Professional Documents
Culture Documents
EU Scene -
Market Penetration Air Conditioning System
Italy 7%
US 71%
Spain 11%
1 Brussels became the formal Headquarters for Clayton Europe. Four country mangers were appointed fo
2 Asian producers have gain preferences over European companies, largely on the basis of price
3 Led by Buis - Company increased its global market share for Europe from 33 % in 2000 to 45 % in 2009
Break of Sales
UK 12%
Spain 20%
BG/FR 38%
Italy 30%
Problem Statement -
1 challenges to meet the new 10/10/10 targets set
2 The country is lagging in revenue growth which has resulted in receivables and inventories both being a
3 Further the headcount reduction target cannot be met due to stringent local laws and tense union rela
Reasons
1 Many Europeans saw air conditioning as an expensive American luxury that harmed the environment
2 Most of the Europeans preferred local brands prevalent in the European markets
3 Stiff competition from cheaper options provided by a few Asian manufacturers.
4 Claytons products were not aligned as per the market requirements (required heavy duct work but)
5 Control Cost - One of the candidates for such policy adoption was to cut headcounts by eliminating red
6 Acquiring of AeroPuro was not turning out to be very fruitful (5th rank)
7 The penetration was poor since the product was too expensive and also behind competitors in innovati
8 As part of upgrade and expand operations, 203 people were employed, which was 20-30% higher than
9 Generous Benefit
10 Chillers lagged operating efficiencies of market leading units by 15%.
2 Human resources problems and tough resistance it is facing from worker unions at its Italy plan. Also, g
ntry mangers were appointed for by new president who were given responsibility for sales and exports
ely on the basis of price
om 33 % in 2000 to 45 % in 2009
s worldwide
2006 2007 2008 2009
4.1 3.2 -4.1 -17.6
10.6 8.2 3.7 1.5
3.5 0.6 -2.9 -6.1
mand, increase in receivables and inventories
er unions at its Italy plan. Also, government in Italy does not support lay-off strategies.
2.Renewed product could target Italian commercial customers and effectively compete
against the Asian products.
3.Achieve the higher management target to promote Chiller sales in rest of Europe
7.This will not raise any resistance from Italian workers union and the government.
8.Existing market of compression based units will not be affected
Option 2 Gradual Phase out of Compression line coolers, and introduction of the absorption line ch
Option 2 is a viable strategy, which targets increase in market share of chillers in countries outside Italy. However, the strategy r
Pros
1. Tap the growing market demand in Germany, Scandinavia, Spain and other
countries
2. Ability to market the product as a less carbon intensive, eco friendly and energy
efficient product.
3. Higher NPV of investment, since it requires $15mn investment over 5 years, which
is more profitable than Option A ($5mn over 1 year), taking into consideration the time
value of money.
4. Clayton already has the license to first class technology in this area.
5. It will help against competition from Asian companies in this area at cheaper
prices.
6. Absorption based technology offers environment-friendly alternative to
customers.
Option 3 Focus on efficiency measures to restore financial profitability, and analyzing various strate
Option 3 is not at all viable, since the strategy doesnt meet any of the Management objectives. It in fact is a very conservative
Pros
Risk averse measure
Moving in line with the economic downturn, and waiting for economy driven growth
and demand.
Would meet the existing credit liabilities of Clayton SpA.
It does not have risk in case recession prolongs or consumer trend changes
it involves procedures to revitalize plant efficient, product development initiatives, revitalize the compression chiller line by a
Cons
Strategy fails to promote the sales of other product lines in Italy.
No strategy to target the potential Italian residential climate control market.
More efforts and expenditure on sales and marketing initiatives will be required.
There are no plans to accommodate emerging technology like absorption cooling.
The solution does not address over-employment problem at the Bresica plant.
No immediate results guaranteed by this solution.
of the absorption line chiller. The new product aims to meet the growing customer preference for energy efficient and less c
taly. However, the strategy requires high amount of investment, as well as restructuring and phase out stages in the first two years.
Cons
The company faces a high liquidity crunch, and is already reporting a net
loss in Profit. Such high investment is not viable at present.
No research is done for customer preferences for such energy efficient
products in Italy. It could adversely affect the sales in Italy.
d analyzing various strategy option till the economy rebounds after the recession.
n fact is a very conservative approach, one similar to the strategy which led to the ouster of Lazzaro.
Cons
Doesnt meet any of the Management objectives put forward
The Strategy fails to prop up the sales of other product lines in Italy.
Strategy fails to increase sales of Chillers outside Italy.
e Brescias profitability is favored, as it not only targets product promotion in other European markets, but also increases the Chiller marke
3 Fortheperiodcommencingfrom2000to2009ClaytonEuropebecameamajorcontributoryfa
Background
1 ThemarketforairconditionersiswelldevelopedasconsumersviewAirconditionersasasymb
2 SimonneBuistookoverthereinsofClaytonin2001andimmediatelyadoptedatwoprongeda
3 Thecompanyduetoitsuncompetitiveproductprofilefounditselfstrugglinginmarketsoutside
4 Thepoorsalesandrisinginputcostshurtboththebottomlineaswellasthetoplineofthecom
5 Thecompanyfacedlabourunionproblems,anditwasverydifficulttofireanyoneowingtothe
6 TotopitthecompanyalsohasahighwagebillandaverylimitedcustomerbaseinItaly.
Target
1 ToincreasethemarketshareofClaytonSpAfrom7%to15%within4years(Four in Four o
2 ToreduceDaysReceivables,DaysInventoryby10daysandHeadcountby10%(10/10/10o
Financial Analysis
1 Financial Leverage (total liabilities by its stockholders' equity)
2 it is most often used to gauge the extent to which a company is taking on debts as a means of leveragin
3 A high debt/equity ratio generally means that a company has been aggressive in financing its growth w
4 Aggressive leveraging practices are often associated with high levels of risk.
5 If the cost of debt becomes too much for the company to handle, it can even lead to bankruptcy, which
6 Like with most ratios, when using the debt/equity ratio it is very important to consider the industry in w
Financial Analysis
Return on equity measures a corporation's profitability by revealing how much profit a company gener
It provides investors with insight into how efficiently a company (or more specifically, its management
1
2
1
2
3
4
5
6
1
2
1
2
3
4
1
2
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1
2
eItaliancompanywasamanufacturerofcompressionchillersforlargecommercial,public,andinstitutionalinstallati
itial sales were going to be very sluggish
Nationalbrandpreferences
non compliance of design to European homes
competition from Asian producers
the recalcitrant behavior of the average European consumer meant
rtheperiodcommencingfrom2000to2009ClaytonEuropebecameamajorcontributoryfactorforthegrowthofthe
emarketforairconditionersiswelldevelopedasconsumersviewAirconditionersasasymbolofAmericanextravaga
monneBuistookoverthereinsofClaytonin2001andimmediatelyadoptedatwoprongedapproachtogaincompetiti
ecompanyduetoitsuncompetitiveproductprofilefounditselfstrugglinginmarketsoutsideItaly.
epoorsalesandrisinginputcostshurtboththebottomlineaswellasthetoplineofthecompany
ecompanyfacedlabourunionproblems,anditwasverydifficulttofireanyoneowingtothenormsofItaly
topitthecompanyalsohasahighwagebillandaverylimitedcustomerbaseinItaly.
nancial Analysis
ancial Leverage (total liabilities by its stockholders' equity)
s most often used to gauge the extent to which a company is taking on debts as a means of leveraging
high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt.
gressive leveraging practices are often associated with high levels of risk.
he cost of debt becomes too much for the company to handle, it can even lead to bankruptcy, which would leave shareholders
e with most ratios, when using the debt/equity ratio it is very important to consider the industry in which the company operate
Current liabilities
Long-term debt
Stockholders' equity
Total assets
Total Liabilities
Stockholders' equity
D/E Ratio
nancial Analysis
turn on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareh
provides investors with insight into how efficiently a company (or more specifically, its management team) is managing the equi
Net income (loss)
Thisisagravematterofconcernforthecompanyasthecompanywillfacedifficultiesinraisingdebtanda
ByimplementingAlternative1,weexpecttoreaphighprofitsbythesecondyearofoperationsonwardswh
Pros
1.Investment period only limited to 12 months.
3.Achieve the higher management target to promote Chiller sales in rest of Europe
7.This will not raise any resistance from Italian workers union and the government.
1.Changingtheplantsetuptomanufactureabsorptionchillers.
Financial Analysis
EBITDAisoneindicatorofacompany'sfinancialperformanceandisusedasaproxyfortheearningpotent
evaluateacompany'sperformancewithouthavingtofactorinfinancingdecisions,accountingdecisionsort
EBIDTAallowsanalyststofocusontheoutcomeofoperatingdecisionswhileexcludingtheimpactsofnon
Byminimizingthenon-operatingeffectsthatareuniquetoeachcompany,EBITDAallowsinvestorstofocu
EBITDAmarginmeasuresacompany'searningsbeforeinterest,taxes,depreciation,andamortizationasap
BecauseEBITDAisameasureofhowmuchcashcameinthedoor,EBITDAmarginisameasureofhowm
EBITDA
EBITDA
EBIDTA Margin
50.00
40.00
30.00
20.00
10.00
0.00
2004 2005 2006
-10.00
-20.00
Cl ayton SpA (Ita l y/Germ
Other EU
Cl ayton SA (Spa i n/Portu
.Severeoligopolyensuresthatthecompanywouldfacecontinuedpressuresonbothtoplineandbottom-lin
Thismakestheopportunitycostofdiversifyingintoabsorptionchillers,adverselylucrative.
Current Ratio
Thecurrentratioisaliquidity ratio that measures a company's ability to pay short-term and lo
Thehigherthecurrentratio,themorecapablethecompanyisofpayingitsobligations,asithasalar
Current liabilities
Current assets
CURRENT Ratio
Theratioisagoodindicatoroftheliquidityconcernsofthecompany.Highervaluesofthecurrentratiosar
Wefindacontinuousdeclineinthecurrentratioofthecompany.
ThiscanbemainlyattributedtotheshrinkingEBIDTAwhichisreducingthenassets.
Revenues
Total assets
Asset Turn Over Ratio
1.4
1.2
0.8
0.6
0.4
0.2
0
1 2
Cl ayto
Pros
1. Tap the growing market demand in Germany, Scandinavia, Spain and
other countries
2. Ability to market the product as a less carbon intensive, eco friendly and
energy efficient product.
ajorcontributoryfactorforthegrowthofthecompanywithrevenuesaccountingfor45%oftheglobalrevenue
nditionersasasymbolofAmericanextravagance.However,thecompanydidreasonablywellthroughlocalbrandsCor
edatwoprongedapproachtogaincompetitiveadvantage.Thefocuswaseithertoslashcostsorbuildscalesorboth
inmarketsoutsideItaly.
toplineofthecompany
nyoneowingtothenormsofItaly
baseinItaly.
Marketing Plan
1. Brand Diversification - Collaboration wi
with other Asian counterparts. 2. Market Expansion - Leverage sales and
3. Market Penetration - Increased spendin
a means of leveraging
nancing its growth with debt.
2004 2005
204.3 224.3
Clayton SpA 28.5 32.9
35%
30%
25%
20%
15%
10%
5%
0%
2004 2005 2006 200
-5%
-10%
-15%
Cl ayton SpA (Ita l y/Germany/Swi tzerl a nd) Other EU
nywillfacedifficultiesinraisingdebtandalsoinraisingmoneythroughshareholderequity.
ythesecondyearofoperationsonwardswhichwillgraduallyimprovetheretainedearningsofthecompany.
Cons
Strategy fails to promote the sales of other product lines in Italy.
Cost cutting strategy will involve layoffs, which would adversely affect the
companys political relationships. This would in turn affect their present sales.
The solution does not address over-employment problem at the Bresica plant.
compressor chillers
andisusedasaproxyfortheearningpotentialofabusiness
nancingdecisions,accountingdecisionsortaxenvironments.
ecisionswhileexcludingtheimpactsofnon-operatingdecisionslikeinterestexpenses(afinancingdecision),taxrates
company,EBITDAallowsinvestorstofocusonoperatingprofitabilityasasingularmeasureofperformance.
,taxes,depreciation,andamortizationasapercentageofitstotalrevenue.
oor,EBITDAmarginisameasureofhowmuchcashprofitacompanymadeinayearrelativetoitstotalsales.
Clayton N. America (USA/Canada/Mexico) 70.72 69.25
% Margin 13% 12%
Clayton SA (Belgium/France/Netherlands) 20.16 21.35
% Margin 19% 18%
Clayton SpA (Italy/Germany/Switzerland) 25.08 24.47
% Margin 20% 18%
Clayton SA (Spain/Portugal/N. Africa) 9.99 10.37
% Margin 17% 17%
Clayton Ltd (UK/Scandinavia) 7.02 7.34
% Margin 18% 17%
2004 2005
Clayton SpA (Italy/Germany/Switzerland) 25.08 24.47
Other EU 37.18 39.06
Clayton SA (Spain/Portugal/N. Africa) 9.99 10.37
2004 2005
Clayton SpA (Italy/Germany/Switzerland) 20% 18%
Other EU 54% 52%
Clayton SA (Spain/Portugal/N. Africa) 17% 17%
50.00 60%
40.00 50%
30.00 40%
30%
20.00
20%
10.00
10%
0.00
2004 2005 2006 2007 2008 2009 0%
2004 2005 2006
-10.00
-10%
-20.00 -20%
Cl ayton SpA (Ita l y/Germa ny/Swi tzerl and) Cl ayton SpA (Ita
Other EU Other EU
Cl ayton SA (Spa i n/Portuga l /N. Afri ca) Cl ayton SA (Spa
edpressuresonbothtoplineandbottom-line
chillers,adverselylucrative.
rthecompanyisperforming,sincehigherratiosimplythatthecompanyisgeneratingmorerevenueperdollarofasse
chmark,butsincethecompanyhasnotbeenabletotransformagoodassetturnoverratiointoconsistentprofits,theco
783 811
Clayton SpA 112 125
Other Europe 220 224
North America 451 461
1.2
0.8
0.6
0.4
0.2
0
1 2 3 4 5
Cl ayton SpA (Ital y/Germa ny/Swi tzerl and) Other Europe Cl ayton
Cons
The company faces a high liquidity crunch, and is already reporting a net
loss in Profit. Such high investment is not viable at present.
No research is done for customer preferences for such energy efficient
products in Italy. It could adversely affect the sales in Italy.
suesofstagnantcashflowsalongwithhugedebtsonthebalancesheetdoesntseemtobealogicalsteptoundertake.
ecurrentsituation
globalrevenue
roughlocalbrandsCorlissandFontaire.
buildscalesorboth
8.0
7.0
9.0
147.3 155.6 151.4 151.5
362.6 388.0 382.5 388.2 8.0
currentliabilitiesofthecompany
nthelongruntheprofitabilityofthecompanywillimproveresultinginimprovedD/Eratio.
plansofthecompany.Raisingmoneyfromshareholders
2006 2007
26% -9% 1364%
28% 25% 12%
2007
hecompany.
ingdecision),taxrates(agovernmentaldecision),orlargenon-cashitemslikedepreciationandamortization(anaccou
performance.
oitstotalsales.
53.10 47.85 27.88 6.50
9% 8% 5% 3%
17.51 17.08 11.15 3.06
14% 12% 8% 5%
18.06 5.19 -12.77 -7.62
13% 4% -10% -14%
8.43 6.87 6.60 3.20
12% 10% 9% 9%
5.91 4.77 2.91 0.73
13% 10% 6% 3%
2006 2007 2008 2009
18.06 5.19 -12.77 -7.62
31.84 28.72 20.66 6.99
8.43 6.87 6.60 3.20
eofitsliabilities.
238.6 255.3 251.7 255.4
36.7 41.2 42.7 45.5
2 3 4 5 6
Cl ayton SpA Cl ayton Other Europe
enueperdollarofassets
onsistentprofits,thecompanyneedstochangetheproductlineitisoperatingin.
5 6
ton
calsteptoundertake.
re newer markets.
d reduced carbon foot-print of the product.
2 3 4
n SpA Other Europe North Ameri ca
ndamortization(anaccountingdecision).