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”Riding the storm for long term sustainability” D2 Consulting Team Jenny Wang Suravij Nakornthap Henriette Schiager Ignacio González.

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Presentation on theme: "”Riding the storm for long term sustainability” D2 Consulting Team Jenny Wang Suravij Nakornthap Henriette Schiager Ignacio González."— Presentation transcript:

1 ”Riding the storm for long term sustainability” D2 Consulting Team Jenny Wang Suravij Nakornthap Henriette Schiager Ignacio González

2 Conclusion Company Profile Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Premium cruise line Customer oriented Strong tradition of excellence $525M. renovation underway Wholly Owned Subsidiary of Carnival Corporation & PLC

3 Conclusion Agenda Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Situational Analysis Issues Identification Recommendation Financial Projection Conclusion

4 Stock price has been underperforming the DJIA Index and the FTSE 100 Index until recently Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile TRS*, CAGR Return CCL DJIA FTSE -33.8% -35.6% -33.1% Carnival Corporation (CCL) FTSE 100 (London) Dow Jones Industrial Average *TRS: Total Return to Shareholders Source: Yahoo Finance April 2008 to Present (% Change), with April 2008 = 0%

5 Conclusion Carnival Corporation is among the top performer in the cruise line industry despite underperforming the market Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Carnival Corporation (CCL) Walt Disney (DIS) Star Cruise (0678.HK) Royal Caribbean Cruise (RCL) *TRS: Total Return to Shareholders Source: Yahoo Finance TRS*, CAGR Return CCL-33.8% DIS-33.4% 0678.HK-46.8% RCL-66.3% April 2008 to Present (% Change), with April 2008 = 0%

6 Conclusion Carnival’s financial status is still strong fundamentally in comparison with competitors Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Source: Yahoo Finance & Reuters

7 Conclusion Opportunity for potential expansion in & outside U.S. Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile The repeaters are the most important group Retiree and Baby Boomer generation occupy the majority part of the customer base Gen. X & Gen Y still open for capturing The international market is still wide open, especially in Europe The product is pro ved to suits European tastes Domestic: International:

8 Conclusion Global Financial crisis has a negative impact on HAL’s performance and customer’s base Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Dow Jones Industrial Average: April, 2008 to Present TRS* = -35.6% *TRS: Total Return to Shareholders Source: Yahoo Finance Global financial crisis has seen the biggest GDP contractions among the major economies around the world US GDP fell 6.2% and Unemployment risen to 8.5% in 4 th quarter of 2008 The dramatic fall in Stock market has created a negative “wealth effect” which has a devastating impact on typical HAL’s customer’s base Massive discount is widely used in an attempt to fill the ship’s capacity, hurting HAL’s revenue, despite reduction in fixed cost such as oil price Reduction in on-board spending per customer has also cause a negative impact to the company

9 Conclusion Treasury Yield Spread indicate that recovery would begin in Mid 2010 Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Source: Federal Reserve Bank of New York The model suggest that the economy will recover along with higher spread between the 3-months and 10-years treasury bills, which indicate that the economy will recovery by mid 2010 The growth is expected to be less aggressive compare to the past due to tighter government policy which will be implemented to ensure sustainable economic foundation Conservative nature of recovery could see the recovery last longer than 6 years, comparing to the previous Dot-Com recession Criticism occur that conservative spending behavior (Frugality) could resurface again as people are trying to avoid debt; however, this is unlikely to occur as globalization creates fast changing lifestyle where people need to constantly adapt to new environment

10 Conclusion Issues Identification Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile IssuesObjectives How can Holland America Line maintain its dominant status in the premium cruise line market? Weathering the Recession Storm Keep 100% capacity through a series of promotions in order to generate constant demand while maintaining a premium image Expansion into new, untapped market and achieve incremental revenue of $11 million annually Creating Long Term Sustainable Growth

11 Conclusion Recommendations Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile The EuroGrowth Strategy The VALUE Strategy

12 Conclusion Value Strategy Provide added value while maintaining brand image and price – Limit price discounts to 10% – Vouchers for onboard spending credit – Offer value packages to compensate for less discount Onshore activities Airfare Loyalty Programs Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile

13 Conclusion Value Strategy Job loss insurance as a confidence boost – Full refund for job loss cancellation Advertising – Continue updating social network activity – Specialty cruise networking – Travel agents remain the most important channel Bringing prices back up after the recession – Fade out the small discount when recovery is starting – Stop offering additional vouchers – Keep the value packages to maintain value and premium image Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile

14 Conclusion Recommendations Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile The EuroGrowth StrategyThe VALUE Strategy

15 Conclusion Euro-Growth Strategy Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Europe presents viable growth opportunity European cruise market increasing 18% annually Competitors are expanding operations in Europe Only 1%-2% European has cruising experience Choosing a Region CompetitionRepeat PotentialDemand Asia Europe South America Moderate Low High Low Moderate Low

16 Conclusion Euro-Growth Strategy Where in Europe? Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile COUNTRYGDP PER CAPITAPOPULATIONCLIMATE CURRENT CRUISE MARKET ACCESSIBILITY TO PORTSTOTAL UK Spain France Italy Germany Netherlands Norway Sweden Denmark Belgium Enter the UK, Germany, and Norway in 2010

17 Euro-Growth Strategy ReturnControlCostLocal Management Joint Venture International Branch Alternative Entry Mode ConclusionFinancial ProjectionRecommendationIssue identificationSituation analysisCompany profile International Branch Send sales and marketing team to the area Developing brand image prior to real entry Increase distribution channels

18 Conclusion Euro-Growth Strategy Target Market in Selected Countries Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Older (45+) and affluent 15% population growth from 2005 to 2015 Rationale Established market in the U.S. Repetition potential is high Semi or full welfare states with high spending power

19 Conclusion Euro-Growth Marketing Strategy 1.Develop relationships with travel agents 2.Begin online marketing and advertising 3.Localized media & appeal Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile

20 Conclusion Implementation Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Marketing Strategy VALUE Strategy Activities & Airline Packages Job Loss Insurance Advertising Euro-growth Strategy Establish international branch Advertising (Online + Print) Travel Agents + CRM Localization Appeals

21 Conclusion Incremental Analysis Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile Revenues Total9,627,6919,685,6779,776,55410,449,33911,175,280 Expenses Production of new advertising campaign1,000, Vouchers2,258,3142,271, Activity Bundles3,387,7943,408,198 Market development & maintenance (Europe)1,000,000 2,000,000 1,000,000 Job loss insurance costs73,69474, Advertising costs - Europe01,000,000 Airfare and other partnerships1,613,8501,623,570 Total9,333,6529,377,8218,031,768 7,031,768 Incremental Net Income294,039307,8561,744,7862,417,5714,143,512 NPV (discounted at 6.78%)7,285,476 Budget Required37, 165,995

22 ConclusionFinancial ProjectionRecommendationIssue identificationSituation analysisCompany profile CAGR = 3.8%

23 ConclusionFinancial ProjectionRecommendationIssue identificationSituation analysisCompany profile

24 Conclusion Objective Maintain market leadership in premium cruise line industry Strategy VALUE strategy EuroGrowth strategy Outcome Maintain 100% capacity without diluting brand image & keeping profits steady Set foundations of long term expansion into European market ConclusionRecommendationIssue identificationSituation analysisCompany profileFinancial

25 ConclusionFinancial ProjectionRecommendationIssue identificationSituation analysisCompany profile Q&A

26 Appendix Presentation Slides Company Profile Stock Performance – Index Stock Performance – Competitor Fundamental Ratio Customer Damage of Crisis Economic Recovery Issues Identification Recommendation Value Strategy 1 Value Strategy 2 Eurogrowth 1 Eurogrowth 2 Eurogrowth 3 Eurogrowth 4 Eurogrowth 5 Appendix Slides WACC Assumptions NI Assumptions Calculations Sensitivity Analysis, contd. Whole Incre. Analysis SWOT Analysis Treasury Yield Spread Overcapacity Concern Financial Ratio Risk and Mitigation Rest of the World Strategy Eurogrowth Supporting 1 Europe Decision Table Europe-Raw Data Implementation Schedule Incremental Analysis Incremental Revenue Graph Sensitivity Analysis Conclusion

27 Key Assumptions Debt weight: 28.83% (2008) Equity weight: 71.17% (2008) Cost of debt: 7% Expected return on the market: 6% Cost of Equity: (.12)+[1.35( )] = 7.68% WACC: (.7117)(7.68)+(.2883)(7)*(1-.35) = 6.78% Financial ProjectionRecommendationIssue identificationSituation analysisCompany profile

28 Overcapacity concern 5-7 years Price Time Price Q D S A B

29 Financial Ratio Carnival CorporationRoyal Carribean CruiseStar Cruise Revenue11,839,00013,033,00014,646,000Revenue5,229,5846,149,1396,532,525Revenue1,967.32, Net Income2,279,0002,408,0002,330,000Net Income633,922603,405573,722Net Income(156.2)(200.8)(79.5) Total Asset30,552,00034,181,00033,400,000Total Asset13,393,08814,982,21816,463,310Total Asset6,139.76,428.62,568.1 Total Equity18,210,00019,963,00019,098,000Total Equity6,091,5756,757,3436,803,012Total Equity1,943.31,972.61,886.5 EPS EPS EPS(0.024)(0.032)(0.014) Price Price Price Profit Margin19.25%18.48%15.91%Profit Margin12.12%9.81%8.78%Profit Margin-7.94%-7.79%-18.21% ROA7.46%7.04%6.98%ROA4.73%4.03%3.48%ROA-2.54%-3.12%-3.10% ROE12.52%12.06%12.20%ROE10.41%8.93%8.43%ROE-8.04%-10.18%-4.21% P/E Ratio P/E Ratio P/E Ratio(80.83)(64.38)(189.29) N/A

30 Financial Assumptions All boast are at 100% capacity Ticket yield per customer goes down by 10%; otherwise would have been down 20% With vouchers onboard spending yield per customer stays the same, otherwise would have decreased 20% Starting 2011 customer yield for onboard expenses + other increase at 10% per year. Otherwise yield onboard per customer would have only increased 6% (change from 2006 to 2008) Starting 2011 customer yield per ticket increase back to and increase 10% per year afterwards (change from 2006 to 2007). Otherwise yield per ticket would only have increased 3% per year Ticket sales from Europe increase at 25% (average for Carnival from 2006 to 2008) beginning 2012; otherwise would have been 10% Packaging costs for bundling activities packages are 15% of onboard per-customer yield Assume 1 in 100 booked guests will cancel and require job insurance refund and ticket will NOT be able to be made up with further purchases Loyalty programs give all customers next $100 off their next cruise. 45% of customers will redeem this in 2 years from their original cruise. Airline partnerships cost HAL an average of $150 a round-trip ticket per customer. We increase these partnerships by 20%. 6% is the estimated market return

31 Revenues Passenger tickets (USA)6,632,4396,672,386 7,139,4537,639,214 Onboard and other (USA)2,032,4832,044,7242,126,5132,211,5742,300,036 Passenger tickets (Europe)736,938741, ,583980,470 Onboard and other (Europe)225,831227,192236,279245,730255,560 Total9,627,6919,685,6779,776,55410,449,33911,175,280 Expenses Production of new advertising campaign1,000, Vouchers2,258,3142,271, Activity Bundles3,387,7943,408,198 Market development & maintenance (Europe)1,000,000 2,000,000 1,000,000 Job loss insurance costs73,69474, Advertising costs - Europe01,000,000 Airfare and other partnerships1,613,8501,623,570 Total9,333,6529,377,8218,031,768 7,031,768 Budget37,165,995 Net Income294,039307,8561,744,7862,417,5714,143,512 NPV (discounted at 6.78%)7,285,476

32 Key Calculations Carnival Current customer yield (tickets) = 11,210 M Carnival Current customer yield (onboard + other): 3,436 M Carnival 2008 customers: 8,183,000 Carnival Advertising: 524 million in 2008 HAL Current capacity: 21,088 HAL ticket yield per customer: 11210/8.183 = HAL onboard + other per-customer yield: 3436/8.183 = HAL added capacity in 2010: 2,106 HAL cruises per year: ~500 HAL cruise ships: 14 Cruises per cruise ship: 500/14 = 35 HAL average capacity per ship: 21,088/14 = 1506 HAL passengers per year: 1506*35=52,720

33 SWOT Analysis Strengths Mother company has 50% market share Economies of scale High customer loyalty Can move ships around Cooking classes (add more value) Mariner Society Loyalty program 1 more ship to enter Weaknesses Most revenues between May-Sept Uncertain market positioning Few distribution channels in Europe Lack of travel agent relationships in Europe Over 90% revenue from N. America Fixed cost industry Opportunities Partner with “frugal” site Generation X & Y Asia market New Seattle port Threats Retirees lost money Rich sensitive to stock market Discounts from all other travel locations Brand dilution

34 Risk and Mitigation RiskMitigation Offering lower discount could lead to competitive disadvantages (compare to competitors) Cannibalizing Carnival’s Corporation other cruise line in Europe Exchange Rate Risk for International operation Recession could last longer than expected which could delay expansion plan into Europe In addition to providing more value to the product, psychological effect of “discount” is still applicable for use in advertising. Work closely in CCL to try to avoid operating in the same route at the same time International Portfolio for currency hedging Still able to send sales team to establish a market and develop a relationship with local travel agencies and necessary media channel and prepare to capture the market when recovery begins

35 Rest of the world strategy Asia, Middle East, South America, Australia / Oceania, and Africa The emerging of new economies has present a good opportunity for expansion; however, there are still doubts whether these countries would be able to generate constant demand for the long run or not (repetition) Therefore, the current strategy in these areas is to target ultra high income group through international travel agencies Establish relationship with international travel agency which specialized in ultra high net worth individual  these people are very price inelastic Offer high class tour package (Once in a lifetime experience) which would generate abnormal revenue to the company. In the future (5-10 Years), strategy in these areas can be revaluated for potential expansion, pending the change for favorable market condition.

36 EuroGrowth Supporting 1 Travel Weekly (UK); 10/30/2008 TW Cruise Supplement, p5-5, 1/2p, 1 color GROWTH FOR THE TOP FIVE EUROPEAN MARKETS FOR CRUISES UK11% Germany8% Italy24% Spain32% France16% AVERAGE18%

37 Europe

38 Citation for EuroGrowth ECC chairman and chief executive of Carnival UK David Dingle. "Cruise statistics 2008." Cruise Norway Web.17 Apr "Baby Boomers Population | Aging Baby Boomers | Women Baby Boomers." PRLog 22 Aug 2008 Web.17 Apr 2009.

39 Decision Table Europe COUNTRYGDP per capitaRankPopulationRankClimateRank Current Cruise Market (million)RankAccess to portsRank TOTAL UK ports5 20 Spain ports2 26 France ports2 25 Italy ports3 24 Germany ports5 20 Netherlands ports6 32 Norway ports1 21 Sweden ports5 32 Denmark ports5 33 Belgium ports6 35 RANKING RANGES 26,000-28, million10 Short winters41-100, ports6 29,000-31, million9 Medium- short winters3100, , ports5 32,000-34, million8 Medium- long winters2200, , ports4 35,000-37, million7Long winters1300, , ports3 38,000-40, million6 400, , ports2 41,000-43, million5 500, , ports1 44,000-46, million4 600, , ,000-49, million3 700, , ,000-52, million2 800, , ,000-55, million1 900,000 +1

40 Citation for Value t/Excerpt/0,7211,46294,00.html t/Excerpt/0,7211,46294,00.html obile/twitters-tweet-smell-of-success/ obile/twitters-tweet-smell-of-success/

41 Appendix N Sensitivity Analysis 909,076,2929,130,9589,259,2859,884,76310,552, ,661,74810,092,11110,233,94610,925,26511,663, ,627,6919,685,6779,776,55410,449,33911,175,280 Net 95%15,59123,86714,79,1052,104,5843,772,486 NPV (discounted at 6.78%)5,965,590 Net 105%404,608407,8191,950,5902,641,9084,380,116 NPV (discounted at 6.78%)8,036,416 Net Income294,039307,8561,744,7862,417,5714,143,512

42 Treasury Yield Spread Model Prior to recession, the spread will become negative, creating high probability of recession After recession, widen yield spread indicate the sign of recovery

43 Treasury Yield Spread Model (Continue) Date10 Year Treasury Yield3 Month Treasury YieldSpreadRec_prob Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar


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