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					Sector Outlook:
Consumer Staples
Joshua Bohinc
Kevin Barney
Dan DeFrances
Agenda
   Sector Overview
 Sector   Factors
 Economic Factors
 Financial Analysis
 Valuation
 Recommendations
 Anheuser-Busch Action

                          2
Consumer Staples Sector (SP-30)
                                                                              % of S&P        Level
   As of 10/31/2008            # of Companies              MKTCAP               500           10/31         Daily     MTD       QTD       YTD
S&P 500                               500              $ 8,485,552             100.0%         968.8        1.54%     -16.94%   -16.94%   -34.03%


Energy                                40               $ 1,115,525             13.1%          401.2        0.60%     -18.01%   -18.01%   -33.47%
Materials                             30               $      266,696           3.1%          156.2        0.87%     -22.18%   -22.18%   -39.90%
Industrials                           57               $      929,732          11.0%           223         1.86%     -18.93%   -18.93%   -37.07%
Consumer Discretionary                80               $      696,340           8.2%          178.6        2.72%     -19.27%   -19.27%   -31.17%
Consumer Staples                      41               $ 1,094,747             12.9%          253.7        0.96%     -11.08%   -11.08%   -15.31%
Health Care                           53               $ 1,175,390             13.9%          312.7         1.32%    -11.81%   -11.81%   -23.69%
Financials                            84               $ 1,266,175             14.9%          209.1         5.48%    -22.74%   -22.74%   -46.66%
Information Technology                74               $ 1,335,754             15.7%          257.4         0.09%    -17.81%   -17.81%   -37.46%
Telecommunications                     9               $   280,706              3.3%           104         -1.14%     -9.53%    -9.53%   -38.17%
Utilities                             32               $   324,486              3.8%          148.1        -1.63%    -11.87%   -11.87%   -31.49%




  •Ranked 5 out of 10 by market cap
  •Consumer Staples performing better than S&P500 MTD, QTD and YTD
  S&P500 Data provided by Standard and Poor’s web site and is based on market closing information from 10/31/2008.


                                                                                                                                                   3
Industry Makeup of SP-30
                                                                     Index              % of                 5 - Year
                                                                     Value             Sector             Beta Std Dev.
Consumer Staples                                                       234.17           13.17%                0.6     11.5
   Household Products                                                  337.28           23.48%                0.6     14.4
  Soft Drinks                                                          195.22           17.25%                0.8     16.6
  Tobacco                                                              382.54           14.94%                0.6     17.7
  HyperMarkets & Super Centers                                          95.04           13.60%                0.4     15.8
  Packaged Foods & Meats                                               221.78           12.37%                0.5     12.5
  Drug Retail                                                          365.45            6.16%                0.8     19.8
  Brewers                                                              416.08            4.62%                0.5     15.5
  Food Retail                                                           91.94            3.04%                0.7     17.8
  Personal Products                                                    270.94            1.40%                1.1     23.9
  Food Distribution                                                    277.65            1.38%                1.0     21.9
  Agricultural Products                                                303.00            1.12%                0.9     33.8
  Distillers & Vinters                                                 120.68            0.67%                1.0     21.6

*All data as of 10/24/08
S&P500 Data provided by Standard and Poor’s web site and is based on market closing information from 10/24/2008.


                                                                                                                             4
Consumer Staples – Household Names
     Symbol                       Company                            Price                  Symbol                    Company         Price
MO                Altria Group Inc.                             $ 19.19                KMB               Kimberly-Clark           $ 61.29
BUD               Anheuser-Busch                                $ 62.03                KFT               Kraft Foods Inc-A        $ 29.14
ADM               Archer-Daniels-Midland                        $ 20.73                KR                Kroger Co.               $ 27.46
AVP               Avon Products                                 $ 24.83                LO                Lorillard Inc.           $ 65.86
BF.B              Brown-Forman Corp.                            $ 45.40                MKC               McCormick & Co.          $ 33.66
CPB               Campbell Soup                                 $ 37.95                TAP               Molson Coors Brewing     $ 37.36
CLX               Clorox Co.                                    $ 60.81                PBG               Pepsi Bottling Group     $ 23.12
KO                Coca Cola Co.                                 $ 44.06                PEP               PepsiCo Inc.             $ 57.01
CCE               Coca-Cola Enterprises                         $ 10.05                PM                Philip Morris Intl.      $ 43.47
CL                Colgate-Palmolive                             $ 62.76                PG                Procter & Gamble         $ 64.54
CAG               ConAgra Foods Inc.                            $ 17.42                RAI               Reynolds American Inc.   $ 48.96
STZ               Constellation Brands                          $ 12.54                SWY               Safeway Inc.             $ 21.27
COST              Costco Co.                                    $ 57.01                SLE               Sara Lee Corp.           $ 11.18
CVS               CVS Caremark Corp.                            $ 30.65                SVU               Supervalu Inc.           $ 14.24
DF                Dean Foods                                    $ 21.86                SYY               Sysco Corp.              $ 26.20
DPS               Dr Pepper Snapple Group Inc                   $ 22.90                HSY               The Hershey Company      $ 37.24
EL                Estee Lauder Cos.                             $ 36.04                TSN               Tyson Foods              $    8.74
GIS               General Mills                                 $ 67.74                UST               UST Inc.                 $ 67.59
HNZ               Heinz (H.J.)                                  $ 43.82                WMT               Wal-Mart Stores          $ 55.81
K                 Kellogg Co.                                   $ 50.42                WAG               Walgreen Co.             $ 25.46
                                                                                       WFMI              Whole Foods Market       $ 10.72
S&P500 Data provided by Standard and Poor’s web site and is based on market closing information from 10/31/2008.
                                                                                                                                              5
S&P500 vs. SIM Portfolio
     25.0%

     20.0%

     15.0%

     10.0%
                                        S&P Weight
      5.0%                              SIM Weight


      0.0%




   Consumer Staples
     S&P500: 12.9%
     SIM: 14.3%
   SIM – currently overweight 140 bp                6
Historical Sector Performance




•Declined in past 11 months, but sustained growth trend over last 4 years

                                                                            7
Performance Relative to S&P500




                                 8
Agenda
   Sector Overview
 Sector   Factors
 Economic Factors
 Financial Analysis
 Valuation
 Recommendations
 Anheuser-Busch Action

                          9
    Sector Factors
 Stable demand based on consumer needs
 Defensive (non-cyclical)
       Consistent                               returns regardless of economic
        conditions
       Generally lags market during periods of growth

   Composed of stable, slow growth
    multinational companies
       Wal-Mart / Costco
       General Mills
       Pepsi
                                                                                                   10
Note: This slide has been reproduced from the Autumn Quarter 2007 Consumer Staples presentation.
   Sector Demand

    Steady demand in US
    Sector relying on international expansion
     to spur growth
    Branding important to differentiate an
     commoditized product




                                                                                                   11
Note: This slide has been reproduced from the Autumn Quarter 2007 Consumer Staples presentation.
Sector Characteristics
      High barriers to entry
          Dominated                                 by large, well-established
           companies
          High capital requirements to enter sector
          Mature industry with strong brand identities
          Difficult to create wide distribution network
      High buyer power
               Undifferentiated product equates to low
               switching cost

Note: This slide has been reproduced from the Autumn Quarter 2007 Consumer Staples presentation.   12
Sector Characteristics (Cont.)
      Low Supplier Power
          Long-term                               contracting/agreements common
      High threat of substitution
          Multiple                        brands competing in same product line
      High threat of competition
          Consumers         are price sensitive (despite brand
               loyalty) with undifferentiated products



Note: This slide has been reproduced from the Autumn Quarter 2007 Consumer Staples presentation.   13
Agenda
   Sector Overview
 Sector   Factors
 Economic Factors
 Financial Analysis
 Valuation
 Recommendations
 Anheuser-Busch Action

                          14
 Economic Analysis

 DEMAND:
             GDP growth
             Unemployment rate
             Personal income
             Consumer Price Index



                                                                                                   15
Note: This slide has been reproduced from the Autumn Quarter 2007 Consumer Staples presentation.
 Economic Analysis

 SUPPLY:
              Energy Prices
              Commodity Prices




                                                                                                   16
Note: This slide has been reproduced from the Autumn Quarter 2007 Consumer Staples presentation.
17
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Agenda
   Sector Overview
 Sector   Factors
 Economic Factors
 Financial Analysis
 Valuation
 Recommendations
 Anheuser-Busch Action

                          21
Financial Analysis
   Revenue growth is above average and
    falling
     Mean   is 7.7%, currently 9%
 Net profit margins decreasing the past
  two years with a slight correction in mid-
  2008
 Slow increase in dividend yield last five
  years, but sharp increase last two months
 Falling growth rate estimates                22
23
   Income Statement Analysis
   Consumer Staples
                                     Income Statement Ratios
                                         As Reported
 S&P CONS. STAPLES SECTOR COMP ADJ (SP-30) M-Wtd Financials                                       StockVal ®
 FYE Dec                                    Company Filings

                                      2007    2006    2005    2004    2003    2002    2001    2000

 Gross Profit Margin (%)              29.14   29.74   29.61   29.76   29.84   29.82   29.65   29.73
 Operating Profit Margin EBITDA (%)   11.64   11.50   11.84   11.38   10.94   11.69   12.01   11.93
 Operating Profit Margin EBIT (%)      9.39    9.18    9.56    8.98    8.49    9.23    9.10    9.15
 Pre-Tax Profit Margin (%)            12.05   12.05   12.45   12.34   11.68   11.80   11.48   10.97
 Tax Rate (%)                         30.73   30.95   31.90   34.76   35.67   34.87   35.04   35.44
 Net Profit Margin Adjusted (%)        5.85    5.86    5.99    5.60    5.73    5.73    5.78    5.79


 Return on Avg Common Equity (%)      61.91   29.62   35.74   31.12   47.88   34.58   33.42   40.95
 Return on Average Total Equity (%)   21.24   22.07   23.87   23.35   24.82   24.97   25.90   29.26
 Return on Average Capital (%)        13.71   14.08   14.79   13.90   13.92   13.69   14.53   16.36
 Return on Average Assets (%)          8.33    8.39    8.74    8.46    8.63    8.55    8.85    9.59


 Times Interest Earned                 8.90    8.64    9.36    9.07    7.79    7.56    6.05    6.48


•Margins constant
•Returns decreasing
                                                                                                      24
 Income Statement Analysis
 S&P 500
                                     Income Statement Ratios
S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd As Reported Financials                                   StockVal ®
FYE Dec                                    Company Filings

                                     2007    2006    2005    2004    2003    2002    2001    2000

Gross Profit Margin (%)              33.37   33.53   33.00   32.60   31.96   31.90   31.20   32.39
Operating Profit Margin EBITDA (%)   21.97   22.99   21.01   19.69   18.91   16.91   19.27   24.09
Operating Profit Margin EBIT (%)     17.54   18.73   16.73   14.82   13.50   11.24   12.75   18.34
Pre-Tax Profit Margin (%)            14.97   16.50   17.05   15.43   12.91    6.83    8.82   18.21
Tax Rate (%)                         31.06   28.64   29.68   29.63   29.76   27.76   32.51   35.87
Net Profit Margin Adjusted (%)        8.83    9.29    8.85    8.53    7.64    7.22    7.84    8.71


Return on Avg Common Equity (%)      23.57   20.40   25.75   19.57   19.26   18.08   20.42   24.90
Return on Average Total Equity (%)   17.29   17.71   16.88   16.59   15.25   14.01   15.75   20.01
Return on Average Capital (%)         8.87    9.45    8.94    8.58    7.69    7.15    8.26   10.50
Return on Average Assets (%)          3.20    3.38    3.18    3.09    2.78    2.59    2.97    3.63


Times Interest Earned                 2.68    3.20    3.69    4.19    3.74    2.62    2.13    2.77


•Margins increasing
•Returns fluctuating
                                                                                                        25
                                       Cash Flow Analysis
                                        As Reported
S&P CONS. STAPLES SECTOR COMP ADJ (SP-30) M-Wtd Financials                                                       StockVal ®
FYE Dec                                    Company Filings

                                       2007    % Chg     2006    % Chg     2005    % Chg     2004    % Chg     2003

FREE CASH FLOW
Net Cash From Operations             6399.3        4   6125.6       15   5316.8        6   5014.4        3   4845.7
  Capital Expenditures               2888.6        6   2730.2       18   2307.5        6   2174.8        8   2020.5
Free Cash Flow                       3510.8        3   3395.5       13   3009.4        6   2839.6        1   2825.2
  Dividends Common ($ Mil)           2110.3       12   1877.3       17   1605.1       36   1176.6       17   1008.0
Free Cash Flow After Dividends       1400.5       -8   1518.2        8   1404.2      -16   1663.0       -8   1817.2


ADJUSTED CASH FLOW
Net Income Reported ($ Mil)          4760.8        8   4390.8       12   3925.2       19   3309.8       19   2792.2
  Accounting Adjustment                30.6              -64.8      10     -72.2             54.1      -87    403.6
Net Income Adjusted                  4791.4       11   4326.0       12   3853.0       15   3363.9        5   3195.7
  Depreciation & Amortization        1834.7        7   1708.9       16   1469.2        2   1437.5        5   1367.0
Cash Flow Adjusted                   6626.1       10   6035.0       13   5322.2       11   4801.4        5   4562.7
  Capital Expenditures               2888.6        6   2730.2       18   2307.5        6   2174.8        8   2020.5
Free Cash Flow Adjusted              3737.5       13   3304.8       10   3014.7       15   2626.5        3   2542.2
  Dividends Common ($ Mil)           2110.3       12   1877.3       17   1605.1       36   1176.6       17   1008.0
Free Cash Flow Adjusted After Divs   1627.2       14   1427.5        1   1409.6       -3   1450.0       -5   1534.2


CASH FLOW STATEMENT SUMMARY
Net Cash From Operations             6399.3        4   6125.6       15   5316.8        6   5014.4        3   4845.7
Net Cash From Investing              -3874.3     -29   -3002.7     -18   -2550.4      15   -2990.4     -53   -1948.5
Net Cash From Financing              -2603.4      19   -3216.9     -19   -2696.0     -40   -1930.1      18   -2349.2
Other Cash Flows                       85.3      -16    101.0      196     34.1      -61     87.2      -11     98.5
Change In Cash & Equiv                   6.9      -1       7.0     -93    104.6      -42    181.2      -72    646.4




                 Declining Free Cash Flow Production                                                                          26
Agenda
   Sector Overview
 Sector   Factors
 Economic Factors
 Financial Analysis
 Valuation
 Recommendations
 Anheuser-Busch Action

                          27
Valuation Analysis




                     28
Valuation Analysis




                     29
Agenda
   Sector Overview
 Sector   Factors
 Economic Factors
 Financial Analysis
 Valuation
 Recommendations
 Anheuser-Busch Action

                          30
Economic Outlook
   Real GDP growth projected to fall until mid-2009
    at the earliest
   Growing fears of inflation because of massive
    cash infusion by Fed
   Consumer spending growth trending downward
   Consumer confidence at all-time low




                                                   31
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Recommendations
   Decrease SIM portfolio allocation by 140 bp
     Bringallocation in line with broader S&P
     New target: 12.9% (S&P: 12.9%)
   Rationale:
     Currently overweighted due to outperformance over
      past quarter
     Decrease exposure to sector because of underpricing
      of other sectors
          SP-30 underperformance in upcoming quarters
          Recommend next class consider further underweighting if
           economic turnaround seems imminent


                                                                     33
Agenda
   Sector Overview
 Sector   Factors
 Economic Factors
 Financial Analysis
 Valuation
 Recommendations
 Anheuser-Busch Action

                          34
Anheuser-Busch Action
   Proposed acquisition by InBev for $70/share, all cash
   Currently trading at $64.60
   BUD shareholders to vote on Nov. 12
       Already approved by InBev shareholders
       InBev hopes to complete acquisition by year end
   Options market
       Jan. 2009 $65 call options currently trading at $3.80
            Represents in-the-money share price of $68.80
            Return of 1.7%, or the cost of capital
       In short, options market believes merger will happen
   Purchase today represents 7.7% return over two months

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