with John Giddens, Founder & Chief Executive, Hallin Marine
We saw that you successfully pursued a career in the royal navy and afterwards also spent some years with Fraser Diving, what drove you to set up the business in 1998?
Before starting Hallin Marine, I was working for Fraser Diving with a background in marine and underwater operations. Fraser Diving was a great company, but very single product focused if indeed that is possible in this business. Fraser’s core product was portable saturation diving systems. The company was thus not involved in saturation diving and did not really have any ROVs. At the end of my career with Fraser I was put in the position of General Manager of South-East Asia, running in fact half of the company. At that time, I saw the opportunity for the company to move into vessels, ROVs and diving. Due to the commercial success of its single-product approach, Fraser Diving decided not to pursue this strategy. The ambition to create a company that was able to provide this combination of services eventually drove me to set up Hallin Marine. In such a capital-intensive industry, it was quite a challenge to transform a consulting office from a container in the backyard into a successful company, able to offer the broad range of services as it stands today.
In the meantime you’ve become a very successful company, you’ve raised funds on the AIM in 2005 and have sold off the company to superior for £103.5 million. Considering that you like flying, why are you not enjoying the South-East Asian region flying today? What would you say keeps you involved in the business?
A gentlemen’s agreement was made after selling the company, between myself and Terry Hall, who is now the Chairman of the group, for me to maintain an active involvement within the company. One of the hardest things is to build up a team, especially at senior level, and until recently, the people who have helped me create this company are still involved in it. I believe I owe a degree of loyalty to these people, more than to the company in itself. The people making the company are stronger than the name on the side of the ship.
The acquisition by Superior appears to be already paying off. In Angola for example you obtained a contract with Operatec. What synergies do you see between Superior and Hallin Marine?
Superior was interested in acquiring Hallin Marine for two fundamental reasons. One reason was our subsea experience and the other was for geographical expansion. As for Hallin Marine, the company was interested in being part of a bigger group, as it represented more opportunities for the sub-sea light well intervention market, something widely sought after in our business. We see a trend in the industry following this pattern, with joint ventures such as “Well ops and Clough”, or TS marine and Expro for example. In the case of TS marine & Expro the joint venture brings together a company with down-hole expertise and another with marine expertise. The reasoning behind the takeover by Superior was the same: to complement our diving expertise with Superior’s strengths, of which down-hole.
We see that in Angola you are working with a local Partner. Would you say that working together on Joint Ventures to enter new markets is something that will continue for Hallin Marine?
It is something we have done in the past, with countries such as Angola, where such an approach is crucial to enter a market, but Joint Ventures are not key to our strategy when looking at the future. The Hallin Group usually prefers to forge its own path. This has proved successful in Indonesia for example with our own Indonesian PT company.
Looking at the past two years, obviously the economic climate was very harsh but nevertheless Hallin performed well. Last year around the same time you had gross margins of over 30%. How do you rate the overall performance of 2009 and what is the outlook for 2010?
The cycles in the industry: in the marine, offshore and gas service industry are not necessarily the same as the cycles in the regular economy. With this in mind, we have experienced very good trading years in 2008, which was probably our strongest, whereas 2009 was unfortunately not a good year as the market proved tough for marine operators with increasing competition with too many assets in the marketplace.
My predictions are that the trading conditions are going to be similar for at least another twelve months, maybe even eighteen months. I do see though, a recovery phase after that. There are a few construction projects coming to the market place whether in Australia, Brazil or in West Africa for 2011 and beyond. The problem lies in the present, where too much building was taking place, building of ships and subsea assets during the boom years from 2007 to 2009.
Now as you see fewer contracts, increasing competition, oversupply of equipment, how does Windermere reflect your strategy for dealing with these challenges?
Having said that the company is in a tough market place, I think Hallin is well placed to compete in the current market; the group has had a strategy for a long time of having low cross-space and good quality assets.
This was made possible through constant innovation in building equipment in-house and through cutting costs. In fact we have been able to build equipment at less than half the cost of the other operators who are currently using saturation diving systems. The same is true of ships where we have been especially careful. During the boom from 2007 to 2009 several of our competitors built high-cost, high-quality equipment which was often larger than required and were able to do this because they had adequate financing. Now these companies have a excess of those assets. In contrast, we have cost-effective/fit for purpose equipment and we’re able to compete with those companies and still make a margin where they are perhaps not making any profit at all.
You mentioned that your equipment is cost-effective and fit for purpose. What allows you to create these cost advantages and how is it that you manage to keep on track with your budget?
We do this in a number of different ways. On the one hand we have strong in-house innovation in shipbuilding. We have created a strong culture within Hallin, where for any new project whether in shipbuilding or constructing diving systems, we specify exactly what we are building, the cost of construction and exactly what the equipment can deliver. This may sound simple, but several of our competitors start out by trying to build mobile phones and end up with Dictaphones. It is surprising how often companies overspend on their budget.
Personally speaking, I am highly involved in the construction and view it as my role to ensure that the team in charge understands what we are building and the importance of the budget. I believe we have achieved this quite successfully with the Ullswater and the Windermere. We are building a CSS and are actually going to the steal cutting ceremony tomorrow morning.
The CSS is a true representation of how Hallin Marine is able to maintain capacity whilst reducing costs. What benefits will we see from this solution for the company? How will it affect the company’s growth?
It enables us to do more projects on a bigger scale. The CSS is cost-effective and has the ability to do more from a lower cost vessel. These aspects are beneficial to us as they will bring in more business and enable us to either increase our margins in good times or compete effectively during more difficult times.
You have talked a lot about having the right people and the right team in place. Indeed, this is what is keeping you within the company: the team you have built around you. In the oil and gas industry one of the fundamental challenges is bringing the right people on board in a company. How do you attract and retain qualified human resources?
This is a rather difficult question to answer. For a start, our strategy is not based on offering enormous pay packets. We are not the best payers in the oil and gas industry. However, I believe we offer a good place to work. We are all excited about the same things, whether this is in shipbuilding or among the manufacturing teams which are building saturation service systems.
I think our personnel enjoys being part of the company’s activity. Hallin Marine is doing something slightly different and even quite exciting, where I think people enjoy being part of the team. To date, we have recruited a strong team and when looking at our key employees you can easily identify some excellent talent.
With a strong team you can also explore new opportunities and new markets. You expressed an interest in diversifying even during your time at Frasier Diving. There are many new opportunities in offshore wind energy and new equipment. Mr Choo Chiau Beng of Keppel recently said a lot of the equipment does not exist yet because this is a new industry. Which niche markets will we see Hallin moving into?
Renewables is definitely something that we are looking at. I believe the wind market will suffer from oversupply. I know that companies such as Keppel and Swire Pacific Offshore would not agree with me and they are interested in building jack-up wind farm installation vessels. Hallin is not going to explore this option although we are interested in the renewables market overall.
We are currently implementing two renewables projects. We have one project in the North Sea involving installation and burial of cables from Germany; and a second project in the Orkneys with the installation of a tidal turbine. The tidal project is the one I am particularly excited about. We have innovative new techniques enabling us to install this equipment. Technically this represents an enormous challenge. To install turbines in very strong current conditions is extremely challenging. Few companies have examined this issue including those companies who are building the turbines. We are currently involved in an installation of one of these systems in the Orkneys and this is where I see a possible niche for Hallin Marine.
Hallin Marine has a strong reputation in the UK where your branch recently received the Queen’s award for enterprise. One of the key factors in obtaining this award was the fact that you can customise and offer tailor-made solutions, and they cited the project you undertook in Mexico adapting an ROV to descend to 3,000 metres. How will Hallin Marine continue offering these tailor-made solutions as the company expands and can the group you remain close to the customer?
I see diversification not being concentrated in a single-product line such as ROV. In my opinion, innovation will come from how we use the combination of our assets: using vessels in an innovative way. We could use the tidal turbine as an example. We need to concentrate on problems for which other companies have not already found solutions. This would be the case if we were looking at wind farms for example. I see future innovation as being more on a macro scale than a micro one. The ROV example you quoted was an innovative micro solution and we succeeded in doing good work for Allseas.
Would there be anything specific that you want to say about what your aims and ambitions before you leave the company behind you?
I would like to see delivery of the CSS and bring this into service. Although I was not the sole originator of this idea – it was the product of two or three of us – it is one of my key aims for my remaining time at Hallin marine. I would also like to solve the problem of light well intervention and abandonment. The group would like to provide this service both from our existing vessels and from the CSS. This would fulfil some of my long-term plans, although there are in fact many exciting projects in addition.
The tidal business is very exciting and there are always new projects emerging in the subsea sector. In addition, we are also exploring geographical expansion. Hallin Marine is currently targeting Australia, West Africa and Brazil. There are certainly several projects to keep me occupied.
By way of summing up, if you were to send out a message on behalf of Hallin marine to the international readers of Oil & Gas Financial Journal what would this message be?
Many people ask me at the moment what has changed in Hallin marine since its acquisition by Superior. If there was one message from Hallin marine at the moment it would be that things have not changed. We have always made long-term plans and CSS was already a likelihood regardless of the acquisition. Indeed we already had the funding in place and the process had already begun. Our other projects including the renewables initiatives were also in the pipeline.
We are still moving forward with the same projects and we continue to maintain the same levels of innovation as before. Now we are simply making this innovation from a stronger position and being part of a strong parent company with good funding is important in the current climate.