Cyber Speed Pauline
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Athistan Danpadungtham Kawinya Buntornvorapun Pauline Veerakulanan Tanawat Damnernthong
The MotoCam
AGENDA Situation Analysis Issues and objectives Recommendation Financial Forecast Key Success Factors Conclusion
Situation Analysis Cyber Speed Product Lines: Motocam and Rcam Market segments: -Motorcycle -Passenger car -Commercial vehicle Patent: core product—LCD screen technology Attributes/ Quality : have more attributes than other brands Price: competitive price Market channels: - 90% through dealers and distributor - 10% directly to end-customers
Situation Analysis Cyber Speed
Opportunity Extend to other market segments: Various type of vehicle-; jet ski, snow mobile International Expansion : -North America; Canada -Europe; Italy -Japan -Emerging market: S.E. Asia, India Supply to OEMs: Approached by Kawasaki to supply Motocam
Situation Analysis Cyber Speed
Opportunity
What is keeping us from getting there? Small company: - entrepreneurship by 3 students - competency is R&D Lack of production capacity: In-house production 200 systems/ month - high cost per unit - constraint to sales opportunity Lack of financial resources: - last year net loss of $7,220 - anticipate at least $50,000 needed
Situation Analysis Cyber Speed 2004
2005
Threat 2006
2007
2008
Competition Intense Competition • Big players with deep pocket have already developed prototype -Vehicle manufacturers (Honda, Yamaha) -After-market (Sony, ASA Electronics)
Competitors’ Advantage • Economies of scale • High R&D budget • Industry standard setter
Time before competitors commercialize own vision system
Situation Analysis Cyber Speed 2004
2005
Opportunity 2006
2007
2008
Competition “How to capture opportunity and utilize Motocam to its potential before the competition comes in?”
Objectives Short-term objectives
Long-term objectives
Select the optimal combination of: • geographic market • product mix • distribution channel
Maximize the company value and profitability Before exit the industry
Strategy Overview Geographical Area 1. U.S. 2. International market
Product Markets 1. Motorcycles
Constraints
Product Market
Time Limitation
Distribution Channels 1. OEMs 2. Distributors 3. Dealers/retailers 4. End customers
U.S. Market
Financial resources
2. Passenger Car 3. Commercial Vehicle
Geographical Area
• Motorcycles • Commercial Vehicles
Production Capacity Distribution
OEMs
Staying in U.S. Market U.S. Risk: Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
• Competition • Market Knowledge
Constraints: • Time • Financial resource • Production capacity • Distribution
Market Potential: • Market size • Market growth
International Market
Staying in U.S. Market U.S. Risk: • Competition • Market Knowledge
Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles
Constraints: • Time • Financial resource • Production capacity • Distribution
Market Potential: • Market size • Market growth
International Market
Distribution
OEMs
Risk and Constraints outweigh market potential for a small company
Selecting Product Markets Considerations Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
Growth Rate
Adoption likelihood
Intensity of competition
Growth Rate comparison Motorcycles
= 16%
Passenger cars
= -2%
Commercial Vehicles
= 5%
Selecting Product Markets Considerations Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
Growth Rate
Adoption Likelihood -High fatality rate (65.2%)
Motorcycles - Consumer demographic change
Adoption likelihood
Intensity of competition
Passenger cars Commercial High stake Vehicles per accident (up to $3.4 M)
Selecting Product Markets Considerations Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
Growth Rate
Adoption likelihood
Intensity of competition
Intensity of Competition Motorcycles
No existing competitor
Passenger Big players (i.e. Honda) cars Commercial Moderate Vehicles competition
OEMs Partnership Benefits of OEMs
Geographic
OEMs partners
Benefits for OEMs
(why OEMs?)
U.S. Market • Increase sales economies of scale Product Market
• Motorcycles • Commercial Vehicles
OEMs’ ability to reach more end-consumers:
• Lower marketing costs -Eliminate the use of middlemen -Reduce Distribution costs -Lower Advertising expense
Distribution
OEMs
Speed up market penetration process Within time constraints at minimal costs
OEMs Partnership Benefits of OEMs
Geographic
OEMs partners
Benefits for OEMs
(why OEMs?)
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
OEMs partners: • Motorcycle, commercial vehicle producer • Kawasaki and American eagle • Trailers, scooters
Marketing program: • Trade show • Direct sales • Emphasize on product demonstration • Approach prospective OEMs partners
OEMs Partnership Benefits of OEMs
Geographic
U.S. Market
OEMs partners
Benefits for OEMs
(why OEMs?) Why should they select CyberSpeed as a supplier?
Product Market
• Motorcycles • Commercial Vehicles
• Possess patent for core camera/LCD screen • Higher specifications • Competitive pricing compared to other producers
Distribution
OEMs
• Speed to market
Operations Research & Development Continuously focus on R&D Geographic
Develop new technology and patent registration
Production
U.S. Market
Outsource production
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
Where?
Rationale
Redman, Washington Plant (existing subcontractor) • Able to handle production Scale • Lower transportation cost Compared to international Subcontractor
Exit Strategy 2004
2005
Firm Value (2007F): 8.2M Bidding Range: $10–13M Exit Why? Prospect buyer
2006
2007
2008
Competition Exit Strategy
• Sell off the patents and company before anticipated Competition • Timing: high growth and high company value • Compared to competitors -Limited resource and production capacity • Avoid competing with big potential players
• Existing OEM partners • Accessories/Parts manufacturers
Financial Forecast Potential Market Size ('000) US New Motorcycles Kawasaki Penetration Rate Volume of MotoCam Others to be determined (1) US New Commercial Vehi American Eagle Penetration Rate Volume of MotoCam Others to be determined (2)
Mkt Sh (US) 100% 10%
2003
100% 1%
Total Sales of new motorcycles & commercial vehicles in the US
Our Target OEMs’ market share
Our penetration rate for each segment in each year
996 100
9,025 90
2004F 1,093 109 5% 5 3 9,640 96 5% 5 5
2005F 1,190 119 7% 8 4 10,024 100 8% 8 4
2006F 1,288 129 9% 12 3 10,408 104 12% 12 4
Regression Analysis
i.e.: Kawasaki ~ 10% American Eagle ~1% Large sales volume in Short time period
Sales Projection Motocam Units Revenue ('000s) Avg. COGS/unit Oper. Expense/unit Net income ('000s)
2003A 120 53 257 243 -7
2004F 18000 4536 145 102 157
2005F 24000 6225 141 99 310
2006F 31000 8080 138 99 460
31,000 units (2006F) 120 units (2003)
• • •
NPM grows to 10% by year 2006F Subcontracting allowed us to reduce operating costs by ~$75/unit GPM increases by 6% from 2003
Value Comparison Geographic U.S. Market
Product Market • Motorcycles • Commercial vehicles • Passenger cars
<
Distribution 90% dealers & distributors 10% direct sales
NPV = $2.4 M Firm Value (2007F) = $3.7 M
Geographic U.S. Market
Product Market • Motorcycles • Commercial Vehicles
Distribution OEMs
NPV = $5.4 M Firm Value (2007F) = $8.2 M
Source of Finance Additional Financing needed to finance our business operation for the next 3 years - Working Capital needs - Marketing activities (i.e. tradeshows and direct sales) - R&D and product improvement
$400,000 Internally generated funds SME Business Loan
Key Success Factors
Partner
R&D
Patent
Objective and Strategies Short-Term
Objective Maximize Market Potential for MotoCam with Limited Resource
Focus Strategy • US market •Motorcycles & Commercial Vehicles •OEM partnership
Long-Term Exit Strategy •Sell off at high value •Avoid fierce competitors
You can be a small player in the field… …and still enjoy the game. JUST PLAY IT SMART.
Slide Navigator Miscelleneous SWOT Analysis
Strength Weakness Opportunity Threat
Porter’s 5 forces
Financial Forecast US Vehicles Sales Growth Assumption – Price and Market Size Projected I/S - Recommendation Assumptions: Recommendation Assumptions: Original Projected I/S - Original Financing needs Sales Composition
Slide Navigator II Market Opportunities Why do not enter passenger car market? Other vehicle market –why not tab? Major competitors Why do not expand internationally? Why motorcam for commercial vehicle? After market segment—lucrative ? Exit Strategy Why not sell off the company now? Prospect buyers Sell off –What ? Time period before the competition (4 years) Why partner up the Kawasaki? Why invest in R&D if sell off company at the end? Value based on Contract?
Others Other alternative for long-term plan Why not use venture capitalist? Why not outsource to Mexico and China later on? Why outsource? If the deal with Kawasaki does not work out? Rcam Risk of focused strategy Why not sell patent off today? Value based on Contract? Timeline
Back-Up
Strengths • Innovative & Useful product that could save lives (reduce blind spots by 98%) • First-mover innovation with patented technology • Have thorough knowledge about the market • Product could be adapted for other vehicles
Back-Up
Weaknesses • Limited financial resources & capabilities
Back-Up
Opportunities • International opportunities (deviation from the domestic plan) • Partnership with Kawasaki, the 4th largest motorcycle manufacturer in Japan
• Product can be adapted to suit other vehicles (sports & dirt bikes, snowmobile, SUV) • Growing motorcycle market in the USA • OEM would increase production
Back-Up
Threats • Vulnerable to better-funded imitators • OEM/Electronic company may buy company outright • Large OEMs, with a large R&D budget, could develop their own prototype of a MotoCam • OEM partnership reduces flexibility
Back-Up
Porter’s competitive analysis • Entry force: high – Many potential producers i.e. Sony and other electronic company – Technology is not complicated
• Existing competition – International : high due to more players – Domestic : moderate – In terms of product lines • Motorcycle: low • Passenger car: high • Commercial vehicle : moderate
Back-Up
Porter’s competitive analysis (cont) • Substitution: moderate – Other substitutions are available but products performance are not as good
• Buyer Power: – Distributor/dealers: high – End consumer: high (due to substitutions and availability of other brands) – OEMs: high (order in big lots)
• Supplier Power: low
Back-Up
Major competitors Motorcycles:* none Commercial Vehicle:* • Intec Video • Safety Vision • ASA- big player
Passenger Cars: • ASA-big player • Hitch Cam • Accele • Sony-big player
Back-Up
Why do not enter passenger car market? • High growth and potential sales but Intense Competition
– ASA offers variety of product line – Hitch Cam niche market – Accele produces a well-known flush camera – Sony big player and trend setter
• In spite great product, CyberSpeed lacks of financial resource to compete “should avoid engage in intense competition”
Back-Up
Other vehicle market –why not tab? • Jet ski and Snow mobile • Small market no economies of scale • Not have high need/demand due to nature of product
Back-Up
Why do not expand internationally? • Fierce competition • Attractive market are Japan, Europe and Canada • Require consider resource – Financial resource – Production capacity
• High risk – Lack of market knowledge – Difficult to develop distribution network
Why motorcam for commercial vehicle? • Less competitive than passenger cars segment • High stake when there is accident – Demand for rear visual system – Usually corporate customers less price sensitive
Back-Up
Back-Up
After market segment—lucrative ? • Estimated sales are less than supplying for OEMs • Difficult to penetrate because Cyberspeed brand name is not as widely known as others • High marketing expense – – – –
High cost per unit Distribution expense Advertising expense Network development expense
Back-Up
Why not sell off the company now? • Current value of the company is relatively low 2.4 M dollar • Within 3 years can build more value and finally can sell off at a lot higher price
Back-Up
Prospect buyers • OEMs • Parts producers in developing countries – Technology is in introduction stage – Patent value is more than in developed countries
• Investors
Back-Up
Sell off –What ? • Patents and technology – Old and improved version of motocams – New products
• Contracts with OEMs – Sales opportunity
Back-Up
Time period before the competition (4 years) • Usually car concept is launch before the actual commercialization around 4 years • Approximately time where competitors might be able to catch up with technology
Back-Up
Why partner up the Kawasaki? • Approach CyberSpeed • Deal is on the process • 4th largest motorcycle producers in U.S. – Contract size is suitable with CyberSpeed
Why invest in R&D if sell off company at the end? • Increase firm value – Core value is the patent and product development
Back-Up
Back-Up
Other alternative for long-term plan • International expansion • Tab into other product market such as snow mobile, jet ski, etc
Back-Up
Why not use venture capitalist? • Loan is the better option an venture capitalist because…
Back-Up
Why not outsource to Mexico and China later on? • Mexico and china will worth the investment only if there are very large volumes – Cyberspeed estimated to sell 28,000 units per year should stay in Washington
• Risk of imitator • Quality control problem • Other OEMs have already shown interested in producing in these countries • High transportation cost because we sell in only U.S. • After 3 years, the competitors will have more resource and economies of scale • It is not worth competing head to head with them
Back-Up
Why outsource? • Production is not the company core competency • Can put more resource in company’s core focus R&D • With larger production volume the company should outsource – Lower cost of production – Simplify company’s cash management – Reduce clutter in its office
Back-Up
If the deal with Kawasaki does not work out? • Approach other 2nd or 3rd tier motorcycle producer such as Yamaha • Worst case is to continue implement original plan final value after 3 years is 3.7 M dollars
Back-Up
Rcam • Continue market Rcam • In-house production due to small demand • Honda is the leader
Back-Up
Risk of focused strategy • OEMs undermines company’s flexibility • Risk of partnership – Terminate contracts – Depend on few OEMs (small bargaining power)
• Technology shift – Make CyberSpeed technology obsolete
Back-Up
Why not sell patent off today? First Priority -Seek potential buyers to acquire MotoCam’s patent -Will sell if offer value over anticipated market value ($10M - $13M) -However, unlikely to offer value greater than anticipated value of patent after 3 years current NPV = $ 2.4 M benchmark NPV = $ 6.4 M predicted MV = $ 3.7 M benchmark MV = $ 8.2 M
Rationale of Strategy -Increase value of CyberSpeed Technologies – to make CyberSpeed more attractive to potential buyers -Invest with “flexibility” can sell out patent anytime
Back-Up
Value based on Contract? • Perceived as Market Value is based on the cash flow generated from the contract • However, without patent, the contract would not have been established • Therefore, the basis of market value based on patent of MotorCam
Back-Up
US Vehicles Sales Growth US Sales of New Vehicles (units, 000's) Motorcycles Cars g g Light Trucks g 309 8,687 6,089 330 7% 8,527 -2% 6,521 7% 356 8% 8,273 -3% 6,797 4% 432 21% 8,142 -2% 7,297 7% 546 26% 8,697 7% 8,072 11% 710 30% 8,852 2% 8,387 4% 850 20% 8,422 -5% 8,607 3% 936 10% 8,102 -4% 8,708 1% 996 6% 7,615 -6% 9,025 4% 1093 10% 7,989 5% 9,640 7% 1190 9% 7,913 -1% 10,024 4% 1288 8% 7,837 -1% 10,408 4% US Sales of New Vehicles ('000s units) 16% -2% 5% 10000 Units ('000s)
US Sales of New Vehicles ('000s units) Units ('000s)
10000 8000 6000 4000 2000 0
8000 Motorcycles
6000
Cars
Year
Year
20 03
20 01
19 99
Light Trucks
19 97
19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03
Motorcycles 4000 Cars 2000 Light Trucks 0 19 95
Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Back-Up
Assumption – Price and Market Size MotoCam Prices Market Motorcycle Automobile Trucks
Retail Price 600 670 670
Potential Market Size ('000) US New Motorcycles Kawasaki Penetration Rate Volume of MotoCam Others to be determined (1) US New Commercial Vehi American Eagle Penetration Rate Volume of MotoCam Others to be determined (2)
Dealer Price Distributor Price OEM Price 420 300 240 469 335 268 490 350 280 Mkt Sh (US) 100% 10%
100% 1%
2003 996 100
9,025 90
2004F 1,093 109 5% 5 3 9,640 96 5% 5 5
COGS 215 220 225
COGS (subcontr) 140 145 150
2005F 1,190 119 7% 8 4 10,024 100 8% 8 4
2006F 1,288 129 9% 12 3 10,408 104 12% 12 4
Penetration rate gradually increases with time as a result of our product improvement and our partner OEMs adapt our product to more models. The rate started out lower to allow for arrangement with our subcontractor to produce the needed capacity
Back-Up
Projected I/S - Recommendation Income Statement ('000s) Motorcycles OEM Price Volume Revenue Commercial Vehicles OEM Price Volume Revenue Total Rev COGS/unit for motorcycles COGS/unit for commercial Motorcycles COGS Commercial Vehicles COGS Total COGS Gross Profit Expenses Subcontracting expense Transportation Selling and Advertising R&D Depreciation & Amortization General and Adminishtration Total Expenses EBIT interest expense EBT Tax Net income Working Capital
2004F
2005F
2006F
240 8 1,837
240 12 2,857
240 15 3,708
280 10 2,699 4,536 140 150 1,071 1,446 2,517 2,019
280 12 3,368 6,225 136 146 1,617 1,750 3,367 2,858
280 16 4,371 8,080 133 143 2,055 2,225 4,280 3,800
680 136
747 187
808 242
544 136 272 1,769 249 25 225 67 157 227
934 187 311 2,366 493 49 443 133 310 311
1,454 242 323 3,070 730 73 657 197 460 404
Back-Up
Assumptions: Recommendation Terminal Growth Calculation (Fundamental) Growth 5.0% Discount rate 15.0% k-g 10.00% FCFF(1+g)/ (k-g) 7,164 Free Cash Flow EBIT Depreciation Taxes After-Tax initial expenditure Change in NWC FCF Terminal Value Total FCF's NPV Firm Value (2007) Cash Balance, End
2004F
2005F
2006F
249 136 67 229 227 -137
493 187 133
730 242 197
84 462
-137 5,389 8,196 408
462
93 682 7,164 7,847
326.58808 560
727
Back-Up
Assumptions: Recommendation • • • • • • • • • • • • • • • •
Market size (volume) corresponds to projected penetration rate OEM Price at $240/unit COGS/unit for motorcycles gradually reduces over the 3-year period because volume increase allows for cost saving through outsourcing $257 $136/unit COGS/unit for commercial vehicles also reduces over time Subcontracting expense ~12% of sales Transportation expense ~ 3% of sales R&D increases over 3-period ~ 20% of sales Depreciation reduces ~3% of sales (shift to outsourcing) G&A reduces due to less employees and administrative expense selling and distribution costs needed is 2% of sales (mainly tradeshows and direct sales effort for selling commercial vehicles) Interest rate on debt =10% Debt amount $400,000 Tax = 30% Terminal Growth after 2007 = 5% WACC = 15% Working capital needs ~5% of sales
Back-Up
Assumptions: Original Market
Average Price (Distributors and Retailers) Motorcycle
440
Automobile
491
Trucks
503
COGS 215 220 225
Motorcycle Automobile Trucks
COGS (subcontr) 140 145 150
Terminal Growth Calculation (Fundamental) Growth 2.0% Discount rate 15.0% k-g 13.00% FCFF(1+g)/ (k-g) 3,231
Free Cash Flow EBIT Depreciation Taxes Capital Expenditure Change in NWC FCF Terminal Value Total FCF's NPV Firm Value (2007)
2004F 0.84 69 0.23 70 49 -50 -50 2,444 3,716
2005F 2.99 245 0.81 126 121 121
2006F 9.77 803 2.64 398 412 3,231 3,643
W.A. COGS 196.25 201.25 206.25
Back-Up
Projected I/S - Original Income Statement ('000s) Motorcycles Price Volume Commercial Vehicles Price Volume Passenger Cars Price Volume Total Rev COGS/unit for motorcycles COGS/unit for commercial COGS/unit for passenger cars Motorcycles COGS Commercial Vehicles COGS Passenger Cars COGS Total COGS Gross Profit Expenses Subcontracting Transportation Selling and Advertising R&D Depreciation & Amortization General and Adminishtration Total Expenses EBIT interest expense EBT Tax Net income Working Capital
2004F
2005F
2006F
440 1
440 5
440 18
503 0.43
503 1.53
503 5.01
491 0.21 981 196 206 201 294 88 43 426 555
491 0.77 3,505 196 206 201 1,052 316 154 1,522 1,983
491 2.5 11,470 196 206 201 3,442 1,034 504 4,980 6,491
103 49 98 118 69 118 554 0.84 0.08 0.75 0.23 0.53 49
368 175 350 421 245 421 1,980 2.99 0.30 2.69 0.81 1.88 175
1,204 574 1,147 1,376 803 1,376 6,481 9.77 0.98 8.80 2.64 6.16 574
Back-Up
• •
Assumptions: Original
Use average price for distributors and retailers Not achieve the forecasted sales but a partial of that amount – – –
•
Sales composition in each type of vehicles: – – –
• • • • • • • • • • • •
65% of 2004 forecasted sales 70% of 2005 forecasted sales 80% of 2006 forecasted sales 70% motorcycles 20% commercial 10% passenger
Because original plan uses both in-house production and subcontract any excessive demand, we use weighted average COGS – 75% (in-house) and 25% (subcontract) Selling and advertising costs = 10% of sales (now we have to distribute and sell our product ourselves) Subcontracting expense ~10.5% of sales Transportation expense ~ 5% of sales R&D maintained at ~ 12% of sales Depreciation reduces ~7% of sales (higher b/c of in-house) G&A at 12% of sales Interest rate on debt =10% Tax = 30% Terminal Growth after 2007 = 2% WACC = 15% Working capital needs ~5% of sales
Back-Up
Financing needs Expected financial needs in 2004
$50,000
Original Forecasted sales in 2004
3,296 units
Our forecasted sales in 2004
18,000 units
Therefore, amount of financing needs is approximately $400,000
Activities
Back-Up
Timeline 2004
2005
2006
2007
Short-term Objective •Continuous R&D and product improvement •Arrangement with subcontractors •Negotiation with Kawasaki
Continuous R&D and Product Improvement Arrangement with subcontractors Kawasaki deal
Long-term Objective Exit Process
•Grooming business for sale •Valuing business •Identifying and marketing business to potential buyers •Negotiating with potential buyers •Completing legal due diligence •Finalising the sale and transferring ownership
Exit process
Looking for potential buyers
Back-Up
Sales Composition Sales Composition
Commercial Vehicles - other OEMs 18%
Motorcycles - Kawasaki 34%
Commercial Vehicles - A. E. 34% Motorcycles - other OEM 14%
The MotoCam
AGENDA Situation Analysis Issues and objectives Recommendation Financial Forecast Key Success Factors Conclusion
Situation Analysis Cyber Speed Product Lines: Motocam and Rcam Market segments: -Motorcycle -Passenger car -Commercial vehicle Patent: core product—LCD screen technology Attributes/ Quality : have more attributes than other brands Price: competitive price Market channels: - 90% through dealers and distributor - 10% directly to end-customers
Situation Analysis Cyber Speed
Opportunity Extend to other market segments: Various type of vehicle-; jet ski, snow mobile International Expansion : -North America; Canada -Europe; Italy -Japan -Emerging market: S.E. Asia, India Supply to OEMs: Approached by Kawasaki to supply Motocam
Situation Analysis Cyber Speed
Opportunity
What is keeping us from getting there? Small company: - entrepreneurship by 3 students - competency is R&D Lack of production capacity: In-house production 200 systems/ month - high cost per unit - constraint to sales opportunity Lack of financial resources: - last year net loss of $7,220 - anticipate at least $50,000 needed
Situation Analysis Cyber Speed 2004
2005
Threat 2006
2007
2008
Competition Intense Competition • Big players with deep pocket have already developed prototype -Vehicle manufacturers (Honda, Yamaha) -After-market (Sony, ASA Electronics)
Competitors’ Advantage • Economies of scale • High R&D budget • Industry standard setter
Time before competitors commercialize own vision system
Situation Analysis Cyber Speed 2004
2005
Opportunity 2006
2007
2008
Competition “How to capture opportunity and utilize Motocam to its potential before the competition comes in?”
Objectives Short-term objectives
Long-term objectives
Select the optimal combination of: • geographic market • product mix • distribution channel
Maximize the company value and profitability Before exit the industry
Strategy Overview Geographical Area 1. U.S. 2. International market
Product Markets 1. Motorcycles
Constraints
Product Market
Time Limitation
Distribution Channels 1. OEMs 2. Distributors 3. Dealers/retailers 4. End customers
U.S. Market
Financial resources
2. Passenger Car 3. Commercial Vehicle
Geographical Area
• Motorcycles • Commercial Vehicles
Production Capacity Distribution
OEMs
Staying in U.S. Market U.S. Risk: Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
• Competition • Market Knowledge
Constraints: • Time • Financial resource • Production capacity • Distribution
Market Potential: • Market size • Market growth
International Market
Staying in U.S. Market U.S. Risk: • Competition • Market Knowledge
Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles
Constraints: • Time • Financial resource • Production capacity • Distribution
Market Potential: • Market size • Market growth
International Market
Distribution
OEMs
Risk and Constraints outweigh market potential for a small company
Selecting Product Markets Considerations Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
Growth Rate
Adoption likelihood
Intensity of competition
Growth Rate comparison Motorcycles
= 16%
Passenger cars
= -2%
Commercial Vehicles
= 5%
Selecting Product Markets Considerations Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
Growth Rate
Adoption Likelihood -High fatality rate (65.2%)
Motorcycles - Consumer demographic change
Adoption likelihood
Intensity of competition
Passenger cars Commercial High stake Vehicles per accident (up to $3.4 M)
Selecting Product Markets Considerations Geographic
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
Growth Rate
Adoption likelihood
Intensity of competition
Intensity of Competition Motorcycles
No existing competitor
Passenger Big players (i.e. Honda) cars Commercial Moderate Vehicles competition
OEMs Partnership Benefits of OEMs
Geographic
OEMs partners
Benefits for OEMs
(why OEMs?)
U.S. Market • Increase sales economies of scale Product Market
• Motorcycles • Commercial Vehicles
OEMs’ ability to reach more end-consumers:
• Lower marketing costs -Eliminate the use of middlemen -Reduce Distribution costs -Lower Advertising expense
Distribution
OEMs
Speed up market penetration process Within time constraints at minimal costs
OEMs Partnership Benefits of OEMs
Geographic
OEMs partners
Benefits for OEMs
(why OEMs?)
U.S. Market
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
OEMs partners: • Motorcycle, commercial vehicle producer • Kawasaki and American eagle • Trailers, scooters
Marketing program: • Trade show • Direct sales • Emphasize on product demonstration • Approach prospective OEMs partners
OEMs Partnership Benefits of OEMs
Geographic
U.S. Market
OEMs partners
Benefits for OEMs
(why OEMs?) Why should they select CyberSpeed as a supplier?
Product Market
• Motorcycles • Commercial Vehicles
• Possess patent for core camera/LCD screen • Higher specifications • Competitive pricing compared to other producers
Distribution
OEMs
• Speed to market
Operations Research & Development Continuously focus on R&D Geographic
Develop new technology and patent registration
Production
U.S. Market
Outsource production
Product Market
• Motorcycles • Commercial Vehicles Distribution
OEMs
Where?
Rationale
Redman, Washington Plant (existing subcontractor) • Able to handle production Scale • Lower transportation cost Compared to international Subcontractor
Exit Strategy 2004
2005
Firm Value (2007F): 8.2M Bidding Range: $10–13M Exit Why? Prospect buyer
2006
2007
2008
Competition Exit Strategy
• Sell off the patents and company before anticipated Competition • Timing: high growth and high company value • Compared to competitors -Limited resource and production capacity • Avoid competing with big potential players
• Existing OEM partners • Accessories/Parts manufacturers
Financial Forecast Potential Market Size ('000) US New Motorcycles Kawasaki Penetration Rate Volume of MotoCam Others to be determined (1) US New Commercial Vehi American Eagle Penetration Rate Volume of MotoCam Others to be determined (2)
Mkt Sh (US) 100% 10%
2003
100% 1%
Total Sales of new motorcycles & commercial vehicles in the US
Our Target OEMs’ market share
Our penetration rate for each segment in each year
996 100
9,025 90
2004F 1,093 109 5% 5 3 9,640 96 5% 5 5
2005F 1,190 119 7% 8 4 10,024 100 8% 8 4
2006F 1,288 129 9% 12 3 10,408 104 12% 12 4
Regression Analysis
i.e.: Kawasaki ~ 10% American Eagle ~1% Large sales volume in Short time period
Sales Projection Motocam Units Revenue ('000s) Avg. COGS/unit Oper. Expense/unit Net income ('000s)
2003A 120 53 257 243 -7
2004F 18000 4536 145 102 157
2005F 24000 6225 141 99 310
2006F 31000 8080 138 99 460
31,000 units (2006F) 120 units (2003)
• • •
NPM grows to 10% by year 2006F Subcontracting allowed us to reduce operating costs by ~$75/unit GPM increases by 6% from 2003
Value Comparison Geographic U.S. Market
Product Market • Motorcycles • Commercial vehicles • Passenger cars
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Distribution 90% dealers & distributors 10% direct sales
NPV = $2.4 M Firm Value (2007F) = $3.7 M
Geographic U.S. Market
Product Market • Motorcycles • Commercial Vehicles
Distribution OEMs
NPV = $5.4 M Firm Value (2007F) = $8.2 M
Source of Finance Additional Financing needed to finance our business operation for the next 3 years - Working Capital needs - Marketing activities (i.e. tradeshows and direct sales) - R&D and product improvement
$400,000 Internally generated funds SME Business Loan
Key Success Factors
Partner
R&D
Patent
Objective and Strategies Short-Term
Objective Maximize Market Potential for MotoCam with Limited Resource
Focus Strategy • US market •Motorcycles & Commercial Vehicles •OEM partnership
Long-Term Exit Strategy •Sell off at high value •Avoid fierce competitors
You can be a small player in the field… …and still enjoy the game. JUST PLAY IT SMART.
Slide Navigator Miscelleneous SWOT Analysis
Strength Weakness Opportunity Threat
Porter’s 5 forces
Financial Forecast US Vehicles Sales Growth Assumption – Price and Market Size Projected I/S - Recommendation Assumptions: Recommendation Assumptions: Original Projected I/S - Original Financing needs Sales Composition
Slide Navigator II Market Opportunities Why do not enter passenger car market? Other vehicle market –why not tab? Major competitors Why do not expand internationally? Why motorcam for commercial vehicle? After market segment—lucrative ? Exit Strategy Why not sell off the company now? Prospect buyers Sell off –What ? Time period before the competition (4 years) Why partner up the Kawasaki? Why invest in R&D if sell off company at the end? Value based on Contract?
Others Other alternative for long-term plan Why not use venture capitalist? Why not outsource to Mexico and China later on? Why outsource? If the deal with Kawasaki does not work out? Rcam Risk of focused strategy Why not sell patent off today? Value based on Contract? Timeline
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Strengths • Innovative & Useful product that could save lives (reduce blind spots by 98%) • First-mover innovation with patented technology • Have thorough knowledge about the market • Product could be adapted for other vehicles
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Weaknesses • Limited financial resources & capabilities
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Opportunities • International opportunities (deviation from the domestic plan) • Partnership with Kawasaki, the 4th largest motorcycle manufacturer in Japan
• Product can be adapted to suit other vehicles (sports & dirt bikes, snowmobile, SUV) • Growing motorcycle market in the USA • OEM would increase production
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Threats • Vulnerable to better-funded imitators • OEM/Electronic company may buy company outright • Large OEMs, with a large R&D budget, could develop their own prototype of a MotoCam • OEM partnership reduces flexibility
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Porter’s competitive analysis • Entry force: high – Many potential producers i.e. Sony and other electronic company – Technology is not complicated
• Existing competition – International : high due to more players – Domestic : moderate – In terms of product lines • Motorcycle: low • Passenger car: high • Commercial vehicle : moderate
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Porter’s competitive analysis (cont) • Substitution: moderate – Other substitutions are available but products performance are not as good
• Buyer Power: – Distributor/dealers: high – End consumer: high (due to substitutions and availability of other brands) – OEMs: high (order in big lots)
• Supplier Power: low
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Major competitors Motorcycles:* none Commercial Vehicle:* • Intec Video • Safety Vision • ASA- big player
Passenger Cars: • ASA-big player • Hitch Cam • Accele • Sony-big player
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Why do not enter passenger car market? • High growth and potential sales but Intense Competition
– ASA offers variety of product line – Hitch Cam niche market – Accele produces a well-known flush camera – Sony big player and trend setter
• In spite great product, CyberSpeed lacks of financial resource to compete “should avoid engage in intense competition”
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Other vehicle market –why not tab? • Jet ski and Snow mobile • Small market no economies of scale • Not have high need/demand due to nature of product
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Why do not expand internationally? • Fierce competition • Attractive market are Japan, Europe and Canada • Require consider resource – Financial resource – Production capacity
• High risk – Lack of market knowledge – Difficult to develop distribution network
Why motorcam for commercial vehicle? • Less competitive than passenger cars segment • High stake when there is accident – Demand for rear visual system – Usually corporate customers less price sensitive
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After market segment—lucrative ? • Estimated sales are less than supplying for OEMs • Difficult to penetrate because Cyberspeed brand name is not as widely known as others • High marketing expense – – – –
High cost per unit Distribution expense Advertising expense Network development expense
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Why not sell off the company now? • Current value of the company is relatively low 2.4 M dollar • Within 3 years can build more value and finally can sell off at a lot higher price
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Prospect buyers • OEMs • Parts producers in developing countries – Technology is in introduction stage – Patent value is more than in developed countries
• Investors
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Sell off –What ? • Patents and technology – Old and improved version of motocams – New products
• Contracts with OEMs – Sales opportunity
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Time period before the competition (4 years) • Usually car concept is launch before the actual commercialization around 4 years • Approximately time where competitors might be able to catch up with technology
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Why partner up the Kawasaki? • Approach CyberSpeed • Deal is on the process • 4th largest motorcycle producers in U.S. – Contract size is suitable with CyberSpeed
Why invest in R&D if sell off company at the end? • Increase firm value – Core value is the patent and product development
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Other alternative for long-term plan • International expansion • Tab into other product market such as snow mobile, jet ski, etc
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Why not use venture capitalist? • Loan is the better option an venture capitalist because…
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Why not outsource to Mexico and China later on? • Mexico and china will worth the investment only if there are very large volumes – Cyberspeed estimated to sell 28,000 units per year should stay in Washington
• Risk of imitator • Quality control problem • Other OEMs have already shown interested in producing in these countries • High transportation cost because we sell in only U.S. • After 3 years, the competitors will have more resource and economies of scale • It is not worth competing head to head with them
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Why outsource? • Production is not the company core competency • Can put more resource in company’s core focus R&D • With larger production volume the company should outsource – Lower cost of production – Simplify company’s cash management – Reduce clutter in its office
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If the deal with Kawasaki does not work out? • Approach other 2nd or 3rd tier motorcycle producer such as Yamaha • Worst case is to continue implement original plan final value after 3 years is 3.7 M dollars
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Rcam • Continue market Rcam • In-house production due to small demand • Honda is the leader
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Risk of focused strategy • OEMs undermines company’s flexibility • Risk of partnership – Terminate contracts – Depend on few OEMs (small bargaining power)
• Technology shift – Make CyberSpeed technology obsolete
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Why not sell patent off today? First Priority -Seek potential buyers to acquire MotoCam’s patent -Will sell if offer value over anticipated market value ($10M - $13M) -However, unlikely to offer value greater than anticipated value of patent after 3 years current NPV = $ 2.4 M benchmark NPV = $ 6.4 M predicted MV = $ 3.7 M benchmark MV = $ 8.2 M
Rationale of Strategy -Increase value of CyberSpeed Technologies – to make CyberSpeed more attractive to potential buyers -Invest with “flexibility” can sell out patent anytime
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Value based on Contract? • Perceived as Market Value is based on the cash flow generated from the contract • However, without patent, the contract would not have been established • Therefore, the basis of market value based on patent of MotorCam
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US Vehicles Sales Growth US Sales of New Vehicles (units, 000's) Motorcycles Cars g g Light Trucks g 309 8,687 6,089 330 7% 8,527 -2% 6,521 7% 356 8% 8,273 -3% 6,797 4% 432 21% 8,142 -2% 7,297 7% 546 26% 8,697 7% 8,072 11% 710 30% 8,852 2% 8,387 4% 850 20% 8,422 -5% 8,607 3% 936 10% 8,102 -4% 8,708 1% 996 6% 7,615 -6% 9,025 4% 1093 10% 7,989 5% 9,640 7% 1190 9% 7,913 -1% 10,024 4% 1288 8% 7,837 -1% 10,408 4% US Sales of New Vehicles ('000s units) 16% -2% 5% 10000 Units ('000s)
US Sales of New Vehicles ('000s units) Units ('000s)
10000 8000 6000 4000 2000 0
8000 Motorcycles
6000
Cars
Year
Year
20 03
20 01
19 99
Light Trucks
19 97
19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03
Motorcycles 4000 Cars 2000 Light Trucks 0 19 95
Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
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Assumption – Price and Market Size MotoCam Prices Market Motorcycle Automobile Trucks
Retail Price 600 670 670
Potential Market Size ('000) US New Motorcycles Kawasaki Penetration Rate Volume of MotoCam Others to be determined (1) US New Commercial Vehi American Eagle Penetration Rate Volume of MotoCam Others to be determined (2)
Dealer Price Distributor Price OEM Price 420 300 240 469 335 268 490 350 280 Mkt Sh (US) 100% 10%
100% 1%
2003 996 100
9,025 90
2004F 1,093 109 5% 5 3 9,640 96 5% 5 5
COGS 215 220 225
COGS (subcontr) 140 145 150
2005F 1,190 119 7% 8 4 10,024 100 8% 8 4
2006F 1,288 129 9% 12 3 10,408 104 12% 12 4
Penetration rate gradually increases with time as a result of our product improvement and our partner OEMs adapt our product to more models. The rate started out lower to allow for arrangement with our subcontractor to produce the needed capacity
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Projected I/S - Recommendation Income Statement ('000s) Motorcycles OEM Price Volume Revenue Commercial Vehicles OEM Price Volume Revenue Total Rev COGS/unit for motorcycles COGS/unit for commercial Motorcycles COGS Commercial Vehicles COGS Total COGS Gross Profit Expenses Subcontracting expense Transportation Selling and Advertising R&D Depreciation & Amortization General and Adminishtration Total Expenses EBIT interest expense EBT Tax Net income Working Capital
2004F
2005F
2006F
240 8 1,837
240 12 2,857
240 15 3,708
280 10 2,699 4,536 140 150 1,071 1,446 2,517 2,019
280 12 3,368 6,225 136 146 1,617 1,750 3,367 2,858
280 16 4,371 8,080 133 143 2,055 2,225 4,280 3,800
680 136
747 187
808 242
544 136 272 1,769 249 25 225 67 157 227
934 187 311 2,366 493 49 443 133 310 311
1,454 242 323 3,070 730 73 657 197 460 404
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Assumptions: Recommendation Terminal Growth Calculation (Fundamental) Growth 5.0% Discount rate 15.0% k-g 10.00% FCFF(1+g)/ (k-g) 7,164 Free Cash Flow EBIT Depreciation Taxes After-Tax initial expenditure Change in NWC FCF Terminal Value Total FCF's NPV Firm Value (2007) Cash Balance, End
2004F
2005F
2006F
249 136 67 229 227 -137
493 187 133
730 242 197
84 462
-137 5,389 8,196 408
462
93 682 7,164 7,847
326.58808 560
727
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Assumptions: Recommendation • • • • • • • • • • • • • • • •
Market size (volume) corresponds to projected penetration rate OEM Price at $240/unit COGS/unit for motorcycles gradually reduces over the 3-year period because volume increase allows for cost saving through outsourcing $257 $136/unit COGS/unit for commercial vehicles also reduces over time Subcontracting expense ~12% of sales Transportation expense ~ 3% of sales R&D increases over 3-period ~ 20% of sales Depreciation reduces ~3% of sales (shift to outsourcing) G&A reduces due to less employees and administrative expense selling and distribution costs needed is 2% of sales (mainly tradeshows and direct sales effort for selling commercial vehicles) Interest rate on debt =10% Debt amount $400,000 Tax = 30% Terminal Growth after 2007 = 5% WACC = 15% Working capital needs ~5% of sales
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Assumptions: Original Market
Average Price (Distributors and Retailers) Motorcycle
440
Automobile
491
Trucks
503
COGS 215 220 225
Motorcycle Automobile Trucks
COGS (subcontr) 140 145 150
Terminal Growth Calculation (Fundamental) Growth 2.0% Discount rate 15.0% k-g 13.00% FCFF(1+g)/ (k-g) 3,231
Free Cash Flow EBIT Depreciation Taxes Capital Expenditure Change in NWC FCF Terminal Value Total FCF's NPV Firm Value (2007)
2004F 0.84 69 0.23 70 49 -50 -50 2,444 3,716
2005F 2.99 245 0.81 126 121 121
2006F 9.77 803 2.64 398 412 3,231 3,643
W.A. COGS 196.25 201.25 206.25
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Projected I/S - Original Income Statement ('000s) Motorcycles Price Volume Commercial Vehicles Price Volume Passenger Cars Price Volume Total Rev COGS/unit for motorcycles COGS/unit for commercial COGS/unit for passenger cars Motorcycles COGS Commercial Vehicles COGS Passenger Cars COGS Total COGS Gross Profit Expenses Subcontracting Transportation Selling and Advertising R&D Depreciation & Amortization General and Adminishtration Total Expenses EBIT interest expense EBT Tax Net income Working Capital
2004F
2005F
2006F
440 1
440 5
440 18
503 0.43
503 1.53
503 5.01
491 0.21 981 196 206 201 294 88 43 426 555
491 0.77 3,505 196 206 201 1,052 316 154 1,522 1,983
491 2.5 11,470 196 206 201 3,442 1,034 504 4,980 6,491
103 49 98 118 69 118 554 0.84 0.08 0.75 0.23 0.53 49
368 175 350 421 245 421 1,980 2.99 0.30 2.69 0.81 1.88 175
1,204 574 1,147 1,376 803 1,376 6,481 9.77 0.98 8.80 2.64 6.16 574
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• •
Assumptions: Original
Use average price for distributors and retailers Not achieve the forecasted sales but a partial of that amount – – –
•
Sales composition in each type of vehicles: – – –
• • • • • • • • • • • •
65% of 2004 forecasted sales 70% of 2005 forecasted sales 80% of 2006 forecasted sales 70% motorcycles 20% commercial 10% passenger
Because original plan uses both in-house production and subcontract any excessive demand, we use weighted average COGS – 75% (in-house) and 25% (subcontract) Selling and advertising costs = 10% of sales (now we have to distribute and sell our product ourselves) Subcontracting expense ~10.5% of sales Transportation expense ~ 5% of sales R&D maintained at ~ 12% of sales Depreciation reduces ~7% of sales (higher b/c of in-house) G&A at 12% of sales Interest rate on debt =10% Tax = 30% Terminal Growth after 2007 = 2% WACC = 15% Working capital needs ~5% of sales
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Financing needs Expected financial needs in 2004
$50,000
Original Forecasted sales in 2004
3,296 units
Our forecasted sales in 2004
18,000 units
Therefore, amount of financing needs is approximately $400,000
Activities
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Timeline 2004
2005
2006
2007
Short-term Objective •Continuous R&D and product improvement •Arrangement with subcontractors •Negotiation with Kawasaki
Continuous R&D and Product Improvement Arrangement with subcontractors Kawasaki deal
Long-term Objective Exit Process
•Grooming business for sale •Valuing business •Identifying and marketing business to potential buyers •Negotiating with potential buyers •Completing legal due diligence •Finalising the sale and transferring ownership
Exit process
Looking for potential buyers
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Sales Composition Sales Composition
Commercial Vehicles - other OEMs 18%
Motorcycles - Kawasaki 34%
Commercial Vehicles - A. E. 34% Motorcycles - other OEM 14%
