MANAGING SHAREHOLDER VALUE SYNTHETICS  

Agenda 1 2 3 4 Company XXX - Current market reflections of value  Two aspects to shareholder value management – Value Creation and Market Recognition of Value 2  What Company XXX needs to do? 3  4 

XXX – Current reflections of market value Market Value/sales Market value/ sales %

Company XXX – Current reflections of market value Price / Earning Ratio P/E Ratios Over valued or under valued?

Managing Shareholder Value – Value Creation and Market Recognition of Value “Value created” intrinsic value Value Creation Market Recognition of value Current intrinsic value “How do we identify potential opportunities for value creation and actualize them into the business operations? Current market value “How do we get the market to recognize the value created?” Understanding the distinction between these two inter-linked aspects is key to effective Shareholder Value Management.

Value – in today’s economy The New Economy Intangible Value Knowledge Age Technology Age Industrial Age Agricultural Age Iron Age Stone Age Time …and the Curve is Compressing

Value creation in the new economy Value in today’s economy is being created by New assets – brand, customer base, technology, intellectual property; and New ways of doing business – outsourcing, shared services, e-business. Business Managers cease to see themselves as industry players and instead adopt the role of owner of assets Companies identify core assets (both tangible and intangible); and Companies focus on these core assets and leverage them across industries to exploit their potential value Value creation in the new economy Value creation involves both identification of assets/opportunities and their exploitation/actualization

The new framework to create value Physical Customer Land Customers Buildings Channels Equipment Affiliates Inventory Organization Leadership Innovation Strategy Systems Structure Processes Culture Knowledge Brand Financial Stakeholders Cash Receivables Shareholders Debt Employees Investments Suppliers Equity Business Partners The old model to measure value ... against the new value framework

Value Creation - the HOW? Revenue Customer or Market Focused Initiatives Gross Profit COGS NOPAT Efficiency or Productivity Focused Initiatives Selling Costs Dist Costs Operating Expenses Admin Costs Cash Flow R&D Costs Working Capital Financial Re-structuring Initiatives Capital Deployed Fixed COST of Capital Debt Cost of Capital Equity Creating Value

Value Creation - the HOW? Customer or Market Focused Initiatives Shared Vision, Mission and Strategy Articulation Product portfolio review New Product Development Product Acquisitions Product strategies Distribution Network and Channel Design CRM and Distributor/Dealer Management Brand Management Efficiency or Productivity Focused Initiatives Business Process Reengineering Operational Efficiency Improvements Case for Shared Services/outsourcing SCM solutions Organization Restructuring Development of appropriate KPIs (business and individual levels) Performance Measurement Systems (business and individual levels) Sales Force Effectiveness Working Capital Management Financial Re-structuring Initiatives Capital budgeting and Revenue Budgeting Debt restructuring Raising additional equity Area of Focus in Ispat Creating Value

Having created value ……….. Customer or Market Focused Initiatives Organization Effectiveness Initiatives Gross Profit NOPAT Efficiency or Productivity Focused Initiatives Operating Expenses Cash Flow Financial Re-structuring Initiatives Capital Deployed COST of Capital Cost of Capital …..it is important that market recognizes the value creation

Market Recognition of Value– the enablers! Customer or Market Focused Initiatives Organization Effectiveness Initiatives Gross Profit Corporate Governance / Ethical Business Practices NOPAT Efficiency or Productivity Focused Initiatives Operating Expenses Communications : Corporate, Employee and Product Engagements Cash Flow Financial Re-structuring Initiatives Capital Deployed COST of Capital Sustainability Cost of Capital Creating Value Recognizing Value

Managing Shareholder Value Management of business needs to be VALUE based Businesses need to focus on value creation and market recognition of value Value creation involves both Identification of core assets and leveraging them across industries to exploit value; and Identification of value creation opportunities (e.g. outsourcing) and actualizing them into the business operations Having maximized shareholder value it is necessary to communicate it and to ensure that the market perceives the enhanced value To Summarize