Offshore Trusts ManCo List Funds by Name Funds by Category Word Search FAQ

Coronation Global Emerging Markets Fund A Coronation Global Fund Managers (Ireland) Limited Coronation Global Emerging Markets Fund A News Sector Changed Thursday, 20 June 2019 Official Announcement The fund changed sectors from Global--Equity--General to Global--Equity--Emerging Markets on 20 Jun 2019   Coronation Global Emerging Mkts comment - Mar 18 Tuesday, 12 June 2018 Fund Manager Comment The Coronation Global Emerging Markets fund returned -2.7% for the first quarter of 2018, 4.2% behind its benchmark in what has been a challenging start to the year and indeed other shorter term periods. Since inception almost a decade ago, the fund has outperformed its benchmark by 2.2% p.a. The biggest positive contributors for the quarter all came from fund positions that added positively, rather than underweight positions in stocks that performed poorly. The biggest positive contributor was Airbus, up 16% for the quarter and contributing +0.52%. We continue to believe that Airbus is very attractively valued, with 45% upside to fair value, and as such it remains a large position at 4% of fund. The second largest positive contributor was global sportswear group Adidas (c.55% of revenue from emerging markets), which was bought back into the fund earlier in the year after having previously sold it in 2015. Since the date of reintroducing Adidas to the fund up until quarter-end, the share price gained 22%, contributing +0.50% to alpha. As at end March, it represented a 3% position in the fund. Other notable positive contributors were the #1 Chinese online classifieds company, 58.com (+11% return, +0.35% attribution) and the leading bank in Russia, Sberbank (+10% return, +0.24% attribution). As mentioned, the largest new buy in the quarter was Adidas. We had previously owned only Nike, Adidas's perennial industry rival. At the time of purchasing Nike in late 2016, the share was unloved by investors due to concerns over its perceived dependence on the US market and the basketball category in general. At the same time, Adidas could do no wrong as product innovations and other general operational improvements led to market share gains in the US and a substantial improvement in brand equity in most operating regions. Other sportswear groups also seemed to be making headway at Nike's expense in the US, most notably Under Armour Inc, which at one point reached an earnings multiple in excess of 40x. Despite our attraction to the industry, we believed that Nike was substantially undervalued and Adidas looked expensive. Fast forward just over a year and Nike's share price has increased by close to 35%, while Adidas lagged significantly, having declined by 5% since March 2017 until time of purchase in January 2018. The lag in Adidas created a buying opportunity, and the stock has performed very well in this short space of time. The purchase was partially funded by a reduction in the Nike position size, which has gone from over 2% of fund in recent months to just under 1% by end-March. Although both Adidas and Nike may appear optically expensive based on near-term multiples (c.24-25x forward earnings), we believe they have well above average earnings growth prospects in the years ahead, driven by changing consumer habits toward greater fitness and 'athleisure', whilst the companies themselves have identified several routes to raising margins. These include improvements in manufacturing (to lower wasted materials) and increased direct to consumer sales (where the retail markup is captured in addition to the usual wholesale margin). In addition to this, Adidas's EBIT margins at c.9-10% are still well below that of Nike at c.13-14%. In some developed markets, and eventually in most large markets worldwide, it is expected to become fairly straightforward for consumers to order a customised shoe or piece of apparel, and have it swiftly manufactured in their country or region via a robotic process, and delivered speedily to their door. The pricing potential, improvement in cost control and lower working capital requirements are all material contributors to our belief in the earnings potential of Nike and Adidas, which are not fully reflected in their respective share prices today. Over the quarter we continued to reduce the fund's Chinese internet exposure as share prices rose and as such moved closer to fair values. We reduced the position in 58.com to 3% of fund - the share was up 11% in the quarter and would have been approaching a 4% position in the absence of any action. We also reduced other Chinese internet names - Baidu was lowered by 0.5% to 2.1% and JD.com by 1.5% to 4.1%. We also sold out of Alibaba as it reached our estimate of fair value, as well as Altaba - the former Yahoo whose main asset now is its stake in Alibaba. The combined Alibaba/Altaba position was close to 2.5% at the start of the year. Most notably for the quarter, we reduced our Naspers position by close to 3.5% to just under 4% of fund. This was driven predominantly by concerns over the valuation of Tencent, which is Naspers's single biggest investment. We also sold out of Aspen (given more attractive risk-adjusted opportunities elsewhere) and YUM China (due to valuation). In terms of adding to positions, we increased the Ping An (largest private (non-State controlled) Chinese insurer) position size during the quarter by 1.5% to 3.9% and global tobacco group British American Tobacco from 3.7% to 5.9%, both as a result of share price weakness. In terms of detractors, 2 stocks made up the bulk of the fund's underperformance: Magnit declined by 32% during the quarter (-1.41% attribution) and Kroton by 26% (-1.44% attribution). We have written extensively about both businesses in recent years and will thus just concentrate on incremental news as well as why the shares have been so negatively affected recently. Magnit had already been performing poorly relative to its previous high standards in recent quarters, with sales growth declining from mid-20s to single digits in recent quarters - and this was mostly driven by space rather than same store sales growth. The company's recent struggles seem to have eventually led the founder and CEO Mr Sergei Galitsky to give up and leave the business. He had been slowly reducing his position over time to fund his philanthropic work, but eventually came to the view that from a personal perspective staying around for a recovery in the business and share price was not worth it. The sale of most of his 30% stake to VTB Capital (who will look to increase its value substantially for a resale) has led to meaningful changes in management and strategy that we believe will be beneficial in the long term. An example is the company's historical overemphasis on maintaining margins at the expense of reinvesting in the existing store base. This worked fine when the competition was weak and fragmented but as X5 improved their operations in recent years, the product offering at X5's stores far exceeded Magnit's more basic stores and led to negative traffic at Magnit. We believe that greater reinvestment in the business would have delivered better returns as fewer customers would have been lost to competitors and the additional sales revenue would have delivered greater absolute profits to Magnit even if margins were slightly lower. It has also become clear with the exit of the founder that the business has been lacking in professional management with many senior managers being responsible for multiple portfolios. Professionalising the management structure and having distinct control of functions assigned to specialist managers will help improve processes and make the company less dependent on a single individual in future. We were buyers of Magnit over the quarter and at end-March it was a 3.7% position. The other big detractor has been Kroton, which has fully given up the gains it made after the blocking of its merger with Estácio by competition authorities in the middle of last year. Investor perception toward the private education industry in Brazil has cooled in recent quarters due to a variety of factors. Firstly, intakes have stagnated or declined as affordability has become more of an issue for students. Although the Brazilian economy has exited its deep recession of 2015 and 2016, the recovery has been very shallow, without a substantial improvement in job prospects for the workforce. Ordinarily the government student financing scheme would have helped maintain enrolment momentum, but since 2015 this scheme has been halved and made more expensive for those that qualify. The tough market has also put pressure on pricing, with many industry players offering discounts to entice students, leading to lower average fees. While we acknowledge the merit in some of these issues, we believe there are strong counterarguments that make Kroton a very compelling investment, which is why we have been increasing the position in response to the decline in Kroton's share price. It is important to identify that the longer-term drivers of the industry remain intact - Brazil has a dire skills shortage and the return on investment for students who study certain courses is very high. The industry is very fragmented and profitability of the smaller players is minimal - many survive simply because they own the building out of which they operate and therefore don't have to pay rent. Kroton's high market share should therefore not serve as a barrier over long periods of time to continued student growth as the market will consolidate over time. Their scale and strong brands make their degrees more attractive, which raises long-term pricing power. With their solid balance sheet and high profitability, they are uniquely positioned within the industry to offer pioneering financing schemes that allow students to spread out their payments beyond the duration of their degree, which will make them more affordable to marginal students. This will help offset some of the negative impact of lower government student loans. During the quarter we met with the CEO, CFO, CTO and various divisional heads of Kroton in Brazil. The strength and depth of management at the company places them amongst the best in emerging markets, in our view. Besides the favourable long-term prospects for their traditional business (tertiary education), Kroton are also making a concerted push into the private school market as this industry also has great economics (a student stays with you for 12 years instead of 4) and remains very fragmented despite many strong local brands. At 10x earnings we believe you are buying the current earnings stream at a substantial discount and getting all of the above optionality for free. Kroton was a 5% position at end March and is the 2nd largest position in the fund. Members of the team continue to travel extensively to enhance our understanding of the businesses we own in the fund, their competitors and the countries in which they operate. In the quarter there were trips undertaken to Brazil, India and China. In the coming weeks the team will visit Russia, South Korea, Taiwan, Indonesia and Singapore. The weighted average upside to fair value of the fund at the end of March was 45%.   Coronation Global Emerging Mkts comment - Dec 13 Thursday, 16 January 2014 Fund Manager Comment In what was a tough year for emerging markets (MSCI EM index -2.27%), the fund generated a return of +13.84% and in doing so outperformed the market by 16.11%. Whilst we are naturally pleased with such large outperformance, we would point out that 1 year is a very short time period and ideally one should look at 5 year+ periods when evaluating performance. In this regard, since the fund launched 5.5 years ago in July 2008, it has generated a return of +9.12% p.a. which is some 7.10% p.a. ahead of the market's return of +2.03% p.a. over this same period. For the calendar year, nine of the fund's positions each contributed more than 1% to the fund's overall return of 13.84%, whereas only three positions detracted by more than 1%. In terms of positive contributors the nine largest contributors were Naspers (+63.6%, contribution of 3.0%), Magnit (+66.6%, contribution of 2.7%), Baidu (+78.2%, contribution of 2.2%), Porsche (+33.2%, contribution of 2.2%), Great Wall Motors (+94.6%, contribution of 1.8%), Brilliance China Automotive (+33.1%, contribution of 1.6%), Axis Bank (+27.1%, 1.4% contribution), Cognizant Technology Solutions (+32.7%, contribution of 1.3%) and Coca-Cola Hellenic (+66.9%, contribution of 1.2%). Two detractors of note were Daphne (-66.5%, negative contribution of 3.5%) and Marisa (-50.9%, negative contribution of 1.8%). The point has been made that we have done well over time because a large part of the fund has been invested in high-quality consumer stocks that have done well. We disagree with this point and a perusal of this year's big contributors serves as backup. In this regard, of the nine largest contributors, only two (Magnit and Coca-Cola Hellenic) could be classified as traditional high-quality consumer companies. Of the other seven, no less than three are car companies (not exactly your traditional high-quality consumer company), three are technology companies (although one of these, Naspers, is strangely classified by MSCI as a consumer company) and the final one is a bank. The fact is that we haven't actually owned most of the very high-quality emerging market consumer stocks (BIM, ITC, Hindustan Unilever, Ambev, Walmex, Femsa, Shoprite etc) in all cases because of valuation. And whilst all of these stocks have done very well over long periods of time, owning them over the past year has generally been a poor investment strategy as they derated from absurd valuation levels. As a result, a few of them are now starting to look somewhat more interesting to us. We continue to do work on them and wait patiently for the required margin of safety before buying. We were reasonably active over the past few months and sold out of six positions as they continued to appreciate strongly and reached or approached fair value (Great Wall Motors, New Oriental Education, SABMiller, M Dias Branco, YUM Brands and Colgate Palmolive). Whilst we take a long-term (5 years+) view when thinking about, modelling and valuing companies, we are certainly not 'buy and hold forever' investors: if a share approaches and reaches fair value, we will typically be selling, which is exactly what happened in the case of all six of the sells above. At the same time, we bought five new stocks of note: Netease (2nd largest online gaming company in China), Credicorp (largest bank in Peru), Eurocash (Poland's leading cash and carry retailer), Carlsberg (3rd largest beer company in the world) and Gerdau (Brazil's largest steel company). Over the past few months we also added to the fund's position in Porsche, which is now the single largest position at 8.2% of fund. Even though Porsche has appreciated by around 25% since our initial purchase, we continue to believe that the share is materially undervalued. Porsche today is not actually Porsche as one would conclude from the name: in fact, its only asset (besides a net cash position) is a 32% stake in Volkswagen (VW) due to the fact that in 2011 VW acquired the Porsche assets. Our investment case is therefore first and foremost about VW. In our view, Porsche is merely a cheaper way to buy VW. There are a number of key points we like about VW as a business: § Owner of some of the best car brands in the world, notably the VW brand itself, Audi and Porsche (these three brands contribute 70% of group profits). § A focus on higher-end brands (Audi and Porsche) that are better businesses than mainstream car brands, in our view, and generate higher margins and return on capital. § Leaders in engineering and customer satisfaction, the results of which are reflected in the fact that VW's global market share has increased from around 9.5% in 2007 to almost 13% today (see adjacent graph). The fact is VW makes attractive, reliable cars that people want to own. § Scale (enabling more to be spent on R&D and marketing) and platform sharing (resulting in efficiencies between the various brands). § High emerging markets exposure (est. 45% of profits) where car penetration is still low. There is no debating that the car industry is a poor industry (very cyclical, capital intensive, intensely competitive, etc.), but within this industry there are inevitably winners - in our view, VW is one of them. Despite its strong earnings track record and operating metrics (5-year ave. ROE of 12%), the share trades on just 8.5x 2014 earnings. In our opinion, the entire industry is being painted with the same brush (partly because of the poor history of US car companies and more recently a number of European car companies), whereas in reality not all car companies are equal. Whilst VW is very cheap in our view, Porsche in turn trades at a large discount to the value of its stake in VW (in effect on around 6.5x 2014 earnings). This is partly due to concerns about litigation from hedge funds arising from the short squeeze in VW shares in 2008. Even providing for the total litigation claim amounts (which is very unlikely to be realised in our view), Porsche would still be marginally more attractive than VW. If anything less than the full claim is realised, Porsche is far more attractive from a valuation point of view than VW, and as such we have taken all of the fund's exposure through Porsche. Whilst the news flow and equity market performance from emerging markets continue to be poor and a number of EM economies are undoubtedly going through a tough period, we are able to find selected good value in individual companies. The weighted average upside (share price to fair value) in the portfolio is currently 50.4%, which is broadly in line with the average of 50.1% over the past 3.5 years (the low was 31.2% in January 2013 and the high was 87.9% in September 2011). In early December two members of the team were in Brazil where they met with management of most Brazilian portfolio holdings and further research trips are planned for late January (Thailand and Philippines), February (India) and March (Brazil again, as 23% of the fund is now invested in Brazil).   Coronation Global Emerging Mkts comment - Mar 13 Monday, 3 June 2013 Fund Manager Comment After a positive calendar 2012, this year has turned out to be relatively tough for emerging markets with the market as a whole down 1.6% year to date (as measured by the MSCI Emerging Markets Index). Our fund has performed well in this environment and has appreciated by 4.0% over the quarter, resulting in 5.6% alpha. While it is satisfying to have done better than the market, measurement of performance over such a short period is meaningless in our view. We believe that one should look at performance in terms of years, not months, and in fact ideally over periods of 5 years or more. In this regard the fund is rapidly approaching its 5-year track record (July will marks the 5-year anniversary) and since inception it has outperformed the market by a compounded rate of 6.0% per year. We are still managing to find good value in a large number of emerging market stocks: the upside to fair value for the portfolio (on a weighted average basis) is currently 41% (against an average of 50% over the past 3 years). Today there is however an increasingly high level of disparity that exists in valuations within emerging markets. While the market is well below its peaks of 2007, 2008 and 2010, many of the blue-chip consumer businesses that are commonplace in a number of emerging market investment portfolios are at all-time highs. These companies have market leading positions in their home countries and operate in industries with very compelling economics. Examples include Hindustan Unilever (household products in India), ITC (tobacco in India), Walmart de Mexico (multiformat retail in Mexico and Central America), Femsa (beer, Coca- Cola bottling and supermarket retailer in Latin America with a focus on Mexico) and BIM (hard discount in Turkey). Each business has continued to grow earnings and generate cash through the economic cycle, and the market has rewarded them by consistently placing high multiples (25 - 30) on one-year forward earnings. Although we would love to own all of these companies, we will only do so when valuations offer sufficient margin of safety; and in most cases even perfect execution by management for the next several years would not justify paying such multiples in our view. It is quite possible that Hindustan Unilever, ITC, Walmart de Mexico, Femsa and BIM will continue to grow earnings by 15 - 20% p.a. year in and year out, in which case their share prices may well just continue to appreciate. However, we believe this is already being priced in by the market, and any slight deviation from this expectation is likely to result in the 'double whammy' effect of reduced earnings expectations and a lower multiple. These odds are just not attractive to us - the best business in the world can still be a poor investment if one pays the wrong price upfront. Instead, we own a mixture of (mainly consumer) businesses that we believe offer better long-term upside, but whose short-term outlook is either poor (X5 Retail, Arcos Dorados) or whose profits are currently depressed, making their near-term multiples look deceptively expensive (Naspers and Tsingtao Brewery). Our other large holdings include companies that, in our view, offer cheaper exposure to the emerging market consumer but trade at low multiples based on market perception of the poor earning power of their industry as a whole instead of looking at company specific performance. Examples of such holdings in our fund include the Chinese car companies, Great Wall Motors and Brilliance China Automotive. We also own a number of more highly rated stocks, where the business is doing well operationally and where the share price has been appreciating, but where we believe the market is still underestimating the long-term prospects for the business. An example of this would be Magnit, the second largest food retailer in Russia. While the very high quality emerging market consumer companies are richly valued, many of the commodity (materials and energy), and some of the banking stocks, look (superficially in our view) cheap on short-term valuation metrics. We have a strong preference for good businesses (many of which happen to be consumer companies) but we continue to look at commodities and banks, because even though they are clearly below average industries, we believe they are industries that we know and understand well. Given that they represent such a large part of the South African market, we have over the past two decades built an extensive knowledge base of these industries. There are also a large number of investable stocks in emerging markets in these two industries (including a large number listed in South Africa, which our South African team already covers in detail and as such requires no incremental work from the emerging markets team). These two facts (industries that we understand and that have a large investable universe in emerging markets) mean that it is worth continuing to cover stocks in these sectors. In addition to this, although we have a strong preference for higher quality assets, valuation overrides everything and at times commodities and banks can be extremely attractively valued (commodity valuations in 1999 being a classic example). The choice between the best business in emerging markets (but that trades on 30x forward earnings and 20% above our fair value) and a commodity company (that trades on 8x depressed earnings with 50% upside to our fair value) is an easy investment decision for us: we would far rather own the commodity company in this specific situation. Today however, the valuations of commodity companies are generally not attractive enough, particularly when considering the risks. While there is upside of 30% or more to fair value in the case of a few of the commodity companies we look at (others have significant downside), the portfolio is built on the basis of risk-adjusted expected return, and not just expected return. In other words, the level of risks generally and in particular the conviction we have in our longterm earnings forecasts (and hence our fair values, which are driven by the next 5 years' of earnings on average) are key factors that we evaluate when deciding to own a share at all, and also in determining the position size. In this regard, we believe the risks are to the downside in terms of long-term earnings streams (and hence fair values) for most commodity companies. On a risk-adjusted basis, commodity stocks are just not attractive enough yet. State intervention in commodity companies also appears to be increasing (in many countries, including Brazil and South Africa), which has also increased our levels of caution. Furthermore, in a number of cases we believe that current commodity prices are well above long-term normalised levels. A good example of this would be iron ore, where the spot price is $140 but in our view (based on supply and demand modelling) the correct long-term normalised iron ore price is closer to $85. When we value the Brazilian iron ore producer Vale, we use a normalised iron ore price of $85, not the current spot price of $140. On short-term valuation metrics, some would argue that Vale looks cheap (8x 2013 consensus earnings) but in our view the company is in fact expensive (25x normalised earnings using an $85 iron ore price). The fact is that Vale's current earnings are based on the prevailing iron ore price, which in our view is unsustainable and 8x earnings is an illusion. In a similar vein, the Chinese banks look 'cheap' on shorter-term valuation metrics (6 - 7x 2013 consensus earnings), but due to effective forced State lending, we are just not sure of the magnitude of bad debts in the system and as such can get little conviction in the long-term earnings streams of these businesses. In the first quarter of this year we already undertook five research trips (to China, India and Turkey and twice to Brazil) during which we met with over 100 companies. We also met with the unlisted competitors of some of our holdings, toured a few of the private university campuses in Brazil and undertook a review of all the major food retailers in Turkey. This last example was particularly insightful as the market opportunity for food retail in Turkey is immense and there are three listed firms that aim to take advantage of it. The most well known of these is BIM, mentioned earlier and possibly the best run food retailer in emerging markets, with the other two being Migros (a listed supermarket chain) and Bizim (a cash and carry operator). Turkey has over 200 000 points of sale for food and groceries, but less than 10% of these are formal retail. By revenue the formal market only represents 40% compared to more than 70% in most of Western Europe. It is likely that over the next ten years the share of formal retail will grow materially, and within formal retail the market will consolidate from its current fragmented nature - small regional supermarket chains, for example, are likely to be absorbed by national banners. We have spent substantial time analysing what this means for the earnings potential of the listed retailers, but have refrained from investing as the valuations were simply too steep to offer the required margin of safety. This analysis is not complete, however, without trying to understand what makes a customer choose BIM over its competitors in the discount segment (A101, Sok and Dia), or Migros over other national supermarket chains (Carrefour and Tesco are both in Turkey) and Bizim over other cash and carry operators (Metro and Tespo). To enhance our understanding, we met with management at several of these competitors and conducted extensive site visits to multiple stores of each of these operators over a two-day period. A number of insights picked up were very useful. For example, there are marked differences between the discount stores in terms of location, ambience, staff numbers, fresh produce and the proportion of private label merchandise. We have incorporated the results of our research into our valuations and will be ready to invest at the appropriate time and price. Portfolio managers Gavin Joubert and Suhail Suleman   Coronation Global Emerging Mkts comment - Dec 12 Tuesday, 26 March 2013 Fund Manager Comment The fund had a good year both in absolute and relative terms, appreciating by 26.2% in USD; and in doing so, generated alpha of 7.5% (the MSCI Emerging Markets Index produced a return of 18.6%). Four of the fund's top ten holdings appreciated by around 50% or more, and naturally this was a key driver of returns. Great Wall Motors appreciated by 119% (contributing 4.2% of return), Magnit appreciated by 89% (contributing 2.5% of return), Anhanguera appreciated by 56% (contributing 2.4% of return) and Naspers appreciated by 47% (contributing 2.3% of return). Importantly, the magnitude of our losers was limited with only two stocks detracting more than 1% each from performance: Arcos Dorados and Lianhua Supermarket. We continue to believe that both stocks are substantially undervalued. In the case of Arcos Dorados (the franchise holder of the rights to McDonald's for the whole of Latin America and the bigger position of the two) we have had a number of conference calls with the company's three key executives (CEO, CFO and COO) over the past few months and remain convinced that while there are shorter-term headwinds, the long-term prospects for the company are excellent. Most investors (and short sellers) continue to be fixated on the poorer shorter-term earnings outlook (next 1 year), which has resulted in a significant decline in its share price, presenting an opportunity for investors like us who have a longer-term investment horizon (3 - 5 years). The fund's largest new purchase over the past quarter was Baidu, the leading internet search engine in China (in effect the Google of China) with market share of around 75%. Baidu has recently gone from being a market darling to being very much out of favour due to slower growth rates and increasing competition, notably from a new entrant (Qihoo). As a result, Baidu's share price has declined to a point where we think it offers an attractive investment opportunity (from a level of over $150 to below $100). Although internet advertising has already taken market share from TV and newspaper advertising (see chart below), we believe the amount spent on internet advertising in China will continue to increase significantly over the next several years. Internet penetration in China (at around 40% of the population) is well below that of more developed Asian countries (Korea, Taiwan and Hong Kong), all of which are in the 70% - 80% range. As internet users increase, the incentive for corporates to advertise on this platform increases. In addition, there is currently a mismatch between where Chinese individuals spend their leisure time (largely on the internet as opposed to watching TV) and where adspend is directed (still predominantly on TV). Advertising spend as a percentage of GDP in China is still low and we believe that this, combined with a growing economy and the above-mentioned factors, will result in growing the pie (internet advertising) over the next several years. In terms of Baidu's share of this growing pie, while Qihoo (and others) are no doubt a threat, it is typically very difficult to dislodge the no.1 dominant search engine. One of the key reasons is because the more users a particular search engine have, the better its search algorithms can be refined, which in turn results in better search outcomes - ultimately a key driver of usage. We therefore believe that Baidu has a very strong defendable position, but acknowledge that technology risk exists and account for this in our earnings models (assuming Qihoo takes 10% market share), our valuation (valuing Baidu on a sensible multiple that acknowledges the technology risk) and lastly position size (3% of fund). At a share price of $100, Baidu trades on around 15x the next 1 year of earnings, which we believe is very attractive given Baidu's prospects. YUM! Brands (owner of KFC, Pizza Hut and Taco Bell) has been a holding in the fund for a large part of its track record since launch. In our view, this is one of the best businesses in the world. It owns very strong brands (KFC in particular), has an asset light, high return business model (most of the business is franchised), a largely defensive and predictable earnings stream, great free cash flow generation, high quality management, an excellent financial track record (EPS growth of 13.4% p.a. compounded over the past 10 years) and many years of growth ahead due to low penetration of KFC/Pizza Hut/Taco Bell outlets in emerging markets. In China today YUM! Brands (YUM) has around 5 000 outlets and the country already contributes 45% of group profits. The company believes that the Chinese market could ultimately accommodate 20 000 outlets. So YUM is only 25% into their roll-out programme in China (5 000 outlets today versus an end goal of 20 000 outlets). While the high contribution to earnings from China is partly due to Chinese stores being company-owned (as opposed to the bulk of YUM's network which is franchised), the reality remains that China is likely to contribute over 60% of group profits at some point in the not too distant future. Today other emerging markets (excluding China) contribute a further 13% of profits, meaning that 58% of profits already come from emerging markets. This contribution will continue to increase sharply in the years ahead. Towards the end of the year YUM's share price declined by 10% in a single day because same store sales in China for the quarter were -4% as opposed to the 'expectation' of +1%. Because of one quarter's sales figures collective market participants concluded that the business was worth 10% less than what it was the day before. If one ever needed evidence of how ridiculously short-term focused markets have become, this is it! We held the view that YUM was worth around $100 before the 1-day 10% share price decline from $74 to $67. After the release of this quarterly figure, our assessment of what YUM is worth remains around $100: we value businesses based on their long-term earnings streams, not on one quarter's sales or earnings. Subsequent to the release of these sales figures, it emerged that two suppliers to KFC in China had been using antibiotics to promote the growth of their chickens, causing a further decline in the share price. While this is without doubt negative news, we believe that YUM will deal with this issue (as it did with similar incidents in 2005 and 2007) and that there will not be a long-term negative impact. YUM has a 25-year history of building an incredibly successful business in China (the first KFC China outlet opened on Tiananmen Square, Beijing in 1987, two years before the infamous uprising at that location), there is still a long way to go in terms of roll-out of KFC and Pizza Hut outlets and the product is aspirational and loved in the country. While we cannot predict the timing thereof, we believe same store sales will undoubtedly continue to increase again at some point, and the long-term prospects for KFC China as well as the rest of YUM's operations around the world remain excellent. We therefore saw this negative news as an opportunity to increase our holding from 2.5% to 3.5% of fund, making YUM! Brands a top 10 holding. Portfolio managers Gavin Joubert and Suhail Suleman   Coronation Global Emerging Mkts comment - Sep 12 Tuesday, 11 December 2012 Fund Manager Comment In tough, volatile markets, the fund continues to perform well relative to the benchmark and peers. Year-to-date, the fund is up 16.63%, which is 4.3% ahead of the MSCI Emerging Markets Index. Since inception a little over 4 years ago, the outperformance amounts to an annualised 4.72%. The valuation levels of a number of the higher quality emerging market businesses continues to increase, and we have been asked to share our views in this regard given our preference for investing in above average businesses. While we favour such businesses, we are a valuation-driven investment house and prefer paying an attractive price for the businesses we own. This often means that we buy shares when the news flow is negative and (short-term) earnings often under pressure. In markets that seem to become increasingly short-term focused, higher quality businesses are often sold down significantly based on short term concerns that are not indicative of their long term earnings power. We therefore frequently buy businesses that have fallen heavily due to short term problems, not because we are trying to be contrarian, but because we are exercising our judgement that the short term impact of problems on the long term fair value is far lower than the actual market share price reaction. While we own a number of higher quality businesses where there is no negative news flow (and the share prices are not declining), a large part of the portfolio is invested in higher quality businesses where: the news flow is very negative; the share prices are declining; and hence, the upside is potentially significant. We spend a large amount of time and energy in assessing whether the concerns are merely short term or whether they impact the long-term fair value of the business. If our conclusion is the former, we will typically be adding to these positions. Three of our largest portfolio holdings currently fit into this category: X5 (food retailer in Russia), Daphne (ladies footwear retailer in China) and Arcos Dorados (operator of McDonald's restaurants in Latin America). X5 has performed poorly in its hypermarket division in particular, leading to changes in senior management including the departure of the CEO. Daphne faces an environment of heavy discounting from competitors in response to slowing Chinese growth. Coupled with the inability to bring down costs quickly enough this has led to margins falling and will probably see earnings stagnate in 2012 after rising rapidly in recent years. Arcos Dorados has over the last year experienced a perfect (negative) storm of slowing growth in Brazil (its largest market), rising labour costs, higher food input costs and a onethird decline in the Brazilian real when earnings are reported in dollars. In each of these three businesses there will be a difficult few months or quarters ahead, but we believe the long-term franchise value of each remains largely undiminished and when earnings return to normal, so will the rating the market attaches to these earnings. In previous commentaries we have spoken about the attractiveness of leading, developed market listed global businesses that we will consider for inclusion in the fund provided they earn a material (>40%) proportion of revenue or earnings from emerging markets. In this vein, we continue to like the three global brewing giants Anheuser-Busch InBev (ABI), Heineken and Carlsberg. Two of these have recently been involved in M&A activity aimed at increasing their emerging markets exposure in regions where they were already present through joint ventures with local operators. ABI announced it would be buying the remaining half of its Mexican operation (Grupo Modelo), with the deal expected to close in the first quarter of next year. Heineken has reached agreement to take full control of Asia Pacific Breweries (APB), owner of South East Asia's premium Tiger Beer brand. We are positive on these transactions: besides the increased emerging markets exposure, both are also earnings accretive (the Modelo transaction due to revenue and cost synergies and the APB transaction due to attractive debt funding). Carlsberg continues to suffer negative sentiment due to its large Russian exposure. The Russian government continues to make life increasingly difficult for alcohol-related industries, but in our view Carlsberg's industry leading position will remain intact and its valuation adequately compensates for the risk. Overall, these three global leaders trade on high single digit free cash flow yields. They also have sufficient opportunities in many of their operating geographies to increase volumes and cut costs in order to grow their free cash flow at above market rates over time. We have built positions in the two global spirits giants, Diageo and Pernod Ricard. This is one of those rare industries where the value of inventory can grow over time. Ageing creates premium products, while authentic supply is limited to certain geographies: Scotch must come from Scotland, as an example. They each have seven of the top 30 global spirits brands, yet they still have very little presence in many of the largest markets that remain dominated by small local brands. As an example, Diageo today has less than 3% of its sales coming from China and India, the second and third largest spirits markets in the world by revenue. In the BRICS countries, local brands make up more than 95% of spirits volumes, an opportunity for global brands to take advantage of. There is a clear movement by consumers in emerging markets to increase consumption of premium western brands and we believe that Diageo and Pernod Ricard will benefit greatly from this over time. Luxury goods and jewellery now make up close to 10% of fund. Once again our view is that the market is fixated on near-term earnings risk (which is a real short-term risk), and that the valuations do not reflect the huge long-term opportunity that exists in emerging markets, particularly Asia, where brand consciousness is very high and disposable incomes of white collar workers with a propensity to spend on luxury continue to rise. The fund holds a few of the dominant global luxury companies like LVMH, PPR (Gucci), Richemont and Prada, along with some more Asia specific names like Chow Tai Fook, Ports Design and Folli Follie. The global brewers, spirits and international luxury names make up around two-thirds of our total developed market exposure, which is now close to 20% of the fund. In recent weeks members of the team have travelled internationally to meet with management of more than 60 companies. Some of these we own today, many we have owned in the past and may own again in future. This is part of our process to constantly deepen our understanding of businesses in our universe, even if they may appear expensive today. This is simply because one needs to have done the detailed work upfront to make informed decisions when companies stumble to decide whether such an event is once-off in nature or an indicator of long-term decline. Portfolio managers Gavin Joubert and Suhail Suleman   Coronation Global Emerging Mkts comment - Jun 12 Thursday, 26 July 2012 Fund Manager Comment It was a tough quarter for emerging markets, with the market giving up almost half the gains made in the first quarter of the year. The fund return year to date is 6.7%, representing outperformance of 2.6% over the benchmark MSCI Emerging Markets Index. The longer-term performance of the fund remains very pleasing, with annualised alpha of 4.5% after fees since inception in July 2008. What happens in volatile global markets will have some knock on effect on the economic prospects of individual emerging market countries. Yet judging from the daily moves in share prices one would be forgiven for thinking that company valuations regularly move by 5% - 10% in response to changes in the macroeconomic outlook. In reality, however, the long-term intrinsic value of most businesses does not vary greatly from day to day. If anything, good businesses are able to grow their values over time by continuing to expand their earnings bases. As analysts first and foremost, it is therefore essential that we remain focused on understanding the true long-term value of the businesses we own. To this end, we continue to spend the bulk of our time ensuring that our assessment of our portfolio holdings is correct and defensible, while also ensuring we can justify why we do not own other businesses that have similar theoretical upside. During the quarter, members of the team visited China, Singapore, Turkey and Russia, in the process speaking with management from over 70 companies. Our analysts also visited many retail stores, supermarkets, restaurants and department stores operated by companies we own and those of their competitors in order to assess their relative strengths and weaknesses. This extra level of due diligence is particularly useful given how different the operating environment is between countries and often even within different cities within the same country. As a result of our research and the moves in various shares during the quarter, there have been some noticeable changes to the portfolio. In our previous commentary, we highlighted the investment case for Arcos Dorados, the Latin American operator of McDonald's restaurants. Continued concern over Brazil's macro-economic environment, Arcos's largest individual market, and the sell-off in Latin American currencies have seen the share continue to fall. At one point it touched $12 versus the IPO price of $17 a year ago and the high of $28 in September 2011. After speaking to the CEO and founder of Arcos, we believe that the long-term appeal of the business remains unchanged as there are still decades of growth potential ahead - there are fewer McDonald's restaurants in the whole of Latin America, with a population over 560 million, than in Germany and France whose combined populations come to less than 150 million. As is frequently the case, given our investment philosophy, tough markets provide an opportunity to pick up quality businesses at very attractive valuations. We therefore substantially increased our holding, taking Arcos Dorados to 6% of fund, now the second-largest position. The sell-off in Brazil, which makes up close to 30% of the fund, was not limited to Arcos as most of our Brazilian holdings came under pressure. The 10% drop in the currency was partly to blame, but for the most part investors continue to shun Brazil over fears of excessive consumer debt and government moves to regulate interest rates. We believe that valuations reflect a fairly severe outcome in Brazil, which is unlikely to come to pass. As an example, Itau Unibanco trades on 8 times our assessment of this year's earnings and offers a 4% dividend yield. This is Brazil's largest private sector bank and a quality operator in a country with low overall financial services penetration. We continued to add selectively to individual stocks in Brazil and invest in new counters such as Cia Hering and Pao de Acucar, the management teams of which we had met in Brazil earlier this year. Hering is a cash retailer of young adults' casual clothing, which has grown phenomenally in recent years. We believe the strength of its asset-light franchising model and potential to still roll out a significant number of new stores is not fairly reflected in its current valuation. Pao de Acucar is Brazil's largest food retailer and owns a significant stake in the country's largest electronics retail chain. Food retail remains very fragmented and Pao de Acucar is well positioned to benefit from consolidation and upward migration of Brazilian consumers into modern retail. The fund reinvested in Baidu.com, China's leading search engine. We last held the stock in 2009 when we sold due to it reaching our assessment of fair value. Since then the company has continued to entrench its dominance of the search market in China and capture an ever-larger share of search related advertising spend. Baidu has established good relationships with tens of thousands of small businesses in China and is not reliant on large conglomerates or multinationals to generate revenue. The complexity of the language and constant refinement of the search algorithm puts Baidu well ahead of its competitors. We believe that the long-term market opportunity available to Baidu is compelling enough to warrant our investment despite what, at face value, looks like rich near-term valuations. One very interesting new addition to the portfolio is Chow Tai Fook, a middle tier jewellery brand in China, Hong Kong and Macau. Chow Tai Fook listed in December 2011 at HK$15 a share and subsequently fell heavily before staging a small recovery to HK$9.50. The business is quite attractive as it is the no.1 jewellery brand in China and has very good recognition amongst consumers. The share price has fallen as a result of expectations of a Chinese slowdown and partly due to the fall in the gold price. A large part of its sales come from fabricated gold jewellery on which it earns a design margin. At less than 12 times next year's earnings it is an inexpensive means of getting direct exposure to a fast growing consumer market in China. To fund the purchases referred to above, we have sold out of our holdings of global beer majors - Anheuser-Busch Inbev, Heineken and Carlsberg. Although all remain businesses with compelling long-term upside, the valuation gap between them and some of the companies that we have purchased has diverged to very high levels, and in our view the risk-adjusted expected returns of the new buys are more attractive. Portfolio managers Gavin Joubert and Suhail Suleman   Coronation Global Emerging Mkts comment - Dec 11 Friday, 24 February 2012 Fund Manager Comment The volatility in markets continued as 2011 came to an end, with the MSCI Emerging Markets Index closing the year down 18.2%. The fund performed marginally better than this, declining by 14.5% and in doing so outperformed the index by 3.7% for the year. Since the fund launched 3.5 years ago it has outperformed the market by 4.5% per annum. The recent sharp market declines have led us back to a number of shares that we had owned in 2008/2009, but sold out of by 2010 due to very strong share price performance and resultant unattractive valuations. Coca-Cola Hellenic (CCH) is one such example: we think it is a great business, but had sold almost completely out of the position by late 2010 due to valuation. The past year along with the turmoil in Europe resulted in a 40% decline in CCH's share price which gave us the opportunity to buy this business again at very attractive levels. CCH are the world's 2nd largest independent Coke bottler, only marginally behind the largest, Coca Cola Femsa, with both generating around $9 billion in annual revenue. Coca-Cola Femsa bottle Coke in most of Latin America, while CCH bottle Coke for most of Eastern Europe. Although the company is listed in Greece it really is an emerging markets business. Only 7% of group volumes come from Greece, while around 2/3rd of revenue is generated in emerging markets. The bulk of this comes from Eastern Europe, where Russia and Poland are key markets, with Nigeria also being a very important non- European market for the company. CCH has a number of very positive drivers which, taken together, will lead to double-digit earnings growth for a number of years, in our view. Firstly, per capita consumption (pcc: the number of small cans of Coke consumed by each individual annually in any given country) of Coke in many of the company's key markets is very low. Italy (a mature market), for example, has pcc of 245, Poland 174, Russia 75 and Nigeria a negligible 23! We believe the pcc of Poland, Russia and Nigeria (in particular the latter two) will increase substantially over the years, and these three markets make up 35% of CCH's group volumes. Secondly, margins are below normal in our view, with CCH's EBITDA margins of 14% being well below the 16% - 22% range of other listed Coke bottlers in Eastern Europe and Latin America. A number of factors will drive margins higher over time, with a key one being the move from off-premise/multiple servings (2 litre Coke plastic bottles bought from a supermarket) to on-premise/single servings that naturally happens as markets develop (Coke cans consumed in restaurants/bars and at home). A continued shift towards higher margin non- CSD products (bottled water, energy drinks, etc.) over the next several years will also enhance margins. CCH trades on a high single-digit free cash flow multiple on our estimate of more normal earnings (taking into account the factors mentioned above), which we think is a very attractive entry point for a business of this quality. Over the past few months we also added to the fund's exposure to the Macau gaming operators. In total 4% of the fund is now invested in these stocks, compared to only 1.5% at the start of the year. The current exposure at the portfolio level is made up of positions in Melco Crown Entertainment (2.5% of fund), Las Vegas Sands (1.5% of fund) and MGM China (1% of fund). Melco Crown Entertainment (MCE) and MGM China (MGM) have all of their operations in Macau, whereas Las Vegas Sands (LVS) generate about 45% of their profits from Macau, with the balance coming from Singapore (45%) and Las Vegas itself (10%). It is astonishing to think that LVS today generates 90% of its profit from Asia whereas five years ago 100% of profits came from Las Vegas. What has kept us largely away from the Macau operators in the past has been our view that despite the very positive long-term drivers, the risks are also higher than average, and the valuations have not been attractive enough. The key longer-term risk in our view would be additional regulation in some form or another, including the opening up of an alternative gambling destination in China. The key shorter-term risk would be a significant drop in VIP gambling due to tough economic conditions or another credit crunch. The 2nd (shorter-term) risk worries us less: we think about businesses in terms of the next five years and beyond, and the prospects for Macau are very attractive over the longer term in our view. While we believe the probability of extreme regulation is low, it does remain a risk, and the way that we deal with this is to incorporate it into the discount rate that we require in valuing these businesses. Given the market's current concerns about China, the Macau gaming companies have experienced sharp share price declines over the past several months, and as a result the valuations have become quite attractive in our view. Both MCE and MGM are trading on high single-digit historic (2011) free cash flow multiples, while LVS is trading on a high single-digit free cash flow multiple two years from today. It is necessary to look out a few years as LVS are in the middle of adding significant new capacity. Given the long-term prospects for Macau, we believe that current valuations are very attractive and that one is being compensated for the risks. Over 25 million people now visit Macau every year (55% of these from Mainland China) and the gaming revenue in Macau is already six times larger than that of Las Vegas. What is interesting however, is that gaming revenue accounts for 90% of Macau's revenue, whereas in the case of Las Vegas (and other equivalent gaming centres), gaming revenue makes up only 40% of total revenue, with the other 60% coming from hotel accommodation, entertainment, food and beverage and retail. Macau today is largely a destination for VIP high-rollers. The mass market is still in its infancy and this is what creates the long-term opportunity in our view. Approximately 10% of Chinese who can visit Macau (based on income levels) currently do so. Today there is significant new resort development happening that will result in more mass market activities (entertainment and retail) being available on Macau. The transport links to Macau are also undergoing significant improvements which will enable far more Chinese to visit Macau, and quicker, than what is currently the case. Mass market visitors have the additional benefit that they generate higher margins than VIP visitors. Both MCE and LVS (the fund's two largest positions) have operations that are largely concentrated in the part of Macau that is being developed as the mass market area. We believe that Macau, driven by the mass market, has many years of growth ahead and today one is paying a very attractive price for these long-term prospects. Portfolio managers Gavin Joubert, Mark Butler and Suhail Suleman   Coronation Global Emerging Mkts comment - Sep 11 Wednesday, 21 December 2011 Fund Manager Comment The turmoil in global markets accelerated in August and September driven by the Euro crisis, fears of a global recession and a 'hard landing' in China. As is typically the case in times of a crisis, emerging markets declined significantly more than developed markets, even though one could very rationally argue that the fundamentals and valuations of emerging markets are far better than those of the developed world. It was not only the equity markets that declined, but also the currencies and during September the Turkish Lira, Russian Ruble, Mexican Peso, Hungarian Forint, Brazilian Real, South African Rand and Polish Zloty all lost between 12 to 16% of their value against the US dollar. Year to date the MSCI Emerging Markets index is now -21.66% and the fund is somewhat better at -17.90%. Since inception just over 3 years ago, the fund has outperformed the index by 4.89% per annum. This sell-off has ultimately been driven by panic and fear and stock movements are significant, with double-digit daily declines in single stocks being frequent. These are not normal conditions and although we very much consider ourselves to be long-term investors, we have found ourselves being more active in the portfolio than would ordinarily be the case. We build the portfolio on a risk-adjusted expected return basis, with position sizes being determined by the upside to our fair values (expected return) as well as consideration of the risk to the earnings streams embedded in these values. In our view, it is times like these (with forced selling resulting in irrational price moves) that one typically gets the opportunity to upgrade the quality of the portfolio, and this is what we have been doing: buying high quality businesses that we sold out of two years ago due to valuation which have now become very attractive again. Lianhua Supermarkets (China), X5 Retail (Russia) and Anhanguera (Brazil) would all fall into this camp. These shares have as much upside to fair value as the shares we sold, but the businesses are higher quality in our view. Our conviction in the 5-year earnings streams of these businesses is also higher than that of the shares we sold, meaning that the risk-adjusted expected returns are more attractive. Lianhua Supermarkets started in 1991 in Shanghai and is a nationwide grocery retailer operating primarily in the eastern areas of China. The group is present in three retail formats - hypermarket, supermarket and convenience store, and operates under the banners Century Mart, Lianhua and Quik respectively. The company also has a joint venture with Carrefour and besides the hypermarkets in this structure, the company owns all of its hypermarkets and uses a combination of self-owned and franchisees for the supermarkets and convenience stores. The performance of the hypermarkets has improved over time with operating margins having expanded from 0.1% in 2007 to 2.7% for the first half of 2011, and supermarket margins having expanded from 3.5% to 4.5% over the past few years. The group continues to roll out new stores at a rate of around 5% per annum and as the existing stores mature the margin will expand in our view. At time of purchase, the shares were trading on around 12x next year's earnings, which we believe is very attractive given the growth profile in China, where modern retail is still a relatively small portion of total retail spend. The company also has a strong balance sheet and has a large net cash position, part of which is from vouchers and the other is free cash. The stock of Russion grocery retailer X5 Retail fell 45% from its peak, which created an attractive opportunity to re-introduce it to the fund. X5 operate three formats: soft discounters, supermarkets and hypermarkets. The food retail market in Russia is very fragmented, with the top ten retailers having less than 20% market share and X5 are one of the consolidators. During 2010 the company acquired another Russian retailer, Kopeyka. This increased the group's number of stores by 35% and selling space by 19%. The integration process has resulted in below normal margins as IT platforms are merged, distribution channels are integrated, staff are trained and stores rebranded. Each store's rebranding takes around two weeks, temporarily reducing selling space. Trading densities are also well below normal and the total sales area will grow between 10-15% per annum for the next five years. At our average purchase price the stock was trading on around 15x next year's earnings which we believe is very attractive for what is a high quality asset. Anhangera is a private university aimed primarily at working adults and has a strong brand in Brazil's fragmented education market. The company operates from a number of campuses and on average these campuses are operating at less than 70% of capacity with 3,500 students compared to total potential capacity of 5,000 students. Mature campuses operate with gross margins of 50% while newly acquired campuses operate on gross margins as low as 20% because small operators lack scale. This margin expansion is achieved by increased enrolment and curriculum rationalisation. Campuses use the same content per subject and share central administration which dilutes fixed costs as additional campuses are added to the network. We originally started buying Anhanguera in early 2009 and almost completely sold out after the share price trebled in the year that followed. The share price has halved over the past few months due to a number of concerns, the primary one arguably being concerns over the Brazilian economy. We believe that the long-term prospects for the Brazilian education industry are very attractive and Anhanguera is well placed within this industry. We have been buyers of the stock over the past few months to the point where Anhanguera is now a top 5 holding in the fund. We continue to search for opportunities and members of the team are scheduled to go to Asia for a two week trip in November to meet with a range of companies, both current portfolio holdings as well as potential new ideas. Other members of the team will betravelling to both Brazil and China in January.   Coronation Global Emerging Mkts comment - Jun 11 Tuesday, 6 September 2011 Fund Manager Comment The fund continued to perform very well in the second quarter of 2011, delivering alpha of 3% compared to the benchmark MSCI Global Emerging Markets Index. This brings year-to-date alpha to 6.6% and to 9.6% over 12 months. Although this performance is gratifying, we believe that both the absolute return and longerterm outperformance are far more relevant for our investors when assessing this fund. Since launching just under three years ago on the eve of a global financial crisis that sent markets crashing, the fund has returned 41.4% compared to the benchmark's 18.9%. This equates to an outperformance of 22.5% or 6.4% on an annualised basis. It will prove very difficult to maintain this level of alpha forever, but if we are able to consistently outperform by 2% to 3% per annum (after fees) this will create substantial value for investors in the fund over longerterm time horizons. During the quarter, global markets suffered a large sell-off, partly over fears that Europe would find it impossible to extricate itself from the debt crisis in its peripheral countries, particularly Greece. Markets sold off heavily before recovering slightly in June. Despite having reached a deal with the IMF and embarking on austerity measures, it is likely that Greece faces a long and painful road ahead and the debt and deficit problems in Europe, the US and Japan will continue to affect the world economy for several years. In this environment, when investors fail to differentiate between countries with very different economic (and solvency) outlooks and instead sell down all markets indiscriminately, it creates opportunities for long-term focused investors who recognise that the prospects of a Brazil (as an example) are very different from an Italy. The fund's biggest holding remains Great Wall Motors (GWM), a Chinese manufacturer of cars, pickups and Sports Utility Vehicles (SUV). At almost 9% of fund, we have increased the position by 2% as the company's share price fell by close to one third during the period. While it has subsequently recovered partially, this underlying volatility reflects the large number of short-sellers of the stock who trade the company as a proxy for China's macroeconomic outlook due to the cyclical nature of the vehicle industry, without regard for the underlying strengths of the actual business. Although we have spoken about this company before, in the context of the position size it is worth recapping why our conviction is so high. GWM is one of China's largest domestic manufacturers in a country where car ownership is still a novelty regardless of what you may read on Beijing congestion and smog. For illustration, there are about 40 vehicles per 1 000 people in China compared to 765 in the US, 543 in Japan and 490 in the United Kingdom. Even compared to other emerging markets China is well behind as Russia has 120 and Brazil 81 (all per 1 000 people). The Chinese aggregate figure also masks a big difference in vehicle ownership between large cities where it is at Brazilian levels and the smaller cities and rural areas where it is in its infancy. With half the population still rural and slowly migrating to cities, coupled with higher growth in the smaller cities that are further behind the development curve, the medium to long-term outlook for the Chinese vehicle market is very positive since urban expansion is a big driver of vehicle ownership. GWM is the market leader in pickups and SUVs and is one of the few Chinese brands to be exported to other countries. In a price sensitive domestic market, its vehicles are up to 30% cheaper than foreign competitors' brands, but offer five-year warranties that other domestic manufacturers cannot. This business should be able to grow earnings at 20% per year for some time and has consistently generated decent returns on equity, yet can be purchased for only 8.5x next year's earnings. Elsewhere in China we bought Gome Electrical after selling out almost two years ago. The company is the largest electrical and white goods retailer in China and continues to add store space to maintain its market share in a fast growing retail sector. Like all retail sectors, scale and volume are key when negotiating prices with large suppliers like LG, Samsung and Sony, so Gome should be able to provide lower prices to its customers over time. A large part of the company is owned by a private equity concern and the management focus has shifted away from growth at all costs toward profitable growth and shareholder returns as the market becomes progressively more competitive. It is a strong cash generator and has a large net cash position that makes it very attractive at 16x earnings. A recent trip to India provided us with several potential additions, one of which we purchased in May. Good quality education is highly coveted and private schooling in various guises can cater for all income segments except for the very poor. Unfortunately the quality of teaching leaves a lot to be desired even in private schools, so Educomp Solutions developed a content library covering the entire schools syllabus that, when installed with the appropriate IT systems and projector, allows a teacher to graphically illustrate and explain concepts to learners. The additional cost for schools and pupils is very small, but the boost to teaching productivity is noticeable. Their system is currently installed in 35 000 classrooms across the country and they believe they can add at least this amount every year for the next five years to get them to 300 000 classrooms. With the hardware provision effectively outsourced, the marginal cost associated with adding new classrooms is very low. As a result earnings from this flagship product should increase by 25% to 30% per year assuming they do half of what they project. They also operate several 'brick and mortar' private schools - 62 in total with a further 20 under construction, many in joint ventures with recognised international education providers. The completed schools have 25% of the students they could theoretically hold because government regulation does not allow them to fill schools up on day one, but rather stagger the enrolment program over four years. If they did not build another single school, and with the construction costs paid on the schools they already have opened, earnings in this division would still grow a cumulative 500% as the schools fill up over the period to 2014. Educomp is irrationally cheap at a single-digit earnings multiple, especially when one considers that most of the Indian market is quite expensive compared to emerging markets as a whole. After visiting Brazil we added food producer M Dias Branco to the fund. This producer of pasta, cookies and crackers has, on average, twice the market share of its main competitors and a superior distribution system. The market is still fairly fragmented and the bigger producers are likely to consolidate the market over time, leading to higher margins and a multiplied effect on profits. In an environment where most emerging market food producers trade on at least 20x earnings, M Dias is incredibly cheap at closer to 10x. With a solid franchise and continued investment in brands and distribution we expect earnings to grow strongly for the next four to five years. We continue to look for opportunities and regularly visit countries in search of ideas. Members of the team have already undertaken five two-week trips to destinations in Asia and the Americas this year and several additional trips are planned for the remainder. In a constantly changing environment, this process is essential in order to understand the environment in which businesses operate and to speak to senior management and assess their quality and focus on delivering returns to shareholders. Portfolio managers Gavin Joubert, Mark Butler and Suhail Suleman   Coronation Global Emerging Mkts comment - Mar 11 Tuesday, 24 May 2011 Fund Manager Comment The year has started out eventfully with much focus on recent turmoil in the Middle East and North Africa and, to a lesser extent, the fallout from the natural disasters in Japan. These major global events have had a substantial impact on markets, with large swings in sentiment and valuation occurring. The fund had an excellent quarter, outperforming the benchmark by 3.5%. Although this performance is very pleasing, we believe a longer term measurement period is more appropriate for comparing returns. On a 1 and 2 year basis the outperformance totals 1.4% and 4.7% respectively. Since inception the fund has delivered alpha of 18.6%, equivalent to 5.8% annualised. We are confident that, on the whole, emerging markets continue to offer reasonable value for investors. The MSCI Emerging Markets Index trades at 11.5 times this year's earnings, but this disguises large differences in valuation between certain sectors. Broadly speaking, commodity and resource-related sectors are trading at low multiples, but on earnings that are temporarily inflated by commodity prices that are above what we consider sustainable in the long term. At the opposite end of the spectrum, many consumer facing businesses are trading at valuations that can only be justified if they achieve earnings growth of 20% or more for many years to come. We believe that in this environment a longterm investment horizon that is premised on paying reasonable multiples on sustainable 'normal' earnings is of critical importance in order to avoid buying businesses that appear cheap, but whose earnings are temporarily elevated, or that require unrealistic future profit growth in order to justify an investment today. Our holdings in Chinese internet-related stocks have performed exceptionally well. Sohu and Netease were 9% of fund at the start of 2011 and returned 41% and 37% respectively for the quarter. We used the opportunity to halve our exposure to these companies and buy two other Chinese internet (animated) gaming stocks. Both new additions trade at less than 10 times earnings adjusting for their sizeable cash balances. Online gaming businesses are highly cash generative as users typically pre-purchase the virtual 'currency' that they then redeem during gameplay to access premium features. Successful games attract large, loyal followings and can remain fashionable for several years, giving the developer a window to develop and test new offerings. We also introduced Tsingtao, the second largest brewer in China behind CRE (which the fund previously held). The flagship Tsingtao brand is the only domestic premium brand in China and the country's only international beer brand. China's beer market is the biggest in the world by volume, but only the 9th largest by total profits. This is a result of high fragmentation (every region in the country has multiple breweries) and low pricing (entry level beer is cheaper and has a lower margin than bottled water). The county is in the early stages of both consolidation, where smaller brewers are absorbed by larger ones, and premiumisation, where consumers migrate from entry level beers towards higher margin premium beers. We believe that over time the profit pool will grow substantially as pricing becomes more rational and profits will be shared between fewer brewers as the big players start to dominate. This dynamic has played out countless times in every other major beer market in the world and there is no structural reason why China should be any different. Tsingtao should benefit greatly as consumers migrate upwards over time. Elsewhere, we have spent much time looking at the Indian market, including a recent trip to India where we met with more than 40 companies. For much of the almost three years since the fund launched, India has appeared expensive relative to other emerging markets, and our Indian holdings have been very limited. We do believe that the public sector banks (PSBs) offer compelling value and have added Punjab National Bank (PNB) to our existing holding in Bank of Baroda (BOB). Total PSB exposure of the fund is now at 6%. India is very underpenetrated from a banking perspective: there are over 600 000 villages in India and the sum total of all branches of all the banks in India comes to only 72 000. BOB and PNB are well respected and conservatively run, providing the opportunity to benefit from the growth in credit extension, consumer spending and infrastructure development that is taking place in the country. But at single digit earnings multiples they trade at a fraction of the valuation that one would pay for some of India's flagship blue chip corporate and FMCG companies. Portfolio managers Gavin Joubert, Mark Butler and Suhail Suleman   Coronation Global Emerging Mkts comment - Dec 10 Thursday, 24 February 2011 Fund Manager Comment The fund had a disappointing 2010 with a return of 13.4% for the 12 month-period, underperforming the benchmark (MSCI Emerging Markets Index) by just over 5%. Whilst we are naturally unhappy with underperforming over any time period, the fund's longer-term performance is still very satisfying and since the fund was launched in July 2008, it has convincingly outperformed the benchmark by 5% annualised (11.7% p.a. return for the fund compared to the 6.7% p.a. return of the benchmark). In 2010 the fund's winners were just not big enough (either in absolute return or in position size) and at the same time the fund also had a number of poor performers. The biggest contributors to performance in 2010 were the Brazilian education companies (Anhanguera +65% in USD and Kroton Educacional +25% in USD), the coke bottlers (Coca-Cola Femsa +25% in USD and Embotelladora Andina +49% in USD), Naspers (+41% in USD) and Turkiye Garanti (+24% in USD). Unfortunately a number of the fund's top 10 holdings performed poorly including Gazprom (0%), Banco Santander Brazil (-4%) and Netease (-4%). A slightly smaller position, China Dongxiang (a Chinese clothing and footwear sports retailer), declined by 40%. In all four cases we have readdressed the investment cases and continue to believe that there is substantial upside to the stocks (more than 50% in all four cases) and as a result we actually added to all these positions over the past few months. In only one case (China Dongxiang) have we reduced our fair value for the business and even after this reduction we believe there is material upside to the stock, which now trades on 7x current earnings excluding a significant net cash position. Not owing any GEM food or clothing retailers cost the fund relative performance as this area of the market was one of the strongest performing areas. We have done detailed work on a number of the GEM retailers and whilst we would agree that many of them are great businesses, the current valuations (typically 20-30x 2011 earnings) just don't offer the margin of safety that we require. For example, Magnit (Russian food retailer) and Wal-Mart Mexico (Mexican and Central American hypermarket retailer) are two businesses that we would love to own, but at the right price. In both cases our fair values are some 10% below the current share prices. We want to buy assets at 30-40% below what we believe they are worth, which means that Magnit and WalMex would have to decline by some 40% before we would consider them to be attractive investment opportunities. The fund has indeed owned Magnit in the past: we bought the shares at around $4 a share during the panic of 2008 and sold them in the $18-20 range around a year later. Many of those same investors who were throwing away Magnit at $4 a share are now prepared to pay $30 for the exact same business a mere two years later. Over the past few months we marginally reduced a few positions as they moved closer to what we believe the businesses are worth - the fund's positions in Turkiye Garanti, Naspers and MTN were reduced and we completely sold out of Coca-Cola Femsa and Qualcomm as they reached our fair values. The fund's largest new position (1.7% of fund) was that in Bimbo Foods, who are the largest baker in the Americas with operations in their home country Mexico (over 60% of profits), Central/Southern America and the US. The group produce a range of products including bread, pastries, buns, cookies and confectionery. There are a number of qualities that we like about the business including the fact that it has dominant positions and resultant economies of scale, a defensive earnings stream, a long track record of consistent profitability (EBIT margins have been in a 12-14% band for the past 15 years) and shareholder-friendly management (the business is family owned and despite a number of acquisitions over the years the company has never once issued shares). The share trades on 15x what we believe it will earn in 2011 and whilst this may not appear to be particularly cheap, this is a quality business that we believe can grow its earnings by 17% p.a. compounded over the next five years. This will be driven by a number of factors including continued market share gains of packaged bread from fresh bread and synergies from the recent acquisition of the Sara Lee US baker business. We also added to the fund's position in Heineken to the point where it is now the largest individual position at 5% of fund. Heineken are the owner of a number of premium brands, including the Heineken brand (the largest contributor to earnings), Amstel and Sol. Almost half of the group's business is now in emerging markets and Heineken have the largest percentage of beer volumes coming from premium brands when compared with the three other major global beer companies (Anheuser-Busch Inbev, SABMiller and Carlsberg). The EBIT (operating profit) of premium beer is around 70-80% higher than that of mainstream brands. Yet Heineken, with the largest exposure to premium brands, have the lowest operating margins in the industry (15% EBIT margin compared to the 17% of SABMiller, 20% of Carlsberg and 30% of AB Inbev). There are a number of reasons why Heineken will never achieve the 30% operating margins that AB Inbev enjoy, but we do believe that Heineken will be able to lift their margins over time to closer to the 17-18% EBIT margin level - if not higher. We believe Heineken owns, or part owns, some extremely attractive assets, notably its African business (it is #2 on the continent after SABMiller and has a very strong Nigerian business) as well as its joint ventures in India with United Breweries (Kingfisher being the primary brand) and its stake in the Southeast Asian brewer, Asia Pacific Breweries (where Tiger is the primary brand). We believe that these assets will show substantial growth over the next several years, with additional growth coming from continued premiumisation globally (particularly in emerging markets), revenue and cost synergies from the FEMSA deal and finally cost efficiencies across the business (particularly in the mature European operations). Heineken now trades on around 10x this year's expected free cash flow, which we believe is very attractive for an asset of this quality. Finally, we added substantially to the fund's existing positions in the Chinese car companies (Great Wall Motors and Guangzhou Automobile Group, which together make up 6% of fund) as they experienced sharp share price declines at the end of the year in large part due to new restrictions on car vehicle licences in Beijing. Both companies have large net cash positions (20-25% of current market caps) and trade on single digit multiples excluding the cash positions. We believe that both companies can grow their earnings well into the double digits for a number of years and as a result current valuations in our view provide a great buying opportunity. Portfolio managers Gavin Joubert, Mark Butler and Suhail Suleman   Coronation Global Emerging Mkts comment - Sep 10 Monday, 8 November 2010 Fund Manager Comment What a difference one quarter makes. In our previous commentary we wrote that the MSCI Emerging Index fell almost 20% from mid April to late May. This past quarter saw the index rise 18.2% and we are pleased that the fund outperformed the benchmark by 2.9% during this period. We would however rather be evaluated over longer and more meaningful time periods. In this regard, the fund has generated an annualised dollar return of 10.3% over more than 2 years since the fund was launched, and in doing so has outperformed the MSCI Emerging Markets Index by over 6% p.a. There was only one name change in the top ten holdings of the fund during the quarter. Petrobras (still a top 12 position) was replaced by Banco Santander Brazil, a holding which we've added to substantially over the period. The long-term fundamentals for the banking sector in Brazil are very positive in our view (high GDP growth rates, rising disposable incomes, declining unemployment and low banking penetration). Within the sector we believe that Banco Santander Brazil is amongst the best managed banks with the most potential to increase ROE's over time (toward the 20% level from the current 12% level). The bank is also very well capitalised, in fact overcapitalised in our view, and as such has plenty of room to grow their loan book. The bank trades on 11x what we believe it will earn over the next year, with a 5% dividend yield, which we believe is very attractive. China Unicom, C&O Pharmaceutical and Colgate Palmolive were all introduced into the fund. We sold holdings in Telefonica on concerns that they would end up overpaying for Brasilcel (a Brazilian telecommunications company), Anadolu Efes (Turkish listed brewer and beverage company) as it reached our fair value and Brazilian education company Sistema which received an offer for their learning system division by the Pearson Group. China Unicom is a provider of both fixed and mobile telecommunication products, that is trading on 8x our estimate of normalised free cash flow. While the traditional fixed line voice offering is in decline, we believe an opportunity lies in their broadband and data offering. In 2009, Chinese internet penetration reached 19%: meaning 2 out of every 10 people in China have access to the internet. Korea (an example of a more developed Asian country) reached 19% penetration in 1999. Current penetration for the US and Korea are both around 72%, while penetration in China is 25% today. Astonishingly, there are already more internet users in China (approaching 400 million) than there are in the US (220 million), yet China only has internet penetration of 25% compared to 72% in the US. China doesn't need to reach 70% penetration (US and Korea levels) for there to be significant growth ahead - a move from 25% to 50% penetration would add another 400 million internet users. Besides China Unicom, the fund also has a number of other large holdings in internet companies (portals and/or online gaming companies) that will benefit from increasing internet usage in China including Naspers (through its Tencent stake), Netease.com, Sohu.com and Perfect World. The latter 3 all have large net cash balances (ranging from 15% to 25% of current market caps) and are trading on low double-digit ratings excluding the net cash, which we believe is very attractive given expected double-digit earnings growth rates for a number of years ahead. C&O Pharmaceutical is a small Singapore-listed Chinese generic pharmaceutical company which we believe has been overlooked by investors. The Chinese healthcare market is one of the most underserviced in the world with 50% of urban residents not having sufficient healthcare and 30% of the rural population not having any form of healthcare. The 4-2-1 (grandparents, parents and child) family structure means that China has a rapidly aging population requiring increased medical spend. As part of their plan to combat the impact of the global recession the state's healthcare spend was increased substantially to US$130 billion over the 2009-2012 period. The market for pharmaceutical products has grown in excess of 20% for the past five years. C&O core operations are focused on the production and sale of finished goods. The product portfolio include their own proprietary products and the exclusive distribution under licence for Hong Kong and Japanese pharmaceutical companies. The business is a strong cash generator and continues to distribute excess capital to shareholders having declared two special dividends this year. The share trades 10x this year's earnings with a 4% dividend yield. The inflows into emerging market equities have resulted in a number of stocks in our universe trading above what we believe is fair value. Whilst we are still uncovering selected very good value within emerging markets, we do not restrict ourselves to companies listed on emerging market exchanges - we also consider those listed on developed exchanges which today generate a large portion earnings (at least 40% +) from emerging markets. Colgate Palmolive is an example where 50% of revenues are generated from emerging markets. We initially analysed Colgate Palmolive India (51%-held subsidiary of the US-based mothership), but concluded that it was too expensive and did not provide us with the margin of safety that we insist on. This however led us to take a detailed look at the holding company (US-listed Colgate Palmolive). The business owns a collection of great brands that dominate their categories in many cases. Operating margins are consistently over 20% and due to this as well as high asset turns the business generates ROE's north of 70%. Earnings per share has grown by 10.6% p.a. over the past 20 years and dividends per share by 10.4% over the same time period. Today one can buy this high quality business on just 14x what we believe the business will earn over the next year, which we believe provides an attractive risk-reward payoff. Portfolio managers Gavin Joubert, Mark Butler and Suhail Suleman Client   Coronation Global Emerging Mkts comment - Jun 10 Monday, 6 September 2010 Fund Manager Comment Global equity markets suffered a difficult second quarter and emerging markets were no exception to this. From mid-April to late May the MSCI Emerging Markets Index fell close to 20%, breaking a year long trend of very good returns for investors. Given the high levels of volatility in global markets today, we have been relatively active in the fund over the past few months as individual shares move closer to, or further away from, our fair value in a short time period. There were several noticeable moves in our Chinese holdings, most of them sales. We sold out of China Mobile as it held up quite well when the market was falling, decreasing its relative attractiveness as other stocks became cheaper. We also sold out of Ajisen, a ramen noodle restaurant chain as it reached our fair value. On the buy side we added to our small remaining position in Ports Design, a high end fashion retailer, as it had fallen by one third from the levels at which we had previously sold. We also started to accumulate a position in BaWang International. BaWang is a Chinese Household Personal Care (HPC) company currently specialising in herbal shampoos and related products. Chinese shampoo consumption is a fraction of that in other countries. For example, the average Chinese consumer uses 300ml of hair care products per year, whereas the equivalent in the US and Western Europe is 5 to 8 times this volume. Elsewhere in East Asia (Japan and South Korea in particular) the figures are also at least five times that of Chinese consumption. This large gap in consumption may not be eliminated over time, but higher year-on-year growth in Chinese consumption will see it narrow substantially. With 1.3 billion people, this is an enormous market opportunity for HPC firms. BaWang is the market leader in herbal shampoos which represent almost one fifth of the total hair care market, a share that has been rising slowly over time. These are powerful drivers for growth in BaWang's earnings. Whilst the stock may appear expensive on a one-year timeframe, over the course of our five-year forecast period BaWang offers great upside. We increased our exposure to Korea by adding the three tigers - Hyundai Motor, Samsung Electronics and LG Electronics. These are all world class companies with operations throughout the world and increasing exposure to the fastest growing regions in emerging markets that require cars, household appliances and electronics for a growing urban middle class. From being low cost upstarts looking to take market share from the established Japanese, these three firms have moved to become high quality manufacturers with strong brands and reasonably stable margins in an otherwise cut throat industry. All three trade on single digit ratings on earnings that are not high in our view. We also purchased the preference shares which trade at large discounts to the ordinary shares, ranging from 30% in the case of Samsung to as high as 60% in the case of LG Electronics, which is at the high end of their 10-year historical ranges. Moving west to Europe we sold out our holdings in BAT and Unilever as they held up relatively well and we were finding better value elsewhere. One such example is Central European Distribution Company (CEDC), the leading vodka producer in Poland and one of the top five producers in Russia. We believe the opportunity in Russia in particular is significant as illegal sales still account for the largest part of the market. Aside from share gains from the illegal market, the legal market is still fragmented and the large players including CEDC should continue to take market share. This has a multiplying effect on profits as both revenue and margins increase simultaneously. There are undoubtedly risks facing CEDC including relatively high debt levels and of course country (Russia) risk, but with the stock trading on a single digit free cash flow multiple at the time of the fund's purchase we believe one was being more than compensated for this risk. In the Americas we reintroduced two Brazilian stocks, Petrobras and Itau Unibanco. We had previously sold out of both as they had reached our estimate of fair value. In the past few months both, however, had experienced sharp share price declines making them attractive once again. Petrobras is one of the few major oil companies that actually has a growing production profile. The share trades on less than 9x this year's earnings. The fund owns the preference share which trades at a 12% discount to this or effectively closer to 8x this year's earnings. We believe that this is very attractive given its existing growth profile and the optionality inherent in the new but as yet unquantified resources. Itau Unibanco is the largest bank in Brazil. We believe that the outlook for banks in Brazil is very favourable given low banking and financial services penetration and a strongly growing economy with rising disposable incomes. Against this backdrop, we believe that Itau Unibanco can grow their earnings at around 20% p.a. over the next 5 years, making it very attractive on 10x next year's earnings. In the two years since launch, the fund has produced very pleasing returns, outperforming the index by 10% (5% annualised). Shorter term (year-to-date) performance has been somewhat disappointing and whilst it is a short time period we would briefly like to detail our view on a few of the fund's large positions. Firstly, the fund will typically look very different to the index, both in terms of composition and position sizes, as we build the portfolio without any reference to the index. Valuation is ultimately our key criteria for purchasing or selling stocks. In addition, we run a far more concentrated portfolio than the index - the fund will typically hold 50 - 60 positions as opposed to the 800 stocks in the index. For example, today the fund has a 0% position in six of the 10 biggest stocks in the index. In terms of concentration, the 10 biggest stocks in the Index represent 22% of the total Index, whereas the top 10 holdings in the fund represent 44% of the fund. As the fund typically looks very different to the index, over time its relative performance should also be very different. On balance we believe that over time the fund's performance will be far better than that of the index due to the value we seek to add by recognising and buying undervalued businesses. That said, there will undoubtedly be periods during which the fund's performance will be worse. Year to date, four of the fund's largest positions have each declined by around 20% compared to the 6% decline in the index. We continue to believe that these four stocks are significantly undervalued and we have added to two of the positions (MTN and Gazprom). We have also added indirectly to the other two positions by buying another company in the same industry with the same drivers. MTN is the fund's largest position (7.9% of fund). It has operations in over 20 African and Middle Eastern countries, where mobile penetration rates are mostly low when compared to other emerging market regions and developed countries. In addition to this MTN is either the number 1 or number 2 player in most of these markets. As a result we believe that MTN can compound earnings at over 15% p.a. over the next 5 years. We also believe that the group will generate a large amount of free cash flow which can potentially be returned to shareholders. The market on the other hand appears to be fixated on deal newsflow and on regulatory risk. At just over 10x this year's earnings we believe that the risk/reward trade-off is extremely compelling. Gazprom is the fund's second largest position (7.2% of fund). Gazprom hold the largest gas reserves in the world and a network of pipelines stretching thousands of kilometres from Siberia into Western Europe. They supply almost a quarter of Europe's gas needs. Despite this access to natural resources, infrastructure and pricing power, the company is unloved by investors due to the heavy influence exerted by the Russian government over its operations. Whilst we agree that political interference warrants a discount, the scale of the discount at which Gazprom trade is ludicrous and can disappear overnight if sentiment changes toward Russia. Today one can purchase the company on four times this year's earnings. The Chinese internet gaming companies (Netease.com and Sohu.com) together represent 7.2% of the fund. Internet penetration in China is now 25% - we believe that it will ultimately reach 50% and most likely a lot higher. This means that another 300 to 500 million internet users will be added over the next several years. Internet gaming is a very popular, mainly social, low cost pastime in China. The industry has been growing by over 30% p.a. over the past several years driven by increasing internet penetration and rising disposable income levels. Whilst we do not expect these historic growth rates to recur indefinitely, we do believe that the industry will continue to show at least double-digit growth. All of Netease.com's earnings and over half of Sohu.com's earnings come from internet gaming. Both companies have large net cash positions (over 25% of their market capitalisations in both cases) and both trade on low double digit ratings on this year's earnings, which we believe is very attractive and more than compensates for the market's current concern of regulatory risk.

Site Last Updated: 24 December 2024 © 1999-2006 Profile Media . All rights reserved. JSE and the JSE logo are trade marks of the JSE. Legal Notices | PAIA Manual