Homework answers / question archive / Instructions Messer has been awarded 3 deals with different customers (A, B and C)

Instructions Messer has been awarded 3 deals with different customers (A, B and C)

Accounting

Share With

Instructions

Messer has been awarded 3 deals with different customers (A, B and C). The investment is required to implement the infrastructure (tanks, cylinders) for liquid nitrogen supply which will be delivered by Bulk trucks.

Due the company’s long-term strategy, there are limited resources and only one of the projects can be implemented.

Based on the information below:

1. Advise what is the best option (customer A, B or C) – only one should be selected - and what are the risks related to the chosen option, if any
2. Provide P&L and FCF for each of the options (at steady state)
3. Include all your arguments and evaluation methodology in a PowerPoint
4. Use any KPIs you consider relevant to base your recommendation
5. You will have 15-20 minutes to present your findings, evaluation methodology and convince the team that your recommendation is the right one
6. Please submit your presentation and any support materials to silvia.santanna@messer-us.com

Note: Please prepare as if this is a presentation done to a C- Level Committee. You will be evaluated both based on the financial evaluation and quality of the material produced.

1. Base Case Project Information

1. Assume that the 3 customers are very similar companies (business and size)
2. For all customer the revenue is equal to “volume supplied” + “monthly fee”
3. Volume supplied is related to the customer demand, which can vary month by month. The monthly fee is a fixed payment mandatory during the full deal term
4. Due to its geographical distribution customer A and B will be supplied by the Nashville Air Separation Unit (“ASU”) plant, while location and Customer C will be supplied by Houston ASU
5. Nashville nitrogen has a cost of 1.10 USD/per ton; Houston has a cost of 0.50 USD/ton
6. Additionally, there is a 2.5 TUSD/year equipment maintenance fee cost for customers A and B and 5.0 TUSD/year for customer C (cost to be covered by Messer)
7. For all customers the entirety of the investment (capex spend/cash payment to equipment suppliers) will take June 2022
8. Due to the different customer sites, the following start-up updates (beginning of supply and monthly fee charges) are the following:
   • Customer A: August 1^st, 2022
   • Customer B: December 1^st, 2022
   • Customer C: December 1^st, 2022
1. All projects have a 60-month term after the start-up date

2. B. Scenario Update

At the last minute you become aware that there is a possibility, currently under negotiation, that the customer B will pay for 50% of the investment, but in order to do so he requests a 50% decrease in nitrogen price. The commercial team believes this is unreasonable, so they are able to get the customer to preliminary also consider a 3 TUSD/month increase in the facility fee. If all those updates are accepted by the customer, would your recommendation change?

Please present the reasoning behind your answer in a specific slide and use the same KPIs, as used previously, to explain why.