Announcement PDF Investor Briefing July 2015 Disclaimer Contango MicroCap Limited, its related entities and each of their respective directors, officers and agents (together “the Disclosers”) have prepared the information contained in these materials in good faith. The information provided, including any expression of opinion, has been obtained from or is based upon sources believed to be reliable, but has not in any way been independently verified. No warranty (express or implied) is made as to the accuracy, completeness or reliability of any statements, estimates, or opinions or other information contained in these materials (any of which may change without notice) and to the maximum extent permitted by law, the Disclosers disclaim all liability and responsibility (including, without limitation, and liability arising from fault or negligence on the part of any or all of the Disclosers), for any direct or indirect loss or damage which may be suffered by any recipient through relying on anything contained in or omitted from these materials. Forecasts in this presentation are predictive in character, based on numerous assumptions including the forecasted outlook for key variables and may be affected by various factors including inaccurate assumptions, risk and unforeseen events. Accordingly, actual results may differ materially from those forecasted. Performance information where provided is historical. Performance returns may vary. Past performance is not indicative of future performance. Any reader is strongly advised to make their own enquiries and seek independent professional advice regarding information contained in these materials. These materials have been prepared solely for the purpose of information and do not constitute, nor are they intended to constitute advice nor an offer or invitation to any person to subscribe for, buy or sell any shares or any other securities. Agenda Introduction Portfolio Business outlook David Stevens Bill Laister George Boubouras Contango is delighted to welcome George Boubouras as Chief Investment Officer • George is an experienced and highly educated investment professional − Bachelor of Economics (Honours) − Held senior leadership positions at world class organisations including as CIO − Studied at Harvard, MIT, UNSW and hold the SDIA PS 146 Accreditation • With broad experience across asset classes and client bases − Global & domestic equities, REITs, fixed income, derivatives, infrastructure & alternatives − Corporate superannuation, not-for-profit , endowment mandates, select sovereign wealth funds, family office and insurance mandates • Worked at leading organisations − Equity Trustees Ltd - Chief Investment Officer − UBS WM - Chief Investment Officer − HSBC AM - Head of Asset Allocation, Fixed Income and Research 4 Contango is up-skilling the investment team • Stephen Scott is an experienced and highly regarded investment analyst − 20 years experience, held senior analytical roles including head of research and portfolio manager − Ord Minnett, LINWAR Securities and Deutsche Asset Management • Justin Puli is an experienced investment analyst who brings additional capabilities to the team − 12 years experience including fixed interest, held senior equity analyst positions − Noah’s Rule, Challenger, Glebe Asset Management, HSBC Asset Management 5 Well resourced investment team with an average of over 20 years industry experience Years experience Role Team member Chief Investment Officer George Boubouras 25 Investment Services Director Carol Austin 35 Senior Investment Manager Alistair Drummond 30 Senior Portfolio Manager Shawn Burns 29 Senior Portfolio Manager Bill Laister 35 Senior Portfolio Manager Justin Farley 21 Senior Investment Analyst Stephen Scott 20 Senior Investment Analyst Justin Puli 13 Senior Investment Analyst Paul Davoren 20 Investment Analyst Craig Allen 13 Economist Eamon Zelencich 7 Dealer/Analyst Ross Edwards 19 6 6 Contango Investment Team Responsibilities GEORGE BOUBOURAS B.Ec (Hons) (25/0) • Chief Investment Officer • Chairman Economics Committee • Chairman Strategy Committee • Chairman Portfolio Construction Committees CAROL AUSTIN B.Ec (Hons), B.Sc (35/16) • Domestic/Global Economics • Institutional Mandates BILL LAISTER B.Ec (35/16) • Portfolio Manager Microcaps • Deputy Portfolio Manager Small Caps • Metals & Mining (inc Steel & Gold) • Coal & Uranium ALISTAIR DRUMMOND B.Ec, BLLB (30/0) • CIO & PM support • Deputy Chair • LIC relationships/Family Office • Broker relationships (years industry experience / years at Contango) 7 SHAWN BURNS B.Ec, CFA, CPA, F Fin (31/3) • Portfolio Manager Large Caps • Insurance • Transportation/Infrastructure • Chemicals • Healthcare JUSTIN FARLEY B.Com (Hons), CFA (21/2) • Portfolio Manager Small Caps • Deputy Portfolio Manager Microcaps • Media • Pharmaceuticals & Biotech • Containers & Packaging • Paper/Forestry STEPHEN SCOTT B.Ec, F Fin (20/0) • Food Retailing • Discretionary Retailing • Consumer Durables & Apparel • Food Beverage &Tobacco • Diversified Financials (asset managers) • IT • Commercial & Professional Services • Consumer Services JUSTIN PULI B.Com (Hons), CFA (13/0) • Real Estate/Property Trusts • Derivatives PAUL DAVOREN B.Sc (Hons), F Fin (20/11) • Telecommunication Services • Energy (exc Coal, Uranium) • Capital Goods CRAIG ALLEN B.Com, B.Sc (13/9) • Construction Materials • Utilities • Banks • Diversified Financials EAMON ZELENCICH B.Ec (Hons) (7/4) • Economic research & analysis • Data analysis ROSS EDWARDS (19/15) • Dealer/Analyst Review of MicroCap Portfolio Economic outlook: Low interest rates to support growth and equity markets • Global growth modest and uneven − Developed Markets solid but Emerging Markets soft • Underlying US growth solid, employment growth strong − Consistent with beginning of gradual FOMC rate rises late this year • Growth in Europe recovering but tail-risks re-emerge − ECB’s QE and Greece turmoil leading to weaker EUR • Growth in China is moderating as economy rebalances − Government stabilising transition with risk of policy error − Commodity prices to remain under pressure • Domestic economy not transitioning as quickly as RBA would like − More rate cuts and lower AUD 9 Strategy position: Portfolio risk positions consistent with economic outlook • Despite increased volatility equities still more attractive than bonds or cash − Low rates will support valuations and earnings − Lower AUD will support trade exposed and foreign earners • Overweight − Foreign earners − Defensives − Selected domestic cyclicals • Underweight − Commodities over supplied and demand to remain weak − Oil will stay low until the Saudi’s see foreign production cut − Iron ore supply continues to increase as we anticipated 10 MicroCap Performance 30/06/2015 Contango MicroCap Small Ordinaries Accum Index Added Value 6 Months 4.6% 3.0% 1.6% 1 Year 2.1% 0.4% 1.7% 5 Years pa 8.6% 2.5% 6.2% Inception (25/03/04) pa 15.5% 4.2% 11.3% 11 Valuations remain positive Contango MicroCap Small Ordinaries Accum Index Price to Earnings Ratio 11.5 12.8 Dividend Yield (net) 4.8 4.6 Dividend Yield (gross) 6.0 5.6 EPS Growth (%) 22.8 13.7 Return on Equity (%) 17.9 15.1 Beta 0.79 1.0 Tracking Error* 5.63 - June 2015 Source: Factset (next twelve months) * Ex ante. Bloomberg. 12 Last year … Contango MicroCap Small Ordinaries Accum Index Price to Earnings Ratio 11.9 13.7 Dividend Yield (net) 3.6 3.8 Dividend Yield (gross) 4.5 4.6 EPS Growth (%) 52.6 24.7 Return on Equity (%) 13.5 14.5 September 2014 Source: Factset (next twelve months) 13 Placements and IPOs - June Quarter Placements Code IPOs Code BT Investment Management BTT Garda Diversified Property Fund GDF Ensogo E88 QMS Media Limited QMS Justkapital Litigation Partners Limited JKL Shriro Holdings Limited SHM Lindsay Australia Limited LAU Vertical Search Co Limited (now Mitula Group Limited) MUA Sino Gas & Energy Holdings Limited SHE Sino Gas & Energy Holdings Limited SHE Slater & Gordon Limited SGH 14 Micro cap portfolio employing and actively managing risk June 2015 15 Top 20 Stocks (at 30/06/2015) Code 16 Stock Weight Code MYX Mayne Pharma Group Ltd 3.4% ENN Elanor Investors Group 2.5% VLW Villa World Limited 3.2% GBT GBST Holdings Limited 2.4% SGF SG Fleet Group Limited 3.2% SAR Saracen Mineral Holdings Ltd 2.3% IFM Infomedia Ltd 3.0% AFJ 2.2% SFR Sandfire Resources NL 2.9% TGP 360 Capital Group 2.1% ALU Altium Limited 2.8% VRL 2.0% ASB Austal Limited 2.7% GFY Godfreys Group Limited 2.0% AHG Automotive Holdings Group 2.7% GMF Gpt Metro Office Fund 2.0% SGH Slater & Gordon Limited 2.6% PRT Prime Media Group Limited 1.7% PMP PMP Limited 2.5% SXY Senex Energy Limited 1.7% Stock Affinity Education Group Ltd Village Roadshow Limited Weight INVESTMENT SUMMARY Company: Fund: GICS: Hub 24 (HUB) MicroCap Financials – diversified financials Share Price: Price Target: Market Cap: $1.20 $1.60 $61.4m Investment metrics 2014A 2015E Investment metrics 2014A 2015E PE ratio n.a n.a Net debt/(cash) ($13.8m) ~(9.2m) Net Dividend Yield n.a n.a Gearing n.a n.a Franking n.a n.a Interest Cover n.a n.a Gross Dividend Yield n.a n.a ROE n.a n.a Payout ratio n.a n.a Beta - 0.66 PRINCIPAL ACTIVITIES   Independent investment platform provider Software enables investors to centrally manage investments via software platform – including shares, term deposits, managed funds and dealer model portfolios Closing Price 1.3 1.2 INVESTMENT POSITIVES   1.1 Continued growth of funds using the platform Ongoing new product development is a positive 1 INVESTMENT RISKS     Investment markets Cost blow outs Product failure and/or reputational and/or operational problems Not at financial break-even yet it is a high risk/high return investment CONCLUSION & INVESTMENT    17 Continued adoptions and funds inflow Investment markets remaining reasonable. No major decline in markets Valued via risk weighted DCF 1.2 0.9 0.8 0.7 Aug-14 Oct-14 HUB24 Limited Dec-14 Feb-15 Apr-15 Jun-15 INVESTMENT SUMMARY Company: Fund: GICS: Yowie (YOW) MicroCap Consumer staples - food Investment metrics Share Price: Price Target: Market Cap: 2014A 2015E PE ratio n.a Net Dividend Yield $1.04 DCF $1.71 $143m Investment metrics 2014A 2015E n.a Net debt/(cash) ($8.4m) ~($9.0M) n.a n.a Gearing n.a n.a Franking n.a n.a Interest Cover n.a n.a Gross Dividend Yield n.a n.a ROE n.a n.a Payout ratio n.a n.a Beta - 0.34 PRINCIPAL ACTIVITIES  Production, marketing and sale of Yowie toys and chocolates to major retailers including Walmart and other major convenience and super market chains. Closing Price 1.2 INVESTMENT POSITIVES   1.1 1.1 Continued rollout of product across retailers in the US – including a rollout of 4,300 Walmart stores. Further rollout wins and new geographies appear likely. Channel check by Contango directly calling specialist chocolate shops in the US was positive in late March. 0.9 0.8 INVESTMENT RISKS      High risk/high return investment with the business early in the lifecycle. Failure to achieve repeat sales from consumers. Repeat sales are key. Product failure or reputational problems are an ongoing risk Controlling high growth, working capital investment and growing profitability to acceptable levels – goal is to be self-funding. Competition expected to respond – 2018 – as patents end CONCLUSION & INVESTMENT DRIVERS   18 High risk/high return investment, risk is. Valued via DCF and probability weighted outcomes yield target price $1.70 Movement towards profitability and cash flow break even important metric into the future. 1 0.7 0.6 0.5 0.4 Aug-14 Oct-14 Yow ie Group Ltd. Dec-14 Feb-15 Apr-15 Jun-15 INVESTMENT SUMMARY Company: Fund: GICS: Villa World (VLW) MicroCap Real Estate Share Price: Price Target: Market Cap: $2.02 $2.60 $223m Investment metrics 2014A 2015E Investment metrics 2014A 2015E PE ratio 9.4x 8.3x Net debt/(cash) 69m 102m Net Dividend Yield 7.4% 7.6% Gearing (D/E) 33% 30% Franking 100% 100% Interest Cover 5.8x 5.8x Gross Dividend Yield 10.6% 10.8% ROE 10.6% 11.5% Payout ratio 70% 63% Beta 0.46 PRINCIPAL ACTIVITIES   VLW is an Australian residential property developer with a focus on affordable housing in the sub-$500k price range in major metropolitan areas on the east coast. VLW specialises in development and construction of 3-4 bedroom detached homes, integrated housing solutions (for example 2-3 story joined townhouses) and the sub-division and sale of land lots. Closing Price 2.5 2.4 2.3 2.2 INVESTMENT POSITIVES    2.1 Macro-economic setting supportive of Australian residential developers. Geographically VLW’s overweight QLD exposure (>75%) is a positive in the current environment, given the strong momentum in QLD housing following a lagged recovery compared to other States. VLW is cheap on 8.3x FY15 earnings, with 10% CAGR growth over three years to FY17, and a 7.4% FY15 fully franked dividend yield. 2.0 2 1.9 1.8 INVESTMENT RISKS   Macro-economic risks – Changes in interest rate environment or the outlook for Australian or QLD residential building activity levels. Project risks – approval risk, environment risk, settlement risk, building defect risks. CONCLUSION & INVESTMENT DRIVERS  19 VLW is a well-run residential developer with macro-economic tailwinds, a strong earnings growth profile, and is trading cheaply. 1.7 Aug-14 Oct-14 Villa World Limited Dec-14 Feb-15 Apr-15 Jun-15 Business outlook CTN’s growth strategy is progressing well • CTN is actively looking to grow the business in the best interest of shareholders − Launching new products − Enhancing the investment team − Investing in best practice systems • Targeting additional institutional mandates − Large, mid, small and micro cap sectors • Listed Investment Companies (LICs) − Supporting the launch of Contango Income Generator Limited (CIE) • Other opportunities − Significant Investor Visa (SIV) 21 Introducing Contango Income Generator LIC • Investors are searching for yield in the equity market but generally only focus on large cap stocks • This is a sub-optimal portfolio allocation that increases risk and limits an investors opportunity set • The solution is to blend a portfolio of large cap high yield stocks with an actively managed ex-30 income fund • Contango Income Generator Limited (CIE) provides a diversified exposure to this ex-30 high yield segment of the market 22 In this low interest rate environment, investors are increasingly turning to equity income ASX200 Net and Gross Dividend Yield and the RBA Cash Rate 10.0 8.0 % 6.0 4.0 2.0 0.0 2001 2003 2005 Dividend yield 23 Source: Contango AM, Iress 2007 2009 Grossed-up dividend yield 2011 2013 RBA Cash Rate 2015 What does Contango Income Generator Limited offer? Feature Contango Income Generator Limited Diversified exposure to ex-30 income securities  Dividend policy of 6.5% of NTA  Targeting capital growth over time  Targeting lower volatility  Maximise franking where possible  Complements existing income portfolios  24 Who is the Contango Income Generator Limited suitable for? Suitable investor Contango Income Generator Limited SMSFs  Retirees  Yield focused investors  High Net Worth (HNW) investors  Investors over-exposed to large cap stocks including the Banks and Telstra  25 The investment process screens for suitable high quality ex-30 stocks • ASX300 ex-30 market cap • Higher than market yield • Sustainable dividend growth and payout ratio • Lower than market beta • Low earnings volatility • Balance sheet strength 26 The risk metrics are consistent with the objectives of the Company Contango Income Generator All Ordinaries Median market cap ($m) 1,380 382 18,664 679 Price to earnings ratio 15.3 15.5 15.5 16.1 Earnings growth 9.2 5.2 1.0 12.8 Dividend yield (net) 5.5 4.5 4.9 3.9 Dividend yield (gross) 7.0 5.9 6.5 4.7 Return on equity 14.3 15.1 15.4 14.8 Beta to ASX300 0.78 1.0 1.03 0.93 27 Source: Contango AM, 12 month forward consensus forecast, Factset, May 2015 ASX300 ASX300 top-30 ex-30 The active weights are a product of the investment process… Contango Income Generator Fund: Contango Industry Weights vs ASX 300 Diversified Financials Miscellaneous Services Utilities Real Estate Retailing Durables & Apparel Media Paper & Packaging Pharma, Biotech & Life Sciences Information Technology Chemicals Gold Capital Goods Construction Materials Insurance Transport Telco Services Healthcare Equipment & Services Energy Consumer Staples Metals & Mining (ex-Gold) Banks -17.3 [Cash] -20.0 28 Source: Contango AM, Factset, May 2015 14.7 12.6 11.2 6.4 5.4 3.4 3.4 0.5 -0.3 -0.5 -1.1 -1.1 -1.2 -1.4 -2.5 -3.9 -4.6 -4.8 -4.9 -6.7 -10.4 3.3 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0 …and so are the stock positions Code Stock Position BOQ Bank of Queensland Limited 6.2% BEN Bendigo and Adelaide Bank Limited 5.6% AGL AGL Energy Limited. 5.0% TAH TABCORP Holdings Limited 4.9% TTS Tatts Group Limited 4.8% DUE Duet Group 4.7% ASX ASX Limited 4.4% IFL IOOF Holdings Limited 3.8% GUD G.U.D. Holdings Limited 3.5% MMS McMillan Shakespeare Limited 3.1% 29 Source: Contango AM, Iress. May 2015. The performance has been less volatile than the market Monthly Returns: Contango Income Generator vs All Ordinaries 8.0% 6.0% 4.0% % 2.0% 0.0% -2.0% -4.0% -6.0% Jan-13 May-13 Sep-13 Jan-14 Income Generator Strategy (Gross) 30 Source: Contango AM, Iress, gross of fees, May 2015 May-14 Sep-14 All Ords Accum Jan-15 May-15 Contango Income Generator Limited offer summary Proposed ASX Codes • Share: CIE • Option: CIEO Research ratings • AIIR Board members • • • • Minimum application amount $2,000 • Fully paid ordinary shares at $1.00 per share Offer Structure • One free loyalty option for every two shares vesting on 29 February 2016 and exercisable at $1.00 before 30 March 2018 I. Ferres AM (Chair) M. Kerr D. Clarke G. Boubouras Investment manager Contango Asset Management Limited Company objective To provide investors with a sustainable income stream and modest capital growth over the medium term Lodgement date 29 June 2015 TBA / TBA Suggested investment time frame Offer open/close dates 5 years or more Capital deployment Within one month from listing Dividend policy To pay annual dividends of not less than 6.5% of the Company's net tangible asset (NTA) value per share Franking policy To maximise the level of franking for investors where possible and reasonable to do so 31 The investment guidelines Objective To provide investors a return including dividends that exceeds the relevant benchmark Benchmark ASX All Ordinaries Number of securities 30 – 40 Target / max cash position 5% / 50% • 0.95% (plus GST) of the Company's net tangible asset (NTA) value per share per year for a portfolio value of up to $150 million Management Fee • 0.90% (plus GST) of the Company’s NTA per share per year for a portfolio value above $150 million and up to $500 million • 0.85% (plus GST) of the Company’s NTA per share per year for a portfolio value above $500 million Performance fee None Top-30 investments 5% Derivatives Liquidity management only Shorting/ Borrowing No 32 Contact details George Boubouras Chief Investment Officer Contango Asset Management Limited Tel: +61 (3) 9222 2324 Mobile: +61 (0) 414 614 225 E-mail: gboubouras@contango.com.au Bill Laister Senior Portfolio Manager Contango Asset Management Limited Tel: +61 (3) 9222 2333 Mobile: +61 (0) 414 614 225 E-mail: wliaster@contango.com.au 33