Corporate Turnaround Management: June 2009

Believe it or not but eighty percent of the sales volume is often generated by twenty percent of your whole line of products.

That gives an insight and a sense of urgency to reevaluate your line of products offered and cut it down to a sustainable level. After evaluating which products belong or not to the 20% group, you can shift your energies and focus on the right product lines.

Keep in mind that this is only a process to help improve efficiency, productivity and reduce waste.

Our Vantage Performance team is looking forward to interacting with you again.

Regards,

Pedro Bueno

Vantage Performance Team
Profit Improvement & Turnaround Specialists
www.vantageperformance.com.au

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Media Release

The global financial crisis has dramatically increased the speed at which business conditions can change, forcing astute business leaders to rely more than ever on risk management strategies to protect their businesses.

Turnaround specialists Vantage Performance are regularly seeing evidence of companies being sideswiped by a major change to their business.

Vantage Performance’s managing director, Michael Fingland, said because many companies start to work on the problem after becoming aware of the results of the change, by the time they have come up with potential solutions the impact has caused serious damage to earnings, cash flow and the overall viability of the business.

“Regardless of the position your business is in, it’s essential to be undertaking detailed financial modelling and "what if" scenario testing to gauge how various sudden changes in market conditions will affect your business and more importantly, what initiatives management can deploy to combat these challenges,” Mr Fingland said.

The key to surviving the current economic downturn
He said all organisations should be placing a focus on stress testing their business.

“It’s all about analysing base case and worst case revenue, margin and working capital scenarios in the current climate. Companies across Australia and overseas have engaged in stress testing to help them decide on a range of initiatives in case market conditions deteriorate any further,” he said.

Mr Fingland said business stress testing was an area of growth for Vantage Performance, because companies want to ensure they have a totally independent and objective view when analysing the results.

“Independence and objectivity is even more important when it comes to devising the various strategies to restore earnings and cash flow,” he said.

The benefits of stress testing include:
• Enabling a business to react quickly if conditions change suddenly
• Forcing a business to ask ‘what if' and creating strategies to deal with given scenarios to minimise risk and maximize opportunity
• Providing clarification around short to medium term capital requirements
• Placing management in a stronger position if they need to negotiate with financiers by showing they are prepared for and able to handle challenges
• Increasing the confidence of key stakeholders
• Minimising stress on the business when the tough decisions have to be made
• It will provide management with an advantage over their competitors

Mr Fingland said rigorous stress testing has enabled organisations such as Brambles and Qantas to move quickly when market conditions suddenly changed.

“When yields slumped more than expected in March 2009, Qantas quickly slashed forecasts and initiated a range of dramatic measures to reduce operational costs. It is this ability to rapidly respond to change that enables their survival,” he said.

Some of the key questions posed in an effective stress testing program include:
1. What is the new breakeven level for the business and how does it change from the previous level?
2. What is the impact on revenue and earnings if you lost a major customer?
3. If customers are demanding lower prices, what is your tipping point and are you prepared to lose customers in order to maintain earnings? What changes will you need to make to your cost base to match the new lower revenue base?
4. How is cash flow impacted if debtors take an extra 10 days on average to settle their accounts?
5. Could there be a breach of banking covenants and if so, how will you respond to your financiers concerns?
6. What changes will you require to your banking facilities and what would be your banks attitude to an increase in lending, if required?
7. Are staff cuts needed and how will you deal with this (4 day work week, pay reductions, retrenchments)? Do you have the cash flow to fund redundancies?
8. What overheads will you reduce and what capex plans need to go on hold to preserve cash?
9. What non-core assets could be sold to reduce debt/provide additional cash flow?
10. Are sales or production levels too low to remain viable and would a merger or strategic partnership be needed to maintain critical mass? Who would you approach?
11. What plans do you have to meet ATO requests.

Stress testing enables management to act nimbly when unexpected changes happen. This means that management can make prudent, sometimes lifesaving decisions very quickly.
“Those businesses that are able to adapt to change are the ones that will prosper in the future,” Mr Fingland said.

Vantage Performance is a market leading “hands on” advisory firm specialising in improving performance and executing corporate turnarounds. Working with underperforming companies or those in financial distress, we quickly identify problems and implement proven strategies to improve the long term sustainability and value of a business.

Our Vantage Performance team is looking forward to interacting with you again.

Regards,

Michael Fingland
Managing Director

Vantage Performance Team
Profit Improvement and Turnaround Specialists
www.vantageperformance.com.au