Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from the line of Ben Andrew with William Blair.
Ben Andrew - William Blair
A couple of quick questions, maybe starting on the strategic side, Brian. As you look at the industry dynamics now, obviously revenue performance is improving. What are you seeing competitively and what are you seeing on the pricing side in terms of volume versus price increases that are driving that revenue performance?
Brian Moore
The main thing we’re seeing in the immediate short term is major customers wanting products very quickly, and there are some premium pricing opportunities out there if you can deliver quicker than competition, which although we do have some issues in the main, we are able to deliver with shorter lead times. As a consequence, we have some premium pricing opportunities, but as with everything in our business, we have to watch our prices, we have to ensure we remain competitive, so the main focus is, number one, quality which is always a given, and number two at the moment is demand to meet customers’ requirements and demand from their end-users.
Ben Andrew - William Blair
Is that markedly different you’ve seen in the last year, because I know we’ve seen an upturn in customer demand for product in relatively short time frame, and is it also coming with larger projects?
Brian Moore
Yes, the projects are getting larger, and we’re seeing some of the competitors getting busy, and we took a strategic decision during the slower period not to respond aggressively with price reductions, where some of our competitors appeared to have done that. Now they have their facilities loaded with capacity at lower prices, and that means that they are unable to respond in some areas as well as we are, and the general industry dynamics switch. It’s fundamental economics really. It’s basic demand and supply. As the demand increases, then prices do move up a bit, and as the demand goes down, then the OEMs put more pressure on for price reductions.
Ben Andrew - William Blair
Turning to Sheffield briefly, did that facility previously operate at corporate average gross margins, and do you think you can get back there over time, or is this something where should be thinking that’s going to stay below the 27% target for the end of the year?
Brian Moore
I would be surprised if Sheffield operated at 27% by the end of this year. It should be capable of moving up to that maybe next year or the year after. It typically and traditionally as far as we know, because clearly we’ve been working on those figures, always did have a slight discount to the rest of the group, mainly because it has a predominance of aerospace work in there which is a slightly lower gross margin than the medical sector, but we do expect to see some improvements going forward.
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