Restructuring – Perceptions & Realities

Neelakantan, Senior Consultant

Definition• Ownership, control &

Financial Structure• Business Portfolio• Operating EnvironmentAny

substantial change in…

Negative Vocabulary

• Financial Distress– Need to change the way the cash flows / finances

are managed• Poor Sales Performance– Need to change market strategy

• High Employee Cost– Need to change the organizational structure

• System breakdown– Need to change the processes & systems

Why, How & When• What is the fundamental problem to

be solved – derive from a review processWhy

• Create & Preserve Value – not diminishHow

• Pre-emptive not under duress?

When

Planning & Execution

• Analyze the financials• Evaluate the reasons for performance / non –

performance• Conduct a root – cause analysis• Evolve an Action Plan• Give it a project management framework• Monitoring Progress – Don’t be ashamed to

change decisions• Revisit your Financials

Inference

Post-Mortem Prevention

A CASE STUDY

Case Study – Current Situation 2011 2010 2009

Revenue 30,880,273 37,230,662 45,224,861

Cost of Sales 18,366,813 22,032,122 29,559,284

Gross Margin 12,513,460 15,198,540 15,665,577

Expenses 10,842,557 12,151,632 11,915,251

Net Profit 1,670,903 3,046,908 3,750,326

Revenue per month 3,860,034 3,102,555 3,768,738

Gross Margin (%) 40.52% 40.82% 34.64%

Expenses per month 903,546 1,012,636 992,938

Net Profit (%) 5.41% 8.18% 8.29%

Trade receivables 12,673,448 9,007,485 9,976,192

Inventory 5,648,451 6,797,209 6,324,981

• Cashflow problems• Unable to grow• Excessive Micro-

Management at the top• Diminishing Returns on

Equity• Enviable Distributorship

arrangements

Fix the Business

• Market– Increased Trading Focus– Expand Geographical Base– Review Pricing Policies

• People– Sales Team Structure; review sales incentive structure– Competence for trading

• Process– Processes to address cross border trade

Fix the Finance

• Cash Flow Planning– Proactive budgeting and monitoring– Improve Receivables Management

• Consider Leverage– Need to walk a tight rope between interest costs

and better utilization of shareholders’ funds• Use the trading business line to improve cash

flows

Strategic Partnerships

• Trading Focus• Geography based JVs• Bring fresh ideas to management team• Don’t be stuck with the current valuation• Approach with future value-addition in mind

THANK YOU