NOV 16 Mark Mahaffey Ben Davies Aalok Sathe “Wir können das schaffen” (“We can do it”) ― Angela Merkel OVERVIEW In late-September for the last 20 odd years, I have made the three-day trip to the famous Munich beer festival, ‘Oktoberfest’. Ex-colleagues and friends have made the trip over the years, with differing rotation, and many people still tell me it is on their bucket list. The Oktoberfest is the world’s largest festival, with 6 million visitors attending the 16-18 day event, which runs from late-September to early October. Originating from the royal wedding celebrations in 1810 between Crown Prince Ludwig and Princess Therese of Saxe-Hildburghausen, the festival has been an annual event almost ever since. In over 200 years, the festival has only been cancelled 24 times, usually as a result of war. Obviously, beer is an attraction for the largely German attendance (some 75% usually) but the pantomime party atmosphere of historic Bavaria is like a journey back in time. Only beer that has been brewed from the six breweries in the city limits can be sold as Oktoberfest beers – Augustiner-Brau, Hacker-Pschorr-Brau, Lowenbrau, Paulaner, Spatenbrau and Staatliches Hofbrau-Munchen. The belief is that Oktoberfest beer is brewed only for the festival, so it is fresh and without multiple preservatives, thus reducing its hangover potential!!! While our capacity for beer is far less in our 50s, than it was in our 20s and 30s, an enjoyable time was still had by all. HINDESIGHT DIVIDEND UK LETTER / NOV 16 1 Last year’s trip to Munich in September 2015 coincided with Germany opening their arms to refugees, the majority of them arriving at Munich’s main railway station right in the centre of town, as their first step on German soil. The suspension of the Dublin agreement meant that refugees no longer had to be repatriated to their first port (country) of entry. Germany had become the ideal destination for many. The terrible tragedies of the war in Syria were becoming apparent, as well as the harsh reality of the dangers of making the trip across the Mediterranean Sea. The picture (below) of the drowned three-year old boy was a pinnacle in the crisis. It has been said that the Germans were more welcoming to the refugees than other European countries because of their guilty past, but I think that all human beings, in general, want to help people who are in genuine distress and are prepared to offer sanctuary and aid. Germany needs immigrants more than most. Its fertility rate is one of the worst in the world and the population is ageing and on the decline. Without immigration, Germany will lose 10% of their population in the coming decades and even more of the workforce. Angela Merkel, Germany’s Chancellor, understands that only too well. Unfortunately, taking 1.5m in less than two years has created more problems than solutions at this point. At next year’s elections, she might pay the price for her seemingly well-intended actions. HINDESIGHT DIVIDEND UK LETTER / NOV 16 2 This September, Munich and indeed Germany seem to be struggling to come to terms with the mass influx. Both political correctness and the rise of right-wing support are potentially guilty of making it difficult to understand the real story. The refugees seem to consist of a disproportional amount of young Muslim males, far too many from Albania, Kosovo and Sub-Saharan Africa, which suggests economic migration, rather than war refugees. We arrived to find the poorest attended Oktoberfest in many years, as terrorism concerns were rife. Fences encircled the huge fairground and beer tent site for the first time to control access. Our observations were of a visibly significant increase in the Muslim population. In Germany as a whole, it is rising dramatically, although still lower in percentage terms than France. As reality has set in Munchner, as the inhabitants of Munich call themselves, have changed in a year. For them, there seem to be only negative stories: Muslim men, under the auspices of polygamy (banned in Germany), are routinely taking advantage of the social welfare system with multiple benefits for their ‘wives’ The rapid increase of mosques with their call to prayers is making many German towns sound like they are in the Middle East Every female seems to have a story about unwelcome Muslim male attention, reminding us of the New Year’s Eve stories of mass sexual assaults, especially in Cologne. Germans seem generally to view that the Muslims do not desire to integrate into German society, obey German laws or, more importantly, its Christian values but to seek to take control and grow a new Mecca in Germany. A recent report stated that 138,000 German families had emigrated to Hungary in the last two years, unhappy with the changes to German society. Last year, the President of Hungary said: “For us today, what is at stake is Europe, the lifestyle of European citizens, European values, the survival or disappearance of European nations, and more precisely formulated, their transformation beyond recognition. Today, the question is not merely in what kind of a Europe we would like to live, but whether everything we understand as Europe will exist at all.” As a liberal and pragmatic person, I usually stand on opposite sides of the debate to any right wing politics. So, it is naturally a real concern to see first Brexit, then Trump, followed potentially by Le Pen’s rise to the forefront. One of our favourite drinking spots in Munich is the Hofbrauhas, famous for being the first meeting place of Adolf Hitler and his national socialists in 1920. In light of the current rise of nationalism once again, this year’s visit was far more thought provoking than usual. I have merely made observations without any answers as to why multiculturalism is failing, but it is. Whether we can thwart the current and rapid rise to the right will depend on all parties. Muslim societies, in Europe as a whole, need to understand that the welcoming arms of the inhabitants last year came with a belief that there would be an assimilation of values and adherence to established local laws. On the other side, we can strongly object to ‘racist’ language that is winning the popular vote. Unfortunately, we are going down the opposite path to co-existence today and well trodden in history. The outcome is far from what we should be looking for in the 21st century. I came across this link in September while looking up news about Oktoberfest. Whether it is true or a right-wing hoax is unknown, but it seemed to sum up the breadth of the gap to be filled. http://100percentfedup.com/muslim-petitions-to-cancel-oktoberfest-in-germany-as-munich-police-plan-to-keep- refugees-and-revelers-apart/ HINDESIGHT DIVIDEND UK LETTER / NOV 16 3 Our main investment ideas this month are: 1. Britvic PLC CONTENTS Inside this edition of the UK Dividend Letter you’ll find: OVERVIEW 1 INVESTMENT IDEA #1 BRITVIC PLC 5 INVESTMENT INSIGHTS 12 HINDESIGHT DIVIDEND PORTFOLIO UPDATE 17 PORTFOLIO UPDATE - WHAT HAPPENED? MARKET & SECTOR ANALYSIS 20 HINDESIGHT DIVIDEND UK PORTFOLIO # 1 (NOVEMBER 2016) 22 APPENDIX I THE WAY WE THINK 24 APPENDIX II HOW WE THINK 25 HINDESIGHT DIVIDEND UK LETTER / NOV 16 4 INVESTMENT IDEA #1 BRITVIC PLC by Mark Mahaffey Sky PLC Price (£) 558.0 Turnover (£mm) 1,300.1 Net Income (£mm) 103.8 Market Cap (£mm) 1,459.1 Fwd P/E Ratio 12 Dividend Yield (%) 4.10% Payout Ratio (%) - Total Debt to Total Equity (%) 280.1% FCF to Market Cap (%) 4.0% ROIC (%) 15.6% Britvic PLC (BVIC: LSE) is a leading producer of soft drinks that are distributed across the world. The company is based out of Hemel Hempstead (Greater London). It is one of the two largest soft drinks producers in the United Kingdom and one of the largest across the world by volume. Britvic has a large feather in its cap as it produces soft drinks under its own name but also has the rights to sell other drinks, such as those produced by Pepsi (within the UK). Britvic is a global company, however, its core focus is on Great Britain, Ireland, France and Brazil, while also making inroads into North America, employing over 4500 individuals. The soft drinks producer was initially listed on the London Stock Exchange in 2005. It is currently a member of the FTSE250 with a market capitalisation of over £1.4bn, led by Mr. Simon Litherland. The company was founded in the mid-19th century by the chemist H D Rawling, who began making vitamin drinks and tonics from his pharmacy in Chelmsford (Essex). The British Vitamin Product Company was later purchased by Ralph Chapman, who produced fruit juices. As the popularity of their produce started to gather pace, it was bought out by Vine Products, and eventually became a subsidiary group of Allied Breweries, 30 years after being founded. Given its popularity, this eventually led to the whole firm being rebranded and it started trading under the name Britvic. Over the years it has navigated through several periods of M&A activity during which the drinks company acquired brands, such as Tango, J20 and Gatorade, and eventually bought the UK franchises of Pepsi and 7Up. Britvic’s initial large name investors were Intercontinental Group, Whitbread and Pernod Ricard, who all saw their investment being realised when the company became public in December 2005. Intercontinental Hotel Group and PepsiCo are both still large long-term owners.