KPMG Internation Case Competition 2015 (Finalist)

The Russian RoadmapModern Comfort for the Modern Home

Cines | Cook | Paul | Wang

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443

2

Intro Solution Manufacture Market Motivate Conclusion

Key Issues

Inefficient Manufacturi

ng Low Brand

Equity

Cultural Differences

Continuance of Figor JV

To pursue or not to pursue the Russian Market

?


3

The “Triple M” Plan

Manufacture Market Motivate



4

Manufacture




5

Manufacture


How do we execute a manufacturing strategy that is both low cost and sets us up to compete in the future? Build a local manufacturing factory near Moscow.

Why?

• Reduce Cost• Market Penetration• Attain State Funding

How?• Buy out local factory

or• Acquire small

appliance company


6

Manufacture - Timeline


2015 2016 2017

Acquire and Begin Production

Renovate and Build New Production Plants

and Identify Location for Future Asia Growth

2015 2017 & Beyond

Identify Local Manufacturing Plant


7

Market



Acquire local factory




8

Market


How do we reach a fragmented Russian audience where we have low brand equity?We aggressively pursue the young Russian

market

How?

• “Modern Comfort for the Modern Home”

Why?

• Population• Demand


9

Modern Comfort for the Modern Home


Two Cities

Two Lines

Smart Promotion

Online Integration


10

Market - Timeline


2015 2016 2017

Roll out Online Implementation

Continue Marketing2015

2017

Start Marketing Campaign

Celebrity Sport Endorsements


11

Motivate



Modern Comfort for the Modern

Home



12

Motivate


How do we incubate Russian culture while insuring a strong talent pipeline to satisfy future growth? Modern training and recruitment unified under

common goal

How?• University recruitment

strategy• Rotational program• External hire process• Common goal

Why?• Lack of local

knowledge• Poorly educated

workforce


13

Motivate – Recruitment Timeline


2015 2016 2017

Partner with 2 More Universities

Be Top Recruiter at 5 Elite Universities

2015 2017 & Beyond

Partner w/ Top Russian Universities

Develop Internship Program

First Year Recruitment Class


14

Motivate – Management Timeline


2015 2016 2017 Have Process for External Transfer Hires

2015 2017 & Beyond

Recruit 3 Top Executives from Competitors

Recruit 5 execs w/ local experience

First Year Recruitment Class


15

The “Triple M” Plan




Home


Culture, Retention, & Recruitment


16

Risk & Mitigation Tactics



Can we find a factory?

Low valuations and fragmented

market allow options

Will our message hit home?

Multiple touch points & strong message allows

for reliable message

How will external hires work with

new?

Extensive screening

interview process will find right fit


17

Financials


5 Year Bear Case

$503 Million in Revenue

5 Year Base Case


5 Year Bull Case


Bull Base Bear2015 $79.8 $79.8 $79.82016 $106.9 $94.2 $81.42017 $109.1 $96.1 $83.02018 $111.3 $98.0 $84.72019 $113.5 $99.9 $86.42020 $115.8 $101.9 $88.1Total $636.3 $569.9 $503.4


18

Conclusion




Home


Culture, Retention, & Recruitment


The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

https://www.facebook.com/KPMGUS

http://www.linkedin.com/company/kpmg-us

http://twitter.com/kpmg_us

http://www.youtube.com/user/KPMGMediaChannel


20

Appendix A

Microwave (per unit) Washer (per unit)

Economy Premium Economy Premium 40 60 300 400

Direct Materials $14.60 $21.90 Direct Materials $111.15 $148.20Direct Labor 13.14 19.71 Direct Labor 100.04 133.38Manufacturing Overhead 1.46 2.19 Manufacturing Overhead 11.12 1.00Cost of Goods $29.20 $43.80 Cost of Goods $222.30 $296.40

R&D 4.25 5.25 R&D 21.00 28.00Shipping 2.00 3.00 Shipping 24.00 32.00SG&A Expenses $6.25 $8.25 SG&A Expenses $45.00 $60.00

Total Cost (per unit) $35.45 $52.05 Total Cost (per unit) $267.30 $356.40Revenue 40.00 60.00 Revenue 300.00 400.00Marginal Contribution 27% 27% Marginal Contribution 26% 26%

Total Revenue (in thousands) $1,356.44 $2,034.66 Total Revenue (in thousands) $6,067.20 $8,089.60Operating Expenses 1202.15 1765.07 Operating Expenses 5405.88 7207.83Operating Income 154.30 269.59 Operating Income 661.32 881.77Operating Margin 11% 13% Operating Margin 11% 11%


21

Appendix B

Range (per unit) Refridgerator (per unit)Economy Premium Economy Premium

400 600 500 900Direct Materials $156.00 $234.00 Direct Materials $202.50 $364.50Direct Labor 140.40 210.60 Direct Labor 182.25 328.05Manufacturing Overhead 15.60 23.40 Manufacturing Overhead 20.25 36.45Cost of Goods $312.00 $468.00 Cost of Goods $405.00 $729.00

R&D 28.00 42.00 R&D 35.00 63.00Shipping 40.00 60.00 Shipping 50.00 90.00SG&A Expenses $68.00 $102.00 SG&A Expenses $85.00 $153.00

Total Cost (per unit) $380.00 $570.00 Total Cost (per unit) $490.00 $882.00Revenue 400.00 600.00 Revenue 500.00 900.00Marginal Contribution 22% 22% Marginal Contribution 19% 19%

Total Revenue (in thousands) $27,128.86 $40,693.28 Total Revenue (in thousands) $16,955.53 $30,519.96Operating Expenses 25772.41 38658.62 Operating Expenses 16616.42 29909.56Operating Income 1356.44 2034.66 Operating Income 339.11 610.40Operating Margin 5% 5% Operating Margin 2% 2%


22

Appendix C

Oven (per unit)Economy Premium

Direct Materials $205.58 $262.80Direct Labor 228.42 292.00Manufacturing Overhead 22.84 20.25Cost of Goods $456.84 $609.12

R&D 15.00 20.00Shipping 40.00 45.00SG&A Expenses $55.00 $65.00

Total Cost (per unit) $511.84 $674.12Revenue 600.00 800.00Marginal Contribution 24% 24%

Total Revenue (in thousands) $40,693.28 $54,257.71Operating Expenses 34714.08 45720.26Operating Income 5979.20 8537.45Operating Margin 15% 16%


23

Appendix D: Operating Margin

Bull Bear BaseTotal Revenue (in thousands) $134,245.5 $79,639.6 $106,942.6Total Expenses 127,937.9 76,058.5 101,998.2 Total Income 20,824.2 5,128.9 12,976.6 Operating Margin 15.51% 6.44% 10.98%


24

Appendix E: Market SizeMarket Size Market Size (Washers)

St Petersburg St Petersburg Total Population (in thousands) 4,860 Total Population (in thousands) 4,860 % under 24-35 18% 875 % under 24-35 18%% under 35-45 26% 1,264 % under 35-45 26%Avg HH Size (young) 1.5 583.20 persons per washer (young) 4Avg HH Size (old) 2.58 489.77 persons per washer (old) 3

Max Potential Customers 1,073 Max Potential Customers 640

Moscow Moscow Total Population (in thousands) 10,500 Total Population (in thousands) 10,500 % under 24-35 18% 1,890 % under 24-35 18%% under 35-45 26% 2,730 % under 35-45 26%Avg HH Size (young) 1.5 1,260 persons per washer (young) 4Avg HH Size (old) 2.58 1,058 persons per washer (old) 3

Max Potential Customers 2,318 Max Potential Customers 1,383

Total Max Potential Units Sold (in thousands) 3,391

Total Max Potential Units Sold (in thousands) 2,022

% of market captured 2% % of market captured 2%

Market Size (units)67822.139

53 Market Size (units) 40,448.00


25

Appendix F: Income Statement

Income StatementDecember 31st (000s USD) 2006 2007 2008 2009 2010 2011 2012Total Revenue 3,156,260 3,788,084 3,404,803 3,472,899 3,542,357 3,613,204 3,685,468

Cost of Goods Sold 2,441,751 2,940,567 2,499,649 2,549,642 2,600,635 2,652,648 2,705,700Gross Profit 714,517 847,517 905,153 923,256 941,721 960,556 979,767

Selling General & Admin Exp. 492,716 592,034 683,088 696,750 710,685 724,898 739,396Other Operating Exp., Total 492,716 592,034 683,088 696,750 710,685 724,898 739,396Operating Income 221,801 255,482 222,065 226,506 231,036 235,657 240,370

Operating Margin 7.03% 6.74% 6.52% 6.52% 6.52% 6.52% 6.52%

Income Statement 2013 2014 2015 2016 2017 2018 2019 2020December 31st (000s USD) 3,759,178 3,834,361 3,911,048 3,989,269 4,069,055 4,150,436 4,233,445 4,318,113Total Revenue 2,759,814 2,815,011 2,871,311 2,928,737 2,987,312 3,047,058 3,107,999 3,170,159

Cost of Goods Sold 999,362 1,019,349 1,039,736 1,060,531 1,081,742 1,103,376 1,125,444 1,147,953Gross Profit 754,184 769,268 784,653 800,346 816,353 832,680 849,334 866,321

Selling General & Admin Exp. 754,184 769,268 784,653 800,346 816,353 832,680 849,334 866,321Other Operating Exp., Total 245,178 250,081 255,083 260,185 265,388 270,696 276,110 281,632Operating Income

6.52% 6.52% 6.52% 10.98% 11.09% 11.20% 11.31% 11.42%Operating Margin *operating margin in Russian market 2016-2020


26

Appendix G: Currency Hedging

Effect Exchange

Rate RUB/USD

in USD ($mm) Effect ($mm)

-25% 87.5 $56.0 -$24.0-15% 71.3 $68.9 -$11.1

Spot Rate 62.0 $80.0 -10% 55.8 $88.0 $8.0

Forward Rate 70.0 $70.2 -$9.8

KPMG Internation Case Competition 2015 (Finalist)

Business

Transcript of KPMG Internation Case Competition 2015 (Finalist)