Perpetual to slash headcount in turbocharged savings drive

Wealth manager targets $80m in savings, much of it from redundancies, following its failed carve-up deal with KKR.

Perpetual chief executive officer Bernard Reilly. Picture: Dylan Coker

Perpetual will target redundancies in its Australian head office as it looks for $70m to $80m in savings after posting a 65 per cent plunge in net profit.

A large proportion of the cost savings will come from staff cuts, chief executive Bernard Reilly told The Australian.

“There’s a lot of head office functions we have where there is a duplication. In some ways, it slows down decision-making. We’re trying to free that up, to speed things up,” Mr Reilly said.

The cost-saving program, announced alongside Perpetual’s half-year result, is more than double the wealth manager was aiming for just six months ago. It expects to reach its $70-$80m target within 18 months.

The cuts come days after Perpetual walked away from its $2.18bn break-up deal with KKR after rejecting the private equity giant’s last-ditch offer to get the transaction over the line.

Perpetual on Monday said it had terminated the scheme of arrangement after the parties were unable to meet on price to salvage the deal for its wealth and corporate trust units.

The firm will now push ahead with separating its three divisions -- wealth, corporate trust and asset management -- with a view to selling off the wealth management business. Mr Reilly said there had been significant interest in the business.

“It’s a high quality business, one of the leading wealth businesses in Australia. There aren’t that many high-quality wealth businesses that become available, so we’re very confident in the interest and we’ll look to execute on this transaction as quickly as we can,” he said.

Proceeds from the sale will be used to pay down Perpetual’s mountain of debt. Gross debt currently sits at $840m but the cost savings program should bring it down to around $750m-$770m by the end of June. That excludes any proceeds from the wealth sale.

The firm will also look to expand its offering by repackaging some of its strategies into active ETFs that will start rolling out in the second half of the calendar year.

“In the US market in particular, 10 per cent of assets under management in ETFs today are active, and that’s growing at a very fast clip. So there’s an opportunity for us to repackage some of our existing strategies into an ETF form. We have a intermediary distribution capability that we’ve grown out over the last few years...(and we’ll be able) to to mobilise the ETF strategy through that distribution channel.

For the six months through to December 31, Perpetual recorded net profit of $12m, down sharply from the $34.5m it saw in the prior corresponding period, as its strategic review, failed scheme of arrangement with KKR, and a $25m impairment on the back of $3.6bn in outflows in its J O Hambro business all hit its bottom line.

Underlying profit, which strips out the one-off items, came in 2 per cent higher than the previous first half, at $100.5m, as positive market and currency moves offset $4.4bn in net outflows in its asset management business, with the firm also seeing growth across its wealth management and corporate trust businesses.

Assets under management jumped 8 per cent to $230.2bn due to positive market movements.

Operating revenue for the year was $686.2m, a 4 per cent lift on the first half of 2024, reflecting revenue growth across all three businesses.

“Perpetual has delivered a solid first half financial performance underpinned by revenue and underlying profit growth across all three of our businesses,” Mr Reilly said.

“The wealth management business continued to grow, delivering organic growth across both market and non-market linked revenues. In corporate trust, we continued to see consistent growth across all segments and products, in addition to growing interest from clients in our Perpetual digital business,” he said.

The board determined to pay an interim dividend of 61c, unfranked, representing a payout ratio of 70 per cent of UPAT.

Perpetual shares finished Thursday’s session down 9 per cent at $21.22. The shares are down 12 per cent so far this week, with the failed KKR deal adding to the downward pressure.

Perpetual and KKR were locked in negotiations for from December until earlier this week, after the tax office blindsided the wealth manager with an estimated $500m tax bill from its move to separate and sell two of its divisions to KKR.

The parties reportedly explored alternative structures to unlock value for shareholders, but KKR did not come up from its original $2.175bn bid.