On Pan Europa Foods S.A. - Case Study Example

Case Study: Europa Europa Food Case Study Q Europa Foods, is a highly geared company, as compared to the industry standard. This condition should compel it, to select those projects, which require minimum investment with reasonable rate of return. The major issue Europa Foods should consider is, how to boost its sales in order to win a significant market share (Meredith and Mental). On the other hand, it should keep on paying dividends to minimize the possibility of a takeover. Nevertheless, to accomplish all of the above stated objectives, the organization under study, should lower its operational costs, which will in turn increase its profitability and strengthen its dividend payout ratio as well. Q.2 Discounted NPV method would be an ideal choice to evaluate the projects under consideration, because this method, takes time value of money into account while making decision.

The Europa Foods’ required rate of return will be used as discounting rate for the cash flows offered by projects under consideration (Ross, Westerheld and Jordan). The following table shows, the discounted NPVs for various projects considered. Period/Project 1 D 2 D 3 D 4 D 5 D 7 D 8 D 9 D 10 D 11 D 0 (11.40) (11.40) (30) (30) (10) (10) (5) (5) (14) (14) (20) (20) (20) (20) (18) (18) (12) (12) (15) (12) 1 (7.90) (7.31) 2 1.8 1.25 1.1 (5) (4.4) 2.75 2.5 3.5 3.1 3 2.7 3 2.7 5.5 5.1 (20) 18.2 2 3 2.57 5 4.2 1.50 1.2 (5) 3.9 2.75 2.4 4 3.2 3.5 2.8 4 3.2 5.5 4.7 5 4.1 3 3.50 2.78 5.5 4.3 1.75 1.4 3 2.1 2.75 2.2 4.5 3.2 4 2.8 4.5 3.20 5 4 9 6.8 4 4 2.94 6 4.4 2 1.4 3 1.9 2.75 2.0 5 3.2 4.5 2.9 5 3.2 11 7.5 5 4.50 3.06 6.25 4.2 2.25 1. 4 2.3 2.75 1.9 5.5 3.1 5 2.8 5 2.

9 13 8 6 5 3.15 6.5 4.10 2.5 1.58 4.5 2.3 2.75 1.8 6 3.0 5.5 2.8 5 2.5 15 7.4 7 7 4.08 6.75 3.94 1.5 0.88 5 2.3 2.75 1.7 6.5 2.9 6 2.7 5 2.3 17 8.7 8 5 2.70 1.5 0.81 5.5 2.2 7 2.8 6.5 2.6 5 2 19 8.9 9 5.25 2.63 1.5 0.75 6 2.2 7.5 2.7 7 2.5 5 1.8 21 8.9 10 5.5 2.55 1.5 0.69 6.5 2.09 8 2.6 7.5 2.4 5 1.7 59 22.7 NPV -0.13 5.09 1.56 11.8 0.5 9.8 7.01 7.40 1.76 80.3 In the light of above table, Europa Foods should consider following projects respectively Strategic Acquisitions Artificial Sweetener Geographical Expansion Snack Foods Inventory Management Plant Expansion Automation Q.

3 The qualitative aspects of the projects play an important role, during the project selection process. The list mentioned in the previous question, rates strategic acquisitions as an ideal strategy, based on NPV criterion. However, it neglects the volume of investment needed to implement it, whereas, gearing level of Europa Foods, is highest in the industry. After considering the factor of investment, inventory management, and project is rated as an appropriate one, because, it is less capital intensive, and possesses the potential of providing a cost advantage due to less wastage.

In this way, this alternative will result in improved profitability, which will enhance Europa Foods’ ability to pay dividends regularly. Q.4 The most important projects to undertake, for the organization under study, are the ones, which focus on increasing efficiency of the production process, because these ventures are less capital intensive. Another important feature of these projects, is their focus on improving, the internal processes of Europa Foods; this is the reason these projects, if implemented effectively, can help the organization to win a price advantage in the marketplace.

The risk factor riding on these cost reduction projects is also minimal, because these projects are mainly considered with internal environment of Europa food. Due to this reason, experienced staff can play a significant role in transforming these projects in reality. On the other hand, the projects entailing expansion could posses a higher degree of risk, because of the possibility of incompatibility amongst, the organizational goals of Europa Foods and those which are acquired. At the same time, those new product development ventures require substantial financing in terms of R&D activities.

However, there are remarkable synergy among the projects of inventory management and automation, because both are designed to lower the operational costs at Europa Foods. On the other side, expansion projects, such as market and capacity enhancement ventures, enjoy a certain degree of compatibility with each other. In addition, these two sets of projects have divergent goals in comparison to each other. Q.5 This paper after an in depth analysis, suggests to the management of Europa Foods, to scan the market environment, and then analyze the current preference of the customers.

As it is mentioned, that Europa Foods was able to out-compete its competitors in a price war. Due to this recent development, customer may be demanding high quality products in a reasonable price. In this situation, it is highly recommended to Europa foods, to initiate cost reduction projects which will make it able to sustain the cost advantage in a rapidly changing market. Q.6 All of the projects considered, in this case are categorized, into various types, in a following section Incremental R&D Expanded Truck Fleet New Products e.g. Flavored Yogurt Expansion of a Plant Snack Foods Inventory Management Platform Breakthrough New Plant Market Expansion Plant Automation Acquisitions The next section of this paper is devoted to represent an integrated plan to execute various projects simultaneously.

Phase I During this phase of a plan Europa Foods should implement a project of computerized inventory management that helps it, in escalating the internal cost. The next step is, to apply various technological interventions, in order to make the production cycle of the organization more efficient. Phase II The cost reduction achieved, during the implementation of the first phase, will allow the organization, to divert these savings into market expansion projects, in this way, Europa Foods, will be able to counteract its higher financial leverage On the other front, these savings can also be utilized, in the form of investment, in research and development activities. Q.7 Finally, this research effort recommends the implementation of cost reduction projects, in order to sustain the cost advantage, won by Europa Foods.

Subsequently, other capital-intensive projects must be implemented, during the second phase of organizational development at Europa Foods, that should be characterized with market and product development. References Meredith, R and J Mental. Project Management: A Managerial Approach . New York: Wiley, 2008. Ross, S, R Westerheld and B Jordan. Fundamentals of Corporate Finance 8th Edition. New York: Mcgraw-Hill, 2005.