Q4 2020 Power Corporation of Canada Earnings Call
[music].
Good morning, and welcome to the Power Corporation fourth quarter and year 'twenty 'twenty earnings conference call and webcast of.
For the presentation, we'd be open the call for questions instructions will be provided at that time.
To be clear assistance throughout the coal price plus policy most of operator assistance at any time. Please note that these kudos for being be cool day to day. So stay mulch, the 18th of 2021 at eight a M eastern daylight time.
I'd like to turn the meeting over to Mr. Jeffrey Youll be President and Chief Executive Officer of Power Corporation. Mr. <unk> you May proceed. Thank.
Thank you very much of operator, and welcome everyone to our fourth quarter.
Our results call.
I hope everybody is well and healthy.
With me today is Greg Tretyakov, Chief Financial Officer of sort of power Corporation and.
And we will get right into the presentation on our results for the fourth quarter.
We got a few pages upfront on disclaimers and on page four.
You've got.
Pictures of Greg and I in a former life.
Looking forward to being.
Being backend of suite at some point in the upcoming months.
I've got to move forward to page six on the presentation.
And the power Corp, a part of our communication of our group because it is a very important one how 'bout. You've also of course got reference to our public companies great West life I G. M of G. B L. All of them have their own recent material released in earnings calls and participations in conferences.
All of that material is available on the various websites that you see.
See you there kind of for your if you have specific questions on the operating companies.
Kind of flipped break for then to page seven.
We continued since our last call I think it was November 11th of 12 continued with a strong pace of of activity across the group. Some of that was closing transactions that we had previously announced.
There was also a fair bit of fund raising going on across the alternative asset platforms.
We also made progress on surfacing value on some of our stand alone businesses and Lee all being the obvious example, and we'll talk a bit about that in the presentation.
And also continue to receive recognition for of the.
Work that we continue to do across the group in terms of our corporate citizenship and I've got a fair number of recognitions of cross, which I'll talk about in the presentation as well.
So with that I'm going to pass it over to Greg to speak specifically to the results for the quarter Greg.
Thank you Jeff.
Hey, good quarter strong quarter, you can see the NAV at a $41 from 27 cents at the end of December up 18% are an additional 8% when we marked that on March 17.
Net earnings for the quarter at 92 cents adjusted net earnings at 90 393 compares to the prior year's 84 cents.
The difference of between net earnings and adjusted earnings largely due to the.
The write down of the DTA in 2019 of Putnam.
The board of directors.
Declared a dividend of a 44 point of seven five cents per share. So no I will turn you to the next page a little review of the net asset value left hand panel, which is in per share you.
You can see that the per share of <unk> 41, 27 at the end of the year, that's a $6 from 33 cents up 18% as I said earlier.
Contribute are contributing obviously all components contributing to this.
Strong increase in the in the NAV.
The publicly traded companies collectively representing $5 of that $6 33 increased.
The alternative investment platforms are also contributing.
<unk> 24 cents and.
The increase largely driven by power Pacific investment management, which continued its strong outperformance relative to the benchmark just give them of kudo are they are there are 10 year out performance record is something like 9% of over the MSCI index.
And then of course Leone, which had of November announcement, our merger with Norges, Northern Genesis and a debt valuation that we have at December.
<unk> 31 as of the $10 that the spark was launched at and in our in our number there is a <unk>.
Interest of $780 million with respect to Leo on the right hand side of the panel of ideas and billions of dollars and you can see that the publicly traded life COSE, representing about 80% of Bonnaz hasnt changed significantly from.
From the prior period.
Well simple as in the cigar holdings, a number and.
The entire group of other platforms, representing about a 9% nine 5% of the NAV and then of course, the Standalone businesses. We have a couple of slides later in the deck I won't go into any detail here, but you can see they represent about 4% and that kind of.
Rounds out of.
The.
The net.
Net asset value and with that I will take you to pcc's burnings per share as.
As I mentioned earlier 92, since our net earnings for the quarter.
The adjusted net earnings of <unk>, 90, <unk>, which was up sequentially from the 65 in Q3 of 'twenty and the 84 and 19 of as I previously mentioned just looking at the Q4 results no surprises.
That of the.
Yes.
Publicly traded companies have reported earlier this this quarter yeah. So looking at the first line below the publicly traded companies you can see the.
Our alternative asset management platforms contributing five cents.
A strong contributor there was coho, which is in the Portage funds.
The co who announced in December of close of a successful financing round our collective ownership in the group dropped below 50%. So given the current accounting conventions when that happens.
You have to re measure and at that point, we re measured to the that round of closings value and I think the cocoa was valued at $250 million and a gain on the.
The quarter as a group was about $71 million and a piece of <unk> direct investment was $30 million. So you can see that contributed to our earnings and the.
Alternative investment platforms line of of a.
Nicole there.
Of course, China AMC also contributing we have a slide later on to <unk>.
Yes it.
At that point in the deck and the Standalone businesses.
Leo.
Well, obviously contributing in the quarter.
And this is the earnings contribution we control the own so or have a control position and Leo so.
This.
<unk>, which was about <unk> and the seven is really the valuation of the call rights that we have with respect to legal.
That particular.
The transaction was announced in November and.
We also have dedicated a slide to Leon to discuss in some detail.
With that Mr Chairman or I should say.
On back of the board meetings still Jeff So.
I'll turn it back to you.
I won't tell Mr. Temporary that you've appointed me as chair of in his absence.
Right.
Thank you.
The next three slides most of you will have seen before so I'll go through them pretty quickly, but just on slide 11 to remind folks that we are focusing on financial services not diversification that's been our strategy since we closed the reorganization in February.
And each of the public operating companies are pursuing their own organic and air organic strategies, but the power of level itself, we're focusing our attention on two things really building our alternative asset management businesses.
As well as managing our standalone businesses in a manner to realize value. That's the leon's of the world, we're doing that in and of smart timely way not.
Honoring our commitments to our partners, but doing it so that we surface value to maximize value over time and.
But that is also a very big focus of our glad we made progress on that in the last quarter also of managing our cost carefully and our financial position continues to be something we manage it prudently. We do have a focus on returning capital to shareholders, but we do that.
All of our of our financial position.
And then at the bottom of the page communicate communicate communicate we are really on a on of terror across the group here to make sure that we're out in front of the market as we and honoring our commitments that we made to <unk>.
Be very transparent so that people understand what we're doing in there.
And what we're focused on page 12 is just another way, we think about it our value creation strategy is for.
Just on three key levers and the first to focus on the public companies and they are 80 per cent of the gross asset value of the business. So that's a key part of our value creation.
But we do have down of number three at power a lot of I would say low hanging fruit that we can debt. We can focus on and we can do a lot of simplification to surface additional value at power Corp, which is taking a lot of our attention as well.
Page 13, again I think.
Some of you will have seen this in different presentations, but it is as this is still of fourth quarter.
Earnings call, we can look back on 2020, and it started with a bang with the collapse of the duo of holding company structure up in February, but we followed that up with just a you know I would say of blizzard of activity across the M&A front through true a good part of the year and then a couple of transactions.
That we're financing rounds down in October and November.
In the case of well simple.
<unk> shown we had I think that was of three exon what the group had invested in and then lay out was significantly more than that so we did a couple of transactions at the end of the year financing net starting to surface the value of some of the investments we've been making over the last couple of years.
Okay. Let me move forward, then to talk a bit about the public companies and page 14.
Just kind of tries to do a high level as to what's going on at those companies and the first bullet point, there can capitalize on significant past investments to drive higher earnings and cash flow growth.
Those are really great west life, and IGN points G. B L. A is more of a net asset value our.
Company in terms of the devaluation than an earnings company, but for great West Lifeco on AGM, which of the bulk of the portfolio on the asset value that the focus there is that the management teams are both trying to capitalize on.
What the companies have invested in over the last four of five six years to strengthen their positions in the marketplace.
And turn that strength into and the momentum that they're starting to show.
Top line growth and market share gains into higher earnings for the shareholders and we've done a lot of investment and I've done a lot to improve our client experiences we've done a lot to invest in in our in our businesses and our technology at time to focus on creating shareholder returns here and the key to that is getting higher earnings and cash flow.
And being able to demonstrate that to the market on a sustainable basis. So we have to execute on that but that's that's core and then the second bullet.
I don't have to say too much about it because of pursuing M&A transactions to enhance earnings and strategic positioning we've been we've obviously on the page of showed previously had a lot of success in that augments, what we do under the first under the first bullet.
So with that I'm going to just move forward to page 15, and just they've got some highlights I'm not I'm not going to walk through all of these points for you, but there is strong momentum across each of the groups a couple of things on on great West.
They've continued momentum organically at empower in addition to what's going on with the acquisitions continued focus on digitalization of our digitizing. The platform you see in the third bullet point there.
Canada life in Canada continues to digitize and made some big moves in the quarter.
I G M.
Really tremendous momentum Mackenzie on fire best quarter.
In terms of net flows in the company's history we.
Well, we used to call investors group had its best net flows in over two decades, so significant momentum showing at AGM and continued <unk>.
Accessible.
And G B L.
He did successfully complete the reorganization transaction with that project set to collapse the holding company. The two holding companies into one and that was of that was finally.
Finally completed in the fourth quarter and along the bottom of the page for each of great West Lifeco and I G. M. N G. P. L U C.
Just some recognition of the whole.
Focus on what companies have been doing to be focusing not just on shareholders, but the broader stakeholders in their group their communities of clients.
And we all as every company and every public company knows.
This is not just about driving returns for shareholders.
B.
For bidding across all of your stakeholder groups or youre not going to be in business very long in the.
The world today, and we're just highlighting the fact that that was our big focus is that our group and we're getting some recognition for it.
Okay. Let me turn to page 16 of couple of highlights on specifically I'd like to drill down on page 16.
We've talked a lot about the mass mutual in personal capital acquisitions of just as a way to summarize what we've done. The first bullet point is is that we enhanced empowers clear number two position in the D. C market and we did so on what we expect will be of highly accretive basis to earnings and cash flow, but the personal capital acquisition also did a lot for.
The group first of all it added a high growth direct to consumer wealth business.
And in power already has a growing wealth business. So that's where individuals are dealing directly with empower.
First of all capital enhances that and it also provides tools that will.
Enhance the capability of empowers D C business.
So we think.
This is a market, where we have a lot of opportunity for growth and down to the bottom of the page you see a little bit of perspective on it.
Personal capital's business had been growing very quickly organically you see the assets on the platform for.
2016 to 2020, that's without acquisition they had been growing quickly with the market, but growing much faster than the market in terms of the quality of that platform and they were at 735 billion at the end of the year without mass mutual with mass mutual that jumped to 925.
And then you see on the bottom of the.
The direct to the wealth management platform of empower which is really win for.
<unk> are coming out of D. C programs, either they retired of there and of job change.
He has been focusing on having them come into and empower retail offering where there are no longer on their corporate employers plan and that business had been growing smartly.
From 6% to $16 billion.
Of assets and then when you added personal capital up to 33 billion because of personal capital had a direct to consumer has the direct to consumer business of about $16 billion. So we doubled the size of that so that's a little bit of a breakdown of what the businesses that are going on at empower and as I said that that those assets 925, plus 33 cross the trillion.
Dollar Mark on January 31.
A little bit true market, but largely true some some very big.
Employers coming onto plan at power on their D. C platform. So very excited about what we're building there and continue we'll continue to talk more about that in the months ahead.
Page 17.
Just a note on platinum we've been kind of quietly going along without talking or making a lot of fanfare about it but putting them over the last several years has really reduced its cost footprint.
And starting to get some revenue uplift over the last few quarters and that has translated into the best product.
The ability we've seen at Putnam I think since we've owned the franchise. This is material from the great West life disclosure, but it's looking at putting them on a putnam basis before you allocate financing charges or acquisition amortization is just a straight Putnam number of these are the numbers of Putnam Board for example.
Look at and it's.
Basically revenue minus costs are.
On the line in the in the graphs and you can see we've been running at a margin.
Of revenue pretax of about 12% in each of the two quarters Q2, Q3, and then Q4 was a big quarter above 20% that theres a little bit of a.
Non repetitive repeatability in that in that the market was up so there's some little bit outsized gains on seed capital and there were some performance fees that were realized in the fourth quarter, but basically running at about a 15% margin to revenue. When you look at it before you allocate financing of our capital charges to it.
And the numbers along the bottom.
These are U S dollars are the same numbers after tax.
And so you end up with we're starting to see some profit contribution here coming true for Putnam and I just before I leave the patient Putnam there also in the barron's.
Performance survey of all of the U S companies on a 10 year basis, I think day with a third of the 50 or 60 companies.
The best track Records, so they've really made the point many times.
Really been focusing on making sure. They have good investment performance and they are of great long term track record, which sets them up well we think for continued success.
18 is then a focus on <unk>.
Continued traction of Mackenzie I made the point earlier, but you see it expressed on the left hand side of the page in terms of au.
So with the organic growth that Mackenzie plus the acquisition of G. L. C plus the acquisition of Green Chip, which is a non U.
S cheap manager they've been working with Mckinsey that's now part of Mackenzie they've got a AUM of 187 at the end of the year and then another way of looking at Mackenzie success.
Success and traction is on the right hand side of the page that dotted line is the net flows into the retail investment funds, including.
Etfs as a percentage of the average assets and you can see that since about 2017 Mackenzie has been very positive and its flows up and down a little bit with the market tone.
But on a 12 month trailing basis now at five 5% of average assets at the bottom of that graph you having gray.
The estimate of the mutual fund net flows of.
The industry and that's taking the best information, we can get from all of the all of the mutual fund company disclosures, but.
We're gaining mckenzie of been gaining market share in a pretty significant basis Youre now for about three years, three three and a half years and that seems to be accelerating so we're really thrilled about what's going on at Mackenzie.
And of turn here to some of our other businesses and just a note on well simple it's been having a tremendous year in 2020.
Huge growth and its assets under administration of 94% growth over a year those borrowers down in the bottom right for every six months, they're not annual if you showed it annually of course, it's a lot steeper than that.
And then we did already talked about the third bullet point.
The leading investors in the U S back in October I put a value of the company at $1 4 billion free money, that's a big a big jump on are the groups position.
And business just continues to grow quickly and it's across all of platforms. They've got it's not just a kind.
Kind of started off as the invest business, but they've got a cash business that kind of trade business, they've got a tax business and so they're really broadening out the ways in which they can serve their clients. We're quite excited about what's going on at well simple.
Page 20, I think Greg went into a into the numbers as to what we've done at Liana I think we had $54 million invested in the business Canadian when we announced the transaction.
This has been you know obviously, it's extremely exciting and <unk>.
Very successful at this point you may have seen this week that also are they can't Quebec governments and we've got the the <unk>.
Prime Minister and the Premier to get of Quebec together announcing.
Their support for our expansion of the manufacturing facility in.
In Quebec here and so there's lots of ex.
And we're really pleased about how this is working out very optimistic for worthy of Ngos and the future.
Let's take the next two slides to talk about fund raising and growth in our alternative asset management platforms.
A lot of momentum that was highlighted on the earlier slide.
We've got at this point $5 $6 billion in AUM across some of our holdings in power sustainable debt is funded and another $2 9 billion in commitments and the bullet point of the third bullet point illustrates that of the five six of its funded 46% is from third parties.
The $2 9 billion, that's unfunded so that's a newer fund raising our.
People that have made commitments that havent. The money has been put to work at 80% of that is from third parties. So this is just making the point we are turning these businesses from being originally diversification vehicles for great West for the most current rate low excuse me of diversification vehicles for power Corp into.
Third party asset management businesses and on the bottom right hand side of the page you've got the the funding split between power and third parties cigar holdings at this point.
Is the majority funded by third parties and power sustainable.
Current capital is all power Corp, but they are moving quickly to a third party model having out of show that on the next page. If you flip forward to page 22 actually I'll just start at the bottom of the page ticks continue along the power of sustainable did announce the launch of a 1 billion dollar sort.
A stable energy infrastructure partnership it's not funded yet it's.
It's not closed, but we are having third party capital coming in from day Chardonnay National Bank and other third party investor in Great West has got some money in there as well and on the power of Pacific platform, which Greg talked about that's our team in Shanghai, but managing money since 2005 amazing long term track record they've got $100 million of third.
Part of capital that has been committed to go onto that platform. So good progress by power standard low capital on its fundraising up at the top of the page continued success of cigar holding on its fundraising and you've got some of the highlights of some of the recent announcements on on funding some of those like cigar credit and cigar health care.
These are not new.
Credit fund two of our healthcare royalty partners, but the amounts of been increase so we had previously announced for example, I think of the credit partners of $450 million funding, it's up to $6 50. So.
Continued strong momentum at the platform sort of very pleased about the progress.
Page 23.
Greg mentioned, what's going on at <unk>, China a.
A M C and it continues to do really.
Well it is.
We think the leading asset manager in China, certainly if you look at long term funds. It is a leading.
Asset manager in China, and it continues to grow its assets of continues to grow and sales of continues to grow and its profitability.
So I'll leave it at that but that's a and again remind those who are not aware of we have 13, 8% of $13 nine I can't recall at power Corp, Canada, we have an equivalent sized share down at IGN.
Page 24 of our Standalone businesses I won't.
To spend much time on this page we've talked a lot about Lee all but we do have.
Three other businesses. There that are we think strong businesses that were also focused on.
Creating servicing value and that ultimately realizing value for them for the benefit of power Corp shareholders.
Page 25 continued progress on our expense reductions and we think were <unk> 61 per cent of the way there in terms of the $50 million target that we've announced so continue to focus on that.
A lot of attention on building the businesses and on growing the top lines and values, but we're also for.
Following a very disciplined approach to our to our cost at power Corp, and we will continue to drive and hopefully make good progress on that in the quarters to come.
Page 26 is just a reminder of our of our commitment to communicate.
And you've got a number of the progress.
Progress points at power Corp, great Western AGM have made over the past 12 months, you've got power Corp. Not debt IR is just a function of how many people you talk to but it is one tangible measure and a proof point of the of the energy we're putting it into it into it we had 93 meetings with institutional investors or analysts.
2020.
As of last week, we were at 41 year to date already those again institutional meetings or when I want analysts calls it but they're actually.
They're not even analysts calls I should say, that's where the analysts and investors.
We're not talking about like a one on one call. It an analyst user actually meeting with investors and analysts so lot continue to be very active on that front.
And continue to enhance the disclosure.
Youre seeing some of it in our in power Corp.
Our results this quarter, you're also seeing it at our at Great West life and at IGN.
Just a couple of weeks ago came out and had a call where they announced that their new segmentation results to bring all the way down of the net earnings line. It had been at the at the EBIT decline previously and so we're continuing to put a lot of energy into how we communicate.
Page 27 is a look at our net asset value discount.
We had been and what you are looking at here I should say is the discount of power Corp, looking right through the power of financial discount and counting both of them. So some people had looked at power Corp, 's discount before the reorganization on the taking power Corp. At its trading value. This is taking power power financial excuse me. This is taking power.
Financial on a look through basis for power Corp, all of the way down to great West life AGM for.
For Jason at the time and then the power Corp assets. What you see is that the discount had really traveled in the range of that average pretty steadily in the period of 2015 are a true to the end of 18 at about 34% you can see it bouncing around but it was pretty well around the mid thirties, we announced in January of 2000 and <unk>.
<unk>, the great West life with selling ex U S life insurance business and at that time, we also announced they would be considering taking the proceeds in buying shares back to mitigate the dilution. We followed that up I think about five weeks later with the announcement of the three level of buyback and then continued to communicate we started our IR efforts pretty heavily.
Through the last half of.
19, when we announced the reorganization of continued to narrow the discount we had a bit of a blip as we went into the pandemic a holding.
Holding companies around the world have their discounts widen out, but we have been continuing through 2020 with all of the transactions we've announced.
To grind away at the discount and we got it down right now it's about 26% we don't control of it of course, but we can influence it and we're continuing we think of we continue to execute on our strategy. We're optimistic that there's a reason that we can continue to have that discount shrink we've had it much lower than the 26%. If you go back historically and so we think we can.
Here to Whittle away at that is of value driver and with that I will I will.
Go to page 28.
Eight and kind of try and summarize here of what our value creation strategy is.
We are first and foremost of the first two bullets as I said 80 per cent of the value of the businesses are in our public operating businesses, So getting higher earnings growth at the operating businesses organically and adding to that through M&A.
Is job number one.
We get higher earnings growth will have higher earnings and if we might even get a multiple revision relative to our peer group if we execute on that.
So that would be of big a big driver of the net asset value and then secondly, we've got a holding company.
Leavers that we're using and number three and were creating an surfacing value as we've demonstrated in this presentation communicating and with some.
Good execution of potential to lower the discount all of those leavers add up to a pretty exciting value creation story and we're working on all of them and I'm quite excited about it.
And then I'm going to before I finish I just want to come back to a point I made a few times during the presentation, but.
Just a couple of other recognitions we've had recently.
The climate disclosure project recognized power of corporate and Great West life as the two of the three Canadian companies that received the top score of eight Theres only three companies across the country of the contact we had two of them, which is which is great.
Jim also scored very well on that score and then corporate Knights rocket recently recognized both power Corp, and AGM is one of the top 50 corporate citizens in Canada and I G. M itself was ranked 29th overall globally amongst all companies and once the top ranked number one ranked financial services our investment services.
Globally in top ranked financial services company in North America. So you know.
This is this has been a focus of the group for decades.
Last few years, we started to communicate what we're doing in a much clearer way and we will continue to put focus on that obviously with all of this going on at ESG and ESG across everybody's businesses. This is a key part of our focus as well and we're starting to talk about it a little bit more and with that operator, I'm going to end my remarks and <unk>.
You can open up the meeting to questions from those who would like to ask questions.
Thank you, Sir ladies and gentlemen will now begin the question and answer session. If you wish to ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to come soon you'll be cash placed first of husky.
Once again please.
One if you wish to ask a question.
And your first question comes from the line.
Nick Priebe of CIBC capital market. Please go ahead your line is open.
Okay. Thanks.
Starting on the investment management platform.
You've achieved good progress on external fund raising.
As you strive towards an improvement in the scale and profitability of that business is M&A lever that you would consider to accelerate the strategy on that front or is the is the build out of that platform is something that you might prefer to do organically just some thoughts around that would be helpful. Yes.
Thanks, Nick Good morning, I think the answer to that question is organic is really where we're focused.
I wouldn't want to exclude M&A. It's it is possible that we could add some capabilities there.
So, it's but I think the main energies are.
Our on organic these are people businesses right. So people have gone and where their culture businesses of investment management businesses.
What you could see potentially.
Is if there's a capability that is not within the platform that we could add.
That I think would be something that would be feasible, but.
Buying.
Somebody who has the same capabilities and merging them together.
Maybe but that's certainly not the focus.
Primarily organic but I don't want to shut the door there on whether we could do anything outside.
I'd just add Jeff that.
Speaking of capabilities and where they might help.
To help leverage the.
The proposition of the consumer proposition to our clients.
Clients of the various platforms the grayhawk because probably the best example, which is the capability that the cigar holdings platform.
Acquired in the fall of <unk>.
<unk> 'twenty or 19th sometime and they've been with us for Oh about a year and and bringing our capabilities from the.
Individual wealth management.
Component of the business.
Yes.
Great point, Thank you, Greg because I was answering Nick's question from an investment management point of view and very hock.
It comes at it from a.
Adds distribution.
And of high net worth for the products as of kind of the primary benefit there. So thank you for having us.
Net other questions.
That's helpful. Yeah just.
One other for me I mean, you've called out the strong growth of China AMC has experienced since acquisition.
Our recognized its a small component of your NAV, but when I look at 2020 alone I think AUM was up more than 40%.
But when I look at the fair market value of your investment I think it's only increased in the single digits over the same timeframe can you just remind us how the fair market value of that investment is determined in your NAV calculation and whether there's any <unk>.
I suppose that could trigger a revaluation there yeah.
Yeah, I'm going to pass this to Greg, but its private company of course, so it's not like we have immediate market recognition on the stock market, but so Greg why don't I throw that one to you.
Sure Nick our practice has been to Mark that when there is a a catalyst story and event driven opportunity to remark the physician the last time it was.
Mark was when we traded Oh, I should say purchased of the 10%.
Component and.
When our IGN Maguire their interest are and we participated in it as well and it was.
Back in 2000.
16 boys of isn't that long. So so the mark is is rather dated and as you know we have a.
Our partner, who is Citic securities.
Organization in China and.
They were of publicly traded company as well and so our practice there is to recognize when when we both think the opportunity and the event presents to re market. So it's carried at that old Mark for the for the time being.
Got it Okay. That's helpful. That's it for me thank you.
Okay. Thanks, Nick.
Thank you and your next question comes from the line of Doug Young of day should have debt capital markets. Please go ahead. Your line is open.
Hi, Good morning, Jeff just going back to the low hanging fruit of power to surface value and one of other things you suggested was returning capital to shareholders.
Sitting on $1 2 billion of cash and cash equivalents I think you're still planning on purchasing $350 million of preferred for preferred shares correct.
If I'm wrong and.
And so I'm just trying to gauge how much of cash you want to retain on the balance sheet thoughts on buybacks and I know your biggest ownership is great western great West has a moratorium on dividend increases and buybacks.
How does that factor into your thinking when you approach buybacks. This is something I get questioned a lot on so I'm just curious your thoughts.
Yeah, Greg Good question, Doug. Thank you I'll I'll take care of.
Trip at the ball and then Greg you jump in and add any thoughts you might have.
So you're quite right, we have talked about returning capital to shareholders that the low hanging fruit I I talked about was in fact surfacing value within the various standalone businesses doing a better job of explaining.
<unk> yeah. So what we're left with is the alternative asset management business is doing a better job of explaining the value creation there.
And as well.
Surfacing NAV and then and then having the opportunity to buy shares back potentially at a discount to NAV and that creates even more value. So all of that is a kind of a when it comes together adds nicely to what we're doing at the operating businesses.
Specifically your question, we had talked about doing share buybacks.
And we basically under COVID-19 have really stopped those buybacks with the exception of nullifying potential.
Potential option dilution from options. So we've had a little bit of activity. So we've been pretty conservative through the Covid period.
And at some point here, we will moving.
Moving to a new mode, where we're where we're more open with our with our buybacks and we're looking forward to that is as we move forward I do want to point out on the buyback front, though that we have always.
Supported our operating businesses, if they haven't of some.
Some sort of an opportunity to make an acquisition and probably need them. Using your question to just highlight that so and I've said it and I think every investor presentation that we've been in in the last.
Several months at least that if we get an opportunity at great West life for AGM of some great acquisition, we will prioritize building out those businesses for attractive acquisitions, they might make but absent that because those are kind of episodic if I can put it when they actually have a deal and they need capital our plan is to reduce our cash and.
And buy shares back we have not changed our view on buying back I think of a $350 million of Prefs.
We haven't we haven't done anything on that under the current environment.
And as for the final part of your question.
The amount of cash that we would like to hold I think we have kind of a guideline that two times, our operating expenses and financing charges would be kind of a minimum we'd sit on and maybe Greg I'll pass it to you on that and you can you can complete the answer to the extent.
You want to add anything.
Sure.
That would be about $750 million to give you the.
Ballpark of Doug in terms of the two times and that's what we generally target.
Hum.
It's not a firm number of when opportunity to present, so I think Oh, we could go lower but that is generally speaking.
Speaking, where we target and we have traveled above that for some time you observed on that earlier so.
The only other thing I'd say is just.
The line of sight, if you will on our.
Two of balancing equations that Jeff.
<unk> mentioned a R.
Important when it puts it comes back to getting the share buyback program.
In a more active and that is basically a line of sight on surfacing value from some of the opportunities we talked about.
But not only that when we have.
Opportunities that present in the M&A.
The spear.
We'll balance those two guide us in terms of how much we would and how aggressive we would be in buying back.
Doug I, just want to point out that while we have surface value for our standalone businesses, we havent monetize anything at this point so.
The layout of transaction is great in terms of showing the underlying value we have there, but its not we havent monetize anything hasnt done anything to our cash.
Couple of you've done a done a spec in us.
But it's not we haven't sold any shares of course.
And it takes me to my next question just on the Standalone businesses and we look at what you have in your NAV is there any way that you and you've given you know the amount that's related to Leon.
But there's still substantially more of that's in that kind of bucket and maybe I've missed it somewhere but is there any way you can break down of value that you would attribute to some of these larger items non standalone businesses that's in the NAV.
So Greg I'm going to throw that to you I think the question is can you break down the number between the Standalone businesses since the end of the individual parts I'm going to share that.
Yeah, I think Uh huh.
Ill.
I'll take that question of way for for you Doug go we haven't actually broken those down in the past, but GP.
GP strategies as a publicly traded company. So I think you can figure that went out of them.
So the other two would represent the of the.
The amount that are as the remainder so.
Okay.
I will leave it just last.
Yeah, that's fine and I can always come back, but Theyre just last quick one just just trying to get a sense of the expense side. You know you show 20 million corporate expenses I know that's after tax.
And so let's call it 30 million free tax I'm, just trying to triangulate that back to what you show in slide 25% to 35% to 45 minutes, even if its easier to just chat on this offline I'm happy to do that as well so thanks.
I'm not sure where you were growing there we have we have 50 million of cost savings pretax on page 25.
We've got 30 of that.
Reduced and we have 20 million to go those are pre tax.
Cost of power Corporation.
Yes, it's just yes.
Yeah go ahead, yeah, no I was just kind of saying the financials to get to adjusted of just shows corporate expenses of 20, I'm sure, there's something else that I'm, where else and I know that's after tax.
And again, sorry, if I can.
I can follow up if it's easier to go through it off line, that's fine as well so I'm sure of.
We can follow it up offline duct, but one of the things Theres a couple of one timers in the AR in the quarter. So that may be Oh, what its accounting for the difference when you're looking at it I'm.
I'm, having trouble looking and finding it on my slides right now, but that's probably what the differences.
Thanks.
Alright, Thanks, Doug.
Thank you and your next question comes from the line of Geoffrey Kwan of RBC Capital markets. Please go ahead. Your line is open.
Hi, good morning.
Hey, Jeff maybe asking it maybe slightly differently in terms of some of the servicing value stuff that you've done obviously, a number of things over the past couple of years on simplifying structure of servicing value of that sort of thing.
But based on tight guess, how you think about what additional opportunities you could undertake to to further simplify the structure of surface value of assuming.
No acquisition is involved in that like if we were to use the baseball analogy.
What inning do you think you are right now in terms of this whole process of.
Simplifying the structure of servicing value.
That's a good.
Question every time you think you are in the third inning. Three years later, you're still are you got lots of earnings ahead of you it never ends.
Maybe I'll flip answer but.
Let's start with power itself I think.
The.
The right place to be at power is where we have a business which is <unk>.
Simple.
It's financial services I E. It's alternative asset management.
We're making money on our capital we're already doing that and we're making good money on the invested capital, we're making money as asset managers and we're probably.
Depending on where you go.
And what platform. It is kind of one two to three.
Three for years.
It depends on the fund raising of really getting more scale there but.
So three three years from now for years from now we've we've got a clean power Corp. Its Scott.
Seed capital and it has got investment management fees and carry and is making money as an asset manager and we're doing a good job of explaining all of that and we have good disclosure of that people understand what we're making on the seed capital and what we're making as an asset manager. That's a simple business model of power and that's where we're aiming to get to.
If you then ask what are the opportunities across the broader group to simplify things that exist.
There's other opportunities out there.
And we get asked the question a lot and other things we talked about we have China asset management in two places we have asset management businesses across the platform.
Are there things that we can do to put those in a more logical structure and those are things that.
I don't want to get ahead of ourselves and start speculating when and if they those could happen, but we talk a lot about those so.
For a little bit, but there's still lots of lots of opportunities within the operating businesses, where we may be able to create.
More dynamic companies stronger companies and companies, where the market would give greater recognition for the businesses they're in.
So I don't know whether that what inning that puts us and but there's still lots of opportunities I guess as a way of.
I'd conclude on your question Jeff.
I was I was just Jeff.
Directly.
I was getting all anxious because I thought he was.
Kwan was going to be asking you about the baseball analogy and I was going to say that yeah. We have <unk> on the sale of Rawlings in the quarter. So that's where I thought you were getting true.
[laughter].
My other question was just.
Kind of at the corporate level debt in.
In 2020 had tax recoveries of I think it was 52 million of as I think it was $43 million of 2019.
Can you talk about I guess, how we should kind of think about how that tax line might play out in 2021.
I know who's answering this question.
Yeah, you know.
That's highly dependent upon.
Yeah.
The amount of gains that we will recognize going through the through the year and if you look at our our financials, you'll see that we still have a for a number of tax losses carried forward that we can apply on an ongoing basis.
So that will be the determinant in terms of how much we will realize going forward.
I guess, maybe asking another way then would be if.
If we had if there were no gains that you're booking.
Would that mean, the number of would be like of.
Normal kind of assumption on on taxes or.
Just wanted to understand the mix as to what's driving the tax recoveries, obviously, you mentioned gains but just.
I'm trying to understand if we make certain assumptions around how 2021 goes what that might mean for the tax line.
Yeah. So you have to you have to look at our tax line and returned between what's a payable and what the.
Cash taxes are Jeff and so.
The accrual accounting is basically the topic I was talking to on a cash basis. So we are not paying taxes at this point in time on our are one of our earnings quite frankly, because we're applying our previous tax losses too.
Our income so at.
At the holding company right now we're not paying tax.
Does that help you with your understanding.
Yes, it does thanks.
Okay. Thanks, Jeff.
Thank you and your next question comes from the line of Tom Mackinnon with BMO Capital. Please go ahead. Your line is open.
Yeah. Thanks for taking my questions good morning, Jeff and Greg.
Question, just taking on the simplification that Jeff was discussing just taking out of a little bit further.
<unk>, 4%, it's great West Great West Zone, three 9% of I G M.
You do have you know China AMC in two places well simple into places like how should we think of any kind of clean up associated with that and.
What it seems.
Some of these things are core and some of that.
Some of these things are non core and how should we be thinking about.
How does that get simplified do you you just did this whole reorganization to avoid having to place.
Like you shouldn't be entire any of the play be at the top and then peer play down below I'm just curious as to what you think is there.
So a good question and I'll start by saying all of that is where it where it fits for historical <unk>.
That made sense at the time.
So if I go to well simple when we first started well simple it was part of a fintech player and we were running it out of primarily up at the power financial level at the time and as we started to build out while simple. We realize this is something actually that could be a very.
It's not just of Fintech play this could be of part of the franchise long term.
And I G. M. Maybe is the best place to start to build that out and they started so the power of it was it was funded at the top of the initial rounds in the next round of went into NII G. M. So you end up with it in two places and I agree that's not simple, but it was also.
It's also it was also quite a quite of venture capital bad at the time right and so it is where it is right now.
It's a more complicated story on the true the cross-ownership between great Western AGM of those go back to many many many years ago. When some large transactions were being funded in the group was trying to encourage cooperation across com.
Common buying and common systems and anybody that was those were there and we are aware of that that's something that we also talk about average.
From time to time, you know the story in China asset management, we would've put it an IGN at the first time that we've got an opportunity to buy of block and we were not.
Eligible at that time in 2011, I think it was one of the first block came.
We either bought it at power or we didn't buy it at all when the subsequent blocks came available I G. M have been qualified to be of buyer and we.
Gotta AGM involved so theres a theres a history, that's not a direct answer to your question, Tom, but that's just a little bit of the history. So.
So we do still have opportunities to look at all of those things.
They are all opportunities for us to too.
To look at to simplify and put things in a more logical place and assemble assets, where they are in one spot and they get and they are in the correct Scott.
You asked whether I think part of your question as well was whether these are long term holds or not and I and I think you.
We've invested a lot of money in China asset management in the last.
Several years, we think that's of great place.
To be.
A great market to be positioned we ever for a unique position in the a and the Chinese asset management business I don't think there's any other non.
For non Chinese party, that's got as much of.
Our long term assets when you look at our 28% collective group of.
I don't know that there's anybody who's got more of it of the.
Chinese asset management that our group. So that's a great asset well simple has got lots of momentum, but I don't want to say debt and we havent identified while simple is a business that as a standalone I mean.
Financial services.
But we'll make we're gonna make obviously not going to paint ourselves into a corner as to what we do with respect to any of those assets.
In terms of.
How we realize how we how we.
Turn those into value creation for the company I don't know if I answered. Your question I think what I said was that there are all of them. They are in different places for historical reasons, they're all opportunities to simplify.
But I'm not going to speculate on how when I won't go that far.
And is the thinking to have I mean before you had.
Standard underneath power core and that was like in any of the under of Navy.
It's part of the simplification that peer debt.
We don't need to have an NAV story underneath of NAV story.
Yeah that was yeah, sorry to jump in and that was part of your question I missed.
When that happens, it's because there isn't it.
And industrial logic, if I can call it to put it there so.
Let's say IGF, it's got China asset management, which although with an earnings driver, it's such a high growth earnings company that is.
If I G M of should be a multiple of ex it should probably be at two ex rate. So you start to say Hey, you can't you can't just have this be capitalized at IGN was multiple you try and call it out and say, there's a lot more value here than just you know 11 times or 12 times or whatever I G. M is trading at because of its growth.
All of other opportunities for example, when I G. M has invested in while simple or when they had an investment in personal capital they they're not making those investments as of V. C. Because they want to make money as a venture capitalist each of those investments at I G. M were done because of those companies could have potentially and may still in the case of all simple.
Of the part of their long term business model, but but you're at very high risk.
Stages of their company's buildup, so you're not funding it all alone you've got you've got partners coming in those partners that provide capital, but also in many cases expertise.
To build of businesses, but they're down at IGN, not because I G M wants to become of NAV play.
They are making those investments.
Cuz, they could be very important parts of their long term business franchise at power Corp.
That isn't we're prepared to do any of the businesses. We are doing any of your businesses. As is the case of GBM. So I hope that clarifies, where we don't have a strategy at AGM of great West life to go out and put a whole bunch of of any of the businesses in place, but you do things, sometimes you got to buy stuff, that's not earning money because youre looking five years out and youre, saying this could be an important part of.
The franchise actually I'm going to go on it and say personal capital for great West and a power as part of that they didn't buy it because because they want to become a NAV play they bought it because they think it's going to drive earnings it might be three for five years out that it's really going to drive earnings but that they acquired it for that reason not.
Because they wanted to turn themselves into with any of you play.
My my Apple going up the correct.
Yeah, Yeah, I think the distinction of was.
Part of the long term.
Business franchise it exactly.
Justify that debt long term and there is.
And then you swallow hard Tom then you swallow hard when Youre looking at your AGM of Great West Life, and you feel you have to buy something that's not earning anything because it's it could potentially really drive your business three or four of five years out you swallow hard because you know you may not get any value recognition for it and you do your best to try and point out to the market Hey, there's value here, which is what I G. M is doing in their new segments.
And trying to draw attention to that.
Right.
And just a final quick one.
On my own.
It says on the slide here 34, 6% ownership is that fully diluted and what would that be yesterday.
The acquisition closed today, what would that ownership.
Greg I'm going to I think I can answer it but I gotta go to ensure that the Greg.
And that is the fully diluted number Oh Tom.
And that's assuming they get the close of the day, because I think it was based on a subscription or you know based on wherever.
That would be based upon the of the value of the $10.
Dollars are an announcement.
That's all right.
That's not gonna change day.
Well it it could change depend on where the prices right like it's.
It will be the determinant of how much of the dilution will be so.
And I can't I can't give it to you I can't give it to you whether on the 19 of weight that we're what what it's trading at today right now I don't have that at my fingertips.
Okay.
You're basically saying it's of dilution gain for accounting non mark to market gain through the book says that what Youre, saying Greg.
No I think there isn't going down.
Yeah, I think he was.
Yeah, we're very glad part of it the fully diluted ownership that we wanted to track the price of this thing what would be the you know.
Okay.
The 34 six was when it was 10 bucks, but its not 10 Bucks so is it.
You know its more of like 20 and would that would that still be 34 six.
Yeah, So Tom I don't have that number handy right now I haven't calculated it.
It would affect the of the fully diluted number of soil all of it.
I'll endeavor to get that back to you.
That's great. Thanks, so much.
Thanks, Tom.
Thank you and your next question comes from the line of flashy Benji of TD Securities. Please go ahead. Your line is open.
Hi, Thank you good morning.
If I could just jump to your investment platforms for my first question, So specifically under the guards building.
So the management fees and then like they've been increasing nicely with the increase of new fund any of U N.
But if I were to compare that against the investments iPhone expenses.
I guess, what level of food quality and would you need to reach to make that line item consistently profitable.
Again, I'm going to take a I don't have the numbers in front of me, but cigar holdings itself.
From its fee revenue.
And Carrie I don't think is too far away from being.
At a point, where it is breaking even maybe but I don't have the exact number but that includes C revenue that it would earn from the fees that power Corp has invested in its own seed capital. So with power Corp. As a limited partner when we put seed capital and just like any other third party <unk>.
Mr.
And if you think about that power Corp. If we were investing seed capital for <unk>.
Where we would be paying those those fees as well so.
On its total fee base of cigar.
Holdings is I would say a year or two out of its breakeven point.
Power sustainable is probably got another couple of years to go there in terms of its fundraising depending on.
The pace of that fundraising that's the way I'll answer the question Big picture and I'd invite Greg if you wanted to add any of any further detail to the answers for the question.
Yeah, I think there is of a very good illustration of where the of.
The profitability of the platforms is currently.
You go to I think a page 48 of the M DNA.
You'll find it and you can reference it and if you have any further questions. You can you can give us a call.
Okay sounds good and just you said one of them to power sustainable capital So.
The $1 billion infrastructure fund would you be able to share the amount of third party targeting.
Targeting over there.
We haven't disclosed that yet, but I think we will be shortly but I don't think we've disclosed that at this point. So I don't think we're in a position to say that but there will be hopefully further announcements here as we move forward in the short term.
Okay. That's fair for the best we can do right now yep. Thanks.
Yes.
Just go ahead, sorry, I Didnt mean to Yeah go ahead. Please.
That answers my question.
Okay I was just going to my last question. So.
And the whole simplification.
Asian process.
I had a question on <unk> and I mean, we ask this because of your focus towards financial services companies. So I'm just wondering how you see GB of fitting into the strategy and.
I appreciate that you've already collapsed part of visa.
And it is one holding company over there, but moving forward do you have any plans or are you thinking about doing anything of GPU.
Yeah. So that's a very good question of when we get a lot and I think when you look at G. B L.
You could you could certainly make the case, it's no out of financial services company at this point its maybe <unk>.
Some version of a closed end fund with an with an active.
It's of closed end investment manager with a very different business model with it with a an influence model in Europe, where it buys large positions for some of that goes on the board's adds value.
So you could you can debate, whether that's financial services or not I think what it is is very unique and let me start with that and so are we at.
<unk> changed the strategy that we announced a year ago, we certainly have gone from kind of diversification to just focusing down on financial services. JBL itself is is a seven 8% of the total value, but it's whether or not is can I ask for services. It it's actually a great asset we have.
We don't have any plans to be.
Not being part of G. B L going for it it's something that was built up.
Starting with Paul.
Paul numerous senior in 1980.
It was actually financial services back then.
Got it.
Really the largest I think it's the largest holding company in Europe of deal flow through of the relationships that are that we in the fare family and the whole group that are in GB L have built up over decades.
Made a lot of money for the group in the past can go through periods when European economy, or the global economy, I should say because of the lawsuits are global businesses.
We are not not doing well, it's gone through some periods like that but over time, it's created a lot of value for a for power Corp.
Shareholders. So we don't have any plans to change it.
Or two orchard dispose of it.
But I would I would agree that it is probably not a pure financial services company at this point for you gotta be.
You got to be we are focused on creating value and we think it's a source of additional value I think that's the best way I would put it.
Yes that makes sense.
Those were all of my questions and thank you for your time.
Perfect. Thank you.
Thank you once again it is star one if you wish to ask a question.
And they all know set of questions coming from at this time gentlemen, please continue.
Okay, well, then I would not much more I was just wrap it up and thank everybody for your attendance here and we'll be back actually pretty soon because I think Q1 is just around the corner and so wish everybody a good day and we'll talk to everybody. Soon thank you very much.
Thank you, ladies and gentlemen that does conclude your conference call for today. Thank you for participating and you may now disconnect.
Uh huh.
[music].