Is Ineos the New ICI?

In a hugely competitive, but increasingly nationalistically protectionist world, can an industry we have foolishly surrendered be resurrected? On the face of it, it seems unlikely. Conventional wisdom has it that it would be like trying to regain a continent lost in war– D Day in other words. D Day was successful but at huge cost; in industrial terms, retaking the beaches of major industries is impossibility. No one is going to consider invading the territory of Google, Amazon, or Facebook because they’ve mined all the approaches.

But it’s not an academic question because in one, much older industry it would appear to have happened. Whether this is true or a mirage is the subject of this article. Britain once had a chemical industry champion — the largest company in the UK for much of its life, the inventor of many producers that changed the world, and the first UK Company to post a £1 billion profit.

This was ICI that was. It committed what can only be described as hara-kiri in 2006. ICI was never the world’s biggest chemical company but it was Top 10, along with the likes of companies like BASF, Dow and Du Pont.

Today the UK, only 12 years later, surprisingly has a world top 10 chemical company one again. It is called INEOS, currently ranked No 5. Founded only in 1998, it has led a quiet life until recently. Such fame as it possessed derived from three things. In 2013, workers at the Grangemouth petrochemicals plant, which INEO had bought from its founder BP, went on strike and Ineos threatened to close the plant — the last major such plant in the UK. The company is vigorously pursuing fracking. It has an image of being a hardline, old-school, dirty industry monolith, doing all the nasty old things to make money.

It is money of course that has finally brought Ineos into the spoltlight because Ineos is not a faceless entity. More than most other major company it is peosnified by one man: Jim Ratcliffe, or Sir Jim Ratcliffe as he has been since June 2018. Ratcliffe is a 66-year-old old chemical engineer who owns 60% of Ineos. In May 2018 he attained the status of Britain’s richest man, according to the Sunday Times Rich List. Interestingly, for a man one known to shun the limelight, he owes his elevation to a personal initiative, providing documentary evidence to the Sunday Times that they had seriously underestimated his wealth (he was 18th in 2017).

It is by any standards an amazing personal and corporate achievement against all the odds, but what does it signify? Ratcliffe is a buccaneering capitalist but he is not a financial speculator, an asset stripper, a Philip Green or a one-man Carillion. He has resurrected a chemical industry that seemed on its last legs. The general thinking in Britain seemed to be: heavy chemicals? — let the Indians and Chinese do it: ICI had decided that the future lay in more refined consumer-oriented specialities — perfumery and flavours. According to the leading industry journal C&EN, influence goes way beyond the UK, concluding in July 2018 that “Ineos and its founder, the energetic billionaire Jim Ratcliffe, are helping resuscitate the European petrochemical industry, which was rendered nearly irrelevant by the cheap shale-derived feedstocks available to U.S. petrochemical makers.” So he’s not just big in Britain, Ratcliffe bestrides a bigger stage.

The collapse of British manufacturing industry is an old story. Every now and then there’s another shock to the system but they no longer create the frisson that they once did — people are resigned and apathetic about the process. But the case of ICI was one of the most dramatic. Usually the story of industrial collapse is a passive, reactive one: a struggling company vainly tries to ward off blows from cheap labour in the developing world, the high pound, antiquated techniques and working practices, bad management etc.

In the 1980s ICI was apparently at the peak of its power, success and fame In 1984–5, under John Harvey Jones, ICI (still carrying the millstone of these awful smokestack products), turned in a profit of £1 billion after having made a loss in 1980–1. Its Managing Director/Chair Sir Jon Harvey Jones was a public figure, the champion of industry and a TV star from his programme Troubleshooter.

But all this unravelled very quickly. ICI invited its fate by hiving off its most successful division — pharmaceuticals — to form Zeneca (now AstraZeneca) in 1993, and then selling off most of the remaining core businesses except paints in order to reposition itself. Its downsizing was willed and planned by the company. Each stage was well documented and the company positively exulted in the process. In 2001, on the ICI website under Investor Relations, we read:

I’d Hardly Know You!

Anyone who hasn’t kept up to speed with the changes at ICI over the past five years or so won’t recognise us.

Gone is the huge majority of the industrial chemicals portfolio, taking with it the polyester, chlor-chemicals, fertilizers, titanium dioxides and petrochemicals business…

You can’t help feeling that the unspoken comment behind this is “Good riddance!”

The big change in ICI after the demerger was simple. Virtually the whole company except paints was sold off for £6.5 billion; and Unilever’s specialty chemicals division was bought for £4.9 billion. That sounds like a good deal on paper but actually the purchase was made in 1997 and the divestments were only completed several years later, by which time the market had gone the wrong way, leaving ICI with debts of £3 billion at the peak. A large portfolio, the fruits of ICI’s commitment to R&D, with many patents, was sold and fairly humdrum businesses were bought. The companies ICI purchased — National Starch, Uniqema, Quest — manufactured a vast range of disparate products from adhesives to fragrances: all specialities rather than bulk. ICI claimed that this brought them closer to the consumer but in many cases sense this wasn’t true. An adhesive that might be used in any number of products isn’t closer to the consumer than fertilizers which go straight to farmers. Polyesters might not have been close enough to the consumer for ICI but at least consumers could touch and feel the stuff and know they liked it; some consumers were even aware that ICI made polyesters, especially Terylene and Crimplene, which were very famous brands. A company is either selling branded goods with a known profile to the public or it is supplying other businesses. Other than Dulux, ICI was almost always selling to other businesses, so why should its public profile be geared towards consumers? No one downing a can of lager was going to say: “Great beer and did you notice the difference ICI’s reduced-solvent can coating made”. Dulux, a genuine consumer brand (all that is left of ICI and now owned by the Dutch firm AkzoNobel), has always had a cuddly image thanks to its shepherd dog mascot that did sterling service for so long but nothing like this could be done with most of ICI’s products.

The downside of the businesses ICI bought is that there were so many products, some of them with very small markets, that a coherent strategy and even a pricing policy were hard to achieve. The products were divided up amongst three companies, and above all, these companies’ roots were not in ICI. Could they really be as good as the company that had produced 50,000 patents by 1993?

In 1991, two years before the demerger, ICI had been reorganized into seven core businesses: pharmaceuticals, agrochemicals and seeds, specialties, paints, materials, explosives, industrial chemicals, including tioxide, the ubiquitous white pigment. Like the seven veils, they were stripped away, one by one, until only paints remained.

The failure of ICI is a tale of our times because one motive behind the company’s shrinkage was been a sense of corporate shame that they were an old economy company that got its hands dirty with unglamorous, stinking, pollluting, bulk chemicals. Their website had a list of things that ICI “doesn’t do any more” (virtually everything). It is especially shocking that they seemed to proud not to be making products that they invented, such as Terylene, Polythene and Perspex. In the 1930s, according to Carol Kennedy’s ICI: The Company that Changed Our Lives, ICI had something of the buzz associated with IT in the ’90s: it attracted some of the best minds and an avalanche of great inventions followed. Amongst the those 50,000 patents at the time of demerger were Paludrine (antimalarial drug), Hibitane (still the standard hospital disinfectant), Procion colour-fast dyes, Fluothane (anaesthetic), Nolvadex (tamoxifen, the anticancer drug), Quorn (vegetable protein), Paraquat (herbicide), Saffil (alumina fibres).

It is true that the bulk chemicals market is exceptionally difficult. Petrochemicals such as ethylene and propylene, which form the starting points for all other organic chemicals, whether drugs, plastics, fibres, dyes or paints, are traded generically on the world’s commodity markets and are exceptionally vulnerable to political upheaval, the trade cycle, and over capacity And is true that many chemical companies, such as ICI’s old rivals (and closest fit in terms of portfolio) Du Pont, sought to reduce their exposure to this end of the market. But Du Pont is still there (now merged with Dow as DowDuPont), still making household names such as TeflonR, KevlarR, LycraR, DacronR and other products it invented. Once ICI could have matched that list.

That ICI chose wrong is confirmed by BASF, the world’s chemical company which actually boasts of its total integration — from ethylene right though to the specialities late-phase ICI considered the only things worth doing. At the time of the demerger, Chemical and Engineering News, the bible of the chemical industry, analysed ICI’s strategy (and other companies such as the French Rhodia that have gone down the same route). Industry analyst David Ingles wrote: “With some exceptions it has been rare to see specialty businesses thriving once they have been lumped into large companies…All too often they seem to lose entrepreneurial drive and flair….Rather than concentrate on ‘critical mass’ — which too frequently seems to be the crucial mass of executive ego, not of operational good sense — companies must concentrate on delivering sold growth and performance…And that may mean they cannot expect to excel in a ragbag collection of businesses, even if the businesses themselves are critically sound”.

Any observer at the time would have wondered what on earth ICI thought it was doing but there was no need to wonder, because it was all explained in embarrassing detail in 2002 on its website, in a huge mission statement called Secrets of the Senses (an expanded print version was available for £200). An ecstatic paean to sensuality penned by Dr Charles Spence, an experimental psychologist at Oxford University, Secrets of the Senses was a remarkable report for a serious company to be endorsing and promoting:

Just as the 20th century is all about visual stimuli, the 21st is already moving towards smell and combining the best of all the senses. We do not want to make the same mistakes as before creating [sic] a dominant sense. Scent alone is not a quick-fix remedy for companies, we should be moving towards holistic sensory signatures.

That a once great chemical company was peddling classic snake-oil nostrums such as “holistic sensory signatures” — a pleasant fragrance can make us more persuasive in discussion. What’s more, in the presence of such a fragrance people are more likely to be won over by physical attractiveness than the strength of an argument “– was infinitely depressing.

The nadir of Secrets of the Senses was probably the following: “…so should we defy social conventions and give in to our animal urges when it comes to finding an ideal partner”. Perhaps they were hedging their bets on a move into the sex-counselling business.

So desperate was ICI to be seen as sexy, to shrug off the taint of being a dirty old-economy chemical company, it naively embraced a kind of decadent sensuality that might be new to them but actually has its roots in the symbolist movement of the late 19th century. Rimbaud spoke of the “systematic derangement of the senses”; Baudelaire explored diabolic sensuality. The prototype for ICI’s millennial multisensory orgies is Huysman’s A Rebours (1884), a key text of decadence and the model for Oscar Wilde’s The Portrait of Dorian Grey. The book’s hero, Des Esseintes, is an enfeebled neurotic who can only get a thrill from ever-more extreme sensations. He experiments particularly with smells and tries to concoct novel cross-sense experiences. For instance he assembles a liqueur organ on which he can play music transposed into the realm of alcoholic tinctures: “Dry curaçao, for instance, was like the clarinet with its piercing, velvety note; kummel like the oboe with its sonorous, nasal timbre; creme de menthe, at once sweet and tart, soft and shrill”. Huysmans anticipated ICI’s Secrets of the Senses by over 100 years.

The document claimed to have a secret formal for a successful business:

An office space …that presses all the right multisensory buttons and offers a balanced diet of sensory stimulation can transform a sluggish business team into a dynamic and highly motivated enterprise.

It’s odd that this didn’t work for the man who signed off Secrets of the Senses: Brendan O’Neill, CEO until 9 April 2003, when a profits warning led to his abrupt departure.

This lapse by a once powerful industrial giant into a swooning sensual decadence sounds periodic but it really happened. Brendan O’Neill was keen to let it be known that he was a Grateful Dead fan. Certainly it was the ICI that died, apparently grateful to be put out of its misery.

If the people at ICI really were as cool as they liked to think they were they’d know all this and would have rejected Secrets of the Senses as New-Age tosh. Although multisensory experiences will always be interesting to artists the market for such decadent sensual indulgence is hardly likely to be large enough to sustain a huge market-leading industrial combine.

Two months before Brendan O’Neill quit the company he was interviewed by the Guardian. When provocatively asked whether ICI was still a traditional old-economy company he snorted “get a life”, a curiously unidiomatic response but you get the gist. (The nuances of language are not O’Neill’s forte: at one point he admitted that he felt battered by the collapse in ICI’s share price but that nevertheless he was “unbounded” — translation: “unbowed”). The rest of the piece consisted of O’Neill trying to establish his and ICI’s touchy-feely credentials, commenting on moving the HQ from Millbank to a new designer office behind Selfridges: “the top floor of Millbank was lots of wooden doors and thick pile carpets”.

It would be wrong to blame the ICI Directors and O’Neill in particular too much for this sorry story. The company’s pathetic anxiety to appear hip and a key New Age player must have come from somewhere. In Britain, decades of jeering at metal-bashing and smokestack industries and an obsession with physical makeovers, both personal and organizational, led to a kind of national collapse of sense and purpose. The Italians whose style we desperately ape and the Germans whose products mostly fill our homes and garages never forgot that if you want a sleek Ferrari or even a chic new Beetle you still have to bash some metal. As for ICI’s divestment of its plastics businesses: what did they think most designer objects are made from? ICI seemed to take to heart the standard contemptuous dismissal by Public-schoolboys at Oxbridge of “Northern chemists”.

In choosing to keep the icing and throw away the cake ICI sold its birthright for a mess of pottage (almost literally: while it lasted, National Starch produced 30 per cent of its sales). It’s fair to point that Zeneca, the pharmaceutical wing hived off from old ICI, has been a success story of sorts. But Zeneca was hived off in 1993 after the fright ICI had when Mrs Thatcher’s favourite asset stripper Lord Hanson threatened to buy and fillet the company. The strategy of the split was partly aimed at pre-empting takeovers but this didn’t work because in the cut-throat world of big pharma Zeneca was too small: it merged with the Swedish Astra in 1999 to form Astra Zeneca.

AstraZeneca does not much resemble the old ICI. At the time of the split, Zeneca was meant to be more than drugs; it was going to be big in biotechnology, especially genetically engineered seeds à la Monsanto. That has gone by the wayside: essentially it is involved in the desperate game of patenting new vastly expensive drugs to stave off income collapse from declining patents. It has no other options, unlike the old ICI which had its fingers in so many pies.

Jim Ratcliffe’s Ineos has succeeded by going back to the chemical roots and skipping all that secret senses stuff. He’s so hard-nosed it must be made of Kevlar. It goes without saying that he has made a go of several businesses acquired from ICI, including the division that invented replacements for CFCs, Ineos Chlor, one of Britain’s biggest energy users, and the acrylics business (Perspex to you and me).

Ratcliffe’s emergence as Britain’s wealthiest man comes whiles the country is in Brexit limbo. He himself is a Brexiteer, reported as saying:

“We are not concerned about Brexit,” he said. “At the end the day the UK is the world’s 5th largest market and you can’t ignore the world’s 5th largest market.”

Ineos is a private company but not a private equity company. Ratcliffe has assembled his business by astute take-overs, a fine judgment of the market he operates in, and — it has to be said — a pile of debt. But the business is not a matter of financial juggling but a sound enterprise operating in a competitive global market.

Phil McNulty, an official from Unite, the Union that lost the battle of Grangemouth, has said that “he invests in the business; he’s not an asset stripper, but because the company is highly leveraged, it sometimes acts like private equity … It can be savage on costs” Ratcliffe would find the comparison with private equity perplexing because he has pumped hundreds of millions into the company over the past decade, building Ineos into a massive concern with sales of around $60 billion and 171 sites across 24 countries. In July 2018 Ratcliffe announced the largest chemical industry investment for “a generation”: a £2.4 billion ethane cracking plant and propane dehydrogenator to be built somewger on the coast of northwest Europe. A banker who has worked with him says: “He’s no venture capitalist; he isn’t about sucking out cash then finding a buyer in short order. He loves the business; I can’t see him ever giving it up.”

Ratcliffe might have used some of the fashionable debt-fuelled techniques fashionable but increasingly he is giving Ineos the appearance of old-fashioned solidity that ICI used to possess. Headquartered in Switzerland for many years, in December 2016 he brought the HQ back to Britain.

“We’ve come back to Britain because there is a lot going on here,” he told guests at the official opening of its Hans Crescent HQ. “The UK is a much better place than it was 10 years ago and the Conservative government is very positive about business.

Researching this piece, I kept an open mind about Ratcliffe: his feat in resurrecting a dead industry is highly impressive. Everything was looking fine until a newspaper headline on 10 August 2018: “Britain’s richest person to leave UK for tax-free Monaco”. This seems odd, given that at the HQ opening he praised the business climate in Britain when the new UK HQ opened in 2016 and supported Brexit. So what has changed since then? Ratcliffe had moved the HQ to Switzerland in 2010 in protest at Gordon Brown’s economic policies. Eighteen months is a brief time in business for conditions to have changed so much in his eyes. Ratcliffe was knighted in June 2018 for services to business and investment and now, two months later, he’s off. Of course Ratcliffe is entitled to live wherever he likes and it’s likely that Ineos will remand committed to the UK. But it’s disappointing that someone who has achieved so much — a sober chemical engineer — should be seduced by the idea of living in a place in which 35 in a 100 are said to be millionaires. We must hope that his passion for investing in heavy chemicals plants isn’t dented by immersion in the idle-rich lifestyle of Monaco. And that he doesn’t fall prey to a sad sensory swoon like the one that did for ICI.