The Alberta Advantage is Gone January 30, 2019 Presented by: Angus - PowerPoint PPT Presentation

Strathcona County – Strategic Planning Session The Alberta Advantage is Gone January 30, 2019 Presented by: Angus Watt Advisory Group Research provided by: Stéfane Marion, Chief Economist & Strategist, National Bank

Disclaimer National Bank Financial – Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF Inc.), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF Inc. NBF Inc. is a member of the Investment Industry Regulatory Organization of Canada (IIROC), the Canadian Investor Protection Fund (CIPF), and a subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX:NA). ** The securities or sectors mentioned herein are not suitable for all types of investors. Please consult your investment advisor to verify whether the securities or sectors suit your investor’s profile as well as to obtain complete information, including the main risk factors, regarding those securities or sectors. *** The information contained herein has been prepared by Angus Watt, an Investment Advisor with National Bank Financial; the opinions expressed do not necessarily reflect those of National Bank Financial. **** While opinions expressed are based on analysis and interpretation of historical data believed to be accurate the underlying data is not necessarily guaranteed as to accuracy. *****The information contained herein was obtained from sources which we believe to be reliable. However, this information is not guaranteed by National Bank Financial Inc., and may be incomplete.

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Worst year in a decade for global equities MSCI AC annual price return 30 % 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 2004 2006 2008 2010 2012 2014 2016 2018 NBF Economics and Strategy (data via Refinitiv) 4

China: Manufacturing contracts but overall economy still growing Markit Manufacturing PMI and Composite PMI) 54.0 Index 53.5 53.0 52.5 Composite 52.0 51.5 51.0 Expansion 50.5 50.0 49.5 Contraction Manufacturing 49.0 48.5 48.0 47.5 2016 2017 2018 2019 NBF Economics and Strategy (data via Bloomberg) 5

China: Central bank eases Reserve requirement for small banks 20 % 19 18 17 16 15 14 13 12 11 10 9 8 7 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NBF Economics and Strategy (data via Refinitiv) 6

Does a Bear Market Bring on a Recession? + Only 7 of the previous 13 episodes were accompanied or followed by a recession + A bear market usually unfolds only after a recession begins (1973 and 2000) + A flat or negative yield curve is usually a result of a recession not the start + Never occurs when you have full employment 7

Aging Work Force ___ How long before the fall? 8

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*Strathcona- 39 is average age 10

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Housing ___ 14

Canada: Extreme concentration Share of national output accounted by top-5 metropolitan areas: Canada vs. the U.S. 18.6 Toronto 10.2 Montreal 6.7 Vancouver 5.7 Calgary 46.2% 5.5 Edmonton 8.8 New York 5.3 Los Angeles 3.5 Chicago 23.1% 2.7 Dallas 2.7 Washington % of national GDP 0 2 4 6 8 10 12 14 16 18 20 NBF Economics and Strategy (data via BEA and Statistics Canada) 15

Housing Sector impact on GDP The Housing sector represents nearly 20% of Canadian GDP Housing activity as a % of GDP (2017) Housing Expenditures New home construction Renovations Ownership transfer cost Source: Statistics Canada, NBF analysis 16

Alberta, 2016 Median after-tax income Total income less income tax * *Strathcona- $160,655 / $120,000 ATB The Owl, January 15, 2019 (Source: Statistics Canada Table 11-10-0190-01) 17

Teranet-National Bank National Composite House Price Index TM Metropolitan Area Index Level % change % change % change Peak Date Dec 2018 m/m y/y From peak Composite 11 224.07 -0.3% 2.5% -1.0% 2018-09 Victoria 208.79 -0.4$ 6.0% -0.5% 2018-09 Vancouver 285.36 -1.2% 1.4% -2.9% 2018-07 Calgary 178.27 -0.6% -2.6% -5.4% 2014-10 Edmonton 177.48 -1.4% -1.9% -5.6% 2007-09 Winnipeg 208.16 -0.9% -0.5% -1.6% 2018-09 Hamilton 234.06 -0.4% 4.4% -1.5% 2017-08 Toronto 244.85 0.2% 3.7% -4.0% 2017-07 Ottawa-Gatineau 161.54 1.0% 5.9% 0.0% 2018-12 Montreal 175.10 0.4% 4.4% 0.0% 2018-12 Quebec 182.30 -0.4% -0.1% -0.8% 2018-08 Halifax 147.56 0.1% 0.0% -1.6% 2018-07 18

Strathcona County Housing Price History Year Average Home Value 2007 $509,000 2014 $460,000 2016 $451,985 19

Bank Report ___ 20

Canada: Cheapest valuation in a decade for Canadian banks Forward P/E of the S&P/TSX banks 14.0 ratio 13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 2002 2004 2006 2008 2010 2012 2014 2016 2018 NBF Economics and Strategy (data via Refinitiv) 21

Mortgage growth at multi-decade lows Regulation tightening and rising rates have pushed mortgage grown to multi-decade lows Canadian Resi Mortgage Credit Crown – Industry (YoY)* Bank of Canada, NBF analysis *Note: Canadian residential mortgage credit data is seasonally adjusted 22

Provisions for Corporate Loans Loss Ratios Consensus forecasts imply double-digit growth in loan losses over the next two years and a return to 2016 loan loss ratios (i.e. oil shock) PCL Ration (bps) Source: Company financials, Thomson Reuters, NBF analysis 23

Oil & Gas Lending Exposure Most banks have reduced their oil & gas lending exposure since 2016 Source: Company financials, NBF analysis 24

Builders or Traders? ___ 25

What happens when Canadian companies stop flying the flag? Polymer Corp + Polymer Corp was a Canadian success story in the 60’s and 70’s + Finest blends of synthetic rubber in the world + Most PhD's per capita in Canada…scientists from all over the world came to Canada to work + Federal government put the Sarnia plant on the back of the $10 bill What Happens when Canadian companies stop flying the flag , Matthew Bellamy The Globe and Mail, January 11, 2019 26

What happens when Canadian companies stop flying the flag? Polymer Corp + Polymer Corp was a Canadian success story in the 60’s and 70’s + Finest blends of synthetic rubber in the world + Most PhD's per capita in Canada…scientists from all over the world came to Canada to work + Federal government put the Sarnia plant on the back of the $10 bill + Alberta’s Nova Corp bought Polymer in 1988, flipped it to Germany’s Bayer two years later + Sarnia’s population has declined since then…projects stalled What Happens when Canadian companies stop flying the flag , Matthew Bellamy The Globe and Mail, January 11, 2019 27

What happens when Canadian companies stop flying the flag? Encana Corp – “Headquarterless Model” + Started as part of Alberta Energy Company, sold to Albertans + Continues to buy natural gas assets in the US + November 2018 purchased Houston based Newfield Exploration for US$5.5 billion + Creating 60% of production in US + “Headquarterless model” with 3 location in Denver, Houston and Calgary 28

What happens when Canadian companies stop flying the flag? TC Energy (formerly TransCanada Corp) + Due to limited investment opportunities in Canada it is dropping Canada from its name + Open to the world for business, growth is focused primarily in the US + Recently purchased US$13 billion natural gas transporter Columbia Pipeline Group 29

What happens when Canadian companies stop flying the flag? Canada + Two world class gold companies (Barrick Gold and Goldcorp) have or are about to be sold + Head offices will be reduced to figure heads + We sold out our aluminum, nickel, steel and copper companies in previous decades 30

Strathcona County Overview Population Household Size 98,044 urban / 1.4 mill metro 2.7 (2.6 AB / 2.4 Cda) Age Average Household Income 39.2 (41 Canada) $188,347 25,000 under 19 / 13,000 over 65 50.7% of households $125,000+ Demographics Housing 89.1% own 10.2% immigrant population 60.9% with mortgage / 82% European origin avg cost $1,601 10.1% rent / avg cost $1,550 Source: Strathcona County Economic Update, 2016 census results 31

Strathcona County Overview Tax Rate Leading Industries 65% business 35% residential Extraction Manufacturing Science Construction Trucking Engineering Source: Strathcona County Economic Update, 2016 census results 32

Vision for AIH The Next Investment Wave + Potential for $30 billion in NEW capital investments in Alberta’s Industrial Heartland by 2030 under the right investment conditions Source: Strathcona County Economic Update, 2016 census results 33

What does it take to raise our flag? Strathcona County / Alberta / Canada + We have to find a way to be builders and competitors … or we will be left behind + We need to: + Have competitive tax rates + Speed up the regulatory process(es) + Attract professional workers + Support our families + Support our universities and post secondary institutions + Build strong not-for-profits, arts, airports 34

Alberta’s Golden Goose is gone … Malcolm Mayes, Edmonton Journal - January 5, 2019 35

Questions 780 412-6644 anguswatt.com angus.watt@nbc.ca angus.watt@nbc.ca 36