IHC – Bram Roelse, CEO – Netherlands
The new CEO of Royal IHC discusses his strategy for the company, how to create an environment ‘where innovation blossoms,’ and the future of the company, which is working increasingly in deeper waters and with integrated solutions.
One reason 2013 was so successful for Royal IHC (IHC) was that the market was seeking further improved deepwater services. Now, the price of oil and gas is falling; how will this affect IHC’s priorities for development and expansion?
This change in price for resources has only been a recent development, with oil and gas resources falling in value since summer 2014. A number of deepwater projects have been shelved, but equally other projects—such as those in the renewables sector—will gain more momentum. Some things will persist too: opex expenditure is unlikely to diminish substantially, for example.
The mainstay of our business is capex orientated: large capital goods being sold at the start of substantial projects. Our experience over the years means we are aware that projects can suddenly appear on the horizon and equally, can suddenly fall away too. For this reason, we have diversified our activities and offer equipment supply with a greater emphasis placed on securing opex expenditure projects. This has been a notable development over the last few years and will steady IHC in the face of any future tremors in the market.
Traditionally, IHC has been famed for its work as a dredging company. Increasingly however, the company is gaining a solid reputation for work in deeper waters. Where does the business’ future lie?
Growth will be found in supplying equipment and services for use in operations offshore, including in the deepwater sector. What is clear there is that there exists a significant requirement for integrated solutions that will also create demand for training. IHC can offer this in a number of locations and supply simulator equipment and software to support training activities.
All these assets and capabilities are available within IHC. With the focus now on reducing costs and increasing efficiency due to the reduced oil price, the combination of equipment and training services has become more and more important. It is vital that uptime is maximized, and IHC has a number of innovative products and services that have efficiency at their core.
Lifecycle support is an increasingly important activity for the business. How will IHC capitalize on this opportunity?
Our plan for the next five years has led IHC to establish life-cycle and equipment divisions, which are important operating units, and the aim is to develop them to the highest level. This is part of the move towards having specific products to dedicated markets. Within IHC’s product offering to the market, in either ship building, life-cycle services or equipment supply, we encourage our business units to customize and tailor their offerings to ensure the maxiumum value for the client.
Life-cycle services when it comes to training, service or guarantee work, renovation work or being present locally with crew to hand – these are the activities that IHC is able to offer. There will be a larger proportion of equipment leased out, another part of our strategy to collect more benefit from opex expenditure. Our hydrohammer business is seeing solid growth at the moment, including in the rental market.
IHC has been listed as being in the top 20 research and development companies in the Netherlands. How do you organize your efforts to innovate?
As a western European company, we are trying to create a culture where innovation blossoms. It is not possible to compete solely by working harder—we have to offer very well-integrated, innovative products. This means we invest in developing tomorrow’s designs. Over the next couple of years, we are seeking to develop products which will be of great use to our clients. Several markets are seeing greater potential for technologies formed through a combination of dredging and deepwater designs, and IHC can jump on opportunities to bring knowledge gained in the dredging and offshore sectors together to make the optimum product. Our products need to be able to work through challenges found in both these contexts. We have our own R&D department that focuses on technical abilities we need, and their initiatives receive significant investment from IHC. There is a large variety of new product solutions emerging from our contracts, for example samplers.
The offshore market commonly uses modular equipment. Our heritage in the dredging industry has long required us to create products with multiple use cases, modular products that provide maximum efficiency for the client. This capability has been advanced into the deepwater market and is evident in the vessels we have put together for SapuraKencana and Subsea 7.
IHC considers both individual mission equipment units and the overall vessel, guaranteeing that the ship, no matter its size, delivers optimally. This is harder to achieve with equipment sourced from multiple suppliers. The current ships we are delivering for Petrobras, including the Sapura Diamante for example, prove the utility of this quest.
You are innovative not only in your material products, but also in the manner you interact with clients, providing pre- and post-supply finance support. How is this helping you forward your business interests?
All our clients are aware that for capital goods, projects move forward not only on a technological basis but also on a financial one. What everyone needs is to have a financial package to sustain the project before any material steps forward can be taken. IHC has long-standing relations with all the relevant stakeholders in the market, from registered banks to owners and governmental bodies—the company has a department whose sole responsibility is to create attractive financial packages for each individual project. Whilst a number of our clients are self-sustaining when it comes to finance, some require additional assistance. This can be because they are newer to the market, or because they have a number of large projects that are stretching their resources.
IHC is cautious when it comes to taking on financial risk. This means that banks, governments and other parties trust us, which gives us the room to offer attractive solutions from a solid fiscal standing. IHC can really stretch what is possible from a project as far as it is realistic.
Where are the key markets for IHC?
Basically, everywhere with a waterfront presents an opportunity to our business. IHC has been active in the Middle East, in Asia all the way from China, through Southeast Asia to Australia, both North and South America and in Europe too. Last year Brazil was a very lively market for us, though we expect this to slow down in the near future. Oil price developments will be a major influence on the subsequent launch of new projects there.
In the Middle East, IHC is finalizing a number of key projects. The current trend there is for greater involvement of state-owned companies starting new projects. State-owned companies are paramount in current canal development projects, which span from the Suez Canal to South America, where apart from the Panama Canal there is significant activity for IHC in Nicaragua at the moment.
In China, there is extensive activity in deepwater, as a number of industries there are benefitting from the low oil price, as importers of oil. The reduced cost is giving actors over there the space to invest in new assets.
At the close of 2013, IHC’s orderbook stood at EUR 1.74 billion. Can you update us on this situation, and how you expect this to develop in the near future?
At the moment the order book stands at approximately EUR 1.3 billion. This is better than historical levels: IHC was a thriving company even on an orderbook standing at a billion euros annually. We are moving to be, as I explained, a more product-orientated company. Should the oil price stabilize, new projects ought to be generated and moved forward – this would see us move to a company with an orderbook of typically EUR 1.5 billion to EUR 1.8 billion each year.
How does the concentration of IHC’s shipyards here in the Netherlands impact on your commercial model?
More and more over the last few years we have tapped into the capabilities of partner and sub-contractor yards all over the world – from China to Eastern Europe. Partnerships and their set-up are very important to IHC and the potential of partners is carefully scrutinized to ensure IHC’s quality remains stamped on any product associated with us. On the other hand, having our own facilities here in the Netherlands with maximized efficiency and quality of product is also essential to our business. At the moment, our production is 80 percent in the Netherlands, 20 percent elsewhere, but this is likely to move to become a 60-40 balance.
More and more frequently, clients require assets which meet local content requirement regulations. This is a significant motivation for IHC to collaborate with suitable local partners.
In a partner we are looking for workmanship: the IHC reputation is far too valuable to risk compromising in any way. We can bring specific technical abilities for certain products to our partners, but we need to be confident in their quality. Price does help of course. We have a specific group within IHC whose sole duty is to locate partners who meet our high standards and criteria.
Having been promoted from COO to CEO last year in April, can you tell us about the challenges and successes of your early tenure?
It is quite different being in the top level position of a company to operating in the management. I was on the board of management since 2002, and have seen many changes in the last few years. I have been part of the changes in our dredging, offshore and shareholder structure.
Actually being in the pole position and getting in touch with the market is a very exhilarating part of the job. I have a long familiarity with connecting to clients- this is very much in my commercial DNA. Conveying a market story to our staff and personnel is a key route by which the entire organization moves towards a perceived goal – this is the goal we are now moving towards as quickly as we can.