Roundtable: the UK mid-market


Described as Britain’s Forgotten Army, mid-market firms generate a significant proportion of economic revenue and employment opportunities, yet they have often fallen under the radar of policymakers. Some say now is the time to start championing and nurturing medium-sized companies, enabling them to grow, drive prosperity and create more jobs – but what does the sector need? Six mid-market business leaders joined IoD director general Simon Walker to discuss…

The panel

Simon Walker
Director general, IoD

Ilaria del Beato
Chief executive, GE Capital UK

Ian Wilkins
Lending leader, GE Capital UK

Peter Digby
Managing director, Xtrac

Dennis Overton
Chairman and managing director, Aquascot

Hal Reisiger
Chief executive, Cosworth

William McGrath
Chief executive, Aga Rangemaster

Claire Watkin
Managing director, Trendsetter Home Furnishings

David Milner
Chief executive, Tyrrells Crisps

Simon Walker Welcome to you all. This is a discussion I am very much looking forward to as the IoD has about 5,000 members from mid-sized companies, so we’re very interested in this sector of the economy. One often hears the lament that Britain doesn’t have enough mid-sized companies, but I want to start on a more positive note.

The ‘Brittlestand’ may be smaller than Germany’s ‘Mittelstand’ but sales growth in mid-sized companies in this country almost kept pace with German firms last year and is considerably ahead of the rest of Europe. The business environment in Britain is looking much better, the IMF revised its growth forecasts up, while the purchasing manufacturers’ index shows that the export order balance is at its highest level for four years. However, the trade deficit is stubbornly high and we’re not yet seeing a recovery led by exports and business investment but we know it is firms like yours that are going to lead the way in that area.

I’ll be interested to hear about your successes and challenges but can I first ask about growth. British mid-market firms grew by 2.3 per cent last year. What growth have you been having
– and what are your expectations?

David Milner Tyrrells Crisps is a privately held company and I’ve been involved for four years. We’ve grown, on average, about 25 to 30 per cent in each of those years and this year should be in the high twenties. Our growth is from the UK, but in the last four years our international business has gone from zero to 30 per cent. Our success is about brand. We like to think we sell the best crisps in the world – our name goes on them and we spend money convincing people that they’re superior to what’s already in the market. We are the brand leader in premium crisps in France, with almost half the market to ourselves. Our flavours are the same as they are in the UK and we try to sell with a sort of English eccentricity and humour – that seems to work.

William McGrath We make cookers. Indeed, we’ve been making things in Britain since 1707, so we’ve seen quite a few economic cycles. We’re also pleased to see the market has been picking up with the housing market. While it’s good to know that we’re still selling cooking pots as we were in 1707, the big growth area is online. In Britain, we don’t do dull well. There is a desire and enthusiasm for premium, niche products. We came out of making lower-price products on the grounds that it was difficult to compete, but there were niches further up the scale where we could say something new.

Hal Reisiger At Cosworth, we are increasingly exporting products to the US and to Japanese and Asian car manufacturers, and so are fortunately poised for rapid growth. For us, the cornerstone is always technology and differentiation brings better margins than competing with more commodity products, when you have a strong brand.

Ian Wilkins I run GE Capital’s UK lending businesses and we are seeing a very significant increase in confidence among our customers and among the advisers that we work with in the marketplace.

Dennis Overton Aquascot is a sustainable seafood business in Scotland. We process and distribute a range of ready-to-eat and ready-to-cook convenience products. We launched 25 years ago and have found ourselves in the fastest-growing form of food production around the world. It is a very buoyant market.

Walker How important is research and development to growth?

Overton It’s very important. Five years ago, we set up a blue-skies team to differentiate from our ongoing product development and look at deeper innovation. Long-term growth is linked to that, but medium term there’s this strong, inherent growth. That’s what we’re experiencing within the current ranges. What we’re thinking about in research and development is beyond that, and the importance of continually innovating is crucial. On British heritage, one additional dimension we’re finding in terms of export markets, especially in China and the rest of Asia, is the importance of trust in the quality systems that we operate.

Ilaria del Beato That’s important. Some clients, particularly in the meat sector, have found real benefit in short supply-chain management – slaughterhouse to supermarket shelf.

Claire Watkin We manufacture duvets and pillows, and although much of our market focuses on the supermarkets and high volume, we’ve elevated ourselves out of that. We’ve put a lot into innovation for better-quality fillings, and we’re also finding that the British brand is very attractive. We’re constantly innovating – we’re even using aerospace engineers, for example. We’re finding that the reinvestment of our profits back into our manufacturing capabilities is really paying off. Like Dennis, though, trust is also vital in our industry, in the supply chain.

Walker How confident are you in the recovery we’re seeing at the moment? Are we there, or is it still fragile?

Milner Our growth years were right in the teeth of the recession, so I have to say I don’t spend any time at all worrying about whether the government is achieving a recovery or otherwise. We have set our own plan, and we try to achieve it. I’m selling crisps for £2 a bag and you can treat yourself to those, whether it’s a boom or a bust.

Wilkins The big difference is that confidence has returned. I don’t think we’re back to where we were in the early 2000s, but I think that across our client base there’s an acknowledgement that we’ve seen the worst. There’s confidence in terms of investment, and we’re seeing clients looking at acquisitions and for companies to add to their business.

Peter Digby
We’re the world’s largest manufacturer of motorsport transmission systems and export just under 70 per cent of our products every year. Business has never been stronger. It’s almost like a light switch was turned on six months ago and suddenly there was confidence, not only in the UK but in the US and Germany. Italy and France are still fragile, though. We’re looking at expanding our workforce by eight, nine, 10 per cent, taking on a lot more new machinery. We’re really going for it and I’ve told all my guys we are absolutely flat-out now – unlimited overtime until May 2016.

Del Beato Over the last 18 months competition has been increasing. Banks are generally sorting out their problems, although they’ve still got some way to go in recognising that there is an economic opportunity for them to play into.

Reisiger A lot of our growing business is in premium car manufacturing. That’s been a strong market, especially in the UK. We are also expanding relationships with US and Asian companies. We have probably 25 per cent of our order book through to 2020 because of long-term production contracts that involve new products and technologies which we develop, so that gives us a very solid foundation.

We’ve managed through recent times by transitioning out of Formula 1 and some other projects, which was a little tricky. How do you make the investments that you have to make in developing new products and technologies while at the same time losing key revenue streams? But we’ve survived it and it’s put us in a strong position, so we feel very confident about our prospects.

Watkin Similar to David, we’ve focused on what Trendsetter is strong at, irrelevant of what is going on, to a degree, within the rest of the market. We have invested during a period where a lot of our competition haven’t and we’re seeing positive effects. We already have a very clear strategy but adaptability is now key for us. I think with a family business you have got to have a much longer-term view as well. It is good to see consumer confidence returning because ultimately, you know, that gives people the incentive to trade up a bit in the market.

McGrath We’re very much tied to the housing market and the lead indicator we’ve followed for many a good year is really around mortgage approvals. We’ve seen the number of housing transactions move on quite a pace. You spend as much money in the six months after you move house as you do in the next five years, so clearly our kind of business will do well if housing transactions pick up.

The tide has turned in our market and the switch is interesting because when things shift, the mindset within the business has got to change, too. In the last five years all has been firmly at the feet of the finance team, with the objective being to not let in goals. Now the question is: Have we got enough strikers? Our shareholders would expect us to score a few goals now and win a few home games. A year ago, it was about exports and winning away games. Now, with the team and the products we’ve got, we are finding out how good the last few years’ work on evolving the product mix has been: there should be a point where we see some traction.

Overton That is very interesting – different drivers completely. In our operation, the recession didn’t have too big an impact. One of the main factors driving our demand has been the changes in eating patterns and a move in terms of protein consumption. That seems to override any economic background.

Walker Can I move to financing and growth? How are you finding that?

Reisiger For us, it’s actually not been difficult. There are a number of good government programmes about fostering innovation. Being in the manufacturing sector helps because you create so many more jobs through the supply chain of manufacturing than you would in a service- sector business, for example. With regards to commercial funding, we’ve found that if we have a good business plan and a cashflow projection that makes sense, then funding is readily available.

Digby I think 2008 made us all a little more cautious. We were involved in a management buyout in 1997 and then in 2000 we took on some private equity individuals and a lot of debt.
We’re now debt-free, but the recession has made us a lot more conservative. We would not go out and borrow anywhere near the sums of money we did before, just in case another 9/11 or 2008 banking crisis comes along.

Milner I’ve been involved in private equity for almost 10 years and one of the upsides is that they do have access to capital and as long as what you’re proposing pays back, there is never any barrier to getting hold of the money you need.

Wilkins From a GE perspective, it’s an incredibly complex area. I think the reality is if you look at where lending was in 2003 and 2004, it was in completely the wrong place. Bad businesses got a lot of money and put themselves in a perilous position. What I think we’re seeing at the moment, with the quarter-on-quarter reduction in lending to businesses, is almost a rebalance of wrong behaviour in the early 2000s.
I take Peter’s point – there are many businesses out there that have taken a deep intake of breath and thought: if it was not for the grace of God, we would have gone when that banking crash came. Businesses are far more reluctant now to leverage themselves as they were before the downturn. Most people around this table have probably never seen anything like that before, and hopefully will not see it again.

Overton The only leverage that we use in the business is three-year asset finance, and we are looking at setting up a couple of new production lines this year and also next year. We were out in the market for three-year asset finance against the capital input when our finance director came forward with a proposal to issue bonds, effectively, and he completed that process at the beginning of last December.

The biggest attraction has been the almost complete avoidance of fees. That was a first for us.

Wilkins Alternative finance is a really interesting one to watch, whether it’s from bond issuance or through peer-to-peer lending platforms. Clearly there is a lot of momentum gathering in those areas.

Walker What are the barriers to growth for your companies? I mean, is it red tape, is it talent?

Digby If we wanted to grow, I could justify taking on 60 extra people now. I’m only taking on 20 because there will be a downturn in the business cycle in ‘x’ years’ time. Three, four, five years, I don’t know what it is but having been there, and having had to lay some guys off, I’d much rather try and manage my business through product pricing to match our investment needs. It is always a difficult balance because you’re trying to look after existing customers.
You don’t want existing customers to go away, so it’s still about confidence and being conservative in the growth. We’ve been growing at 10 per cent per annum for the last three or four years. That has to slow down. It will probably be more like five per cent over the next three years because we’re becoming a bigger company and scaling up. Trying to get the right people is now the biggest problem for us.
We are really suffering from the lack of skills coming out of schools. If you see the prime minister, please ask him to do something about university funding for students doing physics or maths. They should get those courses for free because that’s what we need. We take on a lot of apprentices and train them all ourselves.

Reisiger We’re the same – very engineering-centric and that’s a big challenge. Ten per cent of our workforce are apprentices but we lose them to higher-pay-scale industries as well. That’s a challenge because you have to manage the pay-scale foundation alongside the investment you need to make in new product development.

Watkin We’re in a similar situation. I actually married an engineer who’s now working for us, but otherwise we wouldn’t have the engineering skills that we have got now. We couldn’t have sustained the level of growth that we did without taking a breather and investing back into the team. We’ve been looking at the skills of the entire team and the most appropriate element going forward. We’re manufacturing in Estonia and as we continue to grow there is opportunity for UK-based manufacturing, but there are issues such as higher rates of electricity compared to what we currently pay. There are also more restrictive labour laws than we have in Estonia – although Estonia’s are still quite strict.

Digby Energy costs are important. In our business, we spend £45,000 to £50,000 a month on electricity. It’s a massive amount for us and high on our agenda.

McGrath There may be question marks around the impact of the housing market on the economy and whether it’s desirable, but I think you have to look at this sector if you want to bring a little more confidence into the consumer market and therefore into business demand. Having made the play around Help to Buy, it now needs to be consistent. Mark Carney has said he’s taken his foot off the accelerator, but it would be very poor if he put on the brake. The other thing – in the Midlands, we’ve worked with a lot of other companies around the idea of Birmingham being a centre of innovation and design, bringing together universities and local government, and restating just how good the region is. There’s so much good stuff coming out of the car industry but we need to keep saying it and change people’s enthusiasm for engineering.

Digby We’ve still got some way to go with the term engineering in England, haven’t we? In Germany, an engineer is a guy in a white coat who is well respected. In England, an engineer is often someone who mends your washing machine who, while still well respected, of course, is a very different kind of engineer that reacts to problems rather than actively pushing boundaries and seeking technological advances through innovation.

Reisiger Yes. You’ll have difficulty if the perception of cutting metal is still the dirty business that was done by our grandfathers. The levels of automation and technology that are involved nowadays means that it actually requires a very high level of training and skill.

Overton In terms of limitations, ours is definitely a technological one – how we make the next leap in terms of aquaculture into more open, oceanic waters. There will be scientific solutions and we need to link businesses like ours with university knowledge and expertise, which has always been hard.

Walker What about the tax, national insurance and other breaks that are available to businesses?

Digby R&D tax credits have been fantastic for Xtrac. We have to make our own products obsolete almost every season because if we don’t, one of our competitors will. Thirty five per cent of our turnover is allowable for R&D tax credits and that’s been a significant benefit to us. The easing of employment legislation has helped, too. You heard me say how cautious I was about taking people on but now we can take them on for two years before we have to make a final decision. We don’t want to be irresponsible but it makes it a little bit easier when you’re taking people on if you’ve got those sort of benefits for the longer period.

Walker For those of you who are exporting and looking at new markets, where is next for you?

Milner Our fastest-growing businesses are the first markets we went into – still France, Germany, Holland, then the US and Canada. We do have a business in India and in China but the biggest markets are still those next door, the ones in Europe.

McGrath Our most fascinating new market is China – the growth has been not only to do with the product but also to do with social change. For a medium-sized company such as ourselves, it’s the quality of the partner that matters. If the local partners are good enough, and explain the product, then that’s the way forward. We’ve also got a reciprocal deal, so we’re selling there and we’re going to be bringing some of their products to Europe.

Walker Finally, please can I go around the table and ask where you all get your best bits of leadership advice and your business thoughts from?

Milner I live in the country and a lot of my friends are farmers. I’m always incredibly impressed by some of the things that farmers do and often learn from them. Anyone who’s got a successful venture can teach you something and if there’s one thing that is a common theme it’s attention to detail. People that are into every little bit of detail, whether it’s a business or a farm or an art gallery. That often equates with success in my experience.

Digby I’m fortunate in that I have a fantastic management team at Xtrac, which is extremely experienced. I’ve also been involved a lot with the Motorsport Industry Association, and I’ve just joined the IoD, so there are some gains there. I’m the vice- president of Chelsea Football Club as well, so I look there to see how (and sometimes how not) to look after your managers.

Reisiger Joining trade associations is one thing, but I think you have to be active; you have to get involved and spend time with peers and share experience. In the US, I started up a roundtable that still goes to this day – they’re all business owners and it’s kind of a pre-board, so before I go to my board I bounce ideas off them.

Watkin I started in a family business so a lot of my mentoring came from my father. Now I’ve also got a number of different mentors who I go to and we go to non-competing firms that might be, for example, 10 years ahead of us with their CSR policies. And hopefully there’s something that they gain from us, too.

McGrath Creating multidisciplinary teams that can cover all the angles of your business, and having confidence in them,
is crucial.

Overton I’m a member of YPO – a network of 21,000 chief executive officers around the world and that’s been incredibly resourceful for me. We have forums that meet every couple of months. It’s like having an additional board and it has been really extraordinary.

Walker Thank you so much – it’s been a really interesting discussion, with an awful lot of food for thought.

About author

Lysanne Currie

Lysanne Currie

Lysanne Currie is an editor, writer and digital content creator. Her first job was at Melody Maker and she then spent over 10 years in teenage magazines working from sub editor on 19 Magazine to editorial director of Hachette’s Teen Group. Her previous roles include group editor and head of content publishing for Director Publications and editorial director at BSkyB overseeing Sky’s entertainment, sports and digital magazines. Lysanne lives in London with her music promoter partner and a four year old Jack Russell.

No comments

Time limit is exhausted. Please reload the CAPTCHA.