Pilkington's future is as clear as glass

Date: 10 November 2003
Source: Ft.com
Stuart Chambers is in his shirt sleeves and carrying a tea-tray. The chief executive of Pilkington is, perhaps subconsciously, making a statement about how the company has changed.

For although we meet in the splendour of Pilkington's London town house, a large, white stucco building nestling between St James's Palace and Green Park, which the Pilkington family acquired in 1950, the glass-maker no longer has room for either the family or the flunkeys, and the culture is definitely jackets off.Mr Chambers starts by apologising for the building.It is clearly a well-rehearsed speech. "Frankly, it is a bit of an anachronism. There's no question about what sort of business we need to be: lean, mean, very low overheads."

He is himself lean, athletic-looking, with greying hair and intense blue eyes. Aged 47, he needs reading glasses, but has not yet graduated to bifocals.

With self-confident pragmatism, he wears his spectacles on a string round his neck but still manages not to look a nerd. He is friendly, relaxed, articulate and occasionally lets out a loud hoot of laughter.

When he became chief executive in May last year, he looked at the cost of keeping the house. "My predecessor did the same, and I took over and said 'he must have got the numbers wrong'."

But it seems the annual savings that could be made from moving to a modern office in less salubrious surroundings would be outweighed by the cost of getting out of the lease, which runs another 10 years.

Paolo Scaroni, Mr Chambers' predecessor, did not get much wrong. Indeed, his success was one of Mr Chambers' biggest handicaps when he was promoted. One analyst says: "He had a very difficult act to follow. Paolo brought about an immense change at Pilkington and people questioned whether any mortal could fill the hole he left."

Apparently, Mr Chambers had also horrified the more cynical analysts when he arrived at Pilkington as a marketing man. "He gave a presentation and bounded about like a puppy with three tails," one recalls. But many in the City have been won over as Mr Scaroni's restructuring plan has moved to the next stage. "It would have been easy for the culture to slip back," says one analyst. "Mr Chambers has not let that happen."

Mr Chambers says his management style is to set clear objectives, give people the freedom and authority to take the necessary decisions, and be demanding about delivery. Occasionally, "I do have controlled losses of temper," he admits. "There are times when you need to be seen to lose your temper."

It seems to work. On Wednesday, Pilkington published interim results showing an 11 per cent rise in pre-tax profit and another reduction in debt, in spite of still-difficult market conditions. The shares have risen sharply this year, although the yield of 5.8 per cent suggests there is lingering scepticism about Pilkington's future.

Not many years ago, there was considerable doubt whether Pilkington had a future at all. The business, founded in 1826 and always regarded as a technological leader in making flat glass, had become complacent.

It enjoyed a stream of royalties from companies throughout the world that had licensed its technology while it had diversified disastrously - for instance, into contact lenses - and its profits had fallen.

In the mid-1980s, Pilkington was lucky to escape a hostile bid from BTR - since renamed Invensys - but afterwards little changed.

Mr Chambers joined the company in 1996 and although "I was terrible at history at school", he found it worthwhile to study Pilkington's. "The BTR bid should have been a real wake-up call for us. All we did was put a shed load of effort into a defence and then we fell asleep again. We are a business founded on technology in flat glass. We were, are, and will remain the technological leaders. What we forgot was you've actually got to run a commercially successful enterprise. Technology for its own sake - forget it. The absolutely unforgiveable benchmark was that our licensees were running their plants better than we were."

He was hired for his marketing skills - he had just spent 10 years at Mars, the confectionery and petfoods group. Pilkington had developed products such as its energy-saving K Glass, which it wanted to sell to consumers. "I realised after I'd been three to four months in the job, the last thing we needed was consumer marketing. It was clear that we were too expensive at the factory gate. We were never going to market our way out of that issue."

Mr Chambers spent 10 years at Shell after leaving university with an applied physics degree and had experience of huge process plants. "If you go and visit a plant, which I think is part of the job, you need to be able to sort out when you're being flannelled." Mr Scaroni had joined Pilkington at about the same time and came to the same conclusion. So when he became chief executive in 1997, Mr Chambers fully backed plans to cut costs.

"We have reduced overheads in the past six years by £300m [nearly 10 per cent of turnover]. We still make and sell the same amount of product."

Mr Chambers is proud that in Europe, for instance, where falling demand has hit prices and the plants are running at 82-83 per cent of capacity, "profits are reasonable at these lower levels of price, which five years ago would have been a nightmare, red ink all over the place". With costs cut and the group producing enough extra cash to pay down debt, Mr Chambers is looking again at expansion.

"Of course, I'm not talking a lot about that but I'm thinking a lot. As a team, we are putting the plans together. Where are our priorities? What will be the hurdles for investment? The issue is not opportunities; they are there. The issue is choosing the right ones, doing it wisely, making sure the return is there for shareholders and doing it from a position of strength. The one thing I will not allow us to do is to jump the gun and suddenly pile into building up debts." Clearly, Mr Chambers is a man of well-developed self-discipline. He might have learnt that at school. Born in south-east Asia, where his father was working, he was sent to an English boarding school at 11 but moved to a Quaker day school at 16.

The contrast was startling, he says, between a "six-of-the-best" boys establishment and a mixed school, which was "very liberal - it had a smoking room". Discipline there had to be self-imposed.

He is a stickler for honesty and expects employees to take the same care with the company's money as they would their own. He learnt that at Mars, where "you switch the lights off when you leave rooms".

Last year, he insisted on paying full price for a conservatory built at home using Pilkington's new self-cleaning glass. That gives him the right, he thinks, to recommend the glass to friends. "It's fantastic, we haven't cleaned it in 18 months," he says.

He has become fascinated by glass. "People like me are quite sad in the sense that you would look through glass, whereas we look at it," he confesses.

The comfort for shareholders is that he expects to remain fascinated by Pilkington for some time.

600450 Pilkington's future is as clear as glass glassonweb.com
Date: 10 November 2003
Source: Ft.com

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