Job cuts help Perpetual boost profits
After announcing it would cut hundreds of jobs last year as part of a move to rationalise the business, Perpetual said on Thursday it had cut costs more deeply than it expected during the past six months.
Amid heavy job-shedding in the financial services industry, Perpetual said it had reduced staff numbers by 450 since the middle of last year.
The cost-cutting program, which has also involved cuts to directors' pay, has delivered pre-tax savings of $31 million, compared with guidance of $7 million to $10 million.
The drive to pare back expenses and a lift in global equity markets helped increase earnings to $27.3 million in the December half, almost 29 per cent higher than the same half of 2011.
The less volatile measure of underlying profit rose slightly to $35.1 million from $34.3 million. However, the fund manager has yet to experience a major rise in inflows in its funds under management - a key influence on long-term profitability.
Despite markets improving, chief executive Geoff Lloyd said the company had not seen a major inflow of funds into the sector.
"Total market flows excluding cash went into positive territory in the September 2012 quarter for the first time after a full year of negative net flows but it may take a prolonged period of market stability to fully rebuild investor sentiment and create a sustained recovery in flows," Mr Lloyd said.
He signalled there was more cost-cutting to come, saying the company was six months into a two-year plan.
The fund manager will pay a fully franked dividend of 50¢ a share, in line with last year's payment.
Investors welcomed the lift in earnings, raising Perpetual shares by 4 per cent, or $1.66, to $41.12.
An analyst at CommSec, Ross Curran, said the extent of the cost-cutting had surprised the markets, which helped drive the share price gain.
"It was a very good result in terms of cost containment," Mr Curran said. "Growth from here will depend on markets, but certainly they have the performance to justify higher inflows in the future."
Frequently Asked Questions about this Article…
Perpetual reported profit of $27.3 million for the December half, almost 29% higher than the same half in 2011. Its less-volatile underlying profit rose slightly to $35.1 million from $34.3 million.
Perpetual's cost-cutting delivered pre-tax savings of $31 million — well above the guidance of $7 million to $10 million — and, together with a rally in global equity markets, helped boost earnings in the December half.
Yes. Perpetual reduced staff numbers by 450 since the middle of last year and also cut directors' pay as part of an aggressive cost-reduction drive.
No, Perpetual's chief executive Geoff Lloyd said the company had not yet seen a major inflow of funds into its business. While total market flows excluding cash moved into positive territory in the September 2012 quarter, Perpetual said it may take prolonged market stability to rebuild investor sentiment and generate sustained inflows.
Perpetual will pay a fully franked dividend of 50 cents per share, which is in line with last year's payment.
Investors responded positively: Perpetual shares rose about 4%, or $1.66, to $41.12. CommSec analyst Ross Curran said the extent of the cost-cutting surprised markets and described the result as very good in terms of cost containment, noting future growth will depend on markets.
Yes. Management signalled more cost-cutting to come — the company is six months into a stated two-year plan to rationalise the business.
Investors should watch Perpetual's progress on its two-year cost-cutting plan, any changes in fund inflows (a key driver of long-term profitability), updates to earnings and dividends, and the direction of global equity markets that influence performance and investor sentiment.
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