Harland and Wolff Holdings plc

views updated

Harland and Wolff Holdings plc

Queens Island
Belfast BT3 9DU
Ireland
+ 44(1232)458456
Fax: +44(1232)458515

Private Company
Incorporated: 1861 as Edward James Harland &Company
Employees: 1,426 (1995)
Sales: £118.1 million
SICs: 3730 Ship and Boat Building and Repairing

Best known as the company that built the Titanic, Harland and Wolff Holdings plc has for more than 150 years built some of the largest and grandest vessels to ply the world’s waterways. Over the course of its history, the company has built merchant ships and luxury liners, warships and fighter planes, oil tankers and bulk cargo vessels. Privately held from its foundation in the mid-19th century until the mid-1920s, the firm suffered several “near-death experiences” in the 20th century before being nationalized by the British government in 1975. Under threat of closure in 1989, Harland and Wolff’s managers and employees joined forces with Norwegian ship owner Fred Olsen to buy the company in 1989. Though losses continued into the mid-1990s, the company, under the majority ownership and direction of Olsen, made a £3 million pretax profit in 1996.

Foundation in Mid-19th Century Belfast

The company is named for Edward J. Harland and Gustav W. Wolff, who founded the storied yard in 1858. Son of a doctor and inventor, Harland was educated at Edinburgh Academy and started a five-year apprenticeship in engineering in 1846 at the age of 14. Upon completing his indenture, he worked for several shipyards, rising quickly from draftsman to yard manager. After just four years managing the Robert Hickson & Company shipyard, he purchased the company for £5,000 and renamed it Edward James Harland & Company. The 27-year-old hired his personal assistant (the nephew of a family friend) as head draftsman. The yard was located on Queen’s Island, a manmade plot in the middle of Belfast’s River Lagan. Harland invited Wolff into the partnership in 1861 and the company name reflected that change by 1867.

Personal connections brought in the shipbuilder’s earliest contracts, but Harland’s own technical innovations led to rapid expansion in the late 19th century. The yard’s “coffin-style” cargo ships featured a square bottom and patented iron deck. To take advantage of burgeoning inter-oceanic trade and a tidal wave of immigration between Europe and America, Harland and Wolff formed a joint venture in transatlantic shipping in 1869. For its 25 percent stake, H&W built a steady stream of vessels for the Oceanic Steam Navigation Company’s passenger and cargo lines. With accommodations patterned after the finest hotels in Europe, the passenger ships were some of the largest and most luxurious vessels ever built. The partnership made for highly profitable and reliable work for H&W.

In 1875, Harland and Wolff invited several key managers to enter into their partnership. At the time of the company’s reincorporation that year, it had grown from one shipbuilding berth to six and its work force had expanded from 48 to more than 1,000. Though the firm endured a difficult period of successive losses in the late 1870s, the owners’ investments in steel making equipment and other plant upgrades prepared the shipyard well for an upturn in the 1880s. The business became so profitable that its founders gradually retired to political careers and withdrew their investment.

Leadership of the shipyard fell to William J. Pirrie, who had started out as an apprentice at H&W in 1868 and was among those invited to become a partner in the company in 1875. During his first decade at the helm, Pirrie catapulted H&W to the pinnacle of worldwide shipbuilding by devoting the yard to total excellence in plant and process with little regard for expense. Costs mattered little because the new leader negotiated commission contracts with longtime customers, who agreed to pay the shipyard a given percentage over its costs. The program was, in the words of company historians Michael Moss and John Hume, an “almost unbelievable success”: profits nearly tripled from £32,000 in 1885 to more than £91,000 in 1899.

Despite devastating fires, political disruptions, and strikes, Pirrie—who formally advanced to chairman after Edward Harland died in 1895—had by the turn of the century made H&W the world’s leading shipbuilder.

Pirrie Guides First Quarter of 20th Century

As chairman and later principal shareholder of H&W, Pirrie earned a reputation for making the best of difficult situations. The new century greeted him with a particularly troublesome dilemma. U.S. steel and railway mogul J.P. Morgan was in the midst of forming an international transportation cartel to monopolize shipping and railway transport. By 1901, Morgan had purchased one of H&W’s key commission customers, Atlantic Transport Company. Realizing the looming threat to his very successful strategy and seeing few alternatives, Pirrie opened secret negotiations with Morgan. By spring 1902, Pirrie had convinced four European shipping lines to create an intricate affiliation known as the International Mercantile Marine (IMM). In exchange for its $3.25 million (£615,000) investment in IMM, Harland and Wolff gained the exclusive contract to build the ships for member companies.

In 1907 J. Bruce Ismay, chairman of both IMM and one of its affiliates, the White Star Line, ordered three “super liners” from Harland and Wolff. Appropriately named Olympic, Titanic, and Gigantic, these passenger ships were intended to help White Star compete more effectively with the Cunard Line. The most infamous of these was the Titanic, a sumptuously appointed gargantuan with a length of nearly one-sixth of a mile. The “unsinkable” liner set out on its maiden voyage on April 2, 1912. Twelve days into the trip, the vessel struck an iceberg, tearing a 300-foot hole down one side. More than 1,500 of the Titanic’s 2,206 passengers, among them Pirrie’s nephew and H&W’s Managing Director Thomas Andrews, died when the ship sank early on the morning of April 15. It would go down as the worst disaster in maritime history. Ironically, the 703 survivors were rescued by a Cunard liner, the Carpathia. An inquiry into the tragedy by the British government absolved Harland and Wolff of all blame.

During World War I, H&W converted cargo ships to “dummy battleships” and troop transport vessels, reconditioned submarines, and built monitor ships. The company even diversified into aircraft manufacture in 1917. Pirrie’s personal contribution to the war effort included service as the nation’s Controller General of Merchant Shipbuilding.

IMM had proven a disastrous failure and was in receivership by 1915. H&W sold its interest in the combine—and with it the commission system—that year, and by the war’s end was gearing up to build replacements for the many vessels destroyed during the hostilities. The company also expanded into construction of oil tankers during this period. Orders slowed in the 1920s, but Pirrie masked the shipyard’s mounting losses with intricate financial accounting. The chairman had, in fact, used these techniques with success for many years, taking loss-making projects to gain or maintain more profitable business and buttressing the firm with debt in the meantime. Growing ever more dictatorial, the septuagenarian hid H&W’s mounting liabilities from his management team, instead announcing growing profits nearly every year.

When Pirrie died in June 1924, he left no successor. More significant, he left a labyrinthine accounting system that masked £613,500 in bank debt at the end of the year. He was succeeded by Baron Kylsant, chairman of the Royal Mail Group, which, unbeknownst even to Pirrie’s wife, had owned a controlling interest in Harland and Wolff for five years.

World War II Pulls Company Out of Insolvency

In an effort to raise capital Kylsant took the company public with an initial offering of £4 million. But with poor operating results predominating the British shipbuilding industry, only 12 percent of the shares were sold. Kylsant reduced the work force from 40,548 in 1925 to barely more than 21,000 by 1930 and pushed through salary and wage cuts, but shaving expenses at a company accustomed to making the best ships at any cost proved difficult. Inexplicably, Kylsant continued to build ships at losses sometimes totaling ten percent of the cost. Net profit declined from a dubiously figured £410,000 in 1924 to a loss of £158,000 in 1927, recovering somewhat to a profit of £106,000 by 1930. Bank debt grew to more than £2 million during the period, and government loans outstanding totaled an additional £1.2 million. The spiraling global depression only exacerbated H&W’s existing problems.

Kylsant resigned in 1930 (he would later serve a year in jail for “issuing a false prospectus”) and Frederick Rebbeck was appointed chairman. With orders dropping to one in 1931, the new chairman slashed the work force down to barely 7,000 in 1932, cutting the wages and salaries of those who remained. For its part, the government agreed to postpone collection on its debt. Nevertheless, by the end of 1932 H&W’s assets of £4.2 million were far outstripped by its £7.7 million in debt. With unemployment in Northern Ireland exceeding 25 percent, the company diversified into manufacture of diesel locomotives, seaplanes, and airplanes mid-decade in an effort to keep plant and people occupied. Although H&W continued to launch more tonnage than any shipyard in the United Kingdom, it was merely the top of a sorry heap.

Company Perspectives:

’ ’For a company such as Harland and Wolff, which relies entirely on customers from beyond Northern Ireland for its very existence, our future success will also depend on factors beyond our immediate control. We are prepared to seek to bring real, lasting employment opportunities to Northern Ireland and, in so doing, further advance the political impetus for a lasting peace.”

Even though the shipyard made small profits in 1935 and 1936, in 1937 its creditors at the Midland Bank and the Bank of Ireland joined forces with government representatives to enforce a drastic refinancing. Shareholders’ equity was slashed from £12.1 million to less than £1.8 million, and a new share issue placed majority ownership with the banks and the government. Representatives of both those groups took positions as trustees of the company and set out to return H&W to profitability and to reduce its mountainous debt, but with little new work to be found, it was a daunting proposition. They liquidated more than £1.1 million in assets and investments in 1938, but the company’s liabilities remained high, at more than £7.7 million.

Beginning in the late summer of 1938, rearmament for World War II rescued Harland and Wolff from its creditors, who sold their stake in the firm to a newly formed holding company. The shipbuilder added nearly 8,200 employees from 1938 to 1939 to accommodate a deluge of orders for lookout towers and bomb shelters. At the peak of the war, H&W employed more than 51,000 in the manufacture of gunmounts, aircraft, munitions, and tanks as well as aircraft carriers and warships. A sesquicentennial history of the corporation noted that “the company had fully justified the efforts to save it.” Perhaps more significant for the continued existence of H&W, the company emerged from the Second World War free of bank debt. After-tax profits had mounted steadily from £394,000 in 1939 to more than £546,000 in 1945.

Fleeting Prosperity in Postwar Era

Alhough the company continued to function into the latter years of the 20th century, the late 1940s and early 1950s were, in many respects, a last hurrah for Harland and Wolff. The firm rebuilt war-damaged plants to state-of-the-art specifications, and it could rest easy in the knowledge that it could expect little competition from global rivals in Japan and Germany—for the time being, at least. A postwar boom in liner retrofits as well as new merchant ships helped boost after-tax profits to more than £619,000 by 1949. The company also diversified into oil tankers and whalers during this period.

But while after-tax profits rose to more than £1.1 million in the mid-1950s, this financial success masked a shift in the worldwide shipbuilding industry that would prove devastating. Under pressure from low-cost producers in Japan, Sweden, Germany, and Korea, the United Kingdom’s stake in the world market for merchant ships eroded rapidly in the 1950s and 1960s, declining from more than 40 percent to about six percent by 1970. As one of the industry’s least efficient producers, H&W lost a significant amount of business. Between 1953 and 1962, the company built only 25 big ships. Its balance sheet evinced the damage; profits slid to less than £150,000 in 1961.

After three largely harrowing decades of leading H&W, Francis Rebbeck retired in 1962. He was succeeded as chairman by J.S. Bailie and as managing director by his son, Dr. Denis Rebbeck. The new management team worked quickly to reduce overheads by shutting down its in-house foundry and most of its shipbuilding berths, reducing the work force (in part by instituting a mandatory retirement age of 65) to barely 9,000 in 1968, and even shuttering entire shipyards.

Plants that remained in operation effected several milestones during this otherwise trying period. In 1967, H&W launched the United Kingdom’s first very large crude carrier (VLCC), which also took the title of Europe’s largest-ever vessel. The company’s woodworking department, which had until 1965 made interiors for passenger ships, was converted to the manufacture of prefabricated housing. The division made nearly 700 homes before closing in 1969.

But in spite of these efforts, annual losses began to mount in the mid-1960s, totaling a cumulative £16.5 million from 1964 to 1970. In fact, 1963’s meager profit of £145,000 would be the company’s last year in the black for more than a decade.

A 20-Year Fight for Survival

From the mid-1960s through the late 1980s, Harland and Wolff endured virtually in spite of itself, incurring mounting losses and colossal debt. Several factors seemed to conspire against the company: high internal costs, civil unrest, a lack of skilled labor, a ’ ’revolving door” in the chief executive office, and cutthroat competition. From 1965 to 1985, ten chairmen would attempt to steer the company through these treacherous waters.

In 1966, J.S. Bailie resigned and was briefly succeeded by Denis Rebbeck, who would serve as a managing director through the end of the decade. In exchange for a £1.5 million guaranteed loan that year, the government effectively assumed control of the company, appointing John S. Mallabar as chairman and financial controller. Mallabar oversaw the construction of a “super dock” to accommodate continued production of VLCCs, improved the company’s accounting methods, and prepared H&W for a specialization in large tankers and bulk carriers. Pronouncing that he had “disposed of the matters which called for his personal attention,” Mallabar resigned the chairmanship in 1970. J.R. Edwards advanced to the helm for a brief period before resigning that December. Managing Director Alan Watt assumed the role of interim chairman until 1971, when the government brought in Iver Hoppe, a Dane, to replace Watt in both roles.

In the meantime, the ascent of the Conservative party brought something of a change in attitude toward H&W. The Heath administration announced that it was “not the Government’s intention to continue to support British shipbuilding” and branded the company a “lame duck.” Paradoxically, the government was also fully aware that closure of one of Belfast’s most important employers could prove disastrous during this period of intense rioting, strikes, and violence known as the “troubles.” Although successive administrations would attempt to limit H&W’s losses, the shipbuilder recorded only one year of profitability from 1971 to 1985.

Ironically, H&W was regarded by many in the industry as the best equipped shipbuilding yard in the world, but high wages and low worker productivity hamstrung its potential for profitability. Having appointed key leaders since the late 1960s and granted the company millions in debt, the British government purchased a controlling stake in the company in 1971. Complete government ownership was effected in 1975, with the stated objective of protecting the already heavy investment of public funds from takeover by a private company.

But nationalization did nothing to improve Harland and Wolff’s bottom line. Hoppe was forced to resign when the shipbuilder’s net worth reached a negative £32 million in 1974. A painfully typical government-sponsored bureaucracy consumed more than a year reviewing outside applications for a successor before promoting Production Manager Ronald Punt to managing director. At the same time, the administration pursued the paradoxical policy of seeking to increase productivity through investment in plant while boosting employment by 4,000. Despite these initiatives, H&W’s work force had declined from more than 9,000 in 1971 to 5,100 in 1985. Ironically, throughout this period, the firm continued to build record-breaking vessels, accounting for nearly one-third of total U.K. output.

Parker Leads Privatization in the Late 1980s

After Punt retired in 1982, the government appointed John Parker to the chief executive office. The new leader guided a diversification into a broader variety of defense, cargo, and petroleum ships. One of the company’s most exciting new developments was the launch of a line of Single Oil Well Production System (SWOPS) ships. These vessels not only processed oil en route from oil fields to their destination, but also used the gas byproduct of the processing to fuel the ship’s own engines. A company history dubbed it “the world’s most sophisticated merchant ship.” Furthermore, H&W delivered Europe’s largest bulk carrier, the British Steel, in 1984. Parker also reduced the shipbuilder’s work force to less than 4,000 by the end of 1988. Despite its diminished roster, H&W remained Northern Ireland’s second largest industrial employer.

Still, the company’s annual losses continued to grow, reaching a colossal £75 million in fiscal 1986–1987. Having poured more than £1 billion into the company from 1966 to 1988, the government announced its intention to sell the firm. In 1989, a consortium led by John Parker and Norwegian ship owner Fred Olsen and including management and employees purchased Harland and Wolff. The government retained £400 million in existing debt and started the new owners off with nearly £160 million in new loans. Fred Olsen’s shipping companies purchased a majority £12 million stake in the reorganized firm, and the remainder was owned by management, employees, and outside investors. Olsen also supported his new affiliate with an order for $150 million in new oil tankers.

H&W was reorganized as a holding company with subsidiaries organized by function. In the early 1990s, the firm manufactured oil rigs and tankers as well as marine furnishings and paint, operated repair and design subsidiaries, and participated in the management of residential and commercial redevelopment of Queen’s Island properties. By 1991, H&W showed signs that its efforts to improve productivity and reduce costs had begun to pay off, when it received its first order from outside the Olsen group. Under the guidance of Chief Executive Per Nielsen by 1996, revenues mounted to £118.1 million and the company reported what must have been its first profit in years, if not decades, a pretax surplus of £3 million. While clearly proud of this achievement, Olsen and Nielsen noted that “the level of profitability is still not satisfactory when compared to our turnover.”

Principal Subsidiaries

Harland and Wolff Shipbuilding and Heavy Industries Limited; Harland and Wolff Protective Coatings Limited; Harland and Wolff Outfit Service Limited; Harland and Wolff Ship Repair and Marine Services Limited; Harland and Wolff Technical Services Limited; Harland Ocean Transport Limited; Harland Wolff Properties Limited; Harland and Wolff Employee Market Making Trust; Harland and Wolff Employee Pension Trustee Limited.