November 2015

ArisaigPartnersisanindependentinvestmentmanagementcompanyfoundedin1996.Ourfocusisondominantconsumersector
businessesinemergingmarkets.WerunanAsiaConsumerFund,anAfricaConsumerFund,aLatinAmericaConsumerFundanda
Global Emerging Markets Consumer Fund. In addition to our head office in Singapore, we have research offices in Hong Kong,
Mumbai,CapeTown,RiodeJaneiroandtheUK.
Performanceto30November2015(%)
1

ArisaigAsiaConsumerFund
ArisaigAfricaConsumerFund
ArisaigLatamConsumerFund
ArisaigGlobalEmergingMarkets
2,4
ConsumerFund(BVI)
ArisaigGlobalEmergingMarkets
2,3
ConsumerFund(UCITS)
4
EURshareclass
4
GBPshareclass

NAV
(USD)
63.85
13.78
20.43

Size
(USDm)
2,884.2
374.3
266.3

15yr

10yr

5yr

3yr

2yr

1yr

6mth

3mth

1mth

+861.6 +239.4

+71.5
(2.8)

+23.5
(25.1)
(28.3)

+20.7
(38.4)
(24.6)

+7.6
(24.0)
(19.3)

(4.1)
(12.3)
(9.4)

+4.3
(7.2)
+0.5

+0.6
(4.3)
(2.8)

(2.4)

(5.2)

+3.1

(1.6)

10.23

857.4

(EUR/GBP)

(EURm)

100.7

12.43
11.14

+13.0
+0.0

(1.3)
(4.4)

+8.8
+5.0

+2.8
+0.9

YTD

Since Annualised
Launch Return
+5.7 +852.0 +12.6
(24.9) +23.8 +2.4
(14.8) (10.7) (2.3)
(0.4)

+2.7

+1.4

+12.2
+1.6

+29.6
+11.4

+14.5
+5.8

1ReflectstheperformanceofArisaigAsianSmallCompaniesFundfrom31stDecember1996to21stJanuary2000,ArisaigAsiaFundfrom22ndJanuary2000to31stMarch2010andthereaftertheperformanceof
ArisaigAsiaConsumerFund.
2
th
th
TheoffshoreversionoftheFundwaslaunchedtothirdpartyinvestorson16 September2013andtheUCITS(EUR)versionon4 November2013.TheadditionalGBPshareclassfortheUCITSFundwaslaunched
on16thDecember2013.
3
TheEURAUMoftheAGEMCFUCITSreflectsboththeEURandGBPshareclassesoftheFund.
4Performanceismeasuredfromaneffectivelaunchdateof1stJanuary2014forAGEMCFBVI,UCITS(EUR)andUCITS(GBP)forconsistency.

NovemberDiaryHighlights

PerformancewasmixedinNovemberwiththeAsiaFund(up0.6%)andGlobalUCITSFund(up2.8%)stayinginpositiveterritory,whilst
GlobalBVI(down1.6%),Latam(down2.8%)andAfrica(down4.3%)allregistereddeclines.
ThismonthwehostedourthirdbiennialConsumerSymposiuminCapeTownprecededbyatriptoLagos.Almost50investorswerein
attendancetohearpresentationsfromsevenholdings,otherAfricanconsumernames,macroeconomicexperts,aswellasourown
analysts.TheGlobal,AfricaandESGdiariessharesomeofthekeytakeawaysforthosewhowereunabletoattend.
Speakers described the huge longterm opportunities in a continent still at the bottom of the Scurve but making rapid strides in
development.Asthecurrentdownturnconfirms,progresswillnotbeinastraightline,butweownsomeexceptionallyhighquality
businessesinAfricawhicharestillinvestingconfidentlyforthefuture.Manyareevenburgeoningmultinationals;andthevastpotential
isabundantlycleartomoreestablishedMNCssuchasNestl,UnileverandIndiasGodrejConsumer.
InAsiaweintroducetwonewinvestments,bothfoodcompanies:OlympicinBangladeshandDaliinChina.MakingwayisChinese
hypermarketgroup,SunArt,which,despitebeingwellmanaged,isnotimmunetothestructuralchallengesfacingbigboxretailers.
The Latam section discusses InRetails promising move into the discount segment, a sounder strategy for conquering informal
competitorsthanitsexistingmainstreamsupermarkets.WealsohailtheadditionofArgentinatothegrowinglistofLatinAmerican
countriestohaverenouncedpopulistleftwingregimes,whichhavebeenpartandparceloftheregionsselfdefeatingpoliticsinthe
earlypartofthiscentury.

Whatwelookforinourstocks

1/8

Whatourinvestorscanexpectfromus

Marketleadershipdominantcompaniestendtodobetter;
Scalabilitylargetargetmarkets;
Strongmoatsbrands,distribution,innovation;
LowcapitalintensityhighROCE;
Predictabilitycompoundinggrowth;
Accessmanagementwhowelcomeourinvolvement.

Arisaig Diary

Alignmentofinterestscappedfunds,nosegregated
portfolios,coinvestment;
Transparencyholdingsbooklets,monthlyportfolio
summaries,examplesofresearchreports;
Coverage26analysts;fiveresearchoffices;190target
stocks;
Minimaltradingactivemanagementdestroysvalue;
Focusconsumercompaniestendtooutperform,sowe
wontbedoinganythingelse.

We are a CarbonNeutral organisation and a signatory of the UNs Principles of Responsible Investment.

November 2015

FundDetails

ALCF

GeographicAllocation(%)
AACF

India
China/HongKong
Philippines
SouthKorea
Pakistan
Vietnam
Indonesia
Bangladesh

Netcash
Othernetassets/(liab)

47.8
19.6
14.2
4.8
4.4
3.8
3.1
1.4

0.4
0.5

AFCF

Nigeria
Morocco
SouthAfrica
Ghana
Egypt
Turkey
Kenya
Tunisia
Rwanda
Tanzania
IvoryCoast

20.1
13.8
12.6
11.2
7.2
6.7
6.6
6.5
6.4
5.4
1.0

Netcash
Othernetassets/(liab)

AGEMCF
BVI*
37.6 Indiansubcontinent
23.0
25.0 ASEAN
10.7
23.0 China
10.5
7.7 MiddleEastandCentralAsia
9.1
4.1 OtherLatam
7.1
1.9 ContinentalEurope
6.3
SubSaharanAfrica
6.3
SouthAfrica
4.7
USA
4.6
Brazil
4.4
Russia&EasternEurope
4.3
Others
3.9
0.6 Mexico
2.9
0.1 UK
2.3

Mexico
Brazil
Peru
CentralAmerica
Chile
Ecuador

0.8
1.7

Netcash
Othernetassets/(liab)

100

100

100

100

*IndividualcompanyFY14revenuesplitandweightedonAGEMCFBVIcomposition

SectorAllocation(%)

Food&Beverage
FMCG
Retail
FastFood

AACF

AFCF

ALCF

53.7
21.8
12.5
11.1

62.0
15.2
13.4
6.9

59.1
9.3
30.9

Valuations(FY2015)
AGEMCF
BVI
50.8
31.3
10.3
5.7

EV/Sales(x)
PER(x)*
PERrolling12m(x)**
Yield(%)

AACF

AFCF

ALCF

2.8
37.6
34.3
1.2

2.0
30.3
27.1
2.1

1.4
19.6
17.4
3.0

AGEMCF
BVI
2.9
30.3
27.7
1.6

*usingaggregateforecastearningsofallportfoliocompaniesfortheircurrentfinancialyears
**usingaggregate12monthforwardforecastearningsofallportfoliocompaniesirrespectiveof
financialyearend
Valuationmetrics(exceptyield)arecalculatedonthebasisofaweightedharmonicmean

PortfolioConcentration

AACF

No.ofholdings
Top10holdings(%)
Top20holdings(%)
Av.marketcap(USDm)

28
57.0
88.5
5,373

AFCF
23
64.5
95.0
1,512

ALCF
17
72.0
99.3
10,158

PerformanceMetrics(FY2015)
AGEMCF
AACF
BVI
33*
ROCE(%)
41
46.4
Netmargin(%)
11
74.4
EPSgrowth(%)
15
30,480
EPSgrowthrolling12m(%)*
13

AFCF

ALCF

30
9
14
14

23
10
12
14

AGEMCF
BVI
32
11
10
12

*HoldingsforAGEMCFcountlistedsubsidiarieswithinonebusiness

*Reflectsblendedforward12monthEPSgrowth

CompoundAnnualReturns(%)to30November2015

AACF

AFCF

ALCF

16.3
13.0
11.4
7.3
12.6

(0.6)
(9.2)
2.4

(10.5)
(2.3)

15years
10years
5years
3years
Sinceinception

AGEMCF
BVI

1.4

The Arisaig family of Funds are openended investment companies domiciled in the
BVI, Mauritius or Ireland and their daily valued NAVs are published in the Financial
Times and on Bloomberg. The Asia Consumer Fund is listed on the Irish Stock
Exchange.ThisDiaryisintendedtobefortheinformationofholdersofoneormore
ofArisaigsFunds.Itisnotintendedtoconstituteinvestmentadviceandshouldnot
berelieduponassuch.Investorsshouldbeawarethat,astheFundsarealsoinvested
in the securities of certain smaller companies as well as those listed in emerging
markets,sharepricescanbemorevolatileandtradingliquiditymuchlower.

ArisaigPartners(Asia)PteLtd
69CircularRoad,#0201,Singapore049423
Tel(65)65323378Fax(65)65326618

ArisaigPartners(India)PrivateLimited
VillarVille,FirstFloor,16P.J.RamchandaniMarg,
Colaba,Mumbai400001,India
Tel(91)2222875031Fax(91)2222875030

ArisaigPartnersResearchServices(CapeTown)
26KildareRoad,Newlands
CapeTown,7700,SouthAfrica
Tel(27)216716680Fax(27)216716679

ArisaigPartners(HK)Limited
Suite4701,47thFloor,TheCenter
99QueensRoadCentral,HongKong
Tel(852)28506335Fax(852)28506355

ArisaigPartners(Mauritius)Ltd
IFSCourt,TwentyEight,
Cybercity,Ebene,
Mauritius

ArisaigPartnersServiosLtda
AvBorgesdeMedeiros633sala206
Leblon,RiodeJaneiroRJ,Brazil22430041
Tel(55)2135917076Fax(55)2135910018

Forallenquiriespleasecontactinvestorrelations@arisaig.com.sgorcall(65)65323378.Websitewww.arisaigpartners.com.ArtworkcourtesyofthelateSophieMacpherson.

2/8

Arisaig Diary

We are a CarbonNeutral organisation and a signatory of the UNs Principles of Responsible Investment.

November 2015

ArisaigGlobalEmergingMarketsConsumerFund
Performance
The BVI Global Fund ended November down 1.6% for the
month,whiletheUCITSvehiclerose2.8%.Thisbringsyearto
datereturnstominus0.4%andplus12.2%respectively.

Themajorityofourstocksfell,butweweremosthurtbyour
largest holding, Britannia, which dropped 11.1% on no
particularnews.Meanwhile,Orionbouncedback17.1%after
a resurgence in China results in Q3 (see Asia section). This
stockhashadarockyyear,butisnowup6.4%yeartodate.

TheGlobalFundbecameacornerstoneinvestorattheIPOof
DaliFoodsinNovember.Thisisdiscussedinmoredetailinthe
Asiasectionofthediary.

ArisaigSymposiumRisingMultinationals
In November we hosted our third Symposium, this event
taking place in Africa, split over two legs in Lagos and Cape
Town.Wewerejoinedbysevenofourholdingstogetherwith
almost50ofourinvestorsrepresenting40%ofourtotalfirm
AUM. 16 of our analysts also gave presentations. One of the
key themes of the Symposium was the rise of EM regional
champions such as lker, Godrej and Edita, all MNCs ofthe
Future in the Global Fund. Such businesses are the core of
theFund,accountingforaroundhalfofourportfolio.

Thesestilladolescentcompaniesareallimmenselyambitious.
Theiruniquelyemergingmarketskillsets,suchasdistribution
ininformalretail,canbecarriedintoneighbouringdeveloping
markets as each looks to internationalise its operations.
Anotherstrongmessagewasthattheinnovationcycleofthe
MNCs of the Future is speeding up. They are beginning to
compete at the premium end of the market, defying the old
paradigmofbeingsimplylowcostproducers.

These companies are typically more nimble than their larger

multinationalcounterparts,meaningtheirspeedtomarketon
newlaunches(aswellaspricing,brandcommunicationetc.)is
usuallysuperiortothatoftheirdevelopedworldrivals.

All that being said, Nestl Nigeria provided a pertinent

reminder of the formidable strengths of the established
MNCs. Whilst these may be more ponderous organisations,
often slowed by bureaucracy and process, they benefit from
huge global research and development spending; a host of
strong brands; and great corporate culture. We have often
heard that Unilever is consistently one of the preferred
graduate employers in emerging market countries, giving it
recurrent access to a great pool of human capital. Some EM
operations, such as China and India, have even become for
Unilevernetexportersoftalent.
3/8

Arisaig Diary

UnileverInvestorDays
This month Hugo and Steven attended the Unilever investor
daysinManilaandSingapore,wheretheyjoinedfieldtripsto
consumers homes and to various sales channels. They also
had the opportunity to meet senior management. The
overarching impression was of the quality of Unilevers
people, and the strength and coherence of the corporate
culture. This is perhaps the prime example of how putting
sustainability at the heart of a business model can create
competitive advantage by energising the organisation with a
sense of shared purpose, as well as driving valueadding
productdevelopmentandbrandpositioning(seeESGsection).

SouthEast Asia is one of Unilevers strongest markets, the

companyholdingnumberonepositionsin85%ofitsbusiness
here. The region is at the forefront of business model
innovationsthatarebeingrolledoutglobally,illustratinghow
emerging markets are increasingly influential within
multinational groups. ZeroBased Budgeting (ZBB) was
originallyintroducedinThailandasanexpediencyinresponse
to recent political unrest in the country, but proved so
successful that it is now being adopted more widely.
Combinedwithsomeothereffortsoncosts,ZBBcouldcreate
savingsofEUR1bnayearfrom2018.

A second innovation we were shown in the Philippines was

Unilevers new sales management system Leveredge, a
tabletbasedplatformwhichgivesmanagementgranulardata
on distributors and the sales force. This is being rolled out
globally and should prove a powerful tool in serving the
complextraditionalretailchannel.

ChiefMarketingandCommunicationsOfficerKeithWeedgave
a fascinating presentation containing a digital advert that
couldhave100,000differentpermutationsdependingonthe
observerscharacteristics.Healsonotedthat,usingbigdata
Unilever could correctly predict 97% of new hair trends. In a
personal care industry where ecommerce and social media
have opened the doors to niche new entrants, this better
understandingofconsumersisarguablyonemeansbywhich
majorbrandownerscansustainstrongmoats.

Beiersdorf
Beiersdorf posted an uptick in sales growth in Q3, coupled
withimprovingmargins.However,thisresulthidadivergence
between the better performing consumer business and the
more cyclical Tesa industrial adhesives segment (which
accounts for around 20% of operating profit). Still, the
strength of the core Nivea brand, from which about 60% of
thecompanyssalesarederived,providesaplatformforvery
promisinglongtermgrowth.

We are a CarbonNeutral organisation and a signatory of the UNs Principles of Responsible Investment.

November 2015

ArisaigAsiaConsumerFund
Performance
NovemberwasarelativelycalmmonthfortheAsiaFundwith
theNAVclosingup0.6%.Thisbringstheyeartodatereturns
to 5.7%. The positive performance during the month was
driven by strong contributions from Future Retail (up 38.4%)
andOrion(up17.1%)onstrongresultsinChinaseebelow.

India
TherulingBJPssecondconsecutivelossinstateelections,this
timeinBihar,sapsfurthermomentumfromtheModiwave
ahead of the winter session of parliament. However, while
political intransigence will likely disrupt progress on GST and
land rights, there have been important developments taking
placeawayfromtheheadlines.Theseincludeacrackdownon
corruption, improved fiscal discipline, infrastructure projects
andemploymentgrowth.

Thatsaid,itincreasinglylookslikeModiwillneedtosecurea
second term to see through the more significant structural
reforms.Apossibleenablerhereisthetransformationofthe
public subsidy mechanism from a cash system (pilfered by
corrupt middlemen) to a direct bank transfer. This could be
Modissilverbulletinthebuilduptothenextelection.

Our Indian holdings continue to report good quarterly

numbers. Britannia was once again the star with second
quarter sales and net profit increasing by 12% and 49%
respectively.RetailersTrentandFutureRetailalsosawsame
storesalesadvancestronglyduringthequarter.

MeanwhileresultsatMaricoandNestlIndiaweremixed:the
former saw top line growth slow due to deflationary pricing
(although still able to grow profit by 27%), while the latter
continuedtoexperiencethefalloutfromtheMagginoodle
recall. With the ban now overturned and products returning
toshelves(andsellingfast)theworstshouldbebehindus.

AnOlympicsizedOpportunityinBangladesh
Over the last few months, the Asia Fund has accumulated a
position in Bangladeshs number one biscuit player, Olympic
Industries. We are particularly encouraged by the deep
thinkingculturewithinthecompanyithasstudiedindetail
the success of overseas peers such as Britannia, Orion and
URC as well as its metricsdriven approach to capital
allocation. It is still a relatively modestsized business at
USD103m in revenue, but is growing fast with sales
compoundingat30%overthelastfiveyears.

Thereisavastrunwayforfurthergrowthahead.Bangladesh
sitsrightatthebottomofthebiscuitsSCurveconsumption
percapitaisjustUSD1peryear.
4/8

Arisaig Diary

ThisisaroundathirdofneighbouringIndiaandafractionof
the world average of USD13. With the biscuit market still
largely informal and highly fragmented, Olympic is perfectly
placed to expedite the transition towards greater branded
consumptionitalreadyhasaleadingmarketshareof22%.

China:OneInOneOut
November saw both the Asia and Global Funds become
cornerstoneinvestorsintheIPOofDaliFoods,aleadingfood
and beverage player in China. Prior to taking up the offer,
membersoftheAsiaandGlobalteammetwithmanagement
andtouredthefacilitiesonfiveseparateoccasions.

Foundedin1993andbasedinFujianprovince,Dalihasgrown
rapidlytobecomeasizeablenationalplayer(revenueinFY14
was USD2.3bn). Crucial to its success has been a superior
understandingoflocalconsumertastes.Indeed,innovationis
atthecoreofDalisalesofproductslaunchedwithinthelast
twoyearsare18%ofthegrouptotal.

Going forward we expect beverages (currently 43% of sales)

to be the major growth driver courtesy of Dalis exposure to
the fastgrowing subcategories of energy drinks and plant
basedbeverages.Thisshouldensurethetoplinecontinuesto
growaheadofthemarket.

Heading the other way is Sun Art, the leading hypermarket

operator in China. As highlighted during our Africa
Symposium, we have become wary of mainstream big box
groceryretailers.Theyareincreasinglybeingoutcompetedin
terms of price (by discounters), convenience (small format),
assortment(online)andquality(premium/organic).

SunArthasnotbeenimmunetothis,inparticularduetothe
unprecedented rise of ecommerce in China. Although it is
making strides towards creating its own online business, we
believeitisstillmanyyearsawayfromdeliveringanyreturns
here. Importantly, it has failed to integrate this with the
offline business to create an omnichannel proposition a
criticalsuccessfactorhighlightedinourrecentcasestudy.

OrionResults
Orionsrecentresultsgavemoretocheer,withlocalcurrency
salesinitscoreChinamarketreboundingafteratoughsecond
quartertoriseby13%annually.Thiswassupportedbygreater
A&Pinvestment,apositivesignalofintentfrommanagement.
Inordertocapitaliseontheincreasinglyaspirationaltastesof
Chinese consumers, the company plans to launch its
successful premium confectionery ranges from Korea in the
first half of 2016. This should provide further support for
revenuegrowthaswellasenhancingmargins.

We are a CarbonNeutral organisation and a signatory of the UNs Principles of Responsible Investment.

November 2015

ArisaigAfricaConsumerFund
Performance
Against the backdrop of our Symposium and its message of
long term optimism, November proved another unrewarding
monthfortheFundwiththeNAVpersharedecliningby4.3%.
Thistakesouryeartodateperformancetominus25.0%.

Currenciesonceagainplayedasignificantrole.TheCFAFranc
(minus 5.0%), South African Rand (minus 4.6%) and Tunisian
Dinar (minus 4.0%) all lost further ground to the Dollar. The
Rand,whichisnowdown20.3%yeartodate,hasreactedto
deteriorating economic conditions in South Africa and the
potentialprospectofaratingsdowngrade.

From a share price perspective the largest detractors were

Heineken subsidiaries Bralirwa (down 24.7% on tiny volume)
and Nigerian Breweries (down 11.5%). The former has had a
dire year primarily due to weak results which included an
accidental overstatement of inventories. The latter has, like
most Nigerian stocks, not escaped the current economic
downturn.

CapeTownSymposium
InCapeTownwewerejoinedbyseniorrepresentativesfrom
five of our Africa Fund holdings: BM Birleik, East African
Breweries, Edita, Nestl Nigeria and lker Biskvi. We also
heard from the South African Dominos Pizza and Starbucks
masterfranchisee,TasteHoldings;GrantPattison,theformer
CEO of Massmart; Unilever Africa; and Godrej Consumers
Africansubsidiary,DarlingHairCare,whichwediscussinthe
ESGsection.

We also hosted a morning session on the topic of Africa

RisinginwhichwewereledbytheexCentralBankGovernor
ofNigeriaandcurrentEmirofKano,LamidoSanusi;aswellas
Xan Smiley, editoratlarge and former Africa Editor of The
Economist.

The message from our attending holdings was broadly

consistent with what we have been communicating in our
Diaries over the past 18 months. Although current operating
conditionsareverytough,ourcompaniesareinvestingforthe
futureandremainfirmlyfocusedonthecompellinglongterm
opportunity.

InthisregionconsumersremainatthebottomoftheScurve
across virtually all categories and are especially sensitive to
small changes in disposable income. Perhaps the best
illustration of this was East African Breweries reminder of
how Kenyan consumers reacted to the implementation of
excisetaxontheSenatorKegvaluebeerbrandvolumesin
thissegmentfellby90%.
5/8

Arisaig Diary

Importantly, as Francis and Desmond highlighted in their

presentation on Why Eat, Drink, Wear, Wash, Shop? And is
thistherightstrategyforAfrica?,theevidencesuggeststhat
aconsumerorientedstrategylooksjustasappropriateforthis
region as it does for Asia and Latam. Over the last ten years
dominantconsumerbusinesseshavedeliveredconsistentEPS
growthunderpinnedbystrongreturnsoncapital.

Therecanhoweverbelittledoubtthatglobalenthusiasmfor
the Africa Rising narrative has placed too many shortterm
expectationsonaregionthatremainsfragileindevelopment
terms. As we heard from our guest speakers, current
economic conditions are being further exacerbated by social
andreligioustensionsinthenorthofthecontinent.

LagosLeg
Preceding the main event in Cape Town, a smaller group of
ourinvestorsaccompaniedTorquil,FrancisandAlaninLagos
to hear presentations from a wide range of industry
professionalsfromtheconsumersector,aswellastheprivate
equity,agricultural,andinfrastructuralspheres.

The mood on the ground in Nigeria remains cautiously

positive,despitethefactthattheeconomyisclearlystruggling
andmayeventipintorecession.Afurtherdevaluationofthe
Nairaisalsoalmostcertainlyonthecards.Wewouldwelcome
thisasitshouldbreakthepresentcapitalflowparalysis.

Supporting the optimism is a change of leadership that is

spearheadingabadlyneededanticorruptiondrive;concerted
military engagement against Boko Haram; and a complete
shakeout of the ineffective ministries that have been
hampering the country both bureaucratically and financially.
In the last week we have seen President Buhari present to
globalleadersattheenergysummitonthedesperateneedto
rejuvenatethedesertifiedLakeChad,atopicaboutwhichwe
have written before and which has caused significant
socioeconomicdamagetothenorthernpopulationofNigeria.

ChangingoftheGuard
KevinHedderwick,CEOofourSouthAfricanfastfoodholding,
FamousBrands,hasannouncedthathewillbesteppingback
inthenewyear,tobereplacedbythewellregardedcurrent
Chief Executive of Food Services, Darren Hele. This was an
expectedmove.

OverhisimpressivetenureKevinhasoverseenanincreasein
market capitalisation from R105m to the current R14bn.
Darren is a highly competent operator who is familiar to us
havingbeenwiththebusinesssince2003.

We are a CarbonNeutral organisation and a signatory of the UNs Principles of Responsible Investment.

November 2015

ArisaigLatinAmericaConsumerFund
Performance
TheLatamFundwasdown2.8%inNovember,takingyearto
date performance to minus 14.8%. Once again USD strength
was a major headwind, with all Latam currencies in the red.
Forus was the only stock to post a significant local currency
sharepricedecline(minus10.0%)asitsufferedslowingsales
acrossitsAndeanmarkets.

PriceSmart was a key positive contributor this month, rising

8.4% after reporting good October sales and announcing the
openingofits38thstore.InRetailgained11.2%havingposted
healthythirdquarterresults.

9M15ResultsSummary
Allofourholdingshavenowpublishedthirdquarternumbers.
At the threequarter mark for the year, our portfolio has
achieved weighted average sales growth of 11% and EBITDA
growthof16%.EPSgrowthiscurrentlyrunningat9%.

Performance from the two thirds of the portfolio in Mexico

andBrazilremainsstrong.Ourholdingsinthesetwomarkets
achievedearningsgrowthof18%.NumbersfromtheAndean
regionwereweakerinfact,ifweexcludeonlyAlicorpfrom
our portfolio calculations, EPS growth climbs to 13%. As we
mentioned last month, we expect deleveraging and an easy
comparisonbasefromthisyeartodriverapidearningsgrowth
forourPeruvianstocksin2016.Ourthreeholdingsheretrade
atanaverageEV/EBITDA(16)ofjust8.5xandPERof16.1x.

InRetail
LikeitscompatriotAlicorp,InRetailhasbeenheavilyaffected
by nonoperating losses in recent quarters but is now
beginning to generate healthy net income and cash flows to
accompanyitsconsistentgrowthinoperatingprofit.

InRetailisathreepartretailconglomerate.Arguablythejewel
in its crown is its pharmacy chain Inkafarma totally
dominant with its lowprice approach; and exceptionally
profitable thanks to its cheap, flexible store layouts, efficient
distributionandstrongprivatelabel.Weareleastenthusiastic
about the shopping malls division, which has delivered rapid
EBITDAgrowthbutholdsaheftyassetbase,depressingROCE.

Until now, our assessment of the supermarkets business has

beensomewhereinbetween.Theopportunitytoconsolidate
thePeruviangroceryretailmarket,stillatleast70%informal,
is perhaps the most attractive in Latin America. But despite
InRetailsoutperformancewithinthemodernretailsector,we
have remained unconvinced by the use of mainstream
supermarkets with a highlow pricing model as the vehicle
withwhichtotakedemandawayfrominformalplayers.
6/8

Arisaig Diary

Encouragingly, the company has now launched a compact

discountformat(Mass)modelledonourAfricaholdingBM
Birleik. Unlike InRetails existing supermarkets, Mass will be
abletodefeatmomandpopstoresonprice.Itsreducedunit
sizeallowsittoadapttosmallerinnercitylocations(inwhich
Inkafarmaalreadyholdsconsiderableexpertise),importantin
a market facing severe constraints on real estate and where
themajorityofconsumersdonothaveacar.

These developments are as yet unnoticed by the market,

despitetheopeningof20Massstoresthisyearandplansfor
50 more (as well as a dedicated DC) in 2016. Importantly,
InRetail has stolen a march on competitors Cencosud,
constrained by its stretched balance sheet; and Falabella,
whichisinsteadtriallingamuchlargersoftdiscountformat.

ArgentinaANewCycleBeginsinLatam
The Argentinian elections ended this month with a win for
centreright candidate Mauricio Macri, extending the wider
regional shift away from the populist presidents who have
dominated Latin American politics over the last decade.
Mexico elected a centreright president in 2012, Peru will
followsuitnextyearandBrazilshouldjointhepartyby2018.

ArgentinaiscryingoutforchangeandMacrihaspromisedto
end unsustainable energy subsidies; remove investment
stifling export taxes and currency controls; and renegotiate
with holdout creditors. Simply adopting orthodox and
transparent economic metrics will help restore credibility
giventhefarcicaldatareleasedunderthecurrentregime.

There is, however, reason to be cautious in the shortterm.

Macris narrow victory margin and his lack of support in
Congress suggest that reforms may only materialise after
much wrangling and compromise. Fiscal adjustments and a
sharpcurrencydevaluationarelikelytoprovokeasignificant
spikeininflationfollowedbyrisingrealinterestrates.

Our portfolio has limited indirect exposure to Argentina and

weexpectdevaluationtoreduceitsrevenuecontributionnext
year.Wearehopeful,however,thatfrom2017onwardsthis
largemarketcanturnfromheadacheintoopportunity.

We are evaluating two additional investments which have

greaterArgentinanexposure.Thereislittleinthewayoflisted
domestic consumer plays, but in the new businessfriendly
environment, indigenous companies may begin to look more
favourably on using the stock market to finance new
investment.Therearesomestrongconsumernames,suchas
theconfectionerygroupArcor,whichwouldfitthebillforour
Fundshouldtheydecidetogopublic.

We are a CarbonNeutral organisation and a signatory of the UNs Principles of Responsible Investment.

November 2015

Environmental,SocialandGovernanceIssues
MakingSustainableLivingCommonplace
It felt entirely appropriate that we welcomed James Todd,
CFO of Unilever Africa, to our Symposium to discuss the
companys approach to sustainability on the continent.
BeyondJamessregionalexpertiseandthefactthatwethink
UnileversSustainableLivingPlan(SLP)istheleadingstrategy
of its kind, Unilever was actually Rebeccas first port of call
whenwekickedoffourESGresearchsomefiveyearsago.

Jamess presentation brought to life the benefits of aligning

Unilevers sustainability objectives to its core business
strategy. This comes as second nature to Unilever, which
developeditsfirstbrandedproductcalledSunlightSoapto
rid Victorian England of cholera by making cleanliness
commonplace.

In Africa, a continent where Unilever built its first factory in

1911,itistheLifebuoysoapbrandthatistargetingdiarrheal
disease which, according to the World Health Organisation,
can be halved by proper handwashing. Promotional dollars
usually focused only on driving revenue growth can also
deliver significant social benefits if channelled into school
basedhandwashingcampaigns.

By looking at its business through the lens of sustainability,

Unilever continues to scale up its social impact and reap
businessbenefits.InGhanaacostefficient,multibrandchild
health and wellness programme has brought Lifebuoy
alongsidePepsodent(oralhealth)andfortifiedBlueBand
(micronutrients)intoalocalinitiativecalledGrowFMthat
aims to improve health and hygiene habits in one million
children.

SustainablegrowthhasalwaysbeenthegoalforPaulPolman
(CEO)andheusedUnileversFY14resultsbriefingearlierthis
yeartostressthatsustainablebrandsgrewtwiceasquicklyas
otherbrandsovertheprevious12months.Musictoourears.

FancyaCuppa?
To mitigate the impact of selling more, Unilever has had to
makeasignificantcommitmenttothesustainablesourcingof
itsrawmaterialsandthroughitssizeandscaleitisstartingto
changewholeindustries.

JameshasseenthisfirsthandontheteafarmsofKenyaand
Tanzania, which supply 10% of the tea used in its Lipton,
PG Tips and Brooke Bond brands. Back in 2007, Unilever
becamethefirstmajorteacompanytocommittosustainably
sourcing tea on a large scale and has since made the
commitmentthat100% of its tea will be sustainably sourced
by2020.
7/8

Arisaig Diary

Given that Unilevers fragmented agricultural supplier base

comprises 750,000 small holders, there has been a strong
focusonidentifyingtherightpartners.Atagovernmentlevel,
Unilever has signed publicprivate partnership agreements in
Tanzania,aswellasinVietnamandYunnanprovinceinChina.
Meanwhile nongovernment agencies have been critical in
developingreputableandindependentcertificationprocesses
toclassifywhatissustainable.

Darling
Rebecca followed James Todd with a presentation which
stressed the growing impact of millennials, an increasingly
important consumer class that is twice as likely to check on
sustainability credentials before making a purchase. We
expect this group of consumers, the youngest of whom are
justleavingschool,tomakesustainabilitymoreofabusiness
imperative than ever before. Rebecca also turned her
attentiontohowourMNCsoftheFuturearedrawingfrom
years of communitybased work and multigenerational
thinkingtocreatemoreformalsustainabilitystrategies.

LikeUnilever,GodrejConsumerhasidentifiedthreekeygoals
todeliveronby2020.TwoofthesearesimilartoUnileverin
being focused on environmental and product innovation
objectivesbut Godrejs Good & Green strategy reflects the
importanceofemploymentasanissueinIndia.

Pointingtothefactthatonly13%ofIndias600millionpeople
under25areemployable,Godrejhassetthegoaloftraining
one million rural and urban youth in skilled employment. In
India, Saloni, an initiative with a local beauty salon chain,
will train 50,000 beauticians over the next three years with
businessbenefitseasytoidentifygivenGodrejsstableofHPC
products.

Following his insightful multimedia presentation, Aaron

Radomsky (MD) took us to visit hair salons in Cape Towns
Langa Township to see how Godrejs Darling hair extensions
business is leveraging the entrepreneurial spirit of women
salonownerstoimprovetheirdistributionreach.Inthesame
way that Hindustan Unilever has used a micro
entrepreneurship model to empower a network of 70,000
ShaktiAmmastodistributeitsproductsinIndia,Godrejhas
aFidelityprogrammethatisworkingdirectlywithsalons.

Itfundssomeoftheinitialsetupcostsforsalonsinreturnfor
instorebrandingandwordofmouthadvertising,whilstlocal
academies provide training and support for young people
wantingtogetintotheindustry.Proofagain,ifweneededit,
that doing good and good business are one and the same
thing,ifyougetyourstrategyrightattheoutset.

We are a CarbonNeutral organisation and a signatory of the UNs Principles of Responsible Investment.

November 2015

MarketandCurrencyPerformance
KeyMarketsLocalCurrencyPerformance(%)

KeyCurrenciesPerformancevsUSD(%)

Nov

YTD

12mth

(2.7)
1.9
(2.7)
(1.8)
(0.1)
(2.9)
0.5
(4.7)
(2.4)
(5.6)
(1.9)
0.4
(4.9)
(1.6)

(3.7)
8.2
(7.1)
4.1
(13.4)
(2.5)
(2.5)
(12.4)
(6.6)
8.8
(3.6)
(5.8)
1.6
(3.1)

(5.2)
30.5
(5.9)
2.0
(12.0)
(3.3)
(5.3)
(11.9)
(12.2)
5.3
(7.6)
(4.0)
5.0
(1.0)

Nov

YTD

12mth

0.0
(1.3)
(0.3)
(1.5)
(1.2)
(0.8)
1.0
(0.7)
(0.5)
(0.7)
(2.1)
(2.1)
0.0
(1.5)

0.0
(3.0)
(3.2)
(5.8)
(10.5)
(5.3)
(17.9)
(6.1)
(8.1)
(4.9)
(5.4)
(1.9)
(4.7)
(8.4)

0.0
(4.0)
(5.3)
(4.3)
(11.9)
(4.9)
(20.6)
(7.5)
(8.3)
(4.9)
(7.0)
(2.4)
(3.4)
(8.5)

(8.6)
(15.6)
(11.4)
(9.9)
(7.8)
(9.1)
(20.3)
(20.0)
(10.0)
(19.8)
(14.2)

(8.7)
(16.0)
(11.9)
(12.1)
(10.2)
(8.4)
(23.7)
(19.6)
(11.0)
(23.8)
(16.5)

(12.6)
(31.3)
(14.7)
(24.5)
N/A
(11.1)
(11.7)

(12.0)
(33.7)
(14.5)
(29.5)
N/A
(16.1)
(13.4)

(31.3)
(3.0)
(8.6)
(12.8)
0.0
(5.4)
(10.5)
(11.1)
(7.8)
(11.7)
(5.3)
(8.5)
(20.3)
(5.8)
(3.3)
(19.8)
(3.5)

(33.7)
(4.0)
(8.7)
(15.2)
0.0
(7.0)
(11.9)
(16.1)
(10.2)
(13.4)
(4.9)
(25.5)
(23.7)
(4.3)
(6.1)
(23.8)
(4.0)

Asia
HongKong
China
Taiwan
SouthKorea
Indonesia
Philippines
Malaysia
Singapore
Thailand
Vietnam
India
Bangladesh
Pakistan
SriLanka

HongKong
China
Taiwan
SouthKorea
Indonesia
Philippines
Malaysia
Singapore
Thailand
Vietnam
India
Bangladesh
Pakistan
SriLanka

Africa
Egypt
Ghana
Kenya
Morocco
Nigeria
Rwanda
SouthAfrica
Tanzania
Tunisia
Turkey
FrancophoneWestAfrica

(14.5)
(1.9)
3.8
1.9
(6.0)
N/A
(3.9)
(0.8)
(3.2)
(4.5)
0.7

(31.0)
(12.1)
(18.0)
(2.2)
(17.7)
N/A
7.1
(3.7)
(0.9)
(8.5)
21.1

(35.0)
(12.3)
(18.6)
(5.3)
(17.4)
N/A
6.9
(6.4)
1.4
(8.6)
28.1

Egypt
Ghana
Kenya
Morocco
Nigeria
Rwanda
SouthAfrica
Tanzania
Tunisia
Turkey
FrancophoneWestAfrica

2.5
(1.0)
(0.2)
(2.3)
0.0
(2.2)
(4.6)
0.2
(4.0)
0.0
(5.0)

LatinAmerica
Argentina
Brazil
Chile
Colombia
Ecuador
Mexico
Peru

4.1
(1.6)
(4.5)
(8.5)
(1.9)
(2.3)
(3.0)

51.2
(9.8)
(5.1)
(24.1)
(9.3)
2.5
(30.9)

32.3
(17.5)
(8.4)
(24.6)
(8.8)
0.1
(32.3)

Argentina
Brazil
Chile
Colombia
Ecuador
Mexico
Peru

(1.8)
(0.3)
(2.8)
(7.9)
N/A
(0.6)
(2.6)

Global
Brazil
China
Egypt
Euro
HongKong
India
Indonesia
Mexico
Nigeria
Peru
Philippines
Russia
SouthAfrica
SouthKorea
Switzerland
Turkey
UnitedKingdom

(1.6)
1.9
(14.5)
2.7
(2.7)
(1.9)
(0.1)
(2.3)
(6.0)
(3.0)
(2.9)
3.5
(3.9)
(1.8)
0.6
(4.5)
0.3

(9.8)
8.2
(31.0)
14.9
(3.7)
(3.6)
(13.4)
2.5
(17.7)
(30.9)
(2.5)
32.2
7.1
4.1
3.2
(8.5)
0.3

(17.5)
30.5
(35.0)
11.4
(5.2)
(7.6)
(12.0)
0.1
(17.4)
(32.3)
(3.3)
21.7
6.9
2.0
1.3
(8.6)
(1.9)

Brazil
China
Egypt
Euro
HongKong
India
Indonesia
Mexico
Nigeria
Peru
Philippines
Russia
SouthAfrica
SouthKorea
Switzerland
Turkey
UnitedKingdom

(0.3)
(1.3)
2.5
(4.1)
0.0
(2.1)
(1.2)
(0.6)
0.0
(2.6)
(0.8)
(3.7)
(4.6)
(1.5)
(3.9)
0.0
(2.6)

8/8

Arisaig Diary

We are a CarbonNeutral organisation and a signatory of the UNs Principles of Responsible Investment.