City wire wealth manager retreat oct 2013 final

For Professional Investors Only. Not for Distribution to Retail Investors.

UK Equity - Behind the

Headlines and the Hype

Ben Russon

Fund Manager

October 2013 Franklin UK Opportunities Fund

Franklin Templeton Funds


FRANKLIN UK OPPORTUNITIES FUND

The Fund – June 2013 Onwards

• Ben Russon, lead manager from June 2013

• 30-50 stocks

• Concentrated holdings of between 1.5% – 5%

• Large-cap bias, high quality, long-term investments

• Renamed – Franklin UK Opportunities Fund

2

Franklin UK Opportunities Fund changed its name from Franklin UK Select Growth Fund on 30/09/2013. Franklin UK Select Growth Fund was launched on

17/10/2011 to receive the assets of the Rensburg UK Select Growth Trust.



Investment Themes

3

Debt & Deleverage

Savings and Investment

Stable Core

UK Housing ‘Recovery’

US Housing & Construction

Online Opportunities

Traditional Roll-out Models

Demographics

De-equitisation

Business Risk

Balance Sheet Risk

Management Risk

Valuation Risk

30 – 50

Stock Portfolio

A fundamental research approach focused on high quality companies



The Case for an Unconstrained Approach

0

100

200

300

400

500

600

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

From the 'great moderation' ...

40

50

60

70

80

90

100

110

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

... to a more volatile world

Source: Franklin Templeton Investments as at 20/05/13.

4

• Adopt unconstrained, flexible approach

• Importance of compounding income for total returns

• Focus on downside risk

• Look beyond short-term sentiment



Portfolio Overview

• Tobacco

• Pharmaceuticals

• Utilities

Stable Core

• Travel & Leisure

• Software

• Media

Structural Growth

• Support Services

• Financial Services Special Situations

5

References to particular industries, sectors or companies are for general information and are not necessarily indicative of a fund’s holding at any one time.


Investment Themes


FRANKLIN UK OPPORTUNITIES FUND 7

• Strong market positions across

relatively attractive geographies

• Solid track record of optimising

price/mix to drive earnings

• Focus on research and innovation to

counteract negative forces

Cigarette Net Turnover

£bn 2008 2012 CAGR

Developed 4.8 5.9 5.4%

Developing 5.9 8.3 8.9%

Total 10.7 14.2 7.4%

World market consumption excl. China, India, US Stock Example:

Price/mix remains strong

Source: British American Tobacco Investor Day Presentation, as of September 2013. Please see further information for notes on stock examples. Past performance is

not a guide to future performance.

Cigarette volume split (2012)

Developed

Developing

71%

29%

Stable Core • Tobacco Demographics



• Investor concerns – FX, regulation,

illicit trade, e-cigarettes

• Strong management, strong cash

generation, consistent earnings and

further margin potential

• 12x EV/EBIT, 7.5% FCF Yield

Tobacco producers’ operating margins Consistency of earnings growth

Global drive brands % of total sales

9% 9% 10% 11%

-5% -2%

10% 10% 5% 0%

12% 10%

-10%

-5%

0%

5%

10%

15%

20%

25%

2008 2009 2010 2011 2012 2013HY

EPS Growth FX Impact

19% 19% 15% 11% 7% 8%

30.7

42.5 43.2 40.2

33.0 37.4

44.7 42.7 43.0

36.4

0

10

20

30

40

502008

2012

Source: British American Tobacco Investor Day Presentation, as of September 2013. World Fact Book & Marketing Finance. Please see further information for notes on

stock examples. Past performance is not a guide to future performance.

Stock Example:

Stable Core • Tobacco Demographics



• Publisher and information provider

operating in the science, medical, legal,

risk and business sectors

• Managing the transition from print to

digital

• Diversified across geographies and

business sectors

Online-derived revenues growing in

importance1

Reed Business Information: electronic revenue in proportion to total revenue

Division Digital Revenues

Scientific, Technical & Medical 73%

Risk Solutions 95%

Business Information 59%

Legal 79%

Source: 1. Reed Elsevier Annual Report and Accounts 2012. 2. Reed Elsevier Interim Results 30 June 2013. Please see further information for notes on stock examples.

Past performance is not a guide to future performance.

38%

46% 51%

54%

0%

10%

20%

30%

40%

50%

60%

2009 2010 2011 2012

Electronic Revenue

Reed Divisions: % digital revenue2

Stock Example:

Structural Growth • Media Online Opportunities



2011a 2012a 2013e 2014e 2015e

Sales (£m) 6002 6116 6215 6341 6528

EBIT (£m) 1267 1384 1450 1526 1603

Margin (%) 21.1 22.6 23.3 24.1 24.6

• Strong balance sheet

• Structural growth opportunities that

benefit margins

• Strong dividend growth and attractive

valuation

Online-derived revenues growing in

importance Reed Business Information: electronic revenue in proportion to total revenue

+4%

Electronic

Face to Face

Print

Subscription Transactional

Advertising

-5-7%

+7%

+5-6%

-5-7%

+2-3%

Source: Reed Elsevier Interim Results 30 June 2013, Nomura Equity Research 26/07/13. Please see further information for notes on stock examples. Past performance is

not a guide to future performance.

Format Type

Structural Growth • Media Online Opportunities

Stock Example:



• Self-funded expansion of successful

concepts

• Leading and developing the markets in

which it operates

• Benefitting from structural and market

opportunities

Premier Inn UK structural growth opportunity Independent sector in structural decline

2008 2010 2012

Rooms* 40,251 43,374 51,671

Share (%) 5.8% 6.4% 7.6%

Share of rooms has increased

60% 57% 54%

23% 24% 25%

17% 19% 21%

2008 2010 2012

Independents Other Branded Budget Branded

Total UK

hotel market 686,000

rooms 679,000

rooms

682,000

rooms CAGR

+5.1%

+2.3%

-2.8%

42%

30%

12%

6% 5% 3% 2%

Premier Inn

Travelodge

Holiday Inn

Ibis

Jurys Inn

Days Inn

Ramada Encore

Source: Whitbread as of 03/07/13. 1. Companies, Exane BNP Paribas estimates. Please see further information for notes on stock examples. Past performance is not a

guide to future performance.

Budget hotel marketshare1

Stock Example:

Structural Growth • Travel & Leisure Traditional Roll-Out Models

//upload.wikimedia.org/wikipedia/en/4/4f/Premier_Inn_logo.jpg



• Plenty of potential domestic capacity

• Backing the management to execute

• It works with coffee too…

Half of the growth opportunity comes

from London Premier Inn rooms in London

2,415 2,911 3,500 3,177

5,179 8,250 2,474

2,848

5,750

1,100

2,500

2012/2013 Total includingcommitted pipeline

2018 milestone*

Hub by Premier Inn

Central London

Greater London excl.Central LondonM25 belt

12,038

c. 20,000

650

1,005 1,300

c. 2,000

0

500

1000

1500

2000

2500

2010/2011 2012/2013 2015/2016 2017/2018

Sys

tem

Sal

es (

£m)

8,066

6.0% 9.0% 13.0% Premier

Inn share

Costa Coffee doubling system sales by 2018

20%

22%

c.33%

International System

Sales Share

Source: Whitbread as of 03/07/13, Preliminary Results Presentation 2012/2013. Please see further information for notes on stock examples. Past performance is not a

guide to future performance.

Structural Growth • Travel & Leisure Traditional Roll-Out Models

Stock Example:


Electionineering



• Returns do not support criticism of

‘profiteering’

• Market forces have produced some of

the lowest energy bills in Europe for UK

consumers

• UK needs £100bn+ of new investment –

‘lights out’ is more than a media headline

Electricity retail price versus benchmark cost

(including margin)

Source: Centrica, Deutsche Bank Research, Credit Suisse, National Grid as of September 2013. Please see further information for notes on stock examples.

Past performance is not a guide to future performance. .

Forecast of UK winter capacity margin Little difference in rates of growth since 2000

Stable Core • Utilities De-equitisation

Stock Example:

-5%

0%

5%

10%

15%

20%

9/2

012

12

/201

2

3/2

013

6/2

013

9/2

013

12

/201

3

3/2

014

6/2

014

9/2

014

12

/201

4

Reserve margin (w/o closures above opted-out coal)Reserve margin less c4.1GW CCGT mothballing

%



• Commodity prices and government

policy largely explain rising energy bills

• Ability to divert investment elsewhere or

return cash to shareholders

• Strong balance sheet, 7% FCF yield, 8x

EV/EBIT

Source: DECC, JP Morgan Europe Equity Research, company reports as of 26/09/13. Please see further information for notes on stock examples. Past

performance is not a guide to future performance.

.

Components of household electricity bill in 2013

2012 segmental split of operating profit (%) British Gas 2012 residential revenue split

24%

9%

52%

8%

7%

Network

Environmental & Social

Fuel Costs

Other Costs

Profit

22%

6%

11%

11%

35%

3% 12% British Gas Residential

British Gas Business

Bristish Gas Services

Generation

Gas Production

Gas Storage

Direct Energy

EU ETS 10%

CPF 6%

Warm home

discount 8%

FITs 9%

Smart Meters

& Better Billing

1%

ECO 28%

RO 38% Energy and Climate

Change Policies

14%

Wholesale energy cost

37%

Network

costs

23%

Other supplier

costs and

margin

21%

VAT

5%

Stable Core • Utilities De-equitisation

Stock Example:



Source: Oriel Securities and Franklin Templeton Investments as at 30/06/13.

-30

-20

-10

0

10

20

30

40

0

500

1,000

1,500

2,000

2,500

3,000

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Housing transactions (000,LHS) House prices (% yoy, RHS)

Housing transactions and house prices • Government policy very committed:

• Funding for Lending Scheme

• Help to Buy

• Planning environment

• Far reaching implications:

• Bank balance sheets

• Construction employment

• Consumer confidence

• It may get you re-elected

A ‘proper’ correction never happened

Housing ticking up again

House price/earnings ratio (x)

3.0

3.5

4.0

4.5

5.0

5.5

6.0

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014House Price/Earnings Ratio Average

Special Situations • Home Construction UK Housing ‘Recovery’



Pricing of 2-year fixed rate mortgages by LTV (%)1

Borrowing has got cheaper over last 12 months…

Source: Bloomberg and Franklin Templeton Investments as at 30/06/13. 1. Source: Regulated Mortgage Survey, CML.

%

-40-35-30-25-20-15-10

-50

01/0

6/20

08

01/1

0/20

08

01/0

2/20

09

01/0

6/20

09

01/1

0/20

09

01/0

2/20

10

01/0

6/20

10

01/1

0/20

10

01/0

2/20

11

01/0

6/20

11

01/1

0/20

11

01/0

2/20

12

01/0

6/20

12

01/1

0/20

12

01/0

2/20

13

01/0

6/20

13Consumer confidence recovering UK Consumer Confidence Index

• Mortgage availability increasing

• Mortgage terms improving

• Pent up demand

• Ripple effect and feel-good factor

• Variety of ways to gain exposure

Special Situations • Home Construction UK Housing ‘Recovery’


Appendix



• UK equity specialists based

in Leeds

• Acquired by Franklin

Templeton Investments in

January 2011

19

About Franklin UK Equity Team

Source: Franklin Templeton Investments as at 30/06/13. The Franklin UK Equity Team was previously part of Rensburg Fund Management Limited. The

company changed its name to Franklin Templeton Fund Management Limited on 17/10/11.

• Strong and stable team

– Average investment

experience: over 20 years

– Cover the entire market

with specific areas of expertise

• Ben Russon joined in April 2013



Investment Parameters

20

Franklin UK Opportunities Fund

• Unconstrained portfolio construction process

30-50 Stocks

• Focused portfolio of high conviction ideas 1.5%-5% Weightings

• Emphasis on high quality, long-term investments

Large Cap Bias



Investment Process

21

Business Risk

Balance Sheet Risk

Management Risk

Valuation Risk

A broad top-down perspective on the outlook for economies and financial markets provides the framework for our bottom-up stock picking selection process

A fundamental research approach focused on high quality companies

30 – 50

Stock Portfolio



Franklin UK Opportunities Fund

Fund Details

Management Ben Russon, Mark Hall, Colin Morton

Asset Category UK Equity

Investment Style Blend

IMA sector IMA UK All Companies

Benchmark FTSE All Share Index

Launch Date 17/10/2011

Number of Positions 40

Portfolio Size £97 million

22

Source: Franklin Templeton Investments, as at 30/09/13. Franklin UK Opportunities Fund changed its name from Franklin UK Select Growth Fund on 30/09/2013.

Franklin UK Select Growth Fund was launched on 17/10/2011 to receive the assets of the Rensburg UK Select Growth Trust.

All fund performance data is based on the mid price of the Rensburg UK Smaller Companies Trust from its launch on 01/07/1991 to 30/09/2011 and the net asset

value of the Franklin UK Smaller Companies Fund A(inc) shares thereafter. Holdings of the same issuer have been combined.

ISIN SEDOL Bloomberg

A(inc) GB00B45MQD36 B45MQD3 BWDAGGI LN

W(acc) GB00B76GK996 B76GK99 FUKSGWA LN

Z(acc) GB00B7F47W60 B7F47W6 FUKSGZA LN



What Has Changed?

• Ben became lead manager in June 2013

• Number of portfolio holdings now <50

• Standard holding size >1.5% weighting

• Slight move up the market cap scale

23



Market Cap Breakdown

Source: Franklin Templeton Investments as at 30/09/13.

31 March 2013 30 September

2013

FTSE 100 66.1% 78.3%

FTSE 250 31.5% 17.4%

Other 1.5% 1.6%

Cash 1% 2.7%

No. of stocks 66 40



What Remains the Same?

• Many of existing stock names are consistent with this

investment approach

• Asset allocation and sector exposures broadly consistent

• Mark Hall remains a key component of the investment

team for the Franklin UK Opportunities Fund and the

wider product suite

25



• Greater downturn and more

established recovery than UK

• Different supply/demand balance

versus UK

• Many corporates well positioned to

benefit

• Challenged by recent moves in

interest rates

200

400

600

800

1000

1200

1400

1600

Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12

New

Ho

me

Sal

es

(Th

ou

san

ds)

New Home Sales (Thousands)Jun-13

Source: Franklin Templeton Investments and Bloomberg US Census Bureau as at 30/06/13. 1. Source: S&P Case-Shiller Composite 10 Home Price Index

US recovery from a lower base and further

advanced than UK US New home sales

-30%

-20%

-10%

0%

10%

20%

30%

88 93 98 03 08 13

Sharp recovery in US house prices US home price appreciation. Year-over-year change 31 January 1988 - 30 April 20131

US Housing & Construction Special Situations •Home Construction



• Construction equipment rental business

• 3 drivers – cyclical, structural and market

trends

• High degree of operational leverage

• Debate is centred upon the valuation

2010 2011 2012 2013e 2014e

Sales (£m) 834 919 1121 1345 1552

EBIT (£m) 65.5 101 175 281 347

Margin (%) 7.9 11.0 15.6 20.9 22.4

Source: 1. Kaplan Associates/Management Estimates. 2. Bloomberg as at 29/08/13. This is an example of an investment purchased pursuant to investment advice of

Franklin UK Opportunities Fund; the investment may or may not be currently held by Franklin Templeton Funds. This is not a complete analysis of every material fact

regarding an industry, security or investment and should not be viewed as an investment recommendation. The actions taken with respect to this investment, and its

performance, may not be representative of other advice or investments. Factual statements are taken from sources considered reliable, but have not been independently

verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as investment advice or an offer for a particular security

or as an indication of trading intent for any Franklin Templeton fund. Past performance is not a guide to future performance.

Ashtead Group earnings and estimates2

US and UK retail penetration (%)1 Stock Example:

25

45 50

60+

0

15

30

45

60

75

2000 2011 2014E USPotential

%

75

0

15

30

45

60

75

2012

%

US UK

US Housing & Construction Special Situations •Home Construction



Important Information For professional investor use only, this document is not aimed at, nor intended for use by retail investors.

Copyright © 2013 Franklin Templeton Investments. All rights reserved.

This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or invitation to apply for shares of the UK-domiciled

OEIC, Franklin Templeton Funds OEIC (“the Fund”). Nothing in this document should be construed as investment advice.

Franklin UK Opportunities Fund changed its name from Franklin UK Select Growth Fund on 30/09/2013. Franklin UK Select Growth Fund was launched on 17/10/2011 to receive the

assets of the Rensburg UK Select Growth Trust.

Stock examples shown are examples of an investment purchased pursuant to investment advice of Franklin UK Opportunities Fund; the investment may or may not be currently held

by Franklin Templeton Funds. This is not a complete analysis of every material fact regarding an industry, security or investment and should not be viewed as an investment

recommendation. The actions taken with respect to this investment, and its performance, may not be representative of other advice or investments. Factual statements are taken from

sources considered reliable, but have not been independently verified for completeness or accuracy by the fund’s manager or its affiliates. These opinions may not be relied upon as

investment advice or an offer for a particular security or as an indication of trading intent for any Franklin Templeton fund.

Subscriptions to shares of the Fund can only be made on the basis of the current prospectus, the relevant Key Investor Information Document, accompanied by the latest available

audited annual report and the latest semi-annual report if published thereafter, which can be found on our website or requested from the address below.

The value of shares in the Fund and income received from it can go down as well as up, and investors may not get back the full amount invested. Currency fluctuations may affect the

value of overseas investment. An investment in the Fund entails risks which are described in the Fund’s prospectus and in the relevant Key Investor Information Document. The Fund

invests in a specific sector or geographical area and the returns may be more volatile than a more diversified fund.

No shares of the Fund may be directly or indirectly offered or sold to nationals or residents of the United States of America. Shares of the Fund are not available for distribution in all

jurisdictions and prospective investors should confirm availability with their local Franklin Templeton Investments representative before making any plans to invest.

Opinions expressed are the author's at publication date and they are subject to change without prior notice. References to indices are made for comparative purposes only and are

provided to represent the investment environment existing during the time periods shown. An index is unmanaged and one cannot invest directly in an index. The performance of the

index does not include the deduction of expenses and does not represent the performance of any Franklin Templeton Group fund. Any research and analysis contained in this

document has been procured by Franklin Templeton Investments for its own purposes and is provided to you only incidentally.

For a free copy of the latest prospectus, and the relevant Key Investor Information Document , the annual report and semi-annual report, if published thereafter or for more information

about any Franklin Templeton Investments’ fund, please contact: Franklin Templeton Investments, Telephone: 0800 305 306, Email: [email protected] or write to us at

the address below.

Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: The Adelphi, 1-11 John Adam Street, London WC2N 6HT. FTIML is authorised and

regulated by the Financial Conduct Authority.

28

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