Legacy issues overshadow performance at IFG

The London-listed firm said its James Hay business added more than 6,000 new clients in 2017 - an increase of over 30% compared to 2016 - and had £25.5bn in assets under administration, up from £22.1bn.

Attrition within James Hay was 6.2%, slightly down from 6.3%, while the board said the pricing changes implemented, together with the increase in interest rates in November 2017, provided an “improved and more stable and predictable” revenue stream for the business in 2018, in addition to further organic growth.

Over at its Saunderson House operation, the company added 247 new clients compared to 215 in 2016, which it said was driven by the faster-than-anticipated growth in its new discretionary management offering.

Saunderson House was now advising on £5.1bn of clients' assets, up from £4.6bn.

“On the basis of preliminary, unaudited financial information, the group expects to report adjusted operating profits for the year to 31 December 2017 in line with market consensus,” the board said in its statement.

Focussing on its strategy, IFG said Saunderson House was continuing to perform strongly, winning clients and growing assets under advice, and was “uniquely positioned” in its core markets.

The board, in consultation with its advisers, said it had however concluded that greater value for shareholders could be created by a sale of Saunderson House.

“In this regard, we have received a number of approaches,” it said, adding that discussions were at a preliminary stage.

“The group will consider a sale if appropriate value for shareholders can be achieved.

“There can, however, be no certainty that a transaction will complete.”

Looking at what the board termed “legacy matters”, IFG said that it was still incurring material legal and remediation costs relating to James Hay's inception of Elysian Fuels investments between 2011 and 2015.

James Hay received notices of assessment arising from Elysian Fuels for tax years 2011/2012 and 2012/2013 totalling £1.8m, which had been appealed, and IFG said its discussions with HMRC seeking an acceptable potential resolution over the overall 2011-2015 period were ongoing.

“If the matter is not resolved by the end of March, James Hay would expect to receive further assessments for one or both of the additional tax years.

“Such further notices of assessment could be materially higher than the initial two years reflecting the volume of business incepted,” the board said.

It added that James Hay was committed to working collaboratively with HMRC to resolve the matter, and would continue to do so.

However, if assessments were received, James Hay would apply to HMRC for the assessments to be discharged and pursue appeals to the Tax Tribunals as necessary to protect its position.

The maximum potential sanction charge which could be assessed by HMRC against James Hay for the overall 2011-2015 period would be approximately £20m, assuming all Elysian Fuels shares were deemed valueless at inception, and no underlying clients discharged their own tax liabilities.

“Based on advice from the Group's legal advisers, the directors are confident that the outcome at tribunal, or any settlement with HMRC, would be substantially lower than the maximum potential sanction charge, and would be fundable from the company's cash resources,” the board claimed.

“The potential exposure remains uncertain and is expected to remain so whilst discussions with HMRC or any tribunal proceedings continue.”

Additionally, and as it had previously reported, IFG said it received a legacy claim relating to a legal action in Jersey, pursuant to indemnities provided in respect of the 2012 sale of its international division.

It said the underlying claim had now been settled by the acquirer, who may seek redress from the company under the indemnity.

The total amount of the possible claim of up to £3m had now been reduced to £2m, the board confirmed, with the company now seeking legal advice on whether the indemnity was valid and the extent, if any, to which the company remained liable.

“The group has continued its reviews of other legacy business, using external advisers, to check that any other legacy exposures are identified and remediated,” the board said.

“Over time these may result in further remediation costs, including legal costs for legacy claims, and whilst the exposures are uncertain, they are not expected to exceed £5m.

“These reviews remain in progress and an update will be given with the year-end results.”

IFG said they were designed to enable all identified legacy issues in those businesses to be assessed and remediated.

It said the level of exceptional costs, provisions and contingent liabilities in 2017 could be “significantly greater” than market expectations, depending upon the extent to which they crystallise or are determined, which could lead to materially reduced statutory accounting results for 2017 for the group.

In light of such inherent uncertainty, the board said it had taken the prudent decision that no final dividend would be paid in respect of 2017.

“Strong fundamentals, good growth and improving underlying financial performance in both our businesses has been overshadowed by a number of legacy issues,” said group chief executive John Cotter.

“Our desire is to bring closure to these issues as soon as possible and we will provide further updates as matters develop.”