Lighthouse Regulatory News (LGT)

Lighthouse Group plc

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

Financial Adviser Awards: Large IFA of the Year

Proposed cancellation of trading on AIM

The Company today announces that it intends to seek Shareholder approval for the cancellation of admission of its Ordinary Shares to trading on AIM (the "Cancellation").

Under the AIM Rules, it is a requirement that any cancellation of admission to trading on AIM must be approved by not less than 75 per cent. of votes cast by shareholders voting in a general meeting. Accordingly, the Company is today sending to Shareholders a circular and notice of general meeting convening the General Meeting at which a special resolution will be proposed to approve the Cancellation (the "Circular"). The Circular will be available shortly on the Company's website at www.lighthousegroup.plc.uk.

The General Meeting will be held at the offices of the Company, being 26 Throgmorton Street, London, EC2N 2AN at 9:00 am on 31 July, 2012. Should the Cancellation be approved at the General Meeting, it is expected that it will take effect at 7:00 am on 8 August 2012.

Capitalised terms used but not defined in this announcement have the same meaning as given to them in the Circular.

Expected timetable of events

* Assuming that the General Meeting is not adjourned and that the Resolution approving the Cancellation is duly passed

Notes:

1. References to time in this document are to London time.

2. lf any of the above times or dates should change, the revised times and/or dates will be notified to Shareholders by an announcement on a Regulatory Information Service.

3. All events in the above timetable following the General Meeting are conditional upon approval by Shareholders of the Resolution to be proposed at the General Meeting.

Recommendation to Shareholders

The Directors consider the Resolution to be in the best interests of the Company and Shareholders as a whole and consider that it is most likely to promote the success of the Company. The Directors therefore unanimously recommend Shareholders to vote in favour of the Resolution at the General Meeting, as they intend to do in respect of their own beneficial holdings of, in aggregate, 9,083,835 Ordinary Shares representing approximately 7.1 per cent. of the issued share capital of the Company at the date of this document.

David Hickey, Chairman of Lighthouse Group, commented: "For some time the conventional advantages of being listed on AIM have not applied to the Company and consequently the Board believes that it will be more advantageous for Lighthouse to operate as an unquoted entity.

Despite the changes in the industry and uncertainty that these bring, Lighthouse is in a robust position both financially and operationally, and the Board remains optimistic about the long term prospects for the Company."

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Background to the Cancellation

Lighthouse was incorporated and admitted to trading on AIM in late 2000. At the time, a number of IFA businesses had their shares publicly traded, and the initial fund raising for Lighthouse was considerably assisted by an AIM quotation. It was generally believed that trading and development prospects for the IFA sector were sound, and consequently the investment community was supportive, especially of the many new IFA businesses being formed and floated.

In the immediate aftermath of that period, some groups prospered for a time and during 2001 the aggregate market value of quoted IFA groups exceeded £250 million. However in subsequent years a number of high profile IFA groups, including the majority of those quoted, ran into regulatory and trading difficulties, and became insolvent. Today Lighthouse constitutes the only IFA group still quoted on AIM and its current market capitalisation is approximately £6 million.

In its first annual trading results released on 15 March 2001, Lighthouse announced turnover of £5 million, EBITDA losses of £1.5 million, and cash balances of £35,000. The share price on 15 March 2001 was 60p. In the Company's 2011 preliminary results for the year ended 31 December released on 11 March 2012, Lighthouse recorded turnover of £60 million, EBITDA profits before non-recurring operating expenses of £1.6 million and net cash exceeding £11 million. The closing share price on 6 July 2012 being the last dealing day prior to the date of this announcement was 4.88p. The Board believes that this clearly demonstrates that sentiment for IFA businesses amongst the investment community has declined dramatically over the past decade.

Current industry issues

The IFA community faces significant challenges. These include the imposition of the RDR from 1 January 2013 which will require advisers' qualifications to be at a much higher level, will ban initial commission on savings and investment products and will introduce a significant number of other consequential structural changes in the industry.

In parallel, the collapse of several substantial international financial entities after 2008 has resulted in numerous concerns, reviews and litigation surrounding the potential mis-selling of retail financial products, including within the IFA community.

Finally, the Board believes that the increase in regulatory charges, and the noticeable escalation of consumer rights compared to most other stakeholders operating in retail financial services, has resulted in a far more uncertain trading environment than has ever previously existed. The scale of the structural, regulatory and trading challenges now facing the IFA industry makes it extremely difficult to forecast the trading outlook for the next few years. In addition, many IFA businesses, including Lighthouse, are undergoing very significant restructurings of their processes and operations, in order to be able to trade post the RDR. Against this background it is very difficult to indicate reliably to the investment community what future terms of trade will prevail within the sector, and hence virtually impossible to construct reliable valuation matrices.

Accordingly, the Board believes that it is difficult to see how the investment community will redevelop a desire to acquire and hold IFA related shares in the foreseeable future.

Conventional attractions of being a company admitted to trading on AIM

One of the reasons for being admitted to trading on AIM is to secure a greater ability to raise funds and to use quoted shares as currency. Lighthouse has not issued any new Ordinary Shares since 2008, whether for cash or any other transaction, and no issue of new Ordinary Shares is currently contemplated in the short or medium term.

Another conventional attraction of AIM is the possibility of an enhanced corporate profile. Given the current difficulties of the IFA industry the Board does not believe that an AIM quotation provides any realistic advantage for Lighthouse at this time. Moreover, AIM regulatory obligations to make prompt public announcements of any material change in a business can be untimely and place Lighthouse at a significant disadvantage to its unlisted competitors. In response to the RDR and other industry changes and challenges, Lighthouse will be significantly adapting its business and operations, and premature announcement of plans and actions being taken could alert competitors and damage the Group's prospects.

Liquidity in shares is an attraction of any stock market quote. However trading in and demand for the Company's Ordinary Shares is currently very limited which the Board believes is a significant explanation for the recent poor share price performance. The current Exchange Market Size is 4,500 Ordinary Shares, representing approximately £220 at the closing share price on 6 July 2012 being the last dealing day prior to the date of this announcement. Small volumes of shares being traded can cause material share price volatility, and the Company has experienced this especially in the past few years. The Board believes that this creates a misleading view of the Company, its trading performance and prospects, and can adversely affect the Company in its dealings with its various stakeholders.

Shareholder value through reference to current share price

Traditionally offerors for a publically listed company pay a premium for control over the recent or current share price. Credible offerors are very conscious of the scale of the premium they are seen to be paying for publicly traded companies, and this can often limit their offer price. No such impediments apply to unquoted entities and consequently valuation discussions tend to focus more on other factors such as EBITDA, turnover, margin, customer base, growth prospects and financial strength.

In the Board's opinion, a heavily discounted share price will significantly restrict any valuation discussions with potential offerors in the future should such discussions take place. The retail financial services industry will understand the value within Lighthouse as trading conditions settle down post RDR, and will assess that value by reference to industry parameters. In such circumstances a continually depressed share price will provide an alternative and more attractive benchmark for an offeror at the expense, potentially substantial, of Shareholders.

In addition, the current share price level hinders the Company's ability to use its equity as consideration towards any acquisition that the Board might consider given that the discounted price of the Company's Ordinary Shares distorts the relative value of Lighthouse compared to unquoted acquisition targets.

Reason for the Cancellation

The Board has concluded that none of the benefits traditionally associated with being admitted to trading on AIM have applied to the Company for some considerable time and this is not expected to change in the foreseeable future. In the meantime there are considerable costs, both financial and in management time, associated with maintaining its status as an AIM company.

In particular, the requirement to provide regular strategic and trading updates under the AIM Rules is potentially commercially disadvantageous at a time of significant regulatory change within the IFA sector.

The Board therefore believes that the Company's interests would be better served if the Company were to operate as an unquoted entity. The Board acknowledges that Cancellation will make it more difficult to trade in the Ordinary Shares but does not believe that this outweighs the commercial benefits to be gained from leaving AIM.

Following careful consideration, the Directors have therefore concluded that it is no longer in the best interests of the Company or its Shareholders to maintain the Company's admission to trading on AIM and the Board considers that the costs and commercial disadvantages of remaining listed on AIM far outweigh any potential benefits. The Board has therefore decided to propose the Cancellation. The Directors' intention is that the Company should remain a public but unquoted company.

Effect of the Cancellation on Shareholders

The principal effects of the Cancellation would be that:

(a) there would no longer be a formal market mechanism enabling Shareholders to trade their Ordinary Shares on AIM or any other recognised market or trading exchange;

(b) the Company would not be obliged to announce material events, administrative changes or material transactions nor to announce interim or final results;

(c) the Company would no longer be required to comply with any of the additional specific corporate governance requirements for companies admitted to trading on AIM; and

(d) the Company would no longer be subject to the AIM Rules and Shareholders would no longer be required to vote on certain matters as provided in the AIM Rules.

It is possible that the Cancellation could have taxation consequences for Shareholders. Shareholders who are in any doubt about their tax position should consult their own professional independent adviser.

Proposed Shareholder protections

Notwithstanding that there would be no such formal requirements, the Board has nevertheless resolved to maintain high standards of corporate governance and appropriate shareholder protections following the planned Cancellation. Accordingly the Board will continue to:

(a) hold Shareholder meetings in accordance with the applicable statutory requirements and the Company's articles of association;

(b) maintain non-executive representation on the Board. The Company currently has two non-executive Directors and the Board does not currently anticipate any change to this structure in the foreseeable future. The current non-executive Directors, who have each served over 4 years, and who have particular expertise in quoted companies, have agreed with the Board that they will step down in due course in favour of alternates of which one at least will have more specialised financial advisory expertise;

(c) operate the Audit, Remuneration and Risk Committees;

(d) review the feasibility of restoring the payment of dividends commensurate with the future profitability, cash availability and underlying growth of the business as was stated in the preliminary results for the year ended 31 December 2011 which was released on 12 March 2012; and

(e) maintain an "Investors" section on its website at www.lighthousegroup.plc.uk. In addition, Shareholders will be sent an annual report; the Company intends to post a summary of its annual and half year financial performance on its website, as well as details of any significant events or developments in which Shareholders may be interested provided that these are not commercially sensitive.

The City Code

The City Code provides an orderly framework within which takeovers and mergers are conducted and operates principally to ensure that shareholders are treated fairly and not denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equivalent treatment. Shareholders should note that following the Cancellation the Company will remain subject to the provisions of the City Code on the basis set out in those provisions.

Share dealing following Cancellation

Whilst the Board believes that the Cancellation is in the interests of Shareholders as a whole, it recognises that the Cancellation will make it more difficult for Shareholders to buy and sell Ordinary Shares should they so wish. Accordingly, the Board intends to explore whether it is possible to set up a matched bargain arrangement to enable Shareholders to trade the Ordinary Shares. If such a facility can be arranged, details will be made available to Shareholders on the Company's website at www.lighthousegroup.plc.uk.

The Company's CREST trading facility will remain in place to facilitate the matched bargain facility and for so long as it remains economic to do so.

Recommendation to Shareholders

The Directors consider the Resolution to be in the best interests of the Company and Shareholders as a whole and consider that it is most likely to promote the success of the Company. The Directors therefore unanimously recommend Shareholders to vote in favour of the Resolution at the General Meeting, as they intend to do in respect of their own beneficial holdings of, in aggregate, 9,083,835 Ordinary Shares representing approximately 7.1 per cent. of the issued share capital of the Company at the date of this document.

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