July 23, 2010 4:34 pm

The FT30 and how industry has changed

There can be few places in Britain where ships still tie up at the same dock as they did a century ago, unload the same raw material, to be processed at the same plant into the same product sold by the same company. That Tate & Lyle’s Silvertown sugar refinery is also located on the fringes of central London – on the sliver of Docklands between the Thames flood barrier and City Airport – makes it a survivor of a bygone age, when ships berthed three abreast and the whole of this riverside swarmed with industry.

 
Tate & Lyle’s 1949 campaign against nationalisation

Tate & Lyle’s 1949 campaign against nationalisation

Henry Tate’s Thames refinery opened in 1878, only five years before Abram Lyle started producing Golden Syrup at Plaistow Wharf, about a mile upriver. The two rivals merged in 1921. It was at first a marriage of convenience – a case study in how cultural divisions can endure after a “friendly” deal. For decades, employees remained keenly aware of who were “Tateses” and who “Lyleses”. Ken Wilson, now community affairs manager at the Silvertown facility, says that when his father, a shift manager, moved from Plaistow Wharf to the Thames refinery in the late 1960s, “he didn’t expect to get promoted, because he was a Lyle’s man”.

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But the union survived, and thrived. By the beginning of the war, the Thames cane sugar refinery was the largest in the world. It was bombed by the Luftwaffe during the Blitz and, in the late 1940s, came under attack from closer to home, as the government pushed for nationalisation, a threat seen off with the help of cartoon sugar cube “Mr Sugar”. After the war, private industry flourished in the area. Alf Boyle, 70, a retired chartered engineer who worked at Tate & Lyle for 47 years, recalls: “You had Tate & Lyle, Fisons, Pinchin ­Johnson and, further west, British Oil & Cake Mills. People could walk out of one factory one day and start at the other factory next door the next.”

Today, Abram and Henry’s two factories are separated mainly by vacant lots and riverside parks. A railway track still runs parallel to the sugar plant on Factory Road. But it is no longer used to help carry Henry Tate’s sugar lumps to their end-market; regular service ended in 2006 and the line is now overgrown. The promise of regeneration held out by the proximity of the airport, the ExCel exhibition centre and even the 2012 Olympics site further north has not yet trickled down to this area. Where Tate & Lyle had 4,000 staff in its London plants in the immediate postwar period – many ­living locally – it now employs directly just 550 here, most of whom travel in from beyond Silvertown.

Recently, with the World Cup under way, an England flag flapped above the Thames refinery. That could soon become the stars and stripes. Change is coming to Silvertown. On July 1, Tate & Lyle announced it would sell its European sugar business – including the Docklands sites – to American Sugar Refining, a private US company. If City-bound bankers on the Docklands Light Railway platform overlooking Henry Tate’s historic sugar plant glance up from their BlackBerries, they might be tempted to draw some easy conclusions about the inexorable decline of British manufacturing strength, the ­erosion of jobs through foreign competition and the disappearance of our industrial heritage under foreign ownership. Easy, but wrong.

. . .

The recent purchase of Cadbury by US food giant Kraft triggered widespread hand-wringing about the danger that international buyers, their bids supported by short-termist hedge funds, were buying and then hollowing out ­British manufacturing industry. Jack Dromey, then deputy general secretary of the Unite union, told a parliamentary committee that the future of Cadbury had been decided by “boys wearing red braces who move in to make a quick buck at the time of a British icon’s vulnerability”. The UK’s ­Takeover Panel is consulting about possible changes to its code, ­following calls for more grit to be thrown into the wheels of hostile bidders.

Meanwhile, earlier foreign takeovers of ICI (by the Netherlands’ Akzo Nobel), Pilkington (by Japan’s Nippon Sheet Glass) and BOC (by Germany’s Linde) have fuelled fears that control of UK manufacturing is leaching away. A recent study by IHS Global Insight showed that the UK had slipped another place down the world manufacturing league table to seventh, behind France, with faster-growing industrial economies such as South Korea, Russia and Brazil snapping at its heels.

But a more nuanced analysis belies these fears – helped by a tool created 75 years ago. In 1935, Maurice Green and Richard “Otto” Clarke, respectively editor and chief leader writer of the Financial News (which later merged with the FT), sat down to construct what Clarke later called “a truly modern and sensitive industrial ordinary share index”, the FT30. They were not trying to predict the future of British industry, but measure the present. Yet Clarke was optimistic that their selection would endure. A brilliant 24-year-old mathematician, he expressly set out to choose stocks that were among the most actively traded, not the largest companies. But he and Green also aimed to reflect the shape of UK industry.

Like any such venture, the decision on which companies to include and which to leave out was to some degree arbitrary. Still, Clarke said at the time, “the 30 includes a great many of the most active shares in the market. In the list there is no ‘dead wood’. It may fairly be claimed that the list is adequately representative of market activity as a whole. Moreover, it is likely to be ­representative for some time to come.”

Yet of that group, only two companies – Tate & Lyle and engineering company GKN – have held their place in the index continuously since its inception. Other FT30 originals such as Austin, Dunlop, Courtaulds and GEC have disappeared as independent listed groups. Ballast for pessimists? At first glance maybe, but in fact, the fates of the original constituents of the FT30 tell a story of evolution and adaptation. Not only do many of the original names live on within larger groups, others have bounced back from takeover or seemingly ­terminal decline. By the 1990s, Coats (formerly J&P Coats) had become part of a bloated textiles group incorporating big UK names such as Tootal and Viyella. Forced to slim down as basic textile manufacturing disappeared abroad, it was taken private in 2003. But its owner could refloat it within the next two years in close to its original form as a thread manufacturer. Rolls-Royce and Imperial Tobacco, meanwhile, are both leading members of the FTSE 100 – the index introduced in 1984 that eventually superseded the FT30 as the London market’s benchmark. And strong brands have survived within larger groups: Bass is still brewed (by AB-Inbev), London Bricks are still fired (by Heidelberger Cement).

. . .

Industrial nostalgia is a natural reaction to the ­disappearance or takeover of well-known manufacturing companies. But it is misplaced. The sentimental response is in part based on the decline in manufacturing’s share of the UK economy, and the drop in manufacturing employment, ­particularly in the past 30 years. Yet, as a paper from Policy Exchange, the think-tank, pointed out earlier this year, UK manufacturing output and productivity have risen over the same period. There is also a cultural aspect. When taken over, Cadbury was no longer the domestic, Quaker-run ­business of yore: it was a multinational with an American chief executive, a majority of turnover generated abroad and further global ­ambitions. Other national “icons” only become so with the distortions of hindsight. When ­Woolworths – another original component of the FT30 – went under in 2008, many shoppers regretted its passing, even though their failure to patronise the stores was one reason for its demise. Adaptability is more important than public affection in determining which companies survive.

What, then, can we learn from the destiny of the original FT30?

First, leadership counts. Andrew Lorenz, former journalist and author of a corporate history of GKN, attributes the company’s success and longevity to the vision of successive leaders. They helped it evolve from a ­business based on iron and steel manufacturing into a ­modern-day supplier to the automotive and aerospace industries. “You need one or two people who are going to be a driving force,” says Lorenz. The reverse is also true. Sir Christopher Hogg, who took over as chief executive of Courtaulds in 1979, when the group’s decline as a textiles giant was already almost ­inevitable, says “venturesome” leadership was lacking at many of Britain’s largest companies. Top managers in the late 1960s and early 1970s were “breathtakingly dozy”. At Courtaulds, although there were good operators at its factories, “the innate quality of management – its approach, culture and thinking – had got all soft and soggy”.

Second, strong brands may survive even the most ­chequered ownership and management. Imperial Tobacco diversified wildly in the 1970s – at one point it owned Courage, the ­brewery, and the Howard Johnson US hotel and restaurant chain. But it emerged from a spell under the control of the Hanson industrial conglomerate in the 1980s and 1990s to refocus successfully on its core tobacco business. Coats was similarly revitalised, relisting as a maker of thread and ­needlecraft products for industrial and ­consumer markets.

Third, globalisation and governments matter. Many ­British companies suffered both from their complacent ­reliance on the markets of Empire and then Commonwealth, and from their inability to meet competitive challenges from emerging powers. They had, according to Sir Christopher Hogg, “a soft diet of turnover from the Empire which was replaced by very much sterner international competition as the Empire disappeared”. That dependence was compounded, at least until Margaret Thatcher’s era as prime minister, by a natural assumption that protection would be provided by the state, as it was in most other countries.

But although the opening of the economy and the threat of takeover – both from foreign and domestic rivals – helped toughen up British companies, government was not and could not be absent. As much as Austin Motors’ demise, via British Leyland and Austin Rover Group, is taken as a ­symbol of ­manufacturing decline, the UK automotive sector – defined by ­factories rather than Union flags – would be extinct had ­British governments not encouraged Japanese companies to start manufacturing here. Similarly, Edward Heath’s rescue of a failing Rolls-Royce in 1970-71 saved the company, and stands in a tradition of government assistance – direct and indirect – that has helped underpin the UK aerospace industry.

Finally, luck counts. GKN owes its survival in large part to the existence, within a company that it had bought in the late 1960s, of a minority stake in a German manufacturer of ­“constant velocity joints”. These turned out to be the car ­components that allowed the company to expand into the automotive sector. Without this good fortune – and some forceful strategic decisions to exploit it – GKN might have opted to return to its steelmaking roots and not even lasted until the 50th anniversary of the FT30.

Nobody would expect an index compiled in the mid-1930s to have survived unchanged. But if today’s FT30 was nearly identical to the index of 1995, let alone 1935, it would be a sign of economic stasis, rather than stability. Sir Geoffrey Owen, former FT editor and now senior fellow in the London School of Economics’ department of management, says: “We are one of the countries, unlike Japan and perhaps Germany, where the preservation of companies in their existing form and under existing ownership isn’t seen as an end in itself. We have an active takeover market involving British bidders and foreigners and this is a source of flexibility for the economy. Of course, some of [the FT30] businesses in textiles and coal were never going to survive. But it’s probably better they ­disappeared and that the resources [devoted to them] could be used elsewhere.”

Richard Clarke, architect of the index, built a benchmark based on how actively the stocks of the underlying constituents were traded. That the companies themselves should also have changed hands would not have surprised him.

. . .

In 1935, one of Tate & Lyle’s neighbours in Silvertown was another FT30 original: industrial paint manufacturer Pinchin Johnson. For anybody born after 1960 – when the company disappeared from the index, swallowed up by ­Courtaulds – it is probably one of the least recognisable names from the original group. But its destiny is, if anything, more illustrative of the evolution of British industry than Tate’s. Sir Christopher Hogg, who started his management career in Silvertown when the old Pinchin Johnson was part of ­Courtaulds’ paints and coatings business, found “a very strong community, but old-style”. What remained of Pinchin ­Johnson’s business was sold with Courtaulds’ paints and ­coatings to Akzo Nobel in 1998. Akzo’s blue-man logo – nicknamed “Bruce” – still stands, arms outstretched, above the factory in Silvertown. But Bruce may himself be retired soon, according to the site manager. Akzo sold its coatings resin business to Nuplex Industries of New Zealand in 2004 – putting the last remnant of one of Britain’s 19th-century industrial powerhouses into the hands of a small ­multinational on the other side of the world.

Meanwhile, Tate & Lyle’s new boss, Javed Ahmed, is ­pressing ahead with a plan to refocus the group on speciality ­ingredients, not sugar and syrup. It’s a forward-looking ­strategic decision, in the grand tradition of those taken by British industrial groups over the past 75 years in order to survive and thrive. American Sugar Refining’s takeover of the ­company’s London plants has been greeted with the usual concerns about jobs and the fate of the UK’s industrial ­heritage. But history shows that British industry – or, more precisely, industry in Britain – can adapt to change, takeover and closure. Tate’s sugar-cube logo and Lyle’s sweetness-from-strength, lion-and-bees syrup label will be transferred to the new US owner and should continue to hang over ­Silvertown. Tate & Lyle, the company, should be strengthened by its decision to dispose of its original businesses, while those businesses are more secure in the hands of a specialist sugar refiner. Locals lament that it won’t be the same. But that has long been the only accurate forecast of what the future holds for Britain’s manufacturers. n

Andrew Hill is the FT’s City editor and editor of the Lombard column. Additional research by Peter Cheek.

For a further look at past and present members of the FT30, visit www.ft.com/ft30

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