€48m FMCG Manufacturer Distributor Hit By Withdrawal of Banking Services

The Challenge

A multinational group of three companies, headquartered in the UK with operations across five EU countries, faced a sudden and severe financial crisis. The group, which supplied wholesalers and retailers and had sales of around €13 million, was thrown into disarray after its international bank surprisingly and sharply reduced its working capital facilities. This caused an immediate collapse in the group’s ability to place orders. The timing was catastrophic, as this occurred just after the main buying season, leaving the business without the trade and stock finance needed for the upcoming Christmas 2018 and Spring 2019 seasons. With unsecured liabilities of €7.2 million and a secured debt of around €4 million, the directors needed a comprehensive restructuring to save the business.

The Solution

The directors appointed RMT KSA to oversee a complete restructure of the group. The core of the strategy was a Company Voluntary Arrangement (CVA), which was used to restructure the unsecured debt. RMT KSA’s experts guided the company through a “right-sizing” of the group, which included a reduction in costs and the departure of 16 people, including the CEO. This left a smaller, leaner, and more efficient business. As part of the CVA strategy, KSA also helped the company to exit its head office, which resulted in a significant annual saving of approximately £200,000. KSA managed the complex negotiations with the landlords of the two main warehouses, ensuring that rent payments were maintained to release a backlog of €4 million worth of stock, over which liens had been or were about to be exercised. This generated crucial liquidity for the business.

The Results

With the CVA successfully implemented, the company’s sales were re-focused on more manageable levels. The huge annual need for debt facilities was eliminated, and the company was no longer burdened by the low-margin, high-volume FMCG products that required it. With sales now at around €13 million and costs significantly reduced, the business was projected to generate profits of €450,000 in the first CVA year, rising to €800,000 in 2019-2020. The CVA also allowed the company to manage customer expectations, with RMT KSA helping to explain the strategy to large retail groups. This case demonstrates that a CVA can be a powerful tool for a multinational group to restructure its debts and operations, even when faced with a sudden loss of funding, and can put the business back on a path to profitability.