Family owned companies are ‘star performers’: Credit Suisse

March 13, 2019

 

Many West Midlands SMEs featured on this website are family owned, including Sparkhill’s Indestructible Paint, Heritage Silverware in Small Heath, Smethwick’s Professional Polishing Services, A Perry & Co of Cradley Heath and Smethwick’s DK Rewinds. Though none of these is listed on the stock exchange, their practice matches the Credit Suisse findings about long-term approaches and reinvestment.

Dominic Walsh reports on a 2018 study by the Credit Suisse Research Institute which found that, over time, family and founder owned companies quoted on the stock exchange outperformed equity markets in every region and sector.

It compared 1,000 listed companies, whose founders or descendants had at least a 20% stake, and found that revenue and profit margins were higher.

This was attributed to the long-term, conservative approach taken by family businesses, ‘a tendency to reinvest’ and a lower reliance on debt. One reader commented that it’s difficult for family owned businesses to borrow money without extensive collateral so they avoid it and go for slower, organic growth.

Though “they underperform non-family-owned businesses during periods in which economic conditions or sentiment improve”, in the long-term, family-owned companies deliver stronger revenue growth in all regions and higher levels of profitability. See Michael O’Sullivan’s exposition in this video.

Reasons for success included:

  • Higher spending on research and development: if investing in innovation is a high priority, the business will be in a strong position to adapt and grow with markets and trends
  • Higher capital expenditure: businesses that spend money on improving equipment will be well-placed to keep their operations efficient and control costs.
  • Lower dividends and share buy-backs: by taking less out of the business, the company can commit to long-term investment.
  • More long-term investment: thinking long-term gives companies more flexibility and makes them more sustainable.

Source: Thomson Reuters, Credit Suisse Research.

A Times reader comments that a family owned company where the manage the business for immediately available profit/income and – more importantly – long term provision of the same for themselves, their retirement and their children’s. Contrast that with overpaid employed management, focused on short term profit and massive bonuses with no long-term responsibility whatever….

 

 

 

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Proposals to extend the “project bank account” and ensure payment for suppliers

January 20, 2019

The failure of Carillion, the giant construction group, owing tens of thousands of suppliers a total of £2 billion, has led to calls for better protection for small and medium-sized companies in supply chains.

Neil Skinner, owner of Johnson Bros, an Oldham-based builder who lost £176,000 when Carillion collapsed, said: “Large companies know late payment can destroy us small businesses, but they rely on this tactic to be seen to be profitable themselves. Carillion went under owing us well over 15 per cent of our average turnover and this money is much needed to help us to survive.”

The Times reports that MP Debbie Abrahams has proposed a ten-minute rule bill that would mean suppliers’ cash would be ringfenced in order to speed up payment to small and medium-sized companies and reduce the impact of a large contractor going into administration.

She explains:

“Late payment by large businesses is a massive issue across all business sectors. When payments take a long time working their way along a supply chain from the contracting authority, there is a risk that the cash could be cut off because of payer insolvency. We witnessed the catastrophic effect this has with the collapse of Carillion. The precarious position of other major government contractors like Interserve means urgent action is required.

“My bill aims to set in law the requirement that parties delivering government and public authority work, from the lead contractor right down through the supply chain, will receive payment from the same secure ‘pot’ of money”.

Ms Abrahams has campaigned for years on this subject, winning a ‘Grassroots Diplomat’ award.

The Federation of Small Businesses and the Specialist Engineering Contractors’ Group are also backing the project bank accounts (PBA) proposals hoping that they would remove the incentive for large contractors to delay supplier payments to benefit their own cashflow. Mike Cherry, the national chairman, said that project bank accounts were needed to “enable prompt payment when work is completed and prevent big companies from hoarding money to improve their own balance sheets”

In 2015 Construction News reported that Highways England, one of the largest public sector clients for construction, is using project bank accounts. It was required by government in 2012 with delivering £3.7bn of work over three years using the payment mechanism and by April 2015 there were more than 35 PBAs in operation across Highways England schemes. The outcome:

  • The average time to fund PBAs was 12 days;
  • It took a further seven days on average for payments to be made to the supply chain;
  • The average payment down to tier three level is 19 days after the assessment date.

James Hurley, who wrote the Times article, comments that though private members’ bills have little chance of success, they are influential – increasing pressure on government to legislate.

 

 

 

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Manufacturing: Catapult Centres in the West Midlands receive funding

November 11, 2018

The Chancellor of the Exchequer recently announced that Warwick Manufacturing Group (University of Warwick) has been awarded £100m in Government funding for WMG’s work in the High Value Manufacturing Catapult.

It forms part of a £780 million announcement of which £270.9 million has been awarded to the West Midlands (to WMG and The Manufacturing Technology Centre, below) for their work in the High Value Manufacturing Catapult, and the Energy Systems Catapult in Birmingham.


The WMG centre’s HVM Catapult focuses on Low Emission Mobility, Connected and Autonomous Vehicles (CAV) and the supply chain. This is directly aligned to the Government’s ‘Road to Zero’ vision for the transport sector of zero emissions, zero accidents and zero congestion, underpinned by WMG’s digital manufacturing capability that drives improvement in productivity and competitiveness across sectors.

The Warwick press release reports that in their first five years the catapults have supported around 3,000 small businesses to develop and exploit new technologies. They operate more than £850m world-class facilities and are also training hundreds of apprentices and doctoral students. Last year 900 apprentices gained valuable practical experience with cutting-edge technologies used in modern manufacturing at HVM Catapult.

A more cautious account was given last November in The Register, by Andrew Orlowski. Citing a report by Ernst and Young’s Catapult Review Steering Group to the Department for Business, Energy and Industrial Strategy, he summarised some of its conclusions.


The catapult agencies (aka the government’s elite network of Catapult Centres), which are formally private sector “independent research and technology organisations”, hoover up public money via Innovate UK.

The UK government’s network of “Catapult” innovation and technology agencies fall under its R&D spending umbrella – show dubious value for money. Governance structures are unhelpful the report finds. Innovate UK – the operating name of the government’s Technology Strategy Board, is an arms’-length body that falls under the Department for Business. Innovate can’t sit on Catapult boards or recommend appointments because “There are private and public sector clashes e.g. when Catapults are asked to deliver for Government, report on performance, and comply with government accounting rules”.

Orlowski adds that the report suggests the manufacturing and biotech catapults have had a positive economic impact. But the others? Not so much. three of the seven catapults have been put in the Last Chance Saloon: the “Transport Systems”, “Future Cities” and “Digital”.

EY adds: “With the Catapult network’s overall lack of a clearly articulated set of objectives, or a framework for measuring impact, and the current level of operational performance, it is unlikely that the impact of the network overall has been significant so far. . . “

“The “Transport Systems”, “Future Cities” and “Digital” Catapults urgently need to draw up new plans to justify their existence: funding should be halted if they can’t “prove confidence” with a clear new plan”.

Dr Ian Campbell, Interim Executive Chair of Innovate UK, has a more positive view:

“In their first five years the catapults have supported around 3,000 small businesses to develop and exploit new technologies. They operate more than £850m world-class facilities and are also training hundreds of apprentices and doctoral students, such as at the High Value Manufacturing Catapult where in the last year 900 apprentices have gained invaluable practical experience with cutting-edge technologies used in modern manufacturing.”

 

 

 

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Aston’s JS Wright sets up prefabrication unit

June 14, 2018

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As construction workers from EU countries leave following the Brexit vote and the skilled British workforce is ageing, Britain is once more turning to prefabrication.

In a new warehouse facility in Digbeth, J.S. Wright has set up a prefabrications unit, producing low carbon Heat Interface Units (HIU), which act as a bridge between the central boiler and the heating and hot water systems of individual apartments.

The HIU units will reduce installation times in large developments such as Mount Anvil’s 595-home high-rise Keybridge development and Hill’s 580-apartment canalside scheme at Fish Island Village in London.

After the retirement of JS Wright’s previous owners, the company was bought by its senior management team: the finance director, national design and estimating director, national mechanical contracts director and national electrical contracts director. (Aston premises, left)

Reuter’s Astrid Zweynert reported a major policy announcement in 2017; the government said it supported off-site construction, promised financial support for prefabs and to make public land available for “modular schemes”, as they are now known. She added, after a brief account of post-war prefab building: “Faced with a chronic, new housing shortage, Britain is once more embracing prefabrication as it struggles to meet its promise to build a million homes in England by 2020.

Valued homes: Grade 2 listed Phoenix Wake Green Road prefabs in Moseley

There are examples of a UK off-site construction industry emerging. York Press reported in 2017 that L&G Homes has been set up in a factory near Leeds to build up to 4,000 prefab homes a year. The factory, which is the largest of its kind in Europe, and will at full capacity produce 3,000 modular homes a year, has just revealed its first prototype.

Though many eye-catching detached homes have been built using continental modules, a linked Birmingham site focussed on low cost prefabrication. Building Design highlighted three prefabricated solutions to the housing crisis in 2016.


The first design (above), by Urban Splash, was one of the new range of low-cost prefabricated housing solutions being ‘rolled out’ across the country with the potential to help tackle Britain’s affordable housing crisis and offer new employment opportunities.

 

 

 

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Post-Brexit, with an ageing workforce and a shortage of graduates with science, engineering or mathematics qualifications, effective training is needed for younger and older workers

February 18, 2018

 

In April 2017 an apprenticeship levy was introduced. It requires companies with a £3m payroll or above to pay 0.5% of it to the government in return for vouchers, which smaller companies can also access, to spend on apprenticeships . . .

The EEF’s summary – from the employer’s perspective

The FT’s Business editor writes: “It is now clear that the UK government’s apprenticeship levy simply isn’t working. Apprenticeships fell by more than a quarter in the last three months of 2017 year on year, having fallen by 60% in the previous three months. Since April, when the levy was introduced, there have been just 158,000 apprenticeship starts, compared with 269,000 in the same period a year before”.

Some universities are now offering degree apprenticeships

These offer the opportunity to gain industrial knowledge and practical, relevant experience by combining study with on-the-job training. Leeds Beckett University is one such provider for non-levy and levy paying organisations in Leeds City Region.

And at post-graduate level

The Engineering Integrity Society events have recently included Young Engineers Seminars in January 2018, July 2017, December 2016, for newly qualified engineers from different companies who are encouraged by more senior engineers to attend. EIS is a long established charitable society, which focusses on the areas of fatigue, testing and durability. EIS members have many years of experience in these fields gained through working in some of the best-known companies in the industry.

“The levy has led employers to recoup the cost of existing in-house training schemes by relabelling them as apprenticeships” 

This Times leader also points out: “Ofsted cannot cope and the reasons are not complicated. The new apprenticeships target has increased its workload but its budget has been cut by 38% over the last two parliaments: it stood at £200 million in 2011 and will fall to £124 million by 2020. Reversing this cut would be easy to justify if the apprenticeship levy were working, since this would in due course drive up wages and tax revenues as well as skills. But the levy is not working. It was meant to incentivise large employers to invest more in apprenticeships by requiring them to pay into a central fund from which they can claim back some or all of their training costs.”

MP Meg Hillier, chairman, adds that parliament’s Public Accounts Committee has found that private providers are paid with taxpayers’ money to deliver public services but that government sometimes fails to monitor the results or penalise those that do not deliver.

A number of private providers have failed – the most widely publicised being First4Skills (funded by the government’s Skills Funding Agency) – and including Talents Training and Shared Educational Services Limited – leaving the apprentices and the institutions which hired them in serious difficulties.

Undeterred, last month the Cabinet Office launched a policy paper: Shared Services strategy for government.

Mission impossible? “The government is seeking to boost the number of apprenticeships at the same time as slashing the budget for Ofsted who are responsible for enforcing quality”

This is the charge made in another Times article, by Joe Dromey, senior research fellow at the Institute for Public Policy Research, who has given evidence to the education select committee’s inquiry into apprenticeships.

The FT’s Business editor believes that the need for training and reskilling is imperative at a time when manufacturing is at a turning point, with the industrial internet about to revolutionise processes and business models and the integration and linking of big data, analytical tools and wireless networks with physical and industrial equipment. 

 

 

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What have Liverpool and Arsenal football clubs in common with Music Magpie?

January 29, 2018

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Football clubs were among the quickest to pay their suppliers. Liverpool managed an average of 27 days, beating Arsenal’s 35. Entertainment Magpie, as Music Magpie – an online reseller of CDS, DVDs and books – pre-owned, refurbished, and fully guaranteed –  was the fastest payer, averaging just five days, with 94% of invoices settled within 30 days.

Companies that have more than £36m annual turnover, an £18m balance sheet or 250 employees are now obliged to report to the business department twice a year their payment policies, practices and performance, due to concerns about the administrative and financial burdens faced by thousands of companies because they are not paid on time.

Small and medium-sized businesses may have to borrow to cover shortfalls and a shortage of cash can in extreme cases force them into administration.

SMEs are owed £14bn at any one time, according to the government. The Federation of Small Businesses says that late payment should be a top priority for government in 2018.  “FSB research demonstrates that a third of payments to small businesses are late with many turning to personal credit cards and overdrafts just to survive,” said Mike Cherry, the chairman.

Andy Bounds, Enterprise Editor of the Financial Times reports that filings at the Department for Business, Energy and Industrial Strategy (BEIS) reveal late payment of suppliers.

Most UK businesses take more than 30 days to pay their suppliers, with the average as high as 113 days. Filings by about 200 businesses show that only 29% of them manage to settle their accounts within 30 days or less on average, and that only 52% of invoices overall are paid in that timeframe.

UHY Hacker Young, the national accountancy group, which studied the filings, said the figures showed the government’s transparency push has “yet to make any significant impact on the culture of late payment”. It was reported that some businesses had standard payments terms of 120 days.

  • DS Smith, the paper, packaging and recycling group, had one of the worst records. Its recycling arm took 113 days on average to pay suppliers.
  • Waterstones, the bookseller, took an average of 69 days.
  • Clifford Chance Europe (a law firm) took 73 days.
  • Conviviality, owner of the Bargain Booze and Wine Rack chains, averaged 56 days.

None of the major supermarkets has yet reported its figures. Companies have until January or April to publish the data.

The business department said its new small business commissioner, Paul Uppal, would oversee a new complaints system and help to tackle late payments, potentially delivering a £2.5bn annual boost to the economy.

Richard Lloyd-Warne, partner at UHY Hacker Young, said: “Multiple governments have tried different ways to get bigger businesses to pay on time, including allowing them to levy interest on late invoices, and the much-delayed creation of a small business commissioner role.”

The new duty to report was “a good step” Mike Cherry, chairman of the Federation of Small Businesses said, but “changes need to go further to allow the naming and shaming of those businesses who are putting the squeeze on small firms”.

 

 

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Updating KPM Marine 2013: John Clancy’s legacy fund, the BSBLF 

December 7, 2017

Birmingham City Council leader John Clancy said earlier this year, “(Entrepreneurs) risk-takers are hugely important to the city economy, creating jobs and wealth. Given the right support, they can help us create inclusive growth across Birmingham, so I’m delighted that we’re able to support our SMEs through the new Birmingham Small Business Loan Fund.”

The Birmingham Small Business Loan Fund (BSBLF).is administered by ART Business Loans and supported by Birmingham City Council, Thin Cats peer lending platform and Unity Trust bank. It provides loans of between £10,000 and £100,000 for small to medium sized businesses (SMEs) in Birmingham that are unable to obtain any or all of the finance they need from high street banks.

KPM Marine, which we featured in 2013, (KPM safety products lead in global marine and automotive markets), has been able to use a BSBLF loan to provide working capital to help it take advantage of growth opportunities presented by recent shifts in the value of sterling.

KPM products and designs – in Mott Street, Birmingham – are the first choice of work-boat builders, military and rescue agencies throughout the world. Julian Morgan, Joint Managing Director of KPM Marine, said “We can find ourselves competing with some of the world’s largest manufacturers . . .  95% of our supply chain is based in Birmingham, which is not only good for the local economy, but also gives us greater flexibility, faster response times and better control over quality than sourcing products and materials from the Far East.”

In 2003 the Duke of York looked over Rikki Hill’s V24 ‘Bat boat’ under the watchful eye of Jules (Julian) Morgan, owner and design director of KPM Marine and founder member of Idea Birmingham.

Julian’s business partner, Joint Managing Director John Key adds: “We moved into the marine sector around 15 years ago and have developed our product range to include bilge pumps, engine reventilation systems, shock-mitigating seating systems and interior fit out modules. We are delighted to have won naval contracts on both sides of the Atlantic and in Europe. Our latest success is as part of the supply chain providing a fleet of up to 38 workboats to support the Royal Navy’s new flagship carrier HMS Queen Elizabeth”

Steve Walker, Chief Executive of ART Business Loans says: “KPM Marine is a good example of the type of business we are here to support – innovative and dynamic small to medium sized enterprises which are the lifeblood of the local economy, but which struggle to access finance from the banks.”

The BSBLF aims to lend £3m to Birmingham business over three years. To apply go to www.artbusinessloans.co.uk or call ART on 0121 359 2444.

 

 

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