Victoria Chemicals Plc (a): the Merseyside Project

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Background
Victoria Chemicals, a major player in the global chemical industry that supplies polypropylene, polymer that used to manufacture carpet fibers, packaging, automobile parts to the customers in Europe and the Middle East. Apart from numerous small producers, the company also receives the threats from the other seven major competitors.

The company owns two plants in Europe, one being Merseyside Works, England and Rotterdam Facility, Holland. Both plants were built in 1967 and are identical in scale and design. James Fawn, the Vice President and Manager of Intermediate Chemicals Group, is in charge of both plants.

Problems
In the year 2007, there is a drop in financial performance within the company. Earnings have dropped from 250 pence per share to 180 pence per share. Also, a well-known corporate raider, Sir David Benjamin, has accumulated the firm’s common shares.

The firm tried to lower their price to compete with their competitors. Meanwhile, Merseyside required more labour hours because of the obsolete semi-continuous method of producing polypropylene. This caused the firm to face high costs and lower revenues.

The firm’s previous manager had minimized capital expenditure to cover only the necessary maintenance over the past 5 years. Unfortunately, the routine maintenance was delayed and it needs to be urgently addressed so the firm can renew their production line.

Proposal
Lucy Morris, the new plant manager of Merseyside Works, and her controller Frank Greystock are proposing a revamp of the polymerization line which can solve the problem of deferred maintenance on essential equipment. They are planning to correct plant designs to reap energy savings, improve process flow and ensure greater throughput, and this will cost the company 12 million pounds.

This project will be reducing the energy usage of the firm by 1.25% during first year and 0.75% in years six to ten. It may also increase the gross margin by 12.5% and...
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