Perpetual has seen a drop across its first half results with its profit down 12 per cent from the prior year, citing weaker equity markets, lower funds under management and challenging conditions following the royal commission.
Revenue came to $252.3 million for 1H19, a 5 per cent drop from 1H18, while net profit after tax was reported to be $60.2 million, a decrease of 12 per cent from the prior corresponding period (pcp).
Chief executive of Perpetual Rob Adams spoke to Investor Daily and said that the decrease in net profits was broadly in line with expectations.
"The reason I say its within expectations is because we report our funds under management on a quarterly basis and so the market gets a good idea of our flows and they know what our investment performance is so to some degree that has a predictability about it," he said.
The 12 per cent drop from the first half of 2018 was mainly driven by Perpetual Investment said Mr Adams with the other two busineses having different years.
"For Perpetual Private which is our advice business it was a flat period and for Perpetual Corporate Trust we had continued growth in that business. So one business was down, one flat and one growing quite nicely."
Performance fees earned over the half were $1.4 million, plummeting by $3.9 million or 73 per cent from the pcp.
Expenses for the half were also higher than before, at $167 million, one per cent higher than in the pcp.
The company also declared a fully franked dividend of $1.25, a 7 per cent drop from the pcp.
According to Perpetual, its revenue is mainly driven by funds under management (FUM) in Perpetual Investments and funds under advice (FUA) in its private sector, which it added are primarily driven by the level of the Australian equity market.
“At the end of 1H19, Perpetual Investments’ FUM and Perpetual Private’s FUA were 73 per cent and 56 per cent exposed to equity markets respectively,” the firm noted.
Perpetual said its net profit was impacted by weaker equity markets and lower FUM, offset by increased distributions and lower tax.
Mr Adams said he was not too stressed by the decrease but did say that Perpetual was looking to make sure that profits came back up.
"It's not a worry but we are also not blase about it either. Nobody likes to deliver a decrease in profits year on year but its reflective on the fact that the environment is challenging for any financial services player," he told Investor Daily.
FUM under the Perpetual Investments division came to $27.7 billion, decreasing by 16 per cent.
Profit before tax came to $46.5 million, a fall of 20 per cent from the year before.
Revenue in the Perpetual Investments sector was $105.8 million, falling by 10 per cent from the pcp as EBITDA generated from Investments was $51.5 million.
Mr Adams said the business was challenged by market uncertainty combined with fund outflows experienced in the second half of 2018, and is looking to change, while remaining committed to active value investing.
"Our current investment style in our existing investment teams will be unchanged so we have been up to this point a solely valued oriented manager, that's a very clear part of our proposition and will continue to be.
"What we will be doing moving forward is being open to considering other investment styles and other asset sectors. We have an interest in bringing onboard to Perpetual new investment capabilities," said Mr Adams.
Part of that was to instill a new 'boutique' style into the team said Mr Adams that would allow for fund managers to have independence in investor thinking.
"I want independence on investment thinking and that's sort of boutique like in flavour.
"So i think its blending the personality of the boutique from an investment perspective with the rigour and depth of an institution," he said.
Perpetual’s Private sector, which focuses on wealth advice to high-net-wealth individuals and not-for-profits, brought in $92.6 million with its EBITDA being $29 million, dropping by 1 per cent form the pcp.
FUA in private came to $13.7 million, a 5 per cent increase from the pcp.
Finally, in the business’ Corporate Trust segment, total revenue was clocked at $53.6 while EBITDA was $26.6 million for the half, up 12 per cent.
Profit before tax in Corporate Trust was $22.4 million, a jump of 13 per cent from the pcp.
FUA in the Corporate Trust segment were $461.2 million, increasing by 2 per cent.
“Supporting the growth of our data and our analytics strategy we acquired the RFi Analytics business in December last year, further enhancing our expertise in data management,” Mr Adams said.
“In support of comparable and transparent markets we remain focused on delivering digital solutions to the banking and financial services sector for comprehensive reporting and analytics which PCT’s clients utilise for risk, compliance and strategic needs.”
The company said the current environment provides both opportunity and risk to the group, following the release of the royal commission’s final report.
"The Royal Commission and the initial reaction to those recommendations is still to play out so we need to keep our finger on the pulse there," he said.
Mr Adams told Investor Daily there were a number of events that would shape 2019 including the US/China trade wars, Brexit and even politics closer to home.
"From a broader perspective, we've obviously got a federal election not far away and whenever there is is a federal election it tends to mean that investor confidence can be slightly impacted so there can be a little bit of uncertainty around that period of time until we have certainty of government," he said.
Overall though Perpetual was positioned well for 2019 said Mr Adams with a number of exciting opportunities and assets moving forward.
"Perpetual's feedback is that trust remains strong in our brand which is a great asset to have.
"Combine that with the fact that we have a very strong balance sheet and with the fact that there is a degree of dislocation in the sector, those three things add up to present opportunities for Perpetual across our businesses," he said.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].