maghreb oxygène strategic plan

2Maghreb Oxygne Strategic Plan 2013-16

Acknowledgments

We express our sincere gratitude to all those people who have been associated with this

project and have helped us with it and made it a worthwhile experience.

All of us are deeply grateful for contributed to our learning process at Al Akhawayn

University, especially our Professors. In this respect, we thank Dr. Abderrahman Hassi for his

valuable advice, as well as Dr. Tariq Elouam and Pr. Imad Jebbouri for helping us to put the theories

we learnt into practice.

Last but not least, we are greatly thankful to Mr. Cha!q, Mr. Moustaid, Mrs. Touria, and Miss

Wissam who have shared their opinions and experiences through which we received the required

information crucial for our report.

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Maghreb Oxygne Strategic Plan 2013-16

Executive Summary

e objective of the present capstone project is to evaluate Maghreb Oxygne company

specializing in industrial gases in Morocco. In the sense of providing a thorough analysis of the

dierent departments and functions of the company, the team started with an external assessment of

the industry in which the company operates, featuring the PEST analysis, Porter's !ve forces model,

and a description and evaluation of the major competitors of the !rm. en, an internal assessment

was provided including the !nancial analysis, the assessment of some of the internal departments of

the company upon information gathered from the managers of Maghreb Oxygne. A series of

strategic management tools were used in order to come up with the most pro!table and appropriate

strategies matching the current status of Maghreb Oxygne. Finally, a strategy implementation

section was added with the purpose of generating a precise action plan for the company to follow,

including the costs of implementation and pro!tability of the chosen strategies.

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Table of Content

Company Introduction 7History 7Equity Distribution Overview 8Current strategies and objectives 9Mission and Vision statements of the company 10Maghreb Oxygne product oerings 12Organizational structure of Maghreb Oxygne 15

Input Stage 16External Analysis 16

Statistical facts on the industry 16PEST Analysis 19Porters !ve forces model analysis 21

Opportunities and reats Analysis 23Opportunities: 23reats 25Competitive Pro!le Matrix Analysis 28External Factor Evaluation Matrix 31

Internal Analysis 33Strengths: 44Weaknesses 45Internal Factor Evaluation (IFE) Matrix 47Financial analysis 49

Matching Stage: 60SWOT Matrix: 60e Boston Consulting Group (BCG) Matrix 63e SPACE Matrix 64e internal-External (IE) Matrix 64Grand Strategy matrix 65

Decision Stage 66Objective 1: To increase net income by 47% 69Objective 2: to increase market share by 6% by 2015 74Objective 3: to increase market share by 5% by 2015 78Objective 4: To increase Total Revenues by 1.1% 82

Limitations: 85References 86Appendices: 87

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Appendix 1: IFE Matrix 87Appendix 2: EFE Matrix 88Appendix 3: Competitive Pro!le Matrix 89Appendix 4: SWOT Matrix 90Appendix 5: IE Matrix 91Appendix 6: Space Matrix 92Appendix 7: Grand Strategy Matrix 93Appendix 8: BCG Matrix 94Appendix 9: QSPM 95Appendix 10: Fleet Management Process 96Appendix 11: ArcGIS Server Process 97Appendix 12: Snapshot of ArcGIS 98Appendix 13: Maghreb Oxygne Website Template 99Appendix 14: Forum Brochure For Market Penetration Strategy 101Appendix 15: Flyer for the New Product: LABGAZ 102Appendix 16: Stall for the Medical Forum 103

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Company Introduction

History

Maghreb Oxygne (MO) is a Moroccan company created in 1977 to ful!ll the need of industrial gas

in the country with two industrial units in Berrchid, specialized in manufacturing gas from air and

acetylene.

e history of Maghreb Oxygen can be summarized through the following events:

1982: Maghreb Oxygne increased its production level by investing in two new production

units specialized in manufacturing nitrous oxide (medical gas) and carbon dioxide (food gas).

1992: Launch of two new activities in specialized services which are medical equipment and

welding equipment.

1994: Edi!cation of a new production unit, in its new plant in Had Soualem, specialized in

producing Oxygen and Azote for an investment of 130 million MAD.

1998: Opening of a new production unit specialized in Hydrogen at the Plant of Had

Soualem, for an investment of 9million MAD.

1999: Introduction of Maghreb Oxygne to Casablanca Stock Market.

2002: MO reorganized its structure and its commercial approach.

2004/2005: Launch of a new production site in Jorf Lasfar for an investment of 70million

MAD.

2008: As part of a joint venture with AIR LIQUIDE, MAGHREB OXYGEN created the

company SODEGIM for building an on-site production unit of oxygen, nitrogen and argon.

2010: Pursuing the investment in SODEGIM whose actual start is scheduled for in 2011.

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Equity Distribution Overview

e following is an overview of the equity distribution of Maghreb Oxygne

Shareholders HoldingAkwa Holding 61.54%ASMA Invest 6.90%Akhanouch and Ouakrim families 5.30%ATLANTA 4.00%AL WATANIYA 4.00%CDG 2.00%WAKRIM MEHDI 1.89%Employees 1.23%Others 13.13%

Source: Bourse de Casablanca

Table 1: Equity distribution of Maghreb Oxygne

e following is a summary of Maghreb Oxygnes subsidiaries:

Name Holding

TAFRAOUTI 24%SODEGIM 51%PROACTIS 25%PHILCO ENVIROTECH 28%PETROLOG 1%SETTAT GOLF MANAGEMENT 2%

Source: Bourse de Casablanca

Table 2: Subsidiaries of Maghreb Oxygne

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Current strategies and objectives

Development policy of MAGHREB Oxygne revolves around the following:

e Development of new packing stations of industrial gases at

the level of dierent regions. At the end of the extension program, all the regional oces

will have a conditioning station.

Continuous seeking of opportunities for "on-site" gas production.

e development of "on-site" units will be conducted through the subsidiary SODEGIM.

is latter will allow Maghreb Oxygne to enhance the security of deliveries to customers

in case of snooze of the activity of one of its own production facilities.

e Expansion of the production capacity of Maghreb Oxygne which is under study.

Actively seeking a technical sales partnership with an international operator for the transfer

of know-how in industrial gas applications. Such a partnership should allow MO to reach

new customers and increase sales of industrial gases.

Special interest for the health sector to take full advantage of its growth.

Continuous Improvement of sales force through targeted training.

Optimization of the supply chain by the establishment of conditioning stations, inventory

management, procurement, etc

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Mission and Vision statements of the company

When evaluating the company, it turned out that they did not have a vision statement. For that

matter, the team suggested a revised mission statement and a suggested vision statement.

Vision statement:

Regarding the vision statement, the team was seeking to answer the question of what Maghreb

Oxygne wants to become in the future. erefore, the team suggested the vision of MO

becoming the leading industrial gases company in Morocco.

Maghreb Oxygnes vision is to be the leading industrial gases company in Morocco.

is vision is realistic and achievable by Maghreb Oxygne, and it provides a sense of direction

to the company and its departments and functions.

Mission statement:

During the brainstorming session, the team decided to use the following table with the nine

components of the company as a !rst step to forming a sound mission statement. e table

below gives an overview of each component of the mission statement related to Maghreb

Oxygne following their current mission statement.

Current mission statement:

Specialist in industrial gases, medical gases and related services, distribution of welding products,

broadcast equipment and medical consumables, Maghreb Oxygne is committed daily to providing

solutions, products and services to its customers, anywhere in Morocco.

Components Information Suggestion

CustomersNot included

ree main segments: individuals and SMEs, health-related companies, and large companies

Products and services

gases, welding equipment, and healthcare equipment and installation

No changes

Markets Moroccan market No changes

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Technology Not included

Maghreb Oxygne seeks to using the best technology in order to oer the best quality to its customers

Concern for survival, growth or pro!t

Not included Concern for maximizing pro!t and surviving the competition

Philosophy Not included Focus on high quality products for the well-being of customers

Self-concept

Not included

Maghreb Oxygne is celebrating its 30 years of caring and looks forward to the next 100 years of looking after its customers well being

Concern for public image Not included

Maghreb Oxygne is socially responsible and strictly complies with all safety and security regulations related to the products

Concern for employees Not included

Maghreb Oxygne has a skilled team of professionals and experts in the domain, who work hard to provide the best quality of products

Table 1: Evaluation of Maghreb Oxygnes mission statement based on nine components

Taking into consideration the assessment in the table above, the team succeeded in suggesting the

following mission statement:

Maghreb Oxygne is a Moroccan company specializing in gases, welding and healthcare equipment to

dierent sectors in the country. We strive to use the most sophisticated technology in order to provide the

best quality products and services to our customers, within a healthy, socially responsible environment. We

are very much concerned about our growth as well as the well-being of our employees consisting of a team

of professionals and experts in the domain that work hard to serve the community in the best possible way.

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Maghreb Oxygne product oerings

e table below shows the dierent product oerings of the company as well as the market

segments in which Maghreb Oxygen is operating. As it is clearly shown in the table, the company

oers 6 products, which are oxygen, nitrogen, hydrogen, acetylene, carbon dioxide and nitrous

oxide. ese products are provided within a wide range of industries such as the metal, glass, food,

steel, medicine among other industries.

Gas Type Origin Customer Markets

Use

Oxygen

After filtration of its solid particles, purified air is sent under pressure in a heat exchanger for a first cooling. Inside the cold box, the air passes through battery exchangers, against the stream release of nitrogen. The water vapor and carbon dioxide are then eliminated. The exhaust air passes by the separation column where it is liquefied and distilled into oxygen and nitrogen.

Metal industry, waste water purification, aerospace, oil industry, medicine, steel industry, Electronic, Glass Industry.

- Welding, cutting, and flame cutting of metals

- At the base of oxidation reactions

- Viscosity of oil reduction

- Health Sector: intensive care, diseases, respiratory

- Manufacturing of semi-conductors

- Improved combustion in the glass industry and steel

Nitrogen

After filtration of its solid particles, purified air is sent under pressure in a heat exchanger for a first cooling. Inside the cold box, the air passes through battery exchangers, against the stream release of nitrogen. The water vapor and carbon dioxide are then eliminated. The exhaust air passes by the separation column where it is liquefied and distilled into oxygen and nitrogen.

Food industry, medicine, plastics industry, chemistry, aerospace.

- Used to make inert atmospheres or as a reaction intermediate.- It has many applications as a coolant for: freezing and freezing foods freezing blood- It controls some exothermic chemical reactions- It operates in the field of molding and for inflating aircraft tires

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Hydrogen

Produced from the electrolysis of water. It is then led to the gas holder after removal of moisture it contains. It is then filtered, compressed, dried and contained in bottles.

Chemical Industry, pharmaceutical industry, aerospace industry.

it intervenes in- The manufacturing of polymer, ammonia and methanol- Desulfurization of fuels- The production of sorbitol, and integrated in the cosmetics including vitamins- By oil companies to ease the suffering of the oil it contains

Acetylene

Acetylene is made from calcium carbide determined according to a particle size and from water. These two elements interact with one another in an acetylene generator designed for this purpose. The reaction produces acetylene gas and milk of lime. Acetylene is then purified (impurities represent a danger of explosion) neutralized dried, cooled and compressed in bottles filled with porous materials and a powerful solvent acetylene: acetone.

Steel industry,Plastics industry and manufacturing of batteries

-Used as fuel for torches-Used for the synthesis products for the manufacturing of plastics-Intervenes in the manufacturing of batteries- Used as a pigment in paints, varnishes and inks

Carbon Dioxide

Carbon dioxide is produced from the combustion of propane. The fumes from the combustion containing 12% CO2 are recovered through a basic product which the MEA that has property to absorb CO2 at cold and release it at heat. Carbon dioxide is then compressed, purified in absorbers in sieve molecular then liquefied. The CO2 produced is then led to the storage tanks.

Food industry, electronics industry, and environmental industry and the purification of water

-Carbonation of soft drinks-Food preservation, taste and texture protection and the use of preservatives reduction-Acids replacement in the structures of water reprocessing- Growth of plants stimulation- Refrigerant in the electronics industry- Fire extinguishing agent- Propellant for drinks at the pressure

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Nitrous Oxide

Nitrous oxide is obtained from the heating of the ammonium nitrate at a temperature of 200 C. After it is released, and then neutralized purified in scrubbers, compressed, dried in drying batteries, and liquefied, it is then led to the storage tanks in the liquid state.

Medicine, and food industry

- In anesthesia, it is used as a common component of general anesthesia combined with injectable or inhaled anesthetics.- In emergency medicine , pediatrics or delivery room.- Used as a propellant, particularly in the canisters of whipped cream or dust removal

Table 1: Summary of the product oerings of Maghreb Oxygen

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Organizational structure of Maghreb Oxygne

Figure 1: Organizational chart of Maghreb Oxygne

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Input Stage

External Analysis

Statistical facts on the industry

e !gure below shows a clear evolution of the gas production in the Moroccan market. As one can

notice, the gas production has been evolving over the years to more than 434.2 million MAD in

2007 with a slight decrease from 2004 to 2005 by 15.5 million MAD of gas production.

Figure2: Gas production evolution in Morocco, Source: MICNT

e !gure below shows the evolution of the turnover realized by all operators of industrial and

medical gases in Morocco and the evolution of the added value. As it is clearly shown, the turnover

has increased to a value of 626 million MAD in year 2008.

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Figure3: Turnover evolution (in Million MAD), Source: MICNT

Figure4: Added value evolution (in Million MAD) and added value rate (%), Source: MICNT

eturnover ofindustrial and medical gases saleswas around630 millionMAD in2008 in

Morocco.is turnoveris experiencing an average annual growth rate (AAGR) of 8.4%over the

period 2004-2008, which provesthat the sectoris recording a strong growth.

e added valuereachedMAD308 millionin 2008meaningan added value rateof

49.2%andAAGR of7.3%between 2004and 2008.e averageadded value rate is 52% over the

period2004 -2008.

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Figures 5 showthe volume of importsof industrial gasesin Moroccoin year 2008

and theaverage annual growthrate ofimportof these gasesover the period2004 2008.

Figure5 : Volume of imports of industrial gases in Morocco for 2008

e mainimportedgasesare Carbon dioxide andargon with 4,536tonsand1,911tons respectively

recorded in year 2008.is is explained bythe fact that production costs of CO2 are highly

signi!cant compared to import costs, and that there is an increasing demand for soft drinks in

Morocco and also, argonis a noble gas. Import volumeofgashas increased dramaticallyover the

studied periodindicating theindustrial gases marketin Moroccois growing. In addition, importsof

hydrogen arein constant decline and representless than one tonin year 2008.is trendis

explained bythe increase of national productionof hydrogen by the major players of the industry

(Maghreb Oxygne and Air Liquide).

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PEST Analysis

Morocco happens to be an attractive country to do business in. Despite the

Arab spring, Morocco was not aect directly and is still considered as a stable

country to operate in. In addition, Maghreb Oxygne has made sure to hold a reasonable position

with regards to political issues and is continuously prepared for any problems concerning the

political sector. Any political noise is irrelevant to the company. Unless the political environment

changes its rules that relate to their operations, Maghreb Oxygne prefers to stay away from such

subject. e political environment has allowed the liberation of the market. e laws of Morocco are

not a barrier to the growth of the company.

Two legal texts are closely related to this industry, which are the Royal Dahir of August 25th, 1914

on dangerous and inconvenient production facilities and the Royal Dahir of January 12th, 1955 on

regulating gas pressurized equipment. In addition, the ministry of industry and mines is responsible

for the control of all the pressure equipment (every 5 years), and the evaporators ( every 10 years).

e ministry of equipment and transportation is responsible for the control of the means of

transportation of the company as they deal with dangerous products if they spill out on the middle

of a road.

Finally, because of some products of Maghreb Oxygne that are used in health care, the company is

subject to law number 17-04 regulating medicine production and pharmaceutical ministry of

Health, controls the medical gases (oxygen, nitrous oxide, carbon dioxide, air, nitrogen, nitric oxide

and liquid helium).

All in all, Maghreb Oxygne is respecting all the laws, norms and standards imposed by the

Moroccan government, and the political environment is !t enough, stable and attractive for the

company to operate and grow in.

As stated in earlier sections, Maghreb Oxygne provides a great support to all

major companies and it is present in almost every industry. It is present in the

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Political Environment

Economic Factors

health, food and manufacturing industries which make the growth of the company correlated with

the general trends of the economy. is makes the company bene!t from the governmental plans

that aim to promote investments in the manufacturing sector (Plan National pour lEmergence

Industrielle 2009-2015) since the majority of the manufacturing companies requires the products

oered by Maghreb Oxygne.

Several free trade agreements were signed with many foreign countries such as the US, European

Union and Jordan that Maghreb Oxygne was able to bene!t from, such as the ability to import gas

from these countries at lower customs duties. Concerning the bene!ts Maghreb Oxygne is bringing

to the Moroccan economy, one can discuss the partnership between Maghreb Oxygne and

SONASID, Maghreb Oxygne installed a cryogenic unit for the production and supply of oxygen

and nitrogen at the Jorf Lasfar so that it can serve the National Society of Steel. One can also talk

about the Tangier-Med project which would not be possible without the partnership with the two

co-leader and suppliers Maghreb Oxygne and the Air liquide.

Morocco has witnessed an increase in the growth rate of the population by

1% (World Bank, 2012). Also, Morocco is experiencing an aging population

of 71.8 years in the total population, with 69.42 years and 74.3 years for

males and females respectively. As for the government investment, the evolution of the operating

budget and investment in the period 1997-2010 increased sharply from 3.5 billion MAD to 11

billion MAD (SEIS, DPRF, 2010)

Maghreb Oxygne makes use of sophisticated safety and security systems to

the plants and other facilities. Since technology rapidly changes, Maghreb

Oxygne makes sure they are updated with the current changes within the environment. However,

the production process used by Maghreb Oxygne is an internationally standardized one. ere is no

patent or license that protects it but costly machines are needed as well as energy.

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Social-Cultural Environment

Technological Forces

Porters !ve forces model analysis

Porters model allows the evaluation of the competitions intensity within a speci!c industry. In

fact, Porters analysis lies under the assumption that a company ought to assess the industrys

attractiveness and then choose the right market to enter. ere are !ve distinct forces that need to be

evaluated; bargaining power of customers, bargaining power of suppliers, threat of substitution,

rivalry among competitors and the threat of new entrants. Let us know consider each of the !ve

mentioned forces.

In Morocco, the industrial gases area duopolistic industry, characterized by

a small number of players. Indeed, beside Maghreb Oxygne, there is the

Air Liquide playing as a co-leader in some segments and a leader in others.

In addition, there are few other companies in the national market putting

more pressure on the competition: Oxaire, Flosit, Mroxyco, Oxytech.

is market is characterized by the pareto principle, stating that the two co-leaders represent about

20% of the market have 80% of the market share. Still, the new entrants are trying to beat the

market by oering low prices, thus gaining more market share.

e threat of new entrants in this industry is considered as moderate

because there is a need for high capital in order to enter the market. Also,

government regulations and laws make it harder for entrants to introduce

the industry. In addition, the high number of players in the market and the

!erce competition make it dicult for prospective companies to enter the market. However, entering

the market does not require experts in the company, all they need is a abundant resources.

On the one hand, today the gases extracted from air are of use in many

industries: food (for food preservation, for example), the aerospace industry,

metallurgy, chemistry, industry pharmaceutical, diving; health and many

others. Moreover, with the environmental problematic, the hydrogen is a

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Rivalry among

Competitors:High

Threat of New

Entrants:Moderate

Threat of Substitutions

Low

product that tends to prevail at the expense of others that are less environmental friendly. On the

other hand, due to technological changes, there are some substitutes for the manufactured gases. For

oxygen, instead of the use of gas bottles, there are some Oxygen generators. ese generators !lter

the ambient air. e input to the generator is 21% Oxygne and 79% of nitrogen; the !lter retains a

lot of nitrogen and a little bit of impurities. As for the output, it retains a maximum of 90% of

oxygen witha +-3% margin, the remaining are impurities and dioxide of Carbone, this leads us to

say that although it might seem to be a substitute which is less costly than !lling bottles

continuously, it is still a risky process especially in the health industry due to the impurities left at the

output stage.

Another substitute for nitrogen is the Nitrogen generator. is one has also the same problem.

e nitrous oxide is the gas for anesthesia has as a substitute injections for the same purpose.

e industry includes two main suppliers; one of the energy carriers and the

other of the transporters. When selecting the suppliers, Maghreb Oxygen has

certain requirements of reliability, safety and service that relate to its own

customers. Suppliers must adapt to its organization.

In addition to that, Nitrous Oxyde is imported. e Carbone dioxide is supplied by a subsidiary of

the group (Afriquia) and imported during peak seasons. e pure gases like Helium are imported

and !nally the equipment and piping are imported from a variety of suppliers (France, Italy, Spain

and Germany: 99%) and some local ones. Concerning the other products, they are manufactured by

Maghreb Oxygne.

Maghreb Oxygne customers portfolio is well diversi!ed; industrials (ranging

from craftsmen to MNE), health institutions (or health professionals at

home), individuals and many others. e companys diversi!cation and high

number reduces their individual bargaining power. However, like any

business, the challenge is primarily to keep its portfolio of large customer (large Industries), which

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Bargaining Power of

Suppliers:Low

Bargaining Power of

Customers:Moderate

represent a high percentage ofthe companys total turnover and that has brought a certain prestige to

the company (Example: Renault, CNSS, CHU, Coca-Cola, Mac Donalds...).

Opportunities and reats Analysis

Opportunities:

Maghreb Oxygne has several opportunities from which it can increase its sales, hedge

against unfair competition risk, and recover from the recent dramatic drop of net income. e

company recently launched a joint-venture with AirLiquide under the name SODEGIM (in which

Maghreb Oxygen owns 50%), which is considered an important opportunity for the sustainability of

Maghreb Oxygen. Since AirLiquide is the main competitor of Maghreb Oxygne, this joint venture

will strengthen long-term relationship of both companies, as well as facilitate collaboration on short-

term projects. Furthermore, it will allow Maghreb Oxygne to access new markets and distribution

networks, increase its production capacity, and share part of the risk with its partner. e

establishment of SODEGIM should also help Maghreb Oxygne improve its !nancial situation

starting 2012. Currently, SODEGIM has started gas production of argon (the !rst in Morocco to

produce this type of gas), with a production capacity covering the entire local market, and can be

even be extended to exports activities as well.

In addition, the healthcare and pharmaceutical sector in Morocco has known great

improvements, and the Moroccan government is paying special attention to this sector giving the

increased number of aging population in Morocco. e pharmaceutical and healthcare sectors grew

from MAD 8.64bn and MAD 39.76bn in 2010, to MAD 9.48bn and MAD 43.00bn in 2011,

respectively (Business Monitor International). With the current involvement of Maghreb Oxygne in

installing medical equipment in hospitals (including medical equipment: operating room,

resuscitation and !rst aid, hospitalization, sterilization and sanitation and &uids and medical

23


laboratories), the expansion of the pharmaceutical and healthcare sector will provide another income

generating activity to Maghreb Oxygne.

Also, the Moroccan parliament is in process of releasing a new law (Law 1704) that codi!es

the standard of producing medical gases. e application of the 1704 law (which will take action

starting 2013) will set serious standards to the production, the distribution, and the dispensing of all

sorts of medical drugs, including medical gases that were mentioned in the ocial bulletin, article 2

n16. Also, articles 45, 46, 47, require medical gas companies to have a health director (who has to

be an approved pharmacist) to monitor and supervise all activities related to producing medical

gases. Consequently, all companies that meet these regulatory requirements will be classi!ed as

pharmaceutical institutions. According to one of the responsible in the company, Maghreb

Oxygne already have a health director, and with the current safety standards, the legal aspects of

penetrating the pharmaceutical industry has already been met by Maghreb Oxygne. is will

certainly eliminate most of the small competitors that are not able to meet those standards, and thus

creating another opportunity for Maghreb Oxygne to increase its market presence.

Also, during the past few years, demand on soft drinks has been increasing, with a potential

industry earnings of $868.15 million in 2009 (Parker, 2008). Maghreb Oxygne is a key supplier of

carbon dioxide to the soft drink industry in Morocco, which consists of big players such as Coca

Cola and Pepsi. Moroccos soft drink market has been witnessing signi!cant growth, which would

create ample opportunities for the company to increase its sales. According to in-house research, the

total consumption of soft drinks in Morocco is projected to reach 2.4 billion liters by 2020. e total

value of the countrys soft drinks market is estimated to reach $1 billion. Both carbonates and stills

experienced similar levels of volume growth but carbonates drove the value growth. Within

carbonates the cola, fruit and glucose/stimulant sub-categories all enjoyed growth. e sports and

energy drinks also recorded a considerable growth. Such growing market creates tremendous

opportunity for the overall growth of the company. Finally, demand on emerging markets worldwide

(namely India, China, and South America, and few countries in Africa) is increasing. Additionally,

24


the fact that the Moroccan government is becoming more involved in international trade makes huge

investment opportunities for Maghreb Oxygne to expand its scope beyond the Moroccan market.

reats

Maghreb Oxygne faces competitive pressure from several companies in the Moroccan

industrial gas market. Its key competitors include AIR LIQUIDE, which is a company operating

worldwide. Although Air Liquides annual revenue in Africa represents only 3%, the impact it has on

the Moroccan industry is tremendous. Among the major contracts signed during the past few years

in the industrial gas sector, Air Liquide seems to always grab an important percentage of them.

On the other hand, the company faces threat from other small companies selling industrial gases at

lower prices. During the last 5 years, the industrial gas sector has known new entrants that are

relatively small, and poorly regulated. ese companies are often involved in processing used oxygen

bottles, and reselling them for a lower price than the competition. ese bottles are either retrieved

from scrap heaps or imported from eastern European countries. Ultimately, for companies that

follow high safety and regulatory standards (like Maghreb Oxygne), it contributes negatively to

their level of sales, as well as their operating costs, and any failure to sustain a competitive advantage

by the company is likely to have adverse eect on its business, !nancial condition, and growth

prospects.

Also, crude oil prices worldwide almost doubled between 2007 and 2008, and will keep

increasing during the upcoming years (according to a forecast done by BMI). e company uses

fossil fuels in the production of carbon dioxide and several other materials that have been derived

from natural gases. e prices of these gases are eventually in&uenced by &uctuations in crude oil

prices. us, the volatility of fuel prices, which is commonly used in the production and

transportation of certain products, certainly poses another source of threat to the pro!tability of

Maghreb Oxygne.

25


e increasing prices of raw materials could also aect the companys overall business. Raw

material prices constitute a signi!cant part of the production cost of the company, speci!cally for

producing certain gas and welding products. In addition, the continuous supply of the raw materials

could be aected by weather conditions, national emergencies, strikes, governmental controls,

natural disasters, supply shortages or other events. us, price &uctuations and non-availability of

these raw materials may have a material eect on the product cost and the operation of the company.

e production of industrial gases requires signi!cant amounts of electrical energy. e procurement

of electrical energy is important particularly in air separation and in the use of natural gas to operate

steam reformers. Increasing global demand and limited production capacity has pushed hydrocarbon

prices, which are primarily utilized in generation of electricity. As energy costs are a key component

in the manufacture of industrial gases, further rises in energy cost would push the group's production

costs thereby adversely aecting overall pro!tability.

Often delivering gas related products can be extremely dangerous since mishandling gas

bottles can lead to sudden explosions, and thus putting the life of worker and even customers in

danger. Maghreb Oxygne certainly takes this into consideration; however, it is still one of the

threats that is faced by the industrial gas in Morocco and worldwide.

Maghreb Oxygne is subject to a variety of environmental laws, regulations and policies

formed by the Moroccan state level authorities such as Department of the Environment and the

Moroccan association of Industrial and Medical Gases. ese laws and policies principally cover

issues such as air emissions, transportation measures, wastewater discharges, hazardous waste

handling and disposal, and the investigation and remediation of contamination. New government

regulations related to the companys products and services may result in signi!cant additional

expenses, hampering its business growth. Any changes in existing regulations could aect the

companys !nancial and operating position. In addition, non-compliance with these laws and

regulations or failure to obtain any required permits and licenses may expose it to !nes, penalties or

interruptions in operations.

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e fact that the industrial gas sector in Morocco has a lot of room for improvement places a

danger of increasing the number of potential foreign entrants. e Linde Group, a German

international industrial gas and engineering company currently operating in Algeria and Tunisia can

be considered as a perfect example of a potential entrant to Morocco. Headquartered in Munich, the

Linde Group employs over 48,400 people and currently operates in the engineering sector in

Morocco, which gives it more advantage to penetrate the industrial gas sector than other potential

entrants.

Lastly, their initial public oering (which started in 1999) as the only industrial gas company

publicly traded is aecting Maghreb Oxygne. ey are the only one in this sector that has !nancial

statements publicly disclosed, which makes it easy for the competition to access and evaluation

information about their !nancial standing.

27


Competitive Pro!le Matrix Analysis

Within the framework of the external analysis, an in-depth analysis of the competitive

market has been conducted. In this sense, !ve main companies were selected as the !ercest

competitors of Maghreb Oxygen.

Air Liquide: According to Ministry of Industry, Trade and New Technologies, in the

industry of industrial and medical gases, there are six main players, including two major

co-leaders: MAGHREB OXYGEN and AIR LIQUIDE. e latter one is a multinational

company created in 1956 and its headquarter is located in Paris. e company produces

industrial and medical gases and its turnover is estimated to MAD 388.5 million, with a

net income of MAD 68.8 million.

Oxair: this company is a subsidiary of Delta Holding. Similar to the competitors, the

company operates in the industrial, medical and laboratory gases. e company

implements facilities and distribution networks of the same range of gases. Also, the

company imports and distributes paramedics material as well as welding equipment and

accessories.

Flosit: e Company was created in 2001 with a production unit in Nouasser and it

manufactures medical and industrial gases. As for its turnover, it is estimated to be MAD

20.9 million with a net income of MAD 6.1 million.

e companies stated above (including Maghreb Oxygen) are members of the AMGIM, which is a

Professional organization created in June 2006 between operators carrying out in Morocco

production, distribution and marketing activities of industrial and medical gases.

Other than these large competitors, Maghreb Oxygen still has to deal with smaller competitors

which are Oxytec and Mroxyco.

28


OxyTech was founded in 2004 and is specialized in the production of industrial and

medical Gases, with a unit of production in Mohammedia.

Mroxyco is specialized in industrial and medical gases and related services. It was created in

2002 and operates in 15 cities with 80 distributors. In addition, Mroxyco has 2 units of

production: one in Berrechid and the other in Settat with an additional one expected to

open in Fes.

Using the Competitive Pro!le Matrix (CPM), twelve success factors were identi!ed through

the literature review and analysis of the industry. ese success factors are important in the success of

the industrial gases industry. As for the weights given to every success factor, the team decided that

distribution network, product quality, cost management and price competition are the most

important factors to be successful in this industry and the weight attributed to them was of 0.1. e

distribution network in such an industry is very important as long as this is their only way to be close

to their customers and gain more market share. e product quality is essential in the production of

gases as the industry deals with hazardous material. Cost management is important for every

company as they need to be optimized as much as possible. Finally, price competition plays a major

role in this industry as a consumer might sometimes look for the best price. A value of 0.09 was

provided to the market share since this component is important to compare Maghreb Oxygne with

its competitors. Brand name and !nancial stability are the next success factors in the matrix with a

weight of 0.08 simply because they are not as important as the factors previously stated, but at the

same time, they can be of a high value to competitive assessment.

On the other hand, the lowest weights were assigned to the economies of scale, partnerships and

technology. ese three factors are obviously important for the success of industrial gases industry

but at the same time they are not as important as the one mentioned previously. As for the ratings

given to every factor, these were speci!c to every company. e assessment was based on the

respective presence of every company, their !nancial statements and other information provided by

the literature review. e weighted scores of the CPM show that AirLiquide is the most competitive

29


company with a score of 3.55, followed by Maghreb Oxygne with a score of 3.06 and then by

Oxair, Flosit, Mroxyco and Oxytech with scores of 2.29, 1.99, 1.81, and 1.5 respectively. (See

Appendix 3)

30


External Factor Evaluation Matrix

After conducting the SWOT analysis, the team used the external factors being the

opportunities and threats in order to evaluate the company from an external dimension using the

External Factor Evaluation matrix. e !gure in the appendix summarizes the assessment conducted

by the team. ree major opportunities were considered as the most important factors in the !rst

part of the matrix, and they were indicated by the weights assigned to them of 0.1; In fact, from a

socio-cultural aspect of the environment, Morocco is witnessing an increasing trend of the aging

population, as well as an increasing demand in both the health and pharmaceutical sectors. e

second important factor is the application of the 1704 law, which states that all companies operating

in the medical gas market will be considered as pharmaceutical organization (AMIP, 2007). is is

clearly an opportunity for Maghreb Oxygen because it will give them legitimate authorization to

enter the pharmaceutical industry if they ever decide to. e third important factor is about the

existing market gaps outside Morocco, meaning that there are international markets that can be

attractive for Maghreb Oxygne to enter such as Senegal, with a world rank of 626 in terms of

industrial gas utilities, and Cameroon with a world rank of 516 in 2009 (ICON Group, 2008).With

regards to the major threats, the team assigned a weight of 0.09 for the competitive pressure simply

because Maghreb Oxygen is facing !erce competition in the industry from AirLiquide, Oxaire, and

other small !rms that have been trying to kill the market by oering the same products with lower

prices.

After assigning a weight to each of the factors mentioned in the matrix, a rate has been

conveyed based on how well the company was reacting to each one of the opportunities and threats.

Taking the example of the possible opportunities at the international market, Maghreb Oxygen has

not adopted any strategy of growth or market development, which would explain the rate 1 assigned

to it.

After summing the weighted scores for each factor, the total weighted score for Maghreb

Oxygen reach a value of 2.725 which is above average (2.5), meaning that the company is in a

31


moderately good standing. at said, there is still room for improvement, where the !rm could take

advantage of the opportunities and !nd strategies to minimize the threats and turn them into

opportunities.

32


Internal Analysis

Sales Policy

Maghreb Oxygne has decided to change its business strategy since 2003. It is de!ned based on its

customers rather than based on the activity. erefore, Maghreb Oxygne presents a global oering

(products and gases) according to the particularities of each customer. e organization of the

customer portfolio is de!ned as follows:

- e activity called companies: that includes all customers with a global turnover that allows

deferred payments from the customer and requires further advice and technicalities from

Maghreb Oxygne.

- e activity called SME-Individuals brings together potential clients whose turnover

requires cash settlement.

- e Health activity gathers all users of health products; gas, medical equipment, furniture,

medical consumables, installation of &uid &ow, etc

Meanwhile, Maghreb Oxygne has made a split of the territory leading to the creation of seven

regional oces, which are equipped with four conditioning stations. (See map below)

Figure : Map illustrating the 7 regional oces of the company; Source: Maghreb Oxygne

33


Distribution

e main objective of distribution is to cover the maximum of national territory while ful!lling

speci!c requirements related to the gas distribution (volume, temperature, loss, security, etc).

us, given the constraints related to gas transmission, the distribution network is based on a process

of three major steps:

- Conditioning and storage centers,

- Point of sales or depositories,

- Welding centers.

Oxygen storage is provided in liquid form in tanks either from on-site production (and Berrechid,

Had Soualem), or from in!lling centers (Casablanca, Agadir, Oujda, Fes and Berrechid). As for other

gases, the !lling plants are directly refueled by bottles from production sites. e regional centers

have a role of commercial leadership and logistics optimization as they provide the track sales and

shipments to the major customers and depositories, rom the !lling centers or directly from the

production sites.

Moreover, with the introduction of the new sales organization in 2004, Maghreb Oxygne granted

more autonomy to its regional centers. ey have become real pro!t centers, oering all ranges of

medical products, welding, and related services (installation of pipes for &uids), where were

previously centralized in the companys headquarter at Casablanca.

Revenues by Geographic Areas

- Central region: the axis of Knitra-El Jadida, including the cities of Casablanca and Rabat;

- South region: Essentially Agadir and Marrakech;

- North Region: Mainly in the cities of Fez, Meknes, Oujda and Tangier.

Revenues in K MAD 2009 Variation 2008/2009Central region

% of total revenues

135 936

65,5%

-3.6%

South Region

% of total revenues

39 490

19,0%

5.7%

34


North Region

% of total revenues

32 154

15,5%

53.9%

Total revenues 207 580 4.2%

Table: Revenues by region; Source: Maghreb Oxygne

e central region accounts for about two third of Maghreb Oxygnes sales. e decrease observed

in 2009 is linked to the economic downturn and the eects of the global !nancial crisis.

e Marketing Policy

e marketing department was established in 1999 with the objective of developing and monitoring

the marketing plans and communications for the three market types of Maghreb Oxygne

(companies, Health, SMEs/individuals).

However, since late 2001, as part of the group policy, the marketing of all subsidiaries has been

centralized within the marketing department of AKWA group. A brand manager is dedicated to each

Group subsidiary. e brand manager is responsible for ensuring the marketing policy and the

consistency of the subsidiary with the group marketing policy.

e marketing plan of Maghreb Oxygne is primarily based on the main roads of development,

which are:

- Awareness, loyalty, and service concept for large companies;

- Customer proximity and diversi!cation of the product oerings and prices for the SME/

individuals.

e Medias used vary between the taken actions and market segments. erefore, Maghreb Oxygne

favors press and exhibitions, conferences, forums as means of media for companies and health sector

activities, while it uses direct marketing mediums such as print, mailing, animation at points of sale

for SMEs and individuals.

e Pricing Policy

epricingvaries byproduct typeandcustomer.

e sale ofgas:

35


o SMEs/ Individuals:application of a public priceto the customers.e price isincreased by the distribution cost that is region-speci!c.

o Companies andHealth divisions:application of a scale depending on price ranges and negotiable pricesforexceptional volumes.

Tradingof welding productsandmedical devices:application of a pricewith the possibility of

grantingdiscountsbased on sales volume.

Logistics

Distribution is organizedinto twodistinct phases:

First,the gas is transportedin liquid formin tankers from the production unitstothe !lling

plantsordirectly to the customers who havethemselves !xedstorageunits.

Second,from the!lling plants, the gas is transported as bottlesto retailers,who themselvesmay be

supplyingtheir customerswith their own transport.

To minimizetransportation costs,and ensurean optimized distribution ofstocks,

the organizationof the distribution isensured by TIMLOG, a subsidiary of AKWAGroup that

isspecialized in transportation.It invoicesits servicesaccording to the volume transported.

Information, Accounting and Financial Management Systems

Originally, the information systems of Maghreb Oxygne were centrally managed by the

AKWA Group IT department.e lack of integration and scalability of this system led to its change

in 1996 and its replacement with an integrated software package. Since January 1999, the modules

for tracking sales and purchasing are integrated into this system. e software used is an American

product, JD Edwards, installed initially on an IBM AS400 and currently on a Windows platform.

In addition to the installation of this integrated software package, the management

information systems of AKWA GROUP has developed and made available to MAGHREB Oxygne,

and other subsidiaries, a tool for decision support that allowsaccess to accounting, !nancial and

36


commercial through Intranet.is tool, called is called "Afriware" which can substantially improve

the quality of reporting, and provides better access to information needed at each level.

In order to ensure business continuity, system Backup data is set up for performing a daily

backup and test restoring data from a weekly basis. e accounting and !nancial organization of

MO is part of the Group's policy and relies on supporting functions by PROACTIS.e latter is a

subsidiary of AKWA Group and is responsible for the management of accounting, insurance,

heritage, tax optimization and information technology on behalf of the Group and its subsidiaries.

Human Resources

e average numberof MAGHREBOxygne employees amountedin 2009 to162 people

with anaverage annual reductionof 4.1% over the period2007 to 2009.

edeclining enrollmentin 2007-2009is explained by theretirements, the

redeploymentofsome pro!lesto better suited positionsin othersubsidiaries within the Group and

!nally due to the voluntarydepartures.

Figure: Breakdown of sta by categories (year 2009); Source: Maghreb Oxygne

37


Figure: Breakdown of employees by regions; Source: Maghreb Oxygne

Employees at Maghreb Oxygne are highly skilled and experienced since the two third of them are

aged over 40 years old and 71% of them have over 10 years of seniority in the company.

Investment policy

e alpha investments made by Maghreb Oxygne were stable between 2007 and 2008, then

witnessed an strong rise in 2009 of 83.1% related to technical installations, machinery, equipment

and other tangible assets. In addition, the total annual recurring investment is about 15 to 16 million

MAD. is includes mainly the purchase of spare parts, cryogenic tanks, bottles, faucets, and

hardware. With regards to investments in transportation equipment, it is related to equipment for

logistics within the society (primarily forklifts).

Operations analysis

38


e Pareto's Principle or Pareto's Law as it is sometimes called, can be a very eective tool to help

you manage eectively. is means that the 80/20 Rule means that in anything a few (20 percent)

are vital and many (80 percent) are trivial.

In the case of Maghreb Oxygne, an internal analysis has been conducted and demonstrated that 20

percent of the stops impact 80 percent of the productivity. e value of the Pareto Principle for a

manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during

your day, only 20 percent really matter. ose 20 percent produce 80 percent of your results. e

Pareto's Principle would thus serve as a daily reminder to focus on 80 percent of your time and

energy on the 20 percent of you work that is really important. Don't just "work smart", work smart

on the right things. For this reason, we will be focusing on idle times that occur the most, do for

them the !shbone diagram and !nd the adequate solution.

Types of Idle times that impact productivity

Percentage of occurrence Cumulative Percentage

Settings 32% 32%Logistics 22% 54%Adjustment 17% 71%Maintenance 13% 84%Development 9% 93%Product 7% 100%

39


e problems encountered during the supply chain process of manufacturing industrial gases

are mainly due to iddle time during settings, logistics, adjustment, development and product. ese

types of iddle time cited below all impact productivity negatively. When we talk about settings, this

means the time to change from a reference (article) to another. In other words, it concerns the

machine programming before the production of a product X. For instance, to extract oxygen from a

machine X we need dierent settings than when we extract nitrogen.

As for the internal logistics, it concerns the power positions in commodities and products. It also

concerns the handling and planning of the dierent stages of this process. When it comes to talk

about adjustment, we mean by that the machines operators interventions that aims to correct a

derivative or to repair a minor failure in the production. is intervention is supported by the

production team. Concerning the maintenance stops, these are the fault repairs made by the

maintenance team (technicians).Regarding the development part, this is the time operated by the

development service to achieve a new product using the machine in question. Finally, we have the

idle time that is linked to the quality of the product once entering a job. For example, if at the input

stage the air is very impure this may aect the quality of the oxygen or nitrogen at the output level.

us, the job cannot be processed and this will consequently impact productivity.

All the idle times that we have reported above are problems that are detected and recorded in the

production book over a period of 3 months. In this production book, there is the objective of each

job during the process and what has been met. If the objective production is higher than the actual

one, then this must be justi!ed by one of the problems listed above. After that, the worksheets were

these problems have been reported are collected and then a data capture is performed to have their

respective percentages.

40


Fishbone Diagram:

e !shbone Ichikawa diagram is a tool used for team brainstorming. It also helps categorize

potential sources of defects or root causes and possible failure modes. In our case, we will be

concentrating on the settings problem, !nd its main probable causes and then !nd a possible

solution that might reduce it. e bones coming from the main spine of the Ishikawa Diagram are

usual named according to the 4Ms, 5Ms, or 6 Ms, depending on the complexity of the problem or

the process that we are looking to improve. In our !shbone diagram, we decided to look at the 6 Ms

which are the following:

Man/People: these are the causes that can be attributed to the people working on the

process. In the settings idle time, machine operators may need more training and experience

acquisition.

Methods: Which are about how we conduct the operation that can cause the eect that we

are trying to solve. In our case, product complexity is one of the causes once we see from the

methods and procedures side. Also, the production of the former product can lead to a long

time of space emptying and thus an idle time related to methods and procedures (an already

used bottle once it needs to be !lled for the second time or more, it needs to follow a speci!c

process and be sterilized).

Machines: ese are the causes due to the machines or the equipment in the process. e

machines need a lot of time to start and be settled. Moreover, the condition of both the

machines and equipment also impact the settings idle times (if there is corrosion).

Materials: ese are potential causes due to the materials used. For example, the quality of

the raw materials may aect the idle times linked to setting. For example, if the air at the

input stage is very impure, this may delay the process. Also, if in a given stage the needed raw

material is not available; the idle time increases at this stage. Another case is the unavailability

of the raw material at the !rst stage which will make the machine idle until it arrives.

41


Management: Are the causes linked to the strategy of the company. ese are in our case the

diversity of the gases manufactured within the company, as they need each time to change

their respective settings and also the fact that their customers ask for Just in Time deliveries

making higher weekly orders and thus more settings update.

e solution for this type of idle time is the Single-Minute Exchange of Die (SMED) method.

is technique is one of the manylean productionmethods for reducing waste in a manufacturing

process. It provides a rapid and ecient way of converting a manufacturing process from running

the current product to running the next product. is rapid changeover is key to reducing

production lot sizes and thereby improving &ow .

e phrase "single minute" does not mean that all changeovers and startups should take

onlyoneminute, but that they should take less than 10 minutes (in other words, "single-digit

minute"). is method has been using by many companies. e need for SMED and quick

changeover programs is more popular now than ever due to increased demand for product variability,

reduced product life cycles and the need to signi!cantly reduce inventories.

42


To implement it, several basic stepsare needed. First of all, the current methodology must be

observed (using a camera for example). After that the setting mode must be identi!ed and described.

en the INTERNAL and EXTERNAL activities must be separated. Internal activities are those

that can only be performed when the process is stopped, while External activities can be done while

the last batch is being produced, or once the next batch has started. For example, go and get the

required tools for the job BEFORE the machine stops. Afterward try to convert (where possible)

Internal activities into External ones (pre-heating of tools is a good example of this). Finally, the

decrease of the internal activities is the last step in terms of time and number. is procedure will

normally save up to 45% in set-up times, so it may take several iterations to cross the ten minutes

line.

43


Strengths:

Maghreb Oxygne oers a broad range of products and services tailored to dierent customer

needs in &uids among several sectors, mainly industry, food and health. It produces packages and

sells industrial, medical, food and special gases. is diversi!cation in their portfolio helps them to

cater to a larger group of customers, with varied preferences and purchasing choices. It also trades in

welding products and equipments, medical equipment, industrial &uid dispensing, and medical

laboratories. e companys products are used in diverse applications such as beverage, agribusiness,

rubber and plastics, chemistry, environment, heat treatment and metallurgy, petrochemical, welding

cutting and others. is involvement in various sectors gives the company a potential strength to

making pro!t, and thus increasing its !nancial standing.

Maghreb Oxygne ensures quick delivery of its products to customers through its

sophisticated network of production, distribution and sales units. e distribution network consists

of 100 outlets of both resellers and dealers, which gives it the capability to distribute the products on

a national level. e company operates a network of production units including the plants of Had

Soualem and Berrechid. It has an 18 million meter cube production capacity of oxygen and nitrogen.

Furthermore, Maghreb Oxygne has key place in all formats of delivery, including gas cylinders and

cryogenic tanks. It is also involved in design engineering and storage installation for industrial gases

in both liquid and gas forms.

Maghreb Oxygne is the second subsidiary of Akwa Group. Also, being an aliate of such a

leading holding allows it to have several advantages such as liquidity, !nancial stability and brand

name.

Maghreb Oxygne is one of the leading gas producers and distributors in the country. It has a

dominant market presence in industrial gas sector that was built thanks to the many years of

experience in the gas market. e overall market share of 36% (compared with 50% of Air Liquide,

7% for Oxaire, and 2% for Flosit) gives a competitive edge to the company over its peers.

44


For the !scal year ended December 2010, the company reported current assets of MAD

171.54m, compared to current liabilities of MAD 78.37m. e current ratio of 2.17 in 2010 shows

a good standing for the companys amount current assets compared with current liabilities. It also

recorded a cash position of MAD7.90m and an account receivable of MAD 122.67m, which puts

the company in a strong !nancial position. e performance of the company largely depends upon

the cash position and its ability to generate cash from operations. Sucient cash or cash equivalents

would contribute to the ongoing operations of the company.

Maghreb Oxygne was able to grab major contracts in various industries in Morocco. Coca Cola and

Pepsi are one of the two major clients of the company, with a 5-year renewable contract of supplying

carbon dioxide. CNSS and CHU are another two major clients of Maghreb Oxygne with a 3-year

renewable contract. Recently, the company was able to sign a contract (whose conditions and time

length were not disclosed for con!dentiality purposes) with Renault.

Weaknesses

Maghreb Oxygne published a pro!t warning in the !rst half of 2011 saying that their net

income is expected to drop by 49% compared with 2010. e industrial and medical gas industry

has known a severe disruptions in terms of the worldwide performance, however, the main causes

behind the drastic drop of Maghreb Oxygne (according to sources from the company) are the

following: the unfair competition from poorly structured competitors, fraudulent activities of some

of the new entrants, dramatic decrease in prices of medical gases speci!cally. Maghreb Oxygne is

currently trying to mitigate this great loss by cutting some of its operating costs, however, this

sudden drop of net income weakens the !nancial situation of the company.

e turnover and dividends also decreased between 2010 and 2011 by 6.5% and 6.11%,

respectively. However, surprisingly, the magnitude of the net income drop wasnt way more than the

percentage drop of turnover, which put the !nancial statements into questions as to what exactly

caused the sudden decrease in net income.

45


Currently, Maghreb Oxygne uses standardized methods in the process of producing

Oxygne and other related products. According to one of the responsible of the company, the

methods of producing oxygen do not require high level of expertise, and pretty much all the

information about procedures can be found online. is puts Maghreb Oxygne in a weak position

with potential new entrants.

For the !scal year 2010, the company recorded a total debt of MAD120.09m. It total long-

term debt witnessed an increase of 80% over 2009. is could impair its ability to obtain additional

!nancing for working capital, capital expenditures or general corporate purposes, especially if the

ratings assigned to its debt securities by rating organizations were revised downward. It could also

restrict the &exibility of the company in responding to changing market conditions and make it more

vulnerable during times of slowdown. Another major consequence of the company's indebtedness

would be that the company would require allocate a substantial portion of the cash &ow from

operations to pay the principal and interest on debt, thereby reducing funds which could be used for

expansion through acquisitions, on marketing and the expansion of product oerings.

Also, Maghreb Oxygne has a basic tracking system for all deliveries. is system is not very

useful in the sense that it doesnt optimize the deliveries. Often the trucks that are on delivery

missions have a very low capacity utilization (the amount of products delivered over the total

capacity of the truck expressed as a percentage). In addition, the company doesnt master production

schedule and thus, the demand and capacity are sometimes not synchronized. is makes the

company in a weak position against some of its potential competitors.

46


Internal Factor Evaluation (IFE) Matrix

Based on the SWOT analysis, the team conducted an internal evaluation using the Internal

Evaluation Factor matrix as a proper tool. e table above summarizes the process with two parts,

one dedicated to the strengths, and another to the weaknesses of the !rm. In this sense, a weight of

0.11 was assigned to one factor that is considered as the most important one in this analysis, which is

the fact that the company is a well-established !rm, and it has a distinctive reputation compared to

other companies that may consider entering the market. Long-term agreement with dierent

customers is considered as an important factor, and it has a rate of 0.1 in the matrix. In fact,

Maghreb Oxygen has agreements with dierent clients such as CHU (Centre Hospitalier

Universitaire), Coca-Cola, Pepsi, CNSS, and Renault, which guarantee a great deal of sustainability

and continuity of the companys operations. In addition, three other factors have been assigned the

same rate of 0.09. e !rst one is the diversi!cation and wide product portfolio, which can be

justi!ed through the fact that Maghreb Oxygen oers more than 6 products that are customized and

tailored to the needs of the dierent sectors that it serves such as the food and the health industries.

is diversi!cation of the !rms portfolio enables it to reach a larger customer base. e second factor

is the ecient network of distribution; Maghreb Oxygen has been able to ensure a fast delivery of its

products through a sophisticated network of production, distribution and sales unit. Also, the

company has a wide national coverage with over 100 outlets in the network. e third factor with

the high rate is the strong liquidity of the company. In fact, Maghreb Oxygnes current ratio was

172% in 2009 to 217% in 2011. Knowing that Maghreb Oxygen is a subsidiary of AKWA Group,

this latter bene!ts from the perks of being linked to that company, such as the fact that they can

outsource dierent services in order to cut their costs, and they can also rely on the organization

from a !nancial standpoint. On the other hand, the lowest weight was assigned to the expertise of

the employees simply because it was considered as having the lowest importance compared to the

other factors. e expertise of the sta can be illustrated with the fact that more than 71 % of the

executive ocers have an experience of at least 10 years (Company Statistics, 2010).

47


With regards to the weaknesses, the factor with the highest rate of 0.08 is the fact that the companys

net income has dropped by 49%. Also, the company is witnessing a decrease in the turnover of

6.5% and it has debts to total assets of 86% in 2011, these two factors have a rate of 0.7 while a 0.6

rate has been assigned to a weak MIS that the company has. In fact, the company does not have an

IT department, which can be very critical for a company with that caliber in the market. e factor

with the lowest rate (0.03) assigned is the weak organizational structure, because the company

follows a matrix structure and it creates a confusion for the employees as to whom they should report

to; and also there is the issue of a redundancy of some tasks, as the company would have to hire

twice as much managers as for a line management.

After assigning a weight to each of the factors mentioned in the matrix, a rate has been

conveyed based on how well the company was reacting to each one of the strengths and weaknesses.

Taking the example of the long-term agreements, the rate that was assigned to it was 4 because the

company is taking advantage of this strength and it is seeking an increase in the number of

agreements with other possible clients.

48


Financial analysis

Income Statement:

Growth Ratios:

e growth ratios allow the analysis of the evolution of the sales of the company and its net income.

Sales:

Maghreb Oxygne experienced a net increase between 2007 and 2010 and this is mainly thanks to

its development of products for large accounts and its sub-welding activity and also by the retention

and adoption of the best prices to the most major markets. However, Maghreb Oxygne Net Sales

decreased in 2011. e decrease was of -6.5% compared to 2010 sales. is decrease can be

explained by the !erce competition and also the black market. In other words, the small new

entrants decreased the prices drastically as they diverted the used bottles of Maghreb Oxygne and

Air Liquide or imported them from eastern countries to sell them at much lower prices.

Net income:

Concerning the Net income of Maghreb Oxygne, this latter decreased from 18,044,000 MAD to

9,118,000 MAD meaning a colossal decrease of 49%. In addition to the reasons stated above, this

decrease was also due to the increase in the operating costs

49


Figure: Net sales

Figure: Sales Growth

50


Figure: Net Income

Figure: Net income growth

Liquidity Measurement Ratios:

e liquidity ratios are there to measure the ability of a company to pay its short-term debt

obligations.

51


Figure: Liquidity measurement ratios

For Maghreb Oxygne, the current and acid-test ratios were used to measure its liquidity. e reason

behind the use of this last ratio instead of the cash ratio is the fact that Maghreb Oxygnes account

receivables are very high due to the fact that the government pays them. e acid-test ratio includes

in it cash, accounts receivable, and short-term investment. is ratio is far more strenuous than the

working capital ratio, because the working capital ratio allows for the inclusion of inventory assets.

Both ratios allow inferring that the company is able to repay its short-term obligations.

Leverage ratios:

ese ratios are used to calculate the!nancial leverage of a company to get an idea of the company's

methods of !nancingor to measure its ability to meet !nancial obligations. ere are several

dierent ratios, but the main factors looked at for the company include debt and equity.

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Figure: Debt-to-total assets ratio

e !rst ratio used is the debt to total assets ratios, which is used to measure MOs !nancial risk by

determining how much of the company's assets have been !nanced by debt. Starting 2009, the

companys debt to total assets ratio started increasing and reached 86.73% in 2011 (an increase of

43% compared to 2009). is means that it is becoming more important for Maghreb Oxygne to

!nance its total assets from long-term debt.

Figure: Debt-to-equity ratio

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e Debt-to-equity ratio is used to measure MOs !nancial leverage and it indicates the proportion

of equity and debt the company is using to !nance its assets.

From the graph, one can see that MO was aggressive in !nancing its growth with debt in 2007 since

it attained the highest percentage of 108.23%. However, the company reduced this aggressive

!nancing until 2009 where it readopted the high debt !nancing in 2010 and 2011.

Operating performance ratios

Figure: Days in Inventory

Days in inventory turnover was used to measure the number of days an item of MO is held in the

inventory before it is sold. e graph shows that the days in inventory increased from 2009 to 2011

by 15 days, which means that MO is less ecient at handling its inventory.

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Figure: Days in Accounts payable

Days in accounts payable turnover ratio was used to measure the average number of days MO takes

to pay its bills. e graph indicates that the company is taking fewer days to pay its trade creditors

from 2009 to 2011 as it decreased by 35 days.

Figure: Days in cash

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e cash balance ratio was used to measure the number of days MO can pay its debts, as they

become due, out of current cash. e graph indicates that this number of days decreased drastically

from 2009 to 2011 as it decreased from 19 days to 1 day respectively.

Figure: Evolution of EBIT and net pro!t

For the evolution of the EBIT and Net pro!t, MO witnessed 3 years of continuous increase followed

by a decrease in 2011 for the two ratios. e EBIT decreased by 39.3 % and the Net pro!t by 49%.

Figure: Pro!tability indicators ratios

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In 2011, the companys operating margin and net margin suered from the decrease in sales. e

operating costs remained the same even though there was an increase in salaries. Operating margin

dropped to 9% and net margin dropped to 4.7%.

Figure: Operating ratios

Return on assets and return on equity show an alarming decrease in pro!tability. Indeed, Return on

Assets is of 2.3%, which is far below the industry average of 5%. Return on Equity is in bad

position, with a 5.2% it is below the 12% industry average.

ese returns show that the company does not take full advantage of its assets and equity.

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Balance Sheet:

Figure: Evolution of the !nancial structure

Maghreb oxygen !nancial structure is well balanced. Indeed, they keep a 45% debt across the years.

In 2011, the company issued corporate bonds with a 5 year maturity in order to renew its borrowing

through debt.

Figure: Working capital

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Maghreb oxygens working capital shows a strong !nancial situation which means that the company

can easily pay o their short term liabilities.

Forecasted elements:

Year 2012F 2013F 2014FNet Sales 197372,7049 204131,3414 211121,4139EBIT 23123 23914 24733Net Profit 12192 12609 13041

Due to the lack of information for several elements in both the income statement and the

balance sheet, the team managed to forecast only the net sales, EBIT and Net pro!t. As can be

noticed from the table above, the forecasted results predict an increase in the net income resulting

from the net sales of the company, which are expected to rise due to both the industry growth and

the implementation of the new strategies.

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Matching Stage:

SWOT Matrix:

After a thorough description and assessment of the internal and external environment of the

company, it is time to go to the matching stage of the study. e !rst matrix conducted at this phase

is the SWOT matrix. Basically, the team took the internal and external factors that were evaluated in

previous sections, and used to produce the matrix in the table above.

e table shows a list of possible strategies that Maghreb Oxygen could adopt in the future, which

can be summarized through the following points:

SO strategies (Strategies to make use of opportunities through Maghreb Oxygens

strengths):

Taking into consideration the strengths of the !rm in terms of its liquidity, which

means that they are in a strong !nancial position to pay any obligations or debts, as

well as the fact that they have a fast and ecient network distribution, and matching

it with the opportunities that can illustrated in the aging population and the

increasing demand within the healthcare and the pharmaceutical sectors, as well as

the application of the new 1704 law that would make the company a pharmaceutical

institution, the team suggested that a related diversi!cation might be a feasible

strategy in this case. is related diversi!cation would consist in the company

entering the pharmaceutical industry and manufacturing of medicines (medical

drugs).

Another strategy suggested is product development, through matching the strengths

of having a strong liquidity, a strong team of experienced employees and experts in

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the !eld, a strong reputation gained through the fact that Maghreb Oxygen is an old

company that has already established its reputation in the market.

Market penetration through opening more retail stores in the market could be

another possible strategy that Maghreb Oxygen could adopt in order to match the

strength of having a strong liquidity with the opportunity of having an aging

population and an increasing demand in both the healthcare and pharmaceutical

sectors.

Market development through a possible expansion in the international markets such

as in Africa could be another possible strategy that Maghreb Oxygen could adopt.

is strategy is the result of matching the strengths of having an ecient distribution

network and a strong !nancial position, with the opportunity of a joint venture with

AirLiquide, which is a French multinational that is operating in other markets in the

world, and also the opportunity of existing market gaps outside of Morocco such as

in Africa, as it was previously stated in the SWOT analysis section.

With the well-established and reputation of the company, and strong !nancial

position of Maghreb Oxygen matched with an increasing demand in the soft drink

market, a possible strategy for that would be to build a new manufacturing plant in

order to cover the increasing demand during the summer time with regards to carbon

dioxide.

e company has a well-diversi!ed portfolio with many products and it operates in

the healthcare, gas, and the welding markets. Interestingly, within the healthcare

sector, even though the company does the manufacturing of the medical equipment,

they still do take full advantage of this opportunity; which brings one to suggest that

they could make more extensive eorts in this area.

WO (Strategies to make use of opportunities to minimize Maghreb Oxygens weaknesses)

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By taking the opportunity of an increasing demand within the healthcare and

pharmaceutical sectors and the joint venture with AirLiquide, while looking at the

weaknesses of not having an IT department, hence, a weak Management Information

System, the possible strategy that the company could adopt is to develop their own

inventory management system.

ST (Strategies to prevent threats through Maghreb Oxygens strengths)

Taking the strengths of the !rm in terms of an ecient distribution network and

matching with the threats of the rivals and the !erce competition, and the fact that

the company is listed on the stock exchange market, which means that their

information and !nancials are available to the competitors, the possible strategy that

Maghreb Oxygen could adopt is do a market penetration through extensive

promotional eorts in order to increase their market share.

Acquisition of smaller competitors could be a possible strategy that would solve the

matching between the strengths of being an already established !rm, a highly liquid

one, and the threat of the rivals.

With an established presence of the !rm and a highly liquid position of Maghreb

Oxygen, mixed with the threat of the industrial gas leaders targeting emerging

markets such as Morocco, the company could do a joint venture with AirLiquide to

export oxygen.

WT (Strategies to minimize the potential dangers lying in sectors where Maghreb

Oxygens weaknesses meet threats)

Taking into consideration the weakness of Maghreb Oxygen characterized by a drop

of 49% in net income during 2011, and the threats illustrated through the sharp

&uctuations of oil prices and the economic downturn, along with high risks in prices

of raw material, the possible strategy that the company could adopt is retrenchment

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by putting certain projects on hold in order to cut their costs. According to the

!nancial analysis, the company has a return on assets of 2.3% that is less than 5%

which means that the investors will not be attracted enough to invest in the !rm.

Basically, this means that the company is not taking full advantage of its assets and

they are not managing their cots eciently.

Acquiring Geographic Information System (GIS) could be a winning strategy that

would solve the matching of the weakness of the !rm in terms of the weak if not

non-existence of MIS, and the threats of the !erce competition, the sharp &uctuation

of oil prices and the economic downturn, and the increasing energy costs.

Due to the fact that the company has a weak MIS, and did not acquire an inventory

management system and the fact that there is an increasing pressure in the

competition, Maghreb Oxygen could adopt the forward integration strategy and take

the control over their distributors.

e Boston Consulting Group (BCG) Matrix

In order to best enhance the multidivisional eorts of Maghreb Oxygne, and formulate

sustainable strategies, we have drawn the BCG matrix that will help us portray the dierences among

the divisions (namely the gas, welding, and the health divisions) in terms of relative market share

position and industry growth rate. According to the data that we retrieved from the !nancial

statements, as well as the representatives of Maghreb Oxygne, the relative market share positions

(RMSP) of both the gas and the welding divisions are 72%, whereas the RSPM of the health division

is 100%. is ratio is calculated by dividing the divisions own market share by the market share (or

revenues) of the largest rival !rm in that industry. e reason why the health divisions RMSP worth

100% is due to the fact that Maghreb Oxygne is the largest rival !rm in the health division.

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Because all divisions belong to Quadrant II (stars), they represent the organizations best long-run

opportunities for growth and pro!tability. In return, they should receive substantial investment to

maintain their dominant position. Accordingly, strategies like forward, backward, and horizontal

integration; market penetration; and product development seeme

maghreb oxygène strategic plan

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