Demographic Challenges_Investment Opportunities

8/6/2019 Demographic Challenges_Investment Opportunities

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Demographic Challenges & Investment Opportunities:

Which companies are best positioned to tackledemographic challenges?

SRI Roadshow, May 2011


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2 2011 SRI Roadshow

Agenda

I. Demographic TrendsII. Challenges Posed by Demographic Trends

Workforce, Consumer Base and Resource Impacts

III. Business Opportunities and Solutions to Demographic Challenges The Investment Case

Overview of Business Solutions to Demographic Challenges Skills Shortages the Education Services Solution

Base/Bottom of the Pyramid the Affordable Telecoms Solution

Ageing Population-focused Products the Healthier Living & Quality-of-LifeSolution

Resource Scarcity & Environmental Degradation the Hygiene & Sanitation

Solution

IV. Stock Selection & Market Opportunities

V. Conclusions


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3 2011 SRI Roadshow

I. Demographic TrendsDefinition

Demography is the study of population size, growth and age structure, and of theforces that lead to population change (fertility, mortality, migration)

Global populations are expected to grow from current levels of almost 7 billion to

over 9 billion by 2050 (UN)

Global Population Growth & Projections

Source: UNDP


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4 2011 SRI Roadshow

Demographic TrendsDemographic trends have impacts on different, yet interrelated outcomes

By 2050, 86% of the worlds population

(almost eight billion people) will be

concentrated in less developed regions

of the world

By 2050, approx. two billion people will

be aged 60 or over

By 2050, 6.3 billion people are

expected to live in urban areas

Annual population

growth by majorregion, millions

Source: SocGen, 2007

Population aged 60

or over between

1950-2050, millions

Source: UN, 2009

Population

living in

urban areas,

%

Geographical Breakdown

Age Structure

Urbanisation

Source: UN,2006


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5 2011 SRI Roadshow

Demographic TrendsTwo main demographic trends are emerging

Growing Populations

Ageing Populations

Higher population and economic growth rates, which results in:

Increased international migration, and

Growing rates of urbanisation

Increased life expectancy, particularly among women, and

Lower fertility rates, which results in:

Higher share of elderly people


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8 2011 SRI Roadshow

Challenges posed by Demographic Changes(3) resource scarcity and the wider environment

Ability to provide products and

services which lessen impacts on

resource depletion and environmental

degradation are key

If current consumption rates continue,

by 2050 a global population of over

nine billion will require the biologicalcapacity of two Earths

Increasing Pressure on Resources and the Environment

Population growth leads to rising

consumption and increasing pressure

on scarce resources

Source:Goldman Sachs, 2010


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9 2011 SRI Roadshow

III. Business Opportunities and Solutions to Demographic ChallengesThe Investment Case

Base/Bottom of

the Pyramid

(BOP)

Resource

Scarcity &

Environmental

Degradation

Ageing

Population-

focused

Products

Skills Shortages

Changes in the Consumer BaseChallenges

Business

Opportunities

Wealthier

Consumers

Changes in the

Workforce

Pressure on

Resources & the

Environment

Three main challenges resulting from demographic change have resultedin numerous business opportunities for companies


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10 2011 SRI Roadshow

Business Opportunities and Solutions to Demographic ChallengesChanges in the Workforce Skills Shortages

Base/Bottom of

the Pyramid

(BOP)

Resource

Scarcity &

Environmental

Degradation

Ageing

Population-

focused

Products

Skills Shortages

AffordableHealthcare

Affordable Food &Nutrition

Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems

Food ProductivityHealthier Living &

Quality of LifeEducation Services

Hygiene &Sanitation

Financial SecurityEmployment &Outsourcing

Services

Management ofResources

AutomationServices


Business

Opportunities

Solutions

Wealthier

Consumers

AspirationalProducts

Changes in the

Workforce

Pressure onResources & the

Environment


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Business Opportunity Skills ShortagesFinding ways to maintain employee productivity offers solutions

What is the issue? Ageing workforce which is

close to retirement age

loss of skills andknowledge

Lack of education andvocational training

lack of qualified newentrants into the labourmarket

Poor recruitment andemployee retention policiesand programmes

lower productivity andhigher turnover costs

Business Solutions

Base/Bottom ofthe Pyramid

(BOP)

ResourceScarcity &

EnvironmentalDegradation

geingPopulation-

focusedProducts

Skills Shortages

ffordable

ealthcare

ffordableFood &Nutrition

ccessto Transport

ccessto Telecoms

ffordable Finance

ccessto Energy

FairtradeSystems

Food Productivity

ealthier Living &

Qual i tyofLi feEducation Services

ygiene&

SanitationFinancial Security

Employment&

OutsourcingServices

Managementof

Resources

utomation

Services


BusinessOpportunities

Solutions

WealthierConsumers

spirational

Products

Changes in theWorkforce

Pressure on

Resources & theEnvironment


(BOP)

ResourceScarcity &


geingPopulation-

focusedProducts

Skills Shortages

ffordable

ealthcare


ccessto Transport

ccessto Telecoms

ffordable Finance

ccessto Energy

FairtradeSystems

Food Productivity

ealthier Living &


ygiene&


Employment&

OutsourcingServices

Managementof

Resources

utomation

Services



Solutions

WealthierConsumers

spirational

Products


Pressure on



(BOP)

ResourceScarcity &


geingPopulation-

focusedProducts

Skills Shortages

ffordable

ealthcare


ccessto Transport

ccessto Telecoms

ffordable Finance

ccessto Energy

FairtradeSystems

Food Productivity

ealthier Living &


ygiene&


Employment&

OutsourcingServices

Managementof

Resources

utomation

Services



Solutions

WealthierConsumers

spirational

Products


Pressure on


Education Services utomation ServicesEmployment &

Outsourcing Services

Source: Manpower, 2010; CEDEFOP, 2008

% Employers having difficulty

fillingjobs due to lack of available

talent

0% 10% 20% 30% 40% 50% 60%

Romania

Italy

Austria

Hungary

Germany

Greece

Belgium

Netherlands

Sweden

Czech Republic

France

Ireland

Spain

United Kingdom

Low

qualification

Medium

qualification

High

qualification

15

20

25

30

35

40

45

50

55

1996 2001 2006 2015 2020EUSkillsbreakdo

wnintotalemployment(%)

Projections ofskills'

requirement in the EU until 2020


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Skills Shortages Education ServicesWell-positioned Company: Pearson

Publisher with 70+% revenues derived from education-related services

Focus on the provision of education

services

education division is expected

account for bulk of growth in

revenues and profits in future Opportunity in the shift to digital

education programmes

digital education revenue mix has

increased from 30% to 44% over the

period 2005 - 2010

Over 20% revenues derived fromAsia and other parts of the world

strong opportunities to expand in

unsaturated media markets

Recent Company Acquisitions

* 228m paid for 70% with the balance to be paid in 2011

Source: Pearson, 2011

Growth in Emerging Markets, revenues USD million


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Business Opportunities and Solutions to Demographic ChallengesChanges in the Consumer Base Base/Bottom of the Pyramid

Base/Bottom of

the Pyramid

(BOP)

Resource

Scarcity &

Environmental

Degradation

Ageing

Population-

focused

Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems



Hygiene &Sanitation


Services


AutomationServices


Business

Opportunities

Solutions

Wealthier

Consumers




Environment


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Business Opportunity Base/Bottom of the PyramidEmerging lower income consumers offer growth opportunities

What is the issue? Access to essential goods and services

human right

Growing low-income populations

over 4 billion people with a market opportunity

estimated to be almost USD 5 trillion

Providing the right products

affordability, availability, acceptability,

accessibility

Business Solutions

Base/BottomofthePyramid

(BOP)

ResourceScarcity&


AgeingPopulation-

focusedProducts

Skills Shortages

Affordable

Healthcare

AffordableFood&

Nutrition

AccesstoTransport

AccesstoTelecoms

Affordable Finance

AccesstoEnergy

FairtradeSystems

FoodProductivityHealthierLiving&

QualityofLifeEducationServices

Hygiene&

SanitationFinancialSecurit y

Employment&

Outsourcing

Services

Managementof

Resources

Automation

Services

Changes in theConsumerBaseChallenges


Solutions

WealthierConsumers

Aspirational

Products

Changes intheWorkforce

Pressureon

Resources&theEnvironment


(BOP)

ResourceScarcity&


AgeingPopulation-

focusedProducts

Skills Shortages

Affordable

Healthcare

AffordableFood&

Nutrition

AccesstoTransport

AccesstoTelecoms

Affordable Finance

AccesstoEnergy

FairtradeSystems



Hygiene&


Employment&

Outsourcing

Services

Managementof

Resources

Automation

Services



Solutions

WealthierConsumers

Aspirational

Products


Pressureon



(BOP)

ResourceScarcity&


AgeingPopulation-

focusedProducts

Skills Shortages

Affordable

Healthcare

AffordableFood&

Nutrition

AccesstoTransport

AccesstoTelecoms

Affordable Finance

AccesstoEnergy

FairtradeSystems



Hygiene&


Employment&

Outsourcing

Services

Managementof

Resources

Automation

Services



Solutions

WealthierConsumers

Aspirational

Products


Pressureon


Affordable Healthcare Affordable FinanceAffordable Food &Nutrition

Access to Telecoms Access to EnergyAccess to Transport

Fairtrade Systems

Estimated BOP market by sector,USD5 trillion

Source: WRI/IFC, April 2007

T

T

T

T

I

T

T

GY

U

I

G


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Business Opportunity Base/Bottom of the Pyramid (BOP)Business Solution Example

Main opportunities in mobile

technologies and Internet access

Mobile telephony offers new ICT solutions

to regions that used to be without access

Imbalance in Internet access

BOP market size for ICT estimated to

be worth USD 51 billion

Focus will be on companies providing ICT services in emerging and developing

countries, particularly those countries with low ICT penetration rates, as well as

ICT providers with low-cost business models

Digital Inclusion Index 2011

Source: Maplecroft, 2011

Access to Telecoms


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Business Opportunities and Solutions to Demographic ChallengesChanges in the Consumer Base Ageing Population-focused Products

Base/Bottom of

the Pyramid

(BOP)

Resource

Scarcity &

Environmental

Degradation

Ageing

Population-

focused

Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems



Hygiene &Sanitation


Services


AutomationServices


Business

Opportunities

Solutions

Wealthier

Consumers




Environment


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Business Opportunity Ageing Population-focused ProductsBusiness Solution Example

Healthcare expenditure for over-65s are

nearly four times that of younger people

Functional foods present growing

market opportunities

Increasing shift towards managed

healthcare services for elderly

populations

Focus will be on companies which: provide healthcare services and solutions for diseases prevalent among ageing

populations

offer specific products which aim to help consumers maintain a high living

standard for as long as possible

Healthier Living & Quality of Life

0

10

20

30

40

50

60

70

80


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Ageing Population Products Healthier Living & Quality of LifeWell-positioned Company: Smith & Nephew

Specialised in orthopaedics, endoscopy and wound management

Products tailored to meet ageing

population needs

orthopaedics (driven by hip and knee

reconstruction) represents almost 60% of

group revenues Emphasis on quality products

continued margin improvement in all

divisions

Growth opportunities in emerging markets

emerging market sales have risen 20%

per year since 2006

Continued investment in emerging markets

surgeon training centres and new

manufacturing facilities in China

Emerging Markets Revenue and Growth

Source: Smith & Nephew, 2011

2009 Revenue by Regions


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Business Opportunities and Solutions to Demographic ChallengesResources & the Environment Resource Scarcity & Environmental Degradation

Base/Bottom of

the Pyramid

(BOP)

Resource

Scarcity &

Environmental

Degradation

Ageing

Population-

focused

Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems



Hygiene &Sanitation


Services


AutomationServices


Business

Opportunities

Solutions

Wealthier

Consumers




Environment


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Business Opportunity Resource Scarcity & Env. DegradationResource scarcity pressures require innovative solutions

What is the issue? If global population reaches 9.3 billion

people by 2050, global grain production

will have to feed an additional 2.5 billion

people, an 40% increase

By 2025 1.8 billion people will live in

regions with absolute water scarcity,including most countries in the Middle East

and North Africa

Population growth is intensifying the

demand for, and consumption of, non

renewable energy sources

Business Solutions


(BOP)

ResourceScarcity &


G

geingPopulation-

focusedProducts

Skills Shortages

H

ffordable

Iealthcare

H


H

ccessto Transport

H

ccessto Telecoms

H

ffordable Finance

H

ccessto Energy

FairtradeSystems

Food ProductivityI

ealthier Living &


Iygiene&


Employment&

OutsourcingServices

Managementof

Resources

H

utomation

Services



Solutions

WealthierConsumers

H

spirational

Products


Pressure on



(BOP)

ResourceScarcity &


G

geingPopulation-

focusedProducts

Skills Shortages

H

ffordable

Iealthcare

H


H

ccessto Transport

H

ccessto Telecoms

H

ffordable Finance

H

ccessto Energy

FairtradeSystems

Food ProductivityI

ealthier Living &


Iygiene&


Employment&

OutsourcingServices

Managementof

Resources

H

utomation

Services



Solutions

WealthierConsumers

H

spirational

Products


Pressure on



(BOP)

ResourceScarcity &


G

geingPopulation-

focusedProducts

Skills Shortages

H

ffordable

Iealthcare

H


H

ccessto Transport

H

ccessto Telecoms

H

ffordable Finance

H

ccessto Energy

FairtradeSystems

Food ProductivityI

ealthier Living &


Iygiene&


Employment&

OutsourcingServices

Managementof

Resources

H

utomation

Services



Solutions

WealthierConsumers

H

spirational

Products


Pressure on


Food ProductivityManagement of

Resourcesygiene & Sanitation

Food demand exceeds addition of available land for

agriculture

Source: Goldman Sachs, 2010; World Bank


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Business Opportunity Resource Scarcity & Environmental DegradationBusiness Solution Example

Up to 90% of all wastewater in

development countries is

discharged untreated into the

natural environment

According to the UN/WHO, 2.2

million people die each year from

diarrheal/water-linked disease

Focus will be on companies offering waste and water treatment products and

services, but also, personal hygiene products aimed at consumers, primarily in

emerging and developing markets

Ratio of Wastewater Treatment

Source: UN Habitat, 2010

Hygiene & Sanitation


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Resource Scarcity & Environmental Degradation Hygiene & SanitationWell-positioned Company: Suez Environnement

Global environmental services (water and waste) provider

Revenue Growth by Geography in 2010

Source: Suez Environnement

Servicing water and waste management

needs globally

over the last 15 years, it has brought

drinking water to 11+ million people and

wastewater services to 5+ million people

Environmental service growth driven by

new infrastructure needs in emerging

markets and upgrade of installations in

developed markets

presence in 25 countries worldwide

Continual innovation in product offer

innovative technologies in water and

waste (e.g. green energy production) and

water resource preservation


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DEVELOPIN ECONO IES ECONO IES IN TR NSITION DEVELOPED ECONO IES

EconoP

ic DevelopP

ent Level

Base/Botto of the Pyra id

Resource Scarcity & Environ ental Degradation

geing Population-focused Products

Skills Shortages

ealthier Consu ers

IV. Stock Selection and Market OpportunitiesStock selection of companies positioned to offer business solutions

Relevant business solutions to demographic challenges will differdepending on the level of economic development


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Stock Selection and Market OpportunitiesStock selection of companies positioned to offer business solutions

Stock selection of over 500 MSCI World, SMEs and emerging marketcompanies aligned with demographic challenges and which offer tangible

solutions

DEVELOPIN ECONO IES ECONO IES IN TR NSITION DEVELOPED ECONO IES

Base/Bottom of the Pyramid

Resource Scarcity &

Environmental Degradation geing Population-focused Products

Skills Shortages

Q anks

R

harmaceuticals,

Qiotechnolog

S

Others

Tealth Care E

U

uipmenV

ServicesWood

V

Staples

Retailing

Capital Goods

X

elecommunication

Services

Others

Capital Goods

Y

ood

everagea

b

obaccoMaterials

c

tilities

b

echnologd

e

ardwarea

Semiconductors

Others

Insurance

Tealth Care E

U

uipmentV

Services

Rharmaceuticals,

Qiotechnolog

S

Others

Capital

Goods

Media

Consumer

Services

Others

Capital Goods

Consumer

Services

Media

CommercialV

Rrofessional

Services

Skills Shortages

150 companies192 companies

1f

5 companies

30 companies

23 companies

Source: Dexia AM, 2011


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V. ConclusionsDemography is a complicated subject but it offers many investable opportunities

Two interrelated demographic trends Growing populations higher population and economic growth rates

Ageing populations higher share of elderly people

Challenges implicate changes to the workforce, consumer

base and even the wider environment and use of resources

Business opportunities exist which offer both sustainable

solutions and sound financial returns

Company stock selection needs to be sensitive to both product

demands and geographic exposure

Small/medium-sized companies and emerging market companiesgenerally offer more untapped pure-play opportunities

The market currently appears to integrate demographic trends into

company valuations and growth prospects of well-positioned

companies

However, opportunities still exist for investors

Trends

Challenges

Solutions &

MarketOpportunities


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