富蘭克林資源 (BEN) 2009 Q3 法說會逐字稿

Welcome to Franklin resources earnings commentary for the quarter ended June 30, 2009.

Please note that the financial results to be presented in this commentary are preliminary.

Statements made in this commentary regarding Franklin Resources, inc.

which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements.

These and other risks and uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission including in the risk factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

This commentary was prerecorded.

Hello and welcome to the third quarter earnings commentary.

I'm Greg Johnson, CEO, along with Ken Lewis, our CFO.

There were many highlights during the quarter, non more important than the continued relative strength in investment performance for all of our groups and the turnaround flows to positive in just about every category for us.

Equity relative investment performance continues to improve across all time periods, especially at Templeton where at least 85% of the assets are in the top half of the Lipper peer group over all time periods.

Mutual Series relative performance remains outstanding and Franklin is also improving as performance of the Franklin Income Fund has bounced back.

Long term net new flows rebounded to $6.6 billion and were positive in all investment objectives with the biggest improvement in flows coming from our Global Equity and Global Fixed Income products.

Beginning in May, we have seen increased retail activity including movement towards high yield and equity funds as markets improved.

We're also beginning to see a resumption of institutional activity, and we believe we are well positioned with strong relative performance to capitalize on a shift back towards equity investments.

Operating income increased 46% from the last quarter as revenue recovered and we remain disciplined on cost management with an operating margin over 30%.

Non operating income was also positive this quarter as unrealized losses declined materially and were more than offset by gains.

Taking a look at assets under management, on page six in the presentation, you can see that assets under the quarter at $451 billion which was an increase of 15% from the prior quarter.

Simply monthly average AUM increased almost 8% to $428 billion.

Looking at ending assets under management by assessment objective, we saw a shift towards equity products that now comprise 46.5% of AUM compared with 44% at the end of last quarter.

Hybrid was slightly lower at 19%, while fixed income was around 33% and cash management less than 2%.

Looking at flows on number nine, you can see that market appreciation continues to have the largest impact on AUM as it contributed almost $55 billion during the last quarter.

Long term sales increased by more than 40% from the prior quarter as sales to our Global Equity and Global Fixed Income products, in particular, picked up in the quarter.

Long term redemptions decreased by almost 10% in the prior quarter due mostly to decreased redemptions from domestic equity and hybrid products.

The long term net new flow number was $6.6 billion compared to $5.1 billion in outflows in the prior quarter.

Looking at the flows by sales region in the United States long term sales increased 35% to $18 billion, redemptions decreased by 21% to $12.7 billion from the prior quarter.

Our best selling fund was the Templeton Global Bond Fund with net new flows of over $2.3 billion in the US, which is an increase of about $2 billion from the prior quarter.

There's also an active quarter in the variable annuity market with many insurance companies making annual changes to their investment portfolios.

We continue to have very strong relationships with many top tier firms and drew approximately $500 million of net flows during the quarter.

We did have a couple of large outflows in this area that totaled $600 million.

Both Global Equity mandates that took their management in-house.

On the international side, long term sales increase 53% to $9.8 billion and redemptions increased 11% to $9.7 billion from the prior quarter.

The increase in international sales was largely due to increased sales of our Luxembourg registered CCAP products which were up about 53%, and long term net flows into these funds was almost $1.5 billion.

Included in the CCAP flows was $400 million from Chilean pension funds into our Asian growth, Latin America and India funds.

Following the opening of our Malaysia office last quarter, we received $280 million in global equity mandates from the Malaysian government.

Increased redemptions were primarily due to two lumpy institutional redemptions, $500 million from emerging markets debt separate account and $600 million in the mutual European fund.

Looking at net new flows by investment objective on the equity side, sales increased by 48%, redemptions decreased 12%, net new flows were $600 million split evenly between global and domestic equity compared to net new outflows of $5.5 billion in the prior quarter.

Global Equity rebounded with net new fellows of $300 million versus $3.2 billion in outflows in the prior quarter.

Domestic equity flows also rebounded from last quarter with net new flows of $300 million versus outflows of $2.3 billion in the prior quarter.

In hybrid in that area, the products had net new new flows of $300 million due primarily to decreased redemptions as the Franklin Income Fund, which is our largest fund with $41 billion in assets, had inflows of $600 million after being in outflows in the prior three quarters.

Offsetting inflows was a $500 million institutional redemption from a client that switched to a passive strategy.

Within the fixed income area, net new flows also rebounded nicely to $5.7 billion versus $1.2 billion in the prior quarter, and again global fixed income was the biggest contributor with total net flows of $2.9 billion compared to net outflows of $1.1 billion in the prior quarter.

Tax free and domestic fixed income products also produced positive net flows for the quarter and our cash management had net outflows of $600 million.

Turning to investment performance, we're pleased to see positive trends, especially around the equity funds.

Overall, 61% of our funds for the one year period, 84% for the three, 89% for the five, and 95% for the 10 year were in the top two Lipper categories.

Long term investment performance continues to improve, especially with the equity performance of Franklin income and Templeton growth funds, that now together comprise approximately 23% of assets.

Both moved back to the top half of the Lipper peer group for the three year period.

Their impact can be seen by the increase in the Franklin Templeton equity chart to the right for those two funds comprised approximately 42% of assets.

The one year period continues to fluctuate, especially the bond funds with respect to what interest rates are doing in the short run.

And keep in mind that we tend to focus on the three, five, and ten year performance numbers.

Looking at the taxable fixed income chart, the percentage of assets in the top two quartiles decreased in the one and three year periods due to the Franklin US government fund that represents 28% of the assets in this category and saw its relative performance slip into the top of the third quartile.

And the decrease in the tax-free income fund was from the slight decrease in relative performance of our CAL tax-free fund that was ranked in the 51st percentile.

Turning to the performance by groups, you can see that Templeton Equity's relative performance was improved across all periods with at least 85% of the assets in the top two quartiles for every period measured.

The biggest increase was in the three year time frame where the Templeton growth, Templeton foreign which comprised approximately 63% of assets in this category, both moved back to the top half of the Lipper peer group, and Templeton foreign also improved over the five year period.

Mutual series relative performance continues to remain outstanding across all time periods with 99% of its assets in the top half of the Lipper peer group.

Franklin Equity's performance also improved as we saw the income fund bounce back.

The income fund represents 53% of the assets in this category.

And its three year ranking bumped back up to the top two quartiles.

Taking a look at the international performance as of June 30th, 60% in the one year, 52% in the three, 82% in the five year, and 63% in the ten year of the CCaP products were ranked in the top half of the Morningstar peer group.

And now I'd like to turn it over to Ken for the operating results.

Thanks, Greg, as Greg highlighted this quarter showed improving trends in performance, flows, and cost management.

And those improvements are reflected in our financial results for the quarter.

Operating income, which is on slide 16, increased 46% during the quarter to $326 million as revenues rebounded and we remained disciplined on cost management.

Net income was $298 million, more than double the prior quarter as non-operating income turned positive.

And earnings per share were $1.29.

Operating revenues were up 18% over the prior quarter, invest management fees increased 13% from last quarter, primarily due to the increase in average assets under management, one additional day in the quarter and a mix improvement in the assets under management.

The effective fee rate for the quarter was 58.2 basis points.

That excludes $4 million of performance fees we had in the quarter and that's an increase of last year's fee rate of 56.6 basis points.

Underwriting and distribution fees Increased 20% consistent with the increase in commissionable growth sales, increased average net assets and the one additional day.

Sale to servicing fees increased 1%.

That's slightly less than the change in billable accounts that increased by 2%.

As I mentioned in the prior quarters, that disparity has primarily been caused by an increase in closed accounts and those accounts are billed at a lower rate.

Our Canadian transfer agent purged approximately 311,000 accounts in the quarter.

And as a reminder our US transfer agent purged closed accounts in the fourth quarter and completed its purge of 2.1 million accounts earlier this month.

Other net revenue was $13.4 million in the quarter including an $800,000 write down of retained interest in securitizations and that compares with the $26 million write down in the prior quarter.

Operating expenses increased 8% as we remain diligent on cost management efforts.

Compensation and benefits decreased 2% from last your.

As a, reminder last quarter included approximately $25 million of severance related charges from our head count reductions that we announced in the second quarter.

The decrease in severance charges was partially offset by increased variable compensation as overall company performance and investment performance has improved in the quarter.

Total head count was 7,847 at quarter end compared with 8,233 on March 31st, which is a decrease of 386.

Information systems technology and occupancy increased 4% due primarily to increased occupancy costs and also some increased technology spend.

Advertising and promotion increased $1.2 million as we increased television and print media advertising.

The increase in advertising spending was partially offset by lower marketing support payments.

Other expenses increased by $3.9 million mostly due to increased professional fees.

Moving to nonoperating income on slide 19, other income net was positive as impairments and other unrealized losses declined materially and were more than offset by gains.

Consolidated sponsored investment products income was $35.6 million compared with the mark to market losses we recorded in prior quarters and reflecting the strengthening of the markets in general during the quarter.

Investment and other income net was $52.3 million, an increase of $86.2 million from last quarter's loss which was $33.9 million.

Included in this $52.3 million is interest and dividend income of about $15 million this quarter and that comparable number was $17 million last quarter.

The effective tax rate for the quarter was 28.1% due to a change in the estimated tax rate for the full year to 32% compared with our estimate last quarter of 35.8%.

Slide 20 shows that the operating margin increased to 30.4%.

Regarding capital management we repurchased 1.7 million shares this quarter compared with 1.4 million in the previous quarter.

The total payout ratio was 53% for the quarter and 69% on a year to date basis.

And total cash and investments were approximately $5.5 billion versus $5.1 billion at March 31st.

Lastly, I'd like to make a few comments about the acquisition front.

We've considered numerous acquisition opportunities that have been come our way over the past few years, including publicly traded and privately held firms.

And while our strategic and financial strengths have put us in a favorable position from which to creatively contemplate such transactions, we just don't feel we have to do anything.

Most importantly, while we decided to pass on certain of these opportunities for a variety of reasons, we continue to evaluate numerous others but with a strict discipline that has served our shareholders well over the past decades.

And next, I will turn it over to Greg for some business highlights.

Too touch quickly on a few highlights during the quarter, Mutual Series marked the 60th anniversary of the founding of Mutual Series and the launch of the Mutual Series fund in 1949.

And during the quarter we also announced the new US registered Mutual International Fund as well as the variable annuity version of that fund.

In Brazil, we continue to expand our local asset management capabilities where we launched four locally managed funds in partnership with a large bank in that market.

And despite challenging markets, we've been able to raise assets since their launch earlier this year and we expect to launch similar funds with other distributors in Brazil in the coming months.

US retail we introduced a new tool for US based financial advisers called Portfolio Generator.

And this allows advisers to construct and analyze portfolios of Franklin Templeton funds to meet their clients' investing needs.

And the feedback on this new tool has been extremely positive.

In closing, we are pleased to see relative investment performance, especially around the equity funds continue to improve.

We're pleased to see the trend overall in flows.

And also the growth in market share, as well.

While investors seem more comfortable moving from money funds to riskier investment strategies, we're seeing that the back to basics appears to be back in vogue, and there's an increased interest in equity and fixed income, and less interest in chasing output through alternatives.

Investors are looking for better transparency and understanding the risks that they're taking.

This trend plays to our strength as we have historically emphasized a conservative investment approach by following disciplined and time tested expertise of our investment management groups.

We're also pleased to see solid growth in operating income as revenue has bounced back and our cost cutting initiatives of the past year take hold.

As always, we thank you for taking time to listen to this commentary.

And we look forward to your questions And we look forward to your questions later today.

Thank you.