““““ LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESPAÑOLA ES ESTRICTAMENTE CONFIDENCIAL, QUEDANDO PROHIBI...
AGENDA STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS <ul><li>The investment/acquisition process </li></ul><ul><li>The c...
EVA COMPANIES American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, ...
EVA COMPANIES American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, ...
THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE <ul><li>The end result of an investment/acquisition should be the improve...
THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE <ul><li>The end result of an investment/acquisition should be the improve...
THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE <ul><li>The end result of an investment/acquisition should be the improve...
THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE <ul><li>The end result of an investment/acquisition should be the improve...
THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options  </li></ul><ul>...
THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific  goals...
THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific  goals...
THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific  goals...
THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific  goals...
THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific  goals...
THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options  </li></ul><ul>...
MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION <ul><li>RELATED INVESTMENT/ACQUISITION     </li></ul><ul><li>  </li><...
MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION <ul><li>RELATED INVESTMENT/ACQUISITION    (Normally strategic objecti...
MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION <ul><li>RELATED INVESTMENT/ACQUISITION    (Normally strategic objecti...
MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION <ul><li>RELATED INVESTMENT/ACQUISITION    (Normally strategic objecti...
THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options  </li></ul><ul>...
ALTERNATIVE COUNTRY PRELIMINARY SCREENING BEER BUSINESS EXAMPLE STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options  </li></ul><ul>...
THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options  </li></ul><ul>...
CASHFLOW VALUATION METHOD INTRODUCTION STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS <ul><li>The true economic value of...
CASHFLOW VALUATION METHOD THE VALUATION PROCESS <ul><li>You need to make projections on the future free-cashflows from ope...
CASHFLOW VALUATION METHOD KEY COMPONENTS Valuation Net cash flow for investor/acquirer Business discount rate Net debt Ter...
CASHFLOW VALUATION METHOD THE STRATEGIC EVALUATION <ul><li>This valuation method requires for  each  specific  potential  ...
CASHFLOW VALUATION METHOD SALES PROJECTIONS ANALYSIS <ul><li>MARKET GROWTH  </li></ul><ul><li>Which products? </li></ul><u...
CASHFLOW VALUATION METHOD SALES PROJECTIONS: PENETRATION CURVES FINCOMP'S INVESTMENT OPPORTUNITY IN CERAMICA  SITUATION Fi...
CASHFLOW VALUATION METHOD SALES PROJECTIONS ANALYSIS <ul><li>MARKET GROWTH  </li></ul><ul><li>Which products? </li></ul><u...
CASHFLOW VALUATION METHOD SALES PROJECTIONS ANALYSIS <ul><li>MARKET GROWTH  </li></ul><ul><li>Which products? </li></ul><u...
CASHFLOW VALUATION METHOD SALES PROJECTIONS: REASONS FOR GAIN/LOSS OF SHARE <ul><li>A company's growth potential may excee...
CASHFLOW VALUATION METHOD THE STRATEGIC EVALUATION <ul><li>This valuation method requires for  each  specific  potential  ...
CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) STRATEGIC EVALUATION ...
CASHFLOW VALUATION METHOD MARGIN FORECAST: HISTORICAL PERFORMANCE ANALYSIS <ul><li>Industry ROS trends may be published in...
CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis STRA...
CASHFLOW VALUATION METHOD MARGIN FORECAST: ROS/RMS ANALYSIS Company X is currently underperforming, considering its relati...
CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis Comp...
CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis Comp...
CASHFLOW VALUATION METHOD MARGIN FORECAST: ROS IMPROVEMENT POTENTIAL <ul><li>Possible capital investments to improve produ...
CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis Comp...
CASHFLOW VALUATION METHOD MARGIN FORECAST: INDUSTRY PRICE/COSTS DYNAMICS <ul><li>Price and costs experience curves:  </li>...
CASHFLOW VALUATION METHOD THE STRATEGIC EVALUATION <ul><li>This valuation method requires for  each  specific  potential  ...
CASHFLOW VALUATION METHOD CASHFLOW RESIDUAL VALUE DETERMINATION <ul><li>It values the investment/company as a going concer...
CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS <ul><li>Company ROS forecast over time   </li></ul><ul><li>PBIT/Sales <...
CASHFLOW VALUATION METHOD THE STRATEGIC EVALUATION <ul><li>This valuation method requires for  each  specific  potential  ...
<ul><li>THE SITUATION </li></ul><ul><li>Prosa is currently facing two opportunities, which need to be evaluated, that will...
INTERNATIONAL DEVELOPMENT MANAGEMENT ESPAÑOLA, S.A. “““““ LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESP...
This document is a selected summary on the different materials developed by IDM Española, S.A., in order to solve a real b...
<ul><li>THE SITUATION </li></ul><ul><li>Prosa is currently facing two opportunities, which need to be evaluated, that will...
CONTENTS <ul><li>CONTACTS SUMMARY </li></ul><ul><li>PRODUCTION </li></ul><ul><li>FOREIGN TRADE </li></ul><ul><li>DOMESTIC ...
<ul><li>PRODUCERS/DISTRIBUTORS TOBIC PERBATE CONSUMERS-DETERGENT SEGMENT </li></ul><ul><li>COMMERCIAL DEPARTMENT DISTRIBUT...
EVOLUTION OF SPANISH PRODUCTION (1990-01) <ul><li>Production increase of more than 50% for the 1990-01 period </li></ul><u...
EVOLUTION OF SPANISH PRODUCTION BY DESTINATION (1996-01) <ul><li>Production increases channelled mostly to foreign markets...
EVOLUTION OF EXPORTS BY DESTINATION (1996-01) <ul><li>Foreign markets still at a development stage </li></ul><ul><ul><li>C...
SPANISH MARKET CONSUMPTION BY UTILISATION (2001) <ul><li>High  importance of the detergents segment </li></ul><ul><ul><li>...
UTILISATION BY THE DETERGENTS SEGMENT <ul><li>The utilisation of tobic perbate is mainly due to legal constraints </li></u...
CONSUMER SATISFACTION <ul><li>Key criteria completely met by current suppliers, with the only exception of price levels </...
DETERGENTS SEGMENT CONSUMPTION OF TOBIC PERBATE <ul><li>The Spanish tobic perbate market can be considered at best a stabl...
DETERGENTS SEGMENT CONSUMPTION <ul><li>Camp is carrying out some trials for a concentrated detergent in The Canary Islands...
PRICE ELASTICITY OF DEMAND  How would your consumption level of tobic perbate be influenced by an overall reduction of mar...
ALTERNATIVE UTILISATIONS <ul><li>By the dyeing industry: The tobic perbate is used as homogeniser in wool dyeing and in th...
ACHIEVABLE VOLUMES WITHIN SPAIN <ul><li>What percentage of your purchases could retain a new supplier of tobic perbate mee...
OPERATING COSTS <ul><li>Current prices not based on current cost levels </li></ul><ul><ul><li>Installed capacity below pot...
USA PRICE EVOLUTION <ul><li>The reduction in prices since 1999, CAGR (99-01) of (5.9)%, currently accelerating </li></ul><...
PRICES EVOLUTION (1996-02) <ul><li>USA prices evolution independent of European price levels </li></ul><ul><li>Prices in E...
SPANISH PRODUCERS DEVELOPMENT PLANS <ul><li>Technical Director Producer # 1 </li></ul><ul><ul><li>We plan to expand our pr...
COST STRUCTURES <ul><li>Prosa’s project feasible at current price levels, but at a disadvantage vis-a-vis the other compet...
PROSA ALONE <ul><li>Prosa’s project is not economically feasible on an independent basis fo-cusing exclusively on the Span...
0  20  40  60  80  100  120  3  2  1 0 -1 FC PBFC  (MM €)  PROSA SALES (000 MT/YEAR)  <ul><li>Profitability of Prosa’s Pro...
0  20  40  60  80  100  120  3  2  1 0 -1 FC  PBFC  (MM €) PROSA SALES (000 MT/YEAR) PROFITABILITY ANALYSIS PROSA + PARTNE...
SUMMARY AND NEXT STEPS <ul><li>Prosa’s Project is not feasible independently and focusing exclusively on the Spanish marke...
SPANISH TOBIC PERBATE SEGMENT RECENT EVOLUTION <ul><li>Producer # 1 (the oldest Spanish producer) was acquired during the ...
CONCLUSIONS THE IMPORTANCE OF STRATEGY <ul><li>BUT  AFTER THE INVESTMENT/ACQUISITION YOU NEED TO CONTINUE THINKING STRATEG...
Upcoming SlideShare
Loading in …5
×

10 M C10~1

492 views

Published on

COURSE ON THE STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
492
On SlideShare
0
From Embeds
0
Number of Embeds
16
Actions
Shares
0
Downloads
7
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

10 M C10~1

  1. 1. ““““ LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESPAÑOLA ES ESTRICTAMENTE CONFIDENCIAL, QUEDANDO PROHIBIDA SU REPRODUCCION TOTAL O PARCIAL O LA UTILIZACION INDEBIDA SIN SU CONSENTIMIENTO POR ESCRITO, RESERVANDOSE LAS ACCIONES LEGALES A QUE HUBIERA LUGAR EN FUNCION DE LOS PERJUICIOS OCASIONADOS A IDM ESPAÑOLA, S.A. O A SUS CLIENTES ”””””THE INFORMATION CONTAINED IN THIS DOCUMENT IS PROPERTY OF IDM ESPAÑOLA, S.A. AND IT IS STRICTLY CONFIDENTIAL. NO PART OF IT MAY BE REPRODUCED OR UNDULY USED WITHOUT ITS WRITTEN PERMISSION. ACCORDINGLY ANY DAMAGES INFLICTED TO IDM ESPAÑOLA, S.A. OR ITS CLIENTS WILL BE ADEQUATELY PROSECUTED”””” VE/ 10 / 05 / MC1 /001 DEMO SESSION, BRUSSELS 19TH OCTOBER 2005, JOSE F. VIVANCOS STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITION S MANAGEMENT CENTRE EUROPE (MCE)
  2. 2. AGENDA STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS <ul><li>The investment/acquisition process </li></ul><ul><li>The cash-flow valuation metod </li></ul><ul><ul><li>Introduction </li></ul></ul><ul><ul><li>The strategic evaluation </li></ul></ul><ul><li>Prosa’s tobic perbate project </li></ul><ul><li>Conclusions and questions </li></ul>
  3. 3. EVA COMPANIES American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, Boise Cascade Corp., The Burton Group, California Microwave, Case Corp., The Coca-Cola Co., Crane Co., Diageo, Dun & Bradstreet Corp., Eli Lilly & Co., Equifax, Inc., Federal-Mogul, Guidant Corp., Illinois Power Company, JCPenney, Kao Corporation, LucasVarity, Monsanto, Pirelli, R.R. Donnelley, Rubbermaid Inc., Ryder System, Inc., Siemens A.G., Tate & Lyle PLC, Telecom Italia Group, Toys R Us, U.S. Postal Service, Whirlpool SOURCE: STERN, STEWART & CO. STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  4. 4. EVA COMPANIES American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, Boise Cascade Corp., The Burton Group, California Microwave, Case Corp., The Coca-Cola Co., Crane Co., Diageo, Dun & Bradstreet Corp., Eli Lilly & Co., Equifax, Inc., Federal-Mogul, Guidant Corp., Illinois Power Company, JCPenney, Kao Corporation, LucasVarity, Monsanto, Pirelli, R.R. Donnelley, Rubbermaid Inc., Ryder System, Inc., Siemens A.G., Tate & Lyle PLC, Telecom Italia Group, Toys R Us, U.S. Postal Service, Whirlpool They are all EVA companies Economic Value Added (EVA) is one of the mostly used measures to estimate shareholder’s value SOURCE: STERN, STEWART & CO. STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  5. 5. THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  6. 6. THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE <ul><li>The end result of an investment/acquisition should be the improvement of shareholders value </li></ul><ul><li>  </li></ul><ul><ul><ul><li>  </li></ul></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  7. 7. THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE <ul><li>The end result of an investment/acquisition should be the improvement of shareholders value </li></ul><ul><ul><li>Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity </li></ul></ul><ul><ul><ul><li>Economic value over and above the investment/price required </li></ul></ul></ul><ul><li>  </li></ul><ul><ul><ul><li>  </li></ul></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  8. 8. THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE <ul><li>The end result of an investment/acquisition should be the improvement of shareholders value </li></ul><ul><ul><li>Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity </li></ul></ul><ul><ul><ul><li>Economic value over and above the investment/price required </li></ul></ul></ul><ul><li>  </li></ul><ul><ul><li>The economic value generated will be determined by the spread between a company's return on capital and its weighted average cost of capital, the level of capital invested and the sustainability of the favourable spread on increasing capital investment </li></ul></ul><ul><ul><ul><li>Any investments that earn returns above the company's cost of capital create added value (investments with returns below its cost of capital destroy value)  </li></ul></ul></ul><ul><ul><ul><li>The higher the capital invested at greater returns, the greater the value created. </li></ul></ul></ul><ul><ul><ul><li>The longer a favourable spread can be maintained the higher the value created </li></ul></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  9. 9. THE INVESTMENT/ACQUISITION PROCESS KEY OBJECTIVE <ul><li>The end result of an investment/acquisition should be the improvement of shareholders value </li></ul><ul><ul><li>Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity </li></ul></ul><ul><ul><ul><li>Economic value over and above the investment/price required </li></ul></ul></ul><ul><li>  </li></ul><ul><ul><li>The economic value generated will be determined by the spread between a company's return on capital and its weighted average cost of capital, the level of capital invested and the sustainability of the favourable spread on increasing capital investment </li></ul></ul><ul><ul><ul><li>Any investments that earn returns above the company's cost of capital create added value (investments with returns below its cost of capital destroy value)  </li></ul></ul></ul><ul><ul><ul><li>The higher the capital invested at greater returns, the greater the value created. </li></ul></ul></ul><ul><ul><ul><li>The longer a favourable spread can be maintained the higher the value created </li></ul></ul></ul>In order to achieve value creation through an investment/acquisition program, you need to evaluate in detail the potential returns from all the different opportunit ies available STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  10. 10. THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  11. 11. THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options </li></ul><ul><ul><li>Intended to fulfil some corporate objectives </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  12. 12. THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process POTENTIAL OBJECTIVES STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  13. 13. THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process POTENTIAL OBJECTIVES Strategic STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  14. 14. THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process POTENTIAL OBJECTIVES Strategic STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS Support base business Reduce dependence on base business P rovide long-term growth Increase capacity utilisation S trategic defence
  15. 15. THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process POTENTIAL OBJECTIVES Strategic Financial STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS Support base business Reduce dependence on base business P rovide long-term growth Increase capacity utilisation S trategic defence
  16. 16. THE INVESTMENT/ACQUISITION PROCESS CORPORATE GOALS It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process POTENTIAL OBJECTIVES Strategic Financial STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS Support base business Reduce dependence on base business P rovide long-term growth Increase capacity utilisation S trategic defence Earnings increase Take advantage of undervalued assets/companies Utilise tax losses of acquiree Use of outstanding cash balances of acquiree
  17. 17. THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options </li></ul><ul><ul><li>Intended to fulfil some corporate objectives </li></ul></ul><ul><li>List of potential opportunities generation </li></ul><ul><ul><li>New investments or acquisitions </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  18. 18. MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  19. 19. MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION <ul><li>RELATED INVESTMENT/ACQUISITION   </li></ul><ul><li>  </li></ul><ul><li>  </li></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  20. 20. MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION <ul><li>RELATED INVESTMENT/ACQUISITION   (Normally strategic objectives) </li></ul><ul><li>The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen - sive strategy against potential competitors  </li></ul><ul><ul><li>Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues </li></ul></ul><ul><ul><li>It requires a s o lid management team ready and able to materialise the potential added-values </li></ul></ul><ul><li>  </li></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  21. 21. MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION <ul><li>RELATED INVESTMENT/ACQUISITION   (Normally strategic objectives) </li></ul><ul><li>The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen - sive strategy against potential competitors  </li></ul><ul><ul><li>Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues </li></ul></ul><ul><ul><li>It requires a s o lid management team ready and able to materialise the potential added-values </li></ul></ul><ul><li>  </li></ul><ul><li>NON-RELATED INVESTMENT/ACQUISITION </li></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  22. 22. MAIN INVESTMENTS/ACQUISITION TYPES BRIEF DESCRIPTION <ul><li>RELATED INVESTMENT/ACQUISITION   (Normally strategic objectives) </li></ul><ul><li>The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen - sive strategy against potential competitors  </li></ul><ul><ul><li>Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues </li></ul></ul><ul><ul><li>It requires a s o lid management team ready and able to materialise the potential added-values </li></ul></ul><ul><li>  </li></ul><ul><li>NON-RELATED INVESTMENT/ACQUISITION (Normally financial objectives) </li></ul><ul><li>The non-related investments/acquisitions are normally motivated by situations of badly managed industries/companies or imperfect/imma - ture markets </li></ul><ul><ul><li>The economic value will be generated through management improvements or some market development/maturing </li></ul></ul><ul><ul><li>It demands a strong and flexible management team able to improve industry and markets practices/results </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  23. 23. THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options </li></ul><ul><ul><li>Intended to fulfil some corporate objectives </li></ul></ul><ul><li>List of potential opportunities generation </li></ul><ul><ul><li>New investments or acquisitions </li></ul></ul><ul><li>Preliminary screening and selection of potential alternatives </li></ul><ul><ul><li>Publicly available data and major conflicts with corporate objectives </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  24. 24. ALTERNATIVE COUNTRY PRELIMINARY SCREENING BEER BUSINESS EXAMPLE STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  25. 25. THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options </li></ul><ul><ul><li>Intended to fulfil some corporate objectives </li></ul></ul><ul><li>List of potential opportunities generation </li></ul><ul><ul><li>New investments or acquisitions </li></ul></ul><ul><li>Preliminary screening and selection of potential alternatives </li></ul><ul><ul><li>Publicly available data and major conflicts with corporate objectives </li></ul></ul><ul><li>Valuation of feasible opportunities </li></ul><ul><ul><li>Strategic evaluation </li></ul></ul><ul><ul><li>Ranking of options </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  26. 26. THE INVESTMENT/ACQUISITION PROCESS PLANNING METHODOLOGY <ul><li>Development of different strategic options </li></ul><ul><ul><li>Intended to fulfil some corporate objectives </li></ul></ul><ul><li>List of potential opportunities generation </li></ul><ul><ul><li>New investments or acquisitions </li></ul></ul><ul><li>Preliminary screening and selection of potential alternatives </li></ul><ul><ul><li>Publicly available data and major conflicts with corporate objectives </li></ul></ul><ul><li>Valuation of feasible opportunities </li></ul><ul><ul><li>Strategic evaluation </li></ul></ul><ul><ul><li>Ranking of options </li></ul></ul><ul><li>Final selection and investment/acquisition implementation </li></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  27. 27. CASHFLOW VALUATION METHOD INTRODUCTION STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS <ul><li>The true economic value of an investment/company to be acquired is the net present value of its future free-cashflows from operations minus its net debt </li></ul><ul><ul><li>Value = – Net deb t </li></ul></ul><ul><ul><li>Forces a rigorous analysis and takes into account the time element and year to year variations in the value stream </li></ul></ul><ul><ul><li>The other possible methods (net book value, PE ratio...) are not applicable for new investments and are normally only used to ge t som e quick but not very precise valuation estimates </li></ul></ul> Σ (Free cashflow) (1 +r) t t =1
  28. 28. CASHFLOW VALUATION METHOD THE VALUATION PROCESS <ul><li>You need to make projections on the future free-cashflows from operations for a reasonable period (5 to 10 years) and to discount them in order to calculate its PV </li></ul><ul><ul><li>You have to do it for each one of the different activities and for each one of the countries where the company will be/is present </li></ul></ul><ul><ul><li>Then you will calculate the overall debt-free investment/company value by adding the NPV from all the different activities/coun - tries considered </li></ul></ul><ul><ul><li>By deducting the net value of the debt you will calculate the overall value of the equity for the specific investment/acquisition </li></ul></ul>But what are the main components/determinants of the cashflow valuation method and their degree of influence? STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  29. 29. CASHFLOW VALUATION METHOD KEY COMPONENTS Valuation Net cash flow for investor/acquirer Business discount rate Net debt Terminal growth rate/residual value Sales Costs Taxation Weighted average cost of capital Infation Rate Information Sources/ Basic Methodology NPV Sensitivity (5 = high, 1 = low) Depreciation/Fixed assets Fixed assets/Sales Working capital/Sales Initial sales Sales projections Margin forecasts Debt implications Market/financial analysis Market analysis Market / Competitor / Financial analysis Market / Competitor / Financial analysis Financial analysis Capital Markets Economists’ forecasts Financial analysis STRATEGIC EVALUATION Financial / Market / Competitor analysis 2 4 5 2 4 4 5 1 4 STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  30. 30. CASHFLOW VALUATION METHOD THE STRATEGIC EVALUATION <ul><li>This valuation method requires for each specific potential investor an in-depth strategic evaluation , that needs always to include at least the analysis of </li></ul><ul><ul><li>Sales projections, based on the market share/market growth potential </li></ul></ul><ul><ul><li>  </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  31. 31. CASHFLOW VALUATION METHOD SALES PROJECTIONS ANALYSIS <ul><li>MARKET GROWTH </li></ul><ul><li>Which products? </li></ul><ul><li>What are the demand determinants? </li></ul><ul><li>How are they likely to develop? </li></ul><ul><li>Potential business redefinition? </li></ul><ul><li>Market growth </li></ul><ul><ul><li>Current growth rate? </li></ul></ul><ul><ul><li>Penetration curves </li></ul></ul>Demand forecast STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  32. 32. CASHFLOW VALUATION METHOD SALES PROJECTIONS: PENETRATION CURVES FINCOMP'S INVESTMENT OPPORTUNITY IN CERAMICA  SITUATION Fincomp, an international investment group, had the opportunity of developing a minority equity stake in Ceramica, one of the three Spanish pioneers of the new XYZ technology ceramic-tile. Fincomp's team, realising the strong dependence of Ceramica's value on the success in the introduction of the new ceramic-tile and on the penetration speed of the Spanish market, requested third party strategic advice  BACKGROUND   The new XYZ technology ceramic-tile was developed in Italy. This new tile required at first five years to attain technology and product-design adequacies and three more additional years to succeed market-wise, achieving over 8% of the Italian ceramic floor-coverings market  IDM ESPAÑOLA'S INVOLVEMENT  IDM Española undertook a strategic study on the potential within Spain for the new XYZ technology ceramic-tile, developing thorough comparisons between the Spanish and the Italian ceramic-tiles markets. In particular a linear regression analysis on the evolution overtime of the new tile share of the Italian market was calculated...  CONCLUSIONS   IDM Española developed sales forecasts within Spain for the third year after the completion of the analysis, ranging from 2.9 to 4.0 million sqm of the new XYZ technology ceramic-tile. The forecasts were developed by replicating the penetration curves of the Italian market to the Spanish one...  EVOLUTION OF THE NEW XYZ TECHNOLOGY FOR CERAMIC TILES IN SPAIN  Actual industry sales within Spain during the mentioned future third year, were approximately 3.6 million sqm (only 4% different than ID M Española's most likely scenario)... (THIS DOCUMENT IS A SELECTION OF INFORMATIONS FROM A REAL BUSINESS SITUATION, IN WHICH IDENTITIES HAVE BEEN DELIBERATELY ALTERED TO PRESERVE CONFIDENTIALITY) STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  33. 33. CASHFLOW VALUATION METHOD SALES PROJECTIONS ANALYSIS <ul><li>MARKET GROWTH </li></ul><ul><li>Which products? </li></ul><ul><li>What are the demand determinants? </li></ul><ul><li>How are they likely to develop? </li></ul><ul><li>Potential business redefinition? </li></ul><ul><li>Market growth </li></ul><ul><ul><li>Current growth rate? </li></ul></ul><ul><ul><li>Penetration curves </li></ul></ul>Demand forecast <ul><li>COMPETITIVE ENVIRONMENT </li></ul><ul><li>Who are the competitors? </li></ul><ul><li>What are the determinants of market share ? </li></ul><ul><li>What are the competitors’ relative strengths ? </li></ul><ul><li>What are the competitors’ likely actions? </li></ul><ul><li>Company market share </li></ul><ul><ul><li>Current share </li></ul></ul><ul><ul><li>Reasons for gain/loss of share </li></ul></ul>Industry market share forecasts STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  34. 34. CASHFLOW VALUATION METHOD SALES PROJECTIONS ANALYSIS <ul><li>MARKET GROWTH </li></ul><ul><li>Which products? </li></ul><ul><li>What are the demand determinants? </li></ul><ul><li>How are they likely to develop? </li></ul><ul><li>Potential business redefinition? </li></ul>Sales projections <ul><li>Market growth </li></ul><ul><ul><li>Current growth rate? </li></ul></ul><ul><ul><li>Penetration curves </li></ul></ul>Demand forecast <ul><li>COMPETITIVE ENVIRONMENT </li></ul><ul><li>Who are the competitors? </li></ul><ul><li>What are the determinants of market share ? </li></ul><ul><li>What are the competitors’ relative strengths ? </li></ul><ul><li>What are the competitors’ likely actions? </li></ul><ul><li>Company market share </li></ul><ul><ul><li>Current share </li></ul></ul><ul><ul><li>Reasons for gain/loss of share </li></ul></ul>Industry market share forecasts STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  35. 35. CASHFLOW VALUATION METHOD SALES PROJECTIONS: REASONS FOR GAIN/LOSS OF SHARE <ul><li>A company's growth potential may exceed market growth of its core businesses by </li></ul><ul><ul><li>Increasing market share </li></ul></ul><ul><ul><li>Redefining market for existing products </li></ul></ul><ul><ul><ul><li>Kitchen units manufacturer moving into fitted kitchens selling directly to households </li></ul></ul></ul><ul><ul><li>Diversifying into related product lines </li></ul></ul><ul><ul><ul><li>Audio magnetic tape manufacturer moving into video tape production and later into DVD </li></ul></ul></ul><ul><li>If a company has demonstrated ability to grow at higher rates than market growth, it has implications on its cash generation potential, although not always being necessarily an improvement </li></ul><ul><ul><li>Value of a company growing so fast that needs to reinvest all its cashflows to perpetuity </li></ul></ul><ul><ul><li>It will influence its working capital and capital expenditure requirements </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  36. 36. CASHFLOW VALUATION METHOD THE STRATEGIC EVALUATION <ul><li>This valuation method requires for each specific potential investor an in-depth strategic evaluation , that needs always to include at least the analysis of </li></ul><ul><ul><li>Sales projections, based on the market share/market growth potential </li></ul></ul><ul><ul><li>  Margin forecasts considering market share/ROS relationships </li></ul></ul><ul><ul><li>  </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  37. 37. CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  38. 38. CASHFLOW VALUATION METHOD MARGIN FORECAST: HISTORICAL PERFORMANCE ANALYSIS <ul><li>Industry ROS trends may be published in industry reports, otherwise a weighted average of major participants can normally be calcula - ted </li></ul><ul><li>Historical performance can be useful in identifying </li></ul><ul><ul><li>Highest ROS achieved by the industry/company </li></ul></ul><ul><ul><li>Recent ROS trends </li></ul></ul><ul><li>However, historical ROS performance can only set the basis for future ROS forecasts. In order to understand whether the highest historical ROS can be achieved again or whether the improving trend will continue, additional information is needed on </li></ul><ul><ul><li>Industry and competitors' ROS </li></ul></ul><ul><ul><li>Competitors ' and company's investments in recent years that might have some impact in future ROS </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  39. 39. CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  40. 40. CASHFLOW VALUATION METHOD MARGIN FORECAST: ROS/RMS ANALYSIS Company X is currently underperforming, considering its relative market share position and competitors’ performance STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS Relative Market Share (RMS) 2004 Average ROS (2002-04) Potential ROS improvement Company A Company B Company X 20% 15 10 5 0 (5) .1X .5X 1.0X 10X 20X 5X
  41. 41. CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis Company potential ROS position STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  42. 42. CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis Company’s capabilities to improve ROS Company potential ROS position STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  43. 43. CASHFLOW VALUATION METHOD MARGIN FORECAST: ROS IMPROVEMENT POTENTIAL <ul><li>Possible capital investments to improve productivity </li></ul><ul><ul><li>How old is the industry or company's productive base? </li></ul></ul><ul><ul><li>Were there recent investments or rationalisation programmes that m ight improve productivity? </li></ul></ul><ul><li>Management capabilities </li></ul><ul><ul><li>Appointed or current management track record? </li></ul></ul><ul><ul><li>Possible changes by investing/acquiring company's management know-how? </li></ul></ul><ul><li>Potential synergy effects </li></ul><ul><ul><li>ROS improvement by scale of operations and market share gain? </li></ul></ul><ul><ul><li>Possible overhead reductions? </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  44. 44. CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis Company’s capabilities to improve ROS Company potential ROS position Industry price/ cost dynamics STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  45. 45. CASHFLOW VALUATION METHOD MARGIN FORECAST: INDUSTRY PRICE/COSTS DYNAMICS <ul><li>Price and costs experience curves: </li></ul><ul><ul><li>Can such curves be identified? </li></ul></ul><ul><ul><li>How can a new entrant/target company do relative to competitors? </li></ul></ul><ul><li>Capacity/utilisation trends </li></ul><ul><ul><li>Is capacity being added? </li></ul></ul><ul><ul><li>Is demand likely to meet supply? </li></ul></ul><ul><li>Exit/entry barriers </li></ul><ul><ul><li>How easy is it to enter/exit the market? </li></ul></ul><ul><ul><li>What will it mean in view of demand/supply projections? </li></ul></ul>What is the likely development of margins in this industry? STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  46. 46. CASHFLOW VALUATION METHOD THE STRATEGIC EVALUATION <ul><li>This valuation method requires for each specific potential investor an in-depth strategic evaluation , that needs always to include at least the analysis of </li></ul><ul><ul><li>Sales projections, based on the market share/market growth potential </li></ul></ul><ul><ul><li>  Margin forecasts considering market share/ROS relationships </li></ul></ul><ul><ul><li>  Residual value, based on the potential for future company growth vs market growth </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  47. 47. CASHFLOW VALUATION METHOD CASHFLOW RESIDUAL VALUE DETERMINATION <ul><li>It values the investment/company as a going concern and it is consistent with the cashflow valuation method </li></ul><ul><li>The basis for residual value calculation is the annual operational free-cashflow in year t+1 </li></ul><ul><ul><li>RV = CF t+1 (r = discount rate, k = growth rate) </li></ul></ul><ul><ul><li>Interest paid should not be taken into account </li></ul></ul><ul><li>Widely adopted practice to assume no real growth in cashflow after year t+1 </li></ul><ul><ul><li>Most businesses mature in 5-10 years </li></ul></ul><ul><ul><li>The uncertainty in projecting casflows over longer planning horizons forcing to be conservative </li></ul></ul><ul><ul><li>Revision of the capital expenditure required, to make it close to depreciation costs </li></ul></ul><ul><li>If growth is incorporated it must be business specific and based on the level of maturity of the business and the competitive position of the company, but it has to be conservative </li></ul><ul><ul><li>It implies that the growth rate will continue to perpetuity and its determination has to be somehow subjective </li></ul></ul>1 r-k STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  48. 48. CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS <ul><li>Company ROS forecast over time </li></ul><ul><li>PBIT/Sales </li></ul>Historical ROS performance (company and industry) ROS/RMS analysis Company’s capabilities to improve ROS Company potential ROS position Industry price/ cost dynamics STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  49. 49. CASHFLOW VALUATION METHOD THE STRATEGIC EVALUATION <ul><li>This valuation method requires for each specific potential investor an in-depth strategic evaluation , that needs always to include at least the analysis of </li></ul><ul><ul><li>Sales projections, based on the market share/market growth potential </li></ul></ul><ul><ul><li>  Margin forecasts considering market share/ROS relationships </li></ul></ul><ul><ul><li>  Residual value, based on the potential for future company growth vs market growth </li></ul></ul><ul><li>The development of several likely scenarios based on sensitivity analysis for each one of the key determinants of cashflows </li></ul><ul><ul><li>Investment/acquisition decisions need to allow for the survival under the most pessimistic but reasonable scenarios </li></ul></ul>STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
  50. 50. <ul><li>THE SITUATION </li></ul><ul><li>Prosa is currently facing two opportunities, which need to be evaluated, that will allow it to enter the tobic perbate segment </li></ul><ul><li>The acquisition of the oldest Spanish producer and second in size nowadays. Its parent company, suffering difficult times in its core activity, is forced to divest in order to meet some financial obligations. This option does not seem at first too attractive for Prosa. Its management-team believes that being an underground mining operation, it will always bear a structural cost disadvantage against open-pit competitors. </li></ul><ul><li>The development of a new, high-quality deposit discovered by Prosa’s R&D department. This option, that allows for the use of solution min-ing techniques, could achieve operating margins well in excess of the 25% previously mentioned. Preliminary calculations by Prosa’s team based on its pilot-plant results, reliably estimate that margins could even reach 60%. The only two remaining decisions to be taken at pres-ent would be, the approval of the required investment, approximately €11 million, and the selection of the engineering company from the dif-ferent bids received, to begin the construction works of the new mining operation. </li></ul>THE BACKGROUND Prosa, the European leader in a mining market segment, needs to continuously develop new mining operations in order to ensure its survival in the long-term. The tobic perbate is a mining product extensively used within the chemical industry on a world-wide basis, which allows at pre-sent for operating margins over 25%, making all current producers highly profitable. THE PROBLEM What should be Prosa’s decision in relation to tobic perbate diversification options ? POTENTIAL INVESTMENT IN THE TOBIC PERBATE SEGMENT INTRODUCTION PROSA’S TOBIC PERBATE PROJECT
  51. 51. INTERNATIONAL DEVELOPMENT MANAGEMENT ESPAÑOLA, S.A. “““““ LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESPAÑOLA ES ESTRICTAMENTE CONFIDENCIAL, QUEDANDO PROHIBIDA SU REPRODUCCION TOTAL O PARCIAL O LA UTILIZACION INDEBIDA SIN SU CONSENTIMIENTO POR ESCRITO, RESERVANDOSE LAS ACCIONES LEGALES A QUE HUBIERA LUGAR EN FUNCION DE LOS PERJUICIOS OCASIONADOS A IDM ESPAÑOLA, S.A. O A SUS CLIENTES ”””””THE INFORMATION CONTAINED IN THIS DOCUMENT IS PROPERTY OF IDM ESPAÑOLA, S.A. AND IT IS STRICTLY CONFIDENTIAL. NO PART OF IT MAY BE REPRODUCED OR UNDULY USED WITHOUT ITS WRITTEN PERMISSION. ACCORDINGLY ANY DAMAGES INFLICTED TO IDM ESPAÑOLA, S.A. OR ITS CLIENTS WILL BE ADEQUATELY PROSECUTED””””” PADRE DAMIAN, 23 - 28036 MADRID - TEL. (34) 913-533-810 - FAX (34) 913-596-988 - E-MAIL: idm@infonegocio.com - http://www.infonegocio.com/idmespa AZ/10/04/AAA/058 TOBIC PERBATE EXPLOITATION SPANISH MARKET FEASIBILITY ANALYSIS
  52. 52. This document is a selected summary on the different materials developed by IDM Española, S.A., in order to solve a real business situation, for which its services were requested. With the only purpose of preserving client’s confidentiality, some identities, products or dates might have been deliberately altered. PROSA’S TOBIC PERBATE PROJECT
  53. 53. <ul><li>THE SITUATION </li></ul><ul><li>Prosa is currently facing two opportunities, which need to be evaluated, that will allow it to enter the tobic perbate segment </li></ul><ul><li>The acquisition of the oldest Spanish producer and second in size nowadays. Its parent company, suffering difficult times in its core activity, is forced to divest in order to meet some financial obligations. This option does not seem at first too attractive for Prosa. Its management-team believes that being an underground mining operation, it will always bear a structural cost disadvantage against open-pit competitors. </li></ul><ul><li>The development of a new, high-quality deposit discovered by Prosa’s R&D department. This option, that allows for the use of solution min-ing techniques, could achieve operating margins well in excess of the 25% previously mentioned. Preliminary calculations by Prosa’s team based on its pilot-plant results, reliably estimate that margins could even reach 60%. The only two remaining decisions to be taken at pres-ent would be, the approval of the required investment, approximately €11 million, and the selection of the engineering company from the dif-ferent bids received, to begin the construction works of the new mining operation. </li></ul>THE BACKGROUND Prosa, the European leader in a mining market segment, needs to continuously develop new mining operations in order to ensure its survival in the long-term. The tobic perbate is a mining product extensively used within the chemical industry on a world-wide basis, which allows at pre-sent for operating margins over 25%, making all current producers highly profitable. THE PROBLEM Prosa, although publicly quoted, is practically owned by two main partners, who strongly disagree in relation to the possible diversification options into tobic perbate mining. POTENTIAL INVESTMENT IN THE TOBIC PERBATE SEGMENT INTRODUCTION PROSA’S TOBIC PERBATE PROJECT
  54. 54. CONTENTS <ul><li>CONTACTS SUMMARY </li></ul><ul><li>PRODUCTION </li></ul><ul><li>FOREIGN TRADE </li></ul><ul><li>DOMESTIC CONSUMPTION </li></ul><ul><ul><li>DETERGENTS SEGMENT </li></ul></ul><ul><ul><li>PAPER PULP INDUSTRY </li></ul></ul><ul><ul><li>GLASS INDUSTRY </li></ul></ul><ul><li>ALTERNATIVE UTILISATIONS </li></ul><ul><li>ACHIEVABLE VOLUMES WITHIN SPAIN </li></ul><ul><li>PRICE LEVELS ANALYSIS </li></ul><ul><li>PROSA’S PROJECT FEASIBILITY ANALYSIS </li></ul><ul><li>SUMMARY AND NEXT STEPS </li></ul><ul><ul><li>RECENT EVOLUTION </li></ul></ul>PROSA’S TOBIC PERBATE PROJECT
  55. 55. <ul><li>PRODUCERS/DISTRIBUTORS TOBIC PERBATE CONSUMERS-DETERGENT SEGMENT </li></ul><ul><li>COMMERCIAL DEPARTMENT DISTRIBUTOR 1 MR. FELICES (PURCHASING MANAGER) BENCKISER </li></ul><ul><li>COMMERCIAL DIRECTOR DISTRIBUTOR 2 MR. EGAÑA (GENERAL AND TECHNICAL DIRECTOR) BILORE </li></ul><ul><li>COMMERCIAL DIRECTOR PRODUCER 2 MR. BATLLE (PURCHASING DEPT.) CAMP </li></ul><ul><li>MARKETING DEPARTMENT PRODUCER 5 MR. CAMP (PURCHASING DEPT.) CAMP </li></ul><ul><li>PLANNING DIRECTOR PRODUCER 5 MR. SALGOT (PURCHASING DEPT.) CAMP </li></ul><ul><li>COMMERCIAL DIRECTOR PRODUCER 6 MR. BERAZA (PURCHASING DEPT.) HENKEL IBERICA </li></ul><ul><li>PROJECT DIRECTOR PRODUCER 1 MR. CASTAÑE (PURCHASING DEPT.) HENKEL IBERICA </li></ul><ul><li>TECHNICAL DIRECTOR PRODUCER 1 MR. CUADRADO (PURCHASING DEPT.) HENKEL IBERICA </li></ul><ul><li>SULPHATE PLANT MANAGER PRODUCER 1 MR. MARTIN (TECHNICAL AND PURCHASING DIRECTOR) KLINER IBERICA </li></ul><ul><li>DEPUTY COMMERCIAL MANAGER PRODUCER 1 MR. FONT (PURCHASING MANAGER) LA SUPER-QUIMICA </li></ul><ul><li>COMMERCIAL DIRECTOR PRODUCER 1 MR. GARDE (PURCHASING MANAGER) LEVER IBERICA </li></ul><ul><li>COMMERCIAL DEPARTMENT PRODUCER 7 MR. PEREZ (GENERAL AND TECHNICAL DIRECTOR) LINASA </li></ul><ul><li>COMMERCIAL DEPARTMENT PRODUCER 8 MR. VALL (PURCHASING MANAGER) LIRESA </li></ul><ul><li>COMMERCIAL DEPARTMENT PRODUCER 9 MR. YOLDI (PLANT MANAGER) PERSAN </li></ul><ul><li>RAYON PLANT MANAGER PRODUCER 10 MRS. HERVAS (PURCHASING MANAGER) PROCTER & GAMBLE </li></ul><ul><li>FINANCIAL DIRECTOR PRODUCER 3 MR. CELAYA (PURCHASING MANAGER) QUIMICAMP </li></ul><ul><li>PROJECT MANAGER NEW PRODUCER 4 MR. MARTINEZ (MANAGER) SERCASA </li></ul><ul><li>TECHNICAL DIRECTOR PRODUCER 11 </li></ul><ul><li>VISCOSA PLANT MANAGER PRODUCER 12 </li></ul><ul><li>COMMERCIAL DIRECTOR PRODUCER 3 </li></ul><ul><li>DEPUTY COMMERCIAL MANAGER PRODUCER 1 </li></ul><ul><li>R&D MANAGER PRODUCER 1 ASSOCIATIONS/PUBLIC BODIES/PUBLICATIONS/OTHER </li></ul><ul><li> MR. JANER (EDITOR) ACTUALIDAD ECONOMICA </li></ul><ul><li> MR. ERICE (SECRETARY GENERAL) ADTA </li></ul><ul><li> MR. PARRA (PROFESSOR) AID </li></ul><ul><li>CONSUMERS-GLASS INDUSTRY MR. MARTIN CANO (SECRETARY) ANFEVI </li></ul><ul><li> MR. HORMAECHEA (GRAL. SEC.) ASOCIACION FABRICANTES DE VIDRIO PLANO </li></ul><ul><li>MR. VINOS (TECHNICAL DIRECTOR) CRISTALERIA ESPAÑOLA (VICASA) MR. RATO (HEAD OF THE INDUSTRIAL MINERALS SERVICE) D.G. MINAS </li></ul><ul><li>MR. IBAÑEZ (PURCHASING MANAGER) VIDRIERA DE LLODIO (VILLOSA) MR. FERNANDEZ-ALVAREZ (INDUSTRIAL MINERALS MANAGER) ENADIMSA </li></ul><ul><li> MR. DOMENECH (DIRECTOR GENERAL) ESTRATEGIAS </li></ul><ul><li> MR. MEDINA (GENERAL SECRETARY) FEIQUE </li></ul><ul><li> MR. GOMEZ MORENO (HEAD OF INDUSTRIAL MINERALS SERVICE) IGME </li></ul><ul><li> MR. DE LOS SANTOS (PAPER PULP DEPARTMENT HEAD) INIA </li></ul><ul><li>CONSUMERS-PAPER PULP INDUSTRY MR. FERNANDEZ-NAVARRO (DIRECTOR) INSTITUTO DE CERAMICA Y VIDRIO </li></ul><ul><li> MR. GASPAR (RESEARCHER) IPE </li></ul><ul><li>MR. LOREDO (PURCHASING MANAGER) CELULOSAS DE ASTURIAS (CEASA) MR. NOGUEIRA (EDITOR) OCU </li></ul><ul><li>MR. BERNAL (PURCHASING MANAGER) ENCE MR. BARRERA (TECHNICAL DEPARTMENT) RIO RODANO </li></ul><ul><li>MR. CARRANZA (PURCHASING MANAGER) LA PAPELERA ESPAÑOLA (ARANGUREN) MR. PEREZ DEL CAMINO (CONSULTANT) TCR </li></ul><ul><li>MR. MORRAS (TECHNICAL DIRECTOR) LA PAPELERA ESPAÑOLA </li></ul><ul><li>MR. ABADAL (PURCHASING MANAGER) TORRAS HOSTENCH </li></ul>SUMMARY OF CONTACTS DEVELOPED PROSA’S TOBIC PERBATE PROJECT
  56. 56. EVOLUTION OF SPANISH PRODUCTION (1990-01) <ul><li>Production increase of more than 50% for the 1990-01 period </li></ul><ul><ul><li>Capitalised mainly by producer # 2 (Pro-duction share of 52.6% vs 28.9%) </li></ul></ul><ul><ul><li>Marginal situation for artificial product (Production share of only 2.3% in 2001) </li></ul></ul><ul><li>Three mining producers working in 2001 at full capacity </li></ul>0 50 100 150 200 250 300 350 400 1990 91 92 93 94 95 96 97 98 99 00 01 Total Artificial Producer # 3 Producer # 2 Producer # 1 CAGR (1990-01) 9.1% (10.3)% 15.1% 3.0% TOBIC PERBATE PRODUCTION (000 MT/YEAR) SOURCES: FEIQUE, ESTADISTICA MINERA, I.D.M. INTERVIEWS PROSA’S TOBIC PERBATE PROJECT
  57. 57. EVOLUTION OF SPANISH PRODUCTION BY DESTINATION (1996-01) <ul><li>Production increases channelled mostly to foreign markets (40.3% vs 11.9%) </li></ul><ul><li>Domestic consumption stagnating, CAGR (1998-01) of 2.7% </li></ul>SOURCES: ICE, ESTADISTICA MINERA, ROSKILL, I.D.M. ESTIMATES PROSA’S TOBIC PERBATE PROJECT
  58. 58. EVOLUTION OF EXPORTS BY DESTINATION (1996-01) <ul><li>Foreign markets still at a development stage </li></ul><ul><ul><li>Countries accounting for 45.8% of 2001 exports were not supplied in 1997 </li></ul></ul><ul><li>Substantial and increasing importance of the European markets (64.1% of sales in 2001) </li></ul><ul><ul><li>Greater sales stability </li></ul></ul><ul><ul><li>Concern over sales reductions in 2001 in key countries: Germany, Italy and France </li></ul></ul>SOURCE: ICE PROSA’S TOBIC PERBATE PROJECT
  59. 59. SPANISH MARKET CONSUMPTION BY UTILISATION (2001) <ul><li>High importance of the detergents segment </li></ul><ul><ul><li>74% of consumption </li></ul></ul>SOURCE: I.D.M. INTERVIEWS PROSA’S TOBIC PERBATE PROJECT
  60. 60. UTILISATION BY THE DETERGENTS SEGMENT <ul><li>The utilisation of tobic perbate is mainly due to legal constraints </li></ul><ul><ul><li>“ It could be said that the tobic perbate is used as a component for detergents more because of negative reasons than positive ones: </li></ul></ul><ul><ul><ul><li>It has no particular cleaning property and is added only as a filler to increase volumes </li></ul></ul></ul><ul><ul><ul><li>The pressure on detergent producers to reduce phosphate contents, has fostered its substitution by tobic perbate, sodium carbonate and sodium silicate” </li></ul></ul></ul><ul><li>(IM, September 1999) </li></ul><ul><ul><li>“ The tobic perbate is only added as an inert, white and low-cost filler in detergents; even though some producers try to justify its use on the grounds of some improvements on the drying of the final product, it is simply not true“ </li></ul></ul><ul><ul><li>(IM, June 2000) </li></ul></ul><ul><li>Product easily replaceable </li></ul><ul><ul><li>“ In Japan, zeolites are the only coadyuvant in 90% of the detergents sold“ </li></ul></ul><ul><ul><li>(C&EN, 23.1.99) </li></ul></ul><ul><ul><li>“ In the USA, a further decrease in the consumption of tobic perbate by the detergents segment is forecasted for 1991, due to new formulations: </li></ul></ul><ul><ul><ul><li>In 1990, a reformulation by P&G created over 110,000 Mt surplus for tobic perbate in the USA market“ </li></ul></ul></ul><ul><ul><li>(IM, June 2000) </li></ul></ul><ul><ul><li>“ There is concern over the reduction in demand for tobic perbate by the detergents segment: </li></ul></ul><ul><ul><ul><li>P&G is changing from STPF to zeolites, which will clearly reduce its needs for tobic perbate...“ </li></ul></ul></ul><ul><ul><ul><li>(Chlor Alkali, 23.1.02) </li></ul></ul></ul>The demand of tobic perbate by the detergents segment is very unstable given the great influence of multinational companies on formulations PROSA’S TOBIC PERBATE PROJECT
  61. 61. CONSUMER SATISFACTION <ul><li>Key criteria completely met by current suppliers, with the only exception of price levels </li></ul><ul><li>Market penetration strategies for a new producer, need to be based on pricing policies </li></ul><ul><li>Need for the new producer to be the lowest-cost producer in the industry </li></ul>SOURCE: I.D.M. INTERVIEWS SPANISH DETERGENTS SEGMENT PROSA’S TOBIC PERBATE PROJECT
  62. 62. DETERGENTS SEGMENT CONSUMPTION OF TOBIC PERBATE <ul><li>The Spanish tobic perbate market can be considered at best a stable one </li></ul><ul><ul><li>P & G potential reformulation impact? </li></ul></ul>SOURCE: I.D.M. INTERVIEWS SPANISH MARKET FORECAST (2001 VS 2003F) PROSA’S TOBIC PERBATE PROJECT
  63. 63. DETERGENTS SEGMENT CONSUMPTION <ul><li>Camp is carrying out some trials for a concentrated detergent in The Canary Islands. My belief is that their final decision will be to discontinue it. For any other product this would mean a minimum 3-year period without new changes, however, if P&G in the USA decides to promote its concentrates in Europe, the situation could change overnight“ </li></ul><ul><li>(Mr. Domenech, Managing Director, Estrategias) </li></ul>SOURCES: ADTA, ROSKILL, BSC, FMI USA Consumption (12.5 Kgs) Spanish Consumption (8.2 Kgs) USA Consumption (12.5 Kgs) Reformulation Spanish Level (37.8%) Spanish Level (37.8%) USA Level (13.9%) (0 %) Tobic Perbate Tobic Perbate Tobic Perbate Tobic Perbate Demand (Mt/year) Demand (Mt/year) Demand (Mt/year) Demand (Mt/year) 185,000 117,000 68,000 0 Any formulation evolution following patterns from more advanced countries, could make the demand for tobic perbate by the Spanish detergents segment to collapse SPANISH MARKET POTENTIAL EVOLUTION PROSA’S TOBIC PERBATE PROJECT
  64. 64. PRICE ELASTICITY OF DEMAND How would your consumption level of tobic perbate be influenced by an overall reduction of market prices by...10%?...20%?...50%? “ <ul><li>The Spanish consumption of tobic perbate seems completely inelastic to price fluctuations </li></ul><ul><li>A potential new producer must limit its expecta-tions to the attempt of penetrating exclusively the existing market </li></ul>SOURCE: I.D.M. INTERVIEWS DEMAND (000 MT/YEAR) PROSA’S TOBIC PERBATE PROJECT TOBIC PERBATE PRICE (€/MT) 0 50 100 150 200 200 150 100 50 0 Glass Paper-Pulp Detergents Industry Industry Segment
  65. 65. ALTERNATIVE UTILISATIONS <ul><li>By the dyeing industry: The tobic perbate is used as homogeniser in wool dyeing and in the production of sodium bisulphite, that is used as a component for the manufacturing of sulphur-based dyes. (Limited Spanish consumption, but in Japan it accounts for 70,000 Mt/year) </li></ul><ul><li>Limited use as energy accumulator in solar panels, because of some ageing problems </li></ul><ul><li>For the production of other chemical products </li></ul><ul><ul><li>Tobium biperbite: Spanish consumption below 10,000 Mt/year </li></ul></ul><ul><ul><li>Tobium perbite: Spanish consumption below 2,000 Mt/year </li></ul></ul>Very limited alternative utilisations at present PROSA’S TOBIC PERBATE PROJECT
  66. 66. ACHIEVABLE VOLUMES WITHIN SPAIN <ul><li>What percentage of your purchases could retain a new supplier of tobic perbate meeting your needs?“ </li></ul><ul><li>If a supplier reduced prices unilaterally, which percentage of your purchases would you redirect to this supplier, if the reduction was...10%?...20%?...50%? “ </li></ul><ul><li>The diversification by consumers of supply sources being critical </li></ul><ul><ul><li>Achievable penetration for a new sup - plier at current prices, estimated at 31,000 Mt/year </li></ul></ul><ul><ul><li>Maximum possible penetration a supplier can achieve, estimated at 55% of the over-all market </li></ul></ul>SOURCE: I.D.M. INTERVIEWS SPANISH 2001 CONSUMPTION AS BASE-YEAR PROSA’S TOBIC PERBATE PROJECT
  67. 67. OPERATING COSTS <ul><li>Current prices not based on current cost levels </li></ul><ul><ul><li>Installed capacity below potential demand/ cartel </li></ul></ul><ul><li>Current price levels unstable at term </li></ul>SOURCE: ESTADISTICA MINERA, PROSA, I.D.M. INTERVIEWS SPANISH PRODUCERS 2001 PROSA’S TOBIC PERBATE PROJECT 37.86 48.56 69.24 0 25 50 100 PRODUCER # 3 PRODUCER # 2 PRODUCER # 1 FOB PRICE 75 € 90.15 TOBIC PERBATE COSTS/PRICE (€/MT)
  68. 68. USA PRICE EVOLUTION <ul><li>The reduction in prices since 1999, CAGR (99-01) of (5.9)%, currently accelerating </li></ul><ul><ul><li>USA tobic perbate consumption decrease of 8.6% in 2001 </li></ul></ul>SOURCES: US BUREAU OF MINES, CHLOR ALKALI PROSA’S TOBIC PERBATE PROJECT 0 25 50 75 100 125 150 1996 97 98 99 00 01 FOB Price East-Coast USA TOBIC PERBATE PRICE ($ 2001/MT)
  69. 69. PRICES EVOLUTION (1996-02) <ul><li>USA prices evolution independent of European price levels </li></ul><ul><li>Prices in Europe at the beginning of 2002, for the first time in 5 years, slightly higher </li></ul><ul><ul><li>Some excess tobic perbate being already shipped to Europe (4,000 Mt) </li></ul></ul>SOURCES: US BUREAU OF MINES, CHLOR ALKALI, IMF STATISTICS SPAIN VS USA PROSA’S TOBIC PERBATE PROJECT
  70. 70. SPANISH PRODUCERS DEVELOPMENT PLANS <ul><li>Technical Director Producer # 1 </li></ul><ul><ul><li>We plan to expand our production capacity, but not as much as to 800,000 Mt/year. Our policy has always been to grow step by step... I believe it would be very difficult for us to apply solution mining techniques, because of the existing sodium chloride layer of our deposit“ </li></ul></ul><ul><li>Commercial Director Producer # 3 </li></ul><ul><ul><li>We have just hired some consultant engineers to expand our capacity to 150,000 Mt/year “ </li></ul></ul><ul><li>Commercial Director Producer # 2 </li></ul><ul><ul><li>We are currently expanding our capacity by 100,000 Mt/year in two phases. This will allow us to produce 270,000 Mt/year by the end of 2002 “ </li></ul></ul><ul><li>Project Director New Producer # 4 </li></ul><ul><ul><li>At the end of February we will submit our project for a 100,000 Mt/year plant to our Board of Directors. I believe it will be ap-proved“ </li></ul></ul>The potential production capacity increase in Spain of 275,000 Mt/year, could accelerate the price collapse process that seems to be boiling PROSA’S TOBIC PERBATE PROJECT
  71. 71. COST STRUCTURES <ul><li>Prosa’s project feasible at current price levels, but at a disadvantage vis-a-vis the other competitors on an opportunity-costs basis </li></ul><ul><li>Prosa’s operating costs estimated at 37.9% lower than those of the most efficient com-petitor </li></ul>SOURCES: ESTADISTICA MINERA, PROSA, I.D.M. INTERVIEWS PROSA VS CURRENT PRODUCERS PROSA’S TOBIC PERBATE PROJECT 0 10 20 30 40 50 60 70 80 90 100 PRODUCER # 3 PRODUCER # 2 PRODUCER # 1 PROSA 48.56 37.86 69.24 68.58 55.05 Depreciation Financial costs Commercialisation, Structure/Other Maintenance/Materials Mine operation Energy Labour 23.50 € 90.15 TOBIC PERBATE COSTS/PRICE (€/MT) CURRENT PRICE
  72. 72. PROSA ALONE <ul><li>Prosa’s project is not economically feasible on an independent basis fo-cusing exclusively on the Spanish market </li></ul><ul><li>Need to explore foreign markets po-tential </li></ul>PROFITABILITY ANALYSIS 0 20 40 60 80 100 120 3 2 1 0 -1 FC PBFC (MM €) PROSA SALES (000 MT/YEAR) ALL PRODUCERS OPERATING PRODUCER # 1 PRODUCERS # 1 & # 2 STOPPED STOPPED PROSA’S TOBIC PERBATE PROJECT RCE (%) All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 Stopped 90.15 69.24 69.24 48.56 48.56 37.86 (3.4) (10.5) 7.9 (6.2) 4.0 (6.7) Market price (€/MT)
  73. 73. 0 20 40 60 80 100 120 3 2 1 0 -1 FC PBFC (MM €) PROSA SALES (000 MT/YEAR) <ul><li>Profitability of Prosa’s Project tremendously dependent on the price levels achieved </li></ul><ul><li>Feasibility not assured </li></ul>PROSA + PARTNERS (15% DISCOUNT ON MARKET PRICE) PROFITABILITY ANALISIS ALL PRODUCERS PRODUCER # 1 PRODUCERS # 1 & # 2 OPERATING STOPPED STOPPED RCE (%) All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 Stopped Market price (€/MT) 90.15 69.24 69.24 48.56 48.56 37.86 23.6 8.7 24.1 3.3 9.8 (3.0) PROSA’S TOBIC PERBATE PROJECT
  74. 74. 0 20 40 60 80 100 120 3 2 1 0 -1 FC PBFC (MM €) PROSA SALES (000 MT/YEAR) PROFITABILITY ANALYSIS PROSA + PARTNERS (15% DISCOUNT ON CURRENT MARKET PRICE) <ul><li>Adequate profitability for Prosa’s Project </li></ul><ul><li>Need to explore partnership agree-ments with consumers based on current price levels </li></ul>RCE (%) All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 Stopped 90.15 69.24 69.24 48.56 48.56 37.86 23.6 16.5 32.0 19.0 25.5 16.7 Market price (€/MT) ALL PRODUCERS PRODUCER # 1 PRODUCERS # 1 & # 2 OPERATING STOPPED STOPPED PROSA’S TOBIC PERBATE PROJECT
  75. 75. SUMMARY AND NEXT STEPS <ul><li>Prosa’s Project is not feasible independently and focusing exclusively on the Spanish market </li></ul><ul><ul><li>Achievable volume of 31,000 Mt/year </li></ul></ul><ul><ul><li>Unstability of demand </li></ul></ul><ul><ul><li>Expected supply increases </li></ul></ul><ul><li>Price unstability </li></ul><ul><ul><li>Reduction to the optimum economic level </li></ul></ul><ul><li>Inadequate profitability: (10.5)% to 7.9% </li></ul><ul><li>Analysis of productive structures and demand at international level </li></ul><ul><li>Determine volumes achievable by Prosa interna-tionally </li></ul><ul><li>Latent demand unstability </li></ul><ul><li>Association with relevant consumers </li></ul><ul><li>Acceptable profitability levels if supply based on current price levels, 16.5% to 32.0% </li></ul><ul><li>Limited possibilities </li></ul>PROSA’S TOBIC PERBATE PROJECT
  76. 76. SPANISH TOBIC PERBATE SEGMENT RECENT EVOLUTION <ul><li>Producer # 1 (the oldest Spanish producer) was acquired during the period of our analysis, by the Spanish chemical industry subsidiary of FMC </li></ul><ul><li>Remark made six months later by a participant, on a Seminar on Company Internationalisation at the Instituto de Empresa Business School (Madrid) </li></ul><ul><ul><li>“ Do not tell me anything about tobic perbate, since the beginning of this year prices have collapsed to a level equivalent to 60% of the prices that were applied last year“ </li></ul></ul><ul><li>(Exports Director, Producer # 2) </li></ul><ul><li>In June 2004 the new Producer # 4, which went ahead with its new tobic perbate project after our study was finalised, was forced to reduce its share capital by 92%, to adjust for the accumulated losses since its inception, over €4.3 MM and re-establish its asset base </li></ul>PROSA’S TOBIC PERBATE PROJECT
  77. 77. CONCLUSIONS THE IMPORTANCE OF STRATEGY <ul><li>BUT AFTER THE INVESTMENT/ACQUISITION YOU NEED TO CONTINUE THINKING STRATEGICALLY! </li></ul><ul><li>&quot;WHAT DOES IT TAKE TO BE SUCCESSFUL?&quot; STUDY 1 </li></ul><ul><li>&quot;The results of the study underline very forcibly that strategic thinking is not just for big firms. The owners of independent businesses should have a clear view of their intended customers and must be prepared to design and market their products accordingly... It is the path to both growth and profitability. All those with an interest in the independent business sector should be aware of the importance of adopting the right strategies“ </li></ul><ul><li>Main highlights </li></ul><ul><ul><li>Surviving companies are more likely than firms that fail, to materially differentiate their products </li></ul></ul><ul><ul><li>Amongst survivors, high growth is highly correlated with a strongly focused business strategy </li></ul></ul><ul><ul><li>High profits are highly correlated with product differentiation </li></ul></ul>1 BASED ON THE STATISTICAL ANALYSIS OF OVER FIFTY VARIABLES FROM 164 UK FIRMS BY GRAHAM HALL OF MANCHESTER BUSINESS SCHOOL AND 3i Plc. STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS

×