The IOOF Holdings Limited (ASX: IFL) share price was down by as much as 5.4% this morning following the release of the company's first-half results. Shares have somewhat recovered since to be down by 1.42% at the time of writing.
While the wealth manager's profits were in line with guidance, the interim dividend was cut by nearly 40%, prompting investors to sell the stock.
IOOF results
Funds under management, advance and administration (FUMA) grew 5.2% to $145.7 billion in 1H20 with $1.4 billion in total net inflows. Net inflows in during the second quarter of 1H20 were the highest since the June 2018 quarter.
Nonetheless, earnings for the half were impacted by divestments, reduced economic interest from the ANZ Pension and Investments (P&I) coupon, an uplift in costs associated with governance, and continued competitive pricing pressure.
Statutory net profit after tax (NPAT) was $115 million with significant profit realised on the sale of Ord Minnett. Underlying NPAT pre amortisation from continuing operations was $56.6 million, down nearly 40% from $93.1 million in 1H19. Gross margin was impacted during 1H20 due to legislative changes and competitive dynamics, while governance costs increased and interest income fell.
Underlying earnings per share from continuing operations was 16.2 cents, down 43.1% from 28.5 cents in 1H19.
An interim dividend of 16 cents per share was declared, fully franked, down from 25.5 cents per share in 1HFY19. The 37.3% reduction in the dividend was attributed to the reduced pre-tax coupon interest for the period of $8.2 million compared to $28.9 million in the prior corresponding period.
Chief Executive Officer Renato Mota said, "the result for the half reflects the recent focus on reshaping the business to be 'fit for purpose' for the opportunities ahead."
ANZ P&I acquisition
IOOF completed the purchase of ANZ's Pension and Investments business during the half for a renegotiated price of $825 million. IOOF announced revised cost synergies of $68 million pre-tax per annum, up from the previously announced $65 million. These synergies are expected to be realised fully from 1 July 2023. The wealth manager also announced that the acquisition is expected to deliver significant earnings per share accretion in excess of that disclosed at the time of the initial announcement.
Mota said, "IOOF is a more significant business with the addition of P&I. We see significant financial benefits from the step change in scale and the synergy opportunities, supporting our ability to lower the longer-term cost base of the combined businesses while allowing for continued reinvestment."
