September 27-28, 2012Family Wealth Conference

Family Wealth ConferenceGoing Global With Growth Stock InvestingInvesting Ken McAtamney

ll lWilliam Blair & Company

Rita Spitz Willi Bl i & CWilliam Blair & Company

Jack Murphy William Blair & CompanyWilliam Blair & Company

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of William Blair & Company.

Global Investing: Dizzying Array of Opportunities

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Global Investing: Dizzying Array of Opportunities

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Global Investing: Dizzying Array of Opportunities

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Global Investing: Dizzying Array of Opportunities

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The Case for Globalization:What Happened to Diversification?1.0 Average Correlation of MSCI Standard Regional Indices

0.8

0.9

Average Correlation of MSCI Standard Regional IndicesRolling 36 Months

0.6

0.7

0.4

0.5

0.2

0.3MSCI IndicesPacific Ex JapanJapanEurope ex UKUnited KingdomUnited States

0.0

0.1

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

United StatesCanadaEmerging Asia (begins 1989)1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Corporate Quality Supersedes Regional or Sector Allocations400

450

300

350

400

250

300

150

200

50

100

0 09/05 06/06 02/07 10/07 07/08 03/09 12/09 08/10 04/11 01/12 09/12

Inditex MSCI ACWI Specialty Retail MSCI Europe ex-UK

Source: MSCI, Factset.

Types of Innovation• Creates new categories that are major growth driversR d l bl h i• Rare and very valuable to the innovator• Examples include Nespresso, Baileys Irish Cream, and tabletsGroundbreaking

• Adds features and benefits to existing products• Typically adds value by driving “premiumization”Product Line Typically adds value by driving premiumization• Examples include Bud Light Premium, Colgate Optic White, and Nike+Extensions

• New sizes, colors, quantities of existing products• Frequently designed to drive pricing and volumePackaging

Innovations• Examples include returnable beverage bottles, instant noodles, and small sachets of toothpaste for Emerging MarketsInnovations

Source: Sanford Bernstein Research, 2012.

Case Study: Yum BrandsYum! Brands is the world’s largest restaurant company based on the

number of system units with more than 38,000 in 120 countries.

• First mover advantage in China with a proprietary supply chain designed for safety.g y• Developed a platform for multiple concepts: KFC & Pizza Hut (leading quick service and casual dining chains in China), delivery, East Dawning, and Little Sheep.• Faster menu innovation.• Applying standard tools (branding, unit growth, training, imaging) to much less competitive markets.• Units in Tier 3 and 4 cities in China have higher profit margins than those in Tiers 1 and 2. Transformed itself into a global growth

company: 75% of operating profit comes from international markets vs. 32% a d ddecade ago.

Case Study: Domino’s Pizza Enterprises Online

Domino’s Pizza Enterprises owns the license to the Domino’s Pizza brand in Australia, France, Belgium, and The Netherlands.

• Product innovations include better tasting crusts, adjacent products such as pasta and d d h l hi idesserts, and healthier pizzas. • The first to embrace digital in Australian QSR. Currently 50% of orders are completed onlineof orders are completed online and management expects this to growth to 80% over time. • Online ordering drives revenueOnline ordering drives revenue because orders are 30% higher.• Online ordering also drives gimproved efficiency in marketing and order fulfillment. Return on Invested Capital has improved

from 13% in 2008 to 21% in 2012 as online d h d f 12% 50%ordering has jumped from 12% to 50%.

Case Study: Colgate-PalmoliveColgate is among the world’s largest consumer products companies.

• Entered emerging markets• Entered emerging markets decades earlier than competition leading to solid brand equity.• Seasoned management team hasSeasoned management team has playbooks for growth, competitive attacks, FX volatility, and other environments.• Early adopter of global information technology (SAP) enabling analytics-based decision making and real timedecision making and real-time responses to changing conditions.• Driving organic sales growthDriving organic sales growth through peer-leading returns on R&D spend: generated $3.50 in organic sales growth for every $

Generates return on invested capital of 33% versus peers at 18% and the S&P 500 at 8%.$1 invested in R&D from 2004 to 2011 (Bernstein est.).

Coffee Market Map 2011

(bubble = retail sales value)Source: BofAML Global Research estimates, Euromonitor.

Case Study: Nestle’s Nespresso

Nestle is the world’s largest food company with sales approaching $100B in products ranging from coffee and candy to baby food and pet food.

• Nestle is capitalizing the global trend of consumers becoming more demanding coffee connoisseurs – about 13% of sales i ff iare in coffee, a category growing more than 5% globally.• Nestle was a pioneer in single-serve coffee launching the Nespresso machinecoffee, launching the Nespresso machine in 1986.• Nespresso continues to lead Nestle’scoffee business with sales growth of 22%coffee business with sales growth of 22% to about $3.8B in 2011.• A unique distribution strategy of online and a global retail store network.g• Including the sister product Dolce Gusto, Nestle has captured 43% of the machine market, including an additional 3.9% Innovation has resulted in Nestle

achieving on average 6% organic sales hgain in 2011. growth over ten years in categories

growing about 4%.

Case Study: Unilever’s Pureit Water Purifier

Unilever is one of the world’s largest consumer product companies with global brands in food, home, and personal care products.

• Unilever has been in India since 1888. The company sells brands like Lifebuoy and Lipton Tea to Indian consumers• Local management recognized an acute consumer need for clean water• As a result of extensive research, Unilever launched “Pureit,” a portable water filtration system that provides safe water at half a cent per liter 1L h d i Ch i I di i 2004 35• Launched in Chennai, India in 2004, 35 million people in total have gained access to safe drinking water from Pureit• Unilever’s goal is 500 million people• Unilever s goal is 500 million people using a Pureit water purifier by 2020

Pureit improved existing technology through research to expand the

h dcategory to new geographies and demographics.1. Harvard Business Review, September 2012.

DisclosureThis material is provided for general information purposes only and is not intended as investment advice or a recommendation to purchase or sell any security. Any discussion of particular topics is not meant to be comprehensive and may be subject to change. Any investment or strategy mentioned herein may not be suitable for every investor. Factual information has been taken from sources we y f y f fbelieve to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Information and opinions expressed are those of the presenter. Information is current as of the date appearing in this material only and subject to change without notice.

Definitions:

MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 45 country indices comprising 24 developed and 21 emerging market country indices. The developed market country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indices included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.MSCI Europe ex UK Index is a free float adjusted market capitalization weighted index that is designed toMSCI Europe ex-UK Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe. The MSCI Europe ex-UK Index consists of the following 15 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland.

BiographyKen McAtamney William Blair & CompanyWilliam Blair & Company Ken McAtamney is a co-portfolio manager for the William Blair Global Growth strategy. He joined William Blair & Company in 2005 as part of the International Growth team and previously served as co-director of research, p y ,as well as mid-large cap Industrials and Healthcare analyst. Prior to joining William Blair, Ken was a Vice President for Goldman Sachs and Co., responsible for institutional equity research coverage for both international and domestic equity, and he was a Corporate Banking Officer with NBD q y, p gBank. Education: B.A., Michigan State University; M.B.A. Indiana University.

BiographyRita Spitz William Blair & CompanyWilliam Blair & Company Rita Spitz is a Research Analyst focused on US large and mid cap Consumer companies. From 2001 to 2008, she was the Director of Research in Investment Management at William Blair, and from 1999 to 2001, she also g , ,served as a Research Analyst. Previously, Rita was an Analyst for the firm’s sell-side research group covering Advertising and Marketing firms for thirteen years. She joined William Blair & Company in 1986. Prior to that, she was with Northern Trust Company for seven years and was also an p y yEquity Analyst at Harris Bank and Trust. At these firms she covered Retail, Broadcasting, Cable, Publishing, Consumer Products, and Distributioncompanies. Rita is a member of the CFA Society of Chicago, the CFA Institute and The Economic Club of Chicago Between 2002 and 2006 she served as a member of the Financial Accounting StandardsChicago. Between 2002 and 2006, she served as a member of the Financial Accounting Standards Advisory Council, which provides the Financial Accounting Standards Board perspective from financial-statement preparers and users and professionals from the accounting and securities industries. Rita also is a trustee of the Music Institute of Chicago and The Joffrey Ballet. Education: B.B.A., Finance and Spanish, University of Wisconsin-Madison; M B A University of Chicago Booth School of BusinessUniversity of Wisconsin Madison; M.B.A, University of Chicago Booth School of Business.

BiographyJack Murphy William Blair & CompanyWilliam Blair & Company Jack Murphy joined the International Growth team in early 2011, conducting research on large-mid cap Consumer stocks. He is the Global Consumer sector team leader. Prior to joining the International team, Jack was a j g , JResearch Analyst within William Blair & Company’s sell-side Research Department focusing on e-commerce and hardline retailers. He joined the firm in 2005. Previously, Jack worked at Credit Suisse First Boston for nearly six years as an equity research analyst covering a broad range of retail y q y y g gcompanies. Before CSFB, he worked as an equity research analyst at Lehman Brothers and as an equity research associate at Salomon Brothers. Prior to sell-side research, he worked as a financial analyst for General Electric Capital, having graduated from GE’s Financial Management Program. p , g g g gEducation: B.A., Economics, magna cum laude, Villanova University.