The Umoe Story as told by Jens Ulltveit-Moe
I started the company in 1984 on the ruins of a once proud shipowning company, Knutsen OAS, at that time with no vessels, negative equity and 12 employees.
With my background as a management consultant I felt that it would be possible to turn the company around, and to establish a group based on counter cyclical investment in mature industries, long term ownership and improved daily operations. I wanted to avoid technology and market risk, and take the risk element in a high gearing rather than speculative positions in the markets. The thought process was much the same and has since been expressed in the private equity market, although at that time, and for me, equity from others was not available based on my ideas.
The approach has worked reasonably well, the equity of the company has gone from negative in 1984 to plus 1,5 billion USD at the end of 2007, number of employees to around 7.800, and a diversified portfolio of companies. The growth has taken place in several stages;
Re-building the shipowning company
The mid-eighties was a period of depression in the shipping industry, but there were technological shifts in the tanker industry based on shipping oil from offshore oil fields to the shore. This so-called "offshore loading" offered an opportunity for a newcomer without capital, as the oil companies were willing to give long term time charters for newbuildings, and the company had a good operating knowledge and competent officers.
Combined with access to partnership investment money this meant that the fleet of offshore loading tankers could grow from an initial 2 in 1984 to 22 in 2007. A key factor for success was to be close to the operating environment in Haugesund, and to the Norwegian expanding oil boom.
The company also had a liner operation from Australia through Trans-Pacific to the US West Coast, an out of date operation, operating conventional cargo liners in a containerised world. The vessels were sold, replaced by chartered container vessels, and eventually after a sharp turn-around in operating profit, the line was sold and the money invested in equity for new tankers.
Industrial turn-arounds
With my experience I felt that it would be possible to buy distressed industrial companies and turn them into, at least, medium quality, and in the process make substantial profit. Consequently, in 1986 I acquired Harding Safety out of bankruptcy and commenced a turn-around. This meant rationalising production, concentrating on developing new lifeboats for offshore installations, over time internationalising the operation, emphasising service of lifeboats and launching arrangements worldwide. This combined with acquisitions of other companies in the lifeboat industry, has shaped Umoe Schat-Harding as it is today, which is the world dominant company in offshore lifeboats, lifeboats for cruise vessels and service of existing lifeboat fleets.
In 1990-91, the local shipyard HMV (Haugesund Mekaniske Verksted) had a very fragmented ownership structure, was struggling for survival and unable to choose whether or not to be a shipyard or an offshore oil service organisation. Through several steps I bought the company, and commenced a restructuring process. In 1991 the company had made 2 mill USD in profit in total of the proceeding 10 years, had around 1.100 employees, of whom 900 were blue collar. The turnaround process consisted of concentrating exclusively on the offshore construction industry, leaving shipbuilding completely, and upgrading the technological content of the company. By the year 2000 the company still had 900 blue collars, in addition to 2.000 engineers and designers. The company services offshore oil fields, built offshore installations and did so based on hulls and steel structures from other countries like Poland, Romania and Korea, while concentrating on design and development work. Over time it changed name to Umoe Oil and Gas. After near bankruptcy in 1998 including the oil crisis, based on building two large offshore production platforms, I sold the company in 2000. I just did not have the stomach to face bankruptcy once more in a very volatile industry.
I gradually built an ownership position of 70% in the shipping service company Unitor. The company was the leading distributor of ship maintenance equipment in the world, and had fallen on hard times. A classical turnaround process followed over a five year period, leading to a profitable sale in 2005.
Capitalising on the Norwegian domestic market
With the economic downturn in the period 2000-2003, the countercyclical investment approach was again interesting. Notably so, when it became increasingly apparent that the oil wealth would be distributed evenly in Norway, and that Norway would be in a unique position in Europe as an affluent nation exporting raw materials. This meant that conventional Norwegian export industries would be doing poorly, but also that serving the domestic market with its huge purchasing power could be very profitable. This insight contributed to the sale of both Umoe Oil and Gas and Unitor, and the proceeds were over time invested in a number of Norwegian companies.
By the cyclical bottom in 2003 the company was fully invested. The major investment was a restaurant chain, with some 200 restaurants catering to the volume market in restaurants with Peppes Pizza, Friday's, Burger King, airport catering and restaurants. In addition I invested in Umoe Mandal, a naval shipyard; Sønnico, electrical installation; and Umoe IKT, part of a privatised ex-government communications business. All of these were turnaround cases and the restaurants and ICT would turn around profitably. We are still struggling with the electrical installation, and the naval shipyard will soon be completing its series of coastal MTBs.
Capitalising on climate change
I have tried to be aware of shifts in both the Norwegian economical environment, but also megatrends in the world. It seems that the combination of shortage of energy in the world and global warming present a unique long term opportunity of capitalising on a trend towards alternative energy. Consequently a major part of Umoe's new investment is channelled in that area. In order to have the financial resources to invest there, the shipowning company was sold in the spring of 2008.
Umoe BioEnergy, a major project in Brazil for making bio-ethanol from sugar cane, a total area of some 30.000 hectares, 1.500 employees and an annual crushing capacity of 3,6 mill tons of sugar cane producing 250.000 m3 of ethanol and 50 MW of electricity. This organisation was built during 2008, with a substantial equity investment in a very difficult capital market.
The global economic crisis in 2008 has reduced the value of my financial portfolio substantially, but the backbone of the company, the operating companies in the restaurant chain, naval shipyard, lifesaving appliances, Umoe IKT and Sønnico, gives a basic operating cash flow that is invaluable when the financial world is crashing.
We have always lived by the dictum of "the future does not belong to the largest or the strongest, but to those who can adapt quickest ". After the several major policy shifts made over the past 24 years, we are now entering an exciting future in renewable energy based on the investment of financial capital, and the continued operation of our existing Norwegian companies.
Jens Ulltveit-Moe (Founder and CEO of the Umoe Group)