1. Valmont
第五組
陳彥君、古承煒、林司晴、李家慧、余宣亞

2. 1
Case Introduction 2
Analysis (EVA)
CONTENTS 3
Conclusion

3. 01
Case Introduction

4. Valmont Industries Inc.
Company Information
Valmont Industries Inc.
Diversified manufacturer of structural metal products
Two Business Divisions :
(1) Irrigation System Division :
-Center-Pivot
-Linear-Move Irrigation System
(2) Industrial Products Division
-Industrial & Construction Product
-Valmont Electric

5. Scenario
Valmont’s performance was good in 1980s, but it fell on difficult times in 1990s
The VP of Finance consider to use the EVA to evaluate company’s performance, hoping to motivate managers to act like shareholders and reverse Valmont’s weak performance

6. Question Should Valmont implement EVA method?
Our recommendation to Valmont’s future development?

7. Valmont Information

8. 02
Analysis (EVA)

9. First, we look at whole company’s EVA
Analysis (EVA)
First, we look at whole company’s EVA
Industry
Irrigation
Total Net Asset
WACC
Whole Company’s EVA
1989
102148
31717
177024
10%
1380
1990
126127
29431
212136
-5985
1991
115508
27647
201413
-23756
1992
112167
23647
198903
-7296
EVA became “negative”, started from 1990

10. Next, we look at different division’s EVA
Analysis (EVA)
Next, we look at different division’s EVA
Division’s EVA
industry
irrigation
total net asset
WACC
1989
102148
31717
177024
10%
4573.4
9117.5
1990
126127
29431
212136
5594.3
1991
115508
27647
201413
2467.9
1992
112167
23647
198903
4518.5
EVA has turned out to be negative since 1990 due to the recession
“positive”

11. industrial/construction
Analysis (EVA)
Look at two segments in Industrial Products Division:
valmont electric
operating profit
net assets
EVA
1990
1991
1992
WACC
10%
TAX
40%
industrial/construction
Operating profit
Net assets
EVA
1990
1991
45200
1992

12. industrial/construction
Analysis (EVA)
For industrial and construction product
industrial/construction
Operating profit
Net assets
EVA
1990
1991
45200
1992
Sales in this segment were heavily dependent on public-infrastructure spending and private commercial-construction spending
In 1991, the operating profit had a sharp decline because of the recession

13. industrial/construction
Analysis (EVA)
For industrial and construction product
industrial/construction
Operating profit
Net assets
EVA
1990
1991
45200
1992
In December 1991, U.S. Congress passed the six-year Surface Transportation Act
Increased Valmont’s business, and this caused EVA to start improving in 1992

14. Analysis (EVA) →The Cash Cow
Industrial and construction product division :
Domestic lighting poles
-The largest contributor to revenue
-Valmont had the biggest market share
-The growth had been halted
→The Cash Cow
Domestic utility poles
-Steel’s lower lifecycle costs
-More pleasing appearance
-25% of the market
→The Stars
Wireless communication poles
-Early competitor in this market
-Market share was 50%
-Expected double-digit growth
→The Stars

15. Analysis (BCG Matrix)
Three products in Industrial and Construction Product all have relatively high market potential
For Domestic lighting poles
The growth had come to a halt
the company should continue to improve and innovate in order to get more cash flow.
For Domestic utility poles and Wireless communication poles
High growth rate and market share
no need for the company to have investment to expand its scale.
keep track of the situation after investment and adjust the strategy appropriately

16. Analysis (EVA) For valmont electric division valmont electric
operating profit
net assets
EVA
1990
1991
1992
Caused by the recession and restructuring its ballast operations, including moving to lower-cost locations and purchasing automated equipment
In 1992, its EVA started to improve, representing that Valmont invested in high return project and the outlook was positive.So we should look at the long term

17. Analysis (EVA) Compare to its competitor, MagneTek magne tek eva
operating profit
ballast
motor
total
1991
14.5
1.5
15.99
1992
3.46
-16.37
-12.91
1993
-8.81
-14.61
-23.42
Though the EVA of MagneTek was positive between 1991 and 1992, its market share was inherently much bigger than Valmont
The net assets was increasing year by year, which means that it still has continuous investment, and investment has not begun to return yet.
Though Valmont Electric’s market share was only 8%, it had great market opportunities. Hence, we regard it as the Question Mark in BCG Matrix

18. BCG Matrix of Valmont

19. 03
Conclusion

20. 01 Conclusion Should Valmont implement EVA method?
We think that the company should implement EVA to evaluate each divisions’ performance and give managers warning that they should use capital properly.
But we think that we cannot use EVA as the only evaluation tool, because it doesn’t consider future growth.So we should combine EVA with MVA, in order to have more accurate observation of the changing trend of EVA.

21. 02 Conclusion Our recommendation to Valmont’s future development?
For Industrial and Construction Product segment
Though the EVA of Industrial and Construction Product segment has been positive from 1990 to 1992
Three products are the Cash Cow and Star respectively, which means high market share and low growth
It is not appropriate to invest and the company should hold a conservative attitude, carefully observing the development of every division

22. 02 Conclusion Our recommendation to Valmont’s future development?
For Valmont Electric
We think the company should continue investing in Valmont Electric, since it’s EVA is getting better, and it has high potential in market growth.
Although it’s EVA was negative during , its EVA started to improve in 1992, representing that Valmont invested in high return project and the outlook was positive.

23. THANK YOU