Hampson wields the hammer

Hampson Industries’ boss Chris Davies had an easy ride at the company’s AGM this month. Despite a few questions about the risks of recession, the audience, mostly pensioners, heard him out politely. Only one rose to make a personal remark: ‘Glad to hear y

Davies comes from the Rhondda Valley in South Wales, not far from one of the engineering companies Price & Orphin which is now part of the Hampson Industries group.

The group has sold off a number of businesses to focus on precision engineering and metals. The double glazing, home furnishing and cleaning companies, sold over the past two years, were replaced by aerospace and precision engineering operations. More purchases are planned, mainly in the US.

Meanwhile, the metals interests have benefited from a big investment in cost-cutting production technology which Davies describes as an insurance policy against the sharp fluctuations in basic metals prices.

‘If we had done nothing, we would be in trouble now,’ Davies says. Two and a half years ago, Hampson had two aerospace subsidiaries. Now it has 10. Profit from specialist engineering has risen from just £2m in the year to March 1996 to nearly £10m, following successful acquisitions.

But earnings from metals processing were only £3m in 1996 and would have slipped back to just £1m if Hampson had not bought the Brookside copper business. This has enabled the company to become the most profitable secondary copper producer in Europe even though copper prices are at a 40-year low.

While the engineering businesses will be targets for growth, the metals processing arm is planned to be the cash cow. If the markets recover the metals businesses will fund further acquisitions elsewhere in the group.

Davies thinks copper and aluminium prices could pick up by 2000, possibly coinciding with a downturn in the civil aviation markets the main driver for much of the engineering side of the business, which he is continuing to expand.

Davies neatly sums up the kind of businesses he is interested in buying. ‘Take a look at their product,’ he says, ‘and hit it with a hammer. If it dents, we’re interested. If it breaks or shatters, we’re not.’

This boils down to three kinds of activity for the new-look Hampson: precision machining, specialist fabrications, and alloying of metals.

‘We’re not a product engineer like GKN,’ he says. ‘We are a process engineer. By comparison, there is less R&D involved in what we do, and so less risk in terms of money up front and the waiting and guessing to see if it makes a return.’

The strategy is to increase turnover by 30% to £200m within the next two years, and for the market capitalisation of the company to be more than doubled, from £70m. Davies admits the company is not big enough yet. To get fund managers interested, market capitalisation needs to be closer to £200m.

Growth is expected via an acquisitions blitz on the US aerospace industry. The first move came in August, with the $3.35m (£2.1m) acquisition of Bolsan, which manufactures shims for the aerospace and industrial markets.

Hampson Industries’ gearing is estimated at about 78%. There is no spare cash, so future acquisitions will be all-share offers, such as that made for Arabis in January 1997. An improvement in market sentiment may be needed to lift the share price which is at a 12-month low otherwise further growth may have to be paid for by disposals.