Mid-market economy of Yorkshire adds 13,800 jobs as profits grow

Mid-market businesses in Yorkshire have enjoyed a positive few years since 2014, with turnover up by 4%, profitability increasing by 1.3% among the region’s top 250, and M&A activity at its highest levels since the recession. Productivity in particular saw steady increases for the smaller 200 in the top 250, up 6% annually to more than £35,000 per head, while employment was up 13,800 people across the businesses surveyed, although uncertainty surrounding Brexit still leaves the region vulnerable.

Small to mid-sized enterprises (SMEs) are among the main drivers of the UK economy, generating around 60% of the country’s private sector economic activity, and employing around 15.7 million of the national workforce. According to recent figures, the segment continues to perform well relative to its five largest counterparts across the EU, in spite of increasing uncertainty surrounding Brexit.

In a report earlier in 2017, analysts of the professional services firm BDO detailed the success of the local SME economy of Derbyshire, which had seen the total revenue of the top 50 small to mid-sized businesses grow steadily over the past three years. Revenue increased almost 70% from £2.3 billion in 2014 to £3.9 billion last year.

Following on from this study, the consulting firm have published a whitepaper examining the top 250 mid-market businesses of neighbouring county Yorkshire. The new report, titled 'Surveying the Resilience of the Mid-Market in Yorkshire', shows that the regions businesses face considerable uncertainty thanks to the potential for export and import levies to hit industry hard, with manufacturing representing around 15% of regions GVA of 6.4%. While the entire top 250’s profitability rose by 1.3%, the vulnerability of the region’s economy to Brexit is arguably already being demonstrated, with a 2% fall in the total revenue among the top 50 businesses among the group from last year, while negotiations between the UK and EU continue to falter.

Regional split

In terms of the regional divide of businesses, meanwhile, West Yorkshire was found to be the most heavily represented among the top 250 companies in the Yorkshire region, at 68% of the total. North Yorkshire, meanwhile, represented a small 12% of the total. South Yorkshire and North Humberside rounded off the total at 11% and 9% respectively.

North Yorkshire saw the highest levels of productivity by far, generating £71,000 of wealth per employee on average, an increase of 11% on the year previous, while the area boasted a turnover of £13 billion, a small 4% increase on the previous year. West Yorkshire, while generating the largest turnover of £74 billion and operating in profit (£23 billion), also had the lowest rates of productivity, however, at £31,000 per worker – down 3% on the previous year.

Turnover growth was relatively subdued for the 250 businesses examined, up 4% on 2014 to around £107 billion. The top fifty players continue to dominate the group’s total revenues, at £82 billion, although a decline of 2% was noted since last year. The mid-market players did manage to boost their turnover on last year, up £27 billion and up 11.2% on 2014.

While the segment continues to suffer uncertainties, M&A investment for the year was relatively robust, with 771 deals completed by the end of Q4 2016, the highest level of activity since the beginning of the recession. Deal activity in the region, driven by strategic moves from corporates, largely focused on inorganic growth and consolidation, while a weakened Pound also made investment in the UK market an attractive prospect for predatory organisations looking to gamble on a successful Brexit. While at 63%, M&A continued to be the largest source of investment in the region, it was followed this year by refinements and capital investment at 18%, which grew by 4% from 2015, most likely in response to the fall in growth among the larger businesses previously mentioned, as top companies look to boost turnover for next year by way of efficiency savings.

Operating profit was up from last year by around 9%, although the increase was only up 1.3% from 2014 figures. The top fifty were noted for a decline from 2014 of 4.4%, but were up 15% on last year, while the bottom 200 have managed to increase their profit by 23.8% since 2014, largely due to improvements in retailer profitability.

Career opportunities

The mid-market remains a key driver for employment in the UK as well as Yorkshire. This year, there were 13,800 positions added in Yorkshire, bringing total employment up to more than 650,000. The top 50 remained the biggest employers with around 430,000 employees across their organisations, although employment in the top 50 was down 1.9%. The mid-market 200 also saw employment boosted by 10.9%, hitting more than 200,000 new roles across the region.

The mid-market was able to improve its productivity the most, with steady increases on 2014, at 6%, to hit around £35,000 per employee. The mid-market 200 is relatively more productive than the top 50, with an increase in productivity of 6% since 2014 to around £38,000.

The study noted that the big retailers, ASDA and Morisons generated the biggest turnover at around £40 billion, in spite of ailing national sales figures, as new discount competitors like Aldi and Lidl continue to eat into their market share. Food and drink saw the biggest decline in turnover on the previous year, with the number of companies within the top 250 for the segment declining by around 5%. This decline may also be hastened by the Brexit process. EU food standards are some of the best in the world, with the perceived high quality of UK safety and quality throughout the manufacturing process and finished products, putting a premium on what the country produces for overseas markets. As such, around 2.2% of the global food export market flows from the UK, but the effect of Brexit on the British market share remains indefinite.

Manufacturing is the best represented sector in the top 250, with the segment’s turnover increasing slightly, even while the number of firms in the to 250 declined slightly. Services saw a slight increase in the number of companies in the top 250, with turnover also increasingly slightly on the previous year.

Commenting on the challenges faced by the region, as well as the future for the region, Terry Jones, Managing Partner at BDO Yorkshire, said, “But with change comes opportunity and no-one is better at grasping opportunity than our evergreen and ever-ready mid-market. BDO is proud to serve all its clients, none more so than those businesses which make up the economic engine of our region. May 2017 be the year that our leaders in Westminster finally wake up to their importance and put these businesses at the heart of the nation’s new industrial strategy.”