Operational matters – Xxxxxxxxx Sample Clauses

Operational matters – Xxxxxxxxx. The Xxxxxxxxx project was approved by the board of ION Limited in November 2002. It was a greenfield facility built to supply Holden with cylinder heads, inlet manifold valves and oil pans for Holden’s V6 engine. It was to be fully commissioned by April 2004. The initial budget was just over $50 million but by October 2004 the estimated final cost had risen to $110 million. The plant commenced meaningful production from July 2004, but as at the date of appointment of the Administrators the facility had not been fully commissioned. The original plans and cost estimates appear to have been flawed and the position only worsened as changes were made to address production problems encountered once meaningful production commenced in July 2004. Issues identified by KPMG Forensic’s review include the following. ▪ There was inadequate appreciation of, and provision for, the requirements of a greenfield start-up in the original cost estimate (for example, costings did not include interest, commissioning costs, research and development costs or contingencies. $29.2 million of such costs were ultimately capitalised and formed part of $69.3 million written off by ION Limited at 30 June 2004). ▪ In January 2004 the Chairman of ION Limited suggested to the CEO that there be sufficient time at the following board meeting for an in-depth review on the issues at Xxxxxxxxx and North Plympton and noted his concern that the other board members were probably as ignorant as he was as to the issues at Xxxxxxxxx. ▪ When production commenced in July /August 2004, production line problems became immediately apparent resulting in low yields, high scrap rates, high labour costs and high usage of consumables. ▪ Holden required high quality standards and to meet its demands additional labour was used. Production processes were de-automated resulting in significantly higher labour requirements than planned. The original business case assumed 80 personnel but by October/November 2004 actual numbers (employed and contracted) topped 400. ▪ The equipment acquired for the plant did not comprise known brands. An investigation was conducted in July 2004 by the Control Risks Group which concluded that poor procurement decisions had resulted in Xxxxxxxxx acquiring ineffective and unreliable machines in need of continual service and maintenance. ▪ The pricing agreed with Xxxxxx was significantly lower than the sale price of a similar product manufactured at North Plympton. ▪ There was a mismatch b...