‘Suffolk Ltd’ weathers the economic storm
SUFFOLK’S leading companies have defied “some of the toughest market conditions in living memory” to record increased sales and profits over the past year, according to a major annual study.
The Suffolk Ltd report, compiled annually for the last 10 years by accountants and business advisers Grant Thornton, involves a composite set of accounts based on the most recent returns by the 100 largest companies based in the county.
The 2011 report, published today, reveals that the combined turnover of the companies meeting this year’s threshold for inclusion, annual sales of �13.1million, was 6% up compared with the previous year, at �5.18billion.
Operating profits were 4% ahead, at �175m while at the pre-tax level profits were up 11% compared with 2010 at �139m.
Grant Thornton said the increase in pre-tax profits largely reflected a higher level of exceptional costs in the previous year’s figures, relating to write-downs and restructuring by companies in response to the recession.
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And although the increase in turnover meant that sales had returned to their level of 2009, operating profits remained depressed compared with two years ago.
However, with most of the annual accounts used in the report relating to the 2010 calendar year, which saw the UK economic slip back into negative growth during the final quarter, the report says the figures overall show that Suffolk’s top firms “have managed to respond positively to probably the toughest market conditions in living memory”.
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There were also some positive trends in terms of debt, with interest cover (a measure of company profits relative in interest payments) grew from three times cover in the 2010 report to nearly four times cover while gearing (a measure of the extend to which a company is funded by debt) was reduced by 4%.
Bank loans increased by �15m to �703m, which the report says reflected a change in the mix of companies in the top 100 as well as some increase in lending by banks, but this was off-set by increases in fixed and current assets, of 4% and 8% respectively, to leave debt at 55% of shareholder funds against 59% a year earlier.
Total employment across the county’s top 100 businesses fell by 1,656 to 30,816 although, taking into account companies entering and leaving the list, the underlying level was largely static.
Changes in the make-up of the top 100 were also largely responsible for a 3% increase in the average salary in the study, to �22,262, with actual play levels also remaining flat.
In order not to skew the results unduly, the Suffolk Ltd report excludes some large publicly listed companies, such as Bury St Edmunds-based pubs and brewing company Greene King, and also subsidiaries based in the county, such as pensions specialist Suffolk Life Group in Ipswich, which is part of Legal & General.
Transport and Motor Retail remains the largest sector within the report, this year accounting for 28 of the county’s top 100 companies – two more than in the 2010 edition.
Excluding the impact of new entries, revenues grew by 7% to �1.29bn and operating profit was 9% ahead at �48.5m. However, most of this growth resulted from Martime Group’s acquisition of DHL Container Logistics, and the report says margins in the sector remains under pressure from high transport fuel costs and weak demand on the retail side.
Turners, based just outside Newmarket, remains the largest company in the sector, despite its revenues falling by �26m to �180m. However, it held pre-tax profit at above �22m.
Retail and Wholesale Distribution is the second-largest sector with a total of 24 companies, one more than in last year’s report.
Revenues from continuing companies grew by 3% to �1.46bn and operating profits by 15% to �47.2m, with some companies chasing market share at the expense of profit while others took the opposite approach.
The largest player in the sector, the East of England Co-operative Society, saw its revenues fall from �384m to �355m, although its profits advanced to �12.3m from �1.5m the previous year when it incurred exceptional costs from store closures and impairments on investments.
The Services sector remained unchanged in size at 16 companies, although with two leavers and two new arrivals compared with the 2010 report.
Despite an increase in revenue for continuing companies from �466m to �575m, a combined loss of �8.4m was recorded. This largely reflected one-off factors, including a bloodstock devaluation for Juddemonte Farms, based at Cheveley, near, Newmarket, and increased player costs at Ipswich Town Football Club, but law firm Birketts was the only business in the sector to record an increase in operating profits.
Manufacturing saw one firm leave the study, due to a fall in turnover, reducing the total to 12. Turnover and operating profit for the remaining companies both fell, by 1% to �358m and 17% to �19.9m respectively, although all but two firms remained profitable and three, Treatt, Oyster Marine and A&B Glass, performed “particularly well”.
Food and Agriculture saw a net increase of one (one leaver and two new entrants), taking the total in the sector to 11. For continuing companies, revenues rose by 6% to �877m while operating profits jumped by 68% to �39.7m, reflecting strong performances from the top five firms in the sector – Ipswich-based Agricola (parent company of animal feed company BOCM Pauls), Direct Table Foods, based in Bury St Edmunds, Green Label Foods, the company behind the Gressingham poultry brand based at Debach, near Woodbridge, Stowmarket-based malt and malted ingredients company Muntons and Southwold-based Adnams.
Property and Construction lost two members, including Elixabeth Holdings after a number of its hotel businesses went into administration, reducing the sector’s presence among the top 100 to eight.
However, for continuing companies, sales grew by 8% to �348m and operating profits by 5% to �19.8m, with every company bar one remaining profitable at both operating and pre-tax level.
Finally, Technology’s presence in the top 100 was reduced to just one, with STL Technologies of Bury St Edmunds dropping out due to reduced turnover and leaving Ipswich-based IP Telecom as the sector’s only representative.
However, the report notes that the technology sector stills employs around 2.4% of the workforce in Suffolk, with its under-representation in the top 100 being due to the tendency for high-growth technology firms to be acquired at an early stage by larger players.
James Brown, a partner at Grant Thornton, said: “Considering the very challenging economic and market conditions that the UK and much of the world has had to contend with, Suffolk Ltd has fared surprisingly well over the reporting period, with a rebound in revenues back to 2009 levels and growth in operating profits approximately in line with turnover.”
Although the increase in pre-tax profits largely reflected the higher one-off costs seen in the previous year, there was a positive side to this in that it indicated many firms had acted decisively in response to the challenges they faced.
Having taken these difficult decisions, these companies were now “leaner and fitter”, which should leave them better placed to withstand the fresh challenges likely to lie ahead as a result of low growth and the current crisis in the eurozone, he said.
One cause for concern, however, was that analysis of the county’s top 100 companies suggested that the larger firms among them were tending to deliver the best results, with smaller businesses struggling more to maintain revenues and profitability.
“Extrapolating this to Suffolk’s large base of smaller companies outside the top 100, which employs the majority share of the county’s workforce, this could mean that business is a lot tougher for them than is the case for Suffolk Ltd as painted by this report,” said Mr Brown.
Looking ahead, he said that, having done well to hold debtor days relatively steady at 38 days in the past year, against 37 in the previous survey, it would be crucial for firms to maintain their focus in this area, particularly in the coming months with the Christmas and New Year holiday period always causing cash-flow problems for a number of businesses.
In view of the current uncertainty within the eurozone, companies involved in exporting, or those considering exporting for the first time, needed to think carefully about where demand was likely to come from in future.
Firms selling into overseas markets further afield were already out-performing those more heavily reliant on European markets and this trend was likely to continue, he said.
However, Mr Brown said that, whatever challenges lay ahead, Suffolk’s economy would continue to benefit from not being over-reliant on any one sector.
And the relatively strength of its food and agriculture industry compared with many other regions would also continue to be an asset, with food traditionally one of the more resilient sectors during hard times.
“Overall, Suffolk is a good place to do business in a downturn,” he added.