The Challenge

Company A is a manufacturer of copper wire and fibre optic cables that form the core of intranet, internet and other communications networks as well as the backbone behind transport communications.  Until May 2011, the Group was financed by an Icelandic bank but following the latter’s financial failure, the Group had to secure a refinancing package of £39.6m which it did with a major US Bank in May 2011.

The financing uncertainty caused key customers to alter their cable supply arrangements into one of dual sourcing despite the solid reliance of sole supply over the previous 15 plus years.  As a result Company A’s share of those accounts suddenly dropped by around 25% during 2011. Furthermore the economic crisis and the reliance by the business on key blue chip accounts themselves experiencing a reduced spend on infrastructure projects left Company A experiencing a significant downturn in trading since the summer of 2011 with a sudden drop in forward order book to half of what it was just a year earlier.

Since funding was through Asset Backed Lending as sales declined the cash flow became challenged.  In hindsight, Company A making two acquisitions in the summer of 2011 was also unwise. As a consequence of a combination of factors, the business soon found itself with serious funding difficulties and facing imminent insolvency.

The Solution

Colin Sykes joined the business as provisional CEO in October 2011 and had to quickly address the situation and review different options with the bank.  His first tasks were to stabilise the cash situation and the business, instigate a cost reduction programme for an overstaffed business, optimise operations and delivery performance and tightly manage the funding. It was clear to Colin that without the injection of significant new funds the business would fail and he successfully secured £5 million for that purpose understanding that new investors would need to be sought for the business. Focus was then directed toward improvement in sales and market share, key for the business and a new investor.

A plan with a single investor for the group fell through in April 2012 so the business was disposed of in parts and by June 2012, all businesses apart from the facility in Spain had been placed with new owners without the loss of any jobs. The bank still had a €15 million exposure in Spain in a massively oversized, Unionised business now tasked with the tall order of standing on its own two feet. Fortunately the order book was growing, reaching its highest level in over 2 years and Colin set about operating the business to satisfy that order book within the limited cash resources available.

A combined cash flow and operations model monitoring daily progress across the business in Spain was developed in order to take optimum decisions and execute customer orders, secure materials and essential services and to monitor progress transparently. Terms were agreed with the Unions in order to facilitate stability in the day to day running of the business and to calm anxiety while minimizing the payroll.

By the end of 2012, the bank’s exposure had been reduced to below €3 million and that will comfortably be settled through the collection and sale of available assets. Important for the business is that customers have been retained and the appropriate platform established for a new investor to enter and succeed in a business now capable of operating independently.

The Challenge

Company B, a global Japanese car manufacturer, that along with its alliance partners now constitutes one of the five largest automotive concerns in the world.  It was not so long ago that this Japanese company, which today represents the majority of the revenue and the group’s profitability, was in a terrible financial situation, where they could barely make the payroll of the next month!  It is within this context that Company B was partially purchased by a (smaller) European auto manufacturer, permitting much needed cash injection into Company B, as well as the arrival of a new non-Japanese management team.

The Solution

Cyrus Salesse was one of the members of the new 35-person management team, who headed to Japan.  He was placed in charge of the corporate restructuring and change management program, which entailed essentially developing an overall 3-year restructuring program that touched every aspect of the business.  The topics included:

1. Immediate need for cash to be able to not only pay for the operations, but also to enable the Company to invest in new product development.  This was mainly accomplished by divesting very quickly from non-performing or non-strategic assets that were being held by Company B, as well as the collection of long over-due debts, mainly from the suppliers with very close relationship with Company B
2. A new, three-year business plan, supported by a new and re-vamped product line-up, leading to a slight profitability, coming from a situation of annual losses in the billions of dollars
3. Managing and bringing under control both the production as well as operational costs, including the closure of 5 manufacturing sites in Japan and releasing of 21,000 staff and workers – a first in Japanese corporate history
4. Major restructuring of the supplier base as well as the logistics by reducing the number of suppliers, putting them in competition and reducing their control over the overall production cost, which exceeded 75% at that time
5. Revision of the entire brand and visual identity as well as the Marketing and Communication Functions
6. Rationalization of support structure, including the building of a competent and accurate Finance and Accounting function; a strategic HR function, renewing the IT infrastructure and outsourcing of certain portions – to stopping or re-directing existing projects that were no longer a strategic priority or not advancing  as they should have
7. Projects to re-engineer all business processes and quality enhancement initiatives, including Six-Sigma-type methodologies
8. Recruitment and rejuvenation of the Board of Directors, the entire global management team, as well as many of the of the key technical (e.g. Design) and non-technical functions across the world

The outcome has been the subject of many books and MBA case studies, since not only did Company B turn to profitability from year one, but it generated a higher profitability within the first 2 years than planned, leading to the creation of a new 3-year plan, one year ahead of schedule.

The Challenge

Company C is a UK private equity backed business with operations in UK, Japan, USA, France, Germany, Italy, Spain and South Africa and the leading world-wide provider of technology based cash management systems to all forms of global retail, food service, and financial industry clients, many whom are blue chip.

The mezzanine fund led by Andrew Hunt made an initial investment into the business in 2000 on the back of supporting a new product invention and to use those funds to enable early stages of a proof of concept. Unfortunately those funds had to be reallocated to support the operating business that had been affected by a sudden downturn in global markets and a drop in orders. The invoice discounting banking facility that the business had in place did not bode well when sales were in decline.

The financial and operating management within the business was weak and Andrew reached agreement with the Chairman and majority shareholder that management needed strengthening. Andrew introduced Colin Sykes to the business and he joined as Group Finance Director in March 2001.

The Solution

The immediate task was to address the financial stress on the business which was immediately resolved by obtaining an unsecured overdraft line of £2 million from a UK bank. That line regularised the cash flow in a business sales cycle that was somewhat lumpy. The next task was to solve that feast or famine trend by having sales teams focus on smaller but more regular customers such as mom and pop stores, tabacs, post offices and so on to the point that sales value levels for the regular accounts matched those of the large accounts.

Attentions then returned to the product invention and it was quickly determined that full development would require much greater sums of money that fell outside of the levels provided by Andrew´s fund. So the fund was repaid its mezzanine and equity investment with a handsome return.

Colin raised new funding with a new equity provider and the new product invention gathered pace to the point that it was conducting successful pilots with blue chips wanting to initiate store roll outs. That pilot process did, however, reveal that the manufacturing cost of the invention was prohibitive and without the use of lighter materials requiring technology changes, it was not viable. Two global players took the project on but priority was instead given to chip and pin and self-checkout.

At the same time the technology and hardware markets retreated significantly and in 2004/5 sales in the operating business once again came under severe pressure. With escalating costs on the new invention and sales seriously impacted, action was necessary by reducing the overhead base by half. Within a matter of months the business was generating cash sufficient to resume paying down the bank debt.

The new product invention was mothballed and has remained so until this day given prohibitive cost. The operating business continues to be successful, is now debt free and enjoys an EBITDA return of 15% on sales. The equity investor is still with the business.

The Challenge

Company D is the market leader in the automotive sector in Egypt with more than 5,000 employees. Following a successful initial public offering in the summer of 2007, Company D’s Board of Directors identified the urgency of institutionalization to enable the company to attain strategic focus and achieve its ambitious growth plan along with streamlining its activities, prepare for diversification and ensure proper management and retention of its human capital.

The Solution

For that very purpose, the company established an Institutionalization Program and in January 2008, after a global search, a regional management consultancy firm was chosen with Cyrus Salesse as Partner in charge. In March 2008, Colin Sykes was invited to join Company D as CFO and later a Board Member. In their respective capacities of consultant and client, Cyrus and Colin were tasked with being in charge of delivering the entire change programme.

The first phase was working with Company D’s Board and executive team to define and formalize the company’s vision, mission, values, as well as objectives and strategic development initiatives.

The second phase consisted of the development of a modern and optimal operating and organizational systems for the various functions (sales, marketing, after sales, distribution and channel management, operations, supply chain, finance, HR, IT, etc.)

The third phase involved setting up a Program Management Office (PMO) in charge of managing and monitoring the implementation. This phase engaged in the cultural and human aspects to ensure buy-in for approximately 350 unique processes that went through change. This included critical areas such as quality management, whereby, using KPIs, the Company a Manufacturing management team now was able to focus on, and have full visibility of the areas requiring their attention to produce high-quality vehicles.

Realizing the importance of the human element in implementing and sustaining the new business systems, Cyrus and Colin worked closely together on the design and implementation of a new compensation and benefit systems that promoted internal equity, achieved a stronger competitive position in the market, and attracted and retained better talent.

Today Company D is a business that has more than doubled in size and in many ways it is thanks to those efforts started back in 2008 that have ensured the company was readied for that journey especially in challenging circumstances.

No one could have predicted the “revolution” that occurred in Egypt in early 2010, nor did anyone predict the global economic crisis which hit the automotive industry across the world, probably harder than any other industry, except the financial services sectors. Fortunately Company D was in a strong position not only to navigate through these challenges but to increase market share and invest in new businesses again thanks in many ways to the institutionalization programme.

The Challenge

Firm E is a large diversified Latin American conglomerate, with businesses ranging from commodities through IT services. Rapid growth in the early 2000′s left the company with high leverage, barely meeting its financial covenants. This condition was worsened as the company experienced losses across several business units as a result of the 2009 economic downturn. Facing the need to access equity markets, the board requested significant reductions in costs and expenses, and basically froze all capital expenditures across all business units for 2010. This approach – not considering the basic differences between the mature businesses as compared to the highly dynamic IT services sector, as well as overlooking the longer term strategic outlook of the more dynamic business sectors – forced several of these business units lose growth opportunities and maintain their competitiveness, leading the whole group to under-perform through 2011.

The Solution

To better define a recovery strategy, the investment bank hired by the group to help it raise capital, contacted Juan Carlos to assess the group and propose a possible recovery strategy. For this purpose, and working closely with the management team of each business unit, Juan Carlos assessed thoroughly each of the business units in terms of its growth and profitability potentials over the medium term. A conservative and an optimistic business scenario – including the likely external economic and business conditions in Latin America – were defined for each unit, against which the company’s SWOT, financial requirements and organizational structure were assessed and projected, finally leading to the definition of possible ranges for their ROA and ROE. Synergies among business units were also analyzed as part of the total process. A clear picture emerged in terms of which business units had to be divested, which ones should be merged, and which ones needed all possible support to become the growth leaders for the future years. By and large the investment bank and the company’s board accepted the recommendations, and a few months later Juan Carlos learned that the company had raised new equity through a private placement and was starting to show markedly improved overall results, both in terms of profitability as well as growth.