Ashwin Tombat

The UK-based Brunner Mond Group, which joined the Tata Chemicals family last December, boasts of a distinguished lineage and a history of a pioneering approach to business, which sits well in the Tata Group

In 1874, the legendary Jamsetji Tata disregarded conventional wisdom and advice from experts to plan his pathbreaking venture to set up the Empress Textile Mills in Nagpur, India. Just a year earlier, but half a world away, Chemist Ludwig Mond had entered into partnership with industrialist Sir John Tomlinson Brunner to form a chemical manufacturing firm, Brunner, Mond & Co. They were doing a little pathbreaking of their own: to make alkali or soda ash by a new brine-based ammonia-soda process, under licence from a Belgian chemist, Ernest Solvay.

At the time, most soda ash in Britain was made by the Leblanc sulphur and solid salt process, which used a lot of raw material and generated large amounts of polluting wastes. The new process was quicker, cleaner and far more economical — at less than half the cost — but also more complicated, and at first the venture threatened to prove a failure. Gradually, however, the technical difficulties were overcome and its success assured, not least because the canny Mond had struck a deal with Solvay that required any subsequent British licensee to pay a royalty per tonne of output which was more than double that charged to Brunner Mond.

Such a long journey
Brunner, Mond & Co went on to become one of the largest chemical companies of the world in its time. In 1924, it acquired the Magadi Soda Company of Kenya. In 1926, Brunner Mond merged with three other British chemical companies — Nobel Industries, United Alkali and British Dyestuffs — to form Imperial Chemical Industries (ICI), a venture that grew to become one of the world's largest and most successful chemical companies.

In 1991, ICI spun off its British and Kenyan soda ash businesses to a separate entity called Brunner Mond Holdings Ltd, and the essential core of the original Brunner Mond Group was re-created as an independent company that went on to become Britain's largest soda ash producer. In 1998, the company acquired the soda ash activities of Akzo Nobel in The Netherlands to form Brunner Mond BV, a wholly owned subsidiary of the Group, making it the second-largest soda ash maker in Europe.

The alkali array
Apart from soda ash, the company also makes sodium bicarbonate, calcium chloride liquor and associated products. It has two manufacturing plants in Northwich, Cheshire (Group HQ) producing 900,000 tonnes per annum (tpa), one at Delfzijl in The Netherlands making 330,000 tpa and another at Lake Magadi in Kenya, putting out 350,000 tpa of soda ash, all sold to 1,500 customers worldwide. There is also a distribution facility at Durban, South Africa. Brunner Mond makes salt in Kenya, largely for the domestic market.

Soda ash is produced in two varieties, dense and light. The former is a vital raw material for making glass, and the latter for making detergents. Both are used in the manufacture of industrial chemicals. Refined sodium bicarbonate is used in pharmaceutical and toothpaste manufacture, while other grades are used for bakery products, and deodorants. Major markets are the UK, Europe, the Middle East and South East Asia. Calcium chloride liquor is used in the oil exploration industry, alginate production, refrigeration, as well as in the food and pharma industries.

Enter the Tatas
In December 2005, Tata Chemicals acquired a controlling 63.5-per cent of the equity of the Brunner Mond Group from Wayland Investments and Barclays Bank for £65 million, making the combined entity the third largest producer of soda ash in the world after the US-based FMC and the Brussels-based Solvay Chemical, but the only one with manufacturing and supply chain capability in three continents. The remaining 36.5 per cent of the company was acquired through an open offer in March 2006, making Brunner Mond a wholly owned subsidiary of Tata Chemicals. The acquisition was funded through internal cash balances, including funds from a recent $150 million convertible bonds issue.

Has Brunner Mond been a good buy for Tata Chemicals? "It would be difficult to identify a soda ash producer that would be a better fit," says Stephen Bentley, group finance director of Brunner Mond. He estimates that building an equivalent capacity in India would have cost Tata Chemicals at least three times what was paid for Brunner Mond.

"We saw the people in Tata and we thought together we would create a stronger business," says Peter Haslehurst, chairman of Brunner Mond. What impressed him most was the Tata approach to such matters as quality, customer service, products and ethics.

"It is a company that has gone through very, very difficult times and 2004 was probably one of the worst years Brunner Mond faced," Tata Chemicals managing director Prasad Menon told a news conference when the acquisition was announced. "We believe it is a very good buy," Menon said, indicating that there was a "strong possibility of a rebound".

Homi Khusrokhan, executive director of Tata Chemicals, who is steering the integration process, likened the acquisition to "a match made in heaven" and said he was sure that "this one is going to succeed ", because of the very similar history of the three companies. Common approaches taken to similar adversities have resulted in instant bonding of the management teams, who seem to have traversed identical paths and therefore speak "the same language".

Apart from Magadi Soda being the lowest cost producer of soda ash in the world, Brunner Mond is one of the world's leading manufacturers and marketers of sodium bicarbonate. Tata Chemicals' sodium bicarbonate sells to a different sector, so bringing the two together allows the company to sell to a broader range of customers and add higher value accounts. In addition, capitalising on production expertise between Mithapur in India, Northwich in Britain and Delfzijl in The Netherlands can improve efficiencies and reduce costs.

And, the rebound came sooner than expected; 2005-06 turned out to be an exceptionally good year for Brunner Mond, a result of focusing on improving the European plants to make them among the most efficient producers of synthetic soda ash in the world. Steadily increasing prices — thanks to a construction boom that boosted the demand for float glass — has meant a firmer bottom-line. The volumes produced in Magadi have progressively gone up over a five-year period. "We increased the profitability of Magadi almost five fold," says Bentley.

Magadi magic
The Magadi Soda Company in Kenya, located on the banks of Lake Magadi, about 120 km south-east of Nairobi in Africa's Great Rift Valley, mines a major alkaline evaporate deposit on the dry bed of the lake. While soda ash has to be made artificially from brine and limestone in the UK, The Netherlands and India, in Kenya it occurs naturally in the form of trona, a self-renewing deposit on Lake Magadi's shores that converts into soda ash when it is calcined (heated) and purified.

"We are very proud of Magadi," says Haslehurst. Magadi's profits today are almost 4.5 times higher than they were in 2000." The improvement, he points out, has come from running the same old plant more efficiently.

Magadi's soda ash is cheaper than the natural soda ash its competitors produce in the US. "We do surface mining, at a depth of four metres. Underground mining in the US state of Wyoming is 600 to 1,800 metres deep, and is far more expensive," says James Mathenge, managing director of the Magadi Soda Company, which has 450 employees. The only problem with Magadi's soda ash has been high levels of sodium fluoride, due to which, so far, it was not preferred by the burgeoning float glass industry.

But the company's plans to address this problem will soon change all that. A new plant that will significantly enhance capacity is now almost complete. "It will make premium soda ash — as good as from any synthetic plant — because our new process will remove the sodium fluoride content," says Mathenge, adding, with a chuckle, that this will not be good news for the competition!

He's right there; the mighty American soda ash industry has expressed its opposition to the US Exim Bank's proposal to finance the export of eight locomotives for modernising the railway line that runs from Magadi to the port of Mombasa, which not only carries soda ash but also benefits local travellers.

The real magic of Magadi is that the trona deposits are constantly and miraculously regenerated by nature. This makes the mining activity sustainable and environmentally non-degrading. "I think we have won the Kenyan Institute of Management Corporate Citizenship Award five times out of five," says Mathenge proudly.

For environmental compliance, Magadi Soda benchmarks its operations to international standards, and does more than is required for statutory compliance. A British five star auditing firm carries out a regular environmental audit, and Magadi's last score was 80 per cent. Mathenge doesn't see any major conflict between being a good businessman, exercising social responsibility and protecting the environment.

The environmental preservation offensive will gain more momentum if the company decides to go ahead with its plan to generate solar power for at least a part of its works, which presently operates on a fuel oil generator. "It's now worth our consideration to look at solar energy development," says Mathenge, who is also examining other possibilities like wind generation, geo-thermal energy from hot springs and bio fuels, all of which are possible in the area, as conventional fuel energy has become extremely expensive, making it one of the highest cost components in the overall product cost.

Mathenge admits that there was a deep sense of disquiet that crept over the company's employees when they first heard that Brunner Mond had been acquired by an Indian company. "I think the initial surprise was based on our experiences with Indian businesses in Kenya. Unfortunately, most of them do not have a very good reputation," he says. Haslehurst himself came to Magadi to assure the employees that the Tatas were not only one of the most respected names in Indian business but had no intention to change the local management.

"There was a related concern, not by employees but by the local community," says Mathenge, "about the support extended by the company." It was only after Menon was able to demonstrate that Tata Chemicals has a well-functioning corporate social responsibility programme in Mithapur similar to the one in Magadi that those concerns cleared up. The final buy in came when Magadi senior managers visited Mumbai for the first integration conference and had a chance to meet and interact with the Tata people. "I don't think there is any doubt now that it is a positive move," he says.

High bicarb diet
Apart from the basic soda ash business, Brunner Mond is very bullish about its bicarbonate. "Sodium bicarbonate is a truly global business because it has much higher value," says Martin Keighley, head of European operations. Bicarb is a speciality chemical that sells for twice the price of soda ash, even though it is an intermediate product in the soda ash process.

"At the moment, we make 70,000 tonnes of bicarb, but we are building a new factory to increase that by 50,000 tonnes," says Haslehurst, "and we can't be building any more plants in the Netherlands. We are preparing a proposal for building one or two other plants in the UK, so by the end of next year we will have a sodium bicarb plant in each of our three factories in Europe."

The new plant in the UK is for a trademarked bicarb variant called Briskarb â — specifically for flue-gas treatment. It's used to manage incineration, burning of wastes and cleaning of acidic gases. As Europe continually tightens environmental legislation, there will be more applications for Briskarb. The company's two European plants presently make refined bicarb, suitable for pharmaceutical companies like Glaxo SmithKline, which buys 70 to 80 per cent of Brunner Mond's bicarb.

Distribution dhamaka
Distribution flexibility is where the real advantage of the Tata Chemicals-Brunner Mond production and supply chain being spread over three continents kicks in. "We have seen Glaxo and other pharma companies moving their manufacturing to South America or South-East Asia," says Keighley. "With our distributed production and supply chain we can even today supply from a number of locations". That is just one of the attractive things about a distributed business model.

The other is more directly connected to the main business. The US, for example, produces nearly 50 per cent of the world's soda ash, but with domestic soda ash demand essentially flat for the past 20 years and for the foreseeable future, export markets in developing countries represent the only viable outlet for future growth. But these are far away, in China, India and South-East Asia, all more easily and more economically supplied from the Kenyan port of Mombasa and from the Tata Chemicals facilities in India. Even South America can be supplied competitively from the distribution facility in South Africa.

All its facilities are ISO 9001:2000 certified, making it easier to export its production. Having altogether invested more than £300 million in improving facilities, the Group is committed to maintaining its position at the forefront of improvement and innovation within the industry.

Caring for the community
One of the company's unique projects in Britain benefits both its business and the community. It has invested over £130 million to tie up with a partner called E.ON to set up a state-of-the-art power station. "Because soda ash is a great user of thermal energy, we linked the soda ash plant to an electricity generating plant. We probably have the most energy efficient power station operating in the UK," says Keighley proudly, pointing out that it has replaced three old, conventional power stations dating back to the 1930s, and massively reduced the output of carbon dioxide and polluting greenhouse gases.

Other CSR projects in the UK include a new Urban Village development on a recycled site with 1,200 homes, places of work, shops, community facilities and parks. A safe waste disposal project with the Cheshire Council is also under development.

At Lake Magadi, the company operates its own rail service to the port of Mombasa, which also benefits local travellers. The area in which the Magadi Soda Company is located is populated by the semi-nomadic Masai tribe, which rears livestock. The region is semi-arid, sparsely populated and has a poor road network, inadequate food supply, frequent droughts, scarcity of clean water, poor sanitation, literacy, and infrastructure. CSR projects include a full-fledged hospital, water supply systems, schools, employment and micro-enterprise development for employees and local communities. "We run nearly the whole of the infrastructure for the Masai," says Haslehurst.

"We focus on education, micro-business development and education, primarily because we believe it is a powerful tool for community empowerment and poverty eradication. That's a key concern in Kenya. We have moved the marker from charitable and philanthropic work to empowerment of communities for sustainable development," says Mathenge.

Looking back, looking forward
What does the future look like for the third largest producer of soda ash (and the largest producer of soda bicarb) in the world? Haslehurst is upbeat: "Well, we fought the war of attrition with the Americans in 2003-04, when they tried to put us out of business and, in fact, went out of business themselves. General Chemicals went into a Chapter 11 bankruptcy filing, but we survived," he says, assured that the future belongs to the new combine.

"I think as part of the Tata Group, we have the opportunity to be a very important catalyst in the change of development strategy," says Keighley. "We are one of the few players who has both synthetic soda ash and natural soda ash, as well as salt and soda bicarb. This is a niche for us to think about how we can actually maximise our strength and leverage the opposition," he points out.

Finance man Bentley is more analytical. "Synthetic producers like us have survived only because we have been able to reduce our cost of production and delivery. On the other hand, as a low cost producer of natural soda ash, Magadi can compete with US producers, as it also has the advantage of being closer to the growing markets that surround the Indian Ocean. To insure for the future, we must reduce the cost of our synthetic plants and make them the most efficient in the world. We must add new activities to generate more revenue to spread our fixed costs. And we must exploit the cost advantage that Magadi gives Tata Chemicals."

Uploaded on September 21, 2006