Does a Well-Resourced Hispanic Corporate Strategy Translates Into Shareholder Value Creation?

Study Findings
February 2006

www.SantiagoSolutionsGroup.com t: 323.463.4648

Strategic Growth Consultants

Agenda
Questions marketers are facing
How Santiago Solutions Group answers those questions
o Does a Hispanic strategy transfer into the creation of Shareholder Value?

Findings Implications for companies marketing to Hispanics Additional Financial Metrics Findings

SSG
Santiago Solutions Group (SSG) is a thought leader in strategy and management consulting, creating innovative multicultural business strategic plans.
~ SSGs strategic framework focuses on quantifying the core target segments upside revenue potential vis--vis its acculturation trigger points through an array of proprietary methodologies, such as custom volumetric models, internal and competitive assessments, and behavioral analytical tools tailored by category-product life cycles and sub-segments. ~ Our 5-Ps strategic blueprints empower corporate planning and marketing teams, as well as ad agencies, to conceive multicultural programs capable of sustaining traction.

Questions marketers are facing

Strategic Growth Consultants

Seeking Answers to Some of the Tough Questions Facing Marketers

CMOs, CSOs, & CFOs require quantitative tools to get beyond the hearsay about potential in the Latino segment.
Even as frontlines operations and major retailers clamor for increased marketing support to match the shift towards Hispanic customers seen at the cash registers
~ Brand managers, multicultural segment managers, and sales executive lack proof to validate further budget shifts from the Non-Hispanic Market to the booming Latino segment.

To close the recurring allocation debate, quantifiable proof is required on the following:
~ What is the necessary investment for winning in each Line of Business? ~ Does a well-resourced Hispanic strategy accelerate corporate top line growth? ~ Does a Hispanic strategy transfer into the creation of Shareholder Value?
5

Companies Investments In Hispanic Falls Mostly Short of Growth Opportunity

Hispanic Investment in 2004 among companies in SSG analysis still indicates that they are significantly trailing optimum investment levels matching the existing segment size and purchase behavior/power.
~ On average companies are only spending at around half of the share of Spanish & Bilingual Hispanics in the overall US population.
192 Major US Advertisers Allocation to Spanish-Bilingual Print+TV as a % Of Corporate Total Spend
$2,400 $2,000 7.8% $1,600 $1,200 2.9% $800 $400 $0
$650 $605

9% 8.0% 8.3% 8.6% 8.9%

8%
7% 6%

3.9% 2.9%
$882

4.3%
$1,100

4.3%
$1,162

5% 4% 3% 2% 1% 0%

2000

2001

2002

2003

2004

Spanish & Bilingual TV + Print Investment % Allocation of Corporate Total TV + Print To Spanish-Bilingual Spanish Bilingual National Ballpark Investment Level

Source: TNS Media Intelligence

Does a Hispanic strategy transfer into the creation of Shareholder Value?

Strategic Growth Consultants

A) Phase 1 methodology

Methodology
We selected initial companies from the Using financial data available from top 500 advertisers in 2000, 2001, 2002, ValueLine, cumulative return on 2003 and 2004 based on average TV + shareholder equity from 2008-2004 was print expenditures for a total sample size calculated for each of the companies of 684 companies. Companies were ranked by their Hispanic The list was paired down to a sample of Investment level. Results were analyzed 192 companies based on the following within industries and in aggregate in the criteria: following groups:
~ Status as a publicly held and reported company ~ Companies whose principal source of revenue does not come from marketing to Hispanics (i.e. Univision) ~ Not involved in a merger/acquisition ~ U.S. based ~ Financial performance data available from ValueLine;
Return on Shareholder Equity Net Profit Margin Revenue Growth

~ Top Decile the top 10% out of 192 companies ranked by ad resources dedicated to Latinos as a % of overall corporate ad spend ~ Top 2 Deciles the top 20% ~ Top Quartile the top 25% ~ Remaining Companies companies not falling in the above groups

No regressions were made to test the correlation between Hispanic Allocation and CROE, thus, findings could be coincidental.

Understanding Investor Implications of Cumulative Return on Shareholder Equity

Since Kelloggs Company (K) has a CROE of 9.8 from 2000 to 2004 Step 1: Determine Initial Investment If Investor A makes an investment of $10,000 in Kelloggs in the year 2000 Step 2: Multiply initial investment by CROE 9.8 x $10,000 = $ 98,000 Therefore, out of an initial investment of $10,000

in 2000 Investor A collects $ 98,000 in 2004

Investments in Companies Committed to the Hispanic Market Realize a Higher ROE

An investment of $1 in the companies meagerly investing in the Latino marketing at the bottom decile returns $1.00 Compounded Return for $1 invested in 2000 Spread Evenly Across Group
$10.00
$8.00 $6.00 $4.00 $2.00 $0.00 2000 2001
Top decile

2002
Middle 80%

2003
Bottom decile

2004

Source: SSG Proprietary Analysis

10

Investments in Companies Committed to the Hispanic Market Realize a Higher ROE

An investment of $1 in the companies that are somewhat investing in Hispanic efforts Middle 80 return $2.00 vs $1.00 in an investment in the bottom decile Compounded Return for $1 invested in 2000 Spread Evenly Across Group
$10.00 $8.00

$6.00
$4.00 $2.00 $0.00 2000 2001
Top decile

2002
Middle 80%

2003
Bottom decile

2004

Source: SSG Proprietary Analysis

11

Investments in Companies Committed to the Hispanic Market Realize a Higher ROE

An investment of $1 in the companies investing most seriously in Hispanic marketing Top Decile return $9.00
~ vs. $1.00 in an investment in the bottom decile.

Compounded Return for $1 invested in 2000 Spread Evenly Across Group

$10.00
$9

$8.00
$6.00
$5

$4.00
$3

$2.00
$0

$1 $2 $1 $0 2001 $1 $1 2002 $1 2003 $0 $0 2000

$2

$0.00

$1 2004

Top decile

Middle 80%

Bottom decile

Source: SSG Proprietary Analysis

12

Companies Committed to the Hispanic Market Realize Their Reward in Higher ROE
Within a specific group, mean cumulative returns on shareholder equity are consistently higher The benefit declines with lesser commitment multiplier among top Decile companies is half as high as top Quartile Mean Cumulative Return on Shareholder Equity
10

9.0

4.1 X

6.1 5.4

3.1 X
2.2 2.0

2.7 X
2.0

Top Decile Remaining Top Decile 90%

Top 2 Deciles Remaining Top 2 Deciles 80%

Top Quartile Top Quartile Remaining 75%

Source: SSG Proprietary Analysis

13

Across Industries In Our Study There Are Varied Emphases on Hispanic Marketing
Consumer Packaged Goods (CPG) leads industries in percent of total marketing spent on Hispanic marketing for the companies in the study.
Percent
Consumer Packaged Goods (CPG) Manufacturer 5.5

Rank
1

Entertainment/Restaurant
Retailer Automotive Manufacturer Technology/Telecommunications Manufacturer All Other Manufacturer Financial Services Pharmaceuticals Manufacturer Apparel Manufacturer HH Furnishing/Appliances Manufacturer
Source: TNS Media Intelligence for AHAA studies

4.7
4.4 4.1 2.1 1.8 1.5 1.4 0.4 0.1

2
3 4 5 6 7 8 9 10
14

Investments in the Largest Industry Realizes an Even Higher ROE

An investment of $1 in 2000 in the CPG companies in the top decile returns $33.80 vs $9.00 in the top decile of all companies Compounded Return for $1 invested in 2000 Evenly Across Top Decile
$40.00

$30.00

$20.00

$10.00

$0.00 2000 2001 2002

CPG
Source: SSG Proprietary Analysis

2003
All

2004

15

Investments in the #1 Ranked Industry Realizes an Even Higher ROE

An investment of $1 in 2000 in the CPG companies in the top decile returns $33.80 vs $9.00 in the top decile of all companies Compounded Return for $1 invested in 2000 Evenly Across Top Decile
$40.00

$30.00

$20.00

$10.00

$0.00 2000 2001 2002

CPG
Source: SSG Proprietary Analysis

2003
All

2004

16

Similar to All Companies, CPG Shows the Benefit Declines with Lesser Commitment
With 85% confidence the study indicates that Top Decile companies generate a return 12x higher than the rest. With 90% confidence we saw that Top Quartile companies generate a return to shareholders 7.5x larger than the remaining 75%. Mean Cumulative Return on Shareholder Equity CPG Industry
40

33.8
30

20

12.1 X

17.9

7.5 X
10

2.8
0

2.4
Top Quartile Quartile Top Remaining 75%

Top Decile Remaining 90% Top Decile

Source: SSG Proprietary Analysis

17

Key Conclusions
Companies who lead the field by their commitment to Hispanic marketing produce a 4 times higher return on shareholder equity than the followers
The relative impact of a commitment to Hispanic marketing differs by industry Further statistical analysis is necessary

18

Additional Financial Metrics Findings

Strategic Growth Consultants

19

The top quartile Hispanic investors consistently generated higher average profitability over the 2000-2004 period versus remaining companies

Net Income

The top quartile generated 2.1x higher average net income margin than the remaining companies1

Average Net Income Margin (2000-2004)

8.0
7.0 6.0 5.0 6.3
2.1 X

4.0
3.0 2.0 1.0 0.0 Top Quartile

3.0

Remaining 75%

(1) Reported with a statistical confidence level of 88.4%

Operating Income Margin

The top quartile generated 1.5x higher average operating income margin than the remaining companies1
Average Operating Income Margin (2000-2004)
14.0
12.0 10.0 8.0 6.0 4.0 2.0 0.0 Top Quartile
(1) Reported with a statistical confidence level of 93.0% (2) Reported with a statistical confidence level of 94.6%

12.2
1.5 X

8.1

Remaining 75%

The top quartile Hispanic investors consistently generated higher average profitability over the 2000-2004 period versus remaining companies

EBITDA

The top quartile generated 1.3x higher average EBITDA margin than the remaining companies2
Average EBITDA Margin (2000-2004)
20.0

17.9

16.0

1.3 X
13.8

12.0

8.0

4.0

0.0

Top Quartile

Remaining 75%

(1) Reported with a statistical confidence level of 93.0% (2) Reported with a statistical confidence level of 94.6%

Key conclusion

Additional Financial Metrics Findings

Companies who lead in their

level of allocation to Hispanic marketing

generate 2.1x as higher bottom line profitability,

1.5x Operating Income Margin, and

1.3x Average EBIDTA Margin.