Preparing the Company - Britcham · Non-financial metrics Access to accounting records ... •...

Preparing the CompanyIPO Readiness

PricewaterhouseCoopers

What do you need to do to get ready?

BR GAAP>>IFRS Conversion

Financial and corporatestructure

Resources Financialreporting systems

Ability to pay dividends

Non-financial metrics

Access to accountingrecords

Virtual Data Room?JV relationships

People

Pension schemedeficit

Relationships with suppliersand key customers

Reward structure/Employee incentives


Before During After

Preparing for life as a Public Company


Before During After

• Audit (or reaudit)• Consulting accounting issues (combinations, proformas, etc)• Succession planning, HR, professional team• Restructurings/ strategic partner/ exit strategy• Tax planning• Corporate restructurings• Management of contingencies• Offshores

• Internal controls & Procedures• Enterprise Risk Management• IT systems• Reengineering processes to close the books• Corporate Governance• Strategy and sustainability consulting• Selection of Sponsor, banks, lawyers• Legal due diligence• Sell side due diligence• Search / finders fees• UKLA & CVM consultations• Corporate finance

• NPV• Valuations


Before During After

• Audit• Profit forecasts• Pro forma financial information• Long form reports• Prospectus drafting comments• Working capital report• Arrangement letters• Comfort letters

• Project management

• Preparing the Prospectus



• IT• Closing the books• Corporate Governance• Audit and other committees• Environmental, etc• HR

• Sustainability

• Investor Relations and CorporateCommunications

• Tax and dividend considerations

• Corporate structure

• Internal controls and procedures

• Risk management

• On going audit requirements for LSElisted company

• Six monthly reports

AfterDuring


• ITRs for CVM• The New Brazilian 20F• CVM and Novo Mercado Annual financial

statements


Key questions management must addressduring the planning process.

• How does the offering affect the Company’sexisting strategy?

• How will the Company meet the reportingrequirements for the first set of month-end,quarter-end, and year-end periods?

• How will corporate governance bedeveloped and deployed at the Company asa public company?

• How will the Company measure and reportperformance as a public company (e.g.,operating metrics, balanced scorecards,etc.)?

IPO Governance

InfrastructureServices

InternalControls

FinancialReporting

A successful public offering begins with:

establishing a strong governance structure focused on coordinationexecution and monitoring of critical activities necessary to meet the

timing of the market.


Implementing a strong IPO ProgramManagement structure….

• Allows management to focus its time and effort

• Identifies issues to avoid critical delays

• Efficiently coordinates the efforts of diversetransaction teams

• Validates new reporting requirements.

• Helps management collect and anticipate issues

• Facilitates management planning andpreparation for the rigors of life as a publiccompany,

• Assesses the security and controls frameworks

Assess the functional capabilities of the organization to:

create the appropriate program structure to prioritize,execute and monitor the activities necessary for a successful IPO andposition it as a high performing public company.

IPO Governance

InfrastructureServices

InternalControls

FinancialReporting


The IPO Framework

ProgramManagementOffice

• Develop and maintainconsistent format andtools: opportunitystatus, priority matrix,combined businessmodel

• Develop overallprogram plan withprojectinterdependencies andinterfaces identified

• Manage issuesbetween teams andtrack progress

• Ensure reporting iscomplete (i.e., drive theprocess)

• Direct communicationswith transition teams

FinancialReportingAssessment

• Assess the sufficiencyand quality of globalfinancial reportinginformation

• Review and assess theglobal financial reportingsystems and processes

• Assess sufficiency ofpublic companyfunctions (management,counsel, boardcommittees, internalaudit)

• Outline potentialaccounting andreporting issues

InfrastructureServicesAssessment

• Review current activitiesand capabilities of keysupporting processesand functions

• Assess current level ofunderstanding related tosupport functions role inIPO activities

• Evaluate currentactivities and projects tounderstandorganizational capacityto support IPO activity

• Define key initiativesand prioritizes initiativeslists

• Establish key readinesscriteria possiblyimpacting offering dateor price

InternalControlsReview

• Assess the adequacy ofthe current internalcontrol framework

• Assess the adequacy ofthe underlying controldocumentation, focusingon those controls andlocations that arehighest risk

• Perform controls testing,evaluate the impact ofcontrol deficienciesnoted and suggestappropriate controlremediation

• Perform re-testing asconsidered necessary


The Offering Roadmap

Oversee Post OfferingOperations:

• Financial OperationsChanges

• Public Financial Reporting

• Prospects

• - New Brazilian 20F

• Public Controls Testing andReporting

• Investor RelationsProcesses

• Information TechnologyGovernance Controls andChange Management

• Corporate Governance andReporting

Execute work plans andprocesses for:

• Completing the offeringactivities in Finance

• Completing Financial filingactivities

• Establishing CorporateGovernance

• Establishing financialsystems and processes

• Deploying adequatecontrols prior to offering forcertification bymanagement

• Establishing compliancereporting for HumanResources

• Executing IT Day Onechanges as necessary

• Establishing appropriatecommunication to externalconstituents

Develop detailed plans andbudgets to:

• Address findings and issuesrelated to financial reporting

• Develop the offeringframework, documentation,and processes

• Implement organizationalchanges necessary toexecute the IPO and post-offering operations andreporting

• Implement ControlsFrameworks changes that arenecessary to facilitate controlsadequacy, testing, andreporting

• Make Information Technologychanges necessary forbusiness process changesrelated to the IPO and post-offering operations

• Implement appropriatecommunications processesand systems to externalconstituents

• Establishment of CorporateGovernance

Establish overall structure andassess:

• Establish IPO ProgramGovernance

• Financial ReportingAssessment

• Assess FinancialOrganization Readiness

• Review impact onorganizational HumanResource Readiness

• Complete diligence onorganization's InformationTechnology capabilities tosupport IPO preparationand post-offeringoperations

• Review and assess statusof Internal Controlsframeworks, risks, andidentified issues

Governanceand Assessment

Detailed Planning IPO Execution Public Operations

ReadinessAssessment

Complete

Offering Date


All major capital markets are moving toward IFRS

Converging to IFRSBrazil

IFRSAustralia

IFRS or US GAAPSwitzerland

IFRSSpain

IFRSHong Kong

IFRSGermany

Converging to IFRSCanada

IFRSFrance

IFRSUK

Converging to IFRSJapan

Converging to IFRSUS

Top 10 Global Capital Markets

Countries converging to IFRS with the goal of adoptionCountries that require or permit IFRS

Countries with no announced plan to adopt


CHANGING PEOPLE(a new business language)

CHANGING NUMBERS

CHANGING BUSINESS

CHANGING PROCESSES CHANGING SYSTEMS

- Communication

- Internal

- External

- Training:

- at different levels

- not only Finance people

Addition of another GAAP and / or change in primary GAAP

- Accounting policies determination; Chart of Accounts review, Opening Balance Sheet,….

- Existing processes to beenhanced:

- New processes created

- Budgeting & forecasting

- Internal controls revisited

- Data availability and systemrequirements

- New systems components:datawarehouse, calculationengine

- Re-alignment of managementinformation systems

- Multi-GAAP solutions

- Primary GAAP changeover

- Performance management to be embedded across :- Performance measure / KPIs- Management accounts- Remunerations / bonuses- Budgeting / forecasting

- Financial and Business impact analysis: debtcovenants

- Different valuations

What does a conversion involve?


How to do it ?

Phase 3

Embedding

aka“Integrate Change”

Phase 1

PreliminaryStudy

Phase 2

2.1ProjectSet-Up

2.2Component Evaluation

& Issues Resolution

2.3Initial

Conversion

Establishing aMethodology &Designing Tools


Financial Reporting Assessment

6

• Communication of findings• Next steps

• Comprehensive writtenreport on all areas reviewed

Week4

Week6

• Summarize and prioritizefindings and issues relatingto financial reporting areas

• Outline of requirements andassess timeline

• Outline Phase IIrecommendations and workstreams

• Documentation request list

• Interview schedule

• Preliminary systems/controlsassessment

• Preliminary list of significantissues

• High-level understanding ofbusiness

• Project calendar andstrategy

DeliverablesWeek5

Week3

Week2

Week1

ProjectInitiation

Understand acquisition andconsolidation accounting

Assess IPOTimeline

To be successful…• Review existing financial information and convert

it to IFRS compliant financial statements• Establish the financial consolidation and

combination processes• Leverage your existing auditor to:

• Identify, research, and respond to accountingand reporting issues.

• Define financial information requirementsgiven the nature and timing of the offering.

• Resolve and pre-clear issues with CVM/ LSE• Developing interim financial statement processes

and requirements.• Draft the offering, including:

• Financial information table• Management's Discussion and Analysis• Pro forma financial statements• GAAP and Non-GAAP metrics• Capitalization, dilution, sources and uses and

other financial schedules• Manage reporting of complicated accounting

issues and respond to formal regulator commentletters

• Ensure consistency of public financial informationand other marketing financial information (e.g.,analyst presentations)

• Prepare verification files for legal due diligenceand comfort letter process

Phase I Approach

Assess financial reporting information,systems and processes, public company

information

Outline offeringdocument

framework, publicreporting

requirements, IPOwork streams

ReviewFindings

Outline accounting and reporting issues

Infrastructure Services Assessment – Finance, HumanResources, IT, Communications

• Communication of Findings• Next Steps

• Identified Finance, IT andHR improvementopportunities in the areas ofproject management,governance, strategicalignment, delivery andsupport, and standardoperating procedures toimplement prior to the IPO

• Assessed Finance, IT andHR organization to supportthe IPO

• Initial Communication ofFindings

Week4

Week6

• List of Finance, IT and HRsystems and processesimpacted by IPO Activities

• Prioritized list of businessprojects requiring Finance,IT or HR support

• Prioritized list of Finance, ITand HR projects andactivities to support IPO

• Data Request List

• Calendar of AssessmentSessions

• Project Calendar

• Project Plan

DeliverablesWeek5

Week3

Week2

Week1

ProjectInitiation

Key DocumentationRequest and Collection

ReviewFindings

FinalizeAssessment

RapidAssessment

Sessions

To be successful…• Establish best financial organizational model to

meet public company regulatory and reportingrequirements and business objectives

• Update financial processes to support publicreporting requirements

• Review employment agreements for change incontrol and other triggers

• Design and implement Human Resource policychanges for all levels of the organization

• Determine how equity as a currency will effect totalrewards

• Determine what disclosures of executivecompensation will include

• Establish benefits policy changes forexecutive/management/employee

• Establish the right retention/ separation strategyand non-compete documentation as a publiccompany

• Review, establish and monitor security and controlpriorities and frameworks as a public company

• Prioritize current and future IT projects fromexposure, cost, or timeliness or other factors

• Review existing and update external and internalcommunications strategies to manageexpectations of the organization and otherconstituents

• Develop and coordinate changes to signage orother external messaging


Internal Controls

8

• Initial Communication of Findings• Next Steps

• Determination of extent of existingdocumentation (controlframeworks and documentation) aswell as gap identification

• Suggested priority for remediatingany identified gaps, including planfor performing initial testing toevaluate control effectiveness

• Suggested priority for level ofcommonization and rationalizationbased on quality of existingdocumentation and timing neededto complete certification

Week4

Week6

• List of different control frameworksas well as list of IT systems andprocesses in scope from a controlsperspective

• Assessment of the “as is” controlenvironment based on review ofthe existing control frameworks, asample of process documentationand the results of control testingperformed by KPMG as part oftheir 2006 financial statementaudits

• Data Request List

• Calendar of Assessment Sessions

• Project Calendar

• Project Plan

DeliverablesWeek5

Week3

Week2

Week1

Project Initiation

Key DocumentationRequest and Collection

ReviewFindings

FinalizeAssessment

Rapid AssessmentSessions

To be successful…

• Define control assurances necessaryby the IPO Underwriters/ Sponsors

• Define the nature and extent ofcompany level controls

• Perform a risk assessment to quicklyidentify relevant financial reporting risks

• Define the frameworks to supportcontrol activities and implement it on aconsistent global basis

• Review the impact of the acquisition onthe control framework

• Update the controls framework

• Leverage monitoring or automatedcontrols to speed implementation of anupdated framework

• Review and address control issuesidentified by management or externalaudit

• Re-evaluate decisions and frameworksfor outsourced functions, spreadsheets,segregation of duties, etc.

• Review IT risk and control points, re-test and remediate

• Review and update formal controlsdocumentation


Integration Program Management Office

• Achievement reportsdelivered

• Initial communicationsdelivered

• Issue & risk trackingimplemented

• Program office roles andresponsibilities developed

• Program office charterdeveloped

• Program office operational

Week4

Week6

• List of projects documented

• Project plan templatesdeveloped

• Activity level project plansdocumented in templates

• Project prioritization criteriaestablished

• Prioritized project roadmapdeveloped

• High-level integrated projectplans for overall program

• Communication strategydeveloped

• Communications templatesestablished

• Communication planimplemented

• Project Charter

• PMO project plan

DeliverablesWeek5

Week3

Week2

Week1

ProjectInitiation

Develop Program Communications Plan

Ongoing Project Management

Program Office Development

Project Planning, Prioritizationand Program Planning

To be successful…• Determine the priorities of the different

projects to understand what should be donefirst, second, etc.

• Determine the project interdependencies andmanage to meet optimal market timing

• Monitor, track, and resolve issues on anoverall program basis

• Determine the impact that a change in oneproject may have on the overall program• Dependencies• Milestones• Due dates• Resources• Financials

• Establish project status reporting rules andformats to projects to improve visibility whichrequire management attention

• Manage the resources of multiple projectsthat are competing for the samemanagement resources

• Generate clear and concise communicationson the program’s status to the appropriatepersonnel

• Track and communicate quick wins along theoverall program’s lifecycle

• Report with confidence on the overallprogram’s status


The Role of the Integration Program Management Office

PrioritizationTools &Templates

ProjectManagementProgram

MilestoneTracking / IssueResolution

AchievementReporting

OngoingCommunication

• Develop andmaintain consistentformat and tools:opportunity status,priority matrix,combined businessmodel

• Work with teams asneeded to use toolsand build cases

• Assess businesscases, facilitate theircompleteness

• Ready templates formanagement review

• Prepare tools andreporting templates

• Train users on theproject managementtools

• Assist in thedevelopment ofindividual projectplans

• Develop overallprogram plan withinter-projectdependencies andinterfaces identified

• Work with the teamsto be fully up tospeed on progressand issues

• Highlight issues tosponsors andexecutives, asneeded

• Manage issuesbetween teams andtrack progress

• Anticipate shortfallsor off plan activity

• Propose solutions tooff track initiatives

• Review reportingtemplates

• Determine reportingfrequency by type

• Train teams on thereporting process

• Ensure reporting iscomplete (i.e., drivethe process)

• Structuredcommunication plan

• Frequent and honestcommunications onvalue driver status

• Directcommunicationswith transition teams

EE

Description:Proposed ActionPlan:(include keyintitiatives /milestones)Evaluation Team:

Impediments /Risks:

AccountablePersonnel (includeleader and teammembers):

Critical PathPrerequisites:

000

Description

Total

0 00 00 00 0

Integration InitiativeBusiness Case Summary: [NUMBER]

[Title of Business Case Initiative]

Executive Summary

Time Frame / Approvals

Months to full run rate: IMSO Sign Off:

Months to start: Functional Sign Off:Months to complete:

Synergy CalculationEBITDA Impact

Financial Measures

Non-recurring P&L Costs Benefit - 12 months

Total Non-recurring Costs Full Annual Benefit (Run Rate)Purchase Accounting Benefit - 24 months

Estimated Costs: Estimated EBITDA BenefitCapital Expenditure Benefit - 6 months

Form PMO structure then standardized tools and methodologies

Business Strategy Summary:Protect and grow existing profitable Segment 1 business – identify opportunities to enhance growth while reducing overall costs.

Operating Tactics Summary:Segment 1 will remain in its current location with existing personnel and equipment, supported by back office, and taking advantage of some capacity andtechnical infrastructure load-sharing with Segment 2.

Current (2000-2001 Avg.) Size/Performance Future (2006) Size/PerformanceGrowth Metrics Target Deal Company2 Combined Total % Total Co. Combined Co. % Total Co. CAGR (5.5 Years)Revenues $50M N/A $50M 51% $41M 34% 6%EFO 10% N/A 10% 108% 18% 43% 12%

Anticipated Operational Model AreaSet /

Not Set Issues to Resolve

Maintain current operating model,including customer interface, quality andworkflow efficiency

Operations,People

Set Identify and retain key operating personnel. Verify current location is sufficient for future (core franchise) needs. Verify model of using other types of professionals.

Segment 1 capacity (people andequipment) will be load shared withSegment 3

Operations,People

Not Set Determine capacity utilization profile (of both segments) over time. Assess operational compatibility of Segment 1 and Segment 3.

Transfer operational knowledge from OSSegment 1 to expanded Segment 3business

Technology,Operations,

Set Establish cross-company operational and technical teams to share knowledge post-merger (including clear milestones).

Continue cost reduction opportunities. People,Technology,Operations

Not Set Assess technical/labor efficiency improvement opportunities. Review capacity utilization and ongoing capital requirements (with aim to reduce

CAPEX to historical “maintenance” run rates). Segment 3 will be managed under

Segment 1 but will fully support otherdivisions.

Operations Not Set Assess excess capacity availability and cost-effectiveness. Determine feasibility of doing print-processing and printing (since OS exited this

business a couple of years ago). Evaluate need for additional hires (to cover 24/7 operation, if necessary).

Joint Sales/Customer interface withSegment 3 sales group.

Sales/CustomerInterface

Not Set Evaluate sales personnel and identify opportunities for integrated delivery. Analyze potential for cross selling between Segment 3 and post production services. Evaluate difficulty of cross training sales force to learn the full Company offerings.

Continue transition from Technology 1 toTechnology 2

Technology,Operations

Set Determine rate of transition of film-based shows from Technology 1 to Technology 2and whether additional capital will be required to fulfill this demand.

Project future Technology 1 vs. Technology 2pricing trends (including potentialerosion of Tech 1 premium).

Estimate rate of substitution for origination and how OS will be able to manage thepotential loss of segment 3 and segment 4 revenues.


The Working Capital report for the LSE


The London Regulatory Map

FSA Handbook chapters

ProspectusRules

ListingRules

DisclosureRules

CESRRecommendations

ProspectusDirective

Market AbuseDirective

TransparencyDirective


Working Capital - Directors’ undertaking

The directors must have undertakenappropriate procedures to support the workingcapital statement.

• Preparation of supporting working capitalprojections for at least 18 months from theprospectus date.

• The projections should consist of a forecastincome statement, balance sheet and cashflow statement at monthly rests

• Assumptions should be clear and identifiable

• The projections are usually based onmanagement’s existing forecastingprocedures


What does the Rule say

An applicant for the admission of shares must satisfy the FSA that it and itssubsidiary undertakings (if any) have sufficient working capital available for thegroup’s requirements for at least the next 12 months from the date of publication ofthe prospectus for the shares that are being admitted.

Listing Rules6.1.16R

A sponsor must not submit to the FSA an application on behalf of an applicant, inaccordance with LR 3, unless it has come to a reasonable opinion, after havingmade due and careful enquiry, that:…the directors of the applicant have areasonable basis on which to make the working capital statement required in LR6.1.16R.

Listing Rules8.4.2R (5)

Minimum Disclosure Requirements for the Share Securities Note:

Statement by the issuer that, in its opinion, the working capital is sufficient for theissuer’s present requirements or, if not, how it proposes to provide the additionalworking capital needed.

ProspectusRules

Item 3.1 ofAnnex III

In addition further guidance on working capital statements is given in paragraphs 107-126 of CESR’srecommendations for the consistent implementation of the European commission’s Regulation onProspectuses no 809/2004


Working Capital – the Reporting Accountants role

• Issue a working capital report,privately, to Issuer and theSponsor as part of the duediligence process.

• Opinion will center around thestatement made by the Issuer inthe prospectus.

• Confirm whether the Directorshave a reasonable basis onwhich to make the WorkingCapital Statement.


Working Capital - what might the auditor look at?

• Does the business have sufficient cash for the forecast period?

• Is there sufficient “headroom”?

• Do sufficient committed facilities exist?

• Do the assumptions reflect understanding of the business?

• Is the model robust? What is the model sensitive to?

• Are management capable of forecasting?

• Are the covenants complied with?

• Can management forecast?


Main building blocks for directors working capitalstatement

AuditorThe Company

Public statement ofdirectors in the prospectus

Sponsor

Auditor field work and duediligence

Working capital projections

Auditor working capitalreport

Private letter from Auditorto Board and Sponsorconfirming that in our

opinion the Directors havea reasonable basis on

which to make the workingcapital statement

Board memorandum

Board minutes adoptingboard memo and working

capital projections

Private letter from sponsorto UKLA

Sponsor’s due diligence


The WorkingCapital Report

SustainabilityModel

Diagnostic – Are you ready to go Public?

Corporate Governance

Investor relations

Tax and dividends

Back Office

Controls andProcedures

Closing the books tomeet deadlines

Contingencyplanning

ITSupply chain

Control SelfAssessment

ERP

BenchmarkingPre - IPO


Preparing the CompanyIPO Readiness

Preparing the Company - Britcham · Non-financial metrics Access to accounting records ... •...

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