Shipbuilding tends to be a feast or a famine. But Vosper Thornycroft has a stable, managed diet, thanks largely to the warships it supplies naval forces worldwide.
Recently, there were three almost identical small vessels lying along the quay in Vosper Thornycroft's shipyard at Woolston, Southampton. Grey and squat, they were unmistakably warships of some lesser variety. Sandown class minehunters, it turned out. One of them, HMS Bridport, has since been accepted into the Royal Navy. The remaining two were at different stages of fitting-out. Their names, Shaqra and Al Karj, showed plainly and they wore the same green ensign that even sailors might have difficulty in recognising against the familiar backdrop of Southampton water. It revealed them to be units of the Saudi Arabian armed forces.
The three ships, and in particular the two Saudi vessels, tell a lot about Vosper Thornycroft. They help to explain why, despite being a shipbuilder (a survivor of an industrial species that was widely believed to have been wiped out in Britain about 20 years ago) and - even worse - a defence contractor (everyone knows the defence industry was finally killed off by the Government's Options for Change programme three years ago), the company has nevertheless been riding the crest of a wave. Vosper's figures for the year to end-March (profits 19% up at £19 million before tax, on a turnover 25% to the good at £196 million) were the best it has produced since sailing back into the private sector in the mid-1980s.
What's more, the order book has remained at over £700 million through successive years of record profits. The company can also point to £50 million of spare cash that might well be used for acquisitions. Small wonder that the City has been sitting up and taking notice of Vosper - shipbuilder-cum-defence contractor or not. Eighteen months ago its shares were drifting at around 240p. This year they touched 600p.
For the reasons behind this fairly dramatic success story, look again at the little Saudi ships. But not just at them, for there were many before them. During the past five years Vosper has taken export orders worth more than £1 billion, which helped to earn a Queen's Award for Export this spring. It was not the first time the company has won a Queen's Award - it was also awarded one in 1969. 'In every year in the past 20 years', claims managing director Martin Jay, 'exports have exceeded 50% of turnover.'
Over a 25-year span Vosper has supplied some 180 warships to 30 naval forces around the world: including those of Brazil, Brunei, Egypt, Ghana, Indonesia, Iran, Kenya, Libya, Malaysia, Nigeria, Oman and Peru. The Iranian frigates were built for the Shah, incidentally, not the ayatollahs. Vosper managers are sensitive about suggestions that they might be supplying either despots or terrorists with instruments of death and destruction. Small warships, they point out, are by nature defensive, and any nation that borders the sea should have the ability to police its waters. It is Vosper's good fortune that so many independent coastal states were born in the post-war period. Yet it was not choice but necessity which first set Vosper chasing after export orders.
Vosper - as distinct from Thornycroft - had made its name building fast small craft in Portsmouth harbour, most notably the motor torpedo boats which disputed the narrow seas with Hitler's E-boats for much of World War II. With the end of the war, and then of the Korean war, the British Government's requirement for minor naval vessels shrank progressively to a trickle.
For the sake of survival, therefore, Vosper was virtually obliged to design its own prototype - of a fast patrol boat - and look round for buyers. Surprisingly, two of the earliest purchasers were European, West Germany and Denmark, but they were followed by a litany of developing countries.
In the mid-1960s Vosper (by then owned by David Brown Corporation) acquired Thornycroft, whose principal activity at the time was carrying out repairs for the famous shipping lines using its home port of Southampton. It was good business for a while, although the day of the passenger liner was drawing to a close. As it happened, Vosper was already working on a design for a frigate, a very much larger type of warship than it had the capacity to build. Thornycroft provided the means. The first of two frigates for imperial Iran was shortly afterwards under construction at Thornycroft's Woolston yard, which has been the group's main shipbuilding base ever since.
A few years later the enlarged company (known to insiders as 'VT' since the merger) was asked to design, in conjunction with Yarrow, a new class of frigate for the Royal Navy. It was a landmark: the first time in decades that the Ministry of Defence had looked beyond its own facilities for design as well as construction - which inevitably followed. 'We cracked the mould with the Type 21,' says Alan Staff, an old VT hand who is now commercial director. The design contract was a stamp of approval that the developing countries - increasingly providing Vosper's bread and butter - could hardly fail to notice.
The years before, and after, nationalisation in 1977 were exceedingly busy at VT. Woolston had a succession of major jobs going through: Type 21s for the MoD, four big frigates (the biggest ships the company has built and close to the limit of its capacity) for Brazil, frigates of a different design for Libya, etc. Meanwhile the Portchester (ie Portsmouth harbour) yard was producing patrol boats for Egyptians and others. In many ways 'nationalisation didn't make much difference,' according to Staff. Vosper was still hungry for overseas orders. Like most of the warship builders, it had work to do and was making some money. Nevertheless, the eight years of state ownership, being at the beck and call of remote and restrictive head offices in London and Newcastle, were 'a pretty miserable time' for managers. 'Everyone was relieved when it came to an end.'
Vosper was the third warship yard to be privatised. In 1985 the then managing director Peter Usher (he is now non-executive chairman), along with a handful of boardroom colleagues and with backing from County NatWest, bought the company from the Government for the knock-down price of £18.5 million. Two-and-a-half years later, when it was floated on the Stock Exchange, the placing of a quarter of the equity at 160p implied a market capitalisation of nearly £50 million. At the shares' highest point this year, the company was valued at over £185 million.
What, above all, fuelled Vosper's rising expectations was its continuing ability to keep orders flowing in, regardless of government spending on the Navy. One important reason for this is that it has more than one string to its bow. 'The basis of this company's success', remarks Staff, 'is the family of warships that we've built in steel' - from patrol vessels to corvettes to frigates. If so, it is ironic that Vosper is even better known - or at least known to a wider public - for its 'Tupperware' ships. The company has not, in fact, built a major warship (meaning frigate) - or much else in steel, for that matter - since the mid-1980s. But all three vessels recently lying at the Woolston quay testify to its rare expertise with glass-reinforced plastic.Vosper's experience of GRP - commonly used for yachts and car bodies but seldom for anything the size of a ship - goes back far beyond nationalisation. The company won an early contract to strip out the contents of a wooden minehunter and make an experimental clone of its hull. But the big development came in the 1970s, with a new class of minehunter specifically designed to be built in GRP. (Wood and GRP share the advantage of relative immunity to magnetic mines - which steel obviously lacks.). Called the Hunt class, these ships proved their worth during the Gulf war.
Like the Hunts, the later Sandown class was designed for the Navy, but also, in chairman Peter Usher's words, 'with export potential in mind'. In fact it is seldom easy to marry an MoD specification to the needs of overseas customers, and Vosper had to employ some ingenuity to sell Sandowns to the Saudis. The RN ships are designated SRMH, for single-role minehunter: their role being to keep the approaches to nuclear submarine bases free from mines. (Loss of a nuclear sub would be a serious blow in any circumstances.). Foreign buyers are apt to have slightly less precise needs, thus the Sandown class has quietly been reclassified 'minehunter - coastal'.
Vosper has so far built five Sandowns for the Navy and will shortly have completed three for Saudi Arabia. For the past year or two it has been anxiously awaiting a follow-up order from the British Government (hopes rose again recently: despite the latest round of defence cuts in July, it appears that the MoD does intend to order new minehunters); plus the go-ahead on three more ships for the Saudis. The Sandown design is currently on offer to Australia, where Vosper is through to the second round of tendering with only Swedish and Italian rivals still to beat. The company is also optimistic about selling Sandowns to Turkey. However, even if Vosper wins, the Australian and Turkish ships will be built locally by joint venture partners. Victory will bring valuable royalties and licence fees, and a return on time and people. But until orders come in from Whitehall or Riyadh (or somewhere else) the massive steel moulds used for laying-up Sandown hulls at Woolston will remain mouldering in their shed without a worker in sight.
For the time being GRP is out. Luckily, steel is once again in. The only GRP work going through Woolston is a small 18-metre commercial hovercraft. Meanwhile, the first of two steel corvettes for Oman is beginning to take shape, and the company will soon start cutting metal for a 'fast strike craft' (one of four) for the Gulf state of Qatar. The hiatus in GRP caused several hundred redundancies among Vosper's workforce of 2,000-plus, even though many shipyard workers are trained in both materials. Numbers have been rising again recently with the renewed build-up in steel.
While GRP is a useful insurance, therefore, it offers no guarantee of continuity. Shipbuilding was always, notoriously, a feast or famine business. With £700 million of work in the pipeline Vosper is sitting pretty for probably two-and-half years (£200 million being the size of a typical contract). 'But go for two years without an order,' warns managing director Jay, 'and suddenly you're looking over a precipice.' It's hardly surprising that, even before the flotation, management was anxious to impress upon the City - in particular - its determination to broaden the corporate base and 'get into things other than shipbuilding'.
Some of these other things lay ready to hand. The manufacture of clever electronic controls for engines and machinery is not strictly shipbuilding; and the equipment may well be specified for different types of ship (eg, submarines) from different builders. Vosper's hydraulic power division makes stabilisers and bow thrusters, but it also puts hydraulics to non-marine use: a couple of years ago the unit built 30-odd ground service trolleys for the RAF, for example. The group is, in addition, a body shop. Its AB Seawork subsidiary provides specialist manpower, such as crews for ships on sea trials. One of this year's bigger contracts was for manning RAF air-sea rescue and target towing craft. All such activities are earmarked for expansion. A few years ago Vosper acquired a US manufacturer of yacht stabilisers; also a UK company making highly elaborate scaffolding for aircraft maintenance.
But the diversification strategy has undergone a subtle shift since Jay arrived as chief executive in 1989 (headhunted from GEC, where he had been a protege of Lord Weinstock). 'We now say', explains Jay, 'that our core business is the designing, building and supporting of naval ships. The emphasis is on broadening the base into businesses which are related but which are not dependent upon a ship order.'
Jay has high hopes of market testing in the public sector. Whenever Vosper puts a proposal to a foreign navy it offers not just a ship, but 'a great big package' that can add as much as 30% to the value of a contract. What Jay would like to do is sell a similar package to the British Navy. 'It would be perfectly possible to find support areas which we might be able to take over because of our experience with export contracts': such as spares procurement, training (the company training centre is designed to accommodate 300 students), even technical documentation (the speciality of yet another fairly recent acquisition).
It may be a pipe dream. The Royal Navy is not the prison service: it has powerful traditions. But whatever happens, the target for 'related businesses' has been set at one-third of turnover, to be reached within two or three years. Now that is a stretching target - if it is assumed that the said related businesses currently generate about 15% of turnover - and one which could be difficult to attain without a fair-sized acquisition or two. It could be more difficult to reach if, in the meantime, the shipbuilding division were to land a couple more warship orders at £200 million a throw.
It may also be that quite a lot of related business is, ultimately, impossible to disentangle from ship orders. In any case it looks as if shipbuilding will continue to be the essential determinant of Vosper's prosperity for many years to come. That may be no bad thing. Like most shipyards, Woolston is hardly an industrial engineer's dream: work would flow rather differently if he were to sit down and draw it on a blank piece of paper. Nevertheless, the equipment is impressive: steel is now sliced up by a huge laser-cutting machine, said to be the biggest in Europe, which is directly linked to a network of 30-odd CAD/CAM stations. There is an almost equally vast automatic welding machine for joining large sheets.
These investments - £7 million has gone on facilities in the past year or so - help explain why productivity (measured by weight of metal per man hour) has risen by over 50%, on average, since the last generation of steel ships. But there are other reasons, too; such as flexible working, and the fact that each job is presented so that the welder is normally looking down at it. The big question is whether the work is there. Alan Staff, commercial director, is in no doubt: 'The Middle East is booming. There are loads of opportunities.' The whole of southern Hampshire hopes that he is right, and that Vosper can grasp them.