Doug Duguid, Chief Executive Officer, EnerMech, UK
Enermech’s CEO details his company’s meteoric rise; now working from Azerbaijan to Australia, and at home in the North Sea. He describes the company’s attitude to customer service and what its proactive efforts have been able to achieve in delivering quality, bespoke products to clients.
You founded EnerMech in 2008 as a global, technologically focused business. What niche did you see in the market, what was your vision, and how do you intend to drive this business forward in the next few years?
When we started in 2008, we spent the first half of the year undertaking customer interviews and looking at the marketplace. It was very evident from those discussions that there was an opportunity to create a mechanical engineering company focused on better service quality, faster responsiveness and greater engineering depth. Many of the interviews suggested that current players in the market did not have the ability or desire to undertake fault finding, failure modes analysis or investigate trends as to why equipment was failing – they were principally interested in either selling new equipment or doing a one for one change out on parts.
For EnerMech, the aim was to create a business straddling a number of mechanical engineering disciplines- our seven business lines are all based around a mechanical engineering bias. We also recognised that there was a need for better management information and that customers were looking for the right information to make more informed decisions. A great deal of emphasis in the first 6 years of EnerMech has been placed on addressing this real need -one of the reasons for the company’s success and high growth rates to date. We focus on giving the customer solutions, and have invested not only in significant engineering resource but also in software systems such as EnerMech Live, which allows the customer to look online at their data, (e.g. equipment inspection records) in real time. These ideas are not new to other industries but for the oil and gas industry, this was a novel development. Having access to the information at their fingertips also enables the customer to analyse maintenance trends and helped them to control costs more effectively.
Recently DNV and HSBC joined with the Bank of Scotland to form a group supplying significant capital -90 million GBP to drive you forward. What priorities will this money be directed to?
Much of the funding brought in at the end of last year was to continue to drive overseas growth. EnerMech has a significant presence in Australia, Asia, the Middle East & Caspian and more recently in the USA and Mexico. The funding need differs across each of our business lines; for example, the cranes division is labour intensive, and is therefore demanding on working capital, whereas pipeline, process and umbilicals (PPU) and equipment rental both tend to be more capital intensive. The funds raised through the banking club will allow us to fund growth in our cash flow intensive businesses and to continue to invest in capital equipment to grow. EnerMech spent 30 million GBP on capital expenditure last year and will spend 22 million GBP this year. Much of this equipment has long delivery lead-times (up to 12 months or more), so we continually have to commit to investing ahead of the time and therefore need to have a sufficiently flexible banking arrangement to assist us doing this. The funding structure put in place is a good one for us, and all three banks were very flexible in their approach.
Whilst the business has undertaken a number of acquisitions over the past 6 years, these have all been relatively small. Our growth has predominantly been through organic growth; banks will always be interested in a business which has good prospects, has demonstrated such a high rate of growth and boasts a strong order book.
To expand on your organic growth; where do you see your business’ principal growth- in which sectors are you gaining ground fastest?
Looking into the future, over the next five years, demand will continue to fuel growth here in the UK but we see the majority of our growth coming from our overseas business and across all of our regions. Our strongest growing business line to date has been pipeline, process and umbilicals (PPU) which has been built wholly organically since late 2010. We are also witnessing a strong interest in our valves businesses across many of our regions. In terms of specifics, each region has its own market dynamics and we generally have a different business line focus depending on customer requirements. In Australia, for example, there is an enormous bow-wave of capital expenditure on coal-bed methane, LNG and big gas developments. This is driving a great deal of pre-commissioning work, on both LNG and upstream gas infrastructure, particularly on the east coast. We have committed a great deal of spend on equipment in this region and see significant growth in the near term. While our cranes business is reasonably mature – we have a significant proportion of the market in the UK, Norway and Australia already – we see growth potential in the North American and African markets in this business line.
Further into the future, we would like to be further focused on customers’ opex spend, which would smooth out peaks and troughs. At the moment the ratio of opex-capex revenue is approximately 60-40, I would hope to see this move to 80-20 within the next 2 to 3 years.
You were mentioning your business is seeing growth in Australia for one. Part of your growth there has been delivered through acquisitions, of which you have spent 30 million USD so far with another 15 million retained for further acquisitions in the future. What are the qualities you look for in a company to acquire?
EnerMech has acquired 13 companies in total, 12 of which have been owner managed businesses. What we tend to look for is a business with a good reputation for service quality and with a strong management team. We are looking for a business with a good relationship with customers, which might be constrained by capital or management capacity. Most of the businesses we have bought are mature businesses which had grown strongly, had reached a plateau in terms of expansion but had the ability to grow with proper investment and management direction.
Examples of businesses we have bought include Specialist Maintenance Services here in the UK, which had 11 million GBP annual revenues when we acquired it in 2008. This company was the foundation of our cranes business, which now generates 60 million GBP revenues. SMS was a very high quality business, constrained only by management capacity and capital.
We also look for a business where the key people are likely to stay. When you buy an owner managed business, retaining the key people is absolutely fundamental. In most instances where we have acquired a business the key people have stayed and many remain in senior positions with us.
Integration is always a challenge when you buy a business, particularly when you are dealing with different systems and cultures. The businesses we have acquired have taken varying amounts of time to integrate, depending on how comparable their business model and culture was to EnerMech’s. Communication is really what is key in driving a good integration process as well as ensuring that you create the proper expectations upfront.
A number of lessons have been learnt over the years – principally that communicating EnerMech’s vision to the whole workforce and getting their buy-in is key to successful growth. Due to the level of growth that EnerMech has had, the business can tell a great story- as we look to the future, with more money available to invest and continuous growth, the opportunity for our employees is endless and exciting and this makes it easier to bind new employees into our business.
In terms of the specific projects your staff are working on, I understand you were recently required to flood and hydro test subsea flow lines using remote, subsea technologies, and that you saved a lot of vessel downtime for the customer. How is innovation assisting you deliver services?
When EnerMech was founded, we created the tagline ‘safer, smarter solutions.’ However, this is far more than a tagline. The business seeks to solve problems, and it is that which gains continuity of custom from clients, rather than simply providing a day-to-day service or just more and more expensive equipment.
EnerMech has a relatively flat structure – there are not many layers between the project support staff offshore, the field staff who are executing projects and the project managers and engineers based in the office. This aids our ability to innovate. Our technologies and software, be it EnerMech Live, our Remote Flooding Console (RFC), Subsea Test Pump (STP), Optical Link Subsea data transfer technology, or System Integrity Management (SIM) which allows the customer to track the integrity of flange joints, all came to fruition because staff had ideas which were listened to.
Conversations about what we invest in are generally short and to the point. We have a capital expenditure meeting weekly that looks at what we will invest in and areas where we seek to develop, both in hardware and software.
Lastly, we also work with ‘sponsor type’ customers, – clients who trust our business and are prepared to allow us to trial things with them. This is a great position to be in, having the trust of one’s customer base like this- but it is all down to delivery at the end of the day.
You have worked for Apache North Sea on the Forties fields; does this represent one of EnerMech’s ‘reputation building’ projects; if not, could you give details of projects which are?
Apache is a great relationship for EnerMech. They are the type of customer who it is a pleasure to work for. In Apache’s relatively short time in the North Sea, what their business has achieved is phenomenal. They are focused, and make decisions quickly. Whilst they are a demanding customer, providing solid service delivery is rewarded with loyalty from the company. When SMS was purchased by EnerMech, the company looked after the cranes on three of the five Forties platforms, and now maintains the cranes on all the Forties platforms as well as the Beryl platforms and provides N2 leak testing, bolting and machining services.
This comes down to cost effective service delivery. We consider Apache to be a key customer and a case study which we would showcase to other potential clients.
In most circumstances, EnerMech will start in a single service line, be it cranes, or hydraulics or PPU with a client and expand from there. Obviously our business desires diversification in its product lines, and the customer sees value not only from one service line, but the combination of services. This sees lower overheads, a single point of contact and better interface management. I would advocate that EnerMech’s planning with its clients delivers better, more efficient services.