Returning UK-based property developer and investor to profitability

We had a number of challenges right across our organisation. Our operations were spread across 200 companies, with multiple JV partners and financing relationships – many of which had been deeply affected by economic conditions. Trying to get a handle on what was happening in each of the 200 entities and what it meant for the head entity was incredibly complex.

Managing Director, PropCo

Propco is a large integrated property development and investment business which invests in light commercial and retail properties and undertakes large scale residential developments.

It has investments and developments throughout the UK and Europe and operates via a complex network of companies, joint ventures and development partnerships. Financing is also very complex with multiple interdependent financing structures and cross guarantees.

The challenges

The differing nature of the two sides of the business (investment and development), a complex corporate structure and financing arrangements meant that navigating the ups and downs of a changing property market were proving to be extremely challenging.

This became particularly apparent when a downturn in property value led to significant financial distress for the company. This distress was amplified by the fact that:

  • The group comprised over 200 entities, with different ownership structures and a range of cross guarantees.
  • Whilst some investments and developments were sound, total group debt exceeded property value by c.£200m.
  • Debt was provided by 25 different banks and offered at both group and development level.
  • The complex ownership structure made decision making difficult and processes unclear.
  • Alignment between strategy, resourcing, risk management and governance was unclear.

The solution

Graphite i2i Managing Director, Dr Jason Talbot, was engaged by the property developer to help unpick the complexity of the financing, governance and ownership relationships. He was also tasked with creating a clear plan to address the financial challenges facing the organisation and create a more suitable structure. With the help of Graphite i2i’s highly innovative business assessment framework, 6C Framework, and working closely with the company’s Managing Director, CFO and Board Chair, Jason:
  • Undertook a detailed analysis of the ownership, governance and financing structure to identify the parts most critical to future sustainability of the organisation.
  • Created tools and resources to monitor and plan for changes over time. These included more focussed board reporting, detailed financial models and key milestones required to move the business to greater sustainability.
  • Identified and implemented a range of financial governance controls – such as weekly cash flow monitoring and debt covenant warnings – and developed a proposal for a much more simplified corporate structure with fewer entities and financing relationships.
  • Negotiated with joint venture partners and finance providers to develop strategies for improved outcomes for all. This included more flexible banking facilities, less interdependence and the consolidation of project groups.
  • Implemented new approaches to risk identification and mitigation. This included more accurate focus on financial risks and stakeholder relationship risks.
  • Negotiated revised financing structures with the group to ensure less exposure to cross guarantees or the performance of joint venture partners.
  • Modified strategic direction more suited to the nature of the business and its context. With the volatility of the property market, a strategy focussed on lower risk investments and less on developments, would provide greater stability for the organisation.

Jason was able to pick up the complexity of the business quickly. He had a firm understanding of how the business operated in its various forms and how the structures functioned and operated. Jason came into an extremely complex and volatile environment and was able to provide the executive and board with a series of suggestions that would move the business forward and resolve issues. He showed he was able to process large amounts of complex data and come up with solutions

Chief Financial Officer, PropCo

The benefits

The work resulted in a range of recommendations that were agreed to by the board. The recommendations were implemented by management over the next twelve months.

The benefits of implementing these recommendations have been considerable. They include:

  • A simpler, easier-to-manage corporate structure. There are now fewer than 50 entities and banking has been consolidated to 5 institutions with fewer individual facilities.
  • A clear delineation between investment activities and development activities. This has allowed strategies, resourcing and risk management to be tailored to suit each activity.
  • Clarifying governance and decision-making processes. The board now has much greater control over decision making, resulting in a faster and more defined process.

Overall, these changes have significantly improved the financial position of the company, taking it from the brink of insolvency to financial stability and sustainability. The changes have also enabled the board to once again focus on strategic growth, rather than short term survival.

Our business was in considerable difficulty and Jason had the ability to understand the issues and enable positive outcomes. He has excellent business analysis skills which he can apply to complex commercial situations. He’s calm under fire, reliable, dependable and delivers on what he says he’s going to.

Managing Director, PropCo

Jason was good at thinking of options and following that analysis through to the logical outcome. While it was for the Board to make the decision, Jason laid out all the options, provided clear recommendations and gave supporting rational. He backed this up with clearly defined implementation plans that the board could monitor.