Euroland

ExecutiveSummary:

Eurolandfoodsisastablenameinthemarket,ithasgrownwellinthe

marketovertheyears,butnowitisplanningtoallocatethebudgetfor

thenewlyplannedactivitieswhicharecostingitmorethan300Million

Eurosbutthecompanyhastoinvestonly120MillionEuros.Various

peoplefromtheuppermanagementhavecomeupwiththeirsuggestionsfor

investment,fewofthemareverygoodandareacceptableinjustablink

oftheeyebutmanyofthemrequiregreatersearchandevaluationfor

theirvalidity.Itissuggestibletofirstevaluatethealternativesand

thenrankthemsothatbestoftheactivitiescouldtakeplacewithin

theallocatedbudget.

StrengthsWeaknesses:

Inreplacementandexpansionofthetruckfleet,thecompanycan

increasethenumberofgoodshauledonthetruckandthiscouldreduce

thetransportationcostsinthelongrun,furtheritcouldpossiblyhave

agreatermarketcoveragebutitisverycostlytogoforthisoptionas

Klinkisnotdoinganyexperimentandgoingdirectlyfor100newtrucks.

TheInternalRateofReturn7.8percentiscomparativelylowtothe

minimumsetforthecompanywhichis8percent.Foraninvestmentof30

millionandaprojectedgainof11.6millioninthenextsevenyearsis

ratherlowascomparedtowhatotherprojectscanbring.

Theacquisitionofnewplantisalthoughagoodoptionbutyetitisnot

veryusefuloptionastheinvestmentintheentireplantcanberisky
andcanputalotofburdenontheentirecompany'sbudget,itis

suggestedthatthecompanyshouldbuyawarehousetosupportthegrowing

needsofthecustomersforicecreamandyogurt.Anotherproblemwould

berelatedtothelaborhiringwhichwouldresultinmorecosts.The

InternalRateofReturnof11.3percentishigherthantheminimumvalue

theyhavetomeet.Paybackforthewholeplantitselfwouldtakeover10

years,eventhoughitwillbeyielding35.6millionaftertaxcashflow.

Theexpansionoftheplantisagoodideaasthemarketneedsare

completelygrowingandcannotbesupportedbyanyotherplant,theplant

capacitywouldincreaseby20butthedrawbackisthatitissupporting

thoseproductsthatarenothavingthehighestshareiemineralwater

andfruitjuices.TheInternalRateofReturnwouldbe11.2percent,

whichcouldresulttoanadditionalproductionof2.25millionperyear.

Morinhascomeupwithagoodsuggestionastheprocessingofdried

fruitanditslaunchwouldenhancethecompany'sportfolioandalsoit

wouldbeabrandextension,ithasgotafairpossibilityofgrowthas

Europeisacoldregion,theIRRisalsoexpectedtobehigherthanthe

requiredbutthen...

EurolandFoodsS.A.

Outofthe11capitalprojectsconsideredfortheupcomingyearourteamhasdevelopedastrategy
whichwillpropelEurolandfoodsintothenextlevelofglobalbusiness.Undertheboardofdirectors
spendinglimitofEUR120millionEUR119.25millionwouldbeinvestedinourproposedprojects.Our
allocationoffundsthatbestsuitsEurolandfoodsarebasedonNPV,economics,sharevalue,andpayback
period.Thevariouscapitalprojectswerealsoconsideredonthetrackrecordofthemanagersupporting
eachprojectandtheprobabilityofmarketsharegain,brandimage,andsharevaluegrowth.Thecapital
projectsproposedaretheexpansionofaplant,effluentwatertreatmentatfourplants,marketexpansion
southward,acquisitionofaleadingschnappsbrandandassociatedfacilities,andapartialreplacementand
expansionofthetruckfleet.

ExpansionofPlant
TheNuremburgplantisexperiencingsomedifficultiesinreachingdeadlinesandschedulingproduction.It
isatfullcapacityandisinneedofexpansion.ThisplantsuppliesbothcentralandWesternEuropeso
meetingitsrequiredproductionisatmuchimportance.Mr.MaartenLaydenbacksthisprojectonhis
knowledgeoncostcontrol.Schedulingneedsmustbeaccurateinordertomeetbudgets.Thiswillreduce
costandalsomeetconsumerdemandbysupplyingatitsfullestyieldinganIRRof11.2%itexceedsthe
minimumRORof10%.

Effluentwatertreatmentatfourplants

Thefouryeardeadlinetomeetmandatorycompliancetotreatwastewaterwillbehereinnotime.If
EurolandFoodspurchasesthenecessaryequipmenttodayatEUR6millionratherthaninfouryearsat
EUR15millionthesavingswillbeEUR9million.Europeanregulatoryagenciesarealreadyonthe
forefrontofwastewaterpollutionandhavebeenknowntoshortencompliancetime.EurolandFoodsmust
addressthisenvironmentalissue...