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BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS Through Strategic Financial Through Strategic Financial Initiatives and best Corporate Initiatives and best Corporate Treasury Practices Treasury Practices (With (With Corporate Case Study) Corporate Case Study) B R JAJU Director and CFO Welspun Corp IMC-Mumbai, Oct 11,2013 The New Competitive Advantage Mantras The New Competitive Advantage Mantras

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BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS. The New Competitive Advantage Mantras. Through Strategic Financial Initiatives and best Corporate Treasury Practices (With Corporate Case Study) B R JAJU Director and CFO Welspun Corp IMC-Mumbai, Oct 11,2013. Steroids. - PowerPoint PPT Presentation

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Page 1: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Through Strategic Financial Initiatives Through Strategic Financial Initiatives

and best Corporate Treasury Practicesand best Corporate Treasury Practices

(With Corporate Case Study)(With Corporate Case Study)

B R JAJUDirector and CFO

Welspun Corp

IMC-Mumbai, Oct 11,2013

The New Competitive Advantage MantrasThe New Competitive Advantage Mantras

Page 2: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Conventional Way of Managing Business /Finance

+No Ethical practices &

Growth Strategy

+IT iIlusion

=Dying Corporates

on Steroids

Steroids

304/22/23

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• Changing business landscaping : India perspective with global paradigms & New age CFO challanges

• Value propositions : Enhance enterprise value and strategy map

• Moving into new orbits : Preparing for renewed growth thru best financial practices

• Business growth strategies : M&A and key concerns

• Corporate Case Study : trigger for learnings

• Parting thoughts and key take aways

Let us take deep dive

Page 8: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Changing business landscaping (India perspective with global paradigms)

Page 9: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Global Dynamics –India’s perspective

Initiatives

2005 - After - Achieve viability of operations in global environment

- Change in mindset to become a global company

Prior to 1990s- India is the only market

- The manufacturer could sell whatever it could produce

1990-2005

- Exposed to International Markets(Products

&Capital) and Competition

Initiatives

M&AChanging Business Models (Consolidation & Outsourcing)

Customer ExpectationRegulatory

Compliances

Business Risks & Security Concerns

Governance & Best Practices

Business Dynamics

GlobalCompetition

IT enabled Processes & Technology Advancement

Page 10: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

How Global Corporates have destroyed values –Key learnings

Arrogance(Pride before fall)

Self Denial

Complacency

Emerging TechnologiesChanging Customer TastesConflicting Interests/Frauds

Exceptional Achieve of Past wraps present realitiesNobody can duplicate your products

You are smarter than others

Past Success under regulated monopolyU were chosen for success by govt

U are run with Govt. control

Greed Obsession

Justify every financial norms for growth and unearned profitsAchieve growth devoid of business fundamentals

Overleveraging and over trading on equity

Page 11: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Let us look at Corporate value destroyers

Corporate Scandal Jobs Lost Shareholders

wealth lost $ bln)

Enron Created off B/S exposures

to hide debts & losses 4500 80

Xerox Impropriety reports $ 6.5

bln. In revenue (over 5 years) 13600 3

Worldcom Hidden expenses ($ 3.9 bln)

to raise bottom line 17000 100

Merck Over $ 14 bln revenue reported

for many years, never collected NA 43

Quest.com Inflated revenue thru equip.

sales / Swaps 11000 33

And list goes on………….

Page 12: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

New Age Finance Leadership Core concerns and Challenges

Competencies & Challenges

•Understanding of how money (or value is made) or lost in business (value chain competencies)

•Appreciation of the concept of risk (risk competencies)

•Perspective on expectations of different stakeholders (stakeholders expectations competencies)

•Regulatory compliances

•Performance measurement

AS STRATEGIC GUARDIAN OF THE ECONOMIC VALUES OF AN ENTERPRISE

Page 13: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

NEW AGE CFO_KEY DIFFERENTIATORS

• Be a key enabler in • Drive growth

• Profitability – Product – Consumer

• Cost Control

• Customer analysis

• Internal controls

• Function/ Business partnership

• Asset management – F/A, Working capital (focus on inventory, receivables), Cash

• Corporate Governance.

• Risk Management

• Efficient transaction processing/ reporting Co. Financial to stakeholders

• People development

• Uphold Company Values & create an environment of trust & reliance

Moving into New Orbits

Page 14: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

• Value propositions Enhance enterprise value and strategy map

Page 15: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Radical Performance Improvement is possible…

High performance companies exist even in the so-called ‘unattractive’ industries.

L. N. Mittal

It requires mindset and willingness to benchmark,

not against the average or the comparable,

but against the best

and draw both inspiration and learning

form those benchmarks to drive oneself forward.

Page 16: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Revolutionary Balance Sheet To Capture True Enterprise Value

16

•Op. cash gen./FCF•Performing Assets•Sales Growth – New Product/Market/ Customers• Order Book-Visibility/ Profitability

•Off Balance Sheet Liabilities•LD/TP Claims•Tax /Legal Disputes•BG/CG Impact•Indirect borrowings

• Commitment Failures• Volatility -Forex /Commodity/Int.t

•Credit Rating•CustomerS & Vendors-In pipeline•Empowered HR resources•Business Intelligence•Brand Building -IPR•New Products in Pipeline• cutting Edge Technology

• Bad Publicity• Employee Disengagement•Customer mistrust.• Integration Failure -post M &A

•Financial Reputaion

TANGIBLE

INTANGIBLE

Assets Liabilities

Enterprise Value = NW +Debt Payable + Additional Value of Above Net Assets

Page 17: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Enterprise Value –Assets driving success

A company’s Assets

Intangible Assets•Human Capital•Relationships•Brands•Culture and Right Practices

•Knowledge, IT Infrastructure and Capabilities

However, it is the Intangible assets that drive the large success of a company and its enterprise value

Tangible assets are easily measured, monitored and controlled and hence are always in focus…

Tangible Assets•Land and Buildings•Plants and Equipment•Investments and Cash

•Debtors•Inventories

Page 18: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Net Profit growth

Sourcing efficiency

R&D /Technologyefficiency

Economies of scale

Efficient tax planning

Sales Volumegrowth

Higher labour

productivity

Higher supplier

credit

Fall in Inventory/Debtors

levels

Working capital

reduction

Assets getting

“sweated more”

Higher capital

productivity

Lower Capex

Lower Interest

cost

Acquisition funding Loans

repayments

Higher Cash Flows from Opns

Free Cash

Statutory Tax payments

BUILDING BLOCKS TOWARDS GENERATING FCF

Page 19: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Business Transformation- Major Enablers & Pillars.(to enhance enterprise value)

Business Drivers

Reduce Cost of Capital Divest / Hive off (NPB/NPA)

Operating Excellence Long term value creation

CostCompetitiveness

Engaged Employees

Technology Up-gradationInnovations

Customer Focus

Ethical practices & Governance

Ethical practices & Governance

WorkingCapital

Management

Reliable Operation

Throughput Improvement

RevenueGrowth

OrganizationCapability

ManpowerProductivity

Page 20: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

A Strategy Map towards Transformational Value Creation

Productivity Strategy Growth Strategy

Human Capital

Information Capital

Organizational Capital

Culture Leadership Alignment Teamwork

Learning and Growth Perspective

•Supply•Production•Distribution•Risk Management

Operations Management

Processes•Selection•Acquisition•Retention•Growth

Customer Management

Processes •Opportunity Identification

•R&D Portfolio•Design / Develop•Launch

Innovation Processes

•Environment•Safety and Health•Employment•Community

Regulatory and Social ProcessesInternal

Perspective

Customer Value Proposition

SelectionAvailabilityQualityPrice Service BrandPartnershipFunctionality

Product / Service Attributes Relationships Image

Customer Perspective

Improve Cost

Structure

Increase Asset

Utilization

Expand Revenue

Opportunities

Enhance Customer

Value

Financial Perspective

Long-Term Shareholder

Value

Page 21: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

ENHANCING STAKEHOLDERS VALUE -VALUE CHAIN : SOCIO ECONOMIC ENVIRONMENT

Critical Resources (X)

Page 22: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Preparing for renewed growth thru best financial practices

Moving into new orbits-Financial Innovations

Page 23: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Grow the volumes aggressively

Manage the net realisations judiciously

Control the costs / Eliminate the wastages ruthlessly

Sweat the assets relentlessly

S T R A T E G I C I M P E R A T I V E S

Page 24: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Cash is King-Increasing Cash Conversion

• Surplus property

- Disposal of surplus / empty properties

• Tail brands

- Disposal of non-core / declining brands

- Reduces management distraction.

Under Utilized Assets Intelligent Capital Allocation

Working Capital Management

• Invest right amount of Capex in the right places

• Capital to be allocated to attractive and strategic projects. •Capital will become more difficult to get… but not under invest in the business.

• Monitor Payback and assets turn.

• Trade working Capital

• Days Net Working Capital

• Align with Peers

Page 25: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Making Balance Sheet strong and leverageble

• Fixed assets, own or outsource → to create value and improve asset turn • Goodwill, → to enhance growth thru brand value and improve ROIC• Working Capital, → drive down the working capital to build operating efficiency • Investments → ensure safety of investments and optimize returns post tax and action plan to

minimize risks.

• Cash, → reduce the idle cash in the business to improve operating efficiency

Physical verification of assets, valuation of inventories, confirmation of balances, valuation of investment for market value thru expert valuers is critical. Mandate going

concern, Prudence and Consistency principles to protect the shareholders interest and value of business.

• Loans → take care of liability by repaying in time principal & interest • Reserve and Surplus → leverage the strength of capital to raise funds to build and grow the business • Share Capital → critical to drive ownership, voting rights, decision making and control of business

Page 26: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Issue invoice

Forecast cash

Finance working capital

Resolve disputes

Collect cash

Settle & pay reconcile

Check credit

worthiness

Credit management

Cash & liquidity management

Dispute management

Collection management

Electronic bill presentation & payment

Treasury & risk management

In-house cash management

Financial Supply Chain Management is an integrated approach to

Provide better visibility and control over all cash-related processes,

better predictability of cash flow, reduction of working capital, reduction

of operating expenses and end-to-end integration of business processes

Tripartite transfer of funds between bankers, customers & suppliers

FINANCIAL SUPPLY CHAIN – AN INTEGRATED PROCESS OF

EFFECTIVE FINANCIAL MANAGEMENT

Page 27: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

For Driving Efficiencies – Enablers & Differentiators

Best Practices – driving forces & key differentiators

Page 28: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Assess potential business risks /alarms

1. Demand shortfall

2. Competition

3. M&A integration

4. Misaligned products

5. Customer pricing pressure

6. Loss of key customer

7. Regulatory problems

8. R&D delays

9. Supplier problems

10. Cost over-runs

11. Accounting irregularities

12. Management ineffectiveness

13. Supply Chain

14. Macro-economic issues

15. Commodity price shift

16. Interest rates

17. Lawsuits

18. Natural disasters/ physical risk

19. Chance losses

Losses by category of risk

Strategic: 58%

Operational: 31%

Financial: 6%

Hazard: 5%

Page 29: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Risk Mitigation Process and Tools

Elimination

TO

TA

L R

ISK

Strategic PlanningBusiness Consulting

Re-structuring

Reduction

Technical Improvements

Risk EngineeringProcedural Changes

Managed from:- Earnings and

Reserves

RetainedRisk

RiskTransfer

Contract Terms (e.g. PVC)Insurance/ HedgesRisk Securitisation

Page 30: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

GUIDING MANTRAS OF CORPORATE FINANCENON CONVENTIONAL TRENDS

– Reliable, complete, timely MIS to support business decisions.

– Benchmark financial performance against best among peer group/Industry. e.g. cost of funds, securitization, structure financing, treasury products & mix of financing

– Focus on sustainability of business margins through efficient costing system, WC management, commodity/Forex hedges, ongoing MSR analysis and review of quality of order book (for potential LD & margins analysis)

– Monitoring of free cash flow to avoid potential NPA & sticky assets.

– Regulatory compliances & adherence to corporate policies & practices.

– Accurate budgetary & forecast to predict WC requirements and secure growth financing well ahead of the needs.

– Drive accountability & performance review supported by measurable metrics & indicators.

– Target to run all major business processes with least human intervention & have them IT enabled to ensure data integrity & seamless processing of MIS.

Page 31: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Operating Performance

EBIDTA % to Net Sales

Assess sustainability of business margins if compared with past period / Competition. (MSR being vital driver)

Process Cost efficiency

Process Cost (fixed) % to Net Sales

Process Cost (Variable) % to Net Sales

Reflect the trend and avenues for cost controls & immediate actions (mostly are controllable costs)

TAXTax (Current & FBT) %

to Net SalesReflect avenues for planning to bring down tax expenses

Measure Corporate Health-Diagnostic Tools

1604/22/23

Page 32: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Ideal Diagnosic Metrics of Corporate Health

Balance Sheet Ratios :Balance Sheet Ratios :

Red Signal : If Sales & revenue continue to climb while these ratios show a decline (Scenario happens in fast growing company), you see serious problem after some time e.g. symptoms of debt trap, signs of near insolvency, diversion of Short term funds for Long term Obligations.

Current Ratio Current Assets

Current Liabilities

Measure ability to survive in a Short term financial crisis

Debt Equity Ratio Net Worth (Tangible)

Total interest bearing Liabilities

Measures the Company’s ability to survive over Long term

1704/22/23 BR JAJU – Welspun Gujarat Stahl Rohren Ltd

Page 33: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Hybrid Ratios for Business performance :- B / S & P&LHybrid Ratios for Business performance :- B / S & P&L

Red Signal : with increasing EBIDTA margins but decline in ROCE could signify idle capacity and no sweating of assets OR could be high generation of NPA / NEA or irregular Accounting of capitalisation (Enron’s Case).

ROCEPBIT

Net Capital employed

To reflect profitability on Net Assets deployed

Inventory / Receivables Turnaround

No of Days of Sales

Reflect High Inventory / Receivables, and / or Unplanned & uncontrolled material inward

RONWPAT (Def.Tax to add back)

Tangible Net worth

To reflect accretive / decretive returns to Shareholders’ funds

EVA NOPAT – (WACC x C / E) Reflect if Organisation is creating economic value

Ideal Diagnosic Metrics of Corporate Health

Page 34: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Liquidity Ratios :-Liquidity Ratios :-

Red Signal : Depressed ratios could signal wrong or Stringent Accounting Treatments of non-cash charges. OR

Bad Management of working Capital & un-prudent Capex.

Free Cashflow (Operating)

FCF (Net of increamental WC / Capex & Tax)

If & to extent measure, future growth that can be supported & leverage capabilities

Cash ROCE / RONW

ROCE & RONW adding Non-Cash Charges

To reflect Management Performance & Value Creation for shareholders in cash terms

Ideal Diagnosic Metrics of Corporate Health

1904/22/23 BR JAJU – Welspun Gujarat Stahl Rohren Ltd

Page 35: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Best Financial Practices-Internal Controls

DetectivePreventative Corrective

Control Techniques

Segregation of duties - Authorization Matrix

Business systems integrity and continuity controls

Physical safeguard & access restriction control (human, financial, physical & information assets)

Effective planning & budgeting process

Regular Internal auditsExternal Audits Reconciliation of inventory counts with perpetual recordsComparison of reported results with plans & budgets

Page 36: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Fundamental Value of the business could be viewed as the sum of Current Operations Value (COV), and Future Growth Value (FGV)…

FGV

COV

Renewal

Conversion

Future VA growth expectations

FutureGrowthValue

FutureGrowthValue VA VA

VAVAVA

VA

VA

Current Operations Value (COV) represents the "no-growth" value of the companyFuture Growth Value (FGV) represents the investors expectation of performance improvements over and above the level of current operations

Focus on both Renewal of FGV through investments for the future ……. &

Conversion of opportunities into performance through operational excellence

Page 37: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Illustration: Projections on future profitability and value of R&D investments and M&A helped management better understand the ‘Value Gap’ to be bridged for delivering the target shareholder returns…

$2.5bn$2.5bn

2008

$6.2bn$6.2bn

2013

$2.5bn$2.5bn

$1.0bn$1.0bn

$2.7bn$2.7bn

Value of sustaining existing PAT

Value of growth in PAT

This exercise helps management in: a) better understanding the ‘Value Gap’ & implications to shareholders b) identifying/ crystallizing avenues to bridge the gap

Initial ‘Value Gap’

Value Gap

Identifed ‘Value Gap’

$2.5bn$2.5bn

$1.0bn$1.0bn

Value of sustaining existing PAT

$0.8bn$0.8bn

$0.8bn$0.8bn Talent Development (Global Leaders)Value of R&D pipeline

/ Technology

2013

Value of growth in PAT

$1.1bn$1.1bn M & A / Inorganic Growth

Page 38: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

M&A and key concerns (Focus on Cross Border Deals)

Business growth strategies

Page 39: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Most Common Cross Border Transactions

• Export of Goods/ services - fuelled by BPO/Internet

• Setting up branch offices, subsidiaries & manufacturing facilities

• Acquisitions abroad

• Raising funds thru’ foreign bourses/ ECB’s, etc

Page 40: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

UNIQUE DRIVERS TO TRIGGER CROSSBORDER M&A DEALS

• Consolidated & mature domestic markets – Do not offer sufficient opportunities to re-

invest earnings

• Overcome entry Barriers - Ease entry into markets

• Access to local advantages - Regional diversification - Tax advantages - Access to local capital markets• Betting on future technologies• Increasing value chain width• Regulatory changes

Page 41: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

KEY SUCCESS FACTORS & MAJOR ENABLERS

• Acquisition involves making judicious choices between often

conflicting priorities

• Strategic fit, friendly transaction, due diligence (Social, Economic and

Legal) & Complimentary Resources are key to Synergy

• Each acquisition has a strategic rational that must be embedded into

the

Integration Process• Two stage Integration -

– Reap benefits of Low hanging fruits in short term

– Strategic Road map to achieve long term objectives

• Without a clear understanding of Without a clear understanding of objectives and expectations the the

path of least resistance will be followedpath of least resistance will be followed

• The best partner for marriage can become the most difficult spouse

Successful M & A leads to Value Creation for Stake

Holders

Page 42: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

SYNERGIES/ OPTIONS- FOR SUCCESSFUL CROSS BORDER DELS -

• Cost Synergies– R&D, procurement, manufacturing,

selling & marketing, distribution & Administration

• Revenue Synergies- New cross selling– Pricing power & market share– Increasing each product peak level sales

extending product’s life and adding new products

• Evaluating Quality of synergy Estimates– Sources of synergies - higher margins,

increased capital efficiency, high growth & lower cost of capital

• Alternatives to Acquisition - Joint ventures & Alliances - Organic & Brownfield Expansions

Page 43: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

INTEGRATION STRATEGY

Integration Challenge & Shareholder’s value Addition

High

HighLow

To achieve integration by “ Best of Both and Transformation Process”

Low

Degre

e o

f C

han

ge in b

oth

C

om

panie

s C

ult

ure

and

Pra

ctic

es

Standalone

Absorption

Best of Both

TransformationBest Inte

gratio

n

Strate

gy

Objective - To create multinational centered around the principle of performance orientation

Guiding Principles - Values - Synergies - Respect of Talent

Page 44: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

INTEGRATION CHALLAENGEKEY TO SUCCESS OF CROSS BORDER M&A DEALS

Fast Forward

DNA of Integration….

Intellectual Integration Brands & Technology keeping

pace with market demands Benchmarking Learning & Unlearning

Operational improvements

(Best of Both) Sourcing Engineering Quality Technology

Emotional Integration Guiding Principles

Belonging to the Parent Group Communication

Social Integration Us vs Them Local vs Glocal

Page 45: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Assets Based Valuations

Business Multiples - EV/ EBITDA, EV/ Turnover, PE (EPS)

• Quicker and simpler

• Equity markets use it to judge the deals

DCF Analysis

• Allows for rigorous analysis

• Key sensitivities can be evaluated

• Additional cash flow due to synergies arising in case of mergers

Valuation Challange

““

Once identification has been completed, the process of valuing the target begins. A variety of valuation techniques are widely used in global business today, each with its relative merits

A Business is worth what someone is prepared to pay for it !”

Page 46: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Deal structuring

Financing Debt Equity ratio – bases on industry benchmarks, profitability, bankability Bridge loan, Mezzanine/Subordinated Debt, Overseas– ECB, FCCBs etc Share exchange, part cash and part share

Management Control Shareholder Agreement – RoFR, Anti dilution, Drag along, Tag along rights, deadlock

provisions, Board representation (in JVs, PE investment) Indemnities for known risks, brand transfer etc. in the Agreement

Forming an SPV Tax implications in different jurisdictions on dividend, interest income, capital gain,

operating income, etc Mauritius (incorporation status GBC I & GBC II differ in tax benefits) , DTAA Singapore (DTAA & FTAs, tax incentives in shipping) British Virgin Islands (negligible taxes)

Page 47: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Case Study on M&A and Structuring the Financial options

Page 48: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Tata Corus Merger

Deal 100% stake in the Corus group in all cash deal, valued at USD 12.94 Bn. One of the largest Indian takeover of a foreign company

Acquirer – TATA Steel 56th largest & India’s 2nd largest steel companyLowest cost steel producers

Rationale•Combined entity - 5th largest producer of steel from 56th position of TATA• Would have taken several years for Tatas to build would an enterprise of a size of Corus• Acquisition to provide significant presence in Europe

Target - Corus2nd largest steel producer in Europe. 10th largest in the world

Page 49: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Tata Corus Merger-Financing structure

TATA Steel India

Singapore Co

UK Co 2

UK Co 1

UK Co 3

TATA Steel UK Corus

100%

100%

100%

100%

100%

Debt

Debt

Debt

Debt

Equity of $ 4.1 Bn.

Equity of $4.1 bn, Quasi equity of $1.25 bn & Bridge loan of $ 1.41 b

Acquired Corus out of $6.76 bn received from SPVs & long term debt of $6.14 bn from consortium of bank

Methodology

• SPV’s were floated in UK under the name Tata Steel UK. Tulip SPV Holdings (1,2,3) which were ultimately held by a Singapore SPV

• Tata Steel alongwith the SPV’s incorporated in Singapore and UK raised the requisite debt of USD 8.8 bn constituting 68% of the total acquisition value of USD 12.94 bn.

• Debt was proposed to be pushed in each subsequent subsidiary and ultimately the same was infused as equity in Corus.

Page 50: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

Tata Corus Merger-Finacing rational

i. Tata Steel acquired Corus for $12.94 bn Equity Contribution of $ 4.14 bn & Borrowings of $8.80 bn through subsidiaries

ii. Tax consolidation in UK, tax shield on interest available to Corus

iii. Debt-equity ratio of funding is 68:32 as Tata Steel UK could not have raised so much of loan due to strict UK regulations – Thin Capitalisation norms for tax

iv. Corus paid loan out of its own cash flows and eliminated the tax to be paid on the dividend received from Corus

Page 51: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

JOURNEY TOWARDS EXCELLENCE - Encountering Challenges amidst

Survival risks and Emerging Business paradigms

A CORPORATE CASE STUDY - ON STRATEGIC FINANCIAL INITIATIVES FOR VALUE CREATION

Achieved financial & operational turnaround through innovative practices

& disciplines

Page 52: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

COMPANY OVERVIEW

• Technological Leading player in global T & D business

• Strong Brand Equity

• Professionally managed company

• Strong Quality Management Systems

• Value based Corporate Governance practices

• High commitment to Corporate Social Responsibility

• High value Corporate Initiatives

• Recognition for excellence in manufacturing, exports, safety, innovations

USA Canada

Belgium Hungary Ireland

Indonesia

India

• Global footprint with inorganic growth - Revenue ~ USD 2bln. employee strength of 7500+ - Manufacturing facilities in 10 countries across the globe

Page 53: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

FINANCIAL HEALTH RECOVERED THROUGH IMPLEMENTATION OF BENCHMARKED GLOBAL STRATEGIES

Vision and MissionCorporate Values

Industry Consolidation Low Interest Rate Partenerships&alliances

External Drivers

Improving realization -Thrust on Exports

Internal Drivers

Operational efficiency - Six SigmaMOST, Value engineering, relocation, Down-sizing, sale of non core business

Financial Re-engineering – Treasury & working

capital

Fixed cost amortized over a larger base

Higher capacity utilization

Introduction of tough measures have helped re-direct the corporate focus from survival to sustainable growth

Page 54: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

GLOBAL STRATEGY-CROS BORDER ACQUISITIONS

STEADY FLOW OF POWER & PROSPERITY

Company’s transformation from its economic turmoil to a model of wealth creation captivates overseas aspirants to join the ranks

1st acquisition in May 2005 with manufacturing site at

Belgium Ireland USA Canada Indonesia

2nd acquisition in Oct 2006with manufacturing site at Hungary

3rd acquisition in May 2007headquartered in Ireland with large presence in UK & USA

4th acquisition in may08headquartered in France

5th acquisition in oct.2008 in USA

Page 55: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

55

Value Creation Approach & Strategy – Three Phases

Today’s Position

Shift to low cost locations Divestment of non core Quality / Productivity ImprovementFinancial Re-engineering Best Business Practices

Operational Excellence

Phase

Integrated Solutions and Superior knowledge-based Products & Services Company of choice in global market

Technology Leadership

IT as a business Tool

Global LeadershipPhase

Widening Global footprint Economies of Scale Strategic business a acquisitions / expansion Marketing drivesHR Initiatives

Growth Phase – Organic

& Inorganic

Phas

es

5 Values

-Performance Excellence

-Leading Edge Knowledge

-Nurturance

-Customer Orientation

-Intellectual Honesty

Page 56: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

56

HOW FINANCIAL INNOVATIONS AND GLOBAL STRATEGIES

HAVE TRANSFORMED COMPANY FINANCIAL HEALTH -

Page 57: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

SUCCESSFUL TRANSFORMATION OF INDIAN MNC

USD mlns

Page 58: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

BUSINESS TRANSFORMATION ACHIEVED THROUGH INNOVATIVE FINANCIAL

INITIATIVES

0.8%

6.7%

0%

2%

4%

6%

8%

10%

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Interest as % to sales

7%

48%

35%

11%

0%

20%

40%

60%

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Borrowings as % to sales WC as % to sales

37

107

140

80

0

40

80

120

160

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Inventory days Debtors days

Figures above are for standalone entity

Page 59: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

STEADILY ADDING VALUE TO STAKEHOLDERS ……

1.6

1.00.8

0.5 0.4

0.0

0.5

1.0

1.5

2.0

2002-03 2003-04 2004-05 2005-06 2006-07

Debt-Equity Ratio (times)

13%18%

20%

28%

34%

0%

10%

20%

30%

40%

2002-03 2003-04 2004-05 2005-06 2006-07

ROCE % (Annualized)

Figures above are for standalone entity

10%

21%

28%33% 33%

0%

10%

20%

30%

40%

2002-03 2003-04 2004-05 2005-06 2006-07

RONW % (Annualized)

Page 60: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

PARTING THOUGHTS Enabling Deliverables Towards

Breakthru Financial Transformation

• Acceptance of inalienable rights of shareholders as the true owners of the company .

• Commitment to values & ethical business conduct.

• Be Innovative for capital efficiancy & profitable growth mind set

Integrate with business objective

• Maximize revenue thru derisking business model.

• Create & enhance long term shareholders value.

Page 61: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

New Age Financial Management- FOR ADMIRED GLOBAL CORPORATES – A VISUAL

New Age Leadership

INNOVATION/TECK DRIVEN

EFFECTIVE GOVERNANCE

SPEED

COMPLIANCE

AUTHORITIESSTAKEHOLDERS

Page 62: BREAKTHRU ENTERPRISE VALUE CREATION FOR STAKE HOLDERS

THANK YOUTHANK YOU !! !!

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