BCG VALUE CREATORS REPORT: "SPOTLIGHT ON GROWTH" Axel Roos, Partner, BCG Berlin Berlin, 19 June 2007 The Boston Consulting Group
AGENDA Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy Question? Comments? Discussion! -1-
AGENDA Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy Question? Comments? Discussion! -2-
BCG THE FIRST ADDRESS IN STRATEGY CONSULTING 3,300 Strategists in 61 Offices and 36 Countries San Francisco Los Angeles Dallas Monterrey Mexico City Houston Miami Washington, D.C. Detroit Atlanta Chicago Toronto New York Boston New Jersey Amsterdam London Brüssel Paris Frankfurt Stuttgart Lissabon Madrid Barcelona Zürich Mailand Köln Düsseldorf Oslo Kopenhagen Stockholm Helsinki Hamburg Warschau Berlin Prag Budapest Wien Rom München Moskau Athen UAE (1) Neu Delhi Mumbai Peking Shanghai Seoul Tokyo Nagoya Taipei Hongkong Bangkok Kuala Lumpur Singapur Jakarta São Paulo Santiago Buenos Aires Sydney Melbourne Auckland (1) 2007 Source(s): BCG analysis -3-
SUSTAINABLE GROWTH SATISFIED CLIENTS 265 m Revenues 620 Consultants in Germany in 2005 Mio. 300 250 200 150 100 Growth Ø > 10 % p.a. since 1974 New clients BCG client since 2 to 4 years 5 years or longer 50 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source(s): BCG analysis -4-
WE WANT TO HIRE 310 PROFESSIONALS IN GERMANY IN 2007 Permanent entry: Associate / Consultant 210 Associates / Consultants in 2007 Junior Associate: entry as Bachelor Associate: entry with diploma or PhD Consultant: possible with 3+ years of professional experience 2 (+2) weeks entry training Immediate staffing on a project Entry for a time": Visiting Associate Great opportunities for the best: 100 Visiting Associates for 2007 Full integration as consultant in a BCG project team Full responsibility for the assigned tasks Presence at the client Flexible start and end Duration of 8 12 weeks Application Application Comprehensive written application Two rounds of interviews Application after pre-diploma One round of interviews Source(s): BCG analysis -5-
FAST CAREER DEVELOPMENT FLAT HIERARCHIES Focus Client relationship 23 % 41 % 17 % 9 % 10 % Partner / Managing Director Project management Principal Project Leader Module responsibility Consultant Associate 0 1 2 3 4 5 6 7 8 Years -6-
FURTHER DEVELOPMENT AFTER BCG Selected BCG Alumni in Germany Board Members 9% Entrepreneurs/Private Equity 14 % Ulrich Biffar Hanno Petersen, MdV Marcus Englert, MdV Marc Bitzer, Präsident Europe and Executive Vice President Whirlpool Corporation Johannes Züll, GF Tobias Bachmüller Stefan Brand Guido Colsman, VdG Michael Hehn Jens Deerberg-Wittram, GF Eric Strutz, MdV Management Matthias Gillner Jochen Olbert Philipp Busch, GF 47 % Justus Klöker Peter Löffler Marcus Nadenau Hubert Ströbel Thomas Volland Harald Schmidt Stefan von Dobschütz Academic Career 4% Carla Kriwet Heinz Hackl Johannes Züll, GF Felix Hufeld, VdGL Klaus Sørensen, GF Strategy/Planning 17 % Frieder Kuhn Alexis von Hoensbroech Prof. Walter Schertler, Prof. Jens Hermsdorf Strategisches Management School of International Business Arndt Rautenberg Gernot Sauerborn Annette Veltmar 9% Susan Hennersdorf, GF Peter Dill Hanns Ostmeier Bernhard Heizmann Achim Schmitz-Mertens Torsten Ecke, CIO Managing Directors Assistant Professor Thomas Weber, Stanford Graduate School of Business Tihamér von Ghyczy, Darden School of Business Akio Ito Timmo Sturm Inga Jürgens Helmut Meysenburg Claudia Palme John McNamara Thomas Fischer Total Total number number of of BCG BCG Alumni Alumni in in Germany: Germany: ca. ca. 1,100 1,100 Source(s): BCG analysis -7-
CORPORATE DEVELOPMENT AS ONE OF OUR WORLD-WIDE PRACTICE AREAS Broad Industry and Functional Expertise Consumer Goods High Tech Telco Financial Services Energy Industrial Goods Health Care Pharma Corporate Development Operations Organization Information Technology Marketing and Sales Strategy Source(s): BCG analysis -9-
INTRODUCING BCG'S CORPORATE DEVELOPMENT PRACTICE OUR TOPIC MAP Corporate Strategy Corporate Finance Post-merger Integration Integrated Financial Strategy Create Execute Integrate Deliver Corporate vision Partnering/alliances Pre-PMI planning Value-based management Industry landscaping Portfolio strategy M&A IPO & divestitures PMI organization/ setup Strategic planning Investor management Capital structure Growth strategy Private equity PMI execution Risk management Source(s): BCG analysis -10-
AGENDA Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy Question? Comments? Discussion! -11-
BCG WITH ONGOING RESEARCH ON VALUE CREATION 1999 2000 2001 2002 2003 2004 2005 2006 The Value Creators" "New Perspectives on Value Creation" "Dealing with Investors' Expectations" "Succeed in Uncertain Times" Back to Fundamentals" The Next Frontier" Balancing Act" Spotlight on Growth" Sources of value creation: Cash flow margin Asset productivity Profitable growth Key value drivers from the capital, customer and employee view External market expectations Importance of expectation premiums Drivers behind expectation premiums Agenda for improved, sustainable value creation Preventive crisis management necessary Fundamentals drive TSR Profitability above cost of capital Profitable growth Dividends Decomposition of TSR into fundamentals, cash flow and multiple Relative multiple regression Implementation: TSR fact base Appropriate TSR aspiration Redesigned management processes Role of growth: Achieving superior value creation Managing critical tradeoffs Setting growth targets Note: Reports can be downloaded at http://www.bcg.com/corporatedevelopment/cfs_value.html Source(s): BCG analysis -12-
NOT ANOTHER "HOW TO GROW" STUDY, BUT HOW TO EVALUATE GROWTH IN AN INTEGRATED FINANCIAL STRATEGY Content The Role of Growth in Achieving Superior Value Creation The Impact of Growth on Valuation Multiples Growth, Margins, Multiple and the right kind of Growth Evaluating Growth Investments Against Alternative Uses of Capital Growth versus Dividend, Debt Repayment and Share Repurchases Setting Growth Targets That Drive TSR Initial TSR Target, Plan Assessment, Alternative TSR Scenarios Ten Questions About Growth Every CEO Should Know How to Answer Appendix: The 2006 Value Creators Rankings Source(s): BCG Value Creators Report 2006-13-
SOME INITIAL DEFINITIONS Total shareholder return is often referred to as TSR Value creation (TSR: Total Shareholder Return) Change in share price plus dividend yield TSR is presented on an annual basis typically over 1, 3 and 5 year periods Yardstick for all investors including hedge funds and mutual funds Required reporting in proxy statements Easily benchmarked on relative basis as shareholder s true bottom line Valuation (P/E or EBITDA multiple) Contains information about how investors value earnings Change in relative valuation multiples is manageable Calculated on a current or forward basis Value based management (VBM) Alignment of key management processes Target setting, performance metrics, budgeting, planning, resource allocation, and incentives Source(s): BCG analysis -14-
CREATING SUPERIOR SHAREHOLDER VALUE YEAR AFTER YEAR IS A DIFFICULT TASK Relative TSR Analysis 1996-2005 Number of 600 companies (1) 500 569 532 400 300 347 324 200 100 0 1 4 31 132 0 1 2 3 4 5 6 7 8 9 10 Number of years in which they beat the local market (2) 106 Denmark 9 1 (1) Sample characteristics: 2,056 companies excl. financial service companies; continuously listed for at least 10 years; market cap above $1B as of end 2005 (2) Relative TSR > 0 Source(s): Thomson Financial Datastream; Bloomberg; BCG analysis -15-
HOWEVER, HIGH TSR POSSIBLE IN EVERY INDUSTRY High, Low and Average TSR Per Industry 2001 2005 TSR p.a. 01 '05 100% 80% 60% Mining & Mat. 74% Transp. & Log. 88% Mach. & Constr. 61% Chem. Utilitity 53% Travel& Tourism Retail Cons. Goods 70% 91% 83% Pulp & Paper Automotive Multibusiness 50% Pharma Tech. 57% Media & Entert. 67% 40% 43% 40% 34% 38% 20% 19% 12% 9% 9% 9% 8% 6% 5% 5% 5% 0% -3% -1% 0% -2% -6% -6% -20% -40% -20% -35% -26% -28% -38% -26% -19% -18% -12% -31% -41% -25% High Weighted Average Total Sample -60% Low Question: What are the success factors of top performing companies in our client's industry? Source(s): Thomson Financial Datastream; BCG analysis. -16-
TSR DECOMPOSITION IS A PRACTICAL FRAMEWORK LINKING PERFORMANCE TO TSR An Integrated Approach To Value Creation Here: Based On EBITDA EBITDA growth x Sales growth EBITDA margin change % % Capital gain x Growth variables, e.g. asset growth TSR + EBITDA multiple % ƒ Profitability variables, e.g. gross margin growth Cost efficiency variables, e.g. inventory turnover Leverage variables, e.g. debt/capital ratio Dividend yield % Other variables, e.g. dividend payout ratio Free cash flow yield ƒ Share buybacks % Industry specific variables, e.g. average store size Debt repayment % % Contribution to TSR can be calculated Source(s): BCG analysis -17-
700 600 500 400 300 200 100 0 TSR index (2000 = 100) Sales index (2000 = 100) EBITDA/revenue (%) 624 200 177 20% 100 Total shareholder return 152 88 WORLD TOP DECILE: SALES GROWTH AND MULTIPLE MOST IMPORTANT TSR Decomposition Profile of Top Decile vs. Total Sample (1) 180 68 316 86 445 95 108 '00 '01 '02 '03 '04 '05 ƒ 150 100 50 0 100 104 Sales growth 115 128 109 100 103 106 152 114 123 '00 '01 '02 '03 '04 '05 18% 16% 14% 12% 10% 8% 6% 15.3% 14.2% EBITDA margin 1 14.5% 12.7% 14.7% 14.7% 15.3% 14.7% 17.7% 15.8% 18.5% 15.8% '00 '01 '02 '03 '04 '05 Simplified five-year TSR decomposition 2 TSR contribution (%) Enterprise value/ebitda (x) Dividend/stock price (%) 20% 14 11.8 6% 13% 11.1 4.9% 12 9.9 9% 9.0 9.4 9.5 10% 10 3.7% 6% 4% 3.3% 4% 4% 2% 8 1% 9.1 9.0 2.3% 2.8% 7.9 8.3 0% 6 7.0 1.9% 4 6.0 2% 3.0% 2.5% 2.4% 2.1% -4% -10% 2 1.7% 1.3% Sales Margin Multiple Dividend DY 0 0% growth change change yield '00 '01 '02 '03 '04 '05 '00 '01 '02 '03 '04 '05 Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysis. Disclaimer: These financial analyses are based on data and assumptions that have not been verified by BCG and are subject to uncertainty and change. Accordingly, results presented are intended only for relative comparison across alternatives. Actual future values are subject to future capital market conditions and other influences. EBITDA multiple 1 Dividend yield 3 Top Decile, n = 106 Total sample, n = 1056 1 Industry calculation based on aggregate of entire sample. 2 Share change and net debt change not shown. 3 Industry calculation based on sample average. -18-
BUT, TOP PERFORMERS IMPROVED ON ALL THREE DIMENSIONS Global Sample versus Top Decile, 2001-2005 TSR Decomposition Profile Fundamental value (%) Valuation multiple (%) Cash flow (%) 13% 14% 9% 4% 6% 1% 4% 2% 0% -4% -2% -2% Sales growth EBITDA margin change EBITDA multiple change Dividend Share change Net debt change yield Top decile, n = 106 (TSR = 44% p.a.) Total sample, n = 1056 (TSR = 2% p.a.) Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysis Disclaimer: These financial analyses are based on data and assumptions that have not been verified by BCG and are subject to uncertainty and change. Accordingly, results presented are intended only for relative comparison across alternatives. Actual future values are subject to future capital market conditions and other influences. Note: Bars show contribution of each factor in percentage points of five-year average annual TSR. -19-
FOR TOP PERFORMERS, REVENUE GROWTH IS THE MAIN SOURCE OF LONG-TERM SHAREHOLDER VALUE Sources of TSR for Top-Quartile Performers, S&P500, 1987-2005 Average annual TSR (%) 40% 35% 30% 25% 20% 15% 10% 5% 0% 31% 50% 58% 60% 1 year 3 years 5 years 10 years Dividend yield Change in shares, cash and debt Change in Multiple Margin Improvement Growth Note: Sample excludes financial companies; rolling analysis covers one, three, five, and ten-year time frames from 1987 to 2005. Source(s): Compustat, BCG analysis. -20-
AGENDA Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy Question? Comments? Discussion! -21-
EXCURSUS STARBUCKS: A RETAIL STAR MORE THAN QUINTUPLED SHAREHOLDERS' BUCKS Total Shareholder Return (indexed and cumulated) 515% 274% 183% 157% 168% 100% '99 '00 '01 '02 '03 '04 Company profile Vertically integrated brand: purchasing, roasting and selling High-quality coffee beans and handcrafted beverages First store in Seattle in 1971 In 1987 Starbucks acquired Giornale chain of coffee bars (founded by a former employee) Today more than 6,600 stores in the US and significant international activities More and more trying to diversify product range and explore new distribution channels for coffee and related products Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis -22-
TSR DECOMPOSITION OVERVIEW: STARBUCKS SHOWS IMPRESSIVE GROWTH AND MULTIPLE ABOVE PEERS Total shareholder return (1) Extreme sales growth (1) EBITDA margin clearly above peers (2) 600 515 350 315 20% 500 400 300 200 100 0 100 183 157 168 274 100 81 81 93 85 65 300 250 200 150 100 50 0 100 100 130 113 196 158 124 130 243 136 146 15% 10% 5% 15.7% 15.3% 16.2% 15.8% 16.1% 15.3% 8,2% 8,2% 7,9% 7,9% 8,1% 8,3% '99 '00 '01 '02 '03 '04 '99 '00 '01 '02 '03 '04 '99 '00 '01 '02 '03 '04 ƒ TSR decomposition (3) (five year) EBITDA multiple (2) growing far above peers Dividend yield (4) 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% 8% 28% Sales growth 0% 1% Margin change -10% 12% Multiple change 2% Dividend DY yield 30 26 22 18 14 10 6 28.7 24.9 19.9 16.8 16.7 15.5 16,4 12,1 12 8,7 9,8 9,8 '99 '00 '01 '02 '03 '04 3% 2% 1% 0% Starbucks: no dividend 2,3% 1,9% 1,4% 1,5% 1,1% 1,1% '99 '00 '01 '02 '03 '04 Starbucks Retail sample (1) Indexed and cumulated (2) Calculation based on aggregated figures (3) Additional components: Share change, Net debt change (4) Sample average Note: Analysis based on 63 companies; minimum market value 2004: $5bn Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Annual Reports; BCG analysis -23-
STARBUCKS' GROWTH STORY: SALES MORE THAN TRIPLED IN FIVE YEARS Sales development (indexed and cumulated) 196% 243% 315% 11% 20% 84% 130% 158% Retail sales: Sales in companyoperated stores 100% Sale of beans: JV with Kraft in the grocery channel '99 '00 '01 '02 '03 '04 Licensing: Revenues from noncompany-operated stores (royalties and sales from beans) Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis -24-
STARBUCKS ENTERED INTO A FADING COFFEE MARKET After Folgers' & Maxwell's Market Share Wars, Starbucks with New Value Proposition 3,0 1980s: Declining consumption and new value market proposition share wars Coffee consumption (cups per person per day) Since 1990: Starbucks with steady sales growth through new value proposition Starbucks sales (3) 2 2,0 1 1,0 1950 1960 1970 1980 1990 1990 2000 Maxwell House House brand brand established with with "affordable luxury" Loyal Loyal customers (1) (1) Folger's & Maxwell House House highly highly profitable Price Price cuts cuts Reduced quality quality to to lower lower costs costs Weakened brands/ consumer loyalty loyalty Low Low gross gross margins Losses on on coffee coffee in in the the late late 80s 80s Gourmet coffee coffee again again as as affordable luxury luxury Shops Shops as as "the "the third third place" place" (2) (2) as as a non-alcoholserving bar bar with with social social interaction Price Price premium for for high high quality quality and and agreeable atmosphere Increased sales sales (1) 80% of Maxwell House consumers would not switch if another brand were on sale (2) Besides home and work (3) Indexed on 1999 Source: U.S. Bureau of the Census; J.C. Bradford & Co.; Press Search; Starbucks annual reports; BCG-Analysis -25-
STARBUCKS' GROWTH WAS ALMOST EXCLUSIVELY ORGANIC, BUT IN DIFFERENT GRADUATIONS Different Growth Dimensions Overview Expand sales per store Grow number of stores Explore new channels/products Merchandising Product range Coffee and related products Warm breakfast Lunch Extended hours, efficiency improvement in selling process Domestically Internationally Company operated Joint ventures Licensing stores Domestically Internationally Distribution channels for coffee beans Grocery Club and wholesale market Other non-food "Hear Music" Source: Starbucks; analysts reports; press articles; BCG analysis New products in JV Frappuccino Ice cream DoubleShot -26-
SALES PER STORE EXPANDED BY INCREASING CUSTOMER BASE, CUSTOMER LOYALTY AND ADDING PRODUCTS Customer base Expansion of customer base (Survey in 1999 and 2005) Concentrated in metropolises From customer average annual income of $81,000 to $55,000 From 78% college grads to 56% Product range 73% 54% 32% 22% Top 50 markets have 73% of sales Survey: Most attractive WiFi hotspot More than hotel lobbies Coffee and related products Warm breakfast Lunch, dessert 510 25 50 Top markets and airport lounges Starbucks card already has 15% of sales Drives frequency Wins new customers when sold as a gift Loyal customers High customers frequency Best customers come 16.2 times per month Average is six times a month Survey: Sixth among US brands Source: Starbucks; analysts reports; press articles; BCG analysis -27-
"HEAR MUSIC" IS ANOTHER NEW IDEA TO IMPROVE INTRA-STORE SALES And Fits Starbucks' History of Selling Innovative CDs Idea and investment What customers can do and how to earn money on it 1. Hear music Customers pick their preferred music at a terminal while having no interaction with salespersonnel Customers spend more time in store and potentially buy more coffee 2. Burn customized CD Customers can choose from over 200,000 tracks and assemble a personal collection of songs and burn them on a CD Investment: $20,000 per store At a price of about $10 per CD (1), breakeven (2) is 11 CDs per store per day (1) Prices: $7.99 for the first and $0.99 for each additional song (2) Without consuming coffee while listening calculated in Source: Starbucks; analysts reports; press articles; BCG analysis -28-
DOMESTIC EXPANSION: GOAL EXCEEDED MANY TIMES OVER Analysts' Quotes May 2005 "We think Starbucks' 15,000 store target is reasonable (from 6,600 today)." November 2001 "Our analysis suggests that there is room for a total of between 5,000 and 7,000 company-owned Starbucks ultimately in the US." September 1999 "Our analysis... concludes that, on a very conservative basis, the company still has room to double the number of stores... to well over 4,000." Source: Starbucks; analysts reports; press articles; BCG analysis -29-
... BUT WHERE IS THE LIMIT? Possible Saturation of the Domestic Market Situation today Historic growth Borders/constraints From 961 stores in 1999 to present number today McDonald's: 13,500 in the US Starbucks with no clear no. 2 (such as Burger King, Wendy's,...) But less accepted in rural areas About 6,600 stores in the US Maximum of 7,000; premises Metropolitan areas: average Seattle (1), Portland, San Francisco, San Diego, Denver: 40,000 residents per store New regions: Median incomes 10% over national average and more than 175,000 residents in MSA (2) with highest concentration still on the West Coast where the company has its roots (about 40 % of US stores) If Starbucks reaches the saturation point, deterioration in new-unit productivity will be seen; this has not yet been observed however (1) Seattle has average of 20,000 per store (2) MSA: metropolitan statistical areas. For details on methodology, see DB Report from Sept. 24, 1999; for recalculation Nov. 27, 2001 Source: Starbucks; analysts reports; press articles; BCG analysis -30-
EBITDA MARGIN REMAINS CONSTANT...... And Clearly Above Peer Group 20% 15% Interpretation 10% 5% 0% Total retail sample Starbucks '99 '00 '01 '02 '03 '04 Majority of sales comes from branded, high margin lifestyle coffee products Additional increase of margins by royalties from non-company-operated stores Leverage of brand and margins by licensing coffeerelated products Transfer of proven high margin product and store concept by impressive sales growth (no erosion of margins) Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis -31-
STARBUCKS' MULTIPLE FAR ABOVE PEERS BUT FIRST DOUBTS ARISE IF SUSTAINABILITY IS STILL GIVEN Almost Doubled between 2002 and 2004 Interpretation EBITDA multiple 16.8 16,4 24.9 16.7 12,1 12 15.5 8,7 Starbucks Total retail sample 28.7 19.9 9,8 9,8 '99 '00 '01 '02 '03 '04 Stock price reflects future expectations, but EBITDA multiple reflects past (or its extrapolation) future growth expected No dividends distributed, thus earnings are distributed to shareholders via price treasured Brand has a high value, resulting in high immaterial assets (goodwill (1) or premium) Although marketing investment remains reasonable (1.3% of sales in 2004) November 2004: "20% to 25% growth is not an issue... what's 20% to 25% worth?... We... believe the current valuation either assumes at least 30% growth in FY'05 or the market's pricing SBUX off FY'06 EPS.... Starbucks' multiple appears to have peaked." (1) Goodwill can only be accounted for if acquired or costs could be activated in certain cases Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis -32-
SUMMARY - LESSONS LEARNED Starbuck's performance is a clear growth story No dividends distributed: retained to finance further growth Mostly organic because the market is young and no serious competition is in the market yet Establishing a strong brand does not necessarily imply enormous marketing investments JV and licensing can be important alternatives to pure organic growth Reducing capital investment, reduce risk and improve margins Profiting from the partner's knowledge when entering new markets or launch new products But: they necessitate proper control and decision processes can take longer Chances in different regional markets can differ greatly according to regional circumstances a success story cannot simply be rolled out Source: Starbucks; Analysts Reports; Press Articles; BCG analysis -33-
AGENDA Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy Question? Comments? Discussion! -34-
DRIVING SUPERIOR TSR REQUIRES AN INTEGRATED CORPORATE AND FINANCIAL STRATEGY M&A strategy Real Estate strategy Integrated corporate and financial strategy Investor strategy Revenue growth TSR Margin (%) Capital structure target Diagnose issues, opportunities, constraints, alternative TSR strategy scenarios Portfolio strategy FCF and ROI Dividend policy P/E multiple Share repurchase Value-based management capability Metrics Resource allocation Compensation Planning Role of center Training Budgeting Target setting Reporting Ensure current facts, signals, effective processes to enable organization to deliver superior TSR results This effort will focus on TSR strategy where we will integrate business strategy and competitive advantage concepts with TSR facts and principles to ensure success Source(s): BCG analysis -35-
CLIENT S STRATEGIC OPTIONS MAP TO DIFFERENT ELEMENTS OF THE TSR STRATEGY Elements Are Highly Interdependent Must Assess in an Integrated Fashion 4 7 2 Acquisition of segmentcentric/ segment adjacent players? Impact of company sell/ LBO? What if scenarios for spinoff options? Investor strategy Portfolio strategy M&A strategy Revenue growth P/E multiple TSR FCF and ROI Real Estate strategy Margin (%) Share repurchase Capital structure target Dividend policy 3 Impact of sale/ lease-back / reduction of key fixed assets? Portfolio trimming potential? Impact of share repurchase? Future prospects of CLIENT s underlying business? 6 5 1 Need to diagnose issues, tradeoffs, and options across all levers Source(s): BCG analysis -36-
A FEW COMMENTS FROM OUR CLIENTS REGARDING INSIGHTS FROM TSR STRATEGY DISCUSSIONS It was critical to complement the hard financial and valuation analysis with the investor perspective (the soft side). All this time we had been listening to the analysts and not the investors. Boy, did we get it wrong! The investor dialog and financial analysis gave us critical insight into how to refine our corporate and financial strategies into an overall TSR strategy. We are now heading down a path that we believe will significantly increase our valuation - Chief Financial Officer The investor insights enabled me to finally realize that we have been talking right past our investors. We are excited about growth, so we have been speaking mostly about growth with investors and analysts... When what matters to them as value investors are our true strengths high ROIC and our great free cash flow generation. This is a critical insight for us - Chairman and CEO I was dead-set against doing this work because I felt there was little to learn from the investors that I did not already know. I am a full convert and recognize the great value and insights of the work. - Vice President of Investor Relations Source(s): BCG client -37-
AGENDA Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy Question? Comments? Discussion! -38-
QUESTIONS? COMMENTS? DISCUSSION! -39-