PACIFIC CURRENT GROUP LIMITED — Annual Report 2014

Aug 19, 2014

Wednesday 20 August 2014

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ASX announcement

FUM and NPAT higher, dividend increased

• Strong growth in underlying NPAT – up 27% to $14.0 million

• NPAT up 26% to $13.1 million

• Total FUM at $25.4 billion, up 49% on FY2013 driven by strong performances

• from RARE, IML and acquisition of ROC Partners

• Dividends up 25% to 50 cents per share (fully franked)

• Portfolio rationalisation – sale of TAAM, merger of Evergreen Capital and closure of Orion Australian equities

• Merger with Northern Lights Capital Group creates an international multiboutique asset management group

Treasury Group Limited (ASX:TRG, “Treasury” of “the Company”) is pleased to report the Company’s full year results for the period ending 30 June 2014.

Consolidated profit after tax (NPAT) totalled $13.1 million for the year, representing an increase of 26% on the prior year (FY2013: $10.4 million). On an underlying basis, the Company’s profits were $14.0 million, representing an increase of 27% on FY2013 ($11.0 million). The key drivers for the increase in profit growth were improved market conditions and strong performances from RARE Infrastructure (RARE) and Investors Mutual Limited (IML).

Treasury Group’s Chairman, Mr. Mike Fitzpatrick commented:

“This is a pleasing result for the Company and we are confident that business momentum will continue into 2015.

We are excited to be stepping into the next phase of growth for the Company and the opportunity to create an international multi-boutique asset management group via the proposed merger with Northern Lights Capital Group.

Over the last six months management was focused on the merger with Northern Lights Capital Group that was announced on 5 August 2014. We believe that this is a company transforming transaction as it delivers significant diversification in our earnings stream, enhances our distribution capability offshore, adds high growth boutiques and creates a management team with greater depth and geographical expertise.”

Treasury Group Limited

ABN: 39 006 708 792

Level 14, 39 Martin Place, Sydney NSW 2000

Phone +61 2 8243 0400

Facsimile +61 2 8243 0410

www.treasurygroup.com

Treasury Group’s CEO, Mr. Andrew McGill commented:

“This is another good financial result for the Company, again due principally to FUM and earnings growth achieved from our boutique partners, particularly RARE Infrastructure and Investors Mutual.

Average margins across Treasury Group’s portfolio finished the year higher, in part due to continued funds inflow from higher margin Retail Investors at key boutiques.

We saw a high level of investment portfolio activity during the year with the addition of ROC Partners to our portfolio as well as restructuring actions at some of our other portfolio investments.

The increase in full year dividend reflects the Board’s confidence in the Company’s financial position and outlook.”

Total Funds Under Management (FUM) at 30 June 2014 were $25.4 billion, an increase of $8.3 billion or 49% on FY2013 ($17.1 billion). The acquisition of ROC Partners in May 2014 contributed $5.3bn in FUM for the full year ended 30 June 2014. The aggregated net retail funds inflow from RARE and IML for the year ending 30 June 2014 totalled $648 million, compared to $425 million in FY2013.

Average net margin increased to 58 bps for FY2014 (excluding Trilogy), compared to 55 bps in FY2013. The increase in average net margin was largely driven by an increase in retail funds inflow from RARE and IML together with an outflow of lower margin FUM from Orion.

Reflecting the strong full year result, the Board declared a fully franked final dividend of $0.27 per share on 5 August 2014, which represents a 17% increase on the final dividend in FY2013 ($0.23 per share). Total dividends for the year increased 25% to $0.50 per share (FY2013 $0.40). The dividend increase reflects the Board’s confidence in the Company’s financial strength and positive operating outlook. The record date for the final dividend is 28 August 2014 and the payment date is 25 September 2014.

A summary of the Profit and Loss for the year ending 30 June 2014:

$000’s	FY2014	FY2013	**% Change **
Total Revenue	$2,324	$4,303	(46%)
EquityShare of Associates	$19,772	$15,050	31%
Expenses	($7,753)	($8,146)	(5%)
Net Profit After Tax	$13,062	$10,391	26%
UNDERLYING NET PROFIT	$14,035	$11,024	27%
Basic Earnings Per Share(cents)	56.6	45.0	26%
Dividend Per Share(cents)	50.0	40.0	25%

Note:

(1) The above financials are reported to the nearest thousand whereas the percentage increase year on year is calculated on the actual results.

(2) Underlying profit excludes abnormal and non-recurring items from current and prior year including gains and losses on sale of investments, impairment of goodwill and investment, write off of deferred tax assets, settlement fee from PRV restructure and other legal and restructuring costs.

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Merger with Northern Lights Capital Group

On 5 August 2014, Treasury Group Ltd and Northern Lights Capital Group (Northern Lights) entered into an agreement to merge and create an international multi-boutique asset management group.

Northern Lights is a privately owned, US based, multi boutique funds management business. Northern Lights currently holds investments in 13 boutiques with a FUM of A$24.2bn, and offices in the US, UK and France.

As part of the transaction, a new Australian Trust and Trustee Company will be established which will own the interests in the combined 21 boutiques (8 TRG and 13 Northern Lights)[1] . TRG and Northern Lights will each receive units in the new Trust, equivalent to approximately 61% and 39% holdings, respectively. Upon completion of the transaction, TRG will transfer its assets to the Trust and will hold majority Board representation. The transaction remains conditional with completion expected in October 2014.

Your Board looks forward to working with our new partners, Northern Lights, in the development of an international multi-boutique business.

For further details please contact: Joseph Ferragina Chief Financial Officer, Treasury Group +61 2 8243 0400 For media queries please contact: Rebecca Lawson Associate Director, M&C Partners +61 433 216 269

About Treasury Group

Treasury Group is an ASX listed company with strategies focused on the generation of shareholder value via partnering with outstanding investment professionals in the funds management industry. Established in 2000 the Company has grown to be a market leader in the multi-boutique model of funds management. Treasury Group’s business model comprises a suite of support services and infrastructure that streamlines operations and allows the investment teams to focus on achieving the best results for their clients.

1 Subject to completion of required shareholders agreement processes at Investors Mutual, Celeste and Orion

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Treasury Group Limited

Full Year Results Presentation 30 June 2014

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Agenda

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1. Overview

2. 2014 Financial Results

3. FUM & Performance

4. Merger with Northern Lights Capital 5. Outlook

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1. Overview - momentum from key boutiques driving improved outcomes

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Financial

• Normalised NPAT up 27.3% to $14.0m

• Statutory NPAT up 26.0% to $13.1m

• FY2014 dividend up 25.0% to 50.0cps

• Basic eps up 25.8% to 56.6cps

Operational

• Strong momentum continues this year at RARE and IML

• Total FUM up 48.5% to $25.4bn

• Proactive management of investments and interests

• New boutique investment: ROC Partners

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1. Overview - operational highlights at Treasury Group

• Strong performance across boutiques, particularly RARE and IML:

• › Retail net funds inflow (aggregate) for RARE and IML– $648m vs $425m (FY2013)

• › IML successfully launches LIC, QV Equities which will drive higher earnings in FY2015

• Total FUM at 30 June 2014 – $25.4 billion, up $8.3 billion (or 48.5%) on FY2013

• Proactive management of Investments and Interests

• › Merger between Evergreen Capital and Freehold Investment Management

• › Sale of interest in Treasury Asia Asset Management to Nikko Asset Management

• › Restructure of Orion Asset Management’s Australian Equities funds management business

• Acquisition of stake in ROC Partners (Australian and Asian private equity investment and advice business)

• Investment in core capabilities

• › Andrew Howard, Chief Investment Officer appointed in 2013

• › Additional Distribution executive added to London based team in 2013

• Merger with Northern Lights announced post year end

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2. Financial Results - growth in FUM; Underlying NPAT up 27.3%

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P&L Highlights ($m)	FY2014	FY2013	% Change
				•	FUM growth of 17.6% excluding addition
Year end FUM ($bn)	25.4	17.1	48.5%		of ROC Partners
Aggregate Boutique Mgmt Fee Income($m)	98.3	83.0	18.4%	•	Aggregate net retail fund inflows for RARE and IML of $648m
$million
				•	Comparative revenues impacted by the
Revenue	2.3	4.3	-46.5%		one-offs in FY2013
Employee expenses	4.4	4.5	-2.2%	•	TRG expenses lower due to lower
Other expenses	3.3	3.6	-8.3%		headcount
Equity Share of Associates	19.8	15.0	32.0%	•	Dividend per share 25.0% higher
				•	Net cash flow from operating activities
Gain/(Loss) on sale of investments	0.8	(0.4)	n/a		up 11%
Net Profit Before Tax	15.2	10.8	40.7%	•	TRG holds cash of $12.9m at 30 June
Income tax expense	2.1	0.4	n/a		2014
Net Profit After Tax	13.1	10.4	26.0%	•	Income tax expense includes abnormal
Underlying Profit	14.0	11.0	27.3%		write off of deferred tax asset in GVI
Basic Earnings Per Share	56.6	45.0	25.8%
Dividend Per Share (cents)	50.0	40.0	25.0%

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2. Financial Results – material level of non-recurring expenses in FY14

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Treasury Group P&L ($000) FY2014 FY2013 % Change	• Residual carrying value in relation to AR capital written off • Consulting and legal costs in relation to various matters • No allowance in FY14 result for costs of Northern Lights merger
Profit After Tax 13,062 10,391 25.7%
Settlement fee from PRV restructure - (537) Legal, consulting and restructuring costs 160 495 Impairment of goodwill/investment in AR Capital 293 331 Impairment of investment in TAAM 800 Unrecognised tax losses from prior periods (455) Write off of Deferred tax asset in subsidiary 520 - Underlying Profit 14,035 11,024 27.3%

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2. Financial Results - operating leverage for TRG shareholders: FUM up 17.6% excluding ROC, NPAT up 25.1%

Aggregate P&L for Boutiques ($m) Year end FUM ($bn)	FY2014 25.4	FY2013 17.1	% change 48.5%	•	Excluding ROC, FUM increased
					by 17.6% during FY14
Average Net Margin (%)	58 bpts	55 bpts	5.5%
				•	Average net margin higher due to
Management Fees*	98.3	83.0	18.4%		favourable change in mix
Other income	3.9	1.3	200.0%	•	TRG share of after tax profit
Gross Profit	102.2	84.3	21.2%		higher due to increased
					contribution from IML & RARE
Employee expenses	23.3	21.5	8.4%
Other expenses	18.9	14.9	26.8%
NPBT	60.0	47.9	25.3%
Income Tax	12.1	9.6	26.0%
NPAT	47.9	38.3	25.1%
TRG Share of After Tax Profit	19.8	15.0	32.0%

• Average net margin higher due to favourable change in mix

• • TRG share of after tax profit higher due to increased contribution from IML & RARE

*Includes performance fees

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2. Financial Results - RARE driving significant profit growth during year

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Contribution to FY14 NPAT
by Business Segment
16.0
3.785 (1.523)
14.0
13.062
12.0
0.409
10.391
10.0
$m 8.0
6.0
4.0
2.0
0.0
FY13 Australian Alternative Overhead, FY14
Equities Investments Outsourcing, RE
Services and One
off items
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2. Financial Results – dividend higher

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Dividend History

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60
50
50
40
40
34 34
30
cps 26
20
20
10
0
2009 2010 2011 2012 2013 2014
Interim Final
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• Final dividend 27 cps, fully franked

• • Total dividend for FY 2014 up 25% to 50 cps

• Implied payout ratio of 88%

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4. FUM and Performance

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Composition of TRG FUM as at 30 June 2014

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Other TRG
Boutiques,
2.6%
IML, 19.4%
Trilogy, 19.1%
ROC Partners,
20.8%
RARE, 35.7%
Celeste, 2.4%
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• Addition of ROC Partners in June 2014 with $5.3bn total FUM

• • Total FUM $25.4 billion as at 30 June 2014, up 48.5% on FY2013

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4. FUM and Performance – average margin higher due to growth at RARE and IML

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Composition of FUM vs Average Margin

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30 80
70
25 Trilogy
Freehold (Evergreen) & AR Capital
60
Aubrey & Global Value Investors
20
50 TAAM
FUM Avg Margin
$bn at year end (bps) ROC Partners
15 40
Celeste
RARE Infrastructure
30
10
Orion
20
Investors Mutual
5 % incl Trilogy (RHS)
10
% excl Trilogy (RHS)
0 0
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4. FUM and Performance – addition of ROC Partners impacts FUM profile

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FUM by Investor Type FUM by Investor Location FUM by Product Type
28 28 100%
24 24
80%
20 20
60%
16 16
12 12
40%
8 8
20%
4 4
- - 0%
Jun-13 Jun-14
Alternatives
Institutional International Source
International Equities
Retail
Domestic Source
Australian Equities
$bn $bn
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4. FUM and Performance

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Performance Relative to Comparative Indices (%pa) – Net of Fees to end June 2014

	1 Year Excess Returns	3 Year Excess Returns	5 Year Excess Returns	Since Inception	Inception Date Sample Ratings
Aubrey Global Conviction	-6.60	-4.70	n/a	-2.00	July 2010 Zenith - Recommended
Celeste Australian Small Companies	-4.10	5.30	7.60	10.00	May 1998 Zenith - Highly Recommended
Investors Mutual - Australian Share	-3.30	3.73	2.87	2.59	June 1998 Lonsec - Highly Recommended
RARE Infrastructure Value
(AUD Hedged)	11.60	5.50	8.60	1.10	Nov 2006 Zenith - Highly Recommended
Freehold A-REITs & Listed Infrastructure	-2.60	0.30	n/a	1.00	May 2010 Lonsec - Recommended
Octis Opportunities Fund	- 0.16	n/a	n/a	0.30	Nov 2012 n/a

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4. FUM and Performance - Funds flow review
8 TRG Gross Funds Flow
July 2008 to June 2014
6
•
Six months to June 14
4
includes ROC Partners
•
2 Net inflows at RARE and
IML
0
-2
-4
-6
$bn
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Note: Chart shows funds flows, not change in FUM

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5. Merger with Northern Lights Capital Group

Merger Transaction Overview

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• Treasury Group Limited (TRG) and Northern Lights Capital Group (Northern Lights) agree to a merger creating an international multi-boutique business with A$49.6bn FUM

• Northern Lights is a privately owned, international multi-boutique asset management group headquartered in the US with 13 associated boutiques

• No change of control for TRG, TRG entitled to 61% economic interest in merged business, majority

board representation

• Merger via a new Australian Trust and Trustee Company with Board, management and operations to be integrated

Compelling Transaction Rationale

• Expected to be materially EPS accretive to TRG shareholders from close

• Creates diversified international portfolio of asset management businesses

• Key Northern Lights boutiques growing strongly

• Executes on TRG’s growth strategy

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5. Merger with Northern Lights Capital Group

Strategy Going Forward

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• Continued expansion and diversification of portfolio via value enhancing new investments

• Drive growth in asset base across portfolio by leveraging distribution capabilities

• Second listing on a global exchange within 3 years

• Leverage strategic benefits of relationships with Northern Lights cornerstone shareholders, BNP Paribas and Laird Norton

• Merger is consistent with TRG’s previously stated strategies – expand & diversify portfolio, strengthen distribution capabilities, improve access to capital, consider M&A opportunities

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6. Outlook – TRG is well positioned

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• Proposed merger with Northern Lights establishes platform for future growth

• › Significantly improved access to international clients and deal flow

• › Merger remains conditional and there are also risks around pre-emptive rights processes at some TRG boutiques

• TRG’s business model remains leveraged to markets

• › All Ords and Dow Jones both started FY15 at larger levels than average for FY14

• Continued momentum at RARE and IML

• › Aggregate Retail net inflows running at $54m per month in June quarter

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Disclaimer

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The information in this presentation is general background information about Treasury Group Limited and is current only at the date of this presentation. In particular, this presentation:

• is not an offer or recommendation to purchase or subscribe for securities in Treasury

• Group Limited, nor is it an invitation to any person to acquire securities in Treasury

• Group;

• is not personal advice and does not take into account the potential and current individual investment objectives or the financial situation of investors; and

• contains information in summary form and does not purport to be complete.

Certain statements in this presentation may constitute “forward-looking” statements. Forward-looking statements are neither promises nor guarantees and involve known and unknown risks, uncertainties and other factors which may cause actual results to vary materially from any projection, future results or performance expressed or implied by such forward-looking statements.

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