INVESTSMART GROUP LIMITED — AGM Information 2011

Nov 24, 2011

MERRICKS CAPITAL

“where preparation meets opportunity”

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Merricks Capital Special Opportunity Fund

AGM Content

1. Managers Perspective

2. Managers General Market Outlook

3. Investment Mandate

4. Investment Portfolio

5. Key Investment – Straits Resources

6. Key Investment – ING Real Estate Entertainment Fund

7. Key Investment – Digital Harbour Mezzanine Loan

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Managers Perspective

• As the largest shareholder in MEF the Manager is focussed on value creation for shareholders

• The last traded unit price of $0.70 is disappointing relative to the most recent Post Tax NTA of $1.05

• However the key priority is the performance of the underlying investments as this will ultimately drive shareholder value

• The mandate intentionally allows the pursuit of investments that:

• have intrinsic value that is not obvious; or

• accessible to the general market

• Unlocking this value requires patient capital which is the strategic advantage of the fund

• Paying dividends post the exit of profitable investments is a key objective. The fund should be in a position to realize a dividend in FY2012 post the maturity of the Digital Harbour Mezzanine Loan

• The unit price discount to NTA may persist until key investments are realized and dividends are paid

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Manager Outlook

Fundamental Outlook:

• Western world economies are 4yrs into a 10yr financial deleveraging cycle. This backdrop will continue to make it difficult for large listed companies to exhibit significant earnings growth

• Recent trips by the manager to China indicate a hard landing scenario is highly probable which will cause a cyclical slow down in demand for commodities and the Australian dollar. This slowdown should be cyclical in nature an offer a could entry point for future investments

Investment Market Outlook

• The ASX200 is currently trading on an undemanding 11 times multiple of sell side analyst earnings forecast this would reflect fair value if the earnings could be delivered. However the 13% forecast earning growth appears optimistic and the market may trade down with subsequent earnings downgrade

• Fixed income markets are fairly priced to reflect a very week outlook e.g. RBA Futures contracts trading on the ASX are currently pricing in successive Reserve Bank rate cuts to total 1.60% by next June. This level of rate cuts would take the benchmark rate to 2.9% which is below the lows seen during the 2009 crisis

• Given the weak outlook positive returns will require significant investment specific catalysts that create value well beyond anaemic general market returns

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Investment Mandate

• The Fund will focus on 3 to 10 investments at any given time (currently holds 6 investments)

• The Fund will often provide access to investments not available to the general public via:

• Taking placement of new securities in small to medium listed companies

• Construction of unlisted convertible securities offering equity type returns but with debt security characteristics

• Combining with other investors to acquire significant stakes in companies with a view to actively release hidden or locked up value

• The Fund will seek to make investments that will allow it to pay regular and consistent dividends, underpinning a strong yield for investors

• Being the largest shareholders of the Fund, the Manager is clearly aligned with all shareholders to use the strengths of the Funds structure to maximise returns

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Investment Portfolio – 31/11/ 2011

Performance	Net Asset Backing	Year on Year % Change
October 2010PostTax NTA	1.09PerShare
October 2011 1PostTax NTA	1.05PerShare	-4%

Investment		Weight
Cash		4.76%
Shareholdings		95.24%
Company	Code	Weight
Straits Resources Ltd	SRQ ASX	51.32%
Digital Harbour Mezzanine Loan	-	26.50%
ING Real Estate Entertainment Funds	IEF ASX	17.13%
Molopo EnergyLtd	MPO ASX	2.25%
Alchemia Ltd	ACL ASX	2.24%
Aziana Limited (IPO)	AZK ASX	0.55%

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Strategic Investment - Example

Straits Resources Limited (SRQ AU)

Background

Catalysts:

• Cash flow generation at Triton and Mt Muro by mid 2012

• Straits is a company involved in the exploration, production and sale of copper and gold in Australia and Indonesia

• Further drilling results at Avoca Tank Prospect which is shaping as a high grade copper ore source to the Triton mill

• Market Capitalization A$192m (at 24[th] November 2011)

Risks

• Severe commodity price declines

• Pre demerger Market Capitalization today would be A$559m versus AGM last year’s Market Capitalization of A$447m

Thesis – Significantly undervalued world class assets

• Triton Copper Mine- Post the buyout of the Treatment and Refining charges Tritton will go from Free cash flow (FCF) break even to generating c.$60Mpa of FCF at current copper prices

• Mt Muro – 100koz of Gold at a total cost of 850/oz which equates to an EBIT margin of $85mpa

• Value – Our base case valuation of SRQ remains materially above

the current share price at $1.60/share using $3/lb copper and $1,200/oz gold long term which are trading at a discount of 10% and 30% discount to current spot price

U nrecognised Value: Free Cash Flow of $100m+ per annum

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Strategic Investment - Example

SRQ AU

Realising the Investment

Stage 1:

• Demerger of the coal and metal assets

• Would make the coal assets far more attractive to a potential bidder

• Daylight the value of the metals assets

Stage 2:

• Post demerger, engaging with management to market the coal assets to a number of potential suitors

• Straits Asia was sold of to PTT crystallizing $1.72 in profit for SRL share holders

Stage 3:

• Looking at further divestments of non key assets while focusing on core assets such as the Triton copper mine and Mt Muro

• Look to possible buy out the TCRC agreement with Sempra metals. Sempra currently receives 33% of the copper price over $1/lb

• Triton and Muro are on the cusp of delivering improved production and reduced cash costs resulting in SRQ generating record cash flow

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Strategic Investment - Example

ING Entertainment Fund (IEF AU)

Background

• ASX listed real estate investment trust that invests in the freehold of entertainment and leisure venues in Australia and New Zealand

Catalysts:

• New management and internalisation of management from IEF

• • Repayment of Panthers debt

• Reintroduction of dividends

• AUM $235.6m (FY-11)

Risks

• Further declines in property values

Thesis - Quality distressed assets - options not priced in

• High operating leverage/risk - to operator performance

• Weak operator performance (insolvency) - due to GFC, environmental factors (floods), high gearing, etc lowered IEF revenues, asset values and refinancing options

• Additional (discounted) equity raisings

• Negative perception (insider fees and transactions)

Unrecognised Value: IEF’s largest investment is treated as equity by the market when it is in fact a senior secured loan to Panthers due to be repaid in

2012

• Share price - fallen sharply (>90% from peak) to significantly below written down value of asset (that are well located and have alternative uses)

IEF solution

• De-risk through asset sales/equity bridge to improve stability of capital structure and gearing

• Establishment of a stapled entity and internalization of management

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Strategic Investment - Example

IEF AU

Realising the Investment

Stage 1:

• Post sale of Kings Cross / NZ properties – book value of $208m ($84m for Panthers & $124m for Australian pubs) @ 9.6% cap rate would generate net income of $20m

• Post parent co cost of $2-3m and interest of $10m, PBT would be $6 -$8m - allowing for up to 15% yield

Stage 2:

• Re-staple operating companies of pubs back to property co

• Biggest tenant Icon (43% of non-Panthers rent roll), owes CBA $60m and is insolvent

• IEF has agreed with CBA to purchase Icon with no debt for $13m

• Icon EBIT estimated to normalize at $5m annually

• This will happen post December 2011 unit holder vote

• Transfer and Internalization of management agreement

• ING have agreed to transfer of management agreement to Torchlight and forgo $8m of fees. This will happen in December 2011 after unit holder vote

• Torchlight have committed to internalize the management agreement

Stage 3:

• Sale or Repayment of Panther debt/equity – matures February 2012

• Carrying value is $84m - senior secured with significant asset backing of land bank in west Sydney

• Post repayment IEF will have a conservative debt to equity level of 30-35% on a portfolio pubs

• Low debt levels would allow working capital and flexibility a growth strategy

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Strategic Investment - Example

Digital Harbour Holdings Pty Ltd (DHH)

Background

• DHH is a developer of modern infrastructure in the Melbourne Docklands

Catalysts:

• Construction completed by mid-2012

• Full principle and interest repaid in 2H2012

• DHH has commenced construction on 990 LaTrobe, the new Melbourne Water Corp HQ office building

Risks

• Construction delay

Thesis – Highly cash flow generative investment, underpinned by quality developer

• Stable Investment Income – 17% annualized interest on loan

• principle; Mezzanine loan was issued May 2011 with a 15 month term

• Low Risk Investment – Construction on 990 LaTrobe street broke ground in November 2010 and is on time and within budget for completion mid-2012

Non Public deal sourced through Merricks network

• Quality Developer - DHH has built successful, award winning projects in the Docklands, as a result, the project carries relatively low execution risk

• Interest paid very attractive given

• Pre-leased 97% of building to Melbourne Water Corporation with a 15-yr lease

• Pre-sold completed building to Motor Accident Commission of South Australia

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Strategic Investment - Example

DHH

Realising the Investment

Stage 1:

• Construction on time and on budget

Stage 2:

• Construction and Sale close mid 2012

Stage 3:

• Repayment of loan 2H2012

• Anticipated payout of $0.04/unit fully franked to MEF shareholders

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Disclaimer

This presentation is prepared and provided by Merricks Capital Pty Limited (ABN 45 126 528 005 AFSL 319477) on a confidential basis for use only by the recipient (as a wholesale client under the Corporations Act 2001 and should not be forwarded to others. The information contained in this is of a (Cth)) presentation general nature only and is not to be taken to contain any financial advice or recommendation. This presentation is neither an offer to sell nor a solicitation of any offer to acquire interests or any other any investment. Neither Merricks Capital Pty Limited nor its directors, officers, employees, agents or associates, or any party named in this presentation guarantees the performance of the Funds. Past performance is not a reliable indicator of future performance.

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