Jim Ratcliffe, Founder and Chairman of petrochemical company Ineos, on enduring financial hardships
It took Jim Ratcliffe less than two decades to develop his petrochemical start-up into a global player with a US$57 billion turnover. He achieved it by acquiring non-core chemical assets from companies including BP, BASF and ICO and installing management teams to help turn them into successful businesses.
Nevertheless, Ratcliffe’s winning formula suffered a bad chemical reaction when the global economic crisis hit in 2008. “Volumes and revenues just collapsed,” said Ratcliffe, who gained an MBA from London Business School (LBS) in 1980. “At that stage, we owned two very large refineries in Marseilles and Scotland; in any refinery, you need a certain amount of oil washing around to keep it operational. That’s oil that you never sell and would have to write off if the refinery closed.
“In 2008, the price of oil collapsed from US$148 a barrel in the summer to US$48 by the end of the year. We had 10 million barrels of oil keeping our two refineries wet, which added up to a US$1 billion.”
Technically breaching its bank covenants compounded Ineos’ woes. “That opened the doors to our vault,” Ratcliffe says. “We were in technical breach of the covenant, so the banks took €845 million ($946 million) out of the company. When we established all our banking agreements, we never envisaged oil collapsing by $100 a barrel because it had never happened before.”
To prevent further losses, management teams of Ineos’ subsidiary businesses were told to stop all capital and maintenance expenditure including bonuses and pay rises. The company then secured a temporary waiver of the covenant in 2009 in exchange for paying higher interest on its bank loans and drawing up a revised five-year business plan.
The move paid off – the company has since emerged stronger with 17,000 employees and 65 sites in 16 countries that produce 60 million tonnes of chemicals per annum.
Reviving the fortunes of BT Group surely ranks as one of Sir Michael Rake’s greatest achievements. But the telecoms company’s chairman also counts the launch of BT Sport as a major accomplishment, given that Sky Sports had dominated the TV rights market in the UK for several years.
Rake admits challenging Sky by launching BT Sport in 2013 was risky. “We had to be careful when taking on Sky, because we knew others had failed,” he said. “We’d done a lot of market analysis before the TV rights auction in 2012, which we kept extremely quiet. We wanted to make sure people didn’t know we were involved so we could secure as much as possible. I think it came as a big surprise to everyone that we did that and got some of the rights we’d bid for.”
To make the business viable, Rake and his management team needed to outbid their rivals for the rights to screen sports in the UK. “We realised when bidding with Sky for rights to the Champions League that BT couldn’t blink – but the question was, which of us would? We were pretty keen to get the rights, which we did [in 2013, the company paid £897 million for a three-year exclusive rights deal to broadcast every Champions League fixture, starting from 2015] and that proved we were serious players.”
Taking market share from Sky Sports after other broadcasters had tried and failed has given BT Group a big lift. The company’s TV division secured 60,000 additional customers in the three months to end of June 2015, increasing its subscribers to 1.2 million.
The challenge facing Johnson & Johnson’s Alex Gorsky goes far beyond the healthcare group – it touches the lives of every person around the world. Governments need to work out how to provide sustainable healthcare to a growing global population that will reach 9.7 billion by 2050, according to the United Nations.
That people are living longer exacerbates the problem. Most babies born in 1900 rarely lived beyond 50; today, the average life expectancy for newborns is 83 years in Japan and 81 years for many other nations.
“As people move up the economic ladder and several billion people are added to the middle classes in China, Asia and South America, what will they need most after food and shelter? It’s healthcare,” Gorsky said. “If you take the demographic issue, the economic stress placed on governments will be significant.”
Despite widespread concerns about increased life expectancy and the growing population, Gorsky believes necessity will force companies such as Johnson & Johnson to innovate. “We’re living in a time of remarkable scientific advancement in healthcare,” he said. “When I came into the industry in the late 1980s, there was a lot of criticism about the lack of innovation when the world was dealing with HIV and tuberculosis.
“Billions of dollars have since been invested, leading to a remarkable advancement in healthcare. HIV has gone from a death sentence to a chronic disease, while we’ve seen great strides in the research into treating cancer. We’re entering a new generation where we will see major breakthroughs in these areas.
“We, as business leaders working with governments and healthcare systems, will have to come up with new models for balancing this remarkable innovation with systems in a value-added, sustainable and economically realistic way.”
In hindsight, former Allergan CEO and LBS alumnus David Pyott would do things differently if thrust back into what the Financial Times called “the biggest and most acrimonious takeover battle of 2014”.
Valeant Pharmaceuticals launched a hostile takeover bid for botox creator Allergan in February that year. The battle began when Valeant discreetly bought 10 per cent of Allergan’s shares, before encouraging the target company’s shareholders to sell their stakes.
After discovering the attack, Pyott and Allergan’s board held firm. The matter was eventually settled in November 2014, after the board agreed to sell the company to a second bidder. Actavis, the global pharmaceutical company, completed the US$70.5 billion deal for Allergan in March 2015.
On reflection, Pyott says Allergan could have better handled the takeover bid. “Even before the attack occurred, we should have deployed our balance sheet more aggressively so we didn’t have cash.
“I wouldn’t say we were a risk-averse organisation or board of directors. But when we looked at making acquisitions, we were careful not to dilute our core. Our bar was set pretty high and, with hindsight, we should have probably been less discerning. Even during what I call the period of hostilities, we should have probably worked on some other back-up plans.”
Pyott left his role as CEO following the deal with Actavis. While running the company from 1998 to 2015, he oversaw a huge growth in sales from US$1.1 billion to US$7.1 billion.
You must be a registered user to add a comment here. If you’ve already registered, please log in. If you haven’t registered yet, please register and log in.Login/Create a Profile