In a wide world of depression and uncertainty, Associated British Ports' privatised former railway ports seem to be revelling in competition. Daniel Butler reports.
Associated British Ports seems an unlikely hero as Britain enters what promises to be a particularly severe recession. It represents part of the privatised remains of the British Transport Commission, with a significant presence in the property and retailing markets, and a core activity which relies on continuing healthy trade overseas. Each of these has proved a major stumbling block for other companies in today's depressed markets, but ABP seems to revel in bucking the trends. It continues to provide healthy returns for investors and to issue bullish forecasts for the future.
The company's origins lie with the great railway companies of the Victorian era. The entrepreneurs who built their metal-tracked empires across the English landscape deemed it imperative that almost every line should end in a port. Sleepy fishing villages scattered around the coast found their tranquillity shattered by the shriek of engine whistles and their quays cluttered with wagons. As Britain surged to worldwide industrial supremacy, ports like Hull and Southampton became staging posts for the goods pouring out of the foundries and factories of the Midlands and the North.
As railway assets, however, the new docks could not escape the 1947 Railways Act which nationalised the various companies under the British Transport Commission. At the same time, the Attlee Government set up the Dock Labour Scheme (DLS). This was an attempt to provide job security and protection for workers in an industry which had one of the worst records of working conditions in the country. The DLS provided a system where dockers, once registered as qualified members of the Transport and General Workers Union (TGWU), were assured a high level of security (so much so that soon management was complaining that this effectively amounted to a job for life).
Unlike many nationalised industries, ABP was never a monopoly - it controlled only about a quarter of the UK's ports. According to chairman Sir Keith Stuart, a man who has worked with the company and its predecessors since 1962, ABP tried to be competitive right from its inception. Non-executive directors were appointed, introducing private sector profit motives to the docks. The establishment of rival ports like Felixstowe outside the DLS only encouraged this trend. The result was that from 1972 until privatisation in 1982 ABP was repaying old debts run up by its predecessors.
But entrepreneurial activity was heavily restricted by the 1962 Transport Act, and, in Sir Keith's opinion, it was probably the most constricted of all nationalised industries. "It was that, probably more than anything else, that enthused the board of directors with a very strong interest in privatisation," he says.
Initial worries that the unions would block privatisation proved unduly pessimistic. In fact Sir Keith claims to be surprised at the way in which the dockers supported it by buying 2.5% of the company. The initial sale price of 112p (which translates to 28p after two one-for-one scrip issues) was, claims Sir Keith, "a fair return" for the Government.
Andrew Kent, the port manager at Southampton docks, claims that privatisation "brought an immediate sense of freedom that was a welcome relief".
In common with most of the nationalised industries being returned to the public sector, ABP had far more than its core activity to play with. Perhaps most obviously it had huge quantities of disused land scattered around its 22 ports. While some were derelict, most were potentially prime site locations. In marked contrast to the bullish activities of many property developers during the mid-1980s, ABP was careful with its strategy. The board opted to strengthen its knowledge of the field by recruiting non-executive directors with property experience.
ABP also started to broaden its property development experience with joint ventures - such as the Ocean Village development at Southampton, run with Shearwater, part of the Rosehaugh group. But joint ventures could not be the answer for the bulk of ABP's property portfolio, so the company began to look for a developer which was willing to be taken over. As Sir Keith points out: "It had to be a friendly takeover because it's the personnel that matter."
In 1986 the company acquired the relatively small Grosvenor Square property company for £16 million. It was a modest investment that paid for itself twice over with the profits generated in the first three years.