VT pledges to press ahead with BAE shipyard merger

VT Group is pressing ahead with plans to merge its warship building activities with those of BAE Systems after the failure of the two companies to pull off a takeover of the rival naval business Babcock.

Paul Lester, VT's chief executive, denied the collapse of the Babcock bid had put the company on the back foot and said it would remain in a strong position to help create a single UK naval shipbuilder.

Speaking as VT reported a 33 per cent rise in pre-tax profits to £55.5m for last year, Mr Lester said he would wait a month or two for "the dust to settle" before renewing talks with rival warship builders.

One option would be a joint venture company bringing together VT's Portsmouth yard, BAE's Clydeside yards and Babcock's Rosyth facility in Scotland. Another possibility VT is looking at is the creation of a joint ship-repair and maintenance company along with Babcock and Devonport Management.

The Ministry of Defence is understood to be keen to see VT management run any unified naval company, given VT's success in overseas markets and its prominent position on the two big UK programmes to build Type 45 destroyers and two new aircraft carriers. "Our shipbuilding business punches above its weight. It is a very key business," Mr Lester said.

He said industry and the MoD were working towards a "target cost" of £3.5bn for the two carriers, a programme expected to get the final go-ahead early next year. The chances of the MoD ordering an extra two Type 45s on top of the six already being built were 50:50, he added.

Shipbuilding accounts for just 16 per cent of VT, with the overwhelming majority of turnover, orders and profits coming from support services. Many of these are defence-related but VT has also recently won school-building contracts and is experimenting with a move into waste disposal.

Mr Lester said there were £10bn worth of opportunities for the group over the medium term in shipbuilding and support services. The two big UK naval programmes will keep its Portsmouth yard busy for the next 10 years and will mean a 50 per cent rise in the manual workforce.