Magellan Financial Group Limited Interim Results For the half year ended 31 December 2017 Hamish Douglass | CEO & Chief Investment Officer
Magellan Financial Group Interim Results $ million 31 Dec 2017 31 Dec 2016 % change Management and services fees 178.9 146.1 22% 9.6 3.6 Performance fees 167% Other revenue 7.3 3.8 90% Revenue 195.8 153.5 28% 1 Expenses before MGG net offer costs (53.0) (40.4) 31% Profit before tax before MGG net offer costs 142.7 113.1 26% Profit after tax before MGG net offer costs 109.2 87.0 25% 2 (55.7) n/a MGG net offer costs (after tax) Profit after tax after MGG net offer costs 53.5 87.0 (39%) Key statistics Diluted earnings per share (cents per share) 31.0 50.6 (39%) 63.4 50.6 Diluted earnings per share before MGG net offer costs (cents per share) 25% 3 Dividend (interim) (cents per share, fully franked) 44.5 38.4 16% 1. MGG net offer costs are net of the distribution declared for the half year ended 31 December 2017 on the loyalty units; 2. Offer costs, after tax, for the MGG initial public offering (inclusive of the costs of loyalty units) of $55.7 million. These offer costs are net of the distribution declared for the half year ended 31 December 2017 on the loyalty units. These one-off expenses have been funded out of available cash and are not included in the Funds Management segment and as such, do not affect the profitability of the Funds Management business; 3. Prior half year’s dividend includes performance fee component. Excluding the performance fee component, the interim dividend for the half year ended 31 December 2017 increased 20% over the prior corresponding period. Magellan|2
Interim Highlights • Strong growth in funds under management and management and services fees: – Average funds under management up 25% to $53.6 billion 1 – Management and services fee revenue up 22% to $178.9 million 1 – Profit before tax and performance fees of the Funds Management business up 21% to $129.0 million 1 • Completion of Magellan Global Trust (“MGG”) IPO, raising $1.57 billion – One-off MGG net offer costs after tax of $55.7 million – Strategically important and value accretive for shareholders (21% post-tax return on investment) • Underlying Group profit after tax, excluding the MGG net offer costs, grew by 25% to $109.2 million 1. Percentage change relative to six month period ended 31 December 2016. The MGG one-off expenses have been funded out of available cash and are not included in the Funds Management segment and as such, do not affect the profitability of the Funds Management business Magellan|3
Strategic Acquisitions Expect these transactions to be modestly EPS accretive and provide an attractive return on capital Acquisition of Frontier Partners • Important step to strengthen our distribution efforts in North America • Bill Forsyth, Frontier’s founder and principal, to become Executive Chairman of Magellan’s North American business • Post completion, no longer pay US marketing and consulting fees and enjoy improved economics on mutual funds Acquisition of Airlie Funds Management • Partnership with first class fund manager with proven track record in Australian equities • Funded via issuance of MFG shares • Airlie will become a wholly owned subsidiary of Magellan and continue to operate under the Airlie brand • Launch of Airlie Industrial Share Fund Active ETF in coming months Total consideration in respect of both acquisitions: US$15 million in cash and approximately 4.5 million MFG shares Magellan|4
Tax and Dividends • Underlying effective tax rate for the 6 months to 31 December 2017 is 23.5% (23.0% for 6 months to 31 December 2016) (Offshore Banking Unit) – Excludes the impact of deductible MGG offer costs • Dividends: – Interim dividend up 16% to 44.5 cents per share (fully franked) – Up 20 % excluding the performance fee component on prior half year’s dividend – Pay dividends promptly – 20 February 2018 (Interim Dividend) – Dividend policy: – Interim and Final dividends based on 75%-80% of profit of funds management segment (excluding crystallised performance fees) 1 – Annual Performance Fee Dividend of 0%-100% of net performance fees after tax 2 1. Subject to available franking credits and corporate, legal and regulatory considerations. 2. Also subject to the capital needs of the Group. Magellan|5
Funds Management Business $ million 31 Dec 2017 31 Dec 2016 % change Revenue Management fees 176.6 141.8 25% Performance fees 9.6 3.6 167% Services fees 2.4 4.3 (45%) Interest/other income 0.5 0.5 13% 189.0 150.2 26% Expenses Employee expense 25.4 23.5 8% Marketing expense 6.7 1.5 342% Fund administration and operational costs 5.4 4.0 35% 1 US marketing/consulting fees 4.4 3.8 16% Occupancy expense 2.7 1.6 67% Information technology expense 2.1 1.9 9% Other expense 4.0 3.6 12% 50.5 39.7 27% Profit before tax 138.5 110.4 25% 2 Profit before tax and before performance fees 129.0 106.8 21% Key Statistics 31 Dec 2017 31 Dec 2016 % change Average Funds Under Management ($ billion) 53.6 42.9 25% Average AUD/USD exchange rate 3 0.7791 0.7534 3% Avg. number of employees 106 104 2% Employee expense/total expense 50.2% 59.1% Cost/Income 26.7% 26.5% Cost/Income (excl performance fees) 2 28.1% 27.1% 1. Pursuant to the agreement, Frontier Partners is entitled to receive 25% of net management fees from Frontier MFG Funds and 20% of management fees from all institutional mandate clients in the US and agreed institutional mandate clients in Canada 2. Adjusts for the current period performance fee impact on revenue and expenses for the 6 month period; 3. Based on daily average of London 4pm exchange rates of the 6 month period. Magellan|6
Employee Summary 31 Dec 2017 30 June 2017 Staff Investment team Portfolio Managers/Analysts 29 33 Traders 3 3 32 36 Governance & Advisory 6 5 Distribution 34 35 Risk, Compliance, Legal & Company Secretarial 8 8 Business Support & Control 17 17 Administration 7 7 Total 104 108 • Expect Group staff expense to increase at the lower end of the 5-8% guidance in FY18 – Excludes impact of additional employee expenses relating to acquisition of Frontier and Airlie – We welcome 25 employees as a result of the transactions. Estimated impact for 6 months to 30 June 2018 of approximately $4.6 million Magellan|7
Funds Under Management Summary 31 Dec 2017 30 June 2017 31 Dec 2016 $ million Retail 18,026 15,159 13,650 Institutional - Australia/NZ 5,054 4,939 4,617 - North America 12,560 10,919 10,117 - UK 18,312 16,231 15,024 - Rest of World 3,918 3,349 3,107 39,844 35,438 32,865 Total FUM 57,870 50,597 46,515 % Retail 31% 30% 29% Institutional - Australia/NZ 9% 10% 10% - North America 22% 21% 22% - UK 31% 32% 32% - Rest of World 7% 7% 7% 69% 70% 71% Total FUM 100% 100% 100% Breakdown of Funds Under Management ($ million) - Global Equities 48,195 42,316 39,511 - Global Listed Infrastructure 9,675 8,281 7,004 Average Base Management fee (bps) per annum (excl Perf Fee) 66 66 66 FUM subject to Performance Fees (%) 39% 38% 38% Magellan|8
Well-balanced Business Funds Under Management 1 Base Fees 2 31% 42% 58% 69% Retail FUM Institutional FUM Retail Fees Institutional Fees 1. FUM split is as at 31 December 2017. 2. Base Fees are Management and Services fees for the six months to 31 December 2017 and exclude Performance fees. Magellan|9
Institutional Client Diversity Cumulative Total Management and Services Fees 1 Top I nstitutional Clients 5 10 20 30 % 17 23 29 33 1. Management and Services fees for the six months to 31 December 2017 for separately managed accounts and institutional investors in local and offshore vehicles. Excludes Performance fees. Magellan|10
Retail Business – Three Channels to Market Independent • Relationships with over 500 independent advice firms 1 financial advisers / • >40 stockbroking firms across Australia are using our Active ETFs broker advised • Strong relationships and representation with 4 of the top 5 major firms, with more than 7,000 aligned advisers • Separate versions of the Magellan Global Fund available at Commonwealth Bank, Bank/AMP aligned BT/Westpac and AMP • Replica version of the Magellan Infrastructure Fund available at Commonwealth Bank and BT/Westpac • Active ETFs combined FUM of $1.2 billion with ~20,000 direct unitholders • Magellan Global Trust raised $1.57 billion with ~32,000 direct unitholders • Expect Group’s marketing expense to increase to $11.0-11.5 million in FY18 as we invest in our self-directed investor strategy: Self-directed • Brand awareness campaign • Brand refresh • Sponsorship and supporting initiatives • Development of new website 1. Includes dealer groups that have more than $200,000 funds under management with Magellan. Magellan|11
Update on brand awareness program • Cricket Australia domestic test series sponsorship provides a highly scalable platform with very appealing demographics • Supported with television advertising campaign to grow awareness in global equities and our brand • Pleased with engagement received during the 2017/2018 Ashes series – >14 million TV viewers of the Ashes series – >866,000 attendees – >15 million average daily views on the Cricket.com.au website and Cricket Live App combined Sourced: cricket.com.au Instagram account; Channel 9; Cricket Australia Magellan|12
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