IOOF Holdings Limited (ASX: IFL) released its results for the half-year (HY21). The IOOF share price closed the day higher as the company reported growth in gross margins and profit.
IOOF is a diversified financial business that offers a variety of services to clients including financial advice, platform management & administration, investment management, and trustee services.
In December 2020, the Australian Competition and Consumer Commission (ACCC) announced it would not oppose IOOF’s acquisition of MLC Wealth Management from National Australia Bank Ltd (ASX: NAB).
HY21 financial snapshot
IOOF highlights the significant boost in gross margins of 41% over the prior corresponding period, HY20. The main reason behind the strong growth is the inclusion of the margins from the ex-ANZ business, OnePath Pensions and Investments (P&I).
In January 2020, IOOF acquired Australia and New Zealand Banking Group Ltd’s (ASX: ANZ) P&I business, which provides platform services and has an in-house multi-asset management team.
The P&I business brought in $145.3 million in gross margins, offsetting the decline across all of IOOF’s other segments. IOOF notes the decline in its other segments is attributed to the ban on commissions across the financial advice industry.
IOOF’s ex-ANZ wealth management business suffered the biggest setback as its gross margins fell from $9.43 million in HY20 to a loss of ($13.03 million) in HY21.
Despite the poor performance in all of IOOF’s organic segments, being financial advice, portfolio and estate administration, and investment management, it still recorded a 96% improvement in its statutory net profit after tax from continuing operations.
The company declared fully franked interim dividends of 11.5 cents per share.
Management says growth lies in the wealth management segment
IOOF’s CEO, Renato Mota says wealth management will play a key role in future growth.
Renato Mota said, “Off the back of the re-emergence of economic growth and fiscally induced economic resilience, we expect a robust business outlook for the wealth management sector.
Longer-term, we continue to see significant changes in the market as the ageing population increasingly looks for wealth management advice, and retirement and post-retirement solutions to address their complex needs.
This combined with increasing per capita wealth and ongoing disruption in the industry to meet emerging societal and technological needs, offers good opportunities for IOOF.”
My takeaway
It’s concerning to see the drop in margins of IOOF’s organic segments and I struggle to see any growth catalysts in these operations due to the aftermath of the Royal Commission.
Also, the subdued performance of the ex-ANZ Wealth Management business acquired in 2018 does not bode well for the future performance of IOOF’s recent acquisition of MLC Wealth Management.
However, as Renato Mota pointed out, an ageing population will likely drive up demand for wealth management advice, particularly in such uncertain economic times.
Given the removal of commissions and higher professional standards imposed on financial advisers, I think IOOF may struggle to grow and reach its former heights.
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