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International Case Competition The ConsulTeam

Powerpoint team 6 - the consul team

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NOIR / ILLUMINATI II (A): DEFINING SOCIALLY RESPONSIBLE AFFORDABLE LUXURY CLOTHING Case study Competition - Neoma (Rouen) Business School 2013

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Page 1: Powerpoint team 6 - the consul team

International Case CompetitionThe ConsulTeam

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The

ConsulTeam

Edouard

JAMES

Jean

LEMERCIER

Maï-thi

VAN CONG

TRANG

Cécilia

COSNARD DES

CLOSETS

Beiping

OU

Salimath

ASSANIIlham

EL FARSI

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Agenda

Current Situation

Key Issues

Strategic Key Achievements

Strategic Plan

Timeline

Financial Forecast

Exit Plan

Conclusion

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• Opportunity : Increasing buying power in emerging markets

• China, Middle East and Russia

• Tendency for responsible consumerism

• From a “me-me-me” to a “me-me… and others” world.

• Fashion industry lacks CSR

• No real competitors

• Company response: “Socially responsible Affordable luxury clothing”

CURRENT SITUATION

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Luxury + Affordable = oxymoron

1. Positioning is ineffective

• Company products150% cheaper than competitors (Price

insensitive industry)

• Forgoes value underlying in sustainability

• The affordability is not compatible with the positioning

2. Company struggles to finance its operations

• Three rounds of financing in three years

KEY ISSUES

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Financial

• Increase EBIT by 11% on average

• Raise by four times the company value (80M DKK)

Marketing

• Become a leading CSR company in the fashion industry

• A strong and clarified market positioning

Strategic Key Achievements

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STRATEGIC PLANPOSITIONING ISSUE

« Show customers the added value of sustainability»

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• •Noir: luxurious image

• •Separate uniforms from Noir

• •Blue , new brand for uniforms

PRODUCT« Show customers the added value of sustainability»

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• « Show customers the added value of sustainability»

• Hire models that vehicle an appropriate brand image

•Younger employees

•Leading Scandinavian agency

PEOPLE

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•Visual communication

•Online strategy: Annual reports & Website content

•Correct consumer perception

•Public relations strategy

Promotion« Show customers the added value of sustainability»

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• New slogan: “Noir - How to make chic ethic”

• New mission statement: “Design & create modern and luxury

collections in a highly sustainable production chain.”

• New vision statement : “Noir/Illuminati II’s aim is to create a new

image for the fashion industry by combining luxury and

sustainability. We want to prove that high quality clothes can be

made in a socially responsible and ethical way.”

• CSR is the « fuel » of the company

Promotion (2)« Show customers the added value of sustainability»

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LABEL

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Increase prices by 35% (ex : $ 2,700/suit)

• Better costs coverage

• Products still cheaper than competitors’ (-10%)

• Inelasticity to the price in the luxurious sector

Pricing« Show customers the added value of sustainability»

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TIMELINE

2006-2008

• Creation of the new brand for the uniforms

• Promotion (webdesign)

• Repositioning

2008-2015

• Launch a flagship store in Copenhagen

• Entering the emerging markets

2015-2016

• Create an affordable brand

• IPO in stock exchange

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Financial Forecasts

Set of assumptions:

• 2006-2008: 10% additional turnover

• 2009-2016: 15% additional turnover

• 2009-2016: WACC reduced to 20%

• Other data remain unchanged

Financial achievements:

• Gross Margin: +7% on average

• EBIT: +11% on average

• Company’s value 4 times higher

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Evolution of Discounted Cash Flows (in DKK)

Entering

emerging

countries

and Denmark

New pricing strategy

-5000000

0

5000000

10000000

15000000

20000000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

NPV of FCF

NPV of FCF - New Strategy

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Cumulative Discounted Cash Flows (in DKK)

-20000000

-10000000

0

10000000

20000000

30000000

40000000

50000000

60000000

70000000

80000000

90000000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cumulative NPV of FCF

Cumulative NPV of FCF - New

Strategy

Original strategy New strategy

Cumulative

Discounted Cash

Flows >0

5.9 years 3.6 years

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Short-Term Involvement

•Sell the uniform division

• To generate cash (DKK 7,800,00) for further development

• Focus on Noir business and development

Long-Term Involvement

•Sell company’s shares to the remaining investors or to the

Balder Group

• Bigger volume of sales

• Give up on the luxury brand: Loss of the brand entity

EXIT PLAN

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Conclusion

1

• A new positioning based on sustainability and prestige

2

• Additional perceived value (customers)

3

• Better financial results

4• Improved financing capacity

Thank you for your attention !

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• Sensitivity analysis : The cost of capital is jeopardizing the company profit’s

• DCF Valuation of Noir (Before our plan of action)

• DCF Valuation of Noir (After our plan of action)

• Forecasted Income statement after our action plan

• Payback Time: Cumulative Discounted Cash Flows > 0

• ROCE – ROE & EVA

Appendix

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Sensitivity analysis : The cost of capital is

jeopardizing the company profit’s

Sensitivity Analysis

(+) 1% WACC (-16%) FCF

(-1%) Growth in

Terminal Period(-0,67%) FCF

(-1%) Sales (-3%) FCF

The company profitability is 6 times more sensitive to the cost of

capital than to Sales.

The cost of capital must be lowered.

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DCF Valuation of Noir (Before our plan of action)

NPV of FCF2 005 2 006 2 007 2 008 2 009 2 010 2011-2015

- 3 214 142,00 DKK

- 3 668 039,00 DKK

- 2 737 255,00 DKK

1 160 935,00 DKK

3 584 162,00 DKK

5 221 126,00 DKK

22 253 565,00 DKK

Sum of 2005-2015 FCF Net present Value

22 600 352 DKK

Perpetuity cash flow (2015 FCF) 13 953 749 DKK

@ 25% WACC –

Future value of

perpetuity 55 814 996 DKK

PV of perpetuity (FV/1,25^1

2) 3 835 577 DKK

VALUE OF THE

COMPANY (DCF) 26 435 929 DKK

The value of the company before our action plan & based on DCF is DKK 26M

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DCF Valuation of Noir (After our plan of action)

NPV of FCF2 005 2 006 2 007 2 008 2 009 2 010 2011-2015

- 3 214 142,00 DKK

- 2 451 123,00 DKK

- 232 482,00 DKK

10 104 071,00 DKK

10 380 787,00 DKK

16 168 863,00 DKK

49 392 412,00 DKK

Sum of 2005-2015 FCF Net present Value

80 613 350 DKK

Perpetuity cash flow (2015 FCF) 4 078 718 DKK

@ 20% WACC –

Future value of

perpetuity 20 393 590 DKK

PV of perpetuity (FV/1,25^1

2) 2 287 276 DKK

VALUE OF THE

COMPANY (DCF) 82 900 626 DKK

The value of the company after our action plan & based on DCF is DKK 82M

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Forecasted Income statement after our action plan

Assumptions• Additionnal growth of 10% per annum for the 2005-2007 period• Additionnal growth of 15% per annum from 2008 until 2010 (due to sales in the Middle East market)• WACC at 20% from 2008 (due to a third round of financing)

Forecast

Terminal

Period

(DKK) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EBIT -4 991 000 -5 433 200 -2 224 100 16 758 000 26 667 500 47 840 700 52 624 770 51 994 668 50 512 648 48 214 277 42 090 581 42 090 581

Adjust tax -1 397 480 -1 521 296 -622 748 4 692 240 7 466 900 13 395 396 14 734 936 14 558 507 14 143 541 13 499 998 11 785 363 11 785 363

EBIT aftertax -3 593 520 -3 911 904 -1 601 352 12 065 760 19 200 600 34 445 304 37 889 834 37 436 161 36 369 106 34 714 279 30 305 218 30 305 218

Write offs - - - - - - - - - - - -

Gross cash flow -3 593 520 -3 911 904 -1 601 352 12 065 760 19 200 600 34 445 304 37 889 834 37 436 161 36 369 106 34 714 279 30 305 218 30 305 218

Changes in

workingcapital - -848 000 -1 965 167 -5 806 833 -2 325 000 -5 788 000 -1 673 300 -1 840 630 -2 024 693 -2 227 162 -740 010 -

Changes in FixedAssets - - - - - - - - - - - -

Free cash flow -3 593 520 -3 063 904 363 815 17 872 593 21 525 600 40 233 304 39 563 134 39 276 791 38 393 799 36 941 441 31 045 228 30 305 218

Discount factor,W

ACC 1 1 1 1 0 0 0 0 0 0 0 0

NPV of FCF -New

Strategy -3 214 142 -2 451 123 232 841 9 150 767 10 380 787 16 168 862 13 249 613 10 961 431 8 929 171 7 159 499 5 013 978 4 078 718NPV of

FCF -3 214 142 -3 668 039 -2 737 266 1 160 935 3 584 162 5 221 126 5 695 070 4 215 845 2 988 055 1 994 226 1 269 026 1 198 617

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Payback Time: Cumulative Discounted

Cash Flows > 0

Original strategy New strategy

Cumulative

Discounted Cash

Flows > 0

5.9 years 3.6 years

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ROCE – ROE & EVA

Year 2008

ROCE 46.5%

ROE 25.9%

EVA DKK 182 900 000