Marlin Global Interim Report 31 December 2017

32 Pages·2017·0.61 MB·English

by  Marlin Global Limited

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CONTENTS CALENDAR
04 Directors’ Overview Next Dividend Payable
08 Manager’s Report
29 March 2018
15 Portfolio Holdings
16 Financial Statement Contents
17 Statement of Comprehensive Financial Year End
Income
30 June 2018
18 Statement of Changes in Equity
19 Statement of Financial Position
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7 l 20 Statement of Cash Flows This report is dated 16 March 2018
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R 2 21 Notes to the Interim and is signed on behalf of the Board
BE Financial Statements of Marlin Global Limited by Alistair
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E Ryan, Chair, and Carmel Fisher,
EC 29 Independent Review Report Director.
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T 31 Directory
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RI Alistair Ryan / Chair
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OB Carmel Fisher / Director
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6 months ended 30 September 2017
6 MONTHS ENDED 31 DECEMBER 2017
NET PROFIT TOTAL SHAREHOLDER
RETURN
$10.8m +12.2%
+12.7%
GROSS
$ $ $ PERFORMANCE
RETURN
BEST
PERFORMING
+37%
INVESTMENT
DIVIDENDS PAID
29 SEPTEMBER 2017 22 DECEMBER 2017
3
1.83 1.87 7 l
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cents per cents per 2
share share ER
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AS AT 31 DECEMBER 2017 E
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SHARE SHARE PRICE TE
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DISCOUNT TO NAV D I
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P R I C E T
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PER SHARE 10.5% LI
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$0.95 $0.85 O
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(including warrant price on a LIN
pro-rated basis) R
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DIRECTORS’
OVERVIEW
Alistair Ryan / Chair
Marlin shareholders have enjoyed a very strong result for the first half of
the 2018 financial year, with the company reporting a net profit after tax of
$10.8m for the six months ended 31 December 2017, three times ahead of
the previous corresponding period.
This is an excellent result for that shareholders can make their own
shareholders. While market conditions asset/investment allocation decisions
have been favourable to international depending on how they perceive the
equities over 2017, the Marlin portfolio has economic outlook.
performed very well, returning a gross
Since 30 June 2017, Marlin’s net asset
4 performance of 12.2% for the six months
value has increased from $0.89 to $0.95
7 l ended 31 December 2017. (as at 31 December 2017). Throughout
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2 The 12 month result for Marlin was the six months to 31 December 2017,
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BE equally positive, with a gross performance we have seen Marlin’s share price move
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E return of 30.1% for the 12 months to upwards from $0.79 to $0.85 which,
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E 31 December 2017 compared to the together with the dividends, has driven
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31 benchmark which was up 21.5%¹. These an attractive total shareholder return of
RT strong returns have driven a healthy 12.7% for the interim period. While the
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P profit of $22.9m, which is a substantial share price has moved positively, the
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RI the previous corresponding period (12 has persisted.
E months ended 31 December 2016).
NT The Board has a number of initiatives
D I As at 31 December 2017, the Marlin designed to help reduce this discount
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MIT portfolio was valued at $104.4m plus cash and enhance shareholder value, including
LI on hand of $8.4m. Marlin’s investment the Marlin buyback programme. Over the
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BA philosophy is to be relatively fully six months to 31 December 2017, Marlin
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asset value discount and purchased Management Agreement and considered
approximately 2.7m shares under the both investment performance and the
buyback programme. provision of administrative and corporate
services.
Marlin’s warrant programme has been
on hold, given the size of the share price In November 2017, we were pleased
discount over recent months. The board to welcome a number of shareholders
believes warrants are viewed favourably to the Marlin Annual Shareholders
by shareholders, and monitors a range Meeting. At this meeting we discussed
of factors including the discount, to Marlin’s portfolio performance, capital
determine the potential timing for a further management initiatives and responded
warrant issue. to shareholders’ questions. Shareholders
also chose to re-elect Andy Coupe as an
Under the Marlin Distribution Policy, the
independent director of Marlin.
company continues to distribute 2.0% of
average net asset value per quarter. Over 2017 has seen Ashley Gardyne complete
the six month period to 31 December his first year as Marlin’s Senior Portfolio
2017, Marlin paid 3.70 cents per share Manager after a number of years as
in dividends (1.83 cents per share on Marlin’s Senior Investment Analyst.
29 September and 1.87 cents per share Shareholders can be pleased with the
on 22 December). The next dividend rigorous efforts of the Marlin investment
will be 1.93 cents per share to be paid team over recent years in positioning and
on 29 March 2018 with a record date of managing the portfolio. Ashley outlines
15 March 2018. Marlin offers a dividend examples of recent efforts and further
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rsehianrveehsotmldeenrst pwlaitnh wthhei cohp tpioronv tiod erse invest all dMeatnaailsg eorf’ sth Ree Mpoarrlti no np opratfgoeli o8 .in the 017 l
or part of any cash dividends in fully paid We would like to take this opportunity R 2
ordinary shares. Currently, shares issued BE
to thank you as shareholders for your M
under the reinvestment plan will be issued E
continued support of Marlin. C
at a 3% discount2. E
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On behalf of the Board, 31
During the interim period, Marlin also T
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renewed its Management Agreement with O
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Fisher Funds for a further five year term to E
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31 October 2022. This decision was made M
on 21 August 2017 after a comprehensive Alistair Ryan, Chair RI
Marlin Global Limited TE
review of the requirements of the N
16 March 2018 D I
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1 Benchmark Index: S&P Large Mid Cap/S&P Small Cap Index (50% hedged to NZD) L
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2 To participate in the dividend reinvestment plan, a completed participation notice must be received by Marlin N
before the next record date. Full details of the dividend reinvestment plan can be found in the Marlin Dividend LI
Reinvestment Plan Offer Document, a copy of which is available at www.marlin.co.nz/investor-centre/capital- AR
management-strategies/. M
FIGURE 1: FIVE YEAR PERFORMANCE SUMMARY
Corporate Performance
Six month period ended 2017 2016 2015 2014 2013
31 December
Total Shareholder Return 12.7% 5.7% 2.0% 4.6% 19.7%
Adjusted NAV Return 10.3% 3.8% 0.2% 2.5% 13.1%
Dividend Return 4.7% 4.4% 4.4% 4.4% 5.0%
Net Profit After Tax / (Loss) $10.8m $3.6m $0.3m $2.5m $12.2m
Basic Earnings per Share 9.16 cps 3.11 cps 0.23 cps 2.32 cps 11.47 cps
As at 31 December 2017 2016 2015 2014 2013
NAV $0.95 $0.83 $0.93 $0.90 $0.96
Adjusted NAV $1.79 $1.44 $1.49 $1.32 $1.30
Share Price $0.85 $0.80 $0.84 $0.83 $0.81
Share Price Discount to NAV¹ 10.5% 3.6% 8.9% 7.8% 15.6%
Manager Performance
6 Six month period ended 2017 2016 2015 2014 2013
7 l 31 December
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R 2 Gross Performance Return 12.2% 5.3% 2.0% 4.4% 15.9%
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M Benchmark Index² 13.0% 10.9% (2.9%) 7.7% 12.9%
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R 2 Benchmark index: World Small Cap Gross Index until 30 September 2015 & S&P Large Mid Cap/S&P Small Cap
O Index (50% hedged to NZD) from 1 October 2015.
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Comparative information
Marlin’s share price discount to NAV historical information has been restated following a change in calculation
methodology from using data inputs of four decimal places to two decimal places.
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 Interim Report
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/
FIGURE 2: TOTAL SHAREHOLDER RETURN
Share Price Total Shareholder Return
$1.80
urn $1.60
et
er R $1.40
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otal Sharehol $$$110...028000 ER 2017 l
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e/ $0.60 M
Pric CE
Share $$00..4200 T 31 DE
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$0.00 O
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Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec E
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 R
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MANAGER’S
REPORT
Ashley Gardyne / Senior Portfolio Manager
2017 was both an extraordinary year in financial markets and a lucrative
one for investors. Lucrative because major global share markets were up
significantly, with the US market up 19.4%, emerging markets up 27.8%,
Japan up 19.1%, New Zealand up 17.3%, and Europe the only laggard –
but still up 7.7%1. The market environment was extraordinary for several
reasons, with the bull market becoming one of the longest on record and
volatility sitting at unusually low levels.
Focusing on the US market alone, the To put this in context there have been over
S&P 500 Index was up over 300% from 1,100 All Blacks in New Zealand sporting
8 its GFC bottom in March 2009 and has history, with only 57 players playing 50 or
7 l delivered positive returns every year since more tests and only seven players with 100
201 then. The bull market is entering its 9th test caps. While this bull market is not yet in
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E year and has become the third longest the 100-cap club in terms of rarity, it would
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31 US Bull Markets since 1871
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EP 600 2000
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ED INTERIM wth of $100 345000000 20191279 19169187
AL LIMIT Gro 200 19341199039179731906 121809804176 19021968
B 100 1872
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RLI 16111621263136414651566166717681869196101106111116121126131136141146151156161166
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Not only have we witnessed a long bull market, but volatility has also been low. The
S&P500 was up every month in 2017 and the largest decline in the index during the year
(from peak to trough) was 3%. A commonly used measure of market volatility, the VIX,
showed that the S&P 500 had its lowest level of volatility since records began (although
this dynamic has changed since the end of the year).
Average Daily VIX by Year
160
140
120
100
80
60
40
20
-
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
While this strong market performance can I will save commentary on outlook until 9
be rationalised in hindsight, the size of later in this report, but the environment we 7 l
the advance wasn’t anticipated by many have witnessed has translated into a good 201
investors this time last year, given concern year for Marlin and its investors. For the ER
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around elevated valuations and a strained full calendar year Marlin delivered gross M
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geopolitical backdrop. Drivers of market performance of 30.1% for the year ending C
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optimism in 2017 included a host of solid 31 December 2017 compared to our 31 D
economic data, such as steady economic market benchmark2 which was up 21.5%. T
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growth in the US, a pickup in Europe, For the six month period under review and O
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strong business confidence readings, discussed in this interim report, the Marlin E
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falling unemployment and increasing portfolio delivered gross performance M
wages. Late in the year, the passage of of 12.2%, slightly behind our market ERI
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new US tax legislation slashed corporate benchmark which was up 13.0%. N
tax rates and provided a cash windfall ED I
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to consumers which also supported the MI
market’s buoyancy. L LI
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1 Market returns represented by S&P 500 Index, MSCI Emerging Markets Index, Nikkei 225 Index, S&P/NZX50 Index LI
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2 S&P Large Mid Cap/S&P Small Cap Index (hedged 50% to NZD) M
MANAGER’S REPORT CONTINUED
Portfolio review portfolio of customer loans to Synchrony
While it is always interesting to discuss Financial, which not only frees up cash
and debate economic developments and to return to shareholders, but also allows
market dynamics, there will inevitably PayPal to grow its credit offering more
be good and bad periods. Our goal as rapidly without retaining the credit risk.
an active manager is to outperform the PayPal continues to grow its payment
market across the course of an economic volumes and revenue in excess of 20%
cycle, by investing in a portfolio of per annum and its earnings even more
competitively advantaged and growing rapidly given the inherent operating
businesses. On your behalf, we hold a leverage in payment networks.
concentrated portfolio of businesses
LKQ Corp was also a strong performer
(26 as at 31 December) and our
over the interim period, with its share
performance will ultimately be dictated
price up 23%. LKQ is a relatively straight
by the success of these businesses,
forward business, being the largest
our ability to accurately assess their
distributor of replacement parts and
prospects, and the discipline with which
components needed to repair cars and
we make buy and sell decisions. With that
trucks in the US and Europe. Despite
in mind, it is worth discussing how some
LKQ’s scale, the market is highly
of the portfolio holdings have impacted
fragmented and LKQ has a history of
our performance, as well as the recent
taking market share – both organically
changes we have made to the portfolio.
and via acquisition. Over the past six
Significant contributors to months LKQ has witnessed a slight
10 performance pickup in organic growth. Looking
7 l PayPal is the second largest holding in forward to late 2018 and 2019, we expect
01 the Marlin portfolio and was the largest improving margins as the company ramps
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T 31 positioned to benefit from rapid growth large German competitor, Stahlgruber,
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ERI many customers prefer the convenience its growth strategy.
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N of using the PayPal wallet instead of
D I entering credit card and address details Abbott Laboratories, the diversified
TE healthcare company, had a good run,
MI every time they purchase something. gaining 19% on a series of solid earnings
AL LI Likewise, the security PayPal offers results and improved investor confidence
B compared with entering credit card details
O as the market began to more accurately
L into a merchant’s website continues to
G assess Abbott’s longer-term growth
N see PayPal take market share. PayPal has
LI prospects. When we first invested in
R also recently announced a deal to sell its
MA Abbott in early 2017, the company traded