Financial Re-engineering
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FINANCIAL RE-ENGINEERING
Presentation By:MANISH KHATRI
What is Re-engineering ? Re-engineering is the radical redesign of business processes and organisational structure in order to achieve significant improvements in performance, such as productivity, cost reduction, cycle time, and quality.
Financial Re-engineering Financial Re-engineering is the recementing or changing of products, systems, people, brands and technology which has to be done with financial restructuring and financial requantification of every qualitative business variable.
Objectives of Financial Re-engineering • Facilitation of the New Budget Framework. • Improve the efficiency and accuracy of financial data capture. • Reduce the number of cost centre’s in the General Ledger. • Introduce structures to facilitate future introduction of project costing. • Identification, review and improvement of key process controls.
Benefits of Financial Re-engineering • • • • • •
Ease of Access Benefit. Ease of Analysis Benefit. Better Decision Making Benefit. Research Reporting Benefit. Risk Management Benefit. Continuous Improvement Benefit.
Holistic Approach to Innovative Financial Engineering • • • • • •
Benchmarking of the earning-expectations. Product and process choices. Funding structure (variations, costs and flexibility). Fund-deployment strategies. Monitoring and assessment systems. Programmes and policies to reward various stakeholders. • Satisfaction of the shareholders. • Perpetual sustenance of the financial and real growth of the business enterprise
.
Holistic Approach to Innovative Financial Engineering
Various Forms of Financial Re-engineering • Financial Restructuring • Corporate Restructuring –Mergers /Acquisitions –Divestitures –Demergers
Financial Restructuring Financial Restructuring is a process to re-arrange, re-build or construct or form a new financial structure. 9
Corporate Restructuring Corporate Restructuring is a conscious effort to restructure policies, programmes, products, processes and people, to serve the redefined purpose on a sustainable basis.
Merger A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage.
Acquisition A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of businesses.
Reasons for Acquisitions • • • • •
Increased market power. Overcome entry barriers. Cost of new product development. Increased speed to market. Lower risk compared to developing new products. • Increased diversification. • Avoid excessive competition.
About Novelis Novelis is globally positioned and operating in 11 countries with approximately 12,900 employees. The world’s leader in producing (19%) flat-rolled aluminum products. No. 1 in rolled products producers in Europe, South America and Asia. No. 2 in rolled products producers in South America. World leader in the recycling of used aluminum beverage cans. • the world
The company caters to markets like: • • • • • • • •
06/20/09
Building and construction. Cans and closures. Flexible and semi-rigid packaging. Printing and Lithography. Specialty Consumer and Industrial. Automotive and Transportation. Distribution Services. Technology sales.
Template copyright 2005 www.brainybetty.com
15
About Hindalco It is the flagship company of the Aditya Birla Group. Based in Mumbai, India. One of the most cost-efficient aluminum producers globally. Hindalco’s Stock Traded on• Bombay Stock Exchange. • National Stock Exchange. • Luxembourg Stock Exchange.
06/20/09
Template copyright 2005 www.brainybetty.com
16
Synergy: Reason behind merger • The combination of Hindalco and Novelis will establish a global integrated aluminum producer with low-cost alumina and aluminum production facilities combined with high-end aluminum rolled product capabilities . • Present leaders in their respective markets. • Novelis was to procure raw material from the market, which it converts into value-added products at the most reasonable prices. • Hindalco’s motive was to cover the major market share that Novelis possesses. • Provide a strong platform for sustainable growth and ongoing success.. 17
Risk Associated • Novelis has a high amount of debt. • Hindalco will gain but Novelis will be at a loss. • Hindalco is getting a ready-made market. • The performance of the two companies may be completely opposite to each other.
The Deal • Hindalco has acquired Novelis in an all-cash transaction at approximately US$6 billion, including approximately US $2.40 billion of debt. • AV Metals — the A V Birla group's will infuse US$ 3.5 billion to finance Hindalco's proposed acquisition. • AV Metals will take loans worth US$ 2.8 billion from three financial institutions, namely UBS, ABN Amro and Bank of America. • Essel Mining & Industries, a closely held company of the group, will bring in US$ 300 million while Hindalco will mobilize US$ 450 million from its treasury operations.
The Outcome • The Novelis acquisition will give immediate scale and a global footprint. • Overseas operations already account for nearly 30 per cent of the group's revenue now and the Novelis acquisition would increase it to 40 per cent in three years. • The acquisition will help Hindalco to shorten the learning curve for technology. • The group would now have operations in 14 countries. • The group would become the world's largest player in the downstream aluminum.
Recommendation • Growth of M & A activity in the commodities sector was due to some factors. • Hindalco should have before acquiring the company seen whether the operations of the other company is going in the feasible direction. • The deal showed losses at the earlier stage, it proved to be of strategic value in the long run. • For Hindalco, technology and process leadership, costeffective manpower and ready market will help rationalize the cost structures and balance the pressure on the bottom lines
THANK YOU
Presentation By:MANISH KHATRI
What is Re-engineering ? Re-engineering is the radical redesign of business processes and organisational structure in order to achieve significant improvements in performance, such as productivity, cost reduction, cycle time, and quality.
Financial Re-engineering Financial Re-engineering is the recementing or changing of products, systems, people, brands and technology which has to be done with financial restructuring and financial requantification of every qualitative business variable.
Objectives of Financial Re-engineering • Facilitation of the New Budget Framework. • Improve the efficiency and accuracy of financial data capture. • Reduce the number of cost centre’s in the General Ledger. • Introduce structures to facilitate future introduction of project costing. • Identification, review and improvement of key process controls.
Benefits of Financial Re-engineering • • • • • •
Ease of Access Benefit. Ease of Analysis Benefit. Better Decision Making Benefit. Research Reporting Benefit. Risk Management Benefit. Continuous Improvement Benefit.
Holistic Approach to Innovative Financial Engineering • • • • • •
Benchmarking of the earning-expectations. Product and process choices. Funding structure (variations, costs and flexibility). Fund-deployment strategies. Monitoring and assessment systems. Programmes and policies to reward various stakeholders. • Satisfaction of the shareholders. • Perpetual sustenance of the financial and real growth of the business enterprise
.
Holistic Approach to Innovative Financial Engineering
Various Forms of Financial Re-engineering • Financial Restructuring • Corporate Restructuring –Mergers /Acquisitions –Divestitures –Demergers
Financial Restructuring Financial Restructuring is a process to re-arrange, re-build or construct or form a new financial structure. 9
Corporate Restructuring Corporate Restructuring is a conscious effort to restructure policies, programmes, products, processes and people, to serve the redefined purpose on a sustainable basis.
Merger A transaction where two firms agree to integrate their operations on a relatively coequal basis because they have resources and capabilities that together may create a stronger competitive advantage.
Acquisition A transaction where one firm buys another firm with the intent of more effectively using a core competence by making the acquired firm a subsidiary within its portfolio of businesses.
Reasons for Acquisitions • • • • •
Increased market power. Overcome entry barriers. Cost of new product development. Increased speed to market. Lower risk compared to developing new products. • Increased diversification. • Avoid excessive competition.
About Novelis Novelis is globally positioned and operating in 11 countries with approximately 12,900 employees. The world’s leader in producing (19%) flat-rolled aluminum products. No. 1 in rolled products producers in Europe, South America and Asia. No. 2 in rolled products producers in South America. World leader in the recycling of used aluminum beverage cans. • the world
The company caters to markets like: • • • • • • • •
06/20/09
Building and construction. Cans and closures. Flexible and semi-rigid packaging. Printing and Lithography. Specialty Consumer and Industrial. Automotive and Transportation. Distribution Services. Technology sales.
Template copyright 2005 www.brainybetty.com
15
About Hindalco It is the flagship company of the Aditya Birla Group. Based in Mumbai, India. One of the most cost-efficient aluminum producers globally. Hindalco’s Stock Traded on• Bombay Stock Exchange. • National Stock Exchange. • Luxembourg Stock Exchange.
06/20/09
Template copyright 2005 www.brainybetty.com
16
Synergy: Reason behind merger • The combination of Hindalco and Novelis will establish a global integrated aluminum producer with low-cost alumina and aluminum production facilities combined with high-end aluminum rolled product capabilities . • Present leaders in their respective markets. • Novelis was to procure raw material from the market, which it converts into value-added products at the most reasonable prices. • Hindalco’s motive was to cover the major market share that Novelis possesses. • Provide a strong platform for sustainable growth and ongoing success.. 17
Risk Associated • Novelis has a high amount of debt. • Hindalco will gain but Novelis will be at a loss. • Hindalco is getting a ready-made market. • The performance of the two companies may be completely opposite to each other.
The Deal • Hindalco has acquired Novelis in an all-cash transaction at approximately US$6 billion, including approximately US $2.40 billion of debt. • AV Metals — the A V Birla group's will infuse US$ 3.5 billion to finance Hindalco's proposed acquisition. • AV Metals will take loans worth US$ 2.8 billion from three financial institutions, namely UBS, ABN Amro and Bank of America. • Essel Mining & Industries, a closely held company of the group, will bring in US$ 300 million while Hindalco will mobilize US$ 450 million from its treasury operations.
The Outcome • The Novelis acquisition will give immediate scale and a global footprint. • Overseas operations already account for nearly 30 per cent of the group's revenue now and the Novelis acquisition would increase it to 40 per cent in three years. • The acquisition will help Hindalco to shorten the learning curve for technology. • The group would now have operations in 14 countries. • The group would become the world's largest player in the downstream aluminum.
Recommendation • Growth of M & A activity in the commodities sector was due to some factors. • Hindalco should have before acquiring the company seen whether the operations of the other company is going in the feasible direction. • The deal showed losses at the earlier stage, it proved to be of strategic value in the long run. • For Hindalco, technology and process leadership, costeffective manpower and ready market will help rationalize the cost structures and balance the pressure on the bottom lines
THANK YOU
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