IFG records operating loss following cost of restructuring

Financial services group IFG recorded an operating loss of £100,000 during the first half of 2017, down significantly from a profit of £4 million over the same period a year previous.

Shares in the company slumped more than 7 per cent last month after the group issued a profit warning. It said profits would be materially lower than expected as a result of accelerated restructuring of its James Hay business and legal costs.

The company said it was engaged in ongoing discussions with British Revenue and Customs to clarify any potential sanction over legacy non-standard investments in which some of its James Hay clients invested.

In its half-year results for the year ended June 30th, 2017, published on Wednesday, the company said profit attributable to the shareholders had decreased from £2.8 million to £0.01 million, largely arising from “exceptional costs incurred”.

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IFG Group is a financial services company with full market listings in London and Dublin. It provides a range of financial solutions including full platform services, pensions’ administration and independent financial advice.

Assets under administration and advice increased from £24.4 billion to £29.1 billion in the 12 months to June 30th, with James Hay now administering more than £24.2 billion of client assets and Saunderson House advising on just under £5 billion of assets.

Revenue decreased by 4 per cent. Client and asset growth were strong in James Hay and much of the lost interest revenue “will be offset” from repricing undertaken.

Performance

In Saunderson House, the growth of the discretionary management service was “ahead of forecast”, but due to the timing of asset take-on, the full revenue benefits of this performance “will only be seen during the second half the year”.

Group adjusted operating profit decreased by 37 per cent, from £5.8 million to £3.7 million.

Adjusting for the £3.3 million reduction in interest revenue versus the same period last year, the company said both revenues and adjusted operating profits would have been ahead of the same period during 2016.

The underlying performance of the businesses will translate into revenue and profit growth during the second half of the year, and position the group “strongly” as it moves into 2018.

The group delivered earnings per share of 0.01 pence compared to 2.63 pence last year. Its adjusted earnings per share were 2.98 pence compared to 4.05 pence last year, a decrease of 26 per cent.

IFG chief executive John Cotter said short-term financial performance was being impacted by the low interest rate environment, restructuring costs and the resolution of legacy issues.

“We expect a much improved second half underlying performance, particularly in James Hay as the effects of repricing and restructuring start to bear fruit,” he said.

“We are confident that both businesses are on a strong growth trajectory and that the underlying performance will translate into a much improved financial performance in 2018.”

Legacy issues

The group’s strategy remains “unchanged”, focused on the organic growth and development of its James Hay and Saunderson House financial advisory businesses.

The company said the first six months of 2017 had been “challenging from a financial standpoint” and impacted by the ongoing legacy issues and restructuring costs.

“The underlying businesses have performed strongly, growing assets and clients ahead of our forecasts, and materially ahead of the same period in 2016.

“We now administer or advise more than £29 billion of assets for over 59,000 clients across both businesses.

“Legacy issues have impacted profits due to costs, and we also took the decision to accelerate restructuring in James Hay, which will have a further short-term financial impact in the second half of the year, but reflects our confidence in the changes we are making to the business.”

In a note, an analyst with Davy said IFG reported “strong growth” in its key assets under administration and advice metric, up 19 per cent year-on-year to over £29 billion, reflecting “solid growth” in both businesses.

“Below the operating line, significant exceptional items of £2.7 million have driven an operating loss of £0.1 million, yet resolution of the legacy Elysian Fuels matter remains outstanding and could materially impact reported results in the second half of the year,” she said.