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luxury M&A KPMG 2009

luxury M&A KPMG 2009

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Published by: paul on Mar 24, 2010
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01/11/2012

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Luxury business: respondingto the crisis
KPMG INTERNATIONAL
 
Contents
 © 2009 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network ofindependent firms are affiliated with KPMG International. KPMG International provides no client services. No member firmhas any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member firm. All rights reserved.
 
Luxury business: responding to the crisis 1
Executive summary
Many luxury goods companies are inthe grip of a double crisis. A decliningeconomy has hit sales, while a financialcredit crisis has made debt difficult andcostly to raise and service. The resultis that many luxury companies findthemselves in a liquidity crisisthat requires urgent remedial actionto survive.During the first two quarters of 2009stock markets have staged a partialrecovery, and the rate of decline inproperty prices and in unemploymenthas moderated. Yet the corporatecredit crisis has not gone away. Mostcompanies in financial distress will stillneed to revisit their market positioning,their cost cutting strategies andtheir investment plans, and aboveall improve their cash management,if they are to survive.In mid-2009 companies continueto enter financial crisis. The signs ofapproaching distress include missedbudget targets, falling margins,worsening working capital andincreased reliance on trade credit,while supplier conditions tighten.Companies faced with these conditionsshould follow four ‘golden rules’of survival.
Revise market positioning.
Companies faced with falling salesoften persist for far too long withextended product portfolios orbusiness lines that no longer makesense: rapid repositioning is vital.
Cut costs intelligently.
Cuttingthe right costs is difficult. Whilecontinuous cost reduction may berequired for survival, it has to beachieved without reducing qualityor effective marketing spend.
Maintain strategic investment.
Fear of increasing indebtedness in adebt-adverse market is leading somecompanies to freeze investment.That may keep stock marketinvestors happy in the short term,but eventually it can underminea company’s competitive position.
Manage liquidity.
Although liquidityhas become the leading issue forCFOs, cash management in manycompanies remains weak. Luxurycompanies, accustomed to a focuson product and sales, may beweaker than most. Acting to improveliquidity must therefore be at thetop of the agenda.Liquidity forecasting must play akey part in avoiding financial crisis:according to the 2008 Cash & WorkingCapital Survey, carried out by KPMGin the U.K., but also covering U.S. andEurope, many companies have a verypoor record of forecasting what cashthey will have, and where and whenthey will have it.KPMG's Advisory practicerecommends that companiesestablish a task force dedicatedto cash flow improvement, settingtargets and paying bonuses onresults, and running a 13-week rolling forecast reviewed daily. In the case of distressed companieswith an international network anddifferent IT systems, a move tocentralized cash pooling may benecessary, as well as moving to cutoperations that are burning cash,prioritizing solvent clients withdiscounts, implementing factoringto reduce payment times, andconsidering more sale andleaseback of assets.Significant improvements are oftenachieved quickly, but making resultssustainable requires the adoption ofa ‘liquidity mindset.’ The opportunityis to achieve improvements over themedium-and long-term; the challengeis to make cash management becomea natural part of everyday life foreveryone in the company.
 © 2009 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network ofindependent firms are affiliated with KPMG International. KPMG International provides no client services. No member firmhas any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMGInternational have any such authority to obligate or bind any member firm. All rights reserved.

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