tom russo performance

8/10/2019 Tom Russo Performance

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Thomas A. Russo

November 7, 2008 Value Investing ConferenceUniversity of Virginia

Darden School of BusinessCharlottesville, Virginia


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Musings on Global ValueEquity Investing

Thomas A. Russo

I. Background, philosophy and approachII. Value of global perspectiveIII. Focus, focus, focus, focusIV. Invest for the long term

V. Virtues of low expectations VI. Paradox VII. Be mindful of agency costs Corporate Governance VIII. Final Musings


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Nestle SA (VIRTX:NESN)

Business Description

Key Financials

For the Fiscal Period Ending12 months

Dec-31-2004A12 months



Dec-31-2007A

LTM12 months

Jun-30-2008A12 months

Dec-31-2008E12 months


Dec-31-2010ECurrency CHF CHF CHF CHF CHF CHF CHF CHF

Total Revenue 84,690.0 91,115.0 98,458.0 107,552.0 109,504.0 111,021.9 117,310.4 123,080.7Growth Over Prior Year (3.7%) 7.6% 8.1% 9.2% 6.9% - 5.7% 4.9%

Gross Profit 49,378.0 53,198.0 57,745.0 62,515.0 62,651.0 - - - Margin % 58.3% 58.4% 58.6% 58.1% 57.2% - - -EBITDA 13,560.0 14,604.0 16,363.0 18,235.0 18,651.0 18,923.8 20,344.4 21,562.8

Margin % 16.0% 16.0% 16.6% 17.0% 17.0% 17.0% 17.3% 17.5%EBIT 9,177.0 11,876.0 13,302.0 15,024.0 15,446.0 - - - Margin % 10.8% 13.0% 13.5% 14.0% 14.1% - - -Earnings from Cont. Ops. 6,592.0 8,095.0 9,123.0 10,649.0 10,947.0 - - - Margin % 7.8% 8.9% 9.3% 9.9% 10.0% - - -Net Income 6,621.0 8,081.0 9,197.0 10,649.0 10,947.0 - - -

Margin % 7.8% 8.9% 9.3% 9.9% 10.0% - - -Diluted EPS Excl. Extra Items 1.665 2.063 2.356 2.761 2.894 2.998 3.318 3.698

Growth Over Prior Year 4.6% 23.9% 14.2% 17.2% 13.9% - 10.7% 11.5%

Nestle S.A., through its subsidiaries, manufactures various food and beverage products worldwide. Its products include bottled water, baby foods, dairy products, breakfast cereals,ice cream, nutrition products, beverages, chocolate and confectionary products, prepared foods, and pet care products. The company offers these products under various brandsconsisting of KitKat, Friskies, NESCAFE, Stouffers, LEANCUISINE, Nesquik, NESTEA, Nestle Nutrition, Dreyers, NESPRESSO, Carnation, PURINA, HOT POCKETS, MILO,Coffee mate, Maggi, NIDO, DOG CHOW, and Poland Spring. In addition, it manufactures pharmaceutical and surgical products. The company was founded in 1866 and isheadquartered in Vevey, Switzerland.

In Millions of the trading currency, except per share items.


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Current Capitalization (Millions of CHF)Currency CHF

Share Price as of Nov-03-2008 45.92x Shares Out. 3,762.7= Market Capitalization 172,784.0- Cash & Short Term Investments 9,972.0+ Total Debt 35,778.0+ Pref. Equity -+ Total Minority Interest 2,128.0= Total Enterprise Value (TEV) 200,718.0Book Value of Common Equity 46,233.0+ Pref. Equity -+ Total Minority Interest 2,128.0+ Total Debt 35,778.0

= Total Capital 84,139.0

Valuation Multiples based on Current Capitalization


Dec-31-2007A

LTM12 months




Dec-31-2010ETEV/Total Revenue 1.8x 1.8x 1.8x 1.7x 1.6xTEV/EBITDA 10.0x 10.0x 10.6x 9.9x 9.3xTEV/EBIT 12.0x 12.0x - - -P/Diluted EPS Before Extra 16.6x 15.9x 15.3x 13.8x 12.4xP/BV 3.3x 3.7x - - -Price/Tang BV 15.1x 21.1x - - -

Ratios


Dec-31-200312 months




Dec-31-2007

LTM12 months

Jun-30-2008Profitability Return on Assets % 6.7% 6.5% 7.8% 8.1% 8.7% 8.9% Return on Capital % 8.9% 8.6% 10.5% 11.0% 11.7% 11.8% Return on Equity % 17.3% 17.3% 18.7% 18.5% 20.7% 22.1%

Margin Analysis Gross Margin % 57.3% 58.3% 58.4% 58.6% 58.1% 57.2%

EBITDA Margin % 15.5% 16.0% 16.0% 16.6% 17.0% 17.0% EBIT Margin % 10.7% 10.8% 13.0% 13.5% 14.0% 14.1% Earnings from Cont. Ops Margin % 7.1% 7.8% 8.9% 9.3% 9.9% 10.0% Net Income Margin % 7.1% 7.8% 8.9% 9.3% 9.9% 10.0%

Nestle Share Price

34.89

39.89

44.89

49.89

54.89

11/4/05 2/7/06 5/12/06 8/14/06 11/13/06 2/15/07 5/17/07 8/16/07 11/15/07 2/18/08 5/23/08 8/25/08

Nestle SA (VIRTX:NESN) - Common Stock - Share Pricing


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Current Capitalization (Millions of EUR)Currency EUR

Share Price as of Oct-20-2008 28.90Share Price 28.90x Shares Out. 561.1

= Market Capitalization 16,216.3= Market Capitalization 16,216.3- Cash & Short Term Investments 2,094.0+ Total Debt 848.0+ Pref. Equity -+ Total Minority Interest 4.0= Total Enterprise Value (TEV) 14,974.3= Total Enterprise Value (TEV) 14,974.3Book Value of Common Equity 7,648.0+ Pref. Equity -+ Total Minority Interest 4.0+ Total Debt 848.0= Total Capital 8,500.0



Mar-31-2007A12 months


Mar-31-2009E12 months


Mar-31-2011E

TEV/Total Revenue 3.1x 2.8x 2.7x 2.6x 2.5xTEV/EBITDA 9.5x 7.9x 11.4x 11.5x 10.9xTEV/EBIT 10.4x 8.7x - - -P/Diluted EPS Before Extra 12.4x 10.5x 16.4x 17.9x 16.6xP/BV 2.2x 2.1x - - -Price/Tang BV 2.2x 2.1x - - -

Ratios

For the Fiscal Period Endi ng

12 months

Mar-31-2003

12 months

Mar-31-2004

12 months

Mar-31-2005

12 months

Mar-31-2006

12 months

Mar-31-2007

12 months

Mar-31-2008Profitability Return on Assets % 3.0% 2.6% 4.1% 5.5% 6.2% 7.2% Return on Capital % 3.4% 3.0% 4.7% 6.3% 7.1% 8.3% Return on Equity % 14.8% 6.4% 21.6% 16.8% 18.6% 20.7%

Margin Analysis Gross Margin % 62.6% 62.0% 61.5% 63.1% 63.7% 64.2% EBITDA Margin % 13.7% 13.1% 17.1% 20.1% 21.6% 24.2% EBIT Margin % 9.6% 8.8% 13.2% 16.9% 18.6% 20.9% Earnings from Cont. Ops Margin % 19.9% 9.5% 33.0% 25.4% 27.5% 29.6% Net Income Margin % 19.9% 9.5% 33.0% 25.4% 27.5% 29.6%

Richemont Share Price

36.8541.8546.8551.8556.8561.8566.8571.8576.8581.85

11/4/05 2/6/06 5/10/06 8/9/06 11/7/06 2/8/07 5/9/07 8/7/07 11/5/07 2/5/08 5/8/08 8/8/08

Compagnie Financiere Richemont AG (VIRTX:CFR) - Common Stock (Inactive) - Share Pricing


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Richemont

(All figures CHF)

Date 9/28/2007 12/28/2007 3/31/2008 6/30/2008 9/26/2008 10/2/2008 10/9/2008 10/17/2008

Richemont 77.15 77.70 55.70 56.90 51.05 49.04 42.20 41.50 BAT Stub 29.22 31.17 26.08 24.76 26.26 26.66 22.83 23.89 Luxury Stub 47.93 46.53 29.62 32.14 24.79 22.38 17.87 17.61

Luxury EPS (2009 Est) 2.67 2.67 2.67 2.67 2.67 2.67 2.67 2.67 Luxury P/E 18.0 17.4 11.1 12.0 9.3 8.4 6.7 6.6


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Pernod-Ricard SA (ENXTPA:RI)


Key Financials

For the Fiscal Period Ending

Press Release12 months

Dec-31-2004A

FiscalYear

Change12 months





Jun-30-2009E12 months


Jun-30-2011ECurrenc y EUR FYC EUR EUR EUR EUR EUR EUR EUR

FYC

Total Revenue 3,571.6 FYC 3,611.0 6,066.0 6,443.0 6,589.0 7,869.5 8,300.5 8,761.5 Growth Over Prior Year 1.1% FYC NA 68.0% 6.2% 2.3% - 5.5% 5.6%Gross Profit 2,351.2 FYC 2,156.0 3,578.0 3,587.0 3,766.0 - - - Margin % 65.8% FYC 59.7% 59.0% 55.7% 57.2% - - -EBITDA 843.6 FYC 842.0 1,338.0 1,630.0 1,694.0 2,095.5 2,294.6 2,425.3

Margin % 23.6% FYC 23.3% 22.1% 25.3% 25.7% 26.6% 27.6% -EBIT 727.6 FYC 741.0 1,190.0 1,481.0 1,528.0 - - - Margin % 20.4% FYC 20.5% 19.6% 23.0% 23.2% - - -Earnings from Cont. Ops. 487.3 FYC 484.0 582.0 831.0 840.0 - - - Margin % 13.6% FYC 13.4% 9.6% 12.9% 12.7% - - -Net Income 487.3 FYC 484.0 639.0 831.0 840.0 - - - Margin % 13.6% FYC 13.4% 10.5% 12.9% 12.7% - - -Diluted EPS Excl. Extra Items 2.734 FYC 2.837 2.766 3.865 3.867 4.594 5.416 6.118

Growth Over Prior Year 4.9% FYC NA (2.5%) 39.7% 0.0% - 17.9% 13.0%

Pernod Ricard SA, together with its subsidiaries, engages in the production, distribution, sale of spirits and wines in France and internationally. It offers whiskies, liqueurs, champagne, cognacsand brandies, white spirits and rums, bitters, and wines. The company sells its products under Ricard, Ballantines, Chivas Regal, Kahlua, Malibu, Beefeater, Havana Club, Martell, The Glenlivet,Jacobs Creek, Montana, Mumm, Perrier-Jouet, Seagrams gin, 100 Pipers, Amaro Ramazzoti, Clan Campbell, Imperial, Pastis 51, Ararat, Wild Turkey, Royal Salute, Tia Maria, Suze, RoyalStag, Ruavieja, Wyndham Estate, Powers, Campo Viejo, Hiram Walker, Passport, Becherovka, Don Pedro, Olmeca, Aberlour, Wisers, Montilla, Presidente, Soho/Dita, Pernod, Wyborowa, and

Something special brand names. The company was founded in 1975 and is based in Paris, France.


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Share Price as of Nov-03-2008 53.65Share Price 53.65x Shares Out. 218.2= Market Capitalization 11,707.4

= Market Capitalization 11,707.4- Cash & Short Term Investments 421.0+ Total Debt 6,355.0+ Pref. Equity -+ Total Minority Interest 177.0= Total Enterprise Value (TEV) 17,818.4= Total Enterprise Value (TEV) 17,818.4Book Value of Common Equity 6,420.0+ Pref. Equity -+ Total Minority Interest 177.0+ Total Debt 6,355.0= Total Capital 12,952.0







Jun-30-2011ETEV/Total Revenue 2.8x 2.7x 2.3x 2.1x -

TEV/EBITDA 10.9x 10.5x 8.5x 7.8x -TEV/EBIT 12.0x 11.7x - - -P/Diluted EPS Before Extra 13.9x 13.9x 11.7x 9.9x -P/BV 1.8x 1.8x - - -Price/Tang BV NM NM - - -

Ratios


Dec-31-2003

Press Release

12 monthsDec-31-2004

Fiscal

Year Change

12 monthsJun-30-2005




Profitability FYC Return on Assets % 5.8% 6.5% FYC NA 5.6% 4.7% 5.0% Return on Capital % 7.9% 8.7% FYC NA 8.5% 7.1% 7.3% Return on Equity % 17.7% 17.2% FYC NA 14.1% 13.9% 13.2%

Margin Analysis FYC Gross Margin % 65.2% 65.8% FYC 59.7% 59.0% 55.7% 57.2% EBITDA Margin % 24.9% 23.6% FYC 23.3% 22.1% 25.3% 25.7% EBIT Margin % 19.3% 20.4% FYC 20.5% 19.6% 23.0% 23.2% Earnings from Cont. Ops Margin % 13.1% 13.6% FYC 13.4% 9.6% 12.9% 12.7% Net Income Margin % 13.1% 13.6% FYC 13.4% 10.5% 12.9% 12.7%

Pernod Ricard Share Price

38.22

43.22

48.22

53.22

58.22

63.22

68.22

73.22

78.22

83.22

11/7/05 1/26/06 4/19/06 7/10/06 9/27/06 12/15/06 3/9/07 5/29/07 8/16/07 11/5/07 1/24/08 4/16/08 7/7/08 9/24/08

Pernod-Ricard SA (ENXTPA:RI) - Common Stock - Share Pricing


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SABMiller plc (LSE:SAB)


Key Financials









Mar-31-2011ECurrency GBP GBP GBP GBP GBP GBP GBP GBP

Total Revenue 5,077.7 5,615.2 7,116.7 7,541.7 8,585.6 13,562.1 13,921.4 14,448.3 Growth Over Prior Year 39.6% 13.5% 16.7% 20.1% 14.8% - 2.6% 3.8%Gross Profit 3,108.7 3,413.8 4,482.3 4,847.7 5,481.5 - - - Margin % 61.2% 60.8% 63.0% 64.3% 63.8% - - -EBITDA 1,164.7 1,422.1 1,846.7 2,065.3 2,311.4 3,037.1 3,252.8 3,523.9

Margin % 22.9% 25.3% 25.9% 27.4% 26.9% 22.4% 23.4% 24.4%EBIT 728.3 1,151.5 1,467.3 1,609.1 1,788.9 - - - Margin % 14.3% 20.5% 20.6% 21.3% 20.8% - - -Earnings from Cont. Ops. 350.5 805.3 827.9 836.8 1,018.3 - - - Margin % 6.9% 14.3% 11.6% 11.1% 11.9% - - -Net Income 350.5 805.3 827.9 836.8 1,018.3 - - -

Margin % 6.9% 14.3% 11.6% 11.1% 11.9% - - -Di luted EPS Excl . Extra Items 0.288 0.634 0.6 0.556 0.675 0.912 1.043 1.197

Growth Over Prior Year 93.4% 125.7% (12.9%) 5.1% 22.4% - 14.4% 14.8%

SABMiller plc, through its subsidiaries, engages in the manufacture, distribution, and sale of beverages worldwide. Its products primarily include beer and soft drinks. The companyoffers its products under Pilsner Urquell, Peroni Nastro Azzurro, Miller Genuine Draft, Grolsch, Aguila, Castle, Miller Lite, Snow, Tyskie, and Dreher Premium Lager brand names. Italso operates as a bottler for Coca-Cola products. The company has a strategic alliance with Castel. SABMiller plc is headquartered in London, the United Kingdom.


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Current Capitalization (Millions of GBP)Currency GBP

Share Price as of Nov-03-2008 9.62x Shares Out. 1,578.5= Market Capitalization 15,177.5- Cash & Short Term Investments 419.6+ Total Debt 6,022.2+ Pref. Equity -+ Total Minority Interest 435.9= Total Enterprise Value (TEV) 21,215.9Book Value of Common Equity 10,940.2+ Pref. Equity -

+ Total Minority Interest 435.9+ Total Debt 6,022.2= Total Capital 17,398.3







Mar-31-2011ETEV/Total Revenue 2.3x 2.0x 1.6x 1.5x 1.5xTEV/EBITDA 8.0x 7.0x 7.0x 6.5x 6.0x

TEV/EBIT 10.1x 8.9x - - -P/Diluted EPS Before Extra 14.1x 11.5x 10.5x 9.2x 8.0xP/BV 1.7x 1.4x - - -Price/Tang BV NM NM - - -

Ratios


Mar-31-200312 months





Mar-31-2008Profitability Return on Assets % 6.1% 6.4% 9.2% 7.5% 7.1% 6.9% Return on Capital % 7.6% 8.1% 11.9% 9.6% 9.1% 8.9% Return on Equity % 7.5% 11.0% 21.4% 13.6% 12.0% 12.7%

Margin Analysis Gross Margin % 60.9% 61.2% 60.8% 63.0% 64.3% 63.8% EBITDA Margin % 22.2% 22.9% 25.3% 25.9% 27.4% 26.9% EBIT Margin % 13.1% 14.3% 20.5% 20.6% 21.3% 20.8%

Earnings from Cont. Ops Margin % 4.4% 6.9% 14.3% 11.6% 11.1% 11.9% Net Income Margin % 4.4% 6.9% 14.3% 11.6% 11.1% 11.9%

SABMiller Share Price

7.658.659.65

10.6511.6512.6513.6514.65

11/7/05 2/8/06 5/12/06 8/11/06 11/10/06 2/13/07 5/17/07 8/16/07 11/15/07 2/18/08 5/21/08 8/20/08

SABMiller plc (LSE:SAB) - Common Stock - Share Pricing


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Heineken Holding NV (ENXTAM:HEIO)Business Description

Key Financials






Dec-31-2007A

LTMPress Release

12 monthsJun-30-2008A

12 months Dec-31-2008E

12 monthsDec-31-2009E

Currency EUR EUR EUR EUR EUR EUR EUR EUR

Total Revenue 9,255.0 10,062.0 10,796.0 11,829.0 12,564.0 13,499.0 15,378.6 17,568.2 Growth Over Prior Year 9.1% 8.7% 7.3% 9.6% 6.2% 10.5% - 14.2%Gross Profit 3,698.0 3,961.0 4,139.0 4,453.0 4,402.0 4,753.0 - - Margin % 40.0% 39.4% 38.3% 37.6% 35.0% 35.2% - -EBITDA 1,831.0 2,025.0 1,959.0 2,212.0 2,237.0 2,452.0 3,033.1 3,528.1

Margin % 19.8% 20.1% 18.1% 18.7% 17.8% 18.2% 19.7% 20.1%EBIT 1,222.0 1,348.0 1,217.0 1,478.0 1,512.0 1,670.0 - - Margin % 13.2% 13.4% 11.3% 12.5% 12.0% 12.4% - -Earnings from Cont. Ops. 399.0 321.0 381.0 606.0 404.0 457.0 - - Margin % 4.3% 3.2% 3.5% 5.1% 3.2% 3.4% - -Net Income 399.0 321.0 381.0 606.0 404.0 457.0 - - Margin % 4.3% 3.2% 3.5% 5.1% 3.2% 3.4% - -Diluted EPS Excl. Extra Items 2.036 1.31 1.555 2.473 1.649 1.865 3.573 3.471

Growth Over Prior Year 0.3% (35.6%) 18.7% 59.1% (33.3%) (15.4%) - (2.9%)

Heineken Holding N.V., through its subsidiaries, operates a network of breweries and distributors worldwide. The company owns and manages primarily Heineken and Amstel beerbrands. It brews and sells approximately 170 international, regional, local, and specialty beers, including Cruzcampo, Tiger, Zywiec, Birra Moretti, Ochota, Murphys, and Star.Heineken Holding owns approximately 115 breweries in approximately 65 countries. The company operates through a combination of wholly-owned companies, license agreements,affiliates, and strategic partnerships and alliances. Its wholesalers also distribute wine, spirits, and soft drinks. Heineken Holding N.V. is headquartered in Amsterdam, theNetherlands.


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Share Price as of Nov-04-2008 25.45x Shares Out. 245.0= Market Capitalization 6,235.6- Cash & Short Term Investments 954.0+ Total Debt 10,502.0+ Pref. Equity -+ Total Minority Interest 3,042.0= Total Enterpr ise Value (TEV) 18,825.6Book Value of Common Equity 2,767.0+ Pref. Equity -+ Total Minority Interest 3,042.0+ Total Debt 10,502.0

= Total Capital 16,311.0


For the Fiscal Period Endi ng12 months


Dec-31-2007A

LTMPress Release

12 monthsJun-30-2008A



TEV/Total Revenue 1.6x 0.9x 1.4x 1.2x 1.1xTEV/EBITDA 8.4x 5.0x 7.6x 6.2x 5.3x

TEV/EBIT 12.5x 7.4x 11.1x - -P/Diluted EPS Before Extra 10.3x 15.4x 13.6x 7.1x 7.3xP/BV 2.5x 2.3x 2.3x - -Price/Tang BV 107.5x 37.6x NM - -

Ratios






Dec-31-2007

LTMPress Release


Profitability Return on Assets % 8.2% 7.8% 6.7% 7.4% 7.3% 5.7% Return on Capital % 12.2% 11.4% 10.1% 11.1% 10.8% 8.3% Return on Equity % 27.5% 20.0% 21.1% 27.0% 15.5% 17.2%

Margin Analysis Gross Margin % 40.0% 39.4% 38.3% 37.6% 35.0% 35.2%

EBITDA Margin % 19.8% 20.1% 18.1% 18.7% 17.8% 18.2% EBIT Margin % 13.2% 13.4% 11.3% 12.5% 12.0% 12.4% Earnings from Cont. Ops Margin % 4.3% 3.2% 3.5% 5.1% 3.2% 3.4% Net Income Margin % 4.3% 3.2% 3.5% 5.1% 3.2% 3.4%

Heineken Share Price

18.9

23.9

28.9

33.9

38.9

11/7/05 2/3/06 5/8/06 8/3/06 10/31/06 1/31/07 4/30/07 7/26/07 10/23/07 1/21/08 4/21/08 7/18/08 10/15/08

Heineken Holding NV (ENXTAM:HEIO) - Common Stock - Share Pricing


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I. Agency CostsFamily Control led Companies

Moderate Use of Equity-linked Incentives

II. Appropriate Investment Time Horizon

Nestle CEO Peter Brabeck - 35-year Planning horizon but broken down into 5 yearincrements.

Berkshire Hathaway CEO Warren Buffett - the ideal holding period is forever.

III. Athletic Management

Nestl CEO Peter Brabeck- mountain-climbing metaphor

- Americas cup 2007 Alinghi experience

Berkshire CEO Warren Buffett - investing is a game with no called strikes

Comcast CEO Brian Roberts - squash champion

McClatchy CEO Gary Pruitt - tennis competitor

Management Matters


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I. Warren Buffett

If something is not worth doing at all it is not worth doing well.

Practice makes permanent, not perfect.

Step over one foot fences.

Be right once.

II. Charlie Munger

Charlie Mungers reference to Albert Einstein Lifes goal is to make things as simple as possible, but no more simple.

III. Douglas Conant, CEO Campbell Soup

One cannot talk ones way out of problems that they act their way into.

It is amazing how far one can get in life by staying close to home.

tom russo performance

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