Yorkshire Report: Firms well-placed for recovery despite profits hit

BUSINESSES in Yorkshire have been “extremely hard hit” by the recession with the region’s top 150 companies suffering a 91% drop in profits last year, according to BDO’s 2010 Yorkshire Report.

However, the report claims that the “flexibility” Yorkshire firms have shown in response to the economic downturn make them well-placed to benefit as recovery builds over the coming year.

The annual report, produced by accountants and business advisers BDO, reveals that during the reporting period, the region’s top 150 companies saw operating profit fall 54% from £5.1bn to £2.3bn.

Profit after tax was down by 91% to £300m – the first time profitability has fallen in five years for the group of top companies.

Despite the profits fall, the picture was not all negative, according to BDO.

Ian Beaumont, managing partner of the Leeds office of BDO, said: “2009 was a year of tremendous structural change, with significant debt being refinanced, new equity raised and balance sheets strengthened. We also saw some of the region’s big names leave the top 150.

“However, on a positive note, we saw 109 of the top 150 remain profitable and 42% of those actually increased profits in the year.

“Some key sectors also held up well, most notably retail, where the two biggest companies in the group increased their combined revenues by £3.2bn.

“The food sector, an extremely important one for the region, also saw profits rise by 8%.”

This is the fourth edition of the Yorkshire Report and in previous years it had been noted that the group’s strength came from their prudent management. During the past year, this resilience has been tested as many of the top 150 experienced an extremely difficult trading period. The construction industry suffered particularly badly, where the previous year’s £1bn profit

turned into a loss of £0.6bn, and the financial services sector also saw profits halved while manufacturing profits were down by two-thirds.

Last year’s report also noted that some £66bn of debt would need to be repaid or renewed in 2009. Given the difficulty in accessing appropriate finance at a reasonable cost, the fact that many of the region’s businesses were able to refinance their debt facilities successfully, reflects their inherent strength and strong balance sheets.

Last year’s Yorkshire Report had also predicted that M&A activity would suffer a “cataclysmic shock” and that few deals would take place.

The prediction was correct as the number of deals done within the top 150 fell from 100 to just 24.

Most deals that were completed were largely bolt-ons to existing businesses and almost all funded by debt and cash.

Mr Beaumont said: “In the short-term, banking sentiment has improved but remains cautious. It is likely to stay that way for some time to come although there is much positive interest in good quality opportunities.

“I would expect to see deal activity return slowly but surely this year, but at more sensible and sustainable multiples than previously seen.

“Overall, I think the Yorkshire business community looks to the future with the same cautious optimism we have shown in the past. As the economic turmoil starts to settle down, we will begin to see a transformed business landscape.

“Obstacles for the group include the mountain of national debt that will have to be carried for a long time and will affect Yorkshire businesses’ growth prospects. Other forces to contend with include globalisation, technology and social change, and the group will have to adapt.

“But we have a good mix of businesses and our risk is widely spread, and whilst some of our companies will undoubtedly face tough times, I believe that the top 150 has the resilience to come through in a relatively tough position and rebuild.”

Stuart Hall, chief financial officer of Saltaire-based set-top box maker Pace, provided the finance director’s statement for the report and said: “Trading conditions have been undoubtedly tough, but it’s encouraging to see many Yorkshire companies maintaining and growing revenues in 2009.

“The challenge for 2010 will be to drive further efficiencies in order to translate top line growth into increased profits. We have a thriving business community in Yorkshire and with the economy in recovery, the signs are looking optimistic for many of our companies next year.”

The Yorkshire Report aggregates the figures from the latest available accounts of the region’s top 150 companies.

David Forbes, managing director of Rothschild, provided the chairman’s statement in the report.