2. FLOW – reference only
KEY TAKEAWAYS DONE
SET UP – WHO WE ARE
• Strategy - DONE
• Business model – IN PROCESS - Jorge
• Competitive market strategies – VENKAT / CHUCK
– Internet
– Wholesale
– Private
– Overall marketing strategy
• Functional strategies
– Production strategy
– Financial strategy
• Competition (16)
HOW WE DID
• Results
– Key performance metrics
– 3-year plan results
– Operational results
– Performance vs competition (J/R) & why (C/V)
– In sum: DID WE FOLLOW OUR STRATEGY - Jorge
LOOKING FORWARD - TOGETHER
• What We Would Do Differently
• Look Forward – Projecting EXL’s next 2 years
– key metrics
– Competitive actions
3. KEY TAKEAWAYS
• Have a clearly defined strategy and be sure it
guides your decisions
• Choose great team members; leverage their
abilities and work effectively: right person right
job
• Hone your forecasting skills and project more
than 3 years in the future
• Know your competitors’ strategies and how they
think
• Senior management’s job is more difficult than it
appears
4. Strategy Statement
Our strategy: to offer one of the broadest ranges of models with lower
than average S/Q ratings and maximize our production capacity through
optimal participation in the branded and private label segments
Our strategic vision: to be a top 3 market leader in the branded market
Ours is a Global Differentiation strategy. Our differentiation areas:
• Broad range of models
• Lower than average (possibly lowest) S/Q rating
• Competitive pricing
• Superior distribution network via retail outlets and retailer support
• One of the largest production capacities in the industry with a focus on
optimized capacity utilization; local production capabilities in all regions
5. Business Model Canvas
Cost Structure Revenue Streams
Key Partners Key Activities
Key Resources
Value Proposition Customer
Relationship
Channels
Regional Footprint
6. Competitive Marketing Strategy
Overall
• Distribution Network
• Broad Range of Models
• More Outlets, Better Retailer Support
• Lower S/Q Rating and Competitive Prices
7. Competitive Marketing Strategy
Wholesale
• Competitive Price (graph showing global trends?)
• Broad Range of Models (graph - global)
• Advertising Budget > Industry Averge
• Retail Outlet
• Retailer Support
• Less focus on Celebrity Appeal
9. Competitive Marketing Strategy
Private Label
• Superior Material Cost Increases
• Number of Models
• S/Q Rating
• Pricing Adjusted to Competitors Prices
Superior
Material Cost
Increases
Graph
12. EXL’s Financial Strategy
Our financial strategy is to:
• support the growth of the company
• support EXL’s goal of achieving a differentiated product at a lower
than average price
• support our targeted best-in-class capacity profile
• remain fiscally healthy
Our financial strategy is to:
• support the growth of the company
• support EXL’s goal of achieving a differentiated product at a lower
than average price
• support our targeted best-in-class capacity profile
• remain fiscally healthy
13. EXL’s Financial Strategy
• Financing Growth
• Our primary source of financing for growth is leverage in the form of loans, to support our capacity-expansion and operational improvement efforts. We will allow a significant amount of leverage, because we believe capacity
expansion is critical to the success of our strategy. Our secondary source of financing growth will be the use of excess cash. We would consider the issuance of additional stock only if faced with a strong need for cash.
•
• Target Debt-Equity Ratio
• Given our high leverage, we are comfortable with a relatively high debt to equity ratio. Our overall debt-equity ratio objective is for a range between 0.45 and 0 50. Although this ratio is higher than the industry average, it reflects
our intensive investment in capacity, which is a core component of our strategy and gives us a competitive advantage. Furthermore, we believe that despite the higher than ideal ratio, we will still be able to achieve our credit
rating goal of A- by Year 20. We are aiming for a debt-asset ratio in the range of 0.35 to 0.40, which is higher than the approximate industry average of 0.20, but which again reflects our strategy of investment in capacity to drive
competitive advantage.
•
• Dividend Policy
• Given our focus on increasing the company’s capacity and positioning the company for longer-term growth, we elected not to pay dividends until we are at a point where we believe we could support an annual dividend payment.
Our goal is to be able to begin paying dividends by Year 20.
•
• Excess Use of Cash
• We use any excess cash above our threshold annual cushion level of approximately $20 million in cash to fund daily operations and cost-optimization measures, such as increasing productivity. We also invest in retailer support
to drive development of a strong network distribution, and product enhancement initiatives. We invest in corporate citizenship measures during the initial five-year phase of operations.
•
• Relative to financial objectives, we aim to repurchase stock on an opportunistic basis, targeting repurchase when the stock price falls below $30, with the objective of increasing our EPS, ROE and our share price. The
repurchase amount and timing will depend upon cash needs and stock price; it will not necessarily be an annual strategy, as our primary use of cash is focused on operational needs. The primary use of cash generated from the
stock repurchases will be used to refinance or pay down debt. During the final phase of the simulation we expect to allocate a portion of our additional cash to dividends.
•
• Capital Investment Decision Criteria
• Because the athletic shoe industry is expected to nearly double in size by Year 20, EXL’s capital investment plan is critical to its growth objectives. Thus the primary criteria for our investments is in support of our growth strategy.
The company expects our return on equity to average approximately 15%, so funding our growth by borrowing funds at less than 10% interest should allow it create additional value for investors. On a payback basis, using a
conservative approach (i.e., not including the positive impact of the plant on total fixed production costs but rather using only the net income from the plant’s production and factoring in the interest of the loan used to build the
plant), the payback period for the $76 million investment to bu
• Criteria that the team considers relative to its investment decisions include: projected size of the athletic shoe industry, EXL’s annual profitability, total debt, interest rates, and competitors’ actions. The management team will
closely monitor the annual performance target associated earnings per share, return on equity, credit rating, stock price and image rating to assess effects of its decisions.
• Trade-off/risks for the Financing Functional Strategy: Our financing strategy relies heavily on debt, which can pose challenges and risky if not governed with a disciplined approach. Carrying a high amount of debt generally
results in higher cost of debt going forward, as well as the risk of potential credit downgrades. Furthermore, we aim to pay off as much debt as possible when we are able to do so, with the tradeoff that it is difficult to pay out
dividends, as we have prioritized the use the cash for debt repayment versus dividend payments. However, investment in capacity is a critical component of our strategy and as such, we believe that the company’s high level of
leverage is worth the trade-offs and potential risk, which we are careful to monitor and mitigate when possible. We believe that the investments we are making in the foundation phase of the company will enable great cash-
generation in future, which will enable us to pay dividends and return value to our shareholders.
• ild our Latin American plant is 4.7 years, which we believe is a favorable rate, given that we used a 1-year $100 million loan at 7% interest to finance the facility
• Criteria that the team considers relative to its investment decisions include: projected size of the athletic shoe industry, EXL’s annual profitability, total debt, interest rates, and competitors’ actions. The management team will
closely monitor the annual performance target associated earnings per share, return on equity, credit rating, stock price and image rating to assess effects of its decisions.
• Trade-off/risks for the Financing Functional Strategy: Our financing strategy relies heavily on debt, which can pose challenges and risky if not governed with a disciplined approach. Carrying a high amount of debt generally
results in higher cost of debt going forward, as well as the risk of potential credit downgrades. Furthermore, we aim to pay off as much debt as possible when we are able to do so, with the tradeoff that it is difficult to pay out
dividends, as we have prioritized the use the cash for debt repayment versus dividend payments. However, investment in capacity is a critical component of our strategy and as such, we believe that the company’s high level of
leverage is worth the trade-offs and potential risk, which we are careful to monitor and mitigate when possible. We believe that the investments we are making in the foundation phase of the company will enable great cash-
generation in future, which will enable us to pay dividends and return value to our shareholders.
14. Competition
Principal Competitor – Baby Bombers
Year 20 Comparison
EXL Baby Bombers
Models Offered
S/Q
Global Market Share
Wholesale/Internet
Private Label
Regional Production
Financial
15. Competition
Industry
• EXL - Differentiation
• Baby Bombers - Differentiation
• Cadidas - High Price/High Quality
• Dynamic - Differentiation
• Aero – Low Price Leader
• Fantastic - Unclear
Year 13 Year 20
34. SWOT Analysis
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Strengths
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Weaknesses
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Opportunities
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Threats
SWOT
