Small is the new big
Profits are up, turnover is flat, numbers are down: the definitions of what it means to be big in the Midlands is changing rapidly, Kurt Jacobs discovers, as he looks at Insider's definitive Top 500 listings
Our biggest businesses are getting smaller and that's all to the good. That's the finding of Insider's definitive Top 500 list of the region's biggest companies. The Midlands' dominant players have seen staff numbers tumbling while profits have been soaring.
Over the past five years the typical Top 500 Midlands-based business has seen its pre-tax profits rise by more than 61 per cent, from £32.7m to £34.35m. And this has taken place without major increases in turnover - typically up by just 19.9 per cent over the same period to a median of £3110m. Once inflation is taken into account that rise is still less impressive - up just 7.8 per cent to £399.3m.
But the rise in profitability is mirrored by a fall in staff numbers. Five years ago the typical Top 500 business had some 746 people on its payroll. Now that is down to 628, a fall of almost 16 per cent.
Colin More, the Bank of Scotland's regional head of corporate Midlands and East Anglia, said: "What is striking is how much more productive and profitable people in the Midlands have become. If you look five years ago the average employee was contributing about £33,600 to annual profits: now that's risen to more than £36,900. That is a huge turnaround. It's a very positive shift.
"It's probably down to a lot of factors, such as outsourcing and moves away from traditional, old economy industries, but I think that it's also a testament to the fact we're now starting to produce a higher skilled, higher quality workforce that generates more cash."
David Hersey, regional director, of corporate banking for Royal Bank of Scotland (RBS) in the West Midlands says: "These show that the Midlands remains a good location in which to do business.
"The figures from the Top 500 survey make interesting reading with the trends in turnover and profits rising, but on lower headcounts, which points towards companies working their assets harder.
"Both the company survey and economic reports suggest the Midlands is in a good position, but there are still economic pressures, such as rising input costs that businesses need to be cautious of and adapt to accordingly."
Richard Edwards of Deloitte adds: "In terms of the steady turnover and rising profits, I think it reflects a decade of solid growth in what has been a very stable time for the UK economy.
"The great factor that is hidden is outsourcing. Jobs such as IT, catering, logistics and the like have been outsourced: they're still being done, just by other businesses. There has been a move to become more competitive and control costs far better."
So who are the big beasts of the Midlands economy, and where do they prowl?
Despite the much proclaimed decline of Midlands manufacturing, it still accounts for about a third of our Top 500, although only one, GKN at number five makes it into the Top Ten, up from number 11 in 2006.
And despite the huge changes that have taken place in the sector in recent years, manufacturing - particularly in the West Midlands - is still heavily dominated by the automotive sector. Indeed the region's top three exporters - Land Rover, Automotive and Agco International - work in the sector, and are joined in the Top Ten overseas sales rankings by Caterpillar and JCB.
Also vitally important is property and related industries, ranging from builders like fourth-placed Taylor Woodrow and heavy building materials groups like 11th-placed Blue Circle and 20th positioned Carillion to floor coverings group Hedlam and brickmaker Ibstock.
This sector, which accounts for just over a tenth of our Top 500, is going through a period of rapid consolidation and is seen by many as one of the main engines of economic growth for the region: indeed the East Midlands Development Agency (Emda) recently named it as such in its regional economic strategy.
"As regards construction if you did this research in other regional economies I think you would find similar results," says Edwards.
"Where I think the Midlands does differ from other regions is in manufacturing. It's the restructurings here since the 1990s that, I suspect, have really altered some of the figures on staff numbers and profitability.
"In the East it's been the decline of textiles and mining, in the West it's been the transformation of traditional manufacturing, particularly automotive. Those changes are something that we should be proud of because it shows how we are responding to competitiveness.
"However, there is more to do because, although GVA per capita in both the East and West Midlands is growing, it is still below that of the other regional economies."
Financial services comes into the mid-teens of our Top 500 companies, starting with Alliance & Leicester at number two and the Britannia Building society at 19. Surprisingly these two are the only money-based businesses that make it into the Top 50 biggest employers. However, pundits believe this is because so many financial institutions are London-based, despite having huge presence in the region.
Retail and distribution account for about a quarter of the region's Top 500 businesses, reflecting the Midlands' position at the heart of the UK distribution network.
One sector of note is food and drink sector, including pub chains Punch, Enterprise Inns, Marston's and Muller, which has half a dozen entries in the Top 100.
Mark Hughes, partner at lawyer Browne Jacobson, said: "The food and drink sector is still a driving factor as Midlands' businesses continue to grow. While challenges lay ahead, the overall feeling is positive.
"However, challenges include the introduction of the Gangmasters Licensing Authority in 2006, which presents new requirements for businesses when sourcing temporary or seasonal labour. The impact of the smoking ban from 1 July 2007 will also impact pubs and restaurants, particularly the smaller companies who may not have had contingency plans in place to ensure it doesn't affect trade like the larger businesses."
