
The steel industry, a cornerstone of the global industrial economy, is highly sensitive to fluctuations in supply, demand, and economic conditions. Since the financial crisis, the industry has faced persistent challenges stemming from excess supply in China and falling raw material prices. Although there are expectations for improvement due to restructuring in the Chinese steel sector and rising raw material costs, uncertainties linger in Korea’s downstream industries, such as shipbuilding, automotive, and construction. Moreover, the intensifying competition with Chinese steelmakers poses long-term risks.
In this context, many steel companies have struggled to address legacy issues tied to past production and distribution models. These challenges, including overcapacity, forced sales to distributors, and an increase in bad debts, continue to weigh on profitability.
Addressing Operational Challenges with a Focus on Cash Management
Our client, a stainless steel manufacturer, faced significant risks due to the financial instability of a key coil center, coupled with rising accounts receivable. Despite internal task forces working to reduce receivables, fundamental questions remained regarding the feasibility of turning the coil center around.
Looxent partnered with the client to execute a Corporate Restructuring and Turnaround (CRT) project for the coil center. Leveraging our Value-Up methodology, we assessed the center’s turnaround potential and developed an actionable strategy to stabilize operations, recover receivables, and ensure long-term financial health. In addition, contingency plans were prepared to address potential disruptions.
Cash-Centric Profitability Analysis: Enhancing Cash Inflows
Our initial diagnosis revealed key issues driving the coil center’s financial distress:
- Reduced profitability from low-margin contracts and risky partnerships.
- Increased accounts receivable from financially unstable clients.
- Losses from large-scale purchases of foreign materials amid declining prices.
- Rising fixed costs due to asset diversification without commensurate volume growth.
These challenges highlighted the downside of scale-driven strategies, which had inadvertently weakened cash flow.
We conducted a detailed profitability analysis of client portfolios, focusing on their contribution to cash flow. This included adjusted contribution margins that accounted for payment terms, collection periods, and financing costs. Customers were segmented into three groups: growth targets, selective engagement, and exit candidates. This segmentation allowed the client to prioritize high-quality customers, enabling targeted efforts to improve operational cash inflows.
Operational Restructuring to Support Sales Strategy
Cost optimization efforts were divided into two streams: asset efficiency and cost reduction.
Asset Efficiency:
- Disposing of underutilized assets related to low-demand product lines.
- Outsourcing small-scale production processes to reduce fixed costs.
- Evaluating potential for improved cost-per-unit metrics across production.
Cost Reduction:
- Simplifying production processes to reduce material losses and optimize yields.
- Comparing total cost of ownership (TCO) across suppliers and negotiating improved terms.
- Identifying shared overhead costs from discontinued business operations and reallocating these to reduce expenses.
Through this approach, we aligned the client’s operational footprint with its revised sales strategy, ensuring efficiency gains and better cost control.
Predictive Cash Flow Modeling for Receivables Management
A critical objective of this project was ensuring the timely recovery of outstanding receivables while reducing their overall volume to manageable levels. Looxent developed a simulation model to predict changes in cash flow based on the phased realization of improvement initiatives and debt repayment schedules.
This model evaluated the impact of receivables management on refinancing needs for the financially fragile coil center. We also provided guidance on the required levels of indirect support, including credit terms and interest waivers, to stabilize operations. These insights informed receivables management targets and served as benchmarks for post-project execution.
Execution Oversight and Contingency Planning
Looxent worked closely with the client and the coil center’s management to ensure alignment on improvement initiatives, receivables management standards, and cash flow goals. To mitigate risks, we introduced accountability mechanisms to reduce ambiguity and prevent delays. These included:
- Linking credit and financial support to performance metrics.
- Clearly assigning responsibilities for potential issues.
- Establishing fallback measures, such as management control restrictions or workout scenarios, to address unforeseen disruptions.
Results and Ongoing Efforts
Following the project’s completion, the client established a dedicated improvement team to oversee the immediate implementation of recommended actions. Over the next year, they committed to rigorous execution monitoring and performance reviews to ensure sustained progress.
By aligning sales, operations, and financial strategies with a cash-focused approach, the client is now better positioned to manage industry volatility and maintain long-term competitiveness.
The steel industry, a cornerstone of the global industrial economy, is highly sensitive to fluctuations in supply, demand, and economic conditions. Since the financial crisis, the industry has faced persistent challenges stemming from excess supply in China and falling raw material prices. Although there are expectations for improvement due to restructuring in the Chinese steel sector and rising raw material costs, uncertainties linger in Korea’s downstream industries, such as shipbuilding, automotive, and construction. Moreover, the intensifying competition with Chinese steelmakers poses long-term risks.
In this context, many steel companies have struggled to address legacy issues tied to past production and distribution models. These challenges, including overcapacity, forced sales to distributors, and an increase in bad debts, continue to weigh on profitability.
Addressing Operational Challenges with a Focus on Cash Management
Our client, a stainless steel manufacturer, faced significant risks due to the financial instability of a key coil center, coupled with rising accounts receivable. Despite internal task forces working to reduce receivables, fundamental questions remained regarding the feasibility of turning the coil center around.
Looxent partnered with the client to execute a Corporate Restructuring and Turnaround (CRT) project for the coil center. Leveraging our Value-Up methodology, we assessed the center’s turnaround potential and developed an actionable strategy to stabilize operations, recover receivables, and ensure long-term financial health. In addition, contingency plans were prepared to address potential disruptions.
Cash-Centric Profitability Analysis: Enhancing Cash Inflows
Our initial diagnosis revealed key issues driving the coil center’s financial distress:
These challenges highlighted the downside of scale-driven strategies, which had inadvertently weakened cash flow.
We conducted a detailed profitability analysis of client portfolios, focusing on their contribution to cash flow. This included adjusted contribution margins that accounted for payment terms, collection periods, and financing costs. Customers were segmented into three groups: growth targets, selective engagement, and exit candidates. This segmentation allowed the client to prioritize high-quality customers, enabling targeted efforts to improve operational cash inflows.
Operational Restructuring to Support Sales Strategy
Cost optimization efforts were divided into two streams: asset efficiency and cost reduction.
Asset Efficiency:
Cost Reduction:
Through this approach, we aligned the client’s operational footprint with its revised sales strategy, ensuring efficiency gains and better cost control.
Predictive Cash Flow Modeling for Receivables Management
A critical objective of this project was ensuring the timely recovery of outstanding receivables while reducing their overall volume to manageable levels. Looxent developed a simulation model to predict changes in cash flow based on the phased realization of improvement initiatives and debt repayment schedules.
This model evaluated the impact of receivables management on refinancing needs for the financially fragile coil center. We also provided guidance on the required levels of indirect support, including credit terms and interest waivers, to stabilize operations. These insights informed receivables management targets and served as benchmarks for post-project execution.
Execution Oversight and Contingency Planning
Looxent worked closely with the client and the coil center’s management to ensure alignment on improvement initiatives, receivables management standards, and cash flow goals. To mitigate risks, we introduced accountability mechanisms to reduce ambiguity and prevent delays. These included:
Results and Ongoing Efforts
Following the project’s completion, the client established a dedicated improvement team to oversee the immediate implementation of recommended actions. Over the next year, they committed to rigorous execution monitoring and performance reviews to ensure sustained progress.
By aligning sales, operations, and financial strategies with a cash-focused approach, the client is now better positioned to manage industry volatility and maintain long-term competitiveness.