Copyright ® 2007 Global Insight, Inc. Global Insight’s Sector Risk Analysis Which are the Winners and Losers? December 2007 About Global Insight’s Sector

Copyright ® 2007 Global Insight, Inc.

Global Insight’s Sector Risk AnalysisWhich are the Winners and Losers?

December 2007

About Global Insight’s Sector Risk Analysis One Section for each of the U.S., Eurozone,

and U.K. Global Insight’s Corporate Bankruptcy Forecast Sample View of Sector Risks (2007-08)

Contact Information

2Copyright ® 2007 Global Insight, Inc.

About Global Insight’s Sector Risk Analysis

One Section for Each of the U.S., Eurozone, and UK

Bankruptcy Forecast and Sample of Sector Risk Ratings

Contact Information


Introducing World Industry Service Sector Risk Ratings (SRR)

All the forecasts and analyses provided in this presentation were produced using the World Industry Service’s Sector Risk Ratings.

Sector Risk Ratings allow you to:

Quantify the Risk/Return Profile of Sector-based Portfolios Forecast Changes in the Credit Quality Profile of Industries

Globally Rank Sectors with Best and Worst Credit Profiles, Show Expected

Direction of Migration in Sector Credit Quality Inform Credit Risk Analysis and Sector Rotation Strategy


Comparative metrics for each sector and country, history and forecast

Globally consistent sector benchmarks of credit and operating risks

Ratings are created from structural and cyclical indicators drawn from standard corporate credit risk frameworks

User-friendly tool for risk management and stress testing Scientific, transparent construct, and long track record

Using standard credit risk methodologies as applied to industries, the Sector Risk Ratings provide globally consistent, forward-looking benchmarks of credit quality for each sector and country. The service includes:

Sector-based Credit and Operating Risks

Top-down Sector Benchmarks to Complement Traditional Bottom-up Analysis

A composite rating from lowest (1) to

highest (10) is created for each sector, built up

from 40 separate risk factors


Growth Risk Growth in real revenue Growth in sales Volatility, turning points

Profitability Risk Pricing strength Operating profitability Free cash flow Return on invested capital Fixed-asset turnover Degree of operating leverage

Supply Risk Capital intensity Capacity overhang Depreciation cost of sales

Market Structure Risk Dependence on suppliers, customers Exposure to energy, labor Export reliance, import competition Cost of goods sold Barriers to entry and exit Technology and substitution

Economic & Country Risk Sector cyclicality Sector interest rate sensitivity

Country-level sovereign risks (From Global Insight’s Global Risk Service):

– Exchange rate– Equity markets– Regulation policy– Tax policy

Composite Risk Ratings Are Created from 40 Individual Risk Factors that Reflect and Predict Changes in Credit Quality

Sector risk factors are derived from the standard credit risk framework used in corporate lending and fixed income portfolios

Sector risk factors show the effect of industry structure, stage in lifecycle, and the sovereign/ macroeconomic environment on industry risk profiles


Change in Risk Measures

Sector Risk Levels:

Falling Risk

Static Risk

Rising Risk

Low Risk

Moderate Risk

Yellow Flag

High Risk Potential Recovery

Red Flag

Which Sectors Have High Risk Profiles?Which Sectors Are Improving or Deteriorating? Monitor Changes in Sector

Risk Profiles “Drill down” to the 40

individual sub-factors to see the drivers for changing risk profiles

Compare sector risk factors on a global and country basis, compare risks across sectors

Identify correlated industries that improve or deteriorate together

Rigorous framework for evaluating diversification and strategy

Sector Risk Ratings Help Evaluate and Anticipate Changes in Credit Profiles of Industries and Portfolios


Clients Use Sector Risk Ratings to Help Evaluate and Anticipate Changes in the Credit Quality of Industries and Portfolios

Quantify the risk profile of key sectors in a loan or bond portfolio Is portfolio risk high or low? Is it improving or deterioration? Identify groups of correlated industries that improve/deteriorate together Use rigorous framework for evaluating diversification and strategy

Monitor and anticipate changes in sector credit quality Monitor composite ratings, flag sectors to “drill down” for deeper investigation

– Which risk factors are driving the change?– What is the geographical composition of the sector change?

Stress test the portfolio through simulation and “what-if” scenarios

Use SRR as sector benchmark for corporate credit research Compare company risk prospects to that of its own sector peer group Analyze market prospects for key client markets into which it sells product

Forecast changes in bankruptcies, defaults, loan loss requirements For individual sectors as well as for entire portfolio


Sample of Sector Risk Ratings for Composites in U.S. and the Eurozone (Risk Ratings from Lowest (1) to Highest (10) Risk)

0

1

2

3

4

5

6

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

E

2008

F

Ris

k R

atin

g

"All Corporate" Sector ManufacturingConstructionFinance, Insurance, Business Services & Real Estate

Sector Risk Ratings for the “All Corporate” Sector, Manufacturing, Finance, & Business Services

0

1

2

3

4

5

6

7

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

E

2008

F

Ris

k R

atin

g

"All Corporate" SectorManufacturingConstructionFinance, Insurance, Business Services & Real Estate

United States Eurozone


Forecast of Migration in Credit Quality Across Sectors (United States, Eurozone, and United Kingdom)

*Annualized % Change in Risk Rating U.S. Eurozone U.K.

2006-07 2007-08 2006-07 2007-08 2006-07 2007-08

All Corporate Sector 13.3 1.4 -4.9 4.7 2.3 11.1

Goods Sectors (ISIC 1-3) 11.1 10.0 8.7 8.0 12.0 8.9

Agriculture, Hunting, Forestry, Fishing (ISIC 1) -17.9 34.8 9.1 11.7 0.0 27.5

Mining and Quarrying (ISIC 2) 6.0 9.4 28.8 1.5 16.7 1.4

Manufacturing (ISIC 3) 20.0 2.4 4.2 8.0 0.0 10.9

Manufacturing Non-Durable Goods (ISIC 31, 32, 34, 35) -2.5 2.6 -1.9 5.7 1.9 0.0

Manufacturing Durable Goods (ISIC 33, 36 - 39) 12.8 4.5 8.9 10.2 -17.3 11.6

Basic & Fabricated Metals (ISIC 37 & 381) 21.1 4.3 11.4 16.3 -18.2 17.8

Electronics (ISIC 3825, 3832 & 385) -16.0 31.0 -1.6 1.7 -1.5 -12.1

Autos & Aircraft (ISIC 3843 & 3845) 5.5 3.4 6.5 1.5 5.9 9.3

Construction (ISIC 5) 13.6 2.0 2.9 8.3 7.0 8.7

Wholesale & Retail, Restaurants & Hotels (ISIC 6) -2.2 0.0 -2.3 0.0 6.0 5.7

Transport, Storage & Communications (ISIC 7) -9.6 0.0 -3.6 1.9 -3.4 5.3

Finance, Insurance, Bus. Services, Real Estate (ISIC 8) 23.3 1.68 -19.97 4.5 4.8 13.6

Community, Social & Personal Services (ISIC 9) -4.55 0.31 -4.9 2.6 -2.1 8.7

*An increase indicates a rise in risk

10



Highlights for United States


Contact Information

11


2.5

3

3.5

4

4.5

5

5.5

6

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

E

2008

F

15000

25000

35000

45000

55000

65000

75000

WIS Composite Risk Rating for Non-Financial Sector - LHS

Total Number of Company Bankruptices in U.S. - RHS

Global Insight Expects U.S. Corporate Bankruptcies to Rise 13% in 2008 (Forecast as of December 2007)

ForecastHistorical Data

Source: World Industry Service; The American Bankruptcy Institute

0.00.1

0.2

0.30.4

0.50.6

0.7

0.80.9

1.0

Current Year Year Ahead

“Current Year” and “Year Ahead” Correlation Coefficient between WIS Composite Non-Financial Sector Risk Ratings and Corporate Bankruptcies in U.S., 2000-04

Sector Risk Ratings Forecast “Year-Ahead” Number of U.S. Corporate Bankruptcies

12


Factors Driving Changes in Risk Ratings for U.S.

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2002-04 2003-05 2004-06 2005-07 2006-08 2007-09 2008-10

Growth Risk

Pricing Risk

Profitability Risk

Operating Efficiency

Time-Trends of Annualized % Change in Risk Rating (based on moving 2-year change)

I m

p o

r o v

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W o

r s

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n

13


Growth Risk Factor in Select Sectors in United States

0

2

4

6

8

10

2003 2004 2005 2006 2007 2008 2009

Photographic & Optical Goods Electronics

Real Estate Basic Industrial Chemicals

Growth Risk has risen since 2006, expected to increase in 2008 and stabilize in 2009

Growth Prospects for Electronics are weak due to slowing consumer spending

Industrial Chemicals’ Growth risk is tied with prospects of Agriculture and Construction

Real Estate Growth Risk will remain weak through 2008

WIS Sector Risk Rating, (1) for lowest - (10) for highest

14


Risks to Pricing Strength Are Rising in Select Sectors in U.S.

0123456789

10

2003 2004 2005 2006 2007 2008 2009

Basic Metals Basic Industrial Chemicals

Construction Real Estate

The combination of surging oil prices and a decelerating economic activity leads to worsening pricing power

Energy-intensive industries (Metals, Chemicals, etc.), and industries that import from abroad, will get negatively impacted by soaring input costs

A weaker dollar will ease this risk for export-oriented sectors


15


Sector Risk Rating Level (Down)

---------------------------- Direction of Change in Ratings (Across)

Falling Risk

Static Risk

Rising Risk

Low Risk Drugs & Medicines; Printing & Publishing; Retail Trade

Fabricated Metals; Computers; Wholesale Trade; Restaurants &

Hotels; Sanitation & Social Services

Fertilizers & Pesticides; Non-Ferrous Metals; Electrical & Electronic Products excl. Computers; Industrial Chemicals;

Business Services; Utilities

Moderate Risk

Paper & Products; Specialty Chemicals excl. Pharma;

Transport & Storage; Wood Products & Furniture;

Rubber & Plastic

Iron & Steel; Railroad Equipment; Shipbuilding;

Banking; Leasing of Machinery Equipment;

Communications; Food & Beverages;

Agriculture; Agricultural Machinery; Insurance; Petroleum Refineries;

Synthetic Resins; Construction; Mining & Construction Machinery; Energy Mining;

Communication Equipment; Aircraft

High Risk

Engines & Turbines; Non-Energy Mining; Autos;

Tobacco; Textile; Photographic & Optical

Goods

Real Estate; Apparel; Watches & Clocks

Metal & Wood Working Machinery; Leather

U.S. Industry - Anticipated Changes in Credit Profiles

Red FlagPotential Recovery Yellow Flag

Summary of Composite Sector Risk Ratings for United States:Current Ratings Level and Anticipated Change in the Ratings in 2008

16


Which High Risk Sectors will Deteriorate/Improve in U.S.

SectorAnnual percent

change in Risk Rate (2007-08)

Energy Mining 14.3%

Metal & Wood Working Machinery

10.0%

Agricultural Machinery 3.6%

Railroad Equipment 1.8%

Leather 1.6%

SectorAnnual percent change in Risk Rate (2007-08)

Engines & Turbines -15.4%

Non-Energy Mining -8.7%

Textiles -4.5%

Motorcycles & Bicycles -3.0%

Photographic & Optical Goods

-1.3%

High Risk but Improving High Risk and Worsening

17



Highlights for the Eurozone


Contact Information

18


2.5

3

3.5

4

4.5

5

5.5

6

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

E

2008

F

50,000

65,000

80,000

95,000

110,000

125,000

140,000

155,000


Total Number of Company Bankruptices in Eurozone - RHS

Global Insight Expects Eurozone Corporate Bankruptcies to Rise 5% in 2008 (Forecast as of December 2007)


Source: World Industry Service; National Statistics

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Current Year Year Ahead

Sector Risk Ratings Forecast “Year-Ahead” Number of Corporate Bankruptcies

“Current Year” and “Year Ahead” Correlation Coefficient between WIS Composite Non-Financial Sector Risk Ratings and Corporate Bankruptcies in the Eurozone, 2000-04

19


Factors Driving Changes in Risk Ratings for the Eurozone

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2002-04 2003-05 2004-06 2005-07 2006-08 2007-09 2008-10

Growth Risk

Pricing Strength Risk

Profitability Risk

Industry Structure Risk

Time-trends of Annualized % Change in Risk Rating (based on moving 2-year change)

I m

p o

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W o

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n

20


Risks Are Rising from Slowing Sales Growth in Select Sectors in the

Eurozone

0

2

4

6

8

10

2003 2004 2005 2006 2007 2008 2009

Basic & Fabricated Metals Industrial Chemicals

Agriculture Construction

Agriculture and Construction sales are forecast to see slower sales growth than in the recent past

Metals and Industrial Chemicals, in turn, see less growth from ties to intermediate demand

Forecast Growth Risk has risen since 2006, expected to stabilize but remain high in the near-term


21


0

2

4

6

8

10

2003 2004 2005 2006 2007 2008 2009

Basic & Fabricated Metals Petrochemicals

Fertilizers & Pesticides Aircraft

The combination of surging oil prices and a decelerating economic will increase the Pricing Strength Risks

The ability of energy-intensive industries (Metals, Chemicals, etc.) to pass through soaring input costs is somewhat limited

A strong euro will help to mitigate this risk for importing industries


Risks to Pricing Strength Are Rising in Select Sectors in the Eurozone

22



---------------------------- Direction of Change in Ratings (Across)

Falling Risk

Static Risk

Rising Risk

Low Risk Insurance; Educational Services

Wholesale Trade; Public Admin Services

Business Services; Fabricated Metals; Railroad Equipment; Agricultural Machinery; Non-Metallic Mineral

Products; Rubber & Plastic; Banking; Restaurants & Hotels; Construction

Moderate Risk

Wood Products; Utilities; Retail; Drugs; Electrical

Machinery; Printing; Equipment Leasing;

Transportation

Beverages; Communications; Social Services;

Basic Industrial Chemicals; Specialty Chemicals; Fertilizers & Pesticides;

Electrical Apparatus; Mining & Construction Machinery; Ship Building;

Metal & Wood Machinery; Engines; Non-ferrous Metals; Watches; Furniture;

Clothing; Food;

High Risk Communication Equip.;

Energy Mining; Computers; Leather Products

Photo & Optical Equip.; Footwear; Aircraft;

Petroleum & Refineries; Textiles; Autos; Agriculture


Summary of Composite Sector Risk Ratings for the Eurozone:Current Ratings Level and Anticipated Change in the Ratings in 2008

Eurozone Industry - Anticipated Changes in Credit Profiles

23


Which High Risk Sectors will Deteriorate/Improve in Eurozone

Sector Annual percent change in Risk Rate

(2007-08)

Agriculture 11.7%

Iron & Steel 10.2%

Scientific Equipment 8.3%

Motorcycles & Bicycles 6.8%

Textiles 4.5%


Computers -15.6%

Communication Equipment

-5.7%

Leather -3.3%

Electrical

Appliances-1.7%

Energy Mining -1.4%


24



Highlights for the United Kingdom


Contact Information

25


2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

e

2008

f

7,500

10,000

12,500

15,000

17,500

20,000

22,500

25,000


Total Number of Company Bankruptices in UK - RHS

Global Insight Expects U.K. Corporate Bankruptcies to Rise 3% in 2007 (Forecast as of November 2007)


Source: World Industry Service; National Statistics

0.0

0.1

0.2

0.3

0.4

0.5

0.6

Current Year "Year Ahead"

“Current Year” and “Year Ahead” Correlation Coefficient between WIS Composite Non-Financial Sector Risk Ratings and Corporate Bankruptcies in UK, 1996-2006

Sector Risk Ratings Forecast “Year-Ahead” Number of Corporate Bankruptcies

26


Factors Driving Changes in Risk Ratings for U.K.

-20%

-10%

0%

10%

20%

30%

40%

2002-04 2003-05 2004-06 2005-07 2006-08 2007-09 2008-10

Growth Risk

Pricing Strength Risk

Profitability Risk

Supply Risk

Industry Structure Risk

Time-trends of Annualized % Change in Risk Rating (based on moving 2-year change)

I m

p o

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W o

r s

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n

27


Risk of Sales Growth Slowing is Increasing in Select Sectors in the U.K.

0

2

4

6

8

10

2003 2004 2005 2006 2007 2008 2009

Finance & Business Services Contruction

Industrial Chemicals Wholesale & Retail

Finance and Business services growth prospects are hit by the current credit squeeze

Agriculture and Construction sales forecast growth is in line with a slowdown of consumer spending

Metals and Industrial chemicals, in turn, see less growth prospects in intermediate demand

Forecast Growth Risk has risen since 2006, expected to stabilize but remain high in the near term


28


Risk of Free Cash Flow Growth is Rising in Select Sectors in the United Kingdom

0

2

4

6

8

10

2003 2004 2005 2006 2007 2008 2009

Agriculture Contruction

Industrial Chemicals Basic & Fabricated Metals

The combination of surging oil prices and a decelerating economic activity fuels Free Cash Flow Growth Risk

The ability of Energy-intensive industries (Metals, Chemicals, etc.) to pass through soaring input costs is indeed not guaranteed

A strong Sterling can help to mitigate this risk, but for export-dependent sectors such as Chemicals it is also a threat for sales growth


29



----------------------Direction of Change in Ratings (Across)

Falling Risk

Static Risk

Rising Risk

Low Risk -

Educational Services; Machinery & Equip. Leasing; Leather &

Products

Construction; Industrial Chemicals; Banking; Insurance; Restaurants &

Hotels; Special Industrial Machinery; Metal & Wood working Machinery; Iron &

Steel; Business Services; Watches & Clocks; Electrical Appliances;

Moderate Risk

Tobacco; Non-ferrous Metals;

Ship Building/Repairing;

Electrical Apparatus; Food;

Wood Products; Autos & Aircraft; Furniture; Basic & Fabricated Metals;

Motorcycles & Bicycles; Communications; Petroleum Refineries; Agriculture, Non-

energy Mining; Engines; Specialty Chemicals; Retail trade; Photographic &

Optical Goods; Rubber & Plastics

High Risk Railroad equip.;

Energy Mining; Real Estate; Drugs;

Electronics;

Utilities, Transport; Public Admin &

Sanitary Services; Printing & Publishing;

Textiles; Clothing; Paper Products; Beverages; Retail trade (non-Auto);

Wholesale trade;


Summary of Composite Sector Risk Ratings for United Kingdom:Current Ratings Level and Anticipated Change in the Ratings in 2008

U.K. Industry - Anticipated Changes in Credit Profiles

30


Which High-risk Sectors will Deteriorate/Improve in U.K.

Sector Annual percent change in Risk Rate

(2006-08)

Textiles 8.5%

Paper 7.0%

Beverages 5.1%

Clothing 5.1%

Retail (non Auto) 5.0%


Drugs -19.4%

Railroad Equipment -9.3%

Communication Equipment.

-5.4%

Computers -4.5%

Energy Mining -1.4%


31



Global Insight’s Bankruptcy Forecast

Sample Views (2007-2008)

Contact Information

32


Please Contact Us for a Personal Demonstration!

More Information?

Mark Killion, CFAManaging Director, World Industry [email protected]

Natasha MuravytskaEconomist, World Industry [email protected]

Alain FaucherEconomist, World Industry Service+ [email protected]

For More Information: www.globalinsight.com/WIS-Risk

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Copyright ® 2007 Global Insight, Inc. Global Insight’s Sector Risk Analysis Which are the Winners and Losers? December 2007 About Global Insight’s Sector