Business Case 02

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 Case 1

ChemicalCo

Graficos_Business
SAO Case02 2
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ChemicalCo case overview (1/2)

Situation overview
• ChemicalCo is the leading producer of Chemical_A in Brazil and its only competitor,
EveryChemCo, has less than half the capacity of ChemicalCo

• Since the prices and margin of Chemical_A are shrinking, ChemicalCo is looking for
opportunities to grow in adjacencies of the core business

• ChemicalCo’s executives found three interesting opportunities:

1. Consolidate Chemical_1 market
2. Build a Chemical_2 plant
3. Produce Chemical_3

• However there is no consensus among the executives about the viability of these project
and their right prioritization

• ChemicalCo executives asked Bain to help them evaluate these opportunities and design a
new strategic plan with clear priorities

Graficos_Business
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 ChemicalCo case overview (2/2)
ILLUSTRATIVE

Project 1
Other
R. Other
Materials

+ Chemical_1

Current scope of
ChemicalCo

Project 2
RMaterial_1 RMaterial_3

+ Chemical_A + Chemical_2

RMaterial_2

Project 3
RMaterial_4

+ Chemical_3

RMaterial_5

Note: Every chemical product in this case is hypotetical Graficos_Business

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 Graph 1 – Chemical_1 producers’ EBITDA X
Relative Market Share
PROJECT 1

EBITDA = Earnings before interest, taxes. depreciation and amortization

RMS = relative market share
If company is market leader  RMS = company’s market share / second player’s market share
If company isn’t market leader  RMS = company’s market share / leader’s market share Graficos_Business
SAO Case02 5
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 Graph 2 – Consumption of Chemical_A by
Chemical_1 producers
PROJECT 1

kty = 1000 ton per year Graficos_Business

SAO Case02 6
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 Graph 3 – Project of a new Chemical_2 plant
PROJECT 2

Raw Material Production

Local price: RMaterial_3

$1.5k/ton (14 kty)

Chemical_2
+ (28 kty)

Local price: Chemical_A

$1.0k/ton (18 kty)

Fixed costs = US$14M/year

kty = 1000 ton per year

Note: All other variable costs are negligible compared to raw material Graficos_Business
SAO Case02 7
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 Graph 3 – Chemical_2 import/export parity
prices
PROJECT 2

10%
$0.5k/t
Import parity International price
price $2.0k/t
Brazil $____k/t

6.66% Most
Export parity
price important
$1.5k/t $0.4k/t
Chemical_2
producer

• Import Parity Price (IPP): the value of a unit of product bought from a foreign country, valued at a geographic
location of interest in the importing country (i.e. IPP = International_Price plus shipping plus taxes plus insurance)

• Export Parity Price (XPP): the value of a product sold at a specific location in a foreign country, but valued from a
specific location in the exporting country (i.e. International_Price = XPP plus shipping plus taxes plus insurance)

Note 1: Insurance costs can be ignored

Note 2: Taxes apply only over good’s price, not over shipping costs Graficos_Business
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Graph 5 –Interviews about Chemical_3 market
PROJECT 3

• Chemical_3 consumes most of EveryChemCo’s Chemical_A production. This only

happens because we cannot be competitive in Chemical_3 without a local sourcing of
RMaterial_5
• We already tried a few times to get this sourcing agreement, but we never had success
in this negotiation
ChemicalCo • I think we should buy EveryChemCo. This is the easiest way to access the sourcing
executive agreement of RMaterial_5

• The local market is not able to consume the total Chemical_A production of ChemicalCo
and EveryChemCo, so both companies have to export part of their production, which
pressures local prices
• The only reason why ChemicalCo exports more than EveryChemCo is the competitive
disadvantage in Chemical_3
Market • I’m pretty sure that this sourcing agreement is a short term contract and must be
specialist renewed every year

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SAO Case02 9
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 Graph 6 – Viable production of Chemical_3 in
ChemicalCo current facilities
PROJECT 3

Local price: 0,6

Chemical_A
$1.0k/ton

IPP: 0,3 1,0 Local price:

$2.0k/ton
RMaterial_4 + Chemical_3
$3.0k/ton

Local price: 0,3

RMaterial_5
$2.0k/ton

Note: All other costs are negligible Graficos_Business

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 Graph 7 – Prioritization matrix

Return on Capital

EBITDA = Earnings before interest, taxes. depreciation and amortization Graficos_Business

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Appendix A - Useful concepts

• Import/Export parity prices:

-Import Parity Price (IPP): the value of a unit of product bought from a foreign country, valued at a
geographic location of interest in the importing country (i.e. IPP = International_Price plus shipping
plus taxes plus insurance)
-Export Parity Price (XPP): the value of a product sold at a specific location in a foreign country, but
valued from a specific location in the exporting country (i.e. International_Price = XPP plus shipping
plus taxes plus insurance)
-Export and import parity are two of the key price-setters in chemical markets. For this case we will
assume that every product sold locally is sold at IPP and every exported product is sold at XPP

• EBITDA: Earnings before interest, taxes. depreciation and amortization

• RMS: Relative Market Share

-If company is market leader: RMS = company’s market share / second player’s market share
-If company isn’t market leader: RMS = company’s market share / leader’s market share

• CAGR: Compound Annual Growth Rate

Graficos_Business
SAO Case02 12
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 Case 2

RetailCo

Graficos_Business
SAO Case02 13
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RetailCo case overview

Situation overview

• The retail market for furniture and home appliances showed strong growth in
the last years, accompanied by consolidation driven by major players

• RetailCo is a regional retail company with operations in four states of Brazil

• RetailCo holds a strong position in the markets it serves, however, it does not
have the same scale as the major national players, which seek to expand their
markets

• Moreover, in recent years, RetailCo presented weak results on important

operating metrics, such as EBITDA and sales/m2

• RetailCo hired Bain to help them improve operating metrics and define its long
term strategy

Graficos_Business
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Graph 1 – Retail market over time and market
breakdown by players over time

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Graph 2 – Sales over time for RetailCo and
competitors

Graficos_Business
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 Graph 3 – Retail market breakdown, by player
and by state

* RMS = relative market share

• If company is market leader  RMS = company’s market share / second player’s market share
• If company isn’t market leader  RMS = company’s market share / leader’s market share Graficos_Business
SAO Case02 17
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 Graph 4 – Sales per square meter

m2/store
Sales area/
Total area

Obs.: sales area does not include back-office and inventory areas
Graficos_Business
SAO Case02 18
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 Graph 5 – Sales breakdown by player

COGS = Cost Of Goods Sold

Operating expenses = Selling, General and Administrative Expenses (SG&A)
EBITDA = Earning Before Interest, Taxes, Depreciation and Amortization Graficos_Business
SAO Case02 19
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 Graph 6 – Brazilian market: EBITDA X Relative
Market Share (RMS)
2009

EBITDA = Earning Before Interest, Taxes, Depreciation and Amortization

RMS = relative market share
• If company is market leader  RMS = company’s market share / second player’s market share
• If company isn’t market leader  RMS = company’s market share / leader’s market share Graficos_Business
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 Annex 1 –Sales, Costs and EBITDA

EBITDA = Earning Before Interest, Taxes, Depreciation and Amortization

Costs = Cost of good sold (COGS) + Operational expenses (SG&A) Graficos_Business
SAO Case02 21
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