Regional companies succeed against the odds

Four regional companies are working hard to grow following the recession

Anglian Water

When Anglian Water announced plans to reshape itself around a low-carbon model, it was creating an example perhaps of what many regional companies are striving to achieve in an uncertain economic climate.

The utility in the east of England – the largest UK water company by area – unveiled 100 business commitments linked to sustainability, from eliminating waste, accidents and pollution to halving carbon use by 2015.

As a regional company in a regulated industry, adopting a new business model is a challenge. “This is all about redefining the role of a water company in the 21st century, going far beyond achieving our regulatory targets,” says Peter Simpson, managing director. “It’s a radical change in the business model for us as a company, and it’s radical for the water industry.”

Carrying out the plan will also cut costs for Anglian Water and, it is hoped, give the company greater corporate social responsibility kudos.

The catalyst for change was the realisation that the company could not go on building expensive and carbon-intensive engineering projects to counter the region’s challenge of an expanding population and water shortage.

Instead, it is promoting innovation in its supply chain, hoping to halve the amount of embodied carbon in the mains, sewers and treatment plants it builds. It has also sought to change its relationship with its customers, explaining environmental challenges rather than taking a hectoring tone.

For example, by engaging with customers more intelligently, Anglian Water hopes to reduce the amount of pollutants flushed into sewers.

“There’s a direct link between taking this kind of approach and reducing costs,” Mr Simpson says. “We have found that whenever we make carbon savings, cost goes with it. This is not about CSR gloss; it’s a business strategy.”

These are just the kind of areas that regional companies need to address if they are to thrive, say the experts that advise them. Although there are disparities in regional economies across the UK, many small and medium-sized enterprises face similar challenges regardless of their location.

“A lot of good businesses find time to do things in a recession they probably should have done when they were busy,” says Kevin Nicholson, head of regions at PwC, the professional services firm. Cost reduction is an obvious priority, but Mr Nicholson emphasises staying close to customers and using a company’s assets in a different way.

The Anglian Water initiative is one example of a trend identified by Simon Hammerschmidt, head of the performance and technology practice in the south of KPMG, the professional services firm. He says some companies use CSR initiatives as a way of overhauling their processes. “If you are approaching it as a box-ticking exercise, you are on the wrong page,” he says.

While cost reduction is important, it is the ability to focus on customers’ needs – as well as offering complementary products or services – that can help businesses take advantage of difficult times.

A particular challenge for regional companies will be the effects of the public sector spending cuts. When the recession hit, many companies increased their reliance on public sector contracts, but local authorities are now tightening their belts.

Cutting costs has its dangers, too, warns Mr Nicholson. “The cost of replacing customers you have lost is greater than retaining them,” he says. “There’s no doubt good companies will survive, and if they have stayed close to their customers, they will come out with a stronger market share.” – Bob Sherwood

United Dairy Farmers

Northern Ireland has a long history of topping up mainland Britain’s milk supply. But with the UK market recovering from recession and sterling still weak, United Dairy Farmers, the region’s largest dairy co-operative, is making the most of global demand.

With rich, arable land, affordable commercial property and skilled labour, Northern Ireland accounts for 15 per cent of UK milk supply. However, food and dairy products fetch higher prices in international markets, and last year United’s exports outside the UK and Ireland were up 25 per cent, accounting for more than a fifth of total sales.

“We started off very much as a regional company and, as a result of economic conditions, we have become much more international,” says David Dobbin, chief executive.

The group predicts overseas demand will help push turnover up 10 per cent for the financial year ending this month, backed by a resilient milk price. It has also been able to invest in key areas of the business, hiring about 30 staff over the past year – a notable success when unemployment in Northern Ireland rose to 8 per cent in the last quarter of 2010, the highest figure since 1998.

Notwithstanding the benefits of international expansion, Mr Dobbin’s main concern is for the domestic market and the squeeze on profit margins as inflation continues to drive up costs such as wages and basic commodities.

“We are seeing those primary inputs – oil, gas and wheat – all move up, and we are struggling in a depressed domestic market to recover those costs,” he says. “In the dairy business, there is a six-month time lag between increases in these commodity prices and higher costs for the consumer.”

Weak consumer confidence and price consciousness are strong factors in the UK – a mentality born out of government austerity, he believes.

Rising inflation also affects wages. In 2009, United froze pay, with a 1.5 per cent increase last year. In 2011, Mr Dobbin expects an increase of at least 3 per cent. “The fear is that if economic recovery continues in the UK, it will be very hard to keep a lid on wage inflation,” he says.

A decline in the value of sterling felt by the UK consumer is, however, countered by the increased purchasing power of United’s global export partners. “Developing countries now have the firepower financially to pay competitive prices for food and compete against the west for secure supplies,” Mr Dobbin says.

With UK dairy imports low and international prices higher, the balance for now is in the co-operative’s favour – so it may seem surprising that its long-term strategy centres on a resurgent British economy.

Last year, United began to implement a £39m ($63m) investment plan, the biggest yet in Northern Ireland’s dairy sector by one company. Almost all investment to date has focused on consumer products, especially cheese and milk, for which the biggest market is the UK and western Europe.

But United is determined to grow without excessive exposure to risky international markets and currency volatility.

“We are beginning to see global recovery drive our recovery and in time the UK will catch up,” says Mr Dobbin. “We may be in a favourable position with the weaker pound, but we need to be mindful to build a market we can sustain.” – John Geddie

Union Electric Steel UK

Union Electric Steel UK is a company with a 170-year history – but last month, for the first time ever, the entire plant in Gateshead, Tyne and Wear, moved to a seven-day working week to meet global demand for its products.

Known for many years until January as Davy Roll, this producer of cast iron and steel rolls for the metalworking industry is using sterling’s relative weakness to penetrate new markets and demonstrate the quality of its work.

Few of the drivers passing the huge workshops near the Tyne Bridge know how the UK’s last large maker of cast rolls has survived and prospered.

Shaun Mantle, sales and marketing director, explains why the thriving business, which exports 82 per cent of its output, is entering new markets, such as eastern Europe. “We have excellent quality, and we currently have an advantage with currency that is helping us compete,” he says.

Steve Bell, managing director, says credit goes also to Union Electric Steel, the Ampco-Pittsburgh subsidiary that acquired Davy Roll in 1999 to have a producer of cast rolls to complement its own forged rolls. “When business was bad, they stood by us, financed us and invested in us,” he says.

Since the acquisition, £20m ($32m) has been invested in facilities, including Europe’s largest induction furnace plant. A further £9.8m investment is under way. Being part of Union Electric Steel has helped the international sales drive, triggering the name change from Davy Roll.

The company’s cast rolls are used in the metals industry to press and shape steel for industrial, construction and consumer products use. Demand for spun cast rolls, accounting for 70 per cent of the site’s output, is booming globally.

Adaptability has been vital to the company’s survival. It began in 1840 in Newcastle, making locomotives, and moved in 1870 to its Gateshead site. Around 1900, it switched to making marine and mining castings, and from 1930 produced rolls.

In 2004, when the outlook was uncertain, it called on the North East Productivity Alliance, then run by One North East, the regional development agency, to help implement lean manufacturing techniques. Sales grew from £16m in 2003 to £48m in 2007. When the recession hit, 45 people had to go as demand dropped. Turnover, at £50m in 2008, dropped to £30m in 2009 but picked up to £40m in 2010. This year, the plant will operate at 117 per cent of previous plant capacity, with turnover rising proportionately. After recent recruitment the company now has 305 employees.

On Mr Bell’s wish list are economic and political stability, a level global playing field on energy policy, less bureaucracy and a continuation of sterling’s current exchange rate. On skills, he says: “It’s becoming more and more difficult to pick up somebody with a metallurgical background.”

Changing this, he believes, requires a wider attitude shift in the UK, but there are positive signs. “The perception of manufacturing in the past 20 years has been low. Now the government is trying to rebuild the economy, and people are realising the importance of manufacturing.” – Chris Tighe

Business Energy Solutions

“Out of adversity comes opportunity,” says Andy Pilley, managing director of Business Energy Solutions, a small but fast-growing independent commercial gas and electricity supplier.

BES, which operates from Fleetwood, a fishing port 50 miles north of Manchester, is prospering in the wake of the recession as small businesses, cutting their costs, consider switching from the big, integrated utilities to new suppliers.

Mr Pilley speaks from personal experience. He worked for an energy broker in Manchester and lost his job in 2001 when Enron, the US energy giant, collapsed and triggered the demise of his employer, a creditor.

In Fleetwood, he decided to start his own business trading energy from his spare room. The only other employee was his sister Michelle Davidson. “I thought, ‘I know quite a lot about this industry.’ I did the sales and she did all the admin,” he says. “It takes a huge amount of bottle [courage] to leave your job. I was forced into it.”

Turnover is expected to more than double from £18m ($29m) in the year to April 2010 to £38m the year after, and Mr Pilley predicts £65m for 2012. The company employs 200 people.

The transformation came when BES decided to move from being a broker to becoming a supplier.

“We had a lot of suppliers falling over, which caused us problems,” says Mr Pilley. “In 2004, we became a supplier in our own right. It was a big step and very expensive. It meant we had to bill and collect our own money, but we became masters of our destiny.”

The high costs of entering the market explain why it remains dominated by big, often foreign-owned utilities that usually generate their own power, even though it is deregulated. BES was able to fund the move with the profits of the business. It has no debt, a big advantage in today’s climate when the reluctance of banks to lend is throttling many small businesses.

It also benefits from its location: the decline of fishing and domestic tourism has hit the Fylde coast hard but means office and wage costs are among the lowest in the country. There are good transport links.

“We are competitive on price but our real advantage is customer service,” says Mr Pilley. “It is how you treat customers that counts. They want to be able to speak to someone straight away. We can be more flexible and respond quicker than the big companies.”

In 2010, BES started offering electricity as well, which helped double customer numbers to 10,000 across the country.

The recession is helping. “You have to have electricity and gas. It is not like a foreign holiday. Two years ago, people couldn’t be bothered to switch suppliers to save a bit of money. Now everyone is counting their pennies,” says Mr Pilley.

That will become easier after BES received new licences from Ofgem, the UK regulator, to allow it to supply both gas and electricity from the same company.

“Businesses are operating in a tough climate at the moment. Anything that reduces both paperwork and time is a huge relief,” says Mr Pilley.

He has also learned a few things from the non-league football club he owns. Fleetwood Town, perennially overshadowed by neighbours Blackpool, who are in the Premier League, has had several promotions and are now on the cusp of the professional football league.

Of BES, he says: “We are David against Goliath, but we are very optimistic.” – Andrew Bounds