Franklin Resources, Inc. (BEN) Q4 2014 Earnings Report, Transcript and Summary

Welcome to Franklin Resources Earnings Commentary for the Quarter and Fiscal Year Ended September 30, 2014. Please note that the financial results to be presented in this commentary are preliminary. Statements made in this commentary regarding Franklin Resources Inc. which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. This commentary was prerecorded.

Hello. And thank you for listening to our fourth quarter and fiscal year earnings commentary. I'm Greg Johnson, CEO; and, I'm joined by Ken Lewis, our CFO. Importantly, overall long-term relative investment performance of U.S. and cross-border funds remained strong across equity, hybrid, and fixed income strategies. Stronger net new flows into fixed income products and ongoing organic growth of hybrid and income funds were essentially offset by outflows from some of our equity products. Financial results ended the fiscal year on a high note, with quarterly and fiscal year record highs for revenue, operating income, and net income. On the capital management front, cumulative share repurchases and dividends for the fiscal year were just shy of $1 billion. During the quarter, we also completed a multi-year effort to deregister as a bank holding company with the Federal Reserve, while preserving limited trust and fiduciary activities for our high net worth clients. As slide six illustrates, long-term relative investment performance of our U.S. retail and cross-border funds remained strong. Hybrid and global fixed income strategies in particular have done well with top quartile performance across most funds and time periods. In fact, both the Templeton Global Bond and Templeton Global Total Return Funds were recently awarded a Five Star rating by Morningstar in the U.S. Assets under management ended the quarter at $898 billion, down 2% from June, 30, reflecting the market pullback that happened at quarter end. Average AUM on the other hand increased 1% to $912 billion. This quarter, there was a slight shift towards fixed income in the U.S. sales region, but we remained well-diversified by investment objectives, sales region, and client type. This quarter, we experienced lower long-term sales, not unlike the general industry trend and a slight increase in long-term redemptions, resulting in long-term net new outflows $800 million, inclusive of a discrete high net worth redemption that I will touch on. A significant portion of these outflows were offset by exchanges and flows into cash management products, leading to nearly a breakeven net new flows for the quarter. Market depreciation and the impact of foreign exchange revaluation on non-USD-based products decreased AUM by $21 billion this quarter. Retail flows turned negative again this quarter due to lower sales activity, which is consistent with industry trends to the positive retail redemptions continued to improve U.S. retail, which was impacted by equity outflows slipped into slight outflows overall despite improved global and tax-free fixed income flows. International retail outflows increased modestly as continued improvement in Europe was offset by lower sales and increased redemptions from Asia. Institutional had a solid quarter driven by an increase in international flows, particularly from Europe where we had a $1 billion mandate fund this quarter, which helped to offset a couple of lumpy redemptions from international clients, also totaling $1 billion. On last quarter’s call, I mentioned that we anticipated three mandates of approximately $1 billion to fund over the second half of the calendar year. Of those three, only one mandate actually funded over the past quarter. Overall, our institutional business had a strong year with much of the success due to the growth of the institutional pooled vehicles 3(c)(7) and 3(c)(11), which was a strategy we continue to broaden. These vehicles allow clients to not qualify for their own separate accounts to obtain institutional pricing for smaller accounts. Not illustrated on slide 11 are flows from high net worth clients, which experienced about $800 million of outflows this quarter. Roughly $500 million of that was redeemed from a tax-free fixed income portfolio by a client for state planning purposes. Moving to flows by investment objective, global fixed income continued to improve attracting $2.5 billion of net new flows. Top quartile performance in our efforts to promote the unconstrained nature of our flagship global bond funds are beginning to pay off with the U.S. and cross-border versions of the Templeton Global Bond Fund and Total Return funds returning to inflows for the first time in over a year. Global equity flows on the other hand were weaker this quarter. The most of the delta can be attributed to three large institutional redemptions, totaling $1.3 billion. On the retail side, global equity was impacted by redemptions across funds with either a focus or heavy weighting in Europe, as investors were concerned about the European economy. On the positive side, the cross-border Franklin India Fund had another solid quarter due to inflows from the Chilean pension system, which also reinvested into the cross-border Templeton Asian Growth Fund this quarter. The Asian Growth Fund has historically been a significant driver of global equity flows from our international clients and returned to inflows this quarter after four consecutive quarters in redemptions. Although the majority of these sales continue to come from South America, flows have also been coming from more developed market such as France, Poland, and Germany, showing the effectiveness of our international campaign focused on emerging market strategies. U.S. equity outflows also increased on lower sales and higher redemptions. We did see solid inflows into our small cap fund as well as positive flows, the popular rising dividends fund, but did experience over $900 million in outflows from our cross-border biotech fund. They contributed to much of the outflows this quarter. Hybrid flows remained solid with the U.S. and cross-border versions of the Franklin income fund accounting for about $1.8 billion of net new flows this quarter. The cross-border version generated particular interest in Taiwan, Hong Kong, and Italy sales regions, and the global income fund continued to attract very strong inflows. In fact, our various hybrid strategies attracted $10 billion of net new flows during the past fiscal year. Overall, tax-free fixed income remained in outflow this quarter, as investor preference remains focused on short and intermediate duration in higher yield strategies. However, net new outflows from our funds improved again this quarter when adjusted for the high net worth redemption noted earlier. U.S. taxable fixed income continued to generate slightly positive net inflows, with the U.S. and cross-border versions of the unconstrained Franklin strategic income fund representing our top sellers this quarter. We did see decreased interest in our floating rate funds as investors became vary of reduced spreads on high-yield bonds. Before I turn it over to Ken, I’d like to discuss a few developments on our international growth. Sweden, United Kingdom, Australia, and India combined, generated about $6 billion in net flows this year. In South Africa, our Shariah and Sukuk funds have been approved by the local regulator and are designated to launch in November. I’d now like to turn it over to Ken to discuss financial results.