RESTRUCTURING

ADVISORY

Succeeding in uncertain timesMartin Wong, Executive DirectorBrunei, 8 April 2010

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Agenda

ChallengesPractical considerations – ten tipsCash managementDealing with debtStrategic approach to managing costPositioning for the recovery

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Challenges

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Challenges

Fraud and misconductManaging riskRestructuring, cash and working capital Cost optimisationTreasury managementIntegration/ separation

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Challenges

Fraud and misconductNegative impact of the recession on earningsHigher risk for fraud and misconductIncreased threat and exposure to litigationIncreased risk of regulatory enforcementCriminal and civil prosecution

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Challenges

Managing riskEconomic crisis = unpredictable markets = unprecedented business outcomesLack of confidence in quantifying and reporting risk profilesFailure of existing risk management programsRating agencies flagging risk management capabilitiesIncreased emphasis on risk oversight by Boards

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Challenges

Restructuring, cash and working capitalDeclining revenue/ profitsFalling consumer demandBankruptcy filings on the riseCapital scarce and expensiveLoan defaultsScorched sectorsSpecific issues

OperationalFinanceCash flow

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Challenges

Cost optimisationImproving working capital efficiency

InventoryRevenue managementProcurement, contract management

Optimising cash flowManaging tax liabilityAsset utilisation

Network optimisationCapital planning

Transparency/ visibility of cost

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Challenges

Treasury managementDeterioration in cash and investment holdingsAccess to creditVolatility in currencies and commoditiesCounterparty risk

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Challenges

Integration/ separationUnderperforming assets/ divisionsFalling consumer demandCash squeezeWeakened/ distressed competitors

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Ten tips

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Ten tips

Cash is kingGet closer to your bankBe relentless on cost controlRe-visit your strategyGet smarter on taxSanity check – new investmentsKeep an eye out for bargainsRight sizingProtect your personal wealthAlign performances and rewards

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Cash management

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Cash management

Servicing debt

Investing in growth and efficiency

Delivering returns to shareholders

Covering operating costs

Income

Working

Capital

Cycle

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Cash management

EBITDA

CASH

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Cash management

Cash is kingBusiness complexitiesGlobalisationSupply chainAvailability of cash ??

Working capital efficiencyVital importance

Mastery over cashThorough understanding of how cash moves withinVisibility, control, culture

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Cash management

TriggersRegular cash shortagesLittle or no clarityContinuous call for fundsNo clear plans to improve gearingNo efficient controls

What does cash management mean to you?Annual blitzLimited

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Cash management

Total cash managementMore permanent and sustainable basisEnterprise wide approachOptimising monetary value chainsStrengthens internal financing resourcesEnhance capital efficiencyBeyond

Order to cashPurchase to payForecast to fulfill

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Cash management

Visibility & control

Sustainable Cash Management

Crisis Cash Management

An Enterprise-Wide ApproachIt’s not just about finance or working capital

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Cash management

Gain visibility and control of cash flows

Make sustainable working capital improvements

Go beyond working capital

Incorporate cash within the strategic decision-making process

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Cash management

StrategyProduct

Supply

Customers and market

Other CashTreasury

CAPEX

Tax and others

Working CapitalPurchase to pay

Forecast to deliver

Order to cash

Visibility & ControlEstablish visibility

Organisation

Capability

Challenging the strategic parameters and decisions that drive structural working capital

Releasing trapped cash and cleansing the balance sheet to enhance cash generation

Challenging operating cash cycles and the impact of policies, procedures, people and systems on cash performance

The foundations of sustainable cash flow improvements

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Cash management

Shorter term

Timescale

Longer term

Higher commercial risk

Rationalise suppliers

Quick wins

Change in controls

Cultural

change

Stock complexity

Revise credit controls

Restrict purchases

Manage WIP smarter

Production planning

Finished goods stock

Supply chain

Payment controls

Overdue debts

Strategic business planning

Lower commercial risk

Project appraisal

•Staff incentives

Terms of trade

Customer terms

•Stakeholder managemen

t

Profit improvement

Long term customer

contracts

Cash forecasting

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Cash management

Product

Range complexity

Process, components and variant complexity

Supply

Footprint and network design

Commercial model/sourcing

strategy

Product lifecycle

Customers and markets

Service levels

Offer complexity

Commercial models

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Dealing with debt

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Dealing with debt

Borrowing and capital management strategiesContingency planningPlan for longer lead timesStrengthen existing banking relationshipsMonitor compliance with loan covenantsReduce reliance on short term borrowing

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Strategic management of cost

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Strategic management of cost

“The focus should be making a leaner, more flexible organisation, with cost reduction as the consequence, not necessarily just

the target”

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Strategic management of cost

Operational efficiencySourcingSupply chainCost reduction programs – making it work

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Strategic management of cost

SourcingOffshoringGlobal shares service centres

PitfallsHidden costsErosion of service quality

Making it happenHuge challengeFirm direction and guidance from the topCommitted teamUnderstand the risks that comes along

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Strategic management of cost

Supply chainReduce inventory levelsPurchasing cataloguesOutsourcing business processes

PitfallsShort term gainsProjects go no where and gets repeated in varying form

Making it happenThink less about one off projectsStrengthen relationships across supply chainCreate sustainable competitive advantageNot simplificationMastering complexityMore nimble than the competition

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Strategic management of cost

Cost reduction programs OutsourcingTax efficient supply chainShared services platformsCross functional collaboration

Changing behaviours“Cost reduction programs don’t reduce costs…..………people do”

Getting people to assume personal responsibility for cost management is difficult

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Strategic management of cost

Looking afterThe

survivors

A dignified Transition

plan

Alignment of People

processes

Effectivecommunication

Strong leadership

CHANGEMANAGEMENT

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Strategic management of cost

Strategic cost management generates more SavingsQuicklySustainable

“A diet helps you lose weight for a while: a lifestyle change makes you healthy”

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Positioning for the recovery

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Presenter’s contact details

Martin Wong

KPMG Advisory Services Pte Ltd

+65 6213 2467

martinwong@kpmg.com.sg

www.kpmg.com.sg

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