Fund manager Perpetual shocked with the news that bottom line first-half profit fell 84%, thanks to the impact of the financial crisis which continues to hurt returns around the world.
Perpetual reported a net profit of $14.192 million in the six months to December 31, compared to $87.6 million in the previous corresponding period.
Operating profit fell 48% to $41.6 million while revenue fell 25% to $194.7 million. Dividend was slashed from $1.89 to 40 cents a share because of the fall and a change in payout policy.
The net result was blurred by losses incurred on the sale of investments of $4.1 million, restructuring costs of $8.4 million and losses on investments in the EMC Fund of $14.9 million (12.8 million in the previous corresponding half).
Before those, profits from operations fell 46% to $62.1 million from $114.2 million.
"Market conditions also drove a number of one-off losses or charges including $4.1 million after tax from losses on Perpetual’s investment portfolio, $14.9 million after tax relating to the Exact Market Cash Fund (EMCF) and $8.4 million after tax in restructuring charges.
“These significant items were disclosed to the market in early February 2009," the company said in the ASX filing.
As a result the company is changing its dividend policy, which will mean a cut in payouts. Perpetual declared an interim dividend of 40c, representing about 120% of net profit.
The company said: "Perpetual’s current dividend policy pays ordinary dividends based on 90 per cent of underlying cash earnings after tax. Underlying cash earnings after tax are calculated on operating profit after tax (OPAT) plus any significant non-cash items such as equity remuneration amortisation.
“This policy can and has resulted in the payment of dividends in excess of 100 per cent of NPAT.
"As foreshadowed at the Annual General Meeting and as noted at the strategy briefing in early December, Perpetual had committed to review its dividend policy. In light of this review, the board of Perpetual concluded the current policy was unsustainable over the long-term and, as a consequence, today announced a revised dividend policy with a payout ratio of between 80 and 100 per cent of NPAT."
Mr Savage said the new policy would be phased-in with an interim dividend to shareholders for the six months to 31 December 2008 of $0.40 per share fully franked.
"The interim dividend payment represents approximately 120 per cent of NPAT.
“As fellow shareholders, we understand the impact this revised dividend policy will have on the cash income of our shareholders in the short-term,” he said.
“Effectively, the new policy restores dividend payments to the 80 – 100 per cent of NPAT range historically paid by Perpetual to shareholders.”
Mr Savage said the need to address the dividend policy had been clearly accentuated in the current financial crisis by a series of issues.
“Firstly, credit is tight and expensive; and secondly, very high payout ratios potentially reduce our capacity to invest in growth opportunities such as ‘bolt-on’ acquisitions.
"Recent examples of these types of acquisitions include smartsuper, Argosy, Wignalls and National Lending Solutions, all of which are contributing positively in terms of growth and profits even in these difficult times.
“Furthermore, given our core role as a custodian of investor funds, we believe the careful management of capital is always a prudent strategy, particularly in uncertain times."
Mr Savage said in the statement that while Australia’s economy has proved more resilient than most in the current crisis, expectations are that it will slow substantially during 2009.
"While we do not realistically believe the market will rebound to its previous high in the short to medium-term, we continue to look for signs of market recovery but remain cautious in our outlook for the second half of the 2009 financial year," he said.
"Perpetual’s operating environment continues to be shaped by the almost unprecedented global economic and financial market turmoil. While Australia’s economy has proved more resilient than most in the current crisis, expectations are that it will slow substantially during 2009.
"Over the past year, there have been successive central bank and government interventions, which have sought to restore stability and confidence to the market.
“While we do not realistically believe the market will rebound to its previous high in the short to medium-term, we continue to look for signs of market recovery but remain cautious in our outlook for the second half of the 2009 financial year,” Mr Savage said.
Perpetual shares fell 54c to $25.51 yesterday.
