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Interim Results Commentary 2002
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The directors report that operating profit before goodwill amortisation in respect of continuing activities for the six months ended 30 June 2002 was €7.47 million compared with €7.06 million in the previous year. These figures are before exceptional restructuring costs of €2.62 million, losses on discontinued UK activities of €0.69 million, a provision for losses on discontinued investment activities of €18.46 million, and profit on the sale of property investment of €0.35 million. Adjusted earnings per share were 6.56 cents (2001HY 7.01 cents).
Recurring income credited, a key measurement for the future of the company, was €11.58 million an increase of 49.4% on the 2001 comparative figure of €7.75 million. Recurring income includes insurance renewals, trustee fees, actuarial fees and fund management fees, all of which recur over a long period.
The Board has decided to pay an interim dividend of 0.73 cents per share subject to withholding tax at 20% (2001HY 0.73 cents). The dividend will be paid to qualifying shareholders on the Register at the close of business on 22 November 2002. Dividend warrants will be posted on 6 December 2002.
During the first half of the year the Group decided to discontinue operations in the financial services middle market, and further to restructure its continuing UK business, concentrating on the specific areas where it has a strong market position. This discontinuation has involved the closure of ten offices and a significant reduction in staff numbers. The continuing restructured business has moved to a fee based model supported by new management structure. The Group now has a platform for organic growth which is a key part of its strategy going forward.
The Group has discontinued its investment and trading activities in the sterling traded endowment market. Consequently it has taken a provision which effectively values policies at their surrender value (i.e. what the insurance company will pay out). The effect of this is to significantly reduce the carrying value of the portfolio and to give a loss on the discontinued activity for the half year of €18.46 million. The financing cost of Group investment for the period under review was €1.86 million. In addition to the €18.46 million provision against endowment policies the Group sold a property generating a profit of €0.35 million (thus the total net loss from discontinued investment activities is €18.11 million).
The fundamental changes made to the business leave the Group clearly focused on providing independent financial advisory and administrative services to clients in the following areas:
- Trustee and Corporate Services - non-advisory administrative services in IOM, Jersey and Geneva
- Actuarial & Pensioneer Trustee - self administered and self invested pension plans for companies and individuals
- Financial Services - Independent Advisory services for corporate and private clients
- Pension Release and Discount Brokerage - pension transfer and execution only brokerage (UK)
- Mortgage Intermediary - commercial and residential mortgage broking (Ireland)
| Group Performance | ||
| The performance of the Group in the first half year split between its main activities was as follows:- | ||
| Continuing activities 6 months ended June 2002 Unaudited '000 |
Continuing activities 6 months ended June 2001 Unaudited '000 |
|
| International | ||
| Trustee & Corporate Services | 1,707 | 1,004 |
| UK | ||
| Actuarial & Pensioneer Trustee | 1,569 | 1,065 |
| Financial Services | ||
| - subject to restructuring | (606) | 885 |
| - not subject to restructuring | 1,644 | 1,179 |
| Pension Release and Discount Brokerage | 2,543 | 2,024 |
| Ireland | ||
| Mortgage Intermediary | 561 | 297 |
| Financial Services including central overhead | 50 | 604 |
| Operating Profit continuing activities | 7,468 | 7,058 |
The International Trustee and Corporate services division achieved a 70% increase in operating profit to €1.71 million. The Isle of Man business performed particularly well. The increasingly regulated environment has helped the division develop further markets and income streams.
The actuarial and pension trustee division made up of IPS, an acquisition made during the first half of 2002 based in Bristol, and businesses in London and Manchester, now has critical mass in both the SSASs (self administered pension funds) and SIPPs (self invested pension plans) markets with 10% and 5% of the UK market respectively and approximately €3.5 billion of assets under administration. The new scale of the business provides significant opportunities for organic growth.
A new management team was appointed in the UK in late 2001. This team has undertaken a re-organisation of IFG Financial Services UK which has involved a discontinuation in the middle of the market and a restructuring of the remaining business. Costs and losses and indeed the extent of the rationalisation have been greater than originally thought, mainly as a result of the difficult market conditions. The performance of the businesses not subject to re-organisation or discontinuation was credible given the difficult market situation. Profit from this latter part of the IFA business grew, predominantly as a result of the acquisition of Saunderson Ventures in September 2001, profits from which are not included in the 2001 comparative figure above.
The pension release business performed strongly on the back of increased marketing spend. Although activity levels in the business are significantly higher than the previous year, long lead times have slightly inhibited profit growth to date. The discount brokerage business is inevitably suffering from the poor stock market sentiment and lower recurring income as a result of market falls.
Cheques issued on behalf of clients of the mortgage intermediary business were €243 million, an increase of 69% on the same period last year. Business submitted to lenders was up 75% at 30 June 2002.
The Irish Financial Services business is rapidly expanding its client base in the pensions market. In June 2001, a pensions advisory team was employed together with associated costs. This team is expected to contribute to profit in 2003. These costs together with an increase in central overhead costs necessary to take the Group to the next level have impacted profitability.
Outlook
Poor market conditions will curtail growth in the short term in some areas of the business and trading in the second half of the year is likely to remain difficult.
In addition the discontinuation of investment activities will initially re-base earnings to a lower level. This however will in due course greatly reduce gearing and simplify the Group’s balance sheet. Further, the decision to focus primarily on recurring income and fee based activities will give greater certainty of earnings and predictability of earnings growth.
Registered in the Republic of Ireland No. 21010
Registered Office: IFG House, Booterstown Hall, Booterstown, Co. Dublin
Tel: + 353 (0)1 2752800 | Fax: + 353 (0)1 2752801
Email: group@ifg.ie