Anchor Group LtdListing

September 2014

What is Anchor Group?• Primarily Anchor Capital

• SA’s “fastest growing” asset manager, with over R5.2bn of assets

• Minority stakes in other asset management ventures• Different focus or geography; they leverage off AC structure

• Cartesian Capital (19.9%) – black-owned institutional asset manager• Anchor Securities (25%) – private client stockbroking business• Anchor Capital Cape Town (18%) – CT private client business

• Ripple Effect 4• The business of financial services knowledge, providing education

and online research services

• Offices in Sandton, Durban, Irene, Cape Town• 40 degreed staff across group (4 CA(SA)’s, 12 CFA’s/CFA delegates)

2

Anchor Group structure

Anchor Group Ltd

Anchor Capital (Pty) Ltd

Cartesian Capital (Pty)

Ltd

Anchor Securities (Pty) Ltd

Anchor Capital Cape Town

(Pty) Ltd

Ripple Effect 4 (Pty) Ltd

100%

19.9% 25%

65%

18%

• 25% Todd Kaplan• 10% Peter Armitage

• 52% Harold Hopking• 18% Other 1• 12% Other 2

• 40% Lephatsi Holdings• 35% Staff

• 30% Mike Teke• 35% Black staff• 15% Other staff

POST LISTING• 19.2% Peter Armitage• 11.6% Ivan Clark• 10% Mike Teke• 21.5% Other staff• 37.7% free-float

Board of directors (executive)

Peter Armitage (CEO) (45)

• CA (SA) – Founded business in current form Former CIO of Investec Wealth and deputy CEO of Nedbank Securities

• 21 number one ratings in FM Analyst Ratings, Head of Research at Merrill Lynch and Nedbank

Todd Kaplan (CFO and COO) (41)

• B Sc

• Run operations since 2000, with 14 years of experience

• Co-founder of Ripple Effect 4

Board of directors (non-executive)Ivan Clark (non-executive) (70)

• CA (SA) - Former Chairman and CEO of Grindrod and former Chairman on Grindrod Bank

• Founder investor in Anchor Group, been chairman since inception

Mike Teke, Chairman (non-executive) (50)

• Former CEO of Optimum Coal and currently President of Chamber of Mines and Chairman of RBCT

• Invested in business since 2013

Paul Nkuna (independent non-executive) (62)

• Former CEO of Mineworkers’ Investment Company, Chairman of Metrofile, Primedia, Peermont , Nimble Group

• Served as non-executive director of Firstrand and Optimum Coal

Alastair Adams (independent non-executive) (35)

• B Comm LLB, practiced as an attorney for 10 years

• Director of many private companies and has over 30 corporate clients

Keypeople

• 21 years

Person Age Years exp.

Qualification Role / title Special skills

Peter Armitage 45 21 CA (SA) CEO of Anchor Group and Capital

Market experience

Anthea Gardner 43 12 B Soc Sci, MBA CEO, Cartesian Capital Multi-skilled, fixed income

Matthew N-Young 31 11 B Comm Head: Marketing Best fetcher in the market

Sean Ashton 33 12 B Comm (Hons), CFA Chief Investment Officer

Among the best investment minds

Todd Kaplan 41 14 BSC (Hons) Chief of Operations The most efficient around

Darryl Hannington 31 10 B Comm (Hons), CFA Head: Portfoliomanagement

Great client service

Glen Baker 50 26 B Comm (Hons) Head: Alternative Investments

Alternative markets legend

Lee Cairns 41 12 BA (Econ), CFP Head: Wealth management

Can operate at highest level

Fransoa Swart 38 15 BA, MBA Candidate Head: Trading Great reliable trader

David Gibb 48 20 CA (SA), CFA Fund manager Deep thinker, ran Stanlib’sequity investment team

The Anchor TeamPeter Armitage CEO and head of investments

Research and fund

management

Sean Ashton, CIO

Tamzin Nel, Consumer

Fran Lesar, Retail

Darryl Hannington, Insurance,

Construction

David Gibb, Global

Matt Stroucken, IT

FJ Veldman, Resources

Bryan Rudd, Global

Liam Hechter, Banks

Ant Turner, Telecomms

Portfolio management

Darryl Hannington

Tamzin Nel

Fran Lesar

Ewald Fourie

Glen Baker, Alternative

Investments

Trading

Fransoa Swart

Bradford Gauldie

Marketing

Matthew Norwood-

Young, head of marketing

Mariska Uys

Thlope Motsepe

Lee Cairns

Support

Todd Kaplan, COO

Yvandra van Jaarsveld

Siyanda Nkosi

Logistics

Sarah Shaw,

Trainee analyst

Martin Smith

Trainee analyst

Compliance

Fransoa Swart

Tenfour, outsourced

Reasons for listing and application of funds• Raising R60m by issue of 30 million shares @ R2 (92.6 million shares)• Retention, attraction and incentivisation of staff members;• Enhancing its profile as a leading and growing asset manager;• Customers can participate in the growth of the entity with whom they are

doing business;• Confidence and transparency espoused through the JSE listing

environment; • Flexibility and depth of funding options available to listed entities; • External capital to fund the growth aspirations of the Group, which might

involve the establishment of offshore offices and operations;• Repayment of shareholder loans, increased working capital and expansion

of the Ripple Effect 4 IT business globally Expected use of listing proceeds

Payment of shareholders loans 5,338,667

Listing costs 2,000,000

Anchor Capital additional working capital 3,500,000

Purchase of property 6,666,667

Ripple Effect 4 development and expansion 2,000,000

Available for acquisitions 40,494,666

60,000,000

Timetable

* Still subject to change, depending on CIPC approval

Listing valuation and comparatives

• 2015 earnings assumes cash not yet invested• Listing valuation considerably lower than comparatives• But … much smaller business with limited liquidity

* Anchor Capital forecasts

Share metrics - Dec y/e

Share price 200

2013 2014 % growth 2015 % growth

PAT (R'm) 3.75 15.89 324% 25.61 61%

HEPS 6.20 21.7 250% 27.7 27%

DPS 0 10.9 n/a 13.8 27%

PE 32.3x 9.2x 7.2x

DY 5.4% 6.9%

NAV 10 74 102

P/Book 2.7 2.0

12-month fwd PE 7.6x

12-month fwd DY 6.5%

Comparable listed companies

Peregrine Coronation PSG Konsult Anchor

Year end March Sept June Dec

Share price 22.35 97.19 6.78 2.00

Mkt cap (R'm) 4767 34000 8559 185

2013 EPS 1.38 4.16 0.20 0.08

2014 EPS 1.79 5.52 0.25 0.22

2015 EPS 2.15 5.80 0.31 0.28

2013 PE 16.2x 23.4x 33.9x 26.6x

2014 PE 12.5x 17.6x 27.1x 9.2x

2015 PE 10.4x 16.8x 21.7x 7.2x

12-mnth fwd PE 9.7x 16.8x 21.7x 7.6x

Anchor Group forecasts

• Assumes cash raised of R60 million earns interest and is not spent on acquisitions etc.

Historical and forecast financial informationAnticipated profit expected to be achieved by directors

R60 million fully subscribed

Assume: Opening shares in issue: 60.6 million

Shares issued on 30 Sept: 30 million (R60 million raised)

Interest earned on cash: 10%

(interest reflected in Anchor Capital income statement)

Group

Dec y/e 2013 2014 %ch 2015 %ch

Actual Forecast Forecast

Turnover 31,574,478 58,414,000 85% 75,982,000 30%

Costs 24,453,181 37,968,000 55% 48,470,000 28%

Operating profit 7,121,297 20,446,000 187% 27,512,000 35%

Post tax profit 3,754,453 15,896,330 323% 25,607,000 61%

No of shares 60,560,000 92,600,000 53% 92,600,000 0%

Weighted no of shares 60,560,000 70,100,000 16% 92,600,000 32%

Weighted HEPS 6.20 22.7 27.7 22%

PE @ 200c 32.3 8.8 7.2

Operating margin 22.6% 35.0% 36.2%

Post-tax margin 11.9% 27.2% 33.7%

Shareholders equity 8,952,190 68,560,206 94,535,610

Cash pre-distributions 10,339,724 64,435,194 81,004,052

Who is Anchor Capital?• SA’s fastest growing asset manager• 5 year-old asset management and broking business

• FSB-registered Cat II FSP

• Purchased in 2011 by:• Peter Armitage and management team• Chairman Ivan Clark• Grindrod Bank

• Growing rapidly - advises and manages over R5.2bn• Local and offshore equity investment• Minority stake in Anchor Cape Town• Offices in Sandton, Durban, Irene

• 30 degreed staff, 14 analysts

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Anchor Capital forecasts

• Well on track after first six months of year; with asset base growing by +/-R150m per month / R2bn a year

• Does not include any contribution from Cartesian or Anchor Securities

Anchor Capital

Dec y/e 2013 2014 %ch 2015 %ch

Actual Forecast Forecast

Opening AUM (R'm) 950 2,842 5,523

Closing AUM (R'm) 2,842 5,523 7,491

Average assets 1,896 4,182 6,507

% ch 199% 121% 56%

R

Turnover 31,182,398 56,595,191 81% 79,416,572 40%

Costs 22,096,942 34,448,720 56% 44,796,541 30%

Operating profit 9,085,456 22,146,470 144% 34,620,031 56%

Post tax profit 6,541,528 15,945,459 144% 24,926,422 56%

Operating margin 29.1% 39.1% 43.6%

Post-tax margin 21.0% 28.2% 31.4%

Yield on assets 1.6% 1.4% 1.2%

Shareholders equity 6,945,966 70,391,525 95,317,947

Cash pre-distributions 8,162,096 64,110,045 79,428,157

The SA asset management universe

• Grown from number 150 to +/- number 25 asset manager in SA in 2 years (0.1% market share, Coronation is 120x bigger)

• Objective: Mid-size category in 1 year and Big Player category in 3 years

• Note: This analysis includes all asset managers who run public unit trusts. Perfect information is not available for all of the above and is based on estimates and industry knowledge; certain players might not be correctly allocated above

1 Absa 1 Fairtree 1 36One 1 Aylett

2 Allan Gray 2 Kagiso 2 Afena 2 Bateleur

3 Ashburton/FNB 3 Melville Douglas 3 Grindrod 3 Noble

4 Coronation 4 Oasis 4 Mazi Capital 4 Cannon

5 Discovery 5 Plexus 5 Cadiz 5 ClucasGray

6 Investec 6 Prescient 6 Sasfin 6 Community Growth

7 Momentum 7 Prudential 7 Sesfikile 7 First Avenue

8 Nedgroup 8 PSG 8 Verso 8 Imara

9 Old Mutual 9 RE:CM 9 Peregrine 9 Harvard House

10 Sanlam 10 Citadel 10 Anchor 10 Laurium

11 Stanlib 11 Visio 11 Kruger

12 MitonOptimal

13 Rezco

14 Rootstock

15 Truffle

The giants

(R100bn+) (11)

Big players (R30bn-

R100bn) (11)

Mid-sized (R5bn-

R30bn) (8)

The challengers (R2bn-

R5bn) (16)

1 4D

2 Aeon

3 Alternative Real Estate

4 Amity

5 Ampersand

6 Atlantica

7 Autus

8 Capstone

9 Catalyst

10 Celtis

11 Centaur

12 Clarus

13 Consilium

14 Contego

15 Cordatus

16 Counterpoint

17 Dolberg Spencer

18 Dotport

19 Dynasty

20 Efficient

21 Element

22 EMH

23 Flagship

24 Foster

25 Futurity

26 GCI

27 Global

28 Graviton

29 Gryphon

30 GTC

31 Huysamer

32 Imalivest

33 Indequity

34 Insight

35 Integre

36 IP

37 JM Busha

38 Kanaan

39 Lion of Africa

40 Lynx

41 Maestro

42 Maitland

43 Mergence

44 MiPlan

45 Montrose

46 NeFG

47 NFB

48 NGI

49 Obsidian

50 Olympiad

51 Pan-African

52 Personal Trust

53 Platinum

54 Prime

55 Quantum

56 RCI

57 Saffron

58 Seed

59 Select

60 Simplisiti

61 Skyblue

62 Southern Charter

63 Stewart

64 Stringfellow

65 Sygnia

66 Third Circle

67 Trillian

68 Warwick

Smaller players (68)

• Grown assets by 63% in the first half of 2014 (160% year-on-year) to R4.6 billion• Grown from number 150 to +/- number 25 asset manager in SA in 2 years• Consistently adding +/-R150m per month/ R2bn per year for last 8 quarters• Pipeline indicates that this can be sustained

Why have we achieved success so far?• We take investment very seriously

• We investigate every opportunity thoroughly and have a very big investment team for our size

• Culture• We own the business and have had immense drive to secure and deliver for clients

• Trust• We have earned the trust of clients and a great deal of our business has come from

referrals• Making clients money

• We have performed well and added to market performance through innovative money-making ideas (eg. Attacq and BEE schemes)

• Extremely active marketing• Big focus on cold calls, TV, radio, internet and biggest success has been daily

newsletter, with 6,000 recipients. We put out regular high quality research• Tick all the boxes

• We got the story right: Right shareholders, investment team, product, pedigree etc.

• Willingness of market to support new player• Market fatigue with vanilla offerings of big existing players

• Nimble – Appropriate range of product• We have grown the product range in response to where we see market demand

Anchor asset mix

• Equity-centric, but aggressively growing other asset classes• Fairly resilient to any market conditions• Less than 15% of assets have performance fees• Segregated portfolio business is typically accompanied by a

relationship with a client, resulting in “stickier” asset base

Why Anchor Capital?“AN EMERGING PLAYER WITH BIG COMPANY

DISCIPLINES AND PROCESSES”

• 14-person investment team• Individuals with strong track records• Blend of youth and experience• Research and documentation culture• Team built “with blank sheet of paper”• Global expertise is key in today’s markets

• Big corporate shareholding• Managed and controlled by employees• Chairman Ivan Clark and director Grindrod Bank CEO David Polkinghorne

• Investment sweetspot - from R2bn to R10bn• Well past critical mass• Can still make midcap picks count

• Well-established investment process• Drawn from experience at big investment companies

• Strong compliance culture• No issues in first FSB full audit in 2012

Our core areas of expertise

• SA Equities• Big cap and mid cap

• Offshore Equities• Well established process

• Yield space• Property• Preference shares• High dividend equities• Other instruments

• Hedge• Unique combination of equity and derivatives

expertise

Current client base- “we have gained the trust of SA’s elite”

• Dominated by Ultra High Net Worth clients• 550 clients altogether• Numerous listed company CEOs and directors• Biggest >R500m, average R8m• +/-25 clients in R20m-R250m range• Big clients receive high-touch service, smaller clients

invested in unit trusts• R575m in unit trusts• +/-R800m offshore in +/-50 accounts• Doing business with the big SA advisors • Corporate/ institutional: Various, including top 40

companies

Attractions of business and model• Business has built-in “inflation” of 15% per annum, on average• All profits in cash, virtually no working capital• Simple business

• 5 invoices per month, paid within 15 days• Expenses 80% rent and staff

• Around 70% Rand hedge• Very little fixed investment required• Fixed costs now in place

• Some step-up with growth, but in principle only sales and PM costs (direct revenue drivers) will be added

• Business model has 50% operating margin, already at >40%• Largely annuity earnings, +/-20% of assets have performance fees• Sticky, diversified base which will be resilient to market fluctuations

The basic model

Assets (R'm) 4,000 6,000 8,000 10,000 15,000

Yield 1.20% 1.15% 1.10% 1.05% 1.00%

TO 48 69 88 105 150

Margin 40.0% 42.0% 45.0% 47.5% 50.0%

Op profit 19.2 28.98 39.6 49.875 75

PAT 15.7 23.8 32.5 40.9 61.5

Turnover 100

Fixed costs 30

Margin 70

Incentives 21

Profit margin 49

How the business is built …- “leveraging off the investment process”

The investment process

• Local and global, across asset classes, 20 contributors• Investment views formed, consumed by investment community in different forms

Local model portfolios• Forms base of

segregated portfolios, Portfolio Managers tailor to individuals

Global model portfolios• Forms base of

segregated portfolios, PotrfolioManagers tailor to individuals

Unitised products• Portfolios created for

unit trusts and institutional mandates, using base of ideas from investment process

Hedge funds• Investment ideas

implemented (long and short) in hedge fund products

New ideas• Ideas generated in

process developed into new money making structures

Stages of life cycle of AM company- “We are at the end of Phase II”

Phase Nature of phase Indicative assets under management

I Obtain licensing, build investment team, attract initial private client assets

<R1bn (usually 2 years)

II Build private client critical mass assets, build out team, start unit trusts, initial corporate and IFA support

R1bn – R4bn (years 3-4)

III Start to get meaningful IFA support and unitised business grows

R4bn-R10bn (need 3 year track record)

IV Get taken seriously by institutional market,risk consultants and multi-managers

R10bn-R20bn

V Become a big player R20bn-R100bn

Anchor Equity CIS (unit trust)

• Regularly in top 10 out of 180 (no 6 in 12 months to June 2014)• A bespoke approach focussed on needs and risk of individual client• A strong bottom-up focus on quality investments at an attractive price

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Anchor Equity fund

Source: Morningstar

Anchor Capital Risk assessmentRisk Likelihood

and severity

Nature of risk Way addressed

Market risk High, will occur on average every 7 years

Market crashes or performs poorly for protracted period

This risk will always prevail. We have managed businesses through these circumstances before. Surprisingly few assets are lost in a crash, and the approach is to position for the recovery. A protracted low-return period is worse and this has been somewhat addressed by a broad range of products with a focus on yield.

Performancerisk

Medium Anchor Capitalunderperforms peers for extended period.

We have a wide range of mandates and it is unlikely that they will all underperform. We maintain strong client relationships and our client base is significantly more loyal than an institutional base.

Staff retention ST – lowLT - med

Key staff leave Certainly not a risk at this stage, but staff need to be properly incentivized via payment equation and equity incentivisation. In process.

Client liability Low Client sues business for loss of funds, or not following instructions.

We have R10m liability insurance. Processes are followed and client sign FSB-approved mandates giving Anchor discretion over investment and acknowledging that investments can lose money.

Regulatory Low FSB fines Anchor Capital

Regular compliance meetings and internal audits.

Other asset management initiatives

• 19.9% owned• Separate FSB license• Newly formed black-owned

institutional asset manager• Superb CEO – Anthea Gardner• Running R130m and starting to pitch

to clients

• 25% owned by Anchor Capital, 35% owned by staff and 40% by Lephatsi Investments

• Intention to increase stake• Separate FSB license • 10-person Nedbank Private Wealth

Stockbroking team joined as one• Launched in May 2014• Already signed >250 High Net Worth

accounts (>R1.5bn in assets)• Adds a trading offering• Assuming break-even in 2014

Ripple Effect 4 – 65%-owned

• Online education courses in financial services

• Outsourced research to global listed companies

• Launching in June 2014• Also Anchor Capital research system

• FAIS face-to-face education

• Online wildlife education – over 10,000 registered students

Ripple Effect forecasts

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Dec y/e 2013 2014 %ch 2015

Actual Forecast Forecast

Turnover 2,759,835 3,469,405 26% 4,721,169

Costs 3,301,160 3,518,534 7% 3,672,187

Operating profit (541,325) (49,129) -91% 1,048,982

Post tax profit (541,325) (49,129) -91% 1,048,982

Operating margin -19.6% -1.4% 22.2%

Post-tax margin -19.6% -1.4% 22.2%

Shareholders equity (1,782,190) (1,831,319) (782,337)

Cash pre-distributions 179,951 325,149 1,575,895

• A small business with a great deal of potential• Has largely been servicing Anchor Capital• Has not received enough attention due to growth of AC• Some of the products could be extremely valuable

BEE plan

• Anchor is fully committed to compliance with codes in law and in spirit

• Not currently rated – been in “small business mode”

• Current status:• By end July group will have five BEE individuals

in senior positions (all appointed this year)• Anchor has funded and nurtured black-owned

asset management business (19.9%-owned)

30