Thank you for standing by, and welcome to the Perpetual Limited full year results briefing. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Susie Reinhardt, Head of Investor Relations. Please go ahead.
Yep. Great. Good morning, everyone, and good afternoon or evening to those joining us from other parts of the world. Welcome to Perpetual's full year results briefing, which will also cover our proposed acquisition of Pendal Group announced this morning. I'm Susie Reinhardt, Perpetual's Head of Investor Relations. Before we begin today, we would like to acknowledge the traditional owners and custodians of the land on which we present today from here in Sydney, the Gadigal people of the Eora Nation, and recognize their continuing connection to land, waters, and community. We pay our respects to Australia's first peoples and to their elders, past and present. We would also like to extend our respect and welcome to any Aboriginal or Torres Strait Islander people who are listening in today, and acknowledge the traditional custodians of the various lands on which you all work today.
Presenting here with us is Rob Adams, Perpetual's Chief Executive Officer and Managing Director, as well as Chris Green, Perpetual's Chief Financial Officer. There'll be an opportunity to ask questions at the end of the presentation. Before I hand over to Rob, we would like to draw your attention to the disclaimer on page two of both presentations. Rob, over to you.
Thanks, Susie, and good morning, good evening, good afternoon, wherever you may be. Thanks very much for joining us today. As Susie mentioned this morning, we announced our proposed acquisition of the Pendal Group, and we'll take you through that shortly. Firstly, we'd like to present our FY 2022 results. Let's turn straight to that, shall we? We're very pleased to report our results today, which we think demonstrates strong outcomes and positive momentum across all areas of our business, with every division delivering double-digit growth in earnings for the first time in seven years. Over the course of the year, we have invested for growth across our businesses, delivering new capabilities, new products, and opening up new distribution channels and investing in our trusted brand.
Importantly, our investment teams have delivered strong relative investment returns for our clients across the vast majority of our portfolios, with 79% of our funds outperforming their respective benchmarks over three years. Perpetual continues to be strongly placed to benefit from the current market cycle with a deep expertise in value investing, best represented through our Australian Equities business and through Barrow Hanley Global Investors. We have also continued to invest in ESG across all of our businesses, with further expansion of capabilities planned for FY 2023. Our investment has been growth-focused and disciplined with our expense growth for the full year delivered within guidance.
Our unique business combination, with around 30% of our total revenues coming from non-market-linked sources through Perpetual Corporate Trust and within Perpetual Private, has supported us extremely well through this market cycle, providing a real anchor for the group. Turning now to the high-level results for FY 2022. Perpetual delivered total revenue of AUD 767.7 million, up 20% on the prior year. Underlying profit after tax was AUD 148.2 million, up 21%. Our net profit after tax was AUD 101.2 million, up 39% on the prior year. Our return on equity rose 44 basis points to 16.2%.
Key drivers of the result were a full year contribution from Barrow Hanley, improved relative investment performance, and higher average equity markets compared to FY 2021 in our asset management businesses. Additional earnings from both our acquisitions of Jacaranda Financial Planning for Perpetual Private and Laminar Capital for Perpetual Corporate Trust, and continued strong organic growth in both PCT and PP. Our board, as a result, has declared a fully franked dividend for FY 2022 of AUD 2.09 per share, which represents a payout ratio of 80%. Turning now to some of our operational highlights for the year.
In our asset management businesses, Perpetual Asset Management International, known as PAMI, and Perpetual Asset Management Australia, known as PAMA, our combined assets under management totaled AUD 90.4 billion at the end of the financial year, which was lower than the prior year, mainly due to declines in global investment markets, particularly towards the end of the period. Despite these market movements, our relative investment performance across our asset management businesses has been very strong, as I mentioned, with 79% of our strategies outperforming over that critical three-year timeframe. We continue to see solid interest in our range of ESG capabilities, which we have expanded through the year. We've received over AUD 1 billion in net inflows in FY 2022, with Trillium in particular having a strong year of growth.
We are also seeing growing interest in our global equities capabilities, in particular, Barrow Hanley's global strategies, with just over AUD 3 billion in net inflows over the year in total across all of our global equity strategies. Locally, our Australian asset management business, PAMA, saw its strongest year of flows into the PAMA funds from the important intermediary channel. Strongest year in seven years, which is a terrific result for the business. That positive momentum is continuing to the new financial year. In Perpetual Corporate Trust, which as you know, provides essential infrastructure for key parts of the financial services industry, we achieved a new milestone with funds under administration surpassing the AUD 1 trillion mark.
In Perpetual Private, we saw yet another year of positive net inflows, making FY 2022 the ninth consecutive year of positive flows, which we believe reflects Perpetual Private's market position as a trusted financial advice business. Lastly, but something we are particularly proud of, this year we delivered an NPS score, a net promoter score rating of +49, which is a record for Perpetual, which reflects the strong client advocacy across each of our divisions. As you can see, across Perpetual we're delivering some terrific outcomes, and that momentum is continuing into FY 2023. Our strategy to build a global asset management business, adding world-class investment and distribution capabilities continues, and it's delivering results. Over the year, we have invested significantly into the growth and development of our global distribution platform.
With that investment including attracting several senior, highly experienced distribution individuals into the team in key roles in what is a very tough labor market. We have invested in building product structures and marketing infrastructure to attract new clients. With the launch of a UCITS platform for the U.K., Europe, and Asia, and a U.S. mutual fund platform now providing us with access to the all-important $30 trillion U.S. intermediary market. In Trillium, although investment performance has been impacted by its low weightings in energy and defense sectors, which of course have seen upside due to the conflict in Ukraine, we have more recently experienced some very exciting client wins for Trillium.
These wins include Trillium's largest institutional client in their 40-year history, with Formuepleje, a Danish client recently, in fact, I think it was just this week, investing $430 million, so that's around AUD 620 million into Trillium's global equity strategy. In Barrow Hanley, while U.S. equities and fixed income outflows have been an area of disappointment, we are extremely pleased with the strong interest in their array of global equity capabilities, which have been further supplemented through the launch of two new UCITS strategies, an emerging markets value ESG strategy and a global value ESG strategy. Both of which have received some large cornerstone investments from European clients looking for exposure to high quality value managers that can also offer an ESG lens.
In the last two quarters of FY 2022, our global equity strategies attracted around AUD 250 million in net inflows per month. At our half year results back in February, you might recall that I noted that I had confidence that Barrow Hanley's overall flows could look towards turning positive within 12 months. I think the momentum that we have in global equities, combined with the incredibly strong investment performance, we are therefore well-placed to turn flows to positive next year, of course, depending on market conditions. In the U.S. intermediary channel, we now have seven Barrow Hanley mutual funds available for that critical market. While it's early days, four of these funds have already received strong Morningstar ratings, which is a key prerequisite for many U.S. platforms.
Just this week, we won a new mandate from one of the biggest wirehouses in the U.S., which will commence with an initial flow of $100 million and additional flows expected in the coming months. An important development towards the end of the financial year has been the building of early stage momentum of Barrow Hanley here in Australia, most particularly in the intermediary channel. With international travel finally open again, key members of the Barrow Hanley investment team have commenced visit schedules, and their approach to managing global equities is clearly resonating locally here in Australia, with flow momentum starting to build. We feel very positive about the future for Barrow here in Australia. Lastly, in PAMA, I mentioned earlier that we have reported the strongest flows from the intermediary channel in seven years.
This result reflects the deliberate focus and strategy within our Australian business to diversify our client base into higher margin channels. The strong flow performance of our funds, particularly in Australian equities, places us in a very solid position for further growth in FY 2023. Perpetual does have, as I've mentioned, a truly unique combination of businesses. This is one of our greatest strengths, particularly during periods of global investment market volatility. As a diversified financial services firm, we have exposure to both market-linked revenues and non-market-linked revenues. Importantly, when combined, PCT and PP's non-market revenues contribute around 30% of total group revenue, which provides us with strength through market cycles. These businesses are an important part of the broader Perpetual Group and remain key components of our unique business mix.
PCT, as mentioned, continues to be a standout performer while helping to provide that stability of earnings through market cycles. PCT has delivered consistent year-on-year growth over the past decade with an underlying profit before tax compound annual growth rate of 15% over the last 10 years. Its leadership position in providing essential services to debt markets and to managed fund clients, combined with its focus on digital innovation, gives us confidence regarding its continued growth and positive momentum. In Perpetual Private, our strong and trusted brand, combined with the addition of new advisors in recent years through our advisor growth strategy, as well as through the acquisition of Jacaranda Financial Planning in August last year, have combined to see us continue to deliver growth in net flows. We remain fully focused on the positive execution of our strategy in order to drive sustained quality growth across Perpetual.
At our FY 2021 results a year ago, we set out the priorities under each of the key pillars of our strategy. Throughout the year, we've made terrific progress in all areas. With all of these priority points well underway and significant progress made throughout the year in terms of new product development, the build-out of our global distribution team and our global operating model, and material steps forward in improving the efficiency and scalability of our operating platform. Many of these initiatives are multi-year projects, and you will see we have defined some as being in progress and areas we will continue to execute on in the coming financial year and beyond. I'll now hand over to Chris to present us our financials in more details. Thanks, Chris.
Thanks, Rob, and good morning, everyone. Look, turning to our results at a glance, reiterating Rob's comments, all divisions performed strongly, with double-digit growth in earnings across all the divisions. Operating revenues of AUD 767.7 million were 20% higher or just over AUD 127 million greater than last year. Primarily driven by 12 months of contribution from Barrow Hanley, higher AUM as a result of average equity markets, particularly in the first half, and continued growth, both organic and inorganic in PCT and PP. Operating revenues included performance fees earned by PAM and PP, totaling AUD 17.4 million.
Total expenses of AUD 566.5 million were AUD 95.3 million or 20% higher, mainly due to the addition of expenses relating to those newly acquired businesses, Jacaranda Financial Planning, Laminar Capital, as well as the full 12 months of Barrow Hanley's expenses, plus higher variable REM and continued investment in technology, distribution, and new product structures. As a result, underlying profit after tax of AUD 148.2 million was up 21%. Significant items total AUD 47 million, mainly comprised of transaction and integration costs associated with the establishment of Barrow Hanley, as well as Trillium and other acquisitions, plus the amortization of acquired intangibles and losses on financial assets. Earnings per share on UPAT were 18% higher and return on equity on UPAT was 44 basis points higher.
Turning to an overview of the divisional performance, all the divisions performed strongly, delivering double-digit growth in profit. Asset management revenue was up 27%, PP revenue was up 15%, and PCT revenue was up 18%. Now looking at our segment UPAT performance in detail. PAMI had PBT of AUD 52.9 million, an increase of AUD 12.1 million. That was driven by contributions from Barrow Hanley, stronger investment performance, higher average equity markets, as well as favorable FX movements, partially offset by net outflows and continued investment in global distribution. In PAMA, PBT was AUD 49.9 million, an increase of AUD 7.8 million, driven by stronger investment performance in higher average markets, lower variable REM, offset by distributions and product repricings from the prior year.
In PP, PBT increased by AUD 9.3 million or 26%, influenced by increased funds under advice from positive net flows, the higher average equity markets, as well as the Jacaranda Financial Planning contribution. It also had strong investment performance and a good improvement in non-market revenue as our partners and advisors could get out and start talking to clients again. In corporate trust, we saw PBT growth of AUD 8.9 million or 14%, with the usual strong contributions from debt market services and managed fund services, as well as a contribution from the newly acquired Laminar Capital and Perpetual Digital. In group support services, PBT decreased by AUD 6.2 million, predominantly related to movement in the investing and product portfolio and lower distribution income from investments in seed funds.
The tax impact on all of the above resulted in year-on-year movement of AUD 6.5 million, and therefore we got to UPAT for FY 2022 of AUD 148.2 million. On expenses, we continue to take a disciplined approach to expenses while balancing the need to continue to invest in the business for growth. During the year, there was a 5% increase in underlying expenses, which included an increase in short-term incentives and equity REM and expenses relating to the acquisitions of Jacaranda Financial Planning and Laminar Capital. PAMI added 15% to total expenses, including the operating expenses associated with full twelve months of Barrow Hanley. Total expense growth was 20% within previously stated FY 2022 guidance of 18%-22%.
Looking ahead for FY 2023, we expect expense growth of 4%-6%, which includes the continued investment in growth initiatives. Importantly, this guidance excludes any impact from the acquisition of Pendal announced earlier today. Turning to the cash flow, there was an AUD 28.3 million increase in cash resulting from the drawdown of debt and operating cash generation. These were partially offset by outflows associated with the acquisitions of Jacaranda and Laminar Capital and the payment of the final FY 2021 and FY 2022 dividends. Free cash flow was AUD 148 million, an increase driven by the uplift in net cash receipts from the full year impact of Barrow Hanley earnings. After paying dividends totaling AUD 112.5 million and purchasing AUD 14.8 million of Perpetual stock to satisfy our long-term employee incentives, the resulting net cash position prior to acquisitions and seed funding was AUD 167.8 million.
Surplus liquid funds amount to AUD 251 million, and total cash at June 30 was AUD 175.4 million. The balance sheet remains strong with a debt to capital ratio of 22%. The increase in goodwill and other intangibles was predominantly due to the acquisitions of Jacaranda and Laminar, as well as FX movements on the U.S. dollar intangibles. The increase in borrowings reflects the drawdown of AUD 75 million dollars debt to fund those various strategic initiatives, as well as some foreign currency movements. We will separately talk to the funding arrangements for the acquisition of Pendal when we move to the next presentation. With the strong financial results delivered, both EPS and dividends have increased substantially. The board has declared a final dividend of AUD 0.97 to be paid in September.
The dividend reflects a payout ratio of 80% within our target range of 60%-90% of UPAT. FY 2022 dividends total AUD 2.09, up 16% on FY 2021. Before I hand back to Rob, I'd just like to draw your attention to the detailed divisional results that are in the back of the presentation. With that, I'll hand back to you, Rob.
Thanks, Chris. I'll now briefly comment on each of our four divisions, focusing on our priorities for FY 2023. For our international asset management business, as highlighted, we are well-positioned to benefit from the global ESG mega-trend through Trillium and building on the positive momentum from recent significant institutional wins. As investors increasingly start to consider a style shift of value, Barrow Hanley is ideally positioned with terrific investment performance across all strategies and a proven 40-year value investing heritage. We have high quality, globally relevant investment capabilities managed by world-class investment teams with significant capacity for future growth. The build-out of our global distribution team is now driving that growth, opening up new channels across key geographies for both businesses. Turning to our Australian asset management business, we also have positive momentum, and we expect to see continued growth in the intermediary channel.
The exceptional performance profile across all sectors, most notably in our Australian equities capabilities, bodes well for the future, as do our recent product launches and our revitalized marketing campaigns. In Perpetual Private, our segment focus, our advice model, and our brand strength combine to make us the leading choice for the industry's best advisors and their clients. Our continued growth will be driven by expanding our segment specialization into the aged care sector, for example, and through the expansion of Jacaranda Financial Planning across the Australian Eastern Seaboard. In Perpetual Corporate Trust, our leadership role and our consistent growth in both debt market services and managed fund services is being augmented by our unique position to provide unmatched digital solutions across our client base, opening up a whole new growth opportunity for the firm.
Finally, our announcement today regarding the acquisition of Pendal Group is a very significant moment for our company. I'll now move to the separate advisor presentation on the acquisition to talk you through the details before we finish up with Q&A. Turning to today's announcement. We are, of course, incredibly excited to be announcing our proposed acquisition of Pendal Group today. I'm pleased to share more detail now with you on what we believe is a compelling opportunity for both Perpetual and Pendal shareholders. The acquisition will create a global leader in multi-boutique asset management with more than AUD 200 billion in assets under management, covering global, U.S., U.K., European, and Australian equities, cash and fixed income, and multi-asset, asset strategies. As I'll highlight a bit later, there is significant capacity for future growth across this broad capability set, and these capabilities are highly complementary.
The combined business will materially accelerate both the global growth strategies and ambitions of each firm, benefiting from materially enhanced scale and distribution reach into and across all major markets globally. The combined business will house seven highly respected asset management brands. Under our global multi-boutique model, each of these brands will be retained, as will the investment autonomy of each boutique. This is exactly the same approach that we have applied to our acquisitions of both Trillium and Barrow Hanley. The combined group will be immediately positioned as a global leader in ESG investing with well more than AUD 15 billion in dedicated ESG assets under management, a terrific platform for future growth. Turning to the next slide. Importantly, Perpetual and Pendal are aligned in terms of asset management business models, and the combination of the businesses will strengthen that model.
Together, the group will operate under a contemporary asset management model that brings together the best attributes of a pure boutique model and the best attributes of a more traditional institutional model. We have high conviction that to be successful and to withstand the industry-wide headwinds, that this is the optimal model going forward. At its core, a boutique values investment autonomy, which is the critical feature of the boutique model. It's a critical feature of the model. It's critical for its investment teams, and it promotes a strong sense of independence and personality within each boutique, which is attractive to world-class portfolio managers and their clients. Clients recognize that the value of that independence, and they are attracted to the specialization and the focus of the boutique model.
Quality portfolio managers are attracted to the core notions of investment autonomy, specialization, and the focus that brings them as investment professionals. While the traditional institutional model in asset management is commonly underpinned by a large balance sheet and deeper resources, leading technology and a robust global governance framework. We believe that the best business model for asset management companies combines these features. It combines the critical qualities of pure boutique approach with the strength and support and resourcing advantages of the traditional institutional approach. The combination of Perpetual and Pendal will leverage the key strengths of each of these models, and we firmly believe that we will be able to realize our respective strategic growth ambitions significantly sooner than would have otherwise been the case as standalone businesses. I'd like to explore this important point just a little bit further on the next slide.
I'll step through this quickly. We believe that our global multi-boutique model is a differentiated model, one which requires a fine balance between the strengths of a pure boutique and the strengths of a larger organization. When that balance is right, it presents an ideal environment that attracts and retains the very best investment professionals. Those investment professionals thrive in environments that allow them to focus on managing money, environments that are investment-centric with no house view. Moving to the right, the best distribution talent want to work with the best fund managers. The global multi-boutique model is therefore a preferred destination for quality distribution teams, where they see the opportunity in working for a diverse investment, set of investment teams across channels and across geographies. It's this combination that will drive superior growth over time.
The best investment talent working with the best distribution talent in order to help each boutique realize their growth ambitions. We believe that the combination of Perpetual and Pendal provides us with a unique opportunity to create such an environment globally. Moving on now to a quick overview of Perpetual's offer. We firmly believe that this offer represents a strategically and financially compelling opportunity for both sets of shareholders. The acquisition will be affected via a scheme of arrangement with consideration through a share exchange. Every 7.5 Pendal ordinary shares are to be exchanged for one newly issued share in Perpetual, plus AUD 1.976 cash per Pendal share.
Based on the undisturbed share price for this offer, it represents a 46% premium to Pendal share price at the close of April 1 2022, of AUD 4.48. Perpetual and Pendal shareholders are expected to own approximately 53% and 47%, respectively, of the merged group on closing. Importantly, the scrip and cash offer allows shareholders in both companies to participate in the growth of the combined business and also participate in the projected synergy benefit of AUD 60 million. Synergies are expected to result in a material value accretion to both sets of shareholders and to deliver double-digit EPS accretion to Perpetual shareholders in the first 12 months post-implementation. Funding will be provided via a new debt facility with a clear path to reduced gearing.
Pro forma leverage is expected to be 1.7x gross debt to EBITDA shortly after implementation, with a very clear pathway to 1.2x leverage in year three post-implementation. Pendal's board has unanimously recommended that Pendal shareholders vote in favor of the scheme in the absence of any superior proposal and subject to an independent expert's opinion that the scheme is in the best interests of shareholders. Very importantly, the transaction and the proposed business model has the strong support from Pendal's portfolio managers. Turning now to the next slide. We have long admired the Pendal business and its combination of premium brands and world-class investment teams. Looking at Pendal on a standalone basis, you can see why.
Pendal currently manages AUD 111 billion across an attractive range of capabilities with the quality brands of Pendal, J O Hambro, TSW, and Regnan. These boutiques have strong track records of outperformance, and importantly, all boutiques have significant capacity for growth across their diverse range of investment capabilities. For the 12 months ended March 2022, the business generated AUD 255 million in underlying profit before tax, and that was off fee revenue of AUD 668 million. Their team of 107 investment professionals across all boutiques are supported by over 50 sales professionals, distribution professionals globally, and they are world-class. We look forward to working collaboratively with them to deliver for our clients and to create that value for our shareholders. On the next slide, we've highlighted the pro forma business by asset class and by client domicile.
Here you can see the combination of asset classes across Pendal's strong international and Australian businesses and Perpetual's highly regarded Australian and international asset management brands and of course, world-class ESG capabilities within both firms. As you can see, the combined business will have an improved balance across a broader array of asset sectors and a good geographic diversity by client location. The creation of a larger, more diversified asset management business, materially less dependent on any one investment capability, will provide an ability to attract flows across various investment styles through market cycles, including growth and value style strategies. As a result of this improved diversity, we expect the combined group to materially benefit through a reduction in the volatility in net flows over time and from a reduction in the concentration risk of key capabilities across the combined group.
The combined group brings together a diversified set of more than a hundred investment strategies across seven premium brands. As mentioned, the combination of Perpetual and Pendal creates a formidable collection of world-class investment capabilities. These capabilities are highly complementary, differentiated by investment style, by asset sector, and specialist capabilities within each asset sector. Of course, given the heritage of both firms, there are areas where we manage assets in the same asset sector. Importantly, in each case where there is that overlap within those sectors, each team manages their assets in a very different way. This differentiation will mean that teams within sectors will rarely, if at all, compete for clients. In as an example, in Australian equities, Perpetual is very much a value manager, while Pendal is known as a core manager.
In Australian fixed income, Perpetual is heavily credit-focused, while Pendal is more rates-driven. That differentiation continues across international equities, U.S. equities, and for our ESG specialists as well. It's important for me to reinforce that in every case, our brands, our investment teams, their investment approach, and their investment autonomy will be retained. Moving to the next slide. As I've mentioned through this transaction, we are, we will be able to immediately build on our leadership positions in active ESG management. Both groups house specialist best-in-class capabilities through Trillium and Regnan. In addition to these dedicated ESG boutiques, ESG will be deeply ingrained across the broader platform with Perpetual, Pendal, J O Hambro.
J.O. Hambro and Barrow Hanley, each home to ethical or sustainable funds, where specific ESG criteria are central to the investment approach of the fund, or there are ESG factors that are integrated into the analysis and decision-making process. With well over AUD 15 billion in AUM, the combined group will be a global leader in ESG investing, and I expect this will be one of the strongest growth areas of the firm going forward. One of the most important aspects of combining Perpetual and Pendal is the immediate expansion of our global distribution footprint. This combined distribution talent from both companies will create a stronger distribution organization covering all major markets and channels. The positive impact of this materially enlarged distribution team will be felt immediately post-completion with employees across 16 locations around the globe and an enlarged distribution footprint from day one.
From a distribution perspective, the transaction effectively brings forward years of growth and talent acquisition, enabling us to build deeper market positions and deeper coverage across key markets and regions on an accelerated basis. In particular, our distribution coverage of retail intermediaries in the U.S., U.K., and European markets will be materially deeper. In addition, overall, diversity in the strategy set and the expansion in investment capabilities that this transaction brings will allow the combined distribution team to have better, broader, and deeper solutions-based conversations with current and potential clients and will provide deeper coverage within channels.
As a larger organization, we will be better able to invest in distribution, to invest in our people, to invest in new products, new channels, and in digital marketing. Combined with our enhanced reach, we think the opportunities for accelerating growth are clear. Importantly, here in Australia, we will have segregated distribution teams for Perpetual and Pendal's Australian equities businesses. Each team has a significant client base and growth potential, and we believe that it is critical to be very clear that they are different businesses with very different investment approaches, and that both teams will see no change to brand, no change to the investment team, no change to their investment process. They will operate entirely independently, just as they have done so successfully for decades, and will be managed entirely separately and have dedicated, separated distribution focus. Turning to the next slide.
Before I hand over to Chris, let me briefly outline the step change in scale and growth potential that we have delivered since 2019 will reach far higher levels through this transaction. Since FY 2019, as a leading domestic-focused manager with AUD 27 billion in assets under management, we have expanded into a truly global diversified asset manager. Through a series of targeted acquisitions of leading investment boutiques. We have expanded Perpetual's investment capabilities and reach to now manage nearly AUD 100 billion in assets under management globally, with those capabilities having a capacity to grow out to over AUD 400 billion. With today's announcements, Perpetual's total capacity will nearly triple to well over AUD 1 trillion in potential assets under management. Our AUM number will more than double, turbocharging our potential with significant capacity to support future growth.
When combined with our materially more powerful global distribution team, we think the future looks very exciting. On that note, I'll pass to Chris to take you through the pro forma financials and the anticipated synergies.
Thanks, Rob. Rob's already talked about the scale benefits that will accrue to the asset management business as a result of this acquisition. On a pro forma basis, asset management revenues will represent approximately three-quarters of our revenue and of our earnings. PCT and PP will continue to meaningfully contribute, though, representing 25% of group revenue combined. Importantly, you know, over 50% of the group earnings will now be derived outside of Australia. As set out in our release, Pendal shareholders will receive one Perpetual share for every seven and a half Pendal shares, plus AUD 1.976, which is easier to say per Pendal share. Importantly, the cash component of the offer will be reduced by the amount of any final FY 2022 dividend paid by Pendal.
The cash component of the offer totaling AUD 757 million will be funded by a new debt facility, which will also refinance our existing facility. At implementation, gross debt to pro forma EBITDA will be about 1.7x or 1.3x on a net debt basis. Within three years, we expect gross debt to EBITDA to reduce to 1.2x or 0.8x on a net debt basis. In addition, Pendal is expected to pay down and close its existing facilities ahead of implementation. Importantly, our dividend policy will remain unchanged with 69% of UPAT to be paid in dividends on an annualized basis. Turning to the next slide. We expect run rate expense synergies of AUD 60 million within two years of completion, with over half of those synergies to be achieved by the end of the first year.
This represents 8% of the combined asset management cost base or 6% of the total cost base. These synergies will not impact on any of the key investment brands or teams. Transaction costs will be in the region of AUD 40 million, and the majority of the expected integration costs of AUD 110 million are likely to be incurred in the first 18 months. As we think ahead to implementation and integration, a key focus will be maintaining the client experience for both Perpetual and Pendal clients. In that regard, there'll be no change to key investment teams, their investment processes or their investment autonomy. Completion is expected in late 2022 or early 2023, and it's depending on the timing of regulatory approvals and other conditions. That's the highlights on the financial side.
With that, I might hand over to Rob and then we'll move to Q&A.
Thanks, Chris. We firmly believe that this proposed acquisition represents a strategically and financially compelling opportunity for both sets of shareholders, for our investment professionals and for our distribution teams around the world. Most importantly, for clients of both businesses, we will preserve, protect, and promote the independence of each investment team and their investment autonomy. There will be no change to that approach. This combination of two storied asset management brands provides us with an opportunity to immediately assume a leadership position as a global multi-boutique asset management firm. The significant widening and deepening of our global distribution footprint, when added to the broad array of world-class investment capabilities with substantial capacity for future growth, provides us with a unique growth opportunity. Added to that, our leadership position in ESG investing.
I'm sure you can all see why we are so genuinely excited about the future path ahead. With that, let's now move to questions. Over to Susie.
Hi. I'll just remind everyone if they'd like to ask a question to please press star one on their phones. The first question comes from Andrei Stadnik at Morgan Stanley. Go ahead, Andrei.
Morning, everyone. I wanted to ask two questions, if I may. Firstly, just in terms of explaining the deal and how the deal will work, because I think the domestic shareholders will probably understand the difference between the Perpetual and Pendal investment brands. How will you pitch this deal to the offshore investors who have seen many scale-based deals run into issues on the revenue side?
Sorry, Andrei, do you mean to investment teams or external, you know, shareholders?
Yeah, particularly to overseas-based investors because there's been a number of global deals based around scale in asset management that have run into issues. A common question from overseas investors is, you know, what can make a scale-based deal in asset management work?
Well, I think sensible management, sensible decision-making and the right business model. You know, I think, you know, we all learn through experience and, you know, personally, I've had involvement in many successful acquisitions, but also, you know, I've been involved in acquisitions where, you know, the best decisions weren't made. I think, you know, through the experience set of the combined management team, you know, we know what we need to do to make this work. I think, yeah, the business model that I've described and probably, you know, gone at length to try and explain is highly differentiated and scalable. You know, it's a business model that, as I said, attracts and retains the best investors and the best distribution people.
We're very confident that we'll make the right decisions. We'll have clarity of leadership. We'll have a first-class experienced leadership team managing the business. You know, I think our own track records that you know through M&A and developing growth through M&A over 20+ years should come to the fore.
Thank you. My second question: you're doubling up on ESG capabilities, which is, you know, clearly quite an attractive area. How are you thinking, you know, to use that to, you know, to grow more aggressively?
Yeah, you're spot on. I mean, you know, I've previously, probably for a couple of years now, referred to, yeah, the global mega-trend that is ESG investing. As you know, Perpetual has been very focused on ESG, you know, through our existing capabilities, and of course, you know, through the acquisition of Trillium. Just to see the growth of Trillium since acquisition, I think the firm's more than doubled in size since we acquired it two years ago. We reported today north of AUD 1 billion in net new flows into ESG strategies. You know, we're incredibly bullish about our market position as just Perpetual.
I think when we look at the combination with the strong ESG heritage that's been through the various Pendal Group companies, in some cases for two decades plus, you know, we think it's a powerful combination. You know, Regnan have provided critical ESG advisory services to some of the world's, you know, most significant investors for 20 years. Some of their global impact strategies, while nascent, we think have incredible potential over the longer term. You know, we reported AUD 15 billion. I think actually, if you're adding up other sources, it's probably closer to AUD 20 billion in dedicated ESG assets is a platform where I think we can assume a global leadership position.
When we combine that with, you know, a doubled-up global distribution effort, we are very bullish about the future for the combined entity under those brands.
Thank you so much.
No worries.
Okay, we've got a question here from Liz Miliatis at Jarden. Liz?
Hi, good morning, and thanks for taking my questions. The first one's just on the retention of staff within the Pendal business. If you could just talk to some of the specific things that you guys have done in terms of making sure you retain that staff and their investment capabilities.
You know, we had the benefit of engagement with key portfolio managers, and that was incredibly positive. Every single, you know, key portfolio manager that we had conversations with is supportive of the transaction, supportive of the business model. Is, you know, certainly in conversations that I've been part of for many weeks now, very positive about the future together. That's exciting. From a comp perspective, I think from an ongoing compensation perspective, there's no change, you know, to the arrangements that are in place for any of those teams. You know, those compensation arrangements have served those teams well historically, and will into the future.
Again, I guess, Liz, in many ways, you know, people will probably get sick of me hearing me say two things through this. One is that, you know, investment autonomy is critical and will be protected. But they'll also get sick of me just saying no change, because I think to those things that are so important, whether it be, you know, investment autonomy, the investment teams, the brands of the business, or the compensation schemes, you know, no change going forward. It's business as usual, and we're there to help support, develop and grow those businesses post-completion.
Okay, great. Thank you. Just a question on your results specifically. Would you be able to give us some color in terms of what happened with cost growth for FY 2022? At the FY update, you guys had indicated you'd be at the upper end of the guidance of 18%-22%, and you landed closer to the midpoint. Just noting that the significant items were a fair bit higher as well than what you'd guided at the FY update. If you just give some color on what's happened with cost growth and whether some of that cost growth is being pushed out into 2023. Thank you.
Yeah, sure. Liz, there's a couple of things going on on the cost growth side. One of which we're still, like everyone else, in a labor market where we have not been able to bring on the number of people we wanted to, in the time that we wanted to. There is, if you like, a lag because we're not going to have those people in our expense line in 2022, but we're hopeful that they'll come through in FY 2023. A combination of that and also the, in terms of the projects and the investments we've been making across our platform, you know, that lack of capacity to actually execute the program meant we didn't spend as much on projects or technology either.
Those are probably the two swing factors on the OpEx line. On significant items, as you know, we've got a few drivers in there, including the amortization of the intangible. On that, I think that's probably the FX impact of that probably had the most impact.
Okay, thank you.
Okay, the next question comes from Ed Henning at CLSA.
Hi. Thanks for taking my questions. My first one is just around integration risk. Can you touch on what you're anticipating for FUM loss in the deal? With the deal, do you have to approach all the clients to get approval or is there anything around that? If you do, can you just talk about timeframe on that and whether that'll impact the growth in the near term on the Pendal side, at least?
Yeah, sure. Thanks, Ed. I mean, obviously, we go into this hoping there won't be any client losses because the story is a story of no change. You know, no change for people to process to products or any aspect of the business. Yeah, that's the critical part of the story. Yeah, I think in terms of consent processes, yes, you're right. You know, parts of the Pendal business, you know, will have to seek consents from clients. You know, across the book of business, there are consents. In some cases there are consents. Consents must be gained. In other cases, there's a provision of a notice. In many cases there's no specific requirement.
You know, where consents are required, you know, I think historically, you know, both businesses through an acquisition process have showed that they can do a very good job with consents. I think I'm right in saying when Pendal acquired TSW about 15 months ago, they got above 99%, you know, consent acceptance. We get a similar number, you know, when we acquired Trillium. Barrow Hanley, you might recall, was a bit lower, around 90%, because we lost two quite large fixed income U.S. fixed income mandates for reasons not associated with the transaction. It was obviously, you know, deep in the first year of COVID, and there are other factors at play there.
You know, we feel very positively minded that the combination of the no change story and the history of consents means that you know, we feel quite positive going into that process for those clients that do require consent. As far as integration goes, again, I think the headline story is no change. I did say you'll get sick of me saying it. You know, we aren't looking for a hard integration of front, middle and back office.
I think, you know, you know, I think the critical thing is to protect client interest, to communicate well with clients, and, you know, to lead forward with that no change story. Then, you know, we'll seek, you know, the right sort of efficiencies sensibly over time in a BAU sense.
Sorry, Rob, just on that, roughly how much of Pendal's FUM you need to get consent for?
You're probably best asking that number, you know, directly from Pendal. In terms of the hard requirement, I think it's less than half the assets.
Okay, less than half. Okay, no worries. Do you know roughly how long that process will likely take? Is it, like a two-month process? Is it a four-month process?
Oh, yeah. I mean, I think, again, TSW process, my recollection of that process was it was incredibly quick. I think it might have been. I'm gonna say, I'm gonna guess here. I'm looking at others in the room. Maybe six weeks. Six to eight weeks. I think with Barrow, I think we were probably three months point to point. That's a pretty typical sort of period, Ed.
Yep. Okay. No, that's helpful. Just another question. You know, you talked about the shift to value and Barrow Hanley getting into positive flows, which is great. Can you just touch on, you know, are you seeing increasing conversations in Barrow Hanley and more RFPs out there and, you know, and especially can you just touch on the U.S. and, you know, what you see driving a turnaround in flows there and why you're confident on the U.S. side?
Yeah, I mean, we've got the greatest degree of confidence in Barrow in those global capabilities. That's, you know, broad-based global equities, global emerging market equities and international equities, which are, you know, effectively ex-U.S., which is a massive segment in the U.S. You know, the relative performance is terrific across the board. You know, we're making some seriously positive ground with some of the world's largest asset consultants. You know, in the institutional component of the market, you know, we're seeing the pipeline building out quite nicely, with a couple of very, very nice entries, you know, coming through recently.
You know, I think I touched on the fact that here in Australia, you know, the fact that Cory Martin and Brad Kinkelaar and team have been able to come down here to talk to the local market is actually seeing a realization of, you know, that drip feed in retail flows just starting to build. In fact, we've just won, you know, one of the key model portfolio positions for Barrow Hanley's global equity strategy for one of the major research houses. Some really exciting developments there. Yeah, I feel very positive about the opportunity set in retail and institutional in Australia. Well, in fact, you know, we've got some great mandate opportunities, RFPs, you know, in from Asia recently.
Actually, you know, globally we're seeing high interest. You know, I'd just remind you of one point, too. You know, the Barrow Hanley ESG strategies that we've launched in UCITS structure, emerging market and global value ESG strategies. You know, we've had. Again, I'm looking around here. It's probably AUD 1 billion of flows, you know, into those strategies. You know, and we, you know, feel very positive about the prospects there as well. To the second part of your question on US equities and US fixed income.
Yeah, you know, we expressed the fact in the presentation today that we, you know, we're disappointed with those flows. You know, I think what is giving us hope that we can, you know, see a moderation of the outflows in U.S. equities is that terrific investment performance across the board. It's only now that we're seeing, you know, or hearing feedback, you know, through the market that people are starting to think more demonstrably about allocating towards value. I think when we combine that with the fact that, you know, our distribution effort, I think is really, you know, properly gearing up in the U.S., you know.
Some of the new hires in the last 12 months are now, you know, they've got their feet under the desk. Well, actually not under the desk. They're on the road. You know, starting to, you know, to build more interactions. You know, we think the combination of investment performance, revamped distribution, new senior talent into that revamped distribution expansion of our U.S. intermediary set, you know, gives us hope that we can see moderation in those outflows. Sorry, long answer.
No, no, that was good. Thank you. Just more broadly on the RFPs with more, you know, managers are able to get around, seeing an increasing amount of those coming through more broadly across the business.
Yeah. I mean, I think in particular for Barrow Hanley and Trillium, but you know, we've also, you know, we've seen real strength in the intermediary channel here in Australia as well. You know, I think activity feels like it's picking up. Our pipeline is definitely building, and it's coming from a more diverse set of sources.
Okay. That's great. Thank you.
Thanks, Ed. The next question comes from Nigel Pittaway at Citi. Nigel, go ahead.
Hi. Good morning, welcome, Chris. First of all, can I just clarify the EPS accretion calc that you're saying is double-digit accretive year one, that does include the full AUD 60 million run rate of synergies. In reality, you probably only get, what, AUD 10 million-AUD 15 million in year one. Is that? Have I read that right?
It includes 60, and we'll be getting over half, but not all of it in the first year. That's correct.
Right. Okay. That'll be half on a sort of realized basis rather than what flows through the P&L, yeah?
Yeah. Sorry, yes, that's right.
Yeah.
It's a run rate basis within 12 months, is how we've disclosed it.
Okay, fair enough. Thank you. Secondly, just, I mean, normally when you're doing this type of merger, you'd be worried about sort of consultants putting funds on hold, et cetera. I presume, Rob, what you're saying because of the no-change approach, that you're hopeful of sort of avoiding that. Is that a fair assessment? And have you had any conversations with consultants to sort of see, you know, how they might react? I suppose it's hard to have done that. I mean, you know, how confident are you that consultants will see the no-change approach as meaning that they won't do the normal with this type of acquisition?
It's a good question, Nigel. Yeah, a little bit hard to have discussions, as you say, as two public companies. Yeah, that work starts today. You know, we've received some very positive feedback from some of the largest clients of Pendal, particularly out of the U.S. You know, that's exciting. Yeah, I can't sort of second guess what consultants or research houses might do. They each have their own approaches. I think you know the no-change story is completely right and completely real. I think to have some recent evidence points like Barrow Hanley and like Trillium is really important.
Certainly, you have to think about, you know, other transactions I've personally been involved in over the years. Yeah, in all cases, we've presented these, this sort of no-change story. I'd like to think, you know, the market and those that judge us, you know, would have a high degree of confidence that, you know, this is gonna be exactly the approach we run. It's why we're leading, you know, with, you know. There are multiple reasons why we think the business model we're applying here is the right business model. You know, environment reasons, client-driven reasons, but also market positioning reasons, you know, to retain investment autonomy is critical.
I mean, I think, you know, you guys have heard me talk for a long, long time now about the fact that if we love the people, the product, the process, and the potential of these investment teams, why would you ever consider changing them? That's the asset you're buying. You know, as I said, to have the benefit of having, you know, many hours with the key Pendal portfolio managers, this is an exceptional array of talent in this business. You know, it would be lunacy, you know, to wanna change any of that. Our job is to protect and promote, and that's what we're gonna do.
I think the conviction with which we go forward on that, our track record at demonstrating it, hopefully you know, positions us well, you know, to see hopefully you know, minimal impact in terms of outflows.
Okay. Thank you for that. Then, maybe just finally, I mean, obviously on the sort of go forward cost growth on the existing business, you mentioned that there's a bit of pull forward and obviously delay in recruitment. Still, I mean, 4%-6% growth is. It sort of sounds reasonably high when, you know, market revenues might be under pressure from markets. I mean, you know, how are you thinking about that from a sort of cost versus revenue perspective is more my question.
Look, Nigel, again, the pull-through is also coming from the investments in distribution and other costs offshore, where we'll have the full year impact of that, which is baked in, if you like. The other investment, you know, we did talk about continuing to invest in the business, and that's not just in distribution, but it's in, you know, the enabling functions continuing to be able to support the increasingly global business. In effect, it's one of the major drivers of the Pendal transaction, if you think about it, in that we both have similar investments that we need to make to support our global businesses. You know, in bringing the business together, we have to do a few things once rather than twice.
That's where some of the ongoing benefits come from. If markets were to continue to be choppy and lower than last year, you know, we do like to have jaws between our expense growth and our revenue growth, and we'll manage that to that. The 4%-6% at the moment is being driven by, in part at least, by costs that have already been incurred, and we're getting the full year impact of those. I think, as I mentioned before, we have been running lean for the last, well, most of the year of FY 2022, to be frank. In an ideal world, we do hire more people to support the business.
The other swing factor will be if markets continue to be the way they are, we won't be able to hire the way we have planned to, and that will put downward pressure on the expense guidance.
Okay, that's great. Thank you very much.
Okay, thanks, Nigel. We've got a question from James at Credit Suisse.
Hi. Thanks, everyone. Look, post the merger, you'll have AUD 200 billion of, that's obviously a lot bigger than what you were. It could be argued, though, it's still small on a global scale. Do you think you need to be even larger, you know, than what your combined businesses will be to be really truly relevant at the global level? You know, how does that weigh into your M&A outlook beyond this merger?
Yeah. Good day, James. Thanks for the question. You know, I mean, personally, I think sometimes comments relating to scale and size just by a depiction of a level of assets under management, I personally think are overdone. I think the answer is it depends. You know, you know, from our perspective, you know, because we have businesses within a business, you know, in the multi-boutique structure, you know, it's each business is its own story. Each business, you know, has its own style. Each business has its own, you know, you know, capability and capacity. And, you know, I guess, you know, where we're seeing the leverage benefit is what happens behind the scenes, and particularly in the distribution effort too.
Yeah, we wanna run that. That's where scale will benefit us. As Chris said, you know, there's a whole lot of things that each organization's doing today, which, you know, we'll only have to do once together. We'll get benefits from that. I personally am not driven by a total assets under management number. I think it's more about the capacity that sits within the capabilities. As you saw in one of the slides, you know, our measure of capacity says that if we do nothing else, and we're highly likely to do nothing else because we're gonna be very busy.
If we do nothing else other than support these boutiques and help them to grow over time, we can take those assets from that level of AUD 200 billion today to full. I mean, you're never gonna be full in capacity in all capabilities all of the time, but we have the potential to grow, you know, well north of AUD 1 trillion. It's not that headline that's gonna be our guide post. It's gonna be, you know, the business plans for each of the boutiques and how well we execute those.
All right. Thank you. I guess maybe following on from I guess a change in business mix towards asset management, I mean, how committed are you towards Corporate Trust? Obviously, it was important to you pre the merger, but are you still pretty committed to that? Do you think it could be worth you know more value to others outside the group?
I mean, I'll make some comments, and Chris will probably talk about the relative contributions and whatever else he wants to say. You know, I think you know, we wouldn't have this acquisition if it wasn't for the corporate trust business. You know, our earnings profile would look incredibly different if we didn't have the corporate trust business. You know, there's a reason that everybody wants to buy the business from us because it's exceptional. You know, it's a leadership business. It performs the duties of essential infrastructure to critical parts of the financial services industry. It's punched out 15% CAGR of underlying profit before tax over a decade.
This is a remarkably strong business that has provided an anchor to our organization and will continue to do so. While of course, you know, its relative contribution will be somewhat diluted, you know, I have every confidence that it's gonna keep growing at that clip, and it'll come back to this level at some time soon. You know, I haven't done the numbers, and in fact, we should do this, but I think if you wound the clock back at Perpetual 10 years ago, you'd probably see its contribution level back then was about the same as it will be. I reckon in 10 years' time it'll be back to where it is, you know, today. You know, this is a first-class business. It's an exceptional business.
It's provided a critical role, you know, to this point and will going forward. I'd say the same of our private client business as well. I can't think of another advice business that's been able to report nine consecutive years of solid growth through a Royal Commission and through the market volatilities that we have. You know, you're starting to see some of the operating leverage come out of the business in this year's results. You know, but Chris, the relative contribution maybe?
Well, yeah, I mean, between them, they're still 25% of the group. They do provide non-market revenues, which are important, and where it's particularly important in the second half of FY 2022 and now important as well in terms of, you know, we're gonna be having 1.7x On gross leverage. We take a lot of comfort from the fact that we have non-market revenues that are far more stable and less volatile than asset management earnings. For all sorts of reasons, the ones that Rob's mentioned in mind, that, yeah, that both PP and PCT remain core to the group.
All righty. Thank you. Just one final question. You know, can you provide a bit more color, maybe Chris, one for you, on just where the synergies are coming from? I guess you've ruled out any from investment staff. Just wanted to confirm if there's any from distribution teams and I guess just a bit more color more broadly on where they're coming from.
Look, there's a combination of FTE synergies and non-FTE synergies, as you'd expect. The FTE synergies largely come from the fact that we have two large listed Australian entities that are supporting global businesses. There will be overlap and duplication here in Australia in terms of the way we support the integrated business going forward. That's a large portion of the FTE synergies. On the non-FTE side, it goes back to the point I made and Rob has made that we both have programs of work required to continue to support the strategies we have for our global businesses. There is overlap there too.
There are many cases where we can look at best of breed on their side or ours and choose one of the two, which leads to significant synergies over time as well. Back to sort of Nigel's question. Obviously, the FTE synergies are easier to execute quickly. Some of those project-related synergies will come towards the back end of the two-year program.
Just to throw it into that, yeah, a lot of the obvious stuff that Chris has alluded to. You know, two boards, two executive committees, two listings. Various premises, you know, benefits potentially, which are some of the bigger-ticket items.
Righty. Thank you very much.
Okay. Conscious of time. We've probably got time for one more question. We'll take the next one from Marcus Barnard at Bell Potter. Go ahead, Marcus.
Thanks. Thanks, guys. Quick question. Thinking about the reasonably high levels of debt you've got post-acquisition and how you're gonna pay it down, how should we think about your dividend growth going forward? I'm assuming you might be thinking about coming down to the lower end of the 60-90 range. Do you think you're gonna be starving other areas of the business from investment to pay the debt down? What does this mean for other acquisitions? I think in James' question, you said you're gonna be busy combining this, but how should we think about acquisitions going forward? Thanks.
Yeah. Okay. I mentioned that the dividend policy remains the same. It's 60%-90% of UPAT. The profile of the pro forma business does start to pay down debt pretty quickly. As you see there, the profile of the gross debt going from 1.7x- 1.3x over three years. In that period, we are hopeful that the dividend continues to grow. That's the basis on which we're going into the transaction. We would be hopeful of maintaining on that basis, payout ratios, you know, approximately where they are now.
Our main focus is on continuing to grow the dividend on an absolute basis over the next three years as we pay down debt and as we, to your point, continue to invest in the business. We do have three businesses. There are lots of opportunities. There'll be more opportunity if the asset management business combined than there are apart. We don't wanna starve the business. This gives us an opportunity, in fact, to free up investments that both Pendal and Perpetual may have been incurring on their own, because we don't need to, because one or the other of us already has that capability in their shop.
Well, you know, those opportunities are substantial. I'll give you just one example. In Perpetual's business plan for FY 2023, we had included material build-out of our U.S. intermediary team. You know, the vast majority of that won't be required now. There are many examples of those sorts of spends that are baked into each respective firm's profile for the next year and beyond that can be reconsidered now.
That's great. Thank you.
Okay. I think we'll conclude there. Thanks everyone for watching and listening in today. We appreciate you joining us. The financial material will be on our website. Any other questions, please feel free to email me. Thanks.