Lighthouse Regulatory News (LGT)

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

Lighthouse Group plc

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

Final results for the year ended 31 December 2018

Lighthouse Group plc (AIM: LGT), the national financial advisory group, today announces its final audited results for the year ended 31 December 2018.

Financial Highlights

Operational Highlights

Post year end events

* Earnings before interest, tax, depreciation and amortisation and non-cash share-based payment charge.

Commenting on the results, Richard Last, Chairman of Lighthouse Group plc, said: "Lighthouse has continued to progress its strategy in 2018 despite softening market conditions in the second half of the year and has delivered an excellent set of results alongside a number of strategic initiatives. The substantial rise in recurring revenues together with maintenance of the record average annualised revenue per adviser, along with a reduction in operating costs flowing from the Group's continuing focus on providing good customer outcomes, resulted in a further increase in earnings. Lighthouse remain well positioned to deliver further growth notwithstanding current market uncertainty."

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CHAIRMAN'S STATEMENT

OVERVIEW

I am pleased to report the Group's results for the year ended 31 December 2018, which are set out below and in the Consolidated Statement of Comprehensive Income in the Annual Report. Lighthouse achieved a record financial performance in 2018, with underlying EBITDA* increasing by 7 per cent. to £3.42 million compared to £3.19 million in 2017 on revenues marginally lower (1 per cent.) at £53.42 million (2017: £54.11 million). Profit before taxation for the year amounted to £2.64 million compared to £2.52 million in 2017 - an increase of 5 per cent. Adjusted basic earnings per share (after a standard tax charge) increased by 6 per cent. to 1.68 pence per ordinary share (2017: 1.59 pence per ordinary share).

FINANCIAL PERFORMANCE

Group revenue for 2018 was £0.69 million or 1 per cent. lower than in 2017, due to softened demand from customers following the correction in UK and global financial markets and a levelling out of pension transfer advice demand in the second half of the year. Notwithstanding this, average annualised revenue production per adviser for the year remained at the record £122,000 level achieved in 2017. Recurring revenues increased by a further 10 per cent. to reach a new high of £26.77 million or 53 per cent. of total revenue generated from customers (2017: £24.39 million and 48 per cent. respectively).

Gross margins in 2018 were 27.34 per cent. (2017: 27.11 per cent.).

Operating costs reduced by £0.30 million or 3 per cent., from £11.49 million in 2017 to £11.19 million in 2018.

Overall the Group continued to invest in and expense the development of its Luceo Asset Management and auto-enrolment propositions, with negative contributions in those divisions reducing to £0.30 million and £0.25 million respectively (2017: negative contributions of £0.31 million and £0.53 million respectively).

The Group's profit before taxation increased by £0.12 million or 5 per cent. to £2.64 million (2017: £2.52 million). Basic earnings per share in 2018 amounted to 1.98 pence per ordinary share after a deferred tax charge of £111,000 (2017: 2.13 pence per ordinary share after a deferred taxation credit of £200,000) and adjusted basic earnings per share, calculated after a standard tax charge of 19 per cent. (2017: 19.25 per cent.), increased by 6 per cent. to 1.68 pence per ordinary share. (2017: 1.59 pence per ordinary share).

AFFINITY AND OTHER BUSINESS RELATIONSHIPS

The Group is the market leader for the provision of advice to members of affinity groups, with 23 contractual relationships at 31 December 2018 whose aggregate membership exceeds six million individuals. Revenues derived from affinity sources in 2018 on a like for like basis (excluding the exceptional level of pension transfer business advice given) increased by £0.31 million or 3 per cent. to £9.74 million from the £9.43 million (adjusted) in 2017. It is particularly pleasing to note the increase in recurring revenues from affinity-sourced clients, up £0.54 million or 12 per cent. to £4.89 million from £4.35 million in 2017, reflecting the benefit of establishing long-term customer relationships from initial advice given in prior periods.

Affinity-sourced business remains a highly significant contributor to Group performance, contributing £2.80 million after direct costs and further investment in the business in 2018 (2017: £2.92 million on a like for like basis). The Group's dedicated mortgage business, Lighthouse Mortgage Protection Services, is increasingly linked with and sources business from the 23 affinity relationships and in 2018 increased its revenues by 27 per cent. to £1.47 million from £1.16 million.

LUCEO ASSET MANAGEMENT

Luceo Asset Management Limited ("Luceo"), the Group's sponsored investment solution business launched in late 2016, continued to accumulate funds during the year, with assets under management increasing from £37 million at 31 December 2017 to £58 million at 31 December 2018. After a £22 million net increase in funds in the first nine months of the year, the final quarter of 2018 saw a net decrease of £1 million, reflecting the general uncertainty in the financial markets and the 10 per cent. correction in UK stock markets in that period. Notwithstanding this, the Board remains confident that the Luceo Investment Funds, which provide the Group's customers with access to sponsored investment solutions matched to their agreed risk profiles with Octopus Investments as Investment Adviser, remain ideally suited to form part of the investment portfolio for the Group's target "Middle Britain" customer.

TAVISTOCK INVESTMENTS PLC

In October 2018 the Group announced the launch of a strategic relationship with Tavistock Investments plc ("Tavistock"), a fellow AIM-quoted advisory and asset management group. In the initial phase of that relationship, the Group is reviewing Tavistock's range of capital protected investment solutions with a view to, if appropriate, making them available to the Group's customers through its Luceo Asset Management offering. Once approved, the products would be aligned with customers' agreed risk profiles (as is the case for the current Luceo range) and will provide the customer with a capital underpin, backed by Morgan Stanley, of between 85 and 90 per cent. of the maximum portfolio value achieved post-investment. Further updates will be issued in due course.

As part of the arrangement the Board agreed to subscribe for £1 million of new ordinary shares that were issued by Tavistock in October 2018, giving the Company a 5.3% stake in that company.

STRATEGIC REVIEW OF AUTO-ENROLMENT BUSINESS

In the interim report issued on 4 September 2018, I announced the Board was undertaking a strategic review of the Corporate Pensions Trust ("CPT"), which incorporates the Group's Lighthouse Pensions Trust ("LPT") auto-enrolment solution for SMEs.

On 21 January 2019 the Group announced it had completed its strategic review and had concluded that it would not be in the best interests of shareholders to continue to provide financial support to the CPT to enable it to apply for Master Trust authorisation. This decision has been communicated to the CPT Trustees.

The Group has identified the Auto-Enrolment Master Trust ("AEMT") operated by Smart Pension Limited ("Smart"), which is part-owned by J.P. Morgan and Legal & General, as the most appropriate candidate to assume responsibility for receiving the assets and members within the CPT.

The Group has agreed to continue to fund the operating costs of the CPT Trustees during the process, together with the costs of winding-up the CPT once all transfers have been effected. It is intended that the existing contractual arrangements between the Group and participating employers within the LPT for the provision of regular payroll assessment and opt-in/opt-out reviews will be renewed but with the AEMT as the scheme provider post transfer.

The impact of the proposed transfer is expected to be broadly cost neutral in 2019 and should provide a small net income stream after associated costs from 2020 onwards. The transfer will enable the Group to focus further on its affinity- and professional connections- centred core customer base.

FINANCIAL POSITION

The Group had cash balances of £9.55 million as at 31 December 2018 compared to £8.73 million at the previous year-end, an increase of 9 per cent. The cash balances are stated after the investment of £1 million in Tavistock Investments plc shares (2017: £Nil) and the payment of dividends in the year totalling £639,000 (2017: £383,000).

REGULATORY DEVELOPMENTS

Regulatory development continued during 2018, with the Markets in Financial Instruments Directive ("MiFID II"), the General Data Protection Regulation and the Insurance Intermediation Directive all having come into effect during the year. The Group has revised its processes as necessary to deal with the additional obligations re customer information provision and security of data processing the new regulations have imposed. The Financial Conduct Authority ("FCA") announced during 2018 the near final shape of the Senior Managers and Certification Regime ("SMCR") and the Group is again developing plans to ensure it will be able to comply with the SMCR when it comes into effect in December 2019.

Compliance with regulation remains an overarching focus for the Group.

DIVIDENDS

A final dividend of 0.50 pence per ordinary share (2017: 0.30 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 10 May 2019 to shareholders on the register at close of business on 5 April 2019. The corresponding ex-dividend date is 4 April 2019. The last day to make an election in respect of the dividend reinvestment plan operated by Link Market Services Trustees Limited will be 19 April 2019.

This follows the interim dividend of 0.20 pence per ordinary share (2017: 0.12 pence per ordinary share) paid in October 2018 and makes a total dividend for the year of 0.70 pence per ordinary share (2017: 0.42 pence per ordinary share). The Group intends to continue with a progressive dividend policy.

EMPLOYEES AND BOARD

In the Group's Interim Report on 4 September 2018, I announced that, in the light of current guidance on Corporate Governance and my having served as a Director of the Company since July 2007 and as Chairman since August 2012, I had advised the Board of my intention to stand down from the Board of the Company and not stand for re-election as a Director at the next Annual General Meeting of the Company in May 2019. A process to identify and secure the services of an appropriate replacement as a Director and Chair of the Company's Board has commenced, with headhunters having been briefed, and further updates will be provided in due course.

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, and to my Non-Executive colleagues for their significant support and contribution, both during 2018 and throughout my time as a Director and Chairman. I am confident that the Group is in good hands to continue its progress.

ADVISERS

The Group's advisers remain 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 2018.

STRATEGY AND PROSPECTS

The potential impact of Brexit, together with the corrections in UK and global financial markets in recent months, has resulted in a measure of uncertainty within the retail financial services market in the UK. Increased regulation and market uncertainties inevitably mean upward pressure on costs, in particular in the areas of compliance, technology and professional indemnity insurance procurement. In this latter regard in February 2019 the Group has renewed its PII cover for a further 15 months on terms materially in line with the previous policy, notwithstanding the recent market tightening and the nervousness among insurers caused by the FCA's proposal to increase the maximum amount that the Financial Ombudsman Service can award from £150,000 to £350,000 per case (for advice given post 1 April 2019). The renewal reflects the insurers' positive view of the quality of advice provided by the Group and its advisers and is a testament to the focus on compliance and risk management on behalf of all customers.

The Group is reviewing its strategy for the next five years to identify those areas (such as the affinity and professional connections markets) which are most likely to produce future earnings growth. Additional accelerated investment may be required in adviser recruitment, lead generation and marketing to deliver this growth. Further updates will be provided in due course.

The Group is well-placed to deal with cost pressures, with its ever-increasing recurring revenue base and with the new annual review obligations imposed by MiFID II giving rise to additional customer interaction and hence new business opportunities. 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 increasing business derived from affinity relationships, by introducing new and enhanced financial solutions for customers and increasing cost efficiency, the Board believes that Lighthouse is well placed to take advantage of the opportunities available.

Richard Last

Chairman

25 February 2019

CHIEF EXECUTIVE'S REVIEW

OVERVIEW

Lighthouse continued to progress during 2018, with the Group delivering new records for underlying EBITDA and profit before taxation at £3.42 million (2017: £3.19 million) and £2.64 million (2017: £2.52 million) respectively. This was against a backdrop of increased market volatility in the last quarter with significant public market corrections of more than 10 per cent. and increasing uncertainty re the nature and impact of any exit by the UK from the European Union ("Brexit"). In this context the maintenance of the record level of average annualised revenue per adviser in 2017 of £122,000 was a considerable achievement.

The Group's affinity business continues to develop, with 23 contractual arrangements in place as at 31 December 2018 (2017: 21). Total revenues from this source at £9.74 million were £0.31 million or 3 per cent. above the 2017 level of £9.43 million, the latter calculated on a like for like basis adjusting for the exceptional level of pension transfer business advised on in 2017. The increase of £0.54 million or 12 per cent. in recurring revenues generated from affinity-related customers (from £4.35 million to £4.89 million) underlines the on-going benefit of the Group's policy of building long-term and mutually beneficial relationships with its customers.

Our affinity-based business remains a valuable and higher-margin business which contributed £2.80 million after direct costs in 2018 (2017: £3.09 million), with the high demand for initial advice on defined benefit transfers in 2017 being replaced by on-going fees from those clients in 2018 and beyond. The Group continues to be seen as the leading provider of holistic financial advice to members of affinity-based organisations.

Average revenues per adviser remained at the record level of £122,000 recorded in 2017. This was an excellent achievement given the market uncertainties in the latter part of the year and underpins the value of the Group's focus on delivering holistic financial advice to its customers which is arguably even more relevant in times of market disruption. Recurring revenues increased by £2.38 million to reach a new high of £26.77 million and increased to 53 per cent. of total revenues generated from customers in 2018 (2017: £24.39 million and 48 per cent. respectively).

This underlines the increasing benefit of the Group's policy of engaging with and providing advice to customers for the long-term across all of the Group's operations as well as the resilience of the Group's operating model. Such engagement will become even more important from January 2019, when all investments advised upon since the introduction of MiFID II on 2 January 2018 will need to be reviewed for on-going suitability on an annual basis. Whilst this will undoubtedly increase pressure on advisers, administrators and costs, the obligation will generate increased opportunity for the Group and its advisers to identify and deliver new business advice and hence income.

Continuing careful management of the Group's operating cost base resulted in a reduction of £0.30 million in administrative overheads to £11.19 million (2017: £11.49 million).

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, deliver operational efficiencies and take advantage of the many opportunities that exist.

Further details of 2018 trading are set out later in this review.

OPERATIONS AND BUSINESS MODEL

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

Lighthouse Financial Advice ("LFA") - National

LFA is the affinity-based national advisory division servicing the Group's 23 contractual affinity relationships. Advisers within LFA recommend solutions primarily from the Group's Lighthouse Researched Solutions ("LRS") range (including Luceo Asset Management, the Group's sponsored in-house range of actively managed investment solutions). All solutions within that range are centrally researched and independently assessed to align with customer risk profiles, both on initial entry to the LRS range and on an on-going basis thereafter. The breadth of the investment alternatives within each solution make them an ideal whole of market offering designed to meet the needs of the Group's target market of individuals within the mass affluent sector commonly referred to as "Middle Britain".

LFA advisers are provided with leads generated by the Group's affinity field team and administered by the central client services and events operation and with diary management, marketing and technology support. Leads are derived from field activity across the affinity population which generates seminars and surgeries typically held within business premises.

Until recently advisers within LFA have all been self-employed but in 2018 the Group commenced targeting and recruiting employed advisers so as to better service the growing demand from its affinity connections.

The national segment also includes specialist mortgage and protection advisers operating under the Group's Lighthouse Mortgage and Protection Services ("LMPS") trading style. Advisers within this specialist unit, all of whom are self-employed, provide expert advice on mortgages and related services and are provided with similar support as their colleagues within LFA and increasingly source their leads from the same affinity connections. As at 31 December 2018, 17 of the Group's contractual affinity relationships had agreed to recommend LMPS as the preferred provider of mortgage and protection advice for their members.

Wealth Advisory

The Group's wealth advisory segment comprises advisers within LighthouseCarrwood ("Carrwood") and LighthouseWealth ("Wealth").

The advisers within Carrwood are employed and highly qualified and service the Group's accountancy and professional connections (currently in excess of 50). The advisers operate within the relevant connection as "part of the business" and provide specialist, highly-skilled advice to clients of those connections, often at a crucial period of their lives such as selling a business, inheriting wealth, dealing with significant income or capital receipts or planning pre- or post-retirement.

Given the source and relative status of the typical Carrwood client, advisers within this division are the highest producers across the Group. They are supported by full administration, business processing and paraplanning services which contribute significantly to such high levels of productivity.

The advisers within Wealth are similarly highly-skilled but self-employed and operate from the Group's head office premises in the City of London or from their own locations, generating and servicing their own client bases, principally in London and the South of England. Wealth advisers have access to the Group's paraplanning service within Carrwood.

Communities (network)

The Communities segment comprises Lighthouse Advisory Services, the Group's authorised network business of self-employed advisers within appointed representative firms who operate from their own premises and provide holistic financial advice under their own brands to customers within their local communities. The advisers within this segment have access to the same Fairway technology and Lighthouse Researched Solutions product suites available elsewhere in the Group.

Operations

At 31 December 2018 the Group employed 157 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 Group Employee Benefits, compliance and IT support centre) and Woodingdean, near Brighton (base for LFA operations support and finance and adviser remuneration functions).

FINANCIAL COMMENTARY

REVENUE AND GROSS MARGINS

Total revenues in 2018 amounted to £53.42 million (2017: £54.11 million). Average annualised revenue production per adviser was maintained at the record level of £122,000 achieved in 2017. Recurring revenues, a key barometer of the stability and growth prospects of a business within the financial services sector, increased by £2.38 million or 10 per cent. to £26.77 million from £24.39 million recorded in 2017 and was 53 per cent. of all revenues generated from customers compared with 48 per cent. in 2017. These improvements were generated across all of the Group's operating businesses and underline the robustness of the Group's business model.

Gross margins at 27.34 per cent. remained broadly similar to the 27.11 per cent. recorded in 2017.

OPERATING COSTS

Operating costs decreased by £0.30 million to £11.19 million in 2018 from £11.49 million in 2017. The Group continues to monitor closely its operating base and looks to minimise such costs where possible.

The Group continued to invest and expense in developing its Luceo Asset Management and auto-enrolment propositions with negative contributions in those divisions reducing to (£299,000) and (£251,000) respectively (2017: (£314,000) and (£529,000).

UNDERLYING EBITDA AND PROFIT BEFORE AND AFTER TAXATION

Underlying EBITDA increased by 7 per cent. to £3.42 million from £3.19 million in 2017 and pre-tax profit rose by 5 per cent. to £2.64 million from £2.52 million in 2017. This underlines the continuing progress being made by the Group across all operating areas. Profit after taxation at £2.53 million reflected the £0.11 million reversal of a deferred tax asset established in prior years as brought forward tax losses were utilised during the year (2017: £2.72 million after a deferred tax credit of £0.20 million for future tax relief on share options).

DIVISIONAL COMMENTARY

LFA/AFFINITIES (NATIONAL)

In 2018 the Group has secured new contracts as the preferred provider of financial advice to the members of the National Education Union ("NEU"), following the merger of the National Union of Teachers (not previously serviced by the Group) and the Association of Teachers and Lecturers (existing affinity), and the Public and Commercial Services Union, previously serviced indirectly via a third-party. New contracts were also agreed with Boots Pharmacists and BenefitHub.

In addition, contract renewals were agreed with the Royal College of Nursing ("RCN"), FosterTalk, Prospect, the Association of School and College Leaders ("ASCL"), BA Clubs and the Bakers, Food and Allied Workers Union, and with the General Federation of Trade Unions and Parliament Hill (both umbrella organisations for a number of individual trades unions and associations).

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 and LMPS.

The new contract win with the NEU is particularly noteworthy as it is a new union formed as a result of the merger of the Association of Teachers and Lecturers ("ATL") and the National Union of Teachers ("NUT"). Whilst LFA was the preferred supplier of financial advice to the 126,000 members of the ATL, it did not previously act for the 336,000 members of the NUT. The NEU is the largest education union in the UK and the fourth largest trade union in the TUC, with in excess of 450,000 members, bringing together teachers, lecturers, support staff and leading workers in maintained and independent schools and colleges across the UK.

The Group is undoubtedly the leading player within the affinity-based market for financial services in the UK. LFA now has a dominant position within two large areas of public service provision - healthcare and education - through its contractual agreements as the preferred provider of financial advice to members of Unison, RCN, RCM, FosterTalk, the Social Workers' Union and NEU, ASCL and the University and College Union.

The Group's dedicated mortgage offering - LMPS - continues to gain traction within the affinity community, with 17 such organisations now having appointed LMPS as the preferred mortgage adviser to their members (2017: 14).

As noted above, revenues generated from affinity-based enquiries across the Group were £9.74 million in 2018, an increase of £0.31 million or 3 per cent. over the £9.43 million achieved in 2017 on a like for like basis after adjusting for the exceptional level of pension transfer business advised on in 2017. On-going revenues from affinity-based sources increased by 12 per cent. from £4.35 million in 2017 to £4.89 million in 2018. This underlines the value of establishing close relationships with affinity organisations and their members for the mutual benefit of all concerned.

After deducting adviser payaways, introducer payments and directly attributable overheads, the Group's affinity business contributed £2.80 million to Group profits (2017: £2.92 million on a like for like basis). This contribution is expected to increase as penetration of such relationships becomes deeper and more effective and on-going revenues from initial advice supplied in previous periods builds over time. LFA also leads the distribution of the Group's Luceo Asset Management solutions.

Operating from modern premises near Brighton, with the long (130 years) lease interest owned by the Group and which supports a professional call centre, client service and events teams, embracing fully the Group's Fairway technology solution and its Lighthouse Researched Solutions product range, LFA and LMPS remain well placed to take advantage of the opportunities available as a prime adviser to "Middle Britain".

In 2018 LFA and LMPS contributed gross revenues of £21.02 million (2017: £21.00 million) and a contribution after direct costs of £5.41 million (2017: £5.46 million).

WEALTH ADVISORY

The Group's wealth advisory segment continued to develop well during the year.

Average annualised gross revenue production across the employed advisers in Carrwood working with the Group's accountancy connections was £213,000 (2017: £215,000), reflecting the softening of demand from the market corrections in the final quarter of the year. New advisers recruited into this division take longer to get to full production levels as a result of the particular skills needed to work with accountancy firms, which is reflected by the average effective revenue production level, adjusted for recent starters, being £215,000 in 2018 against £212,000 in 2017. The self-employed advisers within Wealth achieved an average production of £161,000, an increase of 26 per cent. over the £128,000 level recorded in 2017.

The wealth advisory segment (excluding the Group's proprietary LPT auto-enrolment solution - see below) generated revenues of £10.16 million, an increase of £0.87 million or 9 per cent. from the £9.29 million recorded in 2017. Carrwood and Wealth produced revenues of £5.70 million and £4.46 million respectively (2017: £5.08 million and £4.21 million respectively). Overall the wealth advisory segment (excluding LPT) recorded a contribution after direct costs of £1.25 million (2017: £1.19 million).

The Group's LPT business unit, included within the overall wealth advisory segment, recorded revenues of £0.37 million (2017: £0.36 million) and recorded a deficit after direct costs of £0.25 million (2017: £0.53 million).

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

LIGHTHOUSE PENSIONS TRUST ("LPT") - RESULTS OF STRATEGIC REVIEW

As noted in the Chairman's Statement above, the Group announced in January 2019 that it would not be in the best interests of the Company's shareholders to support the Trustees of the Corporate Pensions Trust ("CPT"), which incorporates the Group's LPT auto-enrolment solution for SMEs, in making an application to the Pensions Regulator for authorisation.

The Group has identified Smart Pension Limited ("Smart") as an appropriate new host. Smart is a technology based business whose Auto-Enrolment Master Trust ("AEMT") has c95,000 participating employers, c650,000 members and c£200 million assets under management. Smart is 17 per cent. owned by Legal & General, which also provides the default funds used by the AEMT, and J P Morgan has since invested in the Company.

The Group has agreed to continue to fund the CPT whilst Smart obtains its Master Trust authorisation (expected by end of April 2019) and through the subsequent transfer and wind-up processes which are anticipated to be completed by the end of 2019. The agreement with Smart means that the Group should retain its recurring fees from employers, currently amounting to c£300,000 p.a. for assisting them with the regular payroll assessment, starter/leaver and opt-in/opt-out work that will still be required to be undertaken on a weekly/monthly basis. The exit from the business (which was approaching break-even on direct costs before the additional expenses arising from the new TOR authorisation regime) should be cost-neutral for the Group in 2019 and make a small contribution to results in subsequent periods.

COMMUNITIES (NETWORK) - LIGHTHOUSE ADVISORY SERVICES ("LASER")

2018 saw revenues in the communities (network) segment, LASER, decrease by £1.81 million or 8 per cent. from £23.29 million in 2017 to £21.48 million in 2018, reflecting the market softening referred to previously as well as a result of average adviser numbers reducing from 174 to 168. Average annualised revenue production per adviser decreased by 6 per cent. to £116,000 from £123,000. 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.

The communities segment recorded a contribution after direct costs of £3.03 million in 2018 (2017: £2.93 million). The improvement of £0.1 million reflected the benefit of general cost control and reviews leading to expense reductions notwithstanding the reduction in revenues and hence gross margin.

LUCEO ASSET MANAGEMENT

In 2018 the Group continued to build up its in-house investment solutions - the Luceo Investment Funds - launched by Luceo Asset Management Limited, a wholly-owned subsidiary of the Company, as sponsor in October 2016. Total funds under management amounted to £58 million by the end of 2018 (2017: £37 million), with the figure being largely unchanged in the final quarter of 2018, when markets fell by 10 per cent., in line with other fund managers.

The five current Luceo funds are 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 Funds are primarily focused on customers serviced by advisers within LFA who are mandated to use the Lighthouse Researched Solutions range, including the Luceo Funds, where appropriate for customers.

The Group continues to examine potential extensions to the Luceo product range, including the capital protection products underwritten for minimum capital value by Morgan Stanley and provided by Tavistock Wealth, as part of the strategic relationship announced with the latter in November 2018. New additions should complement and provide additional demand for the current Luceo Funds, managed by Octopus Investments, and help deliver improved customer outcomes across a wider number of customers whilst providing additional revenue and margin for the Group.

The Group continued to support its Luceo Investment Range in 2018 whilst building to the scale - £20 million invested per Fund - at which they will become self-financing and indeed profitable.

Luceo Asset Management recorded revenues of £0.39 million in 2018 (2017: £0.17 million). Underwriting the excess of the fixed costs of operating the Funds over the Group's share of the annual management charge together with other direct operating expenses such as business support and the investment committee resulted in a deficit on contribution after direct costs of £0.30 million (2017: £0.31 million).

INDIRECT OPERATING COSTS

Indirect operating costs in 2018 amounted to £5.73 million, an increase of £0.17 million over the 2017 level of £5.56 million. The principal areas of increase were the full year impact of the appointment of an additional non-executive director in the latter part of 2017, together with the Group's graduate adviser training scheme and marketing, including the appointment of Edison Research to provide additional research on the Company in May 2018.

PROFESSIONAL INDEMNITY INSURANCE ("PII")

PII cover remains a mandatory cost for businesses that advise clients within the UK retail financial services market. The Group renewed its PII cover in February 2019 for a further 15 months on substantially the same terms as in the previous policy. This was a notable achievement given the significant tightening in the market for providing such cover in recent months and the FCA's proposal to increase the maximum award payable by the FOS to £350,000 for advice given from 1 April 2019, which has caused considerable nervousness amongst insurance providers. The Group is considering the advice areas that could be impacted if this proposal were to be enacted as part of the strategic five year planning review referred to in the Chairman's statement.

REGULATION

2018 has seen the UK financial services distribution sector have to deal with the implementation of the requirements of substantial new legislation such as MiFID II and GDPR, which came into force on 3 January 2018, and 25 May 2018 respectively. The new regulations have imposed significant additional obligations on providers and distributors alike in areas such as client information and data protection. The Group has allocated dedicated resource to ensure it is fully compliant 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.

On 9 December 2019 the FCA's new senior Manager and Certification Regime comes into effect, which introduces an enhanced governance framework for those firms within the UK financial services sector that deal with the public, either directly or indirectly. The Group is reviewing the new requirements to ensure full compliance by the deadline.

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 2018 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.

In the light of the results of the strategic review of the Group's LTP workplace pensions solution (see above) the goodwill/intangible asset of £49,000 previously held in relation to this activity has been fully amortised in 2018. No other impairment factors were identified and hence no additional provision for impairment has been made (2017: £Nil).

RESULTS FOR THE YEAR

The Group recorded an underlying EBITDA (before non-cash share-based payments charge) for the year of £3.42 million (2017: £3.19 million). After charging £0.40 million, £0.37 million and £0.01 million in respect of depreciation and amortisation, non-cash share-based payments charge and net finance costs (2017: £0.27 million, £0.39 million and £0.01 million respectively), the Group recorded a pre-tax profit of £2.64 million (2017: £2.52 million). Post-tax profit amounted to £2.53 million, a reduction of £0.19 million from the £2.72 million recorded in 2017 as a result of the reversal of part of the deferred tax asset previously held for tax losses utilised in the year, giving a charge to taxation of £0.11 million (2017: credit to taxation of £0.20 million).

CASH FLOW, CASH BALANCES, TREASURY AND INVESTMENT

Year-end cash balances amounted to £9.55 million (2017: £8.73 million). The increase of £0.82 million was due to the profit after taxation for the year less working capital increases principally as a result of the settlement of historic complaints previously provided for, and is stated after paying dividends of £0.64 million (2017: £0.38 million) and an investment of £1 million in a 5.3 per cent. stake in Tavistock Investments plc, as part of the strategic agreement with that company referred to above.

After allowing for regulatory and working capital considerations the Board will continue to retain the £5 million of cash it holds in excess of regulatory capital requirements in short-dated accounts for the time being.

PROSPECTS

As noted in the Chairman's statement, the short-term outlook for the UK economy within which the Group operates remains uncertain, with recent market corrections reflecting investor concerns about global trading patterns and the absence of a final defined strategy for the UK to exit the European Union.

Notwithstanding these factors, the Group continues to enjoy significant headroom on its regulatory capital requirement and has continued to invest in its businesses and in new initiatives such as the strategic agreement with Tavistock. This, together with the continuing focus on higher margin divisions - LFA and Wealth Advisory - 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 that may arise.

Malcolm Streatfield

Chief Executive

25 February 2019

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:

Lighthouse Group plc

Consolidated statement of comprehensive income

for the year ended 31 December 2018

All activities are classed as continuing.

The profit and total comprehensive income for both 2018 and 2017 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 2018

Lighthouse Group plc

Consolidated statement of financial position

at 31 December 2018

The financial information was approved by the Board of Directors on 25 February 2019 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 2018

Lighthouse Group plc

Notes to the financial information for the year ended 31 December 2018

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 2018 and has been prepared on the basis of the accounting policies set out therein and in accordance with the recognition and measurement principles of International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board as adopted for use in the EU ("IFRS") but does not contain all the disclosures necessary for full compliance with IFRS.

The financial information set out above does not constitute the Company's statutory accounts within the meaning of Section 434 of Companies Act 2006 for the years ended 31 December 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 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:

Profit for the purposes of calculating adjusted basic and diluted earnings as set out above are stated after excluding the deferred tax charge of £111,000 in 2018 (2017: deferred tax credit of £200,000) and applying a standard rate of tax of 19 per cent. (2017: 19.25 per cent.) to the profit before taxation in the relevant year.

3. Segment information

Segment information for the Group for the year ended 31 December 2018 is set out below:

The revenue, costs and profit associated with the Group's Lighthouse Mortgage and Protection Services ("LMPS") business have been included within the National segment, having previously been reported within the Communities segment. The change reflects the increasingly close operating relationship between Lighthouse Financial Advice ("LFA"), which has historically comprised the National segment, and LMPS, covering marketing, lead generation and adviser administration and diary management. The change increased revenues, gross margin and contribution within the National segment by £1,475,000, £405,000 and £175,000 respectively. The 2017 comparatives below have been restated as a result (revenue, gross margin and contribution adjustments of £1,161,000, £290,000 and £63,000 respectively).

Other segments in 2018 comprise the results of Luceo Asset Management Limited ("Luceo"), the Company's wholly-owned subsidiary that sponsors risk-aligned investment solutions that are made available to the Group's customers. Other segments in 2017 included revenue, gross margin and contribution in respect of Luceo of £167,000, (£176,000) and (£313,000) respectively.

Segment assets and liabilities at 31 December were as follows:

4. Dividends

The directors recommend the payment of a final dividend for the year ended 31 December 2018 of 0.50 pence per ordinary share (2017: 0.30 pence per ordinary share).

5. Annual report

The annual report, audited financial statements and notice of annual general meeting will be posted to shareholders on or about 12 March 2019 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.

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