Instructions

This material consists of four assignments. Each assignment has a number of questions which have all been given an approximate weighting. The weightings are used in the overall exam assessment.

All the assignments must be completed independently of each other. The assignments come with an accompanying Excel file, which has a number of appendices containing data and sheets. In addition, there is a Word document containing all the questions.

Download:

The Word document with all the questions can be downloaded here.

The Excel file with all the appendices can be downloaded here.

Remember:

Save the files on your computer before you start to use them. Name the files with your own name. In the Word document, you must also complete the fields in the header.

Communication with anyone else during the exam is not permitted.

Assignment 1

Company analysis

Nordex Holding A/S (Nordex Food Group) produces and trades in white cheeses and other dairy products which it sells to retail, industrial and catering customers worldwide.

Keld Houen Pedersen founded Nordex Food in 1984, which that same year bought Nørager Mejeri, a dairy which back then produced Lurpak butter and yellow cheese for the EU market. After a short time, the company began making white cheese. Today, the company has three dairies located in Denmark, Austria and Romania, where cheeses are produced. Nordex Food Group has one of the world’s widest ranges of white cheeses which are sold under a number of brands, for example Akadia and Taverna. The company also sells other high-quality dairy products, which are produced by selected suppliers in e.g. Greece, Cyprus and Italy.

Nordex Food Group is based in Dronninglund in northern Jutland, but approx. 97% of the group’s revenue stems from exports, with 50,000 tonnes of cheese being sold to more than 1,000 customers in 70 countries. The company has sales subsidiaries in the UK, Germany, Austria and Denmark. Its biggest markets are Europe and the Middle East. Today, Keld Houen Pedersen and his family own the majority of shares in Nordex Food Group.

Only text in the image which is relevant for the assignment has been made available for speech synthesis

Nordex Food Group’s idea/business model:

“To develop, produce, market and/or sell a wide range of ‘white cheeses with added value’ with inspiration from/or origins in the eastern Mediterranean area with a view to meeting the need for these products, whether basic or for enjoyment.”

Nordex Food Group has joined the UN Global Compact, and every year publishes a CSR report.

The company’s CSR work is based on a combination of the following factors:

We want to make the world a better place, now and in future.
Our customers, consumers and employees are demanding it ⇒ licence to operate.
We are legally required to do so.
Because it pays off financially in the long term.

The annual CSR report describes Nordex Food Group’s policies for the UN Global Compact’s four main areas: human rights, labour rights, the environment and climate, and anti-corruption. In addition, a general description is provided of what has specifically been done in each of the main areas, as well as an assessment of the significant risks which may negatively impact the company’s CSR activities.

In the 2018 financial year, the company posted revenue of DKK 1,790 million and a profit for the year of DKK 32.5 million. There are 364 employees in the company, of whom half are based in Denmark.

This assignment comes with the following material:

Articles:

Internal material:

Extract of CSR report 2018 for Nordex Food Group

Key figures:

Prepared accounting and key figures for Nordex Food Group for the years 2016 to 2018. See Appendix 1 of the Excel file.

Cash flow statement:

Adapted cash flow statement: See Appendix 2 of the Excel file.

Questions 1.1 - 1.7

1.1 (10%)
Based on the accompanying material, explain which factors have had an impact on Nordex Food Group’s financial development.

1.2 (10%)
Analyse how these factors have influenced the development in the index figures for earnings and asset use efficiency from 2016 to 2018. See question 1.1.

The key figures can be found in Appendix 1 of the Excel file.

1.3 (5%)
Assess how the development in the index figures has affected the profit margin ratio and the asset turnover ratio from 2016 to 2018.

The key figures can be found in Appendix 1 of the Excel file.

1.4 (4%)
Explain whether the development in gearing from 1.92 times in 2016 to 2.54 times in 2018 is an advantage for the Nordex Food Group’s owners.

The key figures can be found in Appendix 1 of the Excel file.

1.5 (6%)
Explain why cash flows from operating activities are significantly higher than the pre-tax profit for Nordex Food Group in 2018.

The cash flow statement can be found in Appendix 2 of the Excel file.

1.6 (4%)
Assess which growth strategy Nordex Food Group is pursuing.

1.7 (5%)
Assess how the Nordex Food Group benefits from the CSR activities which the company initiated within the environment and climate in 2018.

Assignment 2

Managing scarce resources

BIO-LIGHT develops and produces high-quality packaging, primarily for the food industry. Production has the least possible environmental impact, and films are used that contain the highest proportion of recycled plastic on the market. Moreover, the innovative design of the packaging increases the shelf-life of the food products while ensuring efficient handling during transport etc.

Demand has been growing in recent years, and the production department has been finding it hard to keep pace. Among other things, the company produces reusable plastic boxes in six different sizes: BIO1, BIO2, BIO3, BIO4, BIO5 and BIO6. The plastic boxes are produced on the same production plant, which has a capacity of 1,500 machine hours in the coming quarter. The production manager is in the process of planning the production, and has collected some information, which is set out in Appendix 3 of the Excel file.

In order to increase production capacity, the production manager is considering renting a production plant with a quarterly capacity of 575 machine hours. The rental cost is DKK 10,000/quarter, and the rental period for the plant is a minimum of one year. The CFO has suggested introducing shifts in production as an alternative to renting the production plant.

Much of the company’s exports are to the German market, which has been seeing a downturn recently. However, there has been no decrease in sales of BIO-LIGHT to its German customers.

Questions 2.1 - 2.4

2.1 (8%)
Prepare the optimal sales plan for the coming quarter, when taking into account the limited capacity of 1,500 machine hours.

The information you need can be found in Appendix 3 of the Excel file.

2.2 (4%)
Calculate the total contribution margin with the optimum sales plan. See question 2.1.

2.3 (4%)
Assess whether it is profitable to rent the production plant in the coming quarter.

2.4 (4%)
Discuss whether BIO-LIGHT should rent the production plant.

Assignment 3

Investment

GreenFood A/S is a worldwide company that manufactures food ingredients. The company is constantly developing new products, and in recent years has conducted research into ingredients that can extend the shelf-life of food to avoid food waste. Last year, the company spent DKK 1,200,000 developing a new product – DuraB – which is based on bacteria. DuraB can, among other things, be used in yoghurt and cheeses, and according to the company’s calculations can significantly reduce food waste in the EU. The sales manager believes that the product holds considerable potential, as 17% of all yoghurt in the EU is discarded, which equates to 1.5 million tonnes of yoghurt a year.

Before production of DuraB can begin, it is necessary to invest in new production equipment. The production manager has obtained a quotation for the equipment, which is DKK 15,500,000. Installation of the plant is expected to cost DKK 950,000. The service life of the production plant is an estimated 8 years, after which the expected scrap value is DKK 1,700,000.

The product is completely new on the market, so the market potential is unknown. However, the sales manager is budgeting with sales of 25,000 kg a year for the next 8 years. The selling price per kg is DKK 190, which is relatively high. However, DuraB is a new ground-breaking ingredient for reducing food waste, which justifies the high selling price. The production manager has prepared a pre-calculation for DuraB. According to this, the variable unit costs amount to DKK 55.

The company’s annual cash capacity costs are expected to increase by DKK 175,000 if production of DuraB goes ahead, as the equipment needs to be maintained. The company uses a discount rate (required rate of return) of 11% per annum.

The CFO has asked for some sensitivity calculations for the investment to be prepared before the final decision is made.

Questions 3.1 - 3.5

3.1 (4%)
Present the net cash flow of the proposed investment.

The necessary information can be found in Appendix 4 of the Excel file.

3.2 (4%)
Assess whether the investment is profitable.

3.3 (4%)
Assess which of the assumptions for the proposed investment are most uncertain.

3.4 (4%)
Assess how sensitive the investment proposal is to changes in the most uncertain assumptions. See question 3.3.

3.5 (4%)
Discuss whether GreenFood A/S should launch the production and sale of DuraB.

Assignment 4

Financing and logistics

NemMetal A/S produces various machine parts for production facilities. The company’s customers are large food companies throughout the EU that prioritise quality, flexibility and fast delivery. This is because production stops are both resource-intensive and costly for customers.

The company’s finances, including its liquidity, have been strained for a number of years, and therefore no major investments have been made. The production manager has long had a desire to modernise production. He has therefore obtained quotations for a robot-controlled production plant. The acquisition cost for such a plant is DKK 5,300,000. The service life is an estimated 10 years, after which the scrap value is expected to total DKK 2,000,000.

The new robot-controlled production plant will halve production times and reduce material waste. This is because the plant can perform several functions, avoiding transport time and waiting time between several machines. Moreover, the changeover time is very short. Finally, the new plant would lead to improved quality, as the use of robotics would increase precision when cutting out the individual components for the machine parts. The production manager has calculated that investing in the production plant will result in cost savings which would increase earnings by DKK 725,000 a year. In addition, the company’s competitiveness is expected to improve in the long term.

The finance manager has received two offers for loans from the bank for financing the investment. See Appendix 5 of the Excel file.

Questions 4.1 - 4.4

4.1 (4%)
Set up payment flows for the loans.

The necessary information can be found in Appendix 5 of the Excel file.

4.2 (4%)
Calculate the effective interest rate on the two loans.

4.3 (4%)
Discuss which loan NemMetal A/S should choose.

4.4 (4%)
Assess how the investment in the production plant will affect the company’s delivery service.