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Value Creators Report 2003

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Value Creators Report

Back to Fundamentals

December 2003

A Repor t by The Bos ton Consu l t ing Group

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Table of Contents

ACKNOWLEDGEMENTS 4

FOREWORD 5

EXECUTIVE SUMMARY 7

FUNDAMENTALS ONCE AGAIN DRIVE TSR 9

KEY INGREDIENTS FOR SUCCESS 17

Overview of the core principles of value creation 17

Profitability above the cost of capital is critical 19

Growth makes the biggest contribution to TSR 28

The importance of relative expectation premiums 33

A note on dividends 37

CEO CHECKLIST 38

REGIONAL AND INDUSTRY RANKINGS 41

APPENDICES 78

Technical notes 78

How BCG can help 84

BCG contact details 88

4

Acknowledgements

Dr. Daniel Stelter, a vice president based in Berlin, Germany, leads BCG's worldwide Corporate Finance &Strategy practice. Dr. Stelter initiated this report and the analysis the report is based on (e-mail address:[email protected]).

Dr. Pascal Xhonneux, a vice president based in Düsseldorf, Germany, is head of BCG's Corporate Finance &Strategy practice in Germany. He was responsible for the project team's conducting the analysis and completing thereport (e-mail address: [email protected]).

His co-authors include:

Mr. Mark Joiner, a senior vice president based in New York, who leads BCG's Merger & Acquisition and CorporateFinance expertise worldwide (e-mail address: [email protected])

Mr. Eric Olsen, a senior vice president based in Chicago, who leads BCG's Value Management expertise world-wide (e-mail address: [email protected])

Mr. Gerry Hansell, a vice president based in Chicago, who heads BCG's Corporate Finance & Strategy Practicein the U.S. (e-mail address: [email protected])

Mr. Brad Banducci, a vice president based in Sydney, who heads BCG's Corporate Finance & Strategy Practice inthe Asia Pacific region (e-mail address: [email protected])

The authors would like to thank Ms. Kerstin Biernath and Mr. Martin Link, both research analysts, as well as Dr. FrankJ. Plaschke, a project leader in BCG's Munich office, who helped create the framework for the analysis and con-ducted the research.

The Corporate Finance & Strategy Practice at BCGThe Boston Consulting Group's Corporate Finance & Strategy practice (CFS), with its dedicated experts, serves com-panies in developing, realizing, and maintaining superior strategies for long-term value creation.

Sustaining long-term value creation—as the overall goal of any strategy—demands thorough understanding of ourclients' businesses and relevant markets. In cooperation with our industry experts, we develop industry- and client-specific strategies using our broad set of proven methodologies: from portfolio analyses to value managementframeworks to M&A and PMI operational guides.

When a defined strategy requires capital market transactions, our Corporate Finance experts work as independent,trusted advisors to our clients. Our support is not solely focused on the transaction process: we also concentrate onthe transaction's value with respect to its impact on and fit with the strategy.

Such a move can only be realized when integration into the newly created company goes smoothly. With our broad,proven experience in post-merger integration, we are a well-known partner for companies worldwide when it comesto realizing the full value of M&A transactions.

With our consultants, analysts, and researchers worldwide, we maintain a global network of corporate finance andstrategy experts to best serve our clients' needs.

ACKNOWLEDGEMENTS

Layout & Design: Ellen Treml, Titelbild copyright: Ellen Treml

5

As we have consistently demonstrated in previous editions of our annual Value Creators Report, now in its sixth year,strong improvements in fundamentals are a prerequisite for sustaining superior shareholder returns: in the long runexpectation premiums—the difference between market and fundamental values—vanish, leaving just fundamentalsto "keep the show on the road." In short, firms control their stock market destinies. This year's report vindicates thisview more firmly than ever before.

In line with our forecasts in earlier reports, which often ran against the grain of popular thinking, especially duringthe "bubble years," average expectation premiums have continued to decline towards zero in most regions and indus-tries over the last two years. Nearly all of today's top value creators, measured by total shareholder returns (TSR),now owe their success to strong fundamentals. Moreover, this long-overdue return to fundamentals wasn't simply dueto a fall in expectation premiums but to an improvement in the key fundamental drivers of value creation: cash flowreturn on investment (CFROI) and profitable investment growth.

More specifically, the world's top value creators pulled the right levers at the right time. Although investment growthis the strongest driver of shareholder returns, as BCG's Corporate Finance & Strategy practice has demonstrated,companies should only pursue growth once profitability, measured by CFROI, is above the weighted average costof capital. Equally importantly, firms need to align their strategies with their core investors' expectations to ensure fun-damentals translate into shareholder value: "internal" intrinsic value creation has to be linked to "external" capitalmarket value creation.

This year's Value Creators Report highlights the key ingredients for generating and sustaining above-average TSR,based on analysis of over 4,000 listed corporations across the globe, plus case studies of individual companies. Atits heart is a detailed analysis of the core principles of fundamental value creation required to achieve superior share-holder returns. Over the last five years many firms have relied on high expectation premiums rather than strong fun-damentals to deliver shareholder value. Now that these premiums are declining, as our historical analysis indicatedthey would, smart companies will re-focus on managing their fundamental value-creation drivers

Foreword

FOREWORD

7

Fundamentals, not investors' expectations, areonce again driving total shareholder returns(TSR), leading to a significant change in thecomposition of the world's top value creators.

Between 1999 and 2002, fundamentals as a propor-tion of market value for our total sample rose from 49%to 77%. The increase among the top 10 TSR firms waseven more pronounced: 24% to 73%. However, thiswasn't simply due to a decline in the high expectationpremiums (the difference between market and funda-mental values) that characterized the stock market bub-ble of the late 1990s; it also reflects strong long-termimprovements in the leading companies' fundamentalperformances. Since 1999 the world's top 10 corpora-tions have increased their fundamental or "intrinsic"value by 25% a year on average. Similar trends are evi-dent in all regions and industries. This return to funda-mentals has substantially changed the composition ofthe world's top value creators. For example, only one ofthe "bubble period" companies remains in the topdecile today, while the balance of industries in thisdecile has shifted away from technology to a more rep-resentative cross-section, including more mature sec-tors such as utilities and automotive.

North America generated the biggest improve-ments in fundamentals during the periodbetween 1999 and 2002, followed by Asia, andthen Europe. The most fundamentally successfulindustry was pharmaceuticals.

Companies in North America improved their intrinsicvalue by 8% a year on average between 1999 and2002, compared to 6% in Asia, and 4% in Europe. Infact, the ten most successful firms in the world were allU.S.-based. In terms of industries, pharmaceuticals led

the way with an annual 12.2% rise in fundamentals,while retail weighed in with 9.8%, and pulp and paperwith 9.2%. Insurance brought up the rear with an 8.9%drop in its intrinsic value. Nevertheless, in this sector aswell as in the other ten industries analyzed, several cor-porations achieved substantial fundamental growthand shareholder returns well above the global average,demonstrating that superior value creation is possiblein all sectors.

Profitability above the cost of capital is one ofthe hallmarks of a top value creator. Moreover,these players push for increasingly high prof-itability.

A total of 81% of the top-decile TSR companiesachieved profitability above the cost of capital, com-pared to just 19% of firms in the bottom decile. Ouranalysis also reveals that companies and industries withthe highest profitability—measured by cash flow returnon investment (CFROI)—tend to have the highestinvestment growth, which is the biggest driver of share-holder returns. To lift profitability, the world's top valuecreators tend to increase both asset productivity andcash flow margins, although the emphasis on eachlever varies amongst industries. For example, utilities,pharmaceuticals, and technology relied heavily onincreasing cash flow margins, while retail, consumergoods, and automotive depended more on improvingasset productivity.

Profitable investment growth is the biggest driv-er of TSR.

Profitable investment growth accounts for around 70%of TSR. The importance of growth for superior share-

Executive Summary

EXECUTIVE SUMMARY

8

Executive Summary

holder returns was underlined by the fact that 80% ofthe top-decile value creators increased their investmentbase substantially, compared to just 21% of the totalsample of companies.

Few firms sustain above-average shareholderreturns for more than a few years. However amore holistic approach to value creation—onethat aligns firms' fundamental value-creationstrategies with their core investors' expecta-tions—can help companies overcome this prob-lem.

Less than 25% of the 1,675 firms analyzed1 beat theirlocal market indices for more than six years out of tenand only 13 companies outperformed their indices fornine out of ten years. Managing business units as a

portfolio of value creators and destroyers is a key steptowards resolving this issue. This enables companies tofocus units and capital on markets with the greatestvalue-creation potential, while shedding those with lit-tle or no competitive advantage in the future. All unitsshould be controlled with two main drivers of value cre-ation: profitability—as measured by CFROI, and prof-itable growth, with investment growth only pursuedonce profitability is above the cost of capital. Equallycritically, strategies to improve fundamentals, includingportfolio management, should be aligned with firms'core investors' expectations, including their riskappetite, dividend policies, and other aspirations.Research done in conjunction with Thomson Financialhas shown that corporations that do this are less likelyto be incorrectly valued and experience all the prob-lems this can entail—problems many firms have recent-ly encountered.

1 Analysis includes 1,675 companies that had a minimum market capitalization above $1 billion as of 31 December 2002 and were listed for more than ten years.

9

An historical reminder of the long-term impor-tance of intrinsic value.

As we showed in our previous two editions of our ValueCreators Report, expectation premiums are aninevitable feature of the world's capital markets in theshort to medium term, but in the long run they declinetowards zero (Fig. 1). In short, fundamentals drive long-term shareholder returns. After the longest running bullmarket in history, which saw expectation premiumsreach record highs in 1999 thereby accounting for 76%of the top 10 TSR players' stock market values, this

basic principle of value creation is re-asserting itself, aswe demonstrate below.

Expectation premiums fall, bringing stock pricescloser to intrinsic value …

● Worldwide: Between 1999 and 2002, expecta-tion premiums as a proportion of market value forour total sample declined steadily each year, from51% to 23%. The drop in premiums among thetop 10 value creators (measured by TSR) was

FUNDAMENTALS ONCE AGAIN DRIVE TSR

The days of relying on expectation premiums—the difference between market and fundamen-tal values—to fuel total shareholder returns (TSR) are over. As expectation premiums declinetowards their long-term market average of zero, only firms with strong fundamentals are ableto achieve superior returns.

Fundamentals Once Again Drive TSR

(1) Estimated fundamental value based on forecasted EBITDA Basis: 1950–2002: 376 companies excluding financial institutions and P/E Corp Bio Systems; 1926–1949: 40 companies taken from Moody's Manual of InvestmentsSource: Moody's Manual of Investments; Value Management Research Engine; BCG analysis

Private sectorinvests increasingly in the equity market

Market

Market value

200

EEXXPPEECCTTAATTIIOONN PPRREEMMIIUUMMSS SSHHOOWW SSTTRROONNGG OOSSCCIILLLLAATTIIOONNSS OOVVEERR TTIIMMEE

LONG-TERM ANALYSIS OF THE S&P 400 BETWEEN 1926 AND 2003

Fundamental value

180

160

140

120

100

80

60

40

20

0

High

Low

Average

268%

210%

1926 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Oct.2003(1)

"WW II"

"Tronics boom" Oil crisis

"New Economy" boom

High:Sept. 1987

EExxppeeccttaattiioonn pprreemmiiuumm >> 00

Figure 1

10


Figure 2

(1) Weighted average; 274 companies; minimum market value 2002: $10B(2) Companies with highest total shareholder return p.a. 1998–2002; weighted average (3) Market value of equity plus interest bearing debt, 1997 = 100(4) Estimated fundamental value using I/B/E/S consensus forecast data; market value as of 30 September 2003Source: BCG analysis

Company value index (3)

FFUUNNDDAAMMEENNTTAALL VVAALLUUEE AANNDD EEXXPPEECCTTAATTIIOONN PPRREEMMIIUUMM OOVVEERR TTIIMMEE

Total sample (1)

1997

37%

100

1998 1999 2000 2001 2002 2003(4)

46%51% 43% 38% 23% 25%

129171 174 161

131 141

Expectation premium Fundamental value

Top 10 TSR companies (2)

63% 54% 49% 57% 62% 77% 75%

1997

16%

100

1998 1999 2000 2001 2002 2003(4)

39%

76% 65%

57% 27% 33%

189

690 665

532

439477


84%61%

24%35% 43%

73% 67%


WORLD

Figure 3

(1) Weighted average; 94 companies; minimum market value 2002: $5B(2) Companies with highest total shareholder return p.a. 1998–2002; weighted average (3) Market value of equity plus interest-bearing debt, 1997 = 100Source: BCG analysis


Total region (1)

1997

23%

100

1999 2002

33% 2%

12198


Top 10 TSR companies (2)

77% 67% 98%+3% +6%

CAGR

ASIA-PACIFIC

+31% -67%

1997

18%

100

1999 2002

44%

10%217

261


82%56%

90%

+22%

+25%

CAGR

-35%

+129%

Company value index (3) Company value index (3)

Note: CAGR = compound annual growth rate

11


even more pronounced, plummeting from 76% to27% (reflected in Fig. 2).

● By region: Expectation premiums fell in allregions over this period, with Asia experiencingthe largest drop (Fig. 3), followed by Europe (Fig.4). Although North America's premiums alsodecreased (Fig. 5), they remained relatively highamong the top 10 TSR performers by the end of2002 (48%).

● By industry: All industries also experienced adrop in expectation premiums. Three of these(pulp and paper, travel, transport and tourism,and utilities) now have negative premiums, indi-cating that the market might have overreacted tothe previously high premiums—an historicallycommon occurrence discussed in last year's ValueCreators Report. Three sectors still have marketvalues significantly higher than their intrinsic val-ues: pharmaceuticals, retail, and consumergoods (Fig. 6).

● Outlook for 2003 and beyond: Although anyforecasts should be tempered with the usualcaveats, a slight lift in expectation premiums incertain regions and industries in the first ninemonths of 2003, notably in Asia and amongNorth America's top value creators, suggests thatU.S. investor optimism might be spreading morewidely. Whether this will be sustained, given thatmarket and intrinsic values tend to converge in thelong run, we will have to wait and see.

… while fundamentals grow strongly among thetop performers.

The increase in intrinsic value as a proportion of mar-ket value, evident in Figures 2–5, isn't simply due to thegeneral decline in investors' expectations, it also reflectsstrong long-term fundamental performances amongthe world's top value creators. In most cases, the topTSR companies' fundamentals grew much more rapidly

Figure 4

(1) Weighted average; 111 companies; minimum market value 2002: $7.5B(2) Companies with highest total shareholder return p.a. 1998–2002; weighted average (3) Market value of equity plus interest bearing debt, 1997 = 100Source: BCG analysis


Total region (1) Top 10 TSR companies (2)

EUROPE

1997

25%

100

1999 2002

43%12%

191

138


75%57% 88%

+20% +4%

CAGR

+83%

-42%

1997

24%

100

1999 2002

65% 29%

337

277


76%35%

71%

+25%

+19%

CAGR

-29%

+199%



12


Figure 5

(1) Weighted average; 146 companies; minimum market value 2002: $10B(2) Companies with highest total shareholder return p.a. 1998–2002; weighted average (3) Market value of equity plus interest-bearing debt, 1997 = 100Source: BCG analysis


Total region (1) Top 10 TSR companies (2)

NORTH AMERICA

1997

47%

100

1999 2002

57% 32%

172137


53% 43% 68%

CAGR

1997

33%

100

1999 2002

79%

48%

589

388

67%21%

52%

-26%

+275%


+17%

+45%

+8%

-23%

+37%+18%


Expectation premium Fundamental value CAGR

Figure 6

EEXXPPEECCTTAATTIIOONN PPRREEMMIIUUMMSS BBYY IINNDDUUSSTTRRYY

(1) Weighted average of total sample(2) Based on an estimated fundamental value using I/B/E/S consensus forecast data; market value as of 30 September 2003Source: BCG analysis

Industry (1) 2001

BanksConsumer goodsRetailMedia & entertainmentPharmaceuticals & biotechTechnologyChemicalsMultibusinessInsuranceIndustrial goods, engineering & raw materialsAutomotive & supplyPulp & paperTravel, transport & tourismUtilities

Fundamental valueExpectation premium

2002 2003(2)

45%

46%

51%

55%

54%

49%

34%

42%

43%

66%

58%

57%

24%

37%

39%

76%

63%

61%

20%

15%

0%

80%

85%

100%

5%

-13%

95%

113%

40% 60%

40% 60%

35% 65%

25% 75%

24% 76%

22% 78%

19% 81%

19% 81%

12% 88%

8% 92%

-10% 110%

-11% 111%

-24% 124%

17% 83%

41% 59%

37% 63%

37% 63%

24% 76%

19% 81%

26% 74%

20% 80%

24% 76%

24% 76%

18% 82%

12% 88%

-5% 105%

-3% 103%

-21% 121%

13


than their local market or industry averages, often by afactor of three or four.

Although the recent global economic slowdown hastaken some of the steam out of their growth (anddampened investor confidence), the top TSR playershave nevertheless produced impressive results since1999. Typically they increased their intrinsic value byaround 25% a year, demonstrating that strong per-formances are possible in all conditions.

● Worldwide: The intrinsic value of all companiesin our sample grew by 6% per year during1999–2002, compared to 16% per year in1997–1999. As Figure 2 illustrates, the world'stop 10 TSR generators increased their fundamen-tals by 25% a year on average between 1999 and2002, over four times faster than the average forour total sample.

● By region: On average firms in North Americaincreased their intrinsic value by 8% a year during1999–2002, compared to 6% in Asia and 4% in

Europe. However this ranking is reversed if onlythe top 10 TSR players in each are considered:Asia Pacific's top 10 performers recorded thebiggest increase (25% annually), followed byEurope (19%), and North America (18%). Thiscan be seen in the right-hand panels of Figures3–5.

● By industry: Since the end of the stock marketbubble, "old economy" sectors have tended togenerate the largest improvements in fundamen-tals (Fig. 7). The top industries were pharmaceuti-cals (12.2% fundamental growth per year), retail(9.8%), media (9.2%), and pulp and paper(9.2%). The weakest sectors were insurance (-8.9%), technology (3.1%), and chemicals(3.3%). However these figures conceal powerfulperformances from individual firms as we discussbelow.

● Impact on composition of top value cre-ators: During 1997–1999, when expectationpremiums were rising steadily and driving share-holder returns, 70% of the top-decile value cre-

Figure 7

(1) CAGR 1999–2002 of total sample per industrySource: BCG analysis

PPOOSSTT--BBUUBBBBLLEE DDEEVVEELLOOPPMMEENNTT OOFF EEXXPPEECCTTAATTIIOONN PPRREEMMIIUUMMSS AANNDD FFUUNNDDAAMMEENNTTAALL VVAALLUUEE BBYY IINNDDUUSSTTRRYY ((11999999––22000022))

Industry CAGR of fundamental value (1)

TOTAL SAMPLE BY INDUSTRY

Insignificant

Pharma & biotechRetailMedia & entertainmentPulp & paperUtilitiesInd. goods, engineering & raw materialsAutomotiveConsumer goodsMultibusinessBanksTravel & tourismChemicalsTechnologyInsurance

CAGR of expectation premium (1)

InsignificantInsignificant

12.2%9.8%

9.2%9.2%

8.6%8.2%

7.8%7.7%7.6%

5.6%3.6%3.3%

3.1%

-8.9%

-19.6%

-24.5%-23.4%

-22.4%-26.5%

-11.4%

-34.2%-10.3%

-24.4%-45.2%

-24.0%



ators were technology companies, with retail andmedia accounting for the rest. Today, thanks tothe "return of fundamentals," the balance is moreevenly balanced spread between eight industries(Fig. 8). Moreover, only one of the companiesmanaged to be in the top TSR decile in the1997–1999 as well as in the 1999–2002 period.

Significant improvements in fundamentals arepossible in all industries.

In every industry there were companies whose valuecreation measured as TSR were significantly above boththe world average (5% TSR annually over the period

1998–2002) and the average of every other industry. Inthe travel and tourism sector, for example, which hadthe lowest annual average TSR (1%), the top playerachieved 66% TSR-higher than the average of the mostsuccessful industry, pharmaceuticals (7%), and abovethe leading players in several other sectors, includingmedia (Fig. 9).

Similarly, significant improvements in fundamentalsmeasured as TBR are possible in every industry(Fig. 10). During 1998–2002, the top 3 sectors byaverage annual TBR were Retail (14% TBR annually),consumer goods (12%), and pharmaceutical (11%).

Figure 8

Echostar as only company being a top performer in 1997–1999 1999–2002and

Source: BCG analysis

DDUURRIINNGG BBUUBBBBLLEE--PPEERRIIOODD TTOOPP PPEERRFFOORRMMEERRSS MMAAIINNLLYY DDRRIIVVEENN BBYY EEXXPPEECCTTAATTIIOONN PPRREEMMIIUUMMSS

Top decile TSR performers 1997–1999 Top decile TSR performers 1999–2002

AFTER BUBBLE-PERIOD TOP PERFORMERS WITH SOLID FUNDAMENTALS AND SUSTAINED EXPECTATIONS

1997

48%

100

1998 1999

33%

69%207

504


52%

67%31%

CAGR

Company value index

73%

170%

1999

20%

100


80%

Company value index

14%

2%

2000 2001 2002

30% 23% 21%130 136 143

70% 77% 79%

25%

20%20%

15%

Utilities

Pharmaceuticals

Consumer goods

Industrial goods

RetailMedia

Automotive

70%20%

10%

TechnologyRetail

Media

CAGR


14

15


Figure 9

Source: Thomson Financial Worldscope; BCG analysis

51

23

60

31

44

19

58

20

71

56

78

66

-12 -14-21

-14 -13-17 -17

-25-20 -22

-30-24

7 7 6 5 5 4 3 3 3 2 2 1

HHIIGGHH,, LLOOWW AANNDD MMEEDDIIAANN TTSSRR PPEERR IINNDDUUSSTTRRYY

80

60

40

20

0

-20

-40

TSR p.a. 1998–2002 (%)

Figure 10

HHIIGGHH,, LLOOWW AANNDD MMEEDDIIAANN TTBBRR PPEERR IINNDDUUSSTTRRYY


Retail Consumergoods

Pharma &biotech

Industrialgoods

Media Automotive Multi-business

Pulp &paper

Chemicals Utilities Technology Travel &tourism

TBR p.a. 1998–2002 (%)

41

31 3229

23

36

2527 26 26

37

28

-12-8

-5

-11

-6-8 -7

-4-7 -7

-14

-10

1412 11 11 10 9 8 8 7 7 7 5

50

40

30

20

10

0

-10

-20

Few companies, however, sustain above-aver-age TSR for more than a few years.

Less than 25% of the 1,675 firms analyzed2 beat theirlocal market indices for more than six out of ten yearsand only 13 companies outperformed their indices fornine out of ten years. None sustained above-average

TSR for ten years (Fig. 11). This was despite the fact thatmany companies achieved long-term improvements intheir fundamentals, suggesting a disconnect betweeninternal value creation and the capital markets. In mostcases, however, it was a reflection of firms' inability tomaintain fundamental growth in the face of competitivepressures.


Figure 11

Number of years in which they beat the local market (1)

Number of companies

(1) Relative total shareholder return (RTSR) = company TSR vs. local total market index, between 1993 and 2002 Note: Analysis includes 1,675 companies that had a minimum market capitalization above $1B as of 31/12/2002 and were listed for more than ten yearsSource: Thomson Financial Worldscope; BCG analysis

CCRREEAATTIINNGG VVAALLUUEE YYEEAARR AAFFTTEERR YYEEAARR IISS AA DDIIFFFFIICCUULLTT TTAASSKK

0

0

1 2 3 4 5 6 7 8 9

233

127

277

479

402

243

99

13

10

0

16

2 Analysis includes 1,675 companies that had a minimum market capitalization above $1 billion as of 31 December 2002 and were listed for more than ten years.

18

Key Ingredients for Success

Use appropriate measures to gauge and controlinternal value creation.

One of the most commonly used measures is EBITDA.However, as we explained in last year's report, it canproduce misleading signals due to its omission of bal-ance-sheet-related items, such as depreciation of fixedassets. More suitable alternatives are Total BusinessReturns (TBR) and "Cash Value Added" (CVA). Bothratios do not suffer from EBITDA's pitfalls and both havea strong relationship with TSR. Moreover, CVA can bedisaggregated into a value-driver tree of practicalmeasures, beginning with cash flow return on invest-ment (CFROI) and its appropriate value levers, cashflow margin and capital turnover, as well as profitablegrowth in terms of gross investment increase.Additionally, these measures can be broken down fur-ther into operational value drivers for each businessunit providing insight into how value is created in dif-ferent areas and levels of responsibility throughout acompany.

Ensure profitability is above the weighted aver-age cost of capital before increasing grossinvestment.

There are two ways to generate value, measured byimprovements in TBR or Cash Value Added (CVA): by

increasing CFROI or by growing gross investment base.Investment growth will only produce value if profitabili-ty is above the weighted average cost of capital;unprofitable growth will destroy value (Fig. 12). As wediscuss later, there are exceptions to this "rule," notablycorporations that need to grow unprofitably in order toachieve competitive scale. But these instances arerare—most top value creators adhere to the profitabil-ity principle, as we show.

Manage your business units as a portfolio ofvalue "creators" and "destroyers," aligning yourportfolio with your core investors' expectations.

Business units should not be treated homogenously withcapital allocated democratically between them—acommon pitfall. Instead, the units with the greatestvalue-creation potential relative to their competitivestrengths and markets should be supported and thevalue destroyers restructured or shed. This should be anongoing process in order to respond proactively tocompetitive pressures. Equally crucially, companies'strategies need to be aligned with their dominantinvestors' expectations to ensure fundamentals translateinto shareholder returns. A mismatch between investors'aspirations and fundamentals will suppress value andpossibly lead to an unjustifiably low stock price.

KEY INGREDIENTS FOR SUCCESS

On the following pages we draw out the key ingredients for generating and sustaining supe-rior TSR as derived from a detailed analysis of over 4,000 corporations' fundamentals. Tobring these points to life, we examine several firms in depth. Although these firms are notnecessarily the biggest value creators in their particular industries, their experiences—posi-tive and negative—hold valuable lessons for all companies.

OVERVIEW OF CORE VALUE-CREATION PRINCIPLES

19


Strive for constant fundamental improve-ments—value creation is a dynamic process.

Investors expect firms to generate regular improve-ments in fundamentals, not simply to maintain the sta-tus quo. Failure to satisfy this need will lead to subopti-mal shareholder returns. This can be seen in Figure 13,which summarizes the key fundamentals of a major

U.S. consumer goods company. Although the compa-ny's profitability was significantly above the cost of cap-ital, it did not increase its profitability or use its free cashflow "war chest" to fund investment growth. The result—minus 8% TSR. The Indian automotive company HeroHonda, on the other hand, which we discuss in detailon page 31, increased all its fundamentals and reapedthe benefits.

Figure 12

BothRise in profitability

CFROI2

(1) Same principle for banks and insurance companies on an equity basis: CFROI = ROE, GI = equity, CVA = AVENote: CVA = cash value added; AVE = added value to equity; CFROI = cash flow return on investment; ROE = return on equity; GI = gross investment

∆ ∆

HHOOWW CCVVAA IISS CCAALLCCUULLAATTEEDD AANNDD IINNFFLLUUEENNCCEEDD BBYY DDIIFFFFEERREENNTT LLEEVVEERRSS

Profitable growth

It is the dynamic view that counts

CFROI1

Cost of capital

∆ CVA(1)

GI2GI1

CFROI

Cost of capital

GI2GI1

CFROI2

CFROI1

Cost of capital

∆ CVA(1)

GI1, 2

∆ CVA(1)

20


A total of 81% of the top-decile TSR companiesachieved profitability above the cost of capital,compared to just 19% of the bottom decile firms.

This dramatic fact can be seen in Figure 14. To reachthis level of profitability, some companies shrunk theirinvestment base, occasionally too aggressively.Others—the exceptions to the rule—generated superi-or shareholder returns despite growing unprofitably asinvestors recognized that these firms needed to investfirst to achieve competitive scale. Below we examinethree companies that typify each of these situations.

● Centrica successfully reduces its capitalbase: When Centrica was demerged from BritishGas in 1997 as part of deregulating the U.K.'sgas market, the company's profitability was lan-guishing below the cost of capital with corre-spondingly low shareholder returns. It knew thatinvestment growth held the key to its long-termsuccess, but it also recognized that it had toimprove its profitability first. The company's solu-tion was to decrease its unprofitable gross invest-ment by reducing its net working capital, notablyits high number of debtors, bringing CFROI clos-er to the cost of capital.

Figure 13

UU..SS.. CCOONNSSUUMMEERR GGOOOODDSS CCOOMMPPAANNYY:: CCFFRROOII AABBOOVVEE CCOOSSTT OOFF CCAAPPIITTAALL BBUUTT SSHHRRIINNKKIINNGG GGRROOSSSS IINNVVEESSTTMMEENNTT

(1) Performance including share price and dividends, end of 1997 = 100(2) Indexed CVA, 1998 = 100Source: Thomson Financial Worldscope; annual reports; BCG analysis

UNDERPERFORMING BUSINESSES SOLD, BUT NO FURTHER GROWTH EXPECTATIONS

Cash flow/sales (%)Cash flow margin

17.8 16.6 16.914.5

16.4

Gross investment index (1998 = 100)

Investment growthIndexed CVA (2)

Internal value creation

CFROI (%)Profitability

17.0 16.8

21.819.6

16.5

Performance index (1)

External value creation (TSR)

79

6268

93100

7986

114

88100

Sales/gross investmentAsset productivity

1.0 1.0

1.3 1.3

1.0

Cost of capital

PROFITABILITY ABOVE THE COST OF CAPITAL IS CRITICAL

21


To boost cash flow margins, it also reduced thecost of its retail operations, improved the marginson its service businesses, and lowered its relianceon third-party gas storage, supply, and distribu-tion. Once profitability was above the cost of cap-ital, Centrica was able to increase its gross invest-ment through a string of acquisitions that not onlyconsolidated its position in its core gas and oilmarkets but also helped it expand into other sec-tors such as telecommunications and financialservices. Figure 15 illustrates this strategy, knownas the "C-curve". Together these initiativesincreased Centrica's fundamental value by 23% ayear and generated 15% annual average TSRabove the market index.

● Major chemical company over-zealouslyshrinks: To improve profitability, one major Euro-pean chemical company dramatically reduced itsinvestment base. Although this lifted its profitabil-ity above the cost of capital—with exceptionallyhigh cash flow margins—the company did not useits additional profitability to improve growth in linewith the C-curve principle. As a result, it suffereda -17% annual TSR over the period 1998–2002(Fig. 16).

● Echostar proves to be an exception to theprofitability rule: Businesses entering marketswhere scale is critical often have little choice butto grow unprofitably initially, one of the exceptionsto the C-curve rule. The U.S. direct broadcastsatellite (DBS) TV provider, Echostar, is a case in

Figure 16

Indexed CVA (2)

Cost of capital

EEUURROOPPEEAANN CCHHEEMMIICCAALLSS CCOOMMPPAANNYY::SSIINNCCEE 11999999 IINNCCRREEAASSIINNGG CCFFRROOII AANNDD CCVVAA DDUUEE TTOO SSHHRRIINNKKIINNGG GGRROOSSSS IINNVVEESSTTMMEENNTT

TOO MUCH SHRINKING AND NO GROWTH EXPECTATIONS AS REASON FOR POOR TSR PERFORMANCE

(1) Performance including share price and dividends, end of 1997 = 100(2) Indexed CVA, 1998 = -100Source: Thomson Financial Worldscope; annual reports; BCG analysis


5.97.4

9.18.2 8.0


1.3 1.4 1.4

2.0

1.6


Investment growthInternal value creation


7.9

10.612.9

16.312.9



5547

6672

100141

211

136

42

-100


Cost of capital

EECCHHOOSSTTAARR:: UUNNTTIILL 22000000 EEXXTTEERRNNAALL VVAALLUUEE CCRREEAATTIIOONN NNOOTT SSUUSSTTAAIINNEEDD BBYY IINNTTRRIINNSSIICC FFUUNNDDAAMMEENNTTAALL PPEERRFFOORRMMAANNCCEE

(1) Performance including share price and dividends, end of 1997 = 100Source: Thomson Financial Worldscope; annual reports; BCG analysis

BUT APPARENTLY EXPECTED PROFITABILITY INCREASE STARTED IN 2000


-4.3

-10.3-7.5

5.88.1


0.8 0.81.1

1.3

1.7

Gross investment (M$)Investment growth

CVA (M$)Internal value creation


-3.7-8.2 -8.6

7.3

13.5Performance index (1)


120

-74

-438-365

-156

2,8813,161

2,3942,014

1,160

Figure 17

Asset productivity (1998–2002)∆ Growth (1998–2002)

Percentage of companies with superior growth rate


TTOOPP DDEECCIILLEE TTSSRR PPEERRFFOORRMMEERRSS:: SSUUPPEERRIIOORR CCAASSHH FFLLOOWW MMAARRGGIINNSS AANNDD AASSSSEETT PPRROODDUUCCTTIIVVIITTYY

Total sample

18%

Top decile

25%

Total sample

11%

Top decile

25%

Percentage of companies with superior increase in asset productivity

Cash flow margin (1998–2002)∆

Percentage of companies with superior increase in cash flow margin

Total sample

21%

Top decile

80%

Figure 18

22

23


point. In 1994 the company was known asEchosphere, the country's largest distributor ofconventional home satellite equipment, but itrealized the future lay with DBS and started invest-ing heavily in this field, a costly exercise both interms of launching satellites and achieving a crit-ical mass of subscribers.

As Figure 17 shows, unprofitable growthdestroyed internal value between 1998 and 2000but as the subscriber base swiftly grew, increasingboth asset productivity and cash flow margins, thecompany's profitability steadily increased, risingabove the cost of capital in 2002, aided byimproved cost control. Throughout this period,investors remained confident that the drive forscale was the right strategy, reflected in highexpectation premiums and 60% annual TSR. Andthis confidence was ultimately justified: during theperiod 1998–2002 Echostar's fundamental valueincreased by 39% a year on average. Today, thecompany is the second biggest player in the DBSmarket in the U.S. with over 8 million subscribers.

The top players tended to rely more heavily onasset productivity than cash flow margins to liftprofitability.

Although the top-decile value creators outperformedthe total sample in terms of both cash flow margins andasset productivity, the key differentiator was their supe-rior asset productivity—one of the hardest, but appar-ently most fruitful, ways to increase profitability (Fig.18). Here we examine how three companies improvedasset productivity and cash flow margins to producesuperior value:

● Morrison highlights the power of asset pro-ductivity: More intensive use of its stores enabledthe U.K. food retailer Morrison to increase itsasset productivity to around 2.6 over the last fiveyears, well above the sector average, giving it thelevel of profitability required to grow gross invest-ment. Expanding its stores' product offerings andintroducing new services such as cafés and gasstations were just two of the routes used to raise

the productivity of its fixed asset base (i.e., highersales per square foot and inventory turns).

In conjunction with creating new stores, thesedevelopments enabled Morrison, which has his-torically focused on the north of England, toincrease its fundamental value by 15% a year onaverage between 1998 and 2002. The stockmarket rewarded this with a 15% annual averageTSR. Now the retailer is poised to accelerate itsgrowth with the proposed acquisition of Safewayin the U.K., a move that would make it a leadingnational player (Fig. 19).

● SK Telecom plays cash flow margin card: Asteady increase in cash flow margins helpedKorea's leading cellular phone service provider,SK Telecom, push its profitability above the cost ofcapital, enabling the firm to generate substantialTSR. Between 1998 and 2002, cash flow marginsrose from 15.8% to 27.6%. This was mainlyachieved through a combination of cost reduc-tions and sales of high-margin mobile internetservices to its 16 million subscribers. Investmentgrowth was relatively modest and asset productiv-ity generally flat. (Fig. 20)

Overall, the company's fundamental value grewby 42% a year, earning it 45% TSR, well above theWorld Technology Index. Today, its intrinsic valueaccounts for nearly 100% of its stock marketvalue, compared to just 13% in 1999.

● Forest Labs employs both profitabilitylevers: The U.S. generic and specialist pharma-ceuticals company, Forest Labs, increased both itsasset productivity and cash flow margins to takeits profitability above cost of capital, earning it anannual average 51% TSR between 1998 and2002

During this time, asset productivity more thandoubled, thanks to new products coming throughthe pipeline and licensing of special compounds,enabling the firm to use its production facilitiesmore efficiently. The fact that the company has itsown salesforce, which markets its products direct-ly to doctors, drug stores, and other customers,

24


also played a pivotal role. Cash flow margins inturn more than tripled due to its highly successfulantidepressant, which accounts for 70% of thefirm's business, and the development of new high-margin products.

Over these five years, profitability as measured byCFROI leapt from 8.1% to 61.5%, helping thecompany increase its fundamental value by 78%a year on average (Fig. 21).

The biggest value creators strive for even high-er profitability to fuel investment growth

Although profitability above the cost of capital is a pre-requisite for long-term value creation, top performersdon't stop once they reach this threshold. They strive forhigher and higher profitability in order to fund invest-

ment growth, the biggest driver of value creation (seenext chapter). This is reflected in two analyses:

● As Figure 22 shows, top-decile corporations withhigh profitability tend to achieve higher growthrates than bottom-decile firms with low profitabil-ity. In the technology sector, for example, top-decile companies had on average a CFROI of30.6% and a gross investment growth of 17.4%per year, compared to an average CFROI of 5.8%and an annual 4.2% gross investment growth forthe bottom decile.

● Similarly, the top-performing industries, such asconsumer goods and pharmaceuticals, had high-er profitability and growth than low value-creationsectors, such as utilities and pulp and paper(Fig. 23).

MMOORRRRIISSOONN:: IINNCCRREEAASSEEDD CCVVAA PPRRIIMMAARRIILLYY TTHHRROOUUGGHH FFUURRTTHHEERR IINNCCRREEAASSEEDD AASSSSEETT PPRROODDUUCCTTIIVVIITTYY

GROWTH BY ROLLOUT OF HIGH ASSET PRODUCTIVITY CONCEPT TO NEW STORES

(1) Performance including share price and dividends, end of 1997=100Source: Thomson Financial Worldscope; annual reports; BCG analysis


14.8


2.2 2.2

2.6 2.5 2.52.6




13.2 14.0 15.2 14.3 14.8



162

104

134

10283

58

5.86.0 6.2 5.9 5.7 5.7

1

2,723

2,257 2,408

1,8471,8171,678

2

Figure 19

Cost of capital

25


Most companies still have significant opportuni-ties to improve profitability

In virtually every industry most companies could dra-matically improve both their asset productivity and cashflow margins. This is reflected in the wide spread ofasset productivity and cash flow margins around theaverage in each sector. In the retail sector, for example,average asset productivity is 2.5, but at least one com-pany has shown that it is possible to achieve 10.5, thehighest level recorded in this sector during the period1998–2002 (Fig. 24). Similarly, the average cash flowmargins in the utilities industry over this period was 21%but some firms managed 46% and others as little as 5%(Fig. 25).

Cost of capital

SSKK TTEELLEECCOOMM:: IINNCCRREEAASSEEDD CCVVAA PPRRIIMMAARRIILLYY TTHHRROOUUGGHH HHIIGGHHEERR CCAASSHH FFLLOOWW MMAARRGGIINN


SINCE ASSET PRODUCTIVITY REMAINED CONSTANT, GROWTH COULD BE TRANSLATED INTO PROFITS

10,08210,4708,534

5,6484,147


15.812.4

21.2

27.0 27.6


0.7 0.7 0.7 0.70.8




11.48.2

15.518.2

21.6



1,017

539287

-510

-1

Figure 20

26


Cost of capital

FFOORREESSTT LLAABBSS:: IINNCCRREEAASSEEDD CCVVAA PPRRIIMMAARRIILLYY TTHHRROOUUGGHH HHIIGGHHEERR CCAASSHH FFLLOOWW MMAARRGGIINN


HIGHER MARGIN ADDITIONALLY LEVERAGED BY INCREASED ASSET PRODUCTIVITY


7.3

13.9

18.221.1

24.7


1.1

1.6 1.5

2.0

2.5




8.1

22.028.0

42.1

61.5



462

255

13968

-8

884785762

557490

Figure 21

Top decile (3)

Bottom decile (3)

PPRROOFFIITTAABBIILLIITTYY AANNDD GGRROOWWTTHH OOFF TTHHEE WWOORRLLDD''SS TTOOPP PPEERRFFOORRMMEERR

WORLDAverage CFROI (%)(1)

(1) Average CFROI 1998–2002(2) CAGR of gross investment 1998–2002(3) Selected according to TSR performance p.a. 1998–2002Note: 207 firms without financial services companies ranked by 5-year TSR, minimum market value 2002: $10BSource: BCG analysis

0

10

20

30

40

50

60

70

-10 -20 5 30 55 80

GI growth (%)(2)

Figure 22

27

AverageCFROI(1)

AverageCFROI(1)

AverageCFROI(1)

AverageCFROI(1)

Top decile (3) Bottom decile (3) Median WACC

GI growth (%)(2)

50 50

50 50

40 40

40 40

30 30

30 30

20 20

20 20

10 10

10 10

0 0

0 0

-10 -10

-10 -10

-20 -20

-20 -20

-10 0 10 20 30 40 50

-20 -10 0 10 20 30 40 50

-20 -10 0 10 20 30 40 50

-10 0 10 20 30 40 50

(%)

(%)

(%)

(%)

GI growth (%)(2)

GI growth (%)(2)

GI growth (%)(2)

Figure 23

(1) Average CFROI 1998–2002(2) CAGR of gross investment 1998–2002(3) Selected according to TSR performance p.a. 1998–2002Source: BCG analysis

LLOOWW--PPEERRFFOORRMMIINNGG IINNDDUUSSTTRRIIEESS WWIITTHH SSIIGGNNIIFFIICCAANNTT LLOOWWEERR AAVVEERRAAGGEE CCFFRROOII TTHHAANN HHIIGGHH--PPEERRFFOORRMMIINNGG IINNDDUUSSTTRRIIEESS

Utilities

Pulp & paper

Low performing industriesConsumer goods

Pharma & biotech

High performing industries


HHIIGGHH,, LLOOWW AANNDD MMEEDDIIAANN AASSSSEETT TTUURRNN PPEERR IINNDDUUSSTTRRYY


0.2

0.7

0.40.7

0.3

0.6

0.1

0.5

0.20.4

Asset turn 1998–2002

10.5

4.7

5.9

2.9

7.4

5.1 5.0

2.9

4.0

1.2

5.6

2.2

0.80.4 0.6 0.5

0.2 0.2 0.3

2.5

1.2 1.2 1.0 1.0 1.00.7

Figure 24

28


Investment growth is easily the most significant driver ofshareholder returns, accounting for 71% of TSR, asFigure 30 shows. The top players pull this lever partic-ularly forcefully.

Superior investment growth is one of the keyfeatures of top value creators

A total of 80% of the top-decile value creators grewtheir investment base profitably by more than 10% dur-ing 1998–2002, compared to 21% of firms in the totalsample. In fact superior investment growth was thebiggest differentiator between the top players and thetotal sample (Fig. 18). This can be achieved in allindustries, as Figure 26 demonstrates. In the travel and

tourism industry, for example, which had the lowest TSRand fundamental growth during the period1998–2002, some firms achieved 73% annual invest-ment growth, over six times higher than the world aver-age (12% annually).

However, as discussed earlier, firms should only growonce profitability is above the cost of capital. Failure toadhere to this principle will destroy value, as oneJapanese company recently discovered. During theperiod 1998–2002, the firm steadily increased itsinvestment base by approximately 13% a year whileprofitability was below the cost of capital (Fig. 27). Thisnot only destroyed intrinsic value (measured by nega-

HHIIGGHH,, LLOOWW AANNDD MMEEDDIIAANN CCAASSHHFFLLOOWW MMAARRGGIINN PPEERR IINNDDUUSSTTRRYY


Cashflow margin 1998–2002 (%)

46

3134 33

35

43

37

26

17

30

21

12

5

11

3

-10

3 35

13 3 2

-4

2117 16 14

12 11 11 10 10 97 6

Figure 25

GROWTH MAKES THE BIGGEST CONTRIBUTION TO TSR

29


HHIIGGHH,, LLOOWW AANNDD MMEEDDIIAANN GGRROOSSSS IINNVVEESSTTMMEENNTT GGRROOWWTTHH PPEERR IINNDDUUSSTTRRYY

(1) CAGR of gross investment 1998–2002Source: BCG analysis

GI growth 1998–2002 (%)

5549

67

4640 40

58

81

49

35

73

33

-3

-18

0

-11

-3

-15

0-4 -4

-8 -11 -11

1612 12 12 11 10 10 9 8 7 7 4

80

60

40

20

0

-20

-40

Figure 26

Cost of capital

JJAAPPAANNEESSEE CCOOMMPPAANNYY:: CCFFRROOII BBEELLOOWW CCOOSSTT OOFF CCAAPPIITTAALL,, BBUUTT SSIIGGNNIIFFIICCAANNTT GGRROOWWTTHH OOFF GGRROOSSSS IINNVVEESSTTMMEENNTT

(1) Performance including share price and dividends, end of 1997 = 100(2) Indexed CVA, 1998 = -100Source: Thomson Financial Worldscope; annual reports; BCG analysis


8.4 8.47.4

5.9 5.4


0.80.9

0.6

0.9 0.9

Investment growthIndexed CVA(2)

Internal value creation


6.8 7.3

4.35.1 4.7



-294-252

-278

-91-100

162155138

+13% p.a.

90100


Figure 27

30


tive CVA), but also led to a total shareholder return of-4.5% a year on average.

Two companies epitomize the value of superior, prof-itable investment growth, Bed Bath & Beyond and HeroHonda:

● Bed Bath & Beyond exploits investmentgrowth to become world's top value cre-ator: High profitability above the cost of capitalgave U.S. household merchandise retailer BedBath & Beyond the fuel to grow its investmentbase by nearly 30% a year during 1998–2002,pushing its annual TSR nearly four times higherthan the World Retail Index. (Fig. 28) Although itsprofitability, which was underpinned by bothhealthy asset productivity and cash flow margins,remained fairly constant over this period, it was

able to use its cash flow "war chest" to fund rollingout an increasing number of new large-formatshops each year.

This was complemented by acquisitions ofHarmon Stores and The Christmas Shop, takingBed Bath into health and beauty and the gift mar-ket respectively. Giving store managers the flexi-bility to manage their inventory, floor layout, andother elements also ensured outlets were able torespond to local market conditions.

The net effect of all these initiatives was an annu-al 36% rise in the company's fundamental valueon average, leading to an annual average TSR of29% over this period. By 2002, Bed Bath &Beyond was the world's most successful value cre-ator.

BBEEDD BBAATTHH && BBEEYYOONNDD:: SSTTEEAADDYY IINNCCRREEAASSEE OOFF CCVVAA TTHHRROOUUGGHH PPRROOFFIITTAABBLLEE GGRROOWWTTHH

CASH FLOW MARGIN AND ASSET PRODUCTIVITY CONSTANT AT HIGH LEVEL



27.8


3.5 3.43.1

3.53.3




28.1 27.1 25.528.1



1,040234

762

120

876162

54794 39673

9.08.0 7.9 8.1 8.4

+27% p.a.

Figure 28

Cost of capital

31


● Hero Honda pulls out all the stops: In 1997investors had high hopes for Hero Honda, a jointventure manufacturer of motorcycles and bicyclesin India, owned by Honda Motors and the MunjalGroup. At the time, expectation premiumsaccounted for 81% of the company's marketvalue. To satisfy these, the company, whose prof-itability was already above the cost of capital,pulled all three fundamental levers of value cre-ation over the next five years: cash flow margins,asset productivity, and investment growth.

To lift profitability higher, Hero Honda increasedcash flow margins from 5.2% to 8.8% throughcost reductions and technological and logisticalsynergies with Honda India, as well as by focusingon medium- to high-margin segments. It alsoboosted asset productivity from 3.6 to 10(Fig. 29). Furthermore, it invested in new produc-

tion capacity in its bid to capture 50% of India's"two-wheeler" market, underpinned by the Munjalbrothers' vision of establishing long-lasting rela-tionships with all key stakeholders, includingemployees, dealers, and vendors.

Together these developments produced 27% TSRa year during 1998–2002, three times higherthan the automotive industry's average. Over thisperiod, the company's intrinsic value grew by 56%annually, halving its expectation premium to 39%.

HHEERROO HHOONNDDAA:: SSTTEEAADDYY IINNCCRREEAASSEE OOFF AASSSSEETT PPRROODDUUCCTTIIVVIITTYY AANNDD CCAASSHH FFLLOOWW MMAARRGGIINN RREESSUULLTTSS IINN SSUUPPEERRIIOORR VVAALLUUEE CCRREEAATTIIOONN

PROFITABILITY VERY HIGH RELATIVE TO AUTOMOTIVE INDUSTRY



88.1


3.6 4.05.0

10.0

6.9




18.723.6

32.442.1



10677

132

25

136

41

116

11

89

5

8.8

5.25.9

6.5 6.1

Figure 29

Cost of capital

32


CONTRIBUTION TO TSRTOP QUARTILE COMPANIES—10 YEAR AVERAGES

(1) Resulting from decreasing interest rate level and lower market risk premiumNote: Top quartile TSR selected from S&P 1500 companies; 10-year averages 1984 – 2002Source: Compustat, BCG Value Science Center

TTSSRR FFOORR TTOOPP QQUUAARRTTIILLEE CCOOMMPPAANNIIEESS PPRRIIMMAARRIILLYY DDRRIIVVEENN BBYY GGRROOWWTTHH

Revenue growth

18.8%

Margin improvement

Growth in multiple(1)

Asset prod.improvement

Dividend yield TSR

3.5%

4.5% -1.2% 0.7% 26.3%

Figure 30

71% of TSR

33


Although expectation premiums for the market as awhole tend towards zero in the long run, there arealways premiums in the short to medium term (Fig. 1,page 9). More significantly, the scale of these premiumsdiffers between companies as Figure 31, which showsthe premiums for the top 10 retail firms in 2002, illus-trates. These relative differences in premiums can cre-ate problems as well as opportunities.

Relatively high premiums, for example, enable firms toacquire companies, as AOL did when it used its papersurplus to "merge" with Time Warner. At the other endof the scale, relatively low premiums not only leavecompanies vulnerable to takeovers but also limit theirability to raise additional investment capital. These dif-ferences in premiums need to be regularly monitoredand addressed. In this section we explain how.

What determines relative premiums?

In most cases the differences in firms' expectation pre-miums are due to time lags in investors acquiring thenecessary information needed to value the companiescorrectly. However BCG has identified a number of fac-tors that enable firms to sustain superior premiums.These include:

● Transparency: We found that firms that disclosethe most information tend to enjoy a 20% premi-um.

● Intellectual property rights: Patents and otherintellectual property rights, including brands, pro-tect profitability and growth from competitivepressures. This is why industries like pharmaceuti-cals tend to have one of the highest premiums.

THE IMPORTANCE OF RELATIVE EXPECTATION PREMIUMS

Best Buy Amazon Bed Bath & Beyond

CDW Kohls Lowe's WalMart Woolworths Williams Sonoma

Autozone

Fundamental value


TTSSRR CCHHAAMMPPIIOONNSS RREETTAAIILL IINNDDUUSSTTRRYY:: BBRREEAAKKDDOOWWNN OOFF CCOOMMPPAANNYY VVAALLUUEE IINN 22000022

17%

Expectation premium

Fundamental value and expectation premium

83%

Company value

78%

22%

-2%

102%

57%

43%

38%

62%

61%

39%

66%

34%

48%

52%

35%

65%

53%

47%

Figure 31

34


● Strong corporate reputations: On average,firms with the best reputations experience arounda 25% premium. This is partly due to their abilityto attract high-quality staff and management. Astrong reputation also reduces investor risk.

● Well-structured governance: The nature andownership of stocks can affect a company's pre-miums. For example, investors tend to avoid mul-tiple stock issues that do not entitle them to votingrights, suppressing the stock's price and conse-quently its premium. Removing these obstacles isone way forward. Increasing the liquidity of thestock, for example through stock splits, can alsohelp: on average the most liquid stocks have a10% premium over less liquid stocks.

● Powerful fundamentals: As Figures 2–5 at thebeginning of this report show, companies with thehighest TSR not only make the biggest fundamen-tal improvements, they are also rewarded withmuch higher premiums than average performers.Between 1999 and 2002, for example, NorthAmerica's top 10 TSR companies increased their

intrinsic value by 18% a year, earning them a 48%expectation premium in 2002. The average NorthAmerican firm, however, only grew its fundamen-tals by 8%, leading to a 32% premium by 2002—one-third lower than the top players.

Strategic implications of relative expectationpremiums

Figure 32, which plots expectation premiums againstfundamental value, highlights the strategic implicationsof relative premiums:

● Quadrant 1, the underperformer: The com-pany's premium is below average but justifiably sodue to its comparatively poor fundamental per-formance. Unless investors can be convinced thebusiness can be turned around—lifting its premi-um to at least the average—its situation is likely todeteriorate further, especially as undervaluedcompanies find it difficult to raise investment cap-ital.

VVAALLUUEE OOPPTTIIOONN PPOORRTTFFOOLLIIOO

Fundamental performance (TBR)

Expectation premium

COMPANIES EXPECTATION PREMIUMS RELATIVE TO COMPETITION

Low performance, punished by investors

II III

I IV

Industry average

Industry average

"Hidden Champion"

"Under-performer"

"Consolidator""Optimist"

Focus on fundamental valuesConvince investors of turnaround potential

High market value without corresponding fundamental growth

Focus on fundamentals

High fundamental performance rewarded by investors

Use the premium strategically

Good fundamental values but investors do not trust them

Remove valuereducing factors (transparency, credibility, share structure, ...)

Figure 32

35


● Quadrant 2, the optimist: The company's fun-damental performance does not warrant its highpremium. As we discussed in last year's report,unreasonably high premiums tend to be punishedwith disproportionately sharp drops in TSR, leav-ing firms potentially vulnerable to takeovers andother problems. To avoid this fate, firms mustimprove their fundamentals, possibly by usingtheir "paper surplus" to acquire a company withstrong fundamentals but a relatively low expecta-tion premium—notably a "hidden champion" inquadrant 4 (see below).

● Quadrant 3, the consolidator: The ideal posi-tion to be in. The company's strong fundamentalsand premium enable it to acquire a hidden cham-pion.

● Quadrant 4, the hidden champion: Therobust fundamentals of the firm have not beenrewarded by investors, making the company apotential takeover target. The factors suppressingits premium need to be addressed (see below).

Figure 33 shows how this relative premium matrix canbe applied to the retail sector.

Ensuring market and fundamental values arealigned

BCG research, jointly conducted with ThomsonFinancial, has found that companies that harmonizetheir strategies with their dominant investors' require-ments, based on a BCG investor alignment index3, areless likely to experience unjustified expectation premi-ums (Fig. 34). To achieve this yourself, you need to:

● Identify your dominant investor segment'sstyle: Most companies have a variety of investorsegments—institutional and private—with varyingaspirations such as yield, value, and "growth at areasonable price" (GARP). To establish your coreinvestors' aspirations, a detailed analysis of yourinvestor base is required. BCG has developedtools to facilitate this process.

-10 0 10 5020 30

80

20

10

0

-10

Average

34.7%(3)

Average 16.1% (3)

II

I

III

IV

Fundamental performance p.a. (TBR) 1998–2002 (%)

Expectation premium 2002 (%)

50

40

Value option portfolio

30

70

60

40

AmazonWoolworths

Wal MartKohls

Bed Bath & BeyondLowe's

Autozone

Williams Sonoma

Best Buy

CDW Computer

RREETTAAIILL IINNDDUUSSTTRRYY:: FFUUNNDDAAMMEENNTTAALL PPEERRFFOORRMMAANNCCEE VVEERRSSUUSS EEXXPPEECCTTAATTIIOONN PPRREEMMIIUUMM

(1) Weighted average of total sampleSource: BCG analysis

Figure 33

3 The index measures the consistency of the fundamental data relative to the investor base. A score of 1 indicates that fundamentals are aligned with investors' criteria.

36


● Link your strategy and internal processeswith their expectations: This should includealigning TSR goals, internal plans, and even staffincentives. Some firms even rotate line managersthrough the investor relations (IR) function to helpthem think about how to run their units in a moreinvestor-focused manner.

● Establish a close dialogue with your coreinvestor segment: Regular, non-defensive,face-to-face contact with core investors is critical,as our research into the importance of trans-parency (see above) underlines.

0.5

-0.1

-0.2

Investor alignment index

Valuation gap

0.2

0.1

IInndduussttrriiaall

0

0.4

0.3

IINNVVEESSTTOORR AALLIIGGNNMMEENNTT HHAASS MMAATTEERRIIAALL IIMMPPAACCTT OONN VVAALLUUAATTIIOONN GGAAPP

Source: BCG Value Science Center

NNoottee::

iinnvveessttoorr aalliiggnnmmeenntt iinnddeexx

Investors classified into different styles: (AGM = aggressive growth and momentum; GARP = growth at reasonable price)The measures the consistency of the fundamental data in relation to the investor base. A score of 1 indicates that the fundamentals are aligned with the criteria of the investors.Valuation gap defined as (MV - FV)/FV; MV = market value (as of 03/28/02), FV = fundamental value, calculated by proprietary BCG VS methodology

0 20 40 60 80 100

0.4

-0.8


Valuation gap

-0.2

-0.4

PPhhaarrmmaa

-0.6

0.2

0

0 20 40 60 80 100

0.2

-0.3

-0.4


Valuation gap

0

-0.1

RReettaaiill

-0.2

0.1

0 20 40 60 80 100

AGM Growth GARP Value Yield

y = 0.0026x + 0.06R = 0.222

y = 0.005x - 0.06R = 0.532

y = 0.0027x - 0.26R = 0.602

Deere & Co.Honeywell Int. Inc.

Ingersoll-Rand Co. Ltd.

Goodrich Corp.

Textron Inc.

UTXBoeing Co.

Fortune Brands Inc.

American Standard

Stanley Works

Danaher Corp.

Illinois Tool- worksDover Corp.

Snap-On Inc.

ITT Industries Inc.

Caterpillar Inc.

CVS Corp.

Target Corp.Costco Wholesale

Corp. Gap Inc.Best Buy Co. Inc.

Staples Inc.

Lowe's COS

WalMart Stores

TJX Companies Inc.

Walgreen CO

MAY Dep. Stores Co.Limited Brands

Merck & Co.

Baxter Int. Inc.

Abbott Laboratories

Johnson &

Biogen Inc.

Amgen Inc.Schering-Plough

Bristol Myers Squibb Lilly (Eli) & Co.

Kohls Corp.

Figure 34

During the bull market of the 1980s and 1990s divi-dends fell out of fashion. This was largely due to thefact that average TSR was in the high teens, makinggrowth a much more attractive proposition for investorsthan a 3–4% dividend yield. Moreover, paying divi-dends during this period, rather than reinvesting thesurplus, was often seen as an admission that manage-ment had run out of ideas for generating growth.

This preference for growth over yield, however, wasunusual. Historically, dividends have accounted fornearly half of shareholder value. Over the last 70years, for example, the average annual TSR of U.S.equities has been close to 10% and dividend yieldsaround 4%. If TSR continues to decline towards its long-term average of 10%, we can expect a similar balancein the future.

Historical precedents aside, though, there are severalreasons why firms should now consider dividends intheir shareholder value mix:

● Dividends reassure investors that a firm is makinggenuine progress—they are paid in cash and can-not be manipulated, unlike accounting-basedmeasures of success such as earnings per share(EPS). This reassurance is particularly important inthe wake of recent accounting and governancescandals.

● Research has shown that companies that raisetheir dividends significantly tend to enjoy higherstock values. Since 2001 for instance a dozenS&P 500 companies have increased their divi-dends by 20% or more, leading to an average2.7% lift in their stock values within ten days ofannouncing the increase. The restaurant chainLone Star Steakhouse & Saloon is a case in point.When it started paying dividends, its TSR rose by23% and its P/E ratio by 18%.

● A study in the Financial Analysts Journal4 foundthat companies with higher payout ratios havesubstantially higher long-term earnings growththan those with lower payout ratios.

Whether dividends are an appropriate element of acompany's shareholder value mix will depend on theindividual firm. A BCG Perspective, Thinking Differentlyabout Dividends, outlines the key issues firms need toconsider.

37

A NOTE ON DIVIDENDS

4 See Robert D. Arnott & Clifford S. Asness: "Surprise! Higher Dividends = Higher Earnings Growth" in Financial Analysts Journal Jan./Feb. 2003, Vol. 59, No. 1

38

Measure corporate success by TSR—the"gold standard" of value creation. SuperiorTSR not only makes it easier to raise additionalinvestment capital but also to retain and attracthigh quality staff. It also lowers the risks of atakeover.

Strive for high TSR irrespective of yourindustry. As we have shown, firms in all indus-tries are able to generate substantial TSR, oftensignificantly above both the global average andthe averages of other industries.

Set a realistic TSR target, stretched over,say, three years. Overly ambitious goals arelikely to lead to unsustainably high expectationpremiums, which will ultimately be punished witha disproportionate drop in TSR.

Never lose sight of the fact that fundamen-tals drive shareholder returns in the longrun. Don't rely on expectation premiums to fuelTSR; in the long run expectation premiums declineto zero. Strong fundamentals are the only way toproduce superior, sustainable shareholderreturns. Convert your external TSR goal into aninternal fundamental equivalent.

Measure fundamental value creation withappropriate tools. Total Business Returns (TBR)and Cash Value Added (CVA) are the most suit-able tools in BCG's view. These not only have astrong relationship with TSR, they also don't sufferfrom the accounting distortions and other pitfallsassociated with the more commonly used meas-ure EBITDA. Moreover they can be disaggregated

into a "value-driver tree" of practical targets andcontrol metrics for each business unit.

Control fundamental value with TBR's andCVA's two key components—CFROI andgross investment. To improve profitability, focuson both asset productivity and cash flow margins.Asset productivity initiatives should include regularreviews of working capital as well as efforts toreduce fixed, unproductive assets. To lift cash flowmargins, search for opportunities to introduce"value-added" price increases, for examplethrough more sophisticated customer segmenta-tion and innovation; cost reductions have finitelimits. Only grow your investment base once prof-itability is above the cost of capital. Benchmark allfundamental goals against your peers.

Align incentives with your fundamentalvalue-creation targets. This should be done atboth a business-unit and corporate level, ensuringall areas of the business are working towards thesame fundamental (and TSR) goal.

Manage your business units as a portfolioof value creators and destroyers. "Decon-struct" your portfolio to identify units with compet-itive strengths in markets with growth potential, aswell as those with little value-creation future. Aimfor profitable growth with the value creators andshed or milk the value destroyers and laggards.Regularly review your portfolio to ensure it is instep with competitive developments.

Harmonize your strategy with your domi-nant investors' expectations. Assess your core

CEO Checklist

CEO CHECKLIST

39

investors' expectations. Either reconfigure yourstrategy to meet to their demands or (a harder,longer task) reconfigure your investor base toalign it with your strategy. Consider your dividendstrategy.

Monitor and manage your relative expecta-tion premiums. Although fundamentals drivelong-term TSR, there will nearly always be expec-tation premiums in the short to medium term. Therelative size and direction of your premium

(whether it's positive or negative) will createopportunities and threats that need to beaddressed. Also, seek ways to generate sustain-able expectation premiums, for example throughgreater transparency. Ultimately, though, successis a question of superior fundamentals.

CEO Checklist

41

REGIONAL AND INDUSTRY RANKINGS

42

Avg. CFROI12.3%(4)

Best Buy

0 5 10 15 20 3025

Amgen Best Buy

Bed Bath & Beyond

SK TelecomStryker

Samsung ElectronicsHarley-Davidson

Forest Labs.QualcommNokia

84%16%

100

76%

24%

690

73%

27%

439

67%

33%

477

+41%+25%

-39%

+480%


Harley-Davidson

-20 0 20 6040

60

30

-30

Average

23.0%(3)

Average 10.2% (3)

II

I

III

IV



25%5%

-20%15%97%

-11%12%11%34%

5%

39%25%

0%51%26%

-18%47%48%62%46%

2,831470

1,018491296

2,012331162

-841243

Samsung ElectronicsForest Labs.SK TelecomQualcommBest BuyNokiaStrykerBed Bath & BeyondAmgenHarley-Davidson

123456789

10

KRUSKRUSUSFIUSUSUSUS

58%51%45%43%31%31%30%29%29%28%

10%11%11%

5%13%25%13%41%11%36%

50,85518,77812,93833,61315,37966,36914,95111,31482,70914,588

++++

+++++

+++++

++++++

+++

++++++++++

+–++–+

+++++

+––

++++++

––

++

+++++++++++

–++++++

+–

++

1997 1999 2002 2003(2)


FUNDAMENTAL VALUE ANALYSIS OF TOP 10 TSR COMPANIES



5-YEAR TSR RANKING

Profitability & growth 1998–2002

VALUE LEVER PERFORMANCE OF TOP 10 TSR COMPANIES

Cash flow margin asset productivity 2002versus

Asset turn 2002

Cash flow margin 2002 (%)

8

5

4

3

2

1

0

Average1.2%(4)

Average 14% (4)∆ CFROI 1998–2002

Gross investment growth p.a. 1998–2002

+++

++

+

–

++++++–

5%

WORLDTTSSRR RRAANNKKIINNGG

0

Amgen

Stryker

Forest Labs.SK Telecom

Best Buy

Nokia

Samsung Electronics

QualcommBed Bath & Beyond

20%

7

6Nokia

Bed Bath & Beyond

Forest Labs.

StrykerQualcomm

Harley-Davidson

Samsung Electronics

Amgen

SK Tele-com

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02

No. Company CountryAvg. TSR'98–'02

Avg. '98–'02

TBR MV in M$30 Sept. '03

Avg. GI CFM AP CFROI

Contribution of each value lever

(1) Market value of equity plus interest-bearing debt, 1997 = 100(2) Estimated fundamental value using I/B/E/S consensus forecast data; market value as of 30 September 2003(3) Weighted average of total sample; 274 companies; minimum market value 2002: $10B(4) Simple average of total industry sample Source: BCG analysis

Note: MV:EP:CFM:AP:

Market value of equityExpectation premiumCash flow marginAsset productivity

43

Bed Bath & Beyond

Harley-Davidson

Avg. CFROI12.3%(4)

Harley-DavidsonBed Bath & Beyond

-20 0 20 6040

60

30

-30

Average

23.0%(3)

Average 10.2% (3)

II

I

III

IV



0

Sysco

WORLD TTBBRR RRAANNKKIINNGG

1997

47%

33%

100

1999

79%

21%

315

2002

48%

52%

196

2003(2)

45%

55%

213

+42%+15%

-28%

+93%

1997 1999 2002 2003(2)

14%11%

8%5%

11%-4%-4%52%26%25%

36%48%48%46%62%42%51%

6%42%

2%

226162

-343243262816294229189540


FUNDAMENTAL VALUE ANALYSIS OF TOP 10 TBR COMPANIES



5-YEAR TBR RANKING

SLMBed Bath & BeyondMicrosoftHarley-DavidsonSyscoFifth Third BancorpKohlsGuidantUnited TechnologiesGolden West Financial

123456789

10

USUSUSUSUSUSUSUSUSUS

23%29%10%28%23%12%27%

0%13%18%

52%41%37%36%31%31%30%30%29%29%

17,72411,314

300,62914,58821,21331,64518,16214,57636,23013,635

NA+++

+++++

++++++

++

NA

NA

NA

NA

NA

+–++

+++

NA

NA

NA

––

+++

–––

NA

NA

NA

+–

+++

+––


VALUE LEVER PERFORMANCE OF TOP 10 TBR COMPANIES



Kohls

Fifth Third Bancorp Microsoft

SLM

Guidant

United Technologies

Golden West Financials

0 5 10 15 20 3025

Microsoft Guidant

Bed Bath & BeyondKohls

Harley-Davidson

Sysco

Asset turn 2002


8

5

4

3

2

1

0

Average1.2%(4)

Average 14%(4)∆ CFROI 1998–2002


+++

++

+

–

++++++–

5%20%

7

6Sysco

Kohls Guidant Microsoft

United Technologies

United Technologies

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





44

5%

20%

-10 0 10 4020 30

76%

24%

100

65%

35%

337

71%

29%

277

73%

27%

265

+25%+19%

-29%

+199%


90

-30

Average

11.9%(3)

Average 8.0% (3)

II

I

III

IV



-11%-13%

4%7%

-1%9%

-18%-1%9%7%

-18%5%

55%49%15%48%74%

-19%5%

28%

2,012-391

8747

-445759

-1725

40410

NokiaBouyguesBeiersdorfRoyal Bank of ScotlandPeugeot SASociete GeneraleL'OréalSvenska CellulosaCentricaRio Tinto

123456789

10

FIFRDEUKFRFRFRSEUKUK

31%23%23%18%17%16%16%16%15%15%

25%4%

21%0%

12%14%

6%17%24%12%

66,3697,9339,609

72,4379,922

26,27241,611

7,47612,84722,012

++++NA+

+++++++

NA

–++

+

+++

++

NA

NA

+++–+

++

––––

NA

NA

+++++

+

+++–

NA

NA

1997 1999 2002 2003(2)





5-YEAR TSR RANKING




0

Asset turn 2002


0 5 10 15 20 25

Average

1.2%(4)

Average 13.0% (4)

Nokia

∆ CFROI 1998–2002


+++ Nokia

SCACentrica

BouyguesPeugeotL'OréalBeiersdorf

++

+

–

++++++–

AverageCFROI12.1%(4)

EUROPETTSSRR RRAANNKKIINNGG

70

50

30

10

-10

Beiersdorf

Centrica

Société Generale

Rio Tinto

Peugeot

Nokia

Svenska Cellulosa

L'Oréal

Royal Bank of Scotland

Bouygues

6

5

4

3

2

1

0

Centrica

Bouygues

Peugeot

BeiersdorfL'Oréal

SCA

Rio Tinto

Rio Tinto

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02




(1) Market value of equity plus interest-bearing debt, 1997 = 100(2) Estimated fundamental value using I/B/E/S consensus forecast data; market value as of 30 September 2003(3) Weighted average of total sample; 111 companies; minimum market value 2002: $7.5B(4) Simple average of total industry sample Source: BCG analysis

45

Reckitt Benckiser

Bank of Ireland

Unicredito Italiano

Banco Popular Espanol

Novo Nordisk

5%

20%

Nokia

Centrica Reckitt Benckiser

Heineken

Novo Nordisk

-10 0 10 4020 30

90

-30

Average

11.9%(3)

Average 8.0% (3)

II

I

III

IV



70

50

30

10

-10

EUROPE TTBBRR RRAANNKKIINNGG

1997

65%

15%

100

1999

68%

32%

453

2002

26%

74%

293

2003(2)

23%

77%

284

+50%+14%

-37%

+195%

1997 1999 2002 2003(2)

12%12%11%

9%-11%14%

9%15%

3%-15%

24%8%

30%24%

-18%65%

5%-25%54%40%

347-212

1,236246

2,012-1,400

404218139174





5-YEAR TBR RANKING

Banco Popular EspanolKBCUnicredito ItalianoBank of IrelandNokiaUBSCentricaNovo NordiskReckitt BenckiserHeineken

123456789

10

ESBEITIEFISEUKDKUKNL

7%-3%8%

11%31%

1%15%

4%8%

13%

32%27%27%26%25%25%24%23%23%22%

9,67810,37226,89610,51566,36967,31812,84710,07013,77212,830

NA

++

+++++

NANANA

NA

NANANANA

NA–

++–+

NANANANA

+++NA–+

+++

NANANANA

+++NA++++





UBS

Nokia

Centrica

KBC

Heineken

0

Asset turn 2002


0 5 10 15 20 25

Average

1.2%(4)

Average 13.0% (4)∆ CFROI 1998–2002


+++ Nokia

Novo NordiskReckitt BenckiserHeineken

++

+

–

++++++–


6

5

4

3

2

1

0

Centrica

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02




(1) Market value of equity plus interest-bearing debt, 1997 = 100(2) Estimated fundamental value using I/B/E/S consensus forecast data; market value as of 30 September 2003(3) Weighted average of total sample; 111 companies; minimum market value 2002: $7.5B(4) Simple average of total industry sample Source: BCG analysis

46

WoolworthS

Average0.9%(4)

0

6

5

4

3

2

1

0

-10 0 10 3020

82%

18%

100

44%

56%

217

90%

10%

261

77%

23%

268

+22%

+25%

+129%


100

-60

Average

1.5%(3)

Average 7.7% (3)

II

I

III

IV



-24%25%

-20%13%

6%16%

5%19%-6%7%

80%39%

0%-16%41%43%38%

-26%41%26%

392,8311,018

-8954

15249

1,45487

550

WiproSamsung ElectronicsSK TelecomPoscoWoolworthsSaint George BankWesfarmersHyundai MotorFujisawa PharmaANZ Banking Group

123456789

10

INKRKRKRAUAUAUKRJPAU

78%58%45%24%21%21%21%20%20%16%

25%10%11%11%20%16%14%26%14%22%

6,07750,85512,93810,103

6,7435,8175,7346,1147,067

15,336

+++++

++++

++NA

++++++

+NA

+++

+++++NA++

++NA

–++

+––

NA+

+++–

NA

++++

+++–+NA+

++++NA

1997 1999 2002 2003(2)





5-YEAR TSR RANKING




0

Asset turn 2002


5 10 15 20 75

Average 14.7% (4)∆ CFROI 1998–2002


+++Hyundai MotorSK Telecom

Samsung Electronics

Fujisawa

Posco

++

+

–

++++++–

Av. CFROI8.7%(4)3%

ASIA-PACIFICTTSSRR RRAANNKKIINNGG

80

60

0

-20

-40

40

20ANZ Banking

WoolworthsSaint George Bank

Fujisawa Pharm.

SK Telecom

Samsung Electronics

Posco

Hyundai Motor

Wesfarmers

Wipro

-35%

25 30

15%

Woolworths Wesfarmers

Wipro

Hyundai Motor

WiproSK Telecom

PoscoFujisawa

Wesfarmers

Samsung Electronics

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





47

ASIA-PACIFIC TTBBRR RRAANNKKIINNGG

1997

56%

43%

100

1999

57%

43%

163

2002

26%

74%

153

2003(2)

29%

71%

166

+12%+18%

-23%

+44%

1997 1999 2002 2003(2)

19%9%

-24%22%14%

7%22%

6%7%

-8%

-26%29%80%35%25%26%62%41%14%51%

1,454356

39578320550703

54-399





5-YEAR TBR RANKING

Hyundai MotorCommonwealth Bk.of Aus.WiproWestpac BankingTelstraANZ Banking GroupHang Seng BankWoolworthsHong Kong ElectricKao

123456789

10

KRAUINAUAUAUHKAUHKJP

20%14%78%12%

9%16%

8%21%

5%8%

26%25%25%22%22%22%20%20%19%18%

6,11419,504

6,07716,25634,39215,33623,290

6,7438,169

11,921

+++NA

+++

+

++++

NA

NANA

+NA

++

++

++++

++

NA

NANA

+++NA–

NA–

–––

NANA

+++NA

++NA–

+–+

NANA





-10 0 10 3020

100

-60

Average

1.5%(3)

Average 7.7%(3)

II

I

III

IV



80

60

0

-20

-40

40

20

Woolworths

Hyundai Motor

Wipro

Kao Hang Seng Bank

CBAWestpac

ANZ Banking

HK Electric

Telstra

Woolworths

Average0.9%(4)

0

6

5

4

3

2

1

0 0

Asset turn 2002


5 10 15 20 75

Average 14.7% (4)∆ CFROI 1998–2002


+++ Hyundai Motor

Kao

TelstraHong Kong Electric

++

+

–

++++++–

Av. CFROI8.7%(4)3%

25 30

15%

Woolworths

Wipro

Hyundai Motor

Wipro Hong Kong Electric

TelstraKao

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





48

1.3%(4)

Average

Avg. CFROI13.4%(4)

8

5

4

3

2

1

0

7

6

0 5 10 15 25 3520 30

-10 0 10 6020

67%33%

100

79%

21%

589

48%

52%

388

53%

47%

459

+37%+18%

+275%


80

-40

Average

32.4%(3)

Average 12.6% (3)

II

I

III

IV



5%15%97%12%11%34%

5%-4%39%

4%

25%51%26%47%48%62%46%51%47%34%

470491296331162

-841243294574818

Forest Labs.QualcommBest BuyStrykerBed Bath & BeyondAmgenHarley-DavidsonKohlsLowe'sOracle

123456789

10


51%43%31%30%29%29%28%27%26%24%

11%5%

13%13%41%11%36%30%20%18%

18,77833,61315,37914,95111,31482,70914,58818,16240,78161,099

++++

+++++++++

+++

++++++++

++++++

+++–+++

+++

+++––

+++––

++–––

++++++

–+++

+–

+++++

1997 1999 2002 2003(2)





5-YEAR TSR RANKING




Asset turn 2002


Average 14.0% (4)

Harley-Davidson

∆ CFROI 1998–2002


+++ Stryker

Harley-Davidson

Oracle

Amgen Best Buy

++

+

–

++++++–

8%

NORTH AMERICATTSSRR RRAANNKKIINNGG

60

0

-20

40

20-26%

30 40 50

Bed Bath & Beyond

Kohls

Stryker

Lowe's

OracleBest Buy

Forest Labs.

QualcommAmgen Harley-

Davidson

18%

Forest Labs.Qualcomm

Bed Bath & BeyondKohlsLowe's

Best Buy

Lowe'sKohls

Bed Bath & Beyond

Stryker

Forest Labs.

OracleQualcommAmgen

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





49

Harley-DavidsonKohls

Bed Bath & Beyond

Bed Bath & Beyond

Harley- Davidson

-10 0 10 6020

80

-40

Average

32.4%(3)

Average 12.6%(3)

II

I

III

IV



60

0

-20

40

20

30 40 50

NORTH AMERICA TTBBRR RRAANNKKIINNGG

1997

67%

33%

100

1999

79%

21%

315

2002

48%

52%

196

2003(2)

45%

55%

213

+15%

-28%

+93%

1997 1999 2002 2003(2)

14%11%

8%5%

11%-4%-4%52%26%25%

36%48%48%46%62%42%51%

6%42%

2%

226162

-343243262816294229189540





5-YEAR TBR RANKING

SLMBed Bath & BeyondMicrosoftHarley-DavidsonSyscoFifth Third BancorpKohlsGuidantUnited TechnologiesGolden West Financial

123456789

10


23%29%10%28%23%12%27%

0%13%18%

52%41%37%36%31%31%30%30%29%29%

17,72411,314

300,62914,58821,21331,64518,16214,57636,23013,635

NA+++

+++++

++++++

++

NA

NA

NA

NA

NA

+–++

+++

NA

NA

NA

––

+++

–––

NA

NA

NA

+–

+++

+––





SLMMicrosoft

SyscoKohls

Guidant

Fifth Third Bancorp

United Technologies

Golden West Financials

+42%

1.3%(4)

Average

Avg. CFROI13.4%(4)

8

5

4

3

2

1

0

7

6

0 5 10 15 25 3520 30

Asset turn 2002


Average 14.0%(4)∆ CFROI 1998–2002


+++

Harley-Davidson

Sysco

Microsoft Guidant

++

+

–

++++++–

8%18%United Technologies

Bed Bath & BeyondKohls

Sysco

United Technologies

Guidant

Microsoft

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





50

70%8%

52%81%

5%28%52%-5%19%10%

25%33%46%81%46%33%58%

-13%-26%34%

1751995

-24243

7240

2861,454

24

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02

No. Company

Hyundai MobisToyoda GoseiStanley ElectricDenway MotorsHarley-DavidsonHero Honda MotorsJSRPorscheHyundai MotorGentex

123456789

10

Country

KRJPJPHKUSINJPDEKRUS

Avg. TSR'98–'02

56%38%32%29%28%27%24%21%20%19%

14%11%13%

9%36%25%

7%27%26%26%

2,6472,5043,1722,101

14,5881,2883,8776,6306,1142,661

++++

++++

++++++++

+++

++

+++++++

+–

–

+++++

+++++

+++

–

––

–

++++

++

+++++

+++

+++

–

–

Avg. '98–'02




(1) Market value of equity plus interest-bearing debt, 1997 = 100(2) Estimated fundamental value using I/B/E/S consensus forecast data; market value as of 30 September 2003(3) Weighted average of total sample; 56 companies; minimum market value 2002: $3B(4) Simple average of total industry sample

Fundamental performance p.a. (TBR) 1998–2002 (%)1997

74%

26%

100

1999

70%

30%

173

2002

95%

5%

286

2003(2)

85%

15%

315





+28%+31%

-37%


-10


80

60

40

20

0

-20

-40

-60

-80 0 10 20 30 40

Average

8.1%(3)

Average 9.2% (3)

DenwayII

I

III

IV

HyundaiMotor

HyundaiMobis

Hero HondaMotors

Porsche

Toyoda Gosei

GentexJSRStanley Electric

Harley-Davidson

5-YEAR TSR RANKING

AUTOMOTIVE INDUSTRY



Cash flow margin versus asset productivity 2002

0

Asset turn 2002


10.0

2.5

2.0

1.5

1.0

0.5

0 5 10 15 20 25

Average

1.4%(4)

Average 7.3%(4)

Denway

Hyundai MotorHyundai Mobis

Hero Honda Motors

PorscheToyoda Gosei

Gentex

JSR

Stanley Electric

Harley-Davidson

∆ CFROI 1998–2002


+++ Hyundai MobisHero Honda Motors

Hyundai Motor

Stanley ElectricHarley-DavidsonPorsche

Toyoda GoseiJSR

Denway Motors Gentex

++

+

–

++++++–

+42%

TTSSRR RRAANNKKIINNGG

5%

15%


AverageCFROI 9.5%(4)

51

Average 7.3%(4)


5%

15%


70%

30%

100

1999

77%

23%

135

2002

112%

-13%

180

2003(2)

103%

-3%

189

5%-5%19%10%28%28%

0%16%63%19%

46%-13%-26%34%-3%33%

-47%-12%41%

8%

243286

1,45424

12672

-23-1,232

-57-63





+22%

-22%


-10


80

60

40

20

0

-20

-40

-60

-80 0 10 20 30 40

Average

8.1%(3)

Average 9.2% (3)

Volkswagen

II

I

III

IV

HyundaiMotor

AisinSeiki

Hero HondaMotors

PorscheScania

GentexPaccar

Harley-Davidson

5-YEAR TBR RANKING

Harley-DavidsonPorscheHyundai MotorGentexMagna Intl.Hero Honda MotorsAisin SeikiVolkswagenPaccarScania

123456789

10

USDEKOUSCAINJPDEUSSE

28%21%20%19%

2%27%

5%-6%10%

2%

36%27%26%26%25%25%21%21%20%20%

14,5886,6306,1142,6616,1651,2883,953

15,7748,6714,441

++++

+++++++++

+++++

+++

+–+

+++

++++

++–

+++–+

+++––––

++++

+++–+

+++++––

AUTOMOTIVE INDUSTRY

Profitability & growth 1998–2002 Cash flow margin asset productivity 2002versus

0

Asset turn 2002


10.0

2.5

2.0

1,5

1.0

0.5

0 5 10 15 20 25

Average

1.4%(4)

Hyundai Motor

Hero Honda Motors

Porsche

GentexHarley-Davidson

∆ CFROI 1998–2002


+++ Hero Honda Motors Hyundai Motor

Harley-DavidsonPorsche

Aisin SeikiVolkswagen

PaccarScania

Gentex

++

+

–

++++++–

+2%

TTBBRR RRAANNKKIINNGG

Magna Intl.

Magna Intl.

Scania

Magna Intl

VW

PaccarAisin Seiki


TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





52

14%7%

25%9%7%9%1%

13%23%

3%

36%49%

2%48%26%29%37%24%36%46%

22647

540759550356147

1,816510

-1

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

AVE in M$'98–'02

No. Company

SLMRoyal Bank of ScotlandGolden West FinancialSociét G n raleANZ Banking GroupCommonwealth Bk. of Aus.National Australian BankBNP ParibasBank Of Nova ScotiaAllied Irish Banks

é é é

123456789

10

Country

USUKUSFRAUAUAUFRCAIE

Avg. TSR'98–'02

23%18%18%16%16%14%13%13%12%12%

52%0%

29%14%22%25%12%21%12%14%

17,72472,43713,63526,27215,33619,50426,02239,90320,20911,252

Avg.'98–'02



62%

38%

100

1999

59%

41%

162

2002

65%

35%

253

2003(2)

63%

37%

268





+23%+20%

+10%


-10


60

50

40

30

20

10

0

-10 0 10 20 30 60

Average

40.3%(3)

Average 13.9% (3)

II

I

III

IV

5-YEAR TSR RANKING

BANKS

+33%


Societé GeneraleAllied Irish Bank SLM

National Australia BankRBS

Bank of Nova Scotia CBA

BNP Paribas

Golden WestFinancial

ANZ Banking Group

40 50

(1) Market value of equity plus interest-bearing debt, 1997 = 100(2) Estimated fundamental value using I/B/E/S consensus forecast data; market value as of 30 September 2003(3) Weighted average of total sample; 51 companies; minimum market value 2002: $10B Source: BCG analysis

53

1997

47%

53%

100

1999

49%

51%

205

2002

40%

60%

252

2003(2)

37%

63%

271

14%-4%25%

0%11%

9%17%

9%11%14%

36%42%

2%14%30%24%36%29%

2%65%

226816540532

1,236246440356326

-1,400

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

AVE in M$'98–'02





+48%

-1%


5-YEAR TBR RANKING

No. Company

SLMFifth Third BancorpGolden West FinancialBB & TUnicredito ItalianoBank of IrelandState StreetCommonwealth Bk.of Aus.National CityUBS

123456789

10

Country

USUSUSUSITIEUSAUUSCH

Avg. TSR'98–'02

23%12%18%

6%8%

11%7%

14%0%1%

52%31%29%28%27%26%26%25%25%25%

17,72431,64513,63519,67926,89610,51514,97919,50418,09360,973

Avg.'98–'02


BANKS

+41%


Fundamental performance p.a. (TBR) 1998–2002 (%)-10


60

50

40

30

20

10

0

-10 0 10 20 30 60

Average

40.3%(3)

Average 13.9% (3)

II

I

III

IV

SLM

UBS

CBA

Golden WestFinancial

40 50

+14%

Bank of IrelandUnicredito Italiano

State Street

BB&T

National City


Fifth Third Bancorp

54

23%38%-2%52%

9%17%

-12%8%

44%7%

14%-10%-25%34%12%33%11%37%60%40%

-128-18

-233-649

-907

-121-2463

-34

Mitsui ChemicalsDaicel Chem.Inds.DSMReliance Inds.CabotJohnson MattheySumitomo ChemicalShin-Etsu ChemicalNitto DenkoValspar

123456789

10

JPJPNLINUSUKJPJPJPUS

19%17%14%14%12%11%11%10%

9%8%

4%6%8%

13%7%

17%6%

11%7%

26%

4,2891,3994,319

12,9301,7593,2285,678

14,9567,0722,362

+++++

++++++

–+–––+++++

+––

++––––+–

–+–+––+++–


86%

14%

100

1999

65%

35%

140

2002

83%

17%

147

2003(2)

75%

25%

164





+3%+10%

-21%


-10


60

40

20

0

-20

-40 0 10 30

Average

18.6%(3)

Average 8.4% (3)

Valspar

II

I

III

IV

5-YEAR TSR RANKING

CHEMICALS


VALUE LEVER PERFORMANCE OF TOP TSR COMPANIES


0

Asset turn 2002


3.0

2.5

2.0

1.5

1.0

0.5

0 5 10 15 20

Average0.8%(4)

Average 10.2%(4)∆ CFROI 1998–2002


+++

DaicelRelianceSumitomoShin-EtsuNitto Denko

++

+

–

++++++–

AverageCFROI 7.3% (4)

+87%


5%

10%

20

Johnson MattheyShin-Etsu

Nitto Denko

Reliance

Sumitomo

Cabot

Mitsui

DSM

Daicel

MitsuiDSMCabotValspar

JohnsonMatthey

Johnson Matthey

Nitto DenkoReliance

Shin-Etsu Chemical

Daicel

DSM

MitsuiSumitomo Chemical Cabot

Valspar

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





55

0

Asset turn 2002


3.0

2.5

2.0

1.5

1.0

0.5

0 5 10 15 20

Average0.8%(4)

Average 10.2%(4)

AverageCFROI 7.3% (4)

5%

10%

1997

63%

37%

100

1999

59%

41%

127

2002

30%

70%

141

2003(2)

34%

66%

154

7%36%17%46%

7%9%

-7%52%13%

4%

40%66%33%39%34%18%33%34%33%18%

-3438

7-578

-4123

2-649

-1,89027





+9%

-7%


5-YEAR TBR RANKING

ValsparMilliporeJohnson MattheyNan Ya PlasticsCarlisle CosLubrizolAkzo NobelReliance Inds.Dow ChemicalsAirgas

123456789

10

USUSUKTWUSUSNLINUSUS

8%4%

11%0%1%0%

-3%14%

1%4%

26%17%17%16%16%13%13%13%13%12%

2,3622,2413,2287,5781,3381,6718,039

12,93029,804

1,306

++

+++++++++

+++

+++

––+––+

–––––++

++–+

–++

–––+++–+

CHEMICALS




∆ CFROI 1998–2002


+++

++

+

–

++++++–

+18%




+10%

-10

60

40

20

0

-20

-40 0 10 30

Average

18.6%(3)

Average 8.4% (3)

Valspar

II

I

III

IV

20

Johnson Matthey

Millipore

CarlisleDow

Akzo Nobel

Lubrizol

Nan Ya PlasticsReliance

Airgas

RelianceLubrizolAkzo NobelAirgas

Millipore

ValsparNan YaCarlisleDow

JohnsonMatthey

Johnson Matthey

ValsparCarlise

Airgas

Dow Chemical

Akzo NobelMillipore

Reliance

Nan Ya Plastics

Lubrizol

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





56

11%4%

57%-3%3%

13%3%

14%-18%14%

62%55%60%34%57%16%53%38%74%34%

262872886

325162

76177

-172-181

SyscoBeiersdorfTiffany & Co.Gallaher GroupAnheuser-BuschWeston GeorgeHermès Intl.LoblawL'OréalPernod-Ricard

123456789

10

USDEUSUKUSCAFRCAFRFR

23%23%22%21%19%18%17%16%16%15%

31%21%23%24%16%13%16%16%

6%5%

21,2139,6095,4385,922

40,7938,4465,136

10,50041,611

6,014

+++

++++++

++++

+++++

++

++

++–++

++++

++

++–+––––––

++––++

++++–


50%

50%

100

1999

35%

65%

170

2002

41%

59%

210

2003(2)

45%

55%

204





+8%+13%

+4%


-10


100

60

40

20

0

-20 0 10 40

Average

39.5%(3)

Average 13.6% (3)

Sysco

II

I

III

IV

5-YEAR TSR RANKING

CONSUMER GOODS




0

Asset turn 2002


5.0

4.0

3.0

2.0

1.0

0 5 10 15 20 25

Average1.4%(4)

Average 12.2%(4)∆ CFROI 1998–2002


+++

BeiersdorfAnheuser-BuschL'Oréal

++

+

–

++++++–


+49%


10%

20%

3020

80Anheuser-Busch

L’Oréal

Hermès BeiersdorfGallaher

TiffanyLoblaw

Weston George

Pernod-Ricard

Pernod-Ricard

Hermès Intl.

SyscoWeston GeorgeLoblaw

Tiffany & Co.Gallaher

Sysco

Loblaw

Weston George

BeiersdorfL'OréalPernod-Ricard

Tiffany & Co.Hermès Intl.

Gallaher Group

Anheuser-Busch

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





57

Beiersdorf

Heineken

BeiersdorfReckitt BenckiserHeineken

CintasGeneral Mills

Sysco

Tiffany & Co.Gallaher

-10 0 10 403020

100

60

40

20

0

-20

Average

39.5%(3)

Average 13.6% (3)

Sysco

II

I

III

IV

80

1997

40%

60%

100

1999

39%

61%

114

2002

56%

44%

167

2003(2)

53%

47%

168

11%-3%3%

57%-19%-15%21%

2%4%

10%

62%34%54%60%54%40%63%39%55%56%

26286

13928

-54174216

-48787

1,257





+5%

+10%


5-YEAR TBR RANKING

SyscoGallaher GroupReckitt BenckiserTiffany & Co.CintasHeinekenAvon ProductsGen. MillsBeiersdorfPepsico

123456789

10

USUKUKUSUSNLUSUSDEUS

23%21%

8%22%12%13%14%

8%23%

5%

31%24%23%23%22%22%22%21%21%20%

21,2135,922

13,7725,4386,318

12,83015,25017,540

9,60979,085

+++++

++++

++–+++

+––

++–++++

++

++

++––+

+++–++

+–+––+

+++–+

++

CONSUMER GOODS




∆ CFROI 1998–2002


+++

++

+

–

++++++–

+8%




+18%

Cintas

GallaherTiffanyGeneral

Mills

Beiersdorf

Pepsico HeinekenAvon

Reckitt Benckiser

0

Asset turn 2002


5.0

4.0

3.0

2.0

1.0

0 5 10 15 20 25

Average1.4%(4)

Average 12.2%(4)


10%

20%

Sysco

Tiffany & Co. Gallaher Group

Pepsico

Avon ProductsAvon Products

Pepsico

General Mills

Cintas

Renckitt Benckiser

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





58

BouygesVinci

SiamCement Assa Abloy

PoscoAmerican Standards

DanaherGeneral Dynamics

Rio Tinto

Impala Platinum

-10 0 10 403020

60

40

20

0

-20

-40

Average

11.9%(3)

Average 14.8% (3)

II

I

III

IV

1997

87%

13%

100

1999

67%

33%

163

2002

22%

78%

200

2003(2)

23%

77%

205

12%64%13%

-13%20%13%

-31%7%0%

18%

58%42%

-16%5%1%

53%7%

28%38%32%

238147-89

-391-3719

1131067

-67





+12%

-6%


5-YEAR TSR RANKING

Impala PlatinumSiam CementPoscoBouyguesVinci (ex SGE)DanaherAssa AbloyRio TintoGeneral DynamicsAmerican Standards

123456789

10

ZATHKRFRFRUSSEUKUSUS

71%38%24%23%22%16%15%15%15%13%

20%7%

11%4%

17%25%11%12%15%16%

4,5095,151

10,1037,9335,453

11,3122,706

22,01215,395

6,088

++–+++

++++++

+++++

+

+++–++

++++

++–+

++++––––+–

++–

++++–++–+–––


0

Asset turn 2002


2.5

2.0

1.5

1.0

0.5

0 5 10 15 25 35

Average

1.0%(4)

Average 11.0% (4)∆ CFROI 1998–2002


+++

++

+

–

++++++–


+102%

5%



+12%

DanaherImpala Platinum

American StandardsGeneral Dynamics

Vinci

Posco

Bouygues

Siam Cement

Rio TintoAssa Abloy

INDUSTRIAL GOODS, ENGINEERING & RAW MATERIALSTTSSRR RRAANNKKIINNGG

20 30

15%

VinciAmerican Standards

Bouygues

General Dynamics

DanaherAssa Abloy

Impala Platinum

Rio TintoSiam Cement

Posco


TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





59


26%57%33%13%12%20%27%18%-2%3%

42%32%-3%53%58%

1%-11%32%29%46%

189-243205

19238-37

-636-67

-275-192

United TechnologiesCentexCRHDanaherImpala PlatinumVinci (ex SGE)Cemex American StandardsParker HannifinIllinois Toolworks

123456789

10

USUSIEUSZAFRMXUSUSUS

13%10%

6%16%71%22%

8%13%

2%3%

29%27%26%25%20%17%17%16%16%15%

36,2304,8108,458

11,3124,5095,4539,4456,0885,282

20,399

+++

++++++

+++++++

++++

+++++

–+––

––––

+++–+–––

––+–

++++––––

1997

63%

37%

100

1999

59%

41%

152

2002

76%

24%

190

2003(2)

70%

30%

213





+19%+17%

-9%


5-YEAR TBR RANKING


∆ CFROI 1998–2002


+++

++

+

–

++++++–

+30%

INDUSTRIAL GOODS, ENGINEERING & RAW MATERIALS TTBBRR RRAANNKKIINNGG

-10 0 10 403020

Average

11.9%(3)

Average 14.8% (3)

II

I

III

IV



60

40

20

0

-20

-40

Danaher

United Technologies

Centex

Vinci

CRH

Cemex

American Standards

Parker Hannifin

Illinois Toolworks Impala Platinum

0

Asset turn 2002


2.5

2.0

1.5

1.0

0.5

0 5 10 15 25 35

Average

1.0%(4)

Average 11.0% (4)


5%

20 30

15%

VinciAmerican Standards

DanaherImpala Platinum

Cemex

Illinois Toolworks

United Technologies

CRHParker Hannifin

Centex

American StandardsCentex, CemexParker HannifinIllinois Toolworks

Vinci

United Technologies

Impala Platinum

Danaher

CRH

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





60

-10 0 10 403020

80

40

20

0

-20

-80

Average

17.4%(3)

Average 3.6%(3)

II

I

III

IV

1997

63%

37%

100

1999

41%

59%

192

2002

36%

64%

190

2003(2)

38%

62%

199

8%17%24%17%

0%15%

7%20%39%20%

31%45%

-26%-145%

47%81%46%

-13%51%

-11%

3.817-69

3,8671,6624,404

82-1,368

641-2,1511,530

TSR1 Jan–

30 Sept. '03

EP30 Sept. '03

AVE in M$'98–'02





+11%

-15%


5-YEAR TSR RANKING

# Company

AflacRASPower FinancialFidelityAIGMediolanumTransatlanticOld RepublicProgressiveRadian

123456789

10

Country

USITCAUSUSITUSUSUSUS

Ø TSR'98–'02

20%12%10%

9%9%8%8%5%5%5%

12%4%

28%35%13%13%-2%11%

0%32%

16,6039,2239,7254,048

150,5324,2043,7283,998

15,0144,155

Ø TBR'98–'02

MV in M$30 Sept. '03

+76%



+16%

Mediolanum

INSURANCETTSSRR RRAANNKKIINNGG

60

-40

-60

AIGRAS

Progressive

Trans-atlantic

Aflac

Old Republic Radian

Power Financial

Fidelity


61

Mediolanum

Aflac

Old Republic Radian

Power Financial

Fidelity

AIG

80

40

20

0

-20

-80

60

-40

-60

-10 0 10 403020

Average

17.4%(3)

Average 3.6% (3)

II

I

III

IV



17%20%24%17%18%

0%15%19%

8%20%

-145%-11%-26%67%31%47%81%23%31%

-13%

1,6621,5303,867

572-578

4,40482

-1413,817

641

TSR1 Jan–

30 Sept. '03

EP30 Sept. '03

AVE in M$'98–'02

# Company

FidelityRadianPower FinancialAlleanzaHartfordAIGMediolanumJefferson-PilotAflacOld Republic

123456789

10

Country

USUSCAITUSUSITUSUSUS

Ø TSR'98–'02

9%5%

10%-2%1%9%8%4%

20%5%

35%32%28%19%13%13%13%12%12%11%

4,0484,1559,7257,345

14,863150,532

4,2046,293

16,6033,998

Ø TBR'98–'02

MV in M$30 Sept. '03

1997

60%

40%

100

1999

40%

60%

190

2002

68%

32%

178

2003(2)

64%

36%

186





+13%+17%

-21%


5-YEAR TBR RANKING

+68%

INSURANCE TTBBRR RRAANNKKIINNGG

Jefferson-Pilot

Hardford

Alleanza


62

2.5

2.0

1.5

1.0

0.5

0

-10 0 10 3020

80

40

20

0

-20

-80

Average

25.1%(3)

Average 20.1% (3)

II

I

III

IV

1997

85%

15%

100

1999

47%

53%

226

2002

27%

73%

290

2003(2)

28%

72%

304

72%4%

19%-6%

-19%11%

4%11%12%-9%

69%69%35%16%62%

-72%30%58%48%54%

276-34

-145-3,692

-2311442-3460

-99





+12%

-13%


5-YEAR TSR RANKING

Echostar CommunicationsTF1Publicis GroupeViacomWestwood OneMediasetMcGraw-Hill Scripps (EW) OmnicomWashington Post

123456789

10

USFRFRUSUSITUSUSUSUS

60%25%23%15%15%12%12%11%10%10%

1%17%17%

2%17%

9%22%13%16%12%

15,4255,7304,834

72,4203,0339,743

11,8795,304

13,6545,190

++++++++++

++++

+++–+

++++

+++++

–––

+++–––––+–––

+++––––

+++++

–––


0

Asset turn 2002


5 10 15 20 55

Average0.9%(4)

Average 14.1% (4)∆ CFROI 1998–2002


+++

++

+

–

++++++–


+181%

6%

18%



+26%

MEDIA & ENTERTAINMENTTTSSRR RRAANNKKIINNGG

60

-40

-60

McGraw-Hill

Echostar

Viacom

Mediaset

TF1Westwood

Washington PostScripps

Omnicom

PublicisGroupe

TF1, Publicis Groupe,Viacom, Westwood,Scripps,Washington Post

McGraw-Hill

Mediaset

Echostar

Omnicom

TF1

Omnicom

McGraw-Hill

Mediaset

Westwood One

Scripps

Viacom

Publicis Groupe

Washington Post

Echostar


TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





63


2.5

2.0

1,5

1.0

0.5

0 0

Asset turn 2002


5 10 15 20 55

Average0.9%(4)

Average 14.1% (4)∆ CFROI 1998–2002


+++

++

+

–

++++++–


6%

18%TF1 Publicis GroupeWestwoodDaily MailUnivision

McGraw-HillEmap

WoltersKluwer

Omnicom

Thomson

Emap

Daily Mail

Wolters Kluwer

Thomson

Univision

McGraw-Hill

Omnicom

TF1Westwood

-10 0 10 3020

80

40

20

0

-20

-80

Average

25.1%(3)

Average 20.1% (3)

II

I

III

IV



60

-40

-60

-23%4%

-7%4%

19%-19%30%

1%12%

6%

10%30%37%69%35%62%68%33%48%35%

81442

0-34

-145-2

-163463

60211

Wolters KluwerMcGraw-Hill Daily Mail&generalTF1Publicis GroupeWestwood OneUnivision CommunicationsThomsonOmnicomEmap

123456789

10

NLUSUKFRFRUSUSCAUSUK

-10%12%

4%25%23%15%

7%4%

10%-1%

23%22%20%17%17%17%17%17%16%15%

3,65711,879

3,6665,7304,8343,0338,082

16,94513,654

3,195

+++++++

+++++

+

–++

+–+

++–

+++–+

++–––––––

+++

++++

–––––

++–

+++

1997

60%

40%

100

1999

43%

57%

156

2002

62%

38%

152

2003(2)

59%

41%

159





+30%+12%

-13%


5-YEAR TBR RANKING


+21%

MEDIA & ENTERTAINMENT TTBBRR RRAANNKKIINNGG

WoltersKluwer

Daily Mail

Thomson

EmapPublicis Groupe

Univision

TF1

Omnicom

McGraw-Hill

Westwood One

Publicis Groupe

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





64


-10 0 10 3020

90

50

30

10

-10

Average

18.6%(3)

Average 14.1% (3)

II

I

III

IV

1997

57%

43%

100

1999

55%

45%

128

2002

33%

67%

117

2003(2)

33%

67%

123

-24%5%

-1%-3%14%

5%31%24%36%20%

80%38%51%

8%63%-6%

-100%38%27%

2%

3949-7

-149213

55212176620

-1,851





+12%

-13%


5-YEAR TSR RANKING

WiproWesfarmersITT IndustriesBarloworld3MSime DarbyCSRFortune BrandsItochuHutchison Whampoa

123456789

10

INAUUSNZUSMYAUUSJPHK

78%21%16%12%11%10%

9%7%5%4%

24%14%

6%23%14%13%

3%12%

8%3%

6,0775,7345,5271,425

54,0823,1531,0618,2424,617

30,888

++++++

–++––––+

+++++++

+++–+–

–+–––––

++––

+++––++

+++++–


0

Asset turn 2002


7.0

2.5

2.0

1.5

1.0

0.5

0 5 10 15 20 30

Average

1.4%(4)

Average 11.3%(4)∆ CFROI 1998–2002


+++

Wipro

Wesfarmers3M

BarloworldHutchison Whampoa

++

+

–

++++++–

AverageCFROI8.6%(4)

+15%

4%

14%



+3%

MULTIBUSINESSTTSSRR RRAANNKKIINNGG

70

Wipro

3M

WesfarmersITT

Fortune Brands

Barloworld

ItochuCSR

HutchisonWhampoa

Sime Darby

CSR

Sime DarbyFortune BrandsItochu

ITT Industries

25

Itochu

Barloworld

Wipro

CSR

Hutchison Whampoa

3M

Fortune Brands

Sime Darby

ITT Industries

Wesfarmers

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





65

3M


WiproWesfarmers

Wipro

3M

Wesfarmers

Barloworld

-10 0 10 3020

90

50

30

10

-10

Average

18.6%(3)

Average 14.1% (3)

II

I

III

IV



70

-24%-3%25%

3%18%

6%23%20%14%

5%

80%8%

23%30%35%23%53%30%63%38%

39-149

-4,716-8

-19-100-248

-60213

49

WiproBarloworldGeneral ElectricTeleflexAptargroupImperial Hdg.DoverIndustrivarden3MWesfarmers

123456789

10

INNZUSUSUSZAUSSEUSAU

78%12%

1%4%3%2%

-3%2%

11%21%

24%23%20%19%18%17%16%16%14%14%

6,0771,425

298,6621,7181,3281,4417,1662,434

54,0825,734

+++++++++++

+++

+++––––––++

–––––––––+

++–––––––++

1997

43%

57%

100

1999

44%

56%

178

2002

78%

22%

138

2003(2)

73%

27%

152





+17% +12%

-33%


5-YEAR TBR RANKING


+53%

MULTIBUSINESS TTBBRR RRAANNKKIINNGG

Dover

TeleflexAptar

Imperial

Industrivarden

General Electric

0

Asset turn 2002


7.0

2.5

2.0

1.5

1.0

0.5

0 5 10 15 20 30

Average

1.4%(4)

Average 11.3% (4)∆ CFROI 1998–2002


+++

Wipro

Wesfarmers3M

Barloworld, Aptargroup, GE, Dover, Industrivarden, Teleflex, Imperial Hdg.

++

+

–

++++++–

AverageCFROI8.6%(4)4%

14%

25

Imperial Holding

Barloworld

Industrivarden

Dover

Aptargroup

General ElectricTeleflex

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





66


0 10 20 30 405 15 25 35

-20 0 10 4020 30-10

90

50

30

10

-30

Average

24.2%(3)

Average 19.0% (3)

II

I

III

IV

1997

80%20%100

1999

41%

59%

303

2002

51%

49%

426

2003(2)

50%

50%

538

5%0%

22%37%12%34%65%28%35%18%

25%19%27%57%47%62%87%

-10%56%24%

470917056

331-841

90217

80100





+7%


5-YEAR TSR RANKING

Forest LabsIDEC PharmaceuticalsMedimmuneAllerganStrykerAmgenGilead SciencesAltanaSt. Jude MedicalBiomet

123456789

10

USUSUSUSUSUSUSDEUSUS

51%42%31%30%29%29%29%22%21%21%

11%3%0%9%

13%11%-5%32%28%24%

18,7785,1758,252

10,57014,95182,70911,284

8,0159,7338,589

++++++++

–+++

++++

+++

++

+++++++++

++–

+++++

++

+++–+

+++++

–+++

+++

++++

+++++

+++–

++++++

++


Asset turn 2002


3.0

2.5

2.0

1.5

1.0

0.5

0

Average

1.4%(4)

Average 18.0% (4)∆ CFROI 1998–2002


+++ Forest Labs.Altana

MedimmuneStrykerGilead Sciences

Allergan

St. Jude

Amgen

++

+

–

++++++–


+198%

10%



+18%

PHARMACEUTICAL & BIOTECHTTSSRR RRAANNKKIINNGG

70St. Jude Medical

Biomet

Altana

Gilead

Amgen

Medimmune

IDECForest Labs

StrykerAllergan

+25%

Biomet IDEC30%

Forest Labs.Medimmune

Biomet

IDECAmgen

St. JudeStryker

Gelead Sciences

Altana Allergan

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





-10

67

0 10 20 30 405 15 25 35

90

50

30

10

-30

70

-10


Biomet

Altana

-20 0 10 4020 30-10

Average

24.2%(3)

Average 19.0% (3)

II

I

III

IV



28%52%35%-7%18%15%-4%4%3%

19%

-10%6%

56%32%24%

-25%17%28%41%32%

217229

802,462

100218

1,828388492

72

AltanaGuidantSt. Jude MedicalJohnson & JohnsonBiometNovo NordiskMerck & Co.Baxter Intl.MedtronicBecton Dickinson

123456789

10

DEUSUSUSUSDKUSUSUSUS

22%0%

21%12%21%

4%3%5%

12%5%

32%30%28%27%24%23%20%19%19%18%

8,01514,576

9,733146,976

8,58910,070

113,33017,05557,088

9,172

+++++

+++++

+++

++++

++++

++++

++++

–

+–++++

++++––

+++–+

++++++–+

1997

54%

46%

100

1999

46%

54%

138

2002

67%

33%

147

2003(2)

74%

26%

141





+17%+16%

-13%


5-YEAR TBR RANKING


+17%

PHARMACEUTICAL & BIOTECH TTBBRR RRAANNKKIINNGG

Johnson & Johnson

Medtronic

Becton Dickinson

Novo Nordisk

Guidant

Merck & Co.

Baxter

Asset turn 2002


3.0

2.5

2.0

1.5

1.0

0.5

0

Average

1.4%(4)

Average 18.0% (4)

Guidant

∆ CFROI 1998–2002


+++ Altana

St. Jude, Novo Nordisk, Merck & Co., Baxter, Becton

++

+

–

++++++–


10%

Biomet

GuidantMedtronic

30%

BiometSt. Jude

AltanaMerck & Co.

MedtronicNovo Nordisk

Becton Dickinson

Baxter

Johnson & Johnson

Johnson & Johnson

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





St. Jude Medical

68


1.5

1.0

0.5

-10 0 10 4020 30

40

-20

-40

-60

-80

Average

-10.5%(3)

Average 16.1%(3)

II

I

III

IV

1997

118%

-18%

100

1999

-8%

108%

124

2002

116%

-16%

166

2003(2)

111%

-11%

171

31%-18%106%

27%196%

-1%74%-1%21%79%

4%-24%

-1%8%

35%-19%

-1%-11%-31%28%

-126-770

855

225

48-1,194

137






5-YEAR TSR RANKING

Votorantim CeluloseSappiSuzanoUnipapelKlabinSvenska CellulosaCMPCUPM-KymmeneHolmenShandong Chenming

123456789

10

BRZABRESBRSECLFISECN

44%40%25%20%18%15%15%15%14%14%

24%12%27%17%15%17%19%15%

6%-4%

7402,556

419146933

7,4762,9997,8532,261

831

+++–+

++++

+–

+++

+++–

+++–

++++

++–

++–

+–+

+++++

–+––+

++–

++++

+++++–+–


0

Asset turn 2002


0 5 10 15 20 45

Average

0.7%(4)

Average 11.4% (4)∆ CFROI 1998–2002


+++SuzanoKlabin

Votorantim

UnipapelHolmen

SappiUPM-Kymmene

ShandongChenming

++

+

–

++++++–


10%



+13%

PULP & PAPERTTSSRR RRAANNKKIINNGG

20

+6%

0Suzano

Unipapel

CMPCHolmen

Klabin

Shandong Chenming

UPM-Kymmene

Sappi

Votorantim Celulose

Svenska Cellulosa

SCACMPC

25 30 35 40

Unipapel

Shandong Chenming

KlabinSuzano

VotorantimCMPC

HolmenUPM-Kymmene

SCA

Sappi

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





69

1.5

1.0

0.5

0

Asset turn 2002


0 5 10 15 20 45

Average

0.7%(4)

Average 11.4% (4)∆ CFROI 1998–2002


+++SuzanoKlabin

Votorantim

Unipapel

TembecUPM-Kymmene

++

+

–

++++++–


10%

SCACMPC

25 30 35 40

Suzano

Unipapel

CMPC

Klabin

UPM Kymmene

Votorantim Celulose

Svenska Cellulosa

-10 0 10 4020 30

40

-20

-40

-60

-80

Average

-10.5%(3)

Average 16.1% (3)

II

I

III

IV



20

0

106%31%74%10%27%-1%

-26%196%

-1%16%

-1%4%

-1%43%

8%-19%-17%35%

-11%-10%

85-126

48256

55

-14222

-1,1948

SuzanoVotorantim CeluloseCMPCKimberly-ClarkUnipapelSvenska CellulosaTembecKlabinUPM-KymmeneMayr-Melnhof

123456789

10

BRBRCLUSESSECABRFIAT

25%44%15%

1%20%15%

7%18%15%10%

27%24%19%18%17%17%15%15%15%13%

419740

2,99926,001

1467,476

445933

7,8531,007

++

+++–

++++++

++++++

++++

–+–

+++–+

+++–

+++–+

++–+

+++++

++++–

+++–+

1997

28%

72%

100

1999

67%

33%

125

2002

91%

9%

123

2003(2)

85%

15%

129





+8%+10%

-34%


5-YEAR TBR RANKING


+21%

PULP & PAPER TTBBRR RRAANNKKIINNGG

Mayr-Melnhof Tembec

Kimberly-Clark

Unipapel

KlabinSuzano

VotorantimCMPC

UPM-Kymmene

SCA

Mayr-Melnhof

Kimberly ClarkTembec

Mayr-MelnhofKimberly Clark


TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





70

-10 0 10 5020 30

80

20

10

0

-10

Average

34.7%(3)

Average 16.1% (3)

II

I

III

IV



50

40

97%156%

11%32%-4%39%11%

6%-1%27%

26%87%48%12%51%47%58%41%40%27%

29690

162105294574

1,3275442

239

Best BuyAmazon.ComBed Bath & BeyondCDW Computer CentersKohlsLowe'sWal Mart StoresWoolworthsWilliams SonomaAutozone

123456789

10

USUSUSUSUSUSUSAUUSUS

31%30%29%27%27%26%21%21%21%19%

13%-1%41%21%30%20%18%20%12%20%

15,37919,22611,314

4,76618,16240,781

244,0206,7433,1508,011

++++++++++++++++++

++++

+++++

+++

++++++++

–+++

–+++

–––––

+++

–+++

++++

++–+–

++

1997

43%

57%

100

1999

77%

23%

321

2002

44%

56%

271

2003(2)

45%

55%

310





+30%+18%

-15%


5-YEAR TSR RANKING




0

Asset turn 2002


10

8

6

4

2

0 10 15

Average2.8%(4)

Average 6.0% (4)∆ CFROI 1998–2002


+++AmazonCDW

Autozone

Woolworths

Wal MartBest BuyWilliams Sonoma

++

+

–

++++++–


+108%

10%

30

70

60

40

AmazonWoolworths

Wal Mart Kohls

Bed Bath & BeyondLowe's

Autozone

Williams Sonoma

Best Buy

CDW Computer

RETAILTTSSRR RRAANNKKIINNGG

Bed Bath & BeyondKohlsLowe's

5

20%

CDW Computer Centers

Best Buy

Bed Bath & Beyond

Woolworths

AmazonWal Mart Autozone

KohlsLowe'sWilliams Sonoma

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





71


0

Asset turn 2002


10

8

6

4

2

0 10 15

Average2.8%(4)

Average 6.0%(4)∆ CFROI 1998–2002


+++ CDW

Walmex Home Depot

Ross StoresDixonsStaples

++

+

–

++++++–


10%

20%

Bed Bath & BeyondKohlsStarbucks

5

RETAIL TTBBRR RRAANNKKIINNGG

1997

37%

63%

100

1999

77%

23%

265

2002

67%

33%

161

2003(2)

62%

38%

200

+27%+22%

-36%

+81%

Kohls

Bed Bath & Beyond

CDW Computer

-10 0 10 5020 30

80

20

10

0

-10

Average

34.7%(3)

Average 16.1% (3)

II

I

III

IV



50

40

30

70

60

401997 1999 2002 2003(2)

11%-4%34%-2%41%30%36%56%32%10%

48%51%28%-7%70%50%61%23%12%

8%

162294

1,3901

4727

-28183105

64





5-YEAR TBR RANKING

Bed Bath & BeyondKohlsHome DepotDixons GroupStarbucksStaplesWalmexNextCDW Computer CentersRoss Stores

123456789

10

USUSUSUKUSUSMXUKUSUS

29%27%

5%2%

16%8%7%5%

27%19%

41%30%28%24%24%23%22%21%21%21%

11,31418,16275,400

4,21511,26311,68713,408

4,9884,7663,526

++++++

+++++++++++

++

+++++

+++––++++–

––––+––

++++++

–

+++–+–+

++++++

–




Starbucks

Walmex

Staples

Home Depot

DixonsNext

Ross Stores

Bed Bath & Beyond

Kohls

Next

CDW Computer Centers

Ross Stores

DixonsStaples

Walmex

StarbucksHome Depot

Next

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





72

0 5 10 15 25 3520 30

-20 0 10 4020 30

80

20

0

-20

Average

21.5%(3)

Average 16.4% (3)

II

I

III

IV



40

25%-20%15%

-11%4%6%

25%12%20%39%

39%0%

51%-18%34%10%55%54%68%72%

2,8311,018

4912,012

818248251

-532-40

-339

Samsung ElectronicsSK TelecomQualcommNokiaOracleBCEDellSTMicroelectronicsMaxim Integrated ProductsApplied Materials

123456789

10

KRKRUSFIUSCAUSFRUSUS

58%45%43%31%24%22%21%15%14%12%

10%11%

5%25%18%

2%19%

1%-1%

-14%

50,85512,93833,61366,36961,09916,86887,38519,71513,36430,868

+++++

++++++

++++

+++

+++++++

–++++++

–+––

+++–

+++––––––

+++++++++++

++––––

1997

68%32%

100

1999

79%

21%

587

2002

74%

26%

270

2003(2)

66%

34%

294





+34% +18%

-47%


5-YEAR TSR RANKING




Asset turn 2002


Average 16.1% (4)∆ CFROI 1998–2002


+++ SK Telecom

Samsung Electronics

BCE

STMMaxim IntegratedApllied Mats.

Dell

++

+

–

++++++–


+284%

6%

18%

60Dell

TECHNOLOGYTTSSRR RRAANNKKIINNGG

-10

Oracle

NokiaSamsung Electronics

BCE

SK Telecom

STMicroelectronics

Qualcomm

Maxim Integrated

Applied Materials

QualcommNokia

Oracle

6

5

4

3

2

1

0

Average1.0%(4)

NokiaDell

Samsung Electronics

Applied Mats.

OracleQualcomm

STMBCE

Maxim Integrated

SK Telecom

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





73

NokiaDell

-20 0 10 4020 30

80

20

0

-20

Average

21.5%(3)

Average 16.4%(3)

II

I

III

IV



40

60 Dell

-10

TECHNOLOGY TTBBRR RRAANNKKIINNGG

1997

50%

50%

100

1999

72%

28%

319

2002

71%

29%

178

2003(2)

78%

22%

180

+33%+13%

-39%

+115%

1997 1999 2002 2003(2)

8%-11%14%42%

-14%25%

4%-7%

-15%71%

48%-18%25%51%

0%55%34%22%15%31%

-3432,012

320376

-5,407251818

-365-7,2261,292





5-YEAR TBR RANKING

MicrosoftNokiaTelstraSAPVerizon Comms.DellOracleAlltelSBC CommunicationsNextel

123456789

10

USFIAUDEUSUSUSUSUSUS

10%31%

9%-4%0%

21%24%

7%-4%-2%

37%25%22%21%20%19%18%16%15%15%

300,62966,36934,39234,79290,90287,38561,09914,73073,95019,508

+++

+++

++++

++++

++

––

++++–

+++––

+++

–+++

–––––––

++

–+++

–+––+––

+++




Microsoft

OracleSAPTelstra

AlltelSBC

NextelVerizon

Nokia


0 5 10 15 25 3520 30

Asset turn 2002


Average 16.1% (4)

Oracle

∆ CFROI 1998–2002


+++

Microsoft, Telstra, Verizon, Alltel, SBC Dell

++

+

–

++++++–


18%

NokiaNextel

OracleSAP

6

5

4

3

2

1

0

Average1.0%(4)SAP

NextelVerizon

SBCAlltel

MicrosoftTelstra

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





74

0 5 10 15 20 25 30 35 40

-10 0 10 4020 30

70

20

10

-20

Average

-10.7%(3)

Average 6.2% (3)

II

I

III

IV



40

22%3%

-14%6%

20%14%

7%8%

23%27%

49%38%35%48%45%46%21%

1%-1%3%

3-15235238

699

-221107743

Toll HoldingPatrick Corp.RyanairExpeditor Intl.CH Robinson Kowloon Motor Bus.Harrah's EntertainmentCanadian National RailwayCentral Japan RailwayCathay Pacific

123456789

10

AUAUIEUSUSHKUSCAJPHK

66%64%44%28%24%22%16%16%14%14%

28%22%28%19%18%22%14%

4%4%5%

1,3151,3494,6153,6903,2711,9314,7278,490

17,0835,608

++++

+++++++++

+++++

+++

+++++

++

+++

++–

++

–––

+++––+–++

++–

++––+++

++

1997

-4%

104%

100

1999

93%

7%

124

2002

95%

5%132

2003(2)

91%

9%

140





+5%

+3%

-9%


5-YEAR TSR RANKING




Asset turn 2002


11

5

4

3

2

1

0

Average0.8%(4)

Average 14.3% (4)

CH Robinson

∆ CFROI 1998–2002


+++

Cathay Pacific Expeditor

Patrick Corp.CNRCJR

RyanairCH Robinson

++

+

–

++++++–

Avg. CFROI7.5%(4)

2.5% 12.5%

60

TRAVEL, TRANSPORT & TOURISMTTSSRR RRAANNKKIINNGG

Toll

0

30

50

-10

Ryanair

Expeditor

Patrick Kowloon Motor

CH Robinson

Harrah's Entertainment

Canadian National Railway

Central Japan Railway

Cathay Pacific

Toll HoldingHarrah's

Kowloon Motor

6

45

Expeditor

Toll Holding

Patrick Corp.

Harrah's EntertainmentCathay Pacific

Central Japan Railway

Kowloon MotorRyanairCanadian National Railway

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





75

CH Robinson

Expeditor

Toll Holding

Patrick Corp.

Kowloon MotorR anairy

TollRyanair

Expeditor

Patrick Corp.Kowloon Motor

CH Robinson

-10 0 10 4020 30

70

20

10

-20

Average

-10.7%(3)

Average 6.2%(3)

II

I

III

IV



40

60

0

30

50

-10

TRAVEL, TRANSPORT & TOURISM TTBBRR RRAANNKKIINNGG

1997

54%

46%

100

1999

54%

46%

167

2002

70%

30%

195

2003(2)

61%

39%

232

+20%

+21%

+13%

+39%

1997 1999 2002 2003(2)

-14%22%11%

3%14%

6%33%11%20%19%

35%49%37%38%46%48%49%

4%45%41%

233

-213-15

652

-141-191

38-188





5-YEAR TBR RANKING

RyanairToll HoldingAbertisPatrick Corp.Kowloon Motor Bus.Expeditor Intl.CarnivalMGM MirageCH Robinson Fedex

123456789

10

IEAUESAUHKUSUSUSUSUS

44%66%

6%64%22%28%-1%13%24%12%

28%28%23%22%22%19%19%18%18%15%

4,6151,3156,1701,3491,9313,690

21,3185,5393,271

19,219

++++++

++

+++++

++

++++

++++

++++

+–

++++

–––––

+++––––

–+–+–

++–+––





CarnivalFedex

Abertis

MGM Mirage

0 5 10 15 20 25 30 35 40

Asset turn 2002


11

5

4

3

2

1

0

Average0.8%(4)

Average 14.3% (4)∆ CFROI 1998–2002


+++

Expeditor

Patrick Corp.MGM Mirage

RyanairCH Robinson

++

+

–

++++++–

Avg. CFROI7.5%(4)

2.5%12.5%

Toll Holding

Kowloon Motor

6

45

Fedex Carnival

MGM Mirage

AbertisAbertisCarnivalFedex

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





76

-10 0 10 3020

50

25

-50

Average

-23.7%(3)

Average 10.9% (3)

II

I

III

IV



24%7%9%

-13%22%21%-5%

-17%17%17%

12%-2%5%4%

-36%-14%

8%-4%2%

-13%

-268107404

-376-273181

1-350-403-583

ExelonSouthernCentricaNational Grid TranscoEntergyPPLScot. & Southern EnergyDTE EnergyDominion Res.Union Fenosa

123456789

10

USUSUKUKUSUSUKUSUSES

20%18%15%13%13%12%12%12%11%10%

17%5%

24%4%7%

26%17%10%

8%10%

21,05021,56412,84719,54212,333

7,2898,4156,267

20,0744,470

+–

+++++

++++++

––+–

++++

––

++–

–––––+++–+

––+––+––––

1997

-10%

110%

100

1999

104%

116

2002

108%

-8%

186

2003(2)

102%

201





+5%

+18%


5-YEAR TSR RANKING




0

Asset turn 2002


2.5

2.0

1.5

1.0

0.5

0 10 20 30 40 50

Average0.4%(4)

Average 21.7% (4)∆ CFROI 1998–2002


+++

Southern

CentricaPPL

Exelon, National Grid, Entergy, DTE Energy, Dominion, Union Fenosa

Scot. & Southern Energy

++

+

–

++++++–

Avg. CFROI6.7%(4)3%

10%

UTILITIESTTSSRR RRAANNKKIINNGG

0

-25

Centrica


Exelon

Entergy

National GridSouthern

DTE Energy

Dominion Union Fenosa

PPL-4% -2%


ExelonUnion Fenosa

DTE EnergyEntergy

DominionNational GridPPL

Southern

Centrica

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





77

Centrica


Exelon

PPL

-10 0 10 3020

50

25

-50

Average

-23.7%(3)

Average 10.9% (3)

II

I

III

IV



0

-25

UTILITIES TTBBRR RRAANNKKIINNGG

1997

76%

24%

100

1999

79%

21%

116

2002

96%

4%160

2003(2)

94%

6%

171

+20%

+21%

+13%

+39%

1997 1999 2002 2003(2)

21%9%7%7%

34%-5%5%

24%8%

13%

-14%5%

-10%13%11%

8%46%12%-5%24%

181404

-464-322

182

-268-450-210





5-YEAR TBR RANKING

PPLCentricaElectrabelHong Kong ElectricMDU ResourcesScot. & Southern EnergyHK & China GasExelonFPL GroupCLP Holdings

123456789

10

USUKBEHKUSUKHKUSUSHK

12%15%

6%5%8%

12%5%

20%4%3%

26%24%21%19%18%17%17%17%16%16%

7,28912,84713,667

8,1692,5858,4157,526

21,05011,68810,500

+++

++

+++++

++++

++++

++++––––+

+–

++–+++–––

+++–+–+–––





CLP

HK & China Gas

HK Electric

FPL

MDUElectrabel

0

Asset turn 2002


2.5

2.0

1.5

1.0

0.5

0 10 20 30 40 75

Average0.4%(4)

Average 21.7%(4)

CLP Holdings

∆ CFROI 1998–2002


+++

CentricaMDU

PPLElectrabelHK & China Gas

ExelonHK ElectricFPLCLP


++

+

–

++++++–

Avg. CFROI6.7%(4)3%

10%


Exelon

Centrica

PPL HK & China GasHK Electric

FPL

Electrabel

MDU

TSR1 Jan.–

30 Sept. '03

EP30 Sept. '03

CVA in M$'98–'02


Avg. '98–'02





1. Background to the study

The study is based on the annual returns of more than4,000 companies in Datastream's global marketindices for the period 1998–2002. Collectively, theyrepresent around 70% of the world's total market capi-talization. Businesses were selected from Datastream'sdatabase using three main criteria:

● Have uninterrupted stock exchange listing for atleast five years.

● Satisfied minimum market capitalization hurdles:different capitalization hurdles were set for eachsector and region to reflect their relative econom-ic weight (see Figures A1–A2).

● Could be classified into one of fourteen industrialsectors.

● Free float of shares exceeding 25%.

Several companies meeting these criteria were exclud-ed from the final sample as they had been involved inmajor mergers or acquisitions over the study period(1998–2002), and it was believed this would distort thefindings. All financial figures were converted into U.S.dollars, using the exchange rate as of year end 2002.

2. Different ways to measure value creation

To effectively manage value creation, companies re-quire multiple measures to be used in different applica-tions and at different levels of the organization. FigureA3 depicts the range of measures our clients havefound most useful to manage value creation at differentlevels in the organization.

78

Appendix

Figure A1

Source: Thomson Financial Datastream; BCG analysis

MMAARRKKEETT CCAAPPIITTAALLIIZZAATTIIOONN HHUURRDDLLEESS FFOORR EEAACCHH IINNDDUUSSTTRRYY

TechnologyBanksConsumer goods

Ind. goods, engineering & raw materialsInsuranceRetail

UtilitiesMultibusinessAutomotiveChemicalsTravel, transport & tourism

Pharmaceutical & health care

Media & entertainment

Pulp & paper

Cumulated market capitalization (B$)

2,873

2,506

2,113

1,722

977

812

755

743

677

494

486

390

371

97

0 500 1,000 1,500 2,000 2,500 3,000

Minimum market capitalization applied

$0B$1B

$3B$5B

$10B

TECHNICAL NOTES

79

Appendix

Figure A2

Source: Thomson Financial Datastream; BCG analysis

MMAARRKKEETT CCAAPPIITTAALLIIZZAATTIIOONN HHUURRDDLLEESS FFOORR EEAACCHH RREEGGIIOONN

World

North America

Europe

Asia-Pacific

Cumulated market capitalization (B$)

17,367

9,169

4,959

3,239

0 5,000 10,000 15,000 20,000

Minimum market capitalization applied

$5B$7.5B

$10B

Figure A3

FFRRAAMMEEWWOORRKK OOFF VVAALLUUEE MMEEAASSUURREESS

Management applications Relevant measures

Set company value creation aspirationsLink to senior management incentives

Assess gap between aspirations and plansCascade aspirations down to BUsUse for long-term BU incentivesDetermine targets for other measures

Determine priority value driversEvaluate value driver + tradeoffsDirectionally signal value creation improvementDecompose aspirations into operating metricsUse for annual incentives

Benchmark operating efficiencySet departmental prioritiesUse for departmental incentives

Profitability of assets Growth in assets

∆ CVA

TBR

TSR

Fundamental value creation

External value creation

Measure against most relevant

assets: capital, people, customers

Primary value drivers

Cash margin Asset turns

KPIs KPIs

Setting explicit external aspirations: TSRBeginning at the corporate level, executives must set anexplicit value-creation aspiration that will energize theirorganizations, drive thinking or performance, and focusthe agenda of programs that must be implemented. Webelieve the most appropriate measure for aspirationsetting is total shareholder return (TSR) relative to alocal market index or industry peer group. Achievingthis "external value-creation aspiration" should beembedded within the incentive plans for corporateexecutives and key business-unit leaders.

Aligning internal aspirations and plans: TBRThe next requirement is to cascade down the overallTSR value-creation aspiration into internal corporateand business-unit goals and targets and assess the gapbetween plans and aspirations at all levels. The TotalBusiness Return (TBR) measure is an accurate and use-ful measure for this purpose (Fig. A4). The TBR meas-ure is an internal mirror of actual external TSR. It rep-resents the 'intrinsic' capital gain and dividend yieldfrom a business plan—either at the corporate or busi-ness-unitlevel.

Many of our clients have found the TBR measure to bea powerful tool for converting TSR aspirations into per-formance goals at business-unitlevel and to driveaccordingly a portion of long term incentives for busi-ness-unit management. In that context, TBR can also beused as a rich planning tool to assess the value-cre-ation potential of business plans and help managersclose the gap between aspirations and performance.

TBR is an important high level tool to assess the relativeperformance of a corporation or a business unit and toset future targets. It also provides a way to link othermeasures used for detailed value-driver analysis or forsetting operational targets back to the TSR aspiration.

Measuring and setting targets for the internalvalue-creation drivers: CVACash Value Added, CVA (or its financial services equiv-alent AVE—Added Value to Equity), is an absolutemeasure of operating performance contribution tovalue creation. It provides a strong directional indica-tion of when and how value creation is being improved.The CVA measure reflects operating cash flow minus a

80

Appendix

Figure A4

Change in equity value is analogous to share price, and free cash flow is analogous to dividends

Estimate of public or private companyHistorical or forecastRequires estimated value

TTBBRR IISS TTHHEE IINNTTEERRNNAALL AANNAALLOOGG TTOO TTSSRR

Internal measure

Change in estimated equity value

Equity free cash flow

TBR

Stock market observed by public companyHistorical onlyRequires share price

External measure

Change in share price Dividends

TSR

High correlation

cost of capital charge against gross operating assetsemployed. The CVA measure is a very powerful tool tohelp managers pull the appropriate levers to createvalue. It can indeed accurately assess the contributionof the economic assets that actually drive a business. Insome cases they are tangible assets, in others they areeither people or customers.

The CVA measure is an accurate tool for determining pri-ority value drivers and assessing value-driver trade-offs.In particular, it is a useful strategic indicator that allowsmanagers to balance the high level trade-offs betweenimproving profitability versus growing the business.Because its measurement is based on cash flow andoriginal cash investment, it avoids the key accountingdistortions that can cause profit-oriented residual incomemeasures to give misleading trends in capital-intensivebusinesses.

Many clients have also found CVA to be an effectivemeasure for annual incentives at the business-unit andoperational levels. Moreover, CVA can easily be brokendown further into the key performance indicators (KPIs)

that are relevant to each management area. KPIs formthe basis for internal or external performance bench-marking and for establishing annual incentive targets.

This brief description of value-creation measurementtools does not address the many nuances of applyingthem effectively. Further information on how to quantifyaspirations, tailor the measure to fit your type of busi-ness, or identify the highest priority KPIs, can be pro-vided upon request

3. Calculating expectation premiums

A company's expectation premium is the differencebetween its market value plus debt and its fundamentalvalue. The scale of the premium depends on threemain factors:

● The market value of the company, meas-ured by its market capitalization plus inter-est-bearing debt: BCG used calendar yeardata for this (Fig. A5).

Appendix

Figure A5

HHOOWW EEXXPPEECCTTAATTIIOONN PPRREEMMIIUUMMSS AARREE CCAALLCCUULLAATTEEDD

Evaluation method/source

Current performance discounted to perpetuity

Fundamental value = current performance +future expectations

Value of "current operations"

Expectation premium = market value -

fundamental valueI

Present value of additional cash flow due to growth and profitability using BCG "fade model"

Result Market capitalization + debt

Value of growth of "current

operations"

Expectation premium

Market value of the company

II

III

81

● Robustness of the valuation model: FigureA6 demonstrates that over the five-year periodfrom 1998–2002 the difference between theannual market performance and the annual fun-damental performance was between +/-10% forthree quarters of the companies in the sample.

● The assumptions used to calculate the com-pany's fundamental value: BCG applied astandardized residual income valuation frame-work incorporating cash flow projections, basedon the businesses' current profitability and histori-cal growth. Within this framework the presentvalue of a company is derived by adding up cap-ital invested in the business and the amount ofdiscounted future residual income (i.e., paymentsurpluses after deducting a capital charge on thecapital invested). As empirical evidence suggests,it is virtually impossible for top companies to sus-tain superior profitability and growth for decadesdue to competitive pressures. Similarly, firms thatgenerate a lower return on capital than investorsexpect will either have to catch up quickly, be

taken over, or exit the market. To account forthese competitive pressures, BCG employed sec-tor-specific fade rates that converge the business-es' profitability and growth to an industry average,based on empirical evidence from each sector.Within each industry profitability fade rates differfor companies that exceed their required rate ofreturn (WACC) and firms that fall short of thismeasure. (Fig. A7).

● The data used to calculate the company'sfundamental value. BCG used fiscal data forthis.

82

Appendix

Figure A6

Market TSR and fundamental TBR grow with same speed

Expectation premiumis shrinking

Expectation premium is growing

Annual market performance (TSR) – annual fundamental performance (TBR) 1998 to 2002 (%)

Note: Analysis based on top 721 companies of the total sampleSource: BCG analysis

NNOORRMMAALL DDIISSTTRRIIBBUUTTIIOONN DDEEMMOONNSSTTRRAATTEESS RROOBBUUSSTTNNEESSSS OOFF VVAALLUUAATTIIOONN MMOODDEELL

% of companies

0.0 0.0 0.62.5

4.3

10.4

15.5

20.919.3

12.3

6.9

2.1 1.80.7 0.4 0.8 0.4 0.4

-45 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45

0.0

83

Appendix

Gradient of curves are determined by industry-specific fade rate

Fade table starts with current growth rate

Growth fade-to-rate equals nominal long-term economic growth

Fade down: pressure from competition

Fade up: pressure from

investors

CFROI fade-to-rate equals WACC(3)

Assumed sustainability (2)

Figure A7

(1) Fade rates vary according to industry and profitability level (CFROI > WACC or CFROI < WACC)(2) If CFROI > WACC, profitability is kept to a certain extent above cost of capital, (3) Nominal WACC/cost of equity is calculated for a given year and then assumed to be constantSource: BCG analysis

sustainability rates vary across industries

GGRROOWWTTHH AANNDD PPRROOFFIITTAABBIILLIITTYY FFAADDEESS TTOO IINNDDUUSSTTRRYY AAVVEERRAAGGEESS

FADE RATE ASSUMPTIONS

Growth

Growth

Time

Gradient of curves are specified by fade rate (1)

Fade table starts with today's CFROI

Fade down: pressure from competition

Fade up: pressure from

investors

Profitability

CFROI

Time

The Corporate Finance and Strategy practice withinBCG provides expertise in the areas of corporate strat-egy, mergers and acquisitions, post merger integrationand shareholder value-management. In specific theseareas comprises the following tools and approaches:

Strategy:

● Portfolio approach: review business performanceand potential pathways to shape long-term devel-opment potentials

● Standardized tools: Scenario planning, war gam-ing and industry landscaping to reveal risks andprospects

● Business unit strategy: assessing market condi-tions, competition, BU-specific capabilities todrive operational excellence

● Partnering tactics for joint venture opportunitiesand alliances

● Defining the role of the center

● Corporate governance: conceptual work oneffective board practices

Corporate Finance

● Navigating the M&A process: acquisition search,target assessment in terms of financial valuationand strategic fit, negotiation & bid support as wellas post-merger integration and change manage-ment

● IPO assistance for all phases: conceptual,preparatory, announcement, book building andpost-IPO period

● Financial engineering and tools: capital alloca-tion, valuation, risk management techniques, bal-ance sheet restructuring, accounting issues

● Credit rating: rating models, rating management

Shareholder Value Management

● Corporate processes: business procedures organ-ized for value creation, budgeting and controlling

● Value based management: defining appropriatemetrics, to be broken down into operational valuedriver, counsel on suitable target setting andincentives

● Addressing capital markets: understandinginvestor characteristics & strategy, communicationconcept, managing the P/E

84

Appendix

HOW BCG CAN HELP

85

Appendix

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AmsterdamJ. F. Kennedylaan 1003741 EH BaarnNETHERLANDSTel +31 35 548 6800Fax +31 35 548 6801

Athens60 Vassilissis Sophias Avenue,11528 AthensGREECETel +30 210 727 9213Fax +30 210 727 9168

Atlanta600 Peachtree Street. N.E.37th FloorAtlanta, GA 30308USATel +1 404 877 5200Fax +1 404 877 5201

Auckland23-29 Albert Street, Level 30Auckland 1NEW ZEALANDTel +64 9 377 2297Fax +64 9 3070 958

Bangkok37th Floor, U Chu Liang Building968 Rama IV Road, SilomBangkok 10500THAILANDTel +66 2 667 3000Fax +66 2 655 3123

BarcelonaAvda. Diagonal 640-6°E08017 BarcelonaSPAINTel +34 93 363 4700Fax +34 93 363 4710

BeijingUnit 902, The Exchange BeijingNo. 118 Jian Guo Lu YiChau Yang DistrictBeijing, 100022CHINATel +86 10 6567 5755Fax +86 10 6567 5799

BerlinDircksenstraße 4110179 BerlinGERMANYTel +49 30 28 87 10Fax +49 30 28 09 83 05

BostonExchange Place, 31st FloorBoston, MA 02109USATel +1 617 973 1200Fax +1 617 973 1339

BrusselsBoulevard de L'Imperatrice, 131000 BrusselsBELGIUMTel +32 2 289 02 02Fax +32 2 289 03 03

BudapestVàci u. 811056 BudapestHUNGARYTel +36 1 235 90 00Fax +36 1 235 90 10

Buenos AiresBouchard 647-10°(C1106ABG) Buenos AiresARGENTINATel +54 11 4314 2228Fax +54 11 4314 2229

Chicago200 South Wacker Drive27th FloorChicago, Illinois 60606USATel +1 312 993 3300Fax +1 312 876 0771

CologneIm Mediapark 8KölnTurm50670 CologneGERMANYTel +49 221 5500 50Fax +49 221 5500 5500

CopenhagenAmaliegade 151256 Copenhagen KDENMARKTel +45 77 32 34 00Fax +45 77 32 34 99

Dallas500 N. Akard Street, Suite2600Dallas, Texas 75201USATel +1 214 849 1500Fax +1 214 849 1501

DuesseldorfStadttor 140219 DuesseldorfGERMANYTel +49 211 30 11 30Fax +49 211 13 12 96

FrankfurtAn der Welle 360322 Frankfurt am MainGERMANYTel +49 69 9 15 02 0Fax +49 69 59 64 793

HamburgChilehaus AFischertwiete 220095 HamburgGERMANYTel +49 40 30 99 60Fax +49 40 33 79 45

HelsinkiEteläesplandi 12, 3rd Floor00130 HelsinkiFINLANDTel +358 9 228 661Fax +358 9 228 66 911

Hong Kong34th Floor, Shell TowerTimes Square, Causeway BayHong KongCHINATel +852 2506 2111Fax +852 2506 9084

HoustonOne Hourston Center1221 McKinney, Suite 3850Houston, TX 77010USATel +1 713 286 7000Fax +1 713 286 7001

IstanbulSuleyman Seba Cad. No. 83Akaretler, Besiktas 80680IstanbulTURKEYTel +90 212 310 2600Fax +90 212 310 2666

JakartaLevel 22, Mashill TowerJl. Jenderal Sudirman Kav. 25Jakarta 12929INDONESIATel +62 21 526 7775Fax +62 21 526 7776

Kuala LumpurLevel 28, Menara IMCNo. 8 Jalan Sultan Ismail50250 Kuala LumpurMALAYSIATel +60 3 2078 5770Fax +60 3 2078 5784

LisbonRua das Chagas 7-151200-106 LisbonPORTUGALTel +351 21 321 4800Fax +351 21 321 4801

LondonDevonshire HouseMayfair PlaceLondon W1J 8AJENGLANDTel +44 207 753 5353Fax +44 207 753 5750

Los Angeles355 S. Grand Avenue33rd FloorLos Angeles, CA 90071USATel +1 213 621 2772Fax +1 213 621 1639

MadridAlcala, 9528009 MadridSPAINTel +34 91 520 61 00Fax +34 91 520 62 22

Melbourne101 Collins Street,Level 52Melbourne VIC 3000AUSTRALIATel +61 3 9656 2100Fax +61 3 9656 2111

Mexico CityTamarindos 400 piso 18 AColonia Bosques dellas LomasMéxico, D. F. C. P. 05120MEXICOTel +52 55 5258 99 99Fax +52 55 5258 04 44

Miami703 Waterford WaySuite 740Miami, FL 33126USATel +1 305 728 6042Fax +1 305 265 7840

MilanVia della Moscova 1820121 MilanITALYTel +39 0 2 65 59 91Fax +39 0 2 65 59 96 55

MonterreyVasconcelos 101 Ote – 5°Col. Residencial San AgustínGarza García, N. L. C. P.66260MEXICOTel +52 81 8368 6200Fax +52 81 8368 0808

Global Contacts

Global Contacts

The Boston Consul t ing Group i s a general management consul t ing f i rm that i s a global leader in bus iness s t rategy. BCG has helped companies in every major industry and mar-ket achieve a compet i t ive advantage by developing and implement ing winning s t rategies.Founded in 1963, the f i rm now operates 60 of f ices in 38 countr ies . For fur ther informat ion, p lease v is i t our Web s i te at www.bcg.com

© 2003 The Bos ton Consu l t ing Group, Inc . A l l r i gh ts rese r ved

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E -mai l : Marke t ing [email protected] Mai l : The Bos ton Consu l t ing Group

Marke t ing & Communica t ions /Lega lLudwigs t raße 2180539 MunichGermany

MoscowUsadba CenterVoznesensky pereulok, 22/13125009 Moscow,RUSSIATel +7 095 258 34 34Fax +7 095 258 34 33

Mumbai55/56 Free Press House215 Free Press Journal Marg ,Nariman PointMumbai 400 021INDIATel +91 22 2283 7451Fax +91 22 2288 2716

MunichLudwigstr. 2180539 MunichGERMANYTel +49 89 23 17 40Fax +49 89 2 60 66 98

NagoyaDai Nagoya Building 28-12Meieki 3-chome, Nakamura-kuNagoya, Aichi 4500-0002JAPANTel +81 52 533 3466Fax +81 52 533 3468

New Delhi3rd Floor, DLF Centre,Sansad MargNew Delhi 110 001INDIATel +91 11335 8912Fax +91 11 335 8915

New York430 Park Avenue,18th FloorNew York, NY 10022USATel +1 212 446 2800Fax +1 212 446-2801

OsloKarl Johans gate 450162 OsloNORWAYTel +47 23 10 20 00Fax +47 23 10 20 99

Paris4 rue d'Aguesseau75008 ParisFRANCETel +33 1 40 17 10 10Fax +33 1 40 17 10 15

PragueNa Prikope 15110 00 Prague 1CZECH REPUBLICTel +420 2 22191444Fax +420 2 22191330

RomeLargo Tartini 3/400198 RomaITALYTel +39 06 85203420Fax +39 06 85203665

San FranciscoTwo Embarcadero Center,Suite 2800San Francisco, CA 94111USATel +1 415 732 8000Fax +1 415 732 8200

SantiagoAv. Isidora Goyenechea 3621Suite 901Las CondesSantiagoCHILETel +56 2 338 9600Fax +56 2 338 9602

Sao PauloAv. Brig. Faria Lima,3064 - 5th floorSao Paulo, SP 01451-000BRAZILTel +55 11 3046 3533Fax +55 11 3842 9638

SeoulKwangwhamun Building,20th floor64-8, Taepyong-ro 1-ka,Choong-ku SeoulKOREATel +822 399 2500Fax +822 399 2525

Shanghai21/F, Central Plaza227 Huangpi Bei LuShanghai, 200003CHINATel +86 21 6375 8618Fax +86 21 6375 8628

Singapore50 Raffles Place #44-02/03Singapore Land Tower 048623SINGAPORETel +65 6429 2500Fax +65 6226 2610

StockholmSkeppsbron 38SE-111 30 StockholmSWEDENTel +46 8 402 44 00Fax +46 8 402 46 00

StuttgartKronprinzstr. 2870173 StuttgartGERMANYTel +49 711 20 20 70Fax +49 711 22 12 38

SydneyLevel 61, GovernorPhillip Tower1 Farrer Place,Sydney NSW 2000AUSTRALIATel +61 2 9323 5600Fax +61 2 9323 5666

TaipeiRoom 702, 23/F, 105 Tun-Hwa S.Rd. Sec 2Taipei 106TAIWANTel +886 2 2755 0000 x722 &702Fax +886 2 2784 1632

TokyoThe New Otani Garden Court4-1, Kioi-choChiyoda-ku, Tokyo 102-0094JAPANTel +81 3 5211 0300Fax +81 3 5211 0333

TorontoBCE Place, 181 Bay StreetSuite 2400, P O Box 783Toronto, Ontario M5J 2T3CANADATel +1 416 955 4200Fax +1 416 955 4201

ViennaAm Hof 81010 ViennaAUSTRIATel +43 1 537 56 80Fax +43 1 537 56 8110

WarsawSienna CenterUl. Sienna 7300-833 WarsawPOLANDTel +48 22 820 36 00Fax +48 22 820 36 36

Washington DC4800 Hampden LaneSuite 500Bethesda, MD 20814USATel +1 301 664 7400Fax +1 301 664 7401

ZurichZollikerstrasse 226CH - 8008 ZurichSWITZERLANDTel +41 1 388 86 66Fax +41 1 388 86 86

Global Contacts

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Value Creators Report 2003

AmsterdamAthensAtlantaAucklandBangkokBarcelonaBeijingBerlinBostonBrusselsBudapestBuenos AiresChicagoCologneCopenhagen

DallasDusseldorfFrankfurtHamburgHelsinkiHong KongHoustonIstanbulJakartaKuala LumpurLisbonLondonLos AngelesMadridMelbourne

Mexico CityMiamiMilanMonterreyMoscowMumbaiMunichNagoyaNew DelhiNew YorkOsloParisPragueRomeSan Francisco

SantiagoSão PauloSeoulShanghaiSingaporeStockholmStuttgartSydneyTaipeiTokyoTorontoViennaWarsawWashingtonZurich

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