Kraft Foods is currently underperforming relative to its potential. Its EBIT margins of around 13.6% are significantly lower than competitors and lower than what its portfolio of branded food categories should support. Kraft's acquisition of Cadbury is assessed as acquiring a high-quality business at an attractive price. The combination of Kraft and Cadbury has the potential to drive margin expansion and earnings growth through synergies, improving Cadbury's profitability, and realizing the earnings power of Kraft's existing portfolio. Investors appear to be discounting this potential in Kraft's currently low valuation.
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The content for this presentation was developed for a client, The California Milk Advisory Board. I am using it with their permission and they hold the copyright.
This is a version of the presentation made to farmers and food media as part of the incredibly successful program of educational marketing program for California Artisan and Farmhouse Cheeses launched by the CMAB in the late 20th and early 21st century. I was enlisted as a President Ex-Officio of the American Cheese Society and a former Specialty Supermarket Executive in charge of, at the time, a highly innovative cheese department, food service and deli. It was thoroughly researched, vetted and is an authoritative presentation.
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2011 ANNUAL REPORTInnovating for Everyday Life$82..docxeugeniadean34240
2011 ANNUAL REPORT
Innovating for Everyday Life
$82.6
$78.9
$76.7
$79.3
$72.4
11
09
08
07
10
Net Sales ($ billions)
30%
4%
19%
9%
14%
24%
By business segment
Beauty
Grooming
Health Care
Snacks & Pet Care
Fabric Care & Home Care
Baby Care & Family Care
2011 Net Sales
9%
14%
16%
41%
20%
By geographic region
North America
Western Europe
Central & Eastern Europe,
Middle East & Africa
Latin America
Asia
35% 65%
By market maturity
Developed
Developing
$13.2
$16.1
$14.9
$15.0
$13.4
11
09
08
07
10
Operating Cash Flow ($ billions)
$3.93
$4.11
$4.26
$3.64
$3.04
11
09
08
07
10
Diluted Net Earnings (per common share)
Contents
Letter to Shareholders................................. 1
Leadership Brands.......................................9
Innovating for Everyday Life...................... 14
Gillette Guard ........................................ 16
Brazil...................................................... 18
Crest 3D White ......................................20
Gain Dishwashing Liquid ........................22
Head & Shoulders ..................................24
Old Spice ...............................................26
Disaster Relief ...........................................28
Financial Contents ....................................29
Global Leadership Council......................... 75
Board of Directors..................................... 75
Financial Summary.................................... 76
Company and Shareholder Information..... 78
Financial Highlights (unaudited)
Amounts in millions, except per share amounts 2011 2010 2009 2008 2007
Net Sales $82,559 $78,938 $76,694 $79,257 $72,441
Operating Income 15,818 16,021 15,374 15,979 14,485
Net Earnings 11,797 12,736 13,436 12,075 10,340
Net Earnings Margin from Continuing Operations 14.3% 13.9% 13.9% 14.2% 13.3%
Diluted Net Earnings per Common Share from Continuing Operations $3.93 $3.53 $3.39 $3.40 $2.84
Diluted Net Earnings Per Common Share 3.93 4.11 4.26 3.64 3.04
Dividends Per Common Share 1.97 1.80 1.64 1.45 1.28
Dear Shareholders,
Last year, I described P&G’s Purpose-inspired Growth Strategy, which is to
touch and improve more consumers’ lives in more parts of the world more
completely. I told you that we intend to deliver total shareholder return
that consistently ranks P&G among the top third of our peers — the best-
performing consumer products companies in the world. To do this, we
must deliver the Company’s long-term annual growth goals, which are to:
Grow organic sales 1% to 2% faster than
market growth in the categories and countries
where we compete
Deliver core earnings per share (core EPS) growth
of high single to low double digits
Generate free cash flow productivity of
90% or greater
Robert A. McDonald
Chairman of the Board, President and
Chief Executive Officer
We made meaningful progress toward these long-term goals
for fiscal 2011, despite significant external chal.
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
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Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
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The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
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1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
2. Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in
this presentation are based on publicly available information. Pershing Square recognizes that there may be
confidential information in the possession of the companies discussed in the presentation that could lead
these companies to disagree with Pershing Square’s conclusions. This presentation and the information
contained herein is not a recommendation or solicitation to buy or sell any securities.
The analyses provided may include certain statements, estimates and projections prepared with respect to,
among other things, the historical and anticipated operating performance of the companies, access to capital
markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various
assumptions by Pershing Square concerning anticipated results that are inherently subject to significant
economic, competitive, and other uncertainties and contingencies and have been included solely for
illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of
such statements, estimates or projections or with respect to any other materials herein. Actual results may
vary materially from the estimates and projected results contained herein. Accordingly, no party should
purchase or sell securities on the basis of the information contained in this presentation. Pershing Square
expressly disclaims liability on account of any party’s reliance on the information contained herein with
respect to any such purchases or sales.
Funds managed by Pershing Square and its affiliates have invested in the equity of Kraft Foods. Pershing
Square manages funds that are in the business of trading - buying and selling – securities and financial
instruments. It is possible that there will be developments in the future that cause Pershing Square to change
its position regarding the companies discussed in this presentation. Pershing Square may buy, sell, cover or
otherwise change the form of its investment regarding such companies for any reason. Pershing Square
hereby disclaims any duty to provide any updates or changes to the analyses contained here including,
without limitation, the manner or type of any Pershing Square investment.
1
3. Kraft Foods
World’s 2nd largest food company
Recently acquired Cadbury (closing pending) at an
Recent stock attractive price
price: $28
We believe the transaction will be transformational
4% dividend Significantly improves Kraft’s business quality and organic
yield
growth profile
PF Kraft
Investment thesis
Market Cap: Attractively priced business standalone…
~$49bn
…with a transformative event, catalyzing margin
improvement and leading to earnings accretion and
multiple re-rating
“Pro Forma Kraft/Cadbury” (or “PF Kraft”) currently
trades at under 10x 2012 EPS
Assumes GBP / USD=
1.60 throughout
presentation
2
5. Cadbury is an Attractive Asset
One of the great businesses of the world
Confectionary is a resilient food category
Good pricing power, very limited private label threat
Attractive competitive “moat”
Strong long-term global growth
Iconic brands (Dentyne, Trident, Cadbury, Halls)
Cadbury is extremely well positioned in emerging markets
>40% of sales in fast growing emerging markets
Distribution in emerging markets is difficult to greenfield
As a 186-year-old UK company, Cadbury has greatly benefited from
UK’s colonial presence in parts of the emerging world
4
6. Cadbury is Currently Under-Earning
Cadbury’s current EBIT margins are only ~13.5%
Given the mix of categories (chocolate, gum and candy), we believe
appropriate EBIT margins for CBRY should be in the mid-to-high teens
CBRY management has invested significantly in the company
Increased marketing spend and built new R&D facilities
New plants in low-cost labor countries (only now coming on line) which
should cut enormous waste out of the supply chain
Developed technologies which have not yet benefited the entire global
portfolio (center-filled gum, candy-layered gum)
Recently launched core brands in “white spaces” (i.e., Trident in the U.K.)
These investments are currently pressuring Cadbury margins, but will lead
to margin improvement and strong organic growth
Kraft should be the beneficiary of these investments, given the timing of its
hostile takeover
5
7. Kraft is Paying an Attractive Price for Cadbury
Based on the headline offer of 8.40 GBP, Kraft is paying 14x 2009E
EPS and under 12x 2011E EPS for Cadbury, inclusive of $675mm of
run-rate synergies (less than 7% of CBRY sales)
2009 2010e 2011e
Run-Rate Synergies ($675m)
EV / EBITDA 9.2 x 8.7 x 8.2 x
EV / EBIT 10.9 x 10.3 x 9.6 x
P/E 14.1 x 13.0 x 11.8 x
CBRY EBIT Margins go to 15%
Kraft is acquiring Cadbury while Cadbury is still under-earning and only
beginning to see its margins expand given recent investments in
infrastructure, R&D and product development
6
10. Kraft Standalone: More Attractive Than Perceived
~40% of portfolio is Snacks
(cookies, crackers, chocolate)
More than 80% of portfolio is from
#1 share positions Grocery,
10.0%
Strong scale in US
Meals, 15.0% Snacks, 38.0%
~40% of revenue outside North
America
(Cookies,
Cheese, 18.0% crackers,
More than 50% from categories chocolate)
where its marketplace position is Beverages,
20.0%
twice the size of nearest competitor
Strong DSD distribution capabilities
creates a significant competitive
advantage versus other U.S. food Note: Includes the N.A. Frozen Pizza
companies business which was sold to Nestle
9
11. Kraft: Turnaround Opportunity
Yes, Kraft has been a turnaround story for years…
In 2004 KFT started a major restructuring program focused on decentralizing its business and
reducing overhead
Despite cost cuts, severe commodity inflation and the need for significant “catch up”
R&D/marketing spend pressured margins down
Private brands pressured KFT’s pricing in many categories eroding margins even further
KFT today: Pershing Square view — Turnaround is achievable
Fixing a company like KFT (many brands, regions) often takes five+ years
Witness Cadbury, Unilever—only now seeing impact of several years of restructuring
Investors have lost patience –-hence why the turnaround is discounted in the stock price
Not just about cost cuts, but innovating and improving the brands through R&D and marketing
New CEO has made smart decisions regarding brand investment and portfolio M&A
Brands are better positioned today, given improved price/value equation and improved
product quality
Significant opportunities still remain in COGS and overhead—however some of it should be
reinvested in the business to strengthen brands
Clearly, MARGINS SHOULD BE MUCH HIGHER—we believe it’s a matter of time…
10
12. Historical EBIT Margins
Kraft’s EBIT margins have dramatically fallen from 21% in ’02 to a low of 12.8%
in ’08 due to misplaced investments, lack of marketing, pricing erosion,
required catch-up R&D and commodity headwinds
25.0 %
21.0 %
19.1 %
20.0 %
16.4 %
15.3 % 15.0 %
14.8 %
15.0 % 14.3 %
13.2 % 13.6 %
12.8 %
10.0 %
5.0 %
0.0 %
2002 2003 2004 2005 2006 2007 2008 2009e 2010e 2011e
Kraft’s target is for mid-teen (~15%) margins by 2011, driven by improved
product quality/value, mix shift, supply chain efficiencies, SKU rationalization,
and overhead productivity efficiencies. We believe this goal is achievable
11
13. EBIT Margins Relative to Comparables
Kraft currently has low EBIT margins relative to its peers, despite
being the largest food company in North America and participating in
high gross margin categories
20.0 %
17.7 % 17.7 % 17.5 %
18.0 % 16.4 %
16.2 % 15.6 % 14.9 %
16.0 % 14.8 % 14.6 %
13.6 % 13.5 %
14.0 %
12.0 %
10.0 %
8.0 %
6.0 %
4.0 %
2.0 %
0.0 %
Kraft Cadbury General J.M. Campbell Kellogg Hershey Danone Heinz Unilever Nestlé
Mills Smucker
Food &
Beverage
Note: Kraft, Cadbury and Nestle are based on Pershing estimates for 2009, except Nestle, which is LTM. Nestle data is food and beverage only (ex-Alcon) adjusted to deduct trade
promotions from revenue (assumed 12% of revenue) to be comparable. Campbell, Heinz, Unilever, Danone and Kellogg’s are per Wall Street research and are LTM, except Unilever,
Danone, and Kellogg’s which are 2009e. General Mills is per company filings and excludes mark-to-market gains / losses on commodities derivatives and is LTM. J.M. Smucker is PF for
Folger’s, so 2010e margin used, per Wall Street research.
12
14. Appropriate EBIT Margins Based on Categories
Estimate for
Based on our global Est. % of Appropriate
category analysis, Global category Global Revenues EBIT margin
KFT should have Snacks (see memo) 38% 16%
EBIT margins in the Beverages (see memo) 20% 20%
(1)
mid-to-high teens Meals 15% 11%
(2)
Cheese 18% 16%
(3)
Grocery 10% 32%
Less corporate (0.8)%
Appropriate KFT EBIT Margin 17%
We believe that KFT current 2009E EBIT Margin (1) 13.6%
Snacks and
Memo:
Beverages are the Appropriate
Est. Revenue Mix EBIT Margin Reference Margin
categories where Snacks
Cookies / crackers 75% 17% Kellogg's consolidated margins (including G&A)
KFT is materially European Chocolate
Est. Margin
25% 15% Nestle confectionary (GAAP Adjusted)
16.5%
under-earning Beverages
Coffee 50% 22% Folgers (pre G&A, before Smuckers acquisition)
RTD 25% 12% Typical RTD
Powders 25% 35% Dr. Pepper concentrate / Coca Cola consolidated
Based on peers 23%
Discount for KFT 20%
(1) Includes NA Frozen Pizza. Based on current EBIT margins
(2) Based on US Cheese segment 3-year average
(3) Based on US Grocery segment 3-year average
13
15. Opportunity: Gross Margins Are Too Low
Kraft currently has the lowest gross margins among its peer group,
despite having #1 market share in 80% of its categories and
participating in high margin categories like cookies, crackers,
confectionary, beverages and condiments
60.0 %
54.0 %
47.1 %
50.0 %
45.6 %
43.1 %
41.1 %
38.8 % 38.1 % 37.5 %
40.0 %
35.0 % 35.3 %
30.0 %
20.0 %
10.0 %
0.0 %
Kraft Danone Unilever Cadbury Kellogg Campbell General Mills Hershey J.M. Smucker Heinz
Note: Kraft and Cadbury are based on Pershing estimates for 2009e. Campbell, Heinz, Unilever, Danone and Kellogg’s are per Wall Street research and are LTM, except Unilever, Danone,
and Kellogg’s which are 2009e. General Mills is per company filings and excludes mark-to-market gains / losses on commodities derivatives and is LTM. J.M. Smucker is PF for Folger’s,
so 2010e used, per Wall Street research.
14
16. KFT Gross Margins Should be Closer to 40%
Appropriate
Gross % of Revenue % Market
Margin Segment Total Share
U.S. Beverages 8%
Powdered
Coffee
Ready to Drink
65%
35%
20%
25%
50%
25%
52%
29%
59%
Based on our estimates for
Total Segment 38% 100% appropriate gross margins in
U.S. Cheese 9%
Sandwich, Recipe & Grated
Natural
30%
30%
45%
20%
30-40%
22%
each of Kraft’s food categories,
Cultured & Snacking
Cream Cheese
30%
30%
15%
20%
25%
66% Kraft should have gross margins
Total Segment 30% 100%
U.S. Convenient Meals 11 %
in the 37% - 40% range
Cold Cuts & Hot Dogs 30% 40% 30%
Bacon, Boca & Pickles 30% 15% 20%
Meal Combos 45% 15% 91%
Pizza 40% 30% 40%
Total Segment 35% 100%
U.S. Grocery 9%
Dressings
Desserts
40%
45%
30%
20%
35%
65%
Kraft’s 2009E gross margin is
Mac & Cheese 40% 20%
Condiments and Other 50% 30% only 35%, about 300bps below
Total Segment 44% 100%
U.S. Snacks 13 %
appropriate levels
Biscuits 45% 80%
Bars & Nuts 40% 20%
Total Segment 44% 100%
Canada & N.A. Foodservice 28% 10 %
Total Segment 28%
Europe 21 %
Biscuits 40% 25% 22%
Chocolate 40% 25% 13%
Local Categories 40% 25%
Cheese 30% 12% 40%
Coffee 35% 12% 22%
Total Segment 38%
Emerging Markets 40% 19 %
Kraft Appropriate GM 38% 15
17. Observations: Europe EBIT Margins Too Low
On a regional basis, Kraft’s Europe business has been materially
under-earning, despite an attractive portfolio of food products.
Increased scale from the 2007 LU acquisition should help improve
margins
% of EBIT 2006 2007 2008 LTM
North America 69 % 17.5 % 16.1 % 15.7 % 16.8 %
Y-o-Y Change (bps) (136) (47) 110
Europe 14 % 10.8 % 8.8 % 8.7 % 9.4 % Opportunity
Y-o-Y Change (bps) (195) (10) 67
Developing Markets 17 % 11.5 % 10.5 % 12.2 % 12.8 %
Y-o-Y Change (bps) (93) 165 59
Segment EBIT 15.4 % 13.8 % 13.4 % 14.4 %
Y-o-Y Change (bps) (160) (40) 105
Less: Corporate Costs (0.6)% (0.6)% (0.6)% (1.0)%
Y-o-Y Change (bps) (2) (1) (40)
EBIT 14.8 % 13.2 % 12.8 % 13.4 %
Y-o-Y Change (bps) (162) (41) 65
16
18. Opportunity: Europe EBIT Margins
KFT’s Europe segment participates in higher margin categories such
as biscuits (cookies), chocolate, and coffee. European EBIT margins
should be in the 13%-15% range. Fixing this business alone could
lead to ~100bps of total margin expansion for the company
European Segment Est. Attractive
Food Category Revenue Mix Margin?
~65% of revenues Europe
come from Biscuits 25% Yes
generally mid-to- Chocolate 25% Yes
high teens EBIT Local Categories 25% Unclear
margin categories Coffee 13% Yes
Cheese 13% No
Total Segment 100%
Illustrative Opportunity:
LTM Kraft Europe EBIT Margins 9.4%
Increase in Europe margins to 14% 460bps
Kraft Europe as % of Total KFT Revenues 21.4%
Increase in KFT Consolidated EBIT Margins 98bps
17
19. Margin Opportunity: Adding it Up
We believe that ~15% EBIT margins are easily achievable for
Kraft even in a world where commodity prices spike ahead of
organic pricing growth
Opportunity: Commentary
2009E EBIT Margin 13.6%
COGS productivity (1) 260bps SKU Rationalization, mix, productivity increase
G&A / overhead savings 150bps Predominantly from European business overhead cuts
EBIT margin improvement potential 17.7%
Less: Incremental marketing spend -100bps ~8% of sales as A&P spend, at high end of big cap food group
Less: Commodity cushion -170bps Commodity increases of ~4% that are not offset by price
2011 EBIT Margin 15.0%
(1) Assumes 4% COGS productivity, based on Kraft management guidance.
18
21. Pro Forma Kraft is a Great Company and Stock
The new Kraft is a better company than the old Kraft
Higher organic growth profile
Improved category mix and overall business quality
Increased emerging markets scale and distribution
Improved access to instant consumption channels
Many opportunities to significantly increase earnings
Margin improvement opportunity at both Kraft and Cadbury
Both companies materially under-earning with EBIT margins
at ~13.5%, far below peers
$675mm of stated cost synergies (over 10% of PF Kraft’s 2009 EBIT)
Strong revenue synergies (mgmt has not yet stated a target)
Lower effective tax rate
20
22. PF Kraft: Leading Global Confectionary Business
PF KFT would be the world’s leading confectionary business by
total confectionary marketplace position
PF Kraft: Strong Stable of
Confectionary Brands
Source: Bernstein Research, Kraft company presentation.
21
23. PF Kraft: Improved Business Quality
Over 50% of PF Kraft’s sales will be comprised of Confectionary,
Cookies and Crackers – all high quality, branded food categories
Standalone Pro Forma
Grocery,
10.0% Beverages,
16.6%
Meals, 15.0% Snacks, 38.0% Snacks, 31.5%
(Cookies,
Grocery,
(Cookies, Confectionary,
8.3% crackers,
crackers,
Confectionary)
Cookies and
Confectionary)
Crackers
Cheese, 18.0% Meals, 9.2%
represent
Cadbury ~50%
Beverages, Confectionary,
20.0% Cheese, 14.9%
19.4%
Pro Forma for Cadbury acquisition and sale of N.A. Frozen Pizza business. 22
24. Confectionary, Cookies and Crackers
Confectionary, cookies and crackers are great food businesses
Low private branding in developed markets
Gum: store brands are virtually non-existent (1)
Chocolate: ~5% of category = store brands (1)
Cookies and crackers: ~10% = store brands (1)
Strong emerging markets potential
High branded products with broad global appeal
particularly to children/young folks
Easily shipped, generally low spoilage
Cheap and affordable “western” treats
High gross margins
1) Based on US private brand share estimates. Cookies have higher private brand reach at around 15% of sales and crackers have lower reach at around 7% of sales.
23
25. Confectionary, Cookies and Crackers (cont’d)
Confectionary, cookies and crackers are great food businesses
Attractive barriers to entry:
Scale required to be profitable
Marketing spend requirements, given branded goods
Retail shelf-space scarcity particularly in confectionary –
front-of-the-counter retail shelf space is owned by a few
companies – hard for new entrants to penetrate
In developed markets, cookies and crackers are DSD
Direct-to-store-delivery (DSD) distribution is difficult to build
and limits competitive entry
KFT’s large scale DSD is a strong competitive advantage
which can increase Cadbury growth in North America
24
26. Improved Emerging Markets Access
PF Kraft will have 25% of sales in emerging markets, the highest
exposure out of all its North American-based food peers, including
Kellogg, General Mills, Hershey, H.J. Heinz and Campbell Soup
Kraft Cadbury Combined
North America 58% 22% 51%
Europe 22% 34% 25%
Developing Markets 20% 44% 25%
Total 100.0% 100.0% 100%
Based on Pershing Square’s estimates. Developing markets includes Australia and Japan.
Percentages may not add up due to rounding.
Kraft’s existing portfolio of dry goods (cookies, crackers, mac &
cheese, dry desserts and powdered beverages) is well suited for
Cadbury’s distribution platform in emerging markets
25
27. Enhanced Go-To-Market Strategy
The transaction will significantly expand Kraft’s ability to push
single-serve offerings of its popular brands in instant
consumption channels
Source: KFT company presentation
26
28. Higher Organic Growth Profile
We believe an organic growth rate of 4.5%– 5% is achievable for
PF Kraft based on estimated growth rates in developed markets
and emerging markets. We believe “Old” Kraft was capable of
only 3%–3.5% organic growth
Est. Organic Growth
Low High
Emerging Markets 8% 12%
Developed Markets 2.5% 3.5%
Total Organic Growth 4% 6%
27
29. PF Kraft is Significantly Undervalued
Based on our estimates, Kraft trades at less than ~10x 2012 EPS(1)
OR another way to look at it
PF Kraft trades at less than 15x 2009 EPS, excluding any
synergies or other benefits from the transaction
You pay under 15x LTM EPS and you get, for free:
$675mm of cost saving synergies (>10% of Pro Forma EBIT)
Revenues synergies
Kraft standalone margin opportunity (margins up 150bps to ~15%)
Cadbury margin opportunity (margins up 150bps to ~15%)
Multiple expansion (better business, faster growth)
4% dividend yield, while you wait…
(1) Based on recurring earnings per share and includes the estimated non-cash impact of 7 cents / share of step-up amortization as a
result of the transaction. Kraft has not yet determined the step up in amortization.
28
30. What Is it Worth?
At the recent price of $28 per share, we believe an investment in
Kraft represents a 2-year IRR of 24% - 36%, depending on
management’s integration of Cadbury and market conditions. Our
midpoint price for Kraft is roughly $45 per share in two years
Low High
(1)
2012 EPS $2.70 $2.90
NTM P/E Multple 15.0x 17.0x
2-Year Price Target $41 - $49
Plus: Dividend (two years) $2.32 $2.32
Total $ received per share $43 - $52
Total Return 52.9% 84.4%
2 Year IRR 24% - 36%
(1) Based on recurring earnings per share and includes the estimated non-cash impact of 7 cents / share of step-up amortization as a
result of the transaction. Kraft has not yet determined the step up in amortization.
29
31. Why We Think the Stock is Not Appreciated
Limited sell-side research on the transaction
Goldman Sachs, Morgan Stanley, UBS, Lehman, Deutsche
Bank, Lazard, Citigroup and others are advising on the deal
As a result, many the major sell-side analysts have suspended
coverage on Kraft until the transaction is consummated (could
be mid-February)
Kraft is covered by US analysts / Cadbury has European
coverage
Merger arbs shorting Kraft and going long Cadbury
Near-term concerns regarding “flow back” from the
transaction
30