Praemium Limited (PPS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Barry Lewin, Chairman of Praemium Limited. I extend a very warm welcome to you all to our Annual General Meeting. Thank you all for attending today's meeting. A new experience for us all as we will be completely online due to COVID and the related health issues. I hope you're keeping safe and well during these very challenging times. Before declaring the meeting open, whilst this online format may be familiar for some shareholders, I acknowledge that it may be a new experience for others. However, I assure you that you will have the same opportunity to participate today as you would at a physical meeting. This includes being able to ask questions through the online platform and vote using an electronic voting card. I'll discuss these processes later in the meeting. I also encourage you to download the Online Portal Guide from our website if you haven't done so already. If we experience technical issues that impact the meeting, I'll assess the circumstances and communicate further with you. If this isn't possible, you will be e-mailed instructions on how and when to rejoin the meeting. A quorum is present, and I now formally declare the meeting open for business. I'd like to introduce you to my fellow independent nonexecutive directors, who I assure you are all attending online with me. Stuart Robertson, Daniel Lipshut and Claire Willette. I would also like to introduce our senior executives, Michael Ohanessian, who's our CEO and Managing Director; and our CFO and Company Secretary, Paul Gutteridge. I'd also like to welcome online the company's auditor, Grant Thornton, the company's lawyers, Nicholson Ryan, and the company's share registry Link Market Services who are running today's online meeting. It's great to have so many shareholders able to join today. I propose to conduct the meeting in 3 parts. I'll first present a brief Chairman's report. I'll then ask Michael to address us. After which we'll invite questions from shareholders, and then we'll move to the formal business of the meeting, where we have a number of resolutions to put to shareholders. The formal business of the meeting will be held utilizing the online platform. Voting will be conducted by way of a poll using the electronic voting card you should receive after clicking the Get a Voting Card button. Shareholders can also submit written questions during the meeting by clicking on the Ask a Question button. I encourage you if you have a question to submit it as soon as possible. If you have any trouble using the platform, please check the Online Portal Guide via the website link on the slide or contact the help line shown on the online platform. There will, of course, be an opportunity for shareholders to ask any questions pertaining to each resolution at the time they are proposed. Moving to my Chairman's address. Again, I extend a very warm welcome to all shareholders, staff and other guests to the 2020 Praemium Annual General Meeting. This is obviously held very differently to prior years, and I thank you all for your attendance. The past year saw another year of achievement and growth for Praemium. Despite a number of challenging headwinds, in particular, heightened open market volatility as a result of COVID crisis, the company's financial performance reflects strong underlying growth for our global managed account platforms and financial software solutions. Our resilient business model, including diversified revenue streams, a strong balance sheet and solid cash flows have provided the company with the financial strength to continue to focus on both organic growth and seek strategic acquisition opportunities. Against this background in July 2020, Praemium announced the north market takeover bid for ASX-listed Powerwrap. Our takeover offer was executed very successfully, with 94% in acceptances being received, and the remaining 6% of Powerwrap shares now having been acquired under compulsory acquisition. This acquisition is a logical and complementary addition to Praemium's growth strategy and product suite. Praemium's technological capabilities and operating experience means it is very well equipped to realize value from Powerwrap's platform assets and established customer network. The transaction is indeed Praemium's most important acquisition in its 20-year history, and is expected to deliver significant synergies into the future. A number of major milestones were achieved during the 2020 financial year, including total funds under administration increasing 26% to over $20 billion, revenue up 14% to $51.2 million, underlying EBITDA up 25% to $14.2 million and cash reserves up 16% to $15.9 million. In addition to these financial highlights as evidence of its strengthened competitive position amongst peers, Praemium was ranked in the top 5 platforms in both Australia and in the United Kingdom. The company ranked fourth place out of 20 in the Australian 2019 Investment Trends Platform Benchmarking report; and second, out of 19 in the lang cat 2020 Platform Market Scorecard in the U.K. These improved rankings will play an important role in driving our continued growth and profitability. On behalf of the Board, I wish to extend our sincere thanks to our dedicated staff and management around the world for delivering another strong financial result. Despite the challenging environment, they are working hard to assure our continued success. Despite COVID continuing to impact a number of countries in which we are operating, Praemium continues to operate normally and has maintained work-from-home requirements across our 10 offices. The company continues to meet challenges in this volatile and uncertain time. My fellow directors and I also wish to express our sincere appreciation to all shareholders for your support, and we are confident you will continue to benefit from your investment in the company in the years ahead. I'll now ask Michael to present our reports -- to present his report. Over to you, Michael.

Michael, you're on mute.

You're right, I am on mute. I apologize. Welcome, everybody, and thank you for joining us today. The presentation today is mostly going to be about the acquisition of Powerwrap. Obviously, it's the most topical event for all of us over the last few months. And so if we can go to Slide 8, please, Joe. I want to go to some perspective before I talk about the importance of the Powerwrap transaction, and first of all, the results. As you heard from our Chairman, we've had a really good financial year with earnings per share and NPAT up about 90%. And over 6 years, every half-on-half, we've increased our profitability. And so we've had a fantastic year. And now we're going to be talking about what happens next with the Powerwrap acquisition. And I wanted to start off by saying that Praemium has been around for almost 20 years now. We've only done 3 small acquisitions, 3 bolt-ons, if you like. First being WealthCraft and then Plum and Wensley Mackay. This transaction, on the other hand, is quite a large acquisition. It's also notable for the fact that it's the first time we've done one in Australia. So this is a big step for us. And then we go to the next slide, please, Joe. You can see immediately the scale that this merger of platforms delivers. And what -- I want to point out a couple of very important elements to what you can see on this slide. First of all, just the increase in scale. Now clearly, scale matters. And when you look at the FUA on the bottom right-hand corner, you'll also notice what we call VMAAS. That is our noncustody capability, where we're actually doing the administration on behalf of assets that sit off-platform, if you like. Now why is that important? It's important for 2 reasons: some research that we've done with the investment trends shows that on average, only about 78% of advised wealth in Australia sits on-platform. So there's more than 20%, almost 25% of client wealth sits off-platform, and that's what our VMAAS capability addresses, where we're also doing the administration. And you can see the impact the scale has. I just want to spend another moment on non-custody. Non-custody or off-platform assets have been an underappreciated part of the Australian wealth platform market, and yet, it's a very important part of the market. And it's a part of the market that causes a lot of pain for the advisers. And that's why we think this is very important. And it's notable that many of our competitors are working up to this and are also trying to do something. Now this acquisition delivers us scale. No question. The scale itself then delivers all sorts of benefits, as you can imagine. But what's not obvious from this slide is that under the hood, Praemium, Powerwrap are almost the same. Powerwrap was created by Praemium people 12 years ago. Its core technology is the same. And so the integration we're about to do is going to be very, very deep. If we go to the next slide, please, Slide 10, Joe. This slide just shows a little bit about the capabilities of Powerwrap. One of the things that's unique about Powerwrap is that we think it is the only true independent open architecture platform for the high net wealth market or the private wealth market in Australia. It uses all of the capabilities of Praemium, excellence in corporate actions, excellence in tech reports and portfolio analytics. When we put this together, we think we have a unique global player that has strengths that work for advisers not only in Australia and the U.K., but in many, many markets through Asia, through the Middle East and South Africa. And so I also want to make another point about Powerwrap. Whilst everybody has always believed and still believes that there is enormous industrial logic in putting these 2 companies together, we were not able to actually bring these 2 things together because of price and price alone. I commend the Board at Powerwrap for helping this transaction happen. Because I think when you look at the actual transaction, most of the consideration was in shares in Praemium. And the shareholders of both companies with the escalation in our share price, particularly over the last few months, shows that this has been a win-win for everyone. And we now have a fantastic opportunity to be a major player in the wealth market as it evolves. We go to the next slide, please, Joe, Slide 11. Now below the hood, Praemium and Powerwrap are very similar. We've got a bit of work to do, to do a deep integration. This is not going to be tampering at the edges. We're going to do a deep integration with the Powerwrap guys. That's what we've done and it has been going on now for a few months. But we're also bringing great new innovations that will come to the Powerwrap clients through some of the digital portals that we've built. And you can see here, you can see on the left-hand side, our new digital adviser portal, our investor portal is on this slide as well. We are the first to launch artificial intelligence for a platform. It works both here and in the U.K. We have an ESG module where investors can take control of what kind of ethical themes they want to pursue. Our API integration is very strong. And as I said before, Praemium and Powerwrap are both the strongest in Australia on custody and non-custody. I also want to say, and again, my congratulations to the Board and the management of Powerwrap. In the last 2 years, in particular, Powerwrap have done amazing things to improve the service delivery to their clients. And when I speak to the clients of Powerwrap and the staff and others, that comes across very evidently. So the timing for this merger could not be better. And we are in a fantastic place now where we can take all of the things that Praemium brings to the table and enhance their experience for the Powerwrap clients, and equally, many of the processes that power app have will enhance what we at Praemium, have always tried to serve. And if I can go to the last slide for me, Slide 12, please, Joe. I want to just stand back, talk a little bit about where we are as a platform player, both in Australia and in the offshore world. And in the offshore world, I'll refer to that as the U.K. As Barry mentioned, we were rated the fourth best platform in Australia. It is the first time we tried to be rated. So on debut we've come from pretty much nowhere to fourth place. Equally in the U.K., about the similar time, early this calendar year. Praemium was also rated the second best platform, again, of about 20 platforms on debut, and those ratings continue to be very favorable. Now Praemium's perspective, particularly for the Australian market, is that we think unlike any of our peers; we really are the platform of everything, be that SMA or IMA or non-custody assets or administration of off-platform assets, whatever it might be, we think we are unique in the breadth of what we do as an independent platform. Adding Powerwrap to that has added another capability, if you like, in terms of platform of everything. So in other words, if you're an independent financial adviser or even if you're a tied financial adviser and you've got wholesale clients, Powerwrap -- I should say Praemium because as we change the brand, is going to be arguably the best place for you to come. And I think that we are now in a very strong position. We've got scale. We are globally capable. Our technology gets leveraged we build it here in Australia, for instance, and we introduce it in the U.K. The U.K. likewise has our adviser portal and artificial intelligence and investor portal and so on, as we are now doing for Powerwrap. We think that whether it's on platform or off platform, we believe the combined entity is in a much stronger position. And our unique capabilities are that we can service retail investors and their advisers, wholesale investors and their advisers. We can do it in Australia, and we can do it pretty much in most countries around the world, particularly between here and the U.K., what we call the Kangaroo Route. Synergies that we've talked about for FY '22, starting in 6 months' time, we are -- I think we quoted $6 million in cost synergies. But it is our view now, having spent a bit of time together, that the upside is much more on the revenue side. There is a limit to how much cost we want to take out of the business because we want to grow the business. What we don't know is a potential upside as we bring all of these elements together into what we think is the most compelling platform of everything all over the world. And with that, I'll hand back to Barry.

Thank you, Michael. We'll now proceed to take questions from shareholders who can submit their questions by clicking on the Ask a Question button.

Questions relating to the audit and any specific resolutions will be addressed later in the meeting. Paul, are there any questions?

Barry, yes, there is one question at this point in time. It's from John Whittington at the Australian Shareholders Association. And welcome, John. Michael, this is probably more for you. Given the findings of the Hayne report, could you outline any recommendations and/or improvements, which you have actioned in the past year to strengthen your company's internal control structures and reporting of risk?

Thank you for that question. It's obviously been a very big area for us. And more to come. We think next year there's a raft of new measures coming into place. We've had to do a lot of work with our technology and our reporting to meet the needs, for instance, the changes to superannuation, how advisers get paid and so on. So we think that we've done a lot of the work that's currently being regulated, I think we've now met, and we're now preparing ourselves for the next raft of measures that will come in, we think, next year. We can anticipate some of them, but in some cases, we'll have to wait and see exactly what the shape of those regulations are. I also want to say one other thing, which is that Praemium is a responsible entity running an MIS, managed investment scheme, which effectively means that we are on the hook for the suitability of the investments that our investors have access to. And I can assure you that particularly over the last 12 to 18 months, the resource we have internally on compliance but also on diligence in terms of investments in funds or model portfolios or investment managers, whatever it might be, that has been significantly expanded.

Thanks, Michael.

Thank you, Michael. Barry, that's all the questions for this section. There is another question in -- for an upcoming resolution, so I'll [indiscernible] at resolution 2.

Thanks, Paul. So getting to the Notice of Meeting. I should remind you that only shareholders or their appointed proxies are entitled to vote or speak at this meeting. The Notice of General Meeting has been sent to all members on the register as at 16th October 2020. Unless there are any objections, I will take the notice convening this meeting as read. If there are no objections, I'll move to the prior year AGM results, which were lodged with the ASX on 19th November 2019, and a copy of those results are available for inspection by members. Paul has confirmed that proxies have been inspected and all those validly lodged have been accepted. Details on all valid proxies will be advised before I invite shareholders to vote on each resolution. I'll provide an opportunity for discussion on each resolution and would ask you to limit your questions to the resolutions put before you. Consideration of the financial statements and reports, section 317 of the Corporations Act requires directors of a public company to lay before the AGM financial report, the Directors report and the auditor's report. The company's annual report was released to the market and made available on the company's website on 14th August 2020. There is no requirement for resolution that the annual report be adopted. However, at this point, I invite any questions shareholders may have for the auditors. Shareholders can submit questions by clicking on the Ask a Question button. Paul, are there any questions for Crystel to answer?

Barry, no. There's none.

Okay. Thank you. There are 4 items of general business with 4 ordinary resolutions. With the company's market cap now exceeding $300 million, resolution 5, to issue up to a further 10% of the company's issued capital has been withdrawn. I'll go through each resolution individually. Share registry provider Link Market Services will conduct voting by way of a poll, and [ Ceshun Tuckey ] of Link will act as returning officer. Votes will be counted after the end of the meeting and results published on the ASX website. Shareholders can cast their vote using the electronic voting card received after validly -- after validating online registration. To validate registration, you'll be asked to enter your security holder reference number or holder identification number, plus post card, if you're in Australia -- sorry, post code that is. Or country if you're outside Australia. To then cast your vote, click the Get Voting Card button. If you're intending to vote, you'll be able to finalize and submit votes up to 5 minutes after the meeting ends, and I'll remind you at the end of the meeting. The proxy votes that have been submitted will be set out on the slide shown for each resolution. Shareholders that have appointed the chair of today's meeting, myself as proxy, allows voting either for or against or with discretion for all resolutions. My intention as chair is to vote all discretionary or undirected proxies held by me in favor of each resolution. With all of that preliminary detail out of the way, resolution 1, reelection of Daniel Lipshut. The first item of business relates to the reelection of Daniel, who retires by rotation in accordance with clause 9.1(d) of the constitution, and being eligible, offers himself for reelection as a Director of the company. Details of the proxy voting on this resolution should be displayed for you on the screen. You'll see that the voting is in favor. Is there any discussion on this motion? Paul are there any questions?