Presentation for Changellenge Moscow - 2013 (semifinal)

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Theme: M&A (Unilever & Kalina Krasnaya)

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Presentation for Changellenge Moscow - 2013 (semifinal)

  1. 1. “Kalina” is a good target for acquisition, if Unilever wants to strengthen its portfolio 223/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya"
  2. 2. To elaborate decision on “Kalina” acquisition by Unilever, following steps must be performed 323/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" Stand-alone business analysis (concern “Kalina”) Evaluation of possible bonuses from synergies Risk identification and overcome strategy formation
  3. 3. Financial analysis proves that “Kalina” has high parameters in relation to Russian market 423/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" Financial risk Debt to equity 2.55 Debt to capital 0.71 Times interest earned 3.69 Indicators are in the normal range Operating activity analysis Total assets turnover 1.27 Fixed assets turnover 5.05 High level of assets using Liquidity analysis Current ratio 1.93 Quick ratio 0.86 Company can provide short- term liabilities in the best way Cost benefit analysis Return on assets 0.16 Return on equity 0.36 High parameters
  4. 4. Potential growth of “Kalina” can be calculated with a help of certain indicators 523/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" 7% 15% 23% 2,5% 5,4% 8,3% Growth rateReinvestment rate Return of equity (ROE) = 0.36
  5. 5. All the possible synergies can be divided into three logical groups, as follows: Synergy in beneficial exchange • Synergy in media buying • Synergy of working capital • Synergy in technologies Synergy in restructuring • Synergy in administrative costs • Synergy in reduction of sales costs Synergy in logistics • Synergy in purchases of feedstock and packaging • Synergy in transportation and storage • Synergy in distribution platforms 623/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya"
  6. 6. Synergy of logistics includes cost reduction on all stages of buying, delivering, and storage 723/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" 220 distribution centers in CIS over 100 distribution centers in CIS
  7. 7. Kalina's departments have to be restructured, according to Unilever's environment Subsidiary Fields of activity Actions after merger Comments LLC Concern «Kalina» Production and sales of cosmetics and perfumery To merge with Unilever department To restructure management and to strengthen sales by experts from Unilever Kalina International SA Management of Group’s assets in Europe. M&A department To dissolve (and partially merge with equal Unilever department) Presumably, Unilever has larger similar departments; part specializing in Russian intellectual right may be retained for consultation Kalina Overseas Holding B.V Protection of intellectual property DSN Cosmetics GmbH Sales of cosmetics and perfumery To dissolve Unilever has far more opportunities for activity on the European market Rychkon Limited Financial company To move and attach to Unilever’s finance department Pallada Ukraine Distributor in Ukraine To keep unit, possibly to increase in future Retain for strengthening Unilever’s its position in the Ukrainian market Glavskazka International Development and promotion of brands in kids goods segment To keep unit Unilever doesn’t has analogous product line 22/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" 8
  8. 8. Merger of media and technology results in revenue increase and decrease of costsmedia • Unilever is well-known brand • Kalina's product lines are well-known • TV, radio and magazines spendings can be decreased technology • Kalina's know-how have to be kept (the secret formulations of products also) • The quality of Uniliver's product can by improved • New products of Unilever can be realized with new technologies after the merger 23/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" 9
  9. 9. PEST-analysis results reveal risks with high level of influence on business Group Factor Probability Influence Feedback Political Entry into WTO High, 1-3 year New business rivals Already have the strong market positions Change of political power Medium, 1-2 year New laws and business rules Using legal norm based on business experience in other countries and lobbying new laws Economic New structure of top-management High, 1-2year Inability to manage and integrate Unilever’s business processes into Kalina enterprise Adaptive structure to Russian specificity with certain Kalina’s managers Administrative obstacles High, 2-3 year Prevent dynamic and stable growth Collaboration with different government departments Owner change Medium, 1 year Leak of employees, employee layoff, quality decreasing Carry out proper personnel rating and making decision in saving staff Taxation High, 1-2 year Improper previous business activities of Kalina Work out in detail the operation history of Kalina’s accounting department Sociocultural Healthy life-style trend High, 3-5 year Increasing interests to personal care products Supply stable demand Influence of Unilever brand’s reputation Medium, 1-2 year Growth of loyalty to the products Save existing and involve new group of customers Hi-tech Invention of the new technologies Medium, 1-2 year Appearance Optimize existing technologies and develop new one to keep market share 1023/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya"
  10. 10. Analysis of the negative risks by their probability and influence shows sustainable deal 1123/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" - Administrative obstacles - Entry into WTO - New structure of top-management - Taxation - Invention of the new completive technologies - Owner change - Change of political power Probability Influence HighLow Low High Influence Probability
  11. 11. Indicators proving strong position of Kalina on the Russian FMCG market Type of product Face care H & B Shampoo + conditioner Typeofshare VolumeshareValueshare 23/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" 13
  12. 12. 1423/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" Liquidity analysis Current ratio = current assets / current liabilities Current ratio = 5,270,099/ 2,735,563 = 1,93 Quick ratio = (cash+ marketable securities + accounts receivables)/ current liabilities Quick ratio = (43,920+ 0 + 2,312,441 )/ 2,735,563 = 0,86 Cash ratio = (cash + marketable securities)/current liabilities Cash ratio = (43,920 + 0)/ 2,735,563 = 0,02 *all calculations in thousands roubles
  13. 13. Cost benefit analysis 1523/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" Gross profit margin = gross profit / net sales Gross profit margin = 6 215 426/ 11 672 588 = 0,53 Operating income = 1 508 710 Operating profit margin = operating income/net sales Operating profit margin = 1 508 710/11 672 588 = 0,13 Net income = 975 347 Net margin = net income/sales Net margin = 975 347/11 672 588 = 0,08 Average total assets = (7,377,574 + 10,994,742)/2 = 9186158 Return on assets = earnings before interest and taxes/ average total assets Return on assets = 1 508 710/ 9186158 = 0,16 Return on common equity = (net income )/average common equity Return on common equity = (971 040)/ 2700792 = 0,36 *all calculations in thousands roubles
  14. 14. Operation activity analysis 1623/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" Total asset turnover = net sales / average total assets Total asset turnover = 11 672 588/ 9186158 = 1,27 average net fixed assets = (2,107,475 + 2,519,750)/2 = 2313612,5 Fixed-asset turnover = net sales / average net fixed assets Fixed-asset turnover = 11 672 588 / 2313612,5 = 5,05 *all calculations in thousands roubles
  15. 15. Financial analysis 1723/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" Debt to capital = total debt / total capital Debt to equity = total debt / total equity Total debt = current liabilities + long-term liabilities Total debt = 5300154 Total capital = total debt + stockholders' equity Total capital = 7377574 Debt to equity = 5300154 / 2077420 = 2,55 Debt to capital = 5300154 / 7377574 = 0,71 Times interest earned = earnings before interest and tax/interest expense Times interest earned = 1 508 710/408 565 = 3,69 Capital expenditure ratio = cash flow from operations/capital expenditures Capital expenditure ratio = 583915/(57945+) = 10,07 *all calculations in thousands roubles
  16. 16. Team CV •4-year bachelor of Department of Software Engineering, HSE •Work: •assistant “Institute for System Programming” •Projects: •project certificate of company “ROSA” •Certification: •IELTS Academic (6.5) •Certificate of engineering winter school, HSE Alexey Lifshits •4-year bachelor of •Department of Software Engineering, HSE •Projects: •project certificate of company “ROSA” •Certification: •DSD (Das Deutsche Sprachdiplom) •Certificate of engineering winter school, HSE Sofya Latkina •4-year bachelor of Department of Software Engineering, HSE •Work: •senior developer “Alset Wellen” •Projects: •project certificate of company “ROSA” •Certification: •IELTS Academic (6.5) Pavel Shilov •Graduated bachelor(2011), Department of Software Engineering, HSE •2-year master degree of Department of Software Engineering, HSE •Work: •senior developer “Alset Wellen” •Projects: •Imagine Cup certificate •UX 2011 Moscow certificate •Certification: •IELTS General (6.5) Edward Kagan 23/04/13 idp! Crew - Unilever M&A "Kalina Krasnaya" 18

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