A Closer Look: KKR Capstone. March 12, 2012

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1 A Closer Look: KKR Capstone March 12, 2012

2 Welcome Henry R. Kravis

3 Overview Dean B. Nelson

4 The Evolution of KKR s Value Proposition European North American Asian Private Private Equity Private Equity Equity KKR Capital Markets KKR Capstone Operational Support Public Affairs Energy Infrastructure Special Situations 4

5 Operational Improvements are Core Invest based on insight and potential EBITDA growth drives value: driven by revenue, cost, and capital efficiency initiatives Drive a sustained improvement in EBITDA trajectory Identifying opportunities is easy; executing them is hard 5

6 Intensive Focus on Driving Revenue Growth While much of our work helps our companies with cost and capital efficiency, enormous emphasis is placed on initiatives to grow revenues Revenue growth is critical: you can t cost-cut your way to sustainable high returns Material Revenue Growth Drives Higher Returns 12.1% 23x 2.3x 7.8% 1.9x Revenue (1) 1 EBITDA (1) MOIC of Companies with Revenue 1 Growth >4% (1) MOIC of KKR Investments since Inception Note: Portfolio companies included may not be representative of the entire portfolio, and results may not be typical. (1) Portfolio companies with greater than 4% revenue growth, located in Western Europe and the US with annual revenue greater than $500 mm, and original investment made between 4/2004 and 7/

7 KKR Capstone s Operating Model Support late-stage due diligence Help develop 100-Day Plan and operating metrics Resources on the ground, working with management Involve outside resources with specific, deep expertise Build capabilities to sustain improvement Move on! 7

8 Global Operational Model with Significant Resources North America Europe Asia KKR Capstone Senior Advisors Aligned with KKR model on compensation and organizational structure 8

9 KKR Capstone Partnered with ~90% of KKR s Portfolio (1) Modern Dairy Note: Portfolio companies identified above may not be representative of the entire portfolio. (1) Percentage calculated by dollars of KKR equity invested rather than by number of KKR portfolio companies. Includes companies in funds subsequent to the 1996 Fund, which was not contributed to KKR in the Combination Transaction, excluding Harman, Legg Mason, and CICC. 9

10 We Drive Significant Procurement Savings in Our Portfolio Cost saving opportunities are large in both indirect and direct spending Cumulative Annual Run Rate Savings ($ in mm) $600 $549 $500 $467 $400 $300 $200 $223 $152 $211 $100 $77 $52 $99 $0 $ Indirect Direct 10

11 2011 Enhancements in Procurement Value Engineering Raw Materials eauction Global Capabilities 11

12 Cross-Portfolio We execute multiple programs across our portfolio that improve our businesses Includes environmental results through Green Portfolio Program, which generated savings of $367m and 816 thousand metric tons of carbon dioxide from Green Portfolio North America Europe Asia Total Companies Wellness Total Companies 3 6 Responsible Sourcing Total Companies

13 The Impact of 2011 Operational Improvements Benefits from broad range of cross- portfolio services 60+ discrete initiatives at 20+ companies on three continents 13 $530 million of incremental run-rate EBITDA impact from 2011 projects alone (1) Note: Past performance is no guarantee of future results. (1) Aggregate run-rate EBITDA impact of work performed at portfolio companies during 2011 with direct involvement of KKR Capstone. Company totals based on 2011 financial results, budgeted plans for 2012, management forecasts, and team estimates. Excludes the impact of 2011 savings from Green Portfolio Program as figures have not been finalized.

14 Case Study: Oriental Brewery Vini Letteri

15 Company Overview Domestic Product International Product Purchased from AB InBev in 2009; KKR s 1 st investment in Korea #2 beer producer in Korea; 41% national market share One-firm KKR team, including KKR Capstone, KKR Capital Markets, and Global Public Affairs contributed to success KKR not highest h bidder; only non-local l PE firm Source: 15 Oriental Brewery data.

16 Operating Improvement Investment Thesis KKR Capstone Role Played key role in diligence; identified operational improvement areas On ground day 1 with OB team executing key initiatives Full team engaged for 24 months post-acquisition Monitoring sustainability of initiatives Value Creation Carve-out to stand up business Procurement practices Wholesaler management program New product development Sales force effectiveness Green Portfolio Program Inventory management Export growth 16

17 Wholesaler Management Which wholesalers should be prioritized? Marke et Overv view C ustomer Focus Wholesale sales model Every wholesaler must buy OB product No price or product discrimination Customer prioritized based on: Total OB volume with customer High OB Volume Low Priority Customers OB customer market share Low OB Market High Share 17

18 Wholesaler Management (Manage) (Focus) (Others) (Maintain) Balanced customer prioritization based on incremental volume by channel, customer profitability and OB total volume Source: 18 Oriental Brewery data.

19 Wholesaler Management in Action WS #1 Incremental Volume: Low Channel: Pub Before After Cases Spend KRW/ Case Cases Spend KRW/ Case Seoul/ Sudo Gangwon WS #1 55k 44M k 35M 700 Chungnam Chungbuk Kyoungbuk WS #2 20k 7M k 12M 400 Jeonbuk Jeonnam Kyoungnam Busan TO OTAL 75k 51M k 47M 588 WS #2 Incremental Volume: High Channel: Convenience Store 7% case growth; 8% spend decline; 14% reduction in spend/case Source: 19 Oriental Brewery data.

20 Product Development OB Blue Brand Volume Cass Light Volume ,500 1, , OB Volume Cass Light Volume % volume decline since 06; -30% annual volume CAGR 19% volume decline since 07 launch; -10% annual volume CAGR Source: 20 Oriental Brewery data.

21 Product Development Consumer Feedback Low score on overall taste Brand image: consumers aged 50+ Product concept lacking Brand affinity and heritage still strong Source: 21 Oriental Brewery data.

22 Product Development New Brand Image New Product Concept Source: 22 Oriental Brewery data.

23 Product Development OB Brand Volume Cass Light Volume OB Volume 100 Cass Light Volume Apr-Dec 2010 Apr-Dec May '09 - Apr '10 May '10 - Apr '11 47% volume growth from 10-11; 68% growth 9 months post-launch 79% volume growth (40% CAGR) from 09-11; 66% growth 12 months post-launch Source: 23 Oriental Brewery data.

24 Overall Results Market Share Growth 49.1% Improved Profitability 32.5% 680 bps 520 bps 42.3% 27.4% FY 2009 FY 2011 FY 2009 FY 2011 Source: Oriental Brewery data. Note: Past performance is no guarantee of future results. (1) On a US dollar basis. 24 Valued at 2.7x (1) cost at 12/31/2011

25 Case Study: Capsugel Pete Stavros, Deal Team Lead

26 Company Overview Leading global supplier of capsules ~60% global market share by value, more than five times its closest competitor Capsule Schematic (1) Tapered rim of the body engages easily with the cap for problem-free closure Mission-critical product where quality is key, and customers require significant support Supplies over 190 billion capsules per Two aerodynamic air vents allow air to escape from the cap; critical i when year operating high speed filling machines Non-core division of Pfizer KKR acquired Capsugel in August 2011 for $2,375mm Purchase price multiple of 11.3x LTM Q EBITDA (including fees, excluding pro forma cost savings) 12/31/2011 net leverage of 5.6x Very global business Closely-matched locking rings provide full circumference leakfree closure Six elongated dimples maintain precise round capsule diameter, improving filling machine performance Rounded, hemispherical ends are mechanically stronger and more resistant to deformation FY2011 Revenue by Region Asia 21% Global presence helps drive growth prospects and downside protection ti 43% EMEA Americas 36% (1) Source: Capsugel 26

27 Investment Thesis We saw an opportunity to make a great business even better, creating a stand-alone entity and partnering with management to: Create a world-class marketing function Improve sales force effectiveness Add new talent/capabilities to the organization Create a separate emerging technologies division Centralize and optimize procurement Enhance manufacturing productivity Reduce net working capital 27

28 Case Study: Capsugel Guido Driesen, President & CEO

29 Making the Transition to a PE-Owned Independent Company The day after signing, a few items on Capsugel leadership s mind: 1 Still so reliant on Pfizer Could we buy, make, ship, and bill on day one? 2 Recruiting a new and expanded leadership team and creating an independent culture 3 Desire to expand our value creation initiatives 4 While running the day to day just as before e 29

30 Capsugel Has Been Accelerating Its Value Creation Agenda Growth Value proposition Marketing optimization i Business development R&D Margin Expansion Manufacturing Procurement Global ERP Systems infrastructure SG&A Insurance Capital Productivity Inventory AR/AP improvement Treasury optimization 30

31 My Experience Working with KKR and KKR Capstone Day One Point of View Partnership Access to Expertise Healthy Balance Deep understanding of company/ industry Perspective on where to invest to improve company KKR, Capsugel, Pfizer collaboration Learn and react together Accountability still rests with management Dedicated, expert resources (e.g., carve-out) Access to the KKR network Access to expert partners (e.g., IT services) Focus on long- term value creation Discipline on near-term results 31

32 Case Study: Capsugel Derick Prelle

33 KKR Capstone Involvement at Capsugel Operational Diligence Value Creation Initiatives KKR Capstone has supported Capsugel since before the transaction closed Transaction Execution Carve-Out 33

34 KKR Capstone Areas of Focus Support & Expertise Marketing Risk management Manufacturing Deep-Dive Support Day one readiness Carve-out Procurement Budgeting Support Capsugel management as needed with expertise or capacity Day-to-day KKR Capstone involvement in designing and implementing the initiative 34

35 The Scope and Scale of Running a Carve-Out Carve-out requires two KKR Capstone executives leading 50+ Capsugel colleagues for 18 months Stand-Alone Capsugel Pfizer IT Infrastructure IT Systems Business A Business B Finance, Tax, and Treasury Insurance/ Risk Management Business C Capsugel HR: People, Systems, and Processes Hiring: 56 Hires + Most of C-Suite Purchasing Real Estate Health & Safety Corporate Governance/Legal 35

36 KKR Capstone s Experience with Carve-Outs Network of Specialist Partners Direct experience managing carve-outs Best practices in working with sellers Super execution: on time, on budget, less risk 36

37 Impacting Gelatin Inflation Select US & European Gelatin Prices EU US 33% EU increase 37% US increase Procurement actions underway: Established cost transparency Pursuing new sources of supply Increasing competition among vendors Monetizing gelatin scrap Reduced gelatin inflation by 30% Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 Source: 37 Composite of all vendor gelatin pricing. Figures shown on a relative basis; pork rind statistics reported by Snack Food Association.

38 Closing Thoughts: KKR Capstone and Capsugel Hard work, many challenges but off to a good start Partnership to support management Focus on deep support in a small number of initiatives Lasting value through transfer of skill sets 38

39 Legal Disclosures The information and opinions set forth herein have been prepared by KKR & Co. L.P. (NYSE: KKR). This presentation is solely for informational purposes in connection with evaluating the business, operations and financial results of KKR & Co. L.P. and its consolidated subsidiaries (collectively, KKR ). Any discussion of specific KKR entities is provided solely to demonstrate such entities role within the KKR organization and their contributions to the business, operations and financial results of KKR & Co. L.P. This presentation is not and shall not be construed as an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any securities, any investment funds, vehicles or accounts, any investment advice, or any other service by any KKR entities, including Kohlberg Kravis Roberts & Co. L.P., KKR Asset Management LLC or KKR Capital Markets LLC. Nothing in this presentation constitutes the provision of any tax, accounting, financial, investment, regulatory, legal or other advice by KKR or its advisors. This presentation contains certain forward-looking statements pertaining to KKR, including certain investment funds, vehicles, and accounts that are managed by KKR. It also contains projections or other forward-looking statements regarding future events, targets, or expectations regarding the funds. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements are based on KKR s beliefs, assumptions and expectations of future performance, taking into account all information currently available to it. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or are within its control. If a change occurs, KKR s business, financial condition, liquidity and results of operations, including but not limited to assets under management, fee paying assets under management, fee related earnings, gross distributable earnings, economic net income, after tax economic net income, fee related EBITDA, committed dollars invested, uncalled commitments, core interest expense, cash and short-term investments, book value and projected returns of its funds, may vary materially from those expressed in the forward-looking statements. The following factors, among others, could cause actual results to vary from the forward-looking statements: the general volatility of the capital markets; failure to realize the benefits of or changes in KKR s business strategies; availability, terms, and deployment of capital; availability of qualified personnel and expenses of recruiting and retaining such personnel; changes in the asset management industry, interest rates, or the general economy; underperformance of KKR s investments and decreased ability to raise funds; and the degree and nature of KKR s competition. KKR does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date on which such statements were made except as required by law. In addition, KKR s business strategy is focused on the long term and financial results are subject to significant volatility. Additional information about factors affecting KKR, including a description of risks that may be important to a decision to purchase or sell any common units of KKR & Co. L.P., can be found under the section entitled Risk Factors and other sections of KKR & Co. L.P. s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, Quarterly Reports on Form 10-Q, and its other filings with the SEC, which are available at References to KKR Capstone or Capstone are to all or any of Capstone Consulting LLC, Capstone Europe Limited, and KKR Capstone Asia Limited, each of which is owned and controlled by their senior management and not by KKR. KKR Capstone uses the KKR name under license from KKR. KKR Capstone is not a subsidiary or other affiliate of KKR. In this presentation, the impact of initiatives, in which KKR Capstone has been involved, is based on KKR s internal analysis and information provided by the applicable portfolio company. Impacts of such initiatives are estimates that have not been verified by a third party and are not based on any established standards or protocols. They may also reflect the influence of external factors, such as macroeconomic or industry trends, that are unrelated to the initiative presented. The statements contained in this presentation are made as of March 9, 2012, unless another time is specified in relation to them, and access to this presentation at any given time shall not give rise to any implication that there has been no change in the facts set forthinthispresentationsincethat date. All financial information in this presentation is as of December 31, 2011 unless otherwise indicated. Certain information presented in this presentation have been developed internally or obtained from sources believed to be reliable; however, KKR does not give any representation or warranty as to the accuracy, adequacy, timeliness or completeness of such information, and assumes no responsibility for independent verification of such information. 39

40 Legal Disclosures Past performance is no guarantee of future results. Information about KKR, including past performance of KKR funds and its investments, is provided solely to illustrate KKR s investment experience. There can be no assurance that KKR will achieve comparable results as those presented or that a fund will not lose any or all of its invested capital. Unless otherwise indicated, any references to Gross IRR or gross returns and any references to multiples of invested capital, MOIC, or gross multiples or multiples of cost are to the aggregate, annual, compound, gross internal rate of return on investments or multiples of invested capital, respectively. Such amounts are calculated at investment level and, accordingly, do not reflect management fees, carried interest and transaction costs and other expenses to be borne by investors in a fund, which will reduce returns and in the aggregate are expected to be substantial. In the case of unrealized investments, the gross returns are based on internal valuations by KKR of unrealized investments t as of the applicable date. The actual realized returns on a fund s unrealized investments t will dependd on, among other factors, future operating results, the value of the assets and market conditions at the time of disposition, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions on which the valuations used in the prior performance data contained herein are based. Accordingly, the actual realized return of these unrealized investments may differ materially from the returns indicated herein. Existing KKR private equity funds may temporarily provide debt or equity financing to companies to facilitate permanent investments therein by such fund (otherwise known as Bridge Financing ). The principal amount of a Bridge Financing returned within 18 months is considered recyclable capital which is restored to the unused commitments of the investors in the relevant fund, and the interest paid thereon is distributed pro rata. If a Bridge Financingi is not refunded d within 18 months, it is considered d to be apermanent investment t in the companyfrom the date of the original i investment. t In addition, commencing with KKR European Fund II, any portion of a permanent investment returned within 13 months is considered recyclable capital and is restored to the unused commitments of the investors in the relevant fund. For the purposes of calculating the internal rates of return and multiples of invested capital herein, recyclable capital (both principal repaid for Bridge Financings and permanent investments returned with 13 months) and any related interest income has been disregarded. This presentation may not be referenced, quoted or linked by website, in whole or in part, except as agreed to in writing by KKR & Co. L.P. 40