aligning portfolio with long term trends for success · 2012-08-27 · aligning portfolio with long...

Aligning portfolio with long term trends for successPresentation to Investor Community

February 24, 2009

Placeholder for client logo

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Clear that we are living in turbulenttimes

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Two themes of this year's talkHow to choose the right waves to surf

Predictable trends in unpredictable timesWhat's in the portfolio

How to navigate to stay on top of the waves

Predictable risks in unpredictable timesHow to manage the portfolio

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Agenda

What are Megatrends—waves to surf

Relevant Megatrends for Infratil portfolio

Critical success factors for managing through crisis

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Most people are familiar with Megatrends from leading stories...

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Megatrends are also being used by companies to....

What is a powerful long term visionthat addresses risk and opportunities?

What should our growth platform be? Where are the opportunities?

What are the risks, discontinuities, & paradigm shifts I need to anticipate?

What are areas where we should be focusing? How do we need to align portfolio for long term?

FormLong Term

Vision2015-2020

Identify Growth Areas

Spot Strategic

Issues

Anticipate Global Risks

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Megatrends are about pattern recognition. Some trends are:

ExponentialExponential

0

100

200

300

400

500

600

700

800

900

1,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

LinearLinear CyclicalCyclical

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

01/1992 01/1994 01/1996 01/1998 01/2000 01/2002 01/2004 01/20060.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

FadsFads

0

1

23

4

5

6

7

8

9

10

1999 2000 2001 2002 2003 2004 2005 2006

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Much of our focus is on exponential waves

Source: Ray Kurzweil

Companies that Recognize Trends Early Can Gain Competitive Advantage

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We track what is happening in the world ...across four dimensions

Terra TrendsTerra Trends

Demographics• Population Aging• Immigration/Ethnic make-up

Consumer Trends• Time compression• Trading up/down• Entertainment/Celebrity• Obesity & diet• Brand affinity• Health & wellnss, organic• Customization• Sport/Fitness trends

Mobility & Flows• Communications• Infrastructure needs• Human mobility• Transportation

Closed vs. Open Systems• Intellectual Property• New innovation models• Human genome project• Open source

Centralized vs. Distributed • Urbanization• Grid Computing/Intelligence

Economic TrendsEconomic Trends

Economy & Employment• Productivity/performance focus• Rise of services• Sector growth/shifts• Off shoring/Outsourcing• Consolidation (M&A)• R&D/innovation imperative• Focus on Talent• Commoditization

Financial flows/Investment& Instruments

• Traditional investment vehicles vs. alternatives

• Socially responsible investing• Geographic distribution

Trading Blocks & Flows• Regional trading blocks• Sector patterns• E-trade/e-commerce

Wealth Creation & Dispersion

• Wealth disparities/global divide• Off-shore investing

Globalization• RDE challengers• Rise of China/India• Next billion consumers

Tech TrendsTech Trends

Platforms & Connectivity• Bandwidth• New media• IT communities & Web 2.0• Hardware, software• Networks• Convergence

Technology Trends• Nanotechnogy• New materials/substitutes• Mobile electronic devices• Wireless communications• Smart devices• RFID & sensor networks• Internet access

Life Sciences/ Healthcare• Healthcare spending• Biotech & proteomics• R&D/Innovation challenge• Nutraceuticals/Functional food

Energy & Power• Energy sources• Energy price volatility• New forms of fuel• New forms of transportation (e.g.

fuel cell, hybrid, electric)

Meta trendsMeta trends

Scarcity vs. Abundance• Waste/waste management• Water scarcity

Environmental Crisis• Green products & markets• Global warming • Carbon credits

Contentment vs. Striving• Religion• Happiness• Business of pleasure • Psychotropic drugs• New communities

Challenge of Governance• Privatization• Shorter leader cycles• Education/training focus• Multi-polar world• Rise gov & reregulation

Risk & Security• Insurance losses• Failed states• Identity theft• Rise private security• Counterfeit• Rise natural disasters

Role of Business• Greater transparency• Rise of trust economy• Extended enterprise• Rise of NGOs/non-profits

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Infratil’s investment focused on energy, renewable energy, airports, & public transportation

Australia Energy Europe Airports NZ TransportOther NZ Energy NZ Airports

Source: Infratil Interim Report, Sept 2008, http://www.infratil.com/media/PDF/ift_interim2008.pdf

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Infratil portfolio focused on key MegatrendsRise of mobility

Rise of Urbanization/infrastructure

Rise of government

Energy Volatility & Rise of Alternatives

Innovation imperative

Rise of multi-channel/ Web 2.0

Health spending

Power of brands

Key trends for Infratil presented last year

Global divides

Risk & SecurityFocus GlobalizationRise of Services

Entertainment/Focus

on CelebrityDiversity

Rise of TrustEconomy

Deconstruction,Off-shoring

Aging

Additional key trends for Infratil presented this year

Global Warming & Rise of Green

Products

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Agenda




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Rise of mobility

Rise of mobilityRise of

Urbanization/infrastructure

Rise of government




Health spending

Power of brands


Global divides


Entertainment/Focus




Aging



Products

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Passenger travel volume likely to increase with some modal shifts

World passenger travel volume in trillion passenger km

AutomobilesBusesRail

1960 1990 2020

5.5

23.2

54.0

12.7

3.6

12.9

24.8

12.1

6.8

2.22.1

1.11.3

0,1

3.0

+7%

+4% CAGR

Passenger travel volume will stillincrease significantly in all modes

2.4%

2.2%

1.8%

6.0%

1

High-speed (planes andhigh-speed rail)

1.2050: 105 trillion pkmSource: Schafer (MIT) "Modeling global mobility" (2000); BCG analysis

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Airline industry expected to enter another downturn

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 19991978 1979 1980 1981 2000 2001 2002 2003 2004 2005 2006 2007

-76%

2009F2008F

Net profit (in m$)

$60B

$74B

Source: BCG analysis

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Over time passengers bounce back to trend greater than GDP growth UK airport passenger volumes: 1987–2008

50,000

100,000

150,000

200,000

250,000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

(K)

1.5x GDP

Source: UK CAA

Total UK passengers9/11 dip

recovered in 18

months

Gulf War I,Economic downturn

Recent boom

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Premium traffic & Cargo hit harder & earlier than economy passenger traffic

1. % Growth compared to same month in 2007 Source; IATA, Datamonitor (7 January 2009), Shipping Times (22 December 2008)

-30

-20

-10

0

10Passenger (RPK) Cargo (TFK)

% Growth1

Dec. 2008 Jan. 2008 July 2008

Cargo: earlier and sharper decline Cargo: earlier and sharper decline Premium traffic: earlier and sharper decline Premium traffic: earlier and sharper decline

In October premium traffic within Europe fell 14.1 per cent

British Airways witnessed a 12.1 per cent decrease in

premium traffic in December

-15

-10

-5

0

5

10Total Passenger TrafficPremium Traffic

% Growth1

Nov. 2008 Jan. 2008 June 2008

+1.6% FY

-4.0% FY

FY

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0

10

20

30

40

50

60

LCCs are no longer niche playersRyanair & EasyJet now fly more PAX than top-3 flag carriers

Intra-European passengers(in M O&D PAX, rolling 12 months; CAGR 2004–2008)

Source: O&D market size; Internet; 4U und AB – some old data intrapolated; NFC: FR, U2 sold seats2003 2004 2005 2006 2007 2008

Cont PAX rolling 12-month average (M)

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LCCs weather downturns better Able to adjust cost base more rapidly to changes in demand

US legacy carriers: 1986–2004US legacy carriers: 1986–2004 US Major LCCs: 1986–2004US Major LCCs: 1986–2004

Source: US DOT; BCG analysis

6

22

10

1312

86

1099

112

75

30

-20

-10

0

10

20

0

20

40

60

80

100

120

92 93 94 95 96 97 98 99 00 01 02 03 04

Margin (%)

86 87 88 89 90 91

YOY chg (%)

-9-10

-17-14

67

10987

22

-4-3-4

2432

-20

-10

0

10

20

-20

0

20

40

60

80

100

120

Profit margin (%)

YOY chg (%)

95 96 97 98 99 00 01 02 03 04

CASM — Cost per available seat mileRASM — Revenue per available seat mile

Margin (%)

86 87 88 89 90 91 92 93 94

19901990

2001 2001

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What has shifted is transportation mixPublic transport has potential to be a hedge to downturn

0

20

40

60

80

100

120

140

160

Wel

lingt

onC

ity

Car

berra

Chr

istc

hurc

h

Wel

lingt

onre

gion

Ade

laid

e

Per

th

Auc

klan

d

Mel

bour

ne

Syd

ney

Public transport trips per head of populationType per capita

Trips per annum on Wellington region NZ Bus services

67% of Wellingtonians haveused bus every 3 months

12

13

14

15

16

17

18

19

20

2002 2003 2004 2005 2006 2007

BusTrain

Regions smaller to larger

Mill trips per annum

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Uncertainties in mobilityCost of fuel

Impact of recession on mix of transportation options

Impact of any stimulus spending

Impact of new regulations

Time to economic recovery

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Energy volatility and rise of alternativesRise of mobility


Rise of government




Health spending

Power of brands


Global divides


Entertainment/Focus




Aging



Products

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World energy consumption 50% higher by 2025--China & US 43% of increase

0

100

200

300

400

500

600

700

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

∆ 2002–25

Quad. Btu

11

27

34

CAGR(%)

2.7

2.8

1.3

16 3.3

26 1.8

Note: Analysis conducted for Reference Case with World GDP growth = 3.9 %Source: http://www.eia.doe.gov; International Energy Outlook 2005

2.0234

Forecast CAGR (2002-25):2.0%

US

W. EuropeJapanCanadaOceania

China

Cent. & Eastern Europe

Asia

Middle East

IndiaAfrica

C & S America

19 0.6

67 4.2

20 3.1

15 2.3

Historic CAGR (1980-2002): 1.7%

World Energy Consumption by Region: 1980-2025

World

Quad. Btu

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Extremely volatile year for energy prices

0

2

4

6

8

10

12

14

16

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Average oil, natural gas and coal prices: 1980-2009$/M Btu (2006 $)

Natural Gas

Coal

Petroleum

5.7

4.4

1980-2008CAGR (%)1980-2008CAGR (%)

0.9

Source: Annual Energy Outlook 2008; http://www.eia.doe.gov; BCG analysis

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Oil and jet fuel prices have dropped by ~60% since peak levels

0

50

100

150

200Jet fuelOil

-60%

January 2003 2004 January 20092005 2006 2007 2008

Several airlines now posting significant hedging losses as a result


USD/ barrelUSD

Futures up to 2015 now

trading at ~USD65-75 per barrel

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Oil dominates (39%); Renewable sources small (8%) but growing (2.4%)

0

100

200

300

400

500

600

700

800

1980 1990 2003 2010 2020 2030

Oil Natural Gas Coal Nuclear Power Renewable

∆ 2003–30

Quad. Btu

30

96

77

CAGR(%)

2.4

2.5

1.4

8 1.0

91 2.4

Note: 1. Analysis conducted for Reference Case with World GDP growth = 3.8 %2. Renewable Energy includes Hydroelectric, Wind, Solar, BioMass, Geothermal

Source: http://www.eia.doe.gov; International Energy Outlook 2006

2003Quad. Btu

33

100

162

27

99

62

196

239

35

190

2030Quad. Btu

421 2.0722 301

Quad. Btu

World Primary Energy Consumption by Fuel Type: 1980-2030

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New Zealand shares of total primary energy supply reflect changing mix

1990

Hydro13.1%

Geothermal14.7%

OtherRenewables1

5.3%

Coal (net)8.4%

Oil (net)22.4%

Gas28.7%

Oil (net)37.7%

Hydro11.3%

Geothermal12.5%

OtherRenewables1

6.7%

Coal (net)9.2%

Gas22.6%

2007

1. Includes solar water heating & electricity generation from wind, biogas & wood.Source: NZ Energy in Brief, August 2008, Ministry of Economic Development

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Renewable electric production grew 9.4% vs 1.8% for total primary energy supplyWind the clear winner

Annual growth rates from 1990 to 2006

1: Not included are big hydro and electricity from biofuels 2:Weighted growth of these five renewable energies Source: IEA – 2008 renewables, Renewable Global Status Report 2006

Anual growth

1990-2006

[%]

0

5

10

15

20

25

1.8

Total Primary Energy

1.5

Solid Biomas

2.1

Geothermal

8.0

SmallHydro

9.3

Solar

24.5

Wind

Average growth 9,4 %2

Wind 26%

Geothermal electricity 10%

Solar & Tide 2%

Small Hydro 24%

Biomass electricity 38%

Renewable electricity sources1

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Investments in renewable energy tripled in last three years: Unclear if 5x increase over the next 10 years will happen

150

71

50

28242019141210988

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

746

2017E

+15%

0

100

150

200

50

700

750US$B

1995

Global investment in renewable energy

Asset finance related investments in new renewable energy capacity $85B of the $150B in 2007


3X

5X

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Investments slowing off strong base

142.0148.4

92.6

58.7

33.4

0

50

100

150

2004 2005 2006 2007 2008e

+76%growth

+58%growth

+60%growth

-4%decline

($B)

Global new investmentin clean energy, 2004-2008

Global new investmentin clean energy, 2004-2008

Private equity new investment by sectorQ1 2004 - Q3 2008

Private equity new investment by sectorQ1 2004 - Q3 2008

0

1

2

3

4

5

2.5

Q1’07

2.2

Q2’07

2.2

Q3’07

3.0

Q4’07

2.7

Q1’08

4.3

Q2’08

4.2

Q3’08

OtherBiofuelsWindSolar

1.4

Q1’06

2.4

Q2’06

2.0

Q3’06

1.6

Q4’06

($B)

Source: New Energy Finance

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Wind expected to be the most important renewable energy source by 2025MtCO2

Forecast annual global CO2 savings in 2025, by industry(1)

Note: Efficiency CO2 savings based on Biomass and Geothermal CHP installationsSource: IEA World Energy Outlook 2006 (reference, alternative, beyond alternative scenarios), except Fuel Cells (Freedonia 2005); Efficiency (EREC 2007); BCG analysis

0

400

800

1,200

1,600

Effici-ency

Wind on Wind offSolar PV 2Gbiofuels

Geo-thermal

Etha- nol Bio-diesel

Marine

Wind is likely to be renewable with the biggest CO2 impact

Power

TransportReference scenario

Reference scenario

Alternative scenario

Alternative scenario

‘Beyond’ scenario

‘Beyond’ scenarioNon-IEA source

Bio-mass

Fuelcells

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Unknowns in energy volatilityWill energy price volatility continue at this pace?

Will recession place sustained downward pressure on prices?

Which alternatives will achieve mass scale and falling price curves?

Level of subsidies and policies governments will put in place?

Amount of stimulus spending focused on alternative energy?

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Global warming & rise of green productsRise of mobility


Rise of government




Health spending

Power of brands


Global divides


Entertainment/Focus




Aging



Products

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Scenarios show current emission levelsraise atmospheric CO2 concentrations

0.52.0

3.0

6.4

11.9

18.5

0

5

10

15

20

25

1900 1950 1970 2000 2030 2050

Global anthropogenic carbon emissions

300 312 325 380 440 530

Annual global carbon emissions (BtC1)

Atmospheric CO2 Concentration (PPM)

1. Billion Ton of Carbon; 1 ton of carbon corresponds to 3.7 tons to CO2Source: "Special Report on Emissions Scenarios", IPCC 2000; "Energy to 2050, Scenarios for a Sustainable Future", IEA 2003

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Today’s current path will dramatically rise atmospheric carbon concentration

26

52

2055today

Historic CO2

emissions2 (until 2004)Forecasted CO2

emissions1,2

CO2 (Gt)

1. Princeton University growth predictions (note: IEA’s “Baseline” scenario in line with Princeton with ~58 Gt by 2050) 2. Of both stationary and non-stationary sourcesSource:Princeton / IEA; IPCC; BCG Analysis

If “business as usual1” continues , annual CO2 emissions will double to reach ~52 Gt in 2055

What needs to be reduced (as a

minimum)

+ 26 Gt

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To mitigate these increases would require a large-scale portfolio of responses

26

52

2055todayHistoric CO2

emissions2 (until 2005)

Forecasted CO2

emissions1,2

CO2 (Gt)

1. Princeton University growth predictions (note: IEA’s “Baseline” scenario in line with Princeton with ~58 Gt by 2050) and “7wedges” / “Stabilization Triangle” theory (to stay at current emission level)(http://www.princeton.edu/~cmi/resources/CMI_Resources_new_files/CMI_Stab_Wedges_Movie.swf) 2. Of both stationary and non-stationary sourcesSource:Princeton; IPCC; BCG Analysis

Princeton University has developed the “7 wedge theory” to tackle CO2 emissions...

...each wedge represents a major investment challenge

...each wedge represents a major investment challenge

What needs to be reduced (as a

minimum)

E.g. how to reduce / prevent 1 wedge ~3-4 Gt1

• Increasing efficiency– e.g. doubling all world’s cars’ fuel efficiency

• Switching Fuel– e.g. switching 1400 coal to gas power plants

• Carbon Capture & Storage– e.g. capture CO2 from top ~250 emitters

• Nuclear– e.g. multiplying by 3 nuclear capacity

worldwide• Wind Power

– e.g. multiplying by 50 wind capacity worldwide• Biofuels

– e.g. multiplying by 50 biofuel production• Solar Power

– e.g. multiplying by 700 solar capacity worldwide

1

2

3

4

+ 26 Gt

~3-4 Gt1

1 wedge

1

2

3

4

5

6

7

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New Zealand Greenhouse Gas Emissions by Sector

Source:http://www.mfe.govt.nz/publications/climate/greenhouse-gas-inventory-overview-apr08/html/figure-3.html

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What has changed is mainstream markets:$100B emerging green market

Expected growth for Green markets (2006-2011)($B)

36.7

230+

Biofuel

Wind

Fuel cells

Organic food (retail)

Organic cotton (retail)

Green building1

Solar

67.1

9.7

47.2

40.7

33.0

32.94.7

0

50

100

150

200

250

2006 2011

Organic food (retail)Organic cotton (retail)14.0 Green building1

Solar

100+

20.517.915.6

1.4

BiofuelWind

Fuel cells

1.0

Source: BCG Center for Sensing & Mining the Future, BCG analysis

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Unknowns in climate changeWill governments lower priority on environmental investment and regulation given economic crisis?

How will the cost of green alternatives develop compared to non-environmentally friendly options?

Which alternatives will achieve mass scale and falling price curves?

What level of subsidies and policies will governments put in place as part of stimulus?

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Rise of government


ProductsEnergy Volatility & Rise of Alternatives



Health spending

Rise of Urbanization/Infrastructure

Power of brands


Global divides


Entertainment/Focus




Aging


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Urbanization: 2006 was an inflection point

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Population (k) The urban and rural population of the world, 1950-2030

World total populationWorld urban populationWorld rural population

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New York

1980

21.9 Tokyo15.6 New York13.9 Mexico City12.5 Sao Paulo11.7 Shanghai10.0 Osaka9.9 Buenos Aires9.5 Los Angeles9.0 Calcutta9.0 Beijing8.9 Paris8.7 Rio de Janeiro8.3 Seoul8.1 Moscow8.1 Bombay7.7 London7.3 Taijin6.9 Cairo6.8 Chicago6.3 Essen6.0 Jakarta6.0 Metro Manila5.6 Delhi5.3 Milan5.1 Tehran5.0 Karachi4.7 Bangkok4.6 St. Petersburg4.6 Hong Kong4.4 Lima

1990

25.1 Tokyo16.1 New York15.1 Mexico City15.1 Sao Paulo13.3 Shanghai12.2 Bombay11.5 Los Angeles11.2 Buenos Aires11.0 Osaka10.9 Calcutta10.8 Beijing10.5 Seoul9.7 Rio de Janiero9.3 Paris9.0 Moscow8.8. Tianjin8.6 Cairo8.2 Delhi8.0 Metro Manila7.9 Karachi7.7 Lagos7.7 London7.7 Jakarta6.8 Chicago6.6 Dhaka6.5 Istanbul6.4 Teheran6.4 Essen5.9 Bangkok5.8 Lima

2010

26.4 Tokyo23.6 Bombay20.2 Lagos19.7 Sao Paulo18.7 Mexico City18.4 Dhaka17.2 New York16.6 Karachi15.6 Calcutta15.3 Jakarta15.1 Delhi13.9 Los Angeles13.9 Metro Manila13.7 Buenos Aires13.7 Shanghai12.7 Cairo11.8 Istanbul11.5 Beijing11.5 Rio de Janiero11.0 Osaka10.0 Tianjin9.9 Seoul9.7 Paris9.4 Hyderabad9.4 Moscow9.0 Bangkok8.8 Lima8.6 Lahore8.2 Madras8.1 Teheran

2000

26.4 Tokyo18.1 Mexico City18.1 Bombay17.8 Sao Paulo16.6 New York13.4 Lagos13.1 Los Angeles12.9 Calcutta12.9 Shanghai12.6 Buenos Aires12.3 Dhaka11.8 Karachi11.2 Delhi10.0 Jakarta11.0 Osaka10.9 Metro Manila10.8 Beijing10.6 Rio de Janiero10.6 Cairo9.9 Seoul9.6 Paris9.5 Istanbul9.3 Moscow9.2 Tianjin7.6 London7.4 Lima7.3 Bangkok7.2 Teheran7.0 Chicago6.9 Hong Kong

Osaka

New York

Paris

London

New York

Osaka

Paris

LagosLondon

Dhaka

Lagos

Dhaka

Osaka

New York

Paris

London

Osaka

Lagos

DhakaNew York

Paris

Bombay

Bombay

BombayBombay

Delhi

Delhi

Delhi

Delhi

Creating new Megacities

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New YorkTokyo

Shanghai

LondonParis

BuenosAires

Los Angelos

Rhein-Ruhr

Beijing

Osaka

Moscow

Chicago

Calcutta

Rio de Janeiro

Mexico City

San Paolo

Milan

Mumbai (Bombay)

Cairo

Philadelphia

Dhaka

Delhi

Jakarta

Karachi

Metro Manila

Seoul

Lagos

Istanbul

2015

1960

2000

Much of future growth will be in India & China

Four times as many people live in cities in 2000 as in 1950Source: U.N. Population Division, World Urbanization Prospects, 2003 Revision

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Urbanization creates a tree of potential opportunities

Urbanization

Shelter

Mobility

Utilities

CommunicationNetworkDevices

NetworkDevices

Recycling/disposalRemoval

ProductionDistribution

ProductionDistribution

AirportsAirplanes

Rail network (mass transit, intercity)Rolling stock

BusesBikes

Cars/TrucksFerries

Road network (urban, inter-city)

Fixed line

Wireless

Waste

Energy

Water

Aerospace

Rail

Road

Comm. real estate

Housing

Needs Opportunities

Multi-family unitsSingle unitsOfficeRetail

Marine

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Public infrastructure requires substantial investment

25%

53%

17%

6%

26%

46%

TransportEUR 2.9T

7%

26%

22%

29%

38%

WaterEUR 6.3T

5%

27%

21%

49%

3%

HealthcareEUR 2.5T

EuropeEUR 4.0T

Asia-PacificEUR 6.0T

North and South AmericaEUR 3.8T

Africa, Middle East, CISEUR 0.8T

0%Energy

EUR 2.7T

100%

20%

40%

60%

80%

PercentTotal of planned spending on infrastructure over the next 20 years:

about EUR 15 trillion

Source: Global Indight, Siemens data, SFS calculations

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153 107

Governments have stepped inPublic Commitments as of January 2009

700

1,0003

Purchase of equities of leading banksPurchase of illiquid assetsGuarantees of bank debtGovernmental stimulus package

675

108

212

250

Germany1

Japan

586

China

51189

Spain

Italy2

135

Austria

Portugal

8

297

Netherlands

34

Belgium30

756

U.K.

525

Ireland

38

Greece

1. $ bn 100 available for purchase of stock for leading banks and purchase of illiquid assets 2. Additional liquidity provided by central bank 3. EstimateNote: Amounts Bn $; data as of 09 Jan 2009Source: Handelsblatt, Financial Times, Der Spiegel, Reuters, Bloomberg

USA

35

486

Belgium

France

260

EU

201372

211

Russia

5

New Zealand

31

Poland

4

Argentina

2194

Sweden

127 492

India6

Vietnam

7Hungary

428

Australia

468

Brazil

6

Denmark

130

S. Korea

6

Switzerl.

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Unknowns in urbanizationEnvironmental Impact

Vibrant Megacities or large slums

Exact pattern and impact on transportation networks

Impact of government regulations & stimulus spending

Upside option for Infratil capabilities?

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Aging



Rise of government




Health spending

Power of brands


Global divides


Entertainment/Focus




Aging



Products

48Xxxxx-xx/Footer

Life expectancy has increased dramatically: Creating a third phase of life

90

80

70

60

50

40

30

20

10

0Prehistoric

TimesEgypt Ancient

GreeceRomanTimes

1620(Mass.)

1850(England)

1900(USA)

2000(USA)

Age (years)

Source: Ross JA. International Encyclopedia of Population. New York-London; Santrock-LifeSpan, 1997. McGrow Hill, Inc.

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Age wave is coming at different rates in different countries...But at predictable rates

1980 2010 2030

Women Women WomenMen Men Men

Demographic change in Germany—age pyramid

Age difference quotient(1): 23% Age difference quotient(1): 30% Age difference quotient(1): 38%

15–25 Years

35-45 Years

60-70 Years

1. Proportion of population older than 65 years of age in comparison to population with age between 15 and 64Source: Federal Statistical Office, 10. coordinated population forecast, Var. 5.; Allianz Group Economic Research; BCG-analysis

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New Zealand age pyramid is a bit less dramatic in terms of median age

MaleFemale

100+

80

60

40

20

01.5 1.5 1.5 1.5 1.5 1.5 1.5

100+

80

60

40

20

01.5 1.5 1.5 1.5 1.5 1.5 1.5

Age(years)

Age(years)

1951Median age = 29 years

2006 Median age = 36 years

100+

80

60

40

20

01.5 1.5 1.5 1.5 1.5 1.5 1.5

100+

80

60

40

20

01.5 1.5 1.5 1.5 1.5 1.5 1.5

Age(years)

Age(years)

2031Median age = 41 years

2061 Median age = 44 years

Percent Percent

Percent PercentSource: Statistics NZ, National Population Projections: 2006-2061

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But New Zealand population aged 65+ years expected to grow

1951 – 2061(K)700

600

500

400

300

200

100

0

Estimated Projected

1951 1961 1971 1981 1991 2001 2011 2021 2031 2041 2051 2061

65-74 years

75-84 years

85+ years

Source: Statistics NZ, National Population Projections: 2006-2061

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First order implication of the aging trend: Silver market ~$400B in US; over $1 Tr globally

Aging Population

Shelter

Health Care

Purchases

ActivitiesOften lower benefit and paySignificant experience

Over 50-- 47% of leisure travel market55-65 spent $17B on travel related services

Anti-aging products, dentures

Smart devicesCustomized

Pensions, 65+ hold $3.5B in retirement assetsInvesting, Estate Planning

Cardiovascular, Orthopedic, Hearing Aids $64Bill in US

Geriatric doctors

Geriatric specialty units32% of all health care costs for 65+

Retirement

Hobbies

Food/Consumer Goods

Appliances

Financial services

Medical devices

Pharmaceuticals

Hospitals/Clinics

Nursing Homes

Housing

Needs Opportunities

14% of all housing expenses for 65+Stay in home market $50B in USNursing home providers going globalNursing homes $121B in US

Specialized doctors

$54B drug revenue from Medicare beneficiaries

Special nutrition and packaging needs

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Although data is well known & knowable most companies not acting on it

40% of the European population is over 50

75% of privately owned capital is in their hands

5% of marketing campaigns spend to reach this group.

Disparity in MarketingDisparity in Marketing Disparity in Product OfferingsDisparity in Product Offerings

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‘Active Seniors’ are an increasingly significant market for NZ Bus

‘SuperGold’ card gives over-65s free off-peak travel on NZ public transport

Launched Oct 2008, triggering a significant boost in patronage

105% increase in over-65s on Auckland buses

48% increase in over-65s on ‘Go Wellington’ buses

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Rise of multi-channel/Web 2.0Rise of mobility


Rise of government




Health spending

Power of brands


Global divides


Entertainment/Focus




Aging



Products

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On-line commerce is still growing rapidly

Source: IDC, Worldwide Internet Usage and E-commerce; eMarketer, Search Marketing Still Dominates Online Advertising (2008)

0

20

40

60

+20%

US Online Advertising Spending, by Format ($ Bill)

17

2006

21

2007

28

2008E

33

2009E

38

2010E

42

2011E

SponsorshipsE-MailLead generation/referralsRich Media/VideoClassifiedDisplay adsSearch

$3,407$4,516

$5,600$6,716

$7,602

$5,079

$6,326

$7,612

$8,758

$1,156

$896

$726

$563

$417$3,824

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2005 2006 2007 2008 2009

Worldwide e-CommerceSales – Forecast

Worldwide e-CommerceSales – Forecast

... and personalized and effective advertising

... and personalized and effective advertising

Billions

57Xxxxx-xx/Footer

Wireless and internet users growing 13-15%

0

500

1,000

1,500

29%

26%

36%

7%2%

647

2003

29%

26%

36%

7%2%

756

2004

28%

25%

36%

8%3%

852

2005

25%

25%

39%

8%3%

947

2006

22%

24%

42%

8%4%

1,069

2007

19%

23%

45%

9%4%

1,199

E2008

18%

22%

47%

9%5%

1,326

E2009

16%

21%

30%

9%5%

1,459

E2010

North AmericaEuropeAsia and OceaniaLatin America

49%

+13%

28%

34%

7%2%

539

Internet users (Million)

2002

Africa and Middle East

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

42%

8%1%

1,031

2002

14%

31%

44%

8%3%

1,248

2003

13%

28%

45%

10%4%

1,497

2004

12%

26%

45%

11%5%

1,797

2005

12%

24%

47%

11%5%

2,151

2006

11%

23%

49%

11%6%

2,493

2007

11%

22%

50%

11%7%

2,776

E2008

10%

15%

51%

11%

7%

3,015

E2009

10%

20%21%

11%

7%

3,233

E2010

+15%

Mobile users (Millions)

34%

52%

Source: EIU Market Indicators and Forecasts

Number of internet users has been growing

Number of internet users has been growing

Number of mobile users also experiencing huge growth

Number of mobile users also experiencing huge growth

xx% CAGR 2002-2010xx% CAGR 2002-2010

58Xxxxx-xx/Footer

Multi-channel shoppers worth more than single- or dual-channel shoppers

Source: BCG analysisBCG Document: 186. Chico's_Discussion_June_30_final_compressed.ppt, June 2008

BCG analysis shows shoppers across multiple channels spent 120-150%

more at an apparel retailer

BCG analysis shows shoppers across multiple channels spent 120-150%

more at an apparel retailer

180 200 220 260220

280

340

560

380

420

520

800

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Intern

et only

Store on

lyCatalog o

nlyStore/

Inter

netCatalog/

Intern

etStore/

catal

ogTri-c

hanne

l

CatalogStoreInternet

Single channel(Avg.: 260)

Dual channel(Avg.: 660)

Multi-channel(Avg.: 1620)

Example multi-channel spend from awomen’s apparel retailer

Avg. annual spend ($)

Multi-channel usage also shown to have a causal effect over time

Multi-channel usage also shown to have a causal effect over time

Example from apparel retailer since thelaunch of their website

Multi-channel

Single-channel

0

50

100

150

200

250

300

350

400

450

500

0 1 2 3 4 5 6 7 8 9

Indexed spend

Years since website launch

59Xxxxx-xx/Footer

Despite cost efficiencies, online is still only fraction of total global ad spend

1. Share of the 5 media platforms displayed in chart, not share of total US ad spend Note: Data were gathered using different methods and may not be strictly comparable. Numbers are therefore approximate.Source: Morgan Stanley (2006); EIU (2007); PwC; Piper Jaffray; Zenith Adspend 2006; Robert Coen Associates; DMA; iMedia Connection; Yankee Group (2006); eMarketer (2006); Pew Internet Research; Ad$pender data 2007; BCG analysisBCG Document: 169. KMWebPresenceHealthCheck0508, May 2008

Internet made up less than 6% of global advertising spend in 2006Internet made up less than 6% of global advertising spend in 2006

0

100

200

300

400

500

600

700

01 02 03 04 05 06

US $B

Out-of-Home

Television

Radio

Magazines

Newspapers

Direct mail

Directories

Other internetMicrosoft (invisible)YahooGoogle

Google: $10.6 B in 2006, 74% over 2005Yahoo: $5.5 B in 2006, 17% over 2005

Ad budgets do not appear to have kept up with changes in consumer behaviorAd budgets do not appear to have kept up with changes in consumer behavior

Not sure that I can go then. I may just have to go in June and then visit you guys separately in St. Louis...

0

10

20

30

40

50

0 10 20 30 40

TV

InternetRadio

NewspapersMagazines

Realignment would imply a massiveshift in advertising dollars

Shares of US ad $ (%)1

Share of US media consumption time (%)1

Over-investment

Under-investment

60Xxxxx-xx/Footer

Proliferation of type of devices and information

0

500

1,000

1,500

2,000

2006 2007 2008 2009 2010 20110

500

1,000

1,500

2,000

2006 2007 2008 2009 2010 2011

1: 1 Exabyte = 109 Gigabytes = 118 bytesSource: IDC 2008, 'The Diverse and Exploding Digital Universe‘, BCG analysis

DVD,RFID,

Digital TV,MP3 players,

Digital cameras,Camera phones, VoIP,

Medical imaging, Laptops,Datacenter applications, Games,

Satellite images, GPS, ATMs, Scanners,Sensors, Digital radio, DLP theaters, Telematics,

Peer-to-peer, Email, Instant messaging, Videoconferencing,CAD/CAM, Toys, Industrial machines, Security systems, Appliances

Exabytes1

Moore’s Law(indexed)

Digital information growth:Data growing faster than ability to process

Data

3x every 24 months

Emerging trend:

2x every 9 months

2x every 18-24 months

61Xxxxx-xx/Footer

Airlines experiencing the beginning of Web 2.0 across whole value chain

Research and develop Market Sell Service delivery Customer

service Loyalty

Researching fares, flights and destinations

Receiving customised emails/Web alerts offering targeted flights

Buying tickets (and travel insurance and hotel, etc)

Learning about on-board entertainment

Ordering meals

Changing flight details

Checking in

Managing FF account

Booking FF ticket

Examples of how airline customers are already interacting onlineExamples of how airline customers are already interacting online

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Infratil developing on-line applicationsOnline customer service for power customers (www.trustpower.co.nzand www.victoriaelectricity.com.au)

Parking calculations and booking on line (Glasgow Prestwick airport, Wellington Airport shortly) (www.wellington-airport.co.nz/)

Energy price updates SMS'd to users (www.trustpower.co.nz)

Ferry on-line bookings and SMS with schedule updates and early alerts (www.fullers.co.nz)

Snapper allows card reloading online (www.snapper.co.nz)

Out-of-Home advertising business i-site (http://www.isitemedia.co.nz/) allow users to upload their images to see how they will look as billboards

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...and positioning for the future

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Agenda




65Xxxxx-xx/Footer

Themes of this year's talkHow to choose the right waves to surf

Predictable trends in unpredictable timesWhat's in the portfolio

How to navigate to stay on top of the waves

Predictable risks in unpredictable timesHow to manage the portfolio

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Collateral damage: The credit crisis is driving a downturn in real economy

"While the stock market is dominating the headlines, the more important story is the grim news about the real economy. Rescuing banks is just the beginning:

non-financial economy also in desperate need of help."1

1. The New York Times, 17 October 2008

What began as a credit crisis …What began as a credit crisis … … is driving a downturn in the real economy… is driving a downturn in the real economy

Credit crisis in U.S. real

estate1

Leverage crisis in the securiti-zation market

2

Global liquidity crisis3Solvency crisis4

Further reduction

in asset values5

Lower investment

1

Lower output2

Corporate defaults and job losses

3

Lower demand4And no capacity

for consumers to borrow more

(absent inflation)

Corporate credit crunch and cash flow/

liquidity crisis

67Xxxxx-xx/Footer

Recessions combining credit crunch, equity crashes & real estate bubbles are the worst

10

34

1

189

31Equitymarketcrashes

Credit/bankingcrunches

Housingpricecrashes

We are now in #5

76 most severe OECD recessions since 196076 most severe OECD recessions since 1960

68Xxxxx-xx/Footer

Companies need to plan for multiple waves & to still be surfing on other side

Forming a recession proof strategy requires abilityto withstand multiple shocks

Wave 1Sub-prime

crisis

Housing valuecrash

Securitizationand spreading

of risk

Increasein Mortgage loans

Mortgagedefault

Credit crunch

Overnightlendingdries up Wave 4

Recovery

Globalstock drop

Consumerspending

cuts

Wave 2ConsumerRecession

Plantclosings Job

losses

Lowerdemand in multiple

sectors

Investmentcuts

Retail saleshit

Wave 3 Bankruptcy& Defaults

Ratingsdowngrades

Bankruptcy& Consolidation

Governmentspending cuts

locally

Asset sales

Customerdefaults?

Supplier defaults?

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The real economy will face significant challengesAccess to financing will be difficult and costly

No access to funds: increasingly difficult to secure short-term financing

Weak stock markets: less attractive and more difficult to raise new equity

Significantly higher cost of capital: higher borrowing cost and return requirements

Bonus for cash: cash premium (or "safety bonus") for firms with significant cash positions

Profitability under pressure from all sides

Reduced cash flow: volumes and price under pressure, with growth below long-term trendlines

Continued commodity price volatility: potential easing of pressure on commodity prices, but continued volatility

Change in consumer behavior: declines in luxury goods, falling/stagnant sales in discretionary spending

Governments will become more involved

More government intervention: bailout funding, equity stakes, and infrastructure investment

Re-regulation: paradigm shift, with growth in government intervention

Protectionism: increasing trade restrictions and higher difficulties in exporting

Other significant issues to manage

Credit losses: major jump in losses due to bankruptcies

Significant balance sheet risk: asset price deflation—both tangible and intangible

Industry consolidation: wave of bankruptcies and restructuring mergers

Changing business models: crisis issues potential for changing "rules of the game"

70Xxxxx-xx/Footer

Financial markets are in disarrayS&P Index from 1825 to 2007

Source: Value Square Asset Management, Yale University

1931 1937 183918571907193019742002

18251828183118371841185418731884189319101917192019411957196619732001

18271833183518451851185318601861187618821883188718901903191319141929193219341939194019461953196219691977198119902000

182618361840184218441856185918651866186718681869187018711872187418751877188118871889189118941895189618991902190619111912191619231947194819561960197019781984198719921993199420052007

182918321834183818471848184918501855185818641878188618921897189819041905191819191921192619441949195219591964196519681971197219791986198820042006

18461852188019001901190919151922192419251942194319511961196319671976198219831996199819992003

183019081927193619381945195019551975198019851989199119951997

18431863192819351958

18621879188519331954

-50 to -40 -40 to -30 -30 to -20 -20 to -10 -10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 50 to 60

2008

Percentagetotal return

Positive years: 129 (70%)Negative years: 54 (30%)

71Xxxxx-xx/Footer

Severity of impact varies by sector

1. Weighted (by Nov 08 market Cap) average of % change of industry EPS forecast (Earnings Per Share), for 2009 (10th Sept vs. Dec.10th), based on 1800 largest companies globallySource: Consensus IBES; BCG analysis

Global earnings forecast by industry (2009 vs. 2008)1 – Nov 2008

10%

-10%

-30%

Basic resource

Auto Oil& Gas Banks Chemicals Financial Service

Constr. & Building

Technology Industrial Retail Telecom Media Healthcare Travel & Leisure

Utilities Food & Beverage

0%

-20%

-40%

-50%

Earnings forecast 2009 vs. 2008 (in %)

72Xxxxx-xx/Footer

5 C's of successful crisis navigationCost Cutting Culture

Cash & Credit Line Management—Sufficient operating funds

Contingency Plan—Smart Scenarios

Consolidate—Position for Strength

Communicate

Key is to manage volatility and capture growthoptions for the future

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Most experts believe the financial crisis was not a black swan event

"Black Swans" are rare events with three defining characteristics:

1. The event is highly improbable and unpredictable

2. It will have "massive consequences"

3. And, afterwards, experts invent reasons why it was predictable, not random

74Xxxxx-xx/Footer

Dozens of experts saw it comingBut labelled as Cassandras

"Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability."

"We have a subprime financial system, not [just] a subprimemortgage market."

Nassim Nicholas TalebNassim Nicholas Taleb Nouriel RoubiniNouriel Roubini

" Derivatives are financial weapons of mass destruction,

carrying dangers that, while now latent, are potentially lethal-Warren Buffett Berkshire

HathawayAnnual Report 2002

75Xxxxx-xx/Footer

Not claiming that Infratil has a crystal ball

76Xxxxx-xx/Footer

...but they are prepared for range of potential scenarios

““Keep AfloatKeep Afloat””

Quick recovery

““Beat the Beat the cyclecycle””

Prolonged recession

““Weather the Weather the StormStorm””

Deeperdownturn

Three potential scenariosThree potential scenarios

77Xxxxx-xx/Footer

Some believe

Key to managing a crisis...Key to managing a crisis...

is to keep an eye on the long termis to keep an eye on the long term

while you are dancing in the flameswhile you are dancing in the flames

78Xxxxx-xx/Footer

Or to remember there is a shorelineas you surf the waves

79Xxxxx-xx/Footer

For questions or further information on this presentation please contact:

Alison Sander, BCG Center for Sensing & Mining the [email protected]

001-617-973-1346

aligning portfolio with long term trends for success · 2012-08-27 · aligning portfolio with long...

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