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First State Stewart Sustainability Strategies

Quarterly Client Update: Third Quarter 2014

1 July – 30 September 2014

Investment philosophy Since 1988 we have had an approach to investment founded on: – Stewardship – An absolute return mindset – Bottom-up analysis – Long-term thinking – Searching for quality companies – Finding sustainable and predictable growth – Strong valuation disciplines Investment objective To generate attractive long-term, risk-adjusted returns by investing in the shares of those companies which we believe are particularly well positioned to benefit from, and contribute to, the sustainable development of the countries in which they operate. First State Investments First State Stewart Quarterly Client Update

Contents Commentary 2 Significant Portfolio Changes 4 Engagement 7 Proxy Voting 8 Investment Trip Report: 9 Fund Information 11

COMMENTARY

“We aim to become long-term equity partners in each business to which we allocate capital.” In the short term Asian asset prices continue to be driven ever higher by lax global monetary policy. As a result, we are becoming ever more concerned about the risk of a serious market collapse in the region. Valuations of many good quality Asian companies have reached extreme levels. To give one example of many, our favourite Korean consumer company, Amorepacific, has re-rated dramatically and unjustifiably over recent years. When we first met the company in 2001, it was trading on a price to earnings ratio of less than five times. The shares now trade on a price to earnings ratio of over thirty times. The graph below illustrates the re-rating of the valuation over the past ten years. While the company has worked hard to improve its corporate governance and long-term sustainability positioning, it is hard to argue that its long-term prospects are very different from what they were thirteen years ago.

The Price to Earnings Ratio of Amorepacific over the past ten years

As a result of this re-rating, we have been left with no choice but to sell all the shares in the company. As bottom-up stock pickers, selling our favourite companies on valuation grounds is an uncomfortable but necessary decision. Whenever we buy shares in an Asian company, our hope and expectation is 50.00x

45.00x

40.00x

35.00x

30.00x

25.00x

20.00x

15.00x

10.00x

5.00x 0.00x

0 0 0 0 1 1 2 2 2 3 3 4 4 4 11 11 11 11 11 13 13 13 12 12 14 10 -2 01 -2 01 -20 -2006 -2007 -2007 -2008 -2005 1-20 9-20 4-20 1-2 01 1-20 1-2 01 8-2 01 3-2006 7-2007 4-2005 1-2005 1-2008 1-2009 1-2009 11 1 1 17 14 1 1 1 17 1 17 12 1 14 05-2007 28-2005 20-2009 -1 -0 -06-20 -1 -24-20 -07-2008 v- b- v- v-22-20 b- v-2 b-27-2 01 b-05-2 01 b-02-2006 Jul- Jul-04-20 eb- Jul-2 Jul-07-2005 Jun- Jan-2 Jan-04-20 Apr Jun-29-2 01 Jun- Sep- Fe Jun-26-2 01 Apr Apr Apr Jan-29-2007 Fe Dec- F Oct-24-2 01 Jun-27-2006 Jun-29-2009 Fe Mar Fe Aug- Sep- Oct-28-2 01 Sep-24-2 01 Sep-03-2 01 No Ap r- Ap r- Ap r- No May-0 No Aug-25-20 Aug- Fe Oct-24-2007 Dec-03-2 01 Mar May- Sep-07-2006 Sep-25-2008 Sep-03-2009 Sep-30-2004 May-08-20 No Dec- 31 Dec-02-2008 Dec-08-2004

AmorePacific Group (KOSE:A002790) - P/Diluted EPS Before Extra

Source: Capital IQ.

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that we will remain on the share register for years if not decades to come. We aim to become long-term equity partners in each business and to establish healthy, long-term relationships with the management teams and board of directors of the companies to which we allocate capital. This is particularly important in terms of earning the right to engage with companies on a wide range of sustainability issues. Many if not most of the companies within the strategy complain about the challenges of having fickle, short-term shareholders on their registers. We tend to agree. Yet, whenever we sell for valuation reasons, we can’t help but feel we are part of this problem. On the other hand, if we don’t sell once the shares have become overvalued, we will be aiding and abetting the misallocation of capital. Equity bubbles are not good for society. Balancing the desire to be long-term shareholders with the desire to adhere to a sensible valuation discipline is not something we find easy to do. We have no proprietary valuation techniques that enable us to precisely measure the true value of each share in the strategy. In part this is because we have no crystal ball to be able to predict with certainty the cashflow profiles of our companies over the coming decades. Even if we could, there are still a number of other heroic assumptions we would be required to make in order to land on a definitive, precise calculation of a share’s true value. Instead, we think about share values from as many different perspectives as possible in order to develop a broad-based assessment of whether the shares within the strategy are overvalued, fairly valued or undervalued. We use earnings yields and discounted cash flows, comparisons to a company’s accounting book value and guesstimates of the real replacement cost of a company’s assets in order to help us make a subjective judgment as to where on the valuation spectrum a share is currently priced relative to its true worth. While it is easy enough to spot extreme over and under-valuation, most shares sit somewhere nearer the middle of this spectrum. For us, valuing companies is much more of an art than a science. The same is true for most, if not all, aspects of how we invest. As the saying goes, “Economists put decimal points in their forecasts to show they have a sense of humour.” The same could be said of analysts’ earnings forecasts and valuations. The strategy’s cash levels have slowly edged up as we have trimmed or completely sold the most expensive companies within the portfolio. While we are certain we have little, if any, ability to time markets, we are prepared to be patient and wait for better entry prices before allocating your Company’s capital to our favourite companies. We have a relatively long shopping list of well- managed Asian companies with strong sustainability positioning which we would love to own at lower prices. We are optimistic that the opportunity will present itself sooner rather than later! In short, we remain concerned that the worst is not yet behind us. The global economy remains artificially supported. Such support cannot last indefinitely, and as and when it is pulled away, the implications will be profound. As stockpickers all we can do in such times is keep our heads down and focus on identifying good quality Asian companies which are well positioned to contribute to and benefit from a shift towards a more genuinely sustainable development path. We continue to believe these companies are particularly well positioned to deliver long-term absolute returns to investors in the Asia Pacific Region.

3 First State Investments First State Stewart Quarterly Client Update

SIGNIFICANT PORTFOLIO CHANGES GIANT MANUFACTURING Over the quarter we have reduced a number of portfolio holdings as we are increasingly nervous about markets, particularly retailer markets across Europe, and how they will perform in a down turn. Market cap: US$ 2.9 billion Some may consider us to be overly pessimistic in our approach and attitude but we feel that there is Shareholders since: February 2012 much volatility across markets globally and, as a result, have been increasing our cash positions throughout the strategies to safeguard client investments. Sustainability classification: Required infrastructure Worldwide Company description: Established in 1972, During the quarter for our Worldwide strategy we initiated positions in Elisa, Natura and Energiedienst Giant is one of the world’s largest bike Holding. manufacturers in terms of revenue. They Elisa is a Finnish telecommunications company focused on minimising costs and increasing have the number one position in and productivity for customers. Management are sensible stewards operating in a sensible economy, with are one of the top three brands in Europe a conservative approach to financials, generating lots of cash and returning it to shareholders. and the US. Giant operates manufacturing bases in , China and the . Natura is a leading Brazilian cosmetics company whose franchise is founded on principles relating to They manufacture under the Giant brand but sustainability such as bio-diversity underpinning all their product lines. We have known Natura for a also for Trek and Specialized. long time, given it is also held within our GEM strategy, and are confident that their high quality governance structure will navigate the business transformation they need to go through to grow Investment rationale: Excellent track outside and their traditional ‘door-to-door’ distribution model. record of execution both in OEM business and development of its own brand, there is a Energiedienst Holding is a vertically integrated German/Swiss group of companies providing good history of paying dividends and they renewable and environmentally friendly energy to residential and commercial customers. Whilst you have the long-term backing of the Liu family. may have heard us say we typically do not own renewable energy companies, Energiedienst has the We also see long-term opportunities for quality of financials that enable us to be comfortable. They have produced renewable energy for over bikes as people opt for healthier life-styles 100 years, ecology and sustainable development are at the core of their corporate philosophy, and and commuting (Giant is also leading in the they will continue to be a beneficiary, as aims to grow renewable energy supplies and development of Electric Bikes). increase exposure to clean energy. Risks: Raw material costs are outside the We added to Chubb Corporation following a meeting with management which confirmed our belief company’s control. However, they have done in their culture and philosophy, and how they place survival above financial motives; Ain Pharmaciez a good job of growing operating margins as we continue to back management to consolidate the pharmaceutical market in ; over the years. Sawai Pharmaceutical as we are slowly building confidence that it is the best-managed generic drug manufacturer in Japan; and Henkel on attractive valuations given the strength of the management Engagement issues: General improvement and quality of the franchise. in ESG reporting and transparency. Recyclability and collaborative consumption We sold out of Ebro Foods following concerns about management close to Snr Hernandez and their i.e. how people sharing and renting bikes is attitude towards tax shields; and Globe Telecom due to valuations and because we believe Elisa is likely to impact their growth. a better quality franchise. We also reduced positions within Handelsbanken as we are nervous about their local credit cycle; DIA, Colruyt and Kingfisher to reduce exposure to European retailers given deflation; GlaxoSmithKline as we have concerns that the recent management changes may cause more challenges for the business and CSL, Public Bank, Sika, Shimano, Burckhardt Compression and Kansai on valuations.

Source: FSS Team, June 2014.

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Emerging Markets In our Emerging Markets strategy we initiated positions in Adcock Ingram, Spar Group, Mahle Metal Leve, Taesa, IDFC, Entel and HDFC Corp. Adcock Ingram is ’s largest supplier of hospital and critical care products within the region. We are backing the new proven entrepreneurial group (Bidvest) to revitalise this flagging pharmaceutical franchise to deliver long-term substantial growth opportunities by providing affordable medicines in Africa and other territories in sub-Saharan Africa and . Spar Group is one of South Africa’s best quality retailers. Whilst admitting to just embarking on their sustainability journey, they do appear to be ahead of their South African peers with priorities that include reducing CO2 emissions, opportunities in waste and packaging reductions, reverse logistics, biological farming (farming that uses fewer artificial chemicals) in order to provide fresher produce throughout South Africa and empowering their employees by granting ownership rights to the factory floor. Run by long-term German engineers who are focused on R&D, Mahle Metal Leve is one of the largest auto components suppliers in the world. They are focused on making engines more efficient and reducing emissions and, as such, are likely to be a beneficiary of enhanced emission standards in Brazil and globally over the years to come. Taesa operates electricity transmission assets in Brazil. The company serves to connect Brazil’s South East with electricity generation in areas of the country further north. The company’s assets are very attractive in that they operate under a clear regulatory regime which guarantees an acceptable, inflation-linked return and hence yield. Reducing downtime and transmission losses are an objective for the management team, giving the company a very natural positive sustainability positioning. Taesa is a very simple business generating very predictable long term cash flows which the management team are committed to returning to shareholders. Entel is one of Latin America’s most innovative integrated telco’s owned by the Matte family (along with other renowned Chilean families and professionals). They maintain a leading market share, primarily providing mobile and internet-related services to customers in Chile and . They have a high quality of customer service and are focused on building communication networks throughout rural areas to further connect the population. HDFC Corp, currently held in the Asia and India strategies, is India’s largest housing company and we believe is well positioned to benefit from India’s infrastructure development. We sold out of Uni-President having lost faith in their sustainability positioning; Kasikornbank as we have concerns on their credit cycle; EID Parry as we believe there are better quality franchises to own in India; and Godrej Consumer on valuations. As markets are becoming increasingly expensive we reduced a number of other holdings within the strategy such as: Giant, WEG and Delta Electronics as we find it difficult to justify particular holdings at certain valuations. Asia In Asia, we bought and IDFC (both also purchased for the Indian strategy). We reinstated a position in Infosys, a leading software services company based in , India. We have always been impressed by the strength of culture and business franchise at the company. However, in recent years they have undergone a relatively painful management transition as the original founders of the business have stepped away from day to day responsibilities. We are hopeful that this transition is now almost complete following the most recent management changes. Currently transitioning from an Indian infrastructure lender to a proper bank, IDFC is a franchise with a diversified product offering and income stream. Management are experienced, prudent stewards with a conservative attitude towards risk, are focused on driving long-term returns and delivering profitable growth; hence we are backing them in a modest way through this transition. We added to Ayala Corp as we believe the seventh generation of family leadership (now in management) will present interesting opportunities over the long term as they galvanise the overall group; and Vitasoy as we believe it is wonderfully positioned to benefit from sustainability tailwinds and is incredibly high quality. We trimmed Public Bank, , , Tube Investments, Kansai Nerolac and Globe Telecom as we believe they have become fully valued. We also trimmed Kasikornbank as we have concerns over their credit cycle and valuation amidst the current political environment in . We sold out of EID Parry and Godrej Consumer to reduce the risk of being heavily exposed to the Indian market; and Amorepacific Group as we are no longer convinced of its sustainability positioning due to the production and distribution of ‘magic pills’.

5 First State Investments First State Stewart Quarterly Client Update

India In our India strategy we bought Makemytrip, Colgate Palmolive India, India, Bata Bangladesh and Indoco Remedies. Makemytrip is India’s leading online travel operator. Whilst still embarking on their journey of evolution in terms of their franchise reputation, dharma is evidenced throughout and we are backing the people and culture of this organisation to provide affordable and competitive travel to customers throughout the world. They are focused on innovation and have the opportunity to move society in the right direction in terms of influencing ‘greener’ practices for hotels, airline travel (linking price to environmental intensity), online bus and rail ticketing whilst encouraging people to travel and experience new cultures by making holidaying more affordable through competitive price offers. Colgate Palmolive India, a wholly owned subsidiary of US based Colgate Palmolive Company, is a leading FMCG company engaged in oral and personal care. They have a great culture, astonishing consumer brand loyalty, maintain a steady growth record and solid balance sheet which has resulted in reliable returns for shareholders. They are focused on innovation in a bid to continue to improve their emerging market offerings, where they have had a presence for over 75 years. They have a long term sustainability strategy that focuses on three areas: people, performance and the planet and believe that “a cleaner healthy environment is important not only because it is the right thing to do but because it makes good business sense”. Cummins India, is an Indian subsidiary of the largest independent maker of diesel engines and related products in the world, Cummins in the US. They are well positioned to benefit from rising infrastructure spend in India and have a strong franchise committed to resolving environmental issues (their products are similar to Bosch India in that they help improve efficiency). Bata Bangladesh is a subsidiary of Bata India the world’s largest shoe maker and India’s market leader in footwear. They have a strong brand reputation, with a diverse product portfolio and wide distribution network; and are likely to be a beneficiary of the fast growing Bangladeshi shoe market which in 2012 was reported at one pair of shoes for every five people (a figure we are keen to see increase). Acting as responsible stewards they are involved in a number of ESG initiatives and are known throughout India and Bangladesh for creating good living conditions near their manufacturing facilities by investing in schools, hospitals and environmental impact programmes. Indoco Remedies is a small family-owned Indian pharmaceutical business that is well positioned to contribute to and benefit from sustainable development. They are focused on providing affordable medicines in both developed and emerging markets, with prices generally being significantly below the multinational’s prices for the same products. Whilst the market cap is still small, management are intent on creating a bigger business and there is sufficient evidence of a culture and time horizon that can promote this sustainable growth. We trimmed a number of positions across the strategy on expensive valuations and to rectify position sizes within the current market, such as: , , Tube Investments, EID Parry, Marico and Chola Finance to name a few. We also sold out of Bosch India and Blue Dart Express as we can no longer justify the valuations; and Godrej Properties, , Glaxo Pharmaceuticals and Tata Global as we struggled to gain enough conviction to build them into meaningful positions.

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ENGAGEMENT

As long-term shareholders, we regard ourselves and our clients as active owners of the companies we invest in and believe it is our obligation to engage with companies where we have concerns over their approach to sustainability and governance issues. We acknowledge that there is no such thing as the perfect company and therefore for us engagement is an on-going process. Typically we engage through regular dialogue, meetings or by writing a personal letter. Examples of engagement issues identified and undertaken during the quarter include: ––Dr Reddy’s Laboratories (an Indian pharmaceutical company): Rotation of auditors and the re-election of independent board members. ––Marico Ltd (an Indian consumer products and services company): Clarification of goodwill write-off from the Paras acquisition and board member attendance at annual general meetings. ––Waters Corp (an American laboratory analytical instrument and software company): Corporate tax rates and structures. –– (an Indian IT services and solutions provider): Board member attendance at annual general meetings, Employee Stock Ownership Plan schemes and Auditors fees. ––Samsung Electronics (a South Korean electronics company): Although not directly held within the Sustainability strategies, we do hold a Samsung subsidiary so decided to engage with the company following news allegations of child labour in one of their manufacturing facilities, as this raises corporate governance concerns within the Samsung Group. ––Mahindra and Mahindra (a large Indian family controlled conglomerate): Following the disclosure of four sexual harassment cases in the recent Annual Report we engaged with the company on this matter during a recent meeting. Our understanding is that their reporting and compliance has improved significantly and the figure is not reflective of a cultural drift. Mr , Chairman and Managing Director of the , has also personally taken the lead role in this initiative, and has made it clear that staff, of any rank, will be fired if found guilty of such an offense. –– (India’s largest integrated power company): Following client concerns regarding their defence business, we have been actively engaging with Tata Power to separate this part of the business from the company/group. The company does have the intention to do this, however due to the immediate requirements of the business from the Indian Government and Armed Forces they are unable to estimate a time line for this. We will continue to monitor and engage with the company on this. In the meantime we can confirm Tata Power does not manufacture explosives or ammunitions of any kind and their involvement with defence is in relation to software applications, associated hardware (primarily electronics) and system integration. Please note that Tata Power is only owned in our India Sustainability Strategy. ––Indoco Remedies (an Indian branded generics manufacturer): Appointing a larger and more globally structured auditing firm.

Following the bribery allegations involving GlaxoSmithKline (GSK) in China, a number of clients and Ethix (a third party responsible investor screening service we use at the request of some clients) flagged concerns around the investment case for such a business. We have met with Sir Andrew Witty a number of times over the last 18 months and our investment case is largely built around the company’s excellent approach to affordable and accessible medicines in developing countries and our belief in Sir Witty’s determination to turn the broader company around and improve their overall ethical, clinical and research practices. Sir Witty has acknowledged that China is one place that they are yet to sort out properly as they struggle to find good quality management but that they have introduced a much stronger audit approach in the first instance. It is difficult to know whether with the initial China incident they were trying to do the right thing by cleaning up the industry or whether they failed to get around to cleaning up their operations in China. One generous interpretation is that under new management GSK have effectively become whistle blowers on the whole system and, as such, are suffering the fate that often befalls whistle blowers by being made an example of. They could have probably paid money to escape the scandal but thankfully they did not, and now that they are in it they have very little control over information flow, timing and legitimacy of investigations and the outcome; as a result, we have reduced our position within the strategy to make the investment more defensive for clients. To date, we have been encouraged by the headway Sir Witty has made by implementing new auditing and incentive systems, policies for payment of healthcare personnel and the use of medical staff but it is difficult to know whether or not is it possible, even with the best intentions and determination, to turn such super tankers around. We continue to debate these issues daily.

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PROXY VOTING

During the quarter there were 55 company meetings to vote on. We voted against 22 resolutions relating to corporate structure: –– Ltd’s election of Mr Omkar Goswami as we believe his previous experience and involvement in three governance slip-ups at Crompton Greaves, Holcim India and Cairn/Vedanta do not make him the best possible steward for your investments. We also have concerns regarding his re-election to the board of Dr. Reddy’s and have engaged with the company directly on this matter. ––We voted against Colruyt’s request to transact any and all other business brought before the annual meeting of shareholders. We consider ourselves active shareholders and do not give companies unfettered rights. ––PZ Cussons’ request to shorten the notice period for an extraordinary general meeting from 21 to 14 days, as we believe this is not in the best interests of shareholders. ––Cipla’s re-election of two independent directors; having both served for over 25 years we feel their positions are no longer independent and they might impact the reinvigoration of Cipla. We also voted against the re-appointment of their local auditor, as we believe a larger and more globally structured auditing firm would be more appropriate from a governance perspective. We have actively engaged with the company on both matters. ––HDFC’s employee share ownership plan (ESOP) as, from a structure and quantum perspective, we do not believe an ideal remuneration system is in place. We also voted against the re-election of Mr Mehta because of his role as Head of the Compensation committee. We have actively engaged with the company on both matters. Should any client like a full list of all proxy voting for the companies held in the strategies, please contact us directly.

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INVESTMENT TRIP REPORT: NIGERIA

Nick Edgerton, Analyst

“You looked like an idiot banker not getting into the leveraged loan business” the bank representative we were visiting told us in an attempt to justify their approach leading up to the Nigerian banking crisis. In 2008-09 an appetite for margin lending and economic deterioration combined to see a $4bn central bank bail-out. Even now reflecting on the mistakes of the past he could not acknowledge that it was the clever bankers who maintained their sobriety, their fundamental corporate governance in an environment of year on year asset and profit growth. Driving between meetings in Lagos we see vivid reminders of such failures, none more than the shell of a multi-storey building which was to become the expensive new headquarters of a bank. Sadly, shareholder funds had been used to prepay 10 years of rent before completion to the owners of the land and building which were the family of the bank CEO.

The new bank headquarters under construction.

Source: FSS Team, June 2014.

Our bottom-up search for quality companies is pervasive and does not mean we exclude any sectors, but a strong focus on actions through historical cycles is invaluable for informing us about potential future actions. Nigeria needs a functional banking system if the economy is to develop in a sustainable manner. In what has been a challenging sector, we have invested in Guaranty Trust Bank (GTB) on behalf of clients for several years. GTB was late to the margin lending game, and soon realised “it was obvious” the risks were too great and left, reflecting in our meeting with them that it was a mistake to ever get involved. The experience strengthened their culture of understanding risk and growing with caution.

GT Bank.

Source: FSS Team, June 2014.

9 First State Investments First State Stewart Quarterly Client Update

“We are not doing things just because other people are” the bank spokeswoman told us. It is revealing when companies can learn from history and not get caught up in the crowd. Only one bank of four we met did not look at us like we were insane when suggesting that the industry may be making supernormal profits with high single-digit net interest margins and 30% return on equity levels. Most are rushing into the retail industry, the next trend in the sector, to chase margins. About two-thirds of the 170 million Nigerians do not have bank accounts. Challenges around identity and credit appraisal means this still contains significant risk, with GTB telling us they cannot achieve acceptable returns in the retail segment yet given risks, and with no first mover advantage on the lending side they will sit and watch. The patience to make long-term decisions and forgo some potential short-term gain for a better long-term outcome is a quality we covet. We view such stewardship as essential for the best outcomes for minority investors, particularly so when whole sectors or economies get carried away with their surrounding environment. The Nigerian banking sector reminds us that in good times simple failures can be devastating in the long run for minority investors. Former Nigerian Central Bank head Lamido Sanusi highlighted some including failings of overbearing CEOs and chairmen; the absence of ethics; the ineffectual Boards who failed to safeguard the growth and development of banks; and basic malpractice or insider abuse. At its most disturbing this included a CEO setting up Special Purpose Vehicles (SPV) to lend money to themselves for stock price manipulation, using company money to purchase private jets registered in the name of their son, along with fake capital raisings financed from depositors’ funds, and in one case the CEO controlling over 35% of the bank through SPVs borrowing customer deposits. Naturally, when the collapse came, customer deposits amounting to hundreds of billions of naira were wiped out. We leave vibrant Nigeria better informed about its corporate history, its people, and how both can greatly inform us about the risks for minority investors. Ringing in our ears is the comment about the bank founder from our “idiot banker” when talking about connections to government and the influence they have in Nigeria; “you can’t owe him anything, he makes sure he collects.”

Streets of Nigeria.

Source: FSS Team, June 2014.

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First State Asia Pacific Sustainability Fund Fund Size £297 m Number of Holdings 50

Ten Largest Holdings as at 30 Sep 2014 Significant Additions - Three Months to 30 Sep 2014 Portfolio Index Stock Name Weight* (%) Weight** (%) Stock Name Sector Tech Mahindra 6.2 0.1 Infosys Information Technology Marico 5.0 0.0 CSL 4.2 0.8 Taiwan Semiconductor (TSMC) 4.0 2.4 Delta Electronics T-F 3.5 0.0 Significant Disposals - Three Months to 30 Sep 2014 Idea Cellular 3.4 0.1 Sembcorp Industries 3.1 0.1 Stock Name Sector Standard Food Corp 3.0 0.0 Amorepacific Group Consumer Staples Towngas China 2.9 0.0 EID Parry India Materials E.Sun Financial Holdings 2.8 0.1 Total 38.1 3.5

Sector Allocations as at 30 Sep 2014 Country Allocations as at 30 Sep 2014

Information Technology 18.5% (16.2%*) India 27.0% (6.9%*) Financials 18.4% (36.1%*) Taiwan 16.6% (11.6%*) Consumer Staples 15.4% (6.3%*) 7.2% (1.2%*) Telecom Services 10.3% (5.8%*) 7.0% (4.8%*) Industrials 9.6% (8.0%*) China 6.1% (18.9%*)

Health Care 7.4% (2.6%*) 5.6% (23.6%*)

Utilities 6.4% (3.6%*) Thailand 5.3% (2.3%*)

Consumer Discretionary 2.1% (7.5%*) 4.7% (14.7%*)

Materials 1.0% (8.1%*) 3.6% (3.8%*)

Energy 0.0% (5.8%*) Other 5.9% (12.3%*)

Cash 10.9% (0.0%*) Cash 10.9% (0.0%*)

* Index Data * Index Data

Market Capitalisation as at 30 Sep 2014 £0 to £500m £500m to £1b £1b to £2.5b £2.5b to £5b £5b to £10b £10b+ Portfolio Weight 2.8 9.7 18.7 14.8 23.9 18.9 Index Weight 0.1 1.1 8.9 14.2 19.5 56.3 Style Research does not always have full stock coverage; weights may not total 100%.

Contribution Analysis - Twelve Months to 30 Sep 2014 Top Three Contributing Stocks Bottom Three Contributing Stocks Portfolio Added* Portfolio Value Added* Stock Name Weight (%) (bps) Stock Name Weight (%) (bps) Tech Mahindra 6.2 534 Manila Water Co 2.4 -186 Amorepacific Group 0.0 195 Standard Food Corp 3.0 -68 Marico 5.0 165 Satyam Computer Def 0.0 -45

Cumulative Performance to 30 Sep 2014 Since 10 7 5 3 2 1 6 3 % Change: Launch* Years Years Years Years Years Year Months Months Fund (net of fees)* 243.3 - 125.0 97.2 63.0 32.8 21.3 18.0 10.7 Benchmark Return** 116.9 - 35.9 36.7 31.4 13.1 5.8 5.5 2.0

Calendar Year Performance YTD 2013 2012 2011 2010 2009 2008 2007 Fund (net of fees)* 18.4 7.5 26.8 -11.0 34.8 41.9 -20.9 34.0 Benchmark Return** 5.8 1.5 16.9 -15.0 21.8 54.2 -33.4 34.2 Investment involves risks. Past performance is not indicative of the future or likely performance. All performance data for the First State Asia Pacific Sustainability Fund Class A (Accumulation) GBP as at 30 September 2014. Data Source: This information is calculated by First State using the Barra Enterprise Performance system. Index information is provided by RIMES. *The Inception Date for performance measurement purposes is 19 December 2005. Returns are cumulative, net of fees and tax, and denominated in GBP. **The Benchmark for the First State Asia Pacific Sustainability Fund is the MSCI AC Asia Pacific ex Japan Index and is calculated net of tax.

11 First State Investments First State Stewart Quarterly Client Update

First State Indian Subcontinent Fund Fund Size £252 m Number of Holdings 43

Ten Largest Holdings as at 30 Sep 2014 Significant Additions - Three Months to 30 Sep 2014 Portfolio Index Stock Name Weight* (%) Weight** (%) Stock Name Sector Marico 6.9 0.0 Infosys Information Technology Tech Mahindra 6.8 0.8 Makemytrip Consumer Discretionary Dr Reddy's Laboratories 5.6 2.2 IDFC Financials Kotak Mahindra Bank 5.5 0.0 Idea Cellular 5.0 1.0 Significant Disposals - Three Months to 30 Sep 2014 Housing Development Finance 4.1 9.1 Dabur India 4.0 0.7 Stock Name Sector 3.6 0.0 Tata Global Beverages Consumer Staples Tata Power Company 3.4 0.5 Godrej Properties Financials Kansai Nerolac Paint 3.3 0.0 Carborundum Universal Materials Total 48.1 14.3

Sector Allocations as at 30 Sep 2014 Country Allocations as at 30 Sep 2014

Financials 15.2% (18.1%*) India 87.9% Consumer Staples 15.1% (11.4%*) Sri Lanka 3.4% Industrials 14.4% (5.5%*)

Information Technology 11.9% (23.0%*) Bangladesh 0.9% Consumer Discretionary 11.2% (6.8%*) Cash 7.8% Materials 8.1% (7.3%*)

Health Care 6.8% (9.4%*)

Telecom Services 6.1% (2.9%*)

Utilities 3.4% (3.9%*)

Energy 0.0% (11.7%*)

Cash 7.8% (0.0%*)

* Index Data

Market Capitalisation as at 30 Sep 2014 £0 to £500m £500m to £1b £1b to £2.5b £2.5b to £5b £5b to £10b £10b+ Portfolio Weight 9.6 9.2 23.4 13.3 26.7 9.9 Index Weight 0.0 0.2 6.7 9.5 17.5 66.1 Style Research does not always have full stock coverage; weights may not total 100%.

Contribution Analysis - Twelve Months to 30 Sep 2014 Top Three Contributing Stocks Bottom Three Contributing Stocks Portfolio Added* Portfolio Added* Stock Name Weight (%) (bps) Stock Name Weight (%) (bps) Tech Mahindra 6.8 751 Tata Power Company 3.4 -115 3.2 455 Satyam Computer De 0.0 -94 Dr Reddy's Laboratories 5.6 285 Max India 0.0 -79

Cumulative Performance to 30 Sep 2014 Since 10 7 5 3 2 1 6 3 % Change: Launch* Years Years Years Years Years Year Months Months Fund (net of fees)* 207.0 - 149.0 107.8 59.2 47.1 54.8 33.4 18.1 Benchmark Return** 74.8 - 27.6 22.0 24.5 20.0 37.5 18.6 7.9

Calendar Year Performance YTD 2013 2012 2011 2010 2009 2008 2007 Fund (net of fees)* 41.7 1.9 24.0 -22.8 36.9 84.7 -42.3 54.3 Benchmark Return** 27.4 -5.6 20.4 -36.7 24.8 80.6 -51.0 70.2 Investment involves risks. Past performance is not indicative of the future or likely performance. All performance data for the First State Indian Subcontinent Fund Class A (Accumulation) GBP as at 30 September 2014. Data Source: This information is calculated by First State using the Barra Enterprise Performance system. Index information is provided by RIMES. *The Inception Date for performance measurement purposes is 15 November 2006. Returns are cumulative, net of fees and tax, and denominated in GBP. **The Benchmark for the First State Indian Subcontinent Fund is the MSCI India Index and is calculated net of tax.

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First State Global Emerging Markets Sustainability Fund Fund Size £294 m Number of Holdings 67

Ten Largest Holdings as at 30 Sep 2014 Significant Additions - Three Months to 30 Sep 2014 Portfolio Index Stock Name Weight* (%) Weight** (%) Stock Name Sector Marico 6.4 0.0 Housing Development Finance Financials Unilever 5.5 0.0 Spar Group Consumer Staples Tech Mahindra 5.3 0.1 Adcock Ingram Health Care Guaranty Trust Bank 2.9 0.0 Standard Food Corp 2.7 0.0 Significant Disposals - Three Months to 30 Sep 2014 Jeronimo Martins 2.7 0.0 Natura Cosmeticos 2.5 0.1 Stock Name Sector Manila Water Co 2.5 0.0 Kasikornbank Financials Xl Axiata Tbk 2.4 0.0 EID Parry India Materials Delta Electronics T-F 2.4 0.0 Total 35.3 0.2

Sector Allocations as at 30 Sep 2014 Country Allocations as at 30 Sep 2014

Consumer Staples 31.9% (8.3%*) India 20.3% (7.0%*)

Financials 17.1% (27.6%*) Brazil 8.6% (10.3%*)

Information Technology 12.5% (16.7%*) Chile 8.1% (1.4%*)

Utilities 10.0% (3.5%*) South Africa 7.7% (7.4%*)

Telecom Services 7.7% (7.7%*) Nigeria 6.9% (0.0%*)

Industrials 6.8% (6.6%*) Taiwan 6.7% (11.9%*)

Health Care 3.0% (2.1%*) Philippines 6.2% (1.2%*)

Materials 2.0% (8.2%*) UK 5.5% (0.0%*)

Consumer Discretionary 1.9% (8.9%*) China 4.3% (19.4%*)

Energy 0.0% (10.2%*) Other 18.5% (41.3%*)

Cash 7.1% (0.0%*) Cash 7.1% (0.0%*)

* Index Data * Index Data

Market Capitalisation as at 30 Sep 2014 £0 to £500m £500m to £1b £1b to £2.5b £2.5b to £5b £5b to £10b £10b+ Portfolio Weight 7.2 11.4 21.5 21.5 18.6 12.6 Index Weight 0.1 1.6 11.1 15.7 20.7 50.8 Style Research does not always have full stock coverage; weights may not total 100%.

Contribution Analysis - Twelve Months to 30 Sep 2014 Top Three Contributing Stocks Bottom Three Contributing Stocks Weight Added* Portfolio Added* Stock Name (%) (bps) Stock Name Weight (%) (bps) Tech Mahindra 5.3 476 Manila Water Co 2.5 -185 Marico 6.4 168 Jeronimo Martins 2.7 -137 Delta Electronics T-F 2.4 132 Shoprite 1.7 -88

Cumulative Performance to 30 Sep 2014 Since 5 4 3 2 1 6 3 % Change: Launch* Years Years Years Years Year Months Months Fund (net of fees)* 135.4 74.7 35.4 44.8 19.6 10.7 9.6 4.6 Benchmark Return** 70.6 22.5 0.4 18.3 4.9 4.2 5.8 1.8

Calendar Year Performance YTD 2013 2012 2011 2010 Fund (net of fees)* 9.4 2.7 25.1 -14.3 38.4 Benchmark Return** 4.6 -4.4 13.0 -17.8 22.6 Investment involves risks. Past performance is not indicative of the future or likely performance. All performance data for the First State Global Emerging Markets Sustainability Fund Class A (Accumulation) GBP as at 30 September 2014. Data Source: This information is calculated by First State using the Barra Enterprise Performance system. Index information is provided by RIMES. *The Inception Date for performance measurement purposes is 08 April 2009. Returns are cumulative, net of fees and tax, and denominated in GBP. **The Benchmark for the First State Global Emerging Markets Sustainability Fund is the MSCI Emerging Markets Index and is calculated net of tax.

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First State Worldwide Sustainability Fund Fund Size £134 m Number of Holdings 53

Ten Largest Holdings as at 30 Sep 2014 Significant Additions - Three Months to 30 Sep 2014 Portfolio Index Stock Name Weight* (%) Weight** (%) Stock Name Sector Unilever 6.4 0.1 Elisa A Telecom Services Henkel 5.0 0.0 Natura Cosmeticos Consumer Staples Waters Corp 4.2 0.0 Energiedienst Utilities CSL 3.9 0.1 Markel Corp 3.7 0.0 Significant Disposals - Three Months to 30 Sep 2014 Chubb Corp 3.7 0.1 Tech Mahindra 3.3 0.0 Stock Name Sector Sawai Pharmaceuticals 2.7 0.0 Ebro Foods Consumer Staples Dia 2.7 0.0 Public Bank Bhd Financials Jeronimo Martins 2.6 0.0 Total 38.3 0.4

Sector Allocations as at 30 Sep 2014 Country Allocations as at 30 Sep 2014

Consumer Staples 27.3% (9.5%*) USA 23.0% (50.3%*)

Health Care 22.2% (11.3%*) UK 9.8% (7.5%*)

Financials 13.3% (21.5%*) Japan 8.3% (7.4%*)

Industrials 12.7% (10.5%*) India 6.8% (0.8%*)

Materials 4.1% (5.8%*) Germany 6.5% (3.1%*)

Information Technology 3.3% (13.4%*) 5.9% (3.2%*)

Utilities 2.7% (3.3%*) Australia 5.1% (2.6%*)

Telecom Services 2.2% (3.9%*) 3.6% (1.3%*)

Consumer Discretionary 2.1% (11.5%*) Philippines 2.9% (0.1%*)

Energy 0.0% (9.5%*) Other 18.0% (23.6%*) Cash 10.1% (0.0%*) Cash 10.1% (0.0%*)

* Index Data * Index Data

Market Capitalisation as at 30 Sep 2014 £0 to £500m £500m to £1b £1b to £2.5b £2.5b to £5b £5b to £10b £10b+ Portfolio Weight 4.3 5.3 10.4 16.5 24.9 28.4 Index Weight 0.0 0.2 2.3 7.6 14.4 75.5 Style Research does not always have full stock coverage; weights may not total 100%.

Contribution Analysis - Twelve Months to 30 Sep 2014 Top Three Contributing Stocks Bottom Three Contributing Stocks Weight Added* Portfolio Added* Stock Name (%) (bps) Stock Name Weight (%) (bps) Tech Mahindra 3.3 197 Jeronimo Martins 2.6 -163 Kansai Paint 1.8 82 Vapores 2.0 -74 Marico 2.1 78 Cencosud 0.0 -56

Cumulative Performance to 30 Sep 2014 Since 5 4 3 2 1 6 3 % Change: Launch* Years Years Years Years Year Months Months Fund (net of fees)* 22.0 - -- - 2.7 -0.9 -0.5 Benchmark Return** 29.8 - -- - 11.2 5.5 3.0

Calendar Year Performance Q3-14 Q2-14 Q1-14 Q4-13 Q3-13 Q2-13 Q1-13 Fund (net of fees)* -0.5 -0.4 1.0 2.7 0.7 1.2 13.7 Benchmark Return** 3.0 2.4 0.4 4.9 1.1 -0.3 14.0 Investment involves risks. Past performance is not indicative of the future or likely performance. All performance data for the First State Worldwide Sustainability Fund Class A (Accumulation) GBP as at 30 September 2014. Data Source: This information is calculated by First State using the Barra Enterprise Performance system. Index information is provided by RIMES. *The Inception Date for performance measurement purposes is 23 November 2012. Returns are cumulative, net of fees and tax, and denominated in GBP. **The Benchmark for the First State Worldwide Sustainability Fund is the MSCI AC World Index and is calculated net of tax.

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For further information contact:

Alexis Ng Managing Director, South East Asia and Head of Distribution, Asia +65 6580 1321 [email protected] Lauren Prendiville Director, Institutional Business, Southeast Asia +65 6580 1365 [email protected] Vivian Tang Director, Institutional Business, North Asia +852 2846 7540 [email protected] Carol Lin Director, Institutional Business, North Asia +852 2846 7546 [email protected]

Disclaimer First State Asia Pacific Sustainability Fund, First State Global Emerging Markets Sustainability Fund and First State Worldwide Sustainability Fund are not authorized by the Securities & Futures Commission in and are not available for sale to retail public in Hong Kong. The information contained within this document has been obtained from sources that First State Investments (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy, completeness or correctness of the information. Neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this. This document is intended solely for distribution to professional/institutional investors as may be defined in the relevant jurisdiction and is not intended for distribution to the public. The information herein is for information purposes only; it does not constitute investment advice and/or recommendation, and should not be used as the basis of any investment decision. Some of the funds mentioned herein are not authorised for offer/sale to the public in certain jurisdiction. The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance is not necessarily a guide to future performance. Please refer to the offering documents for details, including the risk factors. This document/the information may not be reproduced in whole or in part without the prior consent of FSI. This document shall only be used and/or received in accordance with the applicable laws in the relevant jurisdiction. Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First State Investments’ portfolios at a certain point in time, and the holdings may change over time. In Hong Kong, this document is issued by First State Investments (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First State Investments and First State Stewart are business names of First State Investments (Hong Kong) Limited. The First State Stewart team manages Asia Pacific, Global Emerging Markets and other worldwide equity strategies. The Securities and Futures Commission has not reviewed the contents of www.firststateinvestments.com. In Singapore, this document is issued by First State Investments (Singapore) whose company Investment involves risks. Past performance is not indicative of the future or likely performance. registration number is 196900420D. First State Stewart (registration number 53236764B) is a business division of First All performance data for the First State Worldwide Sustainability Fund Class A (Accumulation) GBP as at 30 September 2014. State Investments (Singapore). First State Investments (registration number 53236800B) is a business division of First State Investments (Singapore).

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