Courtaulds plc History

Address:

18 Hanover Square
London, W1A 2BB
England

Telephone: (44) 171 612-1000
Fax: (44) 171 612-1500

Public Company
Incorporated: 1913 as Courtaulds Ltd.
Employees: 18,100
Sales: £2.2 billion (US$3.3 billion) (1995)
Stock Exchanges: Geneva London
SICs: 2851 Paints & Allied Products; 2820 Plastics Materials & Synthetics; 3086 Plastics Foam Products; 2891 Adhesives & Sealants; 2869 Industrial Organic Chemicals, Not Elsewhere Classified

Company History:

Courtaulds plc is the world's second-largest producer of acrylic fibers and a major global producer of rayon. With a history going back to 1816, the firm split into two independent companies, Courtaulds plc and Courtaulds Textiles plc, on January 1, 1990. As an independent company, Courtaulds plc comprises five divisions: coatings, chemicals, fibers and films, performance materials, and packaging.

The Courtauld family migrated to England from France at the end of the 17th century and became successful gold- and silversmiths in London. Its first link with textiles was forged in 1775 when George Courtauld was apprenticed to a silk throwster--"throwing" is the equivalent in silk manufacture of spinning in cotton or wool--in Spitalfields. In 1816, George Courtauld's eldest son, Samuel, set up independently, and the family textile firm was first established, in Essex. Vigorous, impatient, and autocratic, Samuel Courtauld moved from silk throwing to the mechanized manufacture of a textile fabric popular in Victorian Britain: silk mourning crêpe. By the 1870s, when it employed about 3,000 workers, Samuel Courtauld & Company had become one of the biggest firms in the British silk industry. It had become so profitable that the partners were then earning an average of more than 30 percent on their capital, and Samuel Courtauld himself was drawing an income of about £46,000 a year from his investment in the business.

Fashions began to change, however. Crêpe prices fell, and after Samuel Courtauld's death in 1881 the firm's leadership faltered. Losses were suffered in the 1890s. The partnership was turned into a private limited liability company, and new managers were brought in to modernize the business. H. G. Tetley was made a director in 1895, as was T. P.--later Sir Paul--Latham, in 1898. These two men, outsiders to the family business, virtually controlled the company for the next quarter-century and in the process created the multinational Courtaulds Ltd. in 1913 as the world's largest producer of the first manmade fiber, rayon. Under the new management some modernization and diversification was achieved, but by the turn of the century a plateau had been reached. As Tetley told his fellow directors in April 1904, Samuel Courtauld & Company (Courtaulds) needed "a new source of profit to replace crêpe profits--which are leaving us." It was the adoption of his proposed remedy for this problem that put the firm on a wholly new course.

Three independent lines of inquiry--none of which involved Courtaulds--led to the discovery of rayon, which is technically a regenerated cellulosic fiber. One line of inquiry was pursued in France by Count Hilaire de Chardonnet, who set up the first factory to make artificial silk in 1892. Another, by a different process, led to a factory in Germany in 1899. The third, in Britain, was potentially the simplest and cheapest route. This "viscose" process--consisting basically of treating wood pulp with caustic soda and other chemicals and spinning the resultant substance into fibers--was developed and patented by three inventors working in a pilot plant near London. Most of the various national patent rights had been sold off when Tetley visited the plant early in 1904. He reported back enthusiastically. After successful flotation as a public company in July 1904, Samuel Courtauld & Company Ltd. bought the British rights to the patents for approximately £25,000.

A factory was built on the outskirts of Coventry. Production commenced in July 1905, but the factory was still operating at a loss in 1907. By 1913, however, it was turning out over three million pounds of rayon per annum, and Courtaulds had emerged as easily the largest and strongest of all the firms that had bought the viscose rights. It had been able to buy out the holders of the U.S. rights in 1909, set up a wholly owned subsidiary in the United States, and float Courtaulds Ltd. as a new £2 million company on the basis of a ten-for-one bonus issue.

It soon became evident that the process that Tetley had bought was unreliable. A small group of chemists and engineers at Coventry, operating largely by hit-or-miss methods, made the technical breakthrough in making the process reliable and capable of producing a fiber of consistent quality. Technical cooperation with the purchasers of the French rights and a favorable legal judgment in a patent action helped. An important reason for the company's success lay in the fact that of all the purchasers of the viscose patent rights, only Courtaulds was a textile manufacturing firm. Those directing the efforts of the chemists and engineers knew what technical qualities were needed to make a yarn useful and salable; the textile machinery and the dye house at the Essex mills were available for experimentation; and the whole range of commercial contacts made by the company in its textile business, skillfully exploited by Latham, were used for the marketing of the new product. The real architect of the achievement was Tetley. Not only did he drive the company forward in Britain but his purchase of the U.S. rights led to the foundation of the American Viscose Corporation (AVC). Starting production in 1911 and operating inside a tariff barrier, by 1915 AVC reached an output that surpassed that of its parent, and it was soon contributing massively to profits. The combined profitability of the U.K. and U.S. sides of the business allowed not only the payment to Courtauld's shareholders of substantial dividends but also the making of further bonus issues in 1919 and 1920, thus bringing the ordinary share capital to £12 million.

Tetley had become chairman of Courtaulds in 1917. On his death in 1921 the leadership of Courtaulds passed into the hands of Samuel Courtauld, great-nephew of the Samuel who had founded the family business. Under the leadership of the second Samuel Courtauld, the company became a highly respected multinational concern, and its great financial strength was not matched by any comparable enterprise in technical innovation. Samuel Courtauld became known to a wider public as a patron of the arts. His collection of Impressionist paintings became the basis of the Courtauld Institute of Art, which he set up and endowed in 1931. As the leadership of Courtaulds changed, so also did the circumstances in which the firm operated. The end of World War I approximately coincided with the expiration of the basic patents. New firms moved into the rayon industry all over the world. New rayons, notably that made by the cellulose acetate process, were developed. Filament yarn, seen as a substitute--though rather a poor one--for silk, was joined by staple fiber, used as a substitute for cotton or even wool. The result was a gigantic boom in the output of rayon. From 1920 to 1941, world output rose from 32 million pounds to over 2.8 billion pounds. Moreover, as competition grew fiercer and as costs were cut, rayon prices fell sharply, much more than those of silk, cotton, or wool. Cheap woven or knitted fabrics and hosiery in rayon or rayon blends made cheaper stockings, underwear, furnishing fabrics, and dress materials.

Courtaulds participated in the boom in sundry ways. New plants were built--in the Midlands, North Wales, and Lancashire--for yarn production and processing. To the existing textile mills in Essex were added others in Lancashire and Yorkshire to demonstrate the uses of staple fiber. Across the Atlantic, AVC built more yarn mills, and a subsidiary was established in Canada. In Europe a French company--La Soie Artificielle de Calais, renamed Les Filés de Calais in 1934--began production in 1927, and a joint enterprise, Glanzstoff-Courtaulds, started in Germany. Processing mills were set up in India, Denmark, and Spain, and a major investment was made in the biggest of the Italian rayon companies, Soria Viscosa. By 1928 Courtaulds' total issued capital had risen to £32 million, and nearly half of the company's gross income came in the form of dividends from AVC, about whose profits and performance Courtaulds remained secretive.

The 1929 stock market crash and the Depression of the 1930s did not afflict Courtaulds in Britain with anything like the hardships felt in older industries or by some other firms. Profits, however, were lower than in the heyday of the 1920s; the dividends from AVC came tumbling down, and in 1938 there were none. Overseas difficulties increased. The financial results of the French, German, and Canadian yarn factories were poor, and the yarn-processing mills were all sold. The value of many investments had to be written down drastically. AVC's performance was particularly worrying. The quality of its output was questioned, and a thoroughgoing inquiry into its technical and managerial shortcomings was instituted. In 1937 AVC's British boss was replaced by an American, and a substantial modernization program was launched. At home, output rose dramatically, especially in staple fiber. High-tenacity yarn, used in tire manufacture, was successfully developed. In 1935 a new venture, British Cellophane, was started for the manufacture of transparent film. However, the relative backwardness of the company in research was brought home to Samuel Courtauld by du Pont's development of nylon in the United States in 1938. Although Courtaulds' laboratories proved their practical value in a variety of ways, the money spent on basic research remained very small. The need for directed research work was just dawning when war came again.

World War II brought to Courtaulds, as to other firms, various domestic problems, including shortages of raw materials and of labor, wartime controls, higher taxation, and damage from air raids. Such troubles, however, were minor compared with one event: the forced sale in 1941 of AVC. Dictated by the U.S. government, it reduced Courtaulds to about half its former size. In 1942 a tribunal awarded Courtaulds some £27 million in compensation.

These substantial cash reserves helped to shape the course of postwar recovery. This proceeded, from 1947 to 1962, under the chairmanship of J. C. (later Sir John) Hanbury-Williams, who succeeded Samuel Courtauld. The first tasks--the requisite renewals and replacements postponed by war--were joined to efforts to implement those greater changes that belatedly had been deemed necessary just before the war. New appointments were made to the board; expenditure on directed research was increased substantially; modernization programs were begun; but financial policy continued to be conservative. New rayon plants were built, mainly for staple fiber and industrial yarns. Research on the acrylic fiber Courtelle was pushed ahead. Just before the war Courtaulds had secured an interest in nylon by entering into an agreement with Imperial Chemical Industries (ICI), which had obtained the British rights to this du Pont invention. A jointly owned company, British Nylon Spinners (BNS), was set up and output grew rapidly from the 1950s. Overseas, a yarn plant was built in Australia, and the U.S. market was reentered by the establishment of a large rayon staple fiber plant in Alabama. Fears of a world shortage of the wood pulp used in rayon manufacture led to the formation of the South African Industrial Cellulose Corporation (SAICCOR) to produce pulp from eucalyptus trees.

For a time these recovery and expansion measures seemed to be working, and profits rose during the decade 1944 to 1954. Soon after, they started to slip and, as the full impact of nylon and other new synthetic fibers began to be felt, the whole future of rayon was in question. New policies were contrived, owing much to Frank (later Lord) Kearton, who joined the board in 1952. Expansion and diversification were the main themes. Between 1957 and 1963 British Celanese--the main producer of acetate fibers--and five other rayon companies were bought; Courtaulds' existing interest in packaging, through British Cellophane, led to the acquisition of firms making various sorts of containers. Its chemical interests, reinforced by the acquisition of British Celanese, pointed the way to a move into paints, especially with the purchase of Pinchin, Johnson Ltd. in 1960.

The process was interrupted by a takeover bid from ICI, launched in December 1961. This resulted in a three-month wonder, at that date the biggest takeover battle in Britain, causing much public debate. In March 1962 ICI conceded defeat, having secured only about 38 percent of Courtaulds' equity. In 1964 Courtaulds' share in BNS was exchanged for ICI's holdings in Courtaulds' equity. Meanwhile, the bid battle had caused some upheaval on the Courtaulds board. Kearton, who had played a major part in opposing the bid, took over the chairmanship in 1962. The last two members of the Courtauld family to sit on the board retired in 1965 and 1966. Under Kearton's aegis the company then embarked on a massive series of acquisitions in the cotton and hosiery industries. This was dictated primarily by the fear that the Lancashire cotton industry, weak and decaying in the face of inexpensive imported Asian textiles, would disappear and with it Courtaulds' biggest market for staple fiber. The hosiery industry, expanding on a growing enthusiasm for knitted fabrics, was seen as a profitable outlet for acetate and nylon yarns. It was hoped that the creation of a vertically integrated fibers-textiles group would solve the company's excessive reliance on rayon. By 1968 Courtaulds controlled about 30 percent of U.K. cotton-type spinning capacity as well as 35 percent of warp-knitting production and smaller but significant shares in weaving and finishing.

In the short term the policy paid off. Profits rose to a high in 1975. Despite much reorganization carried out by Kearton--who left Courtaulds in 1975--and his immediate successor from 1975 to 1979, A. W. (later Sir Arthur) Knight, Courtaulds was not in good shape to cope with the recession of the late 1970s and especially with the crisis affecting the European manmade fiber and textile industries. Profits fell sharply in 1976 and, after some recovery, dropped in 1981 to the lowest point since World War II.

Sir Arthur Knight's successor as chairman in 1979 was C. A. (later Sir Christopher) Hogg, who began a gradual and total reorganization of the company. In the course of the ensuing decade, much of the edifice created by Kearton's move into spinning, weaving, and the mass production of textiles was dismantled. Despite investment in new machinery, yarns and fabrics had made losses or very small profits in the face of cheaper imports and falling markets overseas. Substantial closures of spinning and weaving mills followed. Restructuring overseas included the sale of the South African pulp interests. Employee numbers fell: the 1975 work force of well over 100,000 in the United Kingdom alone had contracted by 1988 to 46,000 in the United Kingdom and 22,000 overseas. In contrast, the other part of Kearton's diversification, into paints, chemicals, and packaging, fared much better and provided the basis for Hogg's achievements in expanding these and related aspects of the company's activities on a worldwide basis. The final logic of the textile-chemical mix created by the original success with the 1904 purchase of the viscose patents came with the demerger of 1990.

Courtaulds plc emerged from the breakup as a specialty materials industrial manufacturing company producing paints and coatings&mdashcounting for 33 percent of profits in 1990--manmade fibers and films--30 percent&mdashetates and other chemicals--23 percent--packaging materials, and sundry specialized products. It operated in 37 countries. Courtaulds Textiles plc, with 28,000 employees and annual sales of £983.8, was primarily a U.K.-based operation with nearly 80 percent of its work force in that country. Its chief activities were the making of apparel and furnishing fabrics, the manufacture of garments under various brand names, and a much-reduced spinning section.

In 1991 30-year Courtaulds veteran Sipko Huismans advanced to the company's chief executive office, succeeding Christopher Hogg, who assumed the title of chairman. Huismans has been credited with reinvigorating Courtaulds plc by concentrating on new product development, consolidation via joint ventures and acquisitions, and geographic expansion. Asserting in a 1990 Chief Executive article that "Ironically, the demerger made the mature fibers businesses an even larger proportion of the new Courtaulds," Huismans focused new product development on fibers that would demand higher margins. The most celebrated of these was Tencel lyocell, a cellulosic (wood pulp) fiber that boasted strength, softness, washability, and dyeability. The company started mass production of this "luxury fiber" in 1992 at a U.S. plant, and marketed it primarily in Japan. Brisk sales prompted rapid increases in manufacturing capacity; Courtaulds had added a second U.S. factory by 1996 and expected to bring a U.K. plant into operation in 1997. Huismans forecast annual Tencel capacity of 150,000 metric tons by 2002.

However, Huismans didn't remain with the company to see whether that prediction would become a reality. The 54-year-old executive retired in July 1996, noting in a Daily News Record piece that "The main objectives I set myself--putting Tencel on the road to becoming a world-class fiber, developing a major presence in the Asia-Pacific region and rationalizing our fibers and coatings businesses in Europe and the U.S.A.--have all been set well on their way." Some observers disputed his analysis, however, citing Tencel's continued unprofitability in the face of high materials, capital investment, and marketing costs. It remained to be seen whether his replacement, Gordon Campbell--himself a 28-year Courtaulds veteran--would see the fiber through to profitability.

Courtaulds plc History

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