On a recent visit to Scotland, Bank of England Governor Eddie George praised Scottish manufacturing firms’ ability to diversify into services. This, he said, had helped them weather the harsh economic climate. One firm which has been successfully steering this course for some time, despite high interest rates and low oil prices, is Motherwell Bridge.
The Lanarkshire-based company has come a long way from its 1898 origins as a steel bridge builder, says chief executive John Lumsden. ‘One of its strengths has been its flexibility and ability to shape the business to meet changing markets.’
Today it has four divisions: engineering, engineering services, mechanical construction and information and control systems, employing 3,600 in total. All are being groomed to target niche markets which offer long-term business growth.
Engineering services, for example, is supplying equipment such as large tanks, as well as maintenance contracts, in the group’s traditional oil and gas sector. But it has also built up a strong presence in markets such as the manufacture of steel, cement, glass, and electronics. In the last category, it provides high-purity pipework for Scotland’s semiconductor industry.
‘We have a track record of expanding and developing businesses,’ says Lumsden, a chartered accountant who joined the company in 1962.
The group’s move towards longer-term service-related business started about 20 years ago, when it was enjoying healthy orders for crude oil storage tanks on the back of the North sea oil boom. It built all the big tanks for sites such as Sullom Voe, Nigg Bay and Flotta, but was not complacent.
‘We could see that the end was in sight,’ says Lumsden. ‘We never intended to move entirely out of oil, but we realised that UK growth opportunities were limited. So we started to focus on maintenance and service activities.’
Big capital projects for the oil sector represented 40 50% of group turnover in the 1970s. ‘Now it’s more like 10%,’ says Lumsden. Starting with the oil and gas sector, Motherwell Bridge won maintenance and repair contracts at sites including Sullom Voe, Flotta, Grangemouth and Humberside. Orders from the oil sector have dried up, but maintenance work remains strong.
Over the 1970s and 1980s, Motherwell Bridge began building up mechanical engineering companies carrying out maintenance and service activities. In 1994 the group made its biggest acquisition, paying £3.4m for Leeds-based gas-holder specialist Claytons. That took it into new areas such as gas holder manufacturing and designing specialist presses for the aerospace and automotive industries.
Around this time, the company made its most marked diversification, into information and control systems. It began with the takeover of a Gateshead-based company that made a device which electronically weighed materials travelling along conveyor belts. ‘We backed the management and helped to expand the business,’ says Lumsden.
Another acquisition was a 50% stake in a Kansas-based company that provided specialist services in automating material handling systems for grain export terminals.
The division employs 700 people, up from less than 100 five years ago. It provides and installs information and industrial computerised control systems, ranging from shopfloor supervisory systems to reporting systems for senior management. In 1997, the last full-year results, the division contributed about 30% of group operating profits of £7.2m.
Further recent acquisitions in Wales, Australia and the Netherlands have taken the company into supplying software for the pharmaceutical, food and drink, consumer packaged goods and utilities sectors.
Motherwell Bridge has also entered higher-value services and products markets. It has been developing specialist corrosion-resistant steels for the oil sector for many years, and has developed niche expertise in gas tank manufacturing.
Railway track maintenance and nuclear decommissioning are other new areas for the company. It acquired a small decommissioning business about five years ago and last year recruited a team of experts from a larger firm. This has led to decommissioning work at Sellafield, Hunterston and Hinkley Point.
There have been difficulties as well as growth. The engineering division has been exposed to the difficulties created by the high pound and low oil prices. Against lower cost competition from abroad, workloads fell. Around 200 staff were laid off. Work has been cut in traditional areas while new areas, adding more value, are being built up. A proposed flotation earlier this year was abandoned because of the City’s lack of enthusiasm for engineering.
But Lumsden is optimistic and says this will not affect plans for further acquisitions to strengthen the information systems division and gain a presence in the aerospace market. He says: ‘We’ve taken a lot of the pain in areas with limited growth potential and very competitive pressures, but we’re growing in areas where we see more opportunities.’