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Krohne Group: organised for growth

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PERSONAL PROFILE

Stephan Neuburger is the managing director of Krohne Group , a position he has held for the past seven years. Neuburger commenced his career at Krohne, as a service engineer, in 1983. In 1986 he joined the export department with responsibilities for South America, became global export manager in 1988, and was appointed vice president marketing and sales in 1993.

COMPANY PROFILE

Krohne is wholly-owned by the Rademacher-Dubbick family. The company was founded in 1921, when Ludwig Krohne began to produce variable area flow meters. By 1949, there was an initial workforce of only eight people. Krohne now employs over 1500 people in Germany alone. Total sales are 210 million Euros. The company operates 13 production facilities in nine countries, and there are 29 Krohne-owned companies and joint ventures, and 59 exclusive representatives.

PRODUCT PROFILE

Krohne produces electromagnetic, ultrasonic, variable area (VA) and Coriolis flow meters. The company also includes magnetic, ultrasonic, radar and reflex radar level meters in its product portfolio, as well as level switches.

DENES BOLZA: Do you see Krohne as being intrinsically a German company?

STEPHAN NEUBURGER: No. Of course our origins are German, servicing mainly Europe. However, now we’re a global company, with subsidiaries and agents in 61 countries. We also have 14 production bases, four of which are in China.

So you dont believe that everything that comes out of Germany is the best?

Once again, no. We apply the same quality management and technical standards worldwide.

Where are your manufacturing and R&D facilities?

Research and development occurs at our head office, in Duisburg. In Dordrecht, Holland we manufacture, calibrate, repair and test flow meters from 2.5 mm up to 3.2 metres. A similar plant in Shanghai, China caters for the Asian market. Krohne UK produces Coriolis Force mass flow meters at a straight tube production facility. Other manufacturing centres are located in France, India, Brazil and the United States.

Will Germany always produce Krohnes full product range?

No. That was never the case. However, in Germany we use a common manufacturing platform for all the electronics. For instance, our Duisburg plant produces electronic boards and signal converters for global use. It makes no sense to double up on electronic machinery and know-how.

Why?

Centralising operations is important for research and development. All our units meet global standards. Quality-wise we have greater control. There’s also a cost issue. Board populating machines easily require an investment of millions of euros. We want these machines to run constantly, instead of having manufacturing hubs running on and off.

Whats Krohnes ranking globally?

We are either market leader or at least in the top three. Traditionally we’ve had a strong market in magnetic flow meters. We are the world leader for magmeters, building more than 60,000 units per year. We are also first in ultrasonic flow meters. Increasingly we are using this technology for turnkey solutions, such as metering skids for the oil and gas industry. We are number three in the Coriolis market worldwide.

How is Australia performing in Krohnes business plan?

The Australian company, in its ninth year, is growing steadily, by between four to eight percent per year. This is in line with average industry growth. To increase our stake in the market, we reinvest in Australia every year. We are very serious about doing business here.

Whats your biggest problem in trading with Australia?

Exchange rate fluctuations.

What are the benefits?

We don’t view Australia solely from its market but from its influence in the region - through its engineering expertise. This has had positive results in neighbouring countries such as Brunei and Indonesia. Australian expertise is greater in the Asia Pacific region now than it was 10 years ago. Growth in this region will also help Australia.

How has the group grown under your leadership?

Since I’ve been with Krohne, annual revenue has grown from 80 million Euros to close to 210 million Euros. When I started as export manager, Krohne depended on the German market for 50 percent of its business. Now it’s only 15 percent. This means that Germany remains our biggest single market, and we continue to grow there. However, our potential is in the rest of the world. So proportionately Germany is getting smaller for us, but not in total figures.

Wheres your second largest market?

China. We’ve been there for nearly 20 years.

Whats Krohnes market breakdown regionally?

Largest is still Europe, second is Asia and third is NAFTA [Mexico, the US and Canada]. In the long run I expect Asia to be at least on the same level as Europe, followed by NAFTA. Russia is picking up strongly, as is South America.

Whats driving South America?

Brazil. It accounts for half our business there.

Why is Brazil so strong?

The number of people, oil and gas, the chemical industry, car manufacturing, a relatively good investment climate for foreign companies and a relatively stable social system without the problems of, for example, Columbia and Peru. We’ve been manufacturing in South America for over five years. Our factory, in the state of Sao Paolo, produces magmeters and ultrasonic flow meters.

Have you secured China?

The Chinese market is organised for growth. We have four manufacturing sites there, and are implementing a unified sales organisation between them.

Whats happening in Russia?

We’re building a 4000 square metre manufacturing plant in Samara, in the Volga region, some one thousand kilometres east of Moscow. Krohne was the first foreign company that was allowed to buy land in Russia. The plant will produce ultrasonic flow meters including calibration device, purely for the Russian market. We expect construction to be completed at the end of this year, with production commencing at the beginning of 2006.

What about India?

We’ve been in India for the past 20 years, starting there earlier than in China. Our manufacturing site, a joint venture, is located in Poona. It manufactures vortex meters and magmeters. Vortex development is undertaken by Indian engineers. We also conduct software R&D in India.

Whats your market share in India?

We are the market leader in magmeters, with a share of more than 50 percent. Recently we established huge calibration facilities, which can calibrate magmeters up to two metres in diameter. This gives us a strong competitive edge.

What about Africa?

Krohne South Africa was established over 20 years ago. South Africa serves the southern part of the continent and a sales team based in Germany serves the northern part.

Whats Krohnes expenditure on research and development?

Our commitment to R&D is extremely high. Twelve percent of our employees in Germany work in the R&D department, and eight percent of our yearly turnover goes into R&D. The only way we can remain a leader is by being an innovative company.

What links do you have with universities?

We have worldwide links, working with close to 20 universities and R&D centres.

What are the major driving forces behind Krohne?

The first is innovative products. We constantly strive to come up with new technology to serve our customers and their applications better. Another driving force is the need to build up new markets, in new regions. Thirdly, we are always developing new business models and companies. For example, we recently structured a new entity in the group, called Krohne Oil & Gas. This company, which is based in The Netherlands, is only three years old but this year will achieve turnover of 30 million Euros, starting from zero.

Whats your main corporate strategy?

To retain the independence of our family concern. To achieve this, we provide customers with superior services along with the top products and customer-specific solutions for which we are well known.

Whats your definitive motto?

Change is the only constant.

Whats the hardest part of the job?

To predict the future.

Whats the most pleasant part?

To make the vision become a reality, such as building up the new oil and gas company.

Have you had any takeover offers recently?

With our success, all the major players watch us closely. Takeover offers happen every second year, I would say. We are financially strong and family owned. Our good fortune is that we have an owner family who really wants to grow the business - that is their target.

What are other advantages to being family owned?

Stability, room for entrepreneurial ideas and visions, short decision processes and innovation.

And disadvantages?

To get the growth financed.

Who are your major business partners?

We work with most of the major providers of DCS systems, like Emerson and Honeywell. For example, three or four years we started embedding our instruments in Honeywell’s PKS asset management system.

Whats the biggest internal change youve witnessed over the years?

The management style has changed from being based on single decisions to becoming more team oriented.

What have been the biggest external changes?

The Internet and communications - globally.

Whats the future of metrology?

Process diagnostics will become increasingly important in years to come. With our Optiflux electromagnetic flow meters, we are the first to make the vision of multifaceted onboard process diagnostics a reality.

Where are the biggest changes coming from?

Measurement will shift somewhat from using only physical effects, such as time of flight for ultrasonic, or magnetic pickups. We’ll move towards methods of indirect measurement - for example, by listening to the noise in a tube. The artificial ear and the artificial eye - these are things that will come. You only have to think of sonar technology.

Can you expand on the concept of listening into pipelines?

Flow meters will provide more information about more parameters such as multiface flow, flow profiles, temperature, pressure information, health monitoring and wireless communications. By listening to the noise in a pipeline, we will develop intelligent methods to see what is in the future rather than simply measuring what is in the present. This technology is not available but it will come, maybe not for the next 10 years but we are on the move.

What is driving technology? What are customers asking for?

Customers want instruments that suit specific applications and that are also economically affordable - no more and no less. They don’t want over-engineered instruments, only solutions for their applications. They won’t pay for features they don’t need but they want all the features they do need.

How has Krohne responded to this?

Last year at Interkama, the German trade fair, 70 percent of our product portfolio was new. These included a new magmeter with diagnosis functions, a new range for ultrasonic gas flow meters, and a new range of level devices, 2-wire radars and TDRs [Time Domain Reflectometry - on which guided radar is based].

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