International Bank / Portfolio Divestment

Summary:

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 & Disposal

Line Role:

Interim President/Director General

Assignment Length:

16 months

Background:

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

Outcomes:

  • 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.

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Steel Processing

Summary:

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 Director

Assignment Length:

6 months

Background:

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.
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Capital Equipment Production

Summary:

Re-establish strong and profitable growth without consuming cash and transform team-working

Date:

1999 – 2000 (6 Months)

Assignment:

Capital Equipment Producer: Positive Growth and Cash Generation

Role:

Interim Managing Director (process equipment division)

Assignment Length:

6 Months

Background:

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.

Overall, business growth was achieved without additional capital expenditure and only marginal changes to working capital demands through modified phasing of customer payments.

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Electronics / Security / Electric Cabling / POS Display

Summary:

Business turnaround to positive cashflow and profitability, build and implement a strategy for the company to become the profitable growth engine of the group

Date:

1996 – 1998 (22 Months)

Assignment:

Electronic Security Industry: Return to Profit & Leveraged Growth

Role:

Managing Director

Assignment Length:

22 Months

Background:

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.
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FMCG Manufacturer

Summary:

Turnaround to bring the company back to sustainable profit performance.

Date:

1995 – 1996 (13 Months)

Assignment:

FMCG Manufacturer Turnaround

Role:

Interim General Manager

Assignment Length:

13 Months

Background:

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.
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