Fortune_CL2010_-_final

ENTER!

Agenda

Part 1: Russian ice-cream market

Part 2: Optimal entry strategies

Part 3: Follow up a success

Optimal Strategy Analysis (1)

A. Import ice-cream from Europe

+ Can be started at relatively short notice

-High import duties & transportation costs

-High advertising & promotion expenses

-Recent RUR devaluation

-27% price margin for imported ice-cream vs. 36% price margin for domestically produced

NOT OPTIMAL

Optimal Strategy Analysis (2)

B. “Greenfield”: start own ice-cream production in Russia

+ Benefit from technologies of production

-Extremely time-consuming

-Administrative/regulatory issues

-High advertising & promotion expenses

-Increasing consumer loyalty towards brands, already in the market

NOT OPTIMAL

Optimal Strategy Analysis (3)

C. “Brownfield”: buy a company – market leader in ice-cream production

+Relatively fast

+Companies’ valuations dropped significantly

+Market leaders are growing much faster than the rest of the market

+Marketing synergies & economies of scale

THE RIGHT WAY TO GO!

Which company to

acquire?

Company analysis: Inmarko

Value disciplines

Business performance

+ Ice-cream business net margin of 7.2%

- Net debt US$55.8, current portion US$23.1m

- Net debt/PBT=3.72x

- Cash balance US$1.8m

Company analysis: Talosto

Value disciplines

Business

Performance

- Ice-cream business net margin of 5.6%

+ Net debt US$51.6m, current portion US$4.8m

+ Net debt/PBT=3.42x

+ Cash balance US$4.1m

+/- Frozen foods are 44% of Sales

Acquire Inmarko and

Talosto’s ice-cream business!

Optimal strategy: acquire Inmarko and ice-cream business of Talosto (1)

+Inmarko is very strong in the regions, while Talosto is active in Moscow and St.Petersburg

+Two companies have different value disciplines, which supplement each other

+Talosto’s shareholders are likely to agree to sell ice-cream business, given its lower profitability and technical possibility to separate ice-cream and FF production

+/- Combined company would have more than 30% market share. However this could be restricted by FAS