B&G Goes to India
Source: www.pantaloon.com
Agenda
Company Overview
International Growth Opportunities
Reason for Choosing India
Mode of Entry
Financing the Joint Venture
Impact on the Overall Strategy of B&G
Conclusion
Company Overview
1889: Bloch & Guggenheimer starts producing pickles and peppers.
Dec. 1996: Renamed B&G Holding corporation, the company implements an
aggressive growth strategy by acquisition.
1997
1999
1999
Today: B&G Foods, Inc has 18 leading brands.
1999
2003
Company Overview
Organization
Headquaters located in NJ
5 Facilities & 4 distribution centers
Customers
Customers include grocery store chains and food service institutions
Wal-Mart accounted for 10.4% of 2006 Net Sales.
2006 Financial results
Net Sales : $ 411.3 million, +8.4% compared to 2005
Net Income: $ 11.6 million or 2.8% of sales
International Growth Opportunities
2007 Global Retail Development Index TM (GRDI)
Source: Euromoney, Wold bank, Global Competitiveness Report 2005-2006, A.T Kearney Analysis
2007 GRDI Score
100
0
Brazil
Low Country
Risk
Chile
Ukraine
High Market
Attractiveness
China
Low Market
Saturation
India
Urgency To
Enter Market
International Growth Opportunities
2007 GRDI Country Attractiveness
(0 = high risk, 100 = low risk)
Country Risk
100
Source: A.T Kearney Analysis
Slovenia
United Arab Emirates
Mexico
Hungary
To consider
Low priority
Chile
Lativa
Thailand
Lithuania
Croatia
Bulgaria
Romania
Size of bubble = sales
China
Malaysia
India
Saudi Arabia
Russia
Brazil Tunisia
Vietnam
Turkey
Colombia
Philippines
Indonesia
25
On the radar screen
Peru
Egypt
Ukraine
Uruguay
Market Potential (0 = low potential, 100 = high potential)
100
International Growth Opportunities
Window of Opportunity Analysis
Source: A.T Kearney
Opening
Peaking
India (2003)
GRDI Ranking
Closing
China (2007)
High
Low
Declining
India (1995)
Ukraine (2007)
India (2007)
Reasons for choosing India
India Economy
One of the fastest growing economy in the world with an 8% to 9%
annual growth
Agriculture accounts for 28% of the GDP.
Market potential
Estimated food processing industry of $ 70 billion
Estimated growth rate of 9% to 12% per year
Reasons for choosing India
Demand Drivers
Rapid urbanization with an estimated increase of urban population from
30% today to 50% in the next 10 to 15 years
Rising per capita income
Changing lifestyles
Government Policies
Creation of new laws to allow 100% Foreign Direct Investment is in
progress
Ministry of Food Processing Industry has a program to support and
encourage food processing development.
Several tax incentives
Heavy Investments to upgrade infrastructure
Mode of Entry
Foreign Direct Investment (FDI): Joint Venture with 50:50 equity based
model
Sourcing and Distribution channels
Culture and Marketing
Operations
Finance availability
Legal Form of Entity: Joint venture Subsidiary registered as Private
Corporation under Indian Companies Act.
Fund operations by equity, debt and internal accruals
Repatriation of dividends
Treated as domestic company for tax purposes
Mode of Entry
Joint Venture Partner
“Vision: Dedicated to the health and well
being of every household”
Founded in 1884
Fourth largest FMCG* Company in India
Has a strong distribution network that covers
175 towns and 75,000 retail outlets across India
Plans to foray into processed food and ready-to-eat category
Processed Fruit juices under brand name of “Real”
* Fast Moving Consumer Goods
Mode of Entry
Alternate Distribution Opportunities
In 2006, 97% of food retail sector is operated by small independent stores
but major Indian company are investing to create supermarket chains:
Reliance industries invested $750 million.
Food Bazaar launched its supermarket chain in 2002 and had already
built 47 supermarket by end of 2006.
Godrej Agrovet had created a chain of 18 supermarket in less than a year
and plans to open 1000 supermarkets in rural India in the next 5 years.
Walmart & Bharti Group signed joint venture.
Mode of Entry
Market Penetration Strategy
Short Term
Fruit products - Variant of Polaner product line
Utilize Dabur’s Fruit processing capabilities
Mid Term
Target urban markets
Ready to eat products segment – variants of Ortega, B&M
Long Term
Diversify product lines through acquisitions
Financing the Joint Venture
Investment
Building of a facility with a 750 tones capacity
Plant construction cost and operational cost parameters are
proportionally derived from samples provided on GOI sites.
Start Up Costs
Building
$
58,300
Plant & Machinery
$
181,275
Miscellaneous Assets
$
7,000
Permitting, interim interest other misc setup costs $
13,500
Contingencies 10%
$
24,658
Working Capital Requirements
$
13,750
Total
$ 298,483
Means of Finance
Partner Contributions $
98,499
Bank/Other Financing $
199,983
Total
$
298,483
Financing the Joint Venture
Production and Sales revenue Estimate
Capacity utilization will increase as sales increase
Excess capacity is required to handle seasonal character of raw materials
PRODUCTION AND SALES ESTIMATE
Year
1
2
3
4
5
Installed Capacity
745.4
745.4
745.4
745.4
745.4
Capacity Utilization
30%
40%
50%
60%
60%
Production (tonnes)
223.6
298.2
372.7
447.2
447.2
Sales
$ 209,190 $ 290,077 $ 377,100 $ 470,621 $ 489,445
Financing the Joint Venture
Cost assumptions
Costs are based upon a percent of sales
PRIMARY COST ASSUMPTIONS
(% of Sales unless otherwise noted)
Raw and Packaging Materials
Utilities
Salaries
Repairs & Maintenance
Selling and Distribution
Administrative Expenses
52.22%
3.00%
10.00%
0.83%
8.00%
1.33%
Financing the Joint Venture
Year
Sales Revenue
Cost of Sales
1
209,190
136,434
2
290,077
189,195
3
377,100
245,953
4
470,621
306,949
5
489,445
319,227
Gross Profit
Gross Margin
72,752 100,889 131,155 163,682 170,229
34.78%
34.78%
34.78%
34.78%
34.78%
Total Operatig Expenses
21,268
28,413
36,100
Profit before Interest,
Depreciation & Taxes
Net Operating Margin
51,489
24.61%
72,470
24.99%
95,047 119,331 124,195
25.21%
25.35%
25.38%
Depreciation & Amortization
Interest Expense
24,900
31,997
24,900
30,717
24,900
29,438
24,900
28,158
24,900
26,878
Income Before Taxes (IBT)
IBT Margin
(5,413)
-2.59%
16,852
5.81%
40,710
10.80%
66,253
14.08%
72,417
14.80%
884
2,317
3,850
4,236
$ (5,413) $ 14,493
$ 35,010
$ 56,978
$ 62,279
Taxes
Net Income
-
44,361
46,024
Financing the Joint Venture
Breakeven
$700,000
Total Revenue, Cost
$560,000
$420,000
$280,000
$226,000
$140,000
Fixed
Costs
Total Revenue
Total Cost
$0
0
150
241
300
450
Output (tonnes)
600
750
Financing the Joint Venture
Break Even Sales and Production levels
Year
Fixed Costs
Variable Costs per tonne
Sales Revenue per tonne
Break Even Tonnes
Break Even Sales
Projected Sales
$
$
$
$
$
1
76,422
618
935
241
225,138
209,190
$
$
$
$
$
2
81,613
643
973
247
240,430
290,077
$
$
$
$
$
3
87,295
668
1,012
254
257,169
377,100
$
$
$
$
$
4
93,496
695
1,052
262
275,440
470,621
$
$
$
$
$
5
93,723
723
1,094
252
276,106
489,445
Impact on the Overall Strategy of B&G
Small Financial Impact
Low start up cost shared 50/50 with Dabur
Favorable environment to finance through debt
Advantages for B&G in the US
Import from India of “exotic” products for the North American market
Delocalization of some US market products to lower labor cost area
International growth of B&G
India is a first step toward international growth (China, Russia, Brazil…)
Long term, India could become a substantial source of revenue
Conclusion
India provides growth opportunity for B&G.
Foreign Direct Investment in India through Joint Venture
Dabur as a Joint Venture Partner
Mid-term objective of product line diversification
Long-term objective of growth by acquisition
Questions & Answers