Engineer reaps the reward for focus on R&D

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SHEFFIELD Forgemasters more than doubled its operating profits last year after investing time, effort and money into researching and developing new technology for its key offshore, power generation and defence markets.

The heavy engineering firm saw turnover dip marginally to £106.8m in the year ending June 2012. But operating profits shot up 134 per cent to £5.4m.

“It is very pleasing to report that despite continuing difficult conditions affecting most of our markets, operating profit for the year increased with our turnover remaining virtually unchanged from last year,” said chairman Tony Pedder.

“In the context of the global economy, this is a very positive result.”

The group set up a new subsidiary to take advantage of tax reliefs to help stay competitive in a tough international market place.

Peter Birtles, one of the directors, said price competition is “worse than ever” as struggling rivals lower their prices to win contracts.

The group expects to be able to access £30m from the Government’s regional growth fund to develop its manufacturing facilities.

Forgemasters won the loan in the second round of bidding announced a year ago and has since been going through the due diligence process.

The group found itself at the centre of a bad-tempered and drawn-out political row after the coalition won power and axed an £80m loan from the previous Government.

The focus yesterday though was on the successful trading performance.

The group’s strongest market was the offshore sector. Mr Birtles said: “The offshore oil and gas exploration and extraction industry globally is still very buoyant.

“This is related to the price of oil and the fact that international demand is still significantly high.”

Forgemasters has been a long-term player in the offshore market and supplies castings for oil platforms, said Mr Birtles.

The group has a long history of design input and is known for “high quality and integrity” of its components, he added.

In defence, Forgemasters forges components for nuclear-powered propulsion systems in submarines.

“We are hoping to expand our activities beyond the British market,” said Mr Birtles. “North America is an area that’s of great interest to us.”

The power generation market, meanwhile, has provided “mixed blessings” for Forgemasters in recent years. Wind and gas turbines tend to be too small for the group’s manufacturing facilities, but directors are seeing strong developments in hydro power.

The Forgemasters name has become synonymous with the nuclear sector in recent years following the fall-out from the axing of an £80m loan made by the previous Labour Government.

International attitudes towards nuclear hardened after last year’s Fukushima disaster in Japan.

Mr Birtles said: “Obviously the expansion of that part of the market has been up and down quite severely. The great nuclear renaissance... got somewhat slowed down.

“The one nation with the most intent and probably the most sustainable plans is the UK. In the medium to long term, we think that the nuclear sector... will be a good market for us.”

Export sales made up 59 per cent of turnover last year. The group saw sales to crisis-hit Europe fall to £32.9m, compared to £46.3m in 2011.

On the general outlook, Mr Birtles said: “It’s tough out there. No doubt that the recession around the world is continuing. Industrial manufacturing, big plant projects, power generation projects, have all been affected. The steel industry is in the doldrums.

“But it’s not just opportunities that are diminishing, competition is terribly fierce. At the moment (price competition) is worse than ever. A lot of companies are struggling very badly.”

Forgemasters has a strategy to focus on niche marketing and “putting a lot of effort and resource and research and development to develop better products and keep the technological edge.”

Twitter: @bernardginns