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Semifinal Case Solution by Benchmark company at Changellenge Cup Moscow 2012

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Semifinal Case Solution by Benchmark company at Changellenge Cup Moscow 2012

  1. 1. PwC Proposal to Polesye AgroProviding audit and advisory services to helpthe client move business on a higher levelMade by Benchmark Company exclusively for CL Cup Moscow’12 >>5 December 2012
  2. 2. 1-yearactionplan2Source: Benchmark company analysis, companies data, case data.We recommend rapid business expansion through foreigncredit and IPO with PwC audit and advisory support Invest $8.4B in Kurskproject Finance it throughforeign credit andreinvested profitsPerspective Action PwC SupportLong-terminitiatives Invest $6-7B in M&Adeals and greenfield Finance it through IPOin 2015 and reinvestedprofits IPO audit(detail auditing of companyreports and prospectus) Advisory services(helping the client withbusiness expansion) Compulsory audit(required to obtain loanand to provide the base forthe further IPO in 2015)By the end of 2015: $15B investments in business expansion (Foreign loan, IPO)$1.4M for PwC audit and advisory services20132014-15
  3. 3. 1. Industry analysis and competitors comparison2. Choosing the right option for business3. PwC Offer: services description and its rationale4. Final recommendations3Agenda
  4. 4. Pork consumption 2011-2015Millions of tonsThe growing pork market will be driven by domestic top-players with government support and shifts in consumption4Source: Benchmark company analysis, companies data, case data, Euromonitor, Russian Meat Union.42% 40% 37% 34% 30%22% 20% 18% 16% 15%36% 40% 45% 50% 55%2015F2014F2013F2012F2011Other domesticImportDomestic Top-102,9 3,0 3,1 3,3 3,42015F+17%2011 2014F2013F2012FThe pork market will grow by 17% bythe end of 2015Agroholdings will capture 10-15% ofmarket from import and small players35 35 35 36 36Pork share of meet consumptionPercentPork market breakdown 2011-2015Percent Meet consumption will continue to switch from beef topork and poultry According to Russian Meat Union, the market leaders willbuild additional 0.8M capacities by the end 2015 Import will continue to decrease through strong govern-ment support of the industry due to WTO transition period Market leaders have super-ambitious plans to expand itsbusiness in all segments of value chain
  5. 5. Net MarginPercent (2011)Conservative growing policy allowed Polesye Agro to bestrongly competitive with top-players performance…5Source: Benchmark company analysis, companies data, case data.Net Margin CAGRPercent (2009-2011)Net Debt/EBITDA(2011)15,56,010,622,3-0,3-14,2-6,035,03,420,62,92,4CherkizovoRusagroMiratorgPolesye AgroKey competitors proactively used borrowed capital and government subsidiesthat hugely affected its indicators, allowing Polesye Agro to be at the top Polesye Agro 3 segments of value chain are also efficient separately comparing with scarce industrydata (based on findings of some Cherkizovo and Rusagro indicators of piggery and processingbusiness units). The competitors huge debt mainly consists of borrowings and subsidized loans, other financing wasIPO or owners money.
  6. 6. 6Source: Benchmark company analysis, companies annual reports, case data.…However, the company has to respond to the aggressiverivals’ moves by expanding its businessPolesye AgroCherkizovoRusagroMiratorgKoPITANIYAAgro BelgoryeVertical IntegrationPolesye Agro is the only company that is represented in half of the value chain with modest investment plans.GrainFeed-stuffPiggeryProces-singDistri-butionRetail Investment plans in all segmentsInvestment position3 projects in piggery and feedstuff are takeninto consideration (1-8B rub by 2015)Aggressive M&A strategy (Mosselprom in 2011)Active capacity increasing (20B rub by 2015)Distribution developmentAggressive growth in piggery, grain &feedstuff (3x increase by 2015)Launching of new capacities (4,3B rub by 2013)Distribution & Retail ExcellenceAggressive growth in piggery & processing(100B rub in 3 years)Value chain further developmentPiggery & processing investments (20B rubin the mid-term perspective)15B rub investments in mid-term rangeIncludedNot included
  7. 7. 1. Industry analysis and competitors comparison2. Choosing the right option for business3. PwC Offer: services description and its rationale4. Final recommendations7Agenda
  8. 8. 8Source: Benchmark company analysis.The proposed aggressive expansion can be done only bynon-organic growth of Polesye AgroNon-organic growthOrganic growthSell businessSelection factors (key findings from first part)Steady industrygrowthCompany strongcompetitivenessHuge competitorsexpansionBusiness Options123Client weakvertical integration Non-organic growth seems like the only available option in the client situation that needshuge investments to response to the competitors Organic growth is an open issue in the long-term perspective after the proposed expansion Client can sell its business, but it makes more sense to retain control and develop the businessFits the optionDoesn’t fit the option
  9. 9. 9Source: Benchmark company analysis, case data.Among company investment projects the 3rd one will providemaximum synergy, but additional expansion is neededCurrentinvestmentprojectsProject 1Expansion ofpiggery currentcapacitiesProject 2New feed millplant and piggeryin ChelyabinskdistrictProject 3New feed millplant and piggeryin Kursk districtNon-organic growth+Non-organic growthNon-organic growthThe cheapest option-+ -+ -Full grain supply of piggeryCapacities will grow by 2.5xNo vertical synergy due toremoteness of main capacitiesNo working experience andown processing in the regionOverpayment (4B higher than3rd option)Doesn’t provide rapid growthNo vertical synergy sinceprocessing is fully loadedNew capacities won’t work onthe own processing The projects provide expansion of capacities only in current segments of value chain To be more efficient and completely vertically integrated the company should enter grain,distribution and retail businessesCapacities will grow by 2.5xGreat vertical synergy due tocloseness to current facilitiesNo overpayment, averageinvestmentsOnly 50% feedstuff supply ofpiggery
  10. 10. Short-term perspective10Source: Benchmark company analysis, case data, Warsaw Stock Exchange, LSE.Chosen project should be financed by foreign loan, whilefurther expansion will be based on IPO in long-term rangeEurobondsRequiredTimeKey benefitsPrice or %RateControlMaintenanceMaximum Sum,$ mlnOptionsForeign creditDomestic creditIPOStrategic InvestorFinance InvestorNo1yearLong-term perspective12-13%10-11%150130 Fast deal speed No reports transform12-13%+currency riskIFRSNeed1year1year1year3years>150100100505 mln2 mln1 mln Long-term range Cheaper than domestic Large financial support Long-term range Raising company`s brand Future financing throughadd.emission Large sums of money Independent companystrategy
  11. 11. New feed mill plantand piggeryin Kursk district2013-1511Source: Benchmark company analysis, companies data, case data.We recommend to invest in Kursk project through foreignloan and M&A expansion by IPO with profits reinvestments$8.4BExpansionRequiredinvestmentsPreferred type of financing 5-year foreign credit in 2013(4B rub, IFRS and good debt positionwill allow to borrow at the lower levelfor 5 years) Retained earnings 2012-2013 (helpto start project in 2013 immediately:2B rub annually, if client will generatethe same profits)Further aggressivegrowth (Greenfieldand M&A deals)2014-15$5-7B IPO in early 2015(10-20% free float will provideapproximately 3B rub) Retained earnings 2014-2015(despite the loan profits will grow,especially when the new capacities inKursk will start work)
  12. 12. 1. Industry analysis and competitors comparison2. Choosing the right option for business3. PwC Offer: services description and its rationale4. Final recommendations12Agenda
  13. 13. PwC offers annual audit services including the pre-IPO auditin 2015 and strategy consulting service2012 2013 2014 2015Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q45.12.12Investment projectIPO1st year auditForeign loanAdvisory servicesActivitiesM&AIPO auditAnnual auditCompulsory audit in long-term starting from2013 (in 2013 to gain a foreign credit)Acting as the IPO auditor in 2014Transaction support, Strategy Development,Assistance in getting state benefits,Market SoundingAuditservicesAdvisoryservices2m 20133 m 2014-153 m 20142 m 2015Description LengthService Price$770K$600K131-yearLong-termSource: Benchmark company analysis, companies data, case data.Company’ activities PwC Support
  14. 14. Thousand $Source: Benchmark company analysis, companies data, case data.The fee for audit services is almost the same as the one foradvisory and in total the fee equals $1.4M20040420264Technical questionsAdditional managerBasic rateTotal feeJan-March period2 $146KAudit with pre-IPO audit service will be heldin 2013-2015 and cost $770kLength of auditperiod, monthsAuditperiodTotal fee1st year2nd year3rd year3 Mar-May 2013 $264K2 $160KJan-Feb 2014Jan-Feb 2015IPO audit ? Sep-Dec 2014 $200KThousand $2003000600Market SoundingAssistance in gettingstate benefits100Transaction SupportStrategy DevelopmentTotal fee14The total advisory fee consists of 3componentsFollowing services will optimize the futureperformance of the companyStrategyDevelopmentTransactionSupportAssistance in get-ting state benefitsMarketingSoundingDevelop strategy and plansfor future, identify prioritiesPre-deal preparations & ne-gotiations, analyzing optionsSupport to get tax benefits,direct government financingAnalyzing players, potentialcollaboratorsThe total audit fee for the 1st year consistsof 4 components
  15. 15.  Closeness to the clients Transportation and labor cost savings No main competitors in the region Wide opportunities identification forthe growth of the company The best possible advice on long-termstrategy Effective and efficient audit services High commitment to the company Providing services in correspondencewith the company’s goalsAdditional servicesand supportNew PwC officein VoronezhTop service valuefor competitive fee Clear understanding of thecompany’s business framework Top-clients in agribusinessExtensive experiencein agribusiness audit15Source: Benchmark company analysis, case data, PwC site.PwC has a range of competitive advantages to beat thecompetitors and exceed the client’s expectations
  16. 16. 16Source: Benchmark company analysis, companies data, case data.PwC beats its main competitors in terms of geographicalbenefits and significant experience in agribusinessGeography closeness*Agribusiness experience **IFRS experienceReport reliabilityAdditional Services* Based on the analysis of companies’ offices in Russia.** Valuation is based on the analysis of Ukrainian and Russian agricompanies’ auditors.BIG-4CompetitorsBDO, GrantThorntonSmall Russianaudit firmsPwCworse betterPwC is far better to Polesye Agro than its direct competitors by geography closeness andagribusiness experience that allow to be with client in touch and provide best experienced teams
  17. 17. 17Source: Benchmark Company analysis, case data.Customer sees nopotential return PwC audit service is essential for successfulachieving of the long-term goals. Advisory services will help to consider deeply thebusiness expansion options needed for successRisk of priceissue importanceRisk eliminationCustomer will pay attention primarily to the value of serviceas the risk of the competition based solely on price is not highCustomer is notable to payDumping bycompetitorsThe customer has an ability to pay the amountneeded due to the good company’s performance BIG-4 competitors have the comparable price andare not likely to dump Second-tier competitors provide limited range ofservices at lower price with poor quality
  18. 18. 1. Industry analysis and competitors comparison2. Choosing the right option for business3. PwC Offer: services description and its rationale4. Final recommendations18Agenda
  19. 19. 1-yearactionplan19Source: Benchmark company analysis, companies data, case data.PwC audit and advisory support will help Polesye Agro growrapidly and strengthen its market leader position Invest $8.4B in Kurskproject Finance it throughforeign credit andreinvested profitsPerspective Action PwC SupportLong-terminitiatives Invest $6-7B in M&Adeals and greenfield Finance it through IPOin 2015 and reinvestedprofits IPO audit(detail auditing of companyreports and prospectus) Advisory services(helping the client withbusiness expansion) Compulsory audit(required to obtain loanand to provide the base forthe further IPO in 2015)By the end of 2015: $15B investments in business expansion (Foreign loan, IPO)$1.4M for PwC audit and advisory services20132014-15
  20. 20. Great case cracking track Semifinal of McKinsey&Co BDChampionship’12 3rd place at Microsoft CaseCompetition’11 Semifinal of CL Cup Russia’11Excellent academic study High achievers of FinanceUniversity, top-5% of course rating Grants from Russian EconomyFund, Potanin Foundation, Lukoil,Gazprombank, VozrozhdenieUnique working experience Worked in PwC, JTI, MCG Organized Fincontest’12, RussianInnovation Convention’11 Participated in student consultingproject with BCG ad-hoc supportSergeySlutskiyMarkKhlynovMariaKochmolaElizavetaIvahnenkoBenchmark Companyhigh-experienced team of fellows with strongspirit that study and work together for 4 yearsThanks for your attention! Any questions?

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