Most large business entities have non-core assets, which can bring both loss and significant profits. The main thing is to manage them correctly.
The concept of non-core assets
This is the property of a company or enterprise that is not involved in the production and marketing process and is not used for repair, maintenance, accounting of the main production process. This also includes unfinished construction, stocks, securities, parts in the authorized capital of another enterprise, which has a different direction of activity. That is, this is all that is not involved in the main activities of the institution.
An example is the situation when an enterprise has a hostel, a kindergarten, and a health camp on its balance sheet. These institutions may not generate income, and they always have to spend money on them.
Non-core asset management
These "dormant" assets often require significant funds for their maintenance, which increases overall costs. There are two ways to get material returns from this property, which is on the balance sheet:
- Sale of non-core assets (sale).
- Restructuring.
The sale of non-core assets will allow the company to get rid of property in which it does not want to invest. The management of the organization may not see for themselves the prospects for its use and adhere to such a business strategy where this property will not be involved. Then selling non-core assets is the best way to get rid of the burden. An implementation is preferred if there are some conditions for this:
- weak relationship of non-core property with the main production;
- there are potential buyers;
- this property is in demand;
- the asset is of high value.
On the Internet you can often find ads of large companies selling property. These are all kinds of buildings, such as workshops, warehouses, apartments, boarding houses, sports facilities, land, cars, equipment and much more.
Restructuring
It can be done in different ways. The following areas are available:
- The introduction of the main production - this is most appropriate when the weakening of the control there is a risk of obtaining low-quality or expensive semi-finished product, a product that is used in the main activity.
- Transfer to local authorities - usually social assets, such as kindergartens, clinics, health centers.
- Write-off - if the property is morally or actually out of date, or if it is impossible to find a buyer to sell this non-core asset.
- Lease or transfer to management. It is used if there is a significant relationship between the main production and non-core assets of the organization, and supply disruptions may occur with a complete loss of control by the main owner. Leasing is preferable when the market value of the property is low or if the owner plans to continue to use the property in the main production.
Sequence of work with non-core property
Restructuring must be preceded by a thorough review by management. It is carried out as follows:
- Assessment of asset non-profile.
- Determination of economic efficiency of property.
- Market assessment of this product.
- Analysis of suitable restructuring methods.
- Assessment of risks associated with the removal of property.
- Sale, rental at auction.
- Building relationships with dedicated assets.
Acquisition of non-core property
On the one hand, such property can to some extent interfere, and it is advisable to get rid of it. On the other hand, it can become an additional business and it is bought for the purpose of investing funds. Large banks, holdings, enterprises always strive to have such investment assets. The content of the essence of other companies does not bother them, on the contrary, it brings profit and income.
For example, the non-core assets of Gazprom are collected in the media holding Gazprom-Media. It includes radio stations:
- Relax-FM.
- City FM.
- "Children's Radio."
- "Echo of Moscow."
Gazprom is also the owner of the Seven Days publishing house, which publishes such newspapers and magazines as Itogi, Caravan of History, Tribuna, and Panorama TV. In the field of television and cinema, Gazprom manages the NTV-Kino film company, supports the Crystal Palace and October cinemas, and owns the Rutube Internet resource.
In the field of finance, Gazprom owns the following companies:
- private pension fund called "Gazfond";
- Gazprombank LLC.
Sberbank and VTB
Banks often have a situation where non-core assets appear on the balance sheet. This is due to the fact that bank customers take loans secured by property, and if it is impossible to repay the loan, this property is withdrawn from them.
During the crisis, Sberbank acquired a large number of such property, among them were various structures, a network of retail facilities and a share in the oil and gas business. Due to the high costs of maintaining non-core assets of the bank, it was decided to sell them. For these purposes, the "Russian auction house" was created.
Another major bank in the country, VTB, is the owner of the Hals-Development company, which specializes in the construction of residential and non-residential buildings. This company built Detsky Mir in Lubyanka, the Literator elite housing complex, and the complex in the Kamelia recreation zone in Sochi. In addition, VTB has ownership in the gas industry.
Russian Railways OJSC
The largest transport organization in the country invests in many projects and is the owner of several different companies. Non-core assets of Russian Railways:
- Kit Finance shares are a commercial bank;
- the share of ownership in TransCreditBank - this financial institution serves the transport sector and related areas;
- Non-governmental fund “Welfare” - industry workers transfer money to it, and upon reaching retirement age receive a pension from it;
- Mostotrest OJSC is an organization that is engaged in the construction of automobile and railway bridges, foundations, transport interchanges, overpasses, etc.
Other pitfalls of non-core property
Investors prefer to give their money to a clear and transparent business. If the company has this property, then in the eyes of investors it is assessed as less attractive. For this, many banks have created separate management companies that deal exclusively with non-core assets and are completely separate from the banking sector.
How to increase the cost and start using?
If the management of the enterprise decides to sell non-core assets, then some measures can be carried out thanks to which it will be possible to increase the transaction price. These include:
- Overall rating.
- A brief description of the assets offered for sale.
- Drawing up an investment memorandum. This is a document that describes the main business idea or model of the project, its advantages, benefits and everything else to show the investment attractiveness of the asset.
- The choice of potential buyers.
- Direct communication of information to them.
- Conducting advertising.
- Conversation.
- Conducting an audit by the partner.
- The conclusion of the transaction and the signing of documents.
The rejection process is rather laborious and complex. Non-core asset allocation stages:
- Determine how property is specialized.
- Analyze the effectiveness of its use.
- Explore the market for these products.
- Identify possible restructuring options.
- Conduct an asset valuation.
- Identify risks associated with asset removal and possible mitigation measures.
- Leasing or selling.
- Establishing relationships with dedicated assets.
Non-core assets are on the balance sheet of almost all large organizations and business entities. Something from this property was inherited from the time of the Soviet Union or as a result of changes in the process of activity. On the other hand, non-core assets are often used to invest in additional business, which brings the corresponding income.
If this property is just a burden and a ballast that “sucks” money, then the right decision will be to sell or restructure these assets. You can sell it if it is not needed at all and there is a real buyer. In other cases, it is better to choose a rental or transfer to the main production. Liquidation is possible if the property cannot be used at all and is out of date.