bcg praesentation 20070619

The Boston Consulting Group

BCG VALUE CREATORS REPORT:

"SPOTLIGHT ON GROWTH"

Axel Roos, Partner, BCG Berlin

Berlin, 19 June 2007

- 1 -HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

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!


AGENDA






BCG – THE FIRST ADDRESS IN STRATEGY CONSULTING3,300 Strategists in 61 Offices and 36 Countries

(1) 2007Source(s): BCG analysis

UAE(1)

AmsterdamLondonBrüssel

Paris

LissabonMadrid

ZürichMailand

OsloKopenhagenStockholmHelsinki

Warschau

PragBudapest

Moskau

Mumbai

TokyoSeoulShanghai

HongkongBangkokKuala LumpurSingapurJakarta

SydneyMelbourne

Auckland

AtlantaWashington, D.C.

TorontoNew York

Boston

Chicago

Los AngelesDallas

MonterreyMexico City

San Francisco

Buenos Aires

São Paulo

Neu Delhi

Rom

Athen

Barcelona

Peking

HoustonMiami

Santiago

Taipei

NagoyaFrankfurtStuttgart

DüsseldorfKöln

Hamburg

Wien

Berlin

München

DetroitNew Jersey


New clients

… 2 to 4 yearsBCG client since

… 5 years or longer

0

50

100

150

200

250

300

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

GrowthØ > 10 % p.a.

since 1974

GrowthØ > 10 % p.a.

since 1974

Mio. €

SUSTAINABLE GROWTH – SATISFIED CLIENTS 265 m€ Revenues – 620 Consultants in Germany in 2005

Source(s): BCG analysis


Permanent entry: Associate / ConsultantPermanent entry: Associate / Consultant „Entry for a time": Visiting Associate„Entry for a time": Visiting Associate

210 Associates / Consultants in 2007Junior Associate: entry as BachelorAssociate: entry with diploma or PhDConsultant: possible with 3+ years of professional experience2 (+2) weeks entry trainingImmediate staffing on a project

Great opportunities for the best: 100 Visiting Associates for 2007Full integration as consultant in a BCG project teamFull responsibility for the assigned tasksPresence at the clientFlexible start and endDuration of 8 – 12 weeks

Application Application

Comprehensive written applicationTwo rounds of interviews

Application after pre-diplomaOne round of interviews

WE WANT TO HIRE 310 PROFESSIONALS IN GERMANY IN 2007



Principal

Partner / Managing Director

Associate

Consultant

Project Leader

Project management

Focus

Client relationship

Module responsibility

23 %

Years

41 % 17 % 9 % 10 %

0 1 2 3 4 5 6 7 8

FAST CAREER DEVELOPMENT – FLAT HIERARCHIES


Board MembersBoard Members Entrepreneurs/Private Equity Entrepreneurs/Private Equity Managing DirectorsManaging Directors

ManagementManagement Academic CareerAcademic Career Strategy/Planning Strategy/Planning

9 %

Prof. Walter Schertler, Strategisches Management

Assistant Professor Thomas Weber, Stanford Graduate School of Business

Prof. Jens HermsdorfSchool of International Business

Tihamér von Ghyczy, Darden School of Business

47 %

Ulrich Biffar

Tobias Bachmüller

Peter Dill

HannsOstmeier

Stefan Brand

Michael Hehn

Marcus Englert, MdVHanno Petersen, MdV

Marc Bitzer, Präsident Europeand Executive Vice PresidentWhirlpool Corporation

Johannes Züll, GF

TorstenEcke, CIO

Eric Strutz, MdV

Philipp Busch, GF

Guido Colsman, VdG Felix Hufeld,

VdGL

Carla Kriwet

Frieder Kuhn

Matthias GillnerJochen Olbert

Arndt RautenbergGernot Sauerborn

Alexis von Hoensbroech

Justus KlökerPeter LöfflerMarcus Nadenau

Thomas Volland

Annette Veltmar

Hubert StröbelHarald SchmidtStefan von Dobschütz

Heinz Hackl

14 %

4 %

9 %

17 %

Inga JürgensHelmut Meysenburg

Bernhard HeizmannAchim Schmitz-Mertens

Claudia Palme

John McNamara

Timmo Sturm

Akio Ito

Thomas Fischer

Susan Hennersdorf,GF

Jens Deerberg-Wittram, GFKlaus Sørensen, GF

Johannes Züll, GF

FURTHER DEVELOPMENT AFTER BCGSelected BCG Alumni in Germany


Total number of BCG Alumni in Germany: ca. 1,100Total number of BCG Alumni in Germany: ca. 1,100


Consumer Goods

High TechTelco

Financial Services Energy

Industrial Goods

Health CarePharma

Corporate Development

Operations

Organization

Information Technology

Marketingand Sales

CORPORATE DEVELOPMENT AS ONE OF OUR WORLD-WIDE PRACTICE AREASBroad Industry and Functional Expertise

Strategy



INTRODUCING BCG'S CORPORATE DEVELOPMENT PRACTICE—OUR TOPIC MAP

Corporate Strategy

Corporate vision

Industry landscaping

Portfolio strategy

Growth strategy

Corporate Finance

Partnering/alliances

M&A

IPO & divestitures

Private equity

Pre-PMI planning

PMI organization/setup

PMI execution

Value-based management

Strategic planning

Investor management

Capital structure

Risk management

Create Execute Integrate Deliver

Post-mergerIntegration

Integrated Financial Strategy



AGENDA






BCG WITH ONGOING RESEARCH ON VALUE CREATION

20021999 2000 2001

“The Value Creators"

"New Perspectives on Value Creation"

"Dealing with Investors'

Expectations"

"Succeed in Uncertain

Times"

2003

“Back to Fundamentals"

2004

“The Next Frontier"

2005

“Balancing Act"

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

Note: Reports can be downloaded at http://www.bcg.com/corporatedevelopment/cfs_value.htmlSource(s): BCG analysis

2006

“Spotlight onGrowth"

Role of growth:• Achieving

superior value creation

• Managing critical tradeoffs

• Setting growth targets


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

NOT ANOTHER "HOW TO GROW" STUDY, BUT HOW TO EVALUATE GROWTH IN AN INTEGRATED FINANCIAL STRATEGY


SOME INITIAL DEFINITIONS

Valuecreation

(TSR: TotalShareholder

Return)

Valuation(P/E or EBITDA multiple)

Total shareholder return is often referred to as “TSR”

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

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



CREATING SUPERIOR SHAREHOLDER VALUEYEAR AFTER YEAR IS A DIFFICULT TASK

Number of companies(1)

Number of years in which they beat the local market(2)

Relative TSR Analysis 1996-2005

1

532

324

106

9 1

569

132

314

347

0

100

200

300

400

500

600

0 1 2 3 4 5 6 7 8 9 10

(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

Denmark


-1%

-20%

-35%-26% -28%

-38%

-26%-19% -18%

-12%

-31%

-41%

-25%

19%12% 9% 9% 9% 8% 6% 5% 5% 5%

0% -2% -6% -6%

88%

61%

40%

53%

70%

83%

34%

50%

38%

57%

67%

-3%

91%

43%

74%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%TSR p.a.‘01 – '05

Low

High

Weighted Average

Total Sample

Mining& Mat.

Transp.& Log. Chem. Utilitity Travel&

Tourism Retail Cons.Goods

Pulp &Paper PharmaMach.

& Constr.Auto-

motiveMulti-

business Tech. Media &Entert.

Source(s): Thomson Financial Datastream; BCG analysis.

HOWEVER, HIGH TSR POSSIBLE IN EVERY INDUSTRYHigh, Low and Average TSR Per Industry 2001–2005

Question: What are the success factors of top performing companies in our client's industry?Question: What are the success factors of top performing companies in our client's industry?


TSR DECOMPOSITION IS A PRACTICAL FRAMEWORK LINKING PERFORMANCE TO TSR

An Integrated Approach To Value Creation – Here: Based On EBITDA

TSR

Capital gain

+

Free cash flow yield

Growth variables, e.g. asset growth

Profitability variables, e.g. gross margin growth

Cost efficiency variables, e.g. inventory turnover

Leverage variables, e.g. debt/capital ratio

Other variables, e.g. dividend payout ratio

ƒ

Industry specific variables, e.g. average store size


Sales growth

EBITDA margin change

x%

%

EBITDA growth

EBITDA multiple

x

%

Share buybacks

Debt repayment

Dividendyield

ƒ

%

%

%Contribution to TSR can be calculated

%


Total sample, n = 1056Source(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 aresubject 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.

100

624

316

180152

445

866810895

88100

0

100

200

300

400

500

600

700

'00 '01 '02 '03 '04 '05

ƒ

13%

4%

9%6%

2%

-4%

1%4%

-10%

0%

10%

20%

Salesgrowth

Marginchange

Multiplechange

DY

100

100 103 106 114 123

177

128115

109

152

104

0

50

100

150

200

'00 '01 '02 '03 '04 '05

Sales growth

EBITDA multiple1

EBITDA margin1

Dividend yield3

Total shareholder return

Simplified five-year TSR decomposition2

6.0

9.09.1

7.07.9 8.3

9.99.0 9.59.4

11.111.8

0

2

4

6

8

10

12

14

'00 '01 '02 '03 '04 '05

14.2%

18.5%

14.7%14.7%

12.7%

17.7%

15.3%14.7%

15.8%15.8%14.5%15.3%

6%

8%

10%

12%

14%

16%

18%

20%

'00 '01 '02 '03 '04 '05

2.8%

3.7%

2.3%

4.9%

3.3%

1.3%

1.9%

2.1%2.5% 2.4%

1.7%

3.0%

0%

2%

4%

6%

'00 '01 '02 '03 '04 '05

TSR index (2000 = 100) Sales index (2000 = 100) EBITDA/revenue (%)

TSR contribution (%) Enterprise value/EBITDA (x) Dividend/stock price (%)

Dividendyield

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.

Top Decile, n = 106

WORLD TOP DECILE: SALES GROWTH AND MULTIPLE MOST IMPORTANT

TSR Decomposition Profile of Top Decile vs. Total Sample(1)


TSR Decomposition Profile

Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysisDisclaimer: 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.

Valuation multiple (%)Fundamental value (%) Cash flow (%)

-4%

9%

4%

14%

-2%

0%

-2%

2%

Top decile, n = 106(TSR = 44% p.a.)

Total sample, n = 1056(TSR = 2% p.a.)

13%

6%

1%

4%

Dividend yield

Share changeEBITDA multiple changeSales growth EBITDA margin change Net debt change

BUT, TOP PERFORMERS IMPROVED ON ALL THREE DIMENSIONSGlobal Sample versus Top Decile, 2001-2005


FOR TOP PERFORMERS, REVENUE GROWTH IS THE MAINSOURCE OF LONG-TERM SHAREHOLDER VALUE

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.

Averageannual TSR (%)

Sources of TSR for Top-Quartile Performers,S&P500, 1987-2005

Dividendyield

Change inshares, cashand debt

Change inMultiple

MarginImprovement

Growth0%

5%

10%

15%

20%

25%

30%

35%

40%

1 year 3 years 5 years 10 years

31% 50% 58% 60%


AGENDA






EXCURSUS STARBUCKS: A RETAIL STAR MORE THAN QUINTUPLED SHAREHOLDERS' BUCKS

Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis

274%

183% 157%168%

515%

100%

'99 '00 '01 '02 '03 '04

• 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

Company profile

Total Share-holder Return(indexed and cumu-lated)


TSR DECOMPOSITION OVERVIEW: STARBUCKS SHOWS IMPRESSIVE GROWTH AND MULTIPLE ABOVE PEERS

ƒ

Retail sampleStarbucks

Extreme sales growth(1)

EBITDA multiple(2) growing far above peers

EBITDA margin clearly above peers(2)

Dividend yield(4)

Total shareholder return(1)

TSR decomposition(3) (five year)

8,2% 8,2% 7,9% 7,9% 8,1% 8,3%

15.8%15.3%16.2%

15.3% 16.1%15.7%

5%

10%

15%

20%

'99 '00 '01 '02 '03 '04

16,4

12,1 128,7 9,8 9,8

16.8

28.7

15.516.7

24.9

19.9

6

10

14

18

22

26

30

'99 '00 '01 '02 '03 '04

28%

1%

12%8%

0%

-10%

2%

-15%-10%-5%0%5%

10%15%20%25%30%

Salesgrowth

Marginchange

Multiplechange

DY

274

183 157 168

515

100

100 81 81 9385 650

100

200

300

400

500

600

'99 '00 '01 '02 '03 '04

243

130158

196

315

100

100 113136 146

124 130

0

50

100

150

200

250

300

350

'99 '00 '01 '02 '03 '04

(1) Indexed and cumulated (2) Calculation based on aggregated figures (3) Additional components: Share change, Net debt change (4) Sample averageNote: Analysis based on 63 companies; minimum market value 2004: $5bn Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Annual Reports; BCG analysis

1,1%1,5%

1,9%2,3%

1,4%1,1%

0%

1%

2%

3%

'99 '00 '01 '02 '03 '04

Starbucks: no dividend

Dividendyield


100%

315%

196%

158%

130%

243%

'99 '00 '01 '02 '03 '04

STARBUCKS' GROWTH STORY: SALES MORE THAN TRIPLED IN FIVE YEARS

84%

11% 20%

Retail sales: Sales in company-operated stores

Sale of beans: JV with Kraft in the grocery channel

Licensing: Revenues from non-company-operated stores (royalties and sales from beans)


Salesdevelop-ment(indexed and cumu-lated)


new value proposition1980s: Declining consumption and

market share warsSince 1990: Starbucks with steady sales growth

through new value proposition

1,0

2,0

3,0

1950 1960 1970 1980 1990

• Maxwell House brand established with "affordable luxury"

• Loyal customers(1)

• Folger's & Maxwell House highly profitable

• Maxwell House brand established with "affordable luxury"

• Loyal customers(1)

• Folger's & Maxwell House highly profitable

(1) 80% of Maxwell House consumers would not switch if another brand were on sale (2) Besides home and work (3) Indexed on 1999Source: U.S. Bureau of the Census; J.C. Bradford & Co.; Press Search; Starbucks annual reports; BCG-Analysis

• Price cuts• Reduced quality to

lower costs• Weakened brands/

consumer loyalty• Low gross margins• Losses on coffee in

the late 80s

• Price cuts• Reduced quality to

lower costs• Weakened brands/

consumer loyalty• Low gross margins• Losses on coffee in

the late 80s

1990 2000

• Gourmet coffee again as affordable luxury• Shops as "the third place"(2) as a non-alcohol-

serving bar with social interaction• Price premium for high quality and agreeable

atmosphere• Increased sales

• Gourmet coffee again as affordable luxury• Shops as "the third place"(2) as a non-alcohol-

serving bar with social interaction• Price premium for high quality and agreeable

atmosphere• Increased sales

•Starbucks sales(3)

1

2

•Coffee consumption•(cups per person per day)

STARBUCKS ENTERED INTO A FADING COFFEE MARKETAfter Folgers' & Maxwell's Market Share Wars, Starbucks with New Value Proposition


STARBUCKS' GROWTH WAS ALMOST EXCLUSIVELY ORGANIC,BUT IN DIFFERENT GRADUATIONSDifferent Growth Dimensions—Overview

Explore new channels/products

Licensing stores• Domestically• Internationally

Expand sales per store Grow number of stores

Domestically

Internationally• Company

operated• Joint ventures

Distribution channels for coffee beans

• Grocery • Club and

wholesale marketMerchandising

Other non-food• "Hear Music"

New products in JV• Frappuccino

• Ice cream• DoubleShot

Product range• Coffee and related

products• Warm breakfast• Lunch

Extended hours, efficiency improvement in selling process

Source: Starbucks; analysts reports; press articles; BCG analysis


SALES PER STORE EXPANDED BY INCREASING CUSTOMER BASE, CUSTOMER LOYALTY AND ADDING PRODUCTS

Concentrated inmetropolises

Customer base Expansion of customer base (Survey in 1999 and 2005)

• From customer average annual income of $81,000 to $55,000

• From 78% college grads to 56%

Top markets5 10 25 50

32%22%

54%73%

Top 50 markets have 73% of sales

Product range

Coffee and related productsWarm breakfastLunch, dessert

Loyal customers High customers frequency

• Best customers come 16.2 times per month

• Average is six times a month

Starbucks card already has 15% of sales

• Drives frequency

• Wins new customers when sold as a gift Survey: Sixth among US brands

Survey: Most attractive WiFihotspot

• More than hotel lobbies

• and airport lounges



"HEAR MUSIC" IS ANOTHER NEW IDEA TO IMPROVE INTRA-STORE SALES

And Fits Starbucks' History of Selling Innovative CDs

(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

1. Hear music

Customers pick their preferred music at a terminal while …

… having no interaction with sales-personnel

Customers spend more time in store and potentially buy more coffee

Idea and investment What customers can do and how to earn money on it

Investment: $20,000 per storeInvestment: $20,000 per store

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

At a price of about $10 per CD(1), break-even(2) is 11 CDs per store per day


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."



About 6,600 stores in the US …

... BUT WHERE IS THE LIMIT ?Possible Saturation of the Domestic Market

Situation today Historic growth Borders/constraints

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)

From 961 stores in 1999 to present number today

(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, 2001Source: Starbucks; analysts reports; press articles; BCG analysis

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

If Starbucks reaches the saturation point, deterioration in new-unit productivity will be seen; this has not yet been observed however


EBITDA MARGIN REMAINS CONSTANT ...... And Clearly Above Peer Group

0%

5%

10%

15%

20%

'99 '00 '01 '02 '03 '04

Total retail sampleStarbucks

Interpretation

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 coffee-related products

Transfer of proven high margin product and store concept by impressive sales growth (no erosion of margins)



STARBUCKS' MULTIPLE FAR ABOVE PEERSBUT FIRST DOUBTS ARISE IF SUSTAINABILITY IS STILL GIVEN

Almost Doubled between 2002 and 2004

Total retail sample

Starbucks

(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

Interpretation

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)

16,412,1 12

8,7 9,8 9,8

16.8

28.7

15.516.7

24.919.9

'99 '00 '01 '02 '03 '04

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."

EBITDA multiple


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


AGENDA






Metrics

Resource allocation

Compensation

Planning

Role of center

Training

Budgeting

Target setting

Reporting

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

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

“Diagnose issues, opportunities, constraints,

alternative TSR strategy scenarios”

“Ensure current facts, signals,

effective processes to enable

organization to deliver superior TSR

results”

“Integrated corporate and financial strategy”

“Value-based management capability”

TSR

Revenuegrowth Margin

(%)

FCF andROI

Portfoliostrategy

Investorstrategy Capital

structuretarget

M&Astrategy

RealEstate

strategy

Dividendpolicy

Sharerepurchase

P/Emultiple

DRIVING SUPERIOR TSR REQUIRES AN INTEGRATED CORPORATE AND FINANCIAL STRATEGY



TSR

Revenuegrowth Margin

(%)

FCF andROI

Portfoliostrategy

Capitalstructure

target

M&Astrategy

RealEstate

strategy

Future prospects of CLIENT’s underlying

business?

Need to diagnose issues, tradeoffs, and options across all leversNeed to diagnose issues, tradeoffs, and options across all levers

Acquisition of segment-centric/ segment adjacent

players?

4

Impact of share repurchase?

1

6

Portfolio trimming potential?

3“What if scenarios” for spinoff options?

2

P/Emultiple Share

repurchase

Investorstrategy

Dividendpolicy

Impact of sale/ lease-back / reduction of key fixed

assets?

5

Impact of company sell/ LBO?

7

CLIENT’S STRATEGIC OPTIONS MAP TO DIFFERENT ELEMENTS OF THE “TSR STRATEGY”

Elements Are Highly Interdependent – Must Assess in an Integrated Fashion



“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

A FEW COMMENTS FROM OUR CLIENTS REGARDING INSIGHTS FROM TSR STRATEGY DISCUSSIONS


AGENDA






QUESTIONS? COMMENTS? DISCUSSION!

bcg praesentation 20070619

Documents

actual future values

integrated financial strategy

integrate business strategy

thomson financial datastream

net debt change

top performing companies

bcg analysishu berlin

thomson financial worldscope