Power Corporation of Canada

Thank you, operator, and welcome ladies and gentlemen to Power Corporation's first quarterly analysts and investor call. It's our pleasure to be here with you and thank you for joining us.

This is part of our ongoing efforts to enhance our communication and our Investor Relations outreach, generally, so we're really pleased to kick this off with this first call. You got on the next slide that typical disclaimer in terms of forward-looking statements.

Statements about COVID-19 and non-IFRS measures, you can read that at your leisure. So today, joining me on the call is Gregory Tretiak, Executive Vice President and Chief Financial Officer of Power Corporation.

The two of us are together in Montreal, but you'd be pleased to know we are a suitable distance away from each other. Also on the phone is Jocelyn Lefebvre; he is joining us from France in the early evening there.

Thank you, Jocelyn. Jocelyn is Vice Chairman of Pargesa Holding, also Director, Groupe Bruxelles Lambert which is GBL, and he is the founder and the person who's driven the growth of Sagard Europe, our private equity business in Europe for the past 20 years.

And he won't be making comments during the presentation, but depending on the questions that we may have, he's available for questions. I'm going to then turn quickly to the Q1 highlights and on the page in front of you, which is Page 6 is the point out that Great-West Lifeco, IGM, Pargesa and GBL, first of all big public companies have had their quarterly results released last week.

They've each got their own Investor Relations programs. Great-West and IGM have their own conference calls following their releases.

It's not our intention in today's presentation to focus on our public companies. We're not trying to duplicate the work that they have done and the disclosure they've already made.

We're going to be focusing rather on what's going on at Power, other assets or strategy overall. That's not to say, we wouldn't entertain questions on Great-West Lifeco or IGM, depending on the specificity, we might refer you back to their managements, but really the point of our calls here is to augment and add to what our public operating companies are already doing, not duplicated.

So having said that, I move on to the next page which is Page 7 and just talk about the quarter. It was obviously a very different quarter with lots of events.

We started the quarter off very much focused on the reorganization and on the vote, and that reorganization that was announced in December was completed on February 13th. We then tried to follow up quickly with one of the elements that we talked about in the reorganization we launched our normal course tissue bid.

Not long after that, we followed up the Power Financial/Power Corp reorganization announcement with another announcement intended to simplify the structure of the Power Group by the Pargesa and GBL reorganization. And by the time we got to that announcement, we were well into COVID-19.

And it's starting to impact financial markets. And in fact, coincidentally on the same day, the World Health Organization declared a global pandemic on that day.

So just everything is kind of changing as we tailed off from the quarter, and then and as I mentioned last week, we had the public companies report and also talk about some of the impacts of COVID-19. So that's the high level on what was an incredibly busy quarter and to talk about the financial highlights themselves.

I'm going to turn it over to Greg Tretiak.

Thanks, Jeff. Good afternoon.

I'm on Page 8 and hopefully you can hear me clearly. Starting off with earnings, net earnings per share of $0.36 compared to $0.63 in Q1 2019, certainly, reflects the impact of the COVID-19 crisis across our group of companies.

Then adjusted earnings, adjusted earnings per share $0.62 per share in the quarter compared with $0.54, the difference between net and adjusted is entirely the COVID related reserves strengthening at least our share of it. That was done at Great-West Life, when they announced their real results in the quarter.

You're of course aware that the Board of Directors have now declared the quarterly dividend of $0.4475, which is up 10.5% from last year. And you'll also recall that we advanced the payment date by two months in the year.

I'll go to Page 9. On page 9, you can see our adjusted earnings and our net earnings here itemized.

Adjusted was EPS was up 14.8%, driven by increased contributions from Pargesa. You'll see it there were $0.08 in the quarter their contribution.

They sold their remaining positions in Total at GBL and that contributed almost $70 million gross to PCC in the quarter. The second item driving the increase was the contribution from our investment platforms.

We got a nickel from the investment platforms versus the loss of $0.04 in the prior period, basically from two places, Power Pacific, which realized gains on as a share portfolio and also in Sagard Europe on the sale of one of his portfolio investments in the quarter. When we're looking at the results for the quarter, I just remind people who were on the line that we issued a number of shares in connection with the reorganization and so our average share count is at the bottom of the table and you can see 560 during the quarter versus 466.

So, just when you're trying to interpret results, keep that in mind. I also point you to the highlighted in blue here, the actuarial assumptions in the market related impacts, which I said on the previous page driven by COVID-19 impact in its entirety, quite frankly.

I'd like to introduce the concept of base earnings which is basically adjusted net earnings for us. And those two adjustments are actuarial assumptions and market related impacts.

And this is generally speaking consistent with industry practice, and just wanted to make sure that everybody focused on those and understood those adjustments since they were just adopted in this quarter. With that, I go to Page 10.

In Page 10 or on Page 10, I should say, we have the PCC, NAV and discount. Draw your attention to the dark blue line and how it's traveled since December 15th to today, quite frankly.

And during the period from the beginning of 2015 to the end of 2019, the discount averaged 34%. Once the transaction was announced, the reorganization was announced the dividend decreased a decrease to 21%.

However, as we all know, in a matter of days after that COVID-19 emerged as a whole blown crisis and the markets reacted and started to discounts globally at many holding companies. When I look at the call out or I should point you to the call out, I should say, you can see the profit of market reaction to the announcement and then on the close when it dropped to 21%, prior to, as I said COVID-19 becoming a new reality.

With that, I turn it back to Jeff.

Thank you, Greg. So, I'm on Page 11.

Just to worry about the group's responses to COVID-19. Like many other companies, and certainly many other financial institutions, we were really consumed with it from an operational point of view and the first order of business was making sure our employees were safe.

And we really undertook a very rapid transition to work from home mode or to work from home mode, which was accomplished over the course of a couple of weeks I think across most of our businesses were at 98% or 99% working from home. You think about some of the sizes of our businesses, we've got call centers with hundreds of people in them.

And even our call centers are functioning at home. This is something that would not have been possible two years ago.

But a lot of the investments we've been making in digitalization allowed it. And then of course, like many other companies, digitalization, adoption has been forced to be picked up by all of our people, including our advisors, as a consequence, but lots of focus there.

On the middle column clients, we really, the service levels are up, we haven't had deterioration. Our advisors, both those that are associated with our group and those that are third-party advisors have been active with their clients.

So it's been really wonderful to see. Our groups also, as many other companies are very involved in our communities and we spend a lot of time focusing on how we can help the situation not just in Canada, but where we operate elsewhere, both with our money and in many cases with people's time and we continue to be focused on that.

So it's been, very, very consuming for us and for all of our management teams and I'd like to thank the whole our people and our employees for the efforts that they've made. I'll turn then to Page 12.

We go into the COVID-19, both at Power Corp and within our group companies in a very strong position where our companies right across the board are well capitalized, we have strong liquidity. You see some of the numbers there for Power Corp itself.

There's no material, debt maturity is coming up at Power for many, many years and at our holding companies, or excuse me, our operating companies, they're just structures or well, the very long debt structures, nothing coming up in the upcoming years. We did suspend the NCIB program at the end of March in light of the market activity.

We've got a conservative prudent approach to risk management, which has served us well. And so, under the circumstances we did stop that program.

And it's just, we're continuing to look at it, but it's not active at this at this point. So, we go into this COVID-19 situation in a very, very strong position.

Page 13, I'm going to turn them and say that while we spend a lot of time adjusting to COVID-19, it doesn't mean that we haven't spent most of our time focusing on looking forward. And our strategy and working on putting our strategy in place remains where we spend a lot of energy.

This is a repeat slide, not exactly, but it's almost a direct reprint from a slide that we had in our December 13th deck when we announced the reorganization and as we went out and spoke to many investors in the following weeks and months, this slide, was these points for me. And all of the benefits we believe from the reorganization are still there having many didn't realize, but many that are going to keep us busy for the upcoming several years.

With that, I'll turn to Page 14 and just do a bit of a scorecard on some of the things we announced in our December 19th announcements. And just going through quickly the transaction was approved.

The Denver family did invest as part of the reorganization and purchase 6 million participating preferred shares. Paul and Andre stepped down in their roles and they're continuing -- step down of the role as CEO and continuing as Chairman and Deputy Chairman.

I became CEO effective on February 13th. I don't want to put a stock chart up in terms of my couple of months of tenure as CEO, I think that was just about the peak of the market.

But that change was made and we talked about the dividend already in the buyback purchase 7.4 million shares. Today's announcement is a further step on our Investor Relations and our call here is a further step in our Investor Relations plans.

We are working on our plan to reduce our expenses by 50 million. And we've been very busy on our strategy going forward to refine our strategy into being focused on financial services.

I think on Page 15, I've made just about all of the points already on that page. We did at the annual meeting this morning approved cash settled stars for the option program, which makes it a little bit more efficient from a cash point of view in terms of the amount of funds you need to use from an NCIB to neutralize the effect of option grants.

So that point is there for you to take note up. On Page 16, I mentioned, we've got about 35% of our targeted $50 million already done, and we don't see any reason why we won't achieve that within the time period that we stated, when we announced the reorganization.

I'm going to turn in as we've turned to Page 17 and pass it back to Greg to describe the announcement that we did on March 11th, with respect to reorganize and purchase and GBL. Greg?

Certainly, thank you Jeff. Just for those of you on the call, Parjointco, which announced the transaction and is jointly owned by the Desmarais and Frere families, and that transaction was announced in March, an offer of 0.93 GBL share for each Pargesa share.

Our colleague, Jocelyn, on the phone has overseen this project. And at this point, the transaction is subject to the acceptance of the Pargesa shareholders representing at least 90% of the vote, and it is expected upon that hurdle being crossed that the transaction will close sometime in the fourth quarter of 2020.

The proposed transaction is going to deliver significant benefits including 16% implied premium. In addition to that, the elimination of the dual-holco cost structure of course, and double-digit dividend per share accretion, pardon me and an increased flow.

Go to Page 18, and here we have a pictorial of the current structure and the simplified pro forma and post completion of the transaction. We certainly will have simplified the structure significantly, as you can see in the right panel here, and you'll see our interest of 28%.

There along with that interest will have that economic interest we will have a the factor of control position with approximately 43% of voting interest. And now I will go to Slide 19, which again is a bit of a setup and a refresher for those on the phone to familiarize themselves with what is in the portfolio.

And certainly suffering can add some color to any questions you might have on that portfolio. But I would say that Ian galleon and his team have made significant changes to the historical composition of this portfolio.

The last energy holding was sold, as I mentioned earlier on in January, that Total position, and certainly it is a ESG-conscious portfolio, as you can see from the holdings. With that, I would turn it back to you, Jeff.

Okay, Greg, thank you. So moving right along here to Page 20, you can see that in the last couple of quarters with the reorganization that we announced regarding Power Financial and Power Corp, and then the Pargesa and GBL re-origination, we will have succeeded in simplifying the corporate structure of Power Corp quite significantly.

So, we're very pleased with that, and all part of our ongoing strategy to make the Company easier to understand and value in this, these are a couple of important steps. Then I move along to another important step, which is the development of our investment platforms.

So I'll turn you to Page 21. I've got a couple of slides on our investment platform.

So they operate in different asset classes and the principles along the top of this Page 21 are the key, then we're going to be operating where we think we can create a competitive advantage where we can raise third-party capital, where we do have an objective to be profitable as an asset manager at the GDP level if I can use that term within a reasonable time period and increase the returns we have on our seed capital. And then we're also looking to realize synergies with our operating companies both for distribution to their clients and for their own balance sheet needs.

The platform's are organized into two groups, Sagard Holdings, which has a multi-strategy alternative asset manager, and I will talk a bit about that on the next page as well as Sagard Europe, which I mentioned earlier Jocelyn Lefebvre has built up to European mid cap private equity business. And Paul III -- Paul Desmarais III is overall looking after Sagard Holdings.

Power Sustainable Capital is Power Pacific and Power Energy. So Power Pacific is our team in China, they've been managing 100% Power capital, Powers own capital.

And that goes back to I think about 2005 or '06, I may have that wrong when we initially got a QFII license, we get about $700 million of our money. We didn't put anywhere near that amount in.

They've had a great long-term track record. And then Power Energy which we've been at for almost a decade with a very experienced team and good assets there, so in that Olivia son of Andre, is overall looking after Power Sustainable Capital.

So, our alternative asset businesses are laid out in these two groups. I flip over to the next page.

Essentially you've got currently a $3.7 billion in AUM in those platforms. And another 1.9 billion, which is not in under management at this point but which is committed by investors to go into the funds.

The existing 3.7, in the bullet at the top of the page, 2.1 billion is power's own capital of the 1.9 billion that is in unfunded commitments three quarters of it is coming from third party. And so there's, it's a minority of Power Corps capital and you see a breakdown of that on the right hand side, lower right hand side.

As you go through Sagard Holdings, Sagard Europe, the private equity business in Europe. You can see in the dark blue at the bottom, there's Power Corps on Capitol and then the lighter blue is other people's capital.

Same thing with Sagard Credit, Portag3, our fintech venture in Sagard Healthcare royalties, those are majority third party capital. The numbers look small for Portag3 and Sagard Healthcare that's far greater commitments in those.

So, those are what have been invested to date, but the investor commitments are larger than the amounts shown there. And then Power Sustainable Capital, which was really part of our diversification strategy in asset classes.

We felt we had great teams and a reason to win. Those are all Power Corp money.

A lot of the work in the last three, four months has been to reorient those teams and focus on a strategy to have their businesses, uh, be much more growing based upon third party capital. Then frame freeing up some of that Power Corp has underneath it.

So important part of the future, our alternative asset management platforms and we're spending a lot of time and energy ensuring that they continue to grow and succeed. I'll just finish up with a couple of quick slides just to complete the story on our assets.

At China AMC, we own 13.8% of that company as does IGM, and they continue to be very successful. The China equity market has done well by the way and this company continues to succeed and they have grown their assets under management and they actually had a very strong first quarter.

There's, this is going very well. We're very pleased with our position in China AMC.

And flipping forward to Page 24, we also have just to complete the portfolio of standalone businesses and you know, these are, these are strong businesses, strong management teams. We've got good partnerships with uh, with the people that are in these businesses.

They're not standalone businesses are not of the strategy going forward and we will be looking to realize value over time with these businesses. But we're very pleased with our partnerships with the entrepreneurs who are running them.

And we have seen at the bottom of the page, but 660 million of our NAV is tied up in these businesses. So that's a quick run through of our business and the presentation, and it's summarized on page 25.

So, we have been very focused on COVID-19, but still focused on moving it forward busy on the Pargesa/GBL restructuring and continuing to develop our strategy going forward. Just before I open up the questions, a technical note on Page 26, you may not care, but just so that we can generally make it aware that there was a tax filing, that people were being asked to do in the context of the reorganization that originally had a June 13th stayed on it.

And like many things with respect to taxes and COVID-19, that's going to extend to October 31st. So you have it, use this occasion to let people know.

And with that operator, I am going to finish the formal part of the presentation over and we'll now be pleased to open up the microphones for questions.

My first question was, if we look back at the past year and a bit, Great-West sold off the U.S. life business.

They were the substantial issuer bids, collapsed the structure between Power fin and now trying to do that with Pargesa. But looking forward, how would you describe the opportunities to further simplify the structure, surface value, free up trapped capital within the complex and kind of the timing and complexity of doing that?

Thank you Jeff, and thanks for your question. So I could answer that question.

First of all, from a Power Corporation point of view and we have collateral the structure to simplification at the power level is probably done, but realizing value both from a realization point of view and communicating value are two different things and there's lots of opportunities for us to do that. So, if you think about what we've really announced by focusing our investment platforms on third-party capital, what we're really saying is we're trying to grow our earnings, get a good return on the seed capital, but not put as much capital into those platforms and free some of that capital up, hopefully to distribute to shareholders.

And with respect to looking at the standalone businesses, while we're going to be smart about how we realize and when we realize value, that's not part of the strategy is going long-term. So, there's an opportunity at Power Corp to transition to a simpler business model, a simpler business model to understand in a lighter capital model that hopefully has higher returns.

So, that's what the game plan is and then up to us to be able to effectively communicate that to the analyst community, the investor community and show how we are thinking about creating value and hopefully demonstrating that as we move forward, and I think the timeline for that can happen over the next couple of years. I think COVID-19 as a financial market obviously puts some strain on that.

If you're out trying to raise third party capital in your alternative asset funds, you're ultimately trying to dispose of some businesses. The current environment is not conducive to that.

So, you could certainly say that environment might delay the timing some work and we'll just see how all things unravel here or unfold here, but it doesn't in any way change our strategy or optimism on our ability to affect the strategy. The final thing I'll say in answering your question is, from the Great-West Life, IGM, GBL perspective, I think they communicate the strategy, they're engaging in their strategy and their continued efforts to try and explain to the market more effectively, where they see value creation, and we still got some work to do there but that is very much a work-in-progress, but hopefully that adds to value as well.

If you remember in the presentations we made to, as we went around with respect to the reorganization, and we did it at our AGM, I'm sure you were all listening attentively this morning. We have three leavers that we're really looking at.

The first lever is the operating companies, the public companies with their own organic growth strategies. The second lever is at the operating companies using M&A be making acquisitions or selling assets we don't think have a return potential, like the U.S.

life insurance business. And the thirdly is what we can do at the holding company level, excuse me, which is the things that we were just talking about here with the reorganization.

So we're pulling on all three levers Jeff and hopefully, we're, that is going to translate into very good value creation.

Okay. And then there's been some discussions regarding European regulators that they might look to limit the insurer ability to pay dividends and, therefore, it would have an impact on Great-West.

From your perspective, not being an officer of Great-West that you're being on the Board and Power being the controlling shareholder, like how do you think about their ability to handle if there is a ban on dividends coming out of Europe and if it happens? But also from the Power Corp.

level, how we should think about the resources that you have to handle if there is a temporary cash flow disruption to pay your dividend if Great-West were needed to reduce theirs. Now you mentioned the liquidity early in your presentation, but I don't know if you kind of have a base level of liquidity that you'd like to not want to go below.

A good question, obviously, very topical, I'll start where you started with the regulatory environment. With respect to Great-West, no regulators, with the exception of the Central Bank of Ireland have said anything to say, you can't pay dividends.

Central Bank of Ireland has said that, it's not a material part of our operations, a good part, but it's not material in the overall scheme of things for great with. Other regulators, all regulators have been in touch with financial institutions to say, be careful and be prudent.

I certainly said, they don't want to see buybacks or dividend increases, but we haven't had any regulators come right out and say they don't want to have us pay dividends. The EIOPA, which is the international insurance body is not a regulator that regulates our businesses.

It's an influencer and they did come out make a statement, which a lot of people paid attention to from the financial markets. But the insurance companies haven't followed that where we operate.

So they came out and said, you shouldn't be paying dividends. I'm not aware of a single UK company that has followed it.

There might be there might be somebody, I don't want to make that blanket statement, but the major companies have not followed it. It was a suggestion, if you will, regulator there is the CRA, provincial regulatory authority and they have not put a band on dividend.

So just to get it straight, at this point, we don't have a situation with the regulators where they're preventing dividends. From a power core perspective, if in the future, the circumstances were to deteriorate in a material way, financially and economically such that Great-West Life had to take action or IGM had to action or anywhere else or the regulators change their stands, we ended up at the Power Corp level with a diminution of the dividend stream we get from the sub.

We'd look at that situation and deal with it at the time. We certainly have a lot of liquidity to deal with it, if it were for a short period of time, if we thought it was going to be for an extended period of time, like a few years, and it was material, then, we would be looking at our cash resources and our other assets.

But the Board I'm sure would be looking at our dividend in that circumstance. But it's hard for me, Jeff, to get into speculating in a hypothetical situation as to when we were, when we wouldn't.

I mean, the Board would look at it in the future at that time. There's nothing I see today as we speak that causes me concern that under the current circumstances, we're going to have any of those issues.

But it's really hard for me to speculate about what circumstances in the future might give rise to the Board changing their position on that. I don't know if that answers your question or not.

No. No, that's helpful to kind of get a better sense of how you're thinking about it.

And just my last question was going back to when you did the announcement about collapsing the structure, there was, I think an intent at the time to repurchase some of your preferred shares. Is that still the plan?

Or has what's happened with the markets in COVID-19 altered your thinking around that?

Yes, it was still the plan, but what's happening with COVID-19, we're not jumping on that right at this point. It's something we need to focus on.

But, that is solely intended to execute on that, but at this point, we're quite cautious of what's going on in the markets and being prudent with our liquidity.

Two questions, maybe the first one perhaps for Jeff. When you had talked about the three collapses structure, you talked about a corporate strategy that emphasized financial services, and it seemed to be that you need to sharpen your focus here.

That was through building up some of the financial services assets you had, maybe some capital raises there, but also looking to divest some of the, we'll call them noncore some standalone assets as well, that weren't financial services assets. So, maybe you can say that to some extent you shrink your way into being a sharper focus on financial services.

What about trying to grow your way into financial services by, especially in this COVID environment, perhaps there are some assets out there that could look attractive, just given the volatility we see in the market. I mean, strategies sometimes have to change to some extent as the markets change.

Have you -- is that in the cards at all? Or what are your comments with respect to that?

And then maybe you can also elaborate it on view trying to perhaps sell some other standalone assets that aren't financial services in this environment?

Okay, good question. Thank you, Tom.

In terms of your comment on our basic strategy, I wouldn't say it's shrinking our way to financial services. I would never put that tagline on it and keep you at our marketing department.

What I would say is the following is that we I think, at Power Corp, in order to create value at the Power Corp level, I'm not talking about great with life, Power Corp level. In order to be successful, I think we need to be much more focused and in order to be able to translate and articulate our strategy in a way the market understands and value as we need to be much more focused.

So the alternative asset management platforms which were in many cases built for diversification purposes are now being replaced and into being alternative asset management businesses. And I think that it means we'll have a lighter capital commitment to them and still grow our earnings.

If they're very successful, we'll still be putting seed capital into them. And we expect them to be a source of growth as we move forward.

It's not a shrinking, there may be some initial capital taken out, as third-party investors come in, on the, in particular on the Power Sustainable Capital side. But the intent is that if we're successful, those will grow and have new strategies.

And we'll be growing earnings and putting more seed capital into them. The other and that is at Power Corp.

We're sure if you were trying to jump in there, the herd something on the line. So that's it at Power Corp.

I'll come back to your last part of the question on the other assets. Now to your second part of your question about taking advantage of the situation and that being a switch in our strategy.

I would see that where that would play itself out is in fact through our operating businesses, the public companies and in our asset management platforms that power other resists not, it's a Great-West life or IGM when they are in the market, they're looking at various acquisition targets. And they are very much of a mindset that if we can take advantage of this situation and acquire some assets that we've been buying and looking forward, if we can do that, we'll very much be trying to do that.

So very much along your point and within the asset management platforms that power itself, they've got funding and they've got commitments and I have no doubt there'll be looking at this opportunity to see if they can't acquire more assets that's attractive prices and take advantage of the situation. So, there's not contradictory to what you're saying.

We are very much on point and very much aligned with what you're saying. The other assets, the last part of your question, the other assets that power that are not on strategy.

You know, I think we're trying to walk a fine line there. We have good businesses, good partners, and we want to continue.

We don't want to do anything that hurts the value of those businesses as they pursue their growth strategies. But we will be looking ultimately to realize value for them over the next few years.

I think COVID-19 on that in the financial market. So in that regard, probably closes us down a bit, right, because you've got markets that are dislodged and let's help these situations if that's what you're trying to do.

I don't know if that answers your question. I think I answered all the points you had, but please follow up if you don't think I did.

No, that was good. And maybe as a follow-up, for Greg, Pargesa they report under IFRS 9 and then you flip the results into IAS 39.

When is the power corporation going to adopt IFRS 9 and why hasn't it?

Good question, Tom. Technical in nature for sure, but the adoption by Power Corp will happen when Lifeco adopts that.

And as you may know the insurance companies got to buy on adopting it and given that it's going to be a much more complicated issue at the insurance companies generally speaking. And of course a great, a bigger component of earnings are driven by Lifeco currently, that decision was made.

We'll wait and we'll adopt when Lifeco is. So, that's the reason, second question that when that's a good question.

I mean, I don't know about 39 because it may indeed change in terms of its timing because it was tied to IS 17 and IS 17 got deferred and COVID is affecting that and your guess as good as mine is when that might happen and it was scheduled I think for 23. So, it's not that far away, but that would be dependent upon how that place our.

What in your opinion is a better way to value the investment Pargesa under IFRS 9 or under IFRS 39?

You know, I think you have to look at both quite frankly, and it depends on where you see the most value emerging. If you see it through the capital appreciation or through dividends, both those views I think are important.

And certainly the way we report today, I think you'd get a better view on the movements of the games and if you will on the portfolio, then you do under a 39, but Jocelyn's on the line and he may have a view and another view from a European point of view, which is quite frankly is an important point of view because certainly as it comes to the NAV valuation on our stock, that component of it, it will be driven by how it's interpreted by the European. So, Jocelyn?

Hi, Greg. So, no, I'm not familiar with the North American accounting rules, but the IFRS 9 doesn't have any impact on NAV.

I would say at the GBL level, we're looking at two basic things; First, NAV and the accounting if have any impact. And we're looking also at cash earnings, which is an income statement we've got in Europe.

So really cash on cash, and the frustration I can have as an executive and European Group is that with IFRS 9 sometimes, like we spoke about outages so and investment in March. Well, the nice profit, which was significant on that investment on that sale is not coming to the results.

It goes directly into the equity accounts. So, I think nothing is perfect.

Perfect. Thank you.

We kind of got the best of both worlds, Tom. Jocelyn going through OCI and we have going through, the profit comes through of course in our financial statement.

Thanks.

Thank you. Are there other questions?

Operator, hello, we lost the operator. Just hang on if you can hear me, ladies and gentlemen.

It seems we've lost the operator, which is unfortunate thing.

Okay. Thank you very much.

So, just please stand by if you can all hear us. We're going to get our operator back and then we can answer your questions.

I don't know whether she left because of the length of time that Tom and Greg, and just, I spent talking about accounting policies. It's possible that the operator objected to that discussion.

So Tom, can you still hear us? Are you still on the line?

Yes, absolutely. I'm there.

Yes, we can hear you, thank you operator.

Thank you. Good afternoon.

I'm almost dropped off there with the accounting discussion, but I'm still online. Anyways, so I wanted to go back to the comment, Jeff, you made about becoming more capital light and then I think you put something in there about hopefully returning capital to shareholders.

I don't want to put words in your mouth. So, I guess I want to understand that last piece of your commentary a little bit better the idea, as you dispose of these investments overtime that you'd be continuing to buy back stock.

Am I reading into that correctly?

Yes.

Okay. So having said that...

Paul, can I just say one thing? As normal, you're going to make decisions in the future, but the plan A would be as we're focusing the Power Corp corporate balance sheet, that the excess capital that's created would be used to do buy back.

Now if all of a sudden there's a great big acquisition that are solving great with like, needs to raise capital, and we got to put in money to help support that issue. I'm not saying we wouldn't do that, but those things come sporadically, as you know, when they're large acquisitions like that.

So our plan A is to continue to return capital.

So having said that, and I appreciate your comments on being conservative around the current NCIB, but I mean, my counter argument to that would be, there's probably no better time to be purchasing your stock then today. I look at your balance sheet and you highlight no debt maturities, I think, it's until 2033.

You don't have a lot of liquidity needs at the Power Corp level. So I'm kind of curious what you're being conservative about, like why do you feel the need to keep that cash on balance sheet?

I think it's just simply the uncertainty with respect to understanding where they help. And therefore the economic situation develops and nobody out there, that understands how long we're in this for, and how long it could go on for.

And there is over the upcoming months, we'll see how it's going to play out. The difference in the stock price of Power Corp in a year from now, or three years from now based upon what we might be able to buyback over the next, immediate period of time is a rounding error versus not having the liquidity go in case you get into a tale scenario, where things go down.

That's basically it. I agree with you.

On the one hand, it's very tempting to jump out and buy more shares at this point. And I will go back to the answer that I gave to Tom McKinnon's questions to certainly our companies are looking at how they can deploy their capital, if they can take advantage of it.

But at the margin, as we wait and see how the situation unfolds, we just thought it would be prudent to suspend the buybacks for the time being. I hope that answers your question.

I get it, the last question from me as you. If you were to see a continued, let's call dislocation evaluations for your major operating subs, so GW and IGM, and you've felt more comfortable about the macro environment, would you consider increasing your proportional ownership in those businesses?

That's too hypothetical to answer. I don't not trying to be evasive, but I don't it would depend on so much why the valuation was deteriorating.

And if it was deteriorating because, the role was looking like it was really uncertain how this could go and we might be into a much more protracted downturn, and that would affect financial markets and the shares are down for that. We might be in a conservative mode as well and that time.

So I'm really not trying to be evasive, I'm just saying, I don't know how we would act, it would depend on the circumstances. But generally you haven't seen us acquire a lot of shares of our sub.

We've been more where Tom was in terms of when things get bad, how can the companies take advantage of the circumstance by making some acquisitions? And then depending on the size, you then say, do they might they need some equity depending on how big that is?

And you want to really you want to have your dry powder to be able to do that. Those are the discussions we have.

When we're in those circumstances, and I'm giving you probably more than you need. I honestly don't know how we would act in a deteriorating situation.

I just had one follow-up. Just thinking with all these governments that are doing these massive fiscal spending and trying to eventually, when the day comes, try and fix these debt deficits, increasing taxes may be an inevitable way to try and deal with that.

And so in that context, does that influence at all any thinking on timing of any sort of simplification or other opportunities that you might consider pursuing in the near to medium term?

Looking at Greg here, unless you got not for me, I think about when this started, it was obviously, not when it first started, but it's been obvious for some time that we're going to end up with governments having a higher level of debt. And it's a question of whether it's kind of 15% of GDP or 30% of GDP or whatever number you can speculate on.

And then companies are going to have some sectors are going to have higher levels of debt. So there's more debt being created.

I don't think it affects our corporate actions. Then you get into speculation about how does that what impact does that have on the economy going forward, higher taxes?

Does it mean more inflation? Or does it mean lower interest rates because governments will be and monetary authorities will be unwinding or taking on a lot of paper.

And that's what happened after the end of the great financial recession. Everybody was waiting for inflation to come back and of course, just went the other way.

So, we speculate about what does it do to interest rates going forward, but I don't think it has an impact on that I can think of on how we would do other steps in our reorganization. Gregory.

Jeff I had, is quite sure what you're envisioning, but you know, within the current framework of taxation in this country and in North America, certainly the government's will all be looking to raise taxes and tax revenues, and if you use the same mechanisms that they use in the past, and perhaps we're going to face higher tax rates or rates of taxation, but within that structure, I don't see anything that would say, let's hurry up and do this tomorrow, because we're going to have a significantly adverse consequence. If we don't do it, I don't see it.

But then again, I'm not envisioning perhaps what you might be envisioning.

Just I want to drill down on the investment platform a little bit, first of all, bringing in third-party AUM to be a focus. Is there any target or what are you thinking of in terms of what would be a reasonable cadence for bringing in third-party capital?

So, each of the of the two platforms internally or in the midst of kind of building out their multiyear plans, which have been actually went to the board with yesterday. I'm not going to comment on what their objectives are at this point.

It's a good it's a fair question. I'm not ready to comment on it at this point.

The Sagard Holdings has been at it for a while and each of Sagard Europe the credit partners, ventures and healthcare have all got plans to out and raise additional fund, and they've been successful at raising funds in the last year, two years. So, I see that in pace continuing.

The Power Pacific and Power Energy is more of a pivot because they were set up to be funded by Power Corp. So it's just kind of they're reorienting themselves and entering into dialogues with third parties to get third party funding in and it's just beginning.

And so it's a little early for me to speculate on how successful they're going to be. I'm sounding evasive but I don't have a number that I can, give to you.

What I'd rather do and what we will commit to doing is following up and each call as to where they sit and what progress they've made on their third party funding. And that's maybe the best way I can do it rather than put a number on the table at this point.

It's a good question. I'm sorry you don't have a more specific answer for you.

Graham, the only thing I'd add to that is that certainly a disregard Holden's platform has been out, has been raising capital quite successfully over the last two years. So what's the most of what you see there in third capital on the non-European Sagard Holding platforms has been raised in the last couple of years?

And it's not the blue, like I said earlier, if you're on Page 22, it's not the blue in the individual boxes, that understates it because it's the gray on the box on the left side, the uncommitted, the unfunded commitments. A lot of that is through the Sagard Holdings platforms that have the money has been committed to and raised.

It's just doesn't show up in the dark blue cause they haven't spent it yet.

Yes, and we can certainly unbundle that and we can do and put it on a slide, but that's why it's a little complicated right now.

We'll do that next. We'll have that on the next call.

Okay, fair enough. Do you have separate teams that are out there focusing on the different strategies?

Or is it really one sales or distribution team focusing on everything?

Well, we've got two teams, one for Sagard Holdings and one for Power Sustainable. And in fact within that Sagard Europe, again with just playing on the phone, it's been doing fundraising for 20 years.

So, they have been -- that team has been there for a long time, and it's been different folks that have been focused on the credit and the Portag3 and the Sagard Healthcare. And Paul III and his group have been very active on that.

So, there are different teams here that are involved in it. Jocelyn, anything you want to add to that?

Maybe Jocelyn really wants to jump in on that if it's got anything to add to it?

No, the only thing I would add is that in Europe it's different. First of all, 20 years ago when we launched a fund, we were alone.

So, we were raising the capital yourself. So the partners of the fund were just doing it selves.

Here what you're doing in Montreal is a little bit tweak that is different. More and more there is a detect team from Sagard Holding and also from Power Sustainable Capital that is putting a team together over to various fund to support that different.

But yes, good point. So in Sagard Europe, it was the investors themselves who were originally out doing a lot of it and we've got a little bit more dedicated resources just fundraising in terms of these platforms, I think is you your point.

And not to contradict Jocelyn because that is the case, but in certain circumstance like the royalty fund, you do have seasoned teams there that have their own networks. And we'll certainly help out significantly in that capital raising activities, so...

Yes and I just want to add, not to beat the dead horse, but I mean there's no institutional fundraising whether it's in non-liquid alternatives, alternatives or in long only type mandates, but ultimately you don't get the portfolio managers in front of the institutional investors before they make a decision for sure.

Fair enough.

And I think I killed your question there, I think.

No, no, that's fine. That was good.

It was a thorough answer. What about -- I presume it's primarily institutional money that you're targeting, but is there any strategy to go after high net worth capital?

Yes, there's some high net worth capital already in there and you can bet that that's part of the strategy.

Okay.

We have a family that controls this company, right, and they know a few people.

Okay, fair enough. And what sort of returns are you targeting?

Like, I know in previous AGM you've put up some IRRs that you've generated, is that a reasonable proxy or do you guys have a formal hurdle to reach?

Yes, we need to come back more comprehensively. But obviously you've got, between a credit fund and then between renewable energy and then Chinese equities and then private equity in the mid market and you got returns that are from high single-digits all the way well into double-digits depending on the strategy.

Jocelyn, what are your targeted returns and when you're looking at the private equity in your business in Europe?

It's a replay, I would say since we started Sagard Europe. We've done 34 investments.

So, out of those 34, we sold them now 25 of them and we've returned an average of 2.6 times money multiple, and our objective as directly as being to return in terms of IRR around 20%.

And that would be on a gross basis, I assume.

Yes, absolutely.

Okay, Graham, does that help?

Yes. That helps.

And then my last bit was. There was some loss on investments at the power financial level.

So I'm assuming that's related to the wealth simple investment. Maybe we could focus on that a little bit, just the growth there continued to be very impressive.

But operating losses persists despite the increased scale and AUA, can you share with us what's the plan and the outlet for that business in terms of breaking even?

Yes. So, maybe I'll start and then I'll let Jeff add onto it.

So, its Power Financial level, really it is, well simple and our investments in the Portag funds to the extent that we have money in the Portag fund. And you're right that, it's not running at a breakeven just yet.

It's got a line of sight on breakeven, as we don't put those numbers into public domain currently. However, having said that, I would say that, well simple in terms of its metrics, in terms of assets under management and it's a client acquisitions have been as you noted, they have been enviable quite frankly.

And during this latest period of time if Paul III were here, he would tell you that their acquisition of their brokerage platform has enabled them to attract a lot of clients through this period of time. And they've had some very successful months through this COVID period, and business in itself, along with not only the brokerage platform, but also they acquired a tax prep business that they have started in this last quarter.

So the cross-selling that's going on between their savings vehicles, their tax business and their brokerage business has really done well through this particular period of time. So, I can give you that color.

I can't give you any number, but…

The only thing I would add to -- this is Greg. When we track it and they track it internally.

You've got still a lot of money being spent on client acquisition. And the metrics are different from public companies.

And it's a bit of a rounding our power right now, but the metrics would include you've got your ongoing client base with cost to serve. And if you look at it that way, you get one answer in terms of the profitability, which is a very positive answer.

But then you spend money acquiring new clients. And the way you look at that is what's it costing you to acquire new clients?

And what's the lifetime, expected lifetime value of those clients? So we'll take your question here and see what we can do to try and bring more forward, but we're not at a point here where we're talking about this absolute urge of closing their numbers.

Okay, thank you operator. And I just want to thank all of you for your participation in the call.

And we'll look forward to feedback that you have and continue to try and hone how we present and come forward with different topics at different meetings to hopefully have a greater understanding on everybody's part about what we're up to at Power Corporation. So thanks for participating and have a very nice weekend.

Thank you.

That's it operator. We'll end the call.