BCG Praesentation 20070619

BCG VALUE CREATORS REPORT: "SPOTLIGHT ON GROWTH"
Axel Roos, Partner, BCG Berlin

Berlin, 19 June 2007
The Boston Consulting Group
AGENDA
Introduction: BCG and BCG's Corporate Development Practice Worldwide Value Creation: BCG Value Creators Report 2006 Managing Growth Starbucks - A Case Example Integrated Financial Strategy
Question? Comments? Discussion!
HU Berlin-ValueCreators(Presented)-19Jun07-ARO-BER.ppt
-1-
AGENDA
-2-
BCG THE FIRST ADDRESS IN STRATEGY CONSULTING

3,300 Strategists in 61 Offices and 36 Countries
Toronto New York Washington, D.C. Detroit Atlanta Chicago Boston New Jersey Amsterdam London Brssel Paris Frankfurt Stuttgart Lissabon Madrid Barcelona Zrich Mailand Kln Dsseldorf Oslo Kopenhagen Stockholm Helsinki Moskau Hamburg Warschau Berlin Athen Prag Budapest Wien Rom UAE(1) Mnchen
Peking Shanghai Seoul Tokyo Nagoya Taipei Hongkong Bangkok Kuala Lumpur Singapur Jakarta
San Francisco Los Angeles Dallas Monterrey Mexico City Houston Miami
Neu Delhi Mumbai
So Paulo Santiago Buenos Aires Sydney Melbourne Auckland
(1) 2007 Source(s): BCG analysis

-3-
SUSTAINABLE GROWTH SATISFIED CLIENTS

265 m Revenues 620 Consultants in Germany in 2005
Mio.
300
250
Growth > 10 % p.a. since 1974

New clients BCG client since
200
150
2 to 4 years 5 years or longer
100
50
0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source(s): BCG analysis

-4-
WE WANT TO HIRE 310 PROFESSIONALS IN GERMANY IN 2007
Permanent entry: Associate / Consultant 210 Associates / Consultants in 2007 Junior Associate: entry as Bachelor Associate: entry with diploma or PhD Consultant: possible with 3+ years of professional experience 2 (+2) weeks entry training Immediate staffing on a project
Entry for a time": Visiting Associate Great opportunities for the best: 100 Visiting Associates for 2007 Full integration as consultant in a BCG project team Full responsibility for the assigned tasks Presence at the client Flexible start and end Duration of 8 12 weeks
Application Comprehensive written application Two rounds of interviews
Application Application after pre-diploma One round of interviews

-5-
FAST CAREER DEVELOPMENT FLAT HIERARCHIES
Focus
23 % 41 % 17 % 9% 10 %
Client relationship
Partner / Managing Director
Project management
Principal Project Leader
Module responsibility
Consultant Associate 0 1 2 3 4 5 6 7 8 Years
-6-
FURTHER DEVELOPMENT AFTER BCG

Selected BCG Alumni in Germany
Board Members
Marcus Englert, MdV
9%
Entrepreneurs/Private Equity 14 %
Ulrich Biffar Tobias Bachmller
Managing Directors
Peter Dill
9%
Hanno Petersen, MdV
Susan Hennersdorf, GF
Marc Bitzer, Prsident Europe and Executive Vice President Whirlpool Corporation Johannes Zll, GF Eric Strutz, MdV Torsten Ecke, CIO
Bernhard Heizmann Achim Schmitz-Mertens Stefan Brand
Hanns Ostmeier Michael Hehn
Philipp Busch, GF Guido Colsman, VdG Jens Deerberg-Wittram, GF
Johannes Zll, GF Felix Hufeld, VdGL Klaus Srensen, GF
Management
Matthias Gillner Jochen Olbert
47 %
Justus Klker Peter Lffler Marcus Nadenau
Academic Career
4%
Strategy/Planning
Frieder Kuhn
17 %
Hubert Strbel Thomas Volland Harald Schmidt Stefan von Dobschtz
Prof. Walter Schertler, Prof. Jens Hermsdorf Strategisches Management School of International Business Arndt Rautenberg Gernot Sauerborn
Alexis von Hoensbroech Inga Jrgens Helmut Meysenburg Claudia Palme John McNamara Thomas Fischer
Annette Veltmar Carla Kriwet
Assistant Professor Thomas Weber, Stanford Graduate School of Business
Akio Ito Timmo Sturm
Heinz Hackl
Tihamr von Ghyczy, Darden School of Business
Total number of BCG Alumni in Germany: ca. 1,100 Total number of BCG Alumni in Germany: ca. 1,100
-7-
CORPORATE DEVELOPMENT AS ONE OF OUR WORLD-WIDE PRACTICE AREAS

Broad Industry and Functional Expertise
Consumer Goods Corporate Development Operations High Tech Telco Financial Services Energy Industrial Goods Health Care Pharma
Organization Information Technology Marketing and Sales Strategy

-9-
INTRODUCING BCG'S CORPORATE DEVELOPMENT PRACTICE OUR TOPIC MAP

Corporate Strategy Corporate Finance Post-merger Integration Integrated Financial Strategy
Create
Corporate vision Industry landscaping Portfolio strategy Growth strategy
Execute
Partnering/alliances M&A IPO & divestitures Private equity
Integrate
Pre-PMI planning PMI organization/ setup PMI execution
Deliver
Value-based management Strategic planning Investor management Capital structure Risk management

- 10 -
AGENDA
- 11 -
BCG WITH ONGOING RESEARCH ON VALUE CREATION
1999 The Value Creators"
2000 "New Perspectives on Value Creation"
2001 "Dealing with Investors' Expectations"
2002 "Succeed in Uncertain Times"
2003 Back to Fundamentals"
2004 The Next Frontier"
2005 Balancing Act"
2006 Spotlight on Growth"
Sources of value creation: Cash flow margin Asset productivity Profitable growth
Key value drivers from the capital, customer and employee view External market expectations
Importance of expectation premiums Drivers behind expectation premiums
Agenda for improved, sustainable value creation Preventive crisis management necessary
Fundamentals drive TSR Profitability above cost of capital Profitable growth Dividends
Decomposition of TSR into fundamentals, cash flow and multiple Relative multiple regression
Implementation: TSR fact base Appropriate TSR aspiration Redesigned management processes
Role of growth: Achieving superior value creation Managing critical tradeoffs Setting growth targets
Note: Reports can be downloaded at http://www.bcg.com/corporatedevelopment/cfs_value.html Source(s): BCG analysis

- 12 -
NOT ANOTHER "HOW TO GROW" STUDY, BUT HOW TO EVALUATE GROWTH IN AN INTEGRATED FINANCIAL STRATEGY
Content
The Role of Growth in Achieving Superior Value Creation The Impact of Growth on Valuation Multiples Growth, Margins, Multiple and the right kind of Growth Evaluating Growth Investments Against Alternative Uses of Capital Growth versus Dividend, Debt Repayment and Share Repurchases Setting Growth Targets That Drive TSR Initial TSR Target, Plan Assessment, Alternative TSR Scenarios Ten Questions About Growth Every CEO Should Know How to Answer Appendix: The 2006 Value Creators Rankings
Source(s): BCG Value Creators Report 2006

- 13 -
SOME INITIAL DEFINITIONS

Total shareholder return is often referred to as TSR
Value creation (TSR: Total Shareholder Return)
Change in share price plus dividend yield TSR is presented on an annual basistypically over 1, 3 and 5 year periods Yardstick for all investors including hedge funds and mutual funds Required reporting in proxy statements Easily benchmarked on relative basis as shareholders true bottom line
Valuation (P/E or EBITDA multiple) Value based management (VBM)

Contains information about how investors value earnings Change in relative valuation multiples is manageable Calculated on a current or forward basis
Alignment of key management processes Target setting, performance metrics, budgeting, planning, resource allocation, and incentives
- 14 -
CREATING SUPERIOR SHAREHOLDER VALUE YEAR AFTER YEAR IS A DIFFICULT TASK

Relative TSR Analysis 1996-2005
Number of 600 companies(1)

500
569 532
400
347
324
300
200 132 106 100 31 1 0 0 1 2 3 4 5 6 7 8 9 4 9
Denmark
1 10
Number of years in which they beat the local market(2)

(1) Sample characteristics: 2,056 companies excl. financial service companies; continuously listed for at least 10 years; market cap above $1B as of end 2005 (2) Relative TSR > 0 Source(s): Thomson Financial Datastream; Bloomberg; BCG analysis
- 15 -
HOWEVER, HIGH TSR POSSIBLE IN EVERY INDUSTRY

High, Low and Average TSR Per Industry 20012005
Mining & Mat. Transp. Auto- Mach. Chem. & Log. motive & Constr. Travel& Tourism Cons. Goods Pulp & MultiPharma Paper business Media & Entert.
Utilitity
Retail
Tech.
100%
TSR p.a. 01 '05

80%
88% 74% 61% 70% 53% 43% 40%
91% 83% 67% 57% 50% 34% 38%
60%
40%
20%
19% 12% 9% 9% 9% 8% 6% 5% 5% 5% 0% -3% -1% -12% -20% -26% -19% -28% -38% -26% -31% -41% -35% -18% -25% -2% -6% -6%
0%
-20%
High Weighted Average Total Sample Low
-40%
-60%
Question: What are the success factors of top performing companies in our client's industry? Question: What are the success factors of top performing companies in our client's industry?
Source(s): Thomson Financial Datastream; BCG analysis.
- 16 -
TSR DECOMPOSITION IS A PRACTICAL FRAMEWORK LINKING PERFORMANCE TO TSR

An Integrated Approach To Value Creation Here: Based On EBITDA
Sales growth EBITDA growth
% %
x
EBITDA margin change Growth variables, e.g. asset growth Profitability variables, e.g. gross margin growth
Capital gain
EBITDA multiple TSR
Cost efficiency variables, e.g. inventory turnover Leverage variables, e.g. debt/capital ratio
Dividend yield Free cash flow yield
% % %
Other variables, e.g. dividend payout ratio Industry specific variables, e.g. average store size
Contribution to TSR can be calculated - 17 -
Share buybacks Debt repayment

WORLD TOP DECILE: SALES GROWTH AND MULTIPLE MOST IMPORTANT

TSR Decomposition Profile of Top Decile vs. Total Sample(1)
Total shareholder return
TSR index (2000 = 100)
700 600 500 400 300 200 100 0 '00 '01 '02 '03 '04 '05 152 100 88 180 68 86 95 108 50 0 '00 '01 '02 '03 '04 '05 316 445 150 100 100 100 104 109 115 128 123 624 200 152
Sales growth
Sales index (2000 = 100)
177
20% 18% 16% 14% 12% 10% 8% 6% '00 14.2% 15.3%
EBITDA margin1
EBITDA/revenue (%)
18.5% 17.7% 14.5% 14.7% 15.3% 15.8% 15.8%
103
106
114
14.7% 14.7% 12.7%
'01
'02
'03
'04
'05
Simplified five-year TSR decomposition2

20%
EBITDA multiple1
Enterprise value/EBITDA (x) 11.8 11.1 12 9.9 9.0 10
14
Dividend yield3
Dividend/stock price (%) 6%
4.9%
TSR contribution (%)

13%
10% 4% 0%
9% 6% 1% 4% 2%
9.4
9.5
4% 3.7% 2.3% 1.9% 2% 2.1% 1.3% 0% 1.7% 3.0% 2.8% 3.3%
8 6 4 6.0 7.9 7.0
9.1
8.3
9.0
2.5%
2.4%
-4% -10% Sales growth Margin change Multiple change
Dividend DY yield
0 '00 '01 '02 '03 '04 '05
'00
'01
'02
'03
'04
'05
Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysis. Disclaimer: These financial analyses are based on data and assumptions that have not been verified by BCG and are subject to uncertainty and change. Accordingly, results presented are intended only for relative comparison across alternatives. Actual future values are subject to future capital market conditions and other influences.
Top Decile, n = 106 Total sample, n = 1056

1 2
Industry calculation based on aggregate of entire sample. Share change and net debt change not shown. 3 Industry calculation based on sample average. - 18 -
BUT, TOP PERFORMERS IMPROVED ON ALL THREE DIMENSIONS

Global Sample versus Top Decile, 2001-2005
TSR Decomposition Profile
Fundamental value (%)

13%
Valuation multiple (%)
Cash flow (%)

14%
9%
6% 4% 1%
4%
2% 0% -2% -2%
-4%
Sales growth EBITDA margin change
EBITDA multiple change Top decile, n = 106 (TSR = 44% p.a.)
Dividend yield Total sample, n = 1056 (TSR = 2% p.a.)
Share change
Net debt change
Source(s): Thomson Financial Datastream; Thomson Financial Worldscope; Bloomberg; Annual Reports; BCG analysis Disclaimer: These financial analyses are based on data and assumptions that have not been verified by BCG and are subject to uncertainty and change. Accordingly, results presented are intended only for relative comparison across alternatives. Actual future values are subject to future capital market conditions and other influences. Note: Bars show contribution of each factor in percentage points of five-year average annual TSR.
- 19 -
FOR TOP PERFORMERS, REVENUE GROWTH IS THE MAIN SOURCE OF LONG-TERM SHAREHOLDER VALUE
Sources of TSR for Top-Quartile Performers, S&P500, 1987-2005
Average 40% annual TSR 35% (%) 30% 25% 20% 15% 10% 31% 5% 0% 1 year 3 years 5 years 10 years 50% 58% 60% Dividend yield Change in shares, cash and debt Change in Multiple Margin Improvement Growth
Note: Sample excludes financial companies; rolling analysis covers one, three, five, and ten-year time frames from 1987 to 2005. Source(s): Compustat, BCG analysis.
- 20 -
AGENDA
- 21 -
EXCURSUS STARBUCKS: A RETAIL STAR MORE THAN QUINTUPLED SHAREHOLDERS' BUCKS

Total Shareholder Return (indexed and cumulated)
100%
515%
274% 183% 157% 168%
'99
'00
'01
'02
'03
'04
Company profile
Vertically integrated brand: purchasing, roasting and selling High-quality coffee beans and handcrafted beverages First store in Seattle in 1971 In 1987 Starbucks acquired Giornale chain of coffee bars (founded by a former employee) Today more than 6,600 stores in the US and significant international activities More and more trying to diversify product range and explore new distribution channels for coffee and related products
Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Starbucks; BCG analysis

- 22 -
TSR DECOMPOSITION OVERVIEW: STARBUCKS SHOWS IMPRESSIVE GROWTH AND MULTIPLE ABOVE PEERS
Total shareholder return(1)
600 500 400 274 300 183 200 100 0 100 '99 81 '00 85 '01 65 '02 81 '03 93 '04 100 157 168 515
Extreme sales growth(1)

350 300 250 200 150 100 50 0 '99 '00 '01 '02 '03 '04 100 113 130 100 124 130 136 146 158 196 243 315
EBITDA margin clearly above peers(2)

20% 15.7% 15.3% 16.2% 15.3% 15.8% 16.1% 15%
10%
8,2%
8,2%
7,9%
7,9%
8,1%
8,3%
5% '99 '00 '01 '02 '03 '04
TSR decomposition(3) (five year)

30% 25% 20% 15% 10% 5% 0% -5% -10% -15% 28%
EBITDA multiple(2) growing far above peers

30 24.9 26 28.7 3%
Dividend yield(4) Starbucks: no dividend

2,3% 1,9% 2% 1,4% 1,1% 1% 1,5% 1,1%
12% 8% 0% 1% 2%
22 18 14 16.8 16,4 12,1 '99 '00 12 8,7 '01 '02 16.7 15.5
19.9
-10% Sales growth Margin change Multiple change DY Dividend yield
10 6
9,8 '03
9,8 '04
0% '99 '00 '01 '02 '03 '04
Starbucks
(1) Indexed and cumulated (2) Calculation based on aggregated figures Note: Analysis based on 63 companies; minimum market value 2004: $5bn
Retail sample
(3) Additional components: Share change, Net debt change (4) Sample average Source: T.F. Datastream; T.F. Worldscope; Bloomberg; Annual Reports; BCG analysis
- 23 -
STARBUCKS' GROWTH STORY: SALES MORE THAN TRIPLED IN FIVE YEARS
Sales development (indexed and cumulated)

196%
11%
315%
20%
243%
84%
158% 130% 100%
Retail sales: Sales in companyoperated stores Sale of beans: JV with Kraft in the grocery channel Licensing: Revenues from noncompany-operated stores (royalties and sales from beans)
'99
'00
'01
'02
'03
'04

- 24 -
STARBUCKS ENTERED INTO A FADING COFFEE MARKET

After Folgers' & Maxwell's Market Share Wars, Starbucks with New Value Proposition
1980s: Declining consumption and new value proposition market share wars
Since 1990: Starbucks with steady sales growth through new value proposition
Coffee consumption (cups per person per day)
Starbucks sales(3)
3,0
2
2,0
1
1,0 1950
1960
1970
1980
1990
1990
2000
Maxwell House brand Maxwell House brand established with "affordable established with "affordable luxury" luxury" Loyal customers(1) Loyal customers(1) Folger's & Maxwell House Folger's & Maxwell House highly profitable highly profitable
Price cuts Price cuts Reduced quality to Reduced quality to lower costs lower costs Weakened brands/ Weakened brands/ consumer loyalty consumer loyalty Low gross margins Low gross margins Losses on coffee in Losses on coffee in the late 80s the late 80s
Gourmet coffee again as affordable luxury Gourmet coffee again as affordable luxury Shops as "the third place"(2) as a non-alcoholShops as "the third place"(2) as a non-alcoholserving bar with social interaction serving bar with social interaction Price premium for high quality and agreeable Price premium for high quality and agreeable atmosphere atmosphere Increased sales Increased sales
(1) 80% of Maxwell House consumers would not switch if another brand were on sale (2) Besides home and work Source: U.S. Bureau of the Census; J.C. Bradford & Co.; Press Search; Starbucks annual reports; BCG-Analysis
(3) Indexed on 1999
- 25 -
STARBUCKS' GROWTH WAS ALMOST EXCLUSIVELY ORGANIC, BUT IN DIFFERENT GRADUATIONS

Different Growth DimensionsOverview
Expand sales per store Grow number of stores Explore new channels/products
Product range Coffee and related products Warm breakfast Lunch Extended hours, efficiency improvement in selling process
Domestically
Licensing stores Domestically Internationally
Merchandising
Internationally Company operated Joint ventures
Distribution channels for coffee beans Grocery Club and wholesale market
Other non-food "Hear Music"
New products in JV Frappuccino Ice cream DoubleShot
Source: Starbucks; analysts reports; press articles; BCG analysis

- 26 -
SALES PER STORE EXPANDED BY INCREASING CUSTOMER BASE, CUSTOMER LOYALTY AND ADDING PRODUCTS
Customer base
Expansion of customer base (Survey in 1999 and 2005) From customer average annual income of $81,000 to $55,000 Concentrated in metropolises From 78% college grads to 56%
Product range
Coffee and related products Warm breakfast Lunch, dessert
73% 54% 32% 22% 5 10 25 50
Top 50 markets have 73% of sales

Top markets
Survey: Most attractive WiFi hotspot More than hotel lobbies and airport lounges
Loyal customers
Starbucks card already has 15% of sales Drives frequency Wins new customers when sold as a gift
High customers frequency Best customers come 16.2 times per month Average is six times a month Survey: Sixth among US brands
- 27 -
"HEAR MUSIC" IS ANOTHER NEW IDEA TO IMPROVE INTRA-STORE SALES

And Fits Starbucks' History of Selling Innovative CDs
Idea and investment What customers can do and how to earn money on it 1. Hear music Customers pick their preferred music at a terminal while having no interaction with salespersonnel Customers spend more time in store and potentially buy more coffee 2. Burn customized CD Customers can choose from over 200,000 tracks and assemble a personal collection of songs and burn them on a CD
Investment: $20,000 per store Investment: $20,000 per store

(1) Prices: $7.99 for the first and $0.99 for each additional song Source: Starbucks; analysts reports; press articles; BCG analysis
At a price of about $10 per CD(1), breakeven(2) is 11 CDs per store per day
(2) Without consuming coffee while listening calculated in
- 28 -
DOMESTIC EXPANSION: GOAL EXCEEDED MANY TIMES OVER

Analysts' Quotes
May 2005 "We think Starbucks' 15,000 store target is reasonable (from 6,600 today)."
November 2001 "Our analysis suggests that there is room for a total of between 5,000 and 7,000 company-owned Starbucks ultimately in the US."
September 1999 "Our analysis ... concludes that, on a very conservative basis, the company still has room to double the number of stores ... to well over 4,000."

- 29 -
... BUT WHERE IS THE LIMIT ?

Possible Saturation of the Domestic Market
Situation today
Historic growth
Borders/constraints
McDonald's: 13,500 in the US Starbucks with no clear no. 2 (such as Burger King, Wendy's, ...) But less accepted in rural areas
From 961 stores in 1999 to present number today
About 6,600 stores in the US
Maximum of 7,000; premises Metropolitan areas: average Seattle(1), Portland, San Francisco, San Diego, Denver: 40,000 residents per store New regions: Median incomes 10% over national average and more than 175,000 residents in MSA(2)
with highest concentration still on the West Coast where the company has its roots (about 40 % of US stores)
If Starbucks reaches the saturation point, deterioration in new-unit productivity will be seen; this has not yet been observed however
(1) Seattle has average of 20,000 per store (2) MSA: metropolitan statistical areas. For details on methodology, see DB Report from Sept. 24, 1999; for recalculation Nov. 27, 2001 Source: Starbucks; analysts reports; press articles; BCG analysis
- 30 -
EBITDA MARGIN REMAINS CONSTANT ...

... And Clearly Above Peer Group
20%
15%
Interpretation
10%
Majority of sales comes from branded, high margin lifestyle coffee products
Total retail sample Starbucks
5%
Additional increase of margins by royalties from non-company-operated stores Leverage of brand and margins by licensing coffeerelated products Transfer of proven high margin product and store concept by impressive sales growth (no erosion of margins)
0% '99 '00 '01 '02 '03 '04

- 31 -
STARBUCKS' MULTIPLE FAR ABOVE PEERS BUT FIRST DOUBTS ARISE IF SUSTAINABILITY IS STILL GIVEN
Almost Doubled between 2002 and 2004
Interpretation
24.9 16.8 16.7 15.5 28.7 19.9
Stock price reflects future expectations, but EBITDA multiple reflects past (or its extrapolation) future growth expected No dividends distributed, thus earnings are distributed to shareholders via pricetreasured Brand has a high value, resulting in high immaterial assets (goodwill(1) or premium) Although marketing investment remains reasonable (1.3% of sales in 2004)
EBITDA multiple
16,4 12,1 12 8,7 '99 '00 '01 '02 9,8 9,8
'03
'04
Starbucks Total retail sample
November 2004: "20% to 25% growth is not an issue ... what's 20% to 25% worth? ... We ... believe the current valuation either assumes at least 30% growth in FY'05 or the market's pricing SBUX off FY'06 EPS. ... Starbucks' multiple appears to have peaked."
(1) Goodwill can only be accounted for if acquired or costs could be activated in certain cases
- 32 -
SUMMARY - LESSONS LEARNED

Starbuck's performance is a clear growth story No dividends distributed: retained to finance further growth Mostly organic because the market is young and no serious competition is in the market yet Establishing a strong brand does not necessarily imply enormous marketing investments
JV and licensing can be important alternatives to pure organic growth Reducing capital investment, reduce risk and improve margins Profiting from the partner's knowledge when entering new markets or launch new products But: they necessitate proper control and decision processes can take longer
Chances in different regional markets can differ greatly according to regional circumstances a success story cannot simply be rolled out
Source: Starbucks; Analysts Reports; Press Articles; BCG analysis
- 33 -
AGENDA
- 34 -
DRIVING SUPERIOR TSR REQUIRES AN INTEGRATED CORPORATE AND FINANCIAL STRATEGY

M&A strategy Investor strategy Real Estate strategy Capital structure target Diagnose issues, opportunities, constraints, alternative TSR strategy scenarios
Integrated corporate and financial strategy
Revenue growth TSR
Margin (%)
Portfolio strategy
FCF and ROI P/E multiple Share repurchase
Dividend policy
Value-based management capability
Metrics Resource allocation Compensation
Planning Role of center Training
Budgeting Target setting Reporting
Ensure current facts, signals, effective processes to enable organization to deliver superior TSR results
This effort will focus on TSR strategy where we will integrate business strategy and competitive This effort will focus on TSR strategy where we will integrate business strategy and competitive advantage concepts with TSR facts and principles to ensure success advantage concepts with TSR facts and principles to ensure success
- 35 -
CLIENTS STRATEGIC OPTIONS MAP TO DIFFERENT ELEMENTS OF THE TSR STRATEGY

Elements Are Highly Interdependent Must Assess in an Integrated Fashion
4
M&A strategy Impact of sale/ lease-back / 5 reduction of key fixed assets?
Acquisition of segmentcentric/ segment adjacent players? Investor strategy
Real Estate strategy
6
Revenue growth TSR Margin (%) Capital structure target Impact of share repurchase?
7
Impact of company sell/ LBO? Portfolio strategy
FCF and ROI P/E multiple
Dividend policy
1
Future prospects of CLIENTs underlying business?
2 What if scenarios for spinoff

options?
Share repurchase
Portfolio trimming potential?
Need to diagnose issues, tradeoffs, and options across all levers Need to diagnose issues, tradeoffs, and options across all levers
- 36 -
A FEW COMMENTS FROM OUR CLIENTS REGARDING INSIGHTS FROM TSR STRATEGY DISCUSSIONS
It was critical to complement the hard financial and valuation analysis with the investor perspective (the soft side). All this time we had been listening to the analysts and not the investors. Boy, did we get it wrong! The investor dialog and financial analysis gave us critical insight into how to refine our corporate and financial strategies into an overall TSR strategy. We are now heading down a path that we believe will significantly increase our valuation Chief Financial Officer
The investor insights enabled me to finally realize that we have been talking right past our investors. We are excited about growth, so we have been speaking mostly about growth with investors and analysts... When what matters to them as value investors are our true strengths high ROIC and our great free cash flow generation. This is a critical insight for us Chairman and CEO
I was dead-set against doing this work because I felt there was little to learn from the investors that I did not already know. I am a full convert and recognize the great value and insights of the work. Vice President of Investor Relations
Source(s): BCG client
- 37 -
AGENDA
- 38 -
QUESTIONS? COMMENTS? DISCUSSION!
- 39 -

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BCG VALUE CREATORS REPORT: "SPOTLIGHT ON GROWTH"

Axel Roos, Partner, BCG Berlin

The Boston Consulting Group

Question? Comments? Discussion!

Question? Comments? Discussion!

BCG THE FIRST ADDRESS IN STRATEGY CONSULTING

Neu Delhi Mumbai

So Paulo Santiago Buenos Aires Sydney Melbourne Auckland

(1) 2007 Source(s): BCG analysis

SUSTAINABLE GROWTH SATISFIED CLIENTS

Growth > 10 % p.a. since 1974

2 to 4 years 5 years or longer

Source(s): BCG analysis

WE WANT TO HIRE 310 PROFESSIONALS IN GERMANY IN 2007

Application Comprehensive written application Two rounds of interviews

Application Application after pre-diploma One round of interviews

Source(s): BCG analysis

FAST CAREER DEVELOPMENT FLAT HIERARCHIES

Principal Project Leader

Consultant Associate 0 1 2 3 4 5 6 7 8 Years

FURTHER DEVELOPMENT AFTER BCG

Hanno Petersen, MdV

Bernhard Heizmann Achim Schmitz-Mertens Stefan Brand

Hanns Ostmeier Michael Hehn

Philipp Busch, GF Guido Colsman, VdG Jens Deerberg-Wittram, GF

Johannes Zll, GF Felix Hufeld, VdGL Klaus Srensen, GF

Hubert Strbel Thomas Volland Harald Schmidt Stefan von Dobschtz

Annette Veltmar Carla Kriwet

Assistant Professor Thomas Weber, Stanford Graduate School of Business

Akio Ito Timmo Sturm

Tihamr von Ghyczy, Darden School of Business

CORPORATE DEVELOPMENT AS ONE OF OUR WORLD-WIDE PRACTICE AREAS

Organization Information Technology Marketing and Sales Strategy

Source(s): BCG analysis

INTRODUCING BCG'S CORPORATE DEVELOPMENT PRACTICE OUR TOPIC MAP

Source(s): BCG analysis

Question? Comments? Discussion!

BCG WITH ONGOING RESEARCH ON VALUE CREATION

1999 The Value Creators"

2000 "New Perspectives on Value Creation"

2001 "Dealing with Investors' Expectations"

2002 "Succeed in Uncertain Times"

2003 Back to Fundamentals"

2004 The Next Frontier"

2005 Balancing Act"

2006 Spotlight on Growth"

Importance of expectation premiums Drivers behind expectation premiums

Note: Reports can be downloaded at http://www.bcg.com/corporatedevelopment/cfs_value.html Source(s): BCG analysis

Source(s): BCG Value Creators Report 2006

SOME INITIAL DEFINITIONS

Value creation (TSR: Total Shareholder Return)

Valuation (P/E or EBITDA multiple) Value based management (VBM)

CREATING SUPERIOR SHAREHOLDER VALUE YEAR AFTER YEAR IS A DIFFICULT TASK

Number of 600 companies(1)

200 132 106 100 31 1 0 0 1 2 3 4 5 6 7 8 9 4 9

Number of years in which they beat the local market(2)

HOWEVER, HIGH TSR POSSIBLE IN EVERY INDUSTRY

TSR p.a. 01 '05