GLENNON SMALL COMPANIES LTD

HALF YEARLY UPDATE

May 2017

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The information provided in this presentation has been

prepared by Glennon Capital (ABN 84 137 219 866, AFSL

338567). The information herein is provided for information

purposes and should not be construed as an offer for sale.

Whilst Glennon Capital has taken all reasonable care in

producing this information, subsequent changes in

circumstances may occur at any time and may impact on the

accuracy of the information. Glennon Capital Pty Ltd believes

that any information herein is accurate and reliable, but no

warranties of accuracy, reliability or completeness are given

(except insofar as liability under any statute cannot be

excluded). No responsibility for any errors or omissions or any

negligence is accepted by Glennon Capital Pty Ltd, its related

bodies corporate or any of their respective directors,

employees or agents.

This presentation has been prepared without taking into

account the investment objectives, financial situation or needs

of any particular investor. This presentation should not be

relied on as the sole basis for investment in a portfolio

managed by Glennon Capital.

DISCLAIMER

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Market Update

What is happening in small caps?

What opportunities are we seeing?

Portfolio Insights

Tourism

Retail

GC1

Performance, dividends and

communication

Case Studies

TODAY’S

AGENDA

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MARKET UPDATE

WHAT IS HAPPENING IN

SMALL CAPS?

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90

95

100

105

110

115

120

S&P/ASX Small Ords Accumulation S&P/ASX 100 Accumulation

SMALL CAPS VS LARGE CAPS

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- Large cap funds have been selling. These are not traditional owners of small cap stocks

- Quality small caps were overvalued and valuations broadly were stretched

- Good businesses have suffered extreme volatility as valuations were pushed to their upper limits

- Companies with good results that may have been marginally below what the market expected were punished

REPORTING SEASON CARNAGE

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REPORTING SEASON CARNAGE

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POST REPORTING SEASON

CARNAGE

- Downgrades have continued after reporting season

- Many companies are downgrading multiple times as they struggle to gauge the risks to earnings

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WHAT DOES THAT MEAN?

- This is the time to be looking at investing

- Small caps have been revalued downwards

- Small caps were getting expensive last year

- There is more value in the market now

Buy when there's blood in the streets, even if the blood is your own.

Baron Rothschild

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MARKET UPDATE

WHAT OPPORTUNITIES ARE

WE SEEING?

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SMALL CAPS VS LARGE CAPS

Top 100 Small Ords Microcaps Top 100 Small Ords Microcaps

Number of

Stocks

Market

Capitalisation

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SMALL CAPS VS LARGE CAPS

Microcaps

Small

Ordinaries

ASX 100

Op

po

rtu

nity

No of companies

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INVESTMENT CATEGORIES

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PORTFOLIO INSIGHTS

TOURISM SECTOR

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TOURISM

Tourism growth has been strong – up 11% in 2016…

while Chinese short term arrivals have outpaced total arrivals

Source: Australian Bureau of Statistics

0

100000

200000

300000

400000

500000

600000

700000

800000

Jan-1

991

Jan-1

992

Jan-1

993

Jan-1

994

Jan-1

995

Jan-1

996

Jan-1

997

Jan-1

998

Jan-1

999

Jan-2

000

Jan-2

001

Jan-2

002

Jan-2

003

Jan-2

004

Jan-2

005

Jan-2

006

Jan-2

007

Jan-2

008

Jan-2

009

Jan-2

010

Jan-2

011

Jan-2

012

Jan-2

013

Jan-2

014

Jan-2

015

Jan-2

016

Jan-2

017

Short Term Arrivals

Source: Australian Bureau of Statistics

0

50

100

150

200

250

300

350

Chinese Short Term Arrivals vs Total Arrivals

Normalised Total Arrivals Normalised Chinese Arrivals

10 years to 2001 –8.3% annual growth

10 years to 2011 –1.6% annual growth - Japanese tourism

almost halves- 9/11 impacts

global travel

3 years to 2017 –8% annual growth - lower AUD - strong Chinese tourism growth

3 years to 2014 –5% annual growth- strong AUD restricts growth

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With China driving growth over the past decade…

and likely to drive growth over the next decade

Source: Tourism Research Australia

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

China USA New Zealand UK Japan

Short Term Arrivals By Country

CONTRIBUTION TO GROWTH (3 YEARS) CURRENT ARRIVALS

TOURISM

Source: Australian Bureau of Statistics

500

1 000

1 500

2 000

2 500

3 000

3 500

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

2013-1

4

2014-1

5

2015-1

6

2016-1

7

2017-1

8

2018-1

9

2019-2

0

2020-2

1

2021-2

2

2022-2

3

2023-2

4

2024-2

5

Chinese International Visitor Arrivals

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Skydive the Beach (ASX:SKB)

- Largest tandem skydiving provider in Australia and New Zealand with recent expansion into adventure tourism and leisure

- Attractive industry positioning and exposure to inbound tourism and consumer spending on experiences

- Core market growth in high single digits with acquisitions, especially in adventure tourism, driving further growth

Apollo Tourism & Leisure (ASX:ATL)

- Recreational vehicle rental fleet operator and retailer in Australia, NZ, the USA, and Canada

- Large market share in renting of RVs in Australia and New Zealand and exposure to inbound tourism

- Continuing to grow RV rental in the USA and retail domestically while being exposed to inbound tourism growth in the core rental business

TOURISM

CURRENT EXPOSURE

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PORTFOLIO INSIGHTS

RETAIL SECTOR

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WAGE GROWTH CONSTRAINED

Indebted households are becoming more sensitive to subdued income growth…

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RETAIL SALES FALLING

…and are more likely to pay down debt, resulting in

lower retail sales

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ONLINE RETAIL IS GROWING

Meanwhile online retailing is growing…

…and Amazon is clearly a threat

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RETAIL EXPOSURE

- No current exposure to brick and mortar retail

- Profit pool for local retailers is shrinking

- Highly leveraged retail business models are now under pressure from both poor retail sales and online competition

- Many retail businesses falling into administration already

- Where to from here?

- Some may survive the onslaught but sentiment to remain poor until Amazon’s full launch clears uncertainty

- Offshore Amazon has claimed up to 30% of online spending and already has $700m+ of sales from Australia

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GC1

PERFORMANCE, DIVIDENDS

AND COMMUNICATION

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Fund Overview

Glennon Small Companies Ltd is an ASX

listed investment company. The Company

invests in a concentrated portfolio of high

quality small cap and microcap companies

outside the S&P/ASX 100.

Portfolio Characteristics

Number of Equity Holdings 39

Median Market Cap $197m

Fund Size $44.7m

ABOUT

GC1

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GC1 DIVIDENDS

DIVIDEND POLICY

The Board is committed to paying a growing stream of fully franked dividends to shareholders over the long term, provided the Company has sufficient profit reserves and franking credits, it is within

prudent business practices, and it is in line with capital growth objectives.

0.75

3.00

1.00

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Interim 2016 Final 2016 Interim 2017

DIV

IDEN

DS

Dividend Franking

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LONG TERM PERFORMANCE

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200

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300

350

400

Glennon Capital Representative Portfolio Performance

S&P/ASX Small Ordinaries Accum Index

30-Apr-17 1 Year 3 years 5 YearsSince

Inception

Glennon Small Companies Portfolio 9.5% 44.8% 120.6% 215.0%

S&P / ASX Small Ordinaries Accumulation Index 10.0% 21.8% 12.7% 27.1%

Under / Outperformance -0.6% 22.9% 107.9% 188.0%

30-Apr-17 1 Year3 years

%pa

5 Years

%pa

Since

Inception

(%pa)

Glennon Small Companies Portfolio 9.5% 13.1% 17.1% 14.3%

S&P / ASX Small Ordinaries Accumulation Index 10.0% 6.8% 2.4% 2.8%

Under / Outperformance -0.6% 6.3% 14.7% 11.5%

Note: Glennon Capital representative portfolio performance. Shown on a gross basis, before expenses and taxes. Past performance is not a reliable

indicator of future performance.

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INVESTOR COMMUNICATION

/glennon-capital

/glennoncapital

GlennonCap

glennon.com.au

glennon.com.au

WEEKLY NEWSLETTER STAY IN TOUCH

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CASE STUDIES

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NATIONAL VET CARE

(ASX:NVL)

- veterinary services provider in Australia and

New Zealand, which has 54 vet services

businesses

- industry characteristics are favourable and

barriers to entry are high while management is

experienced and driven to succeed

- business has an acquisition model

supplemented by a margin improvement

process led by corporate initiatives

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ZIPMONEY

(ASX:ZML)

- digital wallet offering point-of-sale

credit online and offline

- attracting retail partners by offering

increased conversion and increased

order value while customers get to

purchase interest free

- sharp growth in customer numbers,

loan book and revenue on a scalable

fixed cost base

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Email: info@glennon.com.au

Phone: (02) 8027 1000

Address: Level 17

25 Bligh Street

Sydney NSW 2001

PO Box: PO Box R281

Royal Exchange NSW 1225

CONTACT

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GLENNON SMALL COMPANIES LTD

HALF YEARLY UPDATE

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