A recent look at LCG’s share price would raise some eyebrows however the groups latest earnings show positive signs in their core business untis. FX dividsion shows 4% increase.
Financial Spread Betting continues to be the largest contributor to LCG’s revenues but the overall lack of market direction has constrained income while the growth in our other divisions has led to a more balanced spread of revenues than in the past. Spread Betting contributed 61% of group revenue in the period (2010: 77%). We are however encouraged by the growth in funds on account which stood at GBP24.67m at the end of the half (H1’10: GBP20.45m).
In relation to our White Label partners, although the Paddy Power franchise was lost, LCG retained the existing clients. We also gained a significant partner in TD Waterhouse as well as several other financial services providers. Whilst the acquisition of spread betting clients was not as strong as in previous periods due to the lack of market activity in the first half making the product less attractive, we are confident the addition of these new partners will add considerably to client acquisition in the future.
The professional client debt continues to be due and the directors have been advised that the sum remains recoverable. No provision has been made and we continue to pursue the amount through legal action.
The institutional FX division delivered another strong performance with a 4% increase in divisional operating profits. Volumes continue to grow as the unit acquires an ever increasing portfolio of clients. Global FX volumes have started to move in a positive direction again after weakening in 2010 and the institutional FX business is well positioned to benefit from this. We have also agreed several new portals to deliver our liquidity to external counterparties and we expect this to deliver even stronger revenue growth in the future.
Financial Spread betting, Gibraltar
H1 2011 has been a turnaround period for our Gibraltar based subsidiary, with the business delivering its first operating profit since acquisition. Revenue was up 23% to GBP1.04m (2010: GBP0.85m) and operating profit was GBP0.04 (H1’10: operating loss of GBP0.17m). ProSpreads is currently restricted to only accepting ‘professional’ clients as defined by MiFID, which has hindered growth substantially. As a result ProSpreads has been in prolonged negotiations with the Gibraltar regulator and Gaming authorities to permit ‘retail’ client acquisition; if permission is granted, ProSpreads should see significant acceleration in its growth.
The institutional broking unit had a strong start to the year generating an 82% increase in revenue and 38% increase in operating profit. The division now has a very strong customer base and is well placed to take advantage of market conditions more suited to their business model.
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As announced in our 2010 results LCG now has a regulated entity in Australia offering CFDs to retail clients. This initial footprint in the Far East is expected to attract business from the entire region as LCG expects that the attractions that have made the spread betting and CFD business so successful in the UK will begin to acquire traction across the globe.
Our existing partners are also heavily involved in pushing the CFD product into mainland Europe and LCG now has a wide array of multilingual platforms to suit this purpose. Our cost effective White Label solution remains the product of choice for companies looking to acquire financial trading revenue from their existing client base.
H1 2011 saw the first signs that some contraction in the competitive landscape is probable over the next six to twelve months. The current regulatory environment, the increasingly expensive demands of IT expenditure, exchange costs and the now very low spreads offered to clients means that the smaller companies are struggling to attract clients or trade profitably. In the longer term we do not see this situation improving which we anticipate will have two effects, firstly drive out some of the smaller offerings and secondly restrict the number of new entrants.
The Board believes the outlook for the remainder of 2011 to be very good. The spread betting and CFD unit has launched its mobile offering and a brand new advanced charting functionality increasing our attraction to both new clients and new partners. The institutional FX division remains on a strong upward volume and profit trend, our other units are delivering solid growth. More importantly, recent market conditions have demonstrated the strengths of our business model as we have seen our revenue streams increase, record daily profits, and increased client acquisition
As reported by Simon Denham; Chief Executive
18 August 2011
London Capital Group Holdings plc