Kelly Partners Group Holdings Ltd. · ASX:KPG
Kelly Partners — H1 2022 Earnings Presentation
80 slides from Kelly Partners's earnings presentation, Feb 7, 2022
Slide 1: 1H22 Results Presentation
KP+GH KELLY PARTNERS GROUP HOLDINGS (ASX: KPG) 1TH22 RESULTS PRESENTATION PRESENTED BY Brett Kelly Founder and CEO Kenneth Ko CFO February 2022
Slide 2: Contents
CONTENTS ABOUT KPG GROWTH MOAT BUILDING QUALITY SHAREHOLDERS FINANCIALS OUTLOOK KP+GH 2 au RWD =
Slide 3: KPG in 10 Seconds
KPG IN 10 SECONDS PROFIT & LOSS BALANCE SHEET CASHFLOW 124.5% REVENUE GROWTH REVENUE =0.0% EBITDA MARGIN GROWTH t 18.3% UNDERLYING NPATA GROWTH 42.3% RETURN ON EQUITY 10.6x NET DEBT TO UNDERLYING EBITDA 112.9% INCREASE IN OPERATING CASHFLOW 14.0% CASH CONVERSION MARGIN PARENT RETURN GEARING CASHFLOW
Slide 4: Per Share Growth
PER SHARE GROWTH 014 0.13 . — +11.6 “ : p.a. 01 Recurring Revenue Per share ees since FY19 +22.1 p.a. Owner Earnings (Parent) per 0 share & EPS rye Fy20 ry) 422 T71M since FY19 Cents per share
Slide 5: ROIC
ROIC “And when we think about Invested Capital, we think about the shareholder capital that has been invested in the businesses, plus any Adjusted Net Income less any distributions. Obviously, when you divide Adjusted Net Income by Invested Capital, you get a measure of the return on our shareholder
Slide 6: Programmatic Acquisitions
PROGRAMMATIC ACQUISITIONS 6 8 20 | | | ° 1 2 3 4 5 6 7 8 9 10 n 2 B 4 6 16 2006 2007 2008 2009 2010 20 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 above graph excludes greenfield office establishments
Slide 7: Track Record: Double 5x
TRACK RECORD: DOUBLE 5X Revenue Double Double Double @oubled in 5 ears since IPO, Double $70.0 2007 2008 2013 15.3% CAGR since IPO 2017 1Year 4 Years : H / $61.6m $60.0 i $50.0 : $48.9m : $45.5m* i $40.0m $40.0 : 3 @) % i $39.5m i H $24.1m & i Revenue ' ani $30.0 i $20.0 $10.0 $0.0 2007 2008 «= 2009
Slide 8: Owner Earnings
OWNER EARNINGS 1H 1H21 1H22 Owner earnings* $1,948,046 $2,639,755 $3,380,384 Owner earnings per share (cents) 4.29 5.83 75) Operating cashflow - Parent $2,780,476 $3,887,541 $4,821,361 EBITDA- Parent $2,369,107 $4,161,862 $5,003,147 Cashflow Conversion - Parent 117.4% 93.4% 96.4% * Owner earnings re
Slide 9: Capital Allocation
CAPITAL ALLOCATION KPG aims to build per-share intrinsic value by: } Hz tH22_— 33.4% 36.6% 33.5%" EBITDA Margin of Operating Businesses 4.8% 6.5% 17.0% Contribution to revenue growth 1.5% 0.0% 5.1% Contribution to revenue growth 1.2% 0.4% 2.4% Contribution to revenue growth 7 2 2 Number of acquisiti
Slide 10: About KPG
1 ABOUT KPG KP+GH
Slide 11: About
ABOUT 271 Team Members 58 Partners 18 Offices 26 Operating Businesses +Hong Kong (9) Pittwater Northern Beaches KP+GH
Slide 12: Mission
MISSION We exist to help our” people, Private Business Owners and the communities we work in be better off. KP+GH
Slide 13: One Way
ONE WAY WE DO WHAT WE SAY
Slide 14: To Be the First Choice Adviser
To be the first choice adviser to Private Business Owners in Australia
Slide 15: Strategy
STRATEGY Objective Scope Advantage To grow to be a top 10 accounting firm by size in Australia by offering trusted and convenient accounting, tax, finance, wealth and estate services to driven, successful Private Business Owners who value proactive advice via the Kelly+Partners Financial Progress Sy
Slide 16: Structure
STRUCTURE OWNERSHIP / ASSETS FINANCIAL RETURN / DEBT + Distribution: Equity Interest + Capit Capital + Fees: Centralised management + Back Office ; +P services + Fees: Intellectual Property Subsidiary Company ; Fixed Assets + Debt: Acqui: Only debt is used to acquire ; Tax Agent + Debt: Working Capi
Slide 17: KPG System
KPG SYSTEM 1. The Kelly+Partners Business BE BETTER System powers our performance, OFF FORWARD LOOKING FINANCIAL ADVICE builds our culture & drives our PROGRESS competitive advantage 2. Kelly+Partners continues to build ONE TEAM WE WANT ° ° . ONE BEST THE BEST dominant firms & seeding Way FOR OTHERS
Slide 18: Business Model
BUSINESS MODEL MI viccionsvases Clearly defined Mission and Values 7. Services Growing Network and Services 2. Market ‘SME Focus I 6. Brand — ‘ean Single Brand 5 Business and Marketing gaa f Model ae 3. Structure Partner- / Owner- Driver™ 5. System Business Model Proprietary Client Systems 4. Manage
Slide 19: Partner-Owner-Driver™
PARTNER-OWNER-DRIVER™ Partner-Owner-Driver™ Defined and agreed metrics Best interest of clients and advice system that makes them better off Integrated platform STRUCTURE STRATEGY MISSION + VALUES + BEHAVIOURS + VISION Austbrokers, Steadfast, McDonalds
Slide 20: People First
PEOPLE FIRST Certified 4 USTRALIAN Our eNPS score: wD hae t t 4.23 / 5 upoven UPSTICC KKKKK OF CHOICE $75k paid in share Certified WINNER 2021 rewards since start of MAY 2021 - MAY 2022 program in Jun-21 Corporation KP+GH
Slide 21: Via Zoom
Via Zoom LIMITED SPOTS AVAILABLE! DETOX YOUR HOME Interactive Workshop 10am | 29 September 2021 When in Rome \
Slide 22: eNPS Team Member Responses (85%)
eNPS 236 Team Member Responses (85%) Response Composition Our eNPS Score 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Actively Disengaged MNot Engaged Engaged KP+GH
Slide 23: Team + Partners
TEAM + PARTNERS ( KPG Shares ) Kelly Partners Office Properties KPIO Fund Investment KPW Ownership Profit Share
Slide 24: Focus
FOCUS Kelly+Partners Chartered Accountants are the only specialist group with an unyielding focus on private business owners as clients for more than 15 years. This focus allows for the development of the people and processes that uniquely service this type of clients. Driven - our clients get up ea
Slide 25: Services
SERVICES 91.3% Accounting & Tax Services 6.0% Wealth Management Services 0.5% Special Opportunities Fund #2 Business Audit Business, Personal Structures Corporate Services Full-service Accounting Outsourced CFO Services Payroll Services Tax Audits Taxation Advice and Compliance Financial Advice & Pl
Slide 26: Clients
CLIENTS 11,500+ 21%+ Client Groups Growth KP+GH 26
Slide 27: Client Responses
494 Client Responses NPS Composition o» 16% 75% & Our Net Promoter Score: +67
Slide 28: Experience
Slide 29: Risk
RISK “The biggest thing is to have something in the way you're programmed so that you don’t ever do anything where you can lose a lot. Our best ideas have not been better than other people’s best ideas, but we've never had a lot of things that pulled us way back. So we never went two steps forward a
Slide 30: Branded Progressive Offering
What would be the impact of a branded progressive offering to SMEs in the accounting and tax space? | think about Accenture and Ogilvy as just two examples of brands in professional services that have had real cut through. It takes time and investment but the value for attraction of talented people,
Slide 31: Growth
GROWTH 5% ORGANIC 5% ACQUIRED
Slide 32: Succession
SUCCESSION Firms intending to exit/retire 57% 1-2 years, 9% 10,000+ Firms No directors/partners intending to 2-3 years, 11% retire within the next 5 years, 43% 3-5 years, 29% Good Bad Ugly Insight Report - Succession 2018 report, page 5
Slide 33: Revenue Growth
2 REVENUE GROWTH KP+GH
Slide 34: Revenue Growth
REVENUE GROWTH Compounded annual growth rate since 2006 1H22 INTERNAL ° 6 Complementary +24.5% Baek EXTERNAL Acquired Earnings per share annual growth rate since IPO 10.6% KP+GH
Slide 35: Revenue Growth
REVENUE GROWTH Revenue growth contributions by year vig evi FY20 Fv2t |tH22 AVG Organic - Accounting 10.3% -6.4% 6.6% 1.5% 5.1% 3.4% Organic-Complementary 2.7% 1.8% 1.4% 1.2% 24% 1.9% Organic - Total 13.0% -46% 8.0% 2.7% 7.5% 5.3% Acquired 172% 64% 6.6% 4.8% 17.0% 10.4% Total 30.2% 1.3% 14.6% 7.5% 2
Slide 36: Acquisition Criteria
ACQUISITION CRITERIA 5 filters that potential partnerships are assessed on No more than 5 Core business is regional offices (no All offices accounting Private Kelly+Partners’ overlap with KP owned (not and tax business / values regional offices) affiliates) services SME focus
Slide 37: Acquisition FY22
ACQUISITION FY22 + Hunter Region 17) + Central Coast Western Sydney + Central Tablelands + 6] QNorwest + +Pittwater 6) 7 Inner West Northern Beaches 113) Blue Mountains + 1) + North § dney, Oran Park + Sydney CBD Osouth West Sydney + (12) io} Southern Highlands + +Wollongong @ + Canberra + Melbourne
Slide 38: Acquisition Accelerating
ACQUISITION ACCELERATING* # Acquired / scheduled Location 1 Nov-21 Western Sydney 2 Dec-21 Canberra Acquisitions completed in 1H22 % of FY21 Revenue ($48.9m) 3 Jan-22 Melbourne 4 Feb-22 Northern Beaches 5 Feb-22 Canberra 6 May-22 Central Coast Acquisitions to be completed in 2H22 % of FY21 Revenue (
Slide 39: Moat Building
3 MOAT BUILDING KP+GH
Slide 40: Economic Moat
“Unless a company has some kind of economic moat, predicting how much shareholder value it will create in the future is pretty much a crapshoot... Thinking carefully about the strength of the company's competitive advantage, and how it will (or won't) be able to keep the competition at bay, is a cri
Slide 41: Moats
MOATS 9. Growth capital ais "KELLYSPARTNERS- 7. Digital Investment 6. Obsession with the customer 2. Regional Oligopoly Structure
Slide 42: Reinvested in Flywheel
9% REINVESTED IN FLYWHEEL $23.6m reinvested in to Operating Businesses since IPO, average $4.7m per annum $5.6m Fuel $3.3m Fy20 1H22T™ ™9% mAdditional Investments
Slide 43: Regional Oligopoly
REGIONAL OLIGOPOLY 4% of KPG Accounting Firms would qualify in their own right as AFR Top 100 Accounting Firms by size (8 of 18)
Slide 44: Talent Attraction
RESOURCE TALENT ATTRACTION PERSONAL CLIENT RELATIONSHIP
Slide 45: Quality Shareholders
4 QUALITY SHAREHOLDERS KP+GH
Slide 46: Quality Shareholders
“Buffett has tried to attract only what he calls “high quality” shareholders. These are defined as shareholders who buy large stakes and hold for long periods.” Lawrence Cunningham “Quality Shareholders: How the Best Managers Attract and Keep Them” KP+GH
Slide 47: Owners' Manual
OWNERS’ MANUAL KP+GH KPG Owner’s Manual ASX: KPG PRESENTED BY Brett Kelly CEO and Executive Chairman Kenneth Ko Interim CFO 25 November 2020 CEO and Executive Chairman, Brett Kelly, has approved the release of this document to the market Kelly Partners Group Holdings Limited kellypartnersgroup.com.a
Slide 48: Owners' Principles
KPG OWNERS’ PRINCIPLES 1 Our attitude is partnership in everything we do. 2 Our founder and Partner Owner Drivers™ have their majority net worth invested in the business. 3 > Our long term goal is to maximise KPG's intrinsic value on a per share basis. 4 Our intention is to grow by continuing to acq
Slide 49: P P P P
P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P P
Slide 50: The Outsiders
THE OUTSIDERS «220: OUT (Fp) | fa Sus 10 The allocation process should be CEO led, not delegated to finance or business development personnel Start by determining the hurdle rate - the minimum acceptable return for investment Calculate returns for all internal and external investment alternatives, a
Slide 51: Baggers
100 BAGGERS CHRISTOPHER MAYER Years it takes for 100x at different rates 94 Our Our annual annual growth growth rate rate since since inception IPO Compounding rate in %
Slide 52: Baggers Criteria
100 BAGGERS «i: a 100 Baggers Criteria || Extended high growth is essential 30% CAGR since inception, 15% CAGR since IPO 2. P/E ratio expansion is key P/E 10.8x at IPO 3 There is always room for more growth 24.5% revenue growth and 18.3% NPATA growth in 1H22 4 Look beyond earnings 0.4% share of $12.
Slide 53: Share Count
SHARE COUNT vie DOUBLE BUSINESS BY FY2024 CASH BASED PERFORMANCE amr NO EXECUTIVE OPTIONS SHARE COUNT: 45M, NO SHARE ISSUANCE KP+GH
Slide 54: Revenue and Taxes
Revenue Income tax expense Payroll tax GST (Net) Total Taxes in 5 Years % of Revenue FY18 $39,468,666 $1,941,144 $779,935 $2,997,383 $5,718,462 14.5% FY19 FY20 $39,975,031 $45,495,584 $899,616 $1,430,335 $860,621 $907,115 $2,935,398 $3,390,690 $4,695,634 $5,728,140 11.7% 12.6% KP+GH FY21 $48,906,446
Slide 55: Ethical Investment
ETHICAL INVESTMENT ......:. Australian Ethical “Ethical Charter” KPG What KPG has done (a) the development of workers' participation in the ownership Upstreet program awards each team member KPG shares and control of their work organisations and places with the view of common ownership in the busine
Slide 56: Financials
5 FINANCIALS KP+GH
Slide 57: Highlights
HIGHLIGHTS KPGHL Attributed (parent only) Revenue Underlying EBITDA (pre AASB 16) 24.1% - - - Margin % -0.3% - - - EBITDA (pre AASB 16) 22.7% - - - Underlying NPATA 20.2% $2.8 $33 18.3% Margin% 3.5% - - - NPATA 175% $3.4 $38 119% Dividends & Distributions Paid 47.0% $12 $21 728% Cash from Operating
Slide 58: Metrics Since IPO
METRICS SINCE IPO IKPGHL & Controlled Entities ("Group") IPO 21 June 2017 Cashflow Revenue Underlying EBITDA (pre AASB 16) $8.7 5. Margin % 28.9% 27.2% 29.6% 32.6% Underlying NPATA $7.3 $8.8 $10.1 $n.6 12.2% Margin’ 24.2% 22.1% 223% 23.7% NPATA $15 $79 $1.0 ge Dividends & Distributions Paid -$7.1 -$
Slide 59: Income Statement
INCOME STATEMENT + Revenue of $30.9m (+$6.1m, up 24.5%), driven both by organic revenue growth (7.5%) and by contributions from acquisitions completed in FY21 and in 1H22 (17.0%). Organic revenue increased 7.5% compared to the prior period and has exceeded the Group's target annual organic growth of
Slide 60: NPATA Reconciliation
NPATA RECONCILIATION uted NPAT/NPATA ($m)* 1H21 1H22| Statutory NPAT attributable owners of Kelly Partners Group Holdings Limited 3.2 3.4 Amortisation of customer relationship intangibles 03 Os NPATA attributable to owners of Kelly Partners Group Holdings Limited 3.4 3.8 Add: non-recurring expense i
Slide 61: Trinity
TRINITY 2. Debtors 45.3 days* * Calculated on TTM annual billings CASH CONVERSION 3. 24, Revenue Growth EBITDA Margins
Slide 62: Balance Sheet
BALANCE SHEET LOCKUP DAYS WIP De * Conservative capital structure with 34.6% 70.0 a Equity / Total Assets ratio, and Net Debt / 574 Underlying EBITDA of 1.32x (FY21: 0.84x) 80.0 55.4 ; : 121 * Group ROE of 42.2% (Group TTM Underlying 608 i NPATA $12.8m / Group Equity of $30.4m) 4 400 (FY21: 46.0%) E
Slide 63: Profitability
PROFITABILITY Established Growth Other Services Start-ups Revenue EBITDA® EBITDA Margin % KELLY+PARTNERS MEBITDA mCosts
Slide 64: Gross Margin
GROSS MARGIN “high gross margins are the most important single factor of long run performance. The resilience of gross margins pegs companies to a level of performance.” — Matthew Berry, “Mean Reversion in Corporate Returns”! 70.00% eie% 629% 619% 61.7% 615% 59.5% 60.00% 50.00% 441% 411% 42.2% jo 40
Slide 65: Cashflow
CASHFLOW * Cash from Operations pre AASB 16 of $9.2m ‘CASH FROM OPERATIONS (CFO) FREE CASHFOW TO FIRM (FCFF) $92m $6.3m increased 12.9% (1H21: $8.1m) $e1m . 04.9 + Strong Cash Conversion! of 88.9% (1H21: 92.9%) and som is within our expected 85%-100% conversion ratio. Slightly lower cash conversion
Slide 66: Acq Impact on Cash Conv.
ACQ IMPACT ON CASH CONV. Example * Business with $1.2m annual recurring revenue, commences in the Group 2 months prior to end of Year 1. * KPG does not buy WIP & Debtors. WIP & Debtors start accumulating from Day 1. + In below example, $200K billed in Year 1 but only $19K is collected in cash ($200K
Slide 67: Debt & Liquidity
DEBT & LIQUIDITY $45.0m Op. Bus Total Debt $40.0m Working Capital Debt $0.4 $49 $5. Property Debt $350m cash $4.8 Acquisition & other term debt $30 " Available Headroom $5.5M gosom Property $3.4M IFy21 $20.0m (Z-elllinvamipalis=) (Gross Debt— FY21 $13 $18.4 $19.8 Acquisition & Term Cash - FY21 -$0.2
Slide 68: Net Debt per Partner
NET DEBT PER PARTNER * Total number of equity partners increased Net Debt per Partner to 57: $450,000 60 + 1new partner promoted internally $400,000 —— * 1new partner recruited externally 8° $350,000 + 3 new partners from completed acquisitions $300,000 40 * On January 2022, a new partner was promot
Slide 69: Parent & NCI
PARENT & NCI + Profit after income tax expense for the year was $8.0m, with: tu) NCI Parent tall + Profit attributable to shareholders of Kelly Partners Croup NPAT - Statutory $4.6 $3.4 $8.0 Group Holdings Limited of $3.4m. 58% 42% + Profit attributable to non controlling interests (NCI) of $4.6m Ad
Slide 70: 1.76cps 0.55cps 1.21cps
• 8 • 7 6 1.76cps 5 0.55cps 0.68cps • 0.33cps 1.21cps 0.33cps 4 1.10cps 0.33cps 1.00cps 0.33cps 3 1.21cps 0.33cps 1.10cps 0.33cps • 1.00cps 2 1.33cps 0.363 1.10cps 1.21cps 0.363 1.00cps 0.363 1 0.363 1.00cps 1.10cps 1.21cps 1.33cps 0.363 0.363 • 0 FY18 FY19 FY20 FY21 1H22
Slide 71: Cash Reconciliation
CASH RECONCILIATION of NPAT to Operating Cashflow ($m) 1H21 1H22 Reported NPAT 71 8.0 Reconciliat Adjustments for: Depreciation and amortisation 2.0 2.8 Repayment of lease liabilities -0.9 -1.6 Unwinding of interest on contingent consideration on] on] Other non-cash movements -0.2 -0.3 Change in ope
Slide 72: Cashflow Since IPO
CASHFLOW SINCE IPO Cash From Operations (CfO) $6.9 . $10.0 $14.3 $15.1 21.5% Owners' Earnings (CfO - Maint. Capex) $6.6 . $9.7 $12.2 $12.8 17.9% Cash Conversion (Operating Cash Flow / Reported EBITDA) 269.6% 16.8% 97.3% 93.5% Days Lockup* 94.2 69.6 55.2 Su $16.0 $15.1m $14.3m $14.0 $12.0 $10.0 $8.0
Slide 73: 1H/2H Skews
1H/2H SKEWS Seasonality in accounting business * Seasonality in the accounting (excludes acquisitions) businesses is approximately 1H: 53% / 2H: 47% since IPO, equating to a 6% (or c. $2.5m swing) down swing in 2H21. + Seasonality is predominantly due to timing of tax work related to 30 June year en
Slide 74: Outlook
6 OUTLOOK KP+GH
Slide 75: Programmatic Flywheel
PROGRAMMATIC FLYWHEEL Keep making Keep turning many small your flywheel! deals!
Slide 76: Double
DOUBLE Fy21 FY22 FY23 FY24 ACTUAL ates TARGET TARGET Acquired Actual $2.2m $8.4m $10.6m Target $3.8m, $4.3m $5.0m $5.7M $18.7m -$1.6m $4.1m -$8.1m Cumulative -$1.6m $2.6m Organic Actual $1.2m $3.7m $5.0m Target $2.3m $2.6m $3.0m $3.5m $i.4m -$1.im $l.im -$6.4m Cumulative -$1.im $0.1m Total Actual $3
Slide 77: Execution
EXECUTION $20.0m 1. Build . Accelerate 3. Lead + 54% Total Revenue Growth * Double Revenue to + 15.4% YOY Revenue Growth Grow NPATA $80m Revential $80.0m + Invest in Corporate Team to scale * Double NPATA to $8m_ $70.0m Revenue - $48.9m 13% CAGR $60.0m Revenue $45.5m $50.0m 15% CAGR Revenue $40.0m E
Slide 78: Complementary Services
COMPLEMENTARY SERVICES Kelly Partners Group Holdings Limited Private Wealth Finance General Insurance Alternative Assets Property
Slide 79: Thank You
Thank you KP+GH
Slide 80: Disclaimer
DISCLAIMER SUMMARY INFORMATION This document has been prepared by Kelly Partners Group Holdings Limited ACN 124 908 363 (Company) of Level 8, 32 Walker Street, North Sydney NSW 2060. This document contains information in a summary form and general background information about the Company's activitie
Kelly Partners Group Holdings — H1 2022 Earnings Presentation on 6ix