24 central south report


Reasons to be cheerful – part IV!


The findings of the recently-published Central South Report 2011, compiled by leading accountants and business advisers BDO, highlight reasons for optimism for the region’s businesses that are prepared to adapt and broaden their horizons. This year’s snapshot of the region’s economic health, based on the consolidated accounts for the Top 150 companies, shows that despite the impact of the recession, there are some businesses performing well and opportunities for future growth


The fourth annual Central South Report by BDO LLP in Southampton has a new concise format and a fresh focus for 2011, reflecting the changing economic environment in which the region’s companies are operating. It captures the top performing companies in key areas of operation and includes case studies from those that have performed strongly during the downturn.


However, it continues to consider how the Top 150 companies, referred to as ’the Group’, have fared. These companies employ over 295,000 people worldwide and make a pivotal contribution to the region’s economy.


Review the outlook for this sector is far less certain.


Although funding lines have dried up for most, those who have them are using facilities and cash reserves to invest and have expanded rapidly, often overseas. The cost reduction and efficiency measures taken during the recession have allowed most companies to at least maintain their profitability, but this might be a harder trick to pull off in 2011 with continued increases in the cost of oil, metals and other commodities and with pay demands that will track inflation.


Kim Hayward, international liaison partner for BDO in the UK (left), and Malcolm Thixton, lead partner at BDO in Southampton, at the University of Southampton’s world-leading research centre


Recovery is evident with 80% of the businesses within the report making a positive contribution to profit, in contrast to 70% last year, and overall the spread of businesses contributing to profit showed growth across nearly all sectors.


In his foreword, Terry Twigger, CEO, Meggitt plc, noted: “Central South companies have continued to invest, but not at the extremely high levels we saw before 2008. The nature of that investment has changed too, with less spending on mergers and acquisitions and more into promoting organic growth. This is probably a good thing.“


Terry Twigger, CEO, Meggitt plc


Last year’s report sounded a note of caution and rightly so as the Group has navigated its way through the recession with operating profit up but turnover and employee numbers down.


However, there was some good news to be found in the results. There were still growth areas – niche providers within retail and technology saw a rise in turnover and a corresponding rise in staff numbers. Turnover increased within the manufacturing sector, which now contributes 50% of the total Group turnover. It was a good year for defence and military-related suppliers with companies securing both UK and US government contracts on the back of product quality and price. However, following the UK Strategic Defence


www.businessmag.co.uk Employment and recruitment


Staff numbers, unsurprisingly, fell overall across the region’s businesses with most sectors experiencing downturns in their work forces of between 1% and 5% but this was partially offset by a significant increase in the business services sector. The general picture is one of consolidation to contain and control employment costs in view of an expected continuation of the fragile economic situation. However, many employers also highlighted employee motivation and retention as a key priority for 2011 as they moved from stabilising the business to seeking out opportunities for growth. This has seen increasing interest in cost-effective incentives such as share schemes and salary sacrifice arrangements for key members of staff.


Advanced Resource Managers is one of the UK’s leading technical recruitment firms and has a good view not only of what it is like to recruit for itself but also the state of the wider employment market. Finance director Mark Gawthorne warned: “During 2010 we reduced costs as much as we possibly could and made no redundancies. But in a business where commission is a key part of reward, it is important to motivate people in other ways if the market is flat. Our retention has been good in a sector with generally low retention rates.“


Deal activity still to recover


Despite signs towards the end of 2009 that we might have started to see a recovery in M&A spending, net spend on acquisitions fell significantly last year. Looking across the region, almost all companies that have made significant disposals have also made compensating investments suggesting that 2010 may have been a year of clearing out the old and bringing in the new. As well as the fall in acquisition spend, the value of disposals also dropped to almost nothing, however, the number of companies making disposals did increase significantly suggesting that companies are still looking to sell albeit for lower values.


Looking forward, the real question has to be how quickly the Group can regain its confidence and begin investing again? There is clearly a pent-up demand for quality transactions in the market, but in the ongoing climate of spending cuts, inflationary pressure and a lack of consumer confidence, many may find it difficult to take the risk in the short term.


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – APRIL 2011


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