Victoria Chemicals B

In early January 2001, the senior management committee of Euroland Foods was to meet to

draw up the firm’s capital budget for the new year. Up for consideration were 11 major projects

which totaled more than EUR 316 million. However, the board of directors had a spending limit

on capital projects of only EUR 120 million. Thus, the big challenge for senior managers of

Euroland Foods was to allocate funds among a range of compelling projects: new product

introduction, acquisition, market expansion, efficiency improvements, preventive maintenance,

safety, and pollution control.

Euroland Foods founded in 1924 by Theo Verdin, headquartered in Brussels, Belgium, is a

multinational producer of high-quality ice cream, yogurt, bottled water, and fruit juices.  As a

multinational corporation, Euroland’s products are sold throughout Scandinavia, Britain,

Belgium, the Netherlands, Luxembourg, western Germany, and northern France. Business of

Euroland Foods had grown steadily over the years and it went public in 1979, and was listed for

trading on the London, Frankfurt, and Brussels exchanges by 1993. In 2000, Euroland Foods had

sales of almost EUR1.6 billion.

Ice cream 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. Ice cream, the company’s leading product, had a loyal base of customers

who sought out its high-butterfat content, large chunks of chocolate, fruit, nuts, and wide range

of original favors. Since 1998, Euroland Foods sales had been static. Management attributed it to

low population growth in northern Europe and market saturation in some areas, while others

believed it was due to recent failures in new-product introductions.

A committee of senior managers of Euroland Foods prepared for the capital budget annually

and later presented it for approval to the board of directors. The...