PRAEMIUM LIMITED — Interim / Quarterly Report 2017

Feb 12, 2017

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FY2017 half-year results Delivering our growth strategy

13 February 2017

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 (13 February 2017) and is supplementary to the Group’s financial results released to the ASX on 13 February 2017. 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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Integrated technology solution

Investment Platform

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Asset-based pricing

Portfolio administration & reporting

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Subscription-based pricing

Highly scalable SMA platform London platform servicing UK and offshore, including SIPP

Melbourne platform servicing Australia, including retail superannuation

Non-custodial reporting portfolio administration system Strong incumbent position in Aus Many institutional clients

Excellence in portfolio reporting SMSF administration and compliance

Our global strategy is to generate recurring revenue from a fully integrated solution to the financial advice process

Asset-based pricing

Subscription-based pricing

In-house investment management team based in London Range of multi-asset model portfolios and funds

Unique capital protected “Smartfunds”

Cloud-based CRM and financial planning system Integrates with V-Wrap and SMA Based on Microsoft Dynamics CRM

Sales and support hub in Asia

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Model portfolios on both Australia and London platforms

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3 CRM & financial planning

Investment management

Global reach, global scale Global reach, global scale

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Cumbria
Wensley Mackay
London
SIPP
Praemium UK platform
Armenia
Software development
hub
Shenzhen
Hong Kong WealthCraft CRM
Praemium Asia
development hub
Coventry
Plum Software Jersey
Praemium International
platform
Dubai
International sales hub
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• Founded in 2001, now with 9 offices and over 200 staff

• Over 700 clients (including some of the world’s largest financial institutions), covering $80 billion in assets

• Proprietary technology

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Melbourne
Praemium Group
Head office
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First half FY2017 highlights

to $549 million

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EBITDA up 39% to $2.6 million

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SMA is disrupting financial services

By 2020, Australia platform market FUA to grow*:

• From $672 billion to $900 billion

• SMA segment from $18 billion to $60 billion at 35% CAGR

• SMAs could deliver 75% of industry net flows

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AUS platform market
(2016-2020)
2020
2016
SMA
Platform
AUS platform market $672 billion today,
growing to $900 billion by 2020
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Master Trusts
(1990s)
Wrap Platforms
(2000s)
Managed Accounts
(now)
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Market forces driving disruption

2020

• Customer demand for transparency; in particular, SMSFs 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 2016

• New entrants with considerable shift away from institutional platforms

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*Source: Morgan Stanley Asia Insight Report (June 2016), Disruptors: Australia Financials. CAGR: Compound Annual Growth Rate, FUA: Funds under Administration

Praemium SMA – a proven market leader

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Praemium’s SMA technology helps advice Expanding client base from strong global
businesses drive substantial efficiencies at scale pipeline driving record growth
1,000 Gross Inflows
Model portfolios ($m)
Strategic asset allocation aligned to 750
client attitude-to-risk
Aust
Insourced investment management 500
Beneficial ownership/tax efficiency
250
Cost effective/transparent
-
Praemium H1 F14 H2 F14 H1 F15 H2 F15 H1 F16 H2 F16 H1 F17
SMA
5,500 FUA, platform & funds
($m)
Technology
Dynamic modelling Aust
Int
Auto-rebalancing 2,750
Trade aggregation/netting
2016
Accountant-strength reporting
-
14, Q1 14, Q2 14, Q3 14, Q4 15, Q1 15, Q2 15, Q3 15, Q4 16, Q1 16, Q2 16, Q3 16, Q47
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Australia growing strongly

Both SMA and portfolio services growing strongly

SMA market is expanding quickly now

• Australia SMA platform FUA up 26% to $3.5 billion

• Praemium continues to experience considerable client enquiries for SMA solutions

• Third robo-advice client secured for 2017 launch

Investment in V-Wrap is paying dividends

• Key new institutional client transition completed on schedule in January 2017

• Major new functionality for performance attribution by asset class

• Retail SuperSMA FUA at $470 million, or 13% of the Australian SMA, compared to 6% one year ago

• First half inflows by cohort show a continuing acceleration of SMA inflows for Praemium. See below:

• Powerful new consolidated reporting tools for both SMA and non-custodial holdings

• Planned 2017 launch of a complete SMSF solution that will include administration and accounting

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Client inflows by Cohort
500 ($ million)
Class of FY 2017
Class of FY 2016
250 Class of FY 2015
Class of FY 2014
-
FY 2014 FY 2015 FY 2016 FY 2017
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36,000
First 6 31,000
months
alone
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26,000
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Billable portfolios
(#)
Post client migration
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H1 FY14 H2 FY14 H1 FY15 H2 FY15 H1 FY16 H2 FY16 H1 FY17 8

International business nearing profitability

UK strategy starting to deliver

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FUM £m
R&E £m UK Revenue and Expenses trend
4.0 (£m) 1,200
12% CAGR
51% CAGR
3.5
1,000
3.0 FUM
Revenue
800
Expenses
2.5
2.0 600
1.5
400
1.0
200
0.5
- -
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
FY12 FY12 FY13 FY13 FY14 FY14 FY15 FY15 FY16 FY16 FY17
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UK business comprises:

• Investment platform for the UK domestic market and the international ex-pat market (covering Europe, the Middle East, Asia and South Africa)

• Smart[im] investment management offering SMA model portfolios and managed funds

• Plum Software, UK financial planning system

• Wensley Mackay pensions (acquired November 2016)

UK approaching inflexion

• Revenue & other income up 51% on pcp*

• Platform and fund FUA up 34% to £1.1 billion

• Smart[im] FUA of $549 million adding considerable margin and scalability

• UK business now comprises 34% of total group revenue, compared to 15% three years ago

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*Results in GBP. Revenue includes other income. CAGR: Compound Annual Growth Rate

Investment management team making strides

Capturing more of the value chain

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Smart Investment Management FUA ($m)
600
Models
Funds
300
-
14, Q1 14, Q2 14, Q3 14, Q4 15, Q1 15, Q2 15, Q3 15, Q4 16, Q1 16, Q2 16, Q3 16, Q4
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In-house investment management

• Highly credentialed team in risk-weighted multi-asset strategies

• Recently invited to the judging panel for the prestigious UK Fund Manager of the Year awards

• Wide range of model portfolios on platform:

• For UK, international and Australia markets

• Available in GBP, USD, EUR and AUD

• Spanning 11 strategic asset allocations

Strong platform and funds management growth

• In-house investment management FUA up 51% to £323 million

• Since launch in September 2015, the innovative Smartfund 80% Protected funds have reached £110 million and are growing strongly

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Next area of strategic growth

UK SIPP (Self Invested Personal Pensions) market

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270,000
500,000 Full SIPPs
Platform
SIPPs
430,000
"Restricted choice"
SIPPs
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Large UK pensions market

• 1.2 million pension plans

• £150 billion FUM

Wensley Mackay acquisition

Acquisition details

• Wensley Mackay founded in 1982 and based in Cumbria, England

• SIPP provider with £50 million in assets

• Regulated by the UK Financial Conduct Authority

• Consideration of £600,000 in cash

Strategic rationale

• Praemium had 2 of the 3 key UK investment vehicles: Individual Savings Accounts (ISAs) and General Investment Accounts (GIAs)

• Adding the third vehicle; an in-house SIPP to the platform will drive growth

• Approximately two-thirds of UK household wealth comes from private pension savings

• Facilitates the ability to safely add a sizable, accretive pension book that provides scale and accelerates the path to UK profitability

• Market to double by 2020*

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*Source: John Moret, FinalytiQ

H1 FY17 financial results

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||||||
|---|---|---|---|---|
|H1, FY16|H1, FY17|Maintaining growth|
|Group Financial Results|
|($m)|($m)|
|Revenue|14.7|17.2|23% underlying growth (excl R&D)|
|Cost of operations|(3.0)|(4.2)|Higher product commissions|
|Gross margin|11.7|13.0|
|GM %|80%|76%|
|Expenses:|
|Information Technology|(3.7)|(3.7)|
|Sales & Marketing|(2.5)|(2.8)|Investment in global sales team|
|General & Admin|[(1)]|(3.7)|(3.9)|
|EBITDA (underlying)|1.8|2.6|39% growth|
|D&A|[(2)]|(0.4)|(0.4)|
|EBIT|1.4|2.2|
|Restructure & acquisition|[(3)]|(0.2)|(0.5)|Includes Wensley Mackay acquisition|
|FX & other|[(4)]|(0.1)|(0.4)|
|NPBT|1.1|1.3|
|Tax|[(5)]|0.2|(0.7)|Aus segment tax paying|
|NPAT|1.3|0.6|

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(1) In addition to salaries, G&A includes professional fees ($0.7m), facilities ($0.8m), travel ($0.5m) board & corporate ($0.3m), IT support ($0.4m) and performance rights ($0.2m) (2) Depreciation & amortisation includes amortisation of intangibles from SMA & Plum acquisitions

(3) Costs from Wensley Mackay acquisition and UK / Asia organisational restructures (4) Unrealised FX from cash held in foreign currencies (GBP, USD, HKD) (5) H1 FY17 AUS tax estimate of $0.8m (tax expense), less lower FY16 tax payable ($0.1m benefit)

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H1 FY17 revenue by segment

23% underlying revenue growth*

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By product… By region…
18.0 Product Revenue 18.0 Segment Revenue
($ million) ($ million)
Portfolio Services
SMA AUS
12.0 12.0
Planning software UK
Asia
6.0 6.0
- -
H1 FY14 H2 FY14 H1 FY15 H2 FY15 H1 FY16 H2 FY16 H1 FY17 H1 FY14 H2 FY14 H1 FY15 H2 FY15 H1 FY16 H2 FY16 H1 FY17
SMA revenue up 45% UK revenue up 50% (75% in GBP)
Portfolio services revenue up 9% Aus revenue up 15%
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*Excludes other income (R&D incentives)

H1 FY17 EBITDA by half

Sixth consecutive half of profit growth

			H1	H1	Change	Change	Change
$m			FY16	FY17		$	%
EBITDA (pre R&D)			0.7	1.8		1.1	138%
UK R&D incentive			1.1	0.8		(0.3)	(30%)
0.0 2.0 4.0 EBITDA EBITDA%	H1 H2 to	Revenue	EBITDA by Half ($m) 1.8 2.6 12% 15%			1.8 2.0 0.8	2.6 39%
(2.0)
(4.0)
(6.0)
FY11		FY12	FY13	FY14	FY15	FY16	FY17

Maintaining profit growth

• EBITDA pre R&D up 138% to $1.8 million

• Increase in EBITDA margin to 15%

• Managing costs, reducing offshore losses

• Absorbed lower UK R&D from FX movements

Investing in the future

• Business investment in line with maintaining profit momentum

• Continued R&D investment in proprietary technology

• Investments in product management and sales to drive future earnings growth

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Refer EBITDA reconciliation on slide 12

H1 FY17 EBITDA by segment

Significant improvement in the international business

H1 FY17 $m AUS UK ASIA Corp Total	H1 FY17 $m AUS UK ASIA Corp Total	H1 FY17 $m AUS UK ASIA Corp Total
Revenue 11.3 5.8 0.1 17.2 Expenses (6.7) (6.5) (0.9) (0.5) (14.6)
EBITDA 4.6 (0.7) (0.8) (0.5) 2.6*
EBITDA % 41% 15%
- 0.5 1.0 1.5 2.0 2.5 3.0	EBITDA bridge ($m)
	1.8	2.6
	H1 F16 AUS UK Asia Corporate H1 F17

EBITDA uplift of $0.8m comprising:

• UK $0.5m improvement

• Asia $0.3m improvement

Australia

• Record inflows for the half

• FUA up 26%

• Revenue up 15%

• $0.5m increase in sales, marketing and implementation

• Realignment of core R&D to Melbourne and Yerevan

UK

• Record inflows for the half

• FUA up 34% (in £)

• Revenue (ex R&D) up 75% (in £)

• Completed SIPP company acquisition

Asia

• Revenue up 17%

• Cost base to reduce post completion of development phase of large bank WealthCraft CRM program

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*Refer underlying EBITDA reconciliation on slide 12, and Appendices for half-year reconciliation. Corporate costs included within Australian segment in Note 2 of Half-Year Report, and relate to costs in operating a public company, including Board of Directors, share registry and investor relations.

Looking forward – FY2017

Excellent start to FY17 with record inflows in the first half

Australia platform

International platform

Asia

• Transition from wrap platforms to SMA to continue to drive growth for Praemium’s SMA platform

• Successful implementation of new institutional client to increase V-Wrap portfolios by 20%

• Investment in sales, marketing and implementation resources to accelerate new business take-on

• Smartfund 80% Protected fund to launch in Australia in 2017

• Consolidated R&D to core hubs in Melbourne and Yerevan

• Expansion of distribution resources in the UK, Channel Islands, Europe and the Middle East

• Smart[im] expected to continue strong growth

• New in-house SIPP to be offered on UK and international platform in early 2017

• Current acceleration of platform assets combined with SIPP growth strategy to drive the UK business toward profitability

• Major Hong Kong-based WealthCraft CRM project will be completed in 2017

• Billing of completion milestones plus reduction of R&D cost base are expected to see a significant improvement in Asia profitability during 2017

• Three major new WealthCraft international clients with integrated platform solution to go live in 2017

Global R&D across 2 core hubs plus 3 specialist sites

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Appendix: Cashflow

$m	H1 FY16	H1 FY17
Operating cashflow	0.2	2.7
Tax paid	-	(2.3)
One-off costs	(0.2)	(0.3)
Net Operating Cashflow	0.0	0.1
Acquisition	-	(1.0)
Capex	(0.3)	(0.7)
Regulatory reserves	-	(0.1)
Net Investing Cashflow	(0.3)	(1.8)
Net Cash movement	(0.3)	(1.7)
Opening cash	11.5	10.4
Unrealised FX	-	(0.5)
Closing cash	11.2	8.2

Operating cashflows

• Now tax paying on AUS profits (FY16 in full, plus FY17 provisional)

• One-off costs include restructure payments

Investing cashflows

• Acquisition of Wensley Mackay

• Upgrading capital infrastructure plus UK office move

• Regulatory reserve to support SuperSMA growth

Unrealised FX

• Impact of Brexit on GBP-held currency with sharp appreciation of AUD from June 2016

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Appendix: Balance sheet

$m	Jun’16	Dec’16
Cash	10.4	8.2
Receivables	5.3	6.1
Intangibles	4.3	4.7
Other assets	3.3	3.9
Assets	23.3	22.9
Tax liabilities	2.0	0.5
Other liabilities	5.1	5.5
Liabilities	7.1	6.0
Net Assets	16.2	16.9

Solid balance sheet to fund growth

• $8.2 million in cash reserves following Wensley Mackay acquisition and tax payments

• Increase in receivables from higher H1 billing, plus UK R&D accrual

• No debt

• H1 FY17 company tax payable $0.5 million, with franking credits now being earned

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