INVESTOR PRESENTATION BB&T CONFERENCE STEVE HUGHES | CHAIRMAN & CEO
FORWARD LOOKING STATEMENTS
This presentation may contain forward-looking statements within the meaning of the safe harbor provisions of the Securities Litigation Reform Act of 1995. Terms such as “expect,” “believe, ”continue,” “going forward,” and “grow,” as well as similar comments, are forward-looking in nature. Actual results may differ from these forward-looking statements and the company can give no assurances that such expectations can be attained.
Factors that could cause actual results to differ materially from the Company’s expectation include: general business and economic conditions, competitive factors, raw materials purchasing, and fluctuations in demand. Please refer to the Company’s Securities and Exchange Commission filings for further information.
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CORPORATE VISION
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Create a health & wellness innovation platform that builds brands targeted at highly motivated consumer need states.
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INVESTMENT HIGHLIGHTS
Health & wellness innovation platform that provides superior-tasting, solution-driven products in every category it enters.
Over the past year the Company has transformed itself into a major player in Natural with the acquisitions of Glutino and Udi’s.
Leveraging the core spreads and grocery margin/profit structure to focus on “premium” segments and drive growth in its natural brands -- Udi’s, Glutino & Earth Balance.
Business model that generates significant free cash flow.
Quality and experienced management team with brand building expertise.
CORPORATE STRATEGIES
Innovate, introduce new products and expand distribution in Natural:
• Udi’s • Glutino • Earth Balance
Maintain strong profitability in Smart Balance segment:
• Innovate with Smart Balance Spreadable Butter & focus on “Premium” segment of spreads & enhanced butter
• Improve Smart Balance enhanced milk profitability
Leverage health & wellness by acquiring brands/science with the following:
• Emanate from the natural channel • Focus on “consumer need states” • Have category expansion potential
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HIGHLY TARGETED INVESTMENT PLAN
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Core products’ profitability is the fuel for innovation platform
• Earth Balance® • Glutino® • Udi’s®
INNOVATION: INVESTMENT TO FUEL GROWTH
CORE PRODUCTS: PROFIT FOUNDATION
• Core spreads • Grocery • Smart Balance
Enhanced Milk®
STRATEGY ONE
Grow products & distribution in Natural Segment
TRANSFORMATIONAL ACQUISITIONS
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Udi’s & Glutino transactions have transformed business: • Increases the Company’s mix
to “Natural” brands • Accelerates organic growth
DISTRIBUTION POTENTIAL
33.6
15.5
NATURAL – GLUTEN FREE
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Grow products & distribution in Natural Segment
BRAND SUMMARY
Period Ending 9/30/12
TTM Sales $66.5M $78.2M
TTM Consumption Growth 35% 70%
Average Items at Conventional 9.4 6.1
Average Items at Natural 35.7 21.2
Categories/SKUs 70 SKUs in 12 categories 46 SKUs in 4 categories
Manufacturing/Co-Pack 40%/60% 90%/10%
Function Helpful and Trustworthy, Breadth of Offering Delicious, ‘Foodie Quality’
Product Position Great GF knock off of best selling gluten full items
Artisan Quality, Best tasting GF products sold
Category Strength Dry Grocery Frozen/Ambient Bakery
GLUTEN FREE GROWTH
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Gluten-free is one of the fastest growing categories in food & is expected to double in the next five years.
U.S. GLUTEN-FREE CATEGORY SIZE *
$0.6bn
$2.6bn
$5.5bn
2004
2010
2015E
2004–2010 CAGR: +28%
2010–2015E CAGR: +16%
* Source: Packaged Facts Gluten Free Foods and Beverages in the US, third Edition (February 2011). Category size estimate as per Packaged Facts. Other market research sources estimate 2010 gluten-free foods size to be $1.7 billion (G.I.A.), $1.2 billion (Euromonitor) and $1.2 billion (LEK).
Growing base of “core” consumers 3 million diagnosed with Celiac disease
Expanded adoption by health andwellness consumers
Another estimated 40 million Americans suffer from non-celiac gluten intolerance
An even broader appeal among other consumers looking to mitigate symptoms of other medical conditions
Increasing penetration of Conventional retail channel
Continued introduction of new gluten-free products
GLUTEN FREE MARKET
GLUTEN FREE PRODUCTS
RENOVATION OF PRODUCTS
Udi’s & Glutino - Packaging upgrades Glutino - Ingredient/health profile improvement
INNOVATION OF PRODUCTS
15 new items in 2012, including snacks & pasta - Glutino
More than 20 new items to be introduced in 2013
GLUTEN FREE PLACEMENT
• Focus on innovation with natural food channel • “Greenhouse for new products”
• Increase # of items/SKUs sold at conventional supermarkets • Ultimate goal of gluten-free set
2.5
15.8
PLACEMENT OPPORTUNITIES
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Udi’s • Freezer • Bakery • Grocery • Gluten-free Sets
Glutino • Freezer • Grocery • Gluten-free Sets
Improve margin through supply chain efficiencies & purchasing
GLUTEN-FREE PROFIT
Leverage G&A, selling, marketing & distribution costs
EARTH BALANCE
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Grow products & distribution in Natural Segment
BRAND SUMMARY
Period Ending 9/30/12
TTM Sales $36.3M
TTM Consumption Growth 27%
Average Items at Conventional 1.8
Average Items at Natural 15.3
Categories/SKUs 22 SKUs in 4 categories
Function Plant-based; 100% vegan
Product Position 0 Trans Fats; dairy-free; egg-free; gluten-free
Category Strength Spreads & Nut Butters
BUILDING A PROMISING PLATFORM FOCUSED ON THE PLANT BASED DIET
Soymilk
Nut Butters
Spread
2009
Mayo
2010 2011 2012 2013
Snacks
Innovation resulted in revenue CAGR > 20% over past two years
2012 introduced two culinary spreads - “Best of Expo East”
Coconut Peanut Butter picked as one of “Oprah’s Favorite Things 2012”
Late-2012 launching into snack category with non-dairy/vegan popcorn & puff
GROWTH THROUGH INNOVATION
STRATEGY TWO
Maintain strong profitability in Smart Balance segment
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HOLD PROFITS STEADY IN SMART BALANCE SEGMENT
In a difficult category, goal is to hold profits steady for core SB Spreads and Grocery & to invest in growth platforms: • Udi’s • Glutino • Earth Balance
Package refresh in core SB Spreads and Grocery Repositioning and reemphasis of brand benefits
Innovation with Better Butter • Smart Balance® Spreadable Butter • Better Butter Stick launch
Improve Profitability in Milk • Grow scale with new test product category • Cut back to profitable regions & accounts
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SMART BALANCE GROWTH
1996: Smart Balance formed - around a patented blend of natural vegetable oil.
1997: Company launches Smart Balance - heart-healthier margarine with no trans fats.
2007: Boulder Specialty Brands acquires GFA Brands.
2008 – 2010: Company invests approximately $150 million in marketing.
2011: Company leverages marketing spend and grows COI 28%.
2012: Introduces Spreadable Butter to compete in “Enhanced Butter” Category.
SPREADS & BUTTERS
Source: Nielsen through 8.4.12
Omega-3s
100mg Plant Sterols
Excellent Source of Omega 3
Omega-3s
Phytosterols
Vitamin D
Flax Oil
STRATEGIC THOUGHT LEADERS IN SPREADS
Patented blend of natural vegetable oils
Naturally trans fat free
Naturally cholesterol free
INNOVATION
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INNOVATION WITH SPREADABLE BUTTER
Butter category is $1.6B in size; Spreads category is $1.3B.
Spreadable Butter sub-segment is fastest growing category in Butter category:
• Growth is driven by LOL (over 75% share of Spreadable Butter)
Elevate Heart-health Leadership in Butter Category:
• 100 mg Plant Sterols to help block cholesterol absorption
• Excellent source of Omega 3 EPA/DHA to maintain heart health
Abs: +116%
$ Growth: ’07-11 CAGR: +19% Abs: +116%
SMART BALANCE SPREADABLE BUTTER
Smart Balance Spreadable Butter 7.5oz
Smart Balance Light Spreadable Butter 7.5oz
Smart Balance Spreadable Butter w/EVOO 7.5oz
100mg plant sterols and an excellent source of Omega-3 EPA/DHA.
100mg plant sterols and an excellent source of Omega-3 EPA/DHA, and half the fat/half the calories vs. Original and
EVOO.
Extra Virgin Olive Oil with 100mg plant sterols and an excellent source of
Omega-3 EPA/DHA.
Elevate Heart Health Leadership in The Butter Category
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HEALTHY PREMIUM VOLUME GREW 2% Soy
21%
Enhanced 8%
Lactose Free 22%
Organic 37%
Other 12%
Healthy Premium Milk by Segment
Grocery Channel Full Year 2011 versus 2010
Note: All Other includes almond milk, acidophilus, rice milk and goats milk
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EXPANDING CATEGORY REACH DRIVEN BY MILK
Exceptional benefits and great taste Enhanced Milks: • “Fat free milk that tastes like 2%;” “Low-fat milk that tastes
like whole milk” • Varieties include lactose free, excellent sources of DHA/
EPA Omega-3s and plant sterols.
Focused on driving profitability through one or both of the following: • Grow scale with new test product category –Kids Milk. • Cut back to profitable regions & accounts.
STRATEGY THREE
Leverage health & wellness platform by acquiring brands/science
ACQUISITION STRATEGY
ACQUIRE BRANDS WITH THE FOLLOWING CRITERIA: • Emanate from the
natural channel,
• Focus on consumer need states,
• Are brand elastic – across categories
FINANCIAL PERFORMANCE
STRONG HISTORICAL PERFORMANCE
$ in millions ¹Reconciliation to GAAP is in appendix in the back of the presentation
Historical COI Historical Sales
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FY-2011 vs. FY-2010
$ in millions 2011¹ 2010¹ Change
Net Sales $274.3 $242.0 13.4%
Gross Profit 123.9 116.8 6.1%
Gross Margin 45.2% 48.3% (310 bps)
Adjusted Operating Income 29.7 16.7 78%
Cash Operating Income 42.3 33.0 28%
Adjusted E.P.S. $0.26 $0.11 136%
¹Reconciliation to GAAP is in appendix in the back of the presentation
STRONG HISTORICAL FREE CASH FLOW
¹Reconciliation to GAAP is in appendix in the back of the presentation
2013 PRIORITIES
Hold the Line on Profits for Core (Spreads & Grocery) & Rejuvenate Smart Balance ® Spreads • Smart Balance® Spreadable Butter • New packaging
Integrate Glutino and Udi’s acquisitions – “3 P’s” • Invest in growth (Product & Placement) • Improve upon hybrid production model/supply chain (Profits)
Broaden the Earth Balance® brand • Leverage the Greenhouse - Capitalize on Earth Balance success
through more product introductions in the natural channel • Expand into grocery
2012 Outlook • Net sales: $360M-$370M • Cash operating income: $53M - $55M
2013 Outlook • Net sales: $440M-$450M • Cash operating income: $70M - $75M
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INVESTMENT HIGHLIGHTS
Health & wellness innovation platform that provides superior-tasting, solution-driven products in every category it enters.
Over the past year the Company has transformed itself into a major player in Natural with the acquisitions of Glutino and Udi’s.
Leveraging the core spreads and grocery margin/profit structure to focus on “premium” segments and drive growth in its natural brands -- Udi’s, Glutino & Earth Balance.
Business model that generates significant free cash flow.
Quality and experienced management team with brand building expertise.
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APPENDIX
NON-GAAP DEFINITIONS & USES
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Non-GAAP Financial Measures The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company uses the terms "EBITDA", "Adjusted EBITDA," "adjusted operating income," “cash operating income” and "earnings per share (EPS) excluding non-cash and one-time charges" as non-GAAP measures. The Company believes that these measures better explain its profitability and performance consistent with the way the investor and securities analysts evaluate our Company in the competitive environment in which we operate. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding certain non-cash and one-time charges. Cash operating income is defined as operating income excluding depreciation, amortization of intangibles, restructuring, stock based compensation expense and other one-time items. The Company believes that the exclusion of both non-cash and one-time charges, provide a better reflection of the operating profitability of the Company, and strongly compliment the Company's planning and forecasting models used in providing investors and securities analysts with important supplemental information regarding the Company's underlying profitability and operating performance. However, non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's results prepared in accordance with GAAP. In addition, the non-GAAP measures the Company uses may differ from non-GAAP measures used by other companies.
SMART BALANCE NON-GAAP RECONCILIATION