Demographic Challenges & Investment Opportunities: Which companies are best positioned to tackle demographic challen

1. Demographic Challenges & Investment Opportunities:Which companies are best positioned to tackle demographic challenges? SRI Roadshow, May 2011

2. Agenda • Demographic Trends • Challenges Posed by Demographic Trends • Workforce, Consumer Base and Resource Impacts • 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 • Stock Selection & Market Opportunities • Conclusions 2011 SRI Roadshow

3. Global Population Growth & Projections Source: UNDP I.Demographic TrendsDefinition 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) 2011 SRI Roadshow

4. Demographic TrendsDemographic trends have impacts on different, yet interrelated outcomes Annual population growth by major region, millions Source: SocGen, 2007 • 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 Geographical Breakdown Population aged 60 or over between 1950-2050, millions Source: UN, 2009 Age Structure Urbanisation Population living in urban areas, % Source: UN, 2006 2011 SRI Roadshow

5. Demographic TrendsTwo main demographic trends are emerging Growing 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 Ageing Populations 2011 SRI Roadshow

6. Working age population to total population, % Source: UN Population Database & Bank of America/ML, 2011 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 Changes in the Workforce 2011 SRI Roadshow

7. Worldwide, over three quarters of the population are low-income * PPP – Purchasing Power Parity Source: AT Kearney 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 2011 SRI Roadshow

8. Population growth leads to rising consumption and increasing pressure on scarce resources Source: Goldman Sachs, 2010 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 2011 SRI Roadshow

9. Changes in the Workforce Pressure on Resources & the Environment Challenges Changes in the Consumer Base Business Opportunities Skills Shortages Base/Bottom of the Pyramid (BOP) Wealthier Consumers Ageing Population-focused Products Resource Scarcity & Environmental Degradation III. Business Opportunities and Solutions to Demographic ChallengesThe Investment Case • Three main challenges resulting from demographic change have resulted in numerous business opportunities for companies 2011 SRI Roadshow

10. Changes in the Workforce Pressure on Resources & the Environment Challenges Changes in the Consumer Base Business Opportunities Skills Shortages Base/Bottom of the Pyramid (BOP) Wealthier Consumers Ageing Population-focused Products Resource Scarcity & Environmental Degradation Solutions Education Services Affordable Healthcare Aspirational Products Healthier Living & Quality of Life Food Productivity Employment & Outsourcing Services Affordable Food & Nutrition Financial Security Hygiene & Sanitation Automation Services Affordable Finance Management of Resources Access to Telecoms Access to Transport Access to Energy Fairtrade Systems Business Opportunities and Solutions to Demographic ChallengesChanges in the Workforce – Skills Shortages 2011 SRI Roadshow

11. % Employers having difficulty filling jobs due to lack of available talent Projections of skills' requirement in the EU until 2020 Source: Manpower, 2010; CEDEFOP, 2008 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 Education Services Employment & Outsourcing Services Automation Services 2011 SRI Roadshow

12. Gross Enrolment Ratio by Expected Years of Schooling, 1970-2007 Source: UN Human Development Report, 2010 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 Education Services Focus will be on companies providing educational material for educational systems with a significant client base in emerging and developing countries 2011 SRI Roadshow

13. Growth in Emerging Markets, revenues USD million Recent Company Acquisitions * £228m paid for 70% with the balance to be paid in 2011 Source: Pearson, 2011 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 2011 SRI Roadshow

14. Changes in the Workforce Pressure on Resources & the Environment Challenges Changes in the Consumer Base Business Opportunities Skills Shortages Base/Bottom of the Pyramid (BOP) Wealthier Consumers Ageing Population-focused Products Resource Scarcity & Environmental Degradation Solutions Education Services Affordable Healthcare Aspirational Products Healthier Living & Quality of Life Food Productivity Employment & Outsourcing Services Affordable Food & Nutrition Financial Security Hygiene & Sanitation Automation Services Affordable Finance Management of Resources Access to Telecoms Access to Transport Access to Energy Fairtrade Systems Business Opportunities and Solutions to Demographic ChallengesChanges in the Consumer Base – Base/Bottom of the Pyramid 2011 SRI Roadshow

15. Estimated BOP market by sector, USD 5 trillion Source: WRI/IFC, April 2007 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 Affordable Healthcare Affordable Food & Nutrition Affordable Finance Access to Energy Access to Telecoms Access to Transport Fairtrade Systems 2011 SRI Roadshow

16. Digital Inclusion Index 2011 Source: Maplecroft, 2011 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 Access to Telecoms 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 2011 SRI Roadshow

17. Market share in countries of operation Source: Millicom International Cellular, 2011 Base/Bottom of the Pyramid – Access to TelecomsWell-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 • 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 2011 SRI Roadshow

18. Changes in the Workforce Pressure on Resources & the Environment Challenges Changes in the Consumer Base Business Opportunities Skills Shortages Base/Bottom of the Pyramid (BOP) Wealthier Consumers Ageing Population-focused Products Resource Scarcity & Environmental Degradation Solutions Education Services Affordable Healthcare Aspirational Products Healthier Living & Quality of Life Food Productivity Employment & Outsourcing Services Affordable Food & Nutrition Financial Security Hygiene & Sanitation Automation Services Affordable Finance Management of Resources Access to Telecoms Access to Transport Access to Energy Fairtrade Systems Business Opportunities and Solutions to Demographic ChallengesChanges in the Consumer Base – Ageing Population-focused Products 2011 SRI Roadshow

19. Percent of the population aged 60 or over, 2000-2025 Source: United Nations 2008 Revision 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 Healthier Living & Quality of Life Financial Security 2011 SRI Roadshow

20. Musculoskeletal Diagnoses by Age Source: McIlhargey, 2008 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 Healthier Living & Quality of Life 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 2011 SRI Roadshow

21. Ageing Population Products – Healthier Living & Quality of LifeWell-positioned Company: Smith & Nephew • Specialised in orthopaedics, endoscopy and wound management Emerging Markets Revenue and Growth • 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 2009 Revenue by Regions Source: Smith & Nephew, 2011 2011 SRI Roadshow

22. Changes in the Workforce Pressure on Resources & the Environment Challenges Changes in the Consumer Base Business Opportunities Skills Shortages Base/Bottom of the Pyramid (BOP) Wealthier Consumers Ageing Population-focused Products Resource Scarcity & Environmental Degradation Solutions Education Services Affordable Healthcare Aspirational Products Healthier Living & Quality of Life Food Productivity Employment & Outsourcing Services Affordable Food & Nutrition Financial Security Hygiene & Sanitation Automation Services Affordable Finance Management of Resources Access to Telecoms Access to Transport Access to Energy Fairtrade Systems Business Opportunities and Solutions to Demographic ChallengesResources & the Environment – Resource Scarcity & Environmental Degradation 2011 SRI Roadshow

23. Food demand exceeds addition of available land for agriculture Source: Goldman Sachs, 2010; World Bank 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 Food Productivity Hygiene & Sanitation Management of Resources 2011 SRI Roadshow

24. 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 Hygiene & Sanitation Ratio of Wastewater Treatment 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 2011 SRI Roadshow

25. Revenue Growth by Geography in 2010 Source: Suez Environnement Resource Scarcity & Environmental Degradation – Hygiene & SanitationWell-positioned Company: Suez Environnement • Global environmental services (water and waste) provider • 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 2011 SRI Roadshow

26. 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 2011 SRI Roadshow

27. Source: Dexia AM, 2011 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 2011 SRI Roadshow

28. 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 2011 SRI Roadshow Source: Bloomberg and Dexia AM, 2011

29. V. ConclusionsDemography is a complicated subject but it offers many investable opportunities Trends • 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 Challenges Solutions & Market Opportunities 2011 SRI Roadshow

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