COMPANY MEETING

IMPERIAL CHEMICAL INDUSTRIES

DIFFICULT TRADING CONDITIONS COMPETITION IN OVERSEAS MARKETS IMPORTANCE OF NYLON LORD McGOWAN'S REVIEW

THE twelfth annual general meeting of Imperial Chemical Indus- tries, Limited, was held on May iith, at Queen's Hall, Longhorn Place, London, W.

The Right Hon. Lord McGowan, K.B.E., D.C.L., LL.D. (the Chairman), in the course of his speech, said: Few of you will be without a clear impression of conditions at home in 1938. It was a year of trade uncertainty and political instability, culminating in the crisis last September. During 1938 world trade in general and British activity in particular received the backwash of the sharp industrial setback experienced by the United States in the closing months of 1937. In that depression, which came with startling rapidity and continued almost unabated through the first half of 1938, steel .output—the index of modern industrialism— had fallen by January, 1938, to a very low level and showed but little change until June. Business in general displayed the same characteristics.

The channel of economic influence between the United States and the rest of the world lies in the great volume of raw materials which America consumes—some 4o per cent. of 'world exports in normal conditions. In 1938 the United States reduced her imports by no less than £225 million below the level of r937 and the sales to that country of the products of seven of the principal British countries overseas fell by £77 million. Canada, Malaya, India, Ceylon, Australia, New Zealand and West Africa all lost heavily in purchasing power. It was not unnatural, therefore, that the United Kingdom exports to Empire countries decreased by £17 million and to foreign countries by £33 million.

REDUCTION OF EXPORTS

This fall was chiefly concentrated in the iron and steel industries and in textiles. Exports of cotton yarns and manufactures were almost £19 million less; wool textiles nearly £9 million smaller; and in manufactures of iron and steel there was a fall of nearly £7 million. I may further note a decline of nearly £3f million in the exports of non-ferrous metals and their manufactures and £21 million in chemicals, drugs, dyes and colours. Our own trade clearly reflected these conditions. It was also affected by the pronounced decline in the sales of motor cars, the registrations of private cars, etc., falling in the 1937-8 season by I41 per cent.

The rayon industry was also depressed—home production fell by II per cent. These are merely examples of two major home industries which are considerable users of our products, but, in- terested as we are in almost all industry in the country, die general slackening off is reflected in the annual report which you have received. The Explosives and Metal Groups benefited directly and indirectly from the Government's defence programme. The rearmament programme contributed to the maintenance of indus- trial activity in 1938, but our own direct participation, as I have said to you before, is comparatively small. It is true that we have carried out a great deal of work for the Government but in the main we have done so as advisers and supervisers, on the basis of modest fees, for the erection of factories, all the costs of which are for the account of the Government. While we have felt it our duty to do everything in this connection which we have been asked to do, it has imposed a very heavy strain on our technical staff, at the same time depriving us of many of their normal services for our own capital expenditure programme.

1938 ABROAD

In our export trade we have continued to experience many difficulties. There are still not larking admonitions to British manufacturers to push and expand their export trade, but critics on these lines often forget the strict regulations of many importing countries. Licences to import or permits to acquire the necessary exchange for the remittance home of sales realisations are a con- stant barrier, not only to the expansion but to the maintenance of business. These decuments, which can only be secured after compliance with a tangle of regulations, are often not obtainable at all because sterling exchange is not available, or, in other words, because the United Kingdom has not first bought a sufficient volume of the products of the country concerned. If this condition is not satisfied, no amount of sales effort is of any use. In short, exchange restrictions, quotas, clearing and payment agreements continue to be the order of the export day.

THE SINO-JAPANESE WAR

Japan's competition in world markets has been materially affected by the demands on her domestic industries arising out of the Sino- Japanese War. As a consequence, our own exports have been on a higher level in many markets and have realised better prices. We are not inclined to regard this as a permanent phase, how- ever, and expect to see the revival of Japanese competition in the near future. In Japan itself, the annual report records that our business has practically ceased. The trading capital that has thereby been released is, however, frozen in that country.

The war in China has reduced our business there by a half, and its continuance is likely to have further adverse effects. No one will doubt the necessity of upholding Britain's markets and interests in China against Eastern competition. The support which has recently been given by the credit guaranteed by the British Government has, I am sure, the entire approval of British con- cerns interested in that country. No doubt other means of assist- ance to a hard-pressed China can and will be found. They will be equally welcome.

The Civil War in Spain kept that market practically closed throughout 1938,- while Palestine—almost another war area—gave us unsatisfactory results. In Italy, Rumania and Turkey, three countries with which the United Kingdom has clearing agree- ments, the slow progress of British purchases of their products puts a bar on the expansion of British exports unless more money is to be locked up in these clearings.

PROGRESS IN THE DOMINIONS

As last year it is a relief to turn to theess of our asso- ciated companies in the Overseas Dominioner(Enada was natur- ally affected by conditions in the United States, but did not suffer so severely. We were therefore well content with the results of our associated company there.

South Africa remained extremely active throughout 1938, so that African Explosives and Industries, our associated company, again had a good year. I paid a visit to South Africa in January and February, and had an opportunity on the spot of conferring with my South African colleagues on the board of African Explo- sives and Industries, Limited, on the future prospects of the company. I can assure you they are excellent in every respect.

Australian conditions generally remained very stable. The board of our subsidiary company there, Imperial Chemical Indus- tries of Australia and New Zealand, was well satisfied with the year's results. Good progress is being made with the erection of the new alkali works at Adelaide, and work has commenced on a new synthetic ammonia plant. To provide in part for these de- velopments, the Australian company last July made an issue of one million five per cent. preference shares oft each. It received a generous welcome from the Australian public.

India, in common with other primary producing countries, suffered last year from the fall in world prices for her products, with a consequential effect on the value of the rupee. On the whole, our exports to our subsidiary, Imperial Chemical Industries (India), Limited, were satisfactory. That subsidiary promoted a new company there last March, which is now constructing fac- tories in the Punjab and Bengal for the manufacture of alkahs. It has a capital of £697,500, of which £232,500 in preference shares was offered to and immediately subscribed by the public in India, with an option to subscribe at a later date £139,500 of ordinary shares.

From these facts concerning Argentina, Australia and India, you will gather that we have adopted the policy of enlisting the financial participation and support of local interests in our enter- prises in these countries. It is mainly responsible for the increase of £1,093,000 in the " Interest of Outside Shareholders " shown in the consolidated balance-sheet. We believe this policy to be sound and it is therefore one that we shall continue in the future as opportunities offer.

INCREASING BRITISH EXPORTS

Attention has been paid to methods by which British export trade can be increased, and rightly so, for depression in the export industries is the main factor in our heavy and serious unemploy- ment problem. I would suggest that a bolder course might be pursued on export credit guarantees. The limits of liability have recently been extended but the proportion of export trade covered by this scheme is still comparatively small. Perhaps the explana- tion is to be found partly in the strict conditions appertaining to that scheme, particularly the requirement that, to cover currency risks, the whole of the trader's exports must be insured, and partly in the Treasury's insistence that the scheme must be run as a business proposition and make a profit. But there seems little need to insure export trade with the British Dominions, so that this requirement of totality might well be limited to all foreign —that is, non-British—exports. Moreover, the scheme might be more flexible and by lower rates of premium risk a loss.

GOVERNMENT ACTION

Secondly, it has been said that more use should be made of the British purchasing power that is evidenced by the large excess of imports over exports into the United Kingdom from various foreign countries. That the Government concur in this view may be adduced from the energetic series of visits paid by Mr. Hudson to a number of European countries and by the decision to send an economic mission to Rumania. These steps are warmly to be (Continued on Page 83o)

COMPANY MEETING

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(Continued from Page 829) commended and I trust that they will prove fully successful. It has also been urged that more and larger credits should be extended to foreign countries for the purpose of purchases of British goods. The recent Turkish credit and the complementary formation of a company in this country to promote the sales of certain Turkish products are all in the right direction. But I would suggest that these objectives could be more fully achieved if we had better statistics of invisible exports than those available today.

Without them, and accurate computation of the balance of pay- ments with a particular country—that essential statistic—is im- possible. Detailed information is regularly published of the visible trade between this country and individual countries over- seas but no such detailed and reliable information is provided con- cerning the items of invisible trade, namely, the, flow of income arising from investments and services such as shipping, insurance, banking, etc. The Government alone can collect and publish such figures and I should welcome steps in that direction.

Lastly, I would direct attention to the necessity of watching the price and cost structure at home. If British goods are too costly they cannot be sold in competition overseas. Too high a cost structure will enlarge and not diminish the volume of unemploy- ment, so that, though some classes of workers may be better off, labour on the whole and particularly in the northern part of this country will suffer accordingly.

INCOME AND DIVIDEND

After providing for the company's taxation and setting aside £1,500,000 for the Central Obsolescence and Depreciation Fund, the company's net income for the year amounted to £7,061,000, which, compared with that for the previous year of £7,51o,000 shows a decrease of £449,000, or 6 per cent. When regard is had to the fall in the volume of trade, the higher costs resulting from that decrease in volume, a higher wage level, dearer raw materials, notably coal, and of the difficulties in the international situation, these results cannot be regarded as other than satisfactory.

The year's appropriation required on account of the cost of past service for the Workers' Pension Fund was £173,000, and the board appropriated £1,125,000 to the General Reserve. After these appropriations there was left £5,763,000, which, with the £556,000 brought forward from 1937, made a total available of £6,319,000. The preference dividend of £1,666,000 was paid on the due date, leaving a balance of £4,653,000.

Out of this balance the board recommend a final dividend of 5 per cent. on the ordinary stock, which, with the 3 per cent. interim dividend already paid, makes a total dividend for the year of 8 per cent. on that stock. The ordinary dividend requires a sum of £4,032,000, which will leave £621,000 to be carried forward to 1939.

CONSERVATIVE POLICY

The company's dividend policy has always been closely related to the position of the company's reserves. Both have been governed, with your approval,. by prudently conservative con- siderations. The year 1937, as I observed to you at the last annual meeting; was one of exceptional activity and profit. The year 1938 fell away from that high level and was broadly comparable with 1936. It is for this reason that the board this year recommend a total dividend on the ordinary stock of 8 per cent.

Although the company's fixed assets are maintained in the highest state of efficiency out of current revenue, in view of the world position, the rapidity of scientific advances and the large aggregate value of the physical assets subject to obsolescence, the board feel they must keep constant watch on the strength of the Obsolescence and Depreciation Reserves. The amount of such reserves in the books of the company and of those of its fully owned subsidiary companies in respect of which the company undertakes to provide Obsolescence and Depreciation was at December 31st last £4,982,000. This sum has to be compared with an aggregate book value of freehold buildings, plant and machinery of such companies amounting at the same date to £44,85o,000, showing a percentage figure of reserves to book value of II per cent.

Last year I told you that the board's aim was to make your company so strong financially that " its stability shall remain un- impaired by even a major trade depression. They wish if pos- sible to maintain a steady dividend policy lying within narrow limits through good and bad years alike." But if your board are to do this, implying that in bad years the dividend on the ordi- nary stock shall be larger than the amount of profits available for that purpose in the year concerned, then there must be available an adequate reserve built up from undistributed profits from pre- vious years and maintained in a readily realisable form. Your board hope in due course to be able to build up such a reserve.

The authorised and issued capital of the company remain prac- tically unchanged. The market value of the mar -etable and other investments held by the company, which last year showed a defi- ciency on the book value of £324,000, after taking account of the writing down of the company's German investments, this year stood above the book value, which appears in the balance-sheet at £4,259,000. During the year investments to a book value of £I,26o,000 were sold. Those sales, together with the receipt of moneys in 1938 arising from similar sales towards the close of 1937, and the release of some working capital by reason of the reduced volume of trade in 1938, account for the substantial increase in the company's cash and British Government securities. The actual increase was £3,315,000.

RESEARCH AND DEVELOPMENT

Knowing the importance that we attach to research as the mainstay of technical efficiency and the source from which must be drawn the future prosperity of the company, you will hardly need an assurance that we have continued and extended our activities in this field of work. At the present time this research work is carried on in a number of laboratories attached to the respective manufacturing groups. After some years of study we have now come to the conclusion that this organisation leaves gaps which require to be filled. We shall shortly take steps, therefore, to erect a central laboratory, in a situation convenient for general access, where work on subjects not covered by the Group organisations, including longer distance research, may be carried on. In doing this we are following the precedent of some of our international friends, whose experience gives them no cause to regret the establishment of such a central institution.

MANUFACTURE OF NYLON

It was our close and long-standing relation for technical pur- poses with Messrs. E. I. de Pont de Nemours and Co., that has given us the opportunity to acquire the rights for the British Empire, excluding Canada, to manufacture the new synthetic organic material nylon, recently patented by that company, after research which has covered the better part of a decade.

As some of the principal uses of this new product are in the textile industry which we are not directly concerned, we entered into negotiations with Messrs. Courtaulds, Limited, for the forma- tion of a joint company to carry out the manufacture of nylon yarns and fibres in the United Kingdom.

The yarns and fibres manufactured by the joint company will, in due course, be made available to the existing silk and textile industries. Nylon, when drawn into fine filaments, is closer in its actual chemical structure to real silk than anything yet made by man, and is actually stronger and more elastic than silk itself. Naturally the possibilities in this country are much smaller than in the United States, so that at the commencement the factory will be on a small scale with provision for extension to meet future demands as they arise. Besides its use as a textile fibre, nylon may be worked up as bristles, racquet strings and fishing lines, and as a plastic it has great potentialities, which are receiving our close attention.

WAR PAY FOR EMPLOYEES

The crisis last September led us to consider the treatment of those of our employees who might be engaged in H.M. Forces in the event of war. Subject to any overriding action by H.M. Government, we have decided that the difference between any man's net remuneration from the company and the remuneration which he would receive while serving in H.M. Forces, with a modest adjustment for his maintenance, should be paid in full to all married men so serving, and to the extent of one-third to single men. In addition, we propose to maintain their member- ship in our various Pension Funds, and, as far as practicable, to re-instate them on demobilisation or discharge.

PROSPECTS FOR 1939

Last year I said to you that after a steady upward movement of the profits of British industry over a period of 5 years the initial signals for a change had been given. I warned you that if it were true that a cyclical movement extending roughly over nine years was to be expected, then the general outlook for the next two or three years would not be prepossessing. The year .1938 has up- fortunately borne out my remarks to some extent. The question is whether they are to be confirmed or reversed in 1939.

Again the answer will depend to some extent on the United States. But it will depend still more upon world political con- ditions, for the forecast of which the industrialist cannot be held to be responsible. Of -the United States it may be said that there has been an expeditious recovery from the sudden plunge down- wards which took place in the autumn of 1937 Conditions there today are more stable, though I observe with regret a -slight back- ward movement in the first few months of this year.

Despite the anxieties attending. the present political position, there is a remarkable level of business confidence in the country as a whole which augurs well for general business. So far as this year has gone we are more than satisfied with the volume of trade we have done. It is in the Government's power ' to maintain general confidence and the more active they show themeslves in leading the new spirit that inspires the nation, the stronger that confidence will - grow and with it the probability of -a year that should prove satisfactory to the stockholders and enable the board to pursue the policies which they have approved.

The report and accounts were unanimously- adopted. •