Business Masterclass with Ian Davies - video transcript
Julian Simmonds - Ian I thought perhaps to kick us off this evening you might tell us just very quickly a little bit about Senex but importantly the growth journey that you've been on over the last couple of years.
Ian Davies - Sure. First of all thanks very much for having me. It's great to be here. Senex has been a very interesting journey all round as Councillor Simmonds said. I first started this journey July 2010. There were three employees plus me and we moved to Brisbane - we moved the office of the company which was originally in Perth to Brisbane and I'll get behind the Brisbane thing in a moment.
So being an oil and gas company we had a strategy to build our portfolio of oil and gas assets which are generally fairly high risk and oil and gas is a risky game. It's all about understanding what the risk profile is and employing capital to high risk, high reward - it's a high risk, high reward strategy. The plan to grow the business has become more a balanced portfolio to take some of that high risk, high reward and hopefully build in some production too, which is equivalent to cash flows to make it lower risk.
So as Councillor Simmonds said we've gone from four employees to now 194 employees as of today I checked with another - I think there is six out of the market in front of us so we should hit 200 by 30 June. One of the reasons for that is the success that we've been able to create over the last four years or so. So the growth trajectory has many, many, many, many challenges and anyone who has got a small business with virtually no turnover trying to invest in the business to create more turnover, to create what you’re employing- employees, the weight of that employment falls very heavily on the boss because you're the one who feeds them.
Because if there’s no money, they’ve got no job and ultimately if there’s no money I’ve got no job and I don’t like that either. So it's been a very interesting journey. When I first started the Cooper Basin which is where our oil and gas fields are, which is Central Australia, about 2000 kilometres west of here, big flood plains. So I thought great we'll get some oil and gas properties, we're going to drill some wells, massive flood. The entire Cooper Basin which is the middle of the desert in Central Australia was underwater, the whole thing.
As a result the entire operations of the Cooper Basin and remember Santos has been in the Cooper Basin for nearly 50 years now and is the major gas supplier to South Australia, is a major gas supplier to the eastern states and is a major- or what the big industries- a major oil supplier to now mainly Singapore and also refineries in those days as well. As a result all the operations in the Cooper were shut down. No operations means no money so you go okay, no money, right, now what do we do.
You say well floods are now finished, we've gone broke because the quirk of the way the floods work in the Cooper it's not actually running it's floods coming down Cooper Creek. So massive cyclones come through Queensland, if it comes too far south here a massive flood [unclear] come through which then feed out into the channel country. So as a result you could see about three months in advance when the floods are coming or when the floods are stopping.
So we saw this coming and we went right, let's build a road. So we had projects and we went right, we need to get to you only producing asset which is a field called [unclear] a corn field and we've got to in, so we built 200 kilometres of road with a couple of guys following a D-9 dozer and we built a road. We then got to the creek and went ooh, how are we going to get over the creek? So we bought some pipe and we built a pipe bridge.
What I mean by a pipe bridge is you literally stack 12 inch steel pipes together, you weld them together with drafts and you built up the pipes. There are only about five or six metres each so it lets the water still go through but you have a bridge. So we built a bridge because getting a real bridge is far too expensive [unclear] in 12 months it would have been a couple of million bucks so we built that thing for only $400,000. Now that allowed us to get into our oil field which allowed us to start producing oil again. Now what that did, you get cash flow going.
Then another flood came yeah I know, no problem. So we took the road that we built for the last 60 kilometres or so and we re-built it another five metres up the hill a little bit. We were oh okay we probably should have done that the first time.
Ian Davies - Live and learn. So as a result we were able to get production back happening again and once you get that first cash flow happening again you can say okay now it's time to invest in the business. So you get some more employees, you get some really smart people, you build a management team now and then you say well really haven't we had some success with drilling for oil and gas. We've had some excellent success with drilling for oil over the last few years. As a result our turnover has gone from around $2 million to now our revenue for F14 this financial year will be in the order of $200 million. So, now, helped by the oil price as well.
So as a result you've now got a real business and you can say okay we've got options and you build and you buy more properties and basically you [unclear] while you're up. You go and buy properties next door, you go and build a hotel, you build a couple of houses, you charge some rent. So the Monopoly game in the oil and gas business is you get good quality land that you've got to be able to explore on a low risk basis for oil and gas.
Then you look at that in the context of what's happening [unclear 005:49] markets in Australia, especially the east coast, you've got $60 billion of LNG projects being built in Gladstone. Now what that does not only is fantastic for the business community at large and I would say the economy of Australia at large because it makes a huge impact to the economy of Australia moving from what is currently an investment phase is that all the CapEx going and building stuff to to what will be the production phase.
These companies are making a billion dollars a year in cash flow in 2015, 2016 and what that does is drive more cash into the economy and they go and buy more stuff.
Julian Simmonds - You're kind of doing me out of a job Ian.
Julian Simmonds - It's alright mate…
Julian Simmonds - So I was just going to follow on from that growth story and no matter whether you've got a large business or a small business growth is something that is necessary but it can be really scary too. Just for anybody who is looking to grow their business I guess how do you prepare yourself for success? Is it good planning or is there something in particular you do to psyche yourself up or how do you approach it?
Ian Davies - So I took this role, in all honesty it's the right CEO. I've got three employees, all of which are older than me and all of which have more professional experience than me. It's great. Okay, so - and you go into what you know right? The business basics whether it be small business, large business, massive business, all the same. Good asset base, good cash flow, look after your employees and make them look after you. So as a result that's how you keep building your business. Don't take too much risk.
For instance we're are a company that stayed around $800 million we've got no debt. Zero debt whatsoever because our business is inherently risky and we made the decision corporately that we that we would always [unclear] capital markets rather than get debt. Now a lot of companies fall into the trap of saying well I won't do that because otherwise I'll lose my shareholders. I'll go and get some debt instead. That's fine if it works. You look like a hero. If it doesn't work you wind the company up.
Julian Simmonds - Ian, so obviously employees are an integral part of it and again they're an integral part of any business. I was wondering how do you grow to so many employees, you've got a lot of experience in recruitment, what do you look for in a good employee?
Ian Davies - There's no easy answer here I'm afraid. Clearly the bigger you get the less involvement you directly have with the recruitment of particularly employees. In the early days - so between now - between zero and probably 50 employees - my first job actually as I say, was finding an office and picking the colours. Right? So my day was literally that, I thought oh CEO, oh great. But in terms of finding employees - you look for the ones that [unclear] and you look for the ones that have the attitude and drive to be successful with you.
That's the thing I've found most successful the employees that come on to our business, you want the ones that are going to share the pain with you and work really, really hard to make it a success. That's something you really have to feel, that you can't get off a CV.
Julian Simmonds - So Ian, having found them how do you then keep them?
Ian Davies - That's a really good call. Well our turnover is remarkably low actually and the bigger you get the higher your turnover is because you hire a whole slate of people that are inherently mobile. So engineers, project managers, accountants, lawyers, they're inherently mobile and they say well actually I want to go work with these guys now. GenY in particular, they say I'm not the senior director now so I'm going to have to go and find somewhere else. Fine, great, stick to your guns.
At the end of the day you start life in a small business with no process, no strategy - sorry, no process, no procedures so you've got to really try and drive the ethos of well obviously when you're starting out, the ethos of me the CEO, there's no-one else, right? Then you start getting another layer and you start driving that culture corporately. Then you start saying okay well we've now got 100 people we better put some sort of formal performance plan in place. Before that there was nothing, right? You're doing it all yourself.
Then you start - and there are some people who really don't like that. They don't like having process and procedure, they like having a small business with no rules. That's really cool if you want to stay a small business with no rules. At the end of the day if you want be scalable and you want to grow whilst keeping an eye on your risk - and that's the key, also understanding what your risk profile is - you eventually have to grow up into having systems and procedures and processes.
That's the grow proing phase we're really going through now. The key to keeping employees I think is actually not money in my view. I don't believe it is money. There are some people who are never happy no matter how much money and there are some that money means nothing to them. You get all sorts. It's really quite interesting. I think keeping people challenged, keeping people engaged, keeping people along- and taking people along the journey is the key thing I find.
Julian Simmonds - Ian, last question before I turn over to our audience, in your experience what are the top qualities that you need to foster to be successful in business? I took from your story it's probably persistence, perseverance but what's your view?
Ian Davies - So when things are going well everyone looks like a hero you don't need [unclear] right because you are on top of the world and things are going great. It's when things are going badly you actually discover what it means to be the leader of a business or having your own business. You have these times when things really do go wrong and you go wow, what do we do now? Anyone who says that doesn't happen I'm sure either hasn't been through or is not telling the truth.
You talk to a lot of mentors, you find mentors throughout your career, throughout your life that have fundamentally been there and done that and they tell you some pretty interesting stories and you go wow, glad that wasn't me. So I think one of the key things to keeping our business growing and keeping our business engaged has really just been to understand where you're going, have a strategy and have absolute perseverance in your strategy.
Take lots of advice because you don't know it all especially when you're a 36 year old CEO, you don't know it all because you've only been around for 36 years, you haven’t been around for 46 or 56 years. It's actually a real - you've got to be very mature to understand what you don't know and I find understanding what you don't know is actually quite far more important than understanding what you do know.