TOOLS TO WEATHER AN ECONOMIC DOWNTURN AND
CAPITALIZE ON THE RECOVERY
SRN Presentation12/09/09
MILWAUKEE GEAR COMPANY
Rick FullingtonCEO
What are the challenges
During an Economic Downturn
Manage for the moment
Prepare for the future
It’s about the numbers
MANAGING FOR THE MOMENT
Be ahead of the curve Proactive rather than reactive Bias towards Action
Constantly re-assessing length and steepness React timely Management-lead by example Share the pain Market place should support these actions
Managing for the moment---continued
Customers Communicate, communicate, communicate
Goes both ways Constantly monitor credit Cancellations Push outs Always be business like Always approach from the economic/good business
practices standpoint
Managing for the moment---continued
Suppliers Communicate, communicate, communicate Everything is negotiable Reward good performance Take stock of what you have Communicate to all levels of your organization
Nothing is bought unless absolutely needed Make things last Take care of “our things”
Managing for the moment---continued
People (employees/associates) Various tools that can be deployed
Reduce/eliminate overtime Reduce/eliminate shifts Weekly crewing Rolling deferrals Shortened work weeks Planned shutdowns Communicate, communicate, communicate
Managing for the moment----continued
Various tools---continued Layoffs
MAINTAIN THE BEST TEAM Review everyone-classify as A, B, C, etc.
Set or reset expectationsClearly communicate responsibilities
Skill and ability Super Seniority Seniority
• Direct vs. indirect/support Pay cuts Benefit cuts What works for your organization
Managing for the moment---continued
Communication Early Often
Impact on Morale Keeps anxiety manageable
Transparency No hiding No holding back No sugar coating Bad news first
On-going, even with those laid off
PREPARE FOR THE FUTURE
Leaner Organization Processes/Procedures
Lean Mfg./Continuous Improvement efforts Shop Office
Systems IT Supply Chain Internal Pipelines
Prepare for the future---contd.
Leaner Organization---contd. People
Training Education Flexibility The tools you give them to work with
It’s about changeAssumes you want to maintain or improve
your competitive position
Prepare for the future---contd.
Markets How good are the industries that you serve How good are the customers you serve How to increase your market share
Short term Mid term Long term
Products/Services Sales/Marketing Organization
• How are customers changing• How might competitors be changing• How will things be changing globally• What impact will technology have
IT’S ABOUT THE NUMBERS!
Communications-with investors, bankers or owner/operators How good is your story Common themes for all of their businesses
Covenants EBITDA Ability to service debt
It’s about the numbers---contd.
Good Forecasts Revenue
Monthly, Quarterly, Annual Data points
Customers Economic Industry Leading Indicators
It’s about the numbers---contd.
Good Forecasts---contd. Costs
Establish new run rate Prepare a detailed budget Monthly, quarterly, annual Incorporate all cost saving measures
Cash Flow Working Capital—short term/long term Service debt Factor in Maintenance Capital Expenditures Cash is King!!!
It’s about the numbers---contd.
Good tools to control and monitor Financial Statements
Business Scorecard Financial reports
Balance Sheet Statement of Operations (Income or P&L Statement) Statement of Cash flows (Sources and Uses of Funds) Covenant analysis
• EBITDA (Earnings Before Interest, Taxes, Depr., Amort.)• Debt service coverage• Funded debt to EBITDA
It’s about the numbers---contd.
ORR ratios
Financial ratios
Asset Productivity ratios
Employee Productivity ratios
It’s about the numbers---contd.
Financial Ratios They are the basic scores on which managers are
judged by creditors and the suppliers of capital to the business, the investors. EBITDA Times Interest Earned Current Ratio Sales to Working Capital Debt to Equity
It’s about the numbers---contd.
Asset Productivity Ratios Defined
Average Collection Period Inventory Turnover Inventory holding Period (Days) Sales to Fixed assets
It’s about the numbers---contd.
Employee Productivity Ratios Defined
Sales Per Employee Value Added Per Employee Gross Margin Per Employee Total Payroll (% of Net Sales)
It’s about the numbers---contd.
Operational Analysis Sales Volume Analysis
Historical Comparison Fixed Costs Variable Costs Semi-Fixed/Variable Costs
Benchmarking—ORR Operate to a plan and a budget
It’s about the numbers---contd.
Cash is King If nothing else, you should build cash from;
Inventory reduction Accounts receivable reduction Absolute must for bank to see
Will be needed to finance inventory and A/R when upturn occurs
It’s about the numbers---contd.
Cash Flow statements/forecasts Quarterly
Several years worth Capex
Maintenance Productivity capacity
Summary Manage for the moment It’s about the numbers
Work to a plan Make your numbers
Prepare for the future Hard to recover if you fall behind
Questions