UK: The Davidson Interview - John Allan.

UK: The Davidson Interview - John Allan. - Despite turning Ocean Group from a stock-market laggard into a brokers' favourite, the inscrutable freight handling boss shows no sign of wallowing in his own success. The next phase of growth, he tells Andrew D

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Last Updated: 31 Aug 2010

Despite turning Ocean Group from a stock-market laggard into a brokers' favourite, the inscrutable freight handling boss shows no sign of wallowing in his own success. The next phase of growth, he tells Andrew Davidson, will be even more interesting.

John Allan, chief executive of the Ocean Group, has a curiously graphic turn of phrase. Sometimes, he says, you have to 'really hold people's feet to the fire' - to get them to address the right issues. Presumably that's before he attaches the electrodes and after he has whacked them with the hosepipe. Allan, a hard man to gauge - maybe, indeed, just a hard man - smiles with steely resolve. Four years at the top of Ocean, the £1.1 billion-turnover freight-handling group which he has transformed from a stock-market laggard into a brokers' favourite, appear to have sharpened his edge.

Yet while his language is tough his manner tells a different story. Sitting at the meeting table in his eighthfloor office in Bracknell, he seems cautious and self-deprecating, hiding his acknowledged determination to win beneath a lugubrious outlook that makes you think he is not altogether at ease in the spotlight. Perhaps it is just shyness.

Chubby, with a big stomach, wide, square glasses that shrink his eyes and a schoolboy flop of greying sandy hair swept across his forehead, he looks at times rather surprised that everything has gone so well in his first stint as a plc boss. Others suggest that after a wide-ranging career that culminated in a nine-year period of rough-and-tumble at BET, the services group swallowed up by Rentokil in 1996, he has learned to take nothing for granted and is too smart to wallow in his own success.

Allan simply crosses his arms and says, almost defensively, that a lot of the thinking behind Ocean's turnaround had been done before he arrived.

An individual cannot transform a business on his or her own. Credit should be shared.

He is right, of course, but you only have to look at recent brokers' reports from the City to realise that he is probably in a minority on this one. After doubling Ocean's share price in three years, Allan has a growing legion of analyst fans. 'The arrival of John Allan ... has reversed years of underperformance ...' (Credit Lyonnais Laing). '... margins and returns improving consistently since John Allan's arrival ...' (ABN-AMRO Hoare Govett). That is likely to be backed up by another set of impressive financial results announced this spring. Nor is it just analysts who have noticed the changes. Ocean Group, which also has interests in the decidedly unfashionable areas of towage and waste management, leapt up 115 places to number 87 in last year's Most Admired Companies survey in Management Today, a sure sign that something is going on. Already a UK top 250 company by market capitalisation (£890 million in January), some believe it is a possible FTSE-100 giant for the future. Whether he likes it or not, the quietly inscrutable Allan, now 49, is being labelled 'one to watch' ...

He shrugs off the compliments. In the past, he explains, Ocean's potential was always underestimated by outsiders - that has made it much easier for him to make an impression. 'When I arrived we were number 257 out of 260 in the Most Admired Companies survey. There was only one way to go,' he says, allowing himself a small chuckle.

The problem was that Ocean, a company with a long history and a broad range of businesses, just confused people. Set up as a steam ship company in Liverpool 138 years ago, it made its name running the Blue Funnel Line to the Far East, where its ships were common sights in Hong Kong and Singapore.

By the end of the 1960s it was listed on the Stock Exchange, had diversified into air freight and was looking to move into the off-shore oil service industry. It sold its last Blue Funnel ship in 1985, fought off a takeover bid in 1986, and settled down to concentrate on a mix of interests which somehow developed out of each other: seafreight, airfreight, logistics, marine services and waste management (which was one way of using its fleet of river barges). But as the only quoted freight forwarder and off-shore supply company listed in London, with nothing to benchmark it against, Ocean did not get much attention. Analysts found its high turnover, low-margin business hard to understand (tugs - you have got to be kidding), and avoided it. Investors saw that its performance was unremarkable, and ignored it.

Then in 1994 the board had the bright idea of bringing in an outsider to shake things up. Former chairman Peter Marshall says that it was clear that Ocean had got stuck in a rut. 'We needed someone to reshape the headquarters and the operating units with a modern set of solutions, not the concepts of the 1950s and 1960s, which were still evident. And we wanted that someone to achieve it with humanity, persuasion and intellect. I didn't want a cut-and-slash man. John was simply head and shoulders above the rest of the candidates.'

Allan's broad range of experience impressed the Ocean board. An Anglo-Scot, born the only child of a navy chief petty officer, educated at Edinburgh University, Allan was trained in marketing by Lever Brothers, working on Lux and Lifebuoy, and had carved out a management career at Bristol-Myers and Fine Fare before finally joining BET. There he worked closely with its last chief executive, John Clark, leaving two years before the company was snapped up by Rentokil (and all its senior staff were laid off). In his time, Allan has built brands, led a supermarket buying operation, and run seemingly everything from contract services and security outfits to overseeing a major double-glazing firm, BET's Anglian Windows. Most importantly he was a key player in the team which Clark, a tough-talking American, put together to turn around BET. For Allan, moving on to sort out Ocean's freight, barges and tugs was just another job, and one with intriguing possibilities.

Yet surely he must have felt it was a jump out of the mainstream? 'I did think quite hard about it,' he admits. 'But the challenge was the opportunity to be chief executive, to be the person who would most influence whether that company would be successful. I didn't worry that it wasn't fashionable. I was more concerned with the challenge and opportunity.' That, he says, has always been 'the linking thread' in his career. Was he lured by the money? (The last Ocean annual report notes that he earned £401,000 in 1996 and sat on share options worth over £1 million in profit).

'I don't think I am motivated by money, though it is always nice to have some,' he says. 'I think it is probably more important to have done a successful job.'

He certainly went about his work quickly. When he came into Ocean, he says, he found a business that was in good shape financially, but lacking the 'determination to win'. Within three days of his arrival, one division chief had left. Three years later, nearly all the senior staff have been replaced. Allan estimates that probably 40 out of the top 50 executives at the company are his appointments. That's quite some change. Those who know Allan say he doesn't like to let anyone sit in a job for too long.

He believes they go stale. But can a clean-out on that scale really be squared with 'humanity, persuasion and intellect'?

Allan looks stolidly impassive. 'I don't think those who know me would describe me as a brutal man,' he says, 'but I have never been frightened of facing up to decisions about people. My judgment was that bringing in fresh people was important if we were to make progress. And we had to make progress quite quickly, not just come up with reasons why it should take time. It's better to grasp the nettle quickly than to wait around.'

Ironically, it was all a situation he had been through before, but had experienced from a different perspective. 'I saw the impact a new chief executive can make when John Clark came into BET, and I guess I learned a lot from that.' Such as? 'How to communicate with clarity - people can spend a lot of time on complex messages that have no impact-and how to get people to face up to dealing with issues. One of the opportunities here was to get people to confront a number of things they were well aware of but hadn't actually dealt with.'

Which is where 'holding people's feet to the fire' comes in. The muscular language is, according to others, a legacy of his partnership with Clark, a former captain in the US Marine Corps. Allan was the only BET executive director to survive Clark's rumbustious arrival at the company and the two worked closely together on the group's turnaround. Clark remembers that, when he first met Allan in 1991, he judged him 'an outstanding marketing executive with an increasing general management capability', bright and good with people. He was also 'a quick learner in the restructuring and value-enhancement techniques' that were introduced. 'John picks up things extremely fast, he is really very able,' says Clark, pointing out that a number of that BET restructuring team have now gone on to head up big companies. 'I am not at all surprised he has done so well at Ocean.'

Others who knew Allan then suggest that, while working with Clark was clearly a key influence in his career, he has been smart enough to develop his own, less abrasive style. But he learned the hard way at BET that you have to get the people issues right first before anything else. 'He wouldn't have enjoyed sorting it out,' says Ray Hart, an old BET colleague now a director at Nomura Securities' Principal Finance Group, 'but he knew you couldn't fudge the people issue. If it's a nasty decision, you have got to get on with it.'And right at the start is the best time to do it.

How did he tackle the rest of the business? Allan says he simply analysed Ocean's interests and set out a plan: four areas in which they needed to make progress. 'First, we had to deliver consistent improvement in performance from day one. Second, the key to that was to strengthen senior management. Third, we had to build credibility with investors and non-investors and give the outside world a better understanding of our business.

And fourth, we needed to understand the long-term potential of our portfolio of interests, which had no particular determining logic, and we had to decide where we were going to concentrate our focus. We took the best part of two years to do that, and we decided that global logistics offers the greatest potential for long-term growth.' After that, he says, it was just a question of getting the balance right: not driving solely for short-term financial performance but concentrating on customers, staff development and innovation.

'The key to making money in services is to recognise that service offerings mature quickly,' he says, 'and if you don't innovate you become a commodity supplier and your price gets driven down.'

The decision to focus on logistics - getting goods from one place to another - has won general approval. The sector is developing into a key growth industry for the turn of the century. As multinational manufacturers look to focus on two or three essential elements of their business mix, transport and delivery are among the non-core tasks that are now habitually contracted out. For the service provider, that in turn can lead to even greater involvement in the manufacturer's business. Consequently Ocean, through its MSAS and McGregor Cory subsidiaries, is not just flying parts and products round the world for major multinationals (it has 450 bases in 112 countries), it is also moving into local distribution and even assembly.

Certainly the airfreight sector, where Ocean does most of its business, is experiencing rapid growth. More than a third (by value) of global world trade is now transported by air and most experts estimate that airfreight volumes will continue to increase at around 7% per annum over the next 20 years. MSAS, Ocean's core company, is now the world's second biggest airfreight forwarder behind Nippon Express. It is adroitly placed to profit from that growth, especially as one of the key boom areas is in Asia, where the company has a strong base because of its shipping heritage.

And around 75% of its Asian business is involved in shipping goods out (ie export-related), the one area expected to grow as manufacturing costs slide after the region's recent financial crises.

But there are complications. Organising airfreight, which basically involves pre-booking a lot of space on the world's major airlines, is a very low-margin business: MSAS made only £24 million operating profit on £829 million turnover in 1996. Is it worth it? Very much so, says Allan. Look at it from another angle. 'The return on capital employed in the business is around 50%. Now, there aren't too many businesses like that. You could just as well argue that as these are very high returns, and that as it is a cash-generative business with good long-term growth, all of which is relatively unusual to find together, so financially it is a very attractive business to be in. But most importantly we are right at the centre of providing logistic solutions for our major multinational customers.' Consequently as multinational penetration grows around Asia and South America, so Ocean piggy-backs along, setting up the services the multinationals need to get their goods to their new customers. Clients include Compaq, Ford, ICI, Intel, Motorola, Sony. And as relationships develop, so comes the opportunity to manage more of the supply chain for the customer, such as running vendor hubs, which bring in parts from suppliers and supply just-in-time to factories, and getting involved in repair and testing.

But how far up the supply chain can you go? Allan smiles. 'The challenge is to manage anything the customer wants us to do and make a profit,' he says. The other good point is that, provided you are professional, there is no conflict in working with competing customers. The group is already serving multinationals in the electronics and automotive sectors, he says, and increasingly picking up business in pharmaceuticals, speciality chemicals and aerospace.

All well and good, but where is the synergy with Ocean's other interests, principally Cory Towage and Cory Environmental? Clearly, neither are bad businesses. In 1996 Cory Towage, operating out of ports including Belfast, Bristol and Cardiff, made £11 million operating profit on £31 million turnover. Cory Environmental, in the same period, made £7 million operating profit on £73 million turnover, much of which is accounted for by its contracts to move domestic waste down the Thames to the Mucking landfill site. But both appear to require very particular skills. Is there not a danger that they could divert executive energies? And where's the link between logistics, tugs and waste barges?

Allan shakes his head. 'No one here', he says, 'is pretending that the waste business and the towage business are intrinsically part of the logistic strategy. They are clearly separate entities, and businesses which at this stage we judge to be valuable contributors to Ocean's overall progress.

Our willingness to face up to the task and create value out of these businesses as opportunities arrive is shown by how we sold our offshore supply business for a pretty satisfactory price last year.' Certainly that sale of subsidiary OIL (formerly known as Ocean Inchcape Limited) to market leader Tidewater for around £328 million brought a few low whistles of appreciation from the City - the sum was at least £100 million higher than Ocean's own internal valuation of the company and was clearly an offer that couldn't be refused.

Can Allan do it again? He shrugs. 'At the moment we have neither need nor plans to sell any more businesses,' he says. But it is hard not to conclude, as every analyst does, that towage and waste management are simply being spruced up till the right offer comes along.

Before then, Allan has to prove that he knows what to do with all the money the company is stockpiling. Tidying up Ocean Group is one achievement, really pushing it forward is another. Will he buy big? An assessment from Credit Lyonnais Laing in January predicted that Ocean was now in the market to snap up another road-based contract logistics company to bolt onto McGregor Cory. NFC (formerly National Freight Corporation), it said, would be the best fit, even though it is a bigger company than Ocean Group on paper. Such a takeover could be dressed up as a merger.

Would it work? Allan won't budge. 'It is just speculation. We are looking at all sorts of possibilities.' He adds that any acquisition has to pass two tests: it has to provide 'strategic fit' and it has to make financial sense. 'There is a value for them in having a relationship with a major international freight forwarder but we have less need of them. We prefer finding businesses that have a specialisation.'

What drives him on? Allan says he is not sure. He doesn't have an extravagant lifestyle, just the one house in Virginia Water. He is divorced - it wasn't because of work, he says, he just grew apart from his wife - he has two nearly grown-up daughters and, according to his friends, he is very much in love again with a new partner. When he is not working, he reads voraciously: novels, biographies, histories. Why did he go into business? Again, not certain, he says; his father worked in the public sector all his life (Rosyth dockyard after the navy), there was no real business influence in his youth, he was just good at it. He used to run the students' wholesale stationery business at Edinburgh University, heard Lever Brothers was a good place to get a general training and took it from there. There was no grand plan. He just had a knack for organisation and presentation.

Hart agrees he is not an easy man to fathom - when they worked together, he only saw Allan lose his temper once in three years. He says Allan is someone who enjoys a challenge. 'I think John loves being a winner, he loves watching his business outperform others, he really likes helping other people develop and he enjoys the intellectual interchange involved in dealing with everyone. I think he is really enjoying himself there.'

Perhaps his only real weakness, acknowledges Hart with a laugh, is that big stomach. Apparently Allan, even in his BET days, used to have an annual sponsored slim to raise money for charity, frequently losing as much as two stone and making his workmates contribute thousands of pounds to charity in the process, before mysteriously piling all the weight on again. Now he has to concentrate on making his com-pany grow at a similarly fast rate. Some who have worked with him before query whether he is really ruthless enough to push Ocean all the way, right up into the FTSE-100. Far from being the hard man I had originally mistaken him for, he is, they say, probably rather too nice for his own good.

Allan seems unperturbed. What he has done so far is just the easy bit, he says, as I pack away my tape recorder. The next phase, he admits, is 'rather more interesting'.

BIOGRAPHICAL NOTES

1948 Born Edinburgh

Educated St Andrew's secondary school, Kirkcaldy, and Edinburgh University

1970 Graduate trainee, Lever Brothers

1973 Manager, consumer products division, Bristol-Myers

1975 Marketing manager, UK consumer products, Bristol-Myers

1977 Marketing director, superstores division, Fine Fare

1983 Marketing and buying director, Fine Fare

1984

Director/general manager, Fine Fare Retail

1985

Group executive, BET

1987

Group board director, BET

1994 Chief executive, Ocean Group plc

WHAT PEOPLE SAY

'John is incredibly realistic and modest. He takes feedback from people, and he is good at communicating what he wants. He also trusts people, he is prepared to give them their head.'

Ray Hart, Director at Nomura Securities' Principal Finance Group

'John is a great marketing person and I think his experience at BET, where he was part of the original team that turned the group round, stood him in good stead too.'

John Clark, former chief executive of BET

'John has that ability to analyse a particular situation quickly, read the figures fluently, make a penetrative commentary, and bring all the elements together. He does not pick a standard solution to every problem. He comes up with imaginative solutions.'

Peter Marshall, former chairman of Ocean Group

'John is very able. Whether he is really ambitious enough to do a GE with Ocean, or do what Barrie Stephens did with Siebe, I am just not sure. He hasn't got that sort of ruthless character.'

An ex-BET colleague.

'The extraordinary thing about John is that he has this clarity of expression, he never says "um" or "er". He is one of the clearest thinkers I have ever met in business.'

Frank Knight, non-executive director, Ocean Group, formerly MD at Bristol-Myers.

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