C. Financial, organization and processes analysis
C1. Financial situation analysis
Geberit Shanghai
Presently, GSHA is in serious corporate crisis
Phases of corporate crisis
Weak
Strong
Pathology of crisis symptoms
Normative misfit
Strategic crisis
Results crisis
Liquidity crisis
Geberit
Low
High
Bankruptcy crisis
Back-up
All liabilities are short term and are increasing 4-fold. By the end of July 2000, liabilities are 75% of total assets
Development of liabilities (% of total assets)
[RMB ‘000]
%
%
75%
+522%
Source: P&L Geberit (Shanghai), RB&P analysis
Company's liquidity situation is deteriorating. Current liabilities are increasing much faster than current assets, the cash injection from the parent company is used to cover the running expenses in stead of building up assets
Development of liabilities & assets
[RMB ‘000]
Current ratio
Quick ratio
Current assets
Current liabilities
Source: Balance sheet Geberit (Shanghai), RB&P analysis
+37%
+522%
The company’s inventory increased by 91% , while current assets increased by 37%
Development of inventories
Source: Balance sheet, Geberit (Shanghai), RB&P analysis
Current asset structure (% of the current assets)
+91%
[RMB ‘000]
44%
11%
6%
11%
11%
10%
7%
26%
8%
18%
2%
13%
9%
21%
7%
4%
26%
10%
10%
8%
18%
8%
15%
0%
15,720
14,007
11,507
Raw materials
Work in progress
Finished goods
Goods purchased for resale
Other inventories
Trade accounts receivable
+37%
[RMB ‘000]
Cash & cash equivalents
Other accounts receivable
Due to huge losses, the company is solely financed by inter-company loans, the liabilities increase much far faster than assets
Balance sheet Geberit (Shanghai)
1998~ [RMB ‘000]
Back-up
1998
1999
2000(1-7)
Fixed assets
Intangible assets
Other prepaid expenses
Advanced payments to suppliers
Inventories
Account receivable
Cash & cash equivalent
Total assets
Share capital
Retained earnings
Net income current year
Total provisions & deferred revenues
Total (liabilities)
Total Shareholder Capitals & liabilities
18,318
587
10
0
4,517
1,862
5,118
30,412
41,426
(5,420)
(9,669)
0
4075
30,412
%
%
%
%
%
%
%
%
%
(%)
(%)
%
%
%
18,996
87
25
73
7,267
3,663
2,979
33,090
41,426
(15,089)
(10,177)
1,572
15,358
33,090
%
%
%
%
%
%
%
%
%
(%)
(%)
%
%
%
18,060
0
234
391
8,644
4,097
2,354
33,780
41,426
(25,266)
(8,293)
563
25,350
33,780
%
%
%
%
%
%
%
%
%
(%)
(%)
%
75%
%
The accumulated losses till September 2000 are 86% of share capital. Left alone the company will be insolvent by the end of this year
Net income losses(~)
[RMB ‘000]
Source: P&L Geberit (Shanghai), RB&P analysis
86%
The company has been losing money since the foundation of JV, and the loss is continuously increasing in spite of the increase of sales
+41%
*: estimation
1998
1999
2000*
Source: Roland Berger & Partners‘ analysis
Sales development [RMB ‘000]
Operating losses
[RMB ‘000]
+45%
More than 70% of products sold in 2000 ( 1-9 ), including Geberit locally produced products, have a negative gross profit margin
Mixture of product sold
()
Lida products
Geberit local produced
Geberit imported
Gross profit margin2) (at actual cost)
Gross profit margin1) (at standard cost)
+25%
+44%
- %
- %
+38%
+ 38%
Lida product
Geberit imported products
Geberit locally produced products
Source: Geberit (Shanghai), Roland Berger & Partners’ analysis
1): Calculate based on the full capacity utilization rate (80%~90%)
2): Calculate based on the actual capacity utilization rate (20%~30%)
The disproportional increase of operating expense results in the increase of operating loss in spite of the improvement of product mix
Source: P&L Geberit (Shanghai), Roland Berger & Partners’ analysis
+29%
%
%
%
Total operating expenses 1998~2000
[RMB ‘000]
* Estimation
% of sales
Among the cost of goods sold, cost of materials and labor are two major cost drivers
Source: P&L, Balance sheet, Geberit (Shanghai), Roland Berger & Partners’ analysis
Cost of goods sold (% of sales)
GSHA 1999
GSHA 2000 (1-9)
Turnover
million RMB
Million RMB
Cost of goods sold
RMB (% to sales)
million RMB (92% to sales)
Structure of cost of goods sold
Cost of materials*
Labour cost
Depreciation
Energy consumption
Maintenance
Others
7521
2493
1203
648
565
439
48%
16%
8%
4%
%
%
2%
4%
%
11%
17%
54%
[RMB ‘000]
[RMB ‘000]
*note: the materials cost are the cost of all materials purchased, instead of materials actually consumed.
And among the sales cost, salaries and travelling are two major cost drivers. Meanwhile, promotion fees and staff training cost increase
Source: P&L, Balance sheet, Geberit (Shanghai)
Sales cost (% of sales)
GSHA 1999
GSHA 2000 (1-9)
Turnover
million RMB
million RMB
Sales cost
million RMB (% to turnover)
million RMB (% to turnover)
Structure of sales cost
Salary
Travelling cost
Promotion fee
Room rental & parking
Communication fee
Staff training
Others
3158
979
588
221
29
1021
20%
%
%
%
%
%
%
%
6%
9%
26%
%
576
%
%
2690
925
582
352
160
64
626
[RMB ‘000]
[RMB ‘000]
Increase operating expenses results in increase of operating losses in spite of the improvement of sales
Back-up
Profit & loss statement Geberit (Shanghai)
1998~2000 [RMB ‘000]
1998
1999
2000 (1~12)
Sales
Cost of materials
Gross profit
personnel expenses
Energy/maintenance
Depreciation
Marketing expenses
Administration expenses
Other operating expenses
Total operating expenses
Operating profit (loss)
Net income
10,219
4,938
5,248
6,810
1,236
178
185
5,767
836
15,012
(9,764)
(9,669)
%
%
%
%
%
%
%
%
%
%
(%)
(%)
15,568
7,521
7,853
9,345
1,670
1,781
1,238
4,722
307
18,379
(10,526)
(10,177)
%
%
%
%
%
%
%
%
%
%
(%)
(%)
14,801
8,003
6,640
9,608
1,522
1,988
1,320
2,317
2,544
19,299
(13,735)
(14,656)
%
%
%
%
%
%
%
%
%
%
(%)
()%
Source: Geberit (Shanghai), Roland Berger & Partners’ analysis
The company can not generate enough cash from business operations and it solely relies on the continuous cash injection from the parent company for survival
Source: Cash flow, Geberit (Shanghai)
Cash inflow and outflow, 2000 (1-6)
[RMB ‘000]
Operating
Working capital
Investment
Cash before financing
Inter company loan
. Geberit Daishan
GDAI’s sales have continuously improved, and cost are reducing; the inter-company sales increased much faster than to third party
2) Including write-offs for obsolete materials: 1 million RMB & other unclear accounts
Sales development [RMB ‘000]
Operating losses development [RMB ‘000]
1998
1999
20001)
+136%
+36%
1) Estimation
1998
19992)
20001)
-24%
+74%
3284
4451
7763
Third party
Inter-company
Source: Geberit (Daishan)
GDAI’s operating losses are decreasing due to reduction of costs
Source: P&L Geberit (Daishani)
Cost structure
[RMB ‘000]
1998
1999
2000 (1-9)
11%
15%
10%
21%
1%
4%
36%
8%
12%
1%
3%
23%
29%
13%
3%
16%
5%
29%
22%
19%
16%
Other operating expenses
Administration
Marketing
Energy maintenance
Personnel expenses
Cost of material
Depreciation
10,058
14,444
11,668
359%
325%
206%
% of total sales
As a result of cost control, operating losses are reducing in line with the improvement of sales
Back-up
Profit & loss statement (Geberit Daishan)
[RMB ‘000]
Sales
Cost of materials
Gross profit (loss)
personnel expenses
Energy/maintenance
Depreciation
Marketing expenses
Administration expenses
Other operating expenses
Management fee
Total operating expenses
Operating profit (loss)
Net income
1998
1999
2000(1~9)
3284
(939)
2168
(4195)
(427)
(2267)
(171)
(2422)
(1247)
0
(10729)
(-8561)
(-8659)
%
%
%
%
%
%
%
%
%
0%
%
%
%
4451
(4211)
240
(3361)
(464)
(2280)
(170)
(1756)
(1719)
483
(10233)
(10706)
(-11052)
%
%
5%
%
%
%
%
%
39%
%
%
%
%
4866
(2224)
2574
(2959)
(540)
(1659)
(321)
(1309)
(978)
0
(7834)
(5255)
(5401)
%
%
%
%
%
%
%
%
0%
%
%
%
Source: Geberit (Daishan), Roland Berger & Partners’ analysis
2000(1~12)*
7763
(4000)
3425
(3947)
(721)
(2241)
(427)
(1742)
(555)
(100)
(9915)
(6490)
(7223)
%
%
%
%
%
%
%
%
7%
%
%
%
93%
* Estimation
Short-term interest bearing debt increased nearly 4 fold, leading the short-term liabilities increase by 123%. This amounted to % of total assets by the end of July, 2000
%
%
%
Source: Balance sheet, Geberit (Daishan), Roland Berger & Partners’ analysis
Liabilities Development
Liabilities Development,
98-00 (1-7)
1998
1999
2000(1-9)
+123%
[RMB ‘000]
Short-term interest-bearing debt development 98-00 (1-7)
+487%
1998
1999
2000(1-9)
[RMB ‘000]
% of total assets
% of total assets
%
%
%
As a result of the disproportional use of current assets and current liabilities, GDAI’s liquidity situation is deteriorating
Source: Balance sheet Geberit (Shanghai), RB&P analysis
Current ratio
Quick ratio
Current assets
Current liabilities
+29%
+127%
Development liabilities and assets
[RMB ‘000]
Due to huge losses, the company is solely financed by inter-company loans. Liabilities increase faster than assets.
Balance sheet Geberit (Daishan)
1998~ [RMB ‘000]
Back-up
1998
1999
2000
Fixed assets
Intangible assets
Inventories
Other prepaid expenses
Account receivable (net)
Cash & cash equivalent
Total assets
Share capital
Retained earnings
Net income current year
Total liabilities & provisions
Total share capital & liabilities
16,309
3,942
3,296
730
2,286
1,572
28,135
35,447
(8,372)
(8,659)
9,719
28,135
%
%
%
%
%
%
%
%
%
%
%
%
16,417
3,432
3,124
222
2,325
2,876
28,396
40,901
(17,031)
(11,052)
15,596
28,396
%
%
%
%
%
%
%
%
%
%
%
%
17,010
3,135
3,999
308
2,382
3,335
30,169
41,201
(28,083)
(3,919)
20,970
30,169
%
%
%
%
%
%
%
%
%
%
%
%
Source: Geberit (Daishan)
C2. Organization & processes
. Organization structure
GDAI’s organisation structures and management team have been improved after the change of the ownership, providing the basis for further improvement
GDAI
Base for further improvement is established
Wholly controlled by Geberit
Organisation structure is clear and followed
Authorities and responsibilities are clear
GM‘s management skills are accepted by the employees
Chinese middle management team is set-up
Reporting system has set-up
Positive corporate culture is forming
Internal communication and co-operation have been improved
Employees are generally motivated and have the positive attitude to the future of the company
In GSHA, Geberit and Lida have not integrated well from the foundation of JV. This creates a lot of internal conflicts and management chaos
GSHA
Lida
Geberit
Corporate culture
Management style/skills
Product lines
Markets
Work style
More importantly, in GSHA, the official organization structure is not implemented
HR
HR
HR
HR
Official organization structure
Organization structure in reality
GM
Dpt. GM
Sales & marketing
Production & logistic
CCS
Admin
Two parties exist leading to internal conflicts and complexities
Unclearly defined authorities and responsibilities, leading to overlap of some functions
CCS is separated from the company’s system, leading to inefficient co-operation and low efficiency
GM
Dpt. GM
CCS
Sales & marketing
Production & logistic
Admin
General manager is directly in charge of sales and administration by being the department manager, leading to no middle management team. Most 3rd tier managers are newly appointed, which results in lacking continuity in management
1): Employees from Lida
2): The management team of sales department is relatively stable, but the turnover of sales staff is relatively high
GM
H. Schuette
Sales & marketing2)
H. Schuette
Production & logistic
Ken Leung 7 months
CCS
Administration
H. Schuette
Process engineering 24 years
Quality control 1 month
Logistic 5 months
Outside purchase 5 months
Production control 32 years
Production 3 months
Maintenance 5 months
Local purchase 2 years
Controlling
1 year
EDP 2 months
Doc. Admin 17 years
Material Dev. 2 months
Personnel 32 years
Accounting 2 years
Production dep. Past-time
Quality management N/N
Process dep. N/N
> 6 months
> 3- 6 months
< 3 months
1)
1)
1)
1)
1)
. Management structure
The high hierachy management design in GSHA leads to low efficiency, and slow decision making process
Organization & Management structure
Decision-making process
GM
Dpt. GM
Dep. Manager
Regional Manager
Sectional management
21
1
1
4
21
Total: 48, upto 32% of total employees
GM
Dpt. GM
Total: 12 people report to GM directly
Personnel expenses in GSHA have been up to % of total sales in July 2000, as a result of the change of personnel structure
Personnel development & structure 1997-2000*
Turnover per employee *
[RMB ‘000]
1997
1998
1999
2000
* exclude staff in Beijing Office
1998
1999
2000
* Estimation
Production
Admin
Sales
CCS
11%
2%
6%
6%
15%
17%
19%
31%
29%
25%
23%
59%
54%
52%
52%
129
138
148
151
+13%
0%
The general manager can not gain necessary and correct data from the company for decision-making
Main problems of data/reporting
No control of data input (. no cross check in the warehousing)
Data input
A lot of useful data aren’t available (. scrapped product report)
Data processing
No strict control system (. no comparison of actual cost and standard cost)
Data is only for document, not for analysis
Data controlling
Too high figures in budgeting and sales forecast
Planning
Poor quality decision basis
Performance evaluation and incentive system in GSHA is very weak, leading to low motivation and commitment
Problems
Evaluation & promotion
Impacts
No defined procedure & criteria were found for evaluation
No clear criteria for promotion
Poor cooperation
Irresponsible work
Incentive system &
Training
No incentive scheme
No personnel development program
Not enough training programs
Low motivation among staff
Low commitment to the company
Low quality of employees
High staff turnover
GSHA does not have the proper management system, therefore it is run inefficiently
Main problems in management
Main problems in management system
Controlling system is not followed
Lack of performance evaluation system
No incentive scheme
Unclearly defined authorities & responsibilities
No reliable information for decision - making (. actual cost)
Quality of data is poor
No formal reporting system to collect data
Official structure isn’t implemented
GM doesn’t have leadership
Redundant management level leads to prevarication & inefficiency
Management team isn’t integrated and huge turnover in the middle management
No motivating corporate culture
No trustworthiness between GM & local staff
Decision - Making
Controlling, promotion & evaluation
Management structure
Culture, morale, communication
Low morale/motivation
Low commitment to the company
Inefficient internal communication
Unclear criteria for promotion
. Key process analysis
Currently, in GSHA the production-oriented process leads to unawareness of the market, as a result, there are no right products in the right market
Production
Sales
Marketing
HR
R&D
Finance
Logistics
After-sales service
Corporate strategy
Business unit strategy
Product strategy
Profits
Corporate culture
Morale
Management capabilities
Cooperation with Chinese partners
CCS does not have enough market information which leads to long development time and limited number of new products
Product Initiation
Product Development
Product Launch
No clear product development strategy, no comprehensive market research, no detailed quantitative forecast and non market oriented method lead to low number of successful products and waste of resources
Not enough manpower and technology resources and lack of cooperation and communication with other departments (. production and sales) leads to poor design and limited number of new products
Long time -to-market leads to missed market opportunity ( especially for Daishan )
In GSHA, process control in production system is inadequate, leading to high production cost
Production planning
Purchasing
Imprecise sales forecast figure from sales department and too many “Daily Sales Order”lead to difficulties in arranging the production schedule and purchasing. This least to high inventory level and delivery delay
No MIS for purchase plan leads to high amount of storage or shortage of some materials
No evaluation of suppliers leads to high price and poor quality
Selection and review of suppliers are all done by purchasing department which leads to difficulties for further improvement
Frequent change of suppliers leads to unsustainable quality and high waste ( . PVC)
In GSHA , process control in production system is inadequate,leading to high production cost (continued )
Control of input/output
Production
Storage control
CCS can not provide all the necessary technology standards for quality inspection, leading to poor quality inputs.
The recycling materials are sold directly to outsiders without approval from QC, leading to waste of materials
Low utilization of machinery leads to high production cost
Old-age machinery and molds and low quality workers lead to high production waste and low productivity (esp. Lida products)
Safety stock level is unreasonable for current situation, leading to high inventory level
No MIS for inventory management, warehousing only checks the documents instead of the exact amount of goods with no cross check in the whole process. Finance dept is not actively involved in inventory management. This leads to high amount of storage or shortage of some materials and discrepancies between bookkeeping and real amount
Inefficient focus and control, as well as lack of product know-how are the main problems for sales department in GSHA
Planning
Sales
No strict requirement to achieve the plan leads to the high forecast figure
Sales lack product knowledge, making it difficult to convince customers
Not product/channel focused structure leads to complexity
Not profit oriented rewarding leads to low profit margins
Budget control is not strictly followed, leading to high sales cost
Unclear authority and responsibility results in low service level and low customer satisfaction with high service cost
Weak communication with sales leads to low service level and low customer satisfaction
Lack of manpower and technology support from CCS leads to low customer satisfaction
No incentive and necessary support to distributors leads to low motivation to service the customer, resulting in poor reputation for Geberit
No strict budget control leads to high cost
After sale service
In GSHA, the main problems in the process are unsuitable process structure, inefficient process control and the huge differences between document-based process and the real process
Non market oriented processes
Lack of control in the whole process chain
Efficient implementation of required processes
Inefficient and ineffective operation
+
+
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