With money in short supply, making a profit means much more than a number on a set of accounts. Douglas Friedli looks at the 50 most profitable companies in Wales and the lessons from their outperformance.
“Turnover is vanity, profit is sanity” – the old saying has never seemed more appropriate than today, when running at a surplus makes the difference between being in control and having to beg for money from banks that may not have it.
So raise three cheers for the most profitable companies in Wales. They are in charge of their own destiny. They are likely to be around when the upturn comes, and they are more likely than others to create jobs that will contribute to that upturn. And they have the capacity to invest for the future now traditional funding sources are drying up.
This year’s Profit 50 ranking covers a diverse range of sectors from steelmaking to life sciences and insurance.
But profit-makers have a few things in common, says Gareth Lynn, a director at accountancy firm KTS Owens Thomas.
“They are either in niche markets, emerging markets or have a competitive edge in quality or scalability. Most of them also have very competitively focused management looking at key performance indicators. The softer skills take a back seat. They follow the performance all the time.”
That should see them through the rough times ahead: “The best-run companies may see a slight dip in profitability this year,” says Lynn. “But you will see them behave in a proactive way. They will see it coming and will have put plans in place, for example, through better operational efficiency, cost reductions, diversification or economies of scale.”
For other companies, he says: “Profitability is going to decline quite sharply. Some companies may come to an end, while some may have to come up with a better product or service. But that is how capitalism works – someone will come up with a better iPod or whatever. There is no God-given right to keep a business going. You have to be dynamic and change.”
Robert Preece, managing director at accountancy firm Broomfield & Alexander, says profitable companies often have a good leader such as Admiral Group’s Henry Engelhardt at the helm, and a unique selling proposition in the product or service they provide.
But he says: “Even the best-run businesses are not immune from the effects of the recession, and I suspect all of them will see some reduced profitability. If they are well run, they will no doubt have already done what all the best companies do, and have taken steps to mitigate its effects. But they will be fortunate to escape with profits unscathed.
He adds: “Most of our clients, which are typical of Welsh companies generally, are experiencing reduced profitability. But there is a balance to be sought here – clearly survival is the main objective, but businesses also need to ensure they are retaining the right infrastructure in terms of skills and resources and so on to ensure they are still in a position to take advantage of an improving economy when it comes.”
1 ADMIRAL GROUP
Admiral’s move up from second place last year to become the most profitable company in Wales should not have come as a surprise.
Under chief executive Henry Engelhardt, the Cardiff-based motor insurer has held its value in a tumbling market and is now worth almost four times as much as all Wales’ other plcs put together.
Investors put cash into companies for two main reasons – because they expect future profits and therefore dividends, or because they expect an event such as a takeover to boost the share price. In Admiral’s case it’s the former – profits keep rising. And because Admiral offers a low-cost service compared with its rivals, the downturn plays into Engelhardt’s hands.
3 CONVATEC
Wales’ fledgling life sciences industry could do with a few more companies like ConvaTec. The wound care specialist enjoyed a 25 per cent hike in its pre-tax profits, pushing it ten places up the Profit 50 scoreboard to third place, which previously belonged to housebuilder Redrow.
Since those accounts were published, ConvaTec has gone through a change of ownership with Nordic Capital and Avista Capital Partners funding a buyout from Bristol-Myers Squibb.
The newly formed entity is based in New Jersey in the US and has revenues estimated at £1bn a year. Its Deeside operation contributes about a fifth of that, making it a key site for a business that chief executive David Johnson expects to grow.
“With Nordic and Avista’s support, we are well positioned for a new phase of accelerated growth, innovation and development, benefiting our customers and their patients around the world,” he says.
42 ROWECORD
Ben Hoppé may not have the highest profile in Wales, but the chairman of Newport engineering, steel and construction group Rowecord has started getting recognition further afield.
At only 75 years old, Hoppé was the only boss of a Welsh company to appear in a recent UK-wide ranking of Britain’s top 100 entrepreneurs. Perhaps it has something to do with persistence, and an ability to see chances where other see problems. Rather than calling the top of the market, the company predicts a bumper year after turnover in the 12 months to June leapt 31 per cent to £132m as profits rose to £5.9m from £5.3m.
Hoppé says: “The future of the group looks promising, particularly with the recent award of a number of high-profile contracts. We have an extremely strong order book and a successful year is anticipated.”
43 CAPPER
Spar shop operator Capper’s experience shows that you can still make money in retailing, with profits edging up slightly to £5.3m in the year to April.
The Pontyclun-based company’s chairman Bill Capper understands his firm operates in a tough market, which is dominated by the big supermarket chains. But he sees strong returns from investing in stores and has made customer service a top priority for the years ahead.
48 FINSBURY FOOD GROUP
Almost everyone loves cake, and Cardiff-based Finsbury’s growth testifies to the treat-lover, glutton or comfort eater in all of us. An update as Insider went to press indicated that group revenue was up 12 per cent compared with the same period last year, although much of the growth was accounted for by acquisitions and 53 week rather than 52 week year.
This year the company, which makes Memory Lane cakes and supplies Tesco, expects an increase in demand for products under its licensed brands, in particular Thorntons and WeightWatchers, which complement the development of its key retailer own-label relationships.
But profits growth is likely to slow with the company, headed by Martin Lightbody, predicting margins between 1 and 2 per cent lower than last year.
To see the full Profit 50 and for more company profiles, please purchase the February 2009 edition of Insider in our Shop.
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