Navigating 2023/24's economic and financing maze

2. Monetisation of existing assets

Regularly evaluating balance sheet assets is crucial for operational, commercial, treasury, and corporate finance purposes, not just for good bookkeeping. Assets can be monetised both on and off-balance sheet through methods like asset-backed financing, intellectual property licensing, inventory financing, outsourcing, and invoice discounting, amongst many others, although the margin impact varies.

3. Optimisation of working capital

In the three years leading to 2023, many companies grappled with survival, accruing debt while trying to seize post-pandemic growth opportunities amidst rising inflation, market changes, and supply chain disruptions. Recognising these challenges, companies are now re-evaluating their working capital needs and are advised to formally undertake a cross-functional working capital transformation programme to formalise and rationalise improvements and policies.

4. Unlocking of untapped synergies and elimination of stranded costs from past deals 

Many deals do not achieve the full value potential of an integration or fail to eliminate stranded costs post carve-out. This can be due to intentional decisions, prioritising growth over cost synergies, poor planning, leadership gaps, budget limits, or cultural clashes, amongst others. Revisiting the original synergy plans of an integration or the stranded costs of a separation is a great hunting ground for untapped margin and asset reduction opportunities.

5. Maximisation of throughput and output of existing assets

Corporate assets should be consistently operational and economically productive, whether the assert is an aircraft, a production line, a fleet, or a hotel room. Companies can achieve this by fostering a lean culture with safety, training and compliance at the heart of it; eliminating accident downtime and impact, fostering continuous improvement, using the appropriate asset for the job, embracing digitalisation, and implementing strategies such as ‘Total Productive Maintenance’, ‘Just-in-Time’, or the ‘5S methodology’, among many others.

6. Organisation right-sizing, workforce productivity, and functional costs reduction

To right-size an organisation, it is essential to have a vision and a clear roadmap linking the current-state to an interim stabilisation state and finally to a future state in line with the business plan and capability strategy. Whether managers opt to use zero-base budgeting or activity value analysis, this process requires meticulous planning and leadership, as well as a focus on long-term objectives. This process involves steps such as organisational design, centralisation, standardisation, outsourcing, insourcing, automation, and roles and responsibilities changes, amongst others.

7. Reassessment of the asset choice, replacement, and intensity strategy

Regularly reviewing fixed assets strategy and CAPEX investments is crucial for companies in a dynamic market, emphasising considerations like asset type and ownership setup. While IFRS 16 has affected lease accounting, outsourcing such assets with a service can reduce fixed assets and provide a much-needed cash injection. Asset intensity choices are very important and need to be stress tested in favourable and unfavourable circumstances.

8. Rationalisation of the manufacturing footprint and distribution network

Fixed assets' feasibility can change over time, and executives must avoid clinging to outdated or no longer feasible investments, as this can lead to loss of focus and business failure. Regularly reassessing and adapting asset strategies is vital, but it is equally important to ensure ethical, social, and environmental considerations throughout an asset's lifecycle, from inception to decommissioning.

9. Disposal of non-core assets and capital reallocation

Disposing non-core assets is essential for a company's focus, enhancing shareholder value and improving liquidity. Successful divestments require efficient deal-making and seamless transitions. Although seller’s valuations are currently challenged by the markets, companies looking to shed physical assets, known for their inflation-protection potential and the ease of securing debt, are currently seeing a lot of interest from cash-rich buyers and private equity investors.

10. Sweating existing assets

Excess capacity offers opportunities for creativity in maximising asset use, such as price adjustments, white labelling, value-added services, and the introduction of new products without additional CAPEX. On the other hand, companies operating at full capacity should stop blindly prioritising larger, less profitable customers at the expense of losing smaller, profitable ones. Instead, they should renegotiate prices or reduce volume commitments.

Maintaining favourable ‘Returns on Assets’ is crucial for enhancing shareholder value. Companies that effectively manage their assets and related costs demonstrate good financial stewardship. These firms often prioritise cash management, which instils trust in both creditors and shareholders. It is essential to brace for the challenges ahead and get ready to fully take advantage of the growth cycle ahead. The time to act is now.