Paul Lester: Even if West Brom go down, his ship will still come in and the City will get a result

His football team may be battling to avoid the drop, VT Group's chief tells Clayton Hirst, but his company is reaching for the sky
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The Independent Online

Paul Lester is a driven man. The chief executive of shipbuilder and government services company VT Group is a West Bromwich Albion fanatic. The 55-year-old tries to attend all the club's home games and has only missed one match - when the "Baggies" moved a fixture to a Friday night, clashing with a pre-arranged dinner for VT board members and their wives.

Paul Lester is a driven man. The chief executive of shipbuilder and government services company VT Group is a West Bromwich Albion fanatic. The 55-year-old tries to attend all the club's home games and has only missed one match - when the "Baggies" moved a fixture to a Friday night, clashing with a pre-arranged dinner for VT board members and their wives.

"I didn't think it would go down too well if I missed that, so I taped the game and watched it when I arrived back at midnight."

As if to underline Lester's devotion, he lives in Poole, Dorset. So to watch his team play at their West Midlands home takes a 400-mile round trip.

Today Lester, who was brought up in Warwickshire, will watch West Brom play their final match of the season and quite possibly fall out of the Premier League. The match will have further significance for Lester because the opposition will be Portsmouth, the team supported by most workers in VT's naval base and shipyards on the South Coast.

Whatever the result, Lester will not have time to dwell on football tomorrow, because he will spend the day putting the finishing touches to the company's year-end results. And this should give him something to smile about even if his team lets him down: house broker ABN Amro is predicting a rise in pre-tax profits to £41m on revenues of £602m.

It will be an endorsement of the new course on which Lester put VT when he arrived three years ago. Formerly known as Vosper Thornycroft, the company is one of Britain's oldest warship builders. Today, though, under Lester's stewardship, shipbuilding only accounts for 17 per cent of VT's earnings, with most coming from government outsourcing contracts.

"A lot of effort has been put in to develop support services. The very reason for this was to offset the decline in shipbuilding," says Lester.

Most of VT's services work is in defence. Notably, it has a 10 per cent stake in AirTanker, the EADS-led consortium that has been selected to provide and service a fleet of air-to-air refuelling jets for the Royal Air Force, under a £13bn Private Finance Initiative contract.

Lester is now eyeing new opportunities in the education sector: "The biggest potential is in Building Schools for the Future - the refurbishment and new build of all secondary schools in the country. That is 240 schools a year - a massive programme. In the past this would have been pretty strong Jarvis territory. So its relative demise leaves a pretty good opportunity for a number of companies, including us."

Lester says that VT plans to bid for around 10 schools projects, each worth between £100m and £300m, over the next 10 years.

Perversely, VT is gearing up its support services side as Britain is going through one of its biggest shipbuilding booms for years. "It is a cyclical business," Lester explains. "If we get it right, there is a good 10-year-plus future for the business. The only thing we can guarantee is it will go down again."

Some in the City would like VT to get out of shipbuilding and focus on government services. Lester says: "It is not as easy as that because a lot of the support services work we do is to look after the ships we are building."

Instead, he is pinning his hopes on proposals to merge VT's shipbuilding interests with those of BAE Systems and Babcock International to create a single company - with the backing of the Ministry of Defence (MoD).

"A very elegant solution" is how Lester describes the potential deal but talks are still at an early stage. "Keeping all the parties heading in the same direction is quite a task." The MoD is of two minds, he says. "It sees the potential advantages - there is quite a lot of cost that could be taken out through the merger - but obviously it would lose competition. Industry wants to go down this route on the basis that we can establish long-term stability. But we have all got to make sure our own interests are sorted. We are not going to sign up to it unless there is a plus side and we can make more money out of it."

The main sticking point is expected to be the companies' stakes in the enlarged entity, dubbed ShipCo, in which the MoD wants no firm to own more than 49 per cent. By volume, BAE is the largest shipbuilder in the UK, but Lester points out that VT's yards are more profitable. "We have said we won't take less than a 40 per cent share in the company. We are not going to do anything to jeopardise our profits."

VT is in line for some of the construction work on the £3bn MoD project to build two aircraft carriers for the Royal Navy. And Lester believes that it could land 25 to 50 per cent of the business. But the project, which is being led by BAE and France's Thales, has been embroiled in delays, rows and fears that costs could spiral out of control. This follows a pattern of previous MoD defence-procurement projects highlighted in scathing National Audit Office reports.

Lester says that there are two reasons why so many projects have failed in the past. First, he believes, the procurement process is flawed. "If you have an outright competition to supply something to the government then bidders tend to offer the lowest possible price. The winning contractor then spends the life of the contract trying to get the price up," he says. "It is no different to when you get a quote for, say, an extension on your home. The cheapest builder will then spend all of his time trying to get the price up because he couldn't do the job at the price he quoted."

Second, Lester says, both the MoD and industry are sometimes blinded by technology and a desire to pack military hardware with the latest gizmos. "Inevitably, the kit doesn't always work as it is supposed to and this causes more delays."

His solutions to these problems are simple and he says that only now are signs emerging that the MoD and industry are waking up to them. "What's the answer? To have a more open relationship between the customer and the contractor. Work to provide a solution within a certain budget and reward industry if it beats that figure.

"And what's wrong with having a ship with today's technology and upgrading it every five years, rather than cramming new technology in which doesn't work properly?"

But these are issues for tomorrow. As Lester heads to West Brom for the crucial 3pm kick off, the only thing on his mind is the performance of 11 men on a football pitch. Defence procurement can wait for another day.

BIOGRAPHY

Born: September 1949

Education: Trent Polytechnic.

Career (1968): apprentice to commercial manager, Dowty Fuel Systems.

1980: general manager, Weston Instruments (UK).

1983: vice president, Weston Instruments (US).

1983: vice president, Engler Instruments (US).

1985: group general manager, Solatron Transducers.

1987: managing director, Dowty Defence and Air Systems.

1990: chief executive, Graseby.

1997: group managing director, Balfour Beatty.

2002: chief executive, VT.

Other posts:

1993-98: non-executive chairman, A&P Group.

1998-2002: non-executive director, VT.

2000-03: president, Engineering Employers' Federation.

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