Perpetual Limited · ASX:PPT
Perpetual — FY2006 Earnings Presentation
50 slides from Perpetual's earnings presentation, Aug 17, 2006
Slide 1: 2006 Full Year Results
2006 Full Year Results Analyst and Investor Briefing 17 August 2006
Slide 2: Agenda
Agenda Group highlights – David Deverall Financial results – John Nesbitt 2007 Outlook – David Deverall 1
Slide 3: Agenda
Agenda Group highlights – David Deverall Financial results – John Nesbitt 2007 Outlook – David Deverall 2
Slide 4: A solid full year result
A solid full year result 2006 2005 Change $m $m % Operating profit after tax(1) 131.5 116.3 13 Net profit after tax 135.3 119.1 14 EPS(2) 323¢ 299¢ 8 Dividend per share – ordinary 326¢ 260¢ 25 Dividend per share – special 100¢ 100¢ - (1) Operating profit after tax excludes significant items and net
Slide 5: Track record of continued growth
Track record of continued growth Operating profit after tax up 13% EBITDA up 20% $M $M 150 250 131.5 212.5 116.3 200 177.7 100 92.5 150.3 150 72.5 117.4 63.3 101.1 100 50 50 0 0 June June June June June June June June June June 02 03 04 05 06 02 03 04 05 06 4
Slide 6: 20% growth in EBITDA – cash earnings
20% growth in EBITDA(1) – cash earnings 2006 2005 Change $m $m % Wealth Management 185.1 152.3 22 Corporate Trust 33.3 30.5 9 Group and Support Services (5.9) (5.1) 16 Total EBITDA 212.5 177.7 20 EBITDA margin 54% 51% - (1) Excludes significant items and net establishment costs for our new global eq
Slide 7: Shareholders rewarded in a year of continued investment in our strategy
Shareholders rewarded in a year of continued investment in our strategy Interim ordinary dividend of $1.62 per share fully franked Final ordinary dividend of $1.64 per share fully franked Special dividend of $1.00 fully franked A total dividend payment of $4.26 per share fully franked in the 2006 fi
Slide 8: Ordinary dividend per share up 25%
Ordinary dividend per share up 25% cents 350 326 300 260 250 200 150 150 130 110 100 50 0 June 02 June 03 June 04 June 05 June 06 7
Slide 9: Perpetual has returned approximately 36% per annum to shareholders over the last 10 years
Perpetual has returned approximately 36% per annum to shareholders over the last 10 years $1,200,000 $50,000 invested in Perpetual shares and reinvested dividends $1,100,000 in 1996 would be worth over $1 million in 2006 $1,000,000 $900,000 $800,000 $700,000 Perpetual (total shareholder return) S&P/
Slide 10: Strong growth in all businesses
Strong growth in all businesses Perpetual Investments Perpetual Private Clients Corporate Trust FUA FUM up 23% FUA(1) up 14% up 24% $B $B $B 35 7 180 178.6 32.8 6.6 30 6 5.8 26.7 150 144.3 5.1 25 5 4.8 4.7 21.7 120 112.4 20 19.4 4 17.4 87.1 90 15 3 60 52.3(2) 10 2 5 1 30 0 0 0 June June June June Ju
Slide 11: Operating profit before tax up 15%
Operating profit before tax(1) up 15% 2006 2005 Change $m $m % Wealth Management 165.7 139.9 18 Corporate Trust 32.0 29.0 10 Group and support services (10.6) (6.1) 74 Total operating profit before 187.1 162.8 15 tax (PBT) PBT margin 47% 46% - (1) Excludes significant items and net establishment cos
Slide 12: Wealth Management operating profit before tax up 18%
Wealth Management operating profit before tax up 18% 2006 2005 Change $m $m % Total revenues 321.4 282.9 14 Perpetual Investments 248.4 220.2 13 Perpetual Private Clients 73.0 62.7 16 Operating expenses 136.3 130.6 4 Depreciation and amortisation 19.4 12.4 57 Operating profit before tax 165.7 139.9
Slide 13: Perpetual Investments: net inflows of $2.4 billion
Perpetual Investments: net inflows of $2.4 billion 30 June Net 30 June 2005 inflows Other(1) 2006 Funds Under Management $b $b $b $b Retail 7.5 (0.1) 1.0 8.4 Intermediary (masterfund and wrap) 13.5 0.6 1.3 15.4 Institutional 5.7 1.9 1.4 9.0 All channels 26.7 2.4 3.7 32.8 Australian equities 18.9 0.4
Slide 14: Significant inflows from the institutional market
Significant inflows from the institutional market $400 million in flows into Quantitative Investments this year Australian First half of the year was impacted by equities active Australian equities re-balancing by institutional clients Over $1.9 billion into cash and fixed interest Cash and fixed –
Slide 15: Perpetual Private Clients experienced strong growth
Perpetual Private Clients experienced strong growth Funds under advice (1) $B 8 6.6 6 5.8 Fiduciary 5.1 services 4.8 4.7 4 Financial 2 advisory 0 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 (1) Excludes externally advised do-it-yourself (DIY) and Investor Direct Portfolio Services (IDPS) funds under administ
Slide 16: Perpetual Private Clients net inflows performing strongly
Perpetual Private Clients net inflows performing strongly 30 June Net 30 June 2005 inflows Other(1) 2006 FUA $b $b $b $b Financial advisory 3.7 0.3 0.4 4.4 Fiduciary services 2.1 0.1 - 2.2 All Channels 5.8 0.4 0.4 6.6 Financial advisory – Net inflows driven by improved service delivery, new clients
Slide 17: Perpetual Private Clients emerging strongly
Perpetual Private Clients emerging strongly Benefits of cost and efficiency initiatives Price increases implemented Improved profitability Strong growth in volumes Now represents approximately 20% of Perpetual’s group operating profit before tax Reorganised team Next steps for revenue – Sales and ma
Slide 18: Outlook for Wealth Management
Outlook for Wealth Management 2006 2005 Change Good $b $b % starting Perpetual Investments FUM 32.8 26.7 23 volumes for 2007 Perpetual Private Clients FUA 6.6 5.8 14 Solid foundations Continue to maximise core business Outlook Results emerging from new initiatives Good future growth prospects subjec
Slide 19: Continued strong growth for Corporate Trust
Continued strong growth for Corporate Trust 2006 2005 Change $m $m % Total revenues 58.2 57.1 2 Operating expenses 24.9 26.6 (6) Depreciation and amortisation 1.3 1.5 (13) Profit before tax 32.0 29.0 10 PBT Margin 55% 51% - 18
Slide 20: Strong Corporate Trust volumes driven by RMBS
Strong Corporate Trust volumes driven by Residential Mortgage Backed Securities (RMBS) Corporate Trust Funds Under Administration $B 200 178.6 CMBS and ABS 150 144.3 112.4 RMBS - 100 87.1 non bank RMBS FUA totals $140 billion 50 RMBS - bank 0 Jun 03 Jun 04 Jun 05 Jun 06 Composition of FUA CMBS & ABS
Slide 21: Solid growth outlook in Corporate Trust
Solid growth outlook in Corporate Trust Revenue 2006 2005 Change $m $m % Good growth Securitisation 40.0 35.9 11 in Other CT revenue 18.2 21.2 (14) securitisation Total 58.2 57.1 2 business Large client internalised their responsible entity service leading to loss of client in June 2005 (as advised
Slide 22: Our corporate strategy
Our corporate strategy Focus on our four sources of competitive advantage I. Develop a II. Develop Funds management policies and processes more balanced new growth Relationship with financial planners portfolio engines Trusted brand Fiduciary services III. Fully engage our people to deliver our stra
Slide 23: Expanding our asset management footprint
Expanding our asset management footprint Skill set High Low breadth breadth Domestic Stock Broad Styles Small Caps Hedge Private Picking Funds Equity Mortgage Lending Mortgages Mezz Debt LPT Stock Picking Global Domestic Infrastructure Infra- Investing structure Quantitative Global Domestic Hedge Cu
Slide 24: Outstanding growth in new credit capability
Outstanding growth in new credit capability Funds have outperformed benchmark every month to date resulting in strong FUM growth FUM $B Focus on the credit enhanced 3.0 product 2.8 New higher margin products 2.5 – Exact Market Cash Fund 2.0 – Diversified Income Fund 1.7 1.5 $1.9 billion net inflows
Slide 25: Strong investment returns experienced in new Quantitative Investments Long Short Fund
Strong investment returns experienced in new Quantitative Investments (QI) Long Short Fund New QI Long Short Fund launched in September 2005 Attracted commitments of approximately $650 Strong million to date institutional flows into QI QI Long Short Fund performing strongly since Funds inception Pro
Slide 26: Global equities – key strategic building block
Global equities – key strategic building block Asset management team now in place with full complement of asset managers on board Encouraging Solid investment performance in second half of 2006 early signs Full year net establishment costs of $9.1 million after tax in 2006 down from $20.5 million af
Slide 27: Other initiatives implemented during 2006
Other initiatives implemented during 2006 Property securities – Acquired remaining 50% of Perpetual James Fielding – Top quartile performance and steady flows Direct property New – Team established in December 2005 businesses – Perpetual Wholesale Property Fund launched in April 2006 Diversified inf
Slide 28: Strategic initiatives producing tangible benefits
Strategic initiatives producing tangible benefits Continue to maximise core business potential More sources of potential growth Portfolio of businesses more diversified Portfolio more resilient Perpetual is better positioned for the future 27
Slide 29: Name change and Board renewal
Name change and Board renewal Change of name to Perpetual Limited in early January Board renewal program completed: – Robert Savage (Chairman) – David Deverall (CEO and Managing Director) – Meredith Brooks – Paul McClintock – Sandra McPhee – Elizabeth Proust – Peter Scott – Philip Twyman 28
Slide 30: Agenda
Agenda Group highlights – David Deverall Financial results – John Nesbitt 2007 Outlook – David Deverall 29
Slide 31: Overview
Overview Building off a solid base – Sound fundamentals – Continued focus on expenses Moving decisively to implement strategy – Investment in skill base Sharpened focus on capital management – Sale of non-core assets – Special dividend Commenced and substantially completed the administration process
Slide 32: A solid result
A solid result 2006 2005 Change $m $m % Operating revenue 394.1 351.5 12 Operating expenses (181.6) (173.8) 4 EBITDA 212.5 177.7 20 Depreciation and amortisation (23.0) (14.9) 54 Interest (2.6) (2.5) 4 Plus: associate profits (eg. APRL) 0.2 2.5 - Profit before tax 187.1 162.8 15 Operating profit aft
Slide 33: Margins expand while business investment continues
Margins expand while business investment continues Operating profit before tax to revenue margin EBITDA to revenue margin % % 60 60 54 51 50 50 49 46 47 43 42 40 40 39 36 34 30 30 EBITDA PBT Margin Margin 20 20 10 10 0 0 June 02 June 03 June 04 June 05 June 06 June 02 June 03 June 04 June 05 June 06
Slide 34: Operating profit after tax for the year ended June 2006
Operating profit after tax for the year ended June 2006 $M 200 17.6 3.7 150 131.5 -9.1 135.3 -8.4 100 50 0 Operating Profit on Sale of Net establishment Admin process Net profit after tax profit after tax sale of APRL investments costs for our review costs new global equities business in Ireland 33
Slide 35: Modest increase in expense base
Modest increase in expense base 2006 2005 Change $m $m % Employee related expenses 119.0 115.1 3 Occupancy expenses 7.5 4.9 53 G&A expenses 55.1 53.8 2 Total operating “cash” expenses 181.6 173.8 4 Depreciation and amortisation 23.0 14.9 54 Interest expense 2.6 2.5 4 Total expenses(1) 207.2 191.2 8
Slide 36: Continued focus on expenses
Continued focus on expenses Short term employee incentive costs higher in line with increased profits Increased Increase in long term performance-based equity amortisation proportion of expenses variable costs Increased investment and administration fees for outsourced operations (FUM based fees) Pr
Slide 37: Administration process review
Administration process review End to end review of policies, practices and processes around fund accounting and unit pricing (in line with “ASIC/APRA Unit Pricing – Guide to Good Practice”) Costs incurred of $12 million before tax include professional fees, refinement of policies and procedures and
Slide 38: A strong balance sheet
A strong balance sheet June June Change 2006 2005 % $m $m Cash holdings 203.0 167.9 21 Investments at market value 146.1 111.7 31 Liquid assets 349.1 279.6 25 Net Assets 331.0 269.3 23 Key Financial Ratios Gross debt(1) to book equity 13.6% 16.7% Interest coverage (EBITDA)(2) times 74 63 Franking cr
Slide 39: $757 million in Structured Investments on balance sheet
$757 million in Structured Investments on balance sheet June June 2006 2005 $m $m Structured Investment Asset 757 8 Structured Investment Liability (757) (8) Impact on shareholders’ funds - - Structured Investment comprises exact market cash products Perpetual guarantees the benchmark return on thes
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 $m Operating profit after tax 131.5 Add: Equity amortisation costs 15.7 90% Payout 2006 Underlying cash earnings 147.2 ratio = $132.5m Number of shares on issue (million) 40.7 Dividend per share (cents) 326 39
Slide 41: Capital management update
Capital management update What capital is required? • Regulatory capital Step 1 • Seed and incubation funds • Contingency and working capital • Growth needs Step 2 How much capital is available? Step 3 Distributable surplus/franking credits available Step 4 $1.00 Special Dividend Declared 40
Slide 42: AGAAP/AIFRS OPAT overview
AGAAP/AIFRS OPAT overview 30 June 2005 AIFRS 116.3 30 June 2006 AIFRS 131.5 % increase over previous year 13% 30 June 2005 AGAAP 111.6 30 June 2006 AIFRS 131.5 % increase over previous year 18% 41
Slide 43: AIFRS impacts on 2005 OPAT
AIFRS impacts on 2005 OPAT 2005 $m Reported operating profit under AGAAP 111.6 AIFRS adjustments - Amortisation of goodwill no longer provided 3.4 - Additional amortisation of deferred staff incentives (options and shares) (0.7) - Taxation effect of adjustments above 0.2 - Equity accounting for APRL
Slide 44: Impact of AIFRS on EPS
Impact of AIFRS on EPS 2006 2005 Change $m $m % Operating Profit After Tax 131.5 116.3 13 EPS – Basic 345¢ 309¢ 12 EPS – Diluted 323¢ 299¢ 8 Reconciliation of Shares on Issue: Million Million Average number of shares on issue basic(1) 38.2 37.6 Treasury shares on issue(1) 2.3 0.9 Dilutive impact of
Slide 45: Agenda
Agenda Group highlights – David Deverall Financial results – John Nesbitt 2007 Outlook – David Deverall 44
Slide 46: Favourable operating environment
Favourable operating environment Australia’s managed funds market is forecast to continue growing at 10 per cent per annum Government legislation focused on addressing the retirement savings gap – Future Fund – Removal of tax on superannuation lump sum and annuity payouts – Replacement of Reasonable
Slide 47: Our strategy is delivering
Our strategy is delivering Significant growth in Perpetual Private Clients Inflows into new managed funds (credit enhanced, quantitative investments, property securities, infrastructure, structured) Global equities – early days, foundation setting New Corporate Trust business in mortgage variations
Slide 48: 2007 Outlook
2007 Outlook Strong business fundamentals Favourable operating environment Strategic initiatives starting to deliver Solid starting position for funds under management and funds under administration and advice Will update our first half outlook at the AGM in October 2006 47
Slide 49: Key messages
Key messages Good result in a period of significant activity Strategic initiatives producing tangible outcomes – More diversified portfolio of businesses – Better opportunities for growth – Improved environment for the team Well positioned for continued growth and more resilient for what the future
Slide 50: 2006 Full Year Results
2006 Full Year Results Analyst and Investor Briefing 17 August 2006