Perpetual Limited

Good day and thank you for standing by. Welcome to the Perpetual Group Half-Year Results Briefing 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Susie Reinhart, Head of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to our half-year results briefing. 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 recognise their continuing connection to land, waters and community. We pay our respects to Australia's First Peoples and to their elders, past and present. We would also like to extend our respect and welcome to any Aboriginal or Torres Strait Islander people who are listening in today and acknowledge the traditional custodians of the various lands on which you all work today. Presenting here with us is Rob Adams, Perpetual's Chief Executive Officer and Managing Director, as well as Chris Green, Perpetual's Chief Financial Officer. As the moderator said, there'll be an opportunity to ask questions at the end of the presentation if you're on the telephone. Please can we ask that we start with two questions each to ensure we have time for all analysts that are keen to ask questions. Before I hand over to Rob, we'd like to draw your attention to the disclaimer on page two of the presentation. Rob, over to you.

Thanks, Susie, and good morning, everybody. Thank you for joining us today for Perpetual Group's first half 24 results briefing. Our business continues to demonstrate resilience in a challenging operating environment. In corporate trust and wealth management, we have delivered a solid performance over the half. As a larger, more diversified and scalable platform with total assets under management of $214 billion, our asset management business benefited from market movements, partially offset by net outflows. At our FY23 results in August last year, we announced a refreshed strategy focused on simplifying our business and driving sustainable growth. In our announcement today, you will see that we are implementing that strategy at pace. The integration of Pendle Group is progressing well, and we are on track to reach our overall targeted run rate synergies of $80 million after two years. And we are ahead of our target for the first year, that target being $40 million in annualised synergies. For the remainder of this year, we are focused on continuing to deliver the synergies we've committed to from the acquisition of Pendle. We are focused on improving the consistency of net flows in our asset management business. We are progressing our strategy to simplify our business. And finally, the board will continue to progress the strategic review announced in December, 2023, to explore the benefits of unlocking value for our shareholders through the potential separation of our corporate trust and wealth management businesses. Turning now to our headline results. We have provided two comparison points for this half-year period, both first half at 23 and second half at 23, with the second half of 23 a more relevant comparison point given the inclusion of Pendle Group from January 2023. Perpetual delivered total operating revenue of $657.8 million for the half year, an increase of 5% on the second half 23 and 69% on the first half 23, reflecting the inclusion of Pendle in the second half of FY23 and growth in both our corporate trust and wealth management businesses. Underlying profit after tax was $98.2 million, 2% higher than the second half of 2023 and 46% higher than the prior corresponding period. Statutory debt profit after tax was $34.5 million, 7% higher than the second half of 23, or 29% higher than the first half of 23. Diluted earnings per share on UPAT was 85 cents per share, down 26% on last year, but 5% higher on the second half of 23. The Board has determined to pay an interim dividend of 65 cents per share, 35% franked. The first half was a volatile period for investment markets with equity market declines in October, recovering towards the end of the period. Inflation peaking, driving speculation over future rate movements and heightened geopolitical uncertainty. Despite this backdrop, Perpetual's businesses demonstrated their quality and resilience. Turning now to some of the business highlights. We are building strong foundations across the group to drive sustainable growth. In asset management, our larger, more diverse asset base provides us with a platform from which to drive scale benefits and an improved growth profile over time. Our quality investment teams across our boutiques continue to deliver strong investment performance, with 78% of strategies outperforming over three years to December 2023. In Australia, Perpetual Asset Management was recognised by Zenith as Fund Manager of the Year in 2023, as well as overall Fund Manager of the Year by Financial Newswire, and was a winner of individual categories at the Zenith Awards across multi-asset and equity strategies. Offshore, J.O. Hambro, despite a challenging period for some of its funds, won Best Asset Manager in the 2023 UK Morningstar Excellence Awards, recognising those asset managers that have served investors well over time. And Borough Hanley, which we acquired just over three years ago, is delivering, attracting $2.5 billion of net flows into its global and international strategies in the six-month period to December 31. In wealth management, the business has seen solid performance across all segments, delivering 18% growth in underlying profit before tax for the first half of 24 compared to the first half of 23. And our advisors continue to be recognised as some of the country's best with good representation in Barron's top 100 advisors list. In corporate trust, despite broader macroeconomic headwinds and the high interest rate environment, the business continues to grow its funds under administration. So you can see across Perpetual we are delivering some high quality outcomes and setting strong foundations to drive sustainable growth into the future. Turning to the next slide where I'll discuss some of the key results in each division. In asset management, underlying profit before tax was up 165% due to the inclusion of Pendle. Compared to the second half of 23, unaligned profit before tax declined slightly, mainly due to the impact of net outflows over the period. Our cost to income ratio for our asset management business has improved through the period, moving from 80% in the first half of 23 to 78% in the first half of 24. Total assets under management of $214 billion was supported by positive markets, strong relative investment outperformance, offset by unfavourable currency movements and net outflows, as you can see in the chart below. As you can also see from the pie chart on the upper right-hand side of this slide, we now have a well-diversified spread of assets under management across our boutiques and further diversification across investment strategies within each boutique. We reported total net outflows of $4.3 billion over the half, Net outflows were impacted by a variety of factors, including underperformance in J.O. Hambro's global and international select strategies during the period. Asset allocation shifts away from equities, primarily driven by defined benefit schemes becoming fully funded and hence de-risking, which impacted flows in TSW markets. As I have mentioned, we saw strong net flows within Barrow Hanley, with around $2.5 billion in net flows into Barrow's global and international equities capabilities during the half. Post the 31 December period, we announced the change in portfolio management responsibilities for the J.O. Hambro UK dynamic strategy following the departure of Alex Zavidis. Whilst we are highly confident in the experienced team that we now have in place, this change does pose a risk to flows in the coming quarter. During calendar year 2023, we had two quarters of flat net flows and then two negative quarters, alternatively, with the December quarter leading to the first half clearly disappointing from a flows perspective. Our focus is therefore on improving the consistency of our net flow outcomes across the asset management business, which I'll cover in the next slide. I've commented on the primary drivers of our flows for the half. Our global multi-boutique model does have the benefit of providing us with investment style, asset sector, distribution channel and geographic diversity, which should smooth our net flow profile, and we're very focused on demonstrating that. Our gross flows have been robust. However, we do need to improve our focus on retaining existing clients whilst also continuing to build our new business pipeline and delivery. Both elements are critical in this next phase as we look to improve the consistency of our net flows. During the first half of 24, we appointed a new head of distribution for the EMEA region. Warren Tonkinson has over 25 years proven distribution experience and was most recently global head of distribution at Jupiter Asset Management. We look forward to Warren refreshing our distribution strategy in this important region, driving an improvement in flows for our boutiques. In the US, the intermediary channel is a key future focus where our product platform integration will bring capabilities such as Barrow Hanley to this key channel for the first time with a well-resourced distribution team to drive growth. Our program of product rationalisation continues at pace with 17 funds closed in the first half and up to 50 further products and investment options targeted for closure in calendar year 24. This will drive operational savings and improve our distribution focus, particularly in Australia. Our global multi-boutique model now means that we have a far wider array of investment capabilities, which is enabling us to have discussions with existing and prospective clients regarding the creation of bespoke investment solutions to meet their specific requirements. Our distribution coverage is now global, covering all key markets and channels. We have the resources in place, strong investment performance and a contemporary business model. We're fully focused on leveraging these qualities to improve our net flows. Turning to investment performance now, which is, of course, so critical to future success. As mentioned, the strong investment performance we have is an important bedrock to driving flows. 78% of the group's strategies outperformed their benchmark in the three-year period to 31 December 2023. The strong outperformance in perpetual asset management in Australia, in Barrow Hanley and in TSW provides the distribution team with a range of strongly performing capabilities to take to our broad client base and prospect base. As with many ESG managers, investment performance for Trillium has been challenged since the start of the Ukraine crisis. However, this has not been a factor that has materially impacted their net flows. Turning now to Corporate Trust. Corporate Trust is a quality sector-leading business that continues to drive solid growth and has displayed resilience through this current higher interest rate environment. In the first half of 24, revenue was up 3% compared to the prior corresponding period, and while underlying profit before tax declined slightly, this was due to important investments in new products for clients and in upgrading legacy technology systems. As you can see from the charts below, funds under administration continued to grow, driving revenue improvement. and we continue to report a strong EBITDA margin, despite the additional technology investments being undertaken. While the current high interest rate environment has put some pressure on competition and activity within our corporate trust business, the business itself is well supported by its long-term client relationships and its close service model. We expect to see continued growth in corporate trust in the second half and also continued momentum in perpetual digital through the anticipated client wins and further product development. Finally, turning to wealth management, today we've reported strong growth in underlying profit before tax, up 18% on the prior corresponding period, with total revenues up 4%, driven by growth across all segments. Funds under advice growth was 7%, supported by positive market movements and net inflows. This half marks the 21st consecutive half year of positive net inflows for wealth management. an impressive track record which demonstrates the quality of our brand, our advisors, and the strength of their client relationships. The diversity of services in wealth management really underpins its quality of earnings through market volatility. In the first half of 24, we saw stronger performance from our accounting business, Fordham, while the high net worth advice channel also showed growth. Importantly, we continue to deliver for our clients with our new ESG reporting tool launched during the half, which is just one example of the diversified offerings we have in the business. We also completed the integration of Jacaranda onto our platform, whilst also reinvigorating Jacaranda's marketing suite, including launching a refreshed website. I'd like to now turn to comment on our strategy to simplify and drive sustainable growth. We are continuing to take steps to simplify our business and to reduce complexity. During the half, we continue to integrate Pendle into our business, delivering benefits ahead of schedule. As mentioned earlier, across our asset management business, our product rationalisation program is well underway. In technology, we are migrating group-wide networks into the cloud, and consolidating collaboration technology to ensure we are more efficient. We have also moved to insourcing some of the support functions, such as database security and service desk teams. Our focus points for the second half of FY24 are to progress the integration of Pendle. We will continue to execute the product rationalisation program I've mentioned. We have more work to do in technology with platform upgrades, particularly in corporate trust, where we are replacing the core legacy applications with a fully integrated platform via a single user interface that increases business automation, transparency and control. And across the group, we are focused on reducing central costs whilst improving accountability and empowerment across each of our business lines. As mentioned, we announced a strategic review on the 6th of December last year with the purpose of exploring the benefits of potentially separating our wealth management and corporate trust businesses. As you would expect, the board's review is thorough and it is considering all options for the business with a focus on maximising value for all of our shareholders. And the board is pleased with progress of the review to date. I'll now hand over to Chris to talk through the financials in some detail before coming back later to summarise.

Thanks, Rob, and good morning, everyone. Turning to our results for this half, operating revenue of $657.8 million was 69% up on the prior corresponding period, obviously driven by the Pendle Group earnings that came through. Compared to second half, more relevantly, which included a little over five and a half months of Pendle revenues, revenue was 5% higher. Revenue growth was also driven by higher revenues in corporate trust and wealth management, which saw 3% and 4% revenue growth respectively. Performance fees in the first half were $5.4 million, down about 1.8% on the prior corresponding period. This was driven largely by lower performance fees in the wealth management division. Total expenses of $522.4 million were 5% higher, or $26.1 million, than the second half. This was mainly impacted by a full half of expenses associated with Pendle, higher interest rates impacting the funding costs, higher variable REM and also foreign exchange impacts. We also increased enterprise investments in technology, cyber security and regulatory compliance, as well as that legacy technology build in replacement and PCT. Underlying profit after tax of $98.2 million was up 2% on the second half. The effective tax rate on UPAT over the period was 27.5%. That was up from 25.5% on the first half of 23 due to the impact of prior period adjustments in the US. Significant items were driven by transaction integration costs, mainly for Pendle. Statutory net profit after tax of $34.5 million was up 29% on the first half of 23 and 7% on the second half of 23. Earnings per share on UPAT was 26% lower, with return on equity on UPAT 8.6%, down from 14.8% in the first half of 23, mainly due from the earnings and asset management and the higher share capital base. The board declared an interim dividend of 65 cents per share, 35% franked, reflecting the offshore earnings and the shift to offshore earnings coming through in the P&L period. Turning to the next slide, Rob's already talked to each division, so I won't go into too much detail, other than to reiterate the strong businesses with AUM and fuel growth driving revenue across each of our divisions. Looking at our segment UPAT performance in detail, UPAT was higher primarily due to earnings contributed from the Pendle Group acquired in early January 2023. Wealth management's PBT increased by $3.9 million, mainly driven by organic business growth. In corporate trust, PBT increased by 0.9 million, with revenue growth offset predominantly by the investment made in new client and digital transformation technology, as well as a replacement of existing legacy technology systems. In group support services, PBT decreased by 17.3 million, predominantly due to high interest expense impacting on funding costs associated with the Pendle acquisition. The tax impact on the above resulted in a movement of $14.2 million due to the higher effective tax rate applied in this half. Turning to an update on the Pendle integration, at 31 December we are ahead of our year on target to deliver $40 million of run rate synergies, with $56.8 million delivered for the period. The synergies include labour cost savings, infrastructure consolidation and service provider synergies, amongst other things, as seen on the chart. 23.5 million of those synergies have been reflected in actual expenses for the first half of 24. Along with the synergies we've described, we incurred 37.2 million integration costs, which appear in the significant items note. Following on from this, our key synergy focus areas for the second half remain technology, product rationalisation, continued platform rationalisation and bringing together our property needs across the globe. Overall, integration is progressing well and our run rate synergy realisations remain on target for the $80 million by January 2025. Turning to detailed expense analysis, controllable cost growth was 4%, mostly attributable to variable remuneration and technology investments. Also impacting was cost growth from the high interest rates and the FX impact on non-Australian expenses added about 4% to expense growth. Overall cost growth on the first half of 23 reflects the incorporation of pendants expenses and the associated interest expense from the funding of the acquisition, partially offset by the realized synergies. We reaffirm that total expense growth will be at the upper end of our 27% to 31% for the year. Note that this excludes remuneration expenses related to performance fees. And it's also important to note that the expenses will obviously fluctuate depending on currency movements, interest rates and variable REM linked to AUM. Turning to the cash flow, where the main movements reflect the completion and the first full six months of integration of Pendle, free cash flow of $34.6 million for the first half was driven by an uplift in net cash receipts, reflecting that full six months contribution from Pendle compared to the five and a half months in the second half of 23, along with stronger earnings from wealth management. So we had a net increase in cash flows in the half compared to that 19.4 we saw in the first half of 23. After paying dividends of $70.5 million, the result in net cash position prior to acquisitions, debt repayments and seed funding was $227.3 million. And total cash as at 31 December 23 was $189.5 million. The balance sheet at 31 December remains robust with a gearing ratio of 24.3%, well within our group's risk tolerance. Gross debt to EBITDA was 1.91 times, based on the definition of EBITDA for our banking covenant purposes. And we reaffirm our target to reduce debt to 1.2 times gross debt to EBITDA by January 2026. Turning now to dividends. The board has declared an interim dividend of 65 cents per share for the first half of 2024, which will be 35% franked and paid on the 8th of April, 2024. The interim dividend reflects a payout ratio of 75% of first half 24 UPAT, consistent with the prior half. And the payout ratio is in line with our stated dividend policy to pay between 60 and 90% of UPAT on an annualised basis. We expect the dividend payout ratio to remain around the midpoint of our range, acknowledging the need to balance shareholder returns with the cash needs of integration and other investments, as well as our stated intention to pay down debt. Before I hand back to Rob, just draw your attention to the detailed divisional results and further information that sits in the appendix. Back to you, Rob.

Thanks, Chris. Now turning to the outlook and brief summary before going to Q&A. As I mentioned, we are fully focused on simplifying our business and driving sustainable growth. In asset management, we're focused on leveraging our global multi-boutique model and our strong investment performance, plus a unified global distribution team to improve consistency of net flows. We now have a strong base of $214 billion in AUM to deliver scale benefits across the business. We're fully focused on further progressing the integration of Pendle and achieving our synergy targets. Across the group, we are simplifying our business to reduce complexity and to drive efficiency benefits. And we are focused on completing the strategic review announced in December 2023. Once again, I'd like to thank you all for joining the call today and we'll now turn to questions. However, just before I do so, going into Q&A, I assume that there will most likely be questions regarding the strategic review, which of course we fully understand. As I mentioned earlier, the review is thorough and we are pleased with the progress to date. As I'm sure you'll appreciate, until the review is completed, we're not in a position to make any further comments on the specifics of the review itself. So I now hand over to the moderator to facilitate Q&A.

Thank you. As a reminder, to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Again, we ask that you please limit yourself to two questions before reentering the queue. One moment while we compile our Q&A roster. And our first question is going to come from the line of Nigel Pitaway with Citi. Your line is open. Please go ahead.

Good morning, guys. First of all, just appreciate what you've just said on the strategic review, Rob. But, I mean, I think, you know, having said that there would be a progress update today when you announced your second quarter, most people would have expected a bit more. Are you at least able to give us an idea of what the timing might be and when you might be able to say more in terms of the detail?

Hi, Nigel. Thanks for your openness there. I understand the degree of frustration there. Our board, as I've said, is considering all options and it's not a straightforward process, hence the fact that it is taking some time. We have, as you know, in April, probably around mid-April or third week of April, we'll have our business updates. So expect us to provide a further update then or earlier if it's possible.

Okay, thanks. Okay, moving on then. Can you give us any quantum of that earn-out provision release that does seem to have boosted the group result this time around?

Yeah, Nigel, that was around $8 million.

All right, okay, thanks. Maybe just one more. I mean, obviously, when you went through, Rob, you were saying, look, the cost-to-income ratio in asset management has improved versus PCP. But obviously, as you opened up, the best comparison is 2H, and it obviously has deteriorated quite materially since 2H. And I think you're saying that's investment in the global build-out. But how long do you think this investment needs to go on for, and over what time period do you think you'll get a return on it?

I think Chris will throw in his comments here as well, Nigel. I think the build-out of our global framework should be treated as complete. Obviously, we continue to focus on the Pendle integration. So we will be working very hard to see further improvement of that cost-income ratio in the future.

I think, Nigel, there's also, on the asset management side, a little bit of bulge of expense coming through. We talked about the insourcing of various functions from service providers. In the first half and continuing into this half, there's a little bit of overlap as we build out our internal capability to replace the outsourced provider. There's a bit of doubling up that's going through, and you won't see that in FY25.

Okay, thank you.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Anthony Ho with CLSA. Your line is open. Please go ahead.

Thank you. Good morning, guys. A couple of questions. Firstly, just a question around net flows. You talked about the focus in the second half to improve that. Firstly, can you talk about where the object's upside is? Are there specific geographies or

specific geographies for Upside. Was that right?

I think that was right. Sorry, just you're breaking up a little bit there. I'll assume the question was where do we see upside for flows, including comment on specific geographies. I mentioned that Barrow Hanley's global and international capabilities are certainly in a purple patch period, which is great to see. We expect that to continue. and to extend into their global emerging market capabilities. So, you know, we... And the interest that we're seeing in, you know, for those global and international capabilities of Barrow is, you know, across geographies, you know, whether institutionally, you know, out of Europe, the UK and Asia... and a bit of institutional interest here in Australia. In Australia, Barrow's Global Equity Fund is receiving good flows. I think we're number two out of 130 managers measured by morning staff and net flows in Australia in that intermediary channel. Yeah, that's pretty significant for us and we would expect that position to continue given we sit on model portfolios and you start to get a degree of automated flows, particularly given we've replaced other managers who have struggled. So I think Barrow in general, across those global capabilities, is definitely a sweet spot for us right now and we expect that to continue. In J.R. Hambro, we see the global opportunities strategies as having really strong opportunity in the U.S. channel in particular, and indeed the emerging market opportunities strategy run by within J.R. Hambro. Similarly, high level of interest on the back of strong performance, predominantly in the U.S., but also in other regions too. And I'd probably then move through to some of the Regnan strategies, sustainable water and waste strategy. We're seeing growing interest in the UK and Europe in particular. And we've just launched a second global thematic strategy for Regnan called Global Mobility. which we're hopeful will see some traction in the future. Here in Australia, as I've already mentioned, the fact that we feel very positive about Barrow's Global Fund here and there's plenty of runway for that to improve. Our relative investment performance is pretty strong across the board. So we see some bright lights here in certain areas of the Aussie market too. I might also add that in the nearer term, from a Hambro perspective again, sorry, a little bit all over here, but Hambro's international strategy, international select strategy and global select strategies, which have had a very tough performance period and a very difficult period from a flows perspective, we have seen some performance recovery in the near term. So that certainly gives us some hope. Being concentrated global, concentrated growth, when underperformance comes, it's typically pretty... That concentration means it can be quite material, that underperformance, but similarly when outperformance comes, that too should be quite material. And we have great confidence in Chris Lees and Najm Ritual, who run those capabilities, who've been through these cycles before.

Great. Thanks for that comprehensive answer. I had a second question just around costs. Your full-year guidance, you know, even at the top of the range, in the second half, implies a total cost number which is lower in the second half. Just wanted to talk about how you're going to achieve these where it's coming from.

Yeah, not forgetting that we've got the P&L impact of some of the synergies that we've achieved flowing through in the second half, which will help the cost base in the second half. So while we've taken a lot of action in the first half, as evidenced by that sort of $57 million of achieved synergies, not all of that came through in that first half. So we'll see a lot of that come through, we hope, in the second half.

Okay. Thank you.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Gerardo Calvarubias with Bernie Joey. Your line is open. Please go ahead.

Hi, Rob, Chris, Susie. I hope you're well and thank you for taking my questions. Firstly, on PCT, on DMS, your highest revenue margin segment is non-bank RMBS FUA, which as a percentage of total increased compared to second half 23. Yes, your revenue margin in DMS declined 5% sequentially. Can you talk to what's happening with pricing on the non-bank RMBS front, whether you're seeing increased competition in that space And more broadly, what is driving that decline? Thank you.

Yeah, thanks, Gerardo, for the question. There's some average... The average for the year, the timing of some of the issuance played a role in some of that. I would say there was a little bit of repricing in the half that came through, but nothing out of the ordinary, I would say, for the corporate trust business. You also saw that the issuance is a more subdued half more generally for debt market services. The good news there was we did see a recovery in flows into new issuance and securitisation in November, December. And we've seen that momentum continue into this half. So it feels like we're through the worst of it on the debt market services side. But from a revenue margin perspective, there was a little bit of repricing But I think it's more to do with the timing and the average for more than it is that repricing.

Yeah, very clear. Thanks, Chris. Second question on Pendle expenses. You're pulling out a cost base of $212 million in first half 24 pre-synergies. Can you talk to what sort of inflation, labour and otherwise you're seeing in the Pendle cost base over the last couple of halves?

Yeah, look, probably a little more than we expected. I think Pendle managed their expenses quite closely in the period leading up to completion. But overall, it's now obviously getting more difficult given we are more integrated and it's difficult to... compare Pendle Direct to Perpetual Direct because we are an integrated asset management business now. But yes, certainly there was a little bit more inflation that came through, particularly in that second half of 23. That surprised us.

Thanks very much.

Thank you, and one moment as we move on to our next question. And our next question will come from the line of LaFittania Soterios with MST Financial. Your line is open. Please go ahead.

Thank you. Good morning. I just wanted to unpack some of the one-off costs with a little bit more detail. I understand you've laid $37 million for the Pindell acquisition, but there's still over $14 million one-off costs for Barrow-Hanley, Trillium and Group. Can you explain why we're still seeing some one-off costs for Barrow-Hanley when the transaction was over three years since completion and why these aren't included in the underlying results? And can you also circle back and confirm where we're at with the total one-off costs remaining for the Pendle acquisition? So broadly, how much is left that we can expect to see in the next year or so? Thanks, Laf.

On the first question, Trillium will roll off this financial year, so we won't see Trillium reported separately from here. What's left there is equity REM and AMORT that was part of the transaction that will be completed this year. That's the same driver for some of the Barra handling expenses. There's also some financing cost coming through for a couple of those as well. But mainly for Trillium, it's the staff-related expenses and equity REM that will finish up in this half. For Barrow Hanley, we've also got a Charles River integration cost to align the systems for Barrow Hanley to what we're doing. And then the other section, we've got obviously some costs coming through from the strategic review that we're undertaking at the moment that are being reported separately and some fees related to our registry provider, the one-off in nature. For the integration costs more generally for the rest of the integration program, we've told you where we're up to now. We still are maintaining our target of $140 million for the whole program to achieve the $80 million of synergies that we've targeted. So $140 million cost to achieve the $80 million of synergies.

Got it. And can we just go to, I think Nigel asked a question around the $8 million revenue for provision release. Can I just triple check, is this being included in the underlying results?

It comes through as, Nigel, that relates to Trillium and a possible earn out that they were able to achieve if they outperformed our base case business case. We thought they were going to do that. In the end, they didn't. And so that gets written back. You would have seen over the last couple of years we've had that going both ways as either windfall revenue, which is the way we account for it, or coming through as the other way if... an acquisition performance better than we thought it would but in this case it was Trillium who we thought were going to perform at a certain level didn't and so it gets written back as windfall revenue and that's the $8 million.

Can I just ask a question about consistency? So you've just called out a range of one-off costs which arguably could be included in VAU whereas this one-off revenue you're including in the underlying result which could be argued is one-off in nature, yet on the cost side, you're stripping out a bunch of things which probably you could better argue should be included in your underlying BAU, such as moving systems and the like over three years post-transaction. Do you think there is a consistency issue with what you're considering in the underlying result, both from a revenue and cost perspective?

I think as it relates to payments for the acquisition that are related to the acquisition of the salt, we're talking about that $8 million. We have had that go the other way for acquisitions where we've actually reflected that above the line as well, where it's been a hit to the P&L. So I'm happy with that. But I will acknowledge there's a lot of noise below the line because we have a number of different acquisitions and a lot of activity. But happy to talk to you further about that, Laf, in our one-on-one.

All right, just one final question, and this is more around, just wanted to double check. So the prior, Rob's predecessor was in his place for six years. I think Rob's now at six. I think Chair Tony's predecessor was in place seven years. He's now at seven. Can you just add some color as to whether any succession planning discussions are happening internally or at board level around both the chair and CEO positions?

Hi, Laff. Rob here. That's a constant, really, Laff, at board level in relation to succession planning processes that we have in place, both for board itself, for my role, for exec committee roles and throughout the firm. We have a very structured process in relation to succession planning. It's a formal process and that applies to all roles, including board.

Thank you. And one moment for our next question, please. And our next question comes from the line of Andre Statnik with Morgan Stanley. Your line is open. Please go ahead.

Morning. Can I ask around the revenue margins? in asset management, as my first question. So, you know, said and said, Northern, the other line, all the, you know, core asset classes are broadly steady in this half equities fixed income. So, you know, we will say, you know, anything going to assist in that or like, because that's a fairly solid outcome versus history. So anything kind of helping with that or what do you see in terms of the mix there?

In terms of business mix, a better way to respond would be in terms of what sort of pricing pressures are we seeing when we're involved in pitching for and hopefully winning new business. I think... You know, it's within expectation range. You know, we're not seeing any heavy pressure on incumbent assets held and, you know, given the size of some of the exposures. Let's say, for example, in some of the Australian platforms where... Across our capabilities, our weightings are pretty heavy. We're not seeing any particular pricing pressure there. Institutionally, in general, globally, prices are heading down across the board, but we're not seeing anything that's too disturbing there. I would say, Andre, there have been some opportunities for large mandate wins where we were not comfortable with the pricing, and so we've walked away from those opportunities because... They've been in capacity-constrained areas where we think we can get a better price probably in another part of the world. In terms of blended rates of each of our boutiques, there is some shifting that we would expect to be underway. So, for example, at Barrow, where we're winning business in global and international, where we are losing businesses more typically in US equities, which is at a lower run rate. So at some point in time, and we've probably said this for a little while now, but I would expect to see, if anything, margin improvement coming through for a business like Barrow. The shifts in other parts of our business aren't demonstrable.

Thank you. My second question, and apologies if I missed any comments earlier, but in terms of distribution in asset management, what's the latest in terms of the distribution in a build-out, making sure all the teams are integrating? And I think you wanted to selectively add in certain areas, considering new vehicles. So, yeah, just what's the latest in terms of distribution aside build-out?

Yeah, sure. I mean, in terms of number of resources, heads and distribution, you won't see that increasing, but what we are likely to see in the future is a shift of the emphasis of those FTEs, if you like. To be frank, we need more people with boots on the ground selling, and so we are looking at shifting our allocation of resources to... away from other activities into pure selling activities, to be quite explicit. In terms of other developments, a really important piece of work is well underway. It's fiddly and takes time, and that's the integration of our US mutual fund platforms. We have moved Trillium's products onto... The surviving platform, Barrow Hanley's next. I'm particularly excited about the prospects for Barrow Hanley in the US intermediary channel once that happens. Barrow's numbers are great. They're an institutional-grade business through and through, and they have no intermediary exposure. So for our distribution people in the US to be able to bring something like that to market is going to be exciting. So we're really trying to prioritise that. To be frank, that's probably taking a little longer than I would have liked. We put in a new head of US distribution, Mickey Janvier, about nine months ago, and Mickey's definitely getting the team, has got the team together well and very focused on activities such as that. In the UK and European region, we have recently appointed a new head of distribution in that region, Warren Tonkinson, who is joining us from the 11th of March. Warren... Warren's previous role was Global Head of Distribution at Jupiter. Jupiter Asset Management has 25 years experience. I'll be frank, I think in some ways in the UK, Europe, we got off to a false start. This change of leadership is a very positive one and I'm excited that we can improve the traction in those important markets over time. Here in Australia, I think under the leadership of Tim Northash, the Australian distribution team has been integrated together for quite some time now, and I think we're seeing the benefit of that in some of our results, bearing in mind that we do have large legacy components in both the Pendle and Perpetual books. So, broadly speaking, Andre, I think there's always more work to do. I did make a point in the presentation that we needed to be better focused on retention. I think the application that we have in terms of our new business pipeline is good, can always be better, but we actually... I feel we need to do a better job on retention of clients because it's always a tale of two stories, what comes in the door and what goes. And, you know, I really want to see, as I've said a number of times, you know, better consistency in flow profile. You know, we had, you know, calendar year, Q1 and 3 were flat. Calendar 2 and 4 were poor quarters. We really need to drive better consistency of that flow profile.

Thank you.

Thank you, and one moment as we move to the next person. And our next question is going to come from the line of Tony Mitchell with Shawn Partners. Your line is open. Please go ahead.

Thank you. Thanks for the opportunity to ask a few questions. I know you don't want to talk about this strategic review, but there's been many articles appearing in the press saying you're fielding offers for the various parts of the business from various interested parties. Is that correct?

Tony, Rob here. As Leif mentioned, I've been in this role now for five and a half years, and I think every other week across the five and a half years there's been some speculation about something with Perpetual. So there's a lot of speculative press, and I think whenever a strategic review is announced, whether it's Perpetual or anybody else for that matter, I think there is always going to be that sort of speculation. And, you know, we're not going to comment on that sort of speculation. It's just we never have, and we're certainly not going to when we're in the middle of a strategic review.

Well, can I just, as a follow-up to that, can you explain to me why does it take so long to do this so-called review? I mean, it... I mean, shareholders deserve better. I mean, the share price today is down about 90 cents because I think, as one of the previous questioners was saying, that we really need some more information. I mean, as you said, we've got to wait now to April. Can't the process be quickened?

I totally understand the frustrations. We've got to balance out the need for alacrity and making decisions quickly with... ensuring that we make fully informed decisions. And that balance is a difficult one. Our board is really entirely aware of that. And we will do our best job to manage that balance as best as we possibly can because we understand that frustration and we understand the need for certainty, as do our people and our clients. And so we... But I would say when you are truly exploring all options, that's not a straightforward process because there are permutations and combinations that each require time and attention in order to make sure that you're comparing those options and arriving at the best choice for our shareholders. So, Tony, I understand your frustration and we are working hard to get to a point of resolution. as soon as we practically can.

Well, can I ask this question? Given that there's been further net outflows of $4.3 billion, would you concede that the acquisition of some of those fund managers was a failed strategy, particularly given Ambrose? I mean, these performance figures, and I haven't had a chance to see all of them, but the markets have been rising pretty significantly today. And it seems very strange that some of these managers are still experiencing net outflows.

Well, I mean, I wish it was as easy as it sounds. As you've made it sound, it's not. The environment in the December quarter in the UK marketplace and the US marketplace was one of the worst in the last 15 years for net flows. If you have a look at publicly traded asset management companies that have some age to their book and have multiple capabilities, you'll see that in general, at an industry level, active managers are not finding it straightforward. There are, of course, always some businesses that... are winning in that process as well. But the winners are far outweighed by those in net outflows at the moment. So it's not as straightforward as positive markets lead to positive flows. The industry in the US, the industry in the UK, the industry in Europe is in outflow right now. So that is a difficult backdrop. In terms of the acquisition strategy, I mean, ultimately others will be the judge of that, but You know, we're very happy with Trillium, even though its growth in the nearer term has abated. The business is twice the size from when we bought it two years ago. Barra Hanley, we always were heavily focused on their global international strategies, so it's pleasing to see the growth that we're now getting out of those international and global strategies, and we expect there to be more to come. For the first two years in Barrow, we faced a lot of criticism about the flow profile of the business. We always had an expectation. Our best estimate at the time when we acquired Barrow was that we were aiming to get Barrow into a net positive flow position in three years. We've done that. $2.5 billion in flows into the global international strategies in the last half is a good indicator of that. With Pendle, we're 12 months in. The strategic rationale that supported the Pendle acquisition is as true today as it was on the day of announcement of the deal. However, to your point, it's been a very difficult period of time in that first 12 months of the acquisition for parts of the acquired businesses, and we're obviously very well aware of that. We are very focused on improving that position, but we're not blowing the full-time whistle. We're at quarter time, and it's not been the best first quarter, but we're very focused on the next three quarters.

Thank you, and one moment for our next question. And our last question is going to come from the line of Brendan Carrick with Macquarie. Your line is open. Please go ahead.

Thank you. I'll get it quick. Chris, just for you, on the expense profile, Synergies, you're ahead of the target in terms of timing. You mentioned earlier that the Pendle 2.523 cost inflation was probably a bit more than you're expecting, and FX has been a headwind on costs. So any reason for the conservatism on the $80 million synergy targets being retained, given you've had a fair bit of upward pressure on the cost base, which presumably would, even since you upgraded from 60 to 80, would have given you more opportunity to take out additional costs?

Yeah, I think the way I'd answer that, Brendan, is we are obviously looking very closely at it. We're not changing guidance at the moment, but we are ahead. These things, the easy synergies come out first and the tougher synergies come out towards the back end. So our first priority is to make sure we get the $80 million as quickly as we can. And if we can do that sooner than January... Great. And you're right, given the profile, less to do with synergies and more to do with just general cost discipline. We're looking at other opportunities to look at our cost base. And if some of those come through, looking at synergies differently, we'll do that too. But we're not changing guidance today.

Okay, that's clear. And then Rob, maybe one for you. You mentioned Alex's departure from sort of running the UK dynamic strategy. Within the UK, there's 8.9 billion of AUM at 31 December. So can you just maybe talk to what the AUM in UK dynamic was at that date? And then in terms of a wholesale institutional mix, just given if there's risk to flows, institutional is obviously the first to go and wholesale takes a little bit longer.

Yeah, sure. Alex has commented around the UK dynamic strategy. Disappointing to see him go, to be frank. He's a quality manager, but he's gone to a pretty big role. So we wish him best of luck. Yeah, importantly, we have good bench strength. Laf was asking about succession planning earlier. We have really good bench strength in the individuals who are now running the money there. So Vishal Bhatia and Mark Costa, together with Tom Matthews, collectively replacing Alex's PM... Mark was Alex's boss, originally hired Alex. And both Mark and Vishal were associated with the creation of the UK dynamic strategy. So to be able to have them swing into the capability is great. And Tom Matthews was a senior analyst on that strategy specifically for eight years before he became co-head of sustainable investments. So We think it's a really strong team, and so the proposition to go to clients to attain assets is a strong one. Total assets across retail and institutional channels is around $2 billion sterling. which includes actually quite a substantial emulated mandate, which is at lower fees. So they were the total assets as at the end of the period, and we will do our best job to retain that, knowing that we've got a good narrative to go forward. But he was indeed a loss.

Yeah, that's fair. Was there anything sort of on the retention side of things or is it just the better role that was offered to him? I guess the angle for that question is, is there a risk of him lifting the team and getting the guys to follow him?

Well, I mean, as you would expect, we have non-compete and non-solicit arrangements in place. They're lengthy. I had multiple conversations with Alex. He's a good person. I don't expect there to be any issue. in that regard at all. But, yeah, of course, we have those sort of protective covenants that sit within employment contracts and we'll be applying them in their fullest. In terms of why left, the individual that he's replaced, who's departed Jupiter, runs around 20% of Jupiter's assets. It's a big role. It's a big role and, yeah, we wish him luck.

Thank you.

Thanks, everyone, for listening in today and for your time. And if there's any more questions, please feel free to reach out after the call.

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