OPERATING profit has fallen by 70 per cent at engineering firm Sheffield Forgemasters International despite a rise in turnover.
The company, which employs over 800 staff, reported operating profits of £2.3m for the year ended June 30, 2011, compared to £7.7m the previous year.
Turnover was up by £2.7m to £107.5m despite the challenging weak worldwide market conditions, increased competition and the continuance of the global economic recession leading to tighter margins.
The firm said that prospects for the year ending June 30, 2012 already show some signs of improvement with a 14 per cent increase in the order book position to £116m and better margins assisted by the buoyancy of the offshore market.
Chairman Tony Pedder said: “This year has seen a continuance of the global economic recession. For our industry, this has led to trading conditions becoming more competitive and margins being squeezed across a number of the markets in which we serve.”
He added: “Whilst in general, market conditions have been challenging, the bright spot has been the offshore sector where order intake and sales through our project management company, Vulcan SFM Limited have been extremely encouraging.”
Due to the cyclical nature of the markets in which it serves, the management team said it has taken a longer term view by accepting lower margins in the short run.
Mr Pedder said: “In this way, the significant skill base within our organisation is maintained in order to capitalise on future growth. Furthermore, tighter customer specifications for higher integrity forgings and castings have increased the pressure on margins although the group is well placed to manage this situation in an effective manner.
“Additional cost-saving measures continue to be introduced on a pro-active basis, the benefits of which will not fully crystallise until future periods.”
One exceptional factor which adversely affected this year’s result was the unprecedented spell of prolonged cold weather in the winter of 2010, which prevented normal business operations due to health and safety considerations.
Mr Pedder said: “Given the difficult market conditions, we have redoubled our efforts on containing costs and improving efficiencies whilst maintaining our capital investment programme.
“We have introduced a ‘lean manufacturing’ initiative which is being driven forward by senior management. In addition, we have also introduced a ‘supply chain’ programme with a key strategic partner which should eventually lead to more streamlined practices and increased productivity.”
The company received support from the Regional Growth Fund to enhance its manufacturing capabilities with new machinery.