Horace-Mackintosh Grant

Background

Horace-Mackintosh-Grant which is a leading UK clothing and footwear designer. Mackintosh-Grant, located in the United Kingdom, was formed by the merger of two companies in 2008. It is a listed company which designs, manufactures, markets and distributes a large range of high tech leisurewear and footwear products through Europe and the United States of America. Horace-Mackintosh-Grant employs approximately 700 people at its three sites in Eastern Europe and supplies products to over 6 million customers in 20 countries. Horace-Mackintosh-Grant holds stocks of about 100,000 different components and product elements that are used in the shoes, trim, materials, in-shoe technology and specialist smart clothing ranges.

Divisions and market/competitor comparison

The company is organised into three divisions, the Footwear division (FWD), the Specialist Sportswear division (SSWD) and the Streetwear division (SWD).

The primary footwear products (FWD) are sports shoes aimed at customers aged 12-30 years that are fashion and exercise conscious at the same time. The average product price is in lower quartile when compared against competitors. 90% of sales in this area come from UK and EU markets.

The specialist sportswear (SSWD) is aimed at high net income customers aged 2545 years who value status and emerging materials, design and technology on their high performance product. The average product price is the upper quartile when compared against direct competitors and. 75% of sales for these product come from North America.

The Streetwear products (SWD) are aimed at customers aged 8-30 years who like to wear the latest trends and styles and have great control and choice over their look. The average product price is in the lower quartile when compared against direct competitors. Sales for these products are divided 40% UK and EU / 37% North America / 23% Asia Pacific.

Organisational structure

Horace-Mackintosh-Grant is organised along these 3 lines of business described above and sell products direct to consumers by mail order, through retailers, aggregated wholesalers and also create white label products and sell clothing components and blueprints to other manufacturers. The present structure was established by Company Horace-Mackintosh in 1990 and continued after the merger with Company Grant. The Board considers continuity to be a very important value. Many of Horace-Mackintosh-Grants competitors have carried out structural reorganisations since then. In 2008, Horace-Mackintosh-Grant commissioned a review of its organisational structure from a human resource consultancy. The consultants suggested alternative structures which they thought Horace-Macintosh-Grant could employ to its advantage. However, Horace-Mackintosh-Grants Board felt that continuity was more important and no change to the organisational structure took place.

Product and service delivery

Consumers, retailers and wholesalers are increasingly seeking to collaborate with the designers of their products and the associated manufacturing and assembly processes. Horace-Mackintosh-Grants Board views this as a growth area. The Board has recognised that Horace-Mackintosh-Grant needs to develop web-based services and tools which can be accessed by these partners. The traditional method of listing the companys range of products, designs and components in a catalogue is becoming less effective, costly and cumbersome because customers are increasingly seeking specially designed custom made products as the industry becomes more sophisticated.

Financial data

Horace-Mackintosh-Grants historical financial record, denominated in UK currency of UK , over the last 3 years is shown below.

	2010	2009	2008
	m	m	m
Revenue	600	433	360
Operating Profit	39	20	13
Profit for the year	21	9	5
Earnings per share ()	0117	0050	0028
Dividend per share ()	0058	0	0

Performance review

Horace-Mackintosh-Grants 3 divisions have been profitable throughout the last three years. The revenue and operating profit of the 3 divisions of Horace-Mackintosh-Grant for 2009 were as follows:

	FWD Division	SSWD Division	SWD Division
Revenue	212	284	124
Operating profit	20	6	13

Financial objectives of Horace-Mackintosh-Grant

The Board has generally taken a cautious approach to providing strategic direction for the company. Most board members feel that this has been appropriate because the Horace-Mackintosh company was unprofitable for the three year preceding the merger and needed to be turned around. Also, most board members think a cautious approach has been justified given the constrained economic circumstances which have affected Horace-Mackintosh-Grants markets since 2008. While shareholders have been disappointed with Horace-Mackintosh-Grants performance over the last 3 years, they have remained loyal and supported the Board in its attempts to move the company into profit. The institutional shareholders however are now looking for increased growth and profitability combined with a strategic vision for the future.

Capital budget overspends

Horace-Mackintosh-Grant has an internal audit department. The Chief Internal Auditor, who leads this department, reports directly to the Finance Director. Investigation by the Internal Audit department has revealed that managers with responsibility for capital expenditure have often paid little attention to expenditure authorisation levels approved by the Board. They have justified overspending on the grounds that the original budgets were inadequate and in order not to jeopardise the capital projects, the over-spends were necessary. It is perceived by the designers and most staff members that the need to allow a great deal of customisation on products leads to difficultly in predicting costs being incurred.

Strategic development

Horace-Mackintosh-Grant applies a traditional rational model in carrying out its strategic planning process. This encompasses an annual exercise to review the previous plan, creation of a revenue and capital budget for the next five years and instruction to managers within Horace-Mackintosh-Grant to maintain their expenditure within the budget limits approved by the Board.

The Board stated in its annual report, published in March 2010 that the overall strategic aim of the company is to:

Achieve growth and increase shareholder returns by continuing to design produce and distribute high quality clothing and footwear products and components and develop our international presence through expansion into new overseas markets.

Required

Question one

From the information provided, think of as many suggestions as you can on how Horace-Mackintosh-Grant can accelerate the growth of the company and increase its profitability.

Question two (this question has nothing to do with the above information on Horace-Mackintosh-Grant).

Discuss the main advantages and risks of the process of mortgage securitization for commercial banks and the financial system.