Вы находитесь на странице: 1из 39

BCG VALUE CREATORS REPORT: "SPOTLIGHT ON GROWTH"

Axel Roos, Partner, BCG Berlin


Berlin, 19 June 2007

The Boston Consulting Group

AGENDA

Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy

Question? Comments? Discussion!

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

-1-

AGENDA

Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy

Question? Comments? Discussion!

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

-2-

BCG THE FIRST ADDRESS IN STRATEGY CONSULTING


3,300 Strategists in 61 Offices and 36 Countries
Toronto New York Washington, D.C. Detroit Atlanta Chicago Boston New Jersey Amsterdam London Brssel Paris Frankfurt Stuttgart Lissabon Madrid Barcelona Zrich Mailand Kln Dsseldorf Oslo Kopenhagen Stockholm Helsinki Moskau Hamburg Warschau Berlin Athen Prag Budapest Wien Rom UAE(1) Mnchen

Peking Shanghai Seoul Tokyo Nagoya Taipei Hongkong Bangkok Kuala Lumpur Singapur Jakarta

San Francisco Los Angeles Dallas Monterrey Mexico City Houston Miami

Neu Delhi Mumbai

So Paulo Santiago Buenos Aires Sydney Melbourne Auckland

(1) 2007 Source(s): BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

-3-

SUSTAINABLE GROWTH SATISFIED CLIENTS


265 m Revenues 620 Consultants in Germany in 2005
Mio.

300

250

Growth > 10 % p.a. since 1974


New clients BCG client since

200

150

2 to 4 years 5 years or longer

100

50

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source(s): BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

-4-

WE WANT TO HIRE 310 PROFESSIONALS IN GERMANY IN 2007

Permanent entry: Associate / Consultant 210 Associates / Consultants in 2007 Junior Associate: entry as Bachelor Associate: entry with diploma or PhD Consultant: possible with 3+ years of professional experience 2 (+2) weeks entry training Immediate staffing on a project

Entry for a time": Visiting Associate Great opportunities for the best: 100 Visiting Associates for 2007 Full integration as consultant in a BCG project team Full responsibility for the assigned tasks Presence at the client Flexible start and end Duration of 8 12 weeks

Application Comprehensive written application Two rounds of interviews

Application Application after pre-diploma One round of interviews

Source(s): BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

-5-

FAST CAREER DEVELOPMENT FLAT HIERARCHIES

Focus
23 % 41 % 17 % 9% 10 %

Client relationship
Partner / Managing Director

Project management

Principal Project Leader

Module responsibility

Consultant Associate 0 1 2 3 4 5 6 7 8 Years

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

-6-

FURTHER DEVELOPMENT AFTER BCG


Selected BCG Alumni in Germany
Board Members
Marcus Englert, MdV

9%

Entrepreneurs/Private Equity 14 %
Ulrich Biffar Tobias Bachmller

Managing Directors
Peter Dill

9%

Hanno Petersen, MdV

Susan Hennersdorf, GF

Marc Bitzer, Prsident Europe and Executive Vice President Whirlpool Corporation Johannes Zll, GF Eric Strutz, MdV Torsten Ecke, CIO

Bernhard Heizmann Achim Schmitz-Mertens Stefan Brand

Hanns Ostmeier Michael Hehn

Philipp Busch, GF Guido Colsman, VdG Jens Deerberg-Wittram, GF

Johannes Zll, GF Felix Hufeld, VdGL Klaus Srensen, GF

Management
Matthias Gillner Jochen Olbert

47 %
Justus Klker Peter Lffler Marcus Nadenau

Academic Career

4%

Strategy/Planning
Frieder Kuhn

17 %

Hubert Strbel Thomas Volland Harald Schmidt Stefan von Dobschtz

Prof. Walter Schertler, Prof. Jens Hermsdorf Strategisches Management School of International Business Arndt Rautenberg Gernot Sauerborn

Alexis von Hoensbroech Inga Jrgens Helmut Meysenburg Claudia Palme John McNamara Thomas Fischer

Annette Veltmar Carla Kriwet

Assistant Professor Thomas Weber, Stanford Graduate School of Business

Akio Ito Timmo Sturm

Heinz Hackl

Tihamr von Ghyczy, Darden School of Business

Total number of BCG Alumni in Germany: ca. 1,100 Total number of BCG Alumni in Germany: ca. 1,100
Source(s): BCG analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

-7-

CORPORATE DEVELOPMENT AS ONE OF OUR WORLD-WIDE PRACTICE AREAS


Broad Industry and Functional Expertise
Consumer Goods Corporate Development Operations High Tech Telco Financial Services Energy Industrial Goods Health Care Pharma

Organization Information Technology Marketing and Sales Strategy

Source(s): BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

-9-

INTRODUCING BCG'S CORPORATE DEVELOPMENT PRACTICE OUR TOPIC MAP


Corporate Strategy Corporate Finance Post-merger Integration Integrated Financial Strategy

Create
Corporate vision Industry landscaping Portfolio strategy Growth strategy

Execute
Partnering/alliances M&A IPO & divestitures Private equity

Integrate
Pre-PMI planning PMI organization/ setup PMI execution

Deliver
Value-based management Strategic planning Investor management Capital structure Risk management

Source(s): BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 10 -

AGENDA

Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy

Question? Comments? Discussion!

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 11 -

BCG WITH ONGOING RESEARCH ON VALUE CREATION

1999 The Value Creators"

2000 "New Perspectives on Value Creation"

2001 "Dealing with Investors' Expectations"

2002 "Succeed in Uncertain Times"

2003 Back to Fundamentals"

2004 The Next Frontier"

2005 Balancing Act"

2006 Spotlight on Growth"

Sources of value creation: Cash flow margin Asset productivity Profitable growth

Key value drivers from the capital, customer and employee view External market expectations

Importance of expectation premiums Drivers behind expectation premiums

Agenda for improved, sustainable value creation Preventive crisis management necessary

Fundamentals drive TSR Profitability above cost of capital Profitable growth Dividends

Decomposition of TSR into fundamentals, cash flow and multiple Relative multiple regression

Implementation: TSR fact base Appropriate TSR aspiration Redesigned management processes

Role of growth: Achieving superior value creation Managing critical tradeoffs Setting growth targets

Note: Reports can be downloaded at http://www.bcg.com/corporatedevelopment/cfs_value.html Source(s): BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 12 -

NOT ANOTHER "HOW TO GROW" STUDY, BUT HOW TO EVALUATE GROWTH IN AN INTEGRATED FINANCIAL STRATEGY

Content
The Role of Growth in Achieving Superior Value Creation The Impact of Growth on Valuation Multiples Growth, Margins, Multiple and the right kind of Growth Evaluating Growth Investments Against Alternative Uses of Capital Growth versus Dividend, Debt Repayment and Share Repurchases Setting Growth Targets That Drive TSR Initial TSR Target, Plan Assessment, Alternative TSR Scenarios Ten Questions About Growth Every CEO Should Know How to Answer Appendix: The 2006 Value Creators Rankings

Source(s): BCG Value Creators Report 2006


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 13 -

SOME INITIAL DEFINITIONS


Total shareholder return is often referred to as TSR

Value creation (TSR: Total Shareholder Return)

Change in share price plus dividend yield TSR is presented on an annual basistypically over 1, 3 and 5 year periods Yardstick for all investors including hedge funds and mutual funds Required reporting in proxy statements Easily benchmarked on relative basis as shareholders true bottom line

Valuation (P/E or EBITDA multiple) Value based management (VBM)


Source(s): BCG analysis

Contains information about how investors value earnings Change in relative valuation multiples is manageable Calculated on a current or forward basis

Alignment of key management processes Target setting, performance metrics, budgeting, planning, resource allocation, and incentives
- 14 -

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

CREATING SUPERIOR SHAREHOLDER VALUE YEAR AFTER YEAR IS A DIFFICULT TASK


Relative TSR Analysis 1996-2005

Number of 600 companies(1)


500

569 532

400

347

324

300

200 132 106 100 31 1 0 0 1 2 3 4 5 6 7 8 9 4 9

Denmark

1 10

Number of years in which they beat the local market(2)


(1) Sample characteristics: 2,056 companies excl. financial service companies; continuously listed for at least 10 years; market cap above $1B as of end 2005 (2) Relative TSR > 0 Source(s): Thomson Financial Datastream; Bloomberg; BCG analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 15 -

HOWEVER, HIGH TSR POSSIBLE IN EVERY INDUSTRY


High, Low and Average TSR Per Industry 20012005
Mining & Mat. Transp. Auto- Mach. Chem. & Log. motive & Constr. Travel& Tourism Cons. Goods Pulp & MultiPharma Paper business Media & Entert.

Utilitity

Retail

Tech.

100%

TSR p.a. 01 '05


80%

88% 74% 61% 70% 53% 43% 40%

91% 83% 67% 57% 50% 34% 38%

60%

40%

20%

19% 12% 9% 9% 9% 8% 6% 5% 5% 5% 0% -3% -1% -12% -20% -26% -19% -28% -38% -26% -31% -41% -35% -18% -25% -2% -6% -6%

0%

-20%

High Weighted Average Total Sample Low

-40%

-60%

Question: What are the success factors of top performing companies in our client's industry? Question: What are the success factors of top performing companies in our client's industry?
Source(s): Thomson Financial Datastream; BCG analysis.
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 16 -

TSR DECOMPOSITION IS A PRACTICAL FRAMEWORK LINKING PERFORMANCE TO TSR


An Integrated Approach To Value Creation Here: Based On EBITDA
Sales growth EBITDA growth

% %

x
EBITDA margin change Growth variables, e.g. asset growth Profitability variables, e.g. gross margin growth

Capital gain

EBITDA multiple TSR

Cost efficiency variables, e.g. inventory turnover Leverage variables, e.g. debt/capital ratio

Dividend yield Free cash flow yield

% % %

Other variables, e.g. dividend payout ratio Industry specific variables, e.g. average store size
Contribution to TSR can be calculated - 17 -

Share buybacks Debt repayment

Source(s): BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

WORLD TOP DECILE: SALES GROWTH AND MULTIPLE MOST IMPORTANT


TSR Decomposition Profile of Top Decile vs. Total Sample(1)
Total shareholder return
TSR index (2000 = 100)
700 600 500 400 300 200 100 0 '00 '01 '02 '03 '04 '05 152 100 88 180 68 86 95 108 50 0 '00 '01 '02 '03 '04 '05 316 445 150 100 100 100 104 109 115 128 123 624 200 152

Sales growth
Sales index (2000 = 100)
177
20% 18% 16% 14% 12% 10% 8% 6% '00 14.2% 15.3%

EBITDA margin1
EBITDA/revenue (%)
18.5% 17.7% 14.5% 14.7% 15.3% 15.8% 15.8%

103

106

114

14.7% 14.7% 12.7%

'01

'02

'03

'04

'05

Simplified five-year TSR decomposition2


20%

EBITDA multiple1
Enterprise value/EBITDA (x) 11.8 11.1 12 9.9 9.0 10
14

Dividend yield3
Dividend/stock price (%) 6%
4.9%

TSR contribution (%)


13%

10% 4% 0%

9% 6% 1% 4% 2%

9.4

9.5
4% 3.7% 2.3% 1.9% 2% 2.1% 1.3% 0% 1.7% 3.0% 2.8% 3.3%

8 6 4 6.0 7.9 7.0

9.1

8.3

9.0

2.5%

2.4%

-4% -10% Sales growth Margin change Multiple change

Dividend DY yield

0 '00 '01 '02 '03 '04 '05

'00

'01

'02

'03

'04

'05

Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysis. Disclaimer: These financial analyses are based on data and assumptions that have not been verified by BCG and are subject to uncertainty and change. Accordingly, results presented are intended only for relative comparison across alternatives. Actual future values are subject to future capital market conditions and other influences.
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

Top Decile, n = 106 Total sample, n = 1056


1 2

Industry calculation based on aggregate of entire sample. Share change and net debt change not shown. 3 Industry calculation based on sample average. - 18 -

BUT, TOP PERFORMERS IMPROVED ON ALL THREE DIMENSIONS


Global Sample versus Top Decile, 2001-2005

TSR Decomposition Profile

Fundamental value (%)


13%

Valuation multiple (%)

Cash flow (%)


14%

9%

6% 4% 1%

4%

2% 0% -2% -2%

-4%

Sales growth EBITDA margin change

EBITDA multiple change Top decile, n = 106 (TSR = 44% p.a.)

Dividend yield Total sample, n = 1056 (TSR = 2% p.a.)

Share change

Net debt change

Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysis Disclaimer: These financial analyses are based on data and assumptions that have not been verified by BCG and are subject to uncertainty and change. Accordingly, results presented are intended only for relative comparison across alternatives. Actual future values are subject to future capital market conditions and other influences. Note: Bars show contribution of each factor in percentage points of five-year average annual TSR.
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 19 -

FOR TOP PERFORMERS, REVENUE GROWTH IS THE MAIN SOURCE OF LONG-TERM SHAREHOLDER VALUE
Sources of TSR for Top-Quartile Performers, S&P500, 1987-2005
Average 40% annual TSR 35% (%) 30% 25% 20% 15% 10% 31% 5% 0% 1 year 3 years 5 years 10 years 50% 58% 60% Dividend yield Change in shares, cash and debt Change in Multiple Margin Improvement Growth

Note: Sample excludes financial companies; rolling analysis covers one, three, five, and ten-year time frames from 1987 to 2005. Source(s): Compustat, BCG analysis.
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 20 -

AGENDA

Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy

Question? Comments? Discussion!

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 21 -

EXCURSUS STARBUCKS: A RETAIL STAR MORE THAN QUINTUPLED SHAREHOLDERS' BUCKS


Total Shareholder Return (indexed and cumulated)
100%

515%

274% 183% 157% 168%

'99

'00

'01

'02

'03

'04

Company profile

Vertically integrated brand: purchasing, roasting and selling High-quality coffee beans and handcrafted beverages First store in Seattle in 1971 In 1987 Starbucks acquired Giornale chain of coffee bars (founded by a former employee) Today more than 6,600 stores in the US and significant international activities More and more trying to diversify product range and explore new distribution channels for coffee and related products

Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 22 -

TSR DECOMPOSITION OVERVIEW: STARBUCKS SHOWS IMPRESSIVE GROWTH AND MULTIPLE ABOVE PEERS
Total shareholder return(1)
600 500 400 274 300 183 200 100 0 100 '99 81 '00 85 '01 65 '02 81 '03 93 '04 100 157 168 515

Extreme sales growth(1)


350 300 250 200 150 100 50 0 '99 '00 '01 '02 '03 '04 100 113 130 100 124 130 136 146 158 196 243 315

EBITDA margin clearly above peers(2)


20% 15.7% 15.3% 16.2% 15.3% 15.8% 16.1% 15%

10%

8,2%

8,2%

7,9%

7,9%

8,1%

8,3%

5% '99 '00 '01 '02 '03 '04

TSR decomposition(3) (five year)


30% 25% 20% 15% 10% 5% 0% -5% -10% -15% 28%

EBITDA multiple(2) growing far above peers


30 24.9 26 28.7 3%

Dividend yield(4) Starbucks: no dividend


2,3% 1,9% 2% 1,4% 1,1% 1% 1,5% 1,1%

12% 8% 0% 1% 2%

22 18 14 16.8 16,4 12,1 '99 '00 12 8,7 '01 '02 16.7 15.5

19.9

-10% Sales growth Margin change Multiple change DY Dividend yield

10 6

9,8 '03

9,8 '04

0% '99 '00 '01 '02 '03 '04

Starbucks
(1) Indexed and cumulated (2) Calculation based on aggregated figures Note: Analysis based on 63 companies; minimum market value 2004: $5bn
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

Retail sample

(3) Additional components: Share change, Net debt change (4) Sample average Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Annual Reports; BCG analysis

- 23 -

STARBUCKS' GROWTH STORY: SALES MORE THAN TRIPLED IN FIVE YEARS

Sales development (indexed and cumulated)


196%

11%
315%

20%

243%

84%

158% 130% 100%

Retail sales: Sales in companyoperated stores Sale of beans: JV with Kraft in the grocery channel Licensing: Revenues from noncompany-operated stores (royalties and sales from beans)

'99

'00

'01

'02

'03

'04

Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 24 -

STARBUCKS ENTERED INTO A FADING COFFEE MARKET


After Folgers' & Maxwell's Market Share Wars, Starbucks with New Value Proposition
1980s: Declining consumption and new value proposition market share wars

Since 1990: Starbucks with steady sales growth through new value proposition

Coffee consumption (cups per person per day)

Starbucks sales(3)

3,0
2

2,0
1

1,0 1950

1960

1970

1980

1990

1990

2000

Maxwell House brand Maxwell House brand established with "affordable established with "affordable luxury" luxury" Loyal customers(1) Loyal customers(1) Folger's & Maxwell House Folger's & Maxwell House highly profitable highly profitable

Price cuts Price cuts Reduced quality to Reduced quality to lower costs lower costs Weakened brands/ Weakened brands/ consumer loyalty consumer loyalty Low gross margins Low gross margins Losses on coffee in Losses on coffee in the late 80s the late 80s

Gourmet coffee again as affordable luxury Gourmet coffee again as affordable luxury Shops as "the third place"(2) as a non-alcoholShops as "the third place"(2) as a non-alcoholserving bar with social interaction serving bar with social interaction Price premium for high quality and agreeable Price premium for high quality and agreeable atmosphere atmosphere Increased sales Increased sales

(1) 80% of Maxwell House consumers would not switch if another brand were on sale (2) Besides home and work Source: U.S. Bureau of the Census; J.C. Bradford & Co.; Press Search; Starbucks annual reports; BCG-Analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

(3) Indexed on 1999

- 25 -

STARBUCKS' GROWTH WAS ALMOST EXCLUSIVELY ORGANIC, BUT IN DIFFERENT GRADUATIONS


Different Growth DimensionsOverview
Expand sales per store Grow number of stores Explore new channels/products

Product range Coffee and related products Warm breakfast Lunch Extended hours, efficiency improvement in selling process

Domestically

Licensing stores Domestically Internationally

Merchandising

Internationally Company operated Joint ventures

Distribution channels for coffee beans Grocery Club and wholesale market

Other non-food "Hear Music"

New products in JV Frappuccino Ice cream DoubleShot

Source: Starbucks; analysts reports; press articles; BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 26 -

SALES PER STORE EXPANDED BY INCREASING CUSTOMER BASE, CUSTOMER LOYALTY AND ADDING PRODUCTS
Customer base
Expansion of customer base (Survey in 1999 and 2005) From customer average annual income of $81,000 to $55,000 Concentrated in metropolises From 78% college grads to 56%

Product range
Coffee and related products Warm breakfast Lunch, dessert

73% 54% 32% 22% 5 10 25 50

Top 50 markets have 73% of sales


Top markets

Survey: Most attractive WiFi hotspot More than hotel lobbies and airport lounges

Loyal customers
Starbucks card already has 15% of sales Drives frequency Wins new customers when sold as a gift
Source: Starbucks; analysts reports; press articles; BCG analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

High customers frequency Best customers come 16.2 times per month Average is six times a month Survey: Sixth among US brands
- 27 -

"HEAR MUSIC" IS ANOTHER NEW IDEA TO IMPROVE INTRA-STORE SALES


And Fits Starbucks' History of Selling Innovative CDs
Idea and investment What customers can do and how to earn money on it 1. Hear music Customers pick their preferred music at a terminal while having no interaction with salespersonnel Customers spend more time in store and potentially buy more coffee 2. Burn customized CD Customers can choose from over 200,000 tracks and assemble a personal collection of songs and burn them on a CD

Investment: $20,000 per store Investment: $20,000 per store


(1) Prices: $7.99 for the first and $0.99 for each additional song Source: Starbucks; analysts reports; press articles; BCG analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

At a price of about $10 per CD(1), breakeven(2) is 11 CDs per store per day
(2) Without consuming coffee while listening calculated in

- 28 -

DOMESTIC EXPANSION: GOAL EXCEEDED MANY TIMES OVER


Analysts' Quotes

May 2005 "We think Starbucks' 15,000 store target is reasonable (from 6,600 today)."

November 2001 "Our analysis suggests that there is room for a total of between 5,000 and 7,000 company-owned Starbucks ultimately in the US."

September 1999 "Our analysis ... concludes that, on a very conservative basis, the company still has room to double the number of stores ... to well over 4,000."

Source: Starbucks; analysts reports; press articles; BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 29 -

... BUT WHERE IS THE LIMIT ?


Possible Saturation of the Domestic Market

Situation today

Historic growth

Borders/constraints
McDonald's: 13,500 in the US Starbucks with no clear no. 2 (such as Burger King, Wendy's, ...) But less accepted in rural areas

From 961 stores in 1999 to present number today

About 6,600 stores in the US

Maximum of 7,000; premises Metropolitan areas: average Seattle(1), Portland, San Francisco, San Diego, Denver: 40,000 residents per store New regions: Median incomes 10% over national average and more than 175,000 residents in MSA(2)

with highest concentration still on the West Coast where the company has its roots (about 40 % of US stores)

If Starbucks reaches the saturation point, deterioration in new-unit productivity will be seen; this has not yet been observed however

(1) Seattle has average of 20,000 per store (2) MSA: metropolitan statistical areas. For details on methodology, see DB Report from Sept. 24, 1999; for recalculation Nov. 27, 2001 Source: Starbucks; analysts reports; press articles; BCG analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 30 -

EBITDA MARGIN REMAINS CONSTANT ...


... And Clearly Above Peer Group

20%

15%

Interpretation

10%

Majority of sales comes from branded, high margin lifestyle coffee products
Total retail sample Starbucks

5%

Additional increase of margins by royalties from non-company-operated stores Leverage of brand and margins by licensing coffeerelated products Transfer of proven high margin product and store concept by impressive sales growth (no erosion of margins)

0% '99 '00 '01 '02 '03 '04

Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis


HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 31 -

STARBUCKS' MULTIPLE FAR ABOVE PEERS BUT FIRST DOUBTS ARISE IF SUSTAINABILITY IS STILL GIVEN
Almost Doubled between 2002 and 2004
Interpretation
24.9 16.8 16.7 15.5 28.7 19.9

Stock price reflects future expectations, but EBITDA multiple reflects past (or its extrapolation) future growth expected No dividends distributed, thus earnings are distributed to shareholders via pricetreasured Brand has a high value, resulting in high immaterial assets (goodwill(1) or premium) Although marketing investment remains reasonable (1.3% of sales in 2004)

EBITDA multiple

16,4 12,1 12 8,7 '99 '00 '01 '02 9,8 9,8

'03

'04

Starbucks Total retail sample

November 2004: "20% to 25% growth is not an issue ... what's 20% to 25% worth? ... We ... believe the current valuation either assumes at least 30% growth in FY'05 or the market's pricing SBUX off FY'06 EPS. ... Starbucks' multiple appears to have peaked."
(1) Goodwill can only be accounted for if acquired or costs could be activated in certain cases
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis

- 32 -

SUMMARY - LESSONS LEARNED


Starbuck's performance is a clear growth story No dividends distributed: retained to finance further growth Mostly organic because the market is young and no serious competition is in the market yet Establishing a strong brand does not necessarily imply enormous marketing investments

JV and licensing can be important alternatives to pure organic growth Reducing capital investment, reduce risk and improve margins Profiting from the partner's knowledge when entering new markets or launch new products But: they necessitate proper control and decision processes can take longer

Chances in different regional markets can differ greatly according to regional circumstances a success story cannot simply be rolled out
Source: Starbucks; Analysts Reports; Press Articles; BCG analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 33 -

AGENDA

Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy

Question? Comments? Discussion!

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 34 -

DRIVING SUPERIOR TSR REQUIRES AN INTEGRATED CORPORATE AND FINANCIAL STRATEGY


M&A strategy Investor strategy Real Estate strategy Capital structure target Diagnose issues, opportunities, constraints, alternative TSR strategy scenarios

Integrated corporate and financial strategy

Revenue growth TSR

Margin (%)

Portfolio strategy

FCF and ROI P/E multiple Share repurchase

Dividend policy

Value-based management capability

Metrics Resource allocation Compensation

Planning Role of center Training

Budgeting Target setting Reporting

Ensure current facts, signals, effective processes to enable organization to deliver superior TSR results

This effort will focus on TSR strategy where we will integrate business strategy and competitive This effort will focus on TSR strategy where we will integrate business strategy and competitive advantage concepts with TSR facts and principles to ensure success advantage concepts with TSR facts and principles to ensure success
Source(s): BCG analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 35 -

CLIENTS STRATEGIC OPTIONS MAP TO DIFFERENT ELEMENTS OF THE TSR STRATEGY


Elements Are Highly Interdependent Must Assess in an Integrated Fashion
4
M&A strategy Impact of sale/ lease-back / 5 reduction of key fixed assets?

Acquisition of segmentcentric/ segment adjacent players? Investor strategy

Real Estate strategy

6
Revenue growth TSR Margin (%) Capital structure target Impact of share repurchase?

7
Impact of company sell/ LBO? Portfolio strategy

FCF and ROI P/E multiple

Dividend policy

1
Future prospects of CLIENTs underlying business?

2 What if scenarios for spinoff


options?

Share repurchase

Portfolio trimming potential?

Need to diagnose issues, tradeoffs, and options across all levers Need to diagnose issues, tradeoffs, and options across all levers
Source(s): BCG analysis
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 36 -

A FEW COMMENTS FROM OUR CLIENTS REGARDING INSIGHTS FROM TSR STRATEGY DISCUSSIONS
It was critical to complement the hard financial and valuation analysis with the investor perspective (the soft side). All this time we had been listening to the analysts and not the investors. Boy, did we get it wrong! The investor dialog and financial analysis gave us critical insight into how to refine our corporate and financial strategies into an overall TSR strategy. We are now heading down a path that we believe will significantly increase our valuation Chief Financial Officer

The investor insights enabled me to finally realize that we have been talking right past our investors. We are excited about growth, so we have been speaking mostly about growth with investors and analysts... When what matters to them as value investors are our true strengths high ROIC and our great free cash flow generation. This is a critical insight for us Chairman and CEO

I was dead-set against doing this work because I felt there was little to learn from the investors that I did not already know. I am a full convert and recognize the great value and insights of the work. Vice President of Investor Relations
Source(s): BCG client
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 37 -

AGENDA

Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy

Question? Comments? Discussion!

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 38 -

QUESTIONS? COMMENTS? DISCUSSION!

HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt

- 39 -