Coffee2013:ReadyforTakeOff

OverviewofCoffeeTrendsinNewConsumerMarkets

March 5, 2013 | Strictly private and confidential

Agenda

Sections I II III IV Introduction Strategic Considerations in Global Coffee Demand Regional and Country-Level Snapshots Key Points to Consider 3 7 13 22

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Ross Colbert, Global Strategist Beverages

Mr. Colbert joined Rabobank in January 2011 and is responsible for developing FARs research portfolio and Rabobanks global view toward the beverage sector. Rabobanks FAR team provides information and analysis covering all of the major sectors throughout the food chain. The seven-member FAR Beverage team is part of Rabobank Rabobanks s global FAR group, which is comprised of approximately 70 analysts around the world. Colbert joined Rabobank following an extensive career in the beverage industry. Most recently he was Managing Director of M&A Americas for Zenith International, which is one of the worlds leading consulting, market intelligence and financial advisory firms focused on the global food and beverage industry. Prior to that, he was Managing Director and Chief Operating Officer for eight years at Beverage Marketing Corporation, which provides market intelligence and financial advisory services to the global beverage industry. Over his career he has served as an advisor to Pepsico, Coca-Cola Enterprises, Heineken, Nestle Waters, Snapple Beverages, and Seagram's as well as many independent, private beverage companies. Additionally, he began his career at Coca-Cola Bottling of Miami, then moved to Beverage Canners International and Cadbury Schweppes. He has his undergraduate degree in political science from the University of Hawaii, and a Masters in Business Administration from the University of New Haven. Additionally, Colbert completed an Executive Program in Corporate Finance and Mergers & Acquisitions from the University of Pennsylvania, Wharton School.

Ross Colbert Global Strategist, Beverages Food ood & Agribusiness g bus ess Research & Advisory Rabobank International 245 Park Avenue New York, NY 10167 Phone: 212 916 7960 Fax: 212 808 2594 E-mail: Ross.Colbert@rabobank.c om

Introduction to Rabobank
Advisor of choice in food, beverage and agribusiness M&A
Global F&A leadership Over 160 transactions closed globally since 2003, with total deal value exceeding US$40BN Industry insight Understanding g of effective strategies g in food, , beverage g and agribusiness Over 100 years of banking history rooted in the F&A sector Long-term client relationship with industry leaders Selected global F&A transactions
Saputo Nestl SA VION

Acquisition of Morningstar Foods for US$1.45bn from Dean Foods

US$11.85bn acquisition of Pfizer Nutrition

US$255m sale of Banner Pharmacaps to Patheon

Rabobank has direct access to key decision makers, owners/f ounders, CEOs and board members across the industry

Constant dialogue with decision makers Engaged and active industry relationships help spur credible strategic dialogue Robust proprietary deal flow in the F&A space

Pending

2012

2012

Kozy Shack

Barry Callebaut

Trilantic Capital Partners

Senior level attention and involvement Dedicated senior M&A professionals Ability to manage complex situations and provide tailored solutions and think outside the box

Sale to Land OLakes

Cooperation with Rothschild M&A and equity advisory for the entire food and agribusiness g sector Worldwide coverage Joint advisory subject to client agreement Benefits of the cooperation Complementary M&A advisory expertise, geographical coverage and client base Substantial industry knowledge, client relationships and execution skills Extensive geographic breadth and scale of dedicated resources Leverages Rabobanks F&A research Access to financing for originated transactions

Divestment of its European consumer business Stollwerck to Baronie

c.125m sale of Spumador to Refresco

2012

2011

2011

Schreiber Foods

Sara Lee

Brown-Forman

Acquisition of Dean Foods customer-branded yogurt business

115m sale of the Spanish and Portuguese fresh bakery businesses to Grupo Bimbo

US$238m sale of Fetzer Vineyards and related assets to Via Concha y Toro

2011

2011

2011

4 6

Strategic relationships throughout the global coffee, tea and cocoa sectors
Multinational coffee traders Diversified traders and processors

Roasters, consumer packaged goods and OCS companies

5 7

Rabobanks Food & Agri Research

Proprietary sector research
Food and Agribusiness Research overview Recent activity in the coffee sector

Food and Agribusiness Research (FAR) comprises a dedicated and specialized group of industry analysts FAR supports pp the banks M&A clients with access to its proprietary research FAR has more than 80 research professionals in 14 countries and 17 offices around the globe Fundamental sector-based research covering the entire food and beverage and agribusiness value chain, from primary production to processors to retailers Output in the form of Industry Notes, F&A Reviews, Commodity Notes, Regional Banking Reports, World Maps and tailored presentations for internal and external clients Key role is to support the efforts of M&A, Leveraged Finance, Corporate Banking and Credit Risk

Client Advisory Project Strategic Sourcing of Coffee & Tea: Global Assessment of Volatility, Scarcity and Sustainability, May-August, 2012 Keynote Presentation OCS Outlook 2012 at Coffee, Tea & Water 2012; NAMA, Las Vegas, November, 2011 Keynote Presentation Single Joe Coffee Trends 2013 at National Coffee Association Summit, Philadelphia, October 2012 Keynote Presentation Rethinking the Beverage Supply Chain, InterBev 2012, Las Vegas, October 2012 FAR Industry Note Raj-accino Indias Growing Coffee Culture, November, 2012 Global Coffee Outlook; Sintercafe, Costa Rica, November, 2012 Thirsty for growth 2013 Global Beverage Outlook, January 2013

Sector coverage
Alcoholic beverages Animal protein Bakery and snacks Confectionery Dairy Farm inputs, feed, biofuel Fresh produce Grains & oilseeds Grocery Ingredients and sugar Non-alcoholic beverages Seafood

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Strategic considerations in global coffee demand

Key coffee market drivers
Consumers now demand convenience, variety and premium/quality taste, both athome and out-ofhome

Growing demand in emerging markets

Regional differences in retail coffee value and volume

Emerging markets to reach 50% of global coffee consumption by 2020 2020 Growth in instant coffee driven largely by emerging countries

Western Europe continues to lead both value and volume sales of coffee Asia Pacific second in value but trailing North America, Eastern Europe and Latin America in RTD retail volume

Changing consumption patterns and recent hardware innovations are helping to drive growth in the single-serve coffee market

Shift from multi-serve to single-serve

Premiumization

At-home and out-of-home consumption changed by single-serve systems Format innovations driving value growth in mature markets

Growth focused on differentiation, brands and quality Premiumization within R&G Premium offerings also supported by fair trade, health benefits, organic and origin

Increasing consumption in emerging markets

Growing out-of-home offering

Product innovation

Consumers willing to pay more for convenience Gourmet coffee shops continue to lose ground in specialty coffee to quickservice restaurants (QSR)

Innovation driving market share gains and gross profits Consumer preference for convenience and quality driving innovation in singleserve R&G brewing technology

Note 1: Source: P&A Marketing International 7 9

Security of Supply Becomes a Global Concern

Structural Shifts in F&A Forcing a Supply Chain Response
Coffee moving into an era of tighter supplies and higher volatility

Dedicated Supply Chains Key to Managing Volatility

Much of demand growth to come from pricesensitive developing markets

Sustainability a key differentiator among premium coffees

Source: Rabobank 2012 10

Strong volume and value growth expected

Coffee value, volume and premiumization trends

Fresh coffee beans a small but growing segment, bolstered by premiumization

Global Coffee Retail Value and Volume Sales Growth (2012-17)

Coffee

Tendency for instant to be popular in markets where tea leads coffee in volume

Fresh Coffee Beans

Standard Fresh Ground Coffee

Retail Value RSP Retail Volume

Overall trend toward t d innovative i ti & higher-quality products boosting value growth in all segments

Fresh Ground Coffee Pods

Instant Coffee

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Source: Euromonitor 9 11

GLOBAL PERFORMANCE

Tea-drinking cultures more receptive to instant coffee

Dominant Hot Drink by Volume Coffee Tea

Source: Euromonitor

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Traditional consumer markets wont drive growth

Demand growth mainly to be in developing countries

Very large Vietnamese crop in 2012, but likely to fall off in 2013

MY 2011/12 Share of World Coffee Exports

Others, 17 % Brazil, 25%

Consumption Growth by Country Category, 2001-11

Brazil to become worlds largest consumer before 2020

Mexico, 3% Guatemala, 3% Peru, 4% Honduras, 5%

Future demand growth to come g from exporter and emerging markets, though pods a mature market bright spot

India, 5% Colombia, 6% Indonesia, 9%

Vietnam, 2 3%

Source: ICO, Rabobank Research 11 13

The three key drivers of future demand growth

Whats driving demand in exporter and emerging markets?

Premiumization

Rising incomes & middle class growth

Emerging caf culture in key countries

76% of Volume Growth to 2016

Source: Rabobank, Euromonitor 14

Asia: Young Urban Professionals Key to Success

Economic development, premiumization driving demand growth
Growing middle class Young populations Vietnam Emerging caf culture South Korea Key Brands 6.7%

Selected Macro Indicator Performance, 2000-11

Expected 2012 Retail Coffee Market Demand Value CAGR, and Forecast Selected Growth Markets Rates
% CAGR 18%

13.3% 16%
1113

9.7% 3.6%

14%

China 15.0% 2012-17

Philippines

9.7% 0.9%

12%
1,113

10% Indonesia 9.7% 8.7% 8% India 6.0% 2012-20

Vietnam 6.8% 2012-20

1421 180

South Korea 7.6% 2012-17

India

13.2% 3.6%

6%
719

452

632

4% China 17.9% 14.6% 2%

Philippines 4.8% 2012-20

Indonesia 6.2% 2012-20

GDP CAGR
Source: World Bank

Urban Pop Share Growth

0%
Source: Rabobank Analysis, Euromonitor 15

China: Booming Coffee Shop Industry

Significant consumption growth driven by instant and coffee shops
Domestic Chains

Chinese Coffee Consumption by Segment (000 bags)

800 Instant Coffee Fresh Coffee 600 00 07 CAGR 16% 15% 07 12E CAGR 9% 12%

Rapid Expansion of Coffee Shops (# of Outlets)

16,000

700

14,000

12,000

500

10,000

400 Multinationals 300

8,000

6,000

200

4,000

100

2,000

0 2000 2002 2004 2006 2008 2010 2012E

Source: Euromonitor, Rabobank analysis 16

India: Caf Culture Growing Fast, Lead by CCD

Huge growth in coffee shops, caf culture
Leading specialist chains

Planned Chain Expansion

Caf Coffee Day Starbucks Dunkin' Donuts Costa Coffee Leading off-trade retailers Gloria Jean's Di Bella Krispy py Kreme Coffee Republic IND 2000 shops by 2014
Speciality Coffee Shops in Asia

Growth in Specialist Coffee Shops: India vs APAC

40000 35000

Specialist Coffee Shops India

Asia Pacific

2500

US US UK AUS

30000 25000 20000 15000 10000 5000

100 shops in next 5 years 300 shops by 2015 100 shops in next 3 years

1500

1000

AUS 50 shops in next 3 years US UK 80 shops p in next 5 y years In talks, but no plans yet

500

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E

Source: Industry sources, news, 2012

Source: Euromonitor, Rabobank Analysis

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Indonesia: Burgeoning Middle Class Thirsts for More

Local brands compete with internationals by tailoring products
Off-trade leaders

Annual Growth %: Overall GDP vs Service Sector Domestic bags)

4000 3667

Consumption,

MY

2000/01-2012/13

(000

10 8 6 4 2 0

Specialty Retailers

3500

3000

2833

2500
Source: World Bank, Rabobank analysis

2000 1676 1500

Middle Class Growth Expected to Continue

1000

500

0 2000/01 2006/07 2012/13

Source: ICO 18

Source: Euromonitor

Speciality Coffee Shops in India

JV with Tata, targets undisclosed

2000

Vietnam: Local Brands Compete Through Targeting Local Tastes

Big growth in instant coffee and caf culture
Local Caf Leaders

Rising Domestic Consumption Share through 2020

16%

Retail Sales % by Company, 2012

16.6

15% 33 14% 13% 12% 11% 10% International Entrants 9% 8% 7%

Source: Euromonitor

Nestle Vinacafe

18.1

Trung Nguyen Others

32.2

3-in-1 Instant Mix Market Share % by Company, 2012

4

27 Targeting Vietnam Domestic consumption as a % of production Vietnam exports as a % of world consumption

38

Trung Nguyen Vinacafe Nestle Others

31
Source: ICO, Rabobank estimates 19 Source: USDA

Key Points to Consider

What does this mean going forward?

International brands have the muscle, but local firms can compete through locally-tailored product offerings, or localvation

Mid-sized, growing cities may provide untapped expansion opportunities

Strategic sourcing, especially through integrated supply chains, provides opportunity to add value and manage supply risk

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Thank You ICO!

For more information contact: Ross Colbert, Global Strategist-Beverages Rabobank International 245 Park Avenue 36th Floor New York, NY 10169 ross.colbert@rabobank.com

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