Lighthouse Group plc (LON:LGT) Chief Executive Officer Malcolm Streatfield caught up with DirectorsTalk for an exclusive interview to discuss their final results for the year ended 31st December 2017
Q1: First off, congratulations on your continued growth in 2017 and ahead of market expectations. Can you talk us through the highlights?
A1: We’re very pleased to put out the final results for the year ended 31st December this morning. You’ll see from those results our revenues are very positively up by 13% to £54 million for the year and very pleasingly, the recurring revenues that we generate from clients, likewise, up 14% to £25 million a year.
This is really underscoring a lot of hard work from our advisors throughout the year where they’re witnessing increasing demands for the provision of financial advice because in the headlines they also show that our production per advisor increased by 23% to a very creditable £122,000 per advisor. Putting that into the mix, it produced a 27% increase to our EBITDA number, to £2.8 million from the previous year’s £2.2 million and Profit Before Tax up 32% to £2.5 million, all driven from the perspective of our advisors being more productive as I said before.
Q2: Lighthouse Group looks as though it’s reached an inflection point, can you talk us through your current market position?
A2: Well, since the big event in our sector, the Retail Distribution Review (RDR) in 2013, we have clearly concentrated our efforts on the business and there are several key points driving where we are.
One is that we have a very established and strong management team that’s been in situ throughout the period from RDR and they’re really coming together very well indeed and driving the performance. Underscoring the changes in RDR, when we moved away from commission to a fee-based environment, it’s really pleasing to see that nearly half our revenues are now on a recurring annual basis which is really assisting the overall revenue generation. As you can see the results, we are progressively increasing our profits and are being cash-generative which helps us underscore the dividend policy that we’ve established and now you see with these results putting up the dividend by 55% is a clear statement from the Board in terms of our support for a progressive dividend policy.
With favourable industry conditions, and the way I look at that is the government is clearly creating an environment that makes it more amenable for people to seek financial advice and I refer here to the changes to pensions flexibility that was established 3 or 4 years ago by the government. That has driven quite a demand for advice and with limited numbers of advisors, about 22,000 in the UK, clearly the advisors are becoming very busy across the whole sector but with Lighthouse Group underscoring that through its affinity connections, which I’ll talk a little bit more about in a moment, is making the demand for advice really quite distinct.
So, we would say we have a fully scalable and expensed infrastructure which we’ve been developing over the last 4-5 years and we’re now set to enjoy further expansion without necessarily having to incur significant overhead costs as we’ve already invested in the infrastructure over the previous periods.
Q3: You’ve just mentioned your affinity business, it’s significantly contributed to your overall growth as a Group, can you talk a little bit about how this part of the business is progressing?
A3: Since the event of RDR in 2013, we really have concentrated our key driver on our affinity relationships. We now have 21 affinity contracts in place which, interestingly, now represents 73% of the available membership of all trades unions in the UK and that gives us reach into nearly 6 million people who are working in, what we describe, as Middle Britain.
Now, we see currently a run rate of 15,000 new people every year from that population and that’s driving our new business from affinity relationships up 79% in the year, new business, to revenues of £5.2 million with total revenues from affinity relationships now at £9.6 million. So, we’re nearly at the £10 million point in terms of revenues being derived simply from the 21 contracted affinity relationships we now have in place.
We won 2 new contracts in the year and 2 others renewed with us and that’s augmented by the products sets that we are also putting in place. We launched Luceo Asset Management, as you know, a year or so ago and that’s now approaching £40 million invested in the range of funds we launched there.
So, we are looking for ways of increasing our affinity relationships but, as I say, with 21 of these contracts in place now we’re seeing a rising demand for our advice services.
Q4: So, what does your strategy, as a Group, look like for the next 12 months?
A4: Our strategy is really anchored around our Lighthouse Financial Advice division and, as I said, our affinity relationships. We’ve got a deployable, scalable infrastructure now and that means that we’ve invested in the premises, the IT equipment, the people and all the necessary kit to support a growing engagement with our affinity partners.
So, our strategy is really around actually getting deeper penetration into the affinity population and making our services available to more and more of our affinity partners. As I say, we’re at a run rate of 15,000 affinity engagements per year now, we would like to drive that number forward, if we can get to 20,000/25,000, those kind of numbers, in future period then it’ll be a delivery of our strategy.
Q5: How has trading been so far in 2018, are Lighthouse Group positioned well for further growth this year?
A5: We are indeed. We’ve set our budgets and our market expectations for the current year and here we are in month 2 and we are currently trading as we would expect to be trading at this point in time.
