TIDMLGT
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 GBP2.2 million (2015: GBP1.6 million);
-- Profit before tax up 119 per cent. to GBP1.9 million (2015: GBP0.9 million);
-- Revenues of GBP48 million up 2 per cent. after adjusting for
a GBP2.1 million reduction in platform-based trail (2015: GBP49
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
GBP2.9 million (2015: GBP2.5 million) with total revenues from
affinity relationships up 3 per cent. to GBP6.8 million (2015:
GBP6.6 million), reflecting the GBP0.7 million reduction in
platform-based trail;
-- Average revenue production per adviser up 6 per cent. to GBP99,000 (2015: GBP93,000);
-- Gross margin percentage maintained at 30 per cent.;
-- Operating costs decreased by GBP0.9 million or 7 per cent. to
GBP12.3 million (2015: GBP13.2 million);
-- Net cash balances** up GBP0.2 million to GBP8.1 million (2015: GBP7.9 million);
-- Operating cash flow generation GBP0.7 million after further
investment of GBP0.7 million in customer solution development
(2015: GBP1.1 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.GBP8 million invested to date.
* Earnings before interest, tax, depreciation, and
amortisation.
**Cash stated after deduction of bank loan of GBP0.4 million
(2015: GBP0.4 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:
Tel: +44 (0) 20 3053
IFC Advisory Ltd 8671
Graham Herring / Tim
Metcalfe / Heather Armstrong
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 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 GBP2.2 million in 2016
compared to GBP1.6 million in 2015 on total revenues of GBP47.9
million (2015: GBP48.9 million). Profit before taxation for the
year amounted to GBP1.9 million compared to GBP0.9 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 GBP47.9m GBP48.9m
Gross profit GBP14.5m GBP14.8m
Operating costs GBP12.3m GBP13.2m
EBITDA* GBP2.2m GBP1.6m
Depreciation and amortisation GBP0.3m GBP0.5m
Operating profit GBP1.9m GBP1.1m
Net finance cost - GBP0.2m
Profit before taxation GBP1.9m GBP0.9m
Taxation credit GBP0.7m -
Profit after taxation being profit GBP2.6m GBP0.9m
for the financial year
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 GBP1 million lower than in 2015, this
small reduction being due to the focus on more-cost effective
advice delivery and a GBP2.1 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
GBP21.9 million (2015: GBP22.1 million or 48 per cent.),
underlining the increasing quality of the Group's earnings. Average
revenue production per adviser also increased by GBP6,000 (6 per
cent.) to GBP99,000 in 2016 (2015: GBP93,000); 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 GBP1.5 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.GBP859,000, gross margins
remained broadly unchanged in 2016 at 30.2 per cent. (2015: 30.3
per cent.). Operating costs reduced by GBP0.9 million or 7 per
cent. from GBP13.2 million in 2015 to GBP12.3 million in 2016,
despite further investment of GBP684,000 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 GBP0.6 million or 37 per cent. to GBP2.2
million in 2016, from GBP1.6 million in 2015.
The Group's profit before taxation increased by GBP1.03 million
or 119 per cent. to GBP1.9 million (2015: GBP0.9 million). Group
profit after taxation amounted to GBP2.6 million (2015: GBP0.9
million) after a credit to taxation of GBP750,000 (2015: GBPNil 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 GBP6.8 million in 2016 (2015: GBP6.6 million).
This is after absorbing a GBP730,000 reduction in platform-based
trail revenue as a result of the "sunset clause" arrangement
introduced by the FCA, with new business revenues rising by
GBP405,000 or 16 per cent. to GBP2.9 million (2015: GBP2.5
million).
Affinity-sourced business is a highly significant contributor to
Group performance, contributing GBP1.1 million to Group EBITDA in
2016. Contracted relationships and revenues have grown consistently
in the past four years, rising from GBP4.2 million in 2013 to
GBP6.8 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 GBP2.7
million to EBITDA (2015: GBP3 million). This was GBP300,000 lower
than in 2015 purely as a result of the "sunset clause" which
reduced revenue in this division by GBP1.2 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.GBP8 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 GBP8.1 million as at 31 December 2016
compared to GBP7.9 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.
DIVIDS
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 GBP7 million
and this high-margin business contributed GBP1.1 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 GBP2.1 million and GBP1.5 million
respectively from 2015 levels, and set against this context it is
pleasing to report that recurring revenues at GBP21.9 million
approached 50 per cent. of total revenues generated from customers
for the first time in 2016 (2015: GBP22.1 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 GBP0.9 million to GBP12.3 million (2015: GBP13.2
million). As a result of the above, EBITDA increased by 37 per
cent. to GBP2.2 million from GBP1.6 million in 2015 and pre--tax
profit rose by 119 per cent. to GBP1.9 million from GBP0.9 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 GBP6 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
GBP8 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 GBP6.8 million in 2016 - an increase of GBP0.9 million or
16 per cent. over the GBP6.6 million achieved in 2015 after
allowing for the GBP730,000 reduction in trail revenues following
the "sunset clause" taking effect from 1 April 2016 - with new
business revenues included therein increasing by GBP405,000 or 16
per cent. to GBP2.9 million (2015: GBP2.5 million). After deducting
adviser payaways, introducer payments and directly attributable
overheads, the Group's affinity business contributed GBP1.1 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 GBP15.7 million (2015:
GBP16.1 million) and an EBITDA after allocation of central costs of
GBP2.7 million (2015: GBP3 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 GBP8.4 million, a reduction
of GBP407,000 of 5 per cent. from the GBP8.8 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 GBP561,000 of which GBP346,000 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 GBP215,000 from
GBP195,000 in 2015, generated from advice provided across all
product areas.
The Group invested a further GBP534,000 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 GBP323,000 (2015: EBITDA profit of
GBP256,000).
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 GBP24 million to GBP23.8 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 GBP107,000 from GBP100,000. 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 GBP64,000 (2015: negative EBITDA of GBP721,000). 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 GBP221,000
(2015: GBP971,000).
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 GBP1 million or 2 per cent. to
GBP47.9 million from GBP48.9 million in 2015, reflecting the impact
of the "sunset clause" introduced by the FCA with effect from 1
April 2016 which removed GBP2.1 million of historic trail
previously received in respect of clients' investment assets held
on platforms. Despite this, recurring revenues at GBP21.9 million
approached 50 per cent. of all revenues generated from customers
(2015: GBP22.1 million and 48 per cent.) and average annualised
revenue production per adviser increased by GBP6,000 or 6 per cent.
to GBP99,000 from GBP93,000 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 GBP1.5 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 GBP859,000.
OPERATING COSTS
Operating costs decreased in 2016 by GBP0.9 million to GBP12.3
million from GBP13.2 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 GBP884,000), lower
sub-contract costs with the non-recurrence of GBP346,000 re major
public sector pension review work in comparison with 2015 and
reductions in staff costs of GBP174,000. This was partially offset
by the GBP684,000 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: GBPNil).
RESULTS FOR THE YEAR
The Group recorded an EBITDA for the year of GBP2.2 million
(2015: GBP1.6 million). After charging GBP299,000 in respect of
depreciation and amortisation, a reduction of GBP253,000 from the
GBP552,000 charged in 2015 as a result of certain intangible assets
becoming fully amortised, and net finance costs of GBP16,000 (2015:
GBP194,000, including GBP133,000 in respect of the unsecured loan
notes redeemed in full on 31 December 2015), the Group recorded a
pre-tax profit of GBP1.9 million (2015: GBP0.9 million). Post-tax
profit amounted to GBP2.6 million (2015: GBP0.9 million),
reflecting a credit of GBP750,000 arising from the recognition of a
deferred tax asset for losses brought forward now considered to be
recoverable in the foreseeable future (2015: GBPNil).
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 GBP8.1 million (2015: GBP7.9
million after deduction of the bank mortgage and unsecured loan
notes). The increase of GBP0.2 million was due to the GBP1.6
million profit retained for the year (excluding the non-cash
deferred tax credit of GBP750,000) less working capital increases
principally as a result of the settlement of historic complaints
previously provided for. The bank mortgage of GBP0.4 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: GBP1.1 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 GBP4 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
GBP'000 GBP'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 Special Reserves Retained Total
capital non- distributable arising earnings attributable
reserve from to equity
share- shareholders
based
payments
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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 2016 2015 2015
Basic/diluted Adjusted Basic/diluted Adjusted
Profit for the purposes
of basic and dilutive
earnings per share
(GBP'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 GBP750,000 in 2016 (2015: GBPNil) 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 -
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR URAWRBBAUUAR
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