Auditors register 'significant uncertainty' on Ferguson Marine future

It has led to calls for assurances over the shipyard's future from those representing workers at the yard.

The Audit Scotland alert came after it was told the Scottish Government has confirmed continued support to Ferguson Marine (Port Glasgow) for at least a period of 12 months.

But it said: "There is risk and uncertainty around the future financial sustainability of FMPG with no contracted work beyond the completion of [the ferries].

The public spending auditors said: "Management recognises investment is required to secure future work as well as delivering the efficiencies to develop a sustainable operating model."

It said that the nationalised shipyard firm's management has highlighted the uncertainty which surrounds "future income and cash flows" beyond the contracted sums for the completion of the ferries.

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Lifeline ferries Glen Sannox and Glen Rosa were due online in the first half of 2018 when Ferguson Marine was under the control of tycoon Jim McColl, with both now due to serve Arran but they are over five years late. The last estimates suggest the costs of delivery could more than quadrupled from the original £97m cost.

Ferguson Marine was taken over by the Scottish Government four years ago after its financial collapse under the control of tycoon businessman Mr McColl as a row erupted over long delays and mounting costs over the delivery of the vessels.

Audit Scotland said: "FMPG has developed a five-year business plan which was approved by the board in June 2023 and submitted to Scottish Ministers. The business plan has assessed the potential markets where FMPG is best placed to compete effectively. FMPG recognises that to be commercially viable it must secure a guaranteed stream of work over several years.

"To achieve this, requires investment, efficient working practices and ensuring it has an appropriately skilled and sized workforce. FMPG needs to continue to engage with Scottish Government to achieve the outcomes set out in the five-year business plan."

An analysis of Ferguson Marine's 2022/23 financial statements from the public spending auditors concluded: "We do highlight a material risk and uncertainty over the going concern. This references the risks of a material uncertainty highlighted by management... over FMPG’s ability to continue as a going concern, for at least 12 months from the date of signing the accounts."

The public spending regulator said FMPG and the Scottish Government "must continue to work together to agree the future plans for FMPG as an organisation and to provide the clarity required to support a going concern status".

It said that a five-year business plan submitted to ministers assessed the potential market where FMPG was best placed to compete effectively.

The FMPG board has said that it is felt that for the shipyard to improve its efficiency and to be competitive in the broader market, it must secure a pipeline of repeatable work over several years.

It highlighted two opportunities - the 'loch class' project and the development of work in support of the warship programme with BAE Systems.

It was recognised by the board as "strategically important for Ferguson Marine" prior to any other consideration of more complex, larger vessels in the future.

The vital contract work from BAE Systems - which is delivering City Class Type 26 frigates on the Clyde and trumpeted as "signalling a new dawn" at the yard was valued at just £2m.

But management has said that it recognises that investment is required in shipyard facilities and developing an "appropriate resource model" to be commercially competitive.

The Audit Scotland analysis said: "While the letter of support demonstrates the Scottish Government’s continued support of FMPG, guaranteed funding is limited to the amounts formally confirmed as part of the budget settlement in funding [the ferries].

It goes on: "There remains a significant degree of uncertainty over the future of FMPG.

"Without the required investment to facilitate the transformation of the shipyard, FMPG will find it challenging to secure future commercial work. FMPG must work with the Scottish Government to provide clarity on the future options available."

Wellbeing economy secretary Neil Gray told MSPs on Tuesday that it has so far been unable to agree to put new investment into the shipyard firm to support a business plan that takes it beyond just the delivery of the much-delayed lifeline ferries.

He said a due diligence over an initial capital request over securing a future for the yard through the new business plan had so far failed.

He said: "Our priorities are to preserve the skilled jobs and secure a sustainable future for the shipyard.

"Earlier this year we received a business plan and accompanying requests for investment from the yard, and we're currently working with them to refine those plans and try to put together a proposal that will provide the kind of future we all want to see.

"Any such request must meet subsidy control rules and needs to demonstrate value for money and be open to scrutiny. Our independent due diligence on the initial capital request concluded with the initial business case would not meet the commercial market operator test, a key legal requirement if we are to demonstrate compliance with the subsidy control regime, and therefore, we continue to examine options that would be compliant."

He added: "The markets in which Ferguson Marine operate continue to change and indeed a key component of the initial case for investment was contingent on winning a specific pipeline of work that FMPG board and management have recently concluded should not be pursued at this time.

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"Both the yard and ourselves recognize that it is vital that any investment support a business plan that reflects evolving circumstances, is genuinely deliverable and meets our legal requirements and subsidy control.

"So we will leave no stone unturned in finding a way forward and we'll consider all options for securing a future based on a promising order book.

"That will be done at pace and I expect to report back and progress as soon as possible. I understand that this may be unsettling for the workforce, but it is important we get this right. and I hope that I'm leaving no-one in any doubt about this government's commitment to retaining shipbuilding on the Clyde and providing future opportunities for the new and indeed future workforce in the local community."

Nationalised Ferguson Marine previously responded to concerns over its status as a going concern by insisting there was a strong future for the business.

GMB Scotland, the biggest union at Ferguson Marine, said Neil Gray’s statement had done little to reassure workers at the yard.

Gary Cook, senior organiser in manufacturing, said the minister needed to provide more commitment to the yard.

“Our members deserve urgent assurance and, more importantly, detailed investment plans to ensure the yard is competitive and secure a pipeline of future work," he said.

“No one wants these ferries to be finished more than the workers but they also want, and deserve, to know their future will not be determined by mistakes of the past made by others.

“With a committed workforce led by ambitious managers, there is nothing to stop this yard having the brightest possible future and the Scottish Government must urgently help secure it.”

Mr Gray said in May that there was an intention for the taxpayer-supported firm to be placed back into private ownership.

A Ferguson Marine (Port Glasgow) spokesman said: "Our business plan is focussed on two missions: to secure further work as part of the Type 26 frigate programme for BAE, and to build a fleet of small ferries for CMAL.  Our position on that has not changed since we submitted the plan in Q1 of 2023.

“Given the announcement by Mr Gray, we will now reassess our plans to upgrade the yard infrastructure and install specialist equipment to ensure that FMPG is equipped to compete most effectively for commercial tender work. This plan required between £20m and £25m of capital investment to put us on a firm footing to secure these long-term projects.  

“We will discuss options with Scottish Government officials as soon as possible and, on behalf the workforce, we welcome Mr Gray’s commitment to ensuring that optimal solutions are identified to support the shipyard’s future.”