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Fast-Moving Consumer Goods

Post-COVID Implications

October 2020

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Table of Contents

Executive Summary 2

Impact of COVID-19 3

Challenge of Maintaining Shareholder Returns 8

Impact on Indebtedness 11

What Does This Mean for Corporates? 14

Key Questions For CFOs 19

Key Contacts 20

Appendix 21

1) Supplementary Analysis 22

2) Assumptions & Criteria 24

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Executive SummaryLife after COVID presents opportunities for growth but new challenges for capital allocation

Impact of

COVID-19

Maintaining Shareholder

Returns

Impact on

Indebtedness

What Does This Mean

for Corporates?

• COVID-19 has accelerated structural change in FMCG,

including a shift in channel

strategy towards e-commerce

and focus on health & wellbeing,

whilst arguably exposing

weakness along the supply chain

• Most sub-sectors have fared relatively well supported by

favourable consumptions trends

in the initial stages of lockdown and

medium-term revenue and margins

expectations have also stabilised

• Alcohol has taken a bigger hit due to exposure to on-trade with

only Beauty expected to fare worse.

However, impairments in H1 have

been largely non-cash with largest

players well positioned to drive

M&A post 12-18 months anticipated

recovery

• FMCG has outperformed all other sectors over last fifteen years from

a Total Shareholder Return (TSR)

perspective which we expect will

remain an important element of

the investment case for these

corporates going forward

• More recent performance has wavered, undermined by share

price return. However, COVID-19

may provide more advantaged sub

sectors the opportunity to fine tune

TSR strategy. CFOs will need to

balance competing cash priorities

across investment, M&A and return

of surplus capital to investors

• Investment in drivers of future value across channel diversification,

health and sustainability can

provide a runway to top-line

growth and margin expansion,

alongside supporting upside in TSR

• Indebtedness has steadily increased across sub-sectors

driven by consistent discretionary

cash commitments (capex, M&A,

shareholder returns) and relative

flattening of margins

• Going forward, flattening margins, higher capex and potential for

increased M&A may create the

perfect storm for further credit

rating pressure, however

corporates may use the opportunity

to revisit their long-term optimal

credit ratings

• Releasing capital through further working capital optimisation or

disposal of non-core brands or

alternative financing structures

(hybrid capital) will become more

important as CFOs target balance

sheet flexibility

• Supply Chain Overview:

i. Efficiencies: Optimising

inventory remains top of the

near-term agenda as

corporates support retailers

and suppliers facing liquidity

stress to safeguard supply chain.

Longer-term, focus may shift

to reducing DSO and

protecting DPO

ii. Other Considerations:

Pandemic has brought holistic

supply chain planning into

focus including diversification

(localising, contingency plans),

re-thinking inventory buffers,

point of sale enhancements and

last mile capabilities

• Portfolio reshaping: Re-alignment of portfolios to access growth will

continue to gain momentum

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Impact of COVID-19

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Actions in ProgressActions Taken in H1

COVID-19 & Key Challenges A more structural change has been gathering momentum

• Consumption shifted to inside the home and

lower demand for discretionary goods

• Evolving trends like sustainability, health and

digital accelerated by crisis

• Shift from ‘premium’ categories to ‘value’ as

customers trade down albeit temporarily

• Pandemic exposed weakness of global supply

chains to risk of disruption

• Corporates had to fund increased working capital

needs whilst supporting key suppliers

• Shift to e-commerce and local supply requires

review of trade-off between lower working capital

needs vs. margin dilution

• Investment in intelligent supply chains which

respond in real time to local market demand

• Aligning M&A to strategic goals including portfolio

reshaping, technology and data

• Leveraging downward pressure on trading

multiples to acquire challengers

• Activist investor pressure led corporates to return

surplus capital to shareholders

• Cash returns are broadly stable but limited share

price growth has weighed on TSR

• Post-COVID, investing in ‘future proofing’

portfolios is key to sustaining TSR value

• Customers expect even greater transparency to

vet goods are safe and ethically sourced

• Developing digital capabilities across the supply

chain to increase visibility

• Investors are more ESG conscious across waste

reduction, emissions and recyclability which

underpin the need for investment

• Higher near term one-off costs and negative

portfolio mix are likely to be margin dilutive

• Further efficiencies harder to find as margin

widening has been driven by cost control as

organic, top-line growth has been sluggish

• Pricing will intensify as brands compete with

private labels to win or retain market share

Cost

Efficiencies

Defer

Capex

Strengthen

Liquidity

Shareholder

Returns

Supply

Chain

Non-core

Disposals

Consumption Trends InvestmentSupply Chain

P&L Headwinds Sustainability FocusTotal Shareholder Returns

Sources: SCB Analysis, S&P, Moody’s

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Relative PerformanceWhile the initial impact was severe, some of the sub-sectors have recovered lost ground

In the early stages of

lockdown, both F&B and

HPC have outperformed the

S&P 1200, reflecting the

impact of stock-piling and

other favourable

consumption trends

S&P 1200 has regained some

momentum since May

reflected by the narrowing or

reversal of the performance

gap

Haircuts to 2020 estimates

have been broad based but

Alcohol has been worst hit

with leading manufacturers

booking mainly non-cash

impairment charges. Whilst

this has stressed recent

share price performance,

there is limited impact on

credit metrics with market

leaders well positioned to

exploit M&A opportunities in

the post-recovery phase

Exp

ecte

d

Imp

act1

Ch

an

ge t

o

2020F

Household &

Personal Care (HPC)Alcohol Tobacco

Food & Beverage

(F&B)

Low Lowexcept ‘Beauty’ - High

Moderate Low

Sales(3.6)%

(2.8)%

(10.7)%

(3.7)%EBITDA Margin(79)bps

(88)bps

(222)bps

(69)bps

60

80

100

120

Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20

Food & Beverage (F&B) Household & Personal Care (HPC) Alcohol Tobacco S&P 1200 - incl. FMCG

Retu

rn t

o

No

rmalc

y1 2020 2021 2022 2023+

Sources: Capital IQ, Company Reports and Presentations, Broker Consensus, SCB Analysis, S&PAssumptions: Please see slide 25 ‘Appendix: Criteria, Definitions & Assumptions’ for further detailsNotes: (1) “COVID-19 Battered Global Consumer Discretionary Sectors But Lifted Staples; Recovery Varies By Subsector” (S&P, August 2020)

YTD Market Capitalisation Development (sub-sector peer group averages; indexed)

Change in Market Consensus on 2020 Revenues (%) and EBITDA Margins (bps) [08/09/20 vs. 01/01/20]

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H1 Corporate ResultsDivergent impact across industry sub-sectors

F&B HPC Alcohol Tobacco

Imp

ac

t

• Defensive nature of F&B industry has

seen this sector emerge as a winner off

the back of high-stockpiling and likely

higher home consumption in the

medium-term

• Adverse impact in 2020 limited to

corporates with a reliance on out-of-

home channels, such as food

services, ice cream and certain

beverages companies

• Higher proportion of on-trade exposure

the longer the recovery for these

corporates

• Minimal impact for home and most

personal care businesses which

generate sales from daily essentials

• Long-term demand likely to be

sustained by higher hygiene

standards better positioning HPC

relative to other sectors

• Beauty segment most impacted due

to discretionary nature and

disruptions across professional

beauty and travel retail. Highly levered

companies will face pressure in 2020

as consumers defer purchases

• Most impacted sub-sector, greater

proportion of retail revenue derived

from on-trade sales compared to non-

alcoholic beverages. Twofold setback

for corporates with travel retail

exposure

• Margin contraction expected in 2020

despite expectations for lower

commodity prices. Discretionary cash

commitments are being curtailed to

offset free cash flow pressure

• High margin, premium labels may

fall out of favour requiring volumes of

value brands to significantly pick up

diluting margins

• Resilient but adverse effect from

slowdown in reduced risk and FX

volatility

• Cigarette volumes continue to

decline reflecting switching to reduced

risk, albeit at a lower rate in 2020,

alongside a marginal impact from lower

duty free sales. Price increases are still

considered sustainable as little

evidence of trading down in recession

• High dividend pay-out expected to

continue for most with limited capacity

for large M&A within current ratings

Ch

all

en

ge

s

Supply

Chain Investment

P&L

Headwinds

Consumer

Trends

Sustainability

Focus

Shareholder

Returns

Supply

Chain Investment

P&L

Headwinds

Consumer

Trends

Sustainability

Focus

Shareholder

Returns

Supply

Chain

Strategic

Investments

P&L

Headwinds

Consumer

Trends

Sustainability

Focus

Shareholder

Returns

Supply

Chain Investment

P&L

Headwinds

Consumer

Trends

Sustainability

Focus

Shareholder

Returns

Sources: Company Reports and Presentations, SCB Analysis, S&P and Moody’s

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F&B HPC Alcohol Tobacco

Mit

iga

nts

Key T

ak

ea

wa

y f

rom

H1

Mitigants & Emerging StrategiesCorporates are pulling on a number of levers to help position themselves for the challenges ahead

“We have taken decisive action…tightly

managing our costs, reducing discretionary

expenditure and reallocating resources… We

have strengthened liquidity, giving us

flexibility to continue to invest effectively

in the business for the long term.”

“The business is showing good resilience… A

comprehensive cost mitigation programme

has been implemented, together with active

management of our cash...We have adapted

our manufacturing and supply chains to

ensure they remain…operational ”

“…capital allocation priorities remain the

same…reinvest where appropriate…grow the

dividend…M&A and share buybacks unlikely to

play a prominent role in the near term…remain

confident in our liquidity position as

we…navigate the crisis.”

“…driving…efficiency improvement in all

facets… delivering strong cost and cash

productivity… change in manufacturing…

look at…appropriate number of suppliers…

to ensure you have the agility to react

to…capacity swings that we're seeing.”

“Gross margin reduced by 30bps driven by

costs to adapt and run our…supply chain in

response to Covid-19, ensuring the safety

and continuity of our operations, as well as

an adverse mix

effect…”

“... tobacco industry was not immune to the

impact of the pandemic, our performance was

resilient…delivered robust growth in adjusted

operating profit…driven by pricing gains in the

international tobacco

business.”

“…further strengthened our liquidity position

through bond issuances the establishment of

bilaterals and the renegotiation of our

RCF…remain focused on maximising cash

generation and deleveraging …”

“Free cash flow was CHF 3.3 billion in the

first half…We continue to be disciplined in

our capital allocation with positive

contribution from both CapEx and working

capital”

Defer

CapexCost

Efficiencies

Supply

Chain

Strengthen

Liquidity

Shareholder

Returns

Non-core

Disposals

Defer

CapexCost

Efficiencies

Supply

Chain

Strengthen

Liquidity

Shareholder

Returns

Non-core

Disposals

Defer

CapexCost

Efficiencies

Supply

Chain

Strengthen

Liquidity

Shareholder

Returns

Non-core

Disposals

Defer

CapexCost

Efficiencies

Supply

Chain

Strengthen

Liquidity

Shareholder

Returns

Non-core

Disposals

Sources: Company Reports and Presentations, SCB Analysis, S&P and Moody’s

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Challenge of Maintaining Shareholder Returns

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• Over the last fifteen years, FMCG has outperformed all other sectors from a TSR perspective. Whilst a major part of growth has been driven by expansion

into Emerging Markets (EMs), this performance reflects success of brand building, developing economies of scale and an appetite for value accretive M&A

• Across sub-sectors, F&B has led driven by its top of the table share price return with Alcohol the only other sub-sector to feature in Top-10 for this metric. Other

sectors have relied on cash returns, particularly Tobacco and HPC which feature in Top-5 for dividend and share buyback returns respectively

• More recent performance has seen some reversal of this trend with TSR wavering across sub-sectors. This trajectory reflects the pressure CFOs face to

balance competing cash priorities across investment in organic growth, acquisitions and returning surplus capital to investors

Shareholder Returns & ExpectationsFMCG sub-sectors have featured in the Top-5 for at least one component of TSR over last 15 years

16.8% 16.6%

15.1% 15.1% 14.5%

F&B Non-FoodRetail

ConsumerDurables

Hotel &Leisure

Aerospace& Defense

15-Year Average: Top-5 Sectors by Category (2004-19)

4.6%4.4%

3.4%3.2% 3.2%

Utilities Tobacco O&G M&M Telecoms& Media

3.7%

3.1% 2.9%2.5% 2.4%

Tech Aerospace& Defense

Hotel &Leisure

HPC Pharma &Healthcare

Sources: Capital IQ, Company Reports and Presentations, SCB AnalysisAssumptions: Please see slide 25 ‘Appendix: Criteria, Definitions & Assumptions’ for further details

Share Price Return Cash Dividend Return Share Buyback Return

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18.8%

13.9%

10.5%

(3.6%)

12.3%11.1% 10.5%

4.8%

15-Year Average TSR (%) 10-Year Average TSR (%) 5-Year Average TSR (%) 2019 TSR (%)

21.7%

14.2% 13.8% 13.1%

Ranking

F&B Alcohol HPC Tobacco

#1 #11 #13 #16

16.3%

14.4%13.2%

10.1%

Ranking

F&B HPC Alcohol Tobacco

#8 #11 #13 #18

Ranking

F&B HPC Alcohol Tobacco

#11 #12 #13 #18

Ranking

HPC Alcohol F&B Tobacco

#7 #11 #15 #19

TSR Rankings & How These Have MovedCOVID-19 has changed the game again but the rules of winning are the same

• F&B slipped down the rankings over more recent periods reflecting challenge of generating top-line growth momentum, particularly across developed markets.

On the other hand, HPC has improved over time reflecting momentum in personal care pre-COVID whilst Alcohol has been reasonably consistent

• COVID-19 may fuel a reversal of fortunes with CFOs in more advantaged sub sector presented with an opportunity to fine tune TSR strategy. Arguably, some

F&B corporates are better positioned and can capitalise on drivers of future value across channel diversification, sustainability and health

• Cash returns are expected to remain pivotal to the medium-term equity story. Ultimately, a strategy focussed on growth and margin expansion whilst

fulfilling discretionary cash commitments has proven successful and can pave the way to enhancing future TSR

Sources: Capital IQ, Company Reports and Presentations, SCB AnalysisAssumptions: Please see slide 25 ‘Appendix: Criteria, Definitions & Assumptions’ for further details

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Impact on Indebtedness

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1.5x1.3x

2.5x

1.2x

1.7x

1.1x

2.6x

1.5x

2.3x

1.2x

3.1x

2.2x

+56%

• In the hunt for growth, corporates have invested in innovation, leveraged M&A to access faster growth categories or regions and responded to investor activism for higher

shareholder returns leading to higher average indebtedness, arguably limiting headroom to exploit post-COVID opportunities within current ratings

• Ratings have shifted from ‘A’ or above to ‘BBB’ or lower over last ten years. Recent negative rating actions have focussed on issuers with already stretched credit metrics in

the build up to the crisis. Going forward, flat margins, higher capex and possible uptick in M&A create the perfect storm for credit ratings

• Whilst the benefits of higher ratings vs. flexibility of lower ratings will come into question, capital release from areas like working capital and strategic disposals can help.

Corporates may also diversify capital structure by refinancing senior debt with hybrid capital instruments, possibly offsetting ratings pressure

Net Debt to EBITDA (times)

Avg.

’04-’09

Avg.

’09-’14

Avg.

’14-’19

S&P Ratings Distribution Over Time (Current2 vs. December 2009)3

Indebtedness & Optimal Credit RatingsFunding needs may create the perfect storm for credit ratings

4%

20%

23%

54%

1%11%34%

54%

2009 2020

20%

70%

10%

11%

11%

56%

22%

2009 2020

6%

31%

3%

59%

4%18%

7%

71%

2009 2020

19%44%

38%

13%67%

20%

2009 2020

AA A BBB Sub-IGF&B HPC Alcohol Tobacco

(4%) +23% +88%

De-leveraging1Increase in

leverage1

Sources: Capital IQ, Company Reports and Presentations, SCB AnalysisAssumptions: Please see slide 25 ‘Appendix: Criteria, Definitions & Assumptions’ for further detailsNotes: (1) Relative to average indebtedness over 2004-09 (2) Ratings as of 9th September 2020 (3) Includes all corporates rated by S&P in the AAA-C bands across sub-sectors (please see p.26). Analysis includes ratings for main rated entity of larger corporate groups only; we have omitted certain entities, such as subsidiaries or holding companies, where ratings are linked to those of their parent companies

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EBITDA Margins (%) Cash From Operations (CFO) / EBITDA (%)1 Capex / EBITDA (%)1,2

Understanding Drivers of Future IndebtednessFlat margins combined with stable capex and supply chain stress may stretch funding requirements

• Margins have largely plateaued across FMCG. Consumer staples are expected to maintain stable margins in 2020 as efficiencies from SKU rationalisation to meet a surge in

demand and lower marketing spend offsets higher logistics and well-being costs across the supply chain. However, longer-term outlook remains uncertain

• A key challenge for FMCG will be maintaining strong cash conversion as margins flatten or weaken. Whilst working capital efficiencies have helped LTM CFO/EBITDA

settle at five-year high for F&B and HPC, medium-term convertibility will be squeezed unless corporates deliver further margin and supply chain efficiencies

• Corporates have maintained stable capex over recent years but COVID-19 has accelerated investment needs. As capex becomes less discretionary and more critical,

balance sheets are expected to come under increasing pressure, requiring review of capital allocation priorities and sources of funding

10%

15%

20%

25%

30%

35%

40%

2014 2015 2016 2017 2018 2019 2020LTM

0%

5%

10%

15%

20%

25%

30%

35%

2014 2015 2016 2017 2018 2019 2020LTM

55%

60%

65%

70%

75%

80%

85%

90%

2014 2015 2016 2017 2018 2019 2020LTM

Sources: Capital IQ, Company Reports and Presentations, SCB AnalysisAssumptions: Please see slide 25 ‘Appendix: Criteria, Definitions & Assumptions’ for further detailsNotes: (1) LTM data per CIQ for peers where latest detailed financials are available. Excludes Pernod Ricard S.A., Meiji Holdings Co. Ltd, Yakult Honsha Co. Ltd. (2) Capex includes intangibles

F&B HPC Alcohol Tobacco FMCG

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What Does This Mean for Corporates?

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CFOs’ Top Concerns Driven By COVID-19Supply chain issues ranked Top-5 amongst other critical concerns

52% …will look for alternative

sourcing options3

50%…want to

understand

suppliers’ financial

and operational

health3

34%…plan to extend

visibility into their

suppliers’

networks3

…intend to use

automation to

improve decision

making3

28%

3%

3%

7%

9%

14%

18%

31%

36%

40%

66%

69%

Potential global recession

Financial impact2

Decrease in consumer confidence reducing consumption

The effects on our workforce / reduction in productivity

Supply chain issues

Difficulties with funding

Not having enough information to make good decisions

Cybersecurity, privacy, or fraud risks

Impacts on tax, trade, or immigration

Lack of a comprehensive / tested company emergency preparedness plan

Other

Source: PwCNotes: (1) Source of data from PwC’s “Global COVID-19 CFO Pulse” reports. Chart showing average results of the responses to the question “What are your top three concerns with respect to COVID-19?” from the 30 March 2020, 13 April 2020 and 28 April 2020 issues (2) Effects on results of operations, future periods, liquidity and capital resources (3) PwC (“PwC's COVID-19 CFO Pulse – Insights from global finance leaders on the crisis and response” – 28 April 2020)

PwC “COVID-19 CFO Pulse” survey

CFO’s Top-3 concerns with regard to COVID-19¹

CFOs are considering changing supply chain strategy as a

result of COVID-19³

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Inventory

Buffer

Last

MilePoint

of Sale

Geographical

Diversity

Supply Chain ConsiderationsRe-configuring the supply chain to build long-term resilience is very important

• Higher inventory buffer beyond

historical averages may be the norm

• Dynamic capacity planning enabled

via advanced demand forecasting

tools and local market intelligence

• Scenario Planning:

▪ Over-supply: order reduction,

promotions, re-purposing of less

seasonal products

▪ Under-supply: secure raw

materials, prioritise key client

relationships

• Automation and integration of

supply chains, warehousing and

distribution to achieve synergies

• Expand logistics capabilities with

third parties to address shortage of

last mile delivery service capacity

• Collaborating with other consumer

product firms to create shared

warehouses and logistics

• Increase incentives for customers to

utilise in-store or dark stores1 for

collection or return of goods to

reduce delivery costs

• Rerouting sales to e-commerce /

direct to customer / at-home

consumption

• Tailor marketing plan to re-direct

customers and achieve targeted

channel mix

• Define pricing strategy to capture

share of pent up demand ahead of a

rebound in activity

• End-to-end monitoring: Leveraging digital and working with Tier 1 / 2

suppliers to predict supply chain vulnerabilities and enable back-up planning

• Intelligent Supply Chain: Accelerate digital investments such as AI,

machine-learning and cloud-based database for better integrated planning

• New packaging and product design to reduce wastage

• Moving towards circular economy to minimise use of resource and turn

waste into use / localised sourcing to reduce emissions from transport

• Reduce emissions via more efficient production and use of renewables

Sustainability

• Diversifying production footprint to

minimise concentration risk, e.g.

• Effective contingency planning:

▪ Secondary supplier activation

▪ Agile production rerouting

▪ Production rescheduling to

prioritise items in light of raw

material shortages

• Local sourcing to limit disruption risk

• Multi-source key commodities or key

strategic components

Visibility

vs.

Sources: SCB Analysis, McKinsey, BCG, Deloitte, PwC, CapgeminiNotes: (1) Distribution centres that are designed for online shopping

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10% 8%

13%

24%

10%7%

14%

24%

Working Capital EvolutionFurther efficiencies won’t be easily extracted from the already stretched cash cycles

8

8

1215

10

FMCG

DP

O

Ou

tsta

nd

ing

Im

pro

vin

gW

ors

en

ing

DSO & DIO

Outstanding Improving Worsening

Size of bubble represents

decrease in CCC days

Cash Conversion Cycle (CCC): 2019 vs. 2014 (Days)

Working Capital Solutions

• Buyer Financing

• Receivables Discounting (Debt Factoring)

• Bills / BAD Discounting

• Migrating Collections into Electronic Transfers

• Supply Chain / Supplier Financing

• Post-Dated Cheque or BAD

• Instant Payment (payment on invoice due date)

• Real Time Cross Border Book Payment

COVID Impact – Cash Conversion Cycle to Sales (%)1

Sources: Capital IQ, Company Reports and Presentations, SCB AnalysisAssumptions: Please see slide 25 ‘Appendix: Criteria, Definitions & Assumptions’ for further details Notes: (1) In some instances, receivable and/or payable balances include other assets or liabilities as more granular data was not available as part of quarterly filings. Additionally, two corporates from our sample have been adjusted in line with FY2019 results due to data limitations

F&B HPC Alcohol Tobacco

• FMCG working capital efficiencies have largely been driven by payables over last five years. Whilst this has also been broadly supported by improving DSO, there remains

pressure on trade cycles from DIO across Alcohol, Tobacco and HPC driven partly by higher levels of strategic inventory

• 2019 results reflect a deceleration in year-on-year DPO improvement signalling that stretching suppliers to drive efficiencies is unsustainable. COVID-19 is set to exacerbate

this trend as corporates turn to supporting key suppliers to minimise risk of disruption bringing Supply Chain or Supplier Financing back into the spotlight

• Near-term, corporates may need to balance risk of retailer or supplier default with safeguarding distribution networks and supplies, particularly in EMs. Investment in

predictive analytics and AI promises to provide data to optimise inventory and respond quickly to changes. Longer-term, focus will shift to improving DSO and protecting DPO

LTM

‘19

LTM

‘20

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IncubatorWhich specialises in cultivating &

accelerating start-ups or smaller

brands to realise their true potential

CrowdsourcingLeveraging ideas generated or

resource provided by ordinary

customers or online communities

RenovationTransforming existing products or

services to help them stay relevant

in an evolving environment

Balance Sheet

FlexibilityEnsure sufficient headroom to fund

the investments required

Portfolio ReshapingTrends, Drivers and Enablers of future value

Consumption Channel Supply Chain Innovation &

Technology

Tre

nd

Dri

ver

En

ab

ler

Health &

Sustainability

Conscious

Prioritise

Value &

Essentials

E-commerce

Last Mile

Delivery

Capabilities

Upstream

Integration

Downstream

Partnerships

Customer

Experience via

Digital

Digital, Data &

Infrastructure

Global pandemic

tragedy triggered

consumers to

rethink impact of

consumption

decisions

Lower consumer

confidence whilst

trajectory of

economy recovery

remains unclear

Lockdowns

triggered

accelerated

acceptance of

purchasing via

online channels

Speed & reliability

are key aspects of

customer

satisfaction in

e-commerce

Integration with

critical suppliers to

increase long-term

resilience in light of

acute disruptions

New ways of

engagement

required to capture

the up-tick in

e-commerce

Tailoring customer

experience for

products &

services through

digital media

Greater visibility

and insights

required to enable

faster, reliable and

more precise

decision making

Sources: SCB Analysis, Company News and Presentations, McKinsey, BCG, Deloitte, PwC

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Key Questions For CFOs

Sources: SCB Analysis, Company News and Presentations, McKinsey, BCG, Deloitte, PwC

How can I expand my portfolio to make the business more resilient ?

Which acquisition targets (e.g. challenger brands) provide strong synergies /

growth prospects ?

What investments are required to grow my e-commerce and last mile

capabilities ?

Has the pandemic created an opportunity to acquire key suppliers ?

Which partnerships can help strengthen my downstream presence ?

What technology capabilities are required and how should these be acquired

(R&D vs. M&A) ?

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Key Contacts

Financing Solutions & Advisory Client Coverage

Shoaib YaqubGlobal Head

Financing Solutions & Advisory

Tel: +44 207 885 6723

Email: Shoaib.Yaqub@sc.com

Robert NewellManaging Director

Global Corporates, Europe

Tel: +44 207 885 2281

Email: Robert.Newell@sc.com

Pontus DavidsonExecutive Director

Corporates

Tel: +46 845 102 18

Email: Pontus.Davidson@sc.com

Raza PirachaDirector

Financing Solutions & Advisory

Tel: +44 207 885 5761

Email: Raza.Piracha@sc.com

Kathleen AlpgunerDirector

Global Corporates

Tel: +44 207 885 8768

Email: Kathleen.Alpguner@sc.com

Maximilien De DieuleveultExecutive Director

Global Corporates

Tel: +33 1 5375 8316

Email: Maximilien.Dedieuleveult@sc.com

Carolyn LiaoAssociate Director

Financing Solutions & Advisory

Tel: +44 207 885 8529

Email: Carolyn.Liao@sc.com

Daniel MaasOrigination Banker

Global Corporates

Tel: +49 69 770 750 377

Email: Daniel.Maas@sc.com

mailto:Shoaib.Yaqub@sc.commailto:Robert.Newell@sc.commailto:Pontus.Davidson@sc.commailto:Raza.Piracha@sc.commailto:Kathleen.Alpguner@sc.commailto:Maximilien.Dedieuleveult@sc.commailto:Carolyn.Liao@sc.commailto:Daniel.Maas@sc.com

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Appendix

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Appendix

1) Supplementary Analysis

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-60%

-40%

-20%

0%

20%

40%

60%

80%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

GFC

0%

1%

2%

3%

4%

5%

6%

7%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

GFC

0%

1%

2%

3%

4%

5%

6%

7%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

GFC

Splitting the Components of TSRDividend yield alone is unlikely to satisfy investors across the board

• Unsurprisingly, volatility in average annual share price growth has undermined TSR. Whilst trajectory had improved in recent years for most, COVID-19 may stifle this

momentum for corporates exposed to discretionary products or disrupted channels, such as Beauty and Alcohol, or those undergoing structural change like Tobacco

• FMCG has historically relied on restricting cash returns to investors at times of stress. Whilst cash dividends returns have been broadly stable, with variations driven by

the Global Financial Crisis (GFC), share buybacks have been considered a relatively flexible return paid out of surplus capital

• Dividend yield will still play an important role, particularly where recovery is gradual as this represents the main return for equity investors. However, CFOs across all sub-

sectors will be expected to walk a tight-rope between protecting cash returns and investing in growth plays to drive long-term TSR value

Annual Average Share Price Growth Dividend Return Share Buyback Return

Sources: Capital IQ, Company Reports and Presentations, SCB AnalysisAssumptions: Please see slide 25 ‘Appendix: Criteria, Definitions & Assumptions’ for further details

F&B HPC Alcohol Tobacco

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Appendix

2) Assumptions & Criteria

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• S&P 1200: Based on 728 companies across 17 sectors from the S&P Global 1200 Index filtered for Market Capitalisation greater than USD10bn as at

the latest full year financial reporting date. Analysis excludes Financial Services, Real Estate and Insurance sectors, as well as a few corporates with

limited financial data during the period of analysis

• Trends were based on average of individual corporate’s ratio

• Sources of Financial Information: Company Reports & Presentations, Capital IQ and SCB Analysis

• Financials are reported in USD based on historical exchange rates from Capital IQ

Criteria, Definitions & Assumptions

• Cash Dividend Return = (Common & Preferred Stock Dividends + Special Dividends) / Opening Market Capitalisation (90-Days Averaged)

• Share Buyback Return = Repurchase of Common Stock / Opening Market Capitalisation (90-Days Averaged)

• Share Price Return = Year-End Share Price (90-Days Averaged) / Year-Opening Share Price (90-Days Averaged)

• Total Shareholder Returns = Cash Dividend Return + Share Buyback Return + Share Price Return

• Leverage = Net Debt / EBITDA

• Days Sales Outstanding (DSO) = {[(Trade Receivables Beginning of Year + Trade Receivables End of Year) / 2] / Sales} x 365

• Days Inventories Outstanding (DIO) = {[(Inventories Beginning of Year + Inventories End of Year) / 2] / Sales} x 365

• Days Payables Outstanding (DPO) = {[(Trade Payables Beginning of Year + Trade Payables End of Year) / 2] / Sales} x 365

• Cash Conversion Cycle (CCC) = DSO + DIO – DPO

• Our review of cross-sector indebtedness includes company reported debt over time which has been muddied by the recent adoption of IFRS-16 and

the optionality for corporates to choose between the full or modified retrospective approaches. Our estimates are based on company reported debt

numbers to provide an indicative view of the overall trajectory of sector indebtedness over time

• Where corporates have ‘net cash leverage’ or ‘negative EBITDA’ positions, we have taken ‘zero’ for our average calculations

• For the sake of consistency, we have removed relevant data for our calculations for corporates with data limitations in corresponding periods as

follows: two instances where cash flow data is not available in 2004; one instances where cash flow data is not available in 2019; instances where

dividends or buybacks were paid prior to public listing which affects around 10% of our sample of corporates.

Criteria

Definitions

Assumptions

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Sector Classifications¹

Consumer Durables

Consumer Electronics, Homebuilding, and Leisure Products

Hotels & Leisure

Restaurants, Casinos and Gaming, Hotels, Resorts and Cruise Lines, and Leisure Facilities

Metals & Mining

Diversified Metals and Mining, Steel, Gold, Copper, and Silver

Non-Food Retail

E-Commerce, Home Improvement, Apparel, Accessories, Luxury Goods, General, Automotive, Electronics Retail, Department Stores etc

Oil & GasIntegrated Oil and Gas, Exploration and Production, Storage and Transportation, Refining and Marketing, and Equipment and Services

Pharma & Health

Pharmaceuticals, Health Care, Biotechnology, Life Sciences, Related Services and Facilities, Supplies, Distributors, and Technology

TechSystems Software, Hardware, Data Processing and Outsourced Services, IT Consulting, Semiconductor, Related Manufacturing, Internet Services and Infrastructure etc

Telecoms & Media

Interactive Media and Services, Telecommunication, Movies and Entertainment, Cable and Satellite, Broadcasting, Advertising, and Alternative Carriers

UtilitiesElectric Utilities, Multi-Utilities, Gas Utilities, Water Utilities, and Independent Power Producers and Energy Traders

FMCG2F&B (Packaged Foods and Meats, Soft Drinks, and Agricultural Products); HPC (Household Products and Personal Products); Alcohol (Brewers, Distillers and Vintners); Tobacco

KT&G Corporation

Japan Tobacco Inc.

Philip Morris International Inc.

Altria Group, Inc.

British American Tobacco p.l.c.

Imperial Brands PLC

Kirin Holdings Company, Limited

Asahi Group Holdings, Ltd.

Ambev S.A.

Carlsberg A/S

Anheuser-Busch InBev SA/NV

Diageo plc

Heineken N.V.

Pernod Ricard SA

Constellation Brands, Inc.

Brown-Forman Corporation

Heineken Holding N.V.

Molson Coors Beverage Company

Meiji Holdings Co., Ltd.

Yakult Honsha Co.,Ltd.

Fomento Económico Mexicano, S.A.B. de C.V.

Uni-President Enterprises Corp.

Nestlé S.A.

The Coca-Cola Company

PepsiCo, Inc.

Mowi ASA

Mondelez International, Inc.

Monster Beverage Corporation

The Kraft Heinz Company

General Mills, Inc.

Danone S.A.

The Hershey Company

Hormel Foods Corporation

McCormick & Company, Incorporated

Kellogg Company

Tyson Foods, Inc.

Kerry Group plc

Conagra Brands, Inc.

Beiersdorf Aktiengesellschaft

Fo

od

& B

eve

rag

e

Alc

oh

ol

To

ba

cc

o

FMCG Sub-Sector Constituents

Chocoladefabriken Lindt & Sprüngli AG

Campbell Soup Company

Associated British Foods plc

Saputo Inc.

The J. M. Smucker Company

Lamb Weston Holdings, Inc.

Kao Corporation

Unicharm Corporation

Shiseido Company, Limited

The Procter & Gamble Company

Essity AB (publ)

L'Oréal S.A.

The Unilever Group

The Estée Lauder Companies Inc.

Colgate-Palmolive Company

Reckitt Benckiser Group plc

Kimberly-Clark Corporation

Henkel AG & Co. KGaA

The Clorox Company

Church & Dwight Co., Inc.

Ho

us

eh

old

&

Pe

rso

na

l C

are

Sources: Capital IQ, SCB AnalysisNote: (1) Excludes Aerospace and Defence for which there is no further breakdown (2) S&P sector split - ratings data includes all S&P rated corporates in these sub-sectors for the relevant period

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