Skarbiec Holding COVERAGE INITIATION. Value lies in the vault BUY. Fair Value PLN 53.00

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1 COVERAGE INITIATION Poland Financial Services Small & Mid Cap 22-January-2015 Skarbiec Holding Value lies in the vault Skarbiec Holding gives investors exposure to the rapidly growing mutual fund market in Poland. We believe that the Polish investment market will benefit from a growing economy, increasing savings and a low interest rate environment, which should drive clients to look for investments offering higher yields than bank deposits (the most popular savings vehicle in Poland today). With a leading position amongst independent asset managers in terms of AuM, a good trackrecord, a broad product range and a wide distribution network, we can see Skarbiec attracting flows from new clients to grow faster than the market. It is the 5 th -largest fund manager in Poland with c. PLN 15bn of AuM (end-2014) and further expansion of its sales network may give an extra boost to growth. Furthermore, in addition to management fees based on AuM, the company offers exposure to potential performancerelated fees based on the performance its managed funds. We initiate coverage with a BUY rating and FV of PLN We forecast good 4Q14 results in February to be a positive catalyst for the stock. Attractive exposure to growing mutual funds market in Poland The Polish mutual funds market has delivered 14% growth per year on average over the last six years in terms of value of AuM, which according to IZFiA as of end of 2014 amounted to PLN 141bn invested in capital market funds. We think that the relatively good prospects for the Polish economy with ca. 3% GDP real growth in 2015, increasing savings and a low interest rate environment should support further growth in AuM over the next few years. Further development of distribution channels Skarbiec TFI has one of the largest distribution networks among independent asset managers in Poland, which we believe is key to increase the value of AuM and for further earnings growth. It still has the option to start or expand cooperation with the largest Polish banks, which should also help grow AuM. Although the process of entering a bank s network is lengthy, we think Skarbiec, with its long history and good investment performance, has the ability to do this. BUY 63% upside Fair Value PLN Bloomberg ticker SKH PW Share Price PLN Market Capitalisation PLN m Free Float 20% PLN m Y/E 30-Jun 2013A 2015E 2016E 2017E Revenues, of which Management fee Success fee OPEX Net profit AuM in CMF 3,011 3,601 4,058 4,539 Net profit as % of avg AuM in CMF 1.0% 0.6% 0.7% 0.7% ROE 35% 24% 29% 32% Company changed its financial year in Currently it ends in June. 2013A ended in December. Y/E 30-Jun 2013A 2015E 2016E 2017E P/E P/BV EV/EBITDA Dividend yield 3.0% 8.6% 13.8% 12.6% Share Price Performance Nov 2014 Dec 2014 Dec 2014 Jan 2015 SKH PW vs WIG Index All share price data as at close on 19-Jan-2015 Source: BESI Research, Company Data, Bloomberg Recurrent net profit with the prospect of success fees The company is profitable even excluding any revenues from success fees. Skarbiec generates ca. PLN 10-14m of net profit based only on current AuM. Success fees would be an additional revenue stream. Up to 100% pay-out ratio Management has said that it wants to recommend at least a 75% pay-out ratio, but its aim is to pay 100%. In our opinion the company meets all of the criteria to pay all of its net profit as dividend. Trading at an unwarranted discount to peers Skarbiec trades at 24%-37% discounts to its international peers on 2015E- 2017E P/E. Based on BESIR and BBG consensus estimates, it also offers a best in class double-digit dividend yield of 12.6% -13.8% in 2016E-2017E. Analysts Lukasz Janczak ljanczak@espiritosantoib.pl Banco Espírito Santo de Investimento, S.A. Warsaw Branch Poland 59 Zlota Street, Warsaw (v ) NOT FOR DISTRIBUTION TO ANY US PERSON OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES OF AMERICA

2 Contents Summary financial information... 4 Executive summary... 5 About the company... 5 Attractive exposure to a still developing mutual funds market in Poland gives base for long-term growth... 5 Further development of distribution channels gives potential to grow faster than the market... 5 Company earns recurring net profits and could earn a success fee as well... 5 Cash generating and less capital intensive business allows for up to 100% pay-out ratio...6 Valuation: FV set at PLN Polish mutual funds market overview Poles savings Polish mutual funds market Capital market funds Business overview Company history Management team Business model The company s distribution network Client base Cooperation with JP Morgan AM Financial overview Assets under management Capital market funds Income statement Revenues Operating expenses Balance sheet Shareholder information Other Financial statements Appendix 1. Revenues and distribution costs accounting rules Appendix 2. Comparison of Polish listed asset managers Appendix 3. Success fee in global listed asset managers Valuation Methodology Risks to Fair Value Growing competition Growing distribution costs Prohibition on dividend payment and other regulatory risks Key employees outflow Page 2 of 35

3 Performance and success fee risk Share overhang Page 3 of 35

4 H /15E 2015/16E 2016/17E 2017/18E 2018/19E Summary financial information Skarbiec Holding Rating BUY Fair value 53.0 Share price ( , PLN) 32.5 Upside/Downside potential 63% Valuation Metrics H14** 2014/ 15E 2015/ 16E 2016/ 17E 2017/ 18E 2018/ 19E P/E P/BV EV/EBITDA Dividend yield % 1.6% 3.0% 8.6% 13.8% 12.6% 13.8% 15.1% Number of shares (m) 6.8 Fully diluted number of shares (m) 7.2 Market capitalization (PLN m) 222 Book Value (PLN m) 72 Forthcoming events Key figures H14** 4Q14 results 12-Feb-15 AuM (EoP, PLN m) 4,590 9,819 13,693 14,936 15,241 15,698 16,179 16,684 17,216 Capital market funds 1,783 2,733 3,011 3,223 3,601 4,058 4,539 5,044 5,576 High margin 1,051 1,156 1,514 1,372 1,508 1,689 1,884 2,093 2,318 Low margin 732 1,577 1,497 1,850 2,094 2,369 2,655 2,951 3,258 Dedicated 2,807 7,086 10,682 11,713 11,640 11,640 11,640 11,640 11,640 BESI Equity Research Analyst Net profit as % of avg AuM 0.28% 0.14% 0.25% 0.13% 0.14% 0.18% 0.19% 0.20% 0.21% Lukasz Janczak Net profit as % of avg AuM in CMF 0.72% 0.46% 1.01% 0.60% 0.65% 0.73% 0.71% 0.70% 0.68% ljanczak@espiritosantoib.pl ROE 18.9% 14.9% 35.3% 22.4% 24.2% 29.2% 31.9% 33.6% 35.2% RoTE 78.3% 59.5% 96.2% 59.4% 59.4% 63.8% 69.1% 70.2% 71.3% Net Profit (PLN m) Payout Ratio (consolidated) 27% 65% 66% 100% 100% 100% 100% 2014/ 15E 2015/ 16E 2016/ 17E 2017/ 18E 2018/ 19E P&L (PLN m) H14** 2014/ 15E 2015/ 16E 2016/ 17E 2017/ 18E 2018/ 19E Revenues of which: success fee OPEX Gross profit on sales Net other operating results EBITDA EBIT Net financial results and others Pre-Tax Profit Income Tax Expense Net Profit Capital market funds (PLN bn) growth -20% 181% -27% 31% 10% 9% 8% Adjusted net profit* % 160% -19% 17% 9% 8% 7% Stock Mixed Bond Money Other AuM split as end of H14** 2014/ 15E Dedicated 11,640 77% High margin 1,329 9% / 16E 1.8 Low margin 2,051 13% / 17E AM 123 1% / 18E / 19E Cash Flow (PLN m) H14** 2014/ 15E 2015/ 16E 2016/ 17E 2017/ 18E 2018/ 19E CFO Pre-tax profit Depreciation Tax paid Change in working capital Others CFI CAPEX Net investments in associates Net investments in financial assets CFF Share issue 1.0 Change in debt Dividends Other TOTAL CASH FLOW Balance Sheet (PLN m) H14** 2014/ 15E 2015/ 16E 2016/ 17E 2017/ 18E 2018/ 19E Cash and equivalents Tangible assets Intangible assets Other Assets TOTAL ASSETS Interest Bearing Debt Other Liabilities Total Liabilities Total Equity Net Debt (4.4) (7.1) (26.0) (11.0) (35.0) (33.4) (37.0) (40.1) (42.7) Source: Company data, Bloomberg, BESI Research for estimates. *adjusted for share-based compensation program costs and IPO costs ** Company changed its financial year in Currently it ends in June ended in December. Page 4 of 35

5 Executive summary About the company Skarbiec Holding (we use either Skarbiec, group or company to refer to Skarbiec Holding and Skarbiec TFI, unless otherwise stated) is one of the leading independent asset managers in Poland. Skarbiec TFI manages 43 funds and sub-funds and has AuM of more than PLN 15bn (of which PLN 3.3bn is in capital market funds as of end of 2014), it is the fifth-largest Polish fund manager. The company serves more than 46,000 customers (excluding those in pension schemes), offering a diversified range of products: equity, mixed, bonds, money market and dedicated funds which give investor exposure to both domestic and international markets. The company is continuously develops its external distribution network with the aim of attracting market flows faster than its competitors ( % share in net flows vs. 2.5% share in AuM) In our opinion, Skarbiec s management is one of the more experienced teams in Polish fund management. Attractive exposure to a still developing mutual funds market in Poland gives base for long-term growth The AuM of Polish mutual funds focused on capital markets have grown at 14% per year on average over both the last five and ten years periods and now amount to PLN 141bn (IZFiA (Chamber of Fund and Asset Management), as of end of 2014). We think that the relatively good prospects for the Polish economy, increasing savings and a low interest rate environment should support further growth in AuM over the next few years, as Poles attempt to earn a higher return than via bank deposits, which today are the most popular form of savings. Further development of distribution channels gives potential to grow faster than the market Skarbiec TFI has the largest distribution networks among independent asset managers in Poland, which we believe is key for increasing AuM and growing earnings. The company has the option to start or expand cooperation with the largest Polish banks, which should give a boost to AuM. Although the process of getting access to the network is lengthy, we think that Skarbiec with its long history and good investment performance has the ability to do this. Company earns recurring net profits and could earn a success fee as well Skarbiec generates ca. PLN 10-14m of annual net profit based only on current AuM (so excluding success fees, non-cash share-based compensation expenses and one-off IPO costs (PLN 0.6m booked in 1H14 and PLN 0.7m expected in 2014/15E)). A success fee would be additional revenue. As an illustration, we calculate that if success fees had been in place since 2007 (in , based on the policy then in force, a success fee was charged only in selected funds), in six out of eight years the company would have earned a material fee, with total revenues for this period of PLN 156m, or 0.78% of average AuM (annually). Our model assumes that a success fee will be booked in 80% of years, which implies a rate of 0.6% of AuM on average annually (we use more conservative assumptions than implied by historical data. Page 5 of 35

6 H / / 16E 2016/ 17E 2017/ 18E 2018/ 19E Figure 1 Net profit (PLN m) Figure 2 Estimated adjusted net profit (PLN m) H / 15E / 16E 2016/ 17E 2017/ 18E 2018/ 19E H / 15E / 16E / 17E / 18E / 19E Net profit excl. success fee Success fee Potential net profit from success fee Reported net profit Adjustments Source: BESI Research, Company Data Source: BESI Research, Company Data. Reported earnings are here adjusted for costs of share-based compensation programs and IPO costs. Cash generating and less capital intensive business allows for up to 100% pay-out ratio The asset management business is highly cash generative and does not require large investment in tangible assets or working capital. Earnings may be used for acquisition if the market consolidates, or for dividend payment. Management has said that it intends to recommend at least a 75% pay-out ratio, but it aims to pay 100%. In our opinion the company meets all the criteria to pay the full net profit as dividend and this is what we assume in our valuation. Based on standalone net profit, pay-out ratios were 75% for 2011, 100% for 2012 and After the change in accounting year (see explanations in Other on p.26), the company may pay 100% of consolidated net profit. Figure 3 Dividend (PLN m) and payout ratios (based on consolidated profits) 4 120% % 100% 100% 100% 100% % 66% 80% 2 60% % 0% % 20% 0% Dividend payout Source: BESI Research for estimates, Company Data Page 6 of 35

7 Valuation: FV set at PLN 53 We use three valuation methods: DCF model, discounted dividends model and a peer multiples valuation equally weighted. We apply a variable cost of equity and WACC of 9.7%-9.8% for 2014E-2018E. We assume a risk free rate of 2.6%, unlevered beta of 1.3, a risk premium of 5% and a growth (g) rate of 1.0%. Table 1 Discount rates calculation Key data (PLN m) /15E 2015/16E 2016/ 17E 2017 / 18E 2018/ 19E Assets Debt Equity Financial liabilities Cost of equity /15E 2015/16E 2016/ 17E 2017 / 18E 2018/ 19E Risk free rate 4.6% 2.7% 2.6% 2.6% 2.6% 2.6% Risk premium 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Unlevered beta Levered beta CoE 11.7% 9.9% 9.8% 9.8% 9.7% 9.7% WACC /15E 2015/16E 2016/ 17 E / 18E 2 018/ 19E Risk free rate 4.6% 2.7% 2.6% 2.6% 2.6% 2.6% Debt risk premium 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% % of debt 1% 1% 1% 1% 1% 1% WACC 11.7% 9.8% 9.7% 9.7% 9.7% 9.7% Source: BESI Research for estimates Table 2 DCF valuation DCF Valuation H / 15E 2015/ 16E 2016/ 17E 2017 / 18E 2018/ 19E TV EBIT tax rate 19.5% 17.9% 22.9% 15.6% 2% 20.1% 20.1% 20.1% 20.1% 20.1% tax paid NOPAT Depreciation Change in WC and SBCP CAPEX FCF Discount factor PV FCF g 1.0% Net debt (end of 1H14) Dividend Month 7 Value of equity 414 Fully diluted number of shares (m) 7.2 FV (PLN) 57.8 Source: BESI Research for estimates, Company Data Table 3 DDM Valuation DDM Valuation / /16E 2016/17E 2017 /18E 2018/19E 2019/20E TV Dividend paid Discount factor Discounted dividend Sum of discounted dividends 379 Month 7 Value of equity 400 Fully diluted number of shares (m) 7.2 FV (PLN) 55.8 Source: BESI Research for estimates, Company Data Page 7 of 35

8 Table 4 Peers multiple valuations (prices as of 16 January 2015) TICKER COMPANY NAME COUNTRY M cap PRICE P/E EV/EBITDA Dividend yield FV RATING EUR m (LCU) 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E (LCU) BLK US Equity BLACKROCK INC UNITED STATES 58, n/a n/a n/a 2.5% 2.8% 3.1% BEN US Equity FRANKLIN RESOURCES INC UNITED STATES 32, % 1.3% 1.4% TROW US Equity T ROWE PRICE GROUP INC UNITED STATES 21, % 2.6% 2.9% IVZ US Equity INVESCO LTD UNITED STATES 15, % 3.3% 4.0% SDR LN Equity SCHRODERS PLC BRITAIN 10,906 2, n/a n/a 3.0% 3.3% n/a BUY 3,080 ADN LN Equity ABERDEEN ASSET MGMT PLC BRITAIN 8, % 5.4% 6.0% BUY 541 OZM US Equity OCH-ZIFF CAPITAL MANAGEMEN-A UNITED STATES 5, n/a n/a 12.8% 14.1% n/a LM US Equity LEGG MASON INC UNITED STATES 6, n/a n/a 1.6% n/a n/a HGG LN Equity HENDERSON GROUP PLC BRITAIN 3, % 5.0% 4.9% NEUTRAL 235 WDR US Equity WADDELL & REED FINANCIAL-A UNITED STATES 3, % 4.4% n/a ASHM LN Equity ASHMORE GROUP PLC BRITAIN 2, n/a n/a 5.9 n/a n/a 7.4% 9.5% n/a NEUTRAL 403 EV US Equity EATON VANCE CORP UNITED STATES 4, n/a 2.6% 2.8% 3.9% AZM IM Equity AZIMUT HOLDING SPA ITALY 3, n/a 5.1% 5.9% 7.4% EMG LN Equity MAN GROUP PLC BRITAIN 4, n/a n/a 4.0% 4.5% n/a SELL 93 PTM AU Equity PLATINUM ASSET MANAGEMENT AUSTRALIA 3, % 5.9% 6.5% GAM SW Equity GAM HOLDING AG SWITZERLAND 2, n/a % 5.7% n/a AB US Equity ALLIANCEBERNSTEIN HOLDING LP UNITED STATES 2, n/a n/a 7.7% 8.8% n/a JUP LN Equity JUPITER FUND MANAGEMENT BRITAIN 2, n/a n/a 5.4% 6.1% n/a BUY 470 JNS US Equity JANUS CAPITAL GROUP INC UNITED STATES 3, % 2.4% n/a CNS US Equity COHEN & STEERS INC UNITED STATES 2, % n/a n/a WETF US Equity WISDOMTREE INVESTMENTS INC UNITED STATES 2, % 1.6% n/a LIO LN Equity LIONTRUST ASSET MANAGEMENT BRITAIN n/a n/a 7.0 n/a n/a 3.1% n/a n/a M EDIAN % 4.5% 4.0% Source: BESI Research estimates for covered stocks, Bloomberg consensus estimates for not rated stocks. Note: if we based our valuation on adjusted figures for net profit and EBITDA it would be 2% higher. Valuation summary Implied valuation Median of implied valuations 326 Fully diluted number of shares (m) 7.2 FV 45.5 Below we present a short summary of our valuation estimates. Figure 4 Valuation summary (PLN m) Peer-multiple valuation DDM Valuation DCF Valuation Base Success fee Source: BESI Research for estimates Please see Appendix 3 for discussion of the success fee assumptions. Page 8 of 35

9 Below we also provide a graphical sensitivity analysis of our valuation on assumed rates of success fee. We note that that this relationship is linear. Figure Sensitivity analysis of valuation (LHS, PLN m) on assumed rate of success % 0.25% 0.50% 0.60% 0.75% 1.00% Base valuation Success fee Source: BESI Research, Company Data. For more details see the Success fee paragraph. We note that under our assumptions the company needs to deliver an average success fee of ca. 0.2% to achieve the current market capitalization. Thus even a rate of % (below the 0.6% assumed by us) offers sufficient upside to assign a BUY rating to the stock. Page 9 of 35

10 Polish mutual funds market overview Poles savings According to data published by the National Bank of Poland, as of 1Q14 Poles had PLN 1,438bn of savings. Almost half of this was allocated to cash and banking deposits. On one hand this confirms the conservatism of Polish savers, but on the other hand we see room for this structure to change in favour of higher yielding assets. Figure 6 Savings in Poland Figure 7 Changes in structure of savings in Poland 1, % 1,600 1,400 1,200 1, % 80% 70% 60% 50% 40% 30% 20% 10% 0 0% 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 Cash and deposits Listed equities Other equities Mutual funds Life insurance Pension funds Others Cash and deposits Listed equities Other equities Mutual funds Life insurance Pension funds Others Source: NBP Source: NBP As of 1Q14 7.4% of savings was invested in mutual funds, up from 7% in 2013, but this jump is mostly attributable to a lower base due to the transfer of a portion of the portfolio of pension funds savings to ZUS at the beginning of Historically the share of mutual funds in savings has been volatile due to the performance of equity markets and hovered between 5% and 10%. We think that the Polish market will gradually converge towards Western European countries, where mutual funds constitute a higher share of savings. We also note that over the last ten years mutual funds assets (in capital market funds) grew faster than total savings, with CAGRs of 14.7% and 9.9%, respectively. Figure 8 Structure of savings in Poland (as of 1Q14) Figure 9 Mutual funds share in savings in Poland Life insurance 5% Pension funds 12% Mutual funds 7% Other equities 19% Others 5% Cash and deposits 49% 12.0% 1% 8.0% 6.0% 4.0% 2.0% % Listed equities 3% Source: NBP Source: NBP Polish mutual funds market The Polish asset management market is fragmented and very competitive. According to Analizy Online, 55 asset managers operate in Poland and they jointly manage 1,014 funds, including both open-end, specialized open-end and close-end (mostly dedicated) funds as of 1H14. The biggest increase in the number of AM firms was observed in Currently ca. one company starts business each year. Data from the Central Statistical Office in Poland (GUS) shows that despite high competition, the entire industry is very Page 10 of 35

11 profitable. Net profit of the industry in 2013 reached PLN 435m, implying a very healthy ROE of 42%. Figure 10 Numbers of asset managers and managed funds in Poland Figure 11 Financial results of Polish asset management industry (PLN m) 1, ,014 1, Source: Analizy Online open-end close-end 2003 Source: GUS. In this report we will base our analysis of AuM on data from IZFiA which is published each month. As of end 2014 the Chamber gathered data from 39 of the biggest Polish asset managers. Total AuM in Poland exceeded PLN 200bn in June this year and reached PLN 209bn as of end In general managed assets may be divided into two main groups: those in capital market funds (CMF), which consist mostly of equities, mixed, bonds and money market funds, and those in non-public (dedicated) funds which include real estate, securitized and other non-capital assets. Figure 12 AuM of Polish mutual funds (PLN bn) ' ' '05 '07 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 specialized open-end 2013 # of assets managers (RHS) 1H14 P&L Revenues 2,561 1,820 2,323 2,309 2,057 2,554 YoY -29% 28% -1% -11% 24% OPEX 1,896 1,429 1,796 1,817 1,685 2,051 YoY -25% 26% 1% -7% 22% Net profit YoY -37% 21% -4% -24% 36% BS Assets 1,559 1,343 1,466 1,535 1,309 1,609 Equity 1,318 1,090 1,176 1, ,110 Key ratios RoA 37% 25% 32% 28% 23% 30% leverage RoE 44% 30% 39% 35% 29% 42% Capital market funds Dedicated funds 0 Source: BESI Research, IZFiA, Analizy Online. Table 5 Source: BESI Research. Key characteristic of capital market funds and dedicated funds Capital market funds Dedicated funds AuM as of end '14 (PLN bn) Type of assets Equities, bonds, money market Securitized, real-estate Profitability High and low margin Low margin Fees as % of AuM per fund Polish mutual funds have seen astonishing growth in AuM over the last decade largely thanks to the increase in popularity of dedicated funds, which started to be Page 11 of 35

12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 commonly used by wealthy private individuals and companies, and also for tax optimization purposes. However given that these products have lower margins (when we take AuM as a base) and generate fees per unit and not as a percentage of AuM, they distort the picture of asset growth in Poland. Thus next in this section we will focus on assets allocated to capital market funds (CMF). Capital market funds There has been a significant increase in the total of assets invested in capital market funds over the last decade as a result of the growing savings of Polish households and the excellent performance of the Polish equity market. Growth periods of (CAGR of 48%) and (CAGR 14%) were sharply interrupted by the financial crisis. AuM fell heavily from PLN 128.3bn at the end of 2007 to PLN 63.9bn in 2008, impacted both by the WIG index decreasing by 51% and huge net outflows of PLN 30.1bn. After the lessons learnt from the global financial crisis, Poles became more cautious when investing their savings. Inflows to mutual funds were substantially lower than in , but at the same time equity market corrections had less impact on net outflows (e.g. 2011). Figure 13 AuM in capital market funds (PLN bn) 16 Figure 14 Net inflows/outflows to Polish mutual funds (PLN bn) CAGR 48% CAGR 14% H Source: BESI Research, IZFiA. Source: BESI Research, Analizy Online. The structure of assets has not changed significantly over the last few years. 50% of AuM is invested in less risky assets, like bonds and money market products, and their share has increased from 30% at the beginning of The share of equity funds remains relatively stable; they have been partly replaced by other higher risk solutions, like absolute return and commodity funds. We note that mixed funds are displaced by products focused on individual class of assets and we believe this trend will continue in the future. In our opinion such products can be easily replicated by clients by investing simultaneously in equity funds and bonds or money market funds without paying higher fees and with a better ability to track performance of their portfolios. Figure 15 Historical structure of assets in capital market funds (end of 2014) Figure 16 Structure of assets in capital market funds (end of 2014) 100% 90% 80% 70% Equity % Money % 60% 50% 40% 30% Others 8.2 6% 20% 10% 0% Mixed % Bond % Money Bond Mixed Others Equity Source: BESI Research, IZFiA. Source: BESI Research, IZFiA. Page 12 of 35

13 The Polish savings market is dominated by asset managers related to financial institutions (mostly banks and insurers), but their share is on a downward trend and independent players are growing faster than the overall market (see Figure 18). PZU TFI is the largest Polish fund manager with PLN 17.1bn of assets in capital market funds as of 2014 and a 13.2% market share. Pioneer Pekao TFI has a 12.1% market share while PKO TFI has 12.0%. Large financial institutions control 88% of the market. Figure 17 Top 30 asset managers in Poland (as of end 2014) 30,000 25,000 20,000 15,000 10,000 5,000 Capital market funds Dedicated 0 TFI PZU Pioneer Pekao TFI PKO TFI Aviva Investors Poland BZ WBK TFI ING TFI Union Investment TFI Millennium TFI KBC TFI Skarbiec TFI Legg Mason TFI Quercus TFI Open Finance TFI ALTUS TFI BPH TFI TFI Allianz Opera TFI Investors TFI AXA TFI Noble Funds TFI Ipopema TFI MetLife TFI TFI SKOK AgioFunds TFI Trigon TFI Amundi TFI BPS TFI Superfund TFI Inventum TFI EQUES Investment TFI Source: BESI Research, IZFiA. Figure 18 Share of asset managers related to financial institutions 96.0% 94.0% 92.0% 9% 88.0% 86.0% 84.0% Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Source: BESI Research, IZFiA. Figure 19 Market share of independent asset managers 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% % Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 ALTUS TFI Investors TFI Quercus TFI Skarbiec TFI Other independent Source: BESI Research, IZFiA. Skarbiec s market share was relatively stable between 2% and 3% of total AuM in capital market funds in recent years. A diversified assets structure spread between bonds (50%), equities (30%) and other classes makes Skarbiec less vulnerable to current sentiment and the performance of a single market. Also a wide range of products allows the company to defend itself from drastic outflows by clients switching from equities to less riskier products in a market downturn, and then back again when sentiment towards equities improves. Looking at distribution, mutual funds can either own their own distribution network (mostly related to banks) or use a third party s. Over the last few years large financial institutions have started to be more open towards independent players and have allowed them to use their distribution networks. The process of getting access to the network is difficult and time-consuming, however it gives a great opportunity for a significant increase in AuM. Currently 21% of AuM in Poland is held by companies without their own distribution network and this has grown from 14% at the beginning of 2009; Page 13 of 35

14 we believe there is still some potential for those players to grow faster than the market. Figure 20 Share of mutual funds without own distribution network 25.0% 2% 15.0% 1% 5.0% % Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Source: BESI Research, IZFiA. Skarbiec has one of the most extensive distribution networks in Poland among independent asset managers. Thanks to this, the company may attract flows which are higher than is implied by its market share in AuM (2.3%). On our estimates in the last three years Skarbiec attracted 4.8% of net flows in Poland, however we note that 2H13 was negatively impacted by the company s M&A process. According to press reports at that time (Parkiet, ) PKO BP had exclusive negotiation rights to buy the company. Although eventually PKO decided not to make a bid, Skarbiec s main distributors stopped distributing the company s products in order not to support the business of their main competitor. Eventually the sale was not completed and performance got back on track. Excluding 2H13, Skarbiec s share in net flows was 6%. Figure 21 Skarbiec s share in market net flows (PLN m, LHS) % 15.0% 1% 5.0% H11 1H12 2H12 1H13 2H13 1H % -5.0% -1% -15.0% -2% Skarbiec market share in flows market share in AuM Source: BESI Research, Company Data Page 14 of 35

15 Business overview Company history 1997 BRE (mbank today) and ADIG establish Skarbiec TFI, the fifth mutual fund in Poland 2007 Polish Enterprise Fund V L.P. invests in Skarbiec Group Company executes legal and operational restructuring, including sale of non-core assets (ProService AT) 2013 Company starts cooperation with JP Morgan AM. Management team Skarbiec TFI was established as the fifth mutual fund in Poland right after the Polish capital market was set up and has 17 years of trading history. Alongside a long history and proven track-record, Skarbiec has an experienced management team with extensive knowledge of asset management services. Below we provide short profiles of Skarbiec s board members: Marek Rybiec, CEO Mr Rybiec joined Skarbiec TFI in He is responsible for strategic management, marketing, PR and services related to Skarbiec Excellence. Previously he held senior positions in the BZ WBK Brokerage House, PKO/Credit Suisse TFI, BRE Wealth Management and DI Xelion. Piotr Kuba, CIO Mr Kuba is chief investment officer and is also responsible for product strategy. He joined Skarbiec TFI in 1998 as an equity portfolio manager and has worked his way up through all the levels in the investment management department. He is a CFA charterholder and has an investment advisor licence. Bartosz Józefiak, CFO Mr Józefiak joined the company in Previously he worked at Zelmer Capital Group ( ) and Avery Dennison R.I.S. Polska ( ) as the CFO. Łukasz Kędzior, Member of the Board Mr Kędzior is responsible for retail sales and cooperation within the distribution network. In 2011 he worked as director of the Premium Clients Department in Skarbiec TFI and as Director of Institutional Clients in Skarbiec AM Holding. In he worked as a sales director at PZU TFI. In 2014 he returned to Skarbiec. Business model Skarbiec TFI is one of the leading independent asset managers in Poland. It manages 43 funds and sub-funds and with AuM of more than PLN 15bn (of which PLN 3.4bn is in capital market funds) is the fifth-largest Polish fund manager. The company serves more than 46,000 customers offering a diversified range of products: equity, mixed, bonds, money market and dedicated funds. The company s distribution network Access to the banks distribution network is one of the biggest barriers to entry for Polish mutual funds. To get into the network a company needs to spend several years proving its stability, have a sound record of fair dealing with clients and demonstrate a good performance by its managed funds. Skarbiec TFI has one of the largest distribution networks among independent asset managers in Poland, which we believe is key for increasing the value of AuM and growing earnings. The company has 72 distribution partners Page 15 of 35

16 including 9 banks, 14 brokerage houses, 16 insurers and 33 other companies (e.g. financial intermediaries). The number of partners remains relatively stable at around 70. Historically none of the distributors accounts for greater than a 10% share in the company s net flows. Table 6 Skarbiec s distribution network Source: BESI Research, Company Data Se p-14 Banks Brokerage Houses Insurers Own distribution Others TOTAL Banks are the most important partners with the largest client base. Currently the company cooperates directly with nine Polish banks, but we believe it has potential to expand further via the distribution networks of other banks in all four segments. We believe that Skarbiec could also strengthen cooperation in existing agreements by adding new client segments: private banking, premium and/or retail clients. Table 7 Details on part of company s distribution network Institutions Private banking Pre mium Clie nts Re tail clie nts Broke rage House Distributor 1 Distributor 2 Distributor 3 Distributor 4 dedicated Distributor 5 Distributor 6 dedicated ind. portfolios Distributor 7 limited # of funds Distributor 8 Distributor 9 Distributor 10 limited # of funds Distributor 11 Distributor 12 Distributor 13 Distributor 14 limited offer Source: BESI Research, Company Data In addition to the third party distribution channels, Skarbiec has developed its own channel: Skarbiec Excellence, a sub-brand aimed at individual portfolios of securities, which has a network of 33 sales people (they do not generate fixed costs) and its website is skarbiec24.pl. Client base The company s client base is well diversified, with 46,105 clients as of 10 September The average client is in the premium segment. He/she is 49 years old and has PLN 68k invested. Skarbiec s clients have a relatively long investment horizon. Their average investment period is 8.7 years. Clients loyalty means that AuM tends to be stable and, for example, there are lower net outflows in market downturns. However their longevity also means that a high proportion of the client base was won when distribution costs were lower than they are currently. So when the company seeks to win new clients, rising costs will mean that distribution costs are likely to grow faster than AUM. The ten largest retail clients account for 3.2% of total assets, of which the largest client has 0.7% of AuM in CMF. In the institutional segment, the ten largest clients had 14.5% of assets, of which 3.8% is owned by the largest one. Page 16 of 35

17 Figure 22 Key characteristic of company s clients Se p-14 Figure 23 Diversification of AuM 18.0% # of clients 42,983 45,399 46, % % growth 5.6% 1.6% 14.0% AuM per client (PLN k) % % growth 4.7% 12.3% Average client's age (years) Average investment period (years) % 8.0% 6.0% 4.0% 16.7% 13.7% 14.5% 2.0% % 2.7% 3.1% 3.2% Sep '14 Share of 10 largest retail clients Share of 10 largest institutional clients Source: BESI Research, Company Data Source: BESI Research, Company Data Cooperation with JP Morgan AM In 2013 the company started cooperation with JP Morgan Asset Management. Under the agreement the company has created a fund with four sub-funds: Emerging Markets Opportunities, Global High Yield Bond, Global Strategic Bond and Highbridge US Steep. The product utilises a master-feeder structure: it invests 100% minus liquidity in funds managed by JPM AM. It falls under lower-margin products and the company earns the greater of a fixed minimum fee or a percentage of AuM. During the nine months of its existence, AuM in the program have risen to PLN 134m, with the flagship Global High Yield Bonds fund accounting for 58% of assets. We believe that the well-recognized JP Morgan brand will allow the company to expand the distribution network and get access to previously unattainable customers, mainly high net-worth individuals. Figure 24 AuM in JP Morgan Funds (PLN m) Emerging Markets Opportunities Global Strategic Bond Global High Yield Bond Highbridge US STEEP Source: BESI Research, IZFiA. Page 17 of 35

18 Financial overview Assets under management With PLN 15.1bn of AuM at the end of 2014, Skarbiec TFI is the fourth largest player in Poland in terms of total AuM. PLN 11.7bn of this amount is managed in lower margin dedicated funds. Although this segment isn t and won t be a core business line for management, it has specific roles. First, it is an additional, profitable service which allows the company to meet the expectations of more demanding institutional and wealthy individual clients. Secondly dedicated funds stabilize earnings and reduce their volatility. Dedicated funds tend to be more stable than AuM in capital market funds which depend partially on market swings. And last but not least this makes Skarbiec TFI the fourth largest player in Poland, which helps to build trust amongst clients and a picture of the company as a reliable partner, which is important for expanding the distribution network and for marketing purposes. Skarbiec also has PLN 3.3bn (as of end 2014) in capital market funds and some minor assets in individual portfolios (PLN 0.1bn). Figure 25 Skarbiec s AuM (PLN bn, excluding individuals portfolios) H /15E 2015/16E 2016/17E 2017/18E 2018/19E Capital market funds Dedicated Source: BESI Research, IZFiA. Capital market funds Capital market funds are the most important products from an earnings point of view. They account for 22% of total AuM (as of 2014), but 92% of the management fees (2013). Based on data from IZFiA, PLN 1.3bn out of PLN 3.3bn in these funds is allocated to high margin products (PLN 0.9bn in equity and PLN 5bn in mixed and others), while PLN 2.0bn is invested in bonds (PLN 1.6bn) and in money markets (PLN 0.4bn). We think that the company still has capacity to grow its AuM via further expansion of the distribution network. Furthermore, independent asset managers in Poland are becoming increasingly popular and important given the still relatively low penetration of the investment products market and its low share in Poles savings. We also believe that the recent reform of the Polish pension system and the ongoing discussion about the risk of very low future pension benefits due to worsening demographics may prompt retail clients to save more for the future and to do it more conscientiously. We think that in the longer term some clients deposits in the banking system may be converted into higher yielding, but still relatively safe, bond solutions. We estimate that AuM in CMF will grow at a CAGR of 11.6% to PLN 5.6bn by 2018/19. We think this growth will be mostly in bonds and money products (related to savings for pensions and the increasing popularity of corporate bond market in Poland). Our model assumes a 5yr CAGR of 11.3%. We also think that equity related products will remain popular, but more and more assets will be Page 18 of 35

19 invested in non-domestic markets (5yr CAGR of 14.5%). We also assume that in line with market trends, mixed funds will be displaced by equity and less riskier solutions. We also assume a ca. 11% increase in other funds each year. Figure 26 Change in AuM in capital market funds H /15E 2015/16E 2016/17E 2017/18E 2018/19E Stock Mixed Bond Money Other Source: BESI Research, IZFiA. Income statement Revenues Management fee Skarbiec has three main sources of revenues: management fees, success fees and processing fees. Management fees accounted for 68% of total revenues in 2013 and were charged as a % of AuM in capital market funds or per funds for dedicated products. On our calculations (based on reported numbers, before kick-backs; see also discussion in Appendix 1), in H14 the average fee in the high margin segment hovered between 3.07% and 3.34% and between 1.15% and 1.19% in lower margin segment. We find this level to be in line with the Polish market. In general, fees in Polish mutual funds are relatively high compared with more developed countries. We think this is due firstly to the still low level of AuM in the system, meaning that large global players have not entered the market with damaging consequences for margins, and secondly most of the management fee is consumed by distribution costs, thus fund managers effectively receive ca. 1.1% in the high and ca. 0.6% in the low margin segment. It seems that in Poland the investment management market is currently static: the end client does not have material bargaining power to fight for lower fees, while large institutions (having asset managers in their group) with their own distribution network are not willing to decrease management fees or change the distribution model. We see two big risks which may knock the market out of equilibrium and cause a sharp decrease in the fees charged: an aggressive offer from a new, likely foreign player or an increase in significance of direct sales channels, mostly online channels. To be on the conservative side we assume that the gradual maturing of the Polish market will result in some deterioration in margins, but a rather insignificant one. In our model we assume 3.0% and 0.9% fees for high and low products respectively by E. Page 19 of 35

20 H / 15E 2015/ 16E 2016/ 17E 2017/ 18E 2018/ 19E Figure 27 Management fees (PLN m) Figure 28 Management fees in capital market funds H / 15E 2015/ 16E 2016/ 17E 2017/ 18E 2018/ 19E Low margin High margin Individual portfolio Other, incl. Dedicated 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0% 3.34% 2.66% 3.07% 3.15% 2.10% 2.04% 3.25% 3.20% 3.15% 3.10% 3.05% 3.00% 2.14% 1.99% 1.93% 1.87% 1.82% 1.77% 1.19% 1.19% 1.15% 1.15% 1.10% 1.05% 1.00% 0.95% 0.90% H / 15E 2015/ 16E 2016/ 17E 2017/ 18E Avg management fee Low margin High margin 2018/ 19E Source: BESI Research for estimates, Company Data Success fee Source: BESI Research for estimates, Company Data. Share of low margin products hovers around 58% of capital market funds in our forecasts. Taking advantage of the growing popularity of success fees charged by Polish asset managers, Skarbiec s management at the end of 2012 decided to start charging a quarterly success fee for managed funds. In 2013 the company received PLN 24.6m from success fees. In , based on the policy then in force, a success fee was charged only in selected funds and it did not account for a material part of the top line. Based on an unaudited simulation presented by the company, a material success fee could also have been charged in 2007, 2009, 2010 and This simulation does not include the impact on the value of AuM and funds performance (see figure 29). Figure 29 Success fee evolution (PLN m) % % % % % % % % 0.6% 0.6% 0.6% 0.5% 0.2% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% % Success fee Unrecognized part % of AuM Source: BESI Research, Company Data Under the simulation (for ) and real data (2013-9m14), in m14 the company would have earned PLN 156m of success fees, or 0.78% of the sum of average capital market funds AuM in these years. Data shows that a significant success fee would have been charged in six out of eight years. This would imply a success fee of 1.04% of average AuM if it had been booked in each year (0.78%/6*8). The success fee is calculated quarterly, which is advantageous for the company, as a good performance in one quarter is enough to charge a fee. Some funds assume annual settlement, which is less attractive for the asset manager. In addition, most of Skarbiec s managed funds do not have a high water-mark (HWM) hurdle or a loss carry-forward provision. The HWM comes Page 20 of 35

21 Success fee as % of AuM from hedge funds stipulating that a success fee may only be booked when the fund reaches a new high. Therefore when the stock market is weak and prices fall, a success fee will be booked when the fund has recovered any losses. Skarbiec can book a success fee when certain criteria regarding the performance of managed funds have been met. It is usually structured as shown below: 25%*(PERFORMANCE (BENCHMARK-MANAGEMENT FEE)) where: PERFORMANCE - % change in the fund s Net Asset Value (per unit) BENCHMARK - % change in model portfolio (usually WIBID, Citigroup Poland Government Bond Index, WIG, WIG20 (price index) or other publicly available financial index or their mix) MANAGEMENT FEE - % cost of management fee charged by the fund. Such a fee structure has several implications: 1. The company adjusts the benchmark for the management fee. This means that in order to book a success fee, it does not need to both recover fee paid by clients (which effectively decreases the return on the invested amount) and then beat the benchmark, e.g. WIG index. In this case it is enough to be no worse than the WIG index less the management fee. 2. The company can charge a maximum of 25% of profits and usually there is no cap for the success fee in relation to AuM, while some market solutions assume that the success fee cannot be higher than say, 0.5% of AuM in the fund. 3. The company won t book a success fee when performance is negative, even when it is better than the benchmark (adjusted for management fee). It is also worth mentioning that the company may decide to decrease the size of the success fee charged or forego it entirely. Such a decision may be taken by the management. Historical data shows that the company earns (or might have earned) a success fee when the return on the Polish equity market was positive. Practically no success fee is booked when the market performed poorly (this is a simplified conclusion because the company also has bonds and money market funds, but it seems to us that the equity market has the largest impact on success fees). We see this correlation as pretty strong. Since 1992, in ca. 74% of years the Polish market has delivered positive returns. Figure 30 Success fee (% of AuM, LHS) vs. WIG change (RHS) Figure 31 Success fee (% of avg. AuM) vs. WIG change (2007-9m14) 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 10% 47% 19% -21% 26% 8% 1% 6% 60% 40% 20% 0% -20% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% -51% -40% 0.4% 0.2% % H14 3Q14 Success fee as % of AuM WIG change -60% % -60% -40% -20% 0% 20% 40% 60% WIG change Source: BESI Research, Company Data Source: BESI Research, Company Data Page 21 of 35