Lighthouse Regulatory News (LGT)

11 Mar 2008 07:02

Lighthouse Group PLC11 March 2008 Press Release 11 March 2008 Lighthouse Group plc ("Lighthouse" or "the Group") Preliminary Results Lighthouse Group plc (AIM:LGT), one of the UK's largest Independent FinancialAdviser and wealth management groups, today announces record results for theyear ended 31 December 2007. Highlights • Revenues increased 12% to £53 million (2006: £47 million)• Pre-tax profit up 171% to £1.9 million (2006: £0.7 million)• Cash balances increased 32% to £9 million (2006: £7 million), with no debt• Total funds under advice grew to approximately £6 billion, an increase of 22% since 31st December 2006• Recurring revenues now at an annualised £10.5 million (2006:£6.6 million)• Average turnover per adviser up to £86,000 (2006: £83,000)• Successful integration of transaction with LV= (formerly Liverpool Victoria Friendly Society)• Maiden final dividend of 0.5 p per share recommended Commenting on the results, David Hickey, Executive Chairman of Lighthouse Groupplc, said: "We are pleased to announce another year of record results. We continue to makesizeable improvements in revenues, gross profit, pre-tax profit, cash balancesand earnings per share. The improvement in the quality of earnings is alsoencouraging following a notable rise in recurring income during the period,derived both from the LV= arrangements and organic growth. We are particularlypleased to confirm the planned payment of our first dividend, demonstrating ourconfidence in the future of Lighthouse and its Independent Financial Advisers." Today, the Company is also pleased to announce a merger with Sumus Plc, fulldetails of which are set out in a separate announcement. David Hickey, Executive Chairman of Lighthouse, said: "We have strongshareholder support from both sides for this merger, which will combine twoprofitable groups with substantial balance sheet cash resources. "The merger creates an IFA and wealth management group which is genuinelyindependent, with over £8 billion in assets under advice and approximately 900experienced advisers. "I believe that this merger creates the best positioned independent advisorygroup in the UK." - Ends - For further information, please contact: Lighthouse Group plc David Hickey, Executive Chairman Tel: +44 (0) 20 7065 5640 www.lighthousegroup.plc.uk Daniel Stewart & Company plcLindsay Mair Tel: +44 (0) 20 7776 6573lindsay.mair@danielstewart.co.ukChloe Ponsonby Tel: +44 (0) 20 7776 6583Chloe.ponsonby@danielstewart.co.uk www.danielstewart.co.uk Media enquiries:Abchurch CommunicationsHeather Salmondheather.salmond@abchurch-group.comGareth Mead Tel: +44 (0) 20 7398 7700gareth.mead@abchurch-group.com www.abchurch-group.com CHAIRMAN'S STATEMENT I am pleased to report another period of significant progress for LighthouseGroup plc. 2007 saw continued improvements in revenue, gross profit, pre-tax profit, andearnings per share. Recurring income rose by 60 per cent and cash balances alsoincreased significantly. The transaction with LV= (formerly Liverpool VictoriaFriendly Society) was completed and the business subsequently fully integrated.I am also pleased to report that the Board has recommended a maiden finaldividend of 0.5p per share. Trading Highlights Year to 31st Year to 31st December December 2007 2006 IFRS (restated for IFRS) Revenue £52.9 million £47.2 millionGross Profit £16.6 million £15.7 millionOperating Costs £14.2 million £13.4 millionEBITDA * £2.5 million £2.3 millionProfit Before Taxation £1.9 million £0.7millionEarnings Per Share 2.6p 1.0p *Earnings before interest, tax, depreciation, amortisation and exceptionalitems. Results Revenue for the period rose by 12 per cent to £52.9 million (2006: £47.2million), and was split approximately in the percentage proportions, investment42, pensions 28, protection 15 and mortgages 15, which represents a healthydiversity of business. The increase in revenue was partly due to increased revenue per adviser whichrose to an annualised figure of approximately £86,000 (2006: £83,000)representing strong performance by each adviser, and partly due to the increasein recurring income. The average number of advisers increased slightly to 525. Gross Profit increased by £0.9 million to £16.6 million primarily reflecting theincrease in turnover. Gross profit margin remained relatively steady at justover 30 per cent. The increase in Operating Costs from £13.4 to £14.2 million while modest, wasunwelcome and largely due to expenses in the Carrwood division running ahead ofrecruitment. This overshoot has since been corrected. At the EBITDA level (earnings before interest, tax, depreciation, amortisationand exceptional items) the Group results increased by 9 per cent to £2.5 million(2006: £2.3 million). Two exceptional charges amounting in aggregate to approximately £0.5 millionwere taken in the year. The first for £333,729 was taken in December relating tolegal costs associated with a former employee court case, and the second for£212,606 was incurred in March 2008 and related to settlement of potentiallitigation against the trustee of the Group's EBT (2006: £1.5 million relatingto a non-cash charge for the Group's Employee Benefit Trust). The profit before taxation was £1.9 million (2006: £0.7 million). Cash balances were £9.0 million (2006: £6.8 million) at the period end. TheBoard plans to continue to increase cash balances so as to anticipate any futurerequirements for regulatory capital, and to pay dividends. Dividends The Board is pleased to recommend a maiden and final dividend of 0.5p per share,payable to shareholders on the register at 25 March 2008, subject toratification at the forthcoming Annual General Meeting. Your Board believes thatpaying dividends demonstrates confidence in the prospects of the Group, andaccordingly expects to follow a progressive dividend policy in the future. It isintended that hereafter the Group will pay dividends on the basis of one thirdinterim, two thirds final, payable in October and May respectively. Transaction with LV= The essence of this transaction, which was announced in March 2007, was that LV=outsourced its customer requirements for independent financial advice toLighthouse. 20 of the independent financial advisers formerly employed by LV=chose to accept self-employed status within LighthouseTemple. Finally, a largeclient base with recurring income of a value to Lighthouse exceeding £1 millionon an annualised basis, was also transferred to the Group. In return Lighthousepaid approximately £1 million in new Lighthouse shares. LV= also subscribed fora 5 per cent shareholding in Lighthouse for cash. The business has now been fully integrated, the quality of new leads arisingfrom the LV= client base is high, the new advisers are trading in line withexpectations, and the recurring income is also running to budget. Recurring Income For some years your Board has had a target of growing recurring revenues tomatch annual running costs. In 2006 annual revenues totalled £6.6 million, justbelow 50% of running costs that totalled £13.4 million. For 2007, recurringrevenues totalled £10.5 million, 75% of running costs of £14.2 million. It ishoped therefore that the target will be achieved within the next couple ofyears. Equally importantly, the proportion of recurring income owned outright bythe Group has risen to £3.4 million in 2007 from £1.7 million in 2006, and isnow running at an annualised £4 million. Funds under Advice New investment flows continued to run at about £1 billion for the year resultingin the total funds under advice with the Group's advisers rising toapproximately £6 billion, an increase of 22 per cent on the year. The Board willcontinue to focus on growing the absolute value of these funds and, inconjunction with its IFAs, the Board is also determined to increase the level ofinfluence over these funds. Accordingly, the Group has recently embarked on a number of related initiatives,including the use of a psychometric fact finding process that matches clientattitude to investment risk to an appropriate asset allocation. In parallel withthese arrangements, the Group has commenced the roll out of a capital rewardoffering to its self-employed advisers, linked to their recurring income.Already approximately 20% of the Group's IFAs have contracted to this scheme,and it is expected that this number will grow significantly. Retail Distribution Review This H.M. Treasury inspired review is now some 18 months old and continues tostimulate discussion covering most aspects of retail financial products adviceand services, and their distribution, in the UK. The scale of the debate is nowso broad that managing the review process has become a significant challenge.The next step rests with the FSA which has indicated that it will publishindicative proposals before the summer. Some themes are emerging clearly. Greater transparency of customer charges atboth the manufacturing and distribution stages of retail financial products, andat the advice stage, will undoubtedly feature, which is to be welcomed.Proposals to increase the qualifications and skills of IFAs are also likely toemerge. Finally, fresh thinking surrounding responsibility and liabilitytimeframes for advice given and products sold is also expected. None of these issues ought to give IFAs, or IFA groups, grounds for concern.Where there is concern however is the possibility that the current clear linesbetween advice and sales will be blurred, which will lead inevitably to customerconfusion and a grave risk of a new wave of inappropriate products being soldaggressively by manufacturers' sales teams working to targets. This must beavoided. Various members of your Board hold prominent positions on a number of keyindustry forums representing the IFA channel, and accordingly the Group has someinfluence on the process, and will receive plenty of notice of impendingchanges. In the meantime I expect to keep shareholders up to date on a regularbasis through our interim and annual reports. Strategy and Prospects Growing profits, increasing the Group's cash balances and paying dividends, allremain areas of specific focus for your Board, as well as simultaneouslyimproving our offering to our advisers and their clients. It is satisfied thatthe prospects for the future remain sound, notwithstanding current stock marketvolatilities. One of the attractions of the IFA sector is that advisers tend toflex the mix of their advice to suit the cycle. In the meantime, and since the year end, the Group has continued to trade inline with the Board's expectations and accordingly the Board looks forward toreporting further significant progress for the full year. Merger with Sumus I am very pleased to announce a merger with Sumus Plc, full details of which areset out in a separate announcement, and formal notice of which will be posted toshareholders shortly. Sumus is a well established business with an excellentrecord and which has long been admired by the Lighthouse Board. The merger,which is broadly in the proportions of 60 per cent Lighthouse and 40 per centSumus, will create a substantial retail financial products distribution group,with approximately 900 Independent Financial Advisers, producing combinedpro-forma turnover in excess of £80 million, with strong cash flows and verysubstantial assets under advice. The merger will be effected by an offer for the shares of Sumus by Lighthouse.Irrevocable undertakings in relation to the offer representing over 50 per centof the Sumus shares have already been secured. Accordingly it is expected thatthe transaction will complete in early May. Further details are contained in therelated announcement. My colleagues and I much look forward to working with theSumus team and their advisers in the very near future. Finally, I would like to express my thanks to our independent financial advisersin each of our divisions, for their professionalism and loyalty to the Group,and to all my fellow employees and Board Directors, for their contributionsduring the year. David Hickey Executive Chairman 10 March 2008 CHIEF EXECUTIVE'S REVIEW GROUP STRUCTURE Lighthouse Group activities comprise both the provision of services toIndependent Financial Advisers, and pension scheme administration, advisingprivate and corporate clients throughout the U.K. While the Group has variousoperating divisions, some of which are the result of acquisitions, the Group isoperationally fully integrated and able to absorb large scale client servicingarrangements. DIVISIONAL TRADING PERFORMANCES LighthouseCarrwood LighthouseCarrwood is the Group's professional salaried adviser division: 32salaried advisers and managers trade from accountancy firms. There are 80 formalintroductory agreements in place. LighthouseCarrwood turnover in 2007 was £6.1million (2006: £7.5million). The reduction in turnover is due to fewer adviserscompared to 2006. The division has recently been restructured with the removalof less performing advisers. Average annualised turnover (ex the departedadvisers) remained at £193,000. LighthouseTemple LighthouseTemple has a full geographical representation, with the Group owningthe trading brand, the clients and all income deriving therefrom, although theadvisers are self-employed. At 31 December 2007, the division had 188 registeredadvisers. The Group's Brighton office provides a UK wide support function forthis division, including a customer call centre, and an advisory service for theprovision of new business leads and related diary management. Following thesuccessful integration of the LV= arrangements, this office has arranged 6,700appointments for advisers and organised 300 seminars/surgeries in the past 8months. Turnover for the year was £11 million representing an increase of 20 per centover 2006. The increase was assisted by the LV= arrangements which contributed£1.9 million turnover, boosting average adviser turnover to £66,500 (2006:£63,000). LighthouseXpress (inclusive of Lighthouse Wealth and Lighthouse Practices) LighthouseXpress is the Group's network division. At the end of 2007 there were319 advisers each operating under their own brand as sole traders, partnershipsor limited companies. The Group provides regulatory cover, professionalindemnity insurance and collects income due on their behalf. LighthouseXpress isalso one of two Group FSA regulated subsidiaries, and supports each of theGroup's adviser divisions in the areas of regulation, supervision and training. For 2007, turnover was £28 million, an increase of 3 per cent over 2006 withadviser turnover averaging £88,500 (2006: £80,000) on constant adviser numbers.The average turnover improvement is a result of continuing to address poorperformance. Lighthouse Group Benefits This division was originally part of Carrwood but is now being separatelyoperated. As at 31 December 2007, it administered approximately 440 activepension schemes (2006: 400) with over 5,500 members (2006: 5000), 115 group riskschemes covering life, income protection and critical illness, and approximately100 group health schemes covering over 1,000 lives. Total revenues for 2007 were£1.3 million (2006: £1million) and the Board expects significant growth in thisdivision during the next few years. During 2007, these services were extended toother divisions of the Group. City Pensions Limited The Group's trustee business administers 1,014 SIPPs and 200 SSASs, (Small SelfAdministered Schemes) with aggregate client assets of over £300 million. SIPPsincreased by over 100 during the year and 30 percent by number came fromreferral sources outside the Group. The new management team has settled downwell, the basis of charging has been varied from flat fees to time basedarrangements, and the business is now growing satisfactorily. The division holds Corporate Trustee status, has been FSA regulated since 6thApril 2007, and operates out of the Throgmorton Street, London, offices. ADVISERS In aggregate the number of advisers throughout the Group at the end of 2007 was539 (2006: 516) and the average number for the year was 525. The Group'sadvisers have continued to increase average turnover, rising during 2007 to£86,000 from £83,000 in 2006. The Group continues to focus on qualityrecruitment and seeks to replace exiting advisers with new and able recruits. The Group's cost base grew by £772,000 (6 per cent over 2006) primarily as aresult of the LighthouseCarrwood support cost base anticipating more growth inadviser numbers than was realised. This cost overrun has now been reversed withthe closure of the satellite support at Reading and Milton Keynes offices, andassociated redundancies, which was completed in January 2008. TREATING CUSTOMERS FAIRLY The provision of high levels of customer care remains of central importance tothe Group. Dedicated resource has been allocated to our TCF regime and progress isregularly reported to the Group/Executive board, a communications programme isin place for both advisers and staff which involves many mediums such asconferences, regional meetings, newsletters and e-mail updates and staffbriefings via meetings, newsletters, messages. The Group continues to invest significantly in control and risk managementprocesses, evidenced by the recent appointment of a Risk Director which followsthe earlier appointment of a TCF Manager and the forming of the Regulatory andRisk Committee under the Chairmanship of a non executive Director. OTHER DEVELOPMENTS LighthouseCapital This initiative was announced at our National Conference in June, 2007, andformally launched later in the year. Lighthouse is pioneering the introduction of a scientific risk profiling programin the advice process, which accurately and independently determines a client'sattitude to risk. This risk profile is then matched directly and automaticallyto a suitable whole of market 'Fund of Funds' investment portfolio, of which thefirst set is branded "Lifestyle" and managed by F&C. Investors can access thefunds directly or by a series of life company "wrappers", currently sourced fromAXA, Friends Provident and Canada Life. Lighthouse expects to add furtherindependent fund management houses in 2008. IFA remuneration includes recurringrevenue rather than initial commission alone. In essence therefore the risk profiling of clients is scientifically determined,and matching investment portfolios are procured, updated and professionallymanaged by independent fund management groups. In parallel a capital scheme hasbeen set up and funded by Lighthouse for the benefit in due course of theparticipating Lighthouse IFAs. Lighthouse advisers currently invest new funds on behalf of clients with anannualised value exceeding £1 billion, and it is expected that a significantproportion of this will flow into the new scheme during the next few years.Already over 100 Group advisers have signed up to participate and 2008 shouldsee this number increase significantly. Lighthouse leadership pathways programme Early in 2007 Group employees were asked to complete a confidential survey whichcovered many areas ranging from the Treating Customers Fairly initiative (TCF),to the quality of support for personal development. While the results were positive, areas for improvement were identified whichincluded planning and evaluation of learning and development, managementdevelopment and communication. Subsequently a strategy has been developed toaddress the issues raised and at the beginning of May 2007, the Group formallyannounced its commitment to engage in the Investors In People (IIP) nationalstandard. An action plan was established incorporating the three overriding IIPprinciples of: developing strategies, taking action and evaluating the impact onthe performance of our organisation. It was recognised that in order to get the business benefits quickly, it wouldbe necessary for our people managers to be at the core of activities and so theLighthouse Leadership Pathway Programme (LLPP) was developed as the means ofdelivering the changes necessary to address the development needs and to linkdirectly to the Group's strategic approach to TCF. To do this, a unique and important partnership has been established betweenLighthouse Group, The National Skills Academy for Financial Services andOrpington College to pioneer this new leadership programme which is closelylinked to TCF and which recognises the importance of developing a culture thatputs customers at the heart of what we do. Our employees and customers are already seeing the benefits of these initiativesand I look forward later in 2008 to reporting further on our progress towardsIIP accreditation. THE FUTURE LighthouseCapital will continue to be developed, leading to the Group and itsadvisers significantly increasing their joint influence over client investments.The resulting boost in recurring revenues will increase the value of the IFA'sown business, and in parallel will reinforce the financial strength of theGroup. This strategy also accords with the tenor of the FSA Retail DistributionReview. Finally, Lighthouse continues to generate cash, gross profits and EBITDA and IIook forward to reporting further positive progress in 2008. Malcolm Streatfield Chief Executive 10 March 2008 Group Income Statement for the year ended 31 December 2007 2007 2006 £ £ Revenue 52,941,313 47,159,671 Cost of sales (36,317,910) (31,458,272) Gross profit 16,623,403 15,701,399Administrative expenses Other operating expenses (14,166,971) (13,395,032)Earnings before interest, tax, depreciation, amortisationand exceptional items 2,456,432 2,306,367 Exceptional operating expenses (546,335) (1,519,375) Depreciation and amortisation (368,189) (272,088)Total administrative expenses (15,081,495) (15,186,495) Operating profit 1,541,908 514,904 Finance revenue 410,939 215,703Finance costs (55,835) (57,495) Profit before taxation 1,897,012 673,112Tax expense - - Profit for the year attributable to equity holders of the 1,897,012 673,112parent Basic earnings per share 2.58p 1.00p Diluted earnings per share 2.31p 0.89p Statement of Changes in Equity for the year ended 31 December 2007 Share Share Merger Special Reserves Profit and Total capital premium reserve undistributable arising from loss account reserve arising share based reserve from reduction payments in share premium £ £ £ £ £ £ £At 1 January 2007 752,669 15,713,946 2,002,685 - 1,934,008 (10,218,109) 10,185,199Issue of ordinary share 83,708 1,882,017 - - - - 1,965,725capitalTotal recognised incomeand expense for theyear - - - - - 1,897,012 1,897,012Share based payment - - - - 57,802 - 57,802Reduction in sharepremium account - (11,900,000) - 1,999,374 - 9,900,626 -At 31 December 2007 836,377 5,695,963 2,002,685 1,999,374 1,991,810 1,579,529 14,105,738 At 1 January 2006 751,402 15,713,946 2,002,685 - 377,815 (10,891,221) 7,954,627Issue of ordinary share 1,267 - - - - - 1,267capitalTotal recognised incomeand expense for theyear - - - - - 673,112 673,112Share based payment - - - - 1,556,193 - 1,556,193At 31 December 2006 752,669 15,713,946 2,002,685 - 1,934,008 (10,218,109) 10,185,199 Group Balance Sheet as at 31 December 2007 2007 2006 £ £ Assets Non current assetsIntangible assets 8,260,470 7,715,825Property, plant and equipment 363,962 485,217Investments - - 8,624,432 8,201,042 Current assets Trade and other receivables 8,271,976 9,629,692Cash and cash equivalents 8,953,784 6,799,888 17,225,760 16,429,580 Total assets 25,850,192 24,630,622 Current liabilities Trade and other payables 8,289,965 10,609,232 Contingent consideration - 552,480 Provisions 2,271,057 2,243,579 10,561,022 13,405,291 Non current liabilities Other payables - 1,341 Provisions 1,183,432 1,038,791 1,183,432 1,040,132 Total liabilities 11,744,454 14,445,423 Net assets 14,105,738 10,185,199 Capital and reserves Called up share capital 836,377 752,669Share premium account 5,695,963 15,713,946Merger reserve 2,002,685 2,002,685Special undistributable reserve 1,999,374 -Other reserves 1,991,810 1,934,008Profit and loss account 1,579,529 (10,218,109) Shareholders' equity 14,105,738 10,185,199 Consolidated Cash Flow Statement for the year ended 31 December 2007 2007 2006 £ £ Operating activities Group profit for the year 1,897,012 673,112 Adjustments to reconcile profit for the year to net cash(outflows)/inflows from operating activities Loss on disposal of property, plant and equipment 2,426 4,552Depreciation of property, plant and equipment 218,257 259,219Amortisation of intangible assets 149,932 12,869Share based payments 57,802 1,556,193Adjustment for net settlement of revenue against cost of asset (140,632) -purchaseDecrease/(increase) in trade and other receivables 1,348,341 (3,434,201)(Decrease)/increase in trade and other payables (2,320,607) 3,109,734 Movement in provisions 172,118 (142,286) Net cash flow from operating activities 1,384,649 2,039,192 Investing activities Payments to acquire intangible assets (63,775) (224,946)Purchase of property, plant and equipment (99,428) (116,711)Expenses associated with acquisitions (115,288) (13,724)Net cash outflow from investing activities (278,491) (355,381) Financing activities Proceeds from share issue 1,047,738 1,267Net cash flow from financing activities 1,047,738 1,267 Increase in cash and cash equivalents 2,153,896 1,685,078 Cash and cash equivalents at the beginning of the year 6,799,888 5,114,810 Cash and cash equivalents at the year end 8,953,784 6,799,888 Notes to the consolidated financial statements for the year ended 31 December2007 Basis of preparation This is the first year in which the Group has prepared its financial statementsunder IFRS and the comparatives have been restated from UK Generally AcceptedAccounting Practice (UK GAAP) to comply with IFRS. The Group issued a pressrelease on 17 August 2007 incorporating its preliminary IFRS financialstatements for 2006. The Group and Company financial statements are presented in Sterling exceptwhere stated otherwise. Earnings per ordinary share The calculation of earnings per share is based on the earnings attributable toordinary shareholders divided by the weighted average number of shares in issueduring the year, excluding shares held by the Trust. The calculation of diluted earnings per share is based on the basic earnings pershare, adjusted to allow for the issue of shares on the assumed conversion ofall dilutive options. There are options 591,168 (2006: 2,644,582) which couldpotentially dilute earnings per share in the future, but were not includedwithin the calculation of diluted loss per share as they were anti-dilutive forthe periods presented. Statutory financial statements The financial information set out in this announcement does not constitute theGroup statutory financial statements for the year ended 31 December 2007 or 31December 2006, but is derived from these financial statements. The statutoryfinancial statements for the Group for the year ended 31 December 2006 werereported on by the auditors without qualification and such reports did notcontain any statement under section 237(2) or (3) of the Companies Act 1985. Thefinancial statements for 2006 were delivered to the Registrar of Companies andthose for 2007 will be delivered in due course. This information is provided by RNS The company news service from the London Stock Exchange