Investors shrugged off the profit downgrade from listed funds manager, Perpetual Ltd yesterday, with the shares making a little ground.
The company’s chairman, Robert Savage, revealed the profit fall in a letter to shareholders.
Mr Savage said in the letter the group expects an operating net profit between $60 million and $70 million.
That would be down by up to 55% from the 2007-08 operating net profit of $133.5 million.
Perpetual earned an interim after tax operating profit of $41.6 million, down 48% on the $79.3 million earned in the first half of the 2007-08 financial year.
That means the second half to June this year could see operating earnings in the range of $19 million to $29 million, compared with just over $54 million in the six months to June 2008.
The company now pays out 80%-100% of operating profit as dividends, instead of in excess of 100% (i.e. by borrowing, as infrastructure and real estate trusts did).
It has already paid a 40c a share interim dividend (120% of operating profit). That means the second half payout could be very small indeed.
Indeed if there’s a market downturn in the next six weeks, it could result in a much smaller payout than now seems apparent.
The new forecast is based on no real change in the market from current levels, as Mr Savage explained yesterday: "It is important to note the outlook for our operating profit after tax range is premised on the All Ordinaries index stabilising around its current level of approximately 3750".
The all Ords closed around 3760 yesterday.
"Any sizeable movements in the market between now and the end of the 2009 financial year would have a bearing on our outlook," he said.
"The Australian equities market has rallied by more than 20 per cent since its low point in early March 2009. This was considerably more than past bear market rallies and has coincided generally with the release of better than expected economic data, improved bank capital ratios and credit markets and higher commodity prices. Time will tell if these are the ‘green shoots’ of recovery.
"Operating profit excludes losses on the Exact Market Cash Fund, restructuring costs and gains and losses on the sale of investments.
"Despite our strong financial system and the more positive market news of the past few months, the overall decline in the markets since the beginning of the financial year has continued to have a major influence on our funds under management and therefore our near-term profits," Mr Savage said.
"It has also been a very tough year for shareholders, investors and employees and the downturn has understandably brought their confidence under pressure in the past 18 months.
"The restoration of that confidence will be determined partly by factors outside our control such as market volatility, the actions of governments and the solvency of some global financial institutions. At Perpetual, we have been mainly focused on factors within our control.
"We have maintained top quartile market leading performance. Since the onset of the downturn, we have outperformed benchmarks across nearly all of our main managed funds, a reflection of our investment style which has unfailingly focused on quality and relative valuation.
"We have continued to reinforce our brand to support our mission of being the leading creator and protector of wealth for our clients.
"Our success in this endeavour is evident in recent research which shows investors know and trust our brand and consider it to be a strong source of reassurance amidst the turmoil of the market.
"We have reduced cash expenses by over $35 million or 13 per cent of cash operating expenses in the current financial year.
"We have focused on preserving our strong balance sheet.
“We have achieved this by reducing our risk exposure to the Exact Market Cash Fund, suspending the Perpetual Protected Investments structured products series and revising our dividend policy to a payout ratio range of between 80-100 per cent of net profit after tax.
"Funds under management (FUM) in Perpetual Investments were $25.3 billion at 30 April 2009, a decrease of 16.5 per cent since 30 June 2008.
“Contributing to this result was negative asset growth in line with the decline in the All Ordinaries Index of more than 28 per cent since the end of the 2008 financial year and outflows from our retail and intermediary businesses, due to the impact of the downturn on investor sentiment.
"Funds under advice (FUA) in Perpetual Private Wealth were $6.7 billion at 30 April 2009, a decrease of 13 per cent since 30 June 2008.
“While funds under advice were impacted by the overall decline in the equity markets throughout the current financial year, FUA increased in April due to Perpetual’s acquisition of financial planner, Financial Pursuit.
"Funds under administration (FUA) in Perpetual Corporate Trust were $246.4 billion at 30 April 2009, an increase of 10 per cent since 30 June 2008."
Perpetual shares rose 72 to $30.70 yesterday.
