Heavy investment knock profits at Newcastle based Reece Group

Newcastle-based Reece Group have set out a strategy to grow by diversifying

Kevin Gibson Photography Ltd Dr James Martin
Dr James Martin

Heavy investments in staff, a major new facility and research and development knocked profits by more than 75% at engineering business Reece Group.

The Newcastle-based group, a holding company for a raft of innovative businesses involved in defence, oil and gas, power generation, construction and subsea sectors, posted sales of £82.2m for 2013, a dip of 11% on the previous.

Operating profits also dropped dramatically from £28.8m to £7.05m.

However, the firm said 2013 proved to be a “transitional” one for the year in which it embarked on a strategy in which it will no longer depend on defence work to maintain high turnover.

Phil Kite, chief executive of the group, detailed huge investments made over the course of the year in the firm’s published accounts, including a £2.5m spend on research and development and £13m in plant, property and machinery.

A sum of £1.5m was also donated to the group’s charity, the Reece Foundation, which supports a number of good causes in the North East.

Mr Kite said: “In 2012 90% of the group’s turnover related to defence. In anticipation of changes in this market the group embarked on a strategy to diversify through organic growth, acquisition and the creation of a world class manufacturing facility.

“Whilst the group continues to invest in its defence business, the implementation of the group strategy will, over time, give a more broadly based engineering group, less dependent on defence with strength in the oil and gas, power generation, construction and subsea markets.

“Non-defence sales were 40% of the group’s turnover and over the medium terms this proportion is planned to increase as further acquisition opportunities continued to be actively considered.”

Much of the £13m invested in property, plant and machinery went on the purchase of the Armstrong Works, an iconic riverside site in Newcastle it acquired from BAE Systems in 2012.

Earlier this year the firm began its move into the facility.

Responsive Engineering – formed by a merger of the group’s Pearson Engineering Services and Responsive Engineering Group - has relocated its machining operations from the Team Valley to the new site on the banks of the River Tyne, along with its 80-strong workforce.

Over the next two years, the group said it will be invest a further £10m into the redevelopment of the site, transforming it into a state-of-the-art engineering facility with a production area alone occupying 7,000sqm and including the most technically advanced machinery available.

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