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Muaath Alnuwaiser

Internal Analysis of Alamo Group

a) Operations

Alamo Group is the leading company in the world dealing with designing and manufacturing of agricultural equipment of high quality for ranches and farms and the equipment of infrastructure maintenance for industrial and governmental markets. The firm is currently operating twenty-four plants throughout the world since its establishment in 1969, in regions like Brazil, Europe, Australia, and North America as indicated in Alamo’s annual report (Alamo Group Inc. 10). It is also important to understand the locations of the organization’s corporate offices in this analysis to have a clear picture of how the firm manages its operations. Such offices are situated in Seguin, Texas. The business of Alamo Group has been divided into three main operating divisions, which include Agricultural, European, and Industrial. Through these divisions, the company has aimed at continuous improvement of it operating efficiencies in the countries where it operates. In its operational plan, Alamo Group is committed to promoting the value of its shareholder over the long-term in a way that is consistent with good corporate governance and high ethical standards (Investor Presentation 26).

It cannot be denied that Alamo Group operates its business in a market that is highly competitive. Some of its competitors, as well as potential competitors worldwide, have resources which are superior to those of Alamo Group Inc. (Alamo Group Inc. 16). The organization competes with some big domestic and international firms providing a vast range of equipment together with the replacement parts posing rivalry to its products. It is also no secret Alamo faces competition from several small and privately owned manufacturing entities and suppliers offering many products on a regional basis.

There is also remarkable evidence that some of the firm's rivals are substantially bigger than Alamo and have significantly larger financial resources among others to facilitate their business operations. In spite of these challenges, the company holds that it has the ability to compete successfully in its markets through avoidance of direct rivalry with the potential competitors that have proved to be significantly larger. It may seem impossible that the competitors will not increase the resources whose devotion aims at developing and marketing their products that are posing competition to Alamo’s products. It is also difficult that new rival having substantial resources will not enter the existing markets of the company. Therefore, the situation has provided an understanding that if the firm does not effectively compete, its business, financial condition, and results of operations would be severely affected.

The operational success of the firm has been realized since it operates in numerous nations beyond the United States and its ability to source raw materials as well as components internationally. However, such global operations have faced risks that are most often related to carrying out business in foreign nations, which include but not limited to some risk factors (Alamo Group Inc. 16). To begin with, there are limitations on ownership and on the earnings’ repatriation; restrictions on export and import; and quota and tariffs which can have an adverse impact on the firm. Added to these limitations that may have affected to business of the organization are the additional expenses associated with the difficulties, as well as the costs of managing international operations and repatriation. The shifts in laws or policies and in any global trade agreements, like the changes in European Union membership have tremendously influenced the way the companies operate nationally and internationally. The disputes of labor, political, as well as the economic environments are not certain and thus have caused harm to foreign business cycles. Perhaps, delays in acquiring or rather the inability to obtain the required governmental permits have been a factor that may have affected the business.

Additionally, cultural differences, increased expenses due to inflation, changes in currency exchange rates, regulations involving international freight shipments, disruptions in transportation, and port authorities are other risk factors influencing how the company conducts its business in the different parts of the world (Alamo Group Inc. 16). Furthermore, there has been a notion that potentially severe consequences that emanate from the applicability of foreign tax laws would affect Alamo’s business undertakings. Moreover, there is fear that weak economic environments in foreign markets where the firm’s subsidiaries distribute their products will influence its economic health a greater deal.

It is also fear that the existing laws and policies in the United States and the other countries where Alamo operates can influence foreign trade, taxation, and investment (Alamo Group Inc. 16). This situation would also affect the company’s ability to effectively obtain the parts of the equipment as well as the raw materials globally. As an illustration, any remarkable alterations in the U.S. trade policy such as introducing any new or increased tariffs could lead to hiking of the cost of essential materials as well as the supplies that the firm obtains outside the country. This condition may also negatively influence the company’s product sales in the global market, its net sales and earnings would be severely affected.

It is undeniable that the operations of Alamo Group greatly rely on the information technology (IT). The forms of IT networks and systems that the company depends upon comprise the Internet for processing, transmitting, and storage of electronic as well as financial information. The organization has used this technology to managing numerous activities and processes of the business, while adhering to tax, regulatory, and legal requirements (Alamo Group Inc. 15). Some of these systems of IT have been supplied and maintained by third parties. Such systems are thought to be susceptible to damage, disruptions, or shutdowns. They emanate from the attackers of network attacks, errors of user, failure in telecommunication, catastrophic events, viruses in the computer, and collapses of the hardware among other factors. The IT systems of the organization experiencing these conditions and its business continuity plans failing to effectively address the problems in time may be dangerous to Alamo. The dangers associated with this situation are the transactions errors, disruptions of company’s business operations, and inefficiencies in processing. In a similar vein, the loss of customers and sales may also be realized, and thus adversely affecting the sales of the company’s products, and operating results, and financial condition, as well as the reporting of its financial results, may be delayed. Because of this situation, the company has resorted to conducting research and development (R&D) using the latest innovations to develop its products to meet the demands of its customers, both at a local and an international level (Alamo Group Inc. 8).

b) Human Resources

The human resource management in Alamo Group Inc. has played a pivotal role in determining the performance of the firm. In this company, the production assets are viewed to be ever more accessible, making it possible for the human capital to determine the competitiveness of firm in the market, as well as its ability to sustainably create value and gradually lose its capacity to yield revenue. Thus, the company has concentrated on managing the human resources it has at its disposal to ensure the business goals are attained. The annual report released in 2016 in indicates that Alamo Group Inc. had 2,900 employees worldwide. It is further reported that the organization has collective bargaining agreements at the Gradall facility, located in North America, which take into account 179 workers and whose expiry date was on March 12, 2017(Alamo Group Inc. 10). In the same agreements, 81 employees were covered at the Tenco facility in Canada, whose expiry date is expected to be on December 31, 2020. The operations of the firm in European parts also possess some collective bargaining agreements covering 890 workers. Such parts include Spearhead, Bomford, McConnel, SMA Faucheux, AMS-UK, Kellands, Rousseau, Rivard, and Forges Gorce. The operations of this company have been made easy and productive owing to the fact that its human resource management (HRM) places emphasis on satisfactory employee relations.

The HRM has dedicated its efforts towards corporate governance as a strategy to achieve the organizational objectives. The company has implemented procedures and policies whose design aims at supporting such a commitment applying to all of the employees, directors, and officers of the firm across the world. Such policies offer a reflection of the organization's expectation that it will act with integrity in a responsible, legal, and ethical manner at all times for the greater advantage of its shareholder, customers, and employees (Alamo Group 1). Also, the information concerning the Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Board Committee Charters of Alamo Group Inc. is available on the website of the company as indicate in the Investor Presentation (p. 26).

In the context of the Code of business ethics and conduct, the HRM has ensured that the policy of the firm observes and complies with all laws that apply to them and their operations, regardless of the location of their business. In a similar vein, they always seek to conduct themselves legally and ethically irrespective of where they are located. The laws, which apply to any given situation, may only be the minimum standard (Alamo Group 1). At all times, we must conduct ourselves with integrity and honesty. To attain the goals of an organization Code have been strictly followed where it offers specific guidance. Thus, all employees have been expected to adhere to such Codes to ensure the smooth running of the operations of the business and have enhanced employee relationships that lead to higher productivity. It has always been encouraged that any form of violations or signs of violations of the policy or law needs to be reported immediately according to the reporting system.

Moreover, the firm’s corporate governance strategy has placed emphasis on the compliance with the letter and the spirit of the law that constitutes the ethical standards of the company. It is the responsibility of the HRM to guarantee that all of the team members of the firm respect and obey the local, national, and state laws of the nations where the company undertakes its business. Such laws comprise, but not limited to, rules prohibiting discrimination as well as harassment in the place of work; the rules which prohibit illegal payments, restraints on trade and unfair trade practices; and all the applicable safety, environmental, and health laws (Investor Presentation 26). Alamo Group has a long history of encouraging employees to consult regularly with their supervisor, the Human Resources Department, or the Legal Department concerning their adherence to with rules and regulations governing them in different countries of operation.

Another driver of the employees' effective and efficient operations to contribute to the success of the business is the honest and ethical conducts in the workplace. It rests with the HRM to make sure all of the records, books, financial statements, and accounts are not only timely prepared, but must also accurately give a reflection of the transactions as well as all the relevant financial aspects (Alamo Group 2). The human resource department of Alamo has also encouraged conformation to both the legal requirements and the system of internal controls of the organization.

Additionally, the efficiency of the operations of the company has been achieved by honestly and accurately recording the actual and true number of hours worked of all hourly employees. In order to keep good records of the company’s cash flow, all the employees have been required to document their business expenses in an honest and accurate manner. More weight has been placed on the respect for the rights of and dealing honestly and fairly with the suppliers, customers, other team members, and competitors of the firm. The security of the information has also been enhanced by ensuring that there is no stealing of proprietary information, inducing of disclosures of such information from current or past employees of other organizations, or possession of trade secret information whose acquisition may have been with no consent. On the other hand, if an employer takes unfair advantage of another worker via abuse of confidential information or misrepresentation of material facts among other unfair practice, he or she may face dire consequence of such offenses.

The human resource department has also been committed to ensuring no insider trading takes place within an organization for the realization of its business goal. This department is aware that a company director, employee, or officer may have access to material non-public information or any other information that is confidential concerning the firm (Alamo Group 5). It is highly recommended that this information should not be used for personal gain or as the ground for offering a “tip” to other people for their personal profit, but can only do so if the firm makes such information available for the public access. Employees are also restricted from unethically or illegally acquiring or seeking to get any information from suppliers, competitors, or customers that is confidential. It is also worth to note that Alamo Group Inc. has incorporated a detailed Insider Information and Trading Policy in its management system to ensure the security of the company’s sensitive information. There has also been a necessity for the employees not to take the opportunities discovered via the deployment of the property or information of the firm, or rather through position they hold in the organization. The human resource department has discouraged using the information or position of employees or property of the company for improper personal gain, as well as competing with the organization either directly or indirectly (Alamo Group 6). Therefore, employees have been to understand that they have to fulfill a duty of advancing the legitimate interests of the firm when an opportunity arises.

c) Marketing

The success of the company on the market emanates from the fact that it is the leading supplier to the governmental market within the United States. It is also the largest company in the supplies of agricultural product in this country and in the European market. Since the products are sold in markets that are highly competitive internationally, there has been a need for Alamo Corporation to come up with marketing strategies that would make it gain a greater competitive advantage. In this analysis, the firm needs to deal with the internal factors that can enhance its competitiveness such as quality, price, availability, reputation, and service (Alamo Group Inc. 9). Therefore, it is important to elaborate the various marketing approaches that the company has used to achieve its business goals.

The first strategy that the firm has employed is the selections distribution channels nationally and globally. The products of Alamo are sold through the various marketing organizations of the firm as well as the extensive global dealer and distributor networks under its trademarks and other trade names and trademarks. The distribution channels of the company’s products have been dependent on the kind division in which the product is produced. In the industrial division, the Industrial equipment of Alamo is mainly marketed via independent dealers to the governmental end-users and the related independent contractors. To a smaller extent, these products have been sold through the utility among other dealers serving the operators of infrastructure maintenance and other use in the U.S. and other nations throughout the world. In general, Alamo has been selling its products through an international network of more than 5,600 distributors and independent dealers (Investor Presentation 4). The company has also focused on producing a variety of product to meet the demands of the customers in the highly competitive market.

The agricultural division has involved selling of the equipment including Rhino, Earthmaster, and Bush Hog to the ranchers as well as farmers among other end-users. Other end-users comprise those who deal with mowing of grass, clearing of bushes, and maintenance of pastures. These kinds of equipment have been made available in different varieties to suit the needs of the customers (Alamo Group Inc. 6). The firm has considered using Internet marketing of the aftermarket agricultural products to reach many customers around the world. The firm also engages in selling some other product lines in their markets and other several products via independent distributors worldwide.

The second marketing strategy has been the product development, which Alamo Group Inc. has used to produce the equipment and tractors that meet the demands of its customers in a highly competitive environment. The annual report of the company reveals that it has Alamo has been to offer innovative responses to needs of the customer, by developing and manufacturing new products and improving the existing product lines to market it successfully in the market (Alamo Group Inc. 2016). The organization is now continually engaging in the R&D activities in pursuit of enhancing the existing products as well as developing new products. For instance, the company invested huge amounts of money in employing people who would support the efforts of research and development, amounting to nearly $8,847,000 in 2016, $8,427,000 in 2014, and $8,590,000 in 2015 (Alamo Group Inc., 2016). The benefits that came with the initiative were substantial and are expected to continue in the subsequent years.

The firm has also considered advertising its products as a marketing strategy. It has been reported that the company has invested in advertising and marketing, whose expenses associated with operations for the fiscal years 2014, 2015, and 2016 were about $7,368,000, $7,670,000, and $7,742,000 (Alamo Group Inc., 29). Based on this data, it is evident that a substantial amount of money has been spent on advertising campaigns for the company to realize enormous profits. It is worth to note that advertising has a direct relationship with politics since it determines the purchase of Alamo’s products and the choice of a political leader who is elected. Therefore, the countries in which the company operates and have political stability have provided a favorable condition for it to advertise its products. The company also used media channels in respective nations to promote its brand name and the products it offers. Brand advertising, which involves visual and textual advertising, has been the most effective way for the company to market itself locally and globally. Through this approach, the firm has achieved a higher degree of consumer recognition of its specific brands.

The company has also engaged in acquisitions to expand the market for its products. The first type of acquisition has been the market share consolidation. The entities that have entered acquisition with Alamo in this form include Tenco, Super Products, Bush Hod, Schulte, Valu-Bilt, Wausau-Everest, Spearhead, Twose, Nite-Hawk, and Rousseau. The second type of acquisition is the complementary products for the existing markets, where it has acquired Henke, Kellands, Gradall, Twose, Vacall, Tenco, Schulte, and Schwarze. The last type is the one involving the global expansion of the existing products, comprising the entities like Spearhead, Tenco, Schulte, Rivard, Superior, and Faucheux. These acquisitions have helped the company to increase sales.

However, several market factors affecting the firm include the international softness in the agricultural sector, whose influence on the market has been felt for three years now. This factor has led to further drops in farm incomes in the United States and internationally. It is also noted that there existed an ongoing softness in the overall climate of the European economy that was decreased more in 2016 by the Brexit vote in the United Kingdom. This situation depicted that the companies would leave the European Union in the offing. Despite the markets of Alamo in North America for infrastructure maintenance equipment being steady, other markets could not hold up such as mining, general construction, and oilfield. With all these market issues combined, there were the significant effects of the U.S. dollar leading to the reduction of the translation value of the company’s earnings and sales in other currencies, especially the sterling pound.

d) Finance

The financial analysis is also an important tool to gauge the company’s performance that has made it enjoy its leading position in the market. By definition, the financial analysis refers to the process taking accounting as well as other financial information and organizing them to show the strengths and the weaknesses of the company (Tracy 35). In this analysis, the firm’s key financial ratios such as profitability ratios and liquidity ratios have been calculated from the financial statements of Alamo. The aim of the financial statements of the company is to offer the information to all the users of such accounts to aid the decision-making process. These users include employees or managers, investors, banks, creditors, and government departments among others. The ratios are considered the most effective and efficient way to analyze the financial statements. Thus, where the performance analysis ratios, there is a need to make comparisons.

i) Profitability

The ratios of profitability or performance show how well the company is performing. In this case, the main ratios to be considered are the return on equity (ROE), return on assets (ROA), and operating profit margin among others. The formula for computing is: the net profit divided by the total assets of obtained the firm’s financial statements. The comparison of these ratios was made for the fiscal year 2016 and 2015. In 2016, the net profit was $40,045 while the total assets were $552, 7767. Then the ROA for 2016 was $40,045/$552, 7767, yielding 7.24 percent. In 2015, the value of the net profit was $43,209 and the total assets were $603,503 (Alamo Group Inc. 46). The ROA for 2015, using the same formula, was 7.16 percent. It is evident that the value of ROA was slightly higher in 2016 as compared to 2015. On the other hand, ROE can be computed by taking the net revenue divided by the total shareholder's equity. In the fiscal years 2016 and 2015, the total shareholder's equities were $387,717 and $360, 469 respectively. Thus, the ROEs for 2016 and 2015 were obtained to be 10.33 percent and 11.99 percent. The value of obtained indicates that there was a drop on the ROE in 2016 as opposed to 2015. Based on these results, it can be concluded that the firm's profitability has been improving in the past three years and this is expected to continue in the near future. The factors contributing to this scenario include the increased sales that are realized by the company every year because of the proper marketing strategies it has put in place to successfully compete for its rivals in the market.

ii) Liquidity

The ratios used in the liquidity management encompass the quick ratio, current ratio, and working capital. From the financial statements, it is clear that quick ratio has been used to indicate the liquidity of the company, which is the ratio of the difference between the current assets and inventory divided by the current liabilities (Tracy 37). For instance, the quick ratio for 2016 is ($327,618 - $135,760)/ $78,700) = 2.44. It is believed that organizations whose quick ratios are exceed1.0 have the ability to fulfill their short-term liabilities. Therefore, the quick ratio for Alamo Group Inc. is 2.44, which is higher than 1.0, and showing that firm is able to fulfill its short-run liabilities. The larger quick ratio obtained for Alamo indicates that the company is realizing an upward growth, which is rapidly changing the receivables into cash, whose financial obligations can be covered. This firm seems to have faster inventory turnover and cycles of cash conversion.

The firm also has ongoing cash requirements that are needed to undertake the business, which comprise the capital expenditures and inventory purchases. It is easy to note from the financial statements that the inventory and the levels of accounts payable of the company, and particularly in its Agricultural Division, grows in the first quarter of the year and early spring. To a smaller extent, there is an expected fall in prices during the spring in the fourth quarter of the year. The accounts receivable seems to be growing in the first and fourth quarters of every fiscal year as a result of the pre-season sales.

The analysis also takes into account the role of working capital in the measurement of the firm’s liquidity management. The annual report indicates that the organization had working capital amounting to $248,918,000 as of December 31, 2016, representing a drop by $28,944,000 from the working capital of $277,862,000 which was recorded one year ago (Alamo Group Inc. 47). This decline in the working capital emanated from the cash reduction, levels of inventory, and accounts receivable. On the other hand, the decrease in cash was, partly, because of repayments on the revolving credit facility of Alamo Group Company. It is also worth to note that Alamo intends to get funding capital expenditures via its revolving credit facility or rather from the operating cash flows. The underlying reasoning behind this scenario is that the firm has $14,502,000 in cash and as well the cash equivalents were held by its subsidiaries from outside the country as reported on December 31, 2016. It is further revealed that Alamo Group Inc. is seeking to use such funds for the foreign acquisitions or capital expenditures.

Also, the revolving credit facility, as well as the ability of the Alamo to internally yield funds from operations, is expected to adequately satisfy the requirements of cash of the organization in future. Nevertheless, the firm feels that its liquidity or operations have not been affected by inflation. While this business is exposed to the risk that of the possible increase of the prices of steel, energy and other purchased parts of the equipment, it is likely that the firm may fail to raise the corresponding price of its products.

SWOT Analysis

The activity of strength, weakness, opportunities, and threats (SWOT) analysis constitutes and imperative strategic planning tool that the mangers of Alamo Group Inc. can use to perform the firm’s situational analysis. It is possible that this company has maintained its leading position in the market because of its ability to critically analyze and review the SWOT analysis. Thus, Alamo’s weaknesses, strengths, threats, and opportunities are discussed below.

Strengths

Since Alamo Group Inc. is among leading firms in its industry, it has several strengths which enable it to survive in the competitive business environment. The first strength has been realized in the financial analysis where Alamo has been found to have high revenues and profitability. One of the reasons behind this success is that the organization has good returns on capital expenditure. The company has been successful in executing new projects, which have, in turn, yielded good returns on capital expenditure through the creations of new streams of revenue.

Weaknesses

The strategy of Alamo entails making choices, where weakness comes in as the areas in where firm needs to improve and thus making SWOT analysis a useful tool. The company’s understanding of it weaknesses helps it focus on its strategic positioning as well as competitive advantage. One of the greatest weaknesses that Alamo has is its cost structure in future. This situation may arise due to several factors such as the existence of the gaps in the range of the products sold by the organization.

Threats

The existing categories of the products of Alamo Group Inc. may be adversely affected by new regulations about the environment under Paris agreement (2016). Additionally, the company is exposed to currency fluctuations in the various nations where it is operating, especially where there is the volatile political climate in some markets worldwide.

Opportunities

As mentioned earlier, Alamo depends on technology (Alamo Group Inc. 15). Thus, the new technology will offer an opportunity to this firm to meet the varied demands of the customers in the new market. This strategy will also enable the company to increase its profitability.

Works Cited

Alamo Group Inc. Annual Report, 2016. http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_ALG_2016.pdf. Accessed 10 Mar. 2018.

Alamo Group Inc. Investor Presentation, 2014.

Alamo Group. Corporate Policy, 2016. http://alamo-group.com/H-1%20Code%20of%20Conduct%20Revised%2003-07-17.pdf. Accessed 10 Mar. 2018.

Tracy, Axel. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. RatioAnalysis.net, 2012.