Global Investment Opportunities in Water


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Steven A. Falci, Vice President Sustainable Investment - KBC Asset Management Limited - Ireland

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Global Investment Opportunities in Water

  1. 1. Global Investment Opportunities in Water TBLI Conference Europe -2009 Steven Falci, CFA – Vice President Sustainable Investment
  2. 2. Global Mega Trends & Sustainable Investment Solutions World’s Changing Demographic Profile Natural Resources: Supply/Demand Imbalance Investment Solutions <ul><li>Regulation </li></ul><ul><li>Emissions Targets </li></ul><ul><li>Renewables Targets </li></ul><ul><li>Tax Incentives </li></ul><ul><li>Water Standards </li></ul><ul><li>Infrastructure </li></ul><ul><li>Water Delivery </li></ul><ul><li>Energy Grid </li></ul><ul><li>Energy Efficient Building </li></ul><ul><li>Transportation </li></ul><ul><li>Clean Technology </li></ul><ul><li>Energy Generation </li></ul><ul><li>Energy Storage </li></ul><ul><li>Energy Efficiency </li></ul><ul><li>Water Quality </li></ul>Climate Change: Operating in a Carbon Constrained World
  3. 3. KBCAM Environmental Strategies KBCAM Water KBCAM Alternative Energy KBCAM Climate Change KBCAM Agribusiness KBCAM Global Environmental Solutions December 2000 December 2000 February 2007 April 2008 July 2009 Rising Water Demand Constrained Supply Regulatory divers to support water quality Need to update & extend infrastructure Increased global energy demand Limited supply of fossil fuels Climate Change Falling costs of renewable energy Security of Fuel Supply Demographic changes Drive to limit emissions Political, legislative and regulatory push Clean tech advancements contributing to solutions Growing, more affluent population Changing diets and increased consumption Supply of arable land constrained by urbanisation Structural investment in machinery and irrigation to increase yield Demographic Changes Natural Resource Supply/Demand imbalance Climate Change
  4. 4. Investment Thesis - Water Investment Opportunities Drivers Demand Growth Supply Problems Regulation Technological Advancement Demand Growth Demand Growth
  5. 5. N atural Resource Demand Source: UN Population Division, FAO, USDA, EIA, WRI, UN Joint Database, Goldman Sachs Research Estimates World development indices 1950 to 2030E (rebased to 100) 1950 = 100 900 800 700 600 500 400 300 200 100 0 1950 1960 1970 1980 1990 2000 2010E 2020E 2030E Population Energy demand Urban population Grain consumption Real GDP per capita Carbon emissions Projections
  6. 6. Water Demand Sources: U.S. Census Bureau, German Ministry of Environment 1990 1940 1950 1960 1970 1980 1990 1995 2000 2010 2025 1000 900 800 700 600 500 400 300 200 100 0 Global Water Consumption Relative Growth rate Global Population
  7. 7. Water Supply Water has NO substitute Underground 29% Lakes & Rivers <1% Frozen 70% Fresh Water 3% Oceans 97%
  8. 8. Regulation <ul><li>Stricter quality standards and enforcement </li></ul><ul><ul><li>Water Framework Directive in Europe </li></ul></ul><ul><ul><li>US Water Resources Development Act, EPA </li></ul></ul><ul><ul><li>New national standards for drinking water quality in China </li></ul></ul><ul><ul><li>Renewed focus on wastewater treatment </li></ul></ul><ul><li>Issues around water on the agenda for policymakers </li></ul><ul><li>Proactive regulation to encourage investment </li></ul>
  9. 9. Technology <ul><li>Innovative technology solutions </li></ul><ul><ul><li>Desalination </li></ul></ul><ul><ul><li>UV Filtration </li></ul></ul><ul><ul><li>Metering </li></ul></ul><ul><ul><li>Efficiency </li></ul></ul><ul><ul><li>Leakage </li></ul></ul><ul><ul><li>Water Quality Testing </li></ul></ul>
  10. 10. Infrastructure Spending Source: OECD estimates 17% 10% -2% 34% 49% 42% X% Growth in annual average spending Telecoms Electricity T&D Electricity generation Water Rail Road US$bn 2000 – 2010E 2010 – 2020E Annual average infrastructure spending 2000–10E & 2010–20E 0 100 200 300 400 500 600 700 800
  11. 11. Identifying opportunities in the Water Cycle Stage 4 Secondary disinfection treatment prior to discharge into the environment Stage 3 Residential, commercial and industrial water use Stage 2 Filtration and Disinfection process Stage 1 Sources of water: ground or surface water
  12. 12. Identifying the Global Sectors Investment Opportunities Drivers Demand Growth Supply Problems Regulation Technological Advancement Demand Growth Demand Growth No bottled water Distribution Infrastructure Technology Solutions
  13. 13. Strategic Positioning Source: KBCAM, Data as at 31.09.09. Sector Weighting Water Technology Water Infrastructure Water/ Waste Water Utilities Actual 40% 30% 20% 10% 0% 32.3 35.0 37.3 35.0 30.4 30.0 Strategic
  14. 14. Stock Selection and Portfolio Construction <ul><li>Financials </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Access to capital </li></ul><ul><li>Quality of Earnings </li></ul><ul><li>Valuation </li></ul><ul><li>FCF Models </li></ul><ul><li>Valuation Multiples </li></ul><ul><li>Sector Analysis </li></ul><ul><li>Life cycle of sector </li></ul><ul><li>Thematic drivers </li></ul><ul><li>Company Analysis </li></ul><ul><li>Life Cycle of company </li></ul><ul><li>Structure & quality of management </li></ul><ul><li>Product & services range </li></ul><ul><li>Positioning relative to competitors </li></ul><ul><li>Portfolio Construction </li></ul><ul><li>Strong Fundamentals </li></ul><ul><li>Valuation </li></ul><ul><li>Sector exposure reflect thematic drivers </li></ul><ul><li>Desired risk characteristics </li></ul>
  15. 15. Water Fundamentals - 2010 <ul><li>Capital Expenditure </li></ul><ul><ul><li>2009 – 15% fall in water equipment </li></ul></ul><ul><ul><li>2010 – 2011 strong recovery expected </li></ul></ul><ul><li>Emerging Trends for 2010 </li></ul><ul><ul><li>Restocking </li></ul></ul><ul><ul><li>Funding – Stimulus / Bond Issuance </li></ul></ul><ul><li>Cost cutting efforts poised to increase profitability as demand picks up </li></ul><ul><li>Long-terms supply/demand, infrastructure drivers intact </li></ul>Source: Global Water Intelligence, May 2009
  16. 16. Stimulus & Expenditures <ul><li>Global stimulus spending expected to benefit 2010 </li></ul><ul><li>$80bn focused on water </li></ul><ul><li>Predominantly China and the US </li></ul><ul><li>US EPA Water budget set to rise 150% </li></ul>Green Stimulus ($500bn) – Theme Allocation Energy Efficiency 64% Water 16% Renewable 8% Other Low Carbon 12% Buildings 16% Lo C Vech 4% Rail 24% Grid 18%
  17. 17. Attractive Valuation PE Chart Source: KBCAM as at 30/09/2009 Dec ‘ 08 25 20 15 10 5 0 Jun ‘ 07 Sep ‘ 07 Dec ‘ 07 Mar ‘ 08 Jun ‘ 08 Sep ‘ 08 MSCI World Water Jun ‘ 09 Mar ‘ 09 Sept ‘ 09
  18. 18. Water in a Global Equity Portfolio Attractive Risk/Return
  19. 19. Why Invest in Water Strategies? <ul><li>Long term secular trends driving investment in solutions to environmental challenges </li></ul><ul><li>Political and regulatory support continue to grow and support investment </li></ul><ul><li>Fiscal stimulus packages are targeting “green” initiatives </li></ul><ul><li>Attractive Risk / Return Characteristics </li></ul><ul><li>Extremely attractive valuations with stronger outlooks for earnings growth </li></ul>KBC create portfolios focused on pure-plays which most effectively harness the investment opportunities that exist in each theme
  20. 20. Disclaimers Important Information KBC Eco Fund of which KBC Eco Fund Water, KBC Eco Fund Alternative Energy, KBC Eco Fund Climate Change are sub-funds; KBCAM Institutional Fund Plc of which KBC Water and KBC Alternative Energy and KBC Eco Agri Fund are sub-funds are unregulated collective investment schemes for the purposes of the United Kingdom Financial Services and Markets Act 2000 (&quot;the Act&quot;) and, as such, their promotion by KBC Asset Management Ltd in the United Kingdom is restricted by section 238 of the Act. Accordingly, this presentation is to be communicated only to and is directed only at existing participants in the scheme and persons falling within the definition of &quot;eligible counterparty&quot; or &quot;professional&quot; in the glossary to the rules of the Financial Services Authority. Units in the scheme are available only to such persons. Persons of any other description should not rely on or act upon the contents of this presentation. If you are not an existing participant in the scheme and are in any doubt as to whether you fall within the definition of &quot;eligible counterparty&quot; or “professional&quot; you must not rely on or act upon the contents of this presentation unless you have taken professional advice which has confirmed that you fall within one of these definitions. Cautionary Note The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance is not necessarily a guide to future performance. Projected / simulated performance has been included for illustrative purposes and is not necessarily a guide to future performance. The views expressed are those of KBC Asset Management Ltd and should not be construed as investment advice. KBC Asset Management Ltd is authorised by the Irish Financial Regulator and regulated by the Financial Services Authority for the conduct of UK business