Kick-Off

1. Kick-Off This version: September 30th

2. Introduction Introduction Step by Step Your Work Material Scoring/Reward • This game will challenge MA1 student to invest in a virtual portfolio of 4 assets on the long run (1 year) • This is a chance for the students to put into practice their theoretical skills learned during their 3 last years (Macroeconomics, Corporate Finance, Accounting, Control, Marketing..) • You will have to select 4 stocks • 2 Long positions = 2 stocks which are underestimated by the market (Consensus) • 2 Short positions = 2 stocks which are overestimated by the market (Consensus)

3. Introduction Introduction Step by Step Your Work Material Scoring/Reward VS. VS. VS. • Among those 4 stocks, one pair has to be chosen (2 companies in the same sector) in 2 different directions (long and short) • Stocks' selection is limited to Europe, US and Japan. • Selection is based on fundamental analysis

4. Introduction Introduction Step by Step Your Work Material Scoring/Reward Exposure, % Share Price, Pence GLG was long on Fortis from November 2008 to June 2009 8 brokers covered Fortis 7 long 1 short 13 brokers covered Fortis 3 long 10 short 5 brokers covered Fortis 1 long 4 short 10 brokers covered Fortis • GLG case study 1 : Fortis, Long

5. Introduction Introduction Step by Step Your Work Material Scoring/Reward Step 1: Idea Generation • Following the “collapse” of Fortis, the Dutch and Belgian governments intervened to establish a solution. • As a result, the main brokerage firms dropped coverage of the stock which made the situation all the more opaque • Market was focusing on liabilities : vote, spv (Special purpose Vehicle)…We were focusing on assets: Value of insurance companies [Companies with a little Cash Flow]. • Balance sheet: Fortis had excess cash and could create lot of value by buying its debt at a discount price. • Having been active in Fortis since 2007, we were aware of the sum valuation of their assets; upon collapse, we decided to revisit the stock and form a new opinion. CF = 1 Market focused on liabilities and cash flows X 10 [Multiple and DCF] 10 ≠ Assets =100 We focused on assets X 1.5-3 [Multiple] 150-300

6. Introduction Introduction Step by Step Your Work Material Scoring/Reward Step 2: Hypothesis Verification • Working alongside GLG’s credit teams, we analysed all of Fortis’s debt instruments and structured credit portfolio as well as their insurance and banking businesses • We spoke to specialist Belgian and Dutch lawyers, activist groups and the company at great lengths Step 3: Investment Structuring • Given the high risk (volatility), we decided to take a reduced position of around 2% within the fund, despite our high conviction rate Step 4: Execution • We starting building our position in Fortis at 59 cents and traded around our price target, trimming and building positions where based on earning releases and news flow >< The markets

7. Introduction Introduction Step by Step Your Work Material Scoring/Reward GLG bought at the end of March • GLG case study 2 : Burberry, Long

8. Introduction Introduction Step by Step Your Work Material Scoring/Reward Step 1: Idea Generation • The consumption of luxury goods declined due to the credit crunch => Sales growth was down for luxury sector • But Burberry was more vulnerable due to its distribution strategy. Burberry had 15% of own distribution channel and 85% of wholesale >< Competitors (Louis Vuitton) • Spain was down, and Burberry market concerned by Geographical exposure strongly relied on Spain and Japan • As results, Burberry had a high level of inventories and working capital requirement, and Profit margin (EBIT margin ) was under pressure (Burberry Net Income was low compared to the sector). • But Burberry had the same margin gross than the sector  Burberry had to have a product problem. (Costs were too high compared to competitors (i.e. LVMH) ). sector Burberry Gross Margin 60 60  CF Multiple was lower than the sector Net Income 25 10-12

9. Introduction Introduction Step by Step Your Work Material Scoring/Reward Step 2: Hypothesis Verification • Working alongside GLG’s analysts teams, we analysed Burberry cost cutting program implemented by the Management. • We spoke to McKinsey to review product positioning and to assess SAP implementation potential. Step 3: Today Results • Management now focus on getting the back end operations as good as the front end operations with the help of their new global head of supply chain and the final roll out of SAP. • Burberry is now shipping product rather than air freighting. • Purchasing is being done at group level not by product line. Improving EBIT margin will have a double leverage effect on Burberry valuation CF Multiple X = Valuation

10. Step by Step Introduction Step by Step Your Work Material Scoring/Reward Kick-off On October 2 2009 On November 30 2009 End of November 2010 February 2011 Stock Simulation

11. Your Work Introduction Step by Step Your Work Material Scoring/Reward Stocks’ selection

12. Your Work Introduction Step by Step Your Work Material Scoring/Reward Example: Share price vs. Interest rate Stocks’ selection

13. Your Work Introduction Step by Step Your Work Material Scoring/Reward Examples: New regulation, new competitors, new markets, new Policy… Stocks’ selection

14. Your Work Introduction Step by Step Your Work Material Scoring/Reward Examples: Management Shift, New products, Capital structure, Bond rating change, Restructuration, New acquisition… Stocks’ selection

15. Your Work Introduction Step by Step Your Work Material Scoring/Reward Stocks’ selection

16. Your Work Introduction Step by Step Your Work Material Scoring/Reward Stocks’ selection

17. Your Work Introduction Step by Step Your Work Material Scoring/Reward Stocks’ selection

18. Material Introduction Step by Step Your Work Material Scoring/Reward Website Handbook Answer-Template Registration/ uploading forms Up-to-date Performance data (follow-up) + Examples

19. Scoring/Reward Introduction Step by Step Your Work Material Scoring/Reward Report and Performance prize • 3 days in New York • 4 Flight tickets • 2 nights in Manhattan • Visit of the NY Stock Exchange Calculations Questions Valuation Stocks selection Data/Resources Charts/Calculations Statements Justifications/ Arguments _____ _____ Report scores (30% of your Advanced finance grade)