Preliminary Results

Lighthouse Group plc

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

Preliminary Results

Lighthouse Group plc (AIM: LGT) today announces its preliminary results for the year ended 31 December 2013.

Highlights

*Earnings before interest, tax, depreciation, and amortisation and non-recurring operating expenses

Commenting on the results, Richard Last, Chairman of Lighthouse Group plc, said: "The Group has made substantive progress during 2013, a year which saw considerable market and regulatory change. The Group has continued to invest in its LFA business which is now better placed to fully capitalise on the affinity relationships that it has secured. The increase in average annualised revenue per adviser and in percentage gross margins achieved are very positive and bode well for future trading. The restructuring we announced in September 2013 is expected to deliver significant operational gains and cost savings by mid 2014 and provides a solid platform for future growth."

"With a strong cash balance, operational scale and a robust business model, Lighthouse is well positioned within the industry to deliver future growth."

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OVERVIEW AND FINANCIAL PERFORMANCE

The results for the year to 31 December 2013 represent a resilient performance by the Group in the first year of trading following the implementation of the Retail Distribution Review ("RDR") on 1 January 2013. As previously reported, the implementation of the RDR represented the most significant change in the market for retail financial services in the UK for many years, imposing higher minimum qualification criteria on advisers in the life, pensions and investment arenas and also changing fundamentally how adviser remuneration is agreed and paid.

Notwithstanding these major changes, Lighthouse has continued to trade effectively. Although Group revenues reduced by 13 per cent. to £48 million in comparison with 2012 (£55 million), primarily as a result of the 17% reduction in average adviser numbers following the revised qualification and trading requirements of the RDR coming into effect, average revenue production per adviser increased by 3 per cent. to £82,000 in comparison with 2012 levels against general market expectations of double-digit percentage declines. This is a considerable achievement by the Group and its advisers in continuing to trade above historic levels whilst simultaneously coping with major regulatory, technological and operational change.

Recurring revenues increased to 34 per cent. of total Group revenues in comparison with 32 per cent. in 2012, which indicates the resilient nature of the Group's on-going activities. Particular focus will be placed on converting this revenue (where it originated prior to 1 January 2013) from trail income, which for many products will cease to be paid after 2016, into on-going adviser charges.

The increasing proportion of revenues generated through the Group's owned advisory businesses, Lighthouse Financial Advice ("LFA") and LighthouseCarrwood ("Carrwood"), which attract higher margins due to adviser support in areas such as marketing, affinity relationships and lead generation, resulted in an increase in gross profit percentage from 27 per cent. to 31 per cent.

Operating costs (before non-recurring items) increased by £1.2 million to £14.8 million (2012: £13.6 million). This was after a gross investment cost of approximately £1.2 million in adviser recruitment and training and promotional costs relating to LFA, as well as higher professional indemnity insurance ("PII") costs (as noted in the 2013 Interim Report) and in senior management resource in compliance and operations in the post-RDR environment.

Overall the Group achieved an EBITDA, before non-recurring items, of £215,000 in comparison with £1.5 million in 2012. This is due to the additional investment of £1.2 million in LFA, without which the EBITDA for the year would have been largely unchanged from 2012, despite revenues being reduced by 13 per cent.

The restructuring, initially announced in September and confirmed in November 2013, which involved the closure of the Exeter office and relocation of the operations formerly undertaken there to the Group's other two main locations in Woodingdean, near Brighton, and Stockport, has yet to benefit materially the Group's overhead base but is projected to result in a £1.2 million reduction in annual running costs once the process has been fully completed in mid 2014.

After a gain of £436,000 recorded on the sale of the Group's 50.1 per cent. holding in its Deverill Black subsidiary, non-recurring expenses of £1.7 million (comprising £1.4 million on the restructuring project and an additional £310,000 provision in respect of past business written explained below), depreciation and amortisation of £504,000 (2012: £813,000) and net finance costs of £73,000 (2012: net finance revenues of £33,000) the Group recorded a pre-tax loss of £1.6 million (2012: £4.6 million after an impairment charge of £3.9 million).

The review of Arch Cru cases undertaken across the industry as a result of the Financial Conduct Authority ("FCA") exercising its powers under s404 FSMA 2000 has now been completed and redress payments commenced in December 2013. At the date of this Report the Board considers that the provisions previously established remain adequate to meet all liabilities in this regard, net of PII recoveries, but as a result of certain other redress matters arising, an additional provision of £310,000 has been established.

Loss per share before the impact of non-recurring operating expenses and impairment charge amounted to (0.25) pence (2012: earnings per share of 0.65 pence). No dividends are proposed for the year (2012: None).

FINANCIAL POSITION

The Group's year end net cash balances (after deduction of unsecured loan notes and a bank loan, neither of which are redeemable within one year, totalling £1.8 million) amounted to £7.7 million (2012: £10.5 million). This reduction reflects the investment in LFA of £1.2 million, the purchase of the long-leasehold interest in the Group's premises located in Woodingdean, near Brighton, for £1.1 million, the net proceeds of £452,000 on the disposal of the Group's 50.1 per cent. interest in Deverill Black and the payment of some £1.2 million in relation to the s404 review completed in respect of historic Arch Cru product sales.

As noted in previous reports, the Group has given undertakings that no distributions or non-trading payments will be made from its regulated subsidiaries without prior discussion with and assent from the FCA.

A substantial proportion of the Group's cash balances are utilised in meeting its regulatory capital obligations and working capital requirements. The Board considers it prudent to retain the remainder of those funds (approximately £2 million) within the business to support trading whilst completing the restructuring process referred to above, to continue to support the growth plan for LFA and Carrwood and to meet any residual potential claims for consumer redress that may arise from the historic trading in regulated subsidiaries.

LOAN NOTES

As noted in the 2013 Interim Report, the Board has negotiated unsecured loan note funding from three institutions totalling £1.32 million in order to contribute towards the up-front investment cost of the growth project for LFA. The cumulative spend, primarily on new IT systems and processes, adviser recruitment and training/development, amounted to £2.6 million by 31 December 2013.

The funding was received in March and July 2013 respectively and the financial instruments concerned take the form of unsecured loan notes issued by the Company which are to be used solely for the purposes of the LFA growth project. The loan notes bear interest at 8 per cent. per annum, rolled up until redemption in December 2015, and a premium of 50 per cent. on the capital sum originally advanced will be paid if LFA achieves pre-determined targets in terms of revenues, adviser numbers and EBITDA for the year ending 31 December 2015. Such premium, if paid, is expected to be self-financing.

BUSINESS RELATIONSHIPS AND DEVELOPMENT

The Group continues to place considerable emphasis on maintaining and increasing its relationships (both contractual and non-contractual) with its affinity groups and professional partners which are seen as the main drivers for growth in LFA and Carrwood respectively.

The Group has commenced the delivery of its growth plans for its national advisory subsidiary, Lighthouse Financial Advice ("LFA"), with recruitment levels being the highest since the business was acquired in 2003. The Group has invested £3.7 million to date in the development of LFA, primarily in adviser recruitment and development (£2.1 million), new IT systems (£0.5 million) and the purchase of the long-leasehold interest in its premises at Woodingdean (£1.1 million).

In addition LFA has launched a range of carefully researched and risk-rated products which its advisers are mandated to use for all new business undertaken in LFA (other than top-ups of existing policies, where appropriate).

An important growth area for LFA is with affinity groups, where, as noted in the Interim Report in September 2013, a new three-year agreement with the Union of Shop, Distributive and Allied Workers ("usdaw") was signed in March 2013 and the Civil Service Motoring Association renewed its agreement with LFA for a further year in August 2013.

In addition on 20 March 2014 the Group announced the renewal of the agreement with Prospect, the UK's largest union for professional engineers representing more than 120,000 members, for a further three years, as well as the signing of a new two year agreement with Parliament Hill Limited, a business that manages members' benefits packages for over 60 organisations.

At the same time the Group has created the foundations to grow and broaden the client base of Carrwood, which specialises in providing independent financial advice to high net worth individuals and professional clients, and to maintain the market position of our network division, Lighthouse Advisory Services, whose members will benefit during 2014 from the systems enhancements now deployed to LFA advisers.

In January 2014 the Board was pleased to announce the launch of the Lighthouse Pensions Trust, a Master Trust arrangement through which small- and medium-sized enterprises ("SMEs") can access a unique proposition to enable them to meet their obligations under auto-enrolment in conjunction with the Group and its partners, all of whom are leading players in the auto-enrolment arena. The Board considers that this will provide significant growth opportunities for the Group and its advisers over the coming years as well as providing a service to SMEs who need advice and support in order that they may meet their onerous obligations in this area.

BOARD CHANGES

In the 2012 Annual Report issued in March 2013, I reported the Group's announcement on 19 March 2013 that Fay Goddard (now Williams) had agreed to join the Board of Lighthouse as a Non-Executive Director with effect from 1 April 2013. Fay has already made a significant impact on the Board's deliberations and strategy and she will continue to assist the Company in meeting the challenges of providing professionally qualified advice and in further enhancing the embedding of consumer focus within the Group's operations.

On 20 December 2013 the Company announced that Mark Ross, Company Secretary and Risk Director since October 2009, had given notice of his resignation from the Board and the Company with effect from 31 March 2014. Mark has been an invaluable source of technical expertise and support during a time of unprecedented change in the regulated financial services sector and the Board thanks him for his contribution and wishes him well for the future.

On 12 February 2014 the Board announced the appointment of Ken Paterson as Group Compliance and Risk Director. Ken joined the Group in August 2012 as Group Compliance Director and brings a wealth of experience in the compliance and specialist risk environment across the regulated spectrum, including regulatory authorities and large scale financial businesses, and his appointment is testament to the Group's on-going commitment in these areas.

Ken will absorb the majority of the tasks previously undertaken by Mark Ross. Peter Smith, Group Finance Director, will be appointed as Company Secretary from 31 March 2014.

DIVIDEND

Although the Group continues to make significant progress there remains uncertainty regarding the extent of any consumer redress that may be required as a result of the past trading of the Group's regulated entities, albeit the Board believes that the current level of provisioning for such costs is appropriate and adequate. In addition investment in LFA's growth plan is ongoing and the resolution of such issues as a "sunset" date for the majority of pre-RDR trail income has yet to be finalised. As a consequence of these issues the Board considers that it remains inappropriate to recommend a dividend payment at this time and accordingly no final dividend in respect of the current year is proposed (2012: Nil pence per share). The Board is however committed to returning the Company to the dividend list as soon as trading and regulatory conditions allow.

STRATEGY AND PROSPECTS

2013 has been another year of substantial change as the first twelve months of the growth plan for LFA has been completed, the Group has absorbed the impact of fundamental changes in IT systems and processes and operating culture post-RDR and the Core and Researched Solutions have been developed and deployed for use in LFA as well as in other divisions. In addition the restructuring project announced in September is now in its delivery phase and will add substantially to the Group's future prospects by enabling it to achieve a near 10 per cent. reduction in the annual level of operating costs by mid-2014.

Substantial investment has been and will continue to be made in the further development of LFA, and well-founded plans are also in place to grow Carrwood and to continue to maintain a risk-managed network offering in which the full business operating system developed by the Group in the past eighteen months will be a mandatory requirement, enabling further transparency and risk mitigation.

Finally, I would like to thank all of our advisers for their continuing professionalism and loyalty to the Group and my fellow directors and all employees of Lighthouse for their considerable hard work and support during the year.

Richard Last

Chairman

24 March 2014

Lighthouse Group plc

Consolidated statement of comprehensive income

for the year ended 31 December 2013

Lighthouse Group plc

Consolidated statements of changes in equity

for the year ended 31 December 2013

Lighthouse Group plc

Consolidated statement of financial position

at 31 December 2013

The financial information was approved by the Board of Directors on 24 March 2014 and was signed on its behalf by

Malcolm Streatfield

Chief Executive

Peter Smith

Finance Director

Lighthouse Group plc

Consolidated statement of cash flows

For the year ended 31 December 2013

Lighthouse Group plc

Notes to the preliminary financial information for the year ended 31 December 2013

1.  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 and the related explanatory notes has been prepared on the basis of the accounting policies set out in the audited financial statements for the year ended 31 December 2013 and International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board as adopted for use in the EU ("IFRS").

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2013 or 2012 but is derived from those accounts. Statutory accounts for 2012 have been delivered to the registrar of companies, and those for 2013 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2. Loss per ordinary share

The calculation of the basic and diluted loss per share attributable to equity shareholders of the parent company is based on the following data:

3. Dividends

The directors do not recommend the payment of a final dividend for the year ended 31 December 2013 (2012: Nil pence per share).

4. Annual report

The annual report and audited financial statements will be posted to shareholders on or about 11 April 2014 and copies are available for collection indefinitely from the Company's registered office at 26 Throgmorton Street, London, EC2N 2AN or at the Group's website (www.lighthousegroup.plc.uk).

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