Industry Update Consumer Products 22 July 2020 Derek Dley, CFA | Analyst | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.869.7270 Luke Hannan, CPA | Associate | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.869.6618 Company Rating Price Target Consumer ESG themes Beverages PRMW-NYSE Buy US$13.71 US$15.00 Key themes impacting the sector Consumer Products While the Consumer Products space consists of several sub-industries, our conversations MFI-TSX Buy C$27.46 C$39.00 with both institutional investors and Consumer Products companies have given us Priced as of close of business 20 July 2020 some insight into what we believe are the most relevant ESG factors across the space. We believe reducing carbon intensity remains front of mind for both companies and investors, as is likely the case for many of the sub-indexes in the TSX. The push to lower carbon emissions has strengthened and is expected to continue to intensify. Many of the companies within our coverage universe have established targets for reducing carbon emissions and carbon footprints; however, we believe this is now essentially table stakes for companies in this space. Another theme we believe is of key interest to investors looking at the Consumer Products space is the ability of management teams to react to changes in shifting consumer trends, such as a focus on sustainability throughout the supply chain, and a greater penetration of e-commerce. We believe the COVID-19 pandemic further sharpened investor focus on how management teams adapt to rapidly changing environments. In our view, this all boils down to companies implementing strong governance procedures, fostering input from leaders with a variety of different backgrounds, and developing a culture that embraces new thinking and creativity. How do we measure company performance? A select group of the companies we cover have implemented formal carbon emission reduction targets over the near and medium term. Some have gone the extra mile to release annual sustainability reports, whereby explicit targets and metrics are provided. We believe companies that provide shareholders with detailed updates regarding their sustainability metrics, ideally on a quarterly basis, are most likely to gain the attention of ESG-focused investors. Which companies are doing it best? Within our Consumer Products universe, two companies that stand out in terms of providing and executing on ambitious ESG goals are Maple Leaf Foods and Primo Water Corp. Maple Leaf has provided a target of reducing its carbon footprint by 50% by 2025. Also, in November 2019, the company announced it was the first large-scale food processing company to achieve carbon neutrality – an impressive feat. Furthermore, Maple Leaf has a goal of achieving 50% gender equality at the management level by the end of 2022. And perhaps most importantly, Maple Leaf is a global leader in the production of sustainable protein, with animal welfare and plant-based protein being two major areas of focus for the company. The company also provides a sustainability report to help investors track its ESG progress. At Primo Water, Eden Springs has achieved carbon neutrality, and is the largest carbon-neutral provider of water and coffee services in Europe. In North America, the company has a target of achieving carbon neutrality by 2022. The company’s plastic water bottles are recycled and reused ~60 times before being ground down and rebuilt, leading to a very environmentally friendly product offering. Primo Water appointed Shayron Barnes-Selby as VP Governmental Affairs and ESG in 2019, while also developing an ESG governance committee at the board level. Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX) The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all the companies and securities that are the subject of this report discussed herein. 22 July 2020 4