1. Consumer Staples Sector Presentation Des Dudaney Erica Elsasser Neil Hertenstein Mun Ye See Tho April 27 th, 2010

2. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition 1.Size and Composition 2.Business Analysis 3.Economic Analysis 4.Financial Analysis 5.Valuation Analysis 6.Recommendations Table of Contents

3. Size & Composition

4. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Market Capitalization S&P 500 = $10,768,340 million Consumer Staples = $1,185,205 million CS Sector accounts for 11.01% of S&P500 CS Sector accounts for 11.77% of SIM portfolio Size & Composition

5. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Sector Industries Agricultural Products Brewers Distillers & Vintners Drug Retail Food Distributors Food Retail Household Products Hyper Markets & Super Centers Packaged Foods & Meats Personal Products Soft Drinks Tobacco Size & Composition

6. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Top Companies in Sector Total Market Cap of these 5 companies is 60% of sector Size & Composition

7. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition CS Sector vs. SP500 YTD ---- Staples ---- S&P Size & Composition

8. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition CS Sector vs. Other Sectors YTD 1 st : Industrials = 15.52% 2 nd : Consumer Discretionary = 15.07% 3 rd : Financials = 13.49% 4 th : Info Tech = 5.07% 5 th : Consumer Staples = 4.74% 6 th : Materials = 3.52% 7 th : Energy = 3.33% 8 th : Health Care = 1.28% 9 th : Utilities = -4.12% 10 th : Telecom = -6.41% Size & Composition

9. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition QTD Performance SP500 = 1.94%  1 st : Cons Disc = 4.56%  2 nd : Info Tech = 3.35%  3 rd : Energy = 3.24%  4 th : Industrials = 2.73%  5 th : Financials = 2.41%  6 th : Materials = 1.09%  7 th : Utilities =.51%  8 th : Cons Stap = -.28%  9 th : Telecom = -.8%  10 th : Health Care = -1.57% Size & Composition

10. Business Analysis

11. Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Life Cycle Domestic International Business Analysis

12. Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Sector Overview Defensive Sector  Stable returns and non-cyclical  Performs well in recessionary environment and not as well in expansionary environment (relative to other sectors) Inelastic demand  Consumer needs drive the sector  Consumers will need food and personal products regardless of economic situation Business Analysis

13. Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Sector Characteristics Consumer Power  Drives low margins  Substitution is major threat  Differentiation is relatively insignificant High Barriers of Entry  Very saturated market  Hard to get market share from strong, mature companies  Extensive capital is required Business Analysis

14. Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Sector Characteristics Intensive Competition  Consumers are very price sensitive regardless of brand names External Factors  Commodity prices  Climatic environment  Regulatory environment, both domestically and abroad Business Analysis

15. Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Future Opportunities International expansion is primary growth opportunity  Wal-Mart – India provides great expansion opportunity Brand differentiation  Hard to achieve, but better chance in personal product line – Tide detergent vs. Great Value detergent Business Analysis

16. Economic Analysis

17. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition 10-Year Strong Correlation Coefficients Economic Analysis

18. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition 10-Year Modest Correlation Coefficients Economic Analysis

19. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition 10-Year Weak Correlation Coefficients Economic Analysis

20. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Overall Economic Indication -Trade balance with China could cause increases in price of staples -Case-Schiller Index indicates a possible increase -The effect of the trade weighted dollar indicates a potential increase in prices -Weakening Euro indicates a possible decrease in prices -Growth of CPI Gas and Electricity indicate growth potential -Public Construction of Highways/Non-residential construction decline indicate a potential negative effect Economic Analysis

21. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Overall Economic Indication (Continued) -Many factors indicate a decrease: -Consumer confidence indicates a decrease -Real consumer spending indicates a decrease -Disposable income indicates a decrease -Labor force participation indicates a decrease -30-Yr bond rates indicate a decrease -Economic factors that are not correlated to staples (without lead or lag time): -Consumer spending, CPI, GDP, (un)employment, federal funds rate Economic Analysis

22. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples vs. S&P 500 Economic Analysis ---- Staples ---- S&P

23. Financial Analysis

24. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Sector – Revenue per share Although Revenue per share is growing, the growth rate is decreasing. Financial Analysis

25. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition S&P 500 – Revenue per share Growth rate has been declining. Revenue per share decreased in the previous year. Financial Analysis

26. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-e ndations Size & Composition Consumer Staples - EPS Financial Analysis

27. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm-e ndations Size & Composition S&P 500 - EPS EPS is improving. EPS growth rate has two low peak around 2001 and 2008. Financial Analysis

28. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Sector - EBITDA Relative to the S&P 500, decreased in the previous year. Financial Analysis

29. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Sector - ROE Decreased in the previous year, relative to the S&P 500. Has been declining from 2001-2007 Increasing gradually since 2008 Financial Analysis

30. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Sector – Net Profit Margin Relative to the S&P 500, it increased between 2007-2009. Financial Analysis

31. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Financial Analysis Summary Revenue per share is to increase, but growth rate is to continue to decrease. EPS is to continue to increase gradually, but growth rate is to decrease. EBITDA is to improve but relative to the S&P 500, it is to continue to decrease. ROE is to improve slightly but relative to the S&P 500, it is to continue to decrease. Net Profit Margin is to improve slightly but relative to the S&P 500, it is to continue to decrease. Financial Analysis

32. Valuation Analysis

33. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Sector Valuation Valuation Analysis

34. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staple by Industry: Trailing P/E Lowest Current Trailing P/E – Brewers at 11.6x Highest Current Trailing P/E – Personal Products at 23.2x Current sector and industry Trailing P/E levels are lower than their medians except for Tobacco Current Trailing P/E of Food Distributors, Hypermarkets, Distillers & Vintners, Softdrinks and Personal Products are higher than the sector. Current Trailing P/E cheap relative to the S&P 500 except for Personal Products at 1.3. Valuation Analysis

35. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staple by Industry: Forward P/E Lowest Current Forward P/E – Agricultural products at 9.6x Highest Current Forward P/E – Personal Products at 18.6x Current sector and industry Forward P/E levels are lower than their medians except for Tobacco Current Forward P/E of Drug Retailers, Brewers, Agricultural Products and Tobacco are lower than the sector. Current Forward P/E are higher relative to the S&P 500 except for Personal Products. Valuation Analysis

36. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staple by Industry: Price-to-Book Lowest Current Price-to-Book– Brewers and Agricultural products at 1.2x Highest Current Price-to-Book – Tobacco at 11.9x Current sector and industry Price-to-Book levels are lower than their medians except for Tobacco c Current Price-to-Book of Softdrinks, Tobacco and Personal Products are higher than the sector. Current Price-to-Book are higher relative to the S&P 500 except for Drug Retail, Brewers and Agricultural Products. Valuation Analysis

37. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staple by Industry: Price-to-Sales Lowest Current Price-to-Sales– Food Retail at 0.2x Highest Current Price-to-Sales – Tobacco at 2.7x Current sector and industry Price-to-Sales levels are lower than their medians except for Brewers and Tobacco Current Price-to-Sales of Brewers, Soft Drinks Tobacco and Household Products are much higher than the sector. Current Price-to-Sales levels are mixed relative to the S&P 500. Valuation Analysis

38. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staple by Industry: Price-to-Cashflow Lowest Current Price-to-Cashflow– Food Retail at 5.7x Highest Current Price-to- Price-to-Cashflow– Personal Products at 16.1x Current sector and industry Price-to-Cashflow levels are lower than their medians except for Tobacco. Current Price-to-Cashflow of Food Distributors, Soft Drinks and Tobacco are much higher than the sector. Current Price-to-Cashflow levels are generally higher relative to the S&P 500. Valuation Analysis

39. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staple Company Valuation Valuation Analysis

40. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staple Company Valuation Valuation Analysis

41. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staple Company Valuation NameTrailing P/EForward P/EPrice to BookPrice to Sales Price to Cashflow Tobacco Altria Group Inc11.9011.2010.501.8011.00 Lorillard Inc13.9012.50NM2.3013.40 Philip Morris International Inc14.8013.1015.33.7013.10 Reynolds American Inc11.8011.402.51.9010.70 Tobacco Valuation13.7012.6011.92.7012.70 Household Products Clorox Co15.5014.7060.301.6011.70 Colgate-Palmolive Co19.2017.4014.102.7016.50 Kimberly-Clark Corp12.5012.604.601.309.10 Procter & Gamble Co/The15.2016.802.702.4012.10 Household Products Valuation15.4015.303.402.2012.20 Personal Products Avon Products Inc18.6016.2011.101.4015.10 Estee Lauder Cos Inc/The27.7023.606.901.8018.20 Personal Products Valuation23.2018.609.001.4016.10 Valuation Analysis

42. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Valuation Trends Valuation Analysis

43. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Valuation Trends Valuation Analysis

44. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Valuation Trends Valuation Analysis

45. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Five-Year Technical Chart Valuation Analysis

46. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Six-Month Technical Chart Valuation Analysis

47. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Consumer Staples Valuation Analysis Summary Industry valuations within the sector vary widely. Company valuations in some industries can vary widely. Most industry current valuations are lower than the long-term historical medians except for the Tobacco Industry. The valuation ratios are trending upward from the lows of 2009. The upward trend should continue as the economy continue to improve. The S&P 500 Consumer Staples index looks like it is moving towards the bottom of the band. Relative Strength Index of the sector is between 30-70. Valuation Analysis

48. Recommendations

49. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Recommendation Underweight consumer staples by 31 basis points under the S&P Sell 107 basis points to bring staples to 10.7% of SIM portfolio  Why? Returns will be lower than that of the S&P if market trends continue  Gap between returns of S&P 500 and returns of sector will widen as the economy continues to expand  Market expectations are rising  By underweighting our sector, we will be able to overweight cyclical sectors that will outperform the S&P Risks: W recession Recomm- endations

50. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition 1 Year Industry Returns Recomm- endations

51. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition 2 Year Industry Returns Recomm- endations

52. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Brewers Recomm- endations

53. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Personal Products Recomm- endations

54. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Hypermarkets Recomm- endations

55. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition Agriculture Products Recomm- endations

56. Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recomm- endations Size & Composition S&P Industry Weights Recomm- endations

57. Questions ?