2. Content
• The Purpose of The Diagnostic Review Options assessment
• SWOT Analysis.
• Causes of distress - internal and external.
• Overcome the financial crisis.
• Rapidly improve Bottom-line results.
• Stabilization.
• Restructuring Strategy.
• Restructuring Plan.
• New organizational structure.
• Financial Restructuring.
• Restructuring project management.
• Financial projections.
2
3. The Purpose of The Diagnostic Review Options assessment
Due Diligence and management assessment
• What is the true position of the business from a strategic, operational
and financial perspective?
• Management assessment-degree of leadership alignment, of the
problem/solution?
Yes Short-term Yes Options
Viability assessment assessment
Survivability
• Feasible strategies • Is the business viable in the medium to long term • Turnaround
and actions for to a qualitative basis? • Other options:
short-term survival? • Feasible strategies for stabilization, restructuring - Quick fix&
• Can short-term and recovery? disposal
survival be funded? • What does the financial modeling of turnaround - Disposal
impact show in the terms of future cash flow, - Workout
profit and funding needs? - Liquidation
• What is the
support of various
Turnaround viable
stakeholders for
selected options?
5. Causes Of The Distress
Nature and number of causes of distress/decline.
For a restructuring to be viable, the causes of distress or decline should be both identifiable
and reversible.
The most common causes of decline and distress is poor management and poor financial
control as internal causes, and changes in market demand, increased competition and adverse
movements in commodity prices as external causes.
The following main causes of company failure:
• 29% loss of market.
• 22% management failure.
• 10% bad debts.
• 20% lack of working capital.
• Severity of the financial crisis.
A restructuring cannot be viable unless short-term survivability can be ensured.
The nature of the financial crisis dictates which restructuring strategies should be used.
Crisis management, working capital management and financial restructuring should take
precedence over cash consuming profit improvement strategies in the case of a severe cash
crisis.
The balance sheet situation dictates trade-offs between short and longer term application of
strategies - see phasing restructuring strategy.
Insolvency and poor prospects for quickly increasing operational cash flow necessitate a focus
on balance sheet actions such as portfolio divestment, asset reduction and financial
restructuring.
5
7. The UK Operations
Jan - May 11 Jan - May 10 £ Change % Change
Total Expense 446,673.94 502,886.23 (56,212.29) -11.18%
Net Ordinary Income (219,010.11) (269,752.95) 50,742.84 -18.81%
Profit for the Year (219,010.11) (269,752.95) 50,742.84 -18.81%
31 May 11
TOTAL ASSETS LESS CURRENT LIABILITIES 592,485
Long Term Liabilities
2700 · Long Term Liabilities
2010- 2011 Total Exposure
2701 · Subordinate Loan-Delicious Inc 2,707,513
2702 · Intercompany - Liverpool Street (97,050)
5,000,000 25,000,000 2703 · Intercompany - Baker Street 21,100
Total 2700 · Long Term Liabilities 2,631,563
Total Long Term Liabilities 2,631,563
NET ASSETS (2,039,078)
7
8. Rehina
Vertical Integration Risks
Risks
• Costs and expenses associated with increased overhead and capital
expenditures.
• Loss of flexibility resulting from large investments.
• Problems associated with unbalanced capacities along the value chain.
• Additional administrative costs associated with managing and more
complex set of activities.
2010-2011 Total Loss
9,600,000 18,000,000
8
9. Proactive intervention creates and preserves value
COMPANY PERFORMANCE PATTERNS
STEADY GROWTH
Profitability
MATURITY
NEED FOR
RENEWAL
TRANSFORMATION
Performance Improvement
Growth
EBITDA and Cash Flow
Product and Sourcing Strategy Warning Signs Improvement
Market Expansion Revenue and Cost Optimization
Revenue Enhancement Working Capital Improvement
Acquisition support / Interim Assistance
C-Suite and RECOVERY
Stakeholder Recognition
of Major Issues
Turnaround
DYNAMIC GROWTH
Liquidity Management
Control Operational Change / Stability
Transaction Advisory Threshold Stakeholder Management
intervention STABILIZATION
Financial and Operational
Diligence
Strategic Diligence Crisis Management
Insolvency
Risk Stabilization
Immediate Intervention
CRO intervention
ACQUISITION /
START UP
Time
9
10. Seriousness Of The Restructuring Situation
Restoration of corporate value:
Corporate health and decline Corporate Timeline of
levels: renewal financial
level: distress:
Insolvency and
unlikely viability
Time
10
11. Restoring Corporate Value
Successful performance
Effective and timeous response to No ineffective or slow response
industry driver trends and early to industry driver trends or early
warning signals of decline warning signals of decline
Transformation/turnaround Underperformance
Proactive business transformation pre- Effective and
No ineffective or slow response
emptive turnaround timeous response to
to underperformance
underperformance
Transformation/turnaround Crisis
Remedial business transformation/ Turnaround viable , and Turnaround not viable , or no,
turnaround effective and timeous ineffective or slow response to
response to the crisis the crisis
Turnaround Insolvency
Classic turnaround Turnaround viable Turnaround
outside the business not viable
Rescue
Turnaround Failure
Classic turnaround within Liquidation
the business rescue
Framework
11
12. How Can Corporate & Financial Restructuring Create Value
Assets Liabilities
Fix The Business Debt Or Fix The Finances
Operating
Cash
Flow
Equity
12
13. Seriousness Of The Restructuring Situation
•Financial health diagnostics •Emergency management
Either to provide the
•Diagnostic probe •Quick fix & disposal
turnaround support to
•Directional diagnostic review •Turnaround kick-start management, or to drive the
business myself
•Diagnostic review •Turnaround delivery
Sustainable recovery
Return to normality
Recognizing the need
Financial positions
Turnaround
Non Crisis
Situation Plan
assessment refinement recovery
. . . . . . . . . . .X. . . .
Mere recovery
Emergency management
restructuring
Crisis
X
Decline Distress Turnaround Steady state and growth
14. Severity of The Financial Crisis
Cost/price structure
The income statement dictates whether the short-term focus should be on cost
reduction and/or revenue enhancement (repricing and/or volume generation).
A rapid improvement in one or more of these is normally required for a
restructuring to be viable.
Stakeholder attitudes
Stakeholder attitudes determine the political and emotional acceptability of
various restructuring strategies.
Stakeholder support need to be retained or developed for a restructuring to
succeed.
The various sets of stakeholders differ in understanding, confidence, objectives,
bargaining power and ability to influence the outcome. They often have conflicting
objectives.
14
15. Severity of The Financial Crisis
Internal constraints
Unlike the entrepreneur starting a new venture, a turnaround is not a greenfield
situation.
The Restructuring Strategy may be constrained by the company's historical strategy
and its present internal structure and operations.
Typical internal constraints are the heritage of products, customers, assets,
resources, know-how, politics, and contractual obligations.
Particular attention must be paid to identifying essential contracts, contracts with
onerous conditions, assets encumbered and contingent liabilities.
Industry characteristics
Industry profitability and potential for developing a competitive advantage are
dictated by Porter's 5 forces.
Can unfavorable industry characteristics be overcome?
Market size and growth rate, intensity of rivalry amongst existing competitors,
buying power of buyers and suppliers, and threat of new entry and substitution may
necessitate a new business model, or a restructuring strategy based on strategic
repositioning.
15
16. Viability Analysis
Viability
Analysis
Stabilize company
information
people cash
Expenses
Restructure company Receivables Develop business plan
Liability Payables
Marketing
And equity Inventory
Costs Control
Assets Evaluate Forecast
operations`
Reorganize Monitor
Redeployment Replace Contract Efficiency
sale capacity
profitability
Implementation
16
17. Timeline of Financial Distress
Underperforming Financially Troubled
Not in “financial In “financial distress” In “financial distress”
distress” but not economically but not economically
viable viable
Management-led Informal creditor Liquidation
Business rescue
correction workout
Failure
Highest High success Low success
success rate rate rate
Healthy company Wind-up
Informal process Formal legal process
Low cost High cost
High success rate High failure rate
High directors and Low directors and
management power management power
18. Turnaround management model
Restructuring recovery
• The recovery stage involves the embedding and monitoring of the restructuring
plan devised during restructuring plan refinement and implemented during
restructuring.
Restructuring recovery is characterized by
• An increased emphasis on profits in addition to the earlier emphasis on cash
flow.
• Operational efficiency improvements.
• Building the organization.
• Typically, this is when the restructuring leader passes on the baton to someone
new to head the stabilized and restructured company as it returns to normal.
• The restructuring is completed when the company has returned to normal on a
sustainable basis.
• Restructuring management may take 18 months to 3 years from the start of
emergency management.
18
20. Rapid Improvement Program
Revenue and Margin Enhancement:
– Merchandise mix
– Customer / Product profitability
– Pricing strategies
– Marketing and sales productivity Revenue
– Service / adjacent revenue opportunities
Direct Cost Reduction:
– Labor productivity
– Manufacturing / retail footprint EBITDA
– Sourcing / outsourcing opportunities
– Logistics network efficiency and warehousing
– Supply chain management
Overhead Cost Reduction:
Costs
– G&A / overhead spend
– Org. effectiveness / efficiency
– IT infrastructure ROCE
– Indirect materials and services sourcing
Working Capital Improvement:
– Accounts Receivable
– Accounts Payable
– Inventory
– Complexity Assets / Capital
– Back-office processes Liabilities Employed
▲ Cash Management
– Stabilization / liquidity management
Cash Focus
20
21. Stabilization
Developing a refined business case for raising finance (see funding the distressed company).
Stabilization is further achieved by reintroducing predictability to the operations by setting
performance targets, establishing information systems, and tracking progress.
Stabilization requires a rather autocratic leadership style to impose discipline and
conformance to new systems and controls.
Internal stakeholders affected by or who can influence cash management and other
emergency initiatives need to understand the new priorities, new procedures and what is
expected of them.
External stakeholders need to see that their interests are being preserved
Stakeholder support is addressed by demonstrating control, and ensuring that promises are
adhered to, especially achievement of short-term objectives and cash flow forecasts.
Discipline is required to handle the complexities of timing, resources required and cost
associated with the various activities constituting the planning and execution of the
restructuring.
Stabilizing the distressed company is both a restructuring strategy component and a
restructuring stage in its own right.
21
22. Turnaround strategy
Restructuring strategy objectives
The overall goal of restructuring strategy is to return an underperforming or distressed
company to normal in terms of acceptable levels of profitability, solvency, liquidity and cash
flow.
Restructuring strategy is described in terms of how the restructuring strategy components of
managing, stabilizing, funding and fixing an underperforming or distressed company are
applied over the natural stages of a restructuring.
To achieve its objectives, restructuring strategy must reverse causes of distress, resolve the
financial crisis, achieve a rapid improvement in financial performance, regain stakeholder
support, and overcome internal constraints and unfavorable industry characteristics.
Restructuring
The restructuring stage involves the implementation of the restructuring plan devised during
restructuring situation assessment, and further improvement during the restructuring plan
refinement stage.
Restructuring takes the form of:
• Leadership restructuring;
• Financial restructuring;
• Strategic, organizational and operational restructuring
22
23. Restructuring strategy components
Managing the restructuring
The enabling components to manage the restructuring's stabilization, funding,
recapitalization and fixing are turnaround leadership, stakeholder management, and
turnaround project management.
Stabilizing the business
The momentum of an underperforming or distressed business is down.
Such a business needs to be stabilized to ensure the short-term future of the business
through cash management, cash generation and cash conservation, demonstrating
control, re-introducing predictability and ensuring legal and fiduciary compliance.
Funding and recapitalization
An underperforming or distressed business invariable needs to be funded and
recapitalized to ensure that it can be fixed.
Fixing the distressed business.
Finally, the underperforming or distressed business needs to be fixed in strategic,
organizational and operational terms.
23
25. The Restructuring strategy
Financial turnaround Sustainable recovery
6
5
4
1
3
1. How did it fall into the hole?
(causes of distress)
2. How deep is the hole? (severity of crisis)
3. How will it get out of the hole?
Our approach (turnaround strategy)
ensures sustainable 4. What does it mean to be out of the hole?
results after getting (short-term Restructuring objectives)
out of the hole 2
5. How will it climb the mountain? (longer-term
Restructuring strategy)
6. How high is the mountain? (vision)
26. Our Restructuring Strategy
• Our strategy is to overcome causes of distress, to achieve a
rapid improvement in financial performance, and to overcome
internal constraints and unfavorable industry characteristics, in
a mix of the following:
• Strategic repositioning
• Reorganization
• Revenue enhancement
• Cutback action (cost and asset reduction)
• In addition to the restructuring strategy, the restructuring plan
provides explicitly for stabilizing the business, funding to
eliminate the financial crisis, and for stakeholder management.
26
27. Short-Term Survivability
Determining short-term survivability
1. Short-term cash flow forecast
The first step is forecasting cash flow for a 13 week horizon reflecting aggressive but
realistic working capital requirements that can be achieved employing emergency
management actions.
2. Should no financing be required, restructuring viability is not affected by short-term
funding needs.
3. Should financing be required, a short-term funding survival plan is required.
Short-term funding survival plan
• What cash can be generated internally by means of asset reduction
• What funding gap will this leave and for how long
• What need to be funded from external sources
• What is the business able and willing to offer e.g. security
If short-term funding cannot be secured, the restructuring is not viable.
Viability factors
Restructuring viability depends on a number of factors
• Can causes of distress/decline be reversed
• Can the financial crisis be eliminated
• Can a rapid improvement in profit margins be achieved
• Can favorable stakeholder attitudes be developed
• Can internal constraints on restructuring potential be overcome
• Can unfavorable industry characteristics be overcome
27
29. Primary value chain
Demand fulfillment Demand generation
Inbound logistics Operations Marketing and Service
Outbound logistics
sales
• Call-off to suppliers • Conversion • Channels to market
• Materials handling • Assembly • Warehousing • Product, pricing,
• • Installation
• Warehousing • Packaging Order processing • advertising and promotion
• • Repair
• Inventory control • maintenance Picking distribution
• Shipment • Training
• Customer value, cost
• Delivery to consumer,
convenience ,
communication
• Sales force
effectiveness
Support activities:
Technological
Procurement Human resources infrastructure
development
• Purchasing raw • Process design
• Recruiting, hiring, • General management
material, supplies, • Product design
training, developing and • Finance
fixed assets. • R&D
compensating all • Accounting
personal. • IT
29
30. Delivering profitable Top Line Growth
Revenue Enhancement :
Increase revenues by identifying top line growth opportunities.
Increase revenues while reducing costs by improving the quality of revenue.
Reduce costs by maximizing the efficiency of revenue support functions (e.g.
marketing).
L.E.
Revenues Incremental Profit Opportunity:
Revenue Growth
Profit Opportunity Current Profitability
Incremental Profit Opportunity:
Cost Reduction
Costs
Today Time Future
30
31. Performance Improvement
Liquidity
Cash
Improving cash management
Unlock cash
Meet debt covenants
▲ Review accuracy of near- and mid-
Operational Performance term forecasting of cash.
Revenue optimisation
▲ Revisit cash management practices
P&L
Align Capacity to demand
optimisation with focus on releasing “lazy” cash.
Reduce non- operational
▲ Treasury Management Systems.
costs
▲ Focus on relationship management
with suppliers and customers
Revenue Cost Utilization including negotiations of payment
terms.
▲ Identify potential asset disposals.
B/S Restructuring
B/S
Debt refinancing
Disposal / Carve-out of non-
core assets
31
32. Restructuring Plan Assumptions
Restructuring Plan Assumptions
Shut down The UK Operations write-off amount 25,000,000
Converting Rehina to a Cost Center August 2011 write- off amount 13,000,000
Suppliers Overdue Starting Sept. 2011 {9m total) 9,000,000
Redundancy & Downsize Cost 1st year 717,000
Cost of Sales reduction { waste, Menu Re-eng & Rehina mark up } 6%
Salaries & Overhead Reduction 842,994
CIB MTL Starting Sep. 20/2011 Intrest rate 11.75 + Hybrid 1.5% 8 Mnths GP 10,000,000
TBS 51% from Net Profit Recognition in our P&L 51%
Store Closures 8 Stores savings in NOC 4%
Home Delivery Service launch sales Increase 2%
Net Profit to reach 15%
Debit to Equity Swap to improve the capital structure & lowering the finanical leverage 16,000,000
Asset Disposal & Rehina & Shooting Club Store 12,000,000
Intiatives During the Dianostic Phase 1,080,600
Loan repayment 17,110,192
Outsourcing Products to lower the operational leverage 0
Impact on NCF
Initiatives During The Diagnostic Phase
End of service Ali Mubarark 160,000
Outsourcing Admin & Legal 100,000
Tax differences 300,000
UK operations injection 76,000
Consultation Fees 444,600
Total 1,080,600
32
33. Restructuring Plan Assumptions
Balance Date: 1/10/2011
Creditor Information Table
Creditor Balance Rate Payment Custom
MTL 2 HSBC 8,400,000 13.00% 400,000 2
NSCGB 2,153,500 9.81% 7,500 5
Overdue to Supp 9,881,278 0.00% 450,000 1
Other creditors 5,316,895 1.00% 70,000 4
MTL 3 CIB 8,867,500 13.25% 100,000 3
34,619,173 1,027,500
Month
Creditors in Original Total Interest Months to Paid
Chosen Order Balance Paid Pay Off Off
MTL 3 CIB 8,867,500 2,326,870 30 Apr-14
MTL 2 HSBC 8,400,000 1,182,329 24 Oct-13
NSCGB 2,153,500 602,933 33 Jul-14
Other creditors 5,316,895 120739.73 36 Oct-14
Overdue to Supp 9,881,278 0 22 Aug-13
Total Interest
Paid: 1,239,797
Unnecessary Cash Out 2010-2011
2010-2011 UK 5,659,386
2010 Delicious Prop 1,300,000
2011 Rehina 3,075,313
Total 10,034,699
UK Balance Sheet May 2011
Long Term Liabilities 31 May 2011
2700 · Long Term Liabilities
2702 · Intercompany - Liverpool Street (97,050.26) -926829.983
2703 · Intercompany - Baker Street (21,100.00) -201,505
-1,128,335
33
35. Proposed Org. Structure
Pre- Restructuring Org. Structure Salaries 1,080,604
Post -Restructuring Org. Structure Salaries 842,994
Total Monthly Savings 237,610
Total
Savings
General Annually 2,134,320
Manager Total Overhead Cut 63
Total Redudancy Cost 717,000
Finance &
HR&OD Marketing & Develop. &
QA Admin
Supply Chain
Franchise IT
Construction
Area Manager Home Delivery Manager
Operations
Ordering Receiving Assembling Displaying Stores/Selling Customer
Manager
Asst. Production Manager In satellite
Production
Ordering Receiving Production Delivering Stores/ Selling Customer
Manager
Production Cilantro Production TBS
Rehina Ordering Receiving Production Delivering Stores/Selling Customer
35
36. Financial Restructuring
• Financial restructuring is part of restructuring management, but the mistake is often made to merely
restructure a distressed company.
• To turn a distressed company around, it needs implementation of a restructuring strategy to fix the
distressed company.
• The fixing component is often neglected in restructuring plans approved by lenders.
The distressed company under restructuring management typically faces any of a number of financial
issues:
• It requires funding to meet both its short-term commitments during emergency management, and to
cover turnaround restructuring costs.
• This may include:
Working capital for trade creditor and interest payments.
Restructuring costs such as professional fees, closure and retrenchment costs.
Investment in new technology and systems.
• The balance sheet has to be restored to solvency.
• Excessive gearing needs to be corrected.
A successful restructuring program may often affect financial results on the operating profit or EBITDA
level only.
This requires the capital structure to be aligned with the projected level of operating profit and cash flow
to avoid interest charges keeping the company in the red.
• The debt structure represents excessive short-term and insufficient long-term debt.
Refinancing therefore involves not only the injection of new funds in the form of loan or equity finance, but
also changing the existing capital structure .
36
37. Debt Restructuring Analysis
Fix Leverage
Leverage Up Leverage Down
Optimize Leverage Recap LBO Restructure Negotiate
Analyze Debt Analyze Debt Analyze Debt
Investment No Investments
Issue Debt Service Service Service
Opportunities Opportunities
Capacity Capacity Capacity
Finance With Issue Debt or Force Negotiate
Debt Share Buyback Allocation Allocation
37
38. Funding and Financial restructuring
Internal funding:
• Working capital reduction
• Asset realization
Existing funders:
• Re-term
• Standstill agreements and moratoria
• Debt/equity swaps
• Creditor agreements
New funders:
• Sale & leaseback
• Securities income streams
• Private equity
• Business rescue fund
38
40. Getting the Financing Right
The Proportion of Equity & Debt
Assets Liabilities
• Achieve lowest weighted
average cost of capital
• May also affect the business
Debt side
Equity
40
41. Minimize the Cost of Capital by Changing the Financial Mix
• Add debt, reduce equity.
• See effect of added debt on interest costs.
• See effect of leverage on cost of equity.
• Net effect will determine whether the WACC decreases if the
firm takes on more or less debt.
41
42. Debt Restructuring
Strategy:Avalanche (Highest Interest First)
Total Interest: 4,232,871
Balance Date: 10/1/2011
Creditor Information Table
Row Creditor Balance Rate Payment Custom
1 MTL 2 HSBC 8,400,000 13.0% 400,000 3
2 NSCGB 2,153,500 9.8% 7,500 5
3 Overdue to Supp 9,881,278 0.0% 450,000 1
4 Other creditors 5,316,895 1.0% 70,000 4
5 MTL 3 CIB 8,867,500 13.3% 100,000 2
Total: 34,619,173 Total: 1,027,500
Monthly
1,100,000
Payment .
Initial
Snowball 72,500
Creditors in Original Total Interest Months to Month Paid
Chosen Order Balance Paid Pay Off Off
MTL 3 CIB 8,867,500 2,326,870 30 Apr-14
MTL 2 HSBC 8,400,000 1,182,329 24 Oct-13
NSCGB 2,153,500 602,933 33 Jul-14
Other creditors 5,316,895 120,740 36 Oct-14
Overdue to Supp 9,881,278 0 22 Aug-13
Total Interest Paid: 4,232,871(Lower is Better)
42
44. Restructuring & Turnaround implementation
Stabilization/ Restructuring
Restructuring Recovery
Restructuring components: Plan refinement
Performance Coaching and
Leadership Take charge
management mentoring
Manage Inform, involve, obtain Agreements, Communicating
the Stakeholder management Views, negations Involvement, feedback progress
process
Of emergency
Project management Of restructuring phase Of recovery phase
Management phase
Stabilize Crisis stabilization Crisis stabilization
Financial analysis, cash Cash flow and debt
Fund Refinancing Financial restructuring
flow, funding repayment monitoring
Strategic, organizational Detailed analysis and Embedding &
Fix Implementation
and operational fixing planning monitoring
Restructuring implementation
Emergency management/ Quick fix & disposal
Turnaround kick-start
Turnaround delivery
Support vs. management
Turnaround support providing support management
Options:
Turnaround management managing the business
45. Value added vs. Turnaround Resources Required
100%
Visibility
assessment and
.............................
.............................
turnaround Turnaround value added
kick-start
Turnaround embedding, monitoring, coaching, mentoring
Turnaround resources required
0%
4,5 months 12 months 24 months
Turnaround Duration
46. Project management Program
Weeks 1 - 6 Weeks 7- 20
• Financial
• Leadership
• Strategy Analysis &
• Organizational
• Sales and marketing
designs
• Supply chain Orientation, Implementation phase 1
• Project management onboarding,
establishing war room
• Communication and
mobilization Analysis and
Work
Joint Executive
• Project review assessment stream
teams stream
meetings charters
Designing business group
• Management review restructuring plan
meetings
War room, management of work elements, recourses and scheduling, benefits tracking.
Stakeholder management – inform, involve, achieve ownership and buy-in.
46
47. Deliverables & TimeLine Implementation Plan Phase I
Proposed Work Stream Deliverable Responsibility Estimated Time
Fast Track Old Collections • Weekly progress reports on Taha/Ahmed /Mohamed 100% for first 2 weeks
collection 25% for next 11
• Detailed Status report on weeks
negotiations with big accounts
Restructure / Exit UK • Restructuring / Exit Plan Nadine/Ahmed 2 weeks
Operations • Support with Exit, if separately
requested by A&M
Improve Working Capital in • 13 week cash flow forecast Ahmed Abd El Azem 3 weeks
Ongoing Business • Develop Operational Procedures 5 weeks
related to Working Capital
• Implementation Support Ongoing till 13th week
Shifting Rehina to a • Process Mapping Sarah/Sameh/Amr 10 weeks
Centralized cost centre • Implementation Support On-going
Asset disposal/Downsizing • Cash in -12m Walid/ Ahmed/Nadine 15 weeks
• Overhead cost reduction 22%
47
49. Project Rescue TimeLine
July September November January March May July
Start Revenue Finish
Fri 7/1/11 Fri 7/1/11 - Thu 12/15/11 Thu 7/5/12
Operations Cost Reduction
Fri 7/1/11 - Thu 5/10/12
Overhead Reduction
Fri 7/1/11 - Thu 12/29/11
Working Capital / Asset Efficiency
Fri 7/1/11 - Thu 7/5/12
Sun 7/3/11
49
50. Adjusted Book Value
Adjusted Book Value 2011
Adjustments
Long Term Assets
Fixed Assets (Net) 33,086,002.84 9,883,994 23,202,009.00
Projects Under Construction 1,028,799.00 1,002,799 26,000.00
Deferred Capital Loss 15,289.00 15,289.00
Subordinated Supportive Loan To Affiliates 25,045,071.00 25,045,071 -
Deferred Taxes Assets 79,157.00 79,157.00
Investments In Affiliates 3,837,062.00 1,185,000 2,652,062.00
Fixed assets Held By Third Parties 206,515.00 206,515.00
Total long Term Assets 63,297,895.84 26,181,032.00
Current Assets
Inventory 5,040,693.92 787,699 4,252,995.00
Accounts Receivables (Net) 2,107,950.00 715,407 1,392,543.00
Debit Balances Due From Related Parties 22,285,941.70 20,465,515 1,820,426.70
Other Debit Balances 16,384,360.28 4,135,812 12,248,548.00
Cash And Bank Balances 1,739,390.26 (9,583,374) 11,322,764.00
Total Current Assets 47,558,336.16 31,037,276.70
Current Liabilities
Bank Overdraft 8,810,563.00 3,290,169 5,520,393.70
Current Portion Of M.T.L 2,400,000.00 2,400,000.00
Accounts And Notes Payables 15,353,113.01 (1,170,328) 16,523,441.00
Other Credit Balances 20,102,078.31 11,829,713 8,272,365.00
Current Liabilities 48,147,754.32 32,716,199.70
Net Working Capital 589,418.15- 1,089,505 1,678,923.00-
Total Investment 62,708,477.69 24,502,109.00
Long Term Liabilities
Medium Term Loan 61,559,760.17 35,959,760 25,600,000.00
Long Term Liabilities Due To Related Parties 15,452,520.00 15,452,520 -
Deferred Tax Liabilities 1,342,401.00 1,342,401.00
Total Long Term Liabilities 78,354,681.17 26,942,401.00
Stockholders Equity - -
Paid Up Capital 16,000,009.55 (13,999,990) 30,000,000.00
Legal Reserve 496,354.00 78,798 417,556.00
Retained Earnings 22,025,659.81- (31,530,718) 9,505,058.00
Net Profit For The Period 12,476,229.22- 32,245,999 44,722,228.00-
Net Profit From Other Investment 2,359,322.00 2,359,322.00
Total Stockholders Equity 15,646,203.48- 2,440,292.00-
Total Equity 15,646,203.48- 120,089,263 2,440,292.00-
50
51. Adjusted Income Statement
Income Statements
Year 2011 2012 2013 Consolidated
Sales 84,856,234 79,467,449 82,458,961 246,782,644
Cost of Sales 64,464,252 53,506,366 55,228,000 158,631,921
Gross Profit 22,046,679 25,961,083 27,230,961 88,150,723
G&A EXP 16,856,772 6,505,211 6,505,211 29,867,194
Leasing EXP. 2,688,021 1,477,973 455,872 4,621,867
Sales & Marketing EXP 305,328 1,500,000 1,500,000 3,305,328
Capital Loss 38,623,896 38,623,896
Credit Facility Interest 3,004,573 3,889,884 3,889,884 10,784,342
Pre opening & other provisions 30,000 1,472,211 985,000 2,487,211
Adjustments (1,654,697) (6,456,000) (6,456,000) (14,566,697)
Total Operating Expenses 59,853,894 8,389,280 6,879,968 75,123,142
Operating EBITDA -34,802,643 21,461,688 24,240,878 13,027,581
Depreciation and Amortization 7,407,348 6,353,776 6,353,776 20,114,899
EBIT -42,209,990 15,107,912 17,887,102 33,142,480
Operating Income (Loss)- EBIT -45,214,563 11,218,027 13,997,217 -7,087,319
51
52. Pre Restructuring Estimated CASHFLOWS FCFF
PRE-RESTRUCTURING ESTIMATED CASHFLOWS
Base 2012 2013 2014 2015 2016
Growth in Revenue 6.00% 3.00% 3.00% 5.00% 5.00%
Growth in Deprec'n 0.00% 0.00% 0.00% 0.00% 0.00%
Revenues 91,543,079 94,289,371 97,118,053 100,031,594 103,032,542 108,184,169
Operating Expenses
% of Revenues 105.00% 104.00% 98.00% 98.00% 97.00% 97.00%
- Operating Expenses 96,120,233 98,060,946 95,175,691 98,030,962 99,941,566 104,938,644
EBIT (4,577,154) (3,771,575) 1,942,361 2,000,632 3,090,976 3,245,525
Tax Rate 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
EBIT (1-t) (3,661,723) (3,017,260) 1,553,889 1,600,506 2,472,781 2,596,420
+ Depreciation 7,501,864 7,501,864 7,501,864 7,501,864 7,501,864 7,501,864
- Capital Expenditures 1,044,088 1,044,088 1,044,088 1,044,088 1,044,088 1,044,088
- Change in WC 9,000,000 906,276 933,465 961,469 990,313 1,700,037
= FCFF (6,203,947) 2,534,240 7,078,200 7,096,813 7,940,244 7,354,159
Terminal Value (in '17) 102,130,908
Value of Firm 23,195,344
- Value of Debt 126,502,435
Value of Equity -103,307,092
Value of Equity per Share -689
52
53. Pre Restructuring Cost Of Equity & Capital FCFF
PRE-RESTRUCTURIN COSTS OF EQUITY AND CAPITAL
2012 2013 2014 2015 2016
Cost of Equity 13.22% 13.22% 13.22% 13.22% 13.22%
Proportion of Equity -7.00% -7.00% -7.00% -7.00% -7.00%
After-tax Cost of Debt 10.60% 10.60% 10.60% 10.60% 10.60%
Proportion of Debt 107.00% 107.00% 107.00% 107.00% 107.00%
Cost of Capital 10.42% 10.42% 10.42% 10.42% 10.42%
Cumulative WACC 110.42% 121.92% 134.62% 148.64% 164.12%
Present Value 2,295,159 5,805,679 5,271,796 5,341,881 4,480,829
53
54. Pre Restructuring EVA Valuation FCFF
2012 2013 2014 2015 2016 Terminal Year
EBIT (1-t) -3,661,723 -3,017,260 1,553,889 1,600,506 2,472,781 2,596,420 2,674,313
- WACC (CI) 11,547,605 10,969,320 10,393,867 9,821,331 9,251,800 9,251,800
EVA -14,564,865 -9,415,431 -8,793,362 -7,348,550 -6,655,380 -6,655,380
Terminal EVA
PV -13,190,813 -7,722,722 -6,532,060 -4,943,812 -4,055,069
PV of EVA -36,444,475
+ Capital Invested 110,856,232
+ PV of Chg Capital in Yr5 4,522,310 This reconciles the assumptions on stable growth, ROC and Capital Invested
= Firm Value 78,934,066
WACC 10.42% 10.42% 10.42% 10.42% 10.42% 10.42%
ROC -2.72% 1.48% 1.60% 2.62% 2.92% -1.64%
Capital Invested 110,856,232 105,304,732 99,780,421 94,284,114 88,816,651 91,481,150
Calculation of Capital Invested
Initial 110,856,232 110,856,232 105,304,732 99,780,421 94,284,114 88,816,651
+ Net Cap Ex -6,457,776 -6,457,776 -6,457,776 -6,457,776 -6,457,776
+ Chg in WC 906,276 933,465 961,469 990,313 1,700,037
Ending 110,856,232 105,304,732 99,780,421 94,284,114 88,816,651 84,058,912
Cumulated WACC 110.42% 121.92% 134.62% 148.64% 164.12%
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