1. Project financing for an overseas property development
Situation
The company is a reputable property development company and is a subsidiary of a public listed company in Malaysia. As part of its expansion plan to invest overseas, it intends to purchase a piece of land in a neighboring country and develop it into a commercial site. The land purchase and development costs amounted to about RM120 million, have to be funded with foreign currency loan.
Actions / Challenges
Leap Forth was appointed to arrange for a foreign currency financing for this project development. As the loan involved foreign currency, Leap Forth submitted the loan proposal to several offshore banks in Labuan. However, all the offshore banks were not comfortable with the financing of such property development. The rejection letters from the offshore banks were used to obtain approval to source for the financing from local banks.
Result
A leading local bank, which is actively involved in financing Malaysian companies for overseas investments, finally approved the financing. The approved amount was RM80 million equivalent of USD currency. The facility was released in phases, with the first phase to finance the purchase of the land.
2. Developing vision, key indicators and strategic plans
Situation
A mid-sized company has been involved in the retailing of fashion products for the last 20 years. The sales have been increasing since inception but have remained stagnant at about RM35 million a year over the last 3 years. It was a frustrating experience for the owner-management team, which has no professional management skills, to lead the company to the next level.
Actions / Challenges
Leap Forth was engaged as the Corporate Advisor to review the situation, identify the problems and propose viable solutions. A 6-month timeline detailing the scope of work was drawn up, in consultation with the management. The major problems identified are: lack of clear corporate direction, inexperienced staff to operate the growing company and poor cash flow management.
Basing on the problems identified, the following action plans were executed:
• Revised the organization structure with proper segregation of profit and cost centres
• Developed corporate vision & mission, and clearly communicated it to all staff
• Pinched several experienced professional staff to head various departments
• Developed simplified standard operating procedures for all critical functions
• Implemented few key performance indicators at corporate and departmental levels
• Revised compensation plan based on corporate and respective profit centre performance
• Developed business plans ensuring availability of resources to support sales target
• Practiced stringent financial governance and discipline in managing cash flow
Result
Immediate visible results include staff are more motivated and eager to contribute as increment is based on direct performance. Cash flows improved as expenses were reduced due to stringent financial control. It is anticipated that sales will gradually grow once the business plan is fully executed. Management is now more confident in managing and growing the business with the contribution of more experienced professional staff.
3. Restructuring a debt-laden company
Situation
The company is one of the largest designs, trading and printing companies in Malaysia. It has been in this business for the last 15 years. At its peak, sales were about RM330 million a year. However, due to various reasons, sales declined rapidly to only about RM60 million a year. Existing loan from more than 10 local and foreign banks amounted to about RM230 million was eventually defaulted.
Actions / Challenges
The company appointed Leap Forth to restructure the bank borrowings. The given mandate was to negotiate with all the banks on the viable solutions to avoid winding up proceedings. The management’s main objective is to ensure full repayment of all bank loans in due course.
Leap Forth conducted an investigation into the causes of the decline in sales and hence the default. The main causes were due to changes of policy in the awarding of printing contracts, continuous increase in paper price and also the company was slow in adapting to changes in printing technology.
Basing on these findings and the significantly large loan outstanding of RM230 million (compared to the sales of RM60 million), it is agreed that the repayment of the facility is just not financially possible. After several discussions, the management decided to “exit” the business gradually. Meticulous planning and preparation over a period of 2 years were done to maximize returns.
Result
After 2 years (since the first default) of tough negotiations with the banks and other creditors, the company finally “gave up” and closed down. The few remaining assets were sold and distribution was done in accordance to the relevant legislations.
4. Refinancing and improvement of borrowing terms
Situation
The company, involved in the trading of office equipment, felt fortunate to have successfully obtained a term loan from a local bank. However, the bank was charging a relatively high interest rate, demanded high collateral and required guarantee from CGC (Credit Guarantee Corporation). The borrowing terms were not beneficial to the company.
Actions / Challenges
Leap Forth was appointed to review and negotiate the borrowing terms with the bank. Market sounding with other local banks confirmed that the borrowing terms were not in line with the existing lending benchmark. Based on Leap Forth's advice, the company wrote to the bank proposing revised terms and clearly indicated that it will refinance the term loan if the bank refused to accept the proposed terms. After several discussions and meetings with the bank's senior management, the bank refused to accept the revised terms.
Leap Forth prepared a new Loan Proposal, detailing the company's vision, projected profitability and market potential. The Loan Proposal was submitted to several local banks. The company finally decided to accept the offer of one of the new banks and refinanced the term loan.
Result
The new term loan saved the company about 0.5% interest rate per year, reduced the fixed deposit amount used as collateral and removed the CGC guarantee. This improved the liquidity of the company and lowered the effective funding rate.
5. Arranging for buyers to buy-out a supermarket chain
Situation
Started as a one shop mini-market, this company has grown to be a supermarket chain in just less than 7 years. It has 4 branches in different states in Malaysia. All branches occupied several contiguous shop lots fronting busy trunk roads. Due to various reasons, its sales started to decline and its bank loan was about to default. The management decided to sell the company to interested parties.
Actions / Challenges
Leap Forth was appointed to search for interested buyers for the company. However, due to the high selling price of the company, we proposed to sell the branches individually. This will allow existing competitors in the locality to purchase the branches, either to avoid competition or to expand their business there.
The strategy worked well and in less than 3 months, all the branches were sold to different buyers (who are existing players in the locality). The combined amount is higher than the intended selling price of the company.
Result
The shareholders are happy as they managed to maximize their returns. At the same time, they acted timely to sell the branches before it defaulted in its bank loan.
6. Designing costing and management reporting system
Situation
A large company involved in event and project management has been enjoying tremendous growth since inception. The company has been in this industry for more than 8 years. Although sales increased, profit declined rapidly. The management has taken numerous actions including reducing operating expenses, purchased relevant software and other actions. Notwithstanding, the declining profit trend still continues.
Actions / Challenges
Leap Forth was engaged to review the situation, identify the problems and propose suitable solutions. Our review indicated that the company has capable management, clear corporate vision and mission, and it has sufficient experienced professional staff. The main causes were identified as ineffective costing and lack of management reporting system.
Basing on these findings, we designed a simple yet effective costing model to facilitate accurate costing for each event / project. The financial modeling for costing can be used without the need to purchase additional software as it can be used with existing spreadsheet. A new management reporting system was also designed to complement the existing financial accounting reporting system. The management reporting system can track staff performance, profit margin of each event / project and other critical information.
Result
Upon execution of the costing and management reporting system, the benefits are:
• Improved the accuracy of costing for all events / projects
• Increased awareness of profit margin, compared to just increasing sales with low margin
• Enhanced the management reporting system to beyond financial accounting numbers
• Minimised the need to manually preparing monthly performance reports