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Interview

with Rob MacKenzie, Managing Director, Endress & Hauser

01.03.2012 / Energyboardroom

You have quite the track record in the industry, having worked with companies such as Siemens and AEG. In November 2007, a month before you took over the operations here, E+H Pyrotemp was created in South Africa. How did this impact the start of your new role?
E+H Pyrotemp does not fall directly under our operations in South Africa, which we refer to as the sales center. The company is owned by Endress+Hauser Wetzer, which is a group production company in Germany whereof we are the main customer. The idea was to have a company that could supply temperature products on a faster basis than it could be done from overseas. From a sales and marketing point of view however, I have been significantly involved with Pyrotemp.

Pyrotemp gave Endress+Hauser an associated production center in South Africa, in addition to the already successful ones in the USA and China. Did Pyrotemp change the way the Group looked at South Africa?
We have had a presence in South Africa for 27 years and I have to say that the move was more product-related. There are many standard products in the temperature business and it was difficult to bring in products from Europe that could meet the specific market requirements for South Africa. A local supplier was needed we could provide a range of low cost items with reduced lead times.

Upon joining, you stated in the press that it were the clear goals of the company that attracted you to join. Looking back at those early days, what goals did you set in your own new role?
When I started, we had been experiencing a very successful time in the process industry. From 2008 onwards however, this changed significantly because of the global economic crisis. It has been an interesting time for us, with investments in mining and oil and gas falling off. The latter sector is picking up again at a global level, although the mining sector is currently constrained probably because to some degree of the nationalization discussions in the South African government.

At a Group level, the results have been remarkably strong in 2010, indicating a strong recovery following the crisis. Did the same apply to South Africa?
We certainly have exceeded our 2008 turnover, but we also did not have the same kind of fall-off as had been experienced in Europe or the USA. Where they experienced declines of 20 to 30%, we perhaps only saw a reduction by 10 or 11%. Today, we have recovered in South Africa.

For this financial year, the Group CFO has set a target of 7 to 8% growth in sales. How does this reflect on South Africa today, and what do you see as the current growth drivers in this market?
We are expecting to grow faster than these estimates. Here in South Africa, we are responsible for the whole of sub-Equatorial Africa where we still have rather significant growth plans. For 2012, we target growth for around 15 to 16%.

Already in 1999, the Group had expressed its will to have a strong footprint in Africa. To do so, a network of various agents has been set up over the years. Can you elaborate on the strength of this footprint today, and what work still remains to be done in this regard?
We are still working through representatives in the various countries we are active in. In some countries we are very successful, such as Namibia, Zambia and the Democratic Republic of Congo for example where mining is a main focus. In other countries we are still growing. In regions such as East Africa, most notably Kenya and Tanzania, we maintain a strong focus on oil and gas and are well established in the food and beverage industry. The infrastructure developments in these markets are very interesting at the moment and there is a lot of work to be done with regards to the distribution of oil and gas. Back in January, we had a new Africa sales manager starting who is responsible for these different markets. All in all, it is clear that a significant part of the 15% projected growth will need to come from outside of the South African borders.

While many outsiders may consider Africa as one homogenous continent, these markets do have their particularities. How do you calculate this into your strategy?
This is a very interesting challenge and is the reason why we have decided to keep our representatives in this region. It is important to work with -and be represented by- local people that understand the local cultures and markets. Every single country is different and dealing with the variations in business and people cultures is an interesting part of the work we do.

You have also been rather creative in making use of newer distribution channels. In South Africa alone, Endress+Hauser’s e-platform has reached the 4th highest penetration by volume. How important is this channel for you?
The most interesting aspect of using e-business is the fact that we work through representatives. In this way, it has become much easier to obtain pricing and delivery information throughout the supply chain. Almost all of our representatives now deal with us through e-business.

IT infrastructure is however sometimes still restricted on the continent. Was this a challenge?
The model relies on the internet, which will surely be faster or slower in the different geographic locations. However, even in Africa it is sometimes easier to get access to the internet than to make international phone calls nowadays. The model has made doing business easier for both our representatives as well as our own organization.

At a Group level, EUR 88 million has been earmarked for investment this year. Will we see some of the capex trickling down to this part of the world?
We are currently constructing a new head office in South Africa and are upgrading our existing offices to turn them into a logistics and service center. The move to the new building is planned to be completed in September 2012.

As you mentioned, you will also experience strong growth at the same time. Are there any particular product lines you aim to expand in this part of the world, or certain new products you are excited about bringing to sub-Equatorial Africa?
As much as any other E+H subsidiary worldwide, we are eager to bring the first Promass X to this market. This is the world’s biggest coriolis flow meter, has 4 measurement tubes, measures up to 14 inches, and is specifically designed for the transportation of oil. Coriolis flow measurement products are already our most successful product in the petrochemical industry in South Africa.

Can you elaborate how Endress+Hauser stands out from the competition from a technical point of view?
One of the challenges as plants and pipes become bigger and bigger, is the accuracy of flow measurements. Coriolis measurement is the most accurate measurement that can be done. The Promass X is a significant development for Endress+Hauser, in the sense that this meter has 4 measurement tubes. Even if the pipesize is large, the typical dimension of the instrument is still rather small compared to competitor products. This makes it easier to install, less space-consuming, etc.
One of the most important elements for organizations such as ours however is to have the right support and service levels in different countries around the world. Around 25% of the staff that we now employ in South Africa are part of the service department, which gives a strong competitive advantage.

After-sales is indeed said to be key in the industry. How do you make these 25% go the extra mile for your customers?
We have a number of standard services that we supply locally in South Africa, such as repairs for example. Further to that, we also provide a range of added value services. We have our own calibration facility downstairs this building, where we can calibrate flow meters up to 100 millimeters.
Furthermore, we also have a big focus on training. Last year, we invested roughly R 700,000 to 800,000 in training the clients’ engineers. In addition to this, we also have certain products and services that we consider unique to our organization. For example, we engage in install base audits for our clients. In this industry in particular, plants have a very long life cycle, which sometimes results in situations where the client is no longer sure what instruments they have, where they are and what condition they are in. The condition, type and state of an instrument can have an impact on the downtime, which is why we go onsite with the customer to conduct install base audits. In this process we look for all of the instruments installed and inspect the conditions they are in. We further have an online web-enabled asset-management system (WAM), where we can quickly load this information onto and verify with the customer the status and availability of the equipment. If the product has been replaced for example, we can tell the customer very quickly the necessary new part number.

It is interesting that you mention that some of the clients are not always aware of the equipment they have installed. Minister of Energy of South Africa, Dipuo Peters, has also already stated that some of the refineries in South Africa are in decay. What is your overall assessment of refinery conditions in the country?
One of the biggest problems that the industry faces in South Africa –although this is becoming a global trend- is that the maintenance of plants has become increasingly difficult. A part of the reason for this is that skills required for the people onsite are also more and more difficult to find. What we need to do as a service provider is to support the technical expertise of the customers. For example, we have now also entered into contracts in South Africa with some of the Group’s global customers, where we offer maintenance services in addition onsite. In this way, we have people permanently positioned at our customers’ sites to avoid problems, rather than wait for them to happen.

Back in November 2011, the Group has also entered into the Shell? Enterprise Framework Agreement (EFA) at a global level. Has this already benefitted you in South Africa?
This is a very big contract that has not yet benefitted our operations. We are in touch with the Endress+Hauser team in the Netherlands, which is rolling out the EFA. One of the challenges they have faced is to try not to roll it out too quickly. They have been working on a detailed plan together with Shell which has not yet been deployed in South Africa. Further developments at this level are likely to take place mid 2012.

When Focus Reports met your counterpart Mr. Sajiv Nath in India, he explained the role of nurturing relations with parastatal organizations, such as the ONGC. How has this played out in South Africa?
Endress+Hauser has worked with Sasol ever since the Group came to South Africa in the first place. We have a department devoted to the tendering and execution of projects. We understand the rules and regulations of working in the oil and gas industry, although transferring this knowledge onto our representative network in Africa can be a challenge. Two years ago, we worked on a tank farm in Dar Es Salaam in Tanzania where we had to work together with our representatives to ensure that the all the necessary documentation would be in place. It is certainly more stringent than most of the other industries we work in, but we have a good idea of what is needed.

You mentioned training before. Further to that, we see that Endress+Hauser has pioneered the Dr. Georg Endress training facilities in multiple locations in South Africa. What has been the outcome of this initiative so far?
It is an important initiative for a number of reasons. Part of Dr. Georg Endress’ principles has always been to give back to community. In second instance, we constantly have around 12 to 14 interns in the company, which is more than 10% of our staff. This is a significant investment for us, and works for us, the universities and the community as a whole.
The program is not yet active in Cape Town, where we have been talking to the Cape Peninsula University of Technology to establish a waste water laboratory. The project is a little slower than anticipated as we need the cooperation of the municipality to install equipment on municipal waste water plants.

One of the company statements is “Think what is possible, Then do it!” What is going to be possible for Endress+Hauser in Africa in the next 5 years?
It is in our strategy to double our business by the end of 2015. This is going to require a certain amount of diversification in our African markets. We have traditionally been very strong in mining, as well in oil and gas with some specific products, most particularly flow measurement.
We are also strong in the food and beverage industry in South Africa for example. We now need to expand into more markets. As the demographics in Africa are changing and as the market needs of the population are increasing, the need for processed foods and beverages is on the rise. We need to make sure that our representatives are aware of the trends in these markets.
There is a tremendous demand for services in these countries and our people continuously travel from South Africa into the rest of Africa. What we need to do, is to build up our technical skills in these countries, as it is difficult to continuously support these remote locations from South Africa. Moreover, having better local representation would be of clear benefit to the customers too. We are also working with Endress+Hauser in France and Endress+Hauser Instrumentation International in Switzerland to make sure that we have technical support services throughout Africa.
As I mentioned, waste water treatment remains a big challenge in Africa, and is an area we need to learn to manage better in this continent.
In the oil and gas industry, as a solution rather than a product, we are developing strong skills in tank farm automation. In this part of Africa, the big growth of oil and gas will come through the storage and distribution of energy, as much as it is going to come from refining for example. This is where our focus will thus lie and this represents an area where we offer complete solutions rather than products alone. In this area, our strength lies in flow measurement & management, as well as level management. We have the ability to go into a tank farm and do all the networking, the installation of the instruments, the software management, and so on and so forth.

The region has quite some prospects in LNG developments too, with new gas finds on the East Coast. It is an area where the Group holds significant expertise. Do you see this as a potential growth area too?
In the USA, Australia and South Africa, Endress+Hauser is looking at LNG and coal seam gas. We already have some pilot projects in the North West Province of South Africa where we are measuring coal seam gas for some of the mining companies. One of our staff members is in Australia this week to find a groupwide measurement solution for coal seam gas. In this sense, we are quite excited about what Shell is going to be doing in the Karoo in the future.

Do you have a final message for the international readers as well as the South African stakeholders?
I can echo the words of our COO Michael Ziesemer, by stating that Endress+Hauser is becoming stronger and stronger in the oil and gas industry. Over the previous 10 to 15 years, this sector has not been a traditional stronghold for the company. We have been investing a lot in this area however and have had significant successes including the Shell contract for example. We have had a lot of success in the last 4 or 5 years in particular, and oil and gas is a focus industry for us. We need to make sure that we have the right technical skills to go with the products that we are developing. It is an exciting industry which we will be exploring more and more.

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