This work is aimed to research certain questions, given. Euroland Foods S.A. is one of the leading European producers of ice-creams, yogurt, bottled water, and fruit juice. The Capital Budget was to discuss in the Board of Directors. 11 major projects totaled EUR 316 million were up for consideration. However, the limit was set at EUR 120 million. The challenge for the senior management of Euroland Foods S.A. was to allocate funds among a range of compelling projects.
After a brief overview of the given case study, the first part of the first question will evaluate the extent to which the various given measures of economic investment have provided a good justification for the three projects to be approved. The second part of the first question will present my recommendations on the displacement of any or all of the approved projects. In the second question I will provide a discussion paper for the Corporate Social Responsibility, considering several significant “triple bottom line” benefits and the nature of any potential social and environmental costs arising.
Euroland Foods S.A. Euroland Foods, headquartered in Brussels, Belgium, is a multinational producer of high-quality ice cream, yogurt, bottled water, and fruit juice. Its products are being sold throughout Scandinavia, Britain, Belgium, the Netherlands, Luxembourg, western Germany, and Northern France. The company was founded in 1924 by Thei Verdin, a Belgian farmer. The company went public in 1979, and, by 1993, was listed for trading on the London, Frankfurt, and Brussels exchanges. In 2000, Euroland Foods had sales of almost EUR 1,6 billion.
Ice-cream is accounted for 60% of the company’s revenue: yogurt, which was introduced in 1982, contributed about 20%. The remaining 20% of sales was divided equally between bottled water and fruit juices. Euroland Food’s flagship brand name was “Rolly”. Ice cream, the company’s leading product, had a loyal base of customers who sought out its high-butter-fat content, large chunks of chocolate, fruit, nuts, and wide range of original flavors.
Ownership Euroland Food’s 12 member board of directors included three members of the Verdin family, 4 members of management, and 5 outside directors. Members of Verdin family owned 20% of Euroland Food’s shares outstanding, and company executives combined owned 10% of the shares. Venus Asset Management, a mutual-fund management company in London, held 12%. Banque du Bruges et des Pays Bas held 9% and had one representative on the board of directors.
Analyzing the projects we can see that from the first view, they are extremely beneficial. The IRR of all three projects are almost twice bigger than Minimum Accepted IRR, required by Euroland’s investments tests. Moreover, these projects are also aimed to conquer the new markets as geographically, so in product range. It seems like this is the winning strategy for Euroland. But there are certain factors that can show the real situation and highlight the weaknesses of the projects.
Market Expansion Southward – could be the good strategy to expand to the rest of Europe but the reality is that the nearest plant to the South European Market, located in Melun, France, is almost exceed its production capacity and even backed up by the plant in Strasbourg. Thus, the Euroland is already faced the deficit of products for their southern segment of the distribution map. Expansion Southward is totally unacceptable, because it will face the lack of the products and in case with old truck-fleet with logistics problem. Hence, in the highly-competitive environment and capricious customers of South Europe there is a real danger for Euroland to lose the market just after launching the project.
Developing and introduction of new artificially sweetened yogurt and ice-cream – might not be the best strategy for company, whose loyal customers are “sought out its high-butter-fat content, large chunks of chocolate, fruit, nuts and wide range of original flavours” Ice-cream, which gives 60% of the company’s profit is obviously most important part of Euroland. The customers have already accepted the “Rolly”, which is represented by fat dancing bear. So, it is too risky to add artificial products, as customers may not accept that line. Findings of Managing Director for Marketing about competitor’s work are creating doubts, as there are no precise and true information about the job, already done by the competitors. So, it can be pointed out that developing and introduction of new line of artificial product is not crucially important for Euroland.
Acquisition of a leading schnapps brand and associated facilities – Seems to be very attractive and daring project. This segment of market is totally undiscovered by Euroland, so investing EUR 60 m. could be very risky and needs more concise and detailed research. Moreover, Company can face the issues they haven’t had before. There are big underwater rocks like Corporate Social Responsibility that can create big problems for Company without any experience in that sphere. Though, this project is really attractive in terms of IRR it must be researched more carefully.
Besides all the points mentioned above, there are other issues, which can affect the objective decision making. From the financial side proposed projects are directed to achieve the best IRR in visible future. Having a Debt/Equity Ratio at 125%, Euroland was urged by the President of Banque du Bruges et des Pays Bas, which is one of the major shareholders, that “Restoring some strength to the right-hand side of the balance sheet should now be a first priority. Any expansion of assets should be financed from the cash flow after debt amortization until the debt ratio returns to a more prudent level” Having said that, Bank puts some limits on next year’s spending and that means that projects, which are not going to create direct profit (#5, #6, #10) could be rejected.
Political gamesmanship is generally refers to actions that employees take that are intended to improve their performance indicators- without producing any positive economic benefits. Analysing the profiles of Board’s Members we can create a “list of preferences”, from which we can conclude that approval of the projects could be the political decision rather than efficient economic decision. Besides that, almost every member of the Board has his or her personal wishes to receive more power. Moreover, there are certain alignments exist inside the company, which can also affect the final decision.
Taking into account the above analysis and weaknesses of the projects, I would like to recommend the displacement of some projects, justifying the substitutes. Market Expansion Southward (#7) (EUR 30 m) – Good strategy for company, which wants to conquer new market but the execution of this project, can be made only in line with other, necessary projects. South market has bigger IRR, more purchasing power and less competition. As Euroland has already got great experience in Western Europe it can use almost the same tools to enter the South market. Plants in Strasbourg, Caen and especially Melun located well to cover the demand in South.
A new plant (EUR 45 m) – It is proposed to build the new plant in Dijon, France, at the current southern edge of Euroland marketing region. The IRR of this project is 11,3% which is bit more than minimum IRR of the Company. This project is crucially important in supporting the Market Expansion Project. Although the payback period is twice longer than it required, the Plant can solve certain problem. It can unload French plants; allocate the production; supports the South Market and the rest of France.
Replacement and expansion of the truck fleet (#1) (EUR 33 m) – Project proposes to buy 100 new refrigerated tractor-trailer trucks, 50 each in 2001 and 2002. 60 old trucks will be sold for EUR 4.05 m. The IRR of the project is 7,8%, marginally below the minimum of 8%. This project is also crucially important in supporting the Market Expansion. Logistic is the vein of the company and without proper functionality Company will fail to expand. New fleet will also help to improve present logistics and for cost-savings, as trucks are 15% bigger and the new trucks will use less petrol.
Effluent-water treatment at four plants (#6) (EUR 6 m) – This project aimed to replace the current equipment with new, environmentally safe. European Community called to replace the equipment during next 4 years. It is also stated, that this equipment could cost EUR 15 in four years. Although this project has no Internal Rate of Return it has External Rate of Return, as replacing the equipment now could bring brand benefits.
The term ‘triple bottom line’, is often attributed to John Elkington, a co-founder and chair of SustainAbility, a sustainable business consultancy (Elkington 2008). Elkington explicitly chose the language to resonate with business managers. As it evolved, triple bottom line reporting has been employed by organizations for a plethora of purposes. Some argue that the primary application is no more that a means for enhancing the organization’s public image (Schilizzi, 2002). Others (Cheney, 2004) argue that it is a method for the organization to show its engaging in legitimate environmentally and socially responsible activities. A third application is an acknowledgement and representation of tradeoffs made among the three components (CICR, 2004)
The triple bottom line is emerging as a popular conceptualization and reporting vehicle for articulating corporate social, environmental, and economic performance and is receiving significant attention in connection with its efficacy and sufficiency as a means for reporting the extent to which an organization meets its societal responsibilities. By preparing and disseminating triple bottom line statements, an organization conveys an image of concern and sensitivity to the three dimensions of societal responsibility: economic, environmental, and social1.
The alcohol industry has a dilemma. They want to shift their products but they don’t want the bad publicity associated with binge-drinking teenagers. This is a major CSR issue for the industry – how to make a profit without damaging its customers and thus its bottom line. One of the CSR solutions the industry has identified is through the setting up and funding of a charity. This charity survives through donations from many of the main alcohol companies selling into the Europe. The charity runs education campaigns to help wean the UK off some of its more unpleasant alcohol-related habits.
A key potential benefit from CSR initiatives involves establishing the conditions that can contribute to increasing the commitment and motivation of employees to become more innovative and productive. Companies that employ CSR related perspectives and tools tend to be businesses that provide the pre-conditions for increased loyalty and commitment from employees. These conditions can serve to help to recruit employees, retain employees, motivate employees to develop skills, and encourage employees to pursue learning to find innovative ways to not only reduce costs but to also spot and take advantage of new opportunities for maximizing benefits, reduce absenteeism, and may also translate into marginally less demands for higher wages.