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Case Study - Engineering Group

Background

Diverse engineering Group which had expanded organically and by multiple acquisitions.  Core disciplines mechanical, electrical, control and instrumentation solutions entailing the provision of the following services:

  • Design
  • Manufacture
  • Construction
  • Installation

Decline of key Oil and Gas market together with loss of key maintenance contracts resulted in trading losses and increasing pressures on cash flows. Absence of segmental P&L reporting and lack of visibility of cash flow forecasting beyond two months rang alarm bells with the bank.

Major Issues

  • Nine payrolls with personnel working across various revenue streams
  • Expenses and costs not sub analysed
  • Multi- site manufacturing
  • Multi - site contracts
  • Unwieldy project costing system
  • Standard “costs” were actually “standard sell prices” – labour and materials
  • Lack of visibility of relative profitability of different trading activities

The Assignment

  • First phase major data analysis exercise
  • Reconciled opening sales order bank and WIP in order to forecast jobs to completion
  • Identified £500k over statement of WIP
  • Produced forecast project summaries for major works
  • Extracted forecasts for new work from Group management
  • Allocated personnel on payrolls to revenue streams and major contracts
  • Substituted actual costs for standard sell prices for labour and materials
  • Modelled a labour capacity planner to allocate costs to forecast contracts
  • Demonstrated actual profitability of the various revenue streams/contracts
  • Produced 21 business segments with individual P&L, BS and CF
  • Produced a restructuring plan with incumbent management
  • Presented the plan to the Bank

The Results

  • Identified the profitable and unprofitable parts of the Group
  • Identified £2m of potential cost savings which are being implemented including the closure of loss making manufacturing operations
  • Group gained three mechanical contracts during the process worth £7m
  • Group returned to profitability
  • Cash flow improved
  • Bank agreed to support the company through the restructuring
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