Amtico, Polypipe and Future Life talk about trading conditions in the UK following news that the economy is back in recession
Despite today’s return to recession, it’s not all doom and gloom for British industry. Amtico is a manufacturing business that continues to benefit from retailers, despite the sector’s ongoing UK woes. The Coventry-based flooring manufacturer counts shops from Germany to the US among its biggest clients and its home market remains strong. “It is looking fine,” says Jonathan Duck, Amtico’s chief executive. While construction has suffered in the UK over the past three months, Amtico has benefited from refurbishment orders from retailers, offices and hospitals. “Most of it is remodelling and refurbishment. If you are largely in the new-build sector things might look a little different, because that has been depressed.”
Amtico’s floor tiles can last 25 years in a well-trodden environment, underlining the company’s appeal at a time when capital expenditure has to endure and the path to recovery grows ever longer. It posted double-digit revenue growth in the first quarter and expects the same for the whole financial year, which ended in March. It has also repatriated some manufacturing from China after whittling down costs.
Duck says there are many more companies that have outperformed the wider economy. “There are lots of people like us out there who are succeeding.But the issue is that when you have government spending accounting for 50% of the economy, and that is being reduced, you are going to hear squeals.”
He admits, however, that doom and gloom will have an impact. “It is a confidence game. Looking at the eurozone will affect people’s investment plans.”
Amtico’s spending proposals are safe after it was taken over by a US business in March, although Duck would like to see UK businesses unlock a corporate cash pile that stands at £754bn, according to the Ernst & Young ITEM Club.
The UK is not investing enough, he says, due to a mix of low confidence at home and abroad, an uncompetitive tax regime and a lack of bank funding. “I would love to find a way of unlocking this corporate cash that has built up,” he says.
Hard times mean difficult meetings for Jill Thomas, whose wealth management firm on the edge of Sheffield is getting more and more clients from both ends of business – success and failure.
“It can get quite emotional for all of us,” she says of sessions with former riders of the ‘noughties’ boom whose investments on borrowings have crunched and, judging by today’s GDP figures, are not in sight of revival any time soon.
“It has to be a Betty Ford moment,” she says, comparing the plight of those caught by hard times with the United States’ First Lady who had the courage to confront her alcoholism. “It may be a matter of accepting losses and dealing with them before things get worse, but facing up to reality is the essential first step.”
The offices of Future Life are in a converted stables at Renishaw Hall but a dose of Yorkshire pragmatism isn’t always enough to solve problems for her clients.
Her team of accountants and lawyers comb regulations and financial options, both to rescue clients landed with debts – unsaleable and unlettable foreign property is a commonplace – and others who might have, for example, a flourishing engineering firm but need skilful handling of expansion in a turbulent market.
“Part of the time, we’re looking at options which are available now,” she says, citing a way in which currently low-valued commercial premises can be bought through a self-invested personal pension scheme, thus helping a business through hard times. “Sometimes it’s keeping a more strategic eye: we’ve had two meetings this week where quantitative easing has come up, and its possible effect on final salary pension funds. Take that with the gender equality retirement measures and the time we’re taking to get out of recession, and you’ve the makings of a perfect storm.”
Thomas talks with the brio of a well-experienced sailor heading into rough seas, but she’s also sustained by a conviction that the trials of double-dip mask a different challenge: the UK’s unreadiness for success.
She says: “One of the commonest cries of successful manufacturing clients is: where are the skills? They’ve won back orders from China because their standards are so much higher, but they need new staff to come in and keep that up.”
Alistair Reid, a property solicitor in Sheffield who chairs the local Chamber of Commerce’s regeneration committee, calls Thomas’ analysis spot-on. “Firms are piling back into apprenticeship schemes as fast as they can,” he says. “That’s the way to get GDP back up again.”
As a maker of piping for building projects ranging from schools to homes and roads, Doncaster-based Polypipe can testify to the pressure on the construction and manufacturing industries. The company says UK sales volumes have been “static” over the past three months and George Osborne will have to wai if he is hoping for a swift recovery in the construction sector.
Construction accounts for 7.6% of the UK’s economic output and recorded a big contraction of 3% in the first quarter of this year, helping to propel the UK back into recession.
David Hall, Polypipe’s chief executive, said: “We do not expect there to be a recovery in the market until 2014,” says Hall. “And even then we don’t expect it to be huge.”
Hall says the construction industry’s problems stem from the public spending cuts announced by Osborne in 2010. The ensuing slowdown in hospital and schools building has started to hit the industry hard, he says.
“The health and education market has been wound down over the past 18 months. As these jobs are completed it slows construction output because there are no new projects coming in at the top. Also, spend on social housing has slowed down.”
He adds: “The private market has picked up a bit, but it is not sufficient to pick up the slack from the public sector.”
As well as the divergence between public and private sector, says Hall, there is a geographical split. Predictably, London and the south-east are doing better than northern England. “There is plenty of high-rise building going on in London but it gets more difficult as you go north.”
Polypipe is owned by a private equity firm and employs 1,800 people in the UK. Hall is happy with the balance of the business, which is split 70/30 between the public and private sector. “There is a lot more piping in a three-bedroom house with two bathrooms than in the same amount of space in an officeblock or a school,” says Hall.
In the meantime, Polypipe is looking to foreign markets for growth and has “put more people on the road”, he says. A recent export success has seen Polypipe strike a deal in Sierra Leone. In contrast to the UK, it was for a hospital.