Perpetual Australia Financial Market Update
August 18, 2011 (PRLEAP.COM) Business NewsBusiness portfolio management
August 18, 2011 - In its market update of 26 May 2011, Perpetual Limited (Perpetual) flagged it would adopt greater discipline in terms of the outcome of its regular business portfolio reviews, clearly assess its priorities, and determine whether individual businesses were best managed for growth, profit or exit. This process is still ongoing, but the Company is committed to updating the market as decisions are made.
International Share funds
In line with its stated intention to redefine its approach to the international equity asset class, Perpetual has reviewed its Dublin-based international investment capabilities, taking into account market demand, profitability and alignment to strategy.
Perpetual remains strongly committed to the asset class and to delivering international investment management capabilities to the Australian market. However, it determined that its current manufacturing capability for this asset class would not meet its business expectations.
The outcome of this review has been the decision to close, effective 15 August 2011, the Dublin based in-house manufacturing capability of Perpetual's International Share funds product and to transfer the funds management to Boston-based investment manager Wellington Management Company, LLP (Wellington Management). Perpetual Investment Management Limited, a wholly owned subsidiary of Perpetual, will remain as the responsible entity for the product.
Wellington Management had US$676 billion in total funds under management as at 30 June 2011. Its Global Value strategy was launched in March 2005 and is based on its US value investment philosophy, which has been in place for over 20 years.
The strategy employed by Wellington Management shares a similar investment philosophy with Perpetual, has delivered consistent active returns for its investors over a number of years and enjoys strong investment ratings from asset consultants and research houses.
The transfer of funds management to Wellington Management is expected to generate around $7 million in after tax annualised savings, based on the current level of funds under management. FY12 net savings are estimated to be $4 million after tax due to the timing of the closure of the Dublin office.
The closure will result in a $10 million after tax restructuring charge in the current FY12 financial year.
Perpetual believes that this decision should deliver benefits to investors in its International Share funds, both current and potential, and that it constitutes a positive outcome for its shareholders.
Following an extensive review, Perpetual formed the view that smartsuper, its SMSF administration business, did not have sufficient scale to benefit from the growth in its market segment and would not be able to improve its profitability. Perpetual therefore determined that the inclusion of smartsuper in the business portfolio was no longer warranted and initiated an active program to locate a buyer for the business.
Recognised for its quality of service, smartsuper generated interest from potential buyers seeking to bolt the business onto existing operations.
As a result, smartsuper has been sold to a Sydney-based professional services firm. Perpetual will assist the new owner in transitioning the business, minimising the impact to clients.
As a consequence of the decision to divest the business, smartsuper became classified as a current asset held for sale rather than as separate assets and liabilities as at the end of FY11. Accounting standards require Perpetual to measure a disposal group classified as held for sale at the lower of its carrying amount and fair value, less costs to sell.
The decision to sell smartsuper has generated an additional $4.1 million after tax impairment charge in FY11. As a result, total FY11 non-cash impairment charges for the business are now expected to be $14.7 million after tax.
The business was sold on terms in line with its revised carrying value. Proceeds from the sale were not material.
FY11 restructuring charge
Perpetual advised on 26 May 2011 that as a result of initiatives undertaken to generate annualised cost savings before tax of approximately $9.0 million, it would incur a $4.7 million after tax restructuring cost.
Following the decision to sell the smartsuper business and capacity adjustments in its mortgage services business in line with its operational
environment, Perpetual expects the FY11 restructure charge to increase by $1.7 million to $6.4 million after tax. The annualised net benefit before tax is expected to remain around $9 million, with the decline in revenue resulting from the smartsuper sale and the mortgage services capacity reduction offsetting the additional cost savings generated by the restructure.
FY11 UPAT and NPAT
Whilst Perpetual's financial results for FY11 have not been finalised and remain subject to audit clearance, the FY11 underlying profit after tax
(UPAT)is expected to be $72.9 million (FY10: $72.8 million), in line with the guidance provided on 26 May 2011, which stated UPAT was expected to be broadly in line with the prior year.
Based on a FY11 UPAT of $72.9 million and taking into account $9.8 million in Exact Market Cash Fund (EMCF) recoveries, $3.5 million from gains on sale of investments, $3.1 million in private equity proposal response costs, $14.7 million of non-cash impairment charges relating to smartsuper, and the restructuring charge of $6.4 million, FY11 net profit after tax (NPAT)1 is now expected to be $62.0 million.
FY11 Final Dividend
Perpetual's dividend policy is to pay out 80 to 100% of NPAT on an annualised basis.
Its balance sheet as at 30 June 2011 is expected to show total equity attributable to equity holders of Perpetual Limited of approximately $366 million (1H11: $366.5 million); cash and liquid investments totalling $274 million (1H11: $232.1 million); and corporate debt of $45 million (1H11: $45.0 million).
The Perpetual Board, having taken into consideration FY11 UPAT, the non-cash nature of the smartsuper impairment charge and the Company's strong financial profile, intends to exclude the impact of the impairment charge, the private equity proposal response costs, and the restructuring expenses on FY11 NPAT in determining the FY11 final dividend.
The Board expects to pay a 90 cent per share fully franked final dividend in respect to FY11, in line with previous guidance, reflecting its ability to generate cash from its operations.
Full details of Perpetual's results for FY11, including the declaration of the FY11 final dividend, will be announced on Friday 26 August 2011.
Further information on the above initiatives will also be provided at that time.
- Closure of Dublin-based International Share funds manufacturing capability and transfer of management of funds to Wellington Management
- smartsuper SMSF administration business sold
- FY11 UPAT expected to be $72.9m
- FY11 NPAT expected to be $62.0m
- FY11 Final Dividend expected to be 90cps fully franked
Perpetual is an independent financial services group operating in funds management, financial advisory and trustee services. Our origin as a trustee company, coupled with our strong track record of investment performance, has created our reputation as one of the strongest brands in financial services in Australia.
Note in this statement:
- FY10 refers to the financial reporting period for the 12 months ended 30 June 2010
- 1H11 refers to the financial reporting period for the six months ended 31 December 2010
- FY11 refers to the financial reporting period for the 12 months ended 30 June 2011
- FY12 refers to the financial reporting period for the 12 months ending 30 June 2012
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Perpetual - Media's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.