Perpetual Limited · ASX:PPT
Perpetual — FY2008 Earnings Presentation
48 slides from Perpetual's earnings presentation, Aug 20, 2008
Slide 1: 2008 Full Year Results Market briefing
For personal use only 2008 Full Year Results Market briefing 20 August 2008
Slide 2: Agenda
Agenda For personal use only Group summary – David Deverall Financial results – Roger Burrows Strategy and outlook – David Deverall 1
Slide 3: Agenda
Agenda For personal use only Group summary – David Deverall Financial results – Roger Burrows Strategy and outlook – David Deverall 2
Slide 4: Result in line with May 2008 forecast
Result in line with May 2008 forecast June 2008 June 2007 Change For personal use only $M $M % Operating profit after tax 133.5 145.3 (8) Gain on sale of investments 21.1 36.8 (43) EMCF losses (25.8) - ~ Net profit after tax 128.8 182.1 (29) Operating profit before tax 193.6 206.9 (6) EPS(1) 321¢ 35
Slide 5: Challenging market impacting earnings growth
Challenging market impacting earnings growth For personal use only Operating profit after tax down 8% EPS(1) down 9% $M Cents per Sh ar e 160 400 145.3 140 353 133.5 350 122.4 321 120 30 0 300 100 92.5 95.8 242 246 250 80 200 60 150 40 100 20 50 0 0 June June June June June Ju ne June Jun e Ju ne Ju
Slide 6: Dividends down in line with earnings
Dividends down in line with earnings For personal use only Ordinary dividend per share (cents) 400 360 350 330 326 300 260 Final 250 200 150 150 100 Interim 50 0 June 04 June 05 June 06 June 07* June 08* Special dividend (cents per share) 250 100 100 - - * 2007 and 2008 dividend calculation includes
Slide 7: Perpetual has three key businesses
Perpetual has three key businesses Perpetual Perpetual For personal use only Perpetual Investments Private Corporate Wealth Trust Perpetual Trust and Fund Structured Private Clients Services Australian Income and Global Equities Products and Equities Multi-sector Platforms Direct Mortgage Services T
Slide 8: Operating profit before tax down 6%
Operating profit before tax down 6% June 2008 June 2007(1) Change For personal use only $M $M % Perpetual Investments 147.0 152.2 (3) Perpetual Private Wealth 46.4 42.8 8 Perpetual Corporate Trust 29.5 35.7 (17) Group and Support Services (29.3) (23.8) ~ Total operating profit before tax (PBT) (2) 1
Slide 9: Market performance impacting revenue drivers
Market performance impacting revenue drivers For personal use only Perpetual Investments Perpetual Private Wealth Perpetual Corporate Trust FUM FUA(1) FUA $B $B $B 40 39.1 9 240 8.4 2 22 .9 35 32.8 8 7.7 2 10 .1 210 30.3 30 7 6.6 17 8 .6 26.7 180 6 5.8 25 150 14 4 .3 21.7 5.1 5 20 120 11 2 .4 4 15 9
Slide 10: 2008 financial year has been characterised by a synchronised deterioration in our core markets
2008 financial year has been characterised by a synchronised deterioration in our core markets For personal use only Financial year 9
Slide 11: Perpetual Investments operating profit before tax down 3%
Perpetual Investments operating profit before tax down 3% June 2008 June 2007(1) Change For personal use only $M $M % Perpetual Investments 147.0 152.2 (3) Perpetual Private Wealth 46.4 42.8 8 Perpetual Corporate Trust 29.5 35.7 (17) Group and Support Services (29.3) (23.8) ~ Total operating profit
Slide 12: Perpetual Investments FUM totalled $30.3 billion at June 2008
Perpetual Investments FUM totalled $30.3 billion at 30 June 2008 Other(1) For personal use only June 2007 Net flows June 2008 $B $B $B $B Retail 9.5 (0.9) (1.4) 7.2 Intermediary (masterfund and wrap) 18.0 0.2 (3.4) 14.8 Institutional 11.6 (2.8) (0.5) 8.3 All channels 39.1 (3.5) (5.3) 30.3 Australian
Slide 13: Flows in more detail
Flows in more detail For personal use only Retail net outflows of $0.9 billion includes: – $0.4 billion Australian Equities outflows, mostly from Industrial Share Fund (no exposure to resources) – $0.4 billion Cash and Fixed Interest outflows, driven by lower returns compared to bank term deposits
Slide 14: Australian Equities: in excellent shape
Australian Equities: in excellent shape For personal use only Strong improvement in performance One year performance against benchmark relative to the benchmark Fund 2007/08 2006/07 Stable, committed, energised team Australian Share Fund 4.1% (5.0%) – new hires – new responsibilities Industrial
Slide 15: Global Equities: improved investment performance
Global Equities: improved investment performance For personal use only Significant improvement in performance Performance relative to benchmark(1) relative to the benchmark 6.0% 5.55% – quality has outperformed 4.88% 4.0 3.82% Poor early performance has taken time and effort to overcome initial
Slide 16: Income and Multi-sector: a tough year
Income and Multi-sector: a tough year All asset classes under pressure For personal use only EMCF: 12 month returns – high quality portfolio 10% 7.2% 4.6% – CDO losses: small but 5 important lessons learnt -5 – strong support from -15 -8.9% retail, masterfund and -25 institutional channels -35
Slide 17: Structured Products and Platforms: significant investments made
Structured Products and Platforms: significant investments made For personal use only Significant investment in the WealthFocus platform which has improved competitiveness: – consolidation of unit registry platforms – increased functionality and automation – improved ‘ease of use’ for advisers – i
Slide 18: Private Wealth operating profit before tax up 8%
Private Wealth operating profit before tax up 8% June 2008 June 2007(1) Change For personal use only $M $M % Perpetual Investments 147.0 152.2 (3) Perpetual Private Wealth 46.4 42.8 8 Perpetual Corporate Trust 29.5 35.7 (17) Group and Support Services (29.3) (23.8) ~ Total operating profit before ta
Slide 19: Perpetual Private Wealth FUA down to $7.7b on the back of lower equity markets
Perpetual Private Wealth FUA down to $7.7b on the back of lower equity markets For personal use only (1) Funds under advice $B 10 8.4 8 7.7 6.6 Fiduciary 6 5.8 Services 5.1 4 Financial 2 Advisory 0 June 04 June 05 June 06 June 07 June 08 (1) Excludes externally advised ‘do-it-yourself’ (DIY) and Inv
Slide 20: Perpetual Private Wealth FUA - sustained net inflows
Perpetual Private Wealth FUA - sustained net inflows June 2007 Net flows Other(1) June 2008 $B $B $B $B For personal use only Financial Advisory - Superannuation 3.0 0.2 (0.5) 2.7 - Non-superannuation 2.2 0.1 (0.3) 2.0 5.2 0.3 (0.8) 4.7 Fiduciary Services - Philanthropic 1.2 0.1 (0.2) 1.1 - Trust an
Slide 21: Perpetual Private Wealth: continued investment
Perpetual Private Wealth: continued investment For personal use only 18 per cent increase in the number of client facing employees has resulted in new client growth Expansion in the South Australian market with the acquisition of Argosy Wealth Consultants Pty Ltd – $75m in additional FUA – 100 h
Slide 22: Corporate Trust operating profit before tax down 17%
Corporate Trust operating profit before tax down 17% June 2008 June 2007(1) Change For personal use only $M $M % Perpetual Investments 147.0 152.2 (3) Perpetual Private Wealth 46.4 42.8 8 Perpetual Corporate Trust 29.5 35.7 (17) Group and Support Services (29.3) (23.8) ~ Total operating profit befor
Slide 23: Perpetual Corporate Trust FUA boosted by Repo issuances
Perpetual Corporate Trust FUA boosted by Repo issuances Corporate Trust Funds Under Administration $B For personal use only 250 222.9 210.1 200 CMBS and ABS 178.6 150 144.3 RMBS - non bank 100 Repo 50 RMBS - bank 0 June 05 June 06 June 07 June 08 Composition of FUA CMBS and ABS (1) 21% 22% 21% 23% R
Slide 24: Mortgage Services continues to develop new revenue streams
Mortgage Services continues to develop new revenue streams For personal use only Acquisition led volume growth Volume of transactions in Perpetual Lenders Mortgage Services No. of transactions Volumes lower than originally 100,000 95,000 forecast - driven by significant 80,000 slowdown in origin
Slide 25: We have reviewed our Corporate Trust business in response to the current market environment
We have reviewed our Corporate Trust business in response to the current market environment For personal use only Non-bank models are being tested by the current market conditions Securitisation market remains mostly shut Right sizing of workforce in response to market conditions and workload
Slide 26: Agenda
Agenda For personal use only Group summary – David Deverall Financial results – Roger Burrows Strategy and outlook – David Deverall 25
Slide 27: Result in line with May 2008 forecast
Result in line with May 2008 forecast June 2008 June 2007 Change Change For personal use only $M $M $M % Total revenue 495.7 466.3 29.4 6 Operating expenses 268.6 228.3 40.3 18 EBITDA 227.1 238.0 (10.9) (5) Amortisation and depreciation 9.8 8.4 1.4 17 Equity remuneration amortisation 20.4 19.8 0.6 3
Slide 28: Second half impacted by tough operating environment
Second half impacted by tough operating environment 1H08 2H08 Change Change For personal use only $M $M $M % Total revenue 261.2 234.5 (26.7) (10) Operating expenses 132.8 135.8 3.0 2 EBITDA 128.4 98.7 (29.7) (23) Amortisation and depreciation 4.0 5.8 1.8 45 Equity remuneration amortisation 8.7 11.7
Slide 29: Perpetual Investments operating profit before tax down 3%
Perpetual Investments operating profit before tax down 3% June 2008 June 2007(1) Change Change For personal use only $M $M $M % Total revenues(2) 294.5 282.0 12.5 4 Operating expenses(2) 126.6 110.8 15.8 14 Amortisation and depreciation 0.8 1.6 (0.8) (50) Equity remuneration amortisation 20.1 17.4 2
Slide 30: Perpetual Private Wealth operating profit before tax up 8%
Perpetual Private Wealth operating profit before tax up 8% June 2008 June 2007(1) Change Change For personal use only $M $M $M % Total revenues 104.9 98.8 6.1 6 Operating expenses 55.3 54.0 1.3 2 Amortisation and depreciation 0.6 0.5 0.1 20 Equity remuneration amortisation 2.6 1.5 1.1 73 Operating p
Slide 31: Perpetual Corporate Trust operating profit before tax down 7%
Perpetual Corporate Trust operating profit before tax down 17% June 2008 June 2007 Change Change For personal use only $M $M $M % Total revenues 84.2 68.9 15.3 22 Operating expenses 47.8 31.0 16.8 54 Restructuring costs 3.9 - 3.9 ~ Amortisation and depreciation 2.0 1.2 0.8 67 Equity remuneration amo
Slide 32: Perpetual Corporate Trust expense base increase
Perpetual Corporate Trust expense base increase For personal use only 2008 Corporate Trust expenses $M 60 3.9 54.7 19.0 -1.4 50 40 33.2 30 20 10 0 2007 Mortgage Restructure Other 2008 Expenses Services charge Expenses acquisition 31
Slide 33: Perpetual's expense base increase due to targeted investment
Perpetual’s expense base increase due to targeted investment $M For personal use only 320 4.7 10.4 298.8 300 15.0 -7.2 280 19.4 260 256.5 240 220 200 2007 (1) Acquisitions Asset Mgt Investment Restructure Other 2008 Expenses incentives Expenses (1) (1) Excludes interest expenses 32
Slide 34: Significant items
Significant items June 2008 June 2007 Change Change For personal use only $M $M $M % Operating profit after tax 133.5 145.3 (11.8) (8) Gain on sale of investments 21.1 36.8 (15.7) (43) EMCF losses (25.8) - (25.8) ~ Net profit after tax 128.8 182.1 (53.3) (29) 33
Slide 35: Significant items - gain on sale of investments
Significant items - gain on sale of investments June 2008 June 2007 Change Change For personal use only $M $M $M % Sale of listed equity portfolio 27.0 40.5 (13.5) (33) Sale of investments in incubation funds 7.3 11.3 (4.0) (35) Impairment of certain securities within (3.0) - (3.0) ~ incubation fund
Slide 36: Credit spreads remain very wide
Credit spreads remain very wide For personal use only 35
Slide 37: Significant items - EMCF losses
Significant items - EMCF losses Expensed $M Current running yield of 8.8% For personal use only delivering $1.5m-$2.5m per Structured securities losses 5.7 month return over the index Hedging costs 3.3 Widening spreads since 30 June Recoverable 2008 to date are offsetting Mark to market losses 2
Slide 38: Perpetual is in a strong financial position
Perpetual is in a strong financial position June 2008 June 2007 Change Change For personal use only $M $M $M % Cash holdings 183.1 214.6 (31.5) (15) Investments at market value 77.0 123.4 (46.4) (38) Liquid assets 260.1 338.0 (77.9) (23) Net assets 314.4 341.0 (26.6) (8) Key financial ratios Liquid
Slide 39: Underlying cash flows strong
Underlying cash flows strong For personal use only Reconciliation of major operating cash flow movements $M Operating cash flows FY07 182.6 Lower EBITDA (10.9) EMCF losses (36.9) Income tax payments (timing) (19.0) Other (6.7) Operating cash flows FY08 109.1 38
Slide 40: Dividend policy is to pay out 90% of 'underlying' cash earnings to shareholders
Dividend policy is to pay out 90% of ‘underlying’ cash earnings to shareholders For personal use only $M Operating profit after tax(1) 133.5 Add: Equity Amortisation costs 20.4 90% 2008 underlying cash earnings 153.9 payout = $138.5m ratio Number of shares (million) 42.0 Dividend per share (cents) 3
Slide 41: Agenda
Agenda For personal use only Group summary – David Deverall Financial results – Roger Burrows Strategy and outlook – David Deverall 40
Slide 42: Our strategy
Our strategy For personal use only … to create leadership positions in a broader portfolio underpinned by superannuation superannuation will drive … expand into adjacent volume growth over the businesses using core longer-term competencies… Grow our core four core competencies businesses… - fund
Slide 43: Perpetual has four clear and recognised core competencies
Perpetual has four clear and recognised core competencies For personal use only Core Competencies Proof points Numerous awards 1. Funds management Excellent long-term performance Stable and experienced teams 2. Relationships with financial advisers Ranked second in the ‘Wealth Insights’ Survey 2007
Slide 44: Our strategy is backed by strong industry fundamentals
Our strategy is backed by strong industry fundamentals For personal use only Superannuation assets are expected to more than double in the next 15 years 3.5 $trillion $3.202 trillion (in 2007 dollars) 3 2.5 2 1.5 1 2007 2010 2013 2016 2019 2022 Source: Rice Walker Actuaries 43
Slide 45: Sources of profit are changing
Sources of profit are changing PBT - $M For personal use only 250 226.8 Perpetual Corporate Trust 14% 200 Perpetual Private Wealth 21% 150 102.8 100 22% 8% Perpetual Investments 65% 50 71% 0 (1) (1) 2003 2008 (1) Excludes Group and Support Services and restructure costs 44
Slide 46: Our strategy is underpinned by the following principles
Our strategy is underpinned by the following principles – largely unchanged despite current environment For personal use only Underlying principles Status Bi partisan support for superannuation No change People will continue to pay for ‘alpha’ No change Equities will remain a major part of
Slide 47: Outlook
Outlook For personal use only Lower absolute market levels and volumes will impact profits in 2009 Market conditions remain challenging Capacity to take advantage of opportunities in the short-term - we have a strong balance sheet with low gearing - our quality focused investment style is bein
Slide 48: 2008 Full Year Results Market briefing
For personal use only 2008 Full Year Results Market briefing 20 August 2008