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Expansion Via Acquisition

In a remarkable series of moves, U.K. engineering groups have considerably increased their international market influence by absorbing prominent, North European- based players in key sectors of the marine business. The momentum started to build when the TI Group purchased the 70 percent balance of shares in the Dutch-based propeller and waterjet specialist Lips, and was carried forward by Vickers' agreement to buy the non-shipbuilding interests of Norway's similarly acquisitive Ulster organization. A new confidence in maritime-related activities was also expressed by Powell Duffryn's takeover of Kvaerner Ships Equipment.

Each transaction has been characterized by the complementarity of the acquired product range, by purchasers' investment in niche market potential, and by the added scope created for offering integrated equipment and engineering 'packages'.

With its marine propulsion systems know-how, Lips represents a good strategic fit for TI, having been combined with the latter's seals and bearings specialist John Crane Marine. The group's ability to better serve Asian shipbuilding, which commands some 70-75 percent of the market, has also been strengthened by TI's increased shareholding from 50 to nearly 90 percent in seals and bearings maker Japan Marine Technologies, with which Lips has a close working relationship. Nearly 98 percent of shareholders in both Vickers and the diversified manufacturer and technology firm Ulstein gave the green light for the transaction whereby the U.K. specialist engineering concern bought all the Norwegian group's operations bar the shipbuilding division.

Apart from motion control specialist Brown Brothers in Edinburgh and Michell Bearings on Tyneside, Vickers' marine market standing has hitherto been attributable to its ownership of Swedish-based Kamewa, as a leading designer and supplier of propellers, thrusters, wateijets and winches. The Norwegian deal adds considerably to its stake in the business, through Ulstein's position as a producer and technology driver in medium- speed diesels, reduction gears, deck machinery, all types of thrusters, controllable pitch propellers, steering gear, high-performance rudders, marine automation and ship design.

It also substantially extends Vickers' international dimension as a result of the energetic acquisition program pursued by Ulstein since flotation in the fall of 1997, a process which has included the purchase of U.S. firm Bird-Johnson, with its important position in the fixed pitch propeller and waterjet sectors.

As Vickers-Ulstein Marine, the new force in marine equipment, engineering and design technology, with a heightened capability for complete shipboard solutions, will be based at Ulsteinvik under Baard Mikkelsen, who had steered the Ulstein Group as its chief executive.

Similarly shaping a course for expansion in the marine business by taking over an established Scandinavian, Powell Duffryn purchased Kvaerner Ships Equipment for £34 million ($55 million) cash. By incorporating the previously Norwegian-owned group of companies within its subsidiary Hamworthy Marine, an influential new entity has been created, generating an annual turnover of around £120 million ($192 million) from both volume and high-technology products.

The move confirmed the publicly-quoted parent group's perception of Hamworthy Marine as a longterm, core business. Hamworthy has proved both commercially and technologically adept, and has shown a propensity for developing profitable niches and for acquiring complementary marine equipment firms. Its earlier purchases included Danish cargo pump maker Svanehoj and the U.K. firm Industramar, which it had earlier bought the rights to the Schilling rudder design. Registered as Hamworthy KSE, the latest Anglo- Scandinavian union draws together the Hamworthy business in shipboard waste treatment systems, highperformance rudders, deepwell cargo pumps, engine room pumps, and compressors, and KSE's comprehensive involvement in cargo access equipment, plus its stake in higher added value sectors such as gas cargo plants, inert gas systems, and VOC (volatile organic compound) recovery systems.

The combined portfolio has enhanced the possibilities for supplying equipment packages to the more capital- intensive fleet sectors such as cruise ships, ferries and specialized tankers. The link-up promises benefits as regards R&D and the service network, ever-more pressing considerations for modest-sized engineering companies today. To better manage the new structure and ensure responsiveness to the various generic fields, three divisions have been created, all of which report to group managing director Kelvyn Derrick, based in the U.K. at Poole.

Compressors, Schilling rudders, shipboard waste management systems and condition monitoring equipment are now under the ambit of the marine and offshore division, domiciled at Poole. From Gothenburg, the dry cargo handling division will oversee the design and supply of cargo access gear such as hatch covers, and ramps, doors and decks for RoRo vessels. Hamworthy KSE's liquid cargo handling business has twin locations, in Tranby, Norway, and Aalborg, Denmark, in deference to the influence of the KSE and Svanehoj legacy companies.

In an important new initiative, the liquid cargo division has recently supplied a Norwegian shuttle tanker with a complete plant assembly for the recovery, storage and compression of cargo-borne volatile organic compounds (VOC) for use as fuel in the vessel's propulsion machinery.

The Kvaerner group's dramatic April announcement of its decision to entirely withdraw from shipbuilding, denoting a complete turnabout in policy, cast uncertainty over the future of one of the remaining cornerstones of U.K. merchant shipbuilding, Kvaerner Govan.

At the time of writing, the Tyneside firm Swan Hunter had expressed interest in the Govan yard, giving rise to hopes that the Clyde's last remaining deepsea vessel shipbuilder would stay in business. The yard has achieved substantial productivity improvements over the years, has been extensively modernized, and has a high-technology track record in recent years in tonnage such as stainless steel chemtankers and sophisticated offshore vessels.

Govan is one of four European yards which Kvaerner has identified within its so-called "exit strategy" for immediate downscaling leading to ultimate closure if a buyer cannot be found. By contrast, most Kvaerner shipyards are the subject of plans for spin-off through an issue to shareholders, or through joint ventures with other shipbuilders whereby Kvaerner's investment would be reduced over time.

Commercial newbuilding construction now is on a very modest scale in the U.K., albeit with resilient and dependable names such as Appledore Shipbuilders in Devon, and Ferguson Shipbuilders at Port Glasgow continuing to make their mark in fields of specialized small-ship production.

A Scottish success story of recent years has been the re-emergence of the west coast yard Ailsa-Troon under the ownership of the Derbyshire cathodic engineering specialist Cathelco. It has pursued business across a broad front, with a measured return to newbuilding complementing activities in shiprepair, craft refurbishment and steel fabrication. Milestone events in 1998 included the delivery of a 131 ft. (40 m) fishing vessel, the largest trawler built in Britain for two decades, and a £20 million ($32 million) landing craft deal, its biggest contract for 25 years or more. It can build ships up to 374 ft. (114 m) length wholly under cover.

In southern England, FBM Marine continues to exert its influence not only in the construction of fast, lightweight vessels, but also in its prolific output of high-speed ferry designs, including those licensed to Pequot River Shipworks in the U.S. by and FBM Aboitiz in the Philippines. The company has been investigating possibilities for raising the scale of its shipbuilding operations beyond those permitted by its riverside yard on the Isle of Wight. In the meantime, profitable Harland and Wolff has made further advances in its transition from traditional shipbuilding to technology-intensive construction and conversion projects for the offshore and other sectors. Underscoring its new business orientation, the combined value of the two deepwater drillships ordered last year by Houston-based Global Marine constituted the largest.




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