Top firms working harder to stand still

Tuesday, 10 November, 2009

SUFFOLK'S leading companies managed to maintain their profitability as the economy began to slide into recession but had to work harder to do, according to the results of an annual survey by chartered accountants and business advisers Grant Thornton.

The firm's 'Suffolk Ltd' report is based on the most recent accounts filed by the 100 leading independently owned businesses in the county, ranked by turnover, with this year's findings relating to the early month's of the downturn.

Turnover across the companies grew by 12%, from £4.663billion in 2008 to £5.237bn, but operating profit fell by 13%, from £194million to £169m and a pre-tax levels profit was 24% down, at £127m against £167m.

Interest cover, the ratio of earnings to interest charges, fell by 34%, from around four times cover to three times, and gearing, the ratio of debt to equity, grew by six percentage points, from 43% to 49%, with bank borrowing up by £79m.

James Brown of Grant Thornton said the decline in profit had been heavily influenced by a multi-million provision made one company against a potential contractual problem. With this stripped out from the figures, the overall profit for Suffolk Ltd was largely unchanged from 2008 although the higher turnover meant that firms were having to work harder for the same result.

The comparison included a substantial influence from last year's spike in oil prices but it remained to be seen whether the lower margin became a permanent feature of the county's economy or reflected an attempt to secure market share through price cutting as the recession began to take hold.

However, he added: 'Although down on last year, operating profit is really still the same as it was in 2007 when we are very happy with it, so let's not be too gloomy about the result.'

Employment among the Suffolk Ltd companies fell by just 26, to 31,264, and the average salary rose by 7% to £22,198, slightly ahead of the overall county average of £22,055 and the national average of £26,020, as recorded by the Annual Survey of Hours and Earnings.

All sectors of the economy but one recorded an increase in turnover, with exception being property and construction where sales fell by 5%. Leading the way were services and food and agriculture, with growth of 29% and 25% respectively.

Services also produced the best result in terms of operating profit with an increase of 25% while the only other sector to record earnings growth was retail and wholesale distribution, up 21%.

All sectors remained profitable at operating level although only by a narrow margin in the case of property and construction where operating profits declined by 40% manufacturing, down 96%, although this was skewed by the one-off contractual provision which also affected the overall result so heavily.

Within the service sector, four companies left the survey and three joined compared with 2008. Among the nine companies which featured in both years, operating profits fell by £20m or 59%.

On a similar 'same company' basis, operating profit in the retail and wholesale distribution sector (where there were four joiners and four leavers) fell 8%, despite a 10% increase in turnover.

In food and agriculture, where the same of companies did not change, turnover grew 25% but operating profit was 14% down.

In manufacturing, turnover was up 7% and, with the one-off provision again stripped out, operating profit was also narrowly ahead.

The service sector, where there were three new joiners, operating profit was up 21% on a same company basis while earnings in transport and motor retail saw little change.

Guest speakers at the launch of this year's Suffolk Ltd report included Chris Mole, Labour MP for Ipswich, David Ruffley, Conservative MP for Bury St Edmunds, and David Chappell, Liberal Democract prospective candidate for Bury.

Mr Mole delivered a defence of the Government's record in responding to the recession, Mr Ruffley set out goals for lower corporate taxation and greater labour market flexibility and Mr Chappell stressed the credentials of Liberal Democrat shadow chancellor Vince Cable.