Exclusive interview: Mikael Makinen, president Rolls-Royce

When Rolls-Royce finds a buyer for its Marine division it will mark an evolutionary change for the industry, its president Mikael Makinen told Marine Propulsion’s Paul Gunton 

Mikael Makinen is used to change. His impressive CV includes senior roles at many big-name marine industry companies and he lends his expertise to organisations in his native Finland that encourage exporters and other entrepreneurs. So he is able to take an objective view of his current task: to find a buyer for Rolls-Royce Marine.

“I have been in this industry for many years [and] I see this as a natural part of its consolidation,” he said. “I actually see this as an evolution for the marine industry.”

Other parts of the industry have seen consolidation, he said, and now it has reached the technologies that Rolls-Royce Marine is associated with. The stakes are high but the industry is at a “very exciting” stage he said.

With the development of digital technologies, “everybody is looking at the marine industry in a totally new way,” said Mr Makinen. It is no longer an “old-fashioned, traditional, conservative industry” but has become “the industry of the future”.

An obvious question, then, is why does Rolls-Royce want to leave such a future, especially after making deep and painful reforms to its marine business over the past three years?

Before that question can be answered, it is important to reflect on Mr Makinen’s nearly four years at Rolls-Royce Marine and whether he has achieved what he planned when he joined in 2014. The simple answer is ‘No’, he said, when set against his hopes at that time. “The plan was to grow the business and to do the same in offshore as in other industries: to be a real big player and have a high market share.”

That was before the oil price collapsed. His ambition then changed to making the company less reliant on offshore work. “Unfortunately, we had to close 12 factories, get rid of a third of the employees. Nobody would be happy laying off over 2,000 people, but that is what I had to do.”

It led to a huge transformation in the company and in that he claims success. He has reduced Rolls-Royce Marine’s dependence on offshore from about 65-70% of its business down to around 50% and has ushered in “a huge shift in ship design, in the product range and everything. I think we have been quite successful in that,” he said.

However, Rolls-Royce already had other plans: its group board had set its strategy around three business areas instead of five and the restructuring work achieved in its marine division meant that this year was “an appropriate time to conduct a strategic review of commercial marine,” said Rolls-Royce chief executive Warren East when he announced the plans in January.

In future, he said, the group would be “tightly focused into three operating businesses, enabling us to act with much greater pace in meeting the vital power needs of our customers.” Those three business areas were defined as civil aerospace, defence and power systems. Its naval marine and nuclear submarines operations would move into its defence business and its civil nuclear operations would join its power systems business, with commercial marine being put up for sale.

The industry of the future

That is the context for Marine Propulsion’s question. Why get out of “the industry of the future” given the efforts made to turn the business round? The answer was simple: uncertainty. During months of discussions leading up to the January announcement, “there was a view that [if] we do not know when offshore is coming back, does it make any sense to have this break-even business?” Mr Makinen said.

He is philosophical about the decision. “I was very clear with the board. It is a pity, but on the other hand it is better that Marine has a good home.” The defining question he put to the board was whether it wanted to be a consolidator while the industry was going through great changes: “the board said no, we cannot afford to do that.”

With that decision made, “I said it is better to find another home for Marine. … If you do not want to be a consolidator then it is better to be consolidated and be part of a strong Marine group.” It is better not just for the division but also for its staff “to be part of an infrastructure or company that can grow the business,” he said.

That emphasis on finding a deal that is good for staff formed a theme during Marine Propulsion’s interview. The sale is being handled by the investment bank Lazard, which ensures an objective view of the process. Lazard will “flush out who are the serious buyers,” said Mr Makinen, which is “very important, especially when you are selling a marine business, because it is a small family.”

He views his position as being on the same side as the staff and he has devoted considerable time to keeping staff informed about the sale process; immediately after our interview in London, for example, he was due to hold a video conference with 65 staff in Brazil, with more than half of the time set aside for taking questions.

His timetable for the sale itself also takes account of staff concerns. By the end of this year he wants to be able to tell the market that there is an exclusive agreement with a contract being negotiated. “I am firm about this [because] this is a very stressful time for the employees,” he said.

Business as usual

Meanwhile, business continues as normal with research and development unaffected, he said. It has to, otherwise “the value of the company goes down because you have stopped developing.” Some programmes have been running for a few years and will continue to run for a few more years, across the business’s sale. “I tell the employees, ‘you are not working on the sales process, you are working in Rolls-Royce’,” said Mr Makinen.

An ice-class thruster at Rolls-Royce’s Rauma factory, where a major investment programme is nearing completion (credit: Rolls-Royce)

Two such projects that had an impact on the division’s bottom line were mentioned in Rolls-Royce’s annual report for 2017, published in March. One was its autonomous shipping programme and the other was its £44M (US$59M) continued investment in its Rauma thrusters factory in Finland, which will “create state-of-the-art production and test facilities”. This is “a major investment in one of our most important products,” the division’s head of communications Craig Taylor told Marine Propulsion. The work is on schedule to be completed this year, he said. 

Mr Makinen is confident about the future for Rolls-Royce Marine and sees its value as being worth more than cash. “Here is something that today costs only money”, he said, “but will have a huge and great future.”

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Buyers play chess with Rolls-Royce board

Who will buy Rolls-Royce Marine? That is not a simple question, said Rolls-Royce Marine president, Mikael Makinen, because its quest for a sale is not simply about finding a buyer.

As the market consolidates, he believes that any potential buyer will be assessing how Rolls-Royce Marine’s expertise would fit with its other activities. “It is almost like a chess game” he said, which explains why it takes such a long time. “There are a lot of people out there who are thinking ‘if we buy this, could we also [buy] that? Could we combine it with that? What should we do then?’ … I am very intrigued by this,” said Mr Makinen.

He is not involved in those discussions; the investment bank Lazard has been hired to advise on the sale. “We are feeding information to Lazard which is feeding information to a large number of companies,” he said.

The preferred solution is to sell the business as a single unit and not break it up, Mr Makinen said. “Because we have ship design and systems solutions, you get a better value if you sell the whole thing instead of bits and pieces.” Only if the sale “goes totally wrong – [for example] you do not find a buyer or the price range is totally wrong – [would] you have to look at other alternatives.”

Mr Makinen has some ideas of the type of company that might be checking whether the Rolls-Royce Marine king can move together with their own queens, bishops and rooks. They are likely to be already playing with pawns, such as efficiency, ship intelligence and automation to reduce manning requirements.  

Potential buyers will also be focused on electrification, he said, because once systems are electrified, it becomes easier to digitalise those systems’ processes and extract data from them. But the buyer need not have any marine heritage, he suggested. In that case, Rolls-Royce Marine would bring “a high degree of innovation, technical excellence and an understanding of design and systems.”

Whoever the eventual buyer is, they must share one important thing: Rolls-Royce’s values. One in four ships carry some Rolls-Royce equipment, Mr Makinen said, so “the logo will be there for as long as the ship sails [and the] Rolls-Royce Group cannot afford for it not to be taken care of in a professional way.”

Defining those values is difficult, he said: it will be more of a feeling once there is a shortlist of buyers. “Then you ask them the question: how are you going to take care of the Rolls-Royce brand? That has been very high on the board’s agenda; we should not destroy the Rolls-Royce name.”

 

 

 

 

 

 

 

Ship intelligence applications, such as this remote operations centre at Svitzer’s Copenhagen headquarters, are top priority for Rolls-Royce Marine (credit: Rolls-Royce)

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What’s included and what’s not for sale

Included in the Rolls-Royce Marine sale are its ship intelligence and design-related functions, its drive train technology, such as gear boxes and propulsion equipment, its manoeuvring and stabilising equipment and its deck machinery (see below).

When Rolls-Royce Marine president Mikael Makinen listed those components during Marine Propulsion’s interview, he put the ‘ship intelligence’ aspect of its work “at the very, very top” of his list. This has been a focus of his restructuring plans for the division so “you could almost call it a start-up”, he said, but it represents “the future of unmanned and automated ships and that is staying in marine”.

As for its naval work, 70% of that is related to its gas turbines, “so it is very clear that its home is where the gas turbine is”, which is in Rolls-Royce Defence. But there is another factor to consider: the biggest customers for its naval work are the UK and US navies, so if it stayed within the marine division, “you would restrict the possible buyers”, Mr Makinen explained. After the sale, the new business will continue to sell commercial equipment and ship designs into naval markets, he added.

Rolls-Royce’s MTU and Bergen engines were already part of Rolls-Royce Power Systems but are closely linked with its marine work. That relationship is expected to continue, Mr Makinen said, although it would depend on the buyer. For Bergen medium speed engines in particular, “we are the route to the marine market”, he said. “We have the network, we have the spare parts logistics, we have the design.”

One thing is definitely not for sale: the Rolls-Royce name. However, the company – in whatever form it takes – must still reflect Rolls-Royce values because it will continue to service Rolls-Royce equipment, Mr Makinen said.

Fixtures and fittings

Whoever buys Rolls-Royce Marine will get all this:

• Azimuthing thrusters (US & UUC, Azipull, Contaz, swing-up, retractable, Azipull carbon, permanent magnet)

• Tunnel thrusters (including permanent magnet)

• Kamewa Propellers (CPP, FPP, ABP) from Kristinehamn, where it has a hydrodynamic research centre

• Waterjets

• Deck machinery (a comprehensive range including winches and cranes for a number of ship types)

• Stabilising fins

• Steering gear and rudders

• Reduction gears  

• Promas (combined propeller and rudder)

• Hybrid shaft generator

• Automation and control (positioning and manoeuvring, control centres and bridge systems)

• Service workshop network in 30+ countries

• Ship design and systems capability (including the UT and NVC ship designs)

• Electrical equipment and systems, including energy storage solutions

• Replenishment/fuelling at sea

Waterjets represent just one of the many technologies included in the Rolls-Royce Marine sale

(credit: Rolls-Royce)