Transcript Title – Times New Roman 40pt 2nd part – Times New Roman 40pt

A'sharqiyah Young Businessmen Forum
Building the right operational and financial structure
Restructuring Advisory Services
14 December 2011
Contents
•
Introductions
•
What is an operating model / financial structure?
•
Why are they important?
•
Owners and managers
•
What is the best model for my business?
•
Sources and types of finance
•
What is restructuring?
•
Why is restructuring sometimes required?
2
Financial Advisory Services
© 2011 Deloitte Corporate Finance Limited. Private and confidential
Introductions
David Stark
Managing Director, Restructuring Advisory Services, Middle East
David joined Deloitte in 1993 and leads Deloitte’s restructuring practice in the
Middle East region.
Over the last 18 years David has gained a broad range of restructuring
experience and taken responsibility for managing a wide range of assignments
specialising in the review of business and financing strategies of medium and
large companies in financial difficulties.
In 2010 David led the teams advising Nakheel and Limitless on their
restructurings.
3
Financial Advisory Services
© 2011 Deloitte Corporate Finance Limited. Private and confidential
What is an operating model / financial structure?
The foundations of a business
The operating model and financial structure of an organisation are the foundation blocks allowing a
business to align its strategic aims with its overall organisational structure, processes, procedures,
relationships and financing to best deliver value to customers
4
Operating Model
“How a business best delivers value to
its customers given overall strategy”
Financial Structure
“How a business is financed
via debt and equity”
Financial Advisory Services
© 2011 Deloitte Corporate Finance Limited. Private and confidential
Why are they important?
Essential first step
Establishing a stable operational and financial base on which to trade which is fully aligned to the
overall strategy is an essential first step of any organisation to allow a business to compete effectively
and efficiently in challenging markets
Adopting an optimal operating model and financial structure will:
• Be the most cost-efficient way of achieving strategic aims;
• Help to clarify roles and responsibilities within a business;
• Best prepare the business to anticipate and react to market ‘shocks’;
• Provide competitive advantage;
• Ensure risk is rationally shared between equity and debt holders;
• Help to reduce overall business risk and safeguard the long term future of
the business; and
• Ensure goal congruence across a business with a common vision.
5
Financial Advisory Services
© 2011 Deloitte Corporate Finance Limited. Private and confidential
Owners and managers
Two very different roles
The roles of owners and managers are very different. Where a business is dependent on external
financing, key stakeholders tend to prefer owners to cede management control to an independent
individual. A fit-for-purpose governance framework is essential in all businesses, but particularly
where owners do not perform a management role.
Owners
Managers
‘Guide & Monitor’
‘Run the business’
Equity investors in a business
Remunerated by way of salary
Remunerated through dividends
and appreciation in business value
Governance
Set overall aims of the business
Framework
Monitor management performance
Take on enterprise risk of the
operations of the business
6
Financial Advisory Services
Run the day-to-day operations of
the business
Performance evaluated by
owners according to
achievement of strategic aims
Responsibility to design and
implement an effective control
environment
© 2011 Deloitte Corporate Finance Limited. Private and confidential
What is the best model for my business?
No one size fits all
The optimal operating and financial structure will be dependent on a number of key areas, in
particular, the size of the business today, strategic direction, market regulation and industry specific
customer / supplier requirements that may exist. No two models are likely to be exactly the same
Key variables
•
•
Strategic direction will dictate how a business delivers
greatest value to customers
•
Needs to be constantly re-evaluated
•
Rapid growth requires more sophisticated operating model
•
Greater complexity requires more sophisticated governance
and monitoring and reporting framework
•
To begin trading certain customers / suppliers / industries
may require implementation of specific processes and
procedures
•
Compliance with regulatory requirements essential
•
Anticipating regulatory change, implications and approach
puts a business on the front foot
•
The size and complexity of this requirement will dictate
operational structure and optimal business focus
•
What are the sources of finance currently available and what
would a business need to do to open up other sources of
finance in the future?
Strategy
•
Size and complexity of the business
today and in the future
•
Customer / supplier requirements
•
Industry specific requirements
•
Regulatory framework today and in
the future
•
Capital / working capital investment
requirement
•
Sources of finance available to
business today and in the future
7
Key considerations
Financial Advisory Services
© 2011 Deloitte Corporate Finance Limited. Private and confidential
Sources and types of finance
What financing is available to finance my business and from where?
Financing falls into two main categories: equity and debt. The mix of debt and equity will depend on
the needs of the business and availability of finance. Businesses should be proactive to ensure they
continue to explore necessary actions to open new potential financing options
Sources
Sources
•
Existing owners
•
Banks
•
Family
•
Investment funds
•
Other Individuals
•
•
Investment funds
Government
sponsored startup schemes
•
Individuals
Equity
8
Debt
Types
Types
•
•
Overdrafts
•
Term loans (senior
/ second lien /
mezzanine)
•
Bonds
•
Convertible debt
Equal ranking ‘A’
shares
•
Second ranking ‘B’
shares
•
Preference shares
Financial Advisory Services
© 2011 Deloitte Corporate Finance Limited. Private and confidential
What is restructuring?
Operational vs financial restructuring
Restructuring falls into two broad buckets: operational and financial. If management do not address
financial distress then this is likely to result in pressure on the operations of the business and vice
versa. Early identification of potential challenges is vital to preserve business value
High
Over leveraged
Business in crisis
Low
Financial Distress
The restructuring matrix
Healthy business
Underperforming
Low
High
Operational Distress
9
Financial Advisory Services
© 2011 Deloitte Corporate Finance Limited. Private and confidential
Why is restructuring sometimes required?
Dynamic forces
The only given in dynamic markets is constant change. As a result the overall strategic direction and,
therefore, operating model and financial structure of the business needs to continue to evolve to meet
ever changing needs and to ensure the optimal value can be delivered to customers
Warning signs
•
Business has outgrown existing model and it is no longer the most costefficient execution of strategy
•
Lack of evolution has created a barrier to further growth (e.g.
internationally)
•
Business has become inflexible to market changes
•
Corporate governance and performance visibility inadequate to manage the
business effectively
•
Business is under leveraged (e.g. in relation to competitors)
•
Business is over leveraged
•
Covenant pressure
•
Equity holders constantly required to inject further capital
•
Source of necessary business investment unknown
•
Pronounced liquidity pressure
Operating Model
Financial Structure
10
Financial Advisory Services
© 2011 Deloitte Corporate Finance Limited. Private and confidential
When is restructuring required?
Business lifecycle
Business performance
Restructuring is usually required where the continued underperformance of a once healthy business
leads to a fall in shareholder value and severe and sustained pressure on debt covenants and liquidity
that creates a fundamental uncertainty as to the future of a business
Underperformance not
addressed adequately by
management
Covenants breached,
banks commence
restructuring discussions
Forecast
Underperformance –
identified early
Early action by
management as
underperformance
identified quickly
Underperformance –
identified late
Early warning
signs of
underperformance
Covenant pressure
Cash crisis
Company runs out of
cash. Serious threat of
business failure
Time
Healthy
11
Financial Advisory Services
Underperforming
Stressed
Distressed
Crisis / Insolvent
© 2011 Deloitte Corporate Finance Limited. Private and confidential
Deloitte Corporate Finance Limited is a Company limited by shares, registered in Dubai International Financial Centre with registered number CLO 748 and is authorised and regulated by the Dubai Financial Services
Authority.
A list of members is available for inspection at Al Fattan Currency House, Building 1,Dubai International Financial Centre, the firm’s principal place of business and registered office. Tel: +971 (0) 4 506 4700
Fax: +971 (0) 4 327 3637.
Deloitte Corporate Finance Limited is an affiliate of the UK and Middle East member firms of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of
which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
.
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte
brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 182,000 professionals are committed to becoming the standard of excellence.
Deloitte's professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from cultural diversity. They enjoy an environment
of continuous learning, challenging experiences, and enriching career opportunities. Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in
their communities.
Deloitte Corporate Finance Limited (Regulated by the DFSA)
DIFC | Dubai International Financial Centre
P.O. Box 282056 Dubai
United Arab Emirates
Local offices:
Bin Ghanem Tower
Hamdan Street
P.O. Box 990
Abu Dhabi, UAE
Al Zamil Tower
Government Avenue
P.O. Box 421
Manama, Bahrain
© 2011 Deloitte Corporate Finance Limited. All rights reserved.
Fahad Al-Salem Street
Salhia Complex, Entrance 2
P.O. Box 23049
Safat 13091, Kuwait
Al-Ahli Bank
Sheikh Suhaim bin Hamad St
P.O. Box 431
Doha, Qatar
Al Salam Bldg
Main Olaya Road
P.O. Box 213
Riyadh, Saudi Arabia
Saudi Business Center
Madinah Road
Mail: P.O. Box 442
Jeddah, Saudi Arabia