Transcript Agenda - Georgetown University

Joint Venture Analysis
Capturing the Japanese Offshore Wind Turbines Market
April 28, 2010
Miranda Ford
Jeremy Himelfarb
Johnathan Gritz
Chris Loftus
Jason Shu
1
Japanese Market Environment
Japanese Energy Consumption by Type
Oil
Nuclear
Natural Gas
Fossil
Fuels
Hydro
Coal
World Rank: Carbon Emissions
1) China
2) United States
3) Russia
4) Japan
World Rank: Energy Consumption
1) United States
2) China
3) Russia
4) Japan
Wind turbine market projected to reach $112B by 2030
2
Investment Strategy
•Turbines
•Carbon-fiber
•Blade Design
•Infrastructure
•Capital
•Local knowledge
日本風の会社
GE / MHI Joint Venture
Strategy leverages comparative advantages
3
Financial Analysis
 $187M initial capital investment
– Joint venture establishment
– Building procurement and
modifications
– Manufacturing tooling
Investment Cash Flow Analysis
$150
$400
Annual Cash Flow
Cumulative Cash
$300
 Investment results
– $27M Net Present Value (NPV)
– 12.5 year payback period
– 9.6% Internal Rate of Return (IRR)
$50
$100
$0
$0
($100)
($50)
12 Year Payback Period
($200)
Cumulative Cash Flow ($M)
– 8.1% Weighted Average Cost of
Capital (WACC)
– 25% gross margin
– 10% market share
$200
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 Key assumptions
Annual Cash Flow ($M)
$100
($100)
($300)
($150)
($400)
Returns indicate a potentially profitable investment
4
Risk Assessment
Political / Regulatory
 Stable government with ample checks
and balances
 Low probability of expropriation
 Pro-intellectual property policies
 Movement towards official inflation
target
Wind Turbine Market
 Potential variance drivers
– Slow down in push towards
renewable energy sources
– Significant drop in fossil fuels costs
– Technological advances in
competing alternative energy
Risk Level: Low
Risk Level: Moderate
Economic / Demographic
 Aging population more concerned with
current consumption than future
environmental impact
 Deflationary environment
 High Debt to GDP ratio
Risk Level: Moderate
Currency


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Transaction Risk
Translation Risk
Investor expectations
Strength of the Yen
Import competing
Risk Level: High
Risks threaten marginally profitable investment
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Is this the best use of GE’s Capital?
6
Conclusion
 Japanese wind energy market is potentially very strong
 Joint venture could leverage comparative advantages
 High cost of manufacturing in Japan leads to smaller than
expected market share
 Projected rate of return narrowly exceeds the cost of capital
– A small change could result in a negative return on investment
 Importing lower cost alternatives could meet Japan’s
demand
– GE should pursue alternate investments to reach Japanese market
Business case does not justify this investment
7
Questions?
8