Dicore international Role: Paul Calvin, senior vice president and general manager of the north american division of Dicore international Decision: Whether dicore should enter the southwestern united states If so , he had to outline the expansion strategy along with its associated risks and the necessary actions to mitigate those risks. Goals/ constraints: - Increase profitability - Boosyt share price - Increase drill utilization across Dicore and NA - Want to loch in 2014 contracrs ASAP and start SW united operations by Q4 2013 - 20% hurdle rate or 5 year payback minimum ace[table rate Constraint: need to determine if future expansion into SW united states is a good option- if so , focus on rotary or core? - organic growth vs blackstone acquisition - -appropriate mgmt. structure - must include financing financing details as part f action plan and provide contingency’ - must outline the exoansion strategy and detail risks and plans to mitigate risks HISTORY: Just look at the management Change! Did Dicore have enough cash to finance the expansion internally Perform: Cash budget analysis: because there’s a cash problem Statement of cash flow analysis? Cash management issues • New financing is required • Understand the current financial position of the company Ratio analysis? • Anytime an SCF is analyzed • Understand the past • Profitability assessment (vertical) Differential analysis? • Assess a future opportunity Business Size-up : Types of analysis may include: industry/market, PEST, consumer, competitive and corporate capabilities - What factors are working for the company? - What factors are working against the company? Industry analysis: 2. Financial Size-up Understand the past financial performance of the business Types of analysis may include: statement of cash flows preparation, and interpretation, ratio preparation and interpretation, contribution and subunit What does this mean for future opportunities? Should changes be made? External and internal analysis: [ast: Rotary and core drilling segment analysis options: primary : future expansion into SW inited States ( qualitative) rotary or core? Organic growth vs. blackstone acquisition ( differential plus qualitative Appropriate mgmt. structure; important in this case because If you acquire blackstone someone might leva or stay and calvin wants to retire in 5 years - recommendation to 2executive committee? How to finance? - Action plan and contingency plan! External analysis: PEST:, TRAde consideration< Competition, PEST: - Regulations - We are tied to another industry - Industry profits decreased last year, stock prices decreased so we have to deal with it , because it affcts our shares - issue bonds, or shorten your costs , days of receivables more PEST: environmental :we have to be aware of using the dril in the ground and casue ussues, cause we have to pay , and some companies had some issues and went bankcrupcy when metal prices are low, it’s uneconomical to make issues..USExploration market is tied to gold prices there are declining quickly tougher to access capital because of poot stock performance- investors recation to margins will likely decrease in the future bc if you wat to comete Customers – Majors vs Juniors - Majors hare more stabke , offering more - Majors often fund internally and rely less on equity - majors can still continue as the stock prices decreasing while juniors cant - majors demand more in tems of experience and safety records. They look fro prices, quality , and safety. Yo must be known and proven - we kind of fit here as we are all over the world and Competition: Competition is mainly regional with very few international drilling companies Competition in the junior is local Two major competitors- the competition in the major market is mre extensive- they rend to value qulity and service Boart Longyear - lager than dicore - reeent issues in SW with turnover and loss experience – could use this as an opportunity - manufactures drilling equipment as well, diversity revenue - wide range of service- able to service variey of needs for mine Major drilling more focused on core Drilling twice dicore size excellent service – mainly on core drilling because rotary requires a large service variet , MD is less able to serve majors what we need to be ood at and aware of ? inorder to gain competitive advantage? An opportunity to position yourself in Core drilling and rotary Offer more options for the majors to get them Internal ANALYSIS: what are we good at? Bad at ? what do we need? Thoughts would wake you up at night? - We’ve been successful in the past investments and expansions - Corporate capabilities Financials: o Rotary vs. core o Past profitability o SCF analysis o Ratios analysis Write in the exam about how experience you are Dicire is relatilvely new in the mineral explorations bus this is where their ervenuws are from - rapid growth was achieved through acquisition- experience with M&A may help with any future acquisition. - Retire I nfive yearsthen get a new VP that can work with him in the upcoming years so that ghe gets the knowledge and sont get lost Have acquires many skills and cotacts/ knowledge with mgmt. - experience with drilling technologies case facts about Core drilling and Rotary Drilllings increase utilization bc oens 33% get rid of the bonus concern but this happens ith the industry too, so figure this out and maybe ask for voth wuality and speed to get a bonus dicore owns 6 rotary drills with 85% utilization which is good sub unit Evaluaiton –Rotary vs Core Second day Future expansion? - Rotary/core - Organic/ blackstoen/both? MGT strucsture? Finance -Q4 2014 - 20% ROI/ 5 yr payback pros and cons : after the Ratio analysis -despite our gross margin, our operating margin is better than the competitors -50% of our assets financed with debt may not be able to take more debt pros and cons for expansion: prosL given cons: a lot of regulations time consuming and complicated may delay entry smaller competitos competent at complex drilling poor performance in SW will have implications for dicore’s international reputation FIT?? Expansion or not?? How do the options fit with the analysis thus far? Must assess organic groeth vs bs - do qualitative analysis what numbers? Organic growth Analysis: how does this fit? Pros and Cons? -buils in your reputation, avoid that added stress( Goal) pros Cons buils in your reputation, avoid that added stress( Goal) Competers directly woth MD and smaller -increase utilization core drilling Drillers low ris bc already large portionof assets Must establish new administrative office have alreasy been pearchased , very Licensing process could delay strat up little investment required then caluculations pros of BS Cons :BS for BS – you don’t have to buys and transfer new equipments ( avoid massive capital investment) if you buy BS their reputation go down while it’s good for you if they stay they compete with you and someone else might come and buy it and compete with you -it’s faster way to grow but harder to manage - It takes double the time to start 6 months could male it and could not management two separate sections , so need to decide how to set this up -can we keep wilemson in the compmany with his management need to make sure who to hire and if he’s going to leave soon and retire or not then contingency plan : what if he leaves -can take advantage of their reputation and expertise -gain access to connections/ contacts through wilemson helps to mitigate personnel hiring issues -easier to get ti the core drilling market possible operationa synergies between the two segments of business the flexibility of rotary drills allows for a variety of services, results in higher operation - requires a subatantial investment 8.32 miliion
