KB Brings Affordable SingleFamily Housing to India

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KB Brings Affordable Single-Family Housing to
India
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Agenda

• Company Overview/New Product
• Mode of Entry
• Market Environment Competitive Analysis
• Finances
• Risks

3
Company Overview

• KB Home
• One of the largest home builders in the United
  States (37,140 homes, 9.4 Billion in Revenue).
• French Subsidiary (Kaufman Broad S.A.) builds
  American homes with a French twist.
• Operational Model, KBnxt, has been a success.
• Current US market conditions require
  diversification.

Customer Service
Survey
Build
Develop New Communities
Custom Design
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Company Overview

• KB Home
• One of the largest home builders in the United
  States (37,140 homes, 9.4 Billion in Revenue).
• French Subsidiary (Kaufman Broad S.A.) builds
  American homes with a French twist.
• Operational Model, KBnxt, has been a success.
• Current US market conditions require
  diversification.

Customer Service
Survey
Build
KB Home Design Studio
Develop New Communities
Custom Design
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New Service Concept

• Deliver custom built, American style homes to
  India.
• Leverage catalog of American designs, add Indian
  customizations.
• Place KB Home Design Studios in popular retail
  locations.
• Used a phased approach to introduce ourselves to
  the market.

Phase 2 (100 acres)
Phase 1 (25 acres)
Phase 3 Full Scale
18 mos.
30 mos.
0 mos.
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Mode of Entry

• Foreign Direct Investment
• Establish a joint-venture with local homebuilder.
• We supply capital and knowledge.
• Local homebuilder supplies land, knowledge of
  local market, building codes, and a resource pool.

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Organizational Structure

• Start with a Project Structure and morph into a
  full Organization Structure.

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Market Environment Competitive Analysis

India Demographics Housing Shortage
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Market Environment Competitive Analysis
FDI Regulations Feb 2005 Housing Reforms
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Market Environment Competitive Analysis
Major Indian Cities Snapshot
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Market Environment Competitive Analysis
Major Builders In India
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Market Environment Competitive Analysis

• Growing trend towards American Style housing
  fuelled by burgeoning middle class
• Major Obstacle
• Missing Title Insurance
• Corruption
• Higher Land Cost

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Market Positioning Competitive Strategy

Positioning Perceptual Map
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Market Positioning Competitive Strategy
Positioning Strategy Canvas vs. Other Housing
Options

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Market Positioning Competitive Strategy

• Target Market The emerging fast-growing Middle
  Class
• The Four Ps
• Price Close to the cost of Multi-family housing
  when HOAs are considered (Average 150,000)
• Place Bangalore, India
• Product Mass-Customized Single Family Homes
• Promotion Internet, Traditional Advertising,
  Referral, Design Center

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Market Positioning Competitive Strategy

• Growth Strategy
• 18 Months
• 25 Acre Development Complete (Sold and Built)
• 100 Acre Development Started (Land Purchased)
• 30 Months
• 100 Acre Development Complete (Sold and Built)
• If Successful
• New Infrastructure introduced for mass entry
• 1000 Acre Development Started

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Finances

• Assumptions Underlying the Scenarios for KB
  Homes India
• Phase 1 1/1/07 to 6/30/08 (18 months)
  Fiscal Year 2008
• Product or Service Variable Most
  Likely Pessimistic
• Scenario Scenario
• New Home Construction
• Construction Cost 75 of Sale Price
  90 of Sale Price
• (Land Labor)
• General Admin. Expense 12 of Sale
  Price 12 of Sale Price
• Land Needed 25 acres 25 acres
• Units to be Built 150 150
• Units Sold at Full Price 150 120
• Units Sold at Discount 0 30
• Tax Rate 34 34
• Effect on Income
• Capital Required 20,000,000
  23,000,000
• EBIT 2,850,000
  (1,350,000)
• Retained Earnings 1,900,000
  (1,350,000)

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Finances

• Assumptions Underlying the Scenarios for KB
  Homes India
• Phase 2 7/1/08 to 6/30/09 (12 months)
  Fiscal Year 2009
• Product or Service Variable Most
  Likely Pessimistic
• Scenario Scenario
• New Home Construction
• Construction Cost 75 of Sale Price
  90 of Sale Price
• (Land Labor)
• General Admin. Expense 12 of Sale
  Price 12 of Sale Price
• Land Needed 100 acres 100 acres
• Units to be Built 600 600
• Units Sold at Full Price 600 480
• Units Sold at Discount 0 120
• Tax Rate 34 34
• Effect on Income
• Capital Required 85,000,000
  101,500,000
• EBIT 12,600,000
  (6,560,000)
• Retained Earnings 8,316,000
  (6,560,000)

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Finances

• Assumptions Underlying the Scenarios
  for KB Homes India
• Phase 3 7/1/09 to 6/30/12 (36 months)
  Fiscal Year 2010, 2011, 2012
• Product or Service Variable Most
  Likely Pessimistic
• Scenario Scenario
• New Home Construction
• Construction Cost 75 of Sale Price
  N/A
• (Land Labor)
• General Admin. Expense 10 of Sale
  Price N/A
• Land Needed 1000 acres N/A
• Units to be Built 6000 N/A
• Units Sold at Full Price 6000
  N/A
• Units Sold at Discount 0
  N/A
• Tax Rate 34 N/A
• Effect on Income
• Capital Required 886,000,000
• EBIT 154,000,000
• Retained Earnings 101,000,000

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Finances
Summary of Key Financial Metrics by
Fiscal Calendar Year (Most Likely Scenario)
2008 2009 2010 2011 2012 5 Year
Total Capital Required 20M 85M 167M
351M 368M 991M Revenue
Generated 22.5M 99M 198M 416M 437M
1,172M EBIT 2.5M 12.6M 29M 61M
64M 169M Retained Earnings 1.9M 8.3M
19M 40M 42M 111M Return On
Equity 9.5 9.8 11.4 11.4 11.4
10.7 Units Sold 150 600 1200 2400 2400
6750 Summary of Key Financial
Metrics by Fiscal Calendar Year (Pessimistic
Scenario) 2008 2009 2010 2011 2012 2
Year Total Capital Required 23M 102M N/A
N/A N/A 125M Revenue Generated 21.6M
95M N/A N/A N/A 116.6M EBIT (1.4M)
(7M) N/A N/A N/A (8.4M) Retained
Earnings (1.4M) (7M) N/A N/A N/A
(8.4M) Return On Equity (5.9) (6.5) N/A
N/A N/A (6.7) Units Sold 150 600
N/A N/A N/A 750
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Risk Recognition Reduction
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Summary

• New Product
• Mass produced, affordable single-family homes in
  Bangalore, India
• Why India?
• Shortage of housing
• Growing middle class
• Available workforce

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Summary

• Mode of Entry
• Partnering with a local contractor
• Phased growth plan
• Financing
• Use of KB Homes available cash reserves
• Loans for later phases if needed
• Implication
• Diversification of investments
• Less reliance on shifting US Housing Market

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Now is the Time
India is the Place