Marlin Global Limited — Fund Information / Factsheet 2017

Oct 31, 2017

Quarter Update Newsletter

30 June 2017 – 30 September 2017

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MLN NAV SHARE PRICE DISCOUNT
$0.93 $0.78 16.2 [%]
as at 30 September 2017
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Marlin gross performance was 7.0% during the quarter ended 30 September 2017, bringing the total gain so far in 2017 to 24.3%[1] . Coordinated global growth and a supportive corporate earnings environment resulted in gains in most global share markets during the quarter.

We recently travelled to Europe to meet portfolio companies and look for new investments. Our conversations with management teams across a range of industries support the theme of improving global growth. Hotel chains are witnessing strong room night growth as tourism picks up, transportation operators are seeing increased freight volumes, and we are seeing auto manufacturers and their suppliers talk about new investments to prepare for the growth in electric vehicles.

The tone from corporates has shifted from repairing balance sheets and restructuring to going after growth. Companies we spoke to are generally looking to hire new recruits, and with an abundance of staff available they are seeing limited wage pressure. While it is difficult to assess if this environment will be sustained, with European corporate earnings growth running at 15% in the most recent quarter, it is not hard to see why corporates are optimistic.

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European Industrial Confidence at 5 year highs
115
110
105
100
95
90
85
80
Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep
2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017
Source: European Commission, Fisher Funds
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The top contributors to our performance during the quarter were Worldpay, PayPal and Alibaba. Payments processor Worldpay rose 29% during the quarter following a takeover offer from US based Vantiv Inc. Alibaba was a standout performer, gaining 23% over the period on the back of 56% revenue growth in the June quarter. PayPal was up 19%, with second quarter payment volumes increasing 26% on the prior year, driving earnings per share growth of 27%. The biggest detractor from performance was US heart valve manufacturer, Edwards Lifesciences. While Edwards was down 8% during the quarter, it is still up 17% for the year.

Notable Returns for the Quarter in local currency

WORLDPAY ALIBABA PAYPAL MASTERCARD SARINE GROUP TECHNOLOGIES +29[%] +23[%] +19[%] +16[%] -23[%]

It is not lost on us that the best performers in the portfolio have been technology stocks. There has been much talk of the outperformance of the tech sector and FANG[2] stocks this year (the US tech sector is up 26%, compared with 13% for the S&P500). Some commentators are suggesting technology stocks are in a bubble, but we believe it is important to consider each company individually. While some technology stocks are certainly expensive, others still offer good value. Nevertheless, we are watching this trend closely and believe it is important to maintain sector diversity in this environment. Our two most recent portfolio additions are in the financial and industrial sectors, helping achieve more balance in this regard.

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Technology and FANG stocks have significantly
outperformed in 2017
150
140
130
120
110
100
90
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
S&P500 S&P500 Technology FANG
Source: Factset, Fisher Funds
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During the quarter we added two new positions (Hexcel and Signature Bank) and increased our weightings in Essilor, Fresenius and PayPal.

Hexcel is a leading supplier of carbon fibre composites to the aerospace industry. Carbon fibre significantly reduces aircraft weight and fuel usage and is increasingly being used in new aircraft like the Airbus A350.

1 9 months from 31 December 2016 to 30 September 2017

2 FANG is an acronym representing some of the popular tech stocks – Facebook, Amazon, Netflix and Google

Ashley Gardyne Senior Portfolio Manager

1

Signature Bank is a specialist regional bank, lending primarily to wealthy families and private businesses. They are still a small bank and we believe their model will allow them to deliver double-digit earnings growth over the medium term.

During the quarter, we exited four positions to streamline the portfolio and make way for the new holdings. We exited Japanese car park operator Park24 after its growth became increasingly reliant on its car sharing business and its international operations. We exited our position in Graco (pumps and industrial painting equipment) after strong share price performance resulted in an elevated valuation. We sold out of Nike due to the headwinds in its core US market. Declining sales at retailers like Foot Locker, a highly promotional environment and design/style misses by Nike provide headwinds that we believe are stronger than the market appreciates. We also took the opportunity to sell WorldPay after it received a takeover offer from Vantiv and its share price spiked.

Attractive investment opportunities are harder to find than they were a few years ago. With Europe earlier in its economic cycle than the US, we are spending an increasing amount of time looking for new investments in that market. Following our recent trip to the UK, France and Germany we are doing in-depth work on several new ideas - watch this space.

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Ashley Gardyne

Senior Portfolio Manager, Fisher Funds Management Ltd 25 October 2017

Performance as at 30 September 2017

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Since Inception
3 Years
3 Months November 2007
(accumulated)
(accumulated)
Corporate Performance
Total Shareholder Return +1.1% +24.6% +58.3%
Adjusted NAV Return +6.2% +29.6% +76.9%
Manager Performance
Gross Performance Return +7.0% +45.3% +149.5%
Benchmark Index¹ +6.1% +52.7% +103.6%
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1 Benchmark index: World Small Cap Gross Index until 30 September 2015 & S&P Large Mid Cap/S&P Small Cap Index (hedged 50% to NZD) from 1 October 2015 Non-GAAP Financial Information

Marlin uses non-GAAP measures, including adjusted net asset value, gross performance return and total shareholder return. The rationale for using such non-GAAP measures is as follows:

» adjusted net asset value – the underlying value of the investment portfolio adjusted for capital allocation decisions, » gross performance return – the Manager’s portfolio performance in terms of stock selection and hedging of currency movements, and

» total shareholder return – the return to an investor who reinvests their dividends, and if in the money, exercises their warrants at warrant maturity date for additional shares.

All references to adjusted net asset value, gross performance return and total shareholder return in this newsletter are to such non-GAAP measures. The calculations applied to non-GAAP measures are described in the Marlin Global Non-GAAP Financial Information Policy. A copy of the policy is available at http://marlin.co.nz/about-marlin/marlin-policies

Portfolio Holdings Summary as at 30 September 2017

	Headquarters	Company	% Holding
	Canada China Denmark	Descartes Systems Alibaba Group William Demant	3.4% 4.4% 3.2%
	France	Essilor International	3.9%
	Germany Ireland	Adidas Fresenius Medical Care Icon	2.7% 4.0% 3.2%
	Israel Italy	Sarine Technologies Brembo	1.4% 2.8%
	United States	Abbott Laboratories	3.4%
		Alphabet Amazon.com	6.2% 2.8%
		Blackhawk Cerner Corporation	3.0% 3.2%
		Cognizant Technology	4.3%
		Solutions
		Core Laboratories	2.5%
		eBay Ecolab Edwards Lifesciences Expedia	3.8% 2.9% 3.8% 3.7%
		Hexcel Corporation	3.3%
		LKQ	4.5%
		Mastercard	5.3%
		PayPal Signature Bank United Parcel Service	6.6% 2.9% 2.1%
		Zoetis	3.1%
		EquityTotal	96.4%
		New Zealand dollar	1.6%
		cash
		Total foreign cash	2.2%
		Cash Total	3.8%
		Forward foreign exchange contracts	-0.2%
		TOTAL	100.0%

Company News

Dividend paid 29 September 2017

A dividend of 1.83 cents per share was paid to Marlin shareholders on 29 September 2017, under the quarterly distribution policy. Interest in Marlin’s dividend reinvestment plan (DRP) remains high with 40% of shareholders participating in the plan. Shares issued to DRP participants are at a 3% discount to market price. If you would like to participate in the DRP, please contact our share registrar, Computershare on 09 488 8777.

Disclaimer: The information in this newsletter has been prepared as at the date noted on the front page. The information has been prepared as a general summary of the matters covered only, and it is by necessity brief. The information and opinions are based upon sources which are believed to be reliable, but Marlin Global Limited and its officers and directors make no representation as to its accuracy or completeness. The newsletter is not intended to constitute professional or investment advice and should not be relied upon in making any investment decisions. Professional financial advice from an authorised financial adviser should be taken before making an investment. To the extent that the newsletter contains data relating to the historical performance of Marlin Global Limited or its portfolio companies, please note that fund performance can and will vary and that future results may have no correlation with results historically achieved.

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Marlin Global Limited Private Bag 93502, Takapuna, Auckland 0740 Phone: +64 9 484 0365 | Fax: +64 9 489 7139 Email: enquire@marlin.co.nz | www.marlin.co.nz

The Marlin quarter update newsletter is produced for the March and September quarters only. The annual and interim reports cover the June and December periods. If you would like to receive future newsletters electronically please email us at enquire@marlin.co.nz

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