Business Guide to
FINANCIAL TIMES SPECIAL REPORT | Tuesday November 15 2011 www.ft.com/derby2011 | twitter.com/ftreports
Inside Economy Derby is more than trains and aircraft engines – it is where Lara Croft was designed Page 2
Investment City centre offices are in short supply as the poor economic outlook is putting developments on hold Page 2
Derbyshire Stately homes rub shoulders with more downtoearth attractions on Derby’s doorstep Page 4
Leisure City of festivals has plenty to offer in sport, shopping, heritage, entertainment , theatre and music Page 4
Rail industry Cluster has all points covered, in spite of worries over jobs at Bombardier Page 6
Skills Business is engaging more closely with education Page 7
Services The local economy’s real driver protects against job losses in manufacturing Page 8
Company profiles RollsRoyce, Page 7; Clock maker Smith of Derby, Page 8
More than a manufacturing centre: the £11m Quad arts centre has given the city the cultural hub it sorely needed Page 4
Working hard to stay ahead The city wants to press home its attractions as a place to do business, says John Murray Brown
erby’s Pride Park was a contaminated brownfield site 20 years ago. An industrial wasteland, dominated by an old gasworks and disfigured by a sprawl of railway sidings, it was a blight on the city. Today the same 300-acre estate is the business hub. Kick-started with funding under the UK’s old City Challenge regeneration programme, the project won the support of key businesses – one of the first tenants being Derby County Football Club which built a new stadium there. It has taken two decades for the city, situated in England’s Midlands, to get to this stage. But many in the local business community believe there is a need for another ambitious urban regeneration effort – this time in the Georgian heart of the city. While all cities grapple with the fallout from cuts to public services and job
losses across the economy, Derby believes it can use the UK’s present malaise to press home its attractions as a place to do business. “We are doing more now than we’ve ever done,” says Adam Wilkinson, chief executive of Derby City Council. “We think it’s important that we are pedalling much faster at this time, so we have the edge to be ready to attract those new investors.” Derby, with a population of 240,000 is smaller than Nottingham or Sheffield, but it is keen to compete with those centres. It has good transport links, is close to East Midlands Airport, the UK’s leader for freight, and is 90 minutes by train from London. In the past decade, it created 3,200 private sector jobs – one of the few cities in the UK which saw a net growth in private sector employment, mostly in real estate and business services. Over the same period, the city lost 4,200 manufacturing jobs but that was half the national rate, underlining the resilience of the local economy. Rolls-Royce, which has its civil aerospace headquarters in the city, is its largest company with 12,000
employees. Indeed, Derby is unusual in the UK in having a private-sector company as the largest employer, rather than the local council. It is calculated that one in seven people in work in Derby works for Rolls. But the city has other big manufacturing concerns. It has long been the centre of the UK’s rail engineering business. Just south of the city, Toyota has a large car plant, employing 2,800.
‘There is a tradition of training and learning . . . engineering skills’ “Engineering has a kind of status here,” says Tony Walker, deputy managing director of Toyota Derby. “People appreciate working in engineering and manufacturing and there is a tradition of training and learning engineering and manufacturing skills. It’s an attractive place to be, with a tradition of good labour relations, and harmonious management.” Derby’s is a globalised economy, exporting more per capita than any other
city outside London and south-east England. The presence of these big advanced manufacturing groups means the city also boasts much higher average incomes than elsewhere. The football team may not yet have recreated its glory days under manager Brian Clough in the 1970s, when it won a clutch of silverware. But it was the strength of the local economy, and the evident wealth that exists in the city, that prompted Tom Glick, president and chief executive, to create a group of fellow US investors to take over the club in 2008. “We looked at more than 20 clubs,” he says during an interview in one of the stadium’s function rooms before a recent home match. “Derby had a great support base, and this wonderful facility. But this is an economy that can underpin the bright future of this club – the household income, the export base, the strength of some of the local companies. “We saw a football club that had a solid base and a bright future.” It was much the same analysis that prompted Westfield, the Australian shopping centre developer,
to choose Derby to set up its first UK centre – a £340m investment that opened in 2007. “Westfield created 3,000 jobs overnight. It was a game-changer, and the aim is always to get people to spend their money here rather than somewhere else,” says John Forkin, chief executive of Marketing Derby, which has the task of promoting the city to potential investors. In a bid to increase the availability of office space for potential new investors in the city centre, the council has put aside £10m to pump-prime key constructions works, where either banks are unwilling to lend or where the developers had held back. This month, the first speculation property development in 20 years is due for completion. The city is also pressing for an enterprise zone. Having failed to secure anything under the first round of the government’s Regional Growth Fund job creation scheme, it was this month awarded £40m, part of which is to be used on a campus development next to the vast Rolls-Royce industrial facility. Continued on Page 2
FINANCIAL TIMES TUESDAY NOVEMBER 15 2011
FINANCIAL TIMES TUESDAY NOVEMBER 15 2011
Business Guide to Derby
Hard at work to stay ahead Continued from Page 1
That award was seen locally as part compensation for two earlier setbacks. First, Citibank announced it was selling Egg, its internet and telephone banking business which had a big call-centre in the city employing 1,300 people. The Egg disposal was a condition of the US government’s decision to bail out Citibank in 2008. Marketing Derby is understood to be close to securing a replacement investment for the Pride Park site. In July, it was the turn of the British government to deal out the bad news. Bombardier, the Canadian train maker which is at the centre of a cluster of rail activity lost out to Siemens of Germany on a big order. When David Cameron, the UK prime minister, brought his cabinet to Derby in March he pronounced it a model British city. With its advanced manufacturing base, he said it was well positioned to help Britain export its way out of recession. But on the picket outside the meeting of the annual Derby and Derbyshire Rail Forum earlier this month, the prime minister’s warm words were recalled with bitterness. “Cameron has been true to his word. He’s backing manufacturing, but in Germany not in the UK,” said Richard Morgan, a GMB union official. “We’re rail people here. It goes through us like in a stick of rock. I take it as an attack on me, on my city. It’s personal.” The Bombardier debacle was a nasty wake-up call, but the city council and business leaders seem aware they cannot rely just on big manufacturers for their economic future. One of the brightest new areas being targeted is the games industry. It was a Derby company that designed the hugely popular Tomb Raider video game. “So Derby is not just the place of Brian Clough. It’s the home of Lara Croft too,” says Peter Richardson, chairman of Derby Renaissance Board, a publicprivate partnership that is driving the city’s economic revival. “Derby can be the home of 21st-century games as well as 20th century games,” he says.
Business Guide to Derby
Manufacturing rules the roost Economy But the city knows that it needs a broader private sector, writes John Murray Brown
erby is different. And that is borne out by the economic statistics. Today the most striking difference from other UK cities is that Derby, even after the expansion of public services seen during the Labour years, still has a private-sector company as its biggest employer. Rolls-Royce – or Royce’s as locals prefer to call the company – directly employs 12,000. Derby city council, if teachers and other schools staff are included, has a payroll of 11,000. Indeed, because of the presence of Rolls, along with the train manufacturing unit of Canadian multinational Bombardier and
Toyota’s UK car plant, the city has about 10 per cent of its workforce engaged in advanced manufacturing. This compares with 1.2 per cent for the rest of UK barring Northern Ireland, according to a 2010 study by the Centre for Cities thinktank. In Derby, companies with more than 200 employees provide 41 per cent of employment. The presence of large multinationals is the reason it exports more per head of population, and has the highest average earnings of any UK city outside London and south-east England. The manufacturing base Local lass: Lara Croft was born in Derby
owes as much to history as geography. Derby’s pre-eminence can be traced to the early 18th century, when the city had the first waterpowered silk mill in the UK, which is now a world heritage centre. The railway engineering hub dates from the late 19th century, and today the city boasts one of the largest clusters of rail companies in the world – comprising some 230 enterprises making locomotives, rolling stock, and providing logistics and IT services to railway operat o r s worldwide. Rolls-Royce looked at a number of cities when it decided to move out of its original Manchester factory. The assistance of
the Derby Borough Development Committee – as the local authority was then called – was a key attraction according to Charles Rolls, in his speech opening the Derby works on July 9 1908. Toyota found the present day city council equally attentive to its needs when it set up in 1992. Tony Walker, deputy managing director, recalls the “warm welcome . . . and the very good package” the Japanese company secured when deciding to base its assembly plant at a 600-acre site south of the city. “Rather than competition [for skills], I think you set up a virtuous spiral,” says Mr Walker of the rivalry between the big companies for recruits. Derby, he says, is “an area where people appreciate the value of manufacturing”. The challenge for the city today is to widen its private sector economic base. The shock announcement this year that Bombardier had failed to win the £1.4bn Thameslink contract forced
the company to announce 1,400 redundancies and reconsider its future in the city (see page six). That was a reminder of potential vulnerabilities. There is no sign of a slowdown at Rolls, but with one in every 11 workers in the city directly employed by the company – and many more dependent on the engineering group as contractors and providers of goods and service – Derby needs to diversify. It is having some success. Businesspeople are quick to remind visitors that Lara Croft, female heroine of the Tomb Raider video game, was invented by a local company – Core Design Studios. There is even a road in her honour. But the pace of business start-ups lags behind other cities – perhaps a result of the crowding out effect of large companies. Out of 64 UK cities, Derby ranks 44 in the number of VAT registrations over the period 1994 to 2007. Part of the regeneration plan is to create office space
Offices in short supply as poor outlook puts schemes on hold Investment William Hall finds an element is still missing in Derby’s economic revival Derby has benefited from considerable investment recently. Out of the £4bn of investment potential identified under the city’s 2005 master plan, some £2bn has been spent in the city centre over the past five to six years. The Westfield shopping centre and the Royal Derby
Hospital, each of which cost about £340m, are among the most visible signs of the city’s renaissance. The city has a new bus station, several new hotels, a new sixth form college, a refurbished railway station, and the inner ring road has finally been completed. The Cathedral Quarter has been spruced up, and work is under way to rejuvenate the rundown St Peter’s Quarter, which links the Cathedral Quarter with the Westfield shopping centre. But the city has one big piece of unfinished business – the long overdue rebuild-
Contributors John Murray Brown Midlands Correspondent
Andrew Baxter Commissioning Editor
Andrew Bounds North of England Correspondent
Steven Bird Designer
William Hall FT Contributor Jill Gallone Features Editor, Derby Telegraph Nigel Powlson Entertainments Editor, Derby Telegraph
Andy Mears Picture Editor For advertising details, contact: Jim Swarbrick on +44 (0)207 775 6220. email firstname.lastname@example.org or your usual Financial Times representative
ing of the central business district. The opening of Westfield’s 1.1m sq ft shopping centre in 2007 revitalised the retailing offer. But it has not been matched by the flurry of office developments which happened in many nearby towns. Virtually all new office building in recent years has taken place at Pride Park, just outside the ring road circling the centre. Indeed, several professional firms have had to move out of the centre because they had outgrown their traditional offices in the cobbled streets around the cathedral. Over the past 15 years about 1m sq ft of offices have been built on Pride Park, and the take-up of new space is between 200,000 and 250,000 sq ft a year, says Nick Hosking of Innes England, a property advisory firm. But Pride Park is almost full and there is no immediately obvious alternative apart from the city centre. But the current difficult economic climate, together with sharp cutbacks in public spending, have curbed any short-term appetite for speculative office development. Adam Wilkinson, Derby
Council’s new chief executive who has been hired for his regeneration expertise, says: “The challenge we face now is that much of the investment planned has come to a halt even though there is roughly 1m sq ft of potential office development with the necessary planning consents.” Nevertheless, Mr Wilkinson is convinced that it is only a matter of time before office developers turn their attention to the centre. Agents and developers say there is sizeable pent-up demand for office accommodation, but it is one of those “Catch-22” situations. “Unless the offices are built, developers will not get anyone to sign up to a lease, and the banks will not lend without a lease. It is a vicious circle”, says Mr Wilkinson. That is the reason behind the council’s decision to set up the £10m Derby Regeneration Fund (DRF) which will be used to help unblock several office developments that had stalled. The initiative seems to be working. Construction should start before the year end on the first phase of the 75,000 sq ft Friar Gate Square – the first big office development in
Wilkinson: regeneration skills
the city centre for 20 years. Two more office developments close to the Cathedral – Central Square (50,000 sq ft) and Number One Cathedral Green (95,000 sq ft) – are also well advanced. Meanwhile, the £33m modernisation of the City council’s classic headquarters on the banks of the River Derwent, is well under way. The council is also expected to start work on a new £20m swimming pool and a £20m multipurpose arena within the next year. “In five years the riverside area should have been redeveloped, which will our crowning glory”, says Mr Wilkinson. “We know what is lacking in our city centre. It needs further investment in offices, leisure and retail, and that is our focus for the next three years.”
in the city centre in an effort to attract these small start-ups. “Developers tend to follow the space, but Derby’s problem has been that until now we have had no grade A space available,” says John Forkin of Marketing Derby, an organisation set up by the council and local business leaders to promote the city as an inward investment location. “So the city has been receiving interest that it couldn’t satisfy.” That is slowly changing. ‘We were leaking way too much of our own wealth’ says John Forkin
Lowbridge, a London developer supported by the council under a special £10m regeneration fund, will this month complete the first speculative commercial building seen in the city for more than 20 years. Creating the right business environment is one thing. Another objective is to upgrade the retail and leisure offering to ensure that more of that wealth
created by local companies flows back to the city economy. Since Westfield, the Australian shopping centre developer, chose Derby as its first UK site – a £340m investment which opened in 2007 – retail spending in the city has risen more than 50 per cent. “If you want to do some things you have to go to London. If you want to do some things you have to go to Manchester. We know where we are in the hierarchy. But we were leaking way too much of our own generated wealth,” says Mr Forkin. Peter Richardson is chairman of the Derby Renaissance Board, a publicprivate partnership, which this month won a £40m grant under the government’s Regional Growth Fund for job creation. He says: “We recognise that there has been an overreliance on a few global companies. While we must support them, we have a responsibility to create a more balanced economy and bring other businesses to our city. “We knew that, but the Bombardier decision does underline that in big red ink.”
March 2011 (%) Public admin, Education, Health
Sector employment in Derbyshire
Construction Banking, Finance, Insurance
9.2 10.9 15.8
Chesterfield DERBYSHIRE DALES
NORTH EAST DERBYSHIRE
D E R BYS H I R E
£’000 per head Derby East Midlands South and west Derbyshire 20
East Derbyshire UK
Distribution, Hotels, Restaurants
12 months to Mar 2011 (%) SOUTH DERBYSHIRE
Burton upon Trent Loughborough
UK Based on Ordnance Survey mapping © Crown copyright. AM042/11
FINANCIAL TIMES TUESDAY NOVEMBER 15 2011
FINANCIAL TIMES TUESDAY NOVEMBER 15 2011
Business Guide to Derby
Business Guide to Derby
City of festivals offers allround entertainment Leisure and culture Recent innovations include the £11m Quad arts centre, says Nigel Powlson
Fishy business: part of a parade of sea creatures at this year’s Festé
erby has shaken off most of its feelings of inferiority to near-neighbour Nottingham, but not all of the rivalry. There is still a tug of war taking place for bragging rights over Brian Clough, the maverick football manager who turned both cities teams into League champions, and the most important matches of the season locally are those between Derby’s “Rams” and Nottingham Forest. But Derby is more confident, secure in its belief that it is the most pleasant city in which to live in the Midlands. It is also keen to celebrate what it does best. Not much in Derby is truly bigger and better than anywhere else, but
the annual Darley Park Concert with the city’s orchestra Sinfonia Viva, is the largest, outdoor, free concert in the country, attracting more than 30,000 people. Derby has also become a city of festivals, staging Format, an internationallyrecognised photography celebration, every two years and the free outdoor spectacular Festé for the past five autumns. The city has always cherished its role as a gateway to the Peak District, with the rolling dales and gritstone edges just a short drive away. It has taken it longer to recognise its industrial legacy. The granting of World Heritage status to the Derwent Valley Mills has helped change minds and the city recognises its role in the Industrial Revolution. Rather than industry, it was probably the opening
Rams rampant: Derby County players celebrate a goal by Jamie Ward in September’s 21 victory over local rivals Nottingham Forest
of the Westfield shopping centre in 2007 that raised Derby’s status most significantly in recent times. Not everyone was thrilled with the lack of any local character in this cathedral of consumerism but the shoppers who had fled the city on Saturday afternoons for Nottingham or beyond relocated to its brightly-lit interiors and out-of-towners soon followed. The arrival of Quad, the city’s £11m arts centre, in 2008, gave the city the cultural hub it sorely needed and it suddenly gained an international voice in visual arts. More than 370,000 people visited Quad in its third year of operation and it has become the heartbeat of cultural life in the city. Keith Jeffrey, chief executive, says: “Quad has quite quickly become part of the DNA of Derby.
County Ground, its home since 1871. The city also wants a slice of cycling glory – a new £20m velodrome is planned for 2013-14 which will double up as a concert arena.
Katherine Burnett, Derby Telegraph
Shopping People can’t imagine the city without Quad – it’s that important.” The Format festival now challenges the Brighton Photo Biennial as the biggest and best celebration of photography in the UK, attracting more than 100,000 visitors in 2011. They take place on alternate years. Louise Clements, artistic director of Format, says: “It’s the most lively and inventive photography festival in the UK. “We are the most international and a mustattend event as both a meeting place and to view work that hasn’t been seen before. “Ten years ago people just passed through Derby on the train, but Format has been a strong advocate for the city’s potential and people are surprised when they come here,” he says. “The festival transforms the city and people say
Westfield Derby has all the big retail names and is the place to go for contemporary fashion outlets, but the Cathedral Quarter offers independent and specialist retailers and is home to a department store, Bennetts (established in 1734), that helps give shopping in the city a more distinctive character.
Derby feels like a different place. It’s the same with Festé, it enables you to look at a place through new eyes. Great things can happen anywhere, it doesn’t have to be a capital city.” Progress is, however, being potentially jeopardised by the city council’s proposal to cut
Stately homes mix with the downtoearth Derbyshire Jill Gallone finds a variety of attractions just on the doorstep Few cities can claim to be so close to breathtaking scenery, with the Peak District just a few miles down the road. Martin Bell, who works for Bombardier in London but lives in Derby, puts it like this as he hits the M1 to drive home: “I’m heading back to God’s own country.” It is an area of outstanding natural beauty and a county of contrasts. Being centrally located, Derbyshire is close to everything – London is less than two hours away by train – but provides solitude. It offers vibrant city life but in the blink of an eye you can be gazing at rolling hills. “The Peak District National Park is at the heart of the nation,” says Jim Dixon, its chief executive. “It is a special place, rich in wildlife, stunning landscapes, secret and tranquil places and a hugely rich heritage.
“It is also a short distance from many of our largest urban areas and plays a huge part in the lives of those places.” Tourism is important to the county and something it would like to make more of, especially as it is awash with stately homes. National Trust properties include Calke Abbey, Kedleston Hall and Hardwick Hall. Then there are privately owned mansions such as Haddon Hall and Chatsworth, home to the Duke and Duchess of Devonshire. The Duke of Devonshire says: “Year after year, visitors are drawn to Chatsworth, which was named best Large Visitor Attraction in the Enjoy England Awards for Excellence 2011.” Even it you have never visited Derbyshire, chances are you will have seen its grand properties on the silver screen. The Duke says: “The Chatsworth Estate has hosted much filming, ranging from factual documentaries such as a forthcoming BBC series about life on the estate to TV dramas such as BBC’s Jane Eyre, and feature films, most notably Pride and Prejudice and The Duchess.”
Locals enjoy taking advantage of the gems on their doorstep. Maria Narducci, press officer for the National Trust’s Midlands region, says: “There are 660,000 members of the National Trust in the Midlands, which is 8.4 per cent of the region’s population.” Despite its stately homes, the county has a down-toearth quality too. A favourite haunt for locals is Matlock Bath. Bikers flock there thanks to its seaside feel.
‘The range of schools, even within a limited radius of Derby, is extremely wide’ Another key Derbyshire attraction is the price of its property. You can snap up a terraced house for less than £100,000 or a detached for less than £200,000. The cost of living is inevitably lower than in southeast England, which may be one reason why artists from far and wide are moving to the county, inspired by arts festivals in places such as Buxton and Wirksworth (see above).
Tim Haynes, a former graphic designer who quit a job in London to move to Wirksworth, says: “I tried to find a similar job in Derbyshire but no one seemed to want a graphic designer. So, it was either the dole or trying to pursue an artistic career. “Maybe I would have done it eventually, but moving here and almost being forced to pursue my art is one of the best things that happened to me.” There is also quality education on offer. Repton School, a private establishment, counts Roald Dahl and Jeremy Clarkson among its old boys, but a good education can be statefunded. Duffield’s Ecclesbourne School and Littleover Community School, in a smart suburb of Derby, achieve results on a par with private schools. Colin Callaghan, headteacher of Derby High School, says: “Speaking as someone raised in Kent who believed the north started at Watford, I think there are probably misconceptions about the east Midlands. The educational environment here is vibrant and quite different from what I have experienced before. “There are many good maintained schools, but the
Chatsworth House: frequent setting for films and TV
independent sector in this area is also thriving. “The range of schools, even within a limited radius of Derby city, is extremely wide, from traditional boarding schools through to single-sex day schools which feature at the top end of national tables of academic results.” Mr Callaghan says Derby High reflects the broad cultural and social mix of the local community. “We have, for example, children of senior executives from Toyota and Rolls-Royce, whose
parents come to Derby on two or three-year secondments, and also those of local business people, shopkeepers, taxi drivers and professional families.” Pretty villages such as Brassington, Parwich, Tissington or Quarndon, once home to football legend Brian Clough, do much to woo newcomers. Clough, who knew a thing or two about life and the universe, came from Middlesbrough but he made his home in Derbyshire for good.
all funding to arts organisations such as Quad by 2015. So, can Derby afford its new-found cultural identity? That question is being debated fiercely in the city. Peter Helps, Sinfonia Viva’s chief executive, believes the city can still flourish culturally. “Times
are tough now,” he acknowledges, “and difficult decisions are being made, but it is the strength of the network built on the city’s vision of a rounded arts offer and infrastructure that will ensure the best possible outcome. “That is why working in Derby is so rewarding.”
Sport Fans of Derby County Football Club well remember that it was First Division champion twice in the 1970s, although their most recent flirtation with the elite in 2007-08 saw them finish bottom of the Premiership with a record low points total. Having another Clough,
Brian’s son Nigel, at the helm has revived hopes of a return and a chance to put that season of shame firmly in the past. Derbyshire Cricket Club, on the other hand, knows it is not in cricket’s big league, yet can still attract 4,000-5,000 for a T20 game against Midland rivals Nottinghamshire at the
The Silk Mill is one of the oldest factories in the world and marks the start of the Derwent Valley Mills World Heritage Site. Derby Museum and ArtGallery houses an extensive collection of paintings by Joseph Wright. Far more than just a provincial artist, his work has gained in stature and the city celebrated with a festival in 2011.
Entertainment The first luxury multiplex cinema in the UK opened in Westfield Derby in 2008,
as US company National Amusements brought its Cinema De Lux brand to the UK. Reclining leather chairs, upmarket meals delivered to your seat, and a VIP lounge for a premovie drink set it apart from the city’s two other multiplexes. The Quad arts centre has two screens showing art house and independent releases, plus a contemporary art gallery and the first BFI Mediatheque to be sited outside London – a free video jukebox allowing access to a wealth of archive film. Déda on Chapel Street is the east Midlands’ only centre dedicated to dance.
Theatre The Assembly Rooms is a multi-function council-run venue that hosts everything from snooker to the city’s annual panto. Dara Ó Briain, the Irish stand-up comedian and television presenter, regards it as one of the country’s top five comedy venues. It is complemented by the historic Guildhall, which houses small-scale productions on the other side of the Market Place. Inside Westfield, Derby Theatre has risen from the
ashes of the former Playhouse and is now operated by the city’s university as a “learning theatre”, with students housed in the building and staging their own shows alongside touring professional productions. The loss of at least part of its Arts Council funding has been a blow to hopes of building on the success of home-produced shows, such as the highly praised musical adaptation of The Go-Between.
Music Derby takes pride in having its own orchestra, Sinfonia Viva, and in creating a niche for itself in blues, jazz and folk. The bigger bands tend to bypass the city for Nottingham, but Derby makes up for it by having a string of festivals on its doorstep in the summer. These range from small, independent offerings such as the well-established Off The Tracks, via the quirky Bearded Theory Festival (held in the grounds of the National Trust’s Kedleston Hall) to the corporate rock of the massive Download Festival, a reinvention of the old Monsters of Rock, now held every June at Donington Park.
FINANCIAL TIMES TUESDAY NOVEMBER 15 2011
FINANCIAL TIMES TUESDAY NOVEMBER 15 2011
Business Guide to Derby
Business Guide to Derby
Moves to deal with twotier workforce Skills Businesses are engaging more closely with schools and universities, says William Hall
Train to nowhere? The future of Bombardier’s plant has been put up for review and 1,400 workers have been laid off
Cluster has all points covered Rail industry Andrew Bounds finds bright spots, despite worries over the possible closure of Bombardier’s factory
rainmaking has been part of the lifeblood of Derby for 135 years. But the city’s close association with the rail industry now goes far beyond manufacturing, encompassing software, train operators and legal and other services. The possible loss of Bombardier, which put the future of its plant up for review and laid off 1,400 after losing a contract to build trains for the Thameslink route through London, would be hugely damaging but not fatal. A decision from the Canadian company, the last trainmaker left in the UK, is expected by the end of the year. Almost 20 per cent of Derby’s economic output – some £2.6bn a year – comes from the industry, according to a 2010 report by the city council. It found that 5,010 people were directly employed in
the industry, with 3,000 of those at Bombardier. A survey of its members by the Derby and Derbyshire Rail Forum (DDRF) found that more than 1,000 jobs could be lost in the Bombardier supply chain. Four companies could close. Michelle Craven, vice-chair of the DDRF and a solicitor with Nelsons, an east Midlands firm, said: “There have been job losses and where there have been plans for expansion they have been knocked on the head. As this pans out, there will be more of that. It is a difficult time.” She hopes recent “relatively nice noises from government” will prove sufficient to keep the plant open. The government has hinted that there could be contracts to keep the company going until an order for Crossrail carriages for London in 2014, which would be under new procurement rules favouring a UK-based bidder. However, it may be too late. Bombardier has 23 plants in western Europe, more than it needs, because in many countries it is impossible to win a contract without a domestic presence. As one observer says: “If it doesn’t need a plant in the UK to win orders there, why have one?” It is not possible to export
trains from the UK by rail, as continental rolling-stock is built to wider specifications, so there is not enough clearance. They have to be shipped by truck. By contrast, imported trains can be built to the UK narrow standard and simply driven through the Channel tunnel. Nevertheless, Ms Craven says there are bright spots. “This is the largest rail cluster in the world. We have to recognise there is still
‘It is astonishing how antiquated a lot of rail operating systems are. There is a lot of room for innovation’ an awful lot of domestic business – not just building rolling stock but a huge amount of infrastructure work in prospect.” Projects such as electrification of lines in the north of the country and sections of new track should provide work, she says. And Network Rail, the not-forprofit organisation that controls infrastructure, has much to do modernising the system to meet increased demand. There is also
the prospect of a high-speed line from London to Birmingham, then on to Manchester, Scotland and Leeds. The DDRF is also working with smaller companies to win export orders. In November, Network Rail announced plans to establish a depot in Derby, which could create hundreds of jobs. John McArthur, chief executive of Tracsis, a software and consultancy business, agrees that there is potential. The company’s flagship programme, which manages staff deployment for 13 of the 16 train operators, was created at Leeds University. But, although Leeds remains its head office the bulk of its 42 staff are at offices in Derby. “Derby is to trains what Silicon Valley is to software. You have to be here,” he says. Tracsis has four divisions and operates internationally, helping New Zealand run its trains during the Rugby World Cup. But among its fastest growing operations is MPEC, a provider of “black boxes” that monitor track and signal conditions to detect and pre-empt faults. Tracsis, which is traded on Aim, the UK’s junior stock market, bought Derby-based MPEC for £3.4m in June, and says the busi-
ness added £1.07m to its turnover for the year to July 31 2011. This, along with 14 per cent organic growth, lifted revenue from £2.6m in 2010 to £4.1m in 2011. Profit before tax also increased from £584,000 to £1.12m. MPEC’s framework agreement with Network Rail covers just a fraction of the network and would grow, Mr McArthur says. “It is astonishing how antiquated a lot of rail operating systems are. There is a lot of room for innovation.” SNC-Lavalin, the Canadian engineering and construction group, also sees potential in rail in Derby. It recently bought Interfleet, the rail technology consultancy group, for an undisclosed sum. Interfleet specialises in rolling stock, railway systems, and strategic railway management. Founded in 1996 during UK rail privatisation, the company has 600 staff across the world. “There is great growth potential in the rail sector worldwide,” says Jim Burke, executive vice-president of SNC-Lavalin Group. Ms Craven agrees: “There has to be a future for rail. There is too much going on and too much demand from the public for there not to be.”
isitors arriving at Derby station cannot fail to spot the recently renovated Roundhouse next-door. Built in 1839 by Robert Stephenson, it was the world’s first steam engine repair and service workshop. Today, the listed building is the award winning flagship of a £43m campus for students taking vocational courses at Derby College, one of the UK’s biggest further education colleges. The Roundhouse is the most visible sign of the recent heavy investment in upgrading the city’s education and training facilities. More than £100m has been invested in the much bigger University of Derby, and £230m in secondary schools. But the city has a two-tier workforce. It has a disproportionate number of highly skilled workers employed by the likes of Rolls-Royce and Bombardier. But it also suffers from an above-average number of residents with no qualifications. “One of the key criticisms we got when we spoke to employers was youngsters’
lack of preparedness for the world of work when they leave school”, says Ged Leahy, a former Rolls-Royce manager who heads the employment and skills board of Derby Renaissance, the public-private body advising on the city’s economic strategy. Businesses are engaging much more closely with secondary schools in order to bring the worlds of education and work closer, says Mr Leahy. Qualifications remain important, but small businesses, in particular, want young recruits who can also respond to ‘”bite-sized” onthe-job training, which he summarises as “learn it at 9am and do it at 3pm”.
RollsRoyce received more than 16 applications for every apprentice vacancy in 2011 The university and Derby College, which have a combined turnover of £180m and a workforce of 4,200, are at the forefront of efforts to raise local skill levels. Derby College concentrates on providing training courses up to degree level, and the university focuses on degreebased vocational courses. The increasingly close cooperation between schools and employers is also visible at these two organisa-
tions. University of Derby Corporate has been set up to deliver accredited vocational training in the workplace to meet employer needs. In 2010-11 academic year, it made £4m in revenues – a 400 per cent increase since its formation three years ago. It has 260 clients and 2,500 learners. “We wanted to make it clear that the University of Derby is employer-engaged and business-friendly”, says Professor John Coyne, the university’s vice-chancellor, who was recently appointed to the UK Commission for Employment and Skills. There has been a tendency in the past for universities and colleges to concentrate on churning out students with qualifications to satisfy predetermined government targets, says Prof Coyne. He prefers a business model that sees industry “taking ownership for genuinely specifying the skills it needs and then commissioning them from the education sector”. Derby College is even more deeply involved in tailor-made training courses than the university. Its own Corporate College provides bespoke training programmes to more than 1,000 employers, ranging from such global manufacturers as Rolls-Royce, Worcester Bosch and JCB, to national retailers Matalan and Poundland. A third of the college’s £60m revenue is now gener-
Keeping it inhouse: the Toyota plant outsources only 5 per cent of its training
ated from this side of its operations. Despite the lack of qualifications of some parts of its workforce, Derby has one big advantage over rival cities when it comes to training. It has several big employers that can afford to operate in-house training establishments, and this is of benefit to the wider manufacturing sector. Toyota’s Derby plant, for example, outsources only 5 per cent of its total training. It works with Burton and South Derbyshire College to align its training schemes to meet NVQ accreditation requirements. It also works with Derby University for the provision of a two-year Toyotaspecific foundation degree course for its trainee engineer development programme. This is operated on day-release alongside onthe-job training. Rolls-Royce, which has
been training apprentices for more than 50 years, has 325 local apprentices. Its apprentice programme was awarded Beacon status by the Learning & Skills Improvement Service following an Ofsted inspection in January 2010, which graded the programme as outstanding in all areas. It is often said that the company’s apprenticeship schemes are more heavily subscribed than the most desirable course at the best university. Rolls-Royce received more than 16 applications for every apprentice vacancy in 2011 and applications were 50 per cent up on 2010. And 98 per cent of its apprentices complete their training, compared with a national average of 67.3 per cent. It is building a Apprenticeship Academy in Derby that will double the number of apprentices it can train
each year, with many going into Rolls-Royce’s supply chain and the wider manufacturing industry. Derby College, along with Training 2000, a local private sector training organisation, work in partnership with Rolls-Royce to deliver its apprenticeship programme. Derby University provides further education to support the continuous professional development of Rolls’s Derby based employees at all stages of their careers. Graham Schuhmacher, Rolls-Royce’s head of development services, says: “We have strong relationships with providers, including Derby College and Derby University. “We use external organisations where they can provide specialist, high-quality training and education that supplements our own inhouse programmes.”
Profile RollsRoyce, the city’s largest employer, is doubling its apprenticeship programme as aeroengine output revs up Carl Higgins is the fourth generation of his family to work for RollsRoyce. His great grandfather was with the company in 1908, when it moved from Manchester to Derby. Mr Higgins joined as an apprentice. The company sponsored him to go to college – first Derby College and then to Warwick University. Today, he is in charge of one of RollsRoyce’s most critical production lines. The 36yearold oversees 200 workers making the high precision turbine blades for the famous Trent series aeroengine that today powers half the world’s widebodied passenger fleet. Derby is the headquarters of RollsRoyce’s multibillion pound global civil aerospace business. The Derby facility is its largest operation in the UK, and would be a FTSE 100 company in its own right, were Rolls Royce not organised as a global multinational. The company, always known to locals as Royce’s, employs 12,000, making it the city’s largest employer – bigger even than the local council. The turbine blade in many ways exemplifies what it takes to be an advanced manufacturer. Grown from a single crystal of
nickel alloy, using advanced ceramic moulds and precisionoperated furnaces, the product is designed to withstand temperatures half as hot as the surface of the sun, and load factors equivalent to suspending a London bus from the blade’s tip. There are 80 in an engine, each one no bigger than a computer mouse. Mr Higgins’s team produce 110,000 units every year for new engines or as replacements under long term service agreements. “As we’re pumping more engines into the marketplace, each one will require replacement blades. The workload is pretty much at the ceiling. We’re starting to look for another facility which will help us ramp up,” Mr Higgins says above the din of the shop floor. RollsRoyce has a global supply chain – and indeed spends £1bn every year buying goods and services from some 600 companies in the Midlands. But the turbine blade is one product that is manufactured predominantly inhouse. Robert Nuttall, vicepresident for strategic marketing, says it is one of its “crown jewel” products – components that either have proprietary technology or are considered so
important to product performance that the company’s reputation would be at stake if they were to fail. The company currently has £60bn worth of engine orders, as airlines in Asia and other regions expand their fleets, which means Mr Higgins and his team will be busy for some time to come. The company projects that engine production will double in the next decade. In anticipation, the Derby operation has already announced it is doubling its apprenticeship programme. An extension wing of its apprentice academy, now under construction, will be ready next April. Shaun Haslan, a 23year old former construction worker, is one such apprentice. “I applied to Royce’s when I left school but I didn’t get in that time. My dad, my
brother and my uncle all work here. The more I saw what it was doing for my brother’s life, I thought I’d apply again,” he says. Graham Schuhmacher, head of development services, says the increase in university tuition fees has seen a record level of applications for the company’s apprenticeship programme, which he runs. He says he was worried when the last government set itself a target to raise the number taking university degrees. “I was worried that was going to drain a lot of good people away from our potential intake. Then came the rise in fees. Parents and apprentices are very bright consumers. They work it out,” he says.
John Murray Brown Graham Schuhmacher: worries proved unfounded
FINANCIAL TIMES TUESDAY NOVEMBER 15 2011
Business Guide to Derby Profile Smith’s overseas push shows good timing
Retail therapy: the £340m Westfield shopping centre in the middle of Derby has boosted the city’s service economy
Economy’s real driver continues to accelerate Services Manufacturing cannot provide large numbers of new jobs, writes William Hall
erby’s reputation for manufacturing, which accounts for more than 10 per cent of the city’s workforce, has overshadowed the fact that the real driver of the economy over the past decade has been the service sector, and this trend is set to accelerate. Between 1998 and 2008, a net 6,100 jobs were created in Derby, according to an October 2010 report from the Centre for Cities thinktank. In the same period the manufacturing sector suffered a net loss of 4,200 jobs. The threatened closure of Bombardier’s trainmaking plant, and the loss of jobs at Egg, an internet bank, underline the city’s urgent need to find a fresh source of new jobs. Rolls-Royce, the aerospace and engineering group, and Toyota, the Japanese vehicle-maker, the other two big private sector employers, are prospering, but the pace of productivity growth in manufacturing means they cannot be relied on to create lots of jobs. At first glance, Derby’s traditional service sector looks relatively small by comparison with bigger local rivals such as Notting-
ham, Sheffield and Leicester. According to statistics supplied by TheCityUK, a financial and professional services trade body, banks, accountants and lawyers in the city employ 5,200, less than half Rolls-Royce’s local workforce. There are some strong local law firms, such as Flint Bishop, Geldards, and Freeth Cartwright, and the same with accountants including Smith Cooper and Cooper Parry. But the real growth is coming from a much broader range of service companies. Recent arrivals at Pride Park, home to a large number of the fast-growing services companies, give a flavour of the types of businesses creating jobs. There are office blocks for Software AG of Germany, Lloyd’s Register Rail, which provides technical support to the rail industry, and a new headquarters for Russell Hume, a nationwide meat and poultry distributor which supplies Jamie Oliver, the celebrity chef. Can the service sector provide enough new jobs to offset the loss of manufacturing jobs? “If you are just talking about lawyers and accountants, the answer is ‘no’”, says David Williams, a partner with Geldards. But if that is broadened to cover the whole range of professional service businesses, he is more optimistic. “Despite the recent rush of poor news stories, there have also been some very positive developments. Rolls-Royce has been doing well, as has rail-related
businesses that are not dependent on Bombardier,” says Mr Williams. The decision by Westfield, the Australian shopping centre group, to invest £340m in its shopping centre in the middle of Derby – its first venture in the UK – has boosted the lower end of the service economy, and greatly improved its attractions as a regional shopping destination. However, much of the growth in the service sector is being driven by businesses clustering around big local manufacturers, such as Rolls-Royce, Toy-
There is a cluster of fastgrowing IT companies, many of whose operations are increasingly global ota, and Bombardier. In addition, there is the growing number of rail-related businesses, several of which stem from the privatisation of British Rail’s research facilities (see page six). Pattonair, a logistics provider which sources some 37m individual parts for Rolls-Royce sites across the world, is one of many local companies that have grown up alongside the maker of jet engines. Employing 780 staff, and with operations around the world, Pattonair’s customers include BAE Systems, Goodrich, Thales Aerospace, AgustaWestland and Eaton.
While attention focuses on the future of Bombardier, the UK’s last trainmaker, there are many railrelated service businesses that will be unaffected by Bombardier’s problems. The city is home to East Midlands Trains, an operating company, and also Porterbrook and Angel Trains, the two biggest rollingstock leasing companies, which are both prospering. Interfleet, a 1996 management buy-out of British Rail’s former intercity train engineering services, has grown from 99 people in one UK office to some 600 staff in 22 offices across the world. DeltaRail, a software business spun out of British Rail research, now has offices in Utrecht and Strasbourg. There is also a cluster of fast-growing IT companies, including TeamTelecom Group, Node4, Commontime, and PxTech, many of whose operations are increasingly global, and unrelated to the short-term problems of the city. While uncertainty over the future of Bombardier and the Egg internet bank has coloured the short-term outlook for local jobs, the city’s services sector is growing. “The city’s infrastructure is good”, says Mr Williams at Geldards “The road system works well. “And you have the Peak District on your doorstep, the railway station is five minutes walk from my office, and East Midlands Airport is a 22 minute drive away”.
Whether it is the prayers of the faithful in Mecca or international trains from London to Paris, Smith of Derby keeps them to time. The family owned clockmaker, founded in 1856, boasts an enviable list of timepieces in famous locations, including the Grand Mosque at Mecca, St Paul’s Cathedral and St Pancras station in London, and the custom house on Shanghai’s waterfront Bund. It includes the clock that gave Arsenal’s Highbury stadium its Clock End, now moved to the Emirates stadium, and the highest above street level in the world, 170m up at Boeing’s headquarters in Chicago. Bob Betts, managing director, says its international push has enabled the business to prosper during tough times in the UK, but has placed new demands on its clockmakers in Derby. “It is all about innovation and international business,” he says. “Our UK business went from £500,000 to £5,000 in a year at the beginning of the recession.” The company is now in its fifth generation – Nicholas Smith is chairman – and Mr Betts says it was international from the start. It followed the railways throughout Britain’s expanding empire, installing clocks to help the trains run on time. It reached farflung colonies such as Tonga. It has also built about 5,000 public clocks around the UK that provide regular service income. “For many years we had enough business to worry about in our own backyard,” Mr Betts says, but as businesses and public bodies began to feel the squeeze and cut back it began to look abroad again. Rich individuals in Russia and India provided some work, but the Middle East has been the main source. Its building boom sees rival emirates seeking to outdo each other and a Smith clock is as vital as an Armani store to any new development. Smith’s prayer clocks have been especially popular. Designed in conjunction with Moslem scholars, they are works of art that have a real use, ensuring believers do not miss any of the five daily prayers that Islam Bob Betts: clocking on to new markets
requires. International sales account for half its turnover of some £4.5m annually, up from 20 per cent at the beginning of the decade. “You do sacrifice margin to get the sales because of the cost,” Mr Betts says. “And you have to make sure it is right first time when it is several thousands of miles away.” Smith now uses technology to monitor the performance of its clocks around the world from its head office. Its latest project, the Harmony Clock Tower in Guangzhou, China, will feature an unprecedented 12.8m diameter dial on each of its four faces and will be driven by a unique mechanical movement, presenting the company with one of its toughest engineering challenges yet. The company buys in some readymade parts but assembles everything in Derby and uses local firms for engraving and marquetry, employing some 70 people directly. Mr Betts, who arrived in the city 15 years ago and chairs Marketing Derby, the inward investment agency, is still surprised by the level of expertise available. Recently Smith found it needed to reduce the weight of its clocks, as buyers sought them as the ultimate status symbol on ever higher, thinner buildings. It searched for a supplier of carbon fibre parts. “We were looking internationally and when we saw the Derby postcode of one business, we did a doubletake. They were two miles down the road from us and we had never heard of them. They do bodies for Formula One cars. “There are 15,000 jobs that surround RollsRoyce that are not RollsRoyce jobs but in those hightech sectors.” However, he believes the hollowing out of Britain’s industrial base is becoming a challenge. “I am concerned about skills. Our latest designer came from Korea. Another has come from China. Colleges and universities do not seem to be producing the people we need.”
Published on Nov 15, 2011