Perpetual Limited

Thank you and good morning everyone, or good afternoon or evening for those joining us from other parts of the world. Welcome to Perpetual's full year 25 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 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 our CEO and Managing Director, Bernard Riley, as well as our new CFO, Suzanne Evans. There will be an opportunity to ask questions at the end of the presentation. Please can we ask that we start with two questions each to ensure we have time for all analysts. Before I hand over to Bern, we would like to draw your attention to the disclaimer on page two of the presentation. Bern, over to you.

Thanks, Susie. Good morning, everyone, and thanks for joining us today for Perpetual's FY25 results briefing. Before I begin on the results, I'd like to welcome Suzanne Evans, our new CFO, who joins me on the call today, and I look forward to introducing Suzanne to a number of you in the coming days. Reflecting on the FY25, 25 period, what is evident is that the business has demonstrated resilience through a period of substantial uncertainty. In addition, there has been a heightened level of market volatility due to the geopolitical landscape. As you'll see from the table below, our headline results showed total operating revenue of $1.373 billion for the year, up 3%, underlying profit after tax of $204.1 million, down 1%, We reported a statutory loss after tax of $58.2 million, mainly due to an impairment related to the JR Hambro boutique. The board has determined to pay a final dividend of 54 cents per share, unfranked. And diluted EPS on a UPAT was 180.8 cents per share, 1% lower than financial year 24. Today, we also announced a new group strategy, which includes many of the activities we've already commenced. and it focuses on three areas. Firstly, simplifying our business, driving operational excellence, and finally, investing for growth. The internal separation of our businesses, which commenced last financial year in preparation for the KKR transaction, has continued, and it means each of our three businesses are now better positioned under their own leadership, but importantly with group oversight, to drive growth initiatives in an efficient way. As we've progressed on our new operating model to make our business more autonomous, we've been able to act faster to deliver cost savings. We've achieved substantially more than our planned $30 million in annualized savings for the year, delivering half of the total target, which I'll talk through shortly. In respect of each of our businesses, in corporate trust, the business has continued to grow, benefiting from its leadership position in its key markets and supported by a record level of securitization activity in financial year 25. In asset management, while there has been activity across all regions to drive improvements and growth, and markets supported the business in delivering revenue growth, we did report significant net outflows of $16.2 billion over the year. In wealth management, the business has demonstrated its quality and resilience as we continue to progress the sale of this business. Lastly, we have delivered expense growth within our guidance range of 3% to 4%, with controllable cost growth of 3% and overall growth of 4%. Turning to the next slide. We've acted quickly to deliver savings sooner, and as a result, we have delivered over 50% of the program, or $44 million, in annualized savings already, in excess of our $30 million target for the year. These savings have mainly been realised through the right sizing of teams, reducing central functions and removing leadership layers within some teams. These cost savings have helped us offset some of the business costs such as wage inflation, a substantial cost for our business. $11.5 million of savings has been realised in our expense line for financial year 25. Given many of the savings were realised late in the financial year, we expect the bulk of the benefits to flow through in FY26. Importantly, through the year in executing the program, we have been able to better define the costs associated with achieving our targets. And now we're halfway through the program, we've firmed up our estimate of costs involved to execute on the remainder. Therefore, today we are improving our guidance on costs to achieve the program, moving our guidance from 70 to $75 million down to approximately $55 million. The next phase of the program will have more expense attached to it as it involves implementing new systems to realize cost savings. In FY26, the key activities involve finance systems transformation, back office simplification, and continued rightsizing of functions. In summary, we're pleased with the progress so far, acknowledging that there is more work to do. Our overall target of $70 to $80 million in cost savings remains with our revised phasing and targets for the next two financial years outlined here on the chart. Turning to some updates of each of our businesses, firstly with asset management on the next slide. The benefit of a multi-boutique model is the diversification it brings across capabilities, clients, and in our case, importantly, across regions. While our assets under management increased over the year, And as I mentioned at the opening, we did face headwinds with net outflows totaling $16.42 billion. These were offset by rising markets and movements in relative currencies. On the bottom left, we have for the first time presented both gross inflows and gross outflows. What is evident is that we don't have a problem attracting new client monies with over $50 billion of gross inflows for the year. We need to do a better job retaining client monies and in some pockets delivering better investment performance. Let me spend a few minutes running through some of the key themes in each of our asset management boutiques. Value style investors have had performance headwinds in the last 12 months through what has been a very strong market environment, largely based on momentum rather than fundamental valuations. This has impacted more recent performance in Barrow Hanley, TSW and Perpetual Boutiques. Net outflows were largely driven by the JL Hambro boutique, where two funds have underperformed. Pendel's gross flows include roughly 20 to 22 billion of inflows and outflows from cash investments. Trillium has been impacted both by the sentiment towards ESG managers in the US and also its own performance where it has taken a conservative positioning, leading to underperformance in its main strategies. All that said, we are excited about the interest we are seeing in Barrow Hanley's global and international equity strategies, JL Hambro's international opportunity strategy, as well as credit and fixed income capabilities in both Barrow Hanley and Perpetual. To date, we have not observed any large rotation out of US equities. Turning to the next slide. In JL Hambro, we have a strong and well-regarded brand with a global footprint and specialist capabilities that we can add to. While we have a strong platform to add capabilities, we believe the platform has been built for scale and is currently underleveraged. As I mentioned on the previous slide, there are challenging flow patterns in some key strategies, largely driven by underperformance. But more broadly across the boutique, it has been impacted by broader market sentiment with many active UK managers facing headwinds in the market. In restoring the business to its heritage strength, our observations have been that the boutique has underinvested in new capabilities for a number of years, and we will look to restore this investment, seeding new capabilities that can grow over time, leveraging its strong branded position in the market. We need to have the right product structures in place to support growth and the leadership team to deliver it. Importantly, as with all areas of our business, we are embedding disciplined cost management structures to ensure the business operates efficiently and delivers improved returns to our shareholders. Much of the work in this direction has already commenced. At our first half results in February, we announced we would focus, for JL Hambro, we would focus in three areas. Firstly, retain, which is about refining our distribution strategy. Secondly, reinvigorate, which was to involve prune to grow approach to our product range. And finally, renew, which is about identifying and onboarding new capabilities. In the 180 days or so since that announcement, we have made progress in these areas. We've reset our distribution approach, consolidating from regional, as in US and Europe, UK leads, to one international lead. And more recently, we have reset our distribution approach in Europe to extend our presence in core European financial markets. We've also commenced our program to rationalise the fund range, closing three investment strategies over that time. We've invested initiatives to market our high-performing funds, such as the JL Hambro International Opportunities Fund, which ranks in the top 1% of funds in its Morningstar category for performance over three years. We have more work to do to restore JL Hambro to its heritage strength, but we believe we have the right plan to do so. Turning to more on distribution across the regions. Throughout FY25, we have continued to refine our distribution approach to ensure it's aligned to supporting our clients in the key markets and regions across which our boutique brands operate. That is the Americas, Europe and the UK, and the Asia Pacific region, as well as to target growth opportunities across those three. In the Americas, for example, where we have a dedicated institutional sales capability aligned to each boutique, we have now extended our distribution presence into the West Coast, covering both sides of the US. In Europe and the UK, the distribution team has been restructured to increase sales resources in target markets, including Paris and Frankfurt. And in Australia, we have a strong footprint under a local leader where we have institutional sales resources, each for perpetual and pendal, and shared intermediary sales where we extend into private wealth, asset consultant, and broking. Our presence in Australia is about having the necessary and relevant products and product structures to support growth. And that is why we launched our third ETF into the market just a few weeks ago. leveraging our highly regarded and strong performing credit capabilities. Last results at the half, I referred to Asia as a region of interest and opportunity for perpetual. It remains largely untapped region for us. Further work will commence on distribution in that region in the coming year. Turning to the next slide. As we consider the capabilities you want to add to the asset management business to help support growth and diversify our largely equities portfolio, there are a number of trends that influence our approach. But before I talk in more detail on that, it's important to be reminded of the broader picture of the sector in which we operate. Active management receives much commentary on its future and growth prospects. The global market has a strong, inherent growth trajectory, as you can see here on the chart. One data point from BCG shows the industry is forecast to grow at a CAGR of 7.5% in the five years from 2024 to 2029. To capture growth, it's about having the products that clients need and desire to achieve their investment objectives. Active managers are an important participant in the future of the sector. Perpetual has a substantial portfolio of over $220 billion in assets under management across markets. We have organic growth opportunities. The recent launch of the barrel handling US mid-cap strategy in Europe and the UK is a great example of that. And we've been progressing our thinking on how best to tap into growth areas, such as the significant growth in alternatives and the opportunity in the active ETF space. According to PwC, alternatives are expected to grow faster than traditional assets, reaching 27.6 trillion US dollars by 2028. We already have existing products in this area, such as the alternative credit capabilities in Barrow Hanley, which now have nearly $2 billion in assets under management that are currently only offered in the US market. But there is opportunity for that capability to be offered in other markets. We also announced the letter of intent with Partners Group to explore product opportunities covering both private and public assets in Australia. Through partnerships, we're able to leverage specialist and expertise capability that we otherwise would not be able to do. Active ETFs are entering a high growth phase, highlighted by the $325 billion in positive net flows in active ETFs in 2024. We already have a strategy in Australia with three active ETFs, the most recent one, as I mentioned, launched earlier this month. Our other focus is in the US market that has strong growth opportunities, where we plan to bring some of our high-performing products to market in the second half of financial year 26. We see these trends as growth opportunities and we continue to leverage our existing capabilities as well as develop new ones to ensure we are well-placed to capitalise on areas of growth potential in the market. Now turning to the corporate trust business. In corporate trust, we have a strong business that continues to deliver growth through its leadership position in key markets. In FY25, the business delivered a 5% increase in funds under administration with growth in both of its key market segments, debt market services, or DMS, and managed fund services, or MFS. In DMS, the business benefited from a record year of securitisation, particularly from high-margin non-bank clients. In MFS, market growth in certain segments, such as private credit, as well as real asset growth, helped support an uplift in FUA of 9%. Turning to the digital and market segment. In the digital and market segment, which we have renamed from Perpetual Digital, revenue is up 18% in FY25. And while the segment remains a smaller part of the corporate trust business, it continues to deliver growth and is an area of investment focus for the business. We sought to provide some information on the right to help a better understanding of the business. During the year, we secured a market license to operate a digital marketplace for debt instruments, initially focusing on wholesale term deposit market. Post-year end, we also invested in a small team lift out to add to our capabilities, particularly the fixed income intelligence product that I know Dickie McCarthy, Corporate Trust CEO, is particularly excited about. Turning to wealth management. The wealth management business demonstrated resilience given the uncertainty regarding its ownership. Throughout the year, the team has been focused on retaining staff and delivering high quality client services. The NPS score for the business showed a marked increase on the prior year as we've doubled down on our efforts to deliver quality service to our clients. Importantly, we continue to expand our offerings demonstrated by the launch of our advice for women by women program, which has attracted good early interest. We are pleased to report that funds under advice grew by 9% over the year, although largely supported by markets and an institutional client win. I'll now hand over to Suzanne to talk you through our financials in more detail.

Fantastic, thanks, Vern, and great to be here for my first perpetual year end. So look, just beginning on the slides, the first slide here, slide 15, is just a summary of the FY25 year. As Ben's noted, operating revenue of $1,373 million was 3% higher than the prior corresponding period. And that was primarily driven by market growth across both AUM and Fuller. And that was true across all three of our business lines. The operating revenue included an uplift in performance fees on the prior year at $34.3 million. That now represents circa 3% of our top line revenue. And those were mainly generated in our Pendle boutique in the second half of the year. and then in a UK strategy managed by our Joe Hambro boutique in the first half of the year. Total expenses of 1,093.9 million were 4% higher than the prior year, which is within our guidance range of 3 to 4%, albeit at the upper end. I'll step through some of the drivers of the expense growth shortly. Underlying profit after tax was 204.1 million, 1% lower than FY24. I will call out in the prior year we had some one-off benefits, including the release of an earn-out provision and also a release of a lease modification or make-whole provision in relation to the building we're in today. The effective tax rate on underlying profit before tax over the period was stable at 27%. Significant items were primarily driven by 100 or came to 134.6 million. and that was primarily the impairment that was announced last week in relation to the JR Hambro boutique. The result was that we reported a statutory net loss after tax of $58.2 million, albeit a reduction on the statutory net loss recorded in the prior year. Earnings per share on underlying profit after tax were 1% lower, largely aligned to our underlying profit before tax result. And the board declared a final dividend of $0.54 per share, unfranked, to be paid on 3rd of October, 2025. Just moving now to the next slide, this is a fairly high level summary of the performance across each of the divisions. So what I might do is move on to slide 17 to just go through in a little more detail. As I've called out, obviously positive markets had an impact and were underpinning the revenue growth with underlying profit before tax and asset management stable during the year. And while we saw higher average AUM throughout the year, there was the benefit of higher performance fees of $34.3 million. But we also saw that average revenue margins had declined year on year. And that's really due mostly to a shift in asset class mix where we saw quite a lot of outflows in higher margin strategies on the equity side and then inflows in lower margin strategies as well as fixed incomes. Total expenses increased 2%, and again, largely driven by foreign currency impacts, which contributed to around half of our expense growth. Offsetting that, we've seen some benefits from our simplification program during the period, and we would expect more efficiencies to be reflected both in the first half results for this year, as well as the full year. Moving now to slide 18 for corporate trust. Corporate Trust experienced underlying profit for tax growth in FY25 up 6 million on the prior year, and that was supported by revenue growth across all three of the business lines. Debt market services was up 10%. Managed fund services also experienced some strong tailwinds and had continued market activity within commercial property, and the result was a 5% increase in revenue compared to prior year. And as Ben called out, we've rebranded Perpetual Digital to Digital and Markets, And this is including the business line Laminar Capital, which was acquired in October of 2021. The division delivered revenue growth of 18% on the prior year and primarily driven by strong performance across its perpetual intelligence SaaS products. We're also pleased with the continuing trajectory of the business line, which now contributes 15% to top-line corporate trust revenue. Operating expenses have lifted due to continued investment in technology, particularly in the digital and market segments. but also reflecting increased client volumes for both DMS and MFS. Moving now to slide 19 and wealth management. Underlying profit before tax reduced by 2.5 million year on year, impacted by higher operating expenses over the period, and no doubt under the uncertainty surrounding the ownership of the business. Revenue was supported by growth in market, but also non-market business lines, and we've continued to see growth from Jacaranda in the pre-retiree business, philanthropy, and the medical segments. The operating expenses were up 7%. There has been, again, continued investment in technology. We've seen some one-off legal costs and some retention-related expenses, as well as the wage inflation that's been consistent across our board of business. Moving now to group support services. Underlying loss before tax had increased on the prior year by 8.5 million. And that was really because of some of the benefits that we saw in the prior year that were not repeated in FY25. I'll also note that just in this period, we've had higher Barrow Handley distributions contributing to the expense line. Noting, and as many of you are aware, we are required for accounting purposes to consolidate the Barrow Handley team and their business, despite the ongoing share ownership of the team themselves. Revenue was 11% lower than the prior year, mainly driven by the absence in the current year of any benefits. And the 24-year had the reversal of an earn-out provision, as I've called out, in relation to the Trillium transaction. This was also partly offset by high interest income through the year. On slide 21, we've provided a walk between our underlying profit after tax to the net loss position that we've recorded through the year. And if I walk across from left to right, the main drivers were costs relating to prior transactions across both Barra Hanley and Pendle. the terminated KKR transaction, as well as our broader strategic review, some initial costs relating to the proposed sale of the wealth management business, and our ongoing simplification program. We also have non-cash amortization of acquired intangibles, partially offset by the benefit from the unwinding of a hedging facility associated with the KKR transaction that was closed out after the deal was terminated. Finally, there was the $134.6 million non-cash impairment that I've spoken of previously. Due to these factors, we reported the statutory loss for the period of $58.2 million. Now, moving a little bit more to our two expenses, the normalized controllable cost growth was circa 3%, and that was attributable largely to, obviously, ongoing variable remuneration, but also investment in our corporate trust and wealth management business to support top-line growth. ongoing technology investment, and as I've called out, the expenses associated with high profitability from Barrow Hanley. We were also impacted by interest rates and foreign exchange movements, which added a further 1% to the cost growth line. Looking ahead into this current year, we would expect total expense growth to temper to between 2% to 3% for FY26. Now, within this guidance, we've considered the impact of FX rates on our expenses and Most of it would be largely driven by investment in corporate trust and wealth management, as well as an expectation with less transaction activity across the group for more expenses to be classified outside of significant items and back above the line. However, it is important to note that this guidance for expenses will fluctuate depending on currency movements, interest rates, and variable remuneration. And we've included just in the footnotes here some of our assumptions for the benefit of those reading. Moving now to cash flow analysis. The cash balance of 343.2 million at the year end 30 June. Free cash flow of 135.8 million for the year was driven by 257.2 million in operational cash flow. And I will note that during the period our net cash receipts were lower than previous periods with higher expenses relating to the ongoing separation program following our strategic review. When combined with tax and interest, lease financing and CapEx, there was a net decrease in free cash flows through the year compared to FY24. Borrowings increased by 22.5 million over the period, with the funding of the strategic review and the separation program occurring from the start of the year, but partially offset by some savings starting to come through from simplification but achieved later in the year. After paying dividends totaling 126.7 million, and adjusting for the timing of some recycling of seed funding during the year, as well as the proceeds from the closeout of a derivative hedging facility that I referenced before in relation to the KKR transaction and FX again. Our total cash position, as I said, remained at 343.2 million. Moving to the next slide, a bit more focus around our balance sheet. The balance sheet remains robust and has been supported by operating activities across a diverse source of earnings, as well as the continued recycling of seed investment. I will call out that the majority of our cash is held for working capital purposes, with a smaller portion that's required for regulatory capital purposes, primarily in the UK and Ireland. We have a other financial asset balance, and that's where we're recording our seed capital, which is now sitting at 171.3 million. By the end of the financial year, we saw a measurable reduction in the borrowings in the second half, mainly to do with funds that had previously been held for the separation in relation to the KKR transaction, and those instead were used to repay borrowings. This is along with seasonality that we would typically see with stronger cash flow in the second half of the year. Moving now to a bit more detail on our debt position and our borrowings. One of the stated priorities for the second half of the year was to reduce our gross debt balance to between 740 million and 750 million by the end of the financial year. Back in May 2025, we refinanced our debt facilities, and pleasingly, we've achieved improved returns, better covenants, and better pricing, and at the same time have successfully reduced gross debt to $738.5 million. Our gearing ratio of 31% is within the group's risk tolerance, but still above our preferred level. Debt reduction over the near to medium term will be supported by our cost reduction program, as well as broader capital management disciplines we have in place. We would also expect our debt reduction to accelerate should the potential sale of our wealth management business occur. Now moving finally to dividends. The board has declared a final dividend of 54 cents per share for the FY25. This will be unfranked and paid on 3rd of October 2025. The final dividend reflects a payout ratio of 60% on the second half underlying profit after tax which I know is lower than the prior half, but takes into consideration a more conservative approach to capital management. As I've referenced before, we look to reduce ongoing debt. Total dividends of 115 cents per share represent a full year underlying profit after tax payout ratio of 65% within the board's stated target range to pay out between 60 and 90% of underlying profit after tax on an annualized basis. Our expectation at this stage is that dividends will remain unfranked through FY26. With that summary, Ben, I'll pass back to you.

Thanks, Suzanne. And turning to our refreshed group strategy and key priorities for the coming financial year. Today we announce a refreshed group strategy. Our goal is for Perpetual to be a strong financial services group with differentiated businesses that operate with discipline to deliver improved returns for our shareholders. To do this, we need to continue to simplify to deliver operational excellence and invest for growth. And we've already made progress in these three areas. You can see the phasing below as we move through each pillar. Starting on the left, simplify. We are simplifying the business to drive greater autonomy and accountability. We're removing complexity to create a leaner, more efficient business. An example of this is the recent work we've done to streamline some of the leadership structures in our organisation to remove hierarchy and accelerate decision-making. Through the year, we embedded a new operating model for each of our three businesses to operate more as an end-to-end business, but with group oversight. This enables them to have increased control and accountability for their performance, which we believe will deliver better results for our shareholders, our clients and our people. Moving to the new operating model has enabled us to deliver on our cost savings for the year and this will continue to progress in the current year. We're focused on strengthening our balance sheet and have already made a good progress in the second half of the year. We continue to pursue the sale of the wealth management business. Lastly, over the period, we will be exploring expanding outsourcing and offshoring opportunities in our businesses to help deliver further efficiencies. Turning to the next pillar, delivering operational excellence. We will support continued strong client engagement by delivering quality products and services. We're focused on cost discipline, performance and capital management. In particular, under our new model, we now have aligned each business to certain financial targets, which includes cost discipline measures. We'll be prudent in how we manage our capital which means balancing a need to reduce debt with investing to support growth. And we want to continue to deliver true-to-label investment strategies, as well as retaining our leadership position in key markets through client service and retention. On to the next pillar, investing for growth. While we aim to simplify the group and remove costs, we'll look to reinvest in areas where we believe we can deliver growth. We recognise that we need to continue to invest in our digital capabilities in corporate trust, but also in asset management with a growing focus on leveraging AI. And as our clients' needs evolve, so will our product and our capability set. Our key priorities for financial year 26 include many of these actions that I've just spoken about. But turning to the next slide, our key priorities for the year ahead include continuing to remove complexity and execute on our strategy to create a leaner, more efficient structure for the group while continuing to pursue a sale of the wealth management business. Strengthening our balance sheet, delivering our simplification program cost-saving target. We'll continue to invest in new products and capabilities in the asset management business in a measured way. And Incorporate Trust continues to support it in retaining its market leadership position. while also investing in expanding capabilities when the opportunities and where the opportunities arise. It has continued to be a busy period for the business, including in relation to some of the strategic initiatives that I've discussed today. I'm confident in our ability to execute on our refreshed strategy and the priorities that we have set for 2026. Thank you for listening. I now hand back to the operator to manage the questions.

Thank you. As a reminder, to ask questions, you need to press star 11 on your telephone. Kindly limit your questions to two questions at a time. Please stand by while we compile the Q&A roster. Our first question comes from the line of Elizabeth Miliatis from Macquarie. Please go ahead.

Excuse me. Good morning, and thanks for taking my questions. Just the first one, around the longest-term strategy, shifting to alternatives and then also maybe a bit more in the ETF space. Just, you know, if we were to look out five, ten years, would alternatives contribute materially to the business? You know, is that your long-term vision? And then just on the ETF side, are you concerned about potential cannibalisation of active strategies if you're launching cannibalisation more ETF products as well. Thank you.

Thanks, Elizabeth. So on the first one, on alts, if you look at the growth profile that's in the pack on page 10, growing to $27.6 trillion by 2028, there's a lot of growth, but it's actually very diversified. So I think picking the areas of focus for us going forward is going to be important. But I think it will definitely be a bigger part of our business. I wouldn't want to, I hesitate to put a target on us for five or ten years, because I know you'll come back and ask me about it. But if I think about it, it will be bigger than it is today. One of my areas of focus has been 80% of our underlying assets under management are listed equities. And that's an area that we need to diversify away from that, and alternatives is clearly one part of that.

On ETFs, on cannibalising that, I'm actually not... In particular, when I think about the strategy that I've embarked on at the UN, I'm not worried about cannibalising our money in the Middle East, because I'm actually focused on... I'm actually focused on a new segment of money for us, and so I think that what we'll do is we'll create a version of diversification for us to apply, and then we'll do a basis of that as well, and then we'll do a demographic basis as well.

Okay, awesome. Thank you. And just a second question, just around the wealth division, I'm trying to find the slide, but somewhere in the slide pack, here we go on page 28, you've noted potential sale of wealth management. I don't know if that was purposeful to add the word in potential, or are you guys still very committed to divesting that business?

I suppose what I'd say is potential, I think, is a good word to use because we focus very much on delivering the best outcome for shareholders.

Okay.

Okay, thank you.

Thank you for the questions. One moment for the next question. Our next question is coming from the line of Lara Tufetcik from Bank of America. Please go ahead.

Good morning. Thanks for taking my question. My first question is on your cost to achieve your simplification program being revised down to $55 million. Do you mind please running me through where the cost savings here are coming from and how you're achieving this?

Yeah, thanks for that.

Sure, you go for it.

I'm going to jump in if that's all right. Yeah, look, I think it's a great question. We've spent a lot of time over the last few months going back and having a look and what I would say is probably a little bit of two halves. A lot of the costs that was incurred during the year related to reduction in headcount and right sizing of the business. What we were doing was actually trying to firm up a lot of the costs to deliver some of the technology programs that Burns described. So that's really where most of the 20 mil of savings is coming from. I think very early on it was hard for us to know if I used the what the cost to deliver was going to be. We hadn't actually selected a preferred vendor. We hadn't got an implementation partner. So we were sort of using Gartner estimates around cost to deliver. We've been able to firm a lot of that up. And so I think, you know, it's really more the cost savings coming in that back end because we've been able to be tighter now that we're further progressed in the program. Hopefully that answers your question.

Yeah, that was really clear. Thank you. And then just my second question was around going back to the ETF, the key market trends around entering into active ETFs. Could this potentially put downwards pressure on your margins? And I guess going forward, will you be prioritizing net flows and new products over the asset management margins?

So I'd say, I'll start, maybe you have a few more margins. I think that on the ETF side, clearly in the US, it's a different market segment for us. So I think the impact that that has on margins is minimal because we're actually targeting at different clients there, firstly. The second point I'll say on ETFs in particular, if I can, while I've got the microphone, is thinking about there's no good just launching a whole lot of products if you don't have a distribution capability. And so what we've spent the time on, which you will have seen in the earlier slide on around building out that capability in North America in particular, and Europe, but in North America in particular, is building the distribution capabilities to support those products. Because it's no good just having the products because they won't sell themselves. So we've actually spent that investment on building the capability, which I think helps us there.

And I think it's a good point, Ben, on margin, because the difference, obviously, with active ETFs versus passive, is you're not taking that same hit. And often, if it's actually replacing channels where you currently are intermediated and therefore maybe giving away quite a bit of the C, I wouldn't expect an immediate impact coming through or a lot of margin compression.

Okay, perfect. That's really clear. Thank you.

Thank you for the questions. One moment for the next question. Our next question comes from Nigel Peterway from City. Please go ahead.

Good morning, guys. Just a question, first of all, about the FX impact on these results. I mean, you're flagging, obviously, a fairly big increment in the cost base. I mean, the AUM impact was only about half a percent, so it was presumed that the revenue impact is quite a bit lower, which seems unusual. Can you just talk us through that a bit?

Yeah, I think... Hi, Nigel. Look, I'm happy to run through that. I think... One of the challenges that we've sort of seen through this period is where revenues come off, it's been quite concentrated, particularly with our exposure to GDP, compared to what we've seen on the expense side. So there is a little bit of where we'd normally expect a bit more of a natural hedge between where we earn the revenue and where we get the expenses. The timing of that is what's led to probably the difference for this year.

Right, okay. And then... All right, then, and then just a bit further on costs. I mean, obviously, if you take sort of what you're saying on your simplification program, it looks like, you know, there's at least, well, it's got to be at least $35 million of savings to hit the P&L next year, and yet you sort of factor that against your cost growth. It implied that if you hadn't got the simplification program, then the underlying cost growth would be more in the order of 5% to 6%. So the first question is, is that correct? And then secondly, just how would the cost savings target change if you are able to sell wealth management and you're still forecasting asset management costs to be lower next year?

Yeah, great question as usual, Nigel. So look, I think, first of all, yes, you're correct. So we definitely, we probably would have been in a higher cost growth environment without simplification. So it's really important that we continue to deliver on that. I've got a CEO sitting next to me who's definitely going to hold my feet to the fire on the 2% growth, I think.

Cost discipline.

But look, I guess what we're conscious of is particularly seeing what has happened with FX. We just wanted to be really clear when we put guidance out there that we've been open with some of the bits that could be more volatile. I think to the second part of your question around selling wealth, I mean, that is something we're already thinking about through broader simplification. you know, I suppose I've been getting my head around how would we think about things like stranded costs, which, you know, that's already front and center, I think, as part of our simplification program and the right sizing. There'll be probably some minor areas of dissynergy. But again, I think, you know, the discipline is on us across the leadership to be able to offset that. So I think, you know, it's early in the year, we're kind of not even two months into FY26. So I guess, We've probably been fairly conservative in how we thought about the cost growth, but we'll certainly be in a better position as we come into the half with six months under our belt to update on that.

Okay, so does asset management go lower and are much of the cost savings related to wealth management?

I think most of the cost savings are going to come from our asset management division, and I think I sort of flagged in what I was saying up front. if we accept some of that coming through from the simplification program. There is still some, though, that's coming through from groups. So where I talk about, for example, the finance transformation, there's a lot of things we're going to be doing there to simplify our tech stack, which will take cost out. So I wouldn't say it's all asset management. I think we've still got a little bit more that we need to do within the group.

Okay, thanks.

Thank you for the questions. One moment for the next question. Our next question comes from Lafitani Sotirio from MSC Financial. Please go ahead.

Good morning and congratulations, Suzanne, on your new role. May I kick off on the one-off costs? And in the second half, it's now getting on the side of ludicrous that there's still one-off costs for Barrow Handley, which is a deal that was five years ago and Kendall approaching three years, 18 million one-off costs excluded. Other unclassified, 6 million excluded. Can you just talk us through what this is? And then at the same time, that is part of the previous leadership sort of legacy. Is this something that you guys are intending to continue or is this something that you're hoping to put an end to, the large amount of one-off costs still flowing through?

Okay. Thanks, Lass, and thank you for the congratulations. It's actually a nice time of the year to be joining. Look, you've raised a good point, and we did sort of debate this a little bit ourselves. I mean, there are some aspects, particularly around the tail, that happens on remuneration with transactions that take a while to come through. We have obviously traditionally put those within the significant items bucket. I think if we'd removed them now, we'd be reducing disclosure, so we've kept them there. But as to how we would think about things going forward, I think I did sort of call out in my notes, we will be moving more things back above the line. And that's also reflected in the way that we've put our expense guidance there. So I think second half, the increase there, I mean, there were a couple of things on Barra Hanley. As I said, they had stronger performance through the year. And so that does have the implications because we're required to gross up the Barrow-Hangley business rather than taking a non-controlling interest. So that's also had an impact through the second half. But should you expect less coming through in the significant items line? Yes, you should. And I think that's also a reflection of the fact that we don't have as much corporate action and transactions taking place.

Just to clarify, I mean, you know, there's 6 million others. Can you call out what that actually is? And 18 million for Pendle, you know, Barrow Handle is the smaller part, the two. There's still quite a lot for Pendle. What is 18 million in the second half?

Yeah, so quite a large amount. I mean, if I just start with the other bucket, that's predominantly related. We have got a write-down there on some remaining capitalised software from our PCT business, so that would make up the bulk. The rest is a lot of rats and mice in terms of smaller items. In relation to the amount that's still coming through on Pendle, a lot of that relates to some of the remuneration outcomes that were agreed at the time, as well as retention. Now, again, the way that those are structured and because they're deferred, we don't record all the expense in that given year. Unfortunately, accounting makes us take it over the deferral period.

Okay, got it. And so just with the guidance that you set for, cost guidance you set for the full year, that's net of all the synergies and savings that you've got and with some of the one-off costs going back above the line. But it sounds like we should expect to continue to see meaningful one-off costs coming through over the next few years.

I think, whether I'd say meaningful, I think some of the ones that we're already breaking out at the moment will continue to do so. I would see the significant items line as being where you're probably going to see more non-cash items going forward. So whether that's any of the sort of amort on intangibles, you know, to the extent that we've got any other non-cash items. So, for example, if there's revaluations on financial assets that are held for hedging purposes that don't perfectly match the liability, I would still expect those to be coming through. But I think with less transactions, hopefully we have less of these one-off items coming below the line.

Got it. And just as my last question, can I just clarify, with corporate trust, is there more capitalization of expense going on in the background for that business? And for wealth management, the $5 million step up from first half to second half, is the second half more the rebasing run rate we should expect?

Well, two parts. I'll start with PCT. Yes, Vicky and the team are definitely still investing in development of software. Again, accounting standard kind of gets us, we have to put some of that up and capitalise on the balance sheet. So I wouldn't say it's a material amount, but you certainly should expect that there would be some. I think as I called out though for wealth management, which was the second part of your question, some of that was to do with a combination of both retention costs that we've incurred during the period, as well as a little bit on legal fees that were incurred during the year as well. So I'm not sure that's necessarily a new run rate. I'd say there's probably a little bit more of a number of one-offs, dare I use that term, that are included there.

Thank you.

Thank you for the questions. Our next question comes from the line of Andres Becknick from Morgan Stanley. Please go ahead.

Good morning. Can I ask my first question around the revenue trends in the wealth business? It seems like the market-linked revenues were down to basis points year-on-year, and the non-market-linked, or the fee growth was just 1%. So can you talk a little bit about why those seem a little bit soft?

Yeah, look, I'm happy to take that. I think, and Ben might have actually called it out in his speaker notes, but we did have a fairly large institutional client win during the period. Obviously, that's been at different margins, which I think will go some way to the revenues. but I don't know if there are any others to call out. I think that's the main driver for the period.

Yeah, that's right. Yeah, so that's the market link. What about the non-market link?

So the non-market link, Andre, it's a timing issue around, we saw we had some turnover in advisors where we lost some advisors and we hired some advisors, which I don't think is more of an industry trend. But during that period, there was a timing issue between advisors leaving and advisors joining. So that's where that impact of the non-market comes from.

Thank you. And for my second question, with the trust, you mentioned a new license for digital marketplace for data instruments. Can you explain a little bit more about that? It almost sounds like it would be doing the role of an exchange. Does that mean like it's kind of a step closer maybe competing with the ASX? Can you explain that a little bit?

So it's almost like a fractionalization is how I would use it.

In treasury management services.

In treasury management services, but it's fractionalization of fixed income securities.

So maybe not quite ready to compete with the ASX yet.

No, no. But there's been good demand from clients for it. So that's where we've responded to that client demand.

Yes.

Thank you.

Thank you for the questions. One moment for the next question. Our next question comes from Dalai Asita Parameswaran from JP Morgan. Please go ahead.

Good morning. Thank you for taking my questions. I just had one on performance fees. They did increase in the asset management. division from last year. I was just wondering if you could help us understand if you think these are reflective of, you know, through the cycle type levels. I know that, you know, they have been volatile over a little while. If you could just spell out, you know, where they came from and whether this is reflective of how we should be thinking as we go forward.

Yeah, I'm happy to. Yeah, I can kick off. Hi, Sid, how are you? Look, I... Yeah, look, I think the elevation is really because I think what we've had is some prior underperformance and therefore there's a sort of a watermark that most of these teams have got to get through where they have performance fee structures. I'd like to think with some of the improving performance, we can maintain a level. I'm not sure it's ever going to be a material part of the top line revenue. I think I sort of called out 3%. I couldn't imagine it'd be much more than five, but I'm sure my colleagues will tell me if I'm wrong on that, and I'll be happy if I am wrong. But I think, you know, with a number of our teams, what we're starting to see now is they're starting to come above the watermark that they would otherwise have. And some of this is also driven by, you know, client demand. So we're certainly sort of seeing, I think, maybe a little bit more out the UK, sort of, you know, more interest in performance structures where people are looking to pay for alpha. So some of that will also be in the next session.

Then I think you do see that in a cyclical nature. You see clients, in particular institutional clients, sometimes want to go down the performance fee route and then they decide they change their mind on that over time or then come back. So it actually does have quite a cyclical nature to it, the demand for performance fees, that is.

Okay, thank you. Just maybe two quick other questions. So wealth management, I think, Bernie, you called out just there were some pressures there on costs. I think staff retention measures. I was just wondering if you could help us understand how significant that was and whether there's likely to be any ongoing impact into next year, if you keep the business in course.

Yes, so not significant and the impact is effectively limited to the period.

Yes, I think probably less than half of the 7% growth would have been in relation to that. Yes.

Yes. Okay, thanks. And just one final one, just on the tax, I know there was some one-offs that elevated the first half tax, but just go forward. What should we think about your underlying tax rate as you'll be declaring it?

Yeah, I think, I mean, actually what you're seeing where we landed across the full year around 27%, that's probably more in line certainly with where we'd see earnings coming from. So I think around that level would be very much a reasonable assumption going forward.

Okay, thank you. Thank you for the questions. At this time, we have no more questions from the line. I'd like to hand the call back to Susie Reinhart for our closing remarks.

Thanks, everyone. Thanks for listening in today. I know it's a busy day. We've got all of the result material on our website and where we'll also drop a recording of this website, sorry, and look forward to speaking to some of you over the next few days.

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