Finance And Funding - Ashtead Group

Question: Describe about the Finance And Funding - Ashtead Group? Answer: Introduction Board of Directors of most of the corporate organizations often require effective consultancy research and report regarding the financial and non-financial performance of their organizations in order to make effective strategic decisions for the growth and development of their business (Aras et al. 2010). Financial ratios are one of the most effective indicators of organizational performance in terms of their financial aspects (Taticchi, 2010). An efficient management consultant always considers preparing a balanced scorecard, which is a strategic planning and management technique that is essential for aligning the organizational vision and strategy of the organizations with their business and operation activities (Sennels, 2011). In other words, a balance scorecard helps monitoring organizational performance and improving organizational communication against their strategic goals. Ashtead Group is one of the renowned organizations renting equipments throughout the world. Most of their domestic networks are in the United States and in the United Kingdom. The company is mainly famous for providing extensive range of industrial and construction equipments for various applications and to a diverse customer segments. Their equipments include power generating, lifting, moving heavy industrial objects, digging, drilling, heating, pumping, ventilating and various other necessities. The key objective of the company is to allocate sustainable assessment and maximum performance throughout the economic cycle, to extend industry-leading arrangement, and to deliver maximum returns for their shareholders (Ashtead-group.com, 2015). Ashtead Group Vision Expanding the growth and development of their business to retain and to improve their leading position within the equipment rental industry The management of Ashtead Group has been concentrating upon their business growth and business development strategies and policies since last few years, as they realized that their company has better chance of winning maximum market share within the equipment renting industry both in the US and in the UK. The company has further improvised their organizational structure, financing structure and operational efficiency in order to dominate the equipment rental market throughout the world, especially in the US and in the UK. Delivering maximum returns on investments to the shareholders throughout the economic cycle (Ashtead-group.com, 2015) The management of Ashtead Group has clearly stated within their Annual reports that their significance success largely depends upon the contribution and dedicated support from their shareholders. Their shareholders have always welcomingly supported their company and the strategies implemented by the management of Ashtead Group. Therefore, they have realised the importance of understanding shareholders benefits and concerns. The company has already been sharing significant amount of their profit with their shareholders and the management has expressed their vision to maximise the shareholders return each year. Their vision will no doubt not only make the shareholders satisfy, but also to influence them investing more towards the company for enhancing growth and development of the Ashtead Group. Strategy Build a Broad Platform for Growth The company is largely operating within both the US and the UK. However, the primary strategic target of the company is the US, where they would like to double their growth and profit. The US market is almost five times larger than the UK and the Ashtead Group is the key supplier of infrastructure equipments in the US right now. Rental penetration in the US is approaching 50% and the major contractors in the US prefer renting the equipments rather than owing them. The equipment rental industry in the UK is emerging and the company Ashtead Group has the financial strength and organizational capabilities, which are helping the company to gain competitive advantages over various inefficient competitors in the US market. However, the company is also concentrating on the UK, where they would like to enhance their market share by 50%. The company is also concentrating on Bolt-on Mergers and Acquisitions (MA), developing clusters within key sectors and on organic fleet growth (Ashtead-group.com, 2015). As the management have foreseen that there are maximum amount of unoccupied market, enhancing demand and presence of ineffective rivals, the management of Ashtead Group is concentrating upon developing a broader business platform, which will have maximum opportunities and growth prospects. Maintain Financial and Operational Flexibility The management of Ashtead Group has taken various strategic initiatives for maintain financial and operational flexibility for supporting their business from both long-term and short-term perspectives. Although, the economic conditions are not favourable and the market competition is increasing, but the group is holding ROI at 19%. The company has been also able to maintain their leverage mostly below net debt to EBITDA. This represent that the company is maintaining financial discipline. The company is also utilising their financial stability and strength for optimising their fleet sector during cyclical upturn (Ashtead-group.com, 2015). The management of Ashtead Group has expressed that the company needs to maintain effective collaboration and flexibility within their finance department and operational department, which are the key units for their business and have significance importance towards achieving sustainable growth and long-term development. Financial flexibility enables them to deal all the operating costs and shareholders return. On the other hand, it also helps them to implement any growth and development strategies effectively. Operational Excellence The management of Ashtead Group has taken various initiatives for improving the efficiency of their operational activities. They are considering fleet on rent, EBITDA, ROI, staff turnover and safety as their key performance indicators. Operational excellence is something that the management and the board of directors of Ashtead Group are trying to concentrate upon widely for gaining sustainable improvisation within their organization using various policies, strategies and modern management techniques. The management of Ashtead Group is mostly considering enhancing operational efficiency by enhancing maximising their operational performance, innovation, effective collaboration, financial and operational flexibility and improving shareholders profit. They are also focusing upon improving their services (Ashtead-group.com, 2015). Balanced Scorecard - Ashtead Group Financial Perspective Goal Key Performance Indicators Target Action or Initiative 1. Revenue Enhancing revenue Revenue from the group Fleet on Rent Market Share Revenue from the group to be enhanced by 19.82% Increased to almost 2700 (US Fleet on Rent) Increased to almost 350 (UK Fleet on Rent) Increased by 50% (UK Market) Increased by 100% (US Market) Greenfield development Improvisation towards product mix Mergers Acquisition (Bolt-on) Similar organic store fleet expansion 2. Shareholder Enhancing return of the shareholder Underlying EPS Dividend per share Underlying EPS to be enhanced by 63p Dividend per share to be increased to almost 20p Maintaining an effective dividend policy with the consideration towards both cash generation and profitability 3. Cash Flow Maintaining Strong and Stable Cash Flow Net Debt Underlying EBITDA margin to be 47% Frequently reviewing the capital structure of the group Adopting a conventional financial policy Maintaining long-term debt maturities Using asset based facilities Minimising debt commitments 4. Profitability Improving Return on Investment and Profit Return on Investment Underlying PBT Underlying PBT to be 403.6 ROI to be enhanced by 19% Monitoring and Managing fleet investment effectively Appropriate incentive for improving return Focusing upon greater return Flexibility towards the pricing structures Optimising utilisation rates and returns Table 1: Financial Perspective - Ashtead Group (Source: Created By Author) Financial perspective implies financial performance of Ashtead group. The company is financially stable. However, they must consider enhancing their profitability for increasing return on investments, as earning profit is the major objective of any profit-making organizations like the Ashtead group. The management of the company may enhance their profitability by implementing various strategies such as managing fleet investment effectively, making the pricing structure flexible etc. Increasing profitability will also have an impact upon the revenue and the shareholders profit, which can be increased by various activities such as Greenfield development, improvisation towards product mix and bolt-on Mergers Acquisition. The company should also consider maintaining continuous cash flow by revising their capital structure, debt maturities and financial policies. In addition, the management should revise their divided distribution policies to enhance return of the shareholders in order t o encourage them for more investments. Internal Business Processes Perspective Goal Key Performance Indicators Target Action or Initiative 1. Fleet Management Enhancing efficiency of the fleet Utilising physically Age of the fleet Maintaining between 60% and 80% More than 2 years in the US More than 3 years in the UK Adopting a model with clustered model Maintaining standardised fleet Ensuring adequate stores for offering wider range of equipment 2. Safety Ensuring Safety Reporting of Diseases, Injuries, and Dangerous Occurrences Regulations Less than 50% Improvising health and safety policies Cultivating safety culture Safety with suppliers and customers Induction training programme 3. Delivery Management Improvising Delivery Cost Recovery and Minimising Respond Time Delivery Time Lead Time Delivery Cost 10% reduction throughout 10% reduction throughout 20% reduction throughout Improving and monitoring organization of the stress and loading of the delivery trucks Training Optimising pick-up and delivery routes 4. Quality of the Services Ensuring Superior Quality of the Services Perfect Order Almost 100% Monitoring Quality of the Services Frequent improvement initiatives Be responsive Table 2: Internal Business Processes Perspective - Ashtead Group (Source: Created By Author) The management of Ashtead Group must concentrate improvising their internal business process by enhancing fleet efficiency, ensuring safety, improving delivery costs and by offering superior customers services. The management should concentrate more upon renovating their organization culture. In addition, continuous campaigns regarding training and development are also essential. Customer Perspective Goal Key Performance Indicators Target Action or Initiative 1. Customer Loyalty Ensuring Customer Loyalty Net Promote Score Annual Customer Spend Greater than 60% Increase by 25% Customer loyalty programme Special discounts Rewards for References 2. Customer Satisfaction Satisfying the customers Customer Complaints Responsive time Less than 10% Less than 1 business day Understanding needs and expectations of the customers Differentiating fleet and service for providing better quality of service Cost effective rental solution 3. Branding Enhancing Brand value Market share Brand rank Increased by 50% (UK Market) Increased by 100% (US Market) Top 5 brand Promotion and advertisements through effective medium Initiating campaigns 4. Customer Retention Enhancing Customer Retention Fleet on rent (on-going) Increase by 10% Offering discounts Pricing scheme development Table 3: Customer Perspective - Ashtead Group (Source: Created By Author) Customer perspective includes various aspects associated with the customers, who are the key to success for the group. The management must consider satisfy their customers for enhancing customer loyalty, customer retention and brand value. The management could fulfil such objectives by concentrating upon customer services, pricing scheme, discounts, promotion and advertisements. Innovation, Learning and Growth Goal Key Performance Indicators Target Action or Initiative 1. CSR or Corporate Social Responsibility Committing towards Sustainability Revenue intensity ratio GHG Emission Less than to 120 Less than 2000,000 and 35,000 (scope 1 and 2) Upgrading lighting Training on maintenance Continuing Tier 4 lower emission equipment Fuel efficiency and carbon emission Considering renewable energy resources 2. Developing Skills Enhancing employee skills Average training hours Greater than 8 Hours On the Job training Formulating and implementing new learning management system Apprenticeship programmes 3. Employee Retention Improving Employee Retention Staff turnover rate Less than 15% Competitive salary Reward and recognition Workforce diversity and equal opportunities Health and Safety working environment 4. Innovation and Technology Developing Innovative Technology IT outages Less than 15 Utilising the latest technologies Investing towards leading technologies for having real-time access to fleet pricing and availability Table 4: Innovation, Learning and Growth - Ashtead Group (Source: Created By Author) Innovation, Learning and Growth perspective include Committing towards Sustainability, Enhancing employee skills, Improving Employee Retention and Developing Innovative Technology. The tool of balance scorecard helps an organization to prepare a dashboard of all the activities. For example, the balance scorecard indicators of the element of finance are ROI, Return on Investment (ROI), Net Debt and Leverage at Constant Exchange Rates, Dollar Utilization, Underlying EBITDA Margin, etc. Several initiatives have been linked with the key performance indicators of the several elements of the firm. The actual and target element has also been analyzed regarding the elements of finance, internal business process, customer, learning, and growth. Based on the findings of the balance scorecard, the organization Ashtead Group can respond appropriately to attain their strategic goals. Balancing the balance scorecard ELEMENT NUMBER OF MATRICES TOTAL WEIGHTED PERCENTAGE FINANCE 4 25% INTERNAL BUSINESS PROCESSES 4 25% INNOVATION, LEARNING AND GROWTH 4 25% CUSTOMER 4 25% TOTAL 16 100% Table 5: Balanced Scorecard - Ashtead Group (Source: Keyes, 2010) According to the above table (Table 5), the four perspectives are balanced consistently in the Balanced Scorecard for striking a balance in achieving the vision and strategy set out by the management of Ashtead Group. The major rationale behind this is that the four perspectives are closely associated to each other and all four perspectives contribute equally towards the success of the business. Strategic Map - Ashtead Group Figure 1: Strategic Map - Ashtead Group (Source: Windolph and Hlle, 2011) The key strategic goals of the company Ashtead Group are to retain and enhance their position in the industry and to offer diverse range of products and services to the customers for enhancing market share (Uysal and Katipoglu, 2015). The company is also concentrating upon fleet on rent for enhancing their EBITDA margin. In addition, it will also help the company to enhance their ROI. The company is also concentrating on staff turnover and safety concerns. Employees are the key elements for achieving success and the company is trying to strengthen their employees through training and motivation (Tonchia and Quagini, 2010). In addition, the company is also giving priority to safety of the work environment. The management should consider improving EPS, ROI and the Net Debt and Leverage for enhancing shareholders return. On the other hand, the company can also consider analysing the importance of dollar utilization, EBITDA, mergers acquisitions for obtaining long-term sustainable growt h, which will help them retaining strong and leading position in the industry across the US and the UK (Uysal and Katipoglu, 2015). On the other, there are two strategic elements: employee turnover and safety, which are also essential for achieving long-term sustainable growth for the company. Safety is something, which is mandatory for the organizations to avoid any legal consequences. Administrating effectively towards safety concerns by adopting newer strategies will help the company both externally and internally. In addition, the company is also implementing new strategies for maintaining staff turnover rate under control, as employees and staffs are the ones, who will be performing the business activities and operations of Ashtead Group (Windolph and Hlle, 2011). Prioritising the Recommendations to the Board of Directors of Ashtead Group Priority 1-Minimising Operating Costs Operating costs are the costs often deducts major portion of the profits of the companies. Therefore, it is recommended for the Board of Directors of Ashtead Group to monitor their operating costs effectively in order to lower their operating costs, wherever possible. In order to minimise the operating costs, it is essential for the management of Ashtead Group to recruit, select and to retain the efficient employees, who have better knowledge and experience regarding the business operations of Ashtead Group. There are various other ways such as budgeting, planning and monitoring, which could help the company to manage their operating costs effectively (Sarkar, 2010). Construction equipments and various other equipments that require depreciation charges largely are the key products or services of Ashtead Group. Although, the management is financially capable enough to incur such charges, but those costs are something largely affecting the profit margin of the company (Langley, 2013). Priority 2- Investing towards Global Expansion The company is only concentrating after the US and the UK, especially towards the US market, which is mostly unoccupied and is emerging in terms of industry growth. However, there are many other countries such as India, China, and Dubai, where the demands of renting equipments are enhancing frequently. Many researchers have opined that most of these markets will be going to takeover major market share of the renting equipment industry within next few years. Constructions, industrialization etc. are now booming on these emerging countries, where the management of Ashtead Group can consider offering their services largely. In addition, there is less or no competition within these markets. Therefore, it can be a prospective opportunity for the management of Ashtead Group to expand their business within these economies by giving equally importance. Most of these economies are also encouraging for foreign investments. Therefore, the company Ashtead Group will mostly not going to face any business environmental issues within these countries. Global expansion will also help the company to switch around different markets, while their current market is not performing as expected. Priority 3- Concentrating more upon Mergers and Acquisitions (MA) Mergers and acquisitions are very useful for several purposes such as minimising operating costs, enhancing operational efficiency and minimising the threats from major rivals. The company management has already taken various initiatives for investing significantly towards mergers and acquisition activities (Kim, 2010). Many similar companies both in the US and in the UK are new to the industry but may influence the market and affect the market share and profitability of Ashtead Group (Burgess and Heap, 2015). However, it is important for the management of Ashtead Group to consider the companies with highest prospective in terms of operational efficiency and availability of resources, as merging or acquiring an inefficient or non-performing company may affect the profitability of the company and also may become financial burden for the management of Ashtead Group. Priority 4- Expanding the organization towards Related Industries Most of the leading and modern organizations are operating within diverse range of businesses and industries in order to obtain long-term growth and profit. However, those companies have considered expanding their business towards similar line of business in order to maintain operational excellence and to avoid loss. Although, the management of Ashtead Group has already started offering wide range of services, but they must consider expanding their business towards various other related industries such as construction and manufacturing. Construction and manufacturing industries are one of the profitable industries to operate a business. However, the companies must have financial stability to operate within construction and manufacturing industries and the management of Ashtead Group has both financial and organizational capability to start their business within these sectors. In addition, due to similar line of business, the company will not likely to get any issue and their manageme nt can effectively deal with the business and operations of such industry. It will not only help the company to enhance their profitability, but also to help enhance their brand value throughout the world. Limitations Limitation 1 The tool of balance scorecard has several limitations. The major limitation lies in the fact that it is very difficult to implement in practical life due to several technical factors. Balance scorecard do not considers other factors related to the business environment. Therefore, the key performance indicators may not reflect a true picture of the operating activities of the business firm. External business environment may cause several fluctuations in the targeted activities of the balance scorecard. Due to this reason, business organizations may be forced to ignore Limitation 2 Balance scorecard does not consider the size and nature of the modern business organizations. Therefore, it is not possible for the business organizations to implement the tool of balance scorecard within their system. It can be considered as a major limitation for the modern business organization. Critical Evaluation and Discussions Performance management and monitoring both are critical and essential management process, which can be effectively implemented appropriate usage of balanced scorecard (Kaplan and Norton, 2010). In the current study, the balanced scorecard represents the strategic goals of the management of Ashtead Group and the actual performance of the management of Ashtead Group throughout the year (Easton et al. 2015). Therefore, this is an opportunity for the management consultants to use the balanced scorecard for justifying whether the company Ashtead Group is performing up to the expectations of their management and board of directors. Therefore, the balance scorecard will not only help monitoring the performance of Ashtead Group, but also will assist managing their performance effectively (Balancedscorecard.org, 2015). The balanced scorecard also helps revealing the necessary activities, which are aligned with the vision and strategy of the Ashtead Group (Keyes, 2010). Therefore, it helps identifying the most essential management activities, which need to be further enhancing (Windolph and Hlle, 2011). For example, as per the developed balanced scorecard in the current study, it can be inferred that the management Ashtead Group was expecting their EBITDA to be around 45% - 50%. However, they achieved 47%, which is better than the previous financial year. Therefore, the company has been able to improve their EBITDA, but they have to maximise their business performance to enhance EBITDA to attain their estimated target, which was set according to the expectation of leading the industry effectively (Nielsen and Nielsen, 2015). Conclusion The current study concludes that EBITDA margin of Ashtead Group is lower than the industry average but their ROI is stable. This is why the company is able to maintain their profitability and shareholders return. Therefore, the Board of Directors of Ashtead Group should consider improving their EBITDA for enhancing their leading position in the renting equipment industry throughout the UK and the US. However, the financial ratios are suggesting that the company is profitable. In addition, the study also concludes that the company Ashtead Group has also started concentrating upon diverse range of products and services, especially upon the fleet on rent for enhancing both shareholders return and their position within the industry of renting equipments. Reference List Books Burgess, T. and Heap, J. (2015). Performance measurement and management of professional and knowledge work. Bradford: Emerald Group Publishing Limited Easton, P., Halsey, R., McAnally, M., Hartgraves, A. and Morse, W. (2015). Financial managerial accounting for MBAs Kaplan, R. and Norton, D. (2010). The balanced scorecard. Boston, Mass.: Harvard Business Review Press Keyes, J. (2010). Implementing the project management balanced scorecard. Boca Raton, Fla.: CRC Tonchia, S. and Quagini, L. (2010). Performance measurement. Berlin: Springer-Verlag Journals Aras, G., Aybars, A. and Kutlu, O. (2010). Managing corporate performance. Int J Productivity Perf Mgmt, 59(3), pp.229-254 Kim, Y. (2010). Measuring the value of succession planning and management: A qualitative study of multinational companies. Performance Improvement Quarterly, 23(2), pp.5-31 Langley, J. (2013). Use data effectively to align people strategy with business goals. Strategic HR Review, 12(5) Nielsen, S. and Nielsen, E. (2015). The Balanced Scorecard and the Strategic Learning Process: A System Dynamics Modeling Approach. Advances in Decision Sciences, 2015, pp.1-20 Sarkar, D. (2010). Learning to identify problems: A performance improvement imperative. Performance Improvement, 49(10), pp.5-7 Sennels, M. (2011). What will help engage employees in the companys changing goals?. Strategic HR Review, 10(3) Taticchi, P. (2010). Performance measurement and management: what is next?. Int J Productivity Perf Mgmt, 59(2) Uysal, G. and Katipoglu, Y. (2015). Strategic Management of Finance Theory: Use Balanced Scorecard in Finance Theory. Journal of Business and Economics, 6(5), pp.984-987 Windolph, M. and Hlle, J. (2011). Balanced Scorecard und Strategy Map. CON, 23(6), pp.304-307 Websites Ashtead-group.com, (2015). Our strategic priorities. [online] Ashtead-group.com. Available at: https://www.ashtead-group.com/aboutus/ourstrategicpriorities.aspx [Accessed 1 Sep. 2015] Balancedscorecard.org, (2015). What is the Balanced Scorecard?. [online] Available at: https://balancedscorecard.org/Resources/About-the-Balanced-Scorecard [Accessed 1 Sep. 2015]