sri roadshow, may 2011

Demographic Challenges & Investment Opportunities:

Which companies are best positioned to tackle demographic challenges?

•SRI Roadshow, May 2011

2 2011 SRI Roadshow

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. Conclusions

3 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 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

4 2011 SRI Roadshow

Demographic TrendsDemographic trends have impacts on different, yet interrelated outcomes

• By 2050, 86% of the world’s 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 major region, 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

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

6 2011 SRI Roadshow

Changes in the Workforce

II. Challenges Posed by Demographic ChangesThree main challenges posed by demographic changes affect…(1) the workforce

Skills shortages will primarily be present in:

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

Working age population to total population, %

Source: UN Population Database & Bank of America/ML, 2011

7 2011 SRI Roadshow

Challenges posed by Demographic Changes…(2) consumers

• Increasing product and service needs for:

Low-income consumers in developing markets

Consumers with higher disposable incomes in all markets

Ageing populations in developed markets

Changes in the Consumer Base

NEEDS A GRAPHIC HERE

Worldwide, over three quarters of the population are low-income

* PPP – Purchasing Power Parity

Source: AT Kearney

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 biological capacity 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

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


Pressure on Resources &

the Environment

• Three main challenges resulting from demographic change have resulted in numerous business opportunities for companies

10 2011 SRI Roadshow

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


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages

Affordable Healthcare

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 of Resources

Automation Services



Solutions

Wealthier Consumers

Aspirational Products



the Environment


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 and knowledge

Lack of education and vocational training

► lack of qualified new entrants into the labour market

Poor recruitment and employee retention policies and programmes

► lower productivity and higher turnover costs

• Business Solutions


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers



Pressure on Resources & the

Environment


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment

Education Services Automation ServicesEmployment &

Outsourcing Services

Source: Manpower, 2010; CEDEFOP, 2008

% Employers having difficulty filling jobs 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 2020

EU

Ski

lls b

reak

do

wn

in t

ota

l em

plo

ymen

t (%

)

Projections of skills' requirement in the EU until 2020


Business Opportunity – Skills ShortagesBusiness Solution Example

• Emerging and developing economies: 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

Focus will be on companies providing educational material for educational systems with a significant client base in emerging and developing countries

Source: UN Human Development Report, 2010

Gross Enrolment Ratio by Expected Years of Schooling, 1970-2007

Education Services


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 from Asia 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


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


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




the Environment


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



(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment

Affordable Healthcare Affordable FinanceAffordable Food &

Nutrition

Access to Telecoms Access to EnergyAccess to Transport

Fairtrade Systems

Estimated BOP market by sector, USD 5 trillion

Source: WRI/IFC, April 2007

TRANSPORT

WATER OTHER

FOOD

ICTHEALTH

ENERGY

HOUSING


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


Base/Bottom of the Pyramid – Access to TelecomsWell-positioned Company: Millicom International Cellular

• Offers mobile telephony and cable services in 13 emerging markets

Market share in countries of operation

Source: Millicom International Cellular, 2011

Operations in Latin America and Africa

► attractive markets due to relatively low penetration of telephony services

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


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


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




the Environment


Business Opportunity – Ageing Population-focused ProductsA growing senior population has different product needs

•What is the issue? Rising generation of over-65s

► strong growth for certain products and services

Social perspective

► maintenance of quality of life and the increasing need for healthcare services

Economic perspective

► impacts on savings, investments and pensions and need for financial stability

•Business Solutions

Source: UN, 2009


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment

Percent of the population aged 60 or over, 2000-2025

Source: United Nations 2008 Revision

18.418.424.324.3

20.320.327.627.6

8.58.514.614.6

13.413.419.819.8

10.610.61515

16.216.224.524.5

8.38.315.115.1

2000 2025

AfricaAfricaLatin Latin AmericaAmerica & & CarribeanCarribean

RussianRussian FederationFederation

AsiaAsia

OceaniaOceania

EuropeEurope

NorthNorth AmericaAmerica

Healthier Living & Quality of Life

Financial Security


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


0

10

20

30

40

50

60

70

80

<25 25-44 45-64 65+

Age

%

Arthritis

Osteoporosis

Musculoskeletal Diagnoses by Age

Source: McIlhargey, 2008


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


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


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




the Environment


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



(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment


(BOP)

Resource Scarcity &


Ageing Population-

focused Products

Skills Shortages



Access to Transport

Access to Telecoms

Affordable Finance

Access to Energy

Fairtrade Systems





Services


Automation Services



Solutions

Wealthier Consumers




Environment

Food ProductivityManagement of

ResourcesHygiene & Sanitation

Food demand exceeds addition of available land for agriculture

Source: Goldman Sachs, 2010; World Bank


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



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


DEVELOPING ECONOMIES ECONOMIES IN TRANSITION DEVELOPED ECONOMIES

Economic Development Level


Resource Scarcity & Environmental Degradation

Ageing Population-focused Products

Skills Shortages

Wealthier Consumers

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

• Relevant business solutions to demographic challenges will differ depending on the level of economic development


Stock Selection and Market OpportunitiesStock 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 DEVELOPED ECONOMIES


Resource Scarcity & Environmental Degradation Ageing Population-

focused Products

Skills Shortages

Banks

Pharmaceuticals, Biotechnology

Others

Health Care Equipment & Services

Food & Staples Retailing

Capital Goods

Telecommunication Services

Others

Capital Goods

Food Beverage & Tobacco

Materials

Utilities

Technology Hardware & Semiconductors

Others

InsuranceHealth Care Equipment

& Services

Pharmaceuticals, Biotechnology

Others

Capital Goods

Media

Consumer Services

Others

Capital GoodsConsumer Services

Media

Commercial & Professional

Services

Skills Shortages

150 companies192 companies

145 companies

30 companies

23 companies

Source: Dexia AM, 2011




Access to Telecoms

Access to Energy

Food P roductivity


Education ServicesEmployment & Outsourcing

ServicesAccess to Transport

Fairtrade Systems


Automation Services


Demographic Selection

MSCI World ex Financials

4

6

8

10

12

14

5% 10% 15% 20% 25% 30%

Growth Potential (EBITDA CAGR 2011-2013E)

Val

uat

ion

(E

V /

EB

ITD

A 2

011E

)

Stock Selection and Market OpportunitiesDifferent 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

Source: Bloomberg and Dexia AM, 2011


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 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

Trends

Challenges

Solutions & Market

Opportunities


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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 choosing its sources of information and passing on this information. Nevertheless errors or omissions in those sources or processes cannot be excluded a priori. Dexia AM cannot be held liable for any direct or indirect damage or loss resulting from the use of this document. The contents of this document may be reproduced only with the prior written agreement of Dexia AM. The intellectual property rights of Dexia AM must be respected at all times.

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sri roadshow, may 2011

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