Points to note:
- £300m spent on Tencel and another £300m planned.
- Tencel is 1/10th size of the rest of fibres businesses so the other fibres have to generate the cash.
- Tencel challenges are at least as great as those of viscose but "be patient: the returns are there".
The easiest way to make the company grow, both in sales and margins, is to
improve the quality of our performance, the quality of products and the service we offer our customers. So we have initiated a programme of work using Gemini Consultants to try to improve the quality of our businesses. I also set a target that in five years' time we can write on the front of our Accounts "Courtaulds is a quality business". lt is about the quality of the product we offer and the service we provide, and how we employ people and treat them. If we get that right we will get the right financial results.
Viscose, acrylic and acetate are our oldest businesses. They have been around from 90-odd years, to 70 to 40 years. We have to be realistic about what can be done in these three businesses. They are old technologies and they are in the wrong geographic area, primarily, to supply the textile industry.
We need for Fibres to create a different approach to selling. We need to step out of the box and develop a new way of doing things. If we get that the title of "mature businesses' won't apply.
What we can't do is relocate our older business in Asia, where the textile market is growing. We can't pick up our assets from Western Europe and drop them in Asia. It is too expensive, too complicated and we have to be realistic. There is only one reason for going into Asia and that is Tencel. There is no point going in with 90- year-old technology when you have technology which is just born. So we need to be realistic about what we can actually achieve.
Having said that, Courtaulds can't rely on Tencel to provide its growth and raise enough cash to pay taxes, etc. Tencel is one tenth the size of the other three fibre businesses. Those businesses have to perform and generate the cash. This is the role I see. The older fibres have to generate the cash which will allow us to rebuild our fibres business in Asia. I don't see why that should be viewed negatively in any sense of the word. (Told story of becoming MD of Courtaulds Chemicals, including what is now Novaceta, in 1980. Board said there was no future in acetate and wanted to sell it for £20 million.) In the 16 years since then that group of businesses has generated a little short of £400 million in cash, and £50 million in profits in each of the last three years. They were defined as cash generating mature businesses. Today they are the most successful businesses in Courtaulds.
Tencel (they have been likened to the Brylcreem Boys): We have invested £300 million and there are plans to invest another £300 million over the next three years or so. We need to get returns on those investments to increase shareholder value. We are not doing that. So the story to shareholders has to be "Be patient, the returns are there". The challenges in Tencel are just as difficult, but different, to the challenges in Viscose. Sometimes I wonder if we realise that, but they are. In many ways they are harder. There are commercial challenges, in terms of how we manage the brand, how we position it, so that when we have competitors, and we will, we are in the strongest position.
(more to come)