Attached files
| file | filename |
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| EX-99.1 - PRESS RELEASE - FRANKLIN RESOURCES INC | exhibit991q4fy17.htm |
| 8-K - FORM 8-K - FRANKLIN RESOURCES INC | form8kq4fy17.htm |
• The fiscal year ended on a positive note as strong sales momentum
and lower redemptions resulted in four consecutive quarters of
improved net outflows, driven by international retail flows that were
positive for the third consecutive quarter.
• The number of our four- and five- star funds in the U.S. has tripled
since last year led by U.S. equity and tax-free fixed income
products.
• During the year we made significant progress with a number of our
key broker dealer partners, gaining placement of several flagship
products, some for the first time, on a number of recommended
lists and platforms.
• Fiscal year financial results remained strong. For the year, the
company generated operating income of $2.3 billion, an operating
margin of 35.4%, and net income was $1.7 billion.
• The company continued its track record of shareholder friendly
capital management, returning over $1.2 billion during the fiscal
year through dividends and repurchases, which represents 71% of
net income. Diluted average shares outstanding declined by about
4% on a net basis.
• We continued to build out our global ETF platform and expanded
our product line in the quarter to include options for European
clients, bringing the total active and smart beta ETFs to 21
globally.
FRANKLIN RESOURCES, INC.
Executive Quarterly Earnings Commentary
Preliminary Fourth Quarter and Fiscal Year Results
October 26, 2017
Highlights
Investment
Performance
2
Assets Under
Management and
Flows
3-4
Flows by Investment
Objective
5-7
Financial Results 8
Operating Revenues
and Expenses
9-10
Other Income and
Taxes
10
Capital Management 11-12
Appendix 13
Greg Johnson
Chairman of the Board
Chief Executive Officer
Kenneth A. Lewis
Executive Vice President
Chief Financial Officer
Conference Call Details:
Johnson and Lewis will lead a live teleconference today at 11:00
a.m. Eastern Time to answer questions of a material
nature. Access to the teleconference will be available via
investors.franklinresources.com or by dialing (877) 407-8293 in the
U.S. and Canada or (201) 689-8349 internationally. A replay of the
teleconference can also be accessed by calling (877) 660-6853 in
the U.S. and Canada or (201) 612-7415 internationally using access
code 13671688, after 2:00 p.m. Eastern Time on October 26, 2017
through November 26, 2017.
Analysts and investors are encouraged to review the Company’s
recent filings with the U.S. Securities and Exchange Commission
and to contact Investor Relations at (650) 312-4091 before the live
teleconference for any clarifications or questions related to the
earnings release or written commentary.
Contents Page(s)
Exhibit 99.2
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
Investment Performance
Long-term relative investment performance rankings of our U.S. and cross-border mutual funds, as of September
30th, were generally consistent with what was reported last quarter.
Importantly, the investment performance of our largest ten mutual funds remains strong with relative performance
that exceeds that of the aggregate weighted average shown above. Performance of our Global Macro group
remains particularly strong, with top quartile performance over most time periods.
Franklin Income fund, which accounts for 17% of long-term total assets, continued to pressure three- and five-year
performance, however, the fund was just on the cusp of the second quartile (51st percentile) for the five-year period.
Additionally, if near term outperformance of the fund continues, we are likely to see improvement in the fund’s three-
year track record as past periods of underperformance begin to roll off next quarter.
Short-term relative investment performance for the one-year period was a bit lower, due mostly to a few global
equity funds which tend to underperform in bull markets due to their value approach.
2
Percentage of Total Long-Term Assets ($496 billion) in the Top Two Peer Group Quartiles1
1. The peer group rankings are sourced from either Lipper, a Thomson Reuters Company or Morningstar, as the case may be, and are based on an
absolute ranking of returns as of September 30, 2017. Lipper rankings for Franklin Templeton U.S.-registered long-term mutual funds are based
on Class A shares and do not include sales charges. Franklin Templeton U.S.-registered long-term funds are compared against a universe of all
share classes. Performance rankings for other share classes may differ. Morningstar rankings for Franklin Templeton cross-border long-term
mutual funds are based on primary share classes and do not include sales charges. Performance rankings for other share classes may differ.
Results may have been different if these or other factors had been considered. The figures in the table are based on data available from Lipper as
of October 6, 2017 and Morningstar as of October 9, 2017 and are subject to revision.
© 2017 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2)
may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this information.
Performance quoted above represents past performance, which cannot predict or guarantee future results. All investments involve risks,
including loss of principal.
Greg Johnson, Chairman and CEO
3-Year 5-Year 10-Year
Equity & Multi-Asset/Balanced- $292 billion
Fixed Income - $204 billion
1-Year
75%
58% 42% 50% 78%
57% 37% 43%
59% 49% 59% 82%
Assets Under Management and Flows
The change in assets under management was
attributable to net market change and improving flow
trends. Total long-term sales were up 10% for the
fiscal year and 21% from the same quarter a year
ago. Redemptions similarly improved, down 9% for
the full year and 16% from same quarter a year ago.
3
Simple Monthly Average vs. End of Period
(in US$ billions, for the three months ended)
736
723
732 742
749
733
720
740 743
753
9/16 12/16 3/17 6/17 9/17
Average AUM Ending AUM
Greg Johnson, Chairman and CEO
Net Market Change and Other
(In US$ billions, for the three months ended)
Long-Term Flows
(In US$ billions, for the three months ended)
22.7 24.5
30.5 29.8 27.5
(44.6) (46.7) (44.5)
(41.1) (37.4)
(17.7)
(14.4) (11.0) (7.3)
(5.9)
9/16 12/16 3/17 6/17 9/17
18.9
1.1
31.0
10.1
16.3
9/16 12/16 3/17 6/17 9/17
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
Assets under management ended the year at
$753 billion, 3% above the prior year, and
average assets for the quarter continue to trend
upward at $749 billion.
Long-Term
Sales
Long-Term
Redemptions
Net Flows1
1. Net flows are defined as long-term sales less long-term redemptions plus long-term net exchanges and long-term reinvested distributions.
The improvement in flows was most pronounced in
the international institutional channel, where the
combination of a 44% decline in redemptions and a
notable improvement in sales led to nearly breakeven
flows. In fact, sales in this channel were at the highest
level in nearly two years.
Our U.S. institutional business continues to face
headwinds as Templeton Global Equity, which has
historically been a big driver of sales in this channel,
has not seen as strong of a demand.
The decline in redemptions was also evident in the
retail channel this quarter, with retail product
redemptions at the lowest levels since the
third quarter of 2010.
Internationally, the retail business sustained recent
momentum and generated positive net inflows for the
third consecutive quarter. Sales and redemptions both
declined slightly, and flows were essentially flat, as
demand from a number of sales regions in this
channel continued.
We had particular success in the Asia Pacific region,
as sustained performance improvements in core
strategies, additional share class offerings, and strong
promotion of our brand in Asia resulted in improved
flows.
There has also been a pickup in the number of funds
approved on platforms across many of the global
financial institutions that we partner with, and we are
4 1. Graphs do not include high net-worth client flows.
Long-Term Flows: International1
(In US$ billions, for the three months ended)
Long-Term Flows: United States1
(In US$ billions, for the three months ended)
Greg Johnson, Chairman and CEO
Retail Long-Term
Sales
Retail Long-Term
Redemptions
Institutional
Long-Term Sales
Institutional Long-Term
Redemptions
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
actively working to get more key funds approved on
their recommended lists, with a focus on Franklin K2,
Templeton Global Macro, and Templeton Emerging
Markets products.
In the U.S., however, slower sales more than offset
the improvement in redemptions.
Uncertainty around the implementation of the
Department of Labor’s Fiduciary Rule continues to
weigh on sales. Additionally, U.S. retail sales were at a
thirteen year low in September and we suspect
hurricanes Harvey and Irma were a factor as we did
see significant declines coming from Florida, Houston
and other southeast territories.
Flows in the insurance channel continue to stabilize,
with redemptions at the lowest level in nearly a
decade and some positive sales momentum with our
first win in the rapidly growing fixed index annuity
market this quarter.
10.3 10.9
12.4 11.6
9.6
2.0 2.1 2.9 2.5 2.0
(20.9)
(25.9)
(20.7)
(17.1) (16.0)
(5.6) (5.2) (5.8) (5.6) (5.9)
9/16 12/16 3/17 6/17 9/17
7.7 8.5
12.0 12.5 12.4
2.5 2.1 2.9 2.4 3.2
(11.5) (11.8) (11.6) (11.3) (11.2)
(6.2)
(3.3)
(6.0) (6.3)
(3.5)
9/16 12/16 3/17 6/17 9/17
Retail Long-Term
Sales
Retail Long-Term
Redemptions
Institutional
Long-Term Sales
Institutional Long-Term
Redemptions
Flows by Investment Objective
5
1. Sales and redemptions as a percentage of beginning assets under management are annualized.
2. Net flows are defined as long-term sales less long-term redemptions plus long-term net exchanges and long-term reinvested distributions.
Global/ International Equity
Net Flows2 Long-Term
Sales
Long-Term
Redemptions
(in US$ billions, for the three months ended)
Looking now at flows by investment objective,
global equity outflows across the firm improved
again this quarter, as institutional redemptions from
international clients declined and we saw increased
demand for certain emerging markets equity
products from our retail clients, but this was offset
by lower sales into Mutual Global Discovery and
Templeton Foreign funds due to their value
investment approach.
4.9 5.9
6.9 6.5
5.4
(13.2)
(10.7)
(13.8) (12.9)
(11.0)
(7.7)
(2.9)
(6.7) (6.2) (5.0)
9/16 12/16 3/17 6/17 9/17
Global / International Fixed Income
(in US$ billions, for the three months ended)
6.3 6.1
9.0
11.2 11.9
(14.5) (14.2)
(11.6)
(9.5) (9.0)
(7.5) (7.5)
(2.0)
2.6
3.8
9/16 12/16 3/17 6/17 9/17
% of Beg. AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 12% 10%
Redemptions 25% 21%
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 21% 30%
Redemptions 31% 23%
Net Flows2 Long-Term
Sales
Long-Term
Redemptions
Greg Johnson, Chairman and CEO
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
Global international fixed income net inflows continue
to gain traction and were $3.8 billion this quarter, due
to both higher sales and lower redemptions. The
Templeton Emerging Markets bond fund continues to
be the main driver of flows here but net flows improved
again across many funds within the category, including
the flagship U.S. Templeton Global Bond and cross-
border Templeton Global Total Return funds, which
were both in positive territory this quarter.
We anticipate a portfolio allocation change by a key
distributor to occur this month, which is expected to
result in a redemption of about $850 million from
Templeton Global Bond.
6
Multi-Asset/Balanced
(In US$ billions, for the three months ended)
2.8
4.0 4.2 4.6 4.0
(5.0)
(6.7)
(6.0)
(6.8) (6.2)
(1.1) (1.2) (0.5) (0.6) (1.1)
9/16 12/16 3/17 6/17 9/17
U.S. Equity
(in US$ billions, for the three months ended)
3.5 3.7
4.3
3.6 3.1
(6.4)
(7.5)
(6.4) (5.9)
(5.6)
(2.1)
(0.5)
(1.9) (1.9) (1.8)
9/16 12/16 3/17 6/17 9/17
U.S. equity outflows were essentially flat for the
third consecutive quarter at about $2 billion as a
decline in redemptions was offset by a similar decline
in sales. However, there has been strong demand for
some of the largest funds in the category with
excellent relative performance, notably Franklin
Growth and Franklin Dynatech funds, which broke
sales records this fiscal year.
Net Flows2 Long-Term
Sales
Long-Term
Redemptions
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 15% 12%
Redemptions 25% 21%
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 11% 11%
Redemptions 18% 18%
Net Flows2 Long-Term
Sales
Long-Term
Redemptions
Multi-asset/balanced outflows increased and were
about $1 billion this quarter. Franklin Income fund
was the main driver as the fund was downgraded to
three stars by Morningstar last quarter, where it
remained through the fourth quarter. While sales
were down, redemptions in the fund were
essentially flat. Cross-border Franklin K2 Alternative
Strategies fund continued to see strong demand
and generated net inflows for the quarter.
Greg Johnson, Chairman and CEO
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
1. Sales and redemptions as a percentage of beginning assets under management are annualized.
2. Net flows are defined as long-term sales less long-term redemptions plus long-term net exchanges and long-term reinvested distributions.
7
Taxable U.S. Fixed Income
(In US$ millions for the three months ended)
2.6 2.6
4.2
2.2
1.5
(3.4)
(3.9) (3.9)
(3.1) (3.4)
(0.4)
(0.8)
0.5
(0.5)
(1.7)
9/16 12/16 3/17 6/17 9/17
Taxable U.S fixed income was one of the areas that
did not experience an improvement in flows this
quarter, due to lower demand for floating rate
strategies.
Redemptions from high yield also weighed on flows,
but we’ve seen a strong rebound in performance of
many of our high yield strategies, as commodities
have rebounded, which hopefully bodes well for
future flows.
Net Flows2 Long-Term
Sales
Long-Term
Redemptions
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 22% 12%
Redemptions 27% 26%
Tax-Free Fixed Income
(In US$ billions, for the three months ended)
2.6 2.2 1.9 1.7 1.6
(2.1)
(3.7)
(2.8) (2.9)
(2.2)
1.1
(1.5)
(0.4)
(0.7)
(0.1)
9/16 12/16 3/17 6/17 9/17
Tax-free fixed income net flows nearly broke even
this quarter, due primarily to lower redemptions, as
sales were essentially flat. Franklin High Yield Tax-
Free Income fund saw the most improvement with a
significant drop in redemptions this quarter and
several intermediate term funds also had improved
flows.
Our funds’ investments in Puerto Rico have drawn
some press attention lately, but our municipal bond
team’s exposure to the region is relatively immaterial,
only representing roughly 2% of total municipal bond
assets.
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 11% 9%
Redemptions 16% 12%
Net Flows2 Long-Term
Sales
Long-Term
Redemptions
Greg Johnson, Chairman and CEO
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
1. Sales and redemptions as a percentage of beginning assets under management are annualized.
2. Net flows are defined as long-term sales less long-term redemptions plus long-term net exchanges and long-term reinvested distributions.
Financial Results
For the fiscal year, operating income was approximately $2.3 billion, a decrease of roughly 4% from the previous year.
The benefits of cost saving initiatives that were put in place in 2016 partially offset lower revenue. Net income was
$1.7 billion, a decrease of only 2% due to higher investment and other income.
Earnings per share, on the other hand, increased by 2% as a result of the repurchase of 19.1 million shares during the
fiscal year period.
8
(in US$ millions, for the three months ended)
$0.82
$0.77
$0.74 $0.73
$0.76
9/16 12/16 3/17 6/17 9/17
Quarterly Diluted Earnings Per Share
579 587 556 564 558
472
440 421 411 425
9/16 12/16 3/17 6/17 9/17
Quarterly Operating and Net Income1
Operating Income Net Income1
Fourth quarter financial results continued to be strong with operating income of $558 million, a slight decrease from last
quarter due to the expected uptick in expenses.
Net income was $425 million and diluted earnings per share was $0.76. Both saw an increase of 4% during the
quarter, as investment and other income increased, and average shares outstanding was down modestly.
1. Net income attributable to Franklin Resources, Inc.
Ken Lewis, CFO
Annual Operating and Net Income1 Annual Diluted Earnings Per Share
2,921
3,221
3,028
2,366 2,264
2,150
2,384
2,035
1,727 1,697
9/13 9/14 9/15 9/16 9/17
$3.37
$3.79
$3.29
$2.94 $3.01
9/13 9/14 9/15 9/16 9/17
Operating Income Net Income1
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
9
Total revenues for the quarter were $1.6 billion, essentially flat compared with the previous and year ago quarters.
Investment management fees increased 1% this quarter, due to higher average assets under management and the
additional day in the quarter. This was partially offset by lower performance fees, which were $1.3 million.
Sales and distribution fees decreased 3%, despite higher average assets under management, due to a slowing of
commissionable sales, particularly in the U.S. As summarized in the appendix, asset-based fees increased 2% and
were more than offset by the 18% decrease in sales based fees.
Shareholder servicing fees were down marginally, and other revenue was $29 million, with the increase almost
entirely attributable to dividend and interest income from consolidated sponsored investment products.
Ken Lewis, CFO
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
Sep-17 Jun-17
Sep-17 vs.
Jun-17
Mar-17 Dec-16 Sep-16
Sep-17 vs.
Sep-16
Sales, distribution and marketing $ 534.9 $ 541.2 (1%) $ 534.8 $ 520.0 $ 536.2 (0%)
Compensation and benefits 336.1 342.7 (2%) 343.4 311.5 317.2 6%
Information systems and
technology
60.0 54.1 11% 54.0 51.7 56.0 7%
Occupancy 33.0 30.2 9% 29.0 29.1 37.3 (12%)
General, administrative and other 95.2 81.5 17% 83.9 61.6 85.7 11%
Total Operating Expenses $ 1,059.2 $ 1,049.7 1% $ 1,045.1 $ 973.9 $ 1,032.4 3%
Sep-17 Jun-17
Sep-17 vs.
Jun-17
Mar-17 Dec-16 Sep-16
Sep-17 vs.
Sep-16
Investment management fees $ 1,109.8 $ 1,097.0 1% $ 1,089.2 $ 1,063.2 $ 1,096.3 1%
Sales and distribution fees 421.8 433.3 (3%) 431.2 419.3 440.8 (4%)
Shareholder servicing fees 56.0 56.7 (1%) 56.4 56.6 58.4 (4%)
Other 29.3 26.9 9% 23.8 21.7 16.3 80%
Total Operating Revenues $ 1,616.9 $ 1,613.9 0% $ 1,600.6 $ 1,560.8 $ 1,611.8 0%
Operating Revenues and Expenses
(in US$ millions, for the three months ended)
Sales, distribution and marketing expense was $535 million, down slightly over the prior quarter due mostly to a
decline in commissionable sales that outpaced the decline in total long-term retail sales. This was partially offset by
the impact of higher non-US assets and a longer quarter on the asset based component.
As expected, compensation and benefits expense was $336 million this quarter, a decrease of about 2% due
mostly to lower variable compensation.
Information systems and technology expense increased 11% and was $60 million this quarter. As a reminder, we
typically see fourth quarter seasonal increases in this line.
General, administrative and other expense was $95 million this quarter due mostly to a number of seasonally
higher expenses that impact this line item, but this was a little higher than expected due to some one-time items in
the quarter.
In the current fiscal year, we are planning to execute on a number of strategic initiatives to further enhance our
investment performance and global distribution capabilities, introduce some new products and services to the
marketplace (including expanding our ETF footprint in US, Europe and Canada) and maintain the infrastructure
needed to support these investments. We will be measured in our approach and may make additional investments
to capture momentum where we see success.
Our thoughts today are that these initiatives could lead to an increase in year over year operating expense,
excluding sales, distribution and marketing expense, of about 3-5%. It is difficult to be more precise as the
expenses are likely to be phased in over the year. Due to seasonality, it is reasonable to expect expenses to
decline next quarter.
10
Other Income and Taxes
Ken Lewis, CFO
30.5
19.5
0.1 0.7
(12.7)
(3.0)
65.6
100.7
([VALUE])
57.9
Dividend and
interest
income
Equity
method
investments
Available-for-
sale
investments
Trading
investments
Interest
expense
Foreign
exchange
and other
Consolidated
sponsored
investment
products
(SIPs)
Total
other
income
Noncontrolling
interests2
Other income,
net of
noncontrolling
interests
Other Income
(In US$ millions, for the three months ended)
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
Operating Margin (%) vs. Average AUM
(in US$ billions for the fiscal year ended)
Fiscal Year
Operating Income
(in US$ millions)
2,068 2,099 1,203 1,959 2,660 2,515 2,921 3,221 3,028 2,366 2,264
Average AUM:
2.4% CAGR
Operating
Income1:
0.9% CAGR
Average AUM ━Operating Margin
582 605
442
571
694 706
808
888 870
749 737
33.3%
34.8%
28.7%
33.5%
37.3%
35.4%
36.6% 37.9% 38.1%
35.7% 35.4%
9/07 9/08 9/09 9/10 9/11 9/12 9/13 9/14 9/15 9/16 9/17
1. CAGR is the compound average annual growth rate over the trailing 10-year period.
2. Reflects the portion of noncontrolling interests, attributable to third-party investors, related to consolidated SIPs included in Other
income
Other income, net of noncontrolling interests, was $58 million this quarter. Higher dividend and interest income
combined with lower unrealized foreign exchange losses drove the increase from the prior quarter.
The fiscal year tax rate of 29.8% was lower than expected, due mostly to an increase in net income attributable to
noncontrolling interests this quarter, and a shift in the earnings mix towards lower tax jurisdictions.
Profitability remains strong with an operating margin of 35.4% for the fiscal year. However, a decline in revenues
driven by lower average assets under management slightly outpaced the overall decline in expenses which caused
some modest contraction from the prior year.
11
1. U.S. asset managers include AB, AMG, APAM, APO, ARES, BLK, BX, CG, CLMS, CNS, EV, FIG, FII, GBL, IVZ, KKR, LM, MN, OAK, OMAM, OZM,
PZN, TROW, VRTS, WDR and WETF. Source: Thomson Reuters and company reports.
BEN U.S. Asset Managers Average (ex-BEN)2
Change in Ending Shares Outstanding
U.S. Asset
Managers (ex-
BEN)2: 1.9%
Compound
Annual Dilution
BEN: 2.7%
Compound
Annual Accretion
Capital Management
Ken Lewis, CFO
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
9/12 3/13 9/13 3/14 9/14 3/15 9/15 3/16 9/16 3/17 9/17
168 175 167
262
256
327 337
404
500
218
190
151
178
129
179
137
265
105
23
98 99
$0
$10
$20
$30
$40
$50
$60
9/173/179/163/169/153/159/143/149/133/139/12
Special Cash
Dividends per
Share Declared:
Dec-14: $0.50
Nov-12: $1.00
Share Repurchases (US$ millions) vs. Average BEN Price
BEN Average Price for the Period Special Cash Dividend Declared Share Repurchase Amount
During the quarter, we repurchased an additional 3.9 million shares, bringing total repurchases for the full fiscal year
to 19.1 million shares; far exceeding total issuance and decreasing shares outstanding by 2.7%.
12
1. The chart above illustrates the amount of share repurchases and dividends over the trailing 12 months, for the period ended. Dividend payout is
calculated as dividend amount declared divided by net income attributable to Franklin Resources, Inc. for the trailing 12-month period.
Repurchase payout is calculated as stock repurchase amount divided by net income attributable to Franklin Resources, Inc. for the trailing 12-
month period.
Trailing 12 Months Share Repurchases and Dividends1
(US$ millions and percentage of net income)
Dividends Share Repurchases
Ken Lewis, CFO
24% 25% 24% 25% 26%
77%
69%
57%
49% 45%
1,745
1,608
1,444
1,300
1,220
9/16 12/16 3/17 6/17 9/17
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
Cumulatively in fiscal year 2017, we returned approximately $770 million to shareholders via repurchases and
$450 million through the regular quarterly dividend of $0.20 per share. This combined for a total payout ratio of
71% of total net income for the full year.
In September, $300 million of outstanding debt was repaid at maturity, decreasing total debt outstanding to about
$1 billion.
We are currently optimistic that U.S. tax reform will be implemented, and this factored into our decision to not
refinance this maturity.
Sep-17
Equity $ 317.0
Multi Asset/Balanced 143.3
Fixed Income 286.6
Cash Management 6.3
Total $ 753.2
Sep-17
United States $ 501.0
Europe, the Middle East
and Africa
108.7
Asia-Pacific 92.9
Canada 32.4
Latin America 18.2
Total $ 753.2
67%
15%
12%
4%
2%
42%
19%
38%
1%
13 1. Net Cash and investments consist of Franklin Resources, Inc. cash and investments (including only direct investments in consolidated
SIPs), net of debt and deposits.
Net Cash and Investments1 (US$ billions)
Appendix
U.S. Net Cash and Investments Non-U.S. Net Cash and Investments
Ken Lewis, CFO
Investment Objective
(U.S.$ billions)
Sales Region
(US$ billions)
Mix of Ending Assets Under Management
(as of September 30, 2017)
0.8
1.8 1.7 1.2 1.3
6.5
7.4 7.9 8.5
9.1
7.3
9.2 9.6
9.7
10.4
FYE-9/13 FYE-9/14 FYE-9/15 FYE-9/16 FYE-9/17
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
14
Appendix (continued)
Sales and Distribution Summary
(in US$ millions, for the three months ended)
Consolidated SIPs Related Adjustments
(in US$ millions, for the three and nine months ended)
This table summarizes the
impact of consolidated
SIPs on the Company’s
reported U.S. GAAP
financial results.
Ken Lewis, CFO
Sep-17 Jun-17 Change % Change
Asset-based fees $ 339.9 $ 334.7 5.2 2%
Asset-based expenses (441.5) (432.9) (8.6) 2%
Asset-based fees, net $ (101.6) $ (98.2) $ (3.4) 3%
Sales-based fees 79.0 96.4 (17.4) (18%)
Contingent sales charges 2.9 2.2 0.7 32%
Sales-based expenses (74.3) (89.8) 15.5 (17%)
Sales-based fees, net $ 7.6 $ 8.8 $ (1.2) (14%)
Amortization of deferred sales commissions (19.1) (18.5) (0.6) 3%
Sales and Distribution Fees, Net $ (113.1) $ (107.9) $ (5.2) 5%
FY
Sep-17 Sep-17
Operating Revenues $ 16.9 $ 56.6
Operating Expenses 7.6 22.5
Operating Income 9.3 34.1
Investment Income (24.8) (55.6)
Interest Expense (0.7) (3.0)
Consolidated SIPs 65.6 118.2
Other Income 40.1 59.6
Net Income 49.4 93.7
Less: net income attributable to
noncontrolling interests
48.6 88.8
Net Income Attributable to Franklin
Resources, Inc.
$ 0.8 $ 4.9
Fourth Quarter and Fiscal Year Executive Commentary
Unaudited
The financial results in this commentary are preliminary. Statements in this commentary regarding Franklin Resources,
Inc. (“Franklin”) and its subsidiaries, which are not historical facts, are "forward-looking statements" within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. When used in this commentary, words or phrases generally
written in the future tense and/or preceded by words such as “will,” “may,” “could,” “expect,” “believe,” “anticipate,”
“intend,” “plan,” “seek,” “estimate”, “preliminary” or other similar words are forward-looking statements. Forward-looking
statements involve a number of known and unknown risks, uncertainties and other important factors, some of which are
listed below, that could cause actual results and outcomes to differ materially from any future results or outcomes
expressed or implied by such forward-looking statements. While forward-looking statements are our best prediction at
the time that they are made, you should not rely on them and are cautioned against doing so. Forward-looking
statements are based on our current expectations and assumptions regarding our business, the economy and other
future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict. They are neither statements of historical fact nor
guarantees or assurances of future performance.
These and other risks, uncertainties and other important factors are described in more detail in Franklin’s recent filings
with the U.S. Securities and Exchange Commission, including, without limitation, in Risk Factors and Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Franklin’s Annual Report on Form 10-K for
the fiscal year ended September 30, 2016 and Franklin’s subsequent Quarterly Reports on Form 10-Q:
• Volatility and disruption of the capital and credit markets, and adverse changes in the global economy, may
significantly affect our results of operations and may put pressure on our financial results.
• The amount and mix of our assets under management (“AUM”) are subject to significant fluctuations.
• We are subject to extensive, complex, overlapping and frequently changing rules, regulations, policies and legal
interpretations.
• Global regulatory and legislative actions and reforms have made the regulatory environment in which we operate
more costly and future actions and reforms could adversely impact our financial condition and results of operations.
• Failure to comply with the laws, rules or regulations in any of the jurisdictions in which we operate could result in
substantial harm to our reputation and results of operations.
• Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial
condition, results of operations and liquidity.
• Any significant limitation, failure or security breach of our information and cyber security infrastructure, software
applications, technology or other systems that are critical to our operations could disrupt our business and harm our
operations and reputation.
• Our business operations are complex and a failure to properly perform operational tasks or the misrepresentation of
our products and services, or the termination of investment management agreements representing a significant
portion of our AUM, could have an adverse effect on our revenues and income.
• We face risks, and corresponding potential costs and expenses, associated with conducting operations and growing
our business in numerous countries.
• We depend on key personnel and our financial performance could be negatively affected by the loss of their services.
• Strong competition from numerous and sometimes larger companies with competing offerings and products could
limit or reduce sales of our products, potentially resulting in a decline in our market share, revenues and income.
• Changes in the third-party distribution and sales channels on which we depend could reduce our income and hinder
our growth.
• Our increasing focus on international markets as a source of investments and sales of investment products subjects
us to increased exchange rate and market-specific political, economic or other risks that may adversely impact our
revenues and income generated overseas.
• Harm to our reputation or poor investment performance of our products could reduce the level of our AUM or affect
our sales, and negatively impact our revenues and income.
• Our future results are dependent upon maintaining an appropriate level of expenses, which is subject to fluctuation.
• Our ability to successfully manage and grow our business can be impeded by systems and other technological
limitations.
• Our inability to successfully recover should we experience a disaster or other business continuity problem could
cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.
• Regulatory and governmental examinations and/or investigations, litigation and the legal risks associated with our
business, could adversely impact our AUM, increase costs and negatively impact our profitability and/or our future
financial results.
15
Forward-Looking Statements
16
Investor Relations Contacts
Brian Sevilla
+1 (650) 312-3326
Forward-Looking Statements (continued)
• Our ability to meet cash needs depends upon certain factors, including the market value of our assets, operating
cash flows and our perceived creditworthiness.
• We are dependent on the earnings of our subsidiaries.
Any forward-looking statement made by us in this commentary speaks only as of the date on which it is made. Factors
or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to
predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of
new information, future developments or otherwise, except as may be required by law.
The information in this commentary is provided solely in connection with this commentary, and is not directed
toward existing or potential investment advisory clients or fund shareholders.