The Pendal Group Ltd (ASX: PDL) share price has fallen by around 7% today, trading at $6.36 at the time of writing. This comes after the company published an annual report earlier this morning revealing that many important KPIs have underperformed.
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What's moving the Pendal share price?
The market is no doubt responding to a number of Pendal's missed KPIs. Most striking is the fall in net profit after tax (NPAT), which has fallen by 25% against FY19. In addition, operating revenue fell by 3%, funds under management (FUM) fell by 4% against the previous corresponding period (pcp), and cash earnings per share fell by 11%. The Pendal dividend payment has also fallen by 18%.
Operating expenses were 3% higher compared to the pcp. According to the report, the increase in expenses is attributed to investments in the global executive team, and technological improvements.
The company's base management fees declined 5%, which Pendal attributed largely to its lower average FUM (4% lower than pcp). The base management fee margin remained relatively stable, down one basis point (bps) to 48 bps, which Pendal has attributed to a slight change in asset mix over the year.
According to today's announcement, the decline in Pendal's FUM was the result of net outflows of $6.5 billion and unfavourable foreign currency movements of $2.3 billion, as the US dollar (-5.1%) and British pound (-0.9%) weakened against the Australian dollar.
The company reported its outflows were primarily $3.3 billion in net redemptions from European strategies, with investors continuing to reduce their exposure to the region over Brexit concerns and investment underperformance.
Management commentary
The group's chief executive officer Mr Emilio Gonzalez commented:
The global economic and health crisis has accelerated a number of secular trends in the global asset management industry and highlighted the importance of ESG factors affecting the sustainability of businesses; a need to broaden distribution channels and to reduce costs in the operating model.
Pendal has already made progress in all of these areas and recognises the need to increase the pace of investment in order to position the company to take advantage of the opportunities inherent in these trends and deliver long-term sustainable FUM growth.
Mr Gonzalez highlighted that the company's ability to execute on this strategy will require a multi-year investment, indicating that Pendal's fixed costs for the 2021 financial year are expected to increase by 8–10%.
"We believe this strategy will deliver a more cost effective model and increase FUM by around 50% by FY25," he added.
Despite today's losses, the Pendal share price is still up by more than 16% in the past month.
