... we have continued to press on with our now well-established basic strategies, particularly the development of Tencel. Building capacity for Tencel has raised our capital expenditure from one-and-a half times depreciation to more than twice. Gearing has risen from 3O% to 37%, but interest cover remains comfortable. Notwithstanding the requirements through the build-up stage of Tencel, the Board has continued its record of at least maintaining the real value of the dividend. Our plans for the current year, assisted by the recently announced breakthrough in Tencel technology, do not foresee a need to call on shareholders for cash.
In "Chief Executive's Review"
We entered the next phase in the development of Tencel with the announcement of a European plant, to be built at Grimsby in the UK. A breakthrough in technology enable us to redesign both this plant and the second Mobile plant for much higher output levels, so greatly increasing the productivity of the capital invested.
Tencel had a slow first half of the year as the start up and development costs overtook profits. By the second half of the year, total revenue was again exceeding total costs. Over the next two years we shall make a major step up in the size and scope of the Tencel business. Such developments require heavy upfront investment. The improvements in productivity have been remarkable however. They hold much promise for the later stages of the Tencel development programme by when we shall have established a major new fibre process from a natural and self-replenishing polymer.
In "Finance Directors Review" (Howard Evans)
The significant capital and revenue investment in Tencel and the Far East continued to depress the Return on Capital Employed which showed a further reduction to 17%.
In "Fibres and Chemicals"
Demand for and interest in Tencel continued to be very strong with seasonal factors again emphasising the second half relative to the first. Trading margins were encouraging, but the increase in marketing expenses and research to support the planned development programme more than offset this contribution. The first US facility is now running ahead of the design specification. The second of the US facilities is on schedule and should be commissioned in the final quarter of 1995. Significant progress continues to be made in improving capital productivity and further breakthoughs were achieved in 1994/95
In Research and Product Development
...a high proportion of [Fibres] development work is focussed on Tencel. Process improvements have significantly reduced the capital cost per tonne and there has been considerable progress both in improving the processability of the fibre and in developing its aesthetic characteristics.