Magellan Financial Group Limited Full Year Results For the year ended 30 June 2019
Introduction Financial Year Highlights 1 • Net profit after tax up 78% to $376.9 million • Adjusted net profit after tax grew by 35% to $364.2 million • Strong growth: – Average funds under management up 28% to $75.8 billion – Management and services fees revenue up 22% to $472.5 million – Profit before tax and performance fees of the Funds Management business up 29% to $376.2 million • Dividend for 6 months of 111.4 cents per share (Final Dividend of 78.0 cents per share and Performance Fee Dividend of 33.4 cents per share), 75% franked • Total dividends for 2019 up 38% to 185.2 cents per share • Strong performance of our global equity and infrastructure strategies in challenging markets conditions Kirsten Morton, CFO: FY19 Financial Results Brett Cairns, CEO: Business Overview Hamish Douglass, Chairman: Partnership and Institutional Share Placement 1. Percentage changes are relative to 12 month period ended 30 June 2018. Magellan|2
FY19 Financial Results Kirsten Morton, Chief Financial Officer Magellan|3
Magellan Financial Group Full Year Results $ million 30 June 2019 30 June 2018 % change 472.5 385.8 Management and services fees 22% 83.6 39.8 Performance fees 110% Other revenue 21.1 27.1 (22%) Adjusted revenue 577.3 452.6 28% Adjusted expenses (104.0) (101.0) 3% Adjusted net profit before tax 473.2 351.6 35% 364.2 268.9 Adjusted net profit after tax 35% Transaction costs related to strategic initiatives (after tax) (10.9) (55.7) n/m (4.5) (1.4) Amortisation expense of intangible assets n/m Net unrealised change in fair value of financial assets (after tax) 28.1 0 n/m Net profit after tax 376.9 211.8 78% Key statistics 213.1 122.0 Diluted EPS (cents per share) 75% Adjusted diluted EPS (cents per share) 205.9 154.9 33% Interim and Final Dividends (cents per share) 151.8 119.6 27% Annual Performance Fee Dividend (cents per share) 33.4 14.9 124% Total Dividends (cents per share) 185.2 134.5 38% 75% 100% Franking Adjusted financial measures are adjusted for non-cash items (amortisation expense and unrealised gains/losses) and transaction costs related to strategic initiatives (Magellan Global Trust Unit Purchase Plan costs, Magellan Global Trust DRP discount funding costs (current year only) and net offer costs relating to the Magellan Global Trust IPO) Magellan|4
Funds Management Business $ million 30 June 2019 30 June 2018 % change Revenue 467.8 381.1 Management fees 23% 83.6 39.8 Performance fees 110% 4.7 4.7 Services fees 0% 5.2 3.2 Other income 65% 561.3 428.7 31% Expenses 62.8 51.9 Employee expense 21% 3.4 11.1 Marketing expense (70%) 35.3 34.3 Other expense 3% 101.5 97.3 4% 459.8 331.4 Profit before tax 39% 1 376.2 291.8 Profit before tax and before performance fees 29% Key Statistics 30 June 2019 30 June 2018 % change Average Funds Under Management ($ billion) 75.8 59.0 28% Average AUD/USD exchange rate 0.7155 0.7752 (8%) Avg. number of employees 125 116 8% Employee expense/total expense 61.8% 53.4% Cost/Income 18.1% 22.7% Cost/Income (excl performance fees) 1 21.3% 25.0% 1. Adjusts for the current period performance fee impact on revenue and expenses for the 12 month period. Magellan|5
Tax and Dividends • Effective tax rate for the 12 months to 30 June 2019 is 23.6% (Offshore Banking Unit) • Dividends: – 6 month dividend of 111.4 cents per share (75% franked) comprising: o Final Dividend of 78.0 cents per share o Performance Fee Dividend of 33.4 cents per share – Pay dividends promptly – 29 August 2019 – Dividend policy 1 : o Interim and Final dividends based on 90%-95% of profit of Funds Management segment excluding crystallised performance fees o Annual Performance Fee Dividend of 90%-95% of net crystallised performance fees after tax 1. Subject to corporate, legal and regulatory considerations. Magellan|6
Business Overview Brett Cairns, Chief Executive Officer Magellan|7
Funds Under Management Summary 30 June 2019 30 June 2018 30 June 2017 Closing FUM ($ billion) % % % Retail 23.2 19.2 15.2 27% 28% 30% Institutional 63.5 50.3 35.4 73% 72% 70% Total FUM 100% 100% 100% 86.7 69.5 50.6 Average FUM ($ billion) Retail 20.4 17.3 13.6 Institutional 55.4 41.7 32.1 Total average FUM 75.8 59.0 45.7 Breakdown of Closing FUM ($ billion) % % % - Global Equities 64.0 74% 52.7 76% 42.3 84% - Global Listed Infrastructure 15.2 17% 10.3 15% 8.3 16% - Australian Equities 7.5 9% 6.5 9% - - Total FUM 86.7 100% 69.5 100% 50.6 100% Average Base Management fee (bps) per 62 65 66 annum (excl Perf Fee) FUM subject to Performance Fees (%) 33% 34% 38% Magellan|8
Investment Performance For the periods to 30 June 2019 Since 1 Year 3 Years 5 Years Inception (%) (% p.a.) (% p.a.) (% p.a.) 1 Magellan Global Fund 20.2 17.5 16.0 12.3 MSCI World NTR Index ($A) 12.0 14.0 13.1 6.4 Magellan Infrastructure Fund 16.5 10.6 12.4 9.1 Global Listed Infrastructure Benchmark ($A) 2 12.4 8.8 7.8 6.1 Magellan High Conviction Fund 13.1 17.6 16.2 16.2 Airlie Australian Share Fund 3.8 - - 7.4 S&P/ASX 200 Accum. Index 11.5 - - 14.0 1. Inception date for the Magellan Global Fund and Magellan Infrastructure Fund is 1 July 2007, the Magellan High Conviction Fund is 1 July 2013 and the Airlie Australian Share Fund is 1 June 2018. 2. The Global Listed Infrastructure benchmark is comprised of the following: from inception to 31 December 2014 the benchmark is UBS Developed Infrastructure and Utilities NTR Index (AUD Hedged) and from 1 January 2015 onwards, the benchmark is the S&P Global Infrastructure NTR Index (AUD Hedged). Calculations are based on exit price with distributions reinvested, after ongoing fees and expenses but excluding individual tax, member fees and entry fees (if applicable). Source: MSCI, UBS, S&P, Bloomberg, Magellan Asset Management Limited. Magellan|9
FY19 FUM Flows Retail Net Inflows 1 Institutional Net Inflows 4,500 4,500 $ Millions $ Millions 4,000 4,000 3,500 3,500 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 0 FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19 Total net inflows for the 12 months ended 30 June 2019: $4.4 billion 1. Includes proceeds of the Magellan Global Trust IPO (FY18) and UPP (FY19) Magellan|10
Listed Unitholder Growth 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Number of registered unitholders across Magellan Global Equities Fund (ASX: MGE), Magellan Global Equities Fund (Currency Hedged) (ASX:MHG), Magellan Infrastructure Fund (Currency Hedged) (ASX: MICH) and Magellan Global Trust (ASX: MGG) to 31 July 2019 Magellan|11
Institutional Client Diversity 10% % of Total Management & Services 8% 6% 1 Fees 4% 2% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Top 30 Institutional Clients Cumulative Total Management and Services Fees Top Institutional Clients 5 10 20 30 % 20 26 32 36 1. Management and services fees for the 12 months to 30 June 2019 for separately managed accounts and institutional investors in local and offshore vehicles. Excludes Performance fees. Magellan|12
Expenses • View costs associated with strategic initiatives as outside day-to-day operating expenses – Excluded from Funds Management business – Excluded from dividend payout • Employee expenses account for ~60% of operating expenses – Expect modest headcount increases from organic growth – scalability • Other expenses can vary depending on FUM, foreign exchange movements, unitholder activity, etc • Expect Funds Management segment expenses in 2020 financial year to be $115-$120 million • Cost to income ratio (excluding performance fees) of 21.3% – Key driver of profit is not expense movements, but FUM movements Magellan|13
Growth Areas • Sustainable: approaching 3 year track records, meaningfully above benchmark, ~US$20bn theoretical capacity • Infrastructure : solid interest, great long-term track record, unique definition, remaining capacity of ~US$6bn • Self-directed retail: continued emphasis, Magellan High Conviction Trust IPO, partnership with investors • Airlie: early days • Retirement income: making progress but not done • Other early stage seedings Magellan|14
Magellan’s Partnership Approach Hamish Douglass, Chairman Magellan|15
Partnering with our investors • A partnership with our clients is important to building long term enduring value: – Providing benefits to investors increases engagement, promotes loyalty and likely to attract more investors over time – The investments made by Magellan generate substantial shareholder value • Aligns interests and represents a win/win for investors and shareholders • Substantial opportunity to make more partnership investments in the future • Closed ended funds provide optionality for Magellan • Adds resilience to Magellan’s business over time • Builds base of direct investors Magellan|16
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