FINDING CLARITY

FOREWORDAUSTRALIA 2016

Four global themes driving investments

PANEL REFERENCE SLIDES: MARKET DISRUPTION – CHANGING DYNAMICS IN THE INVESTMENT LANDSCAPE

Robert Mann, Nikko AM Senior Portfolio Manager, Asian Equity Johnny Russell, Nikko AM Portfolio Manager, Global Equity Tim Johnston, Nikko AM Portfolio Manager & Senior Analyst, Australian Equities

ROBERT MANN Senior Portfolio Manager, Asian Equity

Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page

Back to the future

Nearly 40% of all cars in the US were electric vehicles in 1900

81 Source: http://www.oldpicz.com/electric-cars-1880-1920/

EVs have been around for a long time now The advent of the assembly line helped ICE engines disrupt the incumbent EVs Will cheaper EVs and harsher regulations now disrupt ICE engines?

Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page

Range anxiety is a real thing

How far one can go between charges will determine when EV’s will see mass adoption

• The tipping point is about 200 kms now

• In the US & Europe, charging infrastructure is now adequate

• However, Australia

still has a long way to go!

82 Source: http://krisdedecker.typepad.com/.a/6a00e0099229e88833013480522e53970c-pi / and Tesla Motors, August 2016

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Growth of electric vehicles is strong

83

Battery technology is the key

• Battery cost/kWHr

has declined significantly from US$1,000 in 2010 to below US$200 now

• Existing technology, albeit not yet proven in real-world conditions could increase battery power by 7-8x!

Source : Wikipedia Maria Ortiz July 2016

JOHNNY RUSSELL Portfolio Manager, Global Equity

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Energy as a technology – not all alpha is equal

Winning Industries • Lithium miners • Cathode manufactures • Semi suppliers • Battery providers • Solar integrators • EV focused autos • Wind turbine

manufacturers • Fracking technology

providers • Low cost energy

owners

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What to look for… • Major beneficiaries of energy as a technology

• Who benefits from cheaper energy? • Think global - technologies not confined to local markets • Search in ‘picks & shovels’ section ignored by others • Back owners of low cost energy resources who can take market share • Quality in:

• Management teams • Strong balance sheets

• Self-sustaining businesses

Source: http://www.oxy.com; http://www.matthey.com. Stock and sector mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.

TIM JOHNSTON Portfolio Manager & Senior Analyst, Australian Equities

Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page

VALUATIONS ELEVATED

87

Three forces accelerating the pace of change: • Cost pressures

• Technological advancement

• Informed and empowered consumers

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CASE STUDY: COCHLEAR LIMITED

88

• 1 yr forward PE of 36x

• Current price implies − Profits increase

4-fold over the next 15 years;

− Thereafter, super normal profits are sustained.

• Ignores the research success in potential competing therapies

Source: Nikko AM, Goldman Sachs. Stock and sector mentions are for illustrative purposes only. This is not a recommendation in relation to any named stocks or sectors and no warranty or guarantee is provided that the names will remain within the portfolio.

0%

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ASX 200 (exclFinancials &Resources)

Cochlear Ltd

Required Perpetual Return on Invested Capital

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$m Cochlear Operating Earnings

Historic Required

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Innovation in Healthcare

Investors should be monitoring threats to the franchise

Three forces accelerating the pace of change: 1. Cost pressures

2. Technological advancement

3. Informed and empowered consumers

89

Potential developments… • Increased transparency in price and quality • Payers may become involved in referral pathways • Increased competition in primary care • Diagnostic testing may be instantaneous /delivered in different settings • Technology integrated into treatment decision making

Confidential – Not For Redistribution. This material must be read in conjunction with the ‘Important Information’ statement on the last page

Important information

This material was prepared and is presented by Nikko AM Limited ABN 99 003 376 252, AFSL 237563 (Nikko AM Australia). Nikko AM Australia is part of the Nikko AM Group. It is for the use of researchers, licensed financial advisers and their authorised representatives. This material has been prepared without taking into account a potential investor’s objectives, financial situation or needs, and is not intended to constitute personal advice, and must not be relied upon as such. Past performance is not an indicator of future performance. Any economic or market forecasts are not guaranteed. Whilst we believe the information contained in this material to be correct as at the date of presentation, no warranty of accuracy or reliability is given and no responsibility is accepted for errors or omissions. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided as to the positions.