Marlin Global : MLN - March 2018 Quarter Update Newsletter

The Marlin portfolio gained 5.2% in the three months to 31 March 2018, 7% ahead of the benchmark index1 which was down 1.8% over the period. It was a volatile quarter for equity markets, and these headline results mask the market stresses seen during the quarter.

We have talked previously about 2017 being a highly unusual year for equity markets, with the US S&P 500 Index advancing in every single month and the variability of returns at record lows (as measured by the VIX index). We saw an abrupt reversal of this theme in the first few weeks of February, when most global markets fell dramatically and the S&P 500 Index declined by 10% at one point during the month. After a brief recovery volatility picked up again in March, with President Trump's tariff proposals sparking concerns of a potential trade war. The first quarter was a good reminder that low volatility does not persist forever and is continually punctuated with periods of stress.

1 S&P Large Mid Cap/S&P Small Cap Index (hedged 50% to NZD)

Notable Returns for the Quarter in local currency

The performance of the Marlin portfolio in the quarter was helped by a relatively strong earnings season for our portfolio companies, including William Demant and Edwards Lifesciences.

Hearing aid manufacturer William Demant was a standout performer this quarter, returning 35%. The strong performance of the company's share price was underpinned by stronger than expected organic growth. Organic growth came in the form of hearing aid sales over the quarter which grew 10% on the back of market share gains from its new Oticon Opn range of hearing aids.

Artificial heart valve manufacturer Edwards Lifesciences was up 24% this quarter. Not only did growth in its core trans-catheter heart valves bounce back following reduced guidance last quarter, but all segments saw acceleration in growth and 2018 guidance was increased.

The biggest detractor this quarter was the online travel agent Expedia, down 8% for the quarter following fourth-quarter results that were weaker than expected and growth guidance for 2018 that disappointed the market. While room nights and revenue continued to grow strongly, earnings were depressed by investments that Expedia's new CEO is making in sales staff and IT related capex. While we certainly don't want to gloss over Expedia's poor recent performance, we believe these are important long-term investments that should position the business better for future growth. We met Expedia's new CEO in San Francisco in February to discuss these investments and we continue to monitor progress closely.

Other noteworthy news this quarter included eyewear manufacturer Essilor receiving unconditional approval from US and European regulatory authorities for its proposed merger with Luxottica to create the world's largest eyewear company. Subject to approval from Chinese authorities, we expect the merger to close later this year and believe there are significant synergies to be extracted from the combined business.

We have made a number of changes to the portfolio this quarter, exiting three positions and adding two. We exited the US based digital gift card distributor Blackhawk Networks, following a takeover by US private equity firm Silver Lake at a 27% premium to where Blackhawk traded at 31 December. While we are sad to see Blackhawk leave the portfolio, we believe the premium paid is fair.

We exited William Demant following its strong performance, with the company up 55% since we initiated the position in March last year. William Demant is now trading at an elevated valuation and we believe the market is overly optimistic about the momentum of the company's recent product launches and future market share gains. We also exited Sarine, a supplier of equipment and software to diamond manufacturers, due to concerns regarding its longer term growth and the exposure to a volatile sector.

Our two additions this quarter were both in the retail space. With the market focusing on the death of traditional retail due to disruption from ecommerce, we saw an opportunity to invest in two high quality retailers, Pandora and TJX Companies, both of which contributed positively to returns during the quarter.

Danish company Pandora, renowned for its signature charm bracelets, has transformed itself into one of the leading jewellery brands globally, both in terms of brand recognition and sales. Growth for Pandora is underpinned by continued store expansion, new product lines, its online strategy, and an increasing preference by consumers for branded jewellery - where Pandora is a market leader.

TJX Companies is an off-price retailer with presence in the US, Canada, Europe and Australia. TJX's business revolves around the company selling branded clothing, such as Nike and Ralph Lauren, as well as some homeware at a 20% - 60% discount to a full-price retailer. TJX can sell inventory cheaper than other retailers as it sources stock from store closures, order cancellations and manufacturer overruns. In store, a wide assortment of inventory turns over quickly, creating a 'treasure hunt' experience, encouraging customers to visit stores regularly as new and different brands arrive almost daily. TJX has a good growth runway for new stores openings and growing sales at existing stores.

Performance

as at 31 March 2018

Corporate Performance

Total Shareholder Return

Adjusted NAV Return

Manager Performance

Gross Performance Return

Benchmark Index1

3 Months

3 Years

(annualised)

5 Years

(annualised)

+1.2%

+9.9%

+13.3%

+5.1%

+10.3%

+11.5%

+5.2%

+14.3%

+15.5%

(1.8%)

+12.5%

+15.3%

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 including 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 athttp://marlin.co.nz/about-marlin/marlin-policies/

Company News

Dividend paid 29 March 2018

A dividend of 1.93 cents per share was paid to Marlin shareholders on 29 March 2018, 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.

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

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