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KPMG Internation Case Competition 2015 (Finalist)

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Analysis of the entrance of a home appliance manufacturer, Mabe, into Russia.

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KPMG Internation Case Competition 2015 (Finalist)

  1. 1. The Russian Roadmap Modern Comfort for the Modern Home Cines | Cook | Paul | Wang
  2. 2. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 1 Intro Solution Manufacture Market Motivate Conclusion Key Issues Inefficient Manufacturing Low Brand Equity Cultural Differences Continuance of Figor JV To pursue or not to pursue the Russian Market ?
  3. 3. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 2 The “Triple M” Plan Manufacture Market Motivate Intro Solution Manufacture Market Motivate Conclusion
  4. 4. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 3 Manufacture Manufacture Market Motivate Intro Solution Manufacture Market Motivate Conclusion
  5. 5. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 4 Manufacture Intro Solution Manufacture Market Motivate Conclusion How do we execute a manufacturing strategy that is both low cost and sets us up to compete in the future? Build a local manufacturing factory near Moscow. Why? • Reduce Cost • Market Penetration • Attain State Funding How? • Buy out local factory or • Acquire small appliance company
  6. 6. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 5 Manufacture - Timeline Intro Solution Manufacture Market Motivate Conclusion 2015 2016 2017 Acquire and Begin Production Renovate and Build New Production Plants and Identify Location for Future Asia Growth 2015 2017 & Beyond Identify Local Manufacturing Plant
  7. 7. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 6 Market Manufacture Market Motivate Intro Solution Manufacture Market Motivate Conclusion Acquire local factory Acquire local factory Acquire local factory
  8. 8. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 7 Market Intro Solution Manufacture Market Motivate Conclusion How do we reach a fragmented Russian audience where we have low brand equity? We aggressively pursue the young Russian market How? • “Modern Comfort for the Modern Home” Why? • Population • Demand
  9. 9. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 8 Modern Comfort for the Modern Home Intro Solution Manufacture Market Motivate Conclusion Two Cities Two Lines Smart Promotion Online Integration
  10. 10. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 9 Market - Timeline Intro Solution Manufacture Market Motivate Conclusion 2015 2016 2017 Roll out Online Implementation Continue Marketing 2015 2017 Start Marketing Campaign Celebrity Sport Endorsements
  11. 11. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 10 Motivate Manufacture Market Motivate Intro Solution Manufacture Market Motivate Conclusion Modern Comfort for the Modern Home Acquire local factory
  12. 12. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 11 Motivate Intro Solution Manufacture Market Motivate Conclusion How do we incubate Russian culture while insuring a strong talent pipeline to satisfy future growth?Modern training and recruitment unified under common goal How? • University recruitment strategy • Rotational program • External hire process • Common goal Why? • Lack of local knowledge • Poorly educated workforce
  13. 13. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 12 Motivate – Recruitment Timeline Intro Solution Manufacture Market Motivate Conclusion 2015 2016 2017 Partner with 2 More Universities Be Top Recruiter at 5 Elite Universities 2015 2017 & Beyond Partner w/ Top Russian Universities Develop Internship Program First Year Recruitment Class
  14. 14. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 13 Motivate – Management Timeline Intro Solution Manufacture Market Motivate Conclusion 2015 2016 2017 Have Process for External Transfer Hires 2015 2017 & Beyond Recruit 3 Top Executives from Competitors Recruit 5 execs w/ local experience First Year Recruitment Class
  15. 15. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 14 The “Triple M” Plan Manufacture Market Motivate Intro Solution Manufacture Market Motivate Conclusion Modern Comfort for the Modern Home Acquire local factory Culture, Retention, & Recruitment
  16. 16. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 15 Risk & Mitigation Tactics Manufacture Market Motivate Intro Solution Manufacture Market Motivate Conclusion Can we find a factory? Low valuations and fragmented market allow options Will our message hit home? Multiple touch points & strong message allows for reliable message How will external hires work with new? Extensive screening interview process will find right fit
  17. 17. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 16 Financials Intro Solution Manufacture Market Motivate Conclusion 5 Year Bear Case $503 Million in Revenue 5 Year Base Case $570 Million in Revenue 5 Year Bull Case $636 Million in Revenue Bull Base Bear 2015 $79.8 $79.8 $79.8 2016 $106.9 $94.2 $81.4 2017 $109.1 $96.1 $83.0 2018 $111.3 $98.0 $84.7 2019 $113.5 $99.9 $86.4 2020 $115.8 $101.9 $88.1 Total $636.3 $569.9 $503.4
  18. 18. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 17 Conclusion Manufacture Market Motivate Intro Solution Manufacture Market Motivate Conclusion Modern Comfort for the Modern Home Acquire local factory Culture, Retention, & Recruitment
  19. 19. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  20. 20. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 19 Appendix A Microwave (per unit) Washer (per unit) Economy Premium Economy Premium 40 60 300 400 Direct Materials $14.60 $21.90 Direct Materials $111.15 $148.20 Direct Labor 13.14 19.71 Direct Labor 100.04 133.38 Manufacturing Overhead 1.46 2.19 Manufacturing Overhead 11.12 1.00 Cost of Goods $29.20 $43.80 Cost of Goods $222.30 $296.40 R&D 4.25 5.25 R&D 21.00 28.00 Shipping 2.00 3.00 Shipping 24.00 32.00 SG&A Expenses $6.25 $8.25 SG&A Expenses $45.00 $60.00 Total Cost (per unit) $35.45 $52.05 Total Cost (per unit) $267.30 $356.40 Revenue 40.00 60.00 Revenue 300.00 400.00 Marginal Contribution 27% 27% Marginal Contribution 26% 26% Total Revenue (in thousands) $1,356.44 $2,034.66 Total Revenue (in thousands) $6,067.20 $8,089.60 Operating Expenses 1202.15 1765.07 Operating Expenses 5405.88 7207.83 Operating Income 154.30 269.59 Operating Income 661.32 881.77 Operating Margin 11% 13% Operating Margin 11% 11%
  21. 21. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 20 Appendix B Range (per unit) Refridgerator (per unit) Economy Premium Economy Premium 400 600 500 900 Direct Materials $156.00 $234.00 Direct Materials $202.50 $364.50 Direct Labor 140.40 210.60 Direct Labor 182.25 328.05 Manufacturing Overhead 15.60 23.40 Manufacturing Overhead 20.25 36.45 Cost of Goods $312.00 $468.00 Cost of Goods $405.00 $729.00 R&D 28.00 42.00 R&D 35.00 63.00 Shipping 40.00 60.00 Shipping 50.00 90.00 SG&A Expenses $68.00 $102.00 SG&A Expenses $85.00 $153.00 Total Cost (per unit) $380.00 $570.00 Total Cost (per unit) $490.00 $882.00 Revenue 400.00 600.00 Revenue 500.00 900.00 Marginal Contribution 22% 22% Marginal Contribution 19% 19% Total Revenue (in thousands) $27,128.86 $40,693.28 Total Revenue (in thousands) $16,955.53 $30,519.96 Operating Expenses 25772.41 38658.62 Operating Expenses 16616.42 29909.56 Operating Income 1356.44 2034.66 Operating Income 339.11 610.40 Operating Margin 5% 5% Operating Margin 2% 2%
  22. 22. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 21 Appendix C Oven (per unit) Economy Premium Direct Materials $205.58 $262.80 Direct Labor 228.42 292.00 Manufacturing Overhead 22.84 20.25 Cost of Goods $456.84 $609.12 R&D 15.00 20.00 Shipping 40.00 45.00 SG&A Expenses $55.00 $65.00 Total Cost (per unit) $511.84 $674.12 Revenue 600.00 800.00 Marginal Contribution 24% 24% Total Revenue (in thousands) $40,693.28 $54,257.71 Operating Expenses 34714.08 45720.26 Operating Income 5979.20 8537.45 Operating Margin 15% 16%
  23. 23. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 22 Appendix D: Operating Margin Bull Bear Base Total Revenue (in thousands) $134,245.5 $79,639.6 $106,942.6 Total Expenses 127,937.9 76,058.5 101,998.2 Total Income 20,824.2 5,128.9 12,976.6 Operating Margin 15.51% 6.44% 10.98%
  24. 24. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 23 Appendix E: Market Size Market Size Market Size (Washers) St Petersburg St Petersburg Total Population (in thousands) 4,860 Total Population (in thousands) 4,860 % under 24-35 18% 875 % under 24-35 18% % under 35-45 26% 1,264 % under 35-45 26% Avg HH Size (young) 1.5 583.20 persons per washer (young) 4 Avg HH Size (old) 2.58 489.77 persons per washer (old) 3 Max Potential Customers 1,073 Max Potential Customers 640 Moscow Moscow Total Population (in thousands) 10,500 Total Population (in thousands) 10,500 % under 24-35 18% 1,890 % under 24-35 18% % under 35-45 26% 2,730 % under 35-45 26% Avg HH Size (young) 1.5 1,260 persons per washer (young) 4 Avg HH Size (old) 2.58 1,058 persons per washer (old) 3 Max Potential Customers 2,318 Max Potential Customers 1,383 Total Max Potential Units Sold (in thousands) 3,391 Total Max Potential Units Sold (in thousands) 2,022 % of market captured 2% % of market captured 2% Market Size (units) 67822.139 53 Market Size (units) 40,448.00
  25. 25. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 24 Appendix F: Income Statement Income Statement December 31st (000s USD) 2006 2007 2008 2009 2010 2011 2012 Total Revenue 3,156,260 3,788,084 3,404,803 3,472,899 3,542,357 3,613,204 3,685,468 Cost of Goods Sold 2,441,751 2,940,567 2,499,649 2,549,642 2,600,635 2,652,648 2,705,700 Gross Profit 714,517 847,517 905,153 923,256 941,721 960,556 979,767 Selling General & Admin Exp. 492,716 592,034 683,088 696,750 710,685 724,898 739,396 Other Operating Exp., Total 492,716 592,034 683,088 696,750 710,685 724,898 739,396 Operating Income 221,801 255,482 222,065 226,506 231,036 235,657 240,370 Operating Margin 7.03% 6.74% 6.52% 6.52% 6.52% 6.52% 6.52% Income Statement 2013 2014 2015 2016 2017 2018 2019 2020 December 31st (000s USD) 3,759,178 3,834,361 3,911,048 3,989,269 4,069,055 4,150,436 4,233,445 4,318,113 Total Revenue 2,759,814 2,815,011 2,871,311 2,928,737 2,987,312 3,047,058 3,107,999 3,170,159 Cost of Goods Sold 999,362 1,019,349 1,039,736 1,060,531 1,081,742 1,103,376 1,125,444 1,147,953 Gross Profit 754,184 769,268 784,653 800,346 816,353 832,680 849,334 866,321 Selling General & Admin Exp. 754,184 769,268 784,653 800,346 816,353 832,680 849,334 866,321 Other Operating Exp., Total 245,178 250,081 255,083 260,185 265,388 270,696 276,110 281,632 Operating Income 6.52% 6.52% 6.52% 10.98% 11.09% 11.20% 11.31% 11.42% Operating Margin *operating margin in Russian market 2016-2020
  26. 26. © 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443 25 Appendix G: Currency Hedging Effect Exchange Rate RUB/USD in USD ($mm) Effect ($mm) -25% 87.5 $56.0 -$24.0 -15% 71.3 $68.9 -$11.1 Spot Rate 62.0 $80.0 - 10% 55.8 $88.0 $8.0 Forward Rate 70.0 $70.2 -$9.8

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