Aberdeen University Trading and Investment Society

1. Aberdeen University Trading and Investment Society Consumer Goods and Services Sector Overview 21/10/13

2. Structure • Consumer Goods and Services Sector • Market Overview • Food and Beverage - David Hart • Travel and Leisure (Airlines) - Hilary Lee • Personal and Household Goods - Peter Hickling • Stock recommendations with SWOT analysis • Stocks on our watch list.

3. Consumer Goods and Services Sector

4. Consumer Goods and Services Sector

5. Food and Beverage industry Overview • The global organic food and beverages has gained popularity across the globe over the past few years while moving from niche to the mainstream. • This was part of a larger trend of declining relative commodity prices. In rich countries, food has become such a modest share of total consumer expenditure that consumers can spend a large share of their total food budget on food services • The majors in international supermarkets such as Whole foods market, Tesco, Walmart are increasing the range of organic food product lines with an increasing focus on the introduction of private label organic products at lower prices to increase the accessibility for consumers. • Over the next five years, the world organic food and beverages market is est. 9.4% CAGR (2012-2016). This will be due to further initiatives taken by the government in creating awareness among the masses and a subsequent increase in the organic production capacities globally. • Low food prices have enabled consumers to purchase high-priced specialty foods, organic foods, and store-prepared meals. It has also allowed consumers to spend far more on many non-food items. Indeed, food retailers have struggled to offer higher value products in order to continue growing.

6. Causes of increased food prices • Increased consumer demand • Increased industrial demand • Declining agricultural land use and efficiency • Increased oil prices Impact of higher food prices Trade Subsidies Inflation

7. The future of food prices • With the exception of bio-fuel subsidies, the factors that have caused a steep rise in food prices are not short-term phenomena. • Strong global economic growth, rising incomes in emerging countries, elevated petroleum prices, and climate change are not likely to go away anytime soon. • Subsidies for bio-fuels are dependent on the whims of governments, particularly the U.S. government. If food price inflation were to become a serious political issue in the United States, political support

8. The food and beverage industry 2012: A taste of things to come • Consumers want choices. And the food and beverage industry as a whole is prepared to respond to consumer demand, with certain dynamics between manufacturers and retailers being played out to address that. • Retailers reward product differentiation and innovation because new products offer the best growth opportunities for them, in both existing and emerging markets. • Manufacturers, likewise, can become more competitive by innovating and launching new products and segments that, for instance, are not easy to replicate via private label alternatives. And in the food service sector, there is an extremely valuable innovation opportunity for the manufacturer because it is a viable alternative to retail.

9. Food and Beverage: Stock recommendation Stock recommendation: Tyson Foods Inc. (TSN) Tyson Foods, Inc. and its subsidiaries produce, distribute and market chicken, beef, pork, prepared foods and related allied products. The Company operates a totally integrated poultry production process. • Strengths • Increased consumer demand • Increased industrial demand – restaurants, catering etc. • Increased disposable income – buy more meat products • Weakness • Inflation may cause some consumer to look to other alternatives- especially emerging markets. • Opportunities • Larger trend of declining relative commodity prices. In rich countries, food has become such a modest share of total consumer expenditure that consumers can spend a large share of their total food budget on food services. • Supermarkets increasing the range of organic/non organic food product lines with an increasing focus on the introduction of private label products at lower prices to increase the accessibility for consumers. • Threats • Media scandals - meat scandal of 2012. Emerging market - hygiene issues in some manufacturing plants.

10. Watch List

11. Travel & Leisure (Airlines)- Overview • According to Forbes, 68% of the economic growth in the next decade will be situated in emerging markets and often there is a significant growth in the upper class population. • Emerging markets have attracted plenty of new tourism. With increased disposable income for a growing middle class.

12. SWOT Analysis Stock recommendations: Delta Air Lines, Cathy Airlines and China South Airlines Strengths: • Over the next decade, the IMF forecasts that the 8 largest emerging markets will account for more than half of global GDP growth.

14. SWOT Analysis Strengths: • IMF: the Philippines have an economy worth $284bn, with GDP expected to rise to $451bn by 2018. • New route will help to boost trade for European and northern American countries in South East Asia. • E.g. Emirates Airline has expanded more flights from Dubai to 5 fastest economic growth counties in South East Asia. • Lower cost structures and the capability to provide better services. • E.g.: Emirates and Qatar Airways entrenched Qantas out of business. Emirates and Singapore Airlines managed to make more than $1 billion in profit. Weaknesses: • Suffer from such as corruption, bribery, complaints of cheap labour and even potential terrorist attacks in emerging countries. • Less restriction in terms of human rights, labourlaw. • Cultural perspectives, rituals and product usage vary around the world and when new economies emerge, they may have different expectations than ones in which a business is established.

15. SWOT Analysis Opportunity: • Frequent flights attracting people across Europe, North America play a vital role in a company’s expansion of their revenue Threats • Traditional airlines loss focus to main their brand name due to driving more effort to make operational gains • JD Power & Associates 2011 North American Airline Satisfaction Study: Smaller airlines companies are more skilled in wielding their brands, differentiate them with traditional airlines in order to sustain their business. • High fuel costs since 2011 will fluctuate the cost of the flights that customers require to pay according to International Air Transport Association (IATA)

16. Personal and Household Goods Consumer Electronics • Expected growth of 7% in the next 3 years 4 main market categories 1. Home audio equipment 1.expected revenue of 20 billion by 2015 2. fuelled by: technological advance innovative products top quality new generation devices 3. market expansion in Asia Pacific's, middle east, Latin America 2. TV and video market 1. 40% growth by 2015 from 2010 (exceed 250 billion dollars by 2015) 2. TV 86% of overall market 3. Asia Pacific 35% of market 3. Flat panel Display 1. expected revenue of 103 billion by 2015 2. demand pushed by: 1.purchasing power 2. rising employment rates 3. increasing income 4. increasing functions 4.Games/home entertainment market 1. console software 23 billion dollars revenue (major plays Microsoft (xbox), Sony (play station), Nintendo all 3 companies seeking to product differentiate. 2. console games take up 90% of this market.

17. Consumer electronics Stock recommendations: Netflix and LG Corp • Strengths • steady growth expected in the next few years across the markets (expected at about 7%) 40% growth expected in TV and Video market. • Equities were hit by the recent recession therefore throughout the market they are at a 10 year low, with recent trends depicting growth. • With growth in emerging markets in Asia Pacific's, middle east, Latin America these markets are creating new demand for luxury goods due to these countries population urbanisation and rising income. • Market value for all firms, tend to follow constant trends (with the exception of major market shocks) with very little long term fluctuation (in the case of most firms this being growth) • Weakness • for most firms growth rate in equities is relatively low • continued value in these markets is determined by continuous investment and growth in technologies, so dividend rates are typically quite low in this sector. • Opportunities • With new emerging markets across the world this raises opportunities for firms over the next few years to expand their sales into these regions. This also creates new spaces in the different markets for new firms to enter, or firms to diversify their business. • With firms taking different tracks with the development of new technologies this provides the opportunity to back a standard changing technology (I.e the example of Blu-rays and DVD´s) • Threats • with the rapid pace of technological advancement, firms that do not re-invest will fail to the ever increasing demand for newer and better technology, so when looking at equities: the company needs to have a high level of reinvestment in technological research, and in addition, be the right choice (I know that is badly worried but, it is like the example of blu-rayvsdvd etc. )