July 30, Dear Partners,

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1 July 30, 2015 Dear Partners, Please find your quarterly statement attached. Coho Capital lost 0.61% during the second quarter and returned 3.58% through the first half of the year. This compares to an increase for the S&P 500 of 0.28% during the quarter and 1.23% for the first half of the year. We made two purchases during the first half of the year, which we detail below: Videocon d2h (VDTH) Videocon d2h is a satellite television provider in India. The Indian PayTV market is the fastest growing in the world and VDTH is the fastest growing PayTV provider in India with a 20% market share. Satellite TV is an attractive business model with recurring revenue streams, significant operating leverage and recession resistant economics. It is also a market that naturally lends itself to oligopolistic structures as growing economies of scale provide substantial barriers to entry for new competitors. Videocon went public as a result of a transaction with Silver Eagle, a Special Purpose Acquisition Company (SPAC), which acquired a 38% stake in VDTH. Remaining shares in VDTH are owned by Videocon Group, a family conglomerate with interests in oil and gas, retail and consumer electronics. Silver Eagle was started by two highly respected media executives, Harry Sloan and Jeff Saganasky. Between them, Mr. Sloan and Mr. Saganasky have run more than a half dozen entertainment companies and movie studios including TriStar Pictures, MGM, Sony Pictures, and CBS Entertainment. Both Mr. Sloan and Mr. Saganasky have an impressive record for value creation. Mr. Sloan started SBS Broadcasting with an initial investment of $5M and grew it into Europe s second largest broadcaster, reaching 100 million people in nine countries and helping to pioneer the model for PayTV along the way. SBS was sold to KKR in 2005 for $2.5 billion dollars. Mr. Sloan saw similar success with New World Entertainment, purchasing the company for $2M in 1983, leading the company through multiple acquisitions, including Marvel Entertainment, before selling the business for $260M less than six years after launch. Mr. Sloan s studio experience also includes stints as CEO of MGM Studios and Chairman of Lionsgate Films. For his part, Mr. Saganasky lifted CBS television ratings from worst to first and grew network cash flow at a 25% annual clip while serving as President of the unit for five years. Apart from CBS, Mr. Saganasky also served as head of programming at NBC where he developed Miami Vice and Cheers. Mr. Saganasky has studio leadership experience as well having served as Co-President for Sony Pictures, where he acquired Telemundo and then sold it three years later for six times Sony s

2 investment. While at Sony he also presided over the merger of one of the world s largest movie theater companies in combining Loews with Cineplex Odeon. Sloan and Saganasky will be serving on the board of directors at Videocon. One could argue that their lack of experience in the Indian market makes their background less relevant, but both executives have a record of producing stellar results. In addition, their familiarity with content providers and media negotiations should yield useful insights as Videocon scales. India s TV Market Offers Tantalizing Growth India is an attractive market with a long runway for growth. With an average age of 26 and a population of 1.3 billion people the potential opportunities are vast. Prime Minister Narenda Modi, elected in May of 2014, has set about reducing bureaucracy and opening up India s economy to make it more business friendly. The reforms are having their desired effect with India s economy on pace to grow 7.5% this year and over 8% next year. At 168 million TV households, India has the second largest TV market in the world behind China. However, household TV penetration is low at 61% compared to other developing markets, such as China at 97%, Vietnam at 86% and the Philippines at 83%. Historically, the Indian PayTV industry has been highly fragmented with tens of thousands of local operators selling pay TV service to connect to cable company networks. Increased modernization of India s media infrastructure has flipped this dynamic with the growing scale of larger players resulting in a more orderly marketplace where brand cachet carries more value. Rising incomes and increased leisure time should spur demand for home-based media and entertainment consumption. According to KPMG, the Indian TV market is expected to grow at a 16% compound annual growth rate between We think VDTH represents a play on India s growing middle class and believe the company will pay a key role in the modernization of the country s media infrastructure. The company is currently the second largest satellite TV provider in India behind Dish India. VDTH s marketing efforts have focused on localizing programming options as a distinct offering from packages offered by foreign owned DISH. The approach appears to be paying off with VDTH growing its market share from 11% three years ago to 20% today. In contrast, Dish India has seen its share of the market slip from 28% three years ago to 27% today. VDTH continues to narrow the gap capturing 26% of satellite subscriber additions during the first half of Well-Positioned to Capture Additional Market Share VDTH has a compelling program offering with the greatest number of overall channels across every conceivable package option including sports, premium and regional channels. VDTH also offers 37 HD channels as well as a suite of education focused services for children and a multi-channel music

3 offering. Despite more channels, VDTH offers attractive price points with some of the industry s best pricing. The company has a history of innovation in content curation and delivery with many popular channels debuting on VDTH including National Geographic, Discovery and ESPN. One of the reasons VDTH has been so successful in capturing market share has been Videocon Group s network of consumer electronics chain stores. Consumers can enter the store, arrange for new service and schedule installation the same day. In aggregate, VDTH has 200,000 distributors and is the only PayTV operator with its own service centers. VDTH s service record would make US cable customers envious with installations taking less than four hours for 97% of VDTH s customers. VDTH keeps things running smoothly with 6,700 customer support staff, including 2,500 engineers and 24/7 call centers featuring nine regional languages in addition to Hindi and English. Customers tend to be happy with the service, with monthly churn rates of only 0.46% compared to.70% for Dish TV India. As a point of reference, DirecTV has a churn rate of 1.35% in the US. Lower churn rates are critical as they increase the lifetime value of a customer. Given the patchwork nature of India s PayTV infrastructure, VDTH recognized early that a strong reputation for quality customer service would put the company in good stead. And indeed it has with a recent brand audit by KPMG naming Videocon as one of Asia s most promising brands. India s The Economic Times, the most widely read business newspaper worldwide after the Wall Street Journal, named Videocon as one of the best brands in 2013 and 2014 and Asia s Most Promising DTH (direct to home) Brand. Videocon s premier brand and reputation for quality customer service should enable the company to continue to gain share from competitors. Built-in Catalyst with Government Mandated Transition to Digital TV Even absent additional share gains VDTH should still manage to grow its subscriber base rapidly due to the Indian government s mandated transition to digital cable television under its Digital Access Service (DAS) initiative. Phase I and II of DAS occurred in 2013 and 2014 and phases III and IV are scheduled to be completed by December 2015 and December 2016 respectively. Phases III and IV will feature rural geographies where VDTH is favorably poised due to its vast rural distribution network and greater selection of local content preferences. Speaking to the government s digitalization drive, CEO Anil Khera noted the growth opportunities for VDTH, We believe that million homes will be making the switch to digital platforms. We are well positioned to benefit from this and we believe we will take the largest share of this opportunity, as we have in the past. Parsing out the numbers for the government mandated digitalization drive opportunity suggests VDTH can double its number of subscribers just from the digitalization initiative alone. The areas of focus for Phase III and IV contain 70 million homes where satellite providers have an 80% market

4 share of the homes that have already switched to digital TV. If satellite providers maintain their share in the transition to digital and VDTH continues to capture 20% of new satellite subscribers then the company should be able to grow its subscriber base by 11 million. This would be a doubling of VDTH s current subscriber base of 10.6 million and give the company approximately 22 million subscribers, a larger total than DirecTV s 20 million subscribers in the US. We think these numbers are likely conservative as VDTH s share of gross satellite subscriber additions continues to grow and averaged 26% for the first half of Significant Opportunities for Margin Expansion The satellite business is characterized by inherent operating leverage with a largely fixed cost base able to serve more subscribers with minimal variable costs. This is reflected in VDTH s fixed costs as a percentage of operating revenue falling from 22.5% in 2013 to 17.2% in An increased subscriber base also results in lower fixed costs if content fees are fixed fees rather than per subscriber. Even on a per subscriber basis, content costs are lower with a larger subscriber base resulting in increased negotiating leverage with content providers. In VDTH s case, half of its programming fees are fixed costs with the other half assessed fees on a per subscriber basis. VDTH s content costs have fallen from 40.4% as a percentage of revenue in 2013 to 37.0% today despite expansive growth in its channel line-up and increased carriage of premium and branded channel content. Videocon renewed all key content contracts for an average length of three years in 2015 ensuring that 95% of content costs are locked in through As VDTH s subscriber numbers continue to scale, operating leverage will result in higher margins. Results of recent years have demonstrated this trend with EBITDA margin growing from 7% in 2013 to 28.7% today. Rising Average Revenue Per User, or ARPU, represents another source of margin expansion. India s DTH industry s ARPU lags far behind not only mature markets but other developing markets as well. The average ARPU in India is $4 per month compared to $98 in the U.S. and $12-$14 in developing markets across Asia. One way to think about ARPU is to use movie ticket prices as a benchmark. The ARPU of satellite subscribers in the U.S. is roughly 12x the average movie ticket price. This compares to a 1x ratio for Indian satellite TV subscribers suggesting there is significant leeway to raise pricing. Our interest is piqued when we discover businesses with latent pricing power. Consolidation within the satellite TV market should be a key source of ARPU growth. At present, there are six satellite TV providers within India, compared to a typical industry structure of two providers in most other markets. The pace of consolidation has quickened in recent years with VDTH rapidly gaining share. The economies of scale enjoyed by VDTH and Dish India will make it increasingly difficult for peripheral players to compete, eventually paving the way for a duopoly or oligopolistic industry structure. Once the market consolidates there will be substantial opportunity to raise prices.

5 The migration to high definition (HD) programming from standard definition (SD) will also increase ARPU with the average ARPU of HD subscribers 2.5x that of SD subscribers. At present, only 10% of VDTH s subscribers are HD but 30% of new customers select HD programming. High Margin Advertising is an Untapped Opportunity Increased advertising revenue presents another source of upside for VDTH. At present, Indian broadcasters control the entire inventory of TV advertising. As the market for PayTV grows, India should migrate toward the standard in other developed markets in which PayTV operators with scale are able to negotiate ad inventory for themselves in exchange for favorable channel placement. There is also the opportunity to develop original content in which VDTH would own the ad inventory. VDTH recently launched an initiative to jumpstart ad revenues by commissioning a team of advertising sales professionals to sell ad inventory on proprietary channels. Recent channel additions, including an HD movie channel, a music channel, and a kids learning channel, should further increase potential ad inventory. VDTH has also started selling ads on its channel guide. While management has not yet put numbers to the anticipated growth in advertising revenue they have stated they expect growth to be exponential. Deceptively Cheap VDTH is deceptively cheap. The company trades for an EV/EBITDA of 10x based upon our estimates for This is a fine price to pay for one of the best business models we know of in the early stages of explosive growth. As a point of reference, VDTH s main competitor in India, Dish TV India, trades for 13x EV/EBITDA. As VDTH continues to take share from Dish TV India we expect the company to fetch a comparable multiple. Where things really get interesting is looking out two to three years in the future. We expect EBITDA growth of 30-50% a year over the next couple of years using past levels of subscriber additions, increased operating leverage and a 10% annual rise in ARPU. On our 2016 numbers, VDTH trades at an EV/EBITDA of 7x. Using a more appropriate multiple of 14x EV/EBITDA results in a double from current levels. There is a lot of embedded optionality in VDTH s growth prospects with the Indian government s digitalization initiative (DAS) as well as high margin advertising revenue likely to be material to the company s revenue growth. Looking at the level of potential subscriber additions from DAS, a 2-3x return in the shares is a reasonable outcome over the next two to three years. Even absent higher multiples, shareholders should be well served for years to come due to the compounding of profits. Why is it Cheap? VDTH is cheap for a number of reasons, all of which are transitory. Typical SPAC dynamics have held down shares as event focused investors have sold shares post announcement. VDTH only began

6 trading in April and the company has scant Wall Street coverage with only one analyst covering the company. In addition, because VDTH was not brought public through a typical IPO route with its attendant road show, it has had little opportunity to get in front of investors. We trust that as Videocon continues to post impressive growth and investors familiarize themselves with the attractive economics of the satellite business, demand for shares will respond in kind. The opportunity to own a Dish or DirecTV early in its lifecycle offers significant opportunity for compounding capital. While market operating dynamics are vastly different between India and the US, consider that DirecTV trades for an enterprise value of $62 billion dollars for 35 million subscribers (with 43% of subscribers in Latin America) while VDTH trades at an enterprise value of $1.56 billion dollars with 11 million customers. Viad (VVI) At Coho, we are always looking for informational inefficiencies. One of the areas in which we have found success is analyzing businesses with multiple operating units. On occasion, such businesses possess a high quality enterprise obscured by the dominant business unit. Such is the case with Viad, a company primarily known for its trade show exhibition management business but with a jewel of a travel and recreation business. Viad Tradeshow Business, Oligopoly with Sticky Customer Relationships Let s start with the exhibition management business, Global Experience Specialists, or (GES), which generates 89% of Viad s revenues. GES focuses on trade show management and exhibitor services including planning, installation, kiosk and exhibit design, audio and video and on-site management. GES is the leading exhibition provider In Canada and the UK and the second largest provider in the US. There are a number of things we like about the GES business. It operates within a duopolistic market structure. Viad and its primary competitor, Freeman, control 80% of industry profits in the US with Viad maintaining a 30% market share. In Canada, Viad accounts for nearly half of all dollars allocated to exhibition construction and management and in the UK Viad dominates with a 55% market share. It s a scale business with leading players having best in class local operations that are hard for new entrants to create from scratch, creating barriers to entry. Viad s customer base is highly fragmented with no customer accounting for more than 6% of GES revenue. Contracts are typically for 3-5 years creating recurring revenue streams. Last, and probably most important, there is a switching cost for customers wishing to hire new providers. This explains why Viad has a client retention rate of over 90%.

7 Viad Travel and Recreation, Unique Assets with Few Substitutes The Viad Travel and Recreation business, known as VTR, sells travel and leisure experiences at four well-known national park destinations in North America, including Glacier and Denali National Parks in the US and Banff and Jasper National Parks in Canada. The parks benefit from perennial demand with current annual visits of over eight million. A rise in global wealth has led to a surge in international tourism, driving strong demand for park facilities. VTR generates revenue through providing transportation, lodging, package tours, and creating unique attractions. While VTR only accounts for a tenth of Viad s revenue it generates 40% of profits due to its lush margins. The VTR business is highly profitable, sporting an EBITDA margin of 30.2% last year compared to 5.7% in GES. Not only is the business highly profitable but growth has been explosive with a CAGR of 15% over the past five years. VTR s lodging business is a steady generator of revenue in supply constrained markets but VTR s crown jewel is its attractions business. VTR s attractions offer unique experiences you can t get anywhere else such as a tour of the Athabasca Glacier on vehicles designed specifically for glacier travel or Jasper Park s Glacier Skywalk, a cliff edged walkway allowing you to step into the void with nothing but a sheet of glass between you and gravity. The economics of VTR s attractions business are extremely compelling. The Skywalk cost $20 million to build but generated $5.5 million dollars in its first year of operations and possesses 60% operating margins. Viad s VTR business possesses unique assets with few substitutes, limited supply and barriers to entry through government permits. One way to think about this business is similar to the casino business in Macau, though much more wholesome. Similar to Macau, where the government limits the licenses to operate casinos, the Canadian and US Park Services are very restrictive in terms of new builds. It is virtually impossible to build new inventory within the parks and even building outside of the parks is heavily restricted. As a result, Viad is able to earn abnormal economic returns. Tradeshow Business for Below Market Multiple with Recreation Business for Free It s clear that Viad s business structure obscures the value of its VTR assets. Given the lack of synergies between Viad s two business units it does not make sense to keep the two businesses attached at the hip. The sensible course of action would be to separate the two businesses into independent operating entities where they would be worth almost double their current market quotation.

8 Management has guided its exhibitions business to over $1 billion in revenue and $80 million in EBITDA by Given the stability of Viad s market position and recurring cash flows, we think 8x EV/EBITDA is appropriate, especially given a growing sales contribution from high margin complementary services. Recent acquisition multiples within the exhibitions space have been in the region of 10x EBITDA so we think our estimates of value are conservative. Based on Viad s guidance for its exhibition business in 2016, Viad trades for an EV/EBITDA multiple of 7.6x. This implies you are getting Viad s travel and recreation business for free. So what would Viad s travel business be worth to a buyer? For valuation guidance we can look toward other mountain recreation specialists such as Intrawest Holdings and Vail Resorts which both trade at a 14x EV/EBITDA multiple. Due to their reliance on skiing both Vail and Intrawest have to pray to the snow Gods to earn economic returns, whereas Viad just needs summer to arrive each year, fair weather or not. If we want to consider attractions as a comp, we can look at amusement park operators Six Flags or Cedar Fun which trade at an average EV/EBITDA multiple of 14.3x. Like Viad, both Six Flags and Cedar Fun have unique assets with limited supply and a captive audience. The comps I have mentioned have greater scale in their operations so we discount Viad s multiple by 15% for what we think is an appropriate metric of 12x EV/EBITDA. We have already included debt in our EV/EBITDA calculation for the exhibitions business so we don t have to count it twice. With a 12x EV/EBITDA multiple, Viad s travel business is worth $480M. Since we are getting it for free we can add it to Viad s existing market cap suggesting upside of 95%. We felt strongly enough about Viad s prospects to present the idea at Fairfax Financial s annual meeting in Toronto earlier this year. Both VDTH and VVI are emblematic of the kinds of businesses we endeavor to own at Coho durable, free cash flow generative, with predictable revenue streams and defensible market positions. VVI, while more cyclical than VDTH, offers strong downside support in the form of asset value. Both companies possess talented management teams and have multiple paths toward unlocking value. Normally these types of companies are priced dear but recent transactions (SPAC IPO for VDTH) and the transactions not taken (a sale of the exhibition management or recreation business for VVI) have resulted in inefficient pricing. With increased analyst coverage and the opportunity for the economics of these businesses to shine through we expect price discovery to result in higher valuations. Respectfully yours, Jake Rosser Managing Partner Coho Capital Management

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