2016-2017 (4 months)Company:
A wholly owned subsidiary of the Diocese of Carlisle, part of the Church of England and the Anglican Communion.Assignment:
To restructure the business so that it can operate profitably and deliver its purpose: ‘Mission Through Service, Profitably’. To achieve: a proactive approach to business development; an ability to see and measure the direction of travel; a decentralised decision making approach, whilst working effectively in teams; a system that gives the business a revised path to improved cost performance.Role:
Interim General ManagerAssignment Length:
In 1970, the Diocese of Carlisle bought Rydal Hall and the surrounding land (about 34 acres) from Rydal Estates. The facility was established to act as a Christian retreat and conference centre.Like much of the Church of England, cash is tight and the hall has always been expected to generate enough funds to be able to sustain the work it needs to undertake to fulfil its obligations to its major stakeholders including guests, church and employees.
As part of the modus operandi Rydal Hall has a resident international community. Over the years, this evolved so that about half of the number comes from within the European Economic Area and half from the rest of the world. In recent times, the UK immigration Service has changed its stance on the way it interprets Visa rules, which led to problems with the status for non-EEA community members.
In c.2007/8, a significant grant (c.£0.75M) was obtained to upgrade the hall, a grade II listed building, which enabled a much-enhanced standard of service and accommodation to be offered.
Over the years, the hall has established a reputation within its traditional client base for being an excellent place to experience a homely, welcoming, tranquil and peaceful environment (The Rydal Experience), where quality of thought can grow and develop in whatever subject area the guest is concentrating on. This has resulted in an enormously high return rate, or repeat purchase coupled with tremendous loyalty to the place (situated in the heart of the Lake District).
The whole estate has operated to high conservation standards over the years. This includes managed woodland, an area where red squirrels are encouraged and protected and the use of a hydro-electric power generation plant set up within the grounds, using the beck that passes through. A facility has operated for 100 years (the centenary being 2017) with the current plant generating up to 0.5MW electricity.
At the start of 2016, Storm ‘Desmond’ had caused a great deal of damage in the area. Insurance claims had not been pursued with any vigour, nor had the repair of the shared public access road to the property.
The previous General Manager had moved to another centre during the summer, leaving the business without a replacement for a few months. The board became concerned that the performance of the company was suffering from short term issues and longer term structural problems, and with little balance sheet resilience, decided to engage an interim to resolve matters.The Brief:
Service levels needed to be maintained, whilst resolving a rapidly deteriorating financial position coupled with low staff morale. The management team was suffering from poor health for extended periods and a lack any proactive financial, people or business development direction.
The board requested that the new interim GM assess the underlying problems and do what was necessary to restore the balance between spiritual purpose and business stability. This included providing guidance for the future direction of the company beyond the time of the assignment.
The Operating Situation:
As the assignment started, the diocese had made the decision to re-patriate the visa holding community members to avoid any difficulty that might arise as a result of the UK Immigration Service having reviewed its position vis a vis the way the business was operating the relationship. The net effect was the loss of 50% of the direct workforce at a time when the business was operating with high occupancies. The decision was implemented rapidly, which left the business needing to recruit a fresh team, which was achieved from start to finish in 4-5 weeks. No measurable impact on guest service and satisfaction was found but this was achieved with very high short term workloads on remaining staff and a number of volunteers who brought real impetus and support.Meanwhile, the business review was conducted. Major findings were:
- There had been no price rises in any area of the business for 2 years
- Year-end Losses would be at least 5% on sales (actual 14% due to a high seasonality)
- Renewed effort was required to introduce an electronic booking system
- No analysis of market niches served or potentially could be served
- All marketing was, at best, passive, with no focus on business development
- Financial information was generated for the sole benefit of the shareholder (the diocese)
- The business was short of various forms of professional expertise
- Leadership and team work was fragmented and limited
- Skills within the business were not actively used
- The organisation was doing what it had always done and was not seeking to improve
- Information flow within the business was strictly limited to a ‘need to know’ basis
The starting point was to re-structure the senior management team and initiate regular team and whole staff briefings.
The diocesan HR Manager was co-opted onto the team and provided direct expertise to establish the basics of good rapid recruitment, relevant job descriptions and a working company handbook in the first instance. The task was then to develop a functional local HR base that could sustain the business need.
A business development function was established with an internal promotion who led the electronic booking system project and commissioning, website upgrade and training of staff to support the activity.
The Operations Manager decided to leave the business and the direct reports were then given clear supervisory roles, reporting directly to the GM.
The bursar gave notice of retirement from the business after 12 years of service. The replacement Finance Manager was recruited to work full time and provide a full functional service to the organisation.Before the arrival of the new finance manager, several actions were undertaken:
- Monthly P&L management accounts produced by end week 2 instead of month end or beyond
- A top-down budgeting process was established for the first time, as year 1 of turnaround
- Capital expenditure was separated from revenue spend and depreciation rules established
- A financial business model was built to enable scenario planning and forecasting
- A cost centre approach to monitor monthly operating spend was identified
- The company was split into several lines of business to give focus. These included the hall itself, tea shop. youth centre, camping (range of forms), bar, etc.
Early in the assignment, the diocese was encouraged to initiate the recruitment for the permanent replacement GM. By the end of the assignment the appointment had been made and the notice period was being worked through.
A complete review of pricing by line of business was undertaken. These were set for the coming year, with principles established for use beyond that time. Additionally, the concept of low and high season pricing was introduced, along with additional service offerings; the ability to analyse bar sales by line, tea shop sales by line and a preliminary view of setting up a loyalty scheme. A corporate relationship was set up with a hotel where access to fitness centre and spa was negotiated for use by hall guests.
Stock holding and lines sold in both the tea shop and bar were reviewed and refreshed. A review process was put in place for future use based on popularity, availability and margin.
The electronic booking system was in place and operational by assignment end. The on-line booking module was anticipated for installation at the end of Q1’17.
In preparation for active marketing of the company, a number of target niches were identified, based on existing business analysis. As well as church and related activity, academia, writers, arts and crafts organisations, schools and walking groups will be pursued.The website was upgraded.
Business development support was put in place, coupled with ‘front of house’ operations.
Regular updates were provided to the Diocesan Board of Finance (shareholder) as well as the Rydal Hall Ltd board, who approved the 2017 budget submitted, with full explanation and context. A loss for the year was shown at 4.5%. This included price increases but no change in occupancy or usage. There is therefore upside available for the year end depending upon how quickly active marketing can be brought to bear.
A CAPEX approach had been adopted, with 3 projects identified (tea shop, hall front of house, campsite) and being worked on for board presentation and approval by the end of the assignment.
3 contracts were re-negotiated to the company’s benefit. 2 related to hiring ground space and 1 was the contracted out catering activity (kitchen food supply and chef services). Net effect on the 2017 budget is estimated to be c.3% of sales.
The estate management team operated a significant volunteer workforce which had introduced a relationship with a forces rehabilitation charity in 2016. This was built on for 2017 where teams of people came to work in the gardens, resident for a week at a time. This has worked extremely well for all concerned. As a result, food will be produced this year for use in the hall kitchens and tea shop.
The storm Desmond damage was pursued successfully and remedial works were identified and preparatory steps were being followed to enable the work to be done. By the end of the assignment the access road had been significantly improved and bridges across the beck on the estate were receiving attention.
Operationally, the new supervisory team gave focus to various elements. In the kitchen/dining area, issues were caused by a deteriorating main oven that has to work 24/7/365. A CAPEX was raised and approved to deal with this, along with an upgrade and extension of other related cooking equipment, improving kitchen ergonomics, hygiene and H&S standards.
Each area produced input to the budget process – the first time team members had experienced this.
Hall operations were reviewed for labour content so that adequate labour provision was built into the budget to cater for forecast seasonality. Contingencies were also considered for implementation as increased occupancy levels required.
A training day was organised for new team members covering some basics of management and team working/building including Belbin team roles.
Throughout the assignment, guest feedback had remained high. This is a great credit to all staff and volunteers. By the end of the assignment, staff morale was much higher and a positive, ‘can do/will do’ approach prevailed. A credit to the new management team.
Towards the end of the assignment, a Strategic Development paper was produced for the business, identifying areas for further consolidation and expansion. This was accepted by the boards.Achievements: Key outputs from the 4 month assignment were:
- Restructured the whole business, from management team down
- Established new Business Development and HR functions
- Provided a complete finance window on the company for timely use
- Ensured a move to electronic booking from ‘quill and parchment’
- Provided a 3 year development strategy
- Increased professional business competence within the team
- Improved staff morale and maintained very high guest satisfaction
- Recruited 50% of direct staff in 4-5 weeks to replace sudden losses due to visa issues
- Improved external relations with key groups
- Renegotiated 3 key contracts on behalf of the business, adding 3% on sales
2014-2015 (8 months)Company:
A wholly owned subsidiary of a Swiss based international freight forwarding and contract logistics business.Assignment:
To redirect the company in the face of multi-year deterioration in market and profitability. To achieve: a revised path to improved cost performance; an effective approach to the ‘1970s’ industrial relations and re-establishing customer service standards reliably to contracted levels.Role:
Interim Managing DirectorAssignment Length:
In c.2006, Scottish & Newcastle Breweries made the strategic decision to outsource its drinks delivery operations by the establishment of a 50:50 JV company with an international logistics organisation in the UK. The business model was for the JV to own the relevant physical assets associated with the distribution operation (sites, warehousing and vehicles), which it leased to a wholly owned subsidiary of the logistics company who would provide the operational service and contain the people required to deliver the service. The operating company is Kuehne & Nagel Drinks Logistics (KNDL).
With the take-over of S&N by Heineken, the JV ownership also changed in parallel. Inevitably, the relationship between the 2 shareholders changed, resulting in modifications to the structure of the agreement, which included the contract being extended to 2023.
The original agreement was based on excellent personal relationships across the two shareholders and this was also reflected in a positive constructive relationship with customer service maintained at agreed levels.
Heineken as an organisation has a significantly different culture to S&N. It does not have a history of operating JV arrangements in the UK and the existing arrangement with the logistics partner changed in its nature and approach. Contractual emphases shifted with varying pressures as shareholders and customer. Conflicting desires to know cost build up without agreeing to a formal ‘open book’ became evident.
At the same time, the the operating company's relationship with the trade union (Unite) had deteriorated over the previous 2-3 years in the secondary, on-trade, operations. Increasingly strident demands from union representatives resulted in much more difficult management with even minor issues being escalated to formal complaints or various forms of industrial action being taken, up to and including a strike in September 2013. Union negotiations were complex; wage based issues being regionally handled and other issues operating through a ‘Joint Working Party’ with national secondary representation. The primary, off-trade business benefits from a much smoother relationship, reflecting the history of the business and the individuals involved.
Originally, the operating company was a self-contained business possessing all functions directly. Over the years, this situation changed, with a number of ‘back-office’ functions being integrated into the group facilities. This included payroll, HRD&T, Finance, IT, HSEQ, Marketing & PR. Value chain functions, Procurement and Sales also became integrated in time, reflecting the heavily matrix managed group organisation.
Market conditions since the formation of the JV had deteriorated across the ‘on-trade’ side of the business, with beer and lager volumes falling 50% in 10 years. The number of ‘drops’ to pubs had also fallen but to a lesser degree, resulting in volume per drop falling but the requirement to maintain a full national distribution network remained.
The 3 national drinks distributors (the operating company, Carlsberg and DHL) had all maintained their networks but operated at well short of capacity. The situation was further exacerbated with regional distributors and wholesalers providing local drops to individual pubs. 2015 volumes will be insufficient to keep 2 national distribution networks operating at full capacity.
The distribution companies had spent some years competing to carry volume at ever lower prices, using marginal income as the ‘modus operandi’. This had reached a point where profit erosion had been sufficient to bring future operations to generating structural losses.
The operating company has 2 distinct sides to the business: ‘on-trade’ or Secondary operations described above, plus ‘off-trade’ or Primary operations. This latter activity involves movements of drinks from brewery to supermarkets, largely through a national distribution centre based in Derby but with supporting activity from 4 other warehouses in the network.
Apart from Heineken (constituting about ¾ of the business), other breweries are served by the operating company, including ABInBev, Carlsberg, Shepherd Neame and Charles Wells. During the assignment, the operating company established Diageo as a new client, operating all UK distribution for the multi-national spirits and beer company. Primary end customers included Tesco, Morrison & Sainsbury, with Secondary pub groups such as Enterprise Inns, J.D. Wetherspoon & Trust Inns being served.
The operating company employs c.2500 people on 34 sites across the UK with sales of c£220M. The secondary distribution network is based on a ‘hub and spoke’ system and the company has the benefit of a large central planning function. The present operating structure had been adopted over the previous 2-3 years, coincident with a deteriorating IR scene. This had resulted in a concentration of stock into 3 regional warehouses and a couple of stocked depots. A significant reduction in headcount also occurred at depots, including the loss of a number of site managers. A new primary National Distribution Centre was built in 2014 to facilitate the rationalisation of stock storage for Heineken, removing the burden from brewery sites.
In parallel with the operational re-structuring, secondary operations union discussions had been running in excess of a year to optimise the number of ‘draymen’ (drivers and ‘mates’) used to recognise the significant reduction in volumes carried. At the same time, service levels were increasingly poor, with the union insisting that more, not less people were required. Some voluntary redundancies (VR) had been achieved but the union subsequently had insisted that any VR offer must be removed by the company. Pressure was applied to stop people taking advantage of the generous company offer. Discussions relating to adopting more flexible working practices had also been held with no progress in over a year.
Stock losses remained stubbornly high at approximately 2x the budgeted loss values. Absence, which had always been traditionally high in the Secondary operations (at levels similar to the worst nationally quoted for public sector employees), deteriorated about 40%+ further. Little real control existed with either short term absence or ‘long term sickness’. A large proportion of the dray crews had ‘legacy’ contracts which included full pay from day 1 for absence, for up to a year.
The business ran a large number of weighty projects throughout each year, some being initiated at short notice. All required significant people resource to run to cost, to time but the organisation possessed a very stretched management structure with limited skills available to deliver the work demand successfully.
As mentioned earlier, customer service levels were under pressure. There were a number of contributing factors including an aging on and off road vehicle fleet. Warehouse vehicles were a year out of lease contract and lorries were operating well outside the industry norm of 7 years cost effective lifespan. The net effect was a maintenance budget running at over £0.75M/yr beyond expectations and extended and ‘spot’ lease costs well above budget.The Brief:
The business had been through substantial change which had led to exacerbated industrial issues, yet had not dealt with the deteriorating financial position. Service levels were not adequate and were putting pressure on achieving contractual terms. The organisational split between assets ownership (the JV) and running costs (the operating company) had resulted in material damage to the operating company’s ability to remain ‘fit for purpose’. To return the business to a solid financial and operational footing, the assignment was undertaken to put the building blocks in place whilst the permanent MD was recruited.
The Operating Situation:
The senior management team was restructured with the previous MD remaining an integral part of the team in the newly formed position of Commercial Director. Initially, 2 external appointments were made to reinforce IR expertise and undertake detailed investigations into where significant operational cost savings could be made. At the same time, group programme management processes were more rigorously adopted and supported by the secondment of a senior programme manager. The recruitment of a company HSEQ manager was also initiated with the new job holder reporting directly to the MD rather than ’hard lined’ into the group HSEQ Head. A little later, an internal group recruitment was successfully made, appointing a new Customer Service Director.
As a result of previous difficulties in delivering budget commitments, company credibility within the group hierarchy was low. To recover this situation, two things were required:
- To deliver the agreed budget, and
- To manage agreed projects to successful conclusions.
The 2014 budget had been extremely optimistic and required a number of projects to be delivered quickly and achieve all projected cost savings. The 2015 budget was significantly more realistic and whilst resting still on a forward estimate of a very fickle market and the performance of a new significant customer (Diageo), it did not include unrealistic cost saving forecasts.
A review of required projects to deliver the budget was undertaken. 35 projects were identified as necessary to ensure budget delivery and establishing the redirected company approach. The key agreement to not embark on a project unless it was properly resourced was made with group senior management. The 17 most urgent and important projects were initiated in the new control process so that completion would be timely.
2 major elements of the work required to redirect the business were:
- Defining and implementing a clear IR strategy and
- Identifying areas for significant cost saving within the business’s operational activities.
Prior to the assignment start, the group and the business had developed an approach designed to introduce a labour cost saving plan that would deliver the necessary budget requirements and re-shape the company for future operations. The planning anticipated a negative union reaction, with industrial action variations being costed into the strategy. Early in the assignment, the approach was tested with both shareholders. Heineken were not supportive on the basis that it could risk continuity of supply to the end customer which made the strategy very difficult to drive to a successful outcome.
An alternative approach was formulated, working closely with the union representatives to establish a different, more open and constructive way of working. By its nature, this methodology would take much longer to run to a successful change. By the end of the assignment period, some progress had been made that had led to some early examples of achieving mutually acceptable outcomes to a number of long standing issues.
The ‘root and branch’ review of potential cost saving opportunities was undertaken over a 4-5 month period of detailed intensive work. This confirmed the scale of the cost saving opportunities directly linked to non-optimised labour levels, plus additional savings that could be achieved by simplifying and updating planning assumptions, routings, vehicle fleet structures and stock handling. Overall, a cost saving potential of c.£15M/yr was identified.
By the end of the assignment, work was underway to tackle a number of these areas in collaboration with the union.
Within the UK drinks market it has been understood for some time that the volume of work is insufficient to fully support 3 national distribution networks profitably. The operating company’s stated intention was to be ‘last man standing’ and part of this strategy involved holding commercial discussions with another national player to identify mutual benefit to merging the 2 distribution networks. Throughout the assignment period, these discussions continued. No final decision had been made by the conclusion of the work but the position remained positive. The scale of potential savings available was estimated at £80M.
During the assignment period, a c.15% increase in sales volumes had been achieved through the introduction of 2 new clients (Diageo and ABInBev). The ABInBev implementation was the first completed transformation project using the new programme approach. It became clear that the original resourcing for the Diageo implementation plan was insufficient. Immediately prior to the major operational new warehouse commissioning, significant additional resources were drafted in from elsewhere in the contract logistics group and from outside the company, so that rapidly changing demand from the client and the impact on the planning, warehousing and transportation needs to achieve client service levels could be met. In the face of these conditions, coupled with the sudden loss of a small number of key personnel, the commissioning team managed to deliver client peak year end demand. This work became very high profile within KN and Diageo. The client service was achieved, but at a cost (additional c.£0.75M). The learning experience was a rich one and reinforced the need to be properly resourced from the beginning of any major project.
As mentioned previously, the ownership and operating structure gave rise to a split in capital and maintenance costs. As a result, there was no incentive for the shareholders to support an efficient vehicle replacement programme. Indeed, the structure supported the converse action. Discussion regarding on-road vehicle replacement and warehouse vehicles had been continuing for about a year prior to the assignment. Agreement in principle had been reached to phase the replacement programme for the on-road fleet over a 5 year period. Unfortunately, the starting point was still being debated with shareholders requiring ever more detail to enable a final decision to be made. A similar approach was adopted with the warehouse vehicle fleet. However, this was the subject of a leasing arrangement with the equipment supplier and regular breakdowns that could not be dealt with out of ‘normal working hours’. After papers to the JV board and board meeting discussion, it was finally agreed to proceed at the end of the assignment period. The warehouse vehicles were all beyond the normal 5 years contract period (at 6 and counting), with breakdowns impacting the business’s ability to deliver to service levels. The operating company had a number of short term spot lease arrangements in place to ensure that it was possible to recover from most unexpected breakdowns but at significant cost. The business operates over 370 warehouse vehicles. The new leasing and maintenance arrangement was valued at c.£7M (5 year lease).The on-road fleet had vehicles well into their 11th year of use running with very high maintenance contract costs and being unreliable. The secondary on-road fleet required CAPEX approval to spend £9.8M on new lorries, plus £7.5M on maintenance in year 1.
The Health, Safety, Environmental and Quality (HSEQ) work of the business was re-focussed, with the newly recruited functional manager reporting to the business MD. Relevant employees were all placed into the function as direct reports to the HSEQ head. This brought a much improved approach to H&S, which proved timely. Amongst other things, the company received a number of fines for breeches of vehicle regulations (to do with load containment) from the Metropolitan Police. A meeting was held with the police to understand their concerns as changes in their approach had occurred and the business believed it was following relevant guidelines from ‘VOSA’. The updating of the fleet would resolve all outstanding differences coupled with reinforcing the need for dray crews to comply with load restraint practices at all times.
IT/IS support projects were integrated into the needs of the business and timeframes aligned with the transformation projects being undertaken. This was particularly relevant for new client introductions, in-cab technology and planning efficiency requirements.
Having undertaken extensive market research, Heineken had embarked upon a major client service improvement programme, including establishing an in-house call centre to deal with all end customer issues and enquiries. During the assignment, the operating company aligned itself with this programme and appointed a Customer Service Director (new position). This approach was extended to cover all client brewers with a view to securing much improved relationship management and client retention.
At the contractual level, service obligations with most clients were 99.25% on time in full. Achieving this target had proved elusive on occasion, with a range of factors contributing to missing potentially on a daily, weekly or monthly basis. Delivery requirements could vary in a normal week by as much as 30% from one day to another, with peak volumes about double low volumes by week. Additionally, both primary and secondary demand patterns for the Christmas 2014 period changed significantly compared with previous years, leading to enormous increases in daily demand in a very small number of days prior to the festival. Typically at busy periods, the business could receive up to about 25% ‘hot orders’ for a day (order on day, for the day) but the Christmas peak resulted in 50% on a day, with no ability to obtain contract vehicles at the busiest time of year. With enormous inventiveness and effort, all but 5 deliveries were made ‘OTIF’. Review meetings were scheduled with the client to establish a more planned and organised approach for the next Christmas peak.
Having commissioned the new National Distribution Centre by mid-2014, pressure had been removed from Heineken brewery sites to hold buffer stock. During 2015 it became clear that the brewer had developed its strategy further, consolidating production onto 2 fewer sites. This involved using existing space on the remaining sites to build more capacity, which in turn meant that space was no longer available for use by transport to clear the yards effectively during heavier production periods. This position was communicated very late in the day, resulting in operating inefficiently while trying to keep factories going and find space to store the product and empty kegs being recycled. The eventual solution required the re-opening of a warehousing site that had been agreed to be closed and then reinstate IT equipment, office facilities and sufficient security to protect the product. Heineken wanted this solution to be temporary but at the end of the assignment it remained unclear what would be an acceptable alternative.
During the assignment, a number of operational issues were addressed as management controls were fully established. Stock losses were running at almost double the budgeted allowance in the secondary business. To reduce the problem, frequent full stock checks were made in warehouses and depots; a full audit process was instigated for product from warehouse to client, with all losses in transit and returns itemised. Absence, as previously mentioned running at very high levels, was managed much more rigorously, reinforcing good attendance. Short term or ‘casual’ absence was more than halved in the period. Long term sickness was managed thoroughly, with the outsourced monitoring process regularly reviewed and all actions followed through. Both the overall number of people remaining in long term absence and the length of time people were in this situation reduced c.40% over the assignment. Insurance claims reduced consequently too, and those outstanding (over £2.25M) reduced by c.£0.5M in the period.
The assignment concluded with the recruitment of the new permanent Managing Director and a handover period.Achievements: Key outputs from the work were:
- Opened fresh union dialogue, building a more constructive IR environment.
- Identified £14.9M/yr operational cost savings
- Established a formal Transformation Programme to obtain savings & adopt a new way of working.
- Stabilised 99.25% ‘on time, in full’ service performance for client base.
- Provided commercial base to win industry changing contracts at up to c. £80M.
- Gained JV off-road fleet lease approval (370+vehicles; c. £7M full life L. & M. cost).
- Gave platform for major on-road vehicle JV CAPEX approval (c. £9.8M + £7.5M m’tce in year1).
- Reduced health claims bill by £0.5M
- Delivered c.15% additional sales value through new clients; Diageo and ABInBev
- Initiated vehicle maintenance cost savings of £0.75M/yr.
2013 - 2014 (15 months)Company:
A wholly owned subsidiary of E. D. & F. Man, a privately owned trading house of over 230 years standing. The business, Ukrainian Sugar Company LLC, is based in southern Ukraine on the Black Sea & is one of only 3-4 facilities in the country able to produce sugar from beet & raw cane. The factory is situated well away from the traditional beet growing region & a local supply chain was established via a Joint Venture. In 2014, white beet sugar was sold into the regulated home market for the first time since the original investment in 2007.Assignment:
To complete the building of the new beet processing facility, commission, produce & sell beet sugar into the regulated home market, having re-structured the business to deliver efficient, world class operational performance to achieve profitable operation over a 3 year time horizon.Role:
Interim General DirectorAssignment Length:
Since 2007 when the derelict business was first bought as a JV, over $90M has been invested. In 2009, the group became the 100% owner after difficulties with the local partner & this remains the current shareholding position.
After the group investment, the Ukrainian government changed the law relating to sugar production for export, making it illegal to bring raw cane sugar into the country for subsequent processing, even if identified for immediate export.
This led to one of several business strategy reviews. After a couple of years of uncertainty & false starts, a strategy was developed to build new beet processing facilities, so that the factory could make both beet sugar & refined cane sugar. The CAPEX was authorised at $28M and the project started in earnest in the 2nd half of 2012.
At about the same time, the law was again changed to enable processing of raw sugar cane in Ukraine, as long as the white sugar was exported out of the regulated home market. The process required by the authorities was vague, with no one keen to implement & included a number of steps for permissions, placing guarantee payments with rather suspect holding institutions & monitoring product to ensure it would leave the country. A long list of obstructions effectively made it impossible to operate the system.
In 2012, a Joint Venture company (50:50 share-holding) was established with Continental Farming Group plc (CFG), with the primary objective of acquiring land usage rights around the factory for the production of sugar beet using western intensive farming techniques. The sole customer for beet was to be USC.
Sugar beet is a water-intensive crop. The area benefits from an extensive canal system built in the ‘Soviet era’ that brings water to the fields from one of the national large river systems. This enables water application to the crops throughout the growing season, via suitable field irrigation equipment.
A small, 600Ha area was planted in the first season to establish the approach, with the beet being transported to two factories and the equivalent white sugar bought back.
For the 2013 growing season, 2500Ha of irrigated land was available for planting beet, providing enough material to be able to commission the new beet processing facility & run a reasonable campaign length.
Ukraine has a regulated sugar market, similar to the EU model. As a result, any manufacturer wishing to produce sugar for sale in the home market must apply for ‘A’ quota. This is awarded in the spring each year about the time that seed planting occurs.
At the time that the original group investment was made in the Ukraine, over 200 sugar factories were operating to supply a national demand of c.1.85MT annually. Over recent years, the number of factories operating has reduced very significantly, with fewer than 70 operating in the 2012 campaign.
In 2011 and 2012, excess supply over demand occurred, with 2.1MT and 2.25MT being available from each year. Market prices were low as a result, with manufacturers selling below cost for significant parts of the year.The Brief:
The Ukrainian organisation was effectively a cost centre that had received a lot of financial support but due to changing circumstances had never been in the position to make a successful transition to being a real profit centre. Additionally, lines of communication were not effective enough between London & Ukraine which needed to improve, particularly given the financial support. To achieve a solid profit performance over the medium term, the complete country value added chain had to be established & the business structured accordingly. It could be argued that the assignment was a very large business start-up.
The Operating Situation:
The major site activity during the first 3 quarters of 2013 was the beet plant construction project. This encompassed everything from beet reception on site, through yard storage, washing & separation, slicing, diffusion & preparation for evaporation. The project also included pulp pressing, transfer & holding in the pulp pit (c40kT capacity), plus the core beet slicing & diffusion process building.
The approach adopted was to use a General Contractor (regulatory requirement) but to contract elements of the overall project a part at a time. This provided tight project cost control & assisted in keeping the contractor to schedule. Overall, this worked effectively, with plant dry commissioning starting in the 2 weeks leading up to the wet commissioning then moving into beet processing in early October. Proving the plant took a further 4 weeks after which normal campaign processing conditions & equipment performance were established.
The capital project was built to time & to budget at a build quality that has been recognised as best in class in Ukraine. This represented the largest capital investment in the industry in Ukraine in 2013 & was formally opened by the Regional (Oblast) Governor with national publicity.
During the campaign, white sugar colour as good as any in the national market was achieved; whilst improving diffusion running conditions c25% beyond original specification. Beet supplied to the factory from the JV (c.150kT gross weight) was delivered up to the targeted rate of 6kT per day to ensure that plant design capacity could be matched. The IT department had implemented a beet supply audit process using bar coding technology. This allowed every vehicle transporting beet from the field to be tracked, real time, enabling fuel efficiency, beet supply security & vehicle usage to be monitored throughout the campaign.
An essential part of upgrading the factory to be able to achieve FSSC22000 accreditation was improving the refinery ‘dry end’ processes & product transfer. A further capital project (c.$1.1M) was designed & implemented to bring this part of the process up to group international standards. This was operational from the end of Q1 2014. The upgrade was the major outstanding item identified in previous client quality audits. The company received very good feedback from key potential clients through the campaign during planned visits, reinforcing the ‘best in class’ construction view.
Group health & safety standards are significantly more stringent than local law. A great deal of work was undertaken to educate the workforce in the matter which allowed the company to demonstrate its commitment to providing the best possible quality of product & service; all part of the USC country strategy established at the beginning of the assignment.
Importantly, the commercial direction for the company was formulated & agreed early on. This provided a balanced approach between the short term establishment of a home market strategy & the longer term ability to supply (refined cane) sugar for export to regional clients. Key elements of building the regulated home market presence included:
- being awarded ‘A’ quota to cover the business’s campaign output,
- identifying key targets & building local potential client relationships, pre campaign,
- building a similar approach on the ground for both molasses & beet pulp sales,
- ensuring client sugar sales followed rapidly escalating market prices,
- optimising cash generation for the campaign sugar inventory obtained.
To achieve a successful strategy implementation, a small internal sales & marketing team was put in place, with appropriate training. This proved to be a singular success, achieving better than market prices by c1-2%.
The campaign was conducted in the national context of a much lower harvest, with only 1.2MT of white sugar being produced from 38 factories operating. Sugar carryover from the previous 2 seasons meant that supply would be balanced with the national requirement.
Looking forward, it was recognised that beet pulp drying would be required to increase commercial added value & avoid any potential environmental issues from much larger quantities of pressed beet pulp generated from the forecast bigger beet crops & campaigns. The plant design was produced, costed at c.$7M & agreed, with a 15 month project time plan. The target operation of the facility was campaign 2015.
An integral part of the assignment was to develop & implement a medium to long term organisational re-structuring. The operating team was reviewed & agreed to be maintained for the campaign to establish effectiveness & then review again. Post campaign, it was agreed that the traditional role of ‘Chief Engineer’ would be split to separate the technical engineering functions from production management, plus strengthening of the team in 2 further operational management roles.
In the support areas, the key addition of an HR Director brought strong professional leadership to the function & the business as a whole.
The finance function was reduced in headcount by 20% in the period with no loss of effectiveness. Towards the end of the assignment, the FD was head-hunted away from the business & replaced with an equally capable individual.
A sales & marketing function was set up, using internal resource with supportive training. This small team proved highly effective in dealing with market research, establishing & building client relationships for all products (white sugar, molasses & beet pulp) & achieving better than market average sales prices by c.1-2% across a total sales value of $6.7M during the assignment, projected to rise to $10.1M for the sugar year.
During the beet growing season, a ‘beet development & supply’ function was established so that the supply strategy could be progressed on a timely basis for future years, where independent farmers would be contracted to supplement the JV company core production for the factory.
Post campaign, the senior & middle management of the business undertook the first phase of a change management workshop designed to improve understanding of successful practices & to determine next implementation steps jointly, to meet the business strategy.
The materials required for sugar production are small in number but can represent problematic purchase in the local (national) market. As a result historically, group regional senior management maintained direct control of purchasing. The factory energy requirements are based on coal fired boilers & coal supply is a good case in point. About 4 years previously, the site had refined about 75kT of cane sugar for export & satisfying national WTO (World Trade Organisation) licences that had been obtained. One deal had resulted in c20kT of coal supplied that was unusable & had not been identified as an issue in the legal claim period. This problem was removed during the beet plant build by re-classifying the material as ‘hard core’ & using it instead of purchasing fresh construction material.
Coal supply for the 2013 campaign was subject to local management control & followed an open competitive tendering process, achieving industry best rates & timely delivery to specified quality.
At the end of the campaign, an operating performance review was conducted. This resulted in a list of remedial actions to improve plant efficiencies & product quality conformance especially final sugar colour. The plant energy model was assessed by an independent third party & the outcomes discussed with both local & group technical personnel. The result was an agreed change to the weak liquor evaporation process. Calculations envisage c15% energy saving, along with much better colour control across the production rate range.The JV & Beet Supply to the Factory
Throughout the assignment, the relationship with the JV partner changed regularly at board level. CFG was an AIM listed business & became the subject of a take-over bid by a Saudi Arabian agri-conglomerate. The due diligence extended throughout the growing season, effectively neutralising the opportunity to obtain further ‘land rights to grow’, to expand the field area for the 2014 growing season. Eventually, at the end of September 2013, the Saudi business completed the deal. The role of the JV within its new owner organisation was clearly ‘non-core’, which resulted in a change to CFG JV directors’ attitudes to the organisation. At the same time, there were a number or group senior management changes in EDFM, including one of the JV directors. At the start of the assignment, there had already been a change to 2 of the EDFM JV directors (the author became a JV director at that time).
CFG personnel were responsible for all the operational activity of the JV, as per the agreement. USC provided office space for the JV at the factory site but no CFG senior management was resident locally, making lines of operational communication less than ideal on a day to day basis.
Although all field irrigation equipment was not in place at the start of the planting/growing season, the final components arrived very shortly after seed planting. Water admission to the canal system was at the beginning of May with the final decision on timing being taken in Kyiv by the relevant authorities. Some seed was planted early April as an experiment & a couple of fields were first watered a few days later than required. Crop emergence was uneven in some fields & this was never satisfactorily recovered from during the growing season. Weed killer application was later in the growing cycle to avoid seedling damage but as the season progressed, weeds dominated in most of the fields & showed uneven application of chemicals. In spite of all this, the yields achieved at harvest were c.55T/Ha net weight, being one of the highest values in the country (average c.35T/Ha), representing a satisfactory first growth for a reasonable quantity of land (2500Ha) & showed the forecast potential for the area was well justified.
Harvesting was conducted with liaison between field & factory, with beet piles being placed at 3 points in the fields (two edges plus a line mid-field: typical field size c.140Ha). This was an improvement over many small piles dropped during the previous season’s 600Ha trial but still led to transport problems as soon as the fields became wet, due to the local soil structure being particularly prone to producing a low friction surface.
Beet reception analysis is often contentious between farmers & sugar factories throughout the world. The situation between the JV & USC was adversarial & subject to rigorous statistical checking & process observation. Independent analyses were also undertaken by the JV & once relevant comparative samples were analysed, beet reception results for sugar content (& dirt tare) were seen to be both reproducible & a fair reflection of the crop.Achievements: Key developments in establishing the business from a cost centre were:
- Delivered $28M beet reception & processing facility, to time, within budget.
- Built board, HR, Beet Development & Supply plus Commercial functions.
- Sold white sugar at country market +1-2% selling price.
- Transacted start up sales of $6.7M & sugar year sales of $10.1M
- Achieved 1st. +ve cash flow monthly accounts since assets acquisition in 2007
- Commissioned new beet plant in 4 weeks & ran successful sugar campaign; 1st since 2010
- Recruited 140 people in the pre-campaign 4 week period.
- Produced 150kT beet in a region with no current beet growing experience.
- Grew beet at c.55T/Ha net yield & 15.6% sugar content in the first sizeable crop season
- Developed efficient beet supply chain from field to factory, up to 6kT/day capacity need.
- Reviewed & initiated remedial action to save c.15% campaign energy costs (c.$200k in short campaign)
- Re-built the process dry end to international food hygiene standards: project cost $1.1M
- Designed, costed, planned & approved a $7M CAPEX project for beet pulp drying
To re-structure & turnaround the Hungarian businessDate:
2012 (6 months)Company:
A wholly owned subsidiary of a Central European based group, owned by a Slovak, PE house. The business is based in Hungary and provides branded and private label processed meat products in various forms to home and export retail markets. Brands are top 3 and top 5 in ntheir categories. Products include various forms of salamis, patés, sausages, hot dogs, frankfurters, virsli and hams. The company is one of only two meat processors in the country that can use an EU area designation on its products (designation analogous to Parma Ham or Champagne sparkling wine).Assignment:
To turnaround the company’s business performance to bring back to profitability and set the basis for a path to sale for the owner.Role:
Interim CEO/Country LeaderAssignment Length:
The meat processing group is headquartered in Slovakia, with companies also based in Hungary, and the Czech Republic. It is the largest meat processor in the region. The Hungarian business had a turnover of c.€35M employing c.300 people on 2 sites. It occupies the number 3-4 position in the Hungarian market, with particular strengths in paté, spiced sausages and salami production. Key home market clients are Tesco, Auchan, Lidl, Metro, Penny Market and CBA, with exports predominantly to Germany, Russia and the UK. The business produces c.350 SKUs.
The PE house had purchased a Hungarian fresh meat and private label meat processor, then later acquiring branded business operations. The two businesses had been gradually integrated whilst making reasonable but declining margins in a market under increasing price pressure.
In 2010, the PE house commissioned a strategic review of the group (Slovak and Hungarian businesses). This review contained a plan to withdraw from the ‘fresh meat’ side of the Hungarian business completely (perceived as unprofitable and diluting productive activity), closing slaughter house and de-boning facilities and consolidating manufacturing operations from 5 to 2 sites and to outsource finished goods warehousing operations. A number of other aspects were dealt with in the report, including the leveraging of the well-known Hungarian brand with some of the unbranded products.
The Spanish consultancy was retained to undertake the re-structuring of the Hungarian operations and incentivised to achieve completion in very tight timescales. To achieve aggressive programme goals, the operations were put under enormous pressure throughout 2011. When this work was ended in early 2012, a local General Manager was appointed with the remit to ‘steady the ship’ and consolidate profitable operation.
This proved considerably easier said than done.
During the latter half of 2011, there had been significant loss of business volume due to the outsourcing of finished goods warehousing operations and the resultant severe drop in customer service levels. A number of the costs of consolidation had been underestimated and the impact of carrying fixed costs not yet removed from the company’s balance sheet weighed heavy. Much management experience had been removed or lost from the company. In addition, the re-structuring had involved further employee reductions through the complete contracting out of all packaging operations, which also had the ‘hidden’ impact of losing immediate control over the final point of product quality control. Many recipes had been changed to save costs but not all had been formally changed in the system. Supplier bonuses had been agreed but not for payment until beyond the year end.
In Q1, 2012, an arbitrary price increase had been notified to all clients, which resulted in further volume losses to the competition.
From the start of the year, monthly losses were being recorded. Raw material prices had risen c.11% over the previous year, which had been a similar amount higher than the year before. The management team had been strengthened with a new FD and a new Operations Director shortly afterwards. Logistics customer service levels had improved (coming back over 90% ROTD from a low point of <75%) but product quality remained a significant problem both in home and export markets. Much of this had been caused by recipe quality degradation followed by lack of control in production and using lower quality meat products, driven by price.
Inventory level control was minimal at the start of the year but this did improve as the first half progressed. Financial controls also improved from a very low base. The year-end audit confirmed a large loss for 2011, with significant discussion over potential for audit qualification and sign-off not until July.
By the end of May, the PE house CFO had become involved in reviewing the group and securing the services of a turnaround interim CEO to work with the PE house partner responsible for the meat business, and the meat Group CFO, appointed c. 3 months before.The Brief:
A short preliminary review of the Hungarian business was conducted and on the basis of this feedback, the assignment goal was to produce and implement a turnaround plan to bring the business back to profit, month on month.
The Operating Situation:
At the start of the work, the investor had also elected to recruit a Group Industrials Director. The new local Operations Director had already handed in notice, so it was decided that the new appointee would initially provide a service to the Hungarian business for most of the time. The previously appointed General Manager, after hand-over, took up a group role based in Slovakia
Morale throughout the business was extremely low. The re-structuring activity of the previous 12-18 months had taken its toll, having been driven by an extreme autocratic management style.
From the start of the assignment, a 13 week rolling cash flow forecast had been established, updated fortnightly. At the beginning, a further cash injection was forecast as necessary in week 36. With good cash management, tighter inventory control, better purchasing particularly on auxiliary materials (everything except meat) and longer credit terms on purchases, this need for further cash was delayed into 2013.
At the assignment start, a request for specific time commitment of the new interim meat group CFO was requested to establish the basis for the turnaround plan. No sooner had the assignment started and the CFO was sent to the Czech operation to deal with problems that had arisen at short notice. This delayed some key work by over a month.
In the meantime, it was immediately clear that some basic production principles had to be re-established. This required firm standards of hygiene to be followed; recipes to be respected, clear quality inspection at goods-in to be adopted; all suppliers to be required to deliver material that was ‘fit for purpose’; all quality control points to be policed thoroughly; good housekeeping to be made an essential part of the work day; contract cleaning and security to be held to account and deliver the required standard; initiating regular product tasting sessions and upgrading certain recipes to achieve the required standard for the consumer, both in home and export markets.
Care with work in progress process control meant better quality through more uniform cooling of cooked products, optimising production efficiencies. Greater care was taken over packaging department output. National law requires an ‘arm’s length’ approach to justify the status of the work being truly outsourced, so daily requests for output by product type had to be made. Direct management control of operatives is illegal in this situation.
Production Planning was a cross functional activity, led by the logistics function. The IT based system used (ESO) is a SAP ‘clone’ which had not been fully implemented at the time of installation. Planning involved an estimate of likely sales 3 months ahead (some salami had a 90 day maturation period), with actual confirmed sales demand notice at 24-36 hours. Production scheduling ‘translated’ requirements for the coming week into materials, packaging and line time where capital equipment produces several product types. Cross functional cooperation was much improved over the period of the assignment, resulting in more robust planning, less wastage and improved machine utilisation.
In the warehousing and distribution areas, improved stock control (both levels and cycling) was achieved. This, coupled with improved housekeeping, made factory space available and allowed the in-sourcing of the FG warehouse operations again. This project was an integral part of phase 1 of the turnaround plan, saving a minimum of €25k/mth. This project was the first successful cross functional high impact activity of the new working approach. Having re-established in-house picking and order ‘build’ the customer service levels, which dipped immediately post transfer (average c. 85%), returned to required levels within a small number of weeks. This project was successful in spite of losing the Logistics Director (headhunted into the pharmaceuticals industry).
In terms of inventory accuracy and control, it was clear that a lot of work was required to achieve a year end result that reflected reality. Monthly stock checks were initiated and increasingly accurate results were obtained. Processes were improved to be able to measure changes effectively and on an on-going basis. It was a key goal to have all balance sheet adjustments made by the year end to allow a ‘clean’ start to 2013. At the end of November, a write-down of c€1.2M was identified. Much of this was due to issues from the time of the original purchase, when inflated inventory values had been accepted during the due diligence process.
In the first 4 months of the assignment period, total inventory value fell from €6.3M to €5.25M, based on a 25% reduction in FG; 33% in meat; 14% in all other materials and 10% fewer ‘empties’ crates and pallets.
Once factory and product fundamentals had been re-established, the margin enhancing aspects of the turnaround plan could be engaged. The work was considered in 2 phases as only so much could be done at a time and certain elements needed to be in place for a 2nd phase to be possible.
Phase 1 of the plan consisted of 5 operations based projects; 4 S.G.&A. and 2 commercial activities. In summary, they were:For operations:
- in-sourcing the FG warehouse
- in-sourcing the packaging activities
- reducing customer returns
- rationalising some auxiliary material procurement
- minimising stock control losses.
- reducing payroll
- halving legal service costs
- re-focussing and reducing marketing spend
- planning the interim CEO’s successor.
- to eliminate the poorest margin SKUs and
- replace the next poorest margin products with better margin volume.
This phase of the turnaround plan was implemented effectively, with full monthly impact to occur from early 2013.
During the period of plan implementation, the annual price negotiations were being conducted across the sector. An overall 5% GSP increase was achieved, with some variation across SKUs. Poor performing products were given particular focus.
The Hungarian market for processed meat had been suffering an exceptional period of stress over the previous 12-18 months. No significant player on the market had made a profit in this time and to make matters worse, meat prices increased to world record highs (pork is an internationally traded commodity): rising 12-15% in August alone. Given that meat price represents c.40-50% of total costs, this presented a serious additional challenge to the sector as a whole.
During the assignment, one of the main competitors (Gyulai) went into administration, after some weeks in discussion with various government departments regarding a potential ‘bail-out’. Further public announcements were made regarding 3 other significant competitors in the market, all in financial difficulty. This encouraged the business to re-double efforts to get through the turnaround and prepare for the coming market opportunity. The first fruit was the placement of a large regular requirement for paté (c.150T/mth). The commercial team was briefed to establish new business at good margin, so that factory capacity was optimally utilised. The paté order was managed by a combination of installing additional capacity equipment from previously shut down old sites, plus losing low/negative margin business to free up production.
Towards the end of the assignment period, the budget process was undertaken. This was finally approved at the end of November and showed the month on month improvement to break even by end Q2. The overall performance for 2013 was in positive territory, with only 3 of the 20 improvement activities built into the figures. Those actions built into the plan were:
- reduction in customer penalties (due to poor customer service)sales price rises, conservatively estimated
- sales price rises. conservatively estimates
- car fleet reduction (to fit new requirement after the phase 1 changes)
The remaining projects in phase 2 are as follows:For operations:
- distribution cost optimisation
- packing department efficiencies (once brought back in-house)
- further auxiliary material procurement improvements
- Meat cost savings
- Direct labour cost reductions
- Factory indirect labour cost savings
- Further ‘fit fir purpose’ recipe re-formualtions.
- Energy supply cost competitive tendering
- Energy conservation/cost savings
- Sale of old company assets
- Labour cost savings
- Planning system process improvements.
- SKU simplification work
- Client partner strategy – by major client
- improving ‘trade marketing’ value added
- Partner absolute NSV development
- Beyond budget (new) product development
Having established the budget and ‘below the line’ turnaround activity as described above, a successor had been identified for the client to continue the work.Achievements: Key improvements to the company were:
- Built & ran Turnaround Plan ϕ1, with €141k/mth savings & €169k/mth better NSV
- Set up Turnaround Plan ϕ2, giving €114k/mth savings & €395k/yr better NSV
- Reduced gross inventory €1.05M (20%)
- Cleaned up balance sheet with c.€1.2M write-down, ready for the year end audit
- Managed cash (13wk rolling cash flow), moving ‘cash cliff’ from wk36 into 2013
- Stabilised factory output quality after previous major re-structuring work.
- Enabled factory standards to improve to operate to Tesco Quality Audit levels
To re-structure & turnaround the $300M t/o business.Date:
2010 - 2012 (16 Months)Company:
A wholly owned subsidiary of E. D. & F. Man, a privately owned trading house of over 200 years standing. The business, Sugat Industries, is based in the Middle East and provides sugar in various forms to industrial and retail markets. Other branded products include: rice and pulses varieties, salt, flour, bread crumbs, spices and flavourings.Assignment:
To re-structure the business to bring it in line with the rest of the international group’s matrix management approach and turnaround the company’s operational performance to bring back to profitability. To establish a medium term planning methodology, with a view to attracting external investment.Role:
Interim General ManagerAssignment Length:
16 MonthsBackground: The company has a turnover of c.$300M, employing about 300 people across 4 sites with $190M capital employed. The company’s brands enjoy very strong market shares, rising to over 85% of the country’s retail sugar market. Industrial clients included Coca Cola and Jaffora, with over 230kT sugar being produced in 2011 at a time of world sugar shortage. About 3 years earlier, a new sugar refinery had been constructed in country ($80M capital project), with the expectation that EU sugar exports would reduce considerably after undertakings to the World Trade Organisation in the mid 2000’s. The plant was scaled to deliver up to 370kT sugar and based on the ability to generate steam and power from a ‘dual fuel’ boiler that would predominantly operate burning natural gas shortly after start-up. Historically, there had been a ‘hands off’ approach by the group and a ‘theory ‘x’ management style within the subsidiary. There was little local experience of running a refinery and the retail branded activity had grown from being a small business to a significant national manufacturer with a high company profile. The business had rapidly growing volumes, with over 200 SKUs in its brand portfolio. Raw sugar cane was purchased and transported to country with support from London but all other materials, including rice and pulses were sourced using local staff. Over the previous 2-3 years, there had been considerable effort to commission the refinery and run efficiently on a regular production basis. This had proved very difficult, not least due to little local expertise, either technical or with modern plant manufacturing methodologies. In addition, energy costs were much higher than expected due to conversion efficiencies but also, importantly, natural gas was not available in the area for use as a fuel. This required Heavy Fuel Oil (HFO) to be burnt instead. A final issue is the need for Kosher certification of output for the home market, necessitating 5 day, 24 hour operation and not running 7 days. The business had suffered a large loss in the previous financial year (end September, c.$35M), both from operational and trading issues, in a very difficult market. This, coupled with significant problems in commissioning the new refinery and large staff turnover, resulted in a group senior management review of the business. Assignment Brief:
The review outcome was to re-structure the country business to align it organisationally with the rest of the group, vastly improve information flows to and from head office and strengthen local management to achieve the transformation back to profit. Additionally, the client requested the development of a medium term planning methodology and the production of a brand valuation, with a view to seeking potential external investment in the subsidiary.
The Operating Situation:
About 6 weeks before the start of the assignment, a new COO had been appointed, and immediately prior to starting in-country, an initial agreement was reached over the split between commercial, operational and finance activity to work within the group’s functional alignment.
For most of the assignment period, there were cultural difficulties between the historic modus operandi and the new approach being adopted.
Within 3-4 months, it was clear that the finance function did not have complete control over the resources necessary to be able to deliver the budget process, or manage the monthly management accounts activity. This was corrected.
In parallel, work was initiated with the Operations function (containing c.90% of the workforce) to establish a new way of working. The primary drive was to enable more delegated authority, encourage initiative, reward success and jointly learn from mistakes. The culture and management style required to encompass this approach, was captured by constructing "The 4 Pillars" of the business.
Problem solving teams became established and stability was brought to the way that production operated. Once processes were reproducibly stable for a certain output, an increased production rate was adopted. The process was repeated once new stable running conditions were established.
At the start of the assignment, it was found that a negotiation with potential low cost energy providers had been underway for over a year, with the goal of agreeing a Memorandum of Understanding. This was brought to a conclusion within 3 months and then the work to establish a full agreement began. Although much more complex, this was concluded in 6 months, followed by a further 2 months to achieve formal group main board acceptance. This agreement is for the supply of steam, electricity and carbon dioxide over 25 years at a much more economic rate than that currently enjoyed by the site. Savings of the order of 50-60% were achieved, with improved security of supply. The availability of natural gas to the site is integrated into the approach, along with the building of a minimum 55MW power station by the side of the main manufacturing site.
3 years previously, the site’s power station had been commissioned in conjunction with the national electric company (IEC). A temporary licence was granted to enable commissioning of the plant and the export of excess electricity to the national grid. During the period of the assignment, significant effort was made to change the licence to the permanent one required by law. This proved difficult due to local bureaucracy, even with British Embassy support (as a foreign direct investor) and writing directly to the Minister of Infrastructure. Sluggish response was due almost entirely to the benefit of approximately doubling the tariff payable for the power.
Working in tandem with the COO, a new operations team was established, comprising a blend of some long serving and some new people to the business. Working relationships with the parent group’s technical team was improved dramatically, which lead to much more rapid productivity improvements, particularly in the refinery and enhanced, important knowledge transfer.
Across the business, a complete set of job descriptions was established, along with clear management structure and reporting lines for the first time. On the main operational site, much improved recruitment processes and induction planning was introduced, with the effect of reducing recruitment costs and people turnover by over 50%. A performance review process was introduced, top/down, that dove-tailed into the parent group processes at senior level. This included the start of people development planning. Additionally, key personnel policies and practices were established and written down for the first time.
In the packing department, large numbers of temporary staff were removed and production processes operated efficiently in spite of the age of the equipment (some machines in excess of 40 years old). A productivity bonus payment scheme (self-financing) was put in place successfully.
The warehousing and distribution activities were reviewed and processes improved. New, fit for purpose warehousing facilities, close to the main production site were established. Line management was improved, along with department resilience as order picking more than doubled in just a few weeks. Reduced transportation costs were achieved for raw material delivery from the port, especially for raw sugar cane shipments. For finished goods, new distribution patterns were established to cater for the rapidly changing customer delivery patterns across the country, whilst maintaining an optimum cost per tonne of product delivered. This was the subject of a clear Service Level Agreement (SLA) between operations and sales functions.
In terms of materials procurement, a number of savings were achieved especially in packaging.
Raw material (especially food based materials) quality was focussed on to upgrade the group’s ability to provide the business’s requirements along with changing national regulations relating to the standard of materials brought into the country and the changing packaging regulations (more rigorous than the EU). This included tighter specification of raw cane sugar analysis to optimise processing costs. Additionally, work was undertaken to establish processing conditions for raw materials from different points of origin.
Throughout the assignment, there were many upgrading projects in the areas of health, safety, environmental and food quality standards. These activities brought the site into line with corporate acceptability plus local, regional and national environmental and health ministry requirements.
Other capital expenditure projects were initiated with a total spend of about $3M in the year (close to 100% of depreciation). Approximately half of the expenditure was on projects with an RoI of less than 12 months. All CAPEX was the subject of a rigorous control process established with the finance and technical purchasing functions, plus final cost benefit review.
In parallel, the maintenance budgets (refinery and packing department) were carefully controlled to within budget figures (over $1M for each department).
During 2011, world sugar supply became a problem, with poor harvests in Australia, China and the EU. Brazil’s sugar cane crop came under pressure (the site’s main source of cane) as the world shortage became more keenly felt. In spite of all this, the company maintained its supply of locally refined sugar to the national market, with no shortages at any point. Indeed, c. 15kT was produced for export into the EU.
The budgeting process was undertaken for the first time in an open, controlled manner, with realistic goals. The results for year ending September 2011 were much improved over the previous year and the start of the new budget year has had variance; explainable, understood and close to plan.
Capital Projects, the approvals and monitoring processes were all enhanced in the period.
Product development resulted in improved margin for existing products and a greater range of products offered. The search for client value added compared with what is possible for imported sugar in particular resulted in a range of options including the installation of silos for storing sugar on client sites where current facilities were not available or requiring significant upgrade.
Continuous Improvement in all areas became the way of working, resulting in significant cost savings. For example: refinery waste products were dealt with by reducing cost of removal or improving sales value. In the latter case, molasses was sold for a further $120/T compared with the price previously negotiated.
Medium term planning was introduced to be able to identify investment needs to achieve the market growth planned. An additional objective of obtaining a brand valuation was built into the work, designed to provide a strengthened balance sheet and an opportunity to understand the level of 3rd party investment that might be attracted to the business.Achievements: Key improvements in the site’s cost base and performance were:
- Negotiated energy supply partnership, worth savings of c.$7-10M/yr at current prices.
- Re-structured the organisation reducing labour costs by c$.1.5M/yr.
- Improved refinery stability ($80M+ spend) & increased output by 55%+.
- Stabilised product quality, reduced recycling on-cost & controlled refinery material losses to ≤2.5%, representing a saving of c.$1.6M.
- Established a new corporate structure & culture; accepted, supported & operated.
- Approved c.$1.5M CAPEX with < 1 year return.
- Improved power plant energy performance by 25%, worth c. $2M on HFO costs
- Total process materials, waste product & bi-product savings c.$0.25M
To achieve a ‘soft landing’ administration of a £150m UK Group with c. 20 sites, 28 legal entities and c. 2000 employeesDate:
2008 - 2009 (2 + 12 Months)Company:
Well known UK Logistics and Property Group of companies; a wholly owned subsidiary of a publicly quoted, ‘top 30’ company on the OMX Nordic Stock Exchange, based in Iceland.Assignment: To guide, as far as possible, the UK subsidiary into a ‘soft landing’ Administration at very short notice, to preserve as much value as possible for the Group’s creditors Role: Interim CEO Assignment Length: 2 months to administration, + 12 months to complete residual company liquidations Background:
The subsidiary group was a £150m sales organisation possessing c.20 sites in the UK and made up of 28 legal entities. With c.2000 employees, client product was stored and distributed on rail and road using temperature and humidity controlled storage and transportation.
The parent company had bought the UK business in 2006 for about €60m (a mix of cash and shares). Its 2007 results showed the ‘parent’ to have sales of c. €1.5bn, operating in 30 countries with 14,000 people. With 180 cold storage facilities globally, it is the largest company of its type in the world. The ‘parent’ had experienced a period of very rapid growth internationally, was profitable and had also funded some of its corporate growth more recently via the sale (and leaseback) of freehold property. The ‘parent’ had a strong expectation that this process of growth would continue in 2008 coupled with improved efficiencies from its new, wholly owned, subsidiaries.
However, as is well documented elsewhere, the international economy became much less welcoming in the second half of 2007, largely due to rapidly tightening bank credit facilities (the ‘credit crunch’) and the violent rise in the price of oil (rising to well over $100 per barrel). Both the N. American and UK economies started to ‘soften’, which put pressure on company performance as a significant proportion of revenue is earned in these two geographies. Higher energy prices had an effect throughout the company.
The subsidiary group had grown over the last 40 years both by acquisition and organically. Well known names in the logistics industry had also become part of the Group. The finance used to fuel this growth was largely through the obtaining of freehold property for a relatively modest sum; improving the facility, usually with the aid of grants, for either warehouse or office use and then initiating a sale and leaseback to produce ‘free cash’ for re-investment purposes. Indeed it was this funding model that was adopted by the ‘parent’ in N. America after it had acquired the UK subsidiary.
Clearly this approach for generating cash to grow the business can have much to recommend it as long as it is kept under tight control and is not allowed to run too far ahead of the actual growth of the business operations and their ability to more than cover the cost of finance (lease and overhead costs).
Looking back, it would appear that the UK subsidiary’s performance was showing signs of stress during 2007 and by the end of the first quarter of 2008 this was starting to become apparent to the ‘parent’s’ main board. In this period, a ‘big 4’ advisory had been engaged by the main board to review company performance across all areas and at the same time, changes had been made to the UK subsidiary board. A review of the UK Group by its Directors produced a turnaround plan for the logistics based operations which offered a full year operating profit (EBIT) of £5m. Unfortunately, this was more than offset by the accumulated rents accrued from the sale and leaseback strategy of £30m. It had become clear that there was no way the operational side of the company could bridge this enormous gap, resulting in the UK subsidiary Directors proposing some form of re-financing by the parent group and/or the sale of the UK subsidiary companies.
By April 2008 when these concepts were being put forward, the ‘parent’ was in no mood to continue to fund the loss making and cash negative UK subsidiary group and started to consider loss mitigating strategies. The ‘parent’ main Board accepted the advice received from their advisors to look at selling the loss making subsidiary and additionally, the Board embarked on a detailed review of how it had come to understand the real position at the UK subsidiary group, so late in the day.
In early May, the then recently appointed CEO of the parent group, with the agreement of the main board, undertook a search for an experienced interim with skill in working in very distressed organisations.The Brief:
Early meetings with the parent group CEO and the advisors confirmed that there was no opportunity for turnaround with the UK subsidiary group in its current form. Emphasis had to be given to achieving ‘going concern’ sales of those parts of the business that had value to potential buyers and therefore offered a real opportunity for creating as much creditor value as possible.
To facilitate this strategy, very tight control of cash would be required until the sales could be completed.The Assignment Work:
The parent group main board took the first 3 weeks of the engagement determining the best approach to adopt with the existing 4 local subsidiary Directors. Legal advice was taken in the light of information available and two directors were removed completely from the business, with the other two being removed as directors but were offered the opportunity to stay on as employees. In the latter case, the removal was as a consequence of the sales process reaching more advanced stages and it was recognised that these directors were assembling their own offer for some or all of the business. These directors chose not to stay within the company as employees.
In parallel, the interim was appointed as a director of the UK subsidiary group as a whole and as the sole director of the remaining 27 legal entities.
At that time, the UK subsidiary’s lawyers were also changed to align the service provision with the rest of the parent group’s UK interests.
Managing the day to day cash flow was complicated by the number of legal entities within the subsidiary Group; several of which possessed active bank accounts. Additionally, the finance department was under stress from creditor payment demands, still trying to close out a year end and a month end and having advisors in the department on behalf of one of the company’s banks. A data room was being established to support the sales processes, which was absorbing most of the Finance Director’s time.
It also became apparent that the previous board had taken a completely inflexible line on payments and any potential deterioration to any of the bank accounts or creditor books since the beginning of May. The level of communication in the business, at a point when this is crucial to be frequent and up to date, was very low resulting in the senior management team resigning “en bloc” at that time as ‘directors’.
Unsurprisingly, morale within the company was very low. The industry was rife with speculation about the viability of the UK subsidiary group, causing uncertainty with key customers and an opportunity for competitors to ‘make mischief’.
At the start of the operational assignment, the advisors had already initiated the sales process. Interest had been established for the chilled, frozen, ‘ambient’ and rail operations and the decision was taken to focus on these in the likely time available. The view of all parties involved was that the business may only be sustainable for a few days at most.
A second interim was engaged to focus on controlling cash flow. This was crucial as the banks (RBS, Glitnir and Barclays), prior to the new appointments, had little confidence in the ability of the company to see further than the current day and the credibility of the new management team needed to be high, very quickly, so that the support of all key parties was maintained to enable the sales to be completed.
The senior management team was immediately given a briefing of the current position and good dialogue was established so that all aspects of the company were shared and understood. Full commitment to the strategy of keeping the business operational whilst the sales were concluded was obtained.
Daily conference calls were undertaken with the advisors, the banks and the lawyers, ensuring sales updates, cash flow summary, which payments were to be made and any other relevant business. During the period RBS, as the main banker for the chilled business, reduced the overdraft headroom from £15m to £7.5m and then subsequently to £6.8m. This caused significant difficulty during the period but operational continuity was maintained.
Shortly after the start of the operational assignment, the parent group made a profit warning announcement to the Nordic stock exchange, largely as a result of the losses incurred within the UK subsidiary group. The parent company wrote off the NAV of the UK subsidiary group from within its balance sheet (€74.1m) and publicly confirmed that an active sales process was underway.
Regular board meetings were held (the UK subsidiary group’s two other directors were based in Iceland) to ensure good governance at all times, with the company lawyers in attendance.
There remained considerable ‘behind the scenes’ discussion between the main stakeholders (the parent company, Glitnir and RBS) as a result of concern over the corporate advisors remaining in situ (and therefore representing a potential link to the previous directors). After a couple of weeks, a decision was taken to appoint a fresh advisor, which was achieved after a short handover period.
As the sales processes continued positively and the creditor situation was becoming more difficult, a court appearance was made to give notice of intention to appoint an Administrator. It was subsequently discovered that a group of 15 landlords had formed a syndicate, appointed a lawyer and gone to court to obtain a winding up order over parts of the Group. Once this was understood (the order had not been served) and the sales processes were approaching a finale, a further court appearance was arranged to apply for Administration linked to the sales processes being concluded.The Achievements:
- Achieved ‘soft landing’ administration, with £103m+ greater creditor value versus forced sale
- Kept all key clients ‘on-side’ throughout the process
- Customer service levels were maintained within contract limits (c.£150m stock ‘live’)
- Sustained operations as key account overdraft was reduced from £15m to £6.8m
- Managed multi, month end payrolls (£1.7m) to maintain going concern status
- Reduced weekly advisory bills by c. 25%
- Built necessary credibility with the banks to sustain the process
- Adopted appropriate communications levels to all interested parties
- Gave support to all staff who were under considerable pressure throughout
- Enabled successful completion of 4 parallel sales processes:
- Chilled operations sold to Eddie Stobart via ‘pre-pack’ arrangement
- Frozen operations sold to Harry Yearsley via ‘pre-pack’ arrangement
- Ambient’ operations sold to Eddie Stobart via post Administration completion
- Rail business sold to Corus via post Administration completion
- Delivered full recovery to secured creditors (£7.5m and £10m)
- Made £6.4m funds available for preferred (£0.3m) & unsecured creditors (£19.6m)
- Secured 1900+ employees’ jobs via TUPE to the new business owners (>95% of total).
- Managed smooth handover to administrator in waiting.
The final court appearance was successful, resulting in the appointment of BDO as Administrators, the chilled and frozen businesses being sold as going concerns immediately out of Administration (as ‘pre-packs’) and the ‘ambient’ and rail businesses being completed shortly thereafter.
Under all the circumstances, a satisfactory outcome to the work was obtained for the client. In the context of the Icelandic economy, achieving the outputs from this work helped in dampening any public (or political) concerns at that time regarding the stability or otherwise of the larger company players (the ‘parent’ is one of the 30 largest companies on the OMX Nordic exchange).
Turnaround of a: Private Equity funded, complex, nationwide, 56 branch network supplying specialist parts and services to a range of market sectors, establishing profitable growth trend with a view to sale.Date:
2006 - 2007 (12 Months)Company:
An ‘MBO’ from Finelist plc, whilst in administration in 2000/01. Established in April 2001 with private equity fund backing.Assignment:
Turn round of one of two nation-wide UK companies providing parts supply, distribution and specialist workshop services; establishing profitable growth in anticipation of selling the company.Role:
Interim CEOAssignment Length:
Background:The business had 56 sites across the UK, mostly consisting of branches that provide parts distribution to a range of clients and operate specialist workshops. Company sales are c.£55m with c.700 employees.
The heritage of the business is considerable, being able to trace its roots back to the 2nd half of the 19th century. For many years it was part of a major UK group; a first tier automotive parts supplier. It was eventually sold as ‘non core’ activity in the late 1990s after the parent group had been bought by TRW. The business became part of a highly acquisitive listed ‘cash shell’ (Finelist plc) which went through a period of very rapid growth. The Group’s efforts to consolidate the new businesses profitably were not as successful as planned and this resulted in the receivership of 2000.
The senior management team at that time proposed an MBO that was successfully P.E. backed by NBGI.
From 2002 onwards, the financial performance of the company was poor, with losses being sustained in most years. For example, for year ending March 2005, a PBIT of (£1458k) and a PBT of (£2155k) was suffered, followed in 2006 by a PBIT of (£837k) and a PBT of (£1679k).
Between 2001 and 2006, there had been a succession of industry experienced Managing Directors as a response from the P.E. fund to inadequate performance but this resulted in poor continuity of approach and no expertise in re-structuring or turn round being available either at board level or anywhere else within the company.
By the end of 2005, a review was undertaken by the fund and the Non Executive Chairman, which resulted in the search for an experienced interim with successful turn round credentials.
The Brief:Preliminary meetings with the P.E. Fund and the NEC were clear: the assignment was to turn the business round. The operations were highly distributed which introduced increased levels of complexity to the situation. The fund was a very patient shareholder but was looking to realise its investment in about a 2 year time horizon, which applied clear pressure to achieving the turn round and establishing a profitable growth phase.
With the agreement to enact what was necessary to achieve the transformation, the assignment started at the beginning of June 2006.
The Initial Position:From the beginning, it was clear that the way the business operated had remained essentially unchanged for many years, extending back to the time that it was still part of the original large UK based parent. This was reinforced by the preponderance of very long serving people and the ageing core computer system (installed in 1989). In-house skill and experience to operate a medium sized distributed company, without access to large company finance to cover poor years, did not exist. Line management practice was poor and unacceptable performance was tolerated. There had been little investment in people, in terms of training and development, recruiting good quality individuals or actively paying for performance. Poor, or no, processes existed across the business to ensure consistency of approach and reinforce appropriate management control. There were significant skills shortages in key areas of the business, with either inappropriate or no people in place.
Having said this, two senior Operations Heads were recruited about a couple of months before the assignment started. They were reporting directly to the NEC, who had taken on executive responsibilities for several months as the previous MD had left towards the end of 2005.
From the start of the assignment, the Chairman stepped back into his NEC role, having run the budgeting process for the year then underway from April 2006. This budget was deemed to be quite ‘do-able’ by the longer serving board members, with a deliberately ‘soft’ start to the year being built in.
Having sustained losses for a number of years, cash was very constrained and VAT payments had become the subject of revised monthly instalments to HMRC. There was no managed process for monitoring cash flow on a weekly or daily basis at that point. Stock levels in the company were high at c. £10m in the balance sheet and debtors appeared to be under control at c. 55 days. Creditor days were quoted at c. 95 but there was a great deal of supplier pressure for payments.
On the plus side, the business had secured the AA contract for the supply of parts to their roadside rescue vans at the start of the calendar year.The Achievements: Cash and Working Capital
- Increased Net Worth to £3.4m from previous year’s negative value
- Re-negotiated ability to utilise ‘allowables’ with Venture Finance (invoice discounter and loan provider) from 52% to 62% initially, rising to 70% later
- Agreed the sale of 3 freeholds, releasing £1.6m ‘transformational cash’ for the turn round.
- Reduced gross margin variance from over £1m end of year negative adjustment for y/e March 2006, to c.£0.4m for y/e March 2007
- Settled c.£230k old debt claim on the business for £80k without suffering court proceedings.
- Resolved aged debtors from c.£1m to under £300k, with the rest in court proceedings
- Reduced stock holding from c.£10.3m to £8.8m, delivering a c.30% stock turn uplift and stock write-off of c.£1m.
- Obtained procurement cost savings of £0.4m in 3 months for budget preparation
- Required change of debtor and creditor day calculation to conform to external practice, producing real improvements of debtor days 61 -› 55 and creditor days 120 -› 103.
- Agreed a new core IT system Implementation (£0.75m CAPEX)
- Found £3.5m funding cover to replace the very old vehicle fleet (c250 vans and 150 cars)
- Ran the property portfolio personally through a peak of lease renewal and rent review
- Achieved a c.15% increase in sales over the year (£49.5m to £56.8m)
- Attracted several new national accounts in key market sectors, including Stagecoach and Lantern Emergency Vehicle Recovery.
- Built a new business pipeline (c.£7m) with potential well beyond the budgeted £1.9m
- Established the first new trading site since the company start up.
- Increased client retention via more contract deals and better service (40% churn to 30%)
- Increased the volume of business from the AA by over 25% cf. budget
- Initiated a nation-wide Public Service Vehicle (PSV) sales drive, lifting income by c.£1.5m
- Won new 3 year contract with BNFL (c.£0.6m per year)
- Targeted gross margin improvement of minimum 2% in the year
- Built broader and deeper relationships with key plant hire clients (Hewden and A Plant).
- Set up workshop development plan for beyond budget performanc
- Achieved an overall headcount reduction from 717 to 685 in 10 months, whilst additionally replacing a number of key staff.
- ‘Retired’ the (unqualified) FD of 37 years service and brought in an interim FD (Sept. ’06)
- Promoted the new Operations heads to s.288 directors and moved existing Operations Director to a Non Executive role
- ‘Retired’ the Head of IT of 39 years service, replacing with the existing Financial Controller.
- Initiated the replacement of a number of non performing branch managers.
- Removed and replaced ineffective internal audit team
- Recruited a new permanent Financial Controller and Director.
- Recruited the company’s first Head of Procurement and Product Management
- Set up a new HR function, including a Head of HR.
- Recruited a new national account new business development manager
- Re-structured the board to facilitate the turn round.
- Established Procurement, Product Management and HR functions
- Re-structured the Operations function from 3 to 2 divisions, covering the UK
- Expanded the National Accounts function and revised the senior Operations management focus to invigorate all sales activity
- Re-structured the finance and IT functions to support the turn round.
- Devised new business pipeline process for Operational and board review
- Outsourced IT servers, negating need for CAPEX and upgrading performance significantly
- Outsourced the credit control function, improving debt collection rates in the month, reducing the aged debt profile and eliminating 6 roles from the business
- Set up central procurement processes to optimise purchasing (£30m material spend)
- Streamlined company year end audit process, cutting time to ARA issue from 9 months to 3
- Produced a company CAPEX procedure, including investment review
- Ran employee communication process on a monthly basis
- Established refreshed internal audit procedures
- Initiated the use of KPIs, job descriptions, salary scales, and performance reviews
- Set up functional goals monitoring process, used quarterly by the Operations Team meeting
|Value (y/e March)||2005||2006||2007||2008|
The net effect of the work was to reduce the cash consumption year on year markedly and improve the cash flow into the company at the same time. The budget produced had all members of the board committed to its delivery and the commercial functions had work in hand to significantly reduce the risk on budget failure at both the sales and GM level. In fact, there was sufficient ‘below the line’ activity to give confidence that the budget would be beaten.
A final and important point is that the net worth of the business went negative at the end of the financial year ended March 2006. To avoid complete decimation of the company’s credit rating, negotiation took place with the major shareholder to agree to consolidate an outstanding £3m loan plus unpaid interest into the Net Worth of the company. To facilitate this, the shareholding was re-structured in a 'debt for equity' swap and the event was included in the submission of the accounts to Companies House in December 2006.Finally, the assignment was brought to a satisfactory conclusion with the agreement to re-deploy the interim FD to the role of interim CEO, introduce a new permanent FD with company sale experience and reduce the NEDs by one
To establish very short term actions to improve operating cash flow: to work as a board to avert insolvency through obtaining an appropriate ‘white knight’ investor.Date:
2006 (3 months)Company:
An AIM listed PLC with a c.£105M sales and about 750 employees. Manufacturing sites (4) were based in the UK, Spain and Poland, with sales and distribution operations also present in the USA, Italy and Germany. The group was vertically integrated for the use of new and recycled copper metal to be formed into a very large range of fittings for use in commercial vehicles and domestic heating systems. Additionally, extruded plastic and rubber hoses were produced for the industrial market.Assignment:
To assess where immediate savings could be made to improve cash flow. This was quickly expanded to handle the ramifications of trading in difficulties whilst trying to raise funds from alternative sources. This lead to seeking either a ‘white knight’ investor or a soft landing administration to save the company.Role:
Main Board DirectorAssignment Length:
The company had been the subject of a turnaround previously (a £7.2M loss to a £9.6M profit and cash generative), resulting in profitable performance. However, for some months, the price of copper, representing c.40% of total costs at the start of the period, had risen precipitately, tripling in price over about 6-9 months. The impact of this commodity hyper-inflation was to completely remove all profitability and generate a rising bank debt. This had reached over £30M and was continuing to climb towards the lending ceiling rapidly. As a result, the bank had requested an IBR and the involvement of KPMG to monitor and control company spending on its behalf.The Brief:
The board appointment was made to review options for the business to achieve sufficient funding and time to manage operational activity into calmer, more profitable waters.
The Operating Situation:
Throughout the period of copper hyper-inflation, there had been no price increases passed on to the customers. Given the approximately 3-fold increase in the commodity price, which was 40% of costs at the start, it was plain that this situation had to change.
A review of the working capital employed in the business was undertaken. In particular, it was clear that de-stocking was quite possible as warehouse control was inadequate. Cost savings of approximately £3M were identified.
As a result of the IBR, the Board assessed the option of a Rights Issue but it quickly became clear that the time required to undertake this process, according to AIM rules, would be too long. Additionally, the bank and existing shareholders were not prepared to extend any further financing, having seen that the developing cash flow position was likely to be terminal.
Property sale and leaseback was also discussed but it was clear that time was against any such deal being concluded in the relevant few weeks remaining.
It was quickly confirmed that the sales force could achieve price increases to offset much of the copper price rises and that this could be dealt with contractually for the future, so that such a change would not cause further difficulty. This was put in place immediately.
The stock reduction programme was initiated but would take much longer to obtain the full benefits than the company had time prior to running out of cash.
Due to the cash condition of the business, the board determined that it was prudent governance to recognise the threat of insolvent trading and adopted much more frequent board meetings, with independent legal advice present at all stages.
Alternative banking facilities were investigated. After a number of progressive meetings with a third party bank (Landsbanski), a final decision was taken by its main board not to approve the new facility.
In parallel, a ‘white knight’ investor was being sought. A rapid review of likely investors identified a recently established PE business (Endless LLP). Initial meetings revealed potential appetite for a deal. More detailed discussion was entered into, resulting in an agreement to acquire the group from administration, which was subject to acceptance to carrying over 100% of creditor commitment and an offer to all shareholders of 2 options to preserve a significant element of shareholder value.Achievements: Key deliverables on behalf of the business, creditors and shareholders were:
- Immediate cash injection of £10M by the PE firm, post deal
- A £3M stock cost saving programme was passed on to the new owner
- Product margins had been restored by the time of the sale.
- The time for the deal was only possible thro’ the cash controls implemented
- New bank finance had been obtained for the new business.
- No group trading company became insolvent in the process.
- The Newco established profitable trading, achieving £12M+PBIT in the first full year.
- All creditors were transferred to the new group at 100% of debt.
- Shareholders were offered an option of cash or a swap for shares in Newco.
Summary:To re-establish profitable growth whilst organising a complete site move, achieving elegant separation of the business’s key client and preparing the company for sale Date: 2005 (6 Months) Assignment: International logistics services business, wholly owned subsidiary of a major FTSE plc: business turnaround, re-establishing medium/long term profitable growth whilst preparing for sale. Role: Interim Managing Director Assignment Length: 6 months Background:
The company, at c.£150m sales is a wholly owned subsidiary of a £1.5bn t/o FTSE plc.
At the end of June 2005, Group shares were de-listed from the FTSE as a consequence of the successful take-over by a FTSE 100 company with sales of £33bn+.
The business had 3 sites, 2 in the UK and 1 in France, operating with c.350 employees marketing and delivering a full 3rd party logistics services offering, principally to the vehicle (commercial and automotive) after-markets.
For 3 years, discussion had taken place between the business and Group main board over the cost benefit of moving from its old, inefficient Head Office site, to a purpose built facility, where modern logistics practices could be effectively incorporated. During this period, the business had lost 2 key clients (activity taken back in-house as a result of client acquisition by international entities). Even so, the business delivered excellent cash-flows and operating profits of 14-17% ROS in 2003 and 2004. In fact, the organisation had been run as a “cash cow” for some years.
In 2004, a third client, Paccar (U.S. company that had bought the original client), representing c.35% of business, gave notice to terminate the contract as its global policy was to service these requirements in-house. It was agreed to conclude the contract at the end of September 2005, with a significant terminal bonus (£13.5m) for smooth handover. In November 2004, Group board approval was obtained for the new site, with a gross project cost of c. £20m.
A change programme had started to re-invigorate the business in mid 2004. Analysis showed that if nothing else was done, a forecast 16%ROS in 2005 would collapse to a £3m loss in 2006. Alongside this, Distribution Centre (DC) operations performance had been allowed to deteriorate, resulting in regular client complaints and the business not fulfilling the service level obligations laid out in the key client contracts. By the year end it was clear that the effort needed to accelerate and deliver this change required the appointment of a senior interim MD.
The Brief:Phase 1 The initial brief was to secure the changes already initiated, principally the move of site and the smooth hand-over of the Paccar business, without prejudicing the 2005 P&L. At the same time, and with the same P&L caveat, new business needed to be developed both through existing contracts and new client acquisition. To enable this to happen, DC operational service levels needed to be brought back under control. Failure to achieve this could have resulted in client loss rather than business growth.
The overall purpose was to establish a financially secure business based on the existing clients going forward and to overlay new, growing and profitable activity.Phase 2 – Changing Circumstances:
By June, it was clear that the offer made for the Group in March by the FTSE 100 plc would be successfully completed. At that time, the purchaser announced that the logistics business was “non core” to future operations and would be sold in due course. Further discussion revealed a challenging disposal timeframe of year-end 2005, in spite of the business’s non-optimal operation at that stage.
The brief was changed to frame the work done in the context of the preparation for sale.
The Initial Position:
Analysis of the 2005 operating plan showed that it had been based on significant underestimates of the resource required and the time necessary to achieve the site move programme, the business re-engineering activity required for cost base reduction and achieving the imperative turn round in DC operational quality of service.
The uncertainty caused by these factors was being allowed to undermine and delay existing client sales and margin growth and was causing serious difficulty in programming new client business wins.
A skills audit was also undertaken and revealed a gap between need and in-house supply with significant capability gaps that required filling to enable the business to deliver its targets.
The circumstances of the business had lead to poor employee morale in spite of regular communication forums to all employees by the board (at least monthly).The Achievements: 1. DC Operational Service Levels, Existing Clients Sales and Margin Growth
- Achieved consistent weekly overall performance >95% for each client, based on cumulative scores for part availability, on time picking, error free picking and damage, and on time delivery.
- Completed successful re-negotiation of the contract with one of the world’s largest car manufacturers (£4.5m+ margin contribution) as a result of the repatriation of the UK car franchise.
- Re-negotiated contracts with a UK and a US client to reflect a “shared profit” approach, delivering c.£1m in additional margin contribution and bringing the US partner to client level profitability for the first time.
- Resolved long running availability issues with a Japanese truck manufacturer to cater for new parts needs from dealerships with a short turn round time, despite supply from Japan, keeping >95% availability.
- Initiated shared office facility for a UK based client from the French site to act as a launch pad for growing into their European wide operations.
- Achieved on-time handover of the parts activity to Paccar, securing the £13.5m terminal bonus.
- Built a strong team of professionals to ensure the required business benefit in the BPR function and DC operations.
- Introduced a perpetual inventory counting technique, raising stock accuracy from 56% to 72% in the first 2 months and then consistent rising levels.
- Initiated stock rationalisation activity, scrapping and writing off c.£3m
- Set up solid BPR procedures for project evaluation and initiation, delivery, plus signed off embedded business benefit.
- Invested in the use of “6-sigma” and project management (SPM) methodologies throughout the business (>£0.25m training investment).
- Achieved firm forecast and delivered annual cost savings of £1m, with a further £0.9m identified
- Constructed the new site move programme (c.£20m) into 12 work streams, each resourced appropriately to achieve a July 2006 relocation and £1.4m annual cost savings.
- Established the new DC operating model and a pilot new site in the existing facility to fully commission work practices and technology.
- Speeded up the prospect conversion process whilst maintaining contract quality
- Won new clients (BMC, Tesco), bringing over £1m additional margin in year 1.
- Produced a unique industry service offering for a water company, worth £2.75m margin contribution
- Set up heads of agreement with roadside recovery organisation for parts procurement and supply bringing £2.2m margin contribution
- Established strong new business pipeline, currently estimated to achieve at least £7m and £12m margin contribution in ’06 and ’07 respectively.
- Delivered monthly OP to budget.
- Managed a headcount reduction of 19% with union cooperation.
- Maintained tight balance sheet control.
- Prepared Information Memorandum (IM) and approved by new corporate owner.
- Established “Due Diligence” data room.
- Issued IM to key interested parties.
The Final Position:
The permanent successor was appointed from within the management team, having been groomed as part of the assignment
Food / Regulated Markets / CAP
Turnaround of a Є200m+ JV operating across Hungary, Slovakia & the Czech Republic. Prepration for EU accession.Date:
2003 - 2004 (13 Months)Assignment:
Multi national JV shareholding (Fr/Ger/UK): Group turn round; legal protection of the business and market share optimisation.Role:
Interim Group CEOAssignment Length:
13 + 2 monthsBackground:
The Group was a joint venture between a FTSE 100 business and a large French private company (itself a wholly owned subsidiary of one of the largest food based companies in Germany) and had production and distribution operations in Hungary, Slovakia and the Czech Republic. With sales well over Є200 million, 5 large factories throughout the region and more than 1,100 employees, it operated in an EU-like regulated market of quotas and prices. The actual market conditions were less stable with each country sustaining upheavals during the assignment.The business in the Czech Republic, in particular, had suffered huge losses and had a cash-burn of over Є1.5m per month. The Czech government also announced that the company’s quota allocation would be cut, effectively taking away c.30% of the company’s domestic market share. The business was in default with two large national banks due to failure to meet repayment schedules and substantial year-end audit issues remained. As a result of significant shareholder activity and changes to Group senior management in the second half of 2002 and early 2003, it was agreed to install a senior interim CEO and FD. The Brief:
The overall goal was to prepare the business in Central Europe for EU accession in May 2004 by bringing it up to international standards in respect of operational performance, financial reporting, treasury and balance sheet management.The shareholders emphasised particularly: “…the Czech Republic situation must be addressed in terms of its financial condition, its organisational issues and its significant variation from the Annual Operating Plan…. Hungary and Slovakia have serious problems developing in their markets which have to be understood “.
The Initial Position:After preliminary review, it was clear that additional shareholder funding would be required. To this end, an emergency business plan and an 18 month cash flow forecast was produced. In the meantime, the Czech business had clear cash problems and was struggling to meet supplier payments, the accounting records were out of control, there was a real risk of being put into administration, work out plans were being operated with the banks, deliberate obstruction from local minority shareholders was being faced through court challenges to every General Meeting decision made, rumours were being circulated by competitors of impending bankruptcy and serious concerns remained regarding the Government’s intentions to reduce the company’s quota. Local environmental and tax authorities were deliberately obstructive in various ways, stimulated by antagonistic third parties. Finally, a third party with previous company management links lodged a fraudulent bankruptcy petition. The Achievements: 1. An emergency plan was prepared, approved and implemented for the Czech business. Key deliverables were:
- Financial restructuring, including new bank facilities totaling €36m
- New equity injection of €12m from the JV shareholders
- A cash transfer of €3m from the Hungarian and Slovak businesses
- A realistic sales plan was launched, based on actual market conditions
- Liquidation of ‘surplus’ stock was undertaken to release cash
- The Slovak business produced PBIT €0.5m above plan, and 21% RONA
- The Hungarian business achieved PBIT €5.0m above plan, and 9% RONA
- The Czech business produced an operating result c.€8m ahead of plan
- Czech monthly losses were brought to break-even leading up to EU accession
- After EU accession, monthly results achieved firm forecast profits from pre-sales
- A radical major raw material sourcing strategy for Hungary was created
- Initiated regional client supply and service for post EU accession operation
- Strengthened the senior management team, including new Czech MD and FD, senior sales managers and new Head of Legal Affairs
- Czech management accounts were fully cleaned up in 4 months
- Reduced Group monthly reporting and consolidation from 20 to 5 days
- Group reporting expanded to cover local currency, € and IAS compliance
- The statutory audit timetable was reduced from 13 to 4 months
- Subsidiary audit sign-off was concluded in under 3 months
- Established 12 month rolling cash flow forecasts
- Reduced overdue debtors by c.€2m
- Implemented tight credit control procedures
- Encouraged the rapid amendment of Hungarian import controls to avoid severe market disruption from cheap imports
- In the Czech Republic, legal challenges were made and encouraged with respect to the relevant 2003 damaging decree
- The Dutch holding company launched a formal international challenge against the Czech Government for breach of bilateral treaty obligations
- Restructured the Czech balance sheet to comply with the Commercial Code
- A fraudulent petition for bankruptcy was successfully challenged and the plaintiff became the subject of criminal action
- A 12 year old debt and court case for c.€13m was settled quickly out of court for c.€2m
- A Czech trading company was set up to handle market regulatory issues effectively
- Successfully influenced the Slovak government to minimise their illegal disruption of the local country market
5. In November 2003, the rolling cash flow forecast predicted a renewed crisis in the Czech Republic due to a market slump.New emergency actions included further financial support from Hungary and Slovakia (€3m), more stock liquidation (‘spot’ sales) and the renegotiation of covenants with the banks that would be breached, in order to avoid the declaration of default. A work-out team became involved again, successfully overcoming the problem.
The Final Position:
Permanent replacements for the Group CEO and FD were found and put in place. The 2004/05 business plan was prepared, coupled to a much more aggressive ‘stretch plan’ targeting a 15% RONA and positive cash flows.
Addendum: Re-called to the Business
As part of strengthening the group's management, a new country MD was recruited for The Czech Republic, enabling the incumbent to focus on the Slovak business alone. About 2 months after the initial assignment concluded, the Slovak MD was critically injured in a 'contract' attack on his life, leaving him in hospital after serious brain surgery. Only a month later, the new group CEO was very badly injured in a car crash leaving him in a coma, in critical condition in hospital.
The client requested a return at short notice, to see the business through a difficult period.
The company's Annual Operating Plan was established, the senior management team was focused on delivering the plan and product development was put in place to help enrich margins further.
It is pleasing to report that both injuries were recovered from, with the group CEO taking up his position again later in the year. The Slovak MD was supported through a difficult personal transition back into the world of work over the next 12-18 months.
As mentioned above, the group took the Czech government to International Tribunal over its alleged attack on the assets of the company and in violation of its international treaty obligations (the group was a wholly owned subsidiary of a Dutch 'BV') requiring mutual national protection of each others' foreign direct investments.
The 5 day Tribunal hearing was held in Paris about 2 years after the assignment conclusion, with the interim group CEO as a material witness. The 3 man panel awarded penal damages to the company in recognition of the damage sustained over several years of operation.
Food / Regulated Markets / CAPAssignments
International Bank / Portfolio Divestment
Business rescue and turnaround of a $250M Eastern European Tyre Group based in Romania, preparation for sale and disposal of the investment.Date:
2001 - 2002 (16 Months)Assignment:
International Bank Investment: Cash Control, Business Rescue & DisposalLine Role:
Interim President/Director GeneralAssignment Length:
A state-owned Romanian tyre manufacturer and distributor of approximately 6,000 people, with sales of $250 million and fixed assets of c.$500m, had been privatised in 1997 with Nomura Bank taking a 50% shareholding. The Romanian "partners" ran the business on a day-to-day basis with Nomura providing the financing.
The legal structure of the group was a mixture of 'closed' companies and 'open' ones, the latter being quoted on the Romanian stock exchange and therefore subject to the local requirements for running such organisations in the public domain.
The business was a large, low-cost manufacturer of automotive and industrial tyres but operating within a hyper-inflationary environment. The Romanian economy has little cash in it, with complex barter or 'compensation' deals operating extensively.
During 2001, the business was operating on a "hand-to-mouth" basis. Suppliers were refusing to deliver raw materials due to non-payment and the ongoing payroll commitments could not be met. The business had a $30 million shortfall between current assets and current liabilities.The Business Was:
- losing sales due to lack of sales management and poor product quality
- highly inefficient
- poorly managed across all functions
- burdened with a large overhead cost structure
- lacking in financial management disciplines; and
- technically insolvent
Faced with this crisis, Nomura replaced the Romanian partners with a two-man team of experienced turnaround professionals from the UK.Assignment Brief: As interim President to ensure that the Group operated to international standards of accounting (IAS) and to adhere to the highest standards of good corporate governance. A key deliverable was to enable the disposal of the Group whilst achieving the best possible value added.
The immediate targets were to:
- Achieve a positive cash flow position
- Improve product quality
- Recruit and develop a management team to take the business forward
- Rationalise the head office structure
- Re-negotiate payment terms with all major creditors
- Institute tight financial control
- Increase the volume and prices for export sales
- Approximately 80% of the business (the automotive tyre divisions) was de-merged and sold to Group Michelin in the form of an asset sale, with the main proceeds going directly to the shareholders. As a result, the remaining industrial tyre business was burdened with the debt and liabilities of the original group.
- A strong team of young Romanian professionals was recruited and developed.
- Tight financial controls were implemented including budgetary control, business planning systems, treasury management and $-based financial statements in accordance with International Accounting Standards.
- The export sales team achieved best ever, monthly sales (c.15%) with increased prices (ave.3%+) to its major markets of N. America, W. Europe and the Middle East. New business was generated into Australia and S. America.
- Enormous improvements were achieved in the definition of product quality and the adherence to standards. 1st Quality rose from 85% to 96% within 4 months.
- Head office numbers were reduced from 230 to 30 people.
- Factory union agreements were obtained to full and partial layoffs of 15% of the work force.
- The $30m shortfall between current assets and liabilities was reduced to $10m over the assignment period by:
- $2.5m of inventory being liquidated
- $13m of problem receivables being liquidated
- c.$10m of suppliers' debts being paid or re-scheduled, key suppliers identified to recommence sourcing at lower prices, improved payment and delivery terms with better material quality.
- $5m state liabilities paid and re-scheduled.
- $3m, 12 month bank loan being repaid on time.
- $4m of new equity arranged
The group of companies had been strengthened to the point where it was possible for the organisation to see a sustainable future. The business was eventually sold in October 2002 to a Romanian buyer.
International Bank / Portfolio DivestmentAssignments
Site integration and profitable expansion of the business.Date:
2000 (6 Months)Assignment:
Steel Processing Business: Turnaround, Site Integration & Profitable Expansion.Line Role:
Interim Managing DirectorAssignment Length:
6 monthsBackground: The Group, previously a UK quoted plc was taken from public to private ownership in 1998. Venture capital funding was obtained from Candover & about the same time, the steel processing division was acquired. In 1999, after an industry review, it was agreed with the support of the O.F.T., to rationalise the UK steel wire drawing industry to achieve international competitiveness. The assignment business, previously part of a large international steel processor had to transfer a number of products & processes to its previous owners as well as become an integral part of the new steel processing division. The Group was internationally based, had £300m+ sales & was a major UK producer of cold drawn steel wires for bedding, seating, lighting, cotton, fasteners & nails markets world-wide. The assignment business was the largest UK producer of industrial nails & had sales rising to c.£45m from a 400,000 sq. ft. factory on c.22 acre site. Assignment Brief The role goal was to bring the company to sustainable profitability in the short & medium term. Integrating business from a closing sister site, adopting a multi functional team based approach to running the operation, preparing a budget for the new year & developing a strategy for the 3 year plan were essential elements. Outcomes:
- Confirmed a first half result of c. £250k O.P. cf. c. £2.75m loss in the previous year. This was achieved through concentrating on cost saving opportunities and the introduction of new business, including export.
- Prior to the integration of business from the closing sister site, productivity was improved by c.33% in the core production areas and a c.7% price increase was managed into the nails market without loss of market share. New products developed included coloured nails which could be sold at over twice the price of the standard equivalent size.
- European export volumes were increased further at the request of Group management. Prices for euro-land business were very poor, exacerbated by a deteriorating exchange rate. Up to 35% of weekly production could be devoted to this market, which was not covering overhead contribution going into the second half of the year. Replacement business from $US markets was actively sought. Prices for the euro-land export business were improved, enabling an overhead contribution to be made. Excellent payment terms were also negotiated, helping to improve cash flow considerably and achieving negative working capital.
- The Group possessed about 80% of the UK market for bedding & seating wire and was the largest producer of industrial nails in the UK. Plans were established to influence the product mix sold to optimise short term profitability and improve penetration into value added areas through down stream operations.
- The major site activity was to integrate business from a closing sister site, equivalent to a 30% uplift in sales. Capital projects of £1.5m+ value were undertaken to achieve this, along with a 20% increase in direct employees. Site clearance, the transfer of equipment and its successful commissioning took place over a 4 month period.
- The budget was constructed taking the above into account, along with plans for the gaining of new business via existing and new processes. The strategy for the 3 year plan was based on the site becoming world class in its core production area of cold wire drawing and developing downstream value added operations to supply niche markets with steel based products.
- To achieve all the above, team based activity was initiated wherever possible to improve working methodologies between functions. Team briefings, site management meetings, continuous improvement activity and capital project teams were all introduced. This approach was extended to key customers.
Capital Equipment Production
Re-establish strong and profitable growth without consuming cash and transform team-workingDate:
1999 - 2000 (6 Months)Assignment:
Capital Equipment Producer: Positive Growth and Cash GenerationRole:
Interim Managing Director (process equipment division)Assignment Length:
The parent company (GEI plc) was an international, UK quoted plc which had serious financial difficulties when it was revealed that it had debts of 44% of group turn over, across 10 separate banks. The process equipment division had to remove cost from the business to support the debt reduction programme, placing undue stress on its operational performance. The MD chose to leave the group.The Brief:
As interim Managing Director the 6 month assignment was to re-establish profitable growth without consuming cash & improve management teamwork.Outcomes:
- In month 1, the second half-year monthly forecasts were resubmitted to head office for inclusion in the reporting position to the bank consortium led by HSBC. Rolling 13 week cash flow forecasts were provided on a weekly basis, along with emergency work to improve radically all aspects of working capital control.
- A company 3-year plan was produced for the continued bank business reviews, based on a conservative approach to sales with an improving profit line. Year 1 Operating Profit was 25% up on the current year forecast, with product mix & margin gains identified. Conservative market views were used for years 2 & 3, lifting profit to 110% of the plan starting position.
- The company's 'blame culture' & its unbalanced approach to work and information flows were changed to a more constructive attitude based on practical support between functions to overcome specific difficulties.
- 3 business streams, with particular needs, were identified to convert sales into solid profit:
- The spares business, representing c.20% of turn over was focused on a proactive approach to generating new business & improving customer service. An E-commerce web site was developed to achieve quick international 24hr. service.
- Larger, more complex projects were approached far more rigorously, ensuring well-defined quotation production & tight project management control.
- Routine, simple machine sales were satisfied using a cell manufacturing approach & fast tracking through the drawing stage for rapid customer supply.
- Market diversification was undertaken to supply company equipment and expertise to the large growth catalytic converter market. Initial sales representing c.25% of turn over were obtained with record gross margins
- A strategy was built & implemented for much greater penetration into the dairy & desserts markets, based on product development & increasing sector expertise.
- A fresh approach to the N. American market was established as a result of the sale of other Group companies, leading to rapid increase in sales.
- As part of the normal Group budget cycle, a comprehensive review was undertaken building on work underway that was deemed too speculative for inclusion in the earlier 3-year plan. This resulted in a budget showing a realistic 300%+ increase in Operating Profit over forecast.
- 15 essential change management initiatives were identified, scoped & included within the detailed budget submission for implementation in the year.
Capital Equipment ProductionAssignments
Electronics / Security / Electric Cabling / POS Display
Business turnaround to positive cashflow and profitability, build and implement a strategy for the company to become the profitable growth engine of the groupDate:
1996 - 1998 (22 Months)Assignment:
Electronic Security Industry: Return to Profit & Leveraged GrowthRole:
Managing DirectorAssignment Length:
The parent company was a UK listed plc, whose core business was the production of electronic security equipment for use in a range of markets from the defence industry to home security.
The assignment business, operating from 3 sites initially, had a declining sales line and high fixed and variable costs due to prior year expenditure anticipating core market growth that did not materialise.
Additionally, both the CEO and the Operations Director had left the business in a short space of time, 6 months earlier. The strategy for the business was written at main board level for local adoption and c. 25% of the workforce "across the board" had been made redundant.
Morale was at a predictably low ebb and revenues from the defence sector side of the Group were being constrained due to increasing delays in defence project spend.Assignment Brief:
As interim Managing Director, to bring the business back to month on month profitability, produce a clear strategy for renewed profitable growth and to implement it.Outcomes:
- In 3 months, operational control was established.
- Obtained plc board agreement to make the business the growth engine of the Group, based on a detailed 3-5 year strategic plan produced by the new management team.
- The company restructured to form 4 separate business units, acting as P. & L. centres. The strategy developed was based on the extended use of existing manufacturing technologies and under utilised people skills to serve markets and customers where rapid growth was possible. The business grew both in terms of profit and sales and had over 50% of the Group's capital investment in year 1. In the first year, sales were £14.6m. By the end of year 2, the run rate was £24m and the plan for year 3 was to end at a £40m run rate, with improving profitability.
- The original core Security business became the proud possessor of international manufacturing and design capacity (UK and Italy) as part of the strategy developed to shorten the route to market in the sector. Work was undertaken to consolidate a common approach to product development and export activity, to over 60 countries. In addition, a PCB population cell was constructed to supply c.20% of all board requirements for the company. This was done at costs lower than bought in price from the Far East, generally for the lower volume products.
- The Power Cable Business Unit had a £0.5m investment as the centre piece of the plan. The project team specified & installed a new sheathing line, secured a £100k DTI grant & brought on board an acquisition for £150k to enhance margins, & strengthen commercial links. A 100% sales increase to £15m was implemented for year 1.
- The Technical Moulding business plan was to grow sales to £10m in 3 years. The team defined ways to reduce time to market resulting in a £150k investment in 3-D CAD, plus changing injection moulding machine profiles as demand increased. The team extended its OEM customer base aggressively over several months and the portfolio broadened with other added value operations such as in-mould printing. Gas injection moulding was the subject of a further capital request to aid expansion in the white goods sector. Clients included Candy, JSB Electrical & Premier Hazard. Downstream added value operations were extended via the substantial assembly operation used for security products. Emergency lighting assembly work was won as a result of being able to offer 'one stop shop' production to clients at highly competitive prices. 7-Figure sales were achieved in plan year 2, with the potential to obtain 'beyond plan' annual sales of c.£15m from years 2/3 onwards.
- The new Retail Solutions business, providing Point of Sale Display and promotional items for use in the cosmetics industry achieved c.£6m. sales in its first year of operation. This was achieved by taking a high technology approach to creative design, with manufacturing substance via the range of processes available within the company. Key new clients included Coty-Rimmel and Virgin Vie.
- Functions shared by the business units were re-engineered. This included work in supplier rationalisation giving c.£0.8m/yr savings; re-building a highly talented multi skilled Technical function & establishing a crucially important PCB population cell in production. A factory margin improvement project was established, which, coupled with timely management accounts led to raising profit from, 1.6% to 7.6% R.O.S. & 5% to 26.4% R.O.N.A. in year 1.
- Company morale was high, with good line communications established throughout the business.
Electronics / Security / Electric Cabling / POS DisplayAssignments
Turnaround to bring the company back to sustainable profit performance.Date:
1995 - 1996 (13 Months)Assignment:
FMCG Manufacturer TurnaroundRole:
Interim General ManagerAssignment Length:
The company was established by a Swedish and an American family in the mid 1980s to make FMCG items as the UK market started to enjoy a very rapid growth phase. By the mid 1990s, the home market had matured, worldwide competition was stabilising with the main global players being Proctor and Gamble, plus Kimberly Clark, both with significant production capacity in the UK. Kimberly Clark was late into the UK market and was aggressively buying market share.
As the largest UK based 'own label' producer, the business had sales of c. £20m, produced on two sites with about 10% of turn over being for export. The largest customer was Boots.
The business was very short of cash and running monthly losses. The management accounts were not available until the end of the following month and the manufacturing processes were very inefficient. The main raw material, a traded commodity, was starting a periodic climb in price of c. 15% per quarter. This trend is usually held for about 18 months, plateaus for a short while followed by a similar decline.
Over 350 product variants (SKUs) had been accumulated which represented a very large number compared with industry norms.Assignment Brief:
To perform a complete review of the business to identify where cost savings could be made, procedures changed and commercial advantages identified. The work received full board approval and the action plan was implemented over the 13 month period of the assignment.Outcomes:
- Managed the introduction of new key clients such as Tesco and Safeway and increased export activity from c. 10% to 20% of a rising output.
- Identified strengths and weaknesses in the management team. Re-structured the team, brought in fresh talent and led the work to find cash generative projects.
- Massive industry margin (c.5% inside 6 months) erosion at the selling price level had to be offset. Product variants were reduced from 350 to 250. Overall raw material purchasing savings of 6% were made, stock holding was lowered by £0.42m and stock turns were lifted to 26.
- Saved £0.6m/yr by improving product recovery & workflows. This was achieved after workflow assessment and the application of continuous improvement principles. Process utilisation was raised by 23%.
- Reduced short deliveries from 14% to < 1% within 6 months.
- Reduced the time to produce the monthly management accounts from 1 month to 2 weeks by improved resource allocation and procedural simplification.
- Over an 8 month period progress was made from significant losses to break even and neutral cash flow.