2009

Key analyses for determining the business opportunity for ‘XXX’

2

Example of a ‘problem statement’ and core ‘sub-issues’ to be solved

• What is the business opportunity for our new product, ‘xxx’?

• Market/ competitor analysis and novelina positioning

• Product and customer value proposition

• Business-model organization and processes required

• Management team skills and capabilities required

• Financial opportunity and returns analysis

• Risks and mitigation activities

• Implementation road map

Problem statement Sub issues to be solved

3

Example of a ‘problem statement’ and core ‘sub-issues’ to be solved

• What is the business opportunity for our new product, ‘xxx’?

• Market/ competitor analysis and Novelina positioning

• Product and customer value proposition

• Business-model organization and processes required

• Management team skills and capabilities required

• Financial opportunity and returns analysis

• Risks and mitigation activities

• Implementation road map

Problem statement Sub issues to be solved

4

500

2,000

4,000

7,000

11,000

1990

SIZE OF XXXXX MARKET

€ millions

1995 2000 2005 2010(E)

*Compound average growth rate

Source: …

CAGR 1990-2010 = 16.7%

5

XXXX DISTRIBUTION CHANNELS, 2006

%

Source: …

5530

15

Retail outlets

Catalogs

Superstores

Currently no novelina are sold online, but experience from foars (15% online sales and growing rapidly ) indicates future online sales potential

6

DEVELOPMENT OF MARKET SHARE OF XXXXXX

Source:…

%

100

0

0

Basic product

Improved product

Even better

product

1995 2000 2005

20

80

0

0

10

90

Our novelina

7

% of population currently owning XXXXX

Like

MARKET RESEARCH FINDINGS – POTENTIAL CUSTOMER NEEDS

%

*Quotations from customer interviews

Source: …

% of population liking their XXXXX

Don't like

Indifferent

Potential needs of novelina users*'Wish my XXX could …''Wish it had more …''Need help getting my XXX to …''Wish I could buy more XXX within my budget ...'

75

205

85

15

Own

Don’t own

8

MARKET RESEARCH FINDINGS – IMPROVEMENT OPPORTUNITIES

Source:…

Potential customer needs

'Wish my novelina could …'

Improvement opportunities

• Improve novelina ability to do A, B, C

'Wish it had more …' • Add options X, Y, Z

'Need help getting my novelina to …'

• Better instructions• Toll-free number• 24-hour service

'Wish I could buy more novelina within my budget ...'

• Scaled down, low-price novelina • Cut price on existing novelina • Volume discounts

9

60

40

Yes

WILLINGNESS TO SWITCH TO AN IMPROVED XXXX

% of respondents

No

… at a higher price?

90

10

Yes No

… at the same price?

95

5

Yes No

… at a lower price?

Source:…

Would you switch to a nnovelina with improved features ...

10

KEY FACTORS DRIVING CUSTOMER BUYING DECISION

Source:…

5

4

3

2

1

1

2

3

4

5

5 4 3 2 1 1 2 3 4 5

Options

Price

Customer service

...

Option lovers

Value seekers

Service seekers

Unimportant

Important

0

5Customer segment

Rating

11

DEMOGRAPHICS OF TARGET CUSTOMER SEGMENTS

%

Source:…

Demographics

Age

Education level

Buying behavior

Option lovers Value seekers Service seekers

20 - 30

30 - 40

40 - 50

> 50

High

Medium

Low

Catalogs

Superstore

Retail

Older customers with medium education level shop in superstores and retail outlets

Young customers with high education level prefer shopping through catalogs and superstores

Mid-aged customers with average education level strongly prefer shopping in retail outlets

12

XXXX INDUSTRY FORCES AT WORK

Source:…

Industry structure and economics• Small number of competitors• R&D and manufacturing scale

effects create barriers to entry• Industry profitable• Market growing

Consumer demand• Consumer willing to trade up• Demand consistently growing• No substitutes for novelinas

Competitive conduct• Competitors crowded out as others

upgrade product• No price competition• Innovation difficult and costly

External factors• Strong overall economic growth

fuels consumer spending• Expected legislation changes in

2003 could additional fuel consumer demand

XXX market is an attractive business

opportunity

13

MARKET SHARE OF XXXXX COMPANIES, 2006

%

40

30

25

5

Trinity novelina

Source:…

John's novelina Co.

Wonabynovelina

Kings novelina Co.

• Significant barriers for entry into novelina market: high research and development costs and scale requirements

• XXX companies with old product (e.g., Kings novelina Company) were quickly crowded out of market

14

ANALYSIS OF COMPETITORS

• EFC's competitors generally are not expected to innovate in the near future

• Trinity novelina has the highest capability to innovate in the medium future, all other competitors have only low to medium ability to improve their products in response to EFC's novelina

Company

• Trinity novelina

• Johns novelina Co.

• Wonaby novelina

• Kings novelina Co.

Current market share

40%

30%

25%

5%

Years since last novelina innovation

3

5

6

10

Innovation expected

Possible

No

?

No

Capability to innovate

Source: …

15

COMPETITIVE POSITION EFC vs. COMPETITORS

EFC • Ability for low-cost production

• Extensive experience with foar production

Skills

• Novelina patent • Well-established

brand name for foars

Strategic assets

• Existing relationship with some large national retailers

Special relationship

High

Low

Johns novelina Co.

• Very good management resources as part of the Johns conglomerate

• Strong brand name• Patent for enhanced

novelina

• Preferred supplier of medium-sized supermarkets

Kings novelina Co.

• New CEO• Beginning turnaround

• Old production facilities (cannot be upgraded)

• De-listed from Wesko supermarket two months ago

Trinity novelina

• Cost leader in current novelina production

• Patent for enhanced novelina

• Novelina retail chain

Wonaby novelina

• CEO left six months ago to Kings novelina Co.

• Partnership with novelina research lab

• License to produce enhanced novelina

• Experimenting with selling novelina online

Source:

16

Threats• Competitive reaction to market

entry of EFC, including possibility of price war

• Competitors leveraging relation-ship to existing distribution channel to block EFC's market entry

• novelina competitors attacking EFC on its home territory with entry into the foar market

• Product innovation through Trinity novelina

SWOT ANALYSIS FOR EFC XXX’S FUTURE BUSINESS

Strengths• Low-cost production capability• Patent for faster novelina • Well-established brand name for

foars

Weaknesses• Currently no experience with

online selling• No own retail activities • No relationship with medium-sized

supermarkets

Opportunities• Fast-growing market: CAGR

2000-2005: 9.5%• Profitable market: industry-wide

ROS 2005: 15%• Customers' openness to

innovation of novelina in the past: market share of even-better novelina in 2005: 90%

• Customers' willingness to switch to fast novelina in the future: 90%

EFC Novelina Business

Source:

17

Example of a ‘problem statement’ and core ‘sub-issues’ to be solved

• What is the business opportunity for our new product, ‘novelina’?

• Market/ competitor analysis and novelina positioning

• Product and customer value proposition

• Business-model organization and processes required

• Management team skills and capabilities required

• Financial opportunity and returns analysis

• Risks and mitigation activities

• Implementation road map

Problem statement Sub issues to be solved

18

• More options• Better performance• Lots of service• Value for money

Customer needProduct characteristics

• Emotional styling• novelina with

– Many new options– Enhanced

performance

EFC value added

• 24-hour customer service for novelina customers

• Leveraging experience as low-cost producer of foars to offer novelina at today's market price

NOVELINA VALUE PROPOSITION

Value proposition

A better product with more options and an innovative styling at the same price as regular novelina, plus 24-hour customer service

Source:

19

1.000 1.300 1.650 2.030 2.500

4.2404.436

4.7605.000

2.0002.300

2.640

3.040

3.500

4.000

2002

Service seekers

ESTIMATED CUSTOMER SEGMENT DEVELOPMENT, 2002-2006

'000 €

2003 2004 2005 2006

Value seekers

Option lovers

7,000

7,8408,780

9,830

11,000 12

CAGR*, 2002-06%

15

6

*Compound average growth rate

Source:

6

20

Example of a ‘problem statement’ and core ‘sub-issues’ to be solved

• What is the business opportunity for our new product, ‘novelina’?

• Market/ competitor analysis and novelina positioning

• Product and customer value proposition

• Business-model organization and processes required

• Management team skills and capabilities required

• Financial opportunity and returns analysis

• Risks and mitigation activities

• Implementation road map

Problem statement Sub issues to be solved

21

ORGANIZATIONAL STRUCTURE OF EUROPEAN NOVELINA COMPANY

Proposed new business unit

CEO

CFO COO Head of corp. center

Novelina SBU* Great foar SBU

* Strategic business unit

Source:

22

ORGANIZATIONAL STRUCTURE OF NOVELINA BUSINESS UNIT

Novelina SBU

Manufacturing Sales and marketing

Customer service

Systems support/

back office

Source:

23

Key activities

• Research and develop product innovations

• Understand customer needs

• Test/pilot new product innovations

Develop product Produce product

• Purchase raw materials

• Operate plant• Control quality

of output• Improve

production flow

Package product Ship product

• Develop package design

• Package product• Develop

innovative promotion format

• Control quality of output

• Store bulk product

• Load transport vehicles

• Track orders and shipments

CORE PROCESSES – MANUFACTURING

*Total quality management

Source:

Skills • Strong R&D, tied to marketing

• TQM*

• Purchasing• Cost control• Efficient plant

operations

• Cost control• Quality control

• Efficient packaging/ loading

• Transport deployment

StaffingFTEs

2 34 10 10

24

CORE PROCESSES – SALES AND MARKETING

Key activities

• Perform market research– Surveys– Question-

naires– Sales rep

feedback

Understand customer needs

Develop marketing strategy

• Gain in-depth consumer understanding

• Define product positioning

• Develop ad/promotions strategy and implementation concept

Develop sales strategy

Sell to customers

Bill customers

• Prioritize potential outlets

• Develop account plans

• Negotiate sales with retailers

• Conduct pricing analysis

• Close contracts

• Send bills• Process

payments

* Including 35 field sales managers

Source:

Skills • Quantitative/ analytic analysis of data

• Communi-cation

• Advertising expertise

• Marketing expertise

• Sales expertise

• Customer relations

• Communi-cation

• Negotiation• Pricing

analysis• Sales

experience

• Accounting skills

StaffingNo. of FTEs

2 5 5 37* 4

25

Key activities

• Select accounts to focus on

• Develop account plans• Schedule account visits• Visit/call on accounts

Maintain account relationships

Operate phone center

• Schedule 24-hour shifts• Train operators• Monitor calls

Respond to customer concerns

• Advise over phone• Send service reps to

customer• Operate in-house

service center

CORE PROCESSES – CUSTOMER SERVICE

Source:

Skills • Account planning• Customer relationship

management

• Communication• Technical knowledge• Operations efficiency

• Communication• Technical knowledge• Repair and maintenance

know-how

StaffingNo. of FTEs

5 8 90

26

Key activities

• Understand needs of manufacturing, sales, and customer service areas

• Design support systems to meet their needs

Design systems Operate systems

• Run day-to-day computer systems

• Run help desk• Advise with

technical support

Service systems

Provide back-office support

• Service malfunctioning systems

• Repair equipment

• Provide secretarial support to manufacturing, sales, and customer service

• Provide legal advice

• Provide accounting services*

CORE PROCESSES – SYSTEMS SUPPORT/BACK OFFICE

* Partly outsourced

Source:

Skills • Systems expertise

• Software design• Programming

skills

• Technical skills• Communication

• Equipment repair

• Secretarial skills• Legal• Accounting

StaffingNo. of FTEs

5 5 4 10

27

NOVELINA BUSINESS UNIT STAFF POSITIONS

Head of novelina SBU (1)

SVP of manufacturing (1)

SVP of sales and marketing (1)

SVP of customer services (1)

SVP of systems/ back office (1)

R&D specialists (2)

Plant personnel (50)

Quality control engineers (4)

Sales reps (35)

Advertising and marketing specialists (12)

Market researchers (2)

Billing coordinators (4)

Major account reps (5)

Service mechanics (90)

Phone reps (8)

Information technology (14)

Human resources (6)

Legal (2)

Finance (2)

FTE( )

Source:

28

Example of a ‘problem statement’ and core ‘sub-issues’ to be solved

• What is the business opportunity for our new product, ‘novelina’?

• Market/ competitor analysis and novelina positioning

• Product and customer value proposition

• Business-model organization and processes required

• Management team skills and capabilities required

• Financial opportunity and returns analysis

• Risks and mitigation activities

• Implementation road map

Problem statement Sub issues to be solved

29

DEVELOPMENT OF KEY FINANCIALS, 2007-2012

2007 2009 2012 2007 2009 2012

2007 2009 2012 2007 2009 2012

Revenue EBIT

ROS RONA%%

€ millions€ millions

BASE CASE

-144 -51

1,162

65

1,847

6,785

-3 17-222 -17

67

-178

Source:

30

FIVE-YEAR PROJECTION OF PROFIT AND LOSS STATEMENT

€ millions BASE CASE

Revenue

Expenses% of revenues• Cost of goods sold

% of revenues• Marketing and sales

% of revenues• Administration

% of revenues• R&D

% of revenues

EBIT% of revenuesInterestTaxes

Net income% of revenues

2007 2008 2009 2010 2011

65

209322

81125

558530464366

-144-222

30

-147-226

513

626122348

68152

3058116814

-113-22

80

-121-24

1,847

1,898103

1,18264

36220

1659

18910

-51-312

0

-63-3

3,887

3,51090

2,29559

61716

3058

2938

3781012

5

3619

6,785

5,62383

3,89157

96314

4807

4246

1,1621712

340

79312

Source:

31

FIVE-YEAR PROJECTION OF CASH FLOW STATEMENT

€ millions

BASE CASE

Cash year in2007 2008 2009 2010 2011

Sources of cashNet income:+ Depreciation (amortization)Increase/decrease in+ Trade and other payables+ Employee benefit liabilities+ Deferred tax liabilities+ Long-term debt and loans

Total sources of cash

Use of cashIncrease/decrease in: Trade and other receivables+ Inventories+ Fixed assets+ Interest

Total use of cashIncrease/decrease in cash+ Financing (increase of equity)

Cash years out

0 4 33 31 236

-1478

850

50

-12112

1630

80

-6319

2360

50

36185

36810

793103

499

840

1438

315

5412

83

62241216

156831235

227155

1248

-76 -10 +35 491 1,038

70-146150

77-87120

114-79110

286205

0

442596

0

4 33 31 236 832

Source:

32

FIVE-YEAR PROJECTION OF BALANCE SHEET – ASSETS

€ millions BASE CASE

Current assets

Liquid assets

+Trade and other receivables

+ Inventories

Total current assets

2007 2008 2009 2010 2011

4

14

15

33

54

8

46

81

33

68

18

119

101

20

81

183

31

130

34

195

152

39

113

299

236

286

69

591

279

124

155

751

832

513

117

1,462

509

227

282

1,744

Fixed assets

Gross value

– Accumulated depreciation

Total fixed assets

Total assets

Source:

33

FIVE-YEAR PROJECTION BALANCE SHEET – LIABILITIES AND EQUITY€ millions

Current liabilities

2007 2008 2009 2010 2011

Trade and other payables

+ Employee benefit liabilities

+ Deferred tax liabilities

Total current liabilities

Long-term liabilities

Long-term debt and loans

Total long-term liabilities

Total liabilities

Equity

Share capital

+ Retained earnings

Total equity

Total liabilities and equity

8

5

0

13

50

50

63

150

-132

18

81

24

8

0

32

130

130

162

270

-249

21

183

47

14

0

61

180

180

241

380

-271

109

299

83

22

1

106

180

180

286

380

85

465

751

132

31

85

248

180

180

428

380

936

1,316

1,744

BASE CASE

Source:

34

PROJECTION OF EBIT, ROS, AND RONA, 2007-2012

ROS%

RONA%

EBIT € millions

BASE CASE

-144 -113 -51

378

1,162

-178

-62-17

50 67-222

-22

-3 10 17

Source:

35

BUSINESS EVALUATION THROUGH DCF* METHOD

-144 -113-51

378

1,162

2008 2009 2010 2011 2012Residual value**

30 27 24 21 18 15.5Discounting rate%

NPV of free cash flows is € 4,653 million

BASE CASE

*Discounted cash-flow analysis**Last year’s cash flow with yearly growth rate of 2.5% discounted by 15.5%Source:

€ millions8,938

36

DESCRIPTION OF CASES

Base case• Development as expected

Worst case• Competitors (Trinity novelina, Wonaby novelina)

developing novelina in two to three years• Market growth limited (3%)• Price war driving down market price by 10%-15%

Best case• Market exit of Kings novelina company• Market growth exceeding expectations

(15%-20%) mainly driven by introduction of novelina

• Price discrimination for option levers by 10%

Source:

37

512

1,162

2,014

COMPARISON OF EBIT, ROS, AND RONA BETWEEN CASES

Worst case

EBIT€ millions

Base case Best case

ROS%

RONA%

5

1724

32

6785

Source:

38

BUSINESS EVALUATION THROUGH WEIGHTING CASES

Base case

Worst case

Best case

DCF€ millions

4,653

6,221

-138

Probability%

Value of EFC's novelina SBU€4,008million

Source:

39

Example of a ‘problem statement’ and core ‘sub-issues’ to be solved

• What is the business opportunity for our new product, ‘novelina’?

• Market/ competitor analysis and novelina positioning

• Product and customer value proposition

• Business-model organization and processes required

• Management team skills and capabilities required

• Financial opportunity and returns analysis

• Risks and mitigation activities

• Implementation road map

Problem statement Sub issues to be solved

40

IMPLEMENTATION ACTION PLAN AND TIMELINE

• Finish final product development

• Set up business unit

• Hire new staff

• Train new staff

• Begin production

• Develop marketing strategy/ads campaign

• Begin ads campaign/ sales rep visits

• Roll out novelina

• Start up customer service phone center

• Send out account reps

• Follow up surveys with early customers

• Fine-tune product

J F M A M J J A S O N DActivity

Month

Source: