Clayton Spa Reccomendation

Introduction:

Clayton SpA as of now is experiencing a loss of more than a million dollars a month. The first half of FY 2009 Clayton SpA has seen a 19.4% drop in revenue and a 12.3% loss of net income. At your request, an analysis of the current obstacles and possible solutions has been accomplished. This report will highlight the major issues, list of options for recommendation, requirements of each option, and a detailed comparison of possible options. My conclusions and recommendation for the future of Clayton SpA will follow.

Findings on Clayton SpA financial decline:

I am convinced that Former manager Paolo Lazzaro dismissed all European markets other than Italy. Mr. Lazzaro also focused his marketing efforts solely on the compression chiller from the Brescia facility. Furthermore the government contracts secured by Mr. Lazzaro hindered all possibilities of lowering labor costs.

Decision Options:

1. Installation of programs to Boost Brescia plant efficiency. Product development to revitalize the compression chiller line. Sales and marketing package to expand compression chiller market outside of Italy. Cost estimate of 5 million dollars, the majority over the first year.

2. Conversion of compression chiller line to an absorption chiller line. Cost estimate of 15 million dollars over 5 years.

3. Focus on efficiency measures while evaluating strategic options. Time frame of 6 months.

Criteria for Improvement:

1. To increase the market share of Clayton SpA from 7% to 15% within 4 years ("Four in Four").

2. To reduce Days Receivables, Days Inventory by 10 days and Headcount by 10% ("10/10/10").

Comparison points:

Option 1: Cost- 5 million over 4 years, Product Development Initiative for modern function and efficiency, economies of scale to reduce production cost, reduction of labor by 30% over 4 years, incremental market expansion.

Option 2: Cost- 15 million over 5 years, Plant conversion to absorption chiller, Green initiative perception, Reduce of overall cost due to lower manufacturing expenses, Hedge against adverse commodity cycles, Untapped market potential.

Option 3: Cost over 6 million, Low risk, Gives time for a market rebound.

Profitability:

Option 1: Return on Equity (Sales/Total Shareholder Equity) - As per the balance sheet of Clayton SpA for the period 2004-2009 the return of equity has gradually dropped to negative values. Clayton SpA will face difficulties in reducing debt and also in raising money through shareholder equity.

By implementing option 1, I expect

...