionsforfeitedintheperiod.
31. Subsequent events
Aspreviouslydiscussedinthegoingconcernstatementandnote23,theGroupreceivedarevisedassessmentinrelationtocomplaintspertainingtoamanagedspotFXfundfromtheFinancialOmbudsmanServiceon11February2011.TheeffectofthisrevisedassessmentresultedintheGrouphavingtoreassessitsliabilityinrelationtothecomplaints.Theeffectofthisreassessmenthasbeendisclosedinnote23.
Notes to the Financial Statements
Annual Report 2010
1. Toreceivethereportofthedirectorsandtheauditedfinancialstatementsfortheyearended31December2010;
2. ToappointMalcolmMcCaigasadirectoroftheCompany;
3. ToappointWilliamNewtonasadirectorofthe Company;
4. ToreappointRichardDaveyasadirectoroftheCompany;
5. ToreappointRachelWoodfordasadirectoroftheCompany;
6. ToreappointDeloitteLLPastheCompany’sauditorsandtoauthorisethedirectorstodeterminetheirremuneration;
Ordinary resolution:
7. THATthedirectorsoftheCompanybegenerallyandunconditionallyauthorised,underand inaccordancewith section 551 of the Companies Act 2006 (“theAct”)toexerciseallthepowersoftheCompanytoallotsharesintheCompanyorgrantrightstosubscribeforor convert any security into shares in the Company(“equity securities”) up to an aggregate amount of£1,772,864, provided that this authority shall expire(unless previously renewed, varied or revoked by theCompany in general meeting) on the earlier of 30June2012ortheconclusionoftheCompany’sAnnualGeneral Meeting in 2012 save that the Companymaybeforesuchexpirymakeanofferoragreementwhich would or might require relevant securities tobeallottedaftersuchexpiryandthedirectorsoftheCompany may allot relevant securities under suchofferoragreementasiftheauthorityconferredbythisresolutionhadnotexpiredandprovidedfurtherthatthis authority shall be in substitution for, and to theexclusionof,anyexistingauthorityconferreduponthedirectors.
NoticeofAnnualGeneralMeeting
NOTICE IS GIVEN that the Annual General Meeting of London Capital Group Holdings plc will be held at 2nd Floor, 6 Devonshire Square, London, EC2M 4WQ on Tuesday 24 May 2011 at 12.00 noon to consider the following resolutions of which numbers 1 to 7 will be proposed as ordinary resolutions and numbers 8 and 9 as special resolutions.
74
9. THAT, the Company be generally and unconditionallyauthorisedtomakemarketpurchases(asdefinedintheCompanies Act 2006) of ordinary shares of 10 penceeachinthecapitaloftheCompany(“ordinaryshares”)onsuchtermsandinsuchmannerasthedirectorsmayfromtimetotimedetermine,providedthat:
(a) the maximum number of ordinary sharesauthorisedtobepurchasedshallbe7,977,886;
(b) the minimum price which may be paid for anordinaryshareis10pence;
(c) the maximum price which may be paid for anordinaryshareisanamountequalto105percentof theaverageof themiddlemarketquotationsfor an ordinary share (as derived from the DailyOfficialList)forthefivebusinessdaysimmediatelyprecedingthedateonwhichtheordinaryshareiscontractedtobepurchased;
(d) theminimumandmaximumpricesperordinarysharereferredtoinsub-paragraphs(b)and(c)ofthis resolution are in each case exclusive of anyexpensespayablebytheCompany;
(e) the authority conferred by this resolution shallexpire on the earlier of 30 June 2012 or theconclusion of the Company’s Annual GeneralMeeting in 2012 unless such authority is varied,revoked or renewed prior to such time by theCompanyingeneralmeetingbyspecialresolution;and
(f) theCompanymaymakeacontract topurchaseordinarysharesundertheauthorityconferredbythisresolutionpriortotheexpiryofsuchauthoritywhichwillormaybecompletedwhollyorpartlyaftertheexpirationofsuchauthority.
By order of the board LorraineYoungSecretary28April2011
Special Resolutions:
8. THAT,subjecttoandconditionaluponthepassingofresolution6above,thedirectorsoftheCompanybeempoweredundersection570oftheCompaniesAct2006(“theAct”)toallotequitysecurities(withinthemeaningofsection560oftheAct)forcashand/ortosellortransfersharesheldbytheCompanyintreasury(as the directors shall deem appropriate) under theauthorityconferredonthemundersection551oftheActby resolution6aboveas if section561(1)of theActdidnotapplytoanysuchallotmentprovidedthatthispowershallbelimitedto:
(a) the allotment of equity securities in connectionwith any rights issue or other pro-rata offer infavour of the holders of ordinary shares of 10peachintheCompanywheretheequitysecuritiesrespectively attributable to the interests of allsuch holders of shares are proportionate (asnearly as may be) to the respective numbers ofsharesheldby them,providedthat thedirectorsof the Company may make such arrangementsinrespectofoverseasholdersofsharesand/ortodealwithfractionalentitlementsastheyconsidernecessaryorconvenient;and
(b) theallotment(otherwisethanundersub-paragraph(a) above) of equity securities and/or the sale ortransferofsharesheldbytheCompanyintreasury(as the directors shalldeemappropriate)up toanaggregatenominalamountof£265,930.
andthisauthorityshallexpireontheearlierof30June2012ortheconclusionoftheCompany’sAnnualGeneralMeeting in 2012 provided that the Company maybefore such expiry make offers or agreements whichwouldormightrequireequitysecuritiestobeallottedaftersuchexpiryandthedirectorsoftheCompanymayallotequitysecuritiesundersuchoffersoragreementsas if the power conferred by this resolution had notexpiredandprovidedfurtherthatthisauthorityshallbeinsubstitutionfor,andtotheexclusionof,anyexistingauthorityconferredonthedirectors.
Notice of Annual General Meeting
Annual Report 2010
Notes:
1. William Newton was appointed as a director ofthe company on 18 April 2011 and in accordancewith the articles of association he offers himself forappointment by shareholders at the AGM. Williamhas extensive operational experience within financialtrading companies having worked in the industryfor over 17 years. Most recently he was Director atTradeteam Systems where he was responsible forproviding consultancy services to spread betting andFX businesses. Prior to this, William co-founded ODLsecurities,aderivativesandequitiesbrokerage.HeheldanumberofseniormanagementrolesatthecompanyIncludingITDirector.Hehasalsodesignedanumberofrealtimeriskandregulatoryreportingsystems.
2. Amemberentitledtoattendandvoteatthemeetingmayappointoneormoreproxiestoattendthemeetingand exercise all or any of their rights at the meeting.A proxy need not be a member of the Company.A form of proxy is enclosed and its acceptance issubject to the conditions printed on it. The form,togetherwiththepowerofattorneyorotherauthority(ifany)underwhichitissignedoradulycertifiedcopyof such authority, must be lodged at the office of theCompany’s registrars not less than 48 hours beforethetimeappointedforholdingthemeeting.
3. OnlyshareholdersincludedintheregisterofmembersoftheCompanyat12noonon22May2011(or,ifthemeetingisadjourned,48hoursbeforethetimeoftheadjournedmeeting)areentitledtoattendandvoteatthemeetinginrespectofthesharesregisteredintheirnamesatthattime.Changestoentriesontheregisterafter the relevant deadline shall be disregarded indeterminingtherightsofanypersontoattendandvoteatthemeeting(oradjournedmeeting).
4. Copies of the directors’ contracts of service will beavailable for inspection at the Company’s registeredofficeduringnormalbusinesshoursonanyweekday(except bank holidays) from the date of this noticeuntil the date of the meeting and at the place ofthe meeting from 15 minutes before it starts untilitsconclusion.
5. ToappointaproxyortogiveoramendaninstructiontoapreviouslyappointedproxyviatheCRESTsystem,the CREST message must be received by the issuer’sagent RA10 by 2.30pm on 16 April 2011. For thispurpose, the time of receipt will be taken to be thetime(asdeterminedbythetimestampappliedtothemessagebytheCRESTApplicationsHost)fromwhichthe issuer’s agent is able to retrieve the message.AfterthistimeanychangetotheinstructionstoaproxyappointedthroughCRESTshouldbecommunicatedtothe proxy by other means. CREST Personal Membersor other CREST sponsored members, and thoseCREST Members who have appointed voting serviceprovider(s) should contact their CREST sponsor orvotingserviceprovider(s)forassistancewithappointingproxies via CREST. For further information on CRESTprocedures, limitations and system timings, pleaserefertotheCRESTManual.Aproxyappointmentsentby CREST in the circumstances set out in Regulation35(5)(a) of the Uncertificated Securities Regulations2001 may be treated as invalid. In any case, proxyforms must be received by the Company’s registrarsnolaterthan2.30pmon16April2011.
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Proxy formI/We, (insertfullnameinBLOCKCAPITALS)
of (insertaddressinBLOCKCAPITALS)
POSTCODE
being(a)holder(s)ofordinarysharesinLondonCapitalGroupHoldingsplcappointtheChairmanofthemeetingorthefollowingperson:
Name NumberofShares*
as my/our proxy to attend, speak and vote for me/us and on my/our behalf at the Annual General Meeting of theCompanytobeheldat12noononTuesday24May2011andatanyadjournmentofthatmeeting.I/Werequestmy/ourproxytovoteonthefollowingresolutionsasindicatedbelow:
NOTES:
1. Aproxyneednotbeamemberofthecompany.
2. Pleaseindicatewithan‘X’intheappropriateboxesabovehowyouwishyourvotes tobecast.Unlessotherwise instructedtheproxymayvoteor abstain from voting as they think fit. The ‘vote withheld’ option isprovidedsothatyoumayabstainonanyparticularresolution:thisisnotavoteinlawandwillnotbecountedinthecalculationoftheproportionofvotes‘for’and‘against’aresolution.
3. TobeeffectivethisproxyformmustbedepositedwithCapitaRegistrars(Proxies), P.O.Box 25, The Registry, 34 Beckenham Road, Beckenham,Kent BR3 4TU, not less than 48 hours before the time fixed for themeeting.
4. Theproxyformmustbesignedbythememberorthemember’sattorneydulyauthorisedinwritingor,ifthememberisacorporation,itmustbeeitherunderitscommonsealorsignedonitsbehalfbyanattorneyorofficerdulyauthorisedwhosecapacityshouldbestated.
5. Inthecaseofjointmembersthevoteoftheseniorjointmemberwhosignsaproxyformwillbeacceptedtotheexclusionofothers,senioritybeingdeterminedbytheorderofnamesintheregister.
6. IfyouwishtoappointsomeoneotherthantheChairmanasyourproxy,delete“theChairmanofthemeeting(or)”andinsertthenameofyourproxyintheboxprovided.
7. Iftheproxyisbeingappointedinrelationtoonlysomeofyourshares,pleasewritethenumberofsharesinrespectofwhichtheyareauthorisedtoactintheboxnexttotheirname.Ifthisboxisleftblank,yourproxywillbedeemedtobeauthorisedtoactinrespectofallofyourshares.
8. To appoint additional proxies, this form may be photocopied oradditional copies obtained from the registrars. On each form, pleaseindicateintheboxnexttotheproxyholder’snamethenumberofsharesinrelationtowhichtheyareauthorisedtoactandensurethateachformbearsanoriginalsignature.
9. Completion and return of a proxy form will not prevent you fromattendingandvotinginpersonatthemeetingshouldyousubsequentlydecidetodoso.
10. Anyalterationmadetothisproxyformshouldbeinitialled.
11. Sharesheldinuncertificatedform(ieinCREST)maybevotedthroughtheCRESTProxyVotingService inaccordancewiththeproceduressetoutintheCRESTManual.
RESOLUTION For AgainstVote Withheld
1Toreceivethereportandaccounts 2ToappointMalcolmMcCaigasadirector3ToappointWilliamNewtonasadirector4ToreappointRichardDaveyasadirector5ToreappointRachelWoodfordasadirector6Toreappointtheauditorsandauthorisethedirectorstosettheirfees7Toauthorisethedirectorstoallotrelevantsecurities8Todisapplypre-emptionrights9Toauthorisesharebuy-backs
Pleasetickhereiftheproxyappointmentisoneofmultipleappointmentsbeingmadeandstateintheboxabovethenumberofsharestowhichthisproxyrelates.Also,seenote7below
SIGNATURE DATE
Notice of Annual General Meeting
Secondfold
Thirdfoldandtuckin
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PXS34 Backenham RoadBECKENHAM BR3 4TU
Business Reply seRvicelicence no. RsBH–uXKs–lRBc
Officers & Advisors
London Capital Group cares for the environment.This report was produced using 50% recycled paper and 50% FSC paper.
Registered Address12 Appold StreetLondonEC2A 2AWTel: +44(0) 20 7456 7000
RegistrarsCapita RegistrarsThe Registry34 Beckenham RoadBeckenhamKentBR3 4TU
Nominated Adviser & BrokerCenkos Securities Limited6.7.8. Tokenhouse YardLondonEC2R 7AS
Auditors Deloitte LLP2 New Street SquareLondonEC4A 3BZ
Financial & Corporate PRSmithfield Consultants Ltd610 Aldersgate StreetLondonEC1A 4HJ
Company SecretaryLorraine [email protected]
London Capital Group Holdings plc12 Appold Street
London EC2A 2AW Tel: +44 (0)20 7456 7000
Fax: +44 (0)20 7456 7013londoncapitalgroup.com
