Britain is no longer an attractive region to manufacture
Britain is not an attractive place to manufacture, says Ineos chief Jim Ratcliffe
Jim Ratcliffe may not be a household name. But it’s hard to find another British industrialist who, in 15 whirlwind years, has built a business from scratch into a global $43bn (£27.5bn) sales machine.
Alistair Osborne By Alistair Osborne, Business Editor9:14PM BST 06 Sep 2013CommentsComments
That, briefly, is the story of Ineos, today one of the biggest petro-chemical companies on the planet. Its operations span 51 sites in 11 countries, including five in Britain, where it employs 3,500 people – notably at its plants at Runcorn, Cheshire, and Grangemouth in Scotland.
Put last year’s $2.75bn underlying earnings on an industry-typical, six-times multiple and here is a £10.5bn business, more than half-owned by Ratcliffe, its billionaire chairman.
It’s been a roller-coaster ride, as befits an entrepreneur who is celebrating his sixtieth year with three challenges – one June’s 90km Comrades marathon in South Africa, an uphill slog finished in 11 hours that left him “a wreck”.
In what he likens to a “three-act play”, Ratcliffe built Ineos via a decade-long, $7bn acquisition blitz, snapping up 22 unloved chemicals businesses from the likes of BP, ICI and BASF. Then, 2008’s recession bit and he came perilously close to losing the lot. A “technical” covenant breach was all Ineos’s 200 banks needed to extract €804m (£677m) in various fees, while the group’s debt hit a low of 7p in the pound and Ratcliffe relocated the company to Switzerland to escape Britain’s taxes.
Now Ratcliffe is on Act 3, heading a more “mature” business that is making a packet out of America’s US shale gas revolution. So much so that the same banks queued up “in spades”, he says, for a refinancing of Ineos’s $7.8bn debts that cut $140m a year off its interest bill.
Ratcliffe, then, is hardly a man short of experience. So when he says that Britain “frankly has not been a very attractive place to manufacture”, or that the UK should stop “faffing about” with shale gas and nuclear power, or that he’ll be forced to close Grangemouth unless the Government and the unions come to the table, then his views command respect.
Ineos currently invests about €500m a year on its operations around the world. But the incentive to pump more money into Britain is dwindling. “Historically the UK has not had many USPs [unique selling points] for manufacturing as opposed to some other countries,” says Ratcliffe. “If you go to the US, you’ve got a huge market, cheap energy, good skills and pensions are a sensible cost.
“Germany has great skill levels, great infrastructure, high-quality plant. If you go to the UK, we’re very creative and we’ve got the language, but energy costs are pretty much the most expensive in the Western world, pensions are pretty expensive and the skills are significantly below those in Germany and the US.”
UK energy costs are a major handicap, he says, pointing out that large users incur environmental taxes of more than €6/MWh in Britain versus less than €1 in Germany and nothing in the US Gulf. “The UK said it wanted to be the greenest country on the planet. That’s fine but you end up putting very high environmental taxes on users. So where are you going to invest?” asks Ratcliffe.
“The Government needs to understand it and do something about it. Do your analysis of energy costs. Either it comes from windmills and solar or things like nuclear and shale gas. You have to think about how you provide competitive energy for UK Ltd.”
Such costs are particularly important for Ineos. Its Runcorn plant, which provides the chlorine for 95pc of Britain’s water, “consumes as much energy as Liverpool”, says Ratcliffe.
It helps explain Ineos’s current US focus. “It’s a bit of a no-brainer from an investment point of view because of the economics you have got from shale gas being both a primary feedstock for chemicals and cheap energy,” he says.
Thanks to shale gas, ethane costs around 75pc less in America, “a colossal saving”. It explains why, although only a third of Ineos’s assets are in America and just 18.8pc of last year’s sales, the US accounted for 48.6pc of earnings and “will be more than half this year”.
“We are faffing about with shale gas,” says Ratcliffe. “The US has got on with it and they are reaping the benefits – a lot of activity, a lot of investment and resurgent manufacturing.”
He says Ineos is “going to have a look at whether we should submit for some of the shale gas licences” in the UK. But in the meantime the company isn’t sitting back. It’s building a £150m facility so that it can ship cheap US ethane to Norway, the site of one of its two European gas “cracking” plants – part of the process for making chemicals.
Ineos could make a similar investment at its other one – Grangemouth – if the Government and the unions played ball. “We have had some discussions with the UK Government about using their loan guarantee scheme but we would need some help – it’s too big a cheque for Ineos to do on its own.”
The Grangemouth facility, which Ineos bought from BP in 2006, employs more than 1,000 people but has “lost about £200m in the past three years”. Ratcliffe says there are two main problems.
First, “there aren’t enough chemical feedstock gases coming out of the North Sea to run Grangemouth economically” – hence the attractions of importing cheap US ethane. “The second is the cost structure of Grangemouth is not competitive – labour and pensions.” Some 65pc of salary costs at Grangemouth relate to pensions. Yet the pension deficit is stubbornly stuck at £200m.
“If we can’t address the costs, there’s only one ultimate destination unfortunately,” says Ratcliffe, hinting that Grangemouth has two years at best unless Ineos gets a deal with both the Government and the unions.
At the height of the recession, Ineos asked the Government to defer a £350m VAT repayment for a year. When it refused, he relocated the HQ to Rolle, on the shore of Lake Geneva. “We didn’t do it out of spite,” he laughs. “What happened when we emerged from the crisis was look at everything we could do, we sold some businesses, entered joint ventures, we reduced costs, we reduced headcount and we moved our head office from the UK to Switzerland.”
Would he come back? “The UK Government has talked to us about it – I wouldn’t say they’ve tried to persuade us. I can’t see us coming back now, we moved 80 people and their families.”
Neither has he any plans to float or sell Ineos. “I’ve no intention of selling it. I’m not sure what I’d do if I sold it. We’ve still got a lot to do,” he says.
How much of that’s in Britain, though, remains a moot point.