MSFIN222 Case Victoria Chemicals
CASE STUDY
VICTORIA CHEMICALS plc (A):
The Merseyside Project
Submitted to:
Prof. Roy C. Ybanez
MSFIN 222
Submitted by:
BASCON, Roland Billy
CAJEGAS, Lester
ORTIZ, Karmi Ann
SALVADORA, Jerick Cezar
14 October 2014
Problem Statement
Victoria Chemicals (VC) experienced a significant downturn in its financial performance from 2006 to 2007. The company was under pressure to improve its financial performance as its earnings ad fallen 38% (from 250 pence to 180 pence per share). The company’s decline in value was largely attributed to its production process and the condition of its facilities. Both of VC’s existing plants were outdated, semi continuous, and labor intensive compared to its competitors’ newer plants. Another concern that VC faces is the fact that its product polypropylene is considered as a commodity, which means that they cannot compete as a differentiated product. As such, to remain competitive and gain market share, they needed to maintain competitive prices while increasing profit by lowering cost. Because of the current situation of both of its plants, VC incurs high costs of production because of its dependence on labor. Given these factors, Merseyside’s plant manager and her controller, thought that it is now the ideal time to ask for funding for a modernization program of the Merseyside plant.
The Proposed Project
The proposal is to refurbish the entire polymerization line in the Merseyside plant of Victoria Chemicals at a cost of GBP12 million. It entails the renovation and rationalization of the production line at the plant to make up for the deferred maintenance and to achieve increased production efficiency. For this particular plan, the following assumptions were considered:
1. Increased manufacturing output. Currently the plant was operating at a capacity of 250,000 tons of polypropylene pellets at a price of GBP675/ton. The rehabilitation will result in a 7% increase in throughput; however, this will also entail a
VICTORIA CHEMICALS plc (A):
The Merseyside Project
Submitted to:
Prof. Roy C. Ybanez
MSFIN 222
Submitted by:
BASCON, Roland Billy
CAJEGAS, Lester
ORTIZ, Karmi Ann
SALVADORA, Jerick Cezar
14 October 2014
Problem Statement
Victoria Chemicals (VC) experienced a significant downturn in its financial performance from 2006 to 2007. The company was under pressure to improve its financial performance as its earnings ad fallen 38% (from 250 pence to 180 pence per share). The company’s decline in value was largely attributed to its production process and the condition of its facilities. Both of VC’s existing plants were outdated, semi continuous, and labor intensive compared to its competitors’ newer plants. Another concern that VC faces is the fact that its product polypropylene is considered as a commodity, which means that they cannot compete as a differentiated product. As such, to remain competitive and gain market share, they needed to maintain competitive prices while increasing profit by lowering cost. Because of the current situation of both of its plants, VC incurs high costs of production because of its dependence on labor. Given these factors, Merseyside’s plant manager and her controller, thought that it is now the ideal time to ask for funding for a modernization program of the Merseyside plant.
The Proposed Project
The proposal is to refurbish the entire polymerization line in the Merseyside plant of Victoria Chemicals at a cost of GBP12 million. It entails the renovation and rationalization of the production line at the plant to make up for the deferred maintenance and to achieve increased production efficiency. For this particular plan, the following assumptions were considered:
1. Increased manufacturing output. Currently the plant was operating at a capacity of 250,000 tons of polypropylene pellets at a price of GBP675/ton. The rehabilitation will result in a 7% increase in throughput; however, this will also entail a