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The Financial Director interview: David Davies, CFO of OMV

David Davies is a finance director with an extensive international pedigree.
After qualifying in Liverpool, his first accountancy job was with Price
Waterhouse in Italy. He then spent some time in divisional financial positions
at BOC before joining drinks and leisure business Grand Metropolitan in Munich.
A spell as corporate controller for Burger King in Miami followed, with a
position as FD at International Distillers and Vintners in the Asia-Pacific
region for good measure.

When we last profiled Davies in 1998, he was back in the UK as finance
director of Durex manufacturer London International, following three years as
vice president of finance for Walt Disney’s retail division in the UK. At that
time, Davies felt he needed to stay close to home, feeling guilty that his young
son had failed to recognise him after too many trips to the US and Asia.

But it wasn’t long before he was back on the road. He had been working as FD
for manufacturer Morgan Crucible for two years when, in 2002, he got a call
asking him to consider the position of chief financial officer of Austria’s
largest company, the EUR7bn turnover oil and gas producer OMV.

“My primary consideration was, would the move work for the family?” says
Davies. “I have a 23-year-old daughter who works in the City, an 18-year-old
daughter who will go to university next year and a 10-year-old son who was born
in the US. Clearly, as your family gets older things are a lot more complicated.

Davies’ second consideration was that, for an experienced FD still only in
his 40s, the UK held few new challenges. “I had reached the stage in my career
when, as an FD of a public company, I wasn’t going to go any higher than being
the FD of a larger public company,” he says. “What I had always looked for are
companies with a big international dimension and a difficult, challenging
environment.” Companies such as Burger King, where Davies had dealt with the
company headquarters being wiped out by a hurricane, for example.

Davies was convinced that OMV provided all the right challenges. The company
was moving out of state control and was starting to establish itself as a player
on the world stage, although it is only a fraction of the size of giants such as
BP and Shell. OMV was also embracing a higher risk profile, moving into
countries such as Pakistan and Libya. An ambitious aim of doubling the size of
the company from EUR3bn to EUR6bn market capitalisation by 2008 adds to the
challenge. “It was never going to be an easy job and that is what I was looking
for,” Davies says.

Before accepting the position, Davies did plenty of due diligence on OMV. But
he had little experience of Austrian business. “I had been skiing in Austria and
seen some gas stations with OMV written on them,” he says.

So he turned to the banks, headhunters and friends for advice. “I was able to
speak to people whose opinion I really value,” he says. “I asked them whether
they thought I could operate successfully in this new environment.”

When Davies joined OMV in the summer of 2002, a primary goal was to
kick-start a process of cultural change. The company had been state-owned since
the Soviets occupied Austria at the end of the Second World War and after
Austria’s independence in 1955. Currently, the Austrian government holds 35% of
shares in OMV, while 45% are in free float and 20% are owned by an Abu Dhabi
investment fund.

“We moved from being a major state-owned company with a strong, almost
exclusively domestic, business based around the refinery in Vienna to a business
where in the upstream alone we are active in 12 countries around the world,”
Davies says. “I was brought in as part of a process to speed the cultural
changes the company is going through.”

The changes include moving the company’s first language to English by 2005
(although Davies speaks fluent German). He also wants to encourage employees to
be more challenging. “I was not brought in because I was Mr Clean Sweep. I had
experience of capital markets and of working with public companies in an
international environment. They were looking to put a bit of spice into the
soup. I clearly provide that,” he says.

Davies did not really know how the Austrians would react to him, although he
is sure they must have held a stereotypical view of him as an executive from
overseas. “I’m sure I get treated somewhat differently because I’m a Brit. I’m
sure I’m given a bit more freedom,” he says.

Davies also knew that as a foreigner he had to tread very carefully and when
he needed to replace OMV’s treasurer and controller, who had decided to leave
the business, Davies made sure he looked for internal candidates rather than
bringing people in from outside.

“I was not tempted to give the finance function a UK flavour,” he says. “I
wanted somebody from inside because I felt that having a new CFO and controller,
neither of whom knew the industry or the company, would be too much of a
challenge. He is now my right hand; there’s no question about that. It is a sign
of a strong, growing company that it breeds and develops talent.”

Davies still finds some cultural aspects of working in Austria a challenge.
As a foreigner, he says, he is more cautious. “You establish an automatic
early-warning system because you are in an unusual environment,” he says “It is
easier to avoid falling into the same kinds of cultural traps that might catch
you working in the US, where nominally you speak the same language.”

Davies also finds the Austrians’ obsession with detail bewildering. “The
Anglo-American culture tends to be more interested in the information, whereas
the Germanic-Austrian culture tends to be more concerned with data. So, if you
are preparing a slide, somebody will come up with a complete wall of data and
think it gets the message across perfectly. It doesn’t get anything across,” he
says. “Of course the nice thing is that there’s a solid foundation in fact when
you’re at the Austrian end of the spectrum, whereas when you’re at the other end
there’s frequently a very solid foundation in bullshit.”

Having to deal with a two-tier board structure poses some interesting
challenges, too. OMV is run by an executive board, comprising four executives
including Davies. A supervisory board provides oversight, but meets only five
times a year.

“The first thing that surprised me is that technically I don’t have a boss. I
am one of four independent directors who have collective responsibility for the
group,” Davies says. “I could certainly see a scenario where if you didn’t have
a good chemistry in the executive board – which I’m glad to report we do – it
could be a difficult environment to manage.”

All in all, Davies says a two-tier board works, and the structure is
manageable. The supervisory board asks the same sort of questions UK
non-executives ask. “You get tough, probing questions about why are you doing
this or that, but the technical differences are quite subtle.”

Internal controls and corporate governance best practice is especially
important in the oil and gas industry. “If you get it wrong you can leave a big
hole in the ground,” Davies says. But even though UK-driven governance measures
such as the Higgs and Smith reports on non-exec directors and audit committees
have passed Davies by, he feels it is important for an international company
such as OMV to employ rigorous controls and best practice, as exemplified by the
Turnbull report published in 2000.

“The Austrian corporate governance code is addressed with one paragraph which
basically says that the executive board is obliged to inform the supervisory
board on all major risks. It could mean anything, quite frankly,” he says. “But
the way we’re dealing with it is very much with Turnbull in mind. We have looked
at all the things that could really blow us off course, how to review them and
assess the steps we need to take. We are not doing this because it’s required by
a corporate governance codex and not because it’s best practice in Austria.
We’re doing it because it’s a sensible thing to do.”

Currently, a lot of Davies’ time is spent communicating OMV’s new strategy
and culture to the investor community and financial press – and it’s a tough
story to sell. Before Davies’ appointment, OMV had relied on proposed
privatisations in the Eastern European oil and gas sector to gain critical mass,
but, he says: “That rather made us look like an organisation that had delegated
control of its direction outside its influence.”

Instead, Davies is pursuing an aggressive strategy of investing EUR1bn a year
– a massive amount for a company currently valued at only EUR3bn.

“‘Can you maintain returns?’ is a question I’m often asked. The honest answer
is, ‘No we can’t’. The best way to maximise returns in our business is to milk
assets. But where would that leave us in five years? Not around, probably,” he

After recently issuing two successful bonds – one for $320m in the US and one
for EUR250m in Austria – Davies is travelling round the globe talking to
investors, and also learning how to communicate with the fixed income investing
community. This is especially important as most people in Austria are
risk-averse, even during the times when equity markets are thriving.

OMV shareholders will face even bigger risks in the future as the company
rapidly expands to countries such as Pakistan and Libya. As Davies says: “You
just don’t find substantial oil reserves in Bond Street.”

It is difficult to mitigate risks over which you have no control as an FD. ”
There are countries where oil deliveries don’t make it because one truck in 20
goes missing. It’s a rail truck for God’s sake. How does a rail truck go
missing?” Davies says. But he believes the key to avoiding problems is getting
the basics right.

“A nice expression I heard many years ago is that a dollar’s a dollar,
irrespective of what company you are in,” Davies says. “You can be the smartest
strategic thinker, but if your numbers lose credibility, you’re finished.”

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