A provider of highly engineered metal solutions operated a profitable business for over 15 years and wanted to take the company to the next level.
Annual revenue was over £10 million. Yet the gross margins had consistently decreased over the course of a few months, dropping from 38% to 32%.
A physical stock take was performed each month. The company was not only ISO certified, but had excellent processes in place and a proven team, most of which had been in the business for at least 7 years. The selling, general and administrative expenses were consistent throughout this period. The product mix sold also remained relatively steady.
The company had invested in major equipment in the past six months intending to optimize material, labour and efficiencies. Even with the training time and inefficiencies associated with the new equipment, the drain on the gross profit margin eluded the client. Expectations were that the Gross Margin should improve, not deteriorate.
This falling GP was becoming a concern. The company believed the decrease was due to anomalies, such as inventory counts, the new equipment, valuation of the inventory, standard cost systems and a complex product mix. GP loss was projected to be approximately £700,000, year over year.
Copernicus were engaged to:
Identify the root cause(s);
Correct the situation(s);
Establish formal processes to prevent the situation from reoccurring in the future; and
Develop benchmarks to optimize future opportunities.
Mergers Acquisitions and
Recent Case Studies
1. Internet based equipment wholesaler. Sales increase from £80k to £220k/month. Average order value increase from £808.00 to £2414.00. GP increase from 10.2% to 14.3%. Cost per transaction reduced by 18%. Total increase in fixed costs to achieve this £21k. Time scale 10 months
2. Loss making manufacturer (-£800k previous year) turnaround in 14 months to £450k profit. Factory rationalisation. Increases in sub-assembly. Company value platform introduced. Export sales started & exceeded £1m during the period. Complete new marketing strategy. Focus on high margin items and high value customers increased GP from 34 to 38%. Sales increase of £1.8M. Dti funding of £10k assisted the export marketing
3. Flat lined service company. Established 25 years. Break even/small profit 5 previous years. Attacked new markets with wider product range. Increase in sales of £500k achieved in 8 months compared to previous year. Increase in GP margin of 2.5%. Engineer utilisation increased 12%
4. Belgian chocolate franchise Launch. 14 new franchisees in first 12 months. Further 8 signed/awaiting premises. Devised marketing plan, support structure, processes and manuals
5. UK importer of exotic fruit juice introduced to 4 overseas markets. Increased sales by 55% with no addition to fixed costs. Time scale 8 months
6. Established 50 years light engineering company. 3 consecutive years losses. Returned to profit in 6 months, cash flow positive in 9 months. Sales increase of £700k year 1. Refinance package put in place to enable strategic acquisition year 2
7. Introduced innovative CRM software to middle east market. £60k of orders in first 4 months. Dti funding of £12k assisted the marketing.