UBS FINANCIAL SERVICES CONFERENCE Business Update Radisson Hotel Sydney 20 June 2007 John Nesbitt Chief Financial Officer Perpetual Limited 1
Slide #0: UBS Financial Services Conference Introduction Thanks you Chris. Good afternoon ladies and gentleman, Thanks again to UBS for the opportunity to provide an overview of the Perpetual business model and growth strategy. This afternoon I would like to: provide an introduction to Perpetual and outline some of the key drivers which underpin the growth in our industry discuss our key businesses operations and strategies; and then look at our 3-5 year plan for further growth 2
Slide #1: Perpetual is an ASX 100 company and the largest independent wealth manager in Australia At Perpetual we have developed a reputation for trust by sticking to what we do best. We have four key points of difference that set us apart from our competitors: our approach to managing the philosophies and processes around funds management teams; our strong relationships with the financial planning community; our trusted brand; and our long history as a leading provider of fiduciary services to individuals and corporates These strengths have been critical to our success in the past and we continue to focus our attention on business opportunities related to these strengths where we know we can add value for our clients, partners and shareholders. We have built a fantastic foundation of trust with appropriate innovation and an ability to change and grow by adapting to new circumstances and opportunities. 3
Our consistent delivery of outstanding performance over many years has been the key driver in the share price increasing from $5 ten years ago to around $80 today. Slide #2: Perpetual actively participates in three key industries Perpetual operates in three key parts of our industry: Funds Management Private clients advice (our oldest business); and Corporate Trustee Services Funds Management Firstly, the funds management business is focussed on manufacturing, marketing and selling investment products to investors. Asset Management is where we manufacture alpha in a number of asset classes; including Australian equities, international equities, credit and fixed income, property and infrastructure. Wealth Management is dedicated to the marketing and packaging of the investment returns produced by the Asset Management team turning them into valuable products for investors. 4
In funds management, we focus on the parts of the value chain where we believe we can add most value. At the manufacturing end, asset managers will be rewarded where they can continue to add alpha consistent out-performance results in an ability to charge a premium. There are two main brands within the funds management business: Perpetual Investments our highly regarded Australian investment management business, which offers products and services to retail, masterfund and institutional investors; and PI Investment Management Limited our global equities business based in Dublin Private Clients Perpetual Private Clients, despite being our oldest business, in recent times, following a restructure, is also one of our strongest growing businesses now contributing around 20 per cent to the overall bottom line of the group. Perpetual Private Clients is focussed on selling investment products and services to high net worth clients. These services include: administration, advisory, trust and estate planning. Perpetual Private Clients has approximately 7,000 clients with average assets account balances of approximately $1million each. 5
Recently Perpetual Private Clients charitable trust book exceeded $1 billion in funds under management making Perpetual not only one of the oldest but now also the one of the largest charitable trust books in Australia. Last year Perpetual distributed over $40 million from approximately 450 trusts, like the Ramaciotti Award for biomedical research and the Patrick White Literary Award. Corporate Trust The third business is Corporate Trust, which has a long history of providing fiduciary services, including investment management and debt market administration services to corporate clients. Debt Markets This is the key source of revenue and growth for the Corporate Trust business. This part of the business provides securitisation trustee and other services to the debt capital markets in Australia. The key driver of this business has been the residential mortgage backed securitisation market. Demand for this service comes from both the non-bank financial institutions and the banks. 6
Fund Services Sector This business provides responsible entity to the funds management market. In all these businesses, we have a responsibility for protecting and growing our clients wealth. This underlying principle or mission of Perpetual has not changed in our 121 year history. It is core to all our investments decisions, advice and actions. Slide #3: Australia s wealth management industry has a high rate of underlying asset growth The Financial Services market is arguably one of the largest and most diverse sectors of the Australian economy. The Australian Wealth Management industry is large by global standard (the 4th largest market in the world). The average compound growth rate over the past 10 years has been 12 per cent p.a., with most industry forecasts pointing to at least 10 per cent growth p.a. for the next 10 years. This will take the existing $1 trillion of funds under management to around $3-5 trillion over the next decade. 7
The growth in wealth management has been driven by government regulation through the super guarantee levy introduced in 1992. Superannuation is one of the largest single investments Australians will make during their life-time and it is compulsory. This fact alone drives our industry and will provide the base for strong growth in Perpetual s three core activities for the foreseeable future. Slide #4: The Australian securitisation market has good underlying fundamentals The core part of our Corporate Trust business is the provision of trustee services to debt markets especially the residential mortgage securitisation market (RMBS). The RMBS market has experienced extra-ordinary growth over the last 10 years. This has been driven by the combined impact of the volume of new home loans plus the trend toward securitisation of loan books. We have a significant position in our section of this market, representing greater than 70 per cent market share. We differentiate ourselves through three sources of competitive advantage: 8
our long-term commitment to the market provides us with experience that is second to none; our disciplined approach to risk management; and our lack of conflicts due to our independence from a banking institution It should be noted that just under 25 per cent of domestic residential loans are securitised. By comparison, the level of securitisation in the United States comprises around 60 per cent of the market bond issues in that country The growth potential in this industry in Australia is very positive. Now, lets take a closer look at our business operations and strategies. Slide #5: Strong asset volume increases in Perpetual s three key drivers of revenue growth Our revenue growth is driven by the strong asset volume increases in the three key parts of our business. This asset volume growth is underwritten by the growth in the superannuation and securitisation markets. 9
Perpetual Investments FUM is up 20 per cent to April at and around $40 billion. Perpetual Private Clients FUA is up 15 per cent to April at over $7.5 billion. Corporate Trust FUA is up 10 per cent to April at around $200 billion. Slide #6: Perpetual s corporate strategy Perpetual s corporate strategy may be familiar to a number of you it has not changed in a few years now and was recently reaffirmed by our board. The key focus is to develop a more balanced portfolio, develop new growth engines and to fully engage the team to execute our plans. We ve expanded our asset management capabilities by investing in new talent including: a global equities team based in Dublin Australian credit and fixed interest capabilities quantitative investments skills infrastructure investment skills; and property investment skills We have significantly expanded the functions required to package up products and sell them to clients. 10
This has included the establishment of a structured products team and an expanded wholesale sales team. And, amongst many other things we have repositioned Perpetual Private Clients and the Corporate Trust businesses. We have identified and sold businesses and assets that are not core to our business in the future. Slide #7: Developing a more balanced portfolio In our industry, it is interesting to note the change in asset classes over time. Ten years ago, the investment market was dominated by just three or four classes of asset equities, fixed interest, cash and to some extent, property. Today, there are many emerging asset classes such as global equities, direct property, global property, infrastructure. With the weight of money continuing to pour into the market, the demand for alternative investment products is obvious. International equities, for example, have been growing as an asset class in Australia at a significant rate for several years. This chart is our road map as to how we are expanding our asset management footprint. 11
The shaded boxes show the skills we currently have Other boxes show the areas that we may consider One of the new asset classes which has shown strong growth has been credit and fixed interest. Slide #8: Growth in new credit and fixed interest products With more than $4 billion in funds under management in credit and fixed interest products, Perpetual sees this asset class as being somewhat complementary to its traditional equities businesses. Whilst at an overall lower margin to the equities products, we are seeing an increasing percentage of total funds being in the exact and income products which are yielding higher margins than the traditional treasury based products. Now, a quick update on our global equities business. Slide #9: Global equities business strategy for domestic and global clients We have also increased our focus on our global equities capability. This business got off to a slow start, performing below benchmark for the first 6 months a period which coincided with the resources sector taking off. 12
We selected our PIIML team because of the similarities in investment philosophy to that of the Australian equities team. They both look to build portfolios based on quality and value and sometimes, like now, the market does not favour this style. The year to December 2006 delivered benchmark out-performance and the quarter to March 2007 returned slightly below benchmark. With the assistance of Morgan Stanley, we have undertaken extensive research into the investment performance of global stocks which are attractive to the style of our global equities team. The research has shown that our approach in focusing on companies that are leaders in their field, with sustainable and repeatable earnings combined with balance sheet strength delivers excess performance over time. This has given us added confidence that the stocks in our portfolio will deliver outstanding performance over time. We are also expanding the sales effort of our global equities business. Rory McIntyre has returned to Australia to lead a sales team that will focus solely on global equities in this market. David Boal, based in London, who has been working with Rory and the Dublin team for a number of years will continue to lead the sales team in the northern hemisphere. In addition, we are recruiting additional sales resources to support the efforts of both Rory in Australia and David Boal in Europe and North America. Slide #10: Perpetual Private Client offering 13
Consistent with developing new growth engines, we have transformed Perpetual Private Clients. We have: Consolidated the back office to improve efficiencies; Increased prices; and Significantly enhanced the sales capabilities of the team Now contributing 20 per cent to the overall group performance, Perpetual Private clients offers a range of products and services to the growing high net worth market. Click 1: Private Clients offers a range of services which recognises the wealth cycle a client experiences from the accumulation phase through to the distribution of assets to future generations. Click 2: Starting with the Wealth Maximisation component, Perpetual Private Clients provides administrative services around superannuation and taxation advice. Click 3: It also provides advisory services which helps enhance wealth maximisation through advice on investment strategies. Click 4: Perpetual Private Clients is also a leader in the provision of Trust services -- protecting the wealth of individuals. These cover charitable trusts, family trusts and protection for individuals who may have lost capacity through personal injury. 14
Click 5: Private Clients also provide services in the estate planning field, wills, executor services and powers of attorney. In recent years, Perpetual Private Clients has been transformed into a unique provider of advice and services to a growing market the high net worth individuals market. The increased emphasis on sales capabilities is delivering rewards. Clearly the team is very focussed as June comes to an end as they respond to the $1 million super opportunity being pursued by our clients. Slide #11: An industry hub and outsource partner of choice to the lending industry On the back of the growth in the securitisation market, Perpetual Corporate Trust has also been expanding into new areas of growth strongly routed in its core trustee functions. The Corporate Trust strategy has been to leverage its strong traditional role as a trustee and document custodian to further expand along the value chain. This has resulted in Corporate Trust moving into mortgage preparation and settlement, post settlement servicing, loan variations and mortgage discharge processing services. 15
This initiative has been accelerated through the acquisition of Wignalls Lenders Mortgage Services in February this year. While the new business is at a lower margin to the traditional functions, it is providing strong incremental and profitable growth for the business. Slide #12: 2007 Strategic review Strategy update While it is important for us to deliver on our near-term targets, it is critical that this does not come at the expense of the development and implementation of our medium to long term strategy. I would like to share with you the outcomes of our annual strategic review. The review re-affirmed the broader strategy which I have just outlined, and in addition looked in greater detail at four key areas of growth over the next three to five years. These areas included: 1. Leveraging our Australian equities market position 2. Driving growth in our new asset classes 3. Growing our Perpetual Private Clients business, and 4. Growing our Corporate Trust position by further expanding into the mortgage services market 16
1. Leveraging our Australian equities position We will continue to improve margins in our Australian equities business by offering a range of new and innovative products that leverage our proven investment performance. These include SMAs (separately managed accounts), structured products such as the new Perpetual Protected Investments series and geared investments. 2. Driving growth in our new asset classes Over the past couple of years, we have diversified our asset management business by investing in a number of new asset classes -- credit and fixed income, property, infrastructure and international equities. In response to increasing market demand for these new asset classes, we will significantly increase our organisational and sales capabilities around these new business opportunities. 3. Focussing on our Perpetual Private Clients business In recent years, Perpetual Private Clients has been transformed, into a business which contributes approximately 20 per cent of the group s profits. 17
We believe there are further growth opportunities in the high net worth individual market and we will specifically seek to increase our direct engagement of this market. Perpetual Private Clients is very clear about the market segment it is targeting. The high net worth market has complex financial requirements such as tax, estate planning, philanthropic, superannuation, custodial and strategic investment advice. These offerings are all part of Perpetual s toolkit as a traditional trustee. We are investing in additional adviser and back-office technical capabilities which will ensure that our Perpetual Private Clients business can directly engage this client base with its unique, full suite of specialised services and solutions. 4. Leveraging our Corporate Trust position to further expand into the mortgage service market The services provided by our Corporate Trust team to the mortgage industry are distinctive in the Australian market. We see significant opportunities to further leverage off our position as trustee and the custodian of mortgage documents by providing additional administrative and document processing services to our clients. We want to become the leading end-to-end provider of services to the lending industry. 18
Importantly, we are totally conscious of our clients core business we are not about to enter any parts of the mortgage services value chain that are the sole domain of our clients. Perpetual s recent acquisition in February of Adelaide based, Wignalls Lenders Mortgage Services is evidence of our commitment to pursue this strategy. Conclusion So in summary; Our operating environment is strong and the business is well positioned to capitalise on these market conditions. We have invested in our new business we have the teams in place. We have refreshed our strategy to drive greater growth for our shareholders over the medium to longer term, and We know where our challenges and opportunities lie and are focused on execution of the plan. Slide #13: Questions I am more than happy to now take any questions with respect to this presentation. Thank you. 19