presenters:remaining group members: lee, sauleng sadeddin, khaled vardar, ezgi wilson, david arora,...
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Presenters: Remaining Group Members:
Lee, SaulengSadeddin, KhaledVardar, EzgiWilson, David
Arora, MilenQureshy, SherrySorbara, Domenico
Magna International Inc.
Agenda Company History Key Strategic Issues Future Challenges Company SWOT Analysis Company Performance Alternatives Decision Criteria Recommended Course of Action Implementation and Contingency
Plan
Company History1957: Frank Stronach opened a one-man tool and die shop called Multimatic1960: Received its first auto parts contract with General Motors to produce metal-stamped sun visor brackets1962: Magna Electronics Corporation Limited became a public company on the Toronto Stock Exchange under the symbol MG1969: Multimatic merged with Magna Electronics Corporation Limited, a publicly traded aerospace, defence and industrial components manufacturer1970: Automotive operations expanded to include a greater number of stamped and electro-mechanical components
1973: Magna Electronics Corporation Limited changed its name to Magna International Inc.1976: Magna implemented a major product diversification strategy and divisions were organized into main product groups
1960 1970 1980
1957 19601962 1973 19761969 1970
Continued1979: Magna enters the automotive plastics business1981: Magna sells its aerospace and defence operations
1984: Magna formally adopts a Corporate Constitution, entrenching its previous long-standing commitment guaranteeing the rights of employees, shareholders and management to share in the profits they help produce1987: Magna organizes its manufacturing divisions into Automotive Systems Operating Groups to become full-service suppliers for many key systems of the automobile
1989: Magna co-designs and co-develops the integrated child safety seat, recognized by the Smithsonian Institute as one of the great innovations of the 1980s1990: Ford Motor Company awards Magna the first major program to supply “bolt-in” door modules incorporating all interior door hardware
1992: Magna obtains a listing on the New York Stock Exchange
1980 1990 2000
1984 1989 19921979 1981 1987 1990
Continued1996: Magna undergoes a major European expansion, acquiring a number of European-based automotive systems suppliers1998: Magna acquires Steyr-Daimler-Puch, one of the world’s leading automotive technology and engineering companies with complete vehicle assembly capabilities
1999: Magna is named the world’s top auto parts company in Forbes Magazine2000: Magna spun off MEC, one of its business operations, as a separate public company2001: Magna announces the formation of the Magna Steyr Group
2005: Magna improves strategic positioning by privatizing three public subsidiaries (allows it to better exploit competencies)
1980 1990 2000
20051996 19991998 20002001
Key Strategic Issues Global recession has led to a market contraction,
therefore, Magna must: Find new buyers and new markets in order to survive this
contraction Better position itself for the period following the market
shakedown
Future Challenges This strategic issue translates into short-term and
long-term challenges for Magna: Short term challenges are manifested in a net income
decline of 89% in 2008 Long-term challenges include:
▪ OEM market dynamics (bankruptcies, consolidation, and government intervention)
▪ Tier 1 consolidation and bankruptcies ▪ Technology is shifting (more emphasis on greener technologies)
Company SWOT Analysis
STRENGTHS
• Technological resources• Innovation resources• Global base • Unique entrepreneurial culture
WEAKNESSES
• Overdependence on few customers• High overhead• Financial resources
OPPORTUNITIES
• International growth• Vertical integration• New technology• Diversification
THREATS
• Weakening automotive industry• Pricing pressure • Energy price volatility
Share Price 2004-2009
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
0
50
100
150
200
250
300
Sh
are
Pri
ce (
US
D)
Mergers and Acquisitions 2004
Takes minority stake in I&T GmbH (electrical) Completed the acquisition of the worldwide operations
of DaimlerChrysler Corporation's wholly-owned subsidiary, New Venture Gear Inc. (automotive transmissions and all-wheel drive transfer cases)
Acquires facility in Mexico from Wagon PLC (engineered metal)
2005 Acquires Tesma International Inc. (powertrain) Decoma (exterior), Inteir (interior), TS Fahrzeug-
Dachsysteme GmbH (roofing systems)
Continued 2006
Acquires Porsche Engineering Services NA from Porsche AG (automotive engineering services)
2007 Minority 20% ($1.54 billion USD) stake given to
Russian industrial conglomerates – Russian Machines
2008 Acquires Technoplast – Russian auto parts
manufacturer (plastic interior/exterior) Creditors force Russian stakeholder to give up 20%
stake in Magna
Continued Since the 1990s, Magna has made
24 acquisitions while taking stakes in 9 companies
Year Acquisitions Stakes
2009 0 0
2008 1 0
2007 0 0
2006 3 0
2005 3 0
2004 3 1
Income Statement
2004 2005 2006 2007 20080
10
20
Revenue (in billions of USD)
MARGIN ANALYSIS
Gross Margin 10.30%
Net Profit Margin -1.63%
Operating Margin -0.91%
2004 2005 2006 2007 20080
250
500
Net Income (in millions of USD)
PROFITABILITY
Return on Assets -2.45%
Return on Equity -4.26%
Return on Investment -3.86%
Continued Year on year, Magna’s revenues fell
9.07% from $26.07 billion USD to $23.70 billion USD
This, along with an increase in the cost of goods sold expense, has contributed to a reduction in net income from $663.00 million USD to $71.00 million USD – a 89.29% decrease
Cash Flow
2004 2005 2006 2007 2008-5000
5001000
Cash Flow (in millions of USD) Cash Flow per Share
5.02
Price/Cash Flow per Share 9.83
2004 2005 2006 2007 20080
1
2
Cash (in billions of USD)Book Value per Share 72.67
Tangible Book Value per Share 60.91
Continued In 2008, cash reserves at Magna fell
by $197.00 million USD However, the company earned $1.05
billion USD from its operations for a cash flow margin of 4.45%
In addition, the company generated $89.00 million USD in cash from financing while $1.06 billion USD was spent on investing
Balance Sheet
2004 2005 2006 2007 20080
10
Total Assets (in billions of USD) CREDIT RATIOS
Current Ratio 1.50
Quick Ratio 1.11
2004 2005 2006 2007 20080
5001000
Total Debt (in millions of USD)
LONG-TERM SOLVENCY
Total Debt/Total Equity 0.0582
Total Debt/Total Capital 0.055
Continued Magna has a debt-to-total capital
ratio of 0.05%, little changed from the previous year's 0.00%
Continue with the Status Quo The acquisition of Opel and the joint venture with Ford, will
help Magna survive and would give Magna a chance to become an OEM and gain market share especially in Europe
However, industry dynamics require immediate action for the long-term health and growth of the business
If they do not react further to the changes of their external environment, its net income is expected to eventually decrease and the cash flow situation to worsen and ultimately end in bankruptcy
Pros Cons
No costs and efforts to implement
Loss of the market share in the long-term
Minimal investment required and easiest to implement
Loss of further growth opportunity
Increase Investment in Emerging Markets Involves finding new clients in emerging markets or
supplying global OEMs who are operating in such markets World motor vehicle production is actually increasing in
emerging markets (Asia/Oceania and Eastern Europe)
Pros Cons
Increase sales High capital costs
Increase JV/collaboration (reduces risks)
Higher potential for failure due to riskier position
Familiarity with markets targeted
Increase Investment in New Green Technologies Capitalize on a core competence in R&D Government financial support for green technology in cars Already has an electric car in development through a JV
with Ford
Pros Cons
Opportunity to be the first mover with emerging trends
High risk, possibility of investing in the wrong technology
Potentially high return on investment
Opportunity to be a technological leader
Diversify into Other Industries
Pros Cons
Reduce risk Potential loss of market share in the core industry
Secure new buyers Lack of expertise in the new industry, need to go through the learning curve
Already existing facilities could be adapted to accommodate new uses
Longer time to realize a return
Potential increase in sales due to new buyers
Decision Criteria
Decision Criteria Weight OptionsA B C D
Market share growth 0.10 5 / 0.5 7 / 0.7 7 / 0.7 1 / 0.1Profit potential 0.30 1 / 0.3 5 / 1.5 7 / 2.1 7 / 2.1Diversification 0.30 1 / 0.3 2 / 0.6 8 / 2.4 10 / 3
Risk 0.10 10 / 1 7 / 0.7 1 / 0.1 1 / 0.1Technology leadership 0.20 2 / 0.4 2 / 0.4 10 / 2 1 / 0.2Sum of weights 1.00Total Score 2.5 3.9 7.3 5.5
Scale: 1 = Weak; 10 = Strong
Recommended Course of Action In the short-term:
Minimize costs Ensure financial viability
In the mid- to long-term: Invest heavily in the development of Green Technologies▪ Leverage R&D core competencies▪ Exploit growth potential▪ Exploit potential for higher margins
Emphasize a greater level of diversification▪ Geographically▪ Product array▪ Number and variety of customers
Implementation and Contingency Plan Environmental focus is a departure from
regular operations Direction will need to come from key
stakeholders in order to circumvent organizational inertia
Will require responsibilities to be shared with superiors and the board of directors will need to sign-off on influential decisions
R&D teams dedicated to green innovation will need to be established
Need to hire the right people to lead and manage
Continued Employ individuals most qualified – will
help to avoid issues such as groupthink Heterogeneous top management team to
oversee the project Team members with diverse backgrounds
but similar behaviours will help to achieve optimal strategic decisions
Explore possibility of acquiring a market leader in green automotive technology
Continued Considering joint venture with major
automobile manufacturer that has a strong green focus – will help reduce risk and create synergies
Motivate and evaluate progress of the initiative by measuring performance Best method to use is the Balance
Scorecard Will make the assessment of strategic
operation clear and concise
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