G&W Distributor Gas Business Challenges GAWDA SMC Meeting Savannah, SC 5 April 2016 J. R. (Buzz) Campbell, Intelligas Consulting Mike Masha, Masha Capital Management jrcampbel2@gmail.com & mamasha@comcast.net 1
Challenges & the need for Better Activity Based Metrics Buzz Campbell 2
Some Background Performance Metrics -- Mike Masha & JRC We have an Activity Based Model to Increase Profitability Activity Drives the P&L and Balance Sheet in $$$ - Labor, Materials & Equipment - Investment & Results are in $$$ Activity Measured by: - People Doing in Time - Number & Amount of goods, services - Skills, Management & Capital To Improve Activity It Must be - Monitored & Measured - Reported & Discussed - Action Decided on & Executed 3
Challenges – Distributors’ Gas Business General: - US Economy: 1/2% to 1.0% less %AGR - Distributors’ Markets: to have less gas volume intensity - Marketing/Sales & Operating Efficiency: will require greater skills and management to Maintain Profitable Growth - That will favor larger size and scale of operations to expand markets - Major Players more active in DTB, e.g. AL-Airgas Hardgoods: Covered by Jim Earlbeck Gases: Increased EBIT and Net Worth will require more Activity Based MGT, More creatively related to the P&L and Balance Sheet 4
More Focus -- What’s Behind the Gas P&L Revenue: Volume & Price Detail by Line Item & Product/Mode COS: Competitive Unit Costs & Supply Chain Equipment GP: %Rev by Product/Mode: Sensitivity to Price Period Expenses - Operations - Cylinder Fill - Cylinder Ownership, Use & Rent Related - Distribution: Operations Detail & Use of Labor Period Expenses – SG&A - Sales & Marketing - Admin, Finance & IT - Corporate & Owner Expense The Priority of Challenges to Increasing EBIT & Net Worth 5
Priority Challenges In the Gas P&L The Quality of Gas Pricing: Including pricing strategy and execution and management and motivation of sales force Monitoring of Prod/mode GP as an important tool in better price management, with greater use of IT platforms Increasing the quality of Marketing and Selling in growth market segments and geography Increasing the Rental part and price of Cylinder Fleet, within competitive bounds Reducing the unit cost of cylinder delivery, while maintaining/improving customer service levels In our view, one of the necessary impacts on profitability is that last one … reduce cylinder delivery costs 6
Distributor Gas Operations COMPANY % Revs GAS % Revs REVENUES ($000) 25,000 11,250 Gross Profit 11,250 45% 7,470 66% Operations Cylinder Fill 700 3% 700 6% Distribution 2,100 8% 2,000 18% Cylinder (et al) Ownership, M&R 700 3% 700 6% Subtotal 3,500 14% 3,400 30% SG&A Selling & Marketing 2,900 12% 1,500 13% Admin 1,000 4% 500 4% IT 500 2% 250 2% Finance 500 2% 200 2% Other Owner Costs 650 3% 400 4% Subtotal 5,550 22% 2,850 25% HardGoods Expenses 500 2% TOTAL EXPENSES 9,550 38% 6,250 56% E B I T 1,700 6.8% 1,220 10.8% Note that Gas:HardGoods Mix - 45%:55% 7
IMPROVING DISTRIBUTION A Distributor Challenge Mike Masha 8
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