Tuesday, February 26, 2019
Euroland Foods SA Case Analysis
I. IntroductionEuroland Foods club was a publicly traded society since 1979. Theo Verdin founded the company in 1924 as a result in developing his dairy business. Euroland Foods union saw itself as a transnational producer. The four products were high-quality ice cream, yogurt, bottled water, and fruit juices. Each product accounted for 60%, 20%, 10%, and 10% of the companys revenue respectively. The companys headquarters was in Brussels, Belgium. Since the day the company was founded, it has experienced steadily knowledge.II. telescope of FirmThe board of directors of Euroland Foods Company had 12members. Three of them were the Verdin family, four of them were from the management, and the left five members came from outside. The combined Verdin family, the combined company executive, Venus plus Management, and Banque du Bruges et des Pays Bas were the four biggest stockholders. Each had 20%, 10%, 12%, and 9% of the companys shares outstanding respectively. Senior Management C ommittee was responsible for(p) for the capital budgeting and upholding it to the board of directors every year. Seven members, including five managing directors, matchless PDG, and one finance director, were on the committee.III. Statement of SituationEuroland Foods Company had two study problems comparing with its peers. One was the high debt-to-equity balance, another one was the low price-to-earnings ratio. The debt-to-equity ratio was 125%, which made the Banque du Bruges, Eurolands bank, could not keep silence. Banque du Bruges strongly pushed a debt reduction program to Euroland. No start could be financed if the leverage aim was beyond the accepted debt-to-equity ratio.The lower the price-to-earnings ratio, the lower the stock price was. In this case, the Eurolands stock price was lower than average of peers. At the current ratio 14, Eurolands market value was below its book value. Euroland Foods Company failed in the trying of revolutionary product introduction. I ts sales had been stopped since 1998. The creditor, Banque du Bruges, was lamentable about the Eurolands ability to pay its debt back. The one of the biggest stockholder, Venus asset Management, was worrying about cutting off the dividends.IV. Constraints on Solution cod to the high debt-to-equity ratio, the board of directors decided to limit capital spending to EUR long hundred gazillion. There were eleven projects on the table, and up to total EUR 316 million. There was estimated stripped acceptable IRR and maximum acceptable payback years. (Table 1)V. Possible SolutionsIn fix to increase the sales, Euroland Company has to choose projects wisely under the EUR 120 million budget limitation, minimum IRR limitation, and maximum payback period limitation. Net represent value, internal rate of return, and payback period are the main measures Euroland Company used to analyze each project. According to Exhibit 3, project 1 replacement and expansion of the truck fleet, project 2 a new plant, project 3 expansion of a plant, project 4 development and roll-out of snack foods, and project 5plant automation and conveyor systems are eliminated for the over maximum acceptable payback period.The left projects are all considerable. The special project in this case is the effluent-water treatment at four plants. Because it belongs to the safety or environments category, there is no measurement yet. Euroland Company could see it as a future expenditure, and if Leyden was right, we pot spend EUR 6 million today alternatively of EUR 15 million four year later. This project will save Euroland a lot in the future. (the saving amount equals to the net present value of EUR 15 million minus EUR 6 million) The project is passage to be mandatory four year later.VI. Recommended SolutionIf I was on the board of directors, I would approve project 11, Acquisition of a atomic number 82 schnapps brand and associated facilities, which is canvass as project 10 on the Exhibit 3 proj ect 7, Market expansion sec, which is analyzed as project 6 on the exhibit 3 and project 9, cultivation and introduction of new artificially sweetened yogurt and ice cream, which is analyzed as project 8 on the exhibit 3. The capital budget for the three projects are EUR 60 million, EUR 30 million, and EUR 27 million respectively, which ruin us the total EUR 117 million. We still have EUR 3 million can use, and I will propose to use it in the effluent-water treatment at four plants project.Although the project estimated cost is EUR 6 million, companies barely pay much(prenominal) a huge amount in one day. We can negociate with the seller to come up a requital plan in addition we need to make a deal which the first payment is not greater than EUR 3 million. Project 7 market expansions southward and project 8 market expansions eastward are similar, but I decided to approve project market expansions southward instead. Besides the higher(prenominal) net present value and internal of rate of return, the purchasing originator is stronger and competition is less intense.