ACG Chicago Food Industry Conference by ACG Chicago

Feasting on Opportunities in the Food Industry Tuesday, September 14, 2010 The Standard Club, Chicago, IL

Conference Speakers Ron Paul, President & CEO, Technomic, Inc. Mr. Paul is founder, President and Chief Executive Officer of Technomic, Inc. He is responsible for the overall management of the firm, for directing the development of each practice area and for ensuring that the firmâ&#x20AC;&#x2122;s stringent quality consulting and research standards are achieved within each client engagement. Mr. Paul has served major foodservice companies as a consultant and researcher for over 30 years. He has directed and conducted engagements covering almost all areas of the foodservice industry and company business activities. He has consulted extensively in the areas of strategic planning for manufacturers, distributors, supermarket operators and chain restaurants, in such areas as new product/menu planning, competitive analysis, mergers and acquisitions, opportunity assessments, and organization analyses and restructuring. Christopher Meyers, CPA, CFO, KeHe Food Distributors, LLC Mr. Meyers joined Kehe Food Distributors in May 2007 as Chief Financial Officer. Previously, he worked for Navigant Capital Advisors in a variety of financial advisory and restructuring positions. He has also worked for Crowe Chizek (and its affiliate, Keystone Consulting Group), as well as Plante & Moran. David Miniat, President, Ed Miniat, Inc. and South Chicago Packing Mr. Miniat is currently the President of two family businesses, Ed Miniat, Inc. and South Chicago Packing, and has served in that role for the past 15 years. Ed Miniat, Inc. is a manufacturer of cooked meats supplying companies such as meal manufacturers and multi-unit restaurant chains. South Chicago Packing manufactures edible oils, which are sold to food companies, restaurant chains, bakeries, and non-food applications.

Feasting on Opportunities in the Food Industry September 14, 2010

Bringing your global accounting needs together in over 100 countries.

In more than 100 countries, the firms of Grant Thornton International Ltd offer clients easy access to professionals with on-the-ground knowledge of local regulations, language and culture. Experience doing business in different countries can mean the difference between the unnecessary waste of your time and money or a successful international presence and global growth. Plus, responsiveness, thoughtful recommendations, and easy access to partners has been the hallmark of Grant Thornton in the U.S. for more than 80 years. Give Jim Maurer, Partner, a call at 312.602.8736. Or contact us at GrantThornton.com. Find out how it feels to work with people who love what they do!

Grant Thornton refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd, an organization of independently owned and managed accounting and consulting firms.

Audit â&#x20AC;˘ Tax â&#x20AC;˘ Advisory

BMO CAPITAL MARKETS ACTED AS EXCLUSIVE FINANCIAL ADVISOR AND UNDERWROTE THE ABL FINANCING FOR KEHE FOOD DISTRIBUTORS’ ACQUISITION OF TREE OF LIFE

$190 million

$300 million

Acquisition of Tree of Life

Senior Secured Revolving Credit Facility

Exclusive Financial Advisor

Co-Lead Arranger, Joint Bookrunner & Administrative Agent

January 2010

For more information contact Greg Pearlman, Managing Director BMO Capital Markets at (312) 461-2244

BMO Capital Markets is a trade name used by the BMO investment banking group, which includes Bank of Montreal globally: BMO Nesbitt Burns Inc. and BMO Nesbitt Burns Ltee/Ltd. (members CIPF) in Canada; BMO Capital Markets Corp. (member SIPC), BMO Capital Markets GKST, Inc (member SIPC) and Harris N.A. in the U.S.; and BMO Capital Markets Limited in the U.K. Harris® is a trade name used by Harris N.A. and its afliates.

Conference Speakers Kevin Brown, President & CEO, Lettuce Entertain You Enterprises, Inc. Mr. Brown brings over 25 years of experience and leadership in the restaurant industry to his position of President and Chief Executive Officer of Lettuce Entertain You Enterprises, Inc. ® (LEYE). LEYE is one of the most highly regarded multi-concept restaurant companies with over 80 restaurants compromised of 34 individual concepts in 12 states and sales of $350MM and operating with 5700 employees. Liam Killeen, CEO, Farley’s & Sathers Candy Company, Inc. Mr. Killeen joined Farley’s & Sathers in 2009 with 25 years of Marketing and General Management experience in the Confectionery Industry. Farley’s & Sathers is the largest independent candy company in the U.S., formed by a series of successful acquisitions made since 2002. Prior to joining Farley’s & Sathers, Mr. Killeen led Storck, maker of leading brands such as Werther’s Original, Riesen, and Mamba. As Executive Vice President for the $1.6 billion German parent company, He was CEO, Storck North America and Managing Director, Bendick’s U.K. Selim Bassoul, CEO, The Middleby Corporation Mr. Bassoul has lead The Middleby Corporation to be one of the best performing public companies over the past several years. Mr. Bassoul joined The Middleby Corporation in 1996 as President of the company’s Southbend division. He became Chief Operating Officer in 1999 and was named Chief Executive in 2000 and Chairman of the Board in 2004. Under his leadership the company has added a dozen acquisitions to grow Middleby’s presence to a market leader in the industries they serve and quadruple company sales in a five-year period. Dave Fusaro, Editor in Chief, Food Processing Dave has been editor of Food Processing since 2003. A lifelong journalist and former newspaper reporter, Dave previously was editor of Dairy Foods for five years and was managing editor of Prepared Foods. Earlier in this career, he wrote about automation and was an award-winning newspaper reporter specializing in business writing.

Feasting on Opportunities in the Food Industry September 14, 2010

Information provided includes Lazard Middle Market LLC and other subsidiaries of Lazard Ltd.

When it comes to advisory power, opt for more.

Set your expectations higher PREMIER MIDDLE MARKET ADVICE

» INDUSTRY RELATIONSHIPS » GLOBAL PRESENCE

M&A Advisory. Restructuring. Capital Raising. Access the power of 800 bankers worldwide. Industry expertise, senior board-level relationships and local perspectives in 39 major markets on five continents. » Lazard Middle Market LLC » lazardmm.com » 612.339.0500

GAH80008_Propeller_Pg_C 1

8/31/09 5:29:59 PM

Transparency. Confidence. Trust.

These values are the bedrock of our financial system. They canâ&#x20AC;&#x2122;t be bought, sold or traded. Since 1932, Duff & Phelps has worked with clients to embrace and protect these fundamental ideals. We deliver reliable, independent advice and counsel across a broad spectrum of complex financial issues. From valuation, investment banking advisory and corporate finance consulting to tax and dispute resolution, we apply proven technical skills and industry expertise to help our clients address their most pressing financial needs. Duff & Phelps. Advice you value.

www.duffandphelps.com Investment banking services provided by Duff & Phelps Securities, LLC.

DUF AGC Food Industry 090910.indd 1

9/9/2010 11:14:45 AM

Agribusiness, Food and Beverage Industry Experience

The agribusiness, food and beverage industry is one of growing importance to national and international communities. It is a dynamic business that must constantly respond to advances in technology, major changes in trade and policy, and a consumer-driven marketplace. Blake, Cassels & Graydon LLP (Blakes) provides a full range of legal services to the participants in this industry. We work closely with clients to understand their business and the economic factors that impact their business and to assist them in developing strategies focused on achieving their business objectives.

• A North American government on supply management programs regulating various agriculture and agri-food commodities (chicken, dairy, meat).

Agribusiness Overview

Food and Beverage Overview

With our understanding of, and experience in, the agribusiness and food sector, Blakes is well positioned to advise clients on the wide range of legal matters affecting the sector, including corporate and commercial matters (including supply and risk management), technology, environmental, intellectual property, banking, labour and employment, pension and benefits, food and natural health product regulation, class action defence, consumer product safety, and marketing and advertising, to name a few.

Blakes has substantial experience and expertise representing well-known consumer brands in the food and beverage industry. We have assisted in the growth and development of many of Canada’s largest food companies and take pride in helping our clients create and develop new business opportunities in Canada and around the world.

Blakes represents many of Canada’s leading agribusiness and food companies. Our lawyers work with crop protection companies, seed companies, biotechnology organizations, bio-fuel production and distribution companies, producers, processers, distributors, suppliers, retailers, manufacturers, co-operatives and marketers dedicated to the sector. Blakes environmental lawyers have also acted for a broad range of clients in the agribusiness and food industries. We have advised on a variety of matters, including spills, wastewater, noise and odour emissions issues, and regularly provide regulatory advice on fertilizer, nutrient management, toxic substances and pesticide issues.

• Agrium Inc. in connection with its acquisition of UAP Holding Corp.

• Hanfeng Evergreen Inc. in the investment by Agrium Advanced Technologies and PetroChina. • North American Agriculture Associations on the World Trade Organization (WTO) rules applicable to trading barriers in the EU, Japan, South Korea and Brazil; labelling issues; import/export restrictions and other WTO issues. • Canadian Agricultural Marketing Agency in its outsourcing agreement with IBM Canada and on market access issues arising from the negotiation of the Canada-Europe Free Trade Agreement.

OTTAWA

TORONTO

CALGARY

• Canadian Association of Meat Processors in respect of the establishment of the Canadian Beef Cattle Research, Market Development and Promotion Agency. • Ceres Global Ag Corp. in its acquisition of Whitebox Commodities, an agri-commodities trading and storage business.

With our understanding of the food and beverage industry, Blakes is well positioned to advise clients on the wide range of legal matters affecting the industry, including marketing and advertising, product claim substantiation, labelling issues, regulatory issues, product recalls, intellectual property, resolution of disputes and complaints, M&A/corporate-commercial, technology, environmental, banking, labour and employment, and international trade rights and disputes.

• Arla Foods Inc., a co-operative owned by approximately 7,200 Swedish and 8,300 Danish milk producers, on its purchase of National Cheese Company Limited.

• A major multinational infant-formula manufacturer on its regulatory and advertising issues. • A multinational confectionary manufacturer on advertising and regulatory issues. • Maple Leaf Foods Inc. in its animal nutrition, dairy, edible oils, pet foods and meats transactions. • Sun Capital Partners in connection with its acquisition of the Canadian grocery business of Kraft Canada to form the CanGro Foods Group.

VANCOUVER

NEW YORK

CHICAGO

• Labatt Brewing Company Limited acquisition of Lakeport Brewing Income Fund. • InBev in connection with its acquisition of Anheuser-Busch. • Fortune Brands in connection with its bid with Pernod Ricard for Allied Domecq. • William Grant & Sons acquisition of Gibson’s Finest from Diageo.

Who We Are Blakes is one of Canada’s leading business law firms with more than 550 lawyers in offices in Montréal, Ottawa, Toronto, Calgary, Vancouver, New York, Chicago, London, Beijing and associated offices in Al-Khobar and Shanghai. Our integrated office network gives clients access to the full spectrum of capabilities found throughout the Firm. Whether an issue is local or multi-jurisdictional, practice-area specific or cross-disciplinary, Blakes can provide solutions at every level and in virtually every area of business law

Rankings and Recognition Members of the Agribusiness & Food Group are consistently recognized as leaders in their fields by the following publications: • The Best Lawyers in Canada 2010 • I FLR1000: The Guide to the World’s Leading Financial Law Firms – 2010 Edition • C hambers Global: The World’s Leading Lawyers for Business 2010 • The Canadian Lexpert Legal Directory 2010

Representative Transactions

• A major multinational non-alcoholic beverage company on its labelling and regulatory issues, new product lines and use of the natural health-product category.

• Syngenta International AG in its purchase of Conrad Fafard, Inc.

*Associated Office

• CIT Business Credit Canada in connection with its asset-based credit facilities for Palmerston Grain.

• A major multinational food company on the reformulation of many of its food products to include healthier ingredients and associated regulatory, claims and branding issues.

Representative Transactions

MONTRÉAL

• GE Capital in connection with its asset-based credit facilities for Viterra, Clearwater Fine Foods, Barry Group and Hensall District Co-operative.

• A pet food multinational on Canadian BSE requirements.

LONDON

BAHRAIN

• PLC Which Lawyer? 2010 • T he 2010 Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada • L aw Business Research’s The International Who’s Who of Business Lawyers 2010 • Legal Media Group’s Guide to the World’s Leading Banking Lawyers 2009

Contact Details For more information, please contact: TORONTO Frank Guarascio Direct: 416-863-3296 frank.guarascio@blakes.com CHICAGO John Kolada Direct: 312-739-3612 john.kolada@blakes.com

AL-KHOBAR*

BEIJING

SHANGHAI*

blakes.com

Blake, Cassels & Graydon LLP

Conference Presentation

Feasting on Opportunities in the Food Industry September 14, 2010 The Standard Club, Chicago

Feasting on Opportunities in the Food Industry September 14, 2010

Ron Paul President & CEO Technomic, Inc.

Special Presentation to:

September 14, 2010

By: Ron Paul, President

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Industry Trends & Opportunities

Conference Presentation

What We’ll Discuss • • • •

Economic situation Consumer research findings Industry performance Overall trends

Economic and Business Landscape

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Are We Headed for a Double Dip? • • • •

DPI down No employment growth Consumers not confident Consumers not spending

DPI Generally Flat Real Change vs. Previous Year

• Strong foodservice correlator 10

Source: U.S. Bureau of Economic Analysis

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

One in Six Americans Either Unemployed or Underemployed

â&#x20AC;˘ New private sector jobs elusive 11

Source: Bureau of Labor Statistics

Consumer Confidence Stuck in Pessimistic Territory Index

â&#x20AC;˘ Direct impact on consumer spending Base: 1985 = 100 Source: Conference Board

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Potential Red Flag: Higher PPI Change vs. Previous Year PPI Food Jul: 4.4%

CPI â&#x20AC;&#x201C; FAFH Jul: 1.1%

CPI - FAH Jul: 0.7%

â&#x20AC;˘ Could negatively impact value strategies 13

Source: Bureau of Labor Statistics

Overall ... The economic environment has impacted the industry

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Consumer Landscape How has all this impacted the consumer?

Where We Are Today • • • • •

Tentatively emerging from recession Coping with trade-offs Re-evaluating past behaviors Indulging selectively Still lacking confidence

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Top Consumer Concerns • • • • •

Health care costs Household financial situation Income growth Price of groceries Cost of healthcare premiums

87% 85 84 84 83

Double-Edged Impact: Net Worth and Income Both Down Impact on Household Net Worth

Income

• Job insecurity is a major overhang on the industry 18

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Financial Situation Still Stressed “How would you classify your current financial situation?” Change vs. Dec ‘09

Struggling to make ends meet

Getting by, have to manage $ carefully

Living fairly comfortably/well off

-4 19

More Thoughtful About Food Spending • Less “risk-taking” when AFH • Trading out versus trading down • More meals at home – 89% are consciously doing so to save $

• 51% agree restaurant visits shifted from “everyday” to “indulgence” 20

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Consumers (Re)turn to Cooking “What are you doing for those meals you used to get in restaurants?”

Base: Visiting restaurants less often (80%)

Saving Money Is a Key Driver

90% agree “Cooking at home saves me money” 22

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

They Are Taking Steps to Economize at Restaurants Spending at Restaurants

Tactics

1. Eat out less often 2. Use coupons 3. Skip extras 4. Go to less expensive restaurants 5. Follow the â&#x20AC;&#x153;dealsâ&#x20AC;? 23

Retail not Immune from Economizing Spending at Grocery Stores

Tactics

1. Buy sale items 2. Use coupons 3. Buy less expensive items 4. Buy store brand products 5. Skip extras 24

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Economic Outlook for Next Year Change vs. Dec ’09

Improve significantly Improve somewhat

-2 -13

-2 Stay the same

Worsen somewhat Worsen Significantly

+11

+5 25

Total Food Spending Will Benefit From Recovery “Of the things you’ve cut back on, what do you think will be 1st to come back…?”

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Where We’re Going: Likely Post-Recession Dynamics • • • • • •

Conscious consumption Emerging fatigue with frugality Stigma tied to extravagances Treasure hunting Deal seeking (and demanding) Greater awareness of “hidden costs”

Industry Performance

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Grocery Retailers Most Recent Quarter [Revenues and Margins] Revenues ($000)

Margins

% Change

2010

-8.1%

Great Atlantic & Tea Co.

2009

-0.3%

-0.2%

Kroger Co.

8.7

1.5

1.9

Safeway, Inc.

0.6

1.5

2.5

0.7

1.1

15.2

3.0

2.3

1.8

0.8

0.5

-9.6

Supervalu, Inc. Whole Foods Market Winn-Dixie Stores

Source: Company filings

Grocery Retailers Same Store Sales

Q2-10 Great Atlantic & Tea Co.

-7.2 2.4

Kroger Co.

Q2-09 -3.3 3.1

Safeway, Inc.

-2.5

-1.5

Supervalu, Inc.

-7.2

-3.2

Whole Foods Market Winn-Dixie Stores

8.4 -5.2

-3.8 1.6

Source: Company filings

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

“Real” Sales Change – Grocery Stores

January – June 2009

-4.1%

July – December 2009

-3.5

January – July 2010

0.1

Source: Food Institute

“Real” Sales Change – Eating & Drinking Places

January – June 2009

-2.6%

July – December 2009

-2.9

January – July 2010

0.9

Source: Food Institute

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Same Store Sales - Foodservice Public Chains â&#x20AC;&#x201C; Q2 2008

2009

2010

0.3%

-2.6

-0.9

-5.0

-1.2

TOTAL

-0.3%

-3.8%

-0.3%

LSR

0.7

Source: Technomic *Excludes McDonaldâ&#x20AC;&#x2122;s

Food Processing Most Recent Quarter [Revenues and Margins] Revenues ($000) % Change

Margins 2Q-10

2Q-09

General Mills

-2.1%

5.9%

Kellogg

-5.2

9.9

11.0

25.3

7.6

8.5

4.2

6.9

11.6

3.3

Kraft Sara Lee Tyson

9.8%

-2.3 2.0

Source: Company filings

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Overall Trends

Going Forward, What Are Some of the Trends to Watch • • • • • • •

Evolving health and wellness Authentic ethnic and grazing Snacking Local and artisanal foods “Foodie” culture Comfort foods Indulgent foods

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Going Forward, What Are Some of the Trends to Watch • • • •

Sophisticated kids Taking care of customers Focus on fresh/natural Upgraded quality – restaurant quality at home • New retail formats • Evolving definition of “cooking”

Closing Thought

“If past history was all there was to the game, the richest people would be librarians.” – Warren Buffett

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

More Information?

Ron Paul President

312-506-3932 rpaul@technomic.com

Regulation, Markets, Brands & Organic Growth

Selim Bassoul

Kevin Brown

Liam Killeen

Chris Meyers

David Miniat

CEO The Middleby Corporation

President & CEO Lettuce Entertain You Enterprises, Inc.

CEO Farleyâ&#x20AC;&#x2122;s & Sathers Candy Company, Inc.

CFO KeHe Food Distributors, LLC

President Ed Miniat, Inc. & South Chicago Packing

David Fusaro (Moderator) Editor-in-Chief Food Processing

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

The Middleby Corporation

Selim A. Bassoul Chairman and CEO The Middleby Corporation

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Industry Leading Brands - Foodservice

#1 in Pizza Chains

#1 in Convenience Stores

#1 in Fast Casual

#1 in Deli and Sandwich Shops

#1 in Steakhouses and Seafood

#1 in Chicken Outlets

#1 in Pan-Asian Cuisine

#2 in QSR

#2 in Casual Dining

Quick Service Restaurant 2000 and 2010 Year 2000

Fryer Conventional fryer, high energy, oil costs Range High BTUs, Little configurability Oven High BTUs, dry heat only Steamer Frequent water manual fills, much water use, labor intensive Hood Sucks air and heat from restaurant Holding cabinets Heat escapes when door opens, short holding times, sterno needed

Feasting on Opportunities in the Food Industry September 14, 2010

Year 2010

Fryer Pitco Spin Fry or Solstice self cleaning Range Southbend Ultimate 400 configurable range Jade Plancha or Energy Saving Hot Top Oven Blodgett Hydrovection TurboChef i-series or SOTA Steamer Houno visual cooking Ventless Wells Ventless Hood Holding Cabinets Carter Hoffman EnduraHeat

SpinFry

WOW! Oven

16” Pizza with “the works”

4 minutes Induction

Boil broth or water

45 seconds SOTA

Thoroughly cook proteins (beef/chicken)

www.greenstainless.com

Feasting on Opportunities in the Food Industry September 14, 2010

90 seconds

Traditional Conveyor 8 minutes Stovetop gas/electric 5-6 minutes Stovetop/grill 8-10 minutes

Conference Presentation

The Need for Speed in Foodservice

Conference Presentation

Middleby Financial Performance Sales ($ in millions)

Gross Profit ($ in millions)

30%

CAG

EBITDA

EPS

($ in millions)

45%

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

ACG Chicago September 14, 2010

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Non-Chocolate Confectionery is a Highly Attractive Category CAGR Confectionery(1) $29.3bn

$13.2 $11.6

Confectionery(2) (Measured) $13.2bn

Chocolate $7.1bn (54%)

Non-Chocolate(3) $3.5bn (26%)

4.4%

$12.5

$12.1

5.3%

Gum $2.6bn (20%)

Gummies

Fruit Candy

Specialized Candy

Jelly Beans

Mint Candy

Nougats

Fruit Chews Caramels

Butter Scotch Cinnamon Discs

Novelty Candies Sugar Free

5.7%

3.5%

Licorice

Source: (1) (2) (3) (4)

AC Nielsen data for the food, drug, mass and convenience channels (excluding Walmart) Based on data from the National Confectioners Association as of March 2010. Reflects retail sales across both measured and unmeasured channels. Measured channels include food, drug and mass, and convenience (excluding Walmart). The non-chocolate confectionery industry is $9.3bn on an unmeasured basis according to National Confectioners Association data. Sub-category data based on management estimates.

Leading Independent Non-Chocolate Confectionery Company

Other $817 Lindt $291 Nestle $427

Other $1,747 Mars $2,209

Russell Stover $341

Cadbury $172 Tootsie $194

F&S $271

Nestle $293 Hershey $3,060

Hershey $668 Mars $761

Source: 52-week IRI data for the food, drug, mass and convenience channels (excluding Walmart) as of March 2010

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Aggressive Acquisition Strategy

April 2005

200

Sep 2003

200

Dec 2002 June 2002

200 004

2 003

2 2 200

Nov 2007 Dec 2005

Diversified Brand and Customer Base

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Creston

Winona

Round Lake

Chicago

Chattanooga

Cummings Road Dallas

Vernell Mexico

Reynosa Jersey Pike

Company Headquarters Manufacturing Distribution Sales & Marketing

Overview Key Statistics

Leading distributor of specialty food and natural products to the U.S and Canada Revenues of approximately $2B Balanced portfolio of products among key specialty categories: • Multi-cultural – Hispanic, Asian, Indian, European • Gourmet – Pastas, Condiments, Beverages, Spices • Natural – Vitamins & Supplements, Energy Bars, Homeopathy, Gluten-Free & Other Condition Specific • Perishable – Deli, Dairy, Bakery, Produce National footprint with 9 warehouses in U.S. and 3 warehouses in Canada State-of-the-art facilities and logistics Key services include in-store ordering, stocking, merchandising, space management and category management as well as hosting one of the most influential buying shows in the specialty food industry Primary owner of a branded food brokerage company – $200MM of sales Other business units include E-Commerce fulfillment and Health Retail stores Active in efforts to support communities and the environment

Ownership

Majority ESOP

Employees

4,500

Product SKU's

60,000

Stores Served:

33,000

Vendors Served

3,000

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Ed Miniat, Inc. & South Chicago Packing Corporate Overview by David J Miniat, President

Ed Miniat, Inc. Capabilities and Overview Company founded in 1900 by Michael Miniat

Fourth generation, family-owned business

Value-added Meats •

Fully cooked beef, pork, and poultry are the company’s forte and core business

•

Miniat supplies meats to multi-unit restaurant chains and national prepared food manufacturers.

•

Sous vide style cook system

Core competencies •

Product development and culinary capabilities

•

Customer focused-service and quality

•

Manufacturing flexibility

•

Process in excess of a million pounds per week

Scope

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

South Chicago Packing Co. Capabilities and Overview

A Value-added refiner of animal/vegetable oils • • • • • •

Diversified customer portfolio in various Food and Non-Food applications • • • • • • • • •

Refining Processes Deodorizing and caustic refining Hydrogenation Filtering and blending Fractionating Packaging

Bakeries Wax Blenders Candle manufacturers Chemical Corrugated wax coatings Fire Log manufacturers Construction industry Food Service Distributors National restaurant chains

Scope •

Process in excess of 6 million pounds per week of oil

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Our Mission

We will faithfully preserve and honor the tradition of fair and honest business established by the founder of our company 100 years ago.

We will recognize that our success stems ď&#x192;&#x17E;rst and foremost from our ability to understand and satisfy each customers individual needs.

We will make safety our highest priority, both in the preparation of the food items we manufacture and in our workplace.

We will continuously challenge ourselves to innovate and develop value-added products and services that measurably enhance our customers convenience, opportunities and proď&#x192;&#x17E;tability.

We will integrate the highest level of professionalism with a steady regard for human values.

We will strive to create and maintain mutually rewarding partnerships with our customers and employees alike.

Feasting on Opportunities in the Food Industry September 14, 2010

Selim Bassoul

Kevin Brown

Liam Killeen

Chris Meyers

David Miniat

CEO The Middleby Corporation

President & CEO Lettuce Entertain You Enterprises, Inc.

CEO Farleyâ&#x20AC;&#x2122;s & Sathers Candy Company, Inc.

CFO KeHe Food Distributors, LLC

President Ed Miniat, Inc. & South Chicago Packing

Feasting on Opportunities in the Food Industry September 14, 2010

David Fusaro (Moderator) Editor-in-Chief Food Processing

Conference Presentation

Regulation, Markets, Brands & Organic Growth

/.. 7. 6.

12 1.

0/ 3.

2. /7

36 27

35 25

25 14

13 03

27 12

0./.*/

0..7*2

Conference Presentation

"% "

+ " $

0./.*0

0..7*1

0..7*0

0..7*/

0..6*2

0..6*1

0..6*0

0..6*/

0..5*2

0..5*1

0..5*0

0..5*/

0..4*2

0..4*1

0..4*0

0..4*/

# " %

" ( +

# &

LTM- Strategic1

LTM- PE2

$47,171

total $ (Bn)

$7,790

141

$334.55

ave $ (M)

$98.61

1) Strategic data derived from CapitalIQ 2) PE data from Pitchbook

Feasting on Opportunities in the Food Industry September 14, 2010

855

7:5

88 86

7> 7<

755

7: 6;:

78 6;=*:9

76 6:9*;8 6>

6:5

6= 669

6: 657*;:

655 66

=6*<:

Conference Presentation

! " % ! & " % ! $ 95

;6*7: :5 :

87*:

7<*<: 6:*;

69*:

67*:

2 !

! & % -1 .

7565,7

7565,6

755>,9

755>,8

755>,7

755>,6

755=,9

755=,8

755=,7

755=,6

755<,9

755<,8

755<,7

755<,6

755;,9

755;,8

755;,7

755;,6

' & %

" ! % ) "

% % 66

/ & 5

" ! 5

/ &

& !

! " "'

' % #&

655

% #&

" ! & % "%

! "

85 5

" ! % ) " " 7565 % & '

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Transactional Growth & Ownership Effects

Selim Bassoul

Kevin Brown

Liam Killeen

Chris Meyers

David Miniat

CEO The Middleby Corporation

President & CEO Lettuce Entertain You Enterprises, Inc.

CEO Farleyâ&#x20AC;&#x2122;s & Sathers Candy Company, Inc.

CFO KeHe Food Distributors, LLC

President Ed Miniat, Inc. & South Chicago Packing

Feasting on Opportunities in the Food Industry September 14, 2010

David Fusaro (Moderator) Editor-in-Chief Food Processing

September 14, 2010 The Standard Club, Chicago

Feasting on Opportunities in the Food Industry September 14, 2010

Conference Presentation

Feasting on Opportunities in the Food Industry

Q4 2009

Inside

5 9 11 12 15

Merger and Acquisition Activity Commodity Review Stock Price Performance and Public Market Variations Comparable Company Analysis

Food and Agribusiness Industry Insights A Look into 2010: Improved Market Stability Expected Despite the positive GDP growth in the third quarter of 2009, an indication that the recession is technically over, many domestic food and agribusiness market participants have yet to experience any significant economic recovery. The slight improvement in certain macroeconomic factors may lead to much needed aid in 2010 for market constituents, including consumers, processors, and farmers. The shift in consumers’ preferences for higher priced items in the healthy and organic categories has temporarily subsided as today’s consumer desires economical, private label, comfort foods.

Macroeconomic Factors Duff & Phelps Experience

A number of analysts expect that the weakened macroeconomic environment in 2009 will persist into 2010. Projections for key economic indicators provided in the December 2009 edition of Standard & Poor’s (“S&P”) Industry Surveys: Trends & Projections are highlighted in the below chart. Key U.S. Macroeconomic Indicators 2009E

2010P

Nominal Gross Domestic Product growth

2.6%

-1.4%

3.1%

Average unemployment rate

5.8%

9.3%

10.3%

Disposable personal income growth

3.9%

1.4%

2.8%

Consumer Price Index

3.8%

-0.3%

1.8%

-4.4%

4.4%

-10.3%

U.S. Dollar appreciation

Contact

2008A

Source: S&P Industry Surveys: Trends & Projections, December 2009

H. Glen Clarke Managing Director +1 312 697 4680 glen.clarke@duffandphelps.com

Feasting on Opportunities in the Food Industry September 14, 2010

Q4 2009

Inside

5 9 11 12 15

Merger and Acquisition Activity Commodity Review Stock Price Performance and Public Market Variations Comparable Company Analysis

Macroeconomic Factors Duff & Phelps Experience

2010P

Nominal Gross Domestic Product growth

2.6%

-1.4%

3.1%

Average unemployment rate

5.8%

9.3%

10.3%

Disposable personal income growth

3.9%

1.4%

2.8%

Consumer Price Index

3.8%

-0.3%

1.8%

-4.4%

4.4%

-10.3%

U.S. Dollar appreciation

Contact

2008A

Source: S&P Industry Surveys: Trends & Projections, December 2009

H. Glen Clarke Managing Director +1 312 697 4680 glen.clarke@duffandphelps.com

Feasting on Opportunities in the Food Industry September 14, 2010

A Look into 2010: Improved Market Stability Expected

Growth in nominal GDP is expected to be 3.1% driven by the depletion in consumer goods inventories, increased automotive sales, and the strengthening of consumer confidence. The national unemployment rate is expected to increase from 9.3% to an average of 10.3% in 2010 as employers remain cautious to increase workforces. The tight employment market and limited wage increases will result in slight increases in disposable personal income, from an estimated 1.4% growth in 2009 to 2.8% growth in 2010. Although the strength of the dollar against foreign currencies improved during the first half of 2009, the dollar exhibited weakness later in the year, and S&P expects the weakness to continue into 2010.

Commodity Prices / Farming Trends: Moderately High Commodity Prices Agricultural commodities have displayed significant volatility over the past two years, peaking in mid-2008, due in part to increased speculative commodity trading. While most commodity price fluctuations have stabilized, current agricultural input crop prices remain higher than average norms; the S&P’s crop price index (made up of wheat, corn, soybeans, sugar, and milk commodities) in October 2009 was 35% higher than the October 2006 value. The long-term commodity price appreciation has been driven by expanded overseas demand, alternative usage for grains (i.e. corn used in ethanol, animal feed, and sweeteners), increases in input costs incurred by farmers and a weakening of the U.S. Dollar. Precipitation levels and chilly temperatures delayed the harvesting of sugar beet, potatoes, cotton, corn, and soybeans during the fall and winter of 2009, which has led to decreased supply and a temporary increase in those commodity prices. However, commodity prices are expected to moderate in 2010 due to the record corn and soybean harvests in 2009 and conducive weather patterns. According to an article in the February 9, 2010 edition of the Wall Street Journal, corn and soybean prices dropped 16% and 7%, respectively, between January 12, 2010 and February 8, 2010 in response to a U.S. Department of Agriculture (“USDA”) report announcing record production of these crops during 2009. Further downward price pressure followed the USDA’s world supply and demand report release on February 9, which announced bumper 2009 crops for certain countries, including a 14% increase in soybean production in Brazil. Additionally, the spring crop acreage report, which will reveal how U.S. farmers are reacting to pricing and demand factors, will be published on March 31. Despite the expected 2010 bumper corn and soybean crop, strong yields and global demand should alleviate pressure on farmers that have suffered through periods of fluctuating commodity prices and increased operating costs. Since crop supplies are adequate to meet U.S. demand, the weakened dollar should allow U.S. farmers to continue to be major suppliers to the worldwide agricultural market.

2 |

Feasting on Opportunities in the Food Industry September 14, 2010

Food and Agribusiness Industry Insights Q4 2009

A Look into 2010: Improved Market Stability Expected

Consumer Trends: Demand for Inexpensive Comfort Foods Due to the continued soft economy, consumers are not expected to radically alter their spending habits during 2010. However, consumers have placed a greater importance on the safety of food produced domestically and internationally following a number of product recalls in recent months. Relatively low food price inflation, in conjunction with increased promotional activity by food retailers, will limit price increases to consumers. Continued household financial stress will result in the consumption of meals prepared at-home at the expense of restaurants. Consumers are focused on preparing value-oriented meals, including economical, comfort foods such as pasta and soup, as well as ‘brown-bagging’ lunches. The consumers’ continued shift towards purchases of private label food products are driven by lower price points of 30% to 50% compared to the branded equivalents, as well as improved product quality, according to the November 10, 2009 report from Morgan Stanley Research. Y-o-Y Percentage Changes in Food Price Indices

Food at home

2005

2006

2007

2008

2009F1

2010F1

1.9%

1.7%

4.2%

6.4%

0.5% to 1.5%

2.5% to 3.5%

Cereal & bakery products

1.5%

1.8%

4.4%

10.2%

3.0% to 4.0%

Meats, poultry, fish & eggs

2.4%

0.8%

3.8%

4.2%

0.0% to 1.0%

1.5% to 2.5%

Dairy & related products

1.2%

-0.6%

7.4%

8.0%

-7.0% to -6.0% 2.5% to 3.5%

Fruits & vegetables

3.7%

4.8%

3.8%

6.2%

-2.5% to -1.5% 3.0% to 4.0%

Nonalcoholic beverages

2.9%

2.0%

4.1%

4.3%

2.0% to 3.%0

2.5% to 3.5%

Sugar & sweets

1.2%

3.8%

3.1%

5.5%

5.0% to 6.0%

3.5% to 4.5%

Fats & oils

-0.1%

0.2%

2.9%

13.8%

2.5% to 3.5%

4.0% to 5.0%

Other prepared foods

1.6%

1.4%

1.8%

5.2%

4.0% to 5.0%

2.5% to 3.5%

Food away from home

3.1%

3.6%

4.4%

3.0% to 4.0 % 3.5% to 4.5%

All food

2.4%

4.0%

5.5%

1.5% to 2.5%

3.0% to 4.0%

Source: US Bureau of Labor Statistics (1) 2009 and 2010 Forecast as of December 24, 2009

Despite the consumers’ short term demand for value products, sales of healthy, organic, locally-grown, and ethnic foods will continue to grow moderately.

• An increasingly aged and health-conscious U.S. population continues to demand natural and organic foods that offer health-enhancing and functional benefits, but premium pricing of these products has resulted in diminished short-term sales. • Environmental concerns have caused consumers to demand sustainable, locally-grown food products. • The changing demographics will generate demand for ethnic foods.

Food and Agribusiness Industry Insights Q4 2009

Feasting on Opportunities in the Food Industry September 14, 2010

| 3

A Look into 2010: Improved Market Stability Expected

Processor Trends: Private Label Continues to Take Market Share Improved productivity and increased volumes are expected to drive profit expansion for the large branded food and beverage companies in 2010, according to a report from Deutsche Bank Securities Research published on January 5th. Volatility in commodity prices has presented operating challenges to these manufacturers in recent years. Branded processors were unable to increase pricing during the current recession in fear of losing price-sensitive customers and thus have focused on productivity improvements to maintain or enhance margins. According to Deutsche Bank Securities Research, the average large branded manufacturer generates approximately 4% of its gross profit from recent process improvement investments such as internal cost containment initiatives, supply chain efficiency, shedding less profitable products, and upgraded IT systems. One example of a recent cost saving initiatives is PepsiCo’s acquisition of the Pepsi Bottling Group and PepsiAmericas in April 2009. Savings from the cost initiatives will be invested in additional marketing efforts to promote their brands. As such, further margin expansion will be driven by modest volume increases of 3% driven by improved consumer confidence and improved marketing promotions. Along with food safety concerns, continued consumer demand for private label products is among the greatest threats to branded processors in the near term. S&P believes that diminished brand loyalty among consumers will create pressure on branded processors to protect market share through increased marketing and promotions. Second- and third-tier brands with limited spending power may continue to lose market share to private label. Additionally, retailers will continue to promote their private label products due to higher margins, increased loyalty from cost-conscious customers, and greater bargaining power against the branded manufacturers. In the long run, it is expected that branded companies will target foreign markets for growth. Developing markets, such as Eastern Europe, Asia, and certain Latin American countries where economic and consumer income growth persist, present substantial opportunities for sales and profit growth. Domestic branded processors will need to either adapt their products to meet the local consumers tastes or acquire businesses in these countries. Recent high profile international deals by U.S.-based processors include Kraft’s acquisition of Cadbury, Dean Foods’ acquisition of Alpro NV, and Coca-Cola’s unsuccessful attempt to purchase China’s Huiyuan Juice Group. Another threat to branded processors and food manufactueres is the concerns around food safety and traceability for domestically-produced and internationally-sourced products. High-profile outbreaks of food-borne illnesses have persisted, including Beef Products, Inc.’s recall of meat products in late 2009 and Peanut Corporation of America’s salmonella-contaminated peanuts in early 2009. Other animal-borne illnesses, specifically swine flu, have led to substantial disruption in the protein sector. Multiple U.S. government initiatives and bills have been proposed to upgrade food safety systems and provide federal agencies with greater authority to enforce food safety standards. S&P expects increased food quality control issues, resulting from heightened global agricultural trade and product sourcing, which makes monitoring significantly more difficult.

4 |

Feasting on Opportunities in the Food Industry September 14, 2010

Food and Agribusiness Industry Insights Q4 2009

Merger and Acquisition Activity U.S. Food and Agribusiness M&A Trends Although aggregate deal volume for transactions under $10 billion declined in 2009, total deal value increased compared to 2008. While the lack of lending has limited the ability of acquirers to finance larger transactions, strategic buyers with strong balance sheets have made significant acquisitions. Other larger strategic players have utilized the current low interest rate environment to refinance their debt obligations and strengthen their balance sheets, placing them in a better position to make future deals. Five domestic deals exceeding $1 billion were announced at enterprise value during 2009, the same number of deals over $1 billion during 2008. Domestic M&A Deal Value and Volume 350

$35

Total Deal Value ($ in bn) Aggregate Deal Volume

$30 $25 $20 $15 $10

50 0

Total Deal Value ($ in bn)

Aggregate Deal Volume

300 250 200 150 100

2003

2004

2005

2006

2007

2008

2009

Excludes deals over $10 billion in value. Source: Capital IQ

Although deal activity within this sector has been limited, large (over $1 billion) deals were completed in 2009. These deals are noteworthy for the existence of cross border activity, as three of the five deals involved a foreign buyer or seller. Deals over $1 billion occurring in 2009 include K+S Aktiengesellschaft’s acquisition of Morton International from Rohm and Haas for $1.7 billion; Viterra’s acquisition of ABB Grain for $1.7 billion; PepsiCo’s acquisition of Pepsi Bottling Group and PepsiAmericas for $7.8 billion; JBS USA’s acquisition of Pilgrim’s Pride out of bankruptcy for $2.9 billion; and Pinnacle Foods’ acquisition of Birds Eye foods for $1.5 billion, prior to Birds Eye’s initial public offering. In addition, in mid-January 2010, Kraft Foods agreed to acquire Cadbury, a British confectionary producer, for $22.3 billion.

Food and Agribusiness Industry Insights Q4 2009

| 5

Merger and Acquisition Activity

No particular subsector of the food and agribusiness industries dominated M&A activity during 2009. Domestic Food and Agribusiness M&A Volume by Subsector Seed Protein Processed Foods Other Beverages Other Agriculture 2009

Dairy

2008

Baked Goods / Snack Foods Alcoholic Beverages Source: Capital IQ

20 30 40 Total Domestic M&A Deals

M&A Outlook Industry analysts expect M&A to be a key vehicle in driving growth for food and agribusiness companies. Deutsche Bank believes that boards and management of mature food and agribusiness companies are placing greater focus on long-term growth drivers including scale, productivity, and threat of increased retailer power, and M&A is viewed as an easier way to alleviate these concerns. Acquisitions also allow companies to enter new geographic markets and expand product offerings. According to Deutsche Bank, the continued tightness in the credit markets is expected to hold valuations below historical levels, providing companies with strong balance sheets and free cash flow with a prime acquisition market. According to a February 5, 2010 article in The Daily Deal, studies by Robert W. Baird & Co., William Blair & Co. LLC and Madison Williams & Co. LLC conclude that middle market M&A will rebound in 2010 due to large cash positions held by strategics, revived interest from private equity groups, and recovering equity and debt markets. Robert W. Baird notes, these factors, particularly the rapidly improving credit markets and an increase in CEO confidence, could be the catalysts needed for a robust M&A environment that could resemble 2004—the last time the U.S. economy came out of a recession.

Notable Deal of the Fourth Quarter 2009: Nestlé S.A. acquires Vitality Foodservice, Inc. In December 2009, a subsidiary of Nestle S.A., which produces branded hot and cold non-carbonated beverage solutions for the foodservice channel, completed the acquisition of Vitality Foodservice, Inc. (“Vitality”) from private equity firms MVC Capital, Inc. and Goldner Hawn Johnson & Morrison, Inc., for approximately $210 million in cash. Vitality Foodservice offers coffees, teas, juices, and other non-carbonated, non-alcoholic beverages, and related dispensing equipment to the restaurant, lodging, cruise line, healthcare, travel and leisure, military and corrections, education and gaming industries in the United States, Canada, Europe, Asia, and the Caribbean. The acquisition allows Nestlé Professional, the subsidiary, to expand its product offering and customer base within the foodservice industry and become the recognized leader in branded hot and cold non-carbonated beverage solutions in North America. Vitality was acquired by a group of private equity firms in 2004. Vitality generated approximately $220 million in revenues during the latest twelve month period ended November 2009, implying a 0.9x revenue multiple. 6 |

Feasting on Opportunities in the Food Industry September 14, 2010

Food and Agribusiness Industry Insights Q4 2009

Merger and Acquisition Activity

Select Domestic Mergers and Acquisitions, October 1, 2009 through December 31, 2009 Announced Date

Enterprise Value

Seller (Target)

Subsector

Parent

Rationale

12/31/09

Maui Land & Pineapple Co. Inc. (Haliimaile Pineapple Co.)

Processed Foods

Investor group

Private equity

12/23/09

HJ Heinz Co. (Appetizers And, Inc.)

Processed Foods

Brazos Private Equity (Golden County Foods, Inc.)

Product line diversification

12/21/09

Jones Soda Co. (NasdaqCM:JSDA)

Other Beverages

Big Red, Inc.

Consolidation

2.2

12/21/09

Angostura International Ltd.

Processed Foods

Mizkan Americas, Inc.

Product line diversification

2.7

12/20/09

HM Capital Partners LLC (Sturm Foods, Inc.)

Processed Foods

Treehouse Foods, Inc.

Consolidation

660.0

12/17/09

CapitalSouth Partners, Harbert Mezzanine Partners, and Azalea Capital (Spartan Foods Of America, Inc.)

Processed Foods

Linsalata Capital Partners

Private equity

12/16/09

Authentic Mexican, Inc.

Processed Foods

M&S Fine Foods, Inc.

Product line diversification

12/14/09

U.S. Mills, Inc. (Uncle Sam and Erewhon Cereal brands)

Processed Foods

Attune Foods, Inc.

Product line diversification

12/11/09

Yorktown Bakery LLC

Baked Goods / Snack Foods

David's Cookies, Inc.

Consolidation

12/11/09

U.S. Mills, Inc. (Farina Mills brand assets)

Processed Foods

Malt-O-Meal Company

Consolidation

12/8/09

Parent Seed Farms Ltd.

Seed

Alliance Grain Traders, Inc.

Product line diversification

9.4

12/3/09

Green Meadows Foods, LLC

Dairy

Agropur Cooperative (Trega Foods Ltd.)

Consolidation

12/3/09

Whitaker Foods, Inc.

Processed Foods

Advance Food Company, Inc.

Product line diversification

12/2/09

Castle Brands, Inc. (Sam Houston brand)

Alcoholic Beverages

Western Spirits Beverage Company, LLC

Consolidation

11/30/09

Otter Creek Brewing, Inc.

Alcoholic Beverages

Long Trail Brewing Company

Consolidation

11/30/09

C.J. Foods, Inc.

Processed Foods

Trinity Hunt Partners

Private equity

11/27/09

Cains Foods (Westminster Cracker Company, Inc.)

Baked Goods / Snack Foods

LaSalle Capital Group, L.P.

Private equity

11/25/09

XT-2000, Inc. And Xtermite, Inc.

Other Agriculture

Organic Products International Corp.

Consolidation

11/24/09

Thompsons Limited (Hyland Seeds)

Seed

Dow Agro Sciences Canada. Inc.

Consolidation

11/23/09

HydraLogic Systems, Inc.

Other Agriculture

Equity Capital Management plc

Private equity

5.0

11/23/09

Arthurs Fresh Company Ltd.

Other Beverages

H.J. Heinz Company of Canada Ltd. Product line diversification

11/20/09

MGP Ingredients, Inc. (Illinois Corn Processing, LLC)

Alcoholic Beverages

SEACOR Energy, Inc.

Product line diversification

11/20/09

Birchmere Capital Management LLC (Penn Brewery)

Alcoholic Beverages

Investor group

Private equity

11/19/09

Diedrich Coffee, Inc.

Other Beverages

Green Mountain Coffee Roasters, Inc.

Consolidation

224.5

($US million)

NA 30.0

Source: Capital IQ

Food and Agribusiness Industry Insights Q4 2009

Feasting on Opportunities in the Food Industry September 14, 2010

| 7

Merger and Acquisition Activity

Select Domestic Mergers and Acquisitions, October 1, 2009 through December 31, 2009 Announced Date

Enterprise Value

Seller (Target)

Subsector

Parent

Rationale

11/19/09

Goldner Hawn Johnson & Morrison and MVC Capital (Vitality Foodservice, Inc.)

Other Beverages

Nestle S.A. (Nestle Professional)

Consolidation

208.0

11/18/09

Vestar Capital Partners (Birds Eye Foods, Inc.)

Processed Foods

The Blackstone Group (Pinnacle Foods Finance LLC)

Consolidation

1,434.1

11/16/09

Source Verified Foods, LLC (Vande Rose Farms, LLC)

Protein

Tigerhawk Proteins, LLC

Consolidation

11/13/09

Sun Capital Partners (Timothyâ&#x20AC;&#x2122;s Coffees of the World, Inc.)

Other Beverages

Green Mountain Coffee Roasters, Inc.

Consolidation

157.0

11/12/09

Kraft Foods, Inc. (Balance Bar Company)

Baked Goods / Snack Foods

Brynwood Partners

Private equity

11/11/09

GE Capital Corp. (Farmland Dairies, LLC / New Jersey facility)

Dairy

Grupo Lala, S.A. De C.V.

Globalization

11/9/09

ERTH Solutions, Inc.

Other Agriculture

Outlook Resources, Inc.

Product line diversification

1.4

11/5/09

United Liquor Alliance, Inc.

Alcoholic Beverages

RMD Entertainment Group

Consolidation

11/4/09

A. Duda & Sons, Inc. / Juice business

Other Beverages

Peace River Citrus Products, Inc.

Consolidation

11/2/09

Cohutta Water, Inc.

Other Beverages

Crystal Springs Water Co.

Consolidation

10/31/09

Sapphire Wines LLC

Alcoholic Beverages

Saint James Company

Consolidation

12.0

10/31/09

Sweet Indulgence Bakery

Baked Goods / Snack Foods

Management group

Private equity

10/26/09

The Tanglefoot Company

Other Agriculture

Contech Enterprises, Inc.

Consolidation

10/26/09

Rocky Roaster, LLC

Other Beverages

The Supreme Bean, Inc.

Consolidation

10/19/09

Leo's Foods, Inc.

Baked Goods / Snack Foods

Flowers Foods, Inc.

Product line diversification

10/19/09

Cape Cod Aquaculture Corp.

Protein

Management group

Private equity

10/18/09

Andrew Peller Ltd. (Granville Island Brewing Company Ltd.)

Alcoholic Beverages

Creemore Springs Brewery Limited

Consolidation

10/15/09

Meridian LLC

Other Beverages

The Hain Celestial Group, Inc.

Consolidation

10/14/09

Shot Spirits Corporation

Alcoholic Beverages

Green Bridge Industries, Inc.

Product line diversification

10/8/09

Monterey Gourmet Foods, Inc.

Processed Foods

Pulmuone Holdings Co., Ltd. (Pulmuone U.S.A., Inc.)

Product line diversification

42.0

10/5/09

CHAMP Private Equity and Castle Harlan, Inc. (United Malt Holdings, LP)

Alcoholic Beverages

GrainCorp. Ltd.

Consolidation

10/5/09

Superior Quality Foods, Inc.

Protein

Southeastern Mills, Inc.

Product line diversification

($US million)

662.6 NA

Source: Capital IQ

8 |

Feasting on Opportunities in the Food Industry September 14, 2010

Food and Agribusiness Industry Insights Q4 2009

Commodity Review Volatile commodity markets persisted throughout 2009 as manufacturers balanced increased ingredient costs, reduced sales volumes, and product pricing. Corn, wheat, and soybeans experienced tremendous volatility during the fourth quarter following a cold and rainy fall. As a result, a larger proportion of crops remain in the field and will not be harvested until the spring.

Corn, Wheat, and Soybeans Corn hit a quarterly high of $3.81/bushel during the fourth quarter 2009, 23% higher than the low of $3.09/bushel during the period. The USDA forecasts the national average corn price in 2010 between $3.25 and $3.85/bushel. The USDA also indicated that U.S. corn production will increase by 6.8% in 2010 to 12.9 billion bushels. Corn and soybean prices remain supported by growing ethanol consumption. As oil and gasoline prices continue to rise, ethanol becomes more attractive as an alternative fuel source, resulting in increased demand for corn and soybeans. Soybean prices ranged from $8.78 â&#x20AC;&#x201C; $10.37/bushel during the fourth quarter of 2009. The USDA forecasts the national average soybean price in 2010 of $8.20 to $10.20/bushel. Additionally, the USDA is forecasting U.S. production to increase by 12%, to 3.3 billion bushels in 2010. Wheat hit a quarterly high of $5.17/bushel during the fourth quarter 2009 after beginning the period at a low of $3.98/bushel. For 2010, the USDA has projected an 11.0% decline in U.S. wheat production and is expecting a season average farm price of $4.65 to $5.05/ bushel. Australia, the worldâ&#x20AC;&#x2122;s fourth largest exporter of wheat, has experienced unusually dry weather conditions that will likely affect crop yields this year. $18

$/Bushel

$15 $12 $9.22

$9 $6

$4.34 $3.42

$3 $0 Jan-06

Aug-06

Mar-07

Oct-07 Corn

May-08 Wheat

Dec-08

Jul-09

Mar-10

Soy

Source: Bloomberg

Food and Agribusiness Industry Insights Q4 2009

Feasting on Opportunities in the Food Industry September 14, 2010

| 9

Commodity Review

Orange Juice Orange juice futures prices began 2009 at an average price of $0.76/pound in January and finished the year at $1.32/pound in December. Prices further increased in January 2010 following unseasonably cold weather in Florida, the worldâ&#x20AC;&#x2122;s second largest producer other than Brazil. Freezing temperatures reduced an orange harvest already predicted to be the lowest in the past three years due to inclement historical weather which depleted crops. $2.5

$/ Pound

$2.0 $1.50

$1.5 $1.0 $0.5 $0.0 Jan-06

Aug-06

Mar-07

Oct-07

May-08

Dec-08

Jul-09

Mar-10

Orange Juice

Source: Bloomberg

Natural Gas Natural gas prices ranged from $2.32 to $6.01 during the fourth quarter of 2009. Prices fluctuated significantly throughout 2009, but finished the year only slightly higher from an average of $5.23 in January 2009 to $5.34 in December 2009. Prices increased during December 2009 following colder-than-expected weather conditions that resulted in increased natural gas consumption to heat homes and businesses. The cost of natural gas is not expected to rise substantially during 2010, due to high inventory levels, continued domestic natural gas production, and modest levels of consumption. $14

Henry Hub $/MMB tu

$12 $10 $8 $6

$4.55

$4 $2 $0 Jan-06

Source: Bloomberg

10 |

Aug-06

Mar-07

Oct-07

May-08

Dec-08

Jul-09

Mar-10

Natural Gas

Feasting on Opportunities in the Food Industry September 14, 2010

Food and Agribusiness Industry Insights Q4 2009

Stock Price Performance and Public Market Variations The chart below illustrates the index price performance of Duff & Phelps’ selected agribusiness, food, and beverage indices benchmarked against the S&P 500 index. The food and beverage composites have traded in-line with the broader market but continue to maintain above average returns due to the recession resistant nature of the industries. The agribusiness index has experienced a steep decline in performance since June 2008 but has preserved a return of 60.9% since January 2007 as the price of commodities rebounded during 2009 and in the early part of 2010. Selected Duff & Phelps’ Agribusiness, Food, and Beverage Indices vs. S&P 500 Index, January 2007 – March 2010

Index Value as of January 2007

280 240 200 160

60.9%

120

12.7% 9.9% -19.2%

80 40 0 Jan-07

May-07

Sep-07

Jan-08

May-08

Agribusiness

Food

Oct-08 Beverage

Feb-09

Jun-09

Oct-09

Mar-10

S&P 500

Enterprise value to EBITDA multiples for the D&P Beverage Composite have historically traded above the broader D&P Food Composite. The Beverage Composite EBITDA multiples hit a low of 8.4x during Q4 2008 but have since increased to 10.6x during Q4 2009. The D&P Food Composite hit a low of 7.9x during Q4 2008 but experienced a rebound in its multiple hitting 9.1x during Q4 2009. D&P Food Composite and Beverage Composite Multiples, Quarterly EV/EBITDA Multiples from Q1 2007 – Q4 2009 13.0x EV/ EBITDA Multiple

Historical EV/EBITDA Multiple Average 9.4x

11.0x 10.6x 9.1x

9.0x

7.0x Q1'07

Q2'07

Q3'07

Q4'07

Q1'08

D&P Food Composite

Q2'08

Q3'08

Q4'08

Q1'09

D&P Beverage Composite

Q2'09

Q3'09

Q4'09

Historical Average

The D&P Food Composite is comprised of the Agribusiness and Food companies listed in the Comparable Analysis chart on the following pages. The D&P Beverage Composite is comprised of the Beverage companies listed in the chart.

Food and Agribusiness Industry Insights Q4 2009

Feasting on Opportunities in the Food Industry September 14, 2010

| 11

Comparable Company Analysis AGRIBUSINESS

COMPANY NAME Fertilizer Agrium Inc. CF Industries Holdings, Inc. Mosaic Co. Potash Corp. of Saskatchewan, Inc. Terra Industries Inc.

RECENT STOCK PRICE(1)

% OF 52W HIGH

MARKET CAP(2) (MM)

ENTERPRISE VALUE (3) (MM)

MULTIPLES

OPERATING STATISTICS

ENTERPRISE VALUE/ REVENUE EBITDA (4)

TOTAL DEBT/ EBITDA

TTM REVENUE GROWTH (5)

TTM MARGINS GROSS EBITDA

$68.16

95.4%

$10,720.9

$11,504.7

1.26x

12.2x

1.9x

-9.0%

21.3%

10.3%

$104.74

95.2%

$5,088.1

$4,226.7

1.62x

5.0x

0.0x

-33.5%

32.2%

$61.60

90.2%

$27,422.0

$26,207.0

1.4x

-52.6%

15.1%

$116.81

92.4%

$34,587.3

$38,250.0

3.5x

-59.3%

28.1%

31.4%

97.3%

$4,548.8

$4,744.8

3.00x

12.0x

1.5x

-45.3%

24.4%

25.0%

Median

$45.44

95.2%

$10,720.9

$11,504.7

1.62x

12.0x

1.5x

-45.3%

24.4%

25.0%

Mean

94.1%

$16,473.4

$16,986.6

1.96x

9.8x

1.7x

-39.9%

24.2%

22.2% 32.1%

Seed Monsanto Co.

$72.50

77.7%

$39,561.4

$41,152.4

3.82x

11.9x

0.6x

-10.0%

55.7%

Nufarm Ltd.

$8.19

62.4%

$1,787.5

$2,639.8

1.09x

13.7x

4.8x

7.4%

21.4%

8.0%

$282.00

99.7%

$26,221.2

$28,148.8

2.56x

12.2x

1.5x

-5.4%

49.0%

21.0%

Median

77.7%

$26,221.2

$28,148.8

2.56x

12.2x

1.5x

-5.4%

49.0%

21.0%

Mean

79.9%

$22,523.4

$23,980.3

2.49x

12.6x

2.3x

-2.7%

42.0%

20.4%

Syngenta AG

Other Agribusiness The Andersons, Inc.

$33.50

89.2%

$613.1

$775.1

0.26x

-13.3%

8.4%

3.0%

Archer-Daniels-Midland Co.

$30.62

92.8%

$19,676.1

$25,937.1

0.42x

10.6x

3.2x

-20.6%

4.9%

3.9%

Bunge Ltd.

$63.27

85.5%

$9,101.6

$13,219.6

0.32x

-20.3%

2.9%

0.8%

Corn Products International Inc.

$34.77

99.5%

$2,611.1

$3,003.1

0.82x

7.4x

1.3x

-6.9%

14.2%

11.1%

Nutreco Holding NV

$60.03

97.4%

$2,100.7

$2,418.6

0.39x

7.7x

2.0x

-8.7%

20.9%

5.1%

Penford Corp.

$11.22

92.3%

$127.6

$197.4

0.75x

28.8%

6.7%

$9.83

85.6%

$3,652.0

$4,198.6

0.65x

13.3x

4.9x

-2.1%

12.8%

4.9%

Median

92.3%

$2,611.1

$3,003.1

0.42x

9.1x

2.6x

-8.7%

8.4%

4.4%

Mean

91.8%

$5,411.7

$7,107.1

0.51x

9.7x

2.9x

-6.2%

10.1%

4.8%

Viterra, Inc.

FOOD Protein High Liner Foods Inc.

$10.22

99.2%

$176.2

$253.9

0.42x

5.9x

1.8x

1.8%

16.3%

7.1%

Industrias Bachoco S.A.B. de C.V.

$19.86

81.4%

$993.0

$879.0

0.48x

5.4x

0.5x

15.6%

16.9%

8.9%

$5.34

86.0%

$7,466.7

$9,625.5

0.47x

12.9x

4.4x

33.5%

8.8%

3.6%

Maple Leaf Foods Inc.

$10.41

88.7%

$1,424.0

$2,491.2

0.49x

7.4x

3.0x

-0.4%

14.1%

6.6%

Sanderson Farms Inc.

$50.13

94.9%

$1,021.5

$1,124.8

0.62x

5.3x

0.5x

4.0%

13.0%

11.7%

JBS S.A.

Seaboard Corp.

$1,392.00

88.9%

$1,720.5

$1,433.4

0.38x

10.1x

1.1x

-6.9%

6.2%

3.7%

Smithfield Foods Inc.

$19.09

96.1%

$3,165.8

$5,776.6

0.50x

-5.5%

4.5%

0.7%

Tyson Foods Inc.

$17.24

98.0%

$6,492.5

$8,640.5

0.32x

6.3x

2.5x

-0.3%

6.4%

5.1%

Median

91.9%

$1,572.3

$1,962.3

0.47x

6.3x

1.8x

0.7%

10.9%

5.9%

Mean

91.7%

$2,807.5

$3,778.1

0.46x

7.6x

2.0x

5.2%

10.8%

5.9%

(1) As of 3-7-10 (2) Market Capitalization is the aggregate of a firmâ&#x20AC;&#x2122;s outstanding common stock. (3) Enterprise value is the total value of a firm (including all debt and equity). (4) Earnings before interest, taxes, depreciation and amortization (5) Trailing Twelve Months Source: Capital IQ.

12 |

Feasting on Opportunities in the Food Industry September 14, 2010

Food and Agribusiness Industry Insights Q4 2009

Comparable Company Analysis

FOOD, cont’d

COMPANY NAME Dairy Dairy Crest Group plc

RECENT STOCK PRICE(1)

% OF 52W HIGH

MARKET CAP(2) (MM)

ENTERPRISE VALUE (3) (MM)

MULTIPLES

OPERATING STATISTICS

ENTERPRISE VALUE/ REVENUE EBITDA (4)

TOTAL DEBT/ EBITDA

TTM REVENUE GROWTH (5)

TTM MARGINS GROSS EBITDA

$5.52

85.5%

$735.5

$1,346.6

0.54x

6.1x

2.9x

1.6%

28.7%

Dean Foods Co.

$16.00

72.4%

$2,900.8

$7,097.4

0.64x

10.3x

6.1x

-10.4%

27.9%

6.2%

Danone

$60.19

99.9%

$36,875.6

$46,440.4

2.28x

11.2x

0.0x

-1.6%

100.0%

20.3%

Glanbia plc

$3.68

90.6%

$1,077.5

$1,833.3

0.65x

8.3x

3.9x

-8.9%

16.2%

7.8%

Saputo, Inc.

$29.29

96.8%

$6,069.3

$6,540.2

1.14x

10.2x

0.8x

5.1%

11.2%

Median

90.6%

$2,900.8

$6,540.2

0.65x

10.2x

2.9x

-1.6%

27.9%

8.9%

Mean

89.0%

$9,531.8

$12,651.6

1.05x

9.2x

2.7x

-2.8%

36.8%

10.9%

Diversified Foods Associated British Foods plc

8.9%

$14.54

98.3%

$11,456.3

$13,461.6

0.96x

9.0x

1.4x

12.4%

23.4%

10.7%

Campbell Soup Co.

$34.39

96.1%

$11,793.2

$14,330.2

1.89x

8.5x

1.6x

-5.0%

41.2%

22.3%

ConAgra Foods, Inc.

$25.29

100.0%

$11,213.7

$14,234.4

1.13x

8.5x

2.1x

2.1%

25.0%

13.3%

Del Monte Foods Co.

$13.96

99.8%

$2,768.3

$4,357.5

1.16x

6.9x

2.5x

11.9%

31.3%

16.9%

Dole Food Company Inc.

$12.03

93.5%

$1,051.7

$3,265.0

0.47x

7.9x

5.5x

-8.9%

11.2%

6.0%

Fresh Del Monte Produce Inc.

$20.16

81.4%

$1,282.2

$1,580.5

0.46x

6.3x

1.2x

-2.6%

9.5%

7.3%

General Mills Inc.

$72.69

99.2%

$23,954.0

$30,040.1

2.03x

9.0x

2.0x

2.7%

40.8%

22.5%

The Hain Celestial Group, Inc.

$16.97

85.3%

$692.9

$901.2

0.89x

11.4x

3.0x

-11.7%

25.8%

7.9%

Hershey Co.

$41.45

98.1%

$6,931.0

$8,259.3

1.56x

7.9x

1.5x

3.2%

38.9%

19.6%

HJ Heinz Co.

$46.40

99.9%

$14,673.4

$18,994.3

1.82x

10.3x

2.6x

2.3%

35.8%

17.7%

Hormel Foods Corp.

$41.84

98.0%

$5,591.8

$5,492.7

0.84x

7.8x

0.5x

-3.7%

17.4%

10.7%

The J. M. Smucker Company

$59.66

94.7%

$7,101.1

$7,885.6

1.71x

7.7x

0.9x

38.1%

22.3%

Kellogg Co.

$52.93

95.5%

$20,143.3

$24,692.3

1.96x

9.8x

1.9x

-1.9%

43.7%

20.1%

Kraft Foods Inc.

$29.34

97.5%

$43,404.8

$60,236.8

1.49x

9.3x

2.9x

-3.7%

36.2%

16.1%

McCormick & Co. Inc.

$38.00

100.0%

$5,017.5

$5,952.1

1.86x

10.3x

1.7x

0.5%

41.7%

18.1%

Nestlé S.A.

$49.25

97.1%

$178,070.6

$198,973.7

2.12x

13.3x

1.5x

-2.4%

56.8%

16.0%

Ralcorp Holdings Inc.

$68.23

99.3%

$3,735.3

$5,014.3

1.28x

8.0x

2.5x

24.6%

27.7%

16.0%

Sara Lee Corp.

$13.95

99.4%

$9,221.0

$10,729.0

0.85x

6.1x

1.6x

2.2%

38.8%

13.9%

Tootsie Roll Industries Inc.

$28.17

100.0%

$1,653.1

$1,611.1

3.19x

0.1x

1.7%

35.2%

18.8%

Treehouse Foods Inc.

$44.52

98.9%

$1,529.3

$1,927.4

1.28x

11.3x

2.4x

0.7%

21.5%

11.3%

Unilever plc

$30.25

98.6%

$85,325.6

$94,500.7

1.74x

10.2x

1.5x

-1.7%

100.0%

17.0%

Median

98.3%

$7,101.1

$8,259.3

1.49x

8.7x

1.7x

0.6%

35.8%

16.1%

Mean

96.7%

$21,267.1

$25,068.6

1.46x

9.0x

1.9x

1.1%

35.2%

15.5%

$37.80

70.0%

$2,984.1

$3,946.9

0.90x

8.5x

2.8x

20.7%

27.0%

10.6%

$40.18

99.8%

$668.2

$772.9

1.39x

12.1x

1.7x

2.5%

25.2%

11.5% 10.9%

Baked Goods/Snack Foods ARYZTA AG Diamond Foods, Inc. Flowers Foods, Inc.

$25.72

96.4%

$2,359.0

$2,591.7

1.00x

9.1x

0.9x

7.7%

46.5%

George Weston Limited

$66.07

92.0%

$8,528.0

$12,142.8

0.39x

7.2x

3.5x

-0.8%

24.6%

5.4%

Grupo Bimbo SA de CV

$7.87

97.7%

$9,255.4

$11,824.6

1.29x

9.5x

2.3x

41.5%

52.8%

13.6%

J&J Snack Foods Corp.

$42.49

94.9%

$781.5

$693.2

1.05x

7.0x

0.0x

3.3%

32.4%

15.0%

Lance, Inc.

$21.57

76.3%

$691.2

$802.3

0.87x

8.5x

1.2x

7.7%

40.3%

10.3%

89.2%

$60.4

$156.9

0.87x

15.5x

6.5%

34.1%

5.6%

Median

Tasty Baking Co.

$7.05

93.5%

$1,570.2

$1,697.0

0.95x

8.8x

1.7x

7.1%

33.3%

10.8%

Mean

89.6%

$3,166.0

$4,116.4

0.97x

9.7x

1.8x

11.1%

35.4%

10.4%

(1) As of 3-7-10 (2) Market Capitalization is the aggregate of a firm’s outstanding common stock. (3) Enterprise value is the total value of a firm (including all debt and equity). (4) Earnings before interest, taxes, depreciation and amortization (5) Trailing Twelve Months Source: Capital IQ.

Food and Agribusiness Industry Insights Q4 2009

Feasting on Opportunities in the Food Industry September 14, 2010

| 13

Comparable Company Analysis

BEVERAGE

COMPANY NAME Alcoholic Anheuser-Busch InBev

RECENT STOCK PRICE(1)

% OF 52W HIGH

MARKET CAP(2) (MM)

ENTERPRISE VALUE (3) (MM)

MULTIPLES

OPERATING STATISTICS

ENTERPRISE VALUE/ REVENUE EBITDA (4)

TOTAL DEBT/ EBITDA

TTM REVENUE GROWTH (5)

TTM MARGINS GROSS EBITDA

$49.51

95.5%

$78,762.4

$130,707.7

3.81x

11.4x

5.2x

59.4%

52.8%

33.5%

Brown-Forman Corporation

$55.51

99.9%

$8,306.5

$8,980.4

3.74x

11.7x

1.3x

-8.8%

64.7%

32.0%

Constellation Brands Inc.

$15.81

90.0%

$3,509.4

$7,581.3

2.24x

11.6x

6.3x

-10.8%

34.2%

19.3%

Diageo plc

$16.39

99.4%

$40,666.2

$52,969.1

3.70x

12.4x

3.2x

6.5%

57.8%

29.9%

Fortune Brands Inc.

$46.42

99.3%

$7,054.8

$11,120.7

1.79x

11.3x

4.5x

-12.7%

43.3%

15.9%

Molson Coors Brewing Company

$42.81

83.4%

$7,952.0

$8,937.7

2.95x

15.1x

2.9x

-36.5%

43.1%

19.5%

Median

97.4%

$8,129.2

$10,050.5

3.32x

11.6x

3.9x

-9.8%

48.0%

24.7%

Mean

94.6%

$24,375.2

$36,716.1

3.04x

12.2x

3.9x

-0.5%

49.3%

25.0%

$54.70

92.0%

$126,090.3

$129,283.3

4.17x

13.2x

1.2x

-3.0%

64.2%

31.6%

$6.98

71.7%

$567.3

$828.7

0.52x

4.8x

1.6x

-3.1%

15.6%

10.8%

Hansen Natural Corporation

$41.41

94.1%

$3,650.7

$3,304.1

2.89x

9.6x

0.0x

10.6%

53.6%

30.0%

National Beverage Corp.

$11.65

80.3%

$537.1

$426.9

0.72x

7.5x

0.0x

3.9%

30.9%

9.7%

Pepsico, Inc.

$64.37

99.8%

$101,054.5

$105,317.5

2.44x

11.0x

0.8x

0.0%

53.5%

22.2%

Other Beverage The Coca-Cola Company Cott Corporation

Median

92.0%

$3,650.7

$3,304.1

2.44x

9.6x

0.8x

0.0%

53.5%

22.2%

Mean

87.6%

$46,380.0

$47,832.1

2.15x

9.2x

0.7x

1.7%

43.6%

20.8%

14 |

Feasting on Opportunities in the Food Industry September 14, 2010

Food and Agribusiness Industry Insights Q4 2009

Duff & Phelps Experience Pacific Coast Producers Case Study Duff & Phelps was engaged by Pacific Coast Producers (the “Company”) to act as an independent financial advisor to the Board of Director of the Company and provide advisory services for corporate planning purposes. The Company is a northern California based grower-owned agricultural cooperative with over 160 member growers located throughout California. Founded in 1971, the Company is a leading processor and marketer of canned peaches, pears, apricots and fruit cocktail mix as well as a leading supplier of canned tomato products. The Company’s products are primarily marketed under store brands through the retail and foodservice channels.

Served as independent financial advisor to the Board of Directors of Pacific Coast Producers

> FINANCIAL ADVISOR

Representative Food and Agribusiness Transaction Experience

has been acquired by has been acquired by Olam International Limited

has completed the spin-off of

Served as exclusive financial advisor to the Chapter 11 Trustee of SK Foods, LP

Served as a financial advisor to Altria Group Inc. with respect to the transaction

Acted as financial advisor to the Shareholders Council of the Fonterra Co-Operative Group Limited

Acted as exclusive financial advisor to Mercer Ranches, Inc. and initiated structured and negotiated this transaction

> SELL SIDE ADVISOR

> FINANCIAL ADVISOR

> SELL SIDE ADVISOR

a portfolio company Vestar Capital Partners has completed a recapitalization transaction.

has completed the sale of its private label soup, infant feeding and food service group businesses to

Acted as financial advisor to the Board of Directors of Birds Eye Foods, Inc. and issued a solvency opinion on the transaction

Served as an independent financial advisor and rendered a fairness opinion to the Board of Directors of Del Monte Foods Company

D&P Subsidiary Chanin Capital Partners rendered a fairness opinion to its creditors on the restructuring

Initiated the transaction, assisted in the negotiations, and served as financial advisor to Humboldt Creamery, LLC

> SOLVENCY OPINION

> FAIRNESS OPINION

> SELL SIDE ADVISOR

Bolthouse Farms

Kraft

has been acquired by Foster Farms Dairy

TreeHouse

Food and Agribusiness Industry Insights Q4 2009

Feasting on Opportunities in the Food Industry September 14, 2010

| 15

Contacts H. Glen Clarke Managing Director +1 312 697 4680 glen.clarke@duffandphelps.com David N. Rowe Director +1 312 697 4685 david.rowe@duffandphelps.com Leslie A. Nolan Vice President +1 312 697 4546 leslie.nolan@duffandphelps.com

Amsterdam Atlanta Austin Boston Chicago Dallas Denver Detroit Houston London Los Angeles Morristown Munich New York Paris

Farzad Mukhi Senior Associate +1 310 689 0142 farzad.mukhi@duffandphelps.com

Philadelphia

Eric Holter Analyst +1 312 697 4544 eric.holter@duffandphelps.com

Shanghai

Plano San Francisco Seattle Silicon Valley Tokyo Washington, DC Metro

About Duff & Phelps As a leading global independent provider of financial advisory and investment banking services, Duff & Phelps delivers trusted advice to our clients principally in the areas of valuation, transactions, financial restructuring, dispute and taxation. Our world class capabilities and resources, combined with an agile and responsive delivery, distinguish our clientsâ&#x20AC;&#x2122; experience in working with us. With more than 1,200 employees serving clients worldwide through offices in North America, Europe and Asia, Duff & Phelps is committed to fulfilling its mission to protect, recover and maximize value for its clients. Investment banking services in North America are provided by Duff & Phelps Securities, LLC. Investment banking services in Europe are provided by Duff & Phelps Securities Ltd. Duff & Phelps Securities Ltd. is authorized and regulated by the Financial Services Authority. Investment Banking services in France are provided by Duff & Phelps SAS. (NYSE: DUF)

Feasting on Opportunities in the Food Industry September 14, 2010

duffandphelps.com

McGladrey Industry Report - Food and Beverage Products

2010 McGladrey Industry Report Food and Beverage Products

Feasting on Opportunities in the Food Industry September 14, 2010

McGladrey Industry Report - Food and Beverage Products

2010 McGladrey Manufacturing and Wholesale Distribution National Survey Food and Beverage Products In the spring of 2010, McGladrey conducted its fifth annual Manufacturing and Wholesale Distribution National Survey. The survey asked leaders of U.S.-based manufacturing and wholesale distribution enterprises to provide perspectives on the current state of their companies and industry and the strategies they are implementing to sustain or grow profitability in the coming year. Participants responded to questions pertaining to current business conditions, domestic and global business strategies, cost structure, technology initiatives, operations and more. Among 1,061 respondents included in the final survey analysis were 124 leaders of the Food and Beverage industry segment (around 12 percent of the total sample). This special report summarizes their responses and provides unique insights into what Food and Beverage companies are currently doing and what they are planning for 2010. Of the 124 Food and Beverage enterprises participating in McGladrey’s 2010 Manufacturing and Wholesale Distribution National Survey: • 91 percent are privately held • 46 (37%) are manufacturing-only, 38 (31%) are distribution-only and 40 (32%) have a combination of manufacturing and distribution activities • The vast majority are midsize and larger companies. About 38 percent report annual revenues of $25– $99.9 million, with 32 percent reporting annual revenues in the $100–$499.9 million range. • About one-third have fewer than 100 employees, 38 percent have 100–499 employees and 30 percent have more than 500 employees • 20 percent say a private equity group owns a percentage of their company, with 14 percent reporting greater than 50 percent ownership • 65 percent report they are globally active

Contents Business conditions, outlook and growth strategies Margin management Innovation Operational costs Health care Tax strategies Global business Capital expenditures Supply chain management Information technology Workforce Summary and recommendations

2 4 5 7 7 8 9 10 11 12 13 14

Feasting on Opportunities in the Food Industry September 14, 2010

McGladrey Industry Report - Food and Beverage Products

Business conditions, outlook and growth strategies While no industry is recession-proof, past surveys conducted by McGladrey have shown the Food and Beverage industry to be highly resistant to economic turmoil. For example, nearly half (49%) of Food and Beverage executives in the 2010 survey say their companies are “thriving and growing.” That is more than double the survey’s composite average for all industries (20%), but down from 52 percent reported by Food and Beverage executives in the 2009 survey. Chart 1 Business conditions - Food and Beverage vs. other industry segments  Thriving and growing

 Holding its own

 Declining

Food and Beverage Other industry segments 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Food and Beverage companies recovered at nearly twice the average of all companies last year (19% vs. 10%), a significant accomplishment in the worst economy since the Great Depression. Company growth prospects This year, 91 percent of Food and Beverage respondents report being “very optimistic” or “somewhat optimistic” about growth prospects for their companies. That is a 20 percentage point increase from the 2009 survey. The “very optimistic” view alone rose 20 percentage points to 35 percent. Among all survey respondents, 82 percent report they are very or somewhat optimistic about their businesses this year, with Food and Beverage accounting for 12 percent of that overall total. Meanwhile, the number of Food and Beverage companies that are “somewhat pessimistic” about growth prospects fell sharply, from 26 percent in 2009 to 8 percent this year. Chart 2 Growth prospects for company – Food and Beverage vs. all other companies  Very optimistic

Food and Beverage

Other companies

 Somewhat optimistic

 Somewhat pessimistic

 Very pessimistic

2010 2009

2010 2009 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Reinforcing the sense of optimism for the Food and Beverage segment are industry plans to expand capacity in 2010. Fully 46 percent say they are planning to expand capacity compared to 28 percent of respondents in all other industries.

Feasting on Opportunities in the Food Industry September 14, 2010 2

McGladrey Industry Report - Food and Beverage Products

Growth strategies The top three growth strategies most important to Food and Beverage companies are increasing sales in domestic markets, increasing sales to current customers and acquiring new customers. While more Food and Beverage respondents this year report working globally is part of their business strategy, only 32 percent of the sample say they are relying on sales increases in international markets, well below the national average of 46 percent. This may be attributable to food safety and transportation issues, which are often magnified in global sales of Food and Beverage products. Table 1 FOOD AND BEVERAGE GROWTH STRATEGIES IN 2009 AND 2010 2009 Acquiring new customers

2010 94%

Increasing sales in domestic markets

93%

Increasing sales in domestic markets

86%

Increasing sales to current customers

93%

Increasing sales to current customers

86%

Increasing brand recognition

75%

Increasing brand recognition

72%

Increasing the number of products offered

68%

Increasing the number of products offered

80%

Increasing sales in international markets

38%

Increasing sales in international markets

32%

Acquiring new customers

92%

We also asked survey respondents which growth strategies they are implementing. The survey indicates Food and Beverage leaders are more confident about their current strategic direction than the composite average of leaders in all other industry segments. For example, only 31 percent of Food and Beverage executives say they are repositioning the strategic focus of their companies, compared with 46 percent of leaders in all other industries who are taking that action. In addition, Food and Beverage companies are more aggressively introducing new products (71% vs. 60% average of all other industry segments) and analyzing customer/product profitability (66% vs. 46%). The emphasis in these areas reflects the critical balance Food and Beverage companies must strike between developing profitable products to meet fast-changing consumer tastes while accurately forecasting sales.

Feasting on Opportunities in the Food Industry September 14, 2010 3

McGladrey Industry Report - Food and Beverage Products

Margin management Of the 124 Food and Beverage respondents to this year’s survey, 118 provided gross margin data. The data indicate Food and Beverage companies expect their margins to stay fairly constant between years. In past surveys, these companies have expressed reluctance to raise prices in the face of rising costs in commodities and fuel. The current data suggest they will adjust their pricing in tune with the market. From 2009 to 2010, 8 percent of Food and Beverage companies report gross margin increases, compared with 17 percent of companies in all other industry segments. Food and Beverage handled the downturn better than most other industries, which explains why year-over-year changes in gross margin are not as abrupt. Chart 3 Gross margins—Food and Beverage companies vs. all other industry segments—2009-2010  Gross margin increase  Gross margin same  Gross margin decrease

Food and Beverage

All other industry segments 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

While the effect of product pricing on gross margin is the same between Food and Beverage companies and broader industry segments, commodity prices create a much greater separation. About 40 percent of leaders in Food and Beverage businesses say commodity pricing has a direct effect on gross margin, compared with just 23 percent of executives in all other industries. On the other hand, shifts in Food and Beverage gross margin are less affected by changing economic cycles (25% vs. 31% for all other industries) and internal cost-cutting measures (25% vs. 30% for all other industries).

Feasting on Opportunities in the Food Industry September 14, 2010 4

McGladrey Industry Report - Food and Beverage Products

Innovation Asked where they are placing most of their efforts to innovate in 2010, Food and Beverage companies report strong interest in product line extensions (56%) and new product development (55%). New manufacturing processes are a focus for 34 percent of Food and Beverage company leaders. While those percentages are relatively close to the composite for all industry segments, Food and Beverage stands out for packaging innovations (33% vs. 8% for all other industries). The survey shows there is a statistical correlation between the introduction of new products and higher gross margins. As seen in Chart 4, Food and Beverage manufacturers are outpacing distributors in almost every innovation category except the beneficial use of information technology, where the segments are tied at 33 percent. Chart 4 Food and Beverage innovation plans by business activity ď Ž Food and Beverage manufacturers ď Ž Food and Beverage distributors

New product development Product line extensions New manufacturing process Product features Increasing the beneficial use of information technology Packaging No plans to innovate 0%

10%

20%

30%

40%

50%

60%

70%

In terms of innovation challenges, identifying marketplace needs is the most pressing issue for Food and Beverage executives (30%). On the other hand, Food and Beverage companies are significantly more adept at turning ideas into commercial products (63% saying this is not a challenge vs. 51% in all other industries) and likewise excel at rapid implementation from concept to market (56% vs. 42% for all other industries). Asked about their green initiatives (Chart 5), nearly two-thirds of Food and Beverage leaders say their companies are improving energy efficiencies, with 48 percent noting steps to reduce energy/fuel consumption. Food and Beverage companies are also taking steps to reduce water consumption at nearly double the rate of the composite industry average (30% vs. 17%).

Feasting on Opportunities in the Food Industry September 14, 2010 5

McGladrey Industry Report - Food and Beverage Products

Chart 5 Food and Beverage green initiatives being implemented Improving energy efficiencies in our operations Reducing energy/fuel consumption Recovering, reusing and/or recycling of parts, products or resources Reducing or substituting materials (including packaging) Reducing water consumption We are not currently implementing green initiatives within our company Working with suppliers who employ reduced energy consumption in their products/process Reducing our supply geographic footprint Other 0%

10%

20%

30%

40%

50%

60%

70%

Last year, 46 percent of Food and Beverage respondents reported they had introduced green products, or planned to do so by 2010. This year, 50 percent of all Food and Beverage leaders report offering green products, implying some progress in this growing marketplace (Chart 6). However, Food and Beverage remains near the bottom among industry segments providing green products, surpassing only Medical Equipment and Supplies. Around 20 percent of Food and Beverage companies are actively marketing â&#x20AC;&#x153;green activities,â&#x20AC;? mainly to existing customers in existing markets.

Chart 6 Industry segments offering green products Furniture Paper Products, Printing and Publishing Building Materials Chemicals, Petroleum and Plastics Transportation Equipment and Supplies Textiles and Apparel Machinery Equipment and Supplies Fabricated Metal Electronics, Computers, Electrical Appliances and Components Food and Beverage Medical Equipment and Supplies

10%

20%

30%

Feasting on Opportunities in the Food Industry September 14, 2010 6

40%

50%

60%

70%

80%

90%

100%

McGladrey Industry Report - Food and Beverage Products

Operational costs After a recession-fueled pause, operating labor costs are on the rise again. This year, 72 percent of Food and Beverage companies report labor costs will increase 1 to 5 percent in 2010. That compares to 57 percent who reported the same in 2009. Some of the increase may be due to new hires, while the rest is attributable to rising costs for existing employees. Training/continuing education programs are the most widely used option to manage employee costs, with 51 percent of Food and Beverage companies using this approach or planning to do so by 2011. Only 27 percent are taking direct action to control compensation, such as freezing or reducing pay or benefits. Chart 7 Anticipated changes in costs for Food and Beverage in 2010 and 2009  Increase

 No Change

 Decrease

2010 Employee benefits 2009 Operating labor

2010 2009

Outbound freight or transportation logistics

2010 2009

Raw material

2010 2009

Energy 2010 2009 Sales, general and administrative expenses 2010 2009 Regulatory compliance 2010 2009 Inventory carrying 2010 2009 Litigation/product liability

2010 2009 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

After a steep climb in 2008, followed by last year’s pullback, Food and Beverage companies in 2010 expect price jumps in raw material (63% vs. 42% in 2009) and energy (62% vs. 44% in 2009). To offset expected operational cost increases, 41 percent of Food and Beverage executives say their businesses are raising prices in 2010. Within that group, 27 percent are hiking prices by 5 percent or more.

Health care When it comes to the cost of health care benefits, Food and Beverage companies mirror findings in the broader survey. Half of the 124 businesses in this industry segment expect health insurance costs to rise 10 percent or more this year, right in line with the national sample. Passing costs on to employees (64%) and offering wellness programs (44%) remain the two options most used by Food and Beverage companies to manage health care costs. While a lower percentage of Food and Beverage companies offer health savings accounts than the composite average of all other industries (20% vs. 27%), businesses in this segment are less apt to reduce health care benefits for employees (16% in Food and Beverage companies vs. 22% average in all other segments). The strong stance on preserving health care benefits reflects Food and Beverage’s ability to maintain relatively stable employment in uncertain economic times.

Feasting on Opportunities in the Food Industry September 14, 2010 7

McGladrey Industry Report - Food and Beverage Products

Tax strategies Over the last year, Food and Beverage companies stepped up their use of several tax planning tools, which can manage rising costs and increase cash flow. This shift is especially pronounced in federal tax strategies, where the use of research and development (R&D) tax credits and last-in, first-out (LIFO) inventory valuation both rose 7 percent. On the state and local tax planning side, the use of incentives shot up 17 percent from 2009. Table 2 FOOD AND BEVERAGE TAx STRATEGIES IN 2009 VS 2010

Tax structuring

Federal tax strategies

2009

2010

C Corporation

32%

Sub Chapter S Corporation (Sub S)

50%

49%

Limited Liability Corporation (LLC)

18%

12%

Partnership

Other

28%

Research and development tax credits

32%

39%

Last-in, first-out (LIFO) inventory valuation

20%

27%

Domestic manufacturers' deduction (DMD) or domestic production activities deduction (DPAD)

28%

27%

Cost segregation for plant or distribution facilities

31%

36%

42%

Other federal tax credits

38%

Apportionment planning

22%

23%

Sales and use tax review

49%

45%

Use of incentives

32%

49%

Property tax review

51%

Energy credits and incentives

State and local tax strategies

*Year-over-year comparison data not available

Two key opportunities many Food and Beverage companies should take advantage of are federal tax credits and incentives for green improvements. For example, investments in alternative energy production—such as solar and wind—can qualify for a business tax credit of up to 30 percent of the project’s qualified cost. Meanwhile, projects that improve the energy efficiency of commercial buildings can qualify for a business tax deduction of up to $1.80 per square foot. Use of tax strategies is not necessarily connected to size—31 percent of Food and Beverage companies with annual revenue of $25 to $99.9 million use LIFO inventory valuation, a percentage comparable to larger companies in the $500 to $999.9 million revenue bracket. For state and local tax incentives, the runaway leader is Food and Beverage companies with $100 to $499.9 million in annual revenue (63%).

Feasting on Opportunities in the Food Industry September 14, 2010 8

McGladrey Industry Report - Food and Beverage Products

Global business Due largely to an international slowdown in personal and business spending, year-over-year measures of Food and Beverage global activity showed mixed results. On the positive side, Food and Beverage companies experiencing growth in foreign markets jumped substantially from 2009 to 2010 and fewer companies this year report that globalization lowered their sales prices. However, when compared with 2009, Food and Beverage companies say global business was less effective as a tool to lower their costs and improve margins. Chart 8 Impact of global business strategies on Food and Beverage in 2010 and 2009  Agree

 Disagree

 Not Applicable

2010 Working globally is part of our business strategy 2009 We are experiencing growth in foreign markets

2010 2009

Globalization has lowered our costs

2010 2009

Globalization has lowered our sales prices

2010 2009

Globalization has improved our margins 2010 2009 We are moving some or all production work offshore in 2010 2010 2009 We are moving sales, customer services and other processes offshore in 2010 2010 2009 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Of 124 Food and Beverage survey respondents, 80 (65%) report their companies are globally active. More impressively, 60 of those 80 companies say working globally is part of their overall business strategy. When viewed by business activity, Food and Beverage manufacturers are much more active than distributors in global business. For example, 53 percent of Food and Beverage manufacturers agree working globally is part of their business strategy vs. 41 percent of their peers on the distribution side. While globalization has helped a higher percentage of manufacturers than distributors improve margins (31% vs. 20%), distributors have been more successful in using international business to lower their costs (30% vs. 22% for Food and Beverage manufacturers). Coming out of the recession, Food and Beverage companies are placing slightly less emphasis on global sales. Only 32 percent of businesses report they are “relying greatly” or “relying somewhat” on increasing international sales in 2010, a 5 percentage point drop from last year’s survey. Interestingly, the smallest and largest Food and Beverage segments are placing the greatest emphasis in this area. Among those companies with less than $25 million in annual revenue, 44 percent say they are banking on higher overseas sales this year, while 43 percent of businesses with revenue of $500 million or more say the same thing. Exporting activity Of the 60 companies engaged in exporting activities, 45 export to Canada and 36 export to Mexico, making these two countries the most frequently identified buyers of U.S. Food and Beverage products. The next most popular export regions are Western Europe and Central America (named by 24 and 16 companies, respectively). Among the businesses sending products to foreign markets, nearly 20 percent say those exports account for 15 percent or more in overall sales revenue. Companies in the $100 to $499.9 million revenue bracket are particularly strong in this regard, generating 27 percent of their revenue from export sales.

Feasting on Opportunities in the Food Industry September 14, 2010 9

McGladrey Industry Report - Food and Beverage Products

Capital expenditures Because Food and Beverage came out of the recession in better shape than many other industries, companies are moving through 2010 with a stronger appetite for capital spending. Among Food and Beverage companies, 98 percent plan capital expenditures in 2010, a 10 percentage point increase from last year. Most compellingly, 16 percent of all Food and Beverage respondents say they will invest $10 million or more in capital projects this year, up from just 7 percent in 2009. Consistent with past years, the amount of capital investments is directly related to company size.

Company revenue size (in millions)

Chart 9 Food and Beverage planned capital expenditures by revenue size  Less than $1 million  $1 million–$9.9 million  $10 million or more

$500+ $100–$499.9 $25–$99.9 < $25 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Of the companies planning capital expenditures, 96 (or 81%) say they will finance those projects through cash flow from operations. Bank financing will be used by 54 companies (46%), and leasing will be used as a financing tool by 24 businesses (20%). Table 3

FOOD AND BEVERAGE SOURCES OF CAPITAL FUNDING

2009

2010

Cash flow from operations

87%

81%

Bank financing

55%

46%

Leasing

21%

20%

Owner infusion

15%

Initial public offering (IPO)

Private equity

Compared with all other industry segments, a higher percentage of Food and Beverage companies planning capital expenditures are relying on bank financing (46% Food and Beverage vs. 41% all other industries), with a slightly lower percentage using cash flow to finance capital investments (81% Food and Beverage vs. 84% all other industries). Food and Beverage companies have had less difficulty securing credit than the survey’s composite average for all industries: 11 percent of Food and Beverage companies say they have had trouble getting credit, while 20 percent of executives in all other segments agree with that statement. However, when Food and Beverage companies were asked if difficulty securing credit affected business, all of the “yes” responses were from companies under $100 million in annual revenue.

Feasting on Opportunities in the Food Industry September 14, 2010 10

McGladrey Industry Report - Food and Beverage Products

Supply chain management Among the Food and Beverage companies surveyed, 73 percent plan to improve supply chain management in 2010. While this is a 2 percentage point slide from 2009, it compares favorably to the 67 percent reported in the overall survey. Food and Beverage’s substantial leadership in demand planning and management (59% vs. 49% for all other industries) reflects its niche in consumer products, where accurate strategic forecasting of market trends is a must. Since all of these activities directly affect a company’s ability to streamline costs and cultivate good customer relationships, Food and Beverage companies should consider the benefits of supply chain improvements. Chart 10 Planned supply chain improvements in 2010 - Food and Beverage vs. all other industries  Food and Beverage  Other Industries

Supplier relationship management Customer relationship management Customer service management Demand planning and management Order fulfillment Manufacturing flow management Product development and commercialization Returns management Sales process management Other 0%

10%

20%

30%

40%

50%

60%

70%

80%

In terms of global supply chain operations, the percentage of companies in all industries importing materials and supplies remained virtually even with 2009 at 64 percent. However, Food and Beverage companies are fulfilling less of their supply needs through foreign resources. In 2009, 47 percent of Food and Beverage companies purchased onequarter or more of their materials and supplies from overseas providers. This year, that total stands at 27 percent.

Feasting on Opportunities in the Food Industry September 14, 2010 11

McGladrey Industry Report - Food and Beverage Products

Information technology While Food and Beverage leaders seemingly place high value on IT resources, they are mixed about how those services integrate with overall business planning. Of the 124 Food and Beverage respondents, 94 percent say IT is a critical part of their company operations. That is a 4 percentage point increase from the 2009 report and the fourth consecutive year in which this percentage has risen. However, only 70 percent of Food and Beverage executives agree that their business and IT strategies are integrated—well short of the national average of 79 percent. The Food and Beverage responses indicate internal company IT resources are viewed as most effective in managing infrastructure (44% very effective) and security risks (43%). But the perceived effectiveness of IT resources drops significantly in smaller companies. For example, just one-quarter of Food and Beverage leaders in firms with annual revenue less than $25 million believe their IT operations are effective in managing infrastructure. Just 6 percent of these companies believe IT effectively identifies technologies that can improve efficiency, far less than the 28 percent average for the entire Food and Beverage industry segment.

Company revenue size (in millions)

In regard to IT expenditures, 55 percent of Food and Beverage companies plan to increase spending this year. Leading the pack are businesses in the $25 to $99.9 million revenue bracket, where 63 percent of these companies are hiking IT investments in 2010 (with just 4 percent pulling back on spending). Again, the larger the company, the higher the spend. More than 68 percent of the Food and Beverage companies with $500 million or more in revenue are planning IT spends of $1 million or more.

Chart 11 Food and Beverage IT spending by company size  Less than $100 thousand  $100 thousand–$999.9 thousand $1 million or more

$500+ $100–$499.9 $25–$99.9 <$25 0%

10%

20%

30%

40%

50%

Feasting on Opportunities in the Food Industry September 14, 2010 12

60%

70%

80%

90%

100%

McGladrey Industry Report - Food and Beverage Products

Workforce Food and Beverage companies weathered the downturn better than most other industry groups. For 2009, 23 percent of Food and Beverage firms report they had involuntary reductions of 20 or more employees. That compares with 30 percent of businesses across all industries that made cuts of that size. Because of its ability to handle the economyâ&#x20AC;&#x2122;s downward slide, near-term hiring in Food and Beverage is not expected to be as robust as in other industry segments. For example, 35 percent of Food and Beverage firms expect to add new employees in 2010, compared with the national survey average of 49 percent. That trend continues into 2011 (41% of Food and Beverage companies adding staff vs. 61% in all other industries). On the other hand, Food and Beverage employment should remain very stable, with no changes in staffing forecast by 48 percent of companies this year and 49 percent in 2011. In a recovering economy, Food and Beverage companies face some daunting skill shortages. For example, 63 percent of Food and Beverage manufacturers report a need for entry-level workers, with 13 percent of those firms identifying it as an urgent need. Additionally, 52 percent of Food and Beverage manufacturers say they need more supervisory personnel, and half the companies in this market note a need for quality control workers. On the distribution side, 51 percent of Food and Beverage companies need warehouse workers (5% urgently) and 49 percent need salespeople (8% urgently).

Feasting on Opportunities in the Food Industry September 14, 2010 13

McGladrey Industry Report - Food and Beverage Products

Summary and recommendations •

Food and Beverage leads all industry segments when it comes to weathering the economic downturn, with 49 percent indicating their companies are currently “thriving and growing”

•

Ninety-one percent of Food and Beverage respondents report being “very optimistic” or “somewhat optimistic” about growth prospects for their companies, a 20 percentage point rise from the 2009 survey

•

When compared to all industries, Food and Beverage companies are more aggressive about introducing new products (71% vs. 60%) and analyzing customer/product profitability (66% vs. 46%). Business process analysis, including brand and SKU analysis, can build on these steps, helping companies fine tune their growth, expansion and profit objectives.

•

The percentage of Food and Beverage companies reporting that working globally is part of their business strategy rose from 64 percent in 2009 to 75 percent this year. Given that trend, expansion-minded companies should review how international tax planning and transfer pricing studies can enhance global profitability.

•

Nearly three-quarters of Food and Beverage companies say operating labor costs will rise this year; 63 percent expect price jumps in raw material and 62 percent expect higher energy bills. To offset those costs, 41 percent of Food and Beverage companies are raising prices in 2010. Companies may want to consider hedging strategies to deal with fluctuation in raw materials, and energy credits and incentives to offset higher energy costs.

•

This year, 16 percent of Food and Beverage companies say they will invest $10 million or more in capital projects (up 10 percentage points from 2009). That renewed appetite for capital investment makes cost segregation studies a timely tool that can accelerate property depreciation and reduce taxable business income.

•

In 2010, 81 percent of Food and Beverage companies with plans to invest in capital expenditures are relying on cash flow; 46 percent will use bank financing. Cash flow optimization strategies can help ensure dollars are there for critical investments.

•

While 94 percent of Food and Beverage leaders say IT is a critical part of their company operations, only 70 percent agree that their business and IT strategies are integrated. A system requirement evaluation may help close the gap.

•

Hiring in Food and Beverage is not projected to be as robust as other industry segments. However, companies that are hiring are seeing skill shortages for entry-level, supervisory, quality control, sales and warehouse workers.

To receive a complimentary report comparing the composite responses of 124 Food and Beverage industry leaders to the national survey sample, please contact your local McGladrey office or call 866.752.0217. We also invite you to visit our web site at www.mcgladrey.com, a resource into a wealth of additional industry insights.

Feasting on Opportunities in the Food Industry September 14, 2010 14

fO O d

B e v er ag e

â&#x20AC;˘

cO n c ept

d eliv ery

â&#x20AC;˘

pr eS ent

fu t u r e

2 0 1 0 M a n u fac t u r i n g t r e n d S S u r v e y

The Glass Is Half Full

Optimism grows as managers predict a post-recession rebound. Safety interest continues to rise, followed by more attention to energy, labor and sourcing. By Bob Sperber, Plant Operations Editor

t looks like 2010 is going to be a good year, judging by the responses from the 388 food & beverage manufacturing managers in our ninth annual Manufacturing Trends Survey. Better than we expected, anyway. An astonishing 68 percent of respondents project some increase in production next year; 16 percent foresee increases of 20 percent or more. Only 8.6 percent expect a decrease. Significant majorities predict maintaining or increasing staffing levels, production lines and salaries. Two-thirds feel optimistic going into the new year.

Feasting on Opportunities in the Food Industry September 14, 2010

2 0 1 0 M a n u fa c t u r i n g t r e n d S S u r v e y

figure 1

Manufacturing priorities for 2010 Of all the issues that mark our 2010 Manufacturing Trends survey, many are perennials. Food safety tops the list of priorities for the ninth year, and a host of operational issues jockey for second place. But it’s the economy that has occupied food & beverage manufacturers’ concerns – and expectations – as processors try to pick their path through the recession and halting recovery. Two years ago, before the financial meltdown could be predicted, nearly 77 percent of processors surveyed expected a production increase of at least 5 percent in 2008. Last year at this time, even after we dropped the minimum production increase to 3 percent, only 56 percent saw that rise possible. Today, as mentioned, 68 percent anticipate output will increase by at least 3 percent. These expectations for production correspond with good feelings for growth at the corporate level: 72 percent say their companies plan to either stay the same size or grow with new plants or expansions.

rating average

first-place votes

food safety

8.4

60%

Sourcing & materials

6.5

15%

labor (recruiting, training, turnover, reductions)

6.5

14%

energy issues (sourcing, cost)

6.4

16%

inspection/certifications

6.2

18%

environmental concerns

6.1

12%

plant security

5.5

12%

logistics

5.4

6.5%

automation

5.3

11%

consolidation challenges

5.0

8.7%

A RETURN To NoRMAL CoNCERNS? By dexter Manning, national food and Beverage industry leader, grant thornton llp

The results of the 2010 Manufacturing Trends Survey highlight the primary topics of concern for this industry and are consistent with the feedback Grant Thornton receives when speaking to our clients and others in the industry. After a tumultuous couple of years that gave the industry wild swings in commodity prices, historical peaks in fuel and transportation costs, and new concerns over the safety of our food supply, 2010 has brought some much-needed calm to those markets. Still, the survey shows that food safety, sourcing and materials and labor are the top priorities for food and beverage manufacturers in 2010.

Food Safety While the economy has wreaked plenty of havoc in the food and beverage industry, food safety tops the survey for the ninth year. Clearly commodity price increases combined with higher fuel prices can hurt and even destroy a company’s bottom line; however, no issue is quite as feared as the potential for an outbreak of food-borne illness. Foodborne illnesses are defined as diseases caused by agents that enter the body through the ingestion of food. Every person is at risk of foodborne illness and the reported cases keep increasing. In the United States, there are around 76 million cases of food-borne illnesses each year, resulting in 325,000 hospitalizations and 5,000 deaths. As our food supply has become more global, the number of contamination cases connected with foreign-sourced food has also increased. These events have contributed to new consumer skepticism about the safety of food manufacturing as well as boosted the prospect of the healthy and organic food categories. These safety concerns have gotten the attention of politicians as well. Governments all over the world are intensifying their efforts to improve food safety. In fact, there are currently a record number of bills working their way through the U.S. Congress that deal with food safety issues. If passed, these new laws and regulations will add a new

2 Feasting on Opportunities in the Food Industry September 14, 2010

layer of compliance costs for food and beverage companies. The survey also shows food and beverage companies are taking food safety seriously. Most companies have implemented sophisticated tracking and tracing programs and greater use of third-party inspections and certifications. While these programs are expensive, they dwarf in comparison to the costs incurred for companies that have to manage a food illness issue.

Sourcing and Materials Not surprisingly, sourcing and materials was the second most important priority reported in the survey. With commodity prices stabilized compared to the past few years, a great majority of executives are reporting a much higher level of optimism going into 2010. As a byproduct of the recession, food and beverage companies were forced to implement new and innovative methods to control costs. Lean manufacturing and material sourcing took on a much higher importance in the strategic plans of most food and beverage companies. World-class companies devoted substantial attention to the areas they could impact quickly, such as internal processes and the supply chain. Companies that were successful in streamlining their internal costs and improving their sourcing continue to benefit from the operating efficiencies gained. While the survey indicates a new optimism, there are still many concerns. Will commodity prices remain stable? What impact will oil prices have on commodities and transportation costs? Will government actions, such as diversion of corn to ethanol production, cause increases in prices? What impact will the value of the dollar have on foreign-sourced goods? Although these questions and others remain unanswered, world-class food and beverage companies will continue to proactively address issues they can control through the use of technology, lean processes, better outsourcing and renewed focus on logistics.

2 0 1 0 M a n u fa c t u r i n g t r e n d S S u r v e y

figure 2

Q.2 do

This point was driven home in last month’s Processor of the Year coverage of Nestlé USA. Allan McIntosh, senior vice president of technical and manufacturing, sees an era of “growth and investment” following years of industry-wide restructuring. He characterized what appears to be broad optimism for realizing “even more potential now to develop our manufacturing operations and deliver improvements in performance than we’ve delivered over the last 10 or 15 years.” With expectations such as these, it’s no surprise that when managers were asked how they “feel” going into 2010, their attitudes have picked up from a year ago. Last year, 43 percent said they were optimistic about 2009, and 22 were pessimistic. Now, looking to the coming year, 66 percent report feeling optimistic and only 7 percent are pessimistic. How manufacturers “feel” is no more scientific, but no less significant, than consumer confidence, a key economic indicator valued by economists. Some belt-tightening permanent

When asked how their companies are dealing with the economy, 37 percent said “we’re growing,” a significant rise from

you feel optimistic going into the new year? 70%

66% 50%

44% 30%

10%

2009

2010

27 percent last year. Responses generally were split into three groups: those that continue to grow, those that are reducing staff and those that are making no significant changes. Despite the optimism, there still is some constriction: • 34 percent are undergoing staff reductions vs. last year’s 31 percent.

MERGERS AND ACqUISITIoNS: AN UpTICk IN ACTIvITy By Brian Basil, corporate finance director, grant thornton llp

The data in this survey indicate that while respondents are aware of potential challenges, they are optimistic for 2010. Thirty-seven percent of managers reported plans to grow this year, a significant improvement from the 27 percent reported last year. The positive outlook of food and beverage manufacturing managers should mean increased merger and acquisition (M&A) activity in the food and beverage sector this year. The expected economic recovery has boosted the confidence of business owners, making them more willing to invest time and money for the future growth of their company. It is the right time for strong companies to contemplate “make or buy” decisions as they determine the most effective ways to grow. There are a great number of companies that have not been able to turn the corner yet, even as the economy has begun to stabilize. In many cases, companies looking to grow would be better served to expand through acquisition rather than investing in existing plant and equipment. Structured properly, investments via acquisitions can require less capital and can be less risky to the core business if things do not go as planned. There are plenty of opportunities for strong companies to make such acquisitions, whether it is to expand geographically, add product lines, add capacity or simply to add sales force strength. Moreover, the return on investment can be

Feasting on Opportunities in the Food Industry September 14, 2010

much greater and more immediate. There has already been an uptick in the rate at which strategic acquirers have been taking advantage of the deep discounts offered by distressed companies. Business owners with marginal balance sheets have been overcome during the economic recession. For many, divesting all or part of their business can be an attractive option to mitigate losses or focus on other ventures. Companies with access to capital would be wise to consider acquisitions as they plan their growth strategies. Looking ahead, deal activity will further increase as debt markets loosen and private equity funds can deploy pent-up capital. Financial buyers are significant contributors to deal-making, but to a large degree they are dependent on the debt markets to provide capital to fuel their acquisitions. During the credit crunch, their inability to tap the debt markets had a very dramatic effect on the transaction market. However, as credit becomes more readily available in 2010, private equity firms should return to the market, perhaps in a big way. Survey data revealed 66 percent of food and beverage manufacturing managers maintain an optimistic attitude going into 2010. This positive outlook should mean the M&A market will see increased activity this year as strategic buyers seek to grow, debt markets continue to loosen, and private equity groups deploy idle capital.

Outsourcing to overseas manufacturers

Outsourcing to U.S. or Canadian contract manufacturers

OtherImproved pest control 2% program

2 0 1 0 M a n u fa c t u r i n g t r e n d S S u r v e y 12%

Other

10%

figure 3

20%

30%

40%

in 2010, does your facility plan to …does your facility plan to: 5. In 2010,

4. For 2010, is your company planning to:

0% 10% 20% Third-party certification

figure 5

26%

detection system

0% 20% 40% controlsyour plant’s 31% doProgrammable you anticipate (PC or PLC) in a network production in 2010 to … Q.4 PC-based control 24%

30%

60%

21% 17%

In-plant use of Internet to access plant data

Maintain staffing level....48% Add to the workforce .... 25% Don't know...........................11% Passively reduce workforce (i.e. through attrition) .....10% Actively reduce workforce ..............................7%

39%

Standalone controls with no networking

Stay the same ...................43% Expand production/ 70% number of manufacturing plants ................................... 29% 66% Don't know/does 50% .............................15% not apply Consolidate production/ 44% numberof manufacturing plants ....................................14%

40% 50%

10. If you are automating a component or components of your manufacturing pro are you automating through: check all that apply) Rapid (please microbial

Manufacturing execution or operations management system

Q.2

30%

More/improved sanitary equipment

figure 4

for 2010, is your company planning to …

50%

13%

Integrated systems

10%

Integration with an enterprise resource planning system

Increase 20% or more.....16% Remote use of Internet 8% Increase 10-19% ................20% to access plant data Increase 3-9%.................... 32% Stay about PLCs the same 8%...... 23% Standalone Decrease 3-9%.................5.4% Decreasesoftware 10-19% ............. 7% 2.2% Off-the-shelf Decrease 20% or more... 1.1% Custom software

Amid the optimism, staffing and payRobotics issues reveal 4% further belt-tight• 15 percent are closing plants or consolidating, up from 12 percent Q.5 ening. In reporting outsourcing as a means of dealing with the economy, last year. 6. Did your facility 10%increase, decrease, or maintain salaries in 2009? 4.1 percent report production outsourcing to North American contract • 9.3 report widespread salary cuts, up from 8.4 last year. 0% 10% 20% 30% 40% last year) and 5.9 percent report In these and other areas, it appears that companies are react- manufacturers (up from 3.8 percentAIB 44% 2009 2010 ing to economic recession in a delayed manner, or in a way that outsourcing to overseas manufacturers (up from 3.1 percent last year). Silliker 34% 11. Did you implement foodtime, safety measures 2009? At thenew same staffinginlevels seem to be somewhat optimistic in says “business as usual is over; the belt-tightening is permanent.” 12. Will you implement new food safety measures light of economic uncertainty. Asked about staffing expectations for Several write-in comments confirmed those suppositions. NSF/Cook & Thurber 18%

figure 6

1. For the coming year, please rank, 1st place through 10th place, the How is toyour company dealing with the importance your plant of the following manufacturing issueseconomy?

We're growing

Maintain............................... 55% Increase...............................30% Staff reductions Decrease...............................11% Don't know........................... 4% No great changes Closing plants/consolidating Widespread salary cuts Outsourcing to overseas manufacturers Outsourcing to U.S. or Canadian contract manufacturers

By tim Schram, sections director of incentive OthersServices, grant thornton llp Production

17%

37% 34% 32%

15% 9% 6% 4% 12%

Other 10%

20%

30%

40%

4 Feasting on Opportunities in the Food Industry September 14, 2010 4. For 2010, is your company planning to:

EcoSure 8.6% INCENTIvE oppoRTUNITIES FoR 9. What portion of your plant has been automated? (Please check all that apply.) CoNSoLIDATIoN 4.3% Randolph &EFFoRTS Associates

54%

ManyPackaging companiessections regularly overlook a prime 4% opportunity to secure 46% None state and local incentives related to the consolidation of facilities. If 0%involving 40% properly planned, consolidation projects in com- 30% None 19% 10%facilities20% peting states or, in some71% cases, in competing counties can provide Yes.......................................... Yes.........................................70% Entireopportunity production to secure incentives based on job creation a significant No.......................................... 23% 12% Don't know.........................20% line (related to jobs andQ.6 investment being relocated from one state to Don't know........................... 6% No...........................................10% Logistics/ another) and also perhaps incentives 11% for job retention. warehousing These days, state and local governments are very competitive not only in Maintenance, pursuing job creation and expansion projects, but also 6% repair & operations for opportunities to retain jobs inside their borders. Many states, such as Iowa,Entire kentucky plantand Texas, 5%have recently modified existing incentive programs or changed long-standing incentive policies to Other for projects limited to job retention. allow for use of incentives 2% Based on the results of this survey, many food processing companies are considering rationalization of facilities that may present 40% 0% 10% 20% 30% 50% an opportunity to secure incentives to help make financial projections more attractive. In many cases, incentives related to job retention may impact in which states facilities will remain open. 10. If you are automating a component or components of35% your manufacturing process, Increase............................... are you automating through: (please check all that apply) Decrease............................ 3.2% Maintain............................... 39% Don’t know......................... 22% Programmable controls

31%

(PC or PLC) in a network

5. In 2010, does your facility plan to:

PC-based control

24%

Q.2

5. In 2010, does your facility plan to: 4. For 2010, is your company to: company planning 5. In 2010, does your facility plan to: 4. For planning 2010, is your to: 70%

31%

Increase 20% or more.....16% PC-based control 24% PC-based control Increase 10-19% ................20% Increase 3-9%.................... 32% Manufacturing execution Manufacturing execution or operations Stay about the same ...... 23% 21% or operations management system management system Decrease 3-9%.................5.4% Standalone controls Decrease 10-19% ............. 2.2% 17% Standalone controls with no networking with no networking Decrease 20% or more... 1.1%

31% 24%

2 0 1 0 M a n u fa c t u r i n g t r e n d S S u r v e y

66% 50%

44%

21%

17%

In-plant use of Internet In-plant use13% of Internet figure 8 to access plant data

figure 7

30%

13%

to access plant data What third-party auditing system do you use? Q.5 10% Integrated systems 10%

What are you implementing to improve food safety?

Integrated systems

10%

Q.3

Programmable controls Programmable controls (PC or PLC) in a network (PC or PLC) in a network

81%

Employee training

2009

Integration with an Integration with an AIB enterprise resource enterprise 8% resource planning system planning system

2010

44%

Stay the same ...................43% Maintain staffingMaintain level....48% Stay the same ...................43% staffing level....48% Silliker 34% Improvements to Remote use of Internet Expand production/ Add to the workforce 25% 65% Remote use of Internet Expand production/ Add to....the workforce .... 25% 8% HACCP plan 8% to access plant datato access plant data number of manufacturing number of manufacturingDon't know...........................11% NSF/Cook & Thurber 18% Don't know...........................11% plants ................................... 29% Improved pest control plants ................................... 29% Passively workforce 50% reducePassively reduce workforce 8% program Standalone PLCs Standalone 8% Don't know/does PLCs (i.e. through attrition) .....10% attrition) .....10%EcoSure 8.6% Don't know/does (i.e. through not apply .............................15% not apply .............................15% Actively reduce Third-party certification 50% Actively reduce Consolidate production/ 7% Off-the-shelf software 4.3% Randolph & Associates Consolidate production/ workforce ..............................7% Off-the-shelf software 7% workforce ..............................7% numberof manufacturing numberof manufacturing More/improved 39% plants ....................................14% Others sanitary 17% plantsequipment ....................................14% Custom software

Rapid microbial detection system

26%

Did your facility increase, decrease, or maintain salaries in20% 2009? 0% 40% 60% 6. Did your facility increase, decrease, or maintain salaries in 2009?

None

Robotics 80%

100%

10%

Custom software

4% Robotics

20%

Q.4

10%

30%

20% 0%

40%

30% 10%

50%

40% 20%

30%

figure 10 their facilities in 2010, 48 percent plan to maintain staffing lev- figure Q.6 9 did you implement newmeasures foodin 12. Will implement new food Did you new food safety measures 2009? els; 35 percent expect to add to their workforce11.and 17 implement percent 11. Will youyou implement newWill food measures 2010? Did you implement newinfood safety 2009? 12. yousafety implement newinfood safety measur safety measures in 2009? safety measures in 2010? plan to reduce the workforce, mainly through attrition. On pay issues, managers are cautiously optimistic. For this new year, 40 percent expect their facility to maintain salary levels, 35 percent expect increases and only 3.2 percent expect their facilities to cut paychecks. Asking respondents to recall last year, 30 percent saw salary increases and 11 percent saw decreases.

Maintain............................... Safety issues still55% rising Maintain............................... 55% While20% food safety remained the top-rated issue in our surIncrease...............................30% Increase or more.....16% Increase...............................30% vey, it10-19% seems to have taken on greater importance going Decrease...............................11% Increase............................... 35% Increase ................20% Decrease...............................11% into 2010. The number of processors giving it top rating hit Don't know........................... 4% Decrease............................ 3.2% Increase 3-9%.................... 32% Yes.......................................... 71% Don't know........................... 4% Yes.........................................70% Yes.......................................... 71% Yes.........................................70 60about percent year, a change in reporting causedNo.......................................... it to get Maintain............................... 39% Stay the(last same ...... 23% 23% Don't know.........................20% No.......................................... 23% Don't know.........................20 an anomalous 37 percent score), with the issue rated 8.4 on Don’t know......................... 22% Decrease 3-9%.................5.4% Don't know........................... 6% No...........................................10% Don't know........................... 6% No...........................................10 a scale of 10. Labor and sourcing & materials were tied at a Decrease 10-19% ............. 2.2%

6.5 rating, energy1.1% issues Decrease 20%and or more...

were close behind. (That’s the figure 11 highest ranking in several years for sourcing & materials How concerned are you and the lowest ranking for energy.) Third-party inspections 15. Compared lastatyear attime, this how time, how Compared toe. lastto year this about coli, Salmonella, and certifications got the second most first-place votes (18 15. concerned areabout you about concerned are you E. coli,E. coli, listeria or other pathogens? Q.5 Salmonella, listeria or other pathogens? percent) but a slightly lower aggregate rating (a 6.2 score), Salmonella, listeria or other pathogens? indicating it’s paramount to some and not even a concern of AIB others. 44% Current activity on the food safety front coincides with Silliker requirements by major customers34% for greater HACCP, thirdparty certifications and ingredient and product tracking and NSF/Cook & Thurber tracing – including18% supply chain partner practices. These demands often exceed regulatory requirements. EcoSure 8.6% The vast majority of processors, 76 percent, report having a tracking and tracing program in place, while 10 percent do 4.3% Randolph & Associates not and the rest were unsure. Most respondents report using at least one auditing Others 17%service to help them certify with stanSame of concern..... dards, most often citing AIB International (www.aibonline. Same levellevel of concern..... 60%60% 4% NoneSilliker concerned. org), (www.silliker.com) and NSF Cook & Thurber MoreMore concerned. MoreMore incidents are coming........ incidents are coming........ 25%25% (www.nsf.org/business/NSF_cook_and_thurber). 0% 10% 20% 30% 40% 50% concerned. We have LessLess concerned. We have Behind safety, energy spent the past two years in second things under control..........15% things under control..........15% place. But after a year that saw many energy prices fall, it’s Q.6

figure 12

do you currently have an ingredient/food tracking or Docurrently you currently have an ingredient 16. Do16. you have an ingredient tracing in place? foodprogram tracking or tracing program in place? / food/tracking or tracing program in place?

Feasting on Opportunities in the Food Industry September 14, 2010

T Taking

(i.e

Neg

See

Yes...........................................76% Yes...........................................76% Don't know/..........................14% Don't know/..........................14% Does not apply Does not apply

No.............................................10% No.............................................10%

18. Ifknow you know your company's spending budget 18. If you your company's capitalcapital spending budget for 2010, compared to is2009 for 2010, compared to 2009 it... is it...

22. Given the of state th 22. Given the state theof eco

2 0 1 0 M a n u fa c t u r i n g t r e n d S S u r v e y

figure 13

What portion of your plant has been automated? 9. What portion of your plant has been automated? (Please check all that apply.)

Production sections 9. What portion of your plant has been automated? (Please check all that apply.)

46% 54%

Packaging sections Production sections None

19%

Packaging sections Entire production line None Logistics/ warehousing Entire production line Maintenance, repair & operations Logistics/ warehousing Entire plant Maintenance, repair & operations Other

Other

46%

12% 19% 11% 12% 6% 11% 5% 6% 2% 5%

Entire plant 0%

10%

54%

INvESTMENT IN R&D CoNTINUES 20%

30%

40%

50%

0% 30%of your manufacturing 40% 50% 10. If you are automating 10% a component20% or components process, figure 14 are you automating through: (please check all that apply) if you are automating a component or components of your manufacturing process, are you automating 10. If you are a component or components of your manufacturing process, through …automatingcontrols Programmable 31% are you automating through: (please check all that apply)

(PC or PLC) in a network

to:

el....48% e .... 25% ........11% ..48% kforce ).. .....10% 25% ....11% .........7% orce ...10%

.....7%

24% 31%

PC-based control Programmable controls (PCManufacturing or PLC) in a network execution or operations management system PC-based control

21% 24%

Standalone controls Manufacturing with noexecution networking or operations management system In-plant use of Internet to accesscontrols plant data Standalone with no networking Integrated systems In-plant use of Internet to access plant data Integration with an enterprise resource planning system Integrated systems Remote use of Internet Integration with an to access plant data enterprise resource planning system Standalone PLCs Remote use of Internet to access plant data Off-the-shelf software Standalone PLCs

17% 21% 13% 17% 10% 13% 8% 10% 8% 8% 8% 8% 7% 8%

Custom software Off-the-shelf software 7% Robotics Custom software

4% 4%

Robotics

plement new food safety measures in 2009?

ment new food safety measures in 2009?

part of a pack of issues that roughly equally occupy processors. A small majority, 52 percent, said they were “not significantly impacted” by energy costs in the past year. Even though some prices came down in the past year, volatility remains a concern. Asked how they were approaching energy management, 60 percent of respondents said they were taking steps toward conservation; 30 percent are conducting energy audits and lesser proportions are “recycling” (reclaiming, redirecting, etc.) energy, negotiating with providers and seeking alternative energy sources. Of those alternatives, 6.8 percent are looking into cogeneration. One reported having a cogeneration system installed, and one was installing solar panels. More processors rated labor a top issue this year (14 percent) than in our 2009 survey (10 percent). Environmental concerns remained in the middle of the pack.

10%

20%

30%

40%

you implement in 2010? 0% 12. Will10% 20% new food 30%safety measures 40%

12. Will you implement new food safety measures in 2010?

6 Feasting on Opportunities in the Food Industry September 14, 2010

By Stan Babicz, Midwest region r&d practice leader, corporate Strategic federal tax Services, grant thornton llp

Investments in research and development (R&D) activities are not incurred in a vacuum. In fact, spending is influenced by profitability, retained earnings, credit availability, and the workforce itself. As the economy struggles, R&D spending suffers. Although food processing companies are subject to competitive pressures and profitability demands, they continue to invest in R&D activities to increase market share, drive growth, and reduce the cost of manufacturing. From test kitchens and R&D laboratories to the plant floor, R&D remains an important component of the business plan of successful food and beverage companies. And while plant expansions and facility acquisitions may have slowed, companies undertaking lean manufacturing initiatives and continuous improvement practices reflect a long-term commitment to optimize their existing manufacturing facilities to increase capacity and reduce production costs. Most food processing companies are capitalizing on their investments in innovation and R&D by claiming federal and state research tax credits for qualifying research activities. This incentive was designed to advance the competitiveness of U.S. companies in the global economy, and studies show over 70 percent of the research tax credit is based on wages of employees involved in research activities. Thus, a direct correlation exists between maintaining or expanding the workforce and advancing R&D activities. The research tax credit has generally been a temporary incentive since its inception in 1981, having been renewed 13 times during that period. yet, by some estimates, the research tax credit returns $2 to the U.S. economy for every dollar spent in R&D. Recently, the president and Congress have expressed a desire to improve the research tax credit and make it permanent. Supporters estimate the most generous proposals could lead to a $90 billion increase in annual GDp and enable companies to make long-term commitments to investing in R&D, while keeping the United States the premier location for research and development in the world.

Same level of concern..... 60%

Yes...........................................76%

incidents are coming........ 25%

Don't know/..........................14% Does not apply Becoming more important Becoming more important were in 2009 ....69% thanthan theythey were in 2009 ....69% No.............................................10%

Down 5 to 10 percent More Down 5 to 10 percent 6% 6%concerned. More Down 10 percent Down moremore thanthan 10 percent

4% 4%concerned. Less We have things under control..........15%

figure 15

Looking at co-generation to 50002% 2% 25002500 to 5000

important to......... us ......... NotNot important to us 20%20%

Other

Becoming important...11% Becoming lessless important...11%

10% 10%

20% 20%

30% 30%

16. Do you currently have an ingredient / food tracking or tracing program in place?

figure 17

figure 16

18. If you know your company's capital spending budget

24. Which one of these best describes the domin 24. Which one ofeconomy, these best describes the dominant e given the state of the 22. Given the state of the economy, are your are yourorcompany or plantâ&#x20AC;&#x2122;s green company plant's initiatives â&#x20AC;Ś 23% Other 23% Other

29%

Don't know

19% 11%

Up less than 5 percent

10%10%

Further processed foods and specialties Further processed foods and specialties

10%10%

Baked goods 9%9% Yes...........................................76% Baked goods

Don't know/..........................14%

More concerned. More incidents are coming........ 25%

Down 5 to 10 percent

Fruits and vegetables Fruits and vegetables

Same level of concern..... 60%

Up more than 10 percent

11%11%

Meats/poultry (fresh or frozen) Meats/poultry (fresh or frozen)

20%

About the same Up 5 to 10 percent

0% 0% 0% 10% 10

15. Compared to last year at this time, how concerned are you about E. coli, Salmonella, listeria or other pathogens?

Because of the economy, for did your 2010, compared to 2009 is it...How were you impacted by 19. Because the economy, did your plant 19. Because of theofeconomy, did your plant 20. were How were you impacted by energy 20.energy How you impacted energy plant defer capital projects from costs in by 2009? defer capital projects from 2009? in 2009? costs costs in 2009? 2009?defer capital projects from 2009?

Does not apply Beverages (non-dairy) Beverages (non-dairy) 9%9%

No.............................................10% Less concerned. We have (includes milk, cheese, DairyDairy (includes milk,important cheese, Becoming more things under control..........15% 7% 7% Not significantly................. 53% Down more than 10 percent Not significantly................. ice cream or any in dairy product) 53% ice than cream or any dairy product) Yes........................................... 47% they were 2009 ....69% Yes........................................... 47% 4%

Costs went up ....................34% went up ....................34% No............................................. 31%than 5 percent Costs No............................................. 31%less Down ................................ NotNot suresure ................................ 22%22%

Costs went down ...............13% Costs went down ...............13%

10%

20%

Notcereals/grain important to us .........5% 20%5% Breakfast products/pasta Breakfast cereals/grain products/pasta Herbs/Spices/Dry flavorings Herbs/Spices/Dry flavorings

Becoming less important...11%

30%

4%4%

figure 18 company's capital spending budget 18. If you know your

Confectionery 4%4% Confectionery 2010,know comparedyour to 2009companyâ&#x20AC;&#x2122;s is it... 22. Given the if for you capital spending budget company or for 2010, compared to 2009 is it Condiments/Jams/Jellies ... Condiments/Jams/Jellies 3%3% 24. Which one of th

GREEN INCENTIvES FoR ENERGy EFFICIENCy pRojECTS 19. Because of the economy, did your plant defer capital projects from 2009?

By tim Schram, director of incentive Services, grant thornton llp

Energy costs continue to rise and remain one of the highest operating expenses for food processors. Therefore, this area is regularly analyzed for ways to reduce expenses and save money. According to the results of this survey, food processors are taking significant steps toward becoming more energy-efficient, implementing recycling efforts and investing in alternative energy sources. Costs related to these initiatives can be significantly reduced with the use of green credits and incentives that may be available on the state and federal levels. There are a wide variety of incentives to help offset investment costs related to energy-efficiency efforts. For example, income tax Yes........................................... 47% credits, sales tax exemptions and property tax abatement programs No............................................. 31% are offered in a number of states (Arizona, California and Texas) for Not sure 22% In companies considering installing solar or ................................ wind power equipment. Compared to last year at this time, how many utility providers16.offer incentive programs that will proncerned are you aboutaddition, E. coli, Do you currently have an ingredient monella, listeria or other pathogens? / food or tracing program in place? vide a cash grant for a percentage oftracking the investment related to efficiency projects such as the installation of energy-efficient lighting systems. The American Recovery and Reinvestment Act of 2009 also extended income tax credits available to corporations that make qualified investments in solar, wind and other alternative energy equipment. In addition to considering the use of solar panels as an alternative energy power source, some food processors are finding energy savings related to reducing the cost of disposing of scrap. Grant Thornton has assisted a large food processing company in implementing a number of anaerobic digesters in order to reduce the cost of disposing of waste. In addition to saving money related to waste disposal, this company also enjoys lower energy costs by capturing Yes...........................................76% Same level ofthe concern..... methane60% gas by-product of the process to burn as an alternative Don't know/..........................14% More concerned. fuel More to natural gas. our State and Local Tax professionals can help Does not apply incidents are coming........ 25% food processing companies identify a number of incentives to help No.............................................10% Less concerned. We have offset the cost of implementing systems to significantly improve an things under control..........15% already solid return on investment projection.

20. How were you impacted by energy costs in 2009? Don't know

Seafood (fresh or frozen)2% 2% Seafood (fresh or frozen)

29%

Other

Frozen Dinners2% 2% Dinners 20% Frozen

About the same

Meats/poultry (fresh or frozen)

Snack foods/chip1% 1% 19% Snack foods/chip

Up 5 to 10 percent

Fruits and vegetables

11%

Up less than 5 percent

0% 0%

10% 10%

20% 20%

Further processed foods and specialties

Up more than 10 percent Down 5 to 10 percent

Baked goods

Down more than 10 percent

than t Beverages (non-dairy)

Down less than 5 percent

Becom

Not im Dairy (includes milk, cheese, ice cream or any dairy product) Becom

Not significantly................. 53% 0% 10% Costs went up ....................34%

20%

30%

Breakfast cereals/grain products/pasta

Costs went down ...............13%

figure 19

Herbs/Spices/Dry flavorings

Howyou are youapproaching approaching energy management? How21. are energy management?

Confectionery

20. How were you impacted by energy 60% costs in 2009?

19. Because of the economy, did your plant Taking steps in energy conservation defer capital projects from 2009?

Condiments/Jams/Jellies

30%

Conducting energy audits Not a burning issue right now

24%

Recycling energy (i.e. through redirection systems)

23%

Seafood (fresh or frozen)

Frozen Dinners

Snack foods/chip

21%

Negotiating with energy providers

15%

Seeking alternate energy sources Looking to energy management consultants

Yes........................................... 47%

Not significantly................. 53%

No............................................. 31%

Costs went up ....................34%

Other 22% 3% Not sure ................................

Costs went down ...............13%

Looking at co-generation

Feasting on Opportunities in the Food Industry 14, budget 2010 8. If you know yourSeptember company's capital spending

or 2010, compared to 2009 is it...

More 50002% 2% 3% than 5000 2 0 1 0 M a n u fa c t u r i n g t r e n d S S More ur vthan ey

Down less than 5 percent Down less than 5 percent 2% 2% 0% 0%

toconsultants 2500 3%3% 10001000 to 2500

22. Given the state of the economy, are your company or plant's

20%

40%

60%

7 23. How many employees at your facility?

2009

2010

34%

Silliker

2 0 1 0 M a n u fa c t u r i n g

Stay the same ...................43% Expand production/ t rnumber e n dofSmanufacturing Survey plants ................................... 29% Don't know/does not apply .............................15% Consolidate production/ numberof manufacturing plants ....................................14%

Maintain staffing level....48% 18% Add to the workforce .... 25% Don't know...........................11% EcoSure 8.6% Passively reduce workforce (i.e. through attrition)4.3% .....10% Randolph & Associates Actively reduce 17% workforceOthers ..............................7% NSF/Cook & Thurber

figure 20

Remot to a

Off-th

None

figure 21 0%

10%

Int ent

C 20%

30%

4 The tough economy has not lessened the did your facility increase, decrease, What will happen to salaries importance of saving the Earth. Last year, 62 6. Did your facility increase, decrease, orin maintain salaries in 2009? or maintain salaries 2009? at your facility in 2010? percent said green/environmental/sustainability Q.6 projects were becoming more important to their companies. A year later, an optimistic group of 69 percent are in that camp. 11. Did you implement new food safety measures in 200 We suspected many processors deferred capital projects in the past year, and 47 percent confirmed that hunch. While many respondents (29 percent) might not know their company’s capital spending budget for the new year, 20 percent thought it would be “about the same as last year’s,” and 39 percent thought it would increase at least 5 percent; only 12 percent predict a decrease. Maintain............................... 55% Increase............................... 35% We end with a thank-you to the 388 respondents Increase...............................30% Decrease............................ 3.2% to the Manufacturing Trends Survey. If you have Decrease...............................11% Maintain............................... 39% any suggestions on how we can improve it next year, Don't know........................... 4% Don’t know......................... 22% Yes.......................................... 71% e-mail us at any time (dfusaro@putman.net).

No.......................................... 23% Don't know........................... 6%

Contact Information Dexter k. Manning partner National Food and Beverage Industry Leader Grant Thornton LLp T: 404.475.0061 E: Dexter.Manning@gt.com

About Grant Thornton LLP

Stan Babicz Midwest Region R&D practice Leader Corporate Strategic Federal Tax Services Grant Thornton LLp T: 414.277.1552 E: Stan.Babicz@gt.com

The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLp is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity.

Tim Schram Director of Incentive Services Grant Thornton LLp T: 312.602.9022 E: Tim.Schram@gt.com Brian Basil Corporate Finance Director Grant Thornton LLp T: 248.233.6930 E: Brian.Basil@gt.com

In the U.S., visit Grant Thornton LLp at www.GrantThornton.com.

About Grant Thornton Corporate Finance Grant Thornton Corporate Finance provides boutique investment banking services to privately held middle-market businesses in the United States and around the world. As a recognized advisor on middle-market mergers and acquisitions, we offer a range of investment banking services including sell-side advisory, buy-side advisory, management buyouts, restructurings and capital raising. Grant Thornton LLp provides investment banking services through its wholly owned broker-dealer subsidiary Grant Thornton Corporate Finance LLC, member FINRA, SIpC.

This document supports Grant Thornton LLp’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person.If you are interested in the subject of this document we encourage you to contact us or an independent tax advisor to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with, or attached to this document is not intended by Grant Thornton to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

8 Feasting on Opportunities in the Food Industry September 14, 2010

Fast Facts on Food Processing Grant Thornton Food & Beverage Practice Part 1 of 3 – February 2010

Faring better in 2010 The economic downturn has undoubtedly tested the mettle of the purported “recession-proof” food and beverage industry. Yet after two years of doom and gloom since the recession began in December 2007, the glass is returning to half full for many companies. For some manufacturers, the recession has exposed underlying operational weaknesses. For wellpositioned companies, new opportunities have been born of the economic crisis. Although the recovery will not happen overnight, food and beverage manufacturers are positive about their performance in 2009 and optimistic about what 2010 holds. Audit, tax and advisory firm Grant Thornton LLP is once again collaborating with Food Processing magazine on a series of three industry surveys — Fast Facts on Food Processing — to offer a perspective on performance trends, challenges and opportunities in the food industry. This first installment, Faring better in 2010, examines how food and beverage manufacturers performed in 2009, the factors affecting their performance, and their outlook for 2010. Responses were received from 176 companies (see participant profile at the end of this report) in late November and early December 2009.

Revenues and profit growth

Despite the recession, there has been an increase in optimism for food and beverage manufacturers when it comes to revenue projections. In 2009, more than eight in 10 (83%) respondents expected revenues to increase in 2010, jumping from 61% who shared that expectation for 2009 vs. 2008. Likewise, profit forecasts are positive for the coming year: 81% anticipate net income will increase in 2010 vs. 2009 a sizable jump from the 69% who expected net income growth in 2009 vs. 2008. More than one-quarter (27%) believe net income will increase by more than 10%, a small uptick from last year (22%).

Food and beverage manufacturers are positive about their performance in 2009 and optimistic about what 2010 holds.

Feasting on Opportunities in the Food Industry September 14, 2010

Interestingly, a side effect of the recession — more consumers eating at home rather than going to restaurants — may have helped boost optimism and some bottom lines. “This recession has brought unprecedented changes in the way consumers buy, making it increasingly difficult for food and beverage companies to react,” says Dexter Manning, Grant Thornton partner and national Food and Beverage industry leader. “Although more people are eating at home versus dining out, the types of food consumers are purchasing at grocery stores is changing rapidly. Cash is king, and consumers are looking for bargains. The biggest winners have been store and private-label brands that are high-quality but low-cost compared with similar national brands. On the other hand, consumers are more concerned than ever about the origin, quality and caloric content of their food products. Therefore, there is still growth in the organic, healthy and vitaminenhanced categories, their higher price tags notwithstanding. Value seems to be the rule for consumers these days. The successful food and beverage company must anticipate where consumer tastes will end up once the current economic turmoil ends.”

How will your company’s revenues change?* 2010 vs. 2009 (% of respondents) More than 20% increase 11–20% increase 6–10% increase 1–5% increase 0% change 1–5% decrease 6–10% decrease 11–20% decrease More than 20% decrease

13% 16% 26% 28% 8% 6% 0% 2% 1%

2009 vs. 2008 (% of respondents) 13% 10% 20% 18% 5% 13% 10% 6% 6%

* May not total 100% due to rounding

How will your company’s profits (net income) change* 2010 vs. 2009 (% of respondents) More than 20% increase 11–20% increase 6–10% increase 1–5% increase 0% change 1–5% decrease 6–10% decrease 11–20% decrease More than 20% decrease

10% 17% 26% 28% 11% 4% 0% 1% 3%

2009 vs. 2008 (% of respondents) 11% 11% 20% 27% 9% 11% 2% 4% 6%

* May not total 100% due to rounding

One executive cited a positive impact from this consumer belt-tightening. Others did not find the same silver lining, with one respondent reporting, “[The number of] people going out to eat and ordering out was down, so that greatly affected our bottom line. Things are slowly picking up.” In addition, lower commodity pricing (another result of the downturn) has boded well for some food and beverage manufacturers, whereas others report that commodity prices are on the rise.

Cash is king, and consumers are looking for bargains. The biggest winners have been store and private-label brands that are high-quality but low-cost compared with similar national brands. Feasting on Opportunities in the Food Industry 2 Fast Facts on Food Processing – Part 1 of 3 – February 2010 September 14, 2010

“When the prices of commodities surged in 2008, food and beverage companies were forced to react in order to survive,” adds Manning. “Unfortunately, the number of competitors in the market made raising prices a tricky and sometimes dangerous proposition. Those companies that were highly leveraged quickly found themselves unable to produce enough cash to satisfy the higher input prices and still meet their debt obligations. Many of those companies were forced to either merge or file for Chapter 11 reorganization, thus reducing the number of competitors in the market and opening up the possibility of price increases late in 2009 and early 2010.”

Although the downturn has undoubtedly taken a toll on companies, it has not been the sole culprit of poor performance. Respondents have taken a hard look at their own operations, and executives have attributed diminished profits to “production mistakes” and “overproduction of perishable commodities [and the resulting] serious downward impact on prices.” Conversely, strong management has helped stem losses. One executive says, “We as a management team started to work the floor. We are the throughput specialists, so we can contribute incrementally to the operation.” “World-class food and beverage companies devoted substantial attention to the areas they could control, such as internal processes and the supply chain,” says Manning. “The work done in 2008 and 2009 to streamline operations, reduce supply chain costs and upgrade operational efficiencies has produced very good results for these companies in 2009 and will continue to improve profitability in 2010.”

Staffing and costs

The food and beverage industry has not been immune to staff cuts, but the employment outlook for 2010 is a bit rosier than in past years. More than half (52%) of respondents plan to increase staffing for full-time employees and equivalents, compared with just 34% who expected to increase hiring in 2009. Additionally, there was a significant drop in the number of executives who plan to decrease staffing: Only 10% expect to cut staff in 2010, versus 33% who anticipated doing so in 2009. Staffing is not the only cost food and beverage manufacturers must shoulder. Most (70%) believed that ingredient pricing would increase in 2009, and 67% expect prices will jump again in 2010. “Our clients have tweaked their formulas, their ingredients and their packaging to reduce costs,” says Danny Goldberger, Grant Thornton Mid-Atlantic partner-in-charge of the Consumer and Industrial Products practice. “They have had some success with choosing less expensive ingredients that do not change the taste or quality of their products.”

How will ingredient pricing change?* 2010 vs. 2009 (% of respondents) More than 20% increase 11–20% increase 6–10% increase 1–5% increase 0% change 1–5% decrease 6–10% decrease 11–20% decrease More than 20% decrease

2009 vs. 2008 (% of respondents)

3% 9% 18% 37% 19% 10% 2% 0% 1%

* May not total 100% due to rounding

Feasting on Opportunities in the Food Industry 14, 2010 3September Fast Facts on Food Processing – Part 1 of 3 – February 2010

4% 10% 23% 33% 13% 10% 3% 2% 2%

Cost pressure has also resulted from increased energy prices: 71% of food and beverage manufacturers reported that their total energy costs (across production, distribution, etc.) rose in 2009 vs. 2008. This year is unlikely to offer energy relief, with 76% of companies anticipating that energy costs will increase. Goldberger notes that fuel prices have begun to creep up again, and some food and beverage manufacturers are worried that they may need to once again consider pass-throughs or surcharges to offset the increase. Many food and beverage manufacturers say the most effective means to control their costs are operationsoriented: using lean manufacturing practices, eliminating unprofitable product lines, implementing long-term waste reduction projects, and reducing the waste of product and process resources (raw materials, labor, energy, etc.).

“Efforts to become more efficient will continue into 2010,” says Manning. “Companies will increase capital spending on new technologies, more efficient plants and better sourcing, resulting in a more efficient cost structure. One of my clients has implemented zero-based budgeting internally and for its suppliers, forcing each party to justify any and all spending that affects the company. During this turbulent time, it is also important that food and beverage companies pay attention to the financial health of their suppliers. A successful company should have a backup plan in case its primary suppliers are no longer around.” Although fuel and commodity costs have been the primary cost pressures for food and beverage companies, there are new concerns brewing among executives about the impact of new government legislation. Respondents commented specifically on how health care reform in the United States might affect their company’s cost structures. The responses were varied, but several respondents expect higher costs as a result of a new health care bill. In the coming months, the food and beverage industry also faces the potential for unprecedented regulation. Currently, there are a number of bills in Congress that aim to address safety and quality issues, and compliance will come at a higher operating cost for companies.

Outsourcing

Outsourcing continues to be a way for food and beverage manufacturers to manage costs and boost efficiency. Three in five (60%) food and beverage manufacturers report outsourcing some portion of production (based on total dollar sales), while 40% do not outsource any production. Among companies that do outsource, 72% outsource up to 25% of production. Sixty percent of food and beverage manufacturers don’t foresee any change in their use of outsourcing in 2010, while 30% expect outsourcing to increase and 10% expect it to decrease. The major reasons reported for outsourcing are diverse: access to technology/equipment (43%), increased production capacity (33%), lower costs (32%) and distribution advantages (23%).* “One result of the recession is that many food and beverage companies are revisiting the possibilities offered by outsourcing,” says Manning. “As in the past, one motivation of outsourcing is to improve on the core competencies of the business and outsource those activities that are deemed to be outside those core competencies. However,

“We became more efficient in distribution and comparison-shopped for packaging materials and supplies. Overall, I’d say that the recession prompted us to pay more attention to details.”

* Participants were able to select more than one answer.

Feasting on Opportunities in the Food Industry 14, 2010 4September Fast Facts on Food Processing – Part 1 of 3 – February 2010

another motivation brought about by this downturn is cost. Is outsourcing more cost-effective or not? Many food and beverage companies believe that it is more economical to outsource activities, including research and development, certain manufacturing functions and logistics. Clients have also experimented with outsourcing IT, internal audit, purchasing and other back-office activities.” Back to business as usual

Nearly one-third (32%) of food and beverage manufacturers report that their operations and financial performance are already back at pre-recession levels or better. The overwhelming majority (96%) believe those performance levels will return by the end of 2010 or later.

Return to pre-recession performance (% of respondents) They already are By January 2010 By end of March 2010 By end of June 2010 By end of December 2010 or later Never

32% 6% 9% 14% 35% 4%

“Always be close to your customers and have a true understanding of their needs. Think and act like a service company, regardless of what you manufacture.”

Profile of participants A diverse group of food and beverage manufacturers are represented in the results of the Fast Facts on Food Processing: Faring better in 2010 survey. Approximately three-quarters (72%) of survey participants report annual revenues of less than $100 million, 14% report revenues of $100 million to $500 million, and 14% report revenues of more than $500 million. Approximately 44% of companies produce processed foods, the largest food group represented, followed by beverages (30%); miscellaneous/other (29%); meat, poultry and seafood (27%); and fruits and vegetables (27%).* * Participants were able to select more than one answer.

Many food and beverage manufacturers saw the recession as a wake-up call to evaluate what’s happening in their companies. “[We] must remain lean and pay attention to the pennies, even during the most prosperous of times,” said one executive. Another noted, “We became more efficient in distribution and comparison-shopped for packaging materials and supplies. Overall, I’d say that the recession prompted us to pay more attention to details.” Others have seized the opportunity to further differentiate themselves in the marketplace. One executive offers this best practice: “Always be close to your customers and have a true understanding of their needs. Think and act like a service company, regardless of what you manufacture.”

The resurgence of optimism for food and beverage manufacturers may be tempered by ongoing cost pressures. However, companies will benefit from a reduction in commodity prices and an increase in efficiencies gained during the downturn. Those who continue to improve operations and maximize lean manufacturing practices stand to reap significant savings. What’s more, companies can take concrete steps to create a more profitable supply chain. Food and beverage manufacturers that are prepared for these challenges and take advantage of emerging opportunities will be ready to take a bite out of the action in the year ahead. •

About Grant Thornton LLP The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity. In the U.S., visit Grant Thornton LLP at www.GrantThornton.com. About Food Processing Established in 1940, Food Processing is the premier publication for the packaged foods industry. Food Processing writes for the entire management team about the critical issues in bringing a product successfully to market, exploring the latest trends in new product development, marketing, process optimization, packaging and workforce management.

Feasting on Opportunities in the Food Industry September 14, 2010

5 Fast Facts on Food Processing – Part 1 of 3 – February 2010

For more information In the coming months, Grant Thornton and Fast Facts on Food Processing will continue to offer perspectives on emerging industry events and issues, exploring trends and how they may be affecting your business. For more information about how Grant Thornton can help your organization or to offer comments about this survey, please contact: Dexter Manning Partner National Food and Beverage Industry Leader Grant Thornton LLP T 404.475.0061 E Dexter.Manning@gt.com Danny Goldberger Mid-Atlantic Partner-in-Charge Consumer and Industrial Products practice Grant Thornton LLP T 410.244.3222 E Danny.Goldberger@gt.com

Fast Facts on Food Processing Grant Thornton Food & Beverage Practice Part 2 of 3 – July 2010

Product and branding trends Food and beverage manufacturers continuously navigate a changing food landscape, always on the lookout for profitable niches in which they can grow and prosper. Many attempt to capitalize on current and growing trends such as organic or natural products. Others go after high-quality markets, promoting premium brands. And still others position themselves as value providers, offering good quality at low prices. Yet even the most profitable niche or market can shift suddenly, as macroeconomic trends influence consumption, or disasters — natural and manmade — threaten critical food supplies. Product and branding strategies must be focused enough to differentiate among goods in the marketplace, but nimble enough to adapt to changing conditions. Audit, tax and business advisory firm Grant Thornton LLP collaborates with Food Processing magazine on a series of industry surveys — Fast Facts on Food

Processing — to offer perspectives on performance trends, challenges and opportunities within the food industry. This survey, Product and Branding Trends, examines where food and beverage manufacturers are distributing their goods, how they are attempting to differentiate their products and brands, and which emerging trends are affecting their businesses. Responses were received from 114 companies (see the participant profile at the end of this report) in April 2010.

Feasting on Opportunities in the Food Industry September 14, 2010

Organic and natural labels

Products labeled as organic and/or natural continue to surge in popularity among consumers. However, many consumers are confused by the terminology. Natural means that a product has been made solely from botanical resources without additives or preservatives, while organic means that the product was grown in a chemical-free environment. The U.S. Department of Agriculture has an organic certification program in which producers follow a strict set of rules, but currently the Food and Drug Administration does not regulate the use of the terms organic or natural.

Product distribution

Table 1: Products labeled as organic and natural*

% of products

Organic (% of respondents)

Natural (% of respondents)

55% 36% 3% 3% 2% 2%

21% 41% 7% 7% 8% 15%

0% 1–25% 26–50% 51–75% 76–99% 100%

* Responses do not total 100% due to rounding.

Table 2: Product distribution*

% of products

Nationwide (% of respondents)

Outside United States (% of respondents)

0% 1–25% 26–50% 51–75% 76–99% 100%

14% 14% 7% 10% 15% 39%

27% 41% 5% 6% 7% 14%

* Responses do not total 100% due to rounding.

“There is widespread confusion in the market over these terms. Their misuse in product marketing, labeling and advertising is a tremendous issue and a real problem for eco-conscious consumers. Consumers are uncertain: Which is better for the environment? Which tends to be more expensive? Is there any difference?” says Dexter Manning, national Food and Beverage practice leader.

The labels organic and natural may be synonymous to some consumers, but the industry’s approach to applying these labels is well differentiated. More than half (55%) of food and beverage manufacturers have no products labeled as organic, and another 36% report that only 1% to 25% of their products are labeled as organic. More than three-quarters (78%) of food and beverage manufacturers label at least some of their products as natural. Fifteen percent of companies label 100% of their products as natural (see Table 1).

The vast majority (85%) of food and beverage manufacturers distribute at least some of their products nationwide, while 64% of companies distribute more than half of their products nationwide. Nearly four in 10 (39%) companies distribute all of their products nationwide. Similarly, nearly three-quarters (73%) of food and beverage manufacturers distribute some of their products outside the United States, and 27% distribute more than one-half of their products outside the United States (see Table 2). Large food and beverage manufacturers (those with annual revenues of more than $100 million) were more likely than smaller companies to report: • A higher percentage of products being distributed nationwide — 58% of large manufacturers have all of their products distributed nationwide vs. 29% of companies with annual revenues of $100 million or less. • Distribution outside the United States — 97% of large manufacturers distribute outside the United States vs. 60% of companies with annual revenues of $100 million or less. Interestingly, approximately 17% of smaller companies report that they distribute 100% of their products outside the United States. This is in contrast to just 8% of large firms that report distributing 100% of their products outside the United States.1

Reducing distribution costs through state and federal incentives and operational improvements Most private fleets of food and beverage manufacturers have seen their costs rising, not only from increases in fuel prices, but also due to an increased focus on clean air and safety by the U.S. Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA). The FMCSA’s new program — Comprehensive Safety Analysis (CSA) 2010 — is intended to improve large truck and bus safety, and ultimately reduce commercial motor vehicle-related crashes, injuries and fatalities. CSA 2010 has a new enforcement and compliance process, as well as interventions for those carriers that do not meet safety standards. A number of states, such as California, also have passed new emissions standards that require companies to purchase new equipment in order to continue to operate. Prior to Jan. 1, 2010, many companies took advantage of refundable federal income tax credits for the purchase of alternative fuels (natural gas, biodiesel, etc.), as well as for the new equipment and fueling stations to operate the equipment — for example, purchasing hybrid equipment. While food and beverage distribution companies are not eligible for tax breaks available to truckers, because their fleets are not their core business, there are a number of opportunities to reduce not only their sales and excise taxes but, more importantly, their operating costs through operational improvements. Operational improvements — for example, upgrading tractor equipment and refrigeration units, altering routing, and addressing workforce issues — can lead to long-term cost reduction and improved profitability for many years to come. 1

Seventy-three companies with revenues of $100 million or less, and 38 companies with revenues of more than $100 million.

Feasting on Opportunities in the Food Industry September 14, 2010

2 Fast Facts on Food Processing – Part 2 of 3 – July 2010

Nationwide and global distribution makes sense for large companies, given the increasingly global demand for branded food products — e.g., Coors Light sent to Mexico or Starbucks coffee exported to Canada. On the other hand, smaller food and beverage producers are less inclined to engage in cross-border transactions due to the local nature of their supply chains. “Unlike large organizations such as ADM or Cargill, smaller companies typically do not have the supply chains and networks to export significant amounts of food ingredients. For example, growing crops, grinding cornmeal, and producing corn oil in one location and then shipping those products overseas,” says Jeff Olin, managing partner of the International Tax Services practice. “But there are notable exceptions in the food additive and spice markets, where producers of all sizes tend to work across borders because of the relatively light shipping weights of these ingredients and the global supply channels.” Another consideration for many companies is transfer pricing. “For companies that are distributing internationally for the first time, transfer pricing can be a big issue. It is also important to have the proper corporate structure and, at times, the right business partner in countries where companies are doing business,” notes Manning.

Table 3: Private-label/store brands*

% of products

In 2009 (% of respondents)

In 2010 (% of respondents)

0% 1–25% 26–50% 51–75% 76–99% 100%

29% 21% 20% 16% 8% 6%

25% 24% 17% 14% 11% 8%

* Responses do not total 100% due to rounding.

Private-label/store brands

Over the last several years, the quality of private-label brands has improved considerably and now often rivals traditionally branded products. As a result, most major retail chains have adopted a private-label strategy. The recent recession has also spurred the growth of private-label products, since many consumers were apt to try privatelabel products as a cost-saving measure. According to survey findings, nearly three-quarters (74%) of food and beverage manufacturers report the production of products that carry private-label/store branding in 2010, up slightly from 71% in 2009 (see Table 3).

Over the last several years, the quality of private-label brands has improved considerably and now often rivals traditionally branded products.

Feasting on Opportunities in the Food Industry September 14, 2010

3 Fast Facts on Food Processing – Part 2 of 3 – July 2010

“While most of the major retail chains have a private-label strategy, smaller retailers don’t have the buying power or the retail space to offer private-label selections, so they typically go with the products that will produce the highest gross margin for them,” explains Manning. “There is little doubt that retailers will continue to pursue private-label products since they provide increased margins. In fact, many retailers are moving to multiple private-label product offerings, which are increasing the competition for remaining shelf space. For traditionally branded manufacturers, differentiation will be key,” says Tony Perazzo, Audit partner.

Table 4: Margins on private-label/store brands vs. company brands

% of all survey respondents Significantly lower Lower No difference Higher Significantly higher We do not have private-label brands We do not have company brands

10% 26% 16% 16% 6% 21% 5%

% of respondents with both private-label and company brands 14% 35% 21% 21% 9%

Table 5: Three-year change in SKUs* % of respondents More than 20% increase 11–20% increase 6–10% increase 1–5% increase 0% change 1–5% decrease 6–10% decrease 11–20% decrease More than 20% decrease

23% 17% 17% 18% 11% 6% 7% 2% 1%

* Responses do not total 100% due to rounding.

While private-label products offer better margins for retailers, the consensus among manufacturers, most of whom offer both private-label and branded products, is less clear. Three in 10 (30%) manufacturers report higher profit margins on private-label goods. At the same time, nearly half (49%) believe that private-label profit margins are lower than traditionally branded products. More than two in 10 (21%) report no difference in the margins between the two product categories (see Table 4). Executives who took the time to explain their private-label strategies offered a wide range of viewpoints. • “Since 2008, we’ve signiﬁcantly reduced private-label sales. I think that stores are trying to streamline their offerings and have reduced how many offerings they carry in a certain category. I know that’s happened at Trader Joe’s.” • “(Private-label is) seen as a growing value-oriented category, and we don’t incur the unsavory trade practices the distributors and retailers put upon vendors with name brands: i.e., rampant deductions, excessive marketing co-op charges and slotting.” • “There has been an increase in demand for our private-label products as we acquire additional customers.”

The competitive advantage for food and beverage manufacturers may lie in supplying a mix of products, including both brand-name and private-label products, as noted by one executive: “We continue to produce store-brand products for retailers who also distribute our branded products. This is a strategy based on partnership with the retailer to supply a tiered, complete-category solution that encompasses premium, branded and private-label products.” “The key for most retailers is determining which products will contribute to sales volume and throughput. Given the limited amount of retail space, it usually is not practical to have a tiered category for every product,” notes Manning. Products and competition

Product proliferation is a concern among food and beverage manufacturers, as a bloated product lineup can inflate operational costs at every step in the supply chain, resulting in increased ingredient sourcing, production changeovers, multiple packaging configurations, and oversaturated instore displays and placements. Indeed, determining which products to carry on their shelves is a major challenge for retailers. For new food and beverage companies, the rampant product proliferation and stiff competition for shelf space form a high barrier to market entry. Yet food and beverage companies continue to grow their product lineups. Three-quarters (75%) of food and beverage manufacturers report that

Feasting on Opportunities in the Food Industry September 14, 2010

4 Fast Facts on Food Processing – Part 2 of 3 – July 2010

Table 6: Competing brands Number of brands competing for shelf space 5 or more brands 4 brands 3 brands 2 brands 1 brand

% of respondents 46% 13% 19% 9% 13%

the number of SKUs their company produces has increased over the past three years — and 23% of Fast Facts participants report that SKUs increased by more than 20%. Only 16% of food and beverage manufacturers report a decrease in SKUs, while 11% report no change to their number of SKUs (see Table 5). Large food and beverage manufacturers (those with more than $100 million in revenues) were more likely to increase SKUs: 51% of large companies have increased SKUs by more than 10% over the past three years vs. just 34% of food and beverage manufacturers with $100 million or less in revenues. With large retailers taking a hard look at available shelf space (and reports of reductions in the number of brands carried), many food and beverage manufacturers are fighting for placement against multiple brands. Nearly half (46%) of participants compete against five or more brands for shelf space, and another 13% compete against four brands. Few manufacturers (13%) find only one competitor on retailers’ shelves (see Table 6).

The “greatest competitive differentiator” for Fast Facts respondents — the characteristic that compels a customer to buy one product over another — varies. Approximately 20% of companies cite quality as their competitive differentiator (e.g., “Quality, quality, quality” and “great quality keeps customers”), while another 19% combine quality and value (e.g., “Same quality, lower price” and “Similar quality, better pricing”). More than one-quarter (27%) of food and beverage manufacturers view healthy, organic or fresh/natural products and ingredients as their competitive differentiator. Thirteen percent point to the strength of their brands and loyal customer bases. Pricing alone is cited by a mere 3% of companies. Companies’ use of sustainable business practices is also becoming important to a growing number of consumers. Approximately two-thirds of companies promote the safety of their products and ingredients. Many executives specifically identify their safety efforts — “Safety is a claim that is detailed right on our product specifications across the board” and “the consumer is demanding safety more and more.” Others simply note that their products are known for safety: “The safety of our products and ingredients is a hallmark of our company’s quality.” Regardless of whether food and beverage manufacturers promote their products’ safety, it is extremely important to monitor and track suppliers in order to avoid food safety issues and potential product recalls. “Companies should periodically visit their suppliers

and understand the controls and food safety standards that their vendors are employing — it’s not enough to just take their word for it. Although this will result in incremental costs, it is much cheaper than the alternative — product recalls — which can be devastating,” cautions Perazzo. Some Fast Facts respondents believe that safety will continue to be the most influential product trend over the next 12 months. This will be affected by the direction of pending federal legislation calling for more ingredient tracking, which will require companies to upgrade existing technology and internal controls related to food safety. Among companies that don’t actively promote safety, reasons ranged from not supplying products that have a safe image (e.g., alcohol) to a belief that there could be a negative backlash. Said one executive: “We do not focus on safety for two reasons: First, we do not possess a clear advantage or differentiating feature. Second, a positioning associated with safety takes consumers to a negative place with food (fear-driven) rather than focusing on more rewarding emotional connections.” Given the stiff competition and product proliferation in the marketplace, companies with an appetite for success must be able to successfully differentiate their products from the many others on the shelves. At the same time, they must be able to keep costs down, yet still keep up with ever-changing regulations and food safety protocols, customer preferences and brand strategies. Those companies that do so effectively may be able to have their cake and eat it, too. •

Feasting on Opportunities in the Food Industry September 14, 2010

5 Fast Facts on Food Processing – Part 2 of 3 – July 2010

Regardless of whether food and beverage manufacturers promote their products’ safety, it is extremely important to monitor and track suppliers in order to avoid food safety issues and potential product recalls.

Profile of participants A diverse group of food and beverage manufacturers is represented in the results of Fast Facts on Food Processing: Product and Branding Trends. Two-thirds (66%) of survey participants report annual revenues of less than $100 million; 12% report revenues of $100 million to $500 million; and 22% report revenues of more than $500 million. Approximately 50% of participating companies produce processed foods, followed by meat, poultry and seafood (23%); miscellaneous/other (23%); and bakery products (20%).* * Participants were able to select more than one category.

For more information In the coming months, Grant Thornton and Food Processing magazine will continue to offer perspectives on emerging industry events and issues, exploring trends and how they may affect your business. For more information about how Grant Thornton can help your organization or to offer comments about this survey, please contact: Dexter Manning Grant Thornton LLP Partner National Food and Beverage Practice Leader T 404.475.0061 E Dexter.Manning@gt.com Matthew Bowles Grant Thornton LLP Principal State and Local Taxes T 404.475.0155 E Matthew.Bowles@gt.com Jeff Olin Grant Thornton LLP Managing Partner International Tax Services T 312.602.8014 E Jeff.Olin@gt.com Tony Perazzo Grant Thornton LLP Audit Partner T 415.365.5446 E Tony.Perazzo@gt.com

Focus on: Food and beverage

International Business Report 2010 – Sector focus series The Grant Thornton International Business Report (IBR) 2010 reveals that privately held businesses (PHBs) in the food and beverage sector are one of the least confident about their economic prospects for the year; a balance1 of just +7 per cent are optimistic this year. Businesses, on average across all sectors, are more optimistic this year (+24 per cent) than they were in 2009 (-16 per cent). Of the ten sectors considered in the 2010 sector focus series, financial services is the most buoyant at +42 per cent; ahead of technology (+40 per cent), cleantech (+34 per cent), hospitality (+32 per cent), retail (+31 per cent), manufacturing (+25 per cent), construction and real estate (+13 per cent), food and beverage (+7 per cent), transport (+5 per cent) and healthcare (-18 per cent).

Mergers and acquisitions (M&A) activity in the industry dropped significantly in 2009 as banks became more risk averse. The total number of deals fell by just three per cent – from 3036 to 2949 – but the value of these transactions declined by a staggering 52 per cent from the previous year.2 In an attempt to prevent stagnation, many businesses in more mature economies have looked to expand their operations in the emerging markets, which have, by and large, held up better during the downturn.

The food and beverage sector

The food and beverage sector did not escape the financial turmoil of the past 12 months, although some sub-sectors suffered more than others. As credit dried up and consumers tightened their belts, higher end restaurant sales plummeted, but the subsequent increase in people eating at home has been a boon for supermarkets. Sales of private label products as well as nutritional and healthy lifestyle ranges have been especially profitable. Commodity food and beverage prices peaked in July 2008, but had lost almost a third by the end of 2009, to finish at their lowest since May 2007. Prices remained fairly volatile over the course of 2009, but finished the year at around the same level as 24 months previously.

the balance is the proportion of companies reporting they are optimistic less those reporting they are pessimistic source: Zephyr ‘Annual M&A report 2009’

Feasting on Opportunities in the Food Industry September 14, 2010

The state of the sector

Optimism/pessimism

• a balance of just seven per cent of businesses in the food and beverage sector are optimistic about their respective countries’ economic outlook this year (+7 per cent) • only businesses in the transport (+5 per cent) and healthcare (-18 per cent) sectors are less optimistic about the economic outlook this year • across all sectors, the balance indicating optimism for the year ahead has risen by 40 per cent this year, from -16 per cent in 2009 to +24 per cent.

Figure 1: Outlook for the economy over the next 12 months Percentage balance of businesses indicating optimism against those indicating pessimism Financial services

Technology

Cleantech

Hospitality

Retail

Manufacturing

All sector average

Construction and real estate

Food and beverage

Transport

Healthcare

-18

Source: Grant Thornton IBR 2010

“The green agenda is continuing to gather momentum despite the economic downturn; this is again affecting the architecture of businesses and the way in which they take products to market and source raw materials.”

Trefor Griffith Grant Thornton, United Kingdom

Feasting on Opportunities in the Food Industry September 14, 2010

Employment

• a balance of +17 per cent of businesses in the food and beverage sector expect to expand the size of their workforce in 2010, below the all sector average of +20 per cent • actual employment growth reported on average across all sectors in 2009 (-8 per cent) was even worse than expected 12 months previously (-4 per cent).

Figure 2: Employment history: 2008-2010 Percentage balance of businesses indicating an increase against those indicating a decrease 40 30 20 10 0 -10 Expected food and beverage

2008 –

2009 –

2010* 17

Expected all sectors

-4

Actual food and beverage

–

Actual all sectors

-8

–

*actual 2010 data will be documented in IBR 2011 Note: the food and beverage expected data for 2008 and 2009 as well as the actual data for 2008 are not available as this sector has not been covered in the survey previously. Source: Grant Thornton IBR 2010

Revenue expectations

• a balance of +40 per cent of businesses in the food and beverage sector expect their revenue to increase across 2010 • only businesses in the transport (+25 per cent) and construction and real estate (+22 per cent) sectors are less optimistic about increasing revenue in 2010 • on average across all sectors, revenue expectations have rebounded to +40 per cent this year, up from just +11 per cent in 2009.

Figure 3: Revenue expectations over the next 12 months Percentage balance of businesses indicating an increase against those indicating a decrease Healthcare

Cleantech

Technology

Financial services

Retail

Manufacturing

Hospitality

All sector average

Food and beverage

Transport

Construction and real estate

Source: Grant Thornton IBR 2010

“Businesses have tried to control their margins and their costs to the best of their ability but the combination of the fall in tourism as a result of the financial crisis and the fall or the tightening of corporate style expenditure has had a huge impact.”

Jim Softsis Grant Thornton, Australia

Feasting on Opportunities in the Food Industry September 14, 2010

Profitability expectations

• the balance of businesses in the food and beverage sector expecting to increase profits in 2010 is +27 per cent, similar to the all sectors average of 29 per cent • the all sectors average has increased by 34 per cent, from -5 per cent in 2009 to +29 per cent this year.

Figure 4: Profitability expectations over the next 12 months Percentage balance of businesses indicating an increase against those indicating a decrease Financial services

Cleantech

Technology

Retail

Hospitality

Manufacturing

All sector average

Food and beverage

Healthcare

Transport

Construction and real estate

Source: Grant Thornton IBR 2010

Constraints

• a shortage of orders/reduced demand is the most pressing concern for businesses in the food and beverage sector, 33 per cent compared to 39 per cent on average across all sectors • identical to the all sector average, regulations/red tape is cited as the second biggest constraint by businesses in the food and beverage sector (both 32 per cent) • the availability of a skilled workforce is of considerably lesser concern within the food and beverage sector (12 per cent), than it is on average across all sectors (21 per cent).

Figure 5: Constraints on expansion Percentage of businesses rating constraint 4 or 5 on a scale of 1 to 5 where 1 is not a constraint and 5 is a major constraint Shortage of orders/reduced demand

33 39

Regulations/red tape

32 32

Cost of finance

24 28

Shortage of long term finance

22 25

Shortage of working capital

20 26

Availability of a skilled workforce

12 21 Food and beverage

All sector average

Source: Grant Thornton IBR 2010

“More and more companies are investing in expanding their plants or in technology that will help them control costs going forward. Having made it through the recession, they are looking to position themselves so that, if there is an increase in commodity prices going forward or other things, they can be as efficient as possible in their production.” Dexter Manning Grant Thornton, United States

Feasting on Opportunities in the Food Industry September 14, 2010

Support of lender

• 81 per cent of businesses in the food and beverage sector are happy with the level of support provided by lenders, compared with 69 per cent on average across all sectors • just five per cent of businesses in the sector believe that lenders are unsupportive or very unsupportive of their business, compared to ten per cent on average across all sectors.

Figure 6: Level of support provided by lenders Percentage of businesses 50 45 40 35 30 25 20 15 10 5 0 28 27

53 42

13 18

Very supportive

Supportive

Neither Unsupportive supportive or unsupportive

Food and beverage

4 7

1 3 Very unsupportive

All sector average

Source: Grant Thornton IBR 2010

Mergers & acquisitions

• the proportion of businesses in the food and beverage sector planning to grow through acquisition is 16 per cent, ahead only of healthcare (11 per cent) • the all sector average has fallen steadily over the past three years from 44 per cent in 2007 to 26 per cent this year.

Figure 7: Plans to grow through acquisition in the next three years Percentage of businesses planning to grow through acquisition Transport

Retail

Cleantech

Manufacturing

Construction and real estate

All sector average

Hospitality

Financial services

Technology

Food and beverage

Healthcare

Source: Grant Thornton IBR 2010

Daniel Maranhão Grant Thornton, Brazil

“In 2009, the Brazilian food and beverage market turnover increased 8.4 per cent compared to 2008, an annual revenue of R$291.6 billion, representing 9.3 per cent of GDP and 19.7 per cent of total turnover of industries (nine per cent and 18 per cent respectively in 2008). This is a reflection of the increase in the purchase power of middle and lower classes, which form the majority of the population. They are very loyal to the brands and have the desire to spend more.”

Feasting on Opportunities in the Food Industry September 14, 2010

Consumer trends

• healthy eating (69 per cent) and price awareness (64 per cent) are the trends that most businesses in the food and beverages sector believe have increased • a balance of just six per cent believe that alcohol sales have increased • whilst impulse spend is the only trend believed to have decreased (-31 per cent).

Figure 8: What is the current trend for the following consumer behaviour? Percentage balance of businesses indicating increased against those indicating decreased Healthy eating

Price awareness

Sales of organics

Sales of “basics”

“Chilled convenience” sales

Alcohol sales Impulse spend

6 -32

Source: Grant Thornton IBR 2010

Large supermarket dominance

• actively targeting new customers is the most popular action to counteract the dominance of large supermarkets in the food and beverage sector (34 per cent) • followed closely by pricing, with 31 per cent of businesses in the sector adopting this strategy • the least popular options are acquiring competitors (seven per cent) and moving into new overseas locations (four per cent).

Figure 9: What are you doing to counteract the dominance of the large supermarkets on your business? Percentage of businesses Actively targeting new customers

Changing competitive strategy (pricing)

Not concerned

Finding new suppliers

Changing stock types

Moving into new domestic locations

Acquiring competitors to increase market share

Moving into new overseas locations

Source: Grant Thornton IBR 2010

Feasting on Opportunities in the Food Industry September 14, 2010

Outlook for the sector

The takeover of British confectionary giant Cadbury by American firm Kraft in January 2010 is one indication of renewed confidence in the sector, now that credit lines are easing and markets are becoming less volatile. Indeed, the valuations of many businesses have dropped rapidly over the past 18 months, making them attractive propositions for businesses with healthy balance sheets. The developing world should remain an appealing investment opportunity, especially China where M&A regulations were relaxed last year, in an effort to attract foreign direct investment.

As the global economy improves, and consumer demand recovers, so too should the food and beverage sector. However many challenges remain, such as the volatility of commodity prices and the need to be ever more creative with deals and packaging to attract customers, who themselves are questioning the nutritional benefits of products more than ever before. Higher-end food service businesses will rely on improving consumer confidence and innovative pricing strategies to drive performance over the next 12 months.

“Environmental initiatives are a ‘must’ for food and beverage companies. They impact all aspects of their operations, from purchasing to producing to packaging. There is no choice but to get on board with these green initiatives, as they are not going to go away.”

Jim Menzies Grant Thornton, Canada

Feasting on Opportunities in the Food Industry September 14, 2010

Sector’s perspective “The trend regarding organics is increasing but I believe part of the reason is that there is no real standard of what it takes to be organic.” A Canadian chain of restaurants employing around 7,500 staff. Lessons learned from the downturn

Planning for the future

“Restaurant’s competition in particular has been aggressive, in terms of value to consumers. People are watching their pockets in the economic crisis and we need to offer value to get them in and spending; the value proposition for customers. Consumers have greater information these days so you have to make sure that restaurant guests are serviced especially well. With new communication methods and new social media, networking word is spreading much faster. In Canada, there are so many different internet sites for consumers to leave reviews; they can be their own critic. You have to be aware that there are so many more communication channels available now.”

“We are looking at new locations in the domestic market as well as in other regions outside of Canada, potentially international. So the plan for moving forward is to perfect the development and execution of new restaurants. And as always, to ensure that we continue to offer good customer satisfaction and salesmanship in existing and new restaurants, to ensure we uphold our image. Internally there is always room for improvement. That is, improvement in standards, the customer experience, salesmanship and higher turnover. Internally we are also looking at methods of moving the business forward; that may be through additional training, the renovation of restaurants, new product development and technological changes. We have just launched an online take out service for customers to place orders over the internet.”

Major risks for the year ahead

“In this market, competition is always the risk; it’s intense in this market place. There are new entrants and they are raising the bar in terms of standards, food quality, the overall experience and salesmanship. In Vancouver, a harmonised sales tax, rather like the UK’s VAT, has been introduced. Specifically for us, as in restaurants, it will affect us as restaurant meals are to be taxed an additional seven per cent. Unique to the industry, rather than just our chain, is the government’s growing involvement in healthy foods and eating. Reforms are to be introduced for restaurants to publish the nutritional information of their meals; this will affect everybody in the restaurant industry. These are the risks specific to our industry but we also have the broader major risks to contend with. But as with any business we are also concerned about and affected by competition, the economy and the cost of products.”

Rise of healthy eating

“Healthy eating is definitely something that is important but people also want taste, especially in our market place. Highly flavoured Asian/ethnic food has really caught on here so people may want healthy food but they are not willing to forfeit taste and flavour. People are definitely more price aware in the current situation. I also agree the trend regarding organics is increasing, but I believe part of the reason is that there is no real standard of what it takes to be organic. It makes sense that impulse buying is decreasing as consumers are looking for value. They have the knowledge nowadays; they know different companies have different value points. And they know how to target that avenue rather than buying on impulse.”

Feasting on Opportunities in the Food Industry September 14, 2010

“It is very tricky to balance fixed costs with flexible pricing for customers.”

Archeon – Netherlands The company provides food and beverage service activities, employing around 100 staff. Lessons learned from the downturn

Planning for the future

“We have learnt to be careful, to check all our costs and expenses and to think twice before making any purchase or investments. We have also learnt to be flexible on price as customers like discounts; with private businesses especially, flexibility is required to ensure loyalty.”

“We do serve both businesses and private parties but the focus will be more on private parties and visitors. We also have to look into pricing at peak times, for example, altering prices during the busy 6pm – 7pm dinner slot. As this has become the norm we need to follow suit, we have to be more flexible as it provides more opportunities. Also, with environmental power and energy, the way forward is positive thinking and advances in technological solution and not through taxation/legislation by the government.”

Major risks for the year ahead

“The risks are also linked to pricing: customers want flexible prices but a lot of our costs are fixed. The essentials such as gas, water and electricity are fixed and prices inflexible. So it is very tricky to balance fixed costs with flexible pricing for customers. The government needs to look elsewhere to generate the extra income that they require, rather than through taxing businesses. Compared to ten years ago it is much more expensive to set up a business, there is a lot of legislation.”

Rise of healthy eating

“I agree that the trend in healthy eating is increasing, as is price awareness. We have seen that consumers are looking more at price; they want a fair price for fair products, but they don’t want to pay more for fairtrade products. Just as they are using ‘price dump’ stores more now, they expect the same in our sector. Impulse spending has reduced, we see that through the peak time pricing (6pm-7pm), and private parties expect prices to be more negotiable.”

Feasting on Opportunities in the Food Industry September 14, 2010

View from Grant Thornton

Lessons learned from the downturn • consumers have started to shop for value:

a large proportion of shoppers have altered spending habits in a bid to save money • value of price promotions: discounts, promotions and loyalty cards in supermarkets have boomed in a bid to retain customers • demand for ‘ethical’ and ‘healthy’ goods remains robust: sales of fairtrade, green, health and free range goods have remained stable despite the downturn, although consumers are prepared to shop around for value • staying close to your banker: indebted businesses need to stay in close contact with their banker to avoid hitting them with nasty surprises • dangers of being over-leveraged: cash flow became an issue for many highly-leveraged businesses when commodity process spiked • importance of monitoring financial health of supply chains: businesses need to keep up to speed with their supply chains in order to safeguard their own production capabilities.

Major risks for the year ahead • food safety: most large food producers are

•

Feasting on Opportunities in the Food Industry September 14, 2010

becoming increasingly aware of health and safety processes within their supply chains, and are increasing their ability to recall products commodity price spikes: there are concerns around prices of certain raw materials which could impact on 2010 business plans consumer confidence: high levels of personal debt combined with increased levels of taxation will continue to put downward pressure on prices, impacting on research and development spend currency fluctuations: the sector is also a victim of that and whether or not any currency fluctuations will bring back tourists energy costs: if the price of oil continues to rise, it will have a significant impact on the cost of transporting goods.

Planning for the future • investment in efficiency: businesses are

expanding their plants or investing in technology; that will help them control costs going forward • balance sheet control: many businesses are looking to deleverage and some large organisations are looking to sell non-core assets to reduce debts • consolidation: manufacturers are looking to create greater scale in order to protect their business from further pressure from the retailers • search for capital: businesses in emerging markets are looking to increase capacity ahead of expected increases in consumption • understanding consumer preference: businesses are increasingly trying to tailor their offer to consumer demand • demand for ‘green packaging’: many businesses in the sector need to consider new packaging innovations to make sure it becomes more environmentally friendly.

Feasting on Opportunities in the Food Industry September 14, 2010

Implications of increasing demand for ‘healthy eating’ products • pressure on cash: larger producers will be

looking to buy smaller producers of the specialised products to be able to increase their product offering, but production volume will remain relatively low and logistics costs increase • difficulty of balancing value with consumer preference: consumers are demanding healthy eating products but at low prices, which is a tough balancing act for the sector • increasing awareness of consumer: consumers are prepared to shop around to see their preferences and expectations in terms of price met • trend set to increase: younger generations are becoming increasingly aware of the health and environmental impact of products and businesses with the foresight to prepare for this should prosper.

The Grant Thornton International Business Report (IBR) is an annual survey of the views of senior executives in privately held businesses (PHBs) all over the world. Launched in 1992 in nine European countries the report now surveys over 7,400 PHBs in 36 economies providing insights on the economic and commercial issues affecting a segment often described as the ‘engine’ of the world’s economy. In the food and beverage sector, 390 businesses were interviewed, 47 per cent from manufacture of food products, 18 per cent from retail sale of food, beverages and tobacco in specialised stores, ten per cent from food and beverage service activities, eight per cent from manufacture of beverages and 17 per cent from other food and beverage. To find out more about IBR and to obtain copies of reports and summaries visit: www.internationalbusinessreport.com. The site also allows users to complete the survey and benchmark their results against all other respondents by territory, industry type and size of business.

Participating economies Argentina Japan Armenia Malaysia Australia Mexico Belgium Netherlands Botswana New Zealand Philippines Brazil Poland Canada Russia Chile Singapore Mainland China South Africa Denmark Spain Finland Sweden France Taiwan Germany Thailand Greece Turkey Hong Kong United Kingdom India United States Ireland Vietnam Italy

www.gti.org www.internationalbusinessreport.com © 2010 Grant Thornton International Ltd. All rights reserved. Grant Thornton International Ltd (Grant Thornton International) and the member firms are not a worldwide partnership. Services are delivered independently by the member firms.

Feasting on Opportunities in the Food Industry September 14, 2010

FOOD FOR THOUGHT Overview, Analysis, and Trends in the Food and Food Retailing Industries September 2010 â&#x20AC;&#x201C; Monthly Update Food & Beverage Production

Food & Convenience Retail

James M. Bertram jbertram@williamblair.com +1.312.364.5426

Timothy W. Carroll tcarroll@williamblair.com +1.312.364.8532

Brent M. Smith bsmith@williamblair.com +1.312.364.5392

Michael W. Siska msiska@williamblair.com +1.312.364.5393

Adam S. Filkin afilkin@williamblair.com +1.312.364.8077

Feasting on Opportunities in the Food Industry September 14, 2010

M&A Market Analysis Steven M. Bernard, CFA sbernard@williamblair.com +1.312.364.8221

Announced M&A Activity Announced M&A Activity

Food & Beverage Producer Transactions

Selected Global M&A Activity â&#x20AC;&#x201C; August 2010

Food & Beverage Producer Transactions ($ in millions) Date Announced

Seller (Unit Sold) / Seller Business Description

Enterprise Value / Sales EBITDA

Target Nation

Buyer

Albania

Meggle AG

Enterprise Value

08/10/10

Ferlat Manufacturer of diary products

08/25/10

Grupo Arcor SA (Frozen vegetables business) Frozen vegetables producer

Argentina

Quickfood SA

08/26/10

P&N Beverages Australia Pty Ltd. Manufactures soft drinks

Australia

Asahi Breweries Ltd.

$321.20

08/16/10

Gunns Ltd. (Tamar Ridge Estates vineyard and winery interests) Vineyard and winery

Australia

Brown Brothers Milawa Vineyard Pty Ltd.

$29.00

08/12/10

Amberley Estate Pty Ltd. Winery

Australia

Private Investor

08/05/10

De Koninck NV Brewery

Belgium

Duvel Moortgat NV

$39.60

08/12/10

Maidstone Bakeries Food and confection producer

Canada

Aryzta AG

$913.10

08/09/10

Menu Foods Ltd. Manufacturer of pet food

Canada

Simmons Pet Food Inc.

$239.00

08/27/10

Shenzhen Shenbao Huacheng Tech Co., Ltd. Engaged in producing and selling tea

China

Shenzhen Shenbao Industrial Co., Ltd.

$19.80

1.09x

08/24/10

Henan Yueshan Brewery Co., Ltd. Manufacturer and distributer of beer

China

Beijing Yanjing Brewery Co., Ltd.

$37.10

08/20/10

Xinjiang Guannong Tomato Products Co., Ltd. Tomato manufacturer

China

Xinjiang Guannong Fruit & Antler (Group) Co., Ltd.

$14.70

08/20/10

Xinjiang Guannong Lufeng Food Co., Ltd. Snack manufacturer

China

Xinjiang Guannong Fruit & Antler (Group) Co., Ltd.

$0.80

08/16/10

Pine Agritech Ltd. Manufacturer of soybean-based products

China

Link Crest Ltd.

$360.80

2.63x

08/16/10

Million Excellence Ltd. Agricultural businesses

China

Ever Fortune International Holdings Ltd.

$18.40

08/12/10

Fujian Pucheng Star of Green Foodstuff Co. Agricultural products

China

Aquarius Capital Corp.

$33.80

08/12/10

Changzhou Dajiang Feeds Co., Ltd. Manufacturer of animal foods

China

Oasis Investment Group Ltd.

$5.70

08/12/10

Shanghai Dajiang Aquatic Feeds Technology Co., Ltd. Manufacturer of animal foods

China

Oasis Investment Group Ltd.

$0.20

Source: Dealogic, as of August 31, 2010. *Transactions represent announced change of control global transactions.

Feasting on Opportunities in the Food Industry September 14, 2010

Announced M&A Activity (Cont’d) Announced M&A Activity (Cont’d)

Food & Beverage Producer Transactions ($ in millions) Date Announced

Seller (Unit Sold) / Seller Business Description

Enterprise Value / Sales EBITDA

Target Nation

Buyer

China

Best Miracle International Ltd.

Enterprise Value

08/02/10

Cheong Tat International Development Ltd. Producer of noodles and soup

08/12/10

IPK Kandit dd Confectionery producer

Croatia

Termes

$27.60

08/09/10

Diplom-Is IS Ice cream manufacturer

Denmark

Unilever plc & NV

08/02/10

Maalaistuote Vataja Oy Manufacturer of meat products

Finland

GSS-Export Oy

08/24/10

Immedia SARL Smoothies and fresh juices manufacturer

France

Groupe Danone SA

08/09/10

Hero AG Compote business

France

Groupe Credit Mutuel CEE

08/06/10

Saveurs de France - Brossard SA (Frozen activities) Producer of frozen foods

France

Alfesca HF

$32.30

08/17/10

SDI Soft Drink International GmbH & Co. KG Soft drinks and water manufacturer

Germany

Refresco Holding B.V.

Germany

ECM Equity Capital Management GmbH

Germany

Private Investor

08/12/10

08/03/10

Kamps GmbH (Kamps bakery chain business) Manufacturer of bakery products Confiserie Coppeneur et Compagnon GmbH Manufacturer of chocolate and confectionary

08/10/10

Malher SA Manufacturer of canned foods

Guatemala

Nestle SA

08/17/10

CJ Global Holdings Ltd. Food manufacturer

Hong Kong

CJ CheilJedang Corp.

$77.20

08/23/10

PT Jawamanis Rafinasi - JMR Sugar refinery

Indonesia

Wilmar International Ltd.

08/12/10

Newmarket Co-operative Creameries Ltd. Manufacturer of cheese

Ireland

Kerry Group PLC

$42.80

08/03/10

Diamalteria Italiana Srl Manufacturer of malt products

Italy

Malteurop

08/30/10

Q'sai Co., Ltd. Manufacturer of health foods and supplements

Japan

Coca-Cola West Co., Ltd.

$746.80

08/30/10

Hayashikane Delica Co., Ltd. Manufacturer of frozen and canned food

Japan

Maruha Nichiro Holdings Inc.

$1.20

Source: Dealogic, as of August 31, 2010. *Transactions represent announced change of control transactions globally.

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

Announced M&A Activity (Cont’d) Announced M&A Activity (Cont’d)

Food & Beverage Producer Transactions ($ in millions) Date Announced

Seller (Unit Sold) / Seller Business Description

Target Nation

Buyer

Enterprise Value

Enterprise Value / Sales EBITDA

08/27/10

Mercian Corp. Manufacturer of alcoholic drinks

Japan

Kirin Holdings Co., Ltd.

$283.33

0.30x

6.0x

08/19/10

i pork Co., Ltd. Pork processing company

Japan

Yonekyu Corp.

08/02/10

Kaiyo-Foods Co., Ltd. Manufacturer of seafood products

Japan

Kyokuyo Co., Ltd.

$3.90

08/27/10

SCC Food Manufacturing Sdn Bhd Sugar mix supplier

Malaysia

SCC Holdings Bhd

08/02/10

Tohu Wines Wine producer

New Zealand

Wakatu Incorporation

08/01/10

Vintage Wines & Spirits Ltd. Manufacturer of wine and spirits

New Zealand

Eurowine Fine Wines (1990) Ltd.

08/25/10

Vesna Firm ZAO Milk producer

Russia

Nizhny Novgorod Dairy Plant No 1 OAO

08/24/10

Upravlenie Rabochego Snabzheniya OOO Food manufacturer and restaurant operator

Russia

Undisclosed Acquiror

08/05/10

Nidan Soki OAO Manufacturer of soft drinks

Russia

Coca-Cola Co.

08/03/10

Tselinskkhleboprodukt OAO Bread manufacturer

Russia

Private Investor

08/03/10

Heba Water bottling distributer

Serbia

Nectar doo

08/11/10

Rossgro Chickens (pty) Ltd. Poultry processing company

South Africa

Afgri Ltd.

$31.50

08/13/10

Dehesa del Carrizal SL Winery

Spain

Grupo Villar Mir

08/04/10

Carnicas Oliventinas Animal slaughtering company

Spain

Nueva Rumasa SA

08/10/10

Lindahls Holding AB Manufacturer of dairy products

Sweden

Skanemejerier AB

08/10/10

Ostgota Mjolk Manufacturer of dairy products

Sweden

Skanemejerier AB

08/04/10

Serengeti Breweries Ltd - SBL Brewery

Tanzania

Diageo PLC

Source: Dealogic, as of August 31, 2010. *Transactions represent announced change of control transactions globally.

Feasting on Opportunities in the Food Industry September 14, 2010

Announced M&A Activity (Contâ&#x20AC;&#x2122;d) Announced M&A Activity (Contâ&#x20AC;&#x2122;d)

Food & Beverage Producer Transactions ($ in millions) Date Announced

Seller (Unit Sold) / Seller Business Description

Target Nation

Buyer

Enterprise Value

Enterprise Value / Sales EBITDA

08/18/10

Great Western Wine Co., Ltd. Wine company

United Kingdom

ISIS Equity Partners PLC

08/09/10

Northern Foods PLC (Dalepak Frozen Food) Producer of frozen foods

United Kingdom

Irish Food Processors

$10.20

08/09/10

White Brewing Co. Brewery

United Kingdom

Private Investor

08/30/10

Keystone Bakeries Manufactures and supplies frozen desserts

United States

Maplehurst Bakeries LLC

$185.00

08/19/10

Steelhead Wines Wine company

United States

V2 Wine Group

08/17/10

Pet Lane Inc. Manufacturer of nutritional products

United States

Usana Health Sciences Inc.

$62.70

08/17/10

Cosentino Signature Wines PLC (Wineries) Wine producer

United States

Entertainment Properties Trust

08/16/10

M2P2 LLC Hog farming company

United States

AgFeed Industries Inc.

$26.00

08/11/10

Independent Brewers United Inc. Producer and distributor of beers and beverages

United States

North American Breweries

08/09/10

Bar-S Foods Co. Meat producer

United States

Alfa SA de CV

08/03/10

Kona Brewing Co. Brewery

United States

Craft Brewers Alliance Inc.

08/23/10

Companhia de Bebidas das Americas SA - AmBev (Venezuelan beer operations) Beer producer

Venezuela

Cerveceria Regional CA

Source: Dealogic, as of August 31, 2010. *Transactions represent announced change of control transactions globally.

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

Announced M&A Activity (Contâ&#x20AC;&#x2122;d) Food & Convenience Retail Transactions

Selected Global M&A Activity â&#x20AC;&#x201C; Last Two Months

Food & Convenience Retail Transactions ($ in millions) Date Announced

Seller (Unit Sold) / Seller Business Description

Enterprise Value/ Sales EBITDA

Target Nation

Buyer

Enterprise Value

Australia

Metcash Trading Ltd.

$182.6

07/01/10

Interfrank Group Holdings Pty Ltd. Supermarket chain operator

07/07/10

ADEG Oestrerreich Genossenschaft Supermarket chain operator

Austria

Rewe-Gruppe

07/22/10

Kaleya Supermarket chain operator

Bulgaria

T-Market

07/27/10

Beijing Hualian Hypermarket Co., Ltd. Supermarket chain operator

China

Beijing Hualian Group Investment Holding Co., Ltd.

$421.7

0.31x

9.4x

07/15/10

Carrefour SA (A joint venture company in China) Supermarket chain operator

China

Hebei Baolongcang Commercial Chain Operation Co., Ltd.

08/03/10

Rajdhani Thali Supermarket chain operator

India

Mirah Group

08/16/10

Simeone Srl Convenience stores

Italy

Coop Centro Italia Societa cooperativa

08/09/10

Grifone Srl Convenience stores

Italy

Conad del Tirreno Scrl

08/04/10

Supermarkets (61 supermarket in Italy) Supermarket chain operator

Italy

Megamark Srl

08/10/10

Yoshida Usaburo Shoten Co., Ltd. Seller of alcoholic beverages

Japan

Diamond Dining Co., Ltd.

$0.1

07/17/10

Maxvalu Hokkaido Co., Ltd. Supermarket chain operator

Japan

Aeon Co., Ltd.

$192.0

0.22x

19.4x

07/02/10

Sanvier B.V. Supermarket chain operator

Netherlands

Sligro Food Group NV

$61.8

08/26/10

Izhevskiy Torg OAO Grocery store operator

Russia

Omni OOO

08/24/10

Zavod Sortovykh Kolbas ZAO Meat products retailer

Russia

Undisclosed Acquiror

08/04/10

Refttorg OAO Grocery store operator

Russia

Private Investor

Source: Dealogic, as of August 31, 2010. *Transactions represent announced change of control transactions globally.

Feasting on Opportunities in the Food Industry September 14, 2010

Announced M&A Activity (Contâ&#x20AC;&#x2122;d) Selected Global M&A Activity â&#x20AC;&#x201C; Last Two Months

)

Food & Convenience Retail Transactions ($ in millions) Date Announced

Seller (Unit Sold) / Seller Business Description

Target Nation

Buyer

Enterprise Value

Enterprise Value/ Sales EBITDA

08/04/10

Avtovaztorgsnab OAO Supermarket chain operator

Russia

Undisclosed Acquiror

08/03/10

Kollektsiya Vin OOO Operator of wine stores

Russia

Azbuka Vkusa - Gorodskoy Supermarket

08/17/10

Supermarkets (21 supermarkets in Spain) Supermarket chain operator

Spain

Rockspring Property Investment Managers LLP

$57.7

08/18/10

Opus Homewares Ltd. Home ware retailer

United Kingdom

B&M Bargains Ltd.

$75.0

08/18/10

Coles Traditional Foods Ltd. Supermarket chain operator

United Kingdom

Wilkin & Sons Ltd.

08/10/10

GR Vietnam International Ltd. Convenience stores

Vietnam

Golden Resources Development International Ltd.

$4.3

Source: Dealogic, as of August 31, 2010. *Transactions represent announced change of control transactions globally.

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

Valuation Trends â&#x20AC;&#x201C; Food & Beverage Producers Valuation Trends â&#x20AC;&#x201C; Food & Beverage Producers

Valuation Trends

Average EBITDA Multiples for Food Transactions(1) Average EV/EBITDA Multiple

Number of Disclosed Deals

EV/EBITDA Multiple 14.0x 12.0x

12.0x

10.0x

8.7x

8.6x

8.4x

10.4x

9.9x

9.1x

12.0x

11.4x

25 9.3x 8.1x

8.0x

8.1x

6.0x

4.0x

2.0x

0.0x

Average Enterprise Value/EBITDA Number of Disclosed Deals

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

YTD 2009

YTD 2010

12.0x

8.7x

8.6x

8.4x

9.1x

11.4x

9.9x

12.0x

10.4x

9.3x

8.1x

Source: Dealogic and William Blair & Company, as of August 31, 2010. Note: Data represents global transactions announced in the food sector. (1) Excludes food & convenience retail transactions.

Average EBITDA Multiples for Beverage Transactions(1) Average EV/EBITDA Multiple

Number of Disclosed Deals

EV/EBITDA Multiple 20.0x

15.0x

10.0x

17.3x 14.1x

12.9x 10.1x

11.8x

12.0x

13.5x

16 14

13.4x

11.7x

11.3x

9.5x

10.9x

12 10 8 6

5.0x

4 2

0.0x

Average Enterprise Value/EBITDA Number of Disclosed Deals

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

YTD 2009

YTD 2010

10.1x

12.9x

9.5x

11.8x

14.1x

12.0x

13.5x

13.4x

17.3x

11.7x

11.3x

10.9x

Source: Dealogic and William Blair & Company, as of August 31, 2010. Note: Data represents global transactions announced in the beverage sector. *Beverages include alcoholic and non-alcoholic beverages. (1) Excludes food & convenience retail transactions.

Feasting on Opportunities in the Food Industry September 14, 2010

Public Company Trading Statistics Public Company Trading Statistics

Food Production Companies

Food Production Companies ($ in millions) Company NestlĂŠ S.A.

Market Capitalization

% Change MTD YTD

Forward P/E PEG

Enterprise Value

(1)

TEV / LTM Sales EBITDA

$170,509.0

4.0%

6.7%

16.3x

NMF

$204,713.1

2.13x

13.2x

Unilever PLC

$74,401.9

(3.2%)

Kraft Foods Inc.

$52,164.8

3.9%

(12.1%)

13.2x

193.0%

$84,746.8

1.65x

11.1x

11.7%

14.7x

205.4%

$79,459.8

1.76x

Danone

$33,177.6

0.7%

10.6x

1.2%

15.9x

155.1%

$42,125.7

2.17x

11.5x

General Mills Inc.

$23,222.6

Kellogg Company

$18,767.1

6.0%

2.4%

15.0x

188.5%

$29,395.8

1.99x

9.5x

0.1%

(5.9%)

14.3x

152.3%

$23,324.1

1.86x

9.2x

HJ Heinz Co.

$14,706.8

3.0%

7.1%

15.4x

211.5%

Associated British Foods plc

$12,857.3

4.1%

30.0%

15.2x

138.8%

$18,975.7

1.81x

10.1x

$15,157.9

1.03x

Campbell Soup Co.

$12,651.0

3.5%

9.9%

14.7x

244.9%

$15,128.0

1.97x

9.5x 9.2x

The Hershey Company

$10,554.2

0.4%

31.9%

18.4x

242.0%

$11,315.1

2.05x

9.7x

ConAgra Foods, Inc.

$9,492.4

(6.6%)

(4.9%)

11.8x

148.0%

$12,056.2

1.00x

7.3x

George Weston Limited

$9,899.2

6.6%

25.1%

$14,370.1

0.46x

7.5x

Sara Lee Corp.

$9,562.5

(0.9%)

20.4%

17.2x

NMF

$11,416.5

1.06x

8.1x

The J. M. Smucker Company

$6,986.7

(3.5%)

(4.0%)

13.0x

205.3%

$7,613.1

1.65x

7.5x

Tyson Foods Inc.

$6,182.7

(5.1%)

35.4%

8.2x

111.3%

$8,025.7

0.28x

4.3x

Saputo, Inc.

$6,624.8

10.7%

13.1%

3.4x

NMF

$6,861.4

1.25x

9.9x

Hormel Foods Corp.

$5,749.3

1.8%

13.6%

14.8x

147.9%

$5,697.6

0.85x

7.9x

McCormick & Co. Inc.

$5,312.4

2.6%

11.7%

15.7x

208.9%

$6,285.6

1.92x

10.6x

Ralcorp Holdings Inc.

$3,275.1

3.6%

1.3%

12.5x

166.5%

$4,598.9

1.18x

7.4x

Del Monte Foods Co.

$2,541.2

(4.5%)

16.8%

9.5x

126.2%

$3,778.3

1.01x

6.2x

Smithfield Foods Inc.

$2,677.8

15.9%

8.8%

17.0x

189.2%

$5,247.4

0.47x

NMF

Flowers Foods, Inc.

$2,375.1

7.0%

9.1%

16.5x

192.2%

$2,375.1

0.92x

8.1x

Dean Foods Co.

$1,861.1

(8.1%)

(41.6%)

10.2x

139.3%

$6,074.0

0.52x

7.3x

Treehouse Foods Inc.

$1,468.7

(11.5%)

8.6%

15.0x

136.6%

$2,353.9

1.26x

8.3x

Pilgrim's Pride Corporation

$1,341.4

(4.8%)

(22.4%)

18.8x

$2,534.1

0.40x

11.3x

Tootsie Roll Industries Inc.

$1,344.3

(5.0%)

(9.8%)

25.9x

$1,284.7

2.54x

13.7x

$978.4

(7.4%)

2.7%

8.0x

$939.4

0.50x

4.5x

Sanderson Farms, Inc. Diamond Foods, Inc.

$919.7

(5.3%)

18.7%

19.9x

159.1%

$1,472.8

1.72x

11.7x

The Hain Celestial Group, Inc.

$956.5

9.0%

35.0%

19.6x

195.7%

$1,140.7

1.18x

13.0x

J&J Snack Foods Corp.

$698.3

(8.7%)

(4.7%)

14.6x

$617.4

0.91x

5.9x

Cal-Maine Foods, Inc.

$707.6

(4.7%)

(11.7%)

10.0x

$642.2

0.71x

4.8x

Lance, Inc.

$698.0

3.7%

(16.7%)

17.8x

NMF

$809.8

0.88x

8.5x

Chiquita Brands International Inc.

$563.9

(12.8%)

(29.0%)

6.9x

$1,064.1

0.31x

7.2x

Source: FactSet Research Systems and Capital IQ, as of August 31, 2010. (1) Per FactSet Research Systems and Capital IQ, based on reported results. Multiples do not reflect pro forma adjustments for acquisitions. * Food companies continue on next page.

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

Public Company Trading Statistics (Cont’d) Public Company Trading Statistics (Cont’d)

Food Ingredients Companies

Food Production Companies (Cont’d) ($ in millions) Company

Market Capitalization

% Change MTD YTD

B&G Foods Inc.

$508.7

(5.0%)

Seneca Foods Corp.

$293.4

(17.4%)

Calavo Growers Inc.

$287.6

(8.3%)

18.7%

Forward P/E PEG

Enterprise Value

(1)

TEV / LTM Sales EBITDA

13.6x

194.1%

$918.8

1.82x

8.5x

5.9%

7.8x

104.0%

$486.8

0.38x

4.9x

13.9%

16.0x

71.0%

$304.4

0.84x

14.1x 12.8x

Smart Balance, Inc

$223.7

(3.4%)

(38.5%)

34.0x

127.6%

$273.1

1.15x

John B. Sanfilippo & Son, Inc.

$136.3

(8.6%)

(17.8%)

$224.4

0.41x

5.2x

Bridgford Foods Corp.

$109.7

(18.0%)

6.7%

$93.6

0.77x

10.0x

Hanover Foods Corp.

5.8x

$109.1

(2.8%)

(4.7%)

$169.6

0.51x

Overhill Farms Inc.

$68.0

(17.3%)

(11.5%)

$77.0

0.39x

4.4x

Inventure Foods, Inc.

$60.2

6.3%

43.6%

12.9x

64.6%

$76.3

0.61x

6.4x

Tasty Baking Co.

$55.3

(0.5%)

(1.9%)

NMF

$170.2

0.98x

16.7x

Reddy Ice Holdings, Inc. Al-Sharq Investments Projects Company

Golden Enterprises Inc.

$48.4

(37.1%)

(48.7%)

NMF

$462.4

1.49x

8.5x

$44.1

0.0%

52.3%

0.7x

8.1%

$44.1

$37.3

(1.1%)

(13.5%)

$45.6

0.35x

6.7x

Mean

(2.6%)

3.5%

14.3x

158.1%

$13,803.2

1.14x

8.8x

Median

(2.0%)

6.3%

14.7x

157.1%

$2,454.6

1.01x

8.5x

Food Ingredients Companies ($ in millions) Company

Market Capitalization

% Change MTD YTD

Forward P/E PEG

Enterprise Value

(1)

TEV / LTM Sales EBITDA

Givaudan AG

$8,699.8

2.6%

19.1%

16.7x

0.6%

$10,174.8

2.63x

12.2x

Kerry Group plc

$5,772.7

6.2%

26.0%

13.9x

1.3%

$7,434.4

1.15x

9.9x

International Flavors & Fragrances Inc.

$3,648.7

2.8%

13.4%

14.1x

152.4%

$4,524.8

1.80x

9.1x

Danisco A/S

$3,449.6

(1.8%)

11.1%

$4,085.4

1.67x

9.9x

Barry Callebaut AG

$3,577.0

4.9%

5.7%

15.6x

2.1%

$4,597.7

0.99x

11.3x

Symrise AG

$2,929.4

5.7%

34.8%

14.5x

0.8%

$3,714.1

2.05x

9.3x

Sensient Technologies Corporation

$1,377.2

(3.6%)

7.9%

13.2x

219.9%

$1,752.4

1.39x

8.5x

T. Hasegawa Co. Ltd.

$676.5

5.6%

7.0%

23.1x

NMF

$567.7

1.13x

6.6x

Takasago International Corporation

$470.1

(0.3%)

(11.7%)

15.3x

NMF

$823.9

0.64x

6.7x

Frutarom Industries Ltd.

$503.9

8.7%

5.7%

11.3x

NMF

$540.8

1.21x

6.7x

Mean

3.1%

11.9%

15.3x

62.9%

$3,821.6

1.47x

9.0x

Median

3.8%

9.5%

14.5x

1.7%

$3,899.8

1.30x

9.2x

Feasting on Opportunities in the Food Industry September 14, 2010

Public Company Trading Statistics (Cont’d) Public Company Trading Statistics (Cont’d)

Beverage Production Companies

Beverage Production Companies ($ in millions) % Change MTD YTD

Company

Market Capitalization

The Coca-Cola Company

$129,058.5

3.2%

PepsiCo, Inc.

Forward P/E PEG

Enterprise Value

(1)

TEV / LTM Sales EBITDA

(0.3%)

16.1x

189.9%

$130,891.5

4.12x

12.5x 10.1x

$102,106.1

0.0%

6.8%

15.4x

174.0%

$102,604.9

2.11x

Anheuser-Busch InBev

$83,025.2

4.3%

16.4%

16.5x

99.2%

$128,590.2

3.52x

10.2x

Diageo plc

$40,730.3

(1.3%)

0.8%

14.0x

NMF

$53,852.0

3.53x

11.8x

Coca-Cola Enterprises Inc.

$14,401.0

1.2%

37.0%

15.8x

251.4%

$21,865.0

1.02x

7.9x

Brown-Forman Corporation

$9,009.3

(9.7%)

6.5%

19.0x

176.3%

$9,476.3

3.84x

12.1x

Molson Coors Brewing Company

$8,098.9

(0.8%)

(1.1%)

12.6x

152.2%

$9,048.2

2.81x

15.2x

Green Mountain Coffee Roasters Inc.

$4,066.6

0.6%

14.0%

37.7x

97.1%

$4,331.6

3.59x

24.3x

Hansen Natural Corporation

$3,971.0

9.1%

19.0%

19.0x

$3,499.6

2.91x

10.2x

Constellation Brands Inc.

$3,514.2

(0.9%)

6.2%

9.7x

97.4%

$7,511.1

2.23x

10.8x

Boston Beer Co. Inc.

$905.0

(2.9%)

44.5%

21.8x

$851.4

1.94x

10.1x

National Beverage Corp.

$661.9

2.0%

4.7%

18.7x

$588.4

0.99x

9.2x

Cott Corporation

$644.2

20.1%

(14.5%)

9.0x

$886.8

0.56x

5.5x

Coca-Cola Bottling Co. Consolidated

$456.8

(2.6%)

(7.0%)

15.1x

$1,110.7

0.74x

7.4x

Farmer Brothers Co.

$229.7

(14.1%)

(26.5%)

NMF

$205.1

0.45x

NMF

Lifeway Foods Inc.

$167.0

(2.2%)

(13.7%)

32.3x

$173.9

2.83x

17.2x

Jones Soda Co.

$28.1

(15.6%)

139.5%

$25.6

1.23x

NMF

Javo Beverage Company Inc.

$19.5

0.0%

(42.3%)

$38.6

2.06x

NMF

Mean

(0.5%)

10.6%

18.2x

154.7%

$26,419.5

2.25x

11.6x

Median

(0.4%)

5.4%

16.1x

163.1%

$3,915.6

2.17x

10.2x

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

Public Company Trading Statistics (Cont’d) Public Company Trading Statistics (Cont’d)

Food Retail Companies

Convenience Store Companies

Food Retail Companies ($ in millions) Company

Market Capitalization

% Change MTD YTD

P/E

Forward PEG

Enterprise Value

TEV / LTM(1) Sales EBITDA

Publix Super Markets, Inc.

$82,789.9

0.0%

(85.2%)

$82,548.3

3.32x

NMF

The Kroger Co.

$12,668.1

(5.2%)

(2.2%)

11.4x

118.0%

$19,589.1

0.25x

5.3x

Safeway Inc.

$7,170.3

(6.5%)

(9.8%)

12.1x

129.1%

$11,886.9

0.29x

4.8x

Whole Foods Market, Inc.

$5,980.4

(6.5%)

29.4%

24.2x

137.6%

$6,062.9

0.69x

8.6x

SUPERVALU Inc.

$2,062.1

(11.9%)

(21.8%)

5.6x

74.6%

$9,564.1

0.24x

4.4x

United Natural Foods, Inc.

$1,504.9

7.1%

35.1%

20.8x

NMF

$1,739.4

0.48x

12.6x

Ruddick Corp.

$1,581.4

(6.9%)

28.3%

14.4x

119.6%

$1,901.5

0.45x

6.0x 5.0x

Weis Markets, Inc.

$945.7

(0.0%)

(1.4%)

$821.3

0.31x

Winn-Dixie Stores Inc.

$363.0

(32.4%)

(34.0%)

18.8x

NMF

$211.4

0.03x

1.5x

Ingles Markets Inc.

$359.5

(5.0%)

2.1%

10.7x

$1,131.9

0.34x

5.9x

Arden Group Inc.

$276.5

(3.2%)

(6.4%)

$231.9

0.55x

5.9x

Nash Finch Co.

$483.5

1.4%

7.5%

12.7x

$776.8

0.15x

5.4x

Village Super Market Inc. The Great Atlantic & Pacific Tea Company, Inc. Spartan Stores Inc.

$347.3

(4.0%)

16.7x

$314.5

0.26x

5.3x

$170.8

(9.8%)

(73.5%)

NMF

$1,340.6

0.16x

16.8x

$295.7

(6.1%)

(5.7%)

9.7x

$470.4

0.19x

4.8x

Mean

(5.9%)

(9.4%)

14.3x

115.8%

$9,239.4

0.51x

6.6x

Median

(5.2%)

(4.0%)

12.7x

119.6%

$1,340.6

0.29x

5.3x

Convenience Store Companies ($ in millions) Company

Market Capitalization

% Change MTD YTD

P/E

Forward PEG

Enterprise Value

TEV / LTM(1) Sales EBITDA

Alimentation Couche-Tard Inc.

$3,988.6

11.5%

14.7%

12.7x

$4,373.7

0.26x

6.5x

Casey's General Stores Inc.

$1,917.5

1.5%

21.7%

14.9x

146.0%

$1,945.1

0.47x

7.3x

Pantry Inc.

$427.4

8.1%

43.2%

12.7x

NMF

$1,437.2

0.23x

5.9x

Susser Holdings Corporation

$201.6

(1.3%)

38.0%

14.0x

NMF

$588.3

0.16x

5.9x

Mean

4.9%

29.4%

13.6x

146.0%

$2,086.1

0.28x

6.4x

Median

4.8%

29.8%

13.3x

146.0%

$1,691.2

0.24x

6.2x

Feasting on Opportunities in the Food Industry September 14, 2010

Same-Store Sales Growth â&#x20AC;&#x201C; Food & Convenience Retail Same-Store Sales Growth â&#x20AC;&#x201C; Food & Convenience Retail

Grocery Stores & Supermarkets Weis Markets, Inc.

6.2%

Whole Foods Market, Inc.

2.5%

Kroger Co.

2.4%

Publix Super Markets Inc.

2.4%

Ingles Markets Inc.

0.8%

Ruddick Corp.

(0.7%)

Village Super Market Inc.

(1.5%)

Safeway Inc.

(2.5%)

Nash Finch Co.

(3.7%)

Winn-Dixie Stores Inc.

(5.2%)

Arden Group Inc.

(5.5%)

Spartan Stores Inc.

(6.0%)

Great Atlantic & Pacific Tea Co.

(7.2%)

SUPERVALU Inc.

(7.2%)

Source: Company filings and Capital IQ, as of August 31, 2010. Bold companies reflect recently announced same-store sales data. Note: Data represents growth in the most recent reported fiscal quarter over the same year-ago period.

Convenience Stores The Pantry Inc.

7.7%

Casey's General Stores Inc.

6.5%

Alimentation Couche-Tard Inc.

4.4%

Susser Holdings Corporation

2.5%

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

Recent Equity Financing Summary Recent Equity Financing Summary

IPOs

Follow-Ons

PIPEs

IPOs ($ in millions) Filing Date

Pricing Date

Issuer

05/03/10

Fresh Market, Inc.

03/12/10

Primo Water Corp.

08/14/09

10/22/09

Dole Food Company Inc.

12/19/08

02/10/09

Mead Johnson Nutrition Co.

At Filing

Aftermarket Performance %

Deal Size

Price Range

Specialty food retailer.

$345.0

$60.0

$500.0 $13.00-$15.00

$446.4

$12.50

(10.7%)

(0.7%)

(4.4%)

(5.2%)

$562.5 $21.00-$24.00

$828.0

$24.00

6.7%

2.8%

8.1%

117.5%

Mean

(2.0%)

1.1%

1.8%

56.1%

Median

(2.0%)

1.1%

1.8%

56.1%

Provider of purified bottled water and water dispensers Distributer of fresh fruits, vegetables, and packaged foods Pediatric nutrition company

Deal Size

At Pricing Offer File to Price Offer %

Issuer Business Description

1 Day

1 Week

Today

Source: Dealogic and FactSet Research Systems, as of August 31, 2010. *Includes offerings issued by U.S.-based food & beverage manufacturing, distribution, and food retail companies.

Follow-Ons ($ in millions) Filing Date 03/29/10 03/01/10 02/22/10

Pricing Date 03/31/10 03/04/10 02/23/10

Issuer

At Filing

Issuer Business Description

At Pricing Offer File to Price Offer %

Deal Size

Price Range

Sanderson Farms Inc.

Produces fresh and frozen chicken

$112.3

$56.14

$106.0

$53.00

(5.6%)

0.6%

3.4%

(18.8%)

Diamond Foods Inc.

Manufacturer of nuts and snack products

$156.8

$34.85

$191.5

$37.00

6.2%

8.0%

10.6%

14.0%

TreeHouse Foods Inc.

Food and beverage manufacturer

$101.5

$43.18

$116.2

$43.00

(0.4%)

3.2%

(3.5%)

Producer of fresh and packaged meat products

$250.0

$14.30

$308.3

$13.85

(3.2%)

(3.3%)

(3.6%)

16.5%

$8.00

(17.7%)

(5.8%)

(1.5%)

33.5%

$65.50

09/14/09

09/16/09

Smithfield Foods Inc.

09/09/09

09/14/09

B&G Foods Inc.

Manufactures shelf-stable foods

$874.8

$9.72

$920.0

Bunge Ltd.

Producer of agricultural products

$708.4

$70.84

$786.0

08/10/09

08/12/09

Aftermarket Performance % 1 Day

1 Week

Today

(7.5%)

(1.0%)

(2.3%)

(19.1%)

Mean

(4.7%)

(0.3%)

1.6%

3.8%

Median

(4.4%)

(0.7%)

0.8%

5.2%

Source: Dealogic and FactSet Research Systems, as of August 31, 2010. *Includes offerings issued by U.S.-based food & beverage manufacturing, distribution, and food retail companies.

PIPEs ($ in millions) Filing Date 02/24/10 02/17/10 01/04/10 11/19/09

Pricing Date 02/24/10 02/18/10 12/31/09 11/17/09

Issuer

Issuer Business Description

At Filing Deal Size

Price Range

At Pricing Offer File to Price Offer %

Deal Size

Aftermarket Performance % 1 Day

1 Week

Today

Vaughan Foods, Inc.

Processor of refrigerated food products

$1.9

$0.58

$1.9

$0.58

(3.8%)

(15.4%)

(5.2%)

NXT Nutritionals Holdings Inc.

Develops alternative sweetening systems

$5.7

$1.46

$5.7

$1.49

(10.1%)

(15.2%)

(88.6%)

Emerald Dairy, Inc.

Produces milk, soybean, and rice powder

$1.8

$1.80

$1.8

$1.80

0.0%

(5.6%)

(27.8%)

Javo Beverage Company

Manufacturer of coffee and tea concentrates and drink mixes

$4.0

$0.17

$4.0

$0.16

(5.6%)

(53.1%)

$0.54

$0.52

(0.9%)

(10.3%)

313.5%

$3.2

$1.33

$3.2

$1.36

(4.4%)

(0.7%)

(87.5%)

09/08/09

08/24/09

Celsius Holdings, Inc.

Producer of functional beverages

08/27/09

09/02/09

NXT Nutritionals Holdings Inc.

Develops alternative sweetening systems

Mean

(4.1%)

(8.8%)

8.5%

Median

(4.1%)

(7.9%)

(40.5%)

Source: Placement Tracker, as of August 31, 2010. *Includes offerings issued by U.S.-based food & beverage manufacturing, distribution, and food retail companies.

Feasting on Opportunities in the Food Industry September 14, 2010

Selected Upcoming Industry Events Selected Upcoming Industry Events

Date 1-2

September 2010

October 2010

Event NACS Southern Convenience Store & Petroleum Show

Location Macon, GA

13-15

International Dairy Show

Dallax, TX

14-15

Food Evolution Summit

Palm Desert, CA

20-24

NACS Future of International Convenience Retailing Conference

London, UK

26-29

International Bakery Industry Expo

Las Vegas, NV

27-30

Snack, Beverage and Grocery Efficient Program Planning Session

Las Vegas, NV

26-29

Candy Annual Planning Efficient Program Planning Session

Las Vegas, NV

3-5

MUFSO Conference

Orlando, FL

4-5

PLMA Washington Conference

Washington, DC

5-6

National Chicken Council â&#x20AC;&#x201C; Annual Conference

Washington DC

5-7

Shopper Marketing Expo

Chicago, IL

5-8

NACS Show

Atlanta, GA

Consumer Goods Forum: Future Leaders Congress

Berlin, Germany

10-12 14-16

Natural Products Expo East

Boston, MA

16-19

National Frozen and Refrigerated Foods Convention

San Francisco, CA

15-18

Fresh Summit International Convention & Exposition

Orlando, FL

25-26

Canadian Federation of Independent Grocers-Grocery Innovations

Toronto, ON

26-27

Kosherfest

Secaucus, NJ

26-27

IFE Americas Food & Beverage Show

Miami, FL

November 2010

14-16

December 2010

2-5

2-4

Consumer Goods Forum: Marketing Forum

Lisbon, Portugal

PLMAâ&#x20AC;&#x2122;s 2009 Private Label Trade Show

Chicago, IL

SOHO Expo 2010

Kissimee, FL

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

Selected Upcoming Industry Events (Cont’d) Selected Upcoming Industry Events (Cont’d)

Date

January 2011

Event

Location

24-26

FMI’s Midwinter Executive Conference

Orlando, FL

16-18

Winter Fancy Food Show

San Francisco, CA

16-19

NW Food Manufacturing & Packaging Exposition

Portland, OR

19-20

Marca Bologna

Bologna, Italy

16-18

Retail Industry Leaders Association – The Leadership Forum

Sarasota, FL Glendale, AZ

February 2011

March 2011

1-3

Convenience Retailing University

4-10

NAFDMA Convention 2011

Baltimore & Philadelphia

13-16

N.G.A. 2011 Annual Convention and Supermarket Synergy Showcase

Las Vegas, NV

13-16

IFA’s Annual International Franchise Convention

San Diego, CA

19-23

AFFI Frozen Food Convention

San Francisco, CA

13-16

National Meat Association MEATXPO ‘11

Las Vegas, NV

20-22

Annual Meat Conference

Dallas, TX

1-3

International Pizza Expo

Las Vegas, NV

8-10

International Restaurant Show

Las Vegas, NV

10-13

Natural Products Expo West

Anaheim, CA

20-22

International Boston Seafood Show

Boston, MA

26-29

PLMA - 2011 Annual Meeting & Leadership Conference

Scottsdale, AZ

28-30

Restaurant Leadership Conference

Scottsdale, AZ

Feasting on Opportunities in the Food Industry September 14, 2010

General Market Update General Market Update Percentage Change As of 8/31/10

Month-to-Date

Year-to-Date

EQUITY MARKET INDICES Dow Jones Industrial Average

10,014.72

(4.3%)

(4.0%)

Nasdaq Composite

2,114.03

(6.2%)

(6.8%)

S&P 500

1,049.33

(4.7%)

(5.9%)

S&P Food Products Index

275.35

1.8%

5.3%

S&P Food & Staples Retail Index

164.87

(5.4%)

(9.9%)

436.17

1.0%

14.4%

S&P Restaurants Index WB CORPORATE FINANCE INDICES

(1)

Food Index

1,023.04

3.4%

8.1%

Beverage Index

1,927.22

1.6%

14.5%

Ingredients Index

400.05

(0.7%)

1.8%

Food Retail Index

349.55

(7.8%)

(2.7%)

4,528.79

4.8%

16.3%

Convenience Store Index CURRENCIES Dollar to Canadian Dollar

1.07

3.5%

1.7%

Dollar to Euro

0.79

2.5%

12.9%

Dollar to Peso

13.16

4.1%

0.8%

0.65

1.9%

5.1%

Coffee Beans (Cents and 1/100 of a Cent Up to 2 Decimal Places)

$1.77

0.3%

30.0%

Corn (Cents per Bushel)

$4.39

8.0%

6.0%

Dollar to Pound COMMODITIES

Milk (Cents per 2,000 lbs.) Cocoa (Dollars per Metric Ton)

$0.16

5.4%

13.4%

$2,698.00

(12.7%)

(18.0%)

Oil (Dollars per Barrel)

$71.92

(8.9%)

(9.4%)

Soybean Oil (Cents per Bushel)

$0.40

(1.2%)

(1.8%)

World Sugar

$0.20

0.9%

(26.7%)

$6.86

3.7%

26.6%

(Cents and 1/100 of a Cent up to 2 Decimal Places)

Wheat (Cents per Bushel)

Yield (%) 52-Week Range As of 8/31/10

52-Week Low 0.0%

INTEREST RATES

52-Week High

Latest 1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0% 10.0%

10-Year Treasury

2.5%

4.0%

30-Year Treasury

3.4%

4.8%

3-Month LIBOR

0.3%

0.2%

0.5%

Fed Funds Effective Rate

0.2%

0.0%

1.1%

Prime Rate

3.3%

Source: FactSet Research Systems, as of August 31, 2010. (1) WB Corporate Finance indices are determined by FactSet Research Systems, as of August 31, 2010. Data is based on a weighted average by market capitalization calculation. *Commodities represent futures prices. WB Corporate Finance Food Index includes: American Italian Pasta Co., Associated British Foods, B&G Foods Inc., Bridgford Foods Corp., Calavo Growers Inc., Cal-Maine Foods Inc., Campbell Soup Co., Chiquita Brands Intl. Inc., Conagra Foods Inc., Dean Foods Co., Del Monte Foods Co., Diamond Foods Inc., Flowers Foods Inc., General Mills Inc., Golden Enterprises, Groupe Danone, Hain Celestial Group Inc., Hanover Foods Corp., HJ Heinz Co., Hershey Co., Hormel Foods Corp., Inventure Group Inc., J&J Snack Foods Corp., Kellogg Co., Kraft Foods Inc., Lance Inc., McCormick & Co. Inc., Nestle SA, Overhill Farms Inc., Pilgrim’s Pride Corp., Ralcorp Holdings Inc., Reddy Ice Holdings Inc., Sanderson Farms Inc., John B. Sanfilippo & Son, Saputo Inc., Sara Lee Corp., Seneca Foods Corp., Smart Balance Inc., Smithfield Foods Inc., J.M. Smucker Co., Tasty Baking Co., Tootsie Roll Industries Inc., Treehouse Foods Inc., Tyson Foods Inc., Unilever plc, George Weston Ltd. WB Corporate Finance Beverage Index includes: Anheuser-Busch Inbev, Boston Beer Inc., Brown-Forman, Cadbury Plc., Coca-Cola Bottling Consolidated, Coca-Cola Co., Coca-Cola Enterprises Inc., Constellation Brands, Cott Corp., Diageo, Farmers Brothers Co., Green Mountain Coffee, Inc., Hansen Natural Corp., Javo Beverage Co. Inc., Jones Soda Co., Lifeway Foods Inc., Molson Coors Brewing Co., National Beverage Corp., Pepsi Bottling Group Inc., PepsiAmericas Inc., PepsiCo Inc. WB Corporate Finance Ingredients Index includes: Givaudan AG, Kerry Group plc, International Flavors & Fragrances Inc., Barry Callebaut AG, Danisco A/S, Symrise AG, Sensient Technologies Corp., Takasago International Corp., Frutarom Industries Ltd., T. Hasegawa Co. Ltd. WB Corporate Finance Food Retail Index includes: Arden Group Inc., The Great Atlantic & Pacific Tea Co., Ingles Markets Inc., Kroger Co., Nash Finch Co., Penn Traffic Co., Ruddick Corp., Safeway Inc., Spartan Stores Inc., Supervalu Inc., United Natural Foods Inc., Village Super Market., Weis Markets Inc., Whole Foods Market Inc., Winn-Dixie Stores Inc. WB Corporate Finance Convenience Store Index includes: Alimentation Couche-Tard Inc., Casey’s General Stores Inc., Pantry Inc., Susser Holdings Corp.

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

U.S. M&A Market Summary U.S. M&A Market Summary

Activity Trends U.S. M&A Activity Undisclosed

Middle Market

>$750M

Deal Value Deal Value ($ in billions)

Number of Deals 15,000

12,718

12,769 10,081

10,000

8,926

10,049

9,901

8,775

12,367 13,261

11,395

$2,400 9,238

8,485 6,041

$1,200

5,000

$600 $0

Number of Deals >$750M Middle Market Undisclosed Deal Value

$1,800

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

252 5,343 7,123 $1,720

327 6,780 5,662 $1,609

190 4,624 5,267 $870

128 4,007 4,791 $567

146 4,230 4,399 $687

233 4,519 5,149 $992

281 4,453 5,315 $1,297

361 4,531 7,475 $1,645

462 4,505 8,294 $1,753

230 4,729 6,436 $1,086

155 4,095 4,988 $884

8/09 YTD 83 2,671 3,287 $518

8/10 YTD 177 4,224 4,084 $695

Source: Dealogic and William Blair & Company, L.L.C. Mergers and Acquisitions market analysis. Data represents announced deals only.

U.S. Middle-Market M&A Activity < $50M

$50-250M

$250-750M

Deal Value

Deal Value ($ in billions)

Number of Deals 6,780

8,000 5,343

6,000

$600 4,624

4,000

4,007

4,230

4,519

4,453

4,531

4,505

4,729

4,224

4,095 2,671

$400 $200

2,000 0

Number of Deals >$750M Middle Market Undisclosed Deal Value

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

528 1,419 3,396 $441

512 1,579 4,689 $461

296 1,009 3,319 $279

289 889 2,829 $258

314 1,064 2,852 $291

403 1,217 2,899 $351

424 1,267 2,762 $364

533 1,293 2,705 $419

624 1,329 2,552 $464

417 1,191 3,121 $354

269 776 3,050 $237

8/09 YTD 156 465 2,050 $142

8/10 YTD 270 663 3,291 $222

Source: Dealogic and William Blair & Company, L.L.C. Mergers and Acquisitions market analysis. Data represents announced deals only.

U.S. Private-Equity Activity Undisclosed

Middle Market

>$750M

Deal Value

Deal Value ($ in billions)

Number of Deals 2,500

1,842

2,000 1,500 1,000

1,059

1,304

1,057

1,117

2,064

2,474

2,503 1,939

1,364

$800 1,466 993

1,143

$400 $200

500 0

Number of Deals >$750M Middle Market Undisclosed Deal Value

$600

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

32 538 489 $129

29 768 507 $133

21 557 479 $86

26 614 477 $96

34 705 625 $132

74 993 775 $249

92 976 996 $333

118 1,099 1,257 $572

163 899 1,492 $648

50 849 1,040 $212

38 754 674 $160

8/09 YTD 21 512 460 $95

8/10 YTD 51 531 561 $150

Source: Dealogic and William Blair & Company, L.L.C. Mergers and Acquisitions market analysis. Data represents announced deals only.

Feasting on Opportunities in the Food Industry September 14, 2010

U.S. M&A Market Summary (Cont’d) U.S. M&A Market Summary (Cont’d)

Valuation Trends

U.S. EV/EBITDA Valuation Multiples Middle Market

Overall Market

12.0x 9.0x 6.0x 3.0x

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

LTM

Middle Market

8.6x

7.4x

6.6x

8.1x

7.2x

9.5x

11.0x

9.9x

9.8x

10.1x

7.0x

9.2x

Overall Market

9.1x

8.1x

7.1x

8.0x

8.2x

9.5x

11.0x

11.1x

11.8x

10.4x

8.0x

9.4x

Source: Dealogic and William Blair & Company, L.L.C. Mergers and Acquisitions market analysis. Data represents announced deals only.

U.S. EV/EBITDA Middle-Market Valuation Multiples < $50M

$50M-$250M

$250M-$750M

12.0x 9.0x 6.0x 3.0x

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

LTM

< $50M

8.1x

6.4x

5.8x

7.2x

7.9x

9.0x

5.0x

9.9x

7.6x

7.2x

5.3x

6.0x

$50M–$250M

8.4x

7.5x

7.0x

7.7x

6.3x

9.2x

11.3x

9.9x

11.9x

11.3x

7.1x

9.0x

$250M–$750M

8.9x

8.2x

8.3x

9.1x

8.8x

10.0x

11.2x

11.0x

9.8x

11.6x

7.7x

10.9x

Source: Dealogic and William Blair & Company, L.L.C. Mergers and Acquisitions market analysis. Data represents announced deals only.

Median Acquisition Premiums 1-Week Premium

4-Week Premium

60.0%

40.0%

20.0%

1999 1–Week Premium 4–Week Premium

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

LTM

38.7%

41.2%

46.9%

45.0%

35.2%

26.4%

32.0%

27.4%

29.6%

38.2%

50.3%

48.0%

46.9%

49.0%

52.7%

47.5%

41.7%

29.8%

35.9%

30.3%

31.7%

42.8%

53.9%

48.9%

Source: Dealogic and William Blair & Company, L.L.C. Mergers and Acquisitions market analysis. Data represents announced deals only.

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

Equity Capital Markets Summary Equity Capital Markets Summary

Historical IPO Issuance 200

169

168

164

150 100 50

2007

2008

43 12

0 2004

2005

2006

2009

YTD 2009

YTD 2010

2Q 08

3Q 08 4Q 08 1Q 09

2Q 09

3Q 09

4Q 09

154

175

152

1Q 10 2Q 10 3Q 10

Source: Dealogic, as of August 31, 2010.

Historical Follow-On Issuance 600 500

446

400

513 384

380

344

300

305 188

200

251

100

2Q 08

3Q 08

4Q 08

1Q 09

122

102

0 2004

2005

2006

2007

2008

2009

YTD 2009

YTD 2010

2Q 09

3Q 09

4Q 09

1Q 10

2Q 10

3Q 10

Source: Dealogic, as of August 31, 2010. Note: Includes shelf takedowns. Excludes SPACs and blank check offerings.

IPO Pricings by Sector â&#x20AC;&#x201C; Last 4 Quarters: 102 Total Deals(1)

IPO Filings by Sector â&#x20AC;&#x201C; Last 4 Quarters: 182 Total Deals(1)

Business Services 10

Healthcare 16

Healthcare 23

Technology 30

Business Services 16

Other (Utility/ Energy/ Gas) 1

Other 1

Technology 56

Consumer 20

Consumer 12 Financial Services 10

Industrial 23

Financial Services 23

Source: Dealogic and William Blair & Company, L.L.C. Mergers and Acquisitions market analysis. (1) Period ended June 30, 2010 (updated quarterly).

Feasting on Opportunities in the Food Industry September 14, 2010

Industrial 43

Debt Capital Markets Summary Debt Capital Markets Summary

Average Equity Contribution Less than $50 million EBITDA

More than $50 million EBITDA

60.0% 46.5% 48.6%

50.0% 40.0%

34.2%

30.0%

36.3%

36.1% 30.0%

40.8%

29.6%

36.7% 37.9%

31.0%

39.7% 32.4%

31.5%

35.4% 29.9%

34.1%

44.0%

40.2% 38.3% 29.2%

32.1%

30.3%

20.0% 10.0% NA

0.0%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

LTM

Source: S&P’s leveraged lending review.

LBO Debt Multiples – Less Than $50 Million EBITDA Total Debt/EBITDA

Senior Debt/EBITDA

7.0x 6.0x 5.0x

7.0x

5.3x 5.0x 3.8x

4.0x

3.6x

3.5x

4.1x

3.9x

4.4x

3.9x 3.0x 3.1x

2.0x 1999

3.2x 2000

3.0x 2001

3.3x

3.4x

2002

2003

6.0x 4.9x

4.4x

4.8x

4.6x 3.3x

2.4x 2004

2005

2006

2007

2008

4.2x 3.4x

4.0x

3.3x

3.1x

2009

5.0x

3.0x 2.0x

2010

Source: S&P’s leveraged lending review.

LBO Debt Multiples – Greater Than $50 Million EBITDA Total Debt/EBITDA

Senior Debt/EBITDA

7.0x 5.7x

6.0x

4.9x

5.0x 4.5x

4.1x

5.0x

3.9x 4.0x 3.0x

7.0x

5.8x 5.6x

4.6x

6.0x 5.8x

5.2x

3.8x

4.8x 4.0x

4.4x 3.7x

3.2x

3.3x

2000

2001

2.0x 1999

2.8x

2002

2003

2.9x 2004

Feasting on Opportunities in the Food Industry September 14, 2010

4.2x 3.4x

3.2x

5.0x 4.0x 3.0x

3.9x 2.0x

2005

Source: S&P’s leveraged lending review.

www.williamblair.com

4.5x

2006

2007

2008

2009

2010

Recent William Blair & Company Consumer & Retail Transactions Recent William Blair & Company Consumer & Retail Transactions

$229,676,000

$392,800,000

Follow-On

has confirmed its Chapter 11 plan of reorganization

June 2010

May 2010

$116,208,000

$7,356,000,000

Divestiture of Connecticut Division

has acquired Zareba Systems, Inc.

Financial Advisor to Independent Directors of the Board in its Split-Off from

Follow-On

February 2010

December 2009

$386,688,000

Not Disclosed

Follow-On Co-Manager

Preferred Stock

$510,000,000

$23,100,000

CSM NV

April 2010

March 2010

$75,900,000

$45,800,000

$125,000,000

has been acquired by

Â§363 acquisition of

Pulmuone U.S.A., Inc.

Follow-On

(a subsidiary of Pulmuone Holdings Co., Ltd.)

December 2009

August 2009

Not Disclosed

$3,425,000,000

$400,000,000

has merged with

has merged with Folgers

Senior Unsecured Notes

January 2009

November 2008

Not Disclosed

Natural Food Holdings

from Procter & Gamble

August 2009

March 2009

$23,146,000,000

Not Disclosed

$14,000,000

Not Disclosed

has been acquired by

Mars, Incorporated

Ferretti, SpA

Series A Preferred Stock

has been acquired by

October 2008

September 2008

June 2008

Not Disclosed

$162,500,000

Not Disclosed

has been acquired by

AIH Acquisition, LLC

Kayak Holdings, LLC

June 2008

March 2008

Not Disclosed

$86,000,000

has been acquired by

ÂŽ

has been acquired by C.H. Guenther & Son, Inc.

Revolving Line of Credit and Mortgage loan

has been acquired by

Financial advisor and Placement Agent

Hain Celestial

March 2008

Not Disclosed

has been acquired by

North Castle Partners

HM Capital Partners

December 2007

February 2008

Not Disclosed

has been acquired by Code Hennessy & Simmons and The Edgew ater Funds

November 2007

Feasting on Opportunities in the Food Industry September 14, 2010

Perrigo Company

January 2008

Not Disclosed

$220,800,000

has sold the New Orleans Division to

Initial Public Offering

November 2007

October 2007

William Blair & Company Consumer & Retail Research Coverage William Blair & Company Consumer & Retail Research Coverage

Consumer & Retail Equity Research Team Mark Miller, CFA, Principal

312.364.8498

Jon Andersen, CFA, Analyst

Discount and Department Stores, Health, Beauty, and Convenience Costco Wholesale Corporation CVS Caremark Corporation Family Dollar Stores, Inc. Fred's, Inc. Kohl's Corporation Luxottica Group S.p.A. Pantry, Inc. (The) PetMed Express, Inc. PetSmart, Inc. Regis Corporation Target Corporation TJX Companies, Inc. (The) Ulta Salon, Cosmetics & Fragrance, Inc. Wal-Mart de México, S.A. de C.V. Wal-Mart Stores, Inc. Walgreen Co. Whole Foods Market, Inc. Jack Murphy, CFA, Principal

Alberto-Culver Company Cellu Tissue Holdings, Inc. Central Garden & Pet Company Colgate-Palmolive Company Deer Consumer Products, Inc. Green Mountain Coffee Roasters, Inc. J.M. Smucker Company (The) Jarden Corporation Kellogg Company Perrigo Company Prestige Brands Holdings, Inc. Procter & Gamble Company (The) Ralcorp Holdings, Inc. Scotts Miracle-Gro Company (The) Smart Balance, Inc. TreeHouse Foods, Inc.

COST CVS FDO FRED KSS LUX PTRY PETS PETM RGS TGT TJX ULTA WMMVY WMT WAG WFMI 312.364.8584

Sharon Zackfia, CFA, Principal

Hardlines E-commerce, Retailers Amazon.com, Inc. Bed Bath & Beyond Inc. Best Buy Co., Inc. Blue Nile, Inc. Cabela’s Incorporated Dick’s Sporting Goods, Inc. eBay Inc. hhgregg, Inc. Home Depot, Inc. (The) Lowe's Companies, Inc. O’Reilly Automotive, Inc. Office Depot, Inc. Staples, Inc. Tempur-Pedic International Inc. Tractor Supply Company Vistaprint N.V. Williams-Sonoma, Inc.

312.364.8697

Consumer Products ACV CLU CENT CL DEER GMCR SJM JAH K PRGO PBH PG RAH SMG SMBL THS

312.364.5386

Apparel, Leisure, Restaurants BJ's Restaurants, Inc. CarMax, Inc. Carnival Corporation Cheesecake Factory Incorporated (The) Chipotle Mexican Grill, Inc. Harley-Davidson, Inc. Hot Topic, Inc. Life Time Fitness, Inc. lululemon athletica inc. P.F. Chang's China Bistro, Inc. Panera Bread Company Royal Caribbean Cruises Ltd. Sonic Corp. Starbucks Corporation Steiner Leisure Limited Town Sports International Holdings, Inc. Under Armour, Inc. Urban Outfitters, Inc. Zumiez Inc.

AMZN BBBY BBY NILE CAB DKS EBAY HGG HD LOW ORLY ODP SPLS TPX TSCO VPRT WSM

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

BJRI KMX CCL CAKE CMG HOG HOTT LTM LULU PFCB PNRA RCL SONC SBUX STNR CLUB UA URBN ZUMZ

Notes Notes

Disclosures 25

Disclosures

THIS IS NOT IN ANY SENSE A SOLICITATION OR OFFER OF THE PURCHASE OR SALE OF SECURITIES. THE FACTUAL STATEMENTS HEREIN HAVE BEEN TAKEN FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT SUCH STATEMENTS ARE MADE WITHOUT ANY REPRESENTATION AS TO ACCURACY OR COMPLETENESS OR OTHERWISE. OPINIONS EXPRESSED ARE OUR OWN UNLESS OTHERWISE STATED. PRICES SHOWN ARE APPROXIMATE. THIS MATERIAL HAS BEEN APPROVED FOR DISTRIBUTION IN THE UNITED KINGDOM BY WILLIAM BLAIR INTERNATIONAL, LIMITED, REGULATED BY THE FINANCIAL SERVICES AUTHORITY (FSA), AND IS DIRECTED ONLY AT, AND IS ONLY MADE AVAILABLE TO, PERSONS FALLING WITHIN COB 3.5 AND 3.6 OF THE FSA HANDBOOK (BEING “ELIGIBLE COUNTERPARTIES” AND “PROFESSIONAL CLIENTS”). THIS DOCUMENT IS NOT TO BE DISTRIBUTED OR PASSED ON TO ANY “RETAIL CLIENTS.” NO PERSONS OTHER THAN PERSONS TO WHOM THIS DOCUMENT IS DIRECTED SHOULD RELY ON IT OR ITS CONTENTS OR USE IT AS THE BASIS TO MAKE AN INVESTMENT DECISION. “WILLIAM BLAIR & COMPANY” AND “

www.williamblair.com

Feasting on Opportunities in the Food Industry September 14, 2010

William Blair & Company, L.L.C. is a global investment firm offering investment banking, asset management, equity research, institutional and private brokerage, and private capital to individual, institutional, and issuing clients. Since 1935, we have been committed to helping clients achieve their financial objectives. As an independent, employee-owned firm, our philosophy is to serve our clientsâ&#x20AC;&#x2122; interests first and foremost. We place a high value on the enduring nature of our client relationships, the quality of our products and services, and the continuity and integrity of our people. For more information, please visit www.williamblair.com

OFFICE LOCATIONS Headquarters

343 Sansome Street

Kamiyacho MT Building

222 West Adams Street

12 Floor

13th Floor

Chicago, IL 60606

San Francisco, CA 94104

4-3-20 Toranomon

+1.312.236.1600

+1.415.986.5596

Minato-ku, Tokyo 105-0001

www.williamblair.com Two International Place Suite 1700 Boston, MA 02110 +1.617.235.7500

Putnam Place 100 Great Meadow Road Suite 606 Wethersfield, CT 06109 +1.800.596.2028

Japan +81 3 5470 0720 Unit 16-18, 11th Floor Building One, Corporate Avenue

8888 Keystone Crossing

3 St. Helenâ&#x20AC;&#x2122;s Place

No.222 Hubin Road

Suite 1300

London EC3A 6AB

Shanghai 200021, P.R.C.

Indianapolis, IN 46240

England

+86 21 2327 2222

+1.317.575.4051

+44 20 7868 4400

666 Fifth Avenue

Stockerstrasse 46

14 Floor

8002 Zurich

New York, NY 10103

Switzerland

+1.212.237.2700

+41 44 287 9020

CHICAGO BOSTON LONDON NEW YORK SAN FRANCISCO SHANGHAI TOKYO ZURICH

Feasting on Opportunities in the Food Industry September 14, 2010

Feasting on Opportunities in the Food Industry Tuesday, September 14, 2010 The Standard Club, Chicago, IL