3. Current Situation at AI
Manufacturing industries hit hard by curtailed client
spending during the economic downturn – AI’s target
markets are now poised to rebound
AI has growth target of $500M in revenues by 2015
Large number of operational and production issues
hurting quality and customer perception of AI
AI’s hard-earned reputation and product leadership
strategic positioning is at risk!
3
11. The Critical Questions
How does AI:
Grow to achieve its sales target;
Fix quality issues;
Add scale to its mining business;
Avoid erosion of its competitive advantage and stay
competitive in the long-term?
11
13. KAM’s Evaluation Criteria
Strength
Consistent with mission/vision and strategic
positioning. Aids materially in achievement of
strategic goals.
Aligned with stakeholder preferences (or
compelling reasons to persuade otherwise).
High NPV, Low payback period, CF generation.
Key risks can be mitigated. Downside can be
compensated without creating additional risk.
Leverages long-term macro growth trends.
Adds to AI’s LT ability to be competitive.
13
14. KAM Recommendations
Evaluation Criteria
Peru
Assembly
GenSet
Locomotive(
via Joint
Venture)
Acquisition
of TBS
(with extra
R&D)
In House
Powder
Coating
Strategic Fit
Stakeholder
Preferences
Financial Analysis
Risk Profile
Long Term Impact
KAM
Recommendations
NO Yes, Via JV
Yes, with
R&D
YES
14
52. Corporate Culture
52
Issue #1: Lack of an integrative and cohesive Corporate
culture due to “Silo effect”.
Solution:
•More integrated, flexible and responsive organization
•Invest in the human capabilities
•Reinforce “ Quality, Innovation, and reliability are our #1
Priority.
53. Human Resource
53
Issue: Current “Profit Sharing” is not an effective
performance measure.
Solution: Develop Balanced Scorecard that aligns with AI Strategy.
MEASURES
Delivering results today, within each business, while building for the future
Category Objective Measures Target
Sales Growth Net Sales Growth >4%/yearFinancial
Efficient use of Capital Return on Assets AI>10%
Improved Quality &
Reliability
Warranty Claims <2% of Sales
Customer Enhance Customer
reputation
Customer ratings >90% "highly
satisfied"
Improved Data Management Costing accuracy <1% Errors
Internal
Business
Improved Production
efficiency and quality
Net profit margin Divisions >0%,
AI>5%
Strengthened brand and
positioning
Community Awareness >70%
People and
Knowledge Continuous Improvement
practises and training
Training Hours Per
Employee
>2
hrs/yr/employee
56. Corporate Governance
56
Issue #1: More liquidity for the Family-owned AI
shares.
Solution:
• Obtain valuation of the share price.
• Revise Shareholder Agreement.
Issue #3: No Succession Plan is in place.
Solution:
•Introduce a Formal Succession Plan.
•Initiate CEO succession and board transition planning.
•Retain a Third-party HR consulting firm for more
objectivity.
Issue #2: Bribery
Solution:
• Establish Corporate Guidelines.
62. Cash Flow Supports 40% Dividend Payout Ratio
62
Bank Covenant Post-Dividend F2011 F2012 F2013 F2014 F2015
Current Ratio >1.5 1.80 1.92 2.02 2.16 2.33
Return on Asset >10% 12.6% 13.4% 13.8% 13.5% 13.4%
Debt to TNW <2.0 1.52 1.18 0.96 0.80 0.68
D:E Ratio <1.75 1.47 1.15 0.94 0.79 0.67
63. Required and Available Financing
REQUIRED (within 1 year) CDN $(000)s
Joint Venture Investment (+ expenses) $ 5,100
TBS Acquisition (price + expenses + IT integration) $11,100
Powder Coating Equipment, Set-Up, & Training $ 1,815
Working Capital for AEP Division $ 8,000
Working Capital for TBS $ 4,000
f2010 Dividend (paid in full) $10,000
Required Production Capital expenditures $ 8,000
Operational Recommendations $ 5,775
Total Financing Required (within 1 year) $53,790
AVAILABLE CDN $(000)s
Net Cash plus Lines of Credit ($2.5M x 3 + $0.6M) $ 8,100
New Banking Facility (maximum) $50,000
Total Financing Available $58,100
63
Note: Financing
required after 1
year is supported
by CF generated
by AI
Excess Available vs. Required $2,800
Note: Ignores
cash generated
by AI
Take out the grey hexagon in the right corner.
Check the slide numbers, they should be on all the slides. Move the numbers further to the right.
Turn the slide numbers into blue.
Changes for Shanli to make:
Change Orest to “Orest and Brandon”
Graham’s Slide
6/7/11 Request for ShanLi:
These numbers are wrong – AAP is $169, AEP is $128 and ARRP is $104 – table at bottom needs to change to reflect this. Also, table need to be juggled such that AEP is last on the outside. Finally, we can use the same “cut and paste” approach on the pic to have the bars come in with the divisional detail above.
Change ARRP last bullet to just “innovate products”
Have each box and font size be the same
AEP box # 1 just “Custom Products” and scrap entirely box # 4 “Volatile Results” as we have moved this to the backups mnow
Graham’s Slide.
Work for Shanli:
Scale the 3 cylinders to match the f2010 revenues of each division (visually). Change the 1,2,3 to $xxx million in each case where xxx is the f2010 divisional net revenue.
AAP should be bolded (to match the others). Center the division name in each case.
Change points for AAP to: Strong profitability; Steady DM and DL improvements; ARRP to: Improving results; Innovative road-rail products AEP: Custom Engineered Products; Mining business lacks scale; Quality control issues; Volatile results; Inefficient operations. Do not use short forms or periods/bullets.
Animation flow: AAP box and Cylinder and $amt come in first, then each of the AAP sub-points; then same flow for ARRP, then same flow for AEP
Want complex animation scheme here for slide flow to work – specifically (a) all animation as per above (b) all the above “disappear at once” (c)
[Don’t want to do this on multiple slides as it creates flow issues]
Graham’s Slide
Find another picture for “Strength”
Opportunity, Strength, then weaknesses and threats.
GRAHAM’s Slide
GNM notes – do not delete
Highlighted by no succession plans; bribe payments; lack of independence/objectivity at Board;bonus plan that incents ST financial-only division-only behaviour that is at cross-purposes with AI’s strategic positioning
Shanli – Work Items on Slide (i.e. – please make this slide into the following/do these things)!:
On top of Train – “Opportunities”
On top of Mining thing – “Strengths”
On top of Powder – Weaknesses – change powder pic to a rusted machine type of pic
On top of Peru – Threats – Change Macchu Picchu pic to a picture of david vs goliath type thing
Animation sequence:
Top bar (all) first
Bottom bar under strengths (but blank)
Bullets in strengths bar 1 by 1
Bottom bar under weaknesses (but blank)
Bullets in weaknesses bar 1 by 1
Bottom bar under strengths (but blank)
Bullets in strengths bar 1 by 1
Bottom bar under strengths (but blank)
Bullets in strengths bar 1 by 1
Leverage and Mitigate boxes
Graham’s Slide
BIG competitors are like the ocean – small firms must specialize and constantly innovate to survive and succeed
Today: stable core business
Graham’s slide
- That includes staying up to date in production equipment - Deferred CAPEX (&gt;9M behind in AEP alone)
Impact of several different but intertwined operational issues
MUST “catch up” on deferred CAPEX and spend to stay on “leading edge”
Graham’s Slide
Existing business vs industry
Scenarios (same definition) for alternatives considered
[have handy the industry growth rates to support mid-point as consensus industry average growth rate]
Road-transferrable locomotive (road prime mover adapted for rail operation)
Graham’s Slide
Shanli Work
Change Benchmark: 500M to “Strategic Goal: $500M”
Create this same slide with AFTER all recommendations made showing all over $500M – we’ll add that as a good visual backup – ideally do it in stacked bar form so you can see what recommendations added what $$ (in each scenario)
Graham’s Slide
Graham’s Slide
Graham’s Slide
Add the triangle here, side by side with the pie chart.
Change the picture to a crowd.
Put the slogans in a little box on the side bar.
Merge 23 with 22. Put the logos on the top, “small companies must differentiate”
Modular Design
Locomotive as efficient as possible
The engines and the generator sets are in modules
Servicing could be done off of the locomotive (can be removed & replaced in an hour)
Self contain
Noise Pollution
Decrease 30 decimals of noise from each engine
Proven Components
The same compressor and motor set up as you’d see in 80% of the locomotive engines
Ability to shot down - Savings
Efficiency & productivity
Run it with just one engine
Have full traction with low speed or full speed at a low traction
Put in a box “KAM recommends Genset!!”
In-House: (2.5-3yrs); ($12M)
Energy Locomotives: (successful in enviro loco), ($$ problems lead to stall production), (reduce our time to market by half)
All points from slide 31, cut and paste the whole text there.
Less Capital Intensive
EL reputation.
Knowledge sharing &reciprical synergy, replaces “expertise”.
Get rid of the buyout option..(buyout goes in the backup slides)
Make the bars a little bit bigger. Do not say “not so attractive” make it something else.
Animate it to make it come up one at a time.
Merge slide 31 with 32.
Genset locomotive was Developed with 3 guiding principals
Minimize environmental impact
Decrease full (60% improvement) & maintenance costs
Improve the bottom line
Highlight year 2015, other years are not relevant, delete.
How we fill that gap and creating scale efficiency….blah blah.
Need another graph for this slide, rare earth.
Make second and third picture come at the same time.
Update the graph.
Animate it to make it come up one at a time.
Base Business, then we have the JV, then a bar showing the TBS, which takes it all the way to the top.
Fix the fonts, make the circles bigger.
Diane Slides:
Thanks Brandon; Good Morning Board and thank you so much for your time to be here with us;
As Graham has mentioned before, there are number of operational issues that are hurting quality; and need to be fixed to maintain “product leadership” position and reputation;
Now; I will present how to address “operation and IT issues”; and ShanLi will continue the additional issues later;
Diane Slide:
Regarding operation issues:
AI should launch Customer Purchase Assistance Program; By …
Here’s revenue impact. Dollar Impact, show it with the bar graph.
Diane Slide:
Leveraging strong relationship with bank to provide financing to qualified customers;
This would allow AI to reduce consignment sales; increase working capital; and improve revenues by $13.7 million;
For launching Success; In short-term; to meet with bank setting up program; In medium-term, to launch initial program in AAP; and In long-term, to refine program and roll-out to all divisions;
Diane Slide:
Instead of expanding operation into Peru;
AI should expand distribution network into Latin America; By ……
Show the revenue impact (conservative scenario).
Diane Slide:
Leveraging existing strong distribution network and taking advantage of the market growth in this region;
This would allow AI to reduce operational risks; improve revenues (AAP Only) by $6.2 million;
Diane Slide:
AI also should leverage Six Sigma and Just-In-Time Inventory success in AAP; and Review supply chain; By ...
Diane Slide:
Delegating existing success with in AAP to other divisions; and leveraging new IT system to establish centralized purchasing group;
This would allow AI to improve quality, operational efficiencies and profitability;
As Graham has mentioned before, AAP has delivered consistent improvements in direct material and labour, which is indicated in the Graph as blue;
This would allow AI to better inventory control; improve quality, operational efficiencies, and profitability;
As Graham has mentioned before, AAP has delivered consistent improvements in direct material and labour, which is indicated in the Graph as blue;
Diane Slide:
Moreover, AI needs to address AEP performance issues; BY …
Diane Slide:
Upgrading production equipment, establishing “quality teams”, and leveraging existing success in AAP & new IT system; to improve product quality, customer satisfaction and cost management;
Diane Slides:
Regarding IT Issues, AI should launch ERP system; By
Diane Slides:
Leveraging corporate knowledge to support AI to improve quality, decision-making, and the bottom line;
Now, Shanli will continue our presentation ......
Because the company has evolved into 3 divisions, operating on their own, silo’ed effect.
Change the description of the issue, refer back to the report.
The division is set up in such a way
Use profit sharing as an example, short term and it`s based on the divisional performance. There`s no incentive.
Brandon to beef up Mitigation
Reduce warranty and after sales costs
Improve quality and internal control
Do the stack up bars
Need to verify the numbers with Graham.
Graham
Notes: have the 3 image logo on all slides (bottom right) except for the first slide – slides #s on all slides except for the first slide. Slide number – change colour to blue (red doesn’t work) - consider moving it to right of the 3 image logo so it doesn’t go in as far.
GLOBAL – The Verdana font doesn’t look good – move to Arial (need slide consistency here though)
Graham’s Slide
Make a new org chart including the TBS mining in the backup slide.
Show conservative scenario
Click and shows optimistic scenario
Graham to “Drive” Backup Slides once Q&A Period Starts
