TATA BEVERAGES

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TATA BEVERAGES

• Tata Tea Limited
• Presentation to Analysts
• September 1, 2006

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Outline of Presentation

• Tata Teas Beverage Business
• Recent Trends in Beverage Sector
• Glaceau Strategic Rationale
• Acquisition Structure
• Strategic Benefits and Synergies

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Tata Teas Beverage Business
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Evolution of Tata Tea

• A minor player for brands with instant tea
  operations in the early 60s
• Acquired plantations from James Finlay, became
  plantation major in 80s
• Pioneered the polypack revolution in the late 80s
  commenced branded operations in a large way
• Acquired a controlling stake in Consolidated
  Coffee Ltd, Asias largest coffee company in 1990
  
• Coffee plantations and instant coffee businesses
  purchased in the 90s ultimately merged into a
  single entity
• Acquired Tetley in 2000 the single largest
  overseas acquisition by an Indian company at that
  time
• Exiting from plantations to focus on growing the
  beverage agenda

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The Tetley Acquisition

• The worlds No 2 tea brand
• Presence in over 40 geographies with significant
  market leadership in key markets
• Benchmarked capabilities for tea sourcing,
  blending and driving innovation
• A stable, profitable company which enabled
  service of acquisition finance

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Rationale for the Tetley Acquisition

• Tata Tea developing markets
• Tetley the developed markets

No 2 Global Player in tea, stretching across entir
e value chain
Tea Estates
Branded Packet Tea Operations
Blending Operations
Teabags Technology
Global Teabags Brand Evolved Beverages
Global Sourcing/ Blending
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Tetley Post Acquisition Initiatives

• Brand re-launch in UK on health and well being
  platform
• National roll out of Softpack in UK
• Successful entry into the fruit herbal space
  specialty teas
• Market share growth in key geographies drive
  strategy
• Supply chain restructuring in UK, USA Australia
• Sale of Private label capacity in US
• Transfer of food service retail capacity in US
  into production JVs
• Two successive refinancing steps reduce finance
  costs and releases funds for growth
• Recent acquisition of Good Earth, USA Jemca,
  Czech Republic
• EBITDA increases by 60 post acquisition

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Tata Tea Consolidated Growth
Strategic measures and acquisitions have led the
growth over years
Rs. Crore
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Tata Teas Geographic and Product Expansion

• India significant Tata branded presence 2nd
  largest market share at 20.6
• Tetley market leader in UK (26) and Canada (36)
• Presence in Australia, Pakistan, Bangladesh and
  other geographies
• US some presence through Tetley and Tata Tea
  Inc (instant tea)
• Recent strategy recognises global shift to new
  forms of tea
• Acquisition of Good Earth in US specialty tea
• Acquisition of Jemca in the Czech Republic
  Europe specialty tea
• Proposed technology based JV in China to produce
  and market green, white, instant teas,
  polyphenols and green tea extracts driving new
  age beverage growth in Japan, the Far East and
  the US

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Evolution of Tata Coffee

• Tata Tea acquired a controlling stake in
  Consolidated Coffee Ltd in 1990
• Asian Coffee Ltd acquired in 1992
• Asian Coffee Ltd and 2 smaller plantation
  companies Coffee Lands Ltd Veerajendra
  Estates Ltd merged into Consolidated Coffee Ltd
  in Sep 1999
• Consolidated Coffee Ltd. renamed Tata Coffee Ltd.
  in April 2000
• Tata Coffee Ltd. acquired High Hill Coffee (P)
  Ltd, a start-up Soluble coffee plant in 2004 and
  merged with Tata Coffee in 2005
• Acquired Eight O Clock Coffee, a specialty
  coffee brand in USA in 2006

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International Recognition for Quality

• Won over 35 of the awards at the Flavor of
  India The Fine Cup Award at Bangalore, 2002
  at Boston,USA, 2003, at Trieste, Italy 2004
  at Seattle, USA 2005.
• Kenneth Davids, a coffee expert from US
  commissioned by Coffee Board, to select portfolio
  of 10 best Indian coffees in 2004. Six of these
  were from TCL
• Won the award for the Best Robusta in the world
  at Paris in 2004
• TCL selected for supply of premium coffee to
  global premier coffee chains such as Starbucks
  and Illy Café

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How We Handled The Plantation Crisis

• Drop in Coffee Price to a 100 Year Low in 2002-03

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Robustness of Our Financial Results During
Plantation Crisis
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• In spite of the worst years for coffee, the
  company made profits
• Instant coffee buoyed the profitability despite
  the plantation crisis
• This strategy continues to be extended
• Entered the upmarket freeze dried coffee to
  complete the full range of coffee offerings
• Entered tea plantations
• Expanded into branded coffee with the
  acquisition of Eight OClock Coffee
• Plan to sell freeze dried coffee as Eight
  OClock brand

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31.5
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Rs. Crore
Bottomline insulated from over-dependence on any
one stream of income
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Initiatives - Soluble and Freeze Dried Coffee

• Soluble Coffee - 100 Export Oriented Unit with
  an export volume of 5,000 MTs to Russia, CIS and
  South East Asia
• 2 production centers at Hyderabad and Madurai
• Freeze dried coffee is the premier offering under
  the soluble coffee range
• Top of the line product commanding a healthy
  premium with growing demand
• Will now explore using Eight OClock Coffee as a
  brand for our markets
• Optimization of raw material cost by RD efforts
  and introduction of other origins - Vietnam
  Indonesia
• Enhancement of agglomerated coffee production

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Initiatives - Africa

• Enter Uganda
• Large coffee producer
• Very competitive input prices
• Government committed to value added exports.
  Various incentives extended for exports
• Coffee the main export earner
• Positive socio-political environment
• Tata International very positive about economy
  and law order situation
• Educated English speaking workforce
• Entry level barriers expected to be relaxed by
  the importing countries due to Ugandas Least
  Developed Country status
• Our efforts are to enter European markets through
  Africa with both bulk and brands

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The EOC acquisition completes the value chain for
Tata Coffee

• To emerge as one of the leading players in the
  coffee industry
• To move up the value chain by adding value to all
  products and operations
• To provide customers with a range of products of
  high standard and value in every segment

Tata Coffees vision mission
Tata Coffees current business profile

• EOC fulfills Tata Coffees vision for its business

Best beans

• Strong brand with over a 85 year old history
• Sells 100 Arabica Whole bean and ground
• Attractive positioning Premium coffee at an
  affordable price
• Third largest U.S. retail coffee brand by volume
• Premium packaged products
• 20 SKUs selling through grocery, mass retailers
  and food service and club outlets

Best processing facilities
Branded presence
Value added products
Marketed as commodity/ 3rd party labels
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Tata Coffee plans to leverage the EOC brand for
its future products and markets
Tata Coffee plans to leverage the EOC brand for
its future products and markets

• Create brand presence in roasted ground coffee

• Extend brand to instant coffee

• EOCs 150 year old coffee history and experience
  in the Roast Ground segment presents an
  opportunity to establish presence in RG markets
  world-wide
• Tata Coffee plans to use EOC as an umbrella brand
  to introduce other coffee variants
• Tata Coffees future plans for growth through
  initiatives like out-of-home coffee are aligned
  with EOCs business growth plans

• Tata Coffees biggest market is Russia
• Western brands perceived to be superior to Asian
  brands in Russia
• Mostly sold through 3rd party labels
• Opportunity to extend EOC brand as an umbrella
  brand for instant coffee in Russia
• Potential to extend brand to premium freeze dried
  offering from November 2006
• Potential to extend brand to Eastern Europe and
  other countries

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Tata Teas Consolidated Beverage Business
2005-06 Sales Breakdown
Brands account for 89 of sales
65 of sales are in the developed markets
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Recent Trends in Beverage Sector
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Recent Trends in Beverage Sector

• The conventional tea and coffee segments showing
  a stable growth
• Developed markets showing clear trends in favour
  of unconventional drinks such as enhanced water,
  which contain elements such as vitamins, natural
  fruit flavour and electrolytes
• Promote health and fitness, enhance wellbeing -
  responsible hydration
• Beverage market moving from the conventional to
  the new age
• Tea is morphing itself into a health drink -
  Convergence taking place in the beverage sector
• Water is a key strategic resource of the future

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US Beverage Sector Trends

• Carbonated soft drinks form the largest but
  slowest growing US beverage segment
• Consumer demand continues to shift significantly
  from carbonated soft drinks to healthier,
  non-carbonated, functional beverages
• A strategic slice of the beverage market is
  opening up for health based products tea,
  coffee, water, fruit juices
• The enhanced and flavored waters market is
  experiencing the highest growth rates of all US
  beverage segments - expected to grow to 8.6bn
  in 2010, a 31.8 CAGR

Forecast Flavoured Enhanced Water Market (2000
2010e)
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Source Zenith International
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Tata Tea Directional Change

• Tata Tea bringing about directional change to
  capitalise on the convergence trends in the
  beverage sector
• Tea becoming a health drink
• Specialty teas herbal, polyphenol based, green
  and white teas
• Enhanced waters, such as Glacéaus products, is
  the hottest segment in the functional beverage
  segment

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Glaceau - Rationale
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Glaceau Acquisition Strategic Rationale

• Acquisition of Glaceau clearly meets Tata Teas
  step-change expansion strategy
• Market leader in enhanced waters
• Enhancing beverage portfolio within high growth
  new age segment
• Health / well-being / ethical fit
• Geographical expansion in the key US market,
  which is currently under-represented
• Strong US and potentially global brand
• High-growth
• Significant growth opportunity for the brand both
  within the US and internationally
• Synergy between Tata Teas existing US beverage
  businesses and Glaceaus operations

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Glacéau Overview

• Founded in 1996 by J. Darius Bikoff
• Created the enhanced water market
• Clear number one player in the enhanced water
  segment
• Three products lines vitaminwater, smartwater,
  fruitwater
• Vitaminwater range includes green tea and
  polyphenol-based products
• Products distributed in all US states
• Visionary management team with proven
  entrepreneurial skills and long-time industry
  managers with experience in beverage majors
• Zenith International

591ml
1l
591ml
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Glaceau - The Brand

• Glaceau Vitaminwater is among the 10 brands
  that have rocked the world as per Advertising
  Age, the authoritative marketing journal

Unsolicited celebrity endorsements Named
Hollywood Hydration by In Style magazine
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Acquisition Structure
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Glaceau Acquisition Valuation and Comparables

• Gatorade, a comparable sports/fitness drink, grew
  in sales from 1.6b in 2001 to 3.1b in 2005
• Monster (Hansen Natural), a recent entrant in the
  health drink segment, estimated sales over 600m
  in 2006
• Hansens valued 18 times EBITDA at its current
  traded value of over 2.7b
• Pepsi and Coke witnessing stagnation in their
  sales growth
• Yet valued at 15 times EBITDA

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Comparable Companies - Hansen
Sales m
EBITDA m
349
180
105
110
Market Cap 2718 mn
Market Cap 1738 mn
35
Market Cap 388 mn
Market Cap 87 mn

• Hansen is valued 18 times EBITDA

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Comparable Companies

• After being acquired by Pepsi in 2001, Gatorade
  has almost doubled sales on a base of 1.6
  billion
• Hansen expected to cross 1 billion sales in 2008

Sales m
3100
2700
1600
2300
2000
349
180
110
86
175
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Acquisition Structure Key Terms

• Tata Tea GB (Tetley) to acquire 30 of Energy
  Brands Inc. the parent company of Glacéau for
  677m
• Includes stake of Shansby Group, the exiting
  shareholder
• Founders and management retain equity stake and
  continue to drive growth of the business
• Tata Tea GB will receive two board positions on a
  five-person board, including right to nominate
  Chairman

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Acquisition Structure Key Terms

• Tata Tea GB can purchase additional shares to
  increase its investment to 40 of the Company
• No dividends to be paid out until 2009, but can
  be considered thereafter based on the performance
  of Glaceau
• Or earlier at the time of IPO

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Acquisition Structure Indicative Financing

• Outlay 677m plus costs for Tata Tea GB
• The investment to be financed by an injection of
  new equity into Tata Tea GB by
• Tata Tea Ltd - 192m
• Tata Sons Ltd 58m
• The balance amount will be debt financed by Tata
  Tea GB
• Tata Tea GBs additional debt capacity to be
  utilised

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Strategic Benefits and Synergies
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Strategic Benefits for Tata Tea

• Change in business mix
• Tata Teas business mix to include significant
  sales from high growth new age drinks a more
  balanced portfolio of brands from different
  beverage segments
• Reduced impact of cyclicity of tea and coffee
  businesses
• Stronger brand presence
• Global focus on beverage brands
• Opportunity to achieve greater globalisation
• Taking the Glaceau brands to new geographies
  within developed markets outside the US
• Developing opportunities in emerging markets
  (including India) with new or adjusted formats

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Operational Synergies

• Pooling of global talent within Tata Teas
  beverage businesses to develop and execute an
  integrated business plan
• Cross-utilisation of distribution channels for
  tea, coffee and enhanced water sales
• Coordination of a US beverage growth agenda for
  Tetley, Good Earth and Eight OClock Coffee and
  Glaceau
• New Product Development integrated NPD and
  applications across Tata's beverage businesses

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Financial Synergies/Benefits

• Tax shield on interest paid on debt to finance
  the acquisition
• Avoidance of double taxation of any dividends or
  capital gains repatriated from the US
• Savings in distribution and marketing costs in
  the US
• Tata Tea GB will be able to consolidate the
  earnings of Glaceau to the extent of its 30
  ownership

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Presence Unfolding in the Crossover Beverage
Space
Glacéau
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Avenues of Growth
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THANK YOU