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Edited Transcript of BTT.AX earnings conference call or presentation 6-Nov-19 10:59am GMT

Full Year 2019 Pendal Group Ltd Earnings Presentation

Sydney,New South Wales Nov 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Pendal Group Ltd earnings conference call or presentation Wednesday, November 6, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Cameron Williamson

Pendal Group Limited - Group CFO

* Emilio Gonzalez

Pendal Group Limited - Group CEO, MD & Director

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Conference Call Participants

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* Andrei Stadnik

Morgan Stanley, Research Division - VP

* Brendan Carrig

Macquarie Research - Research Analyst

* Edmund Anthony Biddulph Henning

CLSA Limited, Research Division - Research Analyst

* Kieren Chidgey

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Lafitani Sotiriou

Bell Potter Securities Limited, Research Division - Senior Analyst

* Matthew Dunger

BofA Merrill Lynch, Research Division - Research Analyst

* Michelle Wigglesworth;Milton Corporation;Investment Manager

* Simon Fitzgerald

Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst

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Presentation

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [1]

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So we have attention in the room here. Good morning, everyone. I think it's that time, so why don't we get started. There's a lot to cover. Good morning and welcome to the Pendal Group 2019 Full Year Results Presentation. I'm Emilio Gonzales, the Pendal Group Chief Executive Officer, and joining me will be Cameron Williamson, the Group CFO.

Turning to Slide 2. you'll see that on the agenda, I'll cover the FY '19 overview, followed by a business update covering FUM, flows and fund performance. I'll then hand over to Cameron to go over the financials in more detail and then close off on the strategy before open up for questions and answers.

Okay. So moving on to Slide 4. As we reported this morning, cash net profit after tax was 19% lower to $163.5 million. This was primarily due to a decline in performance fees, which were down to $5.9 million, from the previous year level of 54.5%.

Expenses were down by 8%, and given our model, that links our variable reward to revenue.

On our pre-performance fees, most of the financial indicators were reasonably well. You'll see there that average FUM was down 1%; base management fees, lower by 4%; and operating profit, excluding performance fees, was down 8% to $198.5 million.

Now the cash earnings per share was in line with cash net profit after tax, down 19%, and the dividend per share was 13% lower compared to the previous year.

Specifically on the business, despite the headwinds that we saw in the first quarter of the financial year where markets were down around about 13%, the strength of the business continues to be demonstrated along a number of fronts including our diversification across markets, distribution and asset classes, and that has helped during the course of the year. Our model is proven and successful. We have global distribution reach. There's a strong track record of investment teams and stability and clear financial strength on the business. Combined, all these attributes provide us with confidence in the business in a compelling value proposition going forward.

Looking at the macroeconomic drivers, there are 3 key drivers that drive our revenue and that is markets, currencies and flows. And I'll touch on flows in a moment.

Firstly, on markets, you'll see that although we've had record markets during the past 12 months and specifically, the last 9 months in the record highs in the U.S., Australia and U.K., and in October, the MSCI World actually hit a record high in October, the world markets on average were flat and that's primarily because of the first quarter of this year. We've seen some impressive returns in the U.S. and Australia this calendar year, but the average levels on markets globally were muted and markets that have struggled the most have been in, you'll see that from the chart, on the average on the U.K., the FTSE, Europe and Japan, albeit stronger markets in the U.S. and Australia.

Around 41%, on the pie chart there, of our underlying assets, these are assets we manage on behalf of clients within our equity portfolio, it's around 41% of the underlying assets we manage on behalf of clients are either in U.S. dollars or Australian dollars. And so our asset weighting was more weighted towards the lower-performing equity markets on average.

Currency movements have been supportive with all the key offshore currencies stronger against the Australian dollar. What the right-hand pie chart also shows is that the Australian equity assets are now less than 1/3 and the balance in foreign currencies. And that deliberately plays into our strategy of delivering investment strategies globally.

If you turn to Slide 6, it shows the strategy has developed over time in what we now have 3 strong businesses across Australasia, North America and U.K. and Europe and it is part of our vision of building out a globally diversified business. Importantly, the themes will vary over time from one region to another, and the last 12 months is a very good example of that. In UK/Europe, it's had its challenges with Brexit and also the growth expectations. In the U.S., in contrast to that, record and high markets and we've seen continued positive flows into our equity strategies, albeit a lot of our equity strategy are globally ex U.S. And contrast that again within Australia that had strong flows into cash and fixed interest products. So very different themes across 3 different regions and getting the benefits of that diversification.

This business focus across the regions has been strengthened further with clear responsibilities and heads of businesses for each one of those regions, which, in turn, provides focus while, at the same time, operating across a global platform and leveraging our global operating model.

It's that diversification and targeted strategies across those different regions that has been -- the business has been able to deliver smooth and consistent growth over successive years. And that's demonstrated on Slide 7 where you'll see our long-term history of performance over the last 5 years and outlines the promise of business. And despite over those 5 years, having a portfolio that's heavily weighted towards equities and equities can be volatile over time and it has been, our growth in the average FUM and our growth in the base management fees, in contrast, has had a smoother ride and does not resemble that volatility.

Indeed, if you look at the operating profit in the middle, that's the operating profit pre-performance fees, it has grown at a healthy 14% per annum compound annual rate over the past 5 years. And that's on a base management fee CAGR of 7%. And this year, despite performance fees being a minor contributor to the overall revenue, cash net profit after tax compound annual growth rate, which equates to all the revenue including performance fees has seen growth over that period despite this year's reduced performance fee outcome.

Now we know that markets and performance fees will be volatile, but growth -- our growth profile has been steady and smooth and that's flowing through into dividends.

So looking to flows and investment performance. First up, look at the industry flows globally and they are down from previous years, significantly so; it's the lowest level since 2006. And if you go further back on the data, it's the lowest level since 2012. Add to that where there has been flows, it's been in the income bond category. And equity flows globally were negligible at best. And despite an environment where we have low, in some cases, needed interest rates in developed countries, bond-related products have continued to be well supported. It does provide an indication of the risk aversion that clients are currently feeling.

Markets globally, so far, in this calendar year, global markets on a year-to-date basis in the calendar year, up 16%; S&P 500, up 23%. The global flows have not responded to that, which is a different response that we haven't seen in a while. It indicates a degree of nervousness and investors' reluctance to take on equity risk despite the market returns. It's something that we have seen play out in the flows across our own investment strategies.

To look specifically, those trends have been coming through in some of our offerings. And over the year, we saw strong flows into cash and fixed interest products through the institutional channel at Pendal Australia with net positive flows of $2 billion.

In the U.S. where markets have performed better, we've continued to attract positive flows into a range of products there of $700 million. The OEIC flows were negative with total outflows in that channel of $3.6 billion predominantly out of the European strategies.

You look at the business pre-Westpac flows and pre-Westpac channel, net flows were negative $1.4 billion with all of that dominated out of the OEICs in that UK/European region.

Across the Westpac channel, we did see outflows of $3.3 billion with the majority of that largely due to the corporate super transition, some of which we flagged at the half year. Margins this half compared to the previous half were unchanged, albeit lower than the levels this time last year. And as we pointed out at the half year, there were a few key accounts in the U.S. where there was some repricing.

Taking a close look at the individual asset classes on Slide 11. Again, the key outflows was in Europe and that was affected by a negative sentiment in the asset class, along with some performance weakness, which registered net outflows of $2.7 billion. Clearly, Brexit has had an influence and any clarity on Brexit going forward would be perceived as a positive.

It has also, however, marked a number of positive news and flows in a number of other strategies where we've had posted good flows such as International Select, Global Opportunities, Emerging Markets in the U.S. and UK Dynamic strategy within the U.K. range of funds have had strong flows during the course of the year in addition to our cash and fixed income, as I've already mentioned.

The other strategy which has seen an increase in momentum is our Global Income strategy in the multi-asset category, and you'll see there an increase of $200 million during the course of the year. And that strategy has now raised over $100 million in the past 12 months despite its early period of performance and good performance and it's only a bit over a 2- year track record and starting to gain some broad support.

And the other strategy of note is Asia. You'll see there, we did have outflows of $700 million, with most of that in the first half of this year. And those outflows slowing in the second half, given the strong rebound in performance we've seen in the Asia ex Japan strategy over the past 6 months.

Turning to investment performance, Slide 12. It is at the lower end of what we would prefer, but draw on a number of positives. 5-year numbers outperformance against benchmark stands at 79% of funds under management outperforming, which is a strong figure. And the 3-year number stands at 52%. Now those strategies on a 3-year basis that are behind include Europe and Asia in multi-asset. Within the multi-asset, it's primarily the Australian diversified funds impacted by the performance in an alternative sleeve we have there, which has kept those funds behind.

Asia, we've already seen a significant turnaround in the last 6 months and you'll see that further on.

And in Europe, we are against a number of style factors, which have been headwinds, albeit remained strong performance over the past 5 years.

On the quartile rankings, first and second quarter, our rankings ranged between 40% and 44%. That has reduced but very much weighted to some of the style factors, which I'll make a comment in a moment, but we have seen some good evidence of a turnaround over recent months.

I spoke last time at the half year about the dynamics around growth, value, large, small, macro versus stock selection and performance dispersion. This has continued to be a feature of market returns, particularly so over the last 12 months. And you'll see that on Slide 13, and I know I'm preaching to the converted here and the knowledgeable, and so this would be very well aware, but it's worth reiterating.

So Slide 13 shows the performance differentials on style factors such as growth and value and large and small. And this is nothing new. And in particularly, the last 18 to 24 months, you've seen material divergence where growth stocks have significantly outperformed value. In addition, we've seen large-cap outperformed small.

Now ordinarily, this would not pose a problem, but these factors have been significant and pervasive. And those strategies where we do have a value or a small cap, or in some case, a combination of both, had struggled against that -- against those headwinds.

Now those strategies include such as European Select Values, European Concentrated Value, UK Equity Income and UK Growth. Encouragingly, we have seen an improvement in performance in some of these funds where value has come back in the month of September and in October, and in some cases, that turnaround has been reasonably swift.

Turning to individual strategy on Slide 14 and 15 and to make a few comments on some of the key Hambro strategies on Slide 14. Within European strategies, for example, the European Select and Concentrated Value, which is both value, it's got value in the name and small-cap bias, it's managed by the same team, those 2 strategies, with the same process and the same philosophy. The key difference being that the average market cap on European Select Value has a higher weight to smaller caps than the Concentrated Fund. And that bias, which is a deliberate bias, you're going to see that reflected in the performance in those 2 funds despite the same process and same philosophy coming through.

Within the other strategy, UK Growth has a small-cap bias. And UK Equity focused on growing its income annually is mainly U.K. industrials, which has a value too, as a result of that, against the broader benchmark. Now where this has been a headwind, more recently, as I said, it's turned into a tailwind.

So if you take the UK Equity Income Fund, for example, it outperformed the benchmark by 5% in the month of September. And as at the end of September, it was 6.5% behind. As at the end of October, it's now 1.9% behind. The UK Growth strategy had a plus 5% turnaround in Alpha in performance, and the UK Dynamic, a more modest improvement but now ahead on the 1-year number.

We've also seen our improving returns in the range of the Australian equity funds with the latest performance improving -- encouragingly improving over the month of October.

But it is about diversification. Those funds that do not have those same biases to value and growth such as Global Select, you look at Global Opportunities, UK Opportunities, they have been performing well. They don't have the same underweight to large caps. They had performed strongly. They pulled back over the same months, and that's in line with our strategy to ensure we have complementary strategies at different points in the cycle.

A critical point I would make between Slide 14 and 15 is over the full cycle, they've all outperformed since inception. If you look at the returns, there's about 35 strategies, 33 out of 35 have outperformed. And it is that consistency of delivery over the long term and over the full cycle that is important. We know that we operate in a market where cycles come and go, and given where markets are at the moment, our argument, and we are on the front foot, is the time to be active is now.

On Slide 15, you will also see the significant outperformance in the Asian strategies over the past 6 months. And given our high Alpha, high conviction approach that we adopt and whilst these shifts whilst not common, are possible.

I will make a comment on some of the response that we've been adopting in terms of performance and positioning. We have been on the front foot to ensuring our messaging and our position is clear. Now whilst part of our investment governance is the ongoing review of investment portfolio, and that's best practice, we have put our strategies under the microscope and tested our positioning and conviction: does the thesis still hold up? And importantly, are we still true to label that -- in terms of what we have communicated to our clients and articulated to our clients.

The outcome of that exercise has provided us with greater conviction in terms of our positions and the confidence to go on the front foot in our messaging and communication with clients beyond what we ordinarily do. And our confidence is now being rewarded in terms of the market turning, at least in the last few months. And we have intensified more recently our engagement with clients, articulating the positioning, increased our promotion on a number of funds. We've added additional sales resources in the U.K. and the U.S. The expanded leadership we brought onboard has provided more support. And specifically in Australia, we've aligned our sales team within the wholesale area more along the clients segment within the wholesale, given changes within the distribution network post the Royal Commission. And more recently, we've initiated a brand campaign to raise the profile of Pendal Australia amongst advisers.

So having done the work and the understanding of where we are, we've actually been, on the front foot, promoting our funds, saying this is the time to be active and getting to the market given the changes that we're seeing.

Just turning to the leadership on Slide 17. This is something that I'm super excited about. At the half year, I spoke about the need to create greater bandwidth to focus on teams and opportunities. And since then, we have appointed a CEO for the Europe, U.K., Asia business and a CEO for the U.S. business as well. Alexandra Altinger has now started in London in early September. And Nick Good, who's based in Boston, will start in December. Both bring experience, deep knowledge and a deep understanding of those markets. And with Bindesh taking on a Global Chief Risk Officer role, all bring global experience to the table.

Also, during the year, we appointed investment directors for Hambro and Pendal Australia to support our investment teams and investment oversight as well as thinking about developing products for the different teams.

Collectively, we're all excited about the opportunity to be working in a business that is global with the attributes of a boutique and can be nimble and make a meaningful difference and contribution to the success.

It is exciting and I very much look forward to introducing the team over time to you all.

So with that, what I'll do, I'll hand over to Cameron and he'll go through the financials in more detail. And I'll come back on the strategy and answer at question and answers. Thank you.

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Cameron Williamson, Pendal Group Limited - Group CFO [2]

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Thanks, Emilio. Just turning to Slide 19. In terms of financials for the year, we're looking at cash NPAT of $163.5 million, an EPS of $0.513 per share, they're both down 19% on last year. The results really characterized by significantly lower performance fees in a difficult flow environment globally. You've heard this morning how flows within the industry globally have been down and that has been cushioned by lower expenses across our business.

Average funds under management of $98.8 billion. That's down 1%. That's been impacted by outflows. Over the course of the year, we have had $4.7 billion in outflows supported by a lower Australian dollar.

Markets have been mixed through the year, as you've heard. Whilst the average has been broadly flat at the global level, we've had pockets of regions, which have been negative, particularly in UK/Europe, and that has impacted our average FUM.

Base management fee margins of 49 basis points. It's down 2 basis points. That's largely driven by asset mix. We have had significantly strong flows in our cash and fixed income business over the course of the year. And base management fees are down 4% over the course of the year. That's a good outcome in light of the environment that we've had.

The biggest impact has been the lower performance fees, which are $5.9 million for this year, significantly down on last year. And at the total level, operating revenue, down 12% over the course of the year.

Just turning to the costs. The costs are 8% lower and that's largely variable costs, driving that down. Staff costs are 10% down on last year. That's the lowest level in terms of staff costs in the last 5 years.

On the nonstaff level, operating costs down 6% versus the same period last year. The bulk of that's variable. I would just like to highlight that some of it's nonrecurring. When you're looking through those nonrecurring items, probably similar level to last year on that particular nonstaff line.

We have had a decrease in our nonoperating income. That's largely our seed portfolio. There's been less recycling in that this year and so that's -- we've had less seed gains.

I will just draw your attention to the tax rate, which is at 22% this year, is looking to trend down next year and likely to be somewhere in the high teens.

Just turning to the revenue. Revenue, down 12%, to $491.2 million. The biggest impact that we've had this year has been our performance fees, which are $48.6 million lower than last year. We've also had lower revenue coming from our OEIC channel, OEIC outflows this year, as well as the lower average market levels in that region. Our OEIC book is typically weighted -- more weighted to the U.K. and Europe, which you've heard the average levels of the markets have been down. It has meant that our average -- our fees from that channel are down over $25 million this year.

Pleasingly, outside of that, we have had some -- an increase in our U.S. pooled fee revenue, up $9.5 million. It is higher margin for us, and that has been a support for our margin. And institutional fees, also up 5.3%. I guess it's flowing on from last year where you had very strong institutional flows as well as some cash in fixed income from this year.

And the Australian wholesale revenue, up 2.9%, that's a good outcome in light of post Royal Commission, where the wholesale channel has been really a challenging environment here in Australia.

Turning to Slide 21. On performance fees, they are down this year to $5.9 million. This is a low since the Hambro business was acquired in 2011, a difficult period for active management. And we have felt this in this year.

The current status of our performance fees in terms of next year's number, the Hambro funds do have a 31 December performance period, is currently less than $1 million at $0.8 million. So next year's number is, again, looking at the lower level.

Just turning to the high watermark chart there on the right. This does cover both the Pendal and the Hambro funds in relation to where they currently sit. We had $26.2 billion in assets that are capable of earning performance fees, and outperformance is required to get back to the high watermark before performance fees can be earned. We don't have a reset capability within that. We do have to earn all our underperformance back before we actually have an ability to earn performance fees. And we have $11.6 billion that's in that 0% to minus 5% range. Now that does move around month-to-month. We do have -- you have heard from Emilio in the previous slide talking about some of the funds that have really had big swing factors in the last 2 or 3 months. We do cut off that -- the performance piece on 31 December. So it does create an ability over the course of the next few months to have some upside on the performance fee status based on that trend.

Just turning to the margins. Effective fee margin this year of 49 basis points, it's down 2 basis points year-on-year. The asset mix has been a key driver behind that. We have had outflows in our equity book over the course of the year and inflows in our cash and fixed income, that dynamic has really affected our overall fee margin. You will note that ex cash and fixed income, the fee margins have held up reasonably stable over the last 4 or 5 years, but somewhere between 56 and 58 basis points. This year, it's at 57 basis points, been reasonably stable.

We are very diligent in terms of allocating capacity in those funds and strategies that are at or near capacity, allocating that capacity to higher-margin channels, which does support the overall effective fee margin.

The largest fall that we've had in our fee margins being the institutional channel, and you can see, that sort of declined from 41 basis points last year to 37 basis points and the bulk of that is driven by that asset mix dynamic. We have had reasonably strong cash and fixed income flows, not just this year, but also towards the end of last year, which has affected that.

Also highlight the Westpac fee margin, which has been on a downward trend, at 24 basis points. Westpac revenue now representing 10% overall at the group level, much -- significantly less than what we had previously, 4, 5 years ago, it was double that.

Turning to Slide 23 on the expenses. Expenses down 8% over the course of the year to $290.2 million, the largest difference there being the lower staff variable costs, very much linked to our business model. As revenue has declined, particularly performance fees, so has the staff participation in that. That's been felt across the staff line at $27.4 million, lower than last year.

On the nonstaff line, that's also down $5.7 million. The bulk of that's in regards to lower third-party manager fees, which are payable to some of our outsourced managers that are used for our global products here in Australia. Within that, there's about $3 million of that, that is sort of nonrecurring, which I've highlighted previously. So just in terms of normalizing for that.

On the head count level, we have increased our head count across the group, 26 head count coming into the business. When looking at where that's been allocated or where we've invested within the group: 8 of that is into ESG as we've onboarded the Regnan staff and added a couple of head count to support that, forms a key part of our strategic goals in coming years, boosting that area of our business; 4 head count into our investment teams, we've got a number of analysts and a new PM in London; 4 on the distribution front and you've heard that we've invested in the U.S. and U.K. to strengthen our distribution capabilities in those regions; and then 10 on the operational staff as we're looking to build on our operational platform. We've invested in certain areas as we've got some big strategic goals in that area. In terms of the overall head count, 346 FTE now across the broader group.

Just turning to Slide 24 now on our fixed variable cost base, this slide shows how our costs are sensitized to revenue and how that's changed over the years. This year, $290.2 million expenses, $140 million of that is variable; $150 million of that is fixed. The lowest variable expenses that we've had in the last 5 years, very much linked to lower performance fees and a decline in our base management fees. The decline in our base management fees is our first decline in 8 years. I'll just highlight that that's come back. Having said that, the base management fees are still at a higher level than what they were 2 years ago. So they haven't come off that much at 4% and we do have some strength in that recurring nature.

On the fixed costs, they had gone up 5% this year, $143 million up to $150.2 million. You'll see there on the fixed cost growth, we had been investing over the last number of years in the broader business.

Looking into next year, there is a similar step-up again in terms of fixed costs, probably similar levels, continued investment in new investment talent across the business. We continue to look to broaden our distribution and enhance that. And we are building on our European presence. So we've recently enacted our Irish entity to take over the management of our Irish UCITS fund and that creates a European presence for us. We'll be looking to build on that over the course of the next 12 months and develop a European sales strategy, which, over time, will create a presence in Europe, which we haven't had to date. We've been servicing Europe out of London. In a post-Brexit world, it requires 2 different strategies, and our European strategy is kicking off really this year.

Just turning to the operating ratios. On the right there, you will see that, that has trended down quite consistently over the last number of years. This year, it's the first year where our ratios have trended higher, and that's a result of the decline in revenue. But despite that decline, we have continued to invest in the business. Looking at next year, you can expect to see the comp ratio trend up again, probably 1% to 2%. We do have a number of remuneration schemes, that were put in place at the time of the Hambro acquisition, rolling off and we are looking to enhance those, create broader succession and retention schemes and rewards for growth, which we'll see that overall comp ratio trend slightly higher as we head into next year. It does factor in also bringing on some new talent, new teams, and Emilio will talk to that shortly.

Just turning to the balance sheet. And this highlights the strength -- the strength of the business provides a very strong platform for growth. You'll see there the most significant change that we've had in our balance sheet the last 2 or 3 years has been the growth in our seed portfolio, which is up to $259 million at the end 30 September. It is seeding 17 different strategies and vehicles. Three years ago, it was $83 million. So it has grown triple in that time. It does provide the platform for our future growth.

Our net cash position, you can see there, $149 million, it's come down a little bit over the last couple of years as we've put more into our seed portfolios.

Net assets have continued to grow. And you can see our NTA per share, net tangible assets per share increasing. It's up to $1.15 now, up from $0.42 per share. That's up $0.73 in the last 4 years, really tangible strength in the business, improving year-on-year.

Just turning to the seed portfolio on Slide 26. That's an important part of our business. It's an important part of our growth and our future. Last 8 years, you can see there, since the acquisition of Hambro in 2011 where seed portfolio was $11.6 million has grown to $259 million, increased significantly more recently, as I said on the prior slide, net of recycling within our portfolio. We do recycle into different strategies as they get to scale. We've added $141 million over those 8 years. The markets have contributed, markets and investment performance have contributed a further $106 million in that 8 years, which has grown that portfolio to the current size. The current size of $259 million is seeding those 17 vehicles, and this year within those vehicles, we've raised $170 million from external clients. So as those funds get to scale, we look to recycle out of those funds and deploy that seed into either extension strategies or new teams that provide future growth for the group. We will recycle.

A key component of the growth this year in those funds was the Global Income Builder. That was a strategy that was launched a bit less than 2 years ago and that took in excess of $100 million this year, so it's very pleasing to see that get traction early on.

When looking at the history of those portfolios, we have 11 seeded vehicles that we fully redeemed. There's $8.5 billion in assets in those vehicles now and that's contributing $64 million in annualized revenue to the group that we didn't have 8 years ago. So again, just shows the strength of bringing new product to market and creating a revenue stream from that investment.

We've recently announced the closure of the US SMID and the Global Smaller Companies strategies. These are strategies that have been going for the last 5 years. As at the end of 30 September, we did have seed in those particular strategies of $109 million and captured within that $109 million is $38 million in unrealized gains that will be realized in the first month or 2 of this quarter as those strategies are shut down. That gain will then feed into the 2020 result.

As a result, I would just highlight that, that capital is being earmarked for other seed investments in the coming 12 months.

Just turning to the dividend. The final dividend for the year has been declared at $0.25 per share. That does compare to $0.30 last year, it's down 17%. And it is to be 10% franked. That's the same as the interim dividend. The full year dividend of $0.45 per share compares to last year at 13% down on the prior year, 19% EPS, 13% on the div.

And the full year payout ratio at 88%, it is at the upper end. And again, that goes to the fact that we're comfortable with our seed position. A lot of the money that we retain in the business is used to boost into our seed portfolio, but we're reasonably comfortable with where it's at.

Dividend yield at the moment is more than 6%. And the franking levels as we look into next year, similar levels to this year at somewhere between 10% and 15%. We don't retain franking credits within the business. They're paid out every year. So it does depend on the relative profitability inside and out of Australia because franking is only passed on, on Australian profits.

One item I'd like to draw your attention to is from next year, we are looking at amending our cash NPAT classification. We're looking to exclude realized movements in our financial assets. That includes our seed portfolio, they will be excluded from our cash NPAT, and that's in light of the quite significant gains that you've seen on the prior slide. With regards to that, we don't -- that isn't distributable. It's capital that we use in the business to grow it. And going forward, the cash NPAT classification will exclude both realized and unrealized gains in its reconciliation. It is capital in nature, it's used -- capital that we use to grow the business and it's not subject to distribution.

And with that, I'll hand it back to Emilio.

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [3]

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Thank you, Cameron. Turning to our strategy and outlook. You'll notice on the Slide 29 the tagline -- extended tagline there reads, The future is worth investing in. And that is the tagline for our new brand campaign for Pendal Australia and equally reflected in our corporate strategy. And the future is worth investing in and we're all well positioned in a market that is throwing up opportunities. Whilst this year was our first year of lower earnings in the last 8, our confidence does remain high to make the most of the opportunities in a tough environment around our core strategy of investing for growth and diversification.

Our guiding light remains. There are key assets around attracting and retaining investment talent, we have strategies to complement what we do; capacity management in a disciplined way; new products, development of extension strategies; continued investment for growth, specifically targeting regions such as the U.S. where we do see opportunities; enhancing and developing our distribution channels to drive our sales; and investing in technology to not only generate efficiencies, but to enhance our client experience and use it as a business enabler as well as better efficiencies across the group on a global scale.

In terms of the thinking about the talent side, whilst our fund has surpassed AUD 100 billion, our boutique nature has remained what we believe is a competitive advantage. The investment autonomy we offer, our discipline on capacity management, a transparent remuneration structure, the level of support we provide through seed capital given the size of our business, along with the investment-led culture and backed with the global distribution has resulted in very stable investment teams with long-term track record, which I know is highly value-prized by clients and consultants. And you can see that through the near 0 staff turnover in the investment division.

The level of discussions, particularly over the last 6 to 12 months with potential new teams, has risen, which is very encouraging, but we would only consider those on the basis that they meet our criteria on investment quality and complements our existing strategy with strategies that are marketable and strategies that can add to our growth profile.

One area of focus, and I've been referring to this over the last couple of years in our diversification, is continued growth in our income book through both product development and new capabilities. We know that the aging population globally is driving increased demand for products to provide income in retirement, and investors are willing to pay for active managers to provide products that meet those income needs.

Over the past few years, we have progressively rolled out a series of income products in Australia and also offshore with the Global Income Builder, which is now getting broader platform representation and gaining traction in terms of flows.

And over the last 12 months, as we mentioned earlier, we've been pleased with the performance of the Global Income Builder, $100 million in fund flow, north of $100 million on the platform in the U.S. and this is becoming an increasing focus in our offering. Whilst margins are lower than what you would receive in equities, it does add to our overall revenue profitability as well as stability to the portfolio.

Another area of focus in our strategy is on investing in the ESG/RI sustainable segment, and this is a growth area globally. In the U.S. alone, there is USD 11.6 trillion of professionally managed assets in ESG and RI strategies. In Europe, ESG is fast becoming a core requirement. And in Asia, well on the path to embracing ESG specialist product. We're in a very strong position to benefit from this demand with a strong heritage in this space spanning over 35 years, having launched our first ESG type product back in 1984.

Importantly, we have shown our commitment in this space not because it's become reasonably -- recently fashionable, but we have been early adopters and have built skill and knowledge of managing strategies through this lens.

And that commitment was enhanced early this year by moving to 100% ownership of Regnan, which is our specialist ESG research advisory and engagement firm, which we have been associated with from its very beginnings. This does add depth and breadth to what we already do whilst preserving the independence and credibility of Regnan who are seen as leaders in this area. It's an opportunity for both brands to leverage off each other's strength and provide more compelling value proposition to clients who are looking for expertise, experience, investment management and thought leadership that we've gained in this area over many, many years.

Having the internal expertise developed over many years with the credibility will provide depth of research and engagement to our existing strategies. And we will be looking to expand our research capability and expertise in this area with a vision. It is a vision to be a global leader, and there's no reason given our pedigree and our commitment in this space that we should not strive to achieve that vision.

Now turning to the summary. Overall, FY '19 cash net profit after tax, down 19%. It was our first down year in 8%, albeit operating profit pre-performance fees was down 8% whilst the OEICs in the UK/Europe have been in net outflows due to concerns over Brexit and European growth.

We have had good flows and continue to see good flows in the U.S. cash and our fixed income products.

Investment performance has been under pressure, but we have been encouraged by recent signs of a turnaround, and particularly from those strategies with a bias towards value, and in particularly, our range of U.K. equity strategies.

We do have a strong balance sheet. We do have seed capital support our new strategies and a strong business with good cash flow and a model with a strong value proposition for fund managers backed by global distribution.

Looking forward, macroeconomic and geopolitical uncertainty, it's not going away, will continue to drive short-term sentiment. Brexit, interest rates, China-U. S. trade negotiations will continue to dominate the news, at least in the short term. And as I said earlier, any clarity on Brexit, hopefully, there will be clarity somewhere down the track, will be seen as a positive response.

Our starting FUM is slightly higher than the FY '19 average FUM, so it's a good starting position. There is focus on new capabilities and new teams, and with the level of discussions up a notch, we are -- they are throwing up interesting propositions, which, given the right opportunity, we would want to act on.

We do have plans around new product and new developments. And we've also seen the trending flows improve over the last 3 to 4 months.

We'll also have greater focus on the range of income products. We will be launching new ESG/RI products. And along that journey, continue to invest in the -- investment in the technology platform, our systems upgrade to seek out efficiencies and also bringing out benefits to clients as well.

So with that, I'll pause there. I'll thank you for your time, and we'll open up for questions and answers.

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Questions and Answers

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [1]

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I already have hands up on the floor here. So I'll take the floor first in the room, and then I'll hand over to those on the phone.

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Simon Fitzgerald, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [2]

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Simon Fitzgerald here from Evans & Partners. Just wanted to, firstly, take you back to the slide where you talked about the performance reviews, but in terms of the investment portfolios including testing positions. I'd like to know a little bit in terms of how you're applying that to the Japanese funds particularly, given that 3% of those funds are outperforming and just your sort of thoughts on a go-forward basis with those funds?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [3]

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Yes. Actually, good question and you've picked a fund where we have probably focused a lot of our attention on. And there, we've gone back and looked at -- [star's always] a factor, but is there anything else beyond that, that we can do better. And we've done some analytics over the last 3 to 5 years on a trade-by-trade basis, looked at timing, looked at areas where we either early, late, done some very in-depth analysis. And out of that has come some sort of lessons that we believe we can improve that performance going forward.

So there has been a big focus on that one specifically. We've used internal expertise and we've also brought external analysis to come in and make sure that we've put it under microscope and see how we can improve that. So that's a very good example of some of the work that we've done.

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Simon Fitzgerald, Evans & Partners Pty. Ltd., Research Division - Senior Research Analyst [4]

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Just a second question in regards to people. Obviously, some 2 very important hires there in terms of J O Hambro. Just wondering if you had any early insights in terms of what you would like to see done differently? And also interested to know a little bit more about next Nick's hire given his background in ETFs mainly versus active management?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [5]

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Yes. Whilst I'm not sure about done differently, but greater focus. The business has grown from 8 years ago and the management structure hasn't changed that much. And it's become clear over the last 2 or 3 years that, particularly in the Hambro business, it's difficult to focus on where are the right priorities, where is the right focus out of London. With our U.S. business, that's gone from $4 billion to over $15 billion. And so that was driven by -- if we want to double our FUM in the U.S., let's have someone there who's awake at night thinking about it with the mandate to grow it.

The side benefit of that is with Alexandra coming onboard, it's given her focus at a time when Brexit's coming onboard as well. And so you'll see a lot of attention more in Europe in terms of strategy and her background in having operated in that market, sold into that market and knowing that client market, so very clear what we're doing on that front. And so it's not so much different, it's getting greater focus in areas where we perhaps haven't had as much and we can now do that.

In the U.S., absolutely right. Nick's background is into ETFs, but his skill set is in building businesses. And so you go through his background from his consultant days as a consultant to BGI, then being employed there and then employed at BlackRock to grow the Asia business and then employed at State Street Global to grow the revenue business.

So the common theme there is he's been in positions and responsibilities to grow businesses and often from a I start-and-look to double, triple and go further than that. And so that's a growth agenda and we've got someone onboard who's done it 2 or 3 times in the past irrespective of the nature of the business. And we asked ourselves the question about his background in ETF and the benefit that he brings, diversity of discussion to the table. There's a lot of active experienced management at the table already. And so I'm conscious that the best decisions are around people who bring different aspects, different viewpoints. And if passive is growing, who better to have at the table who knows that market very well that we can respond to.

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Edmund Anthony Biddulph Henning, CLSA Limited, Research Division - Research Analyst [6]

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It's Ed Henning here from CLSA. A couple of questions from me on Europe and then the U.K. Just on the European funds, which funds have you seen the big outflows in? And also what are the FUM balances left there?

And just on the U.K., if we do get a Brexit result, can you just run through some of the funds there and the capacity you've got left in those funds, please?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [7]

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Yes. So the 2 key funds there are Continental Europe and European Select Value. On the sizes, Cameron, help me out here, at the moment, they're about -- between $1 million and $1.5 billion in terms of size at the moment. ESV outflows have been consistent over the last 12 to 24 months, hasn't really accelerated, hasn't slowed down. It's been -- the outflows this year is in line with the previous year. Where they have increased is in Conti Europe and Conti Europe excludes the U.K. And there, the majority of the client base in Continental Europe is U.K. investors and they've voted with their feet on exiting out of Europe. But that whole asset class in European equities has been under pressure. We've had the added difficulty that our performance there has suffered as well, but that that whole asset class definitely has been in outflows.

Now Conti Europe fund has probably increased -- seen an increase in our flows maybe because of the headlines of Brexit, and that is pure Continental Europe.

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Cameron Williamson, Pendal Group Limited - Group CFO [8]

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Just to put that into perspective, when we soft close the European Select Values fund, it's 45% lower than when -- at the time of the soft close. So from a capacity perspective, its capacity is freed up.

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [9]

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Yes. On capacity, that's on the European -- on the U.K. funds, we do have capacity in UK Equity Income fund, albeit a soft close that has come off over the last 2 or 3 years. We haven't reopened that. We're going to existing clients. We've just done a road show recently, as I said, on the front foot. Very confident of our positioning. And it was timed very, very well. We started doing that in August and then we've seen that performance turn around.

UK Dynamic is brought in last year AUD 900 million, and the year before that, about AUD 600 million. It's getting close to capacity now, it's north of 4 billion in terms of fund size. And so that's done very well for us. UK Growth has come off a little bit. There's some capacity still there.

On the back of the room and then I'll hand over to the phones.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [10]

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Okay. Andrei Stadnik here from Morgan Stanley. Just wanted to ask 2 questions. First one, you pointed out that flow trends have improved to start FY '20. Have they improved in Europe or U.S. or in Australia?

And my second question, you've spoken a lot about continuing to invest in the business operationally in distribution and wanting to grow and fixed costs will be up. I mean how do you think about the scale of Pendal from a global point of view? Does Pendal have enough scale to compete?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [11]

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Yes. Firstly, on the flows, we have seen since July, each month flows progressively improved from month-on-month. And so the delta's improved. That improvement has come -- well, the Australian business flows in cash and fixed income was strong. Wholesale were holding up and that's probably that theme's persisted through that. Improvement has come offshore and predominantly out of the U.K. Europe is still probably the same run rate. And we've seen some of the other funds in Global Opps, Emerging Markets and Global Income Builder pick up as a result of that. But we have definitely seen that improvement and it's predominantly come out of the U.K. area.

On your other question about investment operation. It is -- in terms of the leverage there, we launched a fund in Europe managed out of Sydney, and that's our Global Fund and quietly building a track record there. So there's an opportunity there. The other reverse opportunity is that one of our best-performing funds raising money in the Australian market is Emerging Markets out of London. And so we're leveraging the distribution here locally to sell product.

The other thing that we're now more sort of thinking about the back office and the operation, we're looking at where globally we can leverage off a single operating platform across HR, substantial shareholding, areas that we can have 1 operating model rather than 2. That's part of our thinking going forward from a technology and the platform side of it.

Before I take one, I did promise the waves first, apologies for that. I try to stick to my promises. So maybe we'll take it on the line.

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Operator [12]

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The first phone question comes from Laf Sotiriou from Bell Potter Securities.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [13]

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Just one follow-up question on the cost base. So I just wanted to be a little bit more specific on, I guess, the medium-term outlook. So if we look at the -- take the full-time employees' growth rate in the last year, 26 are new FTEs. That's about 8% growth. It's probably a bit higher than what I was expecting. How should we think about the next 2 to 3 years in terms of the repositioning of the business? And what are some of the key metrics that are going into the decision-making as to evaluating where capital should be allocated in terms of this expansion in the business?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [14]

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Yes. I'll just hand over to Cameron on that one, Laf, and I'm happy to add later.

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Cameron Williamson, Pendal Group Limited - Group CFO [15]

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Laf, look, the 26 head count obviously is, holistically, looks like a big number. We have made some efficiencies as well towards the end of the year. So from a run rate perspective, there's a -- the delta year-on-year isn't as big. We have -- as I mentioned, we are in the process of closing down a strategy and a team that goes with that. We're making efficiencies with the platform as well.

Longer term, there will be longer-term efficiencies. But to actually build out that platform and get those efficiencies, we will -- there will be a body of work involved. The way we're thinking about it over the next, say, 3 years where we're -- where the head count will be growing is probably more on the investment and distribution side of things. New teams are a focus, new capabilities into the business is a dedicated focus for the strategy. We've enhanced the ESG side of things this year, but we're looking to build off the back of that in the coming 12 months and that's baked into the numbers that I've guided to.

Outside of that, we're looking to try and streamline things as much as possible, as Emilio just alluded to, from a global platform perspective. Where it makes sense to, we're looking to pull back and try and get one way of doing things, which, over the long term, will create some efficiencies longer term.

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [16]

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Yes, just adding to that, Laf, that 26 includes 8 from Regnan. So excluding that, you've got sort of a lower number. Then within that, we did add support on the investment side. The majority of that is 10 in operations and the reason we've resourced that up, we do have a number of projects, whether it be Brexit, whether it be platform and technology that we're building up to make sure we execute properly on those.

In the Australian business, we are moving our back office from Westpac. And we've got a number of registry accounting, which is quite significant with all the funds. So it's positioning ourselves to make sure we manage that properly.

On the flipside of that is currently we have made redundancies as well. During the course of the year, roundabout -- probably about 15 and keeping that tight.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [17]

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And just a little follow-up to that. So I understand the repositioning of the operations and getting efficiencies there. So how should we think about what you guys are taking into account in terms of determining where the opportunities are and where you're investing in terms of your new strategies and your new distribution?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [18]

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Yes. So when we're thinking about technology and platform, is one, up-skilling it where we become more digital-enabled and that requires data management; with new capabilities, having a platform across the global platform that we can bring on capabilities that perhaps we're not doing today, that we can bring on very quickly, whether it be new asset classes or a new type of instruments around that as well. And there's still some historical manual processing that we do and changing that to more technology-enabled processing. But that would enable us to bring on capabilities that we currently don't do in a more efficient way.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [19]

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Sorry. Just -- I think my question has been lost a little bit. I'm just trying to better understand. You say there's 3 or 4 old strategies out there because there's lots out there, what are some of the things that you're considering in saying, we're not going to pursue those strategies for this reason and we're going to pursue these other ones because we've got a key competitive advantage? I guess what I'm getting at is how do we know we're not going to keep seeing money or capital continually thrown at these new strategies versus gaining more efficiencies in the business and growing what's in front of you?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [20]

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Yes. Look, ultimately, the strategy we bring onboard is going to be driven by the talent. And if we find something there that complements what we do and we do have to invest in, we're not going to sort of draw back on that. But as we go through a process, Laf, of updating our technology, we want to be able to do that in a way that gives us a lot more freedom to make things easier. It doesn't necessarily mean we won't do things because of an operational perspective.

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Operator [21]

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(Operator Instructions) The next question comes from Shreyas Patel from UBS.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [22]

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It's actually Kieren Chidgey here. Most of my questions have been answered, but just a follow-up question on the costs and sort of the profile and process around the unplugging yourself, I guess, from Westpac at the back end. How much of that is being undertaken in the FY '20 year and sort of what -- how long will that take? Is it a factor that this is through to FY '21 and will sort of also result in higher fixed cost growth more over the medium term?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [23]

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Yes, it will be a multiyear project. It will be over 3 to 5 years. This year is probably modest. In terms of looking at the whole plan, there's about 6 or 8 different streams that I've spoken about. This year's probably, in the context of the whole plan, is quite modest. And most of the heavy lifting will probably be 2, 3 years out from now. We are in the process of conducting an RFP on some of our back offices. And by the time we go through that and thinking about it and selection and putting something in place, that will take most of this year to do that. So most of the flow-on effect from that will be in future years, whereas this year, we've got a couple of activity in that, but quite modest compared to the next 2 or 3 or 4 years.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [24]

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Okay. And the cost of that is presumably shared between yourselves and Westpac? I mean how do we think about sort of the risk here around expense overruns and the like as you go through that process over the next few years?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [25]

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Absolutely. So we've been in this close discussion with Westpac who obviously do our -- have been doing our back office since the float. They are funding the cost of us extracting ourselves from the back office and they are funding the full cost of the exercise that we need to do that.

Once we go onto a new platform or a new back office provider, anything we do that's over and above that is a cost that we fund ourselves. The actual cost of separation is funded by Westpac. The actual cost of doing anything over and above that is funded by ourselves.

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Operator [26]

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The next question comes from Brendan Carrig from Macquarie Group.

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Brendan Carrig, Macquarie Research - Research Analyst [27]

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Just one question for me. Just earlier in the year, you opened up the Global Select strategy to inflows again. Is this a strategy that you think might take place across other funds? And is this an avenue you think that you'd be able to pursue other growth areas by doing this or is just an outside incident?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [28]

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If we have strategy that have soft closed, and for whatever reason, the funds either markets are off or we've had outflows -- we have had outflows in Global Select and there's 2 reasons why we've reopened it. It released about $1 billion in capacity since we last closed it. Secondly, the fund manager felt like this was a time to go on the front foot. His performance was down in Global Select, but felt that it was -- we needed to go out there and encourage clients that given where performance is and given the value in the market, we felt very comfortable in arguing that this should be the opportune time to invest in the strategy. So the timing aspect, and it has a risk capacity over time, it is only Global Select. It's managed by the team that runs into International Select. International Select remains soft closed and Global has got more capacity, and that's why we've reopened it.

We will consider that in other strategies. We haven't to date. As I said, UK Equity Income fund is also soft closed. It's also come back in FUM, but we haven't actively reopened that. We've got our client base that's quite supportive in terms of where we are at the moment.

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Brendan Carrig, Macquarie Research - Research Analyst [29]

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Okay. And then so maybe just a quick follow-up from Kieren's question. Can you confirm that the costs that would incur during efficiency program would be above the line?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [30]

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The costs, sorry, I missed that, above the...

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Brendan Carrig, Macquarie Research - Research Analyst [31]

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Would the costs taken for any efficiency program or the -- your share of the costs from the -- following the Westpac separation be taken above the line?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [32]

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They will. Yes. Absolutely.

And I have one last question on the floor -- well, 2 questions, actually.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [33]

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Matt Dunger from Bank of America. If I could ask a question on Westpac corporate superannuation. What are you expecting from further corporate superannuation transitions in terms of flows and also potential flow impact from the decoupling from Westpac?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [34]

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Yes. Look, that's been -- as you can see, slowly been repositioned. And as a result of that and the Coal Mine Super and the corporate super, money has been flowing back into their multi-manager. Our weighting in that portfolio was quite high. And on the multi-manager, that had to readjust it to a more -- expect the level of weighting within the portfolio. We're now at a more reasonable level. Having said that, there's still some legacy funds there that they're working on streamlining. They're going through their own process. You would expect some of that to be impacted by some of the restructuring and efficiencies they're trying to get.

Within our position of their corporate super, we're at a level that's reasonable. And that would be a function, as I've said before, of performance. It's an arm's length commercial arrangement. If we perform, we should hold it; if we don't, we may lose some money, but that's like any arrangement with any other client.

The other aspect around that with the grandfathering of commissions, that may accelerate our legacy book depending on what we do on that front. I don't have any insight into that. But there are changes in terms of how they're running their business, and that may have an impact in terms of the Westpac book.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [35]

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And just a question on the increase in the compensation ratio. Is this concerns around retention? Why are you -- why is this increasing? Or is this more about bringing on new teams?

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [36]

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No. It's both. As I said earlier, we're looking at new opportunities, new teams. Some of that may or may come off, I don't know. But it will flow through into compensation ratio.

The other thing is -- and we do have some equity programs. We have multiple equity programs, some are rolling off, new ones are coming on. And as some of those roll off and put new ones, the business is bigger, the fund is bigger and that has a flow in effect in terms of our overall compensation ratio as well. And it is linked into retention. It is linked into revenue share. It's also linked into growth as well.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [37]

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And just one last, if I could, for Cameron. The volatility in the tax rate, why are you guiding to the high teens next year? Is this a new normalized level or...

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Cameron Williamson, Pendal Group Limited - Group CFO [38]

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No, it actually just works quite well with Emilio's comment there. With some of these rem schemes rolling off and some of these have been going 8 years, we actually get tax deductibility on the vesting of those schemes. We get it this year and that's flowing through into 2020. So the bulk of that guidance down on the tax rate is really due to some of these equity schemes rolling off.

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [39]

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Right. One last question from the room.

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Michelle Wigglesworth;Milton Corporation;Investment Manager, [40]

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Michelle Wigglesworth, Milton Corporation, and it is a quick question. On the spend for the technology platforms. Is any of that going to be capitalized just -- and if so, then what's the total spend so I can think of it from a cash point of view?

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Cameron Williamson, Pendal Group Limited - Group CFO [41]

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Yes. The short answer is yes. Some of it will be capitalized. It's the pace of the program at which it gets capitalized that we're still working through. We've sort of mapped out the 3 to 5 year. Over the course of the next 12 months, the spend won't be overly significant. It's more in 2021, 2022 where it will ramp up more. And the capitalized assets will occur sort of in those outer years as opposed to the near term.

So in the shorter term, I'd say, cash flow is less impacted. As we said, Westpac is providing a level of support in terms of some of that transition. So some of that will be funded upfront as well. So from a cash flow perspective, there's an element of support over the near term and then the outer term, there'll be more in the form of 2021, '22.

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Emilio Gonzalez, Pendal Group Limited - Group CEO, MD & Director [42]

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Okay. Well, thank you for your time and your support over the last 12 months, and I look forward to speaking to you again at the half year.