Perpetual Trustees Australia Limited ( Perpetual ) November 2004 Presentation to Macquarie Equities
Content Business and Financial Overview Business operations Wealth Management Business operations Corporate Trust Strategy Capital Management Global Equities Initiative 1
Who is Perpetual? Publicly listed Australian financial services company and largest independent wealth manager in Australia* Top performing manager in Australian equities $23 billion FUM in September 2004 Over the last 9 years the company has been transformed from a traditional trustee business into a substantial wealth management and trustee business. The share price and company value has grown by over 800% during the same period or a compound average growth rate of 26% Market capitalisation ~ $2 billion and approximately 800 employees Trading revenue increased 195% from A$101 million at June 1997 to A$295.2 million at June 2004 *10% shareholding limitation under Perpetual s constitution and various State Trustee Acts 2
Perpetual Trustees Australia Limited MD s Office Finance Asset Management Wealth Management Corporate Trust Human Resources Information Technology Perpetual Investments Private Clients Wilson Dilworth Debt Markets Fund Services Legal & Secretariat Risk & Compliance 3
Track record of continued profit growth Operating Profit after Tax EPS* $100M 88.2 Annual growth 30.2% 250 232 Annual growth 28.9% 80 60 58.7 68.2 200 150 156 181 40 30.7 40.7 100 84 109 20 50 0 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 0 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 *Calculated using operating profit after tax (excluding gains on investment) 4
Revenues up 10% in 2004 driven by strong growth in asset volumes Funds Under Management Wealth Management Funds Under Advice & Administration Wealth Management Funds Under Administration Corporate Trust* $25B 21.7 $10B $125B 112.4 20 15 10 5 11.6 15.6 19.4 17.4 8 6 4 2 5.1 Admin Advice 5.8 6.2 6.0 6.6 100 75 50 25 28.0 42.2 52.3 87.1 Preliminary Funding Securitisation 0 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 0 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 0 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 *Preliminary funding only reported after 2003 5
26% growth in EBITDA in 2004 EBITDA June 2004 EBITDA June 2003 % Change Wealth Management $115.4m $91.6m +26% Corporate Trust $25.9m $23.6m +10% Group unallocated $2.3m ($1.6m) - TOTAL $143.6m $113.6m +26% 6
A strong, clean balance sheet June 2004 June 2003 % Change Net assets $315.4m $287.4m +10% Investments at cost $60.1m $68.8m (13%) Investments at market value $109.5m $102.1m +7% Cash holdings $163.4m $113.2m +44% Key Financial Ratios Gross debt to book equity 14% 17% Interest coverage 57x 38x 7
Continuing to improve shareholder value Return on Shareholders Equity 30% 29.3% 25 23.9% 25.1% 20 15 17.4% 18.9% 10 5 0 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 *Based on Operating Profit after Tax and average shareholders equity 8
Five year performance Performance measures Units 2000 2001 (4) 2002 (4) 2003 (4) 2004 Growth Rate % (1) Revenue from trading operations $m 238.9 290.9 248.2 267.8 295.2 5.4% Net investment income $m 6.3 9.2 8.4 11.0 10.8 14.4% Total revenue $m 245.2 300.1 256.6 278.8 306.0 5.7% EBITDA $m 71.4 82.0 100.7 113.6 143.6 19.1% Operating profit after tax (OPAT) excluding realised gains on investment sales (2) $m 30.7 40.7 58.7 68.2 88.2 30.2% Profit after tax (PAT) $m 40.3 54.9 75.6 78.2 90.4 22.4% Earnings per share cents 110.1 147.4 199.9 207.1 237.8 21.2% Return on average shareholders equity (OPAT) % 17.4 18.9 23.9 25.1 29.3 Return on average shareholders' equity (PAT) % 22.9 25.4 30.8 28.7 30.0 Dividend paid, declared or provided for (3) $m 23.9 31.8 60.7 68.0 76.4 33.7% 1. Compound annual growth rate 2. Profit from trading excludes investment income and realised gains on investment sales 3. Includes special dividends paid or provided for. For 2004, the special of 200 cents per share announced as part of the capital management policy has been excluded 4. Adjusted to reflect revenue reclassification effective in 2004 9
Content Business and Financial Overview Business operations Wealth Management Business operations Corporate Trust Strategy Capital Management Global Equities Initiative 10
Defining the Wealth Management Value Chain In order to understand the dynamics of the Perpetual Wealth Management business, it is useful to consider in which parts of the industry value chain the business operates in: Manufacturing of Investment Returns Product Packaging Administration Core systems Packaged Systems Advice Dealers and Advisers Asset selection Develop investment approaches Institutional sales and support Create branded products out of funds Sales to intermediaries and investors Provide administration links with fund managers and their products Unit registry maintenance Client services and practice management tools for intermediaries Provide infrastructure and regulatory support to advisors Provide tailored financial solutions to end investors Provide access to asset administration services Support to intermediaries and investors The chain starts with the manufacturing of the investment returns (a core competency for Perpetual). The product is then packaged and sold to third parties. This incorporates branding, sales to end users and intermediaries and overall support. The third link in the chain is the core processing systems and administration functions that support the products, typically made up of unit pricing and other administration functions. The final link is the advice business which provides support to financial intermediaries, financial planning and asset administration services 11
Wealth Management - Operational and Financial Overview Perpetual Investments - Over the last 10 years compulsory superannuation has been a major contributor to FUM inflows, regulation will continue to support and grow the industry - 70% of revenues relate to the fund management business - current reliance on the performance of the Australian equity market - global equity markets is a key strategic focus Private Clients - - manages financial assets for over 5,000 private clients, estates, trusts and philanthropic foundations. It provides a comprehensive suite of services including; financial planning and advice, personal portfolio management, superannuation, taxation advice, estate planning, administration and trustee services and advice on philanthropic foundations - Advice & Trust and Estates businesses derive revenues in a different part of the value chain to funds management - Estate revenue is driven by the number of wills that come into force (death) where we are named executor Wilson Dilworth - - offers a range of superannuation products through its network of referring accountants, based in Melbourne 12
Strong growth for Wealth Management Cost saving targets achieved Continued excellent investment performance - numerous awards Funds under management up 25% from 2003 to 2004 Successful launch of WealthFocus and other products Dedicated wholesale client team Good growth in advice businesses 13
Wealth Management EBITDA up 26% in 2004 June 2004 June 2003 % Change Revenues Perpetual Investments $177.3m $158.0m +12% Private Clients Wilson Dilworth $54.5m $14.0m $51.9m +5% $13.6m +3% Total Revenues $245.8m $223.6m +10% Expenses $130.4m $132m (1%) EBITDA $115.4m $91.6m +26% 14
Superior investment performance in Australian Equities Excess over benchmark (3 Year rolling excess performance) % Variance to Benchmark 10% 8 5 Australian Equities 3 0-3 -5 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 Jun 04 Benchmarks based on: Australian Equities: Aust Share Fund and S&P/ASX300 Pre-fee returns used in calculations 15
Performance well recognised by the market Money Management / ASSIRT Awards Morningstar Awards Personal Investor Magazine Awards Money Magazine Best of the Best 2004 Awards Australian Fund Managers Awards Fund Manager of the Year 2004 Australian Equities Fund Manager of the Year 2004 Fund Manager of the Year 2003 Australian Equities Fund Manager of the Year 2003 Australian Multi-Sector Fund Manager of the Year 2003 Fund Manager of the Year 2004 Australian Share Fund of the Year 2004 Best Rated Australian Share Fund Best Rated Balanced Fund Golden Bull Award for Fund Manager of the Year 2004 Golden Bull Award for Fund Manager of the Year 2003 Australian Equity Fund Manager of the Year 2003 InvestorWeb Research 2004 Six Star Award for Perpetual Investments Mortgage Funds 16
Funds under management up 25% in 2004 FUM Balance ($B) $22B 20 19.4 21.7 21.7 Institutional Diversified & Property 18 16 14 15.6 17.4 Retail Mortgages, Fixed Interest, Cash International Equity 12 11.6 10 8 6 4 2 Masterfund Australian Equities 0 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 04 17
$1.5 billion in net inflows in 2004 June 2004 FUM Net inflows Other* June 2003 FUM Retail $6.6B ($0.1B) $0.7B $6.0B Masterfund $11.7B $1.0B $1.5B $9.2B Institutional $3.4B $0.6B $0.6B $2.2B All Channels $21.7B $1.5B $2.8B $17.4B Australian Equity $13.9B $1.3B $2.1B $10.5B Other $7.8B $0.2B $0.7B $6.9B All Asset Classes $21.7B $1.5B $2.8B $17.4B * Includes re-investments, distributions, income and asset growth 18
Middle of the value chain will be squeezed Asset managers who can add alpha will differentiate themselves and charge a premium Consolidated reporting by administrators becoming harder to differentiate Advisers and dealers can craft value proposition around provision of tailored, trusted financial advice 19
Content Business and Financial Overview Business operations Wealth Management Business operations Corporate Trust Strategy Capital Management Global Equities Initiative 20
Corporate Trust - Operational and Financial Overview Corporate Trust clients are offered services through two main areas: - Debt markets which provides securitisation and corporate and structured finance services to the debt capital market - Fund services which provides responsible entity, property and venture capital services to the funds management market Historical growth driven by volume of securitisation of residential mortgages - residential property market growth - appetite by investors is high - active property market - low interest rate environment - desire by lenders to reduce cost of funding and remove asset and liability from their balance sheet The linkage to property provides a diversified income stream against movements in equity markets Low capex the Corporate Trust business requires little in the way of capital to maintain and grow the business. 21
Steady growth in Corporate Trust Growth driven by strong Securitisation volumes - Securitisation revenues up 18% - Increase in offshore demand for RMBS - Bank of New York global alliance Tighter criteria on corporate & structured finance business Investing in capabilities - Administrative services for Securitisation - Business development for Funds Services 22
Corporate Trust EBITDA up 10% in 2004 June 2004 June 2003 % Change Revenues $49.4m $44.2m +12% Expenses $23.5m $20.6m +14% EBITDA $25.9m $23.6m +10% 23
Funds Under Administration Corporate Trust Funds Under Administration Corporate Trust* $125B 112.4 100 87.1 Preliminary Funding 75 50 42.2 52.3 Securitisation 25 28.0 0 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 24
Increasing offshore demand for RMBS Issuances ($B) $50B RMBS Issuances 44.8 40 30 28.1 30.9 Offshore 20 13.7 16.0 10 Domestic 0 1999 2000 2001 2002 2003 No of deals 37 29 35 42 62 Source: S&P Note: Year to December 25
Content Business and Financial Overview Business operations Wealth Management Business operations Corporate Trust Strategy Capital Management Global Equities Initiative 26
Strategy drivers Growth was driven by two successful, established businesses Heavy portfolio concentration in Australian equities Need to develop long-term growth prospects 27
An excellent foundation External Markets rebounded Investor confidence returning Mandated growth in retirement savings Securitisation volumes growing Internal Investment performance remains strong Trusted brand Core businesses with strong market presence Talented team keen to sustain growth 28
Our new Strategy Focus on our 4 sources of competitive advantage I. Develop a more balanced portfolio II. Develop new growth engines III. Fully engage the staff to deliver our strategy 29
Four sources of competitive advantage underpin our strategy 1. The management of funds management teams, philosophies and processes 2. Relationship management with financial planning community 3. A trusted brand 4. A long history as a leading provider of fiduciary services to individuals and corporates 30
2005 Implementation: Develop a more balanced portfolio Continuing focus on costs Trust industry opportunities Full potential from Advice businesses Broaden range of funds management products 31
Continuing focus on costs Extract synergies from existing businesses More variable cost structure - New remuneration policy Shifting costs and investing in higher value adding activities - Asset management - Marketing - Product development and management - Strategy and project management - Wholesale sales Move to a single premises to improve productivity 32
Trust industry opportunities Enthusiastic participant in the Trust industry Interested party in consolidation Will only look to value accretive opportunities 33
Advice strategy: Priorities for 2005 Expand product range and adjust pricing Align staff capabilities with client needs Expand marketing activities 34
Broaden range of funds management products Add products from existing capabilities Growth pensions Managed discretionary accounts Quantitative Investment market neutral Mezzanine pooled fund Add products from new capabilities Stock portfolio with capital protection Property income fund High yield income fund 35
2005 Implementation: Develop new growth engines Build capability in new investment skill sets Expand range of Corporate Trust services 36
Build capability in new investment skill sets Fixed Interest Capability Skill set High breadth Low breadth Domestic Stock Picking Mortgage Lending LPT Stock Picking Infrastructure Investing Quantitative Investing Credit Investing Global Stock Picking Global Thematic Direct Property Investing Duration Management Broad Global Broad Styles Mortgages Global Domestic Global Styles Small Caps Mezz Debt Domestic Domestic Hedge Funds Infrastructure Hedge Funds Hybrids Hedge Funds Hedge Funds Direct Property Private Equity Recently added capability Emerging Markets Broad Currency/ TAA Vanilla Bonds Skills we currently possess 37
2005 Implementation: Fully engage the staff to deliver our strategy New remuneration policy Single premises Leadership team development 38
Staff remuneration aligned with shareholders Incentives are a significant part of our remuneration Paid from profits - not budgeted as fixed costs Reward people when performance significantly exceeds expectations Equity participation to encourage ownership and long term focus 39
Content Business and Financial Overview Business operations Wealth Management Business operations Corporate Trust Strategy Capital Management Global Equities Initiative 40
Future gearing policy Desire to have a balance sheet that, if rated, would have an investment grade rating Reflects financial conservatism appropriate for a company involved in investment management and trust activities and supports business stability Financial ratio guidelines: - Debt/Book equity less than 30% - EBITDA interest cover greater than 10 times 41
Capital requirements Capital retained to provide for: Regulatory capital requirements and contingency margin Working capital requirements Seed capital Growth initiatives Subject to no alternative potential investment opportunities being available at the time, consideration will be given to returning any future surplus capital to shareholders (6 monthly review) Funding is available if a significant value accretive acquisition is identified 42
Future dividend policy Strong cash generation Low capital expenditure Substantial franking credits Future dividend policy Ordinary dividends of 90% of NPAT before goodwill amortisation and gains / losses on investments, fully franked High dividend pay-out ratio 43
Content Business and Financial Overview Business operations Wealth Management Business operations Corporate Trust Strategy Capital Management Global Equities Initiative 44
Adding a global stock picking capability Skill set High breadth Low breadth Domestic Stock Picking Mortgage Lending LPT Stock Picking Infrastructure Investing Quantitative Investing Credit Investing Global Stock Picking Global Thematic Direct Property Investing Duration Management Broad Global Broad Styles Mortgages Global Domestic Global Styles Small Caps Mezz Debt Domestic Domestic Hedge Funds Infrastructure Hedge Funds Hybrids Hedge Funds Hedge Funds Direct Property Private Equity Recently added Global capability Equities Currency/ TAA Emerging Markets Broad Vanilla Bonds Skills we currently possess 45
Perpetual will create its own global equities business Business strategy includes: Manufacture a focused range of global equities products Distribution of these products to: Retail and institutional investors in Australia Institutional investors outside of Australia Perpetual Trustees Australia Ltd. Global clients Aus clients Perpetual (International) Global equity manufacturer Institutional market sales Perpetual (Australia) Global equity product packager Institutional & retail market sales 46
Key points: Perpetual Global Equities Strategic development Secured outstanding Global Equities investment capabilities based in Dublin Strategy incorporates the best of Greenfield and acquisition options Supports Perpetual s new strategy for developing new growth engines and balancing the portfolio Fidelity alliance ends when Perpetual s Global Equities team assumes management of funds in early 2005 Financial impacts Perpetual Global Equities business expected to be profitable in second full year of operations One-off significant items c.$20m (pre-tax) in 2005. Significant items include: - Establishment costs of c.$15m - Start-up operating losses of c.$5m Significant items expected to be fully offset by profits from the sale of nonstrategic assets (e.g. share portfolio) with no reduction in 2005 OPAT 2005 dividend payments of 90% of NPAT before goodwill will not be impacted by the global equities significant item 47
Global equities presents a significant opportunity for Perpetual Global equities is a very large market with growing market share in Australia Global Equity FUM (USD) $2,000B Australian asset allocation in Global equities (% of total) 25 1,500 20 15 1,000 10 500 5 0 Global US UK Germany Japan Australia 0 1996 1997 1998 1999 2000 2001 2002 Source: Cerulli Global Update 2002 48
Perpetual s new Global Equities group is outstanding with a strong cultural fit Philosophy aligned with Perpetual A high quality, stable group Bottom-up stock pickers Strong investment results Value bias Worked together for the last ten years Industry experience average exceeds 22 years Team based decision making no star system Leaders of a team with a consistent record of outperformance 4.7% p.a. out-performance over 15 years 1 st or 2 nd quartile in 81% of rolling 3 year periods since 1987 Process is transferable Small self-contained team Investment processes similar to Perpetual s Key members of a team that manages large FUM Bank of Ireland Asset Management has over A$75B in global equities - Over A$4.3B sourced from Australia 49
Perpetual will initially have a team of ~16 in Dublin Core investment team hired Des Sullivan and John Nolan will be Chief Investment Officers for Perpetual Global Equities responsible to Emilio Gonzalez, Perpetual CIO Richard Kelly and John Forde - Senior Portfolio managers 4 of 8 positions filled more junior (equity analyst and portfolio construction) positions to be filled shortly Senior leadership from Perpetual Australia moving to Dublin Rory MacIntyre appointed Head of Business - National Sales Executive of Perpetual Investments - Joined Perpetual in 1995 - Irish born and Irish business experience Patti Eyers appointed Head of Finance and Administration - General Manager Group Finance of Perpetual Trustees Remainder of team to be filled by commencement of operations Sales, service and operations functions directly reporting to Rory MacIntyre Finance, compliance, systems and administration functions reporting to Patti Eyers Remaining positions to be filled from the local region 50
Long-term incentive program $28m in PTAL shares issued to the investment team and to be held in trust Vesting subject to achievement of revenue targets Range of outcomes: $0 to $28m Vests over seven years Issue price determined as the weighted average price of PTAL shares in the five trading days prior to signing of employment contracts 51
Indicative timeline Sep 04: Perpetual announces Global Equity strategy Sep 04: Irish company formed and execution of strategy begins Licensing application HR recruiting team members Premises being selected Systems infrastructure being developed Investment processes to be developed Research and consultants to be briefed Nov 04: Investment managers join Perpetual Feb 05: Business license approved in Ireland Feb 05: New Perpetual Global Equities business assumes management of Perpetual s Global Equities 52
Conclusion - A busy year Y Y Y Y Y Y Y Y Y Y Corporate strategy in place Expanded asset management footprint New products created Advice strategy being implemented Integrated Wealth Management division Capital management policy in place New remuneration policy in place Refreshed corporate values New premises being selected Branding refreshed and being relaunched 53
Good start to 2005 Starting FUM and FUA balances position us for continued increase in revenues Continuing focus on costs Increased fund flows as markets remain positive At this early stage of the year: operating profit (before gains on investment sales and significant items) for the first quarter of this year is well ahead of the same period last year subject to market conditions, we are more confident of achieving an increase in operating profit after tax in excess of 10 percent 54
Why Perpetual Independent wealth manager Fund Manager of the Year three times Top performer in Australian equities One of Australia s largest wealth management pure plays Emerging global option 55