Pinnacle Investment Management : 1HFY22 Financial Highlights and Investor Presentation

For personal use only

2nd February, 2022

By Electronic Lodgement

The Manager

Company Announcements Office

ASX Ltd

20 Bridge Street

SYDNEY NSW 2000

Dear Sir/Madam

Pinnacle Investment Management Group Limited (ASX: PNI) 2022 interim financial results

Pinnacle Investment Management Group Limited (PNI) is pleased to advise shareholders that the highlights of the financial results for the six months ended 31 December 2021 (1H FY22) are as follows:

• Net profit after tax (NPAT) attributable to shareholders of $40.1 million, up 32% from $30.3 million in the Prior Corresponding Period (1H FY21, PCP)
• Basic earnings per share (EPS) attributable to shareholders of 21.5 cents, up 23% from 17.5 cents in 1H FY21
• Diluted EPS attributable to shareholders of 21.0 cents, up 26% from 16.7 cents in 1H FY21
• Fully franked interim dividend per share of 17.5 cents, up 50% from 1H FY21
• Pinnacle's share of Affiliates' NPAT $39.2million, up 23% from $31.8 million in 1H FY21
• Performance fees earned by Pinnacle Affiliates, post-tax, contributed $6.4m of Pinnacle's NPAT in 1H FY22 ($11.0m in 1H FY21)
• Aggregate Affiliates' funds under management (FUM) of $93.6 billion at 31 December 2021 (at 100%):
• • up $4.2 billion or 5% from $89.4 billion at 30 June 20211
  • up $23.1 billion or 33% from $70.5 billion at 31 December 2020
• Aggregate Retail FUM of $23.8 billion at 31 December 2021 (at 100%):
• • up 17% from $20.3 billion at 30 June 2021
  • up 43% from $16.7 billion at 31 December 2020
• Net outflowsfor 1H FY22 of $1.7 billion (net inflowsof $2.2 billion, excluding the $3.9 billion outflow of the Omega 'passive' mandate on very modest fees during August, which we have previously advised); net retail inflows of $2.9 billion for 1H FY22
• Continued Affiliate medium-term outperformance - 77% of 5-Year Affiliate strategies have outperformed as at 31 December 2021
• Cash and Principal Investments of $176.4 million at 31 December 2021. $100m debt facility from CBA - fully drawn down and deployed in liquid funds managed by Affiliates

1Funds 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.

Level 35, 60 Margaret Street, Sydney, NSW 2000 | PO Box R1313, Royal Exchange, NSW 1225 | www.pinnacleinvestment.com

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Composition of Group Results

The profit after tax attributable to shareholders for 1H FY22 was $40.1 million, representing basic earnings per share of 21.5 cents, compared with 17.5 cents per share in the PCP.

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 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.

Revenues in Pinnacle Parent are up 50% on the PCP, driven by strong retail inflows and revenue-sharing fees. Costs are up 19% on the PCP, reflecting additional resourcing added, as foreshadowed, in support of the business's growth ambitions, particularly offshore.

Our results for the half also include net overall gains (including distributions and net realized and unrealized gains/losses) on our Principal Investments of $2.0m, compared with $0.8m in the PCP. We continue to hedge the majority of our exposure to equities markets and these gains are net of hedging losses.

Pinnacle's share of net profit after tax from its equity interests in Affiliates was $39.2m, up 23% from $31.8 million in the PCP. Five Affiliates earned performance fees totalling $18.8m (at 100%; which contributed $6.4m towards Pinnacle's NPAT, after tax) in 1H FY22, compared with a total of $45.2 million in 1H FY21 (at 100%; Pinnacle share after tax $11.0m). Base management fee revenues in the Affiliates, at 100%, were up 42% compared with the PCP. Share of net profits from Affiliates includes contribution from Five V from 1st December 2021.

	H1 FY22 ($M)	H1 FY21 ($M)	% Change
PINNACLE
Revenue	21.6	14.4	50%
Expenses	(19.0)	(15.9)	19%
Write-down of investm ent in Rem iniscent	(1.8)	-	0%
Capital
Share of Pinnacle Affiliates net profit after tax	39.2	31.8	23%
Net profit before tax (NPBT) from continuing	40.1	30.3	32%
operations
Taxation	-	-
NPAT from continuing operations	40.1	30.3	32%
Discontinued operations	-	-	0%
NPAT attrib utab le to sharehold ers	40.1	30.3	32%
Basic earnings p er share:
From continuing operations	21.5	17.5	23%
Total attributable to shareholders	21.5	17.5	23%
Diluted earning p er share:
From continuing operations	21.0	16.7	26%
Total attributable to shareholders	21.0	16.7	26%

1Includes dividends and distributions received on Principal Investments (PI). These were $1.9m in 1H FY22, compared with $1.4m in 1H FY21

2Includes interest cost on the CBA facility of $1.0m in 1H FY22 ($0.3m in 1H FY21) and amortization of the PL8 offer costs of $0.5m in 1H FY22 ($0.4m in 1H FY21)

3Includes mark-to-market and realized gains/losses on PI, net of hedging. These were total net gains of $0.1m in 1H FY22 (decreases 'expenses'), compared with total net losses of $0.6m in 1H FY21 (increases 'expenses'). Adjusting for these, expenses increased by $5.1m, or 24%

4Includes Pinnacle's share of Affiliate performance fees post-tax of $6.4m in 1H FY22 ($11.0m in 1H FY21)

FUM Update

The aggregate FUM of PNI's sixteen Affiliates as at 31 December 2021 was $93.6 billion, reflecting:

For personal use only

• an increase in FUM of $4.2 billion or 5% during the six months ended 31 December 2021 (an increase of $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), comprising net outflowsfor 1H FY22 of $1.7 billion (net inflowsof $2.2 billion, excluding the $3.9 billion outflow of the Omega 'passive' mandate on very modest fees during August, which we have previously advised), increases due to market movements/investment performance of $4.7 billion and the Five V FUM 'acquired' of $1.1 billion
• a compounded annual growth rate (CAGR) of 26% p.a. over the last 10 years (24.5% excluding 'acquired' FUM)

Pinnacle Affiliates - Gross FUM1

1Includes $6.8 billion 'acquired' in July 2018, $3.0 billion 'acquired' in December 2019 and $1.1 billion 'acquired' in December 2021. FUM shown is 100% of the FUM managed by Pinnacle Affiliates. Pinnacle holds significant minority stakes in each of its Affiliates and does not 'own' 100% of the FUM

Retail FUM Update

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Aggregate Retail FUM stood at $23.8 billion at 31 December 2021, reflecting an increase in FUM of $3.5 billion or 17% during the six months ended 31 December 2021, comprising net inflows of $2.9 billion and increases due to market movements/investment performance of $0.6 billion.

Pinnacle Affiliates - Financial Highlights1

					H1 FY22 ($M)	H1 FY21 ($M)	% Change
PINNACLE AFFILIATES (100% aggregated basis)
			2
FUM ($billion)	2				93.6	70.5	33%
Revenue ($m illion)	240.5	201.3	19%
Net p rofit b efore tax	137. 4	118. 2	16%
Tax expense	(37.3)	(33.3)	12%
Net p rofit after tax (NPAT)	100. 1	84. 9	18%
Pinnacle share of Affiliates' NPAT	39.2	31.8	23%

1. Affiliate revenues are shown at 100% to indicate trend. Includes Five V revenues from 1st December 2021. Pinnacle owns significant minority stakes in each Affiliate and accounts for its share of Affiliates' NPAT
2. Includes $1.1 billion 'acquired' in December 2021. FUM shown is 100% of the FUM managed by Pinnacle Affiliates. Pinnacle holds significant minority stakes in each of its Affiliates and does not 'own' 100% of the FUM

Dividend

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The Board has resolved to pay a fully franked interm dividend of 17.5 cents per share to shareholders recorded on the register on 4 March 2022 and payable on 18 March 2022, which represents a payout ratio of 83% of diluted EPS.

The Dividend Reinvestment Plan (DRP) is applicable to this dividend. Please contact our share registry, Computershare Investor Services Pty Limited by calling 1300 850 505 or online at www.investorcentre.com/contactto obtain a DRP election form to participate in the DRP in respect of this dividend.

Outlook

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. As a result, 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.

1H FY22 results teleconference

Investors and analysts are invited to attend a teleconference on 3rd February 2022 with Alan Watson (Chairman), Ian Macoun (Managing Director), Andrew Chambers (Executive Director and Head of Institutional

• International Distribution), Dan Longan (Chief Financial Officer) and Ramsin Jajoo (Head of Retail Distribution) who will discuss the half year 2022 financial results and answer questions.

Please note that the call will be available via teleconference only. There will be no live audience. However, a recording of the call will be made available on Pinnacle's website shortly after it is completed.

Date: Thursday, 3rd February 2022

Time: 9.00 am (AEDT)

If you would like to join via teleconference, please pre-register using the following participant registration link: http://apac.directeventreg.com/registration/event/3795183

Once registered, an email will be sent with a full list of participant dial in numbers as well as an unique registrant ID. This registrant ID is to be kept confidential and not shared with other participants.

Please contact Ian Macoun on [phone] for shareholder enquiries and Jarrad Brevi at [phone] for media enquiries, if you require any further information.