Overview
• Company description
• Products
– Market Share
– Supply chain
• Growth catalysts
• Risks
• Valuation
The Company
• Smart Balance distributes heart healthy and low fat
food products (‘functional foods’) in the United
States
• Products include buttery spreads, Popcorn, Oil, Oil
spray, mayonnaise, cheese, Peanut Butter
• $500m market cap
• SB acquired by boulder specialty brands (BSB) in ‘07
for $491m
Notable Features
• #3 player in Margarine (13% of 1.1B market)
• Patented technology for naturally occurring Trans fat-free oils, expires in 2015
• Outsourced Manufacturing - Virtual Business model, focus on Sales and marketing
• No fixed assets, Third part distribution network, National
sales agency (Acosta), Co-manufacturing, Value added
management (Close Relationship With Acosta)
What’s So Special About SB?
• Improves the HDl/LDL ratio (promotes ‘good’ cholesterol)
• Free of hydrogenated oils and trans fatty acids
• Unlike other brands, it doesn’t use sterol or stanol esters
Corporate History
Pre-1996: Robert Harris
(Weight Watchers) starts GFA
brands
1996: GFA licenses a patented blend of natural
vegetable oils
1997: GFA launches
Smart Balance margarine
2005: Boulder specialty
brands (BSB) formed as a blank check
company
2007: BSB acquired GFA and changes its name to
Smart Balance
Capital Structure
Price 7.90
Shares Outstanding 62,000
Market Cap 49,4000
Cash 7,000
Debt 90,000
Enterprise Value 580,000
• Recently recalled all preferred stock and warrants
•Used proceeds to pay down debt
Smart BalanceTM Products
Current Products Recent launches (2007) Future scope (2009?)
Buttery spreads Butter Blend Stick Yogurt
Omega Peanut Butter Milk(with omega-3s and Vit E)
Sour cream
Omega Cooking Oil Cream Cheese Oatmeal
Omega plus light Mayonnaise
Popcorn
Cheese
Sales Distribution& Market Share
Margarine75%
Oils mayonnaise popcorn PB
11%
Earth balance
8%
Other6%
% of Sales Product Market share (2005)
Market share (2007)
Marketshare(2010 E)
Margarine 7% 13% 19.5%
PeanutButter
0.2% 2.4% 3.0%
Popcorn 0.85% 1.9% 2.5%
Butter - 0.025% 4.60%
Milk - 0.017% 0.62%
Margarine is the highest selling category
Growth in Individual product category
19.8% 19.1% 19.0%18.0% 17.6% 17.5%
13%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
San Francisco
New York Portland Boise Denver Seattle Total US
Smartbalance Mkt Share
Select Markets
Target Market
1B
5B
25B
0
5
10
15
20
25
30
Core (margarine)Initial Expansion (oil, PB, popcorn, mayo)Target Expansion (cheese, cream cheese, milk, other)
Market Size ($Billion)
Supply Chain & Control
Outsourced Manufacturers
Third party Distributors, Warehouses Supermarket chains
• Business model that works on 50 employees
• Consultants at each site, quality control reportsNegotiate certain commodities & packaging costs with suppliers
Price = Cost of ingredients + Packaging + Fixed toll charge
Pay monthly handling and logistics fees, freight charges
Internal sales force and sales agency Acosta, Inc.
Leading Customers
• Wal- Mart
• C&S Wholesale
• Kroger
• Publix
• Safeway
Growth Catalysts
• Rapid growth of the company
• Expansion in product lines & consumer retention
• Increase marketing spending
• Great management
• Drivers of functional food industry
• Penetration opportunity
Expanding Product Lines & Consumer Loyalty
• Expansion into other product lines –cheese, milk, cream cheese
• Ability to retain old consumers and attract new ones
57%
42% 42% 46%
33%
50%41%
35%
Smart Balance
Mayonnaise w/ Omega
Smart Balance
Cooking Oil
Smart Balance Popcorn
Smart Balance Peanut
Butter w/ Omega
Analysis of consumers
% tried SB Spreads % New to SB
• Increase in marketing spending, and target population base
– Increase marketing expense from $20m to $40m
– Research on consumers: 80% revenues generated by 2-4m of 44m potential households
– Pay higher slotting fee
Increase Marketing
High-caliber leadership –Stephen Hughes
• CEO – Stephen Hughes (25 years)– (1988-1992) led the development of Healthy Choice frozen food line
(revenues grew from 0 to 1B)
– (1994-1996) executive vice president of Tropicana Products (Led turnaround of US business, increasing sales from 1B-2B in four years)
– (1997-2000) CEO of Celestial Seasonings (Grew Revenue from 75-125m)
– (2000-2002) CEO of Frontier Natural Product
– (2002-2004) White Wave Foods (Part of Dean Foods) Grew Silk brand from 175-400m in two years
• CFO – Bob Gluck– Bestfoods
– Unilever
• Management Stock Ownership: 6%
Functional Foods Growth
• Functional foods industry extremely attractive –growing at a healthy rate
• Baby Boomers
• Cardiovascular disease - #1 killer of Americans claiming 36m lives each year, affecting 80m more
• 70% Americans are overweight, of which 30% are obese
Low Penetration, High Growth = ‘Smart’ Opportunity
5%-1%
6% 9%
52%
40%
2% 3%
Breakfast Foods Fresh Juice Dressings & spreads
Dairy (milk, butter)
Y/Y growth Functional food penetration
SB product categories: Dairy & condiments, dressings spreads, sauces – low penetration and high growth
• Strong Insider Buying
• Large hedge funds in stock, more coming in
• O. O. S. Capital
Insider Buying /Large Institutions
It tastes good..
Our Final Pitch
• American Culinary ChefBest award:
judged best among
competitors
• Great consumer reviews and brand
loyalty
Product Concentration Risk
• margarine, PB and Popcorn accounted for 85% of ‘07 sales
Wal-Mart
• Customer concentration risk : Top three customers = 32% of sales
• Wal-mart = 13%
• However, wal-mart is the biggest player for most other products as well!
• Gives higher exposure to consumers
Commodities
$-
$0.50
$1.00
$1.50
$2.00
$2.50
Milk - Last 12 months (Per Pound)
Milk - Last 12 months
Commodity prices : Spike in milk price
Formidable Competition
• Competition from well establishes brands (Unilever, ConAgra, JM Smucker, Act II, etc.)
– SB margarine sales grow in spite of dip in market
Peanut Butter Market Share
36.50%
23% 21.90%
5.50%3.70% 2.40%
33.40%
20.30%19.70%
5.10%
13.10%
1.50%
Jif Skippy Private Label Smuckers Peter Pan Smart Balance
2007 2006
Popcorn Market Share
38.9%
22.1%
13.6%11.6%
7.0%
1.9%
39.1%
23.0%
12.1% 11.4%
7.5%
2.0%
Orviller Redenbacher
Pop Secret Private Lable Act II Jolly Time Smart Balance
2007 2006
Butter Spread Market Share
22.1%
19.5%
13.2%
7.5% 7.1%5.6% 4.8%
22%
19%
12%
8%7% 6%
5%
Shedd's Spread
I Can't Believe its Not Butter
Smart Balance
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