ey business resilience: actively adapting to preserve valuefile/e… · revised 2014 corporate...

Business ResilienceActively adapting to preserve value

The 5 big issues

1 2 3 4 5Economic uncertainty Regulatory

scrutinyTechnological innovation

Aggressive capital Market uncertainty

► Economic uncertainty and geopolitical risk in a number of markets

► Political uncertainty and fiscal austerity constraining growth across Europe

► Volatile commodity prices and exchange rates creating a challenging business environment

► Impact of increasing regulation and intervention from regulators and governments

► Revised 2014 Corporate Governance Code requiring companies to form a robust assessment of the risks threatening their business model over an extended period

► Rapidly changing landscape of winners and losers driven by disruptive technology, changing consumer behaviours and habits and globalisation

► A connected economy with multiple information channels means business situations spread quickly and information is difficult to contain

► Shareholder activism is on the rise in Europe, with over $100bn of capital to invest

► Traditional and alternative capital providers have huge amounts of capital ready to invest in high yield opportunities

► Capital is targeting undervalued businesses and capital inefficiency, including excess fixed assets and working capital

► Innovation and new market entrants impacting existing business models

► Customer trends and behaviours continue to drive rapid market transformations

There has never been a greater need for a company to assess its own business resilience

Business resilience

Active management is critical to adapt in a changing environment

Market resilience

► Revenue risks, e.g., customer, product, market, competition and pricing are understood and managed

► Market and trading data regularly used to align customer facing activity

► Clear strategy regarding disruptive technologies

Operational resilience

► Operational risks, e.g., key supplier, input prices, IT and disruptive innovation are understood and managed

► Flexibility in the cost base to be able to react rapidly to change

► Operational capabilities built to deliver business vision, with safeguards against challenges to the operational footprint

Capital resilience

► Flexible long term financing and achievable debt covenants supported by robust cash forecasts

► Strong working capital performance — building cash balances and capital efficiency

► Robust management of legacy liabilities

Businessresilience

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Capital

Operationalresilience

Ada

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Mitigate

Identify

Stakeholder resilience

► A clear vision for the business, supported by market trends and organisational capabilities

► Credible management

► Active engagement and alignment with equity, financial and other stakeholders

What are the warning signs?

Stakeholders

► Absence of clear strategy or significant changes in existing strategy

► Market concerns on credibility of corporate strategy

► Stakeholders disunited

► Sudden or unexplained departure of CEO or CFO

► Threat or emergence of shareholder activism

► Failed IPO or exit

Markets

► Loss of market share, revenue deteriorating or growth rate behind peers

► Over-dependence on major market or customer

► Market price pressure

► Inability to pass on input price changes

► Disruptive technologies, new market entrants or competitor behaviour

► Regulatory change

Operations

► Profit warnings and earnings underperformance versus peers

► Operating cash flow negative or poor cash conversion

► Commodity or other input price risk

► Over-dependence on key supplier or technology

► IT is not effectively integrated and fails to support the business

► Cumbersome organisational structure

Capital

► Risk of, or actual, covenant breach or missed interest payment

► Refinancing required within 24 months

► Excess or deficient working capital

► Core lenders selling debt or debt trading at discount

► Lack of forward visibility re cash or cash targets

► Return on capital employed indicates excess capital

Jon Morris

+ 44 20 7951 9869 [email protected]

Amanda Blackhall O’Sullivan

+ 44 20 7951 7847 [email protected]

Richard Harrison

+44 20 7951 7295 [email protected]

Phil Dunne


Gary Turner


Chris Lowe


Andrew Wollaston


Tom Jack


For related enquiries contact: [email protected]

Key

cont

acts

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