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Edited Transcript of PPT.AX earnings conference call or presentation 21-Feb-19 12:00am GMT

Half Year 2019 Perpetual Ltd Earnings Call

Sydney Jun 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Perpetual Ltd earnings conference call or presentation Thursday, February 21, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Ehlich

Perpetual Limited - General Manager of IR & Corporate Finance

* Christopher Green

Perpetual Limited - CFO

* Mark Smith

Perpetual Limited - Group Executive of Perpetual Private

* Robert William Adams

Perpetual Limited - MD, CEO & 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

* James Cordukes

Crédit Suisse AG, Research Division - Research Analyst

* Kieren Chidgey

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

* Neil Wesley

* Nigel Pittaway

Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst

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Presentation

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Andrew Ehlich, Perpetual Limited - General Manager of IR & Corporate Finance [1]

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Good morning, ladies and gentlemen. Welcome to Perpetual's 1H '19 results for the 6 months ended 31 December 2018. I'm Andrew Ehlich, Head of Investor Relations. I'd like to begin by acknowledging the traditional owners of the land on which we meet today, the Gadigal people of the Eora Nation. I pay our respects to their elders, past and present.

Presenting today's results are Rob Adams, Perpetual's Chief Executive Officer and Managing Director; as well as Chris Green, Perpetual's Chief Financial Officer. There will be an opportunity to ask questions at today's -- at the end of today's presentation for both those in the room and on the phone, and I ask you to turn off your mobile phones.

Over to you, Rob. Thank you.

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Robert William Adams, Perpetual Limited - MD, CEO & Director [2]

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Thanks, Andrew. Good morning, everyone. And thank you for coming to Perpetual's first half 2019 results briefing. At our AGM in November, I shared some very early reflections. Today, I am pleased to announce our first half results along with our CFO, Chris Green. I will also outline my observations on the business and operating environment, having been in the role for nearly 5 months now. And I'll provide my high-level views on our future direction. I've now spent considerable time with clients and shareholders, and I've met with more than 700 of our 900 people. Those interactions have reinforced my views on 3 key strengths for Perpetual. First is brand. We have a recognized brand, which is clearly associated with trust as a result of our client focus and our consistent delivery over time. In fact, over 130 years of delivery to clients. The second is client relationships. We have outstanding client advocacy levels and some relationships spanning multiple generations. Clients who have expressed their desire to me to do more with Perpetual. And thirdly, our people and capabilities. Our people are highly engaged. They are consistent in their approach and they have strong systems and processes. I believe these factors positively differentiate Perpetual, especially in the challenging and complex environment that we currently face. We are determined to exploit those strengths and to take advantage of the changing wealth management landscape.

Let's take a look at that operating environment. There are a number of medium and long-term trends informing our approach. They include low interest rates, geopolitical uncertainty, aging population with longer life expectancy, just to name a few. As you know, specifically within our sector, we see greater insourcing of investment management by some of the major super funds, major banks are divesting wealth management businesses and there is continued margin pressure across all parts of the chain, and there are increasing expectations regarding performance, remuneration and incentive structures. And most recently, we had the impact of the various inquiries, most notably, of course, the Royal Commission. Complex times indeed. But for Perpetual, it's not all headwinds. We see tailwinds, opportunities that we are well-placed to benefit from.

In our established core businesses, we know there is ongoing demand for quality active investment management, for professional advice and for corporate trustee services. Some of the opportunities for groups like ours will come from the outcomes of the Royal Commission, which I'd like to cover before moving to the results.

Perpetual was not called upon to appear at the Commission and we were not required to submit witness statements. But naturally, we have closely monitored every aspect. We recognize the importance of the Royal Commission's work to our industry and to the communities that we serve. There is still a lot of detailed policy and regulatory change to be worked through. Where such changes are relevant to our business, we will act cooperatively and constructively.

This slide highlights 4 of the main themes coming from the Hayne report and we have provided some commentary in terms of how Perpetual is positioned to deal with the findings. In sum, we are well-positioned. Our businesses are ahead of the curve on many key issues. We are already very close to our clients and we have a solid and stable business. This will be advantageous for Perpetual as structural and business specific changes play out.

Now to Perpetual's results for the first half of 2019. Let's look at the headline results and then, our CFO, Chris Green, will take you through the drivers and some more detail on each of our 3 divisions. For Perpetual, the first half of financial year 2019 was challenging. We delivered total revenue of $252.3 million, 5% down on the first half of 2018. And we maintained our expense discipline with 1% growth over the period. Net profit after tax was $60.2 million, 12% lower than the prior corresponding period, and our board has declared a dividend of $1.25 per share, down 7% on the first half of 2018.

With mixed performance when you look across our 3 divisions, our overall results were impacted primarily by lower average funds under management, our relative investment performance, investment outflows in Perpetual Investments as well as an accounting treatment change. Chris will now take you through a more detailed look at the financials before I return to discuss our approach for taking the solid foundations that I have discussed and leveraging them for future growth. Over to you, Chris.

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Christopher Green, Perpetual Limited - CFO [3]

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Thanks, Rob, and good morning, everyone. And I'd like to thank my team in particular for helping make the transition into CFO smooth as it has been, so thanks, guys. Our results, as Rob said, reflect the challenging conditions for the industry, and results were mixed across the 3 business units. For clarity, when I go through the financial metrics, I'll be comparing the first half '19 to the corresponding half last year, unless I state otherwise.

Operating revenue of $252.3 million was down 5% and due largely to 3 things: Lower PI revenue on the back of lower performance fees and the flow on impacted net outflows experienced in the second half of FY '18; also by changing the way we account for mark-to-market movements on investments on the balance sheet, following the adoption of AASB 9 financial instruments. Those 2 impacts were partially offset by stable revenue in Perpetual Private and continued growth in Perpetual Corporate Trust. We have maintained discipline on cost management. Total expenses of $167 million were 1% higher. The increase in costs reflects continued investment in strategic initiatives, particularly in PCT, higher depreciation and amortization charges from investments in technology and an uptick in costs associated with the evaluation of inorganic opportunities and higher regulatory costs. These increases were offset by a partial release of equity compensation following Geoff Lloyd's departure and lower variable pay across the group.

Net profit after tax was $60.2 million, down 12%. There are no significant items reported this half, and on an underlying basis, the result was down 16%. The interim dividend of $1.25 represents a payout ratio of 97%, which is within our stated guidance of 80% to 100% of NPAT.

I'll talk in more detail on operating revenue when I get to the business unit slides. First, I'd like to step you through the accounting treatment change. As we noted in January, there are changes in the fair value of the structured products and investments on our balance sheet as of the 1st of July this year. This includes our seed funds. These changes are now classified as fair value through profit and loss with unrealized gains and losses reported through the income statement. These assets were previously designated available for sale at fair value through other comprehensive income, so unrealized gains and losses were previously reported below the line in other comprehensive income and reserves.

This half, with a fall in the All Ordinaries of over 9%, these investments were marked down to market, and this translated to a $10.1 million unrealized loss on the portfolio. That loss was partially offset by interest and distributions, which were $3.4 million higher than the corresponding half last year. More favorable markets in this half today have meant some of those losses have been recouped, but keep in mind, that calculation will be a spot calculation at the 30th of June for the second half.

Tax expense was lower this half as a result of the lower profit, with the effective tax rate of 29.4%, largely in line with the first half '18 rate of 29.5%.

Moving now into the individual business units, starting with Perpetual Investments. As we noted last August, the prolonged bull market has favored growth over value investing. That provided limited opportunities for value investment managers to buy quality stocks at attractive prices. As an active value manager, this has impacted our results and our performance. Towards the later part of the half, we did see a slight uptick in volatility, and this presented our portfolio managers with some buying opportunities.

This shift is reflected in the 6-month performance of our Australian equities business. 6 of the 9 reported funds returned to the first or second quartile, back in line with our long-term performance record. Our medium-term returns remain impacted by that bull market and have been disappointing. That said, the performance of our Multi Asset funds has improved over the short term, too. All reported funds achieved first quartile rankings. And the continued strong performance in our Multi Asset funds was recently recognized by Lonsec, with all 4 funds upgraded to highly recommended.

We also successfully completed $101 million capital raising for the LIC, demonstrating that our capability and investment style remains in demand. In terms of results, total revenue of $105.8 million was down 10%. The decrease was largely due to lower average FUM from continued outflows with the All Ordinaries closing 9.2% lower for the half, the result also includes that unrealized loss I explained earlier. The fall in the All Ordinaries in the last quarter, combined with net outflows had a direct impact on the value of PI funds under management. Average FUM of $29.7 billion compared to $31.6 billion this time last year.

As you may recall, we reported net outflows of $1.7 billion in the second half of 2018, largely from our institutional channel. We received $1.4 million of performance fees over this half compared with $5.3 million this time last year, and those fees were largely attributable to EMCF. Average revenue margin for the half was 71 basis points, 3 basis points lower. Excluding performance fees, underlying average margins were in line with prior halves at 70 basis points. PBT margin on revenue was down 5% due to the lower revenue achieved. Expenses were 1% lower, largely due to lower performance fees achieved, a share of which flows through to our portfolio managers.

Now on to Perpetual Private. With the fallout from the Royal Commission and erosion of trust in the sector, it's been a challenging 12 months for the financial services industry. Many more people are questioning who to seek advice from and what to invest in. Our focus on always putting the client first and providing tailored advice under a fee-for-service model sees us well-positioned for the post-Royal Commission advice market. Our trustee heritage gives Perpetual a compelling and well-differentiated business proposition for those seeking quality advice. This advantage is evidenced with Fordham continuing to grow its client base. It remains the largest referral source for our adviser business.

In addition, attendance at our private practice seminars continues to generate new clients, although at a slower rate this half. 64% of the 129 attendees were referred to advisers or estate planning services and we onboarded 19 new clients. Perpetual Private has now achieved positive net flows across 11 consecutive halves. Average FUA of $14.1 billion was up 5%. Total operating revenue was $92.6 million. Market-related revenue totaling $16.5 million was 1% lower. Higher average FUA balances and initially stronger equity markets during the first 3 months of FY '19 were offset by pricing adjustments to select MySuper products. Nonmarket-related revenue was down 6% on the second half of last year. This reflects the seasonality of the compliance business provided by our advisory team, which typically reports high revenue in the second half.

Closing FUA of $13.7 billion was 3% down compared to 30 June. Net inflows of non-equity asset allocations helped buffer the fall in equity markets in the last 3 months of the half. The market-related revenue margin was 5 basis points lower. As we called out last year, the higher margin in the first half of '18 was related to the timing of rebates.

This half, Perpetual Private's PBT margin was 24%, 1% lower, while expenses have continued to be actively managed, being flat compared to first half '18. Now to corporate trust. PCT had another solid half. Debt Market Services FUA was up 4%, despite lower securitization market issuance. We've seen solid growth in repo securitization and covered bonds. Other services including data and analytics solutions continue to gain traction with our client base. Managed fund services again experienced strong growth, with total FUA increasing 19% to $256 billion. We are winning more work in the listed investment trust space, having been appointed as a responsible entity for a number of new listed trusts over the half. We also entered into a strategic cooperation agreement with FundRock, the premier independent fund services business in Europe.

This agreement will enable both Perpetual and FundRock clients to leverage the expertise and services offered in their respective core markets.

Total revenue of $53.6 million was up 8%. Continued momentum in our Managed Funds Services business and growth in our product extensions in Debt Market Services supported the result. DMS revenue of $28.9 million was 4% higher but down 2% from the second half of FY '18. This reflects the seasonality of our securitization business. While market securitization volumes were down in the previous 2 halves, continued growth in product extensions was a key driver of the revenue growth.

In late November, early December, actually it was early December, we acquired the RFi analytics business. This acquisition enhances our data and analytics capability for regulatory risk and compliance reporting by our banking and financial services clients. Rob will provide a few more details on that later in the presentation.

Whilst capital flows to infrastructure and property have stabilized from recent peaks, capital inflows do remain strong, and this assisted our Managed Funds business to achieve revenue of $24.7 million, a 14% increase. Total expenses for Perpetual Corporate Trust increased by 4% on the first half, while depreciation and amortization were up 14%, off the back of continued investment in the technology modernization program. That program will ultimately deliver better outcomes for our clients and for our people. We are further automating activities and upgrading our data security to protect Perpetual and our clients from the increasing threat of fraud and cybersecurity.

PCT's PBT margin was 42% of revenue, 2% higher than the corresponding half last year. I'll keep going. The change in cash and cash equivalents noted is largely seasonal and impacted -- and so I'm moving on to the balance sheet now. The change in cash and cash equivalents noted is largely seasonal, impacted by the timing of our incentive payments and the FY '18 final dividend. Liquid investments, which include our seed funds, were 15% down to June '18 -- compared to June '18. This reflects mark-to-market adjustments discussed earlier as well as a sell-down of some investments, about 24% down compared to this time last year.

Goodwill and other intangibles increased by 6%, reflecting our acquisition of the RFi business and continued investment in technology upgrades. The balance sheet remains strong. Gearing remains low and stable with goodwill supported by solid income flow in each of the 3 business lines.

Finally, Perpetual's ROE also remains strong relative to peers at 18.2%, while EPS is down reflecting the lower earnings profile. The fully franked interim dividend of $1.25 represents a 7% increase on first half '18, it will be fully funded from retained earnings, and as I noted earlier, represents a payout ratio of 97%. With that, I'll return to Rob to give us his impressions and observations of what we're doing going forward and then will be back to answer any questions.

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Robert William Adams, Perpetual Limited - MD, CEO & Director [4]

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Thanks, Chris. I think I made a 7% decrease in dividend on the period. Okay. Thanks for that, mate. Much appreciated.

As I said earlier, with the benefit of nearly 5 months in the business, I want to make some preliminary comments on our future direction and our main areas of executive focus. Picking up on the key strengths I discussed earlier, a top priority for me since joining Perpetual has been to ensure that we have a strong and experienced leadership team in place to take our business forward. That has now been completed. I'm particularly pleased about Chris' smooth transition to CFO, as well as Richard McCarthy's internal deployment the role of Group Executive of Perpetual Corporate Trust. There is an additional new executive committee member here today, Sam Mosse, our new Chief Risk Officer, who joined us just this week. Welcome, Sam, wherever you are, there you are. Welcome, Sam.

We are also fortunate enough to have a stable investment team with deep experience and average portfolio manager tenure at Perpetual of 11 years. Culture is critical and our culture is distinct. It is risk-aware, and above all, it's client-centered. It reinforces our position as an employer of choice. Our brand is a key asset. And I want to better leverage that brand for growth. We remain firmly committed to our portfolio of businesses and the diversification benefits which result from operating in a number of important market segments. Across Perpetual Investments, Perpetual Private and Perpetual Corporate Trust, the quality of our relationships and our high client advocacy combine to open up new opportunities.

Our balance sheet is strong. And it's important that we unlock the potential in our business. I'm firmly committed to improving the company's growth by pursuing complementary opportunities in a proactive and disciplined manner across all 3 divisions.

I want to spend some time on each of the 3 businesses. I will start with Perpetual Investments, which I believe requires a change in approach in order to grow. Perpetual Investments has a great heritage and existing platform, but we need to broaden our market proposition over the coming years. To grow, we have to change. It is widely recognized that we are a leader in Australian equities as an active value manager. In the positive, this has provided a strong foundation for our business and has allowed for very strong client relationships to prosper over time. This has been driven by our consistent delivery over time, in fact, for 53 years. It is a vibrant and successful Australian equities business that I have always admired. But in the negative, the focus on value alone has constrained PI's growth opportunities, particularly because of the capacity constraints in domestic equities.

When considering growth options for this great investment business and brand, the thinking and approach has been too constrained. Going forward, Perpetual Investments will now not only look at new products and services channels for our existing capabilities, like new listed vehicles, which were in high demand, but we will be open to extend into new asset classes and investment styles beyond value. By doing this, we can open up new opportunities for growth where there is clear demand from local and global clients, from retail and institutional investors.

We can also diversify our sources of funds under management and revenue growth. We want to lower the potential volatility of these key measures to deliver more consistent growth over time.

To be completely clear, we remain 100% committed to our existing value-based capabilities. But in addition, we will consider owning other investment styles and other asset classes. Importantly, our approach to the management and oversight of our investment teams will also change. We will promote a boutique-like culture for each of our investment teams, and each boutique will benefit from Perpetual's institutional-grade infrastructure to help them develop and to grow. To bring clients world-class investment capabilities in investment styles new to Perpetual, we have been able to offer institutional-grade services across operations, distribution, risk and compliance, marketing and client servicing. We have that investment infrastructure at Perpetual right now and it's a scalable platform that's ready to be leveraged.

For top professional investors currently running growing boutiques, I believe we can offer the best of both worlds, a boutique-like culture that respects independent investment thinking, which allows investment professionals to focus on what they do best, managing money. And an institutional-grade infrastructure, which is now demanded by investors and gatekeepers the world over. I look forward to updating you on developments in Perpetual Investments, but I also wanted to reinforce the point that we are 100% committed to active value investing. It is always a key part of who we are. Our clients place value on our investment expertise, our track record and integrity when it comes to value management, and we will continue to earn their trust in this important style.

Moving on to Perpetual Private. We are pursuing growth in line with our forward segment -- our focused segment strategy. We will continue to strengthen our position with high net worth clients, including the established wealthy, business owners, medical specialists, native title and not-for-profit groups. PP's focused and disciplined business model has served our clients well and is right for the times. As I said earlier, this business is well-positioned in the context of the Royal Commission outcomes.

Whilst we are pleased with our continued growth in new clients and flows relative to peers, it's fair to say that the business has pressed the pause button on a number of opportunities as the Commission and other changes have played out. I'm keen for us now to press play. We will be more bold in our positioning of the Perpetual Private brand, and we will accelerate activity to generate both organic and inorganic growth. We will be active but will be targeted in attracting clients and advisers that suit our business model. We will pursue opportunities arising from the current dislocation in our industry, which we believe is unprecedented and will be a multiyear event.

As we seek to better leverage our brand to build on our strengths and capabilities, we expect to benefit from this significant period of change within the financial advice sector.

Finally, Perpetual Corporate Trust has a compelling and consistent growth story, through core market leadership and innovative extensions. Like Perpetual Private, the strategy is clear and the team delivers on it. We remain the leading provider of corporate trustee services to Australia's banks, large financial institutions and nonbank lenders. Growth is being delivered by constantly exploring ways to innovate and to deepen our relationships. As we help our major clients meet their regulatory reporting obligations, valuable data sets have been created. Ongoing investments in data and analytics capabilities is enabling us to expand our client servicing -- service offering beyond the established core business. This is a growth opportunity and our acquisition of RFi analytics in December last year was another step forward in this area. The data analytics business is now building its own revenue streams, and I expect this to become material over time. Servicing the global asset management industry, we will also expand our managed Fund Services businesses into contemporary structures such as listed investment vehicles. The consistent growth of our responsible entity business is testament to our proven capabilities and established client base. We are considering development of further offerings, including the potential for geographic expansion.

Across PCT, flexibility in our approach going forward is key, especially in the way that we partner with experts such as Microsoft to provide unmatched solutions for our clients. With leading core businesses and innovative extensions underway, we have confidence in the strategic direction of Perpetual Corporate Trust.

In closing, Perpetual has 3 strong businesses, each with opportunities for growth. We are focusing on 3 key areas of opportunity, broadening the investment capabilities and reach for Perpetual Investments, exploiting our strong position in Perpetual Private during what is likely to be an extended period of dislocation for the advice profession and accelerating the depths of client offerings for Perpetual Corporate Trust, including growing revenue streams in data analytics.

Given our strong balance sheet and our trusted brand, we believe we are well-placed to take advantage of opportunities arising from changes in this challenging operating environment. And we will strongly consider these opportunities, which makes sense across each of our 3 businesses. Finally, maintaining the trust of our clients, our shareholders, our people and the community is of the utmost importance to everyone at Perpetual. We remain focused on achieving quality outcomes for them all. At Perpetual, we absolutely recognize that this trust is earned through our actions each and every day. And this is what drives our people.

Thank you. And I think Chris and I are now going to head over to our little table there to take questions. And if -- before you ask a question, if you could just state your name and which organization you're from, and wait until I get there.

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Questions and Answers

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Robert William Adams, Perpetual Limited - MD, CEO & Director [1]

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Okay. Andrei?

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Andrei Stadnik, Morgan Stanley, Research Division - VP [2]

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Andrei Stadnik here from Morgan Stanley. Can I ask 2 questions around the mall, the boutique or boutique-style approach you're going to be thinking about? First question, are you thinking about bringing in new teams as opposed to buying something big? Are you thinking about new teams and are you thinking about new teams both in Australia and overseas?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [3]

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Thanks, Andrei. Good to see you. Yes, both, both. All, I'd say. We're going to be open-minded in what we consider. Yes, there are advantages to team lift-outs and there are advantages to acquisitions. And in many ways, yes, acquisitions are probably more compelling because if there's an acquisition opportunity that we like the look of, we like the people, we like the performance, we like the product, and we've got a strong cultural connection and alignment on the future in terms of who adds value where, then you can effectively lift and drop an acquisition and maintain consistency and continuity, which is important. So it's probably a bias towards that in some ways. But I think we wouldn't rule anything out.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [4]

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And just to clarify, when you said both, you also said yes to Australia and overseas-based teams?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [5]

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Yes. I think that leads the work that we've already been doing and will continue to do, is it's all about quality. We think we've got a business platform and a brand here that can and should attract the best investors in the world.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [6]

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And my second question. Just around the potential changes to the cost structure from the small boutique approach, are there any changes immediately to the absolute level of cost and then going forward, the fixed versus variable split of the cost?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [7]

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Well, Chris will probably answer that. I mean, there's no overt changes to the cost structure expected, and then the impact of anything we do will be taken on board at the time. Obviously, we have had an uptick in some costs as we -- yes, there are costs associated with looking.

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Christopher Green, Perpetual Limited - CFO [8]

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Yes. But in terms of computation arrangements, the structure, the way we pay our people, we're always spending a lot of time simplifying the way we do that and we like to think that in that respect, we already have a very strong boutique feel to the way we operate. I think Rob has talked -- when he talked about that boutique feel, it is about that feel and the structures that we have in place already, we think, have got us well advanced in getting there.

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Robert William Adams, Perpetual Limited - MD, CEO & Director [9]

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Sorry, I think that was your point of question, Andrei, our compensations structures are fine. Yes?

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Neil Wesley, [10]

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Neil Wesley from Ellerston. If I just look at your balance sheet and I assume you could take your gearing up for 30%, and I look at your surplus cash above your regulatory capital requirements, you have about $300 million or so of additional firepower. How should we think about that in the context of your inorganic strategy versus issuing equities where you actually realize whatever it is you're trying to realize?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [11]

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If you struck upon the strength of the balance sheet, that gives us opportunities there. But we will look at all of the relevant funding options in light of the transaction that we see. So you're right, we have -- I think it's around $100 million of surplus cash over our regulatory requirements, we're sitting at 11.6% leverage with a current policy of 30%. We have...

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Neil Wesley, [12]

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Gives you about $300 million.

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Christopher Green, Perpetual Limited - CFO [13]

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Yes, correct. And what we've talked about internally to this point is making sure that we have all of the options of funding on the table when we get there. So I don't think we're ready to tell you how we would fund any given transaction, but you shouldn't be ruling out any form of funding, whether it's an equity raise, entitlement offer, debt, or the cash that we have. And it'll depend on the size, the nature of the transaction.

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Unidentified Analyst, [14]

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(inaudible) from [Saleside]. Just further to Neil's question, and you think about the balance sheet and the leverage there and your seed asset portfolio, and if you think of the dividend at the top end of the range now, as you go and invest in the future, does obviously the dividend have to come into consideration on how you think about it going forward?

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Christopher Green, Perpetual Limited - CFO [15]

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So we were at this stage committed to the current dividend policy of 80% to 100% of NPAT. Now depending on -- again, it comes back to the nature of the transaction, a transformational transaction will necessitate us looking at the dividend policy. We are also look at dividend policy in light of some of the accounting standard changes we've seen. We have an NPAT metric and, where this is the first half we've seen. You've seen some of the volatility that may come with that. And so we're looking at sort of cash earnings metrics there as well. But as we sit here today, we maintain our 80% to 100% of NPAT policy.

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Unidentified Analyst, [16]

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And then, just further on the potential investments going forward, you just touched on there, potentially transformational. You are looking at both small bolt-on teams but also larger transformational deals as well?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [17]

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I think we're led by as I said earlier, the quality of the investment capability first. So yes, we're not ruling anything in or out. It's all about focus initially on the quality of the capability, the complementarity of that with what we already do. And then, as I said before, cultural connectivity. So we're not particularly focused on size and a particular band. We're open-minded.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [18]

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Kieren Chidgey, UBS. Rob, I'm just keen on sort of exploring your comments that you have a sort of a preference for inorganic over organic expansion within the investment business, particularly given Perpetual's own history there on the global equities side has been a bit mixed. Can you elaborate a bit more around why you have that preference instead of a slower organic build and what safeguards you'd look to put in place...

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Robert William Adams, Perpetual Limited - MD, CEO & Director [19]

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Kieren, your words, not mine. I don't think I talked about a preference, I talked about a focus on both inorganic and organic. There's plenty of work for us to do on improvement organically, that's for sure. Yes, I think one of the key appointments we are hopefully making soon is a head of distribution for Perpetual Investments, and that will allow us to have a fresh look at what we're doing from a distribution perspective. There's always more to do, we can always raise the bar there. We've got a multi-asset product range, which is now at -- has the very highest recommendation status for 4 of its key funds with Lonsec. What that last week? The week before? There's plenty we can do with that. Our global equity numbers, Garry Laurence and team have a good set of numbers there, but actually, if you look beyond the published numbers that we put up, his numbers are actually very similar to Magellan's over 7 years. And our Aussie Credit and fixed income team had terrific growth in recent years. And in fact, I saw the number just the other day that said, in the last 5 years, the market share we have as a top 20 participant in Aussie Credit and fixed income has grown more than any other of the other 19 managers in the top 20. So we're now a top 10 player. So yes, we've got plenty to do with our existing book of business. Organic growth is an absolute focus of ours. And -- but then, we're going to blend that with a more bold approach to assessing M&A opportunities as well.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [20]

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And sort of just on the balance sheet around the organic side of things, when you look at the investment into seed funds, how do you think about that, Rob? Does it need to increase from where it sits currently?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [21]

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I think it's, again, case-by-case. Our team in PI are full of good ideas, and you'll see some of those good ideas coming up in the course of the next few months. And we'll be open-minded in terms of the seed requirements. I think it's an important aspect of any fund management company.

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

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And a final question for Chris, just on the cost. It's noted through the OFR in a number of places that lower variable comp has sort of assisted, I guess, at 1% cost growth number on PCP. How should we think about that as we move forward, particularly with markets up this period? What would be the BAU cost growth outlook on the near-term basis?

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Christopher Green, Perpetual Limited - CFO [23]

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We'd say that our compensation scheme is working as it should do, as revenue is coming off so, and so is compensation. The only guidance I'd give is that we remain committed to the 2% to 4% expense growth overall at this point.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [24]

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Nigel Pittaway here from Citi. The strategy for Perpetual Investments, how long do you think it's going to take to get the business where you want it to be?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [25]

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Nigel, yes, we have to be opportunity-led, and you can't force opportunities. So we're prepared to be patient, to bed down the right opportunity. So it's not as if I feel the clock's ticking and we have to do something by a certain time. As I just rattled off earlier, yes, we have enough to keep us busy here. I think we, in terms of organic growth with our current book of business and our current investment capabilities, there's plenty to do to improve there. So yes, we're not in a mad rush. We're going to be very considered about this. We're going to take our time and we're going to only execute those opportunities that, as I said before, are world-class.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [26]

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So do you think we'll start to see results from the strategy next year or when are we going to see some impact?

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Christopher Green, Perpetual Limited - CFO [27]

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When we find the right thing, man. It is -- I can't predict the timing. What I can say is that it's a real focus of ours and certain key executives in the business. So yes. And I think, based on my experience and the experience of others, I think we've got pretty good reach, both in Australia and internationally, to ensure that we've got our finger on the pulse. I don't think we'll miss anything. But it's just impossible to judge the actual timing of execution.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [28]

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And then, maybe just on Perpetual Private. I mean, obviously, previously, there were targets for Fordham like by 2020, 40 partners, $60 million of revenue. Are those out the window now? They're just sort of superseded or how are you feeling about it?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [29]

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Yes, personally, I'm less interested in those specific numbers, I think it's a quality game. Mark Smith runs a very focused and disciplined business, and that's why we're in such good shape post the Royal Commission. And I think with the top 7 participants in the advice industry suffering some form of reasonably serious dislocation or whole business change right now, I think there's a real potential for Mark and his team to be very selective. And we've got a business model that will attract the very best planners that suit our segment focus. And so we're not going to be drawn on changing that. So I think 2019 sort of feels like a year where it's -- Perpetual Private is really set up for positive change. I'm not going to put a number on what that will be though, in terms of number of advisers. I think we're going to be active. We're going to be bolder.

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Christopher Green, Perpetual Limited - CFO [30]

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I think the other thing to consider is when Rob talked about pausing, there are a number of opportunities for us in the half that we did pause on for good reason. And we are going to be considerate about the opportunities we look at and when we look at them, but we continue to see those opportunities to supplement the Fordham practice and the adviser practice. In fact, more opportunity than we've seen in a long time because of what's going on in the market and our attractiveness is a proposition for those types of planners and those types of accountants.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [31]

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And then, maybe just a follow-up question on the costs. I mean, previously, the 2% to 4% BAU growth guidance was sort of -- the swing factor was performance fees. I mean, would it be right to think that we're now in a phase where it might be towards the higher end of that range rather than the low end of the range, given sort of what you want to do with the business?

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Christopher Green, Perpetual Limited - CFO [32]

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I'm not going to go beyond the 2% to 4%. What I would say though is that we do have real variability in the compensation, not just with PI but across the group. And that, that is in part driven by the financial outcomes of the business. So we're committed to the 2% to 4%.

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Unidentified Analyst, [33]

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It's Matt (inaudible) from Bank of America Merrill Lynch. Just back on the Perpetual Private business, you called out the impact of MySuper repricing. What proportion of the FUM is under MySuper products within that business?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [34]

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Yes, actually, we'll ask Mark to pop up. Thanks, mate.

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Christopher Green, Perpetual Limited - CFO [35]

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Another way I think about it is the impact of that repricing, which it's going to be less than $1 million this year. And on an annualized basis, I'd be thinking around the $1 million mark is the impact of that change.

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Mark Smith, Perpetual Limited - Group Executive of Perpetual Private [36]

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Just in regards to MySuper, so that legacy book is actually outside of the funds under advice that we actually normally talk to. It's around $200 million total in our MySuper product.

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Unidentified Analyst, [37]

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And as you're running the ruler over advisers that you're looking to bring on board, do you have a criteria for what sort of level of funds under advice you'd look at?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [38]

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You should have -- you could have stayed up there, mate. You want to pop up, I'll make a few comments. Mark might want to add to that. What I would say is, I think I've met my first financial adviser in 1988 -- no, '87, and I've been dealing with financial advisers ever since. And so you get a feel for different types of advisers and their focus points. The advisers that I've met across Perpetual Private are at the top end of the industry. So again, I personally would be most focused on the individual and their history and their potential in our model. But Mark would have other metrics he looks at.

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Mark Smith, Perpetual Limited - Group Executive of Perpetual Private [39]

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Yes, we do and we don't make a lot of them known, for obvious reasons. But I would say, just in terms of the segments that Rob articulated earlier around high net worth, we don't see anything with our private client strategy which will take us off segment in regards to the core medical, business owner, established wealthy and not-for-profit. So there'll be a clear focus on those segments and the blend between accounting, legal and advisory business, so we'll correlate to that as well.

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Brendan Carrig, Macquarie Research - Research Analyst [40]

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Brendan Carrig from Macquarie. Just on the boutiques but -- or the new strategy, but maybe looking internally, could you provide a comment on maybe how the discussions have been going with the existing staff in the investments team and sort of their response or their thought process as to what the new strategy is going to be?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [41]

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Yes, sure. In many ways, as Chris said, it's a marginal change for our incumbent teams, because our money managers are very focused on managing money and client relationships in particular. So I think I can say with absolute confidence that our existing investment teams are very comfortable with this positioning.

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Brendan Carrig, Macquarie Research - Research Analyst [42]

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And just quickly on Fordham, so on Slide 12, just looking at the Fordham referrals versus the new clients, is it fair to -- looking at those sort of ratios, obviously, the average balances are coming down a little bit there. Is there anything you'd like to call out there, or are we overthinking it a little bit?

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Christopher Green, Perpetual Limited - CFO [43]

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Look, only that the prior 6 months, we definitely saw clients or prospective clients less inclined to put their money to work or to seek advice, for obvious reasons. We think that's mostly situational to that half and what was going on, so I wouldn't read too much into those numbers for the half.

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Robert William Adams, Perpetual Limited - MD, CEO & Director [44]

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I think we should probably -- should we go to see if there are any calls -- any questions from the telephone?

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Operator [45]

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(Operator Instructions) Your first telephone question comes from the line of James Cordukes from Credit Suisse.

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James Cordukes, Crédit Suisse AG, Research Division - Research Analyst [46]

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You talked about some of the opportunities to take these new capabilities offshore. You've got a very strong brand in Australia. Rob, having spent some time offshore, are you able to talk about the brand awareness offshore? And then, just following on from that, what's your current capability to distribute offshore? Do you -- what build-out would you need to do to kind of broaden that offshore distribution capability?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [47]

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Good questions, James. I think Perpetual's brand awareness offshore, aside from our corporate trust operations in Singapore, would be negligible. That's probably a generous phrase. Yes, there's not a leverage point there. I mean, what we do offer, obviously, the right sort of investment professionals who are based offshore is that brand strength in Australia, so it's the fourth largest pension fund marketplace in the world. It's the fastest-growing. Our brand is very strong here and we've got a very, very strong distribution footprint. So that's a pretty important prize for the right sort of offshore managers. So yes, I think that's the pull of the brand of Perpetual for any money management team based outside of this country. From a distribution perspective, again, we have limited, effectively no distribution capability offshore. But that's something that I'm experienced in building, that may come with an acquisition or the acquisition may give us a beachhead to build that from. And in some markets, you can do some pretty handy, institutionally focused fly-in, fly-out work as well. So again, nothing -- I think we can cover it.

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James Cordukes, Crédit Suisse AG, Research Division - Research Analyst [48]

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And just a quick question on the, talk about refreshing the distribution strategy. Is that predominantly just around bringing new listed vehicles to market? Or is there something more to that?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [49]

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No, I think it's broader than that, James. A new leader coming into that team will bring a fresh set of eyes. And that's not to say that we're doing anything badly or anything poorly. I think we do things well in our distribution efforts across the board. But you can always do better. And sometimes, a fresh set of eyes can open up new opportunities. So I think that's what I'm referring to there.

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Operator [50]

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(Operator Instructions)

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Robert William Adams, Perpetual Limited - MD, CEO & Director [51]

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So there is no more telephone? You're far away.

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Unidentified Analyst, [52]

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And I understand your reluctance to give us detail on your strategy going forward, but as investors, how should we think about measuring progress and success on your strategy?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [53]

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Yes, good question. I mean, I think, in terms of the organic component, that's the obvious one, right? We need to continue to show growth in PCT, which has been terrific. It's low double digits for a multiyear period now. In PP, similarly, 11 consecutive halves of growth. We want to continue that. But obviously, we think there could be room for improvement if conditions suit us right. You may want to look at numbers of new advisers or professionals joining that business in our chosen segments. For PI, of course, the most obvious sign on the organic front is our net fund flow. We report that on a quarterly basis, so you can keep your finger on the pulse pretty well there. I think, in general, you also see a greater presence for our brand and we're going to be a bit more bold in the presentation of the -- as a Perpetual brand without taking away from any of those critical qualities that I touched on earlier. So that's another sign of activity, I guess. From the inorganic front, on the inorganic front, the only sign you've seen so far is a touch up in our expense somewhere, relevant expenses that we've taken on board because it does cost you money to look at businesses here and elsewhere. But ultimately, we'll be judged by the businesses. The teams that come to us, the businesses that we might acquire, and so it will be on execution.

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Christopher Green, Perpetual Limited - CFO [54]

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And just to add to that because I think, given your previous experience, you understand that in previous iterations of the strategy, we've been pretty explicit about the milestones by which we measure ourselves. I think to be fair to Rob, he's been here 4 months and we've done a lot of thinking and you've seen some of that come out today. Where we go to from here is to put the meat on the bone there, and to come back to market to give you the ways by which you can measure how we're executing on that strategy.

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Robert William Adams, Perpetual Limited - MD, CEO & Director [55]

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It's a good point.

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Andrei Stadnik, Morgan Stanley, Research Division - VP [56]

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Andrei Stadnik from Morgan Stanley. Just one more question for you, Rob. You mentioned dislocation opportunities around Royal Commission, but are there any dislocation opportunities changes for the asset management side of Perpetual that could come out of this?

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Robert William Adams, Perpetual Limited - MD, CEO & Director [57]

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Out of the environment in general, or?

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Andrei Stadnik, Morgan Stanley, Research Division - VP [58]

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Yes, banks exiting wealth, (inaudible)

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Robert William Adams, Perpetual Limited - MD, CEO & Director [59]

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Yes, possibly. Banks exiting asset management and wealth is change, and change doesn't suit everybody all of the time. So there's a possibility for disenfranchised quality investment teams that might, may come out of that, for sure. Yes, I think that's another additive to the period of time that we're in. That is, we said before, is a multiyear event. So yes, I think that sort of change does throw up different opportunities that might not have otherwise been there. It's a good point. I think we might be done?

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Christopher Green, Perpetual Limited - CFO [60]

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Are there any more calls on -- questions from the line?

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Operator [61]

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(Operator Instructions)

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Robert William Adams, Perpetual Limited - MD, CEO & Director [62]

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That's a no. Any more from the room? All right everybody, well once again, thanks very much for joining us here for our results and we hope you have a great day.