Utusan – VSS

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As expected, Utusan has announced a VSS exercise for its staff. While the employees grapple with the question of whether they should take up the VSS offer, the key question is will Utusan survive in the medium term. This is a question which all employees affected by VSS need to ask themselves.

Some companies undertake VSS exercises to cut costs, to be leaner in order to protect their profit margins. Some do it because they have no choice. During the 1997 economic crisis, many companies had to offer VSS to the staff. It was a matter of survival. A lot of companies did not pull through. Their turnaround plans did not work out. The key things to be considered are:

1. Does the company have a viable and changed business plan to improve its business and cash flows?
2. What is the company’s operating leverage like? High overheads vs variable costs.
3. Are the banks willing to take a hair cut on the loans?
4. Are the shareholders able and willing to pump in money?

When a turnaround fails, it is the remaining staff, suppliers and minority shareholders who will lose the most. Secured lenders will still have the collateral to offset their loss.