Developments in the South African turnaround industry 2006

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Developments in the South African turnaround
industryConference Managing a Turnaround, WBS
15 19 May 2006
Ntombi Langa-Royds CEO Turnaround Management
Association Southern Africa 15 May 2006
The premier professional community dedicated to
corporate renewal and turnaround management
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Developments in the SA turnaround industry cover
a number of areas
OVERVIEW
Industry constraints
Underperforming distressed businesses and
government structures
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Developments in the SA turnaround industry

• Industry structure
• Industry driving forces
• Industry constraints
• The market for turnarounds
• TMA - Southern Africa

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INDUSTRY STRUCTURE
The turnaround industry consists of turnaround
professionals of various disciplines
Stakeholders
Under-performing distressed businesses and
government structures
Industry players formed TMA - Southern Africa in
2005.
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Developments in the SA turnaround industry

• Industry structure
• Industry driving forces
• Industry constraints
• The market for turnarounds
• TMA - Southern Africa

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Presently, the most significant driving force is
the newly formed Turnaround Management
Association Southern Africa
INDUSTRY DRIVING FORCES
Political driving forces 1
Organised turnaround industry
Task Group for Organising the Turnaround and Business Rescue Industries Active May September 2004 Spawned ABASA and TMA ABASA Association of Business Administrators of South Africa Formed in 2004 response to future new business rescue legislation initiatives Status Registered, executive elected, awaiting government approval Turnaround Management Association - Southern Africa Chapter Formed on 2005 to promote turnaround management in Southern Africa
More about TMA - Southern Africa later in the
presentation.
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Transformation of the liquidation industry will
shape new business rescue legislation
INDUSTRY DRIVING FORCES
Political driving forces 2
Transformation of the liquidation industry
Government is of the opinion that the liquidation industry Should give way to the national interests of job preservation and business rescue And not merely to those of liquidators, secured creditors and their lawyers (Enver Daniels Justice Department  Accordingly, government is planning to introduce reform Will include statutory regulation and the appointment of panels of turnaround specialists to try to save an ailing company rather than liquidate it. Ministerial Committee of Enquiry into the Liquidation Industry (2005) Prompted by corruption, mismanagement and lack of BEE Led by advocates Seth Nthai and Lindiwe Nkosi-Thomas Outcome unknown as yet
More about new business rescue legislation under
Legal Driving Forces.
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Government is involved with turnarounds via the
Department of Labour, the NPI and Department of
Trade and Industry
INDUSTRY DRIVING FORCES
Political driving forces 3
Social Plan and SEDA
The Department of Labours Social Plan allows for employers and workers to request assistance to prevent or minimise job losses when large-scale retrenchments are in the offing Social Plan's Technical Support Facility functions under the auspices of the National Productivity Institute (NPI) Private sector turnaround professionals (BEE preferred) are sponsored by NPI to conduct turnaround work More information www.socialplan.co.za Department of Trade and Industrys Small Enterprise Development Agency (SEDA) now also looking at turnarounds
TMA-SA will strengthen the industries ties with
government and work towards alignment with and
support of government initiatives.
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Turnaround management benefit from rising
performance standards and increasing world-wide
acceptance
INDUSTRY DRIVING FORCES
Economic driving forces 1
Rising performance standards
Increased incidence of shareholder activism and private sector shareholders becoming less tolerant of mediocre performance This trend extended itself to the public sector, where many turnaround programmes have been launched South African Post Office - successful turnaround by Maanda Manyetse Transnet - turnaround under way by Maria Ramos SAA turnaround under way by Khaya Ngqula Denel turnaround started by Victor Moshe, now under way by Shaun Liebenberg SARS business transformation under way by Pravin Govender
A lot of turnaround and business transformation
activity is taking place at State Owned
Enterprises and in government.
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However, the private sector market for turnaround
has declined significantly due to improved
economic health
INDUSTRY DRIVING FORCES
Economic driving forces 2
Economic indicators low bankruptcy activity

• August 2003 figures increased as a result of the
  impact of a strengthening Rand on export
  companies
• Declined thereafter due to decreasing interest
  rate
• No discernable short-term trend

• Downward trend robust economy, decreasing
  interest rates, relatively empty bank books
• Very little private sector turnaround activity

Compulsory company liquidations represent a
lagging indicator of the potential market for
turnaround. Voluntarily company liquidations are
disregarded as these are not necessarily as a
consequence of financial distress.
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Job preservation is an important objective of new
business rescue legislation
INDUSTRY DRIVING FORCES
Social driving forces
Unemployment
38,8 unemployment rate (expanded definition i.e. including the unemployed not actively looking for work) (Stats released September 2005) 26,7 official unemployment rate (only active job seekers) As a result, a business rescue culture is developing amongst distressed businesses' lenders Rescue rather than liquidate Banking Council press releases pledging support
4 out of 10 South Africans are unemployed. Hence
government intervention in the liquidations
industry and new business rescue legislation.
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Turnaround funding is being re-examined, and
formal turnaround education is strengthening
INDUSTRY DRIVING FORCES
Technological driving forces 1
Turnaround funding
New business rescue legislation has prompted the banking and private equity fraternity to look at strengthening distressed debt transactions and turnaround funding Turnaround private equity funds to be formed?
Formal turnaround education
Certified Turnaround Professional (CTP) exam planned (associated with TMA-SA) ABASA admission exam planned (may be the same as the CTP exam) Turnaround management course planned at University of Pretoria (Professor David Burdette) to prepare students for CTP exam Turnaround management taught at Rhodes University as part of Strategic Management course (Professor Neil Harvey)
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Industry is more and more networking and
educating through conferences, publications and
web sites
INDUSTRY DRIVING FORCES
Technological driving forces 2
Turnaround conferences and publications
This annual 5-day conference on managing a turnaround Monthly turnaround management lecture series presented by TMA-SA Turnaround series in Professional Management Review Annual TMA convention in USA (900 delegates) on turnaround management
Turnaround industry web sites
TMA-SA web site at www.tma-sa.com Turnaround Industry SA section on the Turnaround Solutions web site since April 2004 at www.turnaround-sa.com Turnaround Industry SA blog at http//turnaround-sa.blogspot.com These deal with turnaround news, events, opinions, links, references, industry info, industry associations new business rescue legislation info liquidation statistics and news
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New business rescue legislation is expected to
become the most important future driving force of
the industry
INDUSTRY DRIVING FORCES
Legal driving forces
New business rescue legislation
Government places a high premium on job preservation and saving businesses Hence new draft business rescue legislation to replace judicial management Will allow for turnaround to take place within a legislative framework for the first time However, timing is unknown and the approach is fragmented Draft Insolvency and Business Recovery Bill approved by cabinet in March 2003 Unified Model the present Department of Trade and Industry/Professor David Burdette initiative for business rescue legislation as part of company law reform Business Administration Act the Department of Justice/Patrick Daly/Banking Council initiative for new business rescue legislation under the Insolvency Act Now expected to be incorporated in the new Companies Act
For more information on how new business rescue
legislation may impact on the turnaround
management in SA, please see Jan van der Walts
presentation Contrasting informal turnaround
with turnaround during formal insolvency.
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Developments in the SA turnaround industry

• Industry structure
• Industry driving forces
• Industry constraints
• The market for turnarounds
• TMA - Southern Africa

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Timing of turnaround intervention, and lack of
finance represent the two biggest constraints to
growing the turnaround industry
INDUSTRY CONSTRAINTS
Constraint Resolvable?
Long lead time before a turnaround is triggered Boards and management tend to wait until a crisis has developed When banks intervene with workout action, it is normally too late too Turnaround viability is low once a business has reached the Failing Zone in terms of the Z-Score Education via industry associations and conferences will help New business rescue legislation may bring heavier penalties for directors trading under insolvent conditions
Lack of turnaround equity finance No specialist turnaround private equity firm in SA Those that do finance turnarounds tend to focus on underperforming rather than distressed companies Lead-time for due diligences tends to be too long for a company requiring urgent refinancing Government-sponsored business rescue fund? New private sector initiatives to start turnaround private equity?
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In addition, there is a number of statutory
constraints
INDUSTRY CONSTRAINTS
Constraint Resolvable?
Antiquated insolvency legislation Judicial management a failure Insolvency regulation scattered across the Companies Act, the Insolvency Act and the Close Corporations Act To be addressed through new business rescue legislation
Stringent labour legislation Recent amendments to the Insolvency Act reiterate government's commitment to saving jobs and the protection of employees when a company experiences financial difficulties For instance, if a distressed business is sold, all employees from part of the deal New business rescue legislation not expected to lead to changes in the LRA
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Statutory constraints (continued)
INDUSTRY CONSTRAINTS
Constraint Resolvable?
Attitude of SARS (SA Revenue Services) Not allowing past and assessed losses as overseas Seen as a stumbling block preventing entrepreneurs and financiers stepping forward to participate in business rescue May be satisfactorily addressed since SARS has reportedly committed itself to the new business rescue legislation
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Developments in the SA turnaround industry

• Industry structure
• Industry driving forces
• Industry constraints
• The market for turnarounds
• TMA - Southern Africa

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We believe that active industry associations and
new business rescue legislation will boost the
turnaround market
THE MARKET FOR TURNAROUNDS
Present
Future
Higher private sector level of turnaround
activity 2007 onwards

• Transnet
• SAA
• Denel
• Government transformation programmes e.g. SARS

Public sector

• Low interest rates
• Low liquidation statistics
• Relatively low bank books

Private sector
But private sector turnaround activity will not
return to the level of the nineties until the
economy cools down and interest rates increase.
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Developments in the SA turnaround industry

• Industry structure
• Industry driving forces
• Industry constraints
• The market for turnarounds
• TMA - Southern Africa

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TMA-SA is in its first year of operation
TURNAROUND MANAGEMENT ASSOCIATION SOUTHERN
AFRICA

• TMA-SA overview
• Non-profit association for and turnaround and
  corporate renewal ) professionals of all
  disciplines

• International affiliate of TMA International,
  which has 7 000 members world-wide
• License agreement affords its members all
  benefits of TMA International

• Represents the Southern African region - South
  Africa, Swaziland, Lesotho, Namibia, Angola,
  Zimbabwe and Mozambique
• Governed by a 15-person Board of Directors

) Corporate renewal, business transformation
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The association aims to grow the turnaround
industry and make turnarounds more successful
TURNAROUND MANAGEMENT ASSOCIATION SOUTHERN
AFRICA
Vision TMA-SA will be recognised by the Southern Africa business community as the pre-eminent organisation in which turnaround and corporate renewal professionals from all disciplines choose to associate, market their services, and develop their professional skills
Mission TMAs mission is to serve as a forum for turnaround and corporate renewal professionals from all disciplines to promote high standards of practice, foster professional development and enhance the image of TMA members
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Benefits to members are entrenched in our mission
TURNAROUND MANAGEMENT ASSOCIATION SOUTHERN
AFRICA
Networking Networking structures and events for turnaround professionals of all disciplines to meet, interact and contact each other
Knowledge Knowledge capture and distribution of information, ideas and knowledge by serving as a clearinghouse of information and research pertinent to turnaround management and the turnaround industry
Education Fostering professional development opportunities for turnaround professionals of all disciplines, improved methodologies in raising standards of turnaround management, and enhancing the necessary competencies for successful practice
Promotion Promoting TMA-SA and its members as professionals committed to the highest standards of practice
Organisational benefits Benefits relating to insurance, medical aid, travel and accommodation arising from the bulk purchasing power of the organisation (being developed)
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Membership is open to all interested in corporate
renewal and turnaround
TURNAROUND MANAGEMENT ASSOCIATION SOUTHERN
AFRICA
2006 TMA-SA membership fee structure 2006 TMA-SA membership fee structure 2006 TMA-SA membership fee structure 2006 TMA-SA membership fee structure
Paid Apr - Jun Paid Jul - Sep Paid Oct Dec, inclusive of fees for 2007
Regular member R1 530 R1 080 R2 430
Government \ Academic R 725 R 510 R1 150
Full-time student R 215 R 150 R 340
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Questions?
Tel. [phone] Fax [phone] Web site
www.tma-sa.com Email tmasouthernafrica_at_gmail.com
Turnaround Management Association Southern
Africa CEO Ntombi Langa-Royds