Sir C.K. Chow Acceptance Speech at the AIB International Executive of the Year Award, Powerhouse Museum, Sydney, 18 November 2001

Thank you very much ladies and gentlemen, thank you Jose, you certainly brought back a lot of memories on the much better life than I myself thought about, and you also took away most of my speech tonight. I’m acutely aware that I’m the only thing between you and the finest quality of Australian beer, so I’m under tremendous pressure. It is both a great pleasure and privilege for me to be here tonight to accept this award. I understand I was considered for this award, partly, at least, because of my contribution to merge Brambles and GKN support services businesses to create a global company also named Brambles. There are a number of people who have contributed significantly to the success of this merger, and I really wish to recognise them tonight, and share this honour with them. They include the two chairmen Don Argus and Sir David Lees of GKN, the former chief executive of Brambles, John Fletcher, and David Turner who was the financial director of GKN and is today the CFO of Brambles. I could not have predicted a year ago that I would be here in Sydney to have the opportunity to talk to you.

One of the features and characters of an international career is that it’s full of surprises, and one of my elders once told me that the necessary condition for a successful international career is good health, a good spouse and a rock-solid family. Come to think about it, these are actually the features of most happy lives today, and I want to say that I am grateful to my wife. Although she could not be here tonight she has really been the foundation of my family when I was running around the globe, and she has given up her own career in order to satisfy my ambition.

As many of you know, I was born and brought up in Hong Kong. I left Hong Kong in 1968 to go to the U.S. to study chemical engineering as Jose said. The choice was actually quite simple, because when I left Hong Kong I spoke only a few words of English and I could write only with a very limited vocabulary. I was not literate enough to study any social science or arts program. Signs, I like, logic I understand and I love to turn conceptual things into reality. After I finished my studies and worked for a couple of years in the U.S. I returned to Hong Kong for personal reasons. Then I joined BOC, which was then called British Oxygen. I worked there for 20 years. BOC is a U.K.-based multinational company. It offered me a great development ground, not through any planned career development or career program, and I find that today that is true for many of our youngsters as well. But the development was mainly through a series of informal mentors whom I had the opportunity to meet; they met me, they kind of liked me, they opened doors for me and I tried to learn as much as I could from them. One of them, Sam who is one of the best corporate entrepreneurs that I have known, took me to Japan. Looking back, my career in Japan was not a particularly successful one, but I did learn a number of lessons, which I applied to better use later on. Japan has a number of world-class industries, but industrial gases is not one of them. It is an industry in which the participants themselves call it a wide industry in a very Japanese sense, implying that it is a subordinate industry to its customers. I have over the four years seen a lot of effort to try to improve that industry. However it is very fragmented with no differentiation amongst the players. It is also squeezed in the value chain, on the production end, by utility companies. And at the customer interface, where there are layers and layers of distributors so symbolic and representative of many Japanese sectors, that the profitability was squeezed right in the middle of these companies. Over the period I oversaw hundreds of millions of pounds of investment into this company without really a satisfactory return. There are structural difficulties in many of Japan’s weaker industrial sectors and a foreign company should not underestimate the difficulties to restructure those difficulties in those industries. Having said all that the biggest failure I had in Japan is probably that I did not utilise the strength of Japan. We could have done a lot more to utilise our customer network in Japan, which included Hitachi and Toshiba of the semi-conductor industry; and Honda, Toyota and the Nissan in automotive. We could have learnt a lot more about the operation of practices, we could have conducted more joint technology programs, used them as a source of innovation and we would have become a better partner for them on a global basis. Also that we did not conduct enough research in Japan. Japan has a very good research infrastructure, good engineers and also a lot of government support. Like many other companies in Japan, we overspent on building the most expensive laboratories in Japan and underspent on intellectual capital. Understanding Japan is not an easy task for a foreign company; it often times takes more than one generation of executives, then it becomes a challenge to maintain corporate memory to remember what we have learnt over a long period of time. We did not do particularly well in that aspect either. I was very grateful to BOC because I got a promotion after Japan, perhaps I had made some incremental improvements. By 1993 I was managing the global gases business for BOC, from London, and three years later as Jose said, I was recruited to be the chief executive of GKN.

GKN has origins since 1750 and is nearly 250 years old. It was started during the industrial revolution and is amongst the oldest companies in the U.K today. It began as a steel maker and has continuously transformed itself as the time and technology changed; it has a strong tradition in engineering and manufacturing. In many ways GKN is regarded as a very British institution. I was therefore surprised that the board would choose me, who until that time spent most of my time in the U.S. and in Asia, to be its new chief executive. I was nonetheless delighted to accept the challenge. Going to the U.K. was an interesting experience by itself. In the first three months of my arrival I managed to upset everyone I worked with. Compared to the U.S. and Hong Kong, Britain is a more structured society and I had to learn how to observe the unspoken rules in Britain. The ability to articulate and debate is more highly valued in the British business society, perhaps a reflection of the society itself. I had also to learn to temper my natural enthusiasm, because a higher level of certainty was required by my board. However I also found that I could use my distinct different background as an advantage…to confuse them. Throughout my international career I have always tried to assimilate, but only to about 60 to 70 per cent. In 1996 GKN had three main businesses. Approximately half of the company was in automotive components, 25 per cent of the company in aerospace and defence, and 25 per cent in support services.

The support services part mainly comprised of two 50-50 joint ventures with Brambles Industries Limited of Australia. These were a pallet pooling business called CHEP and a waste management business called Cleanaway. Strategically it was a number of challenges, the defence and aerospace industries were consolidating at a relatively high speed on a global basis. The U.S. competition was already completed; Boeing and Lockheed Martin were the leaders of the industry in the U.S. at that time, and the consolidation in Europe was about to begin. GKN’s defence and aerospace business included an armoured vehicle business, and Western Helicopters and Western Aerospace. Western Helicopters is a proud industry and is one of the U.K.’s leading prime contractors for defence. On a world scale, however, it had much bigger competitors. It did have a strong order book at the time and was in a good position to take advantage of the consolidation process. The joint ventures of CHEP and Cleanaway were also being tested. The long success of the relationship, 27 years in the case of CHEP, had produced two very successful businesses that were becoming bigger and bigger. Later in the GKN/Brambles transaction, we found out that about 50 per cent ownership of CHEP and Cleanaway actually represented about 60 per cent of GKN’s value and nearly 80 per cent of Brambles. The tail not only started to wag the dog, the tail has become the dog.

Issues such as funding, competition for resources and management structures were growing in importance. Many of us began to think that the JV structure, which had been successful up to then, was unlikely to be the appropriate structure for these two highly successful businesses over the longer term. GKN was, and is still a strong global brand in automotive components. It has world-class manufacturing, and first-tier supplier abilities. It is global in outlook, and transfers its knowledge and process effectively across country boundaries. It is an effective global supplier to its global customers. In the beginning of 1997, we embarked on a new five-year strategy for GKN; it was called "double double" inside the organisation, signifying the financial objective of doubling the revenue, and doubling the profit the earnings would share of the company.

However there was another hidden agenda, which we did not explicitly express, and that was to seek a solution for some of the fundamental strategic issues of the company. Four-and-a-half years later I could look back with some satisfaction. GKN merged its armoured vehicle business and the helicopter business with others to form significantly stronger companies. Agusta Westland of which GKN now owns 50 per cent, is the second largest helicopter company in the world, and has an $8 billion order book. GKN has more than doubled its aerospace component and service business. Utilising its knowledge in automotive is creating a first-tier supplier position in this very traditionally, very fragmented supply chain of aerospace. It has become a partner for Boeing, Lockheed Martin, British Aerospace and so on, around the world. In automotive, GKN has built a new business to about US$1 billion in powder metallurgy. GKN’s Sinter Metals is the only global company in this sector and is more than three times bigger than the next competitor. But more importantly than all this, the expansion of GKN’s engineering businesses in aerospace and automotive gives it a scale to consider the merger of the support services. Scale is important in a practical sense for the capital market as well as the attraction of talented personnel. Today, other than the merger of support surfaces business, GKN is still larger in revenue and profit than it was in 1997 and it remains a FTSE 100 company in the U.K.

There was another aspect of the GKN experience that was particularly meaningful to me. GKN got it right in Japan this time. It took over a component factory in Nissan, we learned from this world-class manufacturing process, we established an engineering and research centre in Japan and we used it as a base to partner with all the carmakers in Japan. It is already profitable and will play a central role in GKN’s network as a global automotive supplier. The merger of GKN’s support surfaces with Brambles was completed on the seventh of August this year. The strategic advantage of the merger was very compelling; it removed the joint venture structures for CHEP and Cleanaway and all its uncertainties and inefficiencies. It removed the artificial boundaries that were imposed on these two very successful businesses by agreements drafted many years ago. It allows CHEP to use its unique global brand in support services, and there are not too many global brands in support services to develop other products and services. It streamlines management by creating a unified one; it creates two focused companies.

GKN is a world-class engineering company on the one hand and Brambles is a world-class support service company. Today 40 per cent of Brambles business is in Europe, 30 per cent in the Americas and 18 per cent only in Australia and New Zealand, with the rest in Asia and South Africa. Our shareholder base is equally international. European shareholders hold about 40 per cent of the shares, Australian shareholders about 28 per cent and the U.S. institutions about 25 per cent. Brambles has a Dual Listed Companies structure with listings both in Australia and London. About half of Brambles is represented by CHEP, I don’t know how many of you are familiar with CHEP; it is a business based on an elegantly simple idea. It is almost like the eraser at the end of the pencil. It manages a standard loading device, which can be a pallet or plastic crate, or any other container as long as they’re standardized, throughout its supply chain amongst multi-users on a continuous basis. Before CHEP, when grocery manufacturers, for example, produced a laundry soap, or chocolate bar, they bought a pallet and put the goods on it. When they shipped their goods to the retailer’s warehouse, that was the last time they ever saw that pallet. When they arrived at the warehouse they tried to pick up used pallets, repair them, and they bought some new ones. CHEP came along and offered them a hired pallet of a standard size that could be circulated around all grocery manufacturers and all grocery retailers. CHEP tracks, repairs, collects, and delivers these pallets, and the manufacturers are only required to pay for them when the product sits on them. CHEP now owns over 160 million pallets on a global basis. It has grown at double-digit for many years. Its business model is based on the concept of standardisation for every participant in the industry, manufacturers and retailers alike. It has huge growth potential. After that case of growth, about 50 years in Australia and about 11 years in the U.S., CHEP has only penetrated less than 30 per cent of the Americas market and the European market. It is just beginning to enter the non-grocery market, such as chemicals, pharmaceuticals, cosmetic and health products and horticulture products. These so-called secondary markets together are as big as the grocery markets. It is also introducing other standard loading devices, such as the returnable plastic crate to replace the conventional cardboard boxes in the transportation of fruits and vegetables. Auto crates are introduced for automotive components. It is a unique business, it has a proven record, high growth, and has global market leadership.

The other two businesses of Brambles are Cleanaway and Recall. Cleanaway is a waste management business with presence in the U.K., Germany, Australia and China. And Recall is an information management business that manages both documents and digital information. Recall is relatively small today, but has the ability to become a substantial part of Brambles. CHEP, Cleanaway and Recall represent over 80 percent of Brambles’ profit. At Brambles we have defined our mission to be the world’s leading provider of innovative business solutions in support services, and to use our outsourcing expertise to add exceptional value in the eyes of our customers. We intend to win and create superior shareholder value through our people and the enterprising spirit. It has a number if high-quality businesses, we are a business-to-business outsourcing company with special knowledge and expertise. We intend to build a winning and enterprising culture. I’m excited by the opportunity to lead Brambles, and I’m deeply honoured by you tonight.

Thank you very much.