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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Building Business Acumen®
Acumen Learning
2
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
How much do you know about Alliance Data System’s (ADS)
Key Success Measures?(or Key Performance Indicators
(KPIs))
Let’s find out!
Important Questions
3
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
1 - How much Cash was on hand? $______
2 - How much Cash was generated by Operating Activities? $______
3 - What was our Total Revenues? $______
4 - What was our Net Income? $______
5 - What was our EBITDA Margin? ______%
6 - What was our Net Margin? ______%
7 – What was our Return on Assets? ______%
8 - How much did Total Revenue change YOY? ______%
9 - How much did EBITDA change YOY? ______%
10 - How much did Net Income change YOY? ______%
For fiscal year 2010: ADS
Pop Quiz
4
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Understand the 10 key performance measures that are important to ADS and the Executive Team.
List and describe the five business drivers all successful businesses must focus on.
Teach specific components of ADS financial statements.
Better articulate company performance & strategy.
Create a personal action plan that can positively impact personal performance and company results.
Learning Objectives
6
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
When Gretzky’s Dad was asked by a reporter, “What makes your son so great?”
“ He skates to where the puck… is going to be.”
(Hockey Acumen!)
He responded by saying;
“Wayne doesn’t skate to where the puck is.”
“The Great One”
~Wayne Gretzky~
7
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
…the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business.
3
Acumen Means?
8
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Only 5-10% of business start-ups survive past 5 years.
16% of CEOs lose their job every year. Booz Allen Hamilton 5th annual Study
70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007
Why do businesses fail?
6
Business can be tough!
9
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Every business must focus on five business drivers.
If they do, they will be successful.
If they don’t, they’ll fail.
Let’s Start a Business!
4
Business Acumen:
10
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Cash is King!
“Cash is more important than your mother." Al Shugart Former Seagate CEO
“Cash is a company’s oxygen supply.”
-Ram Charan
What happens to a company who runs low on cash?What happens to a company who runs low on cash?
11
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Sources of Cash
Can a company have too much Cash?
9
• Earn it •cash from Operation
• Sell Assets•Cash from Investing
• Borrow it•Cash from Financing
Pro: No Cost -Con: Time
Pro: Immediate -Con: Reduces Assets
Pro: Immediate -Con: Cost (Interest)
Cash & Cash Flow
12
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Can a company have too much Cash?
1)More attractive in a buy-out.2)Low return.3)Shareholders don’t like it.4)May make poor decisions.
9
Cash
13
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Companies ought to keep just enough cash to cover their interest, expenses and capital expenditures; plus they should hold a little bit more in case of emergencies.
Investopedia
How much cash should you have?
14
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Cash
8
What is required to grow and maintain the business.
Cash – the bills and coins in the register, petty cash, and cash in the bank. Also includes cash equivalents, like CD’s and other highly liquid investments, that easily convert into cash within 90 days.
Measures
Cash Flow – The cash generation from core business activities calculated from the difference between the cash that flows into and out of the business in a given period of time (month, quarter, annual)
Definition
Definition: Cash
15
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
(In Millions)
Cash ADS
9
Business Measures and Metrics ADS ADS ADS ADS
2010 2009 2008 2007
Total Revenue $2,791 $1,964 $2,025 $1,962
Cash
Cash and Equivalents $139 $213 $157 $219
Cash as % of Revenue 4.98% 10.86% 7.75% 11.17%
Cash from Operating Activities $903 $358 $451 $572
16
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
CashBenchmarks
9
(In Millions)
Business Measures and Metrics ADS VISA AMEX Harte-
Hanks, Inc. ACXIOM
2010 2010 2010 2010 2010 Total Revenue $2,791 $8,065 $30,242 $861 $1,160 Cash Cash and Equivalents $139 $3,867 $2,498 $86 $207 Cash as % of Revenue 4.98% 47.95% 8.26% 9.99% 17.85%
Cash from Operating Activities $903 $2,691 $9,288 $95 $166
17
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
1. What is the basic equation for each statement?
2. What is the purpose of the statement?
3. What are the key numbers and how are they trending?
4. How can you impact each statement?
Epsilon Financial Statements
18
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Equation:Cash from operations + Cash from investing + Cash from financing = Net Change in Cash
Purpose:Cash Management
Started Year Ended Year
Net Change in Cash
?
?
19
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Profit
10
What is left over after you have subtracted expenses. Can be expressed in dollars ($) or percent (%).
EBITDA/EBITDA Margin– Reflects earnings before interest and taxes.
Measures
Net Profit / Net Profit Margin – Profit after all expenses have been subtracted from sales.
Definition
Definition: Profit
20
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Every business must earn a return that is greater than the cost of using other
people’s money.
-Ram Charan
No Margin, No Mission.
-Stephen R. Covey
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Total Revenues (Sales) $100 100%
- Cost of Operations $ 55
- Provisions For Loan loss $ 14
- General & Admin. (G&A) $ 3
=EBITDA $ 28 28%
-Depreciation & Amortization $ 5
= Operating Income $ 23 23%
-Interest & Other Expense $ 11
-Taxes $ 4
= Income From Continuing Operations $ 7 7%
-Losses from discontinued operations $ --
= Net Income $ 7 7%
Two ways to impact PROFIT
22
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Driving ProfitHigh and Low Profit Margins
S&P Average TTM: 11%
Who has much higher profit margins?
Coca Cola 33%Microsoft 30%Google 29%Apple 21%
Why the high margins?
23
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Driving ProfitHigh and Low Profit Margins
S&P Average TTM: 11%
Who has lower profit margins?
ExxonMobil 8%Wal-Mart 3.8%Costco 1.7%
Why the low margins?
24
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
2010
EBITDA $ 772,446
+Stock Compensation Expense $ 50,094
+Loss on Sale of Assets $ --
+Merger and Other Costs $ --
= Adjusted EBITDA $ 822,540
Calculating Adjusted EBITDA
25
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Epsilon 613,374 514,272Epsilon 613,374 514,272
ProfitADS
11
(In Millions)
Business Measures and Metrics ADS ADS ADS ADS
2010 2009 2008 2007
Total Revenue $2,791 $1,964 $2,025 $1,962
Net Income $194 $144 $206 $164
Profit
EBITDA Margin 27.67% 27.14% 29.45% 27.94%
Net Margin 6.94% 7.32% 10.19% 8.36%
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Epsilon 613,374 514,272Epsilon 613,374 514,272
ProfitLoyaltyOne
11
(In Millions)
Business Measures and Metrics
LoyaltyOne LoyaltyOne LoyaltyOne LoyaltyOne LoyaltyOne
Q2-2011 6 Month 2010 2009 2008
Total Revenue $203 $421 $800 $715 $756 Profit Adjusted EBITDA Margin 26.05% 26.43% 25.58% 28.07% 27.12% Operating Income Margin N/A N/A 21.32% 23.32% 21.51%
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Epsilon 613,374 514,272Epsilon 613,374 514,272
ProfitEpsilon
11
(In Millions)
Business Measures and Metrics
Epsilon Epsilon Epsilon Epsilon Epsilon
Q2-2011 6 Month 2010 2009 2008
Total Revenue $188 $344 $613 $514 $491
Profit
Adjusted EBITDA Margin 21% 21% 24.83% 24.94% 25.78% Operating Income Margin N/A N/A 10.61% 9.62% 8.06%
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Epsilon 613,374 514,272Epsilon 613,374 514,272
ProfitPrivate Label (Retail)
11
(In Millions)
Business Measures and Metrics
Retail Retail Retail Retail Retail
Q2-2011 6 Month 2010 2009 2008
Total Revenue $351 $720 $1,386 $708 $762
Profit
Adjusted EBITDA Margin 46.68% 48.22% 38.23% 44.49% 48.53% Operating Income Margin N/A N/A 35.13% 39.7% 44.50%
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Profit Benchmarks
S&P 500 Averages: Net Margin = 11%11
(In Millions)
Business Measures and Metrics ADS VISA AMEX Harte-
Hanks, Inc. ACXIOM
2010 2010 2010 2010 2010
Total Revenue $2,791 $8,065 $30,242 $861 $1,160
Net Income $194 $2,966 $4,057 $54 $(23)
Profit
EBITDA Margin 27.67% 60.19% 19.72% 13.30% 2.67%
Net Margin 6.94% 36.78% 13.42% 6.23% -2.00%
30
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
11
United Parcel Services (UPS) – Avoiding left-hand turns
-92,000 trucks worldwide-Saved over 28,541,472 miles-Saved 3 million gallons of fuel-Reduced insurance premiums-Reduced maintenance frequency and costs
Profit In Action
31
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
11
How do you individually impact PROFIT?
Capture your ideas on page 11 in the participant guide.
Table Discussion (Page 11)
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Net Profit Margin
Net Income: 193,737
Total Rev. ÷ 2,791,421
= 6.94%
S&P 500 Ave. = 11%
Indicates:Profitability
(G&A)
SG&A:
• Salaries•Sales commissions•Benefits/Severance• Rental Expense• Bad debt charges• Merger integration costs• Professional services: Attorney fees, Accounting
(Revenue = Sales) = Top Line
= Bottom Line
= EBIT
Equation: Revenues- Expenses= Income
EBITDA Margin
Total Revenue: 2,791,421EBITDA: EBIT 629,220
+67,806+75,420 = 772,446
÷ 2,791,421
= 27.67%
P&L
EBITDA margin =27.67%
Net profit margin = 6.94%
= Net income / Diluted # of shares
33
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
If your team was able to help generate an additional 100K in revenue by selling more,
what would be the impact on our net income?
34
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Statement of Income (P&L)Increase revenue by 100K
100K
55K
55K45K
45K 17K 28K
35
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
If your team was able to help lower production and delivery costs by 100K, what
would be the impact on net income?
36
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Statement of Income (P&L)Lower costs by 100K
100K
100K100K
100K37K
63K
37
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Raising Revenues $100M = $28 -or-
Cutting Costs by $100M = $63
What are the implications of each action?
Which is better?
38
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Section 3Section 3
x
AssetsAssets Your supplier has suggested that you take delivery less often. What are
the advantages and disadvantages?
12
Street Vendor Case Study
39
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Balancing…
Asset Asset StrengthStrength
Asset Asset UtilizationUtilization
&
i.e. cash, inventory and ratings
Assets (Read from guide book p. 12)
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Assets
12
What we have and how well we use what we have.
Return on Assets (ROA)— percent value of Net Income to Total Assets
Measures
Definition
Definition: Assets
41
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
13
“In 1912, the Model T for the first time cost less than the prevailing average annual wage in the United States.”
“Ignoring conventional wisdom, Henry Ford continually sacrificed margins to increase sales. In fact, profits per car did fall as he slashed prices from $220 in 1909 to $99 in 1914.”
“But Sales Exploded!”
“Ford demonstrated that a strategic, systematic lowering of prices could boost profits, as net income rose from…
$3 million in 1909 to $25 million in 1914.”~Daniel Gross, Forbes Greatest Business Stories
Example of Profits and Assets
42
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary 4
2
Example: Example: Return On…
What we Get:•Income•Earnings•Profit
What it Costs:•Debt•Assets•Capital
43
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Assets ADS
13
(In Millions)
Business Measures and Metrics ADS ADS ADS ADS
2010 2009 2008 2007
Total Revenue $2,791 $1,964 $2,025 $1,962
Net Income $194 $144 $206 $164
Assets
Return on Assets (ROA) 2.34% 2.75% 4.75% 3.94%
ROA = Net Income = $194 = 2.34% Total Assets $8,272
44
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
AssetsBenchmarks
13
(In Millions)
Business Measures and Metrics ADS VISA AMEX Harte-
Hanks, Inc. ACXIOM
2010 2010 2010 2010 2010
Total Revenue $2,791 $8,065 $30,242 $861 $1,160
Net Income $194 $2,966 $4,057 $54 $(23)
Assets
Return on Assets (ROA) 2.34% 8.88% 2.76% 5.78% -1.77%
45
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Class Discussion (notes on page 13)
Best practices currently employed by companies, including ours, to improve asset strength and utilization:
Increase revenues. Lower costs. Getting more done with fewer employees. Reducing inventory levels to increase inventory turnover. Spending only on capital (equipment) upgrades that will
provide a return.
46
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
•What balances?•What is the average price of a home?
46
Why call it a Balance Sheet?
47
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Becomes Cash < 1 year
Most Liquid
Least Liquid
Due First
Due Last
Due in < 1 year Balance
Equation:Assets = Liabilities + Equity
Indicates:Financial (asset) Strength
Current Ratio = 1.6
Snapshot in time
48
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Growth
14
The ability to increase year over year, quarter over quarter, and/or month over month.
Revenue Growth Measures
EBITDA Growth
“In today’s business world, no growth means lagging behind in a world that grows every day…”
“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”
DefinitionDefinition: Growth
Net Income Growth
49
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
• Best & brightest leave first.
• Productivity goes down.
• Morale goes down.
• Costs are cut, which limits ability to grow, company becomes less profitable.
Studies Show:
It usually takes 4 or 5 years for the company to recover.
15
Business in Rapid Decline…
50
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
• Attracts/Retains the best & brightest!
• Productivity goes up = more profit = more cash = more ability to grow!
• Morale is high.
• You have the ability to grow in your career!
Growth gets more time & attention than any of the 5 elements in a public company.
15
Business in Rapid Growth…
51
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
GrowthADS
15
(In Millions)
Business Measures and Metrics ADS ADS ADS
2010 2009 2008
Total Revenue $2,791 $1,964 $2,025
Net Income $194 $144 $206
Growth
Revenue Growth 42.10% -3.01% 3.22%
EBITDA Growth 44.91% -10.62% 8.78%
Net Income Growth 34.79% -30.36% 25.81%
52
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
GrowthLoyaltyOne
15
(In Millions)
Business Measures and Metrics
LoyaltyOne LoyaltyOne LoyaltyOne LoyaltyOne LoyaltyOne
Q2-2011 6 Month 2010 2009 2008
Total Revenue $203.1 $420.8 $800 $715 $756 Adjusted EBITDA $52.9 $111.2 $205 $201 $205 Profit Revenue Growth 6% 8% 11.8% -5.4% N/A Adjusted EBITDA Growth -10% -1% 1.9% -2% N/A
53
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
GrowthEpsilon
(In Millions)
Business Measures and Metrics
Epsilon Epsilon Epsilon Epsilon Epsilon
Q2-2011 6 Month 2010 2009 2008
Total Revenue $188 $344.2 $613 $514 $491 Adjusted EBITDA $39.3 $73 $152 $128 $127 Profit Revenue Growth 38% 31% 19.26% 4.68% N/A Adjusted EBITDA Growth 26% 25% 18.8% 1.3% N/A
15
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
GrowthPrivate Label (Retail)
(In Millions)
Business Measures and Metrics
Retail Retail Retail Retail Retail
Q2-2011 6 Month 2010 2009 2008
Total Revenue $350 $720 $1,386 $708 $762 Adjusted EBITDA $164 $347 $152 $128 $127 Profit Revenue Growth 2% 5% 96% -7% N/A Adjusted EBITDA Growth 23% 27% 68% 1.3% N/A
15
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
GrowthBenchmarks
(In Millions)
Business Measures and Metrics ADS VISA AMEX Harte-
Hanks, Inc. ACXIOM
2010 2010 2010 2010 2010
Total Revenue $2,791 $8,065 $30,242 $861 $1,160
Net Income $194 $2,966 $4,057 $54 $(23)
Growth
Revenue Growth 42.10% 16.70% 13.14% 0.05% 5.53%
EBITDA Growth 44.91% 28.96% 109.93% 1.84% -68.71%
Net Income Growth 34.79% 26.05% 90.47% 12.32% -151.96%
15
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
• At your table, discuss how you individually impact Growth.
• Capture your ideas on page 15 in the participant guide.
• Be prepared to share one of your ideas with the class.
How can you personally impact Growth?
15
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
People
16
-The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business...
Definition
Definition: People
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
17
What is more important than meeting customer expectations?
Exceeding?Anticipating Customer Needs & Expectations!
“If I would have asked my customer what they wanted, they would have said a faster horse!”
~Henry Ford
People
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
17
What companies have failed to anticipate customer expectations? What were the results?
– Unprepared for recession and required government bailout
money. Ford secured line of credit prior and retained full ownership.
– decided to move to digital product line. Polaroid did not and is no
longer a serious competitor.
– In 1943, the CEO said the customer need for their product was approximately 5 computers for the entire world.
– Did not move to a digital music player and lost a significant market share to innovative companies like Apple.
• GM/Ford
• Kodak
• IBM
• Sony
Failing to Anticipate customer needs/expectation!
62
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
• Capitalize on our Leadership in Targeted and Data-Driven Consumer Marketing
• Sell More Fully Integrated End-to-End Marketing Solutions.
• Continue to Expand our Global Footprint
• Optimize our Business Portfolio
2010 Year End Press Release
Goals for 2011
Page 62
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
What are your best practices in anticipating CUSTOMERS needs?
(Capture ideas on page 17)
• Know your business and how you impact results!• Develop formal processes for listening to customers, both internal and external.• A quarterly meeting with your boss…ask, how am I doing? • What could I do to improve?
64
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Individual Activity (Page 17)
Write down a specific action you will take to
anticipate the needs of
(get close to) your
CUSTOMER.
65
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Business Drivers (Page 18) Cash
-On hand -Generation
Assets -Strength -Utilization
Growth -Top Line -Bottom Line
Profit -Revenue -Expenses
People-Customers-Employees
66
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
How will I remember these?
Cash
Assets
Growth ProfitPeople
67
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Finding our performance around the 5 Business Drivers
Cash -On hand
-Generation
Assets -Strength
-Utilization
Growth -Top Line
-Bottom Line
Profit -Revenue
-Expenses
People-Customers-Employees
69
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
629 + 143 = 772
194 8,272
2,791 1,964
629 + 143 = 772 408 + 125 = 533
139
2,791
194
6.94
42.10
34.79
27.672,791
194 2,791
2.34
44.91
144194
903
1
2
3
4
5
6
7
8
9
10
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Epsilon Corporation’Key Success Measures
1 ½
0SCORING:Right answer = 1 pointSomewhat close = ½ point (within: 10%)Missed it by a ways = 0 point
35
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
5 Business Driver Review (Pages 8-17)
Cash -On hand
-Generation
Assets -Strength
-Utilization
Growth -Top Line -Bottom
Line
Profit -
Revenue -
Expenses
People-Customers-Employees
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
1) Assign one of the business drivers to each person at your table.
Review and Teaching (page 30)
2) Take a few minutes to answer the questions below:
How would you describe this business driver? Why is it important to our organization? How is it measured? How can I impact this business driver in my role?
3) Review with your group the answers you found.
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
What is the Purpose of the Annual Report?
General Communication
Marketing
Compliance
Demystifying the Annual Report (page 21)
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Which of the 5 “drivers” does your CEO & Chairman emphasize? Why? As table groups, What are Mr. Heffernan’s top 2 focus areas.
What other key initiatives are also being talked about?
Was this a good year or bad year? How can you tell?
Getting to Know Your Company
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Finding our performance around the 5 Business Drivers
Cash -On hand
-Generation
Assets -Strength
-Utilization
Growth -Top Line -Bottom
Line
Profit -
Revenue -
Expenses
People-Customers-Employees
76
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Company Reports
LoyaltyOne
Epsilon
Retail
Know Thyself.Know Thyself.--Plato--Plato
77
©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Finding Competitors Performance Around:
Cash -On hand -
Generation
Assets -
Strength -
Utilization
Growth -Top
Line -Bottom
Line
Profit -
Revenue -
Expenses
People-Customers-Employees
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Use these sources:
1) President Letter from Insight Magazine
2) Website
3) Team Members
4) Others in the Class
To answer these questions on:
What is the basic business model? How would you describe it to an outsider?
Key Objectives for 2011
Opportunities & Threats
What synergies do you see with the other two business lines?
Getting to Know ADS
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
External Factors (page 40)
How does the situation affect:
CashCash
ProfitProfit
AssetsAssets
PeoplePeople
GrowthGrowth
Heads Up!Heads Up!
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Which External Factor has the biggest impact on Alliance Data Systems? (pg. 27)
Com
petiti
on
Reg
ulat
ion
Cost
chan
ges
Eco
nomic
sta
tus
of ..
.
Tec
hnolo
gical
Adv.
..
Sto
ck M
arke
t
0% 0% 0%0%0%0%
1. Competition2. Regulation3. Cost changes4. Economic status of customers5. Technological Advances6. Stock Market
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Competitor Reports
Visa
American Express
Harte-Hanks
ACXIOM
Keep your friends close, Keep your friends close, and your and your enemies closer.enemies closer.
--Lao Tzu--Lao Tzu
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Finding Competitors Performance Around:
Cash -On hand -
Generation
Assets -
Strength -
Utilization
Growth -Top
Line -Bottom
Line
Profit -
Revenue -
Expenses
People-Customers-Employees
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Use these sources:
1) CEO letter
2) Financial analysis (fill out the NTF)
3) Recent quarterly earnings release
4) One year stock performance
To answer these questions on page 36:
Was this a good year or bad year? How can you tell?
Which of the 5 business drivers are most important to them? Why?
What does this company do that you were not aware of?
Getting to Know a Company (pages 36)
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©2009 ADS Alliance Data Systems, Inc.Confidential and Proprietary
Credit Crisis
Who is involved?
U.S. Government Federal
Reserve
Home Builders
Home BuyersMortgage
Companies
FNMA & FHLMC
Rating Agencies
Banks, Insur. Co’s Pushing
more loans. Little over-
sight.
Aggressive rate cuts
after 9/11 to spur
spending.
Buying more home than they can afford.
increase supply of homes to
meet demand.
Aggressive Sub-prime lending.
Did not rate sub-prime loan risk
well.
Over leveraged
with implied government
backing.
Over leveraged.
Did not understand sub-prime
risk.
What does this mean for FCX?
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The Role of the Stock Market
1) What role does the stock market play?
2) Who cares about your stock price and why?
a. Investors
b. Analysts
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Analyst Recommendations
September 19, 2011
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The Role of the Stock Market
1) What role does the stock market play?
2) Who cares about your stock price and why?
a. Investors
b. Analysts
c. Your CEO
d. Employees
3) What are the benefits of a higher stock price?
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6 Benefits of a Higher Stock Price:(Page 41)
1) Treasury stock is worth more.
2) Secondary offering brings more cash.
3) Better credit ratings = more access to cash at a cheaper rate.
4) More acquisition power.
5) Can attract talented people.
6) More expensive in a buy-out.
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Market Cap = shares outstanding X stock price
ElementADS Visa AMEX Harte-
Hank ACXIOM
Market Cap. 4.5 Billion 69 Billion 52 Billion .5 Billion .85 Billion
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The P/E Ratio-ADS(Page 42, 43)
Price (of one share of stock)
Earnings Per Share (for last 12 months)
Price $ 89.02EPS $ 4.55
= 19.5 P/E ratio
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P/E Ratios
ElementADS Visa AMEX Harte-
Hanks Acxiom
P/E Ratio 20 20 11 12 -
““The P/E ratio tells you what people who have a The P/E ratio tells you what people who have a dispassionate view of your company think of its future ability dispassionate view of your company think of its future ability to make money. It reveals how much of their money they are to make money. It reveals how much of their money they are willing to bet on your success in the quarters and years to willing to bet on your success in the quarters and years to come.come.”” Ram CharanRam Charan
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CEO Urgency Continuum (Page 49)
URGENT NEAR TERM LONG TERM
CASH PROFIT
ASSETS
GROWTH
PEOPLE
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Retaining Content over Time
Time
ReviewApplyTeach
15%
52
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Chances of the idea being incorporated into their life is...
When a Person Says …
*Based on a 1993 Brigham Young University Study
Changing Behavior
“That’s a good idea”… 10%
“I’ll do it!” and commits... 25%
Says when they’ll do it… 40%
Plans how to do it… 50%
Commits to another… 60%
Sets a future specific appointment with the person they committed to...
95%Good Management Technique!
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Find a Partner now and:1. Set up a specific date and time in 30 days to report your
progress on your action plan.
2. Exchange emails
3. Exchange phone numbers
4. Decide who will initiate the call
5. Determine a back-up plan
6. Transfer this information to your planner or PDA now.
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Accountability Conversations
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1. 7 days: Teach one of the principals learned in class today, to someone in your department.
2. 7 days: Discuss your action items with your manager in the next 7 days.
3. 30 days: Read the first 90 pages of: “What The CEO Wants You to Know“
4. 30 days: Get with your class partner and give an account of your progress on your action item(s).
Start now:
1. Build and practice your new business acumen skills.
2. When making decisions, determine how the outcome will impact Cash, Profit, Assets, Growth, People…
Post Course Action Items:
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Understand the 10 key performance measures that are important to ADS and the Executive Team.
List and describe the five business drivers all successful businesses must focus on.
Teach specific components of ADS financial statements.
Better articulate company performance & strategy.
Create a personal action plan that can positively impact personal performance and company results.
Learning Objectives
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* nasdaq.com * finance.google.com
* reuters.com * hoovers.com
* yahoo.com * smartmoney.com
Glossary: page 58
Where to Find Information(page 55)
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One final thought…
People will work hard for a paycheck,harder for a person,and hardest for a reason.