Assessing Gamesa MBA project
Please see attachments This is a masters project that both the writer and I will be doing for comparisons. The project is UK pounds, but the company looking to make the acquisition reports both in US $ and UK pound. the Ratios that have been attached are the ones that need to be done with a explanation to each one / recommendation. Let me know if there are any questions regarding this assignment. Once again this is a MBA assignment.
GEMBA AFM Assignment, Summer 2013
The scenario below is fictional, but is intended to be a realistic example of the financial analysis a company may conduct. Please use real world information from websites, company accounts and other sources as appropriate in answering the assignment.
Assessing Gamesa
The senior management of Wood Group are considering options for the company’s future and to diversify the sectors they serve with a view to developing a presence in new power generation technologies. They are aware that this will mean dealing with companies that are very different to the large oil & gas companies who have been their major customers over many years. The commercial director considers that an acquisition of Gamesa, the Spanish wind industry company is possible.
“The share price has risen well over 100% over the last year, showing some confidence it its future. Its market capitalisation is still below €1 billion – I reckon its worth a go”.
The rest of Wood Group’s senior management team have yet to be convinced by the commercial director’s enthusiasm, however, they wish to understand more about the continuing financial health of Gamesa’s business and are impressed at its decision to restructure and withdraw from the US.
You have been recently appointed as the “Number 2” in the finance department and the finance director approaches you to undertake a fundamental analysis of Gamesa, she tells you:
“Maybe the commercial director is right; perhaps I’m just a cautious accountant. Anyhow, please carry out a CORE analysis of Gamesa and advise me on whether you think it would be a good acquisition at any price (I’ll get someone else to look at how much we’d have to bid). By the way, if you recommend that we should buy it I’ll make sure you end up being the finance director of our new wind division – work out for yourself whether that is a poisoned chalice! I’ll provide you with an adjusted and more useful set of accounts for 2012 when you are really considering 2012 as a base for the future of the company.”
Required
Write a report for the finance director of Wood Group reviewing Gamesa’s recent business and financial performance, as well as it’s current and likely financial health over the next few years. Your report should focus on Gamesa, though referring to other companies (Vestas, for example) would significantly enhance your analysis be credit-worthy (detailed analysis of other companies is not required). You should use the CORE approach as your primary tool and structure for the analysis; further credit is also available for consideration of fit and synergy. Conclude by clearly explaining your recommendation to pursue or not pursue a takeover of Gamesa.
Assessing Gamesa MBA project
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Introduction
Wood Group is an oil and gas multinational corporation seeking to diversify its business interest through the possible acquisition of Gamesa Corporation headquartered in Spain. Gamesa is a global manufacturer that engages in the construction of wind farms, as well as fabrication of wind turbines. The company is headquartered in the northern part of Spain in a town called Zamudio, Biscay. The basic operations of the company include, the management, selling, and development of wind farms while at the same time, it supplies them with wind turbines. The company is ranked fourth amongst wind turbine manufacturers in the world, and it is the best company in the Spanish market. Wind power is strongly advocated for by environmentalist, and Gamesa’s contribution to environmental protection has been a whooping 52 million tons of carbon dioxide emissions on an annual basis.
The company was established in 1976 as a new technologies manufacturer, and it was not until 1194 that the company established its subsidiary to deal with the manufacture of wind turbines. It became a listed company in late 2000 and later joined the IBEX 35. It has achieved global status, priding itself as a listed member of the sustainability Index on the Dow Jones. It is also ranked amongst the 100 sustainable companies on the Global 100 Index. The company focuses on the provision of technologies that aid in sustainable energy production with wind power as its base. Wood Group’s interest in the company serves well in its diversification efforts, but scrutiny on the financial aspects of Gamesa is necessary before acquisition is considered (Plunkett, 2011). The company’s financial reports offer a compelling platform for the scrutiny of the company’s operations in the past and future predictions of its performance as analyzed in this paper.
Analysis of the company’s performance in 2012
Gamesa’s operations in 2012 encountered many challenges that had significant financial implications to the company. The company had recorded tremendous improvements in its financial operations recording consistent growth in sales and profits in general over the last five years. Renewable energy markets were affected in the year due to reduced funding from the major economies of the world limiting the operations of Gamesa. The financial reports of Gamesa for the year ended 2012 were negative against the backdrop of increased competition in the wind power sector and the low growth rate of the industry. However, the company weathered the storm fairly well, and that was attributed to its geographical diversification and its normalized margins.
The adverse effects of the financial performance of the company necessitated it to take measure in instituting future strategies to ensure continued improvements in its performance. Comparison of the company with other players in the wind energy sector places its performance relatively at the top thus indicating the underlying challenges it faced in 2012. The company’s equity position increased in 2012 with over 2.2 billion Euros being realized for the sustainability of its future strategies. The share price of the company’s stock recorded a tremendous decrease of 38%, but market researchers predict growth of the shares into the future (Plunkett, 2011). The company has installed over 27,000 MW in over 42 countries’ and 19,000 MW of the total are under its maintenance underlining the trust its clients have in its capabilities.
The company’s wind farm section provides it with a competitive advantage over its competitors with its farms spread all over the markets. The strong performance posted by the company over the last five years has been boosted by its presence in international markets and particularly its fierce strategies in tapping of the emerging markets like Mexico and Brazil. The Latin American market has proved to be the company’s leading market accounting for 32 percent of its global sales while the international market contributed above 85 percent of its total sales. The Latin American market is projected to grow at a rate of more than 25 percent annual over the next three years proving the need for the company to make heavy investments in the market. However, Gamesa closed the year 2012 on a positive note with orders totaling 1657 MW for the year 2013 more than half the targeted sales volume for 2013. Gamesa’s future strategies are aimed at operating profitably while at the same time maintaining its growth over different periods (Plunkett, 2010).
The company made several business gains in 2012, and the y included the plunging into Uruguay and Finland, new markets, with an initial supply of 50 MW, and 1355 MW respectively. The company experienced further success in India, Brazil, and Brazil with expanded supply of wind energy turbines to the three countries. Gamesa signed a 260 million-loan agreement with EIB for the R and D innovation. The company’s other achievement in 2012 was being ranked the leading company in renewable energy due to its environmental, social, and economic performance in the Dow Jones sustainability Index. Finally, the company came up with 2013-2015 business plans that outlined the company’s future strategy with the aim of operating with flexibility and profitably. The company’s businesses are diversified in markets across five continents that are North America, South America, Europe, Africa, and Australia.
The company was able to install 44,711 MW in 2012 recording a ten percent increase from the installations realized in 2011. The company has witnessed continuous growth over its lifetime with its installations totaling to 282,430 MW globally. Future business prospects for the company will be spearheaded by the Latin American market with expectations of future growth in Brazil by over 4.9 percent from 2012 to 2015. Future market analysis carried out by GreenPeace, the United Nations’ Intergovernmental Panel on Climate Change and the Global Wind Energy Outlook indicate that the wind sector will grow by a rate of 4.2 percent up to 2020.
Financial analysis using ratios
Overview
The company recorded major losses in the year 2012 when compared to the performance exhibited in 2011. The company recorded a decrease in its turnover from 3,006.00 million pounds in 2011 to 2,665.00 million pounds in 2012. The decrease in the company’s turnover represented an 11 percent decreases from the performance recorded in 2011. The company experienced a decrease of 63 percent in operating profits from 283.00 million pounds in 2011 to 104 million pounds in 2012. The profits for the year were the worst hit amongst the different company’s measurement tools with losses amounting to 649.00 million pounds in 2012 in comparison to the 45 million pounds profits recorded in 2011. The percentage loss was a massive 1542 percent showing the company’s negative performance for the year. There were positive changes in the company’s dividend from 15 cents in 2011 to 18.5 cents in 2012 increasing the company’s liabilities. The operating cash flow decreased by ten million pounds down from 514.00 million pounds in 2011 to 504 pounds in 2012 representing a 2 percent decrease. The company’s market capitalization decreased by 36 percent to record 472 million pound as opposed to the 743 million pounds realized in 2011. The company reduced its workforce by 373 employees from 8018 employees in 20011 to 7645 employees in 2012. The general overview of the company’s performance indicates that the company experienced negative growth in 2012 when compared to the performance recorded in 2011. Majority of the company’s activities yielded negative returns that indicate need for intervention in the company’s future activities.
Performance
Performance ratios are used to measure the effectiveness of a company’s operations through the measure of the inputs during production and sales. The ratios measure the performance of different segments within a company during a trading period.
Return on net assets
The return on net assets is calculated to measure a company’s ability in the creation of value through pr...