24 Feb 2009
Speech to the Society of Maritime Industries Conference
George Hotel, Edinburgh, 12 February 2009.
Good afternoon ladies and gentlemen.
It's great to be back here with the SMI, catching up with old acquaintances, meeting new colleagues and taking time out to discuss the future of the Maritime Industry and the direction we should be heading.
Those of you that studied the conference flyer will have noticed that I'm supposed to speak on exports. And I will, I promise.
But that conversation only makes sense within the context of a broader discussion about prospects, opportunities and challenges facing our sector. So over the next twenty minutes or so I want to talk about those, the way that I see BVT facing them, and, particularly, the importance of the relationships and partnerships - with our suppliers, with our colleagues in the maritime industry and above all with our customers - that we are committed to placing at the heart of our strategy.
BVT progress: cementing the partnership
Fourteen months is a relatively short time, certainly in the context of naval shipbuilding and defence procurement. But for me, it feels like a lifetime. If you have a good memory, you will recall that when I spoke at the last conference, it was shortly after my appointment as Chief Executive designate for BVT Surface Fleet.
What an interesting journey I've been on since then.
After many trials and tribulations, BVT was eventually formed on 1st of July 2008. On the 3rd of July we received the production contract for the new aircraft carriers. As I pointed out to our chairman, that was quite an impressive order intake for our first week of trading.
The reality of course was that it was the culmination of years of hard work across the MoD and Industry to get this important programme on contract. That effort is now being mirrored in the work that is being jointly undertaken with Andrew Tyler's team to turn the Heads of Terms that enabled the Joint Venture to be formed into a full-blown terms of business and partnering agreement.
The issues are numerous and complex, but the idea at the heart of this is simple.
On the one hand, BVT is committed to delivering significant cost reduction, through a combination of synergy benefits, transformation initiatives and longer term restructuring to suit the pattern of future demand.
For its part, MoD has committed to provide a degree of industrial stability and minimum throughput necessary to maintain those sovereign capabilities.
We are working hard to get to a contractable deal, which will provide the bedrock and foundation for all that we seek to do with the Ministry over the coming fifteen years. We are resolutely focused on having it in place by the summer.
Transformation: in partnership with our customers and suppliers
Our joint venture was formed to respond to the challenge set out in the Defence Industrial Strategy. Its aim is fundamentally to change the game: bringing partnering, the alignment of objectives, long term sustainability and the maintenance of those sovereign capabilities the nation wishes to preserve very much to the fore. And in so doing, we hope that it will ensure the future health and in time enable the growth of our company, and indeed the industry.
Ladies and Gentleman, it is not an understatement to say that what we are jointly engaged in is nothing short of the transformation of the warship industry.
My vision for BVT is for it to set the global standard in excellence as a trusted partner and innovative through life naval ship company. The strategic objectives that underpin this include setting the conditions for sustaining a profitable UK business into the long term; migrating towards a truly through life business model; and developing overseas growth options.
To deliver this, there are 5 key things we must do:
1. Integrate the business effectively, so that we forge one company, and preserve the best of all its constituent pasts, without dropping the ball on our existing commitments. This has been the main priority for the management team over the early months. We have made good progress in bringing the back office and overhead functions together, driving out 20% aggregate savings in the process. My focus now is on tackling the delivery end of the business. Some of you will have noticed that an early step in this process was to bring the shipbuilding capabilities in Glasgow and Portsmouth under a single management team, so that we can really start to leverage the best of both.
2. Building on this, optimise, lean and invest in our operations and facilities to ensure that they are fit for purpose in today's world. I want us to be world class, in fact as well as aspiration
3. Develop, sustain and nurture the closer relationships with our supply chain that will be so vital to delivering cost effective through life capability to our customers.
4. Build, strengthen and protect our competitive advantage, focusing on the innovation that will provide that capability more affordably. This will mean deepening our concept, design and engineering competences, a theme I'll return to later.
5. But perhaps above all, we need to align ourselves more closely to the needs of the customers we serve. And that means embracing wholeheartedly the culture of partnership with both them and our industrial colleagues.
These words are not uttered cheaply. For they are backed up by a solid programme of the transformational projects needed to give them life. Our key initial transformational projects include SSSP, our Supply Chain initiative and the work being done on a 'Pan-Portsmouth' basis.
Under SSSP, we aim to transform surface ship support Programme (SSSP). Taking over responsibility for the support of Her Majesty's fleet is a huge challenge; and is also a grave responsibility. But it is one that I am committed to working with the MOD, Royal Navy and our industrial partners to deliver.
Our Supply Chain Initiative, being driven by my Operations and Supply Chain Director Mark Cooper, is initially focused on our own supply chain activities, in shipbuilding and support. In the medium term, recognising that transformation is a two-sided process, we see scope for helping the MOD to develop its own equipment management processes.
Finally, we are aligning our operations on the Portsmouth site. Bringing the shipbuilding and ship support operations into the same business allows us to strip out duplication. Delivered via a series of mini-projects rather than in one big bang, this is being constructed very much as a joint project, with our people working closely with those of the Naval Base Commander and DE&S to deliver a better future. As such, it builds on the close and productive relationships built up over many years by what was FSL.
Taken together, and with a rolling programme of ideas in the pipeline, this transformation will save the taxpayer hundreds of millions of pounds over the fifteen years of the TOBA. They have to, if we are to sustain a viable and vibrant industry and meet our obligations to our customers. I am confident that they will.
Programmes: facing the challenges together, embracing the opportunities together
There has, I hope you will have noticed, been a theme running through all that I have said so far: the need, and my commitment, to work in partnership with our customers, suppliers and other stakeholders. Nowhere is this truer than in the delivery of our current programmes. They are the backdrop to this transformation and of course ultimately the means by which it will be affected and its success measured.
Most notable, of course, is Type 45, the world's most advanced and sophisticated vessel of its type. I would like to pay tribute to Angus Holt and everyone on the Type 45 team for getting the programme to where it is today. In recent months we have had some fantastic publicity, with the launch of the fourth ship, sea trials on the second, hand-over of the first of class, HMS Daring and just two weeks ago we saw her grand entrance to her new home at Portsmouth.
This really is a massive feat of engineering and all those involved, from across the industrial landscape, should be rightly proud of their achievement. Most encouraging to me, as we look to the future, is the close working that Angus has been able to cultivate with the customer community. There are some tremendous examples of joint working at all levels, with RN and DE&S personnel working hand in glove to deliver the programme.
We have a similar opportunity on CVF. The twists and turns that the CVF programme has been through, in the ten years or so since it was announced in the Strategic Defence Review, are like no other. But while the talking will never quite come to an end with a programme of this scale, the time for action is very much upon us. As the industrial beating heart of the Aircraft Carrier Alliance, BVT is working hard to deliver the programme in concert with our industrial partners and the MOD. We are making great progress: the build strategy is in good shape; contracts for components and sub-systems are well-advanced; and I'm delighted that Archie's people at Appledore have already started the work that will bring these massive ships into being.
There will undoubtedly be issues along the way. But I am confident that the structure we now have in place under Geoff Searle's leadership means that we are set fair to make CVF a success. And at the heart of this - as we demonstrated by working together to address MOD affordability concerns before Christmas - is a mature, aligned alliance relationship, forged it has to be said in a fair amount of hard, if fair discussion along the way. Maintaining, nourishing and deepening this partnership will lie at the heart of BVT's approach going forward.
And all of this is true too of the Future Surface Combatant. FSC represents the base level of post-CVF domestic demand for BVT, and by extension the industry as a whole. My commitment - to the Navy, the taxpayer and my shareholders - is to ensure that we deliver FSC in a truly transformative way. Yes, we need to provide our Senior Service with a weapons system capable of meeting its demanding operational requirements into the middle of this century. But we also need to provide them with a vessel that is operationally flexible and adaptable, for the missions it undertakes will change over time. And we need to do so within the bounds of affordability. But we also want to deliver a class of ships that is as supportable as possible.
And our aspirations both to sustain core capability and ultimately to secure growth through exports and overseas partnerships require that it is exportable in a way that previous generations of RN ships have not been.
As you will have heard from Brian yesterday, we are working closely with the MOD and the Naval Design Partnership to progress initial FSC concept design work. And we are working to develop the business case to take the project through initial gate this year. We anticipate that this joint approach will take literally years out of the programme and many millions out of the price. As there are no longer any impediments to sharing information, it also allows MoD and Industry to firm up on the budget and programme assumptions much earlier.
Interestingly, what this has done is to bring into sharp focus the affordability challenge on FSC, arguably years earlier than it would have done using traditional competitive procurement methods. It is also allowing us to discuss quite openly the merits of different design solutions and other options, such as export friendly variants. And it is focusing us on what it would take in terms of facilities, processes and people to deliver a step change improvement in our ability cost-effectively to construct C1, C2 and C3 - the frigates, corvettes and OPVs that will form the backbone of the Royal Navy into the coming century.
Finally, our early engagement with all the Defence Lines of Development owners through our participation in the programme board has allowed real long term Through Life Capability Management planning which should realise improved capability as well as taking cost and risk out of the FSC programme.
Looking to the future: leveraging existing partnerships, building new ones
In these stricken economic times, ladies and gentlemen, we in this industry are fortunate to face what is both a formidable challenge and an immense opportunity. Together with the still-planned recapitalisation of the Royal Fleet Auxiliary through the MARS programme, it is a bigger forward workload than many of us have ever dared to imagine.
We have an exciting opportunity. And at BVT we are determined not to squander it. For as I have already suggested, FSC represents the base level of dependable domestic demand post CVF: recapitalisation of the Fleet cannot continue forever. This is not a problem today. But it is a problem we need to be thinking about today.
One potential response to that would be to accept its consequences and the inevitable impact on the size and shape of our business. And under the TOBA, it is true that we will have a commitment to ensure that the overheads flowing to the MOD are consistent with its level of demand. Indeed the TOBA is fundamental to allowing us to plan together with the government to manage the consequences of its downshift in demand. We will be working closely with our customer to ensure that the workload across the various programmes is coordinated so that we maintain the key industrial capabilities needed in the future.
That isn't something that we in industry and the MoD together have had the opportunity to do before. But the evidence of our joint discussions over the management in the recent Equipment Examination and current planning round of the MOD's affordability issues is that we can work together to get an acceptable outcome. The MoD is now talking with us, listening to what we have to say, and is starting to take industrial factors into account when reaching its decisions. In other words, you might say that the Defence Industrial Strategy is starting to work.
In parallel though, we need to ensure that we use the times of plenty to prepare for the uncertainties of the future. Put simply, we're going to use the time when the sun is shining not only to fix the roof but also to extend the kitchen, convert the garage and add a storey to the house.
That means investing in innovative new concepts and designs and the research and technology required to make them happen. It means developing our business models, particularly as we seek to make a reality of through life capability management and the output and efficiency improvements it will deliver. We are looking at how we might combine our approach to through life support and innovative approaches to the funding of new ship design and construction and join together of domestic and export requirements. You can expect to see and hear more of this as our strategy develops.
It also means ensuring that we have the design, technological and systems engineering backbone, effectively brigaded and organised, to deliver real value. My newly appointed Engineering Director, Kevin Mcleod, has this very much as the top of his personal agenda.
What we have in mind is to the re-engineering of our approach to innovation, design and problem solving. And I can assure you that ensuring that we are as closely attuned to our customers problems, and approach them with a spirit of shared endeavour, will run like a golden thread through our approach.
And this, ladies and gentlemen, are where exports, or more accurately, our approach to overseas business comes in. The legacy businesses have had past success in export markets, and today we have contracts with Oman and Trinidad and Tobago and not forgetting Greece, where our technology transfer programme is delivering enduring success. I am keen to capitalise and build on this: for the outlook for growth otherwise looks bleak.
I am realistic that exporting warships can be a cut-throat business. We face strong overseas competitors. Budgets are tight. Increasingly, countries are looking to sustain or build indigenous capability. We will continue to prosecute traditional export campaigns on an opportunity basis, in partnership with Her Majesty's Government, where we judge that there is a good probability of success.
But we are also looking at how we might expand our repertoire of shots and the range of clubs at our disposal. Just as in the UK market, building effective alliances and relationships will be at the heart of this. We are increasingly looking towards more enduring partnering opportunities in countries that are receptive to this arrangement. This could involve relationships based on the export of UK-generated designs, the application of our management expertise to overseas build or the provision of partnered support. An early example of this type of arrangement is the memorandum of understanding that we signed with Abu Dhabi Ship Building, to establish a regional centre of excellence for ship repair. Those of you that keep a watch on our activities in international markets will be aware that we are evaluating several other business opportunities in other parts of the world.
Conclusion
In conclusion, Ladies and Gentlemen, the formation of BVT affords us a tremendous opportunity to transform the warship industry and to align our interests with that of our customer. I've talked a lot about partnering and the need to work more closely together to deliver win-win outcomes. I'm really encouraged by the progress we have made and the commitment I see from all quarters of the MoD: the frontline, DE&S, the ECC and also what is often referred to as the Deep Centre.
I need to be clear that the partnership will not be a bed of roses: all good marriages have space for differences of perspective, robust discussion and the occasional falling out. As Bob is never shy of telling me, the Love will be tough.
And there will be challenges. The biggest threat facing all of us in Defence, especially in times of economic adversity, is the declining defence budget and other Government spending priorities. Reduced defence spending hits industry just as hard as it hits MoD. In the current economic climate I'm not sure things are going to get better.
It is sometimes tempting for our collective frustration at this state of affairs to boil over into criticism, infighting and introspection. But we need to accept that, whatever our views of the merits of the case, Defence is unlikely given the wider economic, fiscal and political challenges to see an increase in spending. And given what I said earlier, given the level of today's order book, it is hardly surprising that others may scoff at our concerns for tomorrow.
My commitment is that BVT under my leadership will be seen as part of the solution rather than part of the problem. So rather than standing idly by or carping from the sidelines at the MOD's and RN's financial problems, we will ensure that we pass the true test of any partnership: that of staying the course through the difficult times as well as the good. We will work on the basis that common ground is there to be found; that solutions are what we seek not problems; and that we are all in this together, and need to work together - with the RN and with the wider MOD - to secure the resources required. This will, I suspect, become increasingly an issue over the coming years as we contemplate the post-election environment and the likelihood of a Defence Review.
My parting challenge, therefore, is this. As we leave this conference hall and reflect on the past couple of days, how we can work together in partnership over the coming months both to deliver the current programme and secure the future of our industry? And what are you personally going to do to affect those objectives?
