1. Consumer Staples Sector Ilya Reppo & Michelle Yan

2. Agenda Sector Overview Characteristics & Trends Investment strategy Sub-sector Breakdown Individual Stock Analysis Recommendation

3. Consumer Staples: Industry Characteristics Relatively inelastic, defensive (non-cyclical) Mature & saturated US market Fierce competition Buyer Power – High Supplier Power- Low Few, key power players Built on brand loyalty S &P Index vs Consumer Staples index through 5 years

4. Industry Trends Retail consolidation Down-shifting to private labels Emphasis on value & new products to maintain sales Shift toward international expansion Shift towards green, health-oriented products

5. Consumer Staples: Subsector 42 companies 11.36% of the S&P 500 Food & Beverage Tobacco & Alcohol Household non-durables Personal Products

6. Consumer Staples Food and Staples Retailing Drug Retail Food Retail Hyper Markets & Super- centers Beverages Soft Drinks Brewers Distillers & Vinters Food Products Agricul- tural Products Packaged Food & Meats Tobacco Household Products Personal Products Consumer Staples: Subsector Hierarchy Source: GICS Classifications

7. Investment strategy Select a Consumer Staples company that:  Strong brand name  Provides great goods, services and returns to consumers  Exhibited sustainable growth over the past 5-7 years  Underpriced compared to market & competitors Specifically :  Large cash business  Poised for international growth  Able to adapt to changing market trends towards healthy products

8. Consumer Staples Food and Staples Retailing Drug Retail Food Retail Hyper Markets & Super- centers Beverages Soft Drinks Brewers Distillers & Vinters Food Products Agricul- tural Products Packaged Food & Meats Tobacco Household Products Personal Products Consumer Staples: Sector Selection Source: GICS Classifications Low international prospects Tariffs & volatility Industry overconsolidation

9. PepsiCo is the largest snack and non-alcoholic drink producer in the United States, with 39% and 25% of the respective market shares. PepsiCo is the largest snack and non-alcoholic drink producer in the United States, with 39% and 25% of the respective market shares. Carbonated soft drinks account for less than 50% of total revenue Carbonated soft drinks account for less than 50% of total revenue Over 60% of Pepsi’s beverage sales come from non-carbonated sources such as Gatorade and Tropicana. Over 60% of Pepsi’s beverage sales come from non-carbonated sources such as Gatorade and Tropicana. International sales account for 48% of revenues International sales account for 48% of revenues 215 Countries, $43 Billion in revenue, 18 product lines 215 Countries, $43 Billion in revenue, 18 product lines

11.  Sustainable growth over the past 5-7 years... ~ averaging10% annual growth Underpriced next to the S&P: hasn’t fully rebounded in 2009 CompaniesROEP/E (ttm)P/S Pepsi33.38%18.322.24 Coca-Cola30.15%18.424.03 Hansen24.54%28.353.15 Pepsi: Revenues Growth & Pricing

13. Pepsi: Cash Flow & Growth Prospects  Strong Operating Cash Flow growth over the last 3 years  Rapid Dividend Growth:18% in 2008 and 15% in 2009.  Overall international snack sales rose 9%, led by double-digit growth in Russia, Turkey, Egypt & India  Sales from Europe, the Middle East, and Africa grew 17%, Asia Pacific sales rose 12% while Latin American revenues lagged at 2.5%