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Valuation Measuring and managing the value ofpanies - Koller T.

Koller T., Murrin J. Valuation Measuring and managing the value ofpanies - Wiley & sons , 2000. - 508 p.
ISBN 0-471-36190-9
Download (direct link): valuationmeasuringandmanaging2000.pdf
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We use a simpler approach to forecasting PPE. We make an assumption about the steady-state amount of net PPE it takes to generate each dollar of sales. This is supported by the observation that Heineken's net PPE-to-revenues have remained flat. The only major change in this ratio occurred when the company made acquisitions in 1996. (Before 1996, it was 45 percent; since the acquisitions it has been 41 percent.) We forecast that net PPE will remain the same as in 1998, which is about the same as the average for 1996 to 1998. These assumptions probably would not hold for a high growth company or in an inflationary environment.
We will also assume that fixed assets are used until they are fully depreciated and that they have no material scrap value. So the amount of assets retired from gross plant, property, and equipment each year will equal the amount of the reduction in accumulated depreciation. We have set this level at 1 percent.
Dividends
Let's assume that dividends remain the same percentage of net income as in 1998. As a result, Heineken would build up large amounts of excess cash, given its high cash flow and little debt. To avoid this, we have projected that Heineken will eventually distribute excess cash to shareholders. If Heineken were a U.S. company, we would assume that it would repurchase shares. As a Dutch company, Heineken's ability to repurchase shares is limited. Instead we assume that Heineken periodically pays out a large special dividend. (Unilever, a major Anglo-Dutch company, began paying out a similar special dividend in 1998.) These dividends are declared in the second and fifth years of the forecast.
Other
Dutch companies can write off goodwill as it is incurred, rather than amortizing it, as is the case in the United States. Thus, we forecast that Heineken will write off goodwill immediately upon acquiring another company. We assume that Heineken will pay a market-to-book value of 2 for acquisitions, and thus would incur goodwill equal to the book value of assets taken on. We assume that growth in revenues
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is proportional to growth in book value of acquisitions. If that is the case, then goodwill that is written off will be equal to our forecasted revenue growth rate through acquisitions multiplied by the invested capital at the beginning of the year.
We model the existing debt to be paid off as given in the notes to the accounting items in the annual report. We assume that the short-term debt is the amount paid off in the year of a given debt's maturity.
Pension liabilities declined in 1998 as a result of a substantial payout to retirees. Without additional information from the company, we expect this level to remain about the same.
Exhibits 11.18 to 11.24 contain the resulting projected income statements, balance sheets, and calculations of NOPLAT, invested capital, free cash flow, and economic profit
for the years 1999 to 2003.
Exhibit 11.18 Heineken—Forecast Income Statements
/ \
Business as usual case (NLG million) 1998 Forecast 1999 Forecast 2000 Forecast 2001 Forecast 2002 Forecast 2003
Revenues 13,822 14,796 15,551 16,313 17,406 18,189
Duties, levies, and trade taxes (1,806) (1,933) (2,032) (2,131) (2,274) (2,376)
COGS-Marketing (1,741) (1,864) (1,959) (2,055) (2,193) (2,291)
COGS-Merchandising (1,597) (1,709) (1,796) (1,885) (2,011) (2,101)
COGS-Packaging (1,448) (1,550) (1,629) (1,708) (1,823) (1,905)
COGS-Raw materials (738) (790) (830) (871) (929) (971)
COGS-Other (1,923) (2,059) (2,164) (2,270) (2,422) (2,531)
Personnel costs (2,295) (2,457) (2,582) (2,709) (2,890) (3,020)
Amortization of goodwill 0 0 0 0 0 0
Depreciation expense (822) (867) (911) (956) (1,020) (1,065)
Operating income 1,453 1,568 1,648 1,729 1,844 1,927
Interest and dividend income 189 59 46 27 35 30
Interest expense (117) (138) (97) (79) (66) (45)
Earnings before taxes 1,525 1,489 1,596 1,676 1,813 1,913
Income taxes (518) (503) (539) (566) (613) (647)
Minority interest (26) (42) (45) (48) (52) (54)
Income before extraordinary items 981 944 1,011 1,062 1,149 1,212
Extraordinary items (after tax) 9 0 0 0 0 0
Net income 981 944 1,011 1,062 1,149 1,212
Statement of changes in equity
Beginning equity 5,103 5,066 5,512 5,421 6,112 6,657
Net income 981 944 1,011 1,062 1,149 1,212
Common dividends and repurchases (254) (245) (1,011) (275) (304) (1,212)
Revaluations (151) 0 0 0 0 0
Goodwill written off (612) (253) (91) (95) (299) (108)
Ending equity 5,066 5,512 5,421 6,112 6,657 6,550
^_____________________________________________________________________________________________________________________________v
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Exhibit 11.19 Heineken—Forecast Balance Sheets
Business as usual case (NLG million) 1998 Forecast 1999 Forecast 2000 Forecast 2001 Forecast 2002 Forecast 2003
Operating cash 283 302 318 333 356 372
Excess marketable securities 1,806 1,409 820 1,077 935 530
Accounts receivable 1,218 1,304 1,371 1,438 1,534 1,603
Inventories 996 1,066 1,120 1,175 1,254 1,310
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