r conviction euro citywire - 2012-05-09-vf
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TRANSCRIPT
09 mai 2012
Montreux - May 2012
European equitiesCrisis, source of opportunities for high-conviction strategy
Montreux - May 2012
Table de matières
Sections1 Rothschild & Cie Gestion 2
2 Investment team 6
3 Investment process 10
4 Performance 15
5 Macro-economic outlook 20
6 Portfolio characteristics 41
7 Main operations since August 2011 44
AnnexesA Germany – Divergence of leading indicators 57
B European banking sector 59
C Exports 61
D Contacts details 64
E Funds Characteristics 68
F Disclaimer 71
1
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1. Rothschild & Cie Gestion
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Values persisting from generation to generation
Rothschild Values Tradition & Innovation Transparency & Efficiency Integrity
James1792-1868
Paris
Amschel1773-1855Francfort
Carl1788-1855
Naples
Mayer Amschel Rothschild1743-1812
Salomon1774-1855
Vienne
Nathan1777-1836
Londres
Gustave1829-1911
Alphonse1827-1905
Edmond1845-1934
Robert1880-1946
Edouard1868-1949
Maurice1881-1957
Edmond1926-1997
Benjamin1963
Nathaniel1946
Robert1947
Eric1940
Edouard1957
David1942
Elie1917-2007
Alain1910-1982
Guy1909-2007
Lionel1808-1879
Nathaniel1812-1870
Leopold1845-1917
Nathaniel1840-1915
Nathan1844-1881
Henry1872-1946
Anthony1887-1961
Nathaniel1877-1923
Philippe1902-1988
Evelyn1931
Victor1910-1990
Jacob1936
Philippine1935
Extincts armsEnglish arm English arm set up in France French arm
1.1 The Rothschild Heritage1. Rothschild & Cie Gestion
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The asset management branch of Rothschild & Cie Banque
A benchmarck in the asset management field €19,5 billion AUM
Asset class breakdown
A diversified client base
A family business with commitedmanagers
Legal structure : limited partership general partners jointly responsible for
the commitments of the Company from their personal assets
Financial soundness
A fully-owned subsidiary of Rothschild & Cie Banque (Fitch A rating (long term) /F1 (short term))
SAS 70 Type I certificate
Experience
Founded in 1982 200 experienced and qualified
employees An awarded management
International
European client base : France, Belgium, Netherlands, Luxemburg, Germany, Austria, Switzerland, Spain, UK, Scandinavia
Source Rothschild, as of December 30th, 2011
1.2 Rothschild & Cie Gestion1. Rothschild & Cie Gestion
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To realize the highest possible alpha over the long term, we make bets to seize opportunities offered by short-term inefficiencies of the market, sometimes different from consensus ones.
A conviction-based and contrarian management looking for the convexity of investments
We focuse on stocks on which the managers have strong convictions : we aim at creating added value by making clear choices allowing them to strongly over-perform portfolio benchmark
Portfolio managers favour asymmetric investments, those for which upside potential is higher than downside risk in worst case scenario
Contrarian
Convexity Conviction
Fundamental analysis
1.3 Investment philosophy1. Rothschild & Cie Gestion
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2. Investment team
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2.1 Equity resourcesThe Equity team benefits from the entire resources of Rothschild & Cie Gestion
The fundamental analysis made by 9 experts
Two senior portfolio managers, highly experienced on the Equity market
The 40 investment professional benefit from the macro economic scenario of Rothschild & Cie Gestion defined by the most senior members of the investment team
BOTTOM UP
Fundamental analysis
STOCK SELECTION
&
PORTFOLIO CONSTUCTION
26 years of experience
At Rothschild & Cie Gestion since 2003
General Partner,
Philippe Chaumel
26 years of experience
At Rothschild & Cie Gestion since 2004
General Partner,
Didier Bouvignies
Buy side analysts
Gabriel Hors
Anthony Bailly
Natacha Rousset
Ludivine de Quincerot
Didier Bouvignies
Philippe Chaumel
Euro/Europe Portfolio managers
LoicTonnelier
DanielFighiera
Thematics
1
3
ThierryCombes
(Small cap) (Small cap)
(US)
TOP DOWN
Investment scenario definition
General Partner
Didier Bouvignies
General Partner
Philippe Chaumel
Equity Fixed Income Alternative MultimanagementMultimanagementEconomic & buy
side research
General Partner
Denis Faller2
2. Investment team
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Two senior portfolio managers:‒ both General Partner of the company, thus ensuring stability of the team
‒ A proven track-record supporting by strong knowledge of the markets
‒ Investment decisions and portfolio construction depend only on the 2 portfolio managers. Portfolios reflect thus theportfolio managers’ strongest convictions, avoiding consensual choices which could be made during biginvestment committees with too many people
Broad resources to cover the equity market:‒ 9 people involved in the fundamental analysis: 4 experienced buy side analysts, 2 senior portfolio managers, 1
US portfolio manager, 2 European small/mid cap investment professionals
2.2 Experienced equity portfolio managers26 years of average experience
Our expertise relies on an in-depth fundamental analysis of companies, while integrating a top-down approach in order to control macro-economic bias in the portfolio construction
26 years experienceBackground DESS Gestion des Organismes Financiers et Bancaires SFAF, Société Française des Analystes FinanciersRothschild & Cie Gestion since 2004
General Partner
Didier Bouvignies
26 years experienceBackground Graduated from Ecole Supérieure de Commerce de Paris SFAF, Société Française des Analystes FinanciersRothschild & Cie Gestion since 2003
General Partner
Philippe Chaumel
2. Investment team
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2.3 Buy-side analystsA team of four buy-side analysts fully dedicated to European equities
11 years experienceSectors Automobile Media Technology Telecoms
Buy-side analyst
Anthony Bailly
14 years experienceSectors Foods & Beverages Consumer goods Oil & Gas Aerospace, Air transportation / Transport Retail Leisure & travels
Buy-side analyst
Ludivine de Quincerot
19 years experienceSectors Chemical Basic ressources Real Estate Industrial goods & Services Construction Healthcare
Buy-side analyst
Gabriel Hors
14 years experienceSectors Banks Insurance Utilities
Buy-side analyst
Natacha Rousset
2. Investment team
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3. Investment process
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3.1 Investment philosophyActive, High-conviction based management looking for convexity
Investment philosophy Description
Conviction Portfolio reflects the strongest convictions of the management team on asset classes, countries, sectors and holdings, instead of investing according to a benchmark.
Convexity During high volatility periods, to construct conviction based portfolios can be risked which is why we are paying a strong attention to convexity in our investments. Portfolio managers favour asymmetric investments, those for which upside potential is higher than downside risk in worst case scenario.
Contrarian approach To realize the highest possible alpha over the long term, we have to make major bets to seize opportunities offered by short-term inefficiencies of the market, sometimes different from consensus ones.
Research driven Companies are at the heart of our process: we invest only in companies on which we have a strong conviction. Our analysis is based on a fundamental approach which objective is to understand the reasons of a company’s valuation and profitability.
Style Our investment strategy aims at delivering superior returns whatever the market conditions are. That is why we prefer to avoid permanent bias and to select investment that fit market environment. Thus, our investment style can be considered as “blend” or “opportunistic”.
Long-term horizon Our investments are based on fundamental criteria which sometimes need catalysts to unlock value. For that reason, we need a minimum period of time to allow market remove inefficiencies.
3. Investment process
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3.2 Investment processFundamental analysis is the heart of the investment process
Earnings potential Competition Valuation
Macro-economic cycle positioning
Companies margins Valuation
Concentrated portfolio
Macro-economic analysis
Fundamental analysis
Comparing portfolio to macro-economic scenario
Understanding of company earnings and its evolution forecasted by the market
3. Investment process
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3.3 Stock selectionIn-depth fundamental analysis
Stock selection relies on in-depth fundamental analysis aimed to understand the company’s profitability forecasted bythe market. It is based on three main steps: Understanding of market prices and the underlying forecasts; Challenging the market: evaluation of company’s value-creating factors in conjunction with an assessment of its
sustainability of profitability (competitive environment, position in the cycle, restructuring). The analysis aims toanswer following questions: is profitability sustainable or threatened? Does the company have competitiveadvantages to maintain its profitability to a higher level of its competitors?
Upside potential in case of right scenario / downside risk in the worst case scenario (looking for convexity)
Understanding of market prices Challenging the market Convexity
Valuation of assets: enterprise value/capital employed, enterprise value/sales
Valuation of earnings power: price to cash flow, price earnings ratio, free cash flow yield
Earnings forecasts: 5-year estimates
Understanding of market outlook of company’s profit (valuation ratios analysis)
Understanding of company (management, strategy, background) and its environment (competition, market shares, barriers to entry, …)
Assessment of profitability estimates and potential impact on valuation
Comparison of our profitability expectations to market ones, integrated in prices
Upside potential
Identify under-valued companies or companies for which earnings growth forecasts are above market expectations
Explain the origin of company’s profit and identify factors that could increase / support growth (competitive advantages, restructuration’s, cycle positioning)
Looking for asymmetric investments, those for which upside potential are higher than downside risk in the worst case scenario
Factors of analysis
Objective
3. Investment process
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3.4 Portfolio constructionConcentrated portfolio on the strongest conviction of portfolio managers
The size of a holding can be as large as 10%, although the typical entry weight for a stock in the portfolio is around 2%(minimum 1.5%). The portfolio construction process leads to a concentrated portfolio of around 45-60 stocks.
The decision regarding position weight is based on:
The portfolio managers’ conviction level: to generate alpha we need to grab investment opportunities from themarket to take clear-cut positions while not following indices.
The stock’s upside potential: the investment team assesses its view on the stock compared to consensus one.Thus, when they have strong conviction on a stock, largely different from the consensus, weighting will be high; if theconviction of the team is closed from the market one (already in market prices) or in case of lower conviction, bet willbe less important.
The investment convexity: conviction-based portfolios can be risked with high volatility markets. During the portfolioconstruction, weightings are determined according to the portfolio managers’ conviction level but also to the level ofrisk linked to the position. This is why the investment team prefers asymmetric investments, those for which upsidepotential are higher than downside risk in the worst case scenario.
Assets Description
Sector Maximum sector deviation: +/- 1000 bp
Holdings Concentration: 45-60 holdings
Individual holding: weight between 1,5% and 10%
Risk Maximum tracking-error: 8% (internal rule)
3. Investment process
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4. Performance
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4.1 Long-term returnsLarge excess returns over the medium to long-term…
R Conviction Euro - 5-year evolution
NotesPerformance of C-units, net of fees. Past performance is not a guide to future performance and it may fluctuate over time.Benchmark: Eurostoxx ®
Over 5 years, R Conviction Euro significantly outperformed its benchmark as well as its peers
4. Performance
16
35
45
55
65
75
85
95
105
30/04/07 29/04/08 29/04/09 30/04/10 30/04/11 30/04/12
Source: Rothschild & Cie Gestion, 30/04/12 R Conviction Euro Benchmark
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60
70
80
90
100
30/06/11 30/08/11 30/10/11 30/12/11 29/02/12 30/04/12
Source: Rothschild & Cie Gestion, 30/04/12 R Conviction Euro Benchmark
70
80
90
100
110
31/12/2008 13/01/2009 26/01/2009 08/02/2009 21/02/2009 06/03/2009
R Conviction Euro Benchmark
40
50
60
70
80
90
100
31/12/07 01/03/08 01/05/08 01/07/08 31/08/08 31/10/08 31/12/08
R Conviction Euro Benchmark
100
120
140
160
180
200
06/03/09 25/07/09 13/12/09 03/05/10 21/09/10 09/02/11 30/06/11
R Conviction Euro Benchmark
4.2 Short-term returns…but short-term under-performance could appear in some market environment
R Conviction Euro C - 31-12-2007 / 31-12-2008 R Conviction Euro C - 31-12-2008 / 06-03-2009
R Conviction Euro C - 06-03-2009 / 30-06-2011 R Conviction Euro C - 30-06-2011 / 30-04-2012
NotesPerformance of C-units, net of fees. Past performance is not a guide to future performance and it may fluctuate over time.Benchmark: Eurostoxx ®
Our fundamental approach, without permanent bias, aims to fit with market environment.
It seeks to anticipate reversal of the trends in economic cycle and could sometimes mismatch with markets
+16,3%
+27%
-0,56%
Large excess return during the first bear market
Over-performance during the bull market
Neutral
-12%
Under-performance
4. Performance
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4.3 RisksRisk indicators
NotesPerformance of C-units, net of fees. Past performance is not a guide to future performance and it may fluctuate over time.Benchmark: Eurostoxx ®
R Conviction Euro C 5 years 3 years 2 years 1 year Standard Deviation 28,33% 28,33% 31,67% 38,34%
Tracking-error 8,08% 8,48% 9,79% 12,76%
Information Ratio 0,56 -0,19 -0,48 -0,82
Sharpe ratio -0,30 0,02 -0,44 -0,78
Alpha 6,09% -1,22% -1,38% -4,32%
Beta 1,04 1,22 1,28 1,35
Source: Rothschild & Cie Gestion, 30/04/12
4. Performance
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4.4 Recent awards
Alpha League Table Grands Prix Eurofond Victoire des Sicav
Lipper Fund Awards France Grands Prix de la Gestion d’actifs Pyramides de la gestion
Portfolio management many times rewarded
Source Lipper
Company awards
Fund awards
Best French Asset Management Company -Equities2011 and 2010 awards
Best French Asset Management Company2011 and 2010 awards
Best Specialist Asset management - Broad range of products2011 awards
Source L’AGEFI Source Investissement Conseil
Source Europerformance-EDHEC Risk Source Eurofonds-Le Monde Source La Tribune
Lipper Fund Awards 20101st over 3 yearsCategory « Eurozone Equity »
GPGA 20101st over 3 years Category « Eurozone Equity »
Pyramides 20102nd best fundCategory « Large cap Eurozone Equity »
4. Performance
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5. Macro-economic outlook
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Growth above expectations, supported by consumption
US – ISM surveys and activity US – Retail sales excluding gazoline
5.1 US economic growth5. Macro-economic outlook
21
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Growth supported by improvement in employment and decrease in household saving rates
US – Quarterly job creations US – Personal saving rates
5.2 US economic growth5. Macro-economic outlook
22
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Real Estate recovering thanks to solvency improvement of households
US – Housing US – Housing affordability
5.3 US economic growth5. Macro-economic outlook
23
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Recent improvement of leading indicators with strengthening on domestic demand in China
United-States and Emerging markets limit the slowdown in Eurozone growth
Business surveys – ISM non-manufacturing China
5.4 Global growth5. Macro-economic outlook
24
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Cut in interest rates benefiting from declining inflationary pressures
Central banks – Policy rates China – Consumer prices
5.5 Emerging markets growth5. Macro-economic outlook
25
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-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
Mar
' 10
Avr'1
0M
ai'10
Juin
"10
Juille
t'10
Août
'10Se
p' 10
Oct'1
0No
v'10
Dec'1
0Ja
n'11
Fév'
11M
ar' 1
1Av
r' 11
Mai'
11
Juin
'11Ju
illet'1
1Ao
ût'11
Sep'
11oc
t'11
nov'1
1de
c'11
Janv
'12Fé
v'12
Mar
s'12
avr-1
2
Eurozone - 2011
United States - 2011
Source : Consensus Forecasts, Rothschild
Growth estimates - 2011
Japan - 2011
Germany - 2011
-1,0
0,0
1,0
2,0
3,0
4,0
Jan'1
1
Fév'
11
Mar
' 11
Avr'
11
Mai'
11
Juin
'11
Juille
t'11
Août
'11
Sep'
11
oct'1
1
nov'1
1
dec'1
1
Janv
'12
Fév'1
2
Mar
s'12
avr-1
2Eurozone - 2012
United States - 2012
Source : Consensus Forecasts, Rothschild
Growth estimates - 2012
Japan - 2012
Germany - 2012
A potential improvement of estimates
Growth estimates 2012 Growth estimates 2011
5.6 Eurozone growth5. Macro-economic outlook
26
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Growth in Eurozone is led by Germany benefiting from wages growth
Business surveys – PMI Non-manufacturing Germany - Wages
5.7 Eurozone growth5. Macro-economic outlook
27
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Positive effect of decrease in commodities prices
Eurozone – Consumer prices Raw materials in $
5.8 Eurozone growth5. Macro-economic outlook
28
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-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Portugal Spain Germany Italy France
Source OECD
Trade balance contribution
Eurozone – Trade balance Trade balances 2011 – Contribution to GDP (%)
5.9 Eurozone growth5. Macro-economic outlook
29
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Trade balance contribution
Eurozone – Current account (% of GDP) Germany – Trade balance
5.10 Eurozone growth5. Macro-economic outlook
30
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Positive impact of the european quantitative easing for the Banks and States refinancing
Central bank’s balance sheet
5.11 European issues5. Macro-economic outlook
31
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LTRO effect : improvement of the sovereign debt market
Eurozone – Government benchmark 10 years Italy – Government benchmark
5.12 Interest rates5. Macro-economic outlook
32
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Historical attractive valuation
Eurozone France
5.13 Equity5. Macro-economic outlook
33
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Historical undervaluation of European equities vs US equities
Comparative returns
5.14 Equity
0,6
0,6
0,7
0,7
0,8
0,8
0,9
0,9
1,0
mai-98 mai-00 mai-02 mai-04 mai-06 mai-08 mai-10
Actions zone Euro chères / actions américaines
Actions zone Euro pas chères / actions américaines
Moyenne
Source : SG, Rothschild
Eurozone stocks expansive vs US stocks
Eurozone stocks cheap vs US stocks
Average
Evolution relative du ratio Cours / Actif net
5. Macro-economic outlook
34
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5.15 EquityA momentum market?
SXXE (total return)
World - Relative performances Eurozone – Relative performances
5. Macro-economic outlook
35
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5.16 Equity‘Growth’ vs. ‘value’ : historical decorrelation
Composite of 10 « growth » stocks : LVMH, Essilor, Publicis, Dassault Systèmes, Air Liquide, Sodexo, PPR, Sanofi, L’Oréal, Danone
Composite of 10 « value » stocks : STMicroelectronics, TF1, Arcelor Mittal, Lafarge, EDF, Peugeot, Société Générale, Veolia, Alcatel Lucent, Air France
Source : BloombergPerformances based on the level of the CAC 40 on the 30/06/2007, ie 6054,93 pts
Source : BloombergPerformances based on the level of the CAC 40 on the 31-12-2008, ie 3217,97 pts
Evolution since June 30, 2007 (pic of the market) Evolution since December 31,2008 (bottom of the market)
5. Macro-economic outlook
36
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0
50
100
150
200
250
300
350
4000
0,2
0,4
0,6
0,8
1
1,2
1,4
Price-to-Book ratio Europe CDS Financials
Banks – high correlation with CDS
Price-to-Book ratio and CDS evolution (reversed scale)
European Banking sector France
5.17 Equity5. Macro-economic outlook
37
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0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
0
2
4
6
8
10
12
nov.
-06
mar
s-07
juil.
-07
nov.
-07
mar
s-08
juil.
-08
nov.
-08
mar
s-09
juil.
-09
nov.
-09
mar
s-10
juil.
-10
nov.
-10
mar
s-11
juil.
-11
nov.
-11
mar
s-12
Natural gaz$/mBTU
Gallon $
Source : Bloomberg, Rothschild
Oil increase links to geopolitical issues
US – Energy prices US – Oil imports
5.18 Main risks : energy prices5. Macro-economic outlook
38
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-6
-4
-2
0
2
4
6
8
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Germany
Nominal GDP
Government benchmark10 years
Unusually low level of the German interest rates
Germany
5.19 Main risks : bond market shock5. Macro-economic outlook
39
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Economic environment, characterised by:
Global growth around 3%, led by Emerging countries and by the recovery in the United-States Eurozone growth, less negative than anticipated because of:
• Growth potential in Germany• Decrease in inflation
Refinancing program of ECB
Should lead markets at the opposite of 2011, with a decrease in risk premium on:
Italian bonds Corporate bonds Eurozone equities Financial and cyclical stocks
5.20 Conclusion5. Macro-economic outlook
40
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6. Portfolio characteristics
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6.1 Sector breakdownApril 2011 vs. April 2012
Sector positionning Relative positionning
6. Portfolio characteristics
42
30,5%
16,8%
13,8%
11,7%
8,5%
8,4%
5,7%
4,6%
31,7%
11,9%
15,7%
8,8%
12,0%
8,2%
6,0%
5,7%
Finance
Industry
Télécoms - Utilities
Consumer goods
Services
Technology
Oil & Gas -Basic resources
Santé
Source : Bloomberg - Rothschild & Cie Gestion, 30/04/11
30/04/2012 30/04/2011
11,7%
2,1%
1,9%
-7,0%
1,9%
3,6%
-13,0%
-1,3%
8,7%
-2,8%
0,6%
-5,6%
5,5%
3,4%
-11,6%
1,8%
Finance
Industry
Télécoms - Utilities
Consumer goods
Services
Technology
Oil & Gas -Basic resources
Santé
Source : Bloomberg - Rothschild & Cie Gestion, 30/04/11
30/04/2012 30/04/2011
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6.2 Country breakdownApril 2011 vs. April 2012
Country positionning Relative positionning
6. Portfolio characteristics
43
50,2%
21,4%
16,4%
5,6%
4,4%
2,1%
57,4%
15,8%
17,0%
3,8%
3,3%
2,7%
France
Germany
Italy
Netherlands
Spain
Other eurozone
Source : Bloomberg - Rothschild & Cie Gestion, 30/04/11
30/04/2012 30/04/2011
17,2%
-8,8%
8,5%
-3,1%
-4,8%
-9,0%
24,2%
-10,9%
7,8%
-4,8%
-7,8%
-8,3%
France
Germany
Italy
Netherlands
Spain
Other eurozone
Source : Bloomberg - Rothschild & Cie Gestion, 30/04/11
30/04/2012 30/04/2011
Montreux - May 2012
7. Main operations since August 2011
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Inde
x
Purchases and strengthening, mostly on cyclical stocks
5.1 Main operations since August 2011
Cyclical vs defensives stocks (Eurozone)
Cyclicals:Basic Materials, Chemicals, Construction, Industrial goods, Auto, Leisure & Travel, Technology
Defensive:Retail, Consumer goods, Foods & Beverages, Healthcare, Telecoms, Utilities
7. Main operations since August 2011
45
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Purchases and strengthening
5.1 Main operations since August 2011
Stock
Daimler
Peugeot
Air France
ST Microelectronics
HeidelbergCement
Stock
Veolia Environnement
RWE
Mostly on cyclical stocks Reduce underweight on utilities
7. Main operations since August 2011
46
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Valuation 2011 2012e
EV / Sales 0,34 x 0,35 x
EV / EBITDA 3,0 x 3,1 x
Source Exane / Bloomberg
1
2
3
4
5
Introduction of new platforms to seek costs synergies between the different lines of products. Daimler startsto take advantage of economies of scale.
New platforms should allow to reduce costs by 8% to 10% compared to vertical existing platforms, according to the management
Positive impact as early as 2014. In 2016, impact of those costs synergies are evaluated as more than €1bn.
Important potential of restructuration, that should improve significantly margins. Daimler should reducenumber of employees by 10% as BMW has done between 2007 and 2011.
Repositioning on the lower-end of the market: evolution of existing models (A and B-Class) and launch ofnew ones (competition with X1 and 1-Serie of BMW) in line with C and E-Class design
Strong and increasing exposure to China, allowing the Group to benefit from economic growth in this area.From 2010 to 2011, the weight of China in the Group sales turnover has doubled (9% in 2010 to 18% in 2011Q3)
Growth potential in trucks: US sales should be sustained by the average age of the fleet (7 years) at a historical peak since 1979 New regulations in western Europe (Euro III to Euro V standards) for more than 200.000 trucks
Daimler : should benefit from a new strategy and a more favourable economic environment
5.1 Main operations since August 20117. Main operations since August 2011
47
Montreux - May 2012
HeidelbergCement: discount with an attractive mix
1/3/2012 P/E 2011 P/E 2012 P/E 2013 Ev/EBIT 2011 Ev/EBIT 2012 Ev/EBIT 2013
Lafarge S.A. 16,5 x 13,1 x 10,3 x 11,8 10,5 9,2
Holcim Ltd. 24,1 x 17,8 x 14,3 x 15,7 13,4 11,4
Italcementi S.p.A. 61,1 x 27,0 x 14,3 x 17,6 16,2 11,6
Heidelberg Cement AG 16,3 x 13,0 x 10,2 x 11,3 10,3 8,8
CRH PLC 21,0 x 18,1 x 14,6 x 17,6 15,3 12,7
Average 27,8 x 17,8 x 12,7 x 14,8 x 13,1 x 10,7 x
Premium/ (discount) Heidelberg Cement -41% -27% -20% -24% -22% -18%
Source Bloomberg
15% under-performance relative to sector with was not justified given the Group strengths. One of the best geographic mix within sector. No exposure to peripheral countries and a strong presence in Northern and Eastern Europe Main beneficiary of recovery in US and UK growth (40% of profits in the middle of cycle)
Margins should improve Market low of 10% in 2010, previous pick at 16.6% in 2007 Operating leverage, costs reduction, spread between prices increase and the cost of energy will be much less
penalised than in 2011
Balance sheet under control Credit line of €2.4bn, that has not been used, no risk of Group downgrade
Average discount of around 10%-15% compared to its peers, that appears without justification
1
2
3
4
5.1 Main operations since August 20117. Main operations since August 2011
48
Montreux - May 2012
Shifts within IT services
Relative performance Atos vs Cap Gemini
Purchases Sales
Stock
Cap Gemini
Stock
Atos
Source Bloomberg, Rothschild
80,00
90,00
100,00
110,00
120,00
130,00
140,00
150,00
25/02/10 25/05/10 25/08/10 25/11/10 25/02/11 25/05/11 25/08/11 25/11/11 25/02/1
Atos
Cap Gemini
5.1 Main operations since August 20117. Main operations since August 2011
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Company profile Premium LT gas contracts vs gas spot prices (€/MWh)
Relative performance RWE / Utilities
RWE: turnaround’s potential within utilities sector
70
80
90
100
110
120
30/6/11 31/8/11 31/10/11 31/12/11 29/2/12
RWE
Secteur Utilities
Strengthen financial soundness:
– Divestments: €11bn by 2013
– Additional costs cutting: €1bn
– Capital increase: €2.1bn in December 2011
Positive exposure to gas price increase inGermany
Losses decrease on gas long-term contracts thanksto the likely increase in gas spot prices
The abandonment of nuclear power in Germanyshould allows electricity prices to increase and thusmargins for suppliers.
Positive exposure to CO² low prices compared toE.On and to less polluting utilities
Positive exposure to UK, first market in Europe toexperienced supply-demand balance narrowing andimprovement in 2011 margins
Greater visibility to the stock with an attractivevaluation (6.6x EV/EBITDA 12e)
Capital increase
5.1 Main operations since August 2011
Utilities sector
7. Main operations since August 2011
50
Montreux - May 2012
Shifts between financials
Comparative performances between Intesa and Unicredit
30
40
50
60
70
80
90
100
110
120
25/2/11 25/3/11 25/4/11 25/5/11 25/6/11 25/7/11 25/8/11 25/9/11 25/10/11 25/11/11 25/12/11 25/1/12 25/2/12
Intesa
Unicredit
Purchases Sales
Stock Price
BNP Paribas 30,50
Unicrédit 2,90
Société Générale 17,50
Stock Price
BNP Paribas 33,70
Intesa +30% (since end of August) / +70% (since low of September)
Generali
Source Bloomberg, Rothschild
5.1 Main operations since August 20117. Main operations since August 2011
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Montreux - May 2012
5.1 Main operations since August 2011Shifts between financials
Attractive valuation even with taking into consideration non-recurring items
Profits and valuation adjusted by non-recurring items Compliance with solvency requirement without capital increase
9%10,70%9,60%
11,60%
Core Tier 1 Bâle 2,5 Tier 1 Bâle 2,5
ratios de solvabilité au 31.12.11
SG BNP
2011 SG BNP
Earnings (€M) 2 385 6 050
RoE released 6% 8,8%
Earnings excluding sovereign debt depreciation (€M) 3 007 8 367
Recurring earnings (€M) 3 114 8 485
Recurring RoTE 9,5% 15,3%
P/TBV 0,57 0,80
Recurring P/E 6,2 5,3
7. Main operations since August 2011
52
Montreux - May 2012
Banking sector contribution - R Conviction Euro fund
5.1 Main operations since August 2011
Banks – Performance attribution
Banks – Relative weights vs benchmark
-0,01
2,07 1,81 2,33
0,42
-3,9
3,93
6,65
-6
-4
-2
0
2
4
6
8
2006 2007 2008 2009 2010 2011 2012 Total
-9,5 -10,5
-6
0
3,9
10,511,6
-15
-10
-5
0
5
10
15
2006 2007 2008 2009 2010 2011 2012
7. Main operations since August 2011
53
Montreux - May 2012
Exposure reduced on defensives stocks, in particular within Telecoms
Sales in defensive stocks
5.1 Main operations since August 20117. Main operations since August 2011
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Montreux - May 2012
Significant over-performance compare to sector and market, going faster in Q2 2011
– Investors consider again the stock as defensive
– Good resilience of results in a difficult economic environment
– New strategy of M. Viesbacher since 2008 starts to be successful
Stock still has upside potential, even if discount has been reduced (but remains around 15%)
Support factors to maintain over-performance– Good news flow on Genzyme, with a production in process of standardization
– Bottom for profits will be reached at Q1 2012, with the loss of Plavix patent
Emerging of the “new” Sanofi– Top-line growth potential of 4-6% (thanks to emerging markets, vaccines, Genzyme, …)
– Operational margins sustained around 30-35%
Source Bloomberg
01/03/2012 P/E 2012 P/E 2013 P/E 2014 EV/EBITDA 2012
EV/EBITDA 2013
EV/EBITDA 2014 EV/EBIT 2012 EV/EBIT 2013
Astra Zeneca 7,2x 7,1x 7,2x 4,7 4,7 4,8 5,6 5,6Bayer 11,1x 9,9x 9,1x 6,6 5,8 5,2 9,5 8,1Glaxo SmithKline 11,2x 10,2x 9,3x 7,5 7,0 6,5 8,8 8,2Novartis 9,8x 9,5x 8,7x 9,5 9,0 7,8 12,0 11,3Roche 11,5x 10,5x 10,0x 8,2 7,4 7,0 9,7 8,7Sanofi 9,5x 9,0x 8,4x 6,9 6,2 5,6 7,7 6,9Novo Nordisk 22,3x 19,1x 16,2x 15,2 13,7 12,2 17,1 15,3Teva Pharma 8,0x 7,4x 6,9x 7,0 6,3 5,9 8,1 7,2Average (Europe) Pharma 11,3x 10,3x 9,5x 8,2x 7,5x 6,9x 9,8x 8,9xAverage (US) Pharma 11,9x 11,3x 11,0x 7,6x 7,2x 6,8x 9,2x 8,5xAverage (Global) Pharma 11,6x 10,8x 10,2x 7,9x 7,4x 6,9x 9,5x 8,7xPremium (discount) Sanofi vs Pharma Europe -16% -13% -11% -16% -17% -19% -22% -23%
Sanofi: still in the portfolio but exposure has been reduced
5.1 Main operations since August 20117. Main operations since August 2011
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Sector profile Chemical sector EBIT margins (LT average : 10,7%)
Chemical - Production capacity growth and demand
Chemical: still cautious on sector
Sector margins at their historical pick
– 2011 EBIT margins: 14% vs previous historicalpick at 11.5 (above long-term average)
New production capacities in the upcoming 24months, lead to an important gap between productionand volume sales growth
Lower demand in some key sectors/clients:automobile and construction (30% of outlets)
Seasonality re-emerging in H2 2011, the first timesince two years
Pricing power lower than in the past
Margins decrease have appeared, several profitwarnings in H2 (Akzo, DuPont), disappointed resultsin Q4 (BASF, Bayer)
Consensus forecasts a decrease in EPS 2012 by only3%, maybe too optimistic regarding Q4 earningswithin the sector: BASF, EBIT 2011 Q4 -14%)
8,3%
6,2%
9,7%
11,4% 11,4% 11,5%11,3%
10,0%
13,3% 14,0%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
16,0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source Nomura estimates
9095
100105110115120125
2009 2010 2011 2012 2013 2014 2015
Production Capacity growth Volume growth
5.1 Main operations since August 20117. Main operations since August 2011
56
Montreux - May 2012
Annexe A. Germany – Divergence of leading indicators
Montreux - May 2012
A.1 Germany – Divergence of leading indicatorsAnnexe A. Germany – Divergence of leading indicators
58
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Annexe B. European banking sector
Montreux - May 2012
B.1 European banking sector
Divergence of performances between Europe and the United States
Annexe B. European banking sector
60
Montreux - May 2012
Annexe C. Exports
Montreux - May 2012
EU
R (b
illio
ns)
EU
R (b
illio
ns)
EU
R (b
illio
ns)
EU
R (b
illio
ns)
C.1 ExportsAnnexe C. Exports
62
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C.2 ExportsAnnexe C. Exports
63
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Annexe D. Contacts details
Montreux - May 2012
D.1 Contacts detailsA client closely relationship
Institutional investors
Lionel [email protected] : +33 1 40 74 40 73
Arnaud PerrierManaging Director – Head of business development and [email protected] : +33 1 40 74 42 82
Aurélie [email protected] : +33 1 40 74 42 51
Marie-Line HashatelClient Relationship [email protected] : +33 1 40 74 41 67
Adrien RollandoClient Relationship [email protected] : +33 1 40 74 71 24
Philippe LouisadatHead of Third-Party Distribution –France and [email protected] : +33 1 40 74 72 06
Olivier [email protected] : +33 1 40 74 72 78
Johanna [email protected] : +33 1 40 74 49 25
Marion [email protected] : +33 1 40 74 88 77
Third-Party Distribution
Annexe D. Contacts details
65
Montreux - May 2012
D.2 Contacts detailsBusiness development teams dedicated to our European clients
Valérie KaliskiHead of Benelux, Scandinavia & [email protected] : +33 1 40 74 42 68
Brandon H. Le TranInstitutional Sales Benelux & Scandinavia [email protected] : +33 1 40 74 42 19
Marie-Line HashatelClient Relationship [email protected] : +33 1 40 74 41 67
Rothschild & Cie Gestion has dedicated teams and develops active partnerships for its business in Europe
Philippe LouisadatHead of Third-Party Distribution –France and [email protected] : +33 1 40 74 72 06
Konstantin NikiteasManaging Director Northern [email protected] : +41 4 43 84 78 45
Özlem ReinhardClient Relationship [email protected] : +41 4 43 84 78 46
Business development partnership in Germany
Annexe D. Contacts details
66
Montreux - May 2012
D.3 Our partnership in Germany :
Tel.: 069/7191897-18@ [email protected]
Director Institutional Sales
Ilona Wachter
Tel.: 069/7191897-22@ [email protected]
Senior Sales Manager
Thomas M. Dinges
Tel.: 069/7191897-11@ [email protected]
Client Service Manager
Sibylle Schrempp
Tel.: 069/7191897-23@ [email protected]
Client Service Manager
Alexandra Flechsig
Tel.: 069/7191897-12@ [email protected]
Sales Manager
Thorsten W.Dierich
Tel.: 069/7191897-16@ [email protected]
Ivan Mlinaric
Tel.: 069/7191897-17@ [email protected]
Thomas Gils
Senior Sales Manager
Senior Product SpecialistInstitutional Business
Tel.: 069/7191897-15@ [email protected]
Managing Director – Head of Distribution
Rainer Otteman
Tel.: 069/7191897-14@ [email protected]
Client Service Manager
Michèle Richlick
Tel.: 069/7191897-19@ [email protected]
Managing Director – Head of Fund Selction & Institutional Business
Dr. Oliver Roll
Tel.: 069/7191897-0@ [email protected]
Director Institutional Sales
N.N. (bald für Sie da)
Annexe D. Contacts details
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Montreux - May 2012
Annexe E. Funds Characteristics
Montreux - May 2012
E.1 Administrative characteristicsR Conviction Euro
Administrative characteristics
ISIN code FR0010187898 (C-share) / FR0010807099 (F-share) / FR0010839555 (I-share)
Inception date 9 May 2005 (C-share) / 28 September 2009 (F-share) / 30 December2009 (I-share)
AMF classification Eurozone Equity
Benchmark Eurostoxx ®
Frequency of valuation Daily
Management fees 1,50% max VAT included (C-share) / 1,90% (F-share) / 0,75% (I-share)
Performance fees 15% of over-performance (Eurostoxx ® total return)
Subscription/redemption fees 4,50% / None
Countries of registration France, Switzerland, Belgium, Luxembourg (C-share), Spain, Germany, Netherlands (C-share), Austria (C & F-share)
Annexe E. Funds Characteristics
69
Montreux - May 2012
E.2 Administrative characteristicsR Conviction Europe
Administrative characteristics
ISIN code FR0010784835 (C-share) / FR0010961698 (F-share)
Inception date 3 juin 1996 (C(-share) / 10 novembre 2010 (F-share)
AMF classification European equities
Benchmark Stoxx 600 ®
Frequency of valuation Daily
Management fees 1.495% TTC maximum (C-share) / 1.90%TTC maximum (F-share)
Subscription/redemption fees 4.5% TTC maximum / 3% TTC maximum
Countries of registration France, Belgium, Switzerland, Germany and Austria (C-share & F-share)
Annexe E. Funds Characteristics
70
Montreux - May 2012
Annexe F. Disclaimer
Montreux - May 2012
F.1 DisclaimerThe Rothschild & Cie Gestion’s funds (hereinafter, the “Fund(s)”) presented in this document, are incorporated under the laws ofFrance and agreed by the FINMA to be actively distributed in Switzerland. This information is not an invitation to subscribe in any of theFunds described herein, nor is it a substitute for the Fund’s prospectus and is provided for information only. The presentation is neitheran advice nor a recommendation to subscribe any Fund.Subscriptions will only be received and shares issued on the basis of the current prospectus for the relevant Fund, as agreed by theFINMA. Any information communicated through this document is given for information only and does not contain any contractualmatter. Past performance is not a guide to the future. Moreover, it does not include fees and commissions charged for the issue andredemption of units of the relevant Fund. Rothschild & Cie Gestion does not guarantee in any way the evolution of the performance andcannot be held responsible for any decision taken on the basis of information contained in this document.The investment in one or several units of shares of any Fund is not riskless. Rothschild & Cie Gestion recommend investors to takemore information by contacting the Representative of the Funds in Switzerland, as indicated below, its usual financial adviser orRothschild & Cie Gestion before any decision of investment, in particular towards the suitability between the Funds’ characteristics andtheir needs.
Information for shareholders living in SwitzerlandRothschild & Cie Gestion, Paris, Zurich-Branch (Zollikerstrasse 181- CH-8034 Zurich - Switzerland) obtained an authorisation by theFINMA to actively commercialize the Funds in Switzerland and has appointed BNP Paribas Securities Services, Paris, succursale deZurich - Selnaustrasse 16 - CH-8002 Zurich - Switzerland, as representative in Switzerland and this latter also acts as paying agent inSwitzerland (the “Representative”).Before any subscription in one or several units of shares of any Funds, the investor must take cognizance of the prospectuses.The Fund’s articles of incorporation, the full prospectus, the simplified prospectus, the annual and semi-annual reports of each Fund,may be obtained, on simple request and free of charge, at the head office of the Representative, and/or at Rothschild & Cie Gestion –Service Commercial – 29, avenue de Messine – 75008 Paris – France . These Documents are also available onwww.rothschildgestion.frAnnouncements to investors in Switzerland which concern Rothschild & Cie Gestion or the Funds will be published in the “FeuilleOfficielle Suisse du Commerce” (FOSC) and on the recognised electronic platform www.fundinfo.comThe issue and redemption prices or the net asset values with the indication “commissions excluded” will be published daily on therecognised electronic platform www.fundinfo.com.
Registering of the FundsNone of the Funds are or will be registered according to the United States Securities Act 1933 or according to the United StateCompany Act 1940. As a consequence, the Funds must not in any circumstances be offered or distributed: (i) in the United States ofAmerica, in any of its States or in any other political subdivision of the United States of America, or (ii) to or on behalf of or for thebenefit of any United States Person (as defined in Regulation S of the "United States Securities Act" of 1933).
Annexe F. Disclaimer
72