Richard Cornelissen – CEO, PFF Group – Netherlands
Richard Cornelissen discusses the total package supply and management offered by PFF, the quality of the company’s products and the long-term relationships it fosters within the industry, as well as PFF’s ambitious international growth agenda.
What are the main challenges facing PFF Group today, and what initiatives have you have pursued, as group director, to overcome these challenges?
The challenge is a common one for the whole industry—the downturn in oil price. I think the speed of the downturn came as a surprise for most players in the industry, causing a slowdown of activity, especially in terms of upstream. PFF is diversified across the downstream, midstream, as well as power generation sectors, allowing us to mitigate current market risks to a degree. Serving as additional risk mitigation, we’re also very proud to have several long-term contracts, including one with most notably Shell, in which we possess an enterprise framework agreement for Europe, Africa, the Middle East, and Russia. We’re one of four companies around the globe that has this type of agreement with Shell, and we’re trying to expand our portfolio and maximize our position with them everyday.
The speed of the downturn, however, has evidently created a cash flow issue, forcing many players to implement liquidation measures and cut some immediate expenses. From my perspective, I believe oil prices will recover, but not back to the point of $100 per barrel. Oil companies will have to start cutting a lot of fat off the hips, especially the large oil majors. They typically try to pass on the costs to their supply chain, but what they don’t realize to the fullest extent is that they comprise a big chunk of that supply chain by often prescribing what they want to see and how they want to see it. Many companies within the oil and gas value chain have a lot of possibilities to offer the rest of the industry, especially in terms of more cost-efficient alternatives. But because of the high standards that oil companies are dictating to the rest of market, fruitful collaborations are relatively scattered. For every analyst, they have two other analysts analyzing the other analysts. Once this mechanism of scrutiny has been cut down, I think oil companies will have the opportunity to be much more cost-efficient. Although still incomparable to the efficiencies of Saudi or other oil powerhouses, they will at least be more competitive than what is generally seen in the industry today.
Especially considering the current downturn in oil prices, how would you advise companies on structuring their business to effectively weather the cyclical effects of the industry?
It’s imperative for all players across the value chain to have stable and reliable long-term relationships, especially in the current climate. A lot of service companies are cutting down on staff because that’s their primary product—resulting in a loss of expertise. The ability to establish a long-term focused relationship, as we have done with Shell, really speaks to a company’s set of qualities, in terms of client relationship management, procedural consistencies, and value-adding capabilities. The ultimate gain in the industry will result from emphasizing availability and innovation, not undercutting prices—even when considering that 80 percent of our business is comprised of standardized products. With such commoditized volumes, the value-adding differentiator will come strictly from the service aspect: how much quality data can a company present its clients, what kind of analysis can be performed, reliable and consistent lead times, effective communication, etc.—a culmination of factors that very much shape the way we operate and conduct business today.
Having been in operation for almost 25 years now, and you at the helm for 19 of those years, PFF now boast an expansive global network of operations supply total solutions for ripping and valve projects across the oil, gas, and petrochemical industries. How have changing market dynamics affected the company’s strategic focus over the years?
There’s a big change from PFF 1.0 and PFF 2.0. We were initially acting as the front-end soldier for our parent company, the Galperti Group, a world-renowned forgemaster approved by almost every oil company in the world. Over the years, we began to extend the range of products and enhance our service levels to accommodate the increasing level of standards faced in the industry. That’s why we bring our clients a maximum portfolio of products and services; 80 percent is standardized, with the remaining percentage attributed to custom-made products. Whether there is a specific issue in a refinery, on a platform, or subsea, we have engineers in-house to design tailored solutions applicable to their particular situations. All our efforts are steeped on the basis of differentiating ourselves from the numerous steel supermarkets already populating the global market.
In terms of growing industry trends, we’re forecasting a huge growth in subsea business within the next several years. In preparation for this, our parent company has recently set up a subsea division within the Galperti Group. To effectively capitalize on forecasted demand, we’re working on modifying or enhancing our sales activities in the region to appeal to the type of clients found in subsea. Instead of selling on quality, availability, and price, as we’ve done for standardized products, we prefaced our subsea products on the basis of trust, whether it’s regarding manufacturing, technical, or value-adding capabilities. Although still in its early stages of development, this is an area of interest that we’ve already begun to make significant investments in.
Considering that we’re located in the North Sea, we’re also seeing widespread interest in the development of renewables, which is important because we all want to live in a green and healthy world. That being said, however, our hunger for energy cannot be simply satiated by installing one or two windmills in everyone’s garden. These windmills have to be produced; they’re made from steel and composites, and face their own set of production hurdles. Until technology finds a completely viable alternative, oil and gas will remain a mainstay component of energy discussions within the next few decades, if not more. The growth of the world population has only fuelled energy demands—creating tremendous opportunities for all players across the industry. The challenge will of course lie in harnessing oil and gas in a safe and economical manner, while preserving the richness of the environment we live in.
How is PFF’s international focus segmented across different geographic regions?
Within the overall company, the Galperti Group consists of two divisions. One is the manufacturing division, currently based in Italy with the head office where the majority of equipment and plants are located. The division also has a presence in Dubai, Malaysia, Houston, and recently a decision has been made to open a forging plant in Brazil. The second part of the group is trading and distribution, in which PFF comprises 50 to 60 percent of the scope and covers regions such as Europe, South America, Africa, Middle East, and Russia.
From your perspective, what are the synergies associated with PFF’s relationship with a globally diversified conglomerate like the Galperti Group?
The parent group owns 82 percent of PFF, whereas I hold 18 percent. It’s a typical Italian structure. It’s a big company in volume and turnover, but organizationally, it’s very flat. Although I’m the CEO of PFF, I only have two people to report to—Galperti Senior and Galperti Junior—and we also don’t have a large board of directors or frequent shareholder meetings, collectively allowing for quick and streamlined decision making. The synergy stems from our hybrid model, offering clients access to two types of channels: trading and distribution, which boasts total service solutions, and manufacturing, geared more towards comprehensive production and engineering support.
Now with over 20,000 unique products in stock, PFF boasts an expansive array of pipes flanges, fittings, valves, as well as special forgings. Which of these segments have demonstrated the most promising growth prospects?
Depends on where a certain type of project is located or what type of specific application it entails such platforms, FPSOS, refinery, subsea, chemical, power, etc. Every aspect has its own recipe. I cannot say that one product is superior to another. Our unique selling point is in total project supply and project management solutions—specifically highlighting the service component as our key value driver.
What unique manufacturing processes or procedures truly showcase the PFF’s slogan “your connection to quality”?
The main is that we want to show to the client that we want to live and breathe quality. To be competitive in any type of business is a given. If you’re not competitive, you’re out of business in any industry. To be competitive for us is something you have to do. But quality is not automatically given. The procedures, the people, the way we stock, the way we transport, and the way we communicate are all key aspects of the whole value chain. The culminating result, if gone through the proper channels, allows our client to happily receive the right product, at the right location, in the right time. Unfortunately that does not always happen. The piping and valve business is an industry that is sensitive to delays. That is mainly because it encompasses such a massive variety of products. When you look to through the average database of a client, they have more than 150,000 products coded, and another 150,000 uncoded. Always striving for perfection is the ideal, but doing so obviously entails its own set of challenges. In the rare instances of a shortcoming, its is crucial that we have a established a buffer between manufacturing and the client—a mitigating factor strictly formulated by the service component I alluded to before.
What types of policies or procedures communicate PFF’s commitments towards integrating HSQE into its day-to-day operations?
Next to ISO 9000, which everyone has and was not a given 10 years ago, we also have ISO 14000 and ISO 18000, which is not particularly common among companies similar to PFF. We also adopted through our long-term relationship with Shell their life saving rules. There are 11 life saving rules—non smoking, drinking, etc. All of our staff have been briefed and trained on these life saving rules. We don’t only apply with them people working with shell, but the entire organization.
Considering the country’s longstanding history in oil and gas, how instrumental is the Netherlands been in facilitating the company’s continued growth?
I would say it has to start somewhere. Mr. Galperti wanted to open a branch in the Netherlands because of its strategic location and extensive amount of infrastructure catering to the oil and gas and offshore industry. In terms of business development, major Dutch clients such as Shell and Gasunie were always on his radar. By basing operations here, we’ve been able to more organically branch out throughout Europe and the Middle East. That being said, however, it doesn’t mean that the Netherlands will always be the largest office in our portfolio—we will go with the flow and go where the industry wants us to be, especially considering the growing trends in Brazil, Africa, and the Middle East.
What would you consider your biggest milestone or achievement spanning the tenure in the company?
Our biggest milestone is that we’ve seen steady growth throughout the years despite economic downturns. We’ve been able to retain clients for the long-term. We started our first non-Dutch venture in Germany about six years ago. Now, another six years down the road, we’ve ended up with 15 different branches, furthering fuelling our worldwide diversification initiatives across market segments and product lines.
Where would you like to see the company in the next 5 years?
My ambition is to stabilize and expand our European footprint, though the European industry is relatively difficult to predict. Shale development is not particularly high on the political agenda, but we still have a lot of opportunities in the European space. Our big expansion will be outside of Europe in regions such as Africa, Latin America, and the Middle East. Turnover wise, we’re striving to expand between 50 and 100 percent, depending on market conditions, while also optimizing internal processes to maximize efficiencies. But aside from professional interests, I’m in this business because I like it and it’s fun, and I want to ultimately give that opportunity to the next generation of leaders that can match, if not surpass, my own level of ambition and perseverance.