Remediation charges hit IOOF annual profit

Embattled IOOF has booked markedly higher customer remediation costs and a lower-than-expected annual profit.

IOOF CEO Renato Mota. Picture: Stuart McEvoy

Embattled IOOF has booked markedly higher customer remediation charges and a lower-than-expected annual profit, even as the wealth group declared a special dividend payment.

IOOF’s underlying net profit rose 3 per cent to almost $198 million in the 12 months ended June 30, compared to a year earlier, the group said in an ASX statement on Monday.

Underlying net profit removes non-operational “lumpy” items, such as acquisition costs. Analysts had expected an underlying result of $199.25 million.

IOOF disclosed that it had reviewed 1200 customer files and now expected $182.7 million in remediation costs, as well as $40.4 million in program costs. At its interim results the group said estimated costs for product remediation were $5 million to $10 million.

In addition, the company said it had expensed $12.1 million of product remediation in fiscal 2019.

Net operating revenue slipped 3.9 per cent in the financial advice and distribution division but edged up 2 per cent in the investment management unit.

Statutory profit slumped 68 per cent to $28.6 million.

Shares in IOOF dropped quickly at the open, falling 10 per cent to $4.68, later regaining some ground to be trading around $4.77.

IOOF had $149.5bn in funds under management, advice and supervision at June 30, reflecting an increase of 19 per cent on the prior year.

The company said it would pay a special dividend of 7 cents per share on September 27, while its final dividend would be 12 cents per share.

Chief executive Renato Mota said the company would consider further capital management initiatives, including a buyback or further special dividends once it had clarity over the purchase of ANZ Bank’s pensions and insurance business.

The transaction was stalled by regulatory action against IOOF.

The company – which is defending the allegations – is awaiting a Federal Court judgment after being pursued by the prudential regulator, which has already imposed licence conditions on IOOF.

The Australian Prudential Regulation Authority wants former IOOF CEO Chris Kelaher, former chairman George Venardos, finance boss David Coulter, company secretary Paul Vine and general counsel Gary Riordan banned from running a superannuation company.

Mr Kelaher parted ways with the company in April and Mr Venardos stepped down as chairman but remains on the board, albeit on leave.

Investors and analysts exercised caution on IOOF’s results as concerns abounded over its estimated remediation charges and dividends.

Macquarie Group analyst Brendan Carrig said IOOF’s second half dividend, inclusive the special payment, came in below expectations.

“The full year dividend has been reduced to allow for balance sheet flexibility,” he said.

Dividend payments for fiscal 2019 amounted to 44.5 cents per share, including the special dividend, down from 54 cents per share a year earlier.

Macquarie also said IOOF may try to renegotiate the terms of its purchase of ANZ’s pensions and investments business ahead of a date in October which allows parties to walk away from the deal if they choose to.

Citigroup analyst Nigel Pittaway labelled the IOOF earnings “a messy result”.

“The higher remediation costs at least sees IOOF partly recognise legacy issues, but this estimate could still trend higher while the challenges from a new advice model remain,” he said.

Mr Mota said IOOF was in the process of stabilising and transforming its business and that he was comfortable with the remediation estimate provided to investors.

“In one of the most challenging years for our company and for the industry, we have focused on the imperatives of stabilising the business, with a view to delivering better outcomes for our clients and our shareholders,” he said.