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““““LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESPAÑOLA ES ESTRICTAMENTE CONFIDENCIAL, QUEDANDO PROHIBIDA SU REPRODUCCION TOTAL O PARCIAL O LA UTILIZACION INDEBIDA SIN SU CONSENTIMIENTO POR ESCRITO, RESERVANDOSE LAS ACCIONES LEGALES A QUE HUBIERA LUGAR EN FUNCION DE LOS PERJUICIOS OCASIONADOS A IDM ESPAÑOLA, S.A. O A SUS CLIENTES ”””””THE INFORMATION CONTAINED IN THIS DOCUMENT IS PROPERTY OF IDM ESPAÑOLA, S.A. AND IT IS STRICTLY CONFIDENTIAL. NO PART OF IT MAY BE REPRODUCED OR UNDULY USED WITHOUT ITS WRITTEN PERMISSION. ACCORDINGLY ANY DAMAGES INFLICTED TO IDM ESPAÑOLA, S.A. OR ITS CLIENTS WILL BE ADEQUATELY PROSECUTED””””
VE/10/05/MC1/001
DEMO SESSION, BRUSSELS 19TH OCTOBER 2005, JOSE F. VIVANCOS
STRATEGIC EVALUATION OFINVESTMENTS/ACQUISITIONS
MANAGEMENT CENTRE EUROPE (MCE)
VE/10/05/MC1/001/ 2
IDM ESPAÑOLA, S.A.
AGENDASTRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
∗The investment/acquisition process
∗The cash-flow valuation metod
– Introduction
– The strategic evaluation
∗Prosa’s tobic perbate project
∗Conclusions and questions
∗The investment/acquisition process
∗The cash-flow valuation metod
– Introduction
– The strategic evaluation
∗Prosa’s tobic perbate project
∗Conclusions and questions
VE/10/05/MC1/001/ 3
IDM ESPAÑOLA, S.A.
EVA COMPANIES
American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, Boise Cascade Corp., The Burton Group, California Microwave, Case Corp., The Coca-Cola Co., Crane Co., Diageo, Dun & Bradstreet Corp., Eli Lilly & Co., Equifax, Inc., Federal-Mogul, Guidant Corp., Illinois Power Company, JCPenney, Kao Corporation, LucasVarity, Monsanto, Pirelli, R.R. Donnelley, Rubbermaid Inc., Ryder System, Inc., Siemens A.G., Tate & Lyle PLC, Telecom Italia Group, Toys R Us, U.S. Postal Service, Whirlpool
American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, Boise Cascade Corp., The Burton Group, California Microwave, Case Corp., The Coca-Cola Co., Crane Co., Diageo, Dun & Bradstreet Corp., Eli Lilly & Co., Equifax, Inc., Federal-Mogul, Guidant Corp., Illinois Power Company, JCPenney, Kao Corporation, LucasVarity, Monsanto, Pirelli, R.R. Donnelley, Rubbermaid Inc., Ryder System, Inc., Siemens A.G., Tate & Lyle PLC, Telecom Italia Group, Toys R Us, U.S. Postal Service, Whirlpool
SOURCE: STERN, STEWART & CO.
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 4
IDM ESPAÑOLA, S.A.
EVA COMPANIES
American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, Boise Cascade Corp., The Burton Group, California Microwave, Case Corp., The Coca-Cola Co., Crane Co., Diageo, Dun & Bradstreet Corp., Eli Lilly & Co., Equifax, Inc., Federal-Mogul, Guidant Corp., Illinois Power Company, JCPenney, Kao Corporation, LucasVarity, Monsanto, Pirelli, R.R. Donnelley, Rubbermaid Inc., Ryder System, Inc., Siemens A.G., Tate & Lyle PLC, Telecom Italia Group, Toys R Us, U.S. Postal Service, Whirlpool
American Saw & Manufacturing, Armstrong World Industries, Inc., Alcan Aluminium, Ball Corp., Bausch & Lomb, Boise Cascade Corp., The Burton Group, California Microwave, Case Corp., The Coca-Cola Co., Crane Co., Diageo, Dun & Bradstreet Corp., Eli Lilly & Co., Equifax, Inc., Federal-Mogul, Guidant Corp., Illinois Power Company, JCPenney, Kao Corporation, LucasVarity, Monsanto, Pirelli, R.R. Donnelley, Rubbermaid Inc., Ryder System, Inc., Siemens A.G., Tate & Lyle PLC, Telecom Italia Group, Toys R Us, U.S. Postal Service, Whirlpool
They are all EVA companies
They are all EVA companies
Economic Value Added (EVA) is one of the mostly used measures to estimate shareholder’s value
Economic Value Added (EVA) is one of the mostly used measures to estimate shareholder’s value
SOURCE: STERN, STEWART & CO.
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 5
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSKEY OBJECTIVE
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 6
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSKEY OBJECTIVE
∗The end result of an investment/acquisition should be the improvement of shareholders value
∗The end result of an investment/acquisition should be the improvement of shareholders value
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 7
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSKEY OBJECTIVE
∗The end result of an investment/acquisition should be the improvement of shareholders value
– Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity
∙Economic value over and above the investment/price required
∗The end result of an investment/acquisition should be the improvement of shareholders value
– Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity
∙Economic value over and above the investment/price required
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 8
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSKEY OBJECTIVE
∗The end result of an investment/acquisition should be the improvement of shareholders value
– Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity
∙Economic value over and above the investment/price required
– The economic value generated will be determined by the spread between a company's return on capital and its weighted average cost of capital, the level of capital invested and the sustainability of the favourable spread on increasing capital investment
∙Any investments that earn returns above the company's cost of capital create added value (investments with returns below its cost of capital destroy value)
∙The higher the capital invested at greater returns, the greater the value created.
∙The longer a favourable spread can be maintained the higher the value created
∗The end result of an investment/acquisition should be the improvement of shareholders value
– Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity
∙Economic value over and above the investment/price required
– The economic value generated will be determined by the spread between a company's return on capital and its weighted average cost of capital, the level of capital invested and the sustainability of the favourable spread on increasing capital investment
∙Any investments that earn returns above the company's cost of capital create added value (investments with returns below its cost of capital destroy value)
∙The higher the capital invested at greater returns, the greater the value created.
∙The longer a favourable spread can be maintained the higher the value created
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 9
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSKEY OBJECTIVE
∗The end result of an investment/acquisition should be the improvement of shareholders value
– Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity
∙Economic value over and above the investment/price required
– The economic value generated will be determined by the spread between a company's return on capital and its weighted average cost of capital, the level of capital invested and the sustainability of the favourable spread on increasing capital investment
∙Any investments that earn returns above the company's cost of capital create added value (investments with returns below its cost of capital destroy value)
∙The higher the capital invested at greater returns, the greater the value created.
∙The longer a favourable spread can be maintained the higher the value created
∗The end result of an investment/acquisition should be the improvement of shareholders value
– Investments/acquisitions can create shareholders value when there is excess value to the investor/acquirer over the market value of the specific opportunity
∙Economic value over and above the investment/price required
– The economic value generated will be determined by the spread between a company's return on capital and its weighted average cost of capital, the level of capital invested and the sustainability of the favourable spread on increasing capital investment
∙Any investments that earn returns above the company's cost of capital create added value (investments with returns below its cost of capital destroy value)
∙The higher the capital invested at greater returns, the greater the value created.
∙The longer a favourable spread can be maintained the higher the value created
In order to achieve value creation through an investment/acquisition program, you need to evaluate in detail the potential returns from all the different opportunities available
In order to achieve value creation through an investment/acquisition program, you need to evaluate in detail the potential returns from all the different opportunities available
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 10
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSPLANNING METHODOLOGY
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 11
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSPLANNING METHODOLOGY
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗Development of different strategic options
– Intended to fulfil some corporate objectives
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 12
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSCORPORATE GOALS
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
POTENTIAL OBJECTIVES
POTENTIAL OBJECTIVES
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 13
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSCORPORATE GOALS
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
POTENTIAL OBJECTIVES
Strategic
POTENTIAL OBJECTIVES
Strategic
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 14
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSCORPORATE GOALS
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
POTENTIAL OBJECTIVES
Strategic
POTENTIAL OBJECTIVES
Strategic
Support base business
Reduce dependence on base business
Provide long-term growth
Increase capacity utilisation
Strategic defence
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 15
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSCORPORATE GOALS
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
POTENTIAL OBJECTIVES
Strategic
Financial
POTENTIAL OBJECTIVES
Strategic
Financial
Support base business
Reduce dependence on base business
Provide long-term growth
Increase capacity utilisation
Strategic defence
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 16
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSCORPORATE GOALS
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
It is critical to clearly define from the beginning the specific goals aimed for by the investment/acquisition process
POTENTIAL OBJECTIVES
Strategic
Financial
POTENTIAL OBJECTIVES
Strategic
Financial
Support base business
Reduce dependence on base business
Provide long-term growth
Increase capacity utilisation
Strategic defence
Earnings increase
Take advantage of undervalued assets/companies
Utilise tax losses of acquiree
Use of outstanding cash balances of acquiree
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 17
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSPLANNING METHODOLOGY
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗List of potential opportunities generation
– New investments or acquisitions
∗List of potential opportunities generation
– New investments or acquisitions
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 18
IDM ESPAÑOLA, S.A.
MAIN INVESTMENTS/ACQUISITION TYPESBRIEF DESCRIPTION
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 19
IDM ESPAÑOLA, S.A.
MAIN INVESTMENTS/ACQUISITION TYPESBRIEF DESCRIPTION
RELATED INVESTMENT/ACQUISITION
RELATED INVESTMENT/ACQUISITION
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 20
IDM ESPAÑOLA, S.A.
MAIN INVESTMENTS/ACQUISITION TYPESBRIEF DESCRIPTION
RELATED INVESTMENT/ACQUISITION (Normally strategic objectives)
The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen-sive strategy against potential competitors
– Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues
– It requires a solid management team ready and able to materialise the potential added-values
RELATED INVESTMENT/ACQUISITION (Normally strategic objectives)
The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen-sive strategy against potential competitors
– Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues
– It requires a solid management team ready and able to materialise the potential added-values
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 21
IDM ESPAÑOLA, S.A.
MAIN INVESTMENTS/ACQUISITION TYPESBRIEF DESCRIPTION
RELATED INVESTMENT/ACQUISITION (Normally strategic objectives)
The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen-sive strategy against potential competitors
– Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues
– It requires a solid management team ready and able to materialise the potential added-values
NON-RELATED INVESTMENT/ACQUISITION
RELATED INVESTMENT/ACQUISITION (Normally strategic objectives)
The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen-sive strategy against potential competitors
– Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues
– It requires a solid management team ready and able to materialise the potential added-values
NON-RELATED INVESTMENT/ACQUISITION
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 22
IDM ESPAÑOLA, S.A.
MAIN INVESTMENTS/ACQUISITION TYPESBRIEF DESCRIPTION
RELATED INVESTMENT/ACQUISITION (Normally strategic objectives)
The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen-sive strategy against potential competitors
– Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues
– It requires a solid management team ready and able to materialise the potential added-values
NON-RELATED INVESTMENT/ACQUISITION (Normally financial objectives)
The non-related investments/acquisitions are normally motivated by situations of badly managed industries/companies or imperfect/imma-ture markets
– The economic value will be generated through management improvements or some market development/maturing
– It demands a strong and flexible management team able to improve industry and markets practices/results
RELATED INVESTMENT/ACQUISITION (Normally strategic objectives)
The related investment/acquisition normally responds to an objective of competitive situation strengthening, but it could also fulfil a defen-sive strategy against potential competitors
– Its economic value will be generated by synergy effects, mainly through costs advantages/reductions and/or increased revenues
– It requires a solid management team ready and able to materialise the potential added-values
NON-RELATED INVESTMENT/ACQUISITION (Normally financial objectives)
The non-related investments/acquisitions are normally motivated by situations of badly managed industries/companies or imperfect/imma-ture markets
– The economic value will be generated through management improvements or some market development/maturing
– It demands a strong and flexible management team able to improve industry and markets practices/results
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 23
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSPLANNING METHODOLOGY
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗List of potential opportunities generation
– New investments or acquisitions
∗List of potential opportunities generation
– New investments or acquisitions
∗Preliminary screening and selection of potential alternatives
– Publicly available data and major conflicts with corporate objectives
∗Preliminary screening and selection of potential alternatives
– Publicly available data and major conflicts with corporate objectives
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 24
IDM ESPAÑOLA, S.A.
ALTERNATIVE COUNTRY PRELIMINARY SCREENINGBEER BUSINESS EXAMPLE
TOTAL PER HEAD
CAGR %
TOTAL % OF CONSUMPTION
CAGR %
TOTAL CAGR %
TOTAL PER HEAD
CAGR %
TOTAL TARGET POPULATION
COUNTRY TARGET POPULATION PER HEAD
CONSUMPTION
PRODUCT CONSUMPTION
IMPORTS SALES OF MAIN SIX COMPETITORS
GDP POPULATION
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 25
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSPLANNING METHODOLOGY
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗List of potential opportunities generation
– New investments or acquisitions
∗List of potential opportunities generation
– New investments or acquisitions
∗Preliminary screening and selection of potential alternatives
– Publicly available data and major conflicts with corporate objectives
∗Preliminary screening and selection of potential alternatives
– Publicly available data and major conflicts with corporate objectives
∗Valuation of feasible opportunities
– Strategic evaluation
– Ranking of options
∗Valuation of feasible opportunities
– Strategic evaluation
– Ranking of options
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 26
IDM ESPAÑOLA, S.A.
THE INVESTMENT/ACQUISITION PROCESSPLANNING METHODOLOGY
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗Development of different strategic options
– Intended to fulfil some corporate objectives
∗List of potential opportunities generation
– New investments or acquisitions
∗List of potential opportunities generation
– New investments or acquisitions
∗Preliminary screening and selection of potential alternatives
– Publicly available data and major conflicts with corporate objectives
∗Preliminary screening and selection of potential alternatives
– Publicly available data and major conflicts with corporate objectives
∗Valuation of feasible opportunities
– Strategic evaluation
– Ranking of options
∗Valuation of feasible opportunities
– Strategic evaluation
– Ranking of options
∗Final selection and investment/acquisition implementation
∗Final selection and investment/acquisition implementation
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 27
IDM ESPAÑOLA, S.A.
CASHFLOW VALUATION METHODINTRODUCTION
∗The true economic value of an investment/company to be acquired is the net present value of its future free-cashflows from operations minus its net debt
– Value = – Net debt
– Forces a rigorous analysis and takes into account the time element and year to year variations in the value stream
– The other possible methods (net book value, PE ratio...) are not applicable for new investments and are normally only used to get some quick but not very precise valuation estimates
∗The true economic value of an investment/company to be acquired is the net present value of its future free-cashflows from operations minus its net debt
– Value = – Net debt
– Forces a rigorous analysis and takes into account the time element and year to year variations in the value stream
– The other possible methods (net book value, PE ratio...) are not applicable for new investments and are normally only used to get some quick but not very precise valuation estimates
Σ(Free cashflow)(1 +r)t
t =1
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
VE/10/05/MC1/001/ 28
IDM ESPAÑOLA, S.A.
CASHFLOW VALUATION METHODTHE VALUATION PROCESS
∗You need to make projections on the future free-cashflows from operations for a reasonable period (5 to 10 years) and to discount them in order to calculate its PV
– You have to do it for each one of the different activities and for each one of the countries where the company will be/is present
– Then you will calculate the overall debt-free investment/company value by adding the NPV from all the different activities/coun-tries considered
– By deducting the net value of the debt you will calculate the overall value of the equity for the specific investment/acquisition
∗You need to make projections on the future free-cashflows from operations for a reasonable period (5 to 10 years) and to discount them in order to calculate its PV
– You have to do it for each one of the different activities and for each one of the countries where the company will be/is present
– Then you will calculate the overall debt-free investment/company value by adding the NPV from all the different activities/coun-tries considered
– By deducting the net value of the debt you will calculate the overall value of the equity for the specific investment/acquisition
But what are the main components/determinants of the cashflow valuation method and their degree of influence?
But what are the main components/determinants of the cashflow valuation method and their degree of influence?
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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IDM ESPAÑOLA, S.A.
CASHFLOW VALUATION METHODKEY COMPONENTS
Valuation
Net cash flow for investor/acquirer
Business discount rate
Net debt
Terminal growth rate/residual value
Sales
Costs
Taxation
Weighted average cost of capitalInfation Rate
Information Sources/ Basic Methodology
NPV Sensitivity(5 = high, 1 =
low)
Depreciation/Fixed assets Fixed assets/Sales Working capital/Sales
Initial sales
Sales projections
Margin forecasts
Debt implications
Market/financial analysisMarket analysis
Market / Competitor / Financial analysisMarket / Competitor / Financial analysis
Financial analysis
Capital Markets
Economists’ forecastsFinancial analysis
STRATEGIC
EVALUATION
Financial / Market / Competitor analysis
2
4
5
2
4
4
5
1
4
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODTHE STRATEGIC EVALUATION
∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of
– Sales projections, based on the market share/market growth potential
∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of
– Sales projections, based on the market share/market growth potential
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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IDM ESPAÑOLA, S.A.
CASHFLOW VALUATION METHODSALES PROJECTIONS ANALYSIS
MARKET GROWTH
∗Which products?
∗What are the demand determinants?
∗How are they likely to develop?
∗Potential business redefinition?
MARKET GROWTH
∗Which products?
∗What are the demand determinants?
∗How are they likely to develop?
∗Potential business redefinition?
∗Market growth
– Current growth rate?
– Penetration curves
∗Market growth
– Current growth rate?
– Penetration curves
Demand forecastDemand forecast
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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IDM ESPAÑOLA, S.A.
CASHFLOW VALUATION METHODSALES PROJECTIONS: PENETRATION
CURVESFINCOMP'S INVESTMENT OPPORTUNITY IN CERAMICA
SITUATION
Fincomp, an international investment group, had the opportunity of developing a minority equity stake in Ceramica, one of the three Spanish pioneers of the new XYZ technology ceramic-tile. Fincomp's team, realising the strong dependence of Ceramica's value on the success in the introduction of the new ceramic-tile and on the penetration speed of the Spanish market, requested third party strategic advice
BACKGROUND
The new XYZ technology ceramic-tile was developed in Italy. This new tile required at first five years to attain technology and product-design adequacies and three more additional years to succeed market-wise, achieving over 8% of the Italian ceramic floor-coverings market
IDM ESPAÑOLA'S INVOLVEMENT
IDM Española undertook a strategic study on the potential within Spain for the new XYZ technology ceramic-tile, developing thorough comparisons between the Spanish and the Italian ceramic-tiles markets. In particular a linear regression analysis on the evolution overtime of the new tile share of the Italian market was calculated...
CONCLUSIONS
IDM Española developed sales forecasts within Spain for the third year after the completion of the analysis, ranging from 2.9 to 4.0 million sqm of the new XYZ technology ceramic-tile. The forecasts were developed by replicating the penetration curves of the Italian market to the Spanish one...
EVOLUTION OF THE NEW XYZ TECHNOLOGY FOR CERAMIC TILES IN SPAIN
Actual industry sales within Spain during the mentioned future third year, were approximately 3.6 million sqm (only 4% different than IDM Española's most likely scenario)...
FINCOMP'S INVESTMENT OPPORTUNITY IN CERAMICA
SITUATION
Fincomp, an international investment group, had the opportunity of developing a minority equity stake in Ceramica, one of the three Spanish pioneers of the new XYZ technology ceramic-tile. Fincomp's team, realising the strong dependence of Ceramica's value on the success in the introduction of the new ceramic-tile and on the penetration speed of the Spanish market, requested third party strategic advice
BACKGROUND
The new XYZ technology ceramic-tile was developed in Italy. This new tile required at first five years to attain technology and product-design adequacies and three more additional years to succeed market-wise, achieving over 8% of the Italian ceramic floor-coverings market
IDM ESPAÑOLA'S INVOLVEMENT
IDM Española undertook a strategic study on the potential within Spain for the new XYZ technology ceramic-tile, developing thorough comparisons between the Spanish and the Italian ceramic-tiles markets. In particular a linear regression analysis on the evolution overtime of the new tile share of the Italian market was calculated...
CONCLUSIONS
IDM Española developed sales forecasts within Spain for the third year after the completion of the analysis, ranging from 2.9 to 4.0 million sqm of the new XYZ technology ceramic-tile. The forecasts were developed by replicating the penetration curves of the Italian market to the Spanish one...
EVOLUTION OF THE NEW XYZ TECHNOLOGY FOR CERAMIC TILES IN SPAIN
Actual industry sales within Spain during the mentioned future third year, were approximately 3.6 million sqm (only 4% different than IDM Española's most likely scenario)...
(THIS DOCUMENT IS A SELECTION OF INFORMATIONS FROM A REAL BUSINESS SITUATION, IN WHICH IDENTITIES HAVE BEEN DELIBERATELY ALTERED TO PRESERVE CONFIDENTIALITY)
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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IDM ESPAÑOLA, S.A.
CASHFLOW VALUATION METHODSALES PROJECTIONS ANALYSIS
MARKET GROWTH
∗Which products?
∗What are the demand determinants?
∗How are they likely to develop?
∗Potential business redefinition?
MARKET GROWTH
∗Which products?
∗What are the demand determinants?
∗How are they likely to develop?
∗Potential business redefinition?
∗Market growth
– Current growth rate?
– Penetration curves
∗Market growth
– Current growth rate?
– Penetration curves
Demand forecastDemand forecast
COMPETITIVE ENVIRONMENT
∗Who are the competitors?
∗What are the determinants of market share?
∗What are the competitors’ relative strengths?
∗What are the competitors’ likely actions?
COMPETITIVE ENVIRONMENT
∗Who are the competitors?
∗What are the determinants of market share?
∗What are the competitors’ relative strengths?
∗What are the competitors’ likely actions?
∗Company market share
– Current share
– Reasons for gain/loss of share
∗Company market share
– Current share
– Reasons for gain/loss of share
Industry market share forecasts Industry market share forecasts
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CASHFLOW VALUATION METHODSALES PROJECTIONS ANALYSIS
MARKET GROWTH
∗Which products?
∗What are the demand determinants?
∗How are they likely to develop?
∗Potential business redefinition?
MARKET GROWTH
∗Which products?
∗What are the demand determinants?
∗How are they likely to develop?
∗Potential business redefinition?
Sales projections Sales projections
∗Market growth
– Current growth rate?
– Penetration curves
∗Market growth
– Current growth rate?
– Penetration curves
Demand forecastDemand forecast
COMPETITIVE ENVIRONMENT
∗Who are the competitors?
∗What are the determinants of market share?
∗What are the competitors’ relative strengths?
∗What are the competitors’ likely actions?
COMPETITIVE ENVIRONMENT
∗Who are the competitors?
∗What are the determinants of market share?
∗What are the competitors’ relative strengths?
∗What are the competitors’ likely actions?
∗Company market share
– Current share
– Reasons for gain/loss of share
∗Company market share
– Current share
– Reasons for gain/loss of share
Industry market share forecasts Industry market share forecasts
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CASHFLOW VALUATION METHODSALES PROJECTIONS: REASONS FOR
GAIN/LOSS OF SHARE
∗A company's growth potential may exceed market growth of its core businesses by
– Increasing market share
– Redefining market for existing products
∙Kitchen units manufacturer moving into fitted kitchens selling directly to households
– Diversifying into related product lines
∙Audio magnetic tape manufacturer moving into video tape production and later into DVD
∗If a company has demonstrated ability to grow at higher rates than market growth, it has implications on its cash generation potential, although not always being necessarily an improvement
– Value of a company growing so fast that needs to reinvest all its cashflows to perpetuity
– It will influence its working capital and capital expenditure requirements
∗A company's growth potential may exceed market growth of its core businesses by
– Increasing market share
– Redefining market for existing products
∙Kitchen units manufacturer moving into fitted kitchens selling directly to households
– Diversifying into related product lines
∙Audio magnetic tape manufacturer moving into video tape production and later into DVD
∗If a company has demonstrated ability to grow at higher rates than market growth, it has implications on its cash generation potential, although not always being necessarily an improvement
– Value of a company growing so fast that needs to reinvest all its cashflows to perpetuity
– It will influence its working capital and capital expenditure requirements
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CASHFLOW VALUATION METHODTHE STRATEGIC EVALUATION
∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of
– Sales projections, based on the market share/market growth potential
– Margin forecasts considering market share/ROS relationships
∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of
– Sales projections, based on the market share/market growth potential
– Margin forecasts considering market share/ROS relationships
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODMARGIN FORECAST ANALYSIS
Historical ROS performance
(company and industry)
Historical ROS performance
(company and industry)
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CASHFLOW VALUATION METHODMARGIN FORECAST: HISTORICAL
PERFORMANCE ANALYSIS
∗Industry ROS trends may be published in industry reports, otherwise a weighted average of major participants can normally be calcula-ted
∗Historical performance can be useful in identifying
– Highest ROS achieved by the industry/company
– Recent ROS trends
∗However, historical ROS performance can only set the basis for future ROS forecasts. In order to understand whether the highest historical ROS can be achieved again or whether the improving trend will continue, additional information is needed on
– Industry and competitors' ROS
– Competitors' and company's investments in recent years that might have some impact in future ROS
∗Industry ROS trends may be published in industry reports, otherwise a weighted average of major participants can normally be calcula-ted
∗Historical performance can be useful in identifying
– Highest ROS achieved by the industry/company
– Recent ROS trends
∗However, historical ROS performance can only set the basis for future ROS forecasts. In order to understand whether the highest historical ROS can be achieved again or whether the improving trend will continue, additional information is needed on
– Industry and competitors' ROS
– Competitors' and company's investments in recent years that might have some impact in future ROS
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODMARGIN FORECAST ANALYSIS
Historical ROS performance
(company and industry)
Historical ROS performance
(company and industry)
ROS/RMS analysisROS/RMS analysis
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODMARGIN FORECAST: ROS/RMS ANALYSIS
Company X is currently underperforming, considering its relative market share position and competitors’ performance
Company X is currently underperforming, considering its relative market share position and competitors’ performance
Relative Market Share (RMS) 2004
Average ROS
(2002-04)
Potential ROS improvement
Company A
Company B
Company X
20%
15
10
5
0
(5).1
X.5X 1.0
X10
X20
X5X
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CASHFLOW VALUATION METHODMARGIN FORECAST ANALYSIS
Historical ROS performance
(company and industry)
Historical ROS performance
(company and industry)
ROS/RMS analysisROS/RMS analysis
Company potential
ROS position
Company potential
ROS position
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODMARGIN FORECAST ANALYSIS
Historical ROS performance
(company and industry)
Historical ROS performance
(company and industry)
ROS/RMS analysisROS/RMS analysis
Company’s capabilities
to improve ROS
Company’s capabilities
to improve ROS
Company potential
ROS position
Company potential
ROS position
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODMARGIN FORECAST: ROS IMPROVEMENT
POTENTIAL
∗Possible capital investments to improve productivity
– How old is the industry or company's productive base?
– Were there recent investments or rationalisation programmes that might improve productivity?
∗Management capabilities
– Appointed or current management track record?
– Possible changes by investing/acquiring company's management know-how?
∗Potential synergy effects
– ROS improvement by scale of operations and market share gain?
– Possible overhead reductions?
∗Possible capital investments to improve productivity
– How old is the industry or company's productive base?
– Were there recent investments or rationalisation programmes that might improve productivity?
∗Management capabilities
– Appointed or current management track record?
– Possible changes by investing/acquiring company's management know-how?
∗Potential synergy effects
– ROS improvement by scale of operations and market share gain?
– Possible overhead reductions?
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODMARGIN FORECAST ANALYSIS
Historical ROS performance
(company and industry)
Historical ROS performance
(company and industry)
ROS/RMS analysisROS/RMS analysis
Company’s capabilities
to improve ROS
Company’s capabilities
to improve ROS
Company potential
ROS position
Company potential
ROS position
Industry price/cost dynamics
Industry price/cost dynamics
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODMARGIN FORECAST: INDUSTRY
PRICE/COSTS DYNAMICS
∗Price and costs experience curves:
– Can such curves be identified?
– How can a new entrant/target company do relative to competitors?
∗Capacity/utilisation trends
– Is capacity being added?
– Is demand likely to meet supply?
∗Exit/entry barriers
– How easy is it to enter/exit the market?
– What will it mean in view of demand/supply projections?
∗Price and costs experience curves:
– Can such curves be identified?
– How can a new entrant/target company do relative to competitors?
∗Capacity/utilisation trends
– Is capacity being added?
– Is demand likely to meet supply?
∗Exit/entry barriers
– How easy is it to enter/exit the market?
– What will it mean in view of demand/supply projections?
What is the likely development of margins in this industry?
What is the likely development of margins in this industry?
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CASHFLOW VALUATION METHODTHE STRATEGIC EVALUATION
∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of
– Sales projections, based on the market share/market growth potential
– Margin forecasts considering market share/ROS relationships
– Residual value, based on the potential for future company growth vs market growth
∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of
– Sales projections, based on the market share/market growth potential
– Margin forecasts considering market share/ROS relationships
– Residual value, based on the potential for future company growth vs market growth
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODCASHFLOW RESIDUAL VALUE
DETERMINATION
∗It values the investment/company as a going concern and it is consistent with the cashflow valuation method
∗The basis for residual value calculation is the annual operational free-cashflow in year t+1
– RV = CF t+1 (r = discount rate, k = growth rate)
– Interest paid should not be taken into account
∗Widely adopted practice to assume no real growth in cashflow after year t+1
– Most businesses mature in 5-10 years
– The uncertainty in projecting casflows over longer planning horizons forcing to be conservative
– Revision of the capital expenditure required, to make it close to depreciation costs
∗If growth is incorporated it must be business specific and based on the level of maturity of the business and the competitive position of the company, but it has to be conservative
– It implies that the growth rate will continue to perpetuity and its determination has to be somehow subjective
∗It values the investment/company as a going concern and it is consistent with the cashflow valuation method
∗The basis for residual value calculation is the annual operational free-cashflow in year t+1
– RV = CF t+1 (r = discount rate, k = growth rate)
– Interest paid should not be taken into account
∗Widely adopted practice to assume no real growth in cashflow after year t+1
– Most businesses mature in 5-10 years
– The uncertainty in projecting casflows over longer planning horizons forcing to be conservative
– Revision of the capital expenditure required, to make it close to depreciation costs
∗If growth is incorporated it must be business specific and based on the level of maturity of the business and the competitive position of the company, but it has to be conservative
– It implies that the growth rate will continue to perpetuity and its determination has to be somehow subjective
1
r-k
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODMARGIN FORECAST ANALYSIS
Company ROS forecast over time
– PBIT/Sales
Company ROS forecast over time
– PBIT/Sales
Historical ROS performance
(company and industry)
Historical ROS performance
(company and industry)
ROS/RMS analysisROS/RMS analysis
Company’s capabilities
to improve ROS
Company’s capabilities
to improve ROS
Company potential
ROS position
Company potential
ROS position
Industry price/cost dynamics
Industry price/cost dynamics
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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CASHFLOW VALUATION METHODTHE STRATEGIC EVALUATION
∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of
– Sales projections, based on the market share/market growth potential
– Margin forecasts considering market share/ROS relationships
– Residual value, based on the potential for future company growth vs market growth
∗The development of several likely scenarios based on sensitivity analysis for each one of the key determinants of cashflows
– Investment/acquisition decisions need to allow for the survival under the most pessimistic but reasonable scenarios
∗This valuation method requires for each specific potential investor an in-depth strategic evaluation, that needs always to include at least the analysis of
– Sales projections, based on the market share/market growth potential
– Margin forecasts considering market share/ROS relationships
– Residual value, based on the potential for future company growth vs market growth
∗The development of several likely scenarios based on sensitivity analysis for each one of the key determinants of cashflows
– Investment/acquisition decisions need to allow for the survival under the most pessimistic but reasonable scenarios
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS
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THE SITUATION
Prosa is currently facing two opportunities, which need to be evaluated, that will allow it to enter the tobic perbate segment
The acquisition of the oldest Spanish producer and second in size nowadays. Its parent company, suffering difficult times in its core activity, is forced to divest in order to meet some financial obligations. This option does not seem at first too attractive for Prosa. Its management-team believes that being an underground mining operation, it will always bear a structural cost disadvantage against open-pit competitors.
The development of a new, high-quality deposit discovered by Prosa’s R&D department. This option, that allows for the use of solution min-ing techniques, could achieve operating margins well in excess of the 25% previously mentioned. Preliminary calculations by Prosa’s team based on its pilot-plant results, reliably estimate that margins could even reach 60%. The only two remaining decisions to be taken at pres-ent would be, the approval of the required investment, approximately €11 million, and the selection of the engineering company from the dif-ferent bids received, to begin the construction works of the new mining operation.
THE SITUATION
Prosa is currently facing two opportunities, which need to be evaluated, that will allow it to enter the tobic perbate segment
The acquisition of the oldest Spanish producer and second in size nowadays. Its parent company, suffering difficult times in its core activity, is forced to divest in order to meet some financial obligations. This option does not seem at first too attractive for Prosa. Its management-team believes that being an underground mining operation, it will always bear a structural cost disadvantage against open-pit competitors.
The development of a new, high-quality deposit discovered by Prosa’s R&D department. This option, that allows for the use of solution min-ing techniques, could achieve operating margins well in excess of the 25% previously mentioned. Preliminary calculations by Prosa’s team based on its pilot-plant results, reliably estimate that margins could even reach 60%. The only two remaining decisions to be taken at pres-ent would be, the approval of the required investment, approximately €11 million, and the selection of the engineering company from the dif-ferent bids received, to begin the construction works of the new mining operation.
THE BACKGROUND
Prosa, the European leader in a mining market segment, needs to continuously develop new mining operations in order to ensure its survival in the long-term. The tobic perbate is a mining product extensively used within the chemical industry on a world-wide basis, which allows at pre-sent for operating margins over 25%, making all current producers highly profitable.
THE BACKGROUND
Prosa, the European leader in a mining market segment, needs to continuously develop new mining operations in order to ensure its survival in the long-term. The tobic perbate is a mining product extensively used within the chemical industry on a world-wide basis, which allows at pre-sent for operating margins over 25%, making all current producers highly profitable.
THE PROBLEM
What should be Prosa’s decision in relation to tobic perbate diversification options?
THE PROBLEM
What should be Prosa’s decision in relation to tobic perbate diversification options?
POTENTIAL INVESTMENT IN THE TOBIC PERBATE SEGMENTINTRODUC
TION
PROSA’S TOBIC PERBATE PROJECT
TOBIC PERBATE EXPLOITATION
SPANISH MARKET FEASIBILITY ANALYSIS
INTERNATIONAL DEVELOPMENT MANAGEMENT ESPAÑOLA, S.A.
“““““LA INFORMACION CONTENIDA EN ESTE DOCUMENTO, PROPIEDAD DE IDM ESPAÑOLA ES ESTRICTAMENTE CONFIDENCIAL, QUEDANDO PROHIBIDA SU REPRODUCCION TOTAL O PARCIAL O LA UTILIZACION INDEBIDA SIN SU CONSENTIMIENTO POR ESCRITO, RESERVANDOSE LAS ACCIONES LEGALES A QUE HUBIERA LUGAR EN FUNCION DE LOS PERJUICIOS OCASIONADOS A IDM ESPAÑOLA, S.A. O A SUS CLIENTES ”””””THE INFORMATION CONTAINED IN THIS DOCUMENT IS PROPERTY OF IDM ESPAÑOLA, S.A. AND IT IS STRICTLY CONFIDENTIAL. NO PART OF IT MAY BE REPRODUCED OR UNDULY USED WITHOUT ITS WRITTEN PERMISSION. ACCORDINGLY ANY DAMAGES INFLICTED TO IDM ESPAÑOLA, S.A. OR ITS CLIENTS WILL BE ADEQUATELY PROSECUTED”””””
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IDM ESPAÑOLA, S.A.
This document is a selected summary on the different materials developed by IDM Española, S.A., in order to solve a real business situation, for which its services were requested. With the only purpose of preserving client’s confidentiality, some identities, products or dates might have been deliberately altered.
This document is a selected summary on the different materials developed by IDM Española, S.A., in order to solve a real business situation, for which its services were requested. With the only purpose of preserving client’s confidentiality, some identities, products or dates might have been deliberately altered.
PROSA’S TOBIC PERBATE PROJECT
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THE SITUATION
Prosa is currently facing two opportunities, which need to be evaluated, that will allow it to enter the tobic perbate segment
The acquisition of the oldest Spanish producer and second in size nowadays. Its parent company, suffering difficult times in its core activity, is forced to divest in order to meet some financial obligations. This option does not seem at first too attractive for Prosa. Its management-team believes that being an underground mining operation, it will always bear a structural cost disadvantage against open-pit competitors.
The development of a new, high-quality deposit discovered by Prosa’s R&D department. This option, that allows for the use of solution min-ing techniques, could achieve operating margins well in excess of the 25% previously mentioned. Preliminary calculations by Prosa’s team based on its pilot-plant results, reliably estimate that margins could even reach 60%. The only two remaining decisions to be taken at pres-ent would be, the approval of the required investment, approximately €11 million, and the selection of the engineering company from the dif-ferent bids received, to begin the construction works of the new mining operation.
THE SITUATION
Prosa is currently facing two opportunities, which need to be evaluated, that will allow it to enter the tobic perbate segment
The acquisition of the oldest Spanish producer and second in size nowadays. Its parent company, suffering difficult times in its core activity, is forced to divest in order to meet some financial obligations. This option does not seem at first too attractive for Prosa. Its management-team believes that being an underground mining operation, it will always bear a structural cost disadvantage against open-pit competitors.
The development of a new, high-quality deposit discovered by Prosa’s R&D department. This option, that allows for the use of solution min-ing techniques, could achieve operating margins well in excess of the 25% previously mentioned. Preliminary calculations by Prosa’s team based on its pilot-plant results, reliably estimate that margins could even reach 60%. The only two remaining decisions to be taken at pres-ent would be, the approval of the required investment, approximately €11 million, and the selection of the engineering company from the dif-ferent bids received, to begin the construction works of the new mining operation.
THE BACKGROUND
Prosa, the European leader in a mining market segment, needs to continuously develop new mining operations in order to ensure its survival in the long-term. The tobic perbate is a mining product extensively used within the chemical industry on a world-wide basis, which allows at pre-sent for operating margins over 25%, making all current producers highly profitable.
THE BACKGROUND
Prosa, the European leader in a mining market segment, needs to continuously develop new mining operations in order to ensure its survival in the long-term. The tobic perbate is a mining product extensively used within the chemical industry on a world-wide basis, which allows at pre-sent for operating margins over 25%, making all current producers highly profitable.
THE PROBLEM
Prosa, although publicly quoted, is practically owned by two main partners, who strongly disagree in relation to the possible diversification options into tobic perbate mining.
THE PROBLEM
Prosa, although publicly quoted, is practically owned by two main partners, who strongly disagree in relation to the possible diversification options into tobic perbate mining.
POTENTIAL INVESTMENT IN THE TOBIC PERBATE SEGMENTINTRODUC
TION
PROSA’S TOBIC PERBATE PROJECT
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CONTENTS
CONTACTS SUMMARY
PRODUCTION
FOREIGN TRADE
DOMESTIC CONSUMPTION
DETERGENTS SEGMENT
PAPER PULP INDUSTRY
GLASS INDUSTRY
ALTERNATIVE UTILISATIONS
ACHIEVABLE VOLUMES WITHIN SPAIN
PRICE LEVELS ANALYSIS
PROSA’S PROJECT FEASIBILITY ANALYSIS
SUMMARY AND NEXT STEPS
RECENT EVOLUTION
PROSA’S TOBIC PERBATE PROJECT
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PRODUCERS/DISTRIBUTORS TOBIC PERBATE CONSUMERS-DETERGENT SEGMENT
COMMERCIAL DEPARTMENT DISTRIBUTOR 1 MR. FELICES (PURCHASING MANAGER) BENCKISERCOMMERCIAL DIRECTOR DISTRIBUTOR 2 MR. EGAÑA (GENERAL AND TECHNICAL DIRECTOR) BILORECOMMERCIAL DIRECTOR PRODUCER 2 MR. BATLLE (PURCHASING DEPT.) CAMPMARKETING DEPARTMENT PRODUCER 5 MR. CAMP (PURCHASING DEPT.) CAMPPLANNING DIRECTOR PRODUCER 5 MR. SALGOT (PURCHASING DEPT.) CAMPCOMMERCIAL DIRECTOR PRODUCER 6 MR. BERAZA (PURCHASING DEPT.) HENKEL IBERICAPROJECT DIRECTOR PRODUCER 1 MR. CASTAÑE (PURCHASING DEPT.) HENKEL IBERICATECHNICAL DIRECTOR PRODUCER 1 MR. CUADRADO (PURCHASING DEPT.) HENKEL IBERICASULPHATE PLANT MANAGER PRODUCER 1 MR. MARTIN (TECHNICAL AND PURCHASING DIRECTOR) KLINER IBERICADEPUTY COMMERCIAL MANAGER PRODUCER 1 MR. FONT (PURCHASING MANAGER) LA SUPER-QUIMICACOMMERCIAL DIRECTOR PRODUCER 1 MR. GARDE (PURCHASING MANAGER) LEVER IBERICACOMMERCIAL DEPARTMENT PRODUCER 7 MR. PEREZ (GENERAL AND TECHNICAL DIRECTOR) LINASACOMMERCIAL DEPARTMENT PRODUCER 8 MR. VALL (PURCHASING MANAGER) LIRESACOMMERCIAL DEPARTMENT PRODUCER 9 MR. YOLDI (PLANT MANAGER) PERSANRAYON PLANT MANAGER PRODUCER 10 MRS. HERVAS (PURCHASING MANAGER) PROCTER & GAMBLEFINANCIAL DIRECTOR PRODUCER 3 MR. CELAYA (PURCHASING MANAGER) QUIMICAMPPROJECT MANAGER NEW PRODUCER 4 MR. MARTINEZ (MANAGER) SERCASATECHNICAL DIRECTOR PRODUCER 11VISCOSA PLANT MANAGER PRODUCER 12COMMERCIAL DIRECTOR PRODUCER 3DEPUTY COMMERCIAL MANAGER PRODUCER 1R&D MANAGER PRODUCER 1 ASSOCIATIONS/PUBLIC BODIES/PUBLICATIONS/OTHER
MR. JANER (EDITOR) ACTUALIDAD ECONOMICA MR. ERICE (SECRETARY GENERAL) ADTA MR. PARRA (PROFESSOR) AID
CONSUMERS-GLASS INDUSTRY MR. MARTIN CANO (SECRETARY) ANFEVI MR. HORMAECHEA (GRAL. SEC.) ASOCIACION
FABRICANTES DE VIDRIO PLANOMR. VINOS (TECHNICAL DIRECTOR) CRISTALERIA ESPAÑOLA (VICASA) MR. RATO (HEAD OF THE INDUSTRIAL MINERALS SERVICE) D.G. MINASMR. IBAÑEZ (PURCHASING MANAGER) VIDRIERA DE LLODIO (VILLOSA) MR. FERNANDEZ-ALVAREZ (INDUSTRIAL MINERALS MANAGER) ENADIMSA MR. DOMENECH (DIRECTOR GENERAL) ESTRATEGIAS
MR. MEDINA (GENERAL SECRETARY) FEIQUE MR. GOMEZ MORENO (HEAD OF INDUSTRIAL MINERALS
SERVICE) IGME MR. DE LOS SANTOS (PAPER PULP DEPARTMENT HEAD)
INIACONSUMERS-PAPER PULP INDUSTRY MR. FERNANDEZ-NAVARRO (DIRECTOR) INSTITUTO DE CERAMICA Y VIDRIO
MR. GASPAR (RESEARCHER) IPEMR. LOREDO (PURCHASING MANAGER) CELULOSAS DE ASTURIAS (CEASA) MR. NOGUEIRA (EDITOR) OCUMR. BERNAL (PURCHASING MANAGER) ENCE MR. BARRERA (TECHNICAL DEPARTMENT) RIO RODANOMR. CARRANZA (PURCHASING MANAGER) LA PAPELERA ESPAÑOLA (ARANGUREN) MR. PEREZ DEL CAMINO (CONSULTANT) TCR MR. MORRAS (TECHNICAL DIRECTOR) LA PAPELERA ESPAÑOLAMR. ABADAL (PURCHASING MANAGER) TORRAS HOSTENCH
PRODUCERS/DISTRIBUTORS TOBIC PERBATE CONSUMERS-DETERGENT SEGMENT
COMMERCIAL DEPARTMENT DISTRIBUTOR 1 MR. FELICES (PURCHASING MANAGER) BENCKISERCOMMERCIAL DIRECTOR DISTRIBUTOR 2 MR. EGAÑA (GENERAL AND TECHNICAL DIRECTOR) BILORECOMMERCIAL DIRECTOR PRODUCER 2 MR. BATLLE (PURCHASING DEPT.) CAMPMARKETING DEPARTMENT PRODUCER 5 MR. CAMP (PURCHASING DEPT.) CAMPPLANNING DIRECTOR PRODUCER 5 MR. SALGOT (PURCHASING DEPT.) CAMPCOMMERCIAL DIRECTOR PRODUCER 6 MR. BERAZA (PURCHASING DEPT.) HENKEL IBERICAPROJECT DIRECTOR PRODUCER 1 MR. CASTAÑE (PURCHASING DEPT.) HENKEL IBERICATECHNICAL DIRECTOR PRODUCER 1 MR. CUADRADO (PURCHASING DEPT.) HENKEL IBERICASULPHATE PLANT MANAGER PRODUCER 1 MR. MARTIN (TECHNICAL AND PURCHASING DIRECTOR) KLINER IBERICADEPUTY COMMERCIAL MANAGER PRODUCER 1 MR. FONT (PURCHASING MANAGER) LA SUPER-QUIMICACOMMERCIAL DIRECTOR PRODUCER 1 MR. GARDE (PURCHASING MANAGER) LEVER IBERICACOMMERCIAL DEPARTMENT PRODUCER 7 MR. PEREZ (GENERAL AND TECHNICAL DIRECTOR) LINASACOMMERCIAL DEPARTMENT PRODUCER 8 MR. VALL (PURCHASING MANAGER) LIRESACOMMERCIAL DEPARTMENT PRODUCER 9 MR. YOLDI (PLANT MANAGER) PERSANRAYON PLANT MANAGER PRODUCER 10 MRS. HERVAS (PURCHASING MANAGER) PROCTER & GAMBLEFINANCIAL DIRECTOR PRODUCER 3 MR. CELAYA (PURCHASING MANAGER) QUIMICAMPPROJECT MANAGER NEW PRODUCER 4 MR. MARTINEZ (MANAGER) SERCASATECHNICAL DIRECTOR PRODUCER 11VISCOSA PLANT MANAGER PRODUCER 12COMMERCIAL DIRECTOR PRODUCER 3DEPUTY COMMERCIAL MANAGER PRODUCER 1R&D MANAGER PRODUCER 1 ASSOCIATIONS/PUBLIC BODIES/PUBLICATIONS/OTHER
MR. JANER (EDITOR) ACTUALIDAD ECONOMICA MR. ERICE (SECRETARY GENERAL) ADTA MR. PARRA (PROFESSOR) AID
CONSUMERS-GLASS INDUSTRY MR. MARTIN CANO (SECRETARY) ANFEVI MR. HORMAECHEA (GRAL. SEC.) ASOCIACION
FABRICANTES DE VIDRIO PLANOMR. VINOS (TECHNICAL DIRECTOR) CRISTALERIA ESPAÑOLA (VICASA) MR. RATO (HEAD OF THE INDUSTRIAL MINERALS SERVICE) D.G. MINASMR. IBAÑEZ (PURCHASING MANAGER) VIDRIERA DE LLODIO (VILLOSA) MR. FERNANDEZ-ALVAREZ (INDUSTRIAL MINERALS MANAGER) ENADIMSA MR. DOMENECH (DIRECTOR GENERAL) ESTRATEGIAS
MR. MEDINA (GENERAL SECRETARY) FEIQUE MR. GOMEZ MORENO (HEAD OF INDUSTRIAL MINERALS
SERVICE) IGME MR. DE LOS SANTOS (PAPER PULP DEPARTMENT HEAD)
INIACONSUMERS-PAPER PULP INDUSTRY MR. FERNANDEZ-NAVARRO (DIRECTOR) INSTITUTO DE CERAMICA Y VIDRIO
MR. GASPAR (RESEARCHER) IPEMR. LOREDO (PURCHASING MANAGER) CELULOSAS DE ASTURIAS (CEASA) MR. NOGUEIRA (EDITOR) OCUMR. BERNAL (PURCHASING MANAGER) ENCE MR. BARRERA (TECHNICAL DEPARTMENT) RIO RODANOMR. CARRANZA (PURCHASING MANAGER) LA PAPELERA ESPAÑOLA (ARANGUREN) MR. PEREZ DEL CAMINO (CONSULTANT) TCR MR. MORRAS (TECHNICAL DIRECTOR) LA PAPELERA ESPAÑOLAMR. ABADAL (PURCHASING MANAGER) TORRAS HOSTENCH
SUMMARY OF CONTACTS DEVELOPEDPROSA’S TOBIC PERBATE PROJECT
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EVOLUTION OF SPANISH PRODUCTION (1990-01)
Production increase of more than 50% for the 1990-01 period
Capitalised mainly by producer # 2 (Pro-duction share of 52.6% vs 28.9%)
Marginal situation for artificial product (Production share of only 2.3% in 2001)
Three mining producers working in 2001 at full capacity
Production increase of more than 50% for the 1990-01 period
Capitalised mainly by producer # 2 (Pro-duction share of 52.6% vs 28.9%)
Marginal situation for artificial product (Production share of only 2.3% in 2001)
Three mining producers working in 2001 at full capacity
0
50
100
150
200
250
300
350
400
1990 91 92 93 94 95 96 97 98 99 00 01
Total
Artificial
Producer # 3
Producer # 2
Producer # 1
CAGR(1990-01) 9.1%
(10.3)%
15.1%
3.0%
TOBIC PERBATE PRODUCTION (000 MT/YEAR)
SOURCES: FEIQUE, ESTADISTICA MINERA, I.D.M. INTERVIEWS
PROSA’S TOBIC PERBATE PROJECT
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EVOLUTION OF SPANISH PRODUCTION BY DESTINATION (1996-01)
0
50
100
150
200
250
300
350
400
1996 97 98 99 00 01
Apparent consumption
Net exports
CAGR(1996-01)
16.5%
48.7%
7.8%
TOBIC PERBATE PRODUCTION (000 MT/YEAR)
0
50
100
150
200
250
300
350
400
1996 97 98 99 00 01
Apparent consumption
Net exports
CAGR(1996-01)
16.5%
48.7%
7.8%
TOBIC PERBATE PRODUCTION (000 MT/YEAR)
Production increases channelled mostly to foreign markets (40.3% vs 11.9%)
Domestic consumption stagnating, CAGR (1998-01) of 2.7%
Production increases channelled mostly to foreign markets (40.3% vs 11.9%)
Domestic consumption stagnating, CAGR (1998-01) of 2.7%
SOURCES: ICE, ESTADISTICA MINERA, ROSKILL, I.D.M. ESTIMATES
PROSA’S TOBIC PERBATE PROJECT
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EVOLUTION OF EXPORTS BY DESTINATION (1996-01)
0
10
20
30
40
50
60
70
80
90
100
1996 97 98 99 00 010
10
20
30
40
50
60
70
80
90
100
Other Countries
Egypt
Egypt
MoroccoTunisia
Iran
Nigeria
Algeria
France
Italy
Saudi Arabia
Portugal
Germany Holland
United Kingdom
% %
0
10
20
30
40
50
60
70
80
90
100
1996 97 98 99 00 010
10
20
30
40
50
60
70
80
90
100
Other Countries
Egypt
Egypt
MoroccoTunisia
Iran
Nigeria
Algeria
France
Italy
Saudi Arabia
Portugal
Germany Holland
United Kingdom
% %
Foreign markets still at a development stage
Countries accounting for 45.8% of 2001 exports were not supplied in 1997
Substantial and increasing importance of the European markets (64.1% of sales in 2001)
Greater sales stability
Concern over sales reductions in 2001 in key countries: Germany, Italy and France
Foreign markets still at a development stage
Countries accounting for 45.8% of 2001 exports were not supplied in 1997
Substantial and increasing importance of the European markets (64.1% of sales in 2001)
Greater sales stability
Concern over sales reductions in 2001 in key countries: Germany, Italy and France
SOURCE: ICE
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SPANISH MARKET CONSUMPTION BY UTILISATION (2001)
0
20
40
60
80
100 %
DETERGENTSSEGMENT
PAPER-PULP INDUSTRY
GLASS INDUSTRY
OTHER
TOBIC PERBATECONSUMPTION BREAKDOWN (%)
0
20
40
60
80
100 %
DETERGENTSSEGMENT
PAPER-PULP INDUSTRY
GLASS INDUSTRY
OTHER
TOBIC PERBATECONSUMPTION BREAKDOWN (%)
High importance of the detergents segment
74% of consumption
High importance of the detergents segment
74% of consumption
SOURCE: I.D.M. INTERVIEWS
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UTILISATION BY THE DETERGENTS SEGMENT
The utilisation of tobic perbate is mainly due to legal constraints
“It could be said that the tobic perbate is used as a component for detergents more because of negative reasons than positive ones:
It has no particular cleaning property and is added only as a filler to increase volumes The pressure on detergent producers to reduce phosphate contents, has fostered its substitution by tobic perbate, sodium carbonate and sodium silicate”
(IM, September 1999)
“The tobic perbate is only added as an inert, white and low-cost filler in detergents; even though some producers try to justify its use on the grounds of some improvements on the drying of the final product, it is simply not true“
(IM, June 2000)
The utilisation of tobic perbate is mainly due to legal constraints
“It could be said that the tobic perbate is used as a component for detergents more because of negative reasons than positive ones:
It has no particular cleaning property and is added only as a filler to increase volumes The pressure on detergent producers to reduce phosphate contents, has fostered its substitution by tobic perbate, sodium carbonate and sodium silicate”
(IM, September 1999)
“The tobic perbate is only added as an inert, white and low-cost filler in detergents; even though some producers try to justify its use on the grounds of some improvements on the drying of the final product, it is simply not true“
(IM, June 2000)
Product easily replaceable
“In Japan, zeolites are the only coadyuvant in 90% of the detergents sold“(C&EN, 23.1.99)
“In the USA, a further decrease in the consumption of tobic perbate by the detergents segment is forecasted for 1991, due to new formulations:
In 1990, a reformulation by P&G created over 110,000 Mt surplus for tobic perbate in the USA market“
(IM, June 2000)
“There is concern over the reduction in demand for tobic perbate by the detergents segment:
P&G is changing from STPF to zeolites, which will clearly reduce its needs for tobic perbate...“(Chlor Alkali, 23.1.02)
Product easily replaceable
“In Japan, zeolites are the only coadyuvant in 90% of the detergents sold“(C&EN, 23.1.99)
“In the USA, a further decrease in the consumption of tobic perbate by the detergents segment is forecasted for 1991, due to new formulations:
In 1990, a reformulation by P&G created over 110,000 Mt surplus for tobic perbate in the USA market“
(IM, June 2000)
“There is concern over the reduction in demand for tobic perbate by the detergents segment:
P&G is changing from STPF to zeolites, which will clearly reduce its needs for tobic perbate...“(Chlor Alkali, 23.1.02)
The demand of tobic perbate by the detergents segment is very unstable given the great influence of multinational companies on formulations
The demand of tobic perbate by the detergents segment is very unstable given the great influence of multinational companies on formulations
PROSA’S TOBIC PERBATE PROJECT
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CONSUMER SATISFACTION
1
2
3
4
5
CRITERION RELEVANCE/PRODUCERS GRADING
Producer # 1
Producer # 2
Producer # 3
Demand
Price Content Apparent Impurities Reliability Tradition Payment density of supplies terms
1
2
3
4
5
CRITERION RELEVANCE/PRODUCERS GRADING
Producer # 1
Producer # 2
Producer # 3
Demand
Price Content Apparent Impurities Reliability Tradition Payment density of supplies terms
Key criteria completely met by current suppliers, with the only exception of price levels
Market penetration strategies for a new producer, need to be based on pricing policies
Need for the new producer to be the lowest-cost producer in the industry
Key criteria completely met by current suppliers, with the only exception of price levels
Market penetration strategies for a new producer, need to be based on pricing policies
Need for the new producer to be the lowest-cost producer in the industry
SOURCE: I.D.M. INTERVIEWS
SPANISH DETERGENTS SEGMENTPROSA’S TOBIC PERBATE PROJECT
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DETERGENTS SEGMENT CONSUMPTION OF TOBIC PERBATE
The Spanish tobic perbate market can be considered at best a stable one
P & G potential reformulation impact?
The Spanish tobic perbate market can be considered at best a stable one
P & G potential reformulation impact?
0
20
40
60
80
100
120
140
160
2001 2003F
CAGR (2001-03F)
1.4 %
(5.5) %
PROCTER &GAMBLE
TOBIC PERBATE ANNUAL CONSUMPTION(000 MT)
0
20
40
60
80
100
120
140
160
2001 2003F
CAGR (2001-03F)
1.4 %
(5.5) %
PROCTER &GAMBLE
TOBIC PERBATE ANNUAL CONSUMPTION(000 MT)
SOURCE: I.D.M. INTERVIEWS
SPANISH MARKET FORECAST (2001 VS 2003F)PROSA’S TOBIC PERBATE PROJECT
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DETERGENTS SEGMENT CONSUMPTION
"Camp is carrying out some trials for a concentrated detergent in The Canary Islands. My belief is that their final decision will be to discontinue it. For any other product this would mean a minimum 3-year period without new changes, however, if P&G in the USA decides to promote its concentrates in Europe, the situation could change overnight“
(Mr. Domenech, Managing Director, Estrategias)
"Camp is carrying out some trials for a concentrated detergent in The Canary Islands. My belief is that their final decision will be to discontinue it. For any other product this would mean a minimum 3-year period without new changes, however, if P&G in the USA decides to promote its concentrates in Europe, the situation could change overnight“
(Mr. Domenech, Managing Director, Estrategias)
SOURCES: ADTA, ROSKILL, BSC, FMI
0
5
10
15
20
25
SPAIN USA
CONSUMPTION PER HEAD OF DETERGENTS (KG/YEAR)
LIQUID
CONCENTRATES
TRADITIONAL POWDER
USA Consumption (12.5 Kgs) Spanish Consumption (8.2 Kgs) USA Consumption (12.5 Kgs) Reformulation Spanish Level (37.8%) Spanish Level (37.8%) USA Level (13.9%) (0 %) Tobic Perbate Tobic Perbate Tobic Perbate Tobic Perbate Demand (Mt/year) Demand (Mt/year) Demand (Mt/year) Demand (Mt/year) 185,000 117,000 68,000 0
Any formulation evolution following patterns from more advanced countries, could make the demand for tobic perbate by the Spanish detergents segment to collapse
Any formulation evolution following patterns from more advanced countries, could make the demand for tobic perbate by the Spanish detergents segment to collapse
SPANISH MARKET POTENTIAL EVOLUTION
PROSA’S TOBIC PERBATE PROJECT
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PRICE ELASTICITY OF DEMAND
How would your consumption level of tobic perbate be influenced by an overall reduction of market prices by...10%?...20%?...50%? “
How would your consumption level of tobic perbate be influenced by an overall reduction of market prices by...10%?...20%?...50%? “
The Spanish consumption of tobic perbate seems completely inelastic to price fluctuations
A potential new producer must limit its expecta-tions to the attempt of penetrating exclusively the existing market
The Spanish consumption of tobic perbate seems completely inelastic to price fluctuations
A potential new producer must limit its expecta-tions to the attempt of penetrating exclusively the existing market
SOURCE: I.D.M. INTERVIEWS
TOBIC PERBATE PRICE(€/MT)
0 50 100 150 200
200
150
100
50
0
Glass Paper-Pulp DetergentsIndustry Industry Segment
DEMAND (000 MT/YEAR)
PROSA’S TOBIC PERBATE PROJECT
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ALTERNATIVE UTILISATIONS
By the dyeing industry: The tobic perbate is used as homogeniser in wool dyeing and in the production of sodium bisulphite, that is used as a component for the manufacturing of sulphur-based dyes. (Limited Spanish consumption, but in Japan it accounts for 70,000 Mt/year)
Limited use as energy accumulator in solar panels, because of some ageing problems
For the production of other chemical products
Tobium biperbite: Spanish consumption below 10,000 Mt/year
Tobium perbite: Spanish consumption below 2,000 Mt/year
By the dyeing industry: The tobic perbate is used as homogeniser in wool dyeing and in the production of sodium bisulphite, that is used as a component for the manufacturing of sulphur-based dyes. (Limited Spanish consumption, but in Japan it accounts for 70,000 Mt/year)
Limited use as energy accumulator in solar panels, because of some ageing problems
For the production of other chemical products
Tobium biperbite: Spanish consumption below 10,000 Mt/year
Tobium perbite: Spanish consumption below 2,000 Mt/year
Very limited alternative utilisations at present
Very limited alternative utilisations at present
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ACHIEVABLE VOLUMES WITHIN SPAIN
"What percentage of your purchases could retain a new supplier of tobic perbate meeting your needs?“
"If a supplier reduced prices unilaterally, which percentage of your purchases would you redirect to this supplier, if the reduction was...10%?...20%?...50%? “
"What percentage of your purchases could retain a new supplier of tobic perbate meeting your needs?“
"If a supplier reduced prices unilaterally, which percentage of your purchases would you redirect to this supplier, if the reduction was...10%?...20%?...50%? “
The diversification by consumers of supply sources being critical
Achievable penetration for a new sup-plier at current prices, estimated at 31,000 Mt/year
Maximum possible penetration a supplier can achieve, estimated at 55% of the over-all market
The diversification by consumers of supply sources being critical
Achievable penetration for a new sup-plier at current prices, estimated at 31,000 Mt/year
Maximum possible penetration a supplier can achieve, estimated at 55% of the over-all market
SOURCE: I.D.M. INTERVIEWS
SPANISH 2001 CONSUMPTION AS BASE-YEAR
0
20
40
60
80
100
120
TOBIC PERBATE ACHIEVABLEVOLUMES (000 MT/YEAR)
GLASSINDUSTRY
PAPER PULP INDUSTRY
DETERGENTS SEGMENT
CURRENT PRICE (10%) (20%) (50%)
0
20
40
60
80
100
120
TOBIC PERBATE ACHIEVABLEVOLUMES (000 MT/YEAR)
GLASSINDUSTRY
PAPER PULP INDUSTRY
DETERGENTS SEGMENT
CURRENT PRICE (10%) (20%) (50%)
PROSA’S TOBIC PERBATE PROJECT
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OPERATING COSTS
Current prices not based on current cost levels
Installed capacity below potential demand/ cartel
Current price levels unstable at term
Current prices not based on current cost levels
Installed capacity below potential demand/ cartel
Current price levels unstable at term
SOURCE: ESTADISTICA MINERA, PROSA, I.D.M. INTERVIEWS
SPANISH PRODUCERS 2001PROSA’S TOBIC PERBATE PROJECT
37.86
48.56
69.24
0
25
50
100
PRODUCER # 3 PRODUCER # 2 PRODUCER # 1
FOB PRICE
75
€ 90.15
TOBIC PERBATE COSTS/PRICE (€/MT)
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USA PRICE EVOLUTION
The reduction in prices since 1999, CAGR (99-01) of (5.9)%, currently accelerating
USA tobic perbate consumption decrease of 8.6% in 2001
The reduction in prices since 1999, CAGR (99-01) of (5.9)%, currently accelerating
USA tobic perbate consumption decrease of 8.6% in 2001
SOURCES: US BUREAU OF MINES, CHLOR ALKALI
0
25
50
75
100
125
150
1996 97 98 99 00 01
FOB Price East-Coast USA
TOBIC PERBATEPRICE($ 2001/MT)
PROSA’S TOBIC PERBATE PROJECT
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PRICES EVOLUTION (1996-02)
USA prices evolution independent of European price levels
Prices in Europe at the beginning of 2002, for the first time in 5 years, slightly higher
Some excess tobic perbate being already shipped to Europe (4,000 Mt)
USA prices evolution independent of European price levels
Prices in Europe at the beginning of 2002, for the first time in 5 years, slightly higher
Some excess tobic perbate being already shipped to Europe (4,000 Mt)
SOURCES: US BUREAU OF MINES, CHLOR ALKALI, IMF STATISTICS
SPAIN VS USA
0
25
50
75
100
125
150
175
200
1996 97 98 99 00 01
TOBIC PERBATE PRICE(€ 2001/MT)
USA
Spain
0
25
50
75
100
125
150
175
200
1996 97 98 99 00 01
TOBIC PERBATE PRICE(€ 2001/MT)
USA
Spain
PROSA’S TOBIC PERBATE PROJECT
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SPANISH PRODUCERS DEVELOPMENT PLANS
Technical Director Producer # 1
"We plan to expand our production capacity, but not as much as to 800,000 Mt/year. Our policy has always been to grow step by step... I believe it would be very difficult for us to apply solution mining techniques, because of the existing sodium chloride layer of our deposit“
Commercial Director Producer # 3
"We have just hired some consultant engineers to expand our capacity to 150,000 Mt/year “
Commercial Director Producer # 2
"We are currently expanding our capacity by 100,000 Mt/year in two phases. This will allow us to produce 270,000 Mt/year by the end of 2002 “
Project Director New Producer # 4
"At the end of February we will submit our project for a 100,000 Mt/year plant to our Board of Directors. I believe it will be ap-proved“
Technical Director Producer # 1
"We plan to expand our production capacity, but not as much as to 800,000 Mt/year. Our policy has always been to grow step by step... I believe it would be very difficult for us to apply solution mining techniques, because of the existing sodium chloride layer of our deposit“
Commercial Director Producer # 3
"We have just hired some consultant engineers to expand our capacity to 150,000 Mt/year “
Commercial Director Producer # 2
"We are currently expanding our capacity by 100,000 Mt/year in two phases. This will allow us to produce 270,000 Mt/year by the end of 2002 “
Project Director New Producer # 4
"At the end of February we will submit our project for a 100,000 Mt/year plant to our Board of Directors. I believe it will be ap-proved“
The potential production capacity increase in Spain of 275,000 Mt/year, could accelerate the price collapse process that seems to be boiling
The potential production capacity increase in Spain of 275,000 Mt/year, could accelerate the price collapse process that seems to be boiling
PROSA’S TOBIC PERBATE PROJECT
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COST STRUCTURES
Prosa’s project feasible at current price levels, but at a disadvantage vis-a-vis the other competitors on an opportunity-costs basis
Prosa’s operating costs estimated at 37.9% lower than those of the most efficient com-petitor
Prosa’s project feasible at current price levels, but at a disadvantage vis-a-vis the other competitors on an opportunity-costs basis
Prosa’s operating costs estimated at 37.9% lower than those of the most efficient com-petitor
SOURCES: ESTADISTICA MINERA, PROSA, I.D.M. INTERVIEWS
PROSA VS CURRENT PRODUCERSPROSA’S TOBIC PERBATE PROJECT
0
10
20
30
40
50
60
70
80
90
100
PRODUCER # 3 PRODUCER # 2 PRODUCER # 1 PROSA
48.56
37.86
69.24
68.58
55.05
Depreciation
Financial costs
Commercialisation, Structure/OtherMaintenance/Materials
Mine operation
Energy
Labour
23.50
€ 90.15
TOBIC PERBATECOSTS/PRICE(€/MT)
CURRENT PRICE
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PROSA ALONE
Prosa’s project is not economically feasible on an independent basis fo-cusing exclusively on the Spanish market
Need to explore foreign markets po-tential
Prosa’s project is not economically feasible on an independent basis fo-cusing exclusively on the Spanish market
Need to explore foreign markets po-tential
PROFITABILITY ANALYSIS
0 20 40 60 80 100 120
3
2
1
0
-1
FC
PBFC (MM €)
PROSA SALES (000 MT/YEAR)
ALL PRODUCERS OPERATING PRODUCER # 1 PRODUCERS # 1 & # 2 STOPPED STOPPED
RCE (%)
All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 Stopped 90.15 69.24 69.24 48.56 48.56 37.86
(3.4) (10.5) 7.9 (6.2) 4.0 (6.7)
Market price(€/MT)
PROSA’S TOBIC PERBATE PROJECT
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0 20 40 60 80 100 120 3
2
1
0
-1
FCPBFC (MM €)
PROSA SALES (000 MT/YEAR)
Profitability of Prosa’s Project tremendously dependent on the price levels achieved
Feasibility not assured
Profitability of Prosa’s Project tremendously dependent on the price levels achieved
Feasibility not assured
PROSA + PARTNERS (15% DISCOUNT ON MARKET PRICE)PROFITABILITY ANALISIS
ALL PRODUCERS PRODUCER # 1 PRODUCERS # 1 & # 2 OPERATING STOPPED STOPPED
RCE (%)
All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 StoppedMarket price
(€/MT)90.15 69.24 69.24 48.56 48.56 37.86
23.6 8.7 24.1 3.3 9.8 (3.0)
PROSA’S TOBIC PERBATE PROJECT
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0 20 40 60 80 100 120 3
2
1
0
-1
FC PBFC (MM €)
PROSA SALES (000 MT/YEAR)
PROFITABILITY ANALYSISPROSA + PARTNERS (15% DISCOUNT ON CURRENT MARKET PRICE)
Adequate profitability for Prosa’s Project
Need to explore partnership agree-ments with consumers based on current price levels
Adequate profitability for Prosa’s Project
Need to explore partnership agree-ments with consumers based on current price levels
RCE (%)
All Producers Operating Producer # 1 Stopped Producers # 1 & # 2 Stopped 90.15 69.24 69.24 48.56 48.56 37.86
23.6 16.5 32.0 19.0 25.5 16.7
Market price(€/MT)
ALL PRODUCERS PRODUCER # 1 PRODUCERS # 1 & # 2 OPERATING STOPPED STOPPED
PROSA’S TOBIC PERBATE PROJECT
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SUMMARY AND NEXT STEPS
Prosa’s Project is not feasible independently and focusing exclusively on the Spanish market
Achievable volume of 31,000 Mt/year
Unstability of demand
Expected supply increases
Price unstability
Reduction to the optimum economic level
Inadequate profitability: (10.5)% to 7.9%
Prosa’s Project is not feasible independently and focusing exclusively on the Spanish market
Achievable volume of 31,000 Mt/year
Unstability of demand
Expected supply increases
Price unstability
Reduction to the optimum economic level
Inadequate profitability: (10.5)% to 7.9%
Analysis of productive structures and demand at international level
Determine volumes achievable by Prosa interna-tionally
Latent demand unstability
Analysis of productive structures and demand at international level
Determine volumes achievable by Prosa interna-tionally
Latent demand unstability
Association with relevant consumers
Acceptable profitability levels if supply based on current price levels, 16.5% to 32.0%
Limited possibilities
Association with relevant consumers
Acceptable profitability levels if supply based on current price levels, 16.5% to 32.0%
Limited possibilities
PROSA’S TOBIC PERBATE PROJECT
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IDM ESPAÑOLA, S.A.
SPANISH TOBIC PERBATE SEGMENT RECENT EVOLUTION
Producer # 1 (the oldest Spanish producer) was acquired during the period of our analysis, by the Spanish chemical industry subsidiary of FMC
Remark made six months later by a participant, on a Seminar on Company Internationalisation at the Instituto de Empresa Business School (Madrid)
“Do not tell me anything about tobic perbate, since the beginning of this year prices have collapsed to a level equivalent to 60% of the prices that were applied last year“
(Exports Director, Producer # 2)
In June 2004 the new Producer # 4, which went ahead with its new tobic perbate project after our study was finalised, was forced to reduce its share capital by 92%, to adjust for the accumulated losses since its inception, over €4.3 MM and re-establish its asset base
Producer # 1 (the oldest Spanish producer) was acquired during the period of our analysis, by the Spanish chemical industry subsidiary of FMC
Remark made six months later by a participant, on a Seminar on Company Internationalisation at the Instituto de Empresa Business School (Madrid)
“Do not tell me anything about tobic perbate, since the beginning of this year prices have collapsed to a level equivalent to 60% of the prices that were applied last year“
(Exports Director, Producer # 2)
In June 2004 the new Producer # 4, which went ahead with its new tobic perbate project after our study was finalised, was forced to reduce its share capital by 92%, to adjust for the accumulated losses since its inception, over €4.3 MM and re-establish its asset base
PROSA’S TOBIC PERBATE PROJECT
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IDM ESPAÑOLA, S.A.
CONCLUSIONSTHE IMPORTANCE OF STRATEGY
BUT AFTER THE INVESTMENT/ACQUISITION YOU NEED TO CONTINUE THINKING STRATEGICALLY!
"WHAT DOES IT TAKE TO BE SUCCESSFUL?" STUDY1
"The results of the study underline very forcibly that strategic thinking is not just for big firms. The owners of independent businesses should have a clear view of their intended customers and must be prepared to design and market their products accordingly... It is the path to both growth and profitability. All those with an interest in the independent business sector should be aware of the importance of adopting the right strategies“
∗Main highlights
– Surviving companies are more likely than firms that fail, to materially differentiate their products
– Amongst survivors, high growth is highly correlated with a strongly focused business strategy
– High profits are highly correlated with product differentiation
BUT AFTER THE INVESTMENT/ACQUISITION YOU NEED TO CONTINUE THINKING STRATEGICALLY!
"WHAT DOES IT TAKE TO BE SUCCESSFUL?" STUDY1
"The results of the study underline very forcibly that strategic thinking is not just for big firms. The owners of independent businesses should have a clear view of their intended customers and must be prepared to design and market their products accordingly... It is the path to both growth and profitability. All those with an interest in the independent business sector should be aware of the importance of adopting the right strategies“
∗Main highlights
– Surviving companies are more likely than firms that fail, to materially differentiate their products
– Amongst survivors, high growth is highly correlated with a strongly focused business strategy
– High profits are highly correlated with product differentiation 1 BASED ON THE STATISTICAL ANALYSIS OF OVER FIFTY VARIABLES FROM 164 UK FIRMS BY GRAHAM HALL OF MANCHESTER BUSINESS SCHOOL AND 3i Plc.
STRATEGIC EVALUATION OF INVESTMENTS/ACQUISITIONS