Manita

Punda
Kittipat
 Agenda
Company Background
Situation Analysis

Issues

Recommendation

Financial Justification

Key Success Factors

Conclusion
 Company Background

• Began business as independent Harley-Davidson Motor

Company in 1981 (after a successful buyout from AMF)

• Returned to public ownership in 1986

• Known for its product quality

•Market Leader in Heavyweight Motorcycle Segment

• Presence in U.S.,Europe, Australia, and Asia

• 3 Divisions: Harley-Davidson Heavyweight Motorcycle

Holiday Rambler
Buell Performance Motorcycle
 Situation Analysi

3 Divisions:
Heavyweight Motorcycle
•few competitors
•current market share = 55.7%
Holiday Rambler
•Intense competition
•low market share
Performance Motorcycle
•few competitors
•acquired 49% of shares in ‘93
 Situation Analysi

fter facing with almost bankruptcy in 1980’s

s of 1995, financially sound with gross sales exceedin
1.5 billion

owever,
• Stock price has slumped 7 percent
• Inability to meet demand may be jeopardizing
relationship with customers
 Issue Identificatio
Issue I
Strategies:

Declining I. Capacity Expansion

Market Share II. Price Increase
 Issue Identificatio
Issue I
Strategy:

Declining I. Capacity Expansion

Market Share II. Price Increase

Issue II

Strategy:
Managing Resources
Allocation To Maximize
Overall Performance Portfolio Management
 I. Harley-Davidson
I. Capacity Expansion

Production Capacity
Year 1999
Current Plan
Growth plan = 7% annually
Market Growth = 15% annually • Reduce lead time by
 Decrease in Market Share 4 months
• Reduction in excess
Proposed Plan
demand
Increase Capacity
1995-1997 = 20%
1998-1999 = 17%

Key Consideration: Quantity WITH Quality

 I. Harley-Davidson
II. Price Increase

Result
Justification for Price Increase
•Still excess demand after expansion
• Reduce Lead Time by
•Demand Inelastic
“Capture Opportunity” 1 month
• Net Income Increases
Proposed Plan: by 9%
Price
10% Increase
Predicted Demand
5% Decrease
 I. Harley-Davidson
Price Increase + Capacity Expansion
Goal: Reduce Lead Time and Increase Market Share
Excess Demand
1995 1996 1997 1998 1999

Without
Recommendations 96,200 119,830 140,362 163,789 190,487

With Recommendations 85,640 92,736 92,824 98,995 105,161

Lead Time
1995 1996 1997 1998 1999

Without
Recommendations 10.04 11.69 12.79 13.95 15.16

With Recommendations 10.04 8.06 6.73 6.24 5.76

Market Share
1995 1996 1997 1998 1999

Without
Recommendations 55.70% 51.83% 49.51% 47.30% 45.19%

With Recommendations 55.70% 58.12% 62.27% 63.94% 65.65%

 II. Portfolio Managemen
Analyzing SBUs
Market Attractiveness
High Medium Low
High

Grow
Competitive Strength

Harley-Davidson
Medium

Buell Hold
Low

Holiday Rambler Divest

II. Portfolio Managemen
Divesting Holiday Rambler

Rationale:
1. Not core business
2. Large capital Investment
3. Low Market Share
4. At a disadvantage relative to competitors
• Economies of Scale
• Lack of management expertise
in market
5. Limited Human Resource  Must allocate
to best maximize the company’s profitability

Strategy:
Divest to use capital and focus
management’s attention on more promising
projects
II. Portfolio Managemen
Harley Davidson

Harley-Davidson

“Investment Priority”
•Main issue: unmet demand

Trademark Licensing
•High Margin
•Stimulate Demand For Motorcycles
•Lay Ground For International
Growth
“Continuous Expansion”
 Time Line
Activities 1995 1996 1997 1998 1999 2000

Harley Davidson

Existing Existing
expansion plan Expansion Plan Complete
Capacity

Operate At Full Capacity Capacity @ 115,000

New expansion plan Capacity @ 220,000

New Capacity Expansion Plan

New Pricing Policy Increase

NPM Price~by9%
increase 10%

Portfolio
$70,000,000
Holiday Rambler Selling Process
Grow @ 20%
Trademark Licensing Trademark Licensing
 Financial Justificatio
Growth Rate

1995F 1996F 1997F 1998F 1999F

17.07% 30.60% -5.98% 17.53% 17.69%

Effect of new pricing policy

Effect of selling Holiday Rambler
 Financial Justificatio
Growth Rate
1994 1995F 1996F 1997F 1998F 1999F
26.64% 17.07% 30.60% -5.98% 17.53% 17.69%

Net Sales
3,500,000

3,000,000 3,065 ,905

2,605 ,025
2,500,000
2,357 ,326
2,216 ,418
2,000,000
1,805 ,023
1,500,000 1,541 ,796

1,000,000

500,000

0
1994 1995F 1996F 1997F 1998F 1999F
 Financial Justificatio
Growth Rate
1994 1995F 1996F 1997F 1998F 1999F
26.64% 17.07% 30.60% -5.98% 17.53% 17.69%

Net Income
600,000
546 ,800
500,000
457 ,498
400,000
378 ,637 373 ,131

300,000

200,000

104 ,272 119 ,463

100,000

0
1994 1995F 1996F 1997F 1998F 1999F
 Financial Justificatio
Cost Estimation
  1995F 1996F 1997F 1998F 1999F
Capacity Expansion          
Factory and machinery  
(100,000,000.00 (100,000,000.00 (100,000,000.00 (100,000,000.00
) ) ) )

Human resource and other related  

costs (20,000,000.00) (20,000,000.00) (20,000,000.00) (20,000,000.00)

Transport Vehicle Division        

70,000,000.00
Total Cost  
(50,000,000.00) (120,000,000.00 (120,000,000.00 (120,000,000.00
) ) )

Fund needed in total $ 410,000,000

Sales of TVD
Sources of fund
Internal generated fund
 Financial Justificatio
Cost Estimation
  1995F 1996F 1997F 1998F 1999F
Capacity Expansion          
Factory and machinery  
(100,000,000.00 (100,000,000.00 (100,000,000.00 (100,000,000.00
) ) ) )

Human resource and other related  

costs (20,000,000.00) (20,000,000.00) (20,000,000.00) (20,000,000.00)

Transport Vehicle Division        

70,000,000.00
Total Cost  
(50,000,000.00) (120,000,000.00 (120,000,000.00 (120,000,000.00
) ) )

Fund needed in total NPV = $ 3,597,519,000

$ 410,000,000 PBP = 3.23 Years
 Key Success Factor

Operational
Quality
Efficiency

Efficient
Supplier
Distribution
Relationship Of Resources
 Issues Are Solved
Current Issues
Issue I
Strategy I:

Declining I. Increase Price

Market Share II. Capacity Expansion
• Reduce lead time by 50% by 1999
• Market Share Increase by 10% by 1999

Issue II
Strategy II
Managing Resource
Allocation To Maximize Portfolio Management
Overall Performance • Divest Holiday Rambler
•Heavyweight motorcycle
-Investment Priority
- Licensing expansion
THANK YOU
 Historical Ratio Analysi
Ratios Analysis
1992 1993 1994
Liquidity ratio
current ratio (times) 1.57 1.75 1.88
Quick ratio (times) 0.81 0.86 0.94

Leverage ratio
Debt ratio (%) 44.30% 68.93% 41.39%
Interest coverage (times) -19.79 -84.00 3643.34

Profitability ratio
Net Profit Margin (%) 4.87% -0.98% 6.76%
Return on asset (%) 10.30% -2.04% 14.11%
Return on equity (%) 16.04% -3.66% 24.07%

Activity ratio
Account receivable (times) 11.86 14.15 10.75
Average collection period (days) 30.77 25.79 33.95
Inventory turnover (times) 8.57 6.28 6.46
Average sale period (days) 42.61 58.11 56.50
Fixed asset turnover (times) 4.31 4.88 4.62
Total asset turnover (times) 2.12 2.09 2.09
 Sales by Division

1994 g 1995F g 1996F

Motorcycle unit shipments 95,811 95,811 95,811
Net Sales - -
Motorcycles 902.60 15.00% 1,037.99 20% 1,245.59
Motorcycle parts and accessories 256.30 25.00% 320.38 25% 400.47
Recreational vehicles 274.50 17.00% 321.17 15% 369.34
Commercial vehicles 95.10 17.00% 111.27 111.27
Others 13.30 7.00% 14.23 15% 16.37
Total 1,541.80 17.07% 1,805.03 18.73% 2,143.03

g 1997F g 1998F g 1999F

95,811 95,811 95,811
- - -
20% 1,494.71 15% 1,718.91 15% 1,976.75
25% 500.59 25% 625.73 25% 782.17
- - - - - -
- - - - - -
20% 19.64 20% 23.57 20% 28.28
-5.98% 2,014.93 17.53% 2,368.21 17.69% 2,787.19
 Assumptions

Assumptions (with recommendations)

Statement of Operations
1994 Avg.%of sales Avg.%changed 1995 1996 1997 1998 1999
COGS 1,120,332.00 72.72% 18.05% 72.50% 72.00% 71.50% 71.00% 71.00%
Selling, admin, & enginner exp. 261,157.00 17.41% 14.87% 16.90% 16.35% 16.00% 15.70% 15.40%
Income from operations 160,307.00 8.31% 50.73% - - - - -
Interest expense (net) 44.00 -0.17% -94.19% -0.17% -0.17% -0.17% -0.17% -0.17%
Other income (exp.) net 1,718.00 -0.20% -113.25% -0.20% -0.20% -0.20% -0.20% -0.20%
Provisions for income tax 57,797.00 3.61% 29.51% 3.61% 3.61% 3.61% 3.61% 3.61%

Balance Sheet
1,994 Avg.%of sales Avg.%changed 1995 1996 1997 1998 1999
A/R 143,396.00 8.27% 29.50% 9.50% 9.50% 10.00% 10.00% 10.00%
Inv. 173,420.00 10.43% 36.08% 11.25% 11.25% 11.25% 11.25% 11.25%
Prepaid expense 9,424.00 0.76% -1.01% 0.76% 0.76% 0.76% 0.76% 0.76%
Other current asset 20,111.00 1.72% -8.38% 1.72% 1.72% 1.72% 1.72% 1.72%
Liabilities & Equity 0.00%
A/P 63,988.00 4.68% 5.35% 4.10% 4.00% 4.00% 3.90% 3.90%
Salaries Payable 62,882.00 3.26% 56.75% 3.00% 3.00% 3.00% 3.00% 3.00%
ST debt/current LTD 18,303.00 1.49% 5.81% 1.00% 1.00% 1.00% 1.00% 1.00%
Other CL 71,105.00 5.57% 1.81% 4.00% 4.00% 4.00% 4.00% 4.00%
 Pro Forma Financial Statemen

S tatem ent o f o p eration s (w ith pricin g effect)

1994 1995F 1996F 1997F 1998F 1999F
Net sales 1,541,796 1,805,023 2,357,326 2,216,418 2,605,025 3,065,905
CO G S 1,120,332 1,308,642 1,542,977 1,440,671 1,681,425 1,978,902
Sellin g, adm in, & engin ner exp . 261,157 305,049 350,384 322,388 371,808 429,227
Incom e from op erations 160,307 191,332 463,965 453,358 551,792 657,776
Interest expen se (net) 44 (3,067) (3,642) (3,424) (4,024) (4,737)
O th er in com e (exp .) net 1,718 (3,635) (4,316) (4,058) (4,769) (5,613)
1,762 -6,703 -7,958 -7,482 -8,794 -10,350
Incom e from op . bf ext. item and acct. ch ang e162,069 184,630 456,007 445,876 542,998 647,426
Provision s for in com e tax 57,797 65,167 77,370 72,746 85,500 100,627
Net in com e (lo ss) 104,272 119,463 378,637 373,131 457,498 546,800
 Pro Forma Financial Statemen
Balance sheet (with pricing effect)
1994 1995F 1996F 1997F 1998F 1999F
Assets
Cash 59,285 127,315.17 429,866.24 669,344.73 1,054,845.86 1,474,874.80
A/R 143,396 146,470.62 171,477.22 214,302.36 201,492.51 236,820.43
Inv. 173,420 173,452.05 203,065.12 241,090.15 226,679.07 266,422.98
Prepaid expense 9,424 11,653.38 13,642.93 16,197.64 15,229.43 17,899.63
Other current asset 20,111 26,486.79 31,008.82 36,815.39 34,614.76 40,683.80
Total CA 405,636 485,378 849,060 1,177,750 1,532,862 2,036,702
PPE 262,787 262,787.00 297,787.00 377,787.00 457,787.00 537,787.00
Other Asset 70,792 80,792.00 90,792.00 95,792.00 100,792.00 105,792.00
Total Asset 739,215 828,957 1,237,639 1,651,329 2,091,441 2,680,281
Liabilities & Equity - - - - -
A/P 63,988 63,213.64 72,200.93 85,720.94 78,582.08 92,359.97
Salaries Payable 62,882 46,253.88 54,150.70 64,290.71 60,447.75 71,046.13
ST debt/current LTD 18,303 15,417.96 18,050.23 21,430.24 20,149.25 23,682.04
Other CL 71,105 61,671.84 72,200.93 85,720.94 80,597.00 94,728.17
Total CL 216,278 186,557 216,603 257,163 239,776 281,816
L-T debt 29,422 29,422.00 29,422.00 29,422.00 29,422.00 29,422.00
Deffered tax 0 - - - - -
Postretirement health care benefit 60,283 60,283.00 60,283.00 60,283.00 60,283.00 60,283.00
Total Liabilities 305,983 276,262 306,308 346,868 329,481 371,521
Common stock, net 772 772.00 772.00 772.00 772.00 772.00
Additional paid in capital 150,728 150,728.00 150,728.00 150,728.00 150,728.00 150,728.00
Rettained earnings 283,010 402,472.51 781,109.11 1,154,239.71 1,611,737.36 2,158,536.93
Unrealized foreign exchange GN/LOS 303 303.00 303.00 303.00 303.00 303.00
434,813 554,276 932,912 1,306,043 1,763,540 2,310,340
Less: treasury stock 1,581 1,581.00 1,581.00 1,581.00 1,581.00 1,581.00
Total shareholder's equity 433,232 552,695 931,331 1,304,462 1,761,959 2,308,759
Total liabilities and shareholder's equity 739,215 828,957 1,237,639 1,651,330 2,091,440 2,680,280
 Ratio Analysis
Ratios Analysis (with pricing effect)
1994 1995F 1996F 1997F 1998F 1999F
Liquidity ratio
current ratio (times) 1.88 2.60 3.92 4.58 6.39 7.23
Quick ratio (times) 0.94 1.47 2.78 3.44 5.24 6.07

Leverage ratio
D/E ratio (%) 70.63% 33.33% 24.75% 21.01% 15.75% 13.86%
Interest coverage (times) 3643.34

Profitability ratio
Net Profit Margin (%) 6.76% 6.62% 16.06% 16.83% 17.56% 17.83%
Return on asset (%) 14.11% 14.41% 30.59% 22.60% 21.87% 20.40%
Return on equity (%) 24.07% 21.61% 40.66% 28.60% 25.97% 23.68%

Activity ratio
Account receivable (times) 10.75 12.32 13.75 10.34 12.93 12.95
Average collection period (days) 33.95 29.62 26.55 35.29 28.23 28.19
Inventory turnover (times) 6.46 7.54 7.60 5.98 7.42 7.43
Average sale period (days) 56.50 48.38 48.04 61.08 49.21 49.14
Fixed asset turnover (times) 4.62 5.25 6.07 4.68 4.66 4.76
Total asset turnover (times) 2.09 2.18 1.90 1.34 1.25 1.14
 NPV Analysis

NPV Analysis (with pricing effect)

1994 1995F 1996F 1997F 1998F 1999F
Investment Outlay -100000 -100000 -100000 -100000
OCF with recom. 119,462.51 378,636.61 373,130.60 457,497.65 546,799.57
OCF w/o recom. 119,462.51 119,462.51 143,009.03 161,094.25 178,835.47
OFC - - 259,174.10 230,121.56 296,403.40 367,964.10
Terminal Value 75,000.00 4,313,986.91
CF - - 234,174.10 130,121.56 196,403.40 4,581,951.00

WACC (at present)

wD 41.39%
kD 7.00%
Tax 40.00%
wE 58.61%
kE 15.00%
WACC 10.53%

NPV ฿3,597 ,519 .00

 Net Sales and Net Income

1994 1995F 1996F 1997F 1998F 1999F

Net sales (w /o recom m endation) 1,541,796 1,805,023 2,160,800 2,434,060 2,702,121 3,004,958
Net sales (w ith recom m endation) 1,541,796 1,805,023 2,143,024 2,014,925 2,368,204 2,787,186
Net sales (w ith pricing effect) 1,541,796 1,805,023 2,357,326 2,216,418 2,605,025 3,065,905
Net incom e (loss) (w/o recom mendation) 104,272 119,463 143,009 161,094 178,835 198,878
Net incom e (loss) (with recom m endation)104,272 119,463 164,334 171,638 220,677 268,081
Net incom e (loss) (with pricing effect) 104,272 119,463 378,637 373,131 457,498 546,800
 Rationales

Demand and Supply

1994 1995F 1996F 1997F 1998F 1999F
Market growth rate 15% 15% 12% 12% 12%
Production growth rate (existing plan) 7% 7% 7% 7% 7%
Production growth rate (recom m endation) 20% 20% 20% 15% 15%
Dem and (without pricing effect) 211,200 242,880 272,026 304,669 341,229
Dem and (with pricing effect) (5% drop) 211,200 230,736 258,424 289,435 324,167
Dom estic dem and (without pricing effect) 152,064 174,874 195,858 219,361 245,685
Dom estic dem and (with pricing effect) (5% drop) 152,064 166,130 186,066 208,393 233,401
Supply (existing plan) 115,000 123,050 131,664 140,880 150,742
Supply (recom m endation) 115,000 138,000 165,600 190,440 219,006
Dom estic supply (existing plan) 82,800 88,596 94,798 101,434 108,534
Dom estic supply (recom m edation) 82,800 99,360 119,232 137,117 157,684
Excess Dem and (without recom m endation) - 96,200 119,830 140,362 163,789 190,487
Excess Dem and (with recom m endation) - 96,200 92,736 92,824 98,995 105,161
Lead tim e (without recom m endation) 10.04 11.69 12.79 13.95 15.16
Lead tim e (with recom m endation) 10.04 8.06 6.73 6.24 5.76
Total m arket dem and 148,653.50 170,951.53 191,465.71 214,441.59 240,174.59
Market share (without recom m endation) 55.70% 51.83% 49.51% 47.30% 45.19%
Market share (with recom m endation) 55.70% 58.12% 62.27% 63.94% 65.65%
 Cash Cow

• Prepare to invest in international market

• Invest in motorcycle industry
– Buy more Bruell shares
– Vertical intregration esp. suppliers
 SWOT Analysi
Strengths Opportunities
- Product Quality
- Brand Recognition - Expansion into Europe
- Cultural Philosophy and Asia-Pacific
- Trademark Licensing -Licensing of Trademarks
- Supplier relationship - Growth in RV market
- Designer Store Service
- Distribution Channel
- Financial Position
Threats
Weaknesses - Competitors
- Ending Contracts With
- Length Lead Time
The Labor Union
- Reliant on few suppliers
- Transportation Vehicle
Division
 Marketing Analysi
Product Place
• Harley-Davidson • Presences in U.S., Europe, Aus
• Holiday Rambler and Asia
• Buell Motorcycle • 1033 Worldwide Dealerships
• 600 independently owned

Price Promotion
Harley-Davidson: premium • Dealer promotions
•
Holiday Rambler: midrange- Customer events
premium • Magazine ad
Buell Motorcycle: premium• Public Relations
 Long Term Issue
nternational Expansion
Where? Management’s Misunderstanding

Asian Market Asian Market

Not Promising i.e. Thailand

?
Taiwan

#’s of motorcyclist
=
Potential Customers
Purchasers = Recreational oriented

Key Considerations
Focus on Europe •Culture
And Australia •Income
•Vision
 International Expansion Criter

Criteria

• Mid-High to High Disposable Income

• Open to Influences of American Culture
• Environmental Factors
- Government Regulations
- Economic Stability
- Competition
• Preferences (i.e. purchase intentions)
• Demographic factors
 Long Term Issue
ttracting non-lover customers
Secondary market

• Market Research
– Existing Customer
– Potential Customer
• New Marketing Scheme
– PR, Licensing
 Why Keep Buell?

• Correlates to Core Business

• Leverages Main Business
– R&D
– Economies of Scale
– Distribution
• Has Shown Better Than Expected Results
In Just A Period of One Year
• Expected Increase in Demand
Average sale period (days) 42.61028 58.11305 56.49959

DECREASING
GE Matrix
 Justification for Divestin

ore Business = Harley Davidson

rofitable Niche
trong Brand Presence
oom for expansion both domestically and internationa
remium High-Quality Heavyweight Motorcycle
Management’s focus
Unmet Demand
International Expansion

hould Not Diversify to Other Product Line Yet!

arley-Davidson Still Has A Lot of Room for Growth and
Profitable Niche
 Holiday Rambler Alternative
Pros Cons
Status Quo -have presence in RV + -high operating costs
commercial vehicle market - scarce human resource is
allocated away from core
business (more potential)

Keep Brand -attempt in capturing a -high investment cost that

portion of several vehicle may not give profitable
(continue markets returns
expansion) -take away management
focus on core business
- requires a lot of
marketing expenses in
order to compete with
existing market leaders

Divest from -funding for more brand -let go opportunities to

with capture several markets
Portfolio
higher potential BUT,
-more focused portfolio with INTENSE competition,
SMALL market share, and
LACK of expertise, chance
of Success is very LOW
 Summary of Management Pla
ley-Davidson
rice Increase
Justification to Consumers
However, not as prevalent because nature of product (recreational oriented + premium
ce relatively inelastic
apacity Expansion
Select optimal location (close to DCs)
Trainings crucial—product known for quality
Work closely with suppliers
Must also expand human resource to ensure high quality
tfolio Management
vesting Holiday Rambler
Allocation of fund to other brand (especially Harley-Davidson)
Finding prospective buyers: Existing Play vs. New Entrants
rademark Licensing
Find prospective licensee
Selection very important—portrays brand image
Consider International Market—build ground for entering motorcycle market
Especially useful in countries with no presence of Harley-Davidson
elling point of H-D = “American Culture”
 Effects of Price Increase and Capacity Expans

Capacity Expansion
• Increase Supply to Match Demand
• Increase Market Share
• Reduces Lead Time
• Increase NPM (in value)

Price Increase
• Increase Margin
- inelastic demand
- demand greatly > supply
• Reduces Demand
- help balance supply and demand
- customer’s willingness to buy at current price exceeds company’s
ability to supply
• Reduces Lead Time
 Why Not Increase Capacit
to Fully Match Demand?

uality Issue
increase too fast, can jeopardize
uality of product.
0% represents highest practical rate