Lighthouse Regulatory News (LGT)

11 Sep 2006 07:02

Lighthouse Group PLC11 September 2006 Press Release 11 September 2006 Lighthouse Group plc ("Lighthouse" or "the Group") Interim Results Lighthouse Group plc, one of the UK's largest Independent Financial Advisergroups and pension scheme administrators, today announces record interim resultsfor the six months ended 30 June 2006. Highlights • Turnover increased 36% to £20.5 million (2005: £15.1 million)• A maiden pre-tax profit for the Group of £112,000 (2005: £142,000 loss)• Total funds under advice up to approximately £4 billion, an increase of 39% since 30 June 2005• Turnover per adviser up to approximately £71,000 (2005: £59,000) on an annualised basis• Completion of the successful integration of LighthouseCarrwood David Hickey, Executive Chairman of Lighthouse Group plc, said: "We aredelighted with these excellent results for Lighthouse which mark a significantmilestone in the Group's development. These first ever pre-tax profits providea solid start for continued future growth and we look forward to furtherprogress for the full year." - Ends - For further information: Lighthouse Group plc Malcolm Streatfield, CEO Tel: +44 (0) 20 7065 5640 malcolm.streatfield@lighthousegroup.plc.uk www.lighthousegroup.plc.uk Media enquiries: Abchurch Communications Heather Salmond heather.salmond@abchurch-group.com Gareth Mead Tel: +44 (0) 20 7398 7700 gareth.mead@abchurch-group.com www.abchurch-group.com CHAIRMAN'S STATEMENT I am pleased to report another period of significant progress for LighthouseGroup plc. The first six months of 2006 has seen continued improvements in turnover, grossprofit and earnings. The consequence is that the Group has made a maiden profitbefore taxation after all charges. Additionally, for the first six months, theGroup recorded a profit before goodwill amortisation in excess of that recordedfor the whole of 2005. Trading Highlights 6 months to 30 June 2006 6 months to 30 June 2005 (restated) Turnover £20.5 million £15.1 millionGross Profit £7.5 million £3.8 millionOperating Costs £6.9 million £3.7 millionEBITDA * £640,000 £92,000Profit/(loss) before Taxation £112,000 £(142,000) *Earnings before interest, tax, depreciation, amortisation and exceptionalitems. Results Turnover for the six months to 30 June 2006 increased by 36 per cent to £20.5million (2005: £15.1 million). The bulk of this increase was due to theacquisition of Carrwood, which was completed in December 2005. The like for likeimprovement in turnover was as a consequence of additional advisers and theturnover per adviser rising. Including Carrwood, the turnover per adviser forthe first 6 months rose to an annualised figure of approximately £71,000 (2005:£59,000). The 97 per cent increase in Gross Profit to £7.5 million (2004: £3.8 million)requires explanation. Unlike the Group's other advisers, all of whom areself-employed, the Carrwood IFAs and their supporting administration staff areall employed, and their costs are contained within Operating Costs. Accordinglythe Gross Profit line includes the entire net Carrwood turnover, but none of therelated employment costs, as these are contained within Operating Costs.Equally, City Trustees (the Group's SIPP administration business) gross marginis high, with most of the related expenditure in Operating Costs. The Gross Profit figure without the Carrwood and City Trustees contributionswould have been £4.2 million, representing an increase of 18 per cent. Thisderives from a 14 per cent increase in pre-acquisition turnover and a 4 per centincrease in margin. The increase in Operating Costs is, as explained, also largely down to theCarrwood and City Trustees employed teams. Without the Carrwood costs, theoperating cost charge for the first 6 months of the year would have been £4.3million, representing an increase of £0.6 million over the corresponding figurefor 2005. Most of this comprised IT expenditure. There were no exceptional items during the period (2005: £nil). At the EBITDA level (earnings before interest, tax, depreciation, amortisationand exceptionals) the Group made a profit of £640,000 compared to a profit of£92,000 (as restated) in 2005. The profit before taxation was £112,000 (2005: £142,000 loss (as restated)) andis the first time that the Group has recorded a profit before tax. Cash balances were £5 million (2005: £2.2 million) at the period end. The Groupcontinues to have no debt. LighthouseCarrwood The Carrwood acquisition has turned out to be very satisfactory, and was fullyintegrated on time and to budget. The new division is now trading in line withthe Board's expectations. City Trustees The SIPP administration business, City Trustees, which was acquired as part ofthe Carrwood transaction, has made progress in broadening its management teamand in building its infrastructure. Prior to "A" day, 6 April 2006, two keydirector appointments were made, strengthening sales technical knowledge andcompliance capability, the latter in anticipation of forthcoming FSA regulationof the SIPP market. Lighthouse has also invested in a new SIPP software platformwhich greatly reduces manual intervention in routine SIPP administration.However these essential steps delayed the full roll out of City Trustees'services across the remainder of the Group and beyond, and as a result, thedivision traded below plan for the first half. Lighthouse is now raising the City Trustees brand profile, and is activelypromoting its services and skills to advisers across the wider Lighthouse groupand beyond. Accordingly the Board remains confident of building a significantpresence in the UK SIPP administration area, against a favourable pensionsmarket background. Recurring Income One of the features of the IFA sector is its dependence on self-employedadvisers earning initial commissions on packaged financial products. Advisersleaving or retiring usually reduces turnover as their clients frequently alsodepart the Group. The Carrwood transaction was conceived in part to introduce anemployed advisory offering to the Group, thus increasing the probability ofclient loyalty when advisers leave or retire. The Group is now focused onexpanding this division as quickly as possible. Additionally the Group has continued to encourage the growth of recurring incometo diminish the dependency on initial commission, especially within the nationaldivisions of Carrwood and Temple (which now account for approximately half theGroup's business and where such income is owned by the Group). It is thereforegratifying to report a significant rise in recurring income to £2.9 million forthe 6 month period, compared to £1.9 million for the corresponding previousperiod. Finally, the Group is planning to roll out a retirement offering to its selfemployed advisers. This should have the beneficial effects of transferringownership of advisers' recurring income to the Group, and prolonging itsduration. Funds Under Advice New investment flows have risen to £389 million for the period under review,compared to £286 million for the first half of 2005. In aggregate the totalfunds under advice with the Group's advisers is approximately £4 billion, anincrease of 39 per cent since 30 June 2005. The Board is now seeking to growthese numbers and has embarked on a number of related initiatives. Mortgage Business The Group now has approximately 250 advisers registered to give mortgage adviceand this has resulted in a 79% increase in mortgage business written by theGroup compared to the corresponding period. The value of new mortgage businesscurrently flowing through the Group is approaching £1 billion on an annualisedbasis. Regulatory Matters The FSA has recently reiterated its intention of ensuring that IFAs treat theircustomers fairly, effectively requiring them to comply with the spirit as wellas the letter of relevant regulations. To every extent possible, the Group hasalways sought to embed a compliant culture within its procedures so as to governboth the activities of its own employees, and those of its regulated advisersincluding ensuring that where there are no specific regulations, employees' andadvisers' behaviour is in line with best practice, and should be capable ofbeing justified with hindsight. Although the Treating Customers Fairly initiative is relatively recent, theGroup's approach to regulation has in fact anticipated many aspects of it. It isyour Board's view that the conscious development of this culture has resulted inthe Group never having suffered significant criticism or any sanction by anyregulating authority, since its foundation over 14 years ago. A commercial by-product of this culture is that the Group is not seeing asignificant number of historic endowment mortgage related complaints.Additionally, where such complaints do appear, and are upheld, the Group'scontractual arrangements with its advisers have always ensured that the Groupfaces no significant financial exposure. Accordingly, the Board sees no need forany endowment related provision in the accounts. Accounting Treatments for Shares Options FRS20 (relating to the accounting treatment for share based payments) havingtaken effect for accounting periods commencing on or after 1st January 2006, theGroup has recognised a charge of £15,945 in these accounts relating to shareoptions issued on or after 2 November 2002. The comparable accounts have beenadjusted by way of a prior year charge. Employee Benefit Trust The Group has had an EBT in place since its flotation on AIM in 2000. While theEBT has always contained 8,125,000 shares, no shares have ever been allocated.Subsequent to 30 June 2006 arrangements have been entered into for theallocation of all these shares. Accordingly the Group will recognise a charge inits year end accounts amounting to approximately £1.5 million, based upon thecurrent share price. Both these treatments are in accordance with FRS20 and it is emphasised thatneither of these matters has any effect on Group cash or distributable reserves. Strategy and Prospects The recent and well publicised collapse of several of the Group's quotedcompetitors continues to demonstrate that IFA groups need to be properlycapitalised and focused on profit generation. Chasing turnover produces busyfools. Accordingly the Board continues to seek to grow profits, and to husbandits cash resources. This approach has on occasion resulted in a refusal toexpand aggressively at the expense of margins or capital. The Board believeshowever that the relatively benign financial markets experienced during the past18 months has provided sufficient opportunity for growth, and that has beenamply evidenced by these results. The Board remains open to acquisitionopportunities, but only on sensible financial terms. I said in a previous statement that the Board was "now focused on ensuring thatthe Group creates significant profits in future periods". I regard these resultsas significant in terms of continued progress towards that goal, and it isreassuring to note that the half year figures were very much in line with theBoard's expectations. Looking forward, independent financial advisers tend to thrive when retail andcorporate clients are not disturbed, either by volatile financial markets, or byrepeated negative financial media coverage. Despite the recent UK equity marketcorrection, markets continue to appear to be relatively stable. Additionallyover the recent period, the continued media focus on personal savings appearsstill to be encouraging individuals' focus towards serious consideration ofproviding for their financial future. Together these factors have assisted thegrowth in volumes of new business experienced by the Group's IFAs. There are noobvious signs that these factors will change significantly in the immediatefuture. Moreover since June, the Group has continued to trade in line with theBoard's expectations, albeit during quieter summer months, and accordingly theBoard looks forward to reporting further progress for the full year. David HickeyExecutive Chairman 8 September 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE SIX MONTHS ENDED 30 JUNE 2006 Unaudited 6 Unaudited Audited months 6 months Year ended 30 ended 30 ended 31 June 2006 June 2005 December (restated) 2005 (restated) £'000 £'000 £'000 Turnover - continuing operations 20,519 15,062 31,963Turnover - continuing acquisitions - - 596 Total turnover 20,519 15,062 32,559 Cost of sales (12,979) (11,229) (23,919) Gross profit 7,540 3,833 8,640 Administrative expenses Other operating expenses (6,900) (3,741) (8,190) Exceptional operating expenses - - (431) Depreciation and amortisation of goodwill (601) (270) (591) Total administrative expenses (7,501) (4,011) (9,212) Group operating profit/(loss) 39 (178) (572) Net interest receivable 73 36 68 Profit/(loss) on ordinary activities beforetaxation 112 (142) (504) Tax on profit/(loss) on ordinary activities - - - Profit/(loss) for the period 112 (142) (504) Basic profit/(loss) per share 0.15p (0.45)p (1.18)pDiluted profit/(loss) per share 0.15p (0.45)p (1.18)p There are no other recognised gains or losses other than the profit/(loss) forthe period. CONSOLIDATED BALANCE SHEETAS AT 30 JUNE 2006 Unaudited Unaudited Audited 30 June 30 June 31 2006 2005 December (restated) 2005 (restated) £'000 £'000 £'000 Fixed assetsIntangible assets 7,827 2,923 8,263Tangible assets 561 375 632Interest in joint venture: - 6 - Share of gross assets - 6 - Share of gross liabilities - - - 8,388 3,304 8,895 Current assetsDebtors 6,377 3,459 6,317Cash at bank and in hand 5,012 2,162 5,115 11,389 5,621 11,432 Creditors: amounts falling duewithin one year (6,978) (3,245) (7,879) Net current assets 4,411 2,376 3,553 Total assets less current liabilities 12,799 5,680 12,448Creditors: amounts falling dueafter more than one year - - (2)Provisions for liabilities and charges (3,443) (2,310) (3,218) Net assets 9,356 3,370 9,228 Capital and reservesCalled up share capital 752 398 752Share premium account 15,714 11,132 15,714Merger reserve 2,003 2,003 2,003Reserve for the issue of sharesfor contingent consideration 1,273 - 1,273Other reserves 377 377 377Profit and loss account (10,763) (10,540) (10,891) Equity shareholders' funds 9,356 3,370 9,228 CONSOLIDATED CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 30 JUNE 2006 Unaudited Unaudited Audited 6 months 6 months Year ended 30 ended 30 ended 31 June 2006 June 2005 December 2005 £'000 £'000 £'000 Net cash (outflows)/inflows from operating activities (110) (347) 585 Returns on investments and servicing of financeInterest received 88 36 81Finance lease interest paid (15) - (13)Net cash inflow from returns on investments and servicingof finance 73 36 68 Capital expenditurePayments to acquire tangible fixed assets (62) (37) (43)Net cash outflow for capital expenditure (62) (37) (43) Acquisitions and disposalsPayments to acquire subsidiary undertakings - - (88)Expenses associated with the acquisition of subsidiaryundertakings - - (217)Net cash acquired with subsidiary undertakings - - 31 Net cash outflow from acquisitions and disposals - - (274) Net cash (outflow)/ inflow before financing (99) (348) 336 FinancingCapital element of finance lease payments (4) - (2)Issue of ordinary share capital - 4 3,167Expenses of issue of share capital - - (109)Loan repayments as part of acquisition - - (788)Exercise of options - - 5 Net cash (outflow)/inflow from financing (4) 4 2,273 (Decrease)/increase in cash (103) (344) 2,609 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2006 1. The interim financial information set out in these figures and the corresponding notes has been prepared on the basis of the accounting policies set out in the Group accounts for the year ended 31 December 2005, with the exception of FRS 20 'Share Based Payment'. The adoption of FRS 20 constitutes a change in accounting policy. Therefore the impact has been reflected as a prior year adjustment in accordance with FRS 3. Note 2 sets out the effect of adopting FRS 20. The interim financial information is unaudited but has been reviewed by the auditor. This information does not constitute statutory accounts for the purpose of section 240 Companies Act 1985. The figures for the year ended 31 December 2005 have been extracted from the Group accounts for that period. Those financial statements have been delivered to the Registrar of Companies and included an auditors' report, which was unqualified. 2. Share Based Payment. The Group is required to adopt FRS 20 for the first time for accounting periods commencing on or after 1 January 2006. FRS 20 'Share Based Payment' requires the Group to recognise an expense in respect of the granting of options over shares to employees and directors. This expense which is calculated by reference to the fair value of the options granted, is recognised on a straight line basis over the performance period based upon the Group's estimate of options that will eventually vest. The adoption of this standard has no overall effect on the Group's retained reserves. The adoption of FRS 20 has had no effect on the Group's cashflows. Management have used an options pricing model to estimate the value of the options granted in the current and prior periods. The key input to the model was the assumed share price volatility which management estimate to be approximately 30% based upon the Group's historical share price volatility. The expected option life used to estimate the fair value of the options varies between 3 and 10 years from the date of grant. Comparative figures for the 6 months ended 30 June 2005 and the 12 months ended 31 December 2005 have been restated to apply the provisions of FRS 20, increasing expenses and consequently increasing operating losses for those periods as shown below: Unaudited 6 Audited months to year to 31 30 June December 2005 2005 £'000 £'000 Operating loss as previously stated (167) (550)FRS 20 share option charge (11) (22) Operating loss as restated (178) (572) As disclosed in the Group's Annual Report as at 31 December 2005, the Group hadunrecognised deferred tax assets primarily in respect of losses amounting to£3,279,000 (2004: £2,337,000). In common with the Group policy adopted at thattime the deferred tax asset now arising in the current period in respect of thisFRS 20 charge has not been recognised but will be utilised against futuretaxable profits. 3. Basic profit per share has been calculated based on the profit on ordinary activities after taxation and the number of shares in issue for the period of six months to 30 June 2006. The diluted profit per share has been calculated to take into account un-exercised share options in issue at 30 June 2006. 4. A copy of the Interim Statement is being sent to all shareholders and copies are available for collection indefinitely from the Group's Head Office at the address below: Lighthouse Group plc 26 Throgmorton Street London EC2N 2AN Telephone: 020 7065 5640 Fax: 020 7065 5650 www.lighthouseifa.com This information is provided by RNS The company news service from the London Stock Exchange