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  1. By Ivan Uttley Using Scenario Planning in the Reasonable Prospect Assessment

  2. Context • The Board of a distressed firm has passed resolution to enter business rescue, the BPR is to be appointed , and must accept this appointment in writing. The BRP has 5 days to file, and must articulate why the rescue has a reasonable prospect of success. (Our intent is to deliver a rescue which has dominating focus on sustainable turnaround which will reduce Creditor impairments or allow the debtor to fully meet their obligation* ) • Meaning: • We must assess and substantiate the realistic prospects of planning and implementing BRiL (Better Return than in Liquidation (S128(1)iii) • We must assess to at best a single sigma the Quantum of PCF (Post Commencement Finance (funding)) • We must assess any accounting for PI (Public Interest) extenuating circumstances. • We must form a practical view on being able to implement the rescue plan (skills, costs and alignment) with the team at hand and no additional funding requirements * The NPV equivalent of their obligation using the Creditor’s cost of capital or IRR whichever is lower, in the discount rate

  3. Why not follow the Due Diligence approach typical of an acquisition? •  If we had the time, but we don’t, so must adopt the tactics of a trauma medic – triage. Nonetheless we need to access the Reasonable Prospects along the same dimensions as those of a typical due diligence, which are typically a flavour of: • Assessing Potential in the market and the ability of the business to thrive in this market • Contextualizing the Performance of the business’s historical financial statements • Judging the Quality and Relevance of balance sheet assets • Valuing Contracts, Intellectual Property, and Patents • Forming an opinion on Human Capital and Technical expertise • Assessing Quality of Management and institutional behaviours (Culture & Zeigeist) • Examining projected cash flow and EBITDA (i.e. before Accounting distortions cloud the picture) • Identify opportunities for further value creation • Time constraints make this an inexact science, but if data and people are available (itself a very good indicator!), then a good picture can be formed nonetheless, we just need to ask the right questions.

  4. Phases of your Reasonable Prospect Assessment • The rest of the document follows the steps of the Reasonable Prospect Assessment • Data Gathering via: • Standard business artifacts • Informal open ended questioning • Structured questions and • Quantitative assessment of financials • Qualitative assessment of pertinent domains

  5. Contents • The rest of the document follows the steps of the Reasonable Prospect Assessment • Data Gathering via: • Standard business artifacts • Informal open ended questioning • Structured questions and • Quantitative assessment of financials • Qualitative assessment of pertinent domains

  6. Data Request and access to Business Artefacts . • This link details the documents that would typically be requested. It should be noted: • None of the documents requested should have to be created. They are to be expected from ANY medium, large or corporate enterprise. • They should not require special access. Any person on the leadership team should be able to retrieve these, except for the rare exception. • The format, branding and general prettiness is of absolutely no importance. A photograph of a whiteboard will do! • No effort should be invested in printing these out. They should just be readily available for someone sitting behind the business firewall. • Time is of the essence, and all that is needed is 2hrs notice, for work to begin. • Follow this link for the request. (This is generalized and will be reworked for the industry and the business itself, a manufacturing concern is very different to a financial services firm and the changes would reflect this.)

  7. Contents • The rest of the document follows the steps of the Reasonable Prospect Assessment • Data Gathering via: • Standard business artifacts • Informal open ended questioning • Structured questions and • Quantitative assessment of financials • Qualitative assessment of pertinent domains

  8. Informal chats about what has shaped this firm’s current crisis – (1/4) • Ineffective Management Style. For example: An MD, founder or the corporate leadership is often reluctant to delegate authority or refuse to do so. No decision, big or small, can be made without prior consent. As a result, the rest of the management staff gains no solid experience or feeling of vested ownership in the business. There is one single huge and terrible bottleneck in the business. The symptoms could be a singular lack of competence and ability, or even a family tragedy, maybe ill-health. Find out how easy it is to access senior managers, are they in touch with the business, • Business outgrew the management, For example: Rapid growth has led to the capabilities and effectiveness of management being over-whelmed. Management are just not able to work successfully at the new level. Managing 12 branches is very different to managing a similar business with perhaps one or two branches. The same challenge applies to others in key positions in marketing, sales, operations, and manufacturing. A company can grow beyond its ability to manage. Linear growth adds non-linear complexity! • Lack of Operating Controls. For example: The company is operating without adequate reporting, accountability, and responsibility mechanisms. This is tantamount to flying a passenger airliner without an instrumentation. Management decisions based on inadequate, untimely, or inaccurate information can make a bad situation considerably worse. This is typically found in diversification into new products/services, or of businesses that have grown quickly. With no controls expect dishonesty or fraud to exist,  probably detected but unreported. If there is also poor data, rescue will be tough!

  9. Informal chats about what has shaped this firm’s current crisis – (2/4) • Poor Lender Relationships. For example: A weakened financial condition has led to the company developing an adversarial and unproductive relationship with its lending institution(s). Fearing that its loan relationships and facilities may be in jeopardy, the company tries to conceal financial information from its lenders. Telephone calls from the bank are not returned. Interim or periodic reports are not filed. Since money is the lifeblood of most any business, this kind of lender relationship only leads to more trouble and compounds the difficulty of managing the declining business operations. • Dysfunctional Shareholders.  For example: Family issues can cause business decisions to be made on an emotional basis rather than on sound business principles. Sibling rivalry has ruined many privately held companies. Nepotism can cause bright, skillful managers who aren’t part of the family circle to take their talents elsewhere. Likewise in non-family businesses, shareholders can be disruptive and whimsical with great detriment to the business, decisions get vetoed, leadership forced out, dividends demanded, long-term thinking sacrificed, transfer pricing onerous etc . • Disruptive and inconsistent Supply Chain.  For example: Long term contracts once profitable can become onerous. A competitor might have out-thought and out-maneuvered everyone, maybe a supplier is in distress as well?

  10. Informal chats about what has shaped this firm’s current crisis – (3/4) • Concentration Risk in the Customer Base. The business relies on a few big customers for most of its sales. If a manufacturer selling to large retail chains has two customers representing 60 percent of its business, the company obviously is vulnerable to the financial condition of its customer or the possibility of new suppliers displacing its relationship. The loss of just one of these key customers could put hundreds out of work and send the business into bankruptcy. Large customers also tend to demand a lot, and can erode value insidiously! • Market Lag. Changes in the product and customer marketplace have bypassed the company, leaving it with sagging sales and declining market share. For some businesses, the source of the deficiency is technology; their equipment or products and services have become obsolete. For others, the problem lies in sales and marketing; the company hasn’t kept pace with the needs of the marketplace or the ability to distribute its products effectively to the customer base. • Bad luck and external forces: Probably the most predictable of all the responses, but sometimes with merit. In an inter-connected world, global events do have severe local consequences. However, good business leadership understands not only how to minimize risk when bad things eventually happen, but they also know how to maximize their return on luck, which they are humble and insightful enough to recognize and acknowledge.

  11. Informal chats about what has shaped this firm’s current crisis – (4/4) • ExplosiveGrowth. The business has gone through a period of remarkable and unrestrained growth. A business that is a success at ZAR 5 million in sales a year can become a dismal failure at ZAR20 million. Companies achieving fast growth from concentrating on boosting sales often overlook the effects of that growth on the balance sheet and the cash requirements of funding it. Growth often carries a very high capital investment requirements, including significant investments in R&D, capacity, and working capital. Leveraging a company to meet these increased funding needs typically means that management must operate with little or no margin for error. • Overdiversification. The business has yielded to pressure to diversify to reduce risk. However, too much diversification may cause a company to spread its managerial, financial, and competitive resources too thinly, diluting focus. As a result, bad things happen, lost customers, inability to dominate a particular segment, runaway costs etc • Weak Financial Function. A company with excessive debt, stringent covenants, and inadequate working capital is operating with little or no margin for error. Credit is overextended, inventories are accumulating, and fixed assets are underutilized. The introduction of better working capital policies and improved capacity utilization decisions are clearly warranted in such cases. Yet, incumbent management instead often engages in debilitating attempts to grow the company out of its problems.

  12. Fishbowl debate – MD direct reports, and their next 2 levels • ExplosiveGrowth. The business has gone through a period of remarkable and unrestrained growth. A business that is a success at ZAR 5 million in sales a year can become a dismal failure at ZAR20 million. Companies achieving fast growth from concentrating on boosting sales often overlook the effects of that growth on the balance sheet and the cash requirements of funding it. Growth often carries a very high capital investment requirements, including significant investments in R&D, capacity, and working capital. Leveraging a company to meet these increased funding needs typically means that management must operate with little or no margin for error. • Fishbowl:MD and senior leaders to debate and assess the following statement, in terms of what it actually means and how far we are from achieving this ourselves in this business. • Our imaginary worst nightmare competitor would be best described as: ”having the right people, organised in the right manner, consistently and reliably executing the right things, the right way, for the right reasons, supported by the right resources, led by a credible and inspiring executive team” • Outer Circle. • Assess interaction (listening, willingness to participate, honesty, authenticity etc, etc) • Assess quality of thinking • Assess emotional maturity

  13. Contents • The rest of the document follows the steps of the Reasonable Prospect Assessment • Data Gathering via: • Standard business artifacts • Informal open ended questioning • Structured questions and • Quantitative assessment of financials • Qualitative assessment of pertinent domains

  14. Reasonable Prospect: Triage Summary Resounding “Yes” “Yes” and Self-funded “Yes” with good core OM Resounding “Yes” Favorable PEST analysis and Broader Market Considerations? Is the business stable and able to trade without problems Does the business pass Financial Assessment Hurdles? Does the business pass Operating Model viability hurdle? Does Formal Rescue Have a Reasonable Prospect of Success? Yes Favorable Enough Stable Enough Yes “No” PCF burden too onerous “No” Too much to fix, Better return from disposal Definite “No” “No” – too many issues No Reasonable Prospect No Reasonable Prospect No Reasonable Prospect No Reasonable Prospect “No” – too few, too risky, too small “No” there is great risk of Non-delivery “No” Too much to fix, Better return from disposal Definite “No”, cannot be swayed Have key stakeholders been convinced by the Reasonable Prospect view? Are there enough opportunities for uplift identified with good chance of success? Does the business possess the human capital to deliver on the plan? Does the business pass the Strategy viability hurdle? Yes, Formally Start Rescue Planning Yes, Across Multiple Different Areas Yes with targeted changes & some new Skill sets Yes, With some refinement

  15. Reasonable Prospect: Assessing The Market Some markets have brighter prospects than others, some like commodity are price takers, and some require scale to compete. Some are dying and some have fantastic prospects. Exit Rescue and Begin Wind Down Contributing External Factors Clear Consensus on poor Market prospects • Nature of the market? • Boom & Bust Cycle • Over Supply (dumping) • Regulatory • Market in Decline • Foreign Comp->Scale • Low Barriers – many competitors Does this industry, market or segment have a future? Too much risk and uncertainty for creditors? Could a rescue wind down ensure better creditor returns? Depends, There Is some uncertainty Creditors Consider Risk Unacceptable • Exogenous Factors? • Global Finances • Exchange Rates • Sentiment Obviously Rescue with turnaround scope – continue with reasonable prospect analysis Rescue but to gracefully divest and insure better creditor return, no turnaround. Acceptable Risk

  16. Reasonable Prospect: Key Considerations Stability issues? What efforts are needed to ensure business continuity? What is the quality of thought leadership & strategy? To what degree is austerity in place, are there opportunities for further uplift? • Business Stability? How deep is the crisis? • Transactional account issues? • Over-draft facilities withdrawn? • Enough Working capital to run basic ops? • Supply Chain Disrupted? • Operational Breakdown? • Outsourced operations withdrawn? • IP and operating license rescinded? • Legal wrangles? • Utilities cut? • Key positions vacant? • Flight of talent? • Labour disruption? • Flight of customers? • Regulatory license revoked? • Strategy – Is the thinking robust? • What are the words you own in the mind of the market? • What are your Brand Promise components? • Who are the Core Customers, & • What is your Core Product or Service? • Why do customers buy your product use your service? • Does advertizing show understanding of target segments? • Is there any customer concentration risk, historically? • What is considered non-core business? • Has the business strategy emphasized diversification? • What is key to your business making money? • What Obstacles exist to making money? • How is your business differentiated from the competition? • Is there any competitive advantage? • What is the industry choke point? • Is there a good understanding of all market forces? • Strategic ambition exceed business abilities? • Austerity measures implemented? • Lvl 1 - Refer to check list-training, travel, etc • Lvl 2 – Senior Entitlements – memberships.. • Lvl 3 – Sunk cost fallacies – Projects • Lvl 4 – Lean Philosophy in place • Austerity tracked and all expenses either: • Totally removed • Signed-off by executive • Included in latest budgeting

  17. Reasonable Prospect: Key Considerations Is there requisite awareness & alignment in the business? Are there Operating Model Issues, is it at scale, are there opportunities for uplift? What state are the BS, IS and CFS in. Are there opportunities for further uplift? • Communication, Co-ordination, Alignment • Can all managers summarize the strategy? • In simple consistent language? • Can they do so in less than 90 seconds? • Consistently? • Does everyone know money is made? • Does everyone have a scorecard? • Can they measure their own performance? • Do measures tie back to the IS or BS? • Do the lines of business each have an IS? • Do the lines of the IS have accountability? • Is each IS broken down into a value tree? • Are the value drivers in the IS owned? • Operating Model? • What are the measures used to track scale? • Acquisitions a substitute for organic growth? • Have operations scaled with growth? • How much of the value chain is core? • What are the outsourcing arrangements? • Outsourcing possibility of non-core value chain? • Are processes documented and owned? • What is the cash conversion cycle view? • Is the data in the business reliable? • Are distribution channels appropriate? • Is there a culture of continuous improvement? • Is there evidence of R&D? • Robust Financials? • Is the Balance sheet clean? Assets at mkt value? • Loans to directors? Inter-company loans? • Is the audited financial report easy to read? • Are there any off-balance sheet SPVs? • What % of value is in non-core assets? • What % of value is in intangible assets? • How liquid are these assets? • Is the BS a problem? • Days Equiv of AR, and AP? • Days Equiv of Inventory? • Are costs managed and in line with competitors? • Assess ratio analysis.

  18. Reasonable Prospect: Key Considerations Authentic, Purpose driven Leadership, which inspires? Red Flags & Disqualifiers? Is there an Enabling Culture and Strong Leadership? • Business Leadership • Is the leadership team present & available? • Has leadership built succession plans? • Is talented attracted to this business? • Has management complementary education? • Diversity? Age, gender, & experience • Diversity? Education, thinking style • Are all management meetings fully attended? • Is there an agenda and minutes? • How well do they know their business? • Any industry thought leaders? • Skip-level meeting feedback positive? • Results of 10 finger test? • Response to AFF as empathy builder? • Willingness to have anonymous 360 feedback? • Have a nightmare session assessment? • Red Flag and Immediate Dis-qualifiers • Complete lack of urgency is • Unwillingness to be open, share or disclose • Evidence of fraud • Evidence of serious crime • Tacit acceptance of bribery/corruption • Undeclared holdings and interests • Entrenched legal battles • Unreliable data • Toxic internal politics • Mystery shopping misery. • Belligerent and hostile creditors • Any personal feelings of contempt • Culture, Atmosphere, Institutional Behaviors • Multiple sub-cultures? • Meritocracy? Nepotism? • Fear of consequence? • Willingness to challenge? • Does anyone ever laugh? • Seniority – privilege, tenure, entitlement? • Concept of Noble Purpose? • People busy being busy? • Resistance to change or willingness to embrace? • Reactive or Proactive? • Personal Values aligned to Business Values? • Personal Accountability or willingness to blame? • Rockefeller self-audit?

  19. Contents • The rest of the document follows the steps of the Reasonable Prospect Assessment • Data Gathering via: • Standard business artifacts • Informal open ended questioning • Structured questions and • Quantitative assessment of financials • Qualitative assessment of pertinent domains

  20. Reasonable Prospects: Quantitative Part • We attempt to gather as much fact as we can. These facts should include: • “the likely costs of rendering the company able to commence with its intended business or to resume the conduct of its core business”; • “the availability of “cash resources” to enable the company to meet its daily expenses and the nature of the funding on which the company will rely”; • Which will inform: • Our ability to assess and substantiate the realistic prospects of planning and implementing BRiL (Better Return than in Liquidation (S128(1)iii) • Our assessment to at best a single sigma of the Quantum of PCF (Post Commencement Finance (funding)) the rescue will need. • To communicate financials Spark uses a concept borrowed from Astronomy, called a Probability Distribution Function. This is not as complicated as it seems, it just depicts the range of possible outcomes, and the likelihood of a particular outcome. • We illustrate with an example in the following pages.

  21. Reasonable Prospects: Reporting Quantitative Part for each line of IS/BS Risk unmanaged Obstacles Overcome 100% Certainty 3 2 • Risks that materialise • Risk 1 • Risk 2 • etc • Obstacle or Assumption 1 • Obstacle or Assumption 2 • Obstacle or Assumption 3 • etc Conditional Target (But all risks are managed) 4 High Confidence Target Stretch Target ( requires some luck and full co-operation and no distractions) Outcome Likelihood/Expectation 1 Rescue plan a failure A range for the Reported Financial metric (expenses or Fixed costs or Value of asset disposal Etc, etc) 0% Certainty Key Shaded area 1 – Shows unmanaged or unavoidable risk hampered delivery of the expected result. Shared area 2 – Very confident of meeting at least this target Shaded area 3 – Conditional Target, which requires certain conditions Shaded area 4 - Stretch Target – but not beyond the realms of the impossible – we will strive for this. R - Documented Risks/Issues that will prevent us reaching this benefit O - Documented Obstacles that we must overcome to get the Stretch The range of expected results for appropriate level of IS or BS

  22. Reasonable Prospects: An example – Discretionary Spend & Expenses Risk unmanaged Obstacles Overcome 100% Certainty 3 2 • No overtime needed • Taking Leave does not disrupt • Union co-operation • Time-keeping systems not working • Training Providers not to impose penalties • Booked airfares to be fully refunded Conditional Target (But all risks are managed) 4 High Confidence Target Stretch Target ( requires some luck and full co-operation and no distractions) Outcome Likelihood/Expectation 1 Rescue plan a failure Expenses Reduction 0% Certainty The range of conditional results for expense removal Tracking/Reporting on Delivery Key Shaded area 1 – Shows managed risk dealt with is Zar 2 million – bank on this. Shared area 2 – We should reduce expenses by Zar 3 million – no reason to miss this target. Shaded area 3 – We could reduce expenses by Zar 3.5million, but this requires A & B to happen Shaded area 4 – We are aiming for Zar 4 million, but this requires C, D & E to happen Unlikely At risk Bank it

  23. Reasonable Prospects: An example – Discretionary Spend & Expenses Implies – very confident to deliver Implies – working towards, and attainable if rationale holds

  24. Reasonable Prospect: What must we really understand • The audited financials need to be used to answer the most fundamental questions regarding this distressed business. • How much cash it currently generates and how much it could generate, • Particularly, how much of that cash stems from core operations. • For what period of time is cash tied up in inventory and other current assets before customers pay for the end product or services? CCC in days. • What amount of cash is needed to finance each unit of sales and what is the amount of cash generated by each ZAR of sales? • What is the self-funded growth rate? • Do basic ratios indicate opportunities to remove waste, gain efficiencies or restructure?

  25. Reasonable Prospect: Understanding IS and where to focus Get a clear picture of the Enterprise as a whole, before focusing on Lines of Business.

  26. Reasonable Prospect: Key Financial Ratios

  27. Reasonable Prospect: Key Operational Ratios

  28. Reasonable Prospect: Understanding Core IS and where to focus Get a clear picture of the Core Business and Business Lines In Distress (try 3yrs data minimum) .

  29. Reasonable Prospect: Understanding BS and where to focus

  30. Reasonable Prospect: Understanding CFS and where to focus

  31. A Synopsis of the Rescue Approach – assess the benefit of each Reasonable Prospect Analysis – which has implicit in it the answering of: Does we have a business and is it going in the right direction? Validate IS line Accountabilities Need to plug revenue leakage? Must we Stabilize the business? Implement Full Expense Austerity? Apply LEAN survival to “opex”, overheads? Benefits in VBM - Waste & Value Destroyer Removal? Benefits in Cash Acceleration? Opportunities to Target Process Efficiency Gains? Possibility of Supplier Consolidation? Can we minimize PCF? Can we be self-funding? Clean-up balance sheet Benefit in Non-core asset disposal Will we be able to Negotiate Financial Restructuring? Value Chain Rationalization Opportunity? Will there be Opportunities for Debt Refinancing? Focus on core competency? New Outsourcing Consolidate with old? Benefit in Scaling the business? LBO. MBO, merger possibilities? Benefit in Restructured Non-core asset disposal?

  32. Immediate Rescue Focus Areas & key Activities Implement transparent and unambiguous stakeholder management plan, retain supporters, nurture converts, win-over skeptics or remove vociferous obstructers . No direct bottom-line benefit but has massive impact on both stability & plan approval Never done properly, often seniority equates to entitlement and budgets are considered at best targets at worst allowances. Expect range of 3-5% impact on bottom Line Always an issue. Any cost that is not directly related to production is targeted. Test is simple: if the customer has an invoice with EVERY cost itemized on it, what would they reasonable refuse to pay? Executive catering? Time-share at Kruger? Membership of golf-club? Conflict resolution training? Newspapers? Expect range of 3-8% impact on bottom line. First cull of non-performers, obstructers, and culturally misaligned. Propose (reversible) working hours reduction to fit capacity of production and sales. – share the pain! Implement people-plan. Expect impact on bottom line of >20% Focus on Current and Long term assets – Debate core-assets, Assess Lease vs. Own Non-Core Asset Disposal Factoring & Debtor Invoicing Loan Recall, query bonus provisions Review Intangible Goodwill – Replace with equity using Texas style auction with majority shareholders who object – Expect positive impact on Cash and then reduced liabilities, but can have a negative impact Remove emotional barriers, show respect, treat as partners, manage expectations, get plan approval Assess cost allocation methodology Generate Whale curves by: Product, Customer, Branch, Channel, Region, Sales Exec. Retain, Reposition, Re-price & Remove of Value Destroyers. For every Zar 1of delinquent revenue removed, costs MUST be removed too. , Address CCC. Expect uplift of 20-40% on bottom line.

  33. Contents • The rest of the document follows the steps of the Reasonable Prospect Assessment • Data Gathering via: • Standard business artifacts • Informal open ended questioning • Structured questions and • Quantitative assessment of financials • Qualitative assessment of pertinent domains

  34. Reasonable Prospects: Qualitative Part • These two questions have a large qualitative component and for this we use scenario planning: • “the availability of any other necessary resources, such as raw materials and human capital”; and • “the reasons why the proposed business rescue plan will have a reasonable prospect of success”. • Both of which will help us form a practical view on being able to implement the rescue plan (skills, costs and alignment) with the team at hand and not seek additional funding to contract in, skills needed in the implementation. • For this quantitative section we will use scenario planning tools. You have already gathered the opinions on drivers and forces in your data gathering and subsequent discussions • Discuss & Document Industry Drivers and Forces • For each scenario be clear on what criteria define each of the 4 quadrants • Use the scenarios to communicate the prospective outcomes. • Prioritise • Groups on • impact & likelihood • Discuss & Document Business Crisis Drivers and Forces • Group the • drivers • logically • 2. a. What are the key uncertainties

  35. The Grouping exercise generates these categories – (1/2)

  36. The Grouping exercise generates these categories – (2/2)

  37. The Grouping exercise might look something like this Marginal - Strategic Position – Strong Weak - Operating Model– Robust Poor – Industry and Business Fundamentals– Promising <- Long term View <- Short term View Weak – Inspiring & Thoughtful Leadership–Strong

  38. Rescue or Workouts Reasonable Prospect Assessment Second Internal and qualitative dimension refers to the enabling culture, fostered by an engaged leadership team Third External Dimension An unattractive market First Internal and quantitative dimension refers to technical business management competencies and enabling Op Model, assessed during the austerity phase. An uncertain market An attractive market

  39. a Qualitative look at the Business Prospects Scenario set 1 In this instance we assume we are pretty clear on our assessment of the Inspiring Leadership and Capable Thought Leaders steering the business – it could very well have new management or ownership, and they are instilling an enabling culture whilst providing inspiring and creative leadership. However, often Leadership will have to change as they have been discredited and are not able to provide the inspiration, motivation and thought leadership needed. They may also be emotional and lack objectivity. Purgatory Milk & Honey An unlikely scenario, but one that may arise from time to time. This usually is an indication of fraudulent activity or asset stripping, with the single aim of defrauding shareholders and creditors. King iii provides sanction for this manipulative kind of Board resolution. Poor Industry & Business Fundamentals Great Entrenched Player , over-valued brand, complacent leadership, who squandered opportunity in a market full of value. They’re the Kodak of the day. They are the industry whipping boy, and nobody is proud to work at this old stodgy dusty place. Those who work there can’t get hired elsewhere. They live in the past when once they were really industry leaders, but only they remember those days! Distressed Fund Options Band of Rescue Prospect and Legitimacy Funny Money Qualitative Reasonable Prospects 10% 40% Decline & Fall Sweat Like A 30% 20%? Potentially a great scenario! But often Barriers to entry are high, investors with time horizons longer than a bank are needed and it also requires that rare leadership possessing an Adrian Gore style and brain Too little too late, by leadership whose negligence and absence should expect the harshest condemnation and censure Graceful and calm insolvency proceedings is the only way to go . Fools Time for Talent to Shine WeakOperating Model Robust

  40. a Qualitative look at the Business Prospects Scenario set 2 Purgatory Milk & Honey Low Inflation Low Interest Rates Sovereign debt AAA rated Correctly Priced Markets Conflict Isolated and Contained Western Economies Relevant, but BRICS growing contributors. Political Leadership saves the day in Europe and the US. Difficult decisions on austerity have been made and adhered to Resources boom and Africa thrives . Poor Industry & Business Fundamentals Great Conflict is localized and contained, strong political leadership emerges. Politicians make difficult decisions and a new generational social contract emerges. WTO remains relevant, the value of Globalization understood, protectionism and trade barriers removed.Co-operation saves the day, although the turn around is slow but steady, lasting as long as 5 years. The downturn is medium term and business confidence restored by good In this instance we assume we are pretty clear on our assessment of the Inspiring Leadership and Capable Thought Leaders steering the business – it could very well have new management or ownership, and they are instilling an enabling culture whilst providing inspiring and cerative leadership Qualitative Reasonable Prospects 10% 40% Decline & Fall A New Order 30% 20%? Europe declines with little dignity and predictability, the EU becomes toothless and anemic, with weak leadership. Nationalism dominates EU politics with absent leadership, and domestic politics taking the focus – but nobody cares. BRICS maintain robust growth and power shifts noticeably to the East. The G8 becomes G12, and UN security council make up changes, with new voices and priorities. New rules of engagement arise, Africa is relevant through its Resources and Labour pool. Conflict becomes global triggered by Israel and Iran or Pakistan and India, tensions rise between China and the . Europe Union disintegrates with Germany leaving and re-instating the Deutshe Mark, Italy has defaulted and Western Economies enter long l. Social unrest increases. Nationalism emerges across Europe. The BRICS cannot assume the burden of maintaining global growth. Global stoke markets lose > 50% value, Riskless Rates lose meaning. Dark days for Africa. Trade Barriers and Protectionism abound. WeakOperating Model Robust

  41. Mapping the Quantitative view – Creditor Return Charitable A Loud Voice There are 2 distinct quantitative inputs, the opportunity in cutting expenses and reducing operating costs, as well as the potential revenue uplift from divesting non-core assets, and rationalising the value chain. • RSA increases its competitiveness • A balanced Economy exists between internal growth fueling job creation and foreign exchange funding imports • Land reform has been handled quickly and sensitively • National Health Initiate implemented prudently • Booming times for Tourism, Resources and Entry into Africa • Education issues resolved • Labour Unions contained • Inflation moderate • Reserve Bank remains Independent • FDI increases • A Robust Member of BRICS High Risk of Failure Low • Strong Political Leadership has emerged • Sincere and appropriate measures taken to tackle Land Reform, Entrepreneurs, Education and Health • Nationalization is a concluded debate and rejected • A solid foundation for future growth has been prepared • We have invested in the youth • Business Confidence is Rising • Technocrats dominate Ideologues • Less Susceptible to Global Shocks – Terrorism, War and Pandemics. • Infrastructure concerns addressed (Energy and Water specifically) Well placed for rescue? 40% 25% Basket Case A Roll of the Dice 25% 10%? • Nationalisation becomes a reality – FDI drops to zero • Flight of Capital and Talent • State institutions crumble • Social unrest dominates Headlines • RSA becomes a footnote in history • Pack your bags and last person blow out the candle. • Global Economy carries the South African economy, but Nigeria and Ghana are eating our lunch. • We are the reluctant gateway to Africa but this is changing • Nigeria takes over as Africa’s biggest economy. • Growth in RoA outstrips RSA by factor or 2-3x • Politics dominated by pettiness and weak leadership • Angry youth demand more • Nationalisation debate continues • Land reform not addressed • Revenues from Tax drop alarmingly • Unemployment increasing • Talent flees the country Speculative Better Creditor ReturnExcellent

  42. Combine Qualitative & Quantitative (which has some uncertainty in it) Well Positioned A Loud Voice We map the qualitative vs the quantitative • RSA increases its competitiveness • A balanced Economy exists between internal growth fueling job creation and foreign exchange funding imports • Land reform has been handled quickly and sensitively • National Health Initiate implemented prudently • Booming times for Tourism, Resources and Entry into Africa • Education issues resolved • Labour Unions contained • Inflation moderate • Reserve Bank remains Independent • FDI increases • A Robust Member of BRICS Weak Qualitatative Outcomes Healthy • Strong Political Leadership has emerged • Sincere and appropriate measures taken to tackle Land Reform, Entrepreneurs, Education and Health • Nationalization is a concluded debate and rejected • A solid foundation for future growth has been prepared • We have invested in the youth • Business Confidence is Rising • Technocrats dominate Ideologues • Less Susceptible to Global Shocks – Terrorism, War and Pandemics. • Infrastructure concerns addressed (Energy and Water specifically) Well placed for rescue? 40% 25% Another Stat A Spent Force 25% 10%? • Nationalisation becomes a reality – FDI drops to zero • Flight of Capital and Talent • State institutions crumble • Social unrest dominates Headlines • RSA becomes a footnote in history • Pack your bags and last person blow out the candle. • Global Economy carries the South African economy, but Nigeria and Ghana are eating our lunch. • We are the reluctant gateway to Africa but this is changing • Nigeria takes over as Africa’s biggest economy. • Growth in RoA outstrips RSA by factor or 2-3x • Politics dominated by pettiness and weak leadership • Angry youth demand more • Nationalisation debate continues • Land reform not addressed • Revenues from Tax drop alarmingly • Unemployment increasing • Talent flees the country Speculative Quantitative OutcomesExcellent

  43. Example 1 • Customers have accepted Technology • More New Entrants into the market • Greater Demand for Talent • Customers shift channels • Innovation drives the Industry – Risk, Product and Technology • Competitors create pricing pressure • Need to Lock in Clients (Increased need - therefore how?) • Clients can switch with even greater ease than before • Rapid Market Response Vital • Real need to manage Volume vs Value channel dynamics • Pricing Pressure • Transition Stage to HELL • Few new entrants • Public Acceptance of Technology • Data Costs plummet • Mobile devices dominated by Androis and Apple • Customers are demanding Digital solutions Likely future Situation Current Situation • Transition Stage to Heaven • New Entrants are prepping for Public Acceptance of Tech • Big drive to establish brands • Competitors prep for WAR with stronger balance sheets • The poaching of top talent begins • Publicity Campaigns drive competitors agenda – digital channel uptake • Unlikely to remain for longer than 3 years • Time to build balance sheets • Time to attract talent • Time to tie in existing customer base • Time to invest in technology