Praemium : Chairman's - CEO's Address to Shareholders

2021 Annual General Meeting Presentation

Praemium's Chairman's Address

Barry Lewin, Melbourne, 17 November 2021

For personal use only

If there wasn't enough going on, last month the Praemium board received an unsolicited, non-binding, indicative proposal from Netwealth Limited to acquire 100% of the shares in Praemium, in exchange for fully paid ordinary shares in Netwealth plus contingent cash consideration via a scheme of arrangement.

The Board has taken time to carefully consider the Proposal, alongside financial and legal advice and has unanimously concluded that the Proposal undervalues Praemium's business and is not in the best interests of Praemium shareholders, for the reasons outlined in our response issued on 2nd November.

The Praemium Board remains focused on delivering value for shareholders. As a strong, rapidly growing independent player in the platform and funds administration industry, Praemium is in a unique position.

The Board remains open to engagement at an appropriate valuation but is mindful that any proposals put forward should appropriately reflect Praemium's market position and growth potential as well as recent activity in the sector.

Praemium shareholders are not required to do anything in relation to the Proposal and the Praemium Board will keep shareholders updated as appropriate.

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.

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 would now like to ask our Managing Director Anthony Wamsteker, to present his report to the meeting.

For personal use only

Praemium's CEO's Report

Anthony Wamsteker, Melbourne, 17 November 2021

Address is made in reference to the attached presentation slides.

Slide 6 Good morning and allow me to add my thanks to the Chairman's for joining us at our AGM. Slide 7 Please note the usual disclaimer with regards to my business update.

Slide 8 - The platform of everything

As many of you know, Praemium has a unique value proposition in the Australian Investment Platform market. We own and develop, rather than licence, all key aspects of our technology architecture.

If we look at what that means on this slide, on the left-hand box, we are the market leader in reporting on non-custodial assets - in other words, assets that are held directly by the investor. Our technology, known as VMA for Virtual Managed Account, provides the most accurate and comprehensive performance and tax reporting available in the market.

Upon this technology we have built our administration service - VMAAS. VMAAS is the market leading Portfolio Administration Reporting Service. Growing this business organically from scratch, we now have over $20 billion in assets under administration. We are the first such service provider to surpass that milestone and we remain the fastest growing.

Turning to the middle box, we have combined the VMA technology with our best-in-class model portfolio technology. Model portfolios are at the heart of next-generation managed accounts. Managed accounts are the fastest growing segment of the platform market because they enable better, more-efficient implementation of advice by our financial adviser clients.

This powerful engine needs to be effectively harnessed by our financial adviser clients and their clients, the end investors. That's why we have built leading edge adviser and investor portals. They provide the client experience necessary for an adviser to have fruitful conversations with their clients about their overall wealth management strategy. The adviser and investor portals encourage discussion between advisers and their clients on issues such as participation in corporate actions and ESG preferences. This level of engagement is fundamental to the success of the relationship.

The value of this technology had been proven over many years by Powerwrap as it developed an enviable list of many of the best high net worth advisers in the country. The acquisition of Powerwrap has allowed Praemium to expand our product offering and target market. As an example, more than 40 of the advisers named in Barron's Top 100 Financial Advisers are Praemium or Powerwrap users.

Praemium can now serve the whole market - every asset, every client, and every advice business.

For personal use only

Slide 9 - Gaining share of Australian platform market

So how big is our opportunity? What is our total addressable market?

Australian households have over $6 trillion in financial assets. Of this, just over half is held in superannuation. It is fair to say that the entire $6 trillion needs to be reported on, including tax reporting. Owning the industry leading reporting technology is a wonderful position to be in. It's also important that we can serve the whole market because scale is important. The more volume we can put through our technology and administrative processes the better.

We serve businesses who serve clients, sometimes referred to as B2B2C. Our clients are financial advisers and accountants. Our financial adviser clients are made up of market leading stockbrokers, the best private wealth/high net worth advice firms and a growing cohort of highly capable retail financial advisers serving everyday Australians.

There is some speculation about how much of Australians' $6 trillion in financial assets is advised. The reality is that almost all that wealth is touched by a financial intermediary of some type, whether it be a bank, accountant, stockbroker, or financial adviser. By serving those intermediaries well, we have a total addressable market of $6 trillion.

Naturally there is a lot of focus on a particular segment of the industry - the platform market. On this slide you can see that this is estimated at $965 billion, or one-sixth of the total addressable market.

This segment of the market is the most difficult to administer - far more complex than managing a bank deposit, managed fund or share trade. But the complexity is worth it for financial advisers and their clients. It uniquely provides for individually customised portfolios, efficiently delivered across their whole client base. It allows for true engagement between advisers and their clients. Consequently, this segment carries the highest revenue margins - around 30 basis points and above across the platform market. It is the most desirable and lucrative segment within the overall wealth administration industry.

As mentioned earlier, we believe the most critical aspect to getting this segment right is the managed account technology. The ability to provide comprehensive, accurate reporting whilst efficiently rebalancing portfolios to the desired model weights are the critical ingredients. This is what we have. This is what we own - end to end. This is the future of the platform market.

The market structure itself is changing, as shown in the middle section of this slide. In recent years financial advisers have moved, en masse, away from the major banks and insurance companies. Only about 20% of Australia's financial advisors are now licenced by these traditional institutions. Yet 70% of platform assets are still on the legacy platforms that initially captured those assets when the, now discredited, vertically aligned financial services model was still in vogue. The platform migration lags the adviser migration by many years. The bulk of the transition is still to come.