Diluted earnings per share of $0.21 and $0.49 for the second
quarter and first six months, respectively HAMILTON, Bermuda, July
27 /PRNewswire-FirstCall/ -- 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 http://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
. 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. DATASOURCE:
W.P. Stewart & Co., Ltd. CONTACT: Fred M. Ryan, W.P. Stewart
& Co., Ltd., +441-295-8585 Web site: http://www.wpstewart.com/
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