Pacific Current Group Limited (PAC) Earnings Call Transcript

Thank you. Good morning, and welcome to the Pacific Current Group Investor Presentation Call for the 2025 financial year. Again, by way of introduction, my name is Michael Clarke, and I'm an Executive Director and the Acting Chief Executive of Pacific Current Group. I joined the Board of Pacific Current Group in February 2024, as a Non-Executive Director and transitioned to my current role in July of 2024. I'm joined on the call by Ashley Killick, the Chief Financial Officer of Pacific Current Group. Ashley joined PAC over 6 years ago. In our full year update to shareholders in August last year, we highlighted that PAC was committed to taking actions that would unlock shareholder value, and we would report the progress made to achieve this goal. We are gratified to report that the momentum developed in the 2024 financial year has continued throughout this financial year FY '25. If we turn to Slide 3 in the presentation pack, Pacific Current Group is pleased to report on the company's interim results for the 12 months ending 30th of June 2025. Key highlights over the 12-month period included the successful completion of an equal access off-market share buyback in March of 2025, which enabled PAC to buy back just over 22 million ordinary shares at $12 per share with a total value of close to AUD 265 million. This represented over 42% of issued capital at that time. Following completion of the buyback, PAC now has 30.15 million ordinary shares on issue. The share buyback achieved several important objectives, including improving capital efficiency, providing liquidity to selling shareholders and reducing the share count for the benefit of remaining shareholders. For the FY '25 year, Pacific Prent is declaring a final dividend of $0.28 per share unfranked with a record date of 8th September 2025. The final dividend brings total dividend per share for the financial year to $0.43, and this is an increase of over 13% on the full year dividend declared in the FY '24 financial year. Pacific Current Group also declared a statutory net profit of $58.2 million for the period, driven by uplifts in the fair value of assets in the portfolio and the gain on disposal of selected assets. This compares with a statutory net profit of AUD 110 million in the previous financial year. Pacific Current also recorded a decline in underlying net profit to AUD 26 million for the FY '25 financial year, and this compares with [ AUD 32.2 million ] in the previous financial year. This year's result was driven by the disposal of assets, which resulted in a higher level of cash in the portfolio. Underlying earnings per share declined to AUD 0.56 from AUD 0.62 in the previous financial year. Importantly, cost-saving initiatives implemented in the financial year positively supported the result with a close to 60% reduction in corporate costs during the period. It is also worth highlighting that although underlying net profit and earnings per share declined year-on-year, again, the number of ordinary shares on issue were significantly reduced following the off-market share buyback, as I've discussed, to just over 30 million shares from previously over 52 million. This [Audio Gap]. I'll continue. Yes. Just -- I'll just finished discussing underlying cost savings of 60% compared to the previous financial year, which obviously is good progress. I wanted to move on to just a summary quickly of the transaction activity over the period because it was another very, very busy 12 months for the company. As you may recall, in July 2024, PAC announced the sale of 100% of its interest in Carlisle to Abacus Life. PAC received 1.97 million newly issued Abacus bonds with a coupon rate of 9.875% at an aggregate par value of USD 49.2 million. In addition, PAC received 1.36 million shares of Abacus common stock. At the completion of the sale on 3 December, 2024, the aggregate net proceeds to PAC are estimated to be USD 60.3 million. In August '24, PAC announced the sale of 55% of its equity stake in Victory Park Capital's Management Company and 24.9% of PAC's future carried interest entitlements in VPC's funds yet to be launched. Pacific Current received an upfront consideration of USD 33.9 million for transaction costs, 75% in cash and 25% in Janus Henderson stock. Pacific Current can also receive an additional up to USD 27.7 million earn-out payment based on certain gross revenue milestones measured in calendar years 2025 and 2026. Finally, the agreement also includes provisions for the potential sale of the remaining 45% of Victory Park's management company and an incremental portion of carried interest in the future. Both the Carlisle and Victory Park transactions have now settled with the receipt of all required regulatory approvals. In December 2024, PAC announced the redemption of its interest in Banner Oak Capital Partners. PAC originally invested USD 35 million in Banner Oak in January 2022. The redemption of USD 19.1 million, coupled with USD 15.9 million of historical distributions from Banner Oak resulted in a full return of PAC's invested capital on a pretax basis. Also in December 2024, PACdisposed of all of its equity interest in Nereus MCI. And finally, in terms of activity for the year, pre the buyback, in February 2025, PAC agreed to restructure its 100% equity ownership in Aether investment into a revenue share agreement, supporting the stronger incentive and greater alignment for management to execute on their growth initiatives. PAC retained a liquidation right of 24.9% should the company be sold. As a consequence of all this activity and progress through the year, fair value assets recognized on completed sales of assets during the period and related consideration, PAC's fair value estimate of net asset value increased to AUD 15.51 per share at 30th of June. This estimate exceeds the statutory net asset value by AUD 0.76 per share and compares with a fair value estimate of the net asset value of AUD 13.47 per share on 30th of June 2024. This is an increase of over 15%. I'd now like to hand over to Ashley to cover financials for the year.

Thanks, Michael. As Michael said, like FY '24, the current year FY '25 has been a period of great change at PAC. Over the past 2 years, we have fully realized our investments in GQG, Avante, Cordillera, Proterra, Banner Oak and Carlisle, while partially realizing our investments in Pennybacker and Victory Park. So obviously, these realizations have impacted our revenue from boutiques. So on Slide 4, we have a summary of the underlying results. As a result of these disposals, management fee revenue is down 57.6% over the prior comparative period in U.S. dollars. In FY '24, performance fees were AUD 11.3 million, while in the current period, it was AUD 8 million. This is largely attributed to Roc Group and VPC Holdco. Over the past few reporting periods, the listed investments held by VPC have had negative mark-to-market losses. But in the current period, they recorded a net gain of AUD 1.6 million. The recent disposals have also resulted in PAC receiving various financial assets as consideration. As Michael said, we received Abacus Bonds and shares, as well as Janus Henderson shares flowing from the Carlisle and VPC transactions. In addition, we also held shares in GQG listed on the Australian Stock Exchange. The reduction from the prior period of AUD 13 million to AUD 3.8 million is effectively because FY '24 included the dividends from GQG shares. In May 2024, we outsourced the investment management function. This has resulted in us significantly reducing our corporate costs, but incurring an investment management fee. So the current year saw a charge of [ AUD 2.4 million ]. The externalization of the investment management function and the closure of the distribution activities has resulted in a significant reduction in corporate costs, as Michael noted. The cash realized from the boutique realizations has obviously led to higher interest income being generated, while the U.S. debt -- U.S. dollar-denominated debt that we hold was influenced by the increase in the facility in September '23, which led to an increase in underlying interest expense, but interest rates have fallen over this period and that has mitigated the effect. So it's effectively still sitting at 6.7%. Overall, underlying net profit after tax and earnings per share have declined flowing from these effects. The Board has previously advised that it is our intention to have a dividend payout ratio in the range of 60% to 80% of underlying net profit after tax. As such, the FY '25 final dividend has been increased to $0.28 per share, bringing the total for FY '25 to $0.43 per share. This would equate to 62% of underlying net profit after tax. This dividend will, however, be fully unfranked. I'll turn now to Page 5, which is effectively a graphical depiction of the revenue trends that I've just described. Turning to Page 6 is the alternate balance sheet. We prepare this ultimate balance sheet for management purposes effectively to provide a look-through view of PAC, as it deconsolidates the results of our operating subsidiaries. Historically, it's been Aether and strategic capital investment. Given the transition of Aether from subsidiary to fair value through profit and loss, this analysis won't be necessary on a go-forward basis. But briefly running through the lines, obviously, the realization of the assets has seen our cash balance rise significantly over the past 2 years, but the share buyback that happened in this period has seen that cash reserve reduce. Even so, we still have cash reserves of $138 million. In addition, we also have the deferred consideration arising from the partial disposal of Pennybacker, which is due to be settled in May '26. As mentioned previously, we've borrowed USD 41 million, which is shown in other noncurrent liabilities. It is secured by a corresponding U.S. dollar bank deposit, which is included in other noncurrent assets. During the period, we impaired our investment in Aether, as such, the intangibles were written off and the investment in Aether was transferred to fair value through profit and loss, which resulted in the investment in subsidiaries line disappearing. The disposal of Banner Oak and Victory Park partially has resulted in a significant reduction in the investments in associates. The remaining interest in Victory Park is now classified as fair value through profit and loss. This has led to an increase in the value of this asset class. To highlight the securities, PAC has received its consideration from the sale of Carlisle, Pennybacker and VPC, we've separated in this analysis these assets as financial assets. I turn to Page 8 now. This shows the movements in net assets on a book value and fair value basis. preparing our statutory accounts. We undertake a valuation exercise to consider whether any assets are impaired and to determine a value for financial assets recorded at fair value. This process is driven by the accounting standards and is not intended to provide a precise value at which an investment would be realized at. Further details of this are detailed on Page 26 of the presentation, which I encourage you all to read. The center columns of the table summarize the values resulting from this process. This suggests that the fair value net asset value per share has increased from $13.47 to $15.51. A significant proportion of this asset base is in cash and financial assets. I'll now hand back to Michael.

Mr. Clarke, please go ahead.

Thanks, Ashley. Thanks for handing back. Turning to Slide 12 in the presentation pack. We'll now look at the outlook for the new financial year, current financial year. Pacific Current Group management expects to maintain the strong momentum that has clearly been built in the past 2 financial years, FY '24 and FY '25 by continuing to focus on executing a clear and disciplined plan. The focus in the FY '26 financial year will be to execute the following 5 key initiatives: accelerate growth by leveraging high potential investment opportunities with existing boutique partners, and we are in discussions with 3 of the existing boutique partners at the moment, which is encouraging. But we'll also assess new investment prospects to drive scalable growth of the business. And again, we are reviewing at least a couple of initiatives in that regard. So there's a very active program around about accelerating growth in the business. There's a second of the key 5 initiatives, focus -- continued focus on unlocking shareholder value. And this will be affected by evaluating targeted capital structure initiatives to enhance returns and to continue to optimize the capital structure. The third of the 3, 5 key initiatives will be to continue to -- continue our focus on controlling operating costs. We will do this by maintaining disciplined cost management to support margin stability and capital efficiency. And though I'd highlight, I think in the update of the half year update, I mentioned we were something like a 40% reduction in operating costs. We're now updating that we're close to 60%. I don't expect those sort of gains going forward, but it shows the focus of management and the company on running the business as efficiently as possible. So we will continue that focus on controlling operating costs. We will, as the fourth key initiative, look to continue to strengthen the balance sheet. As Ashley mentioned earlier, we still have the U.S. debt facility. That is the only outstanding debt facility. And the Board will look at that facility in the second half of this calendar year. And potentially, we will prioritize debt reduction to improve financial flexibility and again, resilience. The final of the key 5 focuses of management is to continue to enhance organizational efficiency, and I mentioned this again in the update at the half year. We have, and as Ashley mentioned in his update, we obviously outsourced the investment management function. We have and converted that to an advisory agreement. So we continue to work with our partners there by embedding and refining the structural and governance changes that we introduced through the last 2 financial years to improve both agility and decision-making. In conclusion, we would like to thank our employees and the Pacific Current Group Board, both past and present for their work to enhance shareholder value. Though strong progress has been made again in the current financial year FY '25, there is still much to do, and we remain relentlessly focused on achieving the best possible outcome for our shareholders in this financial year, FY '26 and beyond. We'd now like to open for any questions you may have.

[Operator Instructions] The first question comes from the line of Nick McGarrigle with Barrenjoey.

Can you just talk through those 3 opportunities to -- I think you mentioned additional investments in some of the existing [indiscernible].

The additional investment in some of the existing boutiques. Yes. There's 2 -- I won't mention particular boutiques because it's -- but talking about what we're trying to do is -- I mean, it falls into 2 categories, potentially support the growth of boutiques through effectively working capital loans. Clearly, we have cash and short-term financial liability. We got plenty of capacity to do that. So we are looking at a couple of them to think about working capital loans. The other approach we're looking at is whether we would inject further capital into the operating businesses and support potentially the raising of new funds. So i.e., some sort of type capability. So they're the 2 directions we're looking at, and that's across 3 of the existing 8 boutiques. Does that help?

Yes. That's good. So they're not necessarily additional equity investments, they're more funding or corporate participation or not additional equity.

No, no, exactly. Exactly. I mean, we're not talking about increased equity stakes. It's basically effectively investing into the business. And with the investment may come some restructuring of agreements. That's certainly possible in many dimensions. But yes, at this stage, it's not just a simple equity buy, no.

Okay. And then I think in the annual report, you actually mentioned you might pay back the debt. I think in the report you guys said that you will pay back the debt in October with about a $1.2 million prepayment penalty.