The client
Our client on this assignment was a leading international retail chain that had recorded impressive growth over several years, until it posted a USD 14.8M loss, which was an additional USD 6.1M loss to that registered in the previous year. The client was under severe cash constraints, frequently translating to stock outs, strained relationships with suppliers, and unavoidably, a significant loss of market share.
Situation
Coming from a USD 13.9M loss and threatened with closure arising from immense working capital stress, the client's survival was pegged to shareholder injection of over USD 58.1M in working capital, which was critical considering the client had exhausted their borrowing capacity and its share price drastically dropped. This loss of market share was exacerbated by the difficult but necessary decision to close ten loss-making stores.
To stem the retail chain's rapid decline, the client undertook a series of turnaround initiatives, including a successful rights issue that raised USD 13.9M, which was used to reduce the company’s indebtedness to commercial banks, pay arrears owed to suppliers, invest in the refurbishment of promising stores, and to promote the client's brand. The client also appointed a new Chief Executive, a new Head of Strategy and a new Finance Director.
Client requirements
The client needed to put together a comprehensive turnaround strategy, within which the business would pursue its various turnaround initiatives, including, specifically, review of its capital structure, management of working capital, review of employee compensation models, and the management of debt.
Our approach
We conducted detailed due diligence of the business' circumstances, its opportunities for turnaround, and an equally comprehensive risk model projecting a five year period, with low-to-mid risk appetite. We then translated this into a series of Key Performance Indicators (KPIs) around the following, which we isolated as the turnaround's performance drivers.
i. Turnover growth
ii. Profitability
iii. Control of working capital
iv. Rationalisation of stock
v. Employee productivity
vi. Customer satisfaction
To enhance the strategy's safeguards, we also put together a robust performance management process that provided management with daily performance reporting in key performance areas, a weekly performance dashboard for the specific board committees, and a monthly report for the government, since the collapse of this retail chain would have had extensive implications to the local economy.
Significant outcomes
The Over a period of four years, the client steadily recovered and repaid 72% of its total debt, including the USD 58.2M shareholders’ bond, and in the fifth year returned to profitability, posting 11% return on investment.
ARTEMIS Transition Partners
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Turnaround to profitability