OMPANY MEETING

IMPERIAL CHEMICAL INDUSTRIES

INCREASED VOLUME OF BUSINESS DEVELOPMENT OF EXPORTS LORD McGOWAN'S ADDRESS THE 13th annual general meeting of Imperial Chemical Industries, Limited, was heid on May 23rd at Queen's Hall, London, W.

The Right Hon. Lord McGowan, K.B.E., D.C.L., LL.D. (the chair- man), in the course of his speech, said: In the 1938 report the board noted that the Munich crisis of September in that year had emphasised the rapidity with which an emergency could develop. We had a Com- mittee, called the Defence Organisation Committee, which had been entrusted with foreseeing and preparing the defensive steps that would be necessary in the event of war. The work commenced after the Munich crisis and continued very actively through the early months of 1939. Expenditure for Air Raid Precautions and plans for the dispersal of staff were pressed on. Expenditure during 1938 for Air Raid Precautions, you were told, amounted to £125,000, but this work was very largely extended during 1939, and the cost, shown in the 1939 report, was L717,000. That Committee had worked out full details for the evacuation of our headquarters at Millbank, and there was also prepared a scheme for the maintenance of pension fund membership and payment of allowances to those employees who took up service with H.M. Forces.

When the Germans marched into Czecho-Slovakia in March, 1939, we became more acutely apprehensive of the future, and shortly after- wards appointed an Emergency Committee to review the incidence of war on our productive resources, sources and stocks of raw materials, links with other manufacturers, the effects on our export trade, and so forth. Large additions were made to stocks which enabled us to increase production for national purposes immediately war was declared. We asked our principal associated and subsidiary companies overseas also to direct their attention to the problems which would arise and co- operated with them in arrangements for meeting war conditions. The Committee also reviewed the methods and effects of the official con- trols which would be inevitable.

These plans were rapidly put into force in the closing days of August, when certainty was overtaking apprehension. They proven of thc greatest possible service to us during the months which followed the- actual outbreak of war. The factories were enabled to continue operations without serious interruption. Evacuation of our staff at the head office at Millbank was effected without a hitch. A number of staff were transferred to the various operating groups and the remainder to offices outside London.

PRICE POLICY We were aware before the war began of the heavy additional cost that its shadow had already caused, and after September this expendi- ture mounted rapidly. Most of the increases in the prices of raw materials have'been attributable, directly or indirectly, to higher freight rates and war risk insurance. Generally speaking, overseas producers of our raw materials did not exploit the situation in any undue degree, but they had no control over transport or exchange and increases in cost were substantial.

It so happened also that we had agreed with the trade unions for a general advance in wages, which was to come into effect half in October, 1939, and half in April, 194o. These conditions, coupled with the heavy burden of premiums for war risks insurance, specially concentrated our attention on our price policy. We determined that we would maintain existing price levels as long as possible. There was immediate evidence that the factories would be hard pressed for deliveries, and we therefore decided to rely on the counterbalancing effect on costs of this increase in volume.

It is our practice, under standing contracts with our customers, to fix towards the close of each year the prices of many of our main products for the following calendar year. When we had to come to a decision in this matter in November last, we made such forcecasts as were possible, and determined that the price policy we had adopted should be adhered to, subject to the modification that, where returns had been unremunerative, prices should be altered to correct that position. But because it was impossible to forecast with any certainty the trend of volume, or costs generally, we took steps to announce standard advances in price, not to become effective until circumstances demanded it. As a result, industry has enjoyed a continuation of the prices of our principal chemical products which were in force at the outbreak of war. I am glad to say that so far no general increase has been made. Our customers have expressed great appreciation of this Policy.

IMPORTANCE OF EXPORTS

There is one considerable exception, namely, the export trade. Not only has it been our duty to maintain and expand, wherever possible, the volume of -,tir exports, but it has been consistent with the national interest to adjust prices to a reasonable extent, without prejudicing volume. Every additional pound of foreign exchange that can be

i secured in this way serves to enlarge the volume of imports for war purposes which H.M. Government can obtain. I may say that our larger gross profits this year spring in some considerable measure from more profitable export business.

As a concern which trades in most of the markets of the world, and one which for certain products in this country is the major, if not the sole, manufacturer, it has long been the practice of the com- pany and its predecessors to maintain spare productive capacity. It is our rule that we can never afford to let our customers down. That has often necessitated capital expenditure in anticipation of demand, with the possibility, and sometimes the actuality, that forecasts of demand ran ahead of subsequent events, so that the capital invested in these plants has lain unemployed for a time. In the chemical industry units of plant are often so large that they involve not only heavy capital expenditure, but require a considerable period of time for construction. This time element forbids us to wait. We must act in advance. But in exceptional circumstances, when demand takes an abrupt upward turn, this course brings its own reward. At the present time all such spare capacity is in full production and in almost every plant the pressure has been continual for more and more sup- plies. It brings with it, of course, much greater mental and nervous strain on the staff and workers who are responsible for operations. I would pay a high tribute to their loyal efforts.

HOME AFFAIRS Our relations with H.M. Government have grown steadily closer throughout the year. We have been entrusted with a very considerable volume of work in erecting factories, which has set up numerous problems. It has meant heavy calls upon our staff, many of whom we have had to detach entirely for national purposes. We have also undertaken to operate a substantial number of agency factories for the Government. We have endeavoured—I think with success—to give every possible assistance that we could to the various Government Departments. The work that we have undertaken has, on the who* progressed very smoothly. Our officers have worked in the most friendly co-operation with those of H.M. Government.

Perhaps you would permit me here to refer to the advantage that flows today from the formation of this company, as well as from our continued efforts over the past thirteen years, to mould its huge organi- sation into a form best to fit it, not only successfully to carry on in times of peace a great essential industry, but also to be a vital national instrument in time of war. Without that, your company's organisa- tion could not contribute what today it is able to offer to the national need.

OVERSEAS AFFAIRS In my remarks last year on our export business I referred to the many difficulties met with in the overseas markets and to the importance of these being overcome in order to find a continuing outlet for British goods abroad. The vital necessity for expanding exports at that time rested mainly on the increasingly unfavourable balance of trade of this country and the danger of its repercussions on un- employment and the standard of living.

These considerations still exist, and, under war conditions, they are reinforced by two other factors. In the first place the war potential of this country can only be brought to its maximum pitch by importations of both raw materials and industrial products on a vast scale which to a large extent have to be paid for at the time of importation. The need for increased exports to pay for these imports, therefore, is greatly accentuated.

In the second place, the conditions under which this war is being fought have resulted in Germany, one of the largest producers and exporters of industrial products, being cut off more or less complete from her former overseas markets. On the one hand, this situation lays on Great Britain a responsibility to ensure that essential sup- plies are forthcoming for those markets, while, on the other hand, it opens up an opportunity for the establishment of new export business which may be of the utmost value in the after-war years.

EXPORT TRADE EXPANSION The experience of the company during 1939 in export business was satisfactory. Up to the beginning of September, the volume of sales was larger than the previous year while values in many direc- tions tended to improve. The outbreak of war produced a brief period of somewhat violent readjustment during which the resources and needs of the country had to be assessed before export trade could be freely resumed. Well before the end of the year, however, the worst difficulties of this period had been overcome. Provision was being made for Government and other home needs, and production was being stepped up in many directions in order still to provide an adequate surplus for export.

I consider that, in a country which has always prided itself on leaving as much as possible to individual enterprise and planning, both the Government and industry can be congratualted on the com- parative smoothness and speed with which the transition to a partially controlled economy has been effected.

FUNCTION OF EXPORT GROUPS There are naturally many defects still to be set right but these are in hand. First among them is the necessity so to organise the

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IMPERIAL CHEMICAL INDUSTRIES

(Continued from page 733) industry and trade of the country as to ensure the maximum export effort. Th_s is ow widely recognised by the public as well as by official and tra-te interests, and I welcome the establishment of the Export Council by my friend and recent colleague, the President of the Board of Trade. The Export Groups being set up in indi- vidual industries under the Export Council will permit concerted action by industries and will enable the Government to give the greatest possible assistance where it is most needed. In a number of cases your company has undertaken, in co-operation with the Board of Trade, the preliminary work of establishing these Export Groups and will itself act as strong and loyal supporters of them. One interesting runction which they should be able to perform will be to ensure that nroducts, such as many of those made by your company, which can either be exported themselves or enter into the manufacture of other products of greater value, should be so allo- cated as to bring back the maximum benefit to the nation.

The progress of export trade during the current year will be largely governed by the factors I have already mentioned. In some direc- tions home demand for war purposes will absorb the bulk of our output. In others, by intensive and expanding production, we should be able to benefit, I hope on a very considerable scale, in the markets left short of supply by the arrest of German exports. This trend is already visible in our sales during the first part of this year, and I can assure you that every effort is being made to strengthen it in the interests both of your company and of the country.

Our associated enterprises in the British Commonwealth—Australia, Canada, India and South Africa—continue to prosper. In each country close co-operation is being maintained with the Governments and the general relations which exist are very gratifying to us. The new alkali works of the Australian company and the electrolytic plant of the Indian company have just commenced production.

RESEARCH AND DEVELOPMENT The outbreak of war has wrought many changes in our research activities by altering the emphasis on the various problems we had in hand, but it has not in any way reduced the necessity for maintain- ing our total volume of research, but rather the contrary.

In the first place, the call to produce materials for the direct use of the fighting services, materials which may in some cases be new, or in others be old, but needed in greatly increased quantities, has presented us with many technical problems of the highest urgency. It is for- tunate that we have a large and efficient research organisation in being, which is capable of dealing quickly and effectively with such problems as they arise.

In the second place, we bave had to devise processes and start the manufacture of a very considerable number of essential chemicals which, up to the outbreak of war, were mainly imported. I look forward to considerable developments in this field.

Thirdly, we are concerned in a number of investigations which are calculated to increase the national reserves and to fortify the resistance of the nation to war conditions. Your board have decided to give every support possible to research of this character.

Finally, we regard it as being of the utmost importance that work on the more promising of our long distance problems should be vigorously maintained so that when we again return to peace we may still hold our place in the front rank. It is difficult to picture the conditions of trade that will follow the war, but there is little doubt that they will present many complications. It is our business to make preparations now to ensure that whatever may befall, Imperial Chemical Industries, Ltd., has the latest scientific knowledge, the most modern technical equipment, and the most efficient processes with which to meet the facts of the time.

WAR SAVINGS

We have given our cordial support to the War Savings campaign. A National Savings Group has been formed to embrace all the works and offices of our organisation throughout the United Kingdom, in connection with which arrangements have been made for instalment payments by deduction from weekly and monthly remuneration. A large number of our employees. have already become members. When so many who are near and dear to us are staking their lives in the colossal battle which is still raging in France and Belgium, the least we who are working on the home front can do is to curb our own expenditure to the minimum and put every remaining penny into the national finance.

FINANCIAL POSITION

The consolidated accounts combine the assets and liabilities of Imperial Chemical Industries, Limited, and 118 subsidiary companies. The total gross income amounts to £15,343,000, compared with £10,463,000 in 1938, or an increase of nearly so per cent. Practically the whole of this gain arises from the first item, manufacturing and trading profits less losses, which has risen from £9,023,000 to £13,701,000. The substantial growth is to be attributed entirely to the great development in the volume of our business and more profit- able export trade. The net consolidated income for the year amounted to £7,678,000, as against £7,282,000, or an increase of £396,000. You will therefore see that an increase in the gross income of ,C4,880,000 is reduced in terms of net income to £396,000. Practically all that we have gained has disappeared. The chief explanation is to be found in the three items of taxation, miscellaneous expenditure and obsolescence and depreciation.

In the consolidated balance sheet the figures are largely self-explana- tory and there are few changes of any moment. The important aspects of this statement are, I think, to be found in a comparison of our

current assets with our current liabilities and in the amount of surplus of assets over liabilities and share capital. This year current assets are just over £43 million, as against our current liah ties of £221-. million. There is a surplus of over £20 million. C, risen stocks have sen substantially. Rising values of stocks have an elern( of danger in them, for there can be few who remember the Great V who will not be conscious of the heavy slump in the value of sto that took place following its termination. We are watching. this it carefully, and it may be that if prices of materials continue th, present upward trend we shall have to make appropriate reserve pr3- visions against the possibility of a repetition of events.

Turning now to the surplus of assets over liabilities and share capital —an item which excludes the interest of external shareholders :n subsidiary companies—you will see that it has risen in theyear from £13,281,000 to £14,666,000. In the main, the increase of £13385,oao represents our reserve allocations. We shall hope to see progress in this item from year to year.

The profit and loss account shows you that, bringing in the balaru_e brought forward from 1938 of £621,000, the total amount disposable was £7,934,000. After providing for the Workers' Pension Fund, which this year calls for £180,000 as compared with £573,000 last year, the board appropriated £375,000 to the general reserve and £i,000,000 to a war contingency reserve. This left a balance of £6,379,000. After payment of the preference dividend of £1,666,000 and an interim dividend of 3 per cent. paid on December 1st last of £1,512,000, your 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 final dividend, which will be paid on July 1st, 5940, requires a sum of £2,520,000, which will leave to be carried forward to 1940 £681,000, or £60,000 more than the amount brought in.

PROSPECTS FOR 1940

The few sentences on the prospects for 1940 with which I had intended to conclude this address have been outdated by the passage into law this week of the New Emergency Powers (Defence) Act. It gives power by Order in Council to make regulations requiring all persons to place themselves, their services and their property at the disposal of the Crown. All of us will welcome these powers, but it will be as clear to you as to me that their effect on the company cannot be foreseen.

You will gather from what I have already said that since last September the whole strength of our organisation has been un- grudgingly devoted to whatever services we could render H.M. Government. What further may now be required of the company will be most willingly given, and in this we know we shall have your fullest and most loyal support.

The report and accounts were unanimously adopted.