Axeon Final Report Submitted
Axeon NV
Project Review for the Production of AR-42 within the UK
By Team 1- Ahsan, Biljana, Jason, Pavi, Silvia, Rick
April 6, 2015
Table of Contents
Executive Summary 3
Axeon N.V and The Hollandsworth UK Proposal 4
Analysis of the UK Proposal 4
Analysis of the Netherlands Proposal 5
Corporate Structure and Strategy 6
Transfer Pricing and Compensation 7
Recommendation 7
Appendix 9
Exhibit 1 –Axeon Sales Distribution 9
Exhibit 2 –Incremental Variable Cost 9
Exhibit 3 – Manufacturing in Netherland for shipment to UK 10
Executive Summary
The following report outlines an assessment on the project proposal presented by Ian Wallingford, Managing Director of Hollandsworth, Ltd for the production of AR-42 for the UK market. Based on market penetration of 50% Ian suggested 400 tons of AR-42 could be produced in a UK based production facility built for £1.4 MM. After assessing the Ian’s proposal and Marc Oosterling’s counter proposal for the incremental 400 tons to be produced at the existing Netherlands production facility we have determined the following, assuming the proposal by both parties to be correct:
We believe there are subtle flaws in the Hollandsworth model including a lower than company target WACC used as a discount rate (8% in the model versus companies targets of 10 to 14% based on historical values), an ambitious terminal value of the equipment which positively effects the projected IRR of 20%.
The Netherlands suggestion of 400 tons of incremental production of AR-42 is a lower risk option than producing 400 tons in the UK as £1.4 MM of capital investment is not required in addition to minimizing technology transfer.
The Netherlands model shows an IRR of over 140% with a payback of 1.5 years based on a working capital requirement of £160k required for raw material and inventory cash flow.
A fully decentralized working corporate structure is not recommended during the Axeon’s growth phase. Capital projects should continue to
Project Review for the Production of AR-42 within the UK
By Team 1- Ahsan, Biljana, Jason, Pavi, Silvia, Rick
April 6, 2015
Table of Contents
Executive Summary 3
Axeon N.V and The Hollandsworth UK Proposal 4
Analysis of the UK Proposal 4
Analysis of the Netherlands Proposal 5
Corporate Structure and Strategy 6
Transfer Pricing and Compensation 7
Recommendation 7
Appendix 9
Exhibit 1 –Axeon Sales Distribution 9
Exhibit 2 –Incremental Variable Cost 9
Exhibit 3 – Manufacturing in Netherland for shipment to UK 10
Executive Summary
The following report outlines an assessment on the project proposal presented by Ian Wallingford, Managing Director of Hollandsworth, Ltd for the production of AR-42 for the UK market. Based on market penetration of 50% Ian suggested 400 tons of AR-42 could be produced in a UK based production facility built for £1.4 MM. After assessing the Ian’s proposal and Marc Oosterling’s counter proposal for the incremental 400 tons to be produced at the existing Netherlands production facility we have determined the following, assuming the proposal by both parties to be correct:
We believe there are subtle flaws in the Hollandsworth model including a lower than company target WACC used as a discount rate (8% in the model versus companies targets of 10 to 14% based on historical values), an ambitious terminal value of the equipment which positively effects the projected IRR of 20%.
The Netherlands suggestion of 400 tons of incremental production of AR-42 is a lower risk option than producing 400 tons in the UK as £1.4 MM of capital investment is not required in addition to minimizing technology transfer.
The Netherlands model shows an IRR of over 140% with a payback of 1.5 years based on a working capital requirement of £160k required for raw material and inventory cash flow.
A fully decentralized working corporate structure is not recommended during the Axeon’s growth phase. Capital projects should continue to