MLN – June 2018 Quarter Update Newsletter

1
Notable Returns for the Quarter
in local currency
»»International»markets»gained»ground»during»the»quarter,»
however»escalating»trade»tensions»between»the»US»and»
China»caused»slight»sell»offs»late»in»June.»
»»The»Marlin»portfolio»lifted»7.3%»on»a»gross»performance»
basis»for»the»three»months»to»30»June»2018.
»»We»spent»some»time»abroad»recently,»meeting»with»a»
number»of»Marlin’s»core»holdings»and»gaining»first»hand»
insights»from»management.
Stock markets in the US, UK and Europe gained ground in the
second quarter, pushing past concerns of rising inflation and
interest rates that cause market volatility in the first quarter. While
most markets gained ground, they closed below their highest
levels as fears of an escalation in the US trade conflict with China
resurfaced in the second half of June. Increased tensions between
the US and China coincided with a profit warning from car
manufacturer Daimler, citing the expectation of higher tariffs on
the Mercedes-Benz SUVs it exports from the US to China. Harley-
Davidson also announced plans to shift more production overseas
to avoid European Union tariffs on its iconic motorcycles. While the
Marlin portfolio has limited exposure to areas that would be the
most vulnerable in a trade war, such as autos and industrial capital
goods, the impact on the Harley-Davidson and Daimler share prices
highlight the disruption a full-blown trade war could cause.
TJX
COMPANIES
+17
%
CORE
LABORATORIES
+17
%
DESCARTES
SYSTEMS
+16
%
LKQ
CORPORATION
-16
%
PANDORA
-31
%
through these digital platforms. We believe Facebook’s huge reach
combined with the ability to offer highly targeted advertising will
ensure Facebook captures a significant share of advertising budgets
as they move to digital formats. The heightened investor scrutiny of
Facebook following the Cambridge Analytica data breach created
an opportunity to buy Facebook at an attractive valuation. While we
don’t take the regulatory risks facing Facebook lightly, we believe
management will do what is necessary to restore user trust.
The addition of Facebook was funded through our exit of Amazon.
The decision to exit Amazon was a difficult one as we admire
Amazon, its founder Jeff Bezos, and the wide moats the company is
building around its retail and cloud businesses. However, the share
price has more than doubled since we invested nearly two years
ago and we believe the market is getting ahead of itself. Specifically,
investors may be overly optimistic about the margin levels Amazon
can ultimately achieve in its retail business, particularly given future
retail growth will become increasingly dependent on loss-making
international markets and on less profitable categories (like grocery).
Amazon appears priced to perfection, with little room for hiccups.
Research trip to the United States
Our Senior Investment Analysts Harry and Chris recently returned
from two weeks in the US, to meet with management of around 40
companies, including five of Marlin’s existing portfolio companies
and a number of companies on our watchlist.
We came away from the meetings feeling positive about the
prospects of Marlin’s portfolio companies. These meetings
combined with the conferences we attended also gave us a better
sense of what is happening on the ground in various segments
of the US economy. The sentiment of the companies we met was
generally upbeat and companies continue to invest heavily in IT
and digital strategies which is positive for portfolio companies such
as Cognizant, Descartes and Alphabet. Retailers are more upbeat
than a year ago, with low unemployment, tax cuts and increasing
wages for many Americans pushing consumer confidence to near
record highs. Portfolio company TJX, the off-price retailer, is seeing
this in its stores. The stores we visited were very busy and recent
financial results show that TJ Maxx customers are spending more
during each trip. The company continues to attract more traffic to
existing stores and is successfully rolling out new stores (including
for the new HomeSense concept).
Quarter Update Newsletter
31 March 2018 – 30 June 2018
MLN NAV
$
1.02
WARRANT PRICE
$
0.06
DISCOUNT
1
14.1
%
as at 30 June 2018
Companies in trade firing line underperforming market in 2018
Portfolio changes
We made two stock changes to the portfolio during the quarter,
adding Facebook and exiting Amazon.
We added Facebook to the portfolio in April. Facebook owns four
of the most dominant social networking and messaging platforms
in the world (Facebook, Instagram, Messenger and WhatsApp) and
has an unparalleled ability to deliver an audience of over 2 billion
users to advertisers. The average US user spends over an hour a
day on Facebook and Instagram combined, and in a world where
we are spending less time watching TV and more time on mobile
devices, advertisers are having to target potential customers
115
110
100
95
90
85
80
75
70
Dec 17
S&P 500 Harley-Davidson Daimler
Jan 18Feb 18Mar 18Apr 18May 18
-17%
-22%
SHARE PRICE
$
0.86
1
Share price discount/(premium) to NAV (including warrant price on a pro-rated basis)

Performance
as at 30 June 2018
3 Months
3 Years
(annualised)
5 Years
(annualised)
Corporate Performance
Total Shareholder Return+6.6%+9.7%+14.2%
Adjusted NAV Return+6.3%+10.3%+11.7%
Manager Performance
Gross Performance Return+7.3%+14.2%+15.7%
Benchmark Index
1
+5.5%+10.3%+14.7%
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, 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 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, adjusted NAV return, 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 Non-GAAP Financial Information
Policy. A copy of the policy is available at http://marlin.co.nz/about-marlin/marlin-policies/
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, New Zealand
Phone: +64 9 484 0365 | Fax: +64 9 489 7139
Email: enquire@marlin.co.nz | www.marlin.co.nz
2
Headquarters»Company%»Holding»
CanadaDescartes Systems 3.2%
ChinaAlibaba Group4.8%
DenmarkPandora2.4%
FranceEssilor International4.7%
GermanyAdidas3.0%
»Fresenius Medical Care4.6%
Ireland»Icon3.5%
United»StatesAbbott Laboratories3.6%
»Alphabet6.9%
»Cerner Corporation4.2%
»Cognizant Technology Solutions 4.2%
»Core Laboratories2.0%
»eBay 3.4%
»Ecolab3.0%
»Edwards Lifesciences 2.5%
»Expedia4.4%
Facebook4.3%
Hexcel Corporation 3.6%
LKQ3.8%
Mastercard4.6%
PayPal 5.8%
Signature Bank3.5%
TJX Companies5.4%
United Parcel Service2.9%
Zoetis 3.7%
»Equity»Total98.0%
New Zealand dollar cash1.2%
Total foreign cash2.3%
»Cash»Total3.5%
Forward foreign exchange
contracts
-1.5%
»TOTAL100.0%
Portfolio Holdings Summary
as at 30 June 2018
Company News
Dividend paid 29 June 2018
A dividend of 1.96 cents per share was paid to Marlin
shareholders on 29 June 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.
During our trip we also sat down with Doug Baker, CEO of hygiene
solutions company Ecolab, to discuss the growth opportunities
ahead and the actions the company is taking to stay ahead of its
competitors. Doug is a particularly impressive CEO, he has been
with the company for almost 30 years and in our opinion, it is hard
to find a better operator. Doug is a significant shareholder himself
and during his time as CEO has delivered 12% annual growth in
earnings per share, an increasing dividend and significant value
for shareholders. The company partners with global restaurant
chains, hospitals and manufacturers, providing them with cleaning
systems at a low price, but then earning healthy margins on the
highly recurring revenue generated from selling the detergent and
chemicals needed to operate the machines. Despite its products
often appearing more expensive than competitors, the company’s
innovative systems often clean with less water, energy and human
labour – making the overall process cheaper for customers. This
innovation combined with a large direct sales force has allowed
the company to continually take share from smaller competitors.
We also met with the CEO of LKQ»Corp, Dominick Zarcone,
to discuss the company’s growth aspirations in Europe. LKQ is
Ashley»Gardyne»
Senior Portfolio Manager
Fisher Funds Management Ltd
18 July 2018
the largest provider of recycled and aftermarket car parts for
collision repairs in the US and mechanical repairs in Europe.
LKQ had significant success in the US over the last 15 years
consolidating the market for collision repair parts, and is now
looking to replicate this success in Europe (albeit largely in
parts used for mechanical repairs). Both markets are highly
fragmented, with LKQ’s scale providing procurement and
distribution advantages, and significantly higher fulfilment
rates, which attracts customers and drives further market share
gains. We expect the company to continue to grow organically
and through acquisitions, while also investing in productivity
solutions (like their new automated distribution facility in the UK)
which should increase profit margins.
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newsletters electronically please email
us at enquire@marlin.co.nz