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Navigating the globe for investment opportunities – it is safe to get back into the water May 2012

Navigating the globe for investment opportunities – it is safe to get back into the water May 2012. Hamish Douglass Chief Executive Officer & Portfolio Manager, Magellan Global Fund. Agenda. European debt crisis China: Hard of soft landing? US Recovery Stock insight: Lowe’s

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Navigating the globe for investment opportunities – it is safe to get back into the water May 2012

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  1. Navigating the globe for investment opportunities – it is safe to get back into the water May 2012 Hamish Douglass Chief Executive Officer & Portfolio Manager, Magellan Global Fund

  2. Agenda • European debt crisis • China: Hard of soft landing? • US Recovery • Stock insight: Lowe’s • Magellan Global Fund: key investment themes • Magellan Global Fund update

  3. European debt crisis

  4. Greece and Portugal • The Greek bailout packages and private sector write down of government debt, are fundamental steps in the right direction • Greece is insolvent • Portugal is likely to need more aid • Greece and Portugal 2 year funding requirement is around €130 billion • EU and IMF have adequate resources to fund Greece and Portugal

  5. Italy and Spain • Italy and Spain total sovereign funding is estimated at €421 billion for 2012 and €345 billion for 2013 • Italy and Spain have funded around 41% of their 2012 requirement • ECB LTRO has reduced funding risk for banks, Italy and Spain. • Spain’s economic situation is deteriorating • ECB has additional policy flexibility to deal with funding stress in Spain & Italy

  6. European funding stress

  7. China: Hard or Soft Landing

  8. Loan Growth in China Outstanding Loans (RMB Bil) Outstanding Loans in China YoY Growth (%) 60,000 35% 33% 30% 50,000 25% 22% 21% 40,000 20% 17% 16% 16% 30,000 20% 15% 13% 15% 12% 10% 20,000 10% 6% 10,000 5% 9,373 9,937 11,240 13,111 15,900 17,736 19,469 22,529 26,169 32,005 42,560 50,923 56,242 - 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q3 2011* * Q3 2011 YoY% growth represents loan growth between Q3 2010 and Q3 2011 [8] Source: Bloomberg & Magellan Asset Management

  9. China – Urban Fixed asset investment [9] RMB, bn 1995 - 2005 CAGR = 17% pa 2005 – 2010F CAGR = 26.2% pa 28 24 20 16 12 8 4 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total urban FAI Source: CEIC, BoA Merrill Lynch and Magellan estimates

  10. China – Fixed Asset Investment Facts Fixed asset investment - 25% pa growth over the past decade Absolute value has dramatically accelerated: Last 2 years FAI RMB 43 tn (USD 6.43 tn) Last 4 years FAI RMB 70 tn (USD 10.5 tn) Prior decade FAI RMB 43 tn (1997 – 2006) [10]

  11. US Recovery

  12. U.S. HousingAt 60+ year lows as a share of GDP Average: 4.7% Current: 2.3% Source: Calculated Risk Blog

  13. US Population (m) 312.8 5yr CAGR of Population Growth 0.8% Annual Incremental Population (m) 2.54 Assumed Occupancy Rate for Incremental Property 2.10 Annual New Housing Unit Demand (m) 1.21 Assumed Demand from Net Replacement of Existing Units (Units x 0.25%, m) 0.33 Total Annual New Housing Demand (m) 1.54 U.S. HousingHousing demand Source: United States Census Bureau, United States Department of Commerce, Bloomberg, Magellan Estimate

  14. U.S. HousingHousing supply Source: United States Department of Commerce

  15. U.S. HousingExcess vacant units should be absorbed in ~3 yrs Source: Census Bureau, Commerce Department, Bloomberg, Magellan Estimates

  16. Lowe’s • Lowes is the #2 home improvement retailer in North America • Home Depot and Lowes have 50% market share • 2011 revenue of $50b from its 1,745 stores • 98% of stores are located in the U.S. Source: Company filings

  17. Investment Case 24% CAGR Source: Company filings, Magellan estimates

  18. The Rise of the Eastern Consumer

  19. South East Asia 2010 - 2030 2030 - 2050 China BRIC Total Emerging mkts Developed Nations 0 500 1000 1500 2000 2500 The Rise of the Eastern Consumer Long-term urbanisation… Urban Population Growth Forecasts (million) Source: United Nations, Population Division of the Department of Economic and Social Affairs

  20. The Rise of the Eastern Consumer … and quality multinationals already embedded Source: Company data, Magellan Research * % of Operating profit

  21. The Move to a Cashless Society

  22. The move to a cashless society Percentage of transaction volumes conducted in cash still very high Source: McKinsey Global Payments Map, 2007

  23. Convergence Technological developments drive the birth of an “electronic wallet”

  24. [25] The move to a cashless society Non-cash penetration in personal consumption expenditure on goods and services 90 80% non-cash penetration 80 70 CAGR = 8.7% 60 50 Non-Cash Payments for Personal Consumption (US$b) 60% non-cash penetration CAGR = 7.2% 40 44% non-cash penetration 30 20 10 0 2030 2009 Source: Arthur D Little, Feb 2010

  25. The Age of the Internet and the Rise of e-Commerce

  26. [27] The size of the e-Commerce Opportunity Significant e-Commerce opportunities await Total Global Retail Sales $US 13.9 trillion “Addressable” Online Categories $US 6.5 trillion • Food and beverages • Electronics & Appliances • Health & Personal Care • Clothing • Sporting and hobby goods • Music • PLUS: • Services (travel, rent, utilities, insurance etc) Actual Global Online Sales $US 806 billion Source: Economist Intelligence Unit, US Census Bureau, comScore, MasterCard. US subdivisions have been applied to global sales to establish size of addressable online categories.

  27. 9,000 8,000 7,000 6,000 5,000 Global Online Sales (US$b) 4,000 3,000 2,000 1,000 0 2009 2030 [28] The size of the e-Commerce Opportunity Growth as online penetrates retail sales 20% online penetration CAGR = 11.9% CAGR = 10.4% 15% online penetration 5.8% online penetration Source: Economics Intelligence Unit, Mastercard & comScore

  28. Magellan Global Fund Update

  29. [30] Portfolio strategy Always focus on quality and minimising the risk of permanent capital loss • Invest into extremely high quality “cash cows” with low risk exposure to consumer growth in the developing world • The age of the Internet and the rise of e-commerce • The move to a cashless society

  30. Magellan Global Fund Top Ten Holdings as at 31 December 2011

  31. [32] Magellan Global Fund Net Performance as at 31 March 2012 * Relative to MSCI World Index Net Total Return ($A). Performance calculated after fees. Fund inception 1 July 2007

  32. Important Information This presentation (‘Presentation’) has been produced by Magellan Asset Management Limited (‘Magellan’) ABN 31 120 593 946, AFS Licence No 304 301 and has been prepared for informational and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security or financial product or service. Any such offer or solicitation shall be made only pursuant to a Product Disclosure Statement, Information Memorandum or other offer document (collectively ‘Offer Document’) relating to a Magellan financial product or service. A copy of the relevant Offer Document relating to a Magellan product or service may be obtained by calling Magellan on +61 2 8114 1888 or by visiting www.magellangroup.com.au. This Presentation does not constitute a part of any Offer Document issued by Magellan. The information contained in this Presentation may not be reproduced, used or disclosed, in whole or in part, without the prior written consent of Magellan. Past performance is not necessarily indicative of future results and no person guarantees the performance of any Magellan financial product or service or the amount or timing of any return from it. There can be no assurance that a Magellan financial product or service will achieve any targeted returns, that asset allocations will be met or that a Magellan financial product or service will be able to implement its investment strategy and investment approach or achieve its investment objective. Statements contained in this Presentation that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this Presentation may contain “forward-looking statements”. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. Certain economic, market or company information contained herein has been obtained from published sources prepared by third parties. While such sources are believed to be reliable, neither Magellan or any of its respective officers or employees assumes any responsibility for the accuracy or completeness of such information. None of Magellan or any of its respective officers or employees has made any representation or warranty, express or implied, with respect to the correctness, accuracy, reasonableness or completeness of any of the information contained in this and they expressly disclaim any responsibility or liability therefore. No person, including Magellan has any responsibility to update any of the information provided in this Presentation. Neither this Presentation nor the provision of any Offer Document issued by Magellan is, and must not be regarded as, advice or a recommendation or opinion in relation to a Magellan financial product or service, or that an investment in a Magellan financial product or service is suitable for you or any other person. Neither this Presentation nor any Offer Document issued by Magellan takes into account your investment objectives, financial situation and particular needs. In addition to carefully reading the relevant Offer Document issued by Magellan you should, before deciding whether to invest in a Magellan financial product or service, consider the appropriateness of investing or continuing to invest, having regard to your own objectives, financial situation or needs. Magellan strongly recommends that you obtain independent financial, legal and taxation advice before deciding whether to invest in a Magellan financial product or service.

  33. Thank you.

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