Report Case Study Johnson Turnaround

ACKNOWLEDGEMENT

Alhamdulillah. In the name of Allah S.W.T the most compassionates and the most merciful. First and foremost, I would like to express the unlimited thanks to Allah S.W.T whom with His willing give me opportunity to complete this assignment.

I greatly appreciate the valuable contributions of several people who help me for this assignment. I also owe very special thanks to our lecturer Prof. Madya Dr. Maheran Binti Zakaria for her dedicated and valuable help to us. All her teaching and advice can I used in doing this report. Besides that, I would like to thanks my classmates for their kindness that has given support and sharing information to complete this report.In order to complete this report, I had to found information from the references books and also from handout. All information is important to us in making this assignment completely.

Finally, thanks a lot to all the people who contribute direct or indirect from beginning till the end.

EXECUTIVE SUMMARY

The case is about a company based in southern Indian region, named Johnson Pte Ltd, (JPL). It a non-public listed firm operating in Fast Moving Consumer Goods Industry, (FMCG). The company manufactures and distributes product which includes frozen chicken, noodles, pastries, bread product yeast and fat. The company also owned the number of restaurants and retailing outlets and it deals in trading of oil products as well. It was initially owned by government of India has operated 20 years of in this industry, before Hong Kong group of companies acquired 80 percent equity share to become its parents company. The acquisition was in line with the group of Hong Kong group companies’ strategy objective of expanding their business operations globally and to reach it targeted customer in Middle East and Indian subcontinent states.

In subsequent years after the acquisition, the company experienced steady decline in sales and increasing operating cost. In November 2009, Azmi was employed as the chief executive officer (CEO) of JPL. His appointment was facilitated by the Chairman of the group with the task of salvaging the company constituting a turnaround strategy that will facilitates the revitalizing and sustainability of the companies before the situation get worsen.

JPL is among major players in FMCG industry in India, with other contender like Nestle and Unilever dominating the market. In 2007, JPL controlled 30% market share while Nestle and Unilever shared the balance. These rivals of companies invest lot of resources for research and development, advertisement and promotion. They also spend 2% and 3% of their revenues to maintain their market

INTRODUCTION

Johnson Pte Ltd, (JPL) a public non-public listed firm operating in Fast Moving Consumer Goods Industry, (FMCG) group of companies based in Southern Indian Region. Before the takeover, JPL was wholly owned by the Indian government. Then, 20 years after it began operations, the Hong Kong group of Companies acquired 80% of the company’s shareholding and the companies were involved in a similar industry operating within the Asia Pacific region. JPL manufacture and distribute the range of products, including frozen, chicken, noodles, pastries, bread products, yeast and fats. It also traded in commodities such as oil. It owned a chain of restaurants and retailing outlets.

Azmi, the new Chief Executive Officer in November 2009, had been assigned by the chairman to plan and execute a turnaround programmed for the company due to the besieged with problems ever since they took over its operation from the previous owner. Addition the sales figure is on decline but their operating cost are up. So, the chairman directed Azmi to check what is happening to the company credit control and inventories management. Therefore, Azmi had to plan and execute and appropriate turnaround strategy. Azmi had to consider the financial statement and all unnecessary spending were to be avoided.

Result of the investigations, Azmi had found a few issues which result to the loss of the company. The issue was come from their own department, that is production and services, accounting and finance department, asset information and general management, and human resources management department.

ISSUE 1

In the production and services department, there were two main problem have arisen. Firstly, is the sales being decline but the cost of production was increase. The cost was increase because of the low entries barriers. Nowadays, there are many others company tried to enter this industry and this causes our product hard to sell to public.  Besides that, the existence of multiple private labels in this industry and lastly the existence of external forces such as rising raw material prices. There are many supplier try to sold the raw material in the higher prices. So, because of this, cost of production become higher. Other than that, in 2008, the company was spending around 5 million just for advertisement and promotion but the sales still decline.

 Second problem was their retail outlet was persistently incurring lost rather than generate profit, this is because their location was not strategic to sell the product. Even the company have around 45 retail outlets around the country, but they still managed to incur losses in their business. This is because most of their outlets locate at non-strategic location.

ISSUE 2

In the accounting and finance department, the problem arise is there was excessive spending in advertisement and promotional cost. This can be provided when the company has spent around $5 million just for advertisement and promotion in 2008.  Besides that, poor management of account receivable have contributed to the company’s inability to pay its debt which is high than expected. This can be shown when the company fail to follow up with customers in a timely manner when payments are past due (more than 90 days). Besides that, the company also allow sales representative / staffs to override credit limits that end up suffering losses from bad credit risks.

The company also faced problem where the company had been having negative cash flow in their account. Azmi had discovered that the company was in the red with a loss of $10.14 million from the accounts for the year ended 31 December 2008.  This is because the poor asset management and the guarantees given by the department. Other than that, the company accept the placement of motor vehicles as part of collateral for the goods obtained. Because of this action, one of depreciable property, which is any type of asset that is eligible for depreciation treatment and value of motor vehicles will keep decreasing from year to year and later will have zero net book value at the end of depreciation year.