Rosh Engineering continue to eye expansion despite the Brexit vote, although a more cautious strategy is required.
Manufacturing is an industry that stretches across some key Brexit concerns; importing, exporting, currency exchange and free movement of people are all potential issues for Ian Dormer CBE, MD of Rosh Engineering in Co Durham.
As well as looking after Rosh Engineering he's also a Chartered Director and former Chairman of the Institute of Directors.
It's only been two months since the referendum and Rosh has already seen projects abandoned due to currency issues so for a lively market Brexit is a real worry.
However, having the ability to swap funds in to a Euro account makes great financial sense in the short term, the question is whether the UK government will give businesses sufficient confidence to identify what their long term needs might be.
Rosh Engineering Ltd repairs, refurbishes, enhances, installs and commissions power transformers and associated high voltage equipment for the electricity generation and supply industry as well as large industrial consumers of electrical power such as the oil and gas industry.
“Fundamentally we are like washing machine repair men, but on a large industrial scale in high hazard environments. Working in live electricity substations the highly experienced and qualified Rosh staff can be carrying out their duties on a transformer, 20 metres away from 400.000volts,” says Dormer.
Rosh’s customers include big power generating stations and electricity distribution companies who are their core business, but oil and gas, steel, paper, and cement companies are very important.
“Increasingly over the last few years we have been working for non-UK based manufacturers of power transformers as their local installation and commissioning arm,” says Dormer.
Rosh identifies its export business in 2 ways.
About 10% is Rosh staff travel abroad to carry out our repair and refurbishment works.
Although a large percentage of this was carried out in Mexico on a power plant project there last year, the vast majority is usually in the EU.
A key market has always been the Netherlands, as they are easy for Rosh Engineering to reach from the North East of England with a direct ferry from Newcastle to Ijmuiden (Amsterdam) giving quick and efficient access.
Increasingly through their work in the oil and gas sector means they are being asked to look at projects further afield from the middle east to Asia.
The other aspect which is not technically export but is fundamentally hinged that way is their work for non-UK transformer manufacturers.
Most are EU based although they have worked for Australian, Brazilian and Turkish companies.
“Having a free, open and internationally trading UK is vital for us as these European manufacturers now represent about 40% of our business. Any volatility in the market adds difficulties and pressure on our customers which in turn adds pressure on Rosh,” says Dormer.
UK Compliance Regime is World-Beating
The industry Rosh operates is all about compliance, “if you do not comply with the rules and regulations of working in our industry then death is a high possibility, as a few hundred thousand volts flash through you.”
Working with the European manufacturers has actually seen the company helping them comply with UK rules more.
“In terms of health and safety, the UK has the most developed regime and it can be quite a shock to new entrants. Having mastered UK compliance means that European compliance is a piece of cake for us,” says Dormer.
Hedged Against Exchange Rate Fluctuations
With the EU referendum sparking huge foreign exchange market movements the question of FX hedging is an important one for Rosh.
Rosh maintains a Euro account to hedge against currency fluctuations, and two days before the Brexit vote the company moved a decent amount of cash into that account.
“This covers all our Euro purchases for at least 6 months,” says Dormer.
However, some businesses were not so lucky:
“In the week after the Brexit vote one of our partner European manufacturers was about to be given a major order.
“They had to turn it down. They only hedge currencies on receipt of an order, and the sterling price they would have been given the order at they could not afford to honour after the currency crash. Our input into that project would have been tens of thousands of pounds.”
Pricing for the Future
When asked if the rising Pound would prompt the company to hike prices Dormer points out that most of Rosh’s imports are bespoke so price increases are hard to determine:
“We do hope to increase our sales drive in mainland Europe over the coming months as we should have a noticeably competitive advantage now in European markets. Export markets are higher risk markets for us during volatile currency fluctuations.
“The time between bidding for a contract and delivering it can be anything from 6months to a year. Working on a fixed price basis this adds risk if currencies are volatile.
“We cover against this as much as we can by sourcing major items in Euros for example if we are being paid in Euros. But our labour costs, overhead and profit are all in Sterling.”
Strategy and the Outlook
In terms of long-term strategy, Dormer says he aims to be cautious, and watchful, and will not be looking to commit too far in advance if they have a large exposure to currency movements
Dormer was not happy with the EU referendum outcome, but says you have to work with what you have got.
“With most of our trade in Europe, why would we want to split and potentially upset that partner?” asks Dormer.
The potential restriction of freedom of movement could have an impact on business as Rosh Engineering sends their staff to work in European countries.
Speed and ease of doing that is the basis of their European trade.
In terms of growth, Rosh are currently planning an extension to their factory and are constantly trying to expand.
“You stop growing you stagnate, you stagnate, you die. Personally and professionally. I undertook the IoD Chartered Director programme when in my late 40s as I knew I needed to improve how I went about my job. I encourage all my staff to undertake continuing professional development,” says Dormer.
This is why he believes Rosh Engineering has managed to remain at the top of their industry and consistently profitable and cash rich while our competitors have gone under.
Advice for Theresa May
When asked what advice Dormer would extend to Theresa May and her Government Dormer’s response was:
“The next couple of years is key. If the government works hard at delivering an open and stable trading relationship with the EU quickly the complications will be minor.
“But it will require a pragmatic and driven agenda. The free movement of labour, contribution to the EU budget will certainly be part of the deal, and we must be realistic in accepting these factors to maintain a positive trading relationship. Divorce is often painful and expensive.
“It can be less so if we give as much as we receive, and leave the emotion and dogma in the cupboard.”