PRAEMIUM LIMITED — Annual Report 2016

Aug 14, 2016

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FY2016 Annual results

15 August 2016

Disclaimer

The material contained in this document is a presentation of general information about the Praemium Group’s activities current as at the date of this presentation (15 August 2016) and is supplementary to the Group’s financial results released to the ASX on 15 August 2016. It is provided in summary and does not purport to be complete. You should not rely upon it as advice for investment purposes as it does not take into account your investment objectives, financial position or needs. These factors should be considered, with or without professional advice when deciding if an investment is appropriate.

To the extent permitted by law, no responsibility for any loss arising in any way (including by way of negligence) from anyone acting or refraining from acting as a result of this material is accepted by the Praemium Group or any of its related bodies corporate.

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Global reach, global scale

Software company founded in Melbourne in 2001

• ASX listing in 2006 to launch our UK business in London

• Expanded to 8 offices globally with over 190 staff

• And over 700 clients covering $80 billion in assets

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30.0
20.0
10.0
0.0
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Our aim is to help transform the financial advice industry

• A scalable and efficient managed accounts platform

• An integrated solution to streamline the financial advice process

• Powered by our proprietary technology

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Graph of Praemium revenue (FY07 – FY16)

What we do

Our global strategy is to provide a fully integrated solution to the financial advice process

Our services

• Managed accounts platform (SMA)

• Portfolio administration and reporting software (V-Wrap)

• Investment management services (Smart[im] )

• Financial planning and practice management software (WealthCraft)

Our clients

• Financial advisers

• Stockbrokers

• Financial institutions

• Investment managers

• Accountants

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SMA: Separately Managed Account Smart[im] : Smart Investment Management

SMA disrupting platform market

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Master Trusts
(1990s)
Wrap Platforms
(2000s)
Managed Accounts
(now)
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Market forces driving disruption

• Customer demand for transparency; in particular SMSF’s seeking professional investment management, beneficial ownership and tax advantages

• Evolution of retail brokers to wealth managers

• SMA cost efficiencies further boost financial practice value

• Regulation; loss of platform rebates under FOFA driving new revenue sources

• New entrants with considerable shift away from institutional platforms

Evolving platform market*

• AUS platform market $672 billion today, growing to $900 billion by 2020 (refer graph)

• SMA market forecast to grow from $18 billion today to $60 billion by 2020 (35% CAGR)

• Praemium’s SMA industry leading with 17% market share

“ SMA’s could deliver 75% of industry net flows ”

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AUS Platform market
(2016-2020)
2020
SMA
Platform
2016
5
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*Source: Morgan Stanley Asia Insight Report (June 2016), Disruptors: Australia Financials. CAGR: Compound Annual Growth Rate

Scalable business model

Investment Platform (SMA)

Asset based pricing, based on FUA invested on SMA platforms ($4.8b*)

Recurring revenue streams from:

• Platform administration

• Investment management of models or funds

Highly automated platform with low marginal operating costs

Fast growing segment, with large addressable market

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FUA, platform & funds
5,000
($m)
Aust
Int
2,500
-
14, 14, 14, 14, 15, 15, 15, 15, 16, 16,
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
At 30 June 2016
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Software as a Service (SaaS)

Portfolio administration and financial planning software

Subscription based pricing, based on portfolios / seats

Recurring revenue streams, with growing portfolio base

Strong incumbent position of V-Wrap

Servicing fast growing superannuation & pension markets (UK 2[nd] largest, Australia 3[rd] largest globally)

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FY2016 highlights

Revenue 23%

$30.1 million

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Products launched

Smartfund 80% Protected SMSF compliance & accounting Investor portal

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Profit rowth g

$3.8 million EBITDA*, up 72% $0.8 million NPAT, up 137%

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Awards

International Platform of the Year

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SMA FUA 25%

Global FUA $4.8 billion (AUS $3.0b, International $1.8b)

Record annual inflows $1.6 billion

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Client wins

New institutional V-Wrap client Many new SMA wins Continued Smart[im] uptake

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*Refer slide 8 for EBITDA reconciliation.

FY16 financial results

Group Financial Results	FY15 Reported	FY15 AUS R&D	FY15 Normalised	FY16	FY16 to normalised FY15(1)	FY16 to normalised FY15(1)
	($m)	($m)	($m)	($m)
Revenue	24.4	(1.1)	23.3	30.1		29% underlying growth
Cost of operations	(6.1)		(6.1)	(7.0)
Gross margin	18.3	(1.1)	17.2	23.1		Operating leverage
GM %	75%		74%	77%
Expenses: Information Technology	(5.1)		(5.1)	(7.2)		42% increase in R&D investment
Sales & Marketing	(4.4)		(4.4)	(4.7)
General & Admin(2)	(6.6)		(6.6)	(7.4)
EBITDA (underlying)	2.2	(1.1)	1.1	3.8		234% growth
D&A(3)	(0.5)		(0.5)	(0.9)
EBIT	1.7	(1.1)	0.6	2.8
Restructure & acquisition(4)	(0.1)		(0.1)	(0.7)
FX & other(5)	(0.1)		(0.1)	(0.6)
NPBT	1.5	(1.1)	0.4	1.6
Tax(6)	(3.6)	1.1	(2.5)	(0.8)		Aus segment tax paying
NPAT	(2.1)	-	(2.1)	0.8

(1 ) FY16 AUS R&D incentive now received as a tax rebate. FY15 normalised aligns FY16 reporting to tax expense.

(2) In addition to salaries, G&A includes professional fees ($1.4m), facilities ($1.3m), travel ($0.7m) board & corporate ($0.4m), IT support ($0.7m) and performance rights ($0.4m)

(3) Depreciation & amortisation includes amortisation of intangibles from SMA & Plum acquisitions 8

(4) Costs from acquisition target due diligence and UK / Asia organisational restructures

(5) Unrealised FX from cash held in foreign currencies (GBP, USD, HKD)

(6) FY16 AUS tax estimate of $2.0m (tax expense), FY15 tax rebate ($1.0 benefit) and release of UK DTL ($0.2m benefit)

FY16 revenue by segment

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23% revenue growth
By product… By region…
35.0 Product Revenue 35.0 Group Revenue
($ million) ($m)
30.0 30.0
25.0 25.0
Portfolio services
AUS
SMA
20.0 20.0 UK
Planning software ASIA
Other
15.0 15.0
10.0 10.0
5.0 5.0
0.0 -
FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16
Global SMA revenue up 43% UK revenue up 76%
Portfolio services revenue up 12% Aus revenue up 10%
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FY16 EBITDA by half

Confirming the operating leverage

(6.0) (4.0) (2.0) 0.0 2.0 4.0	1.8 2.0 EBITDA by Half ($m) H1 H2 $m H1 H2 FY16 EBITDA (pre R&D) 0.7 1.8 2.5 UK R&D incentive 1.1 0.2 1.3 EBITDA (underlying) 1.8 2.0 3.8 EBITDA% to Revenue 12% 12% 12%
	FY11 FY12 FY13 FY14 FY15 FY16

H2 EBITDA (pre R&D incentive) up 123%

• Growth in recurring revenue streams

• High incremental margins from core products

Revenue up 10% compared to H1

• UK revenue up 25%

• Fund inflows grew FUA revenue 18%

Expenses up 5% compared to H1

• Uplift in R&D resourcing complete

• Future business investment in line with maintaining profit momentum

Refer EBITDA reconciliation on slide 8

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FY16 EBITDA by segment

Building scale in key markets

5.0 10.0	5.0 10.0		9.7	Segment EBITDA ($m)	Segment EBITDA ($m)	Segment EBITDA ($m)			FY14 FY15 FY16
-
-5.0				(3.4)			(1.7)	(0.8)
		AUS		UK		ASIA		Corporate
	$m		AUS	UK		ASIA	Corp	FY16
	Revenue		20.1	9.4		0.6	-	30.1
	Expenses		(10.4)	(12.8)		(2.3)	(0.8)	(26.3)
	EBITDA*		9.7	(3.4)		(1.7)	(0.8)	3.8
	EBITDA %		48%					12%

Australia delivering strong earnings

• EBITDA increase of 10% from prior year (24% increase to FY15 normalised)

• Maintained strong EBITDA margins of 48%

Significant reduction in UK losses

• EBITDA improvement 42% (32% in GBP)

• Revenue up 66%, expenses up 20% (in GBP)

Asia supporting product development

• $0.5 million billed in H2 for Hong Kong bank project, further milestone billing in FY17

• Re-alignment of Asia cost base post completion of project build

*Refer underlying EBITDA reconciliation on slide 8. Corporate costs included within Australian segment in Note 20 of Annual Report. Corporate relates to costs associated with operating a public company, including Board of Directors, share registry and investor relations.

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FY16 Australia result

Australia – continuing strength

SMA

FUA of $3.0 billion, annual increase of 26%

Platform retail super FUA increase to $289m from $84m

Increasing client adoption of SMA investment platform:

• 14 new white-label services launched and 38 new firms signed up

• FUA potential from major dealer groups signed up is considerable

• Significant wealth manager interest in business transformation powered by Praemium SMA

V-Wrap

Continued innovation in our accountant-strength portfolio reporting delivering client growth and a major client win (JBWere) to add $1 million in annualised revenue

FY15 FY16 Aus Results ($m) ($m) Change Revenue 18.3 20.1 10% EBITDA 8.8 9.7 10%

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SMA adoption is accelerating
450 Client inflows by Cohort
($ million)
300
Class of FY2016
Class of FY2015
150 Class of FY2014
-
FY 2014 FY 2015 FY 2016
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Compared to FY15 normalised for AUS R&D, incentive increase of 17% and EBITDA increase of 24%

FY16 UK result

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UK – gaining momentum
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500 1,000	Platform Platform + models Funds	Platform Platform + models Funds	UK FUA (£m)	UK FUA (£m)
-
	FY14		FY15			FY16
		FY15		FY16
UK Results		(£m)		(£m)		Change
Revenue		2.8			4.6	66%
EBITDA loss		(2.5)			(1.7)	32%

FUA of £923 million, annual increase of 30%

In-house investment management Smart[im] delivering incremental margin and scale:

• FUA of £245 million, 44% annual increase

• Smartfund 80% Protected £60 million FUA, strong start since September 2015 launch

Growing inflows despite volatile European markets

Large opportunities from growing pension market

Winner, International Platform of the Year

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Results in GBP. Revenue includes other income.

FY16 UK trend

UK – approaching the inflexion point

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UK Growth Trend
GBP (£m) GBP (£m)
7.0 1,000
20%
6.0
16% 750
5.0
66%
4.0
500
3.0
53%
2.0
250
1.0
0.0 -
FY14 FY15 FY16
FUA, RHS Revenue, LHS Expenses, LHS
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Strong revenue growth relative to expenses over past 2 years

Investment in Smart[im] in FY14 is delivering margin expansion

Innovative capital protected range growing strongly especially in ex-pat markets

Plum Software fully integrated

Outsourcing of fund admin to streamline operations and improve scalability completed in H2

Foreign exchange impact post Brexit to reduce operating losses reported in $AUD

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Looking forward

Continue to grow funds under administration

• Accelerate on-boarding of new SMA clients

• Secure new clients looking to transform their business with a more efficient platform experience

• Secure new model portfolio business for our Smart[im]

• Expand distribution channels for the Smartfund 80% Protected range

Continue to invest in product innovation

• Expand platform capability

• Build out the integrated product suite to enhance the client experience

• Focus on the key retirement market globally, including the acquisition of a UK pension business

• Add to our world-class development team

Continue to deliver operating leverage

• Increase profitability while continuing to invest in growth

• Drive the UK business towards inflexion

• Consider potential bolt-on acquisitions that deliver synergies

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Appendix: Cashflow

$m	FY15	FY16
Operating cashflow	2.3	1.6
R&D incentive	1.7	0.9
Tax paid One-off costs	- 0.2	(0.9) (0.6)
Net Operating Cashflow	4.2	1.0
Capex	(0.3)	(0.5)
Regulatory reserves	-	(0.5)
Acquisition	(1.8)	-
Net Investing Cashflow	(2.1)	(1.0)
Net Cash movement	2.1	-
Opening cash	8.6	11.5
Unrealised FX	0.8	(1.1)
Closing cash	11.5	10.4

Positive operating cashflows

• Working capital timing: $1.7 million received post FY16

• UK R&D received as cash (FY15 also included AUS)

• Initial company tax payment on AUS profits

• One-off costs include DD and restructure payments

Investing in future growth

• Upgrading capital infrastructure

• Regulatory reserve to support SuperSMA growth

Unrealised FX

• Impact of Brexit on GBP held currency with sharp appreciation of $AUD in June 2016

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Appendix: Balance sheet

$m	Jun’15	Jun’16
Cash	11.5	10.4
Receivables	3.1	5.3
Intangibles	5.2	4.3
Other assets	2.7	3.3
Assets	22.5	23.3
Tax liabilities	2.0	2.0
Other liabilities	4.7	5.1
Liabilities	6.7	7.1
Net Assets	15.8	16.2

Solid balance sheet to fund growth

• $10.4 million in cash reserves

• Increase in receivables from June billing, now collected in July

• No debt

• FY16 company tax payable $2.0 million

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