Case Study 4 - Turnaround Management
Project Barry - Turnaround Management
Background
A well established transport and logistics group had grown to an annual turnover of $51M with 260 employees. However, management had used debt to fund most of this growth. During the preceeding 4 years management had chased revenue with cheap pricing at the expense of margin resulting in a loss of $4 million for the previous 12 months.otal bank debt of $26 million (strained relationship).
Key issues
- Significant increase in crude oil over previous 12 months
- Deterioration in margins across all divisions (cost and pricing issues)
- Cash burn of $0.4 million per month
- Poor working capital management
- Minimal controls and no effective communication channels
- Overcapitalised (revenue $50 million, assets of $40 million)
- No fleet management system
- Poor financial reporting systems. No cash flow forecasts
- Restoration of bank relationship essential
- Ageing fleet
- No understanding of which routes are profitable
- Viability of business is questionable in current form
- Several business units not adding value
- Competition is intensifying
3 Phases
- Stabilise the business
- Assess its viability
- Downsize, restructure then sale
Outcome
- Secured immediate working capital injection
- Negotiated new cartage rates (4.5% to 15% increases) with over 400 customers
- Implemented a temporary fuel levy 3.5%
- Improved communication through weekly employee newsletter and conference call
- Performed customer and vehicle profitability analysis
- Overhauled financial reporting system
- Sale or closure of loss making or non-core operations
- 40% reduction in vehicle finance payments ($0.25 million per month)
- Significant debt reduction
- Significant working capital improvements
- Divested 41 vehicles
- EBITDA improvement from 4% to 12% of revenue
- Initiatives delivered an increase in earnings of $500K per month