Case Study 6 - Turnaround Management
Project ET -Turnaround Management
Background
- Mobile phone distributor and logistics company
- Listed company with sales of $600m p.a.
- Multi-site business, 500 employees
- Loss of $30m (profit of $15m in previous year)
- Bank finance $72m (strained relationship)
Key issues
- Risk of short term facility breaches
- Management’s corporate strategy flawed
- P&L and cash flow forecasts too optimistic
- Key business drivers and risks identified
- Poor management of cash flow and working capital
- Restoration of bank relationship essential
- Significant profit and cash generation opportunities
- Viability of business is questionable in current form
- Several non-core businesses not adding value
- Equity injection required
3 Phases
- Assess short-term cash and financing needs
- Viability review and develop turnaround plan
- Implement & monitor turnaround strategy
Outcome
- Managed to avoid a likely collapse
- Some non-core businesses sold or closed
- Significant reductions in cost base
- Significant working capital improvements
- Bank debt down to $12m ($60M improvement)
- Bank relationship restored
- Successful rights issue of $3m
- Revised budgeted EBIT of $3m (ie. $33M turnaround)
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