The document discusses strategies for Cerebration, an Asian travel company, to increase profits over the next 2-4 years and build long-term value. It outlines challenges from the global economic crisis and increasing competition. The strategy focuses on expanding in core Asian geographies, expanding the user base, and improving the user experience through technology, marketing, and personnel changes. Financial analysis projects increasing cash balances, profits over $10 million by 2012, and a 56% increase in market value through responsible spending and positive ROI investments.
10. Singapore China, Hong Kong, Macau Philippines Malaysia Thailand Indonesia 6 core geographies
11. Country Projected Travel Increase 2008-2012 % Originating from Core Region (Source Markets) Singapore 26% 68% China 26% 58% Hong Kong 19% 62% Philippines 52% 16% Malaysia 61% 72% Thailand 32% 25% Indonesia 46% 45%
55. Appendix Strategic Implementation SWOT Analysis SEO Examples Environmental Analysis Considerations Transnational Matrix Recommendation Market Core Region Analysis Cost Cutting Measures Global Departures Financial Summary Online Booking Trends Sources Consulted Customer Segment Analysis Key Population Trends
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57. Environmental Analysis Demographic Trends Aging population while median age stays the same Macroeconomic Impacts Economic downturn and financial crisis Growing middle class seeking to travel Socio-Cultural Influences Increasing online usage Acceptance of e-commerce Political-Legal Pressures Overall political stability with uncertainty in Thailand and Indonesia Technological Developments Internet penetration Mobile penetration Global Trade Issues Fluctuating exchange rate
58. Transnational Matrix Low High Low High Global Integration Local Responsiveness Technology Operations Sales Marketing
59. Core Region Travel Analysis Country 2008 Forecasted Arrivals (mm) 2012 Forecasted Arrivals (mm) Projected Increase from 2008-2012 Source Markets Malaysia 24.01 38.77 61.33% 71.9% Philippines 3.55 5.00 40.80% 16.0% Singapore 11.00 13.90 26.30% 67.7% Indonesia 6.35 9.28 46.14% 45.0% Thailand 15.59 20.65 32.43% 25.4% Hong Kong 30.98 36.95 19.23% 61.5% China 141.86 179.09 26.20% 58.4% Total 233.34 303.64 30.12%
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61. Current Online Travel Booking Trends Source: Thought leaders in Marketing Roundtable 2008 Report
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63. Key Population Trends Asia Pacific Region’s mean age is increasing but at relatively slow rate. The 20-54 age cohorts are stable segments that should be targeted
68. Financial Appendix Overview Financial Statement Highlights Cash Balance Grows Significantly Profit Growth Key Ratios Sources of Financing Revenue and Profit by Business Employee Salaries Online Leisure Revenue Growth Investments and Costs Results No New Investment Forecast Business Travel Opportunity Results Mobile Opportunity Adoption Rate Results Mobile Growth Long term growth forecasts Valuation Discount Rate Free Cash Flows Sensitivity Comparables Uncertainties Margin Analysis Drivers of Value Top Uncertainties Delaying Investments 1 Year Base Case Assumptions Income Statement Balance Sheet Assumptions Balance Sheet Statement of Cash Flows
70. Cash Balance Grows Significantly ‘ 09 ‘ 10 ‘ 11 ‘ 12 Importance of maintaining strong cash reserves 1. Signal company strength in a tumultuous period 2. Maintain dividend to shareholders 3. Preserve resources to pursue growth 4. Protection against exogenous shocks
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74. Revenue and Profit by Line of Business Implication: AST’s core business, online leisure, will continue to be the most profitable and should receive the primary focus
76. Online Leisure: Revenue Growth Revenue growth in 2007 and 2008 equaled 23.3% and 21.6% respectively With global downturn, cut growth by 25%-50% in 2009 and 10-25% in 2010 before returning to above-historical levels
84. Mobile Distribution: Results While not a driver a company value from 2009-2012, the mobile distribution channel represents a source of significant future growth for AST (Amounts in S$’000) 2010 2011 2012 Gross Profit 46 86 1,697 All Additional expenses 30 58 1,059 Total After-Tax Incremental Profits 14 24 549 Total Investment 262.5 752.5 402.5 ROI 5.2% 3.2% 136.3%
87. Valuation: Discount Rate Objective: Compute a reasonable return on equity, r e , at which to discount AST’s free cash flows * http://8percentpa.blogspot.com/2007/06/price-earnings-ratio-and-earnings-yield.html Parameter Value Method Risk-free rate (r f ) + 1.32% Yield on 5-year government bond 3/16/09 (matches investment horizon) Company beta (β) x 0.996 Regressed last 5 years of AST monthly returns vs. Straits Time Index (STI) returns Market risk premium (r m -r f ) = 4.00% Subtracting monthly 5-year government bond from market return yielded negative premium so outside source consulted* Return on equity (r e ) 5.31% Applied Return on equity (r e ) 10.31% Return on equity doubled because (1) it seems rather low (risk-free rate near historical lows) and (2) new investments bear risk – a higher discount rate accounts for such risk
93. Which Uncertainties Drive Value? Gross margins have largest effect on firm value. Business market penetration rate has second biggest effect Dedicating resources to capturing unmanaged business market increases firm value
98. Base Case: Key Balance Sheet Assumptions Item Assumption (All amounts stated in $S‘000) Cash 12% of revenues Receivables 7% of revenues Inventory 6% of cost of sales Prepayments 7% of revenues Tangible Fixed Assets Grow 500 each year Intangible Assets Grow 2,500 in 2009, 1,000 in 2010, and 500 annually beyond in 2011 and 2012 Trade and Other Payables Benchmarked to cost of sales at past 3-year average Deferred Income and Taxation Benchmarked to revenues at past 3-year average Long-term Borrowings Grow 2,000 in 2009, 2,000 in 2010, and stay constant in 2011 and 2012 Shareholders Fund Plug value