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CREARE
Creating Value in the
FOOD & BEVERAGEA research on the main European Companies
2015
Executive Summary
THE ECONOMIC ENVIRONMENT
THE RESEARCH SAMPLE
HISTORICALPERFORMANCE: PEOPLE-BASEDVIEW
MARKET POINT OF VIEW: SUSTAINING PERFORMANCE OVER TIME
• Theglobalmacroeconomicscenario• TheEuropeancontext• TheFood&Beveragesector
• Theresearchactivity
• ValueperformancefromaPeople-Drivenpointofview
• TheFood&Beveragesectoranalysis
• Themarketandsharepricesimpli-citexpectations
• ImplicitROICandgoodwillsustai-nability
• Themarketanditschallenges
3
5 8
17 19
Glossary
HISTORICAL PERFORMANCE:THE TRADITIONAL APPROACH
HISTORICALPERFORMANCE: EVA® VIEW
OUR ‘HOT TOPICS’
ACTIVE VALUE ADVISORS.
• Brewers• Distillers&Vintners• Fishing
• Theimportanceof‘Quantity’and‘Quality’• ThemanagerialleveragetocreateValue• StructuraldifferencesamongtheFood&
Beveragesub-sectors• Championsand“Falling”Angels• ValuecreatedandMarketAppreciation
• RevenueManagement• Itstimetomanagechangeandrun
effectiveorganizations• FundamentalsofPeople-Driven
business• QuantitativeEasing• BigDataChallenge
• AboutActiveValueAdvisors.• ShareholderValue• CustomerValue• PeopleValue• CorporateValue
9 12
23 33
34
3
Executive Summary
Persisting uncertainity and consequent relatively low consumerspendingadverselyaffectedtheglobalmacroeconomicscenarioalsoduring2014,leadingtogrowth weaker than expected.
Indeed,theWorldGDPGrowthendyearvalueisveryclosetothatof2013,nonetheless,positive signals come from the European Mar-kets,whichGDPGrowthishigherthanthatofthepreviousyear.
AsfarastheEuropeanMarket,theIMFforecastshighlight,inlinewiththehigher2014(vs2013)GDPGrowth,agrowingtrendthatwillkeepfeaturing thewholeEuropeanUnionuntill 2016.Such forecastsarecertainly affected by important economic and political factors (i.e.Lower oil prices; Lower interest rates; the “Quantitative Easing”).
It is important to understand the key drivers of
Value: “Quality” and “Quantity”
In the following pages we investigate these companies’ perfor-mances according to a traditional approach, thus reporting keydataandfiguresandprovidinganinitialclearideaaboutthesector.
Hereafter,aless traditional approachisused,theso-calledEVA® view.Coretosuchaview,istheunderstandingofthekeydriversofValue,“Quality”and“Quantity”.Thisrelativelynewapproachpro-videsclearerandmore exhaustive indications about the compa-nies and sector’s performances.
ThisresearchactivityinvestigatestheimpactofsuchaframeworkontheperformancesoftheFood&Beverageindustry.This sector dynamics have indeed been shaped by socio-economic factors.Itisthusimportanttounderstandthewayinwhichthecompaniesinthesectorwillfacefuturechalleng-esandopportunitiesrelatedtothegrowingdemandandtheconsequentcommodityprice increase.Eventually,acentralroleinthefutureoftheFood&Beveragesectorisrepresentedbytheconsumers’ changing eating habitsandbythenew “green” and “go local”(km-zero)trends.
Theresearchactivityinvolvesabasketof50 European companiesintheFood & Beverage sector,whichhasbeen furthersubdivided into the following6differentsub-sectors: “Brewers”, “Distillers&Vintners”,“SoftDrinks”,“Fishing”,“FoodProducts”and“Dairy”.
Decrease in oil prices;
“Quantitative Easing”; Lower
Interest Rates
4
Thewholeanalysishasadopteda“MarketView”,sincewebelievethatpricesalwaysrevealconsum-ers’ judgmentswithwhichisfundamentaltoconfront.Moreover, it isvaluableto“read”acompany’spreformanceusingtheMarket and the prices as starting points.Thefollowingpagesprovideasnap-shotovertheCapitalMarketjudgementsontheleadingEuropeanCompanies,atApril2015.Inaddition,theyprovideadetailed “reading” of the 2014, and expected, Value Creation performances of the basketofcompaniesconsidered.
Finally,besidestheValueCreationapproachbasedonquantityandquality(return)ofInvestedCapitalwefocusedonamorePeople oriented approach,theso-calledPeople-Based view.ThisapproachideallysubstitutesCapitalwithHuman Capital,thusgeneratingvaluableinsights.WebelievethattheunderstandingofthePeople-Basedviewisfundamentalinordertokeep Value creation sustainable and durable over time.
Inlightoftheresearchoutcomes,whatcanfirmsdotoreinforceorenhancetheirValueCreationPerfor-mances?
Toanswerthisquestion,ActiveValueAdvisorswillprovideitsviewaboutsomerecent“HotTopics”thatcompaniesindifferentindustriesandsectorshavetodealwithwhenfacingchallengesrelatingtoprof-itability, efficiency and organizational flexibilityorwhentheyneedtoexploitthenewtechnologicaldevelopmentinthemost profitable way(i.e.BigData,CloudComputing,BusinessIntelligence).
A People oriented approach is
fundamental for Value creation sustainability
5
The economic environment
The global macroeconomic scenarioThe2014globaleconomicscenariohasbeencharacterizedbypersisting uncertainty andconse-quentrelativelylowconsumerspendingandgrowth weaker than expectedandwidelydifferentiatedamongthedifferenteconomicsectors.Duringthefirstsemesteroftheyear,theWorldEconomywasindeedaffectedbyaslowdowninoutputgrowthandinternationaltrade.Aftersuchadecelerationthe economic activity re-started growing slowly,reachingend-yearvaluesveryclosetothoseof2013(+3,41%in2013,+3,39%in2014)1.Morespecifically,thisistheresultofabalancingbetweenaslightgrowthimprovementinAdvancedEconomies(+1,37%in2013,+1,80%in2014)andaslightgrowthdecreaseinEmergingMarkets(+5,0%in2013,+4,60%in2014).
IMF forecasts for thenext threehalfyearssuggest a possible global improvementandhighergrowthinbothAdvancedEcon-omiesandEmergingMarkets.
This predicted growth improvement is di-rectlyrelatedtoeconomicandpoliticalfac-torssuchasthedecrease in oil prices,low inflation rates, and important decisionssuchas theQuantitative Easing, leadingtolower interest rates.Nonethelessacen-tral aspect to consider is thegrowth dif-ferential between the U.S. and the other Advanced Economies,which,throughtheeffect of opposite monetary policies, hasled to thestrenghteningof theU.S.Dollarand which, eventually could translate intorelevant improvement of the Trade Bal-ance,especiallyinEuropeanCountries.
(GDP Growth %) 2013 2014 2015f 2016f
European UnionEuro areaAustriaBelgiumFinlandFranceGermanyGreeceIrelandItalyLuxembourgNetherlandsPortugalSpainDenmarkNorwaySwedenSwitzerlandUnited KingdomEmerging Europe
0,12 1,40 1,85 1,95-0,46 0,88 1,45 1,650,23 0,34 0,86 1,570,28 1,04 1,34 1,50-1,32 -0,11 0,83 1,420,29 0,36 1,16 1,490,21 1,61 1,62 1,67-3,90 0,77 2,52 3,690,17 4,78 3,87 3,28-1,70 -0,42 0,49 1,101,99 2,91 2,52 2,31-0,72 0,88 1,56 1,56-1,61 0,90 1,60 1,54-1,23 1,39 2,46 2,05-0,49 0,99 1,64 2,010,74 2,24 0,97 1,551,28 2,14 2,66 2,831,94 1,99 0,82 1,221,67 2,55 2,72 2,332,86 2,78 2,93 3,21
Figure1.GDPGrowthinEurope
The European contextInlinewiththepredictedconsequencesoftheglobalmacroecomicforcesontotheEuropeanEcono-mies,theIMFforecastshighlightagrowing trend, between 2014 and 2016,inTheEuropeanUnionasawholeandforthemajorityofEuropeanAdvancedEconomies.Thisgrowingtrendwillbeevenmoreevidentintheso-calledEmergingEurope(+2,78%in2014,+3,21in2016).
1DataWEOInternationalMonetaryFund-WorldEconomicOutlookDatabase,April2015
91,1 94,6 89,6 97,7112,7 118
127,2
161,4
201,4
160,3
188
229,9 213,3209,8
201,8
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
The Food & Beverage sectorThedifficulteconomiccontextofthelastdecadealsoaffectedtheperformanceofthecompaniesintheFood&Beveragesector.Furthermore,duringthepastdecades,thissectorhasbeenexperiencingsocio-economicchanges,whichhavebroadeneditschallenges:theconsolidation of global major players,theopening of new emerging markets,theevolution of tastes and the technological de-velopment,havealltogetherboostedanalwayswiderproductdiversification.Thoughthesedynamicsmightbecommontomanyothersectors,thefollowingfeaturestypicallycharacterizeandaffecttheFood&Beverageindustry:
Commodity Price: thefirstrelevantissuetoconsideriscertainlythehigh volatilityofthecommodi-typrices.Theeconomicanddemographicgrowthofthelasttwentyyears,andespeciallythatoftheEmergingCountries, hasboosted theaggregatedemand,whilst thewealthgrowthhas influencedsuchademandundermorequalitativeaspects,i.e.orientingthemiddle classes consuption towards more complex and richer foods(meatandfishfromintensivefarming)whichrequiretheexploitationofmore resourcesandimplyhigher costs.Ontheotherhand,the offer is geographically and tech-nically limited.Nonetheless,thegrowingurbanizationhasreducedthespaceusedforagriculture,fur-therincreasingthegap between demand and offer.Theendresultwasthusthehugepriceincrease
registeredduring2008and2011.
Figure2.FAOFoodPriceIndex
The strenghtening of the U.S. Dollar
will be fundamental for European F&B
firms
6
7
Eating Habits: havinglowpurchasing power,consumersareincreasinglylookingfordiscountsandspecial offers,untyingthebuyingdecisionfromconsiderationsabouttheproducts’brandandhigh-lightingavastimprovementareaforwhatconcernsproducts’pricing strategies.Ontheotherhand,whentheimplementationofpricingstategiesisnotpossible,increasing the value perceivedbycus-
tomers becomes fundamental. Itis along with this last considera-tion that the “Bio Movement” isgainingincreasingsuccess.
Carbon Footprint: nowadays,theundergoingchangeineatinghab-itsissymbolizedbytheclashbe-tween“healthy food”and“junk food”,nonethelessitispresuma-blethatinthenearfuture,suchachangewillbemoredeeplylinkedto sustainability themes. It is inthis fashionthat theorientationof
consumerstowardslocallyproducedfoods(km-zero)isbecominganimportanttrend.However,con-sideringbothethical issuesrelatedtothesafeguardingofdevelopingcoutries(heavilydependingonexports)andtechnical issueslinkedtothelimitedpossibilityoffindingawiderangeofproductslocally,it is not clear if, and how, producers will be able to adapt to the “go local” trend.
Tougher Regulation: especially following the recent development ofTTIP Trade Agreements, it isnecessarytoprovidesolutionstothedebatedthemesofproperandhealthynutritionandsustainability.Thissolutionmightcomefrommandatory labelsreportinginformationaboutthenutritionalvaluesoffoodproductsandtheenvironmentalimpactrelatedtotheirproduction.Thismightthereforerepresentavaluableopportunityforthoseproducers,whichprovidingashared standardforthecomputationofthe“carbonfootprint”,shouldberewardedbyconsumers.
Retailers & Private Label: anincreasing varietyofproductsandproducersarenowavailabletocon-sumers.Indeedtheold-fashionedretailersarebecomingalso“producers”,mainlyprovidingfirst price products,whichpairedwithincreasingpricesanddecreasingcustomers’loyalty,arefindingincreas-ingspaceinthemarket.Thecommercialpoweroffamous brandsisconsequentlyreduced,whennoteliminated.
These,inanutshell,arethedynamicsthatwillcharacterizetheFoodandBeveragesectorinthecomingyears.Thewayinwhichcompanieswillfacethechallengesinthemarketwillinevitablyaffecttheirper-formanceandvaluecreated.
Figure3.FAOPrice(Dairy,Cereals,Meat)
0
50
100
150
200
250
300
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Meat
Dairy
Cereals
The research sample
The research activityTheaimoftheresearchactivityhasbeenthatof in-vestigatingtheperformanceobtainedbytheFood&Beverage sector in 2014 by analysing abasket of European listed companies.
Morespecifically,thesamplehasbeenselectedre-ferring to 50 among the first companies ranked bymarket capitalization. The companies belongingto the sample have been further chategorized into6 sub-samples:7Brewers;7Distillers&Vintners;2SoftDrinks;5Fishing;23FoodProducts;6Dairy.Abriefdescriptionofsuchcompanies isgivenby thefollowingtableandgraphs:
DataReutersThomsonOne,valuesin€Mln(DataatApril8th2015)
Figure4.Theresearchsamplepersales%
8
Northern Eu. Sales = 26%
Southern Eu.Sales = 2%
Western Eu.Sales = 72%
BRW Sales = 40,9%
D&V Sales = 13,3%
SDR Sales = 0,4%
FSH Sales = 1,2%
FPR Sales = 37,2%
DRY Sales = 6,9%
ANHEUSER-BUSCH INBEVSABMILLER PLCHEINEKEN N.V.CARLSBERGGREENE KING PLCMARSTON'S PLCOLVI OYJ
DIAGEO PLCPERNOD RICARDDAVIDE CAMPARI-MILANO S.P.A. REMY COINTREAUC & C GROUP PUBLIC LIMITED COMPANYSTOCK SPIRITS GROUP PLCLAURENT-PERRIER
BRITVIC PLCA.G. BARR P.L.C.
MARINE HARVEST ASASALMAR ASALERØY SEAFOOD GROUP ASAAUSTEVOLL SEAFOOD ASAGRIEG SEAFOOD ASA
NESTLÉ S.A.KERRY GROUP PUBLIC LIMITED COMPANYCHOCOLADEFABRIKEN LINDT & SPRÜNGLI AGORKLA ASABARRY CALLEBAUT AGARYZTA AGTATE & LYLE PLCNUTRECO NVEBRO FOODS, SASÜDZUCKER AGGREENCORE GROUPKWS SAAT AGVILMORIN & CIEGREGGS PLCSOCIETE L D CCORBION N.V.AGRANA BETEILIGUNGSLOTUS BAKERIESCLOETTA ABBONDUELLERAISIO OYJDEOLEO SAVALSOIA SPA
DANONEGLANBIA PUBLIC LIMITED COMPANYPARMALAT S.P.A.EMMI AGDAIRY CREST GROUP PLCBONGRAIN SA
DRY
BRW
D&V
SDR
FSH
FPR
Country Cap.onBEL 186.235 GBR 80.334 NLD 42.181 DNK 9.497 GBR 2.514 GBR 1.267 FIN 416
GBR 65.470 FRA 29.847 ITA 4.028
FRA 3.443 IRL 1.290
GBR 544 FRA 492
GBR 2.537 GBR 1.011
NOR 4.826 NOR 1.560 NOR 1.515 NOR 1.028 NOR 310
CHE 229.043 IRL 11.433
CHE 7.995 NOR 7.505 CHE 5.525 CHE 5.419 GBR 4.085 NLD 3.248 ESP 2.740 DEU 2.478 GBR 1.830 DEU 1.798 FRA 1.565 GBR 1.428 FRA 1.251 NLD 1.159 AUT 1.129 BEL 1.000
SWE 788 FRA 774 FIN 531 ESP 485 ITA 278
FRA 41.396 IRL 5.225 ITA 4.575
CHE 1.679 GBR 854 FRA 800
9
Historical Performance:the traditional approach
9.744
200.213
69.289
10.116
205.310
68.345
Southern Europe
Western Europe
Northern Europe
20142013
Comparativeanalysisofthesampleperformancesobtaineddur-ing2014and2013showsthat,onaggregate,sales have only slightly increased,passingfrom279Bnto284Bn(+2,0%).
Morespecifically,itisimportanttounderlinethatallthesub-sec-tors,withtheexceptionofDistillers&Vintners,havewitnessedasalesincrease.ThegeographicaldistributionofsalesdisplaysahighergrowthinSouthern Europe (+3,8%)followedbyWesternEurope(+2,5%),whilstNothernEuropehasbeencharacterizedbyaslightreduction(-1,4%).
For what concernsmarginality and profitability, the Food &Beveragesector,thoughstillmaintainingvery good levels(Ebit/Salesequalto15,8%andProfit/Salesequalto11,5%),hasbeencharacterizedbyamodestworsening of performances.
Giventheabovepremises,webelievethatthesefindingsarenotcompletelyexhaustive:thegatheredevidencesarenotunivocalandtheregisteredperformancesdiffersignificantlybetweentheconsideredsub-sectos,andevenmoreamongthesinglecom-paniesof thesample.Thus, theaimof thefollowingreasoningand of the table reported in Figure 9 is to provide the readerwithvaluableinsights,reportingamoredetailedanalysisoftheResearchSample.
BrewersTheBrewerssub-sector’ssaleshavegrownby3%,from2013to2014, thusalignedwiththetotalsalesgrowth in theFood&Beverage sector. TheEbit/Sales ratio has improved (22,1% in2013vs22,7%in2014),butontheotherhand,somenegativesignalsarisefromarelevantdetrimentofprofits,-25%comparedto2013,withaprofitability ratio fallingfrom20,4%to14,8%.Amongthecompaniesofthissub-sectorwepointout:
ANHEUSER-BUSCH INBEV:theBelgiangroup,leaderinbeerproductionandcommercialization, has registeredsales for 35Bnin2014(+10%)anditisthefirstamongtheBrewersandthesecondinthewholesampleforEbit/Sales(30%)andProfit/Sales(20%).
Figure6.PerformanceFood&Beverage(Total)
2Figure6,7and8Legend:SalesEbitProfit
12,2%% 11,5%%
+2%
-4% 0%
16,0% 15,8%
TOT%13% TOT%14%
20,4% 14,8%
+3%
-25%
+6% 22,1% 22,7%
BRW$13$ BRW$14$
Figure7.PerformanceFood&Beverage(Sub-sectors)
17,6% 17,0%
-8%
-11%
-10% 27,8% 27,1%
D&V 13 D&V 14
Figure5.Salesbyarea
10
Distillers & VintnersThissub-sector,during2014,haswitnessedanegative down-turn (-8%),withcompanies registeringsalesdecreases from-1%to-19%.TheaggregateperformancehasbeenworstforboththeEbit/Salesratio(27,8%in2013vs27,1%in2014)andprofitability(17,6%in2013vs17,0%in2014).Nevertheless,itisimportanttounderlinethatforboththeaggregatemeasuresandthesinglecompanies’ones,theresultsarestillverygood,thoughworstthan2013.
TheperformanceofDiageo,amongtheothers,isnotable,in-deed,thoughkeepinghighvaluesforboththeEbit/Salesratio,(being,with31%,thetopperformerofthewholesample)andtheProfit/Salesratio(22%),itssalesreduction(-10%)hasbeenperfectlyreflectedontobothoperatingincomeandprofit.
FishingThe Fishing sub-sector scored very good results, both intermsof sales (+23%)andEbit (+29%).However, theprofit-abilityof thesub-sectorasawholeandof thesinglecompa-nieshaslargelydecreased(14,1%in2013,6,2%in2014).Thefallofprofits isduetodifferences inextraordinary items,andmorespecificallyinthefairvalueofbiologicalassets.Amongthecompanies (allNorwegian), themost relevant isMARINE HARVEST ASA,whichfocusisontheproduction,processingandsaleoffarmedsalmon,andwhichsalesaccountformorethan3Bnin2014thankstoa33% growthcomparedto2013.
Figure8.PerformanceFood&Beverage(Sub-sectors)
Modest sales growth and slight
decrease in overall profits
5,6%% 7,4%%
+3%
+35%
+16% 10,9% 12,3%
SDR 13 SDR 14
14,1% 6,2%
+23%
-46%
+29% 15,2% 15,9%
FSH 13 FSH 14
8,3% 11,0%
+2%
+35% -3%
12,6% 12,0%
FPR 13 FPR 14
5,3% 4,3% +1% -18%
+1%
7,6% 7,6%
DRY 13 DRY 14
Figure5.Salesbyarea
11
Figure9.HistoricalPerformance:traditionalapproach(DataReutersThomsonOne,valuesin€Mln)
ANHEUSER-BUSCH INBEVSABMILLER PLCHEINEKEN N.V.CARLSBERGGREENE KING PLCMARSTON'S PLCOLVI OYJ
DIAGEO PLCPERNOD RICARDDAVIDE CAMPARI-MILANO S.P.A. REMY COINTREAUC & C GROUP PUBLIC LIMITED COMPANYSTOCK SPIRITS GROUP PLCLAURENT-PERRIER
BRITVIC PLCA.G. BARR P.L.C.
MARINE HARVEST ASASALMAR ASALERØY SEAFOOD GROUP ASAAUSTEVOLL SEAFOOD ASAGRIEG SEAFOOD ASA
NESTLÉ S.A.KERRY GROUP PUBLIC LIMITED COMPANYCHOCOLADEFABRIKEN LINDT & SPRÜNGLI AGORKLA ASABARRY CALLEBAUT AGARYZTA AGTATE & LYLE PLCNUTRECO NVEBRO FOODS, SASÜDZUCKER AGGREENCORE GROUPKWS SAAT AGVILMORIN & CIEGREGGS PLCSOCIETE L D CCORBION N.V.AGRANA BETEILIGUNGSLOTUS BAKERIESCLOETTA ABBONDUELLERAISIO OYJDEOLEO SAVALSOIA SPA
DANONEGLANBIA PUBLIC LIMITED COMPANYPARMALAT S.P.A.EMMI AGDAIRY CREST GROUP PLCBONGRAIN SA
DR
YB
RW
D&
VS
DR
FS
HF
PR
2013 2014 Δ % 2013 2014 % Sales 2013 2014 % Sales32.478 35.643 +10% 9.784 10.536 +30% 10.823 6.980 +20%13.156 12.588 -4% 2.880 2.901 +23% 2.467 2.548 +20%19.203 19.257 ≈ 2.408 2.788 +14% 1.364 1.516 +8%
8.927 8.653 -3% 1.285 1.122 +13% 734 592 +7%1.482 1.615 +9% 318 329 +20% 122 119 +7%
971 977 +1% 195 194 +20% 73 63- -6%327 328 ≈ 43 39 +12% 34 33 +10%
14.183 12.725 -10% 4.379 3.888 +31% 3.083 2.789 +22%8.575 7.945 -7% 2.230 2.057 +26% 1.189 1.016 +13%1.524 1.560 +2% 300 298 +19% 150 129 +8%1.193 1.032 -14% 236 148 +14% 130 62 +6%
477 620 +30% 114 124 +20% 89 83 +13%359 291 -19% 66 54 +19% 9 36 +12%223 221 -1% 40 40 +18% 20 22 +10%
1.640 1.668 +2% 167 196 +12% 77 111 +7%295 315 +7% 43 48 +15% 32 35 +11%
2.298 3.056 +33% 366 505 +17% 301 112 +4%748 860 +15% 151 225 +26% 214 143 +17%
1.289 1.506 +17% 189 200 +13% 207 126 +8%1.459 1.717 +18% 177 226 +13% 84 66 +4%
288 319 +11% 39 31 +10% 52 17 +5%
75.878 75.428 -1% 11.739 11.304 +15% 8.246 11.902 +16%5.837 5.757 -1% 583 608 +11% 84 480 +8%2.373 2.787 +17% 322 379 +14% 249 282 +10%3.956 3.543 -10% 278 374 +11% 83 199 +6%4.021 4.830 +20% 275 335 +7% 184 208 +4%4.521 4.840 +7% 365 439 +9% 110 107 +2%4.039 3.904 -3% 430 417 +11% 311 339 +9%3.867 5.253 +36% 188 230 +4% 150 152 +3%1.957 2.121 +8% 221 214 +10% 133 152 +7%7.879 7.735 -2% 921 596 +8% 593 282 +4%1.422 1.564 +10% 79 90 +6% 84 58 +4%1.147 1.178 +3% 123 116 +10% 88 77 +7%1.472 1.500 +2% 151 150 +10% 99 84 +6%
946 997 +5% 51 69 +7% 30 47 +5%2.923 3.026 +4% 75 105 +3% 61 78 +3%
744 770 +4% 60 13 +2% 1 18- -2%3.066 3.043 -1% 214 152 +5% 149 108 +4%
332 348 +5% 38 47 +14% 28 37 +11%538 584 +9% 65 63 +11% 29 27 +5%
1.896 1.921 +1% 78 73 +4% 52 15 +1%558 494 -12% 33 24 +5% 26 6 +1%813 773 -5% 51 51 +7% 20 74- -10%100 114 +14% 10 15 +13% 10 11 +9%
21.298 21.144 -1% 2.118 2.151 +10% 1.422 1.119 +5%2.382 2.538 +7% 167 186 +7% 150 146 +6%5.350 5.548 +4% 252 276 +5% 221 203 +4%2.716 2.803 +3% 132 137 +5% 86 65 +2%1.714 1.726 +1% 76 70 +4% 68 62 +4%4.408 4.607 +5% 150 97 +2% 49 45 +1%
Sales EBIT Profit
Historical Performance: EVA® view
Theanalysisofthehistorical performancethroughthetraditionalapproachhasneitherhighlightedaspecificpatternrepresentingthe2014performanceoftheFood&Beveragesector,norfullygraspedthe impactof thecurrenteconomicscenariooversuchaperformance.However,whether the eco-nomic resources invested in a company are gradually losing value,the“fault” might not (only) be appointable toexogenous factorsortotheuncertainitycharacterizingthetimesweareliving.
Sometimes,theadoptionofatraditional approach might make us short-sightedanddoesnotallowustodetectandhighlightpotentialproblemsintheadoptedstrategy,aswellaspotentialsolutionstosuchproblems.AclearandsharedvisionofwhatisneededtocreateValue,andoftheleversthatcanbeusedinordertodoit,mightcertainlyhelpboththeManagementandtheinvestors.Butfirst...
- Do we really know what influences the companies’ ability to create Value and generate Wealth? -
Inorder togenerateValue - i.e.positiveEconomicProfit (EVA®) -both Quality and Quantity are important.Thisisexactlythereasonwhy“small”firmscangenerateanenormouswealth,whilst“large”firmscandestroyalotofValue.
The importance of “Quantity” and “Quality”Qualityreferstoarelativemeasurethatidentifiessomething of a higher level compared to a given hurdle rate.Thus,fromaninvestorpointofview,aqualityinvestmentisaninvestmentthatgeneretes higher returns than that obtained with other equally risky investments.
InordertomeasuretheQualityofeachcompanyinoursamplewehavecomputedtheInvested Capital Return Rate(ROIC3)andcompareditwithwhatinvestorswouldexpecttogetinordertosustainanalo-
gousrisklevels(WACC4).Inacompany,the Quantity of Invested Capital5 able to ensure returnn higher than its Opportunity Cost,isthesecondleverneededtocreateValue.Beingagrowthdriver,themoreCapitalwillbeemployedwithahighreturnrate,thehigherthewealthcreatedwillbe.
Figure 10 shows graphically and on aggregate the determinantsof theFood&Beverage2014performance. It is thusevident thatanunchanged Quantityhasbeenaccompainedbyaslightlyde-creasing Quality (-2%).Nonetheless,a positive contribution to Value Creation comes from the WACC reduction. As a result,comparedto2013,theaggregateperformancehasimproved(26,9Bnin2013vs27,5Bnin2014).
The ability of generating Value
depends on the Quantity of Capital yielding more than its opportunity cost Quality)
Figure10.EVAperformancedeterminants13-14
3ROIC=ReturnonInvestedCapital;4WACC=WeightedAverageCostofCapital;5IC=InvestedCapital(SumofDebtandEquityaccountingvalues)
Historical Performance: EVA® view
20%
18%
4,7% 4,3%
177.495' 180.208'
1%#
3%#
5%#
7%#
9%#
11%#
13%#
15%#
17%#
19%#
21%#
0200400600800
1.0001.2001.4001.6001.8002.000
2013 2014
CIROICWACC
12
13
The managerial leverage to create Value Quantity and Qualityarecertainlytheuniquepillars sustaining Value creation,butatthesametime,therearemultipleleverstobeusedbythemanagementinordertoinfluencethesepillars.
Qualitymightbepursuedthrough:
• An Economical Efficiency improvement.ThisoccurswhenanequallevelofInvestedCapitalisassociatedwithhigherreturns(Positive∆ROIC);
• A contractual/market conditions improvement(Negative∆Wacc)referredtothecompany’sIn-vestedCapitalsourceoffinancing.
Quantitymightbepursuedthrough:
• An Invested Capital growth(∆Growth).Orrather,howmuchnewCapitalhasbeenallocatedwithanequalQualityperformance;
• A better Capital Efficiency. i.e.theamountofnewCapitalallocatedwithanhigherQualityperfor-mance.
Figure11graphicallyrepresentsthecontributionofeachmanageriallevertotheFood&Beveragesec-tor∆performance(2014vs2013).
Thefirstclear insight is that the improvementof theEVA®performance ismainlydue to theWACC reduction (favouredby theQuantitativeEasing).The∆WACC,indeed,accountsforthe288%ofthe∆EVA.Moreover,thewide gap between the ROIC and the WACC, enlarges the effect of a slight increase of the Invested Capital.Thisimpliesapositiveeffectof the∆Growthover the∆EVA® (+142%). On theotherhand,a lower Economical efficiency has mitigated the former positive effects.Thisisduetothefactthatprofitabilityandcap-italhavemovedinoppositedirections(NOPAT-1,18%,InvestedCapital+1,53%).Finally,thenewinvestmentscharacterizedbyalowerROIChavecausedanegligibleCapitalEfficiencyreduction.
Figure11.∆EVA13-14ManagerialLevers
Figure12.∆EVA13-14Components
The WACC reduction has
driven the 2014 performance improvement
288%
142%
-324% -5% 100%
∆ WACC ∆ Growth ∆ Eco. Efficiency
∆ Cap. Efficiency
∆ EVA
25%
-169%
27%
217% 100%
∆ NOPBT ∆ Taxes ∆ W.C. Cost ∆ F.A. Cost ∆ EVA
100%
13,5%
-77% -5% 2%
-6%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Brewers
100%
9,5%
-84% -3% -1% -2%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Fishing
100%
8,6% -88% -2% 0% -1%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Soft Drinks
100%
15,3%
-73% -4%
-1% -7%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Distillers &
Vintners
100%
7,2% -88% -3% 0% -2%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Food Products
Figure13.Sub-sectors2014performance
Figure12onceagainconfirmstheimportanceoftheWACCreductionover theEVA®∆performance,which,asamatterof fact, isalmostentirelyexplainedbyalower Cost of Equity (DuetotheQuantitativeEasing).
Structural differences among the Food & Bever-age sub-sectorsAmongthedifferentFood&Beveragesub-sectors,asonecouldeas-ilyfigureout,therearesomestructuraldifferences:
• Brewers and Distillers & Vintners
The traditional approach correctly highlighted the high-er profitability of these two sub-sectors,with respect to thewholeFood&Beveragesector. Indeed, theiroperating costsareequalto,respectively,77%forBrewersand73%forDistillers&Vintners.
As a consequence, they have registered the best EVA® per-formances of the sector:EVA/Sales=13,5%forBrewersand15,3%forDistillers&Vintners.
However,comparingthisresultswiththeInvestedCapital,onlytheBrewersperformanceisamongthetopinthewholesector(EVA/IC=16,3%).Instead,Distillers&VintnersEVA/IC(9,9%)isthelowerinthesector,influencedbyagreaterCapitalincidence(InvestedCapital/Sales=1,55againstanaverageof0,7).
• Soft Drinks and Food Products
Thesetwosub-sector,thoughcharacterizedbyahighincidenceofoperatingcosts,haveregisteredquite good performances in terms of EVA®(EVA/Salesrespectively8,6%and7,2%).Suchperformancesareeven better, if not exceptional, when com-pared to the Invested Capital(EVA/ICrespectively30,6%and17%).
ThisismostlyduetoalowerCapitalincidence,withrespecttotheothersub-sectors(InvestedCapital/Salesrespectivelyequalto0,3and0,4againstanaverageof0,7).
14
100%
13,5%
-77% -5% 2%
-6%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Brewers
100%
9,5%
-84% -3% -1% -2%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Fishing
100%
8,6% -88% -2% 0% -1%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Soft Drinks
100%
15,3%
-73% -4%
-1% -7%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Distillers &
Vintners
100%
7,2% -88% -3% 0% -2%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Food Products
100%
4,1% -92% -2% 0% -1%
Sales Op. Cost Taxes W.C. Cost F.A. Cost EVA
Dairy
15
721.289 787.344
166.649& 169.646&
554.640&617.698&
2013 2014
MVA
IC
EV
Champions and “Falling” AngelsSincetheperformancesofthesinglecompaniesarenotnecessarilyreflectedbythoseofthesectorandofthesub-sectors,Figure16,throughasimplifiedviewofsuchperformances(EVA,∆EVAand∆Sales),aimsatprovidingsometipsfortheirsystemiccategorization:
• Champion: growingandunexceptionableperformance.BothintermsofsalesgrowthandunderanEVA®view;
• Focusing: slowergrowthbuthigherandmorefocusedValueCreation;
• “Falling” Angel: companies,whichhavebeenchampions,butarenowfacingdecreasingperfor-mances;
• Need for Rebirth: nowdecliningoraffectedbyheavydifficulties.TheyarewitnessingacompleteandgeneralizedValuedestruction;
• What after Growth?: companiesonlyormainlygrowthoriented.Itisnecessarytoverifyorredefinethegoals;
• Need for control: companiesfeaturingatemporarydownturn.
Value created and Market AppreciationCapitalMarketsperformtheimportantroleofquantifying,dailyanddynamically,theValueCreatedbycompanies.
Consequently,throughtheanalysisofshareprices,it is possible to measure the differential between the value recognized to the company’s Invested Capital by the market (EV) and the accounting value of such capital (IC).Thisdifferentialreflectsacompany’smarketappreciationhigher(orlower)thanthecapitalactuallyinvestedinsuchcompany.
Figure15graphicallyexplainsthattheMVAappreciationispositivelyrelatedtotheEVA®performanceValue:indeedtheMVAisequaltothepresentvalueofallthefutureexpectedEconomicValueAdded(EVA®).
!1,0%x%
0,0%x%
1,0%x%
2,0%x%
3,0%x%
4,0%x%
-10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
MVA/Invested,Ca
pital,
EVA/Invested,Capital,
Figure15.MVAandEVA:anoverallview
LowerAppreciationvstheF&Bsector
HigherAppreciationvstheF&Bsector
Figure14.MVAandValueCreated13-14(Valuesin€Mln)
Figure16.HistoricPerformance:afirstclassification
6LegendtothetableinFigure16:Champion ! ! !Focusing ! ! "Falling angel ! " "
Need for rebirth ! ! !What after growth? ! ! "Need for control " ! "
16
ANHEUSER-BUSCH INBEVSABMILLER PLCHEINEKEN N.V.CARLSBERGGREENE KING PLCMARSTON'S PLCOLVI OYJ
DIAGEO PLCPERNOD RICARDDAVIDE CAMPARI-MILANO S.P.A. REMY COINTREAUC & C GROUP PUBLIC LIMITED COMPANYSTOCK SPIRITS GROUP PLCLAURENT-PERRIER
BRITVIC PLCA.G. BARR P.L.C.
MARINE HARVEST ASASALMAR ASALERØY SEAFOOD GROUP ASAAUSTEVOLL SEAFOOD ASAGRIEG SEAFOOD ASA
NESTLÉ S.A.KERRY GROUP PUBLIC LIMITED COMPANYCHOCOLADEFABRIKEN LINDT & SPRÜNGLI AGORKLA ASABARRY CALLEBAUT AGARYZTA AGTATE & LYLE PLCNUTRECO NVEBRO FOODS, SASÜDZUCKER AGGREENCORE GROUPKWS SAAT AGVILMORIN & CIEGREGGS PLCSOCIETE L D CCORBION N.V.AGRANA BETEILIGUNGSLOTUS BAKERIESCLOETTA ABBONDUELLERAISIO OYJDEOLEO SAVALSOIA SPA
DANONEGLANBIA PUBLIC LIMITED COMPANYPARMALAT S.P.A.EMMI AGDAIRY CREST GROUP PLCBONGRAIN SA
DRY
BRW
D&
VSD
RFS
HFP
R
EVA (+/-)
Δ EVA (+/-)
Δ SALES (+/-) Status
21,40% ! ! ! Champion5,06% ! " " Falling angel7,59% ! ! ! Champion8,12% ! ! " Focusing7,94% ! " ! Need for control8,64% ! ! ! Champion8,20% ! " ! Need for control
18,06% ! " " Falling angel13,78% ! " " Falling angel12,08% ! ! ! Champion
3,53% ! " " Falling angel
12,78% ! ! ! Champion10,27% ! " " Falling angel
2,25% ! " " Falling angel
8,32% ! ! ! Champion10,17% ! ! ! Champion
10,77% ! ! ! Champion16,16% ! ! ! Champion
7,24% ! ! ! Champion7,06% ! ! ! Champion3,57% ! ! ! Champion
9,04% ! " " Falling angel7,80% ! " " Falling angel6,42% ! ! ! Champion4,80% ! ! " Focusing4,43% ! ! ! Champion5,97% ! ! ! Champion7,58% ! " " Falling angel2,71% ! ! ! Champion
15,59% ! ! ! Champion4,08% ! " " Falling angel5,91% ! " ! Need for control4,63% ! " ! Need for control5,20% ! " ! Need for control4,03% ! ! ! Champion1,45% ! ! ! Champion
-4,12% " " ! What after growth?1,63% ! " " Falling angel7,79% ! ! ! Champion5,51% ! " ! Need for control1,08% ! ! ! Champion2,80% ! " " Falling angel
-9,56% " " " Need for rebirth7,47% ! " ! Need for control
5,85% ! " " Falling angel4,62% ! ! ! Champion1,91% ! ! ! Champion2,72% ! ! ! Champion2,59% ! " ! Need for control0,18% ! " ! Need for control
Performance AnalysisEVA /SALES
17
Historical Performance:People-Based view
OneofthemostimportantfeaturesoftheEVA®approachistheabilitytoprovidealternative interpreta-tions of the company’s management performancesandtolinktheValueCreatedbysuchcompanieswithitsdeterminants.
Therefore,byapplyingasimplealgebraicdecompositiontothetraditionalformulationofthismetric7,wecanobtainanEVA® People-Based computedasthedifferencebetweentheHuman Resources Pro-ductivityandtheirAverage Cost(Quality),multipliedbythenumber of Internal Resources (Quantity).
Statingitinanotherway,wecandeterminetheEconomic Profit using “People” rather than “Cap-ital”, thus identifying,underaPeople-Drivenperspective, thedifferent (andmaybemore important)leversthroughwhichthecompany’sValuemightbeenhanced.
Value performance from a People-Driven perspectiveAsitistruethatacompany,inordertogenerateValue,needsitsCapitaltobe:
• Profitable;
• Adequately remunerated with respect to its Opportunity Cost.
fromaPeople-Drivenperspective, acompany inorder togenerateValueneedsitsInternalResourcestobe:
• Productive;
• Adequately remunerated for the activities they carry out;
• Properly managed and placed within the Structure.
Asamatteroffact,peoplerepresentacompetenceandspecificity“Capital”thatshouldbemadeasmuchprofitableaspossibleandthatshouldimplementthecompany’sabilityofcreatingValue.
The Food & Beverage sector analysisFigure17shows that thePeople-Basedviewmightbeapplied toallthesub-sectors,beingthepersonnel cost relevant and almost stable amongthem.
Figure18provides,foreachcompany,adetailedviewofthedeter-minants of thePeople-Drivenperformance.Moreover it correlatessuchperformanceswiththoseoftherelativesub-sectors(Columns2,4and6).Thus,ithighlightsthat,amongthesub-sectorsandthecompanies,not only the resources productivity is disomogene-ous, but also their cost.
We can refer to Capital as the
Human Capital. This implies the identification of new levers to
exploit in order to enhance Value
0% 20% 40% 60% 80% 100%
Brewers
Distillers & Vintners
Soft Drinks
Fishing
Food Products
Dairy
TOT 14
Other&Opera)ng&Costs& Capital&Cost& Personnel&Cost&
Figure17.CompositionofOperatingCosts7“Traditional”EconomicProfit=(ROIC-WACC)*InvestedCapital;“People-Based”EconomicProfit=(Res.Productivity-AverageLabourCost)*N°Res.TogetthePeople-BasedEconomicProfitweshouldalgebraicallydecomposeits“Traditional”for-mulation.ThefirststepconsistsintheidentificationoftheSalesperemployee,netofCost(IncludingAmor-tization,TaxesandCapitalChargedeployedtocoverFinancingandCapitalCosts).ThereforeweobtainameasureoftheProductivityperemployee,fromwhich,substractingtheAverageLabourCostsandmultiplyingbythenumberofInternalResources,weobtainthePeople-BasedEconomicProfit.
Figure18.HistoricalPerformance:People-Basedview(DataReutersThomsonOne,valuesin€)
ANHEUSER-BUSCH INBEVSABMILLER PLCHEINEKEN N.V.CARLSBERGGREENE KING PLCMARSTON'S PLCOLVI OYJ
DIAGEO PLCPERNOD RICARDDAVIDE CAMPARI-MILANO S.P.A. REMY COINTREAUC & C GROUP PUBLIC LIMITED COMPANYSTOCK SPIRITS GROUP PLCLAURENT-PERRIER
BRITVIC PLCA.G. BARR P.L.C.
MARINE HARVEST ASASALMAR ASALERØY SEAFOOD GROUP ASAAUSTEVOLL SEAFOOD ASAGRIEG SEAFOOD ASA
NESTLÉ S.A.KERRY GROUP PUBLIC LIMITED COMPANYCHOCOLADEFABRIKEN LINDT & SPRÜNGLI AGORKLA ASABARRY CALLEBAUT AGARYZTA AGTATE & LYLE PLCNUTRECO NVEBRO FOODS, SASÜDZUCKER AGGREENCORE GROUPKWS SAAT AGVILMORIN & CIEGREGGS PLCSOCIETE L D CCORBION N.V.AGRANA BETEILIGUNGSLOTUS BAKERIESCLOETTA ABBONDUELLERAISIO OYJDEOLEO SAVALSOIA SPA
DANONEGLANBIA PUBLIC LIMITED COMPANYPARMALAT S.P.A.EMMI AGDAIRY CREST GROUP PLCBONGRAIN SA
DRY
BRW
D&
VSD
RFS
HFP
R154.029 76 1,3 x 26 0,9 x 50 1,7 x69.947 36 0,6 x 27 0,9 x 9 0,3 x76.136 58 1,0 x 39 1,3 x 19 0,7 x46.832 45 0,8 x 30 1,0 x 15 0,5 x12.132 44 0,8 x 33 1,1 x 11 0,4 x12.854 22 0,4 x 16 0,5 x 7 0,2 x
1.958 35 0,6 x 22 0,7 x 14 0,5 x58 29 29
26.588 155 1,2 x 69 1,1 x 86 1,2 x18.308 121 0,9 x 62 0,9 x 60 0,9 x
4.000 101 0,7 x 54 0,8 x 47 0,7 x1.755 107 0,8 x 86 1,3 x 21 0,3 x1.524 106 0,8 x 54 0,8 x 52 0,7 x
923 68 0,5 x 36 0,6 x 32 0,5 x435 91 0,7 x 80 1,2 x 11 0,2 x
135 65 70 3.159 107 1,1 x 63 1,0 x 44 1,1 x
999 84 0,8 x 52 0,9 x 32 0,8 x102 60 41
10.700 68 0,8 x 37 0,8 x 31 0,8 x1.000 224 2,7 x 85 1,9 x 139 3,7 x2.100 124 1,5 x 72 1,6 x 52 1,4 x4.500 70 0,8 x 43 0,9 x 27 0,7 x
641 81 1,0 x 63 1,4 x 18 0,5 x83 46 37
339.000 59 1,0 x 39 1,0 x 20 1,1 x23.767 63 1,1 x 44 1,1 x 19 1,1 x10.712 72 1,2 x 55 1,4 x 17 0,9 x12.921 67 1,2 x 54 1,3 x 13 0,7 x
9.319 65 1,1 x 42 1,0 x 23 1,3 x18.733 47 0,8 x 32 0,8 x 15 0,9 x
4.467 134 2,3 x 68 1,7 x 66 3,7 x11.005 57 1,0 x 44 1,1 x 13 0,7 x4.800 123 2,1 x 55 1,4 x 69 3,8 x
18.459 61 1,1 x 44 1,1 x 17 1,0 x9.780 41 0,7 x 32 0,8 x 9 0,5 x4.847 58 1,0 x 47 1,2 x 11 0,6 x6.562 68 1,2 x 56 1,4 x 12 0,7 x
19.500 22 0,4 x 20 0,5 x 2 0,1 x16.105 43 0,7 x 40 1,0 x 3 0,2 x
1.900 64 1,1 x 81 2,0 x 17- -0,9 x8.778 38 0,7 x 32 0,8 x 6 0,3 x1.250 85 1,5 x 63 1,6 x 22 1,2 x2.500 65 1,1 x 53 1,3 x 13 0,7 x6.983 52 0,9 x 49 1,2 x 3 0,2 x1.900 27 0,5 x 20 0,5 x 7 0,4 x
718 37- -0,6 x 66 1,7 x 103- -5,8 x112 147 2,5 x 71 1,8 x 76 4,2 x
58 40 18 99.927 42 0,9 x 30 0,9 x 12 1,2 x
5.800 64 1,4 x 44 1,3 x 20 1,9 x16.472 50 1,1 x 44 1,3 x 6 0,6 x
5.220 78 1,7 x 64 1,8 x 15 1,4 x4.545 59 1,3 x 49 1,4 x 10 0,9 x
19.300 41 0,9 x 40 1,2 x 0 0,0 x45 35 11
Cost per employee
EVA per employeeEmployees Productivity
per employee
18
Brewers sub-sector
Distillers & Vintners sub-sector
Soft Drinks sub-sector
Fishing sub-sector
Food Products sub-sector
Dairy sub-sector
19
Market Point of View: sustaining performance over time
Creatingwealthandvaluethrougha“Quality”and“Quantity”improvementisoneofthecoreaspectsof “doingbusiness”;neverthelessensuring thebusinessSustainabilityover time iscertainlynot lessimportant.
Therefore,analyzingthecurrent performancesisaverygoodstartingpoint,butequallyimportantistounderstandthemarketexpectationsaboutthefuture performances of the company:
-IsitlikelythatapositiveEVA®performancewillrepeatinthefuture?-
-DoesthemarketbelieveinapossibleturnaroundfornegativeEVA®performances?-
The Market and share prices implicit expectationsTheCapitalMarkethastheimportantroleofquantifying,throughthedailyquotations,theexpectations of multiple investorsandoperatorsabout the futureperformancesofagivencompany.Therefore,theanalysisofsharepricesprovidesvaluableindicationsaboutthesustainabilityofthecurrentperfor-mance.
Asamatteroffact,thecompany’smarketappreciation(MarketValueAdded)isameasure of the Value Createdandcanbeseenasthesum of all the future expected (by the Market) EVA® performances. TheMVAcouldbedecomposedinto:
• EVA® Perpetuity
ItrepresentstheportionofMVAexplainedconsideringthehypothesisthatthelast performance (2013) will remain constant in the future.AddingsuchacomponenttotheInvestedCapitalwecanobtainaproxyoftheCurrent Value of the company(COV8).
• Future Growth Value
Computedbydifference,itrepresentstheportion of MVA expressing the value of performance improvements/downgrades expected by the market,withrespecttore-centresultsobtained.
EV 787 Bln
COV759 Bln
Net IC170 Bln
Net IC170 Bln
MVA618 Bln EP
589 Bln
∆EVAFGV28 Bln
Figure19.EVAMethodology:anoverallview9
8COV=CurrentOperationValue9AVAreworkingonDataReutersThomsonOne.MarketdataatApril2015
Companies’s goal is to generate
Value, but this have to be sustainable
over time
20
TheApril2015FGV positive value(fortheFood&Beveragesectorasawhole)impliedanaggregate EVA® performance expected improvement.However,this result is not reflected by all the sub-sec-tors,onthecontrary,the only one reflecting such positive expectations is Brewers (PositiveFGV,FGV/IC=0,7x).Theexpectationswereinsteadalmostneutral for the sub-sectors Distillers & Vint-ners, Food Products and Soft Drinks,whileFishingandDairywerecharacterizedbypessimisticex-pectations.
Significantdifferencescouldinsteadbeobservedamongthesinglecompaniescomposingthesample.Generally,optimisticexpectationsareassociatedtopoorcurrentperfomances,whilstpessimisticex-pectationsareassociatedtoparticularlypositiveperformances.Nonetheless,wecanobserveexcep-tionstothisruleofthumb.
Inordertocapturetheextentofeachcompany’sFGVinamorepragmaticandpreciseway,thetableinfigure20reportsthecurrentsharepricesandthefollowingmeasures:
• BV10: thepricecomponentexplainedbytheTangibleBookValue;
• MVA: thepricecomponentexplainedbytheMarketValueAdded.
Equivalently,arethenreported:
• BV + EP: thepricecomponentexplainedbythesumoftheTangibleBookValueandthelastEVA®performancehypothesizedasremainingconstantovertime(EVA®Perpetuity);
• FGV: thepricecomponentexplainedby theMarketExpectationsabout the future improvements/downgradesofthelastperformance(FutureGrowthValue).
Thetableiseasytointerpretandanswersthequestion:
- What affects the share prices? The acquired performances or the prospective ones? -
Implicit ROIC and Goodwill sustainabilityTheMarketassociatescurrent performance improvements,reachedthrough“Quantity”(Growth)or“Quality”(Efficiency),topositive expectations(FGV>0).Andviceversafornegativeexpectations.
Linkingsuchexpectationstothesecondcomponent(Quality)ithasbeenpossibletocomputeaROIC adjusted_Expected Performance,whichincorporates the implicit expectations in the current mar-ket quotations.Forarelevantportionoftheanalyzedcompanies,suchavalueislower than the return obtained during the last year.Thisisaclueaboutthepessimism of the Market.
Performancesustainabilityiseventuallyrelatedtointangibles:thegoodwill indeed captures incremen-tal performance expectations,which,whethernotachievedimplyawrittenoff.
IfwehypothesizetoexploitonlytheQualitycomponent(andnotQuantity),theuseofaROICadjusted_MinimumPerformancereflectingtheminimumleveltobereachedsothatthegoodwillvalueisadequate,allowsustounderstandthemarketbelievesaboutitssustainability.The ROIC thus obtained, whether higher than the one expressed by market expectations, indicates a too optimistic judgement of the “expectations” reported in the financial statements.Thetableinfigure20reportsajudgmentaboutgoodwillsustainability(/)Whetherthisjudgmentisnegative,theBoardshouldthinkaboutstartinganimpairmentprocess.
10ComputednetofGoodwill(ReasonwhysomeoftheBookValuesobtainedarenegative)
21
Figure20.SharePrices,ExpectationsandPerformanceSustainability(DataReutersThomsonOne,valuesin€Mln)11
11AVAreworkingonDataReutersThomsonOne.MarketdataatApril2015
Price
08 Apr. BV (price) MVA (price) BV+EP (price) FGV (price) 2014 Expected 2014ANHEUSER-BUSCH INBEV € 115,80 -€ 13,20 € 129,00 € 110,33 € 5,47 40,3% 41,8% 58.523 !!!
SABMILLER PLC € 4.970,16 € 448,58 € 4.521,58 € 1.097,81 € 3.872,36 10,5% 30,1% 15.500 !!!
HEINEKEN N.V. € 73,23 € 3,47 € 69,76 € 75,70 -€ 2,47 15,1% 14,7% 10.803 !!
CARLSBERG € 79,90 -€ 0,20 € 80,10 € 172,33 -€ 92,43 15,9% 9,2% 7.072 !
GREENE KING PLC € 1.147,59 € 638,25 € 509,34 € 1.647,64 -€ 500,05 10,0% 8,0% n.a.MARSTON'S PLC € 217,50 € 141,81 € 75,68 € 466,31 -€ 248,81 9,2% 6,3% 288 !
OLVI OYJ € 24,28 € 9,27 € 15,00 € 84,46 -€ 60,19 13,9% 4,4% 23 !!
DIAGEO PLC € 2.603,94 € 311,65 € 2.292,29 € 2.194,81 € 409,13 17,1% 19,7% 1.550 !!!
PERNOD RICARD € 112,45 € 31,95 € 80,50 € 145,40 -€ 32,95 12,5% 10,2% 5.047 !!
DAVIDE CAMPARI-MILANO S.P.A. € 6,88 € 1,06 € 5,82 € 14,74 -€ 7,86 16,5% 8,8% 1.115 !!
REMY COINTREAU € 70,69 € 24,83 € 45,86 € 44,05 € 26,64 7,4% 11,1% 23 !!
C & C GROUP PUBLIC LIMITED COMPANY € 3,79 € 0,90 € 2,89 € 3,86 -€ 0,07 20,8% 20,4% 457 !!
STOCK SPIRITS GROUP PLC € 271,87 € 134,70 € 137,17 € 579,60 -€ 307,73 11,8% 5,9% 62 !
LAURENT-PERRIER € 82,70 € 59,49 € 23,21 € 83,86 -€ 1,16 4,9% 4,8% 25 !
BRITVIC PLC € 1.023,57 -€ 70,03 € 1.093,60 € 1.247,12 -€ 223,55 41,0% 34,9% 251 !!!
A.G. BARR P.L.C. € 865,48 € 161,67 € 703,81 € 811,54 € 53,94 23,4% 25,0% 30 !!!
MARINE HARVEST ASA € 10,72 € 2,40 € 8,32 € 20,66 -€ 9,94 20,1% 11,4% 580 !!
SALMAR ASA € 13,77 € 4,89 € 8,87 € 32,27 -€ 18,51 21,4% 9,9% n.a. !!
LERØY SEAFOOD GROUP ASA € 27,76 € 13,62 € 14,15 € 52,88 -€ 25,11 14,6% 8,3% n.a. !
AUSTEVOLL SEAFOOD ASA € 5,07 € 4,48 € 0,59 € 21,33 -€ 16,26 10,2% 3,7% n.a. !
GRIEG SEAFOOD ASA € 2,78 € 1,86 € 0,91 € 4,11 -€ 1,34 6,8% 5,2% 12 !
NESTLÉ S.A. € 71,03 € 10,01 € 61,01 € 66,58 € 4,44 22,2% 23,6% 31.206 !!!
KERRY GROUP PUBLIC LIMITED COMPANY € 65,01 € 2,37 € 62,64 € 59,39 € 5,62 32,4% 35,0% 1.870 !!!
CHOCOLADEFABRIKEN LINDT & SPRÜNGLI AG € 58.737,12 € 10.012,28 € 48.724,84 € 36.539,78 € 22.197,34 10,7% 16,6% 648 !!!
ORKLA ASA € 7,37 € 2,93 € 4,43 € 8,21 -€ 0,84 9,9% 9,0% 1.143 !!
BARRY CALLEBAUT AG € 1.006,59 € 173,25 € 833,35 € 1.198,92 -€ 192,33 14,3% 12,4% 607 !!
ARYZTA AG € 59,03 € 4,46 € 54,57 € 63,63 -€ 4,60 17,8% 16,8% 2.300 !!
TATE & LYLE PLC € 873,85 € 234,14 € 639,71 € 1.691,43 -€ 817,58 24,8% 13,4% 276 !!
NUTRECO NV € 45,27 € 9,87 € 35,40 € 76,81 -€ 31,54 16,6% 10,3% 309 !!!
EBRO FOODS, SA € 17,81 -€ 64,06 € 81,87 € 46,61 -€ 28,80 -2,0% -0,9% 9.439 "
SÜDZUCKER AG € 12,16 € 4,63 € 7,53 € 24,10 -€ 11,95 13,7% 8,2% 1.738 !
GREENCORE GROUP € 327,60 -€ 59,42 € 387,02 € 422,70 -€ 95,10 171,6% 138,7% 588 !!!
KWS SAAT AG € 275,85 € 92,26 € 183,59 € 412,15 -€ 136,30 12,3% 8,2% 61 !!!
VILMORIN & CIE € 75,13 € 26,12 € 49,01 € 113,79 -€ 38,66 9,7% 7,0% 388 !
GREGGS PLC € 1.411,26 € 474,41 € 936,85 € 2.099,82 -€ 688,55 14,5% 10,0% n.a.SOCIETE L D C € 153,38 € 95,96 € 57,42 € 251,06 -€ 97,68 13,6% 7,9% 119 !
CORBION N.V. € 18,68 € 9,89 € 8,78 -€ 2,79 € 21,46 -1,6% 10,4% 58 !!
AGRANA BETEILIGUNGS € 79,50 € 57,20 € 22,30 € 129,73 -€ 50,23 7,7% 5,4% 230 !
LOTUS BAKERIES € 1.245,20 € 342,49 € 902,71 € 1.697,81 -€ 452,61 15,2% 11,3% n.a. !!!
CLOETTA AB € 2,83 € 0,75 € 2,07 € 4,17 -€ 1,34 10,1% 7,7% 243 !
BONDUELLE € 24,20 € 10,95 € 13,25 € 31,99 -€ 7,79 6,2% 5,3% 203 !
RAISIO OYJ € 4,00 € 0,93 € 3,07 € 2,81 € 1,19 10,7% 14,6% 172 !!
DEOLEO SA € 0,42 € 0,55 -€ 0,13 -€ 0,74 € 1,16 -1,6% 4,8% n.a. "
VALSOIA SPA € 26,61 € 6,89 € 19,72 € 48,79 -€ 22,18 28,8% 15,4% 3 !!!
DANONE € 64,30 € 0,23 € 64,07 € 64,40 -€ 0,10 19,1% 19,1% 11.582 !!!
GLANBIA PUBLIC LIMITED COMPANY € 17,65 € 2,49 € 15,16 € 16,05 € 1,60 15,2% 16,5% 263 !!!
PARMALAT S.P.A. € 2,50 € 1,51 € 0,99 € 3,27 -€ 0,77 10,4% 7,3% 574 !
EMMI AG € 313,78 € 137,63 € 176,15 € 585,93 -€ 272,15 10,5% 6,2% 262 !
DAIRY CREST GROUP PLC € 620,33 € 133,33 € 487,00 € 777,33 -€ 157,00 17,5% 14,5% 188 !!
BONGRAIN SA € 57,00 € 87,62 -€ 30,62 € 105,31 -€ 48,31 4,1% 2,8% n.a. ""
ROIC Goodwill
DRY
BRW
D&V
SDR
FSH
FPR
Mkt. Appreciation Mkt. Expectation
22
The Market and its challengesAnalysing the implicit expectations embedded in shareprices is extremely important in order to understand whether the companies’ strategies are appreciated by the market andwhether suchstrategiesprovide the rightanswerstoexpectations.Creatingamatrixwiththetwoaxes(EVA/IC andFGV/IC)wecan identify 4differentclusters,characterized by different expected performances andchallenges(Figure21).
Communication Challenges
Companies having good orexcellent performances and negative FGV values.Themarket ispessimisticandcon-siderstheircurrentperformancesunsustainable.
Development Challenges
Companies having poor or negative performances and positive FGV values.Themarketisoptimisticandbelievesinapossibleturnaround.
Lost Causes
Companieshavingnegative performances and negative FGV values.Inthesampleconsiderednoneofthecompa-niescanbeclassifiedinsuchcluster.
Excellences
Companieshavinggood performances and positive FGV values.Theyrepresentsthe“gems”ofthesector.Themar-ket considers sustainable their current performance sincesuchcompaniesaremaintaininga long lasting leadershipposition.
Figure21.FGVandEVA:anoverallview
-‐3,0 x
-‐2,0 x
-‐1,0 x
0,0 x
1,0 x
2,0 x
3,0 x
-10% -5% 0% 5% 10% 15% 20% 25% 30%
FGV/
Invested
Cap
ital
EVA/Invested Capital
LowerExpectationsvstheF&Bsector
HigherExpectationsvstheF&Bsector
DevelopmentChallenges
LostCauses
CommunicationChallenges
Excellences
“Reading” Stock Prices may help the
management in understanding and
quantifying the challenges of the
market
Figure22.Companiesintheclusters
Excellences
Development Challenges
Communication ChallengesEVA/IC FGV/IC
GREENCORE GROUP 167% -6,6 xOLVI OYJ 12% -4,8 xSALMAR ASA 17% -2,6 x
EVA/IC FGV/ICCORBION N.V. !7% 2,2 xDEOLEO SA !7% 1,2 xEBRO FOODS, SA !5% 0,5 x
EVA/IC FGV/ICANHEUSER-BUSCH INBEV 36% 0,3 xKERRY GROUP PLC 27% 0,5 xNESTLÉ S.A. 18% 0,3 x
23
Our ‘Hot Topics’
Revenue ManagementA wide range of opportunities to increase Value
Theeconomicenvironmenthasprofoundlychangedoverthepastfewyearsandtheon-goingstructuralshiftsareshapingacompetitivelandscapeinwhichit is becoming increasingly difficult to maintain satisfactory profit margins. Inordertopreservetheirfinancialperformance, firmshaveprimarilyfocusedtheireffortson two mana-gerial levers:ononehand,theyhavestrivedtooptimizetheuseofcorporateresources,reducing costs and increasing the efficiency of processes and organizational structures;on theotherhand, theyhave implementednew ‘Client-Intelligence’ approaches todevelopmoresophisticatedandcustom-er-orientedValuePropositions.However, these approachespresent somepitfalls anddo not necessarily guarantee thesustainable creation of Enterprise Value.Indeed,costoptimizationpoliciesaremainlyfocusedonachievingshort-term economic improvements,buttheyoftenneglectthefundamentalleversoffuturegrowth,thusjeopardizinglong-termprofitability.Furthermore,inmanyfirms,costcuttinginitiativeshavealreadyexhaustedalltheirpotential.Conversely,theinformationgatheredthroughthenewCRM systemsarealltoooftenburiedintheITde-partmentandinsufficientlyleveragedtodevelopValueaddedactivitiesandservices.Thus,theyareusuallyunderexploitedbytheSalesandMarketinganddonotcontributetotheextractionofValuefromthemarket.TherealityisthatCompaniesfaceimportantdecisionsregardingwhattosell,whentosell,to whomtosell,andfor how much.Why don’t you manage data-driven tactics and strategy to an-swer these questions in order to increase Revenues?TheprimaryaimofRevenueManagementissellingtheright prod-ucttotheright customerattheright timefortheright priceandwiththe right pack.TheessenceofthisdisciplineisinunderstandingCustomers’per-ception of product Value and accurately aligningproduct Prices,PlacementandavailabilitywitheachCustomersegment.Revenue Management absorbs a wide range of opportunities toincreaserevenue.Acompanycanutilizedifferentcategories likeaseriesof leversbutprincipally onemaydriveprofits inagivendi-rection.
Revenue Management
includes a wide range of
opportunities to increase Revenue
and Profit
24
REVENUE
FIXED COSTS
VARIABLE COSTS
EBIT
100
66
26
89
+ 1% Price = + 12% Profit
What is Value Pricing?ValuePricingmeansastructuredapproachinthePrice levermanagementaselementofbalancebe-tweenShareholder ValueandCustomer Value.ThegrowthofsustainableValuecomesfroman‘optimal’Pricingsystemthatallowsatthesametime:1)EnsurethatShareholdersobtainanadequateReturnonInvestedCapital,maximizingtheprofitabilityofenterprisesinthelongrun;2)MeettheexpectationsofCustomers,indifferentialtermscomparedtothecompetition,abouthowmuchtheyshouldpayforthevaluetheyget.TheValuePricingalsoneedstobeanexpressionof theValue Perceived by Customers fordifferentcategoriesofProductsorServices.TheValuePerceivedbyCustomerschangesfordifferentcustomersegments,butalsoforcustomersegmentsthatliveindifferent Countries.Forthisreason,sametypesofGoods/ServicescandifferentlycostindifferentMarketsorCountries.
Pricing is the most important Revenue Management leverThiscategoryofRevenueManagementinvolvesredefining pricing strategyanddevelopingdisciplinedpricing tactics.Thekeyobjectiveofapricingstrategyisanticipating the value created for customersandthensetting specific prices tocapture that value.AstructuredapproachtotheutilizationofthePricefactorfavourstheoptimizationoftheofferwithoutaffectingthelong-term growth potential.
VALUE PRICING STRATEGIES AND MODELSactivevalue.eu
If Price is ones Product’s most
important lever, why do so many
companies discount hence eroding
brand equity and the Perceived Value of their Product or
Services?!
Data Collection
Setting Price & Value
Proposition
Client Condition
Management
Monitoring & Reporting
Price & Value Deployment
PRICING INFRASTRUCTURE
PRICING AND VALUE STRATEGY
RATE YOUR PRICING EXCELLENCE!
! X √ X !3 2 4 2 3
√ 4
! 3
!
25
It’s time to Manage Change and run effective Organizations
Organizationsmustlearnandadaptatanever-increasingpace.Technologicalchange,shrinkingproductlifecycles,increasingcustomerexpectations,andthenever-endingsearchforefficiencyalldemandthatexecutivesrespondnotonlybyconstantlyrevisitingproductandserviceofferings,butalsobyrealigningstrategy,structure,andprocesses.Wehaveallbeeninundatedwithvolumeswrittenonwaystomanagechangethroughleadership,partici-pation,andorganizationalalignment.Yetwhilethefloodtideofadvicegrows,success in implementing change does not appear to be improved.It’ssaidthatalthough90%ofcompaniessurveyedhadundertakensignificantorganizationalchangewith-intheprevioustwoyears,only5%hadavoidedsubstantialdisruptionsandfinishedontime.Suchdelayscanprovecostlyforfirmsengagedinmajorstrategicinitiatives.Corporaterestructurings-atrendthathasintensifiedrecently-haveoftenunder-performedduetothesubstantialbutoftenhiddencosts of transition.Similarly,MergersandAcquisitionsoftenfailtodelivertheexpectedfinancialresultspreciselybecauseitisdifficulttointegrate different cultures in a timely manner.Managing change is so difficult because organizations resist change initiatives.Unfortunately,thereisavastdifferencebetweenknowingthatresistancemightoccurandunderstand-ingwhereandwhyitwillemerge.Resistanceissodifficulttodiagnoseandconfrontbecauseitusuallyemanatesfromthetwosources,anorganization’s cultureanditsinformal structure,whicharemostdifficult to see.Theseforcesinfluencethesuccessofchangeinitiativesinadramat-ic,butinvisibleways.Fortunately, informal structure andorganizational culture arenotentirelyinvisible.TheOrganizational Network Analysis(ONA)offerswaytomovebeyondorganizationalchartsandtounderstandhow people ac-tually interact in an organization.Research shows that appropriate connectivity in networks with-in organizations can have substantial impacts onperformance,learning,innovationandbenefitsalsoaccruefromwell-connect-ednetworksbetweenorganizations.OfcourseNetworkAnalysisisnotanewsubject.Thisapproachhasenjoyedarich research traditionwithinanthropology,sociology,psychologyandalsomanagementstudies.Consequently,avastbodyofknowledgeontechniquesfortheanalysisofsocialnetworkshasbeenac-cumulated.
Managing Change
is so difficult because
organizations resist change
initiatives
26ORGANIZATIONAL NETWORK ANALYSISactivevalue.eu
Approaches to perform an ONA are innumerable, but not always effectiveTheanalyticsideofthesocialnetworksubjecthasbecomesorichthatoneofthemostwidelyreadprimersonsocialnetworkanalysisismorethaneighthundredpageslong!Yetalthoughnetworkanalyticshaveadvancedsubstantiallyoverthepastdecades,themanagerialappli-cationsoftheideashavenotkeptpace.Then,severalapproacheshavespreadinpracticetoidentifythehiddennetworksofrelationshipswithintheorganizationalstructureofthecompanybutnotalwaystheyre-vealedfeasibilityandeffectiveness.Someexamplesarelongandcomplexquestionnairessubmittedtoresources(butoftendifficulttointerpretinanobjectivemannerandwiththerightmethodologyofanalysis)ormethodsofreadingavailablee-data(suchasemail traffic data)withconsequentproblemsofprivacy,accuracyandcompleteness of information.ActiveValueAdvisors, inpartnershipwithDNA7,hasdevelopedasimple, fastbutextremely effectivemethodologytodeepentheValueofanorganizationthroughanetworkperspective.
The ONA makes visible the
connections between People and provides a complete
X-ray of the real functioning of the
organizationCarl
Pat
John
FredAlex
Bill
Sue
Steve
Lee
JuliaPeter
Sally
David
Sam
Paul
Marketing
Finance
Strategy
DNA7DNA7isapowerfultoolthatallowstoperformOrganizationalNetworkAnalysesinanefficient,butextremelydeepenway.DNA7allowsorganizationstomap complex networksof communication between internal resourcesandtheirinformal relationships.Soitwillbepossibletocarryoutacomprehensiveassessmentoftheorganizationfroma‘Network Perspective’providingatleast3 organizational views:1.Employees,2.Units,3.Companyasawhole.
Diagnostic AnalysisRealize a web-based analysis in order to obtain a snapshot of the organization through diagnostic indicators and different organizational views
Definescopeandorganizationalfocus
Administeraweb-basedsurvey(4-6questions)
Readandanalyzeresults
Provideevidencesanddetailedreports
Internal Network MapExtend some features of the platform to groups of resources in order to support internal processes, facilitate interaction and continuously monitor the organization
Definescopeandmainfeatures
Openweb-basedsurveytoselectedgroups
Collectprofilesandinternalexpertise
Launch&Training
27
Fundamentals of People-Driven businessThinking of Human Resources as a ‘Capital’
People-DrivenCompaniesprovideauniquefeature:theirsuccessisdrivenbyPeoplewhorepresentthemain value driverandthestrategic axisbearingachievedResultsandcorporateProfitability.InthesecompaniestheStrategicmanagementofHumanResourcefocusesonspecificToolsandMeth-odologiesforplanning,measuringandvaluingtheHumanCapitalsupporttothecorporateValuecre-ationprocess.What does this mean? Where do we have to start to meet this challenge? Asafirststepeachcompanyshould implement tailoredperformancemetric-basedmeasurements forassessingenterpriseValueonthebasisofitsmaindeterminants.Economic Profit,unlikemanyotherdifferentmetricsandmeasurementsconventionallyusedinmanage-mentpractice,canberedefinedinordertohighlightthefollowing:• InternalResource’scontributiontoEnterpriseValue,• Onwhichleversshouldwefocusinordertoincreaseitincompanies
wherePeoplerepresentthemaindriverofProfitabilityandValuecre-ation.
EconomicProfitmay,infact,becalculatedassoastohighlightthedif-ferencebetweentheCost of EmployeesandtheirProductivityratherthanthedifferencebetweenCost and ReturnonInvested CapitalintheEnterprise.Youwill find out that inCapital-Intensive enterprises increasedReturnonInvestedCapitalorneweconomicresources investments inactivitiesthatprovidehigherReturnagainstCostofInvestedCapitalgeneratesaValueincrease,whereasinPeo-ple-Drivencompaniesthevaluedriverstoactonaremainlytwo:monitoringResourceProductivityandoptimizationoftheirCost.It’spossibletodeepenthesedeterminants:• Productivity:oneofthecentralelementatthebasisoftheProductivityofResourcesishowtheycol-
laborateandinteract.Thishelpstobefaster,moreeffectiveatworkand,therefore,moreproductive.PreciselytheOrganizationalNetworkAnalysisisamethodologythatcanbeappliedwithintheCompa-nytoincreasetheProductivityofResources.Thisanalysis,inaddition,canalsogiveusefulindicationsintermsofoptimalorganizationalsizingofpeople.
• Cost of Personnel:analysingproperlytheRemunerationpolicies,theOrganizationalRolesandtheCapabilitiesofHumanResources(informationanddatathatalmostalltheCompanieshave,butthattheydon’tfullyutilize)it’spossibletogetatleast 3 different Cost of PersonnelthatdifferentlyimpactontheabilitytocreateValue:
• EFFECTIVE COST OF PERSONNEL:it’sobtainedfromSalarythatResourcesreceivedannually• IDEAL COST OF PERSONNEL:it’sobtainedbyevaluatingtheorganizationalRolesaccordingto
theexistingstrategicProject/Design• INTRINSIC COST OF PERSONNEL: it’sobtainedbyanalysingpeopleskills,expertiseandcom-
petencies
Thanks to a specific
methodology it is possible to calculate the
People-Based view Economic
Profit
28PEOPLE VALUEactivevalue.eu
‘TRADITIONAL’ ECONOMIC PROFIT
Return on Capital Employed
Cost of Capital Employed
CapitalEmployed = - x( )
‘PEOPLE-BASED’ECONOMIC PROFIT
Resource Productivity
Cost of Personnel per Resource
Number of Resources= - x( )
ORGANIZATIONAL NETWORK ANALYSIS
The collaboration and the efficiency in the interaction between Resources, especially in complex organizations, are the central elements that determine the Productivity and may represent, therefore, an opportunity to create Value.
SALARY OPTIMIZATION AND STRATEGIC MANAGEMENT OF RESOURCES
AnalysingproperlytheRemunerationandCompensationpolicies,theOrganizationalRolesandtheCapabilitiesofHumanResourcesyoucangetatleast3differentCostofPersonnelthatdifferentlyimpactontheabilitytocreateValue.
‘PEOPLE-BASED’ECONOMIC PROFIT
Resource Productivity
Cost of Personnel per Resource
Number of Resources= - x( )
INTRINSIC COST OF PERSONNEL
IDEAL COST OF PERSONNEL
EFFECTIVE COST OF PERSONNEL
EstimatingtheimpactofdifferentarrangementoftheCostof
PersonnelontheValuecreationoftheCompany
29
Quantitative EasingA (not only financial) discontinuity that influences lots of management levers and decisions
TheEuropeanCentralBankhasstartedactionaimedatstimulatingthetroubledEurozoneeconomyinthefaceofdeflationandrecession.Itseemsapurelyfinancial issue.Actually,forCompanies,therearemany aspects and decisions to govern.Butlet’sgoinorder.
What is it about?OneofthemaintoolsGovernmentsandcentralbankshavetocontrolgrowthisraisingorloweringinterestrates.Lowerinterestratesencouragepeopleorcompaniestospendmoney,ratherthansave.Butwheninterestratesarealmostatzero,centralbanksneedtoadoptdifferenttactics-suchaspumpingmoneydirectlyintotheeconomy.ThisprocessisknownasquantitativeeasingorQE.Thecentralbankbuys assets,usuallygovernment bonds,withmoneyithas“printed”-orcreatedelectronically.It thenusesthismoneytobuybondsfrominvestorssuchasbanksorpensionfundsusingthis“new”money,whichincreases the amount of cashinthefinancial system,encouragingfinancialinstitutionsto lendmore tobusinessesand individuals.This in turnshouldallow themto investandspendmore,hopefullyincreasinggrowth.
What does it mean for Companies?Forcompanies this isamanagement issueand therearevariousfactorsthatimpactandinfluenceeachmanagerialdecision.Whatchangesisthe“value”oftheCompany.Ifinterest ratesfallandprices rise,thegreaterwealthgeneratedmovestowardriskier assetssuchasshares.Capitalizationsofthecompaniesgrow.Forcompaniesalsofinancing capacity,capital expenditurepol-iciesandgearing decisionschange.If you are a manager, are you able to define, with a good degree of reasonableness, annual (and future!) goals for your Compa-ny?Also incentive planswillbeaffected.
Quantitative Easing represents a discontinuity
that influences manymanagerial levers
30TARGET SETTING ‘OUTSIDE IN’activevalue.eu
WHAT RISES AND FALLS WHAT PRINCIPALLY CHANGES
PRICES
CAPITALIZATION
FINANCIAL CAPACITY
INTEREST RATES
CAPEX POLICIES
GEARING DECISIONS
VALUE CREATED
INCENTIVE PLANS
However,thesearejusttransitory phenomena.For thisreason, it’sessential forCompaniestohavemethodsandtechnicalities tomanageandmastertheseleversinordernot to make badorpartial decisions.ThroughTarget Setting modelingandsimulation,youcantietheimplicit expectations in the stock mar-ket pricestotheoperating resultsthatrepresentthefundamental Values of the Company.Similarly,thankstoappropriatemodels,youcandefineanddeclinemanagementobjectivestobelinkedtoanIncentive PlaninrelationtospecificEnterprise Values.Why does it make sense?• Tomasterandmodelrelevant managerial leverstakingintoac-
countexternal discontinuitiesthatcouldleadtopartialorwrongdecisions
• Toassess the level of challenge of Business Plans,consist-entlywiththe‘true’ValueoftheCompany
• To make possible innovative - and especially meritocratic -Governance Systems.
Target Setting technicalities help managers to define
management objectives linked to the ‘real’ Value of
the Company
TARGET SETTING TECNICALITIES TO DEFINE/MODELING MANAGEMENT OBJECTIVES
ENTERPRISE VALUE
CURRENT OPERATIONS VALUE
FUTURE GROWTH VALUE
BREAK DOWN OF EXPECTATIONS PER YEAR
31
Big Data challenge
Theonethingweknowaboutdataisthattheywillcontinuetogrow.Inthemain,theychange rapidly.Wealsoknowthattheycontainmanyvaluable informationashistoricalevidences,markettrends,orcus-tomerpreferencesthatcanleadtomoreeffectivemarketing,newrevenueopportunities,bettercustomerservice,improvedoperationalefficiency,competitiveadvantagesandotherbusinessbenefits.Sincetheterm‘Business Intelligence’wascoined,newtechnologieshavegreatlyexpandedourunder-standingonhowCompaniescangainadvantagefromtheirdataandtheirrepresentation.Therole of IT inbusinesshas changed radicallyinrecentyears,thankstotheboomoftheavailabledataandsimplyprovideatechnologicalinfrastructuretodayisnotenoughtoimplementastrategy.Inthiscontexttheterm“BusinessIntelligence”isaconceptthatexpressestheneedtothinkbeyondtheparadigmofdataanalysisasisolatedfrombusinessgoals.Infact,withtheBusinessIntelligence,technologyandbusinessobjectivesmustblendintoaharmonioussetofoperationssothatthebusiness strategy can drive the IT in providing useful information to help companies in their growth.Adapting thedataproviding tobusinessneedshasalwaysbeendifficult,andmanycompanieshavegreatdifficultyinassessingexactlywhatinformationisneededtoachievespecificobjectives.This type of business analysis requires clarity of vision and objec-tives, solid framework of reasoning.Inthepast,BusinessIntelligenceprojectswerelimited‘bytechnology’becauseof the inability tohavedeepen informationandmakethemavailable.Todaynewtechnologies,suchasBigData,Analytics,Mo-bileandCloudcomputingareabletoacquiremassiveanddetailedstreamsofdata,inarelativelyeasyandconvenient way.But having everything is equal to have nothing if we don’t know what to do and, certainly, is not just a matter of tools.NowtheroleofManagementisto know what to look forandmaxi-mize the use of data to support strategic decisions.
The challenge for Managers is to know what to look for and
maximise the use of data to support
strategic decisions
BUSINESS INTELLIGENCE APPLICATIONS FOR COMPANIES
MEASUREMENT
ANALYTICS
REPORTING
COLLABORATION PLATFORM
For management, the real challenge is cultural.It’snecessarytoconvincemanagerstotheautonomous use of technology,eventhosenotusedtowork-ingwithdata.
32
Whatshouldraiseisthelevelofprofessionalismbypassingthemessagethatthephenomenaaredetailedandthatit’snotonlyimportantunderstandinghow to do,butalsowhat to do.It is a real change of cultural paradigm.
WHAT COMPANIES ARE LEAVING
DATA INFORMATION TECHNOLOGY END USERS
CUSTOMER VALUEactivevalue.eu
1. Limited data available
2. Data not always updated
3. Difficulty in producing drill down analyses
4. No uniqueness of data
5. Report made with the eye (and help!) of IT
6. Limited output, difficulty to customized
WHAT COMPANIES ARE FACING
DATA BUSINESS INTELLIGENCE APPS END USERS
1. Multitude of available data
2. Data always updated
3. Ease of analysis and disaggregation
4. Uniqueness and data centralization
5. Report directly created by End Users
6. Many customizable output
INFORMATION TECHNOLOGY OTHER DEPARTMENTS
INTERNAL
EXTERNAL
33
Active Value Advisors.
4 Competence Centres
ActiveValueAdvisorsisanindependentmanagementconsultingfirmthatactsasapartnerforCompa-nieswhoneedtostrengthentheirGovernanceSystemandforthoseCompanieswhowanttopursueapathofgrowththroughsolutionsconsistentwiththeobjectiveofcreatingsustainableValue.TheprofessionalsofActiveValueAdvisorshavelongexperienceinassistingmajorItalianlistedgroupsinthedevelopmentofBusinessPlans,intheselectionofactionstoimproveValueperformanceandintheassistancetothechangeprocessthatthecompetitivedynamicsandmarketopportunitiesrequire.Incarryingoutthemandatesweuseacommonlanguagedeclinedinmanyprofessionalservicespertain-ingtovariousmanagementissues:Shareholder Value,Customer Value,People ValueandCorporate Value.Eachcentreofcompetencesrespondstoafundamentaldimensionofthemanagementsystem:theShareholder,theCustomer,theInternalResources,thevalueoftheAssets.Thankstothecollaborationwithaccreditedprofessionals in theareaof StrategicPricing,ActiveValueAdvisorshasenrichedtheirskillsandprofessionalmethodswith innovativemodelsandtoolsofValuePricing.
SHAREHOLDER VALUE
• FamilyConstitution• TargetSetting‘OutsideIn’• AlternativeStrategies• BusinessUnitStrategies• PerformanceImprovement• ValueBenchmarking
PEOPLE VALUE
• OrganizationalNetworkAnalysis• ActionLearningforChangeManagement• PeopleAudit• RolesandResponsibilities• RewardingSystems• IncentiveMechanisms
CUSTOMER VALUE
• CustomerSatisfactionSurvey• SocialMediaIntelligence• DemandCurveAnalysisandSegmentation• CRMSystemDevelopment• CommercialPoliciesEnhancement• ValuePricingModelsandStrategies
CORPORATE VALUE
• ComplexEvaluations• TransactionServices• CapitalAllocation• SourcesofFundingMix• ImpairmentofGoodwill
34
Glossary
ECONOMIC VALUE ADDED or ECONOMIC PROFIT (EVA®)EconomicValueAdded(EVA),isameasurethatenablesmanagerstoseewhethertheyareearninganadequatereturn.Wherereturnsarelowerthanmightreasonablybeexpectedforinvestmentsofsimilarrisk(i.e.theyarebelowthecostofcapital),EVAisnegative,andthefirmfacestheflightofcapitalandalowerstockprice.Quitesimply,EVAisameasureofprofitlessthecostofallcapitalemployed.Itistheonemeasurethatproperlyaccountsforallthecomplextrade-offs,oftenbetweentheincomestatementandbalancesheet,involvedincreatingvalue.EVAisalsothespreadbetweenacompany’sreturnonandcostofcapital,multipliedbytheinvestedcapital.Accordingtothismodel-equivalenttotheDCF-theEnterpriseValueisequaltotheInvestedCapitalplusthePresentValueofEVAperformancethatManagementwillgenerateinthefuture(MarketValueAdded-MVA).ThereforetheEnterpriseVal-ueisrelatedtotheEVAperformance.ThegreatertheEVAexpectationsperformancefortheCompany,thegreatertheValueoftheCompany.
MARKET VALUE ADDED (MVA)It’stheValuethat,atacertaindate,shareholdersofacompanyhavethanoriginallyinvested.
It iscalculatedasthedifferencebetweentheEnterpriseValueandtheCapitalInvestedintheCompany(Debt+Equity),goodwillincluded.MVAcanbefurtherbrokendownintoFutureGrowthValue(FGV)andValueofcurrentperformance.
FUTURE GROWTH VALUE (FGV)FGVisthesummationofPresentValueoffutureexpectedEVAimprovements.Toputitsimply,FGVisthecapitalizedvalueofpresentvalueoffuturestreamofexpectedimprovementsinEVA.
EVA PERPETUITY (EP)PresentvalueofanEVAperformanceassumedtobeconstant.
WEIGHTED AVERAGE COST OF CAPITAL (WACC)Weightedaveragecostofcapital(WACC)isacalculationofafirm’scostofcapitalinwhicheachcategoryofcapitalisproportionatelyweighted.Allcapitalsources-commonstock,preferredstock,bondsandanyotherlong-termdebt-areincludedinaWACCcalculation.TheWACCequationisthecostofeachcapitalcomponentmultipliedbyitsproportionalweightandthensummed.
RETURN ON INVESTED CAPITAL (ROIC)It’susedtoassessacompany’sefficiencyatallocatingthecapitalunderitscontroltoprofitableinvestments.Thereturnoninvestedcapitalmeasuregivesasenseofhowwellacompanyisusingitsmoneytogeneratereturns.Comparingacompany’sreturnoncapital(ROIC)withitscostofcapital(WACC)revealswhetherinvestedcapitalwasusedeffectively.ThegeneralequationforROICis:NOPAT/TANGIBLEINVESTEDCAPITAL.