aligning portfolio with long term trends for success · 2012-08-27 · aligning portfolio with long...
TRANSCRIPT
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
What are Megatrends—waves to surf
Relevant Megatrends for Infratil portfolio
Critical success factors for managing through crisis
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Rise of mobility
Rise of mobilityRise 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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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 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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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
Source: BCG analysis
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 $150B in 2007
Source: BCG analysis
3X
5X
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Investments slowing off strong base
142.0148.4
92.6
58.7
33.4
0
50
100
150
2004 2005 2006 2007 2008e
+76%growth
+58%growth
+60%growth
-4%decline
($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 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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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 mobilityRise of
Urbanization/infrastructure
Rise of government
Global Warming & Rise of Green
ProductsEnergy Volatility & Rise of Alternatives
Innovation imperative
Rise of multi-channel/ Web 2.0
Health spending
Rise of Urbanization/Infrastructure
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
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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
41Xxxxx-xx/Footer
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
45Xxxxx-xx/Footer
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.
46Xxxxx-xx/Footer
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?
47Xxxxx-xx/Footer
Aging
Rise of mobilityRise 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
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.
49Xxxxx-xx/Footer
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
50Xxxxx-xx/Footer
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
51Xxxxx-xx/Footer
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
52Xxxxx-xx/Footer
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
$54B drug revenue from Medicare beneficiaries
Special nutrition and packaging needs
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Although data is well known & knowable most companies not acting on it
40% of the European population is over 50
75% of privately owned capital is in their hands
5% of marketing campaigns spend to reach this group.
Disparity in MarketingDisparity in Marketing Disparity in Product OfferingsDisparity in Product Offerings
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‘Active Seniors’ are an increasingly significant market for NZ Bus
‘SuperGold’ card gives over-65s free off-peak travel on NZ public transport
Launched Oct 2008, triggering a significant boost in patronage
105% increase in over-65s on Auckland buses
48% increase in over-65s on ‘Go Wellington’ buses
55Xxxxx-xx/Footer
Rise of multi-channel/Web 2.0Rise of mobility
Rise of Urbanization/infrastructure
Rise of government
Energy Volatility & Rise of Alternatives
Innovation imperative
Rise of multi-channel/ Web 2.0
Health spending
Power of brands
Key trends for Infratil presented last year
Global divides
Risk & SecurityFocus GlobalizationRise of Services
Entertainment/Focus
on CelebrityDiversity
Rise of TrustEconomy
Deconstruction,Off-shoring
Aging
Additional key trends for Infratil presented this year
Global Warming & Rise of Green
Products
56Xxxxx-xx/Footer
On-line commerce is still growing rapidly
Source: IDC, Worldwide Internet Usage and E-commerce; eMarketer, Search Marketing Still Dominates Online Advertising (2008)
0
20
40
60
+20%
US Online Advertising Spending, by Format ($ 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
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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
What are Megatrends—waves to surf
Relevant Megatrends for Infratil portfolio
Critical success factors for managing through crisis
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?
69Xxxxx-xx/Footer
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%)
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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
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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
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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
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Or to remember there is a shorelineas you surf the waves
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For questions or further information on this presentation please contact:
Alison Sander, BCG Center for Sensing & Mining the [email protected]
001-617-973-1346