Background

Our client had identified an investment opportunity in a different paper grade, driven by market forces and demand for this grade. They suspected there could be high margins to be made in selling this grade if an investment could be made at the right price.

The project aimed to assess the profitability, potential shareholder value and return on investment in the production of this grade, given a shortlist of specific investment options.

Approach

We undertook extensive primary research, including interviews with market experts, conducted detailed analyses with technical engineering partners

We examined the historic profitability and key drivers for recent peaks, focusing particularly on input prices and market dynamics. We developed insights into future market trends, production costs, and the potential returns of various investment options.

We assessed internal and external investment opportunities and conducted detailed financial modelling including calculating ROCE for a shortlist of investment options.

Outcome

Our work indicated no significant long-term advantage in investing in the alternative grade over existing grades due to higher CAPEX. We recommended against increasing production capacity and suggested focusing on sourcing alternative papers for potential commercial returns. This allowed the client to make informed strategic decisions on future investments.