Circumstances :
- A European retail company distributing furniture through 15 companies owned and 80 franchised stores. The company was acquired, in late 2007, by a Private Equity Fund through a leveraged buy out transaction.
- The sudden deteriorating economic environment weakens sales and reduced actual margins. The company was not any more able to meet interests and debts payments related to the leveraged transaction.
- We were asked by the Fund and the company CEO to search for an interim CFO
Assignment objectives :
- Three main objectives were defined for the CFO:
o Provide the company with adequate Key Performance and Treasury Indicators (KPI)
o Devise a 2 year plan in order to identify non profitable and cash consuming stores and products ranges
o Negotiate an updated debt repayment plan with lenders
Management approach
- The interim manager had to cope with a lack of reliable financial information preventing from assessing the actual treasury forecast. He set up a light information pack allowing following, on a weekly basis, for each store, the sales, margins and inventories and comparing them with a forecast. As all furniture was imported from the Far East, without any payments delays, he set up a additional system allowing to know where the merchandises were located.
- He appointed two controllers to refine the forecast of each store on a monthly basis for the coming 24 months. This tool was dedicated to support decision making process about the future of each store and to reduce the financial risk towards franchised stores. 18 stores were closed.
- The CFO organized a weekly “risk committee” where the commercial situation of each store was reviewed, as well as management of receivables and payments of suppliers.
Operational results:
- A monthly business plan, on a monthly basis, was presented to senior and mezzanine lenders and agreed by them. Sales were reduced by 20% during the first 12 months; increasing margins, while working capital requirements decreased by 18%. Repayments for three semesters were postponed.