Longevity creates new consumption opportunities - Fidelity International … · 2019-10-28 · Pet food is a structurally growing market, as ‘pet parents’ increase spending .

Longevity creates new consumption opportunities Aneta WynimkoPortfolio ManagerFidelity International

Longer lifespans

Source: Fidelity International, 2019

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RomanEmpire

MiddleAges

IndustrialRevolution 2019 2070

25 years 33 years 55 years 72 years 125 years

Increasing percentage of population moving into the 3rd act (>60)

Source: Fidelity International, OECD population forecasts, July 2015.

1950 2000 2050

0.2 Billion (8%) 0.6 Billion (10%) 2.0 Billion (21%)

Baby Boomers are a big and attractive consumer group

Source: Fidelity International, US Census Bureau Population Estimates for 2020

0%

10%

20%

30%

40%

50%

60%Pa

kist

an

Nig

eria

Philip

pine

s

Sout

h Af

rica

Indi

a

Mex

ico

Indo

nesi

a

Turk

ey

Braz

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US

Thai

land

Chi

na UK

Fran

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Can

ada

Pola

nd

Rus

sia

Sout

h Ko

rea

Spai

n

Japa

n

Italy

Ger

man

y

Millennials Boomers

More Boomers than Millennials

Source: Fidelity International, Versace SS2020 Fashion Show

Four themes I invest behind tobenefit from longevity

Skin care to keep us looking good Spirits to keep us in good mood Pets to keep us company Eyewear to keep our eyes sharp

Source: Fidelity International, British Vouge, December 2018

Beauty industry is a big

beneficiary of Baby Boomers desire to stay

active and attractive

New Ad Spot For L'Oreal Age Perfect shows strong women age well

Skin care is key beneficiary from spending by older independent women

Source: Fidelity International, Estee Lauder, Investor day March 2019 Source: Fidelity International, 2019, The World bank

$255$276

$23 $21$2

$0

$50

$100

$150

$200

$250

$300

US

Kore

a

Chi

na

Braz

il

Indi

a

61%

56%55%

50% 50%48%

40%

45%

50%

55%

60%

65%

Chi

na UK

US

Fran

ce

Japa

n

Wor

ld

Spend on prestige beauty, women 15-65y old, $ pa Labour force participation rate, female 2018

Estee Lauder’s strong track record in skin care

Source: Fidelity International, 2019, Estee Lauder, company accounts

0%

5%

10%

15%

20%

25%

30%

35%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

growth constant currency operating margin

Growth and profitability of skin care Strong growth in revenue and profitability ($m)

Source: Fidelity International, Bloomberg, 2019

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Revenue EBIT margin

High endspirits are a big beneficiary of Baby Boomers desire to enjoy their retirement

In beverages, spirits companies are key beneficiaries as people drink less but better

Source: Fidelity International, Nielsen Source: Fidelity International, Gallup annual consumption pool, July 2015

US national off-premise average spirits value pp per year

$70

$91

$115 $118

$0

$20

$40

$60

$80

$100

$120

$140

21-24 25-34 35-49 50+

Source: Fidelity International, Indoscout 2016, Diageo 2017 investor day

Beer consumption declines quite dramatically with age, while spirits consumption is more stable

Proportion (%) of adults who drank alcohol by income and education, US 2015

0%10%20%30%40%50%60%70%80%90%

>$75

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$30,

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$75,

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4.2 3.5 3.2 3.1 2.60

102030405060708090

100

21-34 35-44 45-54 55-64 65+

Beer (litres) Pure Alcohol (litres)

Spirits companies pay more attention to the ‘ageless consumers’

Source: Fidelity International, Diageo investor day 2018

Diageo @ its 2018 investor day shifts focus to marketing to the Ageless Americans

Diageo shows impressive track record of growth and profitability (£m)

Source: Fidelity International, 2019, Bloomberg

F16 F17 F18

Millennials Multi-Cultural AgelessAmerica

On Premise On Premise On Premise

DigitalFoundation

Search /Always On

Search /Always On

BrandStories

BrandPurpose

Drive PurposePlatforms Locally

Insights, Targeting and Measurement / ROI

0%

5%

10%

15%

20%

25%

30%

35%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Revenue EBIT margin

Pet foodindustry is a big

beneficiary of Baby Boomers

need for companionship

Petcare is a structurally growing market as the number of pet companions keeps growing

Source: Fidelity International Euromonitor 2019 edition, 2018

Source: Fidelity International, 2019, Petbusinessprofessor.com

Source: Fidelity International, US - 2019-2020 APPA National Pet Owners Survey; China - 13D Global Strategy & Research

Global pet population in 2018 vs 2017 Total spending on pets in the US ($bn)

16%22%

56%64% 67%

0%

10%

20%

30%

40%

50%

60%

70%

80%

1988 2013 2018China US

Pet ownership (% of households)

0 20 40

Millenials

Gen X

Baby Boomers

Silent Generation

2017 2016 2015 2014

Millennials

Total: 884m

471m +4.4%

373m +5.6%

Pet food is a structurally growing market, as ‘pet parents’ increase spending

*% of 2018 category sales Source: Fidelity International, Nestle, Euromonitor 2019 edition

Nestle expects category growth @ 7% in 2018-2023

0%

10%

20%

30%

40%

50%

60%

70%

80%

Developed markets Emerging markets

Pet food category 2018: $81.5bn 6% CAGR in 2016-2018 Commercial coverage

Source: Fidelity International, 2019. Commercial coverage refers to % of overall pet nutrition derived from commercially prepared pet food, Nestle

North America39%*

CAGR +5%

EMENA32%*

CAGR +4%

LATAM11%*

CAGR +13%

AOA18%*

CAGR +11%

Pet food is a structurally growing market, as ‘pet parents’ increase spending

Source: Fidelity International, Bloomberg, 2018. Operational income from 2005-2008 and adjusted operational income from 2009 onwards.Source: Fidelity International, Nestle Investor Seminar 2019

Competitive landscape in pet food, 2018 market share Nestle: Pet care (CHFm)

24%

21%

5%4%3%

43%

Mars Purina (Nestle) ColgateSmucker's General Mills Others

0%

5%

10%

15%

20%

25%

0

2000

4000

6000

8000

10000

12000

14000

FY 2

005

FY 2

006

FY 2

007

FY 2

008

FY 2

009

FY 2

010

FY 2

011

FY 2

012

FY 2

013

FY 2

014

FY 2

015

FY 2

016

FY 2

017

FY 2

018

Revenue EBIT margin

Eyewear industry will benefit from

consumers taking better care of their

vision

Eyewear – ageing and use of digital devices create a booming end market

Source: Fidelity International, 2019, EssilorLuxotticaCapital Market Day

Source: Fidelity International, 2019, EssilorLuxotticaCapital Market Day; 1 Global population of ~7.6 billion people in 2020 and 10 billion people in 2050, United Nations, internal analysis

Source: Fidelity International, 2019, EssilorLuxotticaCapital Market Day

Consumer consumption per capita (Index)

Growing presbyopia prevalencePeople, % of global population

Large untapped opportunities in vision correction and protection

0

200

400

600

800

1000

1200

US France china

Eyecare & eyewear Shoes

Dentistry Apparel (women)

7.6bnpeople

worldwide

2.0bncorrected (43%)

2.6bnuncorrected

1.4bnequipped with

sunglasses (18%)

6.2bnunequipped

100%should protect

their eyes(sun, UV, blue light)

4.6bn(60%) require

vision correction

2000 2010 Today 2030 2040 2050

30%1

2.3bn

40%1

4.1bn

China

The eyewear market is a great investment opportunity

Source: Fidelity International, Bloomberg, 2018

2% 6% 10% 15% 16% 21%

66%

8%

30% 25%36%

43%

64%

100%

0%

20%

40%

60%

80%

100%

120%

Pola

rized

Sun

Rx

Phot

ochr

omic

Prog

ress

ive

Blue

-cut

Thin

(ind

ex>1

.6)

Anti-

refle

ctiv

e

Global penetration Highest penetration

Source: Fidelity International, 2019, EssilorLuxottica Capital Market Day

Penetration of value-added lenses on totalprescription lenses

Combined Essilor and Luxottica (€bn)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

5000

10000

15000

20000

25000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Revenue EBIT margin

The eyewear market is a great investment opportunity

Source: Fidelity International, EssilorLuxottica Capital Market Day

EssilorLuxottica is the dominant player with a strong brand portfolio

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Premium

Lens brands Frame brands

Entry

Baby Boomers consumption is a very attractive and fast growing market

Source: Fidelity International, Balenciaga SS2020 fashion show

Factors I look for when investing behind longevity

Source: Fidelity International, 2019

Market opportunity

Category that allows innovation and premiumisation

Scope to increase market share &/or enter new markets

History of sustainable organic growth

High returns High and stable gross margins High ROIC

High investment rate

Efficient spend on A&P and R&D, which create intellectual property and brand value

Capex allocated to capture the market opportunity

Brand power Attractively valued long-term winners with strong

brand, intellectual property and pricing power Global and Emerging Markets leadership

Technology and innovation

Use of technology to connect and collaborate with consumers

Margin accretive innovation and premiumisation

Agility Global scale - local agility Multi-channel approach

Excellent management

Management team with clear vision and coherent execution; strong focus on details and quality

Customer retention and development

Capitalising on the longevity economyInvestment Conference 2019

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