This is a live chat to this conference. It's being recorded. I would now like to hand the call over to your host today, Ms. Susie Reinhardt. Thank you. Please go ahead.
Thank you, and good morning, everyone, and good afternoon or evening to those joining us from other parts of the world. Welcome to Perpetual's first half 2025 results briefing. Before we begin today, we'd like to acknowledge the traditional owners and custodians of the land on which we present from today 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'd 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 for the first time is our new CEO and Managing Director, Bernard Reilly, as well as Chris Green, Perpetual's Chief Financial Officer.
There'll be an opportunity to ask questions at the end of the presentation. Please, can we ask that we start with two questions each to ensure we have time for all analysts keen to ask questions? Before I hand over to Bern, we would like to draw your attention to the disclaimer on page two of the presentation. Bern, over to you.
Thanks, Susie. Good morning, everyone, or good evening, good afternoon, and thank you for joining us today for Perpetual Group's first half 2025 results briefing. Before I cover the results, I wanted to address the announcement we made on Monday of this week. We announced that the scheme with KKR agreed in May 2024 had been terminated.
Despite a period of extensive engagement, we were not able to reach agreement on a revised transaction to put to shareholders. While this was not where we expected to be, we have a course of action which I believe is the right path forward for shareholders. The board has decided to progress the sale of Wealth Management business, a high-quality financial advice business, and we will continue the program to separate our businesses from one another so that they are more autonomous.
Our results at a high level demonstrate growth Corporate Trust and Wealth Management, and continued growth in asset management, which benefited from rising assets under management despite experiencing net outflows. Also today, we announced an increase to the previously communicated simplification program from AUD 25-AUD 35 million by 2025, 2026, sorry, announced in the 2024 results to AUD 70-AUD 80 million to be delivered by the end of 2027.
We have now announced a new strategy as well for Asset Management, which we've already started to execute on. Turning to some of the headline numbers of our results, total operating revenue was AUD 686.2 million for the half, an increase of 4% on the first half of 2024. Underlying profit after tax was AUD 100.5 million, 2% higher than the prior corresponding period.
Statutory net profit after tax, or NPAT, was AUD 12 million, 65% lower than first half 2024 due to some one-offs, which we'll explain later in the presentation. Diluted earnings per share on UPAT was AUD 0.892 per share, 5% higher than first half 2024. The board has determined to pay an interim dividend of AUD 0.61 per share, unfranked.
Turning to the next slide. In reimagining as a group, today we have three quality businesses that have delivered growth in profit through a period of corporate uncertainty. In Asset Management, our globally diversified asset base provides us with a platform from which to derive scale benefits and an improved growth profile over time. Over the half, we delivered 7% growth in underlying profit before tax when compared to first half of 2024.
In Corporate Trust, despite the higher interest rate environment, the business continued to deliver growth with underlying profit before tax up by 8% on the prior comparable period. Wealth Management, the business saw solid performance across all segments, delivering 12% growth in underlying profit before tax compared to the first half of 2024.
In summary, we have three quality businesses that have excellent organic growth opportunities ahead of them. We will continue our separation program, and the end result will be a leaner central function, enabling greater autonomy and accountability.
Turning to the next slide. And for more detail on our three businesses, firstly on Asset Management, as I said, underlying profit before tax was up 7% on the first half of 2024, underpinned by positive market movement and investment performance, with strong investment performance in certain funds leading to higher performance fees.
Total assets under management at the 31st of December 2024 was AUD 230.2 billion, an increase of 8% since the 31st of December 2023, supported by positive markets, currency movements, and strong relative investment outperformance offset by net outflows, as you can see on the chart below. Net outflows for the year were 3.4 for the half year, sorry, were AUD 3.4 billion, mainly driven by outflows in J.O. Hambro's larger global and international equity strategies, as well as with Barrow Hanley, which has continued to see outflows in US equity strategies.
In Australia, we saw strong net flows in both the Pendal and Perpetual boutiques, which reported circa AUD 2.9 billion in net inflows and AUD 600 million in net inflows, respectively. Importantly, average revenue margins were stable through the period, and investment performance was robust.
Our focus on improving our net inflows outcomes across the Asset Management business, continues to be a focus, and we'll cover that focus and other areas in the coming slides. At our AGM last year, I set out four main priorities for the Asset Management business, which I'll provide an update on today. These were confirming the future operating model, right-sizing the cost base, resetting the distribution strategy, and stabilizing J.O. Hambro. We've made a lot of progress in a short period of time, but there is more work to do.
Turning to the operating model, we are moving to a model that better empowers the boutiques with operational autonomy in day-to-day decision-making but provides clear accountability for performance. We're aligning the enabling functions locally so that they can empower the boutiques and drive speed and accuracy of decisions. Decisions will be made closer to the client.
We are moving from a regional distribution model to a scaled international model focused on high-growth segments such as U.S. and Europe intermediary. Turning to the next slide. As we transition to the new operating model, we'll also bring efficiency benefits and reduce the cost base.
Our simplification program has been uplifted from the original AUD 25-AUD 35 million announced in August last year to AUD 70 to AUD 80 to AUD 80 million in an annualized expense savings before tax over a three-year period. The program will be supported by disciplined cost and capital management practices across the group so that we have clear benefits for shareholders.
The majority of savings will come from the Asset Management business and group functions. The main areas where we see reductions include the central functions. By creating more autonomous business lines, centralized group support functions will be streamlined.
The Asset Management boutiques. Greater focus on the end-to-end profitability will drive a leaner and more efficient boutique business. Tech and operations. Migration to our new registry platform, and the implementation of middle office and back office program over the next two years will result in greater synergies, and finally, strategic partners and vendors.
We're also exploring opportunities across our strategic partnerships and third-party vendors, as well as product and platform rationalization. We'll provide a further update on that in due course. We have already achieved annualized cost savings of circa AUD 10 million this half, in excess of the original full-year target of AUD 7.5-AUD 10 million announced in August before I joined Perpetual. I would note, though, that these are annualized savings which will flow through the P&L in due course.
Turning to the distribution strategy, we are resetting our distribution strategy so that we have the right capabilities in the right regions, tapping into the right channels. We're increasing our international resources to enable us to launch new products into the right channels. This also means rebalancing resources from some regions into others. There's a growth opportunity for us in Asia in the institutional space, where we currently have little presence.
On the left, you will see our assets under management by channel, where we are heavily weighted to institutional investors. Our plan means we'll drive greater balance across clients and regions. As part of this, work has commenced on a holistic ETF strategy across relevant markets to target intermediary and retail channels. Turning now to J.O. Hambro. J.O. Hambro is a respected brand with high-quality investment teams and capabilities.
It has all the necessary infrastructure required to attract and market capabilities on its platform. However, continued underperformance in some of the key global and international strategies is leading to outflows. It will take time to revitalize the business.
We are focused on three areas. We are resetting our distribution strategy to improve client engagement and better retain existing clients. We will prune to grow, which means closing down unprofitable strategies and reinvesting in growing capabilities.
J.O. Hambro has a great platform to add capabilities, and we will explore new capabilities that add diversity of assets and clients in growth areas. And by platform, I mean an end-to-end business that has all the governance and back-office support to enable investment capabilities to do what they do best: manage money on behalf of clients.
Revitalizing the J.O. Hambro, as I said, will take time, but I think we have all the right ingredients to be able to do so, and we're seeing some early signs of improvement. Turning to the next slide. We have a new strategy for Asset Management. Some of this has already been covered, but this slide presents it more holistically.
At the center is our unique investment capabilities. We will be a leader in the global multi-boutique Asset Management business, combining institutional strength and global distribution with agility and the specialization of a boutique.
This will enable us to continue to deliver superior services and support to our clients, empower our people, and our boutiques to deliver value to our shareholders over time. We have refreshed our asset management strategy to focus on transformation and growth based on three strategic imperatives: simplification, operational excellence, and growth.
We're moving to a new operating model, which will deliver cost benefits. We'll be leveraging our scale for the benefit of our boutiques. We will seek to embed greater autonomy and accountability in our businesses by introducing business performance targets for each boutique, as well as improving our speed and quality of decision-making with our new operating structure. Disciplined cost and capital management practices, along with the active management of our seed capital pool, will help us achieve the level of operational excellence that we're striving for.
Our focus going forward is to unlock growth through a process of rebalancing our distribution and boutique-level strategies towards growth areas. Along with this, we'll accelerate efforts in high-growth areas where we already have a presence. With this strategy, I believe we can return a quality Asset Management business to growth.
Now turning to Corporate Trust. A quick reminder to those who are less familiar with our business: our Corporate Trust business is a leading fiduciary and digital solutions provider in its sector. The business has continued to deliver strong earnings growth with a 10% CAGR over the last 10 years.
It now has over AUD 1.2 trillion in funds under administration across its Debt Market Services and Managed Fund Services divisions. It has strong client relationships, as demonstrated by a very strong NPS of positive 54. And it continues to be a trustee of choice. It was recognized as trustee of the year for nine years straight.
Turning to performance, Corporate Trust delivered solid growth across each business line through the half, with underlying profit before tax increasing by 8% on the half and revenue up by 9%. In Debt Market Services, growth in our securitization portfolio from both new and existing clients contributed to 12% growth in revenue compared to the first half of 2024.
In Managed Fund Services, revenue grew by 7% on the prior comparable period, supported by continued market activity within fixed income and commercial property. Perpetual Digital delivered 5% growth in the revenue over the half. Expenses overall grew by 9% due to technology spending and to support the growth in client volumes over the period, which impacted the cost-to-income ratio through the period, increasing slightly from 55% in the first half of 2024 to 56% in the first half of 2025.
Turning to Wealth Management is one of Australia's leading advisory services businesses focused on the comprehensive needs of our clients. Our strong reputation and track record mean that we remain a trusted service provider for private wealth advice, trustee services, and nonprofit and philanthropic services. The strength of our client relationships can be seen through our NPS result from the financial year 2024 of positive 48, and the business hitting a milestone of delivering 11 consecutive years of net inflows.
Turning to the performance for the first half of 2025. In first half Wealth Management reported UPBT of AUD 29.2 million, up 12% on the prior comparable period, driven by strong organic growth across all segments and the continued growth in funds under advice, which grew 8% over the period, driven by favorable market movements. Expenses increased by 5%, mainly to support organic growth initiatives and investment in staff and technology. And importantly, the cost-to-income ratio reduced from 77% to 75% over the period.
I'll now hand over to Chris to talk through the detail of our results.
Thanks, Bern, and good morning, everyone. Our results for the half-year: operating revenue of AUD 686.2 million was 4% higher than the prior corresponding period, primarily driven by AUM and full growth across each of our three businesses. Compared to the second half of 2024, operating revenue was 1% higher.
Operating revenue in the first half of 2025 included performance fees earned of AUD 15.9 million, compared to AUD 5.4 million in the prior corresponding period. These came mainly from J.O. Hambro strategies that outperformed over the year to December 2024. Total expenses of AUD 543.1 million were 4% higher, or AUD 26.2 million, within the guidance range that we provided in January.
The increase in expenses was largely due to higher variable remuneration due to the higher Corporate Trust and Wealth Management businesses, a one-off lease make good benefit we had in the first half of 2024 that wasn't repeated, as well as increased enterprise investments in cybersecurity and regulatory compliance. Underlying profit after tax was AUD 100.5 million, 2% higher than the first half of 2024.
The effective tax rate on UPAT over the period was 29.8%, up from 27.5%. That was due to a deferred tax asset write-off in Singapore. Significant items were driven by transaction and integration costs, mainly in relation to the strategic review and the scheme with KKR.
Also included in significant items is a AUD 25.5 million impairment in relation to J.O. Hambro and a $24 million benefit from an unrealized gain on hedging US dollar and sterling debt in anticipation of the implementation of the KKR scheme. We reported a statutory net profit after tax of $12 million, down 65%.
Earnings per share on UPAT was 5% higher. The board declared an interim dividend of AUD 0.61, unfranked, to be paid on the 4th of April. This represents a payout ratio of 70% on UPAT, in line with our stated dividend policy to pay between 60% and 90% of UPAT. We expect the capacity to frank dividends will return in the future. This will be assisted by the retention of the Corporate Trust business that will generate consistent Australian-based earnings, in addition to the Perpetual and Pendal Asset Management businesses.
Turning to the next slide, looking at our segment UPAT performance in detail, UPAT was higher primarily due to earnings growth in each of our three businesses. Asset Management's PBT increased by $6.9 million, driven by higher performance fees and higher average AUM over the period.
Wealth Management's PBT increased by $3.2 million, driven by organic business growth in both market and non-market segments. In Corporate Trust, the PBT increased by $3.2 million, with revenue growth across all three business segments.
And finally, in Group Support Services, PBT decreased by $5.5 million, predominantly due to the previous period, including the benefit of a one-out, one-off earnout reversal, as well as improved performance in Barrow Hanley, driving higher contributions paid in relation to the Barrow Hanley 25% interest that the team has in that business. And the tax impact of that, all of that was a movement of $5.5 million.
Looking at our significant items in detail, NPAT was lower primarily due to the impact of costs related to transaction, integration and strategic review costs, the simplification program, as well as the impairment related to the J.O. Hambro business.
Other costs included the non-cash amortization of acquired intangibles, which was largely offset by an AUD 24 million after-tax benefit from the unrealized gain on the hedging facility previously discussed. And finally, higher contributions for Barrow Hanley over the period resulted in an increased accrued incentive compensation liability.
To expenses, controllable cost growth was 4%, attributable largely to variable remuneration, including the impact of performance fee expense, as Corporate Trust and Wealth Management, technology investments, and prior period adjustments for the leases. Interest rates and FX impacts on non-Australian expenses were slightly favorable and reduced expense growth by 0.1%.
Looking ahead, despite better than expected performance fees and the associated expense, this half, as well as the impact of FX rates on expenses in the second half, we expect total expense growth to be approximately 4% for FY 2025, driven mainly from growth in the Corporate Trust and Wealth Management businesses.
It's important to note this guidance, the expenses will fluctuate, excuse me, depending on the currency movements, interest rates, and variable remuneration linked to AUM performance fees, and we've provided our currency assumptions in the footnotes.
Turning to the cash flow, our cash balance was AUD 271.3 million at 31 December, AUD 50 million higher than the prior period. During the period, our net cash receipts in the course of operations were lower than previous periods due to expenses relating to the separation program following the strategic review.
As such, combined with interest, tax, leasing finance, and CapEx, there was a net decrease in free cash flows of AUD 26.4 million. Borrowing has increased by AUD 125 million over the period, predominantly due to timing differences in the funding of the strategic review and separation program in the second half of 2024 and the first half of 2025, and costs related to the simplification program.
After paying dividends of AUD 58.8 million and adjusting for timing of seed funding, the Trillium earnout last half and FX total cash at 31 December 2024 was AUD 271.3 million, AUD 50 million higher than the prior period. To the next slide, I've covered our cash balance in the previous slide. So I wanted to draw your attention to the other financial assets balance, which includes seed capital of AUD 225 million. Seed capital includes our investments in Barrow Hanley's CLO capabilities.
Over the period, we saw an increase in borrowings due to drawdowns to fund the separation program, the transaction with KKR and the simplification program. Importantly, the completed separation work means PCT has made major progress in becoming a more standalone business, and Wealth Management business has also completed important separation activities, which will assist in the upcoming sale process.
Turning to the next slide, gross debt was AUD 840 million and net debt was AUD 569 million. In addition to the separation and transaction simplification costs we've talked about, gross debt was impacted by the devaluation of the Australian dollar that increased the face value of our US and sterling facilities. We had a hedge in place for those facilities, which offset that increase, which had a corresponding mark-to-market gain of AUD 34.3 million pre-tax as at 31 December, which is shown in significant items.
While we're comfortable with this level of debt supported by the diversified earnings of the group, we plan to reduce debt materially in the short to medium term. Prior to 30 June, we will be refinancing debt facilities and reducing our gross debt to between AUD 750 and AUD 770 million.
Debt reduction will be supported by our diversified earnings, the cost reduction program, and further cost disciplines we are now implementing across the business. It will also obviously be impacted materially by the sale of Wealth Management business.
Our gearing ratio is 32%, slightly above our internal target of 30%. We expect to be back below 30% this half. Before I hand back to Bern, I'd just like to draw your attention to the detailed divisional results and further information attached in the appendix. Back to you, Bern. Thanks, Chris.
In turning to our outlook, we are positive about the group's future and believe we have a clear path and strategy for driving improved shareholder returns. I want to acknowledge that the transaction with KKR has been a distraction, but a necessary one to get the right outcome for shareholders.
Now, with clarity on our path forward, we are focused on, firstly, further progressing internal separation of our businesses, delivering the cost benefits from the simplification program that we announced today, executing the new strategy for Asset Management, including stabilizing J.O. Hambro, supporting Corporate Trust in continuing to deliver growth.
We will reduce our debt, targeting gross debt of AUD 750 million-AUD 770 million by the 30th of June this year, and we have a clear pathway to further reduce that over time, including sale of Wealth Management, delivering on our expense guidance of 4% growth for the year.
And lastly, as mentioned, we want to complete sale of Wealth Management as soon as it's practicable so that we can reduce our debt and reinvest in Asset Management and Corporate Trust. It's been a big six months for Perpetual, and I'd like to acknowledge that it has been a period of uncertainty for our shareholders and our people.
As we stand today, we have a clear way forward, and I believe it is in the best interests of shareholders. I'm confident in our ability to execute on our commitments that we've outlined today. Thank you for listening, and I'll now hand back to the operator to manage questions.
Thank you. As a reminder, to ask a question, you need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Elizabeth Miliatis from Jarden. Please go ahead. Thank you, Jarden. Allow me to proceed to the next question. Our next question comes from Anthony Hu from CLSA. Please go ahead.
Good morning, guys. Thank you. A couple of questions. Firstly, can I just ask on the cost outlook? So outside of the simplification program that you talked about today, can you talk about the outlook for the broader group going to FY 2026? I mean, can we expect group costs to reduce in absolute terms after your expansion of your savings target?
Thanks. Yes. I think the short answer is yes. Underlying costs should reduce as a result of the simplification program that's being put in place and the activity that has occurred and will continue to occur in the second half.
Obviously, overall costs will be impacted by the FX, where in the second half this year in particular, about half the expense growth we will expect to come from the poor Australian dollar and the impact on our offshore expenses. The remainder coming from Corporate Trust and Wealth Management.
So yeah, the answer for FY 2026 is that the simplification program will reduce costs overall, but we still expect to see expense growth coming through in the and Wealth Management businesses to support the business growth we continue to see in those businesses.
That, so you talked on a group basis, right? FY 2026 should reduce on a group basis, or you just talk about Asset Management?
For Asset Management, we would expect underlying expenses to be lower in FY 2026.
Okay. Okay. But not necessarily the group.
No, what it'll depend on is when the sale process is completed for Wealth Management business, and the growth in the Corporate Trust business.
Okay. All right. Thank you. Can I then ask a second question just on the strategy for J.O. Hambro, in terms of pruning the product range as you mentioned? Can you talk about which products or which strategies do you think are core for growing AUM, and which products do you think may, you know, you may not need to be in?
So, Anthony, the things we've actually undertaken some of the pruning work already. And so the focus has been on strategies that have been either underperforming or are really subscale and are losing money, right? And so those that are subscale and losing money haven't actually attracted interest in the market to grow.
So that gives you an indication, I think, as to why we would do reduction, why we'd close those funds, and on the performance side, you know, at times, as you appreciate, poor performance makes it difficult to sell strategy. So that, that's why we look to cut those. We've actually done some of that in the first half already as part of getting going early on the strategy, and what we've also done is a combination of reducing funds and also merging funds. And so we're actually in the midst of doing some of that at the moment.
Then in terms of the performance piece, you're saying if the performance has been poor, obviously, that makes it difficult to, you know, attract new funds. So effectively, you find it hard to see a way to improve the performance or of the poorer performing strategies going forward?
Well, I think, Anthony, it's a combination, right? So I think you should separate those two points. So if a strategy has performed very poorly and it is subscale, then you know, I think that you're gonna struggle selling that strategy into the future. And so you would wanna make sure that you know, you close that down. Where a strategy is underperforming and it is at scale, you really focus on retaining those assets and I think turning the performance of that strategy around.
Where you've actually started off with a strategy where performance may be good, but it is subscale and you haven't actually managed to pique the interest of the market, and you've pursued that or persisted with that over a number of years, then you know you need to call time on that and actually close the strategy because you're not actually generating interest in the market to sell that strategy. That'd be how I'd define it.
Okay. That's clear. Thanks a lot for that. Thank you.
Thank you for the questions. Our next question comes from Nigel Pittaway from Citi. Please go ahead.
Good morning. Just first of all, a question on this reset of the distribution strategy. I mean, obviously, there are elements to which you've sort of given us some detail there, the institutional distribution in Asia and the holistic ETF strategy. But I guess I'm still slightly unclear as to sort of what the big changes are from what your predecessor would've targeted in this space. So I was wondering if you could maybe just elaborate a little bit more on that front, please.
So Nigel, thanks for the question. It was a combination of things. So firstly, it was about actually putting more distribution boots on the ground to be able to garner assets. As you appreciate, with these businesses, you need to have people out there talking to clients and prospects to garner more assets. And so the first thing that we did was actually, and this has already been done, was we looked at the leadership that we had both in Europe and in North America, and we brought those teams together because there was a lot of duplication.
When you're running two separate teams as opposed to one team, there was a lot of duplication in running two teams. So what we were able to do was to simplify the structure by having one team rather than two teams. And that freed up resources that we've we have now been able to add to distribution, people both in the U.S. as well as in Europe.
So we've actually, in the process, we've actually hired some people in, in the course of the last two months actually to be able to focus on certain markets for us. That's the first part. And then the second part is actually, I think, about product development. So we brought together 'cause we have product ranges in the U.S. and in Europe, you know, run out of Ireland.
We've managed to bring together the product development capability as well because you need to then trade off between do I put something in a mutual fund in the U.S. versus a CCF in Europe. And so we've been very focused on how best to do that. So it's a combination of simplifying the structure and combining it to be able to put more resources to be market-facing and then making sure the back end around product development is really, again, simplified to be able to get to market in a quick manner, as quickly as we can.
Okay. That's a bit clearer. Thank you. And then, just on, I mean, obviously, you've put a lot of focus on J.O. Hambro, but obviously, the other boutique where you have had significant outflows, and it's not got a lot less fund than J.O. Hambro's TSW. So just wondering what you're planning for that.
So TSW, again, is a business that I think is a high-quality business that has actually been in the medium term performing reasonably well. It has had some outflows. I think in the most recent period, we've seen some of the flow abate. But I think the important part of it, you know, you know what drives outflow again.
I've said this before, is three areas, but one of the key ones is on performance. And so if you look at the performance of the TSW strategies, you know, over a three-year period, 83% of the strategies are outperforming their benchmark. And that's a key driver for either retaining assets or generating new assets, or new inflows. And so, their focus there is. It's a different focus relative to the focus on some of the performance issues, investment performance issues in the J.O. Hambro business.
Okay. Thanks. Thanks very much.
Thank you for the questions. One moment for the next question. Next question comes from the line of Lafit ani at MST Financial. Please go ahead.
Thank you. And good morning, everyone. Keen to better understand what estimates you have in place for when you do sell the wealth business, if you happen to do it, what your calculation is for the stranded group costs that we may see.
We haven't given any guidance on stranded costs for the wealth business at this point. We've only this week determined to do that. So we'll, once we've done further work, we'll advise the market and update the market, but not give any guidance on that at this point.
Yeah. But it's almost déjà vu, right? So, you know, last time round, we had this same conversation where we said, "How can the board or you guys be recommending that you're going through the sale process of the wealth business, and without having all the calculations already done?"
So, you know, last time we picked on you about not having the tax number finalized before recommending the offer. And sure enough, it was one of the key reasons why you ended up walking away from the transaction. So, before we go through another process and Perpetual burns tens of millions of AUD again, going through a sale process, what number have you guys got internally that you're using to recommend the sale of the wealth business?
Yeah. So part of the answer there, Lafi, is obviously the simplification program that we've announced here and taking AUD 70 million-AUD 80 million of costs out. A relatively small proportion of that relates to Wealth Management costs. But a reasonable proportion of it does relate to costs that are currently allocated across to wealth from the center that are coming out as part of that simplification program.
So does that mean you're here to tell us that you're ready to, you're already telling us that you're, you're working on the stranded costs that you anticipate, but you won't give us that number of what the stranded costs are. So you want the positive impact in your share price from the additional cost-out program that you're putting on the table, but you're not prepared to tell us that there's X amount of stranded costs that we anticipate from the sale that we're telling you that we're recommending and going through the process of?
What, what I'm saying, Lafi, is that we have done lots of work on the simplification program to understand the impact of the sale of the wealth business, but we have more work to do. And it will depend a little bit on the type of buyer of the wealth business and where we actually go in terms of transitioning the business across. We have already completed a lot of the separation work that reduced costs in the center that were previously allocated to wealth. So across all of that, once we've, we'll update you at the right time, but now's not the time to do that.
Okay. So there will be some stranded group costs, but you don't, you're not willing to tell us at what point, at this point, roughly what the ballpark figure is, but you're willing to already cut into it. Second question I have is in relation to the one-off costs and in your operating and financial review document on slide, page, sorry, 32. Now, this is something we've brought up and highlighted in the past.
There's still an extraordinarily high level of one-off costs coming through. You know, you completed the Barrow Hanley transaction nearly five years ago, and there's still one-off costs coming through. Pendal approaching three years, and there's nearly AUD 20.8 million, noted on page 32 as one-off costs still that are being excluded. So can you just talk us through what these one-off costs are?
Yeah. So for Barrow Hanley, we would expect the separate one-off costs to finish up this year. So it'll be the last time you see Barrow Hanley in this table in the same way that Trillium dropped off this year. The 2.8 million dollars relates to technology implementation to harmonize Pendal with the Perpetual Group. And that's the back end of that investment. So that's the 6.1.
For Barrow Hanley, we are coming to the end of the period where we had specific retention arrangements in place with that business. So again, that will start to drop off. And we've also been implementing a global registry platform that impacts on both Barrow Hanley and Pendal, and that's what's coming through there. But again, as I say, Barrow Hanley will drop off. Barrow Hanley will drop off this year, and Pendal will, again, to your point there, Lafi, will start to go into BAU from next year.
So everything from here to next result, we shouldn't expect to see anything for Barrow Hanley and for Pendal. There will be no more one-off costs excluded from here on in.
That's right. I think the balancing act there is to give you the transparency on things like staff-related REM that does have sometimes a longer lifespan than other integration activities. But to the extent it's not in a specific Pendal column, we'll give you the detail in other ways.
And so that'll be shuffled into a now new AUD 70 million one-off cost program. So there'll be ongoing one-off costs, and it'll be difficult for us to see really from an underlying perspective how much your business is properly going given that there's been so many one-off costs and there's gonna continue to be another AUD 70-odd million coming through.
We'll continue to give real transparency on the simplification program on both the benefits of the AUD 70 million to AUD 80 million coming through and the costs of AUD 70 million to AUD 75 million to do that.
Okay. Thank you.
Thank you for the questions. Next question comes from the line of Andrei Stadnik from MS. Please go ahead.
Good morning. Can I ask my first question around distribution? More in the sense of the investment required because you're talking about a big cost-out program overall for Asset Management. But distribution seems to be an area where, you know, you do need to save a bit of investment.
And I think from memory, three of you must have seen distribution. People have quit or moved and turned over in the last 12 to 18 months. And it doesn't seem to be like there's any, you know, any indication of how you're gonna align distribution activities across the, you know, the boutiques that now kind of have to work together. So, can you talk a little bit more about, you know, what kind of investment, you know, you should be making in distribution and is simplification the cost-out, you know, really the right approach?
Thanks, Andrei. A few questions. So a couple of points to make. Firstly is that when we talk about the simplification program, that does not impact distribution. So we're not taking costs out of distribution. So just first point. 'Cause if you actually look at our cost base in the Asset Management business relative to best practice, you know, we're actually underinvested in distribution. Our expense base is higher than it should be, so we're bringing that down, but we're underinvested in distribution. So that is not the place that you would look to take out cost.
I think what you've gotta be careful with is, though, that you don't wanna have too many senior, expensive resources at the cost of not having enough people out in the market. And so what we've tried to do, in the most recent time anyway, has been to rebalance that and have more people in the market, rather than sitting in office managing people.
So we've really focused, sort of moved the dial, down that path. The other thing that we have done, and I'm a strong believer in the institutional space, you actually need to have the institutional distribution people closer to the boutiques or the investment team.
And you can't. I know from past experience, you actually can't go to a client or a prospect, and try and sell them five different things because, you know, I'm sure as you'd appreciate, in particular in the institutional space, you know, I've got a problem I'm trying to solve, and someone's gonna bring a solution to me. It could be for large-cap global equities. It could be for, you know, a fixed-income strategy. You're gonna bring that to me. You're not gonna talk to me about both of those things.
And so having specialized institutional salespeople is far more. You're gonna get far, far more cut through in doing that, and they need to be closer to the boutiques. That's the first part. I think when you think about the wholesaler intermediary space, it's a different story.
Those relationships are very different, and they can be managed, and they are managed in a different way, and you can talk about multiple boutiques at one point in time in that strategy. So it's actually a different approach to it. It's not a one-size-fits-all, and it's a different approach to the different market segments.
But on the cost piece, back to your point, you know, that distribution does cost money, and one of the things that we wanted to make sure we did was not in taking costs out because the market is telling us, "No, I 100% agree. We need to take costs out of our business," but you do not wanna starve future growth by taking costs out in the wrong place, and we're not taking costs out of the distribution team. If anything, over time, you know, that's an area that we need to continue to invest in.
Thank you. That's quite a good answer. In terms of, look, the product development pipeline, is it possible to give any indication, you know, just in terms of, you know, where, you know, on the Asset Management side, when your product development pipeline is, like, how many funds, you know, and seed stages, and, you know, how are you thinking about growing that going forward?
Sure. So there's a couple of areas that we have focused on, and they actually they're different by market, which I think is a far better outcome 'cause you cannot centrally manage product development, in doing that. You're actually, I think you're missing a beat in doing that.
That's why we've actually split out our product development, as I mentioned earlier, around a focus and international focus here in Australia. When you think about it, here in Australia, we're looking at additional Australian equity capability and how that may evolve both through the Perpetual and Pendal businesses over time. And then, offshore, we're looking at a couple of different areas.
So we're actually one of the that we're leveraging in some ways to strengthen some of the boutiques. So we're actually about to launch the mid-cap US strategy in CCF in Europe. We've actually got, which is a Barrow Hanley strategy. We're launching that actually to the distribution team across Europe because there's demand from there. It's actually being seeded by an existing client who's gonna seed that fund.
It's actually done in a fund structure. It's gonna seed that fund. So that gives us an opportunity there. The other areas of focus there are in thinking about the product structure, so the vehicles. So one of the things that we've talked about, I think, in the past and haven't done, we haven't executed on anyway, is around ETFs. And so there's a program going on at the moment around that focus on ETFs.
And I'll get asked, I'm sure, "Why are you focusing on ETFs?" Well, if you think about the US market in particular, 10% of assets under management in ETFs today are now active. And so there's an opportunity, and that's growing. It's growing at a very fast clip over the last five years in the US.
So there's an opportunity for us to repackage some of our existing strategies into an ETF form. We have an intermediary distribution capability that we've grown out over the last few years. More investment in that needed over time, but we've grown that out to be able to mobilize that, the ETF strategy through that distribution channel. Hopefully, that gives you a bit of a flavor of things we've got on the boil.
Thank you for the questions. Our next questions comes from Marcus Reynolds from Bell Potter. Please go ahead.
Hello. Good morning. Thanks for taking my call. I've got a few questions Wealth Management. firstly, you had the discussions with the ATO about the tax implications of selling, or the merging both businesses. Presumably, you have an idea of how those tax implications split between CT and WM.
I'm assuming that as a base case, that WM would have the same sort of tax cost of sale, as the combined both of them. But perhaps you can tell me if there's a much lower gains tax on a sale of WM. What sort of figure should we have in mind there?
Secondly, on WM, what sort of costs do you think will be involved? I mean, I think we were all surprised by the scale of the strategic review and the costs involved in the breakup. I'm just thinking if you've already done a lot of that work, how much additional cost do you think could be involved in selling WM? I mean, I don't want an exact number, but just, you know, high, medium, low would be good enough. And also, what sort of expressions of interest have you had in WM?
I'm assuming that, you know, when you started the process for the strategic review, you'd have got a lot of interest in CT, but maybe you had some interest in WM as well. I mean, obviously, expressions don't translate to offers, but could you sort of fill us in on how you've seen that? Thanks.
But starting with the first question, on, in terms of tax cost base and taxes on the sale of wealth, the tax imposition on a sale of wealth is far lower than that on the combined business. Part of the issue with the Corporate Trust business in particular was the very significant capital gain associated with that in a straight sale scenario.
There is a capital gain that we expect, a capital gain that will depend very much on what we sell the wealth business for, obviously, but it's much lower than the PCT capital gain that was a very big driver of the tax outcome with the tax office. The other thing to keep in mind is that we do have some tax losses sitting on our balance sheet that will be able to be utilized against the capital gain of wealth, which again reduces that impact.
The gain's obviously going to depend on what we actually sell the business for, but it's gonna be far more modest than the gain that we were talking about with the tax office for the combined deal.
In terms of costs, we think in terms of the total costs from here in relation to selling the business and the transaction costs associated with it and future separation costs. We think that'll be in the region of AUD 70-75 million to dispose that, including transaction costs and separation costs. And there was a third question.
Interest, Marcus, asked about interest in the business.
Oh, interest in the business. You can imagine with the announcement on Monday, there are quite a number of inbound calls to me, to Bern and to our advisors. Part of the reason, you know, we're very, you know, part of the reason for this is that we have had extensive interest in the business over the past two or three years.
We've not been able to engage with any parties during the course of the SID, obviously, with our obligations to KKR. But there is significant interest in the business. It's a high-quality business, one of the leading wealth businesses in Australia. There aren't that many high-quality wealth businesses that become available.
So we're very confident in interest, and we'll be going to, you know, execute on this transaction as quickly as we can. We're not gonna go for the fastest transaction. We're gonna go for the, for the best transaction. So, but that process will commence very quickly.
Thank you. Could I ask another question on Asset Management? Your cost-income ratio at 77% compared to 78%. I mean, I know this is complex, but long-term, where should that number be? I mean, obviously, it depends on distribution and funds and clients, etc. But you know, if you're looking forward five years and the business is in a broadly comparable shape, are you still looking at over 70 or under 70?
Marcus, thanks for that specific question on cost-income. And we're gonna. Cost-income is actually one of our areas of focus going forward. And so you're gonna hear us talk more about that, 'cause I think it takes out. It does take out the impact of FX on both the revenue and the expense line. So I think that's an important measure for us going forward. So you hear us talk more about that. 77 is a number that is too high.
When you think about these businesses, it's gonna depend on the business mix that we have, as in the mix of assets that we have, 'cause that obviously drives the income side of the CTI. But it's gonna be a lower number, I suppose is what I'd say now. I mean, it's early days for me, and it's gonna take time, but that is definitely where we wanna get the trajectory of the CTI to be going, lower than where it is.
One of the points of caution I'll say is when you do a comparison of a multi-boutique business relative to what I'd call a monoline business, so one that's just an end-to-end one single Asset Management business. You know, the cost-income is generally slightly higher for a multi-boutique. And so just, that's just a point to note in the future. But I suspect and hope that we'll spend more time talking about it in future updates.
Thank you for that. We look forward to further updates there.
Thanks, Marcus.
Thank you for the question. In the interest of time, we will now take the last questions from Sid Parameswaran from J.P. Morgan. Please go ahead.
Thank you. A couple of questions, if I can, please. One just on just the targeted savings of AUD 70 million-AUD 80 million. You mentioned there, Bernard, that part of what you're seeking was some product rationalization. I was just keen to get your thoughts on how much of the fund you've identified may need to be rationalized and whether there's any actual revenue implications as well from this. So you've given us the cost, just keen to know if there's any revenues that may disappear.
Okay. With it, the rationalization, so there's a combination of either you close down or you merge. And so what we've actually done to date actually has been a combination of both of those. And the funds that we've closed down have actually been unprofitable. So at the end of the day, there's actually an earnings benefit for us in closing those funds down once you actually get it done.
And the merger, fund merger is actually designed to retain revenue. So, we haven't put revenue numbers in there because it's actually quite immaterial relative to the impact of the $70-80 million out. So they're small funds we're closing, I suppose is the other way to think about it. And mostly they're not making money.
Okay. Okay. That's helpful. Thank you. Just a second question. Just the below-the-line cost, AUD 70 million-AUD 75 million looking forward, could you just give us an idea of exactly what that will be spent on? I think, you know, we have seen a lot below the line in the past. Just keen to get some clarity on exactly what that will be spent on going forward.
Yeah. Thanks, Sid. Look, the nature of this program, being a simplification program, means there's a pretty large people impact in what we're doing, particularly at the front end, so a lot of that will be spent on the costs of redundancy, etc., to reduce the cost base on a permanent basis.
We also have other costs related to, as Bern's talked about, the simplification of our product suite and the way we do business more generally that are less related to people. They might come a little bit later in the program. But at the front end, like the first 12 or 18 months, most of that cost is gonna be associated with the cost of reducing our FTE expense and simplifying the business, particularly in our enabling functions.
Okay. Okay. Thank you. And just a final one, if I can just squeeze it in. Just the distribution efforts you're flagging, I think, Asia Institutional, ETFs, etc. Are the revenue margins similar to your existing products?
Yes. And so do, but I think it depends on the products that you sell, right? So if you think about it in Asia Institutional, global equities is going to be an area of focus. That is, that'll be similar to margins, similar margin to what we have.
But if we choose to, in the ETF space, if we make the choice to actually push fixed income strategies, then they're a lower margin. So just the mix of product does make a difference. But, you know, we're obviously thinking about how we do that going forward.
Okay. Thank you very much.
Thank you for the questions. This concludes today's call. Thank you for your participation, and you may now disconnect.