Business Banking
INSIGHTS
Autumn 2017
SMEs are the engine room of the UK Economy
In this Issue The UK’s industrial strategy UK SME healthcheck Creative & productive SMEs
Contents Introduction
In Focus: Industrial Strategy 03 Industrial Strategy
As the backbone of British industry, Graeme Sands, Head of Business Banking, discusses the critical role SMEs have in driving forward the Industrial Strategy.
Welcome to the second edition of our Business Banking Insights magazine.
Industrial Strategy in practice - part 1 04 Growth in Iaser industry
Funding package for micro-optics manufacturer.
This edition focuses on the industrial strategy of the UK, and how the growth of these businesses underpins the success of the country’s economy.
05 Funding for Microchips
Investment hails expansion for Country Durham business.
06 Mel Aviation growth
Funding will help support customers growing requirements.
07 Laing announces acquisition Well-known family jewellery business reunites.
The Northern Powerhouse: Turning talk into action 08 The Northern Powerhouse
Richard Gregory, Senior Advisor, shares his insight into the Northern Powerhouse.
In numbers 10 SME Health Check Index
Read about the health of UK SMEs in the second quarter of 2017.
Industrial Strategy in practice - part 2 12 Paladin Radiators
New direction for business following Management buyout.
13 Marshill Farm Investment
Lanarkshire community to benefit from renewables investment.
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Business Banking INSIGHTS
Autumn 2017
In Focus: Industrial Strategy
Industrial strategy By Graeme Sands
The backbone of British industry; a phrase often employed to highlight the critical role that small and medium sized enterprises play in driving the economy forward. And rightly so. These are the businesses that manufacture for domestic or overseas customers, providing invaluable and clever services to business customers, forging economically valuable supply chains across the wider economy. These businesses can face a range of challenges that are often quite distinct and we are proud to play our (small) part in helping them grow and prosper. These are also the sorts of businesses that excite politicians and commentators. Through its consultation on an Industrial Strategy, it’s clear that this is also front of mind for the UK Government. The Strategy proposes focusing on 10 ‘pillars’ which, rather than attempting to pick winners, will instead improve the business infrastructure more generally and drive enhanced productivity. Two of those pillars - ‘driving growth across the country’ and ‘Creating the right institutions to bring together sectors and places’ - are worth specific comment from my perspective. The challenge to support businesses to scale and grow has been the subject of significant press coverage in recent weeks. Given the importance of this challenge, for the second edition of Business Banking Insights we commissioned research, examining both the stages of the business lifecycle and importantly, the aspirations of SMEs. More than 800 businesses took part in the survey, which revealed that one in three businesses identified themselves as being in a growth phase, around 40% of SMEs have an aspiration to grow, while a further 17% are looking to diversify into new markets and products. We look to support those customers by focusing on what drives their borrowing needs through key events in the company lifecycle and we think hard about how we can address gaps in the market. Examples of this are our Growth Finance proposition and our Acquisition Finance teams’ support for private equity
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backed businesses of all sizes. In addition, our SME Cash Flow Finance team supports SMEs to leverage their sustainable cash flow for business growth even where the borrower isn’t going to purchase or leverage physical assets – perfect for a range of businesses such as smart services propositions or capex-lite manufacturers. It’s important to us that we help companies think about long-term investment plans, and their long-term growth potential in markets both at home and abroad. The Industrial Strategy green paper, published in January 2017, makes it very clear that their strategy is about driving growth across the whole of the country. As a bank with major centres of operation in Glasgow, Leeds and London we couldn’t agree more and later in this e-zine our Senior Adviser, and Honorary Yorkshire Bank Chair, Richard Gregory writes about our approach to the much talked about Northern Powerhouse. The country is stronger when enterprise is more evenly distributed and people can reach their full potential wherever they live. Further, economic research tells us that productivity enhancement can come from orchestrating large, unitary and functioning metropolitan areas. Connectivity drives prosperity in the 21st century. I hope you enjoy this edition of the Insights e-zine and I would be happy to receive any feedback or answers questions you may have please email me on graeme.sands@cybg.com
Graeme Sands Head of Business Banking
* Terms and conditions apply. All lending is subject to status and applicants must be aged 18 or over. Please note that security may be required. Any asset used as security will be at risk if you break the agreement and may be sold to repay debt.
Business Banking INSIGHTS
Autumn 2017
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Industrial Strategy in practice - part 1
Growth in laser industry By Chris Kennedy
PowerPhotonic Ltd, a Dalgety Baybased designer and manufacturer of micro-optics for the laser industry, received a £750,000 finance package from Clydesdale Bank’s Growth Finance Team. The company, established in 2004, is recognised as a worldleader in the field of micro-optics and has developed a commercial technology from research undertaken at the worldrenowned Institute of Photonics and Quantum Sciences at Heriot-Watt University, Edinburgh. The company designs, manufactures and sells precision microoptics for the laser industry. The main applications are in the industrial materials processing, medical, telecoms, scientific and defence markets. The finance package will help PowerPhotonic establish a new operating facility to meet market demands. The growth will bring 16 new jobs to the local area over the next three years. Christopher Kennedy, Associate Director, Growth Finance, at Clydesdale Bank, said: “It’s fantastic to help such an IP-rich company, especially one able to bring so many skilled positions to the local area.” Roy McBride, Managing Director at PowerPhotonic, said: “This funding will enable us to increase our capacity, including building a new state-of-the-art class 1,000 clean room facility. We look forward to working with Clydesdale Bank as we move into this next exciting stage of our company development.”
Chris Kennedy christopher.a.kennedy@cybg.com 07824122562
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Business Banking INSIGHTS
Autumn 2017
Industrial Strategy in practice - part 1
Funding for microchips By Andrew Grundy
Viper RF, a County Durham based designer of semi conductor microchips for aerospace and wireless communications, has received a six-figure funding package from Yorkshire Bank to help buy their own premises and new industrial machinery. The wider funding package also included help from Business Durham who supported Viper RF in its application for Let’s Grow funding from the Regional Growth Fund. This enabled the company to upgrade their premises to the desirable Newton Aycliffe Industrial Estate, which has attracted Powerhouse companies such as Hitachi. This funding helps keep a growing specialist business in the North East of England and increases employment in the area. Viper RF has been a Yorkshire Bank customer for eight years.
Andrew Grundy andrew.grundy@cybg.com 07768293836
Business Banking INSIGHTS
Autumn 2017
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Industrial Strategy in practice - part 1
Aviation firm sets course for further growth By Chris Harris
Mel Aviation Components (MAC), specialist supplier of aircraft spares, is targeting expansion following a new £2 million funding package from Clydesdale Bank. Formed in 2013, MAC is the market leader in the supply of aircraft ‘rotables’ such as escape slides, safety equipment, wheels, brakes, power units, and landing gear to airlines worldwide. Based at Shoreham airport in Sussex, MAC employs ten staff and customers include over 100 airlines in more than 30 countries. The company’s turnover in its second year of trading increased by 83% to nearly £5 million and is forecast to continue at high growth levels. Nick Harvey, Managing Director at MAC, said: “Working with Clydesdale Bank has been a refreshing experience. The funds will give us the ability to be able to participate in aircraft tear downs in future to help support our customers’ requirements.” Chris Harris Director, Cash Flow Lending, at Clydesdale Bank, said: “MAC’s rapid growth in such a relatively short space of time is testament to the expertise of Nick and his management team and to the success of their strategy of developing an increasing range of specialist products.”
Chris Harris chris.harris@cybg.com 07901103996
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Business Banking INSIGHTS
Autumn 2017
Industrial Strategy in practice - part 1
Family-owned Scottish jeweller announces acquisition By Craig Stewart
Laing Glasgow Holdings Ltd and Subs (Laings of Glasgow) has acquired Laing The Jeweller Ltd and Parkhouse The Jeweller Ltd, with Michael Laing OBE announcing his retirement. Laings of Glasgow is run by Joe and Wendy Walsh (nee Laing). Wendy is sixth-generation Laing; Michael’s niece and daughter of Michael’s brother Stuart Laing, who is Laings of Glasgow Chairman. The acquisition, which was supported by Clydesdale Bank, reunites the original family business which was split between Michael and Stuart in 2005. J.R & W Laing was a family business established in 1840, originally as a manufacturing and wholesale business on St Vincent Street, Glasgow. It soon shifted focus to retail, and gained a reputation for quality service. Laings survived the Great Depression and two world wars in St Vincent Street, before opening a new shop in Renfield Street in 1960. Under the ownership of Michael and Stuart, they opened a new Glasgow outlet in 1971 before opening stores in Edinburgh and Cardiff and buying a business in Southampton. Joe Walsh, Managing Director, at Laings said: “We’re delighted to have this unique opportunity to bring the companies back together. We see ourselves as custodians of Laings and we’ll stay true to the philosophy of the founders, to provide the finest quality products and highest levels of service.” Craig Stewart, Senior Director, Corporate and Structured Finance, at Clydesdale Bank, said: “It’s hugely rewarding to know that we can play a part in helping the two firms join forces once again, and build on the success of the last 175 years.”
Craig Stewart craig.stewart.cb@cybg.com 07764836856
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Autumn 2017
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What is The Northern Powerhouse? By Richard Gregory OBE
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Business Banking INSIGHTS
Autumn 2017
The Northern Powerhouse: Turning talk into action
That’s a question I even have to ask myself despite having presented at this year’s conference in Manchester on behalf of the Bank and chaired the final summing up session on behalf of the organisers.
First and foremost significant increases in transport investment to overcome the value lost in the congested and outdated rail and road infrastructure. Parity of spend with the South would enable this, but can the UK afford it? Achieving improved connectivity between the cities of Manchester, Liverpool, Leeds, Newcastle, Hull and Sheffield, and between their supporting rural and urban districts, is the priority which unites business and local authorities. There are huge expectations set for Transport for the North, which in many ways is the most crucial underlying action plan/programme to date for the Northern Powerhouse.
Three years after the phrase ‘Northern Powerhouse’ was coined by the Chancellor, George Osborne, many business are asking ‘where is the action, rather than just the talk?’
Digital connectivity follows closely behind, together with improvements in skills. Then comes all the investment required to establish a high quality of life – essential today to retain and attract the countrys best talent and their families. Education, housing, culture, sport. An overarching strategy is required, one piece is not enough. The goal being where careers can be built and fulfilled in the North without having to leave. Of course, the North is not unique in these opportunities and needs. The Midlands Engine is a similar initiative, based on similar trends and issues.
For me it is the latest in a history of initiatives to re-establish the North of England’s place in the world, by addressing both opportunity and need. It’s a mission, a call to arms for collective action. It has an official partnership programme and the NP has received hundreds of millions of pounds of direct central Government investment, but it has raised expectations for much more. This is an opportunity for the North’s businesses and people to realise their full potential to win new recognition of their value and successes, as well as the need to help a vast geography. This region powered Britain through the industrial revolution and now must manage the long term transitions associated with such seismic changes in industry, employment and skills. Success in addressing the opportunity not only benefits the £300bn north of England economy, but also contributes very significantly to the performance of UK PLC. Many of the opportunities lie within the north’s own control. • Successful city, public and private sector collaboration, Manchester being a great example, with great leadership required from all sectors. • Planning authorities who enable effective and speedy development. • Universities and research centres who reach out and support industry and commercial exploitation. • Businesses who help create successful supply chains, sectors and innovation networks. • Schools and colleges who equip students with the right skills to contribute to growth. • Marketing agencies who help tell our story to national and international audiences. For these opportunities the term Northern Powerhouse is a useful banner headline. And there is so much good to promote.
Success in addressing the opportunity not only benefits the £300bn north of England economy but also contributes very significantly to the performance of UK PLC. However, a full realisation of the opportunities available requires the needs to be addressed, and it is in this area that the headline twists into a lobby for help from UK taxpayers. And the list is long.
Both can dovetail into the Governments Industrial Strategy. These macro regional initiatives do not depend upon one figurehead like George Osborne. They are cross party in essence and a natural evolution of city, sub regional and regional development over the years. Several factors are driving the wide consensus behind more devolved government - the lessons of the Scottish referendum, the introduction of metropolitan mayors, the development of the local enterprise partnerships and the continuing political analysis of the factors behind Brexit. There is no appetite for another layer of macro regional government or bureaucracy so the voice of the Northern Powerhouse needs to unite political parties, cities, local enterprise partnerships, and sectors to achieve the level of collaboration required to realise the opportunities of working together and to effectively lobby for a greater share of public investment. In recent months most of the focus has been on establishing directly elected metropolitan mayors and supporting them and their LEPs with more investment and more local control of existing investment. However the West has forged ahead, and Yorkshire is struggling to achieve the same devolution because of local politic issues. While uncertainties and challenges remain at national and regional levels, the omens are better today than they have been in the 20 years that I have interacted with regional development. It seems like there is a growing underlying momentum and more engagement from the private sector than ever before. So while the term Northern Powerhouse may still be a little vague in precise meaning for most of us, if the talk can increasingly turn into action, it is a mission worth backing. And that’s certainly the intention of our Bank. We are already significant lenders to businesses across the North and have recently announced plans to increase our lending substantially over the next three years. And we have the understanding and appetite to support the connectivity and collaboration required across all sectors to make the Powerhouse a reality. Richard Gregory OBE Senior Advisor and Honorary Yorkshire Bank Chair CYBG PLC
Business Banking INSIGHTS
Autumn 2017
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In Numbers SMES are the engine room of the UK Economy
small to medium sized enterprises
15.7m
60%
people employed by SMEs
47%
of private sector employment
of total business revenue
Taking the temperature of the UK’s SME performance Index mirrors trend of GDP growth 2016/17
SME Health Check Index GDP
Overall Index Score Q2 2017
52.6
58.9
Q1 2017
46.9
63.6
74.9
74.3
66.9
67.5
72.8
66.1
77.4
45.6
49.6
52.5
54.8
46.9
58.9
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Regional SME Health Check Index Q2 2017
Scotland*
52
68
13
Northern Ireland*
Yorkshire & the Humber*
52
55
26
North West
59
10
West Midlands
24
56
10
2
London*
2
57
South West
58
1
East of England*
Wales
64
19
East Midlands*
52
56
North East
14
South East
9
* Please note the Q1 figure has been updated from an earlier estimate due to recent revisions in the official data included in the index.
58
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Regional SME Health Check Index Q2 2017
Bankruptcy 72 ( 59)
Business Costs 51 ( 3)
Capacity 56 ( 7)
Employment 76 ( 1)
GDP 70 ( 2)
Lending 41 ( 31)
Revenue 45 (0)
Confidence 60 ( 7)
Six indicators have improved this quarter, with the falling number of business bankruptcies and increased lending to SMEs having a particularly positive impact. Weaker business confidence exerted some downward pressure on the headline number, but SME business confidence, while experiencing a slight dip, remains higher than it was throughout 2016.
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Business Banking INSIGHTS
Autumn 2017
In Numbers
Health of UK SMEs rises to an 18 month high in Q2 2017 – but business confidence dips By Jennifer Devlin
The UK’s future economic success will depend in no small part on the strength and general ‘health’ of our SME businesses – securing a path to sustained and stronger growth among SMEs is vital for unlocking improvements in the UK’s overall productivity and business competitiveness. This is why we have created our quarterly SME Health Check Index. Compiled by leading economics consultancy Centre for Economics and Business Research Limited (Cebr), the report brings together a range of indicators on the health of the UK’s SMEs for the first time and is an important tool in helping understand how we can better support SMEs. In the report, which covers the second quarter of 2017, it highlights that the health of SMEs in the UK has risen to its highest level in 18 months. The figures follow a previous drop in the Index in Q1 2017, with this quarter’s increase marking a return to the improving SME environment seen through 2016. UK SMEs have seen improvement in six of the eight key performance indicators and the Index overall rose by almost 12 points, from 46.9 in the first quarter of 2017 to 58.9. The increase is helped by increased lending to SMEs and a falling number of business bankruptcies. In addition, business costs faced by SMEs seem to have almost plateaued in Q2 2017, which is a welcome development for companies. Weaker business confidence may have played some part in dampening the headline figure, however, the report suggests SME confidence remains higher than it was throughout the whole of 2016,
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adding to hopes that the UK economy will pick up some pace throughout the remainder of the year. The SME Health Check Index measures business performance and the macroeconomic operating environment affecting SMEs, including bankruptcies, business costs, capacity, confidence, employment, gross domestic product, lending and revenue. The index includes UK and regional breakdowns and is rated between 0 and 100, with a score of 100 indicating maximum positive conditions in the sector and the indicators on which it is measured. Despite the uncertain political and economic environment, rises in the Index this quarter show that there are still opportunities for SMEs to grow and thrive and we are committed to supporting businesses to develop and achieve their potential. To read the full report, please visit http://www.cybg.com/mediarelations/news/2017/health-of-uk-smes-rises-to-an-18month-high
Jennifer Devlin jennifer.devlin@cybg.com 0141 242 3314
Business Banking INSIGHTS
Autumn 2017
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Industrial Strategy in practice - part 2
Funding support for cast iron success By David Burgess
Yorkshire Bank has assisted with the funding of a management buyout for Paladin Radiators – allowing current directors Dean Chughtai and Gareth Charles to purchase the entire shareholding of a business which they have managed since 2015. The acquisition provides certainty of direction for the company and its employees and a stable platform for the business to continue its strong level of growth. The company was established in 1994 when the founder was renovating period properties and struggled to find quality cast iron radiators at affordable prices. Spotting a gap in the market Paladin Radiators was established as one of the first traditional cast iron radiator companies in the UK. In March 2015, Dean and Gareth bought a 50% stake in the original business. The company now supplies premium products and delivers cast iron radiators to over 8,000 projects every year. The management team expect to create additional roles within the next 12 months to assist with growing demand. Gareth Charles, Director, Paladin Radiators said: “Working closely with the Yorkshire Bank team we were thoughtfully and professionally supported every step of the way throughout the whole of the MBO process. We found the bank’s friendly and flexible approach to doing business a distinct pleasure”. John Bullock Director, Corporate & Structured Finance, Yorkshire Bank said, “We are delighted to support Dean and Gareth with their acquisition of Paladin Radiators. They both bring a strong level of industry experience to a successful operator within its market and we look forward to continuing to assist as they grow their business.”
David Burgess david.burgess@cybg.com 07917883624
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Business Banking INSIGHTS
Autumn 2017
Industrial Strategy in practice - part 2
Lanarkshire farmer and local community invests in renewables By Adam Heslop
Lanarkshire dairy farmer Andrew Stewart, owner of Marshill Farm, in Lesmahgow, has secured £1.5 million in funding from Clydesdale Bank’s Renewable Energy team and the Renewable Energy Investment Fund (REIF) to construct a new wind turbine on the farm. Andrew joined forces with the local community, represented by the Lesmahagow Development Trust, who, with support for this Feed In Tariff project provided by the Scottish Government will be shareholders in the scheme. The Netherburn West project will see a wind turbine erected on Marshill Farm, and will generate income for Andrew and the community. The Trust will receive a share of the profits every year for the next 25 years. Andrew Stewart said: “We’ve been working hard with the Trust to bring this project to reality and we were delighted with the support we received from the Clydesdale Bank and REIF.” Adam Heslop, Senior Director, Renewables, at Clydesdale Bank said: “It was particularly rewarding to work on a project with community ownership, and we welcome opportunities to work with similar organisations to help them achieve their aims.” Kerry Sharp, director of the Scottish Investment Bank said: “This is an excellent example of how, with the right tailored mechanisms such as REIF, renewable energy projects at local level can be delivered, resulting in direct positive impacts on community development and the creation of new economic opportunities.”
Adam Heslop adam.heslop@cybg.com 07730540868
Business Banking INSIGHTS
Autumn 2017
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This document has been prepared for information purposes only by Clydesdale Bank PLC (“CB�) together with input from selected third parties. Some of the information contained herein has been prepared by CB and some has been provided by those third parties. CB has exercised reasonable skill and care in drafting and collating this document and, so far as it is aware, the information and statements contained herein are based on sources it believes to be accurate at the time of issue. However, the information is indicative and prepared for information purposes only and does not purport to contain all matters relevant to a particular situation, investment or financial instrument. The information is not advice so is not intended to be relied upon and in all cases anyone proposing to use the information should independently verify and check its accuracy, completeness, appropriateness and reliability. You should consult your own tax, legal, accounting and business advisors before engaging in any transaction. So far as laws and regulatory requirements permit, CB, each member of the CB group of companies and each third party contributor to this document does not warrant or represent that the information, recommendations, opinions or conclusions contained in this document is accurate, reliable, complete or current; and (ii) excludes its liability for any and all loss or damage suffered by you as a result of your reliance on any of the information contained within this document. Yorkshire Bank is a trading name of Clydesdale Bank PLC which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. (Financial Services Register No. 121873). Credit facilities other than regulated mortgages and regulated credit agreements are not regulated by the Financial Conduct Authority. Clydesdale Bank PLC. Registered in Scotland (No. SC001111). Registered Office: 30 St. Vincent Place, Glasgow G1 2HL.
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Business Banking INSIGHTS
Autumn 2017