This report contains Sir Christopher Hogg's excellent summing up of the project prior to his departure.
Inside Front cover...
Our strategic objectives are to build Tencel, our pioneering lyocell fibre, into a leading fibre throughout the world ...and [especially] in the fast-growing Asia Pacific region.
Page 1. In "Principal features of the Year" - first point...
Demand for Tencel exceeds capacity. Second plant opened; construction of third plant accelerated.
In Chairman's Statement (Sir Christopher Hogg)...
...and we sold more than 25,000 tonnes of Tencel to an increasingly receptive and varied group of customers around the world.
Of these forward indicators, it is the evolution of Tencel which promises the most. Even at this stage of its development, 18 years after the start of serious work on it in our research laboratories, it is difficult to judge how far and how fast it will progress. But I believe Tencel will be as significant in shaping Courtaulds future in the 21st century as was viscose rayon, with which Courtaulds pioneered the world man-made fibre industry, at the start of the 20th.
The project (then called Genesis) to create a new cellulose fibre process was first referred to in the Report & Accounts for 1981/82. Shareholders might well ask, therefore, whether we could not have reached the present point much earlier, Perhaps; but we are well ahead of our only known competitor. And the fact of the matter is that timescales for large and genuinely innovative projects are long. lndeed, they are often so long from conception to payback that they would never get started, even with perfect knowledge of the future, if investment was determined solely on the basis of discounted cash flow.
One way of looking at Tencel is that we have already invested more than £300m in a long and risky journey and we are still some way off a proper return. Another way of looking at it, however, is that the Company can go into the next century having found what it has been looking for since the 1940s, namely a secure basis for long-term growth - a basis, furthermore, which is absolutely rooted in what Courtaulds has been doing for most of its history. lt is the task of every generation of management to take the best things in its inheritance and shape them so as to survive healthily the 'creative destruction' of the capitalist process. Tencel is fully in keeping with that endeavour.
In Chief-Executive's Review (Sipko Huismans) ...
There was also some good news on the fibre front. First and foremost was that Tencel has now passed the commercial lift-off phase. Demand, now and anticipated for the next few years, exceeds our planned capacity. That is in spite of the fact that we have now commissioned the new 25,000 tpa second phase Mobile plant, The Grimsby plant programme has now been accelerated and the planned phases one and two will be built simultaneously. Whilst this is already a daunting technological challenge it would remain only that, but for the progress being made in the market place - both technical and commercial. ln this respect we owe a debt of gratitude to those early customers in all three continents, who did so much to overcome the initial constraints in fabric finishing capacity.
lt is one of the most gratifying aspects of the entire Tencel story to see equipment suppliers bring out special machinery to deal with Tencel - just as happened for polyester in earlier years. I have no doubts that if the rate of progress over the last five years is sustained, Tencel
can be one of the world's major man-made fibres in the 2lst century. As with viscose earlier this century, Courtaulds will have pioneered this first lyocell fibre and should be the major player in lyocell for many years to come.
In Finance Directors Review (Howard Evans)...
Capital expenditure at £177m was again over twice depreciation and in line with last year. ln addition to maintaining the normal levels of capital expenditure in the Company's established businesses, this year's expenditure includes significant investment in the completion of the second Tencel plant at Mobile and the expansion programme in the Far East. Expenditure plans for 1996/97 are a little higher than 1995/96. The major projects in 1996/97 will include the construction of the new Tencel plant at Grimsby...
The significant capital and revenue invested in Tencel and the Far East over the last few years have continued to depress the Group's return on capital employed which was again 3.6% lower than it would have been if these activities had been excluded.
In Business Review (David Wilkinson)...
Demand for Tencel, now in profit despite development costs, was very encouraging. We opened our second plant, more than doubling our capacity, and accelerated the investment programme. Together with new technology this will give us some 100,000 tonnes of Tencel capacity by early 1998.
The development of the Tencel market accelerated in 1995/96 as work with customers in Japan, USA and Europe bore fruit, and Tencel broke through into profitability. We were reassured by the pattern of the demand, which was widely spread, both in terms of end use and of geography. By the end of the year demand was so strong that the extra capacity promised by the second US plant, also at Mobile, was badly needed. Unfortunately, bad weather caused delays to the start-up of the new plant and its first line could not
come on stream until mid-February. Subsequently, production reached anticipated levels rapidly, with excellent product quality. The new plant's second line started up in May 1996 (sic - see photo caption), on schedule.
As a consequence of the very strong demand for Tencel, and of our confidence that this would be maintained, the original plans for the third plant, at Grimsby, were modified. The facility will now be built in one single stage with a capacity of 42,000 tonnes. Together with the retrofitting of new technology to the Mobile facilities, this will take our total capacity to almost 100,000 tonnes by early 1998. We believe that this rapid expansion will enable us to maintain our marketing, technical and cost advantages, and reinforce our
competitive position.
In Research, Technology and Development (Eryl Morris)...
Tencel and its generic family, lyocell, are still only in an early stage of development some 18 years after work began. With such a radical method of manufacture, resources continue to be devoted to the improvement of process performance and capital productivity, with the objective of reducing capital cost per annual tonne of production. ln terms of the product itself, the exploitation of lyocell is still in its infancy, and the scope for developing it to meet a wide range of applications, from high fashion to industrial uses, is very substantial. The research and development work needed to achieve this is essentially long-term, extending into the foreseeable future.
The project (then called Genesis) to create a new cellulose fibre process was first referred to in the Report & Accounts for 1981/82. Shareholders might well ask, therefore, whether we could not have reached the present point much earlier, Perhaps; but we are well ahead of our only known competitor. And the fact of the matter is that timescales for large and genuinely innovative projects are long. lndeed, they are often so long from conception to payback that they would never get started, even with perfect knowledge of the future, if investment was determined solely on the basis of discounted cash flow.
One way of looking at Tencel is that we have already invested more than £300m in a long and risky journey and we are still some way off a proper return. Another way of looking at it, however, is that the Company can go into the next century having found what it has been looking for since the 1940s, namely a secure basis for long-term growth - a basis, furthermore, which is absolutely rooted in what Courtaulds has been doing for most of its history. lt is the task of every generation of management to take the best things in its inheritance and shape them so as to survive healthily the 'creative destruction' of the capitalist process. Tencel is fully in keeping with that endeavour.
In Chief-Executive's Review (Sipko Huismans) ...
There was also some good news on the fibre front. First and foremost was that Tencel has now passed the commercial lift-off phase. Demand, now and anticipated for the next few years, exceeds our planned capacity. That is in spite of the fact that we have now commissioned the new 25,000 tpa second phase Mobile plant, The Grimsby plant programme has now been accelerated and the planned phases one and two will be built simultaneously. Whilst this is already a daunting technological challenge it would remain only that, but for the progress being made in the market place - both technical and commercial. ln this respect we owe a debt of gratitude to those early customers in all three continents, who did so much to overcome the initial constraints in fabric finishing capacity.
In Finance Directors Review (Howard Evans)...
The significant capital and revenue invested in Tencel and the Far East over the last few years have continued to depress the Group's return on capital employed which was again 3.6% lower than it would have been if these activities had been excluded.
In Business Review (David Wilkinson)...
Demand for Tencel, now in profit despite development costs, was very encouraging. We opened our second plant, more than doubling our capacity, and accelerated the investment programme. Together with new technology this will give us some 100,000 tonnes of Tencel capacity by early 1998.
The development of the Tencel market accelerated in 1995/96 as work with customers in Japan, USA and Europe bore fruit, and Tencel broke through into profitability. We were reassured by the pattern of the demand, which was widely spread, both in terms of end use and of geography. By the end of the year demand was so strong that the extra capacity promised by the second US plant, also at Mobile, was badly needed. Unfortunately, bad weather caused delays to the start-up of the new plant and its first line could not
come on stream until mid-February. Subsequently, production reached anticipated levels rapidly, with excellent product quality. The new plant's second line started up in May 1996 (sic - see photo caption), on schedule.
As a consequence of the very strong demand for Tencel, and of our confidence that this would be maintained, the original plans for the third plant, at Grimsby, were modified. The facility will now be built in one single stage with a capacity of 42,000 tonnes. Together with the retrofitting of new technology to the Mobile facilities, this will take our total capacity to almost 100,000 tonnes by early 1998. We believe that this rapid expansion will enable us to maintain our marketing, technical and cost advantages, and reinforce our
competitive position.
In Research, Technology and Development (Eryl Morris)...
Tencel and its generic family, lyocell, are still only in an early stage of development some 18 years after work began. With such a radical method of manufacture, resources continue to be devoted to the improvement of process performance and capital productivity, with the objective of reducing capital cost per annual tonne of production. ln terms of the product itself, the exploitation of lyocell is still in its infancy, and the scope for developing it to meet a wide range of applications, from high fashion to industrial uses, is very substantial. The research and development work needed to achieve this is essentially long-term, extending into the foreseeable future.
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