Attached files
| file | filename |
|---|---|
| EX-99.1 - PRESS RELEASE - FRANKLIN RESOURCES INC | exhibit991q1fy18.htm |
| 8-K - FORM 8-K - FRANKLIN RESOURCES INC | form8kq1fy18.htm |
• Long awaited corporate tax reform became a reality at quarter end,
removing a disincentive on global companies such as ours to invest
offshore earnings in the United States. However, its implementation
did have a net negative impact on earnings in the fiscal quarter, due
mostly to the applicable repatriation tolls. As detailed later, a one-time
charge of $1.1 billion resulted in the net loss in the quarter.
• Earlier this month we announced an agreement to acquire Edinburgh
Partners Limited, an established global value investment manager that
strengthens our global equity product offerings with a highly regarded
investment team. Additionally, Dr. Sandy Nairn, CEO of Edinburgh
Partners, whose deep history with Templeton and expertise in value
investing brings strong talent and leadership to the company, will be
appointed Chairman of the Templeton Global Equity Group, while
maintaining responsibility for Edinburgh Partners, which will continue
to operate as a distinct business.
• In November, we launched an initial suite of 16 single country and
regional market-cap weighted ETFs. These new passive ETFs will
allow investors, including investors in our own solutions products, to
gain inexpensive beta exposure to these markets at expense ratios
that are among the lowest for their respective categories.
• During the quarter, the company’s Board of Directors once again
increased the regular quarterly dividend, to $0.23 per share, a 15%
increase from the prior year, maintaining our exceptional dividend
growth track record. Additionally, we repurchased 4.6 million shares,
bringing the total payout for the trailing twelve months to $1.2 billion.
FRANKLIN RESOURCES, INC.
Q1 2018 Executive Quarterly Earnings Commentary
Highlights
Investment
Performance
2
Assets Under
Management and
Flows
3-5
Flows by Investment
Objective
6-8
Financial Results 9
Operating Revenues
and Expenses
9-10
Other Income and
Taxes
11
Capital Management 12-13
Appendix 14-15
Greg Johnson
Chairman of the Board
Chief Executive Officer
Kenneth A. Lewis
Executive Vice President
Chief Financial Officer
Contents Page(s)
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 13674993, after 2:00 p.m. Eastern
Time on January 30, 2018 through February 27, 2018.
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.
Exhibit 99.2
Q1 2018 Executive Commentary
Unaudited
Investment Performance
After outperforming in 2016, value lagged growth by the widest margin in nearly two decades in 2017, as the MSCI ACWI
Value Index returned 19% compared to the MSCI ACWI Growth Index return of over 30%; marking the tenth year out of the
past eleven that global growth has outperformed.
Not surprisingly, short-term performance was challenged in the current market environment as several of our largest funds
collectively experienced a decrease in relative performance for the 1-year time period, which also weighed on 3-year
performance track records. The 10-year relative investment performance rankings of our U.S. and cross-border mutual
funds were in line with the previous quarter.
The primary detractors were some of our larger funds, such as Franklin Income, which is not managed to compete on a
total return basis with either its benchmark or its Lipper peer group, but rather focuses on the attractiveness and stability of
income distribution that is more than 2x the benchmark and peer group. Templeton Global Macro team strategies, such as
Templeton Global Bond, also underperformed in the quarter, due primarily to certain currency positions and defensive
positioning around interest rates in developed markets.
We also saw areas of noticeable improvements. A number of our U.S. growth strategies have been bright spots.
Specifically, Franklin DynaTech which ranked in the 1st quartile for the 1-, 3-, 5- and 10-year time periods, and Franklin
Growth also had strong relative performance, ranking in the top 2 quartiles for the 3- and 5- year, and 1st quartile in the 10-
year period.
Some other standouts were our California focused municipal bond funds. Franklin CA Tax-Free Income and Franklin CA
High Yield funds both delivered strong relative performance for the 1-year period. In fact, the high yield fund has delivered
top decile performance across the trailing 3-, 5- and 10-year periods as it benefited from the rally in duration and lower
credit quality that had the opposite impact on many of our other, larger bond funds.
2
Percentage of Total Long-Term Assets ($491 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 December 31, 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 January 5,
2018 and Morningstar as of January 4, 2018 and are subject to revision.
© 2018 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 - $199 billion
1-Year
59%
43% 76% 24% 13%
10% 27% 32%
16% 19% 77%
75%
Assets Under Management and Flows
Long-term sales increased this quarter as we saw a
notable rebound in institutional sales, particularly
outside of the U.S. Redemptions also ticked up in the
quarter, with much of the increase coming in
December, when we normally see higher redemptions
related to end of year tax planning and certain
distribution reinvestment dynamics.
Net outflows for the quarter improved to $2.3 billion, the
lowest level since our second quarter of 2015. The
improvement from last quarter was largely due to
seasonally higher reinvested distributions that more
than offset elevated redemptions in December.
3
Simple Monthly Average vs. End of Period
(in US$ billions, for the three months ended)
723 732
742 749
753
720
740
743
753 754
12/16 3/17 6/17 9/17 12/17
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)
24.5
30.5 29.8 27.5 28.1
(46.7) (44.5)
(41.1) (37.4) (39.4)
(14.4)
(11.0) (7.3) (5.9)
(2.3)
12/16 3/17 6/17 9/17 12/17
1.1
31.0
10.1
16.3
2.9
12/16 3/17 6/17 9/17 12/17
Ending and average assets under management for
the quarter were marginally higher at $753.8 billion
and $752.7 billion, respectively.
Long-Term
Sales
Long-Term
Redemptions
Net Flows
Q1 2018 Executive Commentary
Unaudited
10.9 12.4 11.6 9.6 8.9
(25.9)
(20.7)
(17.1) (16.0) (17.4)
(8.3)
(6.1)
(2.4) (3.2)
(0.6)
12/16 3/17 6/17 9/17 12/17
International retail's recent momentum slowed this
quarter as both sales and redemptions weakened from
the prior quarter. However, our previous success in the
Asia-Pacific region continued this quarter, specifically
in China and India, where sales and demand remained
strong. In the ETF space, we launched a Smart-Beta
Multi-Factor Emerging Markets product in Europe,
making us the first company to do so, and increasing
our ETF presence in Europe.
4
Greg Johnson, Chairman and CEO
Long-Term
Sales
Long-Term
Redemptions
Net Flows
Internationally, our institutional business attracted
strong sales of $4.6 billion; its highest level in two
years. Redemptions also picked up a bit, largely
due to several large redemptions in the Asia-
Pacific and the Americas region. Nevertheless, our
institutional pipeline remains healthy and we
continue to track opportunities around the globe.
Q1 2018 Executive Commentary
Unaudited
Retail
Institutional Long-Term
Sales
Long-Term
Redemptions
Net Flows
Long-Term Flows: International¹
(In US$ billions, for the three months ended)
8.5
12.0 12.5 12.4 11.6
(11.8) (11.6) (11.3) (11.2) (11.8)
(4.0)
1.0 2.1 2.0
0.6
12/16 3/17 6/17 9/17 12/17
1. Graphs do not include high net-worth client flows.
2.1 2.9 2.4 3.2
4.6
(3.3)
(6.0) (6.3)
(3.5)
(5.0)
0.5
(2.9) (3.9)
(0.3) (0.3)
12/16 3/17 6/17 9/17 12/17
Long-Term Flows: United States¹
(In US$ billions, for the three months ended)
Retail
While net flows increased for U.S. retail, we did see
sales decrease to $8.9 billion and redemptions tick
up, mostly attributed to both of our flagship funds,
Franklin Income and Templeton Global Bond, jointly
experiencing larger redemptions this quarter. We
continue to build on our success from last quarter by
adding a number of funds from a wide range of
strategies onto major platforms this quarter.
Long-Term
Sales
Long-Term
Redemptions
Net Flows
5
Greg Johnson, Chairman and CEO
Long-Term
Sales
Long-Term
Redemptions
Net Flows
Q1 2018 Executive Commentary
Unaudited
1. Graphs do not include high net-worth client flows.
2.1 2.9 2.5 2.0 2.5
(5.2) (5.8) (5.6) (5.9) (4.8)
(3.0) (2.9) (3.1) (3.9) (2.1)
12/16 3/17 6/17 9/17 12/17
Institutional
Shifting to the U.S. institutional flows, sales improved
from last quarter and redemptions slowed to the lowest
level since our third quarter of 2016. As we begin to see
the effects of our recent strategic moves in this space, we
continue to be optimistic about our U.S. institutional
business. We also launched several new Collective
Investment Trust products with a new partner in the
defined contribution space this quarter.
Long-Term Flows: United States¹
(In US$ billions, for the three months ended)
Flows by Investment Objective
6
1. Sales and redemptions as a percentage of beginning assets under management are annualized.
Global/International Equity
Net Flows Long-Term
Sales
Long-Term
Redemptions
(in US$ billions, for the three months ended)
5.9 6.9 6.5 5.4 5.9
(10.7)
(13.8) (12.9)
(11.0) (11.6)
(2.9)
(6.7)
(6.2) (5.0)
(3.6)
12/16 3/17 6/17 9/17 12/17
Global/International Fixed Income
(in US$ billions, for the three months ended)
6.1
9.0
11.2 11.9 11.1
(14.2)
(11.6)
(9.5) (9.0) (10.2)
(7.5)
(2.0)
2.6 3.8 1.8
12/16 3/17 6/17 9/17 12/17
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 12% 11%
Redemptions 24% 22%
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 24% 27%
Redemptions 28% 25%
Net Flows Long-Term
Sales
Long-Term
Redemptions
Greg Johnson, Chairman and CEO
Global fixed income inflows slowed to $1.8 billion
this quarter due to a combination of lower sales
and higher redemptions. The higher redemption
level was largely due to an expected portfolio
allocation change in Templeton Global Bond fund.
We continue to see strong demand for our cross-
border Templeton Emerging Markets Bond fund,
which attracted $1.3 billion of net inflows this
quarter, and was our top net selling mutual fund,
primarily in the Asia-Pacific region.
Q1 2018 Executive Commentary
Unaudited
Moving on to flows by investment objective,
global/international equity flows improved for the
fourth consecutive quarter to $3.6 billion of net
outflows. Flows in the global equity category
continue to be driven by institutional activity,
where in this quarter we saw solid new business
tapered by redemptions.
We are excited to be adding Edinburgh Partners
and its experienced investment team, including
its founder and CEO, Dr. Sandy Nairn, who will
provide experienced leadership over both
Templeton Global Equity Group and Edinburgh
Partners. His strong knowledge of Templeton
Global Equity Group’s philosophy and process
from his prior decade of experience working for
the group, along with new insights, having run
his own firm for the last 15 years, are
contributions we believe will lead to improved
investment performance and flows over time.
7
Multi-Asset/Balanced
(In US$ billions, for the three months ended)
4.0 4.2 4.6 4.0
3.5
(6.7)
(6.0)
(6.8) (6.2)
(5.8)
(1.2) (0.5) (0.6) (1.1)
(0.5)
12/16 3/17 6/17 9/17 12/17
U.S. Equity
(in US$ billions, for the three months ended)
3.7 4.3 3.6 3.1 3.6
(7.5)
(6.4) (5.9)
(5.6) (5.5)
(0.5)
(1.9) (1.9) (1.8)
1.5
12/16 3/17 6/17 9/17 12/17
U.S. equity net flows turned positive this quarter
as sales improved 16% and redemptions slowed
for the fourth consecutive quarter. Seasonal
distribution related activity drove the majority of
the improvement in flows. As noted in the
Investment Performance section, a number of
growth equity strategies continue to perform well
and have attracted net inflows.
Net Flows Long-Term
Sales
Long-Term
Redemptions
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 14% 13%
Redemptions 24% 21%
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 12% 10%
Redemptions 18% 16%
Net Flows Long-Term
Sales
Long-Term
Redemptions
Multi-asset/balanced net outflows improved to $500
million. Although sales in the Franklin Income fund
fell this quarter, we also saw a decrease in
redemptions compared to the prior quarter. The
cross-border Franklin K2 Alternative Strategies fund
continued its positive momentum and generated net
inflows again, this quarter. On the solutions side, we
won an important placement in a model business
with one of our key broker dealer relationships.
We continue to build out the capabilities of the
Franklin Templeton Multi-Assets Solutions group and
recently announced an expansion of our quantitative
capabilities with the formation of Franklin SystemiQ.
This team will focus on building quantitative
strategies in pursuit of new sources of return,
strategic diversification and calibrated volatility
management, all of which help create more efficient
portfolios and better client solutions.
Greg Johnson, Chairman and CEO
1. Sales and redemptions as a percentage of beginning assets under management are annualized.
Q1 2018 Executive Commentary
Unaudited
2.6
4.2
2.2
1.5
2.5
(3.9) (3.9)
(3.1) (3.4) (3.1)
(0.8)
0.5
(0.5)
(1.7)
(0.1)
12/16 3/17 6/17 9/17 12/17
8
Taxable U.S. Fixed Income
(In US$ billions, for the three months ended)
Taxable U.S. fixed income net flows were nearly
breakeven this quarter primarily due to strong
sales which increased 67%, while redemptions
slightly declined. The rebound in sales was
primarily attributable to an institutional client in the
Asia-Pacific region that funded a new mandate at
$1 billion.
Net Flows Long-Term
Sales
Long-Term
Redemptions
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 20% 20%
Redemptions 27% 25%
Tax-Free Fixed Income
(In US$ billions, for the three months ended)
2.2 1.9 1.7 1.6 1.5
(3.7)
(2.8) (2.9)
(2.2)
(3.2)
(1.5)
(0.4) (0.7)
(0.1)
(1.4)
12/16 3/17 6/17 9/17 12/17
Tax-free fixed income net outflows increased this
quarter, due primarily to increased redemptions, as
sales were essentially flat. Increased redemptions
were mostly from our three largest federal tax-free
funds, likely as a result of end of year tax planning.
% of Beg.
AUM1
Prior 4
Quarters Avg
Current
Quarter
Sales 10% 8%
Redemptions 16% 18%
Net Flows Long-Term
Sales
Long-Term
Redemptions
Greg Johnson, Chairman and CEO
1. Sales and redemptions as a percentage of beginning assets under management are annualized.
Q1 2018 Executive Commentary
Unaudited
Dec-17 Sep-17
Dec-17 vs.
Sep-17 Jun-17 Mar-17 Dec-16
Dec-17 vs.
Dec-16
Investment management fees $ 1,113.6 $ 1,109.8 0% $ 1,097.0 $ 1,089.2 $ 1,063.2 5%
Sales and distribution fees 417.8 421.8 (1%) 433.3 431.2 419.3 0%
Shareholder servicing fees 54.9 56.0 (2%) 56.7 56.4 56.6 (3%)
Other 29.2 29.3 0% 26.9 23.8 21.7 35%
Total Operating Revenues $ 1,615.5 $ 1,616.9 0% $ 1,613.9 $ 1,600.6 $ 1,560.8 4%
$0.77 $0.74 $0.73 $0.76
$(1.06)
12/16 3/17 6/17 9/17 12/17
587 556 564 558 581
440 421 411 425
(583)
12/16 3/17 6/17 9/17 12/17
Financial Results
9
(in US$ millions, except per share data, for the three months ended)
First quarter financial results, excluding the impact of tax reform, were strong. Operating income was $581 million, a 4%
increase from the prior quarter.
We reported a net loss of $583 million, which was attributable to $1.1 billion of estimated tax charges arising from the
recently signed Tax Cuts and Jobs Act of 2017. The tax charges had a $1.94 impact on earnings per share, which was a
net loss of $1.06 per share. The table on page 11 details the components of the tax expense.
1. Net income (loss) attributable to Franklin Resources, Inc.
Ken Lewis, CFO
Q1 2018 Executive Commentary
Unaudited
(in US$ millions, for the three months ended)
Total revenues for the quarter were $1.6 billion. Investment management fees improved modestly to just over $1.1 billion,
reflecting the change in assets under management.
Sales and distribution fees decreased 1%, due to a slowing of commissionable sales, particularly offshore.
Shareholder servicing fees were $55 million, a modest decrease from the prior quarter as a change in the transfer agent
revenue structure became effective during the quarter. Revenue under the previous structure was based on number of
accounts, whereas the new structure is a combination of assets under management and transaction-based. Therefore,
this line may experience more seasonality in our fiscal second quarter due to the seasonal increase in transactions near
calendar year end. Based on historical data for transaction volume and forecasted levels of assets under management,
we estimate this revenue line to be essentially flat for fiscal year 2018 compared to 2017.
Operating and Net Income (Loss)1 Diluted Earnings (Loss) Per Share
Operating Income Net Income (Loss) 1
Operating Revenues and Expenses
10
Operating expenses were seasonally lower by 2%.
Sales, distribution and marketing expense declined to $529 million in line with the decrease in revenues.
Compensation and benefits expense was $333 million for the quarter. The decrease was primarily due to a non-
recurring benefit from certain performance-based, long-term incentive awards that did not vest, offsetting higher salaries,
wages and benefits, including annual merit increases effective in December.
Information systems and technology experienced its usual seasonal pullback in expenses during the quarter, along with
occupancy and general and administrative expenses that were also lower.
As expenses were seasonally lower this quarter, we expect an uptick in expenses next quarter, though at a much slower
pace than reported last year. The biggest increase should be in compensation and benefits, which will likely increase in
the range of 6% to 8%, due to the normal seasonal factors. Full year expectations for expense growth (excluding sales,
distribution and marketing expense) are tracking toward the higher end of the range we previously guided to, before
factoring in the acquisition of Edinburgh Partners, which is expected to close in our third quarter.
Ken Lewis, CFO
Q1 2018 Executive Commentary
Unaudited
Dec-17 Sep-17
Dec-17 vs.
Sep-17 Jun-17 Mar-17 Dec-16
Dec-17 vs.
Dec-16
Sales, distribution and marketing $ 528.7 $ 534.9 (1%) $ 541.2 $ 534.8 $ 520.0 2%
Compensation and benefits 332.5 336.1 (1%) 342.7 343.4 311.5 7%
Information systems and technology 55.0 60.0 (8%) 54.1 54.0 51.7 6%
Occupancy 29.4 33.0 (11%) 30.2 29.0 29.1 1%
General, administrative and other 88.8 95.2 (7%) 81.5 83.9 61.6 44%
Total Operating Expenses $ 1,034.4 $ 1,059.2 (2%) $ 1,049.7 $ 1,045.1 $ 973.9 6%
Operating Margin (%) vs. Average AUM
(in US$ billions, for the fiscal year ended)
605
442
571
694 706
808
888 870
749 737 753
34.8%
28.7%
33.5%
37.3%
35.4%
36.6%
37.9% 38.1%
35.7%
35.4%
36.0%
09/08 09/09 09/10 09/11 09/12 09/13 09/14 09/15 09/16 09/17 FYTD
12/17
2,099 1,203 1,959 2,660 2,515 2,921 3,221 3,028 2,366 2,264 581
Fiscal Year
Operating Income
(in US$ millions)
Average AUM ━Operating Margin
Profitability continues to be strong with an operating margin for the quarter of 36%. After closing, most likely in our third
quarter, the Edinburgh Partners acquisition will be accretive on a cash basis, but initially modestly dilutive to reported
U.S. GAAP earnings, due to the amortization and expensing of various incentive and retention provisions as well
structural elements of the transaction.
Average AUM:
2.2% CAGR
Operating
Income1:
1.0% CAGR
1. Fiscal year-to-date operating income is annualized for CAGR calculation. CAGR is the compound average annual growth rate over the
trailing 10-year period.
11
Other Income
Ken Lewis, CFO
Other Income
(In US$ millions, for the three months ended December 31, 2017)
1. Reflects the portion of noncontrolling interests, attributable to third-party investors, related to CIPs included in Other income.
Other income, net of noncontrolling interests was $67.3 million, up from $57.9 million in the prior quarter. Other income
this quarter was driven by earnings from equity method investments and interest income.
Q1 2018 Executive Commentary
Unaudited
Taxes
Q1 Tax Expense
% of Income before
Taxes
Q1 Tax Expense from Operations $ 154.6 23.7%
Deemed Repatriation (Fed & State) 1,120.7 172.0%
Revaluation of Net DTL (53.1) (8.1%)
Others 1.3 0.2%
Total Q1 Tax Expense $ 1,223.5 187.8%
Near the end of the quarter, Congress passed comprehensive tax legislation, commonly referred to as the Tax Cuts and
Jobs Act of 2017. This new law makes broad and complex changes to the U.S. tax code, and while it will take time to
fully interpret the changes, its impact on first quarter earnings was significant.
In particular, the transition to a new territorial-like tax system and the resultant deemed repatriation tax on undistributed
earnings of non-U.S. subsidiaries caused us to take an estimated charge of $1.1 billion in the quarter.
Partially offsetting that was a benefit of $51.8 million from the revaluation of net deferred tax liabilities and other factors
related to the implementation of the law, which features a new lower base rate of 21%. These impacts on tax expense
are summarized in the table below.
Our current estimate of the effective tax rate for the full fiscal year 2018 is in the range of 24% to 25% excluding the
one-time impacts from the Tax Act, but please note that because tax reform was signed into law near the end of our first
fiscal quarter, roughly three-fourths of the benefits of the lower base rate will be realized this fiscal year, and our go
forward effective tax rate will likely moderately exceed the new U.S. base rate.
28.5
35.2
0.0 0.7
(10.8)
0.9 16.0
70.5
([VALUE])
67.3
Interest and
dividend
income
Equity method
investments
Available-for-
sale
investments
Trading
investments
Interest
expense
Foreign
exchange and
other
Consolidated
Investment
Products (CIPs)
Total other
income
Noncontrolling
interests¹
Other income,
net of
noncontrolling
interests
12
1. U.S. asset managers include AB, AMG, APAM, APO, ARES, BLK, BX, CG, CNS, EV, FIG, FII, GBL, HLNE, 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)1
Change in Ending Shares Outstanding
U.S. Asset
Managers (ex-
BEN)1: 2.1%
Compound
Annual Dilution
BEN: 2.7%
Compound
Annual Accretion
Capital Management
Ken Lewis, CFO
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
12/12 6/13 12/13 6/14 12/14 6/15 12/15 6/16 12/16 6/17 12/17
200
168 175 167
262
256
327 337
404
500
218
190
151
178
129
179
137
265
105
23
98
$0
$10
$20
$30
$40
$50
$60
12/176/1712/166/1612/156/1512/146/1412/136/1312/12
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, the company repurchased 4.6 million shares, more than offsetting annual issuance related to long-
term incentive awards, at a total cost of $200 million.
Additionally, as already noted, the regular quarterly dividend was increased by 15%, keeping with our long-term track
record of steady growth that compares favorably to other public asset managers.
Cumulatively, for the trailing twelve months, we returned $710 million to shareholders via repurchases and $463
million through the regular quarterly dividend, for a combined payout of just under $1.2 billion.
Cash and investments, net of debt and the liability for repatriation tolls was $9.4 billion as of December 31, 2017.
Q1 2018 Executive Commentary
Unaudited
25% 24% 25% 26%
69%
57%
49% 45%
NM
1,608
1,444
1,300
1,220 1,173
12/16 3/17 6/17 9/17 12/17
13
1. U.S. asset managers include AB, AMG, APAM, APO, ARES, BLK, BX, CG, CNS, EV, FIG, FII, GBL, HLNE, IVZ, KKR, LM, MN, OAK, OMAM, OZM,
PZN, TROW, VRTS, WDR and WETF. Source: Thomson Reuters and company reports.
2. The chart above illustrates the amount of share repurchases and dividends over the trailing 12 months, for the period ended. Dividend payout is
calculated as dividend amount declared divided by net income attributable to Franklin Resources, Inc. for the trailing 12-month period. Repurchase
payout is calculated as stock repurchase amount divided by net income attributable to Franklin Resources, Inc. for the trailing 12-month period.
Note: The payout ratio for the 12/17 period is not meaningful due to reported loss that was attributable to tax reform.
Trailing 12 Months Share Repurchases and Dividends2
(US$ millions and percentage of net income)
Dividends Share Repurchases
Ken Lewis, CFO
Q1 2018 Executive Commentary
Unaudited
NM
15.0% 15.3%
18.9%
13.2%
5.6%
-1.7%
5.6%
-1.1%
1-Year 3-Year 5-Year 10-Year
Compound Annual Growth of Regular Dividends as of December 31, 2017
BEN U.S. Asset Managers Average (ex-BEN)1
NM
Dec-17
Equity $ 321.4
Multi-Asset/Balanced 142.7
Fixed Income 283.1
Cash Management 6.6
Total $ 753.8 66%
15%
13%
4%
2%
43%
19%
37%
1%
14 1. Net cash and investments consist of Franklin Resources, Inc. cash and investments (including only direct investments in CIPs), net of debt,
deposits (in FY 2014) and one-time estimated tax charge (12/17).
Net Cash and Investments1 (US$ billions)
Appendix
Net Cash and Investments¹
Ken Lewis, CFO
Investment Objective
(US$ billions)
Sales Region
(US$ billions)
Mix of Ending Assets Under Management
(as of December 31, 2017)
Q1 2018 Executive Commentary
Unaudited
Dec-17
United States $ 497.2
Europe, the Middle East
and Africa
109.9
Asia-Pacific 97.4
Canada 31.4
Latin America 17.9
Total $ 753.8
9.2
9.6 9.7
10.4
9.4
FYE-9/14 FYE-9/15 FYE-9/16 FYE-9/17 12/17
15
Appendix (continued)
Sales and Distribution Summary
(in US$ millions, for the three months ended)
CIPs Related Adjustments
(in US$ millions, for the three months ended)
This table summarizes the
impact of CIPs on the
Company’s reported U.S.
GAAP financial results.
Ken Lewis, CFO
Q1 2018 Executive Commentary
Unaudited
Dec-17
Operating Revenues $ 14.7
Operating Expenses 6.0
Operating Income 8.7
Investment Income (11.6)
Interest Expense (0.7)
CIPs 16.0
Other Income 3.7
Net Income 12.4
Less: net income attributable to
noncontrolling interests
11.2
Net Income Attributable to Franklin
Resources, Inc.
$ 1.2
Dec-17 Sep-17 Change % Change
Asset-based fees $ 340.8 $ 339.9 0.9 0%
Asset-based expenses (440.6) (441.5) 0.9 0%
Asset-based fees, net $ (99.8) $ (101.6) $ 1.8 (2%)
Sales-based fees 74.3 79.0 (4.7) (6%)
Contingent sales charges 2.7 2.9 (0.2) (7%)
Sales-based expenses (69.0) (74.3) 5.3 (7%)
Sales-based fees, net $ 8.0 $ 7.6 $ 0.4 5%
Amortization of deferred sales commissions (19.1) (19.1) - 0%
Sales and Distribution Fees, Net $ (110.9) $ (113.1) $ 2.2 (2%)
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” 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, 2017 and Franklin’s subsequent Quarterly Report 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 our 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.
16
Forward-Looking Statements
17
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.