Power Corporation of Canada

Good morning, ladies and gentlemen, and welcome to the Power Corporation second quarter 2024 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for a question. If anyone has any difficulties hearing the conference, please press star then zero for operator assistance at any time. I would like to remind everyone that this call is being recorded on Friday, August 9th, 2024. I would now like to turn the conference over to Mr. Jeffrey Orr, President and Chief Executive Officer of Power Corporation. Please go ahead, sir.

Thank you, operator. Welcome everyone to our call. Thanks for being with us this morning. I will dive right into the presentation to go through our perspectives on the second quarter and overall commentary on how we are thinking about the business. Before I do so, I'll remind you on pages two and three of the cautionary disclaimer statements regarding forward-looking information and non-IFRS measures. On page four, you have the happy mugshots of myself and Jake Lawrence, who is here with us today for your second call as CFO. We're happy to be with you, and we've got some other colleagues with us here as well in case we get some very technical questions. The Q2 results then, right after that, you've got the various public disclosures on page six from our different operating businesses, which I just make reference to if you're looking for additional information. And with that, I'll start my remarks on the quarter on page seven. Look, it was really, from our perspective, a very strong quarter. had really good financial results, broadly based, led by Great West Life, for sure, who had record earnings, again, this quarter, exceeding $1 billion for Great West Life Co. But really broadly based, all the businesses across Life Co., IGM, all reporting either good financial results or good momentum in their markets. So we're feeling very good about the businesses. And while market levels... stock market levels and interest rates at the short end have helped at the margin you know overall the macro conditions are not all positive as you know high inflation higher mortgage rates are impacting a lot of our client bases so from a flow point of view there's a number of our businesses that are macro conditions are not helping um but but aside from what's going on in the macro basis on a macro side you know the earnings are based upon broad momentum across each of the businesses. The businesses have got clear strategies. They're executing on those strategies. They're building momentum from a revenue point of view, from a cost point of view, from a capital efficiency point of view. So it's great to see. And it is happening across IGM and Great West Life, but also our NAV-based businesses are also showing good momentum and good progress. So overall, feeling great about the businesses. On the alt side, we did continue to fundraise, but also work with partnerships at both the Power Stainable Capital and Cigar to continue to build out their scale and their profitability and their revenue. And as well, in terms of our ability to generate cash and return capital to shareholders, which continues to be a high priority. We had some good news at GBL, which we'll talk about, but they're going to make a meaningful increase in their dividend, which PowerCorp will enjoy when that is paid. And we made progress on the standalone businesses of Peak, which owns Bauer and Rawlings, disposed of Rawlings. And so in the just start of Q3 here, we received a check of $83 million Canadian from that disposal and also I think recorded a gain somewhere around $42 million on the investment in the quarter. And we continue to be active on buybacks through the quarter, buying $189 million year-to-date so far. So with that, I'm going to pass it to Jake to walk through the financials, the NAVs, over the next few slides. Jake? Great. Thanks, Jeff, and good morning, everyone.

Picking up on slide eight of the presentation, as Jeff noted, Power Corporation reported solid earnings off another strong quarter from our main operating entities. That's Great West and IGM Financial. As we often point out, these two companies generally form all of Power's recurring earnings. For Q2, 24 adjusted net earnings from continuing operations were $761 million. This compared to $842 million in the same quarter last year. I'll address the breakdown of these results on the next slide, but we'll just note here that Q2 of 2023 included a few positive one-time items. On a per share basis, adjusted net earnings in the quarter were $1.17 compared with $1.26 in the same quarter last year. I'll also point out that the reduction in average share count from our ongoing and active NCIB program contributed approximately $0.03 to EPS. Adjusted NAV at the end of the quarter was $50.48 per share at June 30th compared to $53.10 per share at March 31st. The decrease in NAV quarter over quarter was primarily due to the share price decrease in Great West Life and GBL which was partially offset by IGM's share price increase and fair value gains in some of our proprietary investments. As of yesterday's market close, Power's NAV was $50.24, reflecting a rebound in Great West shares, offset by decreases in IGM and GBL. Finally, this quarter, Power Corporation's Board of Directors declared a quarterly dividend of 56.25 cents per share, in line with last quarter, and that's up 7.1% from Q2 2023. Now turning to slide nine to break down the earnings. Great West once again delivered strong earnings of over $1 billion with contributions to growth from each of its four segments. And as Great West noted yesterday, its US retirement and wealth business Empower is on track to becoming the largest segment in its business by year end. And this is very much in line with the growth strategy that was embarked on several years ago, but further fortified with acquisitions such as personal capital, mass mutual, and prudential. IGM also reported strong earnings this quarter, with year-over-year earnings growth across its two segments, wealth management and asset management. Average assets continue to grow despite a challenging macroeconomic environment. This past June, IGM saw heightened growth flow and redemption activity in advance of the Canadian federal tax change, which came into effect during the quarter on June 25th. In Q2, IGM rode up its investment in Wealthsimple by 15%. This reflects the strong business performance we saw in Wealthsimple, including revised revenue expectations, as well as an increase in public market peer valuations. This marks the third consecutive quarter in which Wealthsimple's value was written up. I'd like to remind everyone that Power Group's combined investment in Wealthsimple is now valued at $1.5 billion, up from $1.3 billion last quarter, of which Power's share is $563 million, and that's up from $490 million at Q1. Moving to GDL, whose comparative earnings contribution was impacted by a positive net recovery last year related to the decrease in WebHelp's NCI put-right liabilities. As a reminder, these put-right liabilities no longer exist as they were extinguished as part of the Concentrix merger. As well, GBL received lower dividend income this quarter following the sale of its investments in Wholesome and GEA. This is part of GBL's broader strategy of rotating its portfolio in favor of private assets and returning capital through buybacks and dividends to shareholders. As mentioned earlier by Jeff, this strategy was on full display as GBL announced a proposed record high extraordinary dividend of five euros per share funded by gains from its partial sell-down of its investment in Adidas and strong cash earnings. This dividend will of course be subject to approval at its next shareholder meeting. Moving to our alternative investment platforms, Cigard contributed positive earnings this quarter, driven primarily by performance in Power's investment in Cigard's private equity funds. Power Sustainable continues to scale with two recently announced strategy launches. This quarter's results also include fair value decreases in its energy infrastructure strategy. Cigard and Power Sustainable continue to deliver strong fundraising, despite headwinds in the fundraising for alternative assets. Continuing with the other investments and standalone business lines, this quarter saw a modest contribution to earnings as the gain realized on the disposal of Peek's minority interest in Rawlings was offset by a non-cash impairment charge taken on Leon. On a comparative basis, Q2 23 included a 97 million gain on the sale of Powers Investment in Dallas. Turning to slide 10, where we break down the $50.48 net asset value per share as of June 30th. As our publicly traded operating companies represent over 85% of our gross asset value, they generally account for the majority of the change in NAV. This quarter, the share price trading of Great West and GBL accounted for the decrease in NAV per share. As noted, this was partially offset by a share price increase at IGM, as well as fair value increases in some of our proprietary investments. I'll note that the NAV closed yesterday at $50.24, which does reflect that rebound in Great West shares, partially offset by declines in IGM and GBL. Looking at the balance sheet, Power's cash and cash equivalent stayed relatively stable at $1.5 billion at June 30th. We did remain active, as Jeff noted, in buying back shares and spent close to $100 million in the quarter under our NCIB program. And this is reflected in the lower share count you see near the bottom of the page. With that, Jeff, I'll turn it back to you.