Far East outsourcing losing its appeal, says 600 Group chief

Last year 600 Group bought a factory in Poland to take a significant proportion of its manufacturing in-house. David Norman said the company plans to grow this share, aided with acquisitions.

Resuming manufacturing has boosted the Leeds-based company’s productivity, and it said orders are up on a year earlier.

However, Mr Norman, who has spearheaded 600 Group’s turnaround, added its decision to expand in Poland rather than Yorkshire was in part due to a skills shortage.

Mr Norman said it has found Far Eastern manufacturing unsuitable for making complex devices such as its machine tools.

“If it’s high volume and repetitive, China is quite a good place to do it,” said Mr Norman. “If you’ve got high logistics costs, low volume and high priority, it’s much better to do it in a CEE (central and eastern Europe) country.”

Mr Norman joined the company in August 2008, and shortly after the market for machine tools “absolutely collapsed”.

By then it was making only about five per cent of its products, relying on Chinese and more costly Taiwanese suppliers.

“From a cost point of view it was cheaper to manufacture out there (China). But with the switch to China came quality problems.”

Tools such as lathes and saws were arriving in the UK still needing significant work, he said.

“There were lights on and powered up and nothing would happen. It was clear in the end we were not able to produce in a consistent way.”

As well as the cost of warranties, outsourced manufacturing also tied up a significant amount of working capital, he said.

Mr Norman began searching for an alternative in central and eastern Europe. Late last year it sealed the purchase of a machine tool company in Tarnow, Poland.

600 Group bought the 100,000 square foot site from weapons group Bumar for 1m euros. With it came a workforce of almost 200 staff. In April it raised £1.76m through a share placing to increase production, allowing it to invest in modern, computer-controlled machines at the factory.

The site is next to the A4 autostrada – a motorway which once complete will span southern Poland, linking with the group’s major markets of Germany to the west and Russia to the east.

The company makes roughly 1,000 machines a year, and by April intends to be making around 60 per cent of these itself. Over the next year it also plans to transfer some work to Poland from the US and Australia.

Mr Norman said skills shortages meant it made more sense to expand in Poland than the UK.

“They have got the skills. We do everything there with the exception of casting the metal itself. It means that the material cost is going to keep reducing. Labour costs and establishing costs in Poland are relatively modest.”

He added it would be a challenge to find the 200 skilled engineers needed for a comparable factory in West Yorkshire.

“The trouble is that a lot of the skills base has already gone. Sadly we’ve got to a stage where a lot of our workforce have left the industry and we’ve not got this younger element coming through. This type of work is probably deemed to have not enough status in it.”

The company recently moved head office from its Heckmondwike factory to Leeds, and has been cutting jobs at the 120,000 sq ft site. A former wire-drawing factory, Mr Norman said it no longer suits the group’s needs.

However, Mr Norman said 600 Group will continue to make large chucks and CNC machines in Heckmondwike, and is working with Kirklees Council to find an alternative site.

“We want to maintain a presence in West Yorkshire,” he said. “We want to sell that site at some stage and in the short term we are compressing all operations into an area of the site.”

Mr Norman’s turnaround has shrunk the group from 32 operating sites to just 11. It is now considering its next stage of growth, including more acquisitions and mergers. Mr Norman said options include bolt-on acquisitions to boost turnover, possibly through share issues.

Its recent move to the Alternative Investment Market makes this easier, he added.

However, he said 600 Group’s share price needs to recover before it can issue new shares.

“The other one would be to divest a business and use the proceeds plus (issue) more shares.”

Another option could be for its major shareholder Haddeo Partners to acquire a business – although Mr Norman admitted merging this with 600 Group could be complex.

He added Haddeo does not intend to buy the group outright.

“They will never do that,” he said. “It’s not their style. (Chairman) Paul Dupee does not come from a private equity background.

“I don’t believe it’s their intent to make a fast buck on this.”

New finance director named

ENGINEER 600 Group yesterday announced Neil Carrick as its new finance director. The former Cosalt finance director replaces Martyn Wakeman, who is retiring for personal reasons.

Mr Carrick, 50, was at William Cook before working for Grimsby-based marine and offshore company Cosalt.

Chief executive David Norman said: “I would like to thank Martyn for his significant contribution and welcome the addition of Neil to the board.”

Mr Wakeman will continue to work on acquisitions and disposals until he stands down in April 2012.