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Interview

with John Jordan, CEO, Energy Cranes International

03.04.2009 / Energyboardroom

We’ve seen a lot of activity at Energy Cranes in the last year. What would you highlight as being the main milestones and achievements in 2008?

Without doubt, the major milestone was negotiating the sale of the business to Close Brothers, with all that meant for bringing in new finance to support our growth plans.
Leading up to the change of ownership, though, we had two other important highlights with the acquisition of M&M Services, a US crane operation and maintenance business, and Aberdeen Hydraulics, which provides onshore and offshore hydraulics services which complement other group offerings.
Just two days after the sale to Close Brothers, we acquired another company, Baricon Systems in Aberdeen, which manufactures and supports flexible pipe and cable laying equipment for the sub-sea market – a logical extension to our mechanical handling portfolio.
Performance wise, it looks like a strong 2008; with organic growth, market penetration and acquisition, we’re projecting EBITDA up 29% on revenue increased by 21%. We’ve seen particularly strong contributions from our European, Middle East and Caspian operations.
Another milestone was the appointment of our non-executive Chairman, Robin Pinchbeck, a highly regarded industry professional whose continuing executive role is with Petrofac.
Looking back, I guess with those acquisitions and maintaining the strong performance of the core business, it’s been a particularly busy year.
How do you assess the current financial situation in terms evaluating the global environment for Energy Cranes?
The environment and fundamentals of our own business haven’t really changed. The price of oil has come down, and some clients are finding capital for project finance hard to find, but predominantly the Energy Cranes business is geared towards production, existing platforms and deepwater installations. The oil price is still well over the traditional hurdles of $20-30 that used to be talked about. Looking at the dynamics of what’s going on, I’d be shocked if there weren’t averages of $80-$90 per barrel over 2009. The installations are still producing and the rigs are still drilling; that means the cranes have to be operated and maintained, so our services are still in demand.

In anticipation of your board meeting next week, what are the biggest issues at the top of your priority list?

Getting Energy Cranes’ capex spend approved. Some of our growth plans for 2009 depend on capital being made available to add new rental cranes in the Middle East and Southeast Asia so that we can extend our well-proven and profitable Gulf of Mexico crane rental business to those areas. We’re also committed to investing in growth in our US engineering services team, which itself mirrors a successful model developed in the UK. That’s how we operate; innovate in one place, then extend to deliver the service more widely. Right now, next year’s budget is based on organic growth; we haven’t put any specific acquisitions into the plan because above all we need to stay focused on the customers and keeping them happy. In any event, we would take time to think carefully about any acquisition in the current economic climate – we still have funds available and some markets in which we view acquisition as a likely step, but we will be picking our targets and our timing very carefully.

Where is Energy Cranes most significant value-add?

It’s the total package – from conceptual engineering right through to platform decommissioning. Talking about the crane side of the business, it’s what Energy Cranes can provide to the client from managing everything, from installation and maintaining the crane, to designing lifts, equipment modifications, and backup engineering support. We can deliver the whole package and many clients – particularly those who have built up confidence in us over many years – ask us to do precisely that. However, because we can deliver the whole package we can also deliver any part of the package; that flexibility allows us to deliver project work scopes and launch new client relationships based on responding to specific or urgent needs. Energy Cranes’ job is to sell confidence; our clients need to know that if they make us responsible for the lifting problems they would otherwise be losing sleep over, they can rest easy knowing it’s in safe hands. Accidents involving cranes can kill or injure people and will always cause expensive downtime and damage: we’ve worked hard over 35 years to build the best safety reputation of any offshore crane business anywhere in the world. Our reputation says we do it right and do it safely; everybody in the company knows the importance of avoiding complacency so that we continue to build on that reputation.

2007 saw the 50% threshold reached in terms of turnover share between the UK vs. the rest of the world. What is the importance of the UK and Aberdeen, even as the UKCS enters a period of long term decline?

Aberdeen is the oil capital of the Europe. I’ve been coming here since 1991 in various positions with different companies, and it’s a dynamic area, with a lot of experienced people that have a strong background in the oil field. Even with the declining production in the North Sea, Aberdeen will be exporting skills, services and technologies to other parts of the world for a long time. It’s still pretty buoyant, with hotels being built, high housing prices, and the recent approval of a Donald Trump golf course. When you think about oil and gas in the US, it’s Houston, and in the Europe, it’s Aberdeen.

As Energy Cranes continues to grow worldwide, where are the biggest focus areas geographically?

The main focus in 2008 was establishing a full service base in Norway. It can be a challenging market, and it’s important to have Norwegians on the ground leading the business and doing the work; we’ve established a new company in Stavanger, hired local management and staff, and started winning some good work with clients. We want to build on that, and I can foresee us making an acquisition in Norway to speed that along.
Later in 2008 and looking ahead to 2009, the next target is Southeast Asia. Sparrows has had operations in Australia and Indonesia for some years; those were principally established to support individual client contracts in those areas – which is a solid, low-risk way of entering new markets – but, in reality, Perth is not the ideal place to headquarter our Southeast Asia activities. In July we established a new regional hub in Singapore with project engineering offices, workshops, warehousing and other facilities both to service Singapore and to direct our growth in the region. We’ve transferred in senior engineering managers to lead the hub and are fast recruiting local staff to work there.

One of the bottlenecks you mention is about recruitment. Will that be an issue in Southeast Asia particularly?

Energy Cranes is doing well there, started recruiting extensively 60 days ago, and has not yet had problems finding competent engineers and shop personnel. Indonesia and Malaysia are diversified recruitment areas, and it hasn’t yet been a problem, and although we’re not fully staffed to where we want to be, the company has added 16 people over the last 60 days.

Through Energy Cranes’ continued growth and acquisition, how would you describe the culture and your management stile?

Although I can only speak from direct experience for the past three and a half years, in my view, the real culture change started in around 2003. The company almost doubled in size and started to operate in a number of new markets; that meant that the very UK-driven culture and decision-making processes had to change to allow the business to keep moving forward. It had to become international, it had to welcome new cultures from other parts of the world, and it had to accept that the UK way was not right for every other country – and indeed that some times there were ideas from other countries that the UK could learn from too.
The incorporation of the US-based American Aero and Titan Industries businesses into the group was a particular challenge; after a couple of years of trying to lead the business from the UK as before, it was decided to add weight to the US management and fix the issues locally.
I was hired as Deputy CEO in 2005 to focus mainly on the Americas, get the operations there up and running, and bring the cultures together. The aim is that whatever differences remain between our operations in different countries should be a function of differences in the local marketplace, not differences in the mindset or culture of our own people. We’re putting the emphasis on the Energy Cranes brand globally and pushing that name, with the exception of the European region because Sparrows has such a strong brand value there, you don’t want it to disappear – it is like a household word in Aberdeen because it has been around 35 years. One year ago, Energy Cranes brought in a Vice President (VP) tier of management, covering HR, Commercial Development, HSEQ, and so forth, and did the same thing on the operations side, bringing in VPs of Contracts and Projects and Technology, and brought the VPs together to communicate best practices and cross-cultural learning between the UK,US and internationally. This learning occurred across departments and operational groups, around the world.

In terms of cross-fertilization of ideas, what advice would you give to your Houston colleagues about how to deal successfully with UK and US mentalities?

You can learn a lot from each other; it’s not all invented in one place. There are many good systems in the UK, and you don’t have to reinvent the wheel in the US. A lot of the US companies acquired by Energy Cranes fell in between the size of a Mom and Pop and a major, which required adoption of many systems that weren’t formerly in place but which major customers like Shell, Chevron, and ExxonMobil want to see. They didn’t push us hard years ago in the Gulf of Mexico, but times have changed. For example the customers in the US don’t buy in the same contract-driven way as the UK, but there are some concepts in the contracts they will buy. They won’t sign up for a five year contract and let you put 20 people in their office, but there are certain things they like, such as having one assigned contract engineer who coordinates everything for them, lines up the service people, and schedules crews. In fact, Energy Cranes actually has four US customers who are paying for individuals to do just that, whereas before they never would have. This knowledge transfer goes the other way too, for example in rental cranes. Energy Cranes is the market leader in rental cranes in the Gulf of Mexico with a rental fleet and crane operators, and it’s an excellent model that has been applied to the Middle East and Southeast Asia with some modifications. It’s starting to work there too, and we expect the same kind of growth in those areas in the rental crane side that we’ve seen in the Gulf of Mexico. For anyone to say “we do it right, you do it wrong” is just not open to new ideas.
Three and a half years in, if you were to project the company the same time span out, where do you want to bring Energy Cranes?
Energy Cranes will be twice the size of today, and still predominantly doing what we do today from a product and service offering standpoint. The company will probably move a bit further up on the value chain, with three or four acquisitions in coming years not of a huge magnitude, but of a size that makes sense, fits with what we do, and creates value not only for us but our customers. There are also plans to expand to a couple more countries. Energy Cranes will still be a great place to work, and hopefully our employees will like it, and we’ll see continued low turnover levels in that respect. That’s the goal and vision here, and the management team is behind it. Personally, four years from now I’d like to see Energy Cranes in a strong enough position that an IPO is an attractive proposition to our owners: VCs do exit, and we’ve been through three of them so far. In the last two instances we convinced investors we didn’t want to go the trade route, and they were specifically excluded, but I hope to be able to continue to demonstrate to our shareholders that their best interests, and those of the company and the people working for it, lie as a strong business with its own ethos, not as a part of a larger conglomerate following a trade sale.

What is your final message to OGFJ about Energy Cranes?

To all our customers, I really appreciate their support over the past 35 years, and specifically over the last few. Energy Cranes and Sparrows will be around for a long time servicing industry needs, and through the ups and downs, we’ll be here.

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