5. COMMENTS on and CORRECTIONS in BREAKING THE MOLD

NOEL and ALI ROSCROW and BOB JOSE INTERVIEW – 11 Nov-09

Key comments mentioned by Noel and Bob a number of times:

A lot of SOLA’s shortcomings were the result of the LACK OF CASH
Look at what we started with - HAD NO MONEY - always strapped for cash
Key reason for selling SOLA was lack of cash. Went to Pilkingtons as needed money to make the company grow

Re - Pilkington’s analysis of SOLA’s management quoted in Breaking the Mold

Bob agrees with most of Pilkington’s analysis and admits too much central management, with little collaboration between Marketing, Production, R&D and Administration
Unclear management development (principally insufficient good training of up and coming staff). Bob’s comments - many failures in people development partly due to unclear organization). Noel comments - mostly caused by lack of cash – needed employees flat out on day-to-day operations – no time for their development.

Assessment by John Heine

At the Pilkington Ophthalmic Division board meeting 30 June & 1 July 1982, John Heine gave his early impressions of SOLA:

SOLA was a company with a very great potential despite the equally great problems it was currently facing. The original reasons that had led to Pilkington to acquire it were still valid despite the disastrous performance since the acquisition. Basically the problems facing SOLA were all attributable to growth. In 1979, for example, sales totalled $19m; by 1982 they had reached $43m – a growth of 126%.
Nor had the growth been confined to sales; the product range had doubled and the number and size of the manufacturing locations had increased....

Both Noel and Bob disagree with John Heine’s quote on p. 156 of Breaking the Mold. After 5 years at the helm and when SOLA was going very well, John recorded:-

“Five years ago, SOLA was an unmanageable rabble characterised by:

Losses and negative cash flow

Fraction fighting and politics

Bitter personal relationships conducted on a highly emotional level

Zero cooperation between USA and Australia”

Bob admits “certainly sometimes strained relationships between USA and Australia mainly because of behavioural differences but zero cooperation is incorrect”.

Noel’s perception was that SOLA was somewhat like a family with relatively good camaraderie and good morale throughout the organization.

Both Bob and Noel consider there were a number of disasters/mistakes not covered adequately in Breaking the Mold. One of the key mistakes was buying into the Contact lens business (Syntex cost US$60 million).

Noel’s term was “not sticking with the knitting” - did not know the contact lens business.

Dean Sherry

There are a number of comments and corrections I should make on Breaking the Mould.

My comments are:

Preface - There was no serious financial drain on Laubman and Pank because of SOLA. I know that we always paid our way for everything. In fact I subsequently discovered that when Laubman and Pank sold plant and equipment to SOLA the sale price was the original cost price rather than the depreciated price, In short we paid new prices for used equipment
Chapter1, Page 11- Dennis Jarvis did not arrive in 1954, actually1962.
Chapter 2, Page 17 – In 1960 SOLA was a subsidiary of Laubman and Pank. Optics Australia was not established untill1964. Both Laubman and Pank and SOLA were fully owned subsidiaries of OAPL. This corporate structure remained until 1971 when L and P and SOLA became separate holding company entities.
Chapter2, Page 18 - This is what I said but it would have been more emphatic if I said it happened because of them.’
Chapter 2, pages 17 and18 - As OAPL did not exist, it did not underwrite the….. The Authorized Capital of SOLA was only 5,000 pounds.($10,000) SOLA had a bank overdraft of 1,000 pounds ($2,000). As I remember, L and P financed SOLA through intercompany loans until SOLA became more established and was able to establish its own trade suppliers. Again we have a repeat of the bullshit story of “diverting funds away from L and P……” again I iterate SOLA paid its way. I concede there may have been a time delay akin to trade credit. Having said that, I also say that was not properly capitalised; not at its beginning or during its pre Pilkington history.
The 371 South Road building was acquired for 37,500 pounds ($75,000). It was 100% financed by a term loan from The Bank of Adelaide. After the move to Lonsdale we sold the property to Carpet City for around $ 70,000. Given how we changed that building around I think we got our monies worth.
Page 34 - There was no standard management accounting system brought in by PA Management Consultants during 1963-64. An integrated standard direct costing was set up by Bob Gray of PA and me. Bob was an engineer and very good at direct costing systems and I provided the accounting. This happened in 1965. For the record I hope to outline the principles of standard direct costing systems. That should make fascinating reading for all who get the chance to ….
Page 48 - Alan Powell was not a director or any way involved in SOLA pre Lonsdale. Alan became a director of SOLA International Holdings Ltd. around 1972. (probably the first half of 1972.) He was recommended by Bob Clark a SIHL director. Nb as the Lonsdale trading company was incorporated as SOLA International Pty. Ltd. SIHL was originally incorporated as SOLA Holdings Ltd. Later names were change to SOLA Optical Australia Pty. Ltd. and SOLA International Holdings Ltd.
Page 58 - Again Alan Powell was not involved in 1971. He was not party to the establishment of SOLA International Holdings Ltd.
Page 70 - Again the timing is wrong. Alan Powell did not arrive untill 1972. However, in 1972 soon after his appointment to the SOLA Board, Alan set up a meeting between the SOLA Board and a David Cherry, the national tax partner for Peat Marwick Mitchell, Chartered Accountants. Out of this meeting came the decision to establish a trading company in Hong Kong.
Page 70 - The Chairman of SOLA Hong Kong Ltd has been incorrectly named. His correct name is Yeung Ying Yin.
Page 70 - SOLA International Consolidated Ltd. was not part of the original plan. SICL eventuated because of our concerns of a likely change of government in Australia and the possible effect this may have on Australian business. Because of expansion plans we had, it was decided to have all future overseas companies owned from beyond Australia hence SICL.
Page 85 - David Pank is standing behind Graham Reed.
Page 90 - Ron Ewer is holding The Governor General’s Award for Export Excellence. This was the first time this award had been made.
Page 110 - Ron Ewer was never against the Pilkington acquisition. He had a large number of shares and stood to make a lot of money. Ron’s only problem was that he was going through a divorce settlement and he did not want the acquisition to occur until he had settled with his former wife. On the other hand Ron had one of the best poker faces going round. He rarely showed any emotion and in conversation he was usually the listener so the other party would have to make the play. It may have been this trait that caused Proctor and Jackson to think that Ron was not in favour of the acquisition. I can assure you Ron was never outvoted by the SIHL Board as there was never any discussion at all. If perchance Ron was anti the Pilkington acquisition he kept it pretty close his chest. I was pretty close with Ron and he never expressed any doubts to me.
Page 117 - Those in this photo commissioned the Don Schultz painting which now hangs in the National Vision Research Institute in Cardigan St. Carlton, Victoria. The reason for the portrait is that each person in this photo was the beneficiary of a trust created by Don Schultz. Don transferred a largish number of his SIHL shares to the trust. The trustees were Brian Davies, our auditor and me. After the Pilkington acquisition of SIHL the trust had around $ 800,000 in cash and it was decided to wind it up and distribute the capital to the beneficiaries. Depending on a variety of criteria established by Don, Brian Davies and me the people in this photo received $14,000, $28,000 or $42,000. Sadly Millie Whitby had passed away. Her share went to her daughter Lynette Cahill.
Page 130 - The lady in the photograph is not Edith Ray (USA). It is Raelene Reed the then wife of Graeme Reed.
Page 177 - The person standing behind Benny Sato is Bob Pearson, the Chairman of SOLA Optical Japan. Ltd.

This brings me to the point about the Americans. From the outset they gave me the impression they were out for themselves and they were not going to be easy working for an Australian head office. I formed the opinion that they were not going to be very trustworthy and fortunately for the rest of SOLA we did not entrust the total technology to them. They were absolutely breaking their backs to get hold of the mold making technology from SOLA Optical Singapore Pte. Ltd. The number of times their production executives “bobbed up” in Singapore unexpectedly to visit the Singapore plant was rather curious. But our technology was safe with Chan Ngai Kong and Winston Chen.

The Americans also seem to have done a pretty good job of rubbishing the Australian effort and used this as excuses for their less than desirable performances. The individual relationships between USA and Australia were not good.

I must say that I and probably all of us received wonderful co-operation from all the other overseas companies in the SOLA Group. Our relationships were never that of a master and servant. We were guided by the common goal of establishing and expanding SOLA in the ophthalmic lens market. This is not to say we did not have our differences. We did. But these would invariably be resolved in a positive way and there were never any grudges.

Unfortunately for both SIHL and SOUSA this goodwill was mostly lacking.

As it happened, immediately after the Pilkington acquisition, SOUSA made representations to report directly to Pilkington. That tells us something about the integrity and also the business nous of the Americans. As if Pilkington was going to disrupt its $42 million investment because of some under-performing, big talking Americans.

Because it is in the book I must comment on the claims that SOUSA people were let down by SIHL as they (SOUSA) staff were not able to acquire shares in SOLA or an un named SOUSA executive is quoted “they had been promised considerable stock bonuses - which never eventuated - and were left high and dry.” The book does not mention the written document prepared by SOUSA demanding that SIHL compensate SOUSA executives to the tune of a figure in excess of $100,000. Noel showed me this document at a dinner we were having the night of the Pilkington announcement. I never saw it again and it goes without saying that the Americans did not get their money. Whilst I can only speak for myself and my knowledge of what transpired at SIHL Board meetings I can categorically say that stock bonuses were never, ever, ever on the agenda. It is quite possible of course that there may have been some general discussion on this as a desirable thing to do. At the time of the Pilkington acquisition SIHL had around 500 shareholders. SOLA group employees consisted of some 280 individuals, many of whom were from overseas subsidiaries. The only way to acquire shares in SIHL was to buy them from an existing shareholder. There were a number of Americans who held shares, so there was no problem in owning shares. All you had to do was to let me know of your interest and then buy them when they became available.

It was not only SOUSA people who went off their rockers the day of the announcement. There was one former director of SOLA Optical Australia who was absolutely livid because he had not been told of the acquisition. He told me that he had money sitting in the bank and he could have been purchasing SIHL shares and by not being told he had missed the opportunity to make a lot of money. Despite the fact that he had been appointed to the Board of SOLA Optical Australia he apparently never knew anything about insider trading. As the only way to acquire shares in SIHL was to purchase from an existing shareholder, any gain to the director would have resulted in a loss to the former holder of the shares. Unfortunately, this guy seems to have not recovered from his perceived lost opportunity and soon after his career started to spiral downwards.