Last name 1 Executive Summary A key political factor affecting Versacold is the transfer of decision making bodies to USA which means that most businesses have to be controlled from USA. Such legislation affects the potential of a company to establish itself quickly and in a wide area. In spite of the stable Canadian economy, Versacold has a small market proportion. Therefore, there is need for the company to exploit the economy through service provision in a huge market share. The management of truck shipping business is expensive due to high fuel prices and this would affect the net income compared to usage of rail transport. Also, the economy would fluctuate due to seasonality of major service provisions. In the social perspective, Versacold has to establish cohesion between the two separate business arms. Currently, there is lack of unity among the staff and the senior management, a culture that has led the poor service delivery. In technicalities, Versacold lies under a poor IT system network between itself and clients. Also, their shipping tracks are old, equipped with archaic technology and few drivers for the long journeys. But more important, the company has an experienced team of employees who are poorly compensated. Versacold has the opportunity to venture in the trans-border trade and establish its businesses in the USA. This is an external opportunity in a country where Versacold can grow rapidly due to a high commercial market. Also, merging would enhance its operations in the future. The linkage would be vital for provision of service packages to retain and recruit more customers. Versacold should diversify its business to include pharmaceutical products and invest heavily in machinery and other facilities for the future. However, Versacold faces tough competition from other service providers and tough laws that govern trans-border trade. The company is proud of being the only national 3PL and 4PL service provider in Canada and thus able to exploit market in all parts of the country. It is well positioned to lease warehouses in prime locations for a wide service provision. It is boastful of a team of experienced staff who can deal well with customers and offer quality services. But Versacold suffers from some weaknesses, such as poor customer database system, poor employee compensation, and oldfashioned warehouses. To become a global leader in the temperature-sensitive logistics services, Versacold must tailor its vision-related objectives to suit the entire operation. Vesacold shall specifically focus on providing quality services to its customers, expand the business, invest in modern technology and strive to meet the customers’ expectations. Finally, for effective performance, the company should invest in its employees and remunerate them well. Versacold’s positioning statement is a key reflection of the company’s vision and commitment to execute its future plans. The services offered are mainly meant for clients and customers who require warehousing and transportation logistics services for any temperaturesensitive product in the North American region. Safety is guaranteed for the provisions of the services and customers have the capacity to monitor their packages in real-time. In case of any eventualities, clients are aware of how safe and where there goods are located. Moreover, Versacold is committed to providing affordable services both in warehousing and shipping with quality in customer service. It provides services at affordable prices and with packages that offer major discounts unlike other storage companies. Within the first 12-18 months of operation, Versacold should: develop a new business model and marketing strategy; invest in company’s facilities for enhancement of efficiency; develop a comprehensive IT strategy; begin a human resource strategy that enhances the retention; re-establish and re-organize the company’s administration. MBUS 804: Strategy II: Strategic Transformation Strategic Planning Presentation Template Queen's Accelerated MBA for Business Graduates Peter Richardson Outline of a Strategic Plan • Review of major environmental factors/trends (1-2 slides) • Major strategic issues, external and internal (1 slide) – Opportunities and threats – Strengths and weaknesses • Strategic/Operational Health Assessment (1 slide) • Core competences/culture (2 slides) • Statement of vision, mission and objectives (3 slides) • Positioning statement (1-2 slides) • Key performance indicator scorecard (1 slide) • Strategies/action plans to achieve objectives/address strategic issues (4-5 slides) • Requirements from other business units/functions (1 slide) • Summary of major programs/projects (GANTT Chart; 1 slide) • Summary of anticipated human resource requirements (1 slide) • Summary of financial impact and outcomes (1 slide) • Major risks in the strategy (1 slide) 2 Strategic Assessment Major Environmental Factors/Trends Political and Economic • Transfer of key decision Business entities to USA. • Temperature sensitive products requires Versacold to keep accurate records and be licensed. • Stable Canadian economy but the market is not fully exploited • Market Seasonality • Unstable Fuel prices and intense competition with Shipping industry. ©2015 Social and Technical • Growing trend of Health conscious customers. • Undesirable Occupation and aging work force. • Rapidly changing Logistics technology, Big Data analytics, and cloud computing • Demand for Real-Time tracking and added safety features for the drivers. 4 Major Strategic Issues and Opportunities Opportunities Strengths • • Exploit the trans-border market. • Implementation of New IT Strategy. • Cross Sell Services to consumers by • merging Transportation and Warehouse. • Acquisition & Service diversification • • • Facilities Improvement. Threats Sole warehousing and transport provider of temp-sensitive products in Canada. Strong customer loyalty. Retention rate of over 98%. Robust distribution network. Efficient Leasing model. • Experienced staff employees • High competition from U.S. companies in Canadian markets. • Legislation governing trans-border trade. • Changes in NAFTA agreement • Shortage of Truck Drivers. • Poor client database & marketing strategy • Mediocre HR Functions. • Incompatible Executive Team to develop comprehensive strategy. • Archaic warehouse facilities Weaknesses 5 Strategic and Operational Health Assessment Strategic Health Strong Weak Strong Operational Health Weak 6 Core Competences 3 Ability to safely and reliably deliver temperature sensitive products 2 Ability to serve Canada as the only truly national provider 1 Customer service and retention 6 Capacity to Expand with geographically diversified management 4 A culture and group of employees that is willing to change 5 Commitment to understanding customer expectations 7 Culture Good - Culture that takes care of customers and puts customers first, resulting in a high degree of customer loyalty (retention rate of over 98%) - Geographically diverse organization with employees throughout Canada and some in the United States - Employees who are willing and eager to see change happen, and be a large part of the cultural and organizational shift Bad - Good performance often goes unrecognized - Little collaboration among executive team due to geographical distance - Inexperienced Controller and no Finance cost saving strategy - CFO and sales team roles were not backfilled, leaving gaps and “temporary” solutions - Lack of incentive for employees who are involved in direct sales. Ugly - Siloed and decentralized culture that is not unified - Little to no direction from top executives on the mission and vision of Versacold, where they are going and how they will get there - Virtually no human resources function and leadership in the organization 8 Future Strategy Vision (Date) • A technologically advanced warehouse and transportation provider that offers superior customer service and solutions to clients by shipping and storing temperature sensitive goods throughout North America. 10 Vision: Associated Objectives • To be a client oriented service provider that is a leader in industry standards. • To efficiently and effectively operate by leveraging technology in warehouse and shipping. • To consistently meet our client’s expectations through offering a wide range of logistics services in North America. • To embrace and foster a unifying culture among employees through training, team work, and staff diversity. 11 Our Positioning Statement (Part 1) What We Do • For: Clients requiring warehousing and transportation services for temperature-sensitive goods. • Who want: Safe storage and transportation of goods, and real time monitoring of customer packages in transit and in warehouse. • Our product is: Storage and shipping for diverse heat-labile products with quality customer service. Services offered include truckload transportation, less-than-truckload, dedicated contract carriage for individual customers, and direct-to-store delivery throughout Canada. • That features: Reliable, safety and high quality, vast national network of warehouses and distribution centers. 12 Our Positioning Statement (Part 2) Why We Will Win • Unlike: Congebec Logistics Inc. Brookfield Cold Storage • Our product provides: Our warehousing and transportation service offers quality refrigeration conditions, timely delivery, and real-time monitoring of goods by clients,. • As supported by: Our professionalism in service provision, huge investment in employees, strongest distribution network in Canada, modern technology. Deep understanding of our client’s needs, healthy relationship between our management and clients, and skilled and motivated professionals. • And protected by: Asset-light model flexibility, a strong relationship earned over the years between us and our customers, difficulty for competitors to offer the two services; warehousing and transportation, as a single package. 13 Mission (Next 12 – 18 Months) • Develop a new pricing model and marketing strategy. • Capital investment in maintenance of company facilities for enhancement of efficiency. • Develop a comprehensive IT strategy to increase reliability of the company’s database and business system. • Create a human resource strategy that enhances the retention, securing, and development of human resource. 14 Mission 2/Mission 3 (High Level) Mission 2 • Maintain quality and safety in business operations. • Utilize modern technology with automation and shipping to maximize profits by cutting costs. • Retain key employees to assist with the culture change. Mission 3 • Meet new clients demands through expansion of services offered, particularly services for pharmaceutical goods. • Expand business to the entire North American region through partnerships in the U.S. • Increase EBIDTA to $10M in 2014 and reach a market value of $1B in five years. 15 Mission 1: Associated Objectives 1. Develop a new bundle pricing model to offer discounts to clients using both services. Loyalty card to be introduced. 2. Upgrading of company’s facilities and internal controls in order to obtain licenses to cater to pharmaceutical companies. 3. Adopting new business system (Descartes- SaaS platform) and database (JDA- Cloud Database) for accurate data storage to prevent loss of revenue and increase understanding of customers, and investing in modern IT that allows for real-time monitoring of customer’s goods. 4. Invest in recruitment, training and development of its employees. Establishing a unifying culture among employees is key to quality service delivery that upholds the company’s name across the globe. 16 Objective 1: Strategies • Offer a discount to key customers requiring both warehousing and transportation services through a bundle package plan. • Creating a new Omni channel platform where customer can access all warehousing/transportation services through mobile app/website • To partner with either Canadian National or Canadian Pacific to transport goods at lower costs through inter-modal transportation. • Partner with a U.S. company to attract large food companies from the U.S. 17 Objective 1/Strategy/Action Plans What: Market research on bundle package Who: VP, Business Development (Barry Merchant) When: Within 2 months What: Negotiate partnership with Canadian National or Canadian Pacific Who: VP, Transportation Services (Jim Salter) When: Within 90 days What: Partner with a U.S. company to attract large food companies from the U.S. Who: CEO (Douglas Harrison)/ VP, Business Development When: Within 120 days 18 Objective 2: Strategies • To renovate and refurbish all neglected warehouses within the first 18 months. • To install LED lighting system in all warehouses within 18 months. • To install modern automatic equipment in all warehouses and new fleet of shipping trucks. • Installation of new security cameras and scanners for added scrutiny of the movement of goods. 19 Objective 3: Strategies • To update and integrate the new SaaS platform for Big Data analytics and adopting Cloud servers within 120 working days • To interlink the network connecting business arms (stores and trucks) • To invest in technology that allows for real-time monitoring of goods such as RFID-, AIDC-, & IoT-Based Technologies. • Creation of new Research and Innovation department. • Collaborate with Nielsen Media to conduct research on new potential locations especially in Western Canada. 20 Scorecard: Key Strategic Performance Indicators 1. Develop a new pricing model and marketing strategy. • • • Objective: Create new Omni channel solution for cross-selling customers into either warehousing or transportation services they are currently not using Measures: Pricing model developed; initial mobile version developed, marketing strategy developed and rolled out to communicate new offering Target: Bundle developed in 60-90 days; sales of new bundle offering begin within 6 months, revenue increase of 5-10% in Y1 2. Capital investment in maintenance of company facilities for enhancement of efficiency. • Objective: upgrade existing warehouse facilities and equipment to improve efficiencies • Measures: within 18 months all warehouses renovated/upgraded; LED systems installed in all warehouses; refrigeration equipment upgraded • Target: all upgrades complete within 18 months; costs savings of 10-20% begin to be realized within 12 months 21 Scorecard: Key Strategic Performance Indicators (cont…) 3. Develop a comprehensive IT strategy to increase reliability of the company’s database and business system. • • • Objective: Develop integrated IT strategy and system to enable efficient decision making and provide real-time tracking access to customers Measures: Strategy developed and system integrated per specifications Targets: System integration and real-time monitoring within 9 months; IT expenditures to rise to 4% of cost structure in Y1, then drop to 2% in Y2 4. Create a human resource strategy that enhances the retention, securing, and development of human resource. • • • Objective: Develop HR strategy to attract, develop, and retain talent, especially in key leadership position, while at the same time changing the culture to one accepting of growth strategy Measures: Re-structuring of Executive Team, evaluation and potential elimination/enhancement of roles complete and communication plan to engage employees in new growth culture complete; training and development rollout (starting with sales/business development) Targets: Restructure of Executive Team within 120 days; role restructure (with training and development running concurrently) within 9 months including communication plan rollout; labour, salaries and benefits to drop from 48% to 46% in Y1 22 Requirements from Other Businesses Information Technology Department • The IT department should evaluate current systems and see how they can be better aligned to better serve the needs of the customer and long term. With support from the executive team, having a strong IT strategy can be seen as a competitive advantage and help decrease revenue leakage. Logistics and Transportation Department • The transportation unit will have to bring a new fleet of transport vehicles equipped with new technology that would enable customers to monitor their goods in real-time. Engineering Department • Hire and train an engineering team, that will be dedicated to finding operational efficiencies in the facilities and equipment. • Warehousing unit would need to refurbish and re-design existing warehouses by installing modern equipment and LED lighting system to accommodate diverse goods in desired conditions Marketing & Operations Department • Create synergies between the warehousing and transportation divisions by creating “bundle packaging” for customers. This will help with the cross-selling opportunity for VersaCold. Human Resources Department • Development of an “Employee Rewards System”, which will help to motivate and recognize great performance from employees. • Refining the hiring and training process at VersaCold. Research and Innovation Department • Creation of New Research and Innovation Department • Research the best methods to enter the U.S. market and expanding foot print in Canada. • Developing forward thinking innovation such as driverless trucks, the impact of railways, future state of purchasing habits, a shift in customers behaviors and etc. 23 Anticipated Human Resource Strategies/ Requirements Driver training program • Structured training program to attract and retain potential drivers • Advertisements for the program would look to boost applications for driver roles • Training program stresses VersaCold values of timeliness, quality, safety and good customer service • Reduce contract based staff of drivers, employees more motivated to exemplify company values Grow Business Development and Sales team • The team would aim to produce sales statistics and suggestions for executing improvements on numbers • Tracking would give insight to executive team and boost decision making • Investment in new BD/Sales staff would pay off ten-fold as business strategy can shift to target increases in target areas • Mandate to increase customer site visits, and face to face interactions with key account holders • Hiring System Analysts for implementation of new Cloud Database and SaaS analytics. 24 Anticipated Human Resource Strategies/ Requirements Grow Human Resource Function • Implement structure and strategy to recruitment, payroll, performance management, training and development, communications in order to reduce companywide redundancies, increase performance, tie employees to the company and increase employee satisfaction, as well as implementing reward high performers • Implement employee referral bonus program • Provide training and professional development programs for employees to drive performance, engagement and employee satisfaction, as well as rewarding and encouraging activities of top performers • Identify resourcing requirements much faster leaving less gaps (such as the CFO and sales team roles) ©2015 25 Major Programs/Projects (GANTT Chart) Action Plan (18 Months) 2013 Q4 2014 Q1 Q2 Q3 Q4 2015 Q1 Pricing Model and Marketing Strategy Develop bundle package for cross-selling Marketing strategy developed and rolled out Partner with CN or CP for inter-modal Partner with US firm for cross-border Capital investment in facility maintenance Renovate and refurbish warehouses Install LED system in all warehouses Upgrade refrigeration equipment Comprehensive IT Strategy Upgrade and integrate core business system Upgrade communication system (fixed and mobile) Enable real-time client monitoring Human Resources Strategy Restructure Executive Team Invest in training and development (esp. sales) Evaluate talent vis-à-vis strategy and align 26 Financial Impact of Objective #1 Objective 1: Improve Operational Efficiency Transportation Unit Warehousing Unit Dollars % Dollars % $ 11 7% $ 7 7% $ (4) -10% $ 15 17% $ 7 7% • By bundling both transportation and storing services, we anticipate an increase in revenue by 5-10% by year end. • Partnering with CN or Canadian Pacific will also decrease transportation costs by 10%. 27 Financial Impact of Objective #2 Objective 2: Warehouse Renovation Transportation Unit Dollars % 0 0% Warehousing Unit Dollars % -10 10 -10% 10% • By renovating and refurbishing warehouses to include LED lighting systems at a cost of 2M, a net savings of 10M will be realized within 12 months. ©2015 28 Financial Impact of Objective #3 Objective 3: New Software Implementation Transportation Unit Dollars % 1 -1 2% -2% Warehousing Unit Dollars % 3 -3 2% -2% • The development and installation of a new SaaS platform within 9 months will cost a total of 3M, or 4% of the total cost but fall to 2% in year 2. ©2015 29 Overall Financial Impact of Objectives Net Results from Objectives Transportation Warehousing Unit Unit Total $ $ $ 10.8 $ (3.2) $ 14.0 $ 7.4 $ (7.0) $ 14.4 $ 18.1 (10.2) 28.3 • We forecast that with achieving the 3 objectives, we will have a total increase of net income of 28M. • ****WE NEED TO DISCUSS IF TWEAKS ON THE PERFORMANCE INDICATORS ARE REALISTIC ©2015 30 2014 Financial Projection Projected 2014 Revenues and Expenses Transportation Warehousing Unit Unit Total ©2015 $ $ $ 53.8 $ 36.8 $ 17.0 $ 112.4 $ 91.0 $ 21.4 $ 166.1 127.8 38.3 $ $ 0.5 $ 2.5 $ 1.5 $ 6.5 $ 2.0 9.0 $ 27.3 31 Key Risks Versacold could face the risk… • a economic risk of a decline in the economy • of an overstatement of cost savings of the LED lighting system • of a failed software implementation • the loss of key executives and human resources • cost overruns from new partnerships • of losing customer base and revenues 32 VERSACOLD LOGISTICS SERVICES May 2015 In early September 2013, Douglas Harrison, the new Chief Executive Officer (CEO) of VersaCold Inc. was preparing his introductory remarks for the first strategic planning meeting with his new executive team. VersaCold is a logistics company specializing in the warehousing and transportation of temperature-sensitive products, such as fresh produce, dairy products, and refrigerated and frozen foods. The company, which although possessing some strong business fundamentals, had experienced a decline in its financial results in recent years (see Exhibit 1), and had recently been purchased by a group of investors. Their intention was to improve its performance, and re-position the company as a fully integrated supply chain solutions company, while remaining the dominant player in the temperature–sensitive logistics market in Canada, and possibly, in time, overseas. Over its history, spanning more than 60 years, VersaCold has been through many ownership structures, including its current incarnation, that of a privately held corporation. A former competitor, Atlas Cold Storage operating in the United States, had been acquired in a hostile takeover by two investors and delisted. The Atlas operating company was then acquired by Eimskip, and the real estate assets of the company were acquired by Kingsett Capital, a private equity real estate corporation. Over time, as part of a global expansion strategy, Eimskip acquired VersaCold and merged its operations with those of Atlas, retaining the corporate name VersaCold. At this stage, the company had operations in both Canada and the United States. During the 2008 financial crisis, Eimskip experienced challenges with the weakened demand for ocean shipping, one of its principal businesses, as well as the melt-down of the Icelandic banking sector. Yucaipa, a California-based private equity firm acquired an interest in Eimskip and all the shares in VersaCold. Subsequently, Kingsett Capital acquired a portion of Yucaipa’s VersaCold shares, and the company was split into two separate companies – AmeriCold which operates in the United States and VersaCold, now solely a Canadian company. Since this split had occurred, VersaCold’s financial performance had continued to be weak. As of September, Doug had been the CEO of the company for only a few weeks, and during that period he had gained some familiarity with the business, done his own assessment of the current situation of the company, and also become acquainted with the members of his executive team. In this period, he had also travelled across Canada, visiting 10 of the company’s 27 warehouse facilities, with locations in all the country’s major urban regions. During the trip, he had listened to the views of his employees on the opportunities and problems facing the company. He formed the opinion that VersaCold was a marvellous opportunity to grow and create significant shareholder value in an old industry requiring change, and in a market that was dynamic and looking for new solutions. Now he was This case was prepared by Professor Elspeth Murray and Professor Peter R. Richardson from materials publicly available. All names and numerical data have been disguised. The case is intended as a basis for class discussion, rather than to illustrate either effective or ineffective handling of an administrative situation. © 2015 Smith School of Business, Kingston, Ontario K7L 3N6 DO NOT COPY QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES preparing to take his new Executive Team through an exercise, lasting about 8 weeks, to develop the key elements of a new strategy and a strategic plan for the next 5 years. BACKGROUND TO THE SITUATION VersaCold operates two principle Business Units, one servicing the warehousing needs of its customers (VersaCold Warehouse Services, VWS), and the other providing transportation services (Versacold Transportation Services (VTS). The warehousing business is responsible for approximately two-thirds of the company’s revenues, and Transportation the remainder. VersaCold’s customers are primarily food manufacturers, retailers, distributors and growers. Over 90 percent of the volume handled in 2012 was frozen product, with the remainder being refrigerated (such as fresh vegetables, fish and meats). The company is the only truly national provider of temperature-sensitive logistics services in Canada, an asset that Doug believes should make VersaCold a first choice provider for large, national food companies, such as McCain, Unilever and Nestle. However, at the present time, VersaCold has a relatively small proportion of the total temperature sensitive business generated by Canada’s ten largest food companies. Another challenge facing the company is the influence of the United States on the Canadian marketplace. With the North American consolidation of companies, and the globalization of supply chains, fewer companies had relatively autonomous subsidiaries in Canada. For example, General Mills manages their Americas supply chain from Minnesota. McCain’s supply chain is managed from Chicago. Companies such as these perceive their supply chain as not only a cost issue, but also as a competitive advantage. In such companies, logistics network optimization is increasingly supported by sophisticated systems and computer models. Increasingly, in large multi-national companies, decision making, not only on marketing and sales, but also on procurement and logistics is being transferred out of Canada, back to the United States, a market in which VersaCold has no physical presence. This situation is exacerbated by the large and growing transportation business between the United States and Canada, particularly in produce and frozen food. Trans-border business is an increasing segment of the market, and in 2013 VersaCold possessed hardly any capability to tap into this business. Doug was wondering whether VersaCold could identify a US temperature-sensitive logistics provider that could become a strong business partner in this area. Doug had also been interested to learn that there was very little similarity between the leading customers of the two Business Units. The top ten customers for Warehousing were quite different than those for Transportation. A question that he was hoping to find the answer to was whether or not the company’s major customers really know or appreciated the range of services that Versacold offered. He felt that there could be substantial growth from cross-selling between the two Business units – particularly in securing Transportation business from customers that were already using VersaCold’s warehousing services. One of the problems that he faced in this respect, though, was that in the larger food companies, warehousing and transportation services were typically bought by different people within the procurement function. 2 QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES INDUSTRY TRENDS The domestic Supply Chain industry in Canada in 2013 is estimated to be a $65 billion industry in terms of annual revenues, of which expenditures in the warehousing and transportation of temperature sensitive products is approximately $13 billion. Within the industry overall, the fastest growing segments are for third party logistics (3PL), the provision of outsourced logistics services, growing at approximately 20 percent a year; fourth party logistics (4PL), the assembly, management and operation of comprehensive supply chain solutions by a dedicated integrator who secures most of these services from independent providers, growing at between 25 and 30 percent a year. Less-than-truckload shipping (LTL), typically operated by trucking companies as a scheduled point-to-point service, is a mature market with relatively slow growth, while truckload shipping is a declining market segment. Within Canada, and in North America generally, the logistics industry is consolidating and the number of independent companies is shrinking. Private equity firms have made a substantial investment in the industry, and as they exit their positions, this will contribute to further consolidation. In addition, a substantial number of firms are family owned, particularly in the temperature-sensitive sector of the industry, and many of these companies will be available for purchase as their owners reach retirement age. This characteristic also makes reliable industry and company competitive and financial data difficult to obtain. Typically these firms have continued to provide traditional services, such as warehousing and transportation, and have not entered the newer 3PL and 4PL business areas, which require sophisticated management and information systems. Within Canada, while the industry remains broadly ‘Canadian owned’, global companies such as 3PL and 4 PL providers, freight forwarders and companies such as UPS, Fedex and D.B. Schenker have all increased their market share through providing and managing integrated supply chain solutions for their customers. VersaCold possesses a substantial number of customers, mainly in the food industry and related areas, including grocery, produce, and frozen foods. Some customers, such as the manufacturers of frozen foods, require year-round services, while for others in the fruit and dairy industry, for products such as such as berries and ice-cream, demand is seasonal. The supply chains for these customers are becoming far more dynamic, enabled by sophisticated modeling tools, the use of ERP systems and globalization. Outsourcing by these firms continues to drive growth for their storage and transportation suppliers at an accelerated pace. Data indicate that frozen food sales in Canada have plateaued in recent years, and actually declined by about 1 percent in 2012, while refrigerated product sales growth is between 3 and 5% a year, reflecting a social trend away from frozen food towards fresh produce. The market also has elements of seasonality. During the summer, products such as ice cream can occupy a significant amount of warehouse space in all regions. Similarly, in some regions, at the end of the summer, there is a significant requirement for storage for fresh produce being shipped from growers to manufacturers and processors but the space required for these products shrinks dramatically during the winter months. So maintaining a high capacity utilization rate year-round in warehouses can be challenging. A small, but growing and profitable segment of the market is for healthcare and pharmaceutical products requiring a temperature-controlled transportation and storage QUEEN’S MANAGEMENT CASE SERIES 3 VERSACOLD LOGISTICS SERVICES environment to ensure that their quality is not compromised. Products include low risk products, such as some prescription drugs, eye drops, and creams, and also high risk products such as vaccines, insulin and blood products, which need to be stored at constant temperatures between 2 and 8 degrees centigrade. In this market segment, storage and transportation providers are required to be licensed and to keep accurate records. Most conventional storage companies lacked the facilities and controls to provide this kind of service. VersaCold did not yet participate in this segment of the market. In recent years, especially during the economic downturn in 2008 – 2009, there had been surplus capacity in both transportation and warehousing. However the recent economic recovery meant that demand for logistics services had started to grow again. In the temperature-sensitive storage segment, lack of investment in new facilities in recent years meant that warehouse utilization rates were rising, and it was expected that, especially in the summer months, capacity could be in short supply across the country. Traditionally, given the East-West balance of the economy and population, transportation requirements in Canada had principally been to move goods from east to West, resulting in a significant problem for transportation companies in ensuring that their trucks not only had westbound loads, but had revenue-producing ‘backhaul’ as well. In recent years, however, given the growth in the Western Canadian economy and population movements from Central Canada to the West Coast are now close to being balanced. Also, with the rise in fuel prices in recent years, rail transportation for longer distances has become much more competitive. As a result, inter-modal transportation had become much more common, especially for trailer loads. Trucking companies now deliver trailers or containers to a rail terminal is, say Halifax, Montreal or Toronto, and then pick them up from the rail company in Calgary, Edmonton or Vancouver for delivery to the ultimate customer. VersaCold, unlike some of its competitors has no arrangement with either Canadian National (CN) or Canadian Pacific (CP) for these services. Estimates suggested that inter-modal services are growing at approximately 10% a year in Canada. A major problem facing transportation companies in North America generally is a shortage of drivers. The average age of drivers is increasing as fewer young people take up the occupation, which due to the frequent requirement for long stretches on the road away from home, is not seen as a highly desirable occupation for younger people. In 2013, surveys indicated a shortage of up to 27,000 drivers in Canada, a situation likely to worsen in the future. Very few transportation companies were either large or sophisticated enough to have their own driver training programs. Advances in information technology systems are also starting to have a significant impact on the logistics business in almost all aspects of its operations. Data access is now perceived by many customers as being as important in their supplier selection decisions as the actual movement of the physical goods. To serve customer needs better, many transportation companies are now investing in information systems that allow customers to gain real time information on the status of their shipments. At present, most leading transportation companies have systems that allow their customers to track the progress of their shipments in real time. In future, in the temperature-sensitive market, with growing regulation and concern about the quality of produce and frozen foods, it was widely expected that customers would want continuing, reliable information on the conditions in which their goods were stored and transported. 4 QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES In general, VersaCold’s competitors range from local to global, and from offering niche or narrow products and services, to offering a very broad range of transportation services and solutions. However, most of them are regional players with respect to the geographic reach of their business. Very few possess a national distribution network or capability, and while most claim on their web sites to have a broad logistics solutions offering, for the most part they offered traditional warehousing and transportation services, with very few having 3PL and 4PL capabilities. Congebec Logistics Inc. is one of the largest competitors to VersaCold, offering warehousing services. This company is the dominant player in the Quebec market, and had only expanded into Ontario as recently as 2010 – opening a 110,000 square foot warehouse near Pearson Airport in Toronto. Early in 2013, Congebec acquired the assets of Westco MultiTemp Distribution in Western Canada, which included four warehouses in Manitoba, Alberta and Saskatchewan. With this acquisition, Congebec now possesses a network of 12 refrigerated warehouses across the country, with a total storage space of 46,500,000 square feet. Congebec claims to be the 12th largest public refrigerated warehousing company in North America, and the 15th largest among the International Association of Refrigerated Warehouses. At roughly the same time that VersaCold announced the closure of its smaller Winnipeg facility in June 2013, Congebec announced a $6 million expansion in the same city. Brookfield Cold Storage, a subsidiary of the large investment company, Brookfield Properties operates two large refrigerated warehouses, one in Toronto and one in Calgary, but offers no transportation services. Nova Cold is a large regional player on the east coast of Canada, with three warehouses in Halifax, one opened in the summer of 2013. Iceberg, similarly operates a single warehouse in Winnipeg, located near to major transportation routes, offering public cold storage services. DB Schenker, a large logistics firm, with approximately 200,000 employees globally, had been expanding in Canada, first in the transportation sector, including refrigerated goods, and recently had been awarded the operation of a dedicated cold storage facility for Maple Leaf Foods in Kitchener- Waterloo, Ontario. In July 2013, Maple Leaf Foods had awarded its refrigerated goods transportation to Canada Cartage, one of Canada’s larger dry goods transportation companies, in a deal thought to be worth $15 million a year. CUSTOMERS Temperature-sensitive storage facilities and transportation services are used by a range of companies for multiple purposes, including: • • • • QUEEN’S MANAGEMENT CASE SERIES Large meat and poultry, seafood and frozen food manufacturers and processors who require storage, and over-flow storage capacity to sustain and build inventory required for shipments to retail clients throughout North America. Manufacturers who want to maintain adequate supplies of raw materials and ingredients on-hand. Retailers who want to ensure they have sufficient inventory on hand to meet normal, seasonal and ‘weekly special’ demands. Vendors who want to ensure sufficient space on-hand for mass quantity purchases 5 VERSACOLD LOGISTICS SERVICES • • Distributors who wish to assemble individual orders from multiple suppliers for shipment onwards to customers (including cross-docking services), such as smaller retailers, hospitals, schools etc. Importers and exporters who require facilities for the storage and onward transportation of frozen goods for sale in the Canadian, or foreign markets (often involving customs clearance and regulatory services). Grocery manufacturing and retailing are both industries going through a significant period of consolidation. Retailing is highly concentrated with the business dominated by a few large national players, such as Loblaw and Sobeys, and a number of dominant regional players, such as Metro in Quebec and Ontario and Overwaitea in the Western Provinces. A few of the national players, such as McCain possess their own in-house refrigerated transportation and storage capabilities, but most companies choose to outsource the provision of these specialized services. Doug believed that most national companies typically use three or four regional suppliers for their temperature sensitive storage and transportation requirements, but that they would prefer to deal with only one, national efficient supplier. In Doug’s opinion a major challenge facing the Executive Team was the lack of information and understanding about the company’s customers. Virtually no sales statistics were gathered on a routine basis. As preparation for the strategic planning activity, he had asked Barry Merchant, the VP of Business Development, to pull together some initial statistics that could be shared with the team in their initial discussions. Some of the major findings are as follows: o o o o o o The company’s Warehousing business has 922 active customers, 202 of which each produce under $5,000 in annual revenue, and 28 each of which provide over $1 million in revenue. In Transportation, the company has 1,700 customers of which 1,154 have revenues under $5,000 and 14 each have revenues of over $1 million. VersaCold’s revenues from its top 100 transportation customers were down $2.6 million year-on-year between 2012 and 2013; from its top 50 customers, down $2.9 million. Revenues from VersaCold’s top 25 warehouse customers were down $7.6 million year-on-year 2012 - 2013. The total ‘pipeline’ of potential new business for Transportation amounted to $8 million in August 2013, and that for Warehousing amounted to $21 million New business in Transportation secured in 2013 year-to-date amounted to $4.6 million annualized ($1.5 million actual, year-to-date); in Warehousing, new business amounted to $12.5 million ($4.5 million, year-to-date). Warehouse utilization in 2013, at 77% has increased by 4 percent over the comparable rate year-to-date in 2012. Although, in August 2013, warehouses in certain parts of the country were actually turning away business as they were operating at capacity due to the nature of the market. In these locations, seasonal business – often hard to predict in terms of volume requirements given varying crop yields - is a reality as fresh produce from growers for manufacturers and processors in the late summer fill the warehouses. 6 QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES DOUG’S INITIAL ASSESSMENT OF VERSACOLD It was clear to Doug that the company needed a transformation, strategic and cultural, as well as operational. People in the company were ready for change. The company was run in much the same manner as it most likely had been ten years earlier. His first thoughts were about the Executive Team (see Exhibit 2) that he had inherited. They were all eager to make change happen, but there was no common sense of direction and no game plan for the future. Most of the team had a considerable amount of experience in the logistics business, but several of them only had experience with VersaCold, and were unfamiliar with best practices in leading logistics companies. Given VersaCold’s prior ownership history, the team was geographically diverse. Three of the Executive Team lived on the West Coast, two lived in the United States while the rest of the team were based out of Toronto. As a consequence, they had spent relatively little time together and lacked cohesion as a group. Doug resolved that one of his first priorities would be to bring the team together around a common vision and strategy for the company, and also physically. He intended that the team would meet to discuss strategy and progress every sixty days going forwards. Critical to the future success of the company was the Business Development function, run by Barry Merchant. It appeared that the function had never been fully appreciated by the prior corporate leadership, and in fact had been largely dismantled as part of the costcutting activities undertaken in recent years. When he arrived, Doug found only Barry and one other Business Development manager in place. The sales team itself had been disbanded. Consequently, VersaCold’s new business opportunities were largely limited to those that ‘walked in the door’, and those that were developed by the Vice-presidents and General Managers, and locally by the facility managers, most of whom had never received sales training. The company had virtually no capability to carry out missionary sales activities, and indeed, there was little capability to maintain customer relationships with existing customers. Most of VersaCold’s customers had not been visited by a company representative in the recent past. It was a testament to the company’s quality of service, that its customers mostly remained loyal, with a retention rate of over 98%. However, in the past eighteen months a few key accounts had been lost. The Transportation Services Unit (VTS), responsible for approximately one-third of VersaCold’s revenues (see Exhibit 3), is headquartered in Toronto and led by Jim Salter, with 20 years industry experience, the last 3 as Vice-president of VTS. The Division has a national network of 8 terminals spread across Canada, in all major urban centers including Toronto, Montreal, Edmonton, Calgary and Vancouver. In 2012, the company had managed approximately 300,000 shipments. Services offered include truckload transportation, less-than-truckload, dedicated contract carriage for individual customers, and direct-to-store delivery throughout Canada. Doug’s assessment during his first few weeks at VersaCold was that customer relationships in Transportation were largely transactional and price driven, generating very little customer loyalty. A mix of company-employed and contracted drivers are used by the company. All refrigerated trailers are company-owned, but in 2013 this fleet was aging and Jim was urging Doug to replace about 50 percent of the fleet in the near future. New trailers would be equipped with technology to allow the recording of temperature and other information during transit. QUEEN’S MANAGEMENT CASE SERIES 7 VERSACOLD LOGISTICS SERVICES The Warehousing Business Unit (VWS), responsible for approximately two-thirds of the company’s revenues (see Exhibit 4) is divided along East – West lines, and possesses 30 distribution centers in its national network. Eastern Canada, including Ontario, Quebec and the other Eastern Provinces, is run from Toronto by Tom Stoppard, an experienced industry executive who had been with VersaCold for three years. VersaCold’s position in Ontario and Quebec was relatively strong, but was quite weak in the Maritime Provinces. Robert Bilbro was responsible for the business in Manitoba and the Western Canadian Provinces. Robert, with considerable prior industry experience, was a 20-year veteran of VersaCold, capable and well liked within the company for his straight dealings and sense of humour. In August 2013, he was less than two years away from retirement, but still highly committed to his role. One of Doug’s options would be to consolidate Warehouse Operations under one Vice-president upon Robert’s retirement. The Vice-president of Finance (CFO) had left VersaCold some months earlier, and had not been replaced. The role is filled on an acting basis, by Akraam Devor, the Controller who had been doing a competent job of running the function in the interim. Given the criticality of the role, Doug knew that although Akraam had significant potential, he was not yet ready to assume a CFO role, and so one of Doug’s priorities would be to recruit a new individual for the position. In the meantime, the company’s financial systems were being improved and Akraam was overseeing the upgrade of the Epicor ERP business software platform, which would go ‘live’ in January 2014. Akraam has been an integral part of the company’s attempts to reduce its costs over the past 24 months (see Exhibit 5 for the cost structure of the company), and achieved some successes, but believed that with some small investments, much more could be accomplished. He was also in agreement with Doug that with better systems, operating efficiencies could be improved across the company leading to either further labour reductions or increased capacity for growth. Generally, the company’s business systems were out-dated and inadequate. The company lacks a comprehensive, reliable database on which to make informed decisions. For example, it was widely known in the company that there was a ‘revenue leakage’ problem. Customers were receiving services for which according to their contract, they should be invoiced, but the company’s systems were failing to record and track some of these, leading to a revenue loss which could be as high as 2 or 3 million dollars a year. In addition, unlike other companies in the industry, VersaCold had no standard, annual procedure for passing standard rate increases on to its customers, a deficiency that could also contribute to several million dollars a year of foregone revenue. The problem of inadequate business systems had already been recognized, and Laurel Ashworth, the Vice-president of Information Technology had a considerable array of IT projects in progress. A new warehouse management system, developed internally, was in the process of final roll-out and implementation. In addition to the Epicor ugpgrade, the company was about to implement e-Docs, a new document management system; an upgrade to Truck Mate, the company’s transportation management software; Salesforce for customer relationship management; the implementation of IBM’s Power 2 technology for transaction processing, and several other systems upgrades. The company was also investigating the implementation of a labour management software tool to optimize warehousing manning levels, and ‘bluerover’ a transportation management software that, among other capabilities, would allow the company and its customers to track shipments in real time. However, there was no real IT strategy in place for the company – these 8 QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES initiatives were largely implemented in isolation and not as part of any grand IT design. In addition, the IT group, comprising about 20 professionals was not co-located, but geographically dispersed through Canada and the northern United States with a considerable number of people working out of their homes. Prior to Doug’s arrival, the Human Resources function in the company had been virtually non-existent, and one of the first things he had done on joining the company was to recruit one of his former colleagues, Chip Martenson, a Human Resources executive with considerable logistics industry experience, who had worked with Doug on a previous occasion as the Vice-president of Human Resources. Chip had been in his role for only two weeks, but it was already clear that all aspects of Human Resources – recruitment, training and development, performance management, payroll, salaries and benefits, communications, structure – needed serious attention. Perhaps more importantly, both Doug and Chip were in agreement that the culture of the company had to be changed – and quickly – if it was to move forward, meet it’s potential and meet the expectations of the new owners. There was no real sense of a unifying culture in the company. Operations were decentralized, and the warehouse facilities operated much as silos, each with its own culture, depending to a great extent on the capabilities of the Facility Manager. The majority of employees were stuck in a traditional mode of operation, and although they clearly had a value for customer service, responsiveness and leadership for change were clearly lacking. Also, in spite of the company’s recent problems, both Chip and Doug perceived a deep sense of complacency throughout the company. Conversely, high performance, where it existed, often went unrecognized. For Doug and Chip a shared priority would be to instil a sense of responsiveness and accountability into the organization, and reinforce these with appropriate recognition and financial reward. The location and condition of the company’s warehouse facilities appeared to be one of the foundations around which future success could be built. Nationally represented, and with 27 locations in all of Canada’s major urban locations (see Exhibit 6), VersaCold possesses potentially one of the strongest distribution networks in the country. Unlike many of its competitors, VersaCold leases and does not own its facilities. Leases are on a long term basis, ten or even twenty years being usual. This approach significantly reduces the capital investment required for the business, but means that VersaCold had rental expenses as part of its cost structure. Some members of the management team felt that this provided their competitors with an advantage in some bidding situations. Through his visits to the facilities, Doug was able to see for himself the wide range of conditions that the warehouses were in. The majority of them were reasonably up-to-date in terms of equipment, although many were not fully ‘racked’ – additional storage equipment would be required to use these facilities to the maximum capabilities. A few facilities, particularly in the Toronto area, were older and not in such good condition as the others. VersaCold possessed four facilities in Toronto and there was a view in the management team that at least one of these could be closed. However, there was always a risk that, as had happened on other occasions, if VersaCold walked away from a facility, it would be almost immediately acquired by a competitor. Dave Rushworth was the company’s Vice-president of Engineering, responsible for any capital projects and also for maintenance of the facilities and equipment. VersaCold had made little capital investment in recent years and maintenance had been ‘cut to the bone’. QUEEN’S MANAGEMENT CASE SERIES 9 VERSACOLD LOGISTICS SERVICES Given the specialized nature of refrigeration equipment and associated regulations, qualified engineers were required for each plant (or group of plants in larger cities) to ensure maintenance was carried out to required standards. However, on his tours, it was easy for Doug to see that building maintenance had been neglected, and that there were also opportunities to significantly reduce costs by improving efficiency in the facilities. For example, all of them still operated with traditional lighting systems, whereas LED systems produce less heat and are far more energy efficient. An investment of several million dollars would be required to change over to LED lighting, but the payback from this investment would be very rapid. FUTURE CHALLENGES Based on the due diligence that he had carried out over the last few weeks, Doug was very optimistic that he could quite rapidly turn around the fortunes of the company. It was clear to him that re-building a capable sales force would take some time, so that significant revenue increases would take time to generate. Some initial ‘back of the envelope’ calculations that he had carried out with the help of Akraam indicated that even with little capital investment there were potential cost savings that could be made that would generate earnings before interest. In general, most of Doug’s priorities were already fairly clear to him. To fuel future growth he needed to reduce and restructure the company’s cost base, although it was still not yet clear what savings would be possible and where these would come from. Revenue growth was also required if the value of the company was to be increased significantly. However, as already noted, the company’s Business Development capability had been gutted and there was very limited information available on either existing customers or on the opportunities to add new customers. While it is not Doug’s practice to undertake largescale layoffs either among the leadership team, or the company at large, it was clear to him that over time he would need to restructure his Executive Team, involving adding new capabilities and fresh thinking, as well as upgrading its quality. In addition, the workforce generally had to be made much more efficient through the use of improved work management systems and also through the elimination of employees who were either not creating value or who could not buy-in to the new, profit and growth oriented culture that Doug intended to introduce into the company. From his initial strategic planning activities with his Executive team, Doug wanted to emerge with a clear and specific vision of the company in five year’s time, including its scope of business, profitability, revenues, markets, services to be offered, cost structure, facilities and employee base, and including a statement of the culture that would have been embedded in the company. One element of the vision for Doug personally, and which he had discussed with the Board, was that by the end of this period, the company would have a market value of around $150 million. During this period, it is likely that there will be acquisitions, and possibly international expansion as part of the growth strategy, but these cannot be made until the company itself is on a sound financial and operational footing. Consequently, Doug intended to create the initial vision and strategy based on organic growth in Canada, although this would probably involve growth in logistics services for imports and exports into and from the country. 10 QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES He wanted buy-in to this vision from every member of his team, and then a shared understanding of the overall strategy, in his own words “the game-plan” that would drive the company forwards to achieve this vision. This game-plan would include a clear sense of the major strategies required to move forwards and an understanding of the timing and sequencing of the major moves, particularly for 2014. In this respect, Doug believed that a challenging but reasonable EBITDA target for 2014 would be approximately $10 million. One of the planning challenges would be to work with the team to determine how this could be achieved. By the end of this year, Doug also intended to have restructured the Executive Team and have a stable leadership group in place. Doug views strategic planning as a process with the potential to create the future for the company, but which also creates shared understanding and commitment throughout the executive team, and indeed, the whole company. He intended that the process of up-dating and reviewing the strategy would continue throughout the year, and that the entire Executive Team, and indeed the entire group should have a shared understanding of the strategy, and be committed to it, and even more importantly, excited about it! To this end, he wanted to walk away from the initial planning activity with clarity about the principal individual responsibilities and accountabilities of the Executive Team for implementation, as well as the outline of a plan to communicate the strategy to employees and other key stakeholder groups. Also, if the company did do well in 2014, and achieve its objectives, the Executive Team needed to consider what form the recognition and rewards for these achievements would take. In Doug’s personal view, the next 12 months would be truly ‘make-or-break’ for VersaCold. QUEEN’S MANAGEMENT CASE SERIES 11 VERSACOLD LOGISTICS SERVICES EXHIBIT 1 VERSACOLD – FINANCIAL RESULTS, 2009 – 2013 ($ CANADIAN, MILLIONS) 2009 2010 2011 2012 2013# 324 315 315 305 148 Cost of Operations 280 278 283 284 138 44 37 32 21 10 7 6 5 4 2 Administrative 25 25 26 22 9 EBITDA* 12 6 1 (5) (1) 6 7 7 7 7 Revenues Gross Margin Sales and Marketing General and Depreciation and Amortization One time costs** 6 Taxes 2 0 0 0 0 Profit after Tax 4 (1) (6) (18) (8) Working Capital 15 17 8 (2) (10) Long term Debt 40 42 45 55 60 74 73 67 55 47 Shareholders Equity * EARNINGS BEFORE INTEREST, TAXES DEPRECIATION AND AMORTIZATON 12 ** WRITE-DOWNS AND SEVERANCE PAYMENTS # FIRST SIX MONTHS QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES EXHIBIT 2 VERSACOLD INC. - EXECUTIVE TEAM Douglas Harrison Chief Executive Officer and President – Joined VersaCold in July 2013 – career in the logistics industry, President / CEO of a number of logistics companies since 1992, member of the Young Presidents Association (YPO), Canada’s ‘Top Forty Under Forty’. Resident in Toronto. Akraam Devor Acting Vice-president, Finance and Administration – 3 years with VersaCold as Controller, degree in accounting, 5 years experience with a leading accounting firm, 10 years industrial experience in various financial roles. Resident in Vancouver Jim Salter Vice-president, Transportation Services - 7 years with VersaCold, three years as Vice-president, 20 years experience in various roles for transportation companies. Resident in Toronto Robert Bilbro Vice-president, Warehousing, Western Region (West of Winnipeg) – 20 years with VersaCold in various positions; VP for 6 years, planning to retire in 2015. Resident in Vancouver Tom Stoppard Vice-president, Warehousing, Eastern Region (Toronto and East) – 3 years with VersaCold, 20 years experience in warehousing and logistics with various Canadian companies. Resident in Toronto. Chip Martenson Vice-president, Human Resources – 1 month with VersaCold, 20 years experience within Human resource functions, 10 in Vicepresident roles, worked with Douglas Harrison as Vice-president Human Resources on 2 previous occasions. Resident in Toronto Laurel Ashworth Vice-president, Information Technology – 8 years with VersaCold, 25 years experience in various Information technology roles within North America. Resident in Buffalo, New York State Dave Rushworth Vice-president, Engineering Services – degree in mechanical engineering, certified refrigeration engineer, 25 years experience, 7 years with VersaCold, responsible for capital projects, engineering and plant maintenance. Resident in Salt Lake City. Barry Merchant Vice-president Business Development – 3 years with VersaCold, sales background in various industries, responsible for all aspects of sales and marketing including bids, deals, and customer relations. Resident in Toronto. QUEEN’S MANAGEMENT CASE SERIES 13 VERSACOLD LOGISTICS SERVICES EXHIBIT 3 VERSACOLD – TRANSPORTATION BUSINESS UNIT FINANCIAL RESULTS 2009 - 2013 ($ CANADIAN, MILLIONS) 2009 2010 2011 2012 105 110 98 95 43 Cost of Operations 93 96 92 87 40 Gross Margin 12 14 6 8 3 2 2 2 1 0.5 Administrative 5 6 5 6 2.5 EBITDA* 5 6 (1) 1 (1) 3 3 3 2 3 Revenues 2013# Sales and Marketing General and Depreciation and Amortization # 14 First six months QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES EXHIBIT 4 VERSACOLD – WAREHOUSING BUSINESS UNIT, 2009 – 2013 ($ CANADIAN, MILLIONS) 2009 2010 2011 2012 2013# 219 205 217 210 105 Cost of Operations 187 182 191 197 98 32 23 26 13 7 5 4 3 2 1.5 20 19 21 16 6.5 7 0 2 (5) (1) 3 3 4 5 4 Revenues Gross Margin Sales and Marketing General and Administrative EBITDA* Depreciation and Amortization # First Six Months QUEEN’S MANAGEMENT CASE SERIES 15 VERSACOLD LOGISTICS SERVICES EXHIBIT 5 VERSACOLD INC. COST STRUCTURE, 2010 – 2012 ($ CANADIAN, MILLIONS) 2010 2011 2012 100% 100% 100% Hourly labour and Benefits 40% 42% 40% Operating salaries and benefits 10% 10% 8% Purchases, including fuel 27% 26% 33% IT / infrastructure 3% 3% 2% Rent / accommodation 7% 7% 8% Sales and marketing 2%< 2%< 1%< General and administrative 9% 8% 6% Amortization and Depreciation 2% 2.5% 2.5% Total Costs 16 QUEEN’S MANAGEMENT CASE SERIES VERSACOLD LOGISTICS SERVICES EXHIBIT 6 VERSACOLD – PRINCIPAL WAREHOUSE AND TERMINAL LOCATIONS British Columbia 7 5 in the Vancouver area, Abbotsford, Kamloops Alberta 5 2 in Calgary, 2 in Edmonton, 1 in Lethbridge Saskatoon 1 Saskatoon Manitoba 1 Winnipeg Ontario 6 4 in Toronto, Hamilton, London Quebec 3 3 in Montreal New Brunswick 1 Moncton Nova Scotia 2 Halifax Newfoundland 1 Saint John’s QUEEN’S MANAGEMENT CASE SERIES 17
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