A medium-sized and economically sound group of companies in the apparatus and container construction sector with around 500 employees worldwide and a total output of around 90 million euros had set up a larger site in the People's Republic of China years ago to supply customers there. The group had used around 50 percent of its economic equity for this purpose.
This subsidiary had run into liquidity problems due to an ongoing expansion of operations.
At the same time as the looming liquidity problems in China, the company slipped into a threatening loss situation due to the addition of new products with manufacturing costs that had not been properly calculated. Triggered by the earnings problems and increasingly tight liquidity, the local Chinese bank threatened to pull out of local working capital financing.
Inadequate capacity utilization jeopardizes the capital market viability of the entire Group
The utilization of the new production capacities created by the expansion in the People's Republic of China was not even remotely ensured by incoming orders. The cost burden from the new depreciation and amortization as well as the debt service obligations entered into with the holding company could not be reconciled with the previous business volumes. As a result, both the debt service income and the ongoing license income of the parent company were no longer secured for the future.
The Group would therefore have lost significant parts of its economic equity in the event of the collapse of the Chinese subsidiary, thereby also jeopardizing its own capital market viability. In this situation, the interim manager moved from the advisory board to the operational management and replaced the previous CEO.
Interim CEO develops plan for financing the subsidiary
In close consultation with the owners of the group and the local management, the interim manager drew up a concept for financing the difficult situation in China. A key component of this was an integrated planning and reporting system that enabled the status of the business expansion and profitability improvement to be reviewed at any time.
In order to free up funds, the interim CEO sold another Chinese subsidiary (supplier for a niche product) as part of a management buy-in. The sale was well above book value and thus restored confidence in the Group's foreign activities among its financing partners. On the basis of the now secured financing for the expansion of the business, the interim manager was able to re-conclude the facilities with the local bank to secure working capital financing.
Sales activated and volume contracts successfully concluded
At the same time, he launched a sales offensive in the Chinese chemical industry together with the local sales team and sales partners in China. In this way, it was possible to generate volume contracts with several partners that will ensure adequate utilization of the new production capacities once they are completed.
Chinese subsidiary develops into the cash cow of the group of companies
During his time as interim CEO, the expansion of operations was implemented as planned and can be utilized economically thanks to the newly concluded volume contracts. Within two years of the interim manager joining the company, the Chinese subsidiary developed into the Group's cash cow
