Lighthouse Regulatory News (LGT)

RNS Number : 9090I

Lighthouse Group PLC

22 March 2010

 

 

 

Press Release

22 March 2010

 

Lighthouse Group plc

("Lighthouse" or "the Group")

 

Preliminary Results

Lighthouse Group plc (AIM:LGT), the national financial advisory group, today announces preliminary results for the year ended 31 December 2009.

Highlights

●	Revenue and gross profit up 12% to £60.7 million and £17.3 million (2008: £54.4 million and £15.4 million)
●	Recurring revenue increased by 7% to £16.4 million (2008: £15.3 million)
●	EBITDA up 95% to £1.08 million (2008: £553,000) before non recurring items of £Nil (2008: £981,000)
●	Gross cash balances up 9% to £13.4 million (2008: £12.3 million)
●	Basic earnings per share of 0.12p (2008: loss per share of 6.98p )
●	Total dividends for the year doubled to 0.4p per share (2008: 0.2p per share)
●	Successful integration of Godfrey Pearson business acquired in January 2009

Commenting on the results, David Hickey, Executive Chairman of Lighthouse Group plc, said: "The Board is pleased with the Group's strong performance during the year, against a challenging economic backdrop. In particular, we have improved profitability and added to our already significant cash resources. During the period we have also focused on improving the quality of earnings by further increasing recurring revenues.

"We are pursuing both organic growth through developing our affinity relationships, as well as continuing to assess acquisition opportunities. The Board is confident that the Group is well positioned in terms of both its financial and operational strength for the coming year."

 

For further information, please contact:

Lighthouse Group plc
David Hickey, Executive Chairman	Tel: +44 (0) 20 7065 5646
david.hickey@lighthousegroup.plc.uk
Peter Smith, Finance Director	Tel: +44(0)117 933 0754
peter.smith@lighthousegroup.plc.uk
Or:
Allan Rosengren, Joint Chief Executive	Tel: +44 (0) 117 929 1012
allan.rosengren@lighthousegroup.plc.uk
Malcolm Streatfield, Joint Chief Executive	Tel: +44 (0) 20 7065 5646
malcolm.streatfield@lighthousegroup.plc.uk
	www.lighthousegroup.plc.uk
Shore Capital and Corporate Limited	Tel: +44 (0) 20 7408 4090
(Nominated Adviser to the Company)
Dru Danford
Stephane Auton

 

Media enquiries:

Abchurch Communications
Heather Salmond	Tel: +44 (0) 20 7398 7704
heather.salmond@abchurch-group.com
Joanne Shears	Tel: +44 (0) 20 7398 7709
joanne.shears@abchurch-group.com	www.abchurch-group.com
Winningtons PR
Tom Cooper	Tel: +44(0)117 920 0092
tom.cooper@winningtons.co.uk	www.winningtons.co.uk

 

 

 

CHAIRMAN'S STATEMENT

I am pleased to report another period of significant progress for Lighthouse.

 

The reduction in stock market volatility and the relative lack of any further financial shocks saw IFA revenues commence a recovery during the second half of the year. The Group traded profitably, if modestly, throughout the period and its significant cash balances were further enhanced. At the headline level, 2009 saw improvements in revenues, gross profits and EBITDA, and recurring income also continued to rise. The acquisition of the Godfrey Pearson adviser base was completed and the business has since been integrated successfully. The reorganisation of the Company's reserves announced in the 2008 Annual Report was concluded satisfactorily and this facilitated the recommencement of dividend payments to shareholders. An interim dividend of 0.2p per share was paid in October, and a second interim dividend also of 0.2p per share, in lieu of the 2009 final, will be paid on 1 April 2010 to shareholders on the register on 5 March 2010.

 

In summary, these results should be regarded as a positive outcome against the background of the financial environment within which the Group operates.

 

Trading Highlights

	2009	2008
Revenue	£60.7 million	£54.4 million
Gross profit	£17.3 million	£15.4 million
Operating costs	£16.2 million	£14.9 million
EBITDA *	£1,081,000	£553,000
Profit/(loss) before taxation	£93,000	£(8,494,000)
Earnings/(loss) per share (basic)	0.12p	(6.98)p
Dividends per share **	0.4p	0.2p

 

*Earnings before interest, tax, depreciation, amortisation and non-recurring items.

**As declared in respect of the year.

 

Results

 

Revenues and gross profits rose in comparison with the corresponding period, each by 12 per cent. On a like for like basis (allowing for the effects of the merger with Sumus completed in May 2008, and the acquisition of LighthouseGP completed in January 2009) revenues and gross profits were down some 10 per cent. and 6 per cent. respectively. These declines were as a result of the significant reduction in retail investment business which followed the severe disruption to markets in the second half of 2008, the impact of which persisted during the first half of 2009.

 

Whilst the proportion of income derived from investment and retirement product sales remained broadly consistent with the previous year, that of mortgage related business decreased by half to less than 5 per cent. of Group revenues (from a previous level of over 9 per cent.) following the substantial downturn in the UK housing market.

 

Gross margin was relatively unchanged at 28.5 per cent, but rose from 27.3 per cent. on a like for like basis. This was as a result of the increased proportion of revenues within the Group's National business segment being sourced from new client leads supplied by the Group which generate higher gross margins. While operating costs rose by £1.3 million to £16.2 million for the year, there was a £1.6 million reduction on a like for like basis, reflecting the Group's determination to manage the cost base in line with overall activity levels.

 

EBITDA (earnings before interest, tax, depreciation, amortisation and non-recurring items), which broadly reflects cash profits, increased by 95 per cent. to £1.08 million, and rose by 99 per cent. on a like for like basis.

 

Profit before taxation for the year, after depreciation and amortisation charges of £941,000 (2008: £856,000), was £93,000 (2008: loss of £8,494,000 after impairment charges)..

 

Balance Sheet

 

Cash balances rose by £1.1 million to £13.4 million net of dividends (£255,000), corporation tax (£152,000) and the absorption of the Godfrey Pearson business (£180,000). The Group continues to have no bank debt and retains a five year trading facility of £4.5 million which has no financial performance covenants and is repayable in six monthly instalments between 2010 and 2012 from recurring revenues owned by the Group.

 

Your Board continues to believe that financial strength is an essential prerequisite to IFA operations and is in the interest of shareholders, advisers and customers, and remains determined to preserve the current robust and liquid balance sheet.

 

Recurring Income

 

The Board remains focused on improving further the visibility of income, and places considerable emphasis on recurring revenue. Typically this comprises regular income derived from client investments and other products placed on their behalf. During the year gross recurring revenues rose to £16.4 million from £15.3 million and these now represent approximately 27 per cent. of all Group revenues. The Board will continue to focus on increasing the proportion of revenues derived from such sources.

 

Dividends

 

Earlier this year your Board announced a second interim dividend of 0.2p per share in lieu of a final dividend for 2009. Together with the interim dividend, also of 0.2p per share, which included 0.1p in respect of the year ended 31 December 2008 and which was paid in October last year, this makes total dividends payable in respect of 2009 of 0.4p per share. Going forward, and subject to satisfactory trading, the Board plans to continue its progressive dividend policy.

 

Market Positioning

 

The Group's Network business segment provides services to two thirds of the Group's IFAs through a number of offerings designed primarily to assist their back office operations, to provide professional indemnity insurance for them, and to assist them in complying with IFA regulations. The Network segment produces less than half of the Group's profits from approximately two thirds of the Group's revenues.

 

The National segment enhances these back office services and adds new client procurement, branding and adviser mentoring. The client procurement capability is growing in importance as a differentiator and the Group is seeing increasing demand from existing and new advisers. Accordingly much emphasis is now being placed on developing further the Group's connections with major employee and other affinity groups, many of which require financial advice for their employees and members. The Group announced in March 2010 that, following a competitive interview process, it had been exclusively contracted to advise employees of the Royal Mint regarding changes to their pension arrangements, and other personal financial matters. This announcement is indicative of a number of similar arrangements already in place with other entities, and the Group expects additional contract wins of this nature in the future.

 

The attractions of such business include fees for individual meetings paid by the entity rather than the individual and invariably result in a growing base of professional and affinity relationship based clients from which typically recurring business and revenues are derived.

 

It is a strategic objective that affinity driven business will form a greater proportion of the Group's activity levels in the future. The complementary nature of affinity relationships ensures that employers and association leaders are able to provide well qualified services for their employees and members while the Lighthouse Group achieves client access, scale and efficiency in securing new business.

 

Lighthouse is a leading player in the affinity space and is driving its effort to maximise the opportunity in the ever changing advisory market.

 

Retail Distribution Implementation Programme ("RDIP")

 

The FSA continues to consult with the industry whilst it prepares to issue its definitive proposals under the RDIP (formerly the Retail Distribution Review or RDR) with the finalised requirements due to be published by the end of March 2010. No material changes are expected to the main themes, which remain further clarification of advisory services offered to customers, increased client orientation of remuneration to be paid to, and raised professional qualifications of, advisers. The implementation deadline is currently set for the beginning of 2013.

 

Empowerment of clients could result in a reduction in adviser remuneration per case. This is likely to be balanced by advisers seeking to increase their client numbers, and streamlining their procedures. In anticipation of this, and as described earlier in this statement, the Group has been growing its client sourcing activities, especially for those businesses within its National segment, and will continue to expand this capability for new and existing Group advisers.

 

At the same time the Group has been assisting its advisers to prepare for the expected new professional qualification requirement. Currently, approximately 20 per cent. of the Group's advisers are sufficiently qualified, or close to it, while a further 60 per cent. have embarked on courses designed to secure the qualifications within the expected timescales, and the remaining 20 per cent. are considering whether to qualify, and if not, how they might otherwise operate their business in the post RDIP world. The Group will continue to work closely with all of its advisers to assist their transformation.

 

Your Board believes that in this new environment, the larger IFA groups with greater client procurement capabilities, clarity of adviser offerings to clients, resources available to meet the proposed increases in capital adequacy requirements for smaller firms and the scale to offer a choice of status to advisers, will benefit considerably.

 

Strategy and Prospects

 

 With some two thirds of retail financial products passing through the IFA channel, the sector continues to have both scale and critical importance. Within the sector however it remains difficult to see how the majority of small firms will be able to embrace increased regulatory scrutiny and secure access to manufactured products on an economic basis, all the while providing a consistent and professional service to clients. Larger firms such as Lighthouse are consequently expected to gain distribution market share.

 

Specifically the Group already has a significant number of strong relationships with a growing number of client groupings, and this affinity business is expected to be an increasing source of new clients and of recurring revenues in the future. The Group is placing considerable emphasis on this route to market and sees it as a major differentiator for the future.

 

In parallel with organic growth the Group actively reviews potential acquisitions. However, very few that your Board has examined during the course of 2009 and to date in 2010 have been acceptable from risk or valuation viewpoints.

 

In the meantime at the trading level, the recovery seen in the second half of last year has continued steadily into the current year and the Group has continued to trade in line with expectations. Accordingly the Board looks forward to reporting further progress for the current year.

Finally, I would like to express my thanks to our advisers for their professionalism and loyalty to the Group, and to all my fellow employees and directors, for their contributions during the year.

 

David Hickey

Executive Chairman

 

22 March 2010

Lighthouse Group plc Consolidated Statement of Comprehensive Income for the year ended 31 December 2009

 

	Note		2009   £'000	2008   £'000
Revenue	3		60,738	54,393
Cost of sales			(43,425)	(38,958)
Gross profit			17,313	15,435
Administrative expenses
Other operating expenses			(16,232)	(14,882)
Earnings before interest, tax, depreciation, amortisation and non recurring items			1,081	553
Non recurring operating expenses	5		-	(981)
Total operating expenses			(16,232)	(15,863)
Impairment charge on goodwill and intangibles	10		-	(7,572)
Depreciation and amortisation	5		(941)	(856)
Total administrative expenses			(17,173)	(24,291)
Operating profit/(loss)	5		140	(8,856)
Finance revenue	6		70	575
Finance costs	6		(117)	(213)
Profit/(loss) before taxation			93	(8,494)
Tax credit	7		124	721
Profit/(loss) for the year			217	(7,773)
Other comprehensive income:
Gain/(diminution) in fair value of available for sale financial asset	12		21	(18)
Total comprehensive income for the year			238	(7,791
Profit/(loss) for the year attributable to:
Equity holders of the parent			154	(7,844)
Non-controlling interest			63	71
			217	(7,773)
Total comprehensive income attributable to:
Equity holders of the parent			175	(7,862)
Non-controlling interest			63	71
			238	(7,791)
Basic earnings/(loss) per share	8		0.12p	(6.98)p
Diluted earnings/(loss) per share	8		0.11p	(6.98)p

 

All activities are classed as continuing.

 

The attached notes form an integral part of this preliminary financial information.

Lighthouse Group plc

Consolidated Statements of Changes in Equity for the year ended 31 December 2009

	Share capital	Share premium account	Merger reserve	Special non distributable reserve arising from reduction in share premium	Reserves arising from share based payments	Retained earnings	Total attributable to equity shareholders	Non-controlling interest	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2009	1,277	5,696	2,785	1,999	2,169	(1,271)	12,655	107	12,762
Profit for the year	-	-	-	-	-	154	154	63	217
Increase in fair value of available-for-sale financial asset (note 12)	-	-	-	-	-	21	21	-	21
Total comprehensive income for the year	-	-	-	-	-	175	175	63	238
Transfer on irrevocable appointment of shares previously held within the EBT (note 20, 21)	-	-	-	-	(1,471)	1,471	-	-	-
Bonus issue (note 21)	3,301	-	-	(3,301)	-	-	-	-	-
Cancellation of bonus issue shares (note 21)	(3,301)	-	-	-	-	3,301	-	-	-
Re-balancing of merger reserve (note 21)	-	-	-	516	-	(516)	-	-	-
Reduction in share premium account (note 21)	-	(5,696)	-	-	-	5,696	-	-	-
Share based payment	-	-	-	-	176	-	176	-	176
Dividends paid	-	-	-	-	-	(255)	(255)	(80)	(335)
At 31 December 2009	1,277	-	-	1,999	874	8,601	12,751	90	12,841
At 1 January 2008	836	5,696	2,002	1,999	1,992	112	12,636	-	12,636
Issue of ordinary share capital	441	-	8,355	-	-	-	8,796	-	8,796
Acquired with Sumus Limited	-	-	-	-	-	-	-	116	116
Loss for the year	-	-	-	-	-	(7,844)	(7,844)	71	(7,773)
Diminution in fair value of available-for-sale financial asset (note 12)	-	-	-	-	-	(18)	(18)	-	(18)
Total comprehensive loss for the year	-	-	-	-	-	(7,862)	(7,862)	71	(7,791)
Transfer on impairment	-	-	(7,572)	-	-	7,572	-	-	-
Share based payment	-	-	-	-	177	-	177	-	177
Dividends paid	-	-	-	-	-	(1,092)	(1,092)	(80)	(1,172)
At 31 December 2008	1,277	5,696	2,785	1,999	2,169	(1,271)	12,655	107	12,762

The attached notes form an integral part of this preliminary financial information.

Lighthouse Group plc

Consolidated Statement of Financial Position at 31 December 2009

 

	Note	2009 £'000	2008 £'000
Assets Non current assets
Intangible assets	10	12,034	12,013
Property, plant and equipment	11	274	339
Available for sale Investments	12	120	99
		12,428	12,451
Current assets
Trade and other receivables	14	8,274	5,075
Cash and cash equivalents	15	13,353	12,289
		21,627	17,364
Total assets		34,055	29,815
Current liabilities
Trade and other payables	16	10,515	8,173
Provisions	17	2,811	1,866
		13,326	10,039
Non current liabilities
Trade and other payables	16	2,856	4,500
Deferred tax liabilities	7	1,585	1,642
Provisions	17	3,447	872
		7,888	7,014
Total liabilities		21,214	17,053
Net assets		12,841	12,762
Capital and reserves
Called up share capital	19	1,277	1,277
Share premium account		-	5,696
Merger reserve		-	2,785
Special non distributable reserve		1,999	1,999
Other reserves - share based payments		837	2,169
Retained earnings	21	8,638	(1,271)
Total equity attributable to equity holders of the Company		12,751	12,655
Non-controlling interest		90	107
Total equity		12,841	12,762

 

The attached notes form an integral part of this preliminary financial information.

 Company registered number 04042743

Lighthouse Group plc

Consolidated Statement of Cash Flows for the year ended 31 December 2009

 

	Note	2009 £'000	2008 £'000
Operating activities
Group profit/(loss) before tax for the year		93	(8,494)
Adjustments to reconcile profit for the year to net cash inflows/(outflows) from operating activities
Finance revenues		(70)	(575)
Finance costs		117	213
Loss on disposal of property, plant and equipment		5	-
Depreciation of property, plant and equipment		168	201
Amortisation of intangible assets		773	656
Impairment of intangible assets		-	7,572
Share based payments		176	177
(Increase)/decrease in trade and other receivables		(3,028)	4,233
Increase/(decrease) in trade and other payables		93	(3,999)
Movement in provisions		3,520	(1,568)
Cash generated from/(utilised by) operations		1,847	(1,584)
Finance costs paid		(127)	(196)
Income taxes paid		(150)	(316)
Net cash inflow/(outflow) from operating activities		1,570	(2,096)
Investing activities
Payments to acquire trade and certain assets under business combination (2008: to acquire intangible assets)	13	(180)	(61)
Purchase of property, plant and equipment		(61)	(98)
Proceeds from sale of fixed assets		-	1
Finance revenues received		70	575
Net inflow associated with acquisition of subsidiary undertakings		-	2,123
Net cash (outflow)/ inflow from investing activities		(171)	2,540
Financing activities
Proceeds from share issue		-	1
Expenses associated with issue of share capital		-	(438)
Proceeds from new trade facility		-	4,500
Dividends paid to equity shareholders		(255)	(1,092)
Dividends paid to non-controlling interest		(80)	(80)
Net cash (outflow)/inflow from financing activities		(335)	2,891
Increase in cash and cash equivalents		1,064	3,335
Cash and cash equivalents at the beginning of the year		12,289	8,954
Cash and cash equivalents at the year end	15	13,353	12,289

 

The attached notes form an integral part of this preliminary financial information.

 

Lighthouse Group plc

Notes to the preliminary financial information for the year ended 31 December 2009

Basis of preparation

The preliminary 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 of the Group together with the related explanatory notes has been prepared on the basis of the accounting policies which follow and which set out the material policies which have been applied in preparing the financial statements of the Group for the year ended 31 December 2009. The Group's financial statements are presented in Sterling.

Non statutory accounts

The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 December 2009 or 2008, but is derived from those financial statements. Statutory financial statements for 2008 have been delivered to the registrar of companies, and those for 2009 will be delivered in due course. The auditors have reported on those statements; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 in respect of the accounts for 2008 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2009.

1.	Authorisation of financial statements and statement of compliance with IFRS

 

The Group financial statement of Lighthouse Group plc for the year ended 31 December 2009 were authorised for issue by the board of directors on 22 March 2010 and the Statement of Financial Position was signed on the Board's behalf by David Hickey and Peter Smith. Lighthouse Group plc is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are traded on the London Alternative Investment Market.

 

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted for use in the European Union and as applied in accordance with the provisions of the Companies Act 2006. The principal accounting policies adopted by the group and by the company are set out in note 2.

 

2.	Accounting policies

 

Basis of preparation

The accounting policies which follow set out the material policies which have been applied in preparing the financial statements of the Group for the year ended 31 December 2009. The Group financial statements are presented in sterling.

 

Standards and interpretations effective in 2009

The following changes in financial reporting and accounting standards have come into effect in 2009:

●	IFRS8, Operating Segments, has replaced IAS14, Segmental reporting. The new standard requires a management approach, under which segmental information is presented on the same basis as that used for internal reporting purposes. Further details are provided under the accounting policy for "Segmental Reporting" set out below.
●	Amendment to IFRS7 - Improving disclosures about Financial Instruments, was issued in March 2009 and was effective from 1 January 2009. This amendment requires enhanced disclosures about fair value measurements and liquidity risk but given the relatively few and unsophisticated financial instruments used by the Group, this has not had a material impact on the disclosures set out in the financial statements and had no impact on reported profits or earnings per share.
●	IAS1 (Revised), Presentation of Financial Statements, was effective from 1 January 2009. The revised standard prohibits the presentation of income and expense comprising "non-owner changes in equity" in the Statement of Changes in Equity and requires non-owner changes in equity to be presented separately from owner changes in equity in the Statement of Comprehensive Income (previously the Income Statement). As a result all owner changes in equity are now presented in the Consolidated Statement of Changes in Equity, whereas all non-owner changes in equity are presented in the Consolidated Statement of Comprehensive Income. Other than the re-designation of the Consolidated Income Statement described above, the revised standard had no material impact on the financial statements.
●	Amendment to IFRS2, Share based payment, in respect of vesting conditions was effective from 1 January 2009 and stipulates that only service and performance conditions are classified as vesting conditions. Other features of a share based payment are not vesting conditions and consequently a failure to achieve the latter will not give rise to a reversal of amounts previously charged to profit but will instead be treated as a cancellation and will result in either an acceleration of the expected charge or a continuation of the charge over the remaining vesting period, depending upon whether the condition is under the control of the entity or the counterparty. As there have been no such instances to date, the new standard will have no impact on the financial statements.

 

 

Critical estimates and assumptions

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

 

Information about significant areas of uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is as set out below or is included in the following notes:

 

●	going concern - see below
●	identification of principal reportable operating segments - see below and note 3
●	utilisation of tax losses - note 7
●	measurement of the recoverable amounts of cash-generating units containing goodwill and intangible assets - note 10
●	accounting for business combinations - note 13
●	measurement of the recoverable amount of trade receivables - note 14
●	measurement of potential clawbacks and complaints by customers - notes 14 and 17
●	valuation of financial instruments - see below
●	measurement of share based payments - note 20

 

Lapse provision

In the event of a clawback of indemnity commission in respect of policies cancelled during the indemnity period the Group has an obligation to settle the liability. The provision is calculated by reference to historical data resulting from past claims, referenced to present day sales of indemnity products. An amount relating to the recoverable adviser element of the provision is included within debtors.

 

Complaints provision

The Group has an obligation to settle upheld complaints. Any complaint is recorded and assessed as to its validity and financial quantum. Cases where there is a 50% or greater likelihood of redress are provided for in full. Save for the excess, which is recoverable from the adviser, the amount payable in redress is recoverable from Professional Insurance cover. The Group's exposure is therefore limited to recovering the excess from the adviser. Recoverability is assessed on an adviser by adviser basis and provision made where necessary.

 

Bad debt provision

A small number of advisers are indebted to the Group. This debt ordinarily arises from clawbacks or complaint insurance excesses applied to the adviser's account. Each one of these is reviewed regularly in conjunction with the amounts retained from advisers to cover potential clawbacks and provision made where recovery is deemed necessary.

 

Goodwill and intangible assets

Following initial recognition, goodwill and intangible assets are included at cost less any accumulated impairment losses.

 

Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Intangible assets are reviewed for impairment only when the associated impairment indicators have in the opinion of the Board been triggered during the period under review.

 

Any impairment is allocated first against goodwill and thereafter against intangibles.

 

For the purposes of impairment testing, goodwill and intangible assets are allocated to the related cash-generating units monitored by management. Where the recoverable amount of the cash-generating unit is less than its carrying amount, including goodwill, an impairment loss is recognised in the Consolidated Statement of Comprehensive Income.

 

Basis of consolidation

 

The consolidated financial statements comprise the financial statements of Lighthouse Group plc and its subsidiaries as at 31 December each year or for the financial year ended on that date.

 

Subsidiaries are consolidated from the date of acquisition when the Group obtains control and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting year during which the Group has control. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement.

 

All intra group balances and transactions, income and expenses and profit and losses from intra-group transactions, are eliminated in full.

Going concern

 

The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Business Reviews contained within the Chairman's Statement, Joint Chief Executives' Review and the Report of the Directors within the Annual Report. The financial position of the Group, its cash flows and its liquidity position are described in the Financial Commentary section of the Joint Chief Executives' Review. In addition note 19 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to credit risk and liquidity risk.

 

The Group has considerable financial resources with £13 million of cash at bank and no bank debt or other financial liabilities with any restrictive or financial covenants and has long established relationship with its clients, advisers and providers. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

 

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

 

Revenue recognition

 

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

 

Revenue is measured at the fair value of the consideration received, is stated net of value added tax and is earned within the United Kingdom as commissions, fees and administration charges.

 

Commission income comprises commissions receivable on inception of a new policy or investment product ('initial commissions') and commission receivable on renewal ('renewal commissions').

 

Initial commissions are recognised when the policy goes on risk after taking account of provisions for the potential cancellation of policies where commission is received under indemnity terms. Renewal commissions are recognised when received.

 

Fees for financial advice, administration charges and other services are recognised as the services are provided.

Interest income represents bank interest receivable on the Group's cash balances and is recognised as it is earned over the term of the deposit.

 

Segmental reporting

The Group previously reported segment information under IAS 14, Segmental Reporting, which required it to identify its primary and secondary operating segments and provide segmental information accordingly. However there was an exemption available under IAS 14 whereby entities did not have to give such segment information if they had only one primary operating segment or where the provision of such analysis could be regarded as being commercially disadvantageous.

 

IFRS 8, Operating Segments, which superseded IAS 14 during the year, is applicable to financial statements prepared in respect of accounting periods beginning on or after 1 January 2009 and requires as its Core Principle that an entity should disclose in its financial statements segment information in respect of its operations that enables users of those financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environment in which the entity operates.

 

Under the management approach introduced by IFRS 8, segment disclosures are required to be based on the components of the Group that management monitors in making decisions about operating matters including evaluation of performance and allocation of capital amongst other factors.

 

Operating segments are identified on the basis of internal reports that the Group's Chief Operating Decision Maker ("CODM") reviews regularly in allocating resources to segments and in assessing their performance. The Board of Lighthouse Group plc considers itself to be the CODM for the Group as it is the highest level of management at which performance is evaluated and resources allocated.

 

To be identified as an operating segment a business component must engage in business activities from which it earns revenue and incurs expenses (including those resulting from transactions with other group components), its operating results must be reviewed by the Group's CODM regularly and discrete financial information in respect of the component must be readily available.

 

An operating segment is reported separately if its reported revenue (including inter-segment transfers) is equal to or exceeds 10% of the combined revenue (internal and external) of all operating segments, if its reported profit or loss is equal to or exceeds 10% of the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that reported a loss or its assets are equal to or exceed 10% of the combined assets of all reporting segments. All of these criteria are before eliminating intra-segment transactions and balances and are as reported to the CODM.

 

Operating segments are aggregated only where such treatment would be in line with the Core Principle set out above, the segments have similar economic characteristics (including but not limited to long term gross margins and other key performance indicators) and the type or class of customer, distribution and the regulatory environment are likewise similar.

 

As required by IFRS 8, at least 75% of consolidated external revenues reported by operating segments are identified as reportable segments, even if the sum of the revenues generated by segments otherwise identified as being reportable is less than this amount.

Subject to the above, segments that fall below or outside the recognition criteria set out above are aggregated and reported as "other segments"

 

The results of business activities which do not meet the definition of an operating segment e.g. head office and other corporate activities which cannot be allocated to individual reporting segments and which do not generate revenues, whether external or internal, are not reported as such, rather the financial information in respect of such activities are reported in the reconciliation between the IFRS 8 segment information and that set out in the primary financial statements.

 

Interest revenue and expense, depreciation and amortisation and income tax revenue or expense are not allocated to reportable segments as they are not reported as such to the CODM and they are not inherent in the measures of segment profit or loss used by the CODM. The measurement of segment profit that is reviewed by the CODM is Earnings before interest, tax depreciation amortisation and non-recurring items (EBITDA).

 

Business combinations and goodwill

 

Goodwill recognised under UK GAAP prior to the date of transition to IFRS is stated at net book value as at the transition date. Business combinations after 1 January 2006 are accounted for under IFRS 3 using the purchase method. Any excess of the cost of a business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised in the Consolidated Balance Sheet as goodwill. Goodwill at the transition date and any that arises on acquisitions is not amortised. To the extent that the net fair value of the acquired entity's identifiable assets, liabilities and contingent liabilities is greater than the cost of the investment, a gain is recognised immediately in the Consolidated Statement of Comprehensive Income.

 

The carrying amount of goodwill allocated to a cash-generating unit is taken into account when determining the gain or loss on disposal of the unit, or an operation within it.

 

Intangible assets

 

Intangible assets acquired separately are recognised and initially measured at cost and those identified in a business combination are recognised at fair value as at the date of acquisition. An intangible asset acquired as part of a business combination is recognised separately from goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated impairment losses.

 

Intangibles with a finite life have no residual value and are amortised on a straight line basis over their expected useful lives as follows:

 

Commissions processing software and development	5 years
Acquired customer relationships	9-13 years
Acquired Appointed Representative contracts	10-13 years

 

Intangible assets are tested for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

 

Property, plant and equipment

 

Property, plant and equipment is stated at cost less any accumulated depreciation and any impairment in value. Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended. Depreciation is calculated to write off the cost of the asset over its estimated useful life to its residual value based on prices prevailing at the balance sheet date, on a straight-line basis as follows:

 

Leasehold improvements	Lower of life of lease or 10 years
Office equipment	5 - 10 years
Computer equipment	3 years
Motor vehicles	4 years

 

All property, plant and equipment is reviewed for impairment when there are indications that the carrying value may not be recoverable. If there is evidence of impairment then the asset is written down to its recoverable amount. Any depreciation or impairment is charged in the Statement of Comprehensive Income as an expense. Useful lives and residual values are reviewed annually.

 

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is included in the Statement of Comprehensive Income in the period of derecognition.

 

Impairment of assets

 

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists or when annual impairment testing for an asset is required, the Group makes a formal estimate of the asset's recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset or cash generating unit (CGU), unless the asset or CGU does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a post tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Impairment losses on continuing operations are recognised in the Consolidated Statement of Comprehensive Income in the expense categories consistent with the function of the impaired asset.

 

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Consolidated Statement of Comprehensive Income unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. Impairment losses recognised in relation to goodwill are not reversed for subsequent increases in its recoverable amount.

 

Financial instruments

 

Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

 

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit and loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

 

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement.

 

Accounting for finance income and expenses is discussed in notes 3 and 6.

 

Available-for-sale financial assets

The Group's investment in a certain debt security is classified as an available-for-sale financial asset. Subsequent to initial recognition, such assets are recognised at fair value and changes therein, other than impairment losses, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss on equity is transferred to profit and loss.

 

Other non derivative financial instruments

Other non derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses.

 

Share capital - ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

 

Provisions

 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, expected future cashflows are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.

 

Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance policy, the reimbursement is recognised as a separate asset but only when recovery is virtually certain. The expense relating to any provision is presented in the Statement of Comprehensive Income net of any reimbursement. Where discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost.

 

The provision for clawback of indemnity commission represents the expected value of commissions potentially reclaimable by product providers in respect of policies cancelled during the indemnity period based on past experience of such claims. An amount relating to the element of clawbacks recoverable from advisers is included within debtors.

 

Pension schemes

 

The Group maintains a number of defined contribution schemes and contributions are charged to the Statement of Comprehensive Income in the year in which they are due.

 

Finance income and expenses

 

Finance income comprises interest income on funds invested (including available-for-sale financial assets) and gains on disposal of available-for-sale financial assets. Interest income is recognised as it accrues in the Statement of Comprehensive Income, using the effective interest method.

 

Finance expenses comprise interest expense on borrowings and other financial liabilities (such as trade facilities) and impairment losses recognised on financial assets. All borrowing costs and related finance expenses are recognised in the Statement of Comprehensive Income using the effective interest method.

 

Income tax

 

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the Statement of Comprehensive Income except where it relates to an item recognised directly in equity, in which case the related tax is also recognised directly in equity.

 

Current tax is the expected tax payable on the taxable income for the year, using rates enacted or substantively enacted at the balance sheet date, and any adjustments to tax payable in respect of previous years.

 

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. For the purposes of this policy intangible assets arising as a result of a business combination is treated as a temporary difference and deferred tax provided accordingly.

 

Deferred tax is not recognised for the following temporary differences:

 

●	Where the deferred tax liability arises from the initial recognition of goodwill;
●	Where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss; and
●	In respect of taxable temporary differences associated with investments in subsidiaries, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

 

Deferred income tax assets (including unutilised tax losses carried forward) are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

 

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

 

Non recurring items

 

The Group presents as non recurring items within the relevant income or expenditure category on the face of the Statement of Comprehensive Income, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in financial performance.

 

Development costs

 

Development expenditure on an individual project is recognised as an intangible asset when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure during development.

 

Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. During the period of development, the asset is tested for impairment annually.

 

Share based payments

 

In accordance with IFRS 2, the cost of equity settled transactions with employees is measured by reference to the fair value at the date which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing equity settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the company.

 

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

 

At each Balance Sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions and of the number of equity instruments that will ultimately vest or in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in cumulative expense since the previous balance sheet date is recognised in the Statement of Comprehensive Income, with a corresponding entry in equity.

 

In accordance with IFRS 2, where the terms of equity settled awards are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both measured on the date of modification. No reduction is recognised if this difference is negative.

 

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the Statement of Comprehensive Income for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the Statement of Comprehensive Income.

 

Any failures to satisfy conditions other than vesting conditions (which are restricted to service and performance conditions only) are now to be classed as cancellations and treated in accordance with the treatment set out above.

 

The Group has taken advantage of the transitional provisions of IFRS 2 in respect of equity settled awards so as to apply IFRS 2 only to those equity settled awards granted after 7 November 2002 that had not vested before 1 January 2006.

 

Leases

 

Leases where the lessor retains a significant portion of the risks and benefits of ownership of the asset are classified as operating leases and rentals payable are charged in the Statement of Comprehensive Income on a straight line basis over the lease term.

 

Assets held under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease, with a corresponding liability being recognised for the lower of the fair value of the leased asset and the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the lease liability and finance charges in the Statement of Comprehensive Income so as to achieve a constant rate of interest on the remaining balance of the liability. Assets held under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

 

Standards, amendments and interpretations to existing standards that are not yet effective or have not been early adopted by the Group

 

The following standards, interpretations and amendments to existing standards have been released by the IASB and IFRIC. The effective dates stated here are those given in the original IASB/IFRIC standards and interpretations. As the Group and the Company prepare their financial statements in accordance with IFRS as adopted by the European Union, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement Mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to early adopt standards. The standards and interpretations shown below are awaiting endorsement and cannot be early adopted by the Group:

 

International Accounting Standards (IAS / IFRS)		Effective date
IAS 24 revised	Related party Disclosures	1 January 2011
IFRS 9	Financial Instruments	1 January 2013

 

The following standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2010 or later periods, but the Group has not early adopted them:

 

International Accounting Standards (IAS / IFRS)		Effective date
IFRS 3 revised	Business Combinations	1 July 2009
IAS 27	Consolidated and Separate Financial Statements	1 July 2009
IAS 39	Financial Instruments: Recognition and Measurement: Eligible Hedged Items	1 July 2009

 

The Group does not anticipate early adoption of the revised IFRS 3 and so will apply it prospectively to all business combinations on or after 1 July 2009. Whilst it is not possible to estimate the outcome of adoption, the key features of the revised IFRS 3 include a requirement for acquisition-related costs to be expensed and not included in the purchase price, and for contingent consideration to be recognised at fair value on the acquisition date (with subsequent changes recognised in the Statement of Comprehensive Income and not as a change to goodwill).

 

The Directors do not anticipate that the adoption of the remaining standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

 

3.	Revenue and segment reporting

 

The revenue and profit/(loss) before taxation are wholly attributable to the principal activity of the Group and relate to services provided in the United Kingdom. All of the Group's principal segments distribute similar financial products and there is no geographical basis to differentiate any particular segments.

 

The Board, as the Chief Operating Decision Maker of the Group, has identified two business components as comprising reportable operating segments as defined in IFRS 8, being National and Network operations. The measurement of segment profit that is reviewed by the CODM is Earnings Before Interest, Tax, Depreciation and Amortisation ("EBITDA") before non-recurring items.

 

Whilst the two segments distribute similar retail financial products to similar client populations within and across the UK, those advisers within the National business component are provided with more business support in terms of seminar activity, affinity relationships and other forms of lead generation and are typically registered individuals more closely managed and mentored by group management. The amounts retained by the Group to provide such support are accordingly greater than in the Network segment, which typically comprises business written by advisers that do not require such levels of support.

 

Inter-segment transactions are accounted for at current market prices as if the transactions were with third parties.

Segment information is as follows:

	National		Network		Other segments	Total
Year ended 31 December 2009	£'000		£'000		£'000	£'000
Total revenues	18,912		60,342		786	80,040
Less inter-segment revenues	-		(19,302)		-	(19,302)
External revenues	18,912		41,040		786	60,738
Cost of sales and other operating expenses	17,275		39,984		2,398	59,657
Earnings before interest, tax, depreciation and amortisation	1,637		1,056		(1,612)	1,081
Non recurring operating expenses						-
Depreciation and amortisation						(941)
Impairment charge on goodwill and intangibles						-
Operating profit						140
Finance revenues						70
Finance costs						(117)
Profit for the year						93
		National		Network	Other segments	Total
Year ended 31 December 2008		£'000		£'000	£'000	£'000
Total revenues		17,569		54,754	667	72,990
Less inter-segment revenues		-		(18,597)	-	(18,597)
External revenues		17,569		36,157	667	54,393
Cost of sales and other operating expenses		16,333		35,365	2,142	53,840
Earnings before interest, tax, depreciation and amortisation		1,236		792	(1,475)	553
Non recurring operating expenses						(981)
Depreciation and amortisation						(856)
Impairment charge on goodwill and intangibles						(7,572)
Operating loss						(8,856)
Finance revenues						575
Finance costs						(213)
Loss for the year						(8,494)

 

Segment assets and liabilities are as follows:

	2009	2008
	£'000	£'000
Segment assets
National	7,305	6,222
Network	29,682	24,958
Other segments and unallocated	17,038	18,075
Total assets including inter segment	54,025	49,255
Inter segment assets	(19,970)	(19,440)
Total assets per financial statements	34,055	29,815
Segment liabilities
National	8,943	8,076
Network	16,760	12,891
Other segments and unallocated	15,481	15,526
Total liabilities including inter segment	41,184	36,493
Inter segment liabilities	(19,970)	(19,440)
Total liabilities per financial statements	21,214	17,053

 

4.	Directors' emoluments and staff costs

 

The staff costs for the year, including executive directors' remuneration, were as follows:

	2009 £'000	2008 £'000
Wages and salaries- advisers	1,530	1,686
Wages and salaries- other staff	6,053	5,969
Share based payment	176	177
Social security costs	873	859
Other pension costs	188	176
	8,820	8,867
The average monthly number of employees during the year was as follows:	Number	Number
Executive directors	4	5
Administration staff	215	214
	219	219

Directors	2009 £'000	2008 £'000
Base remuneration (including bonus)	768	985
Value of shares irrevocably appointed from EBT	578	-
	1,346	985
Compensation for loss of office	-	392
Company contributions to money purchase pension schemes	18	12
	1,364	1,389
Highest paid director
Base remuneration (including bonus)	174	231
Value of shares irrevocably appointed from EBT	404	-
	578	231
Company contributions to money purchase pension schemes	-	-
	578	231

None of the directors exercised any share options during the year (2008: none).

 

5.	Group operating profit/(loss)

 

The operating profit/(loss) is stated after charging:

	2009 £'000	2008 £'000
Depreciation of property, plant and equipment - owned	168	200
Amortisation of intangible assets	773	656
Impairment of goodwill and intangible assets	-	7,572
Leasehold property - lease payments	571	440
Increase in debt provision	142	149
Hire of equipment under operating leases	61	52
Non recurring operating expenses (see below)	-	981

 

 

Auditors' remuneration

During the year the Group obtained the following services from the Group's auditor as detailed below:

	2009 £'000	2008 £'000
Audit of the financial statements	43	43
Other fees to auditors:
Local statutory audits for subsidiaries	63	62
Other fees to auditor -Taxation services	19	20
Other fees to auditor - Regulatory services	6	6
Other services	17	17
	148	148

 

Non recurring operating expenses

 

	2009	2008
	£'000	£'000
Re-organisation costs subsequent to business combination	-	981
	-	981

 

6.	Finance revenue and expense

 

	2009 £'000	2008 £'000
Revenue - Bank interest earned on the Group's bank deposits	70	575
Expense - Finance expense on short term funding	(46)	(49)
Expense - Interest on trade facility	(71)	(164)
Total expense	(117)	(213)

 

 

7.

Taxation

 

(a) Analysis of charge in year
					2009		2008
					£'000		£'000
Current tax:
UK corporation tax charge at 28% (2008 28.5%)					23		79
Deferred tax credit					(147)		(800)
Tax credit on loss on ordinary activities					(124)		(721)
(b) Reconciliation of the total tax charge
The tax assessed for the year is different to the standard rate of corporation tax in the
UK. The difference is explained below:
					2009		2008
					£'000		£'000
Profit/(loss) on ordinary activities before tax					93		(8,494)
Profit/(loss) on ordinary activities multiplied by standard rate
of corporation tax in the UK of 28% (2008: 28.5%)					26		(2,421)
Effects of:
Provisions for impairment not deductible for tax purposes					-		1,475
Share based payment charge not deductible for tax purposes					49		50
Expenses not deductible for tax purposes					21		31
IFRS 2 charge re EBT allocation					(193)		-
Capital allowances for year in excess of depreciation					(7)		(12)
Other permanent differences					21		(19)
Brought forward tax losses utilised					(311)		(450)
Current year losses not relieved					270		608
Differences in rates					-		17
Tax credit for year					(124)		(721)

   

(c).	Deferred tax

  The deferred tax balances can be analysed as follows:

	2009		2008
	Provided	Unprovided	Provided	Unprovided
	£'000	£'000	£'000	£'000
Difference between accumulated depreciation and capital allowances	-	(34)	-	(3)
Trading losses	-	(2,208)	-	(1,961)
On fair value of intangible assets arising on business combination (note 13)	1,585	-	1,642	-
Deferred tax liability/(asset)	1,585	(2,242)	1,642	(1,964)

 

The movement in the provision for deferred tax during the year was as follows:

	2009		2008
	£'000		£'000
Provision at 1 January	1,642		-
Arising on intangible asset acquired as part of business combination with Godfrey Pearson Limited in 2009 (note 13)	90		-
Arising on intangible asset acquired as part of business combination with Sumus Limited in 2008	-		2,442
Credit to Statement of Comprehensive Income during the year	(147)		(800)
Provision at 31 December	1,585		1,642

 

The Board is of the opinion that, given the available losses and the uncertainty as to the timescale over which they may be utilised, it would be inappropriate currently to recognise any deferred tax assets in respect of the losses at this stage. However the Board is keeping this position under review.

 

 

8.	Earnings per ordinary share

 

The calculation of earnings or loss per share is based on the earnings loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year of 127,700,298 (2008: 112,434,966).

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options of 135,904,254 (2008: no dilution due to loss incurred).

 

The calculation of basic and diluted earnings per share in 2009 excludes the bonus issue referred to in note 21 (c) as those shares were only in existence for one day, were issued as a constituent part of the process for reclassifying the merger reserve and did not effectively rank for dividends at any time during the year.

 

Reconciliations of the earnings or losses and earnings/(loss) per share used in the calculations are set out below:

 

	2009		2008
	Earnings	Per share amount	Earnings	Per share amount
	£'000	Pence	£'000	Pence
Basic earnings/(loss) per share
The basic earnings per share can be analysed as follows:
On EBITDA *	1,081	0.85p	553	0.49p
Effects of:
Exceptional expense	-	-	(981)	(0.87)p
Depreciation and amortisation	(941)	(0.74)p	(856)	(0.76)p
Impairment charge	-	-	(7,572)	(6.74)p
Net finance (cost)/ revenue	(47)	(0.04)p	362	0.32p
Tax credit	124	0.10p	721	0.64p
Non-controlling interest	(63)	(0.05)p	(71)	(0.06)p
Profit/(loss) attributable to ordinary shareholders	154	0.12p	(7,844)	(6.98)p
Dilutive effect
Options	-	(0.01)p	-	-
Diluted earnings/(loss) per share	154	0.11p	(7,844)	(6.98)p

 

There are 17,411,107 options (2008: 17,525,419) which could potentially dilute earnings per share in the future, but were not included within the calculation of diluted loss per share as they were anti-dilutive for the periods presented.

 

*Earnings before exceptional expenses, interest, tax, depreciation and amortisation, and impairment charges.

 

9.	Dividends paid and proposed

 

Paid:

	2009 £'000	2008 £'000
Interim dividend at 0.2p per share	255	256
Special dividend at 0.5p per share	-	418
Final dividend for 2008 at nil p per share (2007: 0.5p per share)	-	418
	255	1,092

 

The directors have announced a second interim dividend of 0.2p per share, totalling £255,000 (2008: nil) which will be paid on 1 April 2010 to shareholders on the register as at 5 March 2010.

 

10.	Intangible assets

 

	Goodwill   £'000	Commissions processing software and development costs   £'000	Acquired customer relationships   £'000	Acquired Appointed Representative and adviser contracts £'000	Total   £'000
Cost
At 1 January 2008	8,325	289	1,183	-	9,797
Additions - acquisitions	3,198	-	-	8,722	11,920
Additions - software development	-	61	-	-	61
At 31 December 2008	11,523	350	1,183	8,722	21,778
Additions - acquisitions (note 13)	-	-	-	794	794
At 31 December 2009	11,523	350	1,183	9,516	22,572
Amortisation
At 1 January 2008	1,374	64	99	-	1,537
Charge for the year	-	62	131	463	656
Impairment charge	5,176	-	-	2,396	7,572
At 31 December 2008	6,550	126	230	2,859	9,765
Charge for the year	-	70	132	571	773
At 31 December 2009	6,550	196	362	3,430	10,538
Net book amount At 31 December 2009	4,973	154	821	6,086	12,034
At 31 December 2008	4,973	224	953	5,863	12,013

 

Goodwill and intangible assets prior to 1 January 2009 were allocated to the two business segments/CGUs identified at that time in accordance with the requirements of the relevant IFRS then applicable at that time, namely those businesses acquired by the Group by way of the merger with Sumus Limited in May 2008 and those acquired prior to that date.

 

The need for impairment provisions was assessed in accordance with the initial carrying values attributable to those CGUs, and the net present values of the estimated future post tax cash flows of those CGUs as at 31 December 2008.

 

Following IFRS8, Operating Segments, becoming effective in respect of accounting periods beginning on or after 1 January 2009, the Group has re-assessed the allocation of its operations (and the associated goodwill and intangible assets) between its components and has identified two principal operating business segments which it considers should be reported upon, each of which represents a single CGU. These are the National and Network operating segments referred to previously in this Report.

 

Accordingly the brought forward composition of the Group's goodwill and intangible assets, together with the movements during the year, have been reviewed and re-allocated between the National, Network and other operating segments as follows:

 

	Goodwill		Other intangible assets
	2009	2008	2009	2008
	£'000	£'000	£'000	£'000
National segment	4,973	4,973	1,537	953
Network segment	-	-	5,390	5,898
Other segments	-	-	134	199
	4,973	4,973	7,061	7,040

 

The values of goodwill allocated to the Network (£5,738,000) and other segments (£215,000) were fully amortised and impaired as at 31 December 2008.

 

The allocation of goodwill and intangible assets to CGUs in 2008 was as follows:

 

	Goodwill	Intangible assets
	2008	2008
	£'000	£'000
Pre merger businesses	4,973	-
Sumus businesses	-	5,863
Others	-	1,177
	4,973	7,040

 

The recoverable amount of each CGU is determined by a value in use calculation using cash flow projections based on the Group's latest approved budget for the 2010 financial year and its estimate of future cash flows after that date. The long term cash flow projection extrapolates the 2010 budget figures over five years using a zero post tax growth rate in 2010 and 2011 and 5% for the three subsequent years and is discounted using a post tax discount rate of 10.8% (2008: 10.8%) (which equates to a pre tax discount rate of 15%). The cash flows in perpetuity are then extrapolated from the end of that five year period using a 2.5% growth rate (2008: 3%) (being the directors' best estimate of the long term growth rate of the UK economy) and are discounted at the same post tax discount rate of 10.8%.

 

The calculation of values in use is most sensitive to the assumed rate of growth in cash flows, which has been based on a modest assessment of the impact future external market conditions on investors' appetite for investment products, and the discount rate which has been set on the basis of management's assessment of the risks applicable to the future cash flows of the CGU in question. In the opinion of management there is no discernable difference in the risk profile of either CGU and accordingly the same discount rate has been applied to the estimated future cash flows of each CGU.

 

In the opinion of the directors and on the basis of the above, there was no further impairment provision requirement in respect of goodwill and there had been no triggering of any impairment factors that might necessitate an impairment review of the CGUs' intangible assets as at 31 December 2009.

 

The impairment review in 2008 included a sensitivity analysis on the key assumptions in the cash flow projections and the rate at which the projections were discounted to arrive at the final value in use.

 

The impact of a 1% variation in the assumed growth rate and post tax discount rates applied to the estimated future cash flows of the CGUs as reallocated in 2009 would be as follows:

 

	Increase/(decrease) of value in use of National CGU
	£'000
A 1% increase in the growth rate assumed from 2014 onwards	865
A 1% decrease in the growth rate assumed from 2014 onwards	(686)
A 1% decrease in the post tax discount rate applied to the estimated future cash flows	1,144
A 1% increase in the post tax discount rate applied to the estimated future cash flows	(905)

 

The sensitivity in respect of an increase or decrease of 1% in the future growth rate has been applied from 2014 on as in the opinion of the directors the level of growth in the market for the distribution of retail financial product in the UK in the short to medium term has already been discounted to reflect the general level of uncertainty prevalent at the current time..

 

The impairment of £7,572,000 previously reported and charged to the Statement of Comprehensive Income in 2008 arose as a result of the impact of the severe deterioration in the economic conditions prevalent in the UK economy in the latter part of 2008. This had the result of a significant reduction in the estimated future cash flows of the CGU so acquired (and reported upon) from those anticipated at the time of the merger in May 2008 and also of the CGU held by the Group as at 1 January 2008.

 

11.	Property, plant and equipment

 

	Motor vehicles   £'000	Leasehold improvements   £'000	Office & computer equipment £'000	Total     £'000
Cost
At 1 January 2008	-	161	1,416	1,577
Additions at cost	-	3	95	98
Acquisitions	11	-	68	79
Disposals	-	-	(1)	(1)
At 1 January 2009	11	164	1,578	1,753
Additions at cost	-	6	55	61
Acquisitions (note 13)	-	-	47	47
Disposals	(11)	-	(3)	(14)
At 31 December 2009	-	170	1,677	1,847
Depreciation
At 1 January 2008	-	88	1,126	1,214
Provided in the year	9	17	174	200
Disposals	-	-	-	-
At 1 January 2009	9	105	1,300	1,414
Provided in the year	-	18	150	168
Disposals	(9)	-	-	(9)
At 31 December 2009	-	123	1,450	1,573
Net book amount
At 31 December 2009	-	47	227	274
Net book amount
At 31 December 2008	2	59	278	339

 

12.	Investments

 

The Group

	2009 £'000	2008 £'000
Fair value of listed investment at 1 January / on acquisition	99	117
Increase/(diminution) of fair value in period to 31 December charged to equity	21	(18)
Fair value at 31 December 2009	120	99

 

The listed investment comprises a Level 3 financial asset (as defined in IFRS 7) and its fair value equates to its market value. No charge or credit to income tax arose on the increase or diminution in value in either 2009 or 2008.

 

The fair value of the investment has been based on the surrender value as notified by the relevant financial institution. Given the relative immateriality of the Level 3 financial assets held, relatively large changes in the assumptions used to value the financial instrument are unlikely to have a material impact on the Group's financial position.

 

13.	Business combinations

 

On 12 January 2009, LighthouseGP Limited, a wholly owned subsidiary of the Company, acquired the trade and certain assets and undertakings of Godfrey Pearson Limited. In return, the Group has agreed to guarantee payments to be made by Graduate Financial Services Limited, the ultimate parent company of Godfrey Pearson Limited, over a three year period in respect of a loan from Lloyds Banking Group Plc up to a maximum of £432,000, including future interest payable.

 

The book and fair value of the net assets and liabilities acquired at the date of acquisition were as follows:

 

	Pre acquisition book value	Fair value adjustments	Recognised values on acquisition
	£'000	£'000	£'000
Intangible assets (adviser contracts)	-	794	794
Property, plant and equipment	47	-	47
Other receivables	51	-	51
Trade and other payables	(288)	-	(288)
Deferred tax	-	(90)	(90)
Net identifiable assets and liabilities	(190)	704	514
Satisfied by:
Future liability for loan repayments			432
Transaction costs			82
			514

 

Pre-acquisition carrying amounts were determined based upon applicable IFRSs immediately prior to the acquisition. The value of assets and liabilities recognised on acquisition are their estimated fair values. In determining the fair values of the adviser contracts the Group had regard to a post tax discount rate of 10.8% (equating to a pre tax discount rate of 15%).

 

The fair value adjustments set out above arose as follows:

		£'000
Recognition of intangible assets arising on business combination		794
Provision for deferred tax on intangible asset arising on business combination		(90)
As stated above		704

 

Reconciliation of amounts paid

	Total amount arising on combination	Paid in year	Outstanding at end of year
	£'000	£'000	£'000
Cash consideration	432	(132)	300
Transaction costs	82	(48)	34
	514	(180)	334

 

The cash consideration is payable in equal monthly instalments and £156,000 is due after more than one year - see note 16.

 

Under the terms of the Business Purchase Agreement dated 12 January 2009, the shareholders of Godfrey Pearson Limited are entitled to additional deferred consideration up to a maximum of £1,500,000, subject to the revenues generated by LighthouseGP Limited reaching pre-determined targets over the period to 31 December 2011.

 

The directors have considered the likelihood of the revenue targets as described above being achieved and have concluded that, in the light of the significant downturn in the UK economy in 2009 and the continuing uncertainty as to the timing and extent of any recovery, it is not appropriate to assume, as at 31 December 2009, that any of the additional deferred consideration will become payable. Accordingly no account has been taken of the additional deferred consideration in arriving at the consideration as set out above.

 

In the year ended 31 December 2009 the business acquired from Godfrey Pearson contributed £3,121,000 to the Group's revenues as set out in the Consolidated Statement of Comprehensive Income. There was no material impact on the profit before tax in the year.

 

The reported details in 2008 were in respect of the acquisition (by way of a merger) of Sumus Limited, details of which were disclosed in the Group's 2008 Annual Report.

 

14.	Trade and other receivables

 

	2009 £'000	2008 £'000
Trade receivables	3,367	4,002
Amounts owed by group undertakings	-	-
Other receivables	3,615	447
Corporation tax	120	-
Prepayments and accrued income	1,172	626
	8,274	5,075

 

Trade receivables are non interest bearing and generally on industry terms of 90 days.

 

Trade receivables include amounts recoverable from advisers in respect of the clawback of indemnity commission and complaints; other receivables include amounts recoverable from insurers in respect of the complaints provision (note 17).

 

The movement in provisions for impairment against trade receivables during the year was:

	£'000
At 1 January 2009	283
Charged to the Statement of Comprehensive Income	215
Utilised during the year	(73)
At 31 December 2009	425

 

As at 31 December, the ageing analysis of trade receivables is as follows:

			Past due but not impaired
	Total	Future due	Neither past due nor impaired	30 days	60 days	90 days	>90 days
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
2009	3,367	729	1,385	414	391	126	322
2008	4,002	1,170	1,315	808	274	158	277

 

15.	Cash and short term deposits

 

	2009 £'000	2008 £'000
Short-term deposits	12,847	2,551
Cash at bank and in hand	506	9,738
	13,353	12,289

 

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of up to one week depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of cash and cash equivalents is £13,353,000 (2008: £12,289,000).

 

16.	Trade and other payables

 

Current:

	2009 £'000	2008 £'000
Trade payables	5,858	6,292
Other taxation and social security	723	428
Other payables	656	176
Deferred consideration and transaction costs (note 13)	178	-
Accruals and deferred income	1,300	1,270
Corporation tax	-	7
Other financial liabilities - trade facility (secured)	1,800	-
	10,515	8,173

 

Included within other payables is an amount of £8,000 (2008: £14,000) in respect of unpaid pension contributions.

 

Terms and conditions of the above trade and other payables:

Trade payables are non interest-bearing and are normally settled on receipt of funds from product providers, or within 30 days in respect of overheads. Other taxation and social security are non interest-bearing and have an average term of one month.

 

Accruals and deferred income are non interest-bearing and are settled according to their specific circumstances.

 

Corporation tax liabilities are paid in quarterly instalments commencing halfway through the accounting period in which they arise in those subsidiaries which currently pay corporation tax.

 

 

Non-current:

	2009 £'000	2008 £'000
Other financial liabilities - trade facility (secured)	2,700	4,500
Deferred consideration (note 13)	156	-
	2,856	4,500

 

The trade facility is with a UK financial institution and is secured solely on monies held within a specific bank account operated by the Group. The balance on that account as at 31 December 2009 was £Nil. The facility is repayable in 5 semi annual instalments commencing in May 2010 and the outstanding balance attracts interest at 1% per annum above LIBOR, payable quarterly in arrears.

 

The trade facility matures as follows:

In less than one year	£1,800,000
In one to two years	£1,800,000
In two to five year	£900,000

 

There are no other covenants or other security arrangements applicable to the facility.

 

Of the deferred consideration and related costs, £178,000 is repayable within one year, £144,000 repayable between one and two years from the balance sheet date and £12,000 in 2012.

 

The Group has entered into commercial leases on certain properties, motor vehicles and items of equipment. These leases have a duration of between 3 and 5 years. Only the property lease agreements contain an option for renewal, and no restrictions are placed upon the lessee by entering into these leases.

 

Future minimum rentals payable under non-cancellable operating leases are as follows:

	2009 £'000	2008 £'000
Future minimum payments due:
Not later than one year	521	464
After one year but not more than five years	522	575
After five years	-	-
	1,043	1,039

 

17.	Provisions

 

	Provision for clawback of indemnity commission £'000	Complaints provision £'000	Total £'000
At 1 January 2009
Current	1,751	115	1,866
Non-current	465	407	872
	2,216	522	2,738
Charged to the Statement of Comprehensive Income	2,595	3,431	6,026
Utilised during the year	(2,297)	(209)	(2,506)
At 31 December 2009	2,514	3,744	6,258
Analysed as:
Current	1,987	824	2,811
Non-current	527	2,920	3,447
	2,514	3,744	6,258

 

Provision for clawback of indemnity commission

The provision for clawback of indemnity commission represents the expected cost of clawbacks from product providers for subsequent policy cancellations and mid term adjustments in respect of policies written at 31 December 2009. The amount represents the gross obligation and, where these amounts can be recovered from network members an asset is recognised. At 31 December 2009, the gross amount recognised was £1,456,000 (2008: £1,648,000).

 

Complaints provision

The complaints provision represents the expected cost of settling claims from clients and the amount represents the gross obligation and, where these amounts can be recovered from network members and insurers an asset is recognised. At 31 December 2009, the amount recognised within trade and other debtors was £3,184,000 (2008 £133,000).

 

Provisions - Company

A provision is made against subsidiary undertakings where the net asset value of that subsidiary is negative at the balance sheet date. Provision is made firstly against the cost of the investment in the subsidiary, and then against the amount due from that group undertaking if applicable. Where the negative net asset values exceed the combined cost of investment and any amount due from the subsidiary undertaking a further provision is made in the balance sheet.

 

18.	Financial risk management objectives and policies

 

The Group's financial instruments comprise an available-for sale investment, cash, receivables and payables. The Group has financed their operations principally from equity share issues and operational cash flows.

 

Credit risk

The Group trades only with established third party financial institutions. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in Note 14.

 

With respect to credit risk arising from the other financial assets of the Group, which comprise an available-for-sale asset, cash and cash equivalents, the Group's exposure to credit risk arises from the possibility of default of the relevant regulated financial institution or authorised deposit taker, with a maximum exposure equal to the carrying amount of these instruments. The Group monitors such risks by reviewing the length and disposition of its deposits on a regular basis.

 

Concentration risk

This is the risk that material loss might arise from an excessive placing of the Group's financial resources with a counter party that might subsequently default, resulting in loss to the Group.

 

In order to manage this risk, the Group reviews the level of business undertaken with its institutional counter parties on a regular basis with periodic reports being submitted to senior management and the Board.

 

Interest rate risk

The Group also has a non-derivative financial instrument, being a secured trade facility, on which interest accrues at the interbank lending rate plus 1%. The amount outstanding in respect of this instrument is significantly less than the monies the Group has on deposit with UK clearing financial institutions and as the interest rate varies with LIBOR any fluctuations in such costs should be adequately covered by finance income from its cash deposits.

 

With regard to finance revenue the Group had significant cash balances throughout the year and as at 31 December 2009. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

 

The following table demonstrates the sensitivity to a reasonably possible change in the interest rate, with all other variables held constant, of the Group's profit before tax.

 

	Increase / decrease in interest rates	Effect on profit before tax	Effect on equity
		£'000	£'000
For the 12 months ended 31 December 2009	+1%	70	70
	-1%	(11)	(11)
For the 12 months ended 31 December 2008	+1%	106	106
	-1%	(106)	(106)

 

Liquidity risk

The Group's liquidity risk is that it would not have sufficient financial resources, even whilst solvent, to enable it to pay its obligations as they fall due or only at excessive cost. The Group manages its liquidity risk by ensuring that commissions payable to advisers are not remitted until funds have been received by the Group, and by monthly treasury management where projected cash flow requirements are monitored and reviewed. In addition, the Group retains sufficient working capital and ready cash balances to ensure that its requirements are met on a day-to-day basis.

 

The table below summarises the maturity profile of the Group's financial liabilities at 31 December 2009 based on contractual undiscounted payments.

 

	On demand	Less than 3 months	3 to 12 months	1 to 5 years	Greater than 5 years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Year ended 31 December 2009
Trade and other payables	5,036	335	2,287	2,700	-	10,358
Other financial liabilities	1,906	629	322	156	-	3,013
	6,942	964	2,609	2,856	-	13,371
Year ended 31 December 2008
Trade and other payables	6,148	144	-	4,500	-	10,792
Other financial liabilities	1,404	325	152	-	-	1,881
	7,552	469	152	4,500	-	12,673

 

Market price risk

The Group's income is directly aligned to the external economic conditions in the markets in which it operates, namely the distribution of retail financial products in the UK. Lower market returns may reduce investors' appetite for investment products, and reduce the income derived from funds-based products. In order to manage this risk the Group reviews the spread of its income and average adviser production on a regular basis, enabling it to take corrective action to mitigate the impact of such market variations.

 

 Fair value of financial instruments

There is no significant difference between the book values and fair values of the financial assets and liabilities and the latter are reviewed on a regular basis to ensure that no such exposure arises or, if it does, to enable the Group to take action to mitigate or eliminate any such potential loss.

 

Borrowing facilities

The Group did not have any undrawn committed borrowing facilities available at 31 December 2009 (2008 - £nil).

 

Currency risk

The Group is not exposed to currency risk as it does not trade in foreign currencies.

 

Capital management

The primary objective of the Group's capital management policy is to ensure that it maintains a credit rating and strong regulatory and group capital ratios in order to support its business and maximise shareholder value. The Group has financed its operations principally from equity shares. It manages its capital structure and makes adjustments to it in the light of changes in economic conditions. The Board regularly monitors the position based on regular management information. No changes were made in the objectives, policies or processes in the year.

 

The Board has considered the adequacy of the above policy in the light of the significant downturn experienced within the UK economy in 2008 and 2009, including its impact on, inter alia, the adequacy of regulatory capital, its ongoing dividend policy and the ability to raise such external funds as may be required to meet the Group's current and future objectives. The Board has concluded that, in the light of current trading, the reorganisation of the Group's capital in 2009 (as detailed in note 21) and the economic outlook for the short and medium term, its capital structure and polices for managing it remains appropriate.

 

The Group has and will maintain sufficient capital to meet the regulatory requirements of its regulated subsidiaries.

 

Treasury management

The most significant treasury matters dealt with by the Group are raising finance and investing surplus cash in high quality assets. Clear parameters have been established, including authority levels, on the type and use of financial instruments to manage these exposures, which at present do not permit the use of any derivatives or hedges. Regular reports are provided to senior management and treasury operations are subject to periodic independent reviews by the Board.

 

19.	Share capital

 

Allotted issued and fully paid

	2009		2008
	Number	£'000	Number	£'000
Ordinary shares of 1p each
At 1 January	127,700,298	1,277	83,637,838	836
Bonus issue by way of capitalisation of merger reserve - see note 21 (c)	330,0081,600	3,301	-	-
Less cancellation of shares issued pursuant to a High Court order in respect of reduction of capital - see note 21 (c)	(330,081,600)	(3,301)	-	-
Issued on 6 May 2008 to acquire Sumus Ltd	-	-	43,960,446	440
Options exercised during the year at 1p	-	-	102,014	1
At 31 December	127,700,298	1,277	127,700,298	1,277

 

 

Under the Company's Unapproved Share Option Scheme the following options were held at 31 December 2009
Number of share options at 31 December 2008	Number of share options granted in the year	Number of share options exercised in the year	Number of share options lapsed in the year	Date of grant	Number of share options at 31 December 2009	Exercise Price (p)	Exercise period
161,540	-	-	(23,078)		138,462	32.5	23/01/06		and			22/01/13
4,187,580	-	-	(629,884)		3,557,696	24.0	23/10/10		and			22/10/17
2,887,848	-	-	(370,116)		2,517,732	21.5	12/05/11		and			11/05/18
7,236,968	-	-	(1,023,078)		6,213,890
Under the Company's Unapproved Share Option Scheme the following options were held at 31 December 2008
Number of share options at 31 December 2007	Number of share options granted in the year	Number of share options exercised in the year	Number of share options lapsed in the year	Date of grant	Number of share options at 31 December 2008	Exercise Price (p)	Exercise period
15,625	-	-	(15,625)		-	160.0	27/10/03	and				26/10/10
161,540	-	-	-		161,540	32.5	23/01/06	and				22/01/13
95,238	-	-	(95,238)		-	21.0	10/07/09	and				09/07/16
4,817,464	-	-	(629,884)		4,187,580	24.0	23/10/10	and				22/10/17
-	2,887,848	-	-	12/05/08	2,887,848	21.5	12/05/11	and				11/05/18
5,089,867	2,887,848	-	(740,747)		7,236,968

 

Under the Company's Unapproved Share Option Scheme for advisers the following options were held at 31 December 2009
Number of share options at 31 December 2008	Number of share options granted in the year	Number of share options exercised in the year	Number of share options lapsed in the year	Date of grant	Number of share options at 31 December 2009	Exercise Price (p)			Exercise period
310,142	-	-	(37,504)		272,638	1.0			30/09/04			and			30/12/14
13,769	-	-	-		13,769	1.0			17/08/04			and			16/08/14
323,911	-	-	(37,504)		286,407
Under the Company's Unapproved Share Option Scheme for advisers the following options were held at 31 December 2008
Number of share options at 31 December 2007	Number of share options granted in the year	Number of share options exercised in the year	Number of share options lapsed in the year	Date of grant	Number of share options at 31 December 2008	Exercise Price (p)		Exercise period
318,343	-	(8,201)	-		310,142	1.0		30/09/04			and			30/12/14
107,582	-	(93,813)	-		13,769	1.0		17/08/04			and			16/08/14
425,925	-	(102,014)			323,911

 

 

Under the Company's Approved Share Option Scheme the following options were held at 31 December 2009
Number of share options at 31 December 2008	Number of share options granted in the year	Number of share options exercised in the year	Number of share options lapsed in the year	Date of grant	Number of share options at 31 December 2009	Exercise Price (p)	Exercise period
3,200	-	-	-		3,200	162.0	06/04/04	and	05/04/11
369,229	-	-	(20,513)		348,716	32.5	23/01/06	and	22/01/13
15,386	-	-	-		15,386	23.5	01/05/06	and	30/04/13
35,897	-	-	-		35,897	25.0	15/08/06	and	14/08/13
15,385	-	-	-		15,385	26.5	04/02/07	and	03/02/14
46,153	-	-	-		46,153	19.0	13/12/07	and	12/12/14
50,000	-	-	(50,000)		-	20.0	01/05/08	and	30/04/15
142,857	-	-	(142,857)		-	21.0	10/07/09	and	09/07/16
316,215	-	-	(32,432)		283,783	18.5	25/04/09	and	24/04/16
220,512	-	-	(50,000)		170,512	21.0	15/03/09	and	14/03/16
25,000	-	-	-		25,000	21.0	01/06/09	and	31/05/16
101,000	-	-	(6,500)		94,500	20.0	06/03/10	and	05/03/17
65,000	-	-	-		65,000	29.0	27/07/10	and	26/07/17
674,615	-	-	(200,640)		473,975	24.0	23/10/10	and	22/10/17
50,000	-	-	-		50,000	22.5	31/03/11	and	30/03/18
549,852	-	-	(43,646)		506,206	21.5	12/05/11	and	11/05/18
2,680,301			(546,588)		2,133,713

 

 

Under the Company's Approved Share Option Scheme the following options were held at 31 December 2008
Number of share options at 31 December 2007	Number of share options granted in the year	Number of share options exercised in the year	Number of share options lapsed in the year	Date of grant	Number of share options at 31 December 2008	Exercise Price (p)	Exercise period
3,200	-	-	-		3,200	162.0	06/04/04	and	05/04/11
384,614	-	-	(15,385)		369,229	32.5	23/01/06	and	22/01/13
15,386	-	-	-		15,386	23.5	01/05/06	and	30/04/13
35,897	-	-	-		35,897	25.0	15/08/06	and	14/08/13
15,385	-	-	-		15,385	26.5	04/02/07	and	03/02/14
51,281	-	-	(5,128)		46,153	19.0	13/12/07	and	12/12/14
50,000	-	-	-		50,000	20.0	01/05/08	and	30/04/15
142,857	-	-	-		142,857	21.0	10/07/09	and	09/07/16
462,159	-	-	(145,944)		316,215	18.5	25/04/09	and	24/04/16
230,768	-	-	(10,256)		220,512	21.0	15/03/09	and	14/03/16
25,000	-	-	-		25,000	21.0	01/06/09	and	31/05/16
140,000	-	-	(39,000)		101,000	20.0	06/03/10	and	05/03/17
65,000	-	-	-		65,000	29.0	27/07/10	and	26/07/17
684,871	-	-	(10,256)		674,615	24.0	23/10/10	and	22/10/17
-	50,000	-	-	31/03/08	50,000	22.5	31/03/11	and	30/03/18
-	574,036	-	(24,184)	12/05/08	549,852	21.5	12/05/11	and	11/05/18
2,306,418	624,036	-	(250,153)		2,680,301

 

 

20.	Share-based payments

 

(a)	There are three share option schemes currently operated by the Group. These are as follows:
	The approved scheme for employees   This plan is open to all employees once they have been in service for a length of time as from time to time agreed by the Board. The options will vest if the employee remains in service for a period of three years from the date of the option was granted. The exercise price of the option is the prevailing market price at the date of grant. The contractual life of the option is ten years and there are no cash settlement alternatives. There are no performance conditions attached and the options lapse should the employee leave.
	The unapproved scheme for advisers   This plan exists in order to provide incentives to some advisers, notably on acquisitions, and to align adviser expectations to that of shareholders. Grant of options is at the discretion of the Board. The vesting period ranges from immediate to 21 months and is dependent on the adviser being regulated through the Group at the time of exercise. The contractual life of the options range from 18 months to 10 years and the options lapse should the adviser cease to be registered through Lighthouse. There are no performance conditions attached.
	The unapproved scheme for employees.   The terms for this plan are identical to the approved scheme for employees; the scheme exists for those employees who are granted options in excess of the HM Revenue and Customs limits.

 

(b)	The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year.

 

	2009	2009	2008	2008
	Number	WAEP (pence)	Number	WAEP (pence)
Outstanding at 1 January	10,241,180	22.57	7,822,210	23.00
Granted during the year	-	-	3,511,884	21.50
Forfeited during the year	(1,607,170)	22.44	(990,900)	26.01
Exercised	-	-	(102,014)	1.00
Expired during the year	-	-	-	-
Outstanding at 31 December	8,634,010	22.61	10,241,180	22.57
Exercisable 31 December	1,368,901	20.85	1,027,594	21.06

 

Included within the opening balance are options over 3,200 (2008:18,825) shares that have not been recognised in accordance with IFRS 2 as the options were granted before 7 November 2002. These options have not subsequently been modified and therefore do not need to be accounted for in accordance with IFRS 2.

 

No options were granted in the year. The weighted average share price of the options exercised in 2008 at the date of exercise was 23.27 pence.

 

For the share options outstanding at 31 December 2009, the weighted average remaining contractual life is 7.50 years (2008: 8.50 years).

 

No options were granted in the year. The weighted average fair value of options granted during 2008 was 21.50 pence The range of exercise prices for options outstanding at 31 December 2009 and 2008 was 1 pence - 162 pence.

 

(c)

During 2006, a revocable appointment on certain sub-trusts of 8,125,000 shares was made from the EBT. The charge arising under IFRS 2 was recognised in full in the year based upon the share price as at the date of appointment. In December 2009 the Trustees of the EBT irrevocably allocated 8,468,297 shares (including 343,297 acquired as a result of re-investing dividends received in previous periods) to the originally allocated beneficiaries. There remain 271,349 shares held within one sub-trust as at 31 December 2009.

 

(d).	Expense charged to the profit and loss account. The total expense recognised for the year arising from equity compensation plans was as follows:

 

	2009	2008
	£'000	£'000
Fair value of options	176	177
	176	177

 

(e)

Fair value of options granted during the year   No options were granted in the year. The fair value of options granted during 2008, estimated by using a binomial option pricing model was £0.112.   The fair value of options was estimated on the date of grant, based upon the following weighted average assumptions:

 

	2009	2008
Share price	-	21.5p
Exercise price	-	21.5p
Expected volatility	-	30%
Historical volatility	-	30%
Expected life	-	8 years
Risk free interest rate	-	4.55%

 

The expected volatility used was based upon the historical volatility of the share price over a period equivalent to the expected life of the options prior to the date of the grant.

 

21.

Reserves

 

a) EBT

The Group has an investment in own shares amounting to £nil (2008: £nil) in respect of shares held by Atlas Trust Company (Jersey) Limited as Trustee to the EBT (the Lighthouse Independent Financial Advisers Limited Remuneration Trust). The EBT held 271,349 (2008: 8,479,646) ordinary shares in the Company at 31 December 2009. The Trustee is guided by the wishes of the Remuneration Committee of the Board regarding eligibility for receipt of discretionary benefits under the EBT. These include exceptional performance, teamwork, loyalty, length of service and other significant contributions to the overall development and success of the Group. The market value of the shares held by the trust at 31 December 2009 was £24,000 (2008: £890,000). The shares were irrevocably appointed in December 2009 leaving 271,349 held within one sub-trust at 31 December 2009.

 

As a result of the irrevocable appointments referred to above, £1,471,000 previously charged in the Statement of Comprehensive Income and credited to the share-based payment reserve has been transferred to retained earnings as a movement in equity during the year.

 

b) Share premium account

On 24 June 2009 the High Court approved a petition to allow the offset of losses of the Company against the share premium account of the Company. Accordingly the share premium account was reduced by £5,696,000 to offset the accumulated losses of the Company as at 31 December 2008.

 

c) Merger reserve

On 7 July 2009 the Company issued 330,081,600 new ordinary shares of 1p each at par, fully paid, by way of a capitalisation of the merger reserve previously recorded. These shares were subsequently cancelled pursuant to a High Court order dated 8 July 2009 and the nominal value of the shares so cancelled was credited to retained earnings.

 

The re-balancing of the merger reserve arose as a result of impairment charges made at Group level in prior years having exceeded those at the Company level.

 

22.	Commitments and contingent liabilities

 

Capital commitments

The Group did not have any capital commitments as at 31 December 2009 (2008: £nil).

 

23.	Related party transactions

 

During the year ended 31 December 2009, the Group made payments of £nil (2008: £18,000) to Nautilus Trust (Jersey) Limited, holders of the shares in the Employee Benefit Trust referred to in Note 21 (a) above, in respect of their services as trustees of the Lighthouse Independent Financial Advisers Limited Remuneration Trust.

 

During the year, the Group paid property rents totalling £101,000 (2008: £67,000) to Capitecs Limited, a company under the control of A Rosengren, who is a director of the Company, and J P Telling who are both directors of Capitecs Limited. At 31 December 2009 the amount due to Capitecs Limited was £nil (2008: £nil).

 

In addition during the year the Group paid property rents totalling £20,000 (2008: £13,000) in respect of a property occupied by a subsidiary company and owned by a consortium in which Capitecs Limited holds a one third interest. As already noted, Capitecs Limited is under the control of Allan Rosengren, who is a director of the company, and J P Telling who are both directors of Capitecs Limited.

 

Other than the above, there have been no transactions with key management except as disclosed in note 4.

- ENDS -