Euroland Foods S.A is a multinational producer of high quality ice cream, yogurt, bottled water and fruit juices. Its products are primarily sold throughout Scandinavia, Britain, Belgium, the Netherlands, Luxembourg, western Germany, and northern France. In early January 2001, the senior management committee of Euroland Foods S.A was called together to come up with the firm’s capital budget for the new year. There were 11 projects up for consideration that the committee was faced with and had totaled more than (euro) EUR316 million. Unfortunately the board of directors had set in place a spending limit of EUR120 million. Even with this restriction the investment at this ...view middle of the document...
Even though the firm had this loyal customer base they had plateaued since 1998 as seen in Exhibit 1 below. Gross sales have practically remained unchanged, which management attributed to low population growth in northern Europe, and because the market was saturated in some areas.
EXHIBIT 2 | Summary of Financial Results (all values in euro millions, except per-share amounts) |
| | | Fiscal Year Ending December | |
| | | 1998 | 1999 | 2000 |
Gross Sales | | | 1,614 | 1,608 | 1,611 |
Net Income | | | 77 | 74 | 56 |
Earnings Per Share | | 1.13 | 1.08 | 0.81 |
Dividends | | | 30 | 30 | 30 |
Total Assets | | | 716 | 870 | 984 |
Shareholders' Equity (BV) | | 559 | 640 | 697 |
Shareholders' Equity (MV) | | 1,271 | 1,258 | 784 |
Some outside observers had faulted recent failures in new-product introductions as a cause for the company’s static growth. Most members of the management team however wanted to expand the company’s market presence and introduce more products to boost sales, they had hoped that this would improve the overall company’s market value. The company’s current stock was 14 times earnings, which was just below the book value. This price/earnings ratio was below the trading multiples of similar companies, and it gave little value to the company’s brands.
STATEMENT OF SITUATION:
Euroland Foods S.A has a 12-member board of directors in which 3 members are of the Verdin Family, four members of management, and five outside directors who were prominent managers or public figures in northern Europe. The members of the Verdin family accounted for 20% ownership of the company’s shares outstanding, and the company executives combined owned 10% shares. Venus Asset Management, a mutual-fund management company located in London, hold 12% of the Euroland Foods S.A. Banque du Bruges et des Pays Bas held 9%, and had one member on the board. The remaining 49% of the firm’s shares are widely held and are traded in Brussels, and Franfurt, Germany.
The company faces high debt-to-equity ratios and a low price-to-earnings ratio when compared to their competitive counterparts. The president of Banque du Bruges had stated in the board meeting that he would like to see the company restore some strength to the right side of the balance sheet, as it should be a main priority. He went on to say that expansion of assets should be financed from cash flow after debt amortization until the debt ratios returns are at a more comfortable level. If important investments cannot be made the president emphasized that the company cut the dividend. The senior managing director of Venus disagreed with Banque’s du Bruges president in that cutting the dividend just cannot happen. It would show a sign of weakness in the future of the company.
CONSTRAINTS OF SOLUTION:
When dealing with some constraints the company faces one that...