Platinum Investment Management Limited (PTM) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Platinum Asset Management Limited Analyst Briefing for the FY '25 full year results. First of all, I would like to acknowledge that I'm hosting this briefing from the lands of the Gadigal people of the Eora Nation. I also acknowledge the traditional custodians of the various lands on which you all work today and the Aboriginal and Torres Strait Islander people participating in this briefing. I pay my respects to elders past, present and emerging and celebrate the diversity of Aboriginal peoples and their ongoing cultures and connections to the lands and waters of New South Wales. My name is Dean McLelland, and with me today, I have Jeff Peters, Platinum's Managing Director and Chief Executive Officer; and Andrew Stannard, Platinum's Finance Director. We'll provide some remarks about the FY '25 full year results, and then we'll open up for your questions using the Q&A function that you'll find at the bottom of your screen. So please take your time to enter those questions during the presentation. With that, I'll hand over to Platinum's Managing Director and CEO, Jeff Peters.

Thank you, Dean. And let me add my welcome, and thanks for joining us for this analyst briefing. We were just together 6 weeks ago discussing the announcement of the proposed merger with L1. So today is going to include an update on that as well as a review of the FY '25 results, followed, as Dean said, by a Q&A. But before jumping into that, let me hit some highlights on the year. We can go to the next slide, please. Obviously, the highlight for us is the proposed merger with L1. The shareholder vote for that merger is scheduled for the 22nd of September, upcoming. And we view the proposed merger as a capstone event on the reset and turnaround program that we began in 2024. The combined company would have a leading position in the long/short equity market as well as a lot of other asset classes, and merged AUM of $16.5 billion, creates a very powerful combination of investment capability, distribution and client service, and we anticipate it being highly earnings accretive for PTM shareholders. I'll review again to remind the particulars of that proposed merger again in a minute. But also in terms of 2025, which we're going to review, it was a mixed year for Platinum. There were some improvement in particular areas. Investment performance across many of our funds improved, albeit the international strategy is still lagging. And we exhibited strong expense control, which allowed us to keep margins at 44%. We'll go through details on that following the discussion around the proposed merger. Obviously, client outflows were still elevated. We are working very hard on that to change that, but they are still on an elevated state. And also to remind people, there was $0.20 per share dividend paid in December '24, which made our balance sheet more efficient and hopefully benefited shareholders. On to the merger. To remind, Platinum Asset Management will acquire First Maven, which is L1 Capital under the trading name and we'll have a 26% ownership through existing Platinum shareholders in the combined company as well as an In-Perimeter performance fee sharing arrangement for the first 3.5% of absolute returns generated by the L1 Capital long/short funds, more on that later. We anticipate substantial efficiency benefits from the proposed merger. We're targeting 22% to 26% (sic) [ 25% to 30% ] of operating cost reductions off of the run-rate merged cost base of roughly $134 million. These take account of Platinum's preplanned cost savings coming into the proposed merger and then an additional $20 million of pretax synergies expected to be captured over the next 12 to 18 months post completion. This, combined with other operating elements make us expect that this will be a materially EPS accretive transaction for shareholders. And we're very excited by that. The other thing to tell you in terms of summary is that the entity is being renamed and will be renamed L1 Group with ticker L1G. It will remain listed on the ASX post completion. The operating name for the funds will remain Platinum and L1 depending on where the fund came from into the MergeCo. We've reviewed this with you before, but just to remind, the proposed company, MergeCo, will have a very strong diversified position across Australian equities, international equities and alternative asset classes and also a very diverse mix of channels, really broadening the base from which we work and also having leadership positions across the segments in Australia. We'll use that base to deliver value to shareholders in 4 ways. Firstly, the scale of a $16.5 billion leader in the industry will be quite helpful for us as we expand and grow. We are going to have market-leading investment performance and distribution capabilities. This will allow us to grow both organically and as we launch new products and through existing products. Operations will be streamlined. And also the balance sheet remains quite strong, and that will provide a springboard for us to grow as well. So we see a bunch of opportunities to deliver value and again, are very excited by those. Turning to the time line. As you will remember, on the 8th of July, the merger implementation deed was announced. On the 21st of August, we dispatched the notice of meeting and the explanatory memorandum and independent expert report to our shareholders. and are expected to have a vote on the 22nd of September, as I mentioned before. Assuming that vote goes through, completion date would be October 1 to start the new merged entity. In addition to getting to that date and managing that process, we've also made some progress in terms of planning on what the existing -- the new company would look like. And let me review some of that. Firstly, the leadership team -- proposed leadership team has been finalized. There have been Board appointments made, more on that later with more to be announced. CEO, CFO and COO position have been announced previously, and the senior investment team and the leadership team are nearly finalized with the investment team moving forward on the existing products. As part of that and very importantly, we've made the decision to reposition the Platinum International strategy and move it by a sub-advisory arrangement with L1 International to be implemented on merger completion. L1 International has a very strong track record and a long history of a very stable team. And we're excited about the potential that they bring in terms of improving performance and the experience for Platinum unitholders. We've been briefing asset consultants and major clients. That effort actually continues even today, and we're planning a roadshow in coming weeks to introduce that strategy to our shareholders. I mentioned briefly the synergy opportunities. The initial review of those opportunities is complete, and we're reaffirming the achievability of our targets. And as mentioned before, the target is 22% to 26%. I won't take you through all of that. Again, we'll get into that a little bit later. Finally, we've made significant progress on the listed investment companies. In regards to Platinum Asia Investment Limited, our Asia strategy, it's a proposal to merge that strategy into the ETF on the ASX PAXX that was approved by PIA shareholders. In fact, that merger has occurred and is happening literally this week. The other LIC, Platinum Capital Limited, PMC, there was a buyback approved by shareholders, which is underway. And there is a meeting scheduled -- a shareholder meeting scheduled on, I believe, October 1 to consider L1's proposal to replace management of this LIC with an L1 Capital strategy, the global long short. At that meeting, competitive proposals will also be assessed. So significant progress beyond advancing the process of completion, and we're moving forward with what the business will look like following that. With that, let me turn to 2025. I'll briefly comment on some operating results and then our CFO, Andrew Stannard, will take you through financials. In terms of investment performance, as I mentioned before, a mixed year. The Platinum International Fund had a challenging year, improved in the second half, but overall, a challenging year. And as mentioned, is being moved over to the L1 capability. In the remainder of the products, Asia and the sector funds, the year was strong and improving. 4 of the 6 products delivered their internal targets of cash plus 5% to investors and 2 of the 6 outperformed the MSCI Index, up from 0 of 6 in '24. If you look at the absolute return delivered over the time frame, 5 of the funds delivered north of 15% to investors, which we're pleased with. And in terms of the rest of the operations, in early '24, when I spoke to you for the first time, we articulated a reset or turnaround program, which was articulated on the left. We've made significant progress across that. I've mentioned investment performance, and I think the final brick in the wall is moving the international fund over to L1 International to strengthen that capability. Our expense control has been strong. Our margin has been protected at 44% despite decreased revenue and our expense reduction targets have been actually exceeded, achieved ahead of plan. We've simplified and closed subscale products on the product line. We've significantly expanded our client outreach. We completed our back and middle office outsourcing simplification plan on time and on budget. We added new capabilities through our sub-advisory arrangement with GWK, and we've increased our balance sheet efficiency with the $0.20 special dividend. We've also implemented new remuneration plans to increase alignment with shareholders. So against the things that were articulated, we've made significant progress on those. And as I mentioned before, we view this proposed merger as a capstone on that effort. Obviously, a major part of the longer-term initiative was inorganic, speaks for itself that, that's been completed. And we believe that the integration with L1 will help refresh our culture and add significant talent, especially in the investment area, which will benefit our shareholders and unitholders alike. So with that, let me actually turn over to our CFO, Andrew Stannard, who will review financials, and then we'll take questions after that.

Thanks, Jeff, and good morning, everyone. Just before I start, could I remind you if you've got questions on the call, if you could put them into the system and that's into our online portal. And turning now to the front page on financial summary and an overview of financial results. As has already been mentioned, FUM fell by about 29% during the year, which in turn drove fee revenues 28% lower. There was, however, a small positive mix shift to average revenues caused by the increasing proportion of retail FUM relative to institutional accounts. Adjusted expenses were managed down by 23%, and this helped protect the firm's strong operating margin, which ended the year at 44%. However, statutory profits were once again adversely impacted by our turnaround efforts, which significantly reduced reported profits, albeit the largely noncash nature of those costs, still enabled the firm to declare $0.215 of dividends during the year. The next slide summarizes revenues and flows. Retail net outflows totaled $4.2 billion for the year, a challenging outcome for the firm that largely reflected several years of relative underperformance, especially in the firm's flagship international fund. In addition, corporate instability through most of 2025 weighed heavily on client sentiment towards the firm and did lead to some significant account redemptions. Institutional outflows slowed significantly year-on-year, albeit that this was largely due to the rundown in the book rather than reflecting a change in investor sentiment. And as previously mentioned, the relative mix shift towards more direct retail and away from institutional caused a 2 basis point positive shift in average fee revenue to 116 basis points. The firm also recorded net gains from its seed investments, and these were largely sourced from our Asia ex Japan and funds. The next slide goes into expenses in a little more detail. The business took dramatic steps to reposition the business during 2025 in response to falling revenues and in line with previously announced plans. For the full year, $22.6 million, representing about 25% of our opening expenses was extracted across pretty much all expense lines. The bulk of cost reductions came from reducing headcount as well as specific actions around certain costs such as fund administration and marketing. Expenses -- adjusted expenses are now only 60% of what they were just 2 years ago, albeit that this achievement came off with one-off turnaround expenses that drove our aggregate costs up 1% in the financial year. The next slide summarizes overall turnaround-related cost control efforts over the last 18 months. The chart on the left of the page shows that Platinum's turnaround target of $25 million was exceeded by June 2025, some 6 months ahead of schedule. However, given ongoing falls in revenue and as previously announced to the market on the 7th of July, a further $10 million to $15 million in run rate expense savings has been targeted for the next financial year, and good progress is being made on that front. The middle office -- the middle table rather, shows the 3 main sources of cumulative savings achieved by the firm over the prior 18 months. As can be seen, savings were relatively evenly split between head count, the impact of reduced share-based payments and nonpeople cost savings. However, the cost to implement the savings were in contrast, heavily skewed to share-based payments expenses as long-term incentive award amortization was accelerated and brought to book in FY '25. The go-forward pretax expense for historic LTI awards has now been reduced to less than $1 million per annum. And this will significantly reduce, we think, the amount of noncash noise in future reported expenses and earnings. My penultimate slide deals with Platinum's balance sheet position, which remains strong. Largely as a consequence of paying that large $0.20 special dividend in December, overall net assets fell $100 million in the year to $212 million, of which $122 million was in cash and $107 million related to seed investments. We continue to be careful stewards of capital with any new funds being largely seeded by recycling cash from out of pre-existing seed portfolios. Consistent with the terms of the merger implementation deed, the Board did not declare a final dividend for FY '25 However, overall dividends paid during the year were very significant, totaling $143 million or approximately 1/4 of the closing June '24 share price. And my last slide takes a quick break from the FY '25 results and instead looks ahead for those investors on the call who are considering the post-merger financials of the renamed L1 Group. As noted in the explanatory memorandum and independent experts report, a consequence of the merger should shareholders vote for it, would be a significant change in the financial reporting. Although Platinum is technically taking over L1 Capital, from an accounting perspective, the merger will be treated as a reverse acquisition. This means that post-completion reporting, which will start with the December '25 half year results, will largely reflect the balance sheet and income statement of L1 Capital with Platinum's results consolidated in only from the completion date of the 1st of October. And we expect to release more information on reporting in the coming months. Thank you all for listening, and we're happy now to take your questions.

Thanks very much, Jeff, and thank you, Andrew. [Operator Instructions] No questions thus far. So if you've got something, please do send it through. I guess, anything in there that you think requires extra attention on, whether it's the LICs or whether it's the sort of the process as we step forward.

I think the process as we step forward is in train and proceeding as we expect. Obviously, the 22nd of September is a milestone date when the shareholders get to decide. Following that, our focus, if the shareholders do, in fact, vote for the transaction will be on moving to the most effective, most efficient combined group as fast as possible through integration and also completing our strategy to grow even further and to continue the progress that we've made. My view is that a completed transaction would enter a new era for our shareholders, an era that I'm personally very excited about and see a lot of opportunity in. And so we're very focused on 2 things: getting to that completion should the shareholders vote for it and then creating plans to grow appropriately and deliver value for our shareholders as quickly as we can over the coming years. And with the change in management of the Platinum International Fund, that's conditional upon the PTM shareholder vote. Is there a plan if that vote doesn't get through? There is a contingency plan to continue running that product for our investors with existing resources. But we're -- we have confidence that, that vote will get through. And certainly, we hope it will. And as a result, we would move forward with the sub-advisory arrangement on completion date.

And with the change in manager, what's the impact on some of the members of the existing Platinum International Fund, that global team?

There will be some members of that team who will go over to L1 Capital International, which is the group that will be -- the name of the group that will be writing the strategy, 3 of our analysts will be joining them. Others from the team will be leaving Platinum at the appropriate time.

Still no questions coming through. So please do submit them if you've got them. We'll wait a few minutes, but otherwise, questions on Platinum Capital Limited and the 2 proposed new managers of that strategy. Is there -- the shareholder vote that I think you mentioned was on the...

First, I believe, yes. That's not our -- as an independent company with 2 independent companies in the Asia company and PMC and with independent Board. So it's not really ours to comment on. We are looking forward for the results of that vote, and we'll work with whatever pathway the shareholders pick.

Okay. Well, no questions have come through, so we won't take any more time. I'd just like to thank you all very much for joining the session today, and thank you for your attention. If you do have any further questions, Liz Norman is quite often the best contact for you. With that, we'll say thank you, and goodbye.