Financial Management of Aluminum Bahrain - Assignment Example

Aluminum Bahrain (ALBA) Table of contents Analytical objectives 2) Value driver analysis 3) Strategic pre-evaluation 4)Analytical issues/questions 5) Margin/differences/ratio analysis 6)Inferences 7)Conclusions Aluminum Bahrain (ALBA) Introduction. Aluminum Bahrain is an aluminum smelting company. It produces and does marketing of aluminum and aluminum related products. such aluminum products include standard ingots, rolling slabs, foundry alloy ingots, extrusion billets, T-ingots, and liquid metal. The company also provides other products such as anodes, power, water, and calcite, coke. The company operates with its own dedicated power plant with its four power stations boasting a total power generating capacity of 2,219 MW ISO. Its products are exported to the Middle East and North Africa, Asia, and Europe. Aluminum Bahrain is headquartered in Manama, Bahrain.. Client user group identification As the Current shareholders of the manufacturing company of aluminum it unto the company of aluminum Bahrain makes sure that it builds and designs things and releases them to the public . A product lacked life or value until the users had accepted it who are interested in knowing all the information necessssary to make a critical decision to whether buy ,sell or hold investments in the Aluminum Bahrain B.S.C(Alba).Our focus will be on the following in line with the needs of the users. The company, Alba, performance compared to the Aluminum sector in the MENA region. Potential growth areas and Alba’s ability to capitalize on these growth opportunities. Expectations of Alba’s main revenue/profitability streams The robustness of the financial position of Alba. By 2000 the business had transformed with the purchase of new assets and businesses. The purpose of the acquisition of the new businesses was to establish North africa alluminium companiesfor the Bahrain parent company, rolling labs Industries. At that same time, the rationalized business would bring forth cash flow, infrastructure and economies of scale for the expansion of the business into the rapidly growing markets of Asia, America, . However, in 2014, this company faced a worse situation than it was in earlier . Dollar fluctuations and increase in costs led to lose of a large client base. There was also an increase in costs of production due to the rise in labor costs in Bahrain. Financial issues Aluminum Bahrain lacks proper and educated and trained workforce .There exists a small number of trained work force. In away these cripples the manufacturing company. Its operations are slowed at the expense of huge production leading to a proper profit Since there are various sub products that the Bahrain company produces there is less promotion of the product as it is limited to the country, The process of innovation is slow while the demand for properly innovative materials is high analysis OF ffffTHE FIRM TYPE AND THE VALUATION Firm type valuation In order to determine the firm type of the aluminium company its supply and demand are key factors in addition its produced in metric tons. When establishing its demand by market the following factors are considered: The packaging of the aluminium, it should be properly packaged to prevent pillfirage,motor vehicle capacity needed in terms of transport, power in terms of electricity needed when allot of electricity is needed means the firm type are big. Firms involved in Aluminium industry and handle there own supplies and customers and has its own national and international organisations Analysis of appropriate financial ratios under P.E.R.L. PERL analysis shows that there are many problems that might the face company despite the volitability and gains it has made sincw 1970s. The price of aluminum is decreasing as the quality keeps increasing. This caused many companies to seek external markets that have cheaper labor so that they cut down on their production costs as much as possible. The cost of labor in Bahrain has greatly increased almost by double. They are completely non-concurrent to other countries. Aluminum Company is placed in a competitive market with companies that have good business networks both within and without the Bahrain market. Some of Its employees are members of unions that fight for the rights of employees. Aluminum subsidiary companies is well situated for extensive growth into the Asian markets. Summary of financial performance (change and margin analysis) ALBH company 2001 to 2014 For the fiscal year ended 31 December 2014, Aluminium Bahrain BSCC revenues increased 10% to BHD821.7M. Net income increased 21% to BHD96.4M. Revenues reflect an increase in demand for the Companys products and services due to favourable market conditions. Net income benefited from General and Administrative Expense decrease of 3% to BHD29.5M (expense), Gain on Exchange increase from BHD211K to BHD671K (income) TTM = Trailing Twelve Months MRQ = Most Recent Quarter ALBH Income Statement Gross margin TTM 17.98% Operating margin TTM 11.63% Net Profit margin TTM 11.74% Return on Investment TTM 9.93%  Total Revenue  Net Income 2014  Total Revenue821.72M  Net Income96.44M   Period Ending: Dec 31, 2014 Dec 31, 2013 De Period Ending: Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Total Revenue 821.72 749.34 743.73 883.32 Gross Profit 147.77 108.59 105.21 221.06 Operating Income 95.56 61.7 92.03 166.97 Net Income 96.44 79.78 96.55 211.9 Balance sheet Quick Ratio MRQ 0.92 Current Ratio MRQ 1.77 LT Debt to Equity MRQ 6.99% Total Debt to Equity MRQ 14.87%  Total Assets  Total Liabilities Period Ending: Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Total Assets 1161.89 1178.28 1211.94 1304.79 Total Liabilities 243.75 309.83 382.32 496 Total Equity 918.14 868.45 829.62 808.79 Cash flow chat Cash Flow/Share  TTM 0.12 Revenue/Share  TTM 0.58 Operating Cash Flow  92.16%  Cash  Net Change in Cash Period Ending: Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Period Length: 12 Months 12 Months 12 Months 12 Months Cash From Operating Activities 164.37 130.17 153.06 244.74 Cash From Investing Activities -50.22 -47.65 -32.21 -30.27 Cash From Financing Activities -111.5 -79.58 -158.73 -170.85 Net Change in Cash 2.66 2.94 -37.88 43.62 * In Millions of BHD (except for per share items) Strategic Analysis SWOT Analysis - A detailed analysis of the companys strengths, weakness, opportunities and threats. STRENTHS AND WEAKNESES Opportunities and threats for the company As one of the largest industial companies in the middle East it has the following sreangths and weaknesses: Since its the largest material industry from the middle East it is able to establish an understanding of past and current global aluminium mark hence through that it it is able to detamine how the Aluminium company will evolve in the future decade to its advantage• When a young company starts a company and wants to know how the market will be profitably it will immediety inquer from the sale forecast from aluminium company based in Bahrain .this will provide you with with study tables of over 150 charts and graphs determining the future aluminium market in detail .through that this it has provided insight in the aluminium industry Since its a major company specialised in manufacturing it has been on the forefront in determining technological developments Opportunities and threats for the company Aluminum has strong relationship with some large companies in the mining industry globally . This could aid them in the shifting into international markets and production to other countries (BUHLER 2010). It has the opportunity of going global and venturing into new markets. However, the production cost is the biggest problem facing Aluminum. This is greatly contributed by the high costs of labor . It is this labor costs that forced other companies out of Bahrain. This causes Bahrain-based companies to compete unfavorably with other global companies based in places with cheaper labor costs. Another challenge of Aluminum is strengthening of the dollar in Bahrain(COOK 2009). This makes exportation from Bahrain a is cumbersome. Aluminum should therefore sort solutions for these problems to safeguard its position and existence. It therefore considered outsourcing labor and taking production to developing economies where labor is cheaper like in India. And northern Africa. Aluminum has a few goals which revolve around production of cheap but quality manufactured and production materials sush as coke. The company seeks to cut down on its production costs so that the final products are not so expensive (CRAIG 2008). As a sustainability strategy, the company ought to produce the most popular and best accessories all around the world. Some strategies have been proposed to aid in reducing the labor costs and the overall production costs. Rationale for business strategy. The main rationale for the business strategy is reduction of production costs. the business strategy is meant to put the company in a good competitive position with other global companies in the industry. The strategy will result in the lowering of prices of its goods too. This business strategy will be the key to its production costs going lower. The strategies are meant to help the company develop by going global. Strategic pre-evaluation competitive environment and the firms strategic intentions counter The strategy states that Aluminum should shift its production to countries that offer cheaper labor. This move is meant to reduce the cost of production and consequently reducing the price of final products. Going global will allow us attain cheap labor and economies of scale that will make our production cheaper. The existing recognition of the company globely since its report forms part of GlobalDatas Profile on Demand service, covering over 50,000 of the worlds leading companies has enabled it to grow and has enabled it to access chance to access the global market. It should also take to advantage of other mineral mining industries. Re-engineering of the entire business process is also a good strategy. This will lead to the betterment of quality of goods and the reduction of costs (DELCAMPO 2011). This can be realized by making clear ownership of the processes in the production to look in to the quality and eliminate reluctant work activities and the individuals responsible for them in the current factory state. This will help in the elimination of non-productive labor that still is a cost to the company. This will significantly reduce production costs. Aluminum company needs a redesign of its working organizations into cross-functional groups in order to bring down organizational layers in the company. This move is set to greatly assist in the lowering growing concern of cost incurred due to labor in production. The main strategy here should be the change of our labor plan and the organizational structure (HECKER, & HALLOCK 2001). Change of our labor plan means change in how we used to manage our human resource in terms of staffing, management of the staff and the training of staff. Going global will be done through a couple of ways. One of the ways is starting the export of our locally produced manufactured products to other countries. The subcontracting of some production processes to foreign countries in which we intend to venture in for example India. We will also get into various ventures with this countries we intend to go into. we will also set up operations in the countries we are intending to venture in. this will help us achieve our strategy of globalization. Analytical issues/questions The main rationale of the new strategy is reducing production cost in Bahrain. As the business strategy is set to go off, the company has strengths and weaknesses that may end up affecting the entire strategy (GATELY 2013). The achievement of this strategy needs very skilled workforce. The high wages that are offered to labor in Asia mean that the company has the ability to acquire skilled manpower from anywhere in the world. In addition, our strength is the non-unionization of majority workers in the company. This will allow the company to engineer its own rules that are flexible and relevant to the company’s operations. Alluminium ALBA company has for a long time embraced the promotion of employees to higher posts (HENEMAN, & TANSKY 2006). Those employees that portray a lot of enthusiasm in their work get promoted to higher posts if they have atleast the minimum qualification. This greatly motivates the employees to be more productive so that they can enjoy promotions. The Bahrain workforce is also highly diversified. Diversification of workforce is always a great advantage to a company. Alluminium greatly benefits from this diversification of workforce. These strengths are meant to make this strategy successful. However, Aluminum has some weaknesses that may act as hindrances to the strategy. aluminum has very poor staffing methods (INFORMATION RESOURCES ON FINANCIAL MANAGEMENT AND ACCOUNTING 2013). The criteria used in employing new workers are very poor. Aluminum ends up employing unskilled manpower so that it saves on money spent in wages. This makes the internal promotion a bad idea. Aluminum does not also invest in the training of employees. The company rarely organizes training forums. These forums are mostly for the personal development of individual workers. Lack of such forums is driving away some of its skilled workers who are not only after a good pay. They go to companys that will help the growth of their abilities. Aluminum company has another weakness of lack of evaluation plans (JACKSON, S. E., DENISI & HITT 2006). This company lacks mechanisms to monitor its employee’s performance. This greatly affects the quality of production which is key in the competitive global market. Aluminum also lacks appropriate methods to champion for teamwork. Teamwork greatly aids the success of a company since work is better done when people work as a team. Teamwork makes work easier. Lack of an efficient staff retention strategy is also a weakness of Alluminium.Alluminium lacks the strategies to and retention. Most of its employees resign after a short while of service. There is no employee loyalty. Recently, aluminum company experienced loss of many employees that had been working in production. They were offered better deals by another company (LEE & WARNER 2006). This is dangerous for competition because the workers go with production secrets to the other company. Conclusively, the lack of skilled manpower at alluminium may play a major role in hindering success of the new strategy. Potential role in assisting achieve the business strategy. The human resource strategy has been developed and is expected to ensure that the human resource is ready for the support of the new strategy. The H.R strategy should help cut down in expenses of employment and paying of wages. The human strategy set is to ensure that the methods of management of employees are sufficient. It is also set to ensure that the methods of recruitment of new employees are sufficient (LEES 2003). The strategy will bring some major changes in the activities of recruitment, monitoring, training and rewarding of employees in aluminum company. The strategy is also set to control the procedures of production so as to realize production of quality goods that will strongly compete with goods from the other companies globally. Human resource is a key sector in the road towards changing fate of aluminum company Inferences The first step of the strategy will be personal preparedness of the changes that are expected to occur. The new business strategy is expected to bring forth tremendous changes in the workplace that might result in changes in the entire workforce. All employees need to be psychologically prepared for the changes (MCGANNON, & MCGANNON 2009). The recruitment department of Aluminum Bahrain (ALBA)must be restructured. This will happen so that the new individuals that have clear understanding of metrics of diverse workplace get introduced to the recruitment team. Aluminum Bahrain (ALBA) will require new and able workforce to achieve the changes they need. The strategy also states that there should be implementation of employee training and retention programs to ensure that employees are well trained to deal with the needs of the new emerging markets, especially in the Asian markets. This is to ensure that they have the ability to deal with global diversity. Training will also be used to ensure development of individual employees. Strategies to check the performance of employees are being developed. This is to ensure quality production is created and motivated. A downsize of the current workforce is advised to create room for the incoming experienced staff and also creation of more funds for the expansion . The unskilled manpower has to create space for the skilled manpower expected to change the company and pilot it to greater heights (MCGANNON, & MCGANNON 2009). The strategy will be carried out by doing a number of activities. Some of this activities set to be done by the human Aluminum Bahrain (ALBA) has to reduce its labor costs so as to reduce the entire production costs. The new strategies are set to reduce the costs they incure in labor. The Bahrain government strategy is set to help the new strategy be successful. The new strategy needs all employees to be cooperative and work together so as to achieve the goals. The company is also going global in order to find markets that are more lucrative. References Read More