SFW Sep 10 Final

In this quarterly edition we review performance and attribution. We examine some risks of merger & acquisition strategies. We discuss Campbell Brothers in detail ‐ a portfolio position. And we make a comment on the changing world order.

Selector Funds Management Limited ACN 102756347 AFSL 225316 Level 3, 66 Hunter Street Sydney NSW 2000 Australia Tel 612 8090 3610 www.selectorfund.com.au

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sletter # 29

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#29

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e the fund mank of ScotlReview on theory. Themost share ine.

aper’s Jameset. Volatility confronting olatility appeare on the ritil equity ret

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1

Septem

Select ACN 1 Level 3 Teleph

Table Page Page Page Page Page Page Page Page Page

mber 2010 Selec

tor Funds Manag02756347 AFSL 3, 66 Hunter Strhone 612 8090 3

e of Content

1: Letter to

3: Performa

3: Performa

3: Portfolio

5: The year 11: Campbe

21: The cha

23: Compan

25: Portfolio

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gement Limited225316 reet Sydney NSW3610 Web www

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investors

ance Septem

ance table si

Top 10

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#29

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tion index uhosen for ththe great mas historicalund manageor the large ifferentiatedos offered b

r #29

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und deliveremulation In

t returns aft

und % 6.532.50 3.48 6.15

Top 10 JBillabongCochlearFlight CeIOOF HoIRESS MaPharmaxResMed Seek SIRTeX MWorleyPTop 10 =

unaware stohe Fund. Asmajority of illy been veryer. Our stocresource cod broad capby most large

ed a net gainndex. Perfor

ter all fees

AOAI % 8.681.73 4.53 7.87

une 2010*g Internationr entre ldingsarket TechnoxisInc.

MedicalParsons = 59.3%

ck selections shown abots equity exy unlike thatck selection ompanies, RIp stock selece fund mana

n of 6.53% armance stat

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against an tistics are

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r than the

3

Septem


PerfoTopFligBlacWhIOOSee

The sand rthe liimpabusincontrwerebenigbusin On thin Blperfoeventthe gbalanmadetwo ychang Table RevenEBIT $NPAT IncomROCE Net C In cocurrebillio

mber 2010 Sele


ormance attp 5 stock conht Centre ckmores itehaven OF Holdings k

strong local reflected in kes of Cochct on profitsnesses are prol. On that pleasing togn retail envness fundam

he positive sackmores (ormers. Flights of 2008. group’s sharence sheet ae little senseyears and thges made du

e 1: Flight Ce

nue $m $m $m me Margin % % Cash $m

ontrast, Qanently valued n. For 2011,

ctor Fund Quart


ribution for ntributors

dollar is certhe negativelear, ResMes is not to beperforming a front, the o the eye. Avironment, tentals and p

side of the lreviewed inht Centre, inSheer panice price divend an equae to us and whe business iuring the pe

entre Track 2006 974 111 80 11.4 42 43

tas reportedby the ma the group is

terly Newsletter


the quarter%

2.7%1.0%0.9%0.7%0.4%

rtainly playie contributioed, News Coe lightly dismand how marecent resu

Apart from Bthe remaininpositive futu

edger, Flighn our June n particular,c among inv 89% to a nally impresswe held our is enjoying triod.

Record 2007 1,122161 121 14.3 4190

d a net prorket at $6 bs on a PER o

r #29

ia om.au

r Top 5

% Cochl% ResM% News% Billab% IRESS

ng havoc amons to perforporation anmissed, our management dults from allBillabong thng three arere prospects

t Centre an2010 quart, is worthy ovestors durinnew decade sive earningground desphe fruits of

2008 1,408200 143 14.2 36(0.1)

fit of $112 billion in coof 14 and a fu

5 stock detralear

Med Incs Corporatiobong InternaS Market Tec

mong our mormance durnd Billabongmain concerdeals with t of the aboat is still coe a picture os.

d our recenterly newsleof special mng the globalow of $3.3gs record, thpite the anga stronger c

2009 1,47489 38 6.0 1433

million for tmparison toully franked

actors

n ational chnology

major exportering the quag. However, rns rests withhe things unove noted coming to griof health w

tly added inetter) were mention folloal financial c9. Despite ithe market’suish felt. Rocurrency and

2010 1,521 206 140 13.5 33144

the 2010 yeo Flight Cenyield of 4.0%

% ‐0.4% ‐0.3% ‐0.3% ‐0.2% ‐0.0%

er players arter from while the h how the nder their companies ips with a ith strong

nvestment standout

owing the crisis, saw ts healthy s reaction oll forward d business

2011(e) 1,670 231 162 13.8 32 137

ear and is tre’s $2.3 %. SFM

4

Septem


The y If wewoulliving It is a158‐ybeenworldshoufor a Whensuddemakepartyraisedplougsurviv“Earn For tbe a abouafter The uThe nbusinmemwrote“OveWesfWesfand sharereflec

mber 2010 Sele


year of living

were lookid rank as thg dangerousl

a little over tyear‐old inve well documd. Closer to ld serve mojob well don

n the musicenly found te matters wy. Many werd an abundghed over $1val. And asnings Dilutio

hose investostellar periot to end andthe extreme

urge to grownear and prness boards ories, the ce about thrpaying forfarmers andfarmers have153% respeeholders hacted in a sha

ctor Fund Quart


g dangerous

ng to descrihe year of sly.

two years aestment banmented, thehome the f

ore as a warne.

c stopped fothemselves

worse their fre left fightiance of new100 billion os we notedn”, investors

ors who parod. Stock prid were fuellees, the realit

w resent dangecrave it andchallenge rehese danger assets”, fd Primary He prosperedectively, theve paid a hare price fall

terly Newsletter


sly

ibe the recesurvival, 200

go that globnk, Lehman Be economicfinancial repning of wha

ollowing thewithout a sformer partnng for businw capital atof new capit in our Juns paid a hea

rticipated in ices zoomeded by the sigty check faci

er is that cod investmenemains – acers in our focusing spHealth Care.d with sharee same canhefty price.of around 4

r #29

ia om.au

ent past from09 the year

bal markets Brothers. W impacts copercussionsat may have

e Lehman’s feat, just likeners, the baness survivalt precisely tal into our lone 2009 quvy price thro

the torrentd on the bacgnificant shaing all invest

onstant neent banks urgct prudentlyMarch 20ecifically on While inve price gainsnot be said This busin45%.

m an investoof revival a

were rockedhilst the fallontinue to have been e been rathe

fallout, highe in a game anks, were tl. And with the wrong tocally listed uarterly newough massiv

t of new raisck of relief tare price distors is where

ed to grow. ge it. For thoy and proce010 quartern three coestors from on newly ra

d of Primarness is unde

ors perspectand 2010 th

d with the cout that follplay out arless obviouser than any

hly geared bof musical the first to few alternattime. In all, businesses

wsletter artve earnings d

sings, 2009 that the worscounts on oe to from he

Investors dose of us wed with caurly newslettompanies, Rboth Rio T

aised capitary Health Cer industry

tive, 2008 he year of

ollapse of lowed has round the s but that accolades

businesses chairs. To leave the tives they investors to ensure icle titled dilution.

proved to rld wasn’t offer. Now ere.

emand it, ith longer ution. We ter titled Rio Tinto, Tinto and al of 167% are. Here pressure,

5

Septem


So wiWhileindicaclear undelands Table # 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.

Havin2009,mergthe repursu

mber 2010 Sele


ith these coe 2008 is stations of a mevidence ofrway. As Tscape.

e 2: Corpora

2010 BuyeMay ValspAug AP EJul AegiDec NatioNov AMPMay CamJul AspeJul BanpJul GrainAug AgriuMay GUDSep AnatSep GoldSep PrivaSep ArchMar NewJul PeopAug BHP Aug StocJun BillaMay CarlyAug BrooSep SantSep DartOct NIB HOct NewOct Kaga

ng “cleaned , investmengers and acqecent reportuing “growth

ctor Fund Quart


mments as atill relativelymood shift af this shift is Table 2 illu

te activity s

er par agers s Group plc onal Australia P pbell Brothersen Group pu Minerals nCorp um Inc D Holdings tolia Minerals dcorp Inc ate Equity her Capital wcrest Mining plebank Billiton kland bong Internatiyle Group & TPokfield Infrastrua Fe Holdings Energy Holdings

w Hope Corporaara

up” by chart bankers huisition spating season h” opportun

terly Newsletter


a backdrop,y raw in thmong the inin the grow

ustrates, de

corecard 20

SeWAM

Bank AXAX

s ASiCeAWAWDAvAFoKeLiRoPoA

onal WPG Hucture Pr

WAG

ation NCo

rging exorbiave now tuce. A consiswas the rennities being

r #29

ia om.au

we considee minds of nvestment bwing numberals are bei

010

ellerWattyldtrans

Mitchell CommuXA Asia PacificXA Asia Pacificmmtecigma Pharmaceentennial CoalWBWBexionvoca Resourcendean Resourcoster’s Group Weycorphir Goldoss Human Dirotash Corporatevum

West 49ealthscoperime Infrastruc

Wrightways Auspollo GasMHBAorthern Energyopper Strike

tant fees durned their atent theme newed willinshopped ab

r the currenmost invesankers and of corporating done a

unications Groc Holdings c Holdings

euticals Divisio

escesWine Division

rectionstion of Saskatc

cturestralia

y

uring the caattention to from managgness to conbout by inve

nt investmenstors, there company bote marriagesacross the

Valu$14$10

oup $36BlocFaile$14

on $900$2,5Faile$1,2$84$91$3,7$2,3$47$9,5$58

chewan US$$314$10$1,9$1,6$93$94$140$19$16

pital raisingthe equallygement teamnsider, and iestment ban

nt climate. are clear

oards. The s currently corporate

ue 2M 5M 3M cked ed 8M 0M 500M ed 226M M 6M 760M 300 ‐ $2,700MM 500M M 40,000M 4M 1M 987M 618M M M 0M 3M M

frenzy of y lucrative ms during interest in nkers. And

6

Septem


frankon baAccorcomblevel placeUS cohavencorpo Closeconceundebecoconticontr On thWe awealtgrowwealtperioand compmoatreturto grfashio Past SWe aofferwithoundeBillabtestin(reviedesigfinan

mber 2010 Sele


kly this shoualance sheetrding to Mbined total oof corporat

e in the Uniteompanies non’t seen casorate activity

er to home,ern as highlrstand whymes very dinue.” Such rary to the lo

he lookout foare always oth. Our pref using interth creators, ods of five anrising dividepany changits around thrns have beerow the buon for share

Successes anare not tryining with a out merit. rtaken bolt bong Internang provider ewed Marchgn company cial services

ctor Fund Quart


ldn’t surprists and the laMacquarie Eof more thane gearing ined States. Wow have aroh being freey both locall

, the institulighted by ay boards arelutive to theviews have

ong term int

for dumb deaon the lookoferences arenally generaincluding Cond ten yearsend streamsng acquisitihese compaen duly attrasiness franceholders. Tab

nd failures ng to suggeswell thougAs an examon acquisi

ational (reviCampbell B

h 2010 quarWorleyPars

s and data op

terly Newsletter


se anyone sick of revenuquities, Aun $100 billion 15 years. EWhile governound ten peely splashed ly and abroa

utional impea recent fune pretty cae overall rete a way of terest of sha

als out for dume those busated cash floochlear, Bla these busins (excludingons and diluanies haveactive. In cochise in botble 3 illustra

st that businht out acqumple, severtions. The iewed DeceBrothers (serterly newslesons (reviewperators IOO

r #29

ia om.au

nce it is a reue growth instralia’s topon in cash onEven more rnments are ser cent of toabout just yad.

erative to dnd manager autious, but turn and thedriving opireholders.

mb deals thasinesses thaow. There ackmores, Renesses have g ResMed) utive capitabeen suffic

ombination,th a financtes this poin

nesses that auisition or eral businesslist includesmber 2008 ee review beetter) projecwed March OF.

eflection of n some quartp 200 listen hand at Juevealing is tstruggling unotal assets inyet, all the si

do somethincomment othat canno

e current stanion even t

at have theat have the are many exeece Australdelivered stwithout thel raisings. Iniently stronthey have acially responnt.

augment theeven a transes owned s surf and squarterly nelow), IRESSct infrastruc2009 quarte

the growingters of the ed companiene 30 and tthe cash hoander a weighn cash. And gns point to

ng is also aon the subjeot persist fate of lazinethough they

potential tability to o

xamples of tlia and ResMtrong earnine need to un short, theg and the allowed the nsible and r

eir product nsformationby the Fu

sports appanewsletter), S Market Tecture and enerly newsle

g cash pile economy. es had a he lowest ard taking ht of debt, while we

o renewed

a point of ect “I can forever. It ess cannot y may be

o destroy organically these true Med. Over gs growth undertake e business economic managers rewarding

or service al deal is und, have arel group analytical echnology ngineering etter) and

7

Septem


Table ComBlackReveEBIT NPAT EPS ¢DPS Share CochReveEBIT NPAT EPS ¢DPS Share ReecReveEBIT NPAT EPS ¢DPS Share ResMReveEBIT NPAT EPS ¢DPS Share

Each somepass”an inmanuCSL isshare

mber 2010 Sele


3: Company copany kmores enue $m $m T $m

¢ ¢ e Price $

hlear enue $m $m T $m

¢ ¢ e Price $

ce Australia enue $m $m T $m

¢ ¢ e Price $

Med enue $USm $USm T $USm

¢ ¢ e Price $US

companyetimes painf” comes alonvestor. A caufacturer ZLBssued $300 e ($22 pre‐sh

ctor Fund Quart


omparison

has succeul process tong and manse in point iB for an initimillion of nhare split). N

terly Newsletter


Today 214.936.724.3 146.8112.022.30 734.8220.5155.2 275.7200.074.32 1,503.5163.6114.3 115.058.024.20 1,092.4240.4190.1 252.0‐ 60.81

essfully exeo bring it togagement sais blood groial capital ounew capital aNot only was

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5 Years

134.417.411.7

74.058.012.95

349.082.559.6

112.480.039.20

1,009.6108.575.3

76.038.012.90

425.597.464.8

94.0‐33.00

ecuted acqugether. Wheays yes, thatup CSL’s acqutlay of $890at an adjusts this an offs

s

6

uisition straen a big oppt’s when youquisition in 20 million. In ted share spshore acquis

10 Years

79.68.75.4

36.233.05.80

144.2 30.420.2

39.630.028.76

593.6 60.538.8

39.025.03.55

115.6 33.122.1

69.0‐19.59

ategies desortunity “tou hold your 2000 of globundertakingplit price of sition with al

spite the oo good to breath as

bal plasma g the deal, $7.33 per ll the risks

8

Septem


inhermarkwith initia Todayalmoearniwith now t In stabusinUnfogenemanaexactWinenow has swine such situat BHP pEnterto gehave globa With thing sharebase. So mSaskaPotasis alreamort7.0x.

mber 2010 Sele


rent in suchket capitalisathe buyout l upfront pa

y the combst 80% of gngs before their purchatrading at $3

ark contrastness even thrtunately a rating low ragement hast. Wine acques for $2.9 bcollectively niffed the oassets will tthere remation by sellin

pursuing gror BHP Billitont Rio Tinto abeen a blesal crisis and n

China’s demis clear, CEholders, pref

anagement tchewan with managemeeady generoutisation (EBITPaying a fair

ctor Fund Quart


h a move, itation of $3.of the worlyment of $7

bined divisiogroup earnininterest andases and sha31.85 per sh

t stands thehough the gseries of dureturns on cs presided ouisitions inclillion and thsit on the copportunity. test the mettains hope thng at the bot

owth n and its puracross the linssing in disgnow finds its

mand for reEO Marius Kferring instea

has set its sh a US$40 bent. BHP can us, placing theTDA) multipleprice for an a

terly Newsletter


t was also l3 billion. Thd’s second 786 million.

on of ZLB Bngs, namelyd tax (EBIT).areholders hhare ($95.55

e Foster’s Ggroup’s beerumb decisiocapital empover a greatluding Mildae top of theompany’s boA low ball btle of the bohat having bttom. Time w

rsuit of longne with its $uise. Havingself in an im

sources remKloppers isn’ad to spend t

sights on Cabillion cash bwalk away oe target on ae of 11.4x in asset is one t

r #29

ia om.au

large in thehe group aulargest plasm

Behring, reny $3.5 billionAll in all ma

have reaped pre‐share s

Group. The r business reons to invesployed has bt deal of heara Blass fore market buyooks at just bid of $2.3 board. So far mought at thwill tell.

life, world c140 per shag dodged thpeccably str

maining strot about to the growing p

anadian fertibid. The offerr up the anten earnings becomparison hing but the

e context ofugmented thma player A

named CSL n of revenuanagement the rewardsplit).

Fund has nemains a stst in a capitbeen its undeartache, somr $428 millioyout of Sout$3.2 billion.illion ‐ $2.7 managemene top they

class resourcre cash and at bullet, BHrong financia

ng, cash is breturn largepile to expan

ilizer groupr has been wee. Yet the pricefore interestto BHP’s owrisk of paying

f the group’his purchaseAventis Behr

Behring, coe and $1.1 have been vs with the sh

no investmeandout quaal intensivedoing. In alme $3.8 billon, US basedhcorp for $3 Today privabillion for thnt has resistewon’t comp

ce deposits. scrip bid in HP sailed thal position.

building faste amounts ond the group’

Potash Corpell and truly rce Kloppers ht, tax, deprecwn current vag a top price

’s existing e in 2003 ing for an

ontributes billion of vindicated hare price

nt in this lity asset. industry, l, Foster’s lion to be d Beringer 3.7 billion, ate equity he group’s ed. And as pound the

Its failure 2008 may rough the

t. And one of cash to ’s resource

poration of rebuked by has offered ciation and aluation of when your

9

Septem


own sgreat UnderWarrecommin on “CharThe reat theat the In BHterm shareBuffet “If shathat bunderstock WatchThis lebeingprote “Whehearinbalanpropodrastibarbe They 2008,arounlikelyas a w

mber 2010 Sele


shares are trdisservice.

rstanding when Buffett picmentary to shthe group’s o

rlie and I enjoeason for oure current mare same inadeq

P Billiton’s caimpact on shholders are att continued,

ares of a probuyer to marvalued stock is overvalued

h out for Inveeads us back in the best iction to exist

en stock is thng from an anced discussioosed acquisitiic remedy, ouer whether yo

say that tim, we think itnd and whey to grow furwin‐win situa

ctor Fund Quart


rading at a d

hat your busincked up on tareholders. Inown distaste i

oy issuing Berr distaste is sirket price, whquate price by

ase the boardareholders isasked to pay

ospective acqake a sensiblk for a fully‐vad, it’s a differe

estment Bankk to those invinterests of sting sharehold

he currency advisor, it appon. Directors ion, with its ur recommendou need a hair

me heals all t is only a mn they do, wrther. Sharehation, rarely

terly Newsletter


discount is te

ness is worththis point in tn one sectionin issuing sha

rkshire stock aimple, if we wy in the worldy issuing our

d is opting to less than if Bfor a busines

uirer are sellile deal in analued one witent story.”

kers vestment banshareholders,ders,

being complpears to me should hire fee contingedation in resprcut.”

things. Welmatter of timwatch out. Aholders needy are. SFM

r #29

ia om.au

empting fate

h the 2009 Bern headed “Anres to comple

as much as wwouldn’t dread should we sstock in a me

pay for the PBHP shares wess using their

ing below then all‐stock dethout hurting

nkers hankeri Buffett has

leted in an athat there is a second adent on the dpect to the us

l two years me before baAlready the ld to remain

or ultimately

rkshire Hatha Inconvenienete mergers,

we relish prepam of selling sell a significaerger?”

Potash acquisere used as cr own scrip. T

eir intrinsic veal. You simyour shareho

ng for a deaa sensible so

acquisition aonly one wa

dvisor to makdeal not goinse of advisors

on since theankers start ist of corpovigilant beca

y doing shar

away Inc. annt Truth”, Buff

pping for a coBerkshire in ant part of the

sition in cash onsideration.The trouble w

value, it’s impply can’t excolders.....if an

l. Too often tolution to pro

nd when diray to get a rake the case ag through. As remains, do

e financial csplashing thrate deals isause acquisi

eholders a

nual report fett zeroed

olonoscopy. its entirety e company

so its long . Too often with this as

possible for change an n acquirer’s

touted has ovide some

rectors are ational and against the Absent this on’t ask the

ollapse of hat money s long and itions sold

10

Septem


Camp TableYear 18631952

19981999

20002001

200520052005

20052006

20062006

200620072007

2007

20072008200920092009

200920102010

2010

mber 2010 Sele


pbell Brothe

e 4: CampbeEvent

3 Company st2 Campbell B

company cproducts.

8 NPAT excee9 ALS acquire

making ALS0 Company s1 Jan – ALS a

established5 NPAT hits $5 CEO Bruce 5 Greg Kilmis

respectively5 Company a6 Jan – Acqu

for $57M, revenues to

6 Acquires Sw6 Acquires tw

$11M in ca6 Dec – Comp7 Company s7 Sep – Ente

Inc for $18M7 Company a

market lead7 Company p8 Company s9 Company s9 Company re9 Takeover o

cash. 9 Company la0 Group NPA0 Company b

cash / scrip0 Company e

capitalisatio

ctor Fund Quart


ers (CPB)

ell Brothers C

tarts business Brothers lists oovering analyt

eds $10M for fes Chemex LabS the single largells its soap buacquires Canadd in 1982 for $1$21.9M on reveBrown retires ster appointedy. nnounces 1:5 ires Enviro‐Tespushing annuo $300M suppowedish based lwo laboratory ash. pany sells Homells out of listers environmenM. acquires Austrader in coal testposts NPAT of $hares hit all timhares hit multeports record of PearlStreet,

aunches 1:6 reAT falls 29% to bids for listed p offer valuing employs over 8on now sits at

terly Newsletter


Corporate H

life as a soap mn the Australiatical laborator

first time on reboratory Groupgest minerals ausiness to Fauldda’s leading en10M. enues of $436following 15 yd new CEO, Ge

rights issue at st Laboratory Gal North Ameorted by 58 lababoratory grouacquisitions ba

me Services Dived coal analyticntal market ac

alian coal servting with appro$59M on revenme high of $36i‐year low of $NPAT during 2Australia’s lar

enounceable rig$75M, recordimineral testinbusiness at $18,000 staff, op$2.1B, with re

r #29

ia om.au

History 1863

maker.an Stock Exchay services, spe

evenue of $175p for $8M, withanalysis group ding Healthcarnvironmental a

M.ears as CEO aneneral Manage

$9.00 per sharGroup, Canadarica laboratoryboratories. up Analytica Aased in Melbou

vision to Rentocal services grocquiring US en

vices company oximately 46%nues of $663M6.36 per share 8.29 per share2009 of $106Mrgest non‐dest

ghts issue @ $ng its first dropng consultancy48M. erating in 200venues in exce

‐ 2010

ange, growing iecialty chemic

5M.h operations inin the world.re for $4.6M inanalysis group

nd 36 years siner and employ

re, raising $75a’s second largy revenues to

B for initial casurne (Consulch

kil for $48M.oup CCI Holdinvironmental la

ACIRL for $76% market share.M, market capitduring Septeme during March on revenues otructive testin

22 per share top in earnings sy group Ammt

0 plus sites in 4ess of $1.0B.

into a leading als and distrib

n Canada, USA

n December. p Analytical Se

ce joining comyee of ALS sin

M to fund growgest environme in excess of

sh payment of hem) and West

gs following taaboratory grou

6.8M, employin. alisation excee

mber 2008. h 2009.of $920M. g services pro

o raise $196.6ince 2002. tec, finally gain

44 countries. T

diversified serbutor of hospit

A, Mexico and P

rvices Laborat

mpany in 1969. nce 1992 and

wth initiatives.ental testing g$125M and g

$25M. t Africa (Abilab

akeover rejectiup e‐Lab Analy

ng 400 people

eds $1.5B.

ovider for $64

M.

ning approval

The group’s ma

11

vices tality

Peru,

ories

1981

.group lobal

b) for

on.ytical

e and

M in

with

arket

Septem


Table$’M Revenue

Operating E

EBIT

NPAT

EBIT Margin

Shareholde

Net Debt / (

Market Cap

Enterprise V

Buyout (%)

ROCE (%) *

GOCF / EBIT

Underlying

PER

Dividend pe

Dividend Yie

Share Price

Issued share

* ROCE** Buy

HistoThereninet1863 Morrin 19businattracwith

mber 2010 Sele


e 5: Campbe

Expenses

ns (%)

rs’ Equity

(net cash)

pitalisation

Value

**

TDA (%)

EPS (¢)

er share (¢)

eld %

30 June ($)

es (m)

E = EBIT / (Shareyout represents E

ory e are few listieth centurywhen it b

rison Campb10, leading tness separatcting the intan offer to

ctor Fund Quart


ell Brothers F1995 2000 97.1 271.7

89.9 250.3

7.2 21.4

4.7 12.1

7.4 7.9

30.5 88.6

18.4 48.2

47.0 125.1

65.4 173.3

11.0 12.3

15.0 15.6

85 44

27.2 39.0

9.9 10.4

16.0 27.0

5.9 6.7

2.70 4.05

17.4 30.9

eholders Equity +EBIT / EV as a pe

sted Australiy but in theegan life asbell and lateto the formated into thrterests of cobuy the bus

terly Newsletter


Financial Sn2005 200435.6 48

349.6 43

40.9 53

21.9 32

9.4 10

151.1 25

73.2 85

366.1 88

439.3 97

9.3 5.5

18.2 15

95 97

53.8 76

16.3 22

42.0 50

4.8 2.9

8.78 17

41.7 51

+ debt – cash) ercentage

an compani case of Cams a soap mr extended bation of privree areas, hompetitor Ksiness for 12

r #29

ia om.au

apshot 06 20075.5 611.2

2.5 402.5

.0 83.0

.7 50.9

.9 13.6

6.7 299.5

.7 88.9

6.4 1,436.0

2.1 1,524.9

5 5.4

.5 21.4

85

.8 114.6

.6 24.3

.0 70.0

9 2.5

.38 27.83

.0 51.6

es that havempbell Brotmaker. The by son’s Novate companhousehold sitchen & So2,500 pound

2008761.0

652.1

108.9

76.0

14.3

338.2

191.5

0 1,364.5

9 1,556.0

7.0

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85

147.8

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26.19

52.1

e a history thers, its origfoundationsrman Carlislny Campbell soap, toilet n (now Leves. The offer

2009 20920.4 82

756.8 71

163.6 11

106.2 74

17.8 14

413.1 62

209.6 14

1,052.6 1,

1,262.2 2,

13.0 5.

26.3 14

58 93

201.9 11

9.8 25

100.0 10

5.0 3.

19.86 30

53.0 63

hat dates bagins can be s were laid e and RonaBrothers. Insoap and cer & Kitchenwas rejecte

010 201125.5 1040

10.2 855.0

15.3 185.0

4.9 126.0

4.0 17.8

29.7 675.0

47.0 127.0

,914.5 2,076

,061.5 2,203

.6 8.4

4.8 23.1

3 95

19.0 198.0

5.3 16.5

00.0 130.0

.3 4.0

0.15 32.70

3.5 63.5

ack to the traced to by Peter ld Clifford n 1923 the chemicals, n) in 1924 ed and led

12

1e0

0

0

0

0

0

6.4

3.4

0

0

0

Septem


to thshare In 20eightWhilepronocomp In 20as thproduindus

At thChemrevenrema Grap

mber 2010 Sele


e company es in lots of 1

010 the comh year since it has mounced in repare the com

000, the orige business eucts. Todaystrial service

e operationmicals and Renues while ains the prim

h 1: Campbe

ctor Fund Quart


ultimately 100 shares f

mpany celebe listing. Toaintained secent years. mpany’s logo

ginal soap buexpanded fuy, Campbell es company w

nal level, theewards Distrthe laborat

me contributo

ell Brothers

terly Newsletter


listing on thor 25 pound

rated its onoday, Campome link toFirst time vio to the Aust

usiness was urther into iBrothers dwith operati

Campbell

e business isribution divitory testingor as illustra

divisional c

r #29

ia om.au

he Brisbaneds.

ne hundredtbell Brothero its past, isitors to thetralian Coat

sold to Faundustrial chdescribes itsions around

Brothers Lo

s broken intsions’ small services suated by Grap

ontributors

stock exch

th year annrs is a vastthe changee group’s weof Arms, a re

lding Healthemical operself as an Athe globe.

ogo

o three arecontributorubsidiary ALph 1.

ange in 195

iversary andly different e has becoebsite may melic of years

hcare for $4rations and Australian d

as with the s to group pLS Laborato

52, selling

d its fifty‐business. me more mistakenly gone by.

.6 million, consumer diversified

Campbell profits and ory Group

13

Septem


Table $’M Reve

ALS

Cam

Rew

Tota

Ope

ALS

Cam

Rew

Tota

Ope

ALS

Cam

Rew

Tota

As Tagroupsuccecusto

i. ii. iii.

iv.

Manathe gexerccomm

mber 2010 Sele


e 6: Division

enue

Laboratory Gro

pbell Chemica

ard Distributio

al

rating Profit

Laboratory Gro

pbell Chemica

ard Distributio

al

rating Margins

Laboratory Gro

pbell Chemica

ard Distributio

al

able 6 highlip’s analyticaessfully explomers in key

minerals ‐environmtribology and industrialand infras

agement ideroup earliercise but not mercial testi

ctor Fund Quart


al Contribut

2003

oup 114.4

ls 132.1

on 115.5

362.0

oup 16.3

ls 5.9

on 7.9

30.1

s %

oup 14.2

ls 4.5

on 6.8

8.3

ights, the mal laboratoroited a mary industries i

‐ specificallymental ‐ surro‐ being the

‐ analysis structure ass

entified the lr this decadealways a reng, inspectio

terly Newsletter


tion

2004 20

4 123.9 15

1 127.9 12

5 141.5 15

0 393.3 43

3 21.5 3

9 5.2

9 9.3

1 36.0 5

2 17.4 2

5 4.1

8 6.6

3 9.2 1

mainstay of rry testing drket to test ncluding;

y gold, nickeounding anae analysis of

of assets insets.

laboratory te. Putting nuliable indicaon and certi

r #29

ia om.au

005 2006

59.2 208.9

24.1 167.1

54.1 112.0

37.4 488.0

35.6 47.3

6.6 9.5

8.3 5.9

50.5 62.7

22.4 22.6

5.3 5.7

5.4 5.3

11.5 12.8

revenue anddivision ALSand certify

l and now colysis of soil, f lubricating

ncluding pla

esting markumbers to thator. That safication mar

2007 200

342.2 468

163.9 152

135.0 145

641.1 766

79.5 1

8.2

5.5

93.2 12

23.2 2

5.0

4.1

14.5 1

d profit growS Laboratoryy product su

oal, water and a oil from m

nt inspectio

et as a key se opportuniaid, it is estimrket is worth

08 2009

8.0 628.8

2.8 164.3

5.7 132.8

6.5 925.9

12.5 155.8

9.7 7.9

4.6 3.4

26.8 167.1

24.0 24.8

6.3 4.8

3.2 2.6

16.5 18.0

wth has fally. In short,upplies from

air quality, mechanical e

on, power g

strategic objity set is a wmated that th $98 billion

2010

8 561.6

151.8

8 117.8

9 831.2

8 118.0

9 8.2

4 3.4

1 129.6

8 21.0

8 5.4

6 2.9

0 15.6

en to the , ALS has

m a raft of

equipment

generation

jective for worthwhile the global , of which

14

Septem


Campto the Grap

To daacqui It is InsurSpeciand s$150 is com As wewhenpitfalwith At itsFor eor gra

mber 2010 Sele


pbell Brothee testing ma

h 2: Global C

ate their appisition and t

a strategy ance group ifically, the spent in excemillion oncmpleted.

e noted in on the numbels that besecash, thus li

s core the ALxample minade and to e

ctor Fund Quart


ers is currenarket as deno

Commercial

proach has bhen seek to

that has wand one thgroup has aess of $300 e the curren

ur earlier pieers are big. et new ownemiting share

LS Laboratoreral companensure a spe

terly Newsletter


tly targetingoted by Grap

l Testing, Ins

been to gaingrow organ

worked very at has so faadded over million sincent bid for list

ece, acquisitHowever maers and haveeholder dilut

ry service ofnies need toecific shipm

r #29

ia om.au

g one quarteph 2.

spection & C

a foothold ically.

well for aar delivered fifteen acqe 2006, a figted Australia

tions can cauanagement e largely paition as we w

ffering is buio test miningent of prod

er of the pie

Certification

in a given te

nother seriaexcellent reuisitions dugure that is san mineral t

use considerhave so far d for the buwill discuss a

lt around thg samples touct is sent t

e, specificall

n Market

esting field,

al acquirer, esults for Caring the passet to rise besting group

rable pain paavoided ma

ulk of the aclittle furthe

he need to teo confirm theo the right c

ly relating

usually by

the QBE ampbell’s. st decade by another p Ammtec

articularly any of the cquisitions r on.

est things. eir quality customer.

15

Septem


Similaregulcompout blarge impo On thof thsuccecountwheris a ctransLaboronlin Grap

To dain thehas c

mber 2010 Sele


arly, testingar plant inpanies can uby externalvolume of rtant point o

his score mahe largest cessful commtries, ALS oreby a large competitive fer testingratory Infore web‐based

h: 3 ALS glo

ate, the retue industry bcertainly hel

ctor Fund Quart


g for environnspections undertake thgroups like tests requi

of service di

anagement iscommercial mercial analyperates undnumber of edge that t

g samples mation Mand interaction

bal operatio

urns generatut to be franlped things

terly Newsletter


nmental issucan pinpoihese serviceCampbell Bired, providfferentiation

s only too hlaboratory ytical laboratder what is smaller sizethe group hainternationnagement Sn with client

ons

ed on capitank, the tailwalong. Durin

r #29

ia om.au

ues ensures nt problemes in‐house tBrothers. Ming scale ann.

appy to poingroups in ttory in the wcommonly td labs servicas exploitednally, ALS’s System (LIMts.

al invested hwind that hang 2010, AL

standards ams before tthe great buore importand global co

nt out that tthe world –world.” Withtermed a huce larger hud. Where co

informatioS), enables

have justifieds been the rLS suffered a

are maintainthey emergulk of work antly, becauoverage bec

the ALS Grou– arguably h over 160 ub and spokb laboratorimpetitors ston system,sample tra

d managemeresources bua setback to

ned while ge. While is carried

use of the comes an

up is “one the most labs in 42 ke model, ies. And it truggle to dubbed cking and

ent’s faith ull market o revenue

16

Septem


and e24% twell a To profferas hig Table $’M Reve

ALS

ALS

ALS

ALS T

ALS

Tota

Ope

ALS

ALS

ALS

ALS T

ALS

Tota

Mar

ALS

ALS

ALS

ALS T

ALS

Tota

mber 2010 Sele


earnings as tto $118M oat 21%.

rovide someing moving aghlighted in

e 7: ALS Labo

enue

Minerals

Environmenta

Coal

Tribology

Industrial

al ALS

rating Profit

Minerals

Environmenta

Coal

Tribology

Industrial

al ALS

gins %

Minerals

Environmenta

Coal

Tribology

Industrial

al ALS

ctor Fund Quart


the financial n revenues

e earnings saggressivelyTable 7.

oratory Gro

l

l

l

terly Newsletter


crisis took hdown 11% t

shelter, many into a num

up Contribu

r #29

ia om.au

hold and testo $562M, w

nagement hamber of new

ution

ting volumewhile margin

as sought tomarkets wit

2

20

24

6

2

1

56

5

4

1

11

2

1

2

1

2

es dropped. Pns held up re

o broaden ith reasonab

010

05.0

45.2

61.8

29.8

19.8

61.6

53.3

43.8

15.0

4.6

1.3

18.0

26.0

17.9

24.3

15.4

6.6

21.0

Profits fell easonably

its service le success

2009

310.8

234.9

59.2

23.9

0.0

628.8

112.2

28.4

13.2

2.1

0.0

155.9

36.1

12.1

22.3

8.8

0.0

24.8

17

Septem


Of thwith operacoverthe contr ALS CWittabuildand Irecen Globathat smallsuccewhertwo. signif Table Global Players SGS

Intertek

Bureay Veritas Core Lab

CampbeBrothers* EV/E

ManaAnd bCampmanahis reas leawatch

mber 2010 Sele


hese, ALS Mthe bulk of ations followring the anagroup’s recributions mo

Coal is in itsab in Southing up scaleIndustrial arnt acquisitio

ally, Campbinclude theler oil and gessfully posire it has theIt is aiming ficant inroad

e 8: Global c

Listed

Switzerl

k United KingdomFrance

bs United States

ell s

Australia

BIT = Enterprise

agement being big dopbell’s, theragement. Foetirement inader. The bh and exten

ctor Fund Quart


inerals is ththese profiwed by Austlysis of soil, cent Ecowisore evenly m

s infancy, fo Africa, howe in both Soure small in rn PearlStree

ell Brothers big compligas specialtyitioned the e largest mato develop ids over the p

competitive

Revenu

and CHF 4,7

m £ 1,237

€ 2,648

$US 696

a $A 825

Value / Group E

oesn’t countre is a lot tormer CEO B 2005, certauilding blocnded when t

terly Newsletter


he division’sts, estimatetralia and Swater and ase acquisitimatched in fu

ollowing thewever the guth Africa arevenue andet.

is relativelyiance testiny player Corgroup to d

arket share aits ALS Coal past two yea

e landscape

e OperatProfits

12 m CHF821

m £ 187 m

m € 433 m

6 m $US 187

m $A 118

EBIT

t for much ifto like and ruce Brown,ainly deservecks of the bthe baton p

r #29

ia om.au

s largest eared at 40%, couth Americair quality ison in Austuture years.

e 2008 acqugroup is alrnd Canada. d profit term

y small comg groups SGre Labs. Yetdominate inand Environdivision intoars.

ing Market Cap

1 m CHF12.6

m £ 2.9 b

m € 5.5 b

7 m $US 3.9 b

m $2.1 b

f you have liimportantly, an employes a lot of thusiness werpassed to an

rnings contrcoming fromca. Likewises split along tralia shoul

uisition of Aready markeThe newer ms but will b

mpared to itsGS, Interlek, despite thin key markenmental, who a leading p

EV/EBIT* 2011(e)

b 14.0

13.4

11.8

b 15.2

11.9

ittle to showy it starts aee of the grhe credit dure set and mnother long

ibutor at abm the North e, ALS Envirosimilar linesd see the

CIRL in Auset leader lodivisions of benefit from

s peers (see, Bureau Ves, managemets such as ere it sits aposition, hav

Employees

59,000

26,000

39,000

4,900

8,000

w for it. In that the very oup for 30 yring his 15 ymaintained dtime emplo

bout 45%, American onmental, s although earnings

tralia and ocally and Tribology

m another

e Table 8) ertias and ment have Minerals

at number ving made

Laboratories

1,000

1,000

900

50

200

he case of top with

years until year reign during his oyee Greg

18

Septem


Kilmibusindivisi Camp

CEO B1990 As noand shareTable StronSincethe hoperastandannuand tinto tin 19woulthe m The gbeenHoweafter paymequit

mber 2010 Sele


ster. He brinness includinon, until his

pbell Brothe

Bruce Brown‐ 2005

oted earlier,grunt to theholders have 5.

ng financial re 1995, grouhigher earninations. Despds at a healm. While thtax, sharehothe business995 to the cd have beenmajority of it

group’s free positive anever, the grothe payme

ments has rety issues. O

ctor Fund Quart


ngs continuing 13 years amain appoi

ers CEO’s Pas

n

, the group he testing sve been wel

record p revenues ng ALS divisipite the 20thy 15% whhis is less thaolders have bs. The groupurrent 63.5 n the case if ts acquisition

cash flow pd rising sincoup’s acquisent of dividemained largbviously, m

terly Newsletter


ity to the taas General Mntment in 2

st & Present

has spent uservices divl looked aft

and profits on surpasse10 earningshile dividendan the 20% been offeredp’s issued camillion andmanagemenns.

re‐acquisitioce 2003, dessition strateends. In thigely in the reanagement

r #29

ia om.au

ble as well aManager of 005.

t

C 2

up big undeision. This er during th

have soareded the more s setback, rds per sharegrowth recod first optioapital has ind although unt had issue

ons and befospite the 20egy has impas respect thed since 200is confiden

as a 29 yearthe all impo

CEO Greg Ki2005 – Prese

er Kilmister’shas not behe past 15 y

d, while marsedate chemreturn on ce have comorded in earn to contribcreased fromup, is significed shares rat

ore the paym10 set backacted the cahe free cash03, being funt that the

r associationortant ALS L

lmister ent

s watch, addeen withoutears as high

rgins have dmicals and hcapital emplpounded atrnings beforbute additionm 17.4 millicantly less tther than pa

ment of dividas shown in

ash flow thah flow postnded by demoney is b

n with the aboratory

ding scale t risk but hlighted in

oubled as hospitality loyed still t 13% per re interest nal capital on shares than what y cash for

dends has n Table 9. at remains t dividend bt or new being well

19

Septem


spentdang Table

$’M Free Cas

Net Ope

Normal

Free Cas

Acquisit

Free Cas

Dividend

Free Cas

DespcomptoppiHavinfacesand alife hvolum Durin2.5% priceyield In ounotinreputbusinbusin

mber 2010 Sele


t and while ers when a c

e 9: Free Cas

sh Flow

erating Cash Flo

Capital Expend

sh Flow (pre ac

ions & Asset S

sh Flow (pre d

ds paid

sh Flow (post d

ite these copany’s shareing $2.1 billing firmly coms a number oa growing ofharder in thmes to cover

ng the past of the Fund, the investof 4.2%.

r June 2010ng that theretation earneness has moness and from

ctor Fund Quart


we are prepcompany ov

sh Flow 2

ow

diture (

cq & divs)

ales

ividends)

dividends)

ncerns the ces often sellion, placing mmitted itseof headwindffshore earnis respect ar overheads.

quarter wed’s value at ment is trad

0 quarterly ne was a lot ed over sevorphed ovem sharehold

terly Newsletter


pared to bacver commits

2003 2004

29.1 26.0

(12.6) (11.9)

16.5 14.1

(8.1) (12.9)

8.4 1.2

(9.7) (9.2)

(1.3) (8.0)

company hang at a premit within reaelf to the glods including ings profile.as does the .

added Caman entry prding on a p

newsletter wto like aboventy yearsr the past ders is clearly

r #29

ia om.au

ck them in tto such a str

2005 20

0 30.2 4

) (17.7) (2

1 12.5 2

) 18.9 (8

2 31.4 (6

) (10.5) (1

) 20.9 (7

as earned thmium, along ach of the Auobal laborata business s The strong need to su

mpbell Brothrice of $30.9rospective P

we highlighteut the busin. In a similcentury buty deserved.

this regard wrategy.

006 2007

46.8 58.3

26.8) (39.1)

20.0 19.2

82.0) (3.5)

62.0) 15.7

14.3) (18.8)

76.3) (3.1)

he respect ofwith a markustralian Stotory testing subject to cyAustralian dstain increa

hers to the 94 per sharePER of 15.6

ed our invesness but nolar vein, thet its reputaSFM

we are mind

2008 200

80.7 16

(50.1) (7

30.6 9

(96.3) (4

(65.7) 5

(25.0) (3

(90.7) 1

f the marketket capitalisaock Exchangemarket, the yclical demadollar certaiasing levels

portfolio, me. Based on and a partl

tment in Blane more soe Campbell ation earned

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24

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