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Interview

with Gerry Klos, General Manager, DCD Marine (pty) ltd

15.02.2012 / Energyboardroom

DCD is a broad group comprising a number of different companies serving various sectors. Can you first elaborate to our readers what importance DCD Marine carries within this setup?

DCD is indeed a multidimensional group focused around 4 clusters: defense, mining & energy, rail and marine. Each cluster has various operations and DCD Marine comprises one entire cluster. In terms of size, DCD Marine only represents around 10% of the Group as a whole at the moment. However, what is important is that this cluster is going to increase significantly as we have just bought the second largest ship repairer in South Africa, known as Elgin Brown and Hamer. The acquisition is still subject to the approval of the competition authorities, but the agreement has been concluded. We are already an important player in the ship repair industry and it is an area that we are expanding.

As we stand today, we are the largest ship repair company in South Africa in the oil and gas business. The recent acquisition is to support our positioning in the ship repair business at large, in which we are not yet a leader. Moreover, with Elgin Brown and Hamer we will now also have operations in Walvis Bay, Namibia, where we can establish specific operations focused on servicing support vessels to the oil and gas industry.

What synergies do you aim to leverage between the 2 companies?

There are not that many synergies to leverage in fact, because this company is present in such different market. Instead, we rather see this as a growth opportunity for ourselves. We are the dominant player in oil and gas and we have seen phenomenal growth in the past years. We experienced a tenfold increase in turnover between 2005 and 2011 and we have invested heavily in the Western Cape with Cape Town as our shipyard for the oil and gas sector.

Taking a step back in terms of the investment path, DCD Marine has also acquired Globe Engineering. What was the vision behind this move?

This was an acquisition where we have been able to leverage a lot of synergies. Globe and DCD had similar markets, and our acquisition target had similar capabilities that we did not yet have, such as pipe fabrication and bigger machining capabilities. We have integrated these capabilities into our business and as a result have been able to classify this acquisition as a very significant growth opportunity in Cape Town.

DCD Marine’s business model depends on the market for service and repair, rather than newbuilds. This market in turn depends on the E&P developments across the continent. What is your assessment of this market today?

Our primary focus is the upgrading and servicing and maintenance of oilfield equipment such as drillships, FPSOs, pipelaying barges, jack-ups, semi-submersibles, etc. We service all these vessels and do not engage in newbuilds. However, we do participate in oil and gas builds, but this is more related to subsea structures.

We have always seen a very big opportunity along the West Coast of Africa, and more recently along the East Coast as well, to have a service and repair facility. This was our vision when we started building our facilities in 2005. To put it in another perspective, we have taken the work -that would have traditionally gone elsewhere- to Cape Town.

Previously, the bigger international players would have taken their projects to Europe, the Far and Middle East, and even the USA. Because of our capabilities, much of this work has now come to Cape Town. We have invested in our facilities through workshops, a berth (A-berth), pipe- and welding machines, interdisciplinary training, etc. Moreover, we have also invested heavily in our project management capabilities. Many of our clients have told us that we belong to the top quarter of any yard in Europe in terms of capabilities, quality and safety levels. Some have even said that we are now better than any contractor in Europe, which function as our benchmarks. We have a very attractive track record and have been involved in projects where the customers were surprised about the size and scope of projects that Cape Town can now handle. Not only do we now envision taking on more projects, we also aim to attract even larger projects to our facilities following our increased capacity. We are even planning further investments in capacity to debottleneck our position.

Sounds like the sky is the limit, yet are there still limitations to the projects you can take on today?

We can do a large rebuild, but do not have the yard nor the government support to do newbuilds. We are entirely dependent on our own resources to be successful. Fortunately, we can rely on our Group to support us in this respect.

Can you highlight one of the larger projects to our readers, to showcase the complexity of projects DCD Marine is currently capable of taking on?

The Polaris project in 2008 was a major rebuild project of a pipelaying barge. We did a major refurbishment of the vessel as well as all the equipment on board. The client at that time was Acergy, which is today part of Subsea 7. Another major project has been the FDS of Saipem in 2011. This was a very complex project where the vessel needed to be rebuilt and strengthened.

When speaking to Minister Alan Winde of the Western Cape last week, he explained how of the 132 rigs that passed by South Africa last year, many could not yet be serviced in the country because of lacking infrastructure..

The fact that the rig passes here, does not mean that it will be serviced here. There are different types of servicing too. It always depends where the rig is going to be (re)deployed and for what purpose. We have had certain capacity restraints in Cape Town, but they have been limited. Doubling the capacity will not simply double the work. Attracting work requires more than capacity alone. First of all, you need to convince people to come here and get on their agenda. As you are able to establish a track record with these players, additional work will more easily follow.

Imagine a rig owner with penalties of USD 500,000 to USD 700,000 per day. Rather than just discussing price, you will need to convince the prospect that you will not disappoint him and that you will be able to deliver the project in time. DCD Marine has had excellent results in all of its projects and has faced no overruns at all.

An important point is that we also operate in different ports, including the ports of Coega and Saldanha Bay. Yet, our preference lies in Cape Town because we can offer the most cost-effective solutions for the customer there, because of our state-of-the-art facilities. These facilities have all the necessary communication tools, project offices, 3G connections, safety systems, a clinic, workshops, equipments, and so on. There is no yard that has better facilities in the world for the size that we operate on.

Why the need to still be present in places such as Coega and Saldanha Bay then?

This offers us alternatives. The clients sometimes come from the East Coast, which corresponds to a shorter sailing time in the case of Coega. In addition to that, it offers us the possibility to run more projects at the same time. In 2011, for example, we ran projects at all 3 locations simultaneously.

Other locations within the region have been developing too. You already named Walvis Bay, while the plans for port expansion in Ghana have also already been laid out. How do you perceive such developments and how do you see them affecting South Africa’s positioning as a hub?

I do not see such developments as a threat at all. Cape Town has some very distinct advantages. What is needed for oil rig repairs is a very well developed physical infrastructure, including roads, hotels, airports and so on. For such work, the industry needs very strong back-up industries and back-up labor, which is the problem with many of these other locations. South Africa is a very easy country to do business with. Our banking system, for instance, is one of the most well run in the world. At the same time, it is not unimportant that Cape Town offers a nice living environment. There is no more beautiful shipyard location in the world.

The bottom line for oil rig repairs is that the customer must be able to trust you and have confidence in your capabilities. Projects change along the way, so it is critically important to be able to manage change.

How long has it taken you to build such confidence?

I would say 5 years. Even today, we are making breakthroughs and taking on major new clients. It is a very small industry, so failures and mistakes easily come to light. On the other side of the spectrum, the good news also spreads easily. This is how we have been able to acquire the confidence of prestigious clients such as Subsea 7, Transocean, Saipem and so on.

Another market we are now tapping into is what we call “completing projects”. It happens that certain projects run into difficulties back in the yards while the latter have already scheduled other work. That vessel must go and can be further finished by companies such as ourselves. We are looking for this gap, and it is an area that we have seen growing.

You are now ready to compete with global players such as Keppel?

Head-on! Some of the upgrades of rigs can be either taken to Keppel or to Cape Town. This business is entirely international, where rigs off the West Coast of Africa can be taken to places such as Las Palmas, Dakar, Europe, etc. Even from Angola, we have won contracts against competing yards in Europe.

The customer needs to consider his total cost, of which a first element is the so-called deviation cost. This is the opportunity cost of having people and equipment away from the station. Furthermore, there are the infrastructural (e.g. port) charges as well as the actual ship repair charges. A last element the client will take into account is the technical and time risk.

Keppel itself is not present in Africa yet. A next big question remains where they will go once they establish operations on the African continent. How do you see this playing out, and what will it mean for DCD Marine if such major player comes to South Africa?

They may come and put a new yard in Walvis Bay or elsewhere, but it is important to point out that such move is a very significant investment. While they obviously have the financial back-up, they need to get the right returns too. To put up another yard in South Africa will easily cost them R 2 to 4 bn, which is a big investment. In essence, I do not see such player entering without the government’s support.

I believe there is sufficient capacity in Cape Town and South Africa to service the South Western and Eastern Capes of Africa. While I am not afraid of such competition, the only thing I ask is for them to respect and comply with South African legislation. We have first world safety and labor laws to which we are entirely committed.

Speaking of labor, how do you rate the availability of talent in South Africa?

We do not sit and complain, but take action and do what is needed. We train our own people and have one of the best training schools in the country, based in Cape Town. Last year alone, we have trained and certified 600 welders. We have trained everyone that we need in Cape Town and most of the people in the industry at large have gone through DCD trainings.

In terms of training, we train specifically on what is actually needed back in the shipyards, rather than a generalized training course. The workers we produce are real experts in their specific field. At the same time, we provide leadership, foremen, team leader training and so on. We also have a training simulator for blasting in vessels for example. These are very tailor-made and practical modules and it is our way of driving real productivity.

While we do not portray the skills question as “rosy” in South Africa, we tend to look for -and find- solutions. Even more so, we have trained people in excess of our requirements. We are the only people that uplift the entire industry. Moreover, this allows us to easily take on a couple of hundreds additional temporary workers for specific projects when needed. There have even been cases where we have taken on 1,000 people in just 2 weeks. It obviously helps then to have been involved in training many of these workers beforehand.

It is our social responsibility to foresee such training and orientation. We even have safety orientation days where we bring in people from all over the world. We even train our suppliers! We take the responsibility as the lead contractor to uplift our subcontractors.

A lot of developments have taken place over the last years. If we would come back in 5 years from now, what will make you proud and what are your priorities to achieve what you would like to achieve?

We will be substantially larger in terms of oil and gas business. In five years from now, we may have expanded into another facility on the West or East Coast of Africa, even though we do not see the economics of such decision today.

The DCD Group as a whole generates 75% of its revenue outside of South Africa. As from last year, our strategy has added on to the idea of having an African focus. The whole Group is looking towards expanding in Africa because of the growth opportunities. We see no difference for the marine side there. Our first step now is to buy Elgin Brown and Hamer which will increase our operational flexibility while having a foot in the door in Walvis Bay in Namibia.

Yet our view is to retain our oil and gas project management in Cape Town, because such work requires a specific type of skills. Even if we would start taking on oil and gas work in Walvis Bay, such operation will be led from Cape Town. Oil and gas work requires a total different type of project management skills compared to traditional ship repair work. You need to be able to manage big projects with many people that last for 3 to 4 months, compared to 2 to 3 weeks in ship repair. It is an entirely different style of operating.

Yet, the advantage of buying a company such as Elgin Brown and Hamer is to have a logistics base in Walvis Bay. Rather than people, we are keen to use these facilities when it comes to oil and gas.

Additionally, we are keen to progress on our very comprehensive project management system that is already completely online-based today. All our safety and quality manuals are online and integrated into this system too. We are the only company in South Africa with the certification of Lloyd’s Register for such systems. This also includes an online costing system, which enables us to follow every cost element on a daily basis, including the number of hours worked, etc. Even our monthly reports can be generated in just 2 days because of the efficiencies we have created through this state-of-the-art system.

Our success has been based on a very simple formula. We tell all our clients that every project is a learning experience. We ask our clients to help enhance our systems and are flexible to build our quality systems together. We have learned from our clients and improved our systems over time. Apart from that, we continue to sustain a policy of zero-tolerance versus unsafe work practices. We have a lot of safety officers that have the power to stop any work on board. Safety really goes first.

Do you have a final message to send out to the readers?

We look forward to seeing you in Cape Town! While we still have some issues with Transnet National Ports Authority for example, with a properly run and managed Port of Cape Town we can do significantly more without any major investments. The last investment we are going to make is to double the capacity of our A-berth facility, which will be completed within a few months.

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