PANRICO

By Andres Gonzalez, Carola Fiameni, Anna Raritskaya, Johnathan Kott, Nitiporn Sawad
20.10.2014

PART 1
1.

Identify the strengths and weaknesses of the company.

Strengths

Strong brand as it known to 99.7% of consumers and rate return product is very low 6%
Several brands and product ranges available in the market more channel in making
sales
Good distribution strategy as they are able to reach a large number of sale points within
a few hours
Good relationship with trade union suggests that they are able to run their business
smoothly
Low staff turnover rate which allows them to focus less in training new people
They are able to invest in research and development and marketing which mean
International expansion suggests that they have strong team and confident to emerge
into new market.
Even if they have made profit, the sales are decreasing. The production costs are well
managed.
RONA is increasing over the years, meaning the company is managing its asset
effectively and efficiently.

Weaknesses

2.

ROI is increasing over the years, despite the fact that sales has decreased. The figure
suggests that company is exposing to more risk over years.
From balance sheet, it seems that the companys investment on fixed asset is financed
by short term debt. This suggests that it might have problem generating cash to cover
debt within time.
The debt quality (STD/LTD) is not in a good shape (1.74) as they have more short term
liabilities more than long term liabilities.
In 2004, the company appeared to be short in its liquidity, possibly in a short run. We
can see that the current asset cannot cover current liabilities.

Make recommendations for improvement.

The company should first increase sales to cover short term debt before making any
further investment. This will also help improving the quality of debt along with
increasing short term asset. Also instead of financing the investment through short term
liabilities, it is recommended that the company should seek more long term liabilities to
avoid the short in liquidity, to retain healthy business operation, and hence lower the
risk of the company.

3.

Work out the possible estimated value of the company at the end of 2004.
The optimal way to calculate the value of a company is to calculate the Net Present
Value of the future cash flows of a company. In this case, though, due to lack of
important information, we can use alternative methods to estimate the value of a
company. In fact is it possible to calculate:

The liquidation value (total assets minus business loan, account payable, equipment
loans and line of credit). Applying this formula, the liquidation value of Panrico is
219.061 (thousand). This methods is not really useful in this case though, as it doesn't
consider future cash flows.
Thumb valuation method calculated multiplying the yearly cash flow by 4. ( 38.512 * 4)
= 154.048 (thousand) . But is an approximate method that doesn't include other
valuable information.
We could also calculate the selling price, in case of acquisition from another company.
The selling price is calculate adding the goodwill to the total assets. The goodwill, is the
added value of a company that is not accounted in the financial statements, as it
comprehends positive reputation, brand value, quality of the credit, loyalty of the
consumers and so forth.
To calculate the goodwill, we'll consider the average of the goodwill that has been
accounted in the companies that have been sold in the same sectors (retail consumer
goods). It is accounted for about 30% of the equity or, alternatively, the 43% of the
purchase price.
Considering the 30% of equity as goodwill and adding it to the total assets, the value
would be: 494.760,3 (thousand) . Applying the second criteria the selling price would
be 613.530, 06(thousand) , with a total goodwill of 184.488, 06(thousand) .
Considering the good performance and good perspective of Panrico, it is reasonable to
think that the higher value calculated (613.530, 06 thousand ) would be a good
estimation of the value of the company.

PART II
1. Identify the strengths and weaknesses of the company
Strengths

The group became the second largest company in the Spanish biscuit market. The
reputation of the company is increasing meaning the goodwill will also increase
(reputation).

Weaknesses

The company made huge investment, in buying company and investing in innovation, in
the year of crisis, which can be considered as a risky move that may harm company later
in the future. (For example the failure in the individual packaging strategy).
They continue to make bad investment (from 2005 and on). It also shows that company
is not flexible in adapting its plan to the economic situation.

2.

Creditor banks become part of the shareholders of the company because of the huge
debt of the company.
The company decreased its operation through selling part of company. PArt of this
strategy was to reduce wages and reduce the workforce.
As we can see in the balance sheet, the equity ratio is almost 0. The equity of the
company is really low. (Almost 0% of assets are owned by shareholders.) Furthermore,
their Cash Flow is negative too; therefore the company is in really huge financial
problems.
EBITDA is negative, which means that the profit is significantly decreasing. Reasons for
this are: high production costs, competition from other brands and decrease in
consumption of their products.
Give your opinion on how the sale was financed in 2005.
The sales in 2005 were probably financed by the cash inflow received due to the sale
(leveraged) operation of the whole companys share.

3.

Give your opinion on the price paid for Panrico in 2005.

The price paid for Panrico paid in 2005 was considerably high, even if the company
seems to be leader in the market. In fact, having used different methods of calculation
of the value of the company, in all the results the value wasnt as high as 900 million.
Neither the Brand nor other relevant factors werent so important to justify such
amounts paid for Panricos share.

4.

Come up with recommendations for improvement in 2007, 2010 and 2012.

First of all the company should develop the investment plan for 5-10 years according to
the general economic and financial situation. As it was written before Panrico made few
bad investments that led the company to financial instability. That is why they tried to
restructure the half of the debt and, as a consequence, the creditor bank became
shareholders of the company and lately, the company was sold to the investment fund.
With the good investment plan the company might not lose the control of the company.
In 2009 the company should have avoided the bad investments in the individual plastic
packaging of Donuts in the years of the financial crisis. They should also avoid to sell the
part of the ownership to the banks. The company should reduce inefficient operation
and staff costs in order to increase EBIT and EBITDA.