Bubble Discussion Material _scribd

Ver. 01 May 16, 2009

Project Bubble Discussion Material

Jakarta 2009

This document is confidential and is intended solely for the use and information of the party to whom it is addressed.

Project Bubble Transaction Snapshot Project Name

: Project Bubble

Company name : XXX Country

: Indonesia

Industry

: Beverages

Total Project Cost

: ±Rp 20bn

Type of acquisition

: Business operation

Investment Snapshot  Opportunity to acquire Bubble’s business operations; the value will be based on appraisal of fixed assets & goodwill.  Current owner would like to retired and cash out their investment while maintaining the going concern of the company  The owner would like to reach agreement of the sales before the due diligence process; this might need a thorough conditional Situation Update sales and purchase agreement.  Sales have been declining since 2002 and Mr XXX, 74 years old, is planning to invite professional management to run the company. The business is consistently shrinking due to disappearing of its traditional retailers; Gerobak dorong  The other modern outlet requires short term payable Mr XXX reluctant to offer. There was a case where 6 of the marketing team corrupting the money by counterfeiting invoice

Executive Summary Company Overview  XXX is a family owned beverage factory for over 20 years of operations and produces well known brand like XXX, XXX and XXX Teh Botol (in glass bottle 232 ml). It currently runs under two persons management, Mrs. XXX and XXX, the plant manager.  Along with increasing competition in all market segment, bottled tea, fruit juice and flavoured beverage like milk mocca, the company’s cash only policy become unpopular among retailers and many of them stop ordering.  However, the increasing co-packing business has been helping the operational for the past years. Major brand like Nexa, whose product sold in modern outlet such as Food Hall and Starbuck, is produced by XXX. The company also produced drinking water on its name as well as co-packing from XXX Air Minum.  Based on the interview with Mr XXX, the future of this business will rely on two main revenue stream, the selling of its products and copacking for other products. The company would also need to increase its range of packaging, therefore additional packaging machine so called steridial from STORK/Tetrapack is one of the options to extend the packaging variation to tetrapack, small packaging, plastic and many more. 2

Project Bubble

Product Portfolio

3

Project Bubble

Production Facilities

4

Project Bubble Co – Packing Products

Co-Packing Products and Filling Station

Filling Stations and Storage/Blending Tank

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Project Bubble

Facts and Figures

Declining Sales per crate 1994 1995 1996 1997 1998 1999 2000 2001

-

401,803 446,034 410,192 435,502 265,962 283,160 343,212 354,825

2002 2003 2004 2005 2006 2007 2008

-

321,339 217,657 119,097 86,351 68,497 56,882 54,880

 Based on the above figure, current ulitisation is only 13% from highest historical per crate production. Based on the company’s one shift work hour per day, 2008 per crate production volume could be increased by double amount without additional capital expenses.  Monthly turnover is around Rp 700mn – Rp 800mn. The owner estimates revenue of Rp 1,5bn (12 hours work/day) per month without no additional capex should the company runs under proper marketing, distribution and management.  Milk Mocca price/crate is Rp 33,000; Sirsak and lychee are Rp 21,000 and XXX Bottled Tea is Rp 19,000 per crate. There are other products like mineral water and co-packing included in the above projected sales.  The company has mineral water processing facilities, water filter machine, fruit crushing, blending tank and piped network in the plant. A double UHT processing available to process milk with max 10.000 bottle/hour filling

 The company is a sole proprietorship, all assets including brands, licenses, and the factory are privately owned. XXX does not have any formal bookkeeping in recording their financial transactions.  The owner is willing to stay as minority shareholder to maintain internal stability as well as transferring management and technical knowledge. In case of capital injection, the owner would also put more money in proportion with the ownership to avoid further dilution.  The brand has long loyal customer in Jakarta and part of West Java and right now developing the business into co-packaging and planning to buy STORK sterideal UHT system to improve the packaging variation and serves broader market  Initial quoted price from the owner is around Rp 18bn for the goodwill/brand, formula and access to retailers list plus asset valuation of around Rp 2bn.  The company has several brands and type of products, which some might not be very commercially successful, a major product portfolio re-structuring might be needed  There are number of opportunity of copackaging for canned fruit, fruit juice, beverage and mineral water that is not yet maximised. Based on the factory observation, co-

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Project Bubble Human Resources • Create strong marketing and distribution team to support sales . The team main task is to increase point of sales and creating collecting system • Recruit accounting professional to create accounting system and suitable bookkeeping method in the company Sales and Distribution • Current traditional point of sales are decreasing continuously. A new approach to increase product penetration in the market is needed; both in traditional distribution channel and modern outlet such as supermarket and wholesale centre. Product Circulation outside Jabodetabek • Adapt product’s packaging to be able to transport the product outside Jabodetabek since Current machine cannot reach area outside the range. • Prambanan Group offered opportunity to distribute XXX product though their channels for non-bottle beverages and canned fruit. • XXX products mainly consist of UHT related product and need to sterilised and pasteurised properly. Bottle container is more resistance to environment changed and brings little effect to the beverage. Moreover, XXX needs to invest in new machines in order to make the product more mobile since bottle is both inconvenience and easily broken.

Value Drivers Increasing inventory and reserving receivables • XXX need to rise its inventory level to support the plan of increasing sales volume. In the mean time, XXX should also allow credit sales (receivable) to facilitate new distributor and retailers. • The new marketing and distribution team should work hand in hand with collection team to decide the best collection method as well as receivable criteria to minimise un-collectible receivables. Bookkeeping, Control System and Collection • The company does not have any financial recording which surely need to create new system with more control and provide financial and non-financial information for decision making process Revenue Driver/Product Composition • XXX needs to find the most profitable production composition between XXX brands and copackaging product. New management would have to determine each group profit margin and the combined margin rate. Re-Branding and STPs • Current packaging and brands would be evaluate to reach its target market. Product’s STP also has to be adjust to meet the current market profile. Competition Profile • Conducting market research to asses

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Project Bubble

Transaction Approach

Rp 18.75bn

FS

1

20%

80%

NewCo

2 Rp 15bn

1

2

3

Consortiu m

XXX /FS Rp 15bn

3

4 Value Drivers

Rp 3.75bn Capex + WC • Increasing Inventory • Allowing receivable • New machines

The Consortium will set up a new company and inject Rp 18.75bn to acquire whole entity of XXX. FS will be carried on 20% equity. NewCo will later be the new XXX legal entity replacing all current bought private XXX ownership NewCo for Rp 15bn including all assets and rights reserved by FS. Previously private owned property and asset under FS should be named under NewCo The proceed of Rp 3.75bn is to increase inventory to support sales, allowing receivables and investing in new machines to add packaging variation in order to reach broader market outside Jabodetabek

5 4

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1. Establish marketing and distribution team 2. Enlarge market and sales 3. Renewing product brands & STP’s 4. Create financial recording 5. Control system and collection 6. Managing product portfolio • Licenses and all rights reserved by FS need to be secured • Maintain and develop formula the and product

Additional Capex injected by the Consortium would increase company value through 6 value creation strategies. The six area will increase sales volume and at the same time increasing EBITDA whileismaintaining Critical point to ponder current license, expenses reasonable level permit andtorights reserves by XXX under FS personal name.

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