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February 7, 2014 10:56 am
A cup of coffee at the favourite café of Britain’s most successful postwar industrialist will set you back only SFr2.70 (£1.90). Half an hour from Geneva, nestled between the lake and rolling vineyards is the village of Rolle. Since 2010 it has been the home of the petrochemicals group Ineos, recently at the centre of the UK’s biggest union dispute for decades.
Squeezed into a red banquette on a cold foggy day is Jim Ratcliffe, the 61-year-old founder, chairman and majority owner of Ineos. He has been called “secretive” and “reclusive”, nicknamed “JR” after the scheming oil tycoon in Dallas, and even “Dr No”, after the James Bond villain. But in person Ratcliffe hardly seems to match those alter egos. Tall and lean, dressed in jeans and a blue jumper over a white shirt, his longish brown hair pushed off his face, Ratcliffe looks more like adventurer Sir Ranulph Fiennes than his better-known billionaire compatriot Sir Richard Branson. He appears relaxed and comfortable in this Swiss village after the turmoil of the past few months.
Ratcliffe set up Ineos in 1998 and built it up from scratch. The company may have almost no public profile but it manufactures the raw materials for products that touch nearly all aspects of everyday life, from bottle caps and toothpaste to computers and cars. Today, Ineos is an industrial force to be reckoned with by any measure: its 51 production facilities (five in the UK) span 11 countries and in 2011 generated sales of $43bn, putting it among the world’s top 10 chemical companies. If it was a listed company, it would rank as Britain’s fourth biggest manufacturing business in terms of sales, after Royal Dutch Shell, BP and Unilever.
As the main shareholder, Ratcliffe was estimated before the credit crunch to be one of Britain’s 10 richest men, worth £3.3bn according to the Sunday Times 2007 Rich List. Today, his fortune is estimated at £1bn.
Until a few months ago, Ratcliffe was little known outside industry circles. Then in September last year, the battle over Grangemouth, the Ineos complex that supplies about 70 per cent of the fuel sold in Scotland’s filling stations, propelled him into the spotlight. It was a hard-fought dispute and for high stakes. Ratcliffe won.
During the stand-off, the unions vilified Ratcliffe as a Swiss-based billionaire dictating Scotland’s industrial future from his luxury yacht in the Med – a suggestion strongly denied by Ineos. But if the dispute generated unwanted headlines, it has also lured Ratcliffe out of the shadows. He has begun to speak publicly about Ineos, which has previously revealed few details of its operations to the outside world.
Taking the occasional bite from a ham baguette, Ratcliffe argues that Ineos’s ultimate victory – the Unite union accepted the proposed changes to working terms and a three-year survival plan under which the company will invest £300m in the site – was simply the triumph of common sense. The crucial issue, he says, “was whether we could turn Grangemouth into a success or whether it was doomed to failure”. Ineos had “a very large, expensive asset, which was lossmaking and . . . we were not prepared to take on any more losses”.
He rejects the suggestion that Ineos had been spoiling for a fight, not least because it lost a dispute at Grangemouth in 2008. “We are economically rational,” he says. “If it’s haemorrhaging cash, you’ve got to do something about it. You can’t live with your head in the sand.”
Ratcliffe sees the Grangemouth battle as symptomatic of something much more serious – an out-of-date mindset in some parts of British industry. “The UK seems to have a little bit of a problem with profitability,” he says, adding that the US has no such hang-ups. It is “much more efficient as an economy . . . The UK is not as bad as parts of Europe, but the concept that you are a bad guy because you have a lossmaking plant and want to shut it down is flawed thinking, really.”
. . .
Rolle is a long way from Failsworth, one of the northern suburbs of Manchester, where Ratcliffe spent the first 10 years of his life. The family lived in what he remembers as a pleasant council house on a cul-de-sac. His father started as a joiner and went on to run a factory that made laboratory furniture. His mother worked in an accounts office. The family moved to Yorkshire and Ratcliffe attended Beverley Grammar School. He lived in Hull till he was 18, then went to Birmingham University to study chemical engineering.
“It was an easy decision,” he says. “In those days you had the red-brick universities or the polytechnics or you got a job.” He had always had an interest in science and engineering, and is dismissive of many of the new courses today. “You know you can do a three-year BA in horse psychology, and one in advice studies – and yet we can’t get a qualified welder,” he says incredulously.
His brother Bob, who works for insurance group Swiss Re, says his parents expected the children to make the most of their abilities. “You had to meet your capabilities . . . if you let yourself down, then that was frowned on,” he says.
Ratcliffe only became an entrepreneur at 40. Armed with his degree and an MBA from London Business School, he had already worked in industry – Esso and Courtaulds – and spent several years honing his dealmaking skills at the private equity group Advent International, before he founded Ineos. Today, he singles out his move to Advent – prompted by a call from a headhunter – as one of the crossroads in his life, one which would ultimately give him the opportunity to do something “for myself”.
That chance came some four years later. Together with John Hollowood, a former chemicals executive, Ratcliffe had been looking for investment opportunities. In 1992, with backing from Advent, the duo led the buyout of a chemicals business from BP to form Inspec. Hollowood was chairman, Ratcliffe chief executive. “Jim was eager for success,” says Hollowood, describing Ratcliffe as “very, very stubborn, and very determined”.
Despite having two young sons, Ratcliffe mortgaged his house and put all his money into the deal. He spent a year thinking about it. “I was 40 years old. It is a very critical part of your career path . . . If it goes wrong you’ve lost all your money and completely screwed up your career.” What did his wife think? “She accepted it was a risk,” he says, rather brusquely, adding that the family took the risk together.
“Those were the old days of venture capitalism. They wanted you to put everything on the table.” This ownership philosophy, of having to put some of your own money in, is one he has also instilled at Ineos. “I quite like the philosophy, there is no such thing as a free lunch. A bit of commitment and responsibility is good,” he says.
A few years of heady dealmaking followed, including the listing of the company on the London Stock Exchange. Although Inspec was mainly in high-margin speciality chemicals, it also owned a “cyclical commodity” business – a plant based in Antwerp producing the kind of chemical raw materials whose prices rise and fall with the general cycle of the economy. Investors did not like it. It wobbled one quarter and Inspec’s shares tumbled. In 1998, Ratcliffe raised the necessary finance – everything he possessed, plus a combination of loans and venture capital equity – to buy the Antwerp site. Ineos was born. (Inspec was later acquired by Laporte.)
“It was a really smart deal,” says Steve Conway, managing director at Citi who helped put together the financing for the Antwerp deal. “He bought something the public did not value. He . . . arbitraged the difference between the public and private perceptions. Investors would not let that deal happen today.”
It formed the basis of the deals to come. The plan, says Andy Currie, a director at Ineos, was “to look for orphaned assets in blue chip majors”. The question the team would ask itself was, could it double the earnings of the businesses it acquired over five years?
In the first 10 years, the company made more than 20 acquisitions, snapping up unloved commodity businesses from the likes of ICI, BP and BASF as these giants themselves restructured. The stock market had turned its back on such behemoths, disliking the often abrupt cycles that could swing them from boom to bust.
Sir Ronald Hampel, chairman of ICI in the late 1990s, says: “The returns on hydrocarbon-based chemicals, often cyclical, became unattractive in the late 1970s and 1980s, and new large investment became difficult to justify. Companies such as Ineos and [America’s] Huntsman could acquire assets at virtually nil cost . . . They could start with modern management structures and work practices with a significantly lower cost base.”
Ineos used the debt markets to fund the spree. The formula was simple: take on a lot of debt to fund the purchase, reduce it through cost savings and other measures, and start all over again. Once in charge, Ineos would go in hard, stopping spending overnight. Many of the companies would have excessively high costs and the aim was to stop waste immediately.
“It’s a short, sharp shock tactic but means the business remains viable,” explains Ineos group director Tom Crotty. “We remove company credit cards, raise spending level approvals. Some people get it, some don’t, and the majority are confused for a short time before adjusting.”
In 2005 came the deal that would propel Ineos into the big league of global chemical companies. Ineos had its eye on BP’s massive chemicals business, Innovene. Grangemouth was one of its plants. Over months of talks Ineos convinced BP to sell it rather than list it on the stock market. What Ineos needed, however, was money – a cool $9bn. Three banks – Barclays Capital, Merrill Lynch and Morgan Stanley – agreed to stump up the cash. “We gambled the farm but I did not think of it as very high risk. We knew they were quite good businesses,” says Ratcliffe.
Ratcliffe is the frontman, but he has had the support of a tight-knit team from the early days: Currie, who joined Ineos in 1999 and was the principal commercial man at Inspec; John Reece (who joined Ineos in 2000 as finance director after a career at PricewaterhouseCoopers); and Jim Dawson (non-executive director at Ineos and a former director of Shell International Chemicals). These four make up the senior team at Ineos Capital, the ultimate controlling company. Ratcliffe, Currie and Reece own the equity; Ratcliffe has some 60 per cent and the other two 20 per cent each. The team, says Ratcliffe, came together “step by step”. There is a common bond however: Currie and Reece are, like himself, northern grammar school boys, with an affinity for manufacturing.
The 2008 financial crisis tested them to their limits. Ineos had taken on a lot of debt to fund the BP deal. The downturn halved its earnings. The company cut capital expenditure, maintenance, salaries and bonuses. “We pulled every string we could,” says Ratcliffe.
Yet Ineos found itself in breach of a technical covenant. The banks moved in, extracting €804m in fees. Ineos eventually convinced the banks it should stay in charge, opening up the books and agreeing to a restructuring plan. The only other thing to slash was the tax bill. Ineos asked the then Labour government for a temporary deferral of VAT payments, a sum of about £350m. The government said no. It proved a watershed moment: in 2010 Ratcliffe and his team left the UK for Switzerland and a much lower corporate tax rate, moving about 60 families to Rolle, already home to foreign outposts of several multinationals.
. . .
The hub of the Ineos empire is a small, innocuous modern glass block a five-minute walk up the hill from the café on the high street. The atmosphere seems relaxed: ties are out, open neck shirts are in. Ratcliffe’s office is nothing flashy: his desk is strewn with papers, including some on Go Run For Fun, a campaign to encourage children in the UK to be more active. A filing cabinet boasts glass tombstones commemorating financing deals. Above it is a picture showing Ratcliffe and his two sons from his first marriage, Sam and George, celebrating making it to the South Pole.
Ratcliffe sees Ineos’s story as a three-act play: Act I covered the first decade of dealmaking, Act II the recession, and now Act III, focused on organic growth and strategic joint ventures. In Europe, where the industry is being crippled by rising energy costs, he plans to “batten down the hatches”. Expansion is, however, on the cards in the US, underpinned by cheap energy.
Today, the Ineos group – which Ratcliffe likes to describe as a “federation” of businesses – includes about 20 large units, each with their own boards. Employees can hold equity in the business they work in (they benefit from dividend payments but only if the business does well).
Michael Tory, of the independent advisory boutique Ondra Partners, who has known Ratcliffe since 2000, likens the ethos and long-term orientation of Ineos to that of Warren Buffett at Berkshire Hathaway. “He’s pushed the ownership philosophy all the way down and through the organisation. It is also incredibly unstuffy and unbureaucratic, able to move fast.”
Colleagues credit Ratcliffe with being an ideas man who comes up with solutions. He himself highlights the advent of the shale gas revolution in North America, whose full impact few could have predicted, as an event to which companies need to respond. There, ample supplies of gas have reduced energy costs for industry, in sharp contrast to Europe. Ineos is now spearheading the idea of importing cheap gas from the US to Europe, to help reduce the operating costs at its plants, including Grangemouth.
For the company, Ratcliffe identifies three key milestones for the immediate future: protecting Ineos’s European assets, given high energy costs, and investing the group’s growth capital wisely in the US, and in China. And given that Ratcliffe turned 61 last October, what about when he retires? “When I what?” he shoots back. “I don’t think about it.”
There is a succession plan for senior management positions at the company but there is no “exit plan” for the top team. Friends say Ratcliffe would like Ineos to continue in its current form as a private company. His two sons are still young. His children, he says, have to understand the value of hard work.
Ratcliffe is, however, able to take time off to do the things he wants to do, such as expeditions to both the North and South Poles. He has also maintained close ties with Britain, where he owns the Lime Wood Group of luxury hotels and restaurants.
He was and is a risk-taker, say acquaintances. He has immense self-belief, coupled with a cool rationality. Industry and government contemporaries recall a shrewd and strategic negotiator.
“His negotiating tactics are not loved by everyone and people don’t like it when pain is inflicted,” says one. “But you can be positive about his ruthlessness and perseverance: they have resulted in a positive and economic effect in that he has picked up unloved assets and kept them going.”
Ratcliffe is also uncompromising with himself. He is a fitness fanatic and celebrated his 60th birthday with three arduous physical challenges: running the Comrades marathon in South Africa (a 90km uphill slog), learning to kitesurf, and a motorbike ride through Africa. When he’s in Switzerland, where he lives with his second wife and daughter, his routine includes a one-hour morning workout in the gym and a 10km run before lunch. Runs are always with others, with lots of talk about the football team he supports, Manchester United.
Dr Adam Carey, chief executive at Corperformance, which has been working with Ineos to help employees balance the pressures of their jobs with a healthy lifestyle, recalls an incident during the motorbike trip. An accident broke three bones in Ratcliffe’s foot. He sent Carey the X-ray and asked for his advice, which was clear: stop riding the bike. Ratcliffe, however, “didn’t even respond to my email”. “He’s an extraordinary character under pressure,” Carey adds. “I think he relishes a bit of personal discomfort sometimes.”
Ratcliffe himself says there was never any question of quitting. He got his ski boot sent over and kept going. He says: “I can’t think of anything I set out to do and have not completed.”
. . .
The second time I meet Ratcliffe is in another café, this time on the King’s Road in Chelsea. He has been to see Chelsea play the night before with his brother. As I walk up I hear him ordering two coffees. Has he brought a minder with him? No – it’s for me. He always plans ahead.
The move to Switzerland, however, was not so planned, he claims. It arose from a clash with the UK government – one of a number Ratcliffe has had over the years, and one of the few he lost. Today it’s arguable who really lost. Britain kept the jobs, but lost the tax payments and the headquarters of one of its few large manufacturers. Ratcliffe insists that, despite the move and the recent dispute over Grangemouth, he and his top lieutenants still feel responsibility towards Britain.
Supporters argue that if he had not tackled Grangemouth’s costs, the entire site would not have had a viable future, endangering all jobs. Others remain critical of his tactics. Michael Connarty, MP for Linlithgow & East Falkirk, in whose constituency Grangemouth sits, says “by threatening to close the plant he threatened to destroy a large part of my community. He was not right to do it the way he did it . . . It will be difficult for Ineos to put the human relationships back together at Grangemouth.”
Pat Rafferty, leader of the Unite union in Scotland, believes Ratcliffe has done himself few favours with the workers. “As far as Jim personally is concerned, the workforce doesn’t see much of him . . . Given the industrial difficulties the site has had, you’d expect more personal interaction from him.”
Jim Mowatt, director of education at Unite, who first got to know Ratcliffe 20 years ago as a union negotiator and is now due to take over all negotiations with Ineos in the UK, is a supporter of the man and credits him with being able to get the necessary investments for his businesses. “Jim does not like the limelight,” Mowatt says. “He’s even got the light in his fridge turned off. But he’s good at his job. He will secure investment for the site and is great at getting deals out of governments.” However, Mowatt adds, the company faces a challenge: “We’ve signed the agreement but we’ve done so at the end of a gun. For Ineos the difficulty now is that it might have won the war but it needs to manage the peace.”
People will no doubt judge recent events against whether Grangemouth survives. With Ineos promising to invest and to ship cheap shale gas from the US to cut costs, its immediate future seems secure. But Ineos itself long outgrew the UK. Just five of its sites are in Britain and the most profitable business is in the US. Would Ratcliffe ever move Ineos back to the UK? “Never say never,” he says, but he doesn’t seem to be in a hurry to return. “Manufacturing has not been a good experience for Ineos in the UK in general terms. It boils down to, has it been profitable, is this a place you wish to invest? No.”
Can the UK reverse the decline in its manufacturing? Ratcliffe has his doubts. “Manufacturing has not been valued as important to the economy and to the government . . . Ten years ago Ineos already had $20bn or $30bn of sales, but you still couldn’t get to see the Business Secretary. Now I can, but only in the last 18 months. It’s an attitude thing. You have to think about education and energy and tax on a long-term basis.”
Ratcliffe’s story is that of an individual, yet also one of the changing nature of British manufacturing. He is an industrialist who does things Britain thought fashionable in the 1970s and 1980s – big chemical plants – but who kept doing them when the rest of the country stopped. He has moved with the times and made the tough decisions needed to keep his businesses going. He left behind paternalism, public equity markets and even a country, in favour of hard logic, the bond market and a multinational sheltering in a tax haven.
“Even though Britain is a relatively small country, because of its history it had a lot of successful, global manufacturing businesses,” says Sir Ronald Hampel. “Today, we still have the likes of Rolls-Royce and BAE Systems but, unlike the chemicals industry, neither of these has had to look to international commodities to underpin their business.” Neither BAE nor Rolls-Royce, both of which rely in part on government contracts, has had to deal with the swings in global commodity prices to the extent of their petrochemical counterparts.
“British-owned capital-intensive industries, by and large, gave up the ghost 10 to 15 years ago,” says Sir Richard Lambert, formerly a head of the CBI and an editor of the FT and now chair of a professional body to raise standards in the banking industry. “It tells you there is a shortage of long-term capital in this country. It leaves space for foreign acquirers and entrepreneurs like Ratcliffe.”
Ratcliffe’s own story is clearly not over yet. While many might not like some of the methods he has employed, they have kept the chemical plants open and built a mighty business empire – and all run, and owned, by a Brit.
Sylvia Pfeifer is an FT special correspondent. To comment, please email firstname.lastname@example.org
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