GO EAST: VALUE INVESTING IN EUROPE

New York, October 2010

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 ABOUT US

Incorporated in 1987. Shareholder structure: 100%-owned by Acciona Group (Quoted and

; Ibex-35 member). Three fund managers and three analysts (one based in Shanghai).

Fund managers: Profit sharing agreement and 100% of financial assets invested in the funds.

Spain’s leading independent fund manager

; €4,8Bn AUM and 37,000 customers (95% equities).

; Focused on returns not volumes under management. No marketing or distribution agreements.

; Investment philosophy based on “Value Investing”. Long only. No leverage. No derivatives.

No activism.

; Two portfolios: 25% AUM Iberian (Spain and Portugal) and 75% AUM Global (mainly
Europe).

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 BESTINVER: OUR PERFORMANCE

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 COMPARATIVE PERFORMANCE
BESTINVER SPANISH EQUITIES vs. IGBM INDEX
YEAR BESTINVER IBERIAN EQUITY BENCHMARK Relative perf.

1993 43,91% 46,67% -2,76%

1994 5,28% -11,70% 16,98%
1995 10,33% 12,30% -1,97%
1996 41,01% 38,96% 2,05%
1997 41,01% 42,22% -1,21%
1998 29,03% 37,19% -8,16%
1999 -10,98% 16,22% -27,20%
2000 13,91% -12,68% 26,59%
2001 21,22% -6,39% 27,61%
2002 8,25% -23,10% 31,35%
2003 38,31% 27,44% 10,87%
2004 29,97% 18,70% 11,27%
2005 27,07% 20,56% 6,51%
2006 37,36% 34,49% 2,87%
2007 4,84% 5,60% -0,76%
2008 -35,16% -40,56% 5,40%
2009 34,56% 26,64% 7,33%
30/09/2010 -0,28% -11,22% 10,94%
Return since 1993 1533,66% 393,07% 1140,59%
Average annual return 17,08% 9,43% 7,66%
* Returns for BESTINFOND to 31/12/1997 and B. BOLSA from 01/01/1998
* IGBM = Madrid SE General Index
* All Bestinver returns are expressed as net, after expenses and commissions.
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 COMPARATIVE PERFORMANCE

BESTINVER INTERNATIONAL EQUITIES vs. MSCI

YEAR B.GLOBAL EQUITY MSCI World Index Relative perf.

1998 -14,13% 16,51% -30,64%

1999 47,87% 44,75% 3,12%
2000 18,39% -8,24% 26,63%
2001 16,59% -13,36% 29,95%
2002 -26,95% -33,02% 6,07%
2003 32,70% 8,83% 23,87%
2004 19,01% 4,71% 14,30%
2005 30,47% 23,95% 6,52%
2006 24,05% 5,51% 17,98%
2007 -4,61% -3,41% -1,20%
2008 -44,71% -39,08% -5,63%
2009 71,85% 23,02% 48,83%
30/09/2010 14,21% 6,06% 8,16%
Return since 1998 238,77% 2,76% 236,01%

Average annual return 10,04% 0,21% 9,83%

* Returns for BESTINVER INTERNACIONAL
* MSCI = Morgan Stanley global stock market index
* All Bestinver returns are expressed as net, after expenses and commissions.

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WHAT MAKES OUR STRATEGY SIMILAR TO THAT
OF OUR VALUE PEERS?

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WHAT MAKES OUR STRATEGY SIMILAR TO THAT OF OUR VALUE PEERS?

9 We seek profitability in absolute terms and not in relation to benchmark

indices.

9 Equally, we consider risk in absolute terms, defining it as the possibility of

losing the money invested and not in terms of volatility or deviation with
respect to a particular benchmark index.

9 We are asset managers, not asset gatherers.

9 We invest in companies that are trading at a reasonable discount to their

true economic value.

9 Patience. We are in it for the long term and we are happy to wait.

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WHAT MAKES OUR STRATEGY SIMILAR TO THAT OF OUR VALUE PEERS?

INVESTMENT PHILOSOPHY: BASIC FEATURES

GOOD BUSINESS GOOD PRICE

• Easy to understand • Price < 70% value
• Competitive advantage (High ROCE) • DCF
• CF generator • Comparable transactions
• Growth • Net asset value

STRONG MANAGEMENT TEAM

• Operating track record
• Reinvesting surplus cash
• Suitable incentive scheme
• Prioritizes shareholders

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 WHAT MAKES OUR STRATEGY DIFFERENT TO
THAT OF OUR VALUE PEERS?

Ö THE AUSTRIAN SCHOOL

Ö EUROPE

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 THE AUSTRIAN SCHOOL
Essential differences between the Austrian and neoclassical schools

Points of comparison Austrian paradigm Neoclassical paradigm

1. Concept of economics A theory of human action, understood as a A theory of decision: maximization subject to
(essential principle) dynamic process (praxeology). restrictions (narrow concept of “rationality”).

2. Methodogical outlook Subjectivism Stereotype of methodological individualism

(objectivist).

3. Protagonist of social processes Creative entrepreneur. Homo economicus.

4. Possibility that actors may err a priori, and Actors may conceivably commit pure Regrettable errors are not regarded as such,
nature of entrepreneurial profit. entrepreneurial errors that they could have since all past decisions are rationalized in terms of
avoided had they shown greater entrepreneurial costs and benefits; entrepreneurial profits are
alertness to identify profit opportunities. viewed as rent on a factor of production.

5. Concept of information Knowledge and information are subjective and
dispersed, and they change constantly
(entrepreneurial creativity); a radical distinction is
drawn between scientific knowledge (objective)
and practical knowledge (subjective).
Complete, objective, and constant information (in
certain or probabilistic terms) on ends and means
is assumed; practical (entrepreneurial) knowledge
is not distinguished from scientific knowledge.

6. Reference point General process which tends towards Model of equilibrium (general or partial);
coordination; no distinction is made between separation between micro and macroeconomics.
micro and macroeconomics, each economic
problem is studied in relation to others.

7. Concept of “competition” Process of entrepreneurial rivalry. State or model of “perfect competition”.

8. Concept of cost Subjective (depends on entrepreneurial alertness Objective and constant (such that a third party can
and the resulting discovery of new, alternative know and measure it).
ends).

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 THE AUSTRIAN SCHOOL
(continued)
Points of comparison Austrian paradigm
9. Formalism Verbal (abstract and formal) logic which
introduces subjective time and human creativity.
10. Relationship with the empirical world Aprioristic-deductive reasoning: radical separation
and simultaneous coordination between theory
(science) and history (art); history cannot validate
theories.
11. Possibilities of specific prediction Impossible, since future events depend on
entrepreneurial knowledge which has not yet been
created; only qualitative, theoretical pattern
predictions about the discoordinating
consequences of interventionism are possible.
12. Person responsible for making predictions The entrepreneur
13. Amount of “human capital” invested A minority, though it is increasing
14. Type of “human capital” invested Multidisciplinary theorists and philosophers;
radical libertarians
15. Most recent contributions x Critical analysis of institutional coercion
(socialism and interventionism).
x Theory of free banking and economic cycles.
x Evolutionary theory of (juridical, moral)
institutions.
x Theory of entrepreneurship.
x Critical analysis of “social justice”.
16. Relative position of different authors Rothbard, Mises, Hayek, Kirzner
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Neoclassical paradigm
Mathematical formalism (symbolic language
typical of the analysis of atemporal and constant
phenomena).
Empirical validation of hypotheses (at least
rhetorically).
Prediction is an objective which is deliberately
pursued
The economic analyst (social engineer).
The majority, though there are signs of dispersal
and disintegration.
Specialists in economic intervention (piecemeal
social engineering); and extremely variable
degree of commitment to freedom.
x Public choice theory.
x Economic analysis of the family.
x Economic analysis of law.
x New classical macroeconomics.
x Economics of information.
x New Keynesians.
Coase, Friedman, Becker, Samuelson, Stiglitz.
Source: “The Austrian School”, Jesús Huerta de Soto
Other sources: Mises Institute (www.mises.org)
 THE AUSTRIAN SCHOOL
Practical points from the school
Austrian “concepts” Aplications
y Markets are never in equilibrium: y Profit from these adjustments.
o Excess returns are squeezed by investor down to y Search for sustainable competitive advantages.
the opportunity costs.
Exceptions: sustainable competitive advantages.
o No returns: Capital leaves the industry, to search
for better profitability.

y Growth is based on division of labour (via productivity) y Growth in China is sustainable.

and savings to finance it.

y Manipulation of interest rates by governments lead to y Avoid those countries that are not tackling
overinvestment and bubbles. USA, Spain, Ireland, etc. overinvestment and lack of real savings.

y The natural state of an economy is deflationary:
Thanks to productivity increases we produce more
goods with the same amount of money every year.
But governments do not like deflation because they
are leveraged.
y Most probable outcome is inflation. The extent of
which will depend on the confidence in each
currency.

y Lack of anchor currency (gold or similar) implies a
permanently depreciating currency.
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y Avoid monetary investments. They do not protect
from currency depreciation Ö additional risk.
y Own real assets (at reasonable prices): Equities,
Commodities, Real Estate.
 EUROPE VS. USA

n Europe is a less efficient market:

ƒ Banks control distribution networks. Different goals Ö Asset gatherers.
ƒ Less developed financial culture.
ƒ Fewer value investors.

o Significant public family-controlled companies:

ƒ Long term view.
ƒ Major shareholders supervise management directly.
ƒ Organic growth, with prudent M&A.
ƒ Less attention from investors.

80% of our investments are in family-controlled businesses.

p Technical factor: Most of the European Funds are quasi tax-exempted within the Fund.
Easy to rebalance portfolios.

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 PORTFOLIOS MAIN FEATURES

Global Portfolio Iberian Portfolio

Companies based mostly in Europe Average ROCE: 15.6%

Earnings Yield: 13.8%
Average ROCE: 36.2%
P/E: 7.2x
Earnings Yield: 17.2%
Upside: 100%
P/E: 6.5x
Sales Breakdown:
Upside: h100%
y Spain 24.4%
Sales Breakdown y Portugal 10.9%
y Europe: 47.2% y ROW 59.0%
- Northern Europe 29.0% y Cash 5.6%
- South Europe 18.1%
y USA 13.2%
y UK 12.5%
y Switzerland 7.1%
y Emerging markets 14.7%
y Cash 5.3%

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 THREE EXAMPLES OF INVESTMENT

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 BMW PREFERRED SHARES

Why - Drawbacks: y Liquidity 60.000 shares/day.

BMW Ordinary: Price 51.4€ Preferreds: y No voting rights.
Market Cap 33.7bn€ - Slightly higher dividend.
Adjusted Net Cash 7.5bn€ - Employees incentive plans are done through
EV 2011e 26.2bn€ preferreds.
- Average discount of 5 largest german stocks
2010 2011 2012 with dual shares: 12.5%.
Free Cash Flow 2.4 3.1 3.6
(bn €/ex cash interest)
Price/Free Cash Flow 12.1 8.5 6.2 Why 2012: - Launch of the 3 series through the new
platforms.
- We use a normalized operating profit of
7.8%.
Company guidance is 8-10%.
BMW Preferred: Price 34.2€
Market Cap 22.4bn€
EV 2011e 14.9bn€ FORD: Market Cap 32bn€
Adjusted Net Debt 7bn€
2010 2011 2012 EV 2011e 39bn€
Price/Free Cash Flow 7.4 4.8 3.1
2010 2011 2012
Free Cash Flow 5 5 5
Price/Free Cash Flow 9 7.9 7

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 CIR

‰ BUSINESS:
Holding company controlled by De Benedetti family, with a long tradition of entrepreneurship focused
on value creation, always working for the interest of the shareholders.
Sorgenia: Italy’s fifth largest electricity company. It mainly operates gas-powered electricity plants but
also participates in the commercialization of electricity and gas.
L’Espresso: one of the leading media companies in Italy, principally in national and regional press,
furthermore it has interests in TV and radio.
Sogefi: leading European supplier of automotive filters and leader in Europe and South America in
suspensions.
Holding Sanitá e Servizi: runs geriatric clinics, hospitals and rehabilitation units.

‰ SHAREHOLDERS:
De Benedetti Family (46%), the rest is free float.
‰ MANAGEMENT TEAM:
Capital Allocation:
Close to 20% increase in NAV in 15 years. CIR set up Sorgenia ten years ago, investing up to €73 M.
Last year it was assessed by its partner Verbund at €3,800 M.
‰ VALUATION:
Our valuation implies an upside potential of 211%.

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 CIR
CIR

VALUATION OF CIR

Asset Valuation mn€ Weight %

Sorgenia (PMV) (*) 1.883 54%
L'Espresso (15x earnings) 732 21%
Sogefi (15 x earnings, 18% ROCE) 359 10%
Holding Sanitá e Servizi 129 4%
Others and Cash 379 11%

Total Valuation mn€ 3.483 100%

Per Share 4,66

Market Cap mn€ 1.120

Price per share 1,5
Upside 211%
Source : Bestinver

(*) SORGENIA: Increased capital in 2008-2009 by 300 mill.€ and the minority partner Verbund, fully
underwrote the rights issue, valuing the company at 3.800 mill.€. Cir owns 52% of Sorgenia.

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 FERROVIAL

Valuation of Ferrovial

Asset Valuation mn€ Weight %

Cintra 5.995 48%
407 ETR Toronto 3.103 25%
Toll Roads USA 481 4%
Toll Roads Spain 432 3%
Toll Roads Chile 348 3%
Others 1.502 12%
Cash & Holding cost 129 1%
BAA 2.820 23%
Contracting 1.375 11%
Services 1.342 11%
Swissport, Amey y Tubelines 2.442 20%
Debt & others -1.455 -12%
Total Valuation 12.519 100%
TARGET PRICE 17,1 €
CURRENT PRICE 7,2 €
Source : Bestinver
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 BESTINVER
C/ Juan de Mena, 8
28014 Madrid - Spain
Tef.:+34.91.595.91.00

bestinver@bestinver.es
www.bestinver.com

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• This document has been prepared by Bestinver Gestión, S.A. SGIIC for informational purposes only and can be in no way considered an offer
to participate in its investment funds. The information contained herein was compiled by Bestinver Gestión, S.A. SGIIC from sources it
believes are reliable. However, while appropriate measures have been taken to verify its accuracy, Bestinver Gestión, S.A. SGIIC in no way
guarantees that it is accurate, complete or up to date.

• All opinions and estimates included in this document reflect the best judgment of Bestinver Gestión, S.A. SGIIC as of the date they refer to
and may be changed without prior notification. All opinions issued herein are general in nature and do not take into consideration individual
specific investment objectives or financial circumstances.

• Under no circumstances can Bestinver Gestión, S.A. SGIIC, its managers, employees or authorized personnel be held responsible for any
damage resulting, directly or indirectly, from the use of the information contained within this document. Information regarding past returns
does not in any way constitute a promise or guarantee as to future performance.

• All Bestinver returns are expressed as net, after expenses and commissions. They are denominated in euros.
• Share redemptions and transfers of securities held for less than one year are penalised with a commission
• Source of Bestinver return and fees data: BESTINVER
• Source of sector return and fees data: INVERCO
• Source of national and international rankings: BESTINVER. Bestinver funds, third-party mutual funds and equity index returns (Madrid SE,
IBEX, S&P 500 and MSCI) are calculated based on the closing level on the date appearing at the bottom of this page.
• Source of fund P/Es: BESTINVER
• Source of market P/Es and Argentina Charts: Bloomberg
• Source of Value Investors: “The Superinvestors of Graham-and-Doddsville”
• Sources of Performance of diferent assets since 1800: Jeremy Siegel "Stocks for the long run" Irwin Professional

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