M&A: «KALINA KRASNAYA» Business Case
Valeria Abramenkova Oleg Dolzhenko Ekaterina Lee Ksenia Shapovalova 2013
Russian personal care market is one of the most promising targets of Unilever 1 Personal care market shows the greatest growth
2 Russian personal care market is among the
in Unilever’s structure
most prospective emerging markets
For instance, it outpaces the second largest segment by 91%
Russia surpasses world growth in all categories with the average value of 6,9%
Change, % 2009 vs. 2010
Growth of the segments, %
6,9
+91% 4,2 1,4
1,2 Foods
3
5,8
2,2
Personal care
Hair care
Russian personal care market is driven by several factors:
7,1% Growth of real disposable income
Sources: case data
Brands becoming affordable
5,7
4,5
6,6 4,6
4,3
Russia World
Refreshments Homecare
Increasing prosperity
8,1
7,6
Increased desire to look good
15% Increase of salaries in the last two years
Skin care
Oral care
Other
Since Russian market is very appealing it’s necessary for Unilever to consolidate it asap. The expansion to the Russian market should be carried out in the following succession
Finding weaknesses
Way of expansion
1
Choosing the company
Financial analysis
Unilever’s position in Russian personal care market can be significantly improved 1 Unilever is the 4-th largest company in Russian personal care markets…
2 …However, Unilever is poorly represented in some of its segments
Market share, %
Market share of shampoos % 19,9%
P&G Henkel Unilever L’Oreal Kalina
Henkel
30,0%
L’Oreal P&G Beiersdorf
14,2% 10,2%
Others 13,5%
6,0%
*Market share of facial care products , %
30,4
Kalina
*Market share of hand and body products, % Kalina L’Oreal&Garnier Nevskaya Kosmetika Pervoe reshenie Beiersdorf
37,7 5,0
3,0
35,6 5,0 6,8 3,6 6,5
*Market share of toothpastes , %
14,1 6,8
12,3 12,2 10,9
Kalina Unilever
6,2%
21,2 17,2
7,7
*Market share of mouth rinse , %
45,6
16,1
5,0
18,6 11,9
7,3
5,1
3,2
L’Oreal Nevskaya Svoboda Beiersdorf Kalina Colgate P&G L’Oreal Splat Kalina Colgate Avanta Splat Vita Kosmetika *Unilever has a low percentage in the sector
Sources: case data
2
Mergers and Acquisitions is the most effective way for Unilever to reach its goals 1 Organic growth does not meet the
2 …As for inorganic growth, only M&A
demands of Unilever’s strategy…
corresponds with Unilever’s sustainable plan Strategic alliance, Joint Venture, Fractional ownership and Contracts with partners allow to make business environment more friendly, it does not provide Unilever with opportunities of entering new markets or winning loyalty of new target audience.
Entry level of various segments
200 47%
No perspective growth triggered by extended entry of the segments is presumed
Organic growth focuses on long-term results
Up to now Unilever’s produce is represented in all Russian regions
Sources: case data
162
150 100
Styling
55%
Hair colors
60%
Hair care
72%
Shower gels
81%
Antiperspirants
85%
Facial care
Shampoo
99%
+76%
115
172 132
+6%
136 113 124
100
42
120 74
50 0 2005
2006
2007
2008
2009
2010
Volume of M&A market globally Volume of M&A market in Russia Despite the considerable fall in 2009, Russian M&A market demonstrates high growth rate compared to the global M&A market. Thus Unilever should take advantage of favorable economic conditions
3
The most appealing target in Russian M&A market is Kalina 1
The acquirement of Kalina will help Unilever not only to expand already existing target audiences, but to attract new ones
! Face care
2
35
Hair care
The acquisition of Kalina will help Unilever to strengthen its distribution spots:
Regional retail
Pharmacy
Traditional retail
Small non-chain supermarkets
20
!Body care
17
Mouth care
13
Child care
Saint-Petersburg
8
Other
Moscow Ekaterinburg
7
Rostov-on-Don
Novosibirsk
The acquirement of Kalina will help Unilever to gain the most low-price segment
3
The output of concern Kalina has grown both in revenue and gross profit 11,2 12,8
Revenue
Gross profit
6,0 7,3
2009 2010
2009 2010 +22%
+14%
4
Basic financial factors confirm the financial health of Kalina
CR
DR
NM
ROIC
ICR
2009
1,11
0,65
0,04
0,04
0,72
2010
1,85
0,7
0,08
0,15
2,38
factor
CR – Current Ratio; DR – Debt Ratio; NM – Net Margin Sources: case data, analysis of the team
4
The acquisition of Kalina by Unilever may lead to a number of synergies Transportation and storage Increasing production volumes will trigger unification of two separate logistics networks into a large combined network. Thus warehouse and freight costs are expected to reduce by 15 %
Reduction of working capital The period of working capital turnover will reduce by 50 days which will cut down the loan servicing costs and the costs of inflation. The saving is estimated at $6mln.
Purchases of feedstock and packaging Increasing the volumes of combined purchases for certain feedstock categories may lead to discounts which will reduce production costs by 5-7%.
Sources: case data
Administrative costs Merging of Kalina’s Head office in Ekaterinburg with Unilever’s service center in Omsk as well as the restructuring of Sales Department in Kalina will reduce the costs by $4mln.
Improvement of distributional platform The distribution network of Kalina will significantly strengthen distribution of Unilever goods and will boost the sales by 15%
Media buying Merger of the companies will strengthen the bargaining positions significantly, and will assist in improving the media buying conditions.
5
Appendix 1: DCF Method of Valuation Financial Factors Forecast
Assumptions WACC 12,5% Revenue Growth 8% EBITDA Growth 16% Corporate Tax Rate 13% Amortization 8% Capital Expenditure in % of revenue 4% Net Working Capital in % of revenue 21%
2011
2012
2013
2014
Revenue
420,2
453,8
490,1
529,3
EBITDA
62,7
68,5
79,5
92,2
Amortization
33,6
36,3
39,2
42,3
EBIT
29,1
32,2
40,2
49,8
CapEx
16,8
18,2
19,6
21,2
NWC
96,6
104,4
112,7
121,7
Evaluation 2010
2011
2012
2013
2014
2015
TV
NPV
EV
EBIT
32,4
29,1
32,2
40,2
49,8
61,2
400,5
179,94
584,44
Tax Rate
0,13
0,13
0,13
0,13
0,13
0,13
Amortization
30,4
33,6
36,3
39,2
42,3
45,7
14,36
16,8
18,2
19,6
21,2
22,9
7,21
7,16
7,73
8,35
9,02
9,74
37,02
34,95
38,43
46,27
55,5
66,36
CapEx ChNWC FCF
Sources: case data, team’s analysis
6
Appendix 2: Multiplier Method of Valuation Компании Procter & Gamble
EV/EBITDA 10,3
EBITDA margins 23,2
y = 0,7902x + 9,7698 R=0,52
30
EV/Sales
25
Unilever
10
25,5
L'Oreal
11,7
19,7
Colgate-Palmolive
11,3
25,5
10
Beiersdorf
11,2
13,3
5
7,1
13,8
0
Shiseido
9
11,5
Oriflame
8,6
13,4
Fancl
5,2
9,6
Sarantis
5,6
9,1
Revlon
7,1
19,1
EBITDA margin
14,4
Elizabeth Arden
8,4
10,9
EV/EBITDA
9,4
Natura Cosmeticos
10,7
23,6
Hypermarcas Colgate-Palmolive (India)
9
22,3
EBITDA
62,7
22,3
22,6
Enterprise Value
589,38
Avon Products
Sources: case data, team’s analysis
20 15
EBITDA margin 0
5
10
7
15
20
25
Appendix 3: Key Financial Factors 2010
2009
Current Ratio
1,85
1,11
Quick Ratio
0,75
0,49
Cash Ratio
0,17
0,1
Liquidity Ratios
Leverage Ratios Debt Ratio Debt to Equity Ratio
DuPont System
ROE 0,7
0,65
2,31
1,85
Profitability Ratios
Net Margin
Asset Turnover
0,08
1,06
3,31
2010
0,04
0,95
3,31
2009
NOPLAT margin
Asset Turnover
0,07
1,06
2010 2009
Equity multiplier
Gross Margin
0,53
0,49
ROS
0,08
0,04
Net Margin
0,08
0,04
ROA
0,07
0,03
0,03
0,95
ROIC
0,15
0,04
ROE
0,29
0,11
NOPLAT margin
Capital Turnover
0,07
2,3
2010
0,03
1,22
2009
Coverage Ratios
ROA
ROIC
ICR
2,38
0,72
Cash Flow to Debt Ratio
0,14
0,1
Asset Turnover
1,06
0,95
Inventory Turnover
3,59
2,28
2,3
1,22
Activity Ratios
Capital Turnover
Sources: case data, team’s analysis
8
Starring: Kate Lee
Ksenia Shapovalova
MGIMO Sophomore of MEO-IT
MGIMO Sophomore of MEO-IT
Member of consulting department in MGIMO Business-club
Member of the marketing module in MGIMO club «Economicus»
Valeria Abramenkova
Oleg Dolzhenko
MGIMO Sophomore of MEO-IT
MGIMO Sophomore of MEO
Member of IB department in MGIMO Business-club
Leader of the marketing module in MGIMO club «Economicus»
Econotards