Pinnacle Investment Management : Half Yearly Report and Accounts

Pinnacle Investment Management Group Limited

ABN 22 100 325 184

For personal use only

Pinnacle Investment Management Group Limited

ABN 22 100 325 184

Interim Report - 31 December 2021

Contents

For personal use only

Pinnacle Investment Management Group Limited

Directors' report

31 December 2021

(continued)

Directors' report

Your Directors present our report on the consolidated group consisting of Pinnacle Investment Management Group Limited (the Company) and the entities it controlled (together, the Group) at the end of, or during, the half year ended 31 December 2021.

Directors

The following persons were Directors of Pinnacle Investment Management Group Limited during the whole of the half year and up to the date of this report:

Mr A Watson

Mr I Macoun

Ms D Beale AM

Mr G Bradley AO

Mr A Chambers

Mr A Whittingham

Ms L Berends

Review of operations

During the half year, there has been continuing growth in the Group's revenues and capabilities.

Profit attributable to shareholders for the half year was $40.1 million, compared with $30.3 million (an increase of 32%) for the prior corresponding period. This translated to Earnings per Share of 21.5c (basic) and 21.0c (fully diluted), compared with 17.5c (basic) and 16.7c (fully diluted) for the prior corresponding period, representing growth of 23% in basic earnings per share, and 26% on a fully diluted basis. During the half year, Pinnacle Affiliates generated performance fees which contributed $6.4 million to Pinnacle's profit, compared with $11.0 million in the prior corresponding period.

While income tax was paid at the Affiliate level, there was no income tax expense at the Group level for both the half year and the prior corresponding period, hence profit before tax and profit after tax are the same.

A fully franked interim dividend of 17.5 cents has been declared (up 50% from 11.7 cents in the prior corresponding period) and will be payable on 18 March 2022 to shareholders registered on the record date of 4 March 2022. This represents a payout ratio of 83% of the diluted earnings per share from continuing operations for the half year.

In addition, during the half year, dividends totaling $32.4 million have been paid to shareholders by the Company, being the FY21 final dividend of 17.0c per share.

Aggregate Affiliates' funds under management (at 100%) increased by 5% during the half year from $89.4 billion at 30 June 2021 to $93.6 billion at 31 December 2021 (funds under management (at 100%) increased by $8.1 billion, or 9%, during the half year, excluding the $3.9 billion outflow of the Omega 'passive' mandate on very modest fees during August, or by $7.0 billion or 8% also excluding the $1.1 billion Five V FUM). Total net outflows for the half year were $1.7 billion (net inflows of $2.2 billion, excluding the Omega outflow), with additional growth due to market movements and investment performance.

We were delighted during the period to have completed the acquisition of a 25% equity interest in the Australian based private equity firm Five V Capital and grateful to shareholders for their support of the associated $105 million equity placement.

During the half year, following a detailed assessment of the future of Reminiscent Capital, a joint decision was made to close the business. The carrying value of Pinnacle's holding of $1.8m was written-down in full during the period and is treated as an impairment expense, reducing NPAT from $41.9 million to $40.1 million.

We remain confident of future growth, from multiple sources. Record retail net inflows of $2.9 billion during the half year were our largest in any six month period in our history. Whilst we experienced institutional net outflows, we believe these reflect short-term factors including rebalancing, with the rate of gross inflows broadly consistent with the prior comparative half year - the institutional sales pipeline remains robust. We have continually reminded investors that net institutional flows are 'lumpy' and volatile over reasonably short periods of time, and this was

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For personal use only

Pinnacle Investment Management Group Limited

Directors' report

31 December 2021

(continued)

particularly evident during this half year period. There remains strong inherent operating leverage within the group, notwithstanding continuing substantial 'Horizon 2' investment, both within Affiliates and in Pinnacle.

Recent actual and anticipated changes in macroeconomic and geopolitical conditions have resulted in some increased turbulence and volatility in investment markets. Whilst not immune to such conditions, over the past few years we have increased the diversity of both asset classes under management and sources of revenue (including increasingly diverse performance fee opportunities uncorrelated with equity markets) with the objective of building enhanced resilience throughout the full cycle. Pinnacle has an excellent platform in place to continue to prosper - driven by growth within existing Affiliates, incubating new Affiliates and strategies, domestically and offshore, as well as careful, but deliberate, acquisitive growth into new asset classes and markets.

We continue to pursue further expansion opportunities, seeking to take advantage of the significant offshore opportunity to evolve into a global multi-affiliate. We note that, historically, times of heightened volatility and turbulence have delivered opportunities to judicious and patient investors and shareholders.

Matters subsequent to the end of the reporting period

In the interval between the end of the half year and the date of this Directors' report there has not arisen any item, transaction or event of a material or unusual nature likely, in the opinion of the Directors of the Company, to significantly affect the:

• Group's operations in future financial years; or
• Results of those operations in future financial years; or
• Group's state of affairs in future financial years.

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5.

Rounding of amounts

The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to the 'rounding off' of amounts in the Directors' report and financial report. Amounts in the Directors' report and financial report have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar.

This report is made in accordance with a resolution of Directors.

Mr A Watson

Chairman

Sydney

2 February 2022

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Liability limited by a scheme approved under Professional Standards Legislation.