présentation philippe lecoq citywire (english) 190510 presentation finale

Saint-Honoré Europe Synergie

Citywire, Zurich, 19 & 20 May 2010

Philippe Lecoq, Deputy Director – European EquitiesOlivier Huet, Deputy Director – European Equities

Outlook for European equities

EDMOND DE ROTHSCHILD ASSET MANAGEMENT 3

Country risk is a key factor again (*)

Sweden

FinlandSwitzerland

United Kingdom Germany

France

Portugal

Greece Spain

(*) performances in euros

70

75

80

85

90

95

100

105

110

115

120

125


European companies have a high international exposure

Non European revenue percentage


European equities outperform when the dollar rises

-40

-30

-20

-10

0

10

20

30

40

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

-30

-20

-10

0

10

20

30

40-40

-30

-20

-10

0

10

20

30

40

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

-30

-20

-10

0

10

20

30

40

Source: Société Générale

€ / $ (annual variation)

Europe vs US (annual variation)

€ / $Europe vs US(reverse scale)


Companies emerging from the crisis are cash rich

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

01-1 02-1 03-1 04-1 05-1 06-1 07-1 08-1 09-13.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

01-1 02-1 03-1 04-1 05-1 06-1 07-1 08-1 09-1

Source: Société Générale

European companies’ cash in percentage of assets

EDMOND DE ROTHSCHILD ASSET MANAGEMENT 7EDMOND DE ROTHSCHILD ASSET MANAGEMENT | GESTION ACTIONS

Operational margins have held up well

European EBIT margins


In 2010 operational leverage offers a good potential

European Market: operational leverage (EBIT growth/Revenue growth)and earnings per share growth

Operational levyEPS Growth

EDMOND DE ROTHSCHILD ASSET MANAGEMENT 9EDMOND DE ROTHSCHILD ASSET MANAGEMENT | GESTION ACTIONS 9

European corporates keep on reducing the gearing

Net debt / Equity ratio (%)


M&A is back

Main indicators are now bullish:

Reduction of leverage

Capital raising

Reasonable valuations

Credit conditions returning to normal

Decrease in risk aversion

Reinforcing exposure to emerging country consumption is a major theme

With economic growth set to remain weak for some time, companies are likely to focus on external growth

0%

1%

2%

3%

4%

5%

6%

7%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

FCF yield - Small & Mid capsFCF yield - Large capsCost of corporate debt (investment grade, after tax)

Europe : FCF yield and cost of debt

Source : Thomson Datastream, Exane BNP Paribas


Conditions are ripe for a resurgence in takeover bids

Global M&A volumes vs Debt/Ebitda

Tr $ Debt to Ebitda du MCSI Monde


A new M&A cycle has started in Europe

Transactions will accelerate as economy recovers

Source: Factset, Goldman Sachs


Market driven by new players

N° deals and volume made by BRIC countries since 2001

Fund presentation


Saint-Honoré Europe Synergie: a secular concept

M&As Restructuring companies

A European equity fund which combines

Benefit both from the stock’s rise and premium offered by the buyer

Benefit from the recovery of the company and ensuing stock market

performance

Accelerating economic growth Economic slowdown

In order to outperform over the course of an economic cycle

Restructuring cycleM&A cycle

&

EDMOND DE ROTHSCHILD ASSET MANAGEMENT 16EDMOND DE ROTHSCHILD ASSET MANAGEMENT

Two complementary themes linked to economic cycles

Expansion Slowdown Expansion

Bid cycleRestructuring cycle

Reversal

Recovery

Recession

Bid cycle


Tried and tested investment process

Investment universeEuropean equities

600 stocks

Mergers & acquisitions

RestructuringInternal / financial

- Capital not controlled- No critical mass- Special know - how- Sector consolidation

- High debt levels- Negative free cash flow- Pressure on profit margins- Poorly configured cost structure

150 stocks

80 stocks

- Momentum- Management quality

- Financial analysis

- Comparisons with earlier transactions in same sector- Price potential acquirers

are prepared to pay

- Management quality- Debt reduction potential- Profit margin recovery potential- Sector environment

- Comparisons with the company’s historic valuations and current

sector valuations

QUALITATIVEfundamental analysis

DEFININGtarget price

BUILDING50- 60 stock portfolio

SALESdiscipline

Average holding time Average holding time

Months Months

Investment universeEuropean equities

600 stocks

Mergers & acquisitions

RestructuringInternal / financial

- Capital not controlled- No critical mass- Special know - how- Sector consolidation

- High debt levels- Negative free cash flow- Pressure on profit margins- Poorly configured cost structure

150 stocks

80 stocks

- Momentum- Management quality

- Financial analysis

- Comparisons with earlier transactions in same sector- Price potential acquirers

are prepared to pay

- Management quality- Debt reduction potential- Profit margin recovery potential- Sector environment

- Comparisons with the company’s historic valuations and current sector valuations

QUALITATIVEfundamental analysis

DEFININGtarget price

BUILDING30- 50 stock portfolio

SALESdiscipline

Average holding time Average holding time

Months Months


Step 1: Defining the research universe

Screening identifies a working universe of around 150 European companies that could be the target of financial transactions and/or might be undergoing restructuring, whether financial and/or operational.

An initial universe comprising around 600 European large cap stocks• Market capitalisation above EUR 1bn

Potential targets are identified using the following qualitative criteria: • Shareholding structure

• Business sector

• Attractiveness (know-how, brand)

• The company’s competitive position

Companies being restructured are identified using quantitative criteria: • Net debt/Shareholders’ equity

• Solvency ratios (financial stocks)

• Free Cash-flow

• Net debt/Ebitda

• Operating margin

Factset and IBES are used as data bases

Data over 5 financial years (from N-2 to N+2)


Step 2: Stock selection

Stock-picking is at the heart of our investment process and our principal source of outperformance

Our fundamental analysis is based on company visits and external research:

1. Company visits

– Appraising the quality of management and its ability to complete the restructuring process

2. Meeting financial analysts

– Understanding the business– Appraising the sector environment– Calculating deviations on market consensus

Companies are selected using the following criteria:

– Financial robustness– Likelihood of a financial transaction

given:» valuations» shareholding structure» the sector environment» the market environment

– Potential to reduce debt– Potential to improve margins

Potential targets

Companies being restructured


Step 3: Portfolio construction & risk control (1)

The decision to buy depends on the potential upside offered by the target price.

Portfolio breakdown between target companies and companies undergoing restructuring depends on the macroeconomic environment and market conditions:

• In periods of accelerating economic growth, targets are favoured. Throughout an entire cycle, their weighting varies between 50 -100% of the fund’s assets.

• When economic growth is slowing, the focus is on companies being restructured. Throughout an entire cycle, their weighting varies between 0-50% of the fund’s assets.

To limit the fund’s volatility, companies undergoing restructuring are capped at 50% of net assets.


Step 3: Portfolio construction & risk control (2)

Concentrated portfolio: 30-50 stocks

Stocks in the portfolio are generally held for:

• 6-12 months for target companies

• 12-18 months for restructuring plays

Liquidity risk: portfolio positions generally represent no more than double the stock’s average daily volume.


Step 4: Sell discipline

Price targets are determined using the following criteria:

• Target companies

– Comparison with recent deals in the company’s sector – Identification of potential predators and estimation of possible price tags

• Companies being restructured

– Comparison with the company’s historic valuations and sector valuations

Stocks are sold in the following cases:

• Target companies– Takeover announced– Price target reached– Company no longer a target– Deterioration in company’s fundamentals

• Companies being restructured– Price target reached– Restructuring completed– Failure of restructuring

Portfolio structure


Gradual increase of potential takeover targets in Saint-Honoré Europe Synergie

0%

20%

40%

60%

80%

jan-2009 jan-2010 apr-2010

Targets Restructuring


Many catalysts for a new wave of M&A

United Kingdom- weak valuations- very large free floats- few obstacles to takeovers -> Burberry, Invensys, Intl Power, …

MAIN INTERESTSOF

SAINT-HONORE EUROPE SYNERGIE

Search for future growth- exposure to emerging countries- recovery of capex -> Intercontinental, Beiersdorf, SAP, …

Family-owned companies- recovery is a better environment for asset sales -> Zodiac, Bulgari, Rémy Cointreau, …

Search for synergies / integration- sectorial consolidation- integration of the value chain -> KPN, Delhaize, BG Group, …


Investment examples

KPN: potential target in sector consolidation

Bulgari: family could sell as company lacks critical mass

Burberry: attractive target for brand development and a rare asset in the luxury sector (capital not controlled)

Bayer: probable separation of pharmaceutical and chemicals divisions reinforced by upcoming changes in top management

Wolseley: financial restructuring (capital increase in April 2009, disposal of building materials division in May 2009)

Clariant: operational restructuring (new CEO since October 2008, sites closed down)


BG Group: a unique profile within the energy sector

DESCRIPTION

BG Group is a function of British Gas demerger in 1997 and operates in more than 25 countries (réserves prouvées = 2600 mmboe).

BG Group is an integrated company operating in Exploration and Production, Liquefied Natural Gas approvisionnement de LNG (liquified natural gaz).

Oil reserves have been considerably upgraded in the last two years with brazilian offshore discovery.

The acquisition of Queensland Gas an australian gas producer in 2008 increases its LNG capacity, particularly towards Asia.

The Santos Basin pre-salt in Brazil offers a high level of productivity.

Excellent long term prospects from LNG division.

With a much higher renewal rate of reserves than its peers, BG is an attractive target for oil majors willing to strengthen their upstream position.

MARKET PERFORMANCE

Market Cap: GBP 38.5bn

P/E 2010: 15.1x

Price to book 2010: 2.4x

Net Debt / Ebitda 2010: 0.6x

Yield: 1.1%

STRENGTHS INDICATORS

50

70

90

110

130

Performance absoluePerformance relative stxe 600 € pr


Burberry: attractive target in luxury sector

Designs, produces and distributes luxury clothes (men, women, children and accessories (bags and perfumes).

Products distributed through own retail network in Europe, North America and Asia.

Retail represents 52% sales, wholesale 41%.

Geographical sales exposure: Europe 37%, American continent 25%, Asia Pacific 24%, Spain 14%.

Prestigious brand and successful diversification into accessories.

Control tightened on distribution network.

Could grow in emerging countries.

Robust financial situation (negative net debt at end March 2009).

Big restructuring drive since CEO Angela Ahrendts took over in 2006.

Group’s appeal to potential buyers reinforced by famous brand and absence of controlling shareholder.

Market Cap: GBP2,1bn

P/E 2010: 17x

Price to book: 3.5x

Net debt/EBITDA: NS

Yield: 2.5%

20

30

40

50

60

70

80

90

100

110

120

Performance absoluePerformance relative dj stoxx 600 € pr

DESCRIPTION

STRENGTHS

MARKET PERFORMANCE

INDICATORS


KPN: a cash cow

Incumbent operator in the Netherlands, where the Group is the leading telecommunication service provider offering wireline and wireless, Internet and TV.

KPN holds number 2 market positions on mobile in Germany with E-Plus et in Belgium with BASE.

The Netherlands represent 70% of sales, Germany 24% and Belgium 6%.

The Group has become a leader in IT services in Benelux since the acquisition of Getronics en 2007.

100% free float. The Dutch State does not hold any golden share.

Excellence in costs control and capex optimization : 11% of sales for the 2010-2013 period (vs 14% in 2009).

A FTTH roll-out at a lesser cost and a very shareholder friendly approach with both a high dividend and a 1 Md€ share buy back.

The german spectrum auction will advocate for partnerships and reinforce the speculative appeal.

Market Cap: € 19,4bn

P/E 2010: 11.4x

Price to book: 3.8x

Net Debt / EBITDA: 2.0

Yield: 6.7%

DESCRIPTION

STRENGTHS

MARKET PERFORMANCE

INDICATORS

60

80

100

120

140

Performance absoluePerformance relative dj stoxx 600 € pr


Portfolio structure as of 30/04/10

Net assets 643 M€

Number of holdings 40

% invested 96%

• Over three years: 33/474

• Over one year: 113/552

• YTD: 165/567

Source: Europerformance

Ranking as of 16/04/10

Targets

Restructuring

74%

26%

BURBERRY 3,9%SAP 3,8%BG GROUP 3,8%WOLSELEY 3,4%INVENSYS 3,3%CLARIANT 3,3%S E BANKEN A 3,3%INTERCONTINENTAL 3,2%INTERNATIONAL POWER 3,1%BAYER 3,0%

Top ten holdings


Portfolio breakdown by market capitalization

as of 3/3/10

0%

5%

10%

15%

20%

25%

< 1 bn€ 1 - 2,5bn€

2,5 - 5bn€

5 - 10 bn€ 10 - 30bn€

30 - 50bn€

> 50 bn€


Saint-Honoré Europe Synergie: performance since 31/12/2007

40

50

60

70

80

90

100

31/1

2/20

07

29/0

2/20

08

30/0

4/20

08

30/0

6/20

08

31/0

8/20

08

31/1

0/20

08

31/1

2/20

08

28/0

2/20

09

30/0

4/20

09

30/0

6/20

09

31/0

8/20

09

31/1

0/20

09

31/1

2/20

09

28/0

2/20

10

30/0

4/20

10

Saint-Honoré Europe Synergie MSCI Europe

Relative performance 2008+10,90%

Relative performance 2009+6,28%

Relative performance 2010 (YTD)+4,29% (*)

(*) as of 30/4/10


Events in portfolio since fund launch

Date announced Buyer TargetAmount in million €

Type PaymentCapital

gain/loss

Number of days stock held in

portfolio

14 December 2006 KKR/PERMIRA PROSIEBEN SAT 1 MEDIA 2 513 friendly cash 3% 6318 January 2007 ALLIANZ AGF 10 219 friendly cash + shares 9% 4426 February 2007 SCOR CONVERIUM 1 271 hostile cash + shares 20% 49

15 March 2007 IMPERIAL TOBACCO ALTADIS 14 197 hostile cash 23% 17810 April 2007 PPR PUMA 5 293 friendly cash 19% 12620 May 2007 UNICREDITO CAPITALIA 21 935 friendly shares 17% 16725 May 2007 NASDAQ OMX 2 764 friendly cash + shares 52% 17118 June 2007 AKZO NOBEL ICI 11 089 friendly cash 31% 2159 July 2007 DANONE NUMICO 11 953 friendly cash 39% 217

25 October 2007 CARLSBERG/HEINEKEN SCOTTISH & NEWCASTLE 12 484 friendly cash 27% 18512 November 2007 HELLENIC TELECOM COSMOTE 2 827 friendly cash 17% 430

27 June 2008 FINANCIERE FC 1 CLARINS 1 096 friendly cash -1% 34230 July 2008 GAS NATURAL UNION FENOSA 8 978 friendly cash 23% 329

23 February 2009 GENERALI ALLEANZA 2 278 friendly shares -29% 132


Technical characteristicSaint-Honoré Europe Synergie

Legal form: French-regulated Fonds Commun de Placement

Inception date: December 2006

ISIN codes: A share: FR0010398966I share: FR0010587642

Management fees: A share: 2% net max. I share: 1% net max.

Variable management fees: 15% of outperformance of benchmark index

Minimum subscription: A share: 1 share I share: € 500,000

Currency: Euro

Front load charge: 4.5% net maximum

Valuation: Daily

Benchmark: MSCI Europe

Minimum recommended investment horizon: Over 5 years


Disclaimer

The data, comments and analysis in this document reflect the opinion of the LCF Rothschild Group and its subsidiaries with respect to the markets and their trends, regulation and tax issues, on the basis of its own expertise, economic analyses and information known to it at present. However, they shall not under any circumstances be construed as comprising any sort of undertaking or guarantee whatsoever on the part of the Group or its subsidiaries. In no event shall the LCF Rothschild Group assume responsibility for any decision to invest, to disinvest or to maintain a position on the basis of these comments or this analysis. It is the responsibility of each and every investor to obtain the various regulatory prospectuses for each fund or financial product prior to making any investment and to analyse the risk incurred and establish his or her own opinion, independent of the LCF Rothschild Group, and where necessary, to take specialist advice regarding such questions, and especially in order to determine the relevance of such investment to his or her own financial situation. Past performance and volatility are no guide to the future. The value of investments may fall and rise and performance is not constant over time. The summary or full prospectuses of funds approved by the French market authority, the Autorité des Marchés Financiers, are available upon request or from our website (www.lcf-rothschild.fr).

Potential Investment Risks

On the equity markets the value of assets may vary according to investor expectations, raising a risk to equity values. Prices on equity markets have historically varied more than those on bond markets. If equity markets fall, the net asset value of the fund will fall. The fund’s management style is based primarily on expectations of changes in the equity markets. Fund performance will depend on the stocks picked by the management company. There is therefore a risk that the management company may not invest in the best performing companies.

Invested on European markets, the fund can be subject to foreign currency risk, particularly with regards to the Swiss Franc and Pound Sterling. To a more marginal extent, the fund may also be subject to interest rate risk, restricted to the money market and other negotiable debt instruments that may comprise up to 25% of the net assets.

présentation philippe lecoq citywire (english) 190510 presentation finale

Business

european corporates

european ebit margins

european equity fund

european revenue percentage

good potential european

europe transactions

stocks momentum

external growth europe