Link Group heads for a $418m loss due to its UK business

Embattled share registry and superannuation administrator Link has warned the market it expects a $418m annual loss but says its revenue and underlying earnings are up.

Link Group will sink to a $417.7m loss on the way to exiting its troubled UK business, after making hefty provisions to settle regulatory action and compensate 300,000 investors trapped in a failed fund.

Link shares tumbled after the share registry company and superannuation administrator revealed the hit to its bottom line in its preliminary annual result on Thursday.

While Link’s revenue and underlying earnings rose in the 2023 financial year, provisions related to its UK-based Link Fund Solutions business, plus other one-offs, mean the company expects to report a $417.7m annual loss.

Link said it expected to book a $390.9m provision related to the settlement of action by the UK Financial Conduct Authority over Fund Solutions’ management of the collapsed LF Woodford Equity Income Fund (WEIF).

Link reached a conditional settlement with the FCA in April that involved the ASX-listed parent company and Fund Services making a redress payment of up to £235m ($457m) to investors.

Link is selling the Fund Solutions business, excluding its Luxembourg and Swiss operations, to Irish financial services company Waystone Group for between £110m and £140m ($214m to $221m).

As part of Link’s settlement with the regulator, the firm has agreed to contribute all of the available consideration it receives from Waystone to the redress scheme. Link will also contribute up to £60m ($116m) to Fund Solutions to make payments to the WEIF investors.

According to the FCA, an estimated 300,000 people had their savings invested in the WEIF when it was suspended in June 2019.

Rather than compensating investors for “an investment strategy turning sour”, the FCA said its focus with the redress was on the unfairness of poor liquidity leading to investors at the time of the fund’s suspension losing out, compared to those who got out early.

As the authorised corporate director of the WEIF, Fund Solutions was responsible for managing the liquidity of the fund.

Link shares closed 2.7 per cent lower at $1.45 after Thursday’s results update.

Link said it expected to report an increase in revenue of about 4.5 per cent to $1.23bn for FY23.

Link’s operating earnings before interest and tax are expected to be about $178.1m, 15.7 per cent higher than the previous year and about 3.5 per cent above the top end of its guidance range.

The sale of Fund Solutions is expected to be completed in October. With the sale and settlement occurring across two financial years, Link will recognise a provision of about $390.9m related to the settlement and associated redress in the second half of FY23.

Link, the largest provider of services in Australia’s superannuation administration industry, said it expected to recognise a gain of about $280.3m in the 2024 financial year on completion of the sale.

As well as the settlement provision, Link’s FY23 result will be impacted by several one-offs. They included a $406.8m gain on the selldown of its stake in online property exchange network PEXA Group, and a $368.6m impairment charge related to the sale of Fund Solutions assets.

“Link Group’s liquidity position remains strong and after the impairments, significant headroom remains under Link Group’s covenants with its lenders,” the company said.

Link will announce its final results for FY23 on August 28.