Writing a Best-Practice Business

Plan: A Blueprint

McKinsey & Company

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AGENDA

• Key questions for writing a business plan

• Sample business plan

1
KEY QUESTIONS FOR A BUSINESS PLAN
Key questions

• What is the basic business idea, target customer

Executive segments, and own value proposition?
summary • What are realistic sales targets, market shares, and
growth rates?
• What does the organizational business look like and
who will lead the business?

• Which market segments are profitable and growing?

Market/competitor • What are the key success factors?
analysis and own • Who are current and future competitors?
positioning • What is your positioning compared with key
competitors’?

• What services are offered at what prices?

Product and • What partnerships/cooperations are needed?
customer value • Where does the value to the customer lie?
proposition • How can advertising and promotions support the
customer value?

Source: McKinsey
2
KEY QUESTIONS FOR A BUSINESS PLAN (CONT.)
Key questions

• What is the basic business idea, target customer

Executive segments, and own value proposition?
summary • What are realistic sales targets, market shares, and
growth rates?
• What does the organizational business look like and
who will lead the business?

• Which market segments are profitable and growing?

Market/competitor • What are the key success factors?
analysis and own • Who are current and future competitors?
positioning • What is your positioning compared with key
competitors’?

• What services are offered at what prices?

Product and • What partnerships/cooperations are needed?
customer value • Where does the value to the customer lie?
proposition • How can advertising and promotions support the
customer value?

Source: McKinsey
3
KEY QUESTIONS FOR A BUSINESS PLAN (CONT.)
Key questions

Business-model
• What is the future network structure?
organization and
• What organization and resources are needed?
processes
• What are the core business processes?

• Which people manage the future business?

Management team
• How can top-caliber people be attracted and retained?
• What is the future management style of the operations?

• What other opportunities can be leveraged?

Opportunities • What risks are involved with the market entry and how
and risks can they be controlled?

• What are the expected financial results over the next

Financial planning five years?
and RONA analysis

• What are the key milestones in building the new

Implementation business?
road map

Source: McKinsey 4
AGENDA

• Key questions for writing a business plan

• Sample business plan

5
 Sample Business Plan for
Fast Fenners

EUROPEAN FOARS COMPANY

Sample Business Plan

March 2001

© Copyright 2001 McKinsey & Company. Confidential. Not for further

reproduction or distribution.
CONTENT EFC BUSINESS PLAN

1 Executive summary

2 Market/competitor analysis and EFC positioning

3 Product and customer value proposition

4 Business model, organization, and processes

5 Management team

6 Opportunities and risks

7 Financial planning and RONA analysis

8 Implementation road map

7
EXECUTIVE SUMMARY
1
The market for fenners has grown at a rapid rate since their introduction in 1985. Industry
revenues have grown from € 500 million in 1985 to € 7,000 million in 2000. Consumers have
shown almost insatiable demand for fenners and have consistently thrown away their old
fenners for new versions, as product features have been upgraded. This demand, combined
with other forces at work in the industry, make fenners a very attractive business opportunity.
Average industry profit margin has held firm at 15%
European Foars Company (EFC) is the nation's leading foar manufacturer. It has become the
industry benchmark for low-cost production processes and has established a strong brand
name, with EFC having become a household word. It has also established strong customer
relationships with the nation’s largest retail outlets
In recent years, market demand for fenners has flattened. In response, EFC began to
investigate the fenner market as a source of new profits to maintain its historical rate of return
to shareholders. After several years of R&D, EFC's engineers have developed and patented
the next generation of fenners known as 'fast fenners,' with features far surpassing existing
fenners. This business plan lays out EFC's strategy for entry into the fenner market with fast
fenners
EFC will begin selling fast fenners through the leading national retail outlets beginning in July
2001. Prior to this time, it will market the fast fenner aggressively to consumers, highlighting
its improved features and EFC's commitment to 24-hour customer service at the same price
as existing fenners. By offering consumers the fenner improvements and service that they
need at an economical price, EFC should be able to capture 62% of the market by the year
2005. EFC can realize up to € 1,130 million in annual profit by 2005 from successful
implementation of the fast fenner business plan

Source: McKinsey 8
EXECUTIVE SUMMARY – KEY ISSUES
1

The key issues in the business plan are:

• Pricing: EFC is the low-cost producer of fenners. This business
plan assumes that EFC will be able to replicate this low-cost
production concept. Therefore, it proposes offering fast fenners
at the same cost as existing fenners. EFC expects even value-
conscious consumers to buy the new fast fenners, thereby only
driving market growth but and gaining share
• Competitive response: EFC has patented the fast fenner and
believes that it will be extremely difficult for competitors to
replicate. This business plan also assumes that competitors will
not attempt to maintain market share through price slashing or
that any attempts to do so will be unsuccessful
• Distribution channel: This business plan recommends that EFC
leverage its strong relationships with the nation’s largest retail
outlets and sell fast fenners through them. The similarity of
fenners to foars suggests that consumers will be willing to
purchase fast fenners at retail outlets

Source: McKinsey 9
CONTENT EFC BUSINESS PLAN

1 Executive summary

2 Market/competitor analysis and EFC positioning

3 Product and customer value proposition

4 Business model, organization, and processes

5 Management team

6 Opportunities and risks

7 Financial planning and RONA analysis

8 Implementation road map

10
SIZE OF FENNER MARKET
2
€ millions

11,000

CAGR
1985-2005 = 16.7% 7,000

4,000

2,000

500

1985 1990 1995 2000 2005(E)

* Compound average growth rate

Source: McKinsey 11
AVERAGE INDUSTRY ROS OF FENNER MARKET
2
%

16
15 15
14

12

1985 1990 1995 2000 2005(E)

Source: McKinsey
12
FENNER DISTRIBUTION CHANNELS, MAT* 1999
2
%

Superstores
15

55 Retail outlets
30
Catalogs

Currently no fenners are sold online,

but experience from foars (15% online
sales and growing rapidly ) indicates
future online sales potential

* Moving annual total

Source: McKinsey
13
DEVELOPMENT OF MARKET SHARE OF IMPROVED FENNERS
2
%

1990 1995 2000

Basic 100 20 0
fenner

Improved 0 80 10
fenner

Even
better 0 0 90
fenner

Fast
fenner

Source: McKinsey
14
MARKET RESEARCH FINDINGS – POTENTIAL CUSTOMER NEEDS
2
%
% of population currently % of population liking their
owning fenners fenners

Don’t own 15 Indifferent

5
Don't like 20

Own 85
75
Like

Potential needs of fenner users*

'Wish my fenner could …'
'Wish it had more …'
'Need help getting my fenner to …'
'Wish I could buy more fenners within my budget ...'

* Quotations from customer interviews

Source: McKinsey
15
MARKET RESEARCH FINDINGS – IMPROVEMENT OPPORTUNITIES
2

Potential customer needs Improvement opportunities

'Wish my fenner could …' • Improve fenners ability to do A, B, C

'Wish it had more …' • Add options X, Y, Z

'Need help getting my • Better instructions

fenner to …' • Toll-free number
• 24-hour service

'Wish I could buy more • Scaled down, low-price fenner

fenners within my budget ...' • Cut price on existing fenners
• Volume discounts

Source: McKinsey
16
WILLINGNESS TO SWITCH TO AN IMPROVED FENNER
2
% of respondents

Would you switch to a fenner with improved features ...

… at a higher price? … at the same price? … at a lower price?

95
90

60

40

10
5

Yes No Yes No Yes No

Source: McKinsey
17
KEY FACTORS DRIVING CUSTOMER BUYING DECISION 2
Rating
0 Unimportant
Options 5 Important
5 Customer segment
Option lovers
4 Value seekers
Service seekers
3

... Price
5 4 3 2 1 1 2 3 4 5
1

5
Customer
service

Source: McKinsey
18
DEMOGRAPHICS OF TARGET CUSTOMER SEGMENTS
2
%
Demographics Option lovers Value seekers Service seekers

Age 20 - 30 10 35 20
30 - 40 20 30 40
40 - 50 40 25 30
> 50 30 10 10

Education High 30 20 40
level
Medium 50 40 30
Low 20 40 30

Buying Catalogs 10 50 10
behavior
Superstore 30 30 10
Retail 60 20 80

Older customers with Young customers with high Mid-aged customers

medium education level education level prefer with average education
shop in superstores and shopping through catalogs level strongly prefer
retail outlets and superstores shopping in retail outlets

Source: McKinsey
19
FENNER INDUSTRY FORCES AT WORK
2

Industry structure and economics Competitive conduct

• Small number of competitors
• R&D and manufacturing scale
effects create barriers to entry
• Industry profitable
• Market growing
• Competitors crowded out as others
upgrade product
• No price competition
• Innovation difficult and costly

Fenner market is an
attractive business
opportunity

Consumer demand External factors

• Consumer willing to trade up
• Demand consistently growing
• No substitutes for fenners
• Strong overall economic growth
fuels consumer spending
• Expected legislation changes in
2003 could additional fuel
consumer demand

Source: McKinsey
20
MARKET SHARE OF FENNER COMPANIES, MAT* 1999
2
%

Kings Fenner Co.

5
• Significant barriers for
Wonaby entry into fenner market:
Fenners 25 Trinity Fenners high research and
40 development costs and
scale requirements
• Fenner companies with
old product (e.g., Kings
Fenner Company) were
quickly crowded out of
market
30

John's Fenner Co.

* Moving annual total

Source: McKinsey
21
ANALYSIS OF COMPETITORS
2

Years since
Current last fenner Innovation Capability
Company market share innovation expected to innovate

• Trinity Fenners 40% 3 Possible

• Johns Fenner Co. 30% 5 No
• Wonaby Fenners 25% 6 ?
• Kings Fenner Co. 5% 10 No

• EFC's competitors generally are not expected to

innovate in the near future
• Trinity Fenners has the highest capability to innovate
in the medium future, all other competitors have only
low to medium ability to improve their products in
response to EFC's fast fenner

Source: McKinsey
22
COMPETITIVE POSITION EFC vs. COMPETITORS
2 High
Low
Skills Strategic assets Special relationship
EFC • Ability for low-cost • Fast fenner patent • Existing relationship
production • Well-established with some large
• Extensive experience brand name for foars national retailers
with foar production

Trinity • Cost leader in current • Patent for enhanced • Fenner retail chain
Fenners fenner production fenners

Johns • Very good • Strong brand name • Preferred supplier of

Fenner Co. management • Patent for enhanced medium-sized
resources as part fenners supermarkets
of the Johns
conglomerate

Wonaby • CEO left six months • Partnership with • Experimenting with

Fenners ago to Kings Fenner Fenner research lab selling fenners online
Co. • License to produce
enhanced fenners

Kings • New CEO • Old production • De-listed from

Fenner Co. • Beginning turnaround facilities (cannot be Wesko supermarket
upgraded) two months ago

Source: McKinsey
23
SWOT ANALYSIS FOR EFC FENNERS’ FUTURE BUSINESS
Strengths
• Low-cost production capability
• Patent for faster fenner
• Well-established brand name for
foars
EFC Fenner
Opportunities
• Fast-growing market: CAGR
2000-2005: 9.5%
• Profitable market: industry-wide
ROS 2005: 15%
• Customers' openness to
innovation of fenners in the
past: market share of even-
better fenners in 2000: 90%
• Customers' willingness to switch
to fast fenners in the future:
90%
Source: McKinsey
2
Weaknesses
• Currently no experience with
online selling
• No own retail activities
• No relationship with medium-sized
supermarkets
Business Threats
• Competitive reaction to market
entry of EFC, including possibility
of price war
• Competitors leveraging relation-
ship to existing distribution channel
to block EFC's market entry
• Fenner competitors attacking EFC
on its home territory with entry into
the foar market
• Product innovation through Trinity
Fenners
24
CONTENT EFC BUSINESS PLAN

1 Executive summary

2 Market/competitor analysis and EFC positioning

3 Product and customer value proposition

4 Business model, organization, and processes

5 Management team

6 Opportunities and risks

7 Financial planning and RONA analysis

8 Implementation road map

25
FAST FENNERS VALUE PROPOSITION
3

Product
Customer need EFC value added
characteristics

• More options • Emotional styling • 24-hour customer

• Better performance • Fast fenners with service for fast fenner
• Lots of service – Many new options customers
• Value for money – Enhanced • Leveraging experience
performance as low-cost producer of
foars to offer fast
fenners at today's
market price

Value proposition
A better product with more options and
an innovative styling at the same price
as regular fenners, plus 24-hour
customer service

Source: McKinsey
26
VALUE PROPOSITION TARGETED TO CUSTOMER SEGMENTS
3

Segment Key value proposition

Option lovers Fast fenners have lots of new

capabilities you want

Value seekers Fast fenners cost the same as

traditional fenners, plus you get
more bang for your buck with its
enhanced capabilities

Service seekers Fast fenners offer 24-hour

customer service, so help will be
there when you need it

Source: McKinsey
27
ESTIMATED CUSTOMER SEGMENT DEVELOPMENT, 2001-2005
3
'000 €
CAGR*, 2001-05
%
11,000 12
9,830
8,780 3.500 15
7,840 3.040
7,000 2.640
2.300
Option lovers 2.000
5.000 6
4.760
4.436
4.240
Value seekers 4.000

2.030 2.500 6
Service seekers 1.000 1.300 1.650

2001 2002 2003 2004 2005

* Compound average growth rate

Source: McKinsey
28
EFC REVENUE AND MARKET SHARE DEVELOPMENT, 2001-2005 3
'000 €
CAGR***, 2001-05
%
6,785 320

1.836 Option lovers 320

3,887
2.622 Value seekers 320
1.042

1,847 1.490
487
154 2.327 Service seekers 320
195 513 694
18 1.355
65 164 666
25
22 2001 2002 2003 2004 2005
Market share 6.9 6.3 21.0 39,5 61,7
%

* Target price of €2 per fenner

** Target price of €1.9 per fenner through increase in price promotions
*** Compound average growth rate
Source: McKinsey
29
CONTENT EFC BUSINESS PLAN

1 Executive summary

2 Market/competitor analysis and EFC positioning

3 Product and customer value proposition

4 Business model, organization, and processes

5 Management team

6 Opportunities and risks

7 Financial planning and RONA analysis

8 Implementation road map

30
DISTRIBUTION CHANNEL FOR EFC's FENNERS
4

Lainbury • Initially fast fenners will be

sold through the national
10 retail outlets of Wesko,
Almi, Spam, and Lainbury
only
Spam 20 40 Wesko • Fenner online offering to
be decided one to two
years after product
introduction
• Since fenners have
product characteristics
similar to foars, consumers
30 should be willing to buy
Almi fast fenners from those
national retail outlets

Source: McKinsey
31
MARKETING CONCEPT
4

Price
• Pricing at level of even-better
fenners
• Price transparency (e.g.,
recommended fast fenner
selling price)
• One price concept for all
channels (in particular for
expansion into online offer)
Product
• Innovative product (fast fenners
with many new options and
enhanced performance)
• Additional 24-hour customer
service for all fast fenner
customers

Placement Promotion
• National retail outlets of big • Leverage of EFC‘s foar brand
supermarket chains only name for faster fenners
• Shelf placement in conjunction • Full leverage of foar advertising/
with foars promotion carry-over effect for
• Development of leading edge fenners
www platform with complete • Tailored promotion/
offering of virtual buying communication concept for
process and built-in flexibility* market entry phase

* Potential online sales commencing in one to two years

Source: McKinsey
32
CRM LEVERS AND SOURCES OF CUSTOMER DATA
4

Initial
focus
Acquisition

Potential
Loyalty
CRM levers

Conquest

Foar sales Shared Customer Store exit Others

Potential data customer call center polls (e.g., from
sources of database external
customer with Wesko affinity
data for foar & players)
fenner sales

Source: McKinsey
33
ORGANIZATIONAL STRUCTURE OF EUROPEAN FENNER COMPANY
4

Proposed new
business unit

CEO

Head of
CFO COO
corp. center

Fast fenner Great foar

SBU* SBU

* Strategic business unit

Source: McKinsey
34
ORGANIZATIONAL STRUCTURE OF FAST FENNER BUSINESS UNIT
4

Fast fenner
SBU

Systems
Sales and Customer
Manufacturing support/
marketing service
back office

Source: McKinsey
35
 CORE PROCESSES – MANUFACTURING
4

Produce Package
Develop product Ship product
product product

Key • Research and • Purchase raw • Develop package • Store bulk

activities develop product materials design product
innovations • Operate plant • Package product • Load transport
• Understand • Control quality • Develop vehicles
customer needs of output innovative • Track orders and
• Test/pilot new • Improve promotion format shipments
product production flow • Control quality of
innovations output

Skills • Strong R&D, tied • Purchasing • Cost control • Efficient

to marketing • Cost control • Quality control packaging/
• TQM* • Efficient plant loading
operations • Transport
deployment
Staffing 2 34 10 10
FTEs

* Total quality management

Source: McKinsey 36
CORE PROCESSES – SALES AND MARKETING
4

Understand Develop Develop

Sell to Bill
customer marketing sales
customers customers
needs strategy strategy

Key • Perform • Gain in-depth • Prioritize • Negotiate • Send bills

activities market consumer potential sales with • Process
research understanding outlets retailers payments
– Surveys • Define product • Develop • Conduct
– Question- positioning account pricing
naires • Develop plans analysis
– Sales rep ad/promotions • Close
feedback strategy and contracts
implementation
concept
Skills • Quantitative/ • Advertising • Sales • Negotiation • Accounting
analytic expertise expertise • Pricing skills
analysis of • Marketing • Customer analysis
data expertise relations • Sales
• Communi- • Communi- experience
cation cation
Staffing 2 5 5 37* 4
No. of FTEs

* Including 35 field sales managers

Source: McKinsey
37
CORE PROCESSES – CUSTOMER SERVICE
4

Maintain account Respond to

Operate phone center
relationships customer concerns

Key • Select accounts to • Schedule 24-hour shifts • Advise over phone

activities focus on • Train operators • Send service reps to
• Develop account plans • Monitor calls customer
• Schedule account visits • Operate in-house
• Visit/call on accounts service center

Skills • Account planning • Communication • Communication

• Customer relationship • Technical knowledge • Technical knowledge
management • Operations efficiency • Repair and maintenance
know-how

Staffing 5 8 90
No. of FTEs

Source: McKinsey
38
CORE PROCESSES – SYSTEMS SUPPORT/BACK OFFICE
4

Operate Service Provide back-

Design systems
systems systems office support

Key • Understand • Run day-to-day • Service • Provide

activities needs of computer malfunctioning secretarial
manufacturing, systems systems support to
sales, and • Run help desk • Repair equipment manufacturing,
customer service • Advise with sales, and
areas technical support customer service
• Design support • Provide legal
systems to meet advice
their needs • Provide
accounting
services*
Skills • Systems • Technical skills • Equipment • Secretarial skills
expertise • Communication repair • Legal
• Software design • Accounting
• Programming
skills
Staffing 5 5 4 10
No. of FTEs

* Partly outsourced
Source: McKinsey
39
FAST FENNER BUSINESS UNIT STAFF POSITIONS
4

Head of fast fenner ( ) FTE

SBU (1)

SVP of SVP of sales SVP of

SVP of systems/
manufacturing and marketing customer
back office (1)
(1) (1) services (1)

Information
R&D Major account
Sales reps technology (14)
specialists (2) reps (5)
(35)

Advertising and Service Human

Plant
marketing mechanics (90) resources (6)
personnel (50)
specialists (12)

Quality control Market Phone reps (8) Legal (2)

engineers (4) researchers (2)

Billing
Finance (2)
coordinators (4)

Source: McKinsey
40
 PERSONNEL PLANNING IN FIRST FIVE YEARS
4
FTE

241* Driver of FTE growth

Sales and • Building of full manu-

57 marketing facturing plant in 2001
184*
• Starting with sales represen-
156* 54 Manufacturing tatives in region 1 only
56
• Including other regions 2003
Customer
112* 54
95* service • Developing in line with
52
customer growth
52 45 104
50 • Starting with full systems
22 53 engineering support
15 20 38 Systems/
22
back office • Developing customer support
15 18 22 25 in line with customer growth
13
2001 2002 2003 2004 2005

* Including head of fast fenner SBU

Source: McKinsey
41
CONTENT EFC BUSINESS PLAN

1 Executive summary

2 Market/competitor analysis and EFC positioning

3 Product and customer value proposition

4 Business model, organization, and processes

5 Management team

6 Opportunities and risks

7 Financial planning and RONA analysis

8 Implementation road map

42
MANAGEMENT TEAM OF FAST FENNER SBU
5
Name Short CV

Head of fast Mark Tscherner • Has led Great Foar SBU for four years, overlooking the rapid
fenner SBU growth of the business unit
• Eight years of marketing with Nova with responsibility for $80
million revenues. Consultant with McLinsey, focusing on
consumer goods and venture capital investments
Stefan Fischer • Five years production manager at Trinity Fenner, successfully
SVP of launching the improved fenner version
manufacturing • Assistant product manager with responsibility for 30 employees

Jacqueline Hoch • 10 years of marketing executive experience in leading consumer

SVP of sales goods company
and marketing • Worked for Gutte as brand manager for three years

SVP of Mike Murphy • VP at call center operations at Rouge*

customer • Director of infrastructure development of Rouge*
services

SVP of Jan Patterson • Three years of hands-on experience in back-office building for
systems/ e-price.com
back-office • Developing of C++ and Assembler software for ADS.com
• Independent C++ programmer and PhD degree in computing
from University of Sunderland

* Mobile telephones
Source: McKinsey
43
COMPENSATION SCHEMES FOR INTEGRATED BUSINESS UNIT 5
LAUNCHES Recent management Range of base salary*
searches (average)
€
• Mutual fund company 180,000 – 450,000
CEO/Head – € 350,000 base salary (342,000)
of SBU – 50%-60% annual bonus
– Executive stock option plan
(< 0.5% of stores)
• Consumer products company 130,000 – 290,000
SVP of – EURO 190,000 base salary (124,000)
manufacturing – 15%-25% bonus
– Small number of shares

• Retail clothing chain 140,000 – 280,000

SVP of sales – EURO 225,000 base salary (231,000)
and marketing – 20%-30% bonus
– Small number of shares

SVP of customer
• Foar company 125,000 – 245,000
– 170,000 base salary (187,000)
services/systems – 10%-20% bonus
and back office – Small number of shares

* From recent sampling (1999/2000)

Source: McKinsey
44
VISION, MISSION, AND IMPERATIVES FOR FAST FENNER SBU 5

Vision 'What is fast fenner?'

• An innovative company driving for
high customer satisfaction

• We aim to be the world's No. 1 fenner

'Where are we producer. In getting there we will
Mission attain a commanding market share
going?'
and facilitate a sustainable, long-term
profit growth

• Develop a focused, segmented, dif-

ferentiated product portfolio by market
• Establish excellent trade, marketing,
and distribution capabilities in end mkt.
Strategic 'How will we get
there?'
• Develop and manufacture innovative
imperatives
products while minimizing supply chain
costs
• Establish leading position in all key
markets
• Ensure that managers in key roles are
first class

Source: McKinsey
45
CONTENT EFC BUSINESS PLAN

1 Executive summary

2 Market/competitor analysis and EFC positioning

3 Product and customer value proposition

4 Business model, organization, and processes

5 Management team

6 Opportunities and risks

7 Financial planning and RONA analysis

8 Implementation road map

46
OPTIONS FOR MARKET ENTRY CONSIDERED BUT REJECTED
6
Options Reason for rejections

• Set a higher retail price • Consumers may not trade up,

Pricing
reducing market penetration
• Set a lower retail price • Cannot make profit at cost
level below today's market

Competitive • Don't patent fast fenner in order
response to get to market quicker
• Cut price to preempt
competitive entry
• Patent lasts 15 years and
innovations are difficult to copy
• Fenner competitors historically
do not have capability to
successfully innovate

Distribution • Use catalogs • Adding catalog service

channels increases annual cost by €50
million
• Use superstores • Superstores reduce profit
margins by 5%
• Use retail outlets, catalogs, and • Using all three distribution
superstores channels increases annual cost
by €60 million and reduces profit
margins by 4%
Source: McKinsey
47
CONTENT EFC BUSINESS PLAN

1 Executive summary

2 Market/competitor analysis and EFC positioning

3 Product and customer value proposition

4 Business model, organization, and processes

5 Management team

6 Opportunities and risks

7 Financial planning and RONA analysis

8 Implementation road map

48
DEVELOPMENT OF KEY FINANCIALS, 2001-2005
7
BASE CASE
Revenue EBIT
€ millions 1,162
6,785 € millions

1,847
65 -144 -51

2001 2003 2005 2001 2003 2005

ROS RONA
% % 67

-222 -3 17 -178 -17

2001 2003 2005 2001 2003 2005

Source: McKinsey
49
FIVE-YEAR PROJECTION OF PROFIT AND LOSS STATEMENT 7
BASE CASE
€ millions
2001 2002 2003 2004 2005
Revenue 65 513 1,847 3,887 6,785

Expenses 209 626 1,898 3,510 5,623

% of revenues 322 122 103 90 83
• Cost of goods sold 81 348 1,182 2,295 3,891
% of revenues 125 68 64 59 57
• Marketing and sales 55 152 362 617 963
% of revenues 85 30 20 16 14
• Administration 30 58 165 305 480
% of revenues 46 11 9 8 7
• R&D 43 68 189 293 424
% of revenues 66 14 10 8 6

EBIT -144 -113 -51 378 1,162

% of revenues -222 -22 -3 10 17
Interest 3 8 12 12 12
Taxes 0 0 0 5 340

Net income -147 -121 -63 361 793

% of revenues -226 -24 -3 9 12

Source: McKinsey
50
FIVE-YEAR PROJECTION OF CASH FLOW STATEMENT BASE CASE
7
€ millions
2001 2002 2003 2004 2005
Cash year in 0 4 33 31 236
Sources of cash
Net income: -147 -121 -63 361 793
+ Depreciation (amortization) 8 12 19 85 103
Increase/decrease in
+ Trade and other payables 8 16 23 36 49
+ Employee benefit liabilities 5 3 6 8 9
+ Deferred tax liabilities 0 0 0 1 84
+ Long-term debt and loans 50 80 50 0 0
Total sources of cash -76 -10 +35 491 1,038
Use of cash
Increase/decrease in:
Trade and other receivables 14 54 62 156 227
+ Inventories 38 12 24 83 155
+ Fixed assets 3 8 12 12 12
+ Interest 15 3 16 35 48
Total use of cash 70 77 114 286 442
Increase/decrease in cash -146 -87 -79 205 596
+ Financing (increase of equity) 150 120 110 0 0
Cash years out 4 33 31 236 832

Source: McKinsey
51
FIVE-YEAR PROJECTION OF BALANCE SHEET – ASSETS 7
BASE CASE
€ millions

2001 2002 2003 2004 2005

Current assets
Liquid assets 4 33 31 236 832
+Trade and other receivables 14 68 130 286 513
+ Inventories 15 18 34 69 117
Total current assets 33 119 195 591 1,462

Fixed assets
Gross value 54 101 152 279 509
– Accumulated depreciation 8 20 39 124 227
Total fixed assets 46 81 113 155 282

Total assets 81 183 299 751 1,744

Source: McKinsey
52
FIVE-YEAR PROJECTION BALANCE SHEET – LIABILITIES 7
BASE CASE
AND EQUITY
€ millions
2001 2002 2003 2004 2005

Current liabilities
Trade and other payables 8 24 47 83 132
+ Employee benefit liabilities 5 8 14 22 31
+ Deferred tax liabilities 0 0 0 1 85
Total current liabilities 13 32 61 106 248

Long-term liabilities
Long-term debt and loans 50 130 180 180 180
Total long-term liabilities 50 130 180 180 180
Total liabilities 63 162 241 286 428

Equity
Share capital 150 270 380 380 380
+ Retained earnings -132 -249 -271 85 936
Total equity 18 21 109 465 1,316
Total liabilities and equity 81 183 299 751 1,744

Source: McKinsey
53
PROJECTION OF EBIT, ROS, AND RONA, 2001-2005 7
BASE CASE

1,162
EBIT
€ millions
378

-144 -113 -51

ROS
% -3 10 17

-22

RONA
-222 50 67
%

-17
-62
-178
Source: McKinsey
54
BUSINESS EVALUATION THROUGH DCF* METHOD 7
8,938
€ millions
1,162 BASE CASE

NPV of
free cash
378 flows is
€ 4,653
million

-51
-144 -113
Residual
2001 2002 2003 2004 2005 value**
Discounting
rate 30 27 24 21 18 15.5
%

* Discounted cash-flow analysis

** Last year’s cash flow with yearly growth rate of 2.5% discounted by 15.5%
Source: McKinsey
55
DESCRIPTION OF CASES 7

• Competitors (Trinity Fenner, Wonaby Fenner)

Worst case developing fast fenner in two to three years
• Market growth limited (3%)
• Price war driving down market price by 10%-15%

• Development as expected
Base case

• Market exit 2002 of Kings Fenner company

Best case • Market growth exceeding expectations
(15%-20%) mainly driven by introduction of fast
fenners
• Price discrimination for option levers by 10%

Source: McKinsey
56
COMPARISON OF EBIT, ROS, AND RONA BETWEEN CASES, 2005 7

Worst case Base case Best case

EBIT 2,014
€ millions 1,162
512

24
ROS 17
%
5

85
67
RONA
% 32

Source: McKinsey 57
BUSINESS EVALUATION THROUGH WEIGHTING CASES 7

DCF Probability
€ millions %

Base case 4,653 60

Value of
Worst case EFC's fast
-138 20
fenner SBU
€4,008
million
Best case 6,221 20

Source: McKinsey 58
CONTENT EFC BUSINESS PLAN

1 Executive summary

2 Market/competitor analysis and EFC positioning

3 Product and customer value proposition

4 Business model, organization, and processes

5 Management team

6 Opportunities and risks

7 Financial planning and RONA analysis

8 Implementation road map

59
IMPLEMENTATION ACTION PLAN AND TIMELINE, 2001
8
Month

Activity J F M A M J J A S O N D

• Finish final product

development
• Set up business unit
• Hire new staff
• Train new staff
• Begin fenner production
• Develop marketing
strategy/ads campaign
• Begin ads campaign/
sales rep visits
• Roll out fast fenners

• Start up customer
service phone center
• Send out account reps
• Follow up surveys with
early customers
• Fine-tune product

Source: McKinsey 60