Posted on Tuesday 23 August 2011 by Ulster Business

Shipping Container Yard

Jonathan Cushley from Dun & Bradstreet analyses the Top 100 listing to find out what it says about the economy

The 23nd Annual Ulster Business Top 100 listing confirms that the "Credit Crunch" timing lag has now taken a firm grip on the Province's top businesses. The performance of the Top 100 Northern Ireland companies shows a like for like decrease on turnover of some 1.5 per cent whilst profitability remained in growth mode at 3.4 per cent. Turnover for the Top businesses now stands at slightly over £17bn – this is a reduction from the £22bn in 2010, primarily driven by the removal of Quinn Group from the 2011 report and is the first decrease of year on year turnover in over a decade. The Ulster Business Top 100 incorporates results for Northern Ireland based companies, either NI registered or headquarter domiciled, and relates in the majority of cases to their 2009/2010 financial year end performance. There are also a number of companies which have already filed 2011 results. Since the inception of the listing in August 1989, turnover has been used as the key identifier. The turnover or sales figure in conjunction with Profitability and Shareholder Value is imperative for companies when measuring performance in an increasingly competitive, global environment.

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Economic Overview

We commented in the 2009 Top 100 commentary how the potential impact of the "Credit Crunch" a term first utilised circa 2008 and the Financial Service Sector turmoil was lagging and that we would expect to see the 2009/2010 balance sheets of our top companies being adversely affected. This has now come to fruition with the sales reported reducing and now a substantial number of Northern Ireland's leading businesses reporting losses. In total 18 per cent of Top 100 businesses reported pre tax losses totalling £92.64m. The province though is not alone in experiencing solvency challenges. While it is a small geographic region with minimal impact on the global markets it is nevertheless important to look at, understand and compare the challenges faced by Northern Ireland businesses within a global context.

Global Business Failures

Business failures have dropped globally, but still remain elevated compared with pre-crisis levels. Failures have decreased particularly strongly in the fourth quarter of 2010 in emerging economies such as South Africa, Brazil, Poland and Singapore with the Nordic Region being the only region to record an increase in insolvencies in that three month period. Areas with rising insolvency levels include Austria, Australia, Hungary, Switzerland, Taiwan and importantly the UK. Positively there are falling insolvency levels in some of our region's more important export markets, including France, Germany, Poland and the US.

Outlook: Economic Slowdown in 2011

The global economy continued to recover in early 2011, suggesting that insolvency levels were still declining in Q1 2011 as corporate profitability and payment performance improved further. This would suggest that we should see an improvement in Northern Ireland Top 100 profitability performance being reflected in the 2012 and 2013 listings. Downside risks to the global recovery remain strong. They include high oil and food prices, the debt crisis in Europe that threatens the stability of the region's banking sector, and supply chain disruptions after the tsunami in Japan. As touched on previously, countries with heightened insolvency risk include Australia, Belgium, Iceland, Portugal, Switzerland, Taiwan and the UK.

United Kingdom

The number of business failures rose 0.4 per cent year on year in fourth quarter 2010 after having fallen in both the second and third quarters. This rise reflects the general economic slowdown in Q4 and ongoing fragility amid high unemployment, tight credit conditions and a weak housing market. Finance, insurance and real estate companies saw the largest annual rise in failure in Q4, followed by the retail trade and the personal services sector. Within the UK as a whole insolvency fell further in the food and drink, construction and transport sectors. The outlook for 2011 shows a further upward trend in the number of business failures in light of the weakness in domestic demand. It should also be anticipated that the services sector will feel the full impact of the government's budget cuts in coming quarters. This Insolvency Risk Outlook matrix shows the level of insolvency risk for the countries stated, categorised by D&B's economic outlook for each country (horizontal axis) and the change in each country's insolvency index (vertical axis). For example the "Rising Insolvency Risk" category lists countries that combine a lower level of insolvencies compared with the other countries (according to D&B data) with a weaker economic outlook (compared with historical standards).

Ireland

Positively there is an anticipated improvement in the payments performance within our closest export market. The challenge is that this expectation comes from a position of extreme weakness. D&B's latest proprietary cross border payments performance data show that to the end of the first quarter of 2011 Irish companies paid 10.2 per cent of their bills to European shippers 30 or more days over agreed terms. The share of prompt payments increased to 51.5 per cent (50.7 per cent in Q4 2010) while severely delinquent payments (120 days or more) came in at 1.3 per cent. Overall the delay in Irish payments performance remain higher than the European norm.

Northern Ireland Top 100

Sales within the Top 100 companies have decreased when adjusted year on year by 1.5 per cent. Turnover now stands at £17.12bn against a like for like prior year comparison of £17.38bn (refer to Reader Notes). Viridian Group Holdings remain in the Number one position with sales stated for the year ending March 2010 at £1.865bn – this number has been restated with Viridian Group permission to reflect discontinued operations following the sale of NIE to ESB. In second position sits Glen Electric Ltd with a turnover of £823m, Moy Park Ltd, FG Wilson Engineering Ltd and John Henderson Holdings Ltd, all staples of the Top 100, make up the Top five companies. Quinn Group Ltd who previously showed a turnover of £2.18 billion in the 2010 Top 100 has been omitted. This decision was taken due to the uncertainty around the Quinn Group, which remains under the control of administrators. US insurer Liberty Mutual has taken a controlling 51 per cent stake in the company's once lucrative Quinn Insurance business, which will no longer be included in its figures for continuing operations. In its most recent financial statement Quinn Group said the future of the group "now lies in our manufacturing businesses, which are involved in container glass, construction products, plastics & packaging and radiators across a number of jurisdictions". It is worth commenting at this juncture on a few instances of group organisations held within the Top 100. Moy Park Ltd acquired O'Kane Poultry Ltd circa May 2010 but as consolidated accounts are not available to allow a true reflection of the size of the combined business, both entities are retained within the Top 100 with O'Kane appearing at position 43. Please note O'Kane figures relate to a 65 week period. Diageo Global Supply and Diageo NI are included as they are both part of a larger organisation Diageo PLC and are filing individual figures. The same can be said for James E McCabe Ltd (66) & Philip Russell Ltd (69); both businesses are owned by Golf Holdings Ltd. Harcourt Developments (90) & Titanic Island (95) share directors but are separate businesses.

Profitability

The success of any business cannot look solely at a strong sales performance. Success is also gauged and it can be argued has more relevancy when looking at profit. The Top 100 businesses continue to maintain profitability showing a like for like improvement of 3.4 per cent. Profitability increased from £660.1m to £682.7m, representing an increase in profit margin from 3.8 per cent to 4 per cent. This remains encouraging but from earlier commentary may well be challenged in 2011. It is also worth noting that had Quinn Group's reported €852m loss for 2009 been included the overall Top 100 profitability would have been skewed to show a loss. The fact that 18 companies within the Top 100 are loss-making is significant; this is a 50 per cent increase on the 12 reported in 2009. The majority of the Top 100 businesses remain reliant upon the global markets hence the need for strong risk and opportunity management.

Tangible net worth

A third measure of corporate success can be gleaned from the value of the company to its shareholders. By looking at the aggregate of this year's 100 companies they have a combined tangible net worth of £4.094bn. The Shareholders Return for the Top 100 Businesses equates to Profit/Net Worth as a percentage – 5.9 per cent. Inventory Turnover, defined as the Turnover to Net Worth: This volume ratio indicates how many sales pounds are generated with each pound of investment equates to – 23.9 per cent. Tangible Net Worth is defined as, Shareholders Funds (issued capital) + Retained Profits – Intangibles.

Reader Notes

In certain instances comparisons have been made with other Top 100 editions. These comparisons may include companies not included in the current Top 100 due to fluidity of results. A date of 30-06-11 has been used for cut off for inclusion to the 2011 Ulster Business Top 100.

Economic Overview – extract from D&B Global Business Failure Report published June 2011 a full version of which is available upon request to cushleyj [at] dnb.com.

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