Interim Results

RNS Number : 8270R

IFG Group PLC

31 August 2010

 

 

 

 

IFG Group plc

Interim Results for the six months ended 30 June 2010

 

 

IFG Group plc today (31 August 2010) released its interim statement for the six months to 30 June 2010. Key highlights include:

 

·; Revenue of €57.4 million (2009 HY: €49.7 million) an increase of 16%

·; Adjusted operating profit of €11.1 million (2009 HY: €12.2 million)

·; Operating profit of €0.3 million after acquisition related costs (2009 HY: €9.1 million)

·; Dividend in cent per share of 1.35 (2009 HY: 1.27)

·; James Hay acquisition completed in March, consideration paid: €42.7 million (Adding 32,000 SIPPs under administration)

·; Group net debt €21.0 million (2009 HY: €49.3 million)

·; Total assets under administration and advice of circa €60 billion

 

 

Commenting on the results, Mark Bourke, CEO of IFG Group plc said,

 

"We have delivered at the higher end of expectations in terms of revenue, operating profit and adjusted earnings per share. We expect to meet market expectations for the full year. Our core businesses remain strong. In March we completed the Group's largest acquisition to date and integration is on schedule. With low net debt levels we are well positioned to grow both organically and by acquisition."

 

 

 

 

For reference:

 

Mark Bourke Niamh Hore

 

Group CEO Investor Relations Manager

IFG Group plc IFG Group plc

Tel: +353 (0)1 275 2800 Tel: +353 (0)1 275 2866

 

 

Broker (Ireland) : Broker (UK) :

Paul Burke Jonny Franklin-Adams/ Nick Harland

Davy Macquarie Capital (Europe) Limited

Tel: +353 (0)1 614 9142 Tel: +44 (0)20 3037 2000

 

IFG Group plc

Interim Results

For the Six Months Ended 30 June 2010

 

	Adjusted measures	Adjusted measures		IFRS	IFRS
	Six months ended	Six months ended		Six months ended	Six months ended
	30 June 2010	30 June 2009		30 June 2010	30 June 2009
	Unaudited	Unaudited		Unaudited	Unaudited
		Restated			Restated
	€'000	€'000	Notes	€'000	€'000
Revenue	n/a	n/a		57,389	49,671
Operating profit	11,065	12,160	1	254	9,066
(Profit/(loss) before income tax	10,460	11,111	1	(351)	8,017
Adjusted earnings per ordinary share - in cent	9.62	12.04	2	n/a	n/a
Basic earnings per ordinary share - in cent	n/a	n/a		0.95	7.89
Group net debt	n/a	n/a		21,034	49,326
Interim dividend per ordinary share - in cent	1.35	1.27	3	n/a	n/a

 

 

 

 

 

 

 

Notes:

 

1. Adjusted profit before income tax and adjusted earnings per share are stated before exceptional items, amortisation of intangible assets, share based payment compensation and employee benefits of employees laid off on James Hay acquisition.

 

2. Reconciliation of adjusted earnings per ordinary share:

	Six months ended			Six months ended
	30 June 2010			30 June 2009
	Per share cent	Earnings €'000		Per share cent	Earnings €'000
Profit attributable to owners	0.95	1,002		7.89	5,888
Amortisation of intangible assets	3.58	3,772		3.09	2,304
Share based payment compensation	0.74	785		1.06	790
Exceptional costs (net of related tax)	3.41	3,610		-	-
Employee benefits of employees laid off (net of related tax)	0.94	977		-	-
Adjusted earnings	9.62	10,146		12.04	8,982

 

3. In accordance with IFRS the interim dividend is not accrued until paid and as such is not included as a reduction in reserves.

 

 

 

 

 

 

 

 

Commentary on Interim Results

 

The Directors report that adjusted operating profit was €11.1 million (HY 2010 unadjusted: €0.3 million) compared with €12.2 million (HY 2009 unadjusted: €9.1 million) in the previous period on revenues of €57.4 million (2009 HY: €49.7 million). The 2009 half year operating earnings were €10.2 million when once-off profits of €2.0 million in our mortgage division are not taken into account. Adjusted earnings per share was 9.62 cent (2009 HY: 12.04 cent). Group net commitment (net debt plus net contingent consideration) at 30 June 2010 is €21.6million (HY 2009: €54.9 million).

 

The Board has decided to increase the interim dividend to 1.35 cent per share (2009 Interim dividend: 1.27 cent per share) subject to withholding tax at 20%. The dividend will be paid to qualifying shareholders on the register at the close of business on 14 January 2011. Dividend warrants will be posted on 28 January 2011.

 

Group Performance

 

The Group is managed from a geographic perspective based on 3 reporting segments: International, United Kingdom (UK) and Ireland.

 

The Group earns revenues in these geographical locations from two sources:

- Fees from the provision of services including, in particular, trustee and corporate services and pensioneer trustee services;

- Commissions earned in the intermediation of financial services products.

 

The performance of the Group in the first six months split between its segments was as follows:

	Six months ended	Six months ended
	30 June 2010	30 June 2009
		Restated
	€'000	€'000
International	5,517	7,349
UK	6,964	3,268
Ireland (including central overhead)	(1,416)	1,543
Adjusted operating profit *	11,065	12,160

*A reconciliation of adjusted operating profit to (loss)/profit before income tax is included in the segmental analysis in Note 4.

 

International

 

The International business has produced a profit of €5.5 million in the first half of the year (HY 2009: €7.3million). In the first half of 2009, however, we benefited from a number of once off fees as clients exited or restructured. The business is performing to plan and is on course to report a similar overall result to the prior year. In 2009 the International business coped well with a significant number of structure wind-ups and fee pressure and is now starting to see client activity levels increase in the second half of 2010.

 

In our main offices, Isle of Man, Jersey, Cyprus and Switzerland, our new business is in line or ahead of prior year while performance of our existing book has been solid.

 

In Cyprus we are scheduled to make our final payment in relation to the Excel-Serve Management Limited acquisition completed in 2008. This payment was contingent on performance and will be paid in full. The achievement of targets set in 2008 demonstrates the delivery of acquisition revenue streams.

 

The fund administration business, which was impacted by a significant drop in asset valuations, was loss making in the first half of the year but is expected to reach breakeven run rate by the end of the year.

 

Management reacted rapidly to the economic backdrop over the recent period controlling costs and adapting to the changing conditions. The business is now ready to look outward again and to pursue expansion plans in South East Asia and the building up of the Swiss, Jersey and Cyprus businesses. Management continue to believe that the drivers of growth remain in these jurisdictions as banks, some of which are government owned, and accountancy firms concentrate on core competencies and seek to divest of their trustee businesses.

 

As tax rates continue to rise across the developed world, both multi-national corporations and wealthy individuals will continue to structure activities in a manner which legitimately optimises their tax position. Indeed the rate increases and the intent of governments in protecting their individual tax base will be a driver of the market and revenue growth for the foreseeable future.

 

IFG as an independent provider of corporate and trust related administrative services, with capability in seven key centres (now including BVI & the UK), is well placed to service these corporate and high net worth individuals.

 

UK

Pensioneer Trustee

 

Self Invested Personal Pensions (SIPP) now comprise 72% of all new individual pension business in the UK market. Our focus is at the bespoke end of the market where we are the largest provider. IFG as an organisation administer 39,700 SIPPs as at the half year.

 

	Six months ended	Six months ended
	30 June 2010	30 June 2009
	€'000	€'000
Revenue	15,792	4,859
Operating profit	5,310	2,017

 

The rate of new business acquisition is shown below:

	IPS		James Hay		Total
	SIPP	SSAS	SIPP		SIPP	SSAS
Opening balance @ 1 January 2010	8,034	1,501	32,221		40,255	1,501
Transfers in	686	25	859		1,545	25
Transfers out	(134)	(52)	(1,935)		(2,069)	(52)
Closing balance @ 30 June 2010	8,586	1,474	31,145		39,731	1,474

 

Our pre-acquisition business administered 8,586 SIPP schemes with a healthy new business flow of 686 (and net annualised growth at 13.7%) which is at the higher end of expectations. This shows the SIPP market holding up well in the aftermath of the regulatory change and budget reductions in pension contribution relief in 2009.

 

More recently we have seen the new UK government move toward simplifying relief to an annual limit and to remove the compulsory annuity purchase rule which applies at 75 years of age. These changes will further support the growth in this market in the medium term and underpin the long term trend toward individual control of pensions and investments.

 

 

 

 

James Hay Acquisition Update

 

The acquisition of James Hay Holdings Limited (James Hay) for €42.7 million (£38.9 million) was completed in March. This acquisition afforded the Group the opportunity to:

 

- Occupy the leading position in the SIPP market;

- Obtain significant efficiency gains; and

- Position IFG as a consolidator in this market.

 

As commented on previously in our AGM statement, the integration and restructuring is being carried out at pace and all aspects are on or ahead of schedule. While this is taking place the operating performance of James Hay has remained slightly ahead of target.

 

Planned year one reductions in headcount from 520 to 350 and other savings of circa £1.5 million are on schedule. Plans on the sales side are also moving at pace with the integration of the sales and marketing teams being completed and plans for product re-launch and re-branding on target for end of Q4 and beginning of 2011.

 

The integrations plans are based on a fifteen month timetable and should be completed by end of Q2 next year. At that point we see the Group being well positioned to take advantage of expected further consolidation in the SIPP market.

 

Financial Services

	Six months ended	Six months ended
	30 June 2010	30 June 2009
	€'000	€'000
Revenue	14,485	12,570
Operating profit	1,654	1,251

 

The advisory business profit €1.7 million has increased by 32% on a year on year basis. Saunderson House has had a strong first half year both in terms of new client wins and time charges.

 

The proposition of conflict free and high quality financial advice continues to gain ground with clients and is well positioned in light of the "Retail Distribution Review" (RDR) which is being implemented by the Regulator. The core recommendation of the RDR is to remove commission bias in the IFA and client relationship.

 

Our commission based advisory businesses including Siddalls which specialises in clients leaving the UK were profitable in the first half of 2010.

 

Ireland

Property

 

Overall our Property business has continued to struggle with significantly reduced capital being deployed through the broker market. Our aim is to maintain neutral contribution whilst developing the life insurance and other aspects of the business. Management will continue to explore opportunities to dispose of the Title Insurance business by 2011.

 

Financial Services including Central Overhead

 

Individual and Group pension performance continued to improve with approximately €1.2 million of operating profit in the first half year. The winning of 18 new corporate clients and the conversion of individual business to our passive asset allocation proposition is continuing to grow the business despite the difficult backdrop.

 

 

Debt

 

Group net commitment (net debt plus net contingent consideration) is summarised and compared to the previous half year and 2009 year end below.

	As at 30 June 2010	As at 31 December 2009	As at 30 June 2009
	€'m	€'m	€'m
Total net debt	21.0	43.9	49.3
Contingent consideration	7.4	7.2	18.2
Less restricted cash - held in escrow	(6.8)	(6.7)	(12.6)
Total net commitment	21.6	44.4	54.9

In the half year since 31 December 2009, we have executed the acquisition of James Hay and raised the related equity to finance the acquisition. This combined with the operating cash generated by the Group has transformed the balance sheet of the Group. We are now substantially de-geared with net debt standing at below 1 times EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation).

 

The Group is currently in the process of refinancing and expects to complete this in the coming months. The resulting package will position IFG to develop both organically and by acquisition at a time where we see significant opportunity and value in our chosen markets.

 

Principal risks and uncertainties

 

The Group set out in its 2009 Annual Report and Financial Statements the principal risks and uncertainties that could impact its performance; these remain unchanged since the Annual Report was published. The Group operates a structured risk management process via an internal audit and risk function, which identifies and evaluates risks and uncertainties and reviews mitigation activity.

 

These risks are set out in detail in the 2009 Annual Report and Financial Statements on page 17.

 

The Group has performed well in the first half year not withstanding the unprecedented external pressure of the liquidity and credit crises and the resultant deep recessions in all developed economies. As a provider of financial services where activity levels globally have been significantly affected, our businesses are demonstrating their solidity and the robust nature of their income streams. We will continue to focus on cash generation, debt reduction and positioning ourselves for future opportunities as the global economy recovers.

 

In addition to the above, the Group looks forward in the second half of the year and beyond to continue the integration of James Hay and has an integration committee led by the Executive Director in charge of the UK segment who keeps the Group Board appraised of the implementation of the integration plan. This has been designed to address the identified risks relating to the acquisition including:

- The transition of the information and technology assets and resources into the IFG UK data centre;

- The reorganisation of the James Hay operational activities;

- The restructuring and rationalisation of the James Hay functional activities and resources; and

- The development of the combined product offering.

 

 

 

Consolidated Income Statement

Six months ended 30 June 2010

		Six months ended		Six months ended	Year ended
		30 June 2010		30 June 2009	31 December 2009
		Unaudited		Unaudited	Audited
				Restated	Restated
	Notes	€'000		€'000	€'000
Revenue	4	57,389		49,671	94,350
Cost of sales		(52,290)		(36,465)	(77,452)
Gross profit		5,099		13,206	16,898
Administrative expenses		(3,477)		(3,943)	(7,761)
Other expenses		(1,368)		-	(1,215)
Other losses - net		-		(197)	-
Operating profit		254		9,066	7,922
Analysed as:
Operating profit before exceptional items and employee benefits of employees laid off		6,508		9,066	10,292
Exceptional items	5	(4,897)		-	(2,370)
Employee benefits of employees laid off	5	(1,357)		-	-
Operating profit		254		9,066	7,922
Finance income		392		528	713
Finance costs		(997)		(1,577)	(2,232)
Share of loss of associate		-		-	(79)
(Loss)/profit before income tax		(351)		8,017	6,324
Income tax credit/(expense)	6	917		(1,620)	(1,131)
Profit for the period	4	566		6,397	5,193
Profit for period attributable to:
Owners of the parent company		1,002		5,888	5,375
Non-controlling interest		(436)		509	(182)
		566		6,397	5,193
Earnings per share attributable to the owners of the company during the period:
Basic earnings per ordinary share (cent)			0.95	7.89	7.18
Diluted earnings per ordinary share (cent)			0.94	7.72	7.03

 

Consolidated Statement of Comprehensive Income

Six months ended 30 June 2010

		Six months ended	Six months ended	Year ended
		30 June 2010	30 June 2009	31 December 2009
		Unaudited	Unaudited	Audited
			Restated	Restated
		€'000	€'000	€'000
Profit for the period		566	6,397	5,193
Other comprehensive income
Currency translation difference		13,424	7,437	4,104
Actuarial losses on retirement benefit obligation		(75)	(65)	(1,929)
Net investment hedge		-	(2,639)	(2,639)
Total comprehensive income for the period		13,915	11,130	4,729
Total comprehensive income attributable to:
- Owners of the company		14,350	10,625	4,914
- Non-controlling interest		(435)	505	(185)
		13,915	11,130	4,729

Consolidated Balance Sheet

As at 30 June 2010

 

		30 June 2010	30 June 2009	31 December 2009
		Unaudited	Unaudited	Audited
			Restated	Restated
	Notes	€'000	€'000	€'000
ASSETS
Non-current assets
Property, plant & equipment		7,058	4,865	4,977
Intangible assets		139,828	98,672	89,930
Investment in associate		-	79	-
Deferred income tax assets		1,673	979	1,003
Available-for-sale financial assets		122	117	113
Other non-current assets		2,486	500	2,360
Total non-current assets		151,167	105,212	98,383
Current assets
Trade and other receivables		45,838	40,852	39,495
Current income tax asset		1,961	226	-
Restricted cash-held in escrow		6,823	12,561	6,662
Cash and cash equivalents		57,225	22,965	22,310
Total current assets		111,847	76,604	68,467
Assets of disposal group classified as held for sale	3	-	738	357
		111,847	77,342	68,824
Total assets		263,014	182,554	167,207
LIABILITIES
Non-current liabilities
Borrowings		54,826	60,894	54,723
Deferred income tax liabilities		12,639	4,693	4,393
Retirement benefit obligations		2,097	300	1,861
Other non-current liabilities		5,119	-	-
Provisions for liabilities		949	9,882	860
Total non-current liabilities		75,630	75,769	61,837
Current liabilities
Trade and other payables		37,318	24,033	35,741
Current income tax liabilities		857	2,679	1,252
Derivative financial instruments		-	197	-
Borrowings		23,433	11,580	11,691
Provisions for liabilities		12,841	10,382	8,627
Total current liabilities		74,449	48,871	57,311
Liabilities of disposal group classified as held for sale	3	-	301	262
		74,449	49,172	57,573
Total liabilities		150,079	124,941	119,410
Net assets		112,935	57,613	47,797
EQUITY
Capital & reserves attributable to owners of the company
Share capital	11	14,918	8,998	9,009
Share premium	11	103,199	60,061	57,668
Other reserves		(5,663)	(17,225)	(19,822)
Retained earnings		71	4,244	97
		112,525	56,078	46,952
Non-controlling interest		410	1,535	845
Total equity		112,935	57,613	47,797

 

 

 

Consolidated Cash Flow Statement

 Six months ended 30 June 2010

		Six months	Six months	Year ended
		ended 30 June 2010	ended 30 June 2009	31 December 2009
		Unaudited	Unaudited	Audited
	Notes	€'000	€'000	€'000
Cash flows from operating activities
Cash generated from operations - net	9	1,541	4,610	17,112
Interest received		293	178	697
Income taxes paid		(2,549)	(416)	(1,453)
Net cash (used)/generated from operating activities		(715)	4,372	16,356
Cash flows from investing activities
Purchase of property, plant & equipment		(1,260)	(1,056)	(1,953)
Sale of property, plant & equipment		12	6	2
Purchase of available-for-sale & other non-current assets		-	(500)	-
Purchase of intangibles		(425)	(544)	(976)
Purchase of investments		-	(79)	-
Purchase of subsidiary undertakings net of cash acquired		(14,227)	(67)	-
Deferred & contingent consideration on prior period acquisitions		(81)	(2,812)	(3,499)
Movement on other non-current assets		-	-	(2,343)
Net cash used in investing activities		(15,981)	(5,052)	(8,769)
Cash flows from financing activities
Dividends paid	7	(953)	-	(1,770)
Interest paid		(623)	(1,136)	(1,796)
Proceeds from issue of share capital		51,293	43	145
Expenses paid in relation to issue of shares		(2,386)	-	-
Repayment of debt		-	(920)	(9,145)
Proceeds from long term borrowings		-	2,600	4,600
Payment of finance lease liabilities		(20)	(23)	(46)
Net cash generated/(used) in financing activities		47,311	564	(8,012)
Net increase/(decrease) in cash and cash equivalents		30,615	(116)	(425)
Cash and cash equivalents at the beginning of the period		21,948	21,284	21,284
Effect of foreign exchange rate changes		4,653	1,589	1,089
Cash and cash equivalents at end of period		57,216	22,757	21,948

Cash and cash equivalents for the purpose of the statement of cash flows are comprised of cash and short term deposits net of bank overdrafts that are repayable on demand. For the purpose of the cash flow statement cash and cash equivalents include the following:

 

		Six months ended	Six months ended	Year ended
		30 June 2010	30 June 2009	31 December 2009
		Unaudited	Unaudited	Audited
			Restated	Restated
		€'000	€'000	€'000
Cash and short term deposits		57,225	23,183	22,475
Bank overdrafts		(9)	(426)	(527)
	10	57,216	22,757	21,948

 

Consolidated Statement of Changes in Equity

	Share	Share	Other	Retained	Attributable	Non	Total
	capital	premium	reserves	earnings	to owners	controlling	equity
						interest
			Restated	Restated
	€'000	€'000	€'000	€'000	€'000	€'000	€'000
At 31 December 2009	9,009	57,668	(19,822)	3,241	50,096	845	50,941
Prior year restatement	-	-	-	(3,144)	(3,144)	-	(3,144)
At 1 January 2010	9,009	57,668	(19,822)	97	46,952	845	47,797
Total comprehensive income for the period	-	-	13,423	927	14,350	(435)	13,915
Dividends	-	-	-	(953)	(953)	-	(953)
Issue of share capital	5,909	45,531	(49)	-	51,391	-	51,391
Share based payment compensation:
- Value of employee services
- share option plans	-	-	160	-	160	-	160
- long term incentive plan	-	-	625	-	625	-	625
At 30 June 2010	14,918	103,199	(5,663)	71	112,525	410	112,935
At 1 January 2009	8,909	60,025	(22,735)	(1,579)	44,620	1,030	45,650
Total comprehensive income for the period	-	-	4,802	5,823	10,625	505	11,130
Issue of share capital	89	36	(82)	-	43	-	43
Share based payment compensation:
- Value of employee services
- share option plans	-	-	165	-	165	-	165
- long term incentive plan	-	-	625	-	625	-	625
At 30 June 2009	8,998	60,061	(17,225)	4,244	56,078	1,535	57,613
At 1 January 2009	8,909	60,025	(22,735)	(1,579)	44,620	1,030	45,650
Total comprehensive income for the period	-	-	1,468	3,446	4,914	(185)	4,729
Dividends	-	-	-	(1,770)	(1,770)	-	(1,770)
Issue of share capital	100	127	(82)	-	145	-	145
Share based payment compensation:
Write off of expenses relating to share placement post year end	-	(2,484)	-	-	(2,484)	-	(2,484)
- Value of employee services
- share option plans	-	-	277	-	277	-	277
- long term incentive plan	-	-	1,250	-	1,250	-	1,250
At 31 December 2009	9,009	57,668	(19,822)	97	46,952	845	47,797

Notes to the Financial Information

 

1. General Information

 

IFG Group and its subsidiaries (together the 'Group') are engaged in the provision of financial services and corporate and trustee services. The Company is a public company, listed on the Irish Stock Exchange (ISE), and is incorporated and domiciled in the Republic of Ireland. The address of its registered office is IFG House, Booterstown Hall, Booterstown, County Dublin, Ireland. This condensed consolidated interim financial information statement ("financial information") was approved for issue by the Board of Directors on 31 August 2010. This financial information has been reviewed, not audited.

 

 

2. Basis of Preparation

 

This financial information for the six months ended 30 June 2010 has been prepared in accordance with the Transparency Regulations 2007, the Transparency Rules of the Irish Financial Services Regulations Authority and IAS 34, Interim Financial Reporting as adopted by the EU. This financial information should be read in conjunction with the Financial Statements for the year ended 31 December 2009 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU.

 

The accounting policies applied in preparing this financial information are consistent with those used to prepare the Financial Statements for the year ended 31 December 2009 except as described below.

 

1. Taxes on income in the interim period are accrued using the tax rate that would be applicable for expected total earnings for the financial year beginning 1 January 2010.

2. The new standards and amendments which are mandatory for the first time for the financial year beginning 1 January 2010.

 

- IFRS 3 (revised), "Business Combinations" was applied prospectively to all business combinations from 1 January 2010. The adoption of the revised standard resulted in the write-off by way of a prior period adjustment of the €1,215,000 of transaction costs incurred in 2009 which were directly associated with the James Hay acquisition completed in March 2010. This resulted in restatement of the 2009 income statement, balance sheet and earnings per share. Under the previous version of IFRS 3, Business Combinations, transaction costs directly related to a business combination were capitalised as part of the costs of the business combination. The Group has adopted an accounting policy of classifying such transaction costs and integration costs relating to major acquisitions as exceptional in the Consolidated Income Statement.

 

- IAS 27, "Consolidated and Separate Financial Statements", as revised requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. These transactions will no longer result in goodwill or gains and losses. The revised standard also specifies the accounting when control is lost with any remaining interest in the entity remeasured to fair value, and a gain or loss recognised in profit or loss. The Group has applied IAS 27 as revised prospectively to transactions with non-controlling interests from 1 January 2010. Adoption of IAS 27 did not have a material effect on the Group Financial Statements.

 

 

- IAS 39 (Amendment), 'Financial instruments: Recognition and measurement' resulted in a change in the way the company is required to measure options to acquire potential voting rights which are currently not exercisable. The Group had formerly accounted for these rights at cost but is now required to fair value these assets. This change did not have a material impact on the result for the period.

 

 

 

 

In addition, the following new standards, amendments to existing standards and interpretations which are mandatory for the first time for the financial year beginning 1 January 2010 did not have a material impact on the Group's result for the period or are not currently relevant for the Group:

 

- IFRS 2 (Amendment), 'Share based payment'- Group cash settled share based payment transactions

- IFRIC 15, 'Agreement for the construction of real estate'

- IFRIC 16, 'Hedges of a net investment in a foreign operation'

- IFRIC 17, 'Distribution of non-cash assets to owners'

- IFRIC 18, 'Transfers of assets from customers'

- IAS 32 (Amendment), 'Financial Instruments: Presentation'

 

Change in accounting policy

- Pension accounting policy - The Group has amended the accounting policy for its defined benefit plans. The Group had previously adopted the corridor approach allowed by IAS 19 while in the current period, consistent with the Exposure Draft issued by the International Accounting Standards Board in April 2010, decided to immediately recognise all actuarial gains and losses in the year through the Consolidated Statement of Comprehensive Income. The change in the accounting policy has resulted in an adjustment of €1,929,000 to reserves in 2010. The change in accounting policy has been applied retrospectively to 2009. 

 

Management have reviewed the critical accounting estimates and judgements made at year end (disclosed in Note 4 to the Notes to the 2009 Financial Statements) and note that there was no significant impact on the result for the half year ended 30 June 2010 as a result of changes to these estimates and judgments other than as outlined above.

 

The financial information in this interim report are not the statutory accounts of the Company, a copy of which is required to be annexed to the Company's annual return to the Companies Registration Office in Ireland. A copy of the statutory accounts required to be annexed to the Company's annual return in respect of the year ended 31 December 2009 has in fact been so annexed. The auditors of the Company have made a report, without any qualification, on their audit of the statutory accounts of the Company in respect of the year ended 31 December 2009.

 

References throughout this financial information labelled as "Audited" refers to the 2009 Financial Statements audited by PricewaterhouseCoopers adjusted by management for the impact of 1) the changes in accounting policies for business combinations (Notes 5 and 8) and pensions as outlined above and 2) the re-presentation of the 2009 income statement as outlined in Note 3 below. Both adjustments referred to above have not been audited.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3. Comparative changes - discontinued operations

 

Following approval by the Board of Directors in June 2009, the assets and liabilities related to Title Underwriting Ireland Limited were classified as held-for-sale. This operation also met the criteria to be classified as discontinued operations in terms of IFRS 5. During the half year to June 2010, the operation no longer met the requirements of IFRS 5 to be classified as held-for-sale, and was therefore re-presented as continuing operations. Consequently the income statements, earnings per share and cashflow, for all comparative periods, have been re-presented taking this change into account.

 

4. Segmental information

 

In line with the requirements of IFRS 8, "Operating Segments" the Group has identified its Chief Operating Decision Maker (CODM). The Group has identified the Chief Executive Officer (CEO) of the company as its CODM. The CEO reviews the Group's internal reporting in order to assess the performance of the Group and allocate resources. The operating segments have been identified based on these reports.

 

The CEO considers the business from a geographic perspective based on 3 reporting segments: International, UK and Ireland. He assesses the performance of the segments based on a measure of adjusted earnings before interest, amortisation, tax and share based payment charges. The CEO reviews working capital and overall balance sheet performance on a Group wide basis.

 

The Group earns its revenues in these segments from two sources:

·; Fees from the provision of services including Trustee & Corporate Services and Pensioneer Trustee Services ("Trustee & Corporate Services"); and

·; Commissions earned in the intermediation of financial services products ("Financial Services").

 

Goodwill is allocated by management to groups of cash-generating units on a reporting segment level. There has been no change to the allocation of goodwill relating to prior period business combinations.

 

The segment information provided to the CEO for reportable segments for the period ended 30 June 2010 is as follows;

 

 

	International	UK	Ireland	Total
	Unaudited	Unaudited	Unaudited	Unaudited
	€'000	€'000	€'000	€'000
Revenue	18,987	30,277	8,125	57,389
Adjusted earnings/(loss) before interest, amortisation, tax, share based payment charges and exceptional items	5,517	6,964	(1,416)	11,065
Share based payment charges				(785)
Amortisation of intangibles				(3,772)
Exceptional items - redundancy and acquisition related costs				(4,897)
Employee benefits of employees laid off				(1,357)
Finance income				392
Finance costs				(997)
Loss before income tax				(351)
Income tax credit				917
Profit for the period				566

 

 

 

 

 

 

 

 

 

The segment results for the period ended 30 June 2009 are as follows:

	International	UK	Ireland	Total
	Unaudited	Unaudited	Unaudited	Unaudited
				Restated
	€'000	€'000	€'000	€'000
Revenue	20,665	17,429	11,577	49,671
Adjusted earnings before interest, amortisation, tax, share based payment charges	7,349	3,268	1,543	12,160
Share based payment charges				(790)
Amortisation of intangibles				(2,304)
Finance income				528
Finance costs				(1,577)
Profit before income tax				8,017
Income tax expense				(1,620)
Profit for the period				6,397

 

 

The segment results for the year ended 31 December 2009 are as follows:

	International	UK	Ireland		Total
	Audited	Audited	Audited		Audited
					Restated
	€'000	€'000	€'000		€'000
Revenue	39,826	34,602	19,922		94,350
Adjusted earnings/(loss) before interest, amortisation, tax, share based payment charges and exceptional items	12,152	5,218	(490)		16,880
Share based payment charges					(1,527)
Amortisation of intangibles					(5,061)
Exceptional items - redundancy costs and acquisition related costs					(2,370)
Finance income					713
Finance costs					(2,232)
Share of loss of associate					(79)
Profit before income tax					6,324
Income tax expense					(1,131)
Profit for the period					5,193

 

 

5. Exceptional items and employee benefits of employees laid off

 

The Group's accounting policy defines exceptional items as those items of income and expense that the Group considers to be material and/or of such a nature that their separate disclosure is relevant to a better understanding of the Group's financial performance.

 

	Six months ended	Six months ended	Year ended
	30 June 2010	30 June 2009	31 December 2009
	Unaudited	Unaudited	Audited
			Restated
	€'000	€'000	€'000
Redundancy costs	(3,151)	-	(1,155)
Integration costs	(1,447)	-	-
Acquisition transaction costs	(299)	-	(1,215)
Total	(4,897)	-	(2,370)

 

 

IFRS 3 Revised "Business combinations" requires transaction costs to be expensed. In 2009 costs related to the James Hay acquisition which was completed in March 2010, were capitalised under the Group's accounting policy applicable to that year. Following the adoption of IFRS 3 Revised "Business combinations" effective 1 January 2010, the Group has written off those costs to the Consolidated Income Statement by way of a prior period adjustment resulting in the restatement of the comparatives for the year ended 31 December 2009. Additional transaction costs of €299,000 relating to the acquisition incurred in 2010 have been expensed in the half year to 30 June 2010. These costs have been classified as exceptional in the interim financial information in order to provide a better understanding of the Group's financial performance.

 

A redundancy programme has been implemented following the James Hay acquisition with planned reductions in headcount from 520 to 350. This programme is currently in process. Integration costs amounted to €1,447,000 and include IT, separation and other integration costs.

 

Employee benefits of employees laid off

 

Costs associated with providing employee benefits to these employees who were to be made redundant following the James Hay acquisition amounted to €1,357,000. These costs were incurred in the period from date of acquisition to date of redundancy or 30 June 2010 and are disclosed to provide further information about the performance of the Group.

 

 

6. Income tax credit/(expense)

 

The charge for taxation for the six months ended 30 June 2010 is based on the estimated effective rate of taxation for the year.

 

	Six months ended	Six months ended	Year ended
	30 June 2010	30 June 2009	31 December 2009
	Unaudited	Unaudited	Audited
	€'000	€'000	€'000
Current tax - current period expense	(2,020)	(1,910)	(1,699)
Current tax - prior period over provision	650	360	294
Total current tax	(1,370)	(1,550)	(1,405)
Movement in deferred tax	620	(70)	274
Current tax expense before exceptional item	(750)	(1,620)	(1,131)
Exceptional tax	1,667	-	-
Current tax	917	(1,620)	(1,131)

 

The total tax credit for the period ending 30 June 2010 includes €157,000 (2009 HY: a tax charge of €1,520,000) relating to tax on UK profits. Tax credit arises primarily due to exceptional costs incurred on James Hay acquisition.

 

 

7. Dividends

	Six months ended	Six months ended	Year ended
	30 June 2010	30 June 2009	31 December 2009
	Unaudited	Unaudited	Audited
	€'000	€'000	€'000
Final dividend approved by shareholders	(2,934)	-	-
Final dividend paid	-	-	(1,770)
Interim dividend paid	(953)	-	-
	(3,887)	-	(1,770)

 

A final dividend for 2009 of 2.36 cent per share was approved by the shareholders on 30 June 2010. An interim ordinary dividend of 1.35 cent (2009: 1.27 cent) has been declared subsequent to 30 June 2010. In accordance with the Group's accounting policy, this interim dividend is not included in the half year results.

 

 

 

 

 

8. Business combinations

 

On 10 March 2010, IFG Group plc acquired 100% of the issued shares in James Hay, a leading UK SIPPs provider. This acquisition is expected to increase the Group's market share and reduce costs through economies of scale. James Hay now forms part of our UK segment.

 

The purchase consideration of £38,900,000 (approximately €42,682,000) was paid in cash. There is no contingent consideration payable as part of the purchase agreement. Acquisition related costs of €1,514,000 have been recognised in the income statement. €1,215,000 has been expensed in 2009 as the costs were incurred in 2009 with the balance of €299,000 recognised in 2010 classified as "Other expenses".

 

The initial accounting for this business combination is incomplete but will be finalised in the year end financial statements as work is ongoing to fair value the contingent liabilities that relate to warranties issued to customers of James Hay. However, management outlines the provisional analysis of the net assets, consideration and goodwill on acquisition below:

 

	Fair Value
	€'000
Plant & equipment	1,245
Computer software	2,930
Deferred tax asset	424
Receivables	3,325
Payables	(15,412)
Borrowings	(10,972)
Cash	28,455
Other intangibles on acquisition (including brand and customer relationships)	27,998
Deferred tax liability on intangibles	(7,839)
Net assets acquired at acquisition date	30,154
Goodwill on acquisition	12,528
	42,682
Satisfied by:
Cash payments	42,682
Cash acquired	(28,455)
	14,227
Expenses related to acquisition	1,514
Net cash outflow for acquisition	15,741

 

Management estimates that the carrying value of plant & equipment, computer software, receivables and payables acquired approximate fair value and no adjustment was required upon completion of the preliminary valuation. The contractual value of receivables acquired was €3,505,000 excluding a provision for impairment of €180,000. The carrying value of receivables less impairment provision approximates fair value.

 

The goodwill is attributed to the increased economies of scale and synergies the acquired business is expected to contribute to the Group and the dominant position of James Hay in the UK SIPP market.

 

The acquired business contributed revenue of €11,268,000 and operating loss of €1,790,000 (including exceptional costs) for the period since acquisition. If the acquisition had occurred on 1 January 2010, Group revenue would have been €63,949,000 and profit before income tax would have been €114,000. 

 

 

 

 

 

9. Cash generated from operations

 

	Six months ended	Six months ended	Year ended
	30 June 2010	30 June 2009	31 December 2009
	Unaudited	Unaudited	Audited
		Restated	Restated
	€'000	€'000	€'000
Continuing operations
(Loss)/profit before income tax	(351)	8,017	6,324
Depreciation and amortisation	4,552	3,211	6,714
(Gain)/loss on sale of property, plant & equipment	(12)	-	6
Finance costs	997	1,577	2,232
Finance income	(392)	(528)	(713)
Group share of loss of associates	-	-	79
Foreign exchange gain	(125)	(149)	(277)
Non-cash share based payment compensation charges	785	790	1,527
(Increase)/decrease in trade & other receivables	(72)	183	1,387
Loan to associated undertakings	(85)	(3)	(11)
Decrease in trade & other payables	(3,756)	(8,488)	(156)
Cash generated from operations - net	1,541	4,610	17,112

10. Analysis of net debt

	Opening	Cash flow	Acquisition	Other	Closing
	balance			non cash	balance
				charges
	€'000	€'000	€'000	€'000	€'000
Cash	22,475	45,803	(15,741)	4,688	57,225
Overdraft	(527)	553	-	(35)	(9)
	21,948	46,356	(15,741)	4,653	57,216
Loans due within one year	(11,161)	-	(10,972)	(1,260)	(23,393)
Loans due after one year	(54,723)	-	-	(103)	(54,826)
Finance leases	(7)	20	-	(44)	(31)
Total	(43,943)	46,376	(26,713)	3,246	(21,034)

 

 

Other non cash changes largely relate to foreign exchange movements on non Euro denominated cash, overdraft and borrowings in subsidiaries.

 

 

11. Share capital and premium

 

The transaction to acquire James Hay Holdings Limited (James Hay), a UK incorporated company was finalised on 10 March 2010. To fund the acquisition, the Group raised €51,150,000 (before expenses) through a Placing and Open Offer of 48,263,932 new ordinary shares and the allotment of a further 451,627 new ordinary shares. The shares were admitted to trading in March 2010.

 

Ordinary shares amounting to 125,000 were issued under the terms of the IFG Group Share Option schemes during the period end 30 June 2010. These shares were issued and allotted following the receipt of the subscription price from the subscribers.

 

Ordinary shares amounting to 395,832 were issued under the Long Term Incentive Plan (LTIP) to the Trust established for the purpose during the period ended 30 June 2010. These shares are held in trust for the executives including some executive directors who are participants in the LTIP.

 

 

 

 

 

 

 

12. Other significant balance sheet movements

 

The main reason for the movement in the following balance sheet items are outlined below:

 

Plant, Property and Equipment (PPE)

 

The main reason for the increase in Property, Plant and Equipment is the acquisition of James Hay as per Note 8 above and current year PPE additions primarily in the UK segment which comprise additional computer equipment following the acquisition of James Hay.

 

Intangible assets

 

The increase in intangible assets is attributable to the acquisition of James Hay as outlined in Note 8 above and the impact of translating intangible assets related to subsidiaries with functional currencies other than the Euro.

 

Deferred income tax

 

The movement of deferred tax balances was primarily as a result of the net deferred tax liability created following the James Hay acquisition.

 

Other non-current liabilities

 

The non-current liabilities balance represents the non-current element of an amount refundable to a former customer of one of the subsidiaries in the International segment.

 

Provision for liabilities

 

Included in the 30 June 2010 balance classified as current is an amount for €2.0 million relating to redundancy payments to be made to employees affected by the restructuring of James Hay who are expected to leave the organisation in the second half of the year.

 

13. Related party transactions

 

At 30 June 2010, Group companies were owed €1.3 million (December 2009: €1.3 million) by Rayband Limited. These advances are unsecured, interest free and have no fixed repayment date. This company is controlled by Patrick Joseph Moran, a Director of IFG Group plc.

 

During 2010 Bosberg Limited, a company of which Victor Quigley, a former Director of the Company, is a director, earned €70,000 (2009 FY: €133,000) from Group companies in respect of the provision of services, including the sourcing of clients.

 

During 2010 Group companies earned €44,000 (2009 FY: €85,000) from TFC Limited, a company based in the Isle of Man and with whom Declan Kenny, Chief Executive of the International segment is a director. This related to the provision of services to TFC from Group companies. Additionally, Group companies earned €6,000 (2009 FY: €11,000) from TFC's parent Tanyl Limited of which Declan Kenny is also a director and shareholder.

 

During 2010, Thomas Wacker, a non-executive Director of Group, invoiced €8,000 (2009 FY: €14,000) to Saunderson House Limited, a direct subsidiary of the Group, for services rendered during the period.

 

14. Contingencies

 

Given the nature of the business the Group has a number of claims against it. The Group has procedures in place to assess the veracity of the claims and provision has been made to cover its best estimate of the exposure in respect of these matters.

 

 

 

 

15. Statement of Directors' responsibilities

 

We confirm our responsibility for this report and that to the best of our knowledge:

(a) The condensed interim financial statements comprising the consolidated statements of income, the consolidated statement of changes in equity, the consolidated balance sheet, the consolidated cash flow statement and related notes have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

(b) The interim management report included a fair review of the information required by:

(i) Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months; and

(ii) Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period and any changes in the related party transactions described in the last Financial Statements that could do so.

 

The directors of IFG Group plc are listed in the IFG Group plc Annual Report for the year ended 31 December 2009. A list of the current directors is maintained on the IFG Group plc website.

 

 

 

On Behalf of the Board

 

 

 

Mark Bourke PJ Moran

Chief Executive Chairman

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward-looking statements

 

Certain statements in this report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no guarantee that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no commitment to update any forward-looking statements whether as a result of new information, future events or otherwise.

 

Independent Review Report to IFG Group plc

 

Introduction

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010, which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated Statement of Changes in Equity, and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Irish Financial Services Regulatory Authority.

 

As disclosed in the notes, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

The maintenance and integrity of the IFG Group plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site.

 

Legislation in the Republic of Ireland governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

Our responsibility

 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Irish Financial Services Regulatory Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Irish Financial Services Regulatory Authority.

 

 

PricewaterhouseCoopers Chartered Accountants

Dublin

31 August 2010

 

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