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AUB cuts its earnings outlook

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AUB Group today lowered its earnings guidance for the current financial year, citing weaker than expected performance from its strata portfolio and risk services division.

Cost blowouts from a new underwriting agency IT system, which is projected to have an after-tax impact of $500,000, were also a drag on earnings.

The group’s revised forecast now sees adjusted net profit after tax growing 3-5% over the past financial year.

CEO Mike Emmett says in an update to investors that AUB said in February it expected to achieve “near the lower end of our guidance range of 7-12% growth in adjusted net profit after tax”.

“Disappointingly we now expect a reduced growth rate of 3-5%.

“Primarily this is the consequence of continued weak performances in risk services, reducing the forecast adjusted impact by $2 million as well as the $500,000 impact from the IT underwriting system cost over-run.”

Remedial and recovery actions related to an Austbrokers Canberra fraud case are still underway. The business is not yet able to determine the net impact on the group.

AUB, which reported a $19.8 million net profit for the December half, included $1.6 million of costs in the results from the Canberra case, which is now part of a police investigation.

Altius Group and Allied Health Australia, two of three units that make up the risk services division, are feeling the effects of reduced case volumes coming through from the NSW workers’ compensation scheme.

“That’s fundamentally the challenge,” Mr Emmett says. “A significant reduction in our volumes means that the utilisation in the way in which we can deploy the capacity of our medical professionals across the state has been hampered.

“So we have a significant portion of fixed cost both for professionals and for physical premises etc which remain even though the case volumes have reduced.”

He says the Altius business outside NSW is performing well.

Binder renewal on the group’s strata portfolio “took place later in the cycle than we have anticipated. It only takes effect from July 1, and the new binders have more advantageous terms than the previous binders… so we forecast an uplift in the second half which unfortunately won’t happen until the first half of FY20.”