INTERNATIONAL BUSINESS
Henderson Prepares For Chairmanship of Britain's ICI cluded the international aspects of agrochemicals, dyestuffs and paints, and pharmaceuticals, as well as the overall European region; and he maintained an overview of ICI's acquisitions strategy. Henderson has a direct no-nonsense approach. His rapid speech still has a slight trace of his native Scottish burr. A man of considerable energy and charm, he favors working in his shirt sleeves in the elegant surroundings of the corporate executive suite overlooking the Thames. In an exclusive wide-ranging interview with C&EN's European bureau head Dermot A. O'Sullivan, he spoke candidly about the many elements oflCVs worldwide commercial strategy.
Denys H. Henderson ascends to the chairmanship of Imperial Chemical Industries in April. At 54, he will be the youngest man in that position since the company was incorporated in London in December 1926. His contract runs for five years by which time he will not have reached the mandatory retirement age of 62. So in theory, at least, he could be asked to stay on in the post for a further three years. Born in Ceylon {now Sri Lanka) where his father was in the tea business, he grew up in Scotland and received a law degree from Aberdeen University. He joined ICI in 1957, working initially in the legal department. His penchant for detail and hard work brought him to the attention of senior management. Through a succession of posts—among them, new ventures manager of the Nobel division, head of catalysts and licensing in the agricultural division, director of fertilizer sales, corporate commercial general manager, chairman of the paints division—he gained experience in the marketing and commercial aspects of ICI's global business. Since joining the main board in 1980, his responsibilities have covered planning, commercial affairs, explosives, polyurethanes, and specialty chemicals. His portfolio also in16
February 2, 1987 C&EN
How do you visualize ICI when you have completed your term as chairman? The answer has got to be more profitable, as exciting, growing, better regarded by investors, by the community, by our employees. I say that because, one, although we do have clear international plans, I'm not in favor of revealing specific, quantified targets, and, two, because no matter how good projections are, no matter how good the base from which you are working, there are always the external unexpected events that come out of the blue. So one really can't predict the future with great certainty. I do, on the other hand, have a very strong feeling of obligation that when my time comes to move on, I have to be sure that there are in the pipeline new businesses that will benefit my successor and his successor in terms of being in place for the year 2000 and beyond. One of the great challenges I face is to make sure that the whole [of the ICI group] is more than the sum of the parts. And they are powerful parts. When I say bigger, better, more exciting, more highly regarded, I say that simply because I don't ever believe that you can stand still. We have as a company made very considerable progress in all sorts of ways over the past five years. But what I will not allow to happen is to return to the slightly comfortable attitude we may have been through at one stage—that things are going well. When Sir John [Harvey-Jones] and I, as we regularly do, talk about continuity, it is essentially about continuity of momentum. The business has got to keep moving forward. That's the important thing. It may be very uncomfortable on occasion, but it's happening. Of course, after the kind of explosive growth we
have had, it is inevitable that there has to be some form of consolidation. Because, when you make the number of acquisitions and changes that we have made, you leave a few things untied that have got to be pulled together. Would you elaborate on some of these moves? Look at the major changes in 1986. First, we put together the joint venture with Enichem to form European Vinyls Corp. producing vinyl chloride and polyvinyl chloride, a very, very big partnership. That's a major change, and it's beginning to look quite promising. Second, we bought Glidden Paint [in the U.S.], which moved us up to number one in terms of size around the world in paints. And that's very important because increasingly we want more of the powerful international businesses as our customers. Third, we brought together our chemicals and polymers activities. In organizational terms, this undoubtedly is the biggest single move we probably have ever made. And fourth, we moved our oil business into Enterprise Oil, partly because we honestly didn't believe it
quite big enough to grow in the way we would like to see it grow, but also because we wanted to keep a foothold in the business, and Enterprise appears to us to be one of the very best of the independent oil companies. Their spread of resources made a very good fit with ours. So these are four fairly major changes. I'm quite sure there are not many companies that have had that kind of change in the past 12 months. The many changes and restructuring at ICI have taken place during Sir John Harvey-Jones' chairmanship. Do you see his as being a hard act to follow? It is a difficult act to follow in the sense that Sir John is a very charismatic person. He took over the company at a time when our fortunes were at a relatively low ebb, and it was absolutely crystal clear that there had to be some massive change. And he has been, above everything, a great influence for change. Partly as a result of circumstances, and partly as a result of our own efforts, things have got a great deal better. There is no doubt about it. We are a very different company now than we were
ICI has expanded its business in U.S. When Sir John Harvey-\Jones took over as chairman of ICi in 1982, it was still in the shadow of the blow to its corporate pride of having dipped into the red for the first time two years earlier. He set about a major reshaping of the company's many businesses, a process that will continue after he retires in April. By shedding a number of "established" products that were poor profit earners, placing greater emphasis on new technologies, and cutting costs, which included trimming the work force by about 5000 to its present level of some 118,000, ICI now is on a sounder financial footing than it has ever been. For example, its profit margin— net income as a percent of sales— exceeds 5 % . That's at least two percentage points ahead of its main Europe-based rivals, BASF, Bayer, and Hoechst. From the outset, Harvey-Jones has been committed to extending ICI's presence in the U.S. marketplace. The company, of course, has had trading links with the U.S. since it was formed. Some products sold were supplied by Canada's C-l-L, 7 3 % owned by ICI. A key step in attaining a U.S. chemical footing came in 1971 when ICI bought
Atlas Chemical, headquartered in Wilmington, Del., which has served as a cornerstone for its subsequent expansions there. ICI Americas' portfolio continues to grow. It now embraces agrochemicals, pharmaceuticals, polyester film, specialty chemicals, dyes, paints and coatings, and polyurethanes and their intermediates. To establish itself more firmly among U.S. investors, trading of ICI shares on the New York Stock Exchange began in November 1983. A major acquisition was that of the chemical interests of Beatrice in December 1984 for $750 million. Its 10 businesses employ 3600 people in 18 countries. Three of the businesses are leaders in reinforced performance plastics serving the aerospace, defense, and sports goods industries, areas in which ICI already has considerable expertise. Other parts of the company make specialty chemicals. Another significant expansion occurred last year when ICI bought Cleveland-based Glidden, the paint, coatings, resins, and adhesives company. Glidden is the third largest U.S. maker of paints after PPG Industries and Sherwin-Williams. Its acquisition, combined with ICI's already sizable
involvement in the business, lifts the British company to the world's number one position in paints. ICI has been making other U.S. purchases, not all of them as eye-catching as those of Beatrice and Glidden, but significant nonetheless. Among them are Coe Laboratories of Chicago, an established supplier of dental care products; Garst Seed near Des Moines, active in developing hybrid corn seed; Katalco of Oak Brook, III., a leading maker of catalysts used in chemical processing and oil refining and supplier of radio-tracer diagnostic services; and Array Technology, a maker of integrated circuits, based in San Jose, Calif. These and other purchases stem from the setting up of a top-level acquisition team in 1984 for which Denys Henderson, ICI's chairman-designate, was largely responsible. The team's aim is to seek out companies around the world that would fit ICI's thrust into higher-value-added areas of activity. Not all of ICI's recent U.S. moves have entailed purchases. For example, it quit the polyester fiber business in 1983 when it sold its 3 7 . 5 % stake in Fiber Industries to Celanese, its partner in the venture.
February 2, 1987 C&EN
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International Business five years ago in terms of profits and profitability, and in terms of objectives and strategies. We are also more complex, more widely spread, and more decentralized. The changeover will be a smooth one? I was elected to succeed Harvey-Jones last March. So there has been a 12-month handover, which I've found extremely helpful, and I'm sure he would say the same. We were aware that all these major events were likely to happen, though I wouldn't like to say that we knew, in detail, ahead of time. I think that the [ICI] board felt quite strongly that continuity was more important than ever at this stage, and that the incomer didn't arrive feeling that he hadn't been party to decisions that he then had to live with as chairman. I have been very much involved in the decisions. It is, as you know, a strongly teamoriented decision-making process that we run, and that will continue. It has been said that by the turn of the century, some two thirds of ICI's sales will be the so-called effect chemicals, compared with less than half now. This is guesstimating, not precise targeting. But implicit in that is that we believe that the major growth in chemicals will largely be in Europe, southeast Asia, and the U.S. And, of course, the products that are most easily exportable to these areas are the higher added-value effect businesses. Effect chemicals embrace a lot of different things—pharmaceuticals, agrochemicals, paints, polyurethanes, specialty chemicals, films, explosives. They are everything other than bulk commodity chemicals. For example, our pharmaceuticals business, which is our most significant contributor to profits at the moment, does about 80% of its research and most of the manufacture in the U.K., but less than 10% of its sales are here. So it's a very, very big export business, with a little bit of local manufacture elsewhere. We have about 2000 people working in pharmaceutical research—1500 in the U.K., 500 in the U.S. There is a big and growing research effort in Wilmington. We do our best to run it as one unit with very close coordination across the Atlantic. Not without occasional friction, but we hope it's constructive friction. I'm not a great believer in sales. I'm more a believer in profits. Last year more than 60% of our profits came from the higher added-value end of the game, and it's inevitable that that percentage will go up. It could be argued that the terminology is getting a bit hazy around the edges. When, for instance, does a specialty become a commodity? That's true. And, of course, the whole profile is changing. When our 1986 results come out, there will be some interesting features. Certainly our pharmaceuticals business will continue to be a very big performer. The constituent parts of what is now the chemicals and polymers group, also will have had a good year. Although I wouldn't say demand was particularly buoyant, profit margins improved a lot as the lower oil prices worked themselves through. 18
February 2, 1987 C&EN
On the downside, our oil business wasn't very exciting. It's relatively small anyway. That's one reason why we moved it into Enterprise Oil. Also, the agricultural end had a poor year as fertilizer [markets] around the world are pretty bad, and the pesticides game wasn't too good either. But the interesting thing is that our fibers business, which has been in trouble for a long time, will turn in good results. Polyurethanes will turn in good results. Specialty chemicals will turn in good results. And our films business will turn in good results. These four businesses will each be turning in profits of between $60 million and $75 million. That $300 million or so profit certainly was not around in 1982 when Harvey-Jones took over. The point is that we are a much broader based, and a much more robust company than we were. And when, as happened this past year, the heavy end turns good, then that's an added bonus. You mentioned at the beginning unpredictable external events that can influence your business. Are swings in the price of oil and gas, and in currency exchange rates two such events? Yes, I would like to see the oil price low and stable. Stability is important, just as stability of currency parties is important. What I find disturbing is when I look at the factors that are within our control, and then at the two things outside our control, oil price and currency, currency [exchange rate] probably is the single factor that will make the most significant impact on our results. Imperial Chemical Industries as a company name is somewhat cumbersome. Indeed, you might be disadvantaged in some parts of the world by "Imperial." Besides, everyone both inside and outside the company refers to it simply as ICI. What is the likelihood of this becoming the official name?
When I look at the two things that are outside our control— oil price and currency—currency probably will have the most significant impact on us
We might well go in that direction at some stage. Incidentally, I'm a great user of mnemonics. When I give a talk to our chief executives, I'll be telling them that in ICI, I stands for international, C for competitive, and I for innovation. I believe profoundly that you have to be international, competitive, and innovative. And that adds up to ICI. One of the things we are giving a lot of thought to is the ICI image around the world, and particularly in the U.S. where we are not that well known to the general public. I hope we're well known to our U.S. customers, and I believe we're well known to our competitors. With Glidden now an ICI company, and Glidden Paints being a well-known brand name in the U.S., there is a real opportunity for us to tie in the roundel to that. [The roundel, ICI's trademark, is a circle within which the letters ICI stand above two horizontal wavy lines]. When we bought Atlas Chemical back in 1971, we also acquired Stuart Pharmaceuticals. Stuart has grown very well indeed, mainly as the result of the success of Tenormin, our cardioselective beta-blocker, and Nolvadex, used to treat breast cancer. The company has moved up from a position of about 30 in the U.S. pharmaceutical pecking order in the early 1980s, to 12 or 13 now. That's a major shift. They, too, put the roundel on their products, but you have to have a microscope to see it. They believe that the brand name is Stuart Pharmaceuticals, and we understand that. But I think it's about time we said to our companies overseas, "You're part of our family, lads." We intend to do something about that. How do you see Glidden fit into ICI as a whole? Technically, the ownership of Glidden will be invested in the ICI Americas holding company, but it will operate as part of our international paints business in the same way that we have an international pharmaceuticals business and an international agrochemicals business. The paints business is going to be directed strategically by a board of four people, the chairman of which will be the chairman of our paints division, Herman Scopes, as principal executive officer. Glidden's chief executive officer, John Dumble, will sit on the board because Glidden is a very big and powerful part of the business. This year, we hope, the paints business will be turning in something approaching $150 million in profits—not just from Glidden but from our world paints activity. Your U.S. sales in 1985 were about three times those in 1981. By 1995, they are targeted to account for about 25% of ICI's world total nonoil sales. We're not far off that right now. Before Glidden, the U.S. was about 17% of the total. Glidden added some 3%, so I think 20% of our sales are now in the U.S. If you add in Canada, you get a bigger number. Our chemical sales portfolio is as nearly balanced geographically as you can get. We have about 25% in the Americas—Canada, the U.S., and Latin America. Far and away the biggest part of that is the U.S. We have about 25% in continental Europe, about 25% in
When I talk to our chief executives, 111 be telling them that in ICI, I stands for international, C for competitive, and I for innovation. And that adds up to ICI
the U.K., our home territory, and about 25% throughout the rest of the world. Considering its importance, might ICI Americas some day issue its own annual report? It's possible there might be a booklet spelling out what ICI in the U.S. adds up to. That would be fair enough. But I have my doubts about a separate annual report. After all, ICI Americas is a 100% subsidiary of ICI, and as such has to behave in accordance with whatever we think is the right approach for the group as a whole. The level of ICI's research and development spending in 1985 stood at 3.3% of sales. That was about on par with BASF and with Du Pont, but less than the level spent by Bayer and Hoechst. One has to be careful how one compares numbers. We don't take that 3.3% figure as all that meaningful. What we do is look at the businesses one by one. For example, the most successful pharmaceutical companies in terms of innovation spend about 12 to 13% of sales on R&D. Ours is 13% in pharmaceuticals. If you take agrochemicals, and other higher added-value areas, the most successful companies spend between 7 and 10%, we spend 8%. We monitor very carefully, business by business, to ensure that our R&D spending is good enough to keep us up with the best. If, on the other hand, you look at our fertilizer business, we spend very little on research as such, although we spend quite a lot on process development. We are building a new generation of ammonia plants here in the U.K. I was fertilizer director for three years, and I can tell you that the amount of innovation you can do in finding new versions of nitrogen or phosphorus or potassium is minimal. So we don't spend much on research on that area. The 3.3% is an amalgam that reflects our overall product mix. Business by business, what we spend is about right. What you have to do is spend effectively. February 2, 1987 C&EN
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International Business
There's a lot of ICI-sponsored research. We give scholarships and we have university people working with us during their vacations
Talking about research and the scientific thrust there is a great amount of interest in fostering relationships between industry and academia. Do you see more of this happening? Oh yes, we have a number of very strong links with the universities because we think this is extremely important. There is a lot of ICI-sponsored research. We provide a number of scholarships and we have university people working with us during their vacations. There has been an outcry recently here aimed at the government over what the academics see as the lack of proper levels of funding for scientific research. I think the government has been trying to do with academia very much what we have had to do, which is to get the best possible value for money. Perhaps in some areas, cuts have been overdone, but, in my experience, pendulums always overswing and overcorrect. Eventually a centering mechanism has to work. I'm pretty supportive of the need to be more selective in our research. I am equally sure that when you have been selective, you hit those targets with the maximum resource. That's very important. ICIis becoming very involved in computer systems. We are spending on hardware and software about 1.5% of sales. That relates to everything—data processing, data counting, information transmission. It's a U rge sum of money. But our customers and competitors are doing it. It's a means of moving closer to customers' ordering techniques and ordering systems, which are going to be integrated with our producing systems. So they are going to be able to call up what they need fairly regularly. I was asking the other day how many terminals we had in Europe. It's about 6000, with another couple of 20
February 2, 1987 C&EN
thousand in the U.S. About a third of these are personal computers. And don't forget the whole area of computer control of plants, which, of course, is absolutely vital to make sure that the efficiencies are right, the yields are right, and the costs are right. We worry about the amount we spend. When you try to justify the expenditure, it's hard to tie it down. We get figures that say that for every dollar you spend, you get two dollars back. This is difficult to prove, and you have the awful feeling that you're on a rapid escalator. If you check on what our competitors are spending, they are in the 1 to 1.5% of sales range as well. Here, again, we keep careful tabs on what the opposition is doing. On the one hand, we get some comfort in knowing that they are spending as much as we are. On the other, we wonder if they are just being led along by the big computer companies, who are very, very good at changing their hardware fairly regularly. You have the advantage of having had hands-on experience in a number of important areas of the company, such as fertilizers, paints, catalysts, the new ventures group. Do you know what's going on at the working level? I think I do. And of course since I've been on the main board, which is now seven years, I've looked after explosives, paints, pharmaceuticals, agrochemicals, polyurethanes, dyes, and pigments. I was European director for quite a time as well, and also planning and commercial director. I've been involved in a lot of the businesses. I know the people quite well. So it isn't as if on the first of April I will suddenly start finding out about the ICI world because I've been around it for many many years. Another thing that will be a tremendous help to me is that I've always been a traveling man. Do you see the amount of traveling increasing? I will be on the road a lot to be sure, but I doubt that it will be any more than I already have done. It will be a different sort of traveling. Whereas in the days when I was really at the sharp end, I went because I had something to sell, or a customer to see, or a competitor to meet. Now travel will be more planned. Last year ICI won its long legal fight with the U.K. government over tax concessions granted to British Petroleum, Exxon, and Shell on North Sea ethane used for their cracking operations. We would have been at a competitive disadvantage if we had lost that case. The ruling removes that disadvantage. It's very much to Harvey-Jones' credit that he took on the government. It's not always a popular thing to do, but he was willing to go along with it, and was very active in that whole proceedings. It showed a lot of courage. I regularly get asked what are the main qualifications to be an ICI chairman. One of the qualifications I always mention is courage. I hope I would show that particular quality. •
