Lighthouse Group plc Positive results illustrate continued progression

Lighthouse Group plc (LON:LGT), the national financial advisory group, today announced its interim results for the six months ended 30 June 2018.

Highlights

• Revenues for the six months to 30 June 2018 increased by 5 per cent. to £26.88 million (H1 2017: £25.67 million);

• Average annualised revenue production per adviser increased by 6 per cent. to £124,000 (H1 2017: £117,000);

• Other operating expenses reduced by 3 per cent. to £5.54 million (H1 2017: £5.68 million);

• Underlying EBITDA* increased by 26 per cent. to £1.65 million (H1 2017: £1.31 million);

• Pre-tax profits increased by 12 per cent. to £1.26 million (H1 2017: £1.13 million);

• Basic earnings per share increased by 13 per cent. to 0.99 pence per share (H1 2017: 0.88 pence per share);

• Net cash balances £9.6 million (31 December 2017: £8.7 million, 30 June 2017: £8.1 million);

• Interim dividend declared of 0.20 pence per share, an increase of 67 per cent. (H1 2017: 0.12 pence per share); and

• Affinity contracts renewed with the General Federation of Trades Unions, Parliament Hill, the Royal College of Nursing, the Public and Commercial Services Union, the Money Advice Service and FosterTalk and extended for mortgage and protection services for Unison during the period. Since 30 June 2018 contracts with Prospect union and the Association of School and College Leaders have been renewed.

*Earnings Before Interest, Tax, Depreciation and Amortisation and non-cash share-based payments charge

Commenting on the results, Richard Last, Chairman of Lighthouse Group plc, said: “The unaudited results for the six months ended 30 June 2018 illustrate the continued progression of the Group’s activities, with underlying EBITDA (before non-cash share-based charges) for the six months increasing by 26 per cent. to £1.65million. Continued progress in the Group’s affinity operations and in developing proprietary financial products for both the individual and corporate markets is expected to contribute to future growth in profits.”

Chairman’s statement for the six months ended 30 June 2018

Trading highlights

* Earnings Before Interest, Tax, Depreciation and Amortisation and non-cash share-based payments charge

** Adjusted basic and diluted earnings per share calculated after deduction of a standard tax charge of 19 per cent. (2017: 19.25 per cent.) and disclosed to aid comparability of results

Financial performance

I am pleased to report that Lighthouse has continued to progress in the six months to 30 June 2018. Revenues increased by £1.21 million or 5 per cent. to £26.88 million reflecting an increase in income generation from our affinity relationships (revenues in the period up £0.85 million or 20 per cent. to £5.13 million from the £4.28 million achieved in the comparable period in 2017). Average annualised revenue production per adviser increased by £7,000 or 6 per cent. to £124,000 from £117,000 in the first half of 2017.

Recurring revenue accounted for 51 per cent. of all Group revenue derived from customers and amounted to £13.19 million in the period to 30 June 2018 (2017: 49 per cent. or £11.92 million). The increase in recurring revenue of 11 per cent. was twice the increase in total Group revenues, reflecting the benefit in 2018 of on-going charges in respect of new business written in 2017.

Gross margin at 27 per cent. was broadly in line with the comparator period in 2017, with increased revenues in the Group’s higher margin businesses – affinities and professional connections being offset by the higher introducer payments from the increase in affinity-sourced business and continuing investment in the Group’s nascent Luceo Asset management business. Gross margin increased in financial terms to £7.19 million from £6.99 million in 2017.

Operating costs (before non-cash share-based payments charge) reduced by £143,000 to £5.54 million in comparison with £5.68 million in 2017, reflecting the Group’s on-going focus on improving operational and cost efficiency.

Underlying EBITDA for the period amounted to £1.65 million, an increase of £340,000 or 26 per cent. from the £1.31 million recorded in the comparative period in 2017. Underlying EBITDA is stated before deduction of depreciation, amortisation and non-cash share-based payment charges as these are all non-cash costs and in the opinion of the Board the underlying EBITDA more accurately presents the performance of the Group. The Group continued to invest and expensed £335,000 in the period in the development of its asset management business and specialist service offerings (2017: £400,000).

After deduction of depreciation, amortisation, share-based payments and net finance costs, the Group recorded a profit before and after taxation of £1.26 million (2017: £1.13 million), with basic earnings per ordinary share of 0.99 pence (2017: 0.88 pence) and diluted earnings per share of 0.91 pence (2017: 0.83 pence). Adjusted basic earnings per share, stated after deduction of a standard tax charge of 19 per cent. (2017: 19.25 per cent.) to aid comparability, were 0.80 pence (2017: 0.71 pence) and adjusted diluted earnings per share were 0.73 pence (2017: 0.67 pence)

Financial position and cash flow

The Group continues to maintain a strong balance sheet with cash reserves of £9.6 million at 30 June 2018 (31 December 2017: £8.7 million, 30 June 2017: £8.1 million) and no debt. With c50 per cent. of the cash balances being required to underpin regulatory capital requirements, the Group has c£5 million available to fund both internal and external expansion opportunities should they present themselves.

Business relationships and developments

Affinity relationships continue to be an important component of the Group’s operations, particularly in Lighthouse Financial Advice (our National division). The gross revenues derived from such sources noted under “Financial performance” above included new business revenues of £2.6 million, an increase of £0.8 million over the £1.8 million recorded in the six months to 30 June 2017. Total revenues from affinity sources amounted to 20 per cent. of revenues generated from customers by the Group in the half year (2017: 18 per cent.).

The Group continues to maintain its affinity relationships with contract renewals secured for the General Federation of Trades Unions, Parliament Hill, the Royal College of Nursing, the Public and Commercial Services Union, the Money Advice Service and FosterTalk, as well as extension of the existing Unison agreement to include specialist mortgage advice, during the period. The affinity contracts with the Prospect union and the Association of School and College Leaders have also been renewed since 30 June 2018. The Group currently has 21 contracted affinity agreements with organisations representing more than 6 million members.

The Group continues to focus on increasing client engagement within its affinity relationships with access to individuals in professions such as education, medical and engineering providing considerable scope for further growth, based on carefully targeted recruitment, marketing and adviser support.

Divisional performance

Lighthouse Financial Advice (“LFA”), the Group’s National advisory division servicing affinity-based clients, continued to progress with gross revenues increasing by £0.82m or 9 per cent. to £10.06 million from £9.25 million. The division’s contribution (profit before allocated indirect operating expenses) remained broadly constant at £2.53 million (2017: £2.54 million) as a result of the non-recurrence of a credit for past regulatory fees (2017: £0.11 million) and further investment into the division’s infrastructure.

The Group’s Wealth Advisory division, comprising LighthouseCarrwood (employed advisers working with accountancy connections) and LighthouseWealth (self-employed advisers), saw revenues grow by £0.75m or 16 per cent. to £5.35 million (2017: £4.60 million) in the period to 30 June 2018. Contribution increased marginally to £0.39 million from £0.38 million. The division continues to deliver professional advice to high net worth individuals and business owners.

The Group continues to support its community-based Network members in developing client relationships whilst focusing on improved customer outcomes and risk minimisation. The Network accounted for £10.66 million of Group revenue in the first half of 2018 (2017: £11.25 million), the reduction arising from certain member firms going directly authorised, but the division increased its contribution by £0.02 million to £1.20 million (2017: £1.18 million).

Lighthouse Mortgage and Protection Solutions (“LMPS”), the Group’s dedicated division for customers requiring mortgage and protection advice and included within the Communities division for segment reporting purposes, increased its revenues by £0.11 million or 21 per cent. from £0.52 million to £0.63 million and its contribution by £0.05 million to £0.06 million (2017: £0.01 million). LMPS is now the preferred supplier of such advice to 15 of the Group’s affinity partners.

The Group’s asset management business, Luceo Asset Management (“LAM”), launched in September 2016, continued to build steadily in the period, with assets under management having increased from £37 million at 31 December 2017 to £53 million as at 30 June 2018. Gross investment flows from the actively managed fund of fund products (managed by Octopus Investments) remain healthy at an average inflow (excluding market corrections) of £714,000 per week. LAM recorded revenues of £0.2 million in the period (2017: £0.05 million) and absorbed £0.2 million at the contribution level (2017: £0.2 million). The Group will continue to look at potential new fund products to enhance the Luceo range once the existing funds have reached the level necessary to contribute after fixed costs.

The Group has continued to add employers and members into its proprietary workplace pensions product offering the Lighthouse Pensions Trust (“LPT”). At 30 June 2018 555 employers with 5,966 active members had used the Corporate Pensions Trust (which incorporates the LPT) to satisfy their auto-enrolment obligations and assets under management amounted to £9.6 million. The Group is undertaking a strategic review of this business area, as part of a Group-wide assessment designed to focus resources on key growth areas, which is expected to be completed by the end of the current financial year. Updates will be provided to shareholders in due course.

Dividends

The Board is pleased to announce an interim dividend of 0.20 pence per ordinary share (2017: 0.12 pence) which will be payable on 19 October 2018 to shareholders on the register as at 14 September 2018. The Group’s ordinary shares will go ex-dividend on 13 September 2018. The last day to make an election in respect of the dividend reinvestment plan operated by Link Market Services Trustees Limited will be 28 September 2018.

General economic background

The on-going uncertainties re the shape of any deal for Brexit and potential disruption to global trading from political differences between the US and other developed economies continue to impact on volatilities in both UK and global stock markets. However, the Group’s focus on the UK retail financial services market continues to enable the Group and its advisers to engage with and advise customers.

Regulatory developments

Regulatory developments continue to make demands across the entire spectrum of the financial advice market in the UK, with MiFID II and GDPR having come into effect in the first half of 2018 and the Insurance Distribution Directive and the extension of the Senior Persons Regime scheduled to come into effect on 1 October 2018 and 9 December 2019 respectively. The Board is satisfied that the Group has and will continue to deal appropriately with the various requirements introduced by the aforementioned new and amended regulations.

Strategy and Outlook

The Group remains positive as to achieving market expectations for the full year and continues with its strategy of developing its own proprietary product offerings in the asset management and workplace solutions markets whilst at the same time focusing on opportunities within its affinity and wealth advisory businesses that provide higher margins. With cash resources available, the Group is well placed to fund both internal growth strategies and external opportunities. In addition the Group will continue to look for operational efficiencies across its businesses.

Prospective Board Changes

I have advised the Board that, in the light of current guidance on Corporate Governance and my having served as a Director of the Company since July 2007 and as Chairman since August 2012, it is my intention to stand down from the Board of the Company and not stand for re-election as a Director at the next Annual General Meeting of the Company in May 2019.

I should like to thank my colleagues on the Board and the excellent executive team led by Malcolm Streatfield for all their help and support over the years. It has been a pleasure to work with such a professional and dedicated team and I wish the Company and my fellow Directors well in working towards what we all believe should be a rewarding future. The Nominations Committee will start the process of looking for a new Chairman and Non-Executive Director in the near future.

Richard Last

Chairman

3 September 2018