FAKULTI EKONOMI DAN PENGURUSAN

IJAZAH SARJANAMUDA PERAKAUNAN DENGAN KEPUJIAN

SEMESTER (1) SESI 2018/2019

EPPA4716 KAJIAN KES INTEGRASI

JOHNSON TURNAROUND CASE STUDIES

Prepared for:

ENCIK AMIRUL HAFIZ BIN MOHD NASIR

Prepared by:

1. DANIAL RAMZY AL-BAQARIAH GA02137

2. MUHAMAD SABRI BIN BERAHIM @ IBRAHIM GA02219

3. MUHAMMAD SYAHIR BIN AHMAD GA02155

4. MOHAMAD AFIF SHAFIQ BIN NOR AZMAN GA02148

5. MOHD ABDUL SALAM BIN ALAUDDIN GA02299

Contents
Introduction of Johnson Turnaround Case Studies .................................................................... 2
Statement of Problem ................................................................................................................. 3
Case Analysis ............................................................................................................................. 5
Swot Analysis ........................................................................................................................ 5
Ratio Analysis ............................................................................................................................ 6
Financial Leverage ratio ........................................................................................................ 6
Evaluation and Alternatives Courses of Action ......................................................................... 8
Sales And Marketing.............................................................................................................. 8
Reducing Cost .................................................................................................................... 8
Advertisement & promotion expenses per turnover (%) ................................................... 9
Production and services ....................................................................................................... 11
Lean Six Sigma .................................................................................................................... 12
Few retail outlet incurring loss ............................................................................................ 12
Accounting And Finance ......................................................................................................... 13
Account Receivable Analysis .......................................................................................... 15
Average Receivables Turnover ........................................................................................ 16
Guarantees (bank, corporate, personal) ............................................................................... 16
Management information system ......................................................................................... 16
Asset Information And General Management ..................................................................... 17
Human Resources Management .......................................................................................... 17
Recommendation ..................................................................................................................... 18
Reference ................................................................................................................................. 19

1
Introduction of Johnson Turnaround Case Studies

Johnson Pte. Ltd., is a subsidiary of a fast moving consumer goods (FMCG) group of
companies based in Southern Indian region. Johnson Pte. Ltd., is a public non-listed. JPL was
wholly-owned by the Indian government for 20 years of operation. Hong Kong group of
companies acquired 80% of the company’s shareholdings and has involved in a similar
industry operating within the Asia Pacific region

JPL manufactured and distributed a range of products, including frozen chicken, noodles,
pastries, bread products, yeast and fats. it also traded in commodities such as oil. It owned a
chain of restaurants and retailing outlets.

Azmi, the new Chief executive officer had been assigned by the chairman to plan and execute
a turnaround programme for the company due to the problems they have been facing ever
since they took over its operation. in addition, the sales figures were declining but their
operating costs were kept increasing.

The chairman directed Azmi check what is happening to the company’s credit control and
inventories management. Therefore, Azmi had to plan and execute an appropriate turnaround
strategy.

The acquisition has in line with the Hong Kong group of companies’ strategic objective of
expanding their business operations globally and to reach its targeted customers in Middle
1ast and Indian sub continent states. The company experienced steady decline in sales and an
increase in operating cost.

In November 2009, Encik Azmi was employed as the chief executive officer (CEO) of JPL.
his appointment with the task of salvaging the company by constituting a turnaround strategy
before the situation become worsen. JPL is among the major players in FMCG industry in
India, with other contenders like Nestle and Unilever dominating the market. In 2007, JPL
controlled 30% market share while Nestle and Unilever shared the balance. These rival
companies invest lot of resources for research and development, advertisement and
promotion. They also spend 2 to 3% of their revenues to maintain their market.

2
Statement of Problem

1. Sales And Marketing

 Maintaining and improve JPL place as the key market player which had 30% of
regional market share.
 JPL had to compete based on quality, cost and services.
 Excessive expenses spend on advertisement and promotional expenses.
 Increase of marketing expenses throughout the years.
 lack of marketing analysis and strategies

2. Production And Services

 Segmental net operating incurred loss.

 Competitor invests heavily in advertisement and promotional expenses.
 Company’s owned 45 retail outlet and few incurred loss because of non strategic
location

3. Accounting And Finance

 high cash conversion cycle

 The receivables turnover from 2005-2008 is 1.6 times for Johnson Pte Ltd to collect
the sales made on credit. The low turnover level indicates an excessive amount of bad
debt. It might be caused by an inadequate collections function or majority of
customers having financial difficulties.
 Collection period are taking 231 days in average to pay Johnson. high risk of payment
default by customers as they had been taking longer time to settle the debt from 2006
onwards
 negative cash flow 2005- 2008

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4. Guarantees (bank, corporate, personal)

 Insufficient bank guarantees for the good taken by credit

 Average overdue by Account receivable more than 90 days
 Moto vehicle accepted as collateral

5. Management information system

 Azmi wanted to improve current accounting system at retailing division for better
inventory and efficiency cash management.

6. Asset information and general management

 Azmi recently inspected the company’s assets and he found heaps of absolute spare
parts left untouched in the store room
 Poor asset management

7. Human resources management

 Reduce compliance cost

 Minimal public exposure
 Enforce lean management
 Replace unproductive staff
 Replace expatriates with local

4
Case Analysis

Swot Analysis

STRENGTHS WEAKNESSES

 JPL own a chain of restaurants and  Poor asset management

45 retailing outlets.  Few retail outlets located in a non-
 JPL had 30% of the Asia Pacific strategic locations.
region market share.  Mismanagement of inventories and
account receivables.

OPPORTUNITIES THREATS

 High consumer earning power due to  Low entry barrier in the consumer
bottom line improvements among goods industry.
establishments in developing  Rise in raw material prices.
economies.  Industry players have been struggling
 The takeover of JPL by the Hong to capture consumers’ brand loyalty
Kong group of companies will due to weaker sales growth in
increase their international market developed economies.
share and their ability to service
customers based in the Middle East
and the Indian subcontinent states.

5
Ratio Analysis

Financial Leverage ratio

i) Total Debt
Ratio Total assets - Total equity
Total assets

*The debt ratio is defined as the ratio of total debt to total assets,
*expressed in percentage, and can be interpreted as the
proportion of a company’s assets that are financed by debt.

2005 $233,129,800 - $194,649,800 = 0.17 / 17%

$233,129,800

2006 $232,145,140 - $191,760,140 = 0.17 / 17%

$232,145,140

2007 $230,150,970 - $187,860,970 = 0.18 / 18%

$230,150,970

2008 $224,408,220 - $180,325,220 = 0.20 / 20%

$224,408,220

 The higher this ratio, the more leveraged the company and the greater its financial risk.
 A debt ratio of greater than 1 indicates that a company has more debt than assets.
 Meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt.
 Used in conjunction with other measures of financial health, the debt ratio can help investors
determine a company's risk level.
 Therefore, as the results above we can see that the company’s debt ratio every each year
became increased.
 So, the company should take it seriously as the financial are become more risky.

6
ii) Debt Equity ratio = Total Debt
Total Equity

 A measure of a company's financial leverage calculated by dividing its total liabilities by

stockholders' equity.
 It indicates what proportion of equity and debt the company is using to finance its assets.

2005 $38,480,000 0.20

$194,649,800

2006 $40,385,000 0.21

$191,760,140

2007 $38,140,000 0.20

$187,860,970

2008 $40,133,000 0.22

$180,325,220

 The results above shows that each year the company leverage ratio became
increased.
 A high ratio is generally considered bad, because the company has a high
amount of debt, and is therefore exposed to high risk in terms of interest rate
increases or credit rating
.

7
Evaluation and Alternatives Courses of Action

Sales And Marketing

Johson Maketing’s expenses

$19,000 $18,000
$18,000 $17,000
$17,000 $16,000
USD

$16,000 $15,000
$15,000
$14,000
$13,000
2005 2006 2007 2008
Years

Johson Maketing’s expenses

Line chart 1 : Johson Maketing’s expenses

Reducing Cost

Johnson Pte Ltd. must save money on office supplies by contacting vendors to let
them know you’re price shopping. Look outside your pool of traditional vendors. Ask
for large discount suppliers.

Johnson Pte Ltd. could also deals with supplier to give an extended the credit term so
that cash in hand will be used for better investment for profit hence positive the cash
flow. Asking for huge discount by ordering goods in bulk, bargaining power to get
cheaper alternative raw material. Contract with supplier for future price, so can
avoided increasing of price, Johnson Pte should make an agreement for future buying
of product using current price.

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 This strategy can makes Johnson Pte Ltd as a strong rivalry among competing firms.
But by considering choosing alternative cheaper material will jeopardise the quality of
production

Johnson Pte Ltd. must develop the Five-Forces Model of Competition strategy to
reduce the cost in raw material prices which are rivalry among competing firms,
potential entry of new competitors, bargaining power of suppliers, potential
development of substitute products and bargaining power of consumers.

Potential
new
entrants

Rivalry
Thereat of Bargaining
among
substitute power of
competito
product buyer
rs

Bargaining
power of
supplier

figure 1 : Porter’s Five Forces Model

Advertisement & promotion expenses per turnover (%)

% of ads & promo expenses per turnover

10%

3%
2% 2%

2005 2006 2007 2008

line chart 2: percentage of advertisement and promotional expenses per turnover

9
Line chart 2 showing an increasing of advertisement and promotional expenses extracted
from Johnson’s financial statement. Started from 2005 advertisement expenses per turnover is
3% maintaining to 2% during 2006 and 2007 but sky rocket to 10% per turnover during 2008.

Below chart shown Johnson’s revenue during 2005 to 2008. This result shown that the
marketing campaigns by Johnson’s are not very effectively impacted the customer to buy
Johnson’s product. Our recommendation is Johnson should used social media advertisement
campaigns example Youtube, Facebook, news feed and etc.

The main advantage of social media marketing is cost-related. The majority of social media
sites are free to access, create a profile and post information. The advantage of reaching your
targeted market for little or no cash investment is substantial, and the audience wanting your
information voluntarily joins or follows you.

Through social media Johnson’s can reach their target customer and get the feedback directly
through Likes and Views.

Johson's revenue
revenue

$55,000,000 $55,000,000
$54,000,000

$50,000,000

2005 2006 2007 2008

Line chart 3: Johnson’s revenue in USD during 2005 to 2008

10
Production and services

AS at 31 / 12 / 2018
$4,000,000.00

$2,000,000.00
Net Income /(loss)

$-
Noodles Bakery Consumer Meat Cooking Oil Food and Bakery raw
$(2,000,000.00) flour product bevarage ingredients
(processes) (operation)
$(4,000,000.00)

$(6,000,000.00)

Bar chart 1: Segmental Net operating income/ (loss) reporting in USD

From the bar chart above we can see Noodles are the cash cow for the Johnson’s company.
Johnson should have focus more but not too much to this cash cow’s product and just
maintaining the likable factor of this product.

For the rest of the production which incurred a loss, Johnson should have done a product
review and analysis. Examples are the Bakery Raw ingredients are the one that incurred
highest loss followed by food and beverages business. Perishables, like grocery items, need to
be used up fast to avoid spoilage. Certain food items do not spoil quickly and can be
purchased in bulk to save items. These products include grains, nuts, pastas, spices and
canned goods. Variety is typically limited when buying in bulk. A single item is sold in large
quantities to reduce per-unit price.

From our analysis, we came out with a suggestion as follow: -

Bakery Raw ingredient

• Raw ingredient have expired date

• Reduce value chain – supplier to customer

• Customer buying pattern

• High quality product

• Eliminate waste

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Retail, food and beverage

• Customer satisfaction – improve order system, presentation of food

• Improve quality, taste of food – meet target customer

Lean Six Sigma

Lean Six Sigma is a method that relies on a collaborative team effort to improve performance
by systematically removing waste reducing variation. It combines lean manufacturing/lean
enterprise and Six Sigma to eliminate the eight kinds of waste (muda): this is as conforming
with shareholder and chairman request to change the management style to lean management
style.

Lean six sigma organizes lean and six sigma to cut production costs, improve quality, speed
up, stay competitive, and save money. From six sigma can gain the reduced variation on
parts. Also, lean focuses on saving money for the company by focusing on the types of waste
and how to reduce the waste. The two coming into lean six sigma to better each other creating
a well balanced and organized solution to save money and produce better parts consistently.

Few retail outlet incurring loss

Johnson Co. owned 45 retail outlets and few incurred loss because of non strategic location,
we came out with few solutions to this issue.

Solution as follow: –

 Perform market analysis – demographic, target market, competition etc.

 Closed the non strategic shop
 Make the shop smaller
 Explore new market, place and location

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Accounting And Finance

The Cash conversion cycle (CCC) measures how long a firm will be deprived of cash if it
increases its investment in inventory in order to expand customer sales.

DIO = Average inventory/COGS per day

where, Average Inventory = (Beginning Inventory + Ending Inventory)/2

2005 2006 2007 2008

beg. Bal 15000 13000 13000 13000
ending bal. 13000 13000 13000 13000
28000 26000 26000 26000
/2 /2 /2 /2
Average 14000 13000 13000 13000

cogs/365 104.79 123.56 124.27 116.44

Inventory conversion
period 133.59 105.21 104.61 111.65

DSO = Average AR / Revenue per day

where, Average AR = (Beginning AR + Ending AR)/2

2005 2006 2007 2008

beg. Bal 30000 31000 32000 32500
ending bal. 31000 32000 32500 33000
61000 63000 64500 65500
/2 /2 /2 /2
Average 30500 31500 32250 32750

sales/365 123.29 150.68 147.95 136.99

Rec'bles conversion
period 247.39 209.05 217.99 239.08

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DPO = Average AP/COGS per
day

where, Average AP = (Beginning AP + Ending

AP)/2

2005 2006 2007 2008

beg. Bal 33000 34000 36000 38000
ending bal. 34000 36000 38000 40000
67000 70000 74000 78000
/2 /2 /2 /2
Average 33500 35000 37000 39000

cogs/365 104.79 123.56 124.27 116.44

Payables conversion 319.67 283.26 297.73 334.94

period

CCC = DIO + DSO - DPO

2005 2006 2007 2008

CCC 61.31 31.00 24.86 15.78

CCC = # days between disbursing cash and collecting cash in connection with
undertaking a discrete unit of operations.

Johnson’s Cash conversion cycle (CCC) shown higher number of days between disbursing
cash and collecting cash in connection with undertaking a discrete unit of operations. The
term "Cash Conversion Cycle" refers to the timespans between a firm's disbursing and
collecting cash. However, the CCC cannot be directly observed in cashflows, because these

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are also influenced by investment and financing activities; it must be derived from Statement
of Financial Position data associated with the firm's operations. this result shown that
Johnson had a bad cashflow.

Equation describes retailer. Although the term "cash conversion cycle" technically applies to
a firm in any industry, the equation is generically formulated to apply specifically to a
retailer. Since a retailer's operations consist of buying and selling inventory, the equation
models the time between

(1) disbursing cash to satisfy the accounts payable created by purchase of inventory, and

(2) collecting cash to satisfy the accounts receivable generated by that sale.

Johnson’s CCC
70
60 61.31
50
No.of days

40
30 31
24.86 Johnson CCC
20
15.78
10
0
2005 2006 2007 2008
Years

Line chart 4: Johnson’s CCC 2005 to 2008

Account Receivable Analysis

In Johnson’s financial statement shown $40 million provision for bad debts

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Average Receivables Turnover

1.5 + 1.7 + 1.7 + 1.5 / 4 = 1.6 times to collect the sales made on credit

low turnover numbers (1.6 times) majority of customers having financial difficulties.

Average Collection Period

251 + 212 + 220 + 241 / 4= 231 days (a high risk of payment default)

Guarantees (bank, corporate, personal)

For Johnson debtors there are a lot of them provided insufficient bank guarantees for the
good taken by credit, Average overdue by Account receivable more than 90 days and Azmi
also found out that Moto vehicle is also accepted as collateral .

Soluton :-

 Make a contract with customer – better policy ex. Ask bank to give money first

 Impose an interest for late payment more than 3 months (90 days)

 Give a discount for early payment example: 5% for payment before 10 day, 3 % for
payment before 3o days

Management information system

Azmi wanted to improve current accounting system at retailing division for better inventory
and efficiency cash management.

he should planning the system information system where the to outsources or build from
scratch or buy from shelf. The disadvantage of this are it something will incurred more cost
and the result cannot be confirm to works according to needs

16
Asset Information And General Management

Azmi recently inspected the company’s assets and he found heaps of absolute spare parts left
untouched in the store room. this is poor asset management

Solution: -

 sell the asset to the highest bidder – creating space at warehouse

 Money can invest to more profitable investment

Human Resources Management

Azmil being told group of companies delisted by major shareholder

To do:-

 Reduce compliance cost

 Minimal public exposure
 Enforce lean management
 Replace unproductive staff
 Replace expatriates with local

Our comment:- good move for cutting the variable cost but need to pay compensation

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Recommendation

Based on the analysis made above, there are several strategies that Johnson can apply in order
to turnaround the company’s condition

Firstly, Johnson can adopt retrenchment strategy which company cutting any cost that are
unnecessary and does not affect operational or variable cost.

Johnson should stop production of curtain product that did not give a positive income to
company. Johnson should stop the non added value product immediately because its only
increase the cost.

Financial statement should be prepare better example information system accounting records
should be implemented. it’s very good idea because through good book keeping analysis can
be made and better decision making can be done

As we know Johnson had a very loose policy on debtors. Tightened the policy seems like
very hush move to makes but it can improve our receipt and we can used it for better value
added things for company.

Theirs is a lot of production managing style like Just in Time, Kaizen, lean management etc.
that Azmi can introduce to production department which is proven these style will give a
better result and cutting cost for the department.

Lastly as a leader Azmi should do a lot of planning, strategies, research and with good
leadership Azmi can turnaround Johnson limited to profitable company and increasing
market share an compete with the market leader competitor better.

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Reference

1. Anthony, R.N., Hawkins, D.F. & Merchant, K.A. 2011. Accounting, Text and Cases. 13th
Edition. Singapore, McGraw-Hill.

2. Asian Journal of Case Research (AJCR) Volume 4 (Special Issue) 2011.

3. Journal of Business Case Studies. Vol. 12 No. 2. 2016. The Clute Institute.

4. Margaret, W. 2011. Risk Management in Organizations: An Integrated Case Study

Approach. New York: Routledge.

5. Yin, R.K. 2009. Case Study Research: Design and Methods. 4th Ed. Thousand Oaks, CA:
SAGE Publications

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