John Keay House
English China Clays Ltd. is perhaps best known as the world's largest producer of kaolin, a fine white clay used primarily for finishing glossy paper. This product as well as other specialty mineral pigments and chemicals produced by the company are used in the manufacture of high-quality printing and writing paper as well as in the manufacture of ceramics, paints, and polymers. Sales outside the United Kingdom accounted for 87 percent of the company's revenue in 1995. In April 1999 English China Clays became a wholly owned subsidiary of the French company Imetal S.A., which later changed its name to Imerys.
Historic Origins of China Clay
Kaolin (literally 'white hill') takes its name from the mountain in China from which European manufacturers of ceramics originally obtained their supplies of the raw material. The increasing demand for ceramics in Europe stimulated a search for raw materials nearer home and, by the early 18th century, china clay deposits had been located in Bohemia, Thuringia, Saxony, and near Limoges in France. In the United Kingdom china clay deposits that were found to be of a finer quality than elsewhere in Europe were discovered in Cornwall in the middle of the 18th century; their exploitation created the United Kingdom's china clay industry. Its development in the 19th century was economically most important to Cornwall, since its growth took place at a time when the industry upon which Cornwall had previously depended for employment and wealth creation, tin mining, was being forced into decline by foreign competition. Changes in the papermaking industry and its expansion in the second half of the 19th century created a new and growing market for china clay.
Twentieth-century processes of extracting, refining, and drying china clay remained in essence the same as they were in the 19th century, although the application of technology transferred to machines much of the work done by manual labor in the early days, improved the purity of the final product, and made it possible to extract other minerals that formerly went to waste. Even so, waste remained a formidable problem for the English china clays; despite the use of sand and the application of much research, the production of one ton of clay still created seven tons of waste. The first process, the pit operation, involved exposing china clay deposits by removing the overburden. Some deposits may be as close to the surface as three feet while others may be hundreds of feet below ground. Hydraulic mining, by firing water jets from a cannon at the clay deposits, freed the deposits and created a slurry that also contained sand and mica. The slurry was then pumped out and the coarser sand removed before the refining process proceeded. This process took out unwanted minerals such as quartz, mica, and feldspar.
Geologically, china clay is formed in granite rocks by the decomposition of feldspar. At this stage chemical bleaching to remove the stains in the clay caused by mineral salts, particularly iron oxide, can add value to the final product, a technological advance not available until after World War II. ECC operated six refining plants in Devon and Cornwall that took clay from a number of pits and mixed it in the quantities required for finished products of varying characteristics. The final drying process, which usually took place in natural gas-fired driers, was originally done in coal-fired kilns and even, at some pits, by wind and sun.
1919: The Formation of English China Clays Ltd.
In the first half of the 19th century, production of china clay was in the hands of many small proprietors, some of whom owned the land on which the mine lay and some of whom leased it. Although some consolidation took place later in the century, in 1914 there were still some 70 individual producers. At that time the industry was characterized by low wages, overproduction, and price-cutting. These problems were exacerbated by the outbreak of World War I, particularly for an industry that depended on exporting for some 70 percent of its output. During the war, shipping capacity for goods such as china clay, which had little or no military purpose, was severely limited. By 1917 many china clay producers were making losses and few, if any, were making profits. A trade association, Associated China Clays, was established in that year, and in its seven-year existence--it terminated in 1924--had some success in stabilizing the industry by setting prices and sales quotas. In 1919, the three largest producers in Cornwall--Martin Brothers Ltd., established 1837; the West of England and Great Beam Company, established 1849; and the North Cornwall China Clay Company, established 1908--merged to form English China Clays Ltd. (ECC).
Reginald Martin of Martin Brothers was chairman of the new company but the most influential figure, until his premature death in 1931, was T. Medland Stocker of the West of England Company. Stocker was a qualified mining engineer, anxious to see technical improvements and investment in an industry whose development was inhibited by fragmentation and a lack of capital; his company had before 1919 absorbed a number of smaller china clay companies. Stocker was very much the architect of the 1919 merger. Two more acquisitions, the Melbur China Clay Company and John Nicholls & Company, made shortly after the incorporation of English China Clays, gave English China Clays 21 pits to operate. With an annual output three times the tonnage of its nearest competitor, Lovering China Clays, ECC was the largest company in the industry. It was not, however, the only company involved in restructuring in the industry; in 1919 H.D. Pochin & Company acquired one of Cornwall's oldest china clay companies, J.W. Higman & Company, and their combined output made Pochin the third largest producer.
Overcapacity and Acquisitions: 1920s-30s
Through the 1920s ECC faced the difficulties caused by the slump that followed the immediate postwar boom. Excess capacity in the china clay industry internationally, as world demand remained below prewar levels, engendered fierce price-cutting competition, which became even worse after the failure of the trade association in 1924. The success of a new association, formed in 1927, was short-lived--it lasted only until 1929--although it was reflected in ECC's improved profits in 1929. Over the decade ECC increased its dominance of the industry by further acquisitions. Four companies were acquired in 1927, the North Goonbarrow, the Great Halviggan, the Imperial Goonbarrow, and the Rosevear, and in 1928 the Hallivet China Clay Company was purchased. There were four more smaller acquisitions in 1929, Burthy China Clays, New Halwyn China Clays, the Carbis China Clay & Brick Company, and the Trethowal China Clay Company, and, more important, because of its consistent refusal to join any trade association, William Varcoe & Sons was acquired in two stages by ECC in 1929 and 1930.
During the Great Depression, the china clay industry was severely affected. Production fell in the United Kingdom by 34 percent between 1929 and 1931, and remained below the 1929 level throughout the 1930s. Although the effect of the Great Depression was not as severe in the United Kingdom as it was in the United States, it was enough to provide a powerful stimulus to consolidation and amalgamation among the china clay producers, as in many other industries. In the interwar years rationalization, in large part taken to mean the merger of small-scale manufacturing units in order to gain the benefit of economies of scale, became as widely practiced as diversification was to become in the 1950s and 1960s.
In these circumstances the merger of English China Clays with its two major, though smaller, competitors, Lovering China Clays and H.D. Pochin & Company, in 1932 was the next logical step toward rationalizing the industry. ECC became a holding company, owning 63 percent of its new operating subsidiary, English Clays Lovering Pochin & Company (ECLP). The remaining shares were held by members of the Pochin and Lovering families. The first chairman of ECLP was the Honorable Henry D. McLaren, who in 1935 succeeded his father as Lord Aberconway. Reginald Martin, who remained chairman of ECC until 1948, when he was older than 70, was managing director of ECLP from 1932 to 1937. Martin's assistant managing director in 1932, who was to succeed him in 1937 and to exercise a major influence over the company until 1963, was John Keay--Sir John Keay from 1950, when he was knighted. An accountant by profession, Keay had joined ECC in 1929 and was responsible, with Reginald Martin, for the success of the negotiations leading to the 1932 merger.
The integration of so many diverse companies--another 12 china clay producers were acquired during the 1930s--would not have been easy at the best of times. In the 1930s when falling demand, surplus capacity, and low prices meant there was little spare cash for investment, it was even more difficult. Some progress was made, however, in modernizing, mechanizing, and making the industry more efficient. The engineering facilities at the company's 42 pits were reorganized and with the acquisition in 1935 of the Charlestown Foundry, despite its poor condition, the company had a nucleus for engineering. Electrification was extended to more of the company's pits and processes, and in 1936 a new central power station was commissioned at Drinnick, to supply all the company's operations. The company developed brickmaking using the high-temperature-resistant substance malachite and looked for other uses for this material. A research department was established, initially to work on fractionating clay particles to produce the more highly refined selected particle size (SPS) clay required by paper manufacturers, especially in the United States.
Diversification and the Postwar Boom
World War II offered ECLP little hope of improving trading conditions. With home demand expected to fall and no hope of maintaining the export trade that, through the 1930s, had taken up nearly 65 percent of output, a 50 percent reduction of capacity was enforced by the Board of Trade under its wartime powers. For ECLP, the only bright spot was the Charlestown Foundry, which was able to undertake armaments contracts and, re-equipped with machinery and tools that were to prove of immense benefit to the company in the immediate postwar years, worked to full capacity throughout the war.
When the war ended, it soon became clear that the demand for china clay would expand rapidly. Although ECLP had formulated plans for postwar development, shortages of men, building materials, and fuel precluded any immediate expansion, nor was it an easy task to reopen pits that had been closed for the duration of the war. After representations had been made to the government, a Board of Trade working committee was appointed to look for ways of increasing production. Its report, published in March 1946, recommended short-term measures to alleviate the labor, materials, and fuel problems and suggested a wider ranging inquiry. A Board of Trade committee was appointed, therefore, with John Keay from ECLP as its vice-chairman. Its report, delivered two years later, condemned the industry, but not ECLP, for among other things, its failure to innovate, poor research, and lack of welfare facilities for its workers. In 1950 an advisory council, on which sat representatives of all parts of the industry, was established. For ECLP, the immediate postwar years meant steady growth and recovery. One innovation for which it was responsible in those years made a major alleviation in the United Kingdom's postwar housing shortage. Cornish Unit houses, jointly designed and developed by ECC's subsidiaries Selleck Nicholls and John Williams, were bungalows built from concrete using china clay sand. In the ten years immediately after the war, 40,000 were built. ECC's building subsidiaries went on to extend the range of prefabricated building components for both housing and industrial use.
In the early 1950s, restructuring and reorganization paved the way for the emergence of what would be known as the ECC group. In 1951 and 1954 ECC was able to buy the shares in ECLP previously held by the Lovering and Pochin families and, with a financial reorganization in 1956, ECLP became a wholly owned subsidiary. The activities of the group's subsidiaries were then reorganized into four trading divisions, each one covering one of ECC's main operations: china clay, building, quarrying, and transport. The changing nature of the business since 1956 later resulted in transport being moved to the ECCI division, and the new IDF division being created.
ECC International (ECCI) was the operation concerned predominantly with the production and sale of china clay, a raw material used by a number of industries. In the late 1980s, some 80 percent of china clay output was used by the paper industry, 12 percent by the ceramic industry, and 8 percent by miscellaneous industries, mainly in the manufacture of paint, rubber, and plastics. ECCI also produced and sold calcium carbonate and other industrial minerals. In 1989 the division's sales of industrial minerals exceeded six million tons for the first time. It also had transport operations and a small waste-disposal business. Production facilities were located in the United Kingdom in Devon and Cornwall, as well as in the United States, Brazil, and Australia. In 1994, this business was split; ECCI Europe's sales contributed nearly half of the group's operating business turnover of £877.6 million; ECCI Americas/Pacific accounted for 29 percent.
The operations of the ECC Construction Materials (ECCCM) division included the production and sale of quarry material, macadam, concrete products, and industrial sand in the United Kingdom and the United States, and a U.K. waste-disposal business. ECCCM contributed 34 percent of group turnover in 1989.
Two smaller divisions also operated under the ECC Group. ECC Construction (ECCC) was concerned with the construction, development, and refurbishment of private housing, and, trading as SNW Homes and Bradley Homes, was responsible for building houses in the United Kingdom. This division accounted for approximately 4 percent of group turnover in 1989, and by the mid-1990s, English China Clays was preparing to discontinue these operations entirely. The other division, IDF International, supplied drilling fluids to the oil and gas exploration industry and accounted for 6 percent of group turnover in 1989.
Further Acquisitions in the 1980s
The 1950s and 1960s saw considerable growth and profitability for ECC. Large amounts of capital were invested during this time in modernizing all parts of the china clay production process, and as research and technological developments offered scope for further improvements, the process continued in the 1970s and 1980s. Oil-fired driers replaced the coal-fired kilns in the 1960s; these, in turn, were replaced with natural gas-fired driers in the 1980s. From the 1960s onward increasing quantities of china clay were transported as slurry.
ECC continued to steadily acquire the remaining independent china clay producers as well as allied quarrying, stone, building and building materials, and concrete companies, and extended its transport interests. It expanded its activities overseas. A sales presence in the United States that dated back to 1920 became, with the addition of clay manufacturing facilities in Georgia acquired in 1942, the Anglo-American Clays Corporation in 1956. The plant at Sandersville, Georgia, was expanded in the 1980s and specialized in the production of high-brightness hydrous clays and calcined clays. Southern Clay Products in Texas produced ball clay products, and in 1986 ECC acquired the Sylacauga Calcium Products Division of Moretti-Harrah Marble Company, which produced high-quality ground marble. In 1987 the U.S. construction aggregate producer J.L. Shiely was acquired.
In the 1980s ECC, like other U.K. companies, started to look at the Pacific region and the Far East as possible areas for development. In 1986, Fuji Kaolin Company, in which ECC already had a 50 percent interest, became a wholly owned subsidiary of the group, as did the Kaolin Australia Pty Ltd. in the same year. It entered a technology transfer agreement with the People's Republic of China in 1987. International expansion would remain a priority into the 1990s, as ECC opened offices in Singapore and a calcium carbonate plant in South Korea.
Divestitures in the 1990s
Under the leadership of Andrew Teare, who was appointed chief executive in 1990, ECC entered a new era. It redefined itself as a specialty chemicals manufacturer as well as a supplier of industrial pigments and minerals. English China Clays relocated its headquarters to Reading, England, in 1991, after occupying the John Keay House, at St. Austell, Cornwall, for more than 25 years. Wary of remaining, in Teare's words, 'almost a conglomerate,' the company divested itself of a dozen businesses, including the company's construction materials division, which was sold in June 1994 and began trading under the name CAMAS.
The company also made acquisitions to strengthen its core product line. After selling a number of smaller companies worth together around $160 million, ECC bought Pittsburgh-based Calgon Water Management in 1993 from Merck and Co. for $307.5 million. The entry into the specialty chemicals market permanently changed ECC's outlook. Teare pointed out numerous ways Calgon would strengthen ECC, for example, in research and development and global marketing, particularly to the paper industry. The results were immediately apparent; sales of paper chemicals increased 35 percent in 1994, when turnover for Calgon was £158.5 million.
Kaolin remained vitally important to English China Clays during the 1990s, although by 1995 specialty chemicals already accounted for 21 percent of the company's sales. Kaolin, worth 43 percent of sales ($620 million) in 1992, was predicted to account for 57 percent ($901 million) in 1996, in part on the strength of a recovery in the international paper industry. Calcium carbonate was also important, worth 15 percent ($217 million) of the company's sales in 1992. In 1995, ECC sought to strengthen these businesses by negotiating with Redland Plc for the fine-ground calcium carbonate operations of Genstar Stone Products Co. of Hunt Valley, Maryland. The company also had plans to invest £34 million on these types of operations in Sweden and the United States.
With the restructuring project finally at an end, ECC by mid-decade was in a position both to dramatically increase its market share of the paper-whitening pigment industry and to become a major player in the specialty chemicals business. In 1995 the company made a pair of strategic acquisitions designed to boost its calcium carbonate holdings: In March it invested SKr 200 million in a Swedish carbonate plant, which would provide an annual yield of 100,000 tons, while in October it acquired the calcium carbonate products division of Genstar for $35 million. In January 1996 ECC combined its Calgon paper operations with subsidiary ECCI AmPac to form the ECCI AmPac Paper Group. By early 1996, ECC's paper operations accounted for 60 percent of the company's total business.
Unfortunately, the company did not anticipate the drastic drop-off in the demand for kaolin and calcium carbonate that soon followed. By early 1996 the paper industry was in the midst of a significant destocking trend; this downturn in the market, combined with a sudden wave of inexpensive imports from Brazil, caused ECC's paper-whitening business to decline 15 percent. At around the same time it became apparent that the company's specialty chemicals line was not doing as well as originally hoped, showing only a £10 million profit on more than £200 million invested for the year 1995. In June SBC Warburg issued a profit downgrading for the company, which hit the stock value hard: shares dropped to 243 pence by July and continued to plummet until the end of the year, reaching a five-year low of 167½ in early December. Meanwhile, production levels in the paper industry also remained low.
The financial hit taken by the company was extreme. The year 1996 saw a loss of £42.9 million, compared with net earnings of £95.1 million in 1995. In an attempt to halt this downward spiral, in January 1997 the company initiated a comprehensive cost-cutting plan, reducing its workforce by 10 percent and consolidating some of its North American operations. The changes brought some relief, and additional reductions in September helped boost ECC's share price back to 264½ pence. The company also could boast a first half profit of £41.6 million, a significant improvement over a near disastrous 1996.
This streamlining effort had no effect on the dismal state of the paper industry, however, as paper sales continued to flounder. By September 1998 ECC stock had dropped to 145 pence per share. To help increase its sinking value, the company implemented a share buy-in plan in late 1998, purchasing several million shares of its own stock throughout the months of November and December, all at prices hovering between 160-175 pence. These maneuverings allowed the company to claim a profit of £84.4 million for the year, only a slight drop from 1997.
A remedy arrived in January 1999, when French metals processing firm Imetal S.A., the world's third largest producer of paper-whitening pigments, made a hostile offer of £680 million for English China Clays. The news of Imetal's offer caused the company's stock to leap more than 50 percent to 242½. In light of this sudden increase, ECC rejected the deal, claiming that it failed to reflect the company's value. In February Imetal proposed a second offer of £756 million, which ECC accepted. In April the European Union approved the deal and Imetal, which was now engaged solely in the minerals processing industry--having divested its metal interests--became Imerys. English China Clays Ltd. continued to operate as a wholly owned subsidiary of the new company, dedicated, as always, to the production of kaolin and calcium carbonates.
Principal Competitors: Engelhard Corporation; Kerr-McGee Corporation; NL Industries, Inc.