Processed & Packaged Goods IndustryDAN FINAN, TAYLOR MCGRAW, PATRICK NOONAN, MITCHELL SCHMITT

Agenda•Introduction & Summary

•Industry Overview and Assumptions

•Company Assumptions & Detailed Earnings Analysis

•Valuation Methodology & Valuation Calculations

•Conclusion

Introduction & SummaryMITCHELL SCHMITT

Key Industry Players

Headquarters in Vevey, Switzerland (IFRS)

Recorded 92.15B in Revenues for 2013; Most in U.S.

Product Lines include powdered and liquid beverages, water, dairy products, nutrition, etc.

Main customers are wholesalers, grocery stores, and food service contractors

Mature Company; Founded in 1866

Attempts to gain economies of scale once established (Current expansion in emerging markets)

Risk factors include commodity pricing, increased regulation in countries they operate, and consumer preferences

Headquarters in Deerfield, IL

Spun off from Kraft Foods Oct. 1, 2012 to reflect standalone global food and snack business

Done to enhance international growth for coming periods

$35.3B in revenue for 2013

Notable brands include Oreo, Cadbury, Trident, and Tang

Retail, grocery store customers

Risk factors include failed expansion, highly saturated industry, consolidation of retail customers

Stock Price

Jan. 2013

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Feb. March Present0

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NestleMondelez

Market InformationNESTLEMONDELEZ INTERNATIONAL

Current Price $76.33 $35.94

Previous Year High $78.05 $36.05

Previous Year Low $63.38 $28.22

% Fluctuation 18.80% 21.72%

Shares Outstanding 3.19B 1.7B

Market Cap. $243.46B $61.13B

P/E Ratio $22.76 $16.44

Ent. Value $258.20 $74.33B

Recommendation Buy Buy

Valuation InformationNESTLE MONDELEZ

Realized 2013 EPAT $ 8,835 $ 5,485

Forecasted EPAT 2014 $ 9,872 $ 6,172

Forecasted EPAT 2015 $ 10,168 $ 6,326

NEA $ 79,046 $ 50,226

Firm Value/ 2013 EPAT 27.56 11.14

Firm Value/ 2014 EPAT 24.66 9.90

Firm Value/NEA 3.08 1.22

Industry Overview & AssumptionsPATRICK NOONAN

Products & Markets

Characteristics of the Industry•Key Drivers:

• Demand from supermarkets, grocery wholesalers and grocery stores• Wholesalers are the link to stores and stores are the link to consumers• High competition for in-store advertising and shelf space

• World commodity prices & other input prices• Volatile commodity prices• Packaging materials

• Consumer preferences & demand• Continually changing

• World price of crude oil and natural gas• Product and packaging plants• Transportation costs

Industry Performance•Snacking category within Processed & Packaged goods continues to grow

•Growth is highly correlated to GDP growth, urbanization of population and rising discretionary income levels

•Demand:• Temporary emerging market slow down in 2013 – took a toll on global growth• Expect overall growth rate expected to return to normal in 2014

Industry Outlook•Life Cycle – Industry is mature, characterized by saturated domestic markets and well-established brands.

•Weak dollar against the currencies of major trading partners will boost industry exports.

•Growing global middle class.

•Mondelez DivestitureCompetition Medium

Concentration High

Life Cycle Stage Mature

Capital Intensity High

Technology Change Medium

Regulation & Policy Medium

Industry Assistance Low

Source: www.ibisworld.com

Operating Conditions•High levels of capital intensity

•Technology and systems

•Revenue volatility

•Levels of regulation

•Environmental regulation

Estimated Revenue Growth

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Nestle Mondelez Average Growth

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Nestle Profitability Map

9.40% 9.60% 9.80% 10.00% 10.20% 10.40% 10.60% 10.80% 11.00% 11.20% -

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Mondelez Profitability Map

Company Assumptions & Detailed Earnings AnalysisTAYLOR MCGRAW

Company Comparison Comparing Mondelez International to Nestle

◦ Operate in similar industries◦ Have similar focus on international expansion◦ Major products: packaged snack foods, coffee, bottled water, gum, candy◦ In terms of revenue, NESN is ~3x size of MDLZ

Company Assumptions – Growth Rate

Growth rate for packaged foods industry

Projected sales growth rate:◦ MDLZ: 2.5%◦ NESN: between 3.0% and 4.0%

Company Assumptions – EPM2010 2011 2012 2013

MDLZ EPM from salesNet Sales 31,489 35,810 35,015 35,299 Cost of Sales (19,617) (22,710) (21,939) (22,189) SG&A Expense (9,140) (9,382) (9,176) (8,679) Amort. of Intangibles (210) (225) (217) (217) Provision for Inc. Tax (54) (143) (207) (60) Total Other Comp. Income 46 (2,757) (330) (223) EPAT from Sales 2514 593 3146 3931EPM from Sales 7.98% 1.66% 8.98% 11.14%NESN EPMSales 87,906 83,642 92,186 92,158 EPAT 8,864 9,104 10,170 8,835 EPM 10.08% 10.88% 11.03% 9.59%

• MDLZ EPM for 2014, onward: 13.64% (projected increase from 2013 EPM of 2.5%)

•NSN EPM for 2014, onward: 10.40% (average of 2010-2013 EPM)

Company Assumptions – EATO

MDLZ EATO for 2014, onward: 0.70 (2013 EATO)

NESN EATO for 2014, onward: 1.00 (increase from 2013 EATO of 0.13)

2010 2011 2012 2013MDLZ EATO from salesSales 31,489 35,810 35,015 35,299 average NEA 64,616 69,414 59,981 50,319 EATO 0.49 0.52 0.58 0.70 NESN EATOSales 87,906 83,642 92,186 92,158 Average NEA 89,984 101,089 106,005 EATO 0.93 0.91 0.87

Future Earnings Uncertainty Both of the companies and their competitors are likely to pursue acquisitions in the future as they seek to aggressively expand into emerging markets.

◦ Projected to be a large source of growth for MDLZ and NESN

◦ Accompanied by much uncertainty – could be a driver behind undervalued stock prices

Valuation Methodology & CalculationsDAN FINAN

Valuation Methodology We ultimately decided to employ the Abnormal Enterprise Income Growth Model.

Residual Income was considered◦ Its reliance on NEA works well with the future growth strategies of Nestle and Mondelez

…but the AEIG Model primarily uses forecasts within our designated time horizon to derive total estimated value, and thus provides us with the most confidence.

The Big Picture Across the industry, domestic sales are saturated and stagnant, but emerging markets are on the verge of a boom.

Both companies plan to pursue an aggressive acquisition strategy in these emerging markets to capture significant market share.

At the moment, Mondelez’s recent spin-off hinders its growth rate.

Key Elements Weighted average cost of capital (WACC)

◦ Nestle: 6.42%◦ Mondelez: 7.84%

Growth rate of sales◦ Nestle: 3.00% from 2014-15, 3.50% from 2016-17, 4.00% thereafter◦ Mondelez: 2.50%

Nestle Valuation

Mondelez Valuation

Recommendation for Nestle

BUY

Recommendation for Mondelez

BUY

Our Thoughts Both Nestle and Mondelez are undervalued.

Growth in emerging markets remains highly uncertain…

…but from our perspective, population growth and the emerging middle class will create a great deal of value for both companies.

An Earnings Call Excerpt… Paul Bulcke, Nestle CEO:

“The macro-environment in 2013 was one of soft growth, minimal in the developed world and below recent levels in the emerging markets. Our response was to increase brand support, accelerate innovation, and to ensure our pricing was sensitive to consumer needs.”

Despite this nominal growth…

“The emerging markets had an organic growth of 9.3%, now representing 44% of the group's sales.”

Questions?PROCESSED & PACKAGED GOODS