Mff Capital Investments Ltd. · ASX:MFF
Mff Capital Investments — Magellan Flagship Fund — Investor Presentation (June 2007)
47 slides from Mff Capital Investments's investor presentation, Jun 14, 2007
Slide 1: Investor Update
Investor Update 14 June 2007 Chris Mackay and Hamish Douglass vag MAGELLAN FLAGSHIP FUND LIMITED
Slide 2: Important notice
Important notice This presentation is provided for inforrnational and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security of Magellan Flagship Fund (“MFF”) or its affiliates. Any current or prospective investors in MFF should consu
Slide 3: Agenda
Agenda 1. Investment philosophy and portfolio construction 2. MFF’s current portfolio 3. Some outstanding business 4, MFF’s markets and outlook 5 . Questions and answers
Slide 4: MFF's investment philosophy
MFF’s investment philosophy 1. 2. Purchase outstanding companies at attractive prices minimise risk of permanent capital loss [for individual securities and portfolio] MFF's portfolio companies purchased at >30% average Margin of Safety (discount to assessed intrinsic value) MFF's deployment of capi
Slide 5: MFF's investment philosophy
MFF’s investment philosophy - MFF’s Portfolio Companies typically have cultures reflecting resilient, determined and disciplined entrepreneurism, balanced short and medium term goals, clear ‘purpose’, awareness of the benefits of meeting or exceeding responsibilities to customers, employees and comm
Slide 6: MFF's investment philosophy
MFF’s investment philosophy 4. Attractive prices arise periodically for outstanding companies, typically because of the impact of market psychology upon supply and demand ~ Panic selling in February/March following Shanghai's fall and sub prime/consumer/US economy concerns ~ The market's [typical] ‘
Slide 7: MFF's investment philosophy
MFF’s investment philosophy 6. Focus, Patience and Action in response to Opportunity Assess quality of company then consider whether market price allows for a sufficient margin of safety in comparison with intrinsic value MFF aims for the necessary focussed structural, institutional and temperamenta
Slide 8: MFF current portfolio snapshot (as at May 2007)
MFF current portfolio snapshot (as at 31 May 2007) IPO Net proceeds (December 2006) 371.1 Unrealised Net Portfolio Gains 26.9] and income net of expenses Unrealised Net Foreign Exchange Losses (12.0) Net Assets at market value 386.0} (102 cents per share)1 Comprising Investment Securities at market
Slide 9: MFF investment securities A$m market value
MFF investment securities A¢m market value (as at 31 May 2007) American Express 55.0 eBay 42.8 SLM Corp 32.4 Yum Brands 15.4 Johnson & Johnson 14.8 @ Nestlé 13.9 Wal Mart 13.14 @ Bank of America 125 @ Wells Fargo 10.9 ® US Bancorp 8.7 Western Union 8.2 Lowes 79 Home Depot 7.3 Conoco Phillips 5.3 @ C
Slide 10: American Express
American Express Highly attractive business model - ROE approximately 35% and growing ~ World's largest card issuer by purchase volume - Almost 80 million cards in force generating US$560 billion of spend world wide - Global ‘closed loop’ payments network - Strong combination of both proprietary and
Slide 11: American Express
American Express Powerful growth model - Increasing trend from cash to plastic - Plastic penetration remains low globally — 86% of worldwide consumer spending is cash or cheque - American Express cards on issue are 10% of Mastercard’s and 6% of Visa’s cards on issue - US network has only been opened
Slide 12: American Express
American Express The Spend-Centric View Forecasted U.S. Consumer Spend Growth Market: +5% 2005: $6.8T 2010F: $8.8T 5 Year CAGR Wi plastic Cash&Checks — [_| Electronic 40 Source: Tas Nivon Report, Source: American Express — Citigroup 2007 Strategic Investor Conference Presentation, Kenneth 1. Chenaul
Slide 13: American Express
American Express The Spend-Centric View et sense Plastic Opportunity by Segment % of Plastic Penetration ‘Source: 2005/2008 internat dale and The Nlison Report, 2 Source: American Express — Citigroup 2007 Strategic Investor Conference Presentation, Kenneth 1. Chenault
Slide 14: American Express
American Express Global network services business is highly attractive - Much younger and smaller than proprietary business, but growing more rapidly - 110 partners in 120 countries - Leverages customer base of partner banks - Drives growth of merchant network globally - Enables American Express to
Slide 15: American Express
American Express Changing busin US Card Services - Net income ($m) ~ Return on capital ~ Cards in force (m) International Cards & Global Commerical Services - Net income ($m) ~ Return on capital ~ Cards in force (m) Global Network & Merchant Services - Net income ($m) ~ Return on capital - Cards in
Slide 16: American Express
American Express Focussed on shareholder value - Driving growth principally through organic opportunities and related business strategies - Completed spinout of less attractive Ameriprise business - Delivering returns well in excess of the cost of capital - Track record of distributing excess capita
Slide 17: American Express
American Express Performance vs. Long Term Targets Revenue Net Revenue Revenue net of interest expense” EPS 16% 22% 18% ROE* Pre-Spin 22% 25% Post-Spin 31% 35% Current 1. Tages ar en avraga, aorta 2, Please 90 the revived Siatanenisof score preseotlon Sesatbed inte Comesary’s Mar $6, 2007 6K tng 5.
Slide 18: eBay
eBay Three unique businesses - eBay Marketplaces — world’s leading online auction platform - Pay Pal — world’s leading secure online payments business - Skype — world’s leading VOIP communications network Each business exhibits powerful network effects with widening economic moats Marketplaces - #1
Slide 19: Revenue GMV
Revenue GMV (Smiltions and YY growth} (Sbidlions and Y/¥ growth) 18% 18% G06 406107 128 129 12.6 144 14.3 Source: eBay's Q1 2007 Financial Highlights Presentation, April 18, 2007
Slide 20: eBay
eBay Pay Pal ~ a powerful model - Advantaged value proposition for both buyers and sellers - Attractive to merchants: ~ Pay Pal typically saves merchants 10 bpts to 300 bpts _ can be set up by a merchant in a few minutes - Attractive to buyers a easy to set up ~ fast — transactions take a few second
Slide 21: eBay
eBay Pay Pal users in perspective (Millions) Pay Pal American Express Discover
Slide 22: eBay
eBay Profitable business model Profitable business mode! % of total payment volume in 2005 PayPal account Credit + debit cards Frevenuc: ————— ee Transaction Credit card Transaction Transaction revenue rate funding cost loss rate margin
Slide 23: Revenue
Revenue {Smilfions and YI¥ growth} Brome, 44% 4% 28% ep TPY 45% {Sbiltions and V/V growth) y AG Fa BT BRM na a BON Source: eBay's Q1 2007 Financial Highlights Presentation, April 18, 2007 30%
Slide 24: eBay
eBay Skype ~ powerful economic model - Network effect created by free Skype to Skype community - Powerful moretisation model yet to be realised _ Skype out minutes - Value added services (telephone number, voicemail) - On-line money transfer - Advertising revenue via pay per call lead generation ~ e
Slide 25: Revenue
Revenue {Srillions aad VY growth} 25 06 Tatal Users (in ritions} 78 WY Growth - {io bifons) ‘Skype to Skype Minutes 52 YAY Groviit - Skype Out Minutes Os YY Growth ~ ate Note: Ci 0S raliects revenue far paitel quarter starting Cetober 14, 2005 fazquisttan clase date) Source: eBay's Q1 2007 Financial
Slide 26: eBay
eBay Attractive economies - Return on tangible capital >60% - Free cash generation in excess of reported profit (US$1.7bn v US$1.5bn in 2006) - Implemented share buyback - 2007 PE circa 23 times based on current guidance - Priced on a 5% free cash flow yield with strong growth outlook in each busine
Slide 27: Non-GAAP EPS
Non-GAAP EPS tin $) 0.22 Qt a6 a2 06 a3 08 Q406 Qies Reported WY Growth = 27% 53% 42% 4% 20% 40% 28% 29% 39% Non-GAAP Op. Margin 36% 37% 36% 348% 33% 33% 32% 33% 34% Source: eBay’s Q1 2007 Financial Highlights Presentation, April 18, 2007
Slide 28: SLM Corporation
SLM Corporation Highly attractive business model - Largest originator of US Government guaranteed student loans - largest sales force ~ lowest cost ~ economies of sale - Largest originator of private sector student loans in the US - Very powerful cross selling business model: - leverages same sales
Slide 29: SLM Corporation
SLM Corporation Higher Education Finance Market Dynamics Sources of Funding for College Atiendance Academic Year 2006-2007 ($billions) Total Projected Cost « $229 Billion Parent/Student Contributions Federal Student Loans Private Scholarships, Education Grants, Other Loans ‘Sou: Based op esUmates by
Slide 30: SLM Corporation
SLM Corporation Political Change and SLM Earnings Growth + Past changes in student loan legislation have not had a long-term impact on SLM’s earnings Impact of Changes in Student Loan Legislation on SLM Net Income 500 450 a0 F s i E 3 & 300 3 & 8 300 oo = gs 3 = 20g FI a a E m0 5 a Income (") 150 se
Slide 31: SLM Corporation
SLM Corporation SLM’s Competitive Advantage - SLM has a distinct competitive advantage in all facets of the education loan market Nota: Figura ae of December 39, 2008, aallie ae Champiene for Higher Eduention’™ Source: Saille Mae - SLM Corporation — ABS investor Presentation, ASF Conference, January
Slide 32: SLM Corporation
SLM Corporation Federal Student Loan Market Share SLi Hictoncal Vorket Share of | ederal student Loan Onigimations 30% ah 25% 25y%, 28% 7 25% 23% 20% 1% 9 0, 2 Federal Govt 22% 32% 15% 18% 3 Citibank 5% 6% Bank of 10% ank oF 4 F a% 5% America 5% 5 Wells Fargo 4% ~~ 0% 1999 2000 2001 2002 2003 2004 2
Slide 33: SLM's Private Education Loan Portfolio
SLM Corporation SLMW’s Private Education Loan Portfolio Private Education Loan Portfolio Characteristics( — ¢ $23 billion of managed outstandings at year end 2006 * 146% of SLM’s managed student loan portfolio °* High average FICO scores « Risk-based pricing « Approximately 51% of loans with co-borr
Slide 34: Private Education Loan Portfolio Trends
SLM Corporation Private Education Loan Portfolio Trends * Private Education Loan portfolio performance trends are very stable, in part as a result of sound underwriting, pricing, servicing and default management practices "Core Earnings” Private Education Loan Spread vs. Net Charge-Offs™ 6.0% 5.13%
Slide 35: Attractiveness of private student loan business
SLM Corporation Attractiveness of private student loan business SLM pre-tax returns on capital in the private lending segment exceeds 50% Strong drivers for people to take out private loans to cover funding gap SLM has an unmatched on campus distribution sales force which enables it to cross sell pr
Slide 36: YUM Investment Proposition
Yum! Brands YUM investment Proposition Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer.
Slide 37: Global Growth: 1,000+ New International Restaurants
Yum! Brands Global Growth = 1,000+ New international Restaurants 4 189 1,181 4 asot 4408 4977 Note: Traditional resiayranss: Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer
Slide 38: New-Unit Development Focused on Growth Markets & Returns
Yum! Brands New-Unit Development Focused on GROWTH MARKETS & Returns '04 - 06 Net Restaurants Added Mainland China 1,040+ 540+ Indiaj KFC. Fran 425+ Note;-Traditional restaurants!) Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer
Slide 39: New-Unit Development Focused on Growth Markets & Returns
Yum! Brands New-Unit Development Focused on Growth Markets & RETURNS YUM! CHINA COMPANY INVESTMENT Pizza Hut KFC Casual Dining '$ million) 0.50+ ¢ ae Cash largin Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer
Slide 40: Long Runway for Global Growth
Yum! Brands Long Runway for Global Growth Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer
Slide 41: Significant Global Cash Generation
Yum! Brands Significant Global Cash Generation Free Cash Available {$ miltion} Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer
Slide 42: Global Cash Generation = Increasing and Substantial Shareholder Payouts
Yum! Brands Global Cash Generation = Increasing and Substantial Shareholder Payouts {$ million} 1,250+ 1,479 1,127 Share Buyback Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer
Slide 43: YUM Competitive Position Is Strengthening
Yum! Brands YUM Competitive Position Is Strengthening Mainland China Restaurants Quick Service Restaurants (QSR) Casual Dining Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer
Slide 44: Yum! Competitive Position Strengthening
Yum! Brands Yum! Competitive Position Strengthening Woridwide 5-Year Net New International Restaurants Source: Yum! Brands, The Global Growth Company & Cash Machine, Tim Jerzyk, SVP Investor relations & Treasurer
Slide 45: MFF's markets and outlook
MFF’s markets and outlook MFF’s Portfolio establishes a solid platform MFF has significant cash and borrowing capacity to target opportunities. Underlying exposure to broad mix of currencies via leading multinational ‘Platform Companies’ Portfolio concentrated in superior cash generating return comp
Slide 46: MFF's markets and outlook
MFF’s markets and outlook ‘Conservative’ custodians (universities, pensions) exchanging liquidity and transparency for perceived ‘returns’ / diversification Buoyant global real estate trusts, commodities and mid market equities (private equity take out) only sustainable if combined strong economic g
Slide 47: MFF's markets and outlooks
MFF’s markets and outlooks MFF must be prepared when opportunities arise MFF's portfolio companies remain materially under priced versus intrinsic value and MFF is likely to selectively add to these positions and find additional positions particularly where companies are trading materially below our
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