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Lighthouse Group PLC  -  LGT   

Final Results

Released 07:00 20-Feb-2018

RNS Number : 3245F
Lighthouse Group PLC
20 February 2018
 

 

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

Press Release

20 February 2018

 

Lighthouse Group plc

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

Final results for the year ended 31 December 2017

 

Lighthouse Group plc (AIM: LGT), the national financial adviser of choice for Middle Britain, today announces its final audited results for the year ended 31 December 2017. 

 

 Highlights

·    

Revenues up 13 per cent. to £54 million (2016: £48 million);

·    

Recurring revenues generated from clients up 14 per cent. to £25 million (2016: £22 million);

·    

EBITDA* up 27 per cent. to £2.8 million (2016: £2.2 million);

·    

Profit before tax up 32 per cent. to £2.5 million (2016: £1.9 million);

·    

New business from affinity relationships up 79 per cent. to £5.2 million (2016: £2.9 million) with total revenues from affinity relationships up 41 per cent. to £9.6 million (2016: £6.8 million);

·    

21 affinity contracts now in place (2016: 19) with two new wins and two other contracts renewed;

·    

Average revenue production per adviser increased by 23 per cent. to £122,000 (2016: £99,000);

·    

Net cash balances** £8.7 million (2016: £8.1 million);

·    

Operating cash flow generation £1.4 million after investment of £0.7 million in customer solution development (2016: £0.7 million after £0.7 million investment expensed)

·    

Interim dividend of 0.12 pence per share (2016: 0.09 pence per share) paid and final dividend of 0.30 pence per share proposed (2016: 0.18 pence per share) - an increase for the full year of 55 per cent. over 2016; and

·    

Assets under management in Luceo Asset Management investment solutions £37 million (2016: £4 million) through five funds (2016: three funds).

 

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

**Cash stated after deduction of bank loan of £NIL million (2016: £0.4 million).

 

Commenting on the results, Richard Last, Chairman of Lighthouse Group plc, said: "Lighthouse has continued to progress in 2017 and has delivered an excellent set of results, driven entirely by organic growth and a particularly pleasing performance in the affinity business. The substantial rise in average annualised revenue per adviser was a key factor in achieving a 13 per cent. increase in revenues. This, along with a reduction in operating costs flowing from the Group's continuing focus on providing good customer outcomes, resulted in a substantial increase in earnings. Lighthouse remain well positioned to deliver further growth."

 

 

For further information, please contact:

 

Lighthouse Group plc

 

Richard Last, Chairman

Tel: +44 (0) 20 7065 5640

Malcolm Streatfield, Chief Executive

investorenquiries@lighthousefs.co.uk

Peter Smith, Finance Director

www.lighthousegroup.plc.uk

 

 

 

 

finnCap Limited

Tel: +44 (0) 20 7220 0500

(Nominated Adviser and Broker to the Company)

 

Corporate Finance

Adrian Hargrave / Emily Watts / Hannah Boros

Corporate Broking

Alice Lane / Richard Chambers

 

 

 

 

 

Media enquiries: IFC Advisory

Tel: +44 (0) 20 3934 6630

Heather Armstrong / Graham Herring / Florence Chandler

 

heather.armstrong@investor-focus.co.uk

www.investor-focus.co.uk

 

CHAIRMAN'S STATEMENT

 

OVERVIEW

I am pleased to report the Group's results for the year ended 31 December 2017, which are set out below and in the Consolidated Statement of Comprehensive Income in the Annual Report. Lighthouse achieved a record financial performance in 2017, with EBITDA* increasing by 27 per cent. to £2.8 million compared to £2.2 million in 2016 on revenues up 13 per cent. to £54.1 million (2016: £47.9 million). Profit before taxation for the year amounted to £2.5 million compared to £1.9 million in 2016 - an increase of 32 per cent. Adjusted basic earnings per share (after a standard tax charge) increased by 34 per cent. to 1.59 pence per ordinary share (2016: 1.19 pence per ordinary share).

 

TRADING HIGHLIGHTS

 

 

 

2017

2016

Revenue

£54.1m

£47.9m

Gross profit

£14.7m

£14.5m

Operating costs

£11.9m

£12.3m

EBITDA*

£2.8m

£2.2m

Depreciation and amortisation

£0.3m

£0.3m

Operating profit and profit before taxation

£2.5m

£1.9m

Taxation credit

£0.2m

£0.7m

Profit after taxation being profit for the financial year

£2.7m

£2.6m

Earnings per share:

 

 

Basic

2.13p

2.07p

Adjusted basic reflecting standard tax charge**

1.59p

1.19p

Fully diluted

1.98p

1.97p

Adjusted fully diluted reflecting standard tax charge**

1.49p

1.13p

 

 

 

*Earnings before interest, tax, depreciation and amortisation.

**Calculated after applying standard tax charge of 19.25% (2016: 20%).

 

 

FINANCIAL PERFORMANCE

Group revenue for 2017 was £6.2 million higher than in 2016, due to the higher average annualised revenue production per adviser, which increased by £23,000 (23 per cent.) to a record level of £122,000 in 2017 (2016: £99,000). This average has increased by 53 per cent. since the introduction of the Retail Distribution Review ("RDR") on 1 January 2013. Recurring revenues reached a new high of £24.8 million or 48 per cent. of total revenue generated from customers.

 

As advisers within Lighthouse Financial Advice Limited ("LFA"), the Group's affinity-based national advisory business, generated significantly higher gross revenues than targeted, they retained a greater proportion of the revenues they produced. This, together with the fixed investment costs in Luceo Asset Management while the funds build to scale., resulted in gross margins for the year to 31 December 2017 being reduced. from 30.2 per cent. in 2016 to 27.1 per cent.

 

Operating costs reduced by £0.4 million or 3 per cent. from £12.3 million in 2016 to £11.9 million in 2017. Overall the Group increased spend on the Luceo Asset Management proposition (£137,000), investments in technology (£197,000), quality assurance to service the increased adviser activity (£103,000) and share-based payment charge (£306,000) as well as maintenance of spend on auto-enrolment (£332,000). These additional costs were offset partially by savings in regulatory fees (£484,000) and professional indemnity insurance (£258,000) costs and increased realisations from credit control activities (£270,000).

 

The Group's profit before taxation increased by £0.6 million or 32 per cent. to £2.5 million (2016: £1.9 million). Basic earnings per share in 2017 amounted to 2.13 pence per ordinary share after a deferred tax credit of £200,000 (2016: 2.07 pence per ordinary share after the deferred taxation credit of £750,000) and adjusted basic earnings per share, calculated after a standard tax charge of 19.25% per cent. (2016: 20%) increased by 34 per cent. to 1.59 pence per ordinary share. (2016: 1.19 pence per ordinary share).

 

AFFINITY AND OTHER BUSINESS RELATIONSHIPS

The Group continues to be a leader in the market for providing advice to members of affinity groups, with 21 contractual relationships at 31 December 2017 whose aggregate membership exceeds six million individuals.  Revenues from this activity increased significantly during 2017 to reach £9.6 million, an increase of £2.8 million or 41 per cent. over 2016.

 

Affinity-sourced business is a highly significant contributor to Group performance, contributing £1.9 million to Group EBITDA in 2017 (2016: £1.1 million). Contracted relationships and revenues have grown consistently since the relaunch of LFA as an affinity focused business post-RDR, with gross revenues having increased by £5.4 million, an annual compound growth rate of 23 per cent. over the last four years.

 

The Lighthouse Pensions Trust ("LPT"), the Group's proprietary auto-enrolment solution for small and medium-sized entities ("SMEs"), has continued to grow during the year, with scheme and member numbers at 31 December 2017 having increased by more than 70 per cent. since the beginning of the year, albeit from a low base. As the first wave of employers having to establish auto-enrolment compliant workplace pension schemes draw to a close (by mid-2018), we expect opportunities from consolidation of sub-scale scheme operators to emerge. The Group will continue to monitor the LPT operation and associated opportunities during 2018.

 

Luceo Asset Management Limited ("Luceo") the Group's sponsored investment solution business launched in late 2016 to provide the Group's customers with access to sponsored investment solutions matched to their agreed risk profiles, continued to accumulate funds during the year, with assets under management increasing from £4 million at 31 December 2016 to £37 million at 31 December 2017. The initial three Luceo Investment Funds - actively managed, fund of fund solutions in the active asset management space, with Octopus Investments as the Investment Adviser - were augmented by two additional Investment Funds within the same actively managed product offering also with Octopus Investments as Investment Adviser and matching to different risk profiles. The Luceo Investment Funds remain ideally suited to form part of the investment portfolio for the Group's target "Middle Britain" customer.

 

FINANCIAL POSITION

The Group had net cash of £8.7 million as at 31 December 2017 compared to £8.1 million net cash at the previous year-end, an increase of 7 per cent.  During the year the Group redeemed in full the commercial property loan of £0.4 million originally taken out in 2013 and secured on the long-leasehold property occupied by the Group in Woodingdean, near Brighton. The loan was repaid out of operating cash flow, leaving the Group debt-free.

 

BREXIT AND REGULATORY DEVELOPMENTS

The uncertainty within UK financial markets following the vote to leave the EU in June 2016 has not adversely impacted the Group's operations with the FTSE 100 and similar indices again recording all-time highs in late 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 impact UK consumer spending and investment.

 

The impact of Brexit on the UK financial services markets has still to be finally determined, notwithstanding the UK Government having served formal notice to leave the EU under Article 50 of the Treaty on European Union in March 2017, and the Group is keeping the situation under close review. With the Group's customer base domiciled principally in the UK, the Board continues to believe the Group is well placed to deal with any issues that might emerge from Brexit in due course. 

 

Regulation continues to develop apace, with the Markets in Financial Instruments Directive ("MiFID II") having come into force on 3 January 2018 and the General Data Protection Regulation becoming effective from 25 May 2018. These new regulations impose additional obligations in the areas of customer information provision and security of data processing. The Group has well-developed plans to ensure it will be able to comply fully with the new legislation and 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 0.30 pence per ordinary share (2016: 0.18 pence per ordinary share), an increase of 67 per cent., is recommended by the Board and, subject to approval at the forthcoming Annual General Meeting, will be payable on 4 May 2018 to shareholders on the register at close of business on 6 April 2018. The corresponding ex-dividend date is 5 April 2018.  This follows the interim dividend of 0.12 pence per ordinary share (2016: 0.09 pence per ordinary share) paid in October 2017 and makes a total dividend for the year of 0.42 pence per ordinary share (2016: 0.27 pence per ordinary share). The Group intends to continue with a progressive dividend policy.

 

EMPLOYEES AND BOARD

On 2 May 2017 Fay Williams retired from the Board and I should like to take this opportunity to thank her for her valuable contribution during her time as a director of the Company.

 

I welcome Michelle Cracknell and Ann Roughead who were appointed to the Board as non-executive directors on 1 September 2017. Their expertise in the areas of pension provision and investment management will be invaluable to the Group and I look forward to working with them.

 

I would like to express my appreciation to my Executive directors and all of the Group's employees for their professionalism, hard work and dedication during the year. I should also like to thank my Non-Executive colleagues for their significant support and contribution during 2017.

 

 

ADVISERS

The Group's advisers are the core of what we do in delivering appropriate investment solutions to customers based on holistic financial advice and commensurate with their attitude to risk. I would like to thank all of the Group's advisers for their concerted and highly-skilled contribution to the Group and its clients during 2017.

 

STRATEGY AND PROSPECTS

The Group continues to focus on improving its operational efficiency and delivering first-class services to its customers by developing innovative solutions.

 

With an on-going focus on expanding its affinity business, where Lighthouse is a leading player, developing new and enhancing existing financial solutions for customers and increasing cost efficiency, whilst continuing to mitigate risk for the Group and its customers, the Board believes that Lighthouse is well placed to take advantage of the opportunities available.

 

 

Richard Last

Chairman

 

19 February 2018          

CHIEF EXECUTIVE'S REVIEW

OVERVIEW

Lighthouse continued to progress well during 2017, with sharply increased average adviser productivity resulting in the Group recording its highest ever EBITDA and profit before taxation at £2.8 million and £2.5 million respectively.

 

The Group's affinity business continues to grow, with 21 contractual arrangements in place as at 31 December 2017. Total revenues from this source reached a record level of £9.6 million and this high-margin business contributed £1.9 million to Group EBITDA. The Group continues to be seen as the leading provider of holistic financial advice to members of affinity-based organisations.

 

Average revenues per adviser exceeded £100,000 for the first time at £122,000 - an increase of £23,000 or 23 per cent. over 2016. Recurring revenues increased by £2.9 million to nearly £25 million and remained at 48 per cent. of total revenues generated from customers for the first time in 2016 (2015: £21.9 million and 48 per cent. respectively). This demonstrates the willingness of clients to continue to engage with, and seek advice from, advisers across all of the Group's operations as well as the resilience of the Group's operating model. Gross margins increased by £0.2 million to £14.7 million although were lower in percentage terms at 27.1 per cent. (2016: 30.2 per cent.) as a result of advisers within LFA reaching more favourable payment rates due to their higher revenue production, together with fixed recharges of costs to advisers forming a lower proportion of the higher overall revenues generated, the equivalent costs being charged within operating costs, and the Group writing off fixed fund management costs incurred whilst the Luceo Investment Fund solutions build to scale.

 

Continuing careful management of the Group's operating cost base resulted in a reduction of £0.4 million in administrative overheads to £11.9 million (2016: £12.3 million). EBITDA increased by 27 per cent. to £2.8 million from £2.2 million in 2016 and pre-tax profit rose by 32 per cent. to £2.5 million from £1.9 million in 2016. This underlines the progress being made by the Group across all operating areas.

 

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

Further details of 2017 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 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 2017 the Group employed 149 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).

 

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 21 affinity groups across the UK, covering some six million individual members. In 2017 the Group has secured new contracts as the preferred provider of financial advice to the members of the Social Workers Union and the Money Advice Service, for initial periods of 18 months and one year respectively, as well as agreeing renewals with Usdaw and Boundless by CSMA, each for a further three years. The Group's dedicated mortgage offering is also gaining traction within the affinity community, with 14 such organisations now having appointed Lighthouse as the preferred mortgage adviser to their members. These contract wins and renewals confirm LFA's position as the financial adviser of choice for affinity groups and their members and the continuity and extension of such arrangements underpin the potential and future development of LFA. 

 

Revenues generated from affinity-based enquiries across the Group reached £9.6 million in 2017 - an increase of £2.8 million or 41 per cent. over the £6.8 million achieved in 2016 with new business revenues included therein increasing by £2.3 million or 79 per cent. to £5.2 million (2016: £2.9 million). After deducting adviser payaways, introducer payments and directly attributable overheads, the Group's affinity business contributed £1.9 million to Group EBITDA. This contribution is expected to increase as penetration of such relationships becomes deeper and more effective. LFA also leads the distribution of the Group's Luceo Asset Management solutions.

 

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

 

In 2017 LFA contributed gross revenues of £19.8 million, an increase of £4.1 million or 26 per cent. over the £15.7 million achieved in 2016, and an EBITDA after allocation of central costs of £3.8 million (2016: £2.7 million).

 

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 £9.7 million, an increase of £1.3 million or 15 per cent. from the £8.4 million recorded in 2016. Average annualised gross revenue production across the employed advisers working with the Group's accountancy connections within Carrwood was maintained at £215,000 with the 7 new advisers recruited during the year building towards full productivity.

 

The Group invested a further £331,000 of third-party costs in its LPT auto-enrolment offering which has been fully expensed in the 2017 results, which contributed to that unit's EBITDA loss (before central cost allocations) of £528,000 in the year. Overall the wealth management segment recorded an EBITDA loss after allocation of central costs of £349,000 (2016: EBITDA loss of £323,000). Without the above third-party costs, this division would have been near EBITDA break-even for the year.

 

355 auto-enrolment compliant company pension schemes had been staged within the Group's fully advised auto-enrolment solution for SMEs, the Lighthouse Pensions Trust ("LPT"), by 31 December 2017, an increase of 84 per cent. over the 193 at the end of 2016, with a further 22 schemes having signed up to be staged in future periods. Take-up of the LPT has been steady during 2017, despite the continuing reluctance of SME owners to pay for assistance in establishing pension arrangements imposed on them by government when lower-cost, unadvised offerings are available from other sources, and total active individual membership of the Corporate Pensions Trust, incorporating LPT, is now 4,722 - a 43 per cent. increase over the 3,304 equivalent at the end of 2016 - and the business will approach break-even on direct incremental costs during 2018. The Group will continue to manage this business towards profitability and look to take advantage of opportunities that are likely to arise from new company creation and an active secondary market. 

 

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")

2017 saw revenues in the network segment, LASER, increased marginally from £23.8 million to £24.6 million, with average annualised revenue production per adviser increasing by 15 per cent. to £123,000 from £107,000.  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 recorded an EBITDA of £941,000 (2016: £64,000). The improvement reflected the benefit of general cost control and reviews leading to expense reductions as well as a lower allocation of central overheads given the lower proportion of overall Group revenues produced by this segment.

 

LUCEO ASSET MANAGEMENT

The Group has continued to build in 2017 on its in-house investment solutions under the Luceo Investment Funds brand launched with Luceo Asset Management Limited, a wholly-owned subsidiary of the Company, as sponsor in October 2015. Two further sub-funds were added in February 2017 to the existing three actively managed, fund of fund solutions made available in conjunction with Octopus Investments as Investment Adviser, giving a range of funds that cover the main client risk profiles applicable to such products and which provide investments whose risk profiles exactly match those agreed at the time of recommendation by the customer.

 

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.

 

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 Luceo Investment Funds have continued to resonate with 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. Over 75 per cent. of the advisers within LFA have now engaged and arranged investment within the Luceo Funds for the benefit of their clients and total funds amounted to c£37 million as at 31 December 2017 (2016: £4 million).

 

The Group has continued to support its Luceo Investment Range in 2017 whilst they build to scale. Underwriting the excess of the fixed costs of operating the Funds over the share of the annual management charge (£177,000), together with other direct operating expenses such as business support and the investment committee (£137,000) and allocated central costs resulted in a net EBITDA outlay of £500,000 in the year.

 

The Group has examined a number of potential extensions to the Luceo product range during the year and will look to develop and launch new investment options in due course, having regard to the performance and profitability of the current range.  This 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.

 

Central costs not allocated to segments amounted to £140,000 (2016: £221,000).

 

PROFESSIONAL INDEMNITY INSURANCE ("PII")

PII cover is a mandatory cost for businesses that advise clients within the UK retail financial services market, and the market for such cover in the UK has remained tight in recent years. Notwithstanding this, the Group secured an early renewal of its coverage in October 2017 for a further eighteen-month period, with the adoption of carefully risk-rated researched solutions being a key factor in achieving renewal on more favourable terms including reductions in certain individual case excesses.

 

REGULATION

2017 has seen continued expansion of regulations applied to the UK financial services distribution sector with substantial new legislation such as MiFID II, which came into force on 3 January 2018, and the General Data Protection Regulation, which comes into effect on 25 May 2018, imposing additional obligations on providers and distributors alike in areas such as client information and data protection. The Group has allocated dedicated resource to establish and deliver plans to comply fully with all relevant aspects of the new legislation and also continues to engage with regulatory authorities to ensure on-going regulation of retail financial services is appropriate and proportionate 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 increased by £6.2 million or 13 per cent. to £54.1 million from £47.9 million in 2016, driven by increases in average annualised revenue production per adviser which improved by £23,000 or 23 per cent. to £122,000 from £99,000 in 2016. Recurring revenues at £24.8 million were £2.9 million ahead of the £21.9 million recorded in 2016 and remained at 48 per cent. of all revenues generated from customers. These improvements were generated across all of the Group's operating businesses.

 

Gross margins, expressed as a percentage of total revenues, decreased to 27.1 per cent. from 30.2 per cent. in 2016, reflecting advisers within LFA achieving higher revenue production and thereby improved payout ratios under the Group's standard terms of business, the lower overall proportion of adviser charges as a percentage of gross revenues (the costs which these charges are designed to cover are charged within overheads) and the write-off of fixed fund costs in respect of the Group's Luceo Investment Funds whilst these build to scale.

 

OPERATING COSTS

Operating costs decreased by £0.4 million to £11.9 million in 2017 from £12.3 million in 2016. The decrease was due to lower utilisation of professional indemnity insurance arrangements and regulatory expense (an aggregate reduction of £741,000) and higher realisations from credit control activities (£270,000), partially offset by £197,000 additional investment in IT, £103,000 increased spend in compliance resources to meet the demand from the substantial increase in revenues in the year, increased costs of share-based payments (£306,000) and £103,000 investment costs expensed during the year on the further development and enhancement of the Luceo Asset Management Fund range. The total investment cost expensed in 2017 on the Luceo Investment Funds and auto-enrolment product areas amounted to £468,000 (2016: £684,000).

 

The Group continues to monitor closely its operating base and looks to minimise such costs where 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 2017 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 (2016: £Nil).

 

RESULTS FOR THE YEAR

The Group recorded EBITDA for the year of £2.8 million (2016: £2.2 million).  After charging £274,000 in respect of depreciation and amortisation and net finance costs of £7,000 (2016: £299,000 and £16,000 respectively), the Group recorded a pre-tax profit of £2.5 million (2016: £1.9 million). Post-tax profit amounted to £2.7 million (2016: £2.6 million), with the utilisation of losses brought forward from prior years being offset by a further recognition of losses previously not included within deferred taxation leading.  The Group has recognised a deferred tax asset in relation to the outstanding share options leading to a tax credit of £200,000 for the year (2016: 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).

 

CASH FLOW, CASH BALANCES AND TREASURY

Year-end cash balances amounted to £8.7 million (2016: £8.1 million after deduction of the bank mortgage redeemed during 2017). The increase of £0.6 million was due to the profit retained for the year of £2.1 million less working capital increases principally as a result of the settlement of historic complaints previously provided for. The bank mortgage of £0.4 million 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) was redeemed early in October 2017 at the book cost of £0.4 million. 

 

During 2017 the FCA agreed to release the undertakings previously provided by the Group in respect of maintaining assets and seeking prior approval for distributions by its regulated subsidiaries, recognising the progress made by the Group since the undertakings were provided.  After allowing for regulatory and working capital considerations the Board will continue to retain the £4.7 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. 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, leave the Group well placed, with a solid financial position and net cash, to take advantage of opportunities.

 

Malcolm Streatfield

Chief Executive

 

19 February 2018

 

KEY PERFORMANCE INDICATORS (KPIS)/ALTERNATIVE PERFORMANCE MEASURES (APMS)

 

Lighthouse Group plc uses a number of KPIs to assess business performance. Some are driven by metrics directly related to International Financial Reporting Standards (IFRSs) whilst others represent APMs.

 

The principal KPIs used by the Group are as follows:

 

KPI

What is it?

Why do we use it?

IFRS performance measure?

Reconciled to IFRS?

Total revenue

Aggregate income receivable from customers and advisers, excluding VAT

Indicator of scale and activity level of the Group

Yes

N/A

Recurring revenues

Regular on-going charges payable by customers for regular periodic review of investment portfolios and trail/renewal commissions payable in respect of mortgages and non-investment insurance products advised upon and pre-RDR investments

Regularly recurring income underpins future trading and operating capability

No

Forms part of total revenue reported upon under IFRS

Affinity revenues

That proportion of total revenues derived from affinity-based connections

Servicing our affinity connections is a key part of the Group's growth strategy and the level of total revenues derived from such sources provides a clear indication of performance in this critical area

No

Forms part of total revenue reported upon under IFRS

Average revenue from customers produced by advisers

Total revenue generated from customers (i.e. excluding charges payable by advisers and other non-customer income) divided by average number of advisers in the year

This is a clear indication of the general activity levels of the Group's advisers which will drive margin and ultimately profitability

No

Derived from total revenue reported under IFRS and average adviser numbers

Earnings Before Interest, Depreciation and Amortisation ("EBITDA")

Self-explanatory - profitability before net finance cost/income and non-cash expenses such as depreciation and amortisation of tangible and intangible assets (including goodwill) respectively

EBITDA represents a close proxy for cash profitability subject to working capital and financing costs

No

Reconciled to IFRS profitability measures in the Consolidated Statement of Comprehensive Income

Earnings per share ("EPS") - basic and diluted

Profit after taxation attributable to equity shareholders divided by the total number of ordinary shares in issue and in the case of diluted also the number of share options outstanding at the reporting date and whose exercise price is below the average mid-market price of the Company's shares during the year (i.e. not anti-dilutive)

Earnings per share gives a clear indication to shareholders of the profits per share available to pay dividends

Yes

N/A

Adjusted earnings per share - basic and diluted

As per basic and diluted earnings per share but after eliminating the actual charge or credit for taxation for the year and replacing it with a charge or credit for taxation calculated at the standard rate of UK Corporation Tax applicable to the Group's profit before taxation

The Group has historically been able to utilise significant tax losses generated in prior periods to offset taxable profits. This, together with recognition of unutilised tax losses during a year can lead to unrepresentative tax charges or credits and make comparison between financial reporting years difficult. Application of a standard tax charge or credit enables readers of the Annual Report to make more informed judgements of the Group's financial performance by removing inconsistencies

No

Fully reconciled to IFRS EPS

 

Lighthouse Group plc

Consolidated statement of comprehensive income

for the year ended 31 December 2017

 

2017

2016

 

 

 

 

£'000

£'000

 

 

 

Revenue

54,111

47,919

Cost of sales

(39,439)

(33,452)

Gross profit

14,672

14,467

 

 

 

Administrative expenses

 

 

Other operating expenses

(11,870)

(12,259)

Earnings before interest, tax, depreciation and amortisation

 

2,802

 

2,208

Depreciation and amortisation

(274)

(299)

Total administrative expenses

(12,144)

(12,558)

Operating profit

2,528

1,909

Finance income

3

11

Finance costs

(10)

(27)

Profit before taxation

2,521

1,893

Taxation

200

750

Profit for the year

2,721

2,643

Other comprehensive income

-

-

Total comprehensive income for the year

2,721

2,643

 

 

 

 

 

 

 

 

Basic earnings per share

2.13p

2.07p

 

Adjusted basic earnings per share

1.59p

1.19p

 

Diluted earnings per share

1.98p

1.97p

 

Adjusted diluted earnings per share

1.49p

1.13p

       

 

 

All activities are classed as continuing.

 

The profit and total comprehensive income for both 2017 and 2016 were wholly attributable to the equity holders of the Company.

 

Basic and diluted earnings per share are stated after the actual tax charge or credit for the year. Adjusted basic and diluted earnings per share are stated after deducting a notional tax charge, calculated at the standard rate of UK corporation tax applicable for the year, in order to aid comparison between the two years. 
 

Lighthouse Group plc

Consolidated statements of changes in equity

for the year ended 31 December 2017

 

 

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 2017

 

1,277

 

1,999

 

1,102

 

4,586

 

8,964

 

 

 

 

 

 

Profit and total comprehensive income for the year

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,721

 

 

 

2,721

 

 

 

 

 

 

Transactions with owners, recorded directly in equity:

 

 

 

 

 

Dividends paid

-

-

-

(383)

(383)

Share-based payment

 

-

 

-

 

385

 

-

 

385

At 31 December 2017

 

1,277

 

1,999

 

1,487

 

6,924

 

11,687

 

 

 

 

 

 

At 1 January 2016

 

1,277

 

1,999

 

1,023

 

2,262

 

6,561

 

 

 

 

 

 

Profit and total comprehensive income for the year

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,643

 

 

 

2,643

 

 

 

 

 

 

Transactions with owners, recorded directly in equity:

 

 

 

 

 

Dividends paid

-

-

-

(319)

(319)

Share-based payment

 

-

 

-

 

79

 

-

 

79

At 31 December 2016

 

1,277

 

1,999

 

1,102

 

4,586

 

8,964

 

 

 

 

 

 

 

Lighthouse Group plc

Consolidated statement of financial position

at 31 December 2017

 

 

2017

2016

 

 

 

 

£'000

£'000

Assets

 

 

Non-current assets

 

 

Intangible assets

5,131

5,230

Property, plant and equipment

1,397

1,240

Deferred tax asset

950

750

 

7,478

7,220

Current assets

 

 

Trade and other receivables

8,187

9,004

Cash and cash equivalents

8,733

8,501

 

16,920

17,505

Total assets

24,398

24,725

Current liabilities

 

 

Trade and other payables

8,789

9,302

Provisions

2,846

3,005

 

11,635

12,307

Non-current liabilities

 

 

Trade and other payables

-

405

Provisions

1,076

3,049

 

1,076

3,454

Total liabilities

12,711

15,761

 

 

 

Net assets

11,687

8,964

 

 

 

Capital and reserves

 

 

Called up share capital

1,277

1,277

Special non distributable reserve

1,999

1,999

Other reserves - share-based payments

1,487

1,102

Retained earnings

6,924

4,586

Total equity attributable to equity holders of the Company

 

11,687

 

8,964

 

The financial information was approved by the Board of Directors on 19 February 2018 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 2017

 

 

 

2017

 

2016

 

£'000

£'000

Operating activities

 

 

Profit before tax for the year

2,521

1,893

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

 

 

Finance income

(3)

(11)

Finance costs

10

27

Depreciation of property, plant and equipment

150

157

Amortisation of intangible assets

124

142

Share-based payment

385

79

Change in trade and other receivables

817

4,262

Change in trade and other payables

(479)

(1,361)

Change in provisions

(2,132)

(4,493)

Cash generated from operations

1,393

695

Finance costs paid

(10)

(27)

Net cash inflow from operating activities

1,383

668

 

 

 

Investing activities

 

 

Purchase of property, plant and equipment

(307)

(126)

Purchase of intangible assets

(25)

(88)

Finance income received

3

11

Net cash outflow from investing activities

(329)

(203)

 

 

 

Financing activities

 

 

 

 

 

Bank loan repayments

(439)

(34)

Dividends paid to equity shareholders

(383)

(319)

Net cash outflow from financing activities

(822)

(353)

 

 

 

Increase in cash and cash equivalents

232

112

Cash and cash equivalents at the beginning of the year

8,501

8,389

Cash and cash equivalents at the end of the year

8,733

8,501

 

 

 

 

 

 

 

Lighthouse Group plc

Notes to the financial information for the year ended 31 December 2017

 

 

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 2017 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 2017 or 2016 but is derived from those accounts.  Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 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:

 

 

 2017

Basic/diluted

 2017

Adjusted

 2016

Basic/diluted

 2016

Adjusted

 

 

 

 

 

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

 

2,721

 

2,035

 

2,643

 

1,514

 

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

 

 

9,378,939

 

 

9,378,939

 

 

6,313,391

 

 

6,313,391

 

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

 

 

137,079,237

 

 

137,079,237

 

 

133,831,689

 

 

133,831,689

 

Profit for the purposes of calculating adjusted basic and diluted earnings as set out above are stated after excluding the deferred tax credit of £200,000 in 2017 (2016: £750,000) and applying a standard rate of tax of 19.25 per cent. (2016: 20 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 2017 of 0.30 pence per ordinary share (2016: 0.18 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 2 March 2018 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). A further announcement will be made in due course.

 

 

 

- Ends -


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