Victoria Chemicals

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.

Question 1

            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.

Question 2

            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 periods.

Question 3

            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 Griffin Tewitt.

Question 4

            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.