North Cheshire has been renowned for its chemical industry since Romans first extracted salt from beneath the town of Condate, present-day Northwich. Today, the area is still dominated by a number of huge chemical factories, many of which are owned by Tata Chemicals Europe (TCE). The company’s plant at Lostock, a couple of miles east of Northwich, is the only factory still producing soda ash in the UK, firstly under the control of Brunner Mond, later part of ICI, before transferring to TCE in 2006.
Soda ash is a surprisingly versatile – and valuable – commodity. Used in the production of everything from glass to detergents, and from taxidermy to food preparation, the chemical is found in items we take for granted every day.
You would think, then, that being the only indigenous manufacturer of such a useful product would be plain sailing. However, the company faced an existential challenge in the years approaching 2015, and fixing the problems involved some creative thinking, a lot of teamwork and a number of tough decisions.
The birth of Hercules
More so than most industries, soda ash production is extremely energy-intensive, in particular requiring a massive amount of steam. Indeed, energy accounts for around half of TCE’s running costs. The steam originally came from on-site coal power stations, but in 2000 the company replaced these with a gas-fired combined heat & power (CHP) plant. This was owned and operated by energy provider, E.ON, who supplied TCE with all of its steam and electricity requirements.
In the early days, the deal suited TCE well, explains Phil Davies, TCE’s general counsel and business services manager (pictured, left). “Originally, the price of steam was set when the CHP plant opened and changed in line with inflation, not market gas prices,” he says. “We enjoyed a period where our steam was a lot cheaper than it otherwise would have been.”
However, this arrangement was due to expire in 2015, with the company instead having to pay a price for steam linked to the then-market price of gas – which had risen dramatically in the preceding years. This, says Davies, has the potential to be catastrophic: “Had we gone through with that, our energy costs would have doubled overnight. Given that, at that point, the increase in cost would have been greater than the EBITDA of the business, it wasn’t an appealing prospect!
“We were very aware that this 2015 deadline was looming and spent a number of years trying to work out a Plan B – we simply couldn’t afford not to. E.ON had also recognised the problem and realised that there was no point invoking the price hike if it was not viable for our company. There was a mutual recognition that both parties needed to find a different way.”
Over the Christmas period of 2012, after months of head-scratching, TCE’s managing director, Martin Ashcroft, struck on a bold and extremely ambitious plan. Christened Project Hercules, it involved a complete reorganisation of the company, from top to bottom, that was designed to bring the energy crisis under control, both by taking back control of its energy cost base, and materially reducing its energy demands as a whole.
“At the heart of Project Hercules was an agreement with E.ON that we would acquire the CHP plant from them, in effect releasing them from the contract a couple of years early,” says Davies. “That arrangement suited both parties. We got a power station and could become the masters of our own energy use; they escaped an unfavourable contract.” Under the agreement, TCE took ownership of the CHP plant in September 2013, with E.ON remaining in charge of the operations and maintenance.
Now in charge of their own energy costs, Ashcroft, Davies and the rest of the TCE senior management team immediately set about the even more radical element of Project Hercules – the material reduction of TCE’s energy usage. This critical need to reduce energy demand could only be achieved via an extremely stark and difficult move: the closure, in early 2014, of the company’s soda ash plant in Winnington.
It wasn’t an easy decision. The factory had been a landmark in the town, just north of Northwich, for over 140 years, and closing it would mean 220 roles being lost. However, the numbers simply made it an imperative. Winnington was the larger of TCE’s two soda ash plants, accounting for about 60% of production – and 60% of the overall energy bills.
“We described it as open-heart surgery,” says Davies. “It was something that was necessary if we wanted to survive as a business, but not something that anyone particularly wanted to go through. We identified the need to close Winnington early on, and during consultation made sure to let people know the reasons why. As a result, whilst it was an emotional time for all of us, there were very few arguments. The energy case was so severe that people recognised it had to be done. We also ensured that we used as much money as we could to provide voluntary redundancies on enhanced redundancy terms and helped people out as best as we could.”
Before embarking on the acquisition of the CHP plant and the closure of Winnington, TCE knew that, for the plan to work in the medium-term, the CHP plant would need to be ‘re-balanced’ in order to become economically viable. To help make this feasible, the company invested £5.5 million in a brand-new turbine, which sits at the centre of the CHP plant. This enabled the plant to generate more of its own electricity – something, says Davies, which “changed the economics of the whole operation. Energy became a net contributor to the business, which allowed us to ensure we got the lowest possible costs for our manufacturing operations. It also led to participation in various National Grid schemes, for example those where we could receive incentive for generating electricity at peak times.”
Through these National Grid schemes and by selling electricity, TCE has been able to improve its EBITDA performance by around £8m per year. Energy had become a net contributor to the company’s bottom line, rather than a simply a material input cost.
A business unit approach
Such dramatic change in any business can be unsettling, and Project Hercules represented change on a massive scale over a three-year period. The closure of Winnington soda ash had a knock-on effect at Lostock, the company’s only remaining soda ash plant. “There was a real fear for many staff outside of senior management that if a plant as established as Winnington could go, nobody was safe,” admits Davies. “It would have been very easy to sit around moping about the closure of Winnington, but we couldn’t allow that to happen. The way to get people back on side was to prove our plans were going to work. We had to remain as positive as possible, while also ensuring that all stakeholders understood the size of the challenges we faced. For the employees, it was a lot to do with positive messages, giving people power and making sure senior management played an active role in the company.”
This meant a change to the entire fabric of the company, moving from a functional organisation to a business unit one, with each division having autonomy over its own management and P&L.
“The idea was to give people ownership of their own part of the business,” explains Davies. “To mitigate the risk of the company just turning into isolated siloes, we put in an overarching framework and run ‘pan-TCE’ forums for each division to discuss matters of common importance.”
The team also transformed TCE’s headquarters. The company’s old offices were “a very austere, Victorian building, where everyone had their own separate office – the doors to which were always closed,” says Davies. This has been changed to an open-plan office, where management sit alongside the rest of the workforce.
The results of this rearrangement have been impressive. In the weeks following the closure of Winnington, Tata Chemicals undertook a global employee engagement survey. While, unsurprisingly, the results at TCE were very low, it gave management a chance to see how well-received the changes would be once they had taken hold. As it transpired, subsequent surveys showed they were extremely successful. The company is now the top performer for engagement in the global Tata Chemicals group, and within the top quartile of all organisations worldwide.
“To achieve that after all the change we’ve been through is a sign that we’ve brought our staff with us on the journey,” says Davies. “If you ask people who’ve worked here for years about the changes they’ve gone through, they are very positive – the company is unrecognisable between 2010 and today.”
Putting all your eggs in one basket
While closing Winnington was necessary from a business perspective, it meant that the company was operating with just one soda ash plant. In effect, the closure had removed, overnight, 60% of the UK’s soda ash manufacturing capacity. To counter this, TCE opened a ‘virtual factory’ – in essence an import and processing facility – at Immingham on the east coast, near to where a significant number of the company’s glass manufacturing customers are based. Here, the factory was supplied by Tata Chemicals’ North American division. “This ensured a seamless continuation of supply to our customers, and meant we didn’t need to turn anyone away, despite the closure of Winnington,” says Davies.
However, Project Hercules also recognised that TCE was over-reliant on soda ash: when the project began, soda ash made up about 90% of TCE’s profits. Because it is used primarily in the manufacture of glass, especially in the house-building and automotive industries, soda ash is very susceptible to economic cycles. “If you look back at soda ash sales in the UK, you can plot where the economy suffered a downturn,” explains Davies. “The industries it’s used in are particularly badly hit if the economy takes a nosedive. If you have all your eggs in one basket, you risk being exposed as well.”
As part of wider plans to diversify, in 2011 TCE acquired British Salt. Conveniently, the company has a factory in Middlewich, very close to Northwich. That wasn’t the main reason for the deal, though. Unlike soda ash, salt isn’t exposed to economic cycles – it will always be needed for food, water treatment and animal feed.
The diversification didn’t stop there, either. Fundamental to this has been a focus on sodium bicarbonate. Created by reacting soda ash with carbon dioxide, it has a broad range of uses, from cleaning products to flue gas treatment. High-quality ‘bicarb’ also plays a vital role in haemodialysis and the pharmaceutical industry. “Historically, sodium bicarbonate was a relatively minor part of the business,” says Davies. “However, as part of Project Hercules we recognised the need to retain this business and we realised the potential of expanding it.”
There was only one problem – the company’s biggest bicarb plant is at Winnington and was fed with raw materials from the now-closed soda ash factory. The kiln gas used in the soda-ash-making process would provide the CO2 needed to create bicarb. “We knew that in closing the Winnington soda ash plant, we would cut off our supply of carbon dioxide,” says Davies. This led to a radical plan as part of Project Hercules: the creation of the world’s first standalone sodium bicarbonate plant. Soda ash is transported from the Lostock plant to the other side of Northwich, and liquid carbon dioxide is supplied by a third-party. The two are combined to create bicarb.
“It was an untried method, and one that people outside of the business said wouldn’t work,” continues Davies. “A particular challenge is that we needed to coincide the commissioning of the new standalone plant with the closure of the Winnington soda ash plant. We could not afford to be ‘out of the market’ for any prolonged period.
“After a slow start, we began turning a corner in 2015 and the business is now thriving, allowing us to export high-grade sodium bicarbonate across the world. Whereas in 2010, about 85% of our turnover came from soda ash, we’ve diversified to the extent where our pie chart now shows significant contributions from soda ash, energy, salt and increasingly sodium bicarbonate. We want to further balance that out by investing in the bicarb side of the business. That will have the added benefit of further reducing our exposure to any economic fluctuations.”
A three-legged stool
While TCE have no domestic competition for soda ash and sodium bicarbonate, the picture is slightly more complicated when looking overseas. “We produce our soda ash using a ‘synthetic’ process,” explains Davies. “However, there are players in the soda ash market who are able to tap directly into seams of naturally occurring soda ash (called trona). There are large trona deposits in Lake Magadi in Kenya, where companies are able to simply scrape soda ash from the lake bed before refining it. There are also very big trona mines in Turkey and the USA. While the trona requires purification, the process is less energy-intensive (and, as a result, much cheaper) than our method.”
It was vital, then, that Ashcroft, Davies and the team kept costs under control throughout Project Hercules. This meant stripping back the company’s finances and rebuilding them from scratch. “For us, as a synthetic producer of soda ash, cost is vital,” explains Davies. “Stripping back the company and exploring the cost base was crucial in ensuring we remained competitive. Throughout Project Hercules, we looked at changing the processes to fit the number of employees we had. Over time, companies change and headcounts fluctuate, without their processes changing to compensate. That naturally brings about inefficiencies.”
Despite the success of Hercules, TCE are showing no plans of slowing. Indeed, Davies hints at some bold investment plans for the future, including in the salt business, which is set to benefit from a new £8m boiler and packing lines to help bring the company into the modern age. Similarly, the soda ash and bicarb businesses are receiving some significant investment.
The company, though, is also remaining true to its soda ash roots, despite the fact it is gradually reducing its customer base as it looks to ‘balance the pie chart’ of products it makes. “There are a lot of people outside of the company who might think that we are less interested in soda ash,” says Davies. “Why focus on that when we’re making all our money on energy and bicarb? In reality, soda ash is fundamental to what we do. Without it, there’s no bicarb, and the power station would be sat there doing nothing, incapable of operating.
“We describe the business as a stool with three legs – energy, soda ash and bicarb. If you take any of those three things away, the whole thing will topple over. Soda ash doesn’t need to be a growing part of the business, as a lot of what we make goes to making bicarb and to our other, long-term contracts. That doesn’t leave as much left over to be sold as historically was the case. Soda ash remains vital to everything we do, though, and we have to make sure the costs are right, and the quality is there. If we continue to do that, the other legs of the stool will perform well. In many respects, the CHP plant has future-proofed our soda ash, which in turn helps the bicarb.”
Away from the cliff edge
The changes came with a significant amount of pressure – not least because Project Hercules was such a series of radical changes. “When Martin [Ashcroft] laid out the plan to the senior management team, we knew immediately that it was extremely ambitious,” says Davies. “Every single element had to work. At any point something could have gone wrong and the process would have come to a halt.
We definitely felt the pressure to make it work, because we felt a responsibility for the business. This company has over 100 years of history and is a way of life in this area; we’re the current custodians of it, having to steer it through a potentially tricky period in its existence. We knew that doing nothing wasn’t an option, and playing around the edges wouldn’t yield the results we needed. It was a nervy time for us all because we had to make such fundamental changes to the way the business ran.”
All the stress and the sleepless nights were worth it, though. From struggling to break even in the years leading up to Project Hercules, and facing energy-enforced oblivion, Ashcroft and the team have pulled off an effort worthy of the project’s name. The company is now enjoying a profit of £26m per year, with an engaged, forward-looking workforce.
Davies has the final word: “Between 2012, when we were staring at the cliff edge and worrying about what to do next, and today, it’s been a remarkable turnaround. We’re now a diversified, modern and engaged business on the cusp of real growth.”