SKAGEN-Kon-Tiki-February 2011

8/7/2019 SKAGEN-Kon-Tiki-February 2011

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SKAGEN Kon-Tiki

Skagen reefs lightship, 1892By Carl Locher, one of the Skagen painters.The picture is owned by the SkagensMuseum.

Leading the way

in new waters

February 2011

- Tough start to the year in emergingmarkets due to inflation fear and

political risk - but with a continuedstrong relative performance for

SKAGEN Kon-Tiki -


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In our search for Us, we sometimes find friends . . . . .


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Contents

Highlights in February 2011 4

Investment results 6

Portfolio update 16

Outlook and conclusion 40

Companies in SKAGEN Kon-Tiki 68

Investment mandate 74

Investment philosophy 78

Global emerging markets (GEM) 83


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Highlights in February 2011

SKAGEN Kon-Tiki was up 0.1 percent in EUR in February (-2.2 percent in NOK) whichwas 1.9 percentage points ahead of the benchmark index. That leaves us up 3.8percentage points ahead of the index year-to-date.

We added Softbank, a Japanese listed mobile and internet company with a leadinginternet position in China. We sold out of Pride, Aksigorta and iShares FTSE China 25Index. We increased our positions in a number of existing holdings. We raised ourestimates for Baker Hughes, Banrisul and Petrobras. We now foresee a median

earnings growth for our 35 largest holdings of 20% for 2011 (16% for EM universe).

We raised our target price for Baker Hughes, Hyundai Motor, VTB Bank, ABB, Seadrill,Mahindra & Mahindra and Shoprite on the back of strong earnings releases and insome instances from rolling forward our models by one year.

The 35 largest holdings, representing 78% of the fund, trades at a weighted P/BV of1.2x versus 2.0x for the EM index. The weighted P/E for 2011e is 7.5x, which is also asignificant discount to the benchmark index at 11.1x.

For the 35 largest holdings, we see a weighted upside of 45%. This would put P/BV at1.8x and P/E for 2011e at 10.9x, which would still be a meaningful discount to EM ingeneral.


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Investment results


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Results in EUR as of 28 February 2011

Start date: April 5 2002

All returns beyond 12 months are annualised (geometric return)

1Q 2010 Past 3 years Since Inception

SKAGEN Kon-Tiki -2,6 % 29,0 % 11,0 % 21,0 %

MSCI EM Index -6,4 % 27,0 % 3,7 % 10,6 %Excess return 3,8 % 2,0 % 7,3 % 10,4 %


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SKAGEN Kon-Tiki performance in EUR since inception


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Strong relative returns every year since inception; in years withboth positive and negative market returns

*) The fund was launched on 5 April 2002. **) Returns in NOK as of 28 February 2011

-30 %

103 %

32 %

59 %

23 % 23 %

-36 %

63 %

21 %

-3 %

-34 %

50 %

14 %

49 %

22 % 21 %

-40 %

48 %

19 %

-7 %

-60 %

-40 %

-20 %

0 %

20 %

40 %

60 %

80 %

100 %

120 %

2002* 2003 2004 2005 2006 2007 2008 2009 2010 2011

SKAGEN Kon-Tiki MSCI EM index


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Global emerging markets in February 2011 (in NOK)

Ukraine 4% South Africa 3 % Russia 2 % Indonesia 1 % China (local) 1 % Ghana 0 % Hungary 0 %

Thailand 0 % USA 0 % MSCI Developed markets 0% Egypt closed Brazil -1 % SKAGEN KON-TIKI -2 % Czech Republic -2 % Poland -3 % Mexico -3 % China (international) -3 % Hong Kong -3 % Peru -3 %

Peru -3 % Slovakia -4 % MSCI Emerging markets -4 % Slovenia -4 % India -4 % Philippines -4 % Malaysia -5 %

Croatia -5 % Colombia -5 % Turkey -6 % Chile -6 % Nigeria -7 % Argentina -7 % Singapore -8 % South Korea -9 % Kenya -10 % Taiwan -11 % Pakistan -12 % Vietnam -19 %


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Global emerging markets so far in 2011 (in NOK)

Ukraine 11 % Hungary 11 % Russia 6 % Croatia 5 % Czech Republic 4 % USA 2 % MSCI Developed markets 1 %

Nigeria 0 % Ghana 0 % China (local) 0 % Poland - 2 % Slovakia - 2 % Hong Kong - 3 % SKAGEN KON-TIKI - 3 % Slovenia - 5 %

Peru - 5 % China (international) - 5 % Malaysia - 6 %

Mexico - 6 % MSCI Emerging markets - 7 % Brazil - 8 % Colombia - 8 % Argentina - 8 % Singapore - 8 % South Africa - 9 %

Taiwan - 9 % Indonesia - 9 % South Korea - 10 % Pakistan - 10 % Kenya - 10 % Thailand - 10 % Turkey - 14 % Philippines - 14 %

Vietnam - 15 % Chile - 16 % India - 18 %


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Healthcare, Industrials and Consumers the big underperformersthis year


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Total value creation in February 2011: NOK -845m

Pride International 313

Eletrobras 220

Sistema 113

Seadrill 112

Gazprom 86

Gjensidige Forsikring 56

Banrisul 48

Shoprite 39 Petrobras 29

Stada Arzneimittel 22

Tullow Oil 17

EFG-Hermes Holding 16

Bharti Airtel 16

Naspers 15

Samsung Electronics - 330

Hon Hai Precision Industry - 256

Hyundai Motor - 183

Richter Gedeon - 126

Mahindra & Mahindra - 95

China Mobile - 87

Vale - 83

Sabanci Holding - 79 Kiwoom Securities - 66

LG Electronics - 59

Empresas ICA - 49

Great Wall Motor - 45

Tefken Holding - 40

Harbin Power Equipment - 37

Main contributors in February 2011 (in MNOK)


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Total value creation in 2011: NOK -1 248m

Baker Hughes 415

Pride International 294

Eletrobras 188

Great Wall Motor 171

Gazprom 130

Seadrill 75

Stada Arneimittel 68

Gjensidige Forsikring 60 VTB Bank 42

ABB 41

Kim Eng Holding 40

Golar LNG Energy 37

Tullow Oil 36

Marine Harvest Group 34

Samsung Electronics - 277

Mahindra & Mahindra - 192

Hon Hai Precision Industry - 179

Sabanci Holding - 171

Aveng - 148

Harbin Power Equipment - 133

EFG-Hermes Holding - 125

Bharti Airtel - 110 Richter Gedeon - 107

China Mobile - 105

Hyundai Motor - 93

Standard Chartered Bank - 70

Yazicilar Holding - 70

Empresas ICA - 69 Equinox Minerals - 66

Main contributors so far in 2011 (in MNOK)


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Emerging market currencies in 2011 (versus NOK)

Hungarian Forint 2 %

Czech Koruna 2 %

Russian Ruble 2 %

Polish Zloty - 1 %

Slovakian Koruna - 1 %

Euro - 1 %

Croatian Kuna - 1 %

Indonesian Rupee - 2 %

Mexican Peso - 2 %

Singaporean Dollar - 3 %

Colombian Peso - 3 %

Malaysian Ringgit - 3 %

Chinese Renminbi - 4 %

Philippine Peso - 4 %

South Korean Won - 4 %

US Dollar - 4 %

Brazilian Real - 4 %

Hong Kong Dollar - 4 %

Nigerian Naira - 5 %

Ghanaian Cedi - 5 %

Indian Rupee - 5 %

Egyptian Pound - 5 %

Chilean Peso - 5 %

Thai Baht - 6 %

Taiwanese Dollar - 6 %

Kenyan Shilling - 7 %

Turkish Lira - 7 %

South African Rand - 9 %


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Commodity prices in 2011

15

-10 %-4 %

-1 %

-1 %

1 %

2 %

3 %

3 %

4 %

9 %

12 %

13 %

15 %

17 %

42 %

-20 % -10 % 0 % 10 % 20 % 30 % 40 % 50 %

Natural gasSoybeans

Wheat

Gold

Sugar

Live cattle

Copper

Lean hogs

Aluminum

Silver

Gasoline

Coffee

Corn

Nickel

Cotton

Best and worst commodities 2011 YTD


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Portfolio update


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Sector distribution in Emerging vs. Industrialised markets

0 % 5 % 10 % 15 % 20 % 25 %

Energy

Materials

Industrials

Consumer discr

Consumer staples

Healthcare

Financials

Info technology

Telecom services

Utilities

MSCI World Developed MSCI EMSource: MSCI - updated as of 28. February, 2011


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0 % 5 % 10 % 15 % 20 % 25 %

Energy

Materials

Industrials

Consumer discr

Consumer staples

Healthcare

Financials

Info technology

Telecom services

Utilities

MSCI AC World SKAGEN Kon-TikiSource: MSCI, SKAGEN Funds - updated as of 28. February, 2011

18

Sector distribution of SKAGEN Kon-Tiki versus MSCI AllCountry Index (includes emerging markets)


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0 % 5 % 10 % 15 % 20 % 25 % 30 %

Energy

Materials

Industrials

Consumer discr

Consumer staples

Healthcare

Financials

Info technology

Telecom services

Utilities

MSCI EM SKAGEN Kon-TikiSource: MSCI, SKAGEN Funds - updated as of 28. February, 2011

19

Sector distribution for SKAGEN Kon-Tiki versus MSCI EmergingMarkets Index


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Country distribution SKAGEN Kon-Tiki vs. MSCI EM Index

0 %

2 %

4 %

6 %

8 %

10 %

12 %

14 %

16 %

18 %

20 %

Chinaincl.HK

B

razil

South-Korea

Taiwan

I

ndia

SouthA

frica

Ru

ssia

Me

xico

Mala

ysia

Indon

esia

Po

land

Thailand

C

hile

Tu

rkey

Colom

bia

P

eru

Philipp

ines

E

gypt

Hungary

CzechRepublic

Moro

cco

Frontiermar

kets

US

Norway

UK

O

ther

MSCI EM SKAGEN Kon-Tiki

Source: MSCI, SKAGEN Funds - updated as of 28. February, 2011


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Main changes in SKAGEN Kon-Tiki in February 2011

Buy Softbank (new)

Seawell

Equinox Minerals

Vale

Mahindra & Mahindra

Sabanci Holding VTB Bank

Hon Hai Precision Industry

Eletrobras

Sell Pride International (out)

Aksigorta (out)

iShares FTSE China 25 Index (out)

Baker Hughes

Petrobras

Marine Harvest Group Gjensidige Forsikring

MBK

*) Transactions above NOK 25m for existing holdings


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Why did we buy in and sell out in February?

Softbank owns stakes in a number of leading Chinese internet assets within B2B, B2C,

payment services, social networking and broadcast. In fact, it is the leading internet player inAsia. We have found no research with a focus on these assets and the valuation of thecompany does not reflect these high-growth activities, but only its Japanese mobile operationand its holding in Yahoo Japan.

Pride International was sold after Ensco signed a deal to acquire the company at a price ofUSD +40 per share which was also our share price target. With a USD 270m break fee (USD1.5 per share), we do not expect a counter bid.

Aksigorta was sold after Sabanci Holding sold half of its stake to Ageas without triggering atake-out of minority stakes. Thus, there are few or no catalysts left, while valuation was nolonger compelling.

iShares FTSE China 25 Index was sold to raise cash for other ideas.


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News from our portfolio companies (1) Pride International (sold) received an offer from Ensco for USD 41.6 per share (based on Enscos closing price

last day of trading before announcement), consisting of USD15.6 in cash and 0.4778 newly issued shares ofEnsco per Pride share. The offer price represents a premium of 21% to Prides previous closing price. Pridesstockholders will then own approx 38% of Enscos outstanding shares. Both boards have approved the deal andthere is a breakup fee of USD 270m. We see a counter bid as unrealistic. The price matches our target price ofUSD 40 per share.

Eletrobras (6.5%) hired a new CEO for Furnas (their largest subsidiary measured by revenue contribution) asthe Brazilian Energy Minister announced that Flavio Decat will now take over. He has a good track record in theindustry (and has been CEO of Eletrobras discos amongst others), and he has good experience fromturnarounds. Apparently he was handpicked by President Dilma. Might be helpful to increase its efficiency and

corporate governance, and hopefully it is an initial step towards a more transparent company.

Hyundai Motor (4.6%) The HMG has agreed to acquire a 35% stake in Hyundai E&C for KRW 4.96tr or amarginal discount to the initial bid of KRW 5.1tr. This is a 69% premium to the share price before theannouncement. A final deal is said to be signed soon. It is unclear how the holding will be distributed between theHMG companies, including HMC.

Chairman of Hyundai Motor Company, Chung Mong Koo, has been ordered by the court to pay the company

KRW 75bn (USD 66m) for unfairly helping affiliates in the chaebol on the expense of HMC. Hopefully, the rulingis a step in the right direction to change corporate Korea.


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News from our portfolio companies (2) Vale (3.1%) reported a very strong 4Q10 result with adjusted EBITDA +310% YoY to USD 8.7bn and 8% ahead

of consensus. Ferrous businesses accounted to 90% of EBITDA. The realized iron ore price of USD 110/ton onlydeclined 5% QoQ and is set to increased markedly in 1Q11 on the back of surging spot prices.

Vale also announced a minimum dividend of USD4bn in 2011 (USD0.77 per share), representing a 60% increasecompared to the minimum announced for 2010. This is positive and indicates, at this stage, that dividends shouldbe significantly higher than in 2010. In 2010 the total for dividends and share buybacks totaled USD6bn, leavingroom for extraordinary dividend payments in 2H. We see this as another sign of the board focus on maximizingshareholder return.

VTB Bank (2.7%) after the placement of a 10% stake by the Government, the free float has increased to 25%and hence there will be an adjustment to VTBs weight in the MSCI Russia Index as of Monday 28/2 close. Itlooks like it will go from 1.9% to 3.2%. They have also managed to acquire a controlling interest in Bank ofMoscow through various deals valuing the bank at around 1.7x its 3Q10 book value. They paid RUB103bn forCity of Moscows 46.5% stake and 25% + 1 share in Capital Insurance Group which again owns a 17.3% stake inBoM. On top of that Russian press reports they bought a 7-8% stake from CS and GS, and they are nowsupposedly in conversations to buy Borodins 40% stake (while officially stating they wont pay more for his stakethan what theyve paid for the rest). This is a transformational deal as it represents around 25% of their currentassets and it gives them a strong network in Moscow and itll more than double their retail clients to 17m. BoMhas non-core assets that can be divested, and VTB has said they wont need to raise capital this year even if

they manage to acquire almost 100% of the bank.


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News from our portfolio companies (3) Gazprom (2.6%) announced 3Q10 results that were in-line with expectations with total sales of USD25.7bn, up

1.7% QoQ and 4.4% YoY on the back of gas sales being down 1.6% QoQ but up 2.9% YoY. The operating profitmargin was seasonally weak at 24.7% (31.1% in the previous quarter) but still up 4.3pp YoY. Net income ofUSD5.2bn was down 7.1% QoQ and -6.8% YoY. A disappointment however came from the fact that they havesold 9.4% of Novatek (RUB57.5bn, 285m shares) at an implied price of RU200 per share in 3Q compared to themarket price at the time of RUB306 (35% higher).

Richter Gedeon (2.3%) announced 4Q10 numbers that were in-line, but a disappointing 2011 outlook implyingflat EUR sales and margin erosion from 23% to 16% with a big earnings decline, led the shares down 4% on theannouncement. 4Q sales of HUF59.6k were down 15% YoY. Mix effects (higher margin Russia/CIS sales andlower low margin wholesaling and retailing) drove a strong gross margin of 60%, and a tax accounting change to

R&D benefitting operating profit (-1% YoY) which came in better than expected. Estimates are being reviseddown on what we see as conservative guidance.

Great Wall Motor (2.1%) released sales volumes for January with a 69% growth YoY, again strongly outpacingthe market growth of 16%.

ABB (2.1%) reported a 4Q10 result in line with expectations. Sales was up 6% YoY organically; up from +2% in3Q10. The underlying EBIT margin contracted 40bp QoQ to 13.6% but was up 100bp YoY. Orders surprised

slightly on the upside with a 17% YoY growth in base orders versus +15% in 2Q and 3Q10 with the book-to-billratio for 4Q10 now exceeding 1x for the first time since 1Q09. Management announced a new cost reductionprogram, continuing the USD 3bn completed in 2010, to counter the blended 3% price pressure seen recently.Cash flow was strong in 4Q10, leading to a net cash position of USD 6.4bn with dividend also exceedingexpectations.


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News from our portfolio companies (4) Petrobras (2.1%) reported net profit of BRL10.4bn in 4Q10 which was up from BRL 8.1bn in 3Q10 and well

ahead of consensus at BRL 8.3bn, partly driven by better non-operational items, higher financial income andlower tax charge. EBITDA of BRL 16.9bn was slightly down on 3Q10 at BRL 17bn and 4% ahead of consensus.Upstream reported strong results while refining were on the weak side. Net debt was up BRL 8bn QoQ to 37bnor 0.6x trailing EBITDA.

Petrobras ended talks with Eni to buy a 33% stake (USD5.6bn) in Galp Energia (Portugal biggest oil company),without giving further details. The two companies are partners in oil fields off Brazils coast.

Seadrill (2.1%) reported a 4Q10 EBITDA of USD 618m which was in line with consensus estimates and up fromUSD 560m in 3Q10, driven by a strong result for the tender rig activities. The board declared a 4Q10 dividend ofUSD 0.675 versus USD 0.65 for 3Q10 and also an extraordinary dividend of USD 0.20, bringing total dividend for

2010 to USD 2.74 per share.

Seadrill announced that it spun out its 6 North Sea spec. semi rigs in a new company, North Atlantic Drilling Ltd.,and raised USD 425m in equity for the new entity. The issue was c20x subscribed and Seadrill retained a 75%ownership in the new company which is expected to be listed on OSE by year-end. Seadrill sees potential formarket consolidation within the North Sea market. The new entity has a strong order book of USD +3bn.

Seadrill also signed a 3 year contract with a 2-year option for its tender badge T-12 with Chevron in Thailand.The day rate of USD 120k was slightly above expectations and up from the current contract of USD 85k per day.

The rig will enter the new contract in April, following completion of current contract.

Finally, Seadrill announced that it has ordered two new tender rigs from COSCO Nantong Shipyard for acombined all-in price of USD 225m with firm contracts with Chevron Thailand for 5 years with a total contractvalue of USD 420m.


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News from our portfolio companies (5) Sabanci Holding (1.9%) announced that it has sold half of its stake equal to 30.99% of shares outstanding in

non-life insurer Aksigorta to Ageas Insurance for USD 220m or a 54% premium to the share price preannouncement. The sale will not trigger a general offer for Aksigorta and Ageas and Sabanci Holding will now beequal holders in Aksigorta with 38% free float.

Equniox Minerals (1.9%) announced an offer to acquire Lundin Mining for a total consideration of CAD 4.8bn or90% of Equinox pre-deal market cap. Up to CAD 2.4bn will be settled in cash and the balance in Equinox shares.The deal represents a 26% premium to the pre-announcement price. Lundin has operations in Sweden, Portugaland DRC. The acquisition is immediate accretive to EPS and CFPS according to Equinox.

Equinox also announced that the recent brownfield exploration drilling at their Zambian copper mine Lumwanahas been successful, leading to an expansion of their feasibility study scope to a throughput of 45mtpa (from

35mtpa), with an expected annual copper production of 260kt for a 27-37yr mine life with capex of USD450-550m. This is very good news, and compares with the current installed capacity of around 160-170kt pa. It isexpected that they will incorporate this increase in their 2Q resource and reserve statement. On the back of astrong copper price we expect them to be able to finance this from their operating cash flow.

Bharti Airtel (1.8%) released consolidated 3Q FY 2010/2011 net profit of INR 12.1bn, -27% QoQ and -26% YoY.This was below expectations, but excluding one-off costs related to the rebranding of their African operations to auniform Bharti brand it was slightly ahead. The EBITDA margin was up 10bps QoQ to 33.8% excl the INR3.4bn

of rebranding. Revenue was up 4% QoQ and +13% YoY. The African operation saw a 7% QoQ increase in MoUand 5% QoQ growth in subscribers, with the EBITDA margin of 25% up 110bp QoQ. For its Indian operation,ARPU fell 2% with MoU down 1% sequentially while subscribers were up 6% QoQ. Total net debt/ebitda of 2.9xwas flat QoQ. Bharti has also announced a venture with State Bank of India for phone money transfers.


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News from our portfolio companies (6) A.P. Mller Maersk (1.4%) reported a net profit for 4Q10 of USD 828m versus USD 1,671m in 3Q10. The result

included a USD 332m write down which means underlying result was 30% ahead of consensus. Maersk Linereported a 3% decline in volumes QoQ while rates were down 7%.

A P Mller Maersk also put an order for 10 new container ships at Daewoo in Korea for USD 1.9bn with anoption for another 20 vessels. It is supposed to be the largest container vessels in the world with 18,000 TEU or16% larger than the biggest existing vessel in the fleet. This marks more of an asset upgrade than an expansionas Maersk aims to maintain its market share within the container market. The 10 first ships represent capacity ofabout one year of market growth, according to Maersk. Delivery will commence during 2013-2015.

Mahindra & Mahindra (1.4%) reported 3Q FY10/11 in line with market expectations. Operating profit was INR9.1bn; up 43% YoY and +4% QoQ. The EBITDA margin declined 70bp QoQ to 15.1%, amid a strong contraction

for the automotive segment which was largely countered by meaningful margin expansion within the tractorsegment. This is on the back of higher raw material costs (+100bp QoQ to 69.7%), not fully absorbed by priceincreases. However, including the new Chakan plant (not consolidated), margins would have been higher.

They also reported February sales of 52,419 units, up 25% YoY and -8% MoM. Tractor sales were up by 37%YoY / -7% MoM to 18k units. Management continues to indicate they are facing component shortages in UVs.

Cosan (1.4%) reported 3Q11 results a little below expectations, mostly on the back of increased costs. Theylowered their full year EBITDA guidance from BRL2-2.4bn to BRL2-2.2bn. Revenues of BRL4.7bn (+25% YoY)

had already been announced. EBITDA from businesses other than sugar/ethanol (fuel distribution, co-generation,logistics) now represents almost 50%. However, the EBITDA margin in the sugar and ethanol segment wassharply lower on the back of sugar origination costs and take-or-pay contracts. Total EBITDA of BRL410m wasdown 48%QoQ but up 47% YoY with the margin decreasing to 8.7% (-8.2pp QoQ). The next catalyst for Cosanshould now be the release of synergy figures for the JV with Shell. As soon as the JV is in place, it will alsorelease cash for Cosan, which should then be well positioned to pursue further sector consolidation insugar and organic growth projects across their various business segments.


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News from our portfolio companies (7) Aveng (1.3%) published a disappointing trading statement - not so surprising given profit warnings across the

industry in SA over the past weeks. They anticipate EPS for 2H to be 15-20% lower YoY. This is on the back ofpayment delays, impact on their Australian operations both due to strength of the AUD, some problematiccontracts and impact on several projects from the floods which causes delay and restricts revenue recognition.Manufacturing and Processing is under significant pressure while the Opencast Mining segment has continued toimprove its contribution to group earnings. Results are due to be released on March 14. The AUD has gained 8%since year-end to its highest level since August 2008 which should support 2H 2010/2011 earnings.

Stada Arzneimittel (1.3%) released strong preliminary results, with full year revenue growth of 4% to EUR1.6bn.Adjusted operating profit of EUR239m was up 13%. Adjusted EPS of EUR2.27 was also higher than expected.Reported numbers were in-line with expectations despite higher than expected extra-ordinaries with EUR78m for

the full year, mostly due to their restructuring program. The proposed dividend of EUR0,37 was a little belowexpectations. Net debt of 2.7x is down from 3.1x. Guidance for 2011 was positive, with adjusted EBITDA in therange of EUR340-345m compared to current consensus at around EUR320m. Full year results is due on 30/3.

Shoprite (1.1%) reported 1H11 results that were a little better than expectations, despite a tough food retailoperating environment due to growth in operating expenses coupled with internal price deflation of 1.2% on theback of competition. Top-line growth of 9.4% was split into space growth of 6.4%, unit volume growth of 4.2%and price deflation of -1.2%. They managed to grow gross- and operating margins by 50bps and 15bps YoY to

19.8% and 5.04% respectively, which led to EPS YoY growth of 13.6% (compares with consensus expectationsof 11% for the full year). They commented on upward pressure on food prices due to rising commodity prices anda weaker Rand which should help them to increase prices in 2H11 again.


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News from our portfolio companies (8) Empresas ICA (1.1%) announced good 4Q10 results with EBITDA margins surprising positively, being up

370bps/90bps YoY/QoQ to 15.8% compared to consensus expectations of 15%. Sales of MXN 8,452m were up8% YoY and -3% QoQ, a tad below expectations. Civil Construction (60% of 4Q sales) was the main weaknesswith sales falling 9% YoY (up 23% 9M10) due to delays in the award of rights of way for certain projects. Thebacklog was up 4% QoQ at MXN35bn, but if we include MXN7.5bn won after the quarter end, it represents 15months of work. Net debt increased QoQ from 4.7 to 4.9x, and the debt level is supposed to peak this year.

Gjensidige Forsikring (0.9%) announced strong 4Q10 results in its first results announcement after the IPO inNovember. Net profit for 4Q10 was NOK 1,162m or 24% above consensus forecasts and 160% ahead of 4Q10.The 92.9% combined ratio was down 50bp QoQ, despite a cold winter which should have lead to more claims, asunderwriting results for private lines in Norway surprised on the upside. The investment result was also strong,amid good hedge fund performance and a revaluation gain on real estate. Dividend surprised on the upside witha 80% payout ratio; in the top end of its 50-80% guidance and, excluding dividends, Gjensidige has excesscapital of NOK 6.4bn or close to 20% of market cap.

Marine Harvest Group (0.8%) reported strong 4Q10 earnings with a net profit of NOK 1,077m versus NOK663m for 3Q10. This was well above consensus expectations of NOK 746m amid solid margins in Chile and highobtained prices in Norway. The 4Q result implies an annual run rate in EPS of 1.0 versus current consensus ofNOK 0.78 and with salmon prices now north of NOK 40 per kg, 1H11 is set to be very strong as MHG has alsolocked in a meaningful share of 2011 volumes at high prices. The company also surprised with a final DPS ofNOK 0.6 which brings the 2010 payout ratio to an impressive 98%.

Marine Harvest Group also acquired Straume Fiskeopdrett, a small fish farmer in Norway with two licenses foran undisclosed amount estimated at NOK c100m.


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News from our portfolio companies (9) Hanmi Pharmaceuticals (0.7%) reported 4Q sales and operating losses of KRW142.5bn (-7% YoY) and -

KRW12.5bn (versus expected KRW -7bn), respectively. Increased operating losses were explained by increasedcompetition from domestic small/medium sized companies, discontinuance of Slimmer sales (negative sideeffects) and expenses related to the introduction of the RFID system. They did not provide much guidanceexcept for a reduction in marketing and promotion spending leading to an expectation of SG&A spending to 47%of total sales in FY11 versus 56% in FY10.

Tullow Oil (0.6%) announced that their Teak well (northeast of Julbilee, TLW 23% stake) hit 73m of nethydrocarbon pay with an indicated 50/50 split between liquids and gas, with the find equating to 100mmboe on aP50 basis. This is a positive as it might de-risk other prospects (first significant discovery in Campanian sandssince 2008). The rig is now moving to test a separate structure between the Jubilee field and Teak.

Naspers (0.5%) subsidiary Mail.ru published a positive trading update with sales for the year up 64% andEBITDA up 78% (margin up 300bps to 36%) both well ahead of consensus. They are guiding for strongrevenue growth in the mid-to-high 30%s for FY11 and EBITDA margin expanding to the mid-40%s.

DTAC (0.5%) reported 4Q10 earnings that were 10% better than expected. Total sales were up 3% QoQ/12%YoY with 10% subscriber growth (21.6m) and ARPU down 1.5% YoY to TBH270. Well contained operatingexpenses led to net profit of THB 2 950m, up 37% YoY but -3,7% QoQ (+20% QoQ excluding extraordinaries).

Of particularly good news was their decision to increase their dividend payout ratio from 50% to 70%. Togetherwith the special interim dividend, the total DPS of TBH3.77 implies an 82% payout ratio and a healthy dividendyield of 9%. They should conclude their refinancing by 1H11 which is likely to allow them to lift their dividendpayout ceiling from 70%. Guidance for next year with revenue growth of 5-6%, and capex of THB 6-7bncombined with a strong cash position mean they might increase the payout further. Theres however pressure ontheir core net profit for FY11 as their 5% tax exemption expired in FY10 and the company is subject toa hike in the revenue sharing rate from 25% to 30% in September 2011.


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News from our portfolio companies (10) Norwegian (0.4%) reported, as expected, a weak 4Q10 result with an EBITDA of NOK 14m versus NOK 50m in

4Q10. The weather disruptions in December had an adverse impact on results. On the positive side, productiongrowth for 2011 is expected to be a firm 20-25% while management also guided aggressive on costs, expectinga CASK of NOK 0.46 in 2011 (flat YoY). We also observe that the price competition in the Norwegian marketseems to have eased lately.

Deep Sea Supply (0.3%) reported a 4Q10 EBITDA of USD 26m, including a one-off gain, versus USD 13m in3Q10 and in line with expectations. The company experienced some cancellations during the quarter, whichincreases its spot exposure in 2011.

DESSC also sold two smaller AHTS for USD 20.2m per vessel. This is above shipbroker estimates of USD16.5m and well above book value. The vessels are debt financed by USD 9m/vessel, meaning that the sale will

release USD 22m in cash. DESSC will focus on larger PSV and AHTS.

Seawell (0.3%) reviled a 4Q10 EBITDA of NOK 119m versus NOK 131m in 3Q10. The result was dragged downby weak figures for drilling services, were the phase 2 Statfjord C project suffered from equipment failure anddelayed deliveries from vendors. Allis-Chalmers, which will be merged into Seawell, reported an adjusted 4Q10EBITDA of USD 34m which was in line with 3Q10.

DRB Hicom (0.3%) reported a net profit of MYR 125m for 3Q FY 2010/2011, down 5% YoY.


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News from our portfolio companies (11) DRD Gold (0.2%) reported 2Q11 headline earnings of ZAR33.6m, below consensus but explained mainly by a

higher deferred tax than expected. Sales were up 5% on the back of a 5% increase in the gold price(ZAR303 495/kg) and flat gold sales of 69.4koz. Cash costs declined 11% (ZAR229560/kg) due to higherproduction and lower power costs. The net cash position at the end of the quarter was ZAR83m. These resultsare encouraging as it shows improving operating performance. The Board has approved the separation ofunderground and surface assets into two separate units with an objective of listing these two separately to letinvestors choose between 1) the high risk DRDGold Blyvoor mine and 2) the stable surface operations.

Supermax (0.2%) reported 4Q numbers in-line with our estimates. 4Q net profit of RMB 32m was up 31% YoYbut fell 14% QoQ. The QoQ fall was on the back of flat revenue growth while EBIT margins declined to 9.6%(from 15.7% in 3Q) due to record high latex prices (+22% QoQ) and an appreciating Ringgit (+1.4% QoQ). Cost

increases are normally passed through to consumers with a 60-day lag. Nitrile gloves are now c20% cheaperthan latex gloves and hence customers are switching from latex to nitrile. 70% of Supermaxs production linesare interchangeable and they are now fast tracking the shift with nitrile glove capacity of 20% installed capacity in2Q, increasing to 31% in 4Q and a plan to increase it to 40-45% in FY11. They are guiding for earnings growth of15-20% in FY11, while consensus now expect 6% growth as earnings have been revised down after the report.

Norske Skog (0.1%) reported better than expected 4Q results. Sales were up 5% YoY and 8% QoQ. UnderlyingEBIT was NOK30m (excl non-recurring items, incl a NOK129m gain on their pension plan). Earnings in European

Magazine paper operations developed favorably, driven by higher prices (+3% QoQ) and higher utilization rates(94%, +300bps QoQ). For 2011 they expect the positive effect of higher European newsprint and magazinepaper prices to be partly offset by higher costs for most input factors. They have signed quarterly contracts on abig share of their volumes, with prices up around 20% compared to the 2010 level, leaving some room for furtherincreases during the year. Net debt was flat at NOK8.9bn. Stronger newsprint and magazine pricing, industryconsolidation and successful disposals of non-core assets have led to a 57% share price rally YTD.


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News from our portfolio companies (12) Coal of Africa (0.1%) 3Q10 operational report came in a little behind expectations, with production at

Woestalleen of 761k tons of ROM coal, -18% QoQ due to heavy rainfall, while Mooiplaats production was up 6%QoQ to 194k tons. It seems like they are moving forward on sorting out issues at Vele, although no guidance onexpected start-up is available. They ended the period with gross cash of AUD23m. Historical off-take agreementsare now rolling off, meaning they should benefit from leverage to current high coal prices.

Proton Holdings (0.1%) reported a 4Q10 net loss of MYR 52m versus a profit of MYR 87m for 4Q09 on a 9%YoY decline in sales. Apart from the sale decline, higher costs for branding and costs related to the revamp ofLotus weighted on the result.


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35

The largest companies in SKAGEN Kon-Tiki (1)


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The largest companies in SKAGEN Kon-Tiki (2)


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Portfolio composition and changes

Company focus drives portfolio composition, but we are cautious with sector andcountry exposure exceeding 20% in order to balance portfolio risk.

Our 12 largest holdings now represent 44% of the portfolio value (compared to42% at the end of 2010 and 46% at the start of 2010). The 35 largest positionsrepresent 78% versus 77% last month.

Our portfolio consists of 98 companies, which is in line with 99 at the end of2009.

We added Softbank to our portfolio in February and sold out of PrideInternational, Aksigorta and iShares FTSE China 25 (ETF).


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SKAGEN Kon-Tiki: key figures as of 28 February 2011

38

Please note that aggregated valuation and upside are now weighted and calculatedbased on the same methodology as the benchmark index.

Holding Price P/E P/E P/BV Price Upside

size 2010e 2011e Last target

Eletrobras 6,5 % 30 8,5 8,5 0,4 70 135 %

Samsung Electronics 5,5 % 607 000 6,4 6,6 1,0 780 000 29 %

Baker Hughes 5,3 % 71 34,3 14,1 1,9 100 42 %

Hyundai Motor 4,6 % 59 300 3,0 2,8 0,6 100 000 69 %

Sistema 3,4 % 25 8,5 6,4 1,8 30 18 %

Vale 3,1 % 49 8,5 6,6 2,1 65 32 %

Banrisul 2,8 % 18 9,8 7,9 2,0 22 24 %

Standard Chartered 2,7 % 1 631 10,2 8,8 1,7 2 000 23 %

Hon Hai Precision Industry 2,7 % 109 10,1 9,0 2,2 200 83 %

VTB Bank 2,7 % 7 17,3 11,6 2,2 9 30 %

Gazprom 2,6 % 29 5,9 5,3 0,9 40 36 %

China Mobile 2,4 % 73 10,7 10,1 2,4 100 37 %

Weighted top 12 44,3 % 7,8 6,8 1,0 53 %

Weighted top 35 77,9 % 8,8 7,5 1,2 45 %

Emerging market index 13,5 11,1 2,0


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Valuation of the SKAGEN Kon-Tiki portfolio

We have raised our 2011 estimates for Baker Hughes, after very strong results. We

have also adjusted upwards our estimates for Banrisul and Petrobras. We haveraised target prices for Baker Hughes, Hyundai, VTB Bank, ABB, Seadrill, Mahindra& Mahindra and Shoprite due to a combination of increased earnings and in someinstances due to rolling forward of our valuation models.

We expect our 35 largest holdings to report a median EPS growth of 20% for 2011eversus consensus for the EM universe of 16%.

The 35 largest positions now trade at a weighted P/E of 7.5x for 2011e. This is aconsiderable discount to Emerging Markets trading at a P/E of 11.1x for 2011e.

The weighted trailing P/BV for the 35 largest positions is 1.2x. This is substantiallylower than the P/BV of 2.0x for the emerging markets index.

We see a weighted average upside of 45% for our 35 largest positions. At thistarget, these positions (representing 78% of the portfolio) would trade at a 2011eP/E of 10.9x and a trailing P/BV of 1.8x. This would still be a meaningful discount tocurrent emerging markets valuation.


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Outlook and conclusion


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41

Returns in EM equities have been unmatched in the past decade:accumulated +104% for EM and -20% DM . . . .

*) As of 28. February, 2011

-5 %

-16 %

-38 %

28 %

4 %

22 %

11 %

-5 %

-24 %

8 % 13 %

1 %

-24 %

-1 %

-28 %

50 %

14 %

49 %

22 % 21 %

-40 %

48 %

19 %

-7 %

-50 %

-40 %

-30 %

-20 %

-10 %

0 %

10 %

20 %

30 %

40 %

50 %

60 %

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Performance of EM and Industrialized markets (in NOK)

MSCI Developed World MSCI Emerging Markets


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. . . . but recent months relative performance has been lacklustre . . .


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. . . just as the Feng Shui Index warned us it would be. . .

43

February March April May June July August September October November December January


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. . . as inflation fear killed the party


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A Little Less Oil in the Machinery

Growth has apparently slowed down somewhat in China, but according to Februarys activity indicatorsthe rest of the global economy accelerated last month, both in the industrial and in the service sector.

Food and energy prices are pushing up headline inflation in many countries, but not at an alarming rate.Core inflation is well contained in most countries, but some, like South Korea and Brazil, are nowexperiencing quite rapid growth in the core consumer price level.

The ongoing bourgeois revolution in the Arab world is very encouraging for long term growth prospects,as it will probably lead to less state planning and more reliance on free market institutions in most ofthe affected countries. In the short term, though, the unrest is keeping markets on edge as the flow ofoil production from Libya has diminished, and some are hording oil as a precaution in case there is a

revolt in Saudi Arabia. So while the strongest force behind the surge in oil prices over the last year hasbeen increased demand due to higher growth, the most recent up-tick in oil prices is more of a negativesupply shock. Libya, though, only accounts for about 2 percent of the global oil production, not all ofwhich is taken out of the market. Also, we do not think there will be a revolt in Saudi Arabia, and thekingdom has spare capacity that will be used in case the disruptions in Libya continue. Hence the effecton the global economic machinery of less energy input is going to be muted. There is of course asignificant terms of trade effect. But this does not destroy wealth, it only redistributes it.

Long term real Treasury yields are still extremely low in our view. We expect them to rise significantlygoing forward, as is typical in a strong recovery. They are probably held down by extremely low policyinterest rates. These we expect to begin to increase in the latter part of this year, both in the UK, theEurozone and in the US. Modestly at first, but then the large central banks, except the Bank of Japan,will probably hike in a hurry in 2012.

From Torgeir Hiens Economy at a Glance


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Exposure to commodity driven inflation differs widely in the EM universewith the poor countries being most exposed

Countries with low GDP percapita are more exposed tofood inflation as higher share ofbasket.

In August 2008, CPI inPhilippines rose 12.4% YoY.

South Korea, a highlydeveloped emerging country, isless exposed.


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Purchasing managers expectations (PMI) above 50 for allcountries


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Continued upward revisions to 2011 GDP forecasts in the Eurozone last month

-4,0 %

-3,4 %

-2,4 %

-5,2 %

-5,0 %

-2,9 %

1,0 %

4,6 %

8,7 %

1,7 %

2,5 %

2,8 %

4,0 %

4,3 %

6,1 %

7,2 %

9,1 %

10,3 %

2,3 %

2,6 %

3,2 %

1,7 %

4,1 %

4,5 %

6,1 %

7,7 %

9,6 %

-7 % -5 % -3 % -1 % 1 % 3 % 5 % 7 % 9 % 11 %

Eurozone

Developed economies

US

Japan

Emerging Europe

Latin-America

Emerging economies

Asia ex. Japan

China

Regional GDP growth

2011e

2010e

2009

Source: JPMorgan Markets, 28. February, 2011


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The EM interest rate spread increased in January and February. TheEM index (in NOK) is at the same level as January 08.


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EM spreads to US bonds continued to increase inFebruary

50


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Volatility spiked in January but has come downa little again in February


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The outlook for commodities is still mixed

Inventories end 2009 vs. 10 year avg. Inventories end 2010 vs. 10 year avg.

-40% -20% 0% 20% 40% 60% 80% 100%

Lean Hogs

Cattle

Cotton

Coffee

Sugar

Soybeans

Wheat

Corn

Zinc

Nickel

Copper

Aluminium

Natural Gas (US)

Crude Oil (OECD)

Source: USDA, EIA, Morgan Stanley Commodity Research


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Consensus Emerging Markets earnings growth for 2011 and 2012stable month-over-month

E= IBES aggregate estimate. Source: IBES, FactSet, Morgan Stanley Research

IBES Consensus EPS growth MSCI EM, 2010-2013


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Trailing earnings in EM now back to pre-crises level and fell lessduring the crisis than in the developed world


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A trailing P/E ratio of 12.7x for Emerging Markets is a tad below the 5-yearhistorical average, and at a discount to Global Markets at 14.8x

From being traded at apremium of 10% measuredon historical earnings at thestart of 2008, emergingmarkets are now traded at

a P/E discount (trailing) of14% compared to globalmarkets.

Source: MSCI, Morgan Stanley Research. Data as of Feb 28, 2011

IBES trailing P/E MSCI EM versus MSCI World


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P/BV for emerging markets at 2.0x is at a similar level to the long termaverage and at a marginal premium to MSCI World at 1.9x

Historical P/BV 1992-2011: MSCI EM versus MSCI World


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. . . but this can be explained by higher return on equity despitestronger balance sheets than in industrialised markets

Historical return on equity for Emerging Markets versus MSCI World

Source: Morgan Stanley research, MSCI.


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No sign of an emerging market bubble when comparing P/BV valuationsof historical bubbles to current valuations

Source: CIRA, MSCI, Factset


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With few exceptions small markets did far better than largemarkets in EM last year


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Sector composition can partly explain why a country lookscheap or expensive

*) MSCI consensus as of 31 December 2010


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Big outflow from EM so far this year, on the back of increasedinflation and political uncertainty in the Middle East


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Outflows as a percentage of EM market capitalization

62

and the average for the last 3 years (0.7%) is the same as the average since 1995


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EM share of MSCI AC World is steadily increasing onstrong relative return and high IPO and issue activity

63


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Institutional allocation to EM equities is still well below itsshare of the global index weighting, capitalization and GDP

64


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Outlook for emerging markets (1)

The decoupling of the world becomes increasingly clear with Asia in the drivers seat

when it comes to global economic growth. This development is fuelled by Brazil,China, India and Indonesia. Convergence in standard of living continues with rapidincrease in real incomes in emerging markets and increased savings rates in theindustrialised countries.

Domestic consumption and infrastructure investments will continue to be the mostimportant drivers of growth in the Asian countries.

Earnings growth was high going into 2010 as a result of comparison effects; signs ofinflation now result in tightening policy in the emerging markets; a huge contrast tothe situation in many industrialised countries.

The emerging markets proved in 2010 that they were more dependent on intra-EM

trade and less dependent on demand from industrialised countries.


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Outlook for emerging markets (2)

Earnings growth for companies in emerging markets has continued at a strong pace

in 2010, but this has yet to affect expectations for 2011.

Emerging markets are now priced at a slight P/E discount and a slight P/BVpremium to the historical average, but the valuation is considerably lower than athistorical peaks. It does not reflect the higher return on equity and higher growthrates of emerging markets equities.

Low interest rates globally boost the hunt for good investments and yield.

Continued globalisation provides larger flow of capital into the emerging markets;this increases both the depth and the breadth of the market place and availableinvestment options.


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Risk factors for emerging markets

A thawing of the financial markets has not rubbed off onto borrowers and lendersin industrialised countries. A potential tightening of the capital requirements in the

global banking sector may further amplify this.

Inflation may rise on the back of high commodity prices (metals and agriculture).Idle capacity in industrialised countries will keep inflation down, but growthsurprises in EM may give increased fear of inflation.

The new world order may cause increased systemic friction. Increasedprotectionism and a tendency towards regulating currency markets after a strongrise in emerging markets currencies in 2009. High unemployment in industrialisedcountries and an undervalued Chinese currency may lead to protectionismpressure and measures.

The valuation of emerging markets becomes prohibitively high both in relative andabsolute terms, just like in the early 1990s.

Strong EM currencies may yield negative earnings surprises in 2011 for exportoriented companies.


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Companies in SKAGEN Kon-Tiki


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Softbank (9984 JP) 3200 JPY

Japanese telecom operator with significant internet-related assets.

#2 mobile operator in Japan with 24.4m (all 3G) subscribers. Exclusivity toiPhone. Also fixed line/broadband operations. JPY 4100 per share.

Large stakes in several leading internet sites in China (B2C, payment, B2B,social network, broadcasting). JPY 1500 per share.

Holdings in other internet assets, including 42% in Yahoo Japan. JPY 1000per share.

CEO Masayoshi Son is the most successful venture capitalist in Japanand has a strong vested interest with his 21.4% stake.

Net debt of JPY 2.1tr or 2.4x trailing EBITDA. FY2014 target of zerowith stated no major investments until target reached.

A conservative sum-of-parts at JPY 4,638 per share.

Triggers:

Softbank is de facto the biggest internet player in China, but listing placemeans investor has not yet understood this, treating it as a mobile operator.

Listing of Chinese internet assets makes hidden values visible.

Continuous strong momentum for its mobile operations, which gains marketshares, improves ARPU and margins..

Risks: Competition, internet de-rating.

Key figures:

Market cap: JPY 3.5tr

USD 41bn

NOK 240bn

No. of shares: 1082.5m

P/E (03/11e): 18.7x

P/E (03/12e): 15.4x

P/Sales (11e): 1.2x

P/BV: 6.1x

P/TBV: neg.

RoE (11e): 33%

Div. yield: 0.2%

Daily trading of 7.5m shares or

USD 290m.

CEO owns 21.4%.

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Key figures:Market cap: HKD 1442bn

NOK 1036bn


P/E (10e): 10.3x

P/E (11e): 9.9x

EV/EBITDA (10e): 4.2x

P/BV: 2.2x

P/TBV: 2.5x

RoE (10e): 22%

Div. yield (10e): 3.9%

Daily trading volume of 29.8m

shares or USD 274m and USD

73m via ADR.

State owns 74.2% of shares. No

A share listing yet and thus not

accessible for domestic.

China Mobile (941 HK) 71.9 HKD

#1 mobile operator in China and #1 globally. 554m subscribers (+32m in 1H10).Strong corporate customer foothold (195m subscribers through 2.8m accounts).

3G technology based on China exclusive TD-SCDMA technology.

Subscriber market share of 68% but losing on the back of weak 3G share(41% market share with 18m subscribers). 52% of net ads.

Revenues: voice 64%, VAS 30%, monthly fee 3%, other 4%. ARPU ofRMB 72 (32% mobile data).

OpEx: SGA 58%, D&A 27%, personnel 7%, interconnect 7%, other 1%.

CAPEX: wireless network 44%, transmission 25%, new technology 12%,support 8%, plant/infrastructure 7%, other 3%. CAPEX/Sales 25%.

Stable competitive situation with three state-controlled players. 3.1% churn.

69% mobile penetration in China. CM has 98% population coverage over 505kGSM- and 115k TD base stations.

Moderate handset subsidies of 0.9 month ARPU per subscriber.

RMB 282bn net cash (23% of market cap). Stated 43% pay-out ratio for 2010 .Agreed to acquire 19% of SPDB bank for RMB 40bn (mobile payment coop.).

EV per subscriber of USD 250. OpFCF yield of 8% for 2010e.

Triggers :

Pick up in net ad market share. Possible A share IPO in 2011 leads to higher dividend pay-out ratio.

Regaining margins on cost control; 2 sequential quarters with gain

Relatively unpopular (21 Buy, 13 Hold, 2 Sell).

Risks: corporate governance, M&A, competition, regulations, handset shortage,network congestion.

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Hon Hai Precision Industry (2317 TT), TWD 109

Key figures:Market cap. TWD 1053bnMarket cap: NOK 197bn

No of. shares: 9661.2m

P/E (11e): 9.0x

P/Sales (11e): 0.4x

P/BV: 2.2x

P/TBV: 2.2xROE (11e) 23%

Div yield: 1.9%

Daily trading of 27.1m shares

or USD 100m.

CEO owns 11%.

Hon Hai is more commonly known by its trade name, Foxconn. Founded in1974 by Terry Gou (holds 11%). Around 900k employees.

#1 electronics contract manufacturer (EMS) globally for computers,consumer electronics and communications products. Also provides designengineering and mechanical tooling services.

2009 sales: PC 42%, consumer 33%, communication 21%, others 4%.

Major customers: Apple, Cisco, Dell, HP, Nokia, Sony, Intel and Motorola.

Apple is #1 client with 25-30% of 2010e sales. Mass ramp-up of iPad and next-generation iPhone is a key growth driver.

Most of their manufacturing facilities are in China, started major relocation to inlandChina in May 2010.

Owns 10.2% of Foxconn Tech. (2354 TT) and 71.2% of Foxconn Int. (2038HK) . Very strong balance sheet with almost no debt.

25% JV with Metro, retail stores in China improves market intelligence.

Triggers: Margin increasing again after relocation / wage hike effect diminishing, should lead

to estimate upgrades on back of improving cost structure

New products driving earnings surprises; new iPad, new iPhone, 3Ds etc.

Weak PC demand bottoming out Continued electronics outsourcing trend by global brand names

Broadening relationship with key customers, share gains with HP/Dell/Cisco

Widening gap among EMS competition

Improved IR with more company information (in English)

Risks: margin disappointment (wage hikes/moving costs), FX.

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Samsung Electronics (005935 KS) 607 000 KRW

Global leading producer of consumer electronics and memory:

Semiconductor (24% of sales); Memory, System LSI and Storage.

LCD (19% of sales); panels for TV, monitors, notebooks, mobile phones.

Telecom (27% of sales); mobile-phones, tables PC and mobile technology.

Digital Media (30% of sales); appliances, TV, monitor, printer, PC, etc.

Sales: Korea 12%, China 17%, Asia 15%, US 24%, EUR 26%, other 6%.

Nature of the businesses makes it focused on economies of scale in R&D,cost of production and brand building advertisement.

Has 13.7% of company stock in treasury, listed holdings worth KRW 78kper share. KRW 11.7tr net cash.

Triggers:

Recognition as a consumer company rather than tech company.

Further earnings surprises amid strong demand from new telecom products andtight market for NAND. 2011 estimates of earnings decline could be conservative.

In process of quantum leap over competitors due to technology migration to build

sustainable competitive advantage, especially in semiconductor. Successful product launches of smart phones and tablet PC.

Tighter market in DRAMs in H2 2011.

Recognition of 42.5% stake of Samsung Corning (worth KRW 88k/share).

More optimal balance sheet through increasing dividend payout ratio.

Narrowing of pref. discount now 32% versus 2010 low of 24%.

Risks: overcapacity in semiconductor/LCD, governance, FX.

Key figures:

Market cap: KRW 150trNOK 742bn


P/E (10): 6.4x

P/E (11e): 6.6x

P/BV: 1.0x

P/TBV: 1.0x

RoE (11e): 14%Div. yield: 1.7%

Company owns 20.3m ordinary

shares and 3.0m pref. shares

or 13.7% of issued capital.

Average trading volume in pref.

is 30k or USD 13.9m.

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Vale (VALE5 BS) 51.2 BRL

#2 global metals and mining company with 60,000 employees

Iron ore/pellets (71% of sales): 100% in Brazil. 16bn ton reserves (70yprod.) and 45bn ton resources. #1 with 10% of world output. Excellent orequality with industry low cash cost. Moved from 1yr to 3m avg spot pricing.

Nickel/copper (11% of sales): 70%/30% output Canada/Indonesia. Worldslargest nickel resources with 7.9mt.

Other (18% of sales): various metals, logistics, fertilizer nutrients.

Sales: China 30%, Asia 20%, Europe 22%, S. America 20%, Others 8%.

Costs: 75% in BRL, 14% USD, 6% CAD, 5% others.

Output 2008 versus 2015 guidance: iron ore 293mt/522mt, pellets

34mt/73mt, nickel 283kt/381kt, copper 313kt/691kt, potash 607kt/3.4mt,coal 4bnt/42bnt.

USD 24bn CAPEX plan in 2011 (ferrous minerals 36%, 21% logistics, 18%base metals, 10% fertilizers, coal 7%, power gen 3%, others 5%) versustotal of USD45bn spent over the past 5 yrs. Reduces risk of M&A.

Rapidly building own shipping fleet; 19 VLCOs on order and expect 12mdwtinternal capacity by 2014.

Triggers:

Earnings upgrades on the back of iron-ore price estimates being upgraded.Structurally tight market, with current spot rates far ahead of estimates.

Poor and declining iron ore quality in China (with high cash cost and lowenergy efficiency) raises Chinas dependency on import of high quality ore.

Decline in dry bulk freight rates improves competiveness and margins.

Consolidation of fertilizer assets.

Risks: commodity prices, M&A, strikes, labour costs.

Key figures:

Market cap: BRL 295bn

USD 177bn/NOK 1013bn


P/E (2011e): 6.8x

P/BV: 2.4x

P/TBV: 2.7x

RoE (11e): 31%

Div. yield: 2.6%

Net debt BRL 27bn,1.1x trailingEBITDA.

51.4m pref. and 25.7m common

shares in treasury.

Daily trading volume of 16m

(Brazil) shares or USD 547m.

3 share classes: common

(61%), preferred (39%) + 12

golden shares owned bygovernment which has certain

veto rights. Valepar owns 32.8%

of capital . Brazilian state owns

5.4%.

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Investment mandate


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SKAGEN Kon-Tiki and Global Emerging Markets

Investment mandate: Minimum 50 percent in GEM, the rest predominantly incompanies with activity largely directed towards emerging market economies.

What is included under Global Emerging Markets (GEM)?

Asia ex Japan, Singapore, Hong Kong

South Africa, Eastern Europe including Turkey (EMEA)

South America, including Mexico

High growth, good demographics, cheap companies, higher risk

Benchmark index: MSCI Emerging Markets (Daily TR Net in NOK)

Our investment focus: Undervalued, Unpopular, Under-researched companies

Sensible sector balance oriented towards companies value creation

Variable, relative, asymmetrical fee structure. Minimum 1% management fee withrelative value drop of 8% or weaker, increasing to maximum 4% with relativereturn of 22%. Charged annually. No high watermark.


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Company exposure versus place of listing

There is a substantial difference between place of listing and where the

company has its exposure Taiwan and South Korea have credit penetration on level with continental

Europe. Hence, banking penetration is very high and growth options limited.

Standard Chartered Bank is listed in London (plus Hong Kong and Mumbai)while more than 95% of the activity is in growth markets in Asia, the MiddleEast and Africa. Its largest profit contributors are China and India.

Which company provides best exposure to global emerging markets?

It is more important to look at the value drivers than the place of listing.

This is the main reason why SKAGEN Kon-Tiki can invest in equities listed in

both industrialised and global emerging markets.


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Good results in terms of awards and good returns forthe investors


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Investment philosophy


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Criteria in selecting companies

The idealinvestments are

Focus forcompany selection

Undervalued Unpopular

Under-researched

Revaluation catalysts Value creation at low price Debt and risk

Simple and proven business model Willingness to create shareholder value


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An explanation of our three Us with examples

Undervalued

A temporarily unprofitable division; is implicitly evaluated at negative value The company has a diversified business portfolio; large discount to total value

The company is out of the spotlight due to the sector to which it belongs

Examples; Yazicilar Holding

Unpopular

Negative historical merits

Unsatisfactory or hard-to-access information from the company

Examples; Eletrobras, Harbin Power Equipment, VTB Bank

Under-researched The company has little or no analysis coverage

Examples; Kim Eng Holding, MBK, Provida

Analysts perceptions about the company are erroneous; wrongly analysed ormisunderstood

Examples; Eletrobras, Samsung Electronics


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Economic growth is not a good indicator of stock marketreturns maybe it is still about valuations?

Academic work has

found few

correlations between

economic growthand stock market

performance over

the long run

Worth noting the

difference between

Sweden/Switzerland

and Spain

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?


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How do we identify portfolio companies?

Objective search Focused on P/E, P/BV, RoE, solidity/liquidity, cash flow and dividends

Analysis of total value Often based on conglomerates

Net asset value, value of unprofitable divisions

Ideas generated through existing ownership Competitors, suppliers, customers, parent company

Geographical imbalance in valuation Mispricing due to a lack of understanding about the industry in the market in which

the company is listed

Macro perspective Company value/sector value as compared to the market potential relative to other

markets in relation to the degree of maturity/market penetration

Review of the most unpopular companies Companies where the consensus amongst analysts is predominantly negative;

expectations are often too low


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Global Emerging Markets


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The substantial difference in GDP growth between emergingmarkets and developed countries is expected to continue

Difference in GDP growth emerging markets and

developed countries in percentage points

P bli d b GDP b i ll l i EM d d


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Public debt to GDP substantially lower in EM and expected todecline slightly while DM set to accelerate

Public debt as % of GDP

L l l f i d bt d i k t


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Low level of indebtedness among emerging marketshouseholds compared to developed countries

Household debt compared to GDP (%)

T t l d bt l l i i ifi tl l i BRIC t i


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Total debt level is significantly lower in BRIC countriesthan developed countries

Th hift f W t t E t ill ti


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The shift from West to East will continue . . . . .

Source: IMF

Global emerging markets are undercapitalised relative to


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Global emerging markets are undercapitalised relative tothe developed markets

There is a long way to go before the BRIC countries reach


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There is a long way to go before the BRIC countries reachthe same standard of living as Korea and Japan

Six of the worlds largest mobile phone markets are now


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Six of the world s largest mobile phone markets are nowin emerging markets, despite relatively low penetration

Auto sales in EM have clearly decoupled from industrialised


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Auto sales in EM have clearly decoupled from industrialisedcountries; China is now the worlds biggest car market

Source: CEIC, Haver, UBS estimates

Chinas growing importance for commodities is apparent


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China s growing importance for commodities is apparentin share of world demand

For more information:


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For more information:

Please refer to:

Our latest Market report

Information about SKAGEN Kon-Tiki on our web pages

Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on marketdevelopments, the fund managers skill, the funds risk profile and subscription and management fees. The returnmay become negative as a result of negative price developments. SKAGEN seeks to the best of its ability to ensure that all information given in this report is correct, however,makes reservations regarding possible errors and omissions. Statements in the report reflect the portfoliomanagers viewpoint at a given time, and this viewpoint may be changed without notice. The report should not beperceived as an offer or recommendation to buy or sell financial instruments. SKAGEN does not assume

responsibility for direct or indirect loss or expenses incurred through use or understanding of the report.Employees of SKAGEN AS may be owners of securities issued by companies that are either referred to in thisreport or are part of the fund's portfolio.
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Documents

SKAGEN-Kon-Tiki-February 2011