Demographic Challenges & Investment Opportunities:
Which companies are best positioned to tackle
demographic challenges?
•
SRI Roadshow, May 2011
Agenda
I.
Demographic Trends
II.
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-Life
Solution

Resource Scarcity & Environmental Degradation – the Hygiene & Sanitation
Solution
IV. Stock Selection & Market Opportunities
V.
2
Conclusions
2011 SRI Roadshow
I. Demographic Trends
Definition
Demography is the study of population size, growth and age structure, and of the
forces that lead to population change (fertility, mortality, migration)
Global Population Growth & Projections
Source: UNDP
Global populations are expected to grow from current levels of almost 7 billion to
over 9 billion by 2050 (UN)
3
2011 SRI Roadshow
Demographic Trends
Demographic trends have impacts on different, yet interrelated outcomes
•
Geographical Breakdown
Annual population
growth by major
region, millions
 By 2050, 86% of the world’s population
(almost eight billion people) will be
concentrated in less developed regions
of the world
Age Structure
Source: SocGen, 2007
Population aged 60
or over between
1950-2050, millions
 By 2050, approx. two billion people will
be aged 60 or over
Source: UN, 2009
•
Urbanisation
 By 2050, 6.3 billion people are
Population
living in
urban areas,
%
expected to live in urban areas
4
2011 SRI Roadshow
Source: UN,
2006
Demographic Trends
Two main demographic trends are emerging
Growing Populations
 Higher population and economic growth rates, which results in:
 Increased international migration, and
 Growing rates of urbanisation
Ageing Populations
 Increased life expectancy, particularly among women, and
 Lower fertility rates, which results in:
 Higher share of elderly people
5
2011 SRI Roadshow
II. Challenges Posed by Demographic Changes
Three main challenges posed by demographic changes affect…(1) the workforce
Changes in the Workforce
Skills shortages will primarily be present
in:
Working age population to total population, %
 Developing countries where educational
shortfalls may exist
 Developed markets where a significant
proportion of the working population nears
retirement age, with little prospect of worker
replacement
Source: UN Population Database & Bank of America/ML, 2011
6
2011 SRI Roadshow
Challenges posed by Demographic Changes
…(2) consumers
Changes in the Consumer Base
•
Increasing product and service
needs for:
Worldwide, over three quarters of the population are
low-income
 Low-income consumers in developing
markets
 Consumers with higher disposable
NEEDS A GRAPHIC HERE
incomes in all markets
 Ageing populations in developed
markets
* PPP – Purchasing Power Parity
Source: AT Kearney
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2011 SRI Roadshow
Challenges posed by Demographic Changes
…(3) resource scarcity and the wider environment
Increasing Pressure on Resources and the Environment
•
•
Ability to provide products and
services which lessen impacts on
resource depletion and environmental
degradation are key
Population growth leads to rising
consumption and increasing pressure
on scarce resources
If current consumption rates continue,
by 2050 a global population of over
nine billion will require the biological
capacity of two Earths
Source: Goldman Sachs, 2010
8
2011 SRI Roadshow
III. Business Opportunities and Solutions to Demographic Challenges
The Investment Case
•
Three main challenges resulting from demographic change have resulted
in numerous business opportunities for companies
Challenges
Business
Opportunities
9
2011 SRI Roadshow
Changes in the
Workforce
Skills Shortages
Changes in the Consumer Base
Base/Bottom of
the Pyramid
(BOP)
Wealthier
Consumers
Ageing
Populationfocused
Products
Pressure on
Resources & the
Environment
Resource
Scarcity &
Environmental
Degradation
Business Opportunities and Solutions to Demographic Challenges
Changes in the Workforce – Skills Shortages
Challenges
Business
Opportunities
Solutions
Changes in the
Workforce
Changes in the Consumer Base
Skills Shortages
Base/Bottom of
the Pyramid
(BOP)
Education Services
Affordable
Healthcare
Employment &
Outsourcing
Services
Affordable Food &
Nutrition
Automation
Services
Affordable Finance
Access to Telecoms
Access to Transport
Access to Energy
Fairtrade Systems
10
2011 SRI Roadshow
Pressure on
Resources & the
Environment
Wealthier
Consumers
Ageing
Populationfocused
Products
Resource
Scarcity &
Environmental
Degradation
Aspirational
Products
Healthier Living &
Quality of Life
Food Productivity
Financial Security
Hygiene &
Sanitation
Management of
Resources
Business Opportunity – Skills Shortages
Challenges
Changes in the
Workforce
Business
Opportunities
Skills Shortages
Finding ways to maintain employee productivity offers solutions
Pressure on
Resources & the
Environment
Changes in the Consumer Base
Base/Bottom of
the Pyramid
(BOP)
Wealthier
Consumers
Education Services
Affordable
Healthcare
Aspirational
Products
Employment &
Outsourcing
Services
Affordable Food &
Nutrition
Automation
Services
Affordable Finance
Ageing
Populationfocused
Products
Resource
Scarcity &
Environmental
Degradation
Healthier Living &
Quality of Life
Food Productivity
Financial Security
Hygiene &
Sanitation
Management of
Resources
Access to Telecoms
Solutions
Access to Transport
Access to Energy
Fairtrade Systems
What is the issue?
 Ageing workforce which is
close to retirement age
► loss of skills and knowledge
 Lack of education and
vocational training
► lack of qualified new
entrants into the labour
market
% Employers having difficulty
filling jobs due to lack of available
talent
Projections of skills'
requirement in the EU until 2020
EU Skills breakdown in total employment (%)
•
United Kingdom
Spain
Ireland
France
Czech Republic
Sweden
Netherlands
Belgium
Greece
Germany
 Poor recruitment and
employee retention policies
and programmes
► lower productivity and higher
turnover costs
•
50
45
Medium
qualification
40
High
qualification
35
30
25
20
Low
qualification
15
1996
2001
2006
2015
2011 SRI Roadshow
2020
Hungary
Austria
Italy
Romania
0%
10%
20%
30%
40%
50%
60%
Source: Manpower, 2010; CEDEFOP, 2008
Business Solutions
Education Services
11
55
Employment &
Outsourcing Services
Automation Services
Business Opportunity – Skills Shortages
Business Solution Example
Education Services
•
Emerging and developing economies:
Gross Enrolment Ratio by Expected Years
of Schooling, 1970-2007
 Lack of education is a major obstacle to
development
 New technologies and increased access to the
Internet may assist in offering a cheaper
alternative
•
Developed economies:
 Opportunities will increase for multi-skilled
workers and those able to adapt to new
technical or cultural environment
Source: UN Human Development Report, 2010
Focus will be on companies providing educational material for educational
systems with a significant client base in emerging and developing countries
12
2011 SRI Roadshow
Skills Shortages – Education Services
Well-positioned Company: Pearson
•
Publisher with 70+% revenues derived from education-related services
 Focus on the provision of education
Growth in Emerging Markets, revenues USD million
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
Recent Company Acquisitions
 Over 20% revenues derived from
Asia and other parts of the world
► strong opportunities to expand in
unsaturated media markets
* £228m paid for 70% with the balance to be paid in 2011
13
2011 SRI Roadshow
Source: Pearson, 2011
Business Opportunities and Solutions to Demographic Challenges
Changes in the Consumer Base – Base/Bottom of the Pyramid
Challenges
Business
Opportunities
Solutions
Changes in the
Workforce
Changes in the Consumer Base
Skills Shortages
Base/Bottom of
the Pyramid
(BOP)
Education Services
Affordable
Healthcare
Employment &
Outsourcing
Services
Affordable Food &
Nutrition
Automation
Services
Affordable Finance
Access to Telecoms
Access to Transport
Access to Energy
Fairtrade Systems
14
2011 SRI Roadshow
Pressure on
Resources & the
Environment
Wealthier
Consumers
Ageing
Populationfocused
Products
Resource
Scarcity &
Environmental
Degradation
Aspirational
Products
Healthier Living &
Quality of Life
Food Productivity
Financial Security
Hygiene &
Sanitation
Management of
Resources
Changes in the
Workforce
Challenges
Business Opportunity – Base/Bottom of the Pyramid
Business
Opportunities
Base/Bottom of
the Pyramid
(BOP)
Wealthier
Consumers
Education Services
Affordable
Healthcare
Aspirational
Products
Employment &
Outsourcing
Services
Affordable Food &
Nutrition
Automation
Services
Affordable Finance
Skills Shortages
Emerging lower income consumers offer growth opportunities
Solutions
Changes in the Consumer Base
Resource
Scarcity &
Environmental
Degradation
Healthier Living &
Quality of Life
Food Productivity
Financial Security
Access to Telecoms
Access to Transport
Access to Energy
Fairtrade Systems
•
What is the issue?
 Access to essential goods and services
Estimated BOP market by sector, USD
5 trillion
ICT
HEALTH
► human right
WATER
 Growing low-income populations
► over 4 billion people with a market opportunity
estimated to be almost USD 5 trillion
TRANSPORT
OTHER
ENERGY
FOOD
 Providing the right products
► affordability, availability, acceptability, accessibility
•
Business Solutions
Source: WRI/IFC, April 2007
Affordable Food &
Nutrition
Affordable Finance
Access to Telecoms
Access to Transport
Access to Energy
Fairtrade Systems
15
HOUSING
Affordable Healthcare
2011 SRI Roadshow
Pressure on
Resources & the
Environment
Ageing
Populationfocused
Products
Hygiene &
Sanitation
Management of
Resources
Business Opportunity – Base/Bottom of the Pyramid (BOP)
Business Solution Example
Access to Telecoms
•
Digital Inclusion Index 2011
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
Source: Maplecroft, 2011
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
16
2011 SRI Roadshow
Base/Bottom of the Pyramid – Access to Telecoms
Well-positioned Company: Millicom International Cellular
•
Offers mobile telephony and cable services in 13 emerging markets
 Operations in Latin America and Africa
► attractive markets due to relatively
low penetration of telephony services
Market share in countries of operation
 Low-cost ICT provider strategy
► operates in countries with low
GDP/capita
 Emphasis on ‘Affordability’
► focus on prepaid services with low
denomination charges using mass
market distribution services
 During Q4 2010, customers were up
14% and organic revenue growth was
double digit
► revenue growth expected to remain
double digit
17
2011 SRI Roadshow
Source: Millicom International Cellular,
2011
Business Opportunities and Solutions to Demographic Challenges
Changes in the Consumer Base – Ageing Population-focused Products
Challenges
Business
Opportunities
Solutions
Changes in the
Workforce
Changes in the Consumer Base
Skills Shortages
Base/Bottom of
the Pyramid
(BOP)
Education Services
Affordable
Healthcare
Employment &
Outsourcing
Services
Affordable Food &
Nutrition
Automation
Services
Affordable Finance
Access to Telecoms
Access to Transport
Access to Energy
Fairtrade Systems
18
2011 SRI Roadshow
Pressure on
Resources & the
Environment
Wealthier
Consumers
Ageing
Populationfocused
Products
Resource
Scarcity &
Environmental
Degradation
Aspirational
Products
Healthier Living &
Quality of Life
Food Productivity
Financial Security
Hygiene &
Sanitation
Management of
Resources
Challenges
Business Opportunity – Ageing Population-focused Products
Business
Opportunities
A growing senior population has different product needs
Changes in the
Workforce
Changes in the Consumer Base
Base/Bottom of
the Pyramid
(BOP)
Wealthier
Consumers
Education Services
Affordable
Healthcare
Aspirational
Products
Employment &
Outsourcing
Services
Affordable Food &
Nutrition
Automation
Services
Affordable Finance
Skills Shortages
Pressure on
Resources & the
Environment
Ageing
Populationfocused
Products
Resource
Scarcity &
Environmental
Degradation
Healthier Living &
Quality of Life
Food Productivity
Financial Security
Hygiene &
Sanitation
Management of
Resources
Access to Telecoms
Solutions
Access to Transport
Access to Energy
Fairtrade Systems
•
What is the issue?
 Rising generation of over-65s
► strong growth for certain products and
services
Percent of the population aged 60 or over, 20002025
16.2
20.3
24.5
18.4
27.6
24.3
Russian Federation
Europe
 Social perspective
North America
8.5
14.6
Asia
► maintenance of quality of life and the
increasing need for healthcare services
8.3
15.1
Latin
America &
Carribean
 Economic perspective
10.6
15
Source:
Africa UN, 2009
13.4
19.8
Oceania
► impacts on savings, investments and
pensions and need for financial stability
2000 2025
Source: United Nations 2008 Revision
•
Business Solutions
Healthier Living &
Quality of Life
19
2011 SRI Roadshow
Financial Security
Business Opportunity – Ageing Population-focused Products
Business Solution Example
Healthier Living & Quality of Life
Musculoskeletal Diagnoses by Age
•
Healthcare expenditure for over-65s are
nearly four times that of younger people
Functional foods present growing
market opportunities
80
70
Arthritis
Osteoporosis
60
50
%
•
40
30
20
Increasing shift towards managed
healthcare services for elderly
populations
10
0
<25
25-44
45-64
65+
Age
Source: McIlhargey, 2008
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
20
2011 SRI Roadshow
Ageing Population Products – Healthier Living & Quality of Life
Well-positioned Company: Smith & Nephew
•
Specialised in orthopaedics, endoscopy and wound management
 Products tailored to meet ageing
Emerging Markets Revenue and Growth
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
2009 Revenue by Regions
 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
Source: Smith & Nephew, 2011
21
2011 SRI Roadshow
Business Opportunities and Solutions to Demographic Challenges
Resources & the Environment – Resource Scarcity & Environmental Degradation
Challenges
Business
Opportunities
Solutions
Changes in the
Workforce
Changes in the Consumer Base
Skills Shortages
Base/Bottom of
the Pyramid
(BOP)
Education Services
Affordable
Healthcare
Employment &
Outsourcing
Services
Affordable Food &
Nutrition
Automation
Services
Affordable Finance
Access to Telecoms
Access to Transport
Access to Energy
Fairtrade Systems
22
2011 SRI Roadshow
Pressure on
Resources & the
Environment
Wealthier
Consumers
Ageing
Populationfocused
Products
Resource
Scarcity &
Environmental
Degradation
Aspirational
Products
Healthier Living &
Quality of Life
Food Productivity
Financial Security
Hygiene &
Sanitation
Management of
Resources
Business Opportunity – Resource Scarcity & Env. Degradation
Challenges
Changes in the
Workforce
Business
Opportunities
Skills Shortages
Resource scarcity pressures require innovative solutions
Solutions
Changes in the Consumer Base
Base/Bottom of
the Pyramid
(BOP)
Wealthier
Consumers
Education Services
Affordable
Healthcare
Aspirational
Products
Employment &
Outsourcing
Services
Affordable Food &
Nutrition
Automation
Services
Affordable Finance
Pressure on
Resources & the
Environment
Ageing
Populationfocused
Products
Resource
Scarcity &
Environmental
Degradation
Healthier Living &
Quality of Life
Food Productivity
Financial Security
Hygiene &
Sanitation
Management of
Resources
Access to Telecoms
Access to Transport
Access to Energy
Fairtrade Systems
•
What is the issue?
 If global population reaches 9.3 billion
Food demand exceeds addition of available land for
agriculture
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
Source: Goldman Sachs, 2010; World Bank
•
Business Solutions
Food Productivity
23
2011 SRI Roadshow
Hygiene & Sanitation
Management of
Resources
Business Opportunity – Resource Scarcity & Environmental Degradation
Business Solution Example
Hygiene & Sanitation
Ratio of Wastewater Treatment
•
•
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
Source: UN Habitat, 2010
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
24
2011 SRI Roadshow
Resource Scarcity & Environmental Degradation – Hygiene & Sanitation
Well-positioned Company: Suez Environnement
•
Global environmental services (water and waste) provider
 Servicing water and waste management
needs globally
Revenue Growth by Geography in 2010
► 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
25
2011 SRI Roadshow
Source: Suez Environnement
IV. Stock Selection and Market Opportunities
Stock selection of companies positioned to offer business solutions
•
Relevant business solutions to demographic challenges will differ
depending on the level of economic development
DEVELOPING ECONOMIES
ECONOMIES IN TRANSITION
DEVELOPED ECONOMIES
Base/Bottom of the Pyramid
Skills Shortages
Wealthier Consumers
Ageing Population-focused Products
Resource Scarcity & Environmental Degradation
Economic Development Level
26
2011 SRI Roadshow
Stock Selection and Market Opportunities
Stock selection of companies positioned to offer business solutions
•
Stock selection of over 500 MSCI World, SMEs and emerging market
companies aligned with demographic challenges and which offer tangible
solutions
DEVELOPING ECONOMIES
ECONOMIES IN TRANSITION
Others
Telecommunication
Services
Others
Utilities
DEVELOPED ECONOMIES
Skills Shortages
150 companies
30 companies
192 companies
Consumer
Services
Technology Hardware
& Semiconductors
Pharmaceuticals,
Biotechnology
Health Care Equipment
& Services
Food & Staples
Retailing
Others
Media
Capital Goods
Banks
Capital Goods
Commercial &
Professional
Services
Others
Capital Goods
Base/Bottom of the Pyramid
Others
Media
Materials
Resource Scarcity &
Environmental Degradation
23 companies
Skills Shortages
Consumer
Services
Food Beverage &
Tobacco
Capital
Goods
145 companies
Pharmaceuticals,
Biotechnology
Ageing Populationfocused Products
Insurance
Health Care Equipment
& Services
Source: Dexia AM, 2011
27
2011 SRI Roadshow
Stock Selection and Market Opportunities
Different business solutions present varying levels of opportunity
•
Demographic Business Solutions offer a range of growth profiles during
the next two years
Current EV/EBITDA and EBITDA CAGR 2011-2013e of sector selected companies
14
A ffo rdable Fo o d & Nutritio n
Valuation (EV / EBITDA 2011E)
12
A ffo rdable Healthcare
Fo o d P ro ductivity
Fairtrade Systems
10
A ccess to Energy
Healthier Living & Quality o f Life
Hygiene & Sanitatio n
Dem ographic Selection
A ccess to Transpo rt
8
Educatio n Services
Emplo yment & Outso urcing
Services
A uto matio n Services
MSCI World ex Financials
M anagement o f Reso urces
A ccess to Teleco ms
6
4
5%
28
2011 SRI Roadshow
10%
15%
20%
25%
30%
Grow th Potential (EBITDA CAGR 2011-2013E)
Source: Bloomberg and Dexia AM, 2011
V. Conclusions
Demography is a complicated subject but it offers many investable opportunities
•
Two interrelated demographic trends
 Growing populations ► higher population and economic growth rates
Trends
 Ageing populations ► higher share of elderly people
•
Challenges
•
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
Solutions &
Market
Opportunities
 Small/medium-sized companies and emerging market companies
generally 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
29
2011 SRI Roadshow
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2011 SRI Roadshow
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Tel.: + 352 2797-1
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Tel.: + 32 02 222 11 11
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75408 Paris Cedex 08
Tel.: + 33 1 53 93 40 00
31
2011 SRI Roadshow
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Disclaimer
This document is published purely for the purposes of information, it contains no offer for the purchase or sale of financial instruments does not comprise investment advice and it is not confirmation of any
transaction unless expressly agreed otherwise. The information contained in this document was obtained from a number of different sources. Dexia Asset Management exercises the greatest care when
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Warning : If this document mentions the past performances of a financial instrument or index or an investment service, refers to simulations of such past performances or contains data relating to future
performances, the client is aware that those performances and/or forecasts are not a reliable indicator of future performances.
Moreover, Dexia AM specifies that:
• in the case where performances are gross, the performance may be affected by commissions, fees and other charges;
• in the case where the performance is expressed in another currency than that of the investor’s country of residence, the returns mentioned may increase or decrease as a result of currency
fluctuations.
If this document makes reference to a particular tax treatment, the investor is aware that such information depends on the individual circumstances of each investor and that it may be subject to change in the
future.
This document does not comprise any investment research as defined in article 24, §1 of Directive 2006/73/CE dated 10 August 2006 implementing Directive 2004/39/CE of the European Parliament and
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If this information is a marketing communication, Dexia AM wants to clarify that it was not designed according to the legal requirements to promote the independence of investment research, and it is not
subject to any prohibition on dealing prior to the dissemination of the investment research.
Dexia AM invites the investors to always consult the fund prospectus before investing in a fund. The prospectus and other information relating to the fund are available on our site at www.dexia-am.com.
Money does not perform. People do.
32
2011 SRI Roadshow