€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