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 CEO’s Remarks
In last year’s annual report I spoke of ‘leading change through inspiring trust’ as we set out our strategy and articulated the value of the independent trustee business in today’s economy. A year later, at the end of our first year of transformation, it is pleasing to note the significant work already completed in terms of strategic alignment, branding and overall business momentum.
In delivering our FY11 results within guidance, we demonstrated our commitment to the strategic goals set out on page 6 and in particular our commitment to growth in shareholder dividends, which increased by 4% to 35.0 cents per share, fully franked over the period. Our financial results were mixed, with revenue, non-operating income and operating costs all increasing.
Financial Results
Overall revenue growth of 4% to AUD57.1m was only a satisfactory result given the broader focus on the transformation. Indeed, as demonstrated by the EBITDA bridge (below), this revenue outcome was largely the net result of some larger transactional and annuity-type revenue movements during the year, as well as the successful completions of the capital commissions project in Personal Client Services.
The capital commissions project, an inventory management exercise underway in our Estates and Trusts area for the last two years, realised an additional AUD1.3m in FY11, bringing the total billed under this exercise for the year to AUD2.3m while several new large mandates awarded to the Corporate Client Services team contributed an additional AUD2.6m in revenue. The collapse of Astarra Capital, incumbent Responsible Entity for 10 Trio Capital schemes, led to our appointment as Responsible Entity and Funds Manager, but these fees will not continue much beyond FY11.
Estates and Trusts administered lower estate numbers and estate values during the year which led to an annualised fall of AUD1.2m in annuity-style revenue. The cash management trust experienced significant outflow as competition for deposits intensified during the year. Offsetting this decline was:
- Higher asset-related fees of AUD0.9m, reflecting the 9% increase in the ASX200 index year on year
- additional annuity fees generated by the Responsible Entity team of AUD1.0m, rounding off an outstanding year for this team under the leadership of Rupert Smoker who joined us from ASIC during the year.
Turning to operating costs, average salaries increased 4.5% to reflect a catch up following the general pay freeze in FY10 and the up-skilling of our team. After significant restructuring in FY10, we also started to increase resources and to better align our business model with our strategy. As a result, we put on new people in our Business Development and Responsible Entity teams to ensure we capitalised on growth opportunities for trustee appointments to distressed schemes and the opportunities presented by foreign investors seeking Managed Investment Trust services. We have also started to bolster our core service areas as we prepared for the integration of Guardian Trust.
FY10 to FY11 EBITDA Bridge (AUDm)
To offset these additional costs, we managed our risk more closely and contained the large costs previously associated with client claims. Sally Ascroft and her legal team are paying careful attention to the various legal costs incurred across our different businesses for both general work and litigation, and looking for the opportunity to rationalise these. General cost-savings during the year also contributed an additional AUD1.6m to our EBITDA performance, bringing the FY11 result to AUD17.7m, up 13% on FY10.
Interest on term deposits and franked dividend income from investments was up 28% to AUD3.2m. This provided an additional boost to our operating net profit after tax (NPAT) which was up 18% to AUD13.8m. Net significant items of AUD2.5m were largely the outcome of the AUD1.5m in acquisition costs for Guardian Trust and a series of one-off costs associated with our strategic review. These subdued our reported NPAT to AUD11.3m, up 4% on FY10. As a result, we declared a final dividend for FY11 at 18.0 cents per share, up 4% on last year. This brings total dividends to 35.0 cents per share,fully franked.
At a total cost of AUD31.5m (NZD42m), the acquisition of Guardian Trust has been the most significant investment for The Trust Company in its recent history and is a significant step-change for our business. We believe we have bought well. Guardian Trust is a profitable business purchased at an attractive multiple that has already undertaken significant work over the past two years to streamline operations and improve performance. Further, given the similarities between our respective businesses, the transaction will also deliver the increased scale, services and expertise required to help us become the pre-eminent independent trustee in our region. The expanded footprint and cross-jurisdictional expertise strengthens the service offering for all our clients, particularly international banks, fund managers and property groups.
From a cash-flow perspective, The Trust Company continues to generate a healthy level of operating cash flow.
Looking forward, the Chairman has already outlined the Change Program that describes the overall transformation underway at The Trust Company and frames our priorities. This five year Change Program can only be assessed over a longer time frame and in the context of the key demographic, regulatory and economic shifts that will underpin growth in our chosen trustee markets. We believe these trends are all highly positive for The Trust Company. As I mentioned at the AGM in June 2010, they position us favourably in key growth markets to:
- help our retiring baby-boomer generation transfer a record-level of personal wealth
- help our elders market maintain their independence and lifestyle through a provision of Power of Attorney and Lifestyle Care services
- help our corporate clients across the region
My focus during this period of transformation is to ensure each part of our organisational ‘spine’ is in alignment and as effective as possible. Ultimately, our clients should enjoy a pre-eminent service, our staff should be engaged, empowered and enabled, our shareholders receive a strong and growing return on their investment, and our community benefit from the enhanced social impact we can generate from our charitable trusts and staff community program.
Strategy, Planning and Projects
With a major acquisition being integrated in our business as well as a busy FY12 work plan ahead, Myles Orsler has joined the Executive Team as Head of Strategy, Planning & Projects and is starting to build the capacity within our business to manage the many projects and initiatives underway. The acquisition of Guardian Trust certainly enabled us to draw together the M&A expertise in the organisation to ensure we are building on our in-house knowledge and experience for future opportunities. We have also completed a significant program of work resolving legacy issues associated with our common funds. This was a major piece of work, dealing with some unit pricing issues that stretched back many years. It is a tribute to the resilience and patience of the team that we got to the very bottom of this issue at last and ensured all our clients’ affairs were fully rectified.
Market positioning and Brand
Our new brand model, with our Ethical Framework at its core, has had a strong impact on many of our clients and our staff engagement levels have responded very favourably to the change. We have also received compliments from our core constituencies, our clients, particularly around our monogram emblem “The Keep” – which represents the safest part of the castle – and the distinction of the colour purple. Indeed the international REBRAND awards gave our new visual identity a ‘Merit’ award for the new brand model and visual identity. As well as signalling to clients the quality of service they should expect, when combined with our Ethical Framework, the brand model also guides staff on how they should conduct themselves in their day to day business activities. The success of the new brand and visual identity has not gone unnoticed in New Zealand and as part of the integration of Guardian Trust we now plan to rebrand the New Zealand business later this year. While the business will continue to trade under the name Guardian Trust the brand will align with that of the parent company (see page 23).
A professional trustee servicing the region
The acquisition of Guardian Trust not only expands our regional base in Asia-Pacific, but provides the market-leading trustee service in New Zealand that complements our already strong Australian and Singaporean offices. Certainly, the performance of our Singapore office has caused an equal amount of excitement in the business community over the last 12 months, especially given our success in the bond and Managed Investment Trusts (MITs) markets. Our market leading position in the MIT space reflects the
first-mover insights and strong relationships established by Andrew Cannane, General Manager Corporate Clients, and his business development team while The Trust Company’s role as trustee for the Singapore Airlines and CapitaMalls Asia bond issues on the Singapore Stock Exchange is a clear indication of our growing reputation in Asia. We continue to see Asia as
a major source of growth and opportunity for
the Company over the
next decade.
Closer to home, FY11 also saw us set up our first office in Perth, led by General Manager Ravi Malhotra. The rapid growth of the Western Australian economy off the back of the mining boom and the high prevalence of personal injury cases in this state led us to establish our first new office in five years. Ravi is also assisting us to develop our native title portfolio in this state.
Our goal is for clients to consider our people as trusted advisors and market leading exponents in their field. That is why we are placing so much emphasis on recruiting, developing and retaining the right people.
Finally, our 125th anniversary was a timely reminder of our early heritage as a Melbourne-based trustee company. Since the merger with Permanent in 2002 and the shift to Sydney of the head office, we have been under-represented in this important market. I am delighted that Simon Lewis is joining Andrea Free in our Melbourne office to ensure greater Executive Team representation for both our staff and many external stakeholders, including some of our largest shareholders. Simon will also be launching our new strategy for Engaged Philanthropy from our Melbourne base in line with our strategic goal of maximising the social impact for our Community.
Philanthropy and Community
Success in Philanthropy and Community are at the centre of The Trust Company’s corporate strategy and as we look ahead to FY12 and our anticipated launch of our Engaged Philanthropy strategy, it is pleasing to note the momentum we are building in these areas especially with our Sponsorship & Awards and our Community program. To help guide our strategy and investment in Philanthropy and Community, we constituted a separate Committee of the Board chaired by one of our Non-Executive Director’s Josephine Sukkar.
Engaged Philanthropy is all about making a real difference to our community through ensuring we are more attendant to the relationships and dialogue associated with effective grant giving and fund distributions. This process started in 2009 with the rejuvenation of the Miles Franklin Literary award. To illustrate the outcomes that have flowed from this new approach, it was pleasing to note we secured the support of five of the most important stakeholders, the authors, for the 2010 Award dinner.
Our Community program really started to take shape this year, from small beginnings. Starting with volunteering, it is pleasing to note that over 70% of our staff spent a day with their favourite charity. Particular mention should go to the team that supported the RSPCA ‘cupcake’ competition and were awarded the NSW prize for the largest amount raised by a company. The award coincided with a bequest of AUD800,000 made to the RSPCA from one of our private clients and also led to the visit of a four-legged guest from the RSPCA along with the NSW CEO for a presentation in our Board room. The lively mood and generosity of spirit felt that morning was a good reminder of the importance of supporting staff in community programs.
Our community interest was not just Australian focused. Our appeals for the floods in Queensland, the earthquake in Christchurch and the disaster unfolding in Japan led to over AUD75,000 in donations from staff, friends of The Trust Company and The Trust Company Foundation.
Our Clients and Services
‘Client First’ is the label we have given to our initiative to build a client-centric organisation focused on pre-eminent trustee service. This involved the development of a client charter and service commitment. The Client First initiative has seen a demonstrable improvement in levels of both client engagement and satisfaction, as evidenced by surveys conducted on both the Personal Client and Corporate Client areas.
The Corporate Client Services team have developed a four year track record of continuing improvement in client service and feedback. This is a pleasing result which ensures our trustee value proposition to the corporate sector is growing more compelling over time. Vicki Allen – a champion of client service – initiated these surveys in the Corporate Team and she was also the sponsor of the Client First initiative. We are sorry to be losing her passion and strong advocacy for client service and will continue to build on the legacy she has left for us.
For the first time, the Personal Client Services team also conducted a detailed survey of their clients during the year. Whilst they received commendable feedback in areas such as Health & Personal Injury and Private Clients, there were also areas for improvement which we will be focusing on as we look to strengthen performance and deliver a pre-eminent service across all areas. This feedback will guide our efforts to improve the results and engagement with our clients. Engaging more effectively with the beneficiaries of continuing and absolute estates is a key priority for FY12.
Insights gained from regular exchanges with key clients complemented by client surveys have also helped us determine possible new service offerings that may ensure we remain responsive and relevant to continually changing client needs. In this regard, we looked more closely at the opportunities presented by superannuation, structured finance, debt capital markets, covered bonds, and Sharia finance.
Finally, to support our client interests and to ensure the voice of the independent trustee is heard in the formulation of regulation, we have actively engaged in advocacy through independent channels and the various regulatory forums. Examples of the reviews where we have presented our views and opinions are The Cooper Review, Future of Financial Advice, Managed Investment Trusts, Debt Capital Markets, Indigenous Rights and Native Title, and the laws and regulation governing Philanthropy.
Our People
In the inaugural year of implementing our performance management program, it is pleasing to have a more robust system of accountability to drive performance in the future. With this program, we are better able to understand and address the strengths, weaknesses and capability gaps in our staff. As such, we have continued to invest in training, professional development and leadership through a series of offsite programs with HayGroup and Outward Bound. To support skill development at the critical manager level, we have also rolled out Frontline Management courses and Certificate 4 Project Management courses for our staff and encouraged independent study by our staff and supported by the Company. Through both initiatives and the Short Term Incentive program, we are able to reinforce alignment with strategic goals and desired outcomes.
Our goal is for clients to consider our people as trusted advisors and market leading exponents in their field. That is why we are placing so much emphasis on recruiting, developing and retaining the right people. I have been delighted to receive several notes from clients listing exemplary client service as well as an acknowledgement of the technical expertise of the staff involved. Having the right people and continuing to build a high performance team is a key part of becoming the pre-eminent trustee in our region.
Our operations, processes and systems
Information technology is a key enabler for most financial services companies and The Trust Company is no exception. The need to have dynamic and effective client relationship management systems and the ability to deliver straight-through processing and integrated, online communication for clients is now more important than ever. During the year, we started with the redesign of our operations and business configuration as a precursor to improving the business processes within each area. We also commenced analysis of the business requirements of our IT applications and infrastructure with a view to overhauling them in due course once the operations and process work was complete. To lead these critical initiatives, we are delighted to have Cathy Stephenson join the Executive Team. She and her team will be rolling-out a new company-wide IT platform over the next two years. I would also like to commend the work that Vincent Wong and his team have been doing in the interim to centralise and streamline our processes across the Company.
Of course all change must begin somewhere and as such, we have instituted a review of all our facilities within the The Trust Company to ensure that they are ‘fit-for-purpose’ and in keeping with our brand.
Our new Head Office at 20 Bond Street, Sydney should serve as an illustration of this – it provides a smart, welcoming environment in which to interact with our clients in a functional set-up that maximises our staff’s ability to deliver pre-eminent service to our clients. Our staff in Singapore also operate from a new office this year, and there will be further changes to some of our other locations in due course, including in New Zealand.
Outlook & FY12 Priorities
Supported by continued interest and strong inflows into Australian investment markets, we expect to maintain the momentum of the Corporate Client Services business into FY12 by capitalising on our market leading position for key services such as Managed Investment Trust structures. However, the benefit at the Operating EBITDA level from Corporate Client Services will be largely, if not completely, offset by unusually heavy expiry of corporate mandates due to client restructuring.
Integrating the Guardian Trust business with The Trust Company and capitalising on both the revenue and cost benefits of this acquisition will be our immediate priority.
As noted at the half year, while the long term drivers of the Personal Clients Services business are very strong, it is a much more complex business reflecting its long and diverse history. Realising the potential of this business will therefore take time and require further investment in our people and enablement through the upgrade of our processes, systems and technology now underway. Notwithstanding the expanded footprint and positive scale benefits arising from the acquisition of Guardian Trust, the FY12 results from Personal Clients Services will be affected by the absence of significant but non-recurring revenues from the completed capital commission project in continuing estates which boosted results in the last two years.
Integrating Guardian Trust and capturing the benefits of the acquisition from both a revenue and cost perspective is also a top priority for the year ahead. Guardian Trust is expected to be earnings per share accretive to the Group in FY12.
Complementing these initiatives in FY12 will be a continued focus on investor relations. A greater degree of broker coverage resulting from a proactive investor relations program will help communicate to the market about the trustee market, our competitive position within it, and the performance-building strategies underway. We have also put a considerable focus on the share register more recently and building relationships with our owners, and note the strong alignment emerging between the investment style of our major shareholders and our capital preservation/ high after tax yield value proposition.
Acknowledgements and thanks
Finally, I would like to thank my Executive Team and my staff. With the volume of change the business is going through, I am grateful for the support of a strong Executive Team. This team has been further bolstered by the addition of John Botica, Managing Director of Guardian Trust, and Cathy Stephenson who assumes Executive responsibility for Business Operations and Information Systems (which includes the technology upgrade program).
We welcome Myles Orsler to the Executive Team where he continues to oversee the role of Strategy, Projects and Planning, an area he has driven with great commitment this last year. Most recently Ray Gould joined us as Executive General Manager, Personal Client Services Australia.
We farewelled Vicki Allen at the end of the financial year. We all benefited from her insightful and generous leadership. I fully endorse our Chairman’s acknowledgment and thanks for Vicki’s contribution to the Company, first as leader of our Corporate Client Services business and more recently as our Chief Operating Officer.
And to the staff, for their unwavering support and professionalism as we realise the outcome of the past two years’ effort, my utmost thanks.
The achievements of the past two years have helped us appreciate the bigger picture of our Change Program. Having set our strategy, we began to manage our business for performance while positioning for growth in our target markets. With these foundations in place, I look forward to seeing ongoing improvements in client service, operational efficiency and business performance. At this juncture, it is also exciting to be welcoming Guardian Trust to the family and embarking on our regional trustee ambitions together. Ongoing financial market momentum, record wealth transfer from an ageing population and the emerging opportunity for independent professional trustees keeps us determined. Our vision – to be the pre-eminent trustee in our region – keeps us focused.
Together, I look forward to making this vision a reality.
John Atkin
Chief Executive Officer
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