-3- FIRM PROFILE Established in 1989 Five related strategies sharing consistent investment approach Global perspective; fundamental research; focus on high-quality, long-duration growth companies Staff of 65; including 24 experienced investment professionals AUM $19.7 billion Asset Distribution Asset Distribution by Investment Strategy by Account Type Frontier Emerging Markets 1%Intl Small Companies 1% Sub-Advised Accounts 8% SMA/UMA Programs 15% International Equity 42% Emerging Markets 19% Mutual Funds (HL) 22% Other <1% Separate Accounts 55% Global Equity 37% Asset Distribution Asset Distribution by Client Type by Client Region Africa & Middle East 17% Individual Investors 26% Foundations & Endowments 2% Asia Pacific 25% Retirement Plans 32% Latin America 1% Europe 6% United States 48% Other Institutional 40% Canada 3% Data as of March 31, 2012; Asset data is preliminary.
HOW HARDING LOEVNER INVESTS -4-Philosophy How we think about investing A diversified portfolio of high-quality, durable growth companies, purchased at reasonable prices, should provide superior investment returns with below-average risk over the long termCulture How we work Transparent; disciplined; global; long-term; collaboration without consensusProcess How we go about investing We apply a standardized fundamental analysis across sector and geography to identify the highest-quality growth companies worldwide and to assess the value of their sharesResults Portfolio characteristics Quality & growth; low turnover; concentration
-5-STAGES OF THE INVESTMENT PROCESS Four Criteria Global Universe 1. Competitive Advantage: durability of growth 2. Sustainable Growth: revenues, cash flow, earnings 3. Financial Strength: balance sheet and cash flow Qualification 4. Management Quality: track record, capital allocation, ≈ 5,550 Companies respect to shareholders Quality Quotient Criteria (QQ Scores) Research 1. Threat of New Entrants 6. Growth Persistence & Variability 2. Threat of Substitution 7. Strength of FCF ≈ 550 Companies 3. Bargaining Power of Buyers 8. Balance Sheet Strength 4. Bargaining Power of Suppliers 9. Foresight & Change Management Valuation 5. Intensity of Rivalry 10. Corporate Governance ≈ 300 Securities Security Rating & Pricing Portfolio • Financial model • Mileposts Construction • Security valuation ≈ 55 Securities • Ratings: buy, sell, hold Fundamental Stock Selection • Incremental capital allocation to cheap securities from expensive securities • Portfolio risk controls
-7-RESEARCHIn depth research is performed on qualified companies through our Quality Quotient analysis.Example: Schlumberger – oilfield services and technology Competitive Advantage: Global scale; state-of-the-art technology; $1B p.a. R&D spending Sustainable Growth: Industry leader in unconventional and difficult to access (e.g. shale & deepwater) reservoirs Financial Strength: Strong ($8B p.a.) cash flow; low leverage Quality Management: Deep and experienced team; track record of innovation Harding Loevner QQ Framework Scoring Total Score = 57 0 2 4 6 8 10Michael E. Porter, “The Five Competitive Forces that Shape Strategy.” Harvard Business Review, January 2008, 78-93.The information provided in this Presentation should not be considered a recommendation to purchase or sell a particular security. The portfolio is actively managed therefore securities shown may notbe current. It should not be assumed that investment in the securities identified has been or will be profitable. To request a complete list of portfolio holdings for the past year contact Harding Loevner.
VALUATION & RATING OF SECURITIES -8- Forecast sales growth rate and duration, margins, capital expenditures and working capital - Standardized financial models cover P&L, balance sheets, and cash flow statements - Use CFROI and decomposition of Return on Equity methodology to estimate fair values Use CFROI analysis to approximate fair value, compared with discounted free cash flow, dividend discount, and multiple analysis Rate securities: Buy, Hold, or Sell after meeting with PMs Set Fundamental MilepostsPlease read the disclosures on the last page, which are an integral part of this presentation.
PORTFOLIO CONSTRUCTION -9- Portfolio Managers: Assess: Analyst recommendations Long-term growth assumptions Expected returns Risk premiums Identify: Secular competitive trends and durable business models Uncorrelated risks Pricing discrepancies Enforce: Quality Preference Risk Controls Sell Discipline - Failure to meet mileposts - Substantial over-valuation - Reduce position size larger than 5%
DISCLOSURES -10-The information provided in this Presentation should not be considered a recommendation to purchase or sell a particular security. Non-performance based criteria have beenused to select the securities listed. The portfolio is actively managed therefore securities shown may not be current. It should not be assumed that investment in the securitiesidentified has been or will be profitable. To request a complete list of portfolio holdings for the past year contact Harding Loevner.Investing in stocks entails the risks of market volatility. The value of all types of stocks may increase or decrease over varying time periods. To the extent the investmentsdepicted herein represent international securities, you should be aware that there may be additional risks associated with international investing, including foreign economic,political, monetary and/or legal factors, changing currency exchange rates, foreign taxes, and differences in financial and accounting standards.All performance and data shown are in US dollar terms, unless otherwise noted.CFROI® is a registered trademarks of Credit Suisse or its affiliates in the United States and other countries.