Power Co. of Canada Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 16, 2023

There are 7 speakers on the call.

Operator

Ladies and gentlemen, and welcome to the Power Corporation Q1 2023 Earnings Conference Call. Instructions will be provided at that time for you to queue up for a question. I would like to remind everyone that this call is being recorded on Tuesday, May 16, 2023, I would now like to turn the conference over to Mr. Geoffrey Orr, President and Chief Executive Officer of Power Corporation. The seas, go ahead, sir.

Speaker 1

Thank you, operator, and welcome, everyone. Thanks for joining us this morning for our Q1 results call. I would draw your attention on Page 2 to the cautionary statement regarding forward looking statements and non IFRS disclosure measures. So with me this morning is Greg Treciak, who is the Chief Financial Officer of Power Corporation. And together we'll make the presentation and then be pleased to answer your questions.

Speaker 1

I will just highlight Page 6 as I normally do to Call your attention to various public disclosure events and documents for our group companies that you can reference that have come out over the last several And with that, I will turn to Page 7. First comment On our earnings and really we focus our earnings on Great West Lifeco and IGM, which are the 2 main sources. They are the sources of our recurring earnings and it was a strong result in what is pretty difficult market conditions. Great West Life, of course, the big highlight Is that they and their other competitors in the insurance industry released earnings under IFRS 17, so a very significant change. Greg will spend just a quick few moments on that today, although the Great West Life disclosure is much more extensive on the topic, obviously.

Speaker 1

But Great West Life had strong earnings in the quarter and IGM at $207,000,000 of adjusted net earnings, just down a snick from the same quarter in 2022 despite significantly lower markets, we thought was a very strong result. Their net earnings, of course, were affected by the transaction that we did with CMAC and the gain they recognized with respect to that. So we ourselves look at the adjusted net earnings number as The one which is more indicative of underlying earnings levels. And then a lot of things happened in the quarter. We've been awfully Great West Life announced the acquisition of IPC from IGM.

Speaker 1

We'll give our perspectives on that in this call. And then IGM announced the acquisition of a 20% plus interest in Rockefeller. I'll make some comments about that. GBL reported a good growth in its Net asset value and really quite an interesting transaction on WebHelp, which we will talk about not just in terms of The value that was created, but I think it's quite illustrative of some of the earnings challenges that exist in looking at that part of our portfolio And the platforms in a difficult environment raised just under $400,000,000 during the quarter. So we'll touch on those points as we go through the presentation.

Speaker 1

Page 8 is just a Reminder, it's a difficult environment. The bottom left hand, the S and P had its worst year on since the financial crisis, its 4th worst on record and then that coincided with the Bloomberg Barclays Bond Index having its worst performance on record. So this was a difficult And then that, of course, on the right hand side has resulted in investors not putting a lot of work Money at work, excuse me, in markets, money is flowing into CDs and other Greg, I'd ask you to pick it up on the earnings and the NAV over the next few slides.

Speaker 2

Okay. Thanks, Jeff. So I'm on Page 9 and Looking at adjusted earnings $514,000,000 in the quarter, which is up 16% over last year, dollars 0.77 per the same time, we have a nice increase over the quarter. We have more on that in And take you over to Page 10. I'm not going to give you an accounting class today.

Speaker 2

I'm Sure, you've heard a lot about IFRS 917 for all of those who follow the insurance industry, but just a few points if we could. So with Great West Lifeco, they adopted 17/9 and that affects about a third of their business and A lot of work for that reporting effort to in the quarter, obviously. And one of the things that is apparent, I think, across the industry is that the Net earnings volatility, given the de linking of assets and liability under the standards, Standard 17 in particular is expected to continue to Net earnings volatility, and so I'm sure you've seen that and you can witness it in the quarters Certainly, and Lifeco's results and others. At Great West Life, I think one of the most important changes In terms of management's presentation has been the addition of the value drivers, workplace solutions, wealth At Asset Management and Insurance and Risk Solutions, I think breaking down the information In this way and presenting the information this way will give us a lot more insights and new insights into the nature of the business and how it's performing In addition to their geographic segmentation. With respect to Power Corp, We I should start with JBL.

Speaker 2

JBL adopted IFRS 9 back in 2018 when you At that time, PCC preferred to wait until Great West Life, it's So one of its major subs, obviously, to change its accounting. And so we were under 39 and we moved to 9. And that reconciliation, if you will, presented a fair amount of noise in our results over the last Several years and we adopted JBL's accounting standard, which is IFRS 9 in this So going forward, that's one less moving part that you'll see in our numbers, which is a good thing. And then on Power Sustainable China, we have this portfolio basically is held for capital appreciation. And we look to obviously the changes in NAVs over time for this particular portfolio.

Speaker 2

And we have Classified it as fair value through OCI. All the rest of our investments are basically Fair value through the P and L and there is a slide in the appendix that helps you navigate our selection of accounting standards through the quarter. Sorry for the long winded explanation of the changes for accounting in the quarter, but I promise not to do it in the future. So

Speaker 1

I'll come back with the operator whether we still have anybody on the line, Greg.

Speaker 2

To the Page 11. So adjusted net earnings, You can see that Great West Life and IGM combined delivered $663,000,000 versus the $600,000,000 in Q1 of last year, up 11%, so good showing. Jeff has already spoken to the strength of both Great West Life and IGM's results in the quarter. Looking at JBL, you can see that It was up over last year. There is a slide in the or I should say a section in the MD and A Page 39, which I think Breaks out nicely their earnings.

Speaker 2

You'll see the cash dividends were up in the quarter and that's one of the things that we keep an eye on when we're looking at their earnings. Cigar and Power Sustainable, and minus 88% in terms of contribution, Largely driven by the 2 items you can see on the left hand panel. One is the Snowcover and during the year was more than normal and operating results on our infrastructure, energy infrastructure was Down $30,000,000 in the quarter. The second one is The $33,000,000 on the revaluation of the NCI liabilities. You saw that in the last the last couple of quarters actually and we expect to see that in the future as well.

Speaker 2

We have a number of assets that we are Basically bringing to completion, I think we've got about in total capital on energy projects In the West about $350,000,000 of projects that have yet to come on stream and go COD and as they go through that process, there will be revaluations throughout the coming quarters. And so We'll expect to see those NCI charges in the future quarters as well as those projects are Basically coming to completion and on stream and then transferred into the fund. One of the things we will do in the end of the quarter, this coming quarter is reach out to you and give you a little more transparency on how we anticipate that number to

Speaker 1

the

Speaker 2

Great West Life and IGM and JBL and you can see that in the table that 85 And then when you look at May 15, net asset value were up another 4.4%. So with that, Jeff, I turn it back to you.

Speaker 1

Okay. Thank you, Greg. Okay. I'm going to then spend a few pages on some of the transactions that we announced during the quarter and share our perspectives with you. The first is on Page 13 and it's Canada Life's acquisition of Investment Planning Council from IGM.

Speaker 1

I think this is going to prove to be a very smart move for Canada Life as we look back on it a few years from now. It does a number of things for them. It really positions them by giving them the tools and the scale To build a leading wealth management platform for their advisors and clients. And with $85,000,000,000 now that they have between Quadris between their seg fund shelf, which is very much like an investment shelf and an insurance rep. And then now with the scale that they have and the tools from IPC, they will and are capable of building 1 of the leading Wealth Management Platforms for advisors away from the non bank advisors in Canada.

Speaker 1

So This is I think a very, very strategic transaction. It's going to help them grow their wealth management presence. They've got a strong insurance offering, got a strong group business. This kind of leaps, frogs them forward with the tools to build a very competitive wealth offering that we think will play out well for their growth going forward in Canada. I want to draw an analogy to this and what we've done at Mackenzie over the last few years.

Speaker 1

We've talked in our strategy about simplifying Power Corp and our structures and how we own assets, but another thing that's going on is we have actually Looked across our group where we have where we can benefit from greater scale and create stronger businesses. And an example that would be analogous is that Mackenzie, if you go back over the last several years, not only have we built Mackenzie into a very strong competitor through all the investments and changes that have been made in the investment area and the distribution area, What we gave at scale by in the first instance transferring IG Investment Management and all of their assets the end of the quarter, we've been following up with Canada Life, as you recall, a few years ago, selling GLC to Mackenzie and concentrated Mackenzie With a much bigger asset base to be a more formidable competitor in the asset management business in Canada with scale. And we're doing the same thing here. I view that as quite analogous is that You look at IGM already has a very strong presence in the Canadian Wealth Management business. Canada Life here is able to Take what they have add IPC to it and build a much more competitive wealth manager in going forward for them.

Speaker 1

So just some comments on that. I'm not sure it got not on how much attention it got from the marketplace. I think this is a really important move for Canada Life Then I'm going to move to Page 14. Really excited about this opportunity and what GM has done in buying a 20.5 percent interest in Rockefeller. First of all, this is an iconic brand.

Speaker 1

I don't know if there is a better Brand in Wealth Management and high net worth and ultra high net worth in the world. I just can't imagine one. And Rockefeller is a business that Has been built by Greg Fleming and his incredible leadership team starting 5 years ago, and they took the family office business of Rockefeller, And then they built the advisory business around it. And we've Known Greg and worked closely with Greg for 8 or 9 years after he left President of Morgan Stanley. I think it was 8 or 9 years ago.

Speaker 1

He's been a very close advisor to us. And so we got close to him and got to know his management team and had the opportunity to make this investment. I think they have a differentiated position in the U. S. Wealth Management market.

Speaker 1

As I said, it's got a unique positioning with A family office at the core and then a very high end advisor business. They're creating one firm. All of the teams that they recruit Come into Rockefeller, they're all on the same platform day 1 when they join. It is 1 company, 1 culture, 1 set of systems, a very high end curated product shelf. And the final point is that while they are growing through having advisors join the platform, the advisors that join Are at a stage in their career where they are very interested in growth.

Speaker 1

This is not providing a the ticket for advisors to retire, this is advisors that are in high growth mode. The compensation system motivates them highly for growth. So Rockefeller has a lot of organic growth in addition to the advisors they're recruiting. So that's we're as I said, we're very, very excited about It's a risk smart way for IGM to get into the U. S.

Speaker 1

Market with people we know and a model that we're comfortable with. And I will then broaden this out and just kind of draw the lens back a bit on what IGM has done. So I look at IGM right now. I think you're well aware of all the changes that have been done at IG Wealth in Canada, starting with Jeff Carney and Damon and their team. You're aware of how we have So IGM has now got 2 very, very strong engines in wealth and asset management in Canada.

Speaker 1

And you couple that Now with a very high growth engine in the U. S. Market and by putting the CMAC stake, which we did in the first closed in the Q1, iGEM's got these 2 strong engines of growth in Canada and then two Vehicles for growth in the 2 biggest markets in the world, the United States and China. And so really you go back over the last 5, 6 years, we've transformed IGM here Into a different company than what it was and very excited about this deal obviously. Okay.

Speaker 1

Well, we've helped. This is as close as I'm going to get to an accounting lesson when you'll ever hear me on these talks. But Wealth Help is really illustrative of some of the two parts of Power Corp and how we look at them from a value point of view. So and it's also a great deal for GBL and validation of many of the great things that they're doing. So as you know, Great West Lifeco and IGM, I think it's about 78% of our gross asset value now that we have purchased the additional Grapevine plus Life shares from IGM.

Speaker 1

And that 78% is the source of our recurring earnings. The rest of it is GBL, the platforms, the standalone businesses. And we don't look at earnings as the measure as to how those businesses are doing because they're investment positions. Some of them are early stage, they go up and down in value over time. Obviously, we are thinking that they're going up in value and they have, but they go up and down with marks.

Speaker 1

And then we have a number of businesses where we consolidate them and we have minority positions. And as they go up in value, We actually recognize the increase in the value of the minority interest, but we don't recognize the increase in the value in our position. And there's no better example than that than WebHelp. So I'll turn to this slide. WebHelp, GBL announced a transaction to merge WebHelp And create a value for themselves of €1,500,000,000 This was an investment they made in 2019 and it's 1.8 the time is at multiple on their invested capital.

Speaker 1

Through the piece as the value of WebHelp has been going up, as I said, GBL has not recognized those increases. If you go to the bottom of the page, they have recognized €1,300,000,000 of cumulative losses That are associated with the increase in the value. So here we have something where it's been an unbelievable investment, great IRRs And the way the accounting works is they've got $1,300,000,000 in losses to show for it. When the transaction closes, that $1,300,000,000 will reverse and the gain will be recognized On the transaction at whatever the value of they're taking shares or whatever the value of the shares are at that time. So great deal validation of their value creation strategy and also a great illustration as to why we don't look to the earnings that come from GBL or from the Power Corp assets as our benchmarks for how they're doing.

Speaker 1

We do that with Great West Life and IGM, but not That's 22% of our portfolio. Okay. And I turn to comments then to the platforms, Really difficult, Page 16, really difficult fundraising environment, but there was still $300,000,000 just under $400,000,000 Of fundraising that was done in the Q1, that was through a European fund that Cigar completed and also Cigar Completed a senior lending fund in their private credit business, which is a new product for them. In addition, Power Sustainable Capital announced during the quarter the launching of 2 credit funds. So this is a new product for them.

Speaker 1

It's infrastructure credit And they announced a global infrastructure credit fund with a team in the U. S. And a U. K. Fund the team in the U.

Speaker 1

K. So no fundraising there yet, but they've announced the hiring of teams and the launch of 2 new products. So good progress. And I would the show you, if you go down to the bottom left on Page 16, under the funded there, you see Power's capital It's now $2,400,000,000 of the $15,800,000,000 that has been raised as Power itself, Candle Life has some money in their platforms as well. The Power Corp.

Speaker 1

2.4, that's about the same as what it was 2, 3 years ago, even though that funded number has grown, I think, about fourfold And not using our balance sheet, but this is a perfect illustration of it. And with that, I'll turn over to Page 17. When we look at the first thing we're looking at in building the alternative investment platforms is the fee related earnings. So on the bottom the left, you've got the fee related earnings of Cigar and of Power Sustainable Capital. You see good growth in Revenue at Cigar and still slight losses at fee related earnings.

Speaker 1

And there is So they have built up their platform. There's a number of things happening there in terms of building up of staff. There's a little bit of A catch up fee in Q1, a few $1,000,000 So if you normalize for that, the $2,000,000 is probably a little bit lower than that, a few $1,000,000 lower than that. So they're just Cigar continues to build out its capabilities, grow its staff, build its platform and is operating just below breakeven as the way we think about it. And then Power Sustainable Capital, I've already mentioned about good growth, new products, new funding, but at an earlier stage in its development in terms of the fees that It is collecting, but in an area where we think there's pretty explosive growth in the years ahead.

Speaker 1

So those are my comments on our platforms. I'll turn to Page 18. We talk a lot about the standalone businesses and I want to make a comment here. When we launched The strategy around the reorganization, we talked a lot about the platforms as being excuse me, the standalone businesses as being a source of capital. And the way our strategy has worked out, the opportunities to raise capital and return it to shareholders have actually come from different parts of the portfolio.

Speaker 1

So from the beginning of 2021, we have raised $1,800,000,000 of capital, but it hasn't come from the standalone businesses, which we kind of indicated at that time it would have and it just goes to show that you need to be active in the management of these strategies. Our goal hasn't changed, but how we've executed it has changed given what happened in markets. So the 1.8 has come from a variety of sources. I think we told you last year or 2021, we took we sold our secondary interest in Cigar Europe III. We took some money off the table with Wealthsimple.

Speaker 1

We sold energy assets into the Power Sustainable Energy Fund and took money back from that. We sold GP Strategies. We ended up selling our the stake in China Asset Management to IGM and took back Great West Life shares in cash. And we've just announced the sale of Bellas Health, Which will be another approximately CAD100 1,000,000 when that closes. So we've raised CAD1 1,800,000,000 over the last couple of years And yet we still have Lyon and Lumenpulse and Peak in the portfolio.

Speaker 1

We have taken steps to surface value by taking Leon public and Lumental's just did a financing in the last couple of quarters. But we are on path nonetheless to And then return it to shareholders. And with that, I'll turn to 'nineteen. During the quarter, We returned approximately $375,000,000 to shareholders through our dividends and through buybacks. Last year, by the way, we returned about $1,700,000,000 to shareholders.

Speaker 1

We had $1,300,000,000 in Dividends and $415,000,000 in buybacks. We've done all this and we now have our cash at kind of an unprecedented level. We've got about $1,007,000,000 in cash, if you deduct the dividend that we declared yesterday from that, you get to $1,350,000,000 if you take off the dividend payable. We like to keep 2 times fixed charges. So we got lots of firepower here.

Speaker 1

With that, I will turn to Page 'twenty, one of the things we are focused on is the net asset value discount. And we have we were, as you know, before the reorganization for 5 years, they're trading around 35. We've done a good job through communication and transactions of reducing it. It has gapped up in the recent period. I mean, we have a long discussion about why that is.

Speaker 1

I just simply summarize it that this is an opportunity, not happy about it gapping out, but it's an opportunity, Both for investors as well as for Power Corp as we in terms of buybacks, we have had our heads down a lot in the last the 6 months or so working on a number of things, including some of the transactions we announced. And we're really looking forward to getting Back out and talking to investors in a more active way than we have in the last period about what we're up to, what we've done and what are some of the opportunities going ahead. So with that, operator, I think I'm going to conclude by the line and I will ask you to open up the lines for questions that we may have from our

Operator

The first question comes from Geoff Kwan with RBC Capital Markets. Please go ahead.

Speaker 3

Good morning. My first question was for your non core assets such as Peak and LMPG. Can you talk about maybe what some of the metrics or things that you're kind of looking for

Speaker 1

Thank you. Good question, Jeff. So while We have announced our strategy focused on financial services and long term those are not Core assets, if I can put it that way, they're not on strategy. We were very clear on 2 things. 1 was that We don't have a gun to our head.

Speaker 1

We're going to realize value in a way that we think will maximize value for Power Corp. And secondly, We are an investor who we are good partners with people that we join with and we made commitments when our strategy was different to the management teams And to other shareholders. And so we honor our commitments and do things in a sensible way, not in a hurried way. So now specifically, let me give you some examples. With Lumenpulse, right after we announced our new strategy, We had COVID hit and all of a sudden we had this company that was really doing well and growing and making acquisitions and its whole business model just got Totally turned upside down, projects got stopped.

Speaker 1

A lot of what they do are often on big projects, sometimes at the tail end of projects and they ended up their whole business plans weren't there. So not it was just not a good opportunity for us to realize capital. As you know, we Filed for an offering, I think it was in 2020, but my memory may serve me wrong there. They did a 3rd party financing in the last couple of quarters, which is great. That's the next step.

Speaker 1

And at some point, we'll think that the value is There in the business plan is at a good point where we can bring in some other investors and start to monetize our position. But we're not going to do it in a way that we're leaving value on the table, Timing wasn't there. Lyon is a really interesting one. Lyon was only CAD 53,000,000 CAD 54,000,000 at time, we announced reorganization that we had invested in it and that electric vehicles took off. We took the company Public as a step in realizing value and then all of a sudden the bloom was off the rose in terms of everything that was Venture capital and everything that was EV and all of a sudden and this company needs capital to grow.

Speaker 1

So we have this great company and all of a sudden The capital markets and the BC markets have shut down. And so do you try and push it out and just Drop it when it's got this great future. We actually put some more capital in the last year, dollars 25,000,000 to support their offering. So you could say, well, what are you doing? That's off strategy.

Speaker 1

Well, it's $25,000,000 in the context of Power Corp and we're supporting the management team and other shareholders to make sure we get the company to a point of maturity where its proper value can be recognized and ultimately realized by Power Corp. So that's I don't know if that's answering your question. I'm sharing with you how we look at these things. We do things that are smart. We do things that Our value and we do things that honor our commitments to the partners we have.

Speaker 1

And in the meantime, we realize value using other assets where there were opportunities. That's it.

Speaker 3

Okay. Thanks for that. And just my other question, just given the dislocation we've seen in credit markets and just more broadly speaking, wondering if you can talk about how you see that in terms of, say, for example, opportunities for your existing operating businesses and then on your kind of alternatives platform, whether or not that's making opportunistic acquisitions, potentially strategy, but also too is for the companies that are within the portfolio, If that might create any sort of headwinds in terms of if there's any sort of debt rate refinancing that need to happen with

Speaker 1

Okay. I'll start and then Greg if you jump in, if you as always jump in if you want to add anything. I think that if credit markets end up getting dislocated, we've just got some fresh powder in our credit funds and and Cigar, and I think that will be a good thing. And they'll get some opportunities to earn some good investment returns for their investors, Whether there is whether in behind your question, there'll be an opportunity to I don't know if that's it, to acquire a credit capability. I don't think that's On the radar screen, it might come by, who knows.

Speaker 1

So I don't know whether that was where you were going. In terms of our own financing structures, If you're asking about our own companies and their maturity, certainly between IGM, Great West Life, GBL, Power Corp, we don't have Any worries about refinancing, we've got very, very well, we've got very strong credit ratings and we've got very staggered Debt maturities, which we always for decades have made sure we manage. And I couldn't speak The individual companies within our different portfolios in the Alts area, if that's where your question is going. Maybe you can clarify a little bit that one. I wasn't sure where you were Talking about in terms of difficulties with our own companies and credit markets.

Speaker 1

Do you want to just

Speaker 3

Yes. Whether or not within CIGARDE or

Speaker 1

Yes, I'm not aware of any I have not heard anything that they're concerned about credit markets. I think in the FinTech world, I will say, when you've got Silicon Valley Bank, they were a big the funder to a lot of the FinTech Companies. So that sector in general, not just in our portfolios, in general, has got All of a sudden a player who was probably the leading player in terms of banking those businesses is out of business. So I know that has created Some shortage of capital across the FinTech space and I suspect that will be an opportunity, but everybody's for our funds in terms of making investments because We got capital to work to play, but that's a general comment.

Speaker 2

Yes, that's exactly where Certainly management is working through Getting those start up entities that need capital and obviously Raising capital where they can and looking for alternatives and that's a work in progress, but Nothing that I think is disrupting their strategies in that marketplace would be my take on it.

Speaker 3

Okay, great. Thank you.

Speaker 1

All right. Thank you, Jeff.

Operator

The next question comes from Jamie Goyn with National Bank Financial. Please go ahead.

Speaker 1

Yes, thanks.

Speaker 4

First question just related To the Rockefeller transaction, clearly you guys and the family had a significant role in putting that together. Just

Speaker 1

our complex through those relationships. Okay. So I touched on it. It really started with a relationship with Greg Fleming. Greg Fleming, for those of you who don't know, was the President of Merrill Lynch and then was President, Morgan Stanley, he ran initially ran investment banking at Merrill, was President through right through the financial crisis and then Merrill got sold to BofA, he went over to JPMorgan, ran their Wealth Management and Asset Management Businesses, 2000 and I want to say 15, it's somewhere around there.

Speaker 1

He left and kind of did his own advisory thing for a while trying to figure out what he was going to do next. We actually hired him as an advisor and he ended up being kind of for the 3 years Someone who we would talk to at least weekly about what the opportunities were in the states. He was also on the Empower Board. He is on the Empower Board and on the Putnam Board and has been through 2015. So we have a close relationship with Greg.

Speaker 1

Greg announces to us in 2018, he's done a transaction to Buy into and become CEO of Rockefeller and brings in the A team, if I can put it that way, Former colleagues from the top bulge bracket firms in the U. S. And takes advantage of The dislocation going on, particularly at the high end of the big bulge bracket firms who have become very large and the very top 1% or 2% of the advisors, not always the happiest campers in that environment. They've taken advantage of that to build out what is now Rockefeller, where I think they've got 80 I think 90 teams that they've built in over the last 5 years of a team might be 3, 4 to 10 advisors coming over that have joined them. So we just we talk to Greg all the time.

Speaker 1

Rockefeller, you may have noticed, has advised on our acquisition of Personal Capital, MassMutual, the Prudential. So We're talking to them closely and through that relationship spoke to them about what are your future plans for Rockefeller Because we're looking to expand into the U. S. Into Wealth Management and that led to discussions which So that's the history of it. Jamie, did you want to add something, Greg?

Speaker 2

Yes. I'd just say that stepping back even In time, it's part of the DNA of the group quite frankly and that Paul and Andre and Of course, their father had a particularly good expertise in developing ecosystems. And I think if you look back through our history, you can see many examples of this type of relationship Turning into something that was unexpected.

Speaker 1

Thank you. And thanks for reminding me that in this particular case, because I just told you with Greg Fleming, but the Rockefeller family And the Demre family have a relationship going way back. Andre Demre personally has had a close relationship With David Rockefeller, who's on the Board and the shareholder of the company and his father. And so there was all that angle to it as well. There was a demerrer angle and then there was the management angle and it kind of all came together here.

Speaker 1

Thanks, Greg. Okay. Thanks. Now we asked whether we were going to do others. I don't know whether we're going to do others.

Speaker 1

I mean, we're like I'll just show you the 20 deals we've done in the last 6 years and ask you, I don't know, but we do have our eyes open, Jamie, at all times.

Speaker 4

Understood. And then just a clarification question on the Bellas transaction. Is that $73,000,000 that you're expected to receive, is that cash receipt? And then I guess the other part of that is, is it already Within the $813,000,000 of NAV that you've disclosed here, just want to clarify that.

Speaker 2

It's outside the $813,000,000 to start with and the $73,000,000 is coming in cash. We're not taking any shares back 73 is U. S. It's U. S.

Speaker 2

Too.

Speaker 1

100 sounds better, doesn't it Craig?

Speaker 2

It does.

Speaker 1

Okay. Thanks guys. We have that at I think we have that marked on our books at 0 in terms of book value. Not that we look to earnings for that part of the portfolio. Sorry, go ahead, operator.

Operator

The next question comes from Doug Young with Desjardins Capital Markets. Please go ahead.

Speaker 5

Hi, good morning. Maybe starting just with the excess the cash, I mean last quarter I think Jeff or Greg you said 2 times debt coverage was $700,000,000 to $800,000,000 I don't know if there's a nuance there, but Just wanted clarification on that. And if I do the math based on what you've laid out, it looks like your excess cash is sitting at 5 And as you've said, you've got lots of liquidity here. So why the slowdown in buybacks?

Speaker 1

As I said, we've had our head down quite a bit, working on a bunch of things as you've seen. And so that's the answer. I don't think there's anything on the 800 in this like our I think that's a rounding. Rounding. Yes.

Speaker 1

No change in our run rate costs. We should go back. I don't think 780 to be 780, and it was last time as well or 770, right, I think, okay. Yes. It's rounded.

Speaker 1

Yes. But we don't manage it to That's fine a point in terms of having two times coverage. We've gone below it sometimes and we've often run above it. Yes, so I think this recent period We've not only been not been out kind of talking to investors for the last, but we've been less active on the buyback side. We We've been busy on a bunch of things and looking forward to getting back on both.

Speaker 1

That's all I can say. Okay. Thanks. So I don't have

Speaker 5

that. No, that's fine. And then just going to the Power Sustainable, the two items, I guess, the energy infrastructure loss due to seasonality and smell, I kind of get that. But what I guess, I'm more curious about you've taken a 30 $3,000,000 revaluation of NCI on the Power Sustainable Energy Infrastructure. And Jeff, you kind of described it and how you've done this in the past, But you don't get to realize or write up the value of these entities, you just take the hit upfront.

Speaker 5

What is the unrealized gain on the Power the Sustainable Energy Infrastructure Partnership that hasn't been recognized.

Speaker 1

I don't know the answer to that. I don't know if you do. So

Speaker 2

I don't know that I have that right now, Doug, but maybe as we go through the call, it will emerge. But I did give you a number that we're vending in Projects that we currently have on the balance sheet, basically wind projects out west, there's about 4 or 5 of them that I think the capital that we have in them is about $350,000,000 and we would expect to get a gain or revaluation again on those as they come to commercially Viable projects and so we probably get somewhere in the neighborhood of $40,000,000 to $60,000,000 of gain Coming through at that time, of course, which of which we will have to take a NCI Liability on, so 60% of that because we're 40% of that particular fund and the other partners are 60%. And Yes, we're talking about another $30,000,000 on that project, those set of projects alone. And of course, we're developing projects In addition to those that will be bended in and we'll have the revaluations. And so that's what I alluded to.

Speaker 2

I think that over the quarter, what we'll do is we'll reach out to The Street here and try and lay that out So that you can understand and anticipate what might be evolving over the next several quarters.

Speaker 1

Yes. We have to give greater clarity on this as we have lots of questions on Your question is a good one, Doug.

Speaker 5

Yes. And I just think you're like I kind of follow where you're going with that you've had a bunch of these over the years. If there's unrealized gains that aren't properly being reflected now, I'd be curious and if it's not just this, there's a number of them, I'd be curious what that conservatism is and I think Other people would be as well, but we can kind of leave that for now. But I guess, maybe I'll kind of give a last high level question. Our view is always the cleanup of the power structure would mean running a small holdco and concentrating Most of the insurance business at Great West in the Wealth and Asset Management at IGM, you've talked about this before, but you're building an investment platform Up in Power, you've moved IPC over to Great West.

Speaker 5

There seems to be a blending of the 2. And so maybe Jeff, like what's the end the Like what am I missing? What's the end goal here? What does the Clean Power Corp. Structure look like when you're all said and done?

Speaker 1

Yes. So Lots of things happening. That's a big question and a lot of different forces at work, not just simplifying. That's what I made the comment earlier. When I look at Mackenzie acquiring IG Investment Management, which you may say is all inside of IG, That's to give Mackenzie more scale to compete.

Speaker 1

When I look at GLC, 2 years ago was it, that Great West Life sold Canada Life sold GLCSS at MacKenzie, that is concentrating scale at MacKenzie. Same thing happening here at IPC. IPC is a $33,000,000,000 Wealth Manager and there's another 50 over at Canada Life and putting it together plus all of the Capabilities that they have in terms creates a more competitive platform Because we're not just cleaning up and simplifying Power's platform, we spend a lot of time Strategically working with the management teams of Great West Life and IGM to position those businesses for greater growth. And you're seeing So some of these deals are not about simplifying Power Corp. They're about getting our main operating businesses in a more competitive position.

Speaker 1

Your question with respect to Power Corp, Ultimately, the goal is to have the standalone non financial service businesses Not within the portfolio, but as we said, not in a rush and I'm not going to do anything stupid to get there. And then secondly, Create the scale and the investment platforms to create streams of income without putting more capital into it And simplifying what's there, so that we don't have a stream of businesses that people don't understand. What we were partway down that path, But what we have is an accounting kind of I won't say I should not be critical of accounting. We have accounting numbers that make it Really hard for people to understand. So we are simplifying the business, but we still have we haven't done a good enough job of explaining the value creation and it gets lost in the accounting.

Speaker 1

So So I said a lot there. In a nutshell, I said a lot of the moves are not just about simplification, they're about building the strength of the businesses. And the second part is, we are trying to simplify Power so that at the end of the day you can say they got this asset management business and they got this much seed capital and the seed capital is producing this kind of a return. And I can value it and therefore I can get my hands around it. That is the end goal.

Speaker 1

Sorry for the long answer.

Speaker 5

No, I appreciate the color. Thank you. Okay. Thanks, Doug.

Speaker 2

Doug, Page 56 of the MD and A, you Look at that to get more color on the position of Power Sustainable and the Power Energy Assets. And just on the energy assets alone, I think the unrealized value would be somewhere around $400,000,000 in total And we would have 40% of that, so roughly $150,000,000 $160,000,000

Speaker 1

Thank you. Let's follow that up. Okay, great. Thank you.

Operator

And the next question comes from Graham Ryding with TD Securities. Please go ahead.

Speaker 4

I just have one question just with the Canada Life platform now with the wealth platform with IPC is part of it. Can you just sort of describe your vision for this platform relative to what you have at IG Wealth? How are they similar? And how are they perhaps unique

Speaker 1

Yes. So great question. Thanks, Graeme. So first of all, in terms of vision, IPC not only brings scale to the Canada Life platform, but they also have a far greater IIROC capabilities. They've got discretionary platform.

Speaker 1

So as you know, a lot of advisors move to Discretionary model, whether discretion is given to the house or discretion is with the advisor. So you add all of those capabilities And it brings with a management team that's very capable as well that are excited about this. So over time, Those capabilities will merge into 1 far greater suite of capabilities For advisors, so they can pick which way they want to grow, how they want to pursue their careers, how they want to serve their clients and Candlelight's vulnerability to accommodate all of that And get the economies of scale over time from having a bigger platform to do it. So that's what it does for Canada Life. The models are different, you know the history of IG Wealth.

Speaker 1

So IG Wealth has been prime but its model is changing too. So I have to say, IG Wealth had been primarily bring in advisors, train them and then have primarily a proprietary shelf It was primarily mutual funds. Now that's been turned upside down in the last 5, 6 years. You've got the recruiting model that used to bring in many, many advisors With a I would say not a certain success rate in terms of turning them into successful advisors, they've just paired that back 4 or 5 years ago to They're trying to hire like a 5th of what they were doing. They're yes, they got mutual funds, but they are into wrap programs And unbundled programs and so the product shelf has changed dramatically and they're now recruiting from the outside.

Speaker 1

And while it's still mostly IG wrapped product, there are lots of different sub advisers and IG Itself no longer has IG Investment Management. So the IG Wealth Model has been revitalized and therefore much more competitive in going after larger clients by the way and Getting new advisors in. So but it still has a history of coming from the kind of the IG product side of it. And so it's got a different feel and a different culture to it. Over time, do they become the same 10 years out?

Speaker 1

I don't know. I'm not sure. So that's the best I can do in terms of compare and contrast. I didn't always do well at those things in In college, when you have you just gave me that compare and contrast question. They have different histories, they're a little different, but they work.

Speaker 1

IG Wealth is set up For success within IGM and I think Canada Life's got itself enough capabilities here to build a great wealth management firm going forward.

Speaker 4

And is there a larger insurance component with the Canada Life business relative to IG Wealth?

Speaker 1

Yes. So within IG Wealth or within Canada Life?

Speaker 4

Yes. This Canada Life business that is Acquiring IPC, is there a bigger insurance component to sort of the wealth management platform relative

Speaker 1

to what you like? Yes, good question. Good question. So first of all, CannaLife, it would consider their advisors to be independent advisors, but the Advisors have different practices. Some of them are very wealth focused.

Speaker 1

They would have seg funds, which is really just a protected wealth product And mutual funds and increasingly wraps and discretionary, so they got a big wealth practice. Some are at the other end That are very focused on safe power insurance and high net worth and ultra high net markets. Some of them are a mixed practice between insurance and wealth and a number of them are also focused on the group market. So they would have individual clients Who are running businesses and they make a practice out of bringing in group clients that also feed CannAdalyze Group business. So you do have On the many, many advisers that work with Canada Life, a myriad of practices, but a lot of them have wealth Some part are an important part and in some of their cases the most important part of their practices.

Speaker 1

This sets Canada Life up to be a much better Okay, great. Thank you, Graham.

Operator

The next question comes from Tom MacKinnon with BMO Capital Markets. Please go ahead.

Speaker 6

Yes, thanks and good morning.

Speaker 1

More of a theoretical kind

Speaker 6

of question, Jeff here. I mean, you've And somewhat more pure plays down below without kind of significant impact from say Other vehicles, but now if I look with China AMC now pushed down into IGM, Well Simple still at IGM, Northleaf now at IGM, There's still some Great West at IGM. There's now Rockefeller at IGM. But like less than 75% of IGM's earnings are really IG Wealth and Mackenzie. So I understand the strategies involved in here, but have this is not necessarily a kind of And even the push from the IGM peoples to almost do a bit of a sum of the parts or almost an NAV But have you made the downstream company, IGM, a little bit more complex now?

Speaker 6

And So I'm just curious as to what your comments are with respect to that?

Speaker 1

Yes, good question. I don't think we have, but I think the brands can kind of get in the way of what's actually going on because I described the Strategy a little more simply than that, IGM has is in the Wealth Management business and it's in the Asset Management business. In the Wealth Management business, it's got one business in Canada, which is IG Wealth, which is a much more mature substantial business. And sort of taken WealthSimple, which over time could prove as we look at we're long term holders as you know, Like we'll look back in 10 years and say is that a significant part of IGM or is it not or of IGM, excuse me or not, I don't know. But that's kind of An investment in the future, which their cost base, I'll remind you, is 0, actually it's negative right now because it so that's kind of not even that's A stake in the future, an exciting one, but I don't view that as noise.

Speaker 1

It's not complicated. It just is what it is. So they have a leading wealth management business In Canada, and IG Wealth poised for growth, and they now have a 20% interest in a very exciting position in the U. S. And hopefully over time we can increase our position in that company as opportunities come out, we'll see.

Speaker 1

That's their wealth management platform. In Asset Management, they have Mackenzie, but of course alternatives are very much where the puck has been going. So they take an opportunity to buy Northleaf and that's smart if you have An asset manager and Mackenzie is not just sitting passively with that. They're taking the alternative products and incorporating them into their products and bringing them to the marketplace. So It is what asset managers, many of them are doing around the world, buying into alternative space.

Speaker 1

So they're in the wealth management business, they're in the asset management business, And they now have vehicles in China and the U. S. On top of their Canadian market. That's the way I think about it. The sum of the parts And looking at the strategics was I think really a means by which IGM was pointing out to the market There's a chunk of their portfolio that wasn't really earning money.

Speaker 1

I'll take Great West Life out of that for a second. I was at an earlier stage of development and trying to and even China MC at the time was not earning as much money, it's been growing its earnings a lot, Kind of focusing on the fact that, hey, maybe these businesses are worth over here Mackenzie and IG Wealth are worth ex times earnings, but this part of the portfolio To be looked at on a different basis. I think that's what they were, in my view, doing in terms of putting it together as strategic investments. But So that's my answer to the question. And Great West Life, all I'll say is just watch us by our actions that We set that position up a long time ago and IGM used that as currency In terms of our CMAC transaction and Great West Life, I mean the natural home for that is at Power Corp.

Speaker 1

In terms of our ownership and We took advantage of that transaction to increase our stake at Powercorp and Great West Life. And that made the financing of that transaction work For IGM and we were happy to buy more Great West Life. We're very excited about what's happening. So that's what it is. I don't view it as complicated.

Speaker 1

Maybe it's just clear in my head what we're doing, but I don't view it as complicated.

Speaker 6

Understood. Thanks.

Speaker 1

If we didn't branch some companies Tom, I'm going to make a comment about one more comment on this. A lot of companies, your own employer, many big financial institutions, when they buy things, they brand them with their own brand. BMO this and BMO that, even my old stomping grounds, Nesbitt Burns, BMO and Nesbitt We have had a different approach where we have left brands standing in their local markets because we thought that they had we thought they had a lot of value. And I think it ends up people looking at us and saying, wow, you're really complicated because you got this brand, you got that brand, you got When in fact, we're a wealth manager and an asset manager at IGM. That's what we are.

Speaker 1

And we probably End up looking a bit like a Christmas tree when with all kinds of ornaments on it when in fact we're really in some pretty simple businesses. And I'll tee off your question to talk about Great West Lifeco's new disclosure. As Great West Lifeco this quarter introduced They're calling their growth drivers, but it's really a new way of segmenting what the businesses they're in, right? Starting with workplace solutions and Wealth and Asset Management. And other companies describe themselves that way and we don't we tend to use our brands and then people think we're complicated.

Speaker 1

I don't think we're that I think we're in 2 or 3 pretty simple businesses around the globe.

Speaker 6

Yes. I mean, maybe I'll just add one comment on that. There was In terms of this multi brand approach, with respect at the Great West Life level, years ago, there was like at least 4 brands, Great West Life, London Life, Canada Life, Freedom 55, and the decision made there was to put it all under one brand. So it wasn't going to be lit like a Christmas tree. Is there anything you Here about amalgamating things?

Speaker 6

I don't. I don't see that,

Speaker 1

Yes, I don't see that because Rockefeller is a great brand in the U. S. You're not going to call it IG Wealth. And by the way, we don't control it, so that's another reason. Like Mackenzie Mackenzie is an asset manager that you're not going to put his brand the same as IG Wealth.

Speaker 1

So I don't see us doing that right now is the answer. So I think we just have to make sure we explain our business in a way that we think of it, which is this is our wealth management activities, these are our asset I think we need to move more in that direction, so we don't unnecessarily confuse people.

Speaker 2

I think I'd just add on that, Jeff, is that The other perspective when you're looking at the brands is obviously the brands that are client facing and how they face the client. The distribution channel interplay with that Mackenzie is Mackenzie to their clients and The brands that they're using for alternative asset managers stand behind them and are on the product shelf. And I think that's well understood In the distribution channels and at the client base. Yes. So I think that's the other perspective.

Speaker 1

Yes. And I think even BMO would do That and other banks in some of their markets, but they don't report to the market that. They won't report that they're I can't remember them. Sorry to use your example, BMO example, but BMO won't report on its U. K.

Speaker 1

Or its European Asset Management businesses, the name of the brand. They'll just say our asset management businesses when they report to the market. When they interface with their clients, they actually have more brands than that. And we tend to report to the market that way and I think create But anyway, this is you said it was a high level question. We're dealing at a high level here, Tom.

Speaker 6

And I always appreciate discussion. So thanks very much.

Speaker 3

Thank you, Tom.

Operator

Ladies and gentlemen, there are no further questions. So this concludes your conference call for today. Thank you for participating and you may now disconnect your line.

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Earnings Conference Call
Power Co. of Canada Q1 2023
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