Pan-Europe

PAN-EUROPE FOODS S.A.

CASE SOLUTION

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Project Overview

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Multinational company and headquartered in Brussels, founded at 1924. Products

– – – – ice cream (60% of the revenues), yogurt (20%), bottled water (10%), fruit juice (10%).

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Marketing region (See Exhibit 1)

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Exhibit 1

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Capital Budget

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11 major projects that totalled over EUR 208 million.  The board of directors had imposed a spending limit of EUR 80 million.  The challange for the senior managers was to allocate funds among a range of compelling projects; new product

introduction, acquisition, market expansion, efficiency improvements, preventive maintenance, safety and pollution control.

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Pan-Europe Sales

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Pan-Europe Sales (continued)

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Sales had been static and reasons are;

– The low population growth in northern Europe – Market saturation in some areas – The recent failures in new product introductions

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Some managers wanted to intruduce more new products.

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Resource Allocation

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The capital budget at Pan Europe was prepared annually and investment proposals included;

– Project description – A financial analysis – Strategic issues – Qualitative considerations

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Project evaluation

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Two financial tests;

– Payback period – IRR

Type Min. IRR New product or new markets 12% Product or market extension 10% Efficiency improvements 8% Safety or environmental No test

Max. Payback 6 years 5 years 4 years No test

Weigted-average cost of capital (WACC): 10.5 %

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The Expenditure Proposals

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Question 1:  Pan-Europa is currently trading at a price below comparable companies. This is because of reduced profitability and a failure to gain sufficient market share for new products. As analysts are giving a “sell” signal, raiders are potentially buying up the stock. Clearly then they must pursue...