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2 SPECIAL REPORT: ACCESS TO FINANCE

A DIFFERENT TALE TO TELL

RIDING THE SPANISH BULL

READY TO TAKE AIM?

The cash is available, the investors are keen, so let’s get positive

Lender has a clear plan and is open for business

Explained: The brave step to public listing

BQ_SUPP_FRONT.indd 1

FLYING WITH THE ANGELS

Secrets of the private investor uncovered

09/08/2011 13:29


PARTNERS IN BUSINESS | CASE STUDY

AESICA PHARMACEUTICALS AESICA PHARMACEUTICALS

PHARMACEUTICALS | NORTH EAST OF ENGLAND PHARMACEUTICALS | NORTH EAST OF ENGLAND

“WE NEEDED COMMITTED FUNDS FROM “WE NEEDED COMMITTED FUNDS THE BANK AND THE AND TEAMTHE AT LLOYDS BANK FROM THE BANK TEAM AT CORPORATE MARKETS DELIVERED TO OUR LLOYDS BANK CORPORATE MARKETS DELIVERED TO OUR YOU NEEDS. YOU CAN’T ASKNEEDS. FOR MORE.” CAN’T ASK FOR MORE.” Nick Jones, Finance Director, Aesica.

Nick Jones, Finance Director, Aesica.Pharmaceuticals was the only pharmaceutical business North East based Aesica to make this year’s Sunday Times Profit Track 100 listing, showing impressive North profit East based Aesica Pharmaceuticals was the onlywas pharmaceutical business annual growth of 59%. The business, which also third in the Buyout to make this year’s Sunday Times Profi t Track 100 listing, showing impressive Track 2011, seems well on its way to achieving its vision to be the number one annual profi t growth 59%. The business, which waspharmaceutical also third in the Buyout supplier of APIs and of Formulated Products to the industry, with Track 2011, seems well on its way to achieving its vision to be the number one support from Lloyds Bank Corporate Markets.

supplier of APIs and Formulated Products to the pharmaceutical industry, with “We wanted afrom banking partner to support the nextMarkets. stage capability in formulation development to achieve the next support Lloyds Bank Corporate of our growth,” asserts Aesica FD, Nick Jones. “We talked to the market, but we were particularly impressed by the way Lloyds Bank had stayed close to us since the initial MBO in 2004. It meant that they understood the business, they knew what our plans were and they came to us with a market-leading, flexible package in 2010, which re-financed our existing debt and provided a £20m

stage of growth. With 95% of the company’s business with overseas customers from its UK base, Aesica was keen to secure assets in Europe.

“In 2010 we had an opportunity to buy three sites, two in Germany and one in Italy, from UCB, Belgium’s largest pharmaceutical company, alongside a strategic


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the next ness was

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egic

“We wanted a banking partner to support the next stage of our growth,” asserts Aesica FD, Nick Jones. “We talked to the market, but we were particularly impressed by the way Lloyds Bank had stayed close to us since the initial MBO in 2004. It meant that they understood the business, they knew what our plans were and they came to us with a marketleading, flexible package in 2010, which re-financed our existing debt and provided a £20m revolving credit facility which supported our acquisition of R5 Pharmaceuticals in June 2010.”

SUPPORTING AMBITION The acquisition of Nottingham-based R5 was a crucial step in Aesica’s strategic plan, giving it the capacity and capability in formulation development to achieve the next stage of growth. With 95% of the company’s business with overseas customers from its UK base, Aesica was keen to secure assets in Europe. “In 2010 we had an opportunity to buy three sites, two in Germany and one in Italy, from UCB, Belgium’s largest pharmaceutical company, alongside a strategic partnership to supply UCB,” continues Nick. “It really was a transformational deal for Aesica. There was a tight timeline and we were really up against the wall in terms of the timescale UCB demanded. We needed committed funds from the Bank and the team at Lloyds Bank Corporate Markets delivered to our needs. You can’t ask for more.”

ON PLAN FOR GROWTH Gary Chapman, Aesica’s Relationship Director at Lloyds Bank Corporate Markets, is equally as enthusiastic. “Aesica’s growth has been steady and exceptional – it’s a great success story for a region that’s had its fair share of economic upsets. We’ve been working closely with our colleagues in Acquisition Finance, particularly Simon Dixon, to give Aesica the funding it needs to continue on its growth path. It was particularly good to support this most recent acquisition, which saw Aesica purchasing its first sites outside of the UK and the realisation of one of its key strategic aims.” So what next for the ambitious business? “Our overarching vision is to be the number one supplier of APIs and Formulated Products to the pharmaceutical industry,” asserts Nick. “That doesn’t mean necessarily that we’re the biggest or the cheapest, but that we provide value, so competitive pricing, reliability, quality and sustainable relationships. We currently have sales offices on the East and West coast in the US and a sales and sourcing office in Shanghai. Our next steps are to secure assets in North America and Asia. “The industry is growing and there’s demand from the emerging economies. Our customers want us to be in those markets. And I think we’ve found a banking partner that can support those ambitions.”

“WE WERE PARTICULARLY IMPRESSED BY THE WAY LLOYDS BANK HAD STAYED CLOSE TO US SINCE THE INITIAL MBO IN 2004. IT MEANT THAT THEY UNDERSTOOD THE BUSINESS, THEY KNEW WHAT OUR PLANS WERE AND THEY CAME TO US WITH A MARKET-LEADING, FLEXIBLE PACKAGE.” Nick Jones, Finance Director, Aesica.


COMPANY PROFILE

SUMMER 11

As a business driver DigitalCity Business (DCB) offers products that support firms both currently working in digital or those wanting to benefit from the use of digital. The support products add value to those businesses from early stage to those seeking growth and expansion. Inside our base we provide workspace built and designed by the digital industry, and outside we provide access to a well-connected business community

driviNg busiNess dowN the digital route

D

CB offers professional support to digital and creative businesses plus traditional industries looking to improve their use of digital applications and tools. Mark South, Director of Cluster Development, explained how DCB can help in one of the trickiest areas of starting a business in difficult economic times – attracting finance. “Raising cash, be it for start-up or growth, requires a clear plan of market need, opportunity, articulation of finances and how you will achieve success. Firms need to plan well to get funders interested. “For people with limited financial background that planning can be the first brick wall they encounter when trying to get a business or new idea off-the-ground. “At a start up or early stage, we offer products that force the commercial realities of a project first. For those firms seeking growth either through new products or new market entry, we endeavour to de-risk the venture by designing a mix of business planning, interim management solutions that drive applied knowledge and hands on support,” he said. David Fearnly-Brown, of North East-based Future Dynamix is a management consultant used to dealing with business plans for clients with a turnover in excess of £50m. But when he spotted a gap in the market for a software application he turned to DCB for help in creating his own business plan. “This was new to me as this isn’t my area of expertise. I’ve been very impressed with the help I’ve received DCB is funding and putting together a business plan for me that I’ll then be able to present to potential funders,” said David. Mark said: “At DCB were are also involved in innovation planning for those who have an idea and want to design it, scope it, get it down on paper and

SPECIAL REPORT | SUMMER 11

Mark South, Director of Cluster Development for DCB check there is a market for it. We help take things from an idea to a fully scoped out design specification. Abraham Thomas, who describes his company ‘High Street Hurry’ as a champion for the independent retailer, said: “I joined DCB in June of this year after completing the Fellowship at the Institute of Digital Innovation, Teesside University. “The support I’ve received at DCB has been second to none. For example, thanks to DCB’s innovation planning I’ve been able to clearly ‘road map’ the steps my business needs to take to secure investment and for the product to be refined further.” Mark explained; “Attracting investment isn’t just about talking to funders so we also equip client companies with the awareness, skills and resources necessary for them to be able to develop and grow. “For example we have a product called Interim Sales Director, aimed at companies with an existing sales track record where we work closely with clients for a period of six months to put in place a clear strategic plan and help to arm them with the know-how and methods that are required to create success.

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“Participants receive the required coaching that empowers them to be capable of going forward with the capability to drive their own sales in a successful and profitable manner. Rachel Burns, who works with Kevin Mann in his second venture ‘Audacious’, said: “We have found ISD to be a great way to focus our business on what really matters. We have benefited from a wealth of experience and knowledge to guide and educate us where needed and the weekly group sessions working alongside businesses facing similar problems provides enrichment to the programme.” Audacious which is developing a new application to allow people to personalise their online search results, recently secured substantial proof of concept funding support. “We also recently launched a service in partnership with Teesside University’s Business School, we ‘insert’ great business people or ‘catalysts’ into selected SMEs. “Here at DCB we are constantly assessing the needs of the industry, and developing relevant support mechanisms.”

Mark South, Director, Cluster Development Boho One, Bridge Street West, The Boho Zone, Middlesbrough TS2 1AE, tel: +44 1642 248 692, email: mark.south@dcbusiness.eu www.dcbusiness.eu

ACCESS TO FINANCE


CONTENTS 06 DAMNED IF THEY DO... Are the banks misunderstood or are we just asking the wrong questions?

10 NEWS Continued growth for North East companies with vision and ideas

SPECIAL REPORT:

22 THE SPANISH BULL Santander rides in with a clear plan that says ‘open for business’

ACCESS TO FINANCE

26 READY TO TAKE AIM

WELCOME

28 FLYING WITH ANGELS

Cash is the lifeblood of commerce and when a business is not generating enough to sustain its development plans, or even provide itself with working capital, then it must turn to alternative sources of finance. With economic recovery proving elusive, there has been much debate about access to finance in fuelling economic growth and of the part that banks and other financial institutions have to play. Are banks and other lending bodies sitting on piles of cash – even taxpayerprovided cash – which they should be lending to hard pressed industries? In this issue of BQ2 we look at access to finance and address these and other issues. We interview some of the key players across the funding spectrum in the North East. We also examine and explain the various funding options open to business to provide some guidance as to the best sources of finance for various sizes of company in their different stages of development. We hope, as always, that we have made a positive contribution to the debate and have provided a useful tool for the entrepreneur.

ACCESS TO FINANCE

CONTACTS ROOM501 LTD Christopher March Managing Director e: chris@room501.co.uk George Cheung Director e: george@room501.co.uk Euan Underwood Director e: euan@room501.co.uk Bryan Hoare Director e: bryan@room501.co.uk Mark Anderson Director e: emark@room501.co.uk EDITORIAL

The brave step into public listing. Why is there still hesitancy?

The secrets of the private investor

32 CULTURE CHALLENGE A leading dealmaker assesses the situation in the region

36 UNLOCK THE CASH How asset management could work for your company – and make a difference

40 DIFFERENT TALE

Peter Jackson Editor e: p.jackson77@btinternet.com Andrew Mernin e: andrewmernin@hotmail.com DESIGN & PRODUCTION room501 e: studio@room501.co.uk PHOTOGRAPHY KG Photography e: info@kgphotography.co.uk ADVERTISING If you wish to advertise with us please contact our sales team on 0191 537 5720, or email sales@room501.co.uk

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room501 Publishing Publishing House, 16 Pickersgill Court, Quay West Business Park, Sunderland SR5 2AQ www.room501.co.uk

CULTURE CHANGE

32 05

room501 was formed from a partnership of directors who, combined, have many years of experience in contract publishing, print, marketing, sales and advertising and distribution. We are a passionate, dedicated company that strives to help you to meet your overall business needs and requirements. All contents copyright © 2011 room501 Ltd. All rights reserved. While every effort is made to ensure accuracy, no responsibility can be accepted for inaccuracies, howsoever caused. No liability can be accepted for illustrations, photographs, artwork or advertising materials while in transmission or with the publisher or their agents. All information is correct at time of going to print, July 2011.

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BQ Magazine Magazine is is published published quarterly quarterly by by room501 room501 Ltd. Ltd. BQ

SPECIAL REPORT | SUMMER 11


OVERVIEW

SUMMER 11

DAMNED IF THEY DO... Are the fat cat bankers holding the purse strings tightly closed, or are they just misunderstood? Peter Jackson looks at the arguments

SPECIAL REPORT | SUMMER 11

It is, even at the best of times, hard to have much sympathy for bankers, as it is with anyone who has power over us. And in these – very far from best of times – the charge sheet against them seems both long and damning. In essence it is that through a mixture of reckless hubris and unrestrained greed they have plunged the world into its current economic woes and now, despite sitting on great piles of taxpayer-provided cash, they will not meet industry’s financing needs – at least not until they have funded their own pensions and bonuses. Harsh and perhaps unfair. Or perhaps as my own profession, in the wake of the phone hacking scandal, begins to feel the full force of public opprobrium, I’m inclined to be a little more understanding. After all, it does seem that bankers are now damned if they do and damned if they don’t. It’s worth remembering how we got into our current difficulties. It was through bankers, throughout the world, lending money to

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people, institutions or countries, for whom – it could reasonably have been foreseen – there was a good chance, there would be problems in repaying, in part or whole. Or the bankers bought dodgy debt instruments, which amounts to the same thing. This brought us to near catastrophe, which has only narrowly been averted – or postponed – by shoring up the banks with huge amounts of taxpayers’ cash, giving them the time and space to rebuild their balance sheets and thus avoid the world’s economy going off a cliff. It seems a little hard therefore, to be wagging our fingers at the bankers and tut-tutting over their past imprudence and, at the same time, to be telling them to stop being such stuffed shirts and exhorting them to relax their lending criteria and push money in the direction of any business that might want it. Nor is it merely a question of domestic opinion and government pressure. The new Basel III rules tightened restrictions on the amount banks can lend by making them set aside more capital to cover the possibility of default on bad investments. As I said, they’re damned if they do and damned if they don’t.

ACCESS TO FINANCE


SUMMER 11

It should be borne in mind that it takes two to tango – banks can only lend to those who desire to borrow

ACCESS TO FINANCE

That is not to say that there are undoubtedly many decent businesses which have had their cash plug pulled by pig-headed bankers or which have had perfectly sound investment proposals turned down. But the evidence seems to remain largely anecdotal. On the other hand, we report elsewhere in these pages that Santander is on track to meet its lending targets under the government’s Project Merlin, having, in the first quarter, lent £1.1bn of the £4bn it expects to lend to SMEs this year. It is only fair to add that it is the only major bank to be on track, but the rest are not massively off. It should also be borne in mind that it takes two to tango – banks can only lend to those who desire to borrow. Are we facing a problem of supply or of demand? In a recent interview, Stephen Welton, chief executive of the Business Growth Fund, said

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OVERVIEW

he had no problem in raising £2.5bn from the banks to invest in SMEs. Where his problems are arising is in finding the businesses which are seeking the investment. It seems that a large part of the problem is their unwillingness to give up a share of the business for equity finance, a problem which is echoed by our own interview in this issue with PWC’s Paul Mankin. The picture of a lack of demand for finance is also supported by a recent Lloyds TSB Commercial Business study in which 1,800 UK firms were questioned and in which only 19% said they were planning to increase their levels of investment and 21% were actually planning cuts. More than half reported low domestic demand and, facing that, it is hardly surprising if there is a lack of appetite to take on debt. At the beginning of the year, HSBC reported not only that its lending was up 22% by value on the year before but that a lot of existing debt was being repaid more quickly than it had expected. It also said that whereas pre-banking crisis utilisation of overdrafts by customers was running at 48%, post crisis that had fallen to 42%, again indicating a declining demand for credit. Given that the UK economy grew by only 0.2% last quarter, it would be remarkable if there was huge demand on the part of businesses to borrow money. Assuming no more shocks to the system from the Eurozone, the USA or even China, recovery is likely to be slow and unsure and, while it is under way, demand for finance is also likely to lag behind supply, and, as we report in this issue of BQ2, there is no shortage of financing methods and products. It may be a bitter thing to concede – but perhaps the bankers have a point. n

SPECIAL REPORT | SUMMER 11


CASE STUDY

SUMMER 11

the funding from lloyds tsb has ensured com-vert is in an eXcellent position for future growth

Green waste recycling firm unearths new growth opportunities A Northumberland-based company which recycles garden waste is set to expand to a new site near Alnwick after securing funding from Lloyds TSB

Wendy Ramshaw, LTSBC, left; Dan Robinson, Com-vert, centre, and Peter Bould, LTSBCF

A green waste recycling and composting business based in Northumberland, is set to break into the bio-fuels market and expand to a new site after securing a £100,000 factoring facility from Lloyds TSB Commercial Finance alongside an Enterprise Finance Guarantee (EFG) loan from Lloyds TSB Commercial. Com-vert takes garden waste from local authorities, businesses and gardeners and recycles it to produce compost which is approved by the Soil Association to use on organic farms. The products can also be purchased by the general public at local recycling centres. Set up by Joe and Dan Robinson in 2002 to diversify the family farm’s output, Com-vert has gone from strength to strength, helping councils

SPECIAL REPORT | SUMMER 11

– including Sunderland City Council and Northumberland County Council – to reach recycling targets set by legislation such as the EU landfill directive. The company, which employs five people, also has plans to move into the bio-mass market, which involves converting solid pieces of garden waste into bio-fuels which can be used as a carbonneutral alternative to fossil fuels. To capitalise on growing demand for its services and to branch out into the production of bio-fuels, Com-vert found it needed a cash flow boost. Lloyds TSB Commercial Finance devised a factoring facility which leverages the value of the firm’s sales ledger, boosting cash flow and allowing Com-vert to move to a new site in Shilbottle, Alnwick. The funder was introduced to the business by its banking partner, Lloyds TSB Commercial, which also provided the firm with a £125,000

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Enterprise Finance Guarantee (EFG) loan. The new recycling centre has improved transport links, reducing road miles and enabled more advanced machinery to increase output in-line with demand and the business hopes to boost turnover to £500,000 by the end of the year. Dan Robinson, managing director at Com-vert, said: “The farm has been in our family for 150 years and, as the agriculture market evolves and becomes more competitive, we spotted an opportunity to break into the organic recycling market, diversifying our output and increasing turnover. “Now, eight years on, Com-vert is branching out again to supply bio-fuels and increase its recycling capacity. This means we will be able to recycle garden waste into a sustainable and useful product. “The funding from Lloyds TSB has ensured Com-vert is in an excellent position for future growth and we hope to be a pioneering business in the bio-fuels market.” Peter Bould, regional manager at Lloyds TSB Commercial Finance, said: “Increasingly businesses and local authorities have to be aware of legislation, to reduce the amount of rubbish that is sent to landfills. “Com-vert’s services help customers become more environmentally friendly and as a result, it has established itself as a successful, innovative company. Diversifying the business to provide bio-fuels will further reinforce this reputation. “The factoring facility provided by Lloyds TSB Commercial Finance is ideal for expanding companies as it grows in-line with sales and guarantees a steady flow of capital to fund development.” Wendy Ramshaw, business development manager at Lloyds TSB Commercial, said: “Dan has a clear business strategy which he is very passionate about and we were pleased to be able to work with him to devise a suitable funding solution to support Com-vert’s growth.”

ACCESS TO FINANCE


SUMMER 11

COMPANY PROFILE

New Microloan Fund lifeline for the North East

A

NEW £5m loan fund aimed at supporting start-ups and small enterprises - including civil society organisations - has been launched in the North East. Unsecured loans of between £1,000 and £25,000 are now available to support new and established organisations who have failed to secure funding from banks and other mainstream sources. The new Finance For Business North East Microloan Fund, which is being managed by regional business support organisation Entrust, has been set up to ensure that viable organisations capable of managing loan finance have access to the support they need when “the banks are shut”. More than 700 organisations in the region are set to benefit from the new Microloan Fund which is now open to applications. Entrust is keen to point out that this new loan

fund is open to third sector enterprises on exactly the same basis as “for profit” organisations. Recognising, however, that many in the sector may not have accessed debt finance previously as part of their activities, Entrust, working with the Third Sector Capacity Fund, can now provide bespoke advice and guidance that social enterprises may require when considering debt finance. Entrust’s advisers can work with you to determine whether loan finance is right for your operation and guide you through the process step by step. This one-to-one investment readiness support manifests itself in tailored solutions ranging from financial management, compliance, and quality assurance, to hands on support with the “form filling” when applying for a loan. Entrust’s Chief Executive, Dan Brophy, said, “This is a really exciting opportunity for organisations in the region to access the funds they need to survive and grow in these difficult times particularly given

the lack of grant funding that third sector enterprises are now experiencing. We are delighted that third sector enterprises are among those successfully applying to the new fund and we would urge others to take action and come and talk to us.”

A specialist provider of

To find out more, please contact Entrust on 0191 244 4000 or email s.belton@entrust.co.uk

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Muckle’s Law states:

Creating strong business relationships builds lasting partnerships Muckle LLP works with fund managers, banks and venture capital organisations every day to get our clients the most appropriate financing for their growth. We are lawyers who think like business people and take a commercial view. To experience first hand what we are like to work with, call us today on 0191 211 7777.

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LLP

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ACCESS TO FINANCE

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SPECIAL REPORT | SUMMER 11


NEWS

SUMMER 11

Strong results from Cinnamon, Co-operative Bank reaps tender dividend, funding helps bees buzz, the leaders’ leader is chosen, innovative ‘sukuk’ is deal of the year, and software is motoring

Million aired: Jane Siddle of NEL, left; Cinnamon managing director John Cook and associate director Vikki Todd.

>> Cinnamon is tasty A specialist North East law firm is looking to expand outside the region after recording a million-pound turnover in just two years. Cinnamon Property Lawyers is now aiming to quadruple this figure within three years by targeting specific areas of the country in which to provide conveyancing services through a series of local partnerships. The company was founded by managing director John Cook in 2008, and was initially staffed by a number of lawyers and other key staff who had been made redundant when Dickinson Dees’ volume property business was sold. It is now looking to build the Cinnamon brand in areas such as South Yorkshire, Birmingham, Bristol and the home counties, working with lawyers who provide the contact on the ground whilst managing the administration from its Team Valley headquarters. Cinnamon’s expansion plans are being supported with a £90,000 investment from regional fund management firm NEL Fund Managers, via the Finance For Business North East Growth Fund, which will be used to provide the systems required to support this wider operational area. The company currently employs a team of 20 people, a figure that John Cook is aiming to

SPECIAL REPORT | SUMMER 11

increase by another eight in the next six months, and to at least double it within the next three years. He said: “Even though the company was set up right in the heart of the credit crunch, we always knew that our service offering had the potential to succeed, and being able to come this far so fast is down to the determination and skill of the Cinnamon team. “We’ve done a lot of research into transaction levels in different parts of the country. Even taking a conservative view of what is still a relatively flat market, we can see a range of commercial opportunities for us to target. “As well as offering a locally-based high quality service in the new markets, our structure means we will be able to compete very strongly on price as well, especially in the South. “Our growth will still be based on expanding market share, rather than sheer volume, to ensure that the direct link between us and our customers, on which our success has been built so far, is clearly maintained across our whole operation.” Jane Siddle, investment executive at NEL Fund Managers, said: “For a firm in this sector to simply stay in business over the last two years would have been a real achievement, so to build a million-pound turnover from scratch shows the quality of the Cinnamon proposition, and they now have the resources they require to become even more successful.”

>> Shop the late payers The Forum of Private Business is calling on all smaller suppliers to anonymously name and shame late paying companies. The Forum believes there remains a climate of fear surrounding indentifying large retailers in particular which routinely squeeze their suppliers. “We are urging all small suppliers who

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have suffered to come forward and provide us with evidence that they have been squeezed, and we can absolutely guarantee their anonymity,” said the Forum’s head of campaigns, Jane Bennett. “Late payment destroys companies yet it is often seen as normal practice by many big supermarkets and other companies, which believe it is acceptable to create lines of credit at the expense of their smaller suppliers. We certainly do not. “Previous initiatives to address late payment have failed. We are committed to helping small firms and the economy as a whole by building a momentum for change, and that means shedding light on the epidemic of late payment in the UK. “The problem is that, although we know this problem is rife, far too few business owners are willing to come forward, even though we ensure we will protect their identity. “The message is that, by standing together as a collective, we can give small businesses a powerful voice they would not otherwise have.” According to the payment body Bacs, more than £24bn in outstanding invoice payments is owned to small firms.

>> Bank on the Co-op The Co-operative Bank’s Newcastle Corporate Banking Centre (CBC) has retained its long-standing client Shared Interest Society, an ethical investment co-operative operating worldwide, after it put its banking facilities out to tender. The Newcastle-based Shared Interest Society lends money to Fair Trade businesses and buyers in the UK, US, Europe and Australia, as well as directly to businesses in the developing world. Founded in 1990 by Fair Trade pioneers to

ACCESS TO FINANCE


SUMMER 11

reduce poverty by creating a financial co-operative to pool money from investors which could be lent to farmers and handicraft makers in the developing world, the society now operates in 36 countries and lends £33m annually. It has offices in Kenya, Peru and Costa Rica. The society approached a number of high street banks when its £24m banking facility was put out to tender but chose to retain The Co-operative Bank. Shared Interest Society’s finance director Tim Morgan said: “After a lengthy tender process, it was clear The Co-operative Bank offered us the best complete fit. “As we suspected, the bank’s ethical policy resonated strongly with us but it also outperformed other high street banks with regards to their efficiency, rates, range and cost.”

NEWS

>> Bee or not to be A North East start-up company has secured funding to develop and commercialise a new technology that could help safeguard food crops threatened by the worldwide decline in bee populations. Newcastle-based Arnia secured the investment from the Finance for Business North East Proof of Concept Fund – managed by Northstar Ventures – and will use it to carry out further research and development into how sophisticated monitoring devices can measure bee activity, monitor bee health and help beekeepers manage swarming. The Finance for Business North East Proof of Concept Fund is backed by the European Investment Bank (EIB), European Regional Development Fund (ERDF) and regional development agency One North East (ONE). The dwindling bee population is in global

Buzzing: Dr Stephen Price, Proof of Concept Manager at Northstar Ventures, and Dr Huw Evans, founder of Arnia

crisis. Arnia’s founder, electronic engineer Dr Huw Evans said: “Crops such as almonds and apples are particularly dependent on bee pollination – and a population collapse could threaten the production of some of our favourite tipples and delicacies. Every year, in places like California, almond farmers depend upon the bees performing during the very >>

BUILDING SUCCESSFUL HIGH GROWTH BUSINESSES Over £80m under management in the North East £15m Finance for Business North East Proof of Concept Fund £20m Finance for Business North East Accelerator Fund £2.4m Finance for Business North East Creative Content Fund To access these funds or find out more, please call 0191 229 2770 or visit www.northstarventures.co.uk A specialist provider of

EUROPEAN UNION

Investing in Your Future European Regional Development Fund 2007-13

ACCESS TO FINANCE

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BELIEVE IN IDEAS Northstar Ventures is a trading name of NorthStar Equity Investors Limited. NorthStar Equity Investors Limited is authorised and regulated by the Financial Services Authority.

SPECIAL REPORT | SUMMER 11


NEWS

SUMMER 11

small window of opportunity when pollination can occur. “Arnia’s technology is essentially a small device which monitors audio frequency signals produced within the hive and sophisticated algorithms which identify patterns and changes in bee behaviour. From that, we can uniquely supply an accurate prediction of colony swarming several weeks in advance, providing beekeepers with ample time to effectively manage the swarm. “Furthermore, preliminary results indicate that we have the ability to identify the presence of some of the mites and parasites that impact on the health of a colony. The technology will also help us to investigate the impact which mobile phone networks may have on bees.” Working closely with experts at Newcastle and Dundee Universities and the Scottish Beekeepers Association, the company is now trialling its prototype systems at more than 100 beehives throughout Scotland. Dr Stephen Price, POC manager at Northstar, said: “Our investment will enable Arnia to continue the development of this technology.”

>> A favourable wind MORE than £2m worth of grants have been secured for firms in the North East in the last three months by accountants and business advisers Clive Owen & Co LLP. Clive Owen & Co’s business planning team, headed by partner Neville Baldry, has helped secure funding for companies working in the utilities, engineering, food and drink and technology industries.

Growth assured: Phil Heathcock, finance director at The Tekmar Group, left, with Neville Baldry, partner at Clive Owen & Co LLP.

SPECIAL REPORT | SUMMER 11

>> SMEs to have their say A research project is being launched in the North East to investigate business funding. In a pioneering initiative, North East Access to Finance (NEA2F), which was set up by regional development agency One North East to help the region’s small and medium sized businesses access funding, has joined forces with Northumbria University and Newcastle Business School. Together, in a three-year project, they aim to look at the demand for business funding and the current sources of funding available to SMEs. They will also examine the position of banks in relation to funding and investigate the true cost of bank loans to businesses in terms of interest rates and the security required. However, the main thrust of the research will be to identify what needs to be done to give the region’s SMEs the finances they need in order to sustain their development and facilitate their growth. Hugh Morgan Williams, chairman of NEA2F, said: “This project is the first of its kind in the country and there is a very clear need for it. There is an ongoing battle between banks and the Government with each making claims about what they are doing to help businesses but the reality is that this region’s small and medium sized businesses are caught in the cross-fire. “They still aren’t receiving the financial help they’ve been promised so research is vital into the exact nature of their financial needs, what steps are being taken to meet those needs and what is still required to be done. “This isn’t a woolly, theoretical exercise. Businesses are struggling and if the experts at Northumbria University feel a change of policy is the only way forward then that is exactly what we will push for.” The research will be carried out by the accounting and financial management team within Newcastle Business School at Northumbria University. Jane Turner, associate dean of the corporate and executive development centre, said: “This research is the first of its kind and it I think it will have implications not just regionally but nationally and within the wider European financial sector.” For further information on the research project or to find out more about North East Access to Finance visit www.nea2f.co.uk

They include Newton Aycliffe-based marine engineering company The Tekmar Group which Clive Owen & Co has helped access a Grant for Business Invesment worth £95,000 to support its growth plans. The grant has enabled Tekmar to expand and invest in more equipment to support further growth in the renewable energy market. Tekmar’s original Subsea division, which was set up in 1985, recently expanded into a new manufacturing plant at Faverdale, Darlington, to house its subsea oil and gas work.

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Its Energy division, which was formed in 2008 to produce cable protection equipment for offshore windfarms, accounted for more than half of the group’s £15m turnover last year. Since receiving the funding, Tekmar has doubled its workforce from 30 to 60. Baldry said his team was now steering clients towards the second round of Regional Growth Fund monies, as well as the £125m Finance for Business North East Programme. The programmes are designed to provide investment across all sectors through to 2014.

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NEWS

SUMMER 11

>> Bond is deal of the year

Outstanding: From the left, investor director award-winner Andrew Scaife of Quantum Pharmaceutical; Jeremy Middleton, Middleton Enterprises; Andrew Moffat, Port of Tyne; Alastair Thomson, Institute of Directors North East chairman, and keynote speaker the Rt Hon Michael Portillo.

>> Leader of leaders chosen The Institute of Directors North East has named the managing director of a pharmaceutical company as the region’s leading investor director. Andrew Scaife, who runs Quantum Pharmaceutical at Burnopfield, County Durham, was honoured at the IoD North East’s Business Leaders Dinner, which was sponsored by Port of Tyne. The IoD North East drew up an investor directors listing providing a snapshot of business leaders who are driving the region’s economy forward by investing in their organisations, are attracting funds and finance to the area, improving the area’s infrastructure, or creating much-needed jobs. Andrew Scaife was judged to be the outstanding leader among a shortlisted peer group of 15. The listing was sponsored by angel investment company Middleton Enterprises. Leading the field in specials manufacturing, Quantum Pharmaceutical supplies more than 5,000 high street and hospital pharmacies nationwide with more than 8,000 different bespoke medicines for people with specific, long-term or rare health needs. The company is doubling the footprint of its current Burnopfield headquarters, bringing much-needed jobs to the region’s construction and surveying industries. The company currently employs 240 people, including 21 fully-trained pharmacists, and this figure is expected to increase by 10% during the next 12 months as the company grows. Alastair Thomson, IoD North East chairman, said: “Those who made the shortlist were all very strong candidates and all had attributes which made them worthy contenders. “Andrew Scaife was chosen because he completely personifies what the investor director initiative was aiming to highlight – a dynamic and successful entrepreneur whose company is making a substantial contribution to the economic fabric of the region.”

>> Finance double Two new financial services have opened on the Quayside in Newcastle. Ashcourt Rowan wealth managers has started up with 10 staff under area manager Colin Davidson. Steve Daykin is the firm’s new northern regional director. The firm’s funds under management and influence rose 42% to £3.5bn with revenues up 28% to £12.38m at the half year to last September 30, against

SPECIAL REPORT | SUMMER 11

the same period previously. Mark Cheshire is group chief executive. Also new to Newcastle’s financial sector is Oak Futures, trading in global energy and financial markets. Managing director Steve Roberts says 15 staff will deal there from September. Fellow director Phil Glover, who has also worked for Goldman Sachs, is from Killingworth. He moved to London after the stocks crash of 1987.

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A groundbreaking corporate finance deal to provide development funds for a North East engineering design business has won international recognition. In the first deal of its type in the UK‚ at the end of last year, Gateshead-based International Innovative Technologies (IIT) raised £6.4m from an Islamic bond – called a sukuk – placed with the Dubai-based Millennium Private Equity. The successful and unique nature of the transaction has now been recognised as European Deal of the Year in the Islamic Finance News Awards. Newcastle based law firm Hay & Kilner was part of the advisory team behind the deal which provided funds to support the development of IIT’s new patented powder milling technology‚ alongside other innovative engineering processes and systems. Since launching the new milling technology at the end of last year‚ IIT has attracted global interest. The company has recently expanded its sales team with two new appointments and is in the process of boosting its engineering team with two new additions. IIT recently supplied a specialist bulk materials handling system to a Swiss customer in the minerals processing industry and is in negotiations with other potential sales into the refractories and construction sectors. Tom Wilkinson, chairman of IIT, said: “The investment from MPE has provided support for balance sheet and working capital requirements as well as providing the basis for further R&D activities. “The new powder milling system is the first of a number of planned product introductions we are working on‚ and the funds we secured last year will help us maximise the opportunities available to our new technologies.” Sukuk are Shariah-compliant investment instruments that have seen steady global growth in recent years. They provide a way for financial institutions and other entities to invest in companies without breaching the principles and rules of Islamic law. In making the award‚ IFN said that the IIT deal was notable for creating a model that other private equity firms might apply to UK and international acquisitions.

ACCESS TO FINANCE


SUMMER 11

COMPANY PROFILE

A collaborative approach to growth funding

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or small businesses, whether they are well-established or just starting out, a robust and flexible cashflow is essential to capitalise on expansion opportunities and ensure future growth. At Lloyds TSB, we provide a range of complementary business funding options to enable companies to realise their growth potential. Lloyds TSB Commercial supplies traditional banking, loan and overdraft facilities, while Lloyds TSB Commercial Finance offers asset based finance solutions, including invoice finance. Comprising factoring and invoice discounting, invoice finance is now considered a mainstream form of enterprise funding thanks to its highly adaptable and sustainable qualities in both shoring up cashflow and fuelling growth. Invoice finance releases the value of issued bills within 24 hours of a firm raising them, bridging the gap between issuing an invoice and

receiving customer payment. The more trading success a firm enjoys, the more funding can be released against the value of its issued invoices, which can subsequently be re-invested for growth. For smaller firms, factoring mandates the provider to perform a credit management function to chase unpaid bills, freeing up administrative time. By advancing up to 90 per cent of the value of issued bills, the product set can also protect working relationships by keeping businesses in line with contract terms with trade partners. This ensures supply chains are kept healthy and in motion. A flexible form of funding, invoice finance is often used alongside traditional banking and loan facilities to supplement a business’ existing agreements and facilitate expansion. Working in collaboration with Lloyds TSB Commercial, which provides highly competitive

banking, loan and overdraft facilities to UK SMEs, Lloyds TSB Commercial Finance has seen its clients achieve growth into new markets, diversify product ranges and boost capacity with invoice finance. The popularity of invoice finance, used as a stand alone form of funding or alongside bank loans, continues to grow in the North East, with companies increasingly keen to capitalise on new growth opportunities as the economic recovery continues.

If you would like to discuss your business’ cashflow requirements please contact: Lloyds TSB Commercial Finance Sales Support on 0800 550022 quoting reference CFNE or Wendy Ramshaw at Lloyds TSB Commercial on 07900 135291, wendy.ramshaw@lloydstsb.co.uk

Sell to the World: International Trade conferences and events UK Trade & Investment supports businesses in the North East looking to grow internationally. Whether you’re expanding your current international trade to new countries or exporting for the first time, the potential for success is great. Foreign markets offer your business the chance to grow considerably – enhancing your reputation and profitability. And in a time of fast-paced technology and e-communications, trading abroad has never been so easy. Sell to the World is a new series of events offered by UKTI, running until March 2012, aiming to encourage North East businesses to embrace the idea of trading overseas. And with workshops covering topics such as an Introduction to International Trade, Researching Export Markets, Agents and Distributors, Market Specific Seminars, Communications and Culture – in addition to the vast resources and support that UKTI can give you – this programme will offer all the support you need in order to achieve export success.

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To find out more about the UKTI Sell to the World events, visit selltotheworld.co.uk or call the UK International Trade hotline on 0845 05 05 054

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SPECIAL REPORT | SUMMER 11


NEWS

SUMMER 11

Driving forward: Bob Allsopp, chairman at Icona Solutions, left, with IP Group’s senior investment manager Duncan Lowery inspecting the Qashqai at Nissan’s Sunderland Plant.

>> Design aesthetics An automotive sector company has completed a £550,000 financing round with the help of the Finance for Business North East Technology Fund. Aesthetica from Icona Solutions is advanced manufacturing variation simulation and visualisation software used at all stages of the product development and design process by Nissan, Chrysler, Porsche, Bentley and Fiat – and many others. A spin-out from the University of Leeds, Icona Solutions first received funding from a consortium of investors led by IP Group in 2007. The £550,000 financing round includes £282,000 from the Finance for Business North East Technology Fund managed by IP Group, £190,000 from IP Group and £78,000 from the North West Equity Fund. Although currently based in Manchester, the funds will be used to support Icona’s move to the North East where it is currently looking for premises and staff in the south of the region. Tim Illingworth, chief executive of Icona Solutions, said: “We are at an exciting stage of our development as aesthetica becomes increasingly sought after and we look at other industries that could benefit from it. The automotive industry has certainly recognised the advantages it can bring and we have just opened up distribution in China and are concentrating on developing our channels in the US. “Working with IP Group to achieve this Finance for Business North East Technology

SPECIAL REPORT | SUMMER 11

Fund investment has been straight-forward and the team helped us hone our thinking, while supporting us in the ways we need as a small business. Our expanding consultancy and service division will be based in the North East and we are confident IP Group will continue to do what they can to help us succeed.” Duncan Lowery, senior investment manager at IP Group, said: “Icona has secured some excellent contracts and what people won’t realise is that aesthetica has already been put to good use on cars produced here in the North East – Nissan Design Europe used it on the Qashqai, which has real visual appeal.”

>> Top ten acceleration Ignite100 has launched a £1m start-up accelerator programme that will invest up to £100,000 per team for ten digital business teams later this year in the North East of England. Building upon the success of its predecessor, The Difference Engine, ignite100 will deliver a 13-week acceleration programme alongside £100,000 of investment capital. Funding has been provided by the Finance for Business North East Technology Fund managed by IP Group, the Finance for Business North East Proof of Concept fund managed by Northstar Ventures, and angel investors who include Hotspur Capital Partners and Green Lane Capital. Initially, up to £15,000 investment capital will be made available at the outset of a 13-week programme with the remaining balance of the £100,000 being invested subject to the successful completion of the programme and meeting agreed criteria. Jon Bradford, executive director at ignite100, said: “Difference Engine was the first major acceleration bootcamp programme in Europe. Ignite100 redefines acceleration programmes again and will be the first acceleration programme in Europe to offer up to £100,000 per team.

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“With a mix of investment capital, intensive business development support from experienced mentors and external advice from key partners such as Google, Microsoft, Paypal and Amazon Web Services, we believe we can build a portfolio of innovative, high-growth businesses that will redefine the digital industry in the North East. “The offer of £100,000 makes the ignite100 programme a very compelling opportunity for digital companies.”

>> Sherpa leads the team Atlas Infrastructure Management, a cloud computing start-up, has launched to market following a second round of investment brokered by Sherpa Business Consultancy. Atlas supplies businesses of any size with virtual desktop and IT equipment on a pay per use basis. Already a huge growth area, the value of the UK cloud market is set to more than double between now and 2014 from £2.4bn to £6.1bn, according to a report from analyst firm TechMarketView. The Sherpa Business Consultancy team, led by managing director Pete Watson, first worked with Atlas in 2010 to achieve a £100,000 investment from the Finance for Business Proof of Concept Fund managed by Northstar Ventures. It has since partnered with business angels to invest a second £85,000 in the business, taking a share and a seat on the management board. Watson said: “Atlas may be an early-stage business but it has a very strong management team who are extremely well established in their fields and highly experienced in providing technological solutions. “With a first-mover advantage in this sector and two clients already onto the portfolio, the business has had an impressive start and with the number of enquiries being received, we are already looking at sourcing additional resource.” Atlas managing director Phil Richardson said: “The support we have had from Sherpa has been invaluable in terms of strategy, direction and funding. Critically, we have been able to commercialise in a very short space of time.”

ACCESS TO FINANCE


SUMMER 11

CASE STUDY

Microloan enables regional web-based business to expand A new and exciting web-based business has just secured funding from the North East Microloan Fund to help accelerate its growth plans over the next three years Sensible Ventures, which owns www.sensiblesociety. com has been working alongside business support organisation Entrust and finance and cost reduction consultancy Lateral Finance to apply for the microloan. As a result of the successful application, the company which shares online discounts and offers with visitors to its website, are now in a position to recruit four new employees, generate additional income for local businesses, and investigate ways to expand into other regions. Commenting on the launch of the new microloan fund, Entrust chief executive Dan Brophy, said: “This is a really exciting opportunity for businesses in the region to access the funds they need to survive and grow in these difficult times.

this is a really eXciting opportunity for businesses in the region to access the funds they need to survive and grow in these difficult times “Whilst the worst days of recession and credit crunch may be over and the economy is emerging – albeit slowly and tentatively – towards growth, nonetheless there are hard times ahead as the planned public sector cuts start to bite. This new fund is a direct response to this and will provide the practical and real help that businesses need.” Michael Hall, director of Lateral Financial who pointed Sensible Ventures to

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Entrust to apply for this loan, said: “Access to mainstream finance for small and start-up businesses is still extremely limited. Finance for Business North East Microloan Fund enables disadvantaged individuals, sole traders, partnerships, limited companies and third sector social enterprises to access an unsecured loan between £1,000 – £25,000 to develop and expand their business until the end of December 2014. We are dedicated to supporting small businesses and start-ups that will benefit from accessing alternative sources of finance.” Azeem Ahmad, founder and managing director of Sensible Ventures said: “The support and advice from both Entrust and Lateral Financial has been invaluable. Without them it may have taken months to establish and build a strong reputation for www.sensiblesociety.com which we have started to achieve within a matter of weeks. “I would encourage any business that could benefit from additional funding to explore microloan as an option.” Since it launched in June, the website, which enables consumers to make big savings on nightlife, restaurants, shopping, health and beauty as well as some of life’s essentials such as dry cleaning, has had over 3,000 unique visitors. Restaurant owner, Judith Graziani from Franco’s in Jesmond, said: “It has been a pleasure working with Azeem and his team at Sensible Ventures to offer a small selection of our customers 60% off our a la carte menu. It has provided us with a perfect opportunity to introduce the restaurant to some new customers, build customer loyalty and raise our profile online without having to invest up front. I look forward to working with them again in the future.” For further information on the North East Microloan Fund visit www.entrust.co.uk or about Lateral Finance visit www.lateralfinancial.co.uk

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SPECIAL REPORT | SUMMER 11


COMPANY PROFILE

SUMMER 11

HSBC are helping thinking businesses in the North East and throughout the country looking to trade or discover new opportunities internationally

busiNess thiNKiNg iN the North east

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HE initiative which ran for the first time last year gives businesses who entered an opportunity to be awarded a share in £108 million worth of funding, a financial reward of up to £120,000 each and be invited to take part in overseas Thought Exchange Trips for networking and business development. The regional finalists for Business Thinking also get the opportunity to attend a Thought Exchange trip travelling to one of five, dynamic cities around the globe where they will receive an invaluable opportunity to learn about overseas business culture and the potential that economy has to offer to UK companies. The closing date for entries has now closed and the next phase of the initiative is the tough job of judging some of the fantastic applications that HSBC have received from businesses in the North East and across the country. The high level of entries demonstrates that despite the recent economic downturn businesses are still confident and showing incredible innovation and looking for funding for growth. Pat Dellow Area Commercial Director HSBC Tyne and Wear says “As an international bank, we know that “global” isn’t something every business manages overnight. But the reality is that increasing numbers of companies, from more countries and sectors than ever before, are trading internationally in some form or another and the Business Thinking initiative really supports this and the volume and quality of entries has been outstanding. Whether trading means buying skills, innovation or goods, the concept of open borders for business has never been truer than today. And at HSBC we recognise that businesses across the capital are playing on the world stage and are often a part of much larger global businesses. We are working with

SPECIAL REPORT | SUMMER 11

Pat Dellow, Area Commercial Director, HSBC Tyne and Wear

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Andrew Sugden, Director of Membership and Policy, NECC

David Coppock, International Trade Director North East, UKTI

ACCESS TO FINANCE


SUMMER 11

From the left: Ian Cameron, HSBC, Jon Blackett, Bonds Foundary and Lucy Wilding, HSBC

COMPANY PROFILE

David Johnson and Cameron Latimer both of 360 Healthcare

i am delighted with the quality of entrants to our business thinking initiative and i would like to thank all our forward thinking local businesses for their participation

them to celebrate and hone their strengths and to use them to help drive opportunities and successes into the future.” Talking at a Business Thinking event on 22 July Pat Dellow said “I am delighted with the quality of entrants to our Business Thinking initiative and I would like to thank all our forward thinking local businesses for their participation in this initiative. May I wish all our entrants the very best of luck and every success in the future.” The downturn has clearly altered the UK business landscape, providing new catalysts for growth through trailblazing businesses and entrepreneurs and this was confirmed in a recent report commissioned by HSBC and compiled by trend forecasting agency “The Future Laboratory.” Overall Newcastle remains a super city in the leading business development and growth within the UK and Internationally. In addition to this overall

ACCESS TO FINANCE

Geoff Westmoreland , HSBC

Front row from left: George Scott, Techflow Flexibles, Nigel Salisbury, IMC Tailoring, Gary Young, HSBC

optimism in the report it demonstrates that Europe’s largest companies are world leaders in their sectors and take their suppliers with them as they enter markets across the globe. Many Businesses in the North East have been working to build business in fast-growing economies. One of the interesting elements of the report predicts a renaissance of Britain’s manufacturing hey-day and a return to the world buying goods that have been manufactured in Britain but with a 21st Century update. This is one of the reasons HSBC are committed to supporting strong, viable businesses with their financing and was a topic Pat Dellow Area Commercial Director for Tyne and Wear spoke passionately about at a recent Business taskforce event held in Newcastle with attendees including financial secretary to the treasury Mark Hoban MP. Pat said “ The past few years have offered many

challenges for businesses of all sizes and ensuring that you are able to thrive in a recovery is as important as surviving a downturn. The plans and the processes adopted in the past need to be re-evaluated, reworked and rethought if businesses are to make the most of “better” times. We have made significant strides to support businesses and this includes lending to strong, viable businesses. We have a responsibility to our customers to not only help them identify new opportunities and to optimise them wherever possible.

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Pat Dellow Area Commercial Director patdellow@hsbc.com Tel: 07767006679

SPECIAL REPORT | SUMMER 11


CASE STUDY

SUMMER 11

On your bike with the North East Angel Fund The founders of the latest company to gain investment from the Finance for Business North East Angel Fund are keen to get commuters and leisure cyclists on to their smart, green bikes

ScratchBikes’ distinctive green bikes can now be seen across Newcastle city centre

ScratchBikes is a Newcastle University born venture which started life as a self-service bike hire scheme for students. After graduating from civil engineering, founders Rob Grisdale and Jack Payne scraped together enough funds from competitions, grants and family members to import a container load of custom-built bikes and set up a beautifully simple text-based rental system. The scheme, launched in September 2010, was a big success with students and staff and secured exclusive on-bike advertising deals with national companies looking for unique ways to reach the difficult student market. In July 2011 the scheme shifted up a gear after signing a sponsorship deal with business improvement company Newcastle NE1 Limited. ScratchBikes was re-launched, this time on a city-wide scale and opened to the general public. The distinctive bikes can now be seen across Newcastle city centre and are accessible by the same easy-to-access system. ScratchBikes’ business model has evolved since the formation of the company. Whilst operating the scheme at university, Rob and Jack began working with a technology company to develop a more automated system with a view to implementing it in Newcastle. They quickly revealed a space in the global market for a commercially available, cost-effective system for use in smaller cities and universities. With this in mind, they developed a new business plan, looked at various sources of finance, and attended investment seminars, one of which was held by local venture capital company, Rivers Capital Partners. In June 2011 they signed an investment deal with the Finance for Business North East Angel Fund, managed by Rivers Capital Partners, and Newcastle NE1 to allow them to take to the market a low-cost, turnkey bike sharing solution.

SPECIAL REPORT | SUMMER 11

The system is now at a working prototype stage and they will be ready to deploy the first scheme using the new technology by May 2012 with plans to roll it out in cities in both the UK and US.

rob and Jack showed a natural flair for innovation and a passion to push their business to success. we were delighted to invest in scratchbikes’ future Rob and Jack are just two of the young entrepreneurs that Rivers Capital Partners have invested in recently and Jonathan Gold, director of Rivers Capital Partners, felt that their enthusiasm and passion for their business was one of the reasons that they decided to invest. “I see a lot of business plans from young businesses,” said Jonathan, “but often they lack that certain something extra that we’re looking for when deciding to invest. “Rob and Jack showed a natural flair for innovation and a passion to push their business to success. We were delighted to invest in ScratchBikes’ future.” In just nine months, with no previous business experience, Rob and Jack have taken ScratchBikes from a small but ambitious graduate start-up to a venture capital-backed company with a very promising future. Details of the North East Angel Fund are available from Rivers Capital Partners at www.riverscap.com and on 0191 230 6370 Sign up to ScratchBikes at www.scratchbikes.co.uk

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SUMMER 11

COMPANY PROFILE

Helping entrepreneurs and businesses become investor ready is fundamental to the work of Newcastle Science City’s business support team. BQ finds out more

acceleratiNg highgrowth busiNess poteNtial

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T’S the best organisation I have ever dealt with – it was like dealing with the private sector.” These are the words of just one of the hundreds of entrepreneurs that have benefited from working with Newcastle Science City’s business support team over the past two years. Specialist, connected, passionate and dynamic are other ways we are described time and time again by businesspeople who’ve worked with us. So what makes us so different from other business support organisations? Apart from our private sector attitude, it’s our single-minded objective to accelerate potential high-growth businesses and our tried and tested method of doing this. Using our experience, our networks and our sector knowledge we have created a databank of business opportunities in Newcastle’s science growth areas of sustainability, ageing and healthcare. We use this databank information to match entrepreneurs and existing companies to unmet needs that we know exist in these specific markets and we help them bypass the early-stage development pitfalls associated with launching new products and services. our access to the world-class academic research taking place on our doorstep and market needs analysis, as well as our personal experience of working with entrepreneurs, SMEs and large corporates, means we know what works, how to get there quickly and how to maximise profits on the way. Those we work with range from entrepreneurs with innovative ideas and established SMEs looking to develop a product or service, to those working on

ACCESS TO FINANCE

NEWCASTLE SCIENCE CITY PROVIDES: n

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Vivek Unnikrishnan of Newcastle Science City’s business support team

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“it’s the best organisation i have ever dealt with – it

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was like dealing with the private sector.” an idea who simply want to benefit from our opinion and serial entrepreneurs looking for the next big thing. our network of specialists in areas such as prototyping, market research and intellectual property coupled with our unique innovation advisory panel made up of entrepreneurs, investors, corporate R&D and Business Angels provide a unique environment to test the robustness of business plans, become investment ready and attract funding. Ultimately our aim is to make this science city even stronger and successful than it is today by sharing our insight and knowledge with the high-growth companies that will help Newcastle achieve this.

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Bespoke specialist business support for potential high-growth companies Help to bring ideas to market in Newcastle’s science growth areas Access to a network of specialists in areas such as prototyping, market research and intellectual property A databank of market-led business opportunities A unique innovation advisory panel made up of entrepreneurs, investors, corporate R&D and Business Angels Investor readiness programme delivered in partnership with NEA2F A programme of events and workshops designed to help to guide you through the business development process

To find out more about how Newcastle Science City can support your business, contact Simon Green on 0191 211 3015 or email simon.green@newcastlesciencecity.com

SPECIAL REPORT | SUMMER 11


INTERVIEW

SPECIAL REPORT | SUMMER 11

SUMMER 11

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ACCESS TO FINANCE


SUMMER 11

INTERVIEW

As SME bosses are continually reminded of the scarcity of bank funding, one lender has defiantly ridden into town from foreign fields to declare itself open for business. Andrew Mernin finds out why Santander may have the answers to your funding shortfalls

RIDING THE SPANISH BULL When the Government first challenged the five biggest banks on the UK high street for an update on their lending levels earlier this year, Santander was the only one to show signs that it was on track to meet the targets set out by Project Merlin. The Spanish-owned bank, alongside its four British counterparts, was challenged to increase lending to SMEs by £76bn this year. And, while overall lending to SMEs missed the first quarter target of £19bn by £2.2bn, Santander was the only bank to reveal that its own lending commitments were on track, having lent £1.1bn of the £4bn it expects to lend to SMEs in 2011. But behind the headline figures, is bank funding readily available from Santander for North East small and medium-sized businesses? According to Kevin Boyd, managing director of Santander Corporate Banking in Northern Ireland, the North East and Scotland, it most certainly is. He says: “It is a misconception that banks are not lending to SMEs. In 2010 we grew our SME lending by 26% and we added 1,500 >>

ACCESS TO FINANCE

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Banks across the industry want to speak to businesses with a a clear plan and at Santander we will work with businesses to help them develop that

SPECIAL REPORT | SUMMER 11


INTERVIEW

SUMMER 11

new customers across the UK. In 2011 we have committed to increase that lending by an additional 25% and we are on track to do that. “Year on year our growth is about 29% at a time when the market has declined by around 7% and it’s access to finance that we want to provide to SMEs through traditional bank lending, through invoice finance, asset finance or a broad spectrum of other banking products.” Clearly it seems there is an abundance of financial support available for the region’s SMEs from Santander. In fact, in the two years to May this year, the bank’s lending commitments to North East SMEs grew by 230% while the group’s deposit book saw a 12-fold increase. However, as most small business leaders are aware, accessing banking support is not always easy. So, how best to charm Santander into giving you the backing you need to progress? For Boyd, the key is to be clear on your business objectives. He says: “Be as honest as you can on what you want the finance for and on what historically you have achieved as a business, where you are coming from, where are they going to, and just be open with the bank. Banks across the industry want to speak to businesses with a clear plan and at Santander we will work with businesses to help them develop that.” “Be clear on what the market opportunities for your business are, what the size of the market is, where your customers are and have a clear financial plan on costs. “We have a broad number of relationship bankers who are more than happy to speak to businesses looking for funding. They can give advice and pointers from a local point of view and point you in the direction of grant funding, alternative equity investment or packages that suite your business needs.” As Santander aims to become the bank of choice for SMEs across the UK, the North East has enjoyed as much focus from the Spanish giant as most other parts of the UK. The company has two business centres in the region, on Tyneside and in Stockton, manned by a 25-strong workforce which includes an increasing number of experienced relationship

SPECIAL REPORT | SUMMER 11

Be honest: Kevin Boyd advises customers to be open when applying for bank finance. managers. Last year the company doubled its overall lending to businesses in the region and moved into premises at Gateshead Quays four times bigger than its previous regional headquarters on Newcastle Quayside. The group expects to further grow its presence in the North East next year as it vies to meet its national commitments on SME lending. “We are definitely open for business,” says Boyd in reference to lending to SMEs. “For us, the North East economy is one where manufacturing is key as the only net exporting region in the UK and the challenges for the North East are making the transition to higher value manufacturing and that knowledgebased, value-added side of manufacturing. Retaining ownership of successful companies in the region is also the challenge we are seeing in the North East.” The company is also keen to forge new ties in the region with renewable energy firms, oil and gas businesses and the agricultural sector – which hasn’t traditionally had a major presence on Santander’s radar. Given the region’s exporting prowess, SMEs in

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the region may also note that Santander recently signed up to the Government’s Export Enterprise Finance Guarantee. This means the bank will offer additional short-term trade finance to smaller exporters in the UK that have a turnover of up to £25m and lack the usual security requirements associated with overseas trade. SMEs can apply for finance of up to £1m for no longer than two years. “It is crucial (exporters) are able to access the finance they need,” said Santander’s head of corporate and business banking Steve Pateman, of the scheme which could be well-suited to the needs of many North East SMEs. For those SMEs who decide to leave their current bank in search of support from Santander, they will join thousands of others who have broken the habit of a lifetime in crossing the high street to another lender this year, according to Boyd. While the fallout from the global financial meltdown continues to impact on British businesses, Boyd believes there has certainly

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SUMMER 11

been a major shift in the level of loyalty between SMEs and their bank. The days of banking relationships which span decades are numbered as firms – driven in part by the sullied reputation of banks following a storm of PPIs, bonuses and bailouts – grow increasingly frustrated by the reluctance of some to reopen their lending books. The national SME Finance Monitor report, which was examined closely by the Government, recently found that 27% of small businesses that applied for bank finance in 2010 received an outright rejection, compared to 4% in 2007. And this level of rejection can only put more strain on already flagging relationships between business leaders and their bank. Boyd says: “I’ve been in banking for years and have seen many things change but what has been a constant in the market is a level of

INTERVIEW

What has been a constant is a level of inertia where it’s difficult to get businesses to change banks. But there are signs that that inertia has now been broken down

inertia where it’s difficult to get businesses to change banks because it’s a big decision for them. But there are signs that that inertia has now been broken down and we are being successful in winning business from other banks.” Fortunately, this mobility between banks will only be positive for SMEs as the traditional ethos of banking is reintroduced by lenders

keen to cling onto their business customers, according to Boyd. Let’s hope he’s right and long may it continue. “We are going back to the future to traditional banking practises where the relationship manager knows the customer, cares about their business and gets to understand it and is better able to provide what the customer needs,” he says. n

Software resets its sites for web-users An innovative development will revolutionise dyslexic and visually-impaired people’s use of the internet Former Northumbria University Student Union president Ross Linnett secured £100,000 from the Finance for Business North East Proof of Concept Fund to continue development of software that helps dyslexic and visually-impaired web users. Recite Me transforms the format of websites, repackaging the content by adding disability functionality, including translating web page content from text to speech, providing high contrast colour schemes, the ability to enlarge words, as well as dictionary and thesaurus definitions. Recite Me does all of this online allowing the web page to be viewed in an enriched, highly accessible format. All of this is done instantly, online, with no software to install. The end result is a more accessible website, compliant with government regulations, that allows users to alter sites to their tastes from any computer, tablet or smartphone. The innovative product could make a significant difference to millions of people worldwide. There are more than six million people within the UK who are suspected of having dyslexia and a further two million are registered with visual impairments. This means over 10% of the UK population will struggle to read and will specifically struggle to read websites. In addition to this, some websites use colour combinations that can make it difficult for dyslexic users to read the content. Linnett’s own dyslexia was first identified when he was serving as president of the Student Union and he was given programmes to help him adapt websites into a more digestible form. He said: “It was great for a couple of days, but then I realised that wasn’t really solving the problem. It was the website that needed to be accessible and

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people were trying to solve the problem with the computer. This development is revolutionary. It means you’re no longer confined to the one computer. Any computer in the world can use this product.” Recite Me has initially been developed for business markets, allowing groups such as local authorities to use it to improve their accessibility. While regulations are in place to compel public sector websites to be accessible, Linnett said 82% still do not meet the criteria. The product is also being developed to benefit consumers. The company has moved into offices in the Baltic Business Quarter and Linnett is planning to expand the range.

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ARE YOU READY TO TAKE AIM? If your traditional sources of funding are fading fast, now may be the optimum time to take the brave step of a public listing. Andrew Mernin meets Mark Fahy from the London Stock Exchange to find out how to reap the rewards of the Alternative Investment Market While the number of North East plcs listed on London markets may have dwindled in recent years, going public remains an option worth considering for cash-hungry firms eager to grow. The Alternative Investment Market (AIM) is billed as the most successful growth market in the world, and for some its fundraising powers have certainly played a major role in taking a business to the next level as a plc. In this region, AIM beneficiaries include Newcastle University spinout e-Therapeutics, which recently raised £17.6m through an AIM share deal, and fast-growing motors dealer

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Vertu, which continues to flourish and increase its national reach – perhaps in part due to the exposure created through an AIM presence. But for every AIM success story like that of e-Therapeutics, there are cases such as Tolent – the Gateshead construction company which delisted last year after a decade on AIM because it believed fluctuations in its share price made customers unnecessarily nervous. In all, more than 3,100 businesses have joined AIM since it started life in 1995 and it is currently home to around 1,250 companies with a market value of £60.5bn. Between the 27 firms that joined last year, £1.86bn was raised in new and further capital. So how do you decide whether to join them and if an AIM listing is the right route for your business? For an SME on the cusp of national expansion, for example, the level of transparency, accountability and corporate governance that comes with going public may seem daunting. So too can the notion of loosening the reins of power, especially if a company is family-run. However, there is also the huge potential it represents for growth, raising finance and in building a national and even international profile. According to Mark Fahy, head of UK small and mid-cap companies at the London Stock Exchange, AIM should not just be seen by business leaders as a quick fundraising fix, or transitional step to greater markets. It can, he says, be part of a long term strategy for maintaining a comfortable financial condition. “At a time when debt financing has been harder to come by for many small businesses, there has certainly been an increased focus on equity,” he says. “But AIM is an established market in its own right, not just a stepping stone to the main

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market, and has a strong track record in helping companies raise capital in various market conditions. “Furthermore, it offers companies not only good opportunities for growth at admission but also the chance to raise additional capital during their life on the market through further issues.” With 40 sectors and around 90 nationalities represented on AIM, it truly is a market that businesses from any industry can potentially benefit from. It is a common misconception that AIM can only be used for one-off fundraising drives – since its inception, more funds have been raised by companies after their initial admission (£40.7bn) than on their actual listing (£34.4bn). Meanwhile, Fahy also points to the indirect ways that joining AIM can boost company coffers. “AIM quotation allows companies to trade alongside its global peers,” he says. “This can be beneficial for companies looking to branch out and grow revenues in areas in which they may previously have had a less noticeable presence. “Also, being in this environment with a community of experts that supports firms from a range of sectors and countries, companies gain exposure to a broad and deep institutional investor base and sit alongside sector leaders from all over the world.” Obviously market conditions fluctuate on a daily basis and choosing the optimum time to join the bourse is a thankless task. But, according to Fahy, 2011 is shaping up to be a good time to get involved with AIM. A strong June saw a number of high profile listings, including a firm which runs mines in Columbia, a Polish gas projects company and an African agricultural group, and this momentum carried on through the summer with several more diverse and geographically disparate businesses signing up. “The pipeline of businesses considering an IPO is stronger now than it has been for some time,” says Fahy. Despite the many advantages of joining AIM – the most prominent one perhaps being the pressing desire to raise funds as traditional sources dwindle – many SME executives hold deep-rooted misgivings about opening the books of the company they have built up for

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Whatever the misgivings it is worth bearing in mind that this community is there to address them and offer advice many years to the public. Fahy admits going public is a big decision but he also believes company bosses that are reluctant to even entertain the idea of listing should look again at the results that can be achieved. He says: “It is not necessarily the right option for every company looking to grow but the level of support quoted firms enjoy before and throughout their life on the market is a real benefit. “Nominated advisers (Nomads) are invaluable for small businesses navigating public markets for the first time and the AIM community of advisers, brokers, law firms, PR agencies, IR firms and accountants is large and highly experienced. “Whatever misgivings a company looking to

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float may have, it is worth bearing in mind that this community is there to address them and offer guidance and support each step of the way.” If you decide that AIM may be the solution to your short- or long-term fund-raising needs, Fahy advises lengthy discussions internally and externally with relevant experts beforehand. He also believes it is important to remember the additional costs that are involved when bringing in the extra resources to handle corporate governance responsibilities – although, the appointment of a non-executive director to support a public listing can indirectly bolster other areas of the business. “Ongoing costs related to corporate governance certainly need to be considered, as well as the need to manage a higher public profile with investors, analysts and occasionally media,” he says. “But the ability to raise new and further capital and the chance to benefit from increased exposure to an international finance community are rewards that can really make your company grow. “The strength of the UK public markets and its financial community means there is an exceptional infrastructure to help a firm decide and to implement their strategy if it decides it should be the next step.” Whether or not your ambitions to grow outweigh any reservations you have about a public listing depend entirely on the current situation of your company. According to Fahy, AIM representatives are more than happy to travel to the North East and discuss the particulars of going public and how it might impact on the day-to-day operation of your business, as well as the wider benefits and pitfalls. In the meantime, he urges company execs to think beyond the finance-raising IPO and see AIM as the start of a journey that could take your business national or even global. “Going public means work but there are benefits beyond fundraising; benefits that can sometimes be misconstrued as disadvantages. For example, the appointment of nonexecutive directors is not simple box-ticking. They should provide real, valuable advice on the challenges and opportunities a company faces throughout its time on the market.” n

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FLYING WITH THE ANGELS Having a business angel on your shoulder not only fuels growth and development but also lessens your reliance on banking facilities which have become increasingly tough to come by. Here Jeremy Middleton, one of the region’s most prolific venture capitalists, unveils the secrets of winning the support of a private investor

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Whether a pitch is made under the heat of the studio lights to Bannatyne and friends, or in the modest back office of a regional fund manager, delivering something that investors are looking for is a thankless task. Second-guessing what venture capitalists and business angels are thinking is all but impossible. The steely glares, furrowed brows and emotionless faces staring back at you as they pick over the bones of your business plan is a daunting spectacle and one that is difficult to prepare for. However, if you can snare the interest of a financial backer who believes in your product or service, their financial clout and expertise could prove the catalyst for future growth and success. Fortunately for BQ2 readers, one of the region’s most successful business angels-comeventure capital investors, has uncovered what he really wants to see from potential investment opportunities. With a prolific track record in not only supporting start-ups in their early days, but also nurturing them into bigger markets, Jeremy Middleton’s advice is certainly worth heeding for any firm looking for the non-bank finance they need to fund their development. Middleton is perhaps most closely associated in the North East with HomeServe – the FTSE-200 insurance business he founded with a former colleague from his days at Procter & Gamble which is now valued at around £1bn. As well as recently being elected to the board of the Local Enterprise Partnership as a business representative, he has nine major investments, six of which are from the North East. Among them are Tyneside-based plastic bottle recycling business ECO Plastics which this year secured a £5m deal from Coca-Cola alongside a £5m investment from London’s Ludgate Environmental Fund, plus £14m worth of new banking facilities. Through his business, Middleton Enterprises, he has developed the specialist skill of spotting an idea in its infancy that is destined to morph into a successful business. Like most active business angels and venture capitalists, he has also backed companies that have not ultimately worked and has witnessed his fair share of poorly planned and executed investment pitches. >>

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He says: “They say you’ve got to (invest in) at least 10 start-ups and maybe five of them might fail, three or four of them might be the living dead and you hope that one or two of them will work.” So what does he look for in an investment opportunity? Put simply, he believes the people behind an idea or start-up must have their “balls on the line”. Speaking from his temporary home office, which was formerly inhabited by the cast of controversial TV show Geordie Shore, Middleton says: “They’ve got to be completely

focused and committed to their idea. You shouldn’t, and I wouldn’t, invest in any business in which the principal doesn’t absolutely have to make it work because I do guarantee that it will go through some really difficult times, and somebody has got to be there when they do. If it doesn’t work they’ve got to lose their business and a good deal more. And that’s not for the faint-hearted.” But staking your entire assets on your fledgling business is only the start of the battle for private investment from someone of Middleton’s calibre.

Connecting ideas to investors While many entrepreneurs have a game-changing idea that is primed for venture capital or business angel backing, they may not have the contacts book to put them face to face with those that matter. That is when a connector like Caroline Theobald can play a major role in opening doors for cash-hungry start ups with big potential. Through her Tyneside-based company Bridge Club North, Theobald’s modest assessment of what she does is “connect ideas people with money people”. Her company started life at the height of the dotcom boom when the technology industry was awash with private investment and the climate for fledgling businesses was brighter than it may be today. It has since become known as one of the North East’s most astute networking empires and more recently returned to its roots by helping build connections between businesses and the JEREMIE funds. Today Theobald could provide your enterprise with the introduction needed to at the very least bend the ear of an investor or fund manager or even win the backing you believe your idea deserves. She says: “Over the last 11 years, there have been times when we’ve become more about generic networking but with the arrival of the JEREMIE funds a couple of years ago, we got back into doing what we do best. “Until recently I was also running Connect, which was an access to finance networking event. But when I was told last year that the event would be put on hold I thought that was nonsense and, because I had such a strong database, I thought why not use my company to get back into what I started up doing. “Following the launch of the JEREMIE funds, people nationally are becoming increasingly interested in the North East and this is the time to get back into the world that I know quite well.” To contact Caroline Theobald, visit her website: www.bridgeclubnorth.com

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“If you are looking for a start up you are always looking for a great idea,” he says. “You are always looking for great management and we are looking for someone that can generate 10 times your money. “For a start-up a great manager has to be someone who really understands their market because anyone who doesn’t truly understand it is always caught out by the things they don’t know. “Anyone can produce a business plan which they think is marvellous but do they really convince you that they absolutely understand their market? “That normally means they’ve been in it. Unless you’ve been in it then I’d be very sceptical.” According to Middleton, investment pitches fail when market experience is found wanting, there is a poor understanding of the risks entrepreneurs are exposed to and they are not truly prepared to commit to the enterprise. “No-one is going to pay someone to set up a business if they are not prepared to put in their own money,” he says. With the rise to prominence of media phenomena like Dragons Den and The Apprentice, the ability to perform a quality pitch is portrayed in TV land and the ultimate skill in the hunt for investment. Although Middleton admits that such TV shows have had a positive impact in the investor climate and the sheer number of potential investment opportunities around, he also says that too much onus should not be put on nailing the big pitch. “I don’t think it’s about one pitch, it’s more about whether you can clearly explain your idea and whether it is distinctive? Has it got a competitive edge and can you also say why you are well placed to become the market leader? “You need to be able to write that down in a business plan and if somebody can’t write that down then you’ve got to challenge whether they really want you to give them the money.” Of course, it is possible to pay professionals to get your plan, management skills and market knowledge in shape before approaching an investor, but Middleton warns that he and his counterparts do not want to read business plans written by consultants.

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It is also worth considering the motives of the investors and angels you approach. While some will be looking for rapid growth and a quick sale, Middleton is in the minority of those who want to play the long game. “I think you need to be in business for 10 years before it shows its real potential, which is a long time,” he says. “Most venture capitalists go looking for the sell, but when I invest in a business that works and it is a success I want more of it, and I buy more of its shares. “If you sell you pay tax to the government and have to start looking and the odds are one in ten. If I’ve put in the work, I don’t want to sell it. What I want to do is get rid of things that don’t work. “That’s the difference between someone that is looking to grow businesses and someone who is trading.” n

INTERVIEW

Jeremy Middleton (right) with Paul Ruddick from D-Line, a manufacturer of contemporary trunking products which is supported by investment from Mr Middleton

Businesses across the North East are reaping the benefits of new investment funding as the Finance for Business North East Fund enters its second year of deal making. The £125 million fund, the first of its kind in the country when it was launched 18 months ago, has made an immediate impact in driving economic activity and stimulating deal making with over 180 investments completed. Managed by North East Finance (NEF), nearly £23 million has been injected into companies across industries including clean energy, healthcare, manufacturing and service businesses. This has been boosted by a further £20 million from the private sector in co-investments. Gateshead-based security specialist Bastion is one company already benefitting from an investment. It received £400,000 from FW Capital through the North East Growth Plus Fund as it looks to expand into new and existing markets. Andrew Mitchell, chief executive of NEF, said: “It’s been an encouraging start both in terms of the deals we’ve completed and the quantity of enquiries received. We’re looking to support 800 businesses and create upwards of 5,000 jobs over the life of the funds.” Initially comprising six funds, the portfolio has even been expanded to provide support to more businesses with the launch of a new Microloan Fund targeted at small companies.

Investment funding driving North East business The £5 million fund is a response to the needs of small businesses which are still finding it difficult to get funding from banks and other sources. The Microloan Fund gives them an opportunity to tap into loans of between £1,000 and £25,000 depending on circumstances. Andrew added: “We’re delighted to add a new Microloan Fund to the six that make up the Finance for Business North East pot.” For more information about the Finance for Business North East Fund visit www.northeastfinance.org or telephone 0191 211 2300. Photo caption: L to r: Bastion’s Tom Deevy with Joanne Pratt (FW Capital) and Mark Irving (Irving Ramsay)

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THE CHALLENGE OF CULTURE CHANGE Deals need finance, so Peter Jackson talks to leading dealmakers accountants PwC to gauge the availability of funds in the North East

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We refer to the credit crunch and politicians rail against the banks for not lending, but is there really a problem for businesses in getting hold of funding? Paul Mankin, corporate finance partner at PwC, sees the situation as being more complicated. He explains: “If you split financing between debt and equity, I’m not particularly sure that there is genuinely a credit crunch for debt. Good quality lending propositions will find lenders to back them. If you talk to the banks, their main issue is lack of demand.’’ He points out that in a climate of extreme uncertainty, when businesses are hard pressed to see short or medium term prospects for growth, they will not be seeking finance to fund growth. He hastens to concede that there are doubtless businesses which have struggled to

borrow money, but that in most cases that would have been because they were not seen as a solid lending proposition. The banks have resisted relaxing their approval criteria, but, as Mankin says, that is probably a good thing. However, he believes that there is a difficulty with one aspect of raising finance – although it is an issue which predates the banking crisis – and that it is, in some circumstances, in raising equity finance. In one sense, this is a self-inflicted wound because too many businesses in the North East will not entertain the equity finance option. “There are a whole series of businesses that have difficulty with the concept of giving away part of their equity. With a lot of privately owned, entrepreneurial businesses, there’s a reluctance to have an outside shareholder. There are family businesses that have never

INTERVIEW

had it and find that too big a barrier to come to terms with. “It’s also the reporting requirements and the governance and so on that go with it can sometimes be significantly different to the way they used to run their business.’’ It can, for example, be too much of a change of culture having to ensure that all significant decisions are taken in formal board meetings at which the investor is represented. All that can be very different to the way businesses have been run. “I think it is as much of an issue as it is giving up value to an outside investor,’’ says Mankin. To be fair to such businesses, they can often point to the fact that it is because they have been run on such an informal basis with rapid decision making and the ability to respond to changing circumstance swiftly and decisively that they have been so successful. >>

ARE YOU A FAST GROWING TECHNOLOGY BUSINESS WITH GLOBAL POTENTIAL? ARE YOU LOCATED IN NORTH EAST ENGLAND – OR WILLING TO BE? DOES YOUR BUSINESS REQUIRE INVESTMENT TO FULFIL ITS AMBITIONS? IP Group plc manages the Finance for Business North East Technology Fund. If your business meets the above criteria and needs access to funding, why not give us a call? We’ve already helped commercialise businesses in the following sectors: IT & software, clean and green tech, life science, physical sciences and advanced engineering. To find out more, please call 0845 519 4112 or visit www.thenortheasttechnologyfund.com

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SUMMER 11

They might genuinely see a danger of weakening the business by changing the business model, though, as Mankin points out, a change to more formal structures is something any business is likely to have to come to terms with at some stage in its development. This is less of an issue for high-tech start-ups, which have less time to grow accustomed to another model and which are owned by people who are immersed in a climate of change. But, there is another problem in accessing equity financing which can defeat even the business which is fully reconciled to giving up equity if it only seeks a raise a relatively modest sum. “It’s perverse but true that it’s definitely easier to raise £10m of equity than it is to raise £1m, and it’s probably easier again to raise £20m or £30m of equity,’’ says Mankin. “It’s that lower end of the equity investment financing that the JEREMIE funds were put in place to address, but that’s where there’s a supply issue. The private equity firms have nearly all pushed their minimum deal sizes up and have left this gap.’’

If you are not feeling terribly confident about the future you are less inclined to take a risk This has, inevitably, been driven by economics. In management time and other associated costs, it is as expensive for the venture capitalist to put £750,000 in equity into a business as it is to invest many times that amount. “Private equity houses have obviously worked out that their return is going to be significantly better if they can do larger investments,’’ says Mankin. Other forms of financing are less easily available. With the exception of Business Investors Group and one or two other networks, Mankin does not believe the region

has “properly cracked the business angeltype supply’’. “For bigger stuff there’s AIM but, while there are signs that is coming back, it has been incredibly difficult, especially for new issues. “You don’t see as much trade partnering as you might expect, which, in theory is an obvious source for smaller finance raisings, to take an investment from a larger company that does this corporate venturing. That hasn’t really taken off in the region, you hear a lot more about it with some of the bigger technology companies and the big oil and gas companies, but not in the region, sadly.’’ Clearly, the funding situation in the region, whether in terms of supply or demand, will depend on the state of the wider economy. “A lot of it is about the confidence of individuals in those smaller companies,’’ says Mankin. “They look at a whole range of things as individuals and a lot of the economic news is not as positive as people were hoping it would be by now. “When it’s your own business and your family’s wealth is tied up in it, if you are not feeling terribly confident about the future, you are less inclined to take a risk.’’ n

Developing the momentum

Paul Woolston, chairman of the North East LEP.

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Paul Woolston, senior partner at PwC, is only weeks into his new role as chairman of the North East Local Enterprise Partnership (LEP) and he has no doubts about the importance of access to finance. He says: “Clearly, one of the things the LEP is going to have to look at is this whole area of finance and, in particular how we can have access to finance to support some of the big initiatives we would like to see happening in the North East.’’ This will be one of the topics for discussion when he takes his new board off for an away day. “I’ve set up some work streams, so that when we meet together for the away day we can get working on things, and one of them is around finance and funding,” he says. “I would like, early on, to be able to take a view as to where finance and different funding will fit in to delivering the vision and the strategy.’’ He hopes to explore how the LEP might be able to take advantage of other funds, such as RDF funding. “It’s about trying to identify and package things up in a way that they support these broad initiatives and then it develops a bit of momentum.” But, he is clear that the region will not be seen as going cap in hand. He says: “I want the North East to have some really interesting ideas that businesses have brought together so that Government says, `That’s a really great idea, can we help with any innovative funding?’ Not that we say we need some funding first.’’

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North East engineering company aims to take a bite out of food the processing market following IP Group investment

Taking a bite out of the food processing market: David Lambert from Continuous Retorts (front middle) with IP Group’s Nick Edgar, left; Iain Richardson from Tait Walker, back, and Peter Harding from White Bros.

A North East business that looks set to revolutionise how ambient pouch and tray packaged food is manufactured worldwide – potentially saving businesses hundreds of thousands of pounds in increased output and delivering huge savings in water and energy usage – has received a £250,000 investment from the Finance for Business North East Technology Fund managed by IP Group plc. Gosforth-based Continuous Retorts Limited (CRL) has several International patents for the technology and has now successfully built a full-scale development rig that enables flexible pouch and semi-rigid plastic tray packaged food to be continuously pasteurised or sterilised rather than in batches – a slow, costly and inefficient manufacturing process. Known as a “continuous retort”, no such equipment is currently on the market for these relatively new and rapidly growing pack types and the investment is being used to deliver on the remaining technical milestones and reach full commercialisation. Premium pouched and tray packaged food is rapidly replacing tin cans and glass jars in our supermarkets due to their many benefits. The fact that you can microwave the food in these containers has significant appeal for the time-pressed consumer. Crucially for the manufacturing industry, once this new concept technology is available, flexible pouch and semi-rigid tray packaged food will be produced at a similar or even lower cost per unit than canned food, with up to 1,200 packs being processed per minute through a single machine that uses around 50% less energy in only a quarter of the factory floor space, compared to the same output with batch retorts. In addition, as the process uses a closed-loop cooling system, the enormous quantities of water lost through the current batch production process will be virtually eliminated, further reducing production costs and making the process significantly more environmentally friendly than other options on the market. Continuous Retorts’ founder and managing director David Lambert also founded International Cuisine Limited (ICL) in Consett, which processes over a million servings of food every week. He said: ”When I developed the retort process in ICL the only units available in the marketplace were batch retorts. Cost of manufacture was a major headache, and that was with relatively low energy costs by today’s standards. Despite 24 years passing since I founded ICL, the retort manufacturers have still been unable to develop continuous systems for microwave packaging, so I decided to design a new system from scratch – this new technology has enabled CRL to be

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CASE STUDY

created and we expect to be selling complete processing lines in Europe, US and Japan by 2013.” Nick Edgar, investment manager at IP Group, said: “Continuous Retorts has created a ground-breaking manufacturing process that looks set to revolutionise how many players in the food industry do business. Research shows the system will fill a large gap in the marketplace and the fact that labour and energy inefficiencies are stripped out will be of huge appeal to manufacturers who are fighting rising costs. The level of interest from the industry in terms of commercial partners is already very strong. “Reflecting the heritage here in the North East, we see the advanced manufacturing and engineering sector as a crucial area of focus for this fund and the management team at Continuous Retorts is a fantastic example of the pioneering and innovative talent that we have in this region. We are confident that the company and the product will be highly successful going forward.” Peter Harding, fellow director of CRL and managing director of White Bros, who manufactured the stainless steel development retort, said: “David’s innovative design will provide a solution to an on-going and difficult problem for food manufacturers around the world.” Iain Richardson, an associate at Tait Walker Chartered Accountants, advised on the deal. He said: “Tait Walker is delighted to have played its part in advising and supporting Continuous Retorts on the successful completion of this latest funding deal. It clearly demonstrates that funding is available to those companies seeking to develop products which have been derived from, amongst other things, identifying a gap in the market and have international potential. We look forward to being able to continue supporting David and his team in the future.”

david’s innovative design will provide a solution to an on-going and difficult problem for food manufacturers around the world For more information on the Finance for Business North East Technology Fund, please visit: www.thenortheasttechnologyfund.com. Finance for Business is a collaboration between the European Investment Bank (EIB) http://www.eib.org/, European Regional Development Fund (ERDF) and regional development agency One North East (ONE). The EIB has provided funding of £62.5m with ERDF and ONE supplying the remaining £62m.

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Unlocking the cash in your business As the dark clouds of recession lingered overhead, many business leaders were left in a state of inertia, unable to invest in the capital assets needed to survive or grow. However, with the resurgence of asset finance, an increasing number of SMEs have finally got their enterprise moving again, without breaking the bank. Andrew Mernin meets Alexander Baldock, managing director of Lombard Finance, to discover more about what asset finance could do for you When a dearth in funding leaves budgets stretched to breaking point, marketing, advertising or perhaps staff perks may be the first casualties of an aggressive cost-cutting drive. But certain things on the overheads list are simply too important to the running of your business to be scratched out. Whether it’s a new van or a multi-millionpound production line, without certain assets a company cannot function – a fact which is not lost on the ever-increasing number of cash-strapped execs who have turned to asset finance in recent years. “Lots of SMEs in the UK need kit, whether that is equipment, vehicles, technology of various kinds, and many of those SME customers have been hesitant about investing in capital expenditure when the future has been so uncertain,” says Alexander Baldock, managing director of asset finance giant Lombard. “What we’ve seen in the first half of this year and towards the end of last year is a lot of SMEs realising that they do need to maintain a certain amount of investment in their kit and their vehicles to remain competitive. “So we’ve been pleased to see people coming back into the capital expenditure market. We’ve also been pleased to see an increasing proportion of them trying asset finance. We do passionately believe that there are many advantages of funding your kit and your

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vehicles through asset finance that you just don’t get elsewhere. “Asset finance makes up about a quarter of all business capital investment. For customers who’ve tried it once, it makes up well over half. To try it is to love it and you come back for more – and that’s true for all different sectors.” According to Baldock, there are three attributes to asset financing packages which make them an attractive option for North East SMEs given the current backdrop of dire economic conditions in many sectors. Firstly, they can be used alongside – rather than instead of – any banking finance your business may be fortunate enough to have secured and so none of your banking facilities are tied up in assets. Baldock also believes asset finance helps to make your business more flexible. Under normal circumstances, a large order or contract may need to be fulfilled by heavy investment in equipment which you may only need as a short-term fix to deal with a spike in trade. “We find lots of our SME customers are growing and they can come under cash pressure, by virtue of their growth,” he says. “When you’re growing fast, that can swallow up a lot of working capital. “Paradoxically, some companies can get into cash flow and financial problems and even

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face insolvency problems even though they are growing.” Packages such as those offered by Lombard allow business leaders to pay for equipment only for the duration that they need it and therefore help to unlock internal funds to support other important operational aspects. “Why would you want to have an asset that’s losing value on your books and you pay cash for it? What we think makes more sense is that you pay for that asset during its useful life and no more. And that’s what we can often arrange through hire purchase.” At a time when many banks may have reined back on their lending to businesses, or looked to reduce the overdrafts they supply their corporate clients, asset finance can represent a source of finance that can’t be reneged upon once agreed. Baldock says: “When we commit money, we don’t have the option to pull any back as banks do with overdrafts for example, we can’t recall the money. We commit it for the life of the asset and that’s it.” As well as using asset finance to invest in the equipment you need to move forward as a business, it can also be used as a tool to directly unlock cash from within the company. If you have already paid for assets with cash, an asset finance provider can offer you a sale on lease back which releases cash that can be

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put back into the business. Meanwhile, the asset can still be used for the entirety of its useful life. Baldock says: “That is always a particularly popular choice for lots of different reasons and we are seeing a fair amount of it at the moment.” Asset finance can also be used to reduce the risks your business takes when investing capital in assets. “For SMEs, the day job is hard enough. If you are a plumber you want to be plumbing you don’t want to be worrying about your funding. And you certainly don’t want to be worrying about what bit of kit and vehicle and technology or equipment is going to be worth when you’ve finished using it and there is that risk. “Every time you pay cash for something, for a van or a forklift truck, you are taking the risk that you don’t know how much it’s going to be worth when you come to resell it. We can take that risk away because we know our assets and that’s our job.” While asset finance is gaining momentum alongside some other alternative funding sources, such as invoice financing, trust between customers and the financial sector is relatively low and asset finance remains a tough sell. There are also a number of widely-held beliefs – which Baldock calls misconceptions – about asset finance that continue to hinder the industry in some quarters. “We do face the challenge of getting our message out,” he says. “Some people in the past have had bad experiences with less reputable companies about what happens at the end of a lease.” However, with every reputable financial player now on its best behaviour under the closer-than-ever scrutiny of the government, Lombard is no exception. “We have taken treating our customers very seriously and we are extremely transparent about how we charge.” With Lombard promising to lend £5bn to British businesses this year, increasing its lending by 20% on last year, asset finance is certainly worth considering as a way to increase your capital spending powers and reduce your reliance on your bank. n

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INTERVIEW

Every time you pay cash for something you take the risk that you don’t know how much it’s going to be worth when you resell it

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THE CHASE IS ON For SMEs and entrepreneurs, the ability to track down late payments can be the difference between survival and collapse. Here Mark Storey from Bibby Financial Services explains why invoice financing could be the solution to your cash flow woes Long before the world tumbled into financial meltdown, invoice financing was viewed in some quarters as a sign that things were going bad for a company. With SMEs and entrepreneurs awash with readily-available bank loans and European funding, if a business had to use an invoicing service to ease its cash flow problems, it may have been seen as a precursor to tougher times ahead. Today, however, nothing could be further from the truth. While the global economic storm left many industries in ruins, invoice financing has not only grown exponentially following the recession, it has also had a complete image overhaul.

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Any stigma attached to invoice factoring has all but dispersed and it has emerged as a hugely popular way of keeping a healthy cash flow. “Invoice financing didn’t have a good reputation 20 years ago,” says Mark Storey, managing director of the Yorkshire and North East arm of invoice factoring specialist Bibby Financial Services. “A lot of that was because banks were lending hand over fist, so if a company couldn’t get money from the bank, it was usually in severe financial problems. “Over time it has just snowballed and we are now much more flexible in what we do.” If Bibby’s growth in the North East in recent

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years is anything to go by, invoice factoring and discounting looks to be playing a major role in oiling the recovery of businesses in the region. At the last count it was estimated that around 40,000 UK firms regularly rely on invoice financing while in the North East, Bibby itself services 150 companies. This figure has doubled since the start of 2010 and the company expects to take it past the 200 mark by the end of 2012. Bibby is the largest independent factoring firm in the UK and the only one with a significant North East base, in Sunderland. Meanwhile, there are also an increasing number of smaller operators extending their

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reach into the region as the industry continues to grow. With plenty of invoice financing options available, how do you decide whether it is the best route for you to take, whether or not you are suffering from cash flow problems? According to Storey there are three basic questions you or your company should ask yourself. Firstly, do you believe that your business is being held back by a lack of cash? Secondly, do you think too much of your own time or that of other members of the team is being eaten up by dealing with the problems related to poor cash flow and chasing up invoice payments? And finally do you believe that with additional cash and a stronger cash flow your business would be more successful and the day-to-day operation of it would be smoother? Storey says: “In the current climate, a lot of people’s balance sheets have taken a hammering and also as we come out of recession, they are still going to have relatively weak balance sheets despite having strong order books.” Few executives would argue that growing their businesses to its full potential would not be easier with a healthier stream of cash coming into the company. However, there are still some misconceptions lingering from the pre-downturn days that invoice financing and factoring does not give off the most positive branding message to clients. As an ambassador for invoice financing, Storey certainly disagrees with the traditional concerns that some may have about enlisting an invoice company to breathe down the neck of its customers – which are perhaps more of a precious commodity today than ever before. And the rapid growth in the popularity of factoring and invoice financing – a market which expanded by 10% to £212bn in the UK in 2010 – would suggest that he is right to believe that invoice financing’s old image problems have largely disappeared. “Traditionally, invoice financing used to be known as the last resort lender,” he says. “But as the banks and the rules for providing funding became tighter, people lost a bit of confidence and lost trust in the banks. Alternative sources of funding have been

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Businesses of all sizes have been struggling for cash flow so we have seen an increase in invoicing financing sought out by businesses themselves and business advisers have been able to get companies to consider alternatives rather than going to the bank as the first port of call. “As we have grown as an industry, more and more people know and understand factoring so they actually aren’t bothered if their clients are using it,” says Storey. “Debtors don’t see somebody factoring as a failing business as they used to before. The industry has taken it on and become successful and proved it works. “Businesses of all sizes have been struggling for cash flow in the last 12 to 18 months so we have seen an increase in the use of invoice financing across the whole of the UK, and not just among small firms.” There’s no doubt that the basic growth driver in invoice financing is the late payment culture which continues to hinder the UK’s economic recovery. Recent estimates suggest that late payments are costing UK businesses in excess of £1.9bn each year. A national survey conducted this year through Sheffield Hallam University on late payments also found that 57% of manufacturing, distribution and service firms have been asked to change their payment terms recently – with some demanding as much as 120 days credit. “Despite what the Government tried to do with the Late Payment Act, which allowed businesses to charge interest depending on the terms of their agreement, big businesses would just say to smaller firms, ‘we will only work with you on these terms’, which would include 90 day payment agreements.”

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According to Storey, chasing up invoice payments without wasting time on hold to accounts departments or risking damaging client relationships is a tough balancing act for company bosses. By working with an invoicing specialist like Bibby, the whole process is managed by experienced professionals and is carried out in such a manner that is bespoke to the needs of each customer. Storey says: “We sit down and have the conversation with their client as to exactly what they need, how they need it, how we approach their customers if that’s the right way to do credit control for them and we agree the strategy with them as to how that will happen.” “Do executives have the time during office hours for instance – which is when a lot of credit control departments are available – to be making those phone calls? “We can keep on top of things and we have people who are employed professionally to do that every day, so you would naturally say they’ve got better skills and techniques to get money out of people than, say, a man with a van.” For those that remain concerned about a third party contacting their client for a payment, there are confidentiality options available, while invoice discounting usually means that you will have responsibility to chase the payment yourself. In terms of cost, Bibby argues that invoice financing is far more cost effective than bank funding and other finance solutions. With most providers, you will receive around 85% of the invoice value up front, with the remainder typically being released when the payment is actually received, minus a small fee. Fees are generally charged as services or interest and service charges tend to be between 0.5% and 3% of the funds advanced. Savings on resources in chasing up invoices and bank interest and charges should also be considered. So whether you’re a sole trader whose survival is threatened by late payments – or an SME looking for a more professional approach to cash flow – perhaps it’s time you considered invoice financing. n

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INTERVIEW

We’re obviously keen to give companies every encouragement to look for the money they need to expand

a different tale to tell

Funding is available in the region and businesses should be seeking access to it, as Barrie Hensby tells Peter Jackson North East companies are suffering from lack of liquidity and facing difficulties in raising funds – according to a report issued earlier this summer. However, the report by XCAP Securities, which surveyed all the regional companies with an AIM listing, prompted NEL Fund Managers chief executive Barrie Hensby to seek to lift the gloom. At the time he said: “North East companies that want to grow and develop are in the enviable position of having ready access to the investment capital they need to do so, and

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we’re obviously keen to give them every encouragement to look for the money they need to expand and create new jobs.’’ Set up in 1989 to provide unsecured loan funding to regional businesses, NEL has since managed 11 funds with a combined value of £90m. Hensby does not deny that there is an air of pessimism in some sections of the business community. He says: “At the back end of 2010, people were feeling positive, or at least that was reflected in our numbers and we had a very

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good Q4 last year. But then that confidence evaporated and what appears to be happening is that, with the press full of stories about the banks not lending, the SMEs are saying it’s not worth bothering – the banks aren’t lending so we haven’t got a chance. “This is depressing because clearly the country really does need to rebalance the economy and investment is part of that rebalancing, so we have to get businesses to invest and we have to get businesses to export.’’ And he believes that businesses in the region are neglecting an opportunity by not >>

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Left to right: Graham Cornforth of Haines Watts, David Thomas of NEL and Andy Mullen and John McGee of RPS.

The power to compete One specialist regional electrical engineering firm is aiming to go beyond the million-pound turnover mark after receiving a six-figure NEL investment Resilient Power Solutions (RPS) designs, specifies, installs and commissions critical power systems for sensitive sites such as data centres and Government buildings. Founded in 2007 by electrician John McGee, the business currently employs 16 people and has reached a turnover of around £900,000 a year. But now, with the support of a £100,000 investment from NEL Fund Managers, via the Finance For Business North East Growth Fund, RPS is looking to increase that turnover figure by at least 50% in the next year by selling its services into a wider variety of larger clients where data security and continuity are critical. Run by John McGee and installation and service director Andy Mullen, the Billingham-based firm already works with clients across the UK, including the Metropolitan Police, EDS Energy and The National Archives in London. The systems designed and installed by RPS’s team of engineers provide back-up power in the event of mains failure, ensuring that services remain uninterrupted and continuously available. The company is currently looking at opening a new mechanical engineering arm to complement its critical power competencies; to help maximise the benefits of cross-selling opportunities. Two new jobs have already been created at RPS this year, and John McGee is expecting more to follow as a result of the NEL investment. He says: “our aim is to take the company’s turnover to at least £1.2m by this time next year by widening the range of critical power contracts for which we’re competing, and the addition of a new mechanical arm to the business will also help us reach and surpass this target. “NEL’s support has given us the financial flexibility we need to adapt to opportunities as they arise, and the investment team has already helped us identify areas in which the capital they’ve provided can be put to best use.”

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taking advantage of what was known – and is still widely referred to – as the JEREMIE Fund, but is now properly, and ponderously, called the Finance for Business North East Fund. NEL manages £20m of this – in its Finance for Business North East Growth Fund – which is designed to provide ambitious regional businesses at a development and growth stage with access to investment capital for expanding their operations and creating sustainable jobs. Hensby says: “I think our SMEs are missing a bit of a trick here because instead of sitting on their hands and waiting for better times I think they should really be taking advantage of the JEREMIE monies that we have in the North East, which some other regions haven’t got, and they need to be using that to get ahead of the competition. They have access to finance that others don’t have and we need to wake our SMEs up to the opportunity that they have and others don’t.’’ He explains that the fund can provide both equity and mezzanine finance. “The mezzanine product is for steady-away businesses that are probably cash positive and are probably consistently profitable. The attraction to the SME of that kind of product is that it doesn’t involve loss of control of the business. There is an equity option but that only kicks in if they want to sell the business. “The equity finance comes into play where a business doesn’t have those characteristics of current positive cash flow and current profitability. It may want to do a step-growth project that involves going into loss in the short term to come out at a higher level later on or it may be a relatively early stage business that hasn’t quite achieved profitability yet. They won’t be looking at mezzanine because they won’t have the cash flow to service and repay the debt.’’ Hensby says the advantage of both types of investment is that no collateral or personal guarantees are required. He says: “Relative to bank finance it’s a relatively low risk option, but it costs more and you have to balance those two things off.’’ And he points out that, as NEL has no collateral, it cannot foreclose on a business so, if that business hits difficulties, it is in NEL’s interests to support it through the bad times.

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So far, NEL has made a total of 24 investments with a combined value of about £3.4m and it has until the end of 2014 to invest the rest. The fund can provide investments of between £50,000 and £400,000, “If we get the maths right, we are supposed to end up with an average investment size of £150,000,’’ says Hensby. “We are not looking at mega stuff here but amounts that are within most SMEs’ range.’’ The investments are used to provide working capital, new equipment, expanded production capacity, and new product development. The fund is designed for established businesses rather than start-ups. He is keen for any business with an interest in such investments to get in touch. “We encourage people to ring us up in the first place and have a conversation for 15 to 30 minutes,” says Hensby. “There is European

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I think our SMEs are missing a bit of a trick here – instead of sitting on their hands they should be taking advantage of the JEREMIE monies in the North East

money involved in this fund so there are certain rules and we find out whether you fit all the rules and then we get on to the commerciality of the proposition and talk that through with you. “If it looks as though we have something of mutual interest we would then ask the business to prepare a business plan.’’ Hensby is happy with the fund’s progress,

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despite the current volatility of the market. “There’s all this negative sentiment that there’s no money to be had so you might as well forget it as far as investment is concerned,” he says. “Well, I’m giving a completely different story to SMEs, that there is the cash available and we do want to invest and we want business to grow, so let’s get positive about this.’’ n

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As a man on the front line of the battle for finance between SMEs, bankers and investors, Grant Thornton’s Ian Marwood has a clear picture of what it takes to access the facility you need to progress. As Andrew Mernin finds out, he also believes it’s time for business leaders to ignore the hype around the current state of the finance market and get their expansion plans back on track

TIME TO TAKE ANOTHER LOOK AT YOUR FINANCE OPTIONS SPECIAL REPORT | SUMMER 11

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In the drive to access finance, the biggest barrier may not be the newly installed prudency of the banking system or the drying up of traditional sources of funding. It may in fact be a deep-rooted belief system which has left many business leaders trapped in a state of inertia, in fear of making their next move. While the media plays out scenes of a continually broken retail sector, an impending European financial disaster and an ongoing stream of corporate casualties, analysts make bold predictions that another meltdown is looming. Among many of those at the helm of a company, the ongoing gloomy outlook has contributed to a wide-spread desire to sit tight and put the expansion plans on hold, since they believe there is no funding available to fuel their ambitions. But according to Ian Marwood, corporate

finance partner for Yorkshire and the North East at Grant Thornton, the finance facilities are there in abundance – they just need to be approached with cunning and guile. He says: “In the minds of directors, all their strategies over the next 12 months are quite defensive. It’s about conserving cash and further cost cutting and there’s an element of frustration there. “There is potentially an opportunity for them to be going out and doing things which would drive their businesses on, like acquisitions, and it’s almost a surprise that they are not doing it. “Is it because of a fundamental problem in the economy? We don’t think so, we think it is because of their perception of how easy it is to get funding.” “There is a perception among many small and mid-sized companies that if they wanted to do something expansive they wouldn’t get the >>

INTERVIEW

There is a perception among small and mid-size companies that if they wanted to do something expansive they wouldn’t get the financial support

Investment means new equipment is all Re Pet A County Durham food packaging company has secured investment that secures customers’ green credentials while at the same time capitalising on its own future growth

Plastics manufacturer Re Pet was launched last year to supply recyclable plastic sheeting for products destined for the food packaging industry. The company secured £1.2m of investment including a contribution from Northstar, which backed the company on behalf of the Finance for Business North East Accelerator Fund. The money has enabled Re Pet to purchase an extrusion machine and ancillary equipment for the company’s plastic production plant in Houghton-le-Spring. The company’s name is derived from the PET (polyethylene teraphthalate)

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material that it makes which is most commonly used to make drinks bottles and is much easier to recycle than PVC plastic, which is still used by many retailers. Currently, the UK imports two-thirds of the PET material used in food packaging and Re Pet aims to become one of the largest PET manufacturers in the country. The raw materials used in PET production are derived from crude oil, but by using recycled materials, Re Pet can offer a more environmentallyfriendly manufacturing option. The product Re Pet makes is cheaper than PVC, so it is a win-win situation for food companies and supermarkets looking to increase their green credentials as well as keep costs down. As a UK-based supplier of recycled PET, the company hopes to capitalise on future growth in the market with the expected switch from PVC to PET plastic. As much as £800,000 of the £1.2m investment pot has already been used to buy the extrusion machine that sandwiches recycled plastic between thin layers of plastic polymer material, which is then pushed through a die under high pressure to create the plastic sheeting. Re Pet expects to be making 100 tonnes of material per week with the help of the new machine and anticipates rapid growth, hoping to attract enough additional investment to secure a second, more advanced, machine in the near future.

it is a win-win situation for food companies and supermarkets looking to increase their green credentials as well as keep costs down

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financial support from banks to do that. I think in the past two or three years most financial directors have been beaten up hard by their banks and have seen them be more cautious, so they put their prices up and rein back in the amount of debt that they want to be lending to people. And there is a perception that the banks are not lending.” At Grant Thornton, Marwood is at the heart of that gap between banks and their business customers and witnesses at close hand the discrepancy between the proposals firms put to banks and the credentials which they are looking for when funding a growth plan. And just as executives are frustrated by what they believe is a lack of support from the banks, he sees bankers lamenting a shortage of viable expansion plans to lend to. “If you talk to the banks themselves, they can’t understand where the view comes from that they aren’t lending,” he says. “The guys on the front line selling the banks have targets for lending that are all quite high. There is a real desire from the banks to lend; the problem is the lack of opportunities that the banks are seeing which meet their requirements. “The banks are saying that they do want to lend but the propositions coming to them aren’t robust enough to allow us to lend, given the credit hurdles you’ve got to get past these days.” Among the services it offers in the North East, Grant Thornton specialises in helping business hone their proposals for banking support and Marwood has a clear grasp on what the post-recession banker is looking for in a business plan. He says: “All of the big four want to lend money, while Yorkshire Bank and Clydesdale are also very active. Santander is in the business of establishing a market position so it needs to lend more and we are seeing they are very keen to talk to our clients. “It’s not easy to persuade the bank that your proposal meets their credit hurdles but there is a willingness to lend. You may have lots of financial directors thinking it’s not worth talking to your bank because they won’t be supportive, actually it is worth talking to them but you need to be very careful about the way you are talking to them and that

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The propositions coming to the banks aren’t robust enough to allow us to lend, given the hurdles you’ve got to get past your proposition is well honed to meet its requirements.” Clearly the game of accessing bank finance has changed since the heady days before the notion of a credit crunch had entered the nation’s consciousness. But, according to Marwood, that does not mean it has become unplayable. He says: “Banks are looking for an existing level of cash flow which will support the bank funding that you are looking for. If you say to the bank that your profits and cash flow will grow in three or four years’ time, that sort of thing won’t fly any more because certain banks were burnt by lending money to companies on that basis. There are companies where the profits remained flat and suddenly the banks were exposed because those profits hadn’t grown. “The propositions that rely on servicing the debt by the growth that is generated are much more difficult to sell to a bank than one that says, ‘this is what we are borrowing even if that profit stays at the same level’. It’s all about presenting the current run-rate cash flow generation capacity of the business in a way the banks can understand and build their models around. “Make sure you approach a bank with a very well-rounded proposition. If bankers have any doubts about a company in the first meeting, they will tend to walk away from it.” Meanwhile, as well as a misconception that banks are not lending, Marwood also believes many SMEs are missing out on the benefits of asset-based finance because of preconceived notions. “Asset finance is on the rise and there is lots of availability but it’s a much more fragmented market with much more competition,” he says. “Again, lots of financial directors have got prejudices against facilities like invoice

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discounting because they see it as it was a few years ago when it had a bad reputation. But the asset-backed facility can really work well for your company, it just depends on the circumstances.” Private equity is another area where Marwood believes there has been a breakdown in communication between businesses and those in control of the cash which could support their growth. He says: “The private equity houses have a mountain of cash to spend and are all getting a hard time from their investors because they’ve got the cash but haven’t spent it yet. The people running those funds are under an immense amount of pressure to find good deals and as a result it’s not just acquisitions, but also development capital opportunities they are looking at quite aggressively. “Those situations of balance sheet repair where there is a need to get some equity in to reduce the gearing levels are now being looked at much more positively because there is a dearth of really good buy-in opportunities. “There is also a lot more money available from business angels and that is because the returns they can get are actually pretty poor so actually putting a little bit of money into businesses where they might be able to get 15% to 20% returns on it over a three- to five-year period seems like a good idea.” While Marwood believes it may be time for executives and entrepreneurs to reconsider their finding options, his firm can also offer a range of services to increase the chances of unlocking new funding lines. So, instead of waiting for the doom-mongers to say it’s safe to dust down those plans to create new jobs and break into new markets, perhaps it’s time North East business leaders looked again at the finance opportunities available to them. n

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Healthcare entrepreneur set to improve cancer patient waiting lists A simple but clever idea developed by a team at a Newcastle hospital could change the treatment referral system across the country for cancer patients

CASE STUDY

Cievert, a company set up by former NHS radiographer Chris Kennelly, is hoping to roll out an innovative software solution to cancer treatment centres nationally that will speed up the often lengthy referral process and eliminate the inherent risks with the current system. Kennelly led the team that initially designed the software in 2008 to improve the treatment referral process at the Northern Centre for Cancer Care, situated at the Freeman Hospital in Newcastle. Working with Newcastle Science City’s business support team, he has now developed the product ready for commercialisation and already has a number of sales in the pipeline as he gears up to begin selling it across the UK. And having achieved impressive results in managing the treatment process – reducing patient waiting time by an average of two days – Kennelly has high hopes for the adoption of the system across the NHS. He said: “Because there are so many medical experts involved in the treatment of each cancer patient, the traditional referral process relies heavily on human intervention, making it untimely and subject to risk. When we were given the task of improving efficiencies in Newcastle we trawled the market for a suitable software product, but discovered that nothing was available so we designed our own purpose-built solution. “As a result, the product is completely fit for purpose, ensuring strict governance over sensitive patient information. It allows patient information to be stored in one easy-to-access and secure central location. From a clinical point of view, the benefits of this efficient system help clinics meet their waiting time objectives and from a patient perspective it can often deliver same-day peace of mind to some who would previously had to wait three or four days for their treatment appointments.” Newcastle Science City’s business support team has provided wide-ranging advice to help bring Kennelly’s product to market. Using the organisation’s unique networks, experience and sector knowledge, the team has helped Cievert bypass the early pitfalls associated with launching new products and services. Vivek Unnikrishnan, Newcastle Science City’s business support manager, said: “Cievert’s launch provides a perfect example of the phenomenal opportunities that exist for developing insight-led, innovative businesses targeting the NHS and other health organisations. The skill, passion and vision Chris Kennelly brings to the company I am sure will help Cievert meet its growth targets.” Ultimately, Kennelly aims to create a suite of software products to improve efficiencies and service within the healthcare sector.

i want to create a suite of products that can deliver big improvements in efficiencies within the healthcare sector – ultimately bringing further benefits to patients He said: “I can see the potential for a second product already. There are lots of innovative ideas within the NHS, niche ideas that stay local at the moment and don’t get rolled out across the whole sector. What I want to do is identify them and by working with the NHS, Newcastle Science City and other partners, create a suite of products that can deliver big improvements in efficiencies within the healthcare sector – ultimately bringing further benefits to patients.”

Cievert’s Chris Kennelly

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For more information on Newcastle Science City’s business support team, which focuses on accelerating potentially high-growth businesses, contact Simon Green on: 0191 211 3015, email: simon.green@newcastlesciencecity.com or visit www.newcastlesciencecity.com

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INVESTING FOR A BRIGHT FUTURE JEREMIE funding brought FW Capital to the North East and since then fund management company has been impressed by the investment opportunities on offer in the region. Andrew Mernin finds out more about what FW Capital looks for in an investment

FW Capital fund manager Andrew Coles

FW Capital first came to the North East some 18 months ago, bringing with it the keys to a new £20 million funding pot aimed at established businesses. A subsidiary of the Finance Wales Group, it manages the North East Growth Plus Fund, which is part of the £125 million Finance for Business North East Fund, and has already invested in six businesses in the region. However, with a number of potential deals in negotiation at the time of writing, fund manager Andrew Coles expects this figure to increase by the end of the summer.

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Coles is enthusiastic about the North East’s potential: “We’re an established regional SME investor and the North East is a huge opportunity for us. There’s a well-established advisory network open to VC funding and also some owner managers who are keen to think about equity investment in return for a bigger end game. Going forward, I’m keen to work with these owner-managed businesses and their advisers.” As one of the North East’s newest fund managers, Coles is well placed to offer a fresh perspective on SME investment in the region.

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When he first arrived, Coles was pleased to find a well-established and open corporate finance community ready to do business: “There’s an abundance of established businesses supported by a strong corporate finance community. The market’s very well educated and primed for venture capital investment. Unlike many of the other investment funds on offer in the region, we don’t target start-ups. We’re looking for investment opportunities in established businesses.” Coles looks for businesses with a growth story

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firmly embedded in their fabric, and needs to see a strong management team and good visibility of how revenues and associated cash flows will be generated. “We don’t want to invest in a business for it to stand still - we want to work with the business, add value and then see it flourish,” he emphasises. FW Capital has a strong track record in completing deals where its funding complements, rather than replaces, existing funding sources and also shares risk, as Coles explains: “We’re keen to co-invest with other funders such as banks and we often co-invest to share risk. We always undertake stringent due diligence when we invest and this gives other funders the confidence to co-invest with us. So, for a £2 million funding requirement, we

could invest £1 million alongside £1 million from a bank, for instance.” Managing a fund that can co-invest means Coles has not only gained a good grasp of the funding needs of established North East businesses, but also the capital that’s locally available. “The beauty of the fund we manage is its flexibility. We almost start with a blank sheet of paper in terms of the type and style of the investment and we then come up with a creative deal structure that really works for the business.” Despite the headlines, Coles believes banks still have an appetite to invest in the region’s SMEs, but accessing such finance takes more time and effort now than it has done in recent years. He continues: “The bar has been raised, but there is still

INTERVIEW

money available for high quality deals. It isn’t all doom and gloom.” Looking to the future, Coles is upbeat about the level of deal activity in the North East and looks forward to a brighter future: “The local market seems to be looking forward very positively. The lawyers and accountants seem to be busy, which is always a good barometer for deal activity levels. I’d urge established businesses to think hard about investing in their future and consider the funding opportunities on offer. This could really give them the edge in a recovering economy.” n Andrew Coles 0191 350 6313 Andrew.coles@fwcapital.co.uk www.fwcapital.co.uk/northeast

FW Capital investment sets up film production company for long-term growth Award-winning North East independent film and television production company, the Dene Group has secured investment totalling £795,000 to expand its operations and invest in new equipment

The investment is made up of £500,000 from the Growth Plus Fund managed by FW Capital, together with £150,000 from the Growth Fund managed by NEL Fund Managers. Separately, a further £100,000 has been secured through a Grant for Business Investment administered by one North East and RBS has invested £45,000. The Growth Plus and Growth funds are part of the Finance for Business North East Fund. Set up 19 years ago by six-time Royal Television Society winner, Steve Salam, the Dene Group consists of Dene Films, Qurios Animation, Metropolis

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Pictures, Imagine TX post-production and Riff Raff, a digital communications company. Having grown significantly in the last few years, the Group has achieved a number of new contract wins and has also established operations in London and Manchester. The Dene Group is now regarded as the largest provider of commercials to ITV’s regional broadcast TV teams and has produced over 500 commercials, corporate films and broadcast TV programmes. Dene Films has just delivered its first network TV commission, a documentary for CBBC based around the Michael Palin centre for children with speech difficulties. The Dene Group prides itself on its highly-talented production and creative team and its desire for innovation and quality. At the 2010 Royal Television Society Awards the company won 4 gongs and a further five awards at the prestigious IVCA Awards in London. “2011 has been a great year for awards, with ‘Ghost Street’ winning a silver medal at the New York Film Festival in the world’s best short film category,” explained Mr Salam. “We’ve also picked up awards at the US International

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film festival, including Gold Camera awards for ‘Stammer School’ and ‘The Last Cast’ produced for the BBC as well as a Silver Screen for ‘The Edge of Empire’, a 3D film for the Vindolanda Trust.” Commenting on the investment, Mr Salam said: “This investment will significantly underpin our long-term growth strategy and enable us to enhance our competitive advantage. We’ll be able to purchase updated equipment and it will also provide an injection of working capital.” Joanne Pratt, Senior Investment Executive at FW Capital, said: “Dene has grown substantially in recent years and FW Capital’s investment will improve its capitalisation as it continues to expand. “The Finance for Business North East Fund is playing an important role in the growth of businesses like Dene and the North East Growth Plus Fund can invest between £350,000 and £1.25 million in a single round in established businesses in the region.” Advisers on the deal were Watson Burton (legal to FW Capital), Hay & Kilner (legal to the Dene Group), Dickinson Dees (legal to NEL Fund Managers) and Sherpa Business Consultancy (business advisors to the Dene Group).

SPECIAL REPORT | SUMMER 11


CASE STUDY

SUMMER 11

fw capital’s investment will enable the company to undertake some ambitious plans to continue developing its products and services and eXpand into new markets

Peterlee company’s expansion propelled by £750,000 investment from FW Capital A North East company which supplies specialist procurement and inventory management systems has secured a £750,000 equity investment from the North East Growth Plus Fund managed by FW Capital to continue its ambitious expansion

Peterlee-based Propeller Holdings Ltd will use the investment to fund its diversification into new markets as it starts rolling out its latest technological advance, the new Pro-Vyda inventory control system. The Pro-Vyda system offers measurable cost and efficiency savings to large multi-site manufacturing companies and Propeller aims to double its turnover in the next two years. “our new Pro-Vyda system is key to our expansion. It enables companies with diverse and complex

SPECIAL REPORT | SUMMER 11

manufacturing operations to dramatically reduce spend on spares and consumables,” explained Propeller’s Managing Director, Carl Brookes. “By using Pro-Vyda, our clients can achieve cost and efficiency savings in excess of 40%. It is an accurate and highly secure vending system that focuses on reducing consumption of inventory.” Propeller Holdings was established in 2001 and initially provided outsourced stock management systems to the manufacturing and process sectors. The company has since developed its own web-based systems which are currently used by manufacturing companies including those in the

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automotive, aerospace and food sectors. The company’s growing client base includes TRW, Intersnack and Sony. Propeller now plans to secure a number of new deals with large UK and European manufacturing companies to grow its customer base. Commenting on the investment Propeller’s Chief Executive, Tony Goodwin, added: “our aim is to increase the company’s annual turnover to £15 million by 2014 and we will recruit additional staff to meet the increased demand for our systems and services. “We’ll use FW Capital’s investment to continue developing our technology and to refine our products and services. It will also help us push ahead with our expansion plans for Europe.” Joanne Pratt, Senior Investment Executive at FW Capital said: “Propeller Holdings has a dynamic management team with a healthy appetite for growth. The company’s focus on product innovation helps it stay ahead of the competition by providing real added value to its customers. “FW Capital’s investment will enable the company to undertake some ambitious plans to continue developing its products and services and expand into new markets.” FW Capital has made the investment from the £20 million North East Growth Plus Fund which is part of the £125 million Finance for Business North East Fund. The North East Growth Plus Fund is targeted at established businesses in the region and can provide single-round investments of between £350,000 and £1.25 million. Advisors on the deal were Dickinson Dees (legal to FW Capital), Crutes LLP (legal to Propeller), Santis LLP (commercial due diligence).

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