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Victoria Chemicals

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Case study
Victoria Chemicals (A): The merseyside Project

Summary

Victoria Chemicals is one of the leading producers of Polypropylene, a polymer that is used in many products ranging from carpet fibers, automobile components, packaging film and more. Polypropylene was essentially priced as a commodity. In order to meet demand, Victoria Chemicals had two production plants located in Liverpool, England (Merseyside) and another in Rotterdam, Holland. The Merseyside plant was built in 1967 and was leading production facility until the 21st Century. The company positioned itself as a supplier to customers in Europe and the Middle East. In addition to small producers, seven major competitors manufactured polypropylene in Victoria Chemicals’ market region (Exhibit 1).

Many new competitors have recently built newer plants with more efficient systems and this has taken a toll on Victoria’s bottom line. The Merseyside plant was in need of drastic renovations as a result of decades of deferred maintenance, falling earnings and higher labour content as compared to competitors. The upgrades needed included a complete restructuring of the production flow and pressure vessels to obtain more efficient outputs. This project would require an initial investment of GBP 12 million that will potentially save energy and improve production processes. The plant had noticed a decline in the stock price from 250 pence per share in 2006 to 180 pence per share in 2007. Facing pressure from the investors and wanting to increase production efficiency, Moris decided to renovate the Merseyside plant so Victoria Chemicals continues to be one of the major competitors in the worldwide chemical industry.

After taking all the costs and benefits into consideration, Greystock, the controller of Morris, put together his own analysis in which he based it on four different components; Earning...

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