Marlin Global Limited — Net Asset Value 2019

Nov 18, 2019

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Monthly Update November 2019

MLN NAV SHARE PRICE DISCOUNT[1] $1.00 $0.95 5.3[%] as at 31 October 2019

A word from the Manager

October was a good month for global equity markets, driven by signs of an improving geopolitical backdrop. Tensions between the US and China appear to be improving, with signs their trade delegations are edging closer to a partial trade deal. In the UK a hastily arranged snap election has seen the country step back from the precipice of a no-deal Brexit (for now). The US S&P 500 Index gained 2.2% in October, hitting fresh all-time highs, driven by this improved backdrop and a better than feared US corporate reporting season.

Marlin gained 0.3% (gross performance) for the month, compared with our global benchmark which gained 1.3%. The Marlin Adjusted NAV return for October was -0.2%.

Portfolio Company Developments

Facebook (+8%) was a strong performer in the portfolio this month, reporting better than expected third-quarter results. Facebook and Instagram continue to attract more users and Instagram’s Stories format continues to grow in popularity with both users and advertisers. Despite Facebook’s size, advertising revenues grew a massive 28% on the prior year and profits increased 19%. While Facebook continues to garner a lot of newspaper headlines and political attention, the product teams have continued to focus on innovating and making their products more useful for both users and advertisers. A good example of this is the new Checkout for Instagram, which allows users to shop, purchase and track orders directly in the Instagram app. The popularity of Instagram Stories and other platform improvements are driving increased user engagement and advertisers continue to flock to the platform to reach consumers no longer watching TV or reading the newspaper. While we believe Facebook must continue to address the myriad of issues associated with running a social network (user safety, privacy concerns, security, election interference etc), they continue to build a strong business with a lot of growth potential. We believe the business is still materially undervalued despite the 46% increase in share price so far this year.

LKQ Corp (+8%) a distributor of replacement auto parts, gained in October after reporting strong cash flow growth. LKQ’s European business has struggled over the last two years, with the weak European economic environment weighing on revenue growth and the integration of a number of acquisitions crimping profit margins. Evidence that management’s recent actions to streamline the business, improve margins and enhance cash flow generation saw its share price spike. LKQ has now gained over 40% this year.

Fresenius Medical Care (+5%) the German kidney dialysis service provider, continues to execute strongly in an environment of uncertainty for dialysis providers in the US. During the last quarter, Fresenius saw an acceleration in growth of dialysis patients coming to its clinics and a pick-up in dialysis equipment sales. Fresenius’s US dialysis services growth continues to outpace peers, with home dialysis in particular seeing strong growth rates. These strong results came at a time of increasing regulation in the US dialysis sector, with the Trump administration introducing regulation to push for an increase in home dialysis over in-clinic care. The proposed regulations are still in the consultation phase, but we believe Fresenius is well positioned for these changes due to its proactive investments in home dialysis in recent years.

EssilorLuxottica (+3%) the eyewear and optical lens giant, reported a similar story of strong execution and accelerating growth. The Essilor lenses business saw growth hit the top end of its 4-6% medium-term target range, while the Luxottica eyewear business also saw good growth. The company, which was created through the merger of Luxottica and Essilor in 2018, reconfirmed its synergy targets and is already seeing the benefits of early initiatives such as increasing sales of Essilor lenses in Luxottica’s retail stores. The recently announced acquisition of Grandvision further consolidates the company’s position as the global leader in eyewear.

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1 Share Price Discount to NAV (using NAV to four decimal places)

Hexcel (-9%) the carbon fibre composites supplier, fell in October due to continued issues with its large customer Boeing. The main issue is the continued grounding of Boeing’s 737 Max aircraft, following two fatal crashes caused by faults in Boeing’s plane design. Delays getting the 737 Max back into the air have now forced Boeing to reduce production rates, which is having a knock-on effect for suppliers like Hexcel. While Boeing is confident that the 737 Max will return to service by the end of the year, this will have a short-term impact on Hexcel’s growth.

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Ashley Gardyne Senior Portfolio Manager Fisher Funds Management Limited

Key Details as at 31 October 2019

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----- Start of picture text ----- FUND TYPE Listed Investment CompanyINVESTS IN Growing international companiesLISTING DATE 1 October 2007FINANCIAL YEAR END 30 JuneTYPICAL PORTFOLIO25-35 stocksSIZEINVESTMENT CRITERIA Long-term growthPERFORMANCE Long-term growth of capital andOBJECTIVE dividendsTAX STATUS Portfolio Investment Entity (PIE)Fisher Funds ManagementMANAGERLimited1.25% of gross asset value(reduced by 0.10% for everyMANAGEMENT 1% of underperformanceFEE RATE relative to the change in theNZ 90 Day Bank Bill Indexwith a floor of 0.75%)PERFORMANCE Changes in the NZ 90 Day BankFEE HURDLE Bill Index + 5%10% of returns in excess ofPERFORMANCE FEEbenchmark and high water markHIGH WATER MARK $0.94PERFORMANCE FEE CAP 1.25%SHARES ON ISSUE 148mMARKET$141mCAPITALISATIONNone (maximum permitted 20%GEARINGof gross asset value)----- End of picture text -----

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----- Start of picture text ----- Sector Splitas at 31 October 2019INDUSTRIALS8 [%]CONSUMERDISCRETIONARYFINANCIALS 29 [%]9 [%]INFORMATIONHEALTH CARE TECHNOLOGYCOMMUNICATION17 [%] 18 [%]SERVICES18 [%]----- End of picture text -----

The Marlin portfolio also holds cash.

Geographical Split as at 31 October 2019

ASIA

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----- Start of picture text ----- WEST EUROPE 10 [%]16 [%]NORTH AMERICA74 [%]----- End of picture text -----

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October’s Biggest Movers in local currency terms

Typically the Marlin portfolio will be invested 90% or more in equities.

EDWARD LKQ CORPORATION FACEBOOK ALIBABA GROUP HEXCEL CORP LIFESCIENCES CORP +8[%] +8[%] +8[%] +6[%] -9[%]

as at 31 October 2019 5 Largest Portfolio Positions

ALPHABET ALIBABA GROUP FACEBOOK TJX COMPANIES MASTERCARD 8[%] 6[%] 6[%] 5[%] 5[%]

The remaining portfolio is made up of another 21 stocks and cash.

Total Shareholder Return to 31 October 2019

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----- Start of picture text ----- Share Price Total Shareholder Return$2.50$2.00$1.50$1.00$0.50$0.00Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Share Price/Total Shareholder Return----- End of picture text -----

Performance to 31 October 2019

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----- Start of picture text ----- 1 Month 3 Months 1 Year 3 Years 5 Years(annualised) (annualised)Company PerformanceTotal Shareholder Return +2.2% +2.1% +13.4% +17.4% +13.0%Adjusted NAV Return (0.2%) +3.0% +18.8% +16.5% +11.5%Portfolio PerformanceGross Performance Return +0.3% +3.4% +22.4% +20.3% +15.3%Benchmark Index^ +1.3% +3.0% +10.8% +12.6% +12.0%----- End of picture text -----

• ^Benchmark index: World Small Cap Gross Index until 30 September 2015 & S&P Large Mid Cap/S&P Small Cap Index (50% hedged to NZD) from 1 October 2015 Non-GAAP Financial Information

Marlin uses non-GAAP measures, including adjusted net asset value, adjusted NAV return, 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 after fees and tax,

• » adjusted NAV return – the net return to an investor after fees and tax,

• » gross performance return – the Manager’s portfolio performance in terms of stock selection and currency hedging before fees and tax, 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, adjusted NAV return, gross performance return and total shareholder return in this monthly update are to such non-GAAP measures. The calculations applied to non-GAAP measures are described in the Marlin Non-GAAP Financial Information Policy. A copy of the policy is available at http://marlin.co.nz/about-marlin/marlin-policies/

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About Marlin Global

Management

Board

Marlin is an investment company listed on the New Zealand Stock Exchange. The company gives shareholders an opportunity to invest in a diversified portfolio of between 25 and 35 quality growing international companies (excluding New Zealand and Australia) through a single, professionally managed investment. The aim of Marlin is to offer investors competitive returns through capital growth and dividends.

Marlin’s portfolio is managed by Fisher Funds Management Limited. Ashley Gardyne (Senior Portfolio Manager), Chris Waters and Harry Smith (Senior Investment Analysts) have prime responsibility for managing the Marlin portfolio. Together they have significant combined experience and are very capable of researching and investing in the quality global companies that Marlin targets. Fisher Funds is based in Takapuna, Auckland.

The Manager has authority delegated to it from the Board to invest according to the Management Agreement and other written policies. The Board of Marlin comprises independent directors Alistair Ryan (Chair), Carol Campbell, and Andy Coupe; and non-independent director Carmel Fisher.

Capital Management Strategies

Regular Dividends

• » Quarterly distribution policy introduced in August 2010

• » Under this policy, 2% of average NAV is targeted to be paid to shareholders quarterly

• » Dividends paid by Marlin may include dividends received, interest income, investment gains and/or return of capital

• » Shareholders who prefer to have increased capital rather than a regular income stream have the opportunity to participate in the company’s dividend reinvestment plan (DRP)

• » Shares issued to DRP participants are at a 3% discount to market price

• » Marlin became a portfolio investment entity on 1 October 2007. As a result, dividends paid to New Zealand tax resident shareholders have not been subject to further tax

Share Buyback Programme

• » Marlin has a buyback programme in place allowing it (if it elects to do so) to acquire up to 7.3m of its shares on market in the year to 31 October 2020

• » Shares bought back by the company are held as treasury stock

• » Shares held as treasury stock are available to be re-issued for the dividend reinvestment plan

Warrants

• » Warrants put Marlin in a better position to grow further, operate efficiently and pursue other capital structure initiatives as appropriate

• » A warrant is the right, not the obligation, to purchase an ordinary share in Marlin at a fixed price on a fixed date

• » New warrants (MLNWD) have been issued by Marlin in early November 2019

Disclaimer: The information in this update 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 update 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 update 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

Computershare Investor Services Limited Private Bag 92119, Auckland 1142 Phone: +64 9 488 8777 | Fax: +64 9 488 8787 Email: enquiry@computershare.co.nz | www.computershare.com/nz

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