Market Factors

Diverse Markets

Chamberlin plc serves a diverse range of markets including automotive, hydraulics, mining, hazardous environments, power generation and construction equipment. This diversity has benefited us during recession, reducing our exposure to any single market, and continues to do so by presenting a wide range of opportunities for future growth.

In recent years we have focused our automotive activity on turbocharger castings, a high growth area that currently represents 21% of Group sales. As one of only four specialist foundries in Europe with the technical capability of supplying these castings for turbochargers we are in an excellent position to benefit from the increasing trend for car manufacturers to apply turbochargers to petrol engines.  This trend is being driven by the need to comply with emissions regulations and to provide an indication of its scale, in 2010 some 10% of petrol engines were turbocharged however, by 2015 approximately 80-90% of car petrol engines are expected to be turbocharged causing the existing market to grow by over 50%.

Direct and Indirect Export

It is a notable feature of the business that c.70% of output is ultimately exported. Direct exports account for 35% of output with our customers located in Europe, America and Asia.  Indirect exports, where Chamberlin businesses supply products to UK-based equipment manufacturers whose products are then shipped worldwide, account for approximately 35% of our output.  Against this, only some 30% of sales are driven by demand from the UK economy. Global demand for engineered precision components is strong and our UK customers, which include companies such as Siemens, Howden, CAT, JCB and Tata Steel, are typically leaders in their sectors.

Extended Supply Chains

The decade before the recession was marked by manufacturers in America and Europe transferring production to lower labour cost countries in the East in an attempt to reduce cost.  Within the mechanical engineering sector this transfer started with simple parts but came to include more complex components, and the supply chains typically involve fixed volume commitments, several months for transport by sea and stock buffers at the customer.  During the recession many businesses suffered severe problems because of the length and inflexibility of their supply chain and continuing difficulties from unreliable product quality.  As a result we are now seeing reversals to the model and a number of major manufacturers are returning to European sourcing, with some formally announcing changed sourcing policies.

Engineering Capability

Historically, original equipment manufacturers (“OEMs”) were vertically integrated, designing and assembling their products and making many of the component parts in-house.  This model has changed over the years as OEMs, led by the automotive industry, have outsourced component manufacture to specialist suppliers while retaining their own core expertise.  The recession appears to have accelerated this trend and in many industries OEMs are narrowing their focus even further, reducing their cost base by eliminating their own engineering expertise in component areas.  Chamberlin already participates in the design of our customers’ products, and as more OEMs outsource engineering design to their supply base our technical strengths will become increasingly important.  We also believe that there will be opportunities to expand into machining our castings, supply logistics and possibly sub-assembly so creating new revenue streams for the Group.

Published : Saturday, July 28, 2012 11:26 AM

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Chamberlin plc trade on the LSE AIM. (Symbol: CMH)

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