Processed & Packaged Goods Industry

1. Processed & Packaged Goods Industry Dan Finan, Taylor McGraw, Patrick Noonan, Mitchell Schmitt

2. Agenda • Introduction & Summary • Industry Overview and Assumptions • Company Assumptions & Detailed Earnings Analysis • Valuation Methodology & Valuation Calculations • Conclusion

3. Introduction & Summary Mitchell Schmitt

4. Key Industry Players

5. Headquarters in Vevey, Switzerland (IFRS) Recorded 92.15B in Revenues for 2013; Most in U.S. Product Lines include powdered and liquid beverages, water, dairy products, nutrition, etc. Main customers are wholesalers, grocery stores, and food service contractors Mature Company; Founded in 1866 Attempts to gain economies of scale once established (Current expansion in emerging markets) Risk factors include commodity pricing, increased regulation in countries they operate, and consumer preferences

6. Headquarters in Deerfield, IL Spun off from Kraft Foods Oct. 1, 2012 to reflect standalone global food and snack business Done to enhance international growth for coming periods $35.3B in revenue for 2013 Notable brands include Oreo, Cadbury, Trident, and Tang Retail, grocery store customers Risk factors include failed expansion, highly saturated industry, consolidation of retail customers

7. Stock Price

8. Market Information Nestle Mondelez International

9. Valuation Information Nestle Mondelez

10. Industry Overview & Assumptions Patrick Noonan

11. Products & Markets

12. Characteristics of the Industry • Key Drivers: • Demand from supermarkets, grocery wholesalers and grocery stores • Wholesalers are the link to stores and stores are the link to consumers • High competition for in-store advertising and shelf space • World commodity prices & other input prices • Volatile commodity prices • Packaging materials • Consumer preferences & demand • Continually changing • World price of crude oil and natural gas • Product and packaging plants • Transportation costs

13. Industry Performance • Snacking category within Processed & Packaged goods continues to grow • Growth is highly correlated to GDP growth, urbanization of population and rising discretionary income levels • Demand: • Temporary emerging market slow down in 2013 – took a toll on global growth • Expect overall growth rate expected to return to normal in 2014

14. Industry Outlook • Life Cycle – Industry is mature, characterized by saturated domestic markets and well-established brands. • Weak dollar against the currencies of major trading partners will boost industry exports. • Growing global middle class. • Mondelez Divestiture

15. Operating Conditions • High levels of capital intensity • Technology and systems • Revenue volatility • Levels of regulation • Environmental regulation

16. Estimated Revenue Growth

17. Nestle Profitability Map

18. Mondelez Profitability Map

19. Company Assumptions & Detailed Earnings Analysis Taylor McGraw

20. Company Comparison • Comparing MondelezInternational to Nestle • Operate in similar industries • Have similar focus on international expansion • Major products: packaged snack foods, coffee, bottled water, gum, candy • In terms of revenue, NESN is ~3x size of MDLZ

21. Company Assumptions – Growth Rate • Growth rate for packaged foods industry • Projected sales growth rate: • MDLZ: 2.5% • NESN: between 3.0% and 4.0%

22. Company Assumptions – EPM • MDLZ EPM for 2014, onward: 13.64% (projected increase from 2013 EPM of 2.5%) • NSN EPM for 2014, onward: 10.40% (average of 2010-2013 EPM)

23. Company Assumptions – EATO MDLZ EATO for 2014, onward: 0.70 (2013 EATO) NESN EATO for 2014, onward: 1.00 (increase from 2013 EATO of 0.13)

24. Future Earnings Uncertainty • Both of the companies and their competitors are likely to pursue acquisitions in the future as they seek to aggressively expand into emerging markets. • Projected to be a large source of growth for MDLZ and NESN • Accompanied by much uncertainty – could be a driver behind undervalued stock prices

25. Valuation Methodology & Calculations Dan Finan

26. Valuation Methodology • We ultimately decided to employ the Abnormal Enterprise Income Growth Model. • Residual Income was considered • Its reliance on NEA works well with the future growth strategies of Nestle and Mondelez …but the AEIG Model primarily uses forecasts within our designated time horizon to derive total estimated value, and thus provides us with the most confidence.

27. The Big Picture • Across the industry, domestic sales are saturated and stagnant, but emerging markets are on the verge of a boom. • Both companies plan to pursue an aggressive acquisition strategy in these emerging markets to capture significant market share. • At the moment, Mondelez’s recent spin-off hinders its growth rate.

28. Key Elements • Weighted average cost of capital (WACC) • Nestle: 6.42% • Mondelez: 7.84% • Growth rate of sales • Nestle: 3.00% from 2014-15, 3.50% from 2016-17, 4.00% thereafter • Mondelez: 2.50%

29. Nestle Valuation

30. Mondelez Valuation

31. Recommendation for Nestle BUY

32. Recommendation for Mondelez BUY

33. Our Thoughts • Both Nestle and Mondelez are undervalued. • Growth in emerging markets remains highly uncertain… …but from our perspective, population growth and the emerging middle classwill create a great deal of value for both companies.

34. An Earnings Call Excerpt… • Paul Bulcke, Nestle CEO: “The macro-environment in 2013 was one of soft growth, minimal in the developed world and below recent levels in the emerging markets. Our response was to increase brand support, accelerate innovation, and to ensure our pricing was sensitive to consumer needs.” Despite this nominal growth… “The emerging markets had an organic growth of 9.3%, now representing 44% of the group's sales.”

35. Questions? Processed & Packaged Goods