Diamond Chemicals

Topics: Net present value, Cash flow, Free cash flow Pages: 13 (3403 words) Published: April 3, 2011
Diamond Chemicals:

Merseyside and Rotterdam Projects


Group 5

Edi Suryanto

Gressiadi Muslim M


Rudianto Nugroho

Wibowo Kristianto





Diamond Chemicals: Merseyside and Rotterdam Projects

Diamond Chemicals is a leading producer of polypropylene, the polymer used in a variety of products (ranging from medical products to packaging film, carpet fibers, and automotive components) and is known for its strength and elasticity.

Diamond Chemicals is producing polypropylene at Merseyside, England and in Rotterdam, the Netherlands. Both factories are identical in size, age, and plant design. Merseyside is a factory built in 1967. Merseyside production process is the production process that are old, the best semi-continuous, and therefore has a total workforce of more than the other plant competitors.

Diamond Chemicals is under pressure from investors to improve the financial performance due to economic slowdown worldwide and also the accumulation of common stock of the company. Revenue per share has fallen to 30 Euros at the end of 2000 from around 60 Euros at the end of 1999. The managers of the two mills member reporting to James Fawn, executive vice president and manager of the Intermediate Chemicals Group (ICG) from Diamond Chemicals. James Fawn, executive vice president of the Intermediate Chemicals Group (ICG) Diamond Chemicals and John Camperdown meets its financial analysis, to review two proposals for capital expenditures that are mutually exclusive. Plant manager at Liverpool and Rotterdam have been independently compiling spending proposals, each of which will increase the output of polypropylene from their respective factories by 7 percent. The staff of Diamond Chemical analyses the strategy to see that the increased capacity of the company's output by 14 percent is not possible, but half of that number still makes sense. Therefore, the Fawn will not approve the plan; he can only finance one in order to obtain approval from the council. Since its establishment in 1967, Diamond Chemicals failed to jump in on opportunities and enhance their production process; for the way they produced chemicals was old, obsolete, and cost the plant far more than its competitors. Therefore, Lucy Morris, being appointed to her post almost a year ago, proposed a £9 million expenditure plan as a solution. The solution was aimed at developing new methods for the production of polypropylene. Moreover, the new designs would save energy and improve the process flow. According to Exhibit 2, energy savings/sales for the first five years after the expenditure will be 1.25%, declining to 0.8% in the next 5 years due to an increase in total sales.

So energy savings/sales would increase by a decreasing rate. The three most important objectives behind the project were relocating and modernizing tank-car unloading areas which would enable the process flow to be streamlined, next, refurbishing the polymerization tank to achieve higher pressures and thus greater throughput, finally, renovating the compounding plant to increase extrusion throughput and obtain energy savings. Besides the mentioned advantages of the project, other more essential positives that can be drawn from the project are lowering energy requirement for production, increasing throughput by 7% and improving gross margin from 11.5% to 12.5%. Diamond Chemicals is run by a team of highly qualified personnel that are experts in their respective fields.

Diamond Chemicals PLC (A): Project Merseyside
Morris conducts a detailed review of operations and finds opportunities for significant improvements in the production of polypropylene. Some of these opportunities come from the postponement of the maintenance operation for five years earlier. Another opportunity comes from the factory to improve the old design in a way that will save...
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