KPMG Internation Case Competition 2015 (Finalist)
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Transcript of KPMG Internation Case Competition 2015 (Finalist)
The Russian RoadmapModern Comfort for the Modern Home
Cines | Cook | Paul | Wang
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Intro Solution Manufacture Market Motivate Conclusion
Key Issues
Inefficient Manufacturi
ng Low Brand
Equity
Cultural Differences
Continuance of Figor JV
To pursue or not to pursue the Russian Market
?
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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The “Triple M” Plan
Manufacture Market Motivate
Intro Solution Manufacture Market Motivate Conclusion
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Manufacture
Manufacture Market Motivate
Intro Solution Manufacture Market Motivate Conclusion
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Manufacture
Intro Solution Manufacture Market Motivate Conclusion
How do we execute a manufacturing strategy that is both low cost and sets us up to compete in the future? Build a local manufacturing factory near Moscow.
Why?
• Reduce Cost• Market Penetration• Attain State Funding
How?• Buy out local factory
or• Acquire small
appliance company
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Manufacture - Timeline
Intro Solution Manufacture Market Motivate Conclusion
2015 2016 2017
Acquire and Begin Production
Renovate and Build New Production Plants
and Identify Location for Future Asia Growth
2015 2017 & Beyond
Identify Local Manufacturing Plant
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Market
Manufacture Market Motivate
Intro Solution Manufacture Market Motivate Conclusion
Acquire local factory
Acquire local factory
Acquire local factory
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Market
Intro Solution Manufacture Market Motivate Conclusion
How do we reach a fragmented Russian audience where we have low brand equity?We aggressively pursue the young Russian
market
How?
• “Modern Comfort for the Modern Home”
Why?
• Population• Demand
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Modern Comfort for the Modern Home
Intro Solution Manufacture Market Motivate Conclusion
Two Cities
Two Lines
Smart Promotion
Online Integration
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Market - Timeline
Intro Solution Manufacture Market Motivate Conclusion
2015 2016 2017
Roll out Online Implementation
Continue Marketing2015
2017
Start Marketing Campaign
Celebrity Sport Endorsements
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Motivate
Manufacture Market Motivate
Intro Solution Manufacture Market Motivate Conclusion
Modern Comfort for the Modern
Home
Acquire local factory
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Motivate
Intro Solution Manufacture Market Motivate Conclusion
How do we incubate Russian culture while insuring a strong talent pipeline to satisfy future growth? Modern training and recruitment unified under
common goal
How?• University recruitment
strategy• Rotational program• External hire process• Common goal
Why?• Lack of local
knowledge• Poorly educated
workforce
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Motivate – Recruitment Timeline
Intro Solution Manufacture Market Motivate Conclusion
2015 2016 2017
Partner with 2 More Universities
Be Top Recruiter at 5 Elite Universities
2015 2017 & Beyond
Partner w/ Top Russian Universities
Develop Internship Program
First Year Recruitment Class
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Motivate – Management Timeline
Intro Solution Manufacture Market Motivate Conclusion
2015 2016 2017 Have Process for External Transfer Hires
2015 2017 & Beyond
Recruit 3 Top Executives from Competitors
Recruit 5 execs w/ local experience
First Year Recruitment Class
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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The “Triple M” Plan
Manufacture Market Motivate
Intro Solution Manufacture Market Motivate Conclusion
Modern Comfort for the Modern
Home
Acquire local factory
Culture, Retention, & Recruitment
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Risk & Mitigation Tactics
Manufacture Market Motivate
Intro Solution Manufacture Market Motivate Conclusion
Can we find a factory?
Low valuations and fragmented
market allow options
Will our message hit home?
Multiple touch points & strong message allows
for reliable message
How will external hires work with
new?
Extensive screening
interview process will find right fit
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Financials
Intro Solution Manufacture Market Motivate Conclusion
5 Year Bear Case
$503 Million in Revenue
5 Year Base Case
$570 Million in Revenue
5 Year Bull Case
$636 Million in Revenue
Bull Base Bear2015 $79.8 $79.8 $79.82016 $106.9 $94.2 $81.42017 $109.1 $96.1 $83.02018 $111.3 $98.0 $84.72019 $113.5 $99.9 $86.42020 $115.8 $101.9 $88.1Total $636.3 $569.9 $503.4
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Conclusion
Manufacture Market Motivate
Intro Solution Manufacture Market Motivate Conclusion
Modern Comfort for the Modern
Home
Acquire local factory
Culture, Retention, & Recruitment
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Appendix A
Microwave (per unit) Washer (per unit)
Economy Premium Economy Premium 40 60 300 400
Direct Materials $14.60 $21.90 Direct Materials $111.15 $148.20Direct Labor 13.14 19.71 Direct Labor 100.04 133.38Manufacturing Overhead 1.46 2.19 Manufacturing Overhead 11.12 1.00Cost of Goods $29.20 $43.80 Cost of Goods $222.30 $296.40
R&D 4.25 5.25 R&D 21.00 28.00Shipping 2.00 3.00 Shipping 24.00 32.00SG&A Expenses $6.25 $8.25 SG&A Expenses $45.00 $60.00
Total Cost (per unit) $35.45 $52.05 Total Cost (per unit) $267.30 $356.40Revenue 40.00 60.00 Revenue 300.00 400.00Marginal Contribution 27% 27% Marginal Contribution 26% 26%
Total Revenue (in thousands) $1,356.44 $2,034.66 Total Revenue (in thousands) $6,067.20 $8,089.60Operating Expenses 1202.15 1765.07 Operating Expenses 5405.88 7207.83Operating Income 154.30 269.59 Operating Income 661.32 881.77Operating Margin 11% 13% Operating Margin 11% 11%
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Appendix B
Range (per unit) Refridgerator (per unit)Economy Premium Economy Premium
400 600 500 900Direct Materials $156.00 $234.00 Direct Materials $202.50 $364.50Direct Labor 140.40 210.60 Direct Labor 182.25 328.05Manufacturing Overhead 15.60 23.40 Manufacturing Overhead 20.25 36.45Cost of Goods $312.00 $468.00 Cost of Goods $405.00 $729.00
R&D 28.00 42.00 R&D 35.00 63.00Shipping 40.00 60.00 Shipping 50.00 90.00SG&A Expenses $68.00 $102.00 SG&A Expenses $85.00 $153.00
Total Cost (per unit) $380.00 $570.00 Total Cost (per unit) $490.00 $882.00Revenue 400.00 600.00 Revenue 500.00 900.00Marginal Contribution 22% 22% Marginal Contribution 19% 19%
Total Revenue (in thousands) $27,128.86 $40,693.28 Total Revenue (in thousands) $16,955.53 $30,519.96Operating Expenses 25772.41 38658.62 Operating Expenses 16616.42 29909.56Operating Income 1356.44 2034.66 Operating Income 339.11 610.40Operating Margin 5% 5% Operating Margin 2% 2%
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Appendix C
Oven (per unit)Economy Premium
Direct Materials $205.58 $262.80Direct Labor 228.42 292.00Manufacturing Overhead 22.84 20.25Cost of Goods $456.84 $609.12
R&D 15.00 20.00Shipping 40.00 45.00SG&A Expenses $55.00 $65.00
Total Cost (per unit) $511.84 $674.12Revenue 600.00 800.00Marginal Contribution 24% 24%
Total Revenue (in thousands) $40,693.28 $54,257.71Operating Expenses 34714.08 45720.26Operating Income 5979.20 8537.45Operating Margin 15% 16%
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Appendix D: Operating Margin
Bull Bear BaseTotal Revenue (in thousands) $134,245.5 $79,639.6 $106,942.6Total Expenses 127,937.9 76,058.5 101,998.2 Total Income 20,824.2 5,128.9 12,976.6 Operating Margin 15.51% 6.44% 10.98%
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Appendix E: Market SizeMarket Size Market Size (Washers)
St Petersburg St Petersburg Total Population (in thousands) 4,860 Total Population (in thousands) 4,860 % under 24-35 18% 875 % under 24-35 18%% under 35-45 26% 1,264 % under 35-45 26%Avg HH Size (young) 1.5 583.20 persons per washer (young) 4Avg HH Size (old) 2.58 489.77 persons per washer (old) 3
Max Potential Customers 1,073 Max Potential Customers 640
Moscow Moscow Total Population (in thousands) 10,500 Total Population (in thousands) 10,500 % under 24-35 18% 1,890 % under 24-35 18%% under 35-45 26% 2,730 % under 35-45 26%Avg HH Size (young) 1.5 1,260 persons per washer (young) 4Avg HH Size (old) 2.58 1,058 persons per washer (old) 3
Max Potential Customers 2,318 Max Potential Customers 1,383
Total Max Potential Units Sold (in thousands) 3,391
Total Max Potential Units Sold (in thousands) 2,022
% of market captured 2% % of market captured 2%
Market Size (units)67822.139
53 Market Size (units) 40,448.00
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Appendix F: Income Statement
Income StatementDecember 31st (000s USD) 2006 2007 2008 2009 2010 2011 2012Total Revenue 3,156,260 3,788,084 3,404,803 3,472,899 3,542,357 3,613,204 3,685,468
Cost of Goods Sold 2,441,751 2,940,567 2,499,649 2,549,642 2,600,635 2,652,648 2,705,700Gross Profit 714,517 847,517 905,153 923,256 941,721 960,556 979,767
Selling General & Admin Exp. 492,716 592,034 683,088 696,750 710,685 724,898 739,396Other Operating Exp., Total 492,716 592,034 683,088 696,750 710,685 724,898 739,396Operating Income 221,801 255,482 222,065 226,506 231,036 235,657 240,370
Operating Margin 7.03% 6.74% 6.52% 6.52% 6.52% 6.52% 6.52%
Income Statement 2013 2014 2015 2016 2017 2018 2019 2020December 31st (000s USD) 3,759,178 3,834,361 3,911,048 3,989,269 4,069,055 4,150,436 4,233,445 4,318,113Total Revenue 2,759,814 2,815,011 2,871,311 2,928,737 2,987,312 3,047,058 3,107,999 3,170,159
Cost of Goods Sold 999,362 1,019,349 1,039,736 1,060,531 1,081,742 1,103,376 1,125,444 1,147,953Gross Profit 754,184 769,268 784,653 800,346 816,353 832,680 849,334 866,321
Selling General & Admin Exp. 754,184 769,268 784,653 800,346 816,353 832,680 849,334 866,321Other Operating Exp., Total 245,178 250,081 255,083 260,185 265,388 270,696 276,110 281,632Operating Income
6.52% 6.52% 6.52% 10.98% 11.09% 11.20% 11.31% 11.42%Operating Margin *operating margin in Russian market 2016-2020
© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 304443
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Appendix G: Currency Hedging
Effect Exchange
Rate RUB/USD
in USD ($mm) Effect ($mm)
-25% 87.5 $56.0 -$24.0-15% 71.3 $68.9 -$11.1
Spot Rate 62.0 $80.0 -10% 55.8 $88.0 $8.0
Forward Rate 70.0 $70.2 -$9.8