Kurt Brown René Hegglin Shengbo Mao Consumer Staples Stock Presentation THE STOCK MARKET

Agenda Recap of Sector Recommendation Stock Recommendation Summary Questions 10/6/20152Consumer Staples Stock Presentation

SIM Portfolio SectorS&P 500 WeightSIM Weight+/- Consumer Discretionary9.11%7.51%-1.60% Consumer Staples11.94%12.23%0.29% Energy12.35%12.80%0.45% Financials14.66%6.59%-8.07% Health Care12.65%13.13%0.48% Industrials10.09%11.97%1.88% Information Technology19.04%21.97%2.92% Materials3.39%4.52%1.13% Telecommunication3.09%3.51%0.43% Utilities3.68%3.19%-0.49% Weights as of /6/20153Consumer Staples Stock Presentation

Consumer Staples Recap Increase weight of consumer staples by 26 basis points – Gives a 55 bp overweighting – Slow economic recovery – The market has recovered too much too quickly Will see a small correction fairly soon – Exposure to international growth 10/6/20154Consumer Staples Stock Presentation

Stock Recommendation SELL ~ 332 bps of Safeway (SWY) BUY ~ 332 bps of Procter & Gamble (PG) SELL ~ 50 bps of PepsiCo (PEP) BUY ~ 76 bps of Philip Morris (PM) 10/6/20155Consumer Staples Stock Presentation

Sector Holdings Current Holdings S&P 500 – 11.94% SIM – 12.22% PepsiCo – 4.00% Safeway – 3.32% Wal-Mart – 2.86% Philip Morris – 2.04% Recommended Holdings S&P 500 – 11.94% SIM – 12.48% PepsiCo – 3.50% Procter & Gamble – 3.32% Wal-Mart – 2.86% Philip Morris – 2.80% Weights as of /6/20156Consumer Staples Stock Presentation

Industry Weightings 10/6/20157Consumer Staples Stock Presentation

Target Prices 10/6/20158Consumer Staples Stock Presentation CompanyCurrent PriceTarget PriceDividendUpside Potential Philip Morris$ $50.95$ %27.1%-31.0% Procter & Gamble$ $62.60$ %21.8% % Wal-Mart$ $53.75$ %17.8% % PepsiCo$ $62.47$ %16.6% % Safeway$ $23.60$ % %

Safeway Safeway (founded 1915) is a food and drug retailer with over 1,700 stores mainly spread in the western and central parts of the United States and Canada. Founded in 1915, headquarters in Delaware, about 197,000 employees Competitors are: Kroger, SUPERVALU, Wal- Mart, Target 10/6/20159Consumer Staples Stock Presentation

Safeway YTD Oct 15: Reaffirmation of guidance EPS: $1.70-$1.90 expected was $1.74 (Q3 EPS was $0.31 instead of $0.29) Aug 26: Quarterly dividend of $0.10 per common share announced Aug 4: SIM decides to buy 288bps of Safeway at a price of $19.01 with target price $24.40 Aug 6: Safeway recalls beef from six states Aug 23: Safeway lowers guidance to EPS: $1.70-$1.90 Expected was $2.07 Apr 30: lowers guidance to EPS: $2.10- $2.30 Expected was $2.23 Mar 6: Quarterly dividend of $ per common share ann. Feb 26: Safeway reiterates EPS guidance of $2.34-$2.44 Expected was $2.32 Jan 30: Safeway recalls peanuts from 66 stores 10/6/201510Consumer Staples Stock Presentation

Safeway Perspective Last Quarter August 4, 2009: Price Target for Safeway (based on a multiples-only basis) was $24.40 Price Safeway August 4, 2009: $19.01 Potential Upside + Dividend Yield: 30.3% Class agreed to buy 288bps of Safeway 10/6/201511Consumer Staples Stock Presentation

Safeway Perspective Last Quarter 10/6/201512Consumer Staples Stock Presentation

Safeway This Quarter 10/6/201513Consumer Staples Stock Presentation

Safeway Sensitivity Analysis 10/6/201515Consumer Staples Stock Presentation 9.25%9.50%9.75%10.00% 3.50%$24.67$23.47$22.36$ %$25.51$24.22$23.04$ %$26.43$25.05$23.78$ %$27.45$25.95$24.59$ %$28.57$26.94$25.47$ %$29.81$28.04$26.44$25.00

Safeway Valuation Multiples / DCF Absolute Valuation MedianCurrentTarget Multiple Target E, S, etc/Share Target Price P/Forward E P/S P/EBITDA P/CF Avg Price from Multiples $ % Price Target from DCF $ % Weighted Price Target $ Current Price $ Upside Potential8.93% 10/6/201516Consumer Staples Stock Presentation

Safeway Valuation Summary Low upside left (~5-10%) even with optimistic assumptions concerning sales growth Revenues uncertain due to deflationary competition (Kroger, Wal-Mart, SUPERVALU) Overreaction of market when guidance was confirmed (10/15/09) Take away the gains from last quarters purchase (we nearly reached the implied price target of $25.48 estimated in Aug/09) Diversify into Consumer Goods 10/6/201517Consumer Staples Stock Presentation

Safeway Risks & Benefits Risks – Deflationary price history in dairy and food YTD  even stronger price war upcoming? – Only national exposure instead of international (with highest exposure in California) – High unemployment in the US Benefits – Stronger results than expected – Cash-flow increased (less investment) – Stock repurchase program still alive – Sales trend improves 10/6/201518Consumer Staples Stock Presentation

Procter & Gamble (PG) Company overview: Procter & Gamble is a consumer goods manufacturer, founded in 1837, headquartered in Cincinnati OH. Market capitalization of $181 billion. P&G’s products are sold in over 180 countries with only 55% in North America, and 32% in developing countries. Customers of P&G are merchandisers, grocery stores and drug stores like Wal-Mart and Target 10/6/201519Consumer Staples Stock Presentation

Procter & Gamble 10/6/201520Consumer Staples Stock Presentation

P&G Stock 10/6/201521Consumer Staples Stock Presentation

P&G Financial Analysis 10/6/201522Consumer Staples Stock Presentation

Procter & Gamble Terminal Discount Rate =9.5% 11/16/2009Terminal FCF Growth =4.0% Year2010E2011E2012E2013E2014E2015E2016E2017E2018E2019E2020E Revenue 79,819 83,810 87,582 91,523 95,641 99, , , , , ,183 % Growth5.0%4.5% 4.0% EBT 15,645 17,013 17,684 17,664 18,459 19,289 20,157 20,964 21,802 22,674 23,581 EBT Margin19.6%20.3%20.2%19.3% Interest 1,357 1,425 1,496 1,563 1,634 1,707 1,784 1,855 1,930 2,007 2,087 Interest % of Sales1.7% Taxes 4,068 4,424 4,598 4,999 5,224 5,459 5,705 5,933 6,170 6,417 6,674 Tax Rate26.0% Net Income 11,577 12,590 13,086 14,228 14,868 15,538 16,237 16,886 17,562 18,264 18,995 % Growth8.8%3.9%8.7%4.5% 4.0% Add Depreciation/Amort3,1933,3523,4163,5693,7303,8984,0734,2364,4064,5824,765 % of Sales4.0% 3.9% Plus/(minus) Changes WC(448)(1,197)(377) (383)(400)(418)(434)(452)(470)(489) % of Sales-0.6%-1.4%-0.4% Subtract Cap Ex3,1933,3523,5033,6613,8263,9984,1784,3454,5194,6994,887 Capex % of sales4.0% Free Cash Flow11,12911,39312,62213,75914,39015,03815,71416,34316,99717,67718,384 % Growth2.4%10.8%9.0%4.6%4.5% 4.0% NPV of Cash Flows 92,19940% NPV of terminal value 140,26960%Terminal Value 347,620 Projected Equity Value 232,469100% Free Cash Flow Yield5.67%Free Cash Yield 5.29% Current P/E Terminal P/E 18.3 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 12.8 Projected EV/EBITDA Shares Outstanding 3,154.0 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 18.4% Debt 20,652 Cash 4,781 Cash/share 1.52

P&G Valuation 9.25%9.50%9.75%10.00% 3.5%$72.64$69.53$66.58$ %$74.91$71.67$68.45$ %$77.22$73.71$70.33$ %$79.69$75.95$72.33$ %$82.50$78.35$74.59$ %$88.99$81.48$77.43$ /6/201524Consumer Staples Stock Presentation

P&G Valuation 10/6/201525Consumer Staples Stock Presentation Procter & Gamble Absolute Valuation MedianCurrentTarget Multiple Target E, S, etc/Share Target Price P/Forward E P/S P/EBITDA P/CF Avg Price from Multiples $ % Price Target from DCF $ % Weighted Price Target $ Current Price $ Upside Potential19.64%

P&G Valuation Relative to Industry P&GSafeway MedianCurrentDifferenceMedianCurrentDifference P/Trailing E % % P/Forward E % % P/B % % P/S % P/CF % 110% 10/6/201526Consumer Staples Stock Presentation

P&G Valuation Relative to S&P /6/201527Consumer Staples Stock Presentation P&GSafeway MedianCurrentDifferenceMedianCurrentDifference P/Trailing E % % P/Forward E % % P/B % % P/S % 0.2 0% P/CF % %

P&G Absolute Valuation 10/6/201528Consumer Staples Stock Presentation P&GSafeway MedianCurrentDifferenceMedianCurrentDifference P/Trailing E % % P/Forward E % % P/B % % P/S % % P/CF % %

Benefits Attractive valuation Competitive strengths in developing markets – 45% of revenues are international Gillette acquisition boosts sales and profits 23 brands each generating over $1 billion in sales annually and another 20 over $500 million Share buybacks Increased dividend for 53 consecutive years AA credit rating 10/6/201529Consumer Staples Stock Presentation

Risks Increases in raw material and energy costs Increased marketing and product development costs may hurt earnings New CEO Consumers continue trading down The US Dollar continue to decrease in value 10/6/201530Consumer Staples Stock Presentation

Philip Morris Company Overview Philip Morris International Inc. (PMI), incorporated in 1987, Philip Morris International the world's second-largest tobacco company, behind only China National Tobacco, and it claims almost 16% of the non-U.S. market. PMI owns seven of the leading 15 international cigarette brands, including Marlboro, the company's flagship brand. Its products are sold in over 160 countries. 10/6/201531Consumer Staples Stock Presentation

Valuation range is 9% - 10% for the terminal discount rate and 2% - 4% for the terminal free cash flow growth rate. This subset of the analysis yields a valuation range of $61.80 to $87.20, which suggests almost zero downside risk against at least 22.0% upside gains. Philip Morris DCF Method 10/6/201532Consumer Staples Stock Presentation

Final Price Target Taking account 70% of DCF model result and 30% of the result from multiples method, I come up with the final target price $ /6/201533Consumer Staples Stock Presentation

Investment Thesis Strong business fundamentals and results Powerful pricing ability Superior infrastructure, brand portfolio and geographic balance Manageable excise tax and regulatory environment Sustainable cash flows and excellent liquidity Continue to reward shareholders over the long term Potential growth in emerging markets Expected currency tailwinds in long-term 10/6/201534Consumer Staples Stock Presentation

Possible Risks Weaker industry volume and some consumer down trading Tobacco sector resilient but not immune to the effects of a recession Currency headwinds in the short-term Long-term threats from increased regulation, litigation, and taxation Exposed to cultural, economic, and political risks inherent to regions of emerging and developing markets. 10/6/201535Consumer Staples Stock Presentation

PepsiCo Sell ~ 50 bps – Attractively valuation – Frito-Lay – fastest growing major food or beverage company in the US this year – Merger with The Pepsi Bottling Co. and PepsiAmericas Potential short-term issues – 5 th largest holding in SIM portfolio Trim some gains 10/6/201536Consumer Staples Stock Presentation

Summary 10/6/201537Consumer Staples Stock Presentation SELL ~ 332 bps of Safeway (SWY) BUY ~ 332 bps of Procter & Gamble (PG) SELL ~ 50 bps of PepsiCo (PEP) BUY ~ 76 bps of Philip Morris (PM)

What questions do you have? 10/6/201538Consumer Staples Stock Presentation