Access to Nutrition Index (ATNI) Overview for Investors

February 2012

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• Nutrition is a major global macro trend

driving structural changes and growth

opportunities in the F&B sector

• The future prospects of F&B companies

are closely linked to their response to

reducing malnutrition (both obesity and

undernutrition)

• ATNI believes that companies that

perform well on nutrition will be more

successful in the future – better placed

to address risks, exploit opportunities

• The private sector can play an important

role in reducing malnutrition, along with

other stakeholders

Nutrition and industry

• ATNI aims to reduce malnutrition and

improve health by encouraging F & B

companies to make continual and

sustained improvements in their nutrition

practices

• ATNI will assess major F&B companies’

performance on nutrition on an ongoing

basis, providing companies, investors and

stakeholders with in-depth, consistent

information not currently available

• ATNI is engaging investors in F&B

companies to help them understand

nutrition issues and assess companies’

performance on this material, long-term

strategic issue

ATNI approach

Context and approach

Nutrition: a critical global issue

Major macro trend • Critical in both developed and emerging markets, some of which face a double

burden of malnutrition

• Driving structural changes and growth opportunities in the F&B industry

Key public health issue• ‘Nutrition is a foundation for health and development. Better nutrition means stronger

immune systems, less illness and better health for people of all ages.‟ (World Heath

Organisation)

• Essential to achieving two of the six of the Millennium Development Goals

Undernutrition:

• Affects almost 1 billion people and accounts for 11% of global burden of

disease; kills 3.5 million children under five each year (The Lancet); results in

the loss of 2 - 3% of countries’ GDP (Copenhagen Consensus)

Obesity and diet-related chronic diseases:

• By 2015 there will be 2.3 billion overweight adults in the world with more than

700 million of them classified as obese

• 41 countries currently have at least one million people who are considered

obese

• Public health budgets are increasingly feeling the strain, with obesity-related

costs accounting for 2-7% of total health costs in wealthier nations (World

Heath Organisation)

Increasing priority of international policy makers• Tackling obesity and undernutrition is a key focus of international policy makers and

governments; significant future financial burden on public purse and impact on

people’s life chances and productivity

“„The simple fact is that

there can be no real

growth without healthy

populations. No

sustainable development

without tackling disease

and malnutrition. No

international security

without assisting crisis-

ridden countries. And no

hope for the spread of

freedom, democracy and

human dignity unless we

treat health as a basic

human right.‟

Source: Gro Harlem

Brundtland

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Regulatory risk

• Stimulated by concerns over obesity, many countries, states and cities worldwide are considering, or have

already introduced, regulations controlling F&B manufacturers’ activities and fiscal measures like ‘fat taxes’ which

increase companies’ costs and restrict their reach.

Corporate reputation/brand risk

• As media coverage of diet-related diseases increases, F&B companies are often portrayed in a poor light and as

‘part of the problem’. F&B companies that do not take action to reduce transfats, fat, salt and sugar and introduce

healthier products risk their products’ brand values and corporate reputations. Those that do take action have the

opportunity to be seen as the ‘consumers’ friend’ – the company on which consumers can trust to look after their

health.

Market /revenues/share price risk

• Consumers in developed markets, concerned about their weight and diet-related diseases, have started to

change their eating habits, switching spending away from perceived unhealthy products and moving towards

healthier options. Between 2002 – 2008, healthier packaged foods grew by 6% a year, compared to 3% a year

for overall packaged food growth. (Bernstein Research, 2011)

• Companies are seeing whole categories affected and are changing their market strategies by, for example,

acquiring companies that produce ‘healthier’ products or expanding into new healthier product categories.

Litigation risk

• Some companies have already faced litigation for the foods they sell, and how (e.g., McDonald’s and Kellogg’s).

No lawsuit has yet succeeded, but the risk remains. (Stern, 2010, CBS MoneyWatch.com)

• Commentators as far back as 2002 referred to obesity as ‘the next tobacco’ – inferring that governments may at

some point in the future sue companies to recover some of the public costs of treating obesity and related

diseases stemming from food choices and lifestyles. The comparisons continue. (Brownell & Warner, 2009)

Investment case for nutrition: risks

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Emerging markets: Economic growth + population growth +

double burden = revenue growth opportunities

• Globally, 3.7 billion have incomes of less than $8 per day and spend about 50% of their

income on food (est. USD1.3 trillion) (Global Agenda Council for Food Security). As their

income grows, they are likely to increasingly buy packaged foods, representing a large,

untapped market opportunity for companies. Major investors are looking for product

innovation and market penetration from leading food companies.

• A selection of 50 of the top F&B players (including global and regional companies) have

an average penetration of 16 countries and presence in an average of three

categories. A group of developing market players have extensive presence in emerging

markets including Grupo Bimbo, Arcor, Ulker, UniPresident and Indofoods. (McKinsey &

Co for ATNI)

• Consumers are increasingly aware of nutrition issues and seeking specialised

products, especially in Asia, which is driving fortified product sales. (Frost and Sullivan,

2009)

• Companies that are on the front-foot on this agenda are able to capitalise on positioning

themselves as ‘nutrition’ companies and win brand loyalty, market penetration, and

future growth.

• By participating in public-private partnerships to address nutritional deficiencies in-

country, companies can build good relationships and reputations with governments that

may pay dividends in future, in terms of access to markets and preferential treatment.

Investment case for nutrition: opportunities

“PepsiCo (Overweight):

Top pick: The market is

focused on short-term

2011 guidance risk and is

under-appreciating

long-term positives.

Our 7.5% five-year profit

CAGR forecast is well ahead

of the 4% rate the market is

pricing in, driven by

underappreciated growth

potential in emerging

markets and nutrition,

as well as margin expansion

potential illustrated by our

bottom-up analysis.”

Morgan Stanley, 4 Jan 2011

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Mature markets: Innovation in nutrition = revenue growth

opportunities

• Developed markets are mature; hard for companies to increase profits, gain

market share. Introducing (or acquiring) new ‘healthy’ categories or products

may help them grow in these tough markets.

• Health and wellness-focused products are expanding rapidly, with 8 out of 10

of the fastest growing F&B categories inextricably linked to health, e.g. probiotic

drinks: 13%; frozen fruit: 12%; dairy/dairy sub-drinks: 11%. (Dexia Asset

Management, March 2009)

• Healthier foods provide F&B manufacturers with the opportunity to improve

gross margins, including by premium pricing, lowering COGS through

reformulation and reducing packaging size while maintaining a similar retail

price, thus increasing price per volume unit. (Dexia, ibid)

• The top ten new F&B products launched in the US in 2006-7 were products

that help consumers meet their dietary, disease-fighting and weight goals,

without sacrificing taste: Campbell’s Reduced Sodium Soup ($101 million);

Bird’s Eye Steam Fresh Frozen Vegetables ($87 million); Vault/Vault Zero

Regular and Diet Drinks ($70 million). (Dexia, ibid)

• Companies recognise increasing demand for healthier products and are

building new product offerings. Companies are pursuing opportunities to

fortify foods and develop functional foods as well as nutraceuticals – expected

to be worth $175 billion worldwide. (Financial Times, October 2/3, 2010)

Investment case for nutrition: opportunities

“A recent study by Professor

John Speakman at Aberdeen

University showed that

physical activity among the UK

population has not changed

significantly over the past 25

years. But the average calorie

content of the food we buy has

increased markedly, by 12 per

cent per person.

If the fundamental problem is

simply that we eat too much

fattening food … then the most

effective solution is for

manufacturers to make

healthier products …”

The Financial Times, “Big

Food Eyes Profits and PR in

Smaller Waistlines,” October

2/3, 2010

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• ATNI builds on over a decade of experience in rating companies on a

range of environmental, social and governance issues

• 32 initiatives evaluated in designing ATNI to learn from best practice;

continued tracking of existing and new initiatives

Precedents

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Expert Group

Provides advice on

methodology for assessing

companies

Global Stakeholder Network

Widest possible network of stakeholders involved in public consultation on

Index methodology

Funders

Advisors

Management

Independent Advisory

Panel

Provides strategic advice on

stakeholder engagement,

institutional considerations and

financial sustainability

ATNI Project Team

GAIN staff and advisors drive

development and day-to-day

activities

Governance and management

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Scope

Malnutrition coverage:Undernutrition through obesity

Core Index:25 of the world’s largest food and beverage

companies (may include privately held

companies)

Type of company:Multinational corporations and regional companies

Stage of supply chain:Food and beverage manufacturers only

(Upstream, retailers, and food service companies potentially included in the future)

IndiaMexico

South Africa

3 Spotlight Indexes:10 of the largest companies

by F&B revenue in each

market

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200920052000 2008 20101981

International Code

of Marketing of

Breast-milk

Substitutes

2001 2002 2003 2004 20072006

WHO

Strategy for Infant

and Young Child

Feeding

WHO/FAO

Guidelines on food

fortification with

micronutrients

WHO

Special Session

on Children

World Bank

Repositioning Nutrition as

Central to Development

Harvard University

Business action to fight

micronutrient deficiency

The Lancet

Series on

malnutrition

Copenhagen

Consensus

JPMorgan

Obesity:

Reshaping

the food

industry

Insight

Investment/

JPMorgan

The Proof of the

Pudding

Insight Investment/IBLF

A Recipe for Success

ATNI

Synopsis ReportWHO

Reducing Risks,

Promoting

Healthy Life

WHO

Global Strategy on

Diet, Physical Activity

and Health WHO

Recommendations

for Marketing Food

to ChildrenCity University

Analysis of 25 F&B

companies

MDGs

Includes 4

linked to

malnutrition

Foundations of methodology

2011

MIYCN Working

Group

Using the Code of

Marketing of Breast-

milk Substitutes to

Guide the Marketing

of Complementary

Foods to Protect

Optimal Infant

Feeding Practices

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Evaluating the level to which commitment to nutrition is

embedded in core strategy and backed by financial /

human resources

Evaluating the extent of companies’ implementation of

commitments through advertising, nutrition education,

promotion of physical activity and engagement with

policymakers

Assessment of nutritional appropriateness, affordability and

accessibility of representative selection of companies’

product portfolios in Spotlight countries

Nutrition governance

Influencing consumer choice and

behavior

Formulating and delivering

appropriate, affordable, accessible

products

Scores will also be available for each company by

category

Composite score for each

company

ODRCD1

score

Undernutrition

score

Methodology structure

PRODUCT PROFILE

(Spotlight Indexes only)

Evaluating the extent of companies’ implementation of

commitments through R+D, product formulation and labeling,

pricing, and distribution

CORPORATE PROFILE

(Core & Spotlight Indexes)

1 Obesity and Diet-Related Chronic Diseases11

Methodology: Corporate Profile structure

Category Description Criteria

Section 1: Nutrition governance

A Corporate strategy, management and governance A1: Corporate nutrition strategy

A2: Nutrition governance and management systems

A3: External advice

A4: Quality of reporting

Section 2: Formulating and delivering appropriate, affordable, accessible products

B Formulating appropriate products B1: R&D

B2: New product development

B3: Reformulating existing products

B4: Nutrient profiling system

C Product pricing, marketing and distribution C1: Product pricing

C2: Product marketing

C3: Product distribution

Section 3: Influencing consumer choice and behaviour

D Responsible marketing policies, compliance and

spending

D1: Responsible marketing policy: all consumers

D2: Auditing and compliance with policy: all consumers

D3: Advertising spending: all consumers

D4: Responsible marketing policy: children

D5: Auditing and compliance with policy: children

D6: Advertising spending (children) and policy impact

D7: BMS marketing policy (only for BMS module)

E Supporting healthy diets and active lifestyles E1: Staff health & wellness

E2: Supporting consumer-orientated healthy eating and active lifestyle

programmes

F Product labelling and use of health and nutrition

claims

F1. Product labelling

F2. Health and nutrition claims

G Influencing governments and policymakers, and

stakeholder engagement

G1: Lobbying and influencing governments and policymakers

G2: Stakeholder engagement

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Company research process

Complete methodology Desk-based analysisEngagement

meetings

• Extensive

consultation with

funders, Expert

Group and

Independent Advisory

Panel

• Online public

stakeholder

consultation held in

November 2011

• Pilot test of

methodology on

subset of companies

• Review of

companies’ websites,

annual/CSR reports,

and third-party

reports/analysis

• This process

generates the

companies’ initial

scores

• Each company will

be approached for a

meeting to discuss

initial analysis and

score

• Information not

available via desk

research will be

requested from

companies

• Information provided

by companies during

meetings to be

incorporated into

analysis

• Companies to be

provided with final

draft analysis for

input/comment and

to fill remaining

information gaps

• Final score and

rating generated

Verification /

finalization

*

* Please see disclaimer on page 17

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Next steps and long-term proposition

Finalize design

ATNI I (2012)

ATNI II (2014)

ATNI III (2016)

ATNI IV (2018)

• Complete methodology development

• Research conducted to build ranking

• Institutional home established (outside of GAIN)

• First Index ready for launch in late 2012

• ATNI II published in 2014 and on a regular basis thereafter

• Impact regularly monitored against metrics

• Methodology evolves over time to incorporate advances in practice,

new evidence, policies, guidelines, standards, etc.

For more information, please visit www.accesstonutrition.org

Investors: a critical ATNI constituency

Investors are critical stakeholders

Clear strategy for working with

investors

Sign investor statement

Investor perspective factored inMajor ESG investor brands and regional investors in US,

Europe, Asia, Africa, Latin America were consulted

during 2009 research and continue to be consulted

ATNI would strongly welcome suggestions from

investors re activities and project outputs that investors

would find valuable

ATNI aims to make outputs as valuable as possible to

both mainstream investors and Sustainable and

Responsible Investors

ATNI will launch an investor statement in the coming

weeks to garner investor support

ATNI has drawn on the experience of project consultants

and lessons learned from similar initiatives, and

investors are represented on ATNI advisory groups

(GEPF, SAM, F&C, BCAM)

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What investors can do in 2012

Facilitate engagement with

companies

Provide suggestions

Encourage companies to participate in face-to-face

meetings with Index research team

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