Performance Case Study
COST REDUCTION AND CASHFLOW MANAGEMENT
The Lafarge Boral Gypsum Asia joint venture initiated in 2000 combined plasterboard operations of ASX listed company Boral Limited and French listed company Lafarge SA. The business had plasterboard manufacturing operations in six countries in Asia and supplied wall and ceiling solutions across the region.
During the 2nd half of 2008 one of the key business challenges was the extent and duration of the GFC in the Asian region.
Continued growth was forecast earlier that year, however due to the environment at the time it was clear business forecasts would not be met. With reduced profits and cash flow, a comprehensive program to influence all areas of the business was required. Debt facilities, mostly short term and uncommitted from western institutions badly impacted by the GFC were at risk of being recalled and needed to be either renegotiated or replaced.
A revised downside forecast was developed which assumed declines in volumes, lower energy related input costs, a freeze on discretionary spending and reductions in fixed and overhead costs. A conscious decision was made to not reduce selling prices unless absolutely necessary. A program to educate each business on cash and cash flow management, known as “Cash is King”, was developed and rolled out.
Whilst volumes declined slightly, costs fell across the business resulting in real positive margin improvement at both gross profit and EBIT levels. Working capital reduced significantly and over an 18-month period fell by 50% in days terms. Whilst profits fell initially, within the year they were back to the prior period and grew strongly from the 2nd half of 2009 onwards. New term committed debt facilities were negotiated with two international banks.
Rick played a crucial role in developing processes to manage the effects of the uncertain business conditions at that time. He worked closely with each business leader to get their commitment to meet targets and tracked progress closely. The Cash is King program was pivotal to the success of the business. Rick developed and rolled out the program through the finance network. The step change in cash flow and working capital management is still being maintained many years later.
Frederic De Rougemont Chief Executive Officer Lafarge Boral Gypsum Joiint Venture