PIS legacy issues impact Centrepoint results
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Kate Kachor is a journalist with InvestorDaily, a Morningstar publication.
Centrepoint Alliance's (CAF) full-year 2012 financial results have been heavily impacted by multi-million-dollar legacy expenses from its financial advisory business, Professional Investment Services (PIS).
The listed financial services company recorded a net loss before tax and non-controlling interests for the year to 30 June 2012 of $14.5 million compared with a prior period loss of $12.3 million, Centrepoint managing director Tony Robinson revealed in the company's full-year results announcement.
The firm's after-tax and non-controlling interests stood at a loss of $17.8 million compared to $13.5 million in the previous period.
As part of the loss, Centrepoint incurred a $16,736,000 cost related to PIS client claims arising from advice provided in previous years. The amount is well above the company's 2011 figure of $11,936,000, Robinson said.
The company also recorded a significant increase in external professional fees linked to resolving claims, with costs totalling $1.9 million for the full year 2012 compared to $1.3 million in the previous period.
"An area which has received considerable attention during the year has been the management and resolution of client claims. The vast majority of existing and new claims emanate from advice provided in 2008 and prior," he said.
It found pre-existing client claims and litigation settlement (excluding associated professional fees), totalling $11,237,000 ($19,522,000) have been settled and paid out during the period.
"Despite the high level of claims settled during the year, the provision for claims has increased from $14,890,000 to $22,083,000, largely as a result of additional provision made for unreported claims, following an independent actuarial assessment," he said.
As well as feeling the financial impact from client claims, the company's results were also impacted by $3.6 million in fees associated with PIS's enforceable undertaking (EU) with ASIC. Costs associated with the EU in 2011 stood at $530,000, Robinson said.
"The final independent expert's report was submitted in April 2012 together with a response and comments by PIS. No formal response from ASIC has been received at this stage," he said.
In a bid to reduce costs during the period, Centrepoint has undertaken "significant rationalisation" of the group's corporate structure. This has resulted in the sale or closure and de-registration of more than 25 of the company's legal entities, he said.
Outside of the company's wealth division, Centrepoint Alliance Insurance Premium Funding posted a net profit after tax for the full year 2012 of $1.6 million. The result compares with an after-tax profit of $558,000 in the previous period.
"Considerable progress has been made across the group and particularly in the Centrepoint Wealth division to reorganise, reposition and strengthen the core business operations," Robinson said.
"The insurance premium funding divisions is expected to continue its strong performance in the coming year. Based on July 2012 results, the business is on track to achieve budgeted profits for 2012/13."