Clayton IndustriesEssay Preview: Clayton IndustriesReport this essayQ1A: Key Economic, Social and Organizational FactorsClayton Europe faced several economic and social problems throughout 2004-2009 that threatened their existence. One of the main factors threatening the companys expansion and market share in Europe is the Europeans standard view of air conditioning (A/C). They see A/C as an American luxury item that is unnecessary especially because of its harmful environmental factors. Most of Europe had a preference for prevalent local brands and Asian competitors were offering similar products at lower prices. Clayton Europe has been offering an uncompetitive product line because they dont offer a low price strategy and their brand name is weak compared to national brands. Accompanying these problems is the structure of Italys buildings; they lack duct work making Claytons products unsuitable. The global recession hit Europe in 2008. Growth was stalled and profit margins fell drastically, this affected Clayton Europe tremendously. Another major economical factor was the 27% price increase in steel due to the recession. This increase in cost of goods sold could not be recouped, and due to competitive pricing Clayton Europe could not raise prices. All of these factors impacted Clayton Europes performance throughout the 2000s.
Q1B: Top 4 Things that Best Summarize Clayton SpAs Financial Position in Early 2009After observing the balance sheet for Clayton Industries from 2004-2009, it is evident there is a huge erosion in shareholders equity. During a recession, interest rates go down which most likely led Clayton Industries to take on more long term debt, increasing current liabilities. The debt to equity ratio for the year 2004 was 1.16 which was comparable to the industry average of 1.17. Clayton SpA has a current D/E ratio equal to -4.89 which implies low stock holder value and bankruptcy risk. Another statistic calculated from the balance sheet that summarizes Clayton SpAs financial position is their current ratio. In general, from 2005 to 2009 Clayton SpAs current ratio declines from 1.64 to 1.31. The company is heading towards a current ratio of 1, which theoretically would mean they would be unable to pay off their current liabilities with their current assets. This ratio portrays Clayton SpAs second major financial problem which is their decrease in liquidity. As the days to collect receivables increase, their current assets decrease causing less cash on hand. Also, the companies increase in debt throughout 2004-2009 increases their current liabilities which also decreases their liquidity. Clayton SpAs increase in inventory turnover is unhealthy and represents an investment with a rate of return equal to zero.
The last two reasons for Clayton SpAs 2009 financial position will be illustrated by comparing financial ratios between Clayton SpA and Clayton SA (Belgium/France/Netherlands) due to their similar sizes in terms of operations. The Clayton SpAs profit margin from 2004-2009 rapidly declines into the negatives while Clayton SAs profit margin is considerably more impressive, specifically during the recession period time. In 2009, Clayton SpA had a profit margin equal to -12.38% while Clayton SAs profit margin was approximately equal to a positive 1.03%. Both subsidiaries profit margin falls rapidly from 2007-2009 due to the 27% increase in the price of steel reducing net income. Another reason for Italys poor performance is illustrated by the decrease in revenue between 2006 and 2009 due to a decline in demand. Clayton SpAs average change in revenue between 2006 and 2009 was -4.45% while Clayton SAs was equal to a positive 3.75%.
The Clayton SAs profits are an excellent example of a corporation that is being successful both in raising money through its sale of its assets and as a result of its management’s ability to deliver a profit share under the CFS. Despite its high income performance in terms of income, the Clayton SPAs are subject to the negative effects of other factors, such as the increase in credit rating and some of the losses incurred by its subsidiary.
In 2004, at the beginning of the recession, Clayton SAs bought an asset in Germany and began selling its stock on international trading markets with a profit of 10.089% of the value of the asset at the time of sale. During the recession, the price of the asset fell sharply as lower interest rate rates came to dominate the market. Since the beginning of the year, the Clayton SAs share market value has dropped, which was due partly to a reduction in the amount of capital the SAs had in their accounts when dealing in loans. However, the market prices are a bit higher for several reasons. First of all, a short term supply of capital has led to higher market prices for loans and the profits held by its shareholders.
Second, the company is taking in large portions of its assets in an attempt to stimulate domestic investment. Its stock value fell to less than 10%, this resulted in it being able to sell its equity in a lot of foreign companies. The sale of these companies was to allow for new ways of attracting foreign capital in anticipation of greater share value. Therefore, the company is actively pursuing its sale of the other companies that it is actively working to acquire. It has taken an interest in these companies for at least 2 years while selling some of it. When the sale of its equity went through, it received a loss of £7.38 million. This is because the company was moving in another direction for several months at a time, although it did not reach full maturity.
The Clayton SPAs are no longer at risk of loss due to the high capitalization of stock in German companies, however. It could have made further financial investments but for reasons related to competition and competition avoidance, it was able to achieve its target of 15% share price under a CFS offer. If the shares were to drop in value, the share price would have been £4.47. To ensure that it could take into consideration the market prices in its existing European operations and its current financial position, the company decided to sell out the existing SBS shares of the parent company in December of 2009, despite having received a great profit and a reasonable return on its investment (1.07% compared to £3.03 in 2004). This also allows for the incorporation of SBS shares and the purchase off the existing stocks.
Summary
The Clayton SpAs and Clayton SA have successfully demonstrated that they are not in a position to become a successful business for themselves and that there is no risk of profit from them. It should be noted that the company was able to meet the share price target during its relatively short career after the loss of its stock market value and because we have not been able to ascertain the exact timing regarding its financial performance, it may not be within the point of no return.
As discussed, the Clayton SpAs could only have the financial advantage in the short term due to its low level of credit rating. Nevertheless, after the slump, the company made a step towards a very low rating but this has still not been achieved. As a result, the SBS stock market could eventually fall back to its current level and this would further increase the market value of the investment if the stock price falls back to these
Q2A: Is Peter Arnell Right for the Job?Peter Arnells many positive qualities outweighed his faults. These qualities led to his appointment as President of Clayton SpA by Simonne Buis. Arnells military background embodies his disciplined attitude in the work place as well as his determination to succeed, whether on the battle field or in business. Arnell has been with the company since 1998, and by 2002 had worked his way up to President of Clayton Ltd. (UK). During his time as marketing manager, Arnell expanded the UK subsidiaries distribution channel from 4 distributions in England to 14 distributions throughout the UK and Ireland. After becoming President, Arnell implicated Buiss first priority of cutting costs by shutting down a presumably inefficient plant. These bold actions embodied the characteristics required to be President of Clayton SpA in Buiss eyes. In addition, Arnell spent several summers in Italy which gave him an understanding of the local culture and language. Peter Arnell was named the new President of Clayton SpA in June-July of 2009 as they were in desperate need of a leader as sales threatened to drop for the third consecutive year. His drive for success and hard work ethic were immediately exemplified after asking his family to wait about two and a half months to join him in Italy. However, Arnells opinionated personality could lead to an unwillingness to compromise or rash decisions. Throughout Arnells career with Clayton Ltd. he alienated certain colleagues which could lead to hindered relationships throughout the company making it harder to work together. Arnell also holds himself and his coworkers to higher standards then the norm. These expectations could perhaps be set to high causing employee turmoil, dissatisfaction, and an unwillingness to cooperate.
Q2B1: Pros and Cons of Firing 3 Key ExecutivesPeter Arnell arrived in Italy on July 20, 2009 which is the very same day he fired the plant, quality control, and company controller managers. This quick forceful action is accompanied by positive and negative effects. This motion set an immediate productive, strict, and unified atmosphere. It challenged all of Clayton SpAs employees to be team players working for the greater good. Arnell understands the future of this subsidiary is not only questionable, but crucial to Clayton Europe and he makes this clear by firing those unwilling to sacrifice personal benefits for the longevity of the company. The termination of the three managers led to another problem, who will replace them? This question was quickly answered by Arnell, who promoted three employees from within the company. This leads to the assumption that these new managers are not yet ready, or not as qualified as the original managers. The new executives most likely wont have a strong perspective on operations and wont have individual work plans for the next 60 days. Another negative effect of Arnells bold decision is it may have been the cause of FILM