Food Industry Discussion Prepared for the 15th Annual World IAMA Forum June 28, 2005

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Food Industry DiscussionPrepared for the 15th
Annual World IAMA ForumJune 28, 2005
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Overview

• This introductory presentation will
• Review current trends in the food industry
• Discuss recent MA activity in food industry
• Present US equity sponsor participation in the
  food industry

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• Section 1
• Food Industry Trends

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Food Trends in Developed Countries
Consumer Preferences
Demographics
Health and Wellness

• Healthy Foods
• Low Fat and Diets
• Organic/Natural

• Ethnic Foods and Flavors
• Food Away From Home

• Private Label
• Convenience
• Gourmet Foods

Global food trends are driven by changing
demographics, health and wellness issues and
consumer preferences
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Evolution of food demand
Rabobank view on Food Agribusiness 2004
(Income Development)
North America
Diet food, functional food, organic food
Japan
Western Europe
Australia
Fresh convenient segmented meals
Prepared meals, snacks
Eastern Europe
China
Eggs, meat, dairy, sugar, processed mass-market
food, soft drinks
Latin America
India
Africa (Sub-Sahara)
Carbohydrate staples
Convenience Foodservice Snacking International
Quality Individualized Health
Surviving
Mass-market
High tech
Source Rabobank 2004
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Trend - Changing Demographics Wealthier
Consumers
GDP per capita for selected countries
Overall average 50 increase per country
Source US Energy Information Administration
Developed countries have the economic means to
purchase value added, functional foods
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Trend - Changing Demographics Aging Population
Year 2050 Pyramid Inversion
Source Informa Economics with the Center for
Strategic International Studies 2003 Informa
Economics Strategic Forum
In the near future, starting with developed
countries, the distribution will transform into
an inverted pyramidwith more older than younger
people
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Trend - Changing Demographics Ethnicity
Hispanic Growth of US Population 2000 - 2015
Source Bureau of Census
Population diversity creates opportunities for
retailers to differentiate
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Trend - Changing Demographics Women in the
Workplace
Female Labor Force Participation Rate
Source U.S. Department of Labor, Bureau of Labor
Statistics
One factor driving the trend towards convenience
is the percentage increase of women in the
workplace
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Trend - Health and Wellness
Obesity in U.S. adults 20 years
U.S. population with diabetes
Source Centers for Disease Control and Prevention
Source Centers for Disease Control and Prevention
Health issues will drive product innovation for
food companies
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New USDA Food Pyramid
Eat 2 ½ cups every day
Eat 5 ½ oz every day
Get 3 cups every day
Eat 2 cups every day
Eat 6 oz. every day
In response to dietary concerns, USDA developed a
new food pyramid
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Trend - Natural and Organic Growth
Global Organic Food Market Value and Forecast
billion, 1999-2008
Source Datamonitor
Organic foods are a 20-30 billion industry today
and are projected to reach 100 billion in 2010
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Trend - Global Wal-Mart Dominance
Wal-Mart Operates Locally In 11 Countries 5,720
Stores
Germany 89 Supercenter
United Kingdom 286 21 Supercenter 265 ASDS
Supermarket
Canada 261 255 Discount 6 SAMs Club
USA 3,720 1,321 Discount 1,761 Supercenter 552
Sams Club 86 Neighborhood Market
S. Korea 16 Supercenter
China 45 41 Supercenter 2 SAMs Club 2
Neighborhood Market
Japan 404 Seiyu, Ltd. 210 Seiyu 23 Tohoku
Seiyu 73 SSV 77 Sunny 7 Riubou 14
Mujirushi Ryohim ( As of 05-30-05, WM owns
42.43 stake w/option to raise stake to 50.1 by
end of 2005and to 61.1 by end of 2007.)
Puerto Rico 54 8 Discount 10 SAMs Club 4
Supercenter 32 Amigo Store
Mexico 683 98 Supercenter 69 SAMs Club 186
Bodega 54 Superama 50 Suburbia 226 VIPs, EL
Porton Ragazzis
Brazil 151 10 Supercenter 13 SAMs Club 3 Todo
Dias 115 Bompreco
Argentina 54 Supercenter
Specialty business is the key for Wal-Marts
growth in 2005
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Trend - US Wal-Mart Supercenter Estimated Growth
Actual January 2005
Estimated January 2010
Estimates project 1,000 new Wal-Mart supercenters
in US over the next five years
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Trend Dominance and growth of Private Label
PL share in all product categories 2003
Top 5 Retailers Private Label Penetration
Source McBride, PLC
Source ACNilesn
Retail consolidation has driven private label
growth
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Trend - Food Away From Home
Expenditures For Food, 2001-2005
Global Foodservice Sales Trends, 1999-2004
CAGR 6.54
Source MM Planet Retail
Source USDA, Economic Research Service
Growth in foodservice driven by economic and
demographic trends
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Case Study Nestlé's Strategic Direction

• Nestlé is focused on completing its
  transformation from a global diversified food
  company to a respected and trustworthy
  international food-nutrition health and wellness
  company. Management is seeking to accelerate this
  shift and use its global reach to achieve this
  goal.
• Nestlé has the worlds largest private nutrition
  research capability and is the worlds largest
  food company. Nestle is the only company with a
  nutritious product for every meal/snack occasion.
• Nestlé has modified over 700 products with
  Branded Active Ingredients (BAI) to add
  nutritional functionality to address the special
  nutrition needs of different consumer segments.

Nestles strategic focus reflects these food
trends
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• Section 2
• Merger Acquisition Activity

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MA Trends

• MA activity in the food industry continues to
  accelerate as companies look to reinforce their
  core business, diversify distribution, broaden
  geographical scope and gain economies of scale.
• International MA activity has been driven by the
  need to leverage brands and build distribution
  across countries.
• US MA activity has been driven by consolidation,
  maximization of capacity utilization and growth
  characteristics.
• Private equity activity continues to accelerate
  MA activity.

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Global Food MA Activity
Number of Food MA Transactions
Coors / Molson 3.4BN Interbrew / Ambev 11.9BN
Scottish Newcastle / Spirit Group
4.2BN Wal-Mart/ McLane 1.5BN
Bestfoods/Unilever 25BN Nabisco/Altria
19BN Nabisco/RJR 11BN
Quaker Oats/Pepsi 14BN Diageo/General Mills 10BN
Miller Brewing/ South African Breweries 5.5BN
Source The Food Institute Report
At least 300 reported food MA transactions have
occurred every year for the last 5 years
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Global Food Processing Transactions
2004 Food Processing Transactions
In 2004, MA activity was concentrated in
diversified food, red meat and poultry and fruit
and vegetable sectors
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Selected Global Food MA Transactions
Food Ingredients
BI-LO and Brunos
Del Monte Foods Europe
Fresh Del Monte Produce
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• Section 3
• US Private Equity Activity

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US Equity Sponsor Activity

• Equity sponsor activity among all industry
  sectors continues to increase
• Equity sponsors make food investments
• To capture growth from changing consumer
  preference and demographics
• To realize efficiencies from consolidation
• To diversify portfolios into recession proof
  investments

Private equity plays a significant role in the
restructuring of the food industry in a mature
market that is non-cyclical
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US Private Equity Transaction Volume
Source Flashwire Weekly
Private Equity buyers continue to be very active
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EBITDA Multiples for US Leveraged Buyouts
Source Mergerstat Review
Valuation multiples have increased in the last 24
months after bottoming out in 2001 / 2002
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US Sources for Leveraged Buyouts
Average Sources of Proceeds for Leveraged
Buyouts 2004
Total Equity 35.1
Sr. Unsec Debt 2.5
Average Loan Size 354.4 Million Average
Sources 706.1 Million Observations 133
Source Standard Poors Loan Commentary Data
By definition, debt is a major component of the
financing structure for leveraged buyouts
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Equity Contribution to US Leveraged Buyouts
Average Equity Contribution 1987- Q1 2005
Equity includes common equity and preferred stock
as well as holding company debt and seller note
proceeds downstreamed to the operating company as
common equity. Rollover Equity prior to 1996 is
not available. There were too few deals in 1991
to form a meaningful sample.
Rollover equity is an growing part of the equity
base
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Equity Sponsors with Food Investments
Equity sponsors have significantly invested in
the food industry, including private equity,
venture capital and mezzanine capital
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Recent US Equity Sponsor Involvement
Private Equity Firms have increasingly pursued
investments in the food industry across all
segments
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Panel Speakers

• Mary Burke Principal, The Food Partners
• Bing Graffunder CEO, Fairmont Food Group
• Pieter Kodde Managing Director, Financial
  Sponsors, Rabobank USA