2007'02.04.Sun
W.P. Stewart & Co., Ltd. Reports Net Income for Second Quarter of $9.6 Million After Non-recurring Charge
July 27, 2006
Diluted earnings per share of $0.21 and $0.49 for the second quarter and first six months, respectively
Strategic Growth Initiatives Broadened
Strategic Growth Initiatives Broadened
HAMILTON, Bermuda, July 27 /Xinhua-PRNewswire/ -- W.P.
Stewart & Co., Ltd. ("W.P. Stewart" or the
"Company") today reported net income of $9.6
million, or $0.21 per share (diluted) and $0.21 per share
(basic), for the second quarter ended 30 June 2006. Net
income for the second quarter 2006 includes a non-recurring
charge of $2.6 million ($0.05 per share, diluted) related to
the resetting of the performance fee "high water
mark" as required on 30 June 2006 in connection with
the completion of the transfer of W.P. Stewart Holdings NV
from Curacao to Luxembourg. Excluding this non-recurring
charge, second quarter net income was $11.9 million or
$0.26 per share (diluted) and $0.26 per share (basic).
These earnings results compare with net income in the
second quarter of the prior year of $12.3 million or $0.27
per share (diluted) and $0.27 per share (basic).
In announcing the results, John C. Russell, President
and Chief Executive Officer, said, "Although the
environment is challenging, we remain focused on a range of
strategic initiatives to enhance long term shareholder
value."
Mr. Russell announced that the Company is launching a
program to selectively rationalize and simplify its fee
structure to sustain and expand its exceptional client
relationships worldwide. As part of this effort, starting
1 July 2006, for accounts at $50 million and over W.P.
Stewart will charge a single fee, with no charge for
brokerage commissions. This single fee structure will be
tapered providing a significant reduction over the previous
schedules for these larger accounts.
In addition, for eligible pooled funds, sponsored and
marketed by third-parties, that engage the Company in a
sub-advisory role, the Company will introduce a new
advisory fee schedule effective 1 October 2006. Under that
new fee schedule, the annual advisory fee for these funds
will be 1.00% on the first $100 million of assets and will
be 0.75% for any amount over $100 million.
Effective 1 July 2006, brokerage commission charges for
all funds that engage the Company as an advisor or
sub-advisor and are marketed by W.P. Stewart or by
third-party sponsors were set at $0.08 per share for funds
with assets under management up to $25 million and $0.05
per share for funds with assets over $25 million.
Commenting on these changes, Mr. Russell said,
"These adjustments to our fees and commission charges,
coupled with broader use of performance fee structures based
on both absolute and relative performance measures, were
made in recognition of the strong opportunity we have in
the super high net worth and large institutional markets,
market segments heretofore unavailable to us, and to better
position ourselves in the important pooled fund
market."
"Our global marketing program lead by Fred
Busk," Mr. Russell continued, "is actively
expanding our profile worldwide, complementing a
reinvigorated focus on our core high net worth client base
with a new emphasis on super high net worth individuals and
large institutional investors."
As part of this initiative Mr. Russell noted that a
marketing agreement had recently been negotiated with
Perkins Fund Marketing LLC, an organization recognized for
its multifaceted investment marketing services. Perkins
represents a limited number of diverse, quality investment
fund managers to its sophisticated investor contacts.
Working with Perkins, W.P. Stewart will be launching an
asset gathering program directed at investors with large
asset bases utilizing a relative performance fee
structure.
Separately, the Company anticipates introducing a new
asset gathering initiative for large U.S. equity portfolios
utilizing an absolute performance fee structure.
Mr. Russell also noted the Company is concurrently
expanding its global portfolio management activity under
the direction of Mark Phelps, recently appointed Deputy
Managing Director - Global Investments, and anticipates
introducing an EAFE fund to its worldwide client base
during the fourth quarter of this year.
During the quarter, the Company negotiated new
employment arrangements with members of its senior
portfolio management team. As part of these arrangements,
the Company is committing to bring important new equity
ownership in W.P. Stewart to the next generation of
portfolio managers.
"As we look longer term," Mr. Russell said,
"we are confident that W.P. Stewart will generate
strong results by successfully pursuing multiple avenues to
develop new growth opportunities."
Second Quarter Highlights
Assets under management (AUM) for the quarter ended 30
June 2006 declined approximately $900 million to
approximately $8.4 billion. This compares with AUM of
approximately $8.8 billion reported at 30 June 2005.
As noted above, second quarter earnings included a
non-recurring charge of approximately $2.6 million or $0.05
per share, diluted. Excluding this non-recurring charge,
second quarter net income was $11.9 million or $0.26 per
share (diluted).
Cash earnings for the quarter ended 30 June 2006 were
$13.3 million (net income of $9.6 million adjusted to
include $3.7 million representing non-cash expenses of
depreciation, amortization and other non-cash charges on a
tax effected basis), or $0.29 per share (diluted). In the
same quarter of the prior year, cash earnings were $15.2
million (net income of $12.3 million adjusted for the
inclusion of $2.9 million representing non-cash expenses of
depreciation, amortization and other non-cash charges on a
tax-effected basis), or $0.33 per share (diluted).
Cash earnings include the previously noted
non-recurring charge of $2.6 million related to the
transfer of W.P. Stewart Holdings NV from Curacao to
Luxembourg. Excluding this non-recurring charge, second
quarter cash earnings totaled $15.5 million or $0.34 per
share (diluted).
For the second quarter of 2006 there were 45,915,096
common shares outstanding on a weighted average diluted
basis compared to 45,833,007 common shares outstanding for
the second quarter of 2005 on the same weighted average
diluted basis.
Six Month Results
For the six months ended 30 June 2006, net income was
$22.3 million, down 11.0%, compared to the $25.1 million
reported for the first six months of 2005. Net income was
$0.49 per share (diluted) and $0.49 per share (basic) for
the first six months of 2006, compared to $0.55 per share
(diluted) and $0.55 per share (basic) for the six month
period in 2005.
Net income and earnings per share for the six month
period ended 30 June 2006 include the non-recurring charge
related to W.P. Stewart Holdings NV detailed above. Net
income for the period adjusted to exclude this
non-recurring item was $24.6 million or $0.53 per share
(diluted).
Cash earnings for the six months ended 30 June 2006
were $27.7 million (net income of $22.3 million adjusted to
include $5.4 million, representing non-cash expenses of
depreciation, amortization and other non-cash charges on a
tax-effected basis), or $0.60 per share (diluted). In the
same period of the prior year, cash earnings were $30.5
million (net income of $25.1 million adjusted for the
inclusion of $5.4 million representing non-cash expenses of
depreciation, amortization and other non-cash charges on a
tax-effected basis), or $0.67 per share (diluted).
Cash earnings adjusted to exclude the non-recurring
charge related to the transfer of W.P. Stewart Holdings NV
were $30.0 million or $0.65 per share (diluted).
For the six months ended 30 June 2006, there were
45,928,110 common shares outstanding on a weighted average
diluted basis compared to 45,847,058 common shares
outstanding for the same period in 2005 on the same
weighted average diluted basis.
Performance
Performance in the W.P. Stewart & Co., Ltd. U.S.
Equity Composite (the "Composite") for the second
quarter of 2006 was -3.9% pre-fee and -4.2% post-fee. This
compares to -1.4% for the S&P 500.
For the six months ended 30 June 2006, performance in
the Composite was -2.5%, pre-fee and -3.1%, post-fee. This
compares to +2.7% for the S&P 500.
For the twelve month period ending 30 June 2006,
performance in the Composite was +8.3%, pre-fee and +7.1%,
post-fee. This compares to +8.6% for the S&P 500.
W.P. Stewart's five-year performance record for the
period ended 30 June 2006 averaged +5.3% pre-fee (+4.1%
post-fee), compounded annually, compared to an average of
+2.5 % for the S&P 500 in the five-year period.
As at 30 June 2006, these recent performance results
have negatively impacted one and three-year comparisons
with the S&P 500 Index, however, the five and ten-year
investment returns for the Composite remain substantially
ahead of the Index, both on a pre-fee basis and a post-fee
basis.
Portfolio returns in July have continued under pressure
with preliminary indications that year-to-date performance
is now approximately 940 basis points behind the S&P
500 on a pre-fee basis.
Assets Under Management
As noted above, AUM declined approximately $900 million
in the quarter ended 30 June 2006 to approximately $8.4
billion. This compares to AUM of approximately $8.8 billion
reported at 30 June 2005.
Total net flows of AUM for the quarter ended 30 June
2006 were -$510 million, compared with -$115 million in the
comparable quarter of 2005 and -$237 million in the first
quarter of 2006.
Total net flows of AUM for the six months ended 30 June
2006 and 2005 were -$747 million and -$158 million,
respectively.
In the second quarter of 2006, net cash flows of
existing accounts were approximately -$207 million compared
with net cash flows of approximately -$119 million in the
second quarter of 2005. Net cash flows of existing accounts
for the six months ended 30 June 2006 were -$238 million
compared to -$88 million for the six months ended 30 June
2005.
Net new flows (net contributions to our
publicly-available funds and flows from new accounts minus
closed accounts) were approximately -$303 million for the
quarter compared to approximately +$4 million for the same
quarter of the prior year. Net new flows were
approximately -$509 million and approximately -$70 million
for the six months ended 30 June 2006 and 2005,
respectively.
Look-Through Earning Power
W.P. Stewart & Co., Ltd. concentrates its
investments in large, generally less cyclical, growing
businesses. Throughout most of the Company's 30-year
history, the growth in earning power behind clients'
portfolios, as measured by earnings per share, has ranged
from approximately 10% to 20%, annually.
Currently the "look-through" earnings power
behind our clients' portfolios remains solidly positive
with portfolio earnings per share growth on a trailing four
quarter basis as at 30 June 2006 expected to have advanced
at the high end of the historical range. The Company's
research analysts expect "look-through" portfolio
earnings growth to be within the 12-15% range over the next
few years.
Revenues and Profitability
Revenues were $38.5 million for the quarter ended 30
June 2006, compared to $33.9 million for the same quarter
2005. An increase in commissions was a major factor in the
revenue gain for the second quarter. Portfolio transactions
increased as portfolio managers took advantage of the market
weakness to reallocate portfolio capital to companies in
which they had the highest conviction and also to establish
new positions in certain companies.
Revenues for the six months ended 30 June 2006 and 2005
were $74.8 million and $68.7 million, respectively.
The average gross management fee was 1.13%, annualized,
for the quarter ended 30 June 2006 and 1.13% for the six
months ended 30 June 2006, compared to 1.18% and 1.17% in
each of the comparable periods of the prior year. Excluding
performance fee based accounts, the average gross management
fee was 1.25%, annualized, for the quarter ended 30 June
2006, and 1.26% for the six months ended 30 June 2006,
compared to 1.28% in each of the comparable periods of the
prior year.
Total operating expenses for the second quarter 2006,
including the non-recurring charge of $2.6 million,
increased 37.4% to $27.8 million from $20.3 million in the
same quarter of the prior year. Total operating expenses
were $49.1 million and $40.9 million for the six months
ended 30 June 2006 and 2005, respectively.
During 2004, 2005 and through the first half of 2006,
the Company issued restricted shares to various employees.
The non-cash compensation expense related to these
restricted share grants was approximately $2.3 million for
the second quarter of 2006 and approximately $2.6 million
for the six months ended 30 June 2006. This non-cash
compensation expense is included in "employee
compensation and benefits". The non-cash compensation
expense related to these restricted share grants is
expected to be at least $7.1 million for 2006.
Pre-tax income at $10.7 million was 27.8% of gross
revenues for the quarter ended 30 June 2006 compared to
$13.6 million or 40.2% of gross revenues in the comparable
quarter of the prior year. Pre-tax income was $25.7
million (34.4% of gross revenues) for the six months ended
30 June 2006 and $27.9 million (40.5% of gross revenues)
for the six months ended 30 June 2005.
The Company's provision for taxes for the quarter ended
30 June 2006 was $1.1 million versus $1.4 million in the
comparable quarter of the prior year, and was $3.4 million
versus $2.8 million for the six months ended 30 June 2006
and 2005, respectively. The effective tax rate was 9.9% of
income before taxes in the second quarter of 2006 compared
to 10.0% in the second quarter of 2005. The effective tax
rate was approximately 13.2% and 10.0% of income before
taxes for the six month periods ended 30 June 2006 and
2005, respectively.
The increase in the tax rate for the six month period
in 2006 relates to changes in the allocation of portfolio
management activities among various jurisdictions
reflecting recent portfolio manager departures and other
management changes. The proportion of various activities
based in high-tax jurisdictions has increased somewhat
relative to the activity based in lower-tax jurisdictions.
Whereas the Company had previously indicated that the
anticipated tax rate for 2006 would be between 17% and 20%,
it now expects that the tax rate will be approximately 14%
for 2006.
Other Events
The Company paid a dividend of $0.30 per common share
on 28 April 2006 to shareholders of record as of 13 April
2006. As always, the Board of Directors continues to
evaluate the Company's dividend policy in light of the
Company's financial performance and outlook, and the
Company will pay a dividend of $0.30 per common share on 28
July 2006 to shareholders of record as of 14 July 2006.
Conference Call
In conjunction with this second quarter 2006 earnings
release, W.P. Stewart & Co., Ltd. will host a
conference call on Thursday, 27 July 2006. The conference
call will commence promptly at 9:15am (EDT). Those who are
interested in participating in the teleconference should
dial 1-888-858-4723 (within the United States) or
+973-935-8508 (outside the United States). The conference
ID is "W.P. Stewart". To listen to the live
broadcast of the conference over the Internet, simply visit
our website at www.wpstewart.com and click on the Investor
Relations tab for a link to the webcast.
The teleconference will be available for replay from
Thursday, 27 July 2006 at 12:00 noon (EDT) through Friday,
28 July 2006 at 5:00 p.m. (EDT). To access the replay,
please dial 1-877-519-4471 (within the United States) or
+973-341-3080 (outside the United States). The PIN number
for accessing this replay is 7600706.
You will be able to access a replay of the Internet
broadcast through Thursday, 3 August 2006, on the Company's
website at http://www.wpstewart.com . The Company will
respond to questions submitted by e-mail, following the
conference.
W.P. Stewart & Co., Ltd. is an asset management
company that has provided research-intensive equity
management services to clients throughout the world since
1975. The Company is headquartered in Hamilton, Bermuda and
has additional operations or affiliates in the United
States, Europe and Asia.
The Company's shares are listed for trading on the New
York Stock Exchange (NYSE: WPL) and on the Bermuda Stock
Exchange (BSX: WPS).
For more information, please visit the Company's
website at http://www.wpstewart.com , or call W.P. Stewart
Investor Relations (Fred M. Ryan) at 1-888-695-4092
(toll-free within the United States) or + 441-295-8585
(outside the United States) or e-mail to
IRINFO@wpstewart.com .
Statements made in this release concerning our
assumptions, expectations, beliefs, intentions, plans or
strategies are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995. Such statements involve risks and uncertainties that
may cause actual results to differ from those expressed or
implied in these statements. Such risks and uncertainties
include, without limitation, the adverse effect from a
decline or volatility in the securities markets, a general
downturn in the economy, the effects of economic, financial
or political events, a loss of client accounts, inability of
the Company to attract or retain qualified personnel, a
challenge to our U.S. tax status, competition from other
companies, changes in government policy or regulation, a
decline in the Company's products' performance, inability
of the Company to implement its operating strategy,
inability of the Company to manage unforeseen costs and
other effects related to legal proceedings or
investigations of governmental and self-regulatory
organizations, industry capacity and trends, changes in
demand for the Company's services, changes in the Company's
business strategy or development plans and contingent
liabilities. The information in this release is as of the
date of this release, and will not be updated as a result
of new information or future events or developments.
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of
Operations
For the Three
Months Ended
June 30, Mar.
31, June 30,
2006
2006 2005
Revenue:
Fees $25,788,508
$27,187,308 $25,905,543
Commissions 11,916,558
8,260,794 7,334,973
Interest and other 832,272
798,077 632,934
38,537,338
36,246,179 33,873,450
Expenses:
Employee compensation and
benefits 11,228,135
7,738,837 7,231,107
Fees paid out 1,949,680
2,174,908 2,140,864
Performance fee charge 2,625,642
- -
Commissions, clearance and
trading 2,245,933
1,642,079 1,623,246
Research and administration 3,330,257
3,629,544 3,557,819
Marketing 1,488,922
1,711,094 1,183,848
Depreciation and amortization 1,648,745
1,575,794 2,052,745
Other operating 3,318,203
2,762,137 2,465,856
27,835,517
21,234,393 20,255,485
Income before taxes 10,701,821
15,011,786 13,617,965
Provision for taxes 1,053,940
2,347,675 1,361,796
Net income $9,647,881
$12,664,111 $12,256,169
Earnings per share:
Basic earnings per share $0.21
$0.28 $0.27
Diluted earnings per share $0.21
$0.28 $0.27
%
Change From
Mar. 31,
2006 June 30, 2005
Revenue:
Fees -5.15%
-0.45%
Commissions 44.25%
62.46%
Interest and other 4.28%
31.49%
6.32%
13.77%
Expenses:
Employee compensation and benefits 45.09%
55.28%
Fees paid out -10.36%
-8.93%
Performance fee charge -
-
Commissions, clearance and trading 36.77%
38.36%
Research and administration -8.25%
-6.40%
Marketing -12.98%
25.77%
Depreciation and amortization 4.63%
-19.68%
Other operating 20.13%
34.57%
31.09%
37.42%
Income before taxes -28.71%
-21.41%
Provision for taxes -55.11%
-22.61%
Net income -23.82%
-21.28%
Earnings per share:
Basic earnings per share -25.00%
-22.22%
Diluted earnings per share -25.00%
-22.22%
W.P. Stewart & Co., Ltd.
Unaudited Condensed Consolidated Statements of
Operations
For the Six
Months Ended June 30,
2006
2005 %
Revenue:
Fees $52,975,816
$53,141,444 -0.31%
Commissions 20,177,352
14,524,371 38.92%
Interest and other 1,630,349
1,041,431 56.55%
74,783,517
68,707,246 8.84%
Expenses:
Employee compensation and benefits 18,966,972
14,458,703 31.18%
Fees paid out 4,124,588
4,028,214 2.39%
Performance fee charge 2,625,642
- -
Commissions, clearance and trading 3,888,012
3,110,048 25.01%
Research and administration 6,959,801
7,293,853 -4.58%
Marketing 3,200,016
2,723,807 17.48%
Depreciation and amortization 3,224,539
4,096,134 -21.28%
Other operating 6,080,340
5,144,825 18.18%
49,069,910
40,855,584 20.11%
Income before taxes 25,713,607
27,851,662 -7.68%
Provision for taxes 3,401,615
2,785,166 22.13%
Net income $22,311,992
$25,066,496 -10.99%
Earnings per share:
Basic earnings per share $0.49
$0.55 -10.91%
Diluted earnings per share $0.49
$0.55 -10.91%
W.P. Stewart & Co., Ltd.
Net Flows of Assets Under Management*
(in millions)
For the Three
For the Six
Months Ended
Months Ended
Jun. 30, Mar. 31, Jun. 30,
Jun. 30, Jun. 30,
2006 2006 2005
2006 2005
Existing Accounts:
Contributions $168 $329 $171
$497 $483
Withdrawals (375) (360) (290)
(735) (571)
Net Flows of Existing
Accounts (207) (31) (119)
(238) (88)
Publicly Available Funds:
Contributions 78 34 62
112 116
Withdrawals (93) (69) (18)
(162) (93)
Direct Accounts Opened 27 57 104
84 175
Direct Accounts Closed (315) (228) (144)
(543) (268)
Net New Flows (303) (206) 4
(509) (70)
Net Flows of Assets Under
Management $(510) $(237) $(115)
$(747) $(158)
* The table above sets forth the total net flows of
assets under management for the three months ended June 30,
2006, March 31, 2006 and June 30, 2005, respectively, and
for the six months ended June 30, 2006 and 2005,
respectively, which include changes in net flows of
existing accounts and net new flows (net contributions to
our publicly available funds and flows from new accounts
minus closed accounts). The table excludes total capital
appreciation or depreciation in assets under management
with the exception of the amount attributable to
withdrawals and closed accounts.
For more information, please contact:
Fred M. Ryan,
W.P. Stewart & Co., Ltd.
Tel: +441-295-8585
SOURCE W.P. Stewart & Co., Ltd.
PR
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