Market likes Perpetual motion

PERPETUAL received a tick from the market yesterday as it ended seven years of losses from its Dublin funds management business and sold off a super administration arm.

By InvestSMART · 17 Aug 2011

By InvestSMART ·
17 Aug 2011

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PERPETUAL received a tick from the market yesterday as it ended seven years of losses from its Dublin funds management business and sold off a super administration arm.

Perpetual ended up 16? at $22.89 in a market that fell 0.8 per cent, as investors backed the new chief executive, Chris Ryan, who had moved on two businesses seen as laggards within the fund manager.

The sale of its Smartsuper superannuation administration business added a $4.1 million impairment charge, on top of $10.6 million in charges previously announced, which will be booked in the previous financial year.

The sale of its underperforming Irish fund manager will book a $10 million impairment for the closure in the current financial year, although it will be offset by $7 million in annual savings. The funds will be transferred to the US-based fund manager Wellington, but will continue to be offered through Perpetual.

Perpetual also said it would continue to offer international equities to investors through its global resources fund and a smaller Asian equities business.

"We are very committed to international equities as a Perpetual product," Mr Ryan said. The company also forecast its annual underlying profit after tax, ignoring what it terms one-offs, will be broadly in line with previous guidance of about $73 million. But impairments offset by investment gains and write-backs in its exact market cash fund mean total net profit will fall to $62 million.

Perpetual's move was welcomed by analysts, with Deutsche writing that the Dublin closure was a key positive in its view.

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Frequently Asked Questions about this Article…

Why did Perpetual's share price get a boost after its recent restructuring announcements?

Investors rewarded Perpetual after the company ended seven years of losses in its Dublin funds business and sold a super administration arm, showing the new CEO Chris Ryan is moving on laggard businesses. The stock ended the day at $22.89 while the broader market fell 0.8%, reflecting positive market sentiment about the changes.

What businesses did Perpetual sell or close and what were the immediate accounting impacts?

Perpetual sold its Smartsuper superannuation administration business, which triggered a $4.1 million impairment charge (in addition to $10.6 million in previously announced charges) to be booked in the prior financial year. The company is also closing its underperforming Irish fund manager, which will book a $10 million impairment in the current financial year.

How will closing the Dublin funds management business affect Perpetual’s operations and product availability?

Perpetual will transfer the affected funds to US-based fund manager Wellington, but those funds will continue to be offered to investors through Perpetual. The company also said it will continue to offer international equities via its global resources fund and a smaller Asian equities business.

Will Perpetual continue to offer international equities after the restructuring?

Yes. Perpetual confirmed it remains committed to international equities as a product and will continue to offer international exposure through its global resources fund and a smaller Asian equities operation.

How do the impairments and other adjustments affect Perpetual’s profit guidance?

Perpetual forecast its annual underlying profit after tax (excluding one-offs) will be broadly in line with prior guidance of about $73 million. However, after accounting for impairments offset by investment gains and write‑backs in its cash fund, total net profit is expected to fall to $62 million.

Are there expected cost savings from the Dublin closure?

Yes. Perpetual said the closure of its Dublin operations will incur a $10 million impairment but should be offset by around $7 million in annual savings.

What did analysts say about Perpetual’s decision to close the Dublin business?

Analysts welcomed the move. The article notes Deutsche called the Dublin closure a key positive, signaling broker support for the strategic clean‑up of underperforming assets.

Who is leading Perpetual’s turnaround and how has the market responded to the leadership?

New chief executive Chris Ryan led the moves to sell or close underperforming parts of the business. The market response was supportive, with investors backing his decisions as evidenced by the share price strength on the day of the announcements.