tbli conference™ nordic 2014 - esg fund strategy - frode strand nielsen - fsn

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Approaches to ESG integration:

An investor's perspective

TBLI CONFERENCE NORDIC 2014 - Oslo, September 10th 2014

Frode Strand-Nielsen

Presenter

Presentation Notes

Thank you for taking the time to meet with us (First thing you want to do is to make them talk. Take notes, ask questions which shows you are interested, but do not over do it) When it is your turn you start with the following sentence: Our purpose as a firm is to provide our investors with a risk adjusted net return which is materially above what they can realise though investing in Nordic mid-cap public index funds. This return differential is of course, what we call @-return Would you like us to take you through our approach to this? First let us give you an introduction to our firm (Always bring along our Annual report and hand it out at the end of the meeting)

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FSN Capital’s organisation

Thomas Broe-Andersen Partner

Stockholm

København

Oslo

Frode Strand-Nielsen Managing Partner

Knut Kjaer Chairman

Henrik Lisæth Partner

Peter Möller Partner

3 offices 21 investment professionals

EUR 1,1 bn under management

Ulrik Smith

Partner Erik Nelson

Partner

Morten Welo COO

Presenter

Presentation Notes

FSN Capital is managed as a single firm with local teams on the ground in the 3 main Nordic buyout markets. Since we met last year, we have continued to develop and strengthen our team, including recruitment of two new Directors Lars Denkov joined us in October 2011 from Providence Equity Partners in London where he was a Vice President. Lars had 6 yrs at Morgan Stanley before he moved into the PE field in 2009. Lars is located in the Copenhagen office, but he has spent most of his time in Oslo on the PM Retail deal. Jussi Salokangas joined us in January after seven year at Argan Capital in London, where he was the Partner responsible for their Nordic Business. In addition, Jussi has been with Meryll Lynch for 3 yrs. Jussi has strengthened our Stockholm office, and has already some strong sourcing leads in Finland. As announced last year, Knut Kjær joined as our Chairman in August 11. Knut is the Head of our Investment Committee, he is very active on sourcing, and rather hands on in our daily business

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Who are our ultimate clients?

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“We are decent people making a decent return in a decent way” By decent people we mean that we are trustworthy individuals that behave with integrity

Making a decent return means generating alpha return, i.e. a risk adjusted return which is significantly higher than what our investors can achieve by investing in public market index funds

Generating this return in a decent way means that we operate according to the internal code of conduct we have developed and that we implement similar code of conduct in our portfolio companies and that we adhere to the UN Principles for Responsible Investment

FSN Capital - Ethos

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ESG risk included in FSN Capital’s Risk Framework

FSNC risk categories

Cyclicality FX Commodity

MACRO

Political Competitiveness Substitution

INDUSTRY

WEATHER

Operating leverage Concentration Visibility

COMMERCIAL

Management risk Integration risk Internal / External

OPERATIONAL

Liquidity Leverage Covenants

FINANCIAL

EXIT

Majority shareholder Ultimate control

ACTIVE OWNERSHIP

Multiple sustainability Marketability Dependency on trend shift

Toxic emissions Harmful industrial waste Deforestation

ENVIRONMENTAL

Labor conditions Forced / child labor Harm to health and safety

SOCIAL

Bribery / Fraud Political interference Criminal convictions Regulatory relations

GOVERNANCE

Presenter

Presentation Notes

We have divided risk into 7 different categories. In our investment analysis we spend the majority of our time in analysing these factors. If we find too large an element of β-risk in an investment it is typically turned down

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In 2012, a comprehensive CSR program was implemented and is currently an ongoing process in PM Retail

Internal (PM Retail ) External (Asian Suppliers)

Access to best practices &

advice

Tool for risk analysis

Training for PM team

Review of 46 suppliers

Explained CSR program to suppliers

Factory visits in China

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* +90% response rate

Employee satisfaction*

5.0

4.9

4.8

4.7

0.0 2011

5.00

2010

4.77

2009

4.64

Loyal, satisfied staff is the premise for loyal customers

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"How likely are you to recommend your current service provider to a friend?"

Net Promoter Score (NPS) % Promoters % Detractors

10 9 8 7 6 5 4 3 2 1 0

Passive

"On a scale 0-10, how likely is it that you would recommend company x to a friend or colleague?"

=

9%

22%

29%

40%

0%

10%

20%

30%

40%

CWT American express HRG Via Travel

Promoters 40% 29% 22% 18%

Passive 60% 71% 78% 73%

Detractors 0% 0% 0% 9%

Source: Bain customer interviews 2011

VIA Travel has the highest Net Promoter Score, implying high customer loyalty compared to competitors

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Market share Nordics**

* Recurring EBITDA ** Bain Customer interviews

VIA Travel – doubling market share, mostly organically

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EBITDA 2005-2011

VIA Travel – almost tripling EBITDA, mostly organically

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Sustainable lighting solutions

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Sustainability is fundamental to our long-term business success

2012 Introducing LED & Solutions

2015 Sustainability incorporated

Value proposition: • Long life lamps • Lower replacement and

maintenance costs • Less Mercury

2006 Long life lamps

Value proposition: • 30-50% energy savings • 60% maintenance savings • No mercury

Value proposition: • 80% energy savings • 75% Maintenance savings • CO2 reduction certificates

• 19% of chemicals containing substances from the PRIO list has been phased out

• 66% of our total waste is recycled • 100% green electricity

• 40% of chemicals containing substances from the PRIO list are phased out from production

• More than 95% of all waste is recycled

Sustainability goals

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LED transformation continues to be the focus

LED + Solutions sales as a % of total sales

41%

14%14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

LED & Solution sales As % of total sales

26%

July

Q

2-14

Q1-

14

15%

Q4-

13

Q3-

13

Q2-

13

Target

Key Retail Customers

Aura Light passed its long term target of 25% LED in Q2

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We won an award for sales growth from Frost & Sullivan and awards for our sustainability initiatives in 2013 and 2014

Frost and Sullivan EU growth award Highest Sales CAGR 2010-2012 among lighting

equipment companies

The Millicom Award For Environmental & Corporate Sustainability

News, Friday, September 5, 2014

Aura Light awarded for sustainability in European Business Awards

http://auralight.com/category/news/

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We launched a sustainability report and became an ‘Accredited Supplier’ by Carbon Trust

Suitability report ‘Accredited Supplier’ by Carbon Trust

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In 2014, Prof. Krishna Palepu from Harvard Business School wrote a case study on Aura

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Aura Light continues to outperform the market

Sales Increase (%) (2012-2013)

Lighting Industry Average

Sales Per Employee ($)

Pre-tax profit margin (2013)

13%

$368,000

12%

0.5%

$280,000

3.9%

tbli conference™ nordic 2014 - esg fund strategy - frode strand nielsen - fsn

Economy & Finance

decent return means

decent wayby decent

esg risk

risk analysistraining

alpha return

pm teamreview

recurring ebitda

market share nordics