McGrathNicol Advisory - Our Perspectives
have been active in helping Boards, CEO’s and senior management through
challenging and unusual issues during 2012.”
global economic conditions deteriorated and became increasingly fragile.
Markets exhibited greater volatility as news of world events was digested, with
the markets quick to look for bad news in every development.
prospect that Europe may see off the immediate crisis, risks still remain.
There is recognition that even a good outcome will mean subdued European growth
(or negative growth) for a considerable period.
clients, like others in the business world, the European debt crisis and its
practical implications continue to weigh on the minds of Directors and senior
executives. They recognise that world markets are likely to remain volatile,
with low growth and tighter credit markets. Furthermore, the European crisis is
not the only issue for Australian business, other contributors to uncertainty
we have discussed with Directors and senior executives include:
the structural changes in our economy, with the
shift to mining related industries and the decline in manufacturing and retail;
the high Australian dollar;
implementation of the carbon tax; and
the outlook for our major trading partners,
have been compounded by increased regulatory scrutiny, with ASIC showing an
increased propensity to investigate disclosure related issues. Of course there
was the Centro case, which has refocussed Directors’ attention on their
and senior executives seek to manage their businesses in this environment, our
team has been assisting clients on a variety of challenges. There appear to be
two reasons why our help is valued by clients:
Directors are seeking an independent view. In this
uncertain environment, Directors value the fact that we can provide advice
unencumbered by any preconceptions or relationships.
Senior management and executives that we work with
value our hands on approach to implementation. Rather than simply providing
advice and recommendations, we work alongside management to implement
A snapshot of
some of the key themes, our work and issues raised by Directors, follows in
- risk management and delivering on strategy
Board members, particularly independent Directors,
increasingly sought independent advice to ensure there were appropriate governance,
risk management policies and reporting mechanisms in place. This work not only
helped Boards to manage risk and meet their continuous disclosure obligations
(the usual scope of governance advice), but also to utilise the governance
structure to improve the Board’s ability to deliver on strategy and
respond in a fast changing environment.
Perhaps as a result of the Centro case, we are
seeing Boards seek our independent view on matters where they would have
previously been satisfied with internal advice, or advice from their auditors.
We recently provided the Board of a listed corporate, with an independent view
on a complex valuation approach to a significant asset. The value of the asset
in question was of such importance to the company, that a change to the
valuation methodology would likely have triggered a disclosure matter.
We have also assisted the Board and senior
management of a large listed corporate to understand the full extent of
unexpected performance issues which arose in its operating subsidiaries.
fundamentals - focussing on what matters
Boards and senior executives are focussing on the
quality of the information that they are receiving. Increasingly, better run
Boards and senior executives are seeking reports from management that are
clear, concise, relevant and within a timeframe that allows the Board to
consider and take action. Rather than reports on historical performance of the
business, Boards are looking to management for analysis and for focus on
critical business issues.
We have seen a high level of interest from both
Boards and executives in our “Dashboard” style reporting approach,
involving identifying the key business issues and developing reporting methods
and practices to assist with delivery of the business plan.
growth opportunities - cash is still king
With lower economic growth, executives and senior
management are increasingly looking to internal improvement opportunities. We
have experienced high levels of interest in our work in cash and working
capital management, and cost optimisation as Boards look to maintain growth in
Earnings Per Share (in a difficult environment).
We have conducted working capital reviews to assist
management to identify potential sources of cash and develop procedures and
policies to optimise the working capital cycle. Some of this focus by
management is clearly a response to the lower market growth opportunities they
We have assisted one of our clients operating a
contracting business to free up over $100 million of cash from working capital.
to expectations of tighter credit
Senior executives and their Boards are recognising
the need to be well prepared to refinance their maturing debt or in preparation
for a contemplated major transaction. They are making sure that relationships
are maintained with a range of financiers and are tightening their core
operations and tidying balance sheets well in advance of any need to approach
the capital markets.
We assisted a large, listed, well run and well
capitalised business to identify and articulate the relationship between cash
and profit – in a business that involved complex profit and loss
accounting. Management and the Board wanted to make sure that they could
demonstrate that they had their finger on the pulse of all aspects of the
Even in this uncertain environment, acquisitions
are still being made, but management and Directors are under greater pressure to
ensure that the acquisition is seamless and quickly integrated. We have been
called on to assist in the project management and post-merger integration of
complex businesses, integrating the reporting and ensuring day one processes
are well planned and executed. Companies rely on our experience in taking
control of businesses in a diverse range of industries.
environment will continue to present challenges for Boards and management in
There is every reason to expect Boards and senior
executives will continue to face a variety of challenges throughout 2012 and
uncertain economic direction;
structural change in the Australian economy;
sector specific issues, particularly in retail and
manufacturing (with knock on impacts on property);
tighter credit markets;
cautious equity markets;
increased regulation; and
With a continued focus on economic challenges, risk
and regulation, we expect that 2012 will see our ongoing involvement in
providing Boards, CEO’s and senior management with independent advice
with the following themes:
governance – providing Boards with independent advice on the effectiveness
of governance processes, risk management, disclosure and help to improve
working capital management – working with management to increase cashflow and free up cash. This is achieved by implementing
practical and effective procedures to forecast, track, save and generate cash
to leave the business with tools to sustain the improvement.
reporting – providing support to Boards and senior management in designing
and implementing concise and effective reporting tools to assist in the quick
identification of trends and issues.
Transaction enhancement –
providing support to management in buying or selling a business or asset. Our
assistance will include pre-transaction performance improvement, due diligence,
project management including post acquisition integration and value
business reviews – we work with Boards, CEO’s and
CFO’s to independently test business and strategic plans, forecasts, capex plans and funding plans.