ForeRunner Integrity | Quality | Consistency Anne, Yuan YiCarlos, Lam Chunwa Charlotte, Zhou ZitaoDaisy, Wu Ximin Ginger, Zhang JianfangJacky, Chen Yacheng

ForeRunnerIntegrity | Quality | Consistency

Anne, Yuan Yi Carlos, Lam Chunwa

Charlotte, Zhou Zitao Daisy, Wu Ximin

Ginger, Zhang Jianfang Jacky, Chen Yacheng

May, Chen Yumei Yoyo, Io San Wa

Business Plan

Group Members

Market Assessment• Business Overview• PEST Analysis• 5Fs Analysis

Market Planning• STP Analysis• Marketing Programs

Revenue Forecast• Industry Sales• ForeRunner’s Revenue

Investment Appraisal• Cash Flow • Evaluation• Sensitivity Analysis

ForeRunnerIntegrity | Quality | Consistency

Presentation Agenda

Applied Business Project – Module V

Company IntroductionPresented By Anne

ForeRunnerIntegrity | Quality | ConsistencyMarket Planning Investment AppraisalRevenue ForecastMarket Assessment

• Company name: ForeRunner

• Company Logo:

Company Introduction


Incentive service company

Target at the incentive tourism industry

Provide well-designed package to help company fulfill their goal of enhancing corporate commitment

Business Blueprint


Provide customized and delightful path for customers

Provide value-added strategies for business partners

Provide growth opportunity for employees

Foster innovation, creativity and teamwork

Mission Statement


MICE

Meetings Incentives Conventions Exhibitions

Type of employee rewardCultivate employee commitment

Business Concept


2004 2005 2006 2007 2008 2009 20100

5000

10000

15000

20000

25000

30000

35000

40000

Figure 1.1 - Number of Participants in Incentive Travel

ForeRunnerIntegrity | Quality | ConsistencyMarket Planning Investment AppraisalMarket potential ForecastingMarket Assessment

Macau Market Overview

Start-up Strategy• Corporate with

business partners

Future Development Strategy• Corporate with

business partners• Direct marketing

Business Model



PEST AnalysisPresented By Ginger

PEST Analysis Political Factor


Supportive Entities

• Macau Fair & Trade Association

• Macau Convention & Exhibition Association (MCEA)

• Macau Trade and Investment Bureau (IPIM)

• Macau Government Tourist Office (MGTO)

Government Program and Funding

• Industry Partner Program (IPP)

• Strategic MICE Market Stimulation Program (For Incentive Tourism)

• Aid Schemes for Small and Medium Enterprise (SME)

• Investment Incentive Plan (IIP)

PEST Analysis Economic Factor


• Average of 12.68% annually from 2001 to 2007• Decrease in 2008 and 2009• Rebound to 26.4% in 2010

Gross Domestic Product (GDP)

• A continuous increase of inflation rate since August 2010Inflation Rate

• Currently unemployment rate in Macau is 2.6% Unemployment

Rate

• 86% of visitor arrivals come from Mainland China and Hong Kong

Customer Base Analysis

• MOP is indirectly pegging to the U.S dollar and kept depreciating against CNY last yearExchange Rate

PEST Analysis Social Factor


Population Distribution

People aged below 40 accounts for 67%

of the total population

Overview of Tourists

Attracted more than 25 million

tourists come to Macau annually

LifestyleMacau is a leisure

city with a slow life tempo

ReligionsMany religious activities even

become parts of Macau’s regular

festivals

PEST Analysis Technology Factor


Government Support

Application of Technology

The light rail project and HK-Zhuhai-Macau Bridge are under construction

The artificial reclamation made the built of the airport come true

Three over sea bridges connecting Macau and Taipa

Build Macau science center

in2005

Set Science and Technology

Development Fund in2004


Five Force AnalysisPresented By Charlotte


Porter’s Five Force Analysis


Threat of Entry

Capital Requirement

Economies of Scale

Government Policies

Retaliation from Existing Competitors

Threats of Substitutes

Availability of Substitutes

Switching Cost

Buyer’s Propensity to

Substitutes

Bargaining Power of Buyers

Customized Service

High Service Quality

Demand

Switching Costs

Bargaining Power of Suppliers

Lodging providers

Venue providers

Restaurants and similar

establishments

Rivalry among Existing

Competitors

Potential Competitors in

Macau

Outsider Competitors

Barriers to Entry and Exit

Differentiation in the Industry

Five Force Analysis – Threat of entry

ForeRunnerIntegrity | Quality | ConsistencyMarket Planning Market PlanningMarket potential ForecastingMarket Assessment

Capital Requirement Initial Capital Requirement: Macau Tourism Industry Net

Set-up Capital Requirement: set-up cost much lower than that of retailer

Economies of Scale Little fixed cost incurred, not practical to pursue economies of scale Existing companies does not have advantages

Government Policies Government has allocated tremendous resources

Retaliation from Existing Competitors

Professional Liability Insurance guarantee

MOP 700,000

Bank guarantee MOP 500,000

Min. Set up Cost Mop 1,500,000

Mop2.7 million

152 incentive travels held last year

Industry Partner Program

Five Force Analysis – Threat of Substitutes


Availability of Substitutes Macau Convention & Exhibition Association (MCEA) statistics: 11 travel agencies collaborate with the association main substitutes of ForeRunner’s business

Switching Cost Contracts for incentive services granted on project basis default risk is

small

Buyer’s Propensity to Substitutes Client companies are quality sensitive rather than price sensitive, tailored

program distinguishes itself buyers’ propensity to substitutes is low

Five Force Analysis – Bargaining Power of Buyers


Customized Service To help customers increase employee loyalty, incentive services companies

destined to differentiate from each other through customized services

High Service Quality Demand Customers are quality oriented

Switching Costs Appeared switching costs to the buyers are extremely low Switching cost increases in two scenarios: 1. Buyers establish deep relationship with current incentive service

providers 2. Switching from specialized incentive service providers to traditional travel

agencies potential low service quality

Five Force Analysis – Bargaining Power of Suppliers


Lodging providers 91 lodging establishments with unsaturated occupancy rate (DSEC, 2009)

Venue providers Hotel establishments: dominate market share abundant hotel establishments ensure the supply of incentive meeting venues Non-hotel establishments

Restaurants and similar establishments Ample restaurants and similar establishment

Five Force Analysis – Rivalry among Existing Competitors


Potential Competitors in Macau Number of establishments of conference & exhibition organizing services and

increasing rate of those establishments are not large (DSEC,2009)

Outsider Competitors Delta region has matured market and intelligent incentive planners

Other considerations

Low barriers to Exit: we are service company High differentiation in the industry: customized service Rivalry in the Industry

Out-of-town Competitors Macau Competitors

Conference & Exhibition Organizing Services

Travel Agencies

Five Force Analysis – Conclusion


Summary1 Threat of entry Relative low2 Threats of substitutes Relative low3 Bargaining power of Buyers Relative low4 Bargaining power of Suppliers Moderate5 Rivalry among existing competitors Moderate

ForeRunnerIntegrity | Quality | ConsistencyMarket Assessment

Investment AppraisalMarket potential ForecastingMarket Planning


Market PlanningPresented By Daisy & May

ForeRunnerIntegrity | Quality | ConsistencyConsumer Analysis

Competitor AnalysisMarketing Strategies

Marketing Programs

Market Planning Segmentation•Segment at clustered customers—groups of customers having same preference

•Behavioral segmentation: local residents, business visitors, gamblers, and travelers

•Segmentations are changed with different geographic and demographic needs

Customer Preference

Diffused each customer has a different

preferenceClustered

groups of customers have the same preferences

Homogeneousall the customers have the

same preference



Marketing Programs

Market Planning Targeting

• Expand from Greater China to Global market gradually

• Core Business in Asia Pacific region• Medium and large size companies• Tailor-made packages

Different market segments with degree



Marketing Programs

Market Planning PositioningDifferentiated service is the key to success in specific industry

• Tailor-made product packages• High value-added benefit to customers• Make service delivery distinctive• Improve employees’ morale, mutual trust and etc

Benefit positioning is adopted

Best to cultivate a sustainable CA



Marketing Programs

Market Planning Product Program• Base on different

demands• Different items

and pricing

Incentive

Relaxing

Entertainment

Customized

Pricing ProgramClient companies care about

quality more than price

Adopt the cost-based pricing strategy





Distribution ProgramBusiness Partner Channel

• Other MICE companies, local government, hospitality industry• Good for a new company to obtain market awareness• May lose control to some extent

Internet Channel

• Provide details, provide quicker service• Make service arrangements instant

Direct Sales

• Establish its own customer database• Collect information through business partner and internet

channels



Promotion Program• Medium and large

size companies• Potential business

partners

Target Audience

• Obtaining recognition of potential partners

• Adopt marketing mix strategy by itself

Promotion Process



Promotion ProgramPrinted Flayers

Forthright, eye-catching, and informative

Different sets for both group of

target audience

Promotional Pamphlet

Provide detail information

about ForeRunner

Distributing Channel

Directly distribute to target audience

by hiring distributor

Cooperating with business

partners



Promotion ProgramSales

Promotion

Discount: based on the purchasing volume within an preset maximum limit

Gift: distribute free gifts to every participant

Direct Marketing

Internet

Direct mail

Telephone



Marketing Programs

Marketing Budget


Market Planning Investment AppraisalMarket Potential Forecasting


Revenue ForecastPresented By Carlos



ForeRunner Revenue Forecast Assumption• Market Timeline

• Customer average consumption is proportional to the inflation index



ForeRunner Revenue Forecast MICE Industry Sales

MICE Industry Revenue Forecast = No. of Travelers × Market Penetration Rate × Average Consumption• Number of Travelers as Proxy • Market Cycle Theory• Adjusted by inflation index

• The initial MPR= MICE participants in 2011/ number of tourists

• MPR growth rate = 10% from

2008 to 2012, 30% from 2013 to 2017, 5% after 2018 • Average Consumption = Inflation index * 10



ForeRunner Revenue Forecast Inflation Forecast Model Validation

Model MSE MAPE MPE

Naïve 0.2260 0.0038 0.0014

Simple Average 91.6749 0.0747 0.0371

Moving Average 0.5676 0.0062 0.0027

Double Moving Average 0.1760 0.0034 -0.0013

Time Series 65.6093 0.0789 -0.0178

Multiple Regression 1.7445 0.0114 -0.0002

Double Moving Average



ForeRunner Revenue Forecast Travelers Forecast Model Validation

Models MSE MAPE MPE

Naïve 27389.10 0.1008 -0.0003

Simple Average 477033.60 0.3155 0.2967

Moving Average 22764.69 0.0880 0.0214

Double Moving Average 38486.89 0.1161 -0.0078

Time Series 58231.43 0.1298 -0.0209

Multiple Regression 102720.70 0.1878 -0.0622

Exponential Smoothing 9035.31 0.0555 0.0048

Exponential Smoothing



ForeRunner Revenue Forecast MICE Industry Sales



ForeRunner Revenue Forecast ForeRunner’s Revenue Forecast

ForeRunner Revenue Forecast (Marco Approach) • Based on MICE Industry Revenue• Market Share Forecast Factors

- Customer Loyalty (Cl)• - Customer Penetration (Cp)• - Customer Selection (Cs)• - Price Selection (Ps)



ForeRunner Revenue Forecast Formula



ForeRunner Revenue Forecast Market Share Forecast

Stage Introduction Growth Maturity

Customer Penetration 36.4% 54% 72.675%

Customer Loyalty 40% 35% 45%.

Customer Selection 60% 75% 80%

Price Selection 85% 90% 100%

Forecasted Market Share 7.43% 12.75% 26.16%



ForeRunner Revenue Forecast ForeRunner Revenue Forecast （ in thousands)

Year Incentive Travel Sales 10%, constant

Incentive Travel Sales 10% - 20%

Incentive Travel Sales 10% - 30%

2012 4,925.71 5,219.98 5,514.252013 6,034.72 7,057.49 8,080.252014 16,348.16 20,889.01 25,429.702015 22,818.13 31,622.48 40,426.99

2016 31,806.32 47,517.12 63,227.92

2017 49,231.35 78,871.02 108,510.862018 63,136.96 107,849.13 152,561.292019 99,889.25 181,403.38 262,917.502020 108,342.00 208,465.95 308,589.902021 117,398.36 238,582.34 359,766.33

Forerunner’s revenue =Industry sales* Forerunner’s market share


Market Planning Market potential Forecasting Investment Appraisal


Investment AppraisalPresented By Jacky



AssumptionsFour Key Assumptions

We do not sell on credit1

We assume the continued trend of MICE industry in Macau

We assume a capital structure with 30% debt

We assume annual sales without adjustment of seasonality

2

3

4



Key Indicators

Discounted Cash Flow Method

• Net Present Value of all cash flows

Return on Investment

• ROI = (Gain from investment – Cost of investment)/Cost of Investment

Payback Period Method

• Payback period = Cost of investment/ Annual cash flow



Initial Investment Items Costs

a. Down payment of office cost (4,250,000*30%) $1,275,000

b. License registration fees --Fees for issuing license (including 10% stamp duty) $25,000

--Fees for inspection of facilities 500

--Fees for publishing license extract in the Official Bulletin of the Macau Special Administrative Region (Overpayment refundable; supplemental)

1,000

--Miscellaneous (photocopy and other document prepared fees) Sub-total

1,000

27,500

c. Office equipment--Notebook Computer ( 7000@10,5 years life)--Photocopier ($5000@4, 5 years life)--Telephone($500@15, 5 years life)--OthersSub-total

70,000

20,000

7,5004,500

102,000

d. Shuttle Bus 335,000e. Official website 18,500

Total $1,758,000



Forecasted Cash Flow Data Source

- Five Public Companies in Travel Industry in China and Hong Kong (中旅，實德環球，南華集團，專業旅運，星辰集團 )

- Wing Hang Bank Website : http://www.whbmac.com/chi/mortgage/mortgage_link.html

- DSEC, Consumer Price Index Report - World Bank report released in 2011

http://www.whbmac.com/chi/mortgage/mortgage_link.html





Forecasted Cash Flow

Year Mortgage Salary Commission (30%)

Depreciation Promotion Other Expense

Total Expense

2012 0.24 1.90 0.67 0.14 0.12 0.08 3.14 2013 0.24 2.02 0.82 0.14 0.13 0.08 3.44 2014 0.24 4.11 2.74 0.14 0.14 0.09 7.45 2015 0.24 4.39 3.82 0.14 0.15 0.09 8.82 2016 0.24 4.68 5.91 0.14 0.16 0.10 11.23 2017 0.24 5.00 7.58 0.15 0.17 0.11 13.25 2018 0.24 5.34 8.27 0.15 0.18 0.11 14.30 2019 0.24 5.71 16.97 0.15 0.19 0.12 23.38 2020 0.24 6.09 18.40 0.15 0.21 0.13 25.23 2021 0.24 6.51 19.94 0.15 0.22 0.14 27.20

Illustration Exclude Mortgage, Commission, Depreciation Assume others increase with stable Inflation rate 6.8%



Forecasted Cash FlowYear 10% 10% - 20% 20% - 30%

2012 -0.91 -0.79 -0.66

2013 -0.70 -0.27 0.16

2014 1.68 4.94 8.20

2015 3.90 9.72 15.54

2016 8.47 19.44 30.41

2017 12.02 28.57 45.12

2018 13.27 34.08 54.88

2019 33.18 75.87 118.57

2020 36.12 88.56 141.00

2021 39.27 102.75 166.22

Illustration Calculation of EBIT = Revenue - Expenses



Forecasted Cash Flow Illustration Calculation of Interest Expense Interest expense = Total debts * loan rate (5.25%)

Year Total Liability Forecasted Sales Debt-to-Sales Ratio

2012 0.8 2.23 35.8%Level 10% 10% - 20% 20%-30%

Year Sales Debts Interest Sales Debts Interest Sales Debts Interest2012 2.23 0.80 0.04 2.36 0.84 0.04 2.48 0.89 0.052013 2.74 0.98 0.05 3.17 1.13 0.06 3.60 1.29 0.072014 9.13 3.27 0.17 12.39 4.44 0.23 15.65 5.60 0.292015 12.73 4.56 0.24 18.54 6.64 0.35 24.36 8.72 0.462016 19.70 7.05 0.37 30.67 10.98 0.58 41.65 14.91 0.782017 25.27 9.05 0.47 41.82 14.97 0.79 58.37 20.90 1.102018 27.57 9.87 0.52 48.38 17.32 0.91 69.18 24.77 1.302019 56.56 20.25 1.06 99.25 35.54 1.87 141.95 50.82 2.672020 61.35 21.97 1.15 113.79 40.74 2.14 166.23 59.52 3.122021 66.47 23.80 1.25 129.95 46.53 2.44 193.42 69.25 3.64



Forecasted Cash Flow

Annual taxable profits (in Mop) Rate

Income up to $200,000 Exempted

Portion exceeding $200,000:

$200,001 to $300,000 9%

Above $300,000 12%

Illustration Calculation of Tax Expense Tax expense = Profit before tax * Complementary Income Tax rate

Level 10% 10%-20% 20%-30%

Year PBT Tax Exp. NI PBT Tax Exp. NI PBT Tax Exp. NI

2012 -0.95 -0.11 -0.84 -0.83 -0.10 -0.73 -0.71 -0.09 -0.62 2013 -0.75 -0.09 -0.66 -0.33 -0.04 -0.29 0.09 0.01 0.08 2014 1.51 0.18 1.33 4.71 0.56 4.14 7.91 0.95 6.96 2015 3.66 0.44 3.23 9.37 1.12 8.25 15.08 1.81 13.27 2016 8.10 0.97 7.13 18.87 2.26 16.60 29.63 3.56 26.08 2017 11.54 1.38 10.16 27.78 3.33 24.45 44.02 5.28 38.74 2018 12.75 1.53 11.22 33.17 3.98 29.19 53.58 6.43 47.15 2019 32.12 3.85 28.26 74.01 8.88 65.13 115.90 13.91 101.99 2020 34.97 4.20 30.77 86.42 10.37 76.05 137.88 16.55 121.33 2021 38.02 4.56 33.46 100.30 12.04 88.27 162.58 19.51 143.07



Forecasted Cash Flow Illustration Forecasted Cash Flow = Forecasted sales – Total expense

Year Cash Flow 10% Cash Flow 10%-20% Cash Flow 20%-30%

2012 -0.70 -0.59 -0.48

2013 -0.52 -0.15 0.22

2014 1.47 4.28 7.10

2015 3.36 8.39 13.41

2016 7.27 16.74 26.21

2017 10.48 24.77 39.06

2018 11.37 29.34 47.31

2019 28.42 65.28 102.14

2020 30.92 76.21 121.49

2021 33.61 88.42 143.22



EvaluationInvestment Horizon: 10 yearsIncorporate three stages of industry life cycleBoard members want to reap profits at the maturity stage

Terminal Value included: better valuation of company

10% 10%-20% 10%-30%Payback Period 3.45 2.58 2.28Net Present Value (in Million) 36.69 94.60 94.60Return on Investment (%) 7.06 17.69 28.33Internal Rate of Return 90% 144% 188%

This is a figure you will NEVER forget!



Sensitivity Analysis Return on Investment (ROI) as a proxy for NPV

• Gains from investment• Costs of investment

Two factors *Level of uncertainties are bigger for the two factors

How do we fluctuate the factors Changing range: 15% for Market Share & Cost of Service Interval: 1%

Market Share Changes to ROICost of Service Changes to ROI



Market Share Sensitivity AnalysisForeRunner’s Market share: 7.43% 41.43%

10% ScenarioIntroduction: -0.754.27

Growth: 3.7616.72Maturity: 17.5437.38

10%-20% ScenarioIntroduction: -0.292.89

Growth:9.430.24Maturity: 43.5170.57

20%-30% ScenarioIntroduction: 1.883.34

Growth: 15.0443.76Maturity: 69.47109.05

ROI increases positively with Market Share



Cost of Services Sensitivity AnalysisPercentage change of cost 10% 10%-20% 20%-30%

50.40% 8.01 14.12 20.2351.40% 7.84 13.83 19.8252.40% 7.68 13.55 19.4153.40% 7.52 13.26 19.0054.40% 7.36 12.98 18.5955.40% 7.20 12.69 18.1956.40% 7.04 12.41 17.7857.40% 6.88 12.12 17.3758.40% 6.71 11.84 16.9659.40% 6.55 11.55 16.5660.40% 6.39 11.27 16.1561.40% 6.23 10.99 15.7462.40% 6.07 10.70 15.3363.40% 5.91 10.42 14.9264.40% 5.75 10.13 14.5265.40% 5.58 9.85 14.11

- As cost of service increases in different scenarioROI will decrease

- However, the cost can be controlled as long as ForeRunner uses the appropriate way to manage the operations

Documents

ForeRunner Integrity | Quality | Consistency Anne, Yuan YiCarlos, Lam Chunwa Charlotte, Zhou ZitaoDaisy, Wu Ximin Ginger, Zhang JianfangJacky, Chen Yacheng