We are an Asia-based corporate financial services firm with a focus on emerging markets.
Interim CFO Case Study:
Construction Materials Turnaround
Site
Construction materials factory | 250-person company specializing in fabrication of decorative stone, with Jiangsu-based factory, remote warehouses in 4 Chinese cities and sales offices in 12 Chinese cities.
Duration
3 years | April 2012 – February 2015.
Background
After a period of disappointing results and on the backdrop of poor accountability, the owners (a European family office) decided to divest the company rather than go through the pain of a turnaround.
Mandate
Top priority was placed on stabilization of the company and preparation for divestiture, especially avoidance of the need for further capital injections. ECFO's mandate extended to assertion of control over cash and other assets, liaising with owners' representatives, support the sale effort, upgrading the finance team and pursuing other incremental improvements as possible.
Achievements
ECFO put in place a comprehensive system of controls, most notably over bank accounts and inventory, ensuring that these most liquid of assets could only be directed towards strategic goals. Over the extended preparation for divestiture and divestiture effort, ECFO improved financial health and solvency, allowing the company to avoid additional capital injections. Significant highlights included:
Restructuring of over RMB 30m in revolving debt according to a sustainable rollover schedule resolved an existential threat to the company.
Implementation from scratch of a real-time barcoded inventory management system, tracking location and usage of over 100,000 unique units and institution of a yearly physical inventory count allowed the company to establish control over RMB 60 million of inventory which had been previously managed in disparate Excel files.
Enforcement of disciplined purchasing resulted in a reduction of excess inventory, which reversed an inventory-building trend and freed up over RMB 6m in cash.
Introduction of accountability and cash controls for petty cash in subsidiaries and subordination of all bank accounts to the finance department allowed the company to be aware of and manage all of its cash and saved over RMB 2m in interest in addition to the benefits inherent in basic cash control.
Institution of weekly cash budgeting, cash monitoring and cash controls allowed the finance department to create a sense of urgency in the company in regard to cash flow.
Introduction of full daily reconciliation of cash collections to shipments closed a dangerous gap in controls.
Use of a cash-flow review framework for all major projects reduced exposure to bad and overdue receivables, freeing up over RMB 1m of cash, reducing overall age of accounts receivable and reversing a trend towards worsening payment terms that had bled RMB 7m from the company over the previous two years without a significant increase in sales.
Development of financial department infrastructure for support of true project costing (to replace the average costing method used by the company) corrected misconceptions about costs and allowed the company to be more competitive in its wholesale pricing and project bidding.
Development of infrastructure for cost center accounting increased accountability on the part of sales people and branch managers and underpinned cost-cutting efforts, reversing a trend to increasing expenses.
Restructured the finance team and moved it to a cash-flow and management accounting orientation. Created and empowered the controller role. Reduced overall finance team fixed salary costs by 30%.
The last quarter for which IFRS financial statements are available (Q3 2014) was positive for both EBITDA and operating cash flow – the first quarter ever in company history for either.