INVESTSMART GROUP LIMITED — Annual Report 2017

Aug 23, 2017

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23 August 2017

Attention: Company Announcements ASX Limited

By E-Lodgement

Audited Financial Results for FY2017 (extract)

InvestSMART Group is pleased to announce its audited FY2017 results showing a 25% increase in operating profits to $3,006,509 in FY17 from $2,407,079 in FY2016.

Below is a summary of our audited accounts for FY2017 with prior period comparisons to assist in understanding our underlying performance:

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*Annual results are audited and quarterly results have been prepared by management and are unaudited.

∆ FY17 Q4 breaks out Commission Income - Insurance and Funds Management fees from Commission Income – Fund Manager ʘ Other Income includes interest earned on cash-at-bank and realised gains on investments. §Other Expenses excludes tax, LTIP costs and amortisation of intangibles.

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Commentary on financial performance for FY2017

Commissions Income - Fund Managers

Commissions Income - Insurance and Fund Management Fees have been broken out of Commissions Income - Fund Managers in FY17 Q4 to better reflect our main revenue streams.

As reported in our March 2017 update, revenue resulting from funds under administration fell from $7,907,634 in FY2016 to $7,348,059 in FY2017. This was largely due to clients moving to non-trail products such as MySuper before the 1 July 2017 deadline. We expect Commissions Income – Funds Manager revenue to broadly stay in line with movements in the All Ordinaries Index over FY18.

Commissions Income - Insurance

Management accounts have only recently started breaking out revenue earned from our life insurance book. In coming quarters we expect to be able to provide better quarterly comparables offering more visibility in this area.

In June 2017, in line with our growth focus on life insurance and funds under management, we launched a newly developed online life insurance aggregator.

Fund Management Fees

Management accounts have only recently started breaking out revenue earned from our own investment products, we expect to have better quarterly comparable moving forward.

Again, as management accounts have only recently started breaking out revenue earned from our own investment products in coming quarters we expect to be able to provide better quarterly comparables.

Growing funds under management (FUM) in our investment products is our main growth driver. Over FY18 we expect to grow FUM from around $35m to $135m. Our small caps fund is now open for applications and we anticipate issuing new funds shortly.

Subscriptions

Revenues from subscriptions increased from FY2016 after a full year of subscription revenue from the Eureka Report acquisition. Overall subscriber numbers have fallen over the past quarter as we move more subscription members to funds under management in our products, which may include a complimentary subscription, and some members have decided not to renew at higher prices following the acquisition of Eureka Report.

We expect more of our subscription members to transition to our investment products in coming years. This is expected to generate higher retention and total revenue per client.

Other income

Other income revenue is interest income and realised gains on investments in our SMAs and managed funds.

Rebates Paid

Commissions rebated to members as part of our cashback services increased slightly due to increases in FUA amongst higher balance members.

Employee costs and other operating Expenses

Employee costs and other operating expenses have increased as the Group has put in place resources for future growth in FUM in FY2018, and the full year expenses of our Melbourne office.

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Non-cash income & expenses

The net loss of $22,699,886 for FY2017 includes the impairment charge of $23,610,664 against the carrying value of Goodwill, effectively writing this down to $0. The unrealised gain on investments shown above relates to the Board’s valuation of the Group’s investments in fintech start-ups held in the AWI Ventures subsidiary.

Cash and net financial assets

Net financial assets (excluding Income Tax) increased from $1.44m at 30 June 2016 to $3m at 30 June 2017.

Cash at bank was flat for the year and was affected by:

• Seeding SMA portfolios and Small Caps Fund ($384k)

• Subscriptions in advance declined from $4.43m (circa 15,000 sub) to $2.42m (circa 12,000 sub), as we transition away from subs to FUM and raise average subscription price in line with our strategy.

• Net corporate tax payments of $283k

InvestSMART Free Portfolio Management Service

Our proprietary Portfolio Manager continues to drive our automated investment advice services, filter content, and deliver improvements in members’ portfolio construction using InvestSMART investment funds. We are constantly adding enhancements to the Portfolio Manager to provide further automation, better reporting and the ability for members to track their portfolio performance against their investment goals.

Assets managed in the portfolio manager continue to grow providing enormous opportunity to build investment products and services to help our members reach their financial goals.

		~~Dec-16~~	~~Jun-17~~	~~Change~~
Total	Number of Portfolios on PM system	84,638	88,892	5%
Value	of Shares	7,873,052,023	8,774,429,101	11%
Value	of Funds	1,824,632,656	1,964,275,045	8%
Value	of Property	6,422,472,662	7,494,427,822	17%
Value	of Cash	1,570,134,057	1,876,695,681	20%

InvestSMART FUM Growth on target

The chart below shows growth in funds under management and customers since the inception date of our Separately Managed Accounts:

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InvestSMART recently received authorization from ASIC to issue its own management investment products (as a “Responsible Entity”) and has launched a Small Companies Fund to our subscribers.

FY2018 Guidance

The following guidance is a reasonable expectation of what we believe InvestSMART will achieve in FY2018:

• Operating expenses are expected to increase significantly due to higher marketing spend and product development costs.

• Operating profits are expected to decrease significantly to $500k as we continue to scale our business in line with our strategic objectives.

• Funds under management expected to grow from $40m to $135m

The revenue forecast is dependent on reasonable market conditions, particularly within the Australian equity market and the launch of our EQMF products.

For further information or comment, please contact Paul Clitheroe, Chairman, or Ron Hodge, Managing Director and CEO, at InvestSMART Group on 02 8305 6000

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