Perpetual Limited (Perpetual) David Deverall Chief Executive Officer Investor Presentation - GSJB Were London Thursday 8 February 2007
Perpetual is an ASX 100 company and the largest independent wealth manager in Australia 120 years of history Market capitalisation ~ A$3.2 billion Top performing manager in Australian equities As at 30 2006 A$36.8 billion in funds under management (31 December 2006) A$178.6 billion in Corporate Trust funds under administration A$6.6 billion in Perpetual Private Client funds under administration A$394 million in revenue in 2006 1
Perpetual: Key messages Perpetual is an Australian financial services company actively participating in the wealth management and securitisation sectors Well positioned for continued growth The Australian wealth management and securitisation markets have strong fundamentals Growth strategy delivering benefits An attractive investment for exposure in the Australian wealth management industry 2
Perpetual actively participates in two industries David Deverall Office of the Chief Executive Officer and Managing Director Wealth Management Corporate Trust Asset Management Emilio Gonzalez Chief Investment Officer Wealth Management Gerard Doherty Group Executive Corporate Trust Phil Vernon Group Executive Perpetual Investments (including PI Investment Management) Perpetual Private Clients John Nesbitt Chief Financial Officer Ivan Hoyman Chief Risk Officer 3
In Wealth Management we focus on the valueadd ends of the value chain Our focus Asset managers who can continue to add alpha will be able to differentiate themselves from competitors and charge a premium New product development supports manufacturing capabilities Perpetual Investments Consolidated reporting by administrators likely to become commoditised as product differentiation is more difficult Advisers can craft value a proposition around the provision of tailored financial advice Perpetual Private Clients 4
Our Corporate Trust business provides services between corporates and investors Investor Protection Originators of capital markets activity Banks Compliance culture Investors and stakeholders Institutional investors Non-bank financial institutions Corporates Fund managers Fiduciary services Administrative services Retail debenture holders Fund unit holders Industry regulators 5
Operating profit before tax (1) up 15 per cent 2006 A$M 2005 A$M Change % 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 tax (PBT) 187.1 162.8 15 PBT margin 47% 46% - (1) Excludes significant items and net establishment costs for our new global equities business in Ireland 6
Track record of consistently increasing earnings Operating profit after tax up 13 per cent $M 150 100 50 13% 116.3 92.5 72.5 63.3 131.5 $M 250 200 150 100 101.1 EBITDA up 20 per cent 20% 212.5 177.7 150.3 117.4 50 0 02 03 04 05 06 0 02 03 04 05 06 7
Ordinary dividend per share up 25 per cent Cents (Australian dollars) 500 400 400 360 426 300 200 100 160 Special Ordinary 180 0 02 03 04 05 06 Dividend policy: 90 per cent of operating profit after tax* * Before equity remuneration expense 8
A strong balance sheet 2006 A$ 2005 A$ Change 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 credits (before dividends) $53.2m $51.2m (1) Excludes structured investment liabilities (2) Excluding investment sales 9
Perpetual Key messages Perpetual is an Australian financial services company actively participating in the wealth management and securitisation sectors Well positioned for continued growth The Australian wealth management and securitisation markets have strong fundamentals Growth strategy delivering benefits An attractive investment for exposure in the Australian wealth management industry 10
Wealth Management - continued healthy asset growth A$B 40 35 Perpetual Investments Funds under management up 23 per cent in 2006 32.8 36.8 Perpetual Private Clients Funds under advice, administration and trust up 14 per cent in 2006 A$B 7 6 5.8 6.6 30 25 20 15 19.4 17.4 21.7 26.7 5 4 3 4.8 4.7 5.1 10 2 5 1 0 02 03 04 05 06 Dec 06 0 02 03 04 05 06 11
Good performance, strong markets and strong net inflows increased FUM by 23 per cent Funds under management 30 2005 A$B Net inflows A$B Other (1) A$B 30 2006 A$B Retail 7.5 (0.1) 1.0 8.4 Intermediary (masterfund and wrap) Institutional All channels Australian equities Cash and fixed Interest Global equities 13.5 5.7 26.7 18.9 5.2 1.8 0.6 1.9 2.4 0.4 1.9-1.3 1.4 3.7 2.7 0.3 0.3 15.4 9.0 32.8 22.0 7.4 2.1 (1) Includes reinvestments, distributions, income and asset growth (2) Includes 100 per cent of Perpetual James Fielding Limited funds under management 0.4 (2) Other 0.8 0.1 1.3 All asset classes 26.7 2.4 3.7 32.8 12
Strong Corporate Trust volumes driven by residential mortgage backed securities (RMBS) Corporate Trust Funds Under Administration A$B 200 150 144 Up 24 per cent in 2006 179 CMBS and ABS 100 87 112 RMBS - non bank 50 RMBS - bank RMBS FUA A$140 billion 0 Jun 03 Jun 04 Jun 05 Jun 06 Composition of FUA CMBS & ABS (1) 27% 22% 22% 22% RMBS - non bank 40% 41% 36% 36% RMBS - bank 33% 37% 42% 42% (1) Commercial Mortgage Backed Securities (CMBS) and Asset Backed Securities (ABS) 13
Favourable operating environment Australia s managed funds market is forecast to continue growing at 10 per cent per annum Government legislation focused on addressing the retirement savings gap Future Fund Removal of tax on superannuation lump sum and annuity payouts Replacement of Reasonable Benefit Limits (RBL) with contribution caps Investors are willing to pay for skill Good fundamentals in the Australian securitisation market 14
Perpetual Key messages Perpetual is an Australian financial services company actively participating in the wealth management and securitisation sectors Well positioned for continued growth The Australian wealth management and securitisation markets have strong fundamentals Growth strategy delivering benefits An attractive investment for exposure in the Australian wealth management industry 15
The Australian financial services industry is large and diverse 100% Estimated 2005 revenue (A$B) 80 Retail Other 60 Mortgages Retail Personal 40 Commercial Lending ILS 20 0 Business Credit Cards Other Personal Total Deposits Personal Lending Commercial Lending IP Wholesale Commercial Group Wealth Risk GI A$20B A$16B A$12B A$16B A$5B A$9B Total = A$76B 16
The Australian Wealth Management industry is attractive with a high rate of underlying asset growth due to government mandated superannuation savings Total FUM CAGR: A$1,801B 2002 2006 14% A$1,230B 31% 561 Global assets International equities International fixed income CAGR: 2002 2006 18% 100% = A$719B 24% 173 546 27% 332 898 1,240 Domestic assets Australian equities Australian fixed income Property Cash Other CAGR: 2002 2006 13% 2002 2006 (Mar) 2010F Source: Rainmaker 17
The Australian securitisation market has good underlying fundamentals Other asset backed securities Mortgage backed securities $218B (CAGR 1996 2006-36%) Supply is increasing Currently only ~25 per cent of Australia s residential loans are securitised (as opposed to ~60 per cent in the US) Banks are increasingly using securitisation as a funding vehicle with ~45 per cent increase in securitised loans issued as compared to 2005 Banks made up ~70 per cent of total issuance in 2006, as opposed to ~50-60 per cent in 2004 & 2005 Growth in issuance by Non Bank financial institutions has stalled Offshore demand for Australian backed residential mortgages Jun 96 Jun 97 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun-06 Source: Reserve Bank of Australia 18
Perpetual Key messages Perpetual is an Australian financial services company actively participating in the wealth management and securitisation sectors Well positioned for continued growth The Australian wealth management and securitisation markets have strong fundamentals Growth strategy delivering benefits An attractive investment for exposure in the Australian wealth management industry 19
Our corporate strategy Focus on our 4 sources of competitive advantage Funds management teams and processes Relationship with financial planners Trusted brand Fiduciary services I. Develop a more balanced portfolio II. Develop new growth engines III. Fully engage our people to deliver our strategy 20
Expanding our asset management footprint Skill set Domestic stock picking High breadth Broad Styles Small caps Mortgage lending Mortgages Mezz debt LPT stock picking Global Domestic Hedge funds Private equity Low breadth Infrastructure investing Quantitative investing Global Domestic Infrastructure Hedge funds Currency/ TAA Credit investing Global Domestic Hybrids Global stock picking Global thematic Direct Property lnvesting Duration management Broad Styles Remaining 50 per cent share in Perpetual Long short James Fielding purchased equities fund Skills we currently possess launched Hedge funds Hedge funds Direct property Emerging markets Broad Direct property team commenced Vanilla bonds 21
Outstanding growth in new credit capability Funds have outperformed benchmark every month to date resulting in strong FUM growth FUM A$B 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2.8 1.7 0.8 0.1 Dec 04 Jun 05 Dec 05 Jun 06 Focus on the credit enhanced product New higher margin products Exact Market Cash Fund Diversified Income Fund A$1.9 billion net inflows during the year Over A$500 million received in July 2006, including A$400 million into the Exact Market Cash Fund 22
Global equities Key strategic building block Encouraging early signs Asset management team now in place with full complement of asset managers on board Solid investment performance in second half of 2006 Full year net establishment costs of A$9.1 million after tax in 2006 down from A$20.5 million after tax in 2005 Outlook Excellent long term prospects Initial sales focus on Australia, Ireland, UK and US markets Continue to focus on delivering superior performance Building credibility with global asset consultants 23
Other Perpetual initiatives Develop a more balanced portfolio and new growth engines Focus on Perpetual Private Clients through greater sales and marketing focus: Integrated delivery Expanded sales team New QI Long Short Fund launched in September 2005 and has attracted A$650 million in commitments to date Diversified infrastructure fund reopened for second raising in July 2006 Established structured products team Expansion of mortgage variations business within Corporate Trust 24
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, performance improving New Corporate Trust business in mortgage variations Improved people engagement up 10 per cent from two years ago 25
Perpetual Key messages Perpetual is an Australian financial services company actively participating in the wealth management and securitisation sectors Well positioned for continued growth The Australian wealth management and securitisation markets have strong fundamentals Growth strategy delivering benefits An attractive investment for exposure in the Australian wealth management industry 26
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 Benefit Limits (RBL) with contribution caps Investors are willing to pay for skill Good fundamentals in the Australian securitisation market 27
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 Improved people engagement up 10% from two years ago 28
Perpetual Forecast profit guidance for the 2007 first half We forecast a 10 per cent increase in operating profit after tax (OPAT) for the first half of the current year over last year s adjusted first half OPAT of $58.2 million. OPAT for the first half of last year was $63.5 million which excluded $5.3 million in losses associated with our global equities business. The inclusion of global equities within last year s result reduces prior period OPAT to $58.2 million. Current year and future years OPAT will contain the results of our global equities business. The forecast is subject to fluctuations in equity markets, particularly in Australia. 29
Perpetual 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 holds 30