Power Co. of Canada Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 21, 2024

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Power Corporation Q4 2023 Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at the time for you to queue up for a question. I would like to remind everyone that this call is being recorded on Thursday, March 21, 2024.

Operator

I would now like to turn the conference over to Mr. Jeffrey Orr, President and Chief Executive Officer of POWER Corporation. Please go ahead, sir.

Speaker 1

Thank you, operator, and for joining us this morning. We'll go through our results for the quarter and a little bit of a look back on the year as well and maybe a few comments over the last on as we look back over the last several years as to where we are at Power on our journey as we execute on our strategy. I'm going to just remind you of the disclaimers on Pages 23 regarding forward looking information and non IFRS measures. And then say that we're I'm here today with Denis Levasard, who is VP and has been acting as our Financial Officer effectively over the last several quarters. And Denis will be working with me today to go through the presentation.

Speaker 1

We're also joined by Jake Lawrence, who is on day 4 with Power Corporation to welcome Jake. We're not going to ask Jake to play a starring role in today's presentation, but just to say he is here and we're delighted to have him on board. As we move forward here, I'm going to start off with the Q4 results and remind you, we'll make some high level comments on Great West Life, IGM and GBL in terms of our perspectives, but each of those three companies have just recently come out with their results and gone through with extensive earnings releases, review of results, GBLs with just a few days ago, IGM and Great West Life a few weeks ago, plus IGM had its Investor Day in December. There's lots of material if you're trying to dig deep into any of the 3 public companies that you can reference or speak to those management teams. So if I go to Page 7, just kind of reflect on where we are.

Speaker 1

From an earnings point of view, it was and from both the quarter and the year, we had really strong results at Great West Life and they were broadly based, clearly led by the emergence of Empower, but strong growth and strong results across a diversified portfolio. IGM reported really solid results with an environment of headwinds with what's going on in their businesses right now, but we thought the results were very, very solid. And then as I move down on to some of the key points as we reflect on the quarter and the year, The first one is with the Prudential integration coming to a successful close here, the sale of Putnam that happened on January 1, it really highlights and is the completion of a 5 year repositioning of Great West U. S. Business and I'll make some comments in the presentation on that.

Speaker 1

Great West Life's financial performance really for this year and over the last 5 years has been great. I'm going to touch on that. Really pleased with the positioning of IGM and I'm going to make a couple of comments on the way we think about their positioning going forward. And as I mentioned, they got an Investor Day where they've laid out medium term financial objectives the way Great West Life had done back in 2021. GBL continues to focus on executing its strategy and had a record year in terms of returning money to shareholders.

Speaker 1

And then we've continued to build the scale of Cigar and Power Sustainable. And Cigar has entered into a number of transactions, which I'm going to walk you through very, very briefly to enhance its growth. And then not to be forgotten as we were we had our biggest year of share buybacks in 2023 and in Q4, and we announced a 7.1 percent dividend increase yesterday. So, lots going on and we're excited to share it with you and get into questions that you might have. On Page 8, the market environment hasn't changed too much.

Speaker 1

We've got high rates and in some ways that's good. Like a lot of financial institutions, when you've got some parts of your businesses where you have cash, you have short term investments, obviously, earnings from those parts of the balance sheet helps on the earnings front. But then we all know what's going on overall in the market. You've got high inflation, high interest rates. That's squeezing a lot of people that are clients, also clients of our various businesses.

Speaker 1

It means that for a lot of the client bases, people are trying to figure out how they make ends meet. So you've got less money flowing into wealth channels, less money flowing into the asset management products that are on those channels. And where is money going? Money is either going to repay debt to try and pay bills for certain parts of our client base. If they are investing, there's more flows on an absolute basis going into new money products including bank CDs and out of traditional wealth channel.

Speaker 1

So there's so I guess bottom line rates being higher can help your earnings here and there, but from a flow point of view in wealth channels and in asset management on balance it's a negative. And you've got a couple of indicators there of that in the Canadian channel, but we're seeing that across the markets where we operate. So let me then turn the baton over to Denis to walk us through our financial results and net asset values. Denis?

Speaker 2

Thank you, Jeff. Good morning, everyone. I will go to Slide 9. This is our Q4 financial highlights. Adjusted net earnings from continuing operations in the quarter were $579,000,000 This is up from $395,000,000 in the same quarter.

Speaker 2

The corresponding quarter of last year translates into $0.89 per share compared to $0.59 in Q4 2022. And I'll address the breakdown of earnings shortly. Adjusted net asset value per share was $53.53 at year end compared to $48.26 at the end of Q3 and our net asset value per share yesterday was 52.93. At its Q4 meeting yesterday, as Jeff mentioned earlier, Board of Directors declared a quarterly dividend of $0.56 or $2.25 on an annual basis and this represents an increase of 7.1%. Turning to Slide 10, Great West once again delivered strong results across all segments, including an increase in year over year base earnings from Canada, the U.

Speaker 2

S. And the Capital and Risk Solutions. Notably, you'll see that Great West U. S. Retirement and Wealth Business Empower surpassed $1,000,000,000 in base earnings in 2023 exceeding the objective announced at the beginning of the year.

Speaker 2

IGM's earnings had a solid performance reflecting a challenging market environment. Earnings at IGM were impacted by the partial sale of Great West shares to Power as part of the CAMC transaction. And IGM reported losses in Q4 on hedging instruments. However, we must consider this as a timing issue and going forward, IGM will realize higher income, which will offset these losses. As a reminder, IGM's Q4 adjusted net earnings exclude the gain on its sale of PC to Canada Life and which in turn is eliminated on consolidation at Power Corporation as it is an intercompany sale.

Speaker 2

Moving to our NAV focused businesses, GBL's contribution in Q4 includes an impairment recorded by Emeris. And note that while GBL's private assets saw fair value increases during the quarter, these are not entirely reflected in the results as some of these companies are consolidated. CIGAR contributed positive earnings this quarter driven primarily by the fair value increases in our investments in the private equity funds. And CAGR's manager continues to make strong progress despite market headwinds slowing down capital fundraising and deployment. Finally, as we have seen in the past, Power Sustainables negative contribution was driven by an increase in the fair value of 3rd party capital in the infrastructure fund.

Speaker 2

This loss in our P and L results from consolidating the infrastructure fund where the corresponding fair value increase of assets is not reflected. However, we must recognize the increase in value of the units held by the non controlling unitholders of the Fund. If I turn to Slide 11, we break down the $53,000,000 net asset value per share as of December 31. The shares of our publicly traded operating companies performed well in Q4 with Great West delivering a 13% increase. Great West remains a large component of our net asset value and its performance essentially explains our quarter over quarter NAV per share growth.

Speaker 2

As a reminder, we now record Cigar's management company, the value of the management company at fair value and our NAV in Q4 Power's share of the management company value was $265,000,000 with quarter over quarter changes only due to foreign exchange movements. Power Sustainables Management Company remains at carrying value. Cash and cash equivalents decreased quarter over quarter as we bought back shares at a higher pace in Q4 and this is also reflected in our participating share count decreasing from 658 900,000 shares in Q3 to 652,000,000 shares in Q4. And with that, I will turn it back to Jeff.

Speaker 1

Okay, Denis. Thank you. So then I'm going to move forward to just a bit of a look at the last 4, 5 years really. Even though this is a quarter end report, it's also worth the end of the year, we're at the 4th anniversary of the completion of our reorganization. And in my mind, I go all the way back to 2019 where there was a lot of activity in 2019 through the year that led to the reorganization.

Speaker 1

So a little bit of a look back here. And the overall comment I'd make is that over the last 5 years, our company has really repositioned itself. There's been a tire work done and it's we've been describing it through the three levers of our value creation, but we really have repositioned each of the businesses. If I start with Great West Life, it is a different company than where it was 5 years ago. I think it has got strong businesses across its different platforms and in its different markets.

Speaker 1

And of course, the emergence of Empower, which was not a large contributor 5 years ago and our business in the United States with now the U. S. Is emerging as the largest part of Great West Life is probably the most significant change, but there's been very significant investments across the rest of the platform as well. IGM, again, right now we're in an environment where wealth channels are generally in outflows, asset management channels are in outflows in Canada. And so people are going well that's not a you've got a lot of macro headwinds, but does not when you look at it from a multiyear position here, this business has repositioned itself as well for much higher future growth.

Speaker 1

In its wealth channel and its wealth segment, it's got the core business of IG Wealth and that's got a couple of very high growth drivers for the future. And in its Asset Management segment, it's got its core business in Mackenzie, which is in a strong market position and then some very high strong growth drivers. And I'm going to come back to that as we go through the presentation. And then at Power, really, really big change from where we were 5 years ago. Obviously, a simpler structure, a much simpler strategy.

Speaker 1

And I would say as I look back, lots of great progress made in terms of raising funds, selling assets, buying shares back, enhanced communication, but I would also say unfinished work here, lots of work still to do. There's a lot of opportunity. I could put it in a positive way, but lots of things that we had set out to do and some of them were difficult over the last 4, 5 years if you think about the environment we've been in. So but just overall, it's a different company and we still have lots of opportunity ahead to execute on the strategy. I'll flip over then to the next page, which is Page 13.

Speaker 1

Just to remind folks, we did have another busy year from a transactional point of view. It was highlighted by the acquisition of the Rockefeller position by IGM, by Canada Life Acquiring Investment Planning Council, which really enhances its position and its scale in the wealth business in Canada, which is going to be a key focus for them going forward. And then ultimately the sale of Putnam, which closed on January 1 this year to Franklin. So those were the three highlights. But I'm going to come back to the 3 on the bottom and what CIGAR has announced over the last little bit here because it's interesting how CIGAR is using transactions in a difficult fundraising environment to enhance its scale and its growth prospects.

Speaker 1

Page 14 is just kind of a look back on Great West. Great West had I think a version of this slide in their decks. I'm not going to belabor each of these points, Notwithstanding the very difficult market in wealth, they had a lot of positive flows. A lot of that the majority of that was in the U. S.

Speaker 1

Because Empower is gaining market share and growing organically in the DC market and they've got a wealth business, of course, which I think is up to now somewhere around US70 $1,000,000,000 with the combination of the Personal Capital acquisition and the existing wealth business they had. So they and they've got strong, strong flows into that business. So that is a bright spot in terms of a difficult wealth market. And then down at the bottom of the page, just to highlight, we are in both of Canada and United States, we've got much stronger brands than we had even a few years ago. Remind folks that have followed us for a few years ago, back 3, 4 years ago, Canada Life, we're operating as Canada Life, Great West Life and London Life.

Speaker 1

So, it's only been a few years that we've emerged with the Canada Life brand and then Empower is investing heavily and will continue to invest heavily in building up its Empower brand in the U. S. So, we've got 2 strong positions here and we are very much working under what we think are very strong brands. Okay. Page 15 is probably the page in terms of change.

Speaker 1

As I mentioned a few slides ago, there's been change across power. I think nowhere more dramatically, if I can use that word. I don't think it's too strong a word as in Great West U. S. Business.

Speaker 1

If you go back to the end of 2018, Great West on the left hand side of this page had 3 businesses. It had Great West Financial, which was its insurance business for those that followed us. It was Coli, BOLI, there was some closed LifeLock's. It was actually the largest earnings contributor at that time. It had Empower and it had Putnam.

Speaker 1

And all three of those businesses in 2018 were earning less than CAD400 1,000,000. I think I've got CAD388 in my head, but it's someone will correct me if I'm off, but if I'm off, I'm not off by much. You go through what happened over the next 5 years. We kicked off 2019 in January with the announcement of the sale of the insurance business to Protective Life. The Great West followed that up with 3 acquisitions over the next couple of years, 2 defined contribution acquisitions MassMutual and Prudential and the Personal Capital acquisition.

Speaker 1

And then started this year or in the middle of this year announced the sale of Putnam and also the merging of Personal Capital and Empower's own wealth business into what's now branded as Empower Personal Wealth. And where are we today? We have one business Empower. It's the 2nd largest retirement provider in the United States. It has got 18,500,000 clients.

Speaker 1

It's got 1,500,000,000 U. S. On its platforms. It's growing organically at very strong rate. And in 2023, it as Denis said, it earned more than $1,000,000,000 and Great West at their recent call are calling for that growth to be somewhere in the 15% to 20% range for 2024.

Speaker 1

So, Empower is now the largest single business unit contributor in Great West in the U. S. Is approaching somewhere 30%, 32%. It's the largest segment. So the whole group has changed, but this is really the biggest piece of the story.

Speaker 1

And then we talked 4 or 5 years ago about at the time of the reorganization, really upping our game in terms of communication with the market transparency accountability. Part of that was in June of 2021 Great West came out and for the first time in our group announced that their medium term financial objectives, which you have on the left hand side of the page and at their recent call, they reported what you have on the right hand side of the page, their performance in terms of EPS growth, 11% for 2023. The 5 year growth is 11% on a CAGR compounded growth rate, which is above the growth targets they set. You got their ROE performance there and their dividend payout ratio, which was above their range and will work its way down slowly as we expect or I use well, the rally has been that the earnings growth has been higher than the dividend growth and through that a little bit of noise as they went to IFRS 2017, but our expectation is that we'll move over time that payout ratio down towards the middle of the range. It will bounce around from year to year, of course.

Speaker 1

Over on the 2017, just some comments on IGM and what they achieved in 2023. I think the Rockefeller acquisition is a significant transaction. It will offer them the opportunity to have a much larger exposure to the high net worth ultrahigh net worth business and starts to give them much more of a North American wealth presence. As we forget, but the China AMC deal, which we talked a lot about, I guess, back in 2022, it actually closed at the start in the Q1 of 2023, and we think that's the right place to concentrate that position. And notwithstanding the challenges that China is facing right now and investor apathy, I don't think that's a maybe a strong enough word in terms of their views of China.

Speaker 1

That business continues to do really well. There is a lot of savings going on in China right now and China's AMC's relative position continues to strengthen. So that's going to turn out I think over the long term to be a great acquisition for IGM. And then they sold IPC, as we mentioned, to Canada Lite to allow them to focus their time, their energy, their capital on building up the businesses that they had. Importantly, there was an Investor Day held in December by IGM and a couple of things were announced there.

Speaker 1

They recast their segmentation into wealth and asset management and basically no longer segmenting around their strategic investment segment, which I think is the way we think about it and they think about it and the right way to do it. And they came out with medium term objectives for the first time very much the way Great West Life I just mentioned did in 2021. And the best slide to describe that is the following one, Page 18, where you see the segmentation on the left. And I just go back to my comments earlier, they got a core franchise in each of Wealth and Asset Management and then they got some very much high growth drivers for the future. And their earnings EPS objectives on a 5 year basis are 9% overall earnings growth.

Speaker 1

That's a specific number. It will obviously, if they execute, be a range around that. And it's 7% coming from the core franchises, more mature. Those are the bigger franchises paying the bills right now, if I can use that expression, but they're more mature franchises and then they're expecting higher growth out of the other parts of the portfolio here. These assumptions assume normal market growth.

Speaker 1

There's normal stock market and growth assumptions in that. There's obviously some volatility on a year to year basis in those businesses. Okay. A couple of comments on 2019 on GBL and just to say record year for returning capital to shareholders. Second point is they're refocusing their portfolio, basically putting more emphasis on private assets.

Speaker 1

They've sold out of 3 positions and they reduced their position in Carnot Ricard and they created value in their private asset portfolio. So, they continue to drive forward with their strategy. Couple of slides on our investment platforms. It's just a little bit of a look back here to when we announced the new strategy. We said at that time, we were going to try and grow the investment platforms without putting additional seed capital from power into it.

Speaker 1

We were going to rely on parties other than power and you're going to look back there from on the funded assets under management, dollars 3.7 billion to $17,600,000,000 That's over just slightly less in the Q1 to the end of Q4, so it's a little less than 4 years. And then the dark blue bar, Power Corp has got effectively the same amount of capital invested in it. There's some mark to markets and some of those numbers We've effectively done what we said we were doing, but still a long way to go clearly to get these platforms into a point where they're contributing from a value point of view and the way we're able to communicate that contribution to the market effectively, but lots of progress. Page 21 is, I think, is really interesting. Cigar, everyone following the alts market and the private asset market knows it's been a difficult funding.

Speaker 1

It's been difficult to fund. It's been difficult to actually deploy capital. So the businesses across the world are really kind of finding this has been 2023 has been a difficult year from a growth point of view. Cigar has done 3 transactions. So, it's one thing to go out and ask people to invest in your fund, but they've done 3 transactions to expand their scale and their funding and their growth going forward.

Speaker 1

We talked about ADQ and the BMO, ADQ now called Lunate, coming in as a GP and committing to provide future seed capital for the funds, but also investing capital and cash into Cigar. So, that was a growth strategy. But then in December and closing in January, Cigar announced the acquisition of a strategic interest and that means we've got significant equity interest and there is a path to control eventually in that transaction of a US9 $1,000,000,000 manager called Performance Equity Management and basically gets Cigar into fund to fund secondary and co investment space, which is a very important space, particularly if you think about the shifts and flows going forward in the alt space from having been historically institutional and endowment led and now moving more into high net worth family office and ultimately into retail. Those products are very well suited for that. And then they just announced a couple of weeks ago the acquisition of a 40% stake in Halsey Point, which is a CLO manager out of the United States and Cigar has got credit products.

Speaker 1

This will extend their range in the credit market and again will give them other avenues for growth. So difficult funding environment, but they've got the capital and they're doing the transactions to expand their scale and expand their growth prospects through a different form, which is using M and A. Okay. And back to wrap it up here before I open it up for questions. So, Power, you see our buybacks across the top of the page.

Speaker 1

Remind you, we had COVID. We're a little slow out of the blocks getting transactions done monetization that has picked up in 20222023. Looking, we increased the dividend as I mentioned. For buybacks going forward, Our cash at CAD900 1,000,000 is just a little bit above where we like to keep it. So we are very much focused on getting additional buybacks through 2024 and we'll be looking to continue the monetization of non core assets as the key funder for that and all at the same time maintaining our very strong credit rating.

Speaker 1

I have to at least pause on Page 23 for a second on our total shareholder returns. We're long term shareholders, but we are very much in business to create shareholder returns. And while these all of these numbers are obviously very sensitive to start dates and end dates, as know. We do very much keep our eye on what kind of total shareholder returns we're providing to shareholders. And then you've got some benchmarks there.

Speaker 1

We've done very, very well against the key benchmarks that we look at in terms of those time periods of outperformance. On Page 24, notwithstanding that the discount has widened out over the last 18 months or so, And we're working hard on ensuring that shareholders see the value across all of the assets we have, including the assets that are at power. And we do believe that that's we don't ultimately control that, but our behavior and the actions we take can certainly have an impact on it. So, those returns were created even though we have widened that discount out a little bit. And again, I view this as in the opportunity category.

Speaker 1

Page 25 just kind of summarizes and operator will be going to questions in a second, our 3 key drivers and walks through where our businesses are today. And we I'll summarize the way I started. We've got lots of work done here, but lots of opportunity to keep driving the strategy going forward. With that, operator, I would ask you to open it up for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Graham Ryding with TD Securities. Please go ahead.

Speaker 3

Hi, good morning. Just on the cigar and the minority stakes year to date into those private equity and private credit managers or CLO manager. What's the thought process there in terms of taking minority stake positions here as opposed to controlling majority positions?

Speaker 1

I think you should think of it as a path along a road. So I mentioned, for example, we've got a path to control in the first instance. And so these are people businesses you buy in, you establish a major position, and then you negotiate your ability over time to take a controlling position. So I just I don't think the intent is to stay in a minority position is the bottom line, but to work with those platforms and ultimately be in a position to control the brand. It's tactical is what it is.

Speaker 3

Okay. Yes, understood. There were some, I think, fair value gains within Power Sustainable that triggered you booking some non controlling interest charges. Can you maybe just give us some color on what drove the gains and just make sure we're understanding that correctly?

Speaker 1

Denis, do you want to take that?

Speaker 2

Yes. Well, the gains were primarily in the Portage and the private equity sector? It was

Speaker 1

a power sustainable capital question, I think. I'm sorry, go ahead. It's a non controlling interest in the infra fund.

Speaker 2

In the infra fund, the non controlling interest is we've explained before the accounting mismatch that when you have an increase in the value of the fund itself, we have a redemption feature from the non controlling unitholders and that turns into what we call the non controlling interest charge because we have to report on our books the increase in the value that goes to the NCI.

Speaker 1

So put it another way, we consolidate this fund because between our position and Canada Life's got a position in it where we consolidate it. When the value of the fund goes up, we don't recognize the increase in the value of the fund, but we do recognize the value of the minority non powered, non Canada Life shareholders in it. That value flows through as a liability and flows through the P and L. So every time we have good news and the value goes up, we have a P and L loss with the current accounting. So it's just is that a layman's description of the outcome as opposed to the technical description of Yes.

Speaker 1

But I think the gist of it is

Speaker 2

good news on the value side results and bad news on the earnings side. Yes. We should start every presentation, Graham, by going. And really good news in

Speaker 1

Power Sustainable Capital, we had another loss. Like I mean, it's it is what it is. But the bottom line is the value went up and we don't recognize that and we recognize the minority shareholders increase in value as a liability through the P and

Speaker 3

L. Yes. Okay. And what drove the increase in the fair value gain within the fund?

Speaker 2

In the quarter itself, the fair value gain in the fund was essentially looking at the future electricity rates and there has been a shift in the electricity rates so that when you do your DCF of all of your projects that did turn into increases in the value of the funds. At other times, you will see derisking events as we've seen in the past, but that was not the case in the current quarter.

Speaker 3

Okay, understood. And my last one if I could just, I think you mentioned $900,000,000 in cash, so slightly above sort of that minimum level that you like to sit at. So if you're able to, I guess, continue buybacks this year at a similar level to what we've seen in 20222023, what are the, I guess, assets to standalone or otherwise, what are the assets you're most likely looking to monetize if you're going to be able to continue to buy back shares at this level?

Speaker 1

Yes. Graham, I'd rather I don't want to name any specifics because you've got in the portfolio, we've got a series of assets that are clearly non financial services. So we said for some time that those long term are not in place. I said before publicly, I don't think I would have anticipated 4 years ago that they'd still be we'd still have as much capital tied up in those, but the world unfolded the way it did. So those are there.

Speaker 1

You've seen in the past that we seed capital into the strategies of our sustainable capital and cigar. And when there's opportunities to do secondaries, we've done that. So we sold out of positions because we seed them and then ultimately they get to a more mature state and there's lots of secondary buyers for positions. So that's another tool that we have. So we've got a bunch and how we execute on them will depend on markets, buyers and negotiations and all of that.

Speaker 1

So I don't want to pre anticipate that. So I don't mean to be evasive, but I think it would be misleading to kind of name 1 or 2 because I actually the year will unfold the way it's going to unfold and we'll do what we can we'll see at doing what we do and that will have a bearing on the rate of buybacks that we execute on.

Speaker 3

Okay, understood. That's it for me. Thank you.

Speaker 1

Hey. Thanks,

Operator

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

Speaker 4

Hi, good morning. Just back to the acquisitions at Seggard or Performance Equity and Health Lease. Can you talk about purchase price or what this should had in terms of financial terms and earnings? And I know it's at the margin, but what I'm trying to understand is the amount of capital that's being deployed, the potential return on the capital and how do we what are the metrics we should be using to kind of gauge your progress as you kind of build this franchise out? Is it earnings, EBITDA?

Speaker 4

Hoping to get some color.

Speaker 1

Thank you. We're not in a position it's not not material to Power, we would have disclosed it. And then secondly, we would have liked to disclose it. But foundries and we have in the agreements, we have confidentiality agreements to state that we can't state the purchase price at this point. So that's awkward from a disclosure point of view, but it's not material amounts of money.

Speaker 1

So, that's a polite way Doug is saying I can't tell you the answer to the first part of your question. I think the where you went there is with a metric system what we're looking for. I think at this point, when Cigar is doing these transactions, it's about value creation right now and ultimately it's going to be at the GP level about earnings, but they are building up their scale big time. And so they're at $15,000,000,000 of AUM. They get another and they get another US9 dollars out of the performance equity transaction, but also in a great new sector.

Speaker 1

The CLO is a smaller AUM than that, but gives them additional products. And the ADQ, Nelunate and BMO deal, they bought an equity position, diluted us in that process, but put cash into Cigar and that validated the value creation. So, we marked if you remember, we marked Cigar up on our books. I think it was a double in terms of the value. It was somewhere around a double.

Speaker 1

So there is a metric of success. It's not producing earnings that will move the dial at power for the time being, but the value that validated 2 third parties coming in and put and double the value we had

Speaker 3

at Cigar, but they also

Speaker 1

put cash into Cigar. So the acquisitions that they're making of Performance Equity and HalcyPoint is really that's not we didn't have to throw cash in there as power. That's cash that Cigar now has in its treasury through the through those transactions and other sources through the ADQ and the BMO and it had some cash in there. So we haven't been injecting capital, but they're building out their scale, they're building out their value. And therefore, what do I expect out of that?

Speaker 1

I expect that you're going to see continued increase in the value of our position in CIGAR over time as they build out that build out their scale and their position and ultimately it will be producing earnings. The final thing I'll say on it is that there's a little bit of a do we how much do we want to show profit today versus how successful do we want Cigar ultimately to be. And so we're at a point where if we wanted to drive some earnings through it, there's enough revenue there that we could drive some earnings out, but is it going to make a difference to PowerFurp on our P and L? No. And so you end up saying, well, let's keep investing.

Speaker 1

We got some cash here. Let's keep building up the scale and make this into a much bigger business 3, 4, 5 years from now. And that's kind of the internal discussions that we have. Final thing, I think we disclosed the fee revenue for Cigar, and I think it was got it I'm looking at someone here. We have it in our statements.

Speaker 1

I think if you go back, correct me if I'm wrong, just in the past year is US135 million dollars US137 million dollars which translate CAD 175 million dollars US175 million dollars CAD 175 million dollars CAD 175 million dollars CAD 175 million dollars CAD 175 million dollars CAD 175 million dollars CAD 175 million dollars CAD 175 million dollars regards built up business, we're just on the fees, the steady fees they're earning from their funds. They've got $175,000,000 This is a real business. It's got scale and they're trying to build that scale by these transactions to something even bigger and ultimately that will produce contribution. Long answer, Doug? But it's kind of a

Speaker 4

No, I appreciate it. And so the cash that you're using to buy these entities or the stakes in these entities is actually not part of the $900,000,000 at the HoldCo. This is coming out of liquidity at SAGAR. Is that do I have that correct? Yes, that's it.

Speaker 4

Okay. And then in fact just on Graeme's question, just follow-up on that one in terms of buybacks, it sounds like either you're going to use the liquidity at the holdco, which is about $100,000,000 in excess of what you want to hold, it sounds like, and then otherwise standalone businesses being sold. Is there any other kind of lever you can pull to kind of finance buybacks?

Speaker 1

For sure. Secondaries, capital out of some of our positions in the strategies that we have, That was part of what I answered in Graham. We did we raised, I think over $300,000,000 by doing a secondary of our position in SIGAR3, which is SIGAR3 Fund is a European Private Equity Fund. And I'm looking around here, it's over CAD300 1,000,000, CAD330 1,000,000. CAD330 1,000,000.

Speaker 1

CAD330 1,000,000. CAD330 1,000,000. So we did Doug, and you've been the sponsor, especially on a first fund, say, well, we want to see the sponsors put up $200,000,000 of capital if you're going to raise this $500,000,000 fund. So we end up putting up a bunch of capital on the first fund and then it grows and 3, 4 years later, the fund has done really well. We're under the second fund.

Speaker 1

We only had to put up $50,000,000 in the second fund because we were successful and now our $200,000,000 has got a position of $350,000,000 because I'm making these numbers up, okay? Like I'm just giving you an example. And the fund is 3, 4 years old and there's a lot of buyers of secondary positions because a lot of for a bunch of reasons I won't get into, but a lot of buyers in secondary positions. And we at that point can take our 300 off the table and go and sell it. So we're always looking at the 2,500,000,000 that we have in the seed capital pool and saying where can we harvest that and where can we take a couple 100 off here or 200 off 3.

Speaker 1

So it's not just a standalone, it's actually harvesting and some of that goes back into seeding new funds and some of that comes back to Power Corp and we buy shares back.

Speaker 4

Okay. Okay, that makes sense. And then just on the standalone businesses, correct me if I'm wrong, if you were to sell them and then you kind of show what you hold them at carrying value, I mean, that would be marginal, it's marginal, but to be marginally positive to operating EPS and that frees up cash to buy back shares, like do I have that right?

Speaker 1

You have it perfectly right. So to make your point, when we closed the reorganization in February of 2020, we had on closing 6 83,000,000 shares outstanding and we bought back 38,000,000 over the last 3, call it, 4 years. We had $8,000,000 $7,000,000 options exercised. So we net bought back 31,000,000 shares. So we have 700 and 652 at the end of the year.

Speaker 1

So that's 31,000,000 less. We have a dividend at this rate of 2.25. So you can do the math. We have about $70,000,000 less in dividend obligations in the aggregate, which flows through to our cash flow. And we've raised $750,000,000 or $1,000,000,000 wherever it is on selling a bunch of other assets and we put that back into cash flows.

Speaker 1

That's another 25,000,000 shares at $40 You can do the math. So every time we do this, we're increasing our not only our NAV, we're buying back shares at a 25% discount, we're increasing our earnings because we've got less shares outstanding and we create a lot of more cash flow. So that's you got it exactly.

Speaker 4

Yes. And then just lastly, Mindy, this question or new statement, but it's like the $48,000,000 negative impact, I understand the mechanics of how it works. Why is that not an adjusting item?

Speaker 1

That's a good question. I'm not touching that one. Wait, wait, this is the one for Jake.

Speaker 4

Jake, you've been here for

Speaker 2

I think that is a fair question. That is one that we toyed within in the past that could be a candidate for just putting it into the adjustments. And it would be more in line with what we see as the type of adjustments that Great West does. And just on fair value, like kind of unexpected fair values how they affect your earnings as opposed to your run rate. So they would be in our earnings, but it would be it could be I'm not saying it will be, but it could be part of the adjustments.

Operator

There are no further questions. I would like to turn the conference back over to Mr. Jeffrey Orr for any closing remarks. Please go ahead.

Speaker 1

Okay. Thank you again, everyone, for being with us this morning. And we look forward to talking to everyone soon, and have a great day. Thanks a lot. Bye bye now.

Speaker 1

Thanks, operator. You can terminate the call.

Operator

This concludes today's conference call. You may disconnect your lines.

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Key Takeaways

  • Strong Q4 & 2023 earnings: Adjusted net earnings rose to CAD 0.89 per share from CAD 0.59 a year earlier and NAV per share reached CAD 53.53, driven by Great West Life’s broad-based growth and Empower surpassing US$1 billion in base earnings.
  • Completion of 5-year U.S. repositioning: The sale of Putnam and integration of Prudential mark the end of Great West’s U.S. reshaping, with Empower now the largest segment and the second-largest retirement provider in the U.S.
  • Active capital deployment: 2023 featured a record CAD 31 million in share buybacks, a 7.1% dividend increase, and ongoing monetizations of non-core assets to fund further buybacks while preserving a strong credit rating.
  • GBL & IGM strategy: GBL delivered record shareholder returns and pivoted toward private assets, while IGM outlined a 9% EPS CAGR target over five years after strategic acquisitions of Rockefeller and China AMC stakes.
  • Alternatives platform expansion: CIGAR grew AUM toward US$15 billion and acquired minority stakes in Performance Equity and CLO manager Halsey Point, while Power Sustainables saw infrastructure fund valuation gains (offset by NCI accounting) reflecting higher projected electricity rates.
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Earnings Conference Call
Power Co. of Canada Q4 2023
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