Creative thinking in tough economic times

We profile three UK companies that report growing trade despite a difficult couple of years.

Econ Engineering

If you were stuck in traffic behind a big yellow salt spreader or snow plough during last December’s bad weather in the UK, the chances are you were looking at a piece of kit owned by Econ Engineering. The Yorkshire-based company supplies and maintains about 80 per cent of the gritters used by local authorities.

Fortuitously for a business based around bad weather, the recession has coincided with two harsh winters. “Last summer was busier than ever due to the harsh winter requiring additional use of the existing fleet,” says Andrew Lupton, joint managing director. “But also because we were very successful with placing new vehicles with councils across the UK.”

Econ, a third-generation family business owned by Mr Lupton and his brother, is benefiting from rising cost pressures on the public sector. This has encouraged councils to use revenues to move from purchasing road maintenance equipment out of capital budgets to hiring them.

At the same time, a growing focus on the environment has increased the appeal of Econ’s modern equipment, compared with keeping older machines on the road – it has developed technology, for example, to make salt stocks go further.

The downturn has also coincided with a big increase in private sector contracts servicing supermarket and pub chains, housing groups and others with car parks and private roads. “Local councils prioritise only 25-40 per cent of their road network [for clearing snow and ice],” Mr Lupton says. “These private groups are not provided for.”

These trends have helped Econ, which grew out of a farming equipment business set up by the brothers’ grandfather in the 1950s, to expand in spite of the recession. Its fleet has grown from about 40 vehicles a decade ago to more than 280, while annual turnover has doubled to about £20m and employee numbers have risen from 95 to 170. Still, Econ has been affected by the decline in manufacturing and the banking crisis.

It used to share machine centres with others, but Mr Lupton says that with “manufacturing around here on its knees”, the company has had to invest in facilities of its own. It has also been hit by the declining skills base, which he blames in part on the last government’s drive to increase the numbers of young people attending university. “This is one of our greatest difficulties – securing skilled staff,” he says.

The company buys in cabs and truck chassis from global automotive producers, and adds the bodywork – roughly two-thirds of the value of a machine – which it customises for users.

But the recession has also brought benefits, notably better interest rates. “We have never had better rates,” Mr Lupton says, adding that finance has been available because it is secured against new vehicles that could easily be sold if necessary.

Financing commercial property, on the other hand, has become difficult. As a result, rather than move to a larger site to keep up with its growth, Econ has expanded its existing plant and is working longer hours.

Excelsior Technologies

When the global financial crisis struck in 2008, Excelsior Technologies was partway through the UK’s single biggest investment in flexible packaging in decades – a new £20m plant in north Wales.

The crisis added to the stress and complexity of relocating a manufacturing operation: the company ended up changing its bankers and endured intense scrutiny to secure finance.

But the recession also proved a boon. Excelsior made savings across the board. “If you are growing and have the money, recessions are the best time to do deals,” says Dave Moorcroft, managing director. “We wouldn’t get the deals we got in 2007 or 2008 today.”

The company, founded in the 1970s and now privately held by a US investor, acquired a long-term lease on a modern plant vacated by a printing business that had gone bankrupt. On the equipment side, it benefited from the temporary lull in orders from south-east Asia and China – markets, Mr Moorcroft says, that had been “hoovering” up machinery, mainly from German manufacturers.

It also secured a £1m grant from the now-defunct Welsh Development Agency. This was important, he says, in keeping the company in the UK at a time when many of its competitors were relocating, notably to eastern Europe.

For the capital equipment purchase, Excelsior found that HSBC was its only realistic option among the main UK banks. It was aided by the bank’s increased preference to concentrate on fewer and larger transactions, secured against “big, lumpy pieces of equipment” with a ready second-hand market if Excelsior ran into difficulties.

With multinational food companies its single biggest customers, the company also had the advantage of a high-quality debtor book.

Three years later, the new plant – which replaced two sites – is operating at about 60 per cent of capacity, having increased sales sharply in 2010. Turnover has jumped to £38.2m, up from £30.8m in 2009, while the company added 92 jobs in the past 18 months, lifting the total to about 230. Exports account for about 60 per cent of sales.

With food and household and medical packaging accounting for 80 per cent and 12 per cent of sales, respectively, Excelsior’s business has been relatively recession proof. It is also taking advantage of the long-term trend for ready meals consumed in the home: its single most important product is microwave steaming packaging.

New equipment, meanwhile, has helped reduce costs at a time when customers have been pushing for savings and when imports from eastern Europe, China, India and Turkey have been rising.

Excelsior’s strategy, says Mr Moorcroft, is to occupy the middle ground in a sector that has underinvested in recent years, and which comprises a few large multinationals and many small producers. In particular, he hopes to win market share from those exporting into the UK.

He adds that dealing with banks remains difficult. Excelsior has doubled the number of staff in its finance team, mainly because of banks’ more onerous requirements.

“The amount of security you have to put up has reached ludicrous proportions,” Mr Moorcroft says. “Even in transactional banking, the banks are user unfriendly.”

Seasalt

In late August 2008, all seemed shipshape at Seasalt, the Cornwall-based organic clothing company. The family-owned business had strong forward sales and had just opened its 11th shop. The repositioning of the retail-only business as a designer and producer of clothing looked firmly on course.

Within a few weeks, the financial crisis had intensified and the company’s bank of 18 years’ standing balked. It refused to issue letters of credit to Seasalt’s suppliers – the overseas manufacturers of its clothing range – despite its full order books.

“Things looked difficult,” says Leigh Chadwick, managing director. “We were asked to provide our family homes as security, and only then would the bank decide whether to give us credit.”

Mr Chadwick convened a meeting with his two brothers, the other owners of the business, which had been founded by their father in 1981 with an army surplus shop in Penzance. “The question was whether we should rationalise and revert to being a seller of third-party brands despite our full order books and all our hard work, or whether we should plough on [with the move to design and production].”

The three brothers decided to stick to their strategy and continue to invest. They stumped up £700,000 of their own cash, changed banks and cut costs.

Senior managers agreed to a 10 per cent pay cut, the business deferred non-essential spending and, to reduce the cost of sales packaging, it ramped up sales of branded jute bags. These proved unexpectedly successful, making a profit out of what had been an area of cost, as well as becoming a marketing tool – more than 270,000 have been sold in the past two financial years.

Seasalt also invested in its staff. It now employs more than 150, up from about 105 in 2008.

Seeking to build a higher-margin business, the company had launched the first collection of its own in 2005. The clothing, which builds on Cornwall’s coastal heritage and has something of a retro twist, aims to be fashionable but functional.

Seasalt had prospered as a retailer in the 1990s when improved road links and new tourist attractions such as the Eden project made Devon and Cornwall more attractive for short-term breaks all year round.

But the brands that its shops stocked – the likes of Joules and White Stuff – were moving into retail themselves. This threatened Seasalt’s business but also provided an opportunity – as a supplier to other stockists facing the same issue.

It is in this wholesale channel that Seasalt has put much of its effort in the past 2-3 years. It now has 300 stockists around the country, and wholesale business has jumped 400 per cent to account for a quarter of sales. This has helped push the company to pre-tax profits of more than £800,000 in each of the past two years, after three years of losses.

While the company plans to resume opening new stores, Mr Chadwick expects the wholesale channel to account for almost 50 per cent of sales in three years’ time. With orders pre-sold, it has the added attraction in a still lacklustre economy of being a less risky channel than retail, he says.

The recession has also encouraged more people in the UK to holiday at home, boosting tourism in the areas where Seasalt has its stores.