Perpetual Limited (PPT) Earnings Call Transcript & Summary

Great. Good morning, everyone. And good afternoon or evening to those joining us from other parts of the world. Welcome to Perpetual's full year results briefing, which will also cover our proposed acquisition of Pendal Group announced this morning. I'm Susie Reinhardt, Perpetual's Head of Investor Relations. Before we begin today, we would like to acknowledge the traditional owners and custodians of the land on which we present today from here in Sydney, the Gadigal people of the Eora Nation, and recognize their continuing connection to land, waters and 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 or Torres Strait Islander People who are listening in today and acknowledge the traditional custodians of the various lands on which you all work today. Presenting here with us is Rob Adams, Perpetual's Chief Executive Officer and Managing Director, as well as Chris Green, Perpetual's Chief Financial Officer. There'll be an opportunity to ask questions at the end of the presentation. Before I hand over to Rob, we would like to draw your attention to the disclaimer on Page 2 of both presentations. Rob, over to you.

Thanks, Susie. And good morning, good evening, good afternoon, wherever you might be. Thanks very much for joining us today. As Susie mentioned, this morning we announced our proposed acquisition of the Pendal Group. And we'll take you through that shortly. But firstly, we'd like to present our FY '22 results. So let's turn straight to that, shall we? We're very pleased to report our results today, which we think demonstrates strong outcomes and positive momentum across all areas of our business with every division delivering double-digit growth in earnings for the first time in 7 years. Over the course of the year, we have invested for growth across our businesses, delivering new capabilities, new products, and opening up new distribution channels and investing in our trusted brand. Importantly, our investment teams have delivered strong relative investment returns for our clients across the vast majority of our portfolios with 79% of our funds outperforming their respective benchmarks over 3 years. Perpetual continues to be strongly placed to benefit from the current market cycle with a deep expertise in value investing, best represented through our Australian equities business and through Barrow Hanley Global Investors. We have also continued to invest in ESG across all of our businesses with further expansion of capabilities planned for FY 2023. Our investment has -- beg your pardon. Our investment has been growth-focused and disciplined, with our expensed growth for the full year delivered within guidance. Our unique business combination with around 30% of our total revenues coming from nonmarket-linked sources through Perpetual Corporate Trust and within Perpetual Private has supported us extremely well through this market cycle, providing a real anchor for the group. So turning now to the high-level results for FY '22. Perpetual delivered total revenue of $767.7 million, up 20% on the prior year. Underlying profit after tax was $148.2 million, up 21%. Our net profit after tax was $101.2 million, up 39% on the prior year. And our return on equity rose 44 basis points to 16.2%. Key drivers of the result were a full-year contribution from Barrow Hanley, improved relative investment performance and higher average equity markets compared to FY '21 in our asset management businesses. Additional earnings from both our acquisitions of Jacaranda Financial Planning for Perpetual Private and Laminar Capital for Perpetual Corporate Trust and continued strong organic growth in both PCT and PP. Our Board, as a result, has declared a fully franked dividend for FY '22 of $2.09 per share, which represents a payout ratio of 80%. Turning now to some of our operational highlights for the year. In our asset management businesses, Perpetual Asset Management International, known as PEMI, and Perpetual Asset Management Australia known as PAMA, our combined assets under management totaled $90.4 billion at the end of the financial year, which was lower than the prior year mainly due to declines in global investment markets, particularly towards the end of the period. Despite these market movements, our relative investment performance across our asset management businesses has been very strong, as I mentioned, with 79% of our strategies outperforming over that critical 3-year timeframe. We continue to see solid interest in our range of ESG capabilities, which we have expanded through the year. We've received over $1 billion in net inflows in FY 2022 with Trillium in particular having a strong year of growth. We are also seeing growing interest in our global equities capabilities, in particular Barrow Hanley's global strategies. We're just over $3 billion in net inflows over the year in total across all of our global equity strategies. Locally, our Australian asset management business, PAMA, saw its strongest year of flows into the PAMA funds from the important intermediary channel, strongest year in 7 years, which is a terrific result for the business. And that positive momentum is continuing to the new financial year. In Perpetual Corporate Trust, which, as you know, provides essential infrastructure for key parts of the financial services industry, we achieved a new milestone with funds under administration surpassing the $1 trillion. In Perpetual Private, we saw yet another year of positive net inflows, making FY '22 the ninth consecutive year of positive flows, which we believe reflects Perpetual Private's market position as a trusted financial advice business. Lastly, but something we are particularly proud of. This year we delivered an NPS score, a net promoter score rating of plus 49, which is a record for Perpetual, which reflects the strong client advocacy across each of our divisions. So as you can see, across Perpetual we are delivering some terrific outcomes. And that momentum is continuing into FY '23. Our strategy to build a global asset management business, adding world class investment and distribution capabilities continues and its delivering results. Over the year, we have invested significantly into the growth and development of our global distribution platform, with that investment including attracting several senior highly experienced distribution individuals into the team in key roles in what is a very tough labor market. We have invested in building product structures and marketing infrastructure to attract new clients with the launch of a UCITS platform for the U.K., Europe and Asia, and U.S. mutual fund platform now providing us with access to the all-important $30 trillion U.S. intermediary market. In Trillium, although investment performance has been impacted by its low ratings in energy and defense sectors, which of course have seen upside due to the conflict in Ukraine, we have more recently experienced some very exciting client wins for Trillium. These wins include Trillium's largest institutional client in their 40-year history, with [ Formulaphi ] a Danish client recently. In fact, I think it was just this week, investing USD 430 million, that's around AUD 620 million into Trillium's global equity strategy. In Barrow Hanley, while U.S. equities and fixed income outflows have been an area of disappointment, we are extremely pleased with the strong interest in their array of global equity capabilities which have been further supplemented through the launch of 2 new UCITS strategies, and emerging markets value ESG strategy and a global value ESG strategy, both of which have received some large cornerstone investments from European clients, looking for exposure to high quality value managers that can also offer an ESG lens. In the last two quarters of FY '22, our global equity strategy has attracted around $250 million in net inflows per month. At our half year results back in February, you might recall that I noted that I had confidence that Barrow Hanley's overall flows could look towards turning positive within 12 months. I think the momentum that we have in global equities combined with the incredibly strong investment performance, we are therefore well placed to turn flows to positive next year, of course depending on market conditions. In the U.S. intermediary channel we now have 7 Barrow Hanley mutual funds available for that critical market. Whilst it's early days, 4 of these funds have already received strong Morningstar Ratings, which is a key prerequisite for many U.S. platforms. Just this week, we won a new mandate from one of the biggest wirehouses in the U.S., which will commence with an initial flow of USD 100 million, and additional flow is expected in the coming months. An important development towards the end of the financial year has been the building of early-stage momentum for Barrow Hanley here in Australia, most particularly in the intermediary channel. With international travel finally open again, key members of the Barrow Hanley investment team have commenced visit schedules. And their approach to managing global equities is clearly resonating locally here in Australia with flow momentum starting to build. We feel very positive about the future for Barrow here in Australia. Lastly, in PAMA, I mentioned earlier that we have reported the strongest flows from the intermediary channel in 7 years. This result reflects the deliberate focus and strategy within our Australian business to diversify our client base into higher-margin channels. The strong flow performance of our funds, particularly in Australian equities, places us in a very solid position for further growth in FY '23. Perpetual does have, as I've mentioned, a truly unique combination of businesses. This is one of our greatest strengths, particularly during periods of global investment market volatility. As a diversified financial services firm, we have exposure to both market-linked revenues and nonmarket-linked revenues. Importantly, when combined, PCT and PP's nonmarket revenues contribute around 30% of total group revenue, which provides us with strength through market cycles. These businesses are an important part of the broader Perpetual group and remain key components of our unique business mix. PCT, as mentioned, continues to be a standout performer, while helping to provide that stability of earnings through market cycles. PCT has delivered consistent year-on-year growth over the past decade with an underlying profit before tax compound annual growth rate of 15% over the last 10 years. Its leadership position in providing essential services to debt markets and to managed fund clients, combined with its focus on digital innovation, gives us confidence regarding its continued growth and positive momentum. In Perpetual Private, our strong and trusted brand, combined with the addition of new advisers in recent years through our adviser growth strategy as well as through the acquisition of Jacaranda Financial Planning in August last year, have combined to see us continue to deliver growth in net flows. We remain fully focused on the positive execution of our strategy in order to drive sustained quality growth across Perpetual. At our FY '21 results a year ago, we set out the priorities under each of the key pillars of our strategy. Throughout the year, we've made terrific progress in all areas, with all of these priority points well underway and significant progress made throughout the year in terms of new product development, the build-out of our global distribution team and our global operating model and material steps forward in improving the efficiency and scalability of our operating platform. Many of these initiatives are multiyear projects, and you will see we have defined some as being in progress and areas we will continue to execute on in the coming financial year and beyond. I'll now hand over to Chris to present us our financials in more details. Thanks, Chris.

Thanks, Rob, and good morning, everyone. Turn to our results at a glance. Reiterating Rob's comments, all divisions performed strongly with double-digit growth in earnings across all the divisions. Operating revenues of $767.7 million were 20% higher or just over $127 million greater than last year, primarily driven by 12 months of contribution from Barrow Hanley, higher AUM as a result of average equity markets, particularly in the first half, and continued growth, both organic and inorganic in PCT and PP. Operating revenues included performance fees earned by PAMA and PP totaling $17.4 million. Total expenses of $566.5 million were $95.3 million or 20% higher, mainly due to the addition of expenses relating to those newly acquired businesses, Jacaranda Financial Planning, Laminar Capital as well as the full 12 months of Barrow Hanley's expenses, plus higher variable rem and continued investment in technology, distribution and new product structures. As a result, underlying profit after tax of $148.2 million was up 21%. Significant items totaled $47 million, mainly comprised of transaction and integration costs associated with the establishment of Barrow Haley as well as Trillium and other acquisitions, plus the amortization of acquired intangibles and losses on financial assets. Earnings per share on UPAT were 18% higher and return on equity on UPAT was 44 basis points higher. Turning to an overview of the divisional performance, all the divisions performed strongly, delivering double-digit growth in profit. Asset management revenue was up 27%, PPE revenue was up 15% and PCT revenue was up 18%. Now looking at our segment UPAT performance in detail. PAMI had PBT of $52.9 million, an increase of $12.1 million. That was driven by contributions from Barrow Hanley, stronger investment performance, higher average equity markets as well as favorable FX movements, partially offset by net outflows and continued investment in global distribution. In PAMA, PBT was $49.9 million, an increase of $7.8 million, driven by stronger investment performance in higher average markets, lower variable rem, offset by distributions and product repricing from the prior year. In PP and PCT, PP UPBT increased by $9.3 million or 26%, influenced by increased funds under advice from positive net flows, the higher average equity markets as well as the Jacaranda Financial planning contribution. It also had strong investment performance and a good improvement in nonmarket revenue as our partners and advisers got to get out and start talking to clients again. In Corporate Trust, we saw PBT growth of $8.9 million or 14%, with the usual strong contributions from Debt Market Services and Managed Fund Services as well as the contribution from the newly acquired Laminar Capital and Perpetual Digital. In Group Support Services, PBT decreased by $6.2 million, predominantly related to movement in the investing in product portfolio and lower distribution income from investments in seed funds. The tax impact on all of the above resulted in year-on-year movement of $6.5 million, and therefore we got to UPAT for FY '22 of $148.2 million. On expenses, we continue to take a disciplined approach to expenses while balancing the need to continue to invest in the business for growth. During the year, there was a 5% increase in underlying expenses, which included an increase in short-term incentives and equity rem and expenses relating to the acquisitions of Jacaranda Planning and Laminar Capital. PAMI added 15% to total expenses, including the operating expenses associated with the full 12 months of Barrow Hanley. And total expense growth was 20% within previously stated FY '22 guidance of 18% to 22%. Looking ahead for FY '23, we expect expense growth of 4% to 6%, which includes the continued investment in growth initiatives. Importantly, this guidance excludes any impact from the acquisition of Pendal announced earlier today. Turning to the cash flow. There was a $28.3 million increase in cash resulting from the drawdown of debt and operating cash generation. These were partially offset by outflows associated with the acquisitions of Jacaranda and Laminar Capital and the payment of the final FY '21 and FY '22 dividends. Free cash flow was $148 million, an increase driven by the uplift in net cash receipts from the full year impact of Barrow Hanley earnings. And after paying dividends totaling $112.5 million and purchasing $14.8 million of perpetual stock to satisfy our long-term employee incentives, the result in net cash position prior to acquisitions and seed funding was $167.8 million. Surplus liquid funds amounted to $251 million, and total cash at 30 June was $175.4 million. The balance sheet remains strong with a debt to capital ratio of 22%. The increase in goodwill and other intangibles was predominantly due to the acquisitions of Jacaranda and Laminar, as well as FX movements on the U.S. dollar intangibles. The increase in borrowings reflects the drawdown of $75 million debt to fund those various strategic initiatives as well as some foreign currency movements. We will separately talk to the funding arrangements for the acquisition of Pendal when we move to the next presentation. With the strong financial results delivered, both EPS and dividends have increased substantially. The Board has declared a final dividend of $0.97 to be paid in September. The dividend reflects a payout ratio of 80% within our target range of 60% to 90% of UPAT. FY '22 dividends totaled $2.09, up 16% on FY '21. And before I hand back to Robert, I'd like to draw your attention to the detailed divisional results that are in the back of the presentation. With that, I'll hand back to you, Rob.

Thanks, Chris. I'll now briefly comment on each of our 4 divisions, focusing on our priorities for FY '23. For our international asset management business, as highlighted, we are well positioned to benefit from the global ESG megatrends through Trillium and building on the positive momentum from recent significant institutional wins. As investors increasingly start to consider a style shift to value, Barrow Hanley is ideally positioned with terrific investment performance across all strategies and a proven 40-year value-investing heritage. We have high-quality, globally relevant investment capabilities managed by world-class investment teams with significant capacity for future growth. The build-out of our global distribution team is now driving that growth, opening up new channels across key geographies for both businesses. Turning to our Australian asset management business. We also have positive momentum, and we expect to see continued growth in the intermediary channel. The exceptional performance profile across all sectors, most notably in our Australian equities capabilities, bodes well for the future, as do our recent product launches and our revitalized marketing campaigns. In Perpetual Private, our segment focus, our advice model and our brand strength combined to make us the leading choice for the industry's best advisers and their clients. Our continued growth will be driven by expanding our segment specialization into the aged care sector, for example, and through the expansion of Jacaranda Financial Planning across the Australian eastern seaboard. In Perpetual Corporate Trust, our leadership role and our consistent growth in both Debt Market Services and Managed Fund Services is being augmented by our unique position to provide unmatched digital solutions across our client base, opening up a whole new growth opportunity for the firm. And finally, our announcement today regarding the acquisition of Pendal Group is a very significant moment for our company. I'll now move to the separate adviser presentation on the acquisition to talk you through the details before we finish up with Q&A. So turning to today's announcement. We are of course incredibly excited to be announcing our proposed acquisition of Pendal Group today. I'm pleased to share more detail now with you on what we believe is a compelling opportunity for both Perpetual and Pendal shareholders. The acquisition will create a global leader in multi-boutique asset management with more than $200 billion in assets under management, covering global, U.S., U.K., European and Australian equities, cash and fixed income and multi-asset asset strategies. As I'll highlight a bit later, there is significant capacity for future growth across this broad capability set, and these capabilities are highly complementary. The combined business will materially accelerate both the global growth strategies and ambitions of each firm, benefiting from materially enhanced scale and distribution reach into and across all major markets globally. The combined business will house 7 highly respected asset management brands. Under our global multi-boutique model, each of these brands will be retained as will the investment autonomy of each boutique. This is exactly the same approach that we have applied to our acquisitions of both Trillium and Barrow Hanley. The combined group will be immediately positioned as a global leader in ESG investing with well more than $15 billion in dedicated ESG assets under management, a terrific platform for future growth. Turning to the next slide. Importantly, Perpetual and Pendal are aligned in terms of asset management business models, and the combination of the businesses will strengthen that model. Together, the group will operate under a contemporary asset management model that brings together the best attributes of a pure boutique model and the best attributes of a more traditional institutional model. We have high conviction that to be successful and to withstand the industry-wide headwinds that this is the optimal model going forward. At its core, boutique values investment autonomy, which is the critical feature of the boutique model. It's a critical feature of the model. It's critical for its investment teams, and it promotes a strong sense of independence and personality within each boutique, which is attractive to world-class portfolio managers and their clients. Clients recognize the value of that independence, and they are attracted to the specialization and the focus of the boutique model. Quality portfolio managers are attracted to the core notions of investment autonomy, specialization and the focus that brings them as investment professionals. While the traditional institutional model in asset management is commonly underpinned by a large balance sheet and deeper resources, leading technology and a robust global governance framework. We believe that the best business model for asset management companies combines these features. It combines the critical qualities of pure boutique approach with the strength and support and resourcing advantages of the traditional institutional approach. The combination of Perpetual and Pendal will leverage the key strengths of each of these models, and we firmly believe that we will be able to realize our respective strategic growth ambitions significantly sooner than would have otherwise been the case as stand-alone businesses. I'd like to explore this important point just a little bit further on the next slide. And I'll step through this quickly. We believe that our global multi-boutique model is a differentiated model, one which requires a fine balance between the strengths of a pure boutique and the strength of a larger organization. When that balance is right, it presents an ideal environment that attracts and retains the very best investment professionals. Those investment professionals thrive in environments that allow them to focus on managing money, environments that are investment-centric with no house view. Moving to the right, the best distribution talent want to work with the best fund managers. The global multi-boutique model is therefore a preferred destination for quality distribution teams where they see the opportunity in working for a diverse investment -- set of investment teams across channels and across geographies. And it's this combination that will drive superior growth over time. The best investment talent working with the best distribution talent in order to help each boutique realize their growth ambitions. We believe that the combination of Perpetual and Pendal provides us with a unique opportunity to create such an environment globally. Moving on now to a quick overview of Perpetual's offer. We firmly believe that this offer represents a strategically and financially compelling opportunity for both sets of shareholders. The acquisition will be effected by a scheme of arrangement with consideration through a share exchange. Every 7.5 Pendal ordinary shares are to be exchanged for 1 newly issued share in Perpetual, plus $1.97 -- sorry, let me start that again. $1.976 cash per Pendal share. Based on the undisturbed share price for this offer, it represents a 46% premium to Pendal's share price at the close of 1 April 2022 of $4.48. Perpetual and Pendal shareholders are expected to own approximately 53% and 47%, respectively, of the merged group on closing. Importantly, the scrip and cash offer allows shareholders in both companies to participate in the growth of the combined business and also participate in the projected synergy benefit of $60 million. Synergies are expected to result in a material value accretion to both sets of shareholders and to deliver double-digit EPS accretion to perpetual shareholders in the first 12 months post implementation. Funding will be provided via a new debt facility with a clear path to reduce gearing. Pro forma leverage is expected to be 1.7x gross debt-to-EBITDA shortly after implementation with a very clear pathway to 1.2x leverage in year 3 post implementation. Pendal's Board has unanimously recommended that Pendal's shareholders vote in favor of the scheme in the absence of any superior proposal and subject to an independent expert's opinion that the scheme is in the best interest of shareholders. Very importantly, the transaction and the proposed business model has the strong support from Pendal's portfolio managers. Turning now to the next slide. We have long admired the Pendal business and its combination of premium brands and world-class investment teams. Looking at Pendal on a stand-alone basis, you can see why. Pendal currently manages $111 billion across an attractive range of capabilities with the quality brands of Pendal, J O Hambro, TSW and Regnan. These boutiques have strong track records of outperformance. And importantly, all boutiques have significant capacity for growth across their diverse range of investment capabilities. For the 12 months ended March 2022, the business generated $255 million in underlying profit before tax, and that was a fee revenue of $668 million. The team of 107 investment professionals across all boutiques are supported by over 50 sales professionals, distribution professionals globally, and they are world class. We look forward to working collaboratively with them to deliver for our clients and to create that value for our shareholders. On the next slide, we've highlighted the pro forma business by asset class and by client domicile. Here you can see the combination of asset classes across Pendal's strong international and Australian businesses and Perpetual's highly regarded Australian and international asset management brands. And of course, world-class ESG capabilities within both firms. As you can see, the combined business will have an improved balance across a broader array of asset sectors and a good geographic diversity by client location. The creation of a larger, more diversified asset management business materially less dependent on any one investment capability will provide an ability to attract flows across various investment styles through market cycles, including growth in value style strategies. As a result of this improved diversity, we expect the combined group to materially benefit through a reduction in the volatility in net flows over time and from a reduction in the concentration risk of key capabilities across the combined group. The combined group brings together a diversified set of more than 100 investment strategies across 7 premium brands. As mentioned, the combination of Perpetual and Pendal creates a formidable collection of world-class investment capabilities. These capabilities are highly complementary, differentiated by investment style, by asset sector and specialist capabilities within each asset sector. Of course, given the heritage of both firms, there are areas where we manage assets in the same asset sector. Importantly, in each case where there is that overlap within those sectors, each team manages their assets in a very different way. This differentiation will mean that teams within sectors will rarely, if at all, compete for clients. As an example, in Australian equities Perpetual is very much a value manager, while Pendal is known as a core manager. In Australian fixed income, Pendal is heavily -- beg your pardon, Perpetual is heavily credit-focused, while Pendal is more rates-driven. That differentiation continues across international equities, U.S. equities and for our ESG specialists as well. It's important for me to reinforce that in every case, our brands, our investment teams, their investment approach and their investment autonomy will be retained. Moving to the next slide. As I've mentioned, through this transaction we will be able to immediately build on our leadership positions in active ESG management. Both groups have specialists best-in-class capabilities through Trillium and Regnan. In addition to these dedicated ESG boutiques, ESG will be deeply ingrained across the broader platform with Perpetual, Pendal, J O Hambro and Barrow Hanley, each home to ethical or sustainable funds with specific ESG criteria essential to the investment approach of the fund or there are ESG factors that are integrated into the analysis and decision-making process. With well over $15 billion in AUM, the combined group will be a global leader in ESG investing, and I expect this will be one of the strongest growth areas of the firm going forward. One of the most important aspects of combining Perpetual and Pendal is the immediate expansion of our global distribution footprint. This combined distribution talent from both companies will create a stronger distribution organization, covering all major markets and channels. The positive impact of this materially enlarged distribution team will be felt immediately post completion with employees across 16 locations around the globe and an enlarged distribution footprint from day 1. From a distribution perspective, the transaction effectively brings forward years of growth and talent acquisition, enabling us to build deeper market positions and deeper coverage across key markets and regions on an accelerated basis. In particular, our distribution coverage of retail intermediaries in the U.S., U.K. and European markets will be materially deeper. Overall, diversity in the strategy set and the expansion investment capabilities, this transaction -- this transaction -- sorry, if I could start that again, beg your pardon. In addition, overall diversity in the strategy set and the expansion and investment capabilities that this transaction brings will allow the combined distribution team to have better, broader and deeper solutions-based conversations with current and potential clients and will provide deeper coverage within channels. As a larger organization, we will be better able to invest in distribution to invest in our people, to invest in new products, new channels and in digital marketing. Combined with our enhanced reach, we think the opportunities for accelerating growth are clear. Importantly, here in Australia, we will have segregated distribution teams for Perpetual and Pendal's Australian equities businesses. Each team has a significant client base and growth potential, and we believe that it is critical to be very clear that they are different businesses with very different investment approaches and that both teams will see no change to brand, no change to the investment team, no change to their investment process. They will operate entirely independently just as they have done so successfully for decades. And will be managed entirely separately and have dedicated separated distribution focus. Turning to the next slide. Before I hand over to Chris, let me briefly outline the step change in scale and growth potential that we have delivered since 2019, both which will reach far higher levels through this transaction. Since FY '19 is a leading domestic-focused manager with $27 billion in assets under management, we have expanded into a truly global diversified asset manager. Through a series of targeted acquisitions of leading investment boutiques, we have expanded Perpetual's investment capabilities and reach to now manage nearly $100 billion in assets under management globally. With those capabilities having a capacity to grow out to over $400 billion. With today's announcements, Perpetual's total capacity will nearly triple to well over $1 trillion in potential assets under management. And our AUM number will more than double, turbocharging our potential with significant capacity to support future growth. When combined with our materially more powerful global distribution team, we think the future looks very exciting. And on that note, I'll pass to Chris to take you through the pro forma financials and the anticipated synergies.

Thanks, Rob. Rob has already talked about the scale benefits that will accrue to the asset management business as a result of this acquisition. On a pro forma basis, asset management revenues will represent approximately 3/4 of our revenue and of our earnings. PCT and PP will continue to meaningfully contribute though, representing 25% of group revenue combined. Importantly, over 50% of the group earnings will now be derived outside of Australia. As set out in our release, Pendal shareholders will receive 1 perpetual share for every 7.5 Pendal shares, plus $1.976, which is easier to say, per Pendal share. And importantly, the cash component of the offer will be reduced by the amount of any final FY '22 dividend paid by Pendal. The cash component of the offer totaling $757 million will be funded by a new debt facility, which will also refinance our existing facility. And implementation, gross debt to pro forma EBITDA will be about 1.7x or 1.3x on a net debt basis. And within 3 years, we expect gross debt to EBITDA to reduce to 1.2x or 0.8x on a net debt basis. In addition, Pendal is expected to pay down and close its existing facilities ahead of implementation. And importantly, our dividend policy will remain unchanged with 69% of UPAT to be paid in dividends on an annualized basis. Turning to the next slide. We expect run rate expense synergies of $60 million within 2 years of completion, with over half of those synergies to be achieved by the end of the first year. This represents 8% of the combined asset management cost base or 6% of the total cost base. These synergies will not impact on any of the key investment brands or teams. Transaction costs will be in the region of $40 million, and the majority of the expected integration costs of $110 million are likely to be incurred in the first 18 months. And as we think ahead to implementation and integration, a key focus will be maintaining the client experience for both Perpetual and Pendal clients. In that regard, there will be no change to key investment teams, their investment processes or their investment autonomy. Completion is expected in late '22 or early 2023, and it's depending on the timing of regulatory approvals and other conditions. So that's the highlights on the financial side. With that, I'm going to hand over to Rob, and then we'll move to Q&A.

Thanks, Chris. We firmly believe that this proposed acquisition represents a strategically and financially compelling opportunity for both sets of shareholders for our investment professionals and for our distribution teams around the world. Most importantly, for clients of both businesses, we will preserve, protect and promote the independence of each investment team and their investment autonomy. There will be no change to that approach. This combination of 2 storied asset management brands provides us with an opportunity to immediately assume a leadership position as a global multi-boutique asset management firm. The significant widening and deepening of our global distribution footprint when added to the broad array of world-class investment capabilities with substantial capacity for future growth provides us with a unique growth opportunity. Added to that, our leadership position in ESG investing. I'm sure you can all see why we are so genuinely excited about the future path ahead. So with that, let's now move to questions, over to Susie.

[Operator Instructions] The first question comes from Andrei Stadnik at Morgan Stanley.

I wanted to ask 2 questions, if I may. Firstly, just in terms of explaining the deal and the deals and how the deal will work, because I think the domestic shareholders will probably understand the difference between the Perpetual and Pendal investment brands. But how will you pitch this deal to the offshore investors who have seen many scale-based deals run into issues on the revenue side?

Sorry, Andrei, do you mean to investment teams or external shareholders?

Yes, particularly to overseas-based investors because there have been a number of global deals based around scale in asset management. They have run into issues. And so a common question from overseas investors is what can make a scale-based deal in asset management work?

Well, I think sensible management, sensible decision-making and the right business model. I think we all learned through experience. And personally, I've had involvement in many successful acquisitions, but also have been involved in acquisitions where the best decisions weren't made. So I think through the experience set of the combined management team, we know what we need to do to make this work. I think yes, the business model that I've described and probably gone at length to try and explain is highly differentiated and scalable. It's a business model that, as I said, attracts and retains the best investors and the best distribution people. We're very confident that we'll make the right decisions. We've got -- we'll have clarity of leadership. We'll have a first-class experienced leadership team managing the business. And I think our own track records through M&A and developing growth through M&A over 20-plus years should come to the full.

And my second question. So you're doubling up on ESG capabilities, which is really quite an attractive area. And how are you thinking -- how do you think to use that to -- use to grow more aggressively?

Yes, you're spot on. I mean previously, probably for a couple of years now we've referred to, yes, the global megatrend that is ESG investing. And as you know, Perpetual has been very focused on ESG through our existing capabilities and of course through the acquisition of Trillium. And yes, just to see the growth of Trillium since acquisition, I think the firm has more than doubled in size since we acquired it 2 years ago. I reported today north of $1 billion in net new flows into ESG strategies. We're incredibly bullish about our market position as just Perpetual. And I think when we look at the combination with the strong ESG heritage that's been through the various Pendal group of companies, in some cases for 2 decades plus. We think it's a powerful combination. Regnan has provided critical ESG advisory services to some of the world's most significant investors for 20 years. Some of the global impact strategies, whilst nascent, we think have incredible potential over the longer term. So to be -- we reported $15 billion, I think actually, adding up other sources, it's probably closer to $20 billion, in dedicated ESG assets is a platform where I think we can assume a global leadership position. And when we combine that with a double-up global distribution effort, we are very bullish about the future for the combined entity under those brands.

Okay. We've got a question here from Liz Miliatis at Jarden.

The first one is just on the retention of staff within the Pendal business. If you could just talk to some of the specific things that you guys have done in terms of making sure you retain that staff and their investment capabilities.

We had the benefit of engagement with key portfolio managers, and that was incredibly positive. Every single key portfolio manager that we had conversations with has -- is supportive of the transaction, supportive of the business model. And is certainly in conversations that I've been part of for many weeks now, very positive about the future together. So that's exciting. From a comp perspective, I think from an ongoing compensation perspective, there's no change to the arrangements that are in place for any of those teams. Those compensation arrangements have served those teams well historically and will into the future. But again, I guess, Liz, in many ways, people will probably get sick of me, hearing me say 2 things through this. One is that investment autonomy is critical and will be protected. But they'll also get sick of me just saying no change, yes, because I think to those things that are so important, whether it be investment autonomy, the investment teams, the brands or the business, all the compensation schemes, no change going forward. It's business as usual and where they -- it helps support develop and grow those businesses post completion.

Okay. Great. And then just a question on your results specifically. Would you be able to give us some color in terms of what happened with cost growth for FY '22? At the former update you guys had indicated you'd be at the upper end of the guidance of 18% to 22%, and you landed closer to the midpoint. And also just noting that the significant items were a fair bit higher as well than what you guided at the former update. So if you could just give some color on what's happened with cost growth and whether some of that cost growth is being pushed out into '23?

Yes, sure. So Liz, there's a couple of things going on in the cost growth side, one of which we're still, like everyone else, in a labor market where we have not been able to bring on the number of people we wanted to in the time that we wanted to. So there is a, if you like, a lag because we're not going to have those people in our expense line in '22, but we're hopeful that they'll come through in FY '23. And a combination of that and also in terms of the projects and the investments we've been making across our platform, that lack of capacity to actually execute the program meant we didn't spend as much on projects or technology either. So those are probably the 2 swing factors on the OpEx line. And on significant items, as you know, we've got a few drivers in there, including the amortization of the intangible. But on that, I think that's probably, the FX impact of that probably had the most impact.

Okay. The next question comes from Ed Henning at CLSA.

My first one is just around integration risk. And can you touch on what you're anticipating for FUM loss in the deal? And with the deal, do you have to approach all the clients to get approval? Or is there anything around that? And if you do, can you just talk about time frame on that and whether that will impact the growth in the near term on the Pendal side at least of those?

Yes, sure. Thanks, Ed. I mean obviously we go into this hoping there won't be any client losses because the story is a story of no change. No change to people, to process, to products or any aspect of the business. So that's the critical part of the story. I think in terms of consent processes, yes, you're right, parts of the Pendal business, we'll have to seek consents for clients. Across the book of business, there are consents. In some cases, there are consents. Consents must be gained. In other cases, there's a provision of a notice. And in many cases, there's no specific requirement. Where there are -- where consents are required, I think historically, both businesses through an acquisition process have showed that they can do a very good job with consents. I think I'm right in saying when Pendal acquired TSW at 15 months ago, they got above 99% consent acceptance. We got a similar number when we acquired Trillium. Barrow Hanley, you might recall was a bit lower around 90% because we lost 2 quite large fixed income, U.S. fixed income mandates for reasons not associated with the transaction. It was obviously deep in the first year of COVID, and there are other factors at play there. So we are -- we feel very positively minded that the combination of the no change story and the history of consents, yes, means that, yes, we feel quite positive going into that process for those clients that do require consent. As far as integration goes, again, I think the headline story is no change. I did say you'll get sick of me saying it. But yes, we are looking for a hard integration of front, middle and back office. Yes, I think the critical thing is to protect client interest, to communicate well with clients and to lead forward with that no-change story. And then we'll seek the right sort of efficiencies sensibly over time in the BAU sense.

And sorry, Rob, just on that, roughly how much of Pendal's FUM needs -- you need to get consent for?

You're probably best asking that number directly from Pendal. But in terms of the hard requirement, I think it's less than half the assets.

Okay, less than half, okay. No worries. And do you know roughly how long that process will likely take? Is it like a 2-month process? Is it a 4-month process?

Yes, I mean I think, again, TSW process, my recollection of that process was it was incredibly quick. I think it might have been -- I'm going to guess here I'm looking at others in the room, maybe 6 weeks, 6 to 8 weeks. I think with Barrow, I think we were probably 3 months point to point. That's a pretty typical sort of period, Ed.

Yes. Okay. No, that's helpful. And then just another question. You talked about the shift of value and Barrow Hanley getting into positive flows, which is great. Can you just touch on, are you seeing increasing conversations in Barrow Hanley and more RFPs out there? And especially, can you just touch on the U.S. and what you see driving a turnaround in flows there and why you're confident on the U.S. side?