INVESTSMART GROUP LIMITED — Annual Report 2018

Aug 29, 2018

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30 August 2018 Attention: Company Announcements ASX Limited

Audited Financial Results for FY2018 (extract)

Below is a summary of our audited consolidated accounts for the year ended 30 June 2018 with prior period comparisons to assist in understanding our underlying performance:

	FY17 Q4	FY17 FY	FY18 Q4	FY18 FY
	(Qtr end June 2017)	(Year end June 2017)	(Qtr end June 2018)	(Year end June 2018)
Commissions income - Fund Managers^	1,257,172	5,158,174	1,199,825	4,935,931
Commissions Income - Insurance	508,913	2,116,041	497,987	1,933,307
Funds management income	34,047	73,844	110,649	347,667
Subscription income	1,519,985	6,584,654	1,076,358	5,005,675
Other Incomeʘ	13,708	147,192	24,563	252,678
Total Income	3,333,825	14,079,905	2,909,382	12,470,555
Commission rebates Paid	505,530	1,983,032	494,307	1,920,662
Employee Costs	1,383,473	5,747,665	1,389,134	5,537,570
Marketing costs	166,856	832,202	835,582	1,897,204
Other Expenses	643,708	2,510,497	649,189	2,396,101
Total Operating Expenses	2,699,567	11,073,396	3,368,212	11,751,537
Operating Profit Before Tax, Amortisation, Impairment and EBE	634,258	3,006,509	(458,830)	719,018
Unrealised gain on ventures investments*		138,000		978,565
Employee benefit expense		(424,528)		(353,809)
Amortisation of intangibles		(1,366,660)		(1,366,660)
Goodwill impairment		(23,610,664)		-
Tax benefit/(expense)		(291,247)		253,170
Reported profit/(loss)		(22,548,590)		230,284
Cash at Bank (end of period)	4,935,046	4,935,046	4,565,772	4,565,772

Annual results are audited. Quarterly results are prepared by management and are unaudited ^Includes commissions from Home Loans and General Insurance ʘ Other Income includes interest earned on cash-at-bank and gains on investments (excluding unrealised gains on ventures investments) * As previously communicated to the market, fair value measurement at year end resulted in an unrealised gain on Ventures Investments for the year of $978,565. The valuation technique used to determine fair value is consistent with prior periods. Ventures investments are considered non-core to InvestSMART’s operations.

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Commentary on financial performance for FY2018

InvestSMART’s changing revenue mix

As outlined at our Annual General Meeting in October 2018, we continue to transition away from historical revenue streams to build funds under management via our digital wealth adviser platform.

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Subscriptions

Growth in subscription revenue in late FY16 and FY17 came through the acquisition of Eureka Report in May 2016. The strategic purchase of Eureka Report was at an attractive price, despite retention rates below 50%, enabling us to more than double our database of prospective members and gain valuable wealth content for our wealth adviser platform.

Although it is disappointing that we have been unable to increase Eureka Report retention rates more quickly, they have been rising in FY18, reaching 74% for the recent June quarter due to content improvements and enhancements. Intelligent Investor retention rates remain high at around 90%.

In addition to content enhancements, we have also launched a simplified monthly subscription service. We expect this to further improve lead conversions and retention. Nevertheless, a loss of subscribers in FY18 will lead to a marginal decline in Subscriptions Revenue in FY19.

Commissions Income - Fund Managers

The MySuper legislative changes that came into effect in July 2016 lowered retention rates in FY16/17. In FY18 retention rates were within expectations. In the absence of further legislative changes, we expect recent retention rates to be relatively stable. Total Funds Under Advice (FUA) can be affected by substantial movements in the All Ordinaries Index.

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Commissions Income – Insurance

MySuper legislative changes also affected our insurance retention rates in FY16/17, albeit to a lesser extent. Gross Written Premium and client retention rates from insurance books were within management expectations for FY18 and, in the absence of any legislative changes, are expected to continue in FY19.

Funds Management Fees

Total funds under management (FUM) grew 214% year on year, from $33.2m at 30 June 2018 to $104.4m at 30 June 2018.

We’re focused on building this revenue stream to offset and surpass any loss in its historical sources of revenue. Growing FUM will be our primary revenue growth driver in FY19.

The chart below shows growth in FUM and our funds management clients for FY18:

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InvestSMART FUM Growth
$110 2,300
$100 2,100
$90 1,900
1,700
$80
1,500
$70
1,300
$60
1,100
$50
900
$40 700
$30 500
$20 300
FUM ($m) Clients (RHS)
FUM $m
Number of clients
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InvestSMART launched its first Exchange Traded Managed Fund (“ETMF”) under the ASX code INIF on 19 June 2018. It raised $30m in the initial offer with a further $4m raised through on-market applications to 30 June 2018.

ETMFs provide low-cost access to managed funds for investors on the ASX CHESS platform with low minimum investment requirements, enhanced transparency (ongoing quotation) and flexibility (application and redemption process is through the ASX CHESS platform). We anticipate issuing additional funds, including further ETMFs, over the course of FY19.

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Awareness, engagement and conversion

Marketing costs

We chose to significantly increase marketing expenditure from December 2017, focussing on an integrated digital and physical marketing campaign to travellers within Qantas Club lounges, plus wider digital advertising and engagement through radio. This resulted in a large increase in awareness and new downloads of our free portfolio manager and wealth advice for our mobile application and desktop platform, as shown in the table below.

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In 2019, we will again increase marketing and sales expenditure to raise awareness of our new InvestSmart brand and reposition our service to better articulate the benefits of digital wealth advice and low cost online investment services to existing and new members. Helping them to build, diversify and optimise their portfolios is a focus in FY19.

The Term Deposit Shop

We purchased an option to acquire The Term Deposit Shop (TTDS) for $3.75m, exercisable between the 3rd and 4th anniversary dates of the Share Option Deed. We also entered an agreement to share 50% of revenue received on clients introduced by InvestSMART to TTDS during the option exercise period.

InvestSMART members have cash holdings of over $2.5bn recorded in our portfolio manager. To help members find the best term deposits to further optimise their portfolios, we anticipate integrating our portfolio management technology with the TTDS platform during the first quarter of FY19.

2019 Earnings guidance

The following guidance is given for FY19:

• Funds management income to grow by about 300%

• Historical revenue including Subscription and Commission revenue to fall by circa 8%

• Total Operating Loss of approximately $1m, reflecting increases in marketing, sales and funds management costs.

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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