For professional use only – Not for Public distribution

May 2012

Europe: Finding value on our doorstep

Ben Ritchie CFA, Senior Investment ManagerAberdeen Asset Management

2

Aberdeen equity structure

Andrew McMenigallAnn DewarBruce Stout Cindy Rose

Ella-Kara BrownFionna RossGail McCullie

Jamie CummingJamie GovanJill Sneddon

Martin Connaghan Samantha Fitzpatrick

Stewart MethvenVictoria MacLean

Source: Aberdeen Asset Management, 31 Mar 12

Ben RitchieBertie Thomson

Charles LukeEdward BealIan Hewett

James LaingJonathan AllisonKurt CruickshankLaurent IngelbertLouise KernohanPhilip WebsterRodney WellsRomney Fox

Samantha BrownleeSanjeet Mangat

Yoojeong Oh

Douglas BurtnickFrancis RadanoHughes McLean

Jason KotikJoe McFadden

Qie ZhangRalph Bassett

Robert MattsonMichael Sayers

Peter Hand

LondonAndy Brown

Catriona EdmondGabriel SacksFiona ManningJoanne Irvine

Mubashira BukhariOsamu Yamagata

Stephen ParrSusan McDonaldWilliam Scholes

Peter Taylor

São PauloBrunella IsperNick Robinson

Eduardo Figueiredo

+

Pacific Basinin

SingaporeThailandMalaysia

Hong Kong

Adrian LimAndrew GillanChou Chong

Christopher WongMark Gordon-James

Flavia CheongJames ThomKristy Fong

Louis LuPruksa Iamthongthong

Gan Ai MeeThomas Reeves

David Smith

Andrew PrestonCamille Simeon

Chhai UngMark Daniels

Michelle LopezNatalie Tam

Robert Penaloza

Adithep VanabrikshaOrsen Karnburisudthi

Ratanawan Saengkitikomol

Bharat JoshiGerald Ambrose

Jalil RasheedAndrew San

Mohd Najman Md IsaJolynn Kek

Evan Cheah

Frank TianKathy Xu

Nicholas ChuiNicholas Yeo

Keita KubotaSandy LimYuki Meyer

Chief Investment Officer

Hugh Young

Anne Richards

Head of Equities

Stephen Docherty Jeremy Whitley Paul Atkinson Devan Kaloo Hugh Young Kwok Chem Yeh

Global UK/Europe US GEM Pacific Basin Japan

3

Investment process

• Use models

• Filter for mandate

• Refine weightings

• Compliance checks

Company visit note

Quality

Pass or fail?

Aberdeen universe

Price

Cheap or expensive?

Portfolio construction

Model c35 - 74 stocks

Risk controls

Potential revisit

Watchlist/review

Monitor

Step 1 Step 2 Step 3

4

An intensive programme of company meetings

Year  No meetings

2011 734

2010 725

2009 720

2008 854

2007 917

2006 984

2005 884

2004 845

2003 700

2002 364

A typical equity manager spends much of their time visiting companies …

Source: Aberdeen Asset Management

5

Why Aberdeen?

• Disciplined and robust investment process

• Stable and experienced team with culture of sharing and challenging ideas

• Proprietary research/visit note conducted by the Fund Manager

• High conviction portfolios; c35 – 50 holdings

• We don’t own companies we don’t like, regardless of benchmark weight

• Invest for the long term; accept periods of short term underperformance

Buy-and-hold approach, with low turnover, we are true company stakeholders

UK Equity Income

7

Dividends – a key component of returns

• Dividends and their reinvestment represent a significant proportion of total returns

• A touchstone that indicates the strength of a company

• They encourage a disciplined and long-term approach

Original Artist - Reproduction rights obtained from www.CartoonStock.com

8

Quality is key to a sustainable and growing dividend

Dividend and company analysis are intertwined

Shareholder distributions are the output of a business model

Key issues:

• Attractiveness of the industry over the long term

• Can the company maintain or improve its competitive position

• Cyclicality – peak to trough profitability

• Operational leverage – translation of changes in sales to profits

• Cash flow dynamics – working capital cycle/capital requirements

• Strength of the balance sheet

• Management’s attitude towards distribution to shareholders

• Other stakeholders’ interests

Business Prospects

Financing

Management/Governance

Good quality companies can sustain and grow their dividends over the long term

9

Relative attractiveness of dividend prospects

• A combination of quality and valuation analysis

• The absolute/relative level and sustainability of the initial yield

• The long term prospects for sustainable growth in the dividend

Initial YieldLong Term Dividend Growth

TotalIncome Return=+

Sustainability and growth are critical but often overlooked

10

The significance of reinvesting dividends

• Reinvested dividends have been the dominant contributor to long term returns

• High initial yields seem attractive but are they sustainable?

• What are the long term prospects for dividend growth?

“Those who understand compound interest are destined to collect it. Those who don’t are doomed to pay it”

Albert Einstein

US: total return 10.1% pa UK: total return 10.1% pa US: capital gain 5.4% pa UK: capital gain 5.1% pa

0

1

10

100

1,000

10,000

100,000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Index value (start -1900 = 1.0; log scale)

Start of the year

16,797

16,160

198149

Source: Triumph of the Optimists, Elroy Dimson, Paul Marsh and Mike Stauton, Princeton University Press, 2002, p.145 as referenced in “The High Dividend Yield Return Advantage: An Examination of Empirical Data Associating Investment in High Dividend Yield Securities with Attractive Returns Over Long Measurement Periods”, Tweedy, Browne Fund Inc

FY 2012 forecast top 20 income producers

• Confident that our holdings can fulfil their dividend commitments

• We also employ a limited option writing programme, with options typically between 5 -10% out of the money with a 1 - 2 month duration to generate a small additional diversified income stream

  Forecast revenue%

Vodafone 9.5

Centrica 6.6

Royal Dutch Shell 6.6

GlaxoSmithKline 6.4

British American Tobacco 6.3

AstraZeneca 5.6

HSBC 5.1

Unilever 4.3

National Grid 4.2

Aviva 3.9

Total 58.5

  Forecast revenue%

BP 3.8

Tesco 3.7

BHP Billiton 3.1

Prudential 2.9

Pearson 2.6

Wm Morrison 2.1

Dunedin Smaller Companies 2.1

Standard Chartered 1.9

Compass 1.4

Provident Financial 1.4

Total 83.5

Source: Equities only, Aberdeen Asset Managers, Apr 12. The above securities have been included for illustrative purposes only 11

Ten largest portfolio investments and revenue split

Source: latest full year available data, Bloomberg and Aberdeen Asset Managers, Apr 12. The above securities have been included for illustrative purposes only

Investment Assets%

UK%

Europe%

US%

Rest of the world %

Royal Dutch Shell 5.7 10 27 21 52

British American Tobacco 5.7 2 35 5 59

Centrica 5.5 71 3 26 0

Vodafone 5.0 8 40 28 24

Unilever 4.8 6 21 21 42

GlaxoSmithKline 4.8 7 26 36 31

HSBC 4.7 15 33 18 34

BHP Billiton 4.2 3 16 11 71

Prudential 3.8 26 0 48 26

BP 3.6 22 23 34 21

• A diversified mix of well-known, good quality companies

• Portfolio provides access to attractive growth opportunities overseas with experienced management teams and strong corporate governance within a first-class legal framework

12

0

2

4

6

8

10

12

14

16

18

20

Gilt Yield

Dividend Yield

Relative to bonds UK equities look cheap

Source: Citigroup, Apr 12

%

13

1982 1986 1990 1994 1998 2002 2006 20100

10

20

30

40

50

60

70

80

90

Number of FTSE 100 Stocks Yielding More than UK Bond Yields

Market expectations for dividend growth remain progressive

UK dividend growth

Source: Citigroup, Apr 12

%

14

Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12-20

-15

-10

-5

0

5

10

15

20

2009 - Div Growth 2010 - Div Growth 2011 - Div Growth 2012 - Div Growth 2013 - Div Growth

Payout ratios are low

UK payout ratio

Source: Citigroup, Mar 12

1965 1970 1975 1980 1985 1990 1995 2000 2005 201030

40

50

60

70

80

90

UK Payout Ratio

15

UK – Net Debt to EBITDA (x)

Company balance sheets are strong

Source: Citigroup, Feb 12

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Mega Caps Large ex Mega Mid Caps

Forecasts

16

The attractions of investing in Continental Europe

18

Euro Crisis – Spanish and Italian 10y spreads, 2009 - now

ECB support reduced bond yields in Spain and Italy but the underlying problems persist

• Can over-indebted sovereigns complete fiscal rebalancing?

• Policies resulting in subdued growth

• With risk of further recession … and a bigger debt problem

• Against this the ECB role remains uncertain

Source: Datastream, CIRA, Citi, 12 Apr 12

Italy spreads vs bunds (bps) Spain spreads vs bunds (bps)

Apr 12Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12

0

100

200

300

400

500

600

19

Continental European equity markets are attractive

• A highly liquid market with a very wide range of potential investments

• Well-known larger companies with strong global franchises

• World-class mid-sized companies with excellent prospects for growth

20

European companies have many competitive advantages

• Intellectual property – highly developed in Europe due to early industrialisation. Often protected by internationally recognised patents and strong brands

• Experience of operating abroad – a legacy of empire and a small landmass that forced companies to be international from the outset.

• Skilled human capital – a function of developed education systems and specialist knowledge

• Strong corporate governance – companies operate within boundaries that protect the rights of shareholders

• Robust legal frameworks – ownership of physical and intellectual property is respected and maintained as a result of sophisticated and independent legal systems

Our companies enjoy market-leading positions with strongcompetitive advantages

21

Corporate balance sheets in good shape

European Net Debt/Equity (ex-financials)

Source: UBS European Market Map, aggregation with 475 stocks, as at 1 Nov 11

2004 2005 2006 2007 2008 2009 2010 2011 2012E30%

40%

50%

60%

70%

80%

• Downside protection

• Underpins valuations

• Gives optionality – expansion / M&A / dividends

22

Valuations are cheap on a historical basis

MSCI Europe – FY12E Price to earnings (latest = 10.3)

Source: MSCI, IBES, Morgan Stanley Research, 5 Apr 12

N12M PE Average

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

5

10

15

20

25

30

X

23

Valuations low relative to other regions

P/E 2012E by region P/B 2012E by region

Emerging World

Japan

USA

AC World

UK

Europe ex UK

0 2 4 6 8 10 12 14 16 18 20

PE 2012

Emerging World

USA

AC World

UK

Europe ex UK

Japan

0.0 0.5 1.0 1.5 2.0 2.5 3.0

P/B 2012

Source: Factset, 19 April 2012 Source: Factset, 19 April 2012

Dividends are attractive as well

Geographic dividend yields

Source: Citigroup, Feb 12

Eur ex UK

UK

Asia Pac ex Jap

LatAm

AC World

Japan

USA

0 1 2 3 4 5 6

DY 2012E

24

25

Outlook

• Stock markets have rallied strongly at the start of 2012 Central bank interventions have averted a systemic collapse of the European banking system

• New governments across the Eurozone have shown willingness to embark on austerity and consider structural supply side reforms

• The United States economy has (once again) begun to show signs of life and employment and housing data has been improving

BUT

• Western world faces years of deleveraging at both a government and consumer level

• Political and social implications remain highly uncertain

• Long term impact of ultra low interest rates and aggressive currency management as yet unknown

• Emerging market economies offer higher growth but also face economic management challenges

• Earnings upgrades yet to follow the market rise

26

Conclusion

• The global economy will remain sluggish at best

• Prospect for dividend growth better than for earnings

• Structural growth will remain at a premium

• Good value available on a selective basis

• Companies with strong business models, pricing power and robust balance sheets to prosper

• Cash returns to shareholders likely to remain a key yardstick of value

• Equity markets to remain challenging

Economic uncertainty has created opportunities for selective long term investors

Appendix

28

UK/Europe equity team

Team members Role Based Years in industry Years at Aberdeen*

Jeremy Whitley Head of UK & European Equities Edinburgh 24 16

James Laing Deputy Head of UK & European Equities Edinburgh/London 18 11

Charles Luke Senior Investment Manager London 14 12

Ed Beal Senior Investment Manager Edinburgh 11 11

Ben Ritchie Senior Investment Manager Edinburgh 9 9

Bertie Thomson Senior Investment Manager London 9 9

Philip Webster Investment Manager London 14 8

Romney Fox Investment Manager London 6 6

Rodney Wells Investment Manager London 13 12

Louise Kernohan Investment Manager London 7 7

Jonathan Allison Investment Manager Edinburgh 9 7

Yoojeong Oh Investment Manager London 8 6

Sanjeet Mangat Assistant Investment Manager London 4 4

Ian Hewett Assistant Investment Manager London 4 4

Kurt Cruickshank Assistant Investment Manager Edinburgh 3 3

Samantha Brownlee Investment Analyst London 3 3

Laurent Inglebert Investment Analyst Paris 9 4

* Or acquired companySource: Aberdeen Asset Management, 31 Mar 12

29

Performance summary

EUR Annualised (%)

31 Mar 12 3 months 1 year 3 years 5 years

European Equity Fund 8.65 -4.05 17.49 0.45

FTSE World – Europe (ex UK) 9.84 -11.38 12.31 0.09

Outperformance -1.19 +7.33 +5.18 +0.36

Quartile 4 1 1 3

Total return, gross of fees, EUR/GBPSource: Aberdeen Asset Management

GBP Annualised (%)

31 Mar 12 3 months 1 year 3 years 5 years

UK Equity Income Fund 4.36 6.21 23.59 2.29

FTSE All-Share 6.11 1.39 18.83 1.82

Outperformance -1.75 +4.82 +4.76 +0.47

Quartile 4 2 1 2

30

Investors should be aware that past performance is not a guide to future returns, the value of investments and the income from them can fall as well as rise and investors may get back less than the amount invested

The views expressed in this presentation should not be construed as advice on how to construct a portfolio or whether to buy, retain or sell a particular investment. The information contained in the presentation is for exclusive use by professional customers/eligible counterparties (ECPs) and not the general public. The information is being given only to those persons who have received this document directly from Aberdeen Asset Management (AAM) and must not be acted or relied upon by persons receiving a copy of this document other than directly from AAM. No part of this document may be copied or duplicated in any form or by any means or redistributed without the written consent of AAM

The information contained herein including any expressions of opinion or forecast have been obtained from or is based upon sources believed by us to be reliable but is not guaranteed as to the accuracy or completeness

Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Services Authority in the United Kingdom

Not for public distributionFor professional use only