INTEGRATED STEEL COMPANY

 

SITUATION

  • Investment group purchased $400 million (annual sales) integrated commodity flat rolled steel facility financed 100% with debt
  • Company was profitable during initial three years; profits were reinvested in plant and equipment and were used to service debt
  • In year four, steel demand and prices dropped drastically causing net operating loss in spite of successful cost reduction initiatives
  • Company faced impending inability to meet lenders’ covenants and next debt payment

RESULTS

  • In sixty days costs were reduced by $1 million per month and a plan for future reductions was agreed upon by investors, operating management and lenders
  • In six months actions were implemented achieving total annual cost reduction of $35 per ton
  • The cost reduction resulted in the client company being the lowest cost integrated flat roll producer and combined with an improved market, this resulted in sustained net profits in excess of $60 per ton
  • The investor group sold the business two years later for $200 million, netting over $160 million after payment of outstanding debt

ACTION TAKEN

  • Reorganized the company into three customer-facing self-contained business units
  • Restructured salaried work content and processes; reduced staff through early retirement package
  • Restructured/reduced plant (union) workforce through unilateral job combinations and elimination
  • Implemented multiple plant productivity initiatives requiring no capital investment
  • Reduced cost of purchased goods and services by aggressive application of strategic sourcing methodology
  • Achieved additional plant workforce reduction through negotiation of new five-year labor agreement