K2 Asset Management : Chairman's Address to Shareholders - 2021 AGM

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The Manager, Announcements ASX Market Announcements 4th Floor, 20 Bridge Street SYDNEY NSW 2000

By E-lodgement

7 December 2021

Dear Manager

K2 Asset Management Holdings Ltd (KAM)

Chairman's AGM address

In accordance with ASX Listing Rule 3.13.3, I enclose the Chair and Managing Director's address, which will be delivered at the company's Annual General Meeting (AGM) at 9:00 am today.

Yours faithfully

Hollie Wight

Executive Director

For personal use only

K2 Asset Management Holdings Ltd

2021 Annual General Meeting

Chair and Managing Director's address

Presented by Mr Campbell Neal at 9.00 am on 7 December 2021

Good morning to all and welcome to the 2021 Annual General Meeting (AGM) of K2 Asset Management Holdings Limited (K2). I am Campbell Neal, Chairman and Managing Director of K2.

Our meeting is being held on the lands of the Kulin Nation and I wish to acknowledge them as the Traditional Owners. We would also like to pay our respects to their Elders, past and present.

I would like to extend a warm welcome to all of you today. Again, we have been able to hold the AGM via virtual means and we are glad to be able to engage with our shareholders from wherever you are.

Present at our meeting are the members of our Board, George Boubouras and Hollie Wight.

Joining us also in virtual presence from our independent auditors, Pitcher Partners is Kylee Byrne who is available to answer questions in relation to the year-end audit and the financial statements.

The notice for this Annual General Meeting was sent to shareholders, and copies of the notice are available from the Shareholder section of our website. If there are no objections, the notice will be taken as read.

As this meeting is conducted in a virtual manner, technical issues may arise that are beyond our control. In the event that today's proceedings are disrupted by technical difficulties, the meeting will be adjourned and will resume at 1pm Australian Eastern Daylight Time. If this resumption is not possible, an ASX announcement will be issued with further information.

As recommended by the Australian Securities and Investments Commission, voting on each resolution will be taken by way of a poll. The results of the poll will be notified to ASX following the meeting. Only K2 shareholders or their duly appointed representatives or proxies are eligible to vote at this meeting.

Questions during the meeting should be directed to Hollie Wight via the Zoom chat option.

As I present to you the business summary and financial year performance, I'm sure most of you join us here today a little more fatigued than what we had expected and probably very much looking forward to the normalcy that 2022 is hoped to bring.

Much of the Australian population push through another round of extended lockdowns and although this challenged even the most robust of us it is pleasing to say that as business, K2 continued to function efficiently, and operations were on the most part uninterrupted.

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We do meet today in a very different place than 12 months ago, not only from a health and vaccination perspective but in an economy that is once again open for business. The All-ordinaries Accumulation Index returned 30.2% for the 12 months to 30 June 2021, a very good year indeed. Other significant economic events included government stimulus packages and the very strong domestic housing market. In this period of very low interest rates, we would expect equities to continue to move higher over the coming year but not in the straight line we saw last year.

Lessons from the past year of lockdowns is that larger companies with national operations can pivot quickly to remote working, maintaining operations and cash flow. Even those ASX companies that were most affected, such as retailers for example, were able to find ways to pivot to alternative sales channels to weather the storm.

Our business is also in a different place to last year and we were pleased to see progress in many areas.

The K2 funds provided exceptionally strong performance for the 2021 financial year. The K2 investment strategy is focused largely on cyclical investing. When the markets fell in March 2020, the K2 funds were impacted. However, it was reassuring to see our portfolios perform exceedingly well, and far exceeding the benchmark returns over the following 12-month period.

In summary, performance by fund was:

• K2 Australian Fund was up 36.1%;
• K2 Select International Fund was up 31.8%;
• K2 Asian Fund returned 28.8%;
• our exchange traded K2 Australian Small Cap Fund (ASX: KSM) was up 58.3%; and
• K2 Global High Alpha Fund was up 32.7%.

The performance of the K2 funds provided over $2.4 million in performance fee revenue for the year.

In 2020, K2 launched our strategy to provide Responsible Entity (RE) services to external managers. This allowed the business to capitalise on our own proprietary skill base that we have used on our internal funds to be used with other quality fund managers.

We welcomed Apostle Funds Management Pty Ltd in December 2020, onboarding the Apostle Dundas Global Equity Fund with funds under management (FUM) of over $1.2 billion.

A large part of the RE services offering is the ability for K2 to assist managers in launching and running Exchange Traded Funds (ETFs). We have always been, and continue to be, big supporters of ETFs and the demand is continuing to grow in this area.

Since December 2020, we have gone on to provide RE services to the Storehouse Residential Trust and are currently working on a number of additional managers that we expect will launch ETFs or transition funds in the near future.

Looking at the financial results for FY21 in more detail, some of the key items to note are:

1. Total revenue amounted to $4.46 million

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1. Breaking this down:
2. • $1.4 million came from management fees;
   • $2.45 million was received in performance fees; and
   • $584,000 from RE income, interest income and government stimulus participation.

1. Expenses totalled just short of $4.1 million; and

1. The company recorded a net loss before tax of $347,000 resulting in an after-tax profit of $215,000.

Expenses continue to be closely monitored and reduced wherever possible. We are however mindful that any expense reduction does not jeopardise operational capability. We did see an increase in professional expenses in the 2021 financial year as K2 worked on structuring the additional business units.

Our balance sheet remains exceptionally strong and continues to be guarded to ensure longevity. Total assets as at 30 June 2021 amount to $14.9 million, including $10.8 million in cash on deposit. Currently, the cash on deposit sits at $11.3 million. This balance sheet strength has played a vital role in business strategy and will continue to allow us to develop our RE and ETF strategies.

Turning our attention to our overall strategy, we now have 3 pillars to the business:

1. Funds management;
2. Trustee services; and
3. ETFs

FUM continues to be at the forefront of the Board's decision making and remains a key focus. Funds under management and advice finished the 2021 financial year at $1.4 billion.

One of the key stepping stones for the part 12 months was the re-engagement of asset consultants and specifically the K2 Australian Small Cap Fund receiving an investment rating from Lonsec. These ratings are the key to the growth of most retail funds, they open distribution channels and opportunities. The K2 Australian Small Cap Fund has not only delivered strong investor returns but its ETF structure, under ASX ticker code KSM, certainly points to increased FUM in the future. We need to continue to engage these consultants and work towards a greater presence on platforms and with our financial planners.

We have focused on increasing our engagement with investors and the greater market, via both written and digital mediums. Building the K2 brand, keeping investors up to date at all times and educating the market on the K2 investment strategy and process.

Above all it is investor return that will drive FUM and we are committed to our investment approach and our skilled team with strong accumulated experience.

Continuing to grow the RE offerings for external managers is an area we are concentrating on and are

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confident will increase in the future. K2 has the processes, IT capabilities and long-term experience coupled with the financial backing to fulfil this role and we believe this is an area where long-term sustainable revenue will be achieved.

The majority of partnering discussions we are having with external managers also involve the option of launching an associated ETF. That offering is unique in that it provides the manager with a one-stop shop including ASX admission, iNAV calculation, market making and market disclosure. We are very excited about the future of this area for K2.

As we near the halfway point of 2022, maintain the performance of our investment funds for our unitholders remains a key focus. Growing the aforementioned business lines will be a key priority resulting in revenue that is highly scalable. The Board are satisfied that the key steps are being done to position the business for growth creating a diversified sustainable revenue stream.

This concludes my presentation this morning. Before we move on to the formal proceedings of the meeting, on behalf of the Board I would like to thank our shareholders for your continued support, we acknowledge that this is a long journey, and we hope to deliver more positive announcements in the near future.

I would again like to thank our staff for your constant dedication and professionalism and for the hard work and resilience you have displayed this year.

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