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Interview

with John Broeders, Chairman and CEO of Vopak, Vopak

12.03.2010 / Energyboardroom

esides being elected “CEO of the Year 2009” by the Dutch association of shareholders, you have been the CEO of Vopak since 2005 and despite many market transformations the company has done very well. What were the main challenges you had to face to keep the company as market leader?

The main challenge we had to face was to run the company in a different way. We had a portfolio-based activity, with operations in distribution, shipping, and so on. In 2003, we split the company and decided to solely focus on tank terminals, our main activity and where Vopak is by far – at least in terms of capacity – the leader in the market with a vast worldwide presence.

However, our terminals were also organized as a portfolio of relatively independent management teams. We changed this and today we are running Vopak as a global network of terminals. Now we have put a clear brand on Vopak so that the market and international players recognize us as a company where their products are being handled in a safe way, where customers can talk to us for their worldwide needs for storage and related services and we established a recognizable service of high quality.

Our main challenge was changing the management of an organization which used to be very decentralized. Today, product innovation is being dealt with centrally, we have key account managers for global customers, we set up standards on how Vopak terminals should be built, with which components and which products, in this way if we have a new project we can just roll it out. This smart, more coordinated way with standardization and best practice information guarantees that we can execute faster and better and ensure the high quality of service in every Vopak location. That was the journey we made.

At the same time, we reconfigured the business development side because we saw many new trends bringing fantastic opportunities for us, so we made sure we had the right business development team to work with customers and we expanded our network very fast. We now have new terminals in China, the Middle East, Singapore, Jakarta, Rotterdam… and indeed we expanded 8 million cubic meters in the last few years on a total of 28 million.

Besides expanding our oil and chemicals terminals, we are also developed our first LNG import terminal, which is very important for Holland and North Western Europe. The LNG market has changed from a producer focused to a more liquid market where governments and companies are looking for independent infrastructure. Customers want to have the choice as to where they want to buy the gas and where they want to bring the gas to. This more independent model, which emerged in 2005, allowed us to partner with Gasunie and invest in an LNG terminal in Rotterdam. This was a big move for our company to become a major player in the gas field.

With a presence in more than 30 countries, Vopak can be considered a broadly multinational player. However, do you still identify yourself as a Dutch company and do you capitalize on the so called ‘Dutch expertise’?

We are an international player, but many of our employees are still Dutch. We believe that you need to understand the value proposition of your company and you do that with people who have been working for you for a long time, hence our Dutch history and tradition. But we are also a company which believes that the local knowledge is very important to make a terminal a success. Our target is to become more international in terms of management and we are working hard on that. Managing Directors of terminals in Asia are locals already but at management level here in Headquarters, we are mainly Dutch. We are educating people in the US, in Latin America, in Asia to become part of the Senior Management so we are making steps forward but the Dutch roots are still very visible.

At the same time, Dutch people are not educated in a way that implies that we can do everything the Dutch way. We know the Netherlands is only a small country, so we speak different languages, and have a history of international trading.

This has influenced our corporate culture. We obviously adapt to the local culture and respect differences. Working with partners in a multicultural environment is in the genes of our company. Our corporate strategy has to translate locally and adapt to local priorities with a long term perspective. In a very complex world, we believe working with strong company values, and encouraging individual decision making and leadership will make a difference.

GATE Terminal is portrayed as one of the pillars of the Gas Roundabout. However, the market has changed quite a lot since, and prices in LNG have dropped considerably. At the same time, you seem to be optimistic about LNG since you are going ahead with other LNG Terminal projects in Groningen, in the South of France, in Germany. What are your perspectives on the LNG market?

In North Western European markets, the demand for gas will grow, even more so since it is a relatively clean fuel. Our own reserves are depleting. So far, the only infrastructure we have is pipelines from Russia. To guarantee security of supply, we need an alternative, and LNG is the most cost-effective one. The only problem is that we don’t have the necessary infrastructure to supply North-Western European markets with LNG yet, hence the long term necessity for investments in LNG.

This is also how I communicate these investments to my shareholders. Infrastructure is a long term business, our sales won’t change drastically from quarter to quarter, but we have long term reliability for long term results.

The sector is very capital intensive and many companies affected by the crisis had to reshape their strategy. How was Vopak’s strategy affected by the crisis?

Vopak’s strategy was not strongly affected. This was the first real crisis we faced since we had reshaped the company. Before, we used to be very cyclical, but during the first three quarters of 2009, we kept our results up.

Our function in the industry has changed since the 90s from a more speculative trade partner which is cyclical by nature to a structural player in necessary infrastructure. The crisis proved that our new business model was right. We were always very conservatively financed. We use our financial strength only if there are opportunities, and that paid off during the crisis: we had a strong balance sheet so we could continue investing and continue the strategy we had set forward. Obviously we had to prioritize, because there were more investment opportunities than we could finance ourselves. Today, we feel we are strongly positioned and we have the assets in place for recovery time.

What are the main growth drivers that kept the company going during the crisis?

One of the main trends in the markets we serve is that the places where oil products are found and where they are consumed are further and further apart. And to bring products to consumer markets you need infrastructure like ours. Furthermore, the specifications of products are becoming more diverse, you need more blending, you need to store products separate, and all this requires more infrastructure. For example, the rapid development of biofuels had an impact on our activity since these products have different specifications, and different components; in the same way, sour crudes being found, but markets request sweet crude, so you need to be able to bring different crudes together to improve the value of the product. All these elements are the structural drivers behind the necessity of our infrastructure.

The Minister of Economic Affairs Maria van der Hoeven told the OGFJ how the time of cheap oil is gone and how the Netherlands needs to rethink its strategy in terms of energy. So far, how relevant are LNG and biofuels for VOPAK?

LNG is not yet relevant because we are still in the investment phase and not operational for the moment. GATE Terminal itself is a 1Bn € investment along with Gasunie so hopefully we’ll see a return on investment soon! On the other hand, biofuels account for around 15% of our turnover.

Vopak is very present in China and Europe, but not in the American market. OGFJ is an American publication, so could you tell our readers what challenges you faced in entering the American market?

We have 7 terminals in the US but mainly in chemicals. This has an historical reason. When Pakhoed and Van Ommeren merged in 1999, Pakhoed had oil terminals, but was mainly in chemicals. At that time, it was decided not to invest in oil infrastructure. Therefore, we took the Pakhoed activity and divested the oil activities.

This was the start of all the partnerships in the US at a time where investments in oil infrastructure had a big tax advantage. Therefore, the whole market consolidated during these 2 / 3 years and we were not part of the game. Afterwards, the prices were very high, so we couldn’t get an opportunity to buy.

However, two years ago, together with First Reserve Corporation we bought a big facility in the Bahamas with a capacity of 3m cubes that we are currently expanding. I know Bahamas is not the US but it’s very close and this allows us to serve the US market. At least we got that presence going, and we are still looking for opportunities.

In terms of human resources, the challenges capital intensive multinationals face in developed and developing markets are somehow the opposite. In developed countries like the Netherlands the expertise is there but the average engineer is 57 years old and is about to retire. Whereas in developing countries there is an abundance of young labor but they lack expertise. How are you dealing with this challenge?

Vopak has no issue attracting commercial people. People recognize what we have been doing so a lot of them apply to our group. Where we have a challenge is recruiting operational and technical people. In Europe, students are applying to other courses like development studies, economics, psychology, etc. Thus, the number of students interested in technical subjects is decreasing, and this is worrying. The whole industry is looking for good project managers, and these are not easy to attract and retain.

In developing markets we hire young local engineers, expose them to projects as soon as possible under the training and management of experienced engineers. I must say that in Asia loyalty in the company is quite good. We have been in Singapore since 1992 for example so we have a lot of experienced engineers and we can expose the new recruits to the expertise present in the group to train them. And the learning curve can be quite drastic since it can take up to 5 years of training, especially in terms of HSE, before they can take the big jobs.

How Vopak manages to impose and respect the same HSE standards in strict and knowledge-abundant markets in the developed world as well as in developing markets where the circumstances normally impose greater challenges?

Our basic philosophy is to invest in new markets with the latest technologies. We are not going to disrespect our own values regarding HSE because in some countries local regulations are not as stringent. If we are building something, we will make sure we’ll have the latest technologies in terms of emissions in the air and in the water for example. It’s not the local regulations guiding us but more our global operating standards and principles and the promise made to our customers. If we are in a certain country and we have a spill problem, it is still a Vopak problem, and the fact that the accident occurred in that country is irrelevant.

This drives our recruitment policies. Especially in markets where quality is not quite a major concern yet, we are looking for people who can understand our value proposition and our basic concerns and translate them to the local context. Our standards and the peer reviews we have on projects are a structure which helps a lot because what is built needs to be approved by others. Therefore, it’s not only people but also our structure that links HSE in the organization.

What are your main ambitions for Vopak in the next five to ten years?

In the coming years Vopak will continue to improve its presence in terms of network. We will make sure we are also a leading player in the Middle East and further build our leadership in Asia, with China being naturally very important. And for Europe Vopak will see its supply chain of LNG further growing. In sum, Vopak’s leadership will continue its trajectory of growth, both in terms of global presence as well as the service excellence we strive for.

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