Perpetual Limited (PPT) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Perpetual half year results conference call. [Operator Instructions] I would now like to hand the conference over to the Head of Investor Relations, Marisa Zammit. Please go ahead.

Good morning, everyone. Welcome to Perpetual's half year results briefing. My name is Marisa Zammit, Head of Investor Relations. Before we begin today, we would like to acknowledge the traditional owners, the Gadigal people of the Eora Nation, as the custodians of this land, recognizing their connection to land, waters and the community. We pay our respects to Australia's first peoples and to their elders past and present. We would also like to extend our respect and welcome to any Aboriginal people who are listening in today. Presenting today are Rob Adams, Perpetual's Chief Executive Officer and Managing Director; as well as Chris Green, Perpetual's Chief Financial Officer. There will be an opportunity to ask questions at the end of today's presentation. Now I'll hand it over to Rob.

Thanks, Marisa, and good morning, everyone. Thanks for joining us for our first half 2021 results briefing. Firstly, I'll take you through an overview of our results and the operational and strategic performance of our diversified business across our 4 divisions: Perpetual Asset Management Australia, PAMA; Perpetual Asset Management, International, known now as PAMI; Perpetual Private, or PP; and Perpetual Corporate Trust, PCT. Chris Green, our CFO, will then take you through our financial results in greater detail and will outline the key drivers of performance for each of those 4 divisions. I'll then provide some summary comments before opening up to Q&A. So turning to our results for the half. As many of you know, the second half of 2020 continued to be a dynamic and difficult period for the financial services sector as we all navigated through the impacts of COVID-19 and the challenges and the opportunities that arose. Despite the difficulties associated with the current operating environment, at Perpetual, we made strong progress in executing our strategy over the period, and we've built positive momentum across all of our divisions to position us well for future growth. Our first half was bookended by the completion of our 2 strategic acquisitions: the 100% acquisition of Trillium Asset Management, which completed on the 30th of June; and the second acquisition being a 75% interest in Barrow, Hanley, Mewhinney & Strauss completed on 17 November. For those of you who attended our recent Investor Day back in December where you had the opportunity to meet some of the key Trillium and Barrow Hanley people and to hear about our growing distribution presence outside of Australia, you will have seen that these acquisitions combined to be transformational milestones for Perpetual. Our first half 2021 results reflect the integration of these 2 acquisitions, with Trillium's numbers impacting for the full half and Barrow Hanley's numbers impacting since that completion date of 17 November. Turning to our key results for the period. We delivered total revenue of $280.6 million, up 10% compared with the prior corresponding period and up 19% when compared to the second half of FY '20. Our expenses were $208.5 million for the half, an increase of 22% compared with the prior corresponding period as this includes the operating expenses of Barrow Hanley and Trillium as well as continued investment in distribution and product development to support these growth initiatives. Our underlying profit after tax was $52.6 million, 11% lower on the prior corresponding period but 33% higher than the second half of 2020. The decline -- or financial '20. The decline on our prior corresponding period was primarily driven by a reduction in average asset managements within Perpetual Australia -- Asset Management, Australia as a result of the net outflows in that business over the period. This impact was partially offset by the creation of our new division, PAMI, following the successful completion of our 2 acquisitions in the U.S. as well as higher performance fees and particularly strong performance from Perpetual Corporate Trust. Our Board has declared an interim dividend of $0.84 per share for the half, which represents a payout ratio of 90%, which itself is in line with our revised policy of paying between 60% to 90% of UPAT on an annualized basis. Turning now to our business model at Perpetual. Whilst the revenue contribution of our newly formed international asset management division reflects only 6 weeks of our ownership of Barrow Hanley, through the 2 acquisitions completed in the half, we have further diversified our business by client type, by geography and by asset type. And we have significantly expanded our range of world-class investment capabilities, providing many more avenues to drive future growth for the firm. Over the half, we have delivered further growth across the group's nonmarket fiduciary businesses, in particular through the performance of Perpetual Corporate Trust, which has had another record half. Our growth in nonmarket-linked revenues was slightly impacted by COVID-19-related influences in Perpetual Private, in particular within our accounting business forum. Perpetual's diversified business model has served us well over the half as we sought to manage the market volatility and the economic impacts of COVID-19. Turning now to our strategy for long-term growth. As we've previously outlined, our strategy seeks to build on the foundations of our core businesses to deliver sustained quality growth over time and focuses on 3 strategic imperatives, which we've talked about many times before: client first, future fit and new horizons. Pleasingly, we have made strong progress against each of these imperatives over the half, as you'll see when I take you through the key deliverables for each of our divisions. We have positive momentum in all of our key businesses, and they are now primed for future growth. In PAMA, we've seen improving investment performance in Australian equities during the half and a focus on the development and distribution of new investment capabilities, including our Global Innovation Fund and key Trillium and Barrow Hanley capabilities to both the retail and the institutional markets. For PAMI, our international business, the 2 acquisitions completed -- were completed in the half, and the build-out of our U.S. distribution team is ahead of schedule. In PCT, we are delivering consistent year-on-year growth as a market leader in securitization. And through our Data and Analytics Solutions business, PCT is developing new products and analytics capabilities for our clients. And in Perpetual Private, we are successfully executing our strategy of adding industry-leading advisers during a time of dislocation in the advice industry, driving positive net flows whilst maintaining our segment focus. We have invested in improvements in client connectivity and experience, which has been particularly important during periods of uncertainty and volatility. Through our partnership with Microsoft, we have better -- we have invested in digital infrastructure that can better support our people and our clients. And to ensure that we are future fit, particularly as we expand globally, we are embedding global governance, accountability and risk frameworks across all of our businesses. The successful completion of the Barrow Hanley acquisition was a key milestone for us during the period and has enabled us to accelerate our global distribution plans. While we are focused on bedding down our recent acquisitions and driving their future growth, we continue to explore potential complementary organic and inorganic opportunities across all of our businesses. Turning now specifically to Perpetual Asset Management across both the domestic and international businesses. As I mentioned, we've made good progress on building our distribution capability. The acquisitions of Barrow Hanley and Trillium have added 31 new investment strategies that all have significant capacity to grow. Recognizing the combination of the positive reaction to these acquisitions from retail and institutional markets and improving market conditions, we are accelerating our plans for our distribution teams, both domestically and internationally. We now have more than 70 people in our global distribution team under the management of Adam Quaife. And Adam has implemented a restructure and a refocus of his Australian team and has added top-quality talent to key roles, increasing our focus on institutional clients and on key accounts. The build-out of our international distribution is ahead of plan, with key appointments to support our international strategy, most particularly in the U.S., adding deep intermediary expertise to the team. The Barrow Hanley acquisition also provided us with a distribution footprint in the U.K. and in Hong Kong. And Adam's next focus point will be to add to our U.K. and European coverage given the significant potential we see in that region for both Barrow Hanley and Trillium. Moving now to asset management and market conditions effectively and our improved performance. A brief comment on equity markets. As we're all well aware, in the last decade -- over the last decade, we've seen growth and momentum drive markets forward, with value stocks lagging to the point where the valuation gap between growth and value stocks was at its widest point in history. And this relative outperformance has good for the longest period in history. In the second part of the half, we saw a distinct shift in this decade-long trend across all equity markets, with value stocks clearly outperforming growth stocks, as this chart shows. Whilst this relative strength of value stocks is only months old, the combination of a Biden administration in the U.S. and successful rollouts of the COVID-19 vaccines is driving the start of reversion to fundamental valuations coming to the fore once more. Should this shift in market cycle continue, Perpetual is clearly very well positioned through both our Aussie equities team and through Barrow Hanley. Both investment teams have seen a material improvement in their investment performance across most of their strategies, as I'll touch on shortly. Now turning to each of our divisions, firstly, Perpetual Asset Management, Australia. While the financial performance of PAMA was clearly impacted by net outflows over the half, we remain very focused on building stronger foundations for future growth. As mentioned, our investment teams have performed strongly for our clients over the half, with outperformance across all of our domestic sectors, Australian equities in particular. Maintaining a disciplined focus and a commitment to an active approach has enabled our portfolio managers to navigate the ongoing market volatility and to perform strongly over the period. Over 90% of our funds outperformed their relative benchmarks over the half, positioning us well for renewed client interest and future growth. We have invested in improvements to our clients' experience, launching a new client portal, myPerpetual. And we have proactively reduced some fees in recognition of the market and our relative competitiveness, improving our positioning. We recently appointed State Street as our new custodian and administrator following a comprehensive search to provide custodial and fund administration services. And we will fully transition to State Street in the second half. Our newly launched Trillium ESG strategies are performing well and have generated significant interest. Each strategy has performed strongly against their benchmark since their launch in August, with the Trillium ESG Global Equity Fund and the Trillium Global Sustainable Opportunities Fund outperforming their benchmarks since inception by 3.8% and 8.4%, respectively. Our Global Innovation Fund is now over $100 million in AUM and delivered a remarkable return of greater than 50% above benchmark in the last 12 months. The fund was recently awarded its first research rating from Zenith. And in the weeks since achieving this rating, we now have 6 key platforms that have placed the fund on their menus, which all bodes well for future growth. Moving now to Slide 9. Over the period, PAMA's AUM decreased by 14% compared to the first half of '20 driven, as I said, by net outflows primarily from a $1.7 billion enhanced cash mandate. Net outflows were partially offset by positive market returns and improved relative investment performance over the period. As you'll see from the next slide and as mentioned, we have seen strong performance across most asset classes during the period, which bodes well for future interest in our strategies. And indeed, we're at that next slide. As I mentioned, over 90% of our funds have outperformed their relative benchmarks during the half. Our investment teams remain true to label, and it's been pleasing to see their discipline rewarded while delivering improved outcomes for our clients. There is, of course, always a lag between strong relative investment performance and new flows, and our improved investment performance in Australian equities is a most welcome outcome. And the continued outperformance from our credit and fixed income team ensures that we remain well positioned for future growth. Turning now to Perpetual Asset Management, International, our new division. Our strategic aim 12 months ago was to build a world-class asset management business, and the combination of Trillium and Barrow Hanley is an important step forward in the realization of that aim. The acquisition of Trillium provides Perpetual with a unique position to benefit from what is clearly the most significant trend in global asset management today. Trillium is regarded as one of the founding firms in integrated ESG investing with a 40-year track record, world-class investment and advocacy teams and a unique narrative. Since taking 100% ownership of Trillium back on the 30th of June, we have built out our U.S. distribution team under Chuck Thompson, and we have commenced engagement with professional investors around the world. We are genuinely excited about the prospects ahead for the Trillium team. Adding to Trillium, the completion of the Barrow Hanley acquisition was transformational for Perpetual. Barrow Hanley similarly has a 40-year heritage, 42 years in fact, and is a storied brand in institutional markets. Their investment capabilities cover U.S. equities, global equities, global emerging market equities and U.S. fixed income and are truly world-class, and all have significant capacity for future growth. The combination of these businesses have bought 31 new investment strategies to Perpetual, as I mentioned, providing us with a clear diversification by asset type, by geography, client type and a broad array of future growth opportunities. Similar to Trillium, with strong relative performance over the last quarter, investor interest in Barrow Hanley's key strategies is on the rise. To support this, and as mentioned earlier, our distribution build-out is ahead of expectations with additional key hires in the U.S. to support intermediary clients. As mentioned, we will be building our presence in the U.K. and Europe, with Asia to follow, in line with the investor interest that we already can see in these markets. Finally, as you'll see from this next slide, we've worked with both the Trillium and Barrow Hanley teams over the half to refresh and relaunch their branding, which will further enhance and support our focus on distribution and our client engagement program. As can be seen on Slide 13, Perpetual Asset Management, International had total AUM of AUD 66.5 billion as at the end of the period following the acquisitions. As Chris will detail, despite material adverse movements in the USD/AUD exchange rate, total AUM for our international asset management business is ahead of our expectations. The next 2 slides provide you with detail regarding the investment performance across all key strategies for both Barrow and Trillium. And as you can see, Barrow Hanley had benefited from the strong relative -- from strong relative outperformance in the short term flowing through to all periods. And Trillium have continued to deliver very strong strong returns in the global equity and sustainable opportunities capabilities. This investment performance profile across both businesses positions us well for future growth. Okay. So turning now to Slide 16, Perpetual Private. We've built strong foundations for growth in our chosen segments. And we are successfully executing our strategy of selectively growing our adviser base, which we're now 2 years into. Whilst COVID-19 has impacted activity levels and therefore had some impact on Perpetual Private's financial result for the period, our net flows have benefited from recent growth in adviser numbers through that adviser growth strategy. Our strong segment focus has now delivered 15 consecutive halves of positive net client flows, and we continue to win new business across our targeted segments. Our adviser growth strategy drove $266 million of net flows over the half, a great result, albeit slightly less than our expectations given COVID-related impacts on activity levels. This week, we announced further enhancements to our family office suite of services for our clients, completing a team lift-out of 5 key specialists who have a proven track record in supporting ultra-high net worth clients and family offices. During the period, we have streamlined our products to allow greater focus on our core segment offerings and expanded our offerings across key segments, such as the aged care and not-for-profit segments. Priority Life is one of Australia's leading risk advisory firms, and this team is delivering strong referrals despite some impact from COVID-19. Our community and social investment teams have worked closely with our clients to ensure ongoing support for communities in response to COVID-19. Perpetual Private's -- turning to Slide 19 -- 17 now. Perpetual Private's total funds under advice was $15.5 billion at the end of the period, up 2% on the prior corresponding period, driven by positive market performance and positive net flows. Okay. Turning now to Perpetual Corporate Trust. PCT has once again seen another strong period of growth across all segments. Following a year of record growth in FY '20, all 3 areas within PCT delivered further growth for the half, with DMS revenue growth of 11% and MFS revenue growth of 4%. PCT has unrivaled client relationships, best represented through our Net Promoter Score of plus 62. And it's benefiting from our ongoing investment in digital transformation and new product solutions to meet client needs as well as generating new growth opportunities for the future. Our Data and Analytics Solutions business represents an exceptional long-term growth opportunity for Perpetual. The launch of the Fiduciary Intelligence platform over the half has been very successful in supporting clients, with over -- with 250 service providers and 750 trusts now on the new platform. This new cloud-based platform has improved our engagement with our clients and sets a new bar for the industry. We have a strong pipeline of client opportunities and additional new products coming to market in the second half, which positions us well into the future. To Slide 19 now. And as you can see, demand continues to be strong in our Managed Funds Services business, with funds under administration reaching $307.9 billion over the half. MFS delivered a revenue contribution in the period to the group of $28.8 million. Debt market services grew both in clients and funds under administration, primarily due to the strong growth in the nonbank sector, whose business models have demonstrated their resilience in a competitive lending environment. Total funds under administration for DMS grew to $628.3 billion over the period. Before I hand over to Chris, I'd like to highlight the consistent growth that we've seen from PCT and the importance of the contribution to the group. PCT has, over the years, consistently expanded its product range, both organically and via successful acquisitions. PCT has built new capabilities. It has been tireless in its focus on delivering services to our clients. It's this focus of our people that has led to the consistent growth profile that we've seen over recent years, and it's this focus that provides us with every confidence this growth will continue into the future. I'll stop there and now hand over to Chris Green to take you through a more detailed review of our financials for the half before I return with some closing remarks, and then we both open for questions.

Thanks, Rob, and good morning, everyone. Our results, as Rob has highlighted, reflect our move to a more diversified and global business. Despite the challenges of COVID-19, we successfully completed 2 transformational acquisitions. Our balance sheet remains strong. And we delivered a dividend of $0.84, representing a payout ratio of 90%. This half, we've made further progress in delivering our strategic initiatives to support future growth. That said, results were mixed across our operating business units. In summary, operating revenues of $280.6 million were $26.5 million or 10% higher. And total expenses of $208.5 million were $38 million or 22% higher than the prior corresponding period, obviously impacted by the Barrow Hanley and Trillium acquisitions. As we communicated at our recent Investor Day, we revised our definition of UPAT to reflect changes to the group's operating cash flows. Significant items are $23.4 million mainly related to the transactions and integration costs for Trillium and Barrow Hanley. Underlying profit after tax of $52.6 million was 11% lower, while net profit after tax was $29.2 million, down 43% compared to the prior corresponding period, impacted by the significant items we've just discussed. On to the next slide. The definition of UPAT has been revised to reflect changes to the group's operating cash flows and to take into consideration recent acquisitions. Reporting NPAT has been adjusted for 4 types of significant items: those that are material in nature and, in Perpetual's view, do not reflect normal operating activities, and that includes transaction and integration costs relating to Trillium and Barrow Hanley of $20.9 million; noncash tax-affected amortization of acquired intangibles of $4.5 million; tax-affected unrealized gains and losses on financial assets of $3.5 million; and tax-affected fair value movements on the employee owned units in Barrow Hanley of $1.5 million. Now let's look at the revenue in more detail. The $26.5 million increase over the prior period was driven by PAMI inclusive of the 2 acquisitions, growth in PCT of $4.8 million across both its Debt Market and Managed Funds Services businesses; and group services revenue of $3.1 million from distribution income received on investing in product and seed fund investments. This was partially offset by lower interest income. Perpetual Asset Management, Australia revenue was lower by $15.4 million on prior corresponding period, impacted by net outflows, lower average equity markets in prior period distributions, partially offset by higher equity performance fees. Perpetual Private revenue was down $4.3 million on prior corresponding period, reflecting lower nonmarket revenue and lower average equity markets. This was offset by increased net flows from the adviser growth strategy. Our expenses were $38 million higher this half, a 22% increase. We had $8.3 million in benefits from lower staff costs, reflecting savings from our operating model review. Our acquisitions and the build-out of our global distribution team added $27.1 million to those expenses. And performance-driven variable remuneration, group-wide short-term incentives and equity remuneration increased by $12.5 million following stronger investment performance across a number of funds during the period as well as improved market conditions. There are also additional costs of $6.8 million due to the new hires to support higher volumes in -- particularly in PCT and the custodian fund administration migration we are undertaking at the moment to State Street. This was partially offset by lower discretionary expenditure, including things like travel and entertainment. Turning to PAMA. PAMA's 16% decrease in revenue to $79.1 million compared with the first half of '20 was mainly driven by lower average AUM due to the impact of net outflows, lower average equity markets and prior period distributions, partially offset by higher equity performance fees. First half '21 revenue was flat compared to the second half of last year, driven by higher equity performance fees and higher average equity markets, partially offset by the impact of net outflows and prior period distributions. We received $6 million in performance fees over the half compared with $0.5 million this time last year. Those fees were largely attributable to our equity team's performance. We saw a 10% increase in expenses on the first half of '20 and a 2% increase on the second half due to higher variable remuneration from improved performance of our funds, partially offset by operating model benefits. Average AUM of $23.4 billion was 11% lower compared to $26.3 billion this time last year. We saw outflows of $2.5 billion over the half across all channels, mostly impacted by the redemption of an enhanced cash mandate of $1.7 billion. But it was pleasing to see we finished the period with strong investment performance relative to benchmark across 91% of our investment strategies. Now to Perpetual Asset Management, International, PAMI, our new division, which includes the financial performance of Trillium for 6 months and Barrow Hanley for 6 weeks. It reported underlying profit before tax of $10.5 million. Revenue was $38.3 million, and first half expenses were $26.3 million. Total expenses were $27.8 million. AUM was $66.5 billion, but the earnings associated with these assets were impacted by adverse movements in this Aussie dollar exchange rate. Turning to Perpetual Private. Perpetual Private reported revenue of $89.2 million, $4.3 million or 5% lower. Closing FUA of $15.5 billion was 2% higher and 8% up on the second half of '20, driven by positive net flows and higher equity markets. Market revenue of $61.1 million was 3% lower on prior corresponding period due to lower average equity markets, and this was partially offset by positive inflows generated through the adviser growth strategy. Nonmarket-related revenue of $28.1 million was $2.6 million lower on prior corresponding period -- 9% lower than this time last year, sorry, mainly impacted by lower interest rates. The impact of the economic slowdown on Fordham was offset slightly by a higher contribution from Priority Life. Operating expenses of $66.3 million were 1% lower than the first half of '20 and 3% lower than the second half. The decrease was from the impact of the target operating model benefits and lower remediation costs of legacy matters. This was partially offset the continued investment, particularly in the onboarding of new advisers. Turning to Perpetual Corporate Trust. PCT had another strong half. Total revenue of $65.6 million was up 8% on prior corresponding period, reflecting momentum across all of its business lines. Debt Market Services revenue of $36.9 million was 11% higher on prior corresponding period. There, PCT benefited from growth in securitization, particularly in the RMBS nonbank book, but also from lower-margin repo deals, where bank clients accessed the RBA's term funding facility. MFS revenue of $28.8 million was 4% higher, largely driven by continued demand from both domestic and global fund managers looking to invest in the Australian commercial property market. Consequently, we continue to see growth in our custody and wholesale trustee service offerings. Operating expenses for PCT were 9% higher compared to the first half of '20 due to the costs of developing and supporting new service offerings as well as staff costs associated with the increased business volumes. Expenses were 6% lower compared to the second half of '20, due mostly to increased expenses in the second half related to the digital upgrade of PCT's core trustee operating systems. Turning now to the balance sheet. It remains strong. Gearing remains low. And goodwill continues to be supported by solid income flow in each of the 3 business units. Our lower cash balance of $172.1 million is --largely reflects the acquisition of Trillium. Liquid investments of $54.6 million reflects an increase in seed fund investments in Barrow Hanley and Trillium products. Goodwill and other intangibles increased by 133%, predominantly due to the acquisitions of Barrow Hanley and Trillium. And borrowings increased to $219 million, being the $224.6 million drawdown on our new syndicated debt facility to fund the Barrow Hanley acquisition, partially offset by the $5.2 million of capitalized debt costs. Turning to financial indicators. Perpetual's return on equity on UPAT was 13.5%. We expect this to improve as the full impact of the Barrow Hanley acquisition is reflected in the group's earnings. The decrease in NTA per share is due to an increase in shares on issue from the group's equity raise and SPP in the first half of '21 as well as an increase in intangible assets from the acquisitions. The fully franked interim dividend of $0.84 represents a 20% increase on the first half of '20 and a 68% increase on the second half of '20. It will be fully franked and represents a payout ratio of 90% on UPAT on an annualized basis. The dividend is payable on the 26th of March. Now to guidance. We've responded to improving market dynamics by accelerating investment in key capabilities beyond what we had planned to do this time last year. We are maintaining our EPS growth guidance of over 20% on an annualized basis from the date of the Barrow Hanley acquisition, and we also are maintaining a DPS growth to be over 10% versus FY '20. The significant item is guidance has been lowered to $50 million to $55 million post-tax due to an improved exchange rate, lower transaction costs and the likely timing of bolt-on acquisitions. Underlying expenses are now expected to be 1% to 3% higher than FY '20. That revised guidance recognizes the impact of the operating model review benefits offset by an acceleration of investment in distribution to take earlier advantage of improving market conditions as well as higher remuneration costs associated with variable remuneration and FTE cost to support new business. Revised accounting guidance has led to the 25% employee owned units in Barrow Hanley being treated as an employee incentive scheme rather than as a noncontrolling interest. Profit sharing distributions on these units are now accrued on the balance sheet and expensed through staff costs. The Trillium and Barrow Hanley costs, the continued build-out of the distribution team and the revised accounting treatment of the employee owned units in Barrow Hanley are together expected to add a further 28% to 30% to the cost base in FY '21. With that, I'll hand back to Rob.

Okay. Thanks, Chris. 2020 was indeed a year to remember for our sector, our clients and our people. Whilst the year threw up an array of challenges for us all, I certainly believe that Perpetual finished the calendar year in a far stronger position, with positive momentum across our key lines of business. It was a year where we needed to respond quickly to a rapidly changing environment and the uncertainty that came with it, and I'm very proud of how we responded as an organization to support our clients, our people and our local communities. Before I open for questions, I want to briefly touch on what we have focused on over the period to build a sustainable future for all of our stakeholders. We've supported our clients and advisers with additional communications through new mediums such as webinars and digital communications. Our webinars were attended by 3,500 clients and advisers, and we were recognized as providing an exceptional level of support during COVID-19 during the half. Our Native Title and Community and Social Investment teams in particular are working closely with clients to ensure ongoing support for communities in response to COVID-19. Through our team at Trillium, we've increased our advocacy work to drive improved corporate outcomes over the period, which included the work by our Trillium team over a decade to advocate for the change in name of the Washington NFL team. We've invested in and supported our people, in particular building a strategy to support employees to work where they work best in a post-COVID-19 environment. This strategy aims to take forward what we have learned through the pandemic and to embed those learnings to support our employees. We are also supporting our communities. An example of that was Perpetual participating in the MyMarathon challenge in the second half, raising important funds for the Heart Foundation. Over 500 employees participated in the initiative, and Perpetual matched the proceeds raised by our people. We -- at Perpetual, we raised more funds for the Heart Foundation than any other corporate participant. And in December, we launched our 2021 to '23 Stretch Reconciliation Action Plan, which outlines the commitments that we will make over the next 3 years towards deepening our understanding of Australia's First Peoples, recognizing the traditional owners of this land and helping Aboriginal and Torres Strait Islander people achieve financial independence. Finally, we continue to focus on reducing our impact on the environment. We have improved our climate disclosure product score, receiving a B- in 2020, which was up from a D previously. So a substantial uplift. And we are further developing our strategy to address climate change, including work that is underway to develop a sustainability strategy for Perpetual. Finally, as a trustee, PCT supported Brighte Capital Pty Limited to issue Australia's first 100% green ABS debt issuance. Proceeds from that bond issuance will be used to finance solar and battery payment plans and loans. So in closing, I am pleased with the progress we've made in executing on our strategy with positive momentum across Perpetual, and all of our divisions now being primed to take advantage of the growth opportunities that we see ahead of us. Perpetual is a strong and diversified business. Our diversification has proven to be critical during times of volatility that we've seen of late. The transformational acquisitions that we've executed now provide us with further diversification by asset class, client type and geography and most importantly, provides us with a far greater array of future growth opportunities. Each division is positioned well for future growth with a strong focus on our clients, innovative product development, industry-leading service and new channel development. With our acquisitions of Barrow Hanley and Trillium, we now have significant capacity across 31 new investment capabilities. And we are accelerating the build-out of our global distribution team, recognizing the opportunities ahead of us both internationally and domestically. As we all know, positive momentum is a wonderful thing, and we have that momentum in all key areas of Perpetual. That combination of our trusted brand, our strong financial position, positive execution of our strategy and the emerging signs of an improving economic environment led us to be genuinely enthused for the opportunities that we see ahead of Perpetual. Thank you, and we can now open up for questions.

Thanks, Rob. [Operator Instructions] So we'll start the Q&A with the first question from Andrei from Morgan Stanley. We might -- should we go to the next person? We might try Ed. So Ed, hi.

Can you hear me?

Yes, we can. Thank you.

Okay, great. Look, can I just start off with a couple of questions? One, you talk about your accelerated investment in distribution. And then you highlight obviously increasing interest there driving that. What kind of time frame do you think there's going to be a payoff for this increase in distribution expense and flows coming through? And then further to that on flows, again, you've talked about really strong performance coming through. Are there any areas you'd highlight that are in more advanced discussions with potential new or existing clients to see improved flows starting -- coming through, please?

Thanks, Ed. I'll try and deal with that. It's always hard to work -- to estimate when your payback period for investment and distribution is going to be. I think the headline here is that we are more enthused by the opportunities and so we are therefore bringing forward additional investment now to ensure that we can bring forward those -- the opportunities. So by adding resources here in Australia to our institutional team, to our key account team, yes, we are going to be adding resources to a team -- distribution team to be based in Europe in addition to the footprint we have in the U.K. We're doing these things sooner than we thought because we think the opportunity for success is going to come sooner than we thought. So I can't put a time -- I don't know in which quarter we'll get the payback, but we're doing them because we see the strength of the opportunity ahead of us. In terms of flow -- investment performance and flows, for our Aussie equities business, the return to material outperformance is pretty new. We're months into that. But that just starts to change the nature of the discussions that you have. To be frank, we've been defending investment performance and defending our style for many, many years now. Now we're seeing that the persistency of approach is starting to pay off. So the nature of the discussions changes from the get-go. So that's a good thing. I think in terms of nearer-term opportunities to see flows, we mentioned that we're getting very good early traction on the Global Innovation Fund here. Our credit and fixed income team have been a stellar performing team for many, many years now. Unfortunately, their flow profile was impacted by a $1.7 billion outflow from -- which is a partial redemption for a very large enhanced cash mandate that we have. So that sort of has impacted their net flow numbers for the quarter. But yes, we're seeing positive flows for that team. And we've talked about the early engagement on Trillium in particular. We've owned that business since 1st of July, and that engagement has been terrific. We're at the stage with Trillium -- so it's a long answer, but I know it's an important topic. With Trillium, we are in discussions with all Aussie-based research houses right now. They're going through their reset cycle. We -- clearly, we would hope to get some positive ranking -- ratings out of that, and then we'll then talk to platforms and then flows come. The global -- what's happened with the Global Innovation Fund just in the last 2 months is a good example of that. We've got our first retail rating for the Global Innovation Fund from Zenith. We're now on 6 platforms, and now we're talking to advisers. So our expectation is flows will build. So long answer, but hopefully, that helps you, Ed.

No, that does. And can I just follow up on Barrow Hanley? Obviously, initially, you were speaking to all the existing clients trying to get the FUM across. And that obviously delays then potentially going out and trying to hunt new FUM or get more FUM on board. Can you just talk about the process there now? Potentially you can go out and hit the ground running a little bit harder there.

No, that's exactly where we're at. The consent process is pretty much done. It'll be on or around 90% of clients that will have consented across. We're still waiting for a few smaller clients to come across. But think of that work as having been done and so now it is front foot activity. It is front foot activity. So Chuck Thompson is our Head of Distribution in the U.S. He's working with the Barrow Hanley team. I think we have 30-odd head count in Barrow Hanley's distribution team. In addition to the hires that we've made post the Trillium acquisition, Chuck has hired half a dozen people himself. So we have that team on the front foot. Yes, I guess a demonstration of that has been the rework -- we've worked with the Barrow Hanley team, just as we did with the Trillium team, to rebrand. New website, new collateral, and now we're out there talking to people.

And just -- sorry, just one final one on that. Is there a bit of a delay in -- that might have had stuff in the pipeline, but now with new ownership, people kind of reassessed that? Or is it just business as usual? What was in the pipeline if the performance is still good, still comes through?

Yes, it's a good question. And it's -- you're spot on. When you announce an acquisition, you in general don't expect to win much new business between the acquisition period and completion. And probably -- yes, you possibly wait for the dust to settle. If you're an asset consultant or an institutional investor, you'd probably wait for the dust to settle a little bit post the acquisition. So I think that was definitely an effect, but we are seeing good engagement. I think the last few months where -- there has been a demonstrable shift in performance. You've got the numbers before you there. You can see that the Barrow Hanley teams across the board are performing incredibly well now. As I said, just like with Aussie equities, it changes the nature of the discussion. And we have seen some clients this half, this calendar year start to look to add to their holdings. So yes, you're right to identify a delay. I mean one other thing I would say is in some cases, for example, we're in the final steps of potentially being awarded a very large mandate for Trillium from a European investor. The decision-making process in a COVID world is a little bit slower. We're finding that impacting in some ways as well.

Thank you. So our next question is from Elizabeth from Jarden. No, we might come back. So Matt, are you there? Matt Dunger from Bank of America.

Can you hear me?

Yes. Thank you, Matt.

Rob, you're talking to acquisitions. Can you give us some color on what you're looking at, the progress, the size and the funding potential? Is 30% gearing a binding constraint on debt funding?

Sure. Thanks, Matt. And actually, I'd like to say I think we have had risk of a technology issue with Q&A. So it might be we're not hearing a few people, but forgive us if that's the case. No, Matt, we still have an active pipeline. I mean let me first stress that our #1 focus point in our asset management businesses is to prove up the thesis that sits behind both Trillium and Barrow Hanley. That is a very critical focus for us, to be working with those teams to help them to grow, building that global distribution effort, doing it now quicker than we thought because we see the opportunity as being better than we thought. So we're very focused on what we've already done in proving that up. Having said that, we want to keep an active pipeline of opportunities open. I think about what sort of activity we have in M&A for our asset management business because similarly, in both Perpetual Private and Corporate Trust, we will always be looking at opportunities. It sort of ranges from small specialist asset managers running in contemporary spaces. We're looking at some private market businesses in the small to medium category through to some larger opportunities in areas like liquid alternatives and others. So it is quite a wide variety of businesses that we're looking at. Our focus point is on world-class talent, running money in contemporary capabilities that we can grow. So therefore, we're covering potentially quite a few bases there. I would say that the potential to look at acquisitions outside of Australia is impacted by COVID. It's obviously impossible for us to do face-to-face communications, which is so important. Having said that, I think we're still keeping a pretty positive active pipeline there. On -- sorry, on your funding side of things. I mean, Chris, do you want to comment on that? Funding up to 30% or...

Yes. Look, we obviously still have some capacity on the debt side. So that will depend on the nature of the transaction. We received a lot of support on the equity raise. And we have the facility there. We have equity. So we'll be flexible. But if it's a large transaction, it'll require us to look at all options. But we have sufficient capacity to talk about some of the things that Rob has talked about being executed within our current debt framework.

Great. And just noting you're at the middle of the previous 80% to 100% payout target ratio. Given the shift that you've had -- this signal, the 90% payout ratio is about the right level to meet your cash flow requirements?

It's the right level this half. We're probably not going to give any guidance in that respect other than the DPS guidance we've already provided. So this is obviously the first time we've been through the 60% to 90% of UPAT. There's still a lot of moving parts across all of our businesses. There's still a lot of things to wash through in terms of the full year impact of Barrow Hanley and the full year impact of Trillium, to be honest. So it'll depend on all the things that it usually depends on, including our investment profile and the underlying performance of the business. But I think we were very comfortable in paying at the top of the range this half, and we'll see where we're at in 6 months.

Okay. Thank you. Our next question is from Nigel Pittaway from Citi. Are you there, Nigel?

Yes, I am. Can you hear me?

Yes.

Okay, very good. Okay. First question is on costs. I mean, obviously, you've revised the cost guidance. I presume that's off a new base, with the amortization thrown below the line -- the extra amortization thrown below the line. That's the first question.

You're talking about the -- what we were characterizing as the noncontrolling interest? Or the -- so the...

Sorry. No. No. Sorry. I mean you've obviously restated numbers in prior year, which impacts costs. So I presume that when you're talking about business-as-usual costs going up 1% to 3% and then the acquisitions on top, the base you're using for that is the rebased number.

That's correct.

Yes, okay. And then actually, on that -- the OEI that has now gone above the line. I mean is the calculation of the amount pretty similar? Or does it also affect the calculation as well?