New perspectives Barcelona, 25th October 2005 European Pasta Complex In A State Of Flux III Pasta World Congress

New perspectives Introduction

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4 Strategy Rabobank Group To become the largest, best and most innovative Allfinanz provider in the Netherlands To be the most sustainable and socially involved bank Global no. 1 in financing in the food & agri market – International network in 35 countries – International market leader Food & Agri wholesale – Domestic retail banking in selective countries – Knowledge based banking

New perspectives EU pasta complex in a state of flux

6 Shift in consumer demands Food expenditure as proportion of household income is declining Consumer have become more and more price sensitive Serving an ageing and declining consumer base Obesity has vast societal dimensions Diets come and go Continuing popularity of the Mediterranean diet Increasing on the go and out of home consumption Manufacturers challenge: How to capture a greater share of consumers food expenditure

7 A gradually growing pasta market CAGR 99-09: 6.3% CAGR 99-09: 3.6% Source: Datamonitor, 2005

8 Supermarkets remain main channel for pasta purchases, but … Source: Datamonitor,Rabobank estimates, 2005

9,… discounters will become an even more dominant force in Europe, … Discount percentage shares in total grocery retailing Main discount labels Source: M + M Planet Retail, Rabobank estimates

10 …, as is seen in the stunning growth of Aldi and Lidl outlets 2X 8X 2X Number of outlets in EU Number of discount outlets in EU Source: GfK

11 Private label gaining acceptance at the expense of brands Source: IGD 2004, Rabobank

12 Italy still the major producer, but Russia and Turkey can have a major influence in the midterm Source: UNIPI, Rabobank estimates, 2004 Global pasta production, volume

13 Italian pasta producers depend heavily on export; Germany main destination Italian exports account for 48,5% of production Export volume CAGR : 8% Significant price differential between national and export markets Italian producers are the main private label suppliers for EU retail trade In addition export to fill up production capacity As a result the European pasta market is suffering from overcapacity Source: UNIPI, 2004 Italian export destinations By volume, 2003

14 Polarisation in EU pasta market: as is the case in the German market Structure of German dry pasta market Price per 500g pack Source: Industry sources, AC Nielsen and Rabobank estimates

15 Policy developments will continue to impact the pasta industry CAP reform: – 1992 reform – Price volatility (reduction of the intervention price) – Non-traditional areas switched production from durum to other crops (e.g. soft wheat) – Mid Term Review – Impact of production in tradional areas will be limited – EU will remain a net importer Eastern EU enlargement (May 2004): – Better access to these markets – Per capita pasta consumption is close to EU-15 levels Turkey, a future EU member? – Turkey seems to have a competitive (export) position in the entire pasta complex

New perspectives Adaptation of business model

17 Changes have urged players to adapt their business model Top line Bottom line Rationalization of portfolio Increase buying power Higher margin products Innovation Restructuring Increase market share Access new markets Diversification of products and services Internationalisation Growth Raise efficiency

18 Rationalization in pasta complex Source: UN.A.F.P.A (2003), Rabobank estimates Number of companies Production

19 Several dominant branded players, but strong demand for private label suppliers No pan-European player with exception of Barilla Diversity of consumer demand has resulted in many small factories, short runs and manufacturing complexity Fragmented market with many small scale players (<EUR 50m) Most larger players have traditionally held a strong position in their domestic market No uniform business model Polarisation between short and long shelf life operators Market place remains competitive Oversupply concerns Majority of companies are family owned Ample room for growth, both organically as by acquisition Fragmented industry offers growth potential Key characteristics Main producers* * Selection of main producers

20 Sizeable players already active in Central and Eastern Europe Source: UNIPI, Rabobank estimates

21 Will the pasta industry create its own Actimel? Organic growth New product development will be a key element for sustainable success in the pasta industry, although very complex The pasta industry has not been very innovative over the last decade Innovation has been predominantly incremental-me toos and brand extensions Focused on health and quality Relevant innovation will be rewarded…

22 Strategies in European pasta industry Multiple strategies across country borders Geographic expansion Source: Rabobank,, 2005 CommodityGeneric Premium DomesticEuropeGlobal Value added Volume Cost leadership Brands N.P.D. Disintegration?

23 Pasta industry has the tools to overcome these challenges Cost input price inflation Inability to pass this on to customers Competitive pricing Commoditization Weather risks in supply Involvement of food multinationals Fall in demand/volumes Cross sector competition Current debate on obesity Challenges Focus on higher margin products Established key brands with strong support New product development Strong market share Distribution power with critical mass Customer retention and loyalty Reduction of cost base Efficient capacity utilisation Secure ingredient supply Access to stable growth markets Access to optimum financial resources Tools Strategy Clearly defined strategy, based on understanding of individual markets and industry drivers, supported by a strong and in-demand portfolio of products

New perspectives Outlook

25 Rabobanks view on the European pasta complex Outlook The pasta market will remain a value growth market throughout Europe characterised by many, highly professional competitors Cost side of the pasta industry needs to improve Retail-supplier relationships will become even more intense The share of private label products on offer will continue to grow Some segments will become commoditized, making cost leadership in these segments a necessity There is an urgency for further industry consolidation New product development will be a key element in further value growth Expansion to non-traditional growing areas CAP reform will lead to more open markets and more volatility in durum prices As a result of CAP reform, EU durum production could fall

New perspectives Barcelona, 25th October 2005 European Pasta Complex In A State Of Flux III Pasta World Congress

27 Strategy Rabobank Group To become the largest, best and most innovative Allfinanz provider in the Netherlands To be the most sustainable and socially involved bank Global no. 1 in financing in the food & agri market – International network in 35 countries – International market leader Food & Agri wholesale – Domestic retail banking in selective countries – Knowledge based banking