THE CASE FOR ALVAREZ & MARSAL

TMD Friction Holding GmbH

TMD Friction Holding GmbH, a world leading multinational manufacturer and supplier of brake friction materials to the automotive original equipment market and the automotive after market, underwent one of the largest operational and financial European restructurings in 2006.

Based in Leverkusen in Germany, TMD had grown both organically and by acquisition in the 1990's to emerge as a frontrunner within its market. At the same time however, the industry was experiencing fresh demands to reduce costs and lead times for its core customers. By 2005, TMD's trading outlook was deteriorating

The shareholders, frustrated with progress, embarked on a change of TMD's senior management, appointing a new Chairman and CEO. The new team set about identifying cost saving opportunities and, in January 2006, announced plans to restructure its German operations to help ensure the company's long-term competitive position. In the autumn of 2006, TMD established a new Board of Directors which included Antonio M. Alvarez III, a managing director of global turnaround firm Alvarez & Marsal (A&M), and Bob Geiger as active non-executive directors.

Having put a management team with strong restructuring, manufacturing, financial and operational expertise in place, TMD's investors agreed to support a full restructuring programme. Firstly, the mezzanine lenders in TMD converted existing loans into shares, making them the majority shareholders of the Group. TMD also secured new financing of €375 million to refinance its existing senior lending and to support the ongoing operational restructuring of the Group. As part of this programme, over €60 million will be invested over three years in, among other things, a new factory in Eastern Europe, closure of plan in the UK and business process improvement projects.

The restructuring process has already begun to reap rewards, evidenced through improved purchasing conditions and sourcing, overhead cost reductions and in Germany and improved working capital management and cash management. A&M has consequently been engaged by TMD to assist the management team with further improving its financial reporting and controlling systems.

At its 2006 year end, TMD reported net revenues of €661 million and continues to make strong progress in the current financial year. Net revenues have increased by 5% year-on-year April year-to-date and EBITA has increased by 26% for the same period. TMD has also won 100 per cent of the programmes that it has pitched for. The work done at TMD, which combined operational and complex financial turnaround expertise, will likely serve as a model to others in the stricken automotive industry.

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