Within the chemical industry, Victoria
Within the chemical industry, Victoria
Chemicals has established itself as one of the leaders with regards to the
production of polypropylene. Polypropylene is one of the most extensively
produced polymers within the region and its utilization ranges from film packaging and carpet fibers to tire
production and building automobile components. The history of the company dates
back to 1967 and there are a few things to note about its establishment. Most
importantly, it is of great importance to underscore the fact that there have
been two plants set up by the company since its inception. Victoria Chemicals
operates through two plants; one in Rotterdam Holland and the other in
Merseyside England. During their inception, the two plants were set to produce
the same type and quantity of commodities. There have been a number of
developments taking place within the company setting and one of these can be
traced back to the price and sale movements of the company’s share. Between
2006 and 2007, the stock price of the company moved from 250 pence to 180 pence
and this gave rise to some of the most disturbing circumstances in history of
the company. Morris Greystock – the company’s controller in Merseyside – saw
the need to address the situation presented by the fall in stock price and
movement. There was pressure being exerted from both the internal and external
environment. The internal environment was concerned about the reduced
profitability and so were the various investors and shareholders. Due to the
ever increasing pressure – birthed out of the stock depreciation – Morris
decided that it would be best if the company renovates the plant in Merseyside
so as to increase its production efficiency thus increasing the overall
profitability. This was also done in a big to improve the company’s
productivity and enhance its competitive edge. Within the chemical industry,
the company had lost its competitive edge and every new day presented
challenges with regards to the ever increasing competition within its industry.
The company engaged in different analyses aimed at coming up with the best idea
through which the organization would get back to its glory days.
Lucy should ask Frank Greystock to make
changes in his discounted cash flow analysis because there are important
sections of the company’s operations that are not dealt with within the current
cash flow system. Asking Frank Greystock to make the necessary changes in his
discounted cash flow is one of the main factors through which the proposal by
Morris will be better understood. Morris should be prepared to bring to light
the impact of the activities that have been taking place with regards to the
accounting of the operations shaping up the transport division. It is Morris’
responsibility to ensure that the plant manager and the authority overseeing
the transport division are brought to terms with regards to the importance of
the transport division’s operations on the planned renovation and expansion.
The treasury should be sensitized and made aware of the importance of providing
the relevant financial assistance in the transportation operations as these –
transportation operations – form a fundamental section of the entire project.
The nature and level of success in the course of the renovation and operations
expansion is pegged on the improvements that are to take place with regards to
the entire transportation system.
The Merseyside project is attractive in
different ways. A closer analysis on the entire project brings out the details
forming both the short and long term benefits. The Merseyside project presents
a chance to not only improve the current company operations, but also explore
the various opportunities presented with regards to productivity. The Merseyside
project is full of advantages with regards to energy requirements and
manufacturing throughput. Should the management embrace this project, the
entire company will be presented with a 7% increase on the manufacturing
throughput as well as lower energy requirements. The gross margin stands a
chance to improve from the current 11.5% to 12.5% and this is before the
depreciations and energy savings. Although there are relatively high costs
incurred in the initial stages of the project, the entire project has been
designed to ensure that there is recovery in both the short and long term
Morris should continue promoting the
project for funding. This is because the project is viable and presents
solution for the current challenges facing the company. There is also need to
take into account the various benefits presented in the project proposed by
Victoria Chemicals is in possession of
a capital-expenditure evaluation system that is designed to act as a major
analysis and planning tool. Capital expenditures proposals at Victoria
Chemicals are analyzed through a system that is founded on four main pillars.
These pillars are impact on earnings per share, payback, discounted cash flow,
and internal rate of return. Under the impact on earnings per share, Victoria
Chemicals is concerned with positive contributions by the engineering-efficiency
projects. The economic life and average annual earnings per share are the main
elements under analysis with regards to this analytical tool. With regards to
payback, the company looks at the time period required – by a project – to
amortize the costs and initial project outlay elements completely. The
discounted cash flow is concerned with the future value of the money being
employed in a current project. The internal rate of return is concerned with
the present value, discount rate, and initial costs projected in the outlay.
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