Parting of the ways at English China Clays

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The Independent Online
ANDREW TEARE is a happy man. 'I have spent 30 years in the construction industry,' he pointed out, 'and you have to choose.'

When it came to splitting English China Clays, the company he has run for the past four years, he has chosen - rather too enthusiastically for comfort - to stick with the main business and eschew Camas, its spun-off construction materials operation - despite, or should it be because of, his knowledge of that uncompromising trade.

Mr Teare was not compelled to choose. He could have headed both companies, as Sir Denys Henderson does at ICI and Zeneca, and Sir Christopher Hogg continues to do at Courtaulds and Courtaulds Textiles. Instead, Maurice Warren has been drafted in from Dalgety and South Western Electricity to be chairman of Camas.

It is hard to escape the impression that Mr Teare, the genial son of a Methodist minister, is more than glad to be shot of his quarrying, concrete, coated stone and road surfacing concerns.

The remaining ECC keeps its beloved china clay, together with kaolin, speciality chemicals and the pounds 100m rump of a housing land bank.

Kaolin and china clay are both used to coat paper to varying degrees of thickness and smoothness - up to the almost glutinous quality that puts so much of the gloss into glossy magazines.

'In construction,' Mr Teare argued, 'prices and volume can fall together, like a stone.' By contrast, the paper cycle is kinder. Prices may sag from time to time, but so far volumes have relentlessly expanded, as world living standards have risen and more people find uses for toilet paper, cigarette paper, newspapers and wrapping paper.

The split was foreshadowed last June, and details have now been hammered out for approval by shareholders in May.

If the demerger goes ahead, investors will receive one Camas share for every ECC share they own. ECC will therefore have no continuing interest in the demerged company.

Mr Teare's timing looks good. Operating profits of ECC Construction Materials, on which Camas is based, rose 15 per cent last year.

Camas has also been given a dowry in the shape of Kost Brothers, the US aggregates business bought for pounds 20m this month. Economic recovery on either side of the Atlantic should ensure that Camas floats off into an independent existence on a tide of buoyant orders.

'Within its market space it's a good business,' said Mr Teare. 'It will be even better with its management focusing on building products.'

However, there is a sting in the American connection. Around 6 per cent of ECC shares are held over there, and Mr Teare admitted that US investors had struggled to understand the dynamics of UK construction.

'They like companies with international business,' he explained, 'and they were always mystified by our exposure to the UK housing market.'

The Americans can therefore be expected to unload their newly issued Camas shares as soon as they decently can. That threat could depress the Camas share price for the rest of this year.

Meanwhile, Mr Teare conceived a long-term strategy of concentrating on activities where the group could add value: refining rather than mining, as he put it, and working closely with paper-makers to develop new grades of paper.

'Our research and development spend will be pounds 20m a year,' he pointed out. 'It will have a coherent customer range, focusing around paper, helping to get paper machinery running right, and it will be capable of developing internationally. But it will have a reduced capital intensity, because we will be pushing up the know-how and technology ladder.'

The first step towards that was the acquisition of Georgia Kaolin in the US. Another promising line, added to ECC when the US Calgon was taken over last summer, is water-soluble polymers used to treat and transport minerals.

'These polymers suspend solids in liquids and disperse them,' Mr Teare explained, 'and we see water treatment as interesting worldwide.'

While two thirds of the streamlined ECC package will be folded around paper, the wild card is speciality chemicals, much of which again flows from Calgon. The hope is that this sector will eventually spawn a winner that might have the potential to grow into a new division in its own right.

'Speciality chemicals give us a wide canvas to invest into,' said Mr Teare. 'Most of it is in the US and is relevant to a wider range of industries. The trick is to choose the ones that will be profitable and give us the best opportunities.'

That means that this division is the most likely to be grown by more acquisitions, as the management spots promising prospects and builds on them.

Mr Teare is also shifting ECC's centre of gravity further into the Pacific and the fast-growing economies of South-east Asia, where there is growing demand for paper and where they seize on chemicals that can sprinkle magic into an industrial process.

ECC is already in Australia, Japan and Korea, and new plants in Taiwan and mainland China are unlikely to be far behind.

The only loose end in the immediate future is which industrial sector ECC should belong to. This is no mere pedantry. Shares in some sectors are rated more highly than others and are followed by different packs of analysts.

'We have to wait a year, until our first set of accounts in our new form,' said Mr Teare, 'but despite the china clay quarries, I think we'll be in some form of materials treatment. We're nearer chemical processing than an extractive company.'

(Photographs omitted)