UK: Vickers' valuables. (1 of 4)

UK: Vickers' valuables. (1 of 4) - Vickers, appropriately for a firm synonymous with defence, has been good at repelling raiders. It is still arousing covetousness and now a new chief executive cometh. Annabella Gabb reports.

Last Updated: 31 Aug 2010

Vickers, appropriately for a firm synonymous with defence, has been good at repelling raiders. It is still arousing covetousness and now a new chief executive cometh. Annabella Gabb reports.

A vintage World War I machine gun sits proudly on display at the entrance to Vickers' Newcastle tank factory. It was one of thousands produced on the site, which caused such murderous slaughter in Flanders. Of late, the 800-strong Elswick workforce would cheerfully have turned the gun on the massed ranks of desk wallahs in the Ministry of Defence.

With growing impatience and anger, Vickers has been badgering the Government for over a year to order its new Challenger 2 tank, the uprated successor to the Gulf-winning Challenger 1. After spending some £90 million to build and thoroughly test nine prototypes, the Cabinet is set to give grudging approval to buy up to 200 Challengers for £300 million, seeing off the also Gulf-tested American Abrams and the less fancied French and German tanks.

It would be a triumph for Sir David Plastow, Vickers' low-key chairman and chief executive. Just a month before news of the tank order broke, Sir David - who in 41 years has risen from Vauxhall apprentice at Luton to the £488,562 top job at Vickers - announced his impending retirement. But what sort of business will he pass on to his successor as chief executive, Sir Colin Chandler, the former head of the Government's defence sales organisation and a legendary salesman, when he leaves next May?

Vickers' name has always been associated with defence. The Elswick site, for example, employed 78,000 in the Great War, producing some 13,000 guns and 14.5 million shells. Yet today defence accounts for only 19% of profit. Sir Colin will need every ounce of his vaunted sales skills - honed after landing the £10 billion Tornado arms deal with the Saudis in 1988 - to boost that with some hefty tank sales in the Gulf, against formidable American firepower.

Today Vickers is perhaps the purest example of the highly specialised engineering group, with return on capital averaging 25%. Its brand names are world renowned. For a decade Sir David has fashioned a group embracing Rolls-Royce motor cars, Riva powerboats, the Cosworth road and racing engine business, medical equipment, a specialist marine engineering business, as well as the headline-grabbing tanks and aerospace division. It was done quietly without a hostile takeover bid or the sort of mega-deals fashionable in the 1980s. Along the way, Sir David's steely determination has also seen off corporate raiders Saul Steinberg and Sir Ron Brierley.

But can his successor maintain the group's independence in the even more competitive 1990s? Vickers, with a market capitalisation of just £590 million, could be easily digested by Hanson with a war chest and borrowing powers totalling £17 billion. The attractions of a break-up, where the worth of the individual Vickers businesses could be far greater than the whole, would not be lost on the likes of Lord Hanson or, to a lesser extent, BTR's Sir Owen Green.

Even if Sir Colin can steer Vickers away from the predators, competition is getting more ferocious in every niche market. But he does have one or two interesting aces in his hand.

The Rolls-Royce car manufacturing business performed well in 1990, with sales up 3% to 3,333. But the total masked reduced demand in the second half in Rolls's two most important markets, which account for two thirds of sales. As recession gripped, sales for the year fell slightly in the UK, while in the United States they dropped 7%. First-quarter 1991 sales, down sharply, reflect serious deterioration in the UK and US, while Europe and the Middle East (1990 total up 9%) in their turn are feeling the effects of economic slowdown and the Gulf war. Even growing sales to the Japanese, up by over half last year, will not be enough to compensate.

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