Shares in Perpetual Trustees fell to a two month low yesterday after it lowered its 2008 earnings guidance for a fourth time because of the impact of the volatile stockmarket and drop in the mount of funds under management.
The company’s chairman, Robert Savage said in his annual May letter to shareholders that operating profit, which excludes income on the sale of investments, could drop by around 11% to the range of $130 million to $140 million in the year to June 30.
The forecast follows the first warning back in October of last year that the increasing volatility in financial markets would hurt earnings in 2008, and two subsequent warnings.
The collapse of the securitisation markets for home loans and other financial securities because of the credit crunch has hurt the company by cutting income for its trustee business.
The forecast compares to the 2007 result of $145.3 million.
Funds under management dropped 17% to $32.6 billion at April 30, compared with June 30 last year.
The shares fell 4.2% or $2.19 to $49.26, the lowest since March 18.
Mr Savage said the result was based on the All Ordinaries Index staying at its current level.
"Any sizeable movements in the market between now and the end of the 2008 financial year will ultimately have a bearing on Perpetual’s performance,” Mr Savage said.
In his letter, Mr Savage said the global credit crisis and the decline in share markets continued to drive market volatility and negatively impact investor sentiment in the second half of the 2008 financial year.
"Funds under management in Perpetual Investments were $32.6 billion at 30 April 2008, a decrease of 17% since 30 June 2007.
"Contributing to the result was negative asset growth in line with the decline in the All Ordinaries Index and outflows from Perpetual lower margin institutional business. Perpetual has outperformed the market across most of its equity funds since November 2007.
"Funds under advice in Perpetual Private Clients were $8.0 billion at 30 April 2008, a decrease of 5% since 30 June 2007. While overall funds were impacted by the decline in equity markets, the business achieved excellent inflows and increased client numbers during this period.
"Funds under administration in Perpetual Corporate Trust were $195.6 billion at 30 April 2008, a decrease of 7% since 30 June 2007. The decrease was a direct result of the inertia in the securitisation market over the past six months combined with the natural run-off of the securitisation book."
Mr Savage said Perpetual had responded to the reduction in revenue with a review of its cost base. "The majority of savings from the review are expected to flow through in the 2009 financial year."
Mr Savage said that despite the current cyclical downturn in the operating environment, Perpetual remained very optimistic about its future growth potential.
“Accordingly, we have continued to invest in the growth of our business” he said. “This investment is funded directly from operating earnings.”
Mr Savage said the unrealised losses incurred in its market cash fund (which held securities hit by the credit crunch and subprime mess in the US, had "stabilised".
"Perpetual reported that mark-to-market losses in its Exact Market Cash Fund (EMCF) had steadied at $26.2 million after tax at 30 April 2008. The balance of these losses is largely unrealised.
"The stabilisation of the mark-to-market losses reflect the improved market conditions in the domestic investment grade credit market in late March and throughout April," the chairman said.
"We expect operating profit after tax for the 2008 financial year to be between $130 million and $140 million, which compares to the prior year result of $145.3 million.
"Operating profit after tax excludes profit on sale of investments ($21.1 million after tax in the December 2007 half year) and mark-to-market losses incurred in the EMCF since 30 June 2007 ($26.2 million loss after tax at 30 April 2008)."
