Kongsberg’s dream came true with Rolls-Royce takeover

Paul Gunton

Paul Gunton · 13 June 2019


It was a year – nearly to the day – after I sat down for a detailed chat with Rolls-Royce Commercial Marine’s (RRCM) then-president Mikael Mäkinen that I was able to have a similar tête-à-tête during the Nor-Shipping exhibition last week with the man now responsible for his legacy: Egil Haugsdal, president of Kongsberg Marine, which completed its purchase of RRCM on 1 April.

For 15 years, Kongsberg had been eying-up RRCM, he told me. “I could dig up all the old papers describing the benefits of owning the company,” he said; a few years ago, there had even been some contact between them. But that was in the good days, before the offshore downturn that hit RRCM hard. In a more demanding market, “that created an opportunity,” Mr Haugsdal said, and his dream of owning RRCM became a reality.

Kongsberg president Egil Haugsdal finally secured Rolls-Royce Commercial Marine after 15 years of waiting (ShipInsight photo)

Kongsberg has faced its own problems in recent years. Like RRCM, it had had to lay off staff – more than 1,000 – as it adapted to the new market conditions. A key difference, however, was that while RRCM was making losses, Kongsberg continued to be profitable and exploring ways to grow its way towards a stable future.

Then RRCM came on the market, which Kongsberg already knew would be “a perfect fit for us” because there was very little overlap between their range of technologies. An illustration of their compatibility can be gauged from the response of Norway’s Competition Authority, which required just two business areas to be addressed before it approved the deal. Kongsberg had to offload its seismic vessel deck equipment company Evotec, which it sold to the Norwegian investment company Rome AS, and RRCM had to dispose of its DP systems business, snapped up by Thrustmaster in the US.

Apart from those, the two companies’ business interests were either complementary or have been combined to create a larger market share.

Mr Haugsdal’s ambition for Kongsberg is that it should be the world leader in all its technologies. It already has that position in high-end DP systems, he said – which supports the Competition Authority’s concern that adding RRCM’s DP business would be anti-competitive – but it was RRCM’s propulsion segment that was the most attractive part of the deal.

That now gives it the No 1 spot in that technology while adding the RRCM deck equipment business puts it in the same league in that sector, he said. “We are very strong in other areas” and, in the long term, “it is a clear strategy for us to take a leading position in autonomy and digitalisation,” he went on.

When I interviewed Mr Mäkinen, he predicted that, whoever bought RRCM, the impact would make an evolutionary change to the industry. It would not be just another takeover; it would change the industry fundamentally. I asked Mr Haugsdal what he thought of that prediction and he turned it around: the industry is changing, yes, but that is happening “with or without us” so the evolutionary development is in how companies are responding to that change.

“To be a global company in an industry that has had a downturn for at least four years … you need a certain size,” he told me. Reducing in size – as both RRCM and Kongsberg had done – results in less contact with the market but “by bringing these two companies together, we have a larger global footprint than each of us ever had.”

But it is not just size that matters; it is also scope. “Ships today are built of a number of different systems that are never really made to operate together,” he said, but a company that can offer technology “from bridge to propeller” will be able to “have an influence on the total design of the ship and its systems and will make the future ship more efficient,” he believes.

His remark reminded me of something Mr Mäkinen had said a year before. He had asked the Rolls-Royce board if they wanted the marine division to be a consolidator within the industry. It said ‘no’. With that decision was made, it was clear that it would be best if it was itself consolidated into a strong marine group that could grow the business. Like Kongsberg’s dream, his wish has come true.

Those growth plans are now being developed and they will not be without cost. Kongsberg has already announced that 260 staff out of its total workforce of about 7,400 will be shed by the end of this year as it turns round the loss-making business it has taken on.

Its target is to cut costs by Nkr500M (US$58M) per year, which will be achieved by factors such as combining facilities in locations where both companies have offices, cost savings from its greater purchasing power and, of course, the job cuts. Mr Haugsdal told me that it plans to have reached 40% of that target by the end of the year with the rest following during 2020.

Meanwhile, it has restructured its operations into seven divisions around various product types, with some divisions likely to need more attention than others as the company absorbs its big buy. The Propulsion and Engines division, for example, is “OK”, Mr Haugsdal said, when I asked if it was healthy.

The engines part of that is mostly related to Bergen Engines, which might seem odd, since that was not included in the sale. But Kongsberg has been granted an exclusive sales and service arrangement for Bergen Engines in the marine market, which effectively gives Rolls-Royce a “gate into the marine market,” he said. It will swing both ways: “they will be one of our gates into the naval market.”

One division, Deck Machinery and Motion Control, will need some attention however, “to be able to compete and make money in the existing market.” Another division covers Integrated Solutions and another, Sensors and Robotics. Ship design activities – which are only a small part of the company’s operations – have their own division “for the time being” and then there is an extensive Global Customer Support division, which can call on 2,000 people worldwide. The seventh division is for Global Sales and Marketing.

But I wanted to know about the future of RRCM’s futuristic thinking, for which its senior vice president for concepts and innovation Oskar Levander had been the figurehead. He has the same job title at Kongsberg and his work is included in the integrated systems division.

I asked if Kongsberg would continue to encourage such blue-sky imagination and was assured that it would, but that it would have to be aligned with the business’s main activities. “Autonomy is not going to be a huge business two or three years from now,” he said. “But the technology we develop on the road to autonomy can benefit the general market a lot earlier” than it might otherwise do.

Kongsberg paid £500M (US$635M) to buy RRCM. Was it worth it, I asked? “It was good value,” Mr Haugsdal said, although he acknowledged that the company’s stock had not gone up to reflect the investment. “But we will prove that this is a good investment,” he said. “It will be a good payback.”

But value is about more than price. Mr Mäkinen had told me that one in four ships carry some Rolls-Royce equipment, so whoever the eventual buyer is, must share Rolls-Royce’s values. Now part of an enlarged Kongsberg, that proportion of the fleet can only have increased and Mr Haugsdal echoed the same sentiment. “They had a name and a reputation and wanted a responsible company to own [RRCM].” He believes Kongsberg can rise to that challenge.

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