Report reveals Yorkshire's prudent nature is paying off in downturn

Yorkshire’s often mocked prudent nature and its tendency to spurn opportunities for risk based growth could be responsible for safeguarding its economic future, according to the latest findings in BDO’s Yorkshire Report.

The report, produced by leading accountants and business advisers BDO, reveals that during the reporting period, the region’s top 150 companies saw profit after tax increase by 20 per cent and revenue rise by three per cent. This indicates that, whilst Yorkshire is far from immune to the effects of recession, companies will be relatively well placed for the current troubles and the turmoil ahead.

Ian Beaumont, managing partner at BDO, based at Bridgewater Place in Leeds, said: “Yorkshire is a region renowned for it’s financial prudence and last year we revealed that a tight focus on operating efficiency had put the top 150 in a leaner and meaner position to face the rigours ahead. The latest edition of the Yorkshire Report reinforces this as strict cost control and relatively low gearing has blunted the recession’s early impact on the Group’s latest results.

“However, the conditions we are currently experiencing are proving to be far more challenging than we could have imagined, particularly for the region’s financial sector. But Yorkshire’s businesses are still in relatively good shape as a result of their proven discipline, shown in tight cost control, prudent gearing and focus on cash generation – all of which have never been more important for business survival.”

In first gear – but the best gear?
The previous two annual Yorkshire Reports questioned the region’s low level of gearing and revealed that the Group had a distinctly conservative stance on debt. But in today’s testing financial and economic environment, the rules have changed and the fact that gearing has remained unchanged at 32 per cent now allows the top 150 to enter a period of deep uncertainty with a much stronger capital base.

Yorkshire’s businesses have clearly recognised a need to maximise cash reserves through cost cutting, more efficient working capital management and maximising operational efficiencies. However, there are no grounds for complacency as a number of the region’s companies face the need to refinance significant debt positions. As falling asset values and increasingly uncertain forecasts put pressure on lenders security, they can expect refinancing to be a much more difficult and protracted process, and in some cases the upshot may be the need to restructure.

“But in adversity springs opportunity and even in difficult times strategic and value-adding investment opportunities will arise for those who are bold enough”, said Ian Beaumont. “Access to cash and low gearing put a number of the region’s companies in a strong position to make selective acquisitions and investments that could provide a competitive advantage”.

Deal or no deal?
The M&A market has suffered a cataclysmic shock since most Group businesses announced their latest results, and as they review their recent purchases, there will be long deliberations as to whether the acquisition values hold up.

It is likely to be some time before M&A activity recovers. If the availability of debt improves – and the banks do have lending targets to meet – the current paralysis may begin to ease. But the return of highly leveraged PE deals looks to be a long way off – and may never regain the levels seen in the past.

Looking ahead the big question remains, how long can the downturn last? The answer to this is tricky as this is the first global recession of the information age, and current estimations reveal that over 32,000 businesses nationwide could go to the wall in 2009, with failures not peaking until 2010.

Ian Beaumont said: “Our forecasts confirm that it will be a long haul and as the region’s companies have already seen, Yorkshire will not be immune from the effects. The top 150 face the future with relatively low gearing, bolstered by a firm focus on profit and cash generation, but these won’t be enough for a business wanting to survive, let alone thrive.

“Identifying key products, customers and channels, and focusing on them, should be part of any survival strategy for a business, regardless of size. Being clear about what areas still need investment and which can be deferred is important, as is developing a range of scenarios that reflect the impact of the downturn on your business and alternative strategies. Above all, the winners will be flexible and able to adapt quickly to changing circumstances.”  

This is the third edition of the Yorkshire Report compiled by BDO’s experts, by aggregating the figures from the latest available accounts of the region’s leading 150 businesses.

David Jackson, Chairman and Chief Executive of Redhall Group, provides the Chairman’s statement within the report, and Richard Twigg, on the board of the Skipton Group, provides the Finance Director’s forward.

Copies of the Yorkshire Report are available by e-mailing yorkshirereport@bdo.co.uk. 

-Ends-

For more information, please contact:
Terry Gilligan/Sandrine Powell,
Ptarmigan Consultants,
Tel: 0113 242 1155
E-Mail: terry@ptarmiganpr.co.uk/sandrine@ptarmiganpr.co.uk

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