esg: the family business model

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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08 July 2015

Global

Equity Research

ESG: The Family Business Model Environmental, Social and Governance (ESG) Research

The Credit Suisse Global Family 900 universe

High-profile family-owned corporate collapses and management control

concerns have led minority investors to question whether the returns warrant

the risk. For this report, we have constructed the Credit Suisse Global Family

universe of more than 900 companies with a market cap over $1bn to analyse

the family business model and establish whether the risks of concentrated

ownership and limited control are justified by superior returns.

Key findings:

■ The Credit Suisse Global Family 900 universe has shown an excess CAGR

of 4.5% vs MSCI ACWI since 2006.

■ We find that family businesses have been superior in creating value,

generating higher cash flow returns as measured by Credit Suisse HOLT®

CFROI® along with less volatile growth and returns through the cycle. This

warrants their slight premium valuation, in our view.

■ Investing alongside the company founder tends to generate the highest

returns for minorities, while share price returns typically decline as

ownership passes down successive generations.

■ Corporate governance can be a source of concern. However, our analysis of

accounting risks suggests that some corporate governance risks are

overstated. Better accounting practices indicate the alignment of owners'

and minorities' interests.

■ We highlight three case studies to illustrate the differences in family

business performance and have published an accompanying

presentation (link) highlighting 18 stocks rated Outperform by Credit

Suisse analysts that offer exposure to this theme.

Figure 1: CS Global Family 900 universe vs MSCI ACWI - (sector adjusted) (%)

0

50

100

150

200

250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Global Family 900 (sector/mkt adj) MSCI AC World, Mkt Wt

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse research

Credit Suisse Environmental, Social

and Governance (ESG) research seeks

to focus on sustainability and

accountability factors that are then

integrated into the investment process.

Research Analysts

Julia Dawson

44 20 7883 3715

[email protected]

Richard Kersley

44 20 7888 0313

[email protected]

Marcelo Preto

44 207 888 0873

[email protected]

Catherine Tillson

44 20 7888 6052

[email protected]

For analysis of the 18 companies

exposed to this theme, please see our

primer, Thematic and ESG Research

https://plus.credit-suisse.com/r/SkRBmh


08 July 2015

ESG: The Family Business Model 2

Table of contents Key highlights 4 Introduction 5 Are family businesses a good investment? 6 Top picks 9 The CS Global Family 900 universe 11 The business case for family-owned companies 12

Superior and more stable growth 12 Return on equity fails to capture value creation 12 Higher cash flow returns – CFROI 14 Economic Profit – the real value creation 15

US case study: Wal-Mart vs Costco and Whole Foods 17 European case study: Alfa Laval vs Hochtief 18 Asian case study: Sino Biopharmaceutical vs CR Sanjiu Pharma 19

Leverage – lower in the US and Europe, as expected 20 R&D intensity 21 Are family-owned companies better at M&A? 22 So what are the negatives to family-owned businesses? 23 The risk of succession and survivorship 24 Accounting quality is in fact superior 26 Diversity 26

The investment case for family-owned companies 28 When should you invest? 31 Dividends 32 Are there 'supergroups' within the family-owned universe? 34

ESG: Do families make good managers? 35 So what to buy? 37 Appendix 1: The Credit Suisse Global Family 900 universe 41 Appendix 2: Credit Suisse ESG Indices 47 Selected reading 48

The authors of this report wish to acknowledge the contribution made by Mahadevan

Subramanian and Akanksha Kharbanda, employees of CRISIL Global Research and

Analytics, a business division of CRISIL Limited, a third-party provider of research services

to Credit Suisse.

08 July 2015


Key charts Figure 2: Share price returns by generation Figure 3: Credit Suisse Global Family 900 universe

CFROI® vs MSCI ACWI

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Performance By Generation1 2 3 4 5

4%

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CFR

OI

CS Global Family 900 universe (ex Fin & Reg Utils) Global Universe (ex Fin & Reg Utils)

Source: Credit Suisse HOLT Source: Credit Suisse HOLT

Figure 4: Economic Profit as % of EV Figure 5: Annual sales growth (%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Eco

nom

ic P

rofit

as

% o

f E

V

CS Global Family 900universe

CS HOLT Universe

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

CS Global Family 900 universe (ex-financials) Benchmark (ex-financials)

Source: Credit Suisse research, Credit Suisse HOLT Source: Credit Suisse HOLT

Figure 6: CS Global Family 900 universe sector

breakdown

Figure 7: Family business accounting quality

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

MSCI World CS Global Family 900universe

Utilities

Telecoms

Materials

Industrials

Information Technology

Health Care

Financials

Energy

Consumer staples

Consumer discretionary

0%

5%

10%

15%

20%

25%

Good Above Average Average Below Average Poor

CS Family businesses CS HOLT universe

Source: The BLOOMBERG PROFESSIONAL™ service, Credit

Suisse research

Source: Credit Suisse HOLT

08 July 2015


Key highlights Here are the key findings from our analysis, which covers 920 companies with a market

cap over $1bn and family ownership of at least 20%:

■ The Credit Suisse Global Family 900 universe has shown an excess return of 4.5%

CAGR vs the MSCI All Countries World Index (ACWI) since 2006.

■ Investing alongside the founder tends to generate the best share-price returns, but we

see the outperformance decreasing over subsequent generations.

■ Family-owned companies are a lower Return on Equity (ROE) business model in the

more developed markets of US and Europe. They demonstrate higher ROEs in Asia

and EMEA. Lower ROEs tend to be indicative of more conservative strategies as well

as broader priorities for family ownership beyond simply financial returns.

■ However, over the longer term, family companies in the CS Global Family 900 have

generated 2x the Economic Profit – earnings in excess of the opportunity cost of

utilising assets or capital – compared to benchmarks. We illustrate this with case

studies of Wal-Mart, Alfa Laval and Sino Biopharmaceuticals.

■ Family-owned companies trade on slightly higher EV/EBITDA and PB multiples

compared to benchmarks. Share-price appreciation is closely correlated to economic

profit generation.

■ Leverage is lower at US and European family businesses in line with previous

academic research. We are able to show the faster de-leveraging post-crisis

compared to benchmarks. Asian family business leverage is higher, on the other hand.

■ The business cycle is smoother and more stable. We show that sales growth is less

volatile through the cycle with lower peaks and less pronounced troughs.

■ Family companies tend to invest less in R&D. In the US, R&D intensity is just 25% of

benchmark levels; in Europe it is 20% below benchmark. Whilst this is indicative of the

more conservative style of management, we also believe that it reflects more efficient

R&D given the relatively limited difference in returns.

■ Family business growth is typically organic. Since 1990, M&A has been just 2.1% of

sales vs 5.8% at non-family businesses. We also find that family businesses generally

make better and cheaper acquisitions as they drive better growth and returns in the

three-year period post-acquisition.

■ Corporate governance risks appear overstated. Whilst there have been high-profile

corporate collapses at family-owned businesses in recent decades, we evaluate

empirical measures of accounting performance as a corporate governance proxy and

find there is a closer alignment between owner and minority interests than is generally

perceived. Based on our HOLT analysis, accounting quality at family-owned

companies is superior, reflecting the owners' focus on preserving wealth over the long

term.

■ We find 'survivorship' and transition to be easier in sectors that are more reliant on

tangible assets. We see a quicker dilution of ownership in companies founded on

intellectual property. This may reflect that successor generations do not share the

founder's vision or interests.

■ We discuss potential risks and weaknesses that include related-party risks, closed

pools of managers, employment of under-qualified family members and different

voting rights.

08 July 2015


Introduction There has been considerable research into family-owned businesses to establish whether

or not there is a positive correlation between close corporate ownership and company

performance. To date, there are no definitive findings, although most reports tend to find

positive benefits. However, studies are typically limited to single markets and relate to

different time periods so that an overall, broad conclusion is hard to establish.

With the Credit Suisse Family 900 universe introduced in this report, we look to further the

findings from a number of previous Credit Suisse reports into family businesses,

specifically the Credit Suisse White Paper 01 "Family Businesses in Europe: Growth

Trends and Challenges" (February 2007), The Life-Cycle of UK Family Businesses (July

2008), Credit Suisse Research Institute's Asian Family Businesses Report (2011) and

Family Businesses: Sustaining Performance (2012) and focus on whether there is a

business case for family-owned companies on a global basis and indeed an investment

case for external shareholders.

In the Credit Suisse White Paper 01 "Family Businesses in Europe: Growth Trends and

Challenges" (February 2007), we highlighted six strengths that characterise family

businesses:

■ Long-term commitment of owners

■ Visible and identifiable ownership, in contrast to ownership by numerous institutional

investors

■ Track record of standing by their companies during hard times

■ Trademark names that continue to open doors in the business community

■ Consistency in decision-making and business practice, thereby lowering the business

risks for external providers of capital

■ Better alignment of owner and management interests

To this, we would now add a number of characteristics that help to elucidate why family

businesses stand apart and why the return profile is different to that of the broader

corporate universe:

■ Desire to maintain control leads to more cautious and also more efficient management

and strategies

■ Focus on value-added products and brand development, the corollary of which is the

negatives for family owners from public failure

■ Focus on core activities means they are less acquisitive and growth is organic

■ Investment intensity, be it R&D or broader capex, is lower but the more limited

compression to ROEs suggests that investment and R&D is more efficient

■ Lower volatility in family-owned company returns vs more broadly held companies

■ Value creation through superior cash flow return spreads and asset growth

Entrepreneurship is borne of opportunity and necessity. As the macro-economic backdrop

has moved towards increased deregulation and decreased involvement of the State, we

have seen that family-owned businesses are not just key drivers of economic growth but

are today key employers. It is therefore imperative to understand how and why these

companies perform and how they will impact macroeconomic policies and stock market

performance. With the lessening of the role of the State in the economy across the globe,

entrepreneurs will likely be the innovators and drivers of future growth and development.

08 July 2015


Are family businesses a good investment? With high-profile family-owned corporate collapses such as Barings Group, Parmalat and

Banco Espirito Santo in recent decades, as well as questions over management controls

and appointments at News Corporation in more recent times, some investors may

question whether investing alongside controlling family shareholders is worth the risk.

In our analysis, we find that family-owned companies in the CS Global Family 900

universe have seen returns on equity (ROEs) that have been on average 4.3% higher than

benchmark and cash flow returns on investment (CFROI) over 90% higher. This underpins

the small premium vs MSCI ACWI since 2006 of 12% on EV/EBITDA and 5% on P/B.

Whilst we find regional differences in returns, typically lower in more mature businesses in

Europe and US, investors appear prepared to pay this slight premium for a more stable

sales and return cycle relative to benchmarks as well as the sustained longer-term value

creation reflected in superior CFROI and economic profit metrics.

Figure 8: Family-owned company returns and valuations – 2014

ROE CFROI EV/EBITDA P/B Net debt/Equity Net debt/EBITDA

Global 11.5% 6.4% 10.6 2.1 52.0% 1.8

US 12.0% 9.1% 13.2 3.3 30.7% 1.1

Europe 12.1% 7.5% 9.2 2.0 42.7% 1.3

Asia 10.8% 5.5% 9.7 1.7 44.4% 1.7

Latam 9.3% 6.7% 10.1 2.1 86.6% 2.6

EMEA 17.9% 8.1% 18.6 1.8 82.6% 1.9

Source: Company data, Credit Suisse HOLT, Credit Suisse research

Figure 9: Comparative returns and valuations vs MSCI ACWI – 2014


Family businesses 11.5% 6.4% 10.6 2.1 52.0% 1.8

MSCI ACWI 12.1% 6.3% 9.5 2.1 48.2% 1.5

Premium/(discount) -4.8% 1.0% 12.3% -1.2% 7.9% 17.1%


Figure 10: Comparative returns and valuations vs MSCI ACWI – since 2006


Family businesses 13.2% 7.5% 9.2 2.1 54.7% 1.7

MSCI ACWI 12.6% 6.9% 8.2 2.0 48.6% 1.4

Premium/(discount) 5.0% 9.1% 11.8% 5.1% 12.4% 19.8%


The question for investors of course is whether family-business success creates a good

investment opportunity for minority investors. Looking on a sector adjusted and market

weighted basis, the 920 companies in our family business universe have demonstrated a

47% outperformance compared to the MSCI ACWI over the nine years to the end of April

2015 (Figure 11). This equates to an annual excess return of 4.5% over the same period.

We acknowledge that there is survivorship bias in our sample and that past returns are no

guarantee of future performance. However, we find relatively few examples of risks to

owning family companies and believe that the focus of family ownership may in fact

provide ideal circumstances in which minorities should co-invest. We illustrate the superior

accounting practices which mitigate some of the perceived corporate governance risks in

our section on ESG issues below.

08 July 2015


Figure 11: CS Global Family 900 universe vs MSCI ACWI – (sector adjusted) (%)

0

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150

200

250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



On a simple equal weighted basis illustrated in Figure 12, our universe has beaten the

MSCI ACWI index by 351% over the same period. This is a CAGR of 21.6% for these

family-owned stocks compared to 3.6% for the index. Clearly, investing alongside family

owners appears to have been a significant positive for outsiders, too.

Figure 12: Credit Suisse Global Family 900 universe vs MSCI ACWI – equal weighted

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Global Family 900 universe (equal wt) MSCI AC World


We also establish that there is a founder's premium. Perhaps this is intuitive as the best

returns are likely to be found in periods of high growth and this is typical of the early years

of companies as they expand and create scale. We conclude that the highest share price

returns are made with first generation companies and decline as family ownership passes

down through successive generations. Over the past nine years, the CAGR of first

generation companies has been 9%, based on the companies in our analysis.

08 July 2015


Figure 13: Share price performance by generation of ownership

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08 July 2015


Top picks We have identified clusters of companies in specific sectors that have outperformed both

sector and country benchmarks since 2005. From these, we list 18 companies that are

Outperform-rated by Credit Suisse analysts.

Figure 14: Family-owned companies with Outperform ratings by Credit Suisse analysts

Company Ticker Country Sector Rating

Associated British Foods ABF.L UK Food Producers Outperform

B&M European Retail BMEB.L UK General Merchandise

Outperform

Carnival CCL.N US Travel & Leisure Outperform

Dassault Aviation AVMD.PA FR Aerospace & Defense

Outperform

Facebook FB.OQ US Consumer Internet Outperform

Forbo FORN.S CH Building Materials & Construction

Outperform

Geely Automobile 0175.HK CN Automobiles & Components

Outperform

Grupo Sanborns GSNBRB1.MX MX Retailing Outperform

Hella HLE.DE DE Automobiles & Components

Outperform

Kone Corporation KNEBV.HE FI Capital Goods Outperform

LinkedIn LNKD.N US Software & Services

Outperform

Marriott Intl MAR.OQ US Lodging Outperform

Megacable MEGACPO.MX MX Cable TV Outperform

Schindler SCHP.VX CH Capital Goods Outperform

Sodexo EXHO.PA FR Commercial Services

Outperform

Sino Biopharmaceutical 1177.HK CN Pharmaceuticals Outperform

Sun Pharmaceuticals SUN.BO IN Pharmaceuticals Outperform

TalkTalk TALK.L UK Telecommunication Services

Outperform

Source: Company data, Credit Suisse estimates

08 July 2015


We have also used HOLT screens to identify the top 20 family-owned companies for

quality and momentum where our analysts have Outperform ratings. These are listed

below in Figure 15.

Figure 15: Top 20 picks from HOLT with Credit Suisse Outperform ratings

Price Data Price Change (%) Analyst estimates

Valuation 12m

Fwd

Profitability

2015E

H

O

Ctry Company Ticker Sector Price (lc) Mcap ($m) 1m 3m 12m

CS

Rating

% to CS

TP

P/E

(x)

Div.

yield ROE CFROI

CN Jiangsu Hengrui Medicine Co. 600276.SS Health Care 60.8 14,772 10% 51% 92% OP 7% 44.6 0.3% 20% 17%

IN Sun Pharmaceuticals Industries SUN.BO Health Care 974.7 36,722 5% 11% 67% OP 7% 26.8 0.5% 10% 17%

CN Jiangsu Yanghe Brewery Joint-stock Co. 002304.SZ Consumer Staples 93.0 16,153 0% 16% 70% OP 15% 19.5 2.3% 23% 18%

TW CTBC Holding 2891.TW Financials 23.6 11,745 -4% 13% 27% OP 15% 10.8 2.9% 16% 11%

TW Hon Hai Precision 2317.TW Information Technology 98.3 47,248 5% 13% 18% OP 29% 10.2 3.5% 15% 8%

HK Belle International Holdings Ltd 1880.HK Consumer Discretionary 10.3 11,162 -2% 22% 36% OP 27% 14.8 3.1% 19% 10%

KR Samsung Electronics 005930.KS Information Technology 1,309,000 174,653 -4% -4% -9% OP 28% 8.3 1.6% 13% 9%

SG United Overseas Bank UOBH.SI Financials 23.7 28,326 -5% 3% 7% OP 18% 11.2 3.3% 10% 9%

TW Advanced Semicon. Engr. 2311.TW Information Technology 44.2 11,292 -3% 4% 13% OP 6% 12.5 4.8% 17% 9%

FI Kone Corporation KNEBV.HE Industrials 39.2 20,785 -2% -5% 28% OP 15% 21.8 3.6% 42% 39%

GB Schroders SDR.L Financials 34.1 11,838 4% 11% 31% OP -19% 18.1 2.7% 17% 21%

FR Dassault Systemes DAST.PA Information Technology 72.1 20,124 4% 15% 54% OP 4% 31.8 0.7% 16% 17%

FR Sodexo EXHO.PA Consumer Discretionary 95.3 16,380 4% 6% 19% OP -3% 21.2 2.4% 17% 22%

CH Compagnie Financiere Richemont SA CFR.VX Consumer Discretionary 84.3 46,477 -2% 0% -11% OP 19% 20.1 2.0% 9% 12%

CH Roche ROG.VX Health Care 280.7 252,298 3% 8% 6% OP 14% 18.9 3.0% 50% 10%

CH Swatch Group UHR.VX Consumer Discretionary 377.7 21,599 -11% -13% -28% OP 16% 14.5 2.1% 11% 7%

US Facebook Inc. FB.OQ Information Technology 80.6 226,203 0% 2% 27% OP 32% 35.6 0.0% 9% 24%

US McKesson Corporation MCK.N Health Care 239.2 55,388 5% 5% 31% OP 10% 18.4 0.4% 32% 22%

US Marriott International MAR.OQ Consumer Discretionary 79.2 21,776 -3% -5% 33% OP 17% 23.9 1.1% -43% 30%

US L Brands, Inc. LB.N Consumer Discretionary 87.3 25,523 -3% -5% 58% OP 8% 22.4 3.6% nm 14% Prices as of 3 July 2015; Source: Company data, Credit Suisse estimates, Credit Suisse HOLT

Credit Suisse has previously launched the Credit Suisse Family Business Index

(Bloomberg ticker CSFAM Index), a Delta One index comprising 40 listed US and

European family-owned companies based on HOLT's Best in Class characteristics. Since

the index's launch in March 2007, it has outperformed the MSCI ACWI by a CAGR of

140bps annually. This index is not sector or market adjusted. (For a list of Credit Suisse's

ESG baskets showing their performance over various time periods, please see Appendix 2

on page 47.)

Figure 16: Credit Suisse Family Index performance vs MSCI ACWI

0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Family Index MSCI ACWI

Note: Past performance is no guarantee of future returns.

Source: Credit Suisse HOLT, the BLOOMBERG PROFESSIONAL™ service

08 July 2015


The CS Global Family 900 universe We have established a database of 920 publicly listed companies globally that have a

market capitalisation of at least US$1bn and where there is a family-owned shareholding

of at least 20% of shares outstanding. We find examples in 35 countries. The

preponderance of these, in terms of numbers, is to be found in Asia which is explained by

the different and more recent pattern of economic development in the region compared to

Europe and the US. In more developed markets, we see more fragmented ownership and

many families selling out over time as a general theme. Whilst families often sell down to

diversify their holdings and investments, they may be diluting returns as a result, given the

outperformance we see in our research.

Frequently quoted statistics from the Family Business Institute show that only one third of

family-owned businesses last into a second generation of ownership, 12% to a third and

just 3% to a fourth. In our analysis, we have controlled for the greater numbers of Asian

companies in this family-owned company universe by evaluating all our data on a sector-

and country-neutral basis relative to the MSCI ACWI benchmark. We have excluded joint

ventures and assets which have previously been owned by the State and sold into private

hands.

For full details of the country and sector breakdown of the companies in the Credit Suisse

Global Family 900 universe, please see Appendix 1.

Figure 17: Top 10 family-owned companies by region the Credit Suisse Global Family 900 universe Prices as of 30 June 2015


Valuation 12m

Fwd

Profitability

2015E


CS

Rating

% to CS

TP

P/E

(x)

Div.

yield ROE CFROI

North America

US Facebook Inc. FB.OQ Information Technology 85.8 240,848 7% 5% 26% OP 24% 36.9 0.0% 9% 24%

US Wal-Mart Stores, Inc. WMT Consumer Staples 70.9 228,434 -5% -12% -6% OP 20% 14.5 2.8% 19% 10%

US Google, Inc. GOOGL.OQ Information Technology 540.0 184,001 -2% 0% -9% OP 28% 17.7 0.0% 15% 16%

US Oracle Corporation ORCL.N Information Technology 40.3 174,744 -8% -5% -1% OP 24% 14.7 1.3% 26% 20%

US Berkshire Hatha BRKb.N Financials 136 167,068 -5% -5% 7% NR NA 17.7 0.0% 8% 7%

US Nike Inc. NKE Consumer Discretionary 108.0 92,870 6% 8% 38% OP 2% 25.7 1.1% 26% 17%

US Kinder Morgan, Inc. KMI Energy 38.4 83,235 -7% -8% 6% OP 35% 42.1 5.5% 5% 5%

US McKesson Corporation MCK Health Care 224.8 52,228 -6% 1% 19% OP 17% 17.6 0.4% 32% 21%

US Phillips 66 PSX Energy 80.6 43,690 2% 3% 0% OP 30% 11.8 2.7% 17% 4%

US Carnival CCL Consumer Discretionary 49.4 38,705 6% 3% 32% OP 17% 16.7 2.2% 8% 6%

Europe

CH Novartis NOVN.VX Health Care 92.2 263,215 -5% -4% 14% OP 19% 18.0 3.2% 14% 8%

CH Roche ROG.VX Health Care 262.0 237,902 -6% -2% -1% OP 22% 17.5 3.3% 50% 10%

BE Anheuser-Busch InBev ABI.BR Consumer Staples 107.5 192,370 -2% -7% 28% OP 17% 21.1 3.4% 17% 25%

ES Inditex ITX.MC Consumer Discretionary 29.2 101,107 -5% -3% 30% UP -31% 29.5 2.1% 32% 13%

FR L'Oreal OREP.PA Consumer Staples 160.0 99,647 -8% -7% 27% NT 9% 24.5 2.0% 17% 20%

FR LVMH LVMH.PA Consumer Discretionary 157.2 88,818 -4% -4% 24% UP -14% 18.8 2.5% 16% 13%

DE SAP SAPG.F Information Technology 62.8 85,900 -7% -6% 11% OP 35% 16.1 1.9% 18% 29%

DE BMW BMWG.DE Consumer Discretionary 98.2 65,765 -3% -15% 5% NR NA 9.9 3.5% 16% 7%

SE Hennes & Mauritz HMb.ST Consumer Discretionary 319.2 56,116 -6% -9% 10% NT 13% 22.9 3.4% 37% 17%

DE Merck KGaA MRCG.DE Health Care 89.4 49,671 -9% -15% 39% OP 29% 16.5 1.3% 18% 4%

Asia

KR Samsung Electronics 005930.KS Information Technology 1,295,000 170,778 0% -10% -1% OP 30% 8.2 1.7% 13% 8%

IN Tata Consultancy Services TCS.BO Information Technology 2,552.2 78,577 -2% 0% 8% OP 21% 20.2 1.8% 34% 26%

JP SoftBank Group Corp. 9984.T Telecommunication Serv ices 7,166.0 70,110 -3% 2% -5% OP 20% 15.9 0.6% 32% 6%

HK CK Hutchison Holdings Limited 0001.HK Industrials 113.9 56,715 -7% 24% 44% OP 26% 8.7 3.1% 8% 4%

IN Reliance Industries RELI.BO Energy 1,000.5 50,894 11% 20% -1% OP 4% 11.8 1.1% 11% 4%


CN JD.com, Inc. JD.OQ Consumer Discretionary 34.1 47,167 -2% 16% 15% OP 17% nm 0.0% -6% 1%

JP Fast Retailing 9983.T Consumer Discretionary 56,610.0 46,980 10% 20% 69% NT -21% 40.1 0.7% 19% 8%

HK Sun Hung Kai Properties 0016.HK Financials 125.6 46,582 -5% 4% 18% OP 21% 14.6 2.8% 5% 4%

SG Jardine Matheson JARD.SI Industrials 57 39,646 -8% -9% -5% NT 7% 12.3 2.7% 8% 5% Priced as of 30 June 2015; Source: Company data, Credit Suisse Research Institute's Asian Family Businesses Report (2011), Credit Suisse

estimates for rated stocks; the BLOOMBERG PROFESSIONAL™ service for Not Rated (NR) stocks

08 July 2015


The business case for family-owned companies Superior and more stable growth

Since 1995, the companies in our family-owned universe have shown annual sales growth

of 10% compared to 7.3% for MSCI ACWI companies. Since 2006, this sales growth has

averaged 8.5% for family companies vs 6.2% for the benchmark. In all but two years,

sales growth has been superior at family companies as we see in Figure 18. This sales

growth has been less volatile throughout the time series including during both the internet

bubble and collapse (2001-02) and the 2008 financial crisis when family-owned companies

had both lower peaks and troughs.

Figure 18: Credit Suisse Global Family 900 universe sales growth (%) – ex-financials

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

CS Global Family 900 universe (ex-financials) Benchmark (ex-financials)

Source: Company data, Credit Suisse research

The reasons for this superior growth profile are multifold but we would view a longer-term

corporate strategy as being fundamental to the structural nature of this higher and less

volatile growth (Figure 18). In our Credit Suisse Research Institute report, Family

Businesses: Sustaining Performance, over 40% of generation 1 and 4 owners said that the

typical time horizon for the payback on a new investment was 5-10 years and over 50% of

generation 2 and 3 owners expected new investments to pay back over 3-5 years. 60% of

respondents said that their long-term management perspective was important for the

ongoing success of their business.

As part of this longer-term approach, the importance of product or service quality, the

development of long-term customer relationships and brand loyalty, along with the focus

on core products and innovation in these core products rather than diversification are

elements that help to explain this outperformance. We also see that lower dividend

payouts by family-owned businesses (discussed below) allow them to conserve cash flows

internally and help fund growth.

Return on equity fails to capture value creation

Considering profitability in terms of return on equity (ROE), our analysis shows that since

YE06, the Credit Suisse Global Family 900 universe has generated annual returns that are

50bps above the MSCI ACWI benchmark. These are principally driven by superior family

company ROEs in Asia, Japan and EMEA. US family-owned companies have generated

ROEs that average 250bps below the benchmark but as we see in Figure 20, there is a

smoother profile to returns through the cycle. In growth periods, family-owned business

08 July 2015


returns have averaged 270bps below benchmark but in slower growth periods such as

since the 2008 financial crisis, this underperformance narrows to 180bps. Despite being

lower, this implies more stable returns over time and is probably the result of the longer-

term focused strategies inherent in family business models relative to the shorter-term

return focus of more diversely owned companies. We see US family-owned companies

prepared to sacrifice some financial returns in order to capture other non-economic returns

and to preserve the status quo and ownership.

Figure 19: ROE (%) – CS Global Family 900 universe Figure 20: ROE (%) – US family-owned companies

-3%

2%

7%

12%

17%

22%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Global Family 900 universe MSCI AC World

-3%

2%

7%

12%

17%

22%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Family 900 - USA, sector-adj. MSCI USA

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse

research


research

Figure 21: ROE (%) – European family-owned companies Figure 22: ROE (%) – Asia exJ family-owned companies

-3%

2%

7%

12%

17%

22%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Family 900 - Europe, sector-adj. MSCI Europe

-3%

2%

7%

12%

17%

22%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Family 900 - APxJ, sector-adj. MSCI APxJ


research


research

In Europe, we also witness a lower return profile compared to the benchmark, but one that

is more volatile at the same time. Pre-crisis, i.e. a period of superior macroeconomic

growth, European family-owned companies saw returns 60bps below benchmark; post-

crisis, a period marked by very limited growth in Europe, ROEs averaged 10bps lower

than benchmark. So while returns in European are closer to benchmark than in the US,

the profile is considerably more volatile and the standard deviation of European family-

owned business ROEs is 4.4% compared to 2.6% in the US and 2.1% for the global

benchmark. This could suggest a less efficient capital structure.

In Asia, the average return differential between family-owned companies and benchmark

is just 20bps over the full nine-year period and again, we see a smoother profile of returns.

Interestingly, the trough in ROEs in Asia ex-Japan family-owned businesses was 12% in

2008, some 340bps above the benchmark trough. This is a striking contrast to the US and

Europe family companies where returns troughed 2-5% below broader benchmarks, i.e.

08 July 2015


family-owned businesses bore the brunt of the 2008 hit. So up until 2013, we can see

stronger performance from family-owned companies in years of superior macro growth

and more limited downside during more challenging macro backdrops.

Higher cash flow returns – CFROI

However, a simple ROE analysis provides an inadequate description of the family

business model, as cash is a key consideration in general due to the focus on maintaining

ownership and independence. To capture this, we have looked beyond a simple ROE

analysis: we have again used our Credit Suisse HOLT database to look at a more

comprehensive view of profitability, HOLT's proprietary metrics of CFROI (cash flow return

on investment) and Economic Profit (EP), to assess these companies' real economic

performance and to see if family companies create value by using capital effectively over

time.

Economic profit is essentially the cash flow return generated from a company's assets.

Figure 23 shows clearly that the family businesses in our universe have generated an

average 130bps higher CFROI each year since 2006 compared to the MSCI ACWI

constituents (excluding banks and regulated utilities) and confirm the outperformance seen

in our previous reports on US and European family businesses.

Figure 23: Credit Suisse Global Family 900 universe CFROI vs MSCI ACWI (ex financials

and regulated utilities)

4%

5%

6%

7%

8%

9%

10%

1994

1995

1996

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I

CS Global Family 900 universe (ex Fin & Reg Utils) Global Universe (ex Fin & Reg Utils)


We can also see in Figure 24 that the CFROI generation has consistently been above the

discount rate over this period, by an annual average of 320bps. This compares to 190bps

for companies in the MSCI ACWI universe (Figure 25). This 130bps differential is a clear

illustration of the superior value generation ability of family-owned businesses when

considering a deeper analysis of returns beyond a simple ROE and underlines higher

valuations.

08 July 2015


Figure 24: Credit Suisse Global Family 900 universe

CFROI vs cost of capital

Figure 25: MSCI ACWI CFROI vs cost of capital

2%

3%

4%

5%

6%

7%

8%

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10%

2006

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ily U

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(ex

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CFROI Discount rate

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eg U

tils)

Global Universe (ex Fin & Reg…


On a sector-adjusted basis, we see that the companies in our family-owned universe have

generated a higher annual CFROI of an average 9.3% since 2006, with the US having the

highest returns in every year. Again, we see the more uneven returns of European family-

owned business demonstrating that CFROIs are far more cyclical here than other regions

due to the greater exposure to sectors such as consumer discretionary plays and the fact

that they are more dependent on global rather than regional growth.

Figure 26: Credit Suisse Global Family 900 universe CFROI (ex-financials) by region (%)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2006 2007 2008 2009 2010 2011 2012 2013 2014

US Europe Asia exJapan Japan Latam EMEA


Economic Profit – the real value creation

We have also analysed family-owned companies in terms of economic profit (EP)

generation, i.e. the growth in value as a function of CFROI spreads and asset growth that

demonstrates the effectiveness of invested capital. Economic profit is defined as earnings

in excess of the opportunity cost of using the assets or capital. Figure 27 shows that the

family-owned company universe has consistently delivered greater economic profit,

measured as a percentage of enterprise value, over the past 20 years. This is particularly

relevant for higher growth companies and explains how businesses can generate value

despite declining CFROI margins since 2007 (Figure 23).

08 July 2015


When looking at absolute economic profit, we can also see the divergence in value

creation since the economic crisis of 2008, with family-owned businesses' EP accelerating

to close to double pre-crisis levels whilst companies generally have struggled to create

positive EP in recent years. This, in our view, is one of the key reasons that markets pay a

higher valuation for family-owned businesses relative to the multiple their lower ROE

would suggest they merit.

Figure 27: Economic profit as a % of Enterprise Value Figure 28: Annual economic profit generation ($m)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Eco

no

mic

Pro

fit

as %

of

EV


CS HOLT Universe

(800)

(400)

0

400

800

1,200

1,600

2,000

2,400

199419951996199719981999200020012002200320042005200620072008200920102011201220132014

HO

LT

Eco

no

mic

Pro

fit


CS HOLT universe


In terms of business efficiencies, we consider asset turn ratios and see that family-owned

businesses have again consistently higher ratios. Family-owned asset turns have held up

better since 2008, falling 13% vs more than 16% for MSCI ACWI. This combined with the

higher CFROI spread illustrated in Figure 28 explains the growing difference in economic

profit being generated by family-owned businesses relative to the index.

Figure 29: Asset turn ratio – Credit Suisse Global Family 900 universe vs MSCI ACWI (x)

0.00x

0.10x

0.20x

0.30x

0.40x

0.50x

0.60x

0.70x

0.80x

0.90x

1.00x

1994

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1996

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1998

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et T

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CS Global Family 900 universe (ex Fin & Reg Utils) CS HOLT Universe (ex Fin & Reg Utils)


08 July 2015


US case study: Wal-Mart vs Costco and Whole Foods

Wal-Mart is the archetypal family-owned company, a consumer staples retailer founded by

Sam Walton in 1962 and still controlled by the founder's family with a stake of 50.35%.

Robert Walton, the founder's eldest son, is chairman, with two other family members

serving as directors on the 16-person board.

Although we note that the companies differ in size and target markets, if we compare Wal-

Mart's economic profit generation relative to two US non-family owned retailers, namely

Costco and Whole Foods, we see that Wal-Mart has consistently generated higher

CFROIs and economic profit over the past 20 years, though these are now converging and

the share price has been under pressure since early 2015. Even with declining CFROIs,

Wal-Mart has been able to generate superior EP as a percentage of EV compared to the

non-family-owned retailers as well as a more stable profile of CFROI over the period.

Figure 30: Wal-Mart CFROI vs non-family-owned retailers

(%)

Figure 31: Wal-Mart economic profit as % of EV vs non-

family owned retailers (%)

Source: Company data, Credit Suisse HOLT Source: Company data, Credit Suisse HOLT

Figure 32 demonstrates how effectively the market values economic profit generation, with

the share price reflecting Wal-Mart's ability to drive asset growth; this more than cushions

declining CFROIs so that overall value creation has actually increased.

Figure 32: Economic profit vs market cap ($bn) Figure 33: EP drivers ($m)


HOLT


08 July 2015


European case study: Alfa Laval vs Hochtief

Alfa Laval AB is a Swedish manufacturing and engineering company founded in 1883 and

controlled by the Rausing family which indirectly owns 26.1%. Finn Rausing sits on the

Alfa-Laval board as well as the 100% family-owned Tetra Laval group, through which the

Rausing family owns its Alfa Laval stake. Given that exact peers are difficult to find in its

home market, we compare Alfa Laval to Hochtief, a German non-family-owned

engineering company, for the purposes of our analysis. As in our Wal-Mart example, the

family-owned company has consistently delivered higher CFROI and economic profit.

Figure 34: Alfa Laval CFROI vs Hochtief (%) Figure 35: Alfa Laval economic profit as % of EV vs

Hochtief (%)

0%

5%

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Alfa Laval Hochtief

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Alfa Laval Hochtief


Figure 36 demonstrates again the good correlation between the Alfa Laval share price and

economic profit generation, reflecting the company's ability to continuously increase

economic profits, mostly driven by growth and sustainable CFROI levels. From 2002 to

2007, Alfa Laval's economic profit generation improved due to the sharp increase in

CFROI; subsequently value creation has been sustained by growth despite CFROI

declining.

Figure 36: Alfa Laval economic profit vs mkt cap (SEK bn) Figure 37: Alfa Laval EP drivers (SEK m)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

-

500

1,000

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3,500

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EP (SEK in millions, lhs) Market cap. (SEK in billions, rhs)

(1,000)

(500)

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500

1,000

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Change in EP due to discount rate Change in EP due to growth

Change in EP due to CFROI


HOLT


08 July 2015


Asian case study: Sino Biopharmaceutical vs CR

Sanjiu Pharma

Sino Biopharmaceutical is a Chinese integrated pharmaceutical company which develops,

manufactures and markets medicines for hepatitis, cardio-cerebral and other diseases

such as tumours and diabetes. The company was founded in 2000 by Tse Ping who

retains a 40.7% stake along with his wife.

For the purposes of this report, we compare Sino Biopharmaceutical to CR Sanjiu

Pharma, a state-owned pharma company founded in 1999. As we see in Figure 39, Sino

Biopharmaceutical has demonstrated superior CFROI generation and economic profit as a

percentage of enterprise value throughout the period from 2002 to 2014.

Figure 38: Sino Biopharmaceutical CFROI vs CR Sanjiu

Pharma (%)

Figure 39: Sino Biopharmaceutical economic profit as %

of EV vs CR Sanjiu Pharma (%)

-10%

0%

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Sino Biopharmaceutical CR Sanjiu Pharma

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Sino Biopharmaceutical CR Sanjiu Pharma


Again, we see the close correlation between economic profit generation and the share

price (Figure 32). Sino Biopharmaceutical's economic profit has increased 28-fold since

2001, mainly driven by an increase in its assets base and an improvement in CFROIs

post-2005. Over the same period, the company's market capitalisation rose from HKD

660m in 2001 year-end to close to HKD 45bn today.

Figure 40: Sino Biopharmaceutical economic profit vs

market capitalization ($bn)

Figure 41: Sino Biopharmaceutical EP drivers ($m)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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Change in EP due to discount rate Change in EP due to growth

Change in EP due to CFROI


HOLT


08 July 2015


Leverage – lower in the US and Europe, as expected

Much is made in academic research of family-owned businesses relying on internal

funding for growth and investment in order to preserve ownership and independence. Our

analysis shows this to be true for US and European family-owned companies, but the

reverse has been the practice in Asia.

The financial crisis of 2008 led to a rapid de-leveraging at both US and European family-

owned businesses in absolute terms and relative to non-family companies (Figure 43 and

Figure 44) and this further illustrates the more conservative characteristics of management

and strategy. Throughout the nine-year time history below, we see that European family-

owned companies have relied on materially higher leverage compared to the US. This is

partly explained by European companies, on average, having a higher proportion of

tangible assets relative to US companies which have a higher share of IP and intangibles

(due to the greater tech sector weighting).

Higher leverage ratios at European companies may also be explained by the more volatile

returns and cash flow generation seen earlier and thus a greater use of external financing

to fund working capital requirements. But Figure 43 clearly shows how US family-owned

companies have responded to and helped drive the economic recovery by raising debt to

finance growth.

Figure 42: Net debt/equity – Credit Suisse Global Family

900 universe

Figure 43: Net debt/equity – US family-owned businesses

0%

10%

20%

30%

40%

50%

60%

70%

80%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


0%

10%

20%

30%

40%

50%

60%

70%

80%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US family businesses MSCI USA

Source: Thomson Reuters, Credit Suisse research Source: Thomson Reuters, Credit Suisse research

Figure 44: Net debt/equity – European family-owned

businesses

Figure 45: Net debt/equity – Asia exJ family-owned

businesses

0%

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30%

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Europe family businesses MSCI Europe

0%

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30%

40%

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70%

80%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Asia ex-Japan family businesses MSCI APxJ


08 July 2015


We see higher leverage in Asia vs benchmark (Figure 45). There are three likely reasons

in our view. Firstly, the companies are relatively young in the region, so founders are still

trying to maintain control and fund growth rather than risk dilution. Secondly, as we see in

Figure 95 above, the companies are smaller in terms of market cap and may not have

required as much funding for growth. And thirdly, founders may not have had access to

savings, capital provided by family networks or other means. We note that many Chinese

companies have resorted to more VC funding as we have mentioned above.

R&D intensity

Academic research findings are equivocal as to whether family businesses show greater

R&D intensity, or whether they are more conservative in their spending on R&D given

more limited access to or use of external financing. The desire to protect independence

and the status quo perhaps exacerbates the trade-off between R&D and investments and

cash flow available for dividends.

Our findings are unequivocal. Using the Credit Suisse HOLT database, we find that family-

owned business investment in R&D, as measured by capitalised R&D/sales, has averaged

5-6% below the R&D intensity of the MSCI ACWI Index, i.e. it is 30% lower in absolute

terms. On a sector adjusted basis, it was 17% below in 2014. Figure 46 shows that this

spread has in fact widened since the 2008 financial crisis, underpinning the argument of a

more conservative style of management with a slower pick-up in R&D commitment by

family businesses in the aftermath of the crisis and mirroring the de-leveraging discussed

above.

Our analysis also shows that this lower R&D intensity at family companies is characteristic

of all regions. Since 2006, we see average R&D/sales running at 5-10% in both the US

and Asia-ex-Japan with Asian levels closely tracking benchmark levels, just 120bps

differential on average since 2006, a reflection of the heavy weighting of family-owned

companies in Asia generally. However, we see a far greater variation in the US which,

although R&D/sales again ranges between 5-10%, is a very significant 16% of sales lower

than benchmark. In other words, R&D intensity at US family companies is effectively just a

quarter of benchmark levels. Figure 20 illustrates that these same companies generate

return on equity that was an average of 250bps lower during the period 2006-2014. The

discrepancy between R&D investment levels and returns would suggest that US family

businesses are far more efficient in their R&D choices and priorities in our view rather than

this differential simply being a reflection of conservative management.

For Europe, we observe much higher levels of R&D by family companies in Figure 48 with

an average of 12.8% of sales over the past 9 years, although this is still close to 4% below

benchmark. As a percentage of sales, however, this is more than double the level of US

family-owned companies. Different sector exposure is at least part of the explanation given

the much higher weighting of healthcare companies amongst our European family-owned

business universe compared to the US. The healthcare sector generally shows double the

capitalised R&D ratio compared to technology and three times that of consumer

discretionaries.

08 July 2015


Figure 46: R&D/Sales – CS Global Family 900 universe Figure 47: US family companies - R&D/sales (%)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014

US family businesses MSCI USA

Source: Credit Suisse HOLT, Credit Suisse research Source: Credit Suisse HOLT, Credit Suisse research

Figure 48: European family companies - R&D/sales (%) Figure 49: Asia ex J family companies - R&D/sales (%)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Europe family businesses MSCI Europe

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Asia exJ family businesses MSCI APxJ

Source: Credit Suisse HOLT, Credit Suisse research Source: Credit Suisse HOLT, Credit Suisse research

One interesting explanation for differing R&D profiles given by Kotlar, Fang, De Massis

and Frattini1 is that managers at non-family-owned businesses are more likely to increase

R&D spending when they are not meeting profitability goals. In contrast, if a family owner's

main goal is to maintain control rather than maximise profit, there is less incentive to

increase R&D in order to boost returns, or at least short-term returns. This argument also

serves to explain, at least in part, the differing R&D concentration.

Are family-owned companies better at M&A?

If family-owned businesses typically rely more on internal financing sources and if relative

investment projects and/or acquisitions compete for more limited resources, we would

expect management to make optimal investment decisions and returns therefore from

investments and acquisitions to be higher or more efficient. If family-owned companies

focus more on organic growth rather than acquisitions, can we demonstrate this in terms

of sales? Again, using the Credit Suisse HOLT database and M&A scorecard, we see

striking differences in both the level of M&A activity and the success of M&A activity when

it occurs.

1 Kotlar, Fang, De Massis & Frattini: Profitability Goals, Control Goals, and the R&D Investment decisions of

Family and Nonfamily firms, May 2014

08 July 2015


We have measured M&A activity in the family-owned universe and compared it to non-

family-owned companies in the Credit Suisse HOLT database. We find that since 1990,

family-owned business have spent an average of 2.1% of sales on M&A annually

compared to 5.8% at non-family-owned companies. This is more than 60% lower in

absolute terms and goes hand in hand with lower R&D, underpinning the interpretation of

conservatism and a reliance on organic rather than acquisition-led growth.

Using the Credit Suisse HOLT scorecard, we can measure for the improvement or decline

in CFROI in the three years post-acquisition as well as growth. In addition, the scorecard

assesses the relative price paid to measure whether the acquisition price was cheap or

expensive. Whilst other factors will also contribute to the success or otherwise of M&A, the

relative outperformance by family company acquirers is very striking. The average

increase in CFROI is 21% at family-owned businesses after 3 years vs 9% by all

acquirers. Equally, growth averaged 22% after 3 years at family-owned acquirer

companies compared to just 7% at all companies.

Family-owned acquirers also demonstrate better pricing skill than the average company as

shown in Figure 50 and Figure 51. The superior improvement in CFROI within 3 years of

acquisition corresponds to the generally higher CFROIs we see at family-owned

companies.

Figure 50: M&A track record at all companies Figure 51: M&A track record by family-owned companies

Cheap

-18% 15%

Cheap

-17% 9%

Exp

ensiv

e

-29% 3%

Exp

ensiv

e

-26% 5%

Declined Improved Grew Slower Grew Faster

How did CFROI levels change? Did the firm keep growing?

All Companies

Median 3 year Post Acquisi t ion Excess Total Shareholder Return

Pri

cin

g S

kill:

Ho

w m

uch p

rem

ium

was p

aid

?

Operat ing Skill Growth Ability

Cheap

2% 28%

Cheap

-4% 29%E

xpensiv

e

0% 14%

Exp

ensiv

e

13% 14%

Declined Improved Grew Slower Grew Faster

How did CFROI levels change? Did the firm keep growing?

Fami ly owned businesses

Median 3 year Post Acquisi t ion Excess Total Shareholder ReturnP

ric

ing

Sk

ill:

Ho

w m

uch p

rem

ium

was p

aid

?

Operat ing Skill Growth Ability


So what are the negatives to family-owned businesses?

Are there any negatives? Yes, of course, and these mainly relate to corporate governance

shortcomings and the inability of minorities to control or exert good influence over owner-

managers. Whilst these risks may be perceived to be greater than they are, we highlight a

few recent examples that illustrate these concerns.

Banco Espirito Santo (BES), Portugal's largest listed bank by assets, collapsed in August

2014. The Espirito Santo family had owned 25% of BES via holding companies, one of

which, Espirito Santo Financial Group, itself went into administration in late July 2014 after

failing to meet short-term debt obligations amid media reports of accounting irregularities

(e.g. the FT, 30 May 2014). This highlights the risks of related party owners and

transactions over which minorities can have no influence.

Recent events in Sweden also highlight the potential risks from concentrated management

and a lack of board independence. Whilst not family-owned, the closed nature of the

ownership of Industrivarden has been criticised as a corporate governance risk, given

press reports of some executives using corporate jets for personal use and directors

approving one another's expenses (see the FT, 27 April 2015). Whilst we do not suggest

that family-owned businesses would act in a similar fashion, a relatively closed pool of

managers and directors could present governance risks to minorities.

The employment of overpaid, under-qualified family members is typically cited as a

specific risk at family companies. Whilst acknowledging this, and the particular difficulties

of removing underperforming family members in the context of broader family relations, we

08 July 2015


witness an increasing level of professional education and qualifications amongst later

generations taking over from the founding entrepreneur. These issues are of course more

important when families retain a greater stake in the company.

A number of family-owned companies offer different classes of shares, most typically non-

voting shares to external shareholders. This has been a trend in many tech companies

that have IPOed in recent years enabling founders to sell down whilst securing control

nonetheless. The Renault AGM of April 2015 highlighted the drawbacks of different voting

rights proposals when the French government used the Florange Law to ensure double

voting rights for its 15% stake in the company and secure control. Given that most retail

shares are held in bearer form and it is the larger shareholders and particularly key

shareholders who are named on the register, this law has served to further entrench and

concentrate family control. Most of the family-owned companies in France have double

voting rights now; the most notable exception is L'Oreal, which voted in April 2015 to

maintain one share one vote. The adoption of double voting rights to reward long-term

investors is a clear negative, in our view.

The risk of succession and survivorship

Succession and the business risks around succession within a family-owned company are

cited as a key potential cost to external investors. We have looked to see if there is any

evidence of the challenges for family companies as they switch from wealth creation to

wealth inheritance. Of the 920 companies in our universe, 384, or 42% were listed after

2000. In fact, 3% were listed in the past five years. The vast majority of these have been

Asian companies, underlining both the more recent economic development of the region

and the long established role of entrepreneurship. The higher number of Asian IPOs vs

European and US ones is also explained by the depressed state of capital markets in

recent years and the reluctance of founders and families in the latter markets to sell at

these valuations.

If we assume a generation to be 25 years – it may well be longer in the case of the original

founder/entrepreneur – we can estimate the generation that is currently "owning" the

family holding. We show this in Figure 52, along with the survivorship rates relative to the

first generation. The generational breakdown of the companies included in our 920

universe is very similar to the statistics put forward by the Family Business Institute which

puts just 33% transitioning from family to generation 2, 12% making generation 3 and a

mere 3% to generation 4. Our basket shows 50%, 22% and 10% respectively.

Figure 52: Credit Suisse Global Family 900 universe and survivorship rates

0%

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Family Business

Institute survivorship

Source: Credit Suisse research, Family Business Institute

08 July 2015


As we note above, companies in sectors that have higher IP such as healthcare and IT

(dependent on the founder's know-how) show families selling down earlier than in other

sectors with more tangible asset business models. We see evidence in our research of

these succession risks reflected in lower share price returns and accounting quality,

particularly in second generation ownership. We discuss these below.

Figure 53: Credit Suisse Global Family 900 universe – Survivorship by sector

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Consumer discretionary Consumer staples Healthcare IT


Survivorship and generational transition is of course not simply a function of successful

family ownership and management. We see the role of State as important in many areas

for supporting the development of family ownership. For example, Japan, France,

Germany, Turkey and Switzerland have enabled family businesses to thrive despite the

heavy presence of the State in the economy. Germany has very beneficial inheritance tax

laws that allow families to retain full or highly concentrated ownership that is not possible

in economies with more onerous inheritance tax rules.

The State has also been a bar on entrepreneurship in other instances. The obvious

example of communist ownership of property in China and Russia barred anything other

than micro-entrepreneurship and the State retains a heavy presence in both countries

through asset ownership and regulation. Because of this, any comparison of generational

ownership or survivorship between Asia, EMEA and other markets is largely distorted.

Figure 54: Generational ownership Europe and US Figure 55: Generational ownership – Asia and Emerging

Markets

0%

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Gen 1 Gen 2 Gen 3 Gen 4 Gen 5+

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Source: Credit Suisse research Source: Credit Suisse research

08 July 2015


Accounting quality is in fact superior

In addition to MSCI ESG rankings, we are able to look at proprietary indicators using

Credit Suisse HOLT as an alternative proxy for corporate governance and assess the real

risks of family owners' interests vs outside shareholders. Using Credit Suisse HOLT's

accounting analysis, we have found no evidence of potential agency costs or actual

discrepancies in accounting practice that are to the detriment of minorities. In fact,

accounting quality (Figure 58) at family-owned businesses is generally superior to the

overall Credit Suisse HOLT universe with 67% of the companies ranking average or above

compared to the 60% within Credit Suisse HOLT (the companies being ranked into

quintiles).

When we consider more detailed accounting metrics, we also see this superior practice at

family-owned companies. Accounts receivable show 67% of these companies rank

average or above along with 64% on accounts payable. This might also suggest better

working capital management. Similarly, we see 65% of family-owned companies ranked

as average or above on revenue recognition and 62% for expense recognition implying

good transparency and reliability of financial statements. From this accounting point of

view, we believe that some of the perceived corporate governance risks may be

overstated and that there is a better alignment of interests by family and minority owners

than may be generally perceived.

Diversity

Further to our Credit Suisse Gender 3000: Women in Senior Management report of

September 2014, we look to see whether family-owned companies have higher levels of

diversity as academic research suggests. We find very interesting results that demonstrate

clearly higher levels of female representation on boards of directors and in senior

management at family-owned companies in the US and Asia. By contrast, we see fewer

female board directors in Europe which shows both the slower response of family

companies to the mandated quotas and targets in place and perhaps the lack of female

family members available to fill these positions. In Latin America, diversity is worse in

family companies in both the boardroom and management and highlights the cultural

drivers of diversity that we discussed in the Credit Suisse Gender 3000 report.

Figure 56: Diversity at family-owned companies

BOARDS Senior mgmt

2010 2011 2012 2013 2013

North America 15.4% 16.0% 16.8% 18.2% 16.2%

Europe 12.1% 14.0% 16.6% 19.4% 15.0%

Developed Asia 7.4% 7.9% 8.6% 9.0% 13.2%

Emerging Asia 7.6% 8.0% 8.0% 8.8% 15.4%

Latin America 6.0% 6.0% 5.6% 5.0% 5.9%

EMEA 13.1% 12.6% 11.8% 12.6% 10.9%

Total 9.0% 9.7% 10.2% 11.2% 13.8%


Figure 57: Difference vs Credit Suisse Gender 3000

BOARDS Senior mgmt

2010 2011 2012 2013 2013

North America 2.7% 3.1% 3.3% 4.2% 1.2%

Europe -1.4% -0.9% -1.1% -1.2% 0.3%

Developed Asia 1.9% 1.5% 1.6% 1.2% 0.6%

Emerging Asia 1.4% 1.5% 1.1% 0.8% 5.0%

Latin America 0.2% -0.3% -0.2% -1.2% -3.2%

EMEA 5.8% 5.3% 4.2% 4.4% -0.5%

Total -0.6% -0.6% -1.1% -1.5% 0.9%


https://plus.credit-suisse.com/r/jfbjlc

https://plus.credit-suisse.com/r/jfbjlc

08 July 2015


Figure 58: Credit Suisse Global Family 900 universe -

Overall accounting quality


Depreciation accounting quality

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08 July 2015


The investment case for family-owned companies The question for investors of course is whether family-business success creates a good

investment opportunity for minority investors. As discussed above, looking on a sector-

adjusted and market-weighted basis, the 920 companies in our Family Business universe

demonstrate a 47% outperformance compared to the MSCI All Countries World Index

(ACWI) over the nine years to the end of April 2015. This equates to an annual excess

return of 4.5% over the same period (Figure 11).

On a simple equal weighted basis, our basket of stocks (Figure 12 has beaten the index

by 351% over the same period. This is a CAGR of 21.6% for these family-owned stocks

compared to 3.6% for the index. Clearly, investing alongside family owners has been a

significant positive for outsiders, too.

Credit Suisse has previously launched the Credit Suisse Family Business Index

(Bloomberg ticker CSFAM Index), comprising 40 listed US and European family

companies that screen as best-in-class on HOLT. Since its launch in 2007, the index has

outperformed the MSCI ACWI by a CAGR of 140 basis points annually. This index is not

sector or market adjusted (Figure 66). (For a list of Credit Suisse's ESG baskets showing

their performance over various time periods, please see Appendix 2 on page 47.)

Figure 64: Credit Suisse Global Family 900 universe vs MSCI ACWI - (sector adjusted)

(%)

0

50

100

150

200

250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates

08 July 2015


Figure 65: Credit Suisse Global Family 900 universe vs MSCI ACWI – equal weighted

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700

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Global Family 900 universe (equal wt) MSCI AC World


Figure 66: Credit Suisse Family Index Total Return vs MSCI ACWI

0

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2007 2008 2009 2010 2011 2012 2013 2014 2015

CS Family Index MSCI ACWI

Note: Past performance is no guarantee of future returns. (For a list of Credit Suisse's ESG baskets

showing their performance over various time periods, please see Appendix 2 on page 47.)


Figure 67: Returns and valuations for family-owned companies - 2014


Global 11.5% 6.4% 10.6 2.1 52.0% 1.8

US 12.0% 9.1% 13.2 3.3 30.7% 1.1

Europe 12.1% 7..5% 9.2 2.0 42.7% 1.3

Asia 10.8% 5.5% 9.7 1.7 44.4% 1.7

Latam 9.3% 6.7% 10.1 2.1 86.6% 2.6

EMEA 17.9% 8.1% 18.6 1.8 82.6% 1.9

Source: Company data, Credit Suisse HOLT, Credit Suisse estimates

08 July 2015


Figure 68: Returns and valuations relative to MSCI ACWI - 2014


Global -4.8% 1.0% 12.3% -1.2% 7.9% 17.1%

US -18.2% -2.0% 22.9% 17.2% -39.0% -14.8%

Europe 15.8% 25.0% 2.8% 14.4% -22.3% -24.3%

Asia -8.7% -0.4% 17.0% 5.3% 34.5% 49.2%

Latam 3.0% 53.9% -8.7% 33.3% 41.8% 8.5%

EMEA 62.9% 31.4% 218.4% 31.8% 222.4% -92.0%


Figure 69: Returns and valuations relative to MSCI ACWI – since 2006


Global 5.0% 9.1% 11.8% 5.1% 12.4% 19.8%

US -13.8% 2.7% 8.1% 5.9% -41.0% 16.7%

Europe -13.7% -5.3% 10.3% 10.8% -2.6% 9.9%

Asia 2.6% 0.5% 8.4% -6.9% 41.7% 47.1%

Latam -5.5% 24.8% 12.0% 13.8% 94.8% 57.7%

EMEA 32.9% 33.1% 51.8% 17.3% 392.2% 133.0%


We see that family-owned companies have traded at slight premiums both in 2014 and on

average since 2006. This reflects the higher returns, both in terms of ROEs and Cash

Flow Return on Investment, that the companies show in aggregate. However, we see

considerable regional differences, with European and US companies within our Credit

Suisse Global Family 900 universe showing lower returns on average. This corroborates

previous research, and we believe that external investors are prepared to pay a slight

premium for the more stable performance through the cycle that we have seen above. In

terms of EV/EBITDA, there is some consistency across regions in the premium being 9-

10% over the past nine years.

Figure 70: CS Global Family 900 universe – EV/EBITDA (x) Figure 71 US family businesses – EV/EBITDA (x)

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08 July 2015


Figure 72: European family businesses – EV/EBITDA (x) Figure 73: Asia ex J Family business – EV/EBITDA (x)

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When should you invest?

We have looked at share price returns by age of company and find that it pays to invest

alongside the company founder, i.e., in the early years of a company's existence that is

likely to correspond to a period of high growth. The CAGR of first generation companies

has been 9.0% over the past 9 years. This does not necessarily mean that investors

should automatically buy into IPOs, as Figure 74 below suggests that first generation

companies may also offer the best trading opportunities, i.e. volatility, to maximise share

price returns. This more volatile early return profile may reflect the early-stage nature of

the companies and perhaps investors' lack of familiarity with the businesses, which might

cause them to over- or under-estimate performance; hence, the exaggerated share price

reactions.

Figure 74: Share price performance by generation of ownership

60

85

110

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Jun

-06

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Source: Credit Suisse research, Credit Suisse HOLT

Interestingly from this generational breakdown, we find that third generation ownership

marginally outperforms the second generation. Interpretations of this might reflect first

generation to second generation succession problems before a move to broader and

external management by the third generation or family wealth creation engendering a

sense of stewardship rather than ownership by generation 3. What is very clear from our

analysis of returns by generation of ownership though is diminishing returns as family-

owned companies mature.

08 July 2015


Dividends

Family-owned companies tend to have a lower payout ratio. Academic research argues

that one of the key differences between family-owned businesses and more broadly-

owned companies is that families want to maintain control or ownership and to be able to

pass on the company as a legacy to future generations. The fact that companies tend not

to transition successfully down generations in most instances (see Figure 52) does not

necessarily affect the intentions and decisions of founders or first-generation owners. As

such, family-owned companies conserve internally-generated sources of cash; hence the

lower R&D and M&A intensity we see above and similarly the lower dividend payouts.

In addition, in founder and early-generation ownership, we would expect to see more

family members derive wealth from the company as salaried employees, and in later

generations—when there is more fragmented family ownership and potentially a greater

number of family members participating in the family holding—we would see a greater

alignment with minorities' interests and calls for a higher payout.

In Figure 75, we see a clear spike in the payout ratio for the MSCI ACWI for 2009. This is

due to the fall in profits that year rather than an increase in dividends paid. A similar

pattern is seen across all regions. However, whilst we see dividend payouts generally

trending up in the US and Europe in recent years (vs downwards in Asia), it is notable that

family-owned businesses have a much smoother profile to payout ratios over the past

eight years, particularly in 2008-09. It appears that they were more willing to tailor dividend

payouts to available cash flows rather than maintain absolute payout levels that we can

see was a priority at the broader benchmark. Yet again this would underpin the argument

of these companies having a much longer-term view and running the businesses

accordingly rather than answer the short-term demands of the market and the share

price.

Figure 75: Credit Suisse Global Family 900 universe

payout ratio (%)

Figure 76: US family businesses – payout ratio (%)

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08 July 2015


Figure 77: European family businesses – payout ratio (%) Figure 78: Asia exJ family businesses – payout ratio (%)

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We have seen that family businesses in Europe and the US trade at a slight premium

relative to ROE and, from a Gordon Growth Model point of view (although not a CFROI

standpoint), the cash flow spread relative to the cost of capital we illustrate in Figure 24 is

consistently wider. However, if we evaluate the market price paid for economic profit, we

see in Figure 79 that there has been a consistent discount over time, which has generally

narrowed over the past eight years. Notwithstanding this, in Figure 80 we see a clear

widening of the discount for family-owned businesses over the course of 1Q15, which

suggests, in our view, that good investment opportunities now exist.

Whilst we find that, contrary to other research, large cap family-owned companies have

more leveraged balance sheets, the fact that these businesses are the main source of

wealth for family owners could make investors perceive that they are at lower risk of

bankruptcy. This may explain the implicit acceptance of the lower ROE by outside

investors. As Figure 70 illustrates, the price to book premium appears to be structural,

particularly in Europe.

Figure 79: Economic Profit PE (x) – CS Global Family 900

universe vs MSCI ACWI (ex financials and regulated utilities)

Figure 80: CS Global Family 900 universe - economic PE

discount (%)(ex financials and regulated utilities)

12x

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08 July 2015


Are there 'supergroups' within the family-owned universe?

We have looked to see if there are clusters of founders and countries where there is a

marked outperformance since 2006 of family-owned businesses in specific sectors against

both the sector and their respective country benchmarks. Figure 81 shows returns to

investors that are beyond being simply sector or country plays. In Figure 88, we highlight

18 Outperform-rated companies that offer opportunities to invest in these potential

incremental returns.

In Figure 81 below, we show the clusters of companies that have consistently

outperformed vs both their relevant sector and country indices since 2006. For example, if

we look at the cluster of Italian family-owned consumer discretionary companies, we see

share price returns in line with the MSCI discretionary benchmark but well above MSCI

Italy. Similarly, we see Chinese and Philippine family-owned industrials deliver well above

benchmarks. The companies in our selection above are included in these clusters and

offer ways to get exposure to this potential outperformance.

Figure 81: Supergroups – companies that outperform both the MSCI sector and country benchmarks (2006-15)

Cons. Staples, BR

Materials, BR

Cons. Discretionary, CN

Industrials, CN

IT, CN

Cons. Discretionary, FR

Cons. Discretionary, DE

Health Care, IN

IT, IN

Cons. Discretionary, IT

IT, JP

Cons. Discretionary, KR

Consumer Staples, KR

Cons. Staples, MX

Industrials, PH

Cons. Discretionary, ES

Cons. Discretionary, TW

Financials, TH

Cons. Discretionary, CH

Health Care, CH

Cons. Discretionary, MX

Industrials, CH

Consumer Staples, TR

Financials, TR

Cons. Discretionary, US

Health Care, US

IT, US

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Performance Relative to MSCI Sector Benchmark Index


08 July 2015


ESG: Do families make good managers? We have looked at the MSCI IVA rankings for the companies in our universe to assess

whether we can find any qualitative evidence of the more altruistic management and

strategic priorities that we find discussed in academic research. Lower returns are

generally explained by a family-owned company's priorities being broader than just

economic performance—in Europe and the US in particular, we see a number of family-

owned charities and foundations that have a philanthropic agenda and highlight family

priorities. In the Credit Suisse Research Institute's report, Family businesses: Sustaining

performance (September 2012), we found that the majority of family-owned companies

had ESG-related strategies in place and that family businesses in Europe and the US had

a defined sustainability strategy, particularly one relating to environmental issues.

However, we do not find this to be the case in our global family business universe in 2015

if we try to measure this using MSCI IVA rankings as a proxy for an empirical measure. As

illustrated in Figure 82 below, we see a clear distribution difference between the

companies in our universe and the >4000 companies with IVA rankings in the MSCI ESG

database with the latter having higher scores, i.e. fewer ESG risks. If we look at the data

on a regional basis in Figure 83, we see that the European companies have a far better

score than those in the US and Asia where the majority of companies have a BB or B

ranking. Almost 60% of the family-owned companies in our universe have an AAA-A

score, whereas there is no AAA ranked company in the US and 70% have a score of BBB

and below. We would interpret this change in relative 'good corporate citizenship'

compared with our 2012 report as an illustration of how the ESG agenda has been

adopted more globally and that the family-owned businesses' position as an early adopter

of the environmental agenda has been eroded in the past few years.

Figure 82: Credit Suisse Global Family 900 universe –

MSCI IVA rankings

Figure 83: Credit Suisse Global Family 900 universe –

MSCI IVA rankings by region

0%

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AAA AA A BBB BB B CCC

CS Family Universe MSCI ESG database

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Source: MSCI ESG database, Credit Suisse research Source: MSCI ESG database, Credit Suisse research

https://plus.credit-suisse.com/u/Fz76Gf

https://plus.credit-suisse.com/u/Fz76Gf

08 July 2015



MSCI ESG Corporate Governance rankings by region


MSCI ESG CG rankings by sector

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CS Global Family 900 universe MSCI benchmark

Source: MSCI ESG database, Credit Suisse research Source: MSCI ESG database, Credit Suisse research

08 July 2015


So what to buy? We use Credit Suisse HOLT to screen for the highest ranking stocks using the HOLT

quality and momentum scorecard that are family-owned companies meeting our $1bn+

market capitalisation and 20% family ownership criteria. These are also all rated

Outperform. Valuation metrics for these companies are shown in Figure 87.

Figure 86: Top family-owned companies using HOLT screens for Quality and Momentum that are rated Outperform

Facebook

Roche

Anheuser-Busch InBev

Nike

SAP

McKesson

Hon Hai

Richemont

United Overseas Bank

L Brands

Marriott International

Dassault Systemes

El Puerto de Liverpool

Jiangsu Yanghe Brewery

Sodexo

Schroders

C.P. ALL

CTBC

Belle International

WH Group

50

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Mo

mentu

m

Quality


Figure 87: Top 20 picks using HOLT screens for Quality and Momentum with Credit Suisse Outperform ratings Prices as of 03 July 2015


Valuation 12m

Fwd

Profitability

2015E

H

O


CS

Rating

% to CS

TP

P/E

(x)

Div.

yield ROE CFROI

US Facebook FB.OQ Information Technology 87.3 245,117 6% 6% 32% OP 21% 36.7 0.0% 9% 24%

CH Roche ROG.VX Health Care 265.4 239,457 -2% -3% -1% OP 21% 17.6 3.3% 50% 10%

BE Anheuser-Busch InBev ABI.BR Consumer Staples 106.9 189,935 0% -9% 26% OP 18% 21.1 3.4% 17% 25%

US Nike Inc. NKE.N Consumer Discretionary 109.6 94,237 7% 10% 40% OP 0% 25.7 1.1% 26% 17%

DE SAP SE SAPG.F Information Technology 61.6 83,617 -7% -9% 7% OP NA 16.0 1.9% nm 28%

US McKesson Corporation MCK.N Health Care 224.3 52,101 -5% 1% 18% OP 17% 16.9 0.4% 32% 22%


CH Compagnie Financiere Richemont CFR.VX Consumer Discretionary 75.3 41,646 -5% -6% -19% OP 33% 18.0 2.3% 9% 9%

SG United Overseas Bank UOBH.SI Financials 23.3 27,854 2% 0% 0% OP 20% 10.8 3.4% 10% 9%

US L Brands, Inc. LB.N Consumer Discretionary 86 25,214 1% -8% 44% OP 9% 21.7 3.4% nm 15%

US Marriott International MAR.OQ Consumer Discretionary 74.8 20,566 -5% -5% 14% OP 24% 21.6 1.2% -43% 30%

FR Dassault Systemes DAST.PA Information Technology 65.9 18,596 -5% 5% 36% OP 14% 28.4 0.8% 16% 17%

MX El Puerto de Liverpool LIVEPOLC1.MX Consumer Discretionary 183.1 15,638 4% 0% 18% OP -4% 25.1 0.5% 12% 9%

CN Jiangsu Yanghe Brewery 002304.SZ Consumer Staples 64.2 15,581 -8% 6% 75% OP 32% 17.3 2.6% 23% 18%

FR Sodexo EXHO.PA Consumer Discretionary 85.1 14,773 -7% -8% 6% OP 8% 19.1 2.7% 17% 22%

GB Schroders SDR.L Financials 30.6 10,771 -6% -7% 21% OP -10% 16.7 2.9% 17% 21%

TH C.P. ALL CPALL.BK Consumer Staples 45.8 12,148 -1% 9% -2% OP 18% 27.2 2.4% 37% 20%

TW CTBC Holding 2891.TW Financials 23.9 11,766 2% 14% 24% OP 13% 10.7 2.9% 16% 11%

HK Belle International Holdings 1880.HK Consumer Discretionary 8.8 9,617 -17% -3% 4% OP 47% 11.7 4.3% 19% 10%

HK WH Group Limited 0288.HK Consumer Staples 5.0 9,353 -16% 5% OP 31% 10.7 0.4% 15% 13% Priced as of 03 July 2015; Source: Company data, Credit Suisse HOLT, Credit Suisse estimates

08 July 2015


For investors whose investment style may not fit with the Credit Suisse HOLT

methodology, we also highlight 18 companies below that summarise our clusters of

companies that have outperformed both their global sector and relevant country index

since 2006 and which are also rated Outperform by Credit Suisse analysts. We present

summaries of each of these 18 companies in Figure 89. These companies fit our $1bn+

market cap and 20% family ownership criteria and are included in the Credit Suisse Global

Family 900 universe.

Figure 88: Family-owned companies with Outperform ratings by Credit Suisse analysts

Company Ticker Country Sector Rating

Target Price

Associated British Foods ABF.L UK Food Producers Outperform GBp 3,250

B&M European Retail BMEB.L UK General Merchandise Outperform GBp 390

Carnival CCL.N US Travel & Leisure Outperform US$ 58

Dassault Aviation AVMD.PA FR Aerospace & Defense Outperform € 1,470

Facebook FB.OQ US Consumer Internet Outperform US$ 106

Forbo FORN.S CH Building Materials & Construction Outperform SFr 1,350

Geely Automobile 0175.HK CN Automobiles & Components Outperform HK$ 5.00

Grupo Sanborns GSNBRB1.MX MX Retailing Outperform MXN 31

Hella HLE.DE DE Automobiles & Components Outperform € 48.20

Kone Corporation KNEBV.HE FI Capital Goods Outperform € 45

LinkedIn LNKD.N US Software & Services Outperform US$ 307

Marriott Intl MAR.OQ US Lodging Outperform US$ 93

Megacable MEGACPO.MX MX Cable TV Outperform MXN 72

Schindler SCHP.VX CH Capital Goods Outperform SFr 180

Sodexo EXHO.PA FR Commercial Services Outperform € 92

Sino Biopharmaceutical 1177.HK CN Pharmaceuticals Outperform HK$ 11

Sun Pharmaceuticals SUN.BO IN Pharmaceuticals Outperform Rs 1,045

TalkTalk TALK.L UK Telecommunication Services Outperform GBp 425


We include more detailed summaries of the investment cases for these 18 stocks in our

primer on Thematic and ESG Research: The Family Business Model (link).

Credit Suisse also has a Delta One basket of 40 family-owned stocks in the US and

Europe that screen as best-in-class on Credit Suisse HOLT (Bloomberg ticker: CSFAM

Index). For a list of Credit Suisse's ESG baskets, please see Appendix 2 on page 47.)


08 July 2015


Figure 89: Family-owned companies rated Outperform by Credit Suisse analysts Company Share Price Investment case

Associated British Foods ABF.L

Price: GBp2,892 TP: GBp3,250

Diversified food and retail group with 44% of sales in the UK. The mix of profits has swung from Sugar to Primark so the rating has moved from Food (in line with Unilever/Nestlé) to Retail (on a par with Inditex/H&M). This we think is now played out, and with Sugar profits minimal, and at a cyclical low, we should now see Primark drive the group earnings.

B&M BMEB.L

Price: GBp351 TP: GBp390

B&M is the fastest growing UK General Merchandise (GM) discounter. The consumer has shifted to value formats in the UK, particularly in GM, and we believe B&M can still double its UK store park. Long-term potential for the group is high within UK discounters with just 3-4% market share in GM vs. near 25% in apparel.

Carnival CCL.N

Price: $49.86 TP: $58

CCL is our favorite name within our cruise coverage as we see most upside given its successful turnaround story since the Costa Concordia crash in 2013, strong net yield growth, large presence in China, and increasing FCF.

Dassault Aviation AVMD.PA

Price: €1,170 TP: €1,470

French aircraft manufacturer centred on high-end business jets and military aircraft – the only group in the world to design, manufacture and support both combat aircraft and business jets. Dassault Aviation is trading on an adjusted P/E of 13.8x 2018E, compared to a weighted sector average of 11.7x.

Facebook Inc. FB.OQ

Price: $87.29 TP: $106

We believe Facebook will be able to continue to add incremental businesses on top of existing revenue lines with revenue growth coming through even without a material lift in ad loads. Street models underestimate the long term monetization potential of upcoming new products.

Forbo FORN.S

Price: CHF1,115 TP: CHF1,350

World leader in linoleum floor coverings set to expand sales into new markets and segments. Margins look set to improve with sales team incentivised to deliver profitable growth. SFr1bn available for possible M&A. Currently trading at 6% discount to Swiss industrials which we do not believe is merited.

Geely Automobile 0175.HK

Price: HK$3.90 TP: HK$5.00

Chinese manufacturer of automobiles, parts and components poised to be the largest beneficiary of fuel-saving car subsidy on advanced technology. Furthermore, we are positive on Volvo-related long-term benefits, including (1) a potential 20% Volvo China JV stake injection and (2) a jointly designed modularised small car architecture.

Grupo Sanborns GSNBRB1.MX

Price: MXN24.30 TP: MXN31.00

Mexican retailer positioned well to capture the rise of the middle class in Mexico with different retail formats. Trading at a 31% discount to best-in-class peer El Puerto di Liverpool. At our target price, Grupo Sanborns would trade on 20x 2016E PE.

Hella HLE.DE

Price: € 44.01 TP: €48.20

Strong position in LED lighting suggests that Hella is well placed to benefit from secular growth in the auto industry along with self-help margin improvement and cash flow generation. Still attractive relative to peers at an EV/EBITDA of 6.2x 2015E/16E, a discount >15%.

Kone Corporation KNEBV.HE

Price: €39.90 TP: €45.00

Long-term play on the Chinese E&E market with Kone as market leader in new equipment market and the largest maintenance base. Developed markets also seeing a construction recovery. Strong cash flow generation and above-sector returns whilst EV/EBITDA of 12.1x 2016E is 14% discount to peers.

LinkedIn LNKD.N

Price: $207.76 TP: $307

LinkedIn's all-you-can-eat subscription model undercharges enterprise customers and longer term LinkedIn can potentially price in a more lucrative per-lead transactional basis. Over the longer term, we believe LinkedIn can leverage its unique data set to place the right ad in front of the right user at the right time, driving ad inventory pricing higher.

Marriott International MAR.N

Price: $74.80 TP $93.00

Asset-light strategy, commitment to capital return and strong brands should continue to create value as lodging cycle progresses. TP of $93 is based on 15x 2016E EBITDA discounted back.

Megacable Holdings MEGACPO.MX

Price: MXN66.41 TP: MXN72.00

Largest cable company in Mexico with 3-play bundles; broadband and telephony plus hybrid network. Mega serves 15% of current subs, and competition is limited. Strong management team of industry veterans.

Schindler Holding SCHP.VX

Price: CHF154.50 TP: CHF180.00

Outgrowing peer group as investment in new global product platforms and emerging markets presence pay off. Potential for margin improvement as well as acquisitions or capital returns. At 13.6x EV/EBITDA 2016E, it is trading on a 12% discount to peers.

Sodexo EXHO.PA

Price: €93.71 TP: €92.00

Significant potential medium-term upside with guidance significantly ahead of consensus. Looks well placed to achieve double-digit operating profit growth in 2015, whilst current share price implies 4% EBIT growth from 2016E vs guidance of 8-10%

Sino Biopharmaceutical 1177.HK

Price: HK$8.63 TP: HK$11

SBP is one of the most successful players in delivering FTM drugs and it has the highest R&D expenses ratio among all drug companies under our coverage, which has given SBP a robust pipeline to sustain its long-term growth with 238 products under development. More CFDA approvals on SBP’s new drugs could be the key catalysts.

Sun Pharmaceuticals SUN.BO

Price: Rs871 TP: Rs1,045

Sun Pharma is the market leader in chronic therapies in India with strong entry barriers, a market leader in dermatology in US generics and overall among the top 5 players in the US generics market.

TalkTalk TALK.L

Price: GBp 388.5 TP: GBp 425

Over the past TalkTalk has evolved its strategy to focus more on broadband, fibre and mobile customer growth following 2 years of mainly targeting TV net adds. We expect TalkTalk to deliver ~5% revenue growth (driven by fibre, TV and mobile subscriber growth) and therefore get close to its implied FYMar17 EBITDA target of £475m—we forecast £465m, 13% ahead of consensus.

Priced as of 03 July 2015; Source: Company data, Credit Suisse estimates

08 July 2015


Figure 90: Top 50 family-owned businesses in the Credit Suisse Global Family 900 universe by market capitalisation Priced as of 03 July 2015

Price Data Price Change (%) Valuation 12m Fwd

Profitability

2015E


P/E

(x)

EV/ EBITDA

(x) ROE CFROI

US Google GOOGL.OQ Information Technology 547.3 365,802 -1% 0% -8% 17.7 9.4 15% 16%

CH Novartis NOVN.VX Health Care 93.1 264,881 -3% -5% 14% 17.9 13.1 14% 8%

US Facebook FB.OQ Information Technology 87.3 245,117 6% 6% 32% 36.7 16.5 9% 24%

CH Roche ROG.VX Health Care 265.1 239,898 -2% -3% -1% 17.6 11.2 50% 10%

US Wal-Mart Stores WMT.N Consumer Staples 71.9 231,429 -1% -10% -5% 14.7 8.9 19% 10%

BE Anheuser-Busch InBev ABI.BR Consumer Staples 108.3 193,451 0% -9% 26% 21.1 11.8 17% 25%

US Oracle Corporation ORCL.N Information Technology 40.4 175,004 -8% -7% -3% 14.6 9.3 26% 20%

US Berkshire Hathaway BRKb.N Financials 137.4 168,640 -3% -5% 6% 17.2 nm 8% 7%

KR Samsung Electronics 005930.KS Information Technology 1,268,000 166,526 -8% -16% -6% 8.2 2.7 12% 8%

ES Inditex ITX.MC Consumer Discretionary 28.8 99,862 -6% -7% 24% 28.9 15.5 32% 13%

FR L'Oreal OREP.PA Consumer Staples 158.4 98,487 -6% -11% 23% 24.2 14.9 17% 20%

US Nike NKE.N Consumer Discretionary 109.9 94,460 7% 10% 40% 25.7 11.7 26% 17%

FR LVMH LVMH.PA Consumer Discretionary 157.7 88,981 -4% -7% 21% 18.7 9.0 16% 13%

DE SAP SE SAPG.F Information Technology 62.5 85,265 -7% -9% 7% 16.0 11.7 20% 29%

US Kinder Morgan KMI.N Energy 38.0 82,455 -7% -11% 5% 41.3 16.5 5% 5%

IN Tata Consultancy Services TCS.BO Information Technology 2,604.8 80,473 2% 2% 11% 20.4 15.1 34% 26%

JP SoftBank Group 9984.T Telecommunication Serv ices 7,165.0 70,055 -4% 0% -8% 15.7 7.7 32% 6%

DE BMW BMWG.F Consumer Discretionary 98.9 66,158 -2% -15% 2% 10.0 8.9 16% 7%

HK CK Hutchison Holdings 0001.HK Industrials 112.8 56,159 -5% 19% 34% 8.8 19.8 8% 5%

SE Hennes & Mauritz HMb.ST Consumer Discretionary 322.3 55,704 -4% -10% 9% 23.0 15.9 37% 18%

US McKesson Corporation MCK.N Health Care 224.3 52,101 -5% 1% 18% 16.9 11.0 32% 21%

IN Reliance Industries RELI.BO Energy 1,006.8 51,391 12% 22% -2% 11.7 7.6 11% 4%

DE Merck KGaA MRCG.F Health Care 91.6 50,836 -4% -16% 39% 16.7 8.8 17% 4%

TW Hon Hai Precision 2317.TW Information Technology 97 47,465 2% 3% 5% 10.2 4.3 15% 9%

HK Sun Hung Kai Properties 0016.HK Financials 125.4 46,500 -6% 2% 15% 14.7 11.3 5% 4%

JP Fast Retailing 9983.T Consumer Discretionary 55,740.0 46,227 8% 15% 64% 40.5 13.3 19% 8%

US JD.com JD.O Consumer Discretionary 33.1 45,825 -7% 7% 19% nm 62.3 -1% 1%

MX America Movil AMXL.MX Telecommunication Serv ices 16.5 44,844 3% 3% 23% 14.2 6.4 36% 12%

US Phillips 66 PSX.N Energy 81.5 44,173 4% 5% 0% 12.0 5.6 17% 4%

NL Heineken HEIN.AS Consumer Staples 68 43,581 1% -8% 26% 18.7 10.2 16% 12%

DE Volkswagen VOWG_p.F Consumer Discretionary 212.7 42,695 -2% -14% 9% 8.3 6.5 13% 5%

CH Compagnie Financiere Richemont CFR.VX Consumer Discretionary 76.5 42,464 -5% -6% -19% 18.0 11.0 9% 10%

FR Hermes International HRMS.PA Consumer Discretionary 334.5 39,240 -5% -2% 22% 31.6 17.4 28% 19%

US Carnival CCL.N Consumer Discretionary 49.9 39,081 4% 1% 30% 16.6 9.8 8% 6%

DK AP Moller Maersk MAERSKb.CO Industrials 11,950.0 37,764 -11% -21% -15% 8.8 4.7 10% 4%

IN Infosys INFY.BO Information Technology 990 35,865 -2% -9% 21% 16.4 9.8 24% 15%

FR Christian Dior DIOR.PA Consumer Discretionary 176.9 35,712 -5% -2% 33% 16.7 7.2 12% 11%

GB Associated British Foods ABF.L Consumer Staples 28.9 35,643 -1% -2% -7% 27.9 14.1 11% 10%

JP Canon 7751.T Information Technology 3,986.0 35,444 -7% -11% 20% 16.2 5.4 9% 2%

DE Fresenius FREG.F Health Care 58.0 35,035 3% 4% 54% 21.5 9.2 16% 14%

US Estee Lauder EL.N Consumer Staples 87.5 33,117 -1% 3% 15% 26.0 12.1 28% 17%

IN Sun Pharmaceuticals Industries SUN.BO Health Care 871.0 33,059 4% -24% 24% 26.3 10.8 17% 15%

MX Fomento Economico Mexicano FMSAUBD.MX Consumer Staples 141.4 32,470 2% -3% 13% 24.5 12.5 11% 14%

IT Luxottica Group LUX.MI Consumer Discretionary 59.9 32,164 -1% -1% 38% 29.6 12.3 18% 17%

SG Oversea-Chinese Banking Corporation OCBC.SI Financials 10.2 30,837 2% -4% 11% 10.3 nm 11% 11%

US Franklin Resources BEN.N Financials 49.2 30,439 -4% -6% -16% 12.9 8.2 nm 17%

US Thomson Reuters Corporation TRI.N Consumer Discretionary 38.4 30,228 -3% -8% 4% 17.6 11.0 12% 26%

SG United Overseas Bank UOBH.SI Financials 23.4 28,083 2% 0% 0% 10.8 8.8 10% 9%

IN Bharti Airtel BRTI.BO Telecommunication Serv ices 434.8 27,414 4% 7% 28% 25.9 5.8 8% 6%

KR Hyundai Motor Company 005380.KS Consumer Discretionary 135,000.0 26,513 -3% -18% -42% 4.7 6.9 10% 5% Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse HOLT, Credit Suisse research

08 July 2015


Appendix 1: The Credit Suisse Global Family 900 universe We have established a database of 920 publicly listed companies globally that have a

market capitalisation of at least US$1bn and where there is a family-owned shareholding

of at least 20% of shares outstanding. We find examples in 35 countries. The

preponderance of these, in terms of numbers, is to be found in Asia which is explained by

the different and more recent pattern of economic development in the region compared

with Europe and the US. In more developed markets, we see more fragmented ownership

and many families selling out over time as a general theme. Frequently quoted statistics

from the Family Business Institute show that only one-third of family-owned businesses

last into a second generation of ownership, 12% to a third and just 3% to a fourth. In our

analysis, we have controlled for the greater numbers of Asian companies in this family-

owned company universe by evaluating all our data on a sector- and country-neutral basis

relative to the MSCI ACWI benchmark. We have excluded JVs and assets that have

previously been owned by the State and sold into private hands.

Figure 91: No. of family-owned businesses by region Figure 92: Market cap of family-owned businesses ($bn)

6%

11%

12%

2%

64%

5%

North America

Europe

Developed Asia

EMEA

Emerging Asia

Latam

21%

27%

12%

2%

35%

3%

North America

Europe

Developed Asia

EMEA

Emerging Asia

Latam

Source: the BLOOMBERG PROFESSIONAL™ service,

Credit Suisse research

Source: the BLOOMBERG PROFESSIONAL™ service,

Credit Suisse research

Our database represents 25% of MSCI World market capitalisation and is comparable in

terms of sector weightings, although our family-owned business universe shows a greater

weighting of companies in the technology and consumer discretionary and staples sectors

and fewer financials, specifically banking stocks. We see a higher representation of

financials, especially real estate businesses within our Asian universe relative to the US

and Europe. The concentration in consumer-related sectors and technology implies lower

barriers to entry in these sectors from an initial capital investment viewpoint, and in the

case of technology, less competition, i.e. proprietary intellectual property. As outlined

above, we have adjusted for different sectoral weightings when analysing our data.

Less than 25% of the companies in our Family Business universe are defensives, which is

not a surprise as entrepreneurs tend to seek growth opportunities. Villalonga and Amit2

highlight how a number of sectors are dominated by family-owned companies: the global

beer sector, for example, along with newspapers and six of the seven largest US cable

operators are still owned and actively managed by founding families. We find clusters of

companies in specific countries, the obvious and well-known examples being

manufacturing-related consumer discretionaries in Germany and apparel-related

companies in Italy. Both countries also have a considerable number of non-listed

companies with a similar profile.

2 Villalonga and Amit: Family control of Firms and Industries, Financial Management, Autumn 2010

08 July 2015


Figure 93: Sector breakdown – Credit Suisse Global Family 900 universe vs MSCI

ACWI (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

MSCI World CS Global Family 900universe

Utilities

Telecoms

Materials

Industrials


Health Care

Financials

Energy

Consumer staples

Consumer discretionary


Academic research (eg, Anderson, R., and Reeb D., (2008), Founding-Family Ownership

and Firm Performance: Evidence from the S&P 500, The Journal of Finance) has

attributed the relative outperformance of family-owned businesses, as measured by ROE

or Tobin's Q, to a longer-term development strategy. This, in turn, is driven by the

importance of maintaining independence so that companies can be passed on to the next

generation, and hence the reliance on internally-generated cash flows and a lower level of

external debt to finance investment. This should imply less aggressive growth, according

to academic research. However, our findings contradict this thesis as the 920 companies

in our universe exhibit stronger and less volatile growth as well as higher leverage. Other

factors that are cited in academic studies to explain the difference between companies

with a sizeable family holding and those with broader public ownership are a focus on

organic growth rather than acquisitions, internal competition for resources meaning that

only the most attractive investment projects are adopted and a smoother cycle to

investment at family-owned companies, i.e. less investment during boom times and

continued investment during downturns. Agency costs (the internal costs arising from

conflicts of interest between family and external shareholders) work both to the benefit and

detriment of minorities; more conservative management can reduce the risk of bankruptcy,

the incentive to monitor managers can reduce costs whereas family ownership can entail

the (expensive) employment of under-qualified family members, the extraction of profits to

the family at the expense of minorities, as well as costly related-party transactions and

limited accountability amongst many other factors.

In terms of market capitalisation, the US has the greatest representation in our family-

owned business universe. This reflects the capitalist, entrepreneurial development of the

economy and the lack of State ownership of assets. China, interestingly, has the second

highest representation which underscores the dynamic and entrepreneurial development

of the economy over the past 35 years. Emerging markets make up 40% of our companies

by market capitalisation and illustrate the importance of family-owned companies in the

expansion and advancement of these economies in the past 50 years and, in some

instances, post-Independence.

08 July 2015


Figure 94: Credit Suisse Global Family 900 universe – market cap by country ($bn)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000


The average size of the companies in our universe is US$ 9.1bn and, as we see from

Figure 95, American and European family-owned businesses tend to be larger with market

capitalisation averaging over US$30bn in the US and over US$20bn in Europe. Asian and

emerging market companies are generally smaller with the average market cap below

US$10bn across all regions. This largely reflects the age and position of American and

European companies in terms of their development cycle compared with the less mature

businesses of Asia and emerging markets. However, as expected, we generally see large

cap family-owned businesses in developed markets vs small and mid-cap elsewhere.

Figure 95: Credit Suisse Global Family 900 universe – average market cap by region

($bn)

0

5

10

15

20

25

30

35

NorthAmerica

Europe DevelopedAsia

EMEA EmergingAsia

Latam


Some markets are dominated by a single large cap family-owned name or a handful of

large cap companies. For example, Belgium (see Figure 96) is skewed by AB InBev, whilst

other Belgian family-owned businesses have an average market capitalisation of $9.7bn

compared with the $9.1bn global average. Switzerland is home to Novartis and Roche and,

excluding these two pharma names, Swiss family-owned businesses average US$10.7bn.

Similarly, Spain, excluding Inditex, has an average market capitalisation of $6.5bn for

08 July 2015


family-owned businesses, and so some way below European averages, and as we see in

Figure 96, southern European family businesses tend to be smaller than their northern

European counterparts.

Figure 96: Credit Suisse Global Family 900 universe - average market cap by country ($bn)

0

5

10

15

20

25

30

35

40

45


Looking at family companies by sector as illustrated in Figure 97, we see a concentration

in technology and consumer-related businesses and a low level of activity in materials,

energy, telecoms and utilities, these latter sectors being cyclical, capital intensive or public

service network industries that see greater State regulation and asset ownership.

Founder-owned or family-owned technology businesses are dominated by four companies

with a market cap of more than US$170bn each: Facebook, Google, Oracle and Samsung

Electronics. Well-documented histories of technology start-ups recount low-cost start-ups

based on proprietary intellectual property evolving into high-growth business models that

develop a broad platform and market presence with venture capital funding before going

public. Silicon Valley names characterise this and ownership remains concentrated even

after IPOs, often due to different classes of shares, e.g. non-voting shares. By contrast, we

see far greater dilution of ownership pre-IPO amongst Chinese tech names, which implies

far more limited access to savings and bank funding. Alibaba, for instance, did not meet

our 20% ownership threshold.

Figure 97: Credit Suisse Global Family 900 universe – mkt cap by sector ($m)

21%

18%

15%

15%

10%

8%

6%

3% 3% 1%Consumer Discretionary


Consumer Staples

Financials

Health Care

Industrials

Materials

Telecoms

Energy

Utilities


08 July 2015


Consumer discretionary names can also exhibit similar characteristics to technology

companies in that they involve an element of proprietary IP. In Europe, we see this

particularly in the automotive and component industries that are heavily represented in

Germany, with proprietary production and design IP at Italian and French apparel-related

companies. Such companies create non-financial niches that can be defended and, in our

analysis of survivorship, we see a quicker tailing off of ownership in consumer

discretionaries than consumer staples as succession may be a more complex issue when

a company is based on the founder's IP.

Consumer staples tend to be scale and efficiency plays where growth can come more

easily through new markets and acquisitions, management skills and strategies that are

easier to acquire than IP. Consumer staples tend to be lower value-added sectors,

sometimes simply copies of successful business models and products in other markets,

but as we can see in Asia, the weighting of family-business exposure is shifting away from

consumer staples towards sectors such as healthcare and technology where there is a

greater element of value added.

Four sectors account for almost over 70% of our family-owned business universe—the

consumer (discretionary and staples) and technology companies discussed above along

with financials. Within financials, real estate trusts and development companies make up

35% of market cap of the sector in our universe compared with less than 16% within MSCI

World. This again reflects family entrepreneurs steering away from regulated and high

start-up cost businesses and displaying a preference for sectors that require more limited

initial financial resources and are scalable over time.

Across Asia and emerging markets, we can see a more even spread of sectors

represented in our 920 companies. We see a greater concentration in developed markets,

particularly in Europe, as families build their companies and proprietary IP into sector and

global leaders. Within Europe, there is a predominance of consumer-related

manufacturing and healthcare family-owned companies, such as Fiat, VW, BMW, Novartis

and Roche. In the US, we witness the prevalence of family ownership in consumer sectors

and IP-intensive sectors; this time, technology rather than healthcare.

Figure 98: Credit Suisse Global Family 900 universe – sector breakdown by region (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

NorthAmerica

Europe DevelopedAsia

EmergingAsia

Latam EMEA

Utilities

Energy

Telecoms

Materials

Technology

Industrials

Health Care

Financials

Consumer Staples

Consumer Discretionary


08 July 2015


Figure 99: Credit Suisse Global Family 900 universe – avg mkt cap by sector ($bn)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0


08 July 2015


Appendix 2: Credit Suisse ESG Indices Figure 100: Credit Suisse ESG indices listed on Bloomberg

Credit Suisse Indices powered by HOLT Bloomberg Ticker 1 month 3 month 12 month

Credit Suisse Social Awareness Index CSSAI Index -2.6% 0.5% 6.9%

Credit Suisse Agriculture Index CSAGR Index 0.5% 1.7% -1.6%

Credit Suisse Water Index CSWTR Index -2.8% -1.0% -6.9%

Credit Suisse Global Warming Index CSGWM Index -5.1% -0.1% -7.6%

Credit Suisse Family Index CSFAM Index -1.3% -0.9% -1.6% Priced as of 30 June 2015. Note: Past performance is no guarantee of future returns.


08 July 2015


Selected reading Alluche J., Amann B., Jaussaud, J. and Kurashina T., The Impact of Family Control on the

Performance and Financial Characteristics of Family versus Nonfamily Businesses in

Japan: A Matched-Pair Investigation

Anderson, R., and Reeb D., (2008), Founding-Family Ownership and Firm Performance:

Evidence from the S&P 500, The Journal of Finance.

Barontini R., and Caprio L., The Effect of Family Control on Firm Value and Performance.

Evidence from Continental Europe

Boland M., and Pendell D. (2005), Persistence of Profitability in Family-Owned Food

Businesses

Chen K., and Hsu W. (2009), Family Ownership, Board Independence. And R&D

Investment, Family Business Review

Corstjens M., Peyer U., and Van der Heyden L. (2006), Performance of Family Firms:

Evidence from US and European firms and investors INSEAD

Fahlenbrach R. (2003), Founder-CEOs and Stock Market Performance, The Wharton

School

Kotlar, J., Fang, H., De Massis, A. and Frattini, F. (2014), Profitability Goals, Control Goals,

and the R&D Investment Decisions of Family and Nonfamily Firms. Journal of Product

Innovation Management, 31: 1128–1145. doi: 10.1111/jpim.12165

Kowalewski O., Talavera O., and Stetsyuk I. (2010), Influence of Family Involvement in

Management and Ownership on Firm Performance: Evidence from Poland, Family

Business Review

McKinsey & Co: The five attributes of enduring family businesses

Miller D., and Le Breton-Miller I (2006), Family governance and firm performance: Agency,

stewardship and capabilities. Family Business Review, 19 p 73-87,

Munoz-Bullon F., and Sanchez-Bueno M. (2011), The Impact of Family Involvement on the

R&D Intensity of Publicly Traded Firms

OECD: Small Businesses, Job Creation and Growth: Facts, Obstacles and Best Practices,

1997

Tze San Ong & Shih Sze Gan, Do Family-Owned Banks Perform Better? A Study of

Malaysian Banking Industry, Asian Social Science Vol 9 No 7 2013

Villalonga B., and Amit R. (2010), Family Control of Firms and Industries, Financial

Management, Autumn 2010

Villalonga B., and Amit R. (2005), How do family ownership, control and management

affect firm value? Journal of Financial Economics

Yuan Ding, Hua Zhang, Junxi Zhang (2008), The Financial and Operating Performance of

Chinese Family-Owned Listed Firms, Management International Review

08 July 2015


Companies Mentioned (Price as of 03-Jul-2015)

AP Moller Maersk (MAERSKb.CO, Dkr11950.0) Alfa Laval (ALFA.ST, Skr148.4) America Movil (AMXL.MX, MXN16.5) Anheuser-Busch InBev (ABI.BR, €108.25) ArcelorMittal (MT.N, $9.6) Associated British Foods (ABF.L, 2892.0p) Astra International (ASII.JK, Rp7,050) B&M European Retail (BMEB.L, 351.0p) BMW (BMWG.DE, €98.9) Belle International Holdings Ltd (1880.HK, HK$9.0) Berkshire Hatha (BRKb.N, $137.39) Bharti Airtel Ltd (BRTI.BO, Rs434.8) C.P. ALL PCL (CPALL.BK, Bt46.0) CK Hutchison Holdings Limited (0001.HK, HK$112.8) CR Sanjiu Pharma (000999.SZ, Rmb26.5) CTBC Holding (2891.TW, NT$24.25) Canon (7751.T, ¥3,986) Carnival (CCL.N, $49.86) Cheung Kong Infrastructure (1038.HK, HK$60.05) Christian Dior S.A. (DIOR.PA, €176.85) Coloplast B (COLOb.CO, Dkr437.6) Compagnie Financiere Richemont SA (CFR.VX, SFr76.5) Costco Wholesale Corporation (COST.OQ, $136.39) Dassault Aviation (AVMD.PA, €1170.0) Dassault Systemes (DAST.PA, €65.99) El Puerto de Liverpool, S.A.B. de C.V. (LIVEPOLC1.MX, MXN183.11) Estee Lauder Companies Inc (EL.N, $87.52) Facebook Inc. (FB.OQ, $87.28) Fast Retailing (9983.T, ¥55,740) Fomento Economico Mexicano SAB de CV (FMSAUBD.MX, MXN141.35) Forbo (FORN.S, SFr1115.0) Formosa Plastics (1301.TW, NT$72.5) Franklin Resources (BEN.N, $49.21) Fresenius (FREG.F, €58.014) G.F. Inbursa (GFINBURO.MX, MXN35.38) GRUPO SANBORNS, S.A.B. DE CV (GSNBRB1.MX, MXN24.3) Geely Automobile Holdings Ltd (0175.HK, HK$3.9) Google, Inc. (GOOGL.OQ, $547.34) HCL Technologies (HCLT.BO, Rs965.6) Heineken (HEIN.AS, €68.09) Hella (HLE.DE, €44.0) Henderson Land Dev (0012.HK, HK$52.7) Hennes & Mauritz (HMb.ST, Skr322.3) Hermes International (HRMS.PA, €334.5) Hon Hai Precision (2317.TW, NT$97.3) Hongkong Land Holdings (HKLD.SI, $8.37) Hyundai Mobis (012330.KS, W205,500) Hyundai Motor Company (005380.KS, W135,000) Inditex (ITX.MC, €28.84) Infosys Limited (INFY.BO, Rs989.95) JD.com, Inc. (JD.OQ, $33.13)

Jardine Matheson (JARD.SI, $55.96) Jiangsu Hengrui Medicine Co. Ltd (600276.SS, Rmb41.65) Jiangsu Yanghe Brewery Joint-stock Co., Ltd (002304.SZ, Rmb60.95) Kinder Morgan, Inc. (KMI.N, $38.03) Kone Corporation (KNEBV.HE, €35.9) L Brands, Inc. (LB.N, $86.36) L'Oreal (OREP.PA, €158.35) LG Chem Ltd. (051910.KS, W280,500) LVMH (LVMH.PA, €157.65) LinkedIn (LNKD.N, $207.76) Luxottica Group (LUX.MI, €59.9) Marriott International (MAR.OQ, $74.8) Maxis Berhad (MXSC.KL, RM6.38) McKesson Corporation (MCK.N, $224.26) Megacable Holdings, S.A.B. De C.V. (MEGACPO.MX, MXN66.41) Merck KGaA (MRCG.DE, €91.6) Nan Ya Plastics (1303.TW, NT$70.6) News Corporation (NWS.AX, A$18.55) Nike Inc. (NKE.N, $109.87) Novartis (NOVN.VX, SFr93.05) Oracle Corporation (ORCL.N, $40.36) Oversea-Chinese Banking Corporation (OCBC.SI, S$10.23) Phillips 66 (PSX.N, $81.45) Reliance Industries (RELI.BO, Rs1006.75) Richemont (CFRJ.J, R100.0) Roche (ROG.VX, SFr265.1) Royal Caribbean Cruises (RCL.N, $78.78) SAP (SAPG.F, €62.5) Samsung Electronics (005930.KS, W1,268,000) Samsung Life Insurance (032830.KS, W107,500) Schindler-Holding AG (SCHP.VX, SFr154.5) Schroders (SDR.L, 3174.0p) Siam Cement (SCC.BK, Bt520.0) Sino Biopharmaceutical Limited (1177.HK, HK$8.63) Sodexo (EXHO.PA, €85.25) SoftBank Group Corp. (9984.T, ¥7,165) Sun Hung Kai (0086.HK, HK$6.75) Sun Hung Kai Properties (0016.HK, HK$125.4) Sun Pharmaceuticals Industries Limited (SUN.BO, Rs871.0) Swatch Group (UHR.VX, SFr370.6) TalkTalk (TALK.L, 381.1p) Tata Consultancy Services (TCS.BO, Rs2604.8) Tata Motors Ltd. (TAMO.BO, Rs433.35) Thomson Reuters Corporation (TRI.N, $38.36) United Overseas Bank (UOBH.SI, S$23.4) Volkswagen (VOWG_p.F, €213.1) WH Group Limited (0288.HK, HK$5.16) Wal-Mart Stores, Inc. (WMT.N, $71.86) Whole Foods Market (WFM.OQ, $39.15) Wilmar International Ltd (WLIL.SI, S$3.3) Wipro Ltd. (WIPR.BO, Rs549.85)

Disclosure Appendix

Important Global Disclosures

Julia Dawson, Richard Kersley, Catherine Tillson and Marcelo Preto each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment oppor tunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian

08 July 2015


ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calcula tion includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 50% (26% banking clients)

Neutral/Hold* 36% (44% banking clients)

Underperform/Sell* 12% (42% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

See the Companies Mentioned section for full company names

The subject company (ALFA.ST, FB.OQ, GOOGL.OQ, WMT.N, FORN.S, ABI.BR, ABF.L, 1880.HK, 2891.TW, CCL.N, COLOb.CO, CFR.VX, GSNBRB1.MX, FMSAUBD.MX, BEN.N, HCLT.BO, 2317.TW, JD.OQ, JARD.SI, 051910.KS, LVMH.PA, MAR.OQ, MCK.N, MEGACPO.MX, NOVN.VX, ORCL.N, PSX.N, ROG.VX, SAPG.F, 005930.KS, SDR.L, 9984.T, SUN.BO, TCS.BO, UOBH.SI, WIPR.BO, BMEB.L, NWS.AX, COST.OQ, LIVEPOLC1.MX, BMWG.DE, 0016.HK, RELI.BO, 1038.HK, TAMO.BO, MT.N, TRI.N, GFINBURO.MX, 032830.KS, HRMS.PA, HEIN.AS, BRTI.BO, 005380.KS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (FB.OQ, GOOGL.OQ, WMT.N, ABF.L, FMSAUBD.MX, HCLT.BO, MAR.OQ, NOVN.VX, ORCL.N, PSX.N, SAPG.F, 005930.KS, 9984.T, UOBH.SI, BMEB.L, BMWG.DE, TAMO.BO, MT.N, GFINBURO.MX, 032830.KS, HEIN.AS, 005380.KS) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (2891.TW, ROG.VX, SDR.L, 005380.KS) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (WMT.N, FMSAUBD.MX, NOVN.VX, PSX.N, 9984.T, UOBH.SI, BMWG.DE, TAMO.BO, MT.N, 032830.KS, 005380.KS) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (FB.OQ, GOOGL.OQ, WMT.N, ABF.L, FMSAUBD.MX, HCLT.BO, MAR.OQ, NOVN.VX, ORCL.N, PSX.N, SAPG.F, 005930.KS, 9984.T, UOBH.SI, BMEB.L, BMWG.DE, TAMO.BO, MT.N, GFINBURO.MX, 032830.KS, HEIN.AS, 005380.KS) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ALFA.ST, LNKD.N, FB.OQ, GOOGL.OQ, WMT.N, EXHO.PA, FORN.S, ABI.BR, ABF.L, 1880.HK, 2891.TW, CCL.N, COLOb.CO, DAST.PA, AVMD.PA, GSNBRB1.MX, 9983.T, FMSAUBD.MX, 1301.TW, BEN.N, HCLT.BO, 2317.TW, JD.OQ, JARD.SI, 051910.KS, LVMH.PA, MAR.OQ, MCK.N, MEGACPO.MX, NOVN.VX, ORCL.N, PSX.N, RCL.N, SAPG.F, 005930.KS, 9984.T, SUN.BO, TCS.BO, UOBH.SI, WIPR.BO, BMEB.L, NWS.AX, COST.OQ, 0175.HK,

08 July 2015


MRCG.DE, BMWG.DE, 0016.HK, RELI.BO, 0288.HK, 1038.HK, TAMO.BO, MT.N, TRI.N, GFINBURO.MX, 032830.KS, 1303.TW, HEIN.AS, DIOR.PA, BRTI.BO, 005380.KS) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (2891.TW, ROG.VX, SDR.L, 005380.KS) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (LNKD.N, FB.OQ, GOOGL.OQ, WMT.N, CCL.N, BEN.N, KMI.N, LB.N, MAR.OQ, MCK.N, NKE.N, ORCL.N, PSX.N, COST.OQ, WFM.OQ, MT.N).

Credit Suisse may have interest in (MXSC.KL)

Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014

Credit Suisse may have interest in (HCLT.BO, SUN.BO, TCS.BO, WIPR.BO, RELI.BO, TAMO.BO, INFY.BO, BRTI.BO)

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (FORN.S, CFR.VX, NOVN.VX, SAPG.F).

Credit Suisse has a material conflict of interest with the subject company (FB.OQ) . Credit Suisse has been named as a defendant in various putative shareholder class-action lawsuits relating to Facebook, Inc.’s May 2012 initial public offering. Credit Suisse’s practice is not to comment in research reports on pending litigations to which it is a party. Nothing in this report should be construed as an opinion on the merits or potential outcome of the lawsuits.

Credit Suisse has a material conflict of interest with the subject company (005930.KS) . Credit Suisse is acting as exclusive financial advisor to Samsung Electronics and Samsung Fine Chemicals in relation to the proposed sale of their ownership stakes in the semiconductor wafer joint ventures with SunEdison, SMP Ltd and MEMC Korea Company Ltd, to SunEdison.

Credit Suisse has a material conflict of interest with the subject company (9984.T) . .

Credit Suisse has a material conflict of interest with the subject company (WLIL.SI) . Credit Suisse is acting as financial advisor to Goodman Fielder in relation to the receipt of the announced proposal from Wilmar International Limited and First Pacific Company Limited.

As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (ORCL.N). As of the date of this report, an analyst involved in the preparation of this report, Sitikantha Panigrahi, has following material conflicts of interest with the subject company. The analyst or a member of the analyst's household has a long position in call options of Oracle Corporation (ORCL.N).

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (ALFA.ST, LNKD.N, FB.OQ, GOOGL.OQ, WMT.N, EXHO.PA, FORN.S, ABI.BR, ABF.L, ASII.JK, 1880.HK, 000999.SZ, 2891.TW, CCL.N, COLOb.CO, CFR.VX, DAST.PA, AVMD.PA, GSNBRB1.MX, 9983.T, FMSAUBD.MX, 1301.TW, BEN.N, HCLT.BO, HLE.DE, 0012.HK, HMb.ST, 2317.TW, HKLD.SI, ITX.MC, JD.OQ, JARD.SI, KMI.N, KNEBV.HE, LB.N, OREP.PA, 051910.KS, LVMH.PA, MAR.OQ, MXSC.KL, MCK.N, MEGACPO.MX, NKE.N, NOVN.VX, ORCL.N, ORCL.N, PSX.N, ROG.VX, RCL.N, SAPG.F, 005930.KS, SCHP.VX, SDR.L, 1177.HK, 9984.T, SUN.BO, UHR.VX, TCS.BO, UOBH.SI, WLIL.SI, WIPR.BO, BMEB.L, TALK.L, NWS.AX, 600276.SS, 002304.SZ, COST.OQ, WFM.OQ, LIVEPOLC1.MX, 0175.HK, 0001.HK, MRCG.DE, BMWG.DE, 0016.HK, RELI.BO, 0288.HK, 1038.HK, CPALL.BK, TAMO.BO, SCC.BK, MT.N, TRI.N, GFINBURO.MX, 012330.KS, 032830.KS, 1303.TW, HRMS.PA, MAERSKb.CO, OCBC.SI, HEIN.AS, INFY.BO, DIOR.PA, BRTI.BO, 005380.KS) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.

Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (ABF.L, TALK.L).

The following disclosed European company/ies have estimates that comply with IFRS: (ALFA.ST, EXHO.PA, ABI.BR, ABF.L, DAST.PA, HMb.ST, ITX.MC, OREP.PA, SAPG.F, SDR.L, TALK.L, 0001.HK, BMWG.DE, MT.N, HEIN.AS).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (FB.OQ, GOOGL.OQ, WMT.N, GSNBRB1.MX, MAR.OQ, MXSC.KL, NOVN.VX, PSX.N, SAPG.F, SCHP.VX, 9984.T, UOBH.SI, BMWG.DE, TAMO.BO, MT.N, GFINBURO.MX, 032830.KS, HEIN.AS, 005380.KS) within the past 3 years.

As of the end of the preceding month, Credit Suisse beneficially owned the following percentages of the voting rights of the subject companies: 1.0% or more of SCHP.VX, 1.0% or more of UHR.VX

08 July 2015


As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: C.P. ALL PCL () , Siam Cement (Very Good)

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities (Europe) Limited....................................................... Julia Dawson ; Richard Kersley ; Catherine Tillson ; Marcelo Preto

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Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

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For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

08 July 2015


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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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