Cup Russia 2013
Recommendations of Corporate finance department concerning possible acquisition of “Kalina� concern
MindStream Prepared by
Eliseeva Tatyana Kohlsdorf Daniel Kokareva Ekaterina Molodina Elena
We recommend to proceed with Kalina acquisition negotiations The estimated bid price is 19,5 bln RUR The value of standalone Kalina business is 16,3 bln RUR The value of Kalina business with account for synergies is 26,5 bln RUR
Future benefits of integration • The deal meets Unilever’s goal of boosting it’s personal care-unit (fastest growing category) • Dominant market shares in the Russian personal-care market (of 9,6 bln euro) • Possible reduction of costs by as much as 30 million euros after the acquisition • Doubling of existing portfolio (to 540 mln euro) • Increase in sales due to combination of well-organized modern and traditional trade channels
Russian market and Kalina are projected to grow in medium term, there for it is advisably to acquire the target Source: case data, company data, team estimates
The risks of acquisition is considered to minor and could be eliminated by integration itself
Russian beauty and personal care market demonstrates robust growth Russian personal care market
•
Henkel L'Oreal
6,2%
10,2%
• •
P&G
6,0%
Unilever Beiersdorf
13,5%
9,0% 12,0%
30,0%
14,2%
9,0%
Kalina Middle-level international Middle-level Russian
19,9%
Minor local players
…is characterized by high level of concentration Value share 2011, market growth (%) October
September
0,1 0,19 0,13
The Russian Beauty and Personal Care market is far to be saturated and is expected to increase a 4% value annual growth rate in the upcoming 4 years (2011-2015). Entry of various segments in Russia, % Styling products
Shampoo+C onditioner
47
Hair colors
H&B
0,12 0,07 0,06
The largest market in Western Europe and 8th largest in the world 9,6 billion Euro in 2010 (+6,9%) +9,1% in value and +5,9% in volume (Q1 2011)
55
Hair care products
60
Shower gels
Face care
72
Antiperspirants -1,2 August
Facial care
0,2
10,8 -1,5
-0,5
0,5
81
1,5
2,5
3,5
4,5
The face care segment shows stable growth as well as H&B, shampoos segment is slowly recovering from sluggish august Source: case data, Euromonitor International
85
Shampoos
99 0
20
40
60
80
100
There is no opportunity to grow through extension of new segments in Russia
"Kalina" has become one of the most dynamic companies in the Russian consumer market. The competitive environment in the major markets 80
Kalina is present in • Russia, • CIS countries, • Europe
17,8 bln RUR
70 60 50
40 30 20 10
26,4 bln RUR
F a c i a l c a r e
Nevskaya kosmetica 6,8
Svoboda 5 L'Oreal 14,1 Kalina 30,4
0
Kalina 10,9
L'Oreal 12,2 Unilever 12,3 Henkel 17,2 P&G 21,2
S h a m p o o s
Ukraine, Kazakhstan and Belarus account for about 70% of non-domestic sales
Kalina concern takes up lion’s share of Russian facial care products market and is in line with Unilever share in shampoos segment
Decomposition of sales by brand 100% others
Oral care products market
80% 60% 40% 20% 0%
29 10 12 14
Hair care products market
7,7%
10,9%
Facial skin care products market
35
Source: case data, company data, team estimates
Hand and body skin care products market
Kalina
30,4%
Others
35,6%
Although “Kalina” is quite an attractive asset there are some risks peculiar to it
Company image
Production quality
Price policy
Broadening of assortement
Improvement of distribution processes
Marketing actions
Other
11%
16%
19%
13%
15%
23%
"Kalina" business activity risks’ map High
Increasing competition from the multinational corporations
Moderate
Negative changes in economic situation in Russia and CIS Changes in Negative consumer changes in preferences legislation in Russia and CIS
Low
Dependence on dealers and retail buyers in distribution processes may lead to decline in turnover and competitiveness of the company
Impact of various factors on Company’s competitiveness
Risk Likelihood
Unilever should take into consideration the following risks: • Inability to achieve the synergies and value creation contemplated by the transaction • Failure to promptly and effectively integrate the businesses of “Kalina” concern and Unilever • Extra costs created by integration processes • “Kalina” won’t be able to show the projected growth of sales and revenue
Low
Moderate
Risk Impact Source: case data, company data, team estimates
High
3%
The weak factors concerning lower marketing costs and innovation comparing to the international competitors can be easily eliminated by the future integration with Unilever • • • •
• • •
•
• •
broad distribution network high and consistent quality of goods and services active advertizing policy the brands of the Concern have high awareness indicators Russian consumers find local products more natural lower price and maintaining the quality level at world standards proximity to the consumer, which allows to collect specific consumption data, and to react promptly to changes own Research Center in Yekaterinburg
•
target consumer group will be growing together with the wellbeing of the nation market growth in nominal and in money terms
•
•
• •
• •
•
low level of innovation in comparison with international competitors specialized Retail: leading retail chains such as "Arbat Prestige" and "L'Etoile" prefer to work with multinational brands. growing domestic consumer loyalty to foreign brands. marketing costs of international competitors are much higher
increasing competition from the multinational corporations, changes in consumer preferences, changes in taxation, currency and customs regulations of the countries of destination for Concern’s products export. changes in currency rates, inflation and interest rates.
Source: case data, company data, team estimates
After purchase some weaknesses of Kalina will be eliminated: • Kalina will get access to development of Unilever • Growing loyalty to foreign house of brands Unilever • Possibility to get access to specialized retail
The standalone enterprise value of Kalina can be calculated with DCF valuation model mln RUR
2011
2012
2013
2014
2015
EBIT
1503
1704
1863
2010
2112
Add: Depreciation
324
342
366
390
414
Less: Taxes
276
324
372
417
447
Less: Capex
453
480
462
441
408
Less: Change in Working Capital
66
153
180
216
213
FCFF
1032
1089
1215
1326
1458
Cost of Debt
10%
Beta
2.4
Risk free rate
7.0%
Standard risk premium
5.0%
Specific company premium
2.0%
Cost of equity
21.1%
Share of debt
63.9%
Share of equity
36.1%
WACC
12.7%
Terminal Value
9,954 bln RUR
Fair EV
16,263 bln RUR
Taking into account the synergies listed we calculated the final Kalina price RUR'000
2011
2012
2013
2014
2015
Synergy in purchases of feedstock and packaging Costs
0
0
0
0
0
Gains
197887
413992
453338
479842
504316
Synergy in media buying Costs
0
0
0
0
0
Gains
50000
104790
114970
122156
129341
Synergy in transportation and storage Costs
46400
80000
0
0
0
Planning combined logistics network
6400
0
0
0
0
Realizing plan
40000
80000
0
0
0
Gains
91927
193051
212191
225701
239211
Syergy in administrative costs Costs
2000
14600
4800
0
0
Gains
0
8200
8200
8200
8200
Synergy in reduction of sales costs Costs
90000
180000
0
0
0
Gains
225000
450000
450000
450000
450000
Synergy in improvement of distribution platform Costs
0
0
0
0
0
Gains
659623
1379973
1511126
1599473
1681053
Synergy inusage of Unilever know-how in Kalina production Costs
2500
0
0
0
0
Gains
129880
272858
329811
344993
377782
Added 10,253 synergies bln PV RUR
MindStream will solve any problem
• Team Kohlsdorf Daniel Eliseeva Tatyana Moscow MSU Faculty of economics Master degree in 2014 eliseeva.tatyana91@gmail.com +7-915-359-42-13
Munich TUM Faculty of economics Master degree in 2014 +49-175-937-37-32
Molodina Elena Kokareva Ekaterina Moscow MSU Faculty of economics Master degree in 2014 kokareva.e@gmail.com +7-916-931-21-48
Moscow MSU Faculty of economics Master degree in 2014 elenamolodina@yahoo.com +7-985-310-28-00
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