Perpetual Limited (PPT) Earnings Call Transcript & Summary

Good morning, everyone, and good afternoon or evening to those joining us from other parts of the world. Welcome to Perpetual's Full Year 2023 results briefing. 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 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 will 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 today's presentation. And before I hand over to Rob, we'd like to draw your attention to the disclaimer on Page 2 of the presentation. Rob, over to you.

Thanks, Susie, and good morning, everyone. Thanks for joining us today for Perpetual Group's FY '23 results briefing. Chris and I are pleased to present these numbers. They're important results for the group not only as a solid set of annual results in a difficult environment, but because they also mark milestones in our progress on executing the strategy that we laid out back in 2019, and that we are refreshing today. Today, Perpetual is a transformed business following the acquisition of Pendal. We are a diversified financial services company with 3 distinct market-leading divisions, which now includes a truly global asset management business. Through the acquisitions of Trillium, Barrow Hanley and Pendal, we now have created a world-class asset management business with high-quality investment capabilities managed by investment teams who lead their respective categories, and those teams now supported by a global distribution team covering all key regions and channels, and we have significant capacity for growth from those existing capabilities, and we are now fully focused on driving that growth over time. With the acquisition of Pendal, we have more than doubled our assets under management to over $200 billion, in fact, $212 billion across our 7 leading asset management boutiques. Whilst we're only 6 months in, the integration of Pendal is on track. We are delivering the anticipated expense synergy benefits and the upgraded target of $80 million of synergy benefits, 2 years post completion is reaffirmed. Pendal's contribution, since we completed the acquisition in January, has been impacted by net outflows across a small number of products, which has been disappointing. Importantly, given the quality, the breadth and depth of investment capabilities, we remain confident of returning to growth over time. We have retained all key investment talent. Investment performance is strong or improving, and our combined global distribution team is starting to positively impact. We are entering a new phase of Perpetual today. We are announcing a strategy refresh, which focuses on unlocking growth opportunities, seeking simplification across all of our businesses and delivering synergies whilst improving our net flow profile. After a period of inorganic expansion, we are now fully focused on driving organic growth and delivering returns on the investments that have been made. Turning now to our headline results. Perpetual delivered total operating revenue of $1,013.8 million, so just over $1 billion for the year, an increase of 30% on FY '22, reflecting the 5.5 months contribution of Pendal and growth in both our Corporate Trust and Wealth Management businesses. Underlying profit after tax was $163.2 million, 10% higher than the prior corresponding period. Statutory NPAT was $59 million, 42% lower than FY '22, which primarily reflected transaction and integration costs related to the Pendal acquisition. Diluted earnings per share on UPAT was $1.96, down 24% on last year, with a full year of Pendal's earnings yet to flow through to our numbers. While there is some noise in our FY '23 statutory numbers influenced by one-offs related to the Pendal acquisition, we believe this is a solid result in what has been a difficult operating environment for equity markets and for asset managers in particular, and one that demonstrates the strength and diversification benefits in our unique combination of businesses seen through the growing contributions of both our Corporate Trust and our Wealth Management businesses. The Board has determined to pay a final dividend of $0.65, of which 40% is franked. Total dividends for the year were at $1.55, representing a payout ratio of 76% of second half '23 UPAT and 78% of the full year UPAT. Turning now to each of our divisions, starting with asset management. Today, we are reporting on one asset management result for our global asset management business, which is a change from our previous regional view and aligned with our new global structure, which I'll talk more about shortly. Asset Management, underlying profit before tax was up 29% due to the inclusion of Pendal with total assets under management, as I mentioned, of $212 billion, which includes $110 billion from the acquisition of Pendal completed in January, and that was supported by positive markets -- the AUM number supported by positive markets, strong relative investment outperformance and favorable currency movements. As you can see from the chart on the right, we now have a highly diversified spread of AUM across our boutiques and further diversification across investment strategies within each boutique. We reported total net outflows of $8.1 billion for the year, impacted by a variety of factors, which included underperformance in J.O. Hambro's global and international select strategies. Asset allocation shifts from equities -- by clients from equities to fixed income, primarily impacting flows in U.S. equities for both Borrow Hanley and TSW. And we have seen defined benefit schemes becoming fully funded, hence de-risking by reducing their equity exposure. Whilst the net flow result for the year was disappointing and market dynamics remain challenging, with a strong outperformance profile that we have across our investment capabilities, we feel we are well positioned to see an improvement in flows led by Perpetual's Australian equity strategies, Barrow Hanley's Global Strategies, Hambro's emerging market opportunities and Global Opportunities Funds and Regnan's impact in thematic strategies. As you can see from the next slide, our relative investment performance is strong. 78% of the group's strategies outperformed their benchmarks in the 3-year period to 30th of June 2023. The strong outperformance in Perpetual Asset Management in Australia across all sectors in Barrow Hanley and in TSW, particularly augers well. As an example, we have previously disclosed over $1.5 billion of new wins for Barrow Hanley expected to fund this quarter. Barrow have either on new accounts, or are in finals for new clients from the U.S., U.K., Europe, Asia and Australia. The global equity fund here in Australia is now firmly in the top 10 global equity funds for net flows from the intermediary channel. Their second CLO fund is expected to fund in the coming months. And with our newly combined intermediary distribution team in the U.S., we will be making that channel a real focus for Barrow. As mentioned, disappointingly, we have seen material outflows from Hambro's International Select strategy, in particular. We have highlighted on the right-hand side of this slide the improved relative performance of this important strategy. Being a concentrated growth-oriented strategy, there will be a degree of volatility in performance. This near-term improvement has pleasingly led to a moderation of the outflow profile and knowing the quality of the investment team, we are confident of continued improvement over time. Now turning to Corporate Trust. As you all know, Corporate Trust is a high-quality business that continues to deliver growth, underpinned by unmatched long-term client relationships. Underlying profit before tax was up 12% and revenue was up 12% in FY '23, and again, reporting consistent delivery of EBITDA margin. It's pleasing to see this consistent delivery of the priced combination of both strong margins and earnings growth. It's a feature of our Corporate Trust business. While the current higher interest rate environment has put some pressure on competition and activity within the Corporate Trust segment, the business is well supported by its long-term client relationships and service model. We have highlighted the tenure of our client relationships in Corporate Trust. And as you can see from the middle chart, 70% of our clients have been with us for more than 10 years. Our brand and our relationships are strong, which drives the consistency and the persistency of growth for this important business. Our relatively new digital division has also shown consistent levels of top line growth, as you can see from the chart on the right, and we expect that to continue into the future. Finally, now turning to Wealth Management. In Wealth Management today, we have reported strong growth in nonmarket-linked revenues supporting underlying profit before tax growth of 6% for the year compared to the prior corresponding period. The diversity of services in Wealth Management underpins its quality of earnings through market volatility. It's been pleasing to see our gross margin relatively stable despite a difficult operating environment. As mentioned, we have seen a material improvement in our nonmarket-linked revenue streams during the year, led by Fordham, our accounting and financial services business. Fordham had a standout year following a rebound of client activity post-COVID lockdowns. And Priority Life, our specialist risk advisory business, had its best year since acquisition, leading to the Medical segment growing revenues by [ 17% ] over the period. Now, let's turn to an update on the Pendal acquisition. The integration of Pendal 6 months in is on track. As we've previously disclosed, client consents at completion were 98%. As I've mentioned already, importantly, since completion, we have retained all key investment professionals across our 7 boutiques. As mentioned, whilst particular strategies have led to disappointing total net flows, we are fully focused on improving flows. The quality of our investment teams, our strong relative investment performance, combined with significant capacity, provide us with confidence into the future, as does the expected future impact of our newly combined distribution team. As at June 30, we have delivered $29 million of full run rate synergies, and we reaffirm our synergy target of $80 million by January 2025. Costs associated with gaining synergies to date have been approximately $39 million. Over the next 12 months, our integration activities will be focused on technology, on product and platform rationalization, combining head offices here in Sydney and a program of work to optimize our third-party vendor costs. So whilst it's still early days and there is much for us to do, I firmly believe that this acquisition will deliver value to our shareholders over time. We have an enviable array of world-class investment managers, one that would be incredibly difficult to replicate. They're delivering strong relative investment performance. We now have a truly global distribution footprint and an experienced management team. Our focus is now fully on positive execution and delivery. Turning to the next slide. Importantly, our management team has demonstrated an ability to deliver and add value to acquisitions we have made in recent years, as this slide highlights across 4 of our transactions. In each case, we followed a detailed execution plan. We delivered on expected synergies where they existed. We've invested in those businesses in a disciplined manner to strengthen our acquisitions and to open up new avenues of growth for them. Trillium, for example, which we acquired on the 30th of June 2020 in the fog of a global pandemic, had a 1-person distribution team, low brand awareness, no institutional relationships and no international clients. Today, Trillium leverages Perpetual's 170-person strong global distribution team. They have active institutional relationships and clients and has product availability across the U.S., U.K., Europe, Asia and Australia. We've had several record net flow quarters since acquiring the business and total assets under management has nearly doubled to $10 billion. When we acquired our 75% interest in Barrow Hanley in November 2020, the business was 100% institutional and largely U.S. focused with declining ex-U.S. distribution support. Working with the Barrow team, we have seen material growth in their various global and international strategies with flows coming from the U.K., Europe, Asia, and Australia. In FY '23, Barrow saw $3.5 billion in inflows into those global strategies and emerging market strategies. In Australia, we have seen good results from the intermediary channel with Barrow Hanley's global equity strategy receiving over $630 million in net inflows, ranking it in the top 5 global equity managed funds for net inflows for the year, according to Morningstar. And with our larger proven distribution team in the U.S., we are looking to emulate that early success in the U.S. intermediary channel, which will be entirely new for Barrow Hanley. In our Wealth Management business, Priority Life was operating in one Australian state only. We saw the potential to grow that capability by leveraging our presence across Australia. And today, as part of our Medical segment, we now have more than $50 million in premiums in force across that segment. Finally, in our Corporate Trust business, Laminar Capital is today a growing business that's leveraging the strength of the Perpetual brand of our long-standing relationships to attract new customers. Today, assets under advice have now moved up to over $24 billion, and we expect that rate of growth to continue. So through these examples, I hope that you can see that we are positively executing on our plans, and we are adding value to each business. But there's always more to do. And in all cases, we are on track with that -- importantly, in all cases, we are on track with our original ambitions, and we remain confident about future delivery. Whilst I have said it is still early days for Pendal, we have the same confidence for future delivery over time as we have had for each of our acquisitions. We are entirely focused on execution and delivery. As I stated earlier, these results mark a milestone for us as we deliver on the commitments we made back in FY '19 and now shift to focus on driving organic growth to deliver the expected return on our investments made. For those of you that might be new to Perpetual Group, this page lays out our execution scorecard against commitments we made back in 2019 when we first launched our growth strategy. Our goal was to build scale and asset management to add new investment capabilities beyond value and beyond Australian-only capabilities and to expand offshore to accelerate growth over time. We aim to develop new growth opportunities in Corporate Trust with a focus on Digital and Wealth Management through our advisor growth strategy and our segment focus. And in asset -- and in terms of the report card on asset management, we -- sorry, slightly out of order there. But in terms of our report card on asset management, we acquired Trillium, Barrow Hanley and Pendal, adding multiple global regional ESG and thematic investment strategies with substantial capacity for future growth. Since 2019, we have built out a global distribution team to support our boutiques that drive our growth aspirations. Combining Pendal and Perpetual's global distribution teams now means that we have a unified team and a product infrastructure covering all major markets and all channels. While there still is a lot to do in the context of the Pendal integration and the last quarter of FY '23, in particular, was disappointing from a net flows perspective. As I have said, we remain confident of improving our net flows over time. In our Wealth Management business, back in 2019, we executed our -- we commenced the execution of our advisor growth strategy with new top quality advisors joining our ranks during the dislocation in the advice industry post the Royal Commission. And those new advisors brought with them nearly over $1 billion in new clients. Our segment focus has been solid in our Medical, Native Title and NFP channels, and our acquisitions have added new components of growth. On the other side of the ledger, our expectations from our family office focus have not yet been met, and we have work to do in terms of improving our clients' digital experiences with us. Turning now to Corporate Trust. Back in 2019, we said we would focus on creating further digital service offerings for our clients whilst launching new products and services to our core clients. Through the combination of internal development programs and the acquisitions of RFI Analytics and more recently Laminar Capital, we have -- we now have a third segment in Corporate Trust, Perpetual Digital, which will be a driver of future growth. We still have work to do on our technology platform to fully replace legacy technologies and to further develop our cloud-based operating systems. So, whilst it's useful to reflect, our focus is, of course, forward-looking. And we have refreshed our strategy to highlight our key focus points going forward. After more than 4 years of execution and having invested the capital, we have refreshed our strategy to focus on building a simpler, stronger, more streamlined and better Perpetual. We have 3 high-quality market-leading businesses focused on delivering sustainable returns for the group. Across all of our businesses, we have invested for future growth, and we are now fully focused on driving organic growth and our refreshed strategy, and our page reflects that. We also recognize in the process of growing our businesses. We have become more complex. And hence, we see opportunities to streamline our business, and we recognize that we must be more agile to face into the current and expected future macroeconomic environment. Our 3 strategic imperatives are now client first, which, of course, remains. We will continue to focus on delivering superior service to our clients with top quality advice, strong investment performance and contemporary product solutions to meet their needs. We will simplify and streamline our business, as mentioned. We will seek areas of simplification across our portfolio of businesses, and we will be focused on areas where Perpetual adds value. And sustainable growth. Following a period of inorganic growth which has created the potential we now have across all of our businesses, our focus is going to be on [Audio Gap] unlocking and fully realizing that potential. We will grow from our current base and deliver the return on investments made across the organization. In line with our refreshed strategy to simplify our business today, we've also announced changes to our asset management leadership structure. We are moving from a regional approach to a global approach with a streamlined global leadership team, and therefore, a smaller number of Perpetual group executive committee members. This important change, we believe, is a more efficient and effective structure for the management of our global asset management business. We will have global functions that can prioritize regions and channels of focus and support the differing needs of each boutique, allocating resources and prioritizing areas of superior growth potential by taking a truly global view. From today onwards, our global asset management leadership team will be led by me in addition to my group role, with a dedicated global asset management leadership team in place. That team will be formed effective today and will have end-to-end accountability for executing and delivering on our strategic ambitions, providing an improved focus on unlocking growth opportunities for our suite of asset management boutiques across the globe. These changes will also outline as mentioned, a simpler group structure and create a smaller group executive committee. Turning now to our focus for FY '24 before I hand to Chris. You will see our priorities across each of our 3 distinct business divisions for the year. In Asset Management, our focus is on delivering year 1 synergies in FY '24 for the Pendal transaction. It is for us to start to see the benefits of bringing together our leading investment teams with our global distribution coverage through an improvement in net flows, and we will be focused on improving flows from key intermediary markets. In Wealth Management, our focus is on strengthening our offerings for key segments and channels that are growing, where our advice and services can add value to clients. We will continue to grow our ESG products and services and seek to improve operational leverage in the business. And in Corporate Trust, we will be further leveraging our leadership strengths and long-term client relationships to grow our digital solutions and deliver further growth. Across the businesses, we are committed to delivering the return on the investments made across Perpetual. I'll now hand to Chris to take you through the financials in more detail.

Thanks, Rob, and good morning, everyone. Turning to our results for this financial year. Operating revenue of $1,013.8 million, was 32% higher, or $246.1 million greater than the prior corresponding period, primarily driven by the Pendal Group acquisition in January '23. Further growth was delivered through Corporate Trust 3 service lines and strong performance in Wealth Management's nonmarket revenue, group investments and favorable foreign exchange movements. Revenue was partially offset by lower average markets across asset and wealth management and net outflows in asset management. Performance fees earned in FY '23 were $15.2 million, $2.2 million lower than FY '22. Total expenses of $794.6 million were 40% higher. This was mainly impacted by expenses associated with the incorporation of the Pendal Group, including higher interest rates impacting funding costs and foreign exchange impacts as well as the annualization impact of investments we made at the back end of FY '22. We also have a number of one-off expenses late in the year, including those related to an IT security incident in June and an earn-out triggered by the strong performance of Priority Life. Underlying profit after tax of $163.2 million was up 10%. Statutory net profit after tax of $59 million was down 42% due to significant items predominantly in relation to Pendal's transaction and integration costs. The effective tax rate on UPAT during the year was 25.5%, down from 26.5% due to a greater proportion of offshore earnings. Earnings per share on UPAT was 24% lower with return on equity on UPAT 9.8%, down from 16% in '22. The final dividend declared in the second half of FY '23 I'll explain later in my presentation. For now, I'll turn to revenue. Rob's talked to each division, so I won't go into too much detail, other than to show that there was growth in revenue and AUM or FUA across each division. Asset Management, strong growth in AUM was influenced by improvements in the U.S., European and Australian equity markets, the contribution of Pendal Group boutiques, together with the impact of foreign exchange rates. Wealth Management revenue was 3% higher, with a stronger performance in nonmarket-linked revenues versus the market-linked revenues which were impacted by lower average equity markets. Growth in funds under advice was supported by positive net flows in the Native Title and the not-for-profit segments in the Wealth Management. Corporate Trust revenue was up 12% on the prior corresponding period with strength across all areas of its business. Looking at our segment UPAT performance in detail. UPAT was high primarily due to the Pendal acquisition. Asset Management's PBT increased by 29.8%, driven by those earnings from Pendal. Wealth Management's PBT increased by $2.7 million, driven mainly by organic business growth and a high interest rate environment, which led to higher cash earnings. In Corporate Trust, the PBT increased by $9 million with contributions from across all 3 business lines. In group support, PBT decreased by $23.5 million, predominantly due to higher interest expense following interest rate rises and the additional funding costs associated with the Pendal acquisition. Across the business, there was also a reduction in variable remuneration comprising of group-wide short-term incentives, equity rem and performance fee share, and the tax impact on the revenue resulted in a movement of $3 million due to lower effective tax rate applied in FY '23. On to expenses. Controllable cost growth was 4%, mostly attributable to high FTE expense, combined with technology investments and those costs associated with that IT security incident we had. Cost growth from higher interest rates and FX impacts on non-Australian expenses added 4% to expense growth. Overall cost growth reflected the incorporation of Pendal's expenses and the associated interest expense from the funding of the acquisition. For FY '24, factoring in a full 12-month contribution of Pendal's expenses, we expect total expense growth to be between 27% and 31% for the year. We note that this excludes remuneration expenses related to performance fees. And it's also important to note this guidance will fluctuate depending on currency movements, interest rates and variable remuneration linked to AUM. Turning to cash flow, where the main movements reflect the completion and nearly 6 months of integration of Pendal. Free cash flow of $85.8 million for FY '23 was driven by an uplift in net cash receipts in the course of operations. However, there was a net decrease compared to the $148 million free cash flow available in FY '22 due to the acquisition and integration costs that we've incurred. After paying dividends of $131.6 million, the [ resultant ] net cash position prior to the acquisitions and seed funding was $129.6 million. Total cash at 30 June was $263.2 million. The balance sheet as at 30 June remains strong with a gearing ratio of 23.9%, well within the group's risk tolerance. The Pendal acquisition has obviously had a material impact on the balance sheet with key movements highlighted on this slide. Goodwill and other intangibles reflect the intangibles created upon the completion of the deal. The increase in borrowings reflect the additional drawdown in debt to fund working capital requirements as well as other strategic initiatives. Gross debt to EBITDA was 1.87x. This uses the EBITDA definition we use for our banking covenant purposes and includes a number of inputs such as the full annualization of Perpetual's earnings. We reaffirm our target to reduce debt to 1.2x gross debt-to-EBITDA by January 2026. Contributed equity increased by $1.373 million, which was due to shares issued to Pendal shareholders in January 2023. We retain our dividend policy, which is to pay out within the range of 60% to 90% of UPAT on an annualized basis. On that front, let's talk to dividends now. The Board has declared a total final dividend of $0.65 per share, which will be 40% franked and paid in September. Combined with the dividends paid in the first half, the total dividend for the year is $1.55, which reflects a payout ratio of 78% of UPAT, in line with our dividend policy to pay between 60% to 90% of the PAT on an annualized basis. We expect the dividend payout ratio to remain around the midpoint of our range, acknowledging the need to balance the shareholder returns with cash needs for integration and our intention to pay down our debt. Before I hand back to Rob, I'd just like to draw your attention to the detailed divisional results that are in the next year as well as some other information. With that though, I'll hand back to Rob.

Thanks, Chris. Briefly now, just to summarize --outlook and summarize. As I've stated, we are fully focused on delivering the return on investments we've made across each of our businesses. Our refreshed strategy today sees us focused on driving organic growth and becoming a simpler, more streamlined and stronger business. In summary, in FY '24, we expect to deliver on our first year synergy target. We expect to see improvement in our net flows for asset management, cognizant of the difficult operating environment, and we believe both our Wealth Management and Corporate Trust businesses will continue to grow. We will drive simplification and streamlining across our businesses, and we will be focused on delivering that return on investments made across the firm. Thanks for joining the call today, and we'll now turn to questions, which Susie and the operator will manage.

[Operator Instructions] So it looks like there's a number of analysts waiting to ask questions. So we might start with 2 each, and we'll see how we're going for time. I'm conscious it's a busy day out there. Elizabeth Miliatis from Jarden. Do you want to go first, Liz? It looks like Liz has dropped off, so we'll move on to the next person. Nigel Pittaway from Citi Nigel.

Just -- I wanted to ask, please, if I could, on revenue margins. And just whether or not you're sort of giving any pressure on those, other than sort of mix issues? And also sort of looking forward, when you're sort of saying that you look [ to ] targeting improved flows, just to what extent you would be prepared to use price sort of lever to try and generate those flows?

I wouldn't say in Asset Management we're seeing any sort of concerted pressure in relation to margins. There certainly are some pressure points. Typically, those pressure points are coming when -- existing clients of reasonable exposure to 1, 2, in some cases, more capabilities are wanting to actually fund additional capabilities. And so, it's in those sorts of circumstances where we are seeing some pricing pressure. I think with -- when we're looking at particularly large potential mandates, obviously, the greater the size, the greater the desire to negotiate lower rates to some extent. But where we are capacity constrained, we will happily walk away from business at prices that are too low. So perhaps one of the best examples I think would be Barrow Hanley's global emerging market equity capability. We're seeing significant interest in that capability from a range of different sources. There is a capacity constraint on how much money you can sensibly manage in accordance with Barrow's investment approach. And so yes, we would prefer to be patient. I think the other thing I would say is that, yes, we are -- I did mention that we want to really increase our focus in certain key intermediary markets in Australia, and the U.S. and the U.K. in particular. So for where we see new flows at those higher retail rates. We would expect, for example, in Barrow's case, to see an improvement in margin if we're successful there over time. But no, I wouldn't say we're sort of feeling any universal pressure. In the Hambro business in the U.K., we are looking at changing our pricing in some of our vehicles. There is a bit of a movement away from performance fee structures, and so we're open to those discussions. They're probably the mainsort of themes across the asset management business from a pricing perspective.

I can see Liz, you've joined again, Liz from Jarden.

I don't know what happened, apologies for that. Sorry. My first question is just around the Asset Management division and the new disclosures that you're providing. Given that there's no detail on how Pendal is progressing, whether it be from a revenue or PBT level, just wondering if you could give color on how the business is progressing versus your expectations at the acquisition? And -- yes, if you could start there, actually.

I mean, I might kick off and hand to Chris. As that balance date to June, we're 5.5 months into the transaction, Liz. So clearly early days. But I think it's fair to say that the performance has been less than we would have expected due to the outflows that we've seen from 2 areas predominantly. I mentioned the International and Global Select strategies where, particularly outflows from the U.S. intermediary channel has certainly hurt the result. And secondly, TSW, a value-based manager based in Richmond in Virginia. Despite terrific investment performance, they have seen many of their sub-advisory clients allocate away from equities. So they haven't lost clients, they've just lost flow. So those 2 things have combined to mean that the net outflow position is worse than we would have hoped for, for this first short period of time, and that obviously impacts run rate revenues.

And so obviously, revenues are a bit weaker than what you would have hoped. On the cost side of things, are you pleased with where they're tracking, and obviously, you've reiterated your synergies as well?

Let me take that, Rob. Yes, we are. So we've guided to 27% to 31% of expense growth for FY '24, which will obviously have the full year impact of Pendal versus the 5 months we had in FY '23. The run rate impact of the synergies, which we've reiterated today will be $80 million by January, in January 2025. We got to $29 million by 30 June. We expect to see significant -- more synergies flowing through in FY '24. But by and large, on the Pendal side on underlying expense growth, once we're through integration, I think I've said this before, we want to get back to that sort of run rate, 4% to 6% expense growth with positive jaws to the revenue growth we are hoping to see. But on the Pendal side, synergies are tracking to plan and expenses are where we thought they'd be.

And if I could ask just a second question, just -- there was a bit of commentary in your presentation around streamlining the asset management team and moving up from a regional basis to a global basis. And you've already talked about consolidating the distribution teams, and I think also from a management side as well. What else does that entail? Will it be on Perpetual and Pendal investment teams continue to be run independently? I know that was an important part of feature of the acquisition when you made it. And also streamlining might suggest some potential further cost savings. Is there anything there we can be hope for?

So you're packed in a few questions into your 2 questions, Liz. But they are good questions. I think -- from the outset, let me state very strongly that there is no change to base business model as a global multi-boutique shop. We are permanently committed to investment -- autonomy of our investment teams and the autonomy of the brands of those businesses. No change to that in any shape or form. When we talk about streamline, I think it's just about finding smarter ways to operate our business. We've gone through a period of distinct change. We've had 7 acquisitions over the course of the last 4 years, 3 in asset management, 2 in each Corporate Trust and Wealth Management. We have the base of our business now. So now it's effectively drawing breadth and say, right, is there a better way, more efficient way for us to operate. How can we streamline, because we have added complexity, and with complexity you add costs. And so, we want to take a very critical eye to everything we do. We want to remain fully focused on things where we are adding value. But if there's a better way, a smarter way, a cheaper way or somebody else can do something for us, we will look at that. So it really is a tip-to-tail review of the way that we operate in order to streamline our business and make us more agile and efficient. Chris, if you want to add.

We'll move on to the next person. We've still got quite a few questions in the queue. The next person is Lafitani Sotiriou from MST.

I've got one follow-up question to Liz, and then 2 of my own questions. The follow-up question relates to Pendal and the reduced disclosure. Previously, we had PAMI, PAMA and Pendal accounts separately. Now it's all lumped together under asset management. And typically, when a company does this, it's a clear red flag. But given that there are some pro forma data and account numbers for the asset management business, it looks like the implied run rate for Pendal was down by about 50% to 60% in second half '23 versus PCP on a 100% basis. Is this right? Is that roughly how much Pendal is likely go down? And if not, roughly, how much is it down?

I think we haven't disclosed the full Pendal run rate, obviously, in the accounts at this point. It is down significantly on prior corresponding period, Laf. You're right. We have -- we do have that -- we'll give -- I think for -- PBT for Pendal for the second half, which contributed to our PBT, I think, it was about $56 million. So it is down significantly Laf, as you suggest, off the back of those outflows in the key products that Rob has mentioned. And that's off the back, I think, of about $225 million of revenue for Pendal for the same period.

Did you have another question, Laf?

Yes. So next question is around balance sheet, and Perpetual is carrying a lot of debt for a regulated entity, particularly with the majority of earnings leverage to the share market. Have the regulators expressed any concern about the debt levels you're carrying? And what do you do in a scenario where the share markets are down by 10%? Will you need to cut dividend or do you have to a capital raise? How should we think about it? And then I've just got my second question.

Yes, Laf. On the first question, we've had no regular engagement on capital levels. So we've got quite a good surplus on our capital requirements. And there's been no concerns raised in relation to our debt levels. We obviously stress test the book in different circumstances. For example, as you say, market is off 10% and what that does, and that puts pressure on cash flow. We've got a number of different levers open to us around how we continue to service the debt in those circumstances. We're comfortable we can. Those levers include the fact that we do have a lot of variable rem in our expense base for FTEs. That obviously comes off quite naturally as revenues come off in the Asset Management and the Wealth Management market side of the businesses. We also -- obviously, there is dividend as options. And then there's other expense levers that we have across the book. We have significant vendor costs. We have significant other discretionary buckets that we obviously attack before we sought to look at dividend. But we're comfortable with the debt levels that we have, with no engagement with regulators on that. And we're committed to pay it down, as we said, to 1.2x within 3 years of the deal.

And just for my final question. There's one for Rob. Since you started Perpetual some 5 years ago, the Perpetual balance sheet has gone from strong net cash position to stronger debt. You sold some seed capital along the way to further clean up the balance sheet, the circa $1 billion difference, just accounting on that regard. In addition, you've issued 140% more capital in perpetual. But the EPS is down by that 30% to 40% since when you started. And even though there's been a market tailwind. So the question is how long do shareholders need to wait for the strategy to come together given this track record? And why should we have confidence in your strategy?

That's a fair question, Laf. I think today, I looked backwards and I looked forward in the statements I made. We have completed our inorganic activity. We now have a business base and a foundation that we need to grow. And that's why we're fully focused on driving organic growth going forward. So your summary is right. We needed to make those decisions. We needed to add to our capability. There was too much risk in the existing book of business. That's now done. It's behind us. And now our focus is fully on driving growth in order to drive the value that we expect to drive over the medium to long term for our shareholders. We're fully focused on that going forward.

We'll now move on to the next person in the queue, Andrei from Morgan Stanley.

Can I ask firstly around the global platform, the [ plug-in ] investments? What do you think in terms of distribution and leadership of that platform?

On the distribution side, Andrei, our Global Head of Distribution is Adam Quaife. He's been with the organization just over 3 years. So Adam continues in that position. He's been working with the -- both the Pendal and the Perpetual teams or Hambro teams, wherever they may sit to, first of all, point regional leadership and then for those teams to combine beneath that regional leadership. The 3 regional leaders of Distribution are Tim North Ash here in Australia, who came from the Pendal side of the business. So he's done his work to bring the distribution teams together here in Australia. Tj Voskamp is the Head of Distribution across our U.K. and European businesses doing the same sort of activity of bringing the teams together. And we appointed -- we announced this about 2 months ago that we had appointed Mickey Janvier, as Head of U.S. Distribution, to again, bring those teams together. At Perpetual, we had been building our team from scratch under Chuck Thompson, and Chuck did a terrific job getting it to the point that he did prior to the Pendal acquisition. And Mickey Janvier, we've got an individual Board who has experienced a multi -- years of experience working for multi-boutique brands and understands the model well. Mickey has been on Board for 6 weeks now and is in the final throes of putting that team together. It's exciting, particularly to combine the intermediary teams in the U.S. where over a long period of time, Pendal has seen real success in that channel, and they're excited to now have more product to sell. So that's the leadership structure that sits beneath that. And then there are distribution support activities across marketing, client services, which sit beneath each of those regional heads.

My second question, can I ask around wealth revenues? There was a clear change in the mix or the composition of wealth revenues where the nonmarket revenues are quite strong year-on-year. The market-related revenues were somewhat softer on a margin basis. Can you talk about what's driving the change in the mix of wealth revenues? And [ the reason of ] that change?

Yes, sure. In terms of the -- 2 drivers. One, mix. We had a good increase and bounced back in nonmarket revenues. We talked about Fordham and how it had been impacted by COVID. We've seen Fordham bounce back strongly after COVID and recover lost momentum through that period. We also had higher interest rates which were driving higher earnings on the cash balances we have for our clients as well. So while prior to FY '23, we really took a hit on earnings on cash over the prior 2 or 3 years, we saw that start to come back. So those 2 things as well as assets -- so that drove nonmarket revenues. On the market side, we saw good -- we saw growth in our assets under advice primarily through the not-for-profit segment, which was a big driver for us. The other driver there on the market revenues was we had the back end of some repricing we had been doing in some of our books in PP on the product side. We're through that now, but the second half was probably the last big [ leak ] of repricing impact flowing through to the market-related revenues. So that's the other driver that changed the mix towards nonmarket.

The next question comes from Ed Henning at CLSA.

I've got a couple. First, I just want to clarify on your expense guidance. What do you assume for AUM growth? Are you just in thinking about the variable [ rem ] component of it? Are you just assuming it holds flat or modest market growth rate of kind of 4% to 5%? That's the first question.

Yes. Ed, we have a market growth rate assumption in there, and we have a flow assumption in there that drives the base case for variable rem on that front.

And then just on Corporate Trust. You made a few comments in the slide just talking about some headwinds, and some potential headwinds around commercial property. Can you just talk a little bit more about that? Do you anticipate revenue headwinds in the near term? Because you also talked about organic growth as well. So I just want to clarify that, please?

Yes. And we don't want to overstate it, but we do want to acknowledge that Corporate Trust does operate with -- in 2 big markets, in mortgage credit and in commercial property, both of which probably have more headwinds than they've had in some time. In the same breath, I'd say, though, that the Corporate Trust business is really resilient. It does take time for, for example, any revaluations in the commercial property market to flow through to the trust which we operate. We have a lot of mechanisms in those trusts to protect us on the downside in terms of minimum fees, et cetera. But I guess, in essence, Corporate Trust has really benefited from strong mortgage markets and that growth in commercial property. It's more diversified than that now, particularly with the Perpetual digital business coming through and growing as strongly as it is. But 2 of its key markets have more pressures, and we just wanted to point that out. We still expect the business to grow. The big question for us is, can it continue to grow at double-digit or not, and it will depend a little bit on how quickly -- what happens in mortgage credit growth and what happens to commercial property values and how quickly that flows through to our trusts.

And just on the commercial property side. A lot of it's in Singapore where the prices have kind of held up a little bit better, at least to date anyway. Can you just give us a feel of where the commercial property exposure is and to what kind of asset classes? Is it property? Is it retail? Is it industrial?

Yes. And you're right. Singapore has held up well, and we have a big book up there, and it is holding up. As is the book here -- by the way, the book is holding up well. And it is diversified down here. So it is -- it's commercial, it's big box storage, it's infrastructure. We operate in most of the real asset markets as trustee. So it is diversified in that sense. And we're not seeing any negative impacts on underlying values yet. But to the extent we do, they'll flow through during the course of the year as the [ reval ] cycles flow through. I'd also make the comment that as a rule, the trust in which we're operating, tend to have very high-quality assets in them. It's just the nature of the clients that we have, very strong clients with very strong assets in their books. And our view of the world is that to the extent there are pressures, particularly in the commercial property market, they're going to be mostly at the more marginal end of the quality spectrum and we're definitely at the top end of the quality spectrum.

Maybe another way to ask that, how much exposure in the trust as a whole do you have to offer, especially as opposed to sample?

And I don't have that, but it would be a material asset class within the managed fund services business. That's for sure.

Conscious of time, Liz, I see you've got questions, but we do have a one-on-one with you later today. So we'll pick those up with you, and we might hand over to Rob for some closing comments.

Yes. Thanks, Susie, and again, thank you, everybody, for joining us this morning. We know what a busy schedule you're on in closing. I just want to reemphasize our focus points in FY '24 and beyond to deliver synergies to improve our net flows and to continue to build on the momentum in Corporate Trust and private clients that we've -- and our Wealth Management business that we've seen to date. So again, thank you for your attendance, and I'll hand to Susie to close.

Thanks, Rob, and thanks, everyone, for joining. A recording of this webcast will be available on our website today.