Perpetual Limited (PPT) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Perpetual Full Year Results Briefing 2024 Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Head of Investor Relations, Susie Reinhardt. Please go ahead.

Thank you. Good morning, everyone, and welcome to Perpetual's Full Year 2020 Results Briefing. Before we begin today, we would like to acknowledge the traditional owners and custodians of the land on which we present from today here in Sydney, the Gadigal people of the Eora Nation, and recognize their continuing connection to the 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 tourist island of people who are listening in today and acknowledge the traditional custodians of the various lands on which you all work today. Presenting with us are Rob Adams, Perpetual's Chief Executive Officer and Managing Director; as well as Chris Green, Perpetual's Chief Financial Officer. There will be an opportunity to ask questions at the end of the presentation. Please, can we ask that we start with 2 questions each to ensure we have time for all analysts who are keen to ask questions. Before I hand over to Rob, we would like to draw your attention to the disclaimer on Page 2 of the presentation. Over to you, Rob.

Thanks, Susie. Good morning, everyone. Thanks for joining the call today. Maybe getting straight into it. Turning to the first slide, the year-end review results at a high level. Of course, the major event for Perpetual this year was the announcement of the scheme of arrangement with KKR. We announced that back in May. And that followed a comprehensive and thorough strategic review held by our Board, which formally commenced back in December of 2023. The strategic review is expected to lead to positive outcomes for our shareholders, which we'll discuss in more detail today. We expect it to deliver estimated cash proceeds of between $8.38 per share and $9.82 per share, plus provide our shareholders with exposure to our global asset management business as it becomes a stand-alone debt-free listed business. Importantly, we have progressed the integration of Pendal Group acquired back in January of 2023 at pace. And we have delivered in excess of the $80 million in targeted annualized expense synergies earlier than our original target of January 25. Looking now at the headline results. Underlying profit after tax was $206.1 million, up from $163.2 million last year, which is driven by the full 12-month contribution from Pendal and growth across both our Corporate Trust and Wealth Management businesses. Disappointingly, our Asset Management division was impacted by greater-than-expected net outflows throughout the year, which, as we reported earlier this week, has led us to reduce the value of goodwill on our balance sheet for the Hambro and TSW boutiques. This has been accounted for as a significant item of $547 million, leading to a statutory loss of $472.2 million for the year. Diluted earnings per share on UPAT was $178.6 per share, down 9% on last year due to a higher average weighted number of shares on issue following the Pendal acquisition. The Board is determined to pay a final dividend of $0.53 per share, which will be 50% franked. Turning now to some comments on each of our divisions. In our Asset Management business, we saw a stable total assets under management and margins, supported by our diversified investment capabilities and our broader client base across key regions and channels. Revenue was $887.6 million, up from $600.4 million in the prior financial year. And underlying profit before tax was $200.4 million compared to $132.7 million in FY '23, which, of course, only included a past year of Pendal earnings. As I said, total AUM was $215 billion. That was up 1%, driven by market movements and investment performance. Disappointingly, we reported net outflows of $18.4 billion across the year, the majority coming from Hambro and TSW. As we did report through the year through our quarterly market updates, Hamburg suffered greater than expected outflows across its global and international select strategies. And you'll recall that it's U.K. dynamic strategy. It was also a recipient of net outflows following the departure of the main portfolio manager on that strategy. TSW saw net outflows of around AUD 4 billion mainly in its international equity strategies, which is driven by partial redemptions from major sub-advisory client. Importantly, the sub-advisory client remains a key client of TSW and has, in fact, funded a new capability of this in recent times. Importantly, as you can see from the chart on the right below, our base management fee margins have been relatively stable year-on-year despite these outflows. We have had success in attracting new monies into some higher-margin capabilities, which we'll talk to you during the course of this morning. Turning now to our flow profile, sorry, distribution priorities. Of course, management of our flow profile is our #1 priority across the asset management business. It's a clear focus across the business that we have to deliver a better result and a more consistent result. After a number of changes to our distribution team over the last 12 months, I believe we now have a strong team in place to take the business forward. This is reflected in a growing new business pipeline. We have had new appointments in the U.K. with the new Head of Distribution for the U.K.-European region, appointed in March of this year, and we will have a strengthened team focused on the European continent. We have also executed on a product rationalization program to ensure that we improve our focus on the products in our business that will generate growth over time. Over the course of FY '24, we rationalized 60 products and investment options, really helping to create and drive that focus, whilst also driving operational efficiency. At the same time, we have selectively launched new higher-margin products, which include the Perpetual Strategic Capital Fund, which is a specialist-focused activist fund, leveraging the capabilities of our highly regarded Australian equities team. We launched the Regnan Global Mobility Logistics Fund, which is the second global thematic fund managed by the Regnan team based in London. Barrow Hanley, as we've previously reported, raised their second and third CLO series bring their total CLO asset inflows to around $1.1 billion, which has opened up a whole new revenue stream for Barrow Hanley. Importantly, we're also strengthening our presence across key channels such as the U.S. intermediary channel. Through the integration of Pendal, we've unified our U.S. mutual fund platforms, leveraging Pendal's existing platform that has the heritage and network better to support better reach across that channel, which is that intermediary channel, which is, of course, such a key and large channel. As we've commented on, it's been our ambition to give Barrow Hanley exposure to the U.S. intermediary channel for the first time in their 40+ year history and through that work, we will now be doing that. The key elements of our strong investment performance, our global distribution team, our more focused product range and prioritization of key regions and channels give me confidence that our net flow profile will improve. Turning to the results of our other divisions. Firstly, to Corporate Trust. Our Corporate Trust business continues to demonstrate its position in the market as a quality sector-leading business with unmatched long-term client relationships that support growth. In Corporate Trust, underlying profit before tax was up 4% over the year, supported by revenue growth of 6% and fuel growth of 4%. During the year, Corporate Trust saw growth across all segments. In DMS, the banks returned to the market after the roll-off of the term funding facility last year and in our Managed Fund Services segment, we saw continued market activity in the commercial property sector despite the higher interest rate environment. Perpetual Digital saw good momentum with client growth through sales of new and existing SaaS products. EBITDA margin for the year was 51%, down slightly on last year due to business mix and our investments in replacing technology and in cybersecurity. Through the year, we completed a comprehensive technology upgrade, replacing a number of legacy systems across the business. Finally, now turning to Wealth Management. Our Wealth Management business saw strong growth in underlying profit before tax for FY '24, up 15% on the prior year, with total revenues up 4%, driven by growth across all segments. Funds under advice grew by 7% during the year, supported by positive market movements and net inflows. The diversity of services in wealth management underpins its quality of earnings through market volatility. Importantly, we continue to deliver and innovate for our clients in our Wealth Management business with our new ESG reporting tool launched in the first half of the year being one well-received example of that innovation. Our client engagement has remained strong and despite the period of corporate activity, it was particularly pleasing to see a higher NPS for Wealth Management this year of plus 48% compared to plus 46% in the prior year. I'll now hand over to Chris to provide further details on our results and an update on the scheme of arrangement, and we'll come back to give summary and outlook comments.

Thanks, Rob, and good morning, everyone. Firstly, I'll turn to an update on the scheme of arrangement, as Rob said. Today, we're giving an estimate of the net cash proceeds that we expect to deliver as part of the transaction with KKR, which I'll talk through shortly. Following that transaction, Perpetual will become a simplified asset management business, debt-free and better place to drive operational efficiencies and leverage its global distribution platform. Last week and today, we've made announcements regarding the leadership and board of Perpetual going forward. New CEO, Bernard Reilly, will commence on Monday to progress and complete the transaction and to take asset management forward. Also announced today were Board changes, including that our current Chairman, Tony D'Aloisio will retire following completion of the transaction with Greg Cooper appointed to chair the stand-alone asset management business going forward. Turning to the estimate of cash proceeds. Rob mentioned, we estimate cash proceeds at this point of between $8.38 and $9.82 per share. This continues to be based on a number of assumptions. We've estimated debt of $686 million on completion, although transaction and separation costs to be incurred in the period to completion will add to this. We've estimated tax and duties in a range of $106 million to $227 million. This range is informed by the opinion of our external advisory team and our current engagement with tax authorities. We estimate transaction and separation costs of $184 million, and net debt adjustments, which include working capital adjustments of between $78 million and $121 million. We're advanced our separation planning, and the separation activities indeed are well underway. Turning to the next slide. In addition to cash proceeds, shareholders will retain ownership of a debt-free globally diverse multi-asset business. The streamline business will be one of the largest ASX-listed asset managers by AUM, managing in excess of $215 billion in assets. The business will have more than 100 investment strategies across 10 countries with leading distribution capabilities in key regions worldwide. The stand-alone business will operate under a new brand, which we will present to shareholders in 2025. The new asset management business will have a simplified operating model and today, we've announced the simplification program, which will run over the next 2 years. In separating the businesses, we've estimated stranded costs of around $75 million pre-tax with the TSA agreement in place, which is expected to cover around $50 million of those costs, which as those services have transitioned across to KKR, those costs will roll off. In addition, we're embarking on a simplification program, which will deliver an estimated reduction in costs of between $25 million and $35 million pretax per annum over a 2-year period. This includes FY '25 cost initiatives of between $7.5 million and $10 million. The benefits of which will be weighted to the second half, given the activity is occurring late this half and into the next half. In FY '26, further cost reductions estimated to be between $17.5 million and $25 million. Under the program, we expect to deliver benefits from a smaller board management team, reflecting the reduced size of the company. We also expect benefits from a streamlining of central and support functions, simplifying technology, continuing to rationalize our products and platform and further consolidating and optimizing third-party vendor costs. Turning to our financials now. Operating revenue of $1.35 billion was 32% higher or $321 million greater than the prior corresponding period, primarily driven by the incorporation of Pendal's revenues for a full 12-month period, noting that the acquisition settled in January of 2023. Revenue growth was also driven by higher revenues in Corporate Trust and Wealth Management, which saw 6% and 4% revenue growth, respectively. Performance fees earned in FY '24 were $15.8 million, $0.6 million higher than FY '23, generated by 8 strategies within our asset management business. Total expenses of $1.514 billion were 32% higher, incorporating a full 12 months of Pendal Group expenses as well as higher funding costs from higher interest rates, higher [ variable ] remuneration and foreign exchange impacts. Underlying profit after tax of $206.1 million was up 26% in FY '23. And the effective tax rate on PBT over the period was 27.3%, up from 25.5% in FY '23 due to the impact of prior period adjustments, primarily due to nondeductible expenses from the Pendal acquisition. Significant items were driven by the $547.4 million impairment announced earlier this week as well as transaction integration costs mainly relating to the integration of Pendal. As a result, we reported a statutory net loss of $472.2 million. Earnings per share on UPAT, 9% lower with return on equity of UPAT at 10%. The Board declared a final dividend of $0.53 per share, 50% franked. Looking at our segment PAC performance in more detail. UPAT was higher primarily due to the full year earnings contributed from Pendal Group. Wealth Management's PBT increased by $7 million, driven by organic business growth across all of the segments. The same we said for Corporate Trust, PBT, which increased $3.4 million, with revenue growth across debt market services, Managed Fund Services and Perpetual Digital. In Group Support Services, PBT decreased by $13.7 million, predominantly due to the full year impact of Pendal Group acquisition borrowings but partially offset by higher investment income. The tax impact on all of the above resulted in a movement of $21.4 million due to the higher effective tax rate applied in FY '24. Turning to an update on the Pendal integration. As Rob mentioned, we've achieved our target of $80 million in run rate synergies ahead of our 2-year goal and have largely completed the integration program. The synergies are accumulation of labor cost savings, infrastructure consolidation and service provider synergies, as you can see on the chart, $59.7 million of actual synergies were reflected in our expense line in the FY '24 results. With those synergies, the group incurred $60 million in integration cost pretax during the year, which appear in significant items. While the formal integration program has now completed, we do have some residual projects such as unifying our custody and administration providers. As a result, we expect there to be remaining integration costs coming through in FY '25 from these projects as well as from residual equity remuneration expense associated with the acquisition and total cost of integration program are expected to be in line with previous guidance. Turn to the detailed expense analysis. Controllable cost growth was impacted by a range of factors, including the full year impact of Pendal Group expenses, costs associated with IT security enhancements, particularly in relation to cyber and cyber resilience and security, technology insourcing for the group as well as strong performance in Barrow Hanley, which increased their expenses. Cost growth from higher interest rates and FX impacts on non-Australian expenses added 3% to expense growth. And total expense growth of 32% came in at the lower end of our guidance of 32% to 34%. Today, we're also providing total expense growth guidance for the first half of '25, noting that through the transaction of KKR be approved, Perpetual will transition to being a single-purpose asset management business at some point during the second half. For the first half of '25, we expect total expense growth of between 2% and 4%. This will be driven primarily by BAU expense growth in Wealth Management and Corporate Trust to support the continued growth we're seeing in those businesses. As always, this will exclude the remuneration expense related to performance fees, and it's based on currency assumptions, which were set out in the footnote. Turning to cash flow. Where the main movements reflect the completion and a full first 12 months of integration of Pendal. Free cash flow of $181.9 million for FY '24 was driven by an uplift in net cash receipts in the course of operations due to that full year panel contribution, along with stronger earnings from Wealth Management and Corporate Trust. As such, there was a net increase in cash flows in FY '24 compared to the $85.8 million free cash flow available in FY '23. After paying dividends totaling $141.8 million, the result in net cash position prior to acquisitions, debt repayments and seed funding was $303.3 million and total cash at 30 June was $221.3 million. Turning to the balance sheet. At June 2024, the balance sheet remains robust despite the impact of U.S. currency movements and the impairment of the Hambro and TSW CGUs. Our cash balance includes free cash as well as regulatory and working capital and following debt repayments through the course of the year, our borrowings decreased by 8% or $55.4 million. With the impairment, our gearing ratio increased to 28.2% remaining within the group's risk tolerance. And to dividends. The Board has declared a dividend of $0.53 per share for FY '24, which will be 50% franked and paid on the 4th of October. The final dividend reflects a payout ratio of 56% of second half '24 UPAT, which is lower than the prior half and takes into consideration the cash needs of implementing the scheme and separating the businesses this year. Total dividends were $0.118 per share, representing an FY '24 UPAT payout ratio of 65% within the board's target range of 60% to 90% of UPAT on an annualized basis. Finally, as part of the work to prepare for separation, the dividend policy for the asset management business will be reviewed and any changes will be communicated to shareholders at our first half results. Before I hand back to Rob, I'd like to draw your attention to the detailed divisional results and further information in the appendix. Back to you, Rob.

Thanks, Chris. Just briefly in summary and outlook. In Asset Management, we are encouraged by the positive momentum in net flows. We've seen already during this first quarter of FY '25, particularly coming from Australia across both the intermediary and institutional channels. In Wealth Management, our strong client engagement has positioned us well going into the new financial year, and there's good momentum in comparison to the first quarter of the prior year already this quarter. And in Corporate Trust, the positive market activity and securitization we saw in the final quarter of FY '24 is continuing into this first quarter of FY '25. We are progressing with the separation work to ensure our Corporate Trust and wealth management businesses are ready for their new owner. And as Chris has commented on ensuring that our asset management business begins its new life as a stand-alone listed company with a strengthened balance sheet, demonstrably leaner structure and refreshed leadership and Board. Last week -- last week, the Board announced the appointment of Bernard Reilly, again, as Chris mentioned, to take over from me as CEO and Managing Director of Perpetual to take the business forward into this new chapter. Knowing Bernard, his experience and his skill set is ideal for Perpetual, and I wish him and the broader team every success into the future. The combination of his fresh eyes and the orderly board renewal in preparation for the completion of the transaction, which we also announced today, combined to position the business well for the challenges ahead. Finally, I would like to thank every person at Perpetual for their support and their unrelenting focus on our clients during my 6 years with the business despite change, despite COVID, despite market volatility, that focus has driven you all, and you've all earned the trust of our clients every day through our every action. Those qualities of Perpetual are indeed perpetual and will continue to be in the future. I'll now hand over to Susie to facilitate Q&A.

Thanks, Rob. Can I hand over to the moderator, please to take the first question.

[Operator Instructions] First question comes from the line of Nigel Pittaway from Citi.

So just first of all, on the ATO ruling, Previously, you'd expect some confidence that given you are over the 3-month time period, you'd have that by today? I mean, clearly, that's not the case. So can you just give us a bit more clarity as to where you are with it and sort of how long you expect it to take from here?

Yes, we hoped to have been close to finalization than we are at this point, we're engaging really well with the tax office, its productive and we expect from both sides and we are our way through it. The tax office is also aware of our time table and the importance of giving our shareholders full information as soon as possible. So they can make -- they have all the information they need to make judgment on the scheme when they vote. So they're aware of that timetable. We've provided this range today based on the engagement to this point, plus the advice of our advisers. As we finalize that engagement to the tax office, as we get further information, it will come straight back to the market to give it knowing this is an important input into the net proceeds. But it's going well. We don't control the speed, but the tax office is aware of our timetable and a sympathetic to that.

Okay. And then maybe just a question on the group results. I mean, obviously, the group results in the first half did benefit from $8 million of earn out releases. Can you just sort of confirm whether or not there's been further earn out in the second half?

No, nothing particularly meaningful, Nigel. So no. So you're right. There were some one-offs in the first half that impacted -- we didn't have that same impact in the second half.

So the group result being sort of still relatively strong, there's been more investment income. Is that right in the second half or...

Yes, that's right.

Thank you. Just a moment for our next question, please. Next, we have Elizabeth Miliatis from Jarden.

First one would just be on just your flow expectations in the near term, particularly for the J O Hambro and TSW businesses given the impairment that you booked earlier in the week?

Hi Liz, yes, I mean, I'll make some general comments and then specific to Hambro and TSW. I did talk about the fact that we've seen some positive momentum this quarter. I think the -- for fourth quarter of '24, we what we expected to happen didn't happen and what we didn't expect to happen happened in that we previously talked about some large institutional wins that would fund in either that quarter or the quarter we're now in. None of those funded in the fourth quarter and some of those we expect to fund this quarter and if not this quarter, the following quarter. So that's obviously helping our momentum here in general, as has a number of other wins that we've had here in Australia and FBAR internationally as well, some of them quite significant. So this quarter so far, feels pretty good. As for Hambro and TSW, particularly, Hambro has seen an improvement in performance of its Global Select strategy, which has seen a moderation of the outflow profile. International still with some margin to recover. But we have definitely seen a moderation of the outflow profile in -- across those Hambro capabilities. And more broadly for Hambro beyond those capabilities that led to the outflows we've seen in the first 18 months of ownership. We're seeing some good interest in our international and global opportunities capabilities in some of the emerging market capabilities run by Hambro. And actually, interestingly, for the first time in some years, we're in positive flows for a U.K. equity income capability, which is probably the best U.K. equity income capability, in the industry. So there are some bright signs there and a moderation of the outflow profile. For TSW, a little bit of the same story there where we have seen a moderation of the outflow profile. There still is some at allocation occurring away from equities into fixed income. So some of those partial redemptions are still coming through but at a slower pace. And pleasingly, we've also seen some interest in some newer capabilities. So for example, TSW have a 2-year track record on an emerging global emerging market capability. One of our existing clients is funding an initial pretty decent amount into that capability after only 2 years of performance, which is going to open up a new avenue for them. So sorry, it's a long answer. But I think the simple version would be outflows moderating and some bright signs elsewhere for both of TSW and Hambro.

And just a super quick follow-on question. Is there anything you want to flag in terms of big wins in the first quarter of '25?

I mean, aside from the deferral of those -- so the timing of those larger institutional wins, I think we flagged it as $3 billion back in Q3 update last year. So we expect -- we expect some of those to fund this quarter and some to fund more likely in the second quarter. We just don't know the exact timing. One of those larger wins, I think, is currently slated to fund on the 30th of September, for example. But -- so yes, but things can change. There is a material win for Barry Hanley from an existing Canadian-based client into a different capability, which we haven't commented on and is outside of the previously nominated amounts. And as I mentioned earlier, there's some good momentum across both institutional and intermediary channel here. And then some smaller things, which have all been good. You may recall that we had -- you may have seen we had a capital raise for our Perpetual's credit fund listed vehicle here. It was 3x oversubscribed. We're seeing really good flows for the Perpetual credit and fixed income team here on the back of really strong performance. And Barrow continues to do very well for us here. Barrow think, net flows out of Australia for 24 just north of $2 billion across all channels. And that momentum is continuing as well. Yes. And trying to be balanced in my comments here. We're always attentive as attentive as we can be with business at risk. There is always business at risk. Our performance -- investment performance profile across our capability set is good. To be honest, I'm not going to say it's great, but it's good. I think around 2/3 of our funds are outperforming their benchmark over 3 years. We've been better, but it's not at the point where we have any noted concern. But institutional flows can be lumpy, and we saw that again in the fourth quarter. where, for example, Trillium had a very large Aussie dollar terms, billion dollar client. There was a model portfolio, it's an emulated portfolio, low basis points, but we lost that in the second last day of the financial year. We're not aware of any notable losses like that, but we're always attuned to the fact it can happen...

Thank you. Our next question comes from the line of Anthony Hoo from CLSA.

Just my first question. You previously talked about the U.S. intermediary channel as a key focus area. Wondering if you can give us any update here? If you see in progress? Any wins in that channel?

Yes. Thanks, Anthony. Good question. We have flagged the intermediary channel, as you've said, is a key focus point. To be frank, I think the coming together of the mutual fund platforms took longer than we expected. That's now occurred. And so for example, that unification has occurred. So on the same mutual von platform, we have key Hambro capabilities, Trillium capabilities and now Barrow Hanley capabilities. So our U.S. intermediary team now has that unified platform to take to market. And it has actually literally only been in recent weeks that the intermediary team has started to take both Cory Martin, who's CEO of Barrow Hanley and one of the lead PMs in the Global Value strategy and Mark Giambrone, our Head of U.S. equities at Barrow Hanley around to CK clients. That work has only just started. -- literally. In fact, I think Mark might have been doing his first round of business this -- last week or this week. So it has been slower than we had anticipated, but it's now in place. And so yes, we feel pretty positive about that. I would say that also, we put in a new Head of U.S. distribution, Mickey Janvier, who started about 1 year ago today. He has done a fair bit of work in refreshing the intermediary team. Still a couple of roles to fill there. But that team, I think, is sort of chomping at the bit, ready to go. So nothing to report in terms of new demonstrable wins. It is fresh. It has been slower than we thought, but we are very hopeful of the opportunities. Knowing that Cory did his first round of global value meetings with our Head of Intermediary Distribution just a few weeks ago. The feedback was first class, but it's early days.

Okay. And just a second quick one. On the cost savings on the cost program, you've talked about the simplification program savings of $7.5 million to $10 million FY '25. So is that separate to the -- I guess that's on top of the endo synergies, which look like -- looks like there's not a tiny mill to come in FY '25. Is that right?

Yes, that's on top of synergies, but it's -- the benefits in FY '25 were included in our first half expense guidance of 2% to 4%. So importantly, particularly for the first half, a lot of that activity is commencing now. And so first half impact of the activity to take cost out in FY '25. The benefits will start to accrue in the second half and the full run rate benefits will only accrue once it's completed from the 1st of July.

Our next question comes from the line of Brendan Carrig from Macquarie.

Maybe just following up a bit on the costs, Chris. So just on the stranded costs, the $50 million that's part of the TSA. When you sort of made the comment there on the slide that says costs will be actively reduced as services transition to KKR, what proportion or quantum of that $50 million are you anticipating can be reduced? And is it separate to the simplification program that has been referred to [indiscernible]?

We're looking to take out the vast majority of those costs that we're supporting KKR through during the period of TSA -- during that TSA's one of the advantages of TSAs. You have a period where you're being paid for services and you have the ability to plan for those services to roll off or roll into the welfare trust businesses. So the vast majority of those will go as well. And so we have that 75 starting point, getting rid of most of the 50 during the course of TSA and then a cost program in addition to that of 25% to 35%.

So if you get most of the $50 million and then the additional $25 million to $35 million, it could be a net cost reduction all things considered.

I think that's absolutely what we're targeting. I say this as well that we have a new CEO starting on Monday, and there are certain initiatives that are difficult to commit to without the new CEO being in the chair and in effect, ratifying, particularly if you think about some more strategic initiatives around operating model, et cetera. So I would say that, that's the work that we've done to this point and Bernard, I'm sure this will be a priority for him as well as he joins next week.

And then the 1 half '25 guidance. So does that mean that cost growth in PAM is effectively 0% in the first half and then the 2% to 4% driven by those other 2 divisions?

Absolutely. Yes. So overwhelming that cost growth is coming out of Wealth and Trust with the growth and expenses supporting the growth in earnings for those businesses.

Next, we have Lafitani Sotiriou from MST Financials.

Can I just follow up on that stranded group cost question on Slide 13 because this is a little confusing how it's presented. So there's $75 million gross, the TSA portion, $50 million, you're committing to reducing that largely entirely over an 18-month period. And then on top of that, you've got a $25 million to $35 million cost out. So overall, you actually possibly playing no stranded group costs by the end of 18 months.

Yes, Laf, and I should state that, that $25 million to $35 million, obviously, there are certain stranded costs that we can't move. That's a program of work, $25 million to $35 million. That is a reaction to the business needing to look at its cost base regardless of the separation and taking that 25 to 35 out, as you say, to, in effect, remove the impact of the separation and get the cost base something resembling the asset management, additional cost base that exists today.

And so just to clarify, the $50 million at KKR is paying us per annum pro forma. So there will be $75 million over an 18-month period.

Yes, I think that's right. It's pro forma. In effect, we're providing $50 million of services to KKR per annum, yes, that's right. I should also note, Laf, that it's 18 months, but it can be extended. So it could be a little longer. We're all working very hard to get it done in 18 months, but it could be a little longer.

And so if we -- then my next question, consider what is the sort of contingency planning if this scheme doesn't get up. So one of the things that is often a guide to look at is the share price. And since news of this transaction came up, the share price has come off quite a bit. And so is there a point at which the Board or new management will consider following the transaction? And so if it is, what's the contingency plan on around the balance sheet? And I guess the how complicated is it to one take this transaction at this point?

Laf, Rob here, and Chris will make comments as well. It's a fair question. I mean, obviously, our full focus is on delivering the transaction. We believe that we're working towards the upper end of the range is our ambition that we provided today. And we believe it presents the right outcome for shareholders, particularly if the work is done to ensure that our asset management business is lean and fit for life as a stand-alone. But, yes, as you would expect, our Board is managing contingency plans. It's not the outcome we expect, but we're managing contingency plans. Yes, part of our realization through our own review process before the public strategic review, but through our own review process was a realization that the revenue and expense synergies of these 3 businesses being together, particularly at the different stages of maturation were quite limited. And we had already commenced moving our businesses towards being able to operate more independently because those leverage points just simply weren't there. So even before the strategic decision and then the announcement of the KKR transaction, that we've been spending the best part of the year, moving towards operational independency to some extent. As I said, given the size, shape, form of each of those businesses, we didn't see any benefit in them being together. So operating them increasingly separate. And that would continue to be the path. We think each of those 3 businesses are high-quality businesses, obviously, but in the rate of Perpetual, we didn't haven't felt that the value has been unlocked to the extent that we -- still sits within the businesses. If the transaction weren't to go ahead, that would be at the position that we would be in, but still with the name of ensuring that the value is recognized by the market or if not make an alternative decision down the track.

But just to be more specific, just what would happen to the debt? And so would you look to pause dividend, do capital raise? Would you look to sell only part of the assets? And how difficult would it be to unwind the transaction given where we're at?

So Laf, we wouldn't -- as I said, we are there's a bunch of contingency plans that are being considered by management and the Board. But our focus at the moment is getting the transaction done. We believe it's in the best interest of shareholders and is compelling for them. So we'll look at all of those. Keep in mind also that in terms of the debt, we'll have the benefit of 2 very cash-generative businesses in Wealth and Trust where we continue to support that debt. But if the transaction isn't to occur, we are thinking about that, we have contingencies, but the bottom line is we're on track, and we think the transaction is going to go through.

Our next question comes from the line of Ben Bailey from Harvest Lane Assist Management Pty Limited.

Can you guys hear me? All good. Look, margin is specific to this guided tax liability under the KKR scheme. Back when the transaction was announced, I know you're reluctant to commit to any guidance on tax payable under the sale. But on the webinar at the time, you sort of spoke to the proposed reorganization of Golan Trust business as being subject to some form of tax roller that preserves the tax consolidator the group under the new entity. So as a kind of saying the consensus view in the market or that really would be available and that there's no capital gains tax triggered and that was reflected in financial commentary in financial media. And certainly, amongst some of the sell sides that were pitching us Perpetual as long as recently as a few weeks ago. We had a bit of a look at certain tax determinations and general HGO guidance after the deals first announced and pretty quickly came to the view that belief would be difficult to obtain per se and here we are contemplating a significant tax liability on the sale. My question is of the Board's expectation on entering the scheme that, that reorganization capsulate would be available. And to what extent, if any, has attached advice you've received on the transaction changed following engagement with the ATO.

Thanks for the question. I might start with the last piece first, which is the advice that we've received has not changed at all and remains as it was at the time we did the transaction. You're right that we are seeking, in effect corporate's part of the reorganization that accompanies the scheme process we're seeking rollover relief of that reorganization. We continue to engage the tax office on that. I don't want to get into what the outcomes may not be with that, we're still in confidential discussions. They're productive. But at this point, given the uncertainty and given we still have a lot more work to do, we've given a range to give some guidance. And all I can say there is that we will provide further information as and when that information comes from the tax office. There's been a lot of talk about. It's taking a long time, and we agree with that. But until we have that clarity, we're going to take a conservative approach in the way we guide the market and that we will continue to narrow the range and provide more certainty as and when we are able to get it as part of the process of engagement with the tax office. The tax office is aware of the skin time table. We'd love it to be finished now and we'll continue to work as quickly as we can to get to the outcome.

So, I guess those figures that you put out here today, given that advice hasn't changed. Is it fair to assume that those figures are still within expectation of what was on the table when the deal was entered into?

Those figures are absolutely within the range of outcomes that were considered by the Board at the time, yes.

Our next question comes from Andrei Stadnik from Morgan Stanley.

I ask my first question around margins in the asset manager. They were broadly stable despite our oaks, which are traditionally higher-margin mandates in France. Can you talk about a little bit more about some of the other business mix changes that are happening in terms of revenue margins?

it's probably not a capability story, but more of a challenge story in that we lost some significant mandates from some of -- some lower -- some significant large mandates at lower margins. So -- and I gave the example before of TRILLIUM, for example, a $1 billion plus client. It was an emulated portfolio low basis point fees. So loss of large mandates at lower prices had some impact. So -- and then I'd say, success in the intermediary channel in Australia at firmer margins buoyed us up to some extent. So it's probably more a distribution channel story rather than a capability story.

And look, my second question, just around the $184 million separation cost. It feels slightly above maybe side of the highest side in terms of like prior commentary. So should we expect then in return for the larger separation cost, should we expect a more complete, and capable operating platform for the asset management go forward standalone?

Andrei, it's fair to say that some of the costs incorporated in the transaction and separation budget. When we talk about separation, that obviously is setting up wealth and trust and separating those to be absorbed by KKR. But equally, we are setting up the asset management business for success. So some of the costs incorporated in that to do with setting asset management up as well. So you're right.

Our last question comes from the line of Marcus Barnard from Bell Potter.

Yes, of the EUR 220 million of cash you've got on balance sheet, how much of it goes with Corporate Trust and Wealth Management as part of the sale and how much stays on balance sheet? And also, I suspect this is a related question, but can you -- can you explain the net debt adjustments in Slide 11, cash proceeds on the $25 million to $60 million capital contribution to the asset management.

Yes. Thanks, Marcus. On the first question, which was -- I'm sorry, I'll answer the second, our cash. No, the cash is largely attributable to the asset management business. So it will stay put. We've got 220. I think about 60% of that is regulatory capital and working capital remained free cash, and that's what asset management will look like. You talked about the 25% to 50, which is relevant to that. In the work in the net debt adjustments, there are a number of things going on there, one of which is customer net debt adjustments for things like leave liability, lease liabilities, getting the balance sheet in shape. Also working capital. The part of the reason for the range there is -- at the low end, we've assumed the highest working capital we've seen for those businesses in the last couple of years. At the high end of the range, we've assumed the best working capital we've resumed there. But you've also picked up on in that matter adjustment is at the high end, an assumption that $25 million of the proceeds will go to the Asset Management business and at the low end of proceeds, $50 million going to it. And that is -- the Board is very keen to ensure that the Asset Management business starts with an unquestionably strong balance sheet, and that's there to do that. Well, obviously, as we do now, dynamically manage any excess cash, but at least to start the business with a new CEO and a new monoline business, the Board was keen that the balance sheet was very strong.

This concludes our Q&A session. I will now hand back to Susie.

Well, thanks, everyone, for joining today. If you have -- if there's anyone else that has questions, feel free to please e-mail I'll call me all of our announcements are on our website and look forward to talking to you throughout the day. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect.