Tencel in Courtaulds Annual reports (1996-97) Part 1

With about £1 of the Courtaulds share price being generally regarded as a premium riding on a successful outcome of the continuing Tencel investments, this annual report features Tencel like no other.  Tencel is mentioned on 10 pages and in 4 illustrations.  Since the last report, Sir Christopher Hogg has been replaced by Sir David Lees as Chairman and Sipko Huismans by Gordon Campbell as CEO.  Expansions at Grimsby and plans for a 50,000 tpa plant in Asia are mentioned.

This is also the first report to mention the development of "Courtaulds Lyocell"(tm) for nonwovens and industrial textiles.  These were the original "launch" markets for the Mobile SL1 plant justification back in 1989-90, but these developments were sidelined as strategy switched to a fashion-first launch. Here are the main pieces:

In Chief Executives Review...
Despite an almost doubling of capacity in the early part of 1996, demand for Tencel exceeded our capacity, and we had to balance the development of demand with our ability to supply. This was difficult but important, since existing demand is primarily from the textile market and we have an untapped industrial market still to develop. The most encouraging feature of the textile demand, however, is the breadth of products now available from our customers and which demonstrate the versatility of Tencel. 

Clearly, the parts of the textile industry which will survive in the developed world are those that are capable of creative and innovative design. It is unsurprising, therefore, that Europe has now joined Japan as a major market for Tencel. Our next Tencel plant - the first in Europe - is intended to serve this market and is on schedule to open before the end of 1997 Tencel also made a firm breakthrough into profit last year despite unfavourable exchange rate movements and the increasing expenditure on marketing. The latter, together with continued investment in research and development, imposes short term costs but is essential if Tencel's world leadership is to be maintained.

Capital expenditure remained high in 1996/97 Tencel is a significant component of our capital spend, but we are not ignoring the potential in our other businesses...

In "Positioned for Growth"...
Tencel the fibre of the future...For the last five years, Courtaulds Fibres has been the only producer of a new cellulose based fibre, the first new fibre to be developed anywhere in the world for a third of a century. The raw material is woodpulp, from the trees of harvested, self-sustaining forests. lts production process produces virtually no effluent and it is extraordinarily comfortable to wear. Its generic name is lyocell. Courtaulds now markets it in two forms: Tencel for apparel and home furnishings and Courtaulds Lyocell for industrial uses. Both have huge potential but it is Tencel with its direct appeal to the Consumer, which has captured the public imagination wherever it has been introduced.

Tencel has exciting colour characteristics, can produce a wide range of textures, and has excellent, and varied, aesthetic qualities. Tencel has immense scope in fashion markets both in pure form and in refined blends with silk, linen and wool. Tencel now features in the ranges
of an increasing number of fashion houses, such as Calvin Klein, Donna Karan, Joop!, Georges Rech, John Rocha, Armani, Lacroix, Jean Paul Gaultier, Paul Costelloe,  Ferre and Cerruti. And this is only the beginning.

The qualities that make Tencel so special also open a broad spectrum of opportunities for its industrial variant, Courtaulds Lyocell. The fibre's unique combination of strength and absorbency make it suitable for a wide range of uses, ranging from protective clothing for North Sea oil rig workers to surgical gowns; medical swabs; incontinence pads; oil and smoke filters and even teabags and sausage skins. 

Courtaulds Fibres pioneered lyocell and launched it as Tencel in l992. lnitially marketed in Japan, its rapid success was a powerful indicator of its potential. Today sales of Tencel are expanding rapidly in North and South America, Europe and Asia-Pacific.

Tencel and Courtaulds Lyocell are at an early stage of their lives, and the scope for development is huge. They are the fibres of the future, and Courtaulds is clearly in the lead, a full five years ahead of its closest competitor.