Case Study: Drexel Industries Inc. : Robert Amter

Case Study: Drexel Industries Inc.

Drexel Industries Inc.,

Pennsylvania and Jones Plumbing Systems Inc., Alabama

Robert Amter was simultaneously retained, by two clients as turnaround Chief Executive Officer of two distressed manufacturing companies.

Drexel Industries and Jones Plumbing were owned by General Electric Capital and The Jordan Company respectively.

Drexel Industries Inc., Horsham, Pennsylvania

Situation:

Drexel was a $20 million in sales manufacturer of very narrow aisle fork lift trucks primarily sold through material handling dealers. About ten percent of sales are directly to the government, principally the military. General Electric Capital Corp. acquired Drexel in April 1994.

Problems:

» Incurred a $1.1 million net loss in fiscal year 1995.

» 41% of Drexel’s customers had not purchased a fork lift truck in the first six months of 1995.

» Market share had declined every year since 1990. In 1986, it was 36% and 21% in 1995.

» Inventory had increased 20% from March 1995 through June 1995. From $4.0 million to $4.8 million while truck shipments were flat.

» In 1993, Drexel was awarded a $6.4 million U.S. Army contract (TACOM) for delivery in 1995. By 1994, the company had failed the Army’s Aberdeen performance test.

Drexel was in default of the Army contract and faced large punitive monetary damages which may force the company into bankruptcy and potentially liquidation. The trucks were sold to the Army at a 7% operating loss.

Objectives:

» Stabilize Drexel.
» Cure the Army contract default.
» Turnaround its financial results.

Results Achieved the first 5 months:

…….1994……. …….1995……. Improvement

Financial Results Units (000$) Units (000$) Units Dollars

Sales 115 $6,570 155 $9,155 +35% +39%

Operating Profit (Loss) $ (239) $ 747 +886%

% of Sales (3.6)% 8.2%

EBITDA (Loss) $ (64) $ 905 +869%

% of Sales (1.0)% 9.9%

Annualized Return on:

Net Working Capital (4.6)% 48.0%

Total Capital (includes debt) (1.2)% 15.5%

Direct Labor Efficiency Improvements:

Efficiency 94% 103%

Productivity 79% 86%

Operating profit excluding the Army business:

The Army contract was a small percent of sales, but incurred disproportionately high costs. The improvement in the company’s commercial, non-Army, core is as follows:

July through November (000 $) 1994 1995 Improvement

Operating Profit $206 $878 +326%

% of Sales 3.3% 9.9%

» Reduced salaried and indirect headcount by 23%.

» The U.S. Army contract default was cured. The trucks successfully completed the Army’s performance test.

Results Achieved while Bob Amter was Chief Executive Officer:

Actual 16 months YTD (000$) 1995 1996 % Improvement

Sales $28,083 $30,923 +10%

Gross Profit 7,885 8,308 +5%

Operating Profit 950 1,084 +14%

EBITDA 1,984 2,138 +8%

Net Income (Loss) (1,652) 770 +2,322%

Enterprise Value none $10,000

~ 1996 financial results include high, non-recurring expenses needed to cure the U.S. Army contract default. These costs are not included in the 1995 financial results.

~ These improvements were made without bringing in new management. To accomplish these results competent managers were focused on developing and implementing a realistic strategic plan.

~ This plan required completion of a limited number of priorities in a disciplined manner with a sense of urgency and cross-functional communication. The strategic plan was developed using a “bottoms up” approach.

Reason I wrote my book “Learn to Whisper”

Click on this link for a more complete description of “Learn to Whisper”

The reason I wrote “Learn to Whisper”:

My conclusion after operating as a Turnaround Chief Executive Officer for more than twenty-five years is that the majority of this country’s top management is far from first-rate. In fact top management, particularly at the chief executive officer level, is at best average with a large number that can be rated mediocre. This lack of management competence has seen this country’s market leaders lose sizeable market share to foreign manufacturers able to export better quality and lower cost products to the USA. It has seen manufacturing and service operations unnecessarily moved to foreign countries. All of which has negatively affected the economy, severely damaged former blue-chip corporations and seen quality jobs lost.

It is quite common to discover that companies struggling with this inability to compete with foreign companies have been simply mismanaged. The once successful business deteriorated because of an incompetent chief executive officer and weak senior management

Why doesn’t this nation have first-rate management? Inadequate training. Chief executive officers and vice presidents learn “on the job”. A number get promoted based on personality, political connections and drive – not merit. They are not carefully screened for the potential to become successful at managing. For some all that is needed is a well-written resume, the right interviewing style and the inability of a new employer to accurately assess skills, performance and potential.

Compare this to the process doctors go through. From medical school to internship to residency to a senior role after years of education, experience and continuous training their progress and capabilities are constantly monitored even after they become senior in the profession. Generals and Admirals go through a similar protocol. They must prove themselves in low-level assignments before they are judged qualified for senior positions. Unqualified applicants in both professions are culled out. What can be done to improve management competence? Education, on-the-job training and job performance monitoring. My book will educate people on the subject of managing. Its 101 management lessons are separated into the 17 subjects managers need to know.