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€316.5 mil
€120 mil
Euroland Foods S.A
Projects vs. Capital and Strategy
J.Flock, EuroMBA, International Finance3/14/11
Agenda
• Describe background of Euroland Foods S.A.
• Analysis of Euroland Foods S.A. current financial condition
• Describe current and recent market conditions and strategy implications
• Present the financial measurements and the corresponding tests
• Management proposals
• Ranking of projects
• Final Recommendations
History of Euroland Foods
• Verdin Family farm began in Belgium in 1924.
• Balanced approach to business enabled growth and success
• Mainly been focused on dairy products and specifically promoting the ROLLY brand. Ice Cream has been the main product upon which Euroland Foods has grown.
Financial Analysis
Problem Areas
Additional Problem Areas
Strategy and the MarketWhere to Generate Income?
New Products?
Upgrade Facilities?
Financial Measurements
How is the project risk determined?
• Expect Free Cash Flows
• Payback Years
• IRR
• NPV at Corp.
• Equivalent Annuity
Strengths and Weaknesses of each?
These measurements are great local, per project but bad global, all projects
The measurements do not consider strategic intent
Good, shows cash estimate ; bad no accounting for risk and not good for showing efficiency project returns
Good, shows clear point in time when investment is paid for; bad, doesn’t rank lower growth projects that
need longer payback wellGood, shows return rate clearly of
project, can then rank based on risk; bad cannot evaluate reinvestment rate
and dependent on Beta
Good, clearly shows a value of future cash flows at the hurdle rate; bad if project IRR to WACC spread
is high inflated value portrayed
Good at ranking projects apples to apples that have differing time runs; bad still based on
NPV at Corp wacc
Test : IRR
• Market Expansion 12%
• Product Innovation 10%
• Efficiency 8%
How good of a measurement is this, when only one project fails?
Test : Payback Years
• New Product or New Markets 6 Yrs
• Product or market extension 5 Yrs
• Efficiency 4 Yrs
This measurement negates all infrastructure projects
Management Proposals
120 million limit
Investment
Return
This measurement bias’ view to the strategic Acquisition
Ranking Projects by Strategy
Strategic Priority? Financial Return Priority?
Pugh Matrix
This graphically attempts to align strategy with risk
Recommendations
Project Investments
Automation Conveyer System 21 million Euro
Expand Plant Nuremburg 15 million Euro
Inventory Control System 22.5 million Euro
Eastward Expansion 30 million Euro
Artificial Sweetener 27 million Euro
Environmental Fix 6 million Euro
Total 121.5 million Euro