Financial services company IFG will discontinue its investment and trading activities in sterling endowment policies to focus instead on its fee-based business.
IFG said the change was unrelated to recent heightened concern among investors about complex accounting techniques and their impact on company accounts. The group departed from the Companies Act in its accounting treatment of the sterling endowment policies in its last set of accounts. The decision boosted profits for 2001 by €4.2 million.
At its a.g.m. yesterday, IFG said the move was in response to changes in the UK financial services regulations that would require independent financial advisers to be fee- rather than commission-based. While the move announced yesterday will reduce the earnings base of the group, it will also cut borrowings, simplify the balance sheet and release cash for reinvestment in fee-based activities, IFG said.
Analysts welcomed the decision, saying that without the sterling endowment policies, IFG would be a much more focused business. However, there may be some short-term pain in exiting the business, with most analysts expected to downgrade their earnings forecasts for this year to around 18 cents per share.
"Over the years, we have been building a business with three heads. But now that we have the scale in our financial advisory business and it has greater growth potential we feel the time is right to get out of a lower growth business," Mr Hayes said.
IFG's portfolio of endowment policies, worth €65.3 million at the end of last year, will now be unwound and the related debt of €46.9 million paid off.
