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Hutchison International Limited
What was subsequently to become Mr Wyllie's greatest challenge and most famous rescue, both in terms of profitability and international exposure, came about almost by chance. By the middle of 1975 with CHINA ENGINEERS again profitable, Mr Wyllie set about looking for expansion opportunities and acquisitions.
At that time there was considerable press speculation in Hong Kong that HUTCHISON INTERNATIONAL LIMITED (HIL), then one of the three largest public companies in Hong Kong, was close to bankruptcy and would soon fail. It was widely known that the HONG KONG AND SHANGHAI BANKING CORPORATION were closely monitoring the situation as HIL's principal bankers and were worried about their exposure.
Mr Wyllie was specifically interested in acquiring two quoted companies which were then associates of HIL, A.S. WATSON & Co. and HUTCHISON PROPERTIES LIMITED. What he hoped to do was buy these two companies, if they were available, and absorb them into the CHINA ENGINEERS GROUP.
If successful, his intention was to merge CHINA ENGINEERS' and HARPERS’ substantial property holdings into HUTCHISON PROPERTIES, and the AMOY CANNING CORPORATION'S food and beverage assets into A.S. WATSON, which was already a major distributor of pharmaceuticals, wines and spirits.
In July 1975, Mr Wyllie arranged a meeting with the Deputy Chairman of HONG KONG BANK, Mr Mike Sandberg, and presented his proposal to him. At the end of that meeting Mr Sandberg’s response was that the concept was interesting. However, because of the size and exposure of HIL to Hong Kong business and the damage that its failure would cause to the Colony's reputation as a financial and trading centre, the Bank was unhappy about the idea of HIL being allowed to fail and be broken up.
Mr Sandberg confided to Mr Wyllie that the Bank was considering recapitalising HIL on a basis that would leave the Bank with up to one-third of the public company's equity. At that time details had not been finally worked out but Mr Wyllie was informed in confidence that the Bank would insist on nominating a new Chief Executive to take the group over and sort it out. This led to further meetings with Mr Guy Sayer, the Chairman of the Bank, and subsequently to an agreement whereby Mr Wyllie was nominated as their choice for HIL's new Chief Executive.
At that time, HUTCHISON INTERNATIONAL LIMITED, which was very diversified with over 360 subsidiary and associated companies, was engaged in a range of manufacturing and trading activities which touched on almost every aspect of Hong Kong's economy. In addition, the group had wide-ranging interests in the Philippines, Thailand, Indonesia, Malaysia, Singapore, the U.K. and Australia, all of which were losing money.
The group's corporate structure was incredibly complex and unnecessarily tangled and it had become that way because of the uncontrolled and explosive growth of the early '70s. Growth which had substantially outstripped management's ability to control the company and its many associates and subsidiaries.
Management information and financial reporting, where it existed at all, was generally inadequate, imprecise and unco-ordinated, and because of this the directors and management in HIL's head office were largely ignorant and unaware of the real extent of the group's problems world-wide. The group needed to be brought quickly under control.
In July 1975 HIL's directors announced losses totalling HK$128 million for the financial year ended 31 March 1975. It was also revealed that the group had consolidated debt of some HK$1.5 billion, a huge negative cashflow which could not properly be quantified and, in addition, HIL's principal US creditor had presented a petition to the Courts of Hong Kong seeking a compulsory winding up of the company.
Fortunately, on 1 August an interim injunction was granted restraining the proposed action, but this was valid only until 9 September at which time it would have been necessary for its continuance for HIL to demonstrate to the Courts the continuing support of either the HONG KONG and SHANGHAI BANKING CORPORATION or some other similar financial institution. Happily for HIL's shareholders at that time, the HONG KONG BANK offered to support the company by subscribing for 150 million new shares of HK$1 each at par and, as a condition of this offer, the Bank further undertook to provide the additional banking facilities needed to enable the group to trade its way out of its difficulties.
A condition of this offer was the appointment of Mr Wyllie as the Bank's nominated Chief Executive on a generous salary and benefits package which included profit sharing.
Following the necessary Court and shareholder approvals, Mr Wyllie, with SIME DARBY's agreement, relinquished his position as Chairman and Chief Executive of CHINA ENGINEERS in favour of his deputy and moved into HIL's head office on 1 November 1975.
On 23 November, in the Penthouse of HUTCHISON HOUSE, Mr Wyllie addressed 145 of the HIL group's then key personnel, including main Board directors, subsidiary Managing Directors and group General Managers. During that address, he traced the history of the group and explained what he thought was wrong with the company and why it had failed.
He then outlined the changes that would have to be made and the time frame within which he expected those changes to be made and warned those present that some of them would probably not make it.
He established a target of June 1976 by which time he expected every company in the group to be reporting to head office with monthly accounts - accounts which he expected to be accurate. He also warned them that those directors and managers who felt they could not meet that timetable, or cope with the new disciplines within which they would have to work, could do themselves and shareholders a big favour if they let him know right away.
Mr Wyllie noted that accounting and financial controls throughout the group were so weak that the best HIL's head office were able to achieve by way of reporting was a quarterly estimate of the profits or losses of their various companies. Some of which only reported annually and that it was this lack of financial discipline, which had led to many of the problems the group was then facing.
He closed that particular meeting by referring specifically to the performance targets, which he expected to be met by various dates throughout 1976. These included the obvious need for modern financial controls and reporting from every single company in the group, the settling of all outstanding litigation, the streamlining of overheads by cutting out unnecessary fat, a comprehensive debt reduction programme and, most important of all, the elimination of loss-makers both in Hong Kong and overseas.
This speech, which was particularly blunt and very hard-hitting, was subsequently written up in the UK based business magazine International Management under the heading 'How to Ruin a Cocktail Party and Save a Company'.
The first half of 1976 therefore was a particularly trying time for the group as the planned reorganisation also included a comprehensive programme for streamlining HIL's corporate structure and achieving control over group cashflow. By the middle of 1976, the major part of the programme to determine the management changes that were necessary and identify the people who would fill the important openings being created was completed.
By the end of that year no less than 103 companies throughout the group had either been liquidated, rendered dormant or had been sold.