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Lighthouse Group PLC  -  LGT   

Final results year ended 31 December 2016

Released 07:00 21-Feb-2017

RNS Number : 3739X
Lighthouse Group PLC
21 February 2017
 

 

 

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014

 

 

21 February 2017

 

Lighthouse Group plc

("Lighthouse", the "Group" or the "Company")

Final results year ended 31 December 2016

 

Lighthouse Group plc (AIM: LGT) today announces its final audited results for the year ended 31 December 2016. 

 

Highlights

EBITDA* up 37 per cent. to £2.2 million (2015: £1.6 million);

Profit before tax up 119 per cent. to £1.9 million (2015: £0.9 million);

Revenues of £48 million up 2 per cent. after adjusting for a £2.1 million reduction in platform-based trail (2015: £49 million) with 50 per cent. of revenues generated from clients being recurring (2015: 48 per cent.);

New business from affinity relationships up 16 per cent. to £2.9 million (2015: £2.5 million) with total revenues from affinity relationships up 3 per cent. to £6.8 million (2015: £6.6 million), reflecting the £0.7 million reduction in platform-based trail;

Average revenue production per adviser up 6 per cent. to £99,000 (2015: £93,000);

Gross margin percentage maintained at 30 per cent.;

Operating costs decreased by £0.9 million or 7 per cent. to £12.3 million (2015: £13.2 million);

Net cash balances** up £0.2 million to £8.1 million (2015: £7.9 million);

Operating cash flow generation £0.7 million after further investment of £0.7 million in customer solution development (2015: £1.1 million);

Interim dividend of 0.09 pence per share (2015: 0.08 pence per share) paid and final dividend of 0.18 pence per share proposed (2015: 0.16 pence per share); 19 affinity contracts now in place (2016: 16) with three new wins and two other contracts renewed; and

Luceo Asset Management successfully launched in October 2016 with c.£8 million invested to date.

 

* Earnings before interest, tax, depreciation, and amortisation.

**Cash stated after deduction of bank loan of £0.4 million (2015: £0.4 million).

 

 

Commenting on the results, Richard Last, Chairman of Lighthouse Group plc, said:  "The Group has continued to progress in 2016 and has delivered a good set of results.  The increase in average annualised revenue per adviser and change in revenue mix towards higher margin divisions largely offset the impact of the removal of platform-based trail income arising from the "sunset clause" introduced by the FCA to leave revenues and gross margin broadly unchanged. The above, together with an on-going focus on the Group's operational costs, resulted in a substantial increase in earnings. The continuing opportunities in the personal and corporate pension markets and entry into financial product solutions with the Luceo Funds, leaves Lighthouse well positioned to deliver future growth."

 

For further information, please contact:

Lighthouse Group plc

 

Richard Last, Chairman

Tel: +44 (0) 20 7065 5640

Malcolm Streatfield, Chief Executive

 

Peter Smith, Finance Director

 

 

investorenquiries@lighthousefs.co.uk

 

www.lighthousegroup.plc.uk

 

finnCap Limited

 

Tel: +44 (0) 20 7220 0500

(Nominated Adviser to the Company)

 

Adrian Hargreave / Emily Watts

 

 

 

 

Media enquiries:

IFC Advisory Ltd

Graham Herring / Tim Metcalfe / Heather Armstrong

heather.armstrong@investor-focus.co.uk

Tel: +44 (0) 20 3053 8671

 

 

www.investor-focus.co.uk

 

 

 

CHAIRMAN'S STATEMENT

 

OVERVIEW

I am pleased to report the Group's results for the year ended 31 December 2016, which are set out below and in the Consolidated Statement of Comprehensive Income in the Annual Report. The results show a continuing strong financial performance by the Group, with EBITDA* increasing by 37 per cent. to £2.2 million in 2016 compared to £1.6 million in 2015 on total revenues of £47.9 million (2015: £48.9 million).  Profit before taxation for the year amounted to £1.9 million compared to £0.9 million in 2015 - an increase of 119 per cent.  Adjusted basic earnings per share (after a standard tax charge) increased by 120 per cent. to 1.19 pence per ordinary share (2015: 0.54 pence per ordinary share).

 

TRADING HIGHLIGHTS

 

 

 

2016

2015

Revenue

£47.9m

£48.9m

Gross profit

£14.5m

£14.8m

Operating costs

£12.3m

£13.2m

EBITDA*

£2.2m

£1.6m

Depreciation and amortisation

£0.3m

£0.5m

Operating profit 

£1.9m

£1.1m

Net finance cost

-

£0.2m

Profit before taxation

£1.9m

£0.9m

Taxation credit

£0.7m

-

Profit after taxation being profit for the financial year

£2.6m

£0.9m

Earnings per share:

 

 

Basic

2.07p

0.68p

Adjusted basic reflecting standard tax charge**

1.19p

0.54p

Fully diluted

1.97p

0.68p

Adjusted fully diluted reflecting standard tax charge**

1.13p

0.54p

 

 

 

*Earnings before interest, tax, depreciation and amortisation.

**Calculated after applying standard tax charge of 20% (2015: 20.25%).

 

FINANCIAL PERFORMANCE

Group revenue for 2016 was £1 million lower than in 2015, this small reduction being due to the focus on more-cost effective advice delivery and a £2.1 million reduction in trail/renewal based revenue, largely as a result of the removal of such payments for platform-based assets from April 2016 under the "sunset clause" arrangements introduced by the Financial Conduct Authority ("FCA").  Notwithstanding this, recurring revenues reached c.50 per cent. of total revenue generated from customers for the first time at £21.9 million (2015: £22.1 million or 48 per cent.), underlining the increasing quality of the Group's earnings. Average revenue production per adviser also increased by £6,000 (6 per cent.) to £99,000 in 2016 (2015: £93,000); this has increased by 24 per cent. since 1 January 2013. 

 

Despite the impact of the "sunset clause" referred to above (net impact on gross margin £1.5 million), which was largely offset by a change in the mix of revenue generation in favour of the higher margin national affinity and wealth management segments and the release of old unallocated accruals of c.£859,000, gross margins remained broadly unchanged in 2016 at 30.2 per cent. (2015: 30.3 per cent.).  Operating costs reduced by £0.9 million or 7 per cent. from £13.2 million in 2015 to £12.3 million in 2016, despite further investment of £684,000 in new and enhanced business streams, including the launch of the Luceo Asset Management proposition in September 2016. As a result of the above, EBITDA increased by £0.6 million or 37 per cent. to £2.2 million in 2016, from £1.6 million in 2015.

 

The Group's profit before taxation increased by £1.03 million or 119 per cent. to £1.9 million (2015: £0.9 million). Group profit after taxation amounted to £2.6 million (2015: £0.9 million) after a credit to taxation of £750,000 (2015: £Nil tax charge/credit) representing the recognition of a deferred tax asset in respect of unutilised tax losses carried forward at 31 December 2016 where future utilisation is considered to be probable. Basic earnings per share rose by 204 per cent. to 2.07 pence per ordinary share (2015: 0.68 pence per ordinary share) and adjusted basic earnings share, calculated after a standard tax charge of 20 per cent. (2015: 20.25%), increased by 120 per cent. to 1.19 pence per ordinary share. (2015: 0.54 pence per ordinary share).

 

AFFINITY AND OTHER BUSINESS RELATIONSHIPS

The Group continues to develop deep and long-lasting commercial relationships with its affinity partners and now has contractual relationships with 19 affinity groups to provide financial advice to their aggregate membership which exceeds 6 million individuals.  The Group is believed to be the largest supplier of advice to the affinity market and revenues from this activity continue to increase, reaching £6.8 million in 2016 (2015: £6.6 million). This is after absorbing a £730,000 reduction in platform-based trail revenue as a result of the "sunset clause" arrangement introduced by the FCA, with new business revenues rising by £405,000 or 16 per cent. to £2.9 million (2015: £2.5 million).

 

Affinity-sourced business is a highly significant contributor to Group performance, contributing £1.1 million to Group EBITDA in 2016. Contracted relationships and revenues have grown consistently in the past four years, rising from £4.2 million in 2013 to £6.8 million in 2016, an annual compound growth rate of 18 per cent, with contracted affinity partners rising from 12 to 19 in the same period.

 

In 2016 the Group organised in excess of 1,000 events which generated nearly 15,000 face-to-face meetings with potential customers for advisers. These numbers are expected to grow as the Group increases its reach into the affinity market and continues to introduce innovative and appropriate financial solutions that should appeal to the "Middle Britain" constituency served therein.

 

The affinity business is largely based within the Group's Lighthouse Financial Advice ("LFA") division, consisting of skilled financial advisers advising on the Group's Researched Solutions range (including Luceo Asset Management), which contributed £2.7 million to EBITDA (2015: £3 million). This was £300,000 lower than in 2015 purely as a result of the "sunset clause" which reduced revenue in this division by £1.2 million.

 

The Group's Wealth Management division continue to progress during 2016, providing highly skilled advice to higher net worth clients through the LighthouseCarrwood ("Carrwood") and LighthouseWealth ("Wealth") businesses.

 

The Group has focused on reshaping Lighthouse Advisory Services, the division comprising the Group's historic base of experienced advisers who run their own businesses and serve their local communities, in recent years, concentrating on quality advice and use of technology to facilitate the advice process. This focus is leading to a more streamlined operation that should contribute positively in future years.

 

Lighthouse Workplace Solutions, encompassing the Group's proprietary Lighthouse Pensions Trust ("LPT") and Lighthouse Life Trust aimed at the auto-enrolment market for small and medium-sized entities ("SMEs"), has progressed further during the year. Initial penetration of the SME market has been slower than we had expected, reflecting, in part, the natural reluctance of small employers to pay for a fully advised service to enable them to meet responsibilities imposed on them by Government. With up to 1 million employers still obliged to address their auto-enrolment obligations in 2017 and 2018, the Group remains committed to this development.

 

LUCEO ASSET MANAGEMENT

As previously reported, the Group announced the launch of its newly formed subsidiary, Luceo Asset Management Limited ("Luceo") in September 2016. Luceo has been created to provide the Group's customers with access to sponsored investment solutions matched to their agreed attitude to risk. The initial three Luceo Investment Funds were launched as multi-manager, fund of fund solutions in the active asset management space, with Octopus Investments as the Investment Manager, and are ideally suited to form part of the investment portfolio for the Group's target Middle Britain customer.

 

Focused initially on the customers of LFA, who already enjoy access to the existing Lighthouse Researched Solutions range, the new funds have been well received by the advisers within that division, with c.£8 million having been invested to date and the majority of LFA advisers being actively engaged in discussing the new offering with clients, having regard to advice previously provided and the relative positioning within the current tax year.

 

The Luceo range will be extended further during 2017 with additional active funds to be launched by the end of February and further product lines encompassing both passive/low cost offerings as well as regular income and other asset classes to be covered as the year progresses. The extension of the range and the start of a new tax year should give additional stimulus to the rate of garnering of assets under the Luceo proposition and deliver additional margin for the Group as the funds develop scale.

 

FINANCIAL POSITION

The Group had net cash of £8.1 million as at 31 December 2016 compared to £7.9 million at the previous year-end, an increase of 3 per cent.  This provides an excellent base from which to grow and develop both its affinity business within LFA and the higher margin wealth management division, as well as supporting the development of new and existing business streams and other initiatives.

 

BREXIT AND REGULATORY DEVELOPMENTS

The initial uncertainty experienced by UK financial markets following the vote to leave the EU in June 2016 has subsided with the FTSE 100 and similar indices recording all-time highs in late 2016 and early 2017. Notwithstanding this, the depreciation of sterling against the dollar and the euro will add to the inflationary pressures already building up in the UK and could adversely affect UK consumer spending and investment in the short-term.

 

The impact of Brexit on UK financial services markets has yet to be determined, as the UK Government has yet to serve formal notice to leave the EU under Article 50 of the Treaty on European Union, and the Group is keeping the situation under close review. With the Group's customer base domiciled principally in the UK, the Board believes the Group is well placed to deal with any issues that might emerge from Brexit in due course. 

 

Regulation continues to develop, with HM Treasury and the FCA still to conclude definitively on and supply guidance for the Financial Advice Market Review ("FAMR"). In addition, new legislation is impending in the form of the Markets in Financial Instruments Directive ("MiFID II") and the General Data Protection Regulation, effective from 1 January 2018 and 25 May 2018 respectively, among other new legislation. Whilst it is interesting to note that FCA guidance on both FAMR and MiFID II is still awaited, the Group is reviewing its obligations in all of the above and is confident, based on information currently available, of being fully compliant by the time such legislation becomes effective. 

 

The Group continues to take a positive approach towards assessing and dealing with new developments in the markets within which it operates, for the benefits of its customers, advisers and stakeholders.

 

DIVIDENDS

A final dividend of 0.18 pence per ordinary share (2015: 0.16 pence per ordinary share), an increase of 13 per cent., is recommended by the Board and, subject to approval at the forthcoming Annual General Meeting, will be payable on 5 May 2017 to shareholders on the register at close of business on 7 April 2017.  The corresponding ex-dividend date is 6 April 2017.  This follows the interim dividend of 0.09 pence per ordinary share (2015: 0.08 pence per ordinary share) paid in September 2016 and makes a total dividend for the year of 0.27 pence per ordinary share (2015: 0.24 pence per ordinary share.

 

EMPLOYEES AND BOARD

I would like to express my appreciation to all of the Group's advisers for their continuing loyalty, enthusiasm and professionalism and to my fellow directors and all of the Group's employees for their hard work and dedication during the year.

 

STRATEGY AND PROSPECTS

The Group continues to focus on developing its own product offerings and focusing on those operations within the Group that provide higher margins, whilst seeking to improve efficiency and ease of operation across all areas of the Group. We are pleased with the launch of the Luceo Investment Fund range and the contribution made by the Group's partners in this development and look forward to this being expanded significantly over the course of 2017 and beyond.

 

The Group's principal operating units have recorded creditable financial performance during the year despite the adverse impact of the removal of trail income from platform-based assets in April 2016 and have well-developed plans for further growth.

 

With a focus on generating profitable growth from expanding affinity business, developing new and enhancing existing financial solutions for both retail and corporate customers and achieving further cost efficiency, whilst continuing to mitigate risk for the Group and its customers, the Board believes that the Group is well placed to take advantage of the opportunities available.

 

Richard Last

Chairman

 

20 February 2017          

 

 

CHIEF EXECUTIVE'S REVIEW

 

OVERVIEW

2016 marked a milestone in the development of Lighthouse, with the launch of the Luceo Asset Management business - the Group's first entry into the asset management space. This is an exciting new development that should produce increased revenue and margin as the Luceo Fund range gains traction and is developed further.

 

The Group's affinity business continues to expand, with 19 contractual arrangements in place as at 31 December 2016. Total revenues from this source reached a new peak of nearly £7 million and this high-margin business contributed £1.1 million to Group EBITDA. Traction in this important area of the Group's target market place - "Middle Britain" - continues to grow and the Group is now seen as the leading provider of holistic financial advice in the affinity arena.

 

During the year the Group absorbed the impact of the "sunset clause", introduced by the FCA with effect from 1 April 2016 and resulting in the cessation of trail payments previously received from clients' investments held on platforms. This reduced recurring revenues and gross margin by £2.1 million and £1.5 million respectively from 2015 levels, and set against this context it is pleasing to report that recurring revenues at £21.9 million approached 50 per cent. of total revenues generated from customers for the first time in 2016 (2015: £22.1 million and 48 per cent. respectively) and gross margins remained largely unchanged at 30.2 per cent. of revenue (2015: 30.3 per cent.).  This demonstrates the high regard in which clients hold the Group's services and the resilience of the Group's operating model. 

 

Close attention has continued to be applied to the Group's operating cost base, with the result that administrative overheads reduced by £0.9 million to £12.3 million (2015: £13.2 million). As a result of the above, EBITDA increased by 37 per cent. to £2.2 million from £1.6 million in 2015 and pre--tax profit rose by 119 per cent. to £1.9 million from £0.9 million in 2015. This represents a highly creditable result in a year of continuing change and uncertainty, both in the financial markets and as regards the regulatory and political arenas.

 

The Group has also continued to invest in technology development and initiatives to enhance existing and produce new business offerings in 2016 in order to better serve its customers and take advantage of the many opportunities that exist.

 

Further details of 2016 trading are set out later in this review.

 

OPERATIONS

The Group provides financial advice through its three principal business segments, being:

-      LFA, the affinity-based, self-employed national advisory division;

-   Wealth management, comprising employed and highly specialist and qualified advisers within Carrwood, working through accountancy and professional connections, and Wealth, serving a similar high net worth client base through the client banks of its self-employed advisers; and

-      Lighthouse Advisory Services Limited, the Group's authorised network of self-employed advisers, operating under their own brands and within their local communities but with access to the same Fairway technology and Researched Solutions product suites available elsewhere in the Group.

 

At 31 December 2016 the Group employed 140 staff, including employed advisers, and operated out of three principal locations, being London (plc office and base for City-based advisers), Stockport (operating base for Carrwood, including Lighthouse Workplace Solutions, compliance and IT support centre) and Woodingdean, near Brighton (base for LFA operations support and finance and adviser remuneration functions).

 

LUCEO ASSET MANAGEMENT

On 16 September 2016, the Group announced the launch of Luceo Asset Management Limited, a wholly-owned subsidiary that will provide in-house investment solutions under the Luceo Funds brand to the Group's core customer base. The Funds opened for business on 17 October 2016 with three actively managed, multi-manager fund of fund solutions - Luceo 4, 5 and 6 - that have been designed by the Group, in conjunction with Octopus Investments, the Investment Manager to the funds, to provide investments whose risk profiles exactly match those agreed at the time of recommendation by the customer.

 

Octopus Investments was selected after extensive due diligence as an award-winning and innovative investment manager with more than £6 billion under management for more than 50,000 investors. The Luceo Funds are available on a number of the leading platforms, including the Lighthouse Zurich Platform, a service exclusively available to and on terms bespoke to the Group, its advisers and clients. Again Zurich was chosen as a partner after extensive due diligence for its economic strength, long-standing reputation in the market and commitment to supporting the intermediary community. Both Octopus Investments and Zurich committed significant resource and expertise in enabling the Group to launch the Luceo Funds in accordance with the pre-agreed schedule.

 

Operation of the Luceo Funds is overseen by an Investment Committee made up of experienced investment professionals, with an independent chairman, ensuring that the interests of customers are always of primary concern.

 

The new Funds have been received favourably within the Group's adviser communities and are initially focused on the customers of LFA as part of the Lighthouse Researched Solutions range successfully deployed for the benefit of customers since January 2013. Despite being launched halfway through a tax year, when many clients will have already agreed their investment and tax strategies up to April 2017, over half of the advisers within LFA have now engaged and arranged investment within the Luceo Funds for the benefit of their clients and total funds invested in excess of £8 million as at the current date.

 

Further funds within the Luceo range will be developed and launched in the forthcoming months, both to widen the current active product set and also to provide solutions in other areas such as low cost/passive managed and regular income as well as in the discretionary and alternative asset class parts of the market.  This together with the arrival of the end of the current ISA season and a new tax year from 6 April 2017 should provide additional demand for the Luceo Fund range and deliver improved customer outcomes across a wider number of customers whilst providing additional revenue and margin for the Group as the Funds move towards scale.

 

DIVISIONAL COMMENTARY

 

Lighthouse Financial Advice

LFA is the Group's national advisory business focused on providing appropriate financial advice and solutions to the market area termed "Middle Britain", and holds contractual arrangements as the preferred provider of financial advice to the members of 19 affinity groups across the UK, covering some 6 million members. In 2016 the Group has secured new contracts as the preferred provider of financial advice to the members of the University and College Union and the Fire Brigade Union, each for initial three-year periods, and FosterTalk Limited for an initial two-year period. 

 

In addition, the Group announced the renewal of its existing affinity contract with Parliament Hill Limited for a further two-year period in March 2016, and in February 2017 the renewal of the existing affinity contract with the Union of Shop, Allied and Distributive Workers for a further three-year period.  These contract wins and renewals emphasise LFA's position as the financial adviser of choice for affinity groups and their members and the continuity of such arrangements provides an exceptional base for future development within LFA. 

 

Revenues generated from affinity-based leads across the Group reached £6.8 million in 2016 - an increase of £0.9 million or 16 per cent. over the £6.6 million achieved in 2015 after allowing for the £730,000 reduction in trail revenues following the "sunset clause" taking effect from 1 April 2016 - with new business revenues included therein increasing by £405,000 or 16 per cent. to £2.9 million (2015: £2.5 million).  After deducting adviser payaways, introducer payments and directly attributable overheads, the Group's affinity business contributed £1.1 million to Group EBITDA, underlining the importance of this reliable and expanding area of operation. This contribution is expected to increase as penetration of such relationships becomes deeper and more effective.

 

LFA also continues to lead the distribution of the Group's Lighthouse Workplace Solutions ("LWS") suite of financial solutions and products targeted at helping SMEs provide cost-effective and attractive workplace benefits for the benefit of their employees.

 

Operating from modern premises near Brighton, owned by the Group under a long lease and which house a professional call centre and client service and events teams, and embracing fully the Group's Fairway technology solution and its Researched Solutions product range, LFA is well placed to take advantage of the opportunities available as a prime adviser to Middle Britain.

 

In 2016 LFA contributed gross revenues of £15.7 million (2015: £16.1 million) and an EBITDA after allocation of central costs of £2.7 million (2015: £3 million), the reductions from 2015 being directly attributable to the impact of the "sunset clause" removal of historic trail on platform-based customer assets.

 

Wealth management

Wealth management comprises highly skilled employed advisers within Carrwood (incorporating Lighthouse Workplace Solutions) and self-employed advisers within Wealth. Carrwood has 45 contractual arrangements with accountancy firms to provide financial advice to their clients and the advisers within Carrwood (incorporating Lighthouse Workplace Solutions) are supported by the specialist administrative and para-planning resource located in the Group's modern premises in Stockport, within easy reach of Manchester, the principal financial centre in the North-West of England. The office is also the administrative support centre for the Group's auto-enrolment and group employee benefits business, part of Carrwood. Wealth advisers operate remotely or from the Group's head office premises in the City of London and have access to central para-planning services.

 

This division produced revenues of £8.4 million, a reduction of £407,000 of 5 per cent. from the £8.8 million recorded in 2015.  The principal reason for the reduction was the non-recurrence of a major pension transfer review undertaken in 2015 with attributed revenues of £561,000 of which £346,000 was paid to a specialist third-party contractor who retained the related advice liability. Average annualised gross revenue production across the employed advisers working with the Group's accountancy connections within Carrwood increased by 10 per cent. to £215,000 from £195,000 in 2015, generated from advice provided across all product areas. 

 

The Group invested a further £534,000 in the continued development of the LPT auto-enrolment offering which has been fully expensed in the 2016 results, and this resulted in the wealth management segment recording an EBITDA loss after allocation of central costs of £323,000 (2015: EBITDA profit of £256,000).

 

193 auto-enrolment compliant company pension schemes had been staged by 31 December 2016, with a further 54 schemes having signed up to be staged in future periods. Whilst take-up of the Group's fully advised Lighthouse Pensions Trust and associated Lighthouse Life Trust has been slower than anticipated, due in part to the reluctance of SME owners to pay for assistance in establishing pension arrangements imposed on them by central government when lower-cost, unadvised offerings are available from other sources, up to 1 million SMEs have still to stage auto-enrolment compliant pension schemes between 1 January 2017 and mid-2018. The Group remains committed to maximising the opportunity to assist SMEs to meet their obligations in this area. 

 

The combination of highly-skilled employed and experienced self-employed advisers operating in the high-net worth marketplace provides a firm base for further growth in the wealth management sector.

 

Lighthouse Advisory Services ("LASER")

2016 saw revenues in the network segment, LASER, reduce marginally from £24 million to £23.8 million, with the impact of a small number of member firms becoming directly authorised or otherwise having moved out of the Group being largely offset by average annualised revenue production per adviser increasing by 7 per cent. to £107,000 from £100,000.  The Group continues to focus on improving margin and on minimising risk for itself, its clients and its network advisers. The Group will continue to work with those firms which embrace the full Lighthouse Fairway technology and the innovative financial solutions provided for clients by the Lighthouse Researched Solutions and Luceo Investment Fund range to deliver better customer outcomes and a mutually beneficial relationship for the Group and its advisers in this community space.

 

After allocation of central costs, the network segment incurred an EBITDA of £64,000 (2015: negative EBITDA of £721,000). The improvement was as a result of debt and professional indemnity insurance recoveries and lower complaint numbers post-RDR leading to cost reductions.

 

Central costs not allocated to segments amounted to £221,000 (2015: £971,000).

 

PROFESSIONAL INDEMNITY INSURANCE ("PII")

PII cover remains an essential cost of continuing to advise clients within the UK retail financial services market, and the market for such cover in the UK remained tight during 2016 with few carriers wishing to participate in insurance arrangements (either as principals or syndicate members) and premiums as a proportion of revenues continuing at previous high levels.

 

Notwithstanding the difficult market conditions, the Group secured a renewal of its coverage in June 2016 for a further eighteen-month period, with the adoption of carefully risk-rated researched solutions being a key factor in achieving renewal with a 1.8% cost increase in total quantum terms and some reductions in individual case excesses.

 

REGULATION

The scale of regulation applied to the UK financial services distribution sector continues to expand with major changes introduced by UK Government and the FCA in recent years aimed at increasing savings within the UK and at providing individuals with increased choice.  Definitive guidance from the FCA on the FAMR findings has still to emerge and the extent and applicability of further regulatory obligations from pending legislation such as MiFID II and the General Data Protection Regulation, which come into effect on 1 January 2018 and 25 May 2018 respectively, has yet to be finalised. The Group continues to monitor these developments closely to assess the proposed impact on, and actions necessary to comply with, the various new regulations. It also continues to engage with regulatory authorities with a view to achieving a more proportionate approach to UK regulation of retail financial services whilst continuing to recognise the need to minimise risk and provide appropriate advice to and outcomes for its customers.

 

REVENUE AND GROSS MARGINS

Total revenues decreased by £1 million or 2 per cent. to £47.9 million from £48.9 million in 2015, reflecting the impact of the "sunset clause" introduced by the FCA with effect from 1 April 2016 which removed £2.1 million of historic trail previously received in respect of clients' investment assets held on platforms. Despite this, recurring revenues at £21.9 million approached 50 per cent. of all revenues generated from customers (2015: £22.1 million and 48 per cent.) and average annualised revenue production per adviser increased by £6,000 or 6 per cent. to £99,000 from £93,000 in 2015. This increase and the ability to replace a substantial proportion of historic platform-based asset trail with on-going charges, which now represent 67 per cent. of all recurring revenues against 54 per cent. in 2015, represents a considerable achievement by the Group and its advisers.

 

Gross margins, expressed as a percentage of total revenues, decreased marginally to 30.2 per cent. from 30.3 per cent. in 2015, principally as a result of the loss of £1.5 million gross margin related to historic "sunset clause" trail, largely offset by improvements in divisional gross margin percentages and the release of historic accruals no longer required of £859,000.

 

OPERATING COSTS

Operating costs decreased in 2016 by £0.9 million to £12.3 million from £13.2 million in 2015. The decrease was due to lower complaint volumes, leading to lower utilisation of current professional indemnity insurance arrangements, and increased debt recoveries (an aggregate reduction of £884,000), lower sub-contract costs with the non-recurrence of £346,000 re major public sector pension review work in comparison with 2015 and reductions in staff costs of £174,000. This was partially offset by the £684,000 investment expensed during the year on the development and enhancement of new business streams such as auto-enrolment and the Luceo Asset Management Fund range launched in September 2016.

 

The Group continues to monitor closely its operating base and looks to minimise such costs and to recover regulatory and PII costs from advisers and/or clients wherever possible.

 

CARRYING VALUE OF INTANGIBLE ASSETS AND GOODWILL

As required by accounting standards, the Board has undertaken a review of the Group's intangible assets including goodwill arising from business combinations as at 31 December 2016 to identify whether any indicators of impairment existed as at that date and, in the case of those intangible assets with indefinite useful economic lives, whether the carrying values were supported by the estimated net present value of future cash flow projections from the relevant Cash Generating Units or business segments.  No such impairment factors were identified and hence no additional provision for impairment has been made (2015: £Nil).

 

RESULTS FOR THE YEAR

The Group recorded an EBITDA for the year of £2.2 million (2015: £1.6 million).  After charging £299,000 in respect of depreciation and amortisation, a reduction of £253,000 from the £552,000 charged in 2015 as a result of certain intangible assets becoming fully amortised, and net finance costs of £16,000 (2015: £194,000, including £133,000 in respect of the unsecured loan notes redeemed in full on 31 December 2015), the Group recorded a pre-tax profit of £1.9 million (2015: £0.9 million). Post-tax profit amounted to £2.6 million (2015: £0.9 million), reflecting a credit of £750,000 arising from the recognition of a deferred tax asset for losses brought forward now considered to be recoverable in the foreseeable future (2015: £Nil).

 

CASH FLOW, CASH BALANCES AND TREASURY

Net year-end cash balances, after deduction of a commercial property bank mortgage (secured on the Group's long-leasehold property near Brighton), amounted to £8.1 million (2015: £7.9 million after deduction of the bank mortgage and unsecured loan notes). The increase of £0.2 million was due to the £1.6 million profit retained for the year (excluding the non-cash deferred tax credit of £750,000) less working capital increases principally as a result of the settlement of historic complaints previously provided for. The bank mortgage of £0.4 million was taken out in 2013 to part fund the long-leasehold interest in the Group's LFA operational premises in Woodingdean (total acquisition cost: £1.1 million) and is repayable by quarterly instalments, with the balance being subject to rollover or refinancing in October 2018. 

 

The undertakings previously given by the Group to the FCA in respect of maintaining assets and seeking prior approval for distributions by its regulated subsidiaries remain in force at this time.  After allowing for regulatory and working capital considerations the Board will continue to retain the £4 million of cash it holds in excess of regulatory capital requirements in short-dated accounts for the time being.

 

PROSPECTS

As noted above, the Group has continued to invest in its businesses and in new initiatives.  The Luceo Fund range, which provides improved customer outcomes as well as additional margin to the Group, will be expanded further in 2017 along with complementary offerings to be introduced in future periods. This, together with the on-going focus on higher margin divisions - LFA and Wealth Management - and focused development of the advisers within the network division in conjunction with the Group's Fairway technology and carefully selected Researched Solutions, leaves the Group well placed, with a solid financial position and net cash, to take advantage of opportunities.

 

Malcolm Streatfield

Chief Executive

 

20 February 2017

 

 

Lighthouse Group plc

Consolidated statement of comprehensive income

for the year ended 31 December 2016

 

2016

2015

 

 

 

 

£'000

£'000

 

 

 

Revenue

47,919

48,881

Cost of sales

(33,452)

(34,057)

Gross profit

14,467

14,824

 

 

 

Administrative expenses

 

 

Other operating expenses

(12,259)

(13,214)

Earnings before interest, tax, depreciation and amortisation

 

2,208

 

1,610

Depreciation and amortisation

(299)

(552)

Total administrative expenses

(12,558)

(13,766)

Operating profit

1,909

1,058

Finance income

11

14

Finance costs

(27)

(206)

Profit before taxation

1,893

866

Taxation

750

-

Profit for the year

2,643

866

Other comprehensive income

-

-

Total comprehensive income for the year

2,643

866

 

 

 

 

 

 

 

 

Basic earnings per share

2.07p

0.68p

 

Adjusted basic earnings per share

1.19p

0.54p

 

Diluted earnings per share

1.97p

0.68p

 

Adjusted diluted earnings per share

1.13p

0.54p

       

 

 

All activities are classed as continuing.

 

The profit and total comprehensive income for both 2016 and 2015 were wholly attributable to the equity holders of the Company.

 

 

 

 

Lighthouse Group plc

Consolidated statements of changes in equity

for the year ended 31 December 2016

 

 

Share capital

Special non- distributable reserve

Reserves arising from share- based payments

Retained earnings

Total attributable to equity shareholders

 

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

At 1 January 2016

 

1,277

 

1,999

 

1,023

 

2,262

 

6,561

 

 

 

 

 

 

Profit and total comprehensive income for the year

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,643

 

 

 

1,893

 

 

 

 

 

 

Dividends paid

-

-

-

(319)

(319)

Share-based payment

 

-

 

-

 

79

 

-

 

79

At 31 December 2016

 

1,277

 

1,999

 

1,102

 

4,586

 

8,964

 

 

 

 

 

 

At 1 January 2015

 

1,277

 

1,999

 

1,023

 

1,651

 

5,950

 

 

 

 

 

 

Profit and total comprehensive income for the year

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

866

 

 

 

866

 

 

 

 

 

 

Dividends paid

-

-

-

(255)

(255)

At 31 December 2015

 

1,277

 

1,999

 

1,023

 

2,262

 

6,561

 

 

 

 

 

 

 

 

 

 

Lighthouse Group plc

Consolidated statement of financial position

at 31 December 2016

 

 

2016

2015

 

 

 

 

£'000

£'000

Assets

 

 

Non-current assets

 

 

Intangible assets

5,230

5,284

Property, plant and equipment

1,240

1,271

Deferred tax asset

750

-

 

7,220

6,555

Current assets

 

 

Trade and other receivables

9,004

13,266

Cash and cash equivalents

8,501

8,389

 

17,505

21,655

Total assets

24,725

28,210

Current liabilities

 

 

Trade and other payables

9,302

10,663

Provisions

3,005

6,591

 

12,307

17,254

Non-current liabilities

 

 

Trade and other payables

405

439

Provisions

3,049

3,956

 

3,454

4,395

Total liabilities

15,761

21,649

 

 

 

Net assets

8,964

6,561

 

 

 

Capital and reserves

 

 

Called up share capital

1,277

1,277

Special non distributable reserve

1,999

1,999

Other reserves - share-based payments

1,102

1,023

Retained earnings

4,586

2,262

Total equity attributable to equity holders of the Company

 

8,964

 

6,561

 

The financial information was approved by the Board of Directors on 20 February 2017 and was signed on its behalf by

 

Malcolm Streatfield                                                                                                       

Chief Executive                                                                                                 

 

Peter Smith

Finance Director

 

 

 

 

Lighthouse Group plc

Consolidated statement of cash flows

For the year ended 31 December 2016

 

 

 

2016

 

2015

 

£'000

£'000

Operating activities

 

 

Profit before tax for the year

1,893

866

Adjustments to reconcile profit for the year to net cash inflows from operating activities

 

 

Finance income

(11)

(14)

Finance costs

27

206

Depreciation of property, plant and equipment

157

153

Amortisation of intangible assets

142

399

Share-based payment

79

-

Change in trade and other receivables

4,262

(923)

Change in trade and other payables

(1,361)

(1,492)

Change in provisions

(4,493)

2,270

Cash generated from operations

695

1,465

Finance costs paid

(27)

(404)

Net cash inflow from operating activities

668

1.061

 

 

 

Investing activities

 

 

Purchase of property, plant and equipment

(126)

(119)

Purchase of intangible assets

(88)

(69)

Finance income received

11

14

Net cash outflow from investing activities

(203)

(174)

 

 

 

Financing activities

 

 

Redemption of unsecured loan notes

-

(1,273)

Bank loan repayments

(34)

(34)

Dividends paid to equity shareholders

(319)

(255)

Net cash outflow from financing activities

(353)

(1,562)

 

 

 

Increase/(decrease) in cash and cash equivalents

112

(675)

Cash and cash equivalents at the beginning of the year

8,389

9,064

Cash and cash equivalents at the end of the year

8,501

8,389

 

 

 

Lighthouse Group plc

Notes to the financial information for the year ended 31 December 2016

 

 

1.     Basis of preparation

The financial information, which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statements of Changes in Equity, the Consolidated Statement of Financial Position and the Consolidated Statement of Cash Flows and the related explanatory notes, has been extracted from the audited financial statements for the year ended 31 December 2016 and has been prepared on the basis of the accounting policies set out therein and in accordance with International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board as adopted for use in the EU ("IFRS").

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015 but is derived from those accounts.  Statutory accounts for 2015 have been delivered to the registrar of companies, and those for 2015 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2.    Earnings per ordinary share

 

The calculation of the basic and diluted earnings per share attributable to equity shareholders of the parent company is based on the following data:

 

 

 2016

Basic/diluted

 2016

Adjusted

 2015

Basic/diluted

 2015

Adjusted

 

 

 

 

 

Profit for the purposes of basic and dilutive earnings per share (£'000)

 

2,643

 

1,514

 

866

 

691

 

Weighted average number of ordinary shares for the purpose of basic earnings per share

 

 

127,700,298

 

 

127,700,298

 

 

127,700,298

 

 

127,700,298

 

Effect of the dilutive potential on ordinary shares: share options

 

 

6,123,391

 

 

6,123,391

 

 

368,219

 

 

368,219

 

Weighted average number of ordinary shares for the purpose of diluted earnings per share

 

 

133,831.689

 

 

133,831.689

 

 

128,068,517

 

 

128,068,517

 

Profit for the purposes of calculating adjusted basic and diluted earnings as set out above is stated after excluding the deferred tax credit of £750,000 in 2016 (2015: £Nil) and applying a standard rate of tax of 20 per cent. (2015: 20.25 per cent.)  to the profit before taxation in the relevant year.

3.    Dividends

The directors recommend the payment of a final dividend for the year ended 31 December 2016 of 0.18 pence per ordinary share (2015: 0.16 pence per ordinary share).

4.     Annual report      

 

The annual report, audited financial statements and notice of annual general meeting will be posted to shareholders on or about 3 March 2017 and copies are available for collection indefinitely from the Company's registered office at 26 Throgmorton Street, London, EC2N 2AN or at the Group's website (www.lighthousegroup.plc.uk).

 

 

 

- Ends -


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Final results year ended 31 December 2016 - RNS