From:Robyn Miller of Mosaic International, Inc.
Date:April 25, 2013
Re:Performance Review of Mosaic International, Inc.
The following memorandum will give a brief performance review of the last four years Mosaic International, Inc. (Mosaic) has spent consulting and advising Mercury International, Ltd. (Mercury). Mosaic’s contract with Mercury began in 2013 and terminates at the end of 2016. The standard used for comparison is the last set of data available in Q4 2012. Mosaic was hired to meet a set of goals set by Mercury’s Board of Directors (BOD). -------------------------------------------------
The Board’s goals for Mercury were as follows: increase stock performance, revenue, and EBITDA each by 10 - 15%; double top line revenue; achieve the number three position globally. Some of challenges met while working towards the goals were avoidable while others were out of the control of either company. Mosaic strived to meet and exceed the BOD’s expectations, but was unfortunately unable to achieve any of the given objectives. In addition to the objectives set for the company, the BOD was expected to be monitoring “worldwide market share, operating margins, inventory turns, factory utilization, fulfillment rate and ROA as indicators of the team's sound management practices” (Mercury Simulation Management Reports, 2013).
OBJECTIVES, OUTCOMES & REASONABLENESS
“10% - 15% annual growth in top line revenue, EBITDA and stock price over the next four years” (Mercury Simulation Management Reports, 2013). Outcome:
Mercury’s financial performance did not meet the BOD’s objectives. Mosaic began making business recommendations in 2013; given the revenue in Q4 2012, and with a minimum target of 10% growth, final global numbers are 14% short of the goal. See Appendix D for Mercury’s revenue trend for the previous five years and Table 1 for actual versus target points. For regional purposes, see Appendix G and Table 4; both Europe and Asia grew their revenue during the four year period. The calculation of Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) is an important piece of financial information because it “is a good metric to evaluate profitability” (Investopedia, 2013). In order to evaluate companies by a common criterion, EBITDA allows stakeholders to “analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions” (Investopedia, 2013). See Appendix F for Mercury’s EBITDA trend since 2010 and Table 3 of actual versus target points. From the graphical analysis, is abundantly clear that EBIDTA was a difficult objective to hit; however, from the results, it bears mentioning that the Global trend and that of Europe are very similar. Overall, Mercury was only short by 3% from the BOD’s target at the end of 2016 – this is with a target of 10%, which is the minimum of the Board’s range. Table 3 indicates that the largest strides towards that goal occurred in 2014 and 2016, but 2015 was not far behind in terms of financial performance. 2013, Mosaic’s first year almost cut EBITDA by half. This startling realization prompted Mosaic to make less hasty strategic decisions with the BOD’s goals in mind. Mosaic started their consultative relationship with Mercury on very unstable footing regarding stock price. From 2012 to 2013, stock price dropped 55%. The metric did recover in the following years, but stock price is still down 59% from the would-be target, had 10% increased been made each year. Unfortunately, stock price is only 60% of what it was in Q4 2012 when Mosaic began with Mercury. See Appendix E for a graphical analysis of Mercury’s stock price over the last five years and Table 2 for YOY actual versus target data. Reasonableness & Tactics:
The sub-objectives, revenue, EBITDA, and stock...