Diamond Chemicals Case Study 3asters in Finance 5 &lied Cororate Finance
Nova School of Business and Economics 8th February 2016
!"#$ %& Francisco Santos' 22() *o+o Santa B,rbara' 22( *os. Barbosa' 2)2/ us Colao' 2%-8 3i4uel $into' 2)16
&4enda
E;ecutive Summary
9ndustry "vervie<
:he 3erseyside $ro=ect $ro=ect
$ro=ect>s 7aluation $rocess $ro=ect>s &ttractiveness "? N" " &nalysis
3utually e;clus e;clusive@ ive@
3erseyside vs !otter !otterdam dam
N$7 and E$S
9!! and $aybacA
Strate4ic Comarison
!ecommendations
E;ecutive summary Diamond
Chemicals is one of the lar4est rivately o
:his
case focuses on the study of the t
:he
4rou rovided a thorou4h analysis and a fe< su44estions
Finally'
the 4rou comared both ro=ects' and after concludin4 that they
9ndustry "vervie<
$ro=ect>s 7aluation $rocess
E$C ro=ect Ge;cludeH • •
9mact on N$7 IJ0'003 &ction tell the assistant lant mana4er that both ro=ects are searate and therefore should be analyed indeendently
Cannibaliation GincludeH • •
9mact on N$7 KJ)'203 &ction Because of the ro=ect' sales may decrease in the !otterdam factory
$ro=ect>s 7aluation $rocess
En4ineerin4 costs Ge;cludeH • •
9mact on N$7 IJ0')23 &ction :he en4ineerin4 costs GJ%00000H should not be included since they
-% days shutdo
•
scenario
$ro=ect>s 7aluation $rocess
9nLation GincludeH • •
9mact on N$7 IJ2'8/3 &ction &cAno
!ollin4 stocA GincludeH • •
9mact on N$7 KJ)'))3 &ction She should tell the :ransort Division that they are correct Since the urchase of the rollin4 stocA
$ro=ect>s 7aluation $rocess
Initial NPV £9M
E$C $ro=ect J03 Cannibaliation J)23 En4ineerin4 Costs J0)23
&4enda
E;ecutive Summary
9ndustry "vervie<
:he 3erseyside $ro=ect
$ro=ect>s 7aluation $rocess $ro=ect>s &ttractiveness " or N" " &nalysis
3utually e;clusive@
3erseyside vs !otterdam
N$7 and E$S
9!! and $aybacA
Strate4ic Comarison
!ecommendations
$ro=ect>s &ttractiveness 9!! P 2-
N$7 P IJ%683 Financial View
$aybacA P -08 years
E$S P IJ00611 er share
$ro=ect>s &ttractiveness 9ncrease roductivity
No learnin4 curve' short term solution
Strategic Fle;ibility in termsView of -% day shutdo
ossibly result in a loss on both clients and roduction
" or N" " &nalysis Because of 3eetin4 all nancial reOuirements 9ncreasin4 the comany>s roductivity Bein4 Le;ible to chan4e to a ne< technolo4y
Morris should continue to proote the pro!ect "or "unding
3utually E;clusive@ #$clusi%it& in 'eand(
&ssumin4 that the marAet stays constant for 1% years Settin4 the annual outut eOual to 2%0000 tons in both factories )he NPV is still positi%e in *oth pro!ects there"ore the& are not utuall& e$clusi%e in deand
o
&4enda
E;ecutive Summary
9ndustry "vervie<
:he 3erseyside $ro=ect
$ro=ect>s 7aluation $rocess $ro=ect>s &ttractiveness " or N" " &nalysis
3utually e;clusive@
3erseyside vs !otterdam
N$7 and E$S 9!! and $aybacA Strate4ic Comarison
!ecommendations
N$7 and E$S 3erseysi de
!otterdam
N$7 PB$ %'68 3
N$7 P B$ 1(')1 3
E$S P 0'0611
E$S P0'186)
Qhy $ro=ects of diMerent nature' DiMerent initial investments' DiMerent strate4ic 4oals' DiMerent investment hases' 'i,erent -ross MarginsR
9!! and $aybacA 3erseysi de
!otterdam
9!! P2-'0)
9!! P 1/'0)
$aybacA P -'08 ears
$aybacA P 8'1( years
DiMerent Cash Flo< tiings 9mlementation taAes -% days at 3erseyside and ) years in !otterdam !otterdam only reaches full caacity in 200-
Strate4ic Comarison 3erseyside •
Fits all the four erformance hurdles • TuicAly imlemented • No learnin4 curve' short term solution • :he ross 3ar4in starts decreasin4 after year %'
Strate4ic Comarison !otterdam •
reater N$7 • on4 term horion • E;lore the learnin4 curve • "nly meets three of the reOuirements • !elies on the analysis of e;ternal consultants
!ecommendation
:he nancials GN$7H su44est
Qe
!otterda m ro=ect
Fle;ibility of the other factory
)han &ou "or &our attention.
Nova School of Business and Economics 8th February 2016
!"#$ %& Francisco Santos' 22() *o+o Santa B,rbara' 22( *os. Barbosa' 2)2/ us Colao' 2%-8 3i4uel $into' 2)16