Guest Blog: Group Rhodes on their investment in R&D

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Mark Ridgway is Managing Director of Joseph Rhodes Ltd

Group Rhodes is a group of seven SME companies serving the advanced engineering sector, but our size and structure is a relatively recent phenomenon. In 1984 a management team led by my Father, Ian Ridgway conducted a management buyout from Hanson PLC of the Group's ‘mother company', Joseph Rhodes using venture capital from Yorkshire Enterprise. Joseph Rhodes was actually founded in 1824, and at the time of the MBO the Articles of Association remained the same; the manufacture of metalforming machinery. Extracting ourselves from a PLC refocused our minds on the markets that we served, not least because the VC held convertible cumulative redeemable preference shares. This meant that serving the attached coupon and ensuring that this equity was not converted into ordinary shares became the primary focus for the Company's new Board. An emphasis was placed on machinery that differentiated itself in the marketplace in order to secure the sales that eventually allowed the Company to extract itself from the venture capitalist structure. Research and Development had always been important to the Company but it suddenly became essential for survival.

Over the intervening years since the management buyout, the Company has grown through organic growth and acquisition, and sought out technologies that allowed it to play to its strengths of solution provision, particularly with respect to niche markets in the advanced engineering sector. A downturn in the market around the turn of the millennium however caused a major headache. Growth in the Company had been based on a policy of keeping to its ‘Strategic Knitting' acquiring competitors that were struggling and playing to a strong domestic market. With hindsight this strategy was based on weak foundations. Large swathes of customers offshored seeking low labour cost environments in which to manufacture their high volume / low value components, and our core offering to the marketplace was hit by strong competition from the Far East. This plus the adoption of short term investment policies by end users who now wished to amortise the cost of equipment encouraged the acquisition of cheaper machinery and changed the market overnight.

The Company re-visited its definition of core competency and widened its skill set to address the development of special purpose machinery for sectors other than metal forming.

New product development and the acquisition of IPR in the fields of heavy ceramics, aerospace, oil and gas, environmental and more recently robotics and composites were essential to the long term survival of the Group. The Company took advantage of R&D Tax Credits initiated by the Labour Government and maintained under the current regime to develop new products that serviced needs as diverse as machinery to produce strong lightweight structures for the aerospace sector and systems to transform household waste into a high cellulose flock that could potentially be used to produce energy. Last year a figure equivalent to 15% of our turnover qualified for R&D Tax Credits, and the scheme has significantly helped us to not only differentiate our products on the world stage, but also to develop new solutions to meet the ever changing needs of industry. Over the last six months we have applied to register three patents in the knowledge that a parallel R&D supporting initiative, the new Patent Box scheme will allow the favourable tax treatment of such products; the first of these applications was granted its patent pending status last week.

The Company has also taken advantage of Knowledge Transfer Partnership (KTP) schemes, particularly with Sheffield Hallam University.

In 2011 the Company won the Best University Business Partnership (North East England) with Sheffield Hallam, and this year our most recent KTP student has been nominated for a TSB prize. The KTP schemes have allowed the business to develop new products alongside our everyday activities, ensuring that the management structures, resources, and knowledge held in academia come together to dramatically improve the success of what can be high cost and risky ventures. I think we are on our sixth or seventh KTP scheme, and this year the scheme was successful in an application for SMART grant for a novel process of commercialising the production of cross axis long fibre thermoplastic sheet. This material has the potential of replacing non-structural panels in vehicles, thereby reducing vehicle weight and saving fuel. It has huge potential.

Research and Development is now the lifeblood of the Company. Not only is it necessary for our own success, but we like to think that it makes our customers more successful as well.

A process that we developed for compensating for atmospheric pressure in a superplastic forming and diffusion bonding process (SPF/DB) is now being used as part of an installation we supplied to BAE Systems for the production of components for both European and US aircraft. Equally our environmental technology has been selected by Shanks Plc to form the heart of a £750m PFI contract to process household waste. Previous Government funding has also helped develop a portfolio of minting presses for producing coins world-wide. And this is not an exhaustive list.

Our business structure encourages agility and the recent establishment of a robotics and handling division means that we can flex to meet the demanding requirements of our customers that constantly seek complete solution provision. But the returns are not immediate, and business must take the long view with respect to the capital employed on such projects. For Group Rhodes however our ability to compete against much larger OEM's around the world depends on our ability to differentiate our technology. The fact that two years after receiving The Queen's Award for Enterprise in the Innovation category in 2010, the Company celebrated the same award for International Trade in 2012, clearly demonstrates the relevance of innovation to international sales success. Research and Development along with skills and internationalisation, form the three-legged-stool on which our Business sits. R&D is crucial to the success of our Company, our supply chain, and our industrial sector, and R&D supporting policies need to be the focus of continuous attention from Government.

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