Escala Partners Investment Forum

4 June 2014 Identifying Opportunities in Global Equities

Douglas Isles, Platinum Asset Management Mr. Douglas Isles Douglas initially joined Platinum in May 2003 as an MA Maths investment analyst covering industrials and as primary (Cantab) FFA communicator for advisory/client presentations. He previously worked for CBA as product actuary and prior to this, an investment manager for Aegon Asset Management in the UK. Douglas left Platinum in 2008 to work in Singapore where he developed Standard Chartered Bank’s Equities broking business. Having rejoined in February 2013, Douglas’ role is as investment specialist and intermediary between the investment team and the retail advisory network.

Escala Partners—Investment Forum 4 June 2014 Platinum Asset Management AFSL 221935 Douglas Isles, Investment Specialist Escala Partners Melbourne, 4 June 2014

Escala Partners—Investment Forum 4 June 2014 Escala Partners—Investment Forum 4 June 2014 What many investors do…..

• Herd mentality • Extrapolation • Recency bias

Escala Partners—Investment Forum 4 June 2014 Platinum’s approach

Eulogistic Phase Deterioration Platinum Sells Boredom Price Discovery Platinum Invests

Neglect Time

Escala Partners—Investment Forum 4 June 2014 Source: Platinum Google Trends: “Financial Crisis”

2006 2007 2008 2009 2010 2011

"Financial Crisis"

Escala Partners—Investment Forum 4 June 2014 Source: Google, Bloomberg Google Trends: “Financial Crisis” v S&P

1600

1400

1200

1000

800

600 2006 2007 2008 2009 2010 2011

"Financial Crisis" S/P 500 Index

Escala Partners—Investment Forum 4 June 2014 Source: Google, Bloomberg Google Trends: “Subprime” v Lehman

80

60

40

20

0 2005 2006 2007 2008 2009 2010 "Subprime" Lehman

Escala Partners—Investment Forum 4 June 2014 Source: Google, Bloomberg Google Trends: “QE” v US 10yr bonds

5

4

3

2

1 2007 2008 2009 2010 2011 2012 2013 QE 10yr

Escala Partners—Investment Forum 4 June 2014 Source: Google, Bloomberg Long Term Returns (US, 1871-2013)

30

20

10

0

-10

-20 5 years 10 years 15 years

Escala Partners—Investment Forum 4 June 2014 Source: Minack Associates Long Term Returns (US, 1871-2013)

30

20

10

0

-10

-20 5 years 10 years 15 years 20 years 25 years 30 years

Escala Partners—Investment Forum 4 June 2014 Source: Minack Associates Escala Partners—Investment Forum 4 June 2014 Coca-Cola

31 Oct 80 31 Jul 98 30 Apr 14 Share Price 64c $40 $41 P/E 10x 47x 21x

Sales Income Share Price

7 17 30 6 6 2

1980-1998Escala Partners—Investment Forum 1998-2014 4 June 2014 Source: Bloomberg Escala Partners—Investment Forum 4 June 2014 Intel, US The cycle of a company

Escala Partners—Investment Forum 4 June 2014 Source: Platinum Australia’s Terms of Trade Boost

100

80

60

40 1959 1968 1977 1986 1995 2004 2013

Escala Partners—Investment Forum 4 June 2014 Source: Bloomberg Pharmaceuticals

Escala Partners—Investment Forum 4 June 2014 MSCI World Index suggests…

Almost 50% of future value will be created by US corporates?

Escala Partners—Investment Forum 4 June 2014 Source: MSCI Summary

• Price is everything • History has lessons • Growth is great but there are other opportunities • DNA counts – can monopolies change? • Avoid over-simplification / cater for the unexpected • Extrapolation ignores change • Composition must anticipate the future not bask in the past

Escala Partners—Investment Forum 4 June 2014 Escala Partners—Investment Forum 4 June 2014 Escala Partners—Investment Forum 4 June 2014 Montage Sources: TransPacific Project, Microsoft Platinum : Quotes from 2012……

Platinum Asia Fund, Platinum Asia Fund, June 2012 Quarterly Report September 2012 Quarterly Report

Escala Partners—Investment Forum 4 June 2014 Source: Platinum China – Local Stock Market 5500

Shanghai Composite 4500

3500 FALLING

2500

1500 Dec/07 Sep/08 Jun/09 Mar/10 Dec/10 Sep/11 Jun/12 Mar/13 Dec/13

Escala Partners—Investment Forum 4 June 2014 Source: Bloomberg 6.5 year total returns – context for China

Total Return 0 Japan from Worst US Nasdaq from China to NOW -10 1989 Peak market : to 1932 2000 Peak -20 -7.7%pa -9.0%pa -9.6%pa -30 -14.0%pa -40 -50 -60

Escala Partners—Investment Forum 4 June 2014 Source: Bloomberg, Minack Associates China : Land of Opportunity

Escala Partners—Investment Forum 4 June 2014 Source: National Geographic Escala Partners—Investment Forum 4 June 2014 Escala Partners—Investment Forum 4 June 2014 Source : South China Morning Post Current Key Investment themes

• E-commerce, data, mobility • Financial sector repair • Japan’s corporate rejuvenation • Emerging market consumer • Pharmaceuticals • US capital spending • China rebalancing Escala Partners—Investment Forum 4 June 2014

In the game of investment, you can get a good run for a while, but nearly 20 years of consistently strong returns * can’t be attributed to luck. pa It’s a result of a rational methodology, 12.9% keen attention to detail and the courage to go left when the rest of the market goes right; it works over time and it continues to pay off for Platinums’s clients. OVER Why not visit our website—you’ll be reassured by our long term results, and perhaps pleasantly surprised by our performance in the shorter term. 19 YEARS www.platinum.com.au HOW LUCKY CAN YOUEscala GET? Partners—Investment Forum 4 June 2014 Disclaimer

Platinum Asset Management has prepared this presentation material. Platinum Investment Management Limited ABN 25 063 565 006 AFSL 221935 trading as Platinum Asset Management (Platinum) is the responsible entity and issuer of units in the Platinum Trust Funds. Platinum is a member of the Platinum Group of companies. The performance in slide 29 represents the compound pa return from inception of the Platinum International Fund on 1 May 1995 to 30 April 2014. The investment return is calculated using the Fund’s unit price and represents the combined income and capital return for the specified period. The return is net of fees and costs (excluding the buy- sell spread and any investment performance fee payable), pre-tax and assumes the reinvestment of distribution. The investment return shown is based on historical numbers and no warranty can be given for future performance. Past performance is not a reliable indicator of future performance. Due to the volatility of underlying assets of the Funds and other risk factors associated with investing, returns can be negative (particularly in the short-term). MSCI data has been sourced through MSCI.

Disclaimer: The information provided in these presentation slides is not intended to provide advice. It does not take into account the investment objectives, financial situation and particular needs of any person, and should not be used as the basis for making investment, financial or other decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Platinum does not guarantee the repayment of capital, payment of income or the performance of the Funds.

Escala Partners—Investment Forum 4 June 2014 Australian Investment Conditions

Giselle Roux, Escala Partners CIO Giselle Roux Giselle Roux is the CIO (Chief Investment Officer) of Escala Partners Escala Partners, and is therefore responsible for leading CIO the generation and communication of our research view. This research output spans Asset Allocation, Domestic and International Macro, and the construction of our Model portfolios. Prior to joining Escala, Giselle was Managing Director and CIO of JB Were since 2007, and was responsible for managing its Australian and international equity portfolios. Giselle has also served as a Research Analyst at Citigroup, an Equity Analyst at Bank of America Merrill Lynch, has worked in strategy and business development at the Coles Group, and as an Equity Analyst at McIntosh Securities.

Escala Partners—Investment Forum 4 June 2014 Australian Export Volumes Business Investment Components* Quarterly, 2011/12 prices, log scale Share of nominal GDP economic $b $b % % outlook Resources Machinery and equipment Services 8 8

40 12 Rural 6 6

4 4 20 6 Buildings

Manufacturing 2 2 Engineering

10 3 0 0 1995 2001 2007 2013 2001 2007 2013 1988 1993 1998 2003 2007 2013 Source: ABS Source: ABS *Adjusted for second-hand asset transfers between the private and other sectors

Escala Partners—Investment Forum 4 June 2014 Correlation of GDP Growth and ASX 200 6% 40% ASX to GDP GDP growth 30% 5% (26%) 20% 4% 10% 0% 3% ASX 200 -10% 2% -20% -30% 1% -40% 0% -50% Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12 versus US GDP Growth and S&P 500 6% 60% S&P500 to GDP US GDP growth 50% 4% 40% (63%) 30% 2% 20% 10% 0% 0% -2% -10% S&P 500 -20% -4% -30% -40% -6% -50% Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12

Escala Partners—Investment Forum 4 June 2014 Australian equity market Interest rate sensitive – Banks Commodities – REITs – Mining and resources – Utilities – Energy – Low growth, – Mining services high yield industrials Valuation Flows Momentum Domestic demand Global growth – Retail – Healthcare – Building Materials – Selected industrial – Media companies – Services – Selected diversified financials

Escala Partners—Investment Forum 4 June 2014 Domestic Retail Sales Growth* economy % %

Values Equity options (year-ended*) –Housing 8 8 –Media –Entertainment

–Retail 4 4 –Services Volumes (year-ended)

% % Volumes (quarterly)

0 0

5 -5 2002 2006 2010 2014 Source: ABS *Percentage change over year to latest three months

Escala Partners—Investment Forum 4 June 2014 Portfolio Housing: Boral CSR Dulux options and Fletcher Stockland Mirvac recommendations Media: Nine Seven Ten News Seek RealEstate.com

Entertainment: Ardent Tatts Tab Echo

Services: Flight Centre Navitas Ozforex G8 Education

Retail: Wesfarmers Woolworths Myer Harvey Norman Super Retail JB-Hi Fi Premier Group Domino’s Pizza Carsales.com

Escala Partners—Investment Forum 4 June 2014 Two major sources S&P/ASX 200 – Price and Yield of risk: 7,000 7.5% Asset class volatility, 6,500 7.0% security selection 6,000 6.5% 5,500 S&P/ASX 200 Index away from index (LHS) 6.0% 5,000 5.5%  4,500 5.0% 4,000 4.5% 3,500

3,000 Dividend Yield 4.0% (RHS) 2,500 3.5%

2,000 3.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Yield does not reduce risk, it changes the nature of your return

Escala Partners—Investment Forum 4 June 2014 Australian Yield on 5 year non financial corporate bonds corporate bond 14% 12% BBB Rated return and risk 10% 8% 6% A rated 4% 2% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Non financial corporate bond spread to Government 5 year bp spread 900 800 BBB Rated 700 600 500 400 300 200 100 A rated 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Escala Partners—Investment Forum 4 June 2014 Mix of debt Australian interest rate returns (p.a) securities 16% reduces 14% volatility Composite Bond 12%

10%

8% Special Term Deposits

6%

4%

2%

0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Escala Partners—Investment Forum 4 June 2014 Assessing Leverage Interest Coverage 35% 9 credit risk 8 30% 7 6 25% 5 4 20% 3 15% 2 1 10% 0 96 98 00 02 04 06 08 10 12 96 98 00 02 04 06 08 10 12

Cash Conversion Profit Margins

91% 16%

87% 12%

83% 8%

79% 4%

76% 0 96 98 00 02 04 06 08 10 12 96 98 00 02 04 06 08 10 12

Escala Partners—Investment Forum 4 June 2014 Portfolio Judgement on Australian equity allocation considerations – Balance stable dividend with dividend growth – Maintain a reasonable spread of holdings in portfolio – Low Australian equity weight more concentrated than high Australian equity weight – Diversify themes and views Global equities – Mostly unhedged, with hedging options – Mostly active, ETF’s to reduce volatility and cost – ETF’s to account for excess regional bias, if necessary Fixed interest – Fixed Interest barbell of income (with some risk) and low volatility funds, with intent to add broader base of bonds and debt securities as interest rates normalise

Escala Partners—Investment Forum 4 June 2014 Disclaimer General advice warning: this information has been issued by Escala Partners Limited (ABN 74 155 884 236). The information contained herein is of a general nature only and is not intended to represent investment or professional advice. We have not taken your circumstances into account when preparing this information so it may not be applicable to you.

Escala Partners—Investment Forum 4 June 2014 Thank you