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Restructuring and Change of Business Strategy

Restructuring and Change of Business Strategy. 6 March 2013. Team Members. Sean Kosowsky Eric Nguyen Hanna Pizzorni Lisa Pucurs Nathan Roberts Benjamin Shoesmith Jamie Thomas Jillian Tober Chelsea Upchurch. Nicholas Abbaticchio Blair Bigwood Luke Burns

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Restructuring and Change of Business Strategy

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  1. Restructuring and Change of Business Strategy 6 March 2013

  2. Team Members • Sean Kosowsky • Eric Nguyen • Hanna Pizzorni • Lisa Pucurs • Nathan Roberts • Benjamin Shoesmith • Jamie Thomas • Jillian Tober • Chelsea Upchurch • Nicholas Abbaticchio • Blair Bigwood • Luke Burns • Kaiti Boling • Kelly Campbell • Krielow Chamberlain • Caleb Collins • Benjamin Driscoll • Paul Itterly Dr. William Compton Dr. Nivine Richie Associate Professor of Finance Associate Professor of Finance

  3. Industry Overview Paul Itterly, Ben Driscoll, Nick Abbaticchio, Chelsea Upchurch

  4. Mission Statement • Our content presents an analysis of DPOV through: • Macro environment, Industry analysis, and Competitive analysis • Financial Ratios • Strategic recommendations

  5. DPOV Overview • Mother company ČeskéDráhy (CD) created 2002 • DPOV was founded in 2007 as part of CD • Responsible for: Train repairs, heavy maintenance, modernization… etc. • DPOV represents <3% of CD Revenues. • 2004 Czech Republic joined the democracy of the European Union • DPOV is positioned well in the market

  6. DPOV Overview Continued • DPOV’s Strengths: • Skilled workers, euro independence, & the reliance on rail freight • DPOV’s Struggles: • Size of the firm, lack of research & development, • Low services, difficulty in gaining long term contracts, low diversification of customer portfolio • Beneficial Opportunity

  7. The Services Market

  8. Macro Environmental Analysis Political Factors • High Voice and Accountability parameters • Foreign policy • Liberalization of Rail Industry

  9. Macro Environmental Analysis Economic Factors • Czech Republic economy • Czech Freight Transport report • External Economies analysis • S&P Rating Article

  10. Macro Environmental Analysis Social Factors • Demographics • Employment Statistics • Entitlement programs

  11. Macro Environmental Analysis Technological Factors • Research and Development investments (DPOV) • Threats in R&D

  12. Industry Analysis Threat of Entry • High Capital Requirements • Economies of Scale (Supply & demand side) • Switching costs • Government Policy

  13. Industry Analysis Power of Suppliers • Capital Intensive • Dependence On Suppliers • No Ability to Shop around

  14. Industry Analysis Power of Buyers • DPOV customer structure-diversification • Shop for Vendor (CD-Pars Nova) • Economies of Scale • Switching Costs

  15. Industry Analysis Threat of Substitutes • Growth • Rental/Leasing (service contracting)

  16. Industry Analysis Competitive Rivalry • Entry & exit barriers • Switching cost • External pressures • Dimensions of competition

  17. Industry Analysis Overall Industry Attractiveness • Threat of entry-moderate • Power of suppliers-high • Power of buyers-high (DPOV specific) • Threat of substitutes-low • Competitive rivalry-high

  18. CZ LOKO • 160 years old • Construction, modernization, repair, testing, and locomotives for hire • Services in Czech Republic and Lithuania

  19. Pars Nova • 60 years old • Modernization and repair • Serves Czech Republic, Slovakia, Ukraine and other European countries • CD is a customer

  20. EuroMaint • Created in 2001 • Maintenance plans • Services Sweden, Germany and other European countries

  21. Financial Analysis Blair Bigwood, Nathan Roberts, Ben Shoesmith, Kelly Campbell, Kaiti Boling

  22. Liquidity

  23. Asset Utilization

  24. Leverage

  25. Profitability

  26. Returns

  27. DPOV Competitors: ROE *2011 averages

  28. Cost of Equity

  29. Capital Structure & Cost of Debt Capital Structure: Weight of Equity: 41.19% Weight of Debt: 58.81% Corporate Tax Rate: 19% Discount Rate (WACC): Wd * rd (1-t) + We * re WACC = .4119 * .07( 1 – .19) + .5881 * .1467 WACC = 10.96%

  30. Forecasted Profit From Reg. Activities: 46,178,000 CZK Discount Rate (WACC): 10.96% Growth Rate: 2.10% Discounted Cash Flow

  31. Capitalized Excess Earnings • Market value of assets, long-term debt and equity • Capitalization rate: 23.29%

  32. Capitalized Excess Earnings Method

  33. Competitive Analysis Strengths • Czech Republic high economic strength • Independence from the Euro • Overall fairly positive financials

  34. Competitive Analysis Weaknesses • Small geographic scope of business • Lack of research & development • Small scope of services offered relative to competition • Low diversification of customer base • Low leverage to offer long term service contracts

  35. Competitive Analysis Opportunities • Expansion into new markets • Potential of offering new services • Liberalization of the market • Integration of the European Railways • Positive outlook of the service industry

  36. Rolling Stock Services Industry Source: Oliver Wyman 2009

  37. Competitive Analysis Threats • CD Cargo Bankruptcy • Extreme competition in the market • Reliance on CD

  38. Strategic Analysis Caleb Collins, Kelly Campbell, Sean Kosowsky, Hanna Pizzorni

  39. DPOV’s Operating Profit Margin • 2009- 4.34% • 2010- 4.43% • 2011- 4.00% • Improvement from the ground up

  40. Causes of Inefficiencies • Maintenance tasks not standardized • Insufficient planning and preparation • Infrastructure constraints • Spare parts logistics

  41. Organization of issues:

  42. Improving Inventory Management • Strict management of resources • Total inventory on hand • Effects of inventory holding costs • Improved forecasting • Information can be a substitute

  43. Opportunities in Logistics • Spare parts logistics market • Opportunities with 3PL’s • Physical & geographical advantage

  44. Environmental Improvements • EU Climate and energy package • Competitors more involved with environment • Increase in raw materials used • Pars Nova Eco-energy project • New energy taxes in 2013

  45. UnliberalizedRail System Liberalization Increased Competition among Passenger and Freight Rail Service Providers Better Quality of Rail Services Offered at a Lower Price Pressure to Increase Efficiency Outsourcing of Non-Core Business Activities Increased Number of Competing Stand-Alone Maintenance Firms Increased Competition among Maintenance Firms Better Quality of Maintenance Services Offered at a Lower Price Crowding Out of Inefficient Firms and Increased Market Share for Efficient Firms Implications of Market Liberalization

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