UK: How Transtec beats the recession.

UK: How Transtec beats the recession. - Specialist products and a global perspective spell prosperity for engineers TransTec.

by Jim Levi.
Last Updated: 31 Aug 2010

Specialist products and a global perspective spell prosperity for engineers TransTec.

Even in the depths of the worst recession since the war some of the UK's engineering companies can still find ways to prosper.

Transfer Technology Group is one of the best examples around of what can be achieved by a niche market player with the right global marketing strategy backed by a technical competence to match any of its international rivals. A half yearly trading bulletin last July from the group showed a surge in sales of 64% to £50 million while profits gained 62.5% to £3.5 million. One City analyst's bullish projection is for the group to raise profits from £5.5 million to £9.3 million this year and to reach £13 million in 1993.

Support for the venture from major financial institutions such as Schroders, Framlington and Morgan Grenfell enabled the group to finance three acquisitions last spring with a £24-million rights issue. That was in addition to three other acquisitions made since the group took on its present shape in May last year.

TransTec - as it is commonly known - is the brainchild of Geoffrey Robinson, the Labour MP for Coventry North East and a veteran industrialist. In the '70s Robinson was the industrial equivalent of a child prodigy, being briefly chief executive of Jaguar Cars when only in his mid-thirties. A Cambridge-educated engineer, he talks and thinks rapidly and moves on many fronts at once. His still relatively modest empire appears nevertheless quite bewildering in its complexity.

The problems that bedevilled his old firm, Jaguar, and forced it to accept a rescue takeover from Ford in 1989 - the essentially one-product nature of its business coupled with a heavy dependence on the American market - are unlikely to affect Robinson's TransTec.

The business began as a private venture in 1982 and its broad aim was to transfer technology from institutes of higher learning to manufacturing industry. "The original idea which got us going quickly evolved much more into trying to transfer technology across different industries," Robinson explains. As a result the group, through a myriad of subsidiary companies, now serves a number of industries with its specialist engineering products and reaches a wide range of markets. Three-quarters of sales are exports. Today TransTec companies sell their products in 60 different markets. And they supply companies in six different industries: automotive, aerospace, oil, steel, pharmaceuticals and food.

"Our aim from the beginning has been geographical diversity coupled with a spread of technology in terms of the range of products and further diversity in terms of the markets and industries we serve," Robinson says.

He describes the strategy as providing three complementary sets of relationships. Each of them provides a safety valve for the other. "If Europe is down, perhaps the Far East is up," Robinson declares. "Or if the oil industry is down, automotive may be doing well. Or again if one product is doing well, it can compensate for one where there are problems."

The key additional ingredient in all this is a continuing emphasis on product innovation which itself should assist in extending the product range into different industries and markets.

Within a couple of years of launching TransTec, Robinson's venture was earning profits of £3 million and there were hopes of taking the company public. But the stock-market crash of 1987 changed the climate. In the end the share quote was achieved by a "reverse takeover" of Central and Sheerwood, a run-down engineering and property conglomerate on the outer extremities of the late Robert Maxwell's empire. The property interests were sold and along the way two specialist engineering businesses in the private Maxwell empire were acquired. Shortly before his death Maxwell unloaded his family's stake in an attempt to cut part of his debt.

Today the business is split into five divisions. The automotive division makes up 60% of the total sales though only about 40% of profits and consists of the two companies - Coventry Apex and A L Dunn run by Adrian Hirons and John Cheese respectively - from the Central and Sheerwood stable.

Coventry Apex is the largest independent machinist of manifolds in Europe and despite recession Robinson can see scope for gaining a wider share of the European market. Dunn runs a high quality aluminium foundry. Typical of the way Robinson is weaving together his long-term strategy was the acquisition of BEW earlier this year. This company is a longstanding machinist for the castings of the European motor industry. It dovetails well with the other two businesses, being a customer of Dunn as well as having been a strong competitor to Coventry Apex.

The aerospace division has been formed from another acquisition last spring - Earby Light Engineers. Earby makes precision components and 75% of sales go to Rolls-Royce. The potential is there to extend the customer base and to expand supplies to other industries aided by Amchem, another aerospace supplier in the group within the Control Technology division and run by George Baker. The Control Technology division is really Robinson's original TransTec company before the "reverse takeover". In many ways it remains the heart of the enlarged group with its impressive payroll of some 50 qualified scientists and engineers. The product range in this division alone appears bewildering for a relatively small venture: it textures rolls for the steel industry, shapes blades for aero engines and drills minute holes to produce dies for catalytic converters for the car industry.

Apart from Amchem there are four other companies in this division. One of them, Raycon, is an American specialist in hi-tech machining for the auto and aerospace industry and was a direct competitor of Amchem. Indeed Robinson admits that three companies in the division - Amchem, Raycon and Sarclad - were all competing with each other to the extent of 50% of their business. "It was very important to rationalise the product range, centralise spares and hold prices to secure our already dominant market position," he says.

With annual sales of £20 million spread over perhaps nine or 10 products, the Control Technology division has acquired key world positions in some small niche areas of engineering. "In some cases they export over 95% of their output - reaching North American, European and Far East markets where we are doing particularly well at present," Robinson reports. Finance director Neil Logue explains how the Control Technology Division is organised so that "we design, develop/assemble and test our products. But the manufacturing commitment for fabrication and machining is put out to other firms."

Robinson says the division reflects the criteria he started out with when he founded the business along with Sami Ahmed back in 1982. Ahmed sits on the board as technical director and also runs the Control Technology division. "Manufacturing fixed overheads are in this division a relatively small element of total costs," he explains. "That was the formula we developed successfully in the way we organised the company really from 1985 onwards." From the beginning also there was the common use of particular technologies across different products and also the accent on export marketing. "These were the criteria we set out at the very outset of TransTec's existence."

The control over all aspects - mechanical as well as electronic - of the design and development of products was felt to be "absolutely essential" to Robinson and Ahmed. Equally important was "total control of marketing" where great emphasis was laid from the beginning.

"You can say our marketing costs can represent something like one third of total costs while the design and development will account for about another third," he says. "We believe in very heavy investment in both areas."

The profit figures and the projections from its own financial advisers, Credit Lyonnais Laing, rather suggest TransTec is sailing through the recession. "There is really no question of that," Robinson stresses. "The market is tougher than last year: the home market is as bad as ever, the European markets worse and the world market generally worse than last year. We are doing well because we are not dependent on the home market. But trading profitably in international capital goods and motor industry business is exceedingly difficult."

The geographical and product diversity strategy does not yet quite work in the automotive division. At present 80% of sales go to Ford and a cutback in Ford's process order levels in September led TransTec's advisers, Credit Lyonnais Laing, to trim back sharply on an ambitious forecast for 1993 from £14.3 million to £13 million.

On the day we met at Transtec's extremely spartan head office Robinson had one man at a machine tool fair in Chicago, another in India on a sales drive, a third in Japan and a fourth trawling through South America. "Bearing in mind our travel bill you could say we are flying through the recession rather than sailing through it," he quips.

To enable what is still a relatively modest group to spend so heavily on the marketing effort TransTec strives for a minimum 50% target gross margin. To achieve that, the tightest possible control of manufacturing costs is maintained. Neil Logue points out that in gravity die-casting, the A L Dunn offshoot has achieved "the highest quality level of any Ford supplying foundry and one of the lowest overhead cost to total sales in the industry. Our mission is to become a preferred long-term supplier of specified components where we think we are as good as anyone else in Europe." Already the group has won two very good contracts with Nissan and is hoping to build further on that relationship and to attract orders from other European car markets.

Of course the drive to reduce costs from customers like Ford is "unremitting" Robinson says. Equally Ford is "having to ask suppliers to play a bigger role in technical development".

Two companies originally part of the Maxwell private interests - Petroleum Seals and Systems and Lock - are the basis of TransTec's two other divisions - oil seals and inspection systems. Petroleum Seals has already made a couple of small acquisitions to add to its range of products. Its key product is designed to prevent loss of petroleum by evaporation from large storage tanks.

One of Robinson's more imaginative deals was the creation of Yamato Lock, the 50-50 joint venture betweenTransTec and Yamato, a Japanese checkweighing company. Together the two companies have begun a development programme for an integrated inspection and quality control system which will appeal mainly to the pharmaceutical and the food idustry. More immediately Yamato Lock can already offer a worldwide marketing operation for both the checkweighers and Lock's metal detectors all under Lock management control in the UK. The ongoing business does an estimated £10 million in sales and returns £1 million in profit.

"The joint venture obviated the necessity for Yamato to develop its own range of metal detectors and for us to duplicate their check weighers," Robinson explains. "Both products have a great deal of technology in common and both can be effectively marketed at the same point of sale."

The treatment TransTec applied to the Lock company when Robinson bought control is typical of the way he operates. "Lock products were very quickly re-engineered and re-designed by our development engineers at the Control Technology division and the Yamato joint venture followed from that."

His general philosophy on integrating acquisitions is one others may care to follow: "If you bring companies together you look for a rationalised range of products, a rationalised R and D effort and a rationalisation of the facilities. The most difficult bit to rationalise is the marketing effort and that should probably be left to the last. This is what we have done with the integration of three companies - Amchem, Sarclad and Raycon - in our Control Technology division. In fact at this point we don't intend to rationalise the selling of the products but we have cut the product range from 219 products to 155 and the factory floorspace from 53,000 sq. ft down to 37,000. What is more we are producing and selling more than the three companies did on their own." Some might think that TransTec's impressive performance so far could become a blueprint for a revival of the whole of Britain's manufacturing base. Robinson has no such lofty illusions. "We cannot succeed by modelling our business on somebody else's," he says, "although some aspects of other businesses are very relevant to us. But other people should have their own strategies. Our strategy is to get through next year with a continued sustained improvement in our performance. Beyond that there is no other real plan."

Of Britain's wider economic problems he says: "We have always had the talent and ability to innovate, but there remains the tendency to give it away when it comes to developing and exploiting an idea. But that problem has been around for 40 years - like the balance of payments. You cannot really solve those problems. It really depends on how well you manage them. All we at TransTec can do is ensure that we attract some of the best qualified engineers and scientists coming out of universities. In some cases we are prepared to pay them salaries as high as those in the City."

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today