Risk enabled enterprise performance management(REEPM) & financial strategies for sustainable growth (Focus on M&A as growth driver & Operational levers to enhance enterprise value)

NMIMS University School of Business Management17th march 2016

B. R. JajuChief Financial Officer Diiligent Power (Bhaskar Group)

Business performance & Sustainability Management)

Traditional Way of Managing Business

+No Risk Enabled performance

management & devoid of Financial strategies for

sustainable growth

=Dying Companies

on Steroids

Steroid

• Changing business Dynamics and perspective of Risk enabled enterprise performance management on Global value creation

• New Age CFO role and challenges .Value creation thru key operational drivers and best practices

• Growth strategy with focus on M&A-glaring examples

• Corporate Case Study

• Parting thoughts and take away

Let us take deep dive :

Changing business Dynamics

And

perspective of Risk enabled enterprise performance management

On

Global value creation

3/26/2016

CHANGING BUSINESS ENVIRONMENT & GLOBAL BUSINESS

DYNAMICS

InitiativesInitiatives

M&AChanging Business Models (Consolidation & Outsourcing)

Customer ExpectationRegulatory

Compliances

Business Risks & Security Concerns

Governance &Best Practices

Global

Business Dynamics

GlobalCompetition

IT enabled Processes &

Technology Advancement

How Globally Corporates have destroyed values(Leadership Vires-Mother of Risks)

Arrogance(Pride before fall)

Denial

Complacency

Conflicting InterestsIncomplete /false disclosures

Perpetrated frauds and non compliances

Exceptional Achieve of Past wraps present realitiesNot listening to young IdeasYou are smarter than others

Past Success under regulated monopolyBusiness is dependant on susidy /govt support

Greed Obsession

Justify every financial norms for growth and unearned profitsAchieve growth devoid of business fundamentals

Overleveraging and over trading on equity

Illustrative list of victims of Leadership Vires

Corporate Scandal Jobs Lost Shareholders

wealth lost $ bln)

Enron Created off B/S exposures

to hide debts & losses 4500 80

Xerox Impropriety reports $ 6.5

bln. In revenue (over 5 years) 13600 3

Worldcom Hidden expenses ($ 3.9 bln)

to raise bottom line 17000 100

Merck Over $ 14 bln revenue reported

for many years, never collected NA 43

Quest.com Inflated revenue thru equip.

sales / Swaps 11000 33

GM Motors, Digital Corp, Leyman bros, Satyam Computers, Air India, Indian Post Office, Kingfisher , MTNL, ITI, Hindustan Motors and list goes on………….

New Age Business Leadership role and

challenges

Value creationthru

key operational drivers and best practices

New Age Business Leadership - Role & Challenges

Emerging Multidfaceted Role - Donning Different Hats

• Captain of Sustainable Value Creation

• Performance Measurement

• Protector of Stakeholders’ Interests

• Regulatory Compliance

• People Development

Competencies & Challenges•Understanding of how money (or value is made) or lost in business (value chain competencies)•Appreciation of the concept of risk (risk competencies)•Expectations management of different stakeholders (Expectation management competencies)

•AS STRATEGIC GUARDIAN OF THE ECONOMIC VALUES OF AN ENTERPRISE

Risk Enabled Enterprise Performance Management- Strategic Options & Techniques

Elimination

RE

EP

M

Strategic Planning

Business Consulting

Re-structuring

Reduction/Sustain

Technical

Improvements

Risk Engineering

Debt Reduction

Managed from:-

Earnings and

Reserves

Transfer

Contract Terms (e.g. PVC)

Insurance/ Hedges

Risk Securitisation

Retention

ConvergenceVUCA

Regulations

REEPM Challenges

Ramp up Enterprise Value- Major Enablers & Pillars

Business Drivers

Reduce Cost of Capital Divest / Hive off (NPB/NPA)

Operational Levers-part A Operational Levers –part B –Global

RevenueGrowth

Decreasingcost

Differentiating/Increasing

willingness to pay

ImproveIndustry

Attractiveness

NormaliseRisks Innovations

GenerateIC &

resources

Better

Governance

For Driving Efficiencies –Enablers &

Differentiators

Financial Strategy -M&A as key mover to profitable & sustainable growth

Moving into New Orbits

Early stage M&A - thru global footprints

to get access to high end technology,

market ,capital and talent

Businesses are creating Global

footprints thru:

• Export of Goods/ services - fuelled by

BPO/Internet

• Setting up branch offices, subsidiaries

& manufacturing facilities

• Acquisitions abroad

• Raising funds thru’ foreign bourses/

ECB’s, etc

MAJOR CHALLENGES OF M&A

• Accounting irregularities

• Macro economic issues

• Volatility in forex & interest rates

• Loss of Key Customers

• Integration issues

• Valuation issues

• Mis-aligned products

• Regulatory issues

• Law suits

MAJOR ENABLERS FOR SUCCESSFUL M&A /

CROSS BORDER DEALS - RISK MITIGATION

STRATEGIES

• Earn the right to acquire by

having strong core business

• Take targets which will improve

further FCF/ Operating Margins

• Identify low hanging fruits &

other potential synergetic gains

• Maintain patience/discipline

during negotiations

• Plan & execute integration

seamlessly & timely

FACETS OF INTEGRATION CHALLAENGE-KEY TO SUCCESS OF CROSS BORDER M&A DEALS

Fast Forward

DNA of Integration….

Intellectual IntegrationBrands & Technology keepingpace with market demands

BenchmarkingLearning & Unlearning

Operational improvements(Best of Both)SourcingEngineeringQualityTechnology

Emotional IntegrationGuiding PrinciplesBelonging to the Parent Group

Communication

Social IntegrationUs vs ThemLocal vs Glocal

M&A-Growth panacea !! A Few Glaring examples explodes the myth

18

Tata Steel -Corus

Hindalco-Novelis

United Sprits-Whyte & Machay

Indian Hotel -Acquisitions

Tata Chemicals-Gen. Chemicals

Renuka sugar-Brazil Sugar

Pharma –Overseas Acq.

Suzlon-Repower

Measurement tools of Business Performance & Key Enablers for revolutionary growth

- Magic Mantra for measurement of Business PerformanceReturns / Profits = Margins x Velocity

validated thru Economic Value Added (EVA)-Look for future Value : look at price/earning ratio. Investors will decide quality & composition of these earnings and Incremental EVA.- Key Enablers for breakthrough enhancement in Margins, Profitable Growth & Retention of Key People:

a) Look at your business from the “outside in”.b) Look beyond the industry boundaries & existing markets to

customer total needs.c) Find market segments that are growing or create themd) Built new core competencies & Skill Sets to capitalize on your new

opportunitiese) Use EVA to incentivize Key People for them to share business Prosperityf) Innovation & Creativity

REEPM initiatives to get leverage on technology and newer

markets

A CORPORATE CASE STUDY - Business Transformation thru REEPM & path breaking Financial strategies

1999-2001 - THE DISASTROUS YEARS WHEN COMPANY WAS STRUCK BY THE TURBULENCE

OF AN ECONOMIC TSUNAMI

Financial

Insolvency

SAVE

Company’s Management Mandate: No efforts shall be spared & will endure

inevitable pain of reviving the company’s economic adulthood and

safeguarding stakeholders’ interest

Leveraging operational levers to accelerate Profitable Growth & enhance enterprise value

22

- Thrust on Exports

- New products/Services

-Marketing Drive (MILE)

--Technology upgradation

IT enabled Initiatives

-Upgradation of SAP

-SOMA, DR System ,PLM

-SAP based Dealers’ Portal,

Growth Strategies & Initiatives-Increase Global footprint

- Initiate for Global Acquisition

-Organic Growth Initiatives

-Economies of Scale

HR Initiatives-Move Towards meritocracy

- Performance based Incentives/EVA

- Training & Development

- e-enablement of HR Processes

Accelerated initiatives on :- productivity & Quality related

- Sourcing focus on LCC/Strategic

- Health & Safety

Fiscal Initiatives:

-Improved Rating & Leverage

Capabilities

-Reduced Cost of Borrowings

-Risk Mitigation Initiatives- Operations,

Forex &Commodity

CG Values

-Performance Excellence

-Leading Edge Knowledge

-Nurturance

-Customer Orientation

-Intellectual Honesty

GROWTH STRATEGY-THRU CROSS BORDER

ACQUISITIONS

STEADY FLOW OF POWER & PROSPERITY

Company’s transformation from its economic turmoil to a model of

wealth creation captivates overseas aspirants to join the ranks

1st acquisition in May

2005

with manufacturing site at Belgium

Ireland

USA

Canada

Indonesia

2nd acquisition in Oct 2006

with manufacturing site atHungary

3rd acquisition in May

2007headquartered in

Ireland with large presence

in UK & USA

4th acquisition in may08

headquartered in France

5th acquisition in

oct.2008 in USA

SUCCESSFUL TRANSFORMATION OF INDIAN MNC

-147

-200

428

71

120

233

282

407

560

860

-1.0 -1.1

0.10.4

1.1

1.9

3.6

4.4

6.3

8.7

13.4

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

-400

-200

0

200

400

600

800

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

PAT EPS

Growth Story - Globalisation :

International Markets

Acquisition & Investments

Consolidation in

Home Country

Maintanance of performance in

years of Acquisitions

2000 to 2001 the Disastrous

Years

Rs - Crores

CEO & CFO Strategic Agenda-sustainability of profitable growth

Strategic Agenda

Talent Management –Creating the Global Mindset

Break-through/Platform Technologies

Fill the gaps in Products & Solutions

offering

Inorganic Growth Opportunities

Scalable & sustainable growth business model to become Company of Choice

Parting thoughts and takeaways

3/26/2016

REEPM : Managing Profitable Business

Growth –Inspiring Learning from World Leaders

- Their growth is profitable, sustainable & capital efficient. Not all growth is good.

- They grow because growth is in the company mindset, created by the company entrepreneurial leadership and percolate down to Bottom

- They believe that there is no such thing as a mature business. In other words instead of big fish in small pond, it would be small fish in big pond.

- Growing is less risky than not growing

- Growing is a creative game. It does not require a degree or licence. It requires curiosity, Imagination & emotional energy.

- They address issues which restrict growth - Market, Valuation’ & ‘Human Capital’

Focused n Committed Leadership matters –for

attaining profitable n sustainable growth thru

REEPM

New Age Leadership

INNOVATION

TECKNOLOGY DRIVEN

TRUE GOVERNANCE

SPEED

COMPLIANCE

AUTHORITIESSTAKEHOLDERS

THANK YOU !!

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