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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)
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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. 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
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. 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. 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. 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. 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
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
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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
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37. CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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39. CASHFLOW VALUATION METHOD MARGIN FORECAST ANALYSIS Historical ROS performance (company and industry) ROS/RMS analysis STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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. 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. 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
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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
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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. 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