From Business Planning to Financial Modelling and …dev.ulb.ac.be/cours/alle/PDF/METHOD081010ydb.pdfFrom Business Planning to Financial ... investment bankers, ... From Business Planning

From Business Planning to Financial Modelling and Valuation

10 October 2008(You will remember what you were doing

the day of The Crash)

Michel ALLÉYvan de BEAUFFORTGEST D-422

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Agenda of the evening

• 18h00 – 18h15 Agenda alignment– Excel session 1st or 8th November from 10h to 13h (with laptop)

– Meetings with experts 7th November

– Final presentation 10th December

• 18h15 – 20h00 Business planning & valuation

• 20h15 – 21h15 The airlines universe

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1. Introductiona. Objective of the courseb. Concept of business strategyc. The Business Pland. Scope and contexte. Use of the Business Planf. Financial Model as part of the Business Plang. Elaborating the plan = An iterative process

Table of content (1/5)

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2. Business Planninga. Source of informationb. What does the Company do?c. Economic environmentd. Underlying marketse. Competitorsf. Cost structure and sales priceg. Capex requirementh. Working capital requirementsi. Porter analysis j. SWOT analysisk. Human resources


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3. Financial Modellinga. Introduction

1. Excel merits2. Recommendations3. Useful excel shortcuts4. Useful excel functions5. Build a Financial Model = Two parts job

b. Consolidation rulesc. Sales to EBITDAd. Depreciation, Capex and Working Capital Requirementse. P&L, balance sheet and cashflow statementf. Ratiosg. Risks assessment and sensitivity casesh. Optimizing the financial structure


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4. Valuationa. Actualization models

1. DCF2. DDM

b. Models based on multiples1. Listed multiples2. Transaction multiples

c. Other valuation methodologies1. Net Asset Value2. Valuation based on IRR / LBO models3. Pay-back


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5. Appendicesa. Bibliographyb. Value creation analysisc. Some goodies


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1. Introduction

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1. Introduction: a. Objectives of the course

To get yourself familiar with…

• How to produce a set of viable business assumptions?

• How to input these in a financial model?

• How to derive a valuation?

• Where to find hidden jewels?

• How to determine the appropriate financial structure of a company?

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1. Introduction: b. Concept of business strategy (1/5)

• « Strategy is a concept by which we are trying to bring coherence to a multitude of actions by different actors in the organization. As such it is a complement to both organization, and corporate culture which perform the same function »

• The de facto strategy of a company corresponds to the underlying pattern in its resource allocation decisions – the way it deploys not only financial resources, but also its best people, and senior manager’s time. In that sense ALL companies have a strategy, through not always a conscious one

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• Most companies develop however a formal and explicit strategy

• The starting point of such strategic thinking is an assessment of the fit between:– the company environment (i.e. what might be done?)

– its capabilities (i.e. what can be done?)

– and its identity (i.e. what one want to do?)

• Such strategy formulation implies not only a phase of analysis, but also the more creative generation of options and the need for choices

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• The strategy which results from an assessment can be defined as « a set of deliberate priorities in resource allocation which, by building and maintaining the company’s competitive advantage, will allow it to reach its objectives »

• Difference between a “strategy” and a “tactic”– Strategy involves the “big picture”. The overall plan, how the

campaign will achieve organizational goals and objectives. Strategic planning helps to determine how the organization will be positioned

– Tactics are activities specifically created and selected to reach specific and measurable objectives. Tactics are the actual ways in which the strategies are executed

– “Strategy is an art. Tactics are science” Carl von Clausewitz

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• A statement of business strategy typically consists of the following elements:– a set of objectives– a business definition– a competitive positioning (e.g. dominance, differentiation or

focus)

– a consistent set of functional policies– priorities in resources allocation

• Mostly, strategies are interacting with daily operations

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• Apart from the socio-economic-political environment, the starting point of the environmental analysis is to focus on the immediate industry competitive environment as it is today.

• Four elements need to be analyzed in terms of the current situation and of trends:1. Market (segments, customers,…)

2. Competition (direct and indirect)

3. Cost structure (value chain composition and drivers)

4. Technology (underlies cost structure)

Goal = Determination of key success factors

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• The Business Plan (BP) describes and quantifies the long term project of the management for the company– Describes

• Facts • In a coherent vision

– Quantifies• Figures• In a coherent framework

– This, over a long period of time• Extended period of time (3 to 10 years)

• Where periodicity is a function of the situation (year, half year, quarter, …)

1. Introduction:c. The Business Plan

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1. Introduction:d. Scope and context

• The BP refers to all dimensions of the Company– Products

– Marketing

– Production

– R&D

– Human Resources

– Finance

• The BP depends on the business context– Integrating the overall and industry business trends

– Integrating the present and future competition

– Integrating the specific constraints (e.g. shareholders, investment bankers, debt providers, …)

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1. Introduction:e. Use of the Business Plan

� The BP is an essential work in the life of a company� Start-up or existing businesses

� Opportunity to stand back from the day-to-day activities

� The BP gives guidelines for the management � A contract between management and shareholders / bankers

� The BP is an assessment tool for the shareholders in investment decisions� It shows the profitability and the dividend yield prospects

� It shows how much value can be created

� The BP is a tool to evaluate the performances of the management� Are the goals achieved or not?

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1. Introduction:f. Financial Model as part of the Business Plan (1/3)

� The Financial Model is the rational translation in financial terms of the content of the BP� Forecasts for Profit & Loss account (P&L), Balance Sheet (BS) and

CashFlow Statement (CFS)� Link to be made with historical accounts (if any >< Start-up)� Put in simple equation an ever more complex reality

� Its quality relies on the quality of the BP’s assumptions (as well as coherent building)

� Objective tool � From P&L to CFS (through BS) �Identification of the cash needs / surplus � Determination of the optimal financial structure (maximisation under constraints)

� Prerequisite material support to assess the company’s value in a second step

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1. Introduction:f. Financial Model components: quick reminder (2/3)• P&L or “Profit and Losses” statement or income statement :

– It summarizes a firm's financial transactions over an interval of time– It starts from sales (top line) and ends up at net profit (bottom line), taking into

consideration costs, amortization, financial charges

• Balance Sheet:– It is the picture of the assets and liabilities of a company, a snapshot of a firm's

financial resources and obligations at a single point in time– At the right side (Liabilities) is the inventory of how the company is financed from

long term to short term (top right: equity then long term financial debt, bottom right: short term suppliers debt)

– The left side (Assets) registers how the financing is employed, from long term assets (e.g. buildings or intangibles) to short term ones (e.g. cash)

– Hence,

• Cash Flow statement: – Shows a company's flow of cash– The money coming into the business is called cash inflow, and money going out

from the business is called cash outflow– The statement shows how changes in balance sheet and income accounts affect

cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities

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1. Introduction:f. Financial Model as part of the Business Plan (2/2)

� If the results of the Financial Model do not meet the expectations of the shareholders� Review all the drivers to see how to improve the value creation

dynamics

� See if you can change the assumptions of the BP through an alternative strategy (and an alternative management team if necessary)

� Do not invest in the company or in the project!!!

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1. Introduction:g. Elaborating the plan = An iterative process (1/2)

• Permanent discussions between the CFO and the other managers– What happens from the financial point of view when we want to

change some assumptions?

– Why is it interesting or impossible from the financial point of view to make other assumptions / strategy?

• Frequent discussions between the management and the shareholders

• Follow-up of an acquisition or of a restructuring process

• Negotiation tool for the company and its bankers

• Essential tool under a bankruptcy context

• Need to be a dynamic and continuous exercise

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1. Introduction:g. Elaborating the plan = An iterative process (2/2)

Define the fundamental

business questions

within a specific scope

of analysis

Identify the outputs

required from the model

to help to answer the

questions

Identify the key inputs

variables that determine

the outputs

Describe how the

variables will behave

over time

Develop the logical

arguments that explain

how the outputs are

derived from the inputs

Build spreadsheet model

in Excel

Enter data assumptions

Test alternative

scenarios

and sensitivities of the

outputs

Valuation based on

various methodologies

Editing the

memorandum

explaining your work

and your conclusions

Revise outputs

in the light of data

availability

Data collection

Try alternative

data if

necessary

Analysis of the value

implied by

alternative

scenarios

Next steps: implemen-tation andcontrol the business strategy

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2. Business Planning

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2. Business Planning:a. Source of information (1/2)

� Public sources of information about the business landscape as a starting point:� Industry studies (cf. Books, investment analysts, market research, ...)

� Company public information (cf. Annual reports, SEC filings, websites, bonds memorandum, IPO memorandum, promotional material, company histories, …)

� Business press: General newspapers (e.g. Wall Street Journal, Financial Times, ...), specialized industry trade journals, …

� Online services (e.g. Standards and Poor’s, Bloomberg, Reuters, JCF Group / Factset, Bureau van Dijk / Amadeus, Compustat, ...)

� Government sources (cf. Legal or tax documents, releases from antitrust or regulatory bodies)

� Trade associations, industry and company directories

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• A direct access to the company’s management is key:– Challenge preliminary conclusions about the business landscape

made on the basis of public information (bi-directional exercise)

– Further identification of business drivers and assumptions

• If a direct access to the company’s management is not possible, indirect contacts may be useful– Investment bankers

– Strategic consultants

– Accountants

– Lawyers

• Be careful with Non-Disclosure Agreements (NDA)

– Insurance brokers

– Competitors

– Suppliers

– Customers

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• Need to answer the following questions during the due diligence process (i.e. prior to financial modelling):1. What does the company do?

2. Impact of the economic environment?

3. Characteristics of the underlying markets?

4. Cost of sales structure?

5. Business cyclicality?

6. Capex program?

7. Working capital profile?

8. Standard audit procedure

– Accounting

– Legal

– Insurance

– Environmental

– Industrial

– Etc

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2. Business Planning:b. What does the Company do?

• Business– Comprehension of today’s situation (e.g. organic growth within an

historical perspective if any)

– Forecast of tomorrow’s evolution

• Which products?– Product mix

– Importance of Business Unit approach

– Life-cycle of products

– Product pipe-line

• Where are they sold?– Distribution networks / Type of customers (B2B / B2C)

– Nature of existing markets

– New markets?

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2. Business Planning:c. Economic environment (1/2)

• General economic prospects for the markets– GDP

– Demography

– Available income

– Conjuncture

• Influence of these prospects on the business

• Inflation prospects (Sales vs. Raw materials vs. Wages)

• Interest rates (impact for both sales and financial results)

• Political situation

• Legal framework

• Fiscal situation

• Exchange rates / Currency effects

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2. Business Planning:c. Economic environment (2/2)

Translation effect

Sales in external currency

Cost basis in external currency

Natural hedge

Lower impact

E.g. A Belgian cy with a production subsidiary in the USA

Transaction effect

Sales in external currency

Cost basis in local currency

No hedge

Huge impact

E.g. A Belgian company

selling in the USA

• Build your model accordingly

• Alternative natural hedge = NFD in foreign currency

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2. Business Planning:d. Underlying markets (1/2)

• Size of the markets– Today and in the future

– Historic and prospective evolution of prices and volumes

• Major customers (relative size)

• Major suppliers (relative size)

• Why and how are the markets changing?– Taste of the customers

– Innovative products and new technologies

• Segmentation of the markets

• Use of market studies (internal and / or external)

• Cyclicality characteristics

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2. Business Planning:d. Underlying markets (2/2)

0

50

100

150

200

250

1980

1985

1990

1995

2000

2005

2010

€ m

0

50

100

150

200

250

19

80

19

85

19

90

19

95

20

00

20

05

20

10

€ m

0

50

100

150

200

250

1980

1985

1990

1995

2000

2005

2010

€ m

0

50

100

150

200

250

1980

1985

1990

1995

2000

2005

2010

€ m

Cyclicality characteristics

Illustration at sales level

World

siderurgy

EU car

manufacturing

Belgian

siderurgy

Belron

?

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2. Business Planning:e. Competitors (1/2)

• Who are they?• Where are they?• What is their market share (dynamic perspective)?• New entrants?

– Barriers to entry– Backward or downward integration dynamics– Sister industries

• Why should the customers go to competitors?• Present and future overcapacity?• Comparison of the products

– Price– Quality– Product range

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2. Business Planning:e. Competitors (2/2)

• What are the projects of the competitors?– Innovation– Price strategy– Financial situation

• Benchmarking is key– Operational – Financial

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2. Business Planning:f. Cost structure and sales price (1/2)

• Nature of the operating costs?– Fixed costs vs. variable costs– Sensitivity to external elements (currencies, raw materials, …)

– Translation effect vs. transaction effect

• What are the prices asked by the suppliers?– Today and tomorrow

– Can we buy cheaper or better?

• Ability to pass price increase through to clients?

• How fast will the salaries increase?

• Can we use new technologies?– To improve the productivity and to reduce the costs

– To improve the quality

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2. Business Planning:f. Cost structure and sales price (2/2)

(Q2 – Q1) / Q1(P2 – P1) / P1

• At what price can we sell our products ?– Costs + margin

– Volume effect on cost base

– Price elasticity of the volume sold �

– Reactions of the competitors

– Consequences on the margin

– Which product: base or add-ons?

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2. Business Planning:g. Capex requirements (1/2)

• Which new fixed assets do we need / do you want?– Current status of the asset base

– Production facility requirements (size, layout, capacity, location)

– Amount / Timing / Flexibility

– Cost of opportunity

• Capex nature– Equipment requirements

– Maintenance capex vs. Expansion capex vs. Acquisitions / Disposals– Tangible vs. Intangible (IT)

• Research & Development?

• Commercial Investments– Advertising

– Start-up losses

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2. Business Planning:g. Capex requirements (2/2)

• Alternative scenarios– Financial or operational leasing

– Outsourcing

– Acquisitions

• Consequences on the P&L– Depreciation duration vs. life-time

– Tax considerations

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2. Business Planning:h. Working capital requirements (1/3)

• Inventory requirements– Raw materials inventory

– Finished goods inventory

– Warehouse space requirements

– Supply chain requirements

• Specific to each industry– Manufacturing >< Retail

• How can we reduce the inventories?– Logistic optimization

– Subcontracting

• Are we able to let the customers pay quicker?

• Can we pay the suppliers later?

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• Working capital structure for various industries: Illustration

Based on non-financial companies from the Euro Stoxx 50: Anglo American, Astra Zeneca, BASF, BHP Billiton Group, BP, BT Group, Carrefour, DaimlerChrysler, Deutsche Telekom, Diageo, ENI, E.On, Ericsson, France Telecom, GlaxoSmithKline, Nestlé, Nokia, Philips, Rio Tinto, Roche, Royal Dutch Shell, SAP, Siemens, Suez, Telefonica, Tesco, Total, Unilever, Vodafone Group

2005 data Indexed with sales = 100

Telcos Food retail

Telecom equip-ments

Electric utilities

Pharma-ceuti-cals

Oil Food & beve-rages

Mine-rals

Indus-trial

conglo-merates

Chemi-cals

Soft-ware

Current operating assets 23.5 10.9 38.5 42.9 36.0 30.3 37.0 28.7 45.6 32.8 38.1 Inventories 1.7 6.2 8.8 4.8 11.2 7.2 17.8 10.5 13.3 12.7 0.2 Receivables 15.4 4.1 24.9 23.3 22.4 18.9 17.2 14.6 28.0 17.4 26.4 Other 6.4 0.6 4.8 14.8 2.4 4.2 2.0 3.6 4.3 2.7 11.4

Current operating liabilities 35.1 21.9 37.0 39.3 30.8 24.4 30.0 21.4 34.0 19.0 13.3 Trade Accounts Payable 13.7 14.0 9.3 11.7 6.9 10.8 12.6 7.8 11.6 6.5 4.5 Other 21.4 7.9 27.8 27.7 23.8 13.6 17.4 13.5 22.3 12.5 8.8

Working capital (11.6) (11.0) 1.4 3.5 5.3 5.8 7.0 7.3 11.6 13.9 24.8

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• New techniques to reduce the working capital– Just-in time

– Zero inventories

– Factoring

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2. Business Planning:i. & j. Porter analysis and SWOT analysis

Macro analysis

Porter analysis

The cy in its environment

Micro analysis

SWOT analysis

Key success factors of the cy,

as well as its main challenges

Two alternative and complementary approaches to rationalize the business

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2. Business Planning:i. Porter analysis (1/6)

Suppliers

Industry competitors

Buyers

SubstitutesNew

Entrants

An overview at macro level to characterize the dynamics of an industry

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Suppliers


Buyers

Substitutes

Entry barriers:– Economies of scale– Brand identity– Capital requirements– Proprietary product differences

– Switching costs

– Access to distribution networks

– Proprietary inputs

– Low-cost product design

– Government policy

New Entrants

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Suppliers


Buyers

New Entrants

Factors affecting the threat of substitutes:– Relative price performance of

subsitutes

– Switching costs

– Buyer propensity to substitute

Substitutes

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Suppliers


Buyers

SubstitutesNew

Entrants

Bargaining power of buyers:– Buyer concentration– Buyer volume

– Switching costs

– Buyer information

– Buyer profits

– Substitute products

– Price-sensitivity (cf. Price in % of total purchases)

– Product differences and brand identity

– Ability to backward-integrate

– Impact on quality / performance

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Suppliers


Buyers

SubstitutesNew

Entrants

Sources of bargaining power of suppliers:– Switching costs

– Differentiation of inputs

– Supplier concentration

– Presence of subsitutes inputs

– Importance of volume to suppliers

– Impact of inputs on cost ordifferentiation

– Threat of forward / backwardintegration

– Cost relative to total purchase in industry

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Suppliers


Buyers

SubstitutesNew

Entrants

Factors affecting the degree of rivalry between existing players:– Industry growth– Concentration and balance– Fixed costs / Value added

– Intermittent overcapacity

– Product differences

– Brand identity

– Switching costs

– Information complexity

– Diversity of competitors

– Corporate stakes

– Exit barriers

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An understanding grid to characterize at micro level a cy within its industry

ThreatsExternal: What can endanger the future?

OpportunitiesExternal: What can be used to improve the situation in the future?

WeaknessesInternal: What can be improved?

StrengthsInternal: What can be controlled?

2. Business Planning:j. SWOT analysis (1/8) Situation analysis

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2. Business Planning:j. SWOT analysis (2/8)

Typical Strengths or Weaknesses• Historical profitability (in particular free cashflow generation)• Diversification of revenues (a.o. customer base, products, geography, …)• Competitive position (a.o. market share, cost base, location, efficiency,

access to resources, proprietary technology / technical expertise, purchasing power, …)

• Sensitivity to external factors (raw materials, currencies, etc)• Resources: assets, financial, intellectual, …• State-of-the-art production plant / well invested manufacturing base• Ability to grow organically its market share over the past few years• Ability to innovate with new products or services and to penetrate new

business segments with existing products or services• Ability to integrate acquired businesses / to lead buy & build strategy• Quality

Indicative check list

Relevance assessment to be made

on a case by case basis

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Typical Strengths or Weaknesses (…)• Sales inflation vs. cost inflation• Price positioning (relative to the competition)

• Mix of mature and growing markets

• Staff (sales, back-office, turnover, …)

• Management team / Track record of the team

• Customer service / Delivery time (relative to the competition)

• Relationships with key industry customers

• Brand names (vs. B brands or private labels)• First mover advantage

• Capacity & planning

• Capital intensity




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Typical Strengths or Weaknesses (…)• Seasonality / Weather effects / Fashion influences

• Accreditations / Qualifications / Certifications

• Corporate brand / Reputation / Image

• Ethics

• Environment

• Communication

• Corporate governance




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Typical Opportunities or Threats• Political / legal / social / tax / environmental framework

• Market trends

• Demography

• Economic outlook

• Expectations of stakeholders

• Technology trends, innovation, breakthrough

• Identified efficiency / productivity improvement initiatives

• Competitors and competitive actions

• Supplier move

• Customer expectations, customer’s customer expectations

• Product pipe line (company vs. competition)

• Substitutes / Penetration of new markets




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Typical Opportunities or Threats• Disposal of non-core assets

• Low Cost Countries (LCC)

• Use of unexploited capacities

• Management team (in a context of succession or expansion strategy)

• Vital contracts and partners

• Loss of key staff

• Sustaining internal capabilities




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2. Business Planning:j. SWOT analysis (7/8) – Electrabel Example• Background: Electrabel is a utility company active in the production of electricity and distribution of electricity and

gas in and outside the Benelux. Amongts its most valuable assets are the depreciated nuclear plants

StrengthsIn the Benelux• Leader• brand equity• depreciated nuclear plants

Outside the Benelux• Positioning in numerous countries in Europe

OpportunitiesIn the Benelux• liberalization (exansion towards other countries

like in NL and LU)• gas-electricity synergies (a.o. through GDF

merger)Outside the Benelux• Further liberalization, • merger with GDF opening new markets,• electricity consumption in Eastern Europe

ThreatsIn the Benelux• liberalization in Belgium• GDF merger implying Distrigas de-merger• Nuclear image and • exit law

Outside the Benelux• Decentralization

WeaknessesIn the Benelux• geographic surface and density (+NIMBY)• few green energy producable in Belgium?

Outside the Benelux• Small size

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2. Business Planning:j. SWOT analysis (8/8) – Two other examples

Iberdrola - Renovables Electrabel

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2. Business Planning:k. Human resources

• Understand the existing organizational structure and key people

• Assign responsibilities

• Evaluate training required

• List skills required

• Prepare union issues

• Estimate compensation

• Gauge skills availability

• Consider new hiring

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3. Financial Modelling

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• Put the BP in an Excel workbook

• Advantages:– Quicker calculations

– Check that everything is OK

• Assets = Liabilities

• Cash flow Statement equation

– Easy modification of one or some assumptions (cf. sensitivity analysis)

– Data base for illustration (cf. table and graph for memorandum)

– Frequent update

• Disadvantages:– May easily become a black-box

3. Financial Modelling:a. Introduction (1/5): Excel merits

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• Do it yourself is always better >< Standardised template

• Make it simple (for you and for the external parties)– Regroup all the assumptions

– Use colours (assumptions in green, formulas in blue, …)

– Use various pages

– Use comments

• Avoid– Conceptual errors and links with other files

– Circular references

• Synthesis and graphic presentation– Always mention units (€ vs. € m, $, £, #, …)!

– Summary tables / Graphs

3. Financial Modelling:a. Introduction (2/5): Recommendations

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• Ctrl + C = Copy

• Ctrl + V = Paste

• Ctrl + P = Print

• Ctrl + Spacebar = Select a column

• Shift + Spacebar = Select a row

• Ctrl + A = Select a whole table, then the whole sheet

3. Financial Modelling:a. Introduction (3/5): Useful excel shortcuts

Will be further analyzed during Excel Training

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• ABS() = Returns the absolute value of a number

• AVERAGE() or MEAN() = Returns the arithmetic average or the mean of as series of arguments

• ISERROR()

• CONCATENATE() = Joins a number of strings (text) variables into a single text variable

• IF() = Returns one value if a specified condition is true and another value if the condition is false

• MAX() = Provides the largest value amongst a set of values

• MIN() = Provides the smallest value amongst a set of values

• ROUND() = Rounds a number to the specified number of digit

• VLOOKUP() = Searches for a value in the left-most column of a table and then returns a value from the same row in a column from within the table specified by the user

3. Financial Modelling:a. Introduction (4/5): Useful excel functions

Will be further analyzed during Excel Training

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• Operating items– Sales to EBITDA

– Capex / Depreciation

– Working capital requirement

• Financial items– Below EBITA P&L

– Cashflow Statement

– Balance Sheet

– Other

85% of analysisFormalization of the business dynamics in mathematical equations

15% of analysisPurely mechanical part of the job

Check internal and external coherence of chosen assumptions

3. Financial Modelling:a. Introduction (5/5): Build a FM = Two parts job

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3. Financial Modelling:b. Consolidation rules (1/5)The level of effective control, as well as accounting practices in the country of domicile, determine the accounting method used for inter-corporate investments

Method Ownership

level Comments

Investments >20% - No significant influence assumed

- P&L contribution: dividends, interests, realized gains or losses

- Balance sheet contribution: Different classification methods may occur: Cost Method, Market

Method, Lower of Cost or Market (LOCOM)

Equity Method <20% & - Significant influence assumed, within a partnership context

>50% - P&L contribution: Economic interest in net earnings get reported at parent’s level

- Balance sheet contribution: Idem + Adjusted for dividend distributed in equity

Full >50% - Effective control assumed

Consolidation - P&L contribution: Subsidiaries' P&L gets 100% consolidated (i.e. added to parent's statutory P&L,

after adjustment for intra-group operations if any). Portion of income not owned by the parent

gets deducted as 'Minority Interest'

- Full consolidation of sales and costs even if ownership <100%, implies that 'Net profit' in % of

sales is lower than under proportionate consolidation- Full consolidation of subsidiaries' 'Net Financial Debt' (NFD) even if ownership <100%, implies

that NFD in % of 'Equity' (group share) is lower than economically relevant ratio

Proportionate About 50% - Less often used. Mainly for joint venture situations

Consolidation - P&L and balance sheet contribution: Subsidiaries' P&L and Balance sheet are added to parent's

statements in propotion of the share owned by the parent

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3. Financial Modelling:b. Consolidation rules (2/5)

Method Sales EBITDA Net Profit Cashflow Balance sheet

Investments 0% 0% Interest or Interest or Booked individends received dividends received financial assets

Equity Method 0% 0% Share of net Share of net Booked inprofit profit financial assets

Full 100% 100% Share of net profit 100% of cashflow Full recognitionConsolidation less contribution

of minority

interests in profit

less contribution

of minority

interests in profit

+ Minority interest

Proportionate Economic Economic Share of subs Share of subs Share of subsConsolidation interest interest net profit net profit for all lines

Accounting impacts

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. Financial Modelling:b. Consolidation rules (3/5) : Full consolidation

Balance Sheet

Revenues 100

Debt 2

Equity 70

Net protif 10

Charges 90

Mother

Profit & Losses

Assets 57

Shares 15

Mother

Revenues 38

Debt 8

Equity 20

Net profit 4

Charges 34

Daughter (75%)

Assets 28

Daughter (75%)

Of which Thirds 1

Of which Group 13

Net profit 10+4 = 14

Charges: 90+34 = 124

Full Consolidation

Assets: 57+28

Shares: 15-15 = 0

Full Consolidation

Revenues 100 +38 = 138

Debt 2 + 8 = 10

Of which Thirds: 5

Of which Group 70

Equity: 70-15+20 = 75

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. Financial Modelling:b. Consolidation rules (4/5) : Proportionate consolidation

Balance Sheet

Revenues 100

Debt 2

Equity 70

Net protif 10

Charges 90

Mother

Profit & Losses

Assets 57

Shares 15

Mother

Revenues 38

Debt 8

Equity 20

Net profit 4

Charges 34

Daughter (25%)

Assets 28

Daughter (25%)

Net profit 10+25%*4 = 11

Charges: 90+25%*34 = 98.5

Full Consolidation

Assets: 57+ 25%*28 = 64

Shares: 15-15 = 0

Full Consolidation

Revenues 100 +25%*38 = 109.5

Debt 2 + 25%*8 = 4

Equity: 70 +25%*20 = 75

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. Financial Modelling:b. Consolidation rules (5/5) : Equity method (MEE)

Balance Sheet

Revenues 100

Debt 2

Equity 70

Net protif 10

Charges 90

Mother

Profit & Losses

Assets 57

Shares 15

Mother

Revenues 38

Debt 8

Equity 20

Net profit 4

Charges 34

Daughter (25%)

Assets 28

Daughter (25%)

Net profit 10+25%*4 = 11

Charges: 90

Full Consolidation

Assets: 57

Shares: 15-15 +25%*20 = 5

Full Consolidation

Net profit consolidated daughter 1

Revenues 100

Debt 2

Equity: 70-15 +25%*20 = 60

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• Sales– Sales vs. Turnover vs. Revenues

– Revenue recognition rules to be carefully understood (e.g. discounts, allowances and returns, cross-sales, …)

• Gross Margin– Gross Margin ≡ Sales – Cost of goods sold

– Cost of goods sold = Direct costs

– Depreciation and amortization often included here (adjustment isneeded if any)

3. Financial Modelling:c. Sales to EBITDA (1/7)

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• EBITDA– EBITDA ≡ Earning Before Interest, Taxes, Depreciation and

Amortization

– Operating cashflow

– Most comparable valuation or benchmarking metric• Independent of the financial structure

• Common concept around the world (no impact of accounting rules regarding depreciation matters)

• EBITA– EBITA ≡ Earning Before Interest, Taxes and Amortization

– Operating profit

– After depreciation of fixed tangible assets but before goodwill amortization, since the later is not, as such, an effective operating charge


|69


• Financials have to be considered based on their continuing normalized operations– Exceptional items are characterized by

• their unusual nature (unrelated to ordinary business activities) and

• By the infrequence of occurrence (i.e. not expected to happen again)

– Exceptional items include

• Restructuring charges

• Impact of disposed / acquired assets. Proforma data are better within the context of valuation based on multiples (cf. infra)


|70


• Definition of the adequate degree of detail:– At consolidated level for mono-product / mono-market business

– Per business unit / per division

– Per product, per market, per plant, per shop, …

• Depend on data availability– Difference between an internal analyst and an external analyst

– Standard information package for listed companies

– Issues related to private companies

– Existing company vs. Start-up project

• Creativity is a key– Delta analysis or % analysis = simplest way

– Exhaustive analysis

– 80 / 20 rule


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• Estimate revenues following a top-down approach:– Sizing the total market

– Determining the market share dynamics

– Forecasting prices

• Importance of considering the point in the cycle

• If possible breakdown between: – Price effect (to be compared to general inflation)

– Volume effect (to be compared to real GDP growth rate)

– Product-mix effect

– Currency effect (transaction impact vs. translation impact)

– Perimeter effect (cf. organic growth vs. mechanical growth implied acquisitions)

– Accounting changes


|72


• When revenue growth forecasts have been built, then implied operating costs may be derived:– Classical breakdown = Cost of goods, Selling general and

administration costs (SG&A) and depreciation

– By default = % of sales but a more detailed approach should be followed: e.g.• Wages should take into account # of FTE and unit wage cost

• Advertizing per category

• Details over P&L impacts from R&D and start-up losses of new activities if any

– If expansion is important, a detailed capex / depreciation model is needed

– Historical and sectorial benchmark is key


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• Distinction between variable and fixed costs

• Distinction between cash and non-cash operating costs

• Economic segmentation >< Accounting segmentation

• Coherence with revenue model:– Integration of plateau effects if any

– Link between marketing investment and sales evolution

• Analysis of non accounting set of data:– Productivity at production level (e.g. productivity per plant, …) and

capacity evolution

– Productivity evolution employee levels (to be compared to salaryevolution)

• Wage inflation > Sales inflation (normally)


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• Depreciation are driven by past investments and amortization rules– Real estate

– Equipment

• Assets to be depreciated based on their effective economic life-time– Some significant differences may occur between accounting

amortization rhythm and economic amortization rhythm

– Management conservatism

– Tax considerations

3. Financial Modelling:d. Depreciation, Capex & Working Cap. Req. (1/2)

|75


• Capex may be expressed in % of sales (especially maintenance capex)

• Normally (excluding impact of high inflation context), within a medium term perspective, capex and depreciation should tend to be equivalent (in % of sales)

• If expansion is important, a detailed capex / depreciation model is needed (cf. supra for Depreciation in EBITA)

• Working capital items sometimes expressed in # of days of sales (for receivables and accrued items) or in # of days of cost of goods sold (for inventories and payables). Except in case of distinctive price evolution between sales and CoGs, % of sales for each item is easier to take into consideration

• Realism of evolution also to be validated in historical and sectorial perspectives

3. Financial Modelling:d. Depreciation, Capex & Working Cap. Req. (2/2)

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Illustration

€ m2000 (a)

2001 (a)

2002 (a)

2003 (a)

2004 (a)

2005 (e)

2006 (e)

2007 (e)

2008 (e)

2009 (e)

2010 (e)

Sales 192.4 226.0 237.7 267.4 288.8 309.1 318.3 327.9 337.7 347.9 358.3 y-o-y NA 17.5% 5.2% 12.5% 8.0% 7.0% 3.0% 3.0% 3.0% 3.0% 3.0%

(-) Cost of goods sold (108.8) (128.9) (145.2) (160.5) (173.3) (185.4) (191.0) (196.7) (202.6) (208.7) (215.0) % of sales -56.6% -57.0% -61.1% -60.0% -60.0% -60.0% -60.0% -60.0% -60.0% -60.0% -60.0%

(=) Gross margin 83.6 97.1 92.5 107.0 115.5 123.6 127.3 131.2 135.1 139.1 143.3 % of sales 43.4% 43.0% 38.9% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%

(-) S, G&A (38.6) (46.2) (49.7) (55.9) (60.4) (64.6) (66.5) (68.5) (70.6) (72.7) (74.9) % of sales -20.1% -20.5% -20.9% -20.9% -20.9% -20.9% -20.9% -20.9% -20.9% -20.9% -20.9%

(=) EBITDA (1) 45.0 50.9 42.8 51.1 55.1 59.0 60.8 62.6 64.5 66.4 68.4 % of sales 23.4% 22.5% 18.0% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1%

(-) Non-cash operating expenses (12.4) (17.1) (18.2) (24.7) (23.0) (22.8) (20.2) (18.5) (18.3) (18.0) (17.7) % of sales -6.4% -7.6% -7.7% -9.2% -8.0% -7.4% -6.3% -5.6% -5.4% -5.2% -4.9%Depreciation (13.0) (17.2) (18.3) (24.7) (23.0) (22.8) (20.2) (18.5) (18.3) (18.0) (17.7) % of sales -6.7% -7.6% -7.7% -9.2% -8.0% -7.4% -6.3% -5.6% -5.4% -5.2% -4.9%

Other non-cash operating expenses 0.6 0.1 0.1 - - - - - - - - % of sales 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

(=) EBITA 32.6 33.8 24.6 26.4 32.1 36.3 40.6 44.2 46.3 48.4 50.7 % of sales 16.9% 15.0% 10.3% 9.9% 11.1% 11.7% 12.8% 13.5% 13.7% 13.9% 14.2%

Capex (2) (31.1) (38.2) (34.4) (12.0) (15.0) (15.0) (15.5) (15.9) (16.4) (16.9) (17.4) % of sales -16.2% -16.9% -14.5% -4.5% -5.2% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9%

Working capital requirements (3) (30.6) (7.6) (19.7) (16.1) (2.7) (3.0) 1.2 1.0 (3.6) (3.7) (3.8) % of sales -15.9% -3.4% -8.3% -6.0% -0.9% -1.0% 0.4% 0.3% -1.1% -1.1% -1.1%Working capital 73.2 81.0 100.9 116.5 117.9 120.9 119.7 118.7 122.3 126.0 129.7 % of sales 38.1% 35.8% 42.5% 43.6% 40.8% 39.1% 37.6% 36.2% 36.2% 36.2% 36.2%

(1) + (2) + (3) = Operating FCF (16.7) 5.1 (11.3) 23.0 37.5 41.1 46.5 47.7 44.6 45.9 47.3 % of sales -8.7% 2.3% -4.7% 8.6% 13.0% 13.3% 14.6% 14.5% 13.2% 13.2% 13.2%

Simple assumptions:• Sales growth in %• Operating costs, capex and WC in % of sales

3. Financial Modelling:e. P&L, balance sheet & cashflow statement (1/31)

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• Assuming 3 business units (BU)– BU n°1– BU n°2– BU n°3

• For each BU, build a revenue forecast model based on:– Volume evolution– Unit price evolution

• For each BU, find the appropriate gross margin evolution• For each BU, detail the S, G&A costs with a clear breakdown between labour-

related costs and other S, G&A– Labour-related costs = # FTE x average salary– Assumption to be made on work force evolution– Assumption to be made on average salary evolution– other S, G&A in % of sales

• Capex and depreciation in % of sales

Illustration of an

alternative set

of assumptions


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Illustration of an

alternative set

of assumptions

1. Business unit n°1

€ m2000 (a)

2001 (a)

2002 (a)

2003 (a)

2004 (a)

2005 (e)

2006 (e)

2007 (e)

2008 (e)

2009 (e)

2010 (e)

Sales 95.0 115.0 120.0 134.0 145.0 149.4 153.9 158.5 163.3 168.3 173.3 y-o-y NA 21.1% 4.3% 11.7% 8.2% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%# units (in m) 123.5 143.1 146.3 157.5 165.6 168.9 172.3 175.7 179.3 182.8 186.5 y-o-y (volume growth) NA 15.9% 2.2% 7.7% 5.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Unit price (€ / unit) 0.77 0.80 0.82 0.85 0.88 0.88 0.89 0.90 0.91 0.92 0.93 y-o-y (price growth) NA 4.5% 2.1% 3.7% 2.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%



(-) S, G&A (19.1) (22.9) (24.1) (27.0) (29.4) (30.6) (31.7) (32.9) (34.1) (35.4) (36.8) % of sales -20.1% -19.9% -20.1% -20.1% -20.3% -20.5% -20.6% -20.8% -20.9% -21.1% -21.2%Employee costs (14.2) (17.1) (18.3) (20.0) (22.2) (23.1) (24.0) (25.0) (26.0) (27.0) (28.1) y-o-y NA 20.4% 7.0% 9.3% 11.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%% of sales -14.9% -14.9% -15.3% -14.9% -15.3% -15.5% -15.6% -15.8% -15.9% -16.1% -16.2%# of FTE 75.1 85.6 88.2 92.7 98.0 98.0 98.0 98.0 98.0 98.0 98.0 Productivity (sales / # FTE) 1.26 1.34 1.36 1.45 1.48 1.52 1.57 1.62 1.67 1.72 1.77 y-o-y NA 6.2% 1.3% 6.2% 2.4% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Cost per FTE (0.189) (0.200) (0.207) (0.216) (0.227) (0.236) (0.245) (0.255) (0.265) (0.276) (0.287) y-o-y NA 5.7% 3.9% 4.0% 5.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Other S, G&A (4.9) (5.8) (5.8) (7.0) (7.2) (7.5) (7.7) (7.9) (8.2) (8.4) (8.7) % of sales -5.2% -5.0% -4.8% -5.2% -5.0% -5.0% -5.0% -5.0% -5.0% -5.0% -5.0%

(=) EBITDA (1) 14.2 17.4 17.9 19.9 21.4 21.7 22.2 22.6 23.0 23.5 23.9 % of sales 14.9% 15.1% 14.9% 14.9% 14.7% 14.5% 14.4% 14.2% 14.1% 13.9% 13.8%


Other non-cash operating expenses - - - - - - - - - - - % of sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

(=) EBITA 5.3 6.7 7.0 7.6 8.0 9.8 11.4 13.1 13.2 13.4 13.5 % of sales 5.6% 5.8% 5.8% 5.7% 5.5% 6.5% 7.4% 8.2% 8.1% 7.9% 7.8%

Capex (2) (6.0) (7.8) (9.0) (4.2) (9.7) (9.0) (9.2) (9.5) (9.8) (10.1) (10.4) % of sales -6.3% -6.8% -7.5% -3.1% -6.7% -6.0% -6.0% -6.0% -6.0% -6.0% -6.0%


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Illustration of an

alternative set

of assumptions


€ m2000 (a)

2001 (a)

2002 (a)

2003 (a)

2004 (a)

2005 (e)

2006 (e)

2007 (e)

2008 (e)

2009 (e)

2010 (e)

Sales 62.0 73.0 75.2 84.0 86.7 88.4 90.2 92.0 93.8 95.7 97.6 y-o-y NA 17.7% 3.0% 11.7% 3.2% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%# units (in m) 152.7 155.3 154.2 156.8 159.0 160.6 162.2 163.8 165.5 167.1 168.8 y-o-y (volume growth) NA 1.7% -0.7% 1.7% 1.4% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%







(=) EBITDA (1) 14.3 17.4 17.4 19.2 19.2 19.2 19.3 19.5 19.6 19.7 19.8 % of sales 23.1% 23.8% 23.1% 22.9% 22.2% 21.7% 21.5% 21.2% 20.9% 20.6% 20.3%


Other non-cash operating expenses - - - - - - - - - - - % of sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

(=) EBITA 12.3 15.2 15.1 16.7 16.7 16.6 16.6 16.7 16.8 16.8 16.9 % of sales 19.8% 20.8% 20.0% 19.9% 19.3% 18.7% 18.5% 18.2% 17.9% 17.6% 17.3%

Capex (2) (1.5) (3.5) (3.0) (3.8) (1.2) (2.7) (2.7) (2.8) (2.8) (2.9) (2.9) % of sales -2.4% -4.8% -4.0% -4.5% -1.4% -3.0% -3.0% -3.0% -3.0% -3.0% -3.0%


|80


Illustration of an

alternative set

of assumptions


€ m2000 (a)

2001 (a)

2002 (a)

2003 (a)

2004 (a)

2005 (e)

2006 (e)

2007 (e)

2008 (e)

2009 (e)

2010 (e)


Unit price (€ / unit) 1.25 1.23 1.25 1.19 1.14 1.33 1.30 1.26 1.23 1.20 1.16 y-o-y (price growth) NA -1.9% 2.3% -5.5% -3.5% 16.5% -2.6% -2.7% -2.7% -2.7% -2.7%



(-) S, G&A (7.1) (8.7) (10.5) (12.1) (13.6) (16.1) (16.3) (16.5) (16.6) (16.8) (16.9) % of sales -20.1% -23.0% -24.8% -24.5% -23.8% -22.6% -21.9% -21.3% -20.6% -20.0% -19.4%Employee costs (3.6) (4.4) (4.3) (4.5) (5.1) (5.4) (5.6) (5.8) (6.0) (6.3) (6.5) y-o-y NA 22.7% -1.4% 4.7% 13.3% 4.9% 4.0% 4.0% 4.0% 4.0% 4.0%% of sales -10.1% -11.5% -10.1% -9.1% -8.9% -7.5% -7.5% -7.5% -7.5% -7.5% -7.5%# of FTE 17.8 18.2 19.0 19.8 22.3 22.5 22.5 22.5 22.5 22.5 22.5 Productivity (sales / # FTE) 1.99 2.09 2.24 2.50 2.56 3.17 3.30 3.44 3.58 3.73 3.88 y-o-y NA 5.1% 7.2% 11.6% 2.7% 23.5% 4.2% 4.2% 4.1% 4.1% 4.1%

Cost per FTE (0.200) (0.240) (0.226) (0.227) (0.229) (0.238) (0.247) (0.257) (0.268) (0.278) (0.289) y-o-y NA 20.0% -5.6% 0.4% 0.6% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%


(=) EBITDA (1) 16.5 16.2 7.5 12.0 14.6 18.1 19.3 20.6 21.9 23.3 24.7 % of sales 46.7% 42.5% 17.7% 24.2% 25.5% 25.4% 26.0% 26.6% 27.2% 27.8% 28.3%



(=) EBITA 15.0 11.9 2.6 2.1 7.4 9.9 12.6 14.4 16.3 18.3 20.4 % of sales 42.4% 31.3% 6.1% 4.2% 12.9% 14.0% 17.0% 18.6% 20.2% 21.8% 23.3%

Capex (2) (23.6) (26.9) (22.4) (4.0) (4.1) (3.4) (3.5) (3.6) (3.8) (3.9) (4.1) % of sales -66.8% -70.7% -52.7% -8.1% -7.2% -4.7% -4.7% -4.7% -4.7% -4.7% -4.6%


|81


Illustration of an

alternative set

of assumptions

4. Consolidated operating data

€ m2000 (a)

2001 (a)

2002 (a)

2003 (a)

2004 (a)

2005 (e)

2006 (e)

2007 (e)

2008 (e)

2009 (e)

2010 (e)








(=) EBITDA (1) 45.0 50.9 42.8 51.1 55.1 59.0 60.8 62.6 64.5 66.4 68.4 % of sales 23.4% 22.5% 18.0% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1%



(=) EBITA 32.6 33.8 24.6 26.4 32.1 36.3 40.6 44.2 46.3 48.4 50.7 % of sales 16.9% 15.0% 10.3% 9.9% 11.1% 11.7% 12.8% 13.5% 13.7% 13.9% 14.2%

Capex (2) (31.1) (38.2) (34.4) (12.0) (15.0) (15.0) (15.5) (15.9) (16.4) (16.9) (17.4) % of sales -16.2% -16.9% -14.5% -4.5% -5.2% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9%


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1. P&L

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Sales 192.4 226.0 237.7 267.4 288.8 309.1 318.3 327.9 337.7 347.9 358.3 y-o-y NA 17.5% 5.2% 12.5% 8.0% 7.0% 3.0% 3.0% 3.0% 3.0% 3.0%

EBITDA 45.0 50.9 42.8 51.1 55.1 59.0 60.8 62.6 64.5 66.4 68.4 % of sales 23.4% 22.5% 18.0% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1%

EBITA 32.6 33.8 24.6 26.4 32.1 36.3 40.6 44.2 46.3 48.4 50.7 % of sales 16.9% 15.0% 10.3% 9.9% 11.1% 11.7% 12.8% 13.5% 13.7% 13.9% 14.2%

Net financial result (1.7) (1.3) (3.0) (6.7) (8.7) (10.0) (8.0) (6.2) (4.9) (4.0) (3.2) Exceptionals 0.3 2.2 0.0 - (0.8) - - - - - - Profit before tax (PBT) 31.2 34.7 21.6 19.7 22.6 26.3 32.7 37.9 41.3 44.4 47.6 Taxes (5.7) (10.4) (10.6) (9.8) (4.6) (9.7) (12.0) (13.8) (15.0) (16.1) (17.2) % of PBT excluding GW amort. 17.9% 28.9% 46.7% 46.8% 19.1% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Equity method - - - - - - - - - - - Minorities (0.3) (0.3) (0.2) (0.3) (0.5) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) Net declared profit 25.2 24.0 10.8 9.5 17.5 16.4 20.5 23.9 26.1 28.2 30.2 Net current profit (NCP) 25.5 22.9 11.9 10.9 19.8 17.9 22.0 25.4 27.6 29.7 31.7 y-o-y -10.2% -48.0% -8.6% 81.9% -9.8% 23.1% 15.6% 8.6% 7.4% 6.9%

Net current cashflow 37.9 40.0 30.1 35.6 42.9 40.6 42.2 43.9 45.9 47.7 49.4 y-o-y 5.6% -24.7% 18.2% 20.4% -5.2% 3.8% 4.1% 4.5% 3.9% 3.6%

Dividends 1.9 2.6 3.0 3.4 3.6 6.3 7.7 8.9 9.7 10.4 11.1 y-o-y 33.3% 16.7% 14.3% 5.0% 74.0% 23.1% 15.6% 8.6% 7.4% 6.9%

Pay-out in % of NCP 7.5% 11.2% 25.1% 31.4% 18.1% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%y-o-y 48.6% 124.3% 25.0% -42.3% 93.0% 0.0% 0.0% 0.0% 0.0% 0.0%


|83


• Cost of debt – Existing financial (bank) facilities may be maintained (if any)– Estimated cost estimated as follows:

• Risk free (short term) + corporate spread + hedging costs (if any)• Corporate spread of debt via rating or via function of ‘NFD / EBITDA’ ratio• Hedging cost depending of the yield curve (cf. short term vs. long term rates)

– Calculation to be made in a separate table (cf. infra)

• Interest on cash– Always be prudent (e.g. 1% x Cash t-1)– Try to minimize cash by choosing an appropriate debt level and

dividend policy

• Other financial results– To be determined. Normally = 0 if there is no unconsolidated

shareholdings


|84


Interests on financial debt

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Financial debt 65.5 80.2 99.8 127.1 148.8 132.2 111.8 91.6 75.1 58.2 40.9 Average financial debt 72.9 90.0 113.4 137.9 140.5 122.0 101.7 83.4 66.7 49.6 Interest in % 4.2% 4.6% 5.7% 5.2% 6.1% 5.4% 4.8% 4.3% 4.0% 3.7%NFD / EBITDA 2.1x 3.7x 4.5x 4.2x 3.3x 2.4x 1.8x 1.3x 0.9x 0.5xRisk free rate (short term) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%Corporate spread 3.1% 2.4% 1.8% 1.3% 1.0% 0.7%Hedging cost 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Interest on financial debt 3.1 3.1 4.1 6.5 7.2 8.6 6.6 4.9 3.6 2.7 1.8 Cash & equivalent 8.8 9.2 8.2 8.6 14.2 14.2 14.2 14.2 14.2 14.2 14.2 Average financial debt 9.0 8.7 8.4 11.4 14.2 14.2 14.2 14.2 14.2 14.2 Interest in % 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%Interest on cash 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1


|85


• Extraordinary items– Excluding specific information = 0

• Taxes– Application of a % on PBT (excluding goodwill amortization)

– Tax loss carry forward has to be considered

– Tax optimization has to be considered

• Equity accounted shareholdings and minorities– To be determined on a case by case basis

– Be careful if 100% of earnings are not paid in dividend (cf. important for the establishment of the cashflow statement)

• Dividend policy– To be considered in the overall perspective

– Based on pay-out on ‘Net current profit’


|86


• NCP= Net Profit + Amortization Goodwill + Exceptionals

• Net current profit has to be adjusted for– Financing one-offs (e.g. debt refinancing)

– Parent’s share in a subsidiary’s exceptional item when parent uses the equity method

– Tax impact also has to be considered


|87


Detailed view

of the P&L

1. P&L




(-) S, G&A (38.6) (46.2) (49.7) (55.9) (60.4) (64.6) (66.5) (68.5) (70.6) (72.7) (74.9) % of sales -20.1% -20.5% -20.9% -20.9% -20.9% -20.9% -20.9% -20.9% -20.9% -20.9% -20.9%

EBITDA 45.0 50.9 42.8 51.1 55.1 59.0 60.8 62.6 64.5 66.4 68.4 % of sales 23.4% 22.5% 18.0% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1%

Non-cash operating expenses (12.4) (17.1) (18.2) (24.7) (23.0) (22.8) (20.2) (18.5) (18.3) (18.0) (17.7) % of sales -6.4% -7.6% -7.7% -9.2% -8.0% -7.4% -6.3% -5.6% -5.4% -5.2% -4.9%Depreciation (13.0) (17.2) (18.3) (24.7) (23.0) (22.8) (20.2) (18.5) (18.3) (18.0) (17.7) % of sales -6.7% -7.6% -7.7% -9.2% -8.0% -7.4% -6.3% -5.6% -5.4% -5.2% -4.9%


EBITA 32.6 33.8 24.6 26.4 32.1 36.3 40.6 44.2 46.3 48.4 50.7 % of sales 16.9% 15.0% 10.3% 9.9% 11.1% 11.7% 12.8% 13.5% 13.7% 13.9% 14.2%

Net financial result (1.7) (1.3) (3.0) (6.7) (8.7) (10.0) (8.0) (6.2) (4.9) (4.0) (3.2) Interest on financial debt (3.1) (3.1) (4.1) (6.5) (7.2) (8.6) (6.6) (4.9) (3.6) (2.7) (1.8) Interest on cash - 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Goodwill amortization (0.6) (1.1) (1.1) (1.4) (1.5) (1.5) (1.5) (1.5) (1.5) (1.5) (1.5) Other items 2.1 2.8 2.2 1.2 (0.0) - - - - - -

Exceptionals 0.3 2.2 0.0 - (0.8) - - - - - - Extraordinary profits 0.3 2.5 0.1 - 0.1 - - - - - - Extraordinary charges (0.0) (0.2) (0.1) - (0.9) - - - - - -

Profit before tax (PBT) 31.2 34.7 21.6 19.7 22.6 26.3 32.7 37.9 41.3 44.4 47.6 Taxes (5.7) (10.4) (10.6) (9.8) (4.6) (9.7) (12.0) (13.8) (15.0) (16.1) (17.2) % of PBT excluding GW amort. 17.9% 28.9% 46.7% 46.8% 19.1% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%



Dividends 1.9 2.6 3.0 3.4 3.6 6.3 7.7 8.9 9.7 10.4 11.1 y-o-y 33.3% 16.7% 14.3% 5.0% 74.0% 23.1% 15.6% 8.6% 7.4% 6.9%



|88


2. Cashflow statement

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Declared profit 25.5 24.4 11.0 9.8 18.0 16.6 20.7 24.1 26.3 28.4 30.4 Depreciation and amortization 13.0 18.2 19.3 26.1 24.5 24.2 21.6 19.9 19.7 19.5 19.2 Working capital requirement (30.6) (7.6) (19.7) (16.1) (2.7) (5.6) (0.3) (0.2) (4.3) (4.4) (4.5) Other items and adjustments (14.3) (11.8) 3.0 (0.8) (14.1) - - - - - - Cashflow from operating activities (6.4) 23.2 13.6 19.0 25.7 35.2 42.1 43.8 41.7 43.5 45.1 Capex (31.1) (38.2) (34.4) (12.0) (15.0) (15.0) (15.5) (15.9) (16.4) (16.9) (17.4) % of sales -16.2% -16.9% -14.5% -4.5% -5.2% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9%

Aquisitions net of divestments (11.2) (2.4) 0.9 (3.6) 0.4 - - - - - - Aquisitions (11.7) (3.0) (0.4) (5.0) 0.4 - - - - - - Divestments 0.5 0.7 1.3 1.4 - - - - - - -

Other items and adjustments 2.3 3.1 3.3 (26.2) (19.4) - - - - - - Cashflow from investing activities (40.0) (37.4) (30.3) (41.8) (34.0) (15.0) (15.5) (15.9) (16.4) (16.9) (17.4) Capital increases - - - - - - - - - - - Dividends and directors fees (2.6) (3.1) (3.9) (4.3) (4.7) (3.6) (6.3) (7.7) (8.9) (9.7) (10.4) Financial debt movements 14.8 14.8 19.5 27.3 21.7 (16.6) (20.4) (20.2) (16.5) (16.9) (17.3) Other items and adjustments 37.1 2.9 0.1 0.2 (3.1) - - - - - - Cashflow from financing activities 49.3 14.6 15.7 23.2 13.9 (20.2) (26.6) (27.9) (25.4) (26.6) (27.7) Cash variation 2.8 0.4 (1.0) 0.4 5.5 - - - - - -


|89


• ‘Declared profit’ and ‘Depreciation and amortization’– Derived from P&L

– Declared profit = Group share profit + Profit from minorities

• Working capital (WC) requirement– Derived from balance sheet (BS)

– WC requirement t = – (WC t – WC t-1)

– Be careful with change of perimeter (cf. acquisition and disposals)

• Other items and adjustments– Derived from historical cashflow statement for past financials

– Non-cash items due to changes in perimeter and currency impacts

– Adjustment to be considered if 100% of profit coming from equityaccounted shareholdings are received in dividend

– Prospectively = 0


|90


• Capex– In an ideal world = Detailed assumptions

– Distinction between maintenance capex and expansion

– In absence of satisfactory information % of sales consistent with industrial benchmarks

• Acquisitions and disposals– Prospective data to be considered first without change of perimeter

– In a second step, test the impact associated with acquisition and disposal

• Other items and adjustments– Derived from historical cashflow statement for past financials

– Non-cash items related to change in perimeter and currency impacts

– Prospectively = 0


|91


• Capital increase and dividend policy– Dividends to be considered = dividends paid to the company

shareholders and dividends paid to minorities – Assumptions to be considered carefully in the financial optimization /

value creation perspectives (cf. infra)– Fine tuning of those assumptions in other assumptions change

• Financial debt movements– Take into account reimbursement of existing credit line facilities– Automatic result (cf. equilibrium line)

• Other items and adjustments– Derived from historical cashflow statement (CFS) for past financials– Normally non-cash items related to change in perimeter and currency

impacts– Prospectively = 0


|92


Detailed view

of the CS


€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Declared profit 25.5 24.4 11.0 9.8 18.0 16.6 20.7 24.1 26.3 28.4 30.4 Group share 25.2 24.0 10.8 9.5 17.5 16.4 20.5 23.9 26.1 28.2 30.2

Minorities 0.3 0.3 0.2 0.3 0.5 0.2 0.2 0.2 0.2 0.2 0.2 Depreciation and amortization 13.0 18.2 19.3 26.1 24.5 24.2 21.6 19.9 19.7 19.5 19.2 EBITDA - EBITA 12.4 17.1 18.2 24.7 23.0 22.8 20.2 18.5 18.3 18.0 17.7

Goodwill amortization 0.6 1.1 1.1 1.4 1.5 1.5 1.5 1.5 1.5 1.5 1.5

Other items - - - - - - - - - - - Working capital requirement (30.6) (7.6) (19.7) (16.1) (2.7) (5.6) (0.3) (0.2) (4.3) (4.4) (4.5) Balance sheet observed change (30.6) (7.8) (19.9) (15.6) (1.4) (3.0) 1.2 1.0 (3.6) (3.7) (3.8) Other items - 0.2 0.2 (0.5) (1.3) (2.7) (1.4) (1.2) (0.8) (0.7) (0.7)

Other items and adjustments (14.3) (11.8) 3.0 (0.8) (14.1) - - - - - - Cashflow from operating activities (6.4) 23.2 13.6 19.0 25.7 35.2 42.1 43.8 41.7 43.5 45.1 Capex (31.1) (38.2) (34.4) (12.0) (15.0) (15.0) (15.5) (15.9) (16.4) (16.9) (17.4) % of sales -16.2% -16.9% -14.5% -4.5% -5.2% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9%


Other items and adjustments 2.3 3.1 3.3 (26.2) (19.4) - - - - - - Other items observed in balance sheet 2.9 1.7 32.5 24.1 - - - - - - adjustments 2.3 0.2 1.6 (58.7) (43.5) - - - - - -

Cashflow from investing activities (40.0) (37.4) (30.3) (41.8) (34.0) (15.0) (15.5) (15.9) (16.4) (16.9) (17.4) Capital increases - - - - - - - - - - - Dividends and directors fees (2.6) (3.1) (3.9) (4.3) (4.7) (3.6) (6.3) (7.7) (8.9) (9.7) (10.4) Dividends paid to shareholders (1.9) (2.6) (3.0) (3.4) (3.6) (6.3) (7.7) (8.9) (9.7) (10.4) Dividends paid to minorities 0.1 0.0 0.1 (0.0) - - - - - - Other items (1.2) (1.3) (1.4) (1.3) - - - - - -

Financial debt movements 14.8 14.8 19.5 27.3 21.7 (16.6) (20.4) (20.2) (16.5) (16.9) (17.3) Observed financial debt movement 14.8 19.5 27.3 21.7 (16.6) (20.4) (20.2) (16.5) (16.9) (17.3) Other items 14.8 0.0 0.0 (0.0) (0.0) - - - - - -

Other items and adjustments 37.1 2.9 0.1 0.2 (3.1) - - - - - - Cashflow from financing activities 49.3 14.6 15.7 23.2 13.9 (20.2) (26.6) (27.9) (25.4) (26.6) (27.7) Cash variation 2.8 0.4 (1.0) 0.4 5.5 - - - - - - Observed cash variation 0.4 (1.0) 0.4 5.5 - - - - - -


|93


Assets Liabilities Fixed assets EquityIntangible fixed assets Provisions & deferred taxesTangible fixed assets ProvisionsFinancial fixed assets Deferred taxes

Current assets DebtCurrent operating assets Financial debtInventories / Stocks Current operating liabilitiesReceivables Trade creditorsOther current assets Taxes, remunerations

Cash & equivalent Other current liabilities


|94


• Intangible assets– Brands or goodwill

– Goodwill = Amount paid in excess of book value for previous acquisitions

– Under IFRS, no need to amortize the goodwill if it is still justified (cf.test)

• Tangible assets– Building, land and equipments

• Financial assets– Subsidiaries accounted under the Equity Method

– Investments


|95


• Other current assets– Prepaid expenses, accrued assets, etc

• Cash & equivalents– Includes cash, marketable securities and short-term investments

– For valuation purposes, it is interesting to split the real cash (excess cash) and the cash necessary for continuing operations (working capital nature)


|96


• Equity– Need to split ‘Group share equity’ and ‘Minority interests’

– Need to adjust equity to exclude grants

– Primarly based on common shares outstanding, but also includes other equity-linked products (cf. preferred shares, stock options, warrants, convertible bonds, …)

– Minority interests = Amount of subsidiaries’ equity owned by party other than the Company

• Provisions and deferred taxes– Short term vs. long term provisions

– Deferred taxes = due to the timing difference between income taxes accrued for financial reporting purposes and the actual cash income taxes paid


|97



Current assets DebtCurrent operating assets Financial debtInventories / Stocks Current operating liabilitiesReceivables Trade creditorsOther current assets Taxes, remunerations

Cash & equivalent Other current liabilities

Working capital (WC)Net current operating assets - Net current operating liabilities

Net financial debt (NFD)Financial debt – Cash & equivalent


|98



Working capital Net financial debt

Capital employedFixed assets + WC

Capital investedEquity + Provisions & deferred taxes + NFD


Net current operating assets - Net current operating liabilities

Financial debt – Cash & equivalent

|99


3. Balance sheet

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Fixed assets 73.6 99.5 115.7 138.9 153.1 143.9 137.7 133.6 130.3 127.7 125.9 Intangible fixed assets 17.5 19.4 17.7 20.9 19.2 17.8 16.3 14.8 13.3 11.8 10.4 Tangible fixed assets 55.7 79.7 97.4 117.3 133.3 125.5 120.8 118.3 116.4 115.3 115.0 Financial fixed assets 0.4 0.4 0.5 0.8 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Current assets 111.6 128.1 147.2 171.4 178.7 184.9 185.3 185.8 191.0 196.3 201.8 Current operating assets 102.9 118.9 139.0 162.8 164.5 170.7 171.1 171.7 176.8 182.1 187.6 Cash & equivalent 8.8 9.2 8.2 8.6 14.2 14.2 14.2 14.2 14.2 14.2 14.2 Total assets 185.3 227.6 262.9 310.3 331.8 328.8 322.9 319.5 321.3 324.0 327.7 Equity 80.6 98.6 113.3 125.5 127.3 137.6 150.6 165.9 182.5 200.5 219.8 Group share 79.8 97.5 112.0 123.9 125.3 135.4 148.2 163.2 179.7 197.5 216.6 Minorities 0.8 1.1 1.3 1.5 2.0 2.2 2.4 2.6 2.8 3.0 3.2 Provisions & deferred taxes 9.6 10.8 11.7 11.5 9.1 9.1 9.1 9.1 9.1 9.1 9.1 Debt 95.1 118.1 137.9 173.3 195.4 182.1 163.2 144.5 129.7 114.4 98.7 Financial debt 65.5 80.2 99.8 127.1 148.8 132.2 111.8 91.6 75.1 58.2 40.9 Current operating liabilities 29.6 37.9 38.1 46.2 46.6 49.9 51.4 52.9 54.5 56.2 57.8 Total liabilities 185.3 227.6 262.9 310.3 331.8 328.8 322.9 319.5 321.3 324.0 327.7


|100


Alternative presentation

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Current operating assets 102.9 118.9 139.0 162.8 164.5 170.7 171.1 171.7 176.8 182.1 187.6 Current operating liabilities 29.6 37.9 38.1 46.2 46.6 49.9 51.4 52.9 54.5 56.2 57.8 Working capital 73.2 81.0 100.9 116.5 117.9 120.9 119.7 118.7 122.3 126.0 129.7 Financial debt 65.5 80.2 99.8 127.1 148.8 132.2 111.8 91.6 75.1 58.2 40.9 Cash & equivalent 8.8 9.2 8.2 8.6 14.2 14.2 14.2 14.2 14.2 14.2 14.2 Net financial debt 56.7 71.1 91.6 118.4 134.6 118.0 97.7 77.4 61.0 44.0 26.7 Fixed assets 73.6 99.5 115.7 138.9 153.1 143.9 137.7 133.6 130.3 127.7 125.9 Working capital 73.2 81.0 100.9 116.5 117.9 120.9 119.7 118.7 122.3 126.0 129.7 Capital employed 146.9 180.5 216.6 255.4 271.0 264.7 257.4 252.4 252.6 253.7 255.7 Equity 80.6 98.6 113.3 125.5 127.3 137.6 150.6 165.9 182.5 200.5 219.8 Provisions & deferred taxes 9.6 10.8 11.7 11.5 9.1 9.1 9.1 9.1 9.1 9.1 9.1 Net financial debt 56.7 71.1 91.6 118.4 134.6 118.0 97.7 77.4 61.0 44.0 26.7 Capital invested 146.9 180.5 216.6 255.4 271.0 264.7 257.4 252.4 252.6 253.7 255.7


|101


• Intangible fixed assets (IFA)– IFA t = IFA t-1 – Goodwill amortization t (cf. P&L) +/– Other t

– Take into account your own acquisition goodwill in case of an acquisition of the company

• Tangible fixed assets (TFA)– TFA t = TFA t-1 – Depreciation t (cf. P&L) + Capex t (cf. CFS) +/–

Other t

• Financial fixed assets (FFA)– FFA t = FFA t-1 +/– Other t


|102


• Working capital items– Function of sales (in % or in days of sales)

– Assumptions to be realistic

• Cash & equivalent (C&E)– C&E t = C&E t-1 +/– Cash variation t (cf. CFS)

• Financial debt (FD)– FD t = FD t-1 +/– Financial debt movements t (cf. CFS)

• Equity (E)– E t = E t-1 + Net profit t (cf. P&L) - Dividend t (cf. P&L) + Capital

increase t (cf. CFS)


|103


Detailed view

of the BS3. Balance sheet

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Fixed assets 73.6 99.5 115.7 138.9 153.1 143.9 137.7 133.6 130.3 127.7 125.9 Intangible fixed assets 17.5 19.4 17.7 20.9 19.2 17.8 16.3 14.8 13.3 11.8 10.4 Variation due to goodwill amortization (1.1) (1.1) (1.4) (1.5) (1.5) (1.5) (1.5) (1.5) (1.5) (1.5) Other items 0.9 (2.8) 1.8 (3.1) - - - - - -

Tangible fixed assets 55.7 79.7 97.4 117.3 133.3 125.5 120.8 118.3 116.4 115.3 115.0 Capex 38.2 34.4 12.0 15.0 15.0 15.5 15.9 16.4 16.9 17.4 Depreciation (17.2) (18.3) (24.7) (23.0) (22.8) (20.2) (18.5) (18.3) (18.0) (17.7) Other items 2.9 1.7 32.5 24.1 - - - - - -

Financial fixed assets 0.4 0.4 0.5 0.8 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Variation (0.1) 0.1 0.3 (0.2) - - - - - -

Current assets 111.6 128.1 147.2 171.4 178.7 184.9 185.3 185.8 191.0 196.3 201.8 Current operating assets 102.9 118.9 139.0 162.8 164.5 170.7 171.1 171.7 176.8 182.1 187.6 % of sales 53.5% 52.6% 58.5% 60.9% 57.0% 55.2% 53.7% 52.4% 52.4% 52.4% 52.4%

Cash & equivalent 8.8 9.2 8.2 8.6 14.2 14.2 14.2 14.2 14.2 14.2 14.2 Variation 0.4 (1.0) 0.4 5.5 - - - - - -

Total assets 185.3 227.6 262.9 310.3 331.8 328.8 322.9 319.5 321.3 324.0 327.7 Equity 80.6 98.6 113.3 125.5 127.3 137.6 150.6 165.9 182.5 200.5 219.8 Group share 79.8 97.5 112.0 123.9 125.3 135.4 148.2 163.2 179.7 197.5 216.6 Net declared profit 25.2 24.0 10.8 9.5 17.5 16.4 20.5 23.9 26.1 28.2 30.2 Dividends (1.9) (2.6) (3.0) (3.4) (3.6) (6.3) (7.7) (8.9) (9.7) (10.4) (11.1) Capital increase - - - - - - - - - - - Other items (3.7) 6.7 5.8 (12.6) - - - - - -

Minorities 0.8 1.1 1.3 1.5 2.0 2.2 2.4 2.6 2.8 3.0 3.2 Profit from minorities 0.3 0.2 0.3 0.5 0.2 0.2 0.2 0.2 0.2 0.2 Dividends from minorities (e) 0.1 0.0 0.1 (0.0) - - - - - -

Provisions & deferred taxes 9.6 10.8 11.7 11.5 9.1 9.1 9.1 9.1 9.1 9.1 9.1 Debt 95.1 118.1 137.9 173.3 195.4 182.1 163.2 144.5 129.7 114.4 98.7 Financial debt 65.5 80.2 99.8 127.1 148.8 132.2 111.8 91.6 75.1 58.2 40.9 Current operating liabilities 29.6 37.9 38.1 46.2 46.6 49.9 51.4 52.9 54.5 56.2 57.8 % of sales 15.4% 16.8% 16.0% 17.3% 16.1% 16.1% 16.1% 16.1% 16.1% 16.1% 16.1%

Total liabilities 185.3 227.6 262.9 310.3 331.8 328.8 322.9 319.5 321.3 324.0 327.7


|104


(1)P&L

(2)CS

(3)BS

Cashflow

Dividend

WC requirement

(Provisions)

Capex � Tangible assets

Net financial debt variation

Capital increase

Capex � Depreciation

Write-offs on assets

Depreciation � Tangible assets

Retain profit � Equity

NFD � Interests

Problem = Circular reference


|105


• Two technical solutions

• Let a circular reference in your model– Simple solution (cf. automatic adjustment by Excel)

– Dangerous solution (cf. Excel may be affected)

– No indication if other circular references are introduced in themodel

• Isolation of the circular reference at the level of ‘Interests on financial debt’ through an appropriate table– Adjustment needed if any modification in the model (cf. more

work)

– But it permits to see the impact of those changes


|106


• Make the circular reference yourself

• Use the ‘Copy’ & ‘Paste value’ functions about 10 times– Copy of ‘Interests on financial

debt observed’

– Paste value in ‘Interests on financial debt plugged’

Deta

iled

vie

w

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Interests on financial debt observed 8.6 6.6 4.9 3.6 2.7 1.8 Interests on financial debt plugged 8.6 6.6 4.9 3.6 2.7 1.8 1. P&L


EBITDA 45.0 50.9 42.8 51.1 55.1 59.0 60.8 62.6 64.5 66.4 68.4 % of sales 23.4% 22.5% 18.0% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1%

EBITA 32.6 33.8 24.6 26.4 32.1 36.3 40.6 44.2 46.3 48.4 50.7 % of sales 16.9% 15.0% 10.3% 9.9% 11.1% 11.7% 12.8% 13.5% 13.7% 13.9% 14.2%

Net financial result (1.7) (1.3) (3.0) (6.7) (8.7) (10.0) (8.0) (6.2) (4.9) (4.0) (3.2) Exceptionals 0.3 2.2 0.0 - (0.8) - - - - - - Profit before tax (PBT) 31.2 34.7 21.6 19.7 22.6 26.3 32.7 37.9 41.3 44.4 47.6 Taxes (5.7) (10.4) (10.6) (9.8) (4.6) (9.7) (12.0) (13.8) (15.0) (16.1) (17.2) % of PBT excluding GW amort. 17.9% 28.9% 46.7% 46.8% 19.1% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%



Dividends 1.9 2.6 3.0 3.4 3.6 6.3 7.7 8.9 9.7 10.4 11.1 y-o-y 33.3% 16.7% 14.3% 5.0% 74.0% 23.1% 15.6% 8.6% 7.4% 6.9%



€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Declared profit 25.5 24.4 11.0 9.8 18.0 16.6 20.7 24.1 26.3 28.4 30.4 Depreciation and amortization 13.0 18.2 19.3 26.1 24.5 24.2 21.6 19.9 19.7 19.5 19.2 Working capital requirement (30.6) (7.6) (19.7) (16.1) (2.7) (5.6) (0.3) (0.2) (4.3) (4.4) (4.5) Other items and adjustments (14.3) (11.8) 3.0 (0.8) (14.1) - - - - - - Casflow from operating activities (6.4) 23.2 13.6 19.0 25.7 35.2 42.1 43.8 41.7 43.5 45.1 Capex (31.1) (38.2) (34.4) (12.0) (15.0) (15.0) (15.5) (15.9) (16.4) (16.9) (17.4) % of sales -16.2% -16.9% -14.5% -4.5% -5.2% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9%


Other items and adjustments 2.3 3.1 3.3 (26.2) (19.4) - - - - - - Casflow from investing activities (40.0) (37.4) (30.3) (41.8) (34.0) (15.0) (15.5) (15.9) (16.4) (16.9) (17.4) Capital increases - - - - - - - - - - - Dividends and directors fees (2.6) (3.1) (3.9) (4.3) (4.7) (3.6) (6.3) (7.7) (8.9) (9.7) (10.4) Financial debt movements 14.8 14.8 19.5 27.3 21.7 (16.6) (20.4) (20.2) (16.5) (16.9) (17.3) Other items and adjustments 37.1 2.9 0.1 0.2 (3.1) - - - - - - Casflow from financing activities 49.3 14.6 15.7 23.2 13.9 (20.2) (26.6) (27.9) (25.4) (26.6) (27.7) Cash variation 2.8 0.4 (1.0) 0.4 5.5 - - - - - -

3. Balance sheet

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Fixed assets 73.6 99.5 115.7 138.9 153.1 143.9 137.7 133.6 130.3 127.7 125.9 Intangible fixed assets 17.5 19.4 17.7 20.9 19.2 17.8 16.3 14.8 13.3 11.8 10.4 Tangible fixed assets 55.7 79.7 97.4 117.3 133.3 125.5 120.8 118.3 116.4 115.3 115.0 Financial fixed assets 0.4 0.4 0.5 0.8 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Current assets 111.6 128.1 147.2 171.4 178.7 184.9 185.3 185.8 191.0 196.3 201.8 Current operating assets 102.9 118.9 139.0 162.8 164.5 170.7 171.1 171.7 176.8 182.1 187.6 Cash & equivalent 8.8 9.2 8.2 8.6 14.2 14.2 14.2 14.2 14.2 14.2 14.2 Total assets 185.3 227.6 262.9 310.3 331.8 328.8 322.9 319.5 321.3 324.0 327.7 Equity 80.6 98.6 113.3 125.5 127.3 137.6 150.6 165.9 182.5 200.5 219.8 Group share 79.8 97.5 112.0 123.9 125.3 135.4 148.2 163.2 179.7 197.5 216.6 Minorities 0.8 1.1 1.3 1.5 2.0 2.2 2.4 2.6 2.8 3.0 3.2 Provisions & deferred taxes 9.6 10.8 11.7 11.5 9.1 9.1 9.1 9.1 9.1 9.1 9.1 Debt 95.1 118.1 137.9 173.3 195.4 182.1 163.2 144.5 129.7 114.4 98.7 Financial debt 65.5 80.2 99.8 127.1 148.8 132.2 111.8 91.6 75.1 58.2 40.9 Current operating liabilities 29.6 37.9 38.1 46.2 46.6 49.9 51.4 52.9 54.5 56.2 57.8 Total liabilities 185.3 227.6 262.9 310.3 331.8 328.8 322.9 319.5 321.3 324.0 327.7

Interests on financial debt

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Financial debt 65.5 80.2 99.8 127.1 148.8 132.2 111.8 91.6 75.1 58.2 40.9 Average financial debt 72.9 90.0 113.4 137.9 140.5 122.0 101.7 83.4 66.7 49.6 Interest in % 4.2% 4.6% 5.7% 5.2% 6.1% 5.4% 4.8% 4.3% 4.0% 3.7%NFD / EBITDA 2.1x 3.7x 4.5x 4.2x 3.3x 2.4x 1.8x 1.3x 0.9x 0.5xRisk free rate (short term) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%Corporate spread 3.1% 2.4% 1.8% 1.3% 1.0% 0.7%Hedging cost 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Interest on financial debt 3.1 3.1 4.1 6.5 7.2 8.6 6.6 4.9 3.6 2.7 1.8 Cash & equivalent 8.8 9.2 8.2 8.6 14.2 14.2 14.2 14.2 14.2 14.2 14.2 Average financial debt 9.0 8.7 8.4 11.4 14.2 14.2 14.2 14.2 14.2 14.2 Interest in % 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%Interest on cash 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1


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• Ratios to measure financial performance

• Ratios to measure financial risksRatios

€ m 2000 (e) 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)Return on capital employed (ROCE) 22.2% 18.7% 11.4% 10.3% 11.8% 13.7% 15.8% 17.5% 18.3% 19.1% 19.8%EBITA 32.6 33.8 24.6 26.4 32.1 36.3 40.6 44.2 46.3 48.4 50.7 Capital employed 146.9 180.5 216.6 255.4 271.0 264.7 257.4 252.4 252.6 253.7 255.7

Return on invested capital (ROIC) 14.4% 12.2% 7.4% 6.7% 7.7% 8.9% 10.3% 11.4% 11.9% 12.4% 12.9%NOPLAT = EBITA after taxes (35%) 21.2 22.0 16.0 17.1 20.9 23.6 26.4 28.7 30.1 31.5 33.0 Invested capital = Capital employed 146.9 180.5 216.6 255.4 271.0 264.7 257.4 252.4 252.6 253.7 255.7

Return on equity (ROE) 32.0% 23.5% 10.6% 8.8% 15.8% 13.2% 14.8% 15.6% 15.4% 15.0% 14.6%Net current profit 25.5 22.9 11.9 10.9 19.8 17.9 22.0 25.4 27.6 29.7 31.7 Equity 79.8 97.5 112.0 123.9 125.3 135.4 148.2 163.2 179.7 197.5 216.6

Fixed Charges Cover NR NR NR 6.7x 5.9x 4.8x 6.5x 9.3x 13.3x NR NRNet Current Cash Flow 37.9 40.0 30.1 35.6 42.9 40.6 42.2 43.9 45.9 47.7 49.4 Net financial charge (excl. goodwill) 1.1 0.2 1.9 5.3 7.2 8.5 6.5 4.7 3.5 2.5 1.7

Senior Interest Cover NR NR 13.0x 5.0x 4.4x 4.3x 6.3x 9.3x 13.4x NR NREBITDA 32.6 33.8 24.6 26.4 32.1 36.3 40.6 44.2 46.3 48.4 50.7 Financial result 1.1 0.2 1.9 5.3 7.2 8.5 6.5 4.7 3.5 2.5 1.7

Outstandings to Value Cover 1.7x 2.1x 3.7x 4.5x 4.2x 3.3x 2.4x 1.8x 1.3x 0.9x 0.5xNet financial debt (NFD) 56.7 71.1 91.6 118.4 134.6 118.0 97.7 77.4 61.0 44.0 26.7 EBITDA 32.6 33.8 24.6 26.4 32.1 36.3 40.6 44.2 46.3 48.4 50.7

[EBITDA - Capex] / Interests 1.4x NR NR 2.7x 2.4x 2.5x 3.9x 6.0x 8.6x 12.5x NR[EBITDA - Capex] 1.5 (4.4) (9.8) 14.4 17.1 21.3 25.2 28.3 29.9 31.6 33.4 Net financial charge (excl. goodwill) 1.1 0.2 1.9 5.3 7.2 8.5 6.5 4.7 3.5 2.5 1.7

NFD / [EBITDA - Capex] NR NR NR 8.2x 7.9x 5.5x 3.9x 2.7x 2.0x 1.4x 0.8xNet financial debt 56.7 71.1 91.6 118.4 134.6 118.0 97.7 77.4 61.0 44.0 26.7 [EBITDA - Capex] 1.5 (4.4) (9.8) 14.4 17.1 21.3 25.2 28.3 29.9 31.6 33.4

3. Financial Modelling:f. Ratios (1/12)

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Key concepts to assess the financial performance:1. Return On Equity• The Return On Equity (RoE) is a key concept for the shareholders

• It measures the profitability of their investment in shares of this company compared to alternative financial assets

– Other companies

– Fixed rates bonds

• RoE ≡ Net profit (group share) / Equity (group share)

• How to measure the equity?

– Equity at book-value or ... equity at market price

– The difference can be huge for listed companies


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Key concepts to assess the financial performance:2. Return on Capital Employed • The Return on Capital Employed (RoCE) measures what the

company earns (before interest and tax) per unit of capital employed

– RoCE ≡ EBITA / (Fixed assets + Working Capital)

– This ratio is not influenced by the financial structure of the company

• If total assets are used the concept is called Return on Assets– RoA ≡ EBITA (or EBITDA) / Total assets


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Key concepts to assess the financial performance:3. Return on Invested Capital• It can be useful to calculate the Return on Invested Capital

(RoIC). This is equal to the RoCE but considers the EBITA after taxes (or NOPAT)

– RoIC = RoCE x (1- τ) = EBITA x (1- τ) / (Fixed assets + Working Capital)

– EBITA x (1- τ) = NOPAT (Net Operating Profit After Taxes)

– Where τ is the average tax rate


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• What is a sound level for the RoCE?– higher than the interest rate– in the range of 10% to 18% in Western economies– the level is a reference for expected profitability of new capital

expenditures

• What is a sound level for the RoE?– in the range of 12% to 25%– depends on the risk of the business

• activity related risks (high tech vs. low tech)• maturity of the business (start up vs. mature)• financial structure (highly leveraged vs. standard)


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• If the company has no Net Financial Debt (NFD)– RoE = RoCE x (1-τ) = RoIC

– This is logical because in this case the total of assets is equal to the equity and no interest is paid

– The higher the RoCE the higher the RoE

– The lower the tax rate the higher the RoE

• If the company has a NFD position– RoE = RoCE x (1 - τ) + (RoCE - CoD) x (1- τ) x NFD / Equity

– where CoD (Cost of Debt) is the average rate of interest to be paid on NFD

– The RoCE should be higher than the interest rate:

• if RoCE > CoD then RoE > RoIC

• if RoCE < CoD then RoE < RoIC

Leverage effect


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• Leverage effect: – If RoE > RoIC � Positive leverage effect � Value creation for the

shareholders due to NFD

– If RoE < RoIC � Negative leverage effect � Value destruction for the shareholders due to NFD

• Major concept in finance:– RoE can be improved by increasing the debt level

– Key question: How far can the equity be reduced and the net financial debt increased?• The company must find a bank to lend the debt• The bank will look at the risks not to be paid bask

– Important condition = if and only if the RoCE is higher than CoD

• Bus Plan is a tool to determine the optimal financial structure


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• CoD = Risk free interest rate + Corporate spread

• Corporate spread = function of several dimensions – Intrinsic characteristic of the company � Industrial risk (i.e.

independent of the financial structure)

– Level of financial debt borne by the company � Financial risk

– Supply / demand equilibrium of the debt market � Market risk

• Higher risks will be compensated by higher interest rates

• Higher interest rates will reduce the Leverage effect (cf. the higher the ‘Debt / Equity’ ratio, the higher the corporate spread requested by the banker, the higher the effective cost of debt of the company)


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Key concepts to assess the financial risks:• Fixed Charge Cover = Net Current Cash Flow / Financial

charge (excl. goodwill) � Higher than 2.0x

• Senior Interest Cover = EBITDA / Financial result �Higher than 3.0x / 2.5x

• Outstandings to Value Cover = Net financial debt / EBITDA � Lower than 3.0x

• Operating free cashflow ratios:– [EBITDA - Capex] / Financial charge (excl. goodwill)

– Net Financial Debt / [EBITDA - Capex]


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Key concepts to assess the financial risks:• Liquidity ratio = Current assets / Current liabilities �

Higher than 1.0x

• Acid test (or Quick test) = Current assets excluding inventories / Current liabilities � Higher than 0.7x / 0.8x

• Leverage = NFD / Equity or NFD / [Equity + NFD] �Depending on volatility / predictability of cashflow


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Other interesting ratios:• Pay-out ratio (or Distribution ratio) = Dividends / Net

current profit � Depending on maturity of the business / Shareholder choice

• Capex / Depreciation � Depending on the investment cycle, as well as the depreciation / activation strategy followed by the company (a.o. tax considerations) �Normally this ratio should be equal to about 100% in cruise rhythm (remark: excluding impact of inflation)


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• Financial ratios: Illustration


2005 data Indexed with sales = 100

Chemi-cals

Electric utilities

Food retail

Food & beve-rages

Indus-trial

conglo-merates

Telecom equip-ments

Oil Mine-rals

Soft-ware

Telcos Pharma-ceuti-cals

Pay-out ratio 34.9% 50.1% 41.2% 52.5% 38.3% 37.0% 36.9% 30.8% 28.9% 57.1% 44.5%Return on Capital Employed 21.7% 7.7% 16.6% 18.1% 8.3% 73.1% 29.0% 20.9% 51.7% 7.0% 37.8%EBITA 13 11 5 18 7 17 18 26 27 12 28 Capital employed 62 141 31 97 87 23 63 126 53 179 74

Return on Invested Capital 14.1% 5.0% 10.8% 11.8% 5.4% 47.5% 18.8% 13.6% 33.6% 4.5% 24.5%NOPLAT = EBITA after taxes (35%) 9 7 3 11 5 11 12 17 18 8 18 Invested capital = Capital employed 62 141 31 97 87 23 63 126 53 179 74

Return on Equity 18.6% 19.4% 25.1% 34.3% 13.0% 24.4% 26.0% 27.9% 26.6% 14.1% 32.1%Net current profit 7 9 5 16 6 13 10 20 18 13 20 Equity 40 47 18 46 49 52 38 72 68 91 63

Outstandings to Value Cover 0.4x 1.3x 1.4x 1.6x 1.4x -1.7x 0.4x 0.6x -1.3x 1.6x -0.5xNet Dinancial Debt 7 21 10 34 16 (33) 8 19 (40) 60 (16) EBITDA 19 16 7 21 12 19 23 31 30 36 33

Liquidity ratio 1.7x 1.1x 0.5x 1.2x 1.3x 1.0x 1.2x 1.3x 2.9x 0.7x 1.2xCurrent assets 33 43 11 37 46 38 30 29 38 23 36 Current liabilities 19 39 22 30 34 37 24 21 13 35 31

Acid test 1.1x 1.0x 0.2x 0.6x 0.9x 0.8x 0.9x 0.8x 2.9x 0.6x 0.8xCurrent assets ex-inventories 20 38 5 19 32 30 23 18 38 22 25 Current liabilities 19 39 22 30 34 37 24 21 13 35 31

Leverage n°1 17% 37% 56% 72% 30% -62% 21% 24% -59% 61% -23%NFD 7 21 10 34 16 (33) 8 19 (40) 60 (16) Equity 41 58 19 47 53 53 40 78 68 97 70

Leverage n°2 14% 27% 36% 42% 23% -160% 18% 19% -141% 38% -30%NFD 7 21 10 34 16 (33) 8 19 (40) 60 (16) Equity + NFD 48 79 29 81 69 20 48 97 28 157 54

Based on non-financial companies from the Euro Stoxx 50 (cf. supra)

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• Based on your excel model, review a new time of all assumptions to determinate the risks

• The Market– How is it changing?

– What should be the impact on sales and profit?

• The Technologies– How fast are they changing?

– Are these changes Threats or Opportunities?

– What would be the impact on operating costs and capex?

• Impact from external factors– Interest rate

– Exchange rate

3. Financial Modelling:g. Risks assessment and sensitivity cases (1/7)

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• Quantify the risks– Probability to occur

– Financial consequences if they occur

• Manage the risks to reduce them– Process changes

– Additional expenses (opex or capex)

• Cover the risks– Insurances

– Financial coverage


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• We can see immediately all the consequences of changing one assumption– occupancy rate or load factor– unit price vs. volume (cf. elasticity)– additional capital expenditures

• more rooms, more planes, more shops• fixed and variable costs

– interest rate– exchange rate

• Three scenarios may be built:– ‘Base Case’– ‘Best Case’– ‘Worst Case’


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• In a second time, results may be compared


Base case

Worst case

Best case

-

50

100

150

200

250

300

350

400

450

2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)

€ m Sales compared

-

10

20

30

40

50

60

70

80

90

100

2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)

€ m EBITDA compared

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Base case

Worst case

Best case

-

5

10

15

20

25

30

35

40

2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)

€ mNet current profit compared

(20)

-

20

40

60

80

100

120

140

2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)

€ mNet financial debt compared

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Base case

Worst case

Best case

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)

Return on equity (RoE) compared

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)

Return on invested capital (RoIC) compared


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Base case

Worst case

Best case

0x

2x

4x

6x

8x

10x

12x

14x

2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)

Fixed charges cover (NDCF / FC) ratio

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

2005 (e) 2006 (e) 2007 (e) 2008 (e) 2009 (e) 2010 (e)

Outstanding to value cover (NFD / EBITDA) ratio


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• How much equity and how much debt to finance the business ?

– 1st goal: Maximize the profitability for the shareholders

– 2nd goal: Be able to pay the interests and to repay the debt

– 3rd goal: Minimize the risks

• Minimize the capital needs

– Optimize the use of fixed assets (productivity)

– Minimize the working capital

• Minimize the equity

– Leverage effect

– Gross cost of debt normally < requested return on equity

– Tax impact

• Use the Financial Plan to seek the best structure

3. Financial Modelling:h. Optimizing the financial structure

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4. Valuation

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Key idea: Input from the business plan / from the financial model + external data = Implied valuation

Proper business plan / from the financial is a pre-requisite to any valuation exercise

Actualization models• DCF & assimilated

• DDM

• IRR / LBO

Input External data

EBITDA, EBITA, Capex, and WC requirement or dividends

WACC / cost of equity, inflation / long term growth

Multiple-based models• EV multiples

• Price multiples

Sales, EBITDA, EBITA or

EPS, CFPS, book value, DPS

Observed multiple for listed peers or transaction multiples

4. Valuation:a. Introduction (1/4)

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• In practice, valuation is based on several methodologies that are consistent with industry practices

• Economic value >< Price


1. DCF / DDMAnalyzes the net present value of the company’s free cashflows

1. 2.

2. Listed peer compsUtilizes market trading multiples from publicly traded companies to derives value

3. Trade compsUtilizes data from M&A transactions involving similar companies to derives value

3. 4.

4. LBO valueused to determine range of potential value paid by a private equity sponsor for a company, based on its maximum leverage capacity

Theoretical valuation range

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• Applications of valuation analysis include:– Acquisitions – How much should we pay to buy a company?

– Divestures – How much should we sell our company / division for?

– Fairness opinions – Is the price offered for our company / division fair (from a financial point of view)?

– Public equity offerings – How much should we sell our company / division for in a public market?

– Debt offerings – What is the underlying value of the business / assets against which the debt is being issued (e.g. in a recapitalization context )?

– New business presentations– Hostile defense – Is our company vulnerable to a raider?

– Research – Should our clients buy, sell or hold positions in a given security?


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• Value per share– If no options:

• Equity / Number of share outstanding

– If there are stock options:

• [Equity + Cash due to options exercise] / Number of shares fully diluted


EV = Enterprise

Value

Equity

Other

NFD

Market cap = Stock price x # shares

In and off balance sheet items at their market value (a.o. provisions, pension deficits, minorities, NPV of tax loss carry forward and financial assets)

[Financial debt – Cash] At market value

• Value at 100%

Market value of all capital invested

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• Actualization models are the fundamental valuation tools– For some companies the only way to value

– For all companies, represent their theoretical value, a proxy for private market value

– Only way to take into account the business plan and financial model of the company (>< multiples = spot situation)

– Simple and easy to use

– Do not change every day (unlike public comps)

– Always represents relevant data (>< transaction comps)

– Excluding financial model, dependent of a small number of assumptions

4. Valuation:b. Actualization models (1/2)

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• DCF = Discounted (free) Cash Flow– Common practice all around the world

– Valuation of a project including medium term perspectives

• DDM = Dividend Discount Model– Focus on dividend � Useful for long-term minority investors

– Financial market oriented (relative valuation based on alpha derived from the CAPM theory)

• Theoretically: DCF = DDM– Same core idea: “The value of a productive asset is equal to

the net present value of all expected future cash flows that can be removed from it without affecting its value (including an estimated terminal value) discounted using appropriate actualization rate (i.e. function of the underlying risk)”

4. Valuation:b. Actualization models (2/2)

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• Financial data from financial model (cf. supra) determining the operating free cashflows over a medium horizon (e.g. 5to 10 years):– EBITA

– Normative Tax rate

– Non-cash operating items

– Capex

– Working capital requirements

• Discount rate � WACC (cf. infra) • Terminal Value (TV)

– Gordon-Shapiro• Value 0 = FCF 1 / (WACC – g) = [FCF 0 x (1 + g)] / (WACC – g)

– Multiple (e.g. prudent EV / EBITDA or EV / EBITA)

� NOPAT = EBITA x (1 – τ)

4. Valuation:b. Actualization models: 1. DCF (1/6)

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• WACC– Weighted Average Cost of Capital – (1 – Lv) x CoE + Lv x CoD x (1 – τ)

• Where:– Lv = NFD / (Equity + NFD)

• Maximum 30 / 35% of EV• Leverage effect considered ad infinitum � Must be sustainable

– CoE = Cost of Equity• Based on CAPM theory, CoE = Rf + β x RP• Where:

– Rf = Risk free rate (e.g. 10 y Government bond)– β = Beta of the cy (*) – RP = Risk premium = Rm - Rf

– CoD = Cost of Debt• CoD = Rf + Spread function of indebtness

– Tax rate = τ

(*) β lev = β unlev x [1 + (1 – Tc) x (NFD / Equity)]


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• Risk premium

– From CAPM model

• The only consistent approach from a theoretical point of view

• In practice, very complex to build

– Alternative approaches

• Use public sources

• Proxy = [1/ P/E of the market] – Risk free rate

• Normative risk premium (e.g. 3 to 5%)


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• The enterprise value of a company may be estimated taking into account the (net) present value of the operating free cashflows ad infinitum

• Formula:

• Equity value = EV(DCF) - NFD

DCF0 = Σt=1∞ FCFt / (1 + WACC)t

DCF0 = Σt=1n FCFt / (1 + WACC)t

+ DCFt / (1 + WACC)t

with

DCFt = FCFt+1/(WACC – g)


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€ m 2005 2006 2007 2008 2009 2010 Tax rate 35.0%Sales 309.1 318.3 327.9 337.7 347.9 358.3 Debt / Equity 20.0%y-o-y 7.0% 3.0% 3.0% 3.0% 3.0% 3.0% Debt / EV 16.7%

EBITDA 59.0 60.8 62.6 64.5 66.4 68.4 Implied NFD / EBITDA 0.7x% of sales 19.1% 19.1% 19.1% 19.1% 19.1% 19.1% Risk free rate 5.0%

Non-cash operating costs (22.8) (20.2) (18.5) (18.3) (18.0) (17.7) Risk premium 6.0%% of sales -7.4% -6.3% -5.6% -5.4% -5.2% -4.9% Unleveraged beta 1.20

EBITA 36.3 40.6 44.2 46.3 48.4 50.7 Leveraged beta 1.36 % of sales 11.7% 12.8% 13.5% 13.7% 13.9% 14.2% Cost of equity 13.1%

(-) Taxes (*) (12.7) (14.2) (15.5) (16.2) (17.0) (17.8) Corporate spread 2.0%(=) NOPAT 23.6 26.4 28.7 30.1 31.5 33.0 Cost of debt (before tax benefit) 7.0%% of sales 7.6% 8.3% 8.8% 8.9% 9.1% 9.2% WACC 11.7%

(+) Non-cash operating costs 22.8 20.2 18.5 18.3 18.0 17.7 Growth in perpetuity 0.5%% of sales 7.4% 6.3% 5.6% 5.4% 5.2% 4.9%

(-) Capex (15.0) (15.5) (15.9) (16.4) (16.9) (17.4)% of sales -4.9% -4.9% -4.9% -4.9% -4.9% -4.9%

(-) Working capital requirement (3.0) 1.2 1.0 (3.6) (3.7) (3.8)% of sales -1.0% 0.4% 0.3% -1.1% -1.1% -1.1%

(=) Free cashflow 28.4 32.3 32.2 28.4 28.9 29.5 (+) Terminal enterprise value (TEV) 264.7

3.9x5.2x

(=) Total free cash flows 28.4 32.3 32.2 28.4 28.9 294.2 (x) Present value factor 0.895 0.801 0.717 0.642 0.575 0.515 (=) Discounted free cashflow 25.4 25.9 23.1 18.2 16.6 151.4 (=) Enterprise Value (EV) 260.7 (-) Adjusted Net Financial Debt (128.8) Net Financial Debt (118.0) 2004 2005 2006Adjustment (10.7) EV / EBITDA 4.7x 4.4x 4.3xFinancial assets 0.6 EV / EBITA 8.1x 7.2x 6.4xMinorities (2.2) P / CF 3.1x 3.2x 3.1xProvisions (9.1) P / E 6.7x 7.4x 6.0x

(=) Equity Value 131.9

Implied multiples


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• The DCF value may be compared to the price of the asset– If the DCF value is higher, this asset will be considered as

undervalued. This gives a rational reason to buy the asset

– A contrario, the asset will be considered as overvalued. It will be justified to avoid an acquisition or will give a rational reason to sell the asset

• Don’t forget to run the valuation model on sensitivity cases

• Also look at the sensitivity of the value to external factors (WACC and g)


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• The equity value of a company may be estimated taking into account the (net) present value of the dividend ad infinitum

• Formula:

DDM0 = Σt=1∞ Dt / (1 + CoE)t

DDM0 = Σt=1n Dt / (1 + CoE)t + DDMt

with:

DDMt = Dt+1 / (CoE – g*)

g* = CoE x (1 – Pay-out) + Inflation

4. Valuation:b. Actualization models: 2. DDM (1/3)

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€ m 2005 2006 2007 2008 2009 2010 Cost of equity 13.1%Dividends received 6.3 7.7 8.9 9.7 10.4 11.1 Pay-out 35.0%(+) Terminal equity value 295.2 Inflation 0.5%(=) Total flows of cash 6.3 7.7 8.9 9.7 10.4 306.3 Growth in perpetuity 9.0%(x) Present value factor 0.884 0.781 0.691 0.610 0.540 0.477 (=) Discounted flows of cash 5.5 6.0 6.1 5.9 5.6 146.0 (=) Equity Value 175.2 (+) Adjusted Net Financial Debt 128.8 Net Financial Debt 118.0 2004 2005 2006Adjustment 10.7 EV / EBITDA 5.5x 5.1x 5.0xFinancial assets (0.6) EV / EBITA 9.5x 8.4x 7.5xMinorities 2.2 P / CF 4.1x 4.3x 4.2xProvisions 9.1 P / E 8.8x 0.0x 0.0x

(=) Enterprise Value (EV) 304.0

Implied multiples

4. Valuation:b. Actualization models: 2. DDM (2/3)

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• If the DDM value may be compared to the price of the asset– If the DDM value is higher, this asset will be considered as

undervalued. This gives a rational reason to buy the asset

– A contrario, the company will be considered as overvalued. It will be justified to avoid an acquisition or will give a rational reason to sell the shares

4. Valuation:b. Actualization models : 2. DDM (3/3)

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4. Valuation:c. Models based on multiples (1/14)Two types of models based on multiples:

1. EV multiples– Independent of the company’s capital structure

– Doesn’t take into account ability / inability of the company to optimise debt financing and tax matters

– Useful within a M&A context

– Adjustment to be done regarding Investments and Equity accountedshareholdings � In Adjusted Net Financial Debt

– Adjusted Net Financial Debt to be considered at market value

2. Equity multiples– Function of the company’s capital structure

– Useful within a going concern context

– Take all financial dimensions of the company (i.e. including cost of debt and tax)

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4. Valuation:c. Models based on multiples (2/14)

• In both cases, need to use normalized financial data in the numerator of the ratios

– Extraordinary items excluded (cf. supra)

– Proforma financials if acquisition / disposal of (material) assets

– If possible for both the company and the peers

• In both cases, need to consider averages or medians

– Listed peers t-1, t, t+1 and t+2 data

– Last twelve months data (LTM) are also usually considered

– Average / median of several ratios

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1. EV multiples– EV / Sales

– EV / EBITDA

– EV / EBITA

– EV / OFCF

2. Equity multiples– Earnings (P / E)

– Cashflow (P / CF)

– Book value (P / BV)

– Yield (Div / P)


Physical measures may also be considered– EV / Fibre km (e.g. TV)

– EV / Subscribers (e.g. internet or telcos)

– EV / square meters (e.g. real estate)

– EV / tons (e.g. cement, chemicals, steel)

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1. EV multiples Multiples Pros Cons

EV / Sales - Suitable for companies with similar business model /

profitability / development stage

- Does not take into account varying revenue growth rates,

may need to be adjusted for growth- May be the only performance related multiple available for

companies with negative EBITDA (e.g. biotech)

- Does not address the quality of sales issues (i.e. profitability

and sustainbability)

EV / EBITDA - Incorporate profitability considerations (vs. EV / Sales) - Most emerging companies are not EBITDA positive

- Interesting benchmark for companies with negative EBITA

and earnings

- Does not account for different taxation and debt financing

conditions- EBITDA is the most comparable financial accross accounting

GAAP's (cf. useful for comparison with US or Asian companies)

- Issues with operating vs. capitalised leases (e.g. car rental

and airline industry; EBITDAR has to be considered as a useful

alternative)

EV / EBITA - Incorporate profitability considerations (vs. EV / Sales) - Most emerging companies are not EBITA positive

- Good benchmark for companies with negative earnings - Does not account for different taxation and debt conditions

- Better than EV / EBITDA in terms of shareholder value

creation regarding capital intensity issues

- Accounting GAAP's consistency may be a problem

EV / OFCF - Incorporate profitability and capital intensity considerations - Difficult if capex / working capital is not at a normal level

(e.g. fast growing companies)- Cash is king - Does not account for different taxation and debt conditions

- Accounting GAAP's consistency may be a problem

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2. Equity multiples Multiples Pros Cons

P / E - More used multiple for listed companies in going concern. It

takes all the financial dimension of the company (i.e. including

tax, cost of debt, investments / equity accounted

shareholdings constribution)

- Dependent of the financial structure (may not fit in a M&A

context, in particular for companies with a net cash position or

very high leverage)

- Widely used in traditional industries with high visibility of

earnings

- Has to be adjusted for group share net current profit

(sometimes difficult to have a good view on minority share in

extraordinary taxes and equity accounted subsidiaries)- Does not consider different accounting practices

- Not appropriate for turnaround situations

P / CF - Less distorsion due to local GAAP's compared to P/E - Idem P/E + adjustment needed for minority share in

depreciation

P / BV - Very useful for mature companies

- Good benchmark if it is considered a minimum, not an

absolute valuation tool- Better for some sector (e.g. banks and insurance) and not

for other industries (e.g. IT)

- May not fit if it is used to compare companies from different

country of origin

Yield - Very important benchmark for minority investor with a long

term perspective

- Has to be taken into account in conjunction with other

valuation approaches. It may not be used as such (cf.

influence of the pay-out ratio)

- Danger if goodwill is not economically relevant and, on the

opposite, if the company has followed a conservative

approach of accounting issues (e.g. accelerate depreciation

programmes, conservative provisions, …)

- [1 / P/E] gives a proxy of the expeted return on equity, as

well as a proxy for the risk premium if it is compared to risk

free rate

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• 2 approaches may be considered– Listed companies– Multiples implied by recent transactions on comparable companies

• Peer sample selection– Most of the time comparable activities is not easily found

• Unique player• Multi activity companies (as a general rule 50% minimum of sales

should come from company’s industry sector)• Premium for the leaders

– Size effect / Liquidity effect– Geography (USA vs. Europe vs. Asia)– Development stages

• Start-ups � EV / Sales• In development / Mature companies � EV / EBITDA, EV / EBITA, P / E• Mature / Declining companies � Yield, P / BV


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• Dangers– Sample vs. company’s specificities (growth / margins / industrial

characteristics)

– Data availability / quality in particular for prospective data

– Be careful with conglomerates (Sum-of-the-part / NAV approach is better)

– For precedent transactions, be careful of turnaround situations and hidden impact of synergies

– Relative valuation method, not an absolute one

� Good double check


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4. Valuation:c. Models based on multiples (8/14)In practice:• Step 1: Build a sample of companies which are

comparable in their operations, financial conditions and ownership to the company you aim to assess the value– Exclude companies with abnormal trading (e.g. M&A situations,

limited liquidity)

– Exclude companies with significant Investments or Equity accounted shareholdings

– Recent transaction must be consistent with research projections

• Step 2: Calculate a set of multiples for the identified peers

• Step 3: Assess which multiples make most sense for the underlying sector

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4. Valuation:c. Models based on multiples (9/14)In practice (…):• Step 4: Assess the difference in stage of development,

growth prospects, profitability

• Step 5: Apply the relevant multiples to the target company’s financials, with a view to arrive at an implied EV and equity

• Step 6: Check if other considerations have to be taken into account– Illiquidity discount

– Profitability / growth premium or discount

– IPO discount

– Control premium / Minority discount

– etc

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Illustration: Transactionmultiples

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Illustration: Trading multiples: Cement industry

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Illustration: Dynamic analysis of trading multiplesEV / EBITDA forward of listed cement producers

4.0x

4.5x

5.0x

5.5x

6.0x

6.5x

7.0x

7.5x

8.0x

8.5x

9.0x

12/98

06/99

12/99

06/00

12/00

06/01

12/01

06/02

12/02

06/03

12/03

06/04

12/04

06/05

12/05

06/06

12/06

Cemex

Holcim

Lafarge

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• If the company you have to analyse is listed, its multiples may be compared to other comparable quoted companies (or to transaction multiples)– If multiples are higher than average, it can imply an overvaluation.

Alternatively, it can be justified by better perspectives of profit growth than the sample’s average

– If there is no difference in terms of profit growth perspectives, if the multiples are higher than average, the company will be considered overvalued (i.e. justification to sell the shares). A contrario, if the multiples are lower than average, the company will be considered undervalued (i.e. justification to buy the shares)


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• If the company you have to analyse is not listed, the multiples observed for comparable companies which are listed (or transaction multiples) may be used to estimate the value of the company

• Example:– If you have the EBITDA2006 of the company and you have

calculated the average EV / EBITDA2006 observed for the comparable listed peers

– The estimated value may be derived as:

[EBITDA company 2006 x EV / EBITDA comparable 2006] – NFD company 31/12/2006


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1. Valuation based on IRR / LBO models (1/5)• Required IRR + Business plan + Ex-ante exit multiple =

Implied equity value

• Frequently used by private equity buyers in case of LBO (Leverage-Buy-Out transactions) / venture capital

• Need to adjust required IRR to the risk associated to the financial structure

• Need to be close to the debt market to assess adequately the financial debt a company may bear– Depends on company, industry and market prospects

– May change over time (sometimes very fast)

4. Valuation:d. Other valuation methodologies

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1. Valuation based on IRR / LBO models (2/5)In practice:• Step 1: Build your financial plan considering the existing

financial structure

• Step 2: Assess the maximum financial leverage a bank is ready to grant you to acquire the company

• Step 3: On this basis, determine the optimal ‘Sources and uses’ your are ready to consider for a transaction– Total consideration (TC) has to take into account transaction costs

on top of price for the equity and existing NFD

– Equity determined as the minimum requested by the financing bank(i.e. from 20 to 30% of the TC)


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1. Valuation based on IRR / LBO models (3/5)‘Sources and uses’: Illustration


Sources of funds € m

x EBITDA 2006 (*)

% of TC

% of sub-

category

Uses of funds € mx

EBITDA 2006

% of TC

Senior debt 20.0 3.75x 49.0% 84.3% Adjusted NFD before closing 2.3 0.44x 5.7%Tranche A 10.0 1.87x 24.5% 42.1% Financial debt before closing 2.5 0.47x 6.2%Tranche B 5.0 0.94x 12.3% 21.1% Cash & equivalent (0.3) -0.05x -0.6%Tranche C 5.0 0.94x 12.3% 21.1% Other items (*) 0.1 0.01x 0.2%Other lines (**) - 0.00x 0.0% 0.0% Equity = price paid to the sellers 37.7 7.06x 92.3%Junior debt 4.0 0.75x 9.8% 16.9% Enterprise value (EV) 40.0 7.49x 98.0%High yield - 0.00x 0.0% 0.0% Transaction costs (TC) 0.800 0.15x 2.0%Mezzanine 4.0 0.75x 9.8% 16.9% in % of EV 2.0%

Financial debt 24.0 4.50x 58.8% 101.1% Total consideration 40.8 7.64x 100.0%Cash & equivalent (0.3) -0.05x -0.6% -1.1% (*) Minorities + Provisions - Financial assets

Net financial debt at closing 23.7 4.45x 58.2% 100.0%Equity 17.1 3.20x 41.8% 100.0%Vendor loan - 0.00x 0.0% 0.0%PIK debenture - 0.00x 0.0% 0.0%Shareholder loan 5.0 0.94x 12.3% 29.3%Financial investors ordinary shares 7.8 1.46x 19.1% 45.7%Management ordinary shares (***) 4.3 0.80x 10.5% 25.0%Total consideration 40.8 7.64x 100.0%(*) EBITDA 2006 5.3

(**) revolver, capex, asset back financing, ...

(***) Management stake in hard equity 35.4%

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1. Valuation based on IRR / LBO models (4/5)In practice:• Step 4: Adjust your financial plan for the new financial

structure assumptions

• Step 5: Determine the entry for which a satisfactory IRR may be reached– Minimum IRR for leverage transaction >20% (cf. remuneration of

additional risks)

– Need to assume realistic exit multiples

• Entry multiple = benchmark

• Sensitivity analysis are conservatism are key


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1. Valuation based on IRR / LBO models (5/5)LBO sensitivity analysis: Illustration


Entry EV / LTM EBITDA 5.1x 5.4x 5.7x 6.0x 6.3x 6.6x 6.9xImplied EV at entry (€ m) 34.0 36.0 38.0 40.0 42.0 44.0 46.0 Exit EV / EBITDA

5.1x 34.1% 29.7% 26.0% 22.9% 20.2% 17.9% 15.7%

5.4x 36.0% 31.6% 27.9% 24.7% 22.0% 19.6% 17.5%

5.7x 37.9% 33.4% 29.7% 26.5% 23.7% 21.3% 19.1%

6.0x 39.7% 35.1% 31.3% 28.1% 25.3% 22.8% 20.6%6.3x 41.4% 36.8% 32.9% 29.7% 26.8% 24.3% 22.1%

6.6x 43.0% 38.3% 34.5% 31.1% 28.3% 25.7% 23.5%

6.9x 44.6% 39.8% 35.9% 32.6% 29.7% 27.1% 24.8%

IRR after 5 years

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2. Sum-of-the-parts / Net asset value (1/4)• Useful valuation tool for conglomerates with diversified

activities, holding companies or real estate companies

• Necessary if there are significant minorities or joint-venture

• Need to assess the appropriate discount / premium depending on objective and subjective parameters– Overheads due / profit generate by the holding activities

– Corporate governance issues

– Ability to create above benchmarks value by systematic portfolioarbitrage

– Market benchmarks

• Also used in liquidation context


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2. Sum-of-the-parts / Net asset value (2/4)Illustration: E.On’s NAV by DeutscheBank


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2. Sum-of-the-parts / Net asset value (3/4)Illustration: Siemens’ NAV by Warburg


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2. Sum-of-the-parts / Net asset value (4/4)Illustration: GIMV’s NAV by Degroof


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3. Pay-back• Number of years to pay-back the initial investment

• Doesn’t take into account the cost of opportunity

• Initially used in the context of an investment decision (e.g.capex approval procedure). Also applicable for an equity investment in a company

• Useful to assess the risk associated to an investment. To be used as a double check rather than the ultimate tool to assess the value of a company


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5. Appendices

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5. Appendicesa. Bibliography• “Valuation / Measuring and Managing the Value of Companies”, Tim

Koller, Marc Goedahart and David Wessels, McKinsey & Company (fourth edition)

• “Principles of Corporate Finance”, Richard Brealey and Stewart Myers, McGraw Hill (fourth edition)

• “Corporate Turnaround / Managing companies in distress”, Stuart Slatter and David Lovett, Pinguin

• “Financial Buy-outs / Value drivers, deal structuring, financial instruments and funds”, Hugues Lamon, Larcier

• “Finance”, Michel Levasseur and Aimable Quintart, Economica(second edition)

• “Financial Management / Method and Meaning”, Anthony G. Puxtyand J. Colin Dodds, Chapman & Hall (second edition)

• “Management of Company Finance”, J.M. Samuels, F.M. Wilkes and R.E. Brayshaw, Chapman & Hall (fifth edition)

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5. Appendicesb. Value creation drivers

M A R KE T IN G

&

SA LE S

A C C O U N TM GM T .

C R O S S-S ELL/U P- SELL

R ET EN TIO N

D E M AN D

& SU P PLY

MG M T.

PR IC EOPTI M I ZA TI O N

M A R K E TIN G

&

AD V ER T ISI N G

Vo lume Pric e R ea liz a tio n

REVENUE GROWTH

SA LE S

C U ST OM ER

SE R V I C E &

SUP PO R T

O R D ER

FU L FIL L M E NT

& B I LLI N G

IT,

TELE C OM&

N ET W OR K IN G

R EA LE ST AT E

H U M A NR E S O UR C ES

PR OC U R E M E N T

(E xc lu di ng P ro du ct io nMa teria ls &

Mer ch an di se )

B U S INE S SM AN A G EM EN T

FI N A NC I A LM A N A GE M E N T

Se lling, Genera l &Adm inistrat ive

(SG&A)

M A T E R IA L S P R O D UC TI ONM E R C H A N-

D IS IN G

L OG IS TIC S

&

D I STR I B U TIO N

PR OD U C TDE V ELO PM EN T

C o st o f Goods So ld(COGS)

OPERATING MARGIN

R EA LES T AT E

&

I NFR A ST R U C -TU R E

EQ U I PM EN T

&

SYS TEM S

FI N IS H EDG OO D S

W OR K INPR O C ESS

&

R A WM A TE R I ALS

Prope rty , Plant &Equi pmen t(PP&E )

Inventor y Receivab les& Payable s

A C C O U N TS,

N OT ES &IN TER E ST

R EC EI V A B L E

A C C O U NT S,

N O TES &INT ER EST

PAY A B L E

ASSET EFFICIENCY

S H A R E H O L D E R V A L U E

B U S INE S SP L AN N I N G

PR O G R AMD ELI V ER Y

B U SI N ESS

PER FOR MA NC E

M A N AG EM EN T

O PER A TI O N A LE XC E LLE NC E

PA R TN E R SH IP

& C O LLA B O-

R A TI O N

R E LA TIO N SH IPSTR EN GT H

AG I L I TY &FLE XIB I LIT Y

Company Streng ths External Fac to rs

EXPECTATIONS

Focus sales staff &advertis ing on high erma rgin produc ts/ser vices

Incr ease u se o f low er-cost sales ch ann els(tele sa les, ou tle ts, se lf -serv ice , e tc. )

Imp rove sa lesfor ecasting &camp aign mgm t.p ro cesses a nd to ols

Imp roverel a tion sh ip/ac co untdevelop men tp ro cesses

Imp rove skills ofsales staff

P ro vide staff withbe tter custome rinfo rma tio n

Imp rove sta ffincen tives ar oun dsales e ffic iency

Imp rovelea d ge ne ra tio n,qua lifica tion &assignmen tp ro cesses

Imp rovefield sa les & te lesa lesp ro cesses

Conso lida te / Re alignS ales T err ito ries

Imp rove a dver tis ing &sales fo cu s on high er-value custome rs/seg men ts

Imp rove te rms withsales ch ann els

Imp rove te rms withser vice provider s(n etwo rk s vcs ., airline s, e tc. )

Imp rove te rms onlea se d sales a ssets(com pu te rs, v eh icle s, etc .)

T ar get ne wg eog ra ph ie s

T ar get ne w se gme ntswithin c urr entg eog ra ph ie s

Expa nd sa leschanne ls

De ve lo p an d/oracqu ir e n ew p roduct& se rvice o ffe r in gs

Pu rsue jo in t ven tu re /pa rtne rsh ip / OE Mar rang eme nts

Inc reas e focus o nh ig h- va lue / high -p oten ti a lCUSTOMERS

Inc reas e focus o nmo st pr ofitablePRODU CTS &SE RVICE S

Inc reas e focus o nmo st effective SA LES& A DVERTISINGCHANN ELS

Impro ve b randstr ength & goo d will

Inc reas e time sp en tse llin g

Imp ro ve qua lity anda ssig nme nt of sa le slea ds

Pr ovide sa les sta ffwith b etter in fo rmat io n& too ls

Imp ro vese llin g skills

Imp ro ve a lig nme nt ofsta ff inc en tives w ithstr a teg ic o bjec tives

Impro vesa les & mar ke tingp ro ce sses

T ailor m ar ke ting &sa les app ro ache s tocusto mer segments

Offer tailor ed p ro ducts& ser vi ces

Ev olve pr odu ct /se rvice fe atur es,functiona lity & valu e

Impro ve tota lcusto mer expe rien ce(pu rch as in g, fu lf illm en t,u sa ge , s u pp ort , serv ice ,e tc . )

Increase focus o nhi gh- va lue / high -po ten tialCUSTOMERS

Impro ver espo nsiven ess tocusto mer feed ba ck

Impro veun de rstan ding o fcusto mer ne eds

Pr oactive l y ma nag etra nsitio n po in ts(en ds of c on tra cts , le as es ,e tc . )

Ta ilo r accou ntmana gem entap pr oa ch es tocusto mer segments

Ma in ta in comp etitivefunction ality & va lu e

T ailor cr oss/up -saleo ffe rs to cu stomern eeds

Imp leme nt volu me-a nd /o r b read th -b asedp ricing a nd a ffinityp rog ram s

Offe r value -a dd in gp roduct & se rviceb und les

Imp ro ve cros s/up -sel lp roce sses

Imp leme nt p roac tivea nd r eactive cr oss/up -sell ca mpa ig ns

Imp ro ve staffin ce ntives fo r cross/u p-sa les

Imp ro ve iden tifica tiono f cr oss/up -saleo ppo rtun ities

In cr ea se focus onh igh- value / high -p oten tia lCUSTOME RS

In cr ea se focus onm ost p ro fitab leP RODUCTS/S ERV IC ES

In cr ea se focus onm ost e ffective S ALE S& ADVE RTISINGCHANNEL S

Improv e re ten tio n an dwin- ba ck p rocesses

Bu ild c usto mersa tisfac tion andre tention in to staffinc entives

Improv eun der stand ing ofch urn /de fe ctiondr ive rs

Improv ed ID o f chur n /de fection c and ida tes

Inc reas e fo cus o nhigh -va lue / h ig h-po tenti alCUS TOMERS

Improv eco mpe titive ness o fpr od uct & s erviceofferings

Shor ten tim e tomar ket

Impr ove bran dawar ene ss / e leva tebr an d imag e

Impr ove deve lo pme ntan d pr otection o fintell ectu al ca pital(pa te nts , c o pyrig hts , e tc. )

Obta in exclusivelicen se s,distri bu to rships, e tc.

Impr ove prod uct/se rvi ce fe atu res andfunct io na lity

Impr ovepr od uct / se rvicequ ality & re lia bilit y

Impr ove prod uct /se rvi ce li fecycleman ag eme nt

Impr ovecommun ica ti on/coor dina tion withdistri bu tion cente rs

Impr ovecommun ica ti on/coor dina tion withsa les cha nne ls

Imp rove focus o nhig her va luecusto mer s, p rod ucts/se r vice s & c han ne ls

Ra tio nalize / r efocuschanne l str ate gies

Ra tio nalize / r efocuspr od uct & se rvicepo rtfolios

Ra tio nalize / r efocustar ge te d custo mersegmen ts

Im pr ove ca mpa ig n /ch ann el manag eme ntprocesses & tools

Im pr ove skills o fmar ke ting sta ff

Im pr ove staffin ce ntive s a rou ndmar ke ting e fficiency

Im pr ove marke t /cu stome r info rma tio n& ana lytica lprocesses

Im pr ove pr od uct/se rvice spe cifica tionprocesses

Im pr ove pr od uct /se rvice lau nchprocesses

Pr ovide sta ff withbetter compe titivein formation

Im pr oveadver tisingprocesses

Im pr ove te rms withadver tising cha nn els

Im pr ove te rms withse rvice p ro vide rs(re se arc he rs, inform at ionse rvices, e tc. )

Imp r ove emp has is onp roduct qu ality an dser vice e fficie ncy

De sign prod ucts fo reas e-of -use / se lf-service

Ro ute low -valuetransactions to lo wer -cost sales ch ann els

Imp rove r ou tin g ofservice requ ests torigh t sta ff

Incr ease us e o fche ape r cha nne ls( con t ac t c e nt er s, I VR , f ield sa le s,w eb et c . )

Imp rove p er formanceassessme ntp ro cesses & too ls

Imp rove w o rkfor cep lann in g an d dispatchp ro cesses & too ls

Imp rove cap acity/demand p la nn in gp ro cesses, skills andtoo l s

Imp rove ser vice &sup port process es

Imp rove skills ofservice staff

Pr o vide staff w ithbetter customerinfo rma tio n(pr ofiles , his torie s,e tc.)

Imp rove inc en tivesa ro und se rv icee fficienc y &e ffe ctive ness

Imp rove terms withservice prov ider s(ne tw o rk s ervic e s,o uts ou rc e d fun ct io ns , e tc. )

Imp rove terms onlease d se rv ice a ssets(com pu te rs, ve h icles , etc.)

Imp ro ve forecasting ,p la nn in g &p rior itiz ation skills &too ls

Imp ro ve cre dita nalysisp ro ce ss es

Impro ve skil ls of orde rma na gem ent sta ff

P rovide staf f w ithb ette r c ustome r an do rd er in fo rm ation

Impro ve incen tiv esa ro und orde rma na gem ente fficie ncy

Impro ve p ick / pa ck /ship processes

Impro vep ro visio ning /installation p ro cesses

Impro ve invoicin g /b il l i ng p roce sses

Impro ve retu rn sma na gem ent po lic ies& p roce sses

Impro ve terms withser vice pr ovider s( d eliv er y se rv ices , ou t so ur ce d

f u nc t ion s, e tc . )

Imp ro ve terms onlea sed asse ts(c omp u te rs, ve hic les , etc .)

Co nsol ida te / Re -arc hitect Da ta S tor es

Incre ase Util ization o fIT/Ne twor k Re so ur ces(Se r ve rs, Ro ute rs etc .)

Impr ove C apacity/De man d P lan ningPr oces se s & T ools

Impr oveDe sign ,De ve lopment &Testing Proce ss es

Impr ove Ops. /Ma in tena nce /Ch an ge Ma na gem entPr oces se s

Impr ove E nd Us erSu pp or t &Ad mini str ationPr oces se s

Impr ove S elect io n,Acqu isition &Co ntr actingPr oces se s

Impr ove Installa tion /De ploymen tPr oces se s

Impr ove S kills of S taff(Te c hn ica l & Proje ctMa n ag em en t)

Impr ove/C onsolida teMa nageria l In fo.(Ut iliza t ion , Performa nce ,

e tc . )

Impr ove Inc en tivesAr ou nd IT /N etwo rkEffi cien cy

Impr ove T erms withSe rvice P ro vide rs(Co nt rac tors, N etwo rkServ ic e s, Co nsulta nts, e tc. )

Impr ove T erms onPu rcha sed /LeasedAsse ts(Se r ve rs, PC s, Sw itch es ,e tc . )

Imp ro ve Terms onP urch ased / Leas edR ea l Estate, Fu rn itu re& Fixtures

In crea se U til iza tio n ofR ea l Estate

Imp ro ve Cap acity/D ema nd P lann ingP roce sses & Too l s

Imp ro ve RE Design &D evelop men tP roce sses

Impro ve Ope ra tio na lP roce sses(A dm inistra tio n, Se curit y,En ergy , HVA C &M ain ten an ce )

Imp ro ve RES election , Acquisition& Con trac tingP roce sses

Impro ve REImpro vemen t &D ep lo yme ntP roce sses

Impro ve Terms wi thS ervice Pr ovid er s(S ecurity , Ene rg y, e tc. )

Imp ro ve Terms onImpro vemen ts(H VAC, Ca bling , e tc. )

Impr ove Te rm s withTh ir d P ar ty Pr odu ct/Se rvice Pro vide rs(Pa yr o ll, Be ne f its , Train ing ,etc )

Re duce Sa lar y /Be nefits Costs

Impr ove Capacity/De man d P lan ningPr ocesse s & To ols

Impr ove HRPe rforma nceAsse ssmen tPr ocesse s & To ols

Impr oveRe cruitmen t / On-Bo ar ding P roce sses

Impr ove Skills o f HRStaf f

Pr ovide Sta ff withBe tter HR Info rma tio n& To ols

Impr oveTrai ningPr ocesse s

Impr oveSa la ry & Ben efitsAd min istr ationPr ocesse s

Impr ovePa yrollPr ocesse s

Impr ovePe rforma nceAsse ssmen tPr ocesse s

Ra tio na lize ve nd or /supplie r po rtfo lio

Inc reas e focus o nh ig he r value ven dor /supplie r pa rtne rshi ps

Imp ro ve collab or ationwith vendo rs/sup plier s

Inc reas e Use ofL ower-Cost Cha nn els(Se lf -Serv ice , e tc. )

Imp ro ve assignmen to f resou rces top ro cu re men ttr ansac tio ns

Impro ve D ema ndPla nnin g Proc esse s &T ools

Imp ro ve P ro ductPr ocur emen tPr ocesses(Eq u ip me nt , Su pp lies etc. )

Imp ro ve S er vicePr ocur emen tPr ocesses(Tra ve l, C on t ra ct L ab or,e tc . )

Imp ro ve C ontr actin ga nd Ne go tia tio n Skillso f Pr ocur em ent S taff

P r ovide S ta ff withBe tte r P ro duct &Se rvice In fo rmation

Impro ve Incen tivesAr ound Pro cu re men tE fficien cy

Impro ve Te rms o nEq uipm ent & Supp lies

Imp ro ve Te rms w ithSe rvice Pro vid er s(Eq u ip me nt Ma inte na nce,D elivery, Wa reh ou sin g, etc. )

Imp r ove Terms withSer vice Prov ider s(C on t ra cto r s, Co nsult a nts,etc. )

Imp r oveStra tegic P la nn in gPro cesses

Imp r ove Skill s ofBusi nessMan agemen t S ta ff

P ro vide S taff withBette r Manage ria lIn fo rmation & T oo ls

Imp r ove Ince ntive sAro un d Busine ssP lann ing Effi cien cy

Imp r ovePro gr am P la nn in gPro cesses

Imp r ove Cap ita lBud getingPro cesses

Imp r ovePro gr amMan agemen tPro cesses

Imp r oveAccou nting &Mea sur e men tPro cesses

Impr ove Te rm s withFina ncia l S er vic esPr ovide rs

Impr oveCas h/T reas uryMan ag eme ntPr actices

Impr ove Skills o fFina ncia lMan ag eme nt S taff

Impr ove Ta xEffic iency

Impr ove Inc entivesAr ou nd F in an ci alMan ag eme ntEffic iency

Impr ove De bt &Equ ity Man ag eme ntEffic iency

Incre ase Focu s onMa te ria ls -E ffic ie ntProd uctio nMe ch ani sms

Ra tio na lize and/o rRe focu s Bu sines sUn its & Produ ctPo rtfolio

Incre ase Empha sis o nDesign ing fo rMa te ria ls Eff ic iency

Ra tio na lizevend or /supp lierpo rtfolio

Fo cu s e ffor ts onhig her -va lu e vendor /supp lie r rela tionsh ip s

Impr ove Terms o nMa te ria ls Pu rchases

Ra tio na lize Or de rQuan tities and Timin g

Impr ove Pe r fo rm anceAsse ssmen tProc esse s & Too ls

Impr ove De man dFo reca st ingProc esse s, Skills &To ols

Impr ove Or d ering an dRece ip t P roce sses(Raw M at er ia ls , I n te rmedia t eMa t eria ls, Fin ishe d C om p onen t s ,e tc )

Impr ove Ma teria l sE ffici ency ofProd uctio n Processe s

Impr ove Co ntr actingan d Nego tia tion Skill sof Pu rcha sing S taff

P rov ide S ta f f withBe tte r Pr od uctInforma ti on & To ols

Design Products toUse Cost- Effectiv eMa te ria ls

Impr ove Terms withSe rv ice s Pr ovide rs(De live ry , Ware ho using ,e tc. )

Rationa lize a nd/o rR efocus BusinessUnits & Pr od uctP or tfo li o

Imp rove Focus onH ig he r- Va lueP ro ducts

Rationa lizeP ro duction Quan titi esand Tim ing

Incr ease U se o fLow er-C ostP ro duction C han ne ls

Imp rove Terms w ithS er vices P rovide rs(Outs ou rc e d f un ct ion s, e tc. )

Imp rove Termson Eq uipmentP ur ch ases

Imp rove Produ ctionP er forman ceA ss essmen tP ro ce sses & Too ls

Imp rove DemandFor ecastin gP ro ce sses, S kil ls &Too ls

Imp rove Capac ityP la nn in g Pr ocesse s,S ki lls & To ols

Imp roveP ro ductionS ch edu ling & S ta gingP ro ce sses

Imp rove Ut il iza t io n ofP ro duction C han ne ls /R ed uce Downtime

Imp rove Skills ofP ro duction S ta ff

P ro vide S taff w ithB etter P roduction In fo& T oo ls

Imp rove In centi ve sA ro und Pr od uctionE ffi c ie ncy

Imp rove Coo rd inati onw ith B usinessP ar tner s

Imp roveManu factu rin g &Qua lity Con trolP ro ce sses

Ra tio nalize and /orRe fo cus Busine ssUn its & Pro du ctPo rtfolio

Ra tio nalize ve ndo r/su pp lie r po rtfolio

Improve focus o nhi ghe r- va lue ve nd or /su pp lie r r elation sh ips

Improve Te rms onMerchand isePu rcha se s

Ra tio nalize Or derQu antities a nd T im ing/ C on so lida te Orde rs

Improve Pe rfo rma nceAssessmen tPr ocesse s & To ols

Improve DemandFo re castingPr ocesse s, Skills a ndTo ols

Improve assig nme ntof reso urce s totra nsactio ns

ImproveMerchand iseOr de ring and Rec eip tPr ocesse s

Improve Skills o fMe rchand isin g S taff

P r ovide S ta ff withBe tte r Info rma tion andTo ols

Improve Incen tivesAr oundMerchand isin gEfficien cy

Improve coor din ationwith ve nd ors/supp lie rs

Improve Te rms withSe rvices Prov id er s(D e liv e ry, Ware ho us ing ,etc . )

Rat iona lize and /o rRefocus Busine ssUni ts & Pro ductPor tfo lio

In cr ea se E mph asis onDes ignin g /Pac ka gingfo r Distribu tion

Incr ease Q uality /C on siste ncy ofMa teria ls

Rat iona lizePr odu ction Qua ntitiesand Timing

Rat iona lizeMer ch an dise Ord erQua ntitie s and Timing

In cr ea se U se o fLower -C os t L ogisticsand Distr ib utionCha nn els

Im pr ove Inve ntor yRec eipt an d S tor ag ePr ocesses

Im pr ove Tr an sp or tand De live ryPr ocesses /Algorithms

Im pr ove Skills o fIn ve nto ry a ndDistr ib ution S ta ff

Pr ovide Sta ff wi thBet ter In formation a ndToo ls

Im pr ove Ince ntivesAr oun d Inv ento ry /Distr ib ution E fficie ncy

Im pr ove Per forman ceAssessm entPr ocesses & To ols

Im pr ove Dem andFor ecastingPr ocesses, S kills &Too ls

Im pr ove Te rms withSer vices P ro vid er s(T ran sp ort , W are ho us ing ,etc .)

Im prov e Fo cu s onHigh er -V alueCustomer Se gme nts& Prod ucts

Ration alize / Re alignPr odu ct De ve lo pmentE ffor ts

In cr ea se Use ofLo wer -Cost P ro ductDevelo pmentCha nn els

Im prov e Pe rforma nceAssessmen tPr ocesses & To ols

Im prov e Prod uctCon ce ption / Initia tio nPr ocesses

Im prov e Utiliza tion o fPr odu ct De ve lo pmentCha nn els

Im prov e Skills o fPr odu ct De ve lo pmentS taff

Im prov e De finition o fPr odu ct / S er vi ceSpe cif ica ti ons

Im prov e Incent ive sAr oun d Pr od uctDevelo pmentE ffic iency

Im prov ePr ototyping , Pi loting &Te sting Pr ocesses

Im prov eDesign &Develo pmentPr ocesses

Im prov e Iden tif ica tion/ D isco ntinuatio n ofUnsuc ce ss fulE ffor ts

Li ce nse or Acquir ePr odu cts &In tellectua l Pr ope rty

De ve lop Low Re alEsta te Bu sine ssMode ls

Re du ce N umb er o fDa ta Cen ters, B r anchOffice s, Dea ler sh ips,Re tail Outlets, etc.

Ou tsour ce B usin essF unc tio ns

Incre aseUse o f Le ased R ea lEsta te

Impr ove T ermso n Pr ope rty andF acilitie s

Co nsolida te /Re co nfigu re Fac ilities

Incre aseUse o f Fle xib leF acilitie s

Divest/Avoid LowUtilizationRe al Esta te

Ra tiona lize and /o rR e focus BusinessUn its & Produc t/S e rvice Po rtfolios

Ou tso ur ce BusinessF un ctions

In crea seU se o f L ea sedP ro du ction E qu ipmen t

Imp ro ve Te rms on ITS ystems

In crea se U se o fF lexib le / E xpa nd ab leP ro du ction E qu ipmen t

In crea se E mph asis onDesig n forM anu factu rabil ity &S e rvice

D ivest/Avo i d Lo wU tiliza tio nE qu ipmen t

Imp ro veE ffe ctive ne ss o f P la ntM ainten an ce

Impr ove T ermso n In frastr uctu re

Divest/Avoid LowUtilizationInfrastr uctur e

Incre aseUse o f Fle xib le /Expa nd ableInfrastr uctur e

Incre aseUse o f Le asedInfrastr uctur e

R ationa liz e an d/orR efocus B usin essU nits & Pr oduc tP ortfo lio s

R ationa liz e / RefocusC usto mer Seg men ts& D istrib utionC hanne ls

D evelop L ow-Inven tory Busine ssMode ls

Increase Emphasiso n Bu ild -to-Or de r

Imp ro ve T erms o nMer chand ise

Impro veC ollabo ra tio n withV endo rs / Partne rs

Imp ro veD ema nd F orec asti ng

C onsolida teInven tory

Imp ro ve L og istics /D istribu tio n Eff icien cy

Identify / D ivest Low -D ema nd & Obso le teInven tory

Rationali ze a nd /o rRefo cus Busine ssUnits & P ro ductPor tfolios

Sho rte n Prod uctionCycles

Rationali ze R awMater ials

In cr ea se Util i za tio no f Ju st-In -Tim ePr ocur eme nt

Im pr oveDem and For ecas tin g

Im pr ove Te rms onMater ials

Dive st / A voidObso lete M ater ials

Reduce Sa les o nAcco unt / Issu ance o fNo te s

Reduce Number &S ize of Loans

Incre ase Focus OnCustome r S egmentswith Lo w Cr editNeeds

Tigh ten A /R T erms

Tigh ten T erms onNo te s an d Lo an s

Impr ove Managemen tof Delinq ue ntAcco unts

Incr easeDe bt Le ve ls

Imp rove C redit R ati ng

Leng then Paymen tCyc le s

Re du ce C ost o f Deb t

Imp roveDe bt/Eq uityMa nagement

Imp rove Id entification/ Pr ed ictio n ofIndustry and Mar ke tT re nd s

Improve Id entificationo f Oppo rtu nitie s an dT hr ea ts

Imp roveF ormula tion ofB usiness S tr ateg ie s

Imp rove A lig nme nt ofB udg ets w ithS tr ate gic Pr ior itie s

Imp rove A lig nme nt ofC apital P r og rams withS tr ate gic Pr ior itie s

Imp rove A bil ity toIden tify, Assess, &A cq uire M&AC and idate s

ImproveC ommu nica t io nA round S tra tegicP rior itie s

Im pr ove S tru ctu ringand Lau nch ofCohes ive Pr og ramPortfol io s

Im pr ove Coo rd ina tion/ Co mmu nica tio nAcr oss Pr og rams &Pr ojec ts

Im pr ove Pr ojectMan age men tPr ocesses

Im pr ove A lignm ent ofPr ojec ts with Pr og ram/ Bu sin ess Ob je ctive s

ImproveMeas uremen t ofOp er ation al/F inan cia lPe rfo rma nce

Improve Anal ysis o fManager ialIn forma tio n

Improve Ab ility toFocu s on Mos tImpo rtan t In fo rmation

ImproveCo mmun ica tio nAr ou nd Imp ro ve men tPr ior ities

Improve Ab ilityto La unchImprovem ent E ffor ts

Improve Qual ity &Co nsisten cy o fPe rfo rma nceAsse ssmen t M etho ds

Pr ovide B ette rCa re er Option s &Pa th s

Improve Emp loyee s’S take in CompanySu cc ess

Improve Mo ne ta ryand No n-Mon etar yRe co gnit ion o f S ta ffCo ntr ib utions

Improve b readth ,depth , qu ality andti melines s o f b usin esspe rfo rma ncein forma tio n

Imp ro ve E ffe ctive nesso f Org ani zationa lS truc tures

Imp ro ve E ffe ctive nesso f Go ve rn anceMo de ls

Imp ro vePro ce ss InnovationCapa bilities

Imp ro ve D epth& B re adth o f S ta ffT echnica l Skills

Imp rove Spe ed andQua lity o fComm unica tion w ithPar tne rs

Imp rove Abi lity toIn tegrate Me rged &Acq uir edOrgan ization s

Improve Abi lity toIden tify, Asse ss andImp leme nt JVs &Par tne rships

Imp roveMan age men t o fPar tne r Re la tionships

Imp rove In tegr a tion ofProce ss es Acr o ssPar tne r Ne tw orks

Impr ove va luede live red toCU STOMERS

Impr ove va luede live red toPA RTNERS(Ve nd ors / Sup pliers,Ch an ne ls Partne rs, etc . )

Impr ove va luede live red toEMP LOY EES

Impr ove identi ficat ionof op po rtun itie s toincre ase va lue tosta keholde rs

Impr oveUn der stand ing ofStakeh olde r Inte re sts(Cu sto me rs , S h areh old ers ,Em plo ye e s, Su pp liers ,Pa rtne rs , Alum ni, etc . )

Impr ove conver sio n ofstr on g r elationship sinto sources o fco mpe titivead va ntag e

Impr oveCo mmun ica tion withStakeh olde r Gro ups

Improve a gility/f lexibility o fo rg an iza tion als tructur es

Improve a gility/f lexibility o fg ove rna nce mod els

Imp rove F lexib ilityo f B usinessP roce sses

Improve V er sa til ity ofP eop le

Imp rove flexi bility& ve rsa til ity of ITs ystems andp la tfo rms

Ra tio na liz ecusto mer po rtfolio

Impro ver espo nsiven ess tocusto mer re qu ests /inquir ies

Impro ve tr acking o fcusto mer inter actio ns(pu rch ase s, su pp o rtreq ue sts , etc .)

Improv e ide ntif icatio nof va lu ab le custome rre lationship s

Re fo cu s re ten tio npr ior itie s / r efinestr ateg ies

Cr ea te bar rie rs tosw itching

So lic it an d r esp on d tocu stom er fe edb ack

Implem ent A ffin ityPr og ra ms

Incre ase emp hasison d iffe re ntia tedpr od ucts / se rvices

Impr ove demandfor ecasting

Incre ase emp hasison suppl y cha inman ag eme nt(produc tion , d is tribution& s ales pi pe l ines)

Im pr oveund ersta ndin g ofcu stome r, pr oduct &ch ann el pr ofitab ility

Con so lid ate /outsour ce se rvice &sup po rt op er ation s

Diffe renti ate se rv icetr ea tmen t ofcustomers / s egmen ts

Pr o vide staff w ithbetter p rodu ct /service information

Impr ove Financ ialRisk Managemen tEffectiv ene ss

Inc reas e use of lowe r-cost de liver y/ins ta lla tion ch an nels(se lf-service , p artn ers, e tc . )

Inc reas e use of lowe r-cost bil l in g chan ne ls(au to ma ted , s elf -s ervic eetc. )

Diffe r entiate treatme ntof cu stomer s /segmen ts

Imp rove em pha sis o nde sign fo r p acking /sh i ppin g effic ien cy

consolida te and /o rou tsou rce o rde rfulf il lmen t fu ncti ons(p ic k, pa c k & s hip /ins ta ll / p r ov isio n)

Co nsolidate /ou tsou rce b ill ingop er ation s

Co nsol ida te a nd /o rOu tsou rce D esig n,De ve lopment &De ploymen t S e rvices

Co nsol ida te a nd /o rOu tsou rce Oper ations& Ma in te na nceSe rvice s

Co nsol ida te a nd /o rOu tsou rce E nd Use rSu pp or t

C onso lida teC orpo ra te Fac ilitie s

C onso lida te and/o rO utso ur ce Design &D evelop men tF un ct ions

Ra tiona lize ITAp plica tio n Po rtfolio

C onso lida te and/o rO utso ur ceImpro vemen t &D ep lo yme nt

C onso lida te and/o rO utso ur ce Prope rtyM ana ge men tF un ct ions

In crea se U se o fL ower-C ost Re alE state / Fa cilitie s

Co nso lid ate a nd/o rOu ts ou rc e Bene fitsAd min istr ationFunctio ns

Ou ts ou rc e Payro llFunctio ns

Co nso lid ate a nd/o rOu ts ou rc eRe cruitmen tFunctio ns

r efine a nd /o r r efocusvendor /supp lierstr a teg ies

Sta nda rdize P rodu ctCa talog s(Eq u ip me nt , O f f ice Su pp lie s,Pro mo t ion al Ma terials, e tc. )

Co nsolida te and /orOu tso ur cePr ocur emen tF unctio ns

Con so lid ate / A lig nBusi ness Pla nnin gFunction s

Refine B usin essP lann ing Str ateg ies

Imp r ove / AlignGove rna nce Mod els

Con so l id ate / A lignFina ncia lMan ag eme ntFunctions

Ref ine Fina ncia lPlanning S tra te gies

Impr ove Incen tivesArou nd P rocu remen tE ffici ency

Incr ease E mph asis onDesign for Pr odu cti onE ffi c ie ncy

Con sol ida te /Outsou rce Pr odu cti onFun ction s

Ref ine / A lignLog istics &Distr ib ution S tr ate gies

In cr ea se Focus onHighe r -Va l uePr odu cts & P ar tner s

Con so lid ate /Outsour ce Lo gistics &Distr ib ution Fun ctions

Rationali ze / re focusp roduct po rtfolio

R ationa lize / re focu sp ro du ct por tfolio

Con so lida te /Outsou rce Pr od uctDevelo pmentFu nction s

In cr ea se Emph asis onModul ar, E xten sib le ,Scalab le D esig ns

Conso lida teIT S ystemsP ro du ction L in es /S e rvice Mecha nism s

Increase Emphasis onH ig h-Tu rn P ro ducts

In cr ea se Emph asis onDesi gnin g forMan ufactur in gEffic iency

Im pr oveCollabor ation w ithVen do rs / Pa rtn er s

In cr ea se Emph asis onDesi gnin g forMater ials E ffi cie ncy

Incr ease Fo cus o nVe nd or s withFav orable P aymen tTerms

Increase Em pha sis o nInteg rated B usin essP la nn in g

Increase Use o fS ce nar io- Ba sedP la nn in g

In crea se Emph asis onEn te rp rise-W id ePr ogr am P la nn in g &Exe cu tion

Incre ase Emp hasison Pr oactivePe rfo rma nceManagement

ImproveDe te rmin ation o f K eyPe rfo rma nce Met rics& Ta r gets

Estab lish a Cu ltu reCente re d onOper ation alExcellenc e

Esta blish apar tne rship /exte nded-en ter pr iseor ie ntat ion

Incr ease e mph asis onpar tne rships ,mer ge rs andacquisit ions

Es tablish an o utside -In mindse t

Estab lish processinn ovation as a keycomp eten cy

Es tablishma nag eme nt of ke ysta keholde rre lation shi ps asor gan izatio na l p rio rity

E stab lish an Agility/F lexib ility B ias

E stab lish speed &f lexibility as keyc omp eten cie s

Incre ase Use ofEmp loye e Se lf-Se rvice Channe ls

Impr ove Cost / Qualityof Benef its

Incr ease Integ ratio no f Bu sin essPro ce sses A crossOrg aniza tiona lBoun da ries

Imp rovePar tne rship &Collab or ation S kills ofS taff

Imp rove u til iza tion ofsales staff

Imp rove u til iza tio n o fservice staff

P ro vide staff withbe tter p roduct, se rv ice& c omp etitiveinfo rma tio n

Imp rove p er forman ceassessme ntp ro cesses & to ols

Imple men t Integ ratedAp plica tio ns A crossthe E xten de dEn ter pr ise

Co nsol ida te IT /Ne twor k E quipmen t(De vice s & F ac ilit ie s)

U tilize MoreE ffic ien t Pr odu ctionE qu ipmen t

Imp ro ve Qua lity /C onsistenc y ofM anu factu ringM ater ials

Version: Dr aft, Octobe r 7, 2002 © 2002 Deloitte Con sulting (Soon To Become Braxton ). All Right s Rese rved. Confidential.

How Value is C reated(V alue Drivers)

W hat You Can Do(Improvem ent L evers: B usine ss Proce sse s ,

A sse ts & Organi zat ional Capabi li ties)

Oth er Sh ared / C o r po r at e Serv ices(R ea l Es tate, P rocur eme nt & Othe r)

Hum an Res ou r ce S tr ateg y & Ma n a gem e nt(R ec ru itme nt, Developmen t, Adm inist ration &Pe rformance Man ag eme nt)

IT S tr at eg y & Man a geme n t

(D es ig n, Develo pme nt, D eplo yme nt, O pe ra tio ns &Pe rformance Man ag eme nt)

Co r p or ate Str ateg y & Bu si n ess M an ag e m en t(B us in ess & Financial S tr ateg y, Merge rs & Acquis ition s,Prog ra m Managemen t & P er formance Mana ge men t)

Imp ro ve value /d ecre ase p rices

Imp ro ve Q ualityMa na gem ent

Imp ro ve S har ing o fKnow le dg e( Inter na lly and withPa r tn er s)

Imp rove Sha rin g ofKno wledge(In tra - a nd In ter-Co mp an y)

Imp ro ve B usinessConti nu ity P lann ing

Improve A bil ity toS pin-Off N ewB usinesse s

Str en gthe n an dCo mmun ica teM issi on , V isio n &Va lu es

Impr ove focus onpr ice -ins ensitivecustom er seg men ts

Inc reas e em pha sis o ndifferen tia te d pr icingacr oss custo mersegmen ts

Imp roveun de rstand ing o fcus to mer pr icesensitiv ity

A lign a dver ti s in g withpr icing stra tegie s

Imp rove tailor ing o foffe ring s to custo merne ed s

Imp lemen t d iffe ren ti a lpr icing mecha nisms

In crea se E mph asiso n Prev en tativeM ainten an ce

De fer / C hangeT iming o f CapitalIn vestmen ts

Conso lida te /In crea se U til iza tion ofP ro du ction E qu ipmen t

Incre ase Fo cu s onManager ial (v s.Acco un tin g)In forma tio n

Im proveDE VE LO PME NT &

PROD UCT ION E fficie ncy

ImproveC UST OM E R

INTER ACT ION E fficie ncy

Im proveCO R P OR AT E / SH AR E D

SER VIC E E ff ic iency

STR EN GTH E NP R IC ING

Incre ase fo cu s onpr od uct i nnovation

Improveun de rstand ing o fpr o duct/ser vice valueto c usto mer s

Inc reas e focus o npr icing effectiven ess /pr ice op timiza tio n

AC Q UIR E NE WC UST OME R S

R E TAIN & G ROWC UR R ENT CUS T OM E RS

PR OD U C T

& SER V I C E

IN N O VA T ION

Incre ase focu s onR&D , p roductinno va tion , & p rod uctlead er sh ip

Br oa den pr od uct &se rvice o ffe rin gs

Impr ove pr od uct /se rvice R&D& dep loymen tca pa bilities

Ad apt cu rrentpr oducts & se rvice sfor n ew seg men ts /ch an nels

Im provePP & E

E fficiency

Imp roveIN VEN TO RY

E ffic iency

ImproveR EC E IVA BL E S &

P AYAB LE SE fficie ncy

Imp roveM ANAG ERIAL

E FFE C TIV EN ES S

Im proveE XE C UTIO N

C AP AB ILITIES

Impr ove pr od uct /se rvice in nova tionsk ills o f sta ff

SER VI C ED E LIVE R Y

In cr ea se E mph asis onS er vice Avoida nce /P re vent ion

Des ig n Se rv ice s forS er vice E ffic iency /S elf -S er vice

Rou te L ow -Va lueT ransactions toL ower -Cost Sa le sChanne ls

Imp ro ve R ou tin g ofS er vice Req uests toR igh t Se rviceM echan isms

In cr ea se U se o fC heape r Se rviceChanne ls

Imp ro ve P er formanceA ssessme ntP ro cesses & Too ls

Imp ro ve W or kfor ceP lann in g /Di sp atch /A ssignmentP ro cessesa nd T oo ls

Imp ro ve C ap acity/D emand P la nn in gP ro cesses, Skills andT oo ls

Imp ro ve S er vice &S uppor t P ro ce ss es

Imp ro ve S kil ls ofS er vice S taff

P ro vide Staf f w ithB etter C usto merIn fo rm ation(P rof i les , H ist or ies , e t c. )

Imp ro ve S taffIn cen tives Ar oun dS er vice E ffic iency

Imp ro ve Terms w ithS er vice Prov id er s

Imp ro ve Terms o nL ea se d Serv iceA ssets(C om pu t er s , V e hic les , e t c. )

Consolida te /Outso ur ce ServiceOpe ra tions

D iffer en tia teT rea tme nt ofC us to mer s /S egmen ts

P ro vide Staf f w ithB etter P ro du ct /S er vice / C ontr actIn fo rm ation

Rati ona lize and/orR efocus B usines sUnits & Se rv ice sOffe red

Imp ro ve U til i za tio n o fS er vice S taff

Imp ro ve Foc us onH ighe r- Va lu eCus to merRela tion sh ip s

Ch arge customers fo rser vice s p re viou slypr o vide d fre e o fcha rge

A lign p r odu ct &ser vice pr ic es withval ue to cus tome rs

E stab lish Produc tInnovation a s a C or eC omp eten cy

Improve P ro du ctInnovation P roce sses

Improve P ro du ctInnovationC apa bilities of S taff

Improve Assig nmento f Ac co un ta bility &Au th or ity

Improve E ffectiven esso f Go ve rn anc eMode ls

Ra tion alize P ro gramPortfol io s

Cance l Ine ffective /Obsolete P rogr ams &Pr ojec ts

Im pr ove Tr acking ofPr ogr am /P ro jectPr ogr ess

Im pr ove Assign men tof Resou rces toPr ojec ts

Im pr ove Pr ojectMan age men t S killsof S taff

Im pr ove Manag ementof Ven do rs / Se rvicePr ovid ers

Esta blish P ro gr am/Pr ojec t D el iver y as aCo re Co mpe tency

Increase Em pha sis o nP roactive Bu sine ssP la nn in g

L EVE R AG E INC OM E -GE NE RAT IN G

AS SET S

Develop , spin -o ff &se ll ne w bu sine sses

Im prov e investme ntre tu r ns on ca sh /treasu ry fund s

Li ce nse / sellin tellectua l ca pita l toothe r en te rpr ises

Imp ro ve br andstre ng th & goo d will

Improv e br andstr ength & good w il l

C ASH / A SSETM G M T.

Sell app r ecia te das se ts

In cr ea se emp hasis ongener ating re venuefrom com pan y assets

In cr ea se fo cus ondevelo ping a ndpr otec tin g intel lectualca pital

Sell busine sses /busine ss u nits toothe r en te rpr ises

Incre ase Focus onCred it-Wor thyCustome r S egments

Impr ove Co ll ectionsProc esse s

Impr ove Cr ed itAsse ssmen tProc esse s

Diffe re ntiate Cr ed itTr ea tm ent ofCustome rs /Segmen ts

Imp ro veu nde rstan ding ofcustome r needs

In cr ea se focus one xp an sion o fcustome rr e la tio nships

Im pr ove pr od uct /se rvice withd rawa l &re tir eme nt pr ocesse s

Acquir e competito rs

Impr ove F ocus o nSe rvice L evelAg re eme nts

Incre ase Use ofDista nce / On- LineLea rning

Establi sh c ustome rco mmu nitie s

B ypass cu rren tcha nne ls / b ecomeprima ry cu stome rinte rface

Imp ro ve cros s- se lla nd u pg rade mode ls

Ap ply br and to ne w /un branded pr odu cts

STR AT EG IC

ASSET S(P eo pl e, Tech nol o g y,I nt e llec t ua l Capi tal ,P hy si ca l R es our ces ,R elat i ons h ips , e t c. )

Develop and le ve ra gestro ng /u niqu e pa rtn erre la tionships

Develop & Lev erag eStro ng B ra nd

Develop S tro ngCustomerRelationsh ip s &Comm uniti es

Develop and u til izeun ique physica lre sour ces(fa cilit ies, la nd , e tc. )

Develop and u til izeun ique humanre sour ces(th ou gh t le ad ers , m an ag ers ,su bje ct ma t te r e xpe rts, e tc. )

Develop & Lev erag eIn te lle ctual C ap ita l(C op yrig hts, Paten ts,Trad em arks, etc . )

Incr ease fo cus onstra tegic assets

Imp rove AssetDevelopmen t S kills ofManagemen t & S ta ff

Imp rove In cent ive sAro und As se tDevelopmen t

Establishdevelop men t o fstra tegic assets a skey compe te ncy

Incr ease e mph asis onleve rag ing stra tegicassets

S ho rten th e Va lu eCha in / Elim ina teUnn ece ssar y S te ps

Improve D ev elop men ta nd A nalysis o fB usiness Ca se s

Imp ro ve s ecur ity o fsystems a nd d ata

Impr ove A llocat ion o fSha r ed / Ove r hea dCos ts

Imp ro ve R ecru itingEffectiven ess

Impr ove Re lations hipMa nag eme ntSt rateg ies for KeyStakeh olde r Gro ups

Impr ove va luede live red toSH AREHOLDERS

B R A X T O N E N T E R P R I S E V A L U E M A P

( Pr act ical paths to in crease shareholder valu e )

It is e asy to say share holder v alue is impor tan t. It is h ard to make it inf luence the decisions beingmade every day - where to spend time and resources, h ow b est to get things d one and , u ltimate ly ,how to win in the compe titive marketplace.

This Value Map is designed to accelera te the conn ectio n b etween actions companies can take andshareholder va lue . It is not rocket science and it is not complete, but we hope it provides a jump-star t to the pro cess of fo cus ing on the things th at mat ter mo st and d ete rminin g prac tical ways toge t tho se th ings done .

Here is one simple way to use it…

Start at th e top: Working your way down , ask your self "How will we improve th is?" at e achs tep . This will he lp ensure your tactic s support your ob jec tive s.

Start at th e bottom: Working y our way up , ask yourself "Why are we doing this?" at e achs tep . This will he lp ensure your ac tivities a re leading toward Shareholder Va lue .

Cus to m er S tr a teg y, R e la t ion shi p s & I n ter ac ti o n s

(M ar ke ti ng, Sales, D elive ry/Pr ovi sionin g, B ill i ng & S er vice )

Pr o du c t S tr ategy , D e ve lo pm en t & Pr o du c tio n(In novat ion & Design , Su pply Cha in Man age men t, P r oductio nOpe rations & Lo gisti cs)

BUSINESS PROCESS GROUPINGS

Ra tio na li ze an d/orRe focus B usin essUn its & Pr odu ct/Se rvice P or tfo lio s

Im proveL O GIST IC S & SE R VIC E

PROVISION E fficien cy

Ration alize a nd /o rRefo cu s Busine ssUnits & P ro duct/Ser vic e Po rtfol ios

Imp ro ve P hysica lSecu rity o f P eop le

Imp rovec omm unicati on a ndk nowled ge tr ans ferw ith in and ou tsid e thec omp any

A l l Pr o ce ss G ro u p in g s(A ction a pp li es to all proc ess groupings)

Co nso lid ate a nd/o rOu ts ou rc e Le arn ing &De velopmen tFunctio ns

Improve Ma na ger ialEmp ha si s o n People /Ta len t De ve lo pme nt

Improve / Esta blishTa len t Ma nag eme ntMode ls & Pro gr am s

Ide ntify and re -pr ioritize sta keholde rre lation shi ps

Impr ove va luede live red to OTHE RSTAKE HOL DERS(Pu blic , A lumni, An alysts ,etc . )

Sh orten o rder -to -d eliver y cycle t im e /Imp ro ve p rodu ct &se rvice ava ilability

Incre ase emphasison d esign forco nfigu ra bility /cu stom izat ion

Impr ove pr od uct /se rvice p latform andpo rtfolio str ate gies

Incre ase emphasis ontim e- to -m ar ke t /tim e- to -vol ume

Incre ase number o fsu ccessfu l pr o duct /se rvice la unches

Incre ase u tiliza tion o fmod ular , re usablede sign s

Impr ove ne twor k o fde sign par tne rs

Impr ove r euse o fpr oduct / se rviceco mpo ne nts

Impr ove managementof pr od uct life cycle s( lau nc h th r oug h r et i r e ment )

Increase em pha sis o nac coun t / r elati onshipde ve lopm ent

Impro ve a ccou ntmana gem ent skills ofsta ff

Impr ove incen tives forpr oduct d evelopmen t /inno va tion

Impro ve incen tives fo rac coun t / r elati onshipde ve lopm ent

Impro ve accoun tmana gem entstr ateg ies

Imp ro ve or der -to -d elive ry cycle time /imp ro ve pr odu ct &ser vice avail ab ility

Imp ro ve to ta lcustome r expe rie nce(p urcha sin g, fulf illm en t ,u s ag e, su pp o rt , se rvic e,e tc. )

Imp rove exe cut ion o fma rket- and sup ply-dr iven p rom otions

Improve str u ctu ringan d pr icing ofpr o motions

Improve coo rd in ationwith supp lie rs & sa le schanne ls

Impr ove use ofsupp ly- a nd cap acity-dr ive n pr omo tions

Inc reas e use ofpr o motions

Ra tio na lize and /orr efocus pr od uct /ser vice por tfolios

Imp r ove focu s onseg men ts with lowe rave r age cost -to -s erve

Im prov e Co llab ora tionwith Par tne rs &Customers

Incre ase us e ofve nd or -ma naged /ve nd or -w ar eho usedinvento ry

Imp ro ve due -d ater eliab ili ty / reduc einq uir ie s

Ma na ge Pr ocur emen to n a Na tio nal / Globa lBa sis

Imp ro ve Lever ag in go f Na tio na l / Gl obalPu rcha sin g Power

Incre ase Focu s onComponent Reu se

Redu ce P ro cu re men tCycle Times

Impr ove collabo r atio nwith vend or s/sup plie r s

Im pr ove Design /Stru ctur e o fDistr ib ution N etwork s

Alig n Prod uctio n &Mer ch an dise Ord er ingSch edu les withDistr ib utionSch edu les

Im pr ove Retr ievalPr ocesses

Manage Pu rcha si ngon a National / Glo ba lBa sis

Re fin e / R efoc usGo ve rn anceStr ateg ie s(C o mmo n vs . L oc alMe rch an dising , e t c. )

Improve Le ve ra gingof Na tiona l / G lo ba lPu rcha sing Power

Inc reas e Use ofVe ndo r-M ana ge d /Ve ndo r-Wa rehous edInv en to ry

Incre ase use ofvend or -man aged /vend or -war eh ou sedinven to ry

Increase Use ofVe ndo r-Mana ged /Ve ndo r-Wa re house dInvento ry

Im prov e Prod uct &Ser vic e Intr odu ctionPr ocesses

Ra tio na li zePr od uctio n Facilitie s

R ationa liz eP roduction Qu an tities& T iming

R ationa liz eMer chand ise Ord erQ uan t ities & Timing

Increase Use o fV endo r-Man age d /V endo r-Warehous edInven tory

Rationali zePr odu ction Qua ntities& Tim ing

In cr ea se Emph asis onUse of Comm onCom pon en ts

In cr ea se Util i za tio no f Standa rdiz edCom pon en ts

Man age Mater ialsSou rcing on aNational / Glo balBasi s

In cr ea se Use ofVen do r-Man aged /Ven do r-War eh ou se dIn ve ntor y

Inc reas e emp ha sis o ncu stom er r e te ntion

Pr oactive ly managetra nsition p oints(e nd s o f co ntr acts,leases, e tc.)

Offer va lue -add ingpr od uct/ser vicebu ndle s

Impr ove Fo cus onEmp loye e Re ten tion

Esta blish / Impr oveEmp loye e Re ten tionPr og rams

Change What You Do

� What you provid e� Whom you ta rge t and serve� How you compe te� Where you deploy your re sour ces

Do What You Do B ett er

� Business p rocesses� Intr a- and int er-company collabor ation� Customer s, employee & oth er stakeholder

satisfac tion� Resour ce/Asset deve lo pment &

deployment� St ra tegic capability development

U tilize More Eff icien tIT S ystems

U tilize MoreF lexib le / E xpa nd ab leIT S ystems

Imp ro ve Ma inte nan ceo f IT S yste ms

In crea se U til iza tion ofIT S ystems

D ivest Low -U til iza tio nIT S ystems

Imp ro ve Te rms onP ro du ction E qu ipmen t

Imp rove A bil ity toF ocus C omp anyR esour ces o n Hi gh -P rior ity In itia tives

Incr ease emphasis oncro ss -division , cr oss-b usin essun it an dcro ss -com pan ycollab or ation

Incr ease p roactiv ity inpur suing pa rtne rshi ps,mer ge rs &acquisit ions

Increase em pha sis o ncusto mer sa tisfaction

Impro ve q ualityas surance p ro grams

Sell / lea se excessca pacity to othe ren te rp rises(pr odu ct io n c ap acit y , s er v iceca p ac it y, et c . )

Co ordina te pricing o fcomp le men tarypr o ducts/se r vice s( r az o rs v. b lad es / p r od uct v.s hip p ing c h arges , et c .)

Imp rove p ri ce/mar ginknow le dg e of sta ff

Bu ild p r odu ctpr o fitab ility into salesinc en tives

Rat iona lize S er vicePr ovide r Por tfolio

Impr ove Inv estmentMan ag eme ntEffic iency

Impr ove Ca pitalInve stme nt Ana lysisEffectiv ene ss

Impr ove Qu ality ofFina ncia l In fo rm ation(As se t , Performa n ce ,Bu dg et , Pric e, Co st , Pa yroll,Tre as ury , D eb to r, C re d ito r,Ta x, Ris k , e tc. )

Impr ove Bu dge tin g &Fo reca stingCap ab ilities

Impr ove Financ ialRep or ting E fficien cy

Pr ovide Sta ff wi thBet ter Asse tInformation(Fixe d & Va riab le )

Not e: M any a ct ion s could logically be as so ciat ed wit hot he r or mult ipl e proce ss g roupings . In p ar tic ular ,

m an y c ust om e r & prod uct ac t ions are likely t o ha vehe avy IT and H R c om po ne nts )

Imp rove in tegr a tion ofIT systems acrosspar tne r ne twork s

Incr ease e mph asis onope ra tio na l inte grat ionwith par tne rs

Re move ba rrie rs tosw itch ing

Impro ve con tr actma na gem entp ro ce sses(ne g ot iat ion , e x ec ut io n an dcom plia nce)

r efine and /o r r efoc usve ndo r/sup plierstr ateg ies

Co nsolida te a nd /o rou tsou rcemerchand isin gfunctions

Esta blish cro ss-companyco llab or ation a s a keycompe te ncy

Imp ro ve r eliab ility o fIT systems/p latforms(PC s , s ervers , n etwo rks,e tc. )

Imp ro ve b re ad th ,d epth , q uality an dtimeli ness of b usinessinfo rma tio n

Imp ro ve a ccess tob usin ess info rma tion

Develop and u til izeun ique techn ic alre sour ces(a pp lica t io n s, ne tw ork s,eq uip men t , e tc. )

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5. Appendicesc. Some goodies (1/2)• Acquisition is fun, integration is hell• Acquisitions don’t lead to strategy, strategy leads to acquisition• If you can’t beat them, buy them• How do you mean how much is a dollar?… a dollar is a dollar• The dollar is our currency but it is your problem• War is a continuation of politics by other means• Strategy is an art, tactics a science• The fascinating trinity of war: violent emotion, chance, rational

calculation• Co-opetition is a valid alternative to competition• Investments are profit of tomorrow and employments of the day after• When building goes, all goes• Resistance to change is denial of growth• You can teach a monkey to do a fairness opinion

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5. Appendicesc. Some goodies (2/2)• Cash is king• Be an entrepreneur is changing an existing order• In France: Don’t put all eggs in the same basket – In the US: put

them is the same basket. But watch the basket• Sell in May and go away• Chance is on your side half of the time• Most beautiful strategies are written in the past• Today, it is not enough to be competitive on one’s market• You cannot predict future, you can prepare it• A strategy must be flexible• Success is not a goal, it is a consequence• A business: 80% sweat, 20% chance … and the rest is creativity• Strategy is resource allocation• Facts, facts, facts

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