Marlin Global : MLN – February 2018 monthly update

A word from the Manager

Welcome to our first monthly update for 2018

The summer break saw global markets continue to shine. The US market had its best start to the year since 1987 with the S&P 500 up 5.6%; the MSCI World Index was up 3.7%; and emerging markets were the standout, up 6.7%.

Similarly, the Marlin portfolio had a good start to 2018, returning 6.2% (gross) during January, compared with its global benchmark1 which was up 2.0%.

While there wasn't a great deal of surprising economic news, investor confidence continued to pick-up during January as market participants focused on the strong global economic environment and potential benefits for consumers and corporates from Donald Trump's tax cuts. Wide spread conviction that supportive economic conditions can continue in the medium term has caused a number of otherwise bearish investors and commentators to predict that this bull market is entering a 'melt-up' stage - which could last for 6-18 months before we see a correction.

While so much consensus around this optimistic outlook should be enough to make any prudent investor concerned, it is hard to deny that underlying economic and corporate fundamentals are strong. As I write, a US data service reported that US private companies hired 234,000 more staff in January alone, holding the US employment rate at just 4.1%. During the month it was also reported that economic growth in the European Union reached 2.5% in 2017, the fastest pace since 2007 and materially faster than 2016.

Portfolio Company Developments

The most significant news for the portfolio in January was the takeover offer for US based digital gift card distributor Blackhawk Networks, which has been a portfolio holding since 2014. US private equity firm Silver Lake announced a takeover offer at $45.25 per share on 12 January, a 27% jump from where Blackhawk traded at 31 December. Blackhawk is a business in which we see considerable long term growth prospects, and while we are sad to see Blackhawk leave the portfolio, we believe the premium paid is fair and can understand why management would want to grow the business out of the public spotlight.

LKQ is the leader in the highly fragmented aftermarket auto-part industry, with significant scale advantages to its next closest competitors in both the US and Europe. The company has grown quickly since its 1998 inception, both organically and via a successful acquisition strategy. In December, LKQ announced the acquisition of German competitor Stahlgruber. Stahlgruber provides LKQ with a solid foothold in the large German automotive market, adds significant scale to their European operations, and has the potential to deliver material synergies. We believe this is a logical acquisition for LKQ and we continue to be impressed by managements' disciplined execution of its growth strategy.

Recent Results

Reporting season is now in full swing in the US, and so far it has been a good one for the market and our portfolio.

Abbott Laboratories, a diversified healthcare company, reported fourth quarter results that continued its recent run of outperforming expectations. The company saw strong and accelerating growth across all business segments, driving 7% sales growth in the quarter (near the top-end of larger medical device peers). Of note was the continued acceleration in the recently acquired St Jude business, which has seen sales growth increase from 2% to 10% in the twelve months since the acquisition. This has addressed the concerns of some critics who thought that Abbott had acquired a low growth company. One of the reasons we invested in Abbott was due to managements' long track record of successful capital allocation and acquisitions, and so far the St Jude acquisition appears to be another success. Management expects this strong growth to continue into 2018 driven by product launches in all business segments, highlighting the breadth and depth of Abbott's product portfolio and innovation.

Hexcel, a manufacturer of carbon fibre composites for the aerospace sector, reported fourth quarter results that showed an acceleration across most business lines. Commercial aerospace reached an inflection point as Hexcel ramps up production on new narrow-body planes for Airbus and Boeing, offsetting recent production declines in more legacy

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

wide-body programs. For 2018 management expects further acceleration in commercial aerospace growth, and a recovery in both the business jet and wind turbine segments after weaker performance in 2017. Longer term, Hexcel continues to invest in new technologies to keep driving further penetration of advanced composite materials in existing applications like aerospace and wind turbines but also newer areas such as automotive.

Portfolio Changes

Meet our charming new investment, Pandora!

While known mainly for its signature charm bracelets, Danish company Pandora has transformed itself into one of the leading jewellery brands globally, both in terms of brand recognition and sales. New categories such as rings and earrings now make up around 25% of Pandora's sales and Pandora hopes to increase this to 50% in the next 5 years as the company looks to capture a greater share of the attractive affordable luxury jewellery segment.

Pandora operates a fully integrated business model from production, wholesale and distribution through to retail. Its two manufacturing facilities in Thailand employ over 11,000 people and produced 120m pieces of jewellery in 2017 - a scale unmatched by competitors. This allows Pandora to provide hard to match quality jewellery at low cost, while still maintaining industry leading margins. This vertical integration also provides Pandora with the ability to bring products to market quickly. With a modern consumer that craves newness, this should allow for greater innovation and ability to get the right products in front of customers.

Growth for Pandora is underpinned by continued store expansion, its online strategy, and an increasing preference by consumers for branded jewellery - where Pandora is a market leader.

Ashley Gardyne

Senior Portfolio Manager, Marlin

Key Details

as at 31 January 2018

FUND TYPE

INVESTS IN

LISTING DATE

FINANCIAL YEAR END

Listed Investment Company Growing international companies 1 November 2007

30 June

TYPICAL PORTFOLIO SIZE 25-35 stocksINVESTMENT CRITERIA

PERFORMANCE OBJECTIVE

Long-term growth of capital and dividends

Long-term growth

TAX STATUS

Portfolio Investment Entity (PIE)

MANAGERMANAGEMENT FEE RATE

1.25% of gross asset value (reduced by 0.10% for every 1% of underperformance relative to the change in the NZ 90 Day Bank Bill Index with a floor of 0.75%)

PERFORMANCE FEE HURDLEPERFORMANCE FEE

15% of returns in excess of benchmark and high water mark

HIGH WATER MARK

SHARES ON ISSUE

Fisher Funds Management Limited

Changes in the NZ 90 Day Bank Bill Index + 5%

$0.85 119m

MARKET CAPITALISATION $101mGEARING

None (maximum permitted 20% of gross asset value)

Sector Split

as at 31 January 2018

ENERGY

The Marlin portfolio also holds cash.

Geographical Split

as at 31 January 2018

ASIA

January 's Biggest Movers in local currency terms

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

BLACKHAWK NETWORKAMAZON

ALIBABA

PAYPAL

SARINE

+27%

+24%

+18%

+16%

+14%

5 Largest Portfolio Positions as at 31 January 2018

ALPHABET

PAYPAL

MASTERCARD

ESSILOR

EXPEDIA

7%

6%

5%

5%

4%

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

Total Shareholder Return to 31 January 2018

Share PriceTotal Shareholder Return

SharePrice/TotalShareholderReturn

Nov 2007

Nov 2008

Nov 2009

Nov 2010

Nov 2011

Nov 2013

Nov 2014

Performance to 31 January 2018

1 Month

3 Months

1 Year

Since Inception

(annualised)

Corporate Performance Total Shareholder Return Adjusted NAV Return Manager Performance Gross Performance Return Benchmark Index^

+0.0% +5.2%

+6.1% +4.4%

+16.3% +31.2%

+10.3% +10.8%

+5.7% +6.6%

+6.5%

+6.1%

+38.2%

+15.5%

+10.5%

+2.0%

+3.4%

+24.4%

+15.2%

+8.0%

3

^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, 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 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 athttp://marlin.co.nz/about-marlin/marlin-policies/

About

Marlin GlobalManagementBoard

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.

Capital Management Strategies

• » 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

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.

• » Marlin has a buyback programme in place allowing it (if it elects to do so) to acquire up to 5.9m of its shares on market in the year to 31 October 2018

• » 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 put Marlin in a better position to grow further, improve liquidity, 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

• » There are currently no warrants on issue

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.

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