European Equities Outdated Model or Innovation Center? Joachim Schallmayer, Senior Portfolio Manager

European Equities Outdated Model or Innovation Center? Joachim Schallmayer, Senior Portfolio Manager

Agenda 1 2 3 4 Sovereign backdrop Corporate backdrop World Market Leaders Valuation backdrop 2

Agenda 1 2 3 4 Sovereign backdrop Corporate backdrop World Market Leaders Valuation backdrop 3

Europe: Sovereign backdrop Crisis put into perspective Global Budget Competitiveness Deficits and Index gross financial liabilities as % of GDP Cyclically Gross General Adjusted Budget Government Debt Deficit (% GDP)** (% of GDP)*** Germany* -1.8 73.2 France -6.2 77.6 Italy -3.3 115.8 Spain -9.6 53.2 Netherlands -3.6 60.9 Belgium -4.5 96.7 Austria -2.4 66.5 Greece -14.1 115.1 Finland 0.3 44 Ireland -11.4 64 Portugal -8.3 76.8 Slovakia -6.4 35.7 EMU-Average (PPP Weighted) -4.9 78.9 UK -8.4 68.1 USA -8.0 83.9 Japan -5.5 218 Sovereign funding is an issue globally Other developed economies starting from a similar or worse level Reduction of deficits and austerity measures needed in most parts of the developed world Several European countries announced and implemented a first set of measures 4 Source: Goldman Sachs *Countries listed according to their share of Euroland GDP ** Sources: European Commission, CBO, OECD, HM Treasuries *** Sources: Eurostat, Goldman Sachs Estimates

Europe: Sovereign backdrop Crisis put into perspective Global Competitiveness Index CDS Spreads 1,200 1,000 800 600 400 Intensive market speculation Extreme risk perception Positive: market speculation put pressure on governments to react immediately and in a comprehensive manner 200 0 09/09 01/10 05/10 09/10 01/11 Greece Portugal Spain Egypt Indonesia Philippines 5 Source: Bloomberg

Agenda 1 2 3 4 Sovereign backdrop Corporate backdrop World Market Leaders Valuation backdrop 7

Europe: Corporate backdrop Excellent balance sheet quality Corporate deleveraging trend expected to continue 3,5 3,0 2,5 2,0 1,5 1,0 0,5 1,0 0,8 0,6 0,4 0,2 Significant debt reduction during the last years with trends set to continue Strong cash generation Flexibility to increase the payback to shareholders through dividend increase or buyback Provides european companies with strategic flexibility 0,0 0,0 2000 2002 2004 2006 2008 2010e2012e Net Debt / Ebitda Net Debt / Equity (rhs) 8 Source: Barclays Capital and own calculations

Europe: Corporate backdrop Excellent efficiency 16% 14% 12% 10% 8% 6% Profitability safeguarded during the crisis 1,5 1,4 1,3 1,2 1,1 Companies operate on a high level of capital efficiency and profitability Efforts of past restructurings now become very visible Strong signal of managerial capabilities of european management teams 4% 1,0 1998 2000 2002 2004 2006 2008 2010 Asset Turnover (rhs) EBIT Mgn. 9 Source: Barclays Capital and own calculations

Europe: Corporate backdrop Continous productivity enhancement 7% 6% 5% 4% 3% 2% 1% Hourly earnings and Producer Prices 115 110 105 100 95 90 Wages remain restrained in the european environment while producer prices are on the rise European companies continue to gain competitiveness 0% 1997 1999 2001 2003 2005 2007 2009 Europe hourly earnings % y/y Europe PPI index (rhs) 85 10 Source: Barclays Capital and own calculations

Europe: Corporate backdrop European Products in strong demand Significant part of European company revenues generated in EM 70% 60% 50% 40% 30% 20% 10% 0% Metals & Mining Technology Hardware Beverages Chemicals Luxury Goods Food & HPC Average % of total EPS from China for Daimler & BMW Estimated EM exposure for European Sectors (%) Telecom Services Banks Autos 13 Source: Barclays Capital

Agenda 1 2 3 4 Sovereign backdrop Corporate backdrop World Market Leaders Valuation backdrop 14

World market leaders out of Europe Luxury Typical Stocks LVMH Pinault Printemps Redoute Luxottica Richemont Swatch 15

World market leaders out of Europe Autos Typical Stocks Daimler BMW VW Porsche MAN 16

World market leaders out of Europe Industry Typical Stocks Siemens ABB Philips ASML 17 Source: Photo ABB, Philips, Tognum AG

World market leaders out of Europe Consumer Typical Stocks Danone Henkel Nestlé Lindt & Sprüngli 18 Sources: Danone, Nestlé, Henkel, Lindt & Sprüngli

Agenda 1 2 3 4 Sovereign backdrop Corporate backdrop World Market Leaders Valuation backdrop 19

European Equities Valuation backdrop Attractively valued on multiples P/E-Ratio* 40 35 30 25 20 15 10 5 0 19701976 1982198819942000 2006 12M-Forward PE 12M-Trailing PE Price / Book* 6 5 4 3 2 1 0 1970 1976 1982 1988 1994 2000 2006 20 * MSCI Europe Sources: Factset

European Equities Valuation backdrop Attractive earnings growth outlook 60% 40% 20% 0% -20% -40% MSCI Europe: Historic EPS Growth with Future Estimates -23% -20% -21% 26% 36% 18% 13% 4% -9% 6%4% -19% -4% 53% 44% 25% 24% 6% -24% -17% bottom-up estimates 39% 15,3% 13% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 21 Sources: IBES

Wrap up Stable political environment Gearing to world economic growth especially to strong growing BRIC economies Corporates that are in excellent shape Very supporting valuation background No listed alternatives to a lot of these world market leaders 22

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