New perspectives

Barcelona, 25th October 2005

European Pasta Complex In A State Of Flux

III Pasta World Congress

New perspectives

Introduction

3

4

Strategy Rabobank Group

• To become the largest, best and most innovative Allfinanz provider

in the Netherlands

• To be the most sustainable and socially involved bank

• Global no. 1 in financing in the food & agri market

– International network in 35 countries

– International market leader Food & Agri wholesale

– Domestic retail banking in selective countries

– Knowledge based banking

New perspectives

EU pasta complex in a state of flux

6

Shift in consumer demands

• Food expenditure as proportion of household income is declining

• Consumer have become more and more price sensitive

• Serving an ageing and declining consumer base

• Obesity has vast societal dimensions

• Diets come and go

• Continuing popularity of the Mediterranean diet

• Increasing on the go and out of home consumption

Manufacturer’s challenge:

“How to capture a greater share of consumer’s food expenditure”

7

A gradually growing pasta market

EU Pasta Market

01.0002.000

3.0004.0005.0006.0007.000

8.0009.000

10.000

1999 2001 2003 2005 2007 2009

In E

uro

s (

m)

Dry pasta Fresh pasta

CAGR 99-09:6.3%

CAGR 99-09:3.6%

Source: Datamonitor, 2005

8

Supermarkets remain main channel for pasta purchases, but …

Distribution by Value, 2004

Discounters  16,0%

Convenience stores  0,4%

Supermarkets/hypermarkets 

69,3%

Traditional grocers  10,6%

Others  3,7%

Source: Datamonitor,Rabobank estimates, 2005

9

0

10

20

30

40

50

60

Germ

any

UK

Belgi

um

Net

herlan

ds

Switz

erla

nd

Fran

ce

Spai

nI t

aly

Portug

al

Greec

e

Nor

way

Den

mar

k

Swed

en

Finl

and

,… discounters will become an even more dominant force in Europe, …

Discount percentageshares in total grocery retailing

Main discount labels

Source: M + M Planet Retail, Rabobank estimates

10

…, as is seen in the stunning growth of Aldi and Lidl outlets

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

Aldi Lidl

1990 1995 2000 2004

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

EU

1990 1995 2000 2004

2X 8X 2XNumber of outlets in EU Number of discount outlets in EU

Source: GfK

11

Consumer's willingness to pay a premium for private label

0%

10%

20%

30%

Sp

end

on

pri

vate

lab

els

25%

30%

35%

40%

45%

Pri

ce d

iffe

ren

ce b

ran

d o

ver

PL

Spend on private labels Price difference PL and brand

Private label gaining acceptance at the expense of brands

Source: IGD 2004, Rabobank

12

Italy still the major producer, but Russia and Turkey can have a major influence in the midterm

Italy27,1%

Russia8,0%

Turkey4,0%

Germany3,0%

Others10,1%

North America21,4%

Asia2,1%

Australia0,4%

Europe53%

Middle East0,3%

Africa4,5%

Central and South America

19%

Source: UNIPI, Rabobank estimates, 2004

Global pasta production, volume

13

Italian pasta producers depend heavily on export; Germany main destination

• Italian exports account for 48,5% of

production

• Export volume CAGR 1990-2003: 8%

• Significant price differential between

national and export markets

• Italian producers are the main private

label suppliers for EU retail trade

• In addition export to fill up production

capacity

• As a result the European pasta market

is suffering from overcapacity

Germany22%

France14%

UK11%USA

10%

Others32%

Japan5%

Sweden3%

Netherlands3%

Source: UNIPI, 2004

Italian export destinationsBy volume, 2003

14

Polarisation in EU pasta market: as is the case in the German market

Discount market 30%

Middlemarket 60%

Premium market; 10%

Structure of German dry pasta market

€0.29-0.59 €0.89-1.19 €1.80-2.50Price per 500g pack

Source: Industry sources, AC Nielsen and Rabobank estimates

15

Policy developments will continue to impact the pasta industry• CAP reform:

– 1992 reform

– Price volatility (reduction of the intervention price)

– Non-traditional areas switched production from durum to other crops

(e.g. soft wheat)

– Mid Term Review

– Impact of production in tradional areas will be limited

– EU will remain a net importer

• Eastern EU enlargement (May 2004):

– Better access to these markets

– Per capita pasta consumption is close to EU-15 levels

• Turkey, a future EU member?

– Turkey seems to have a competitive (export) position in the entire pasta

complex

New perspectives

Adaptation of business model

17

Changes have urged players to adapt their business model

Topline

Bottomline

Rationalization of portfolio

Increase buying power

Higher margin products

Innovation

Restructuring

Increase market share

Access new markets

Diversification of products and services

Internationalisation

Growth

Raiseefficiency

18

Rationalization in pasta complex

125

150

175

200

225

250

275

1992 1997 2002 2007 (est.) 2012 (est.)

Nu

mb

er

of

EU

pa

sta

co

mp

an

ies

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

5.000

Pro

du

cti

on

(x

10

00

to

ns

)

Source: UN.A.F.P.A (2003), Rabobank estimates

Number of companies

Production

19

• Several dominant branded players, but

strong demand for private label suppliers

• No pan-European player with exception of

Barilla

• Diversity of consumer demand has resulted

in many small factories, short runs and

manufacturing complexity

• Fragmented market with many small scale

players (<EUR 50m)

• Most larger players have traditionally held a

strong position in their domestic market

• No uniform business model

• Polarisation between short and long shelf

life operators

• Market place remains competitive

• Oversupply concerns

• Majority of companies are family owned

• Ample room for growth, both organically as

by acquisition

Fragmented industry offers growth potential

Key characteristicsMain producers*

* Selection of main producers

20

Sizeable players already active in Central and Eastern Europe

Per capita consumption of pasta in Eastern Europe

0 1 2 3 4 5 6 7

Czech Rep

Hungary

EU-15

Russia

Estonia

Turkey

Slovak Rep

EU-14 (excl. Italy)

Lituania

Latvia

Poland

Romania

kg /capita

Pasta production (volume)

0 50 100 150

Agros

Makfa

Adriana

Altan

Lubella (Maspex)

UMC

Malma

Vermani

(in th. tonnes)

Source: UNIPI, Rabobank estimates

21

Will the pasta industry create its own Actimel?

Organicgrowth

• New product development will be a key

element for sustainable success in the

pasta industry, although very complex

• The pasta industry has not been very

innovative over the last decade

• Innovation has been predominantly

incremental-me too’s and brand

extensions

• Focused on health and quality

• Relevant innovation will be rewarded…

22

Strategies in European pasta industryMultiple strategies across country borders

Geog

rap

hic

exp

an

sio

n

Source: Rabobank,, 2005

Commodity Generic Premium

Dom

esti

cEu

rop

eG

lob

al

Value added

VolumeCost leadership

BrandsN.P.D.

Disintegration?

23

Pasta industry has the tools to overcome these challenges

Cost input price inflation

Inability to pass this on to customers

Competitive pricing

Commoditization

Weather risks in supply

Involvement of food multinationals

Fall in demand/volumes

Cross sector competition

Current debate on obesity

Challenges

Focus on higher margin products

Established key brands with strong support

New product development

Strong market share

Distribution power with critical mass

Customer retention and loyalty

Reduction of cost base

Efficient capacity utilisation

Secure ingredient supply

Access to stable growth markets

Access to optimum financial resources

Tools

Strategy

Clearly defined strategy, based on understanding of

individual markets and industry drivers,

supported by a strong and in-demand

portfolio of products

New perspectives

Outlook

25

Rabobank’s view on the European pasta complex

Outlook

• The pasta market will remain a value growth market throughout Europe

characterised by many, highly professional competitors

• Cost side of the pasta industry needs to improve

• Retail-supplier relationships will become even more intense

• The share of private label products on offer will continue to grow

• Some segments will become commoditized, making cost leadership in these

segments a necessity

• There is an urgency for further industry consolidation

• New product development will be a key element in further value growth

• Expansion to non-traditional growing areas

• CAP reform will lead to more open markets and more volatility in durum prices

• As a result of CAP reform, EU durum production could fall

New perspectives

Barcelona, 25th October 2005

European Pasta Complex In A State Of Flux

III Pasta World Congress

27

Strategy Rabobank Group

• To become the largest, best and most innovative Allfinanz provider

in the Netherlands

• To be the most sustainable and socially involved bank

• Global no. 1 in financing in the food & agri market

– International network in 35 countries

– International market leader Food & Agri wholesale

– Domestic retail banking in selective countries

– Knowledge based banking