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Is Britain enjoying a manufacturing renaissance?

BGF News 02.15.2014


One thing British manufacturers have not lacked in recent years is unsolicited advice. Sales may have been hard to find and finance harder still, but there has been no shortage of helpful criticism. Report after report has bemoaned the alleged underperformance of UK manufacturing and identified a multiplicity of failings. Companies were too short-termist and lacking in ambition, said the critics. They did not invest enough, particularly in technology. They were too timid about attacking growth markets in emerging economies.

Whatever the truth of these claims, one thing is clear. They do not apply to some of the smaller companies that are now leading Britain’s manufacturing renaissance.

Take VTL Group, the Huddersfield-based motor components manufacturer where BGF has just agreed a £4m investment. Bruno Jouan, VTL’s Chief Executive, believes the critics have a point when it comes to the sector’s commitment to long-term investment in technology. “In the past, if you generalise, most businesses in the UK, and certainly in the automotive sector, have been really short-sighted in terms of investment in innovation and technology.” And he concedes that VTL probably was too. But over the past couple of years the company has been investing heavily in the technology behind its precision engineered transmission and turbo components which it supplies to leading manufacturers including Cummins, Toyota, Renault and Nissan. It has ploughed £2m into a new technology centre to be the base for all its research and development and for the training of its new generation of engineers. “This shows our commitment to be a world-class manufacturer and a strong partner for our customers in the future.”

Among the common criticisms of British manufacturers is that they should be thinking more in terms of solutions and increasingly looking for ways to offer broader packages of products and services.

That is exactly what VTL has been doing. “If you just ‘make to print’ it is only for today and tomorrow. You have to move up the value chain. You have to offer your customers technical solutions where they can rely on you rather than other people. You must become, if not indispensable, then less disposable.”

Paddy Collins, Chief Executive of Aubin, an Aberdeen-based supplier of chemicals for the oil industry, also stresses the importance of focusing on the customers’ needs rather than the products. “Although we sell chemicals, what we really do is sell expertise and knowledge to people who don’t have that.”

Aubin has spent five years developing a low density fluid that can be used to provide buoyancy for subsea oil equipment allowing them to be moved around the seabed more easily. While he is convinced he has a world beater on his hands, Collins concluded that having the chemical was not enough. Aubin also had to produce the engineering solutions wrapped around the chemical. That requires a big investment, not least in new people, which is why Collins decided the company needed some external capital.

“We needed money in the bank to have some confidence that we could go forward, rather than doing it on a shoestring and a hope. We wanted to hire new people and in Aberdeen there is a real shortage of good quality personnel. To persuade people to leave a good safe job we needed to give them the confidence that they were going to have the resources to do what we wanted to do.”

Aubin opted to go with BGF, which invested £2.25m in February 2013, partly because it was prepared to take a much longer-term view than most investors. “Some of the things we are doing will take time to come to fruition and BGF wasn’t looking to get its money out in four years’ time.”

Collins certainly can’t be accused of lacking ambition. Sales jumped by a third to £6.25m in 2013 and are expected to grow at a similar pace this year. “We think we could go faster than that. We have a unique material and the subsea industry is worth tens of billions of pounds annually.”

Mark Bryant, Head of Manufacturing at BGF, regrets that such ambition is not more common in British manufacturing. “So many of the manufacturers I have met have been severely bruised surviving the last five years or the last twenty years and their ambition is very limited. They are happy to tick along.” Manufacturing tends to be more cyclical than services businesses and many entrepreneurs are worried about becoming overextended if they are dependent on banks for finance, he says.

Another weakness critics often point to is that British manufacturers, and indeed UK companies in general, have not made the most of growth in emerging markets.

That is certainly not true of Aubin, which exports 80% of its sales and is very strong in the Middle East. Nor can the accusation be levelled against Rob Law, founder of kids luggage maker Trunki, whose now very successful business idea was famously rubbished by Theo Paphitis on Dragons’ Den in 2006.

“We looked at overseas markets from the outset, and South East Asia is now one of our biggest markets.”

Ironically, Trunki has done less well in markets closer to home such as France and Germany, where it has relied on distributors. Some of the £3.92m Trunki raised from BGF will be used to support the move to sell directly into France and Germany.

In the face of rising costs in China, Trunki recently joined the growing trend for British companies to repatriate some manufacturing to the UK. Law explains that having local manufacturing reduces shipping costs and the company’s carbon footprint, as well as cutting the amount of capital tied up in stock and making it easier to respond quickly to market changes.

He was also keen to grasp the PR opportunity of being able to claim that the Union Jack-adorned Team GB Trunki case it produced for the Olympics was made in Britain. Law signed up a supplier in Devon but the company then got into financial difficulty and Law decided to buy it out at the end of last year. The focus now is on turning the operation into a “world-class manufacturer”, he says.

While companies in many different sectors are reshoring some manufacturing to Britain that is not really an option for Bullitt, which designs and makes rugged mobile phones. David Floyd, the company’s co-Chief Executive, says that much as he would like to see his products made in the UK there is no realistic alternative to China and Taiwan, which dominate the manufacturing of phones. Rising costs are an issue but Bullitt has recently been able to get much better terms from its suppliers thanks to the strengthening of its balance sheet provided by BGF’s £3.5m investment in December 2012. This enabled it to move to normal 30-day terms with its suppliers rather than paying a 30% cash deposit when placing an order and settling the rest on shipment.

Although its balance sheet was stretched, Bullitt has been cash-positive almost since it was formed four years ago. Set up by Floyd and two colleagues who had worked together at Freeplay Energy, the Aim-listed wind-up radio group, Bullitt has had little need for external finance until recently. Floyd turned to BGF having become very frustrated with banks. The company was generating cash, arguably had a relatively low-risk business model and a management team with a solid track record, but Floyd said that the banks were just too risk averse. “We dealt with a couple but to be honest they couldn’t give us what we wanted.”

One of the frequent criticisms of British manufacturers is that many do not pay enough attention to design despite the wealth of design talent in the UK. That cannot be said of Trunki or Bullitt, for which design is at the heart of their business. Bullitt’s biggest sellers are a range of rugged mobile phones it designed for Caterpillar (CAT), the American construction equipment giant which has licensed its brand for other products such as boots, clothing and watches.

In the competition for the mobile phone licence, Bullitt saw off challenges from some of the industry giants, including Samsung. Floyd says Bullitt’s key attraction for CAT was that it was proposing to come up with entirely new designs that reflected the CAT brand rather than merely slapping the name on an existing product. Bullitt’s designers worked with the designers of CAT’s vehicles at its headquarters near Chicago and Floyd says the result was a phone that has all the attributes of the CAT brand. The handsets use a lot of steel and have mouldings that echo those on CAT’s vehicles.

Bullitt is generating heady growth with sales rising tenfold to £10m in 2012 and nearer £30m expected in 2013. In addition to the phones it makes under the CAT and JCB names, Bullitt will next year launch a range of audio products for a well-known high street name and it is working with another household brand.

Floyd hoped to have some of the products for the high street retailer made in the UK but found he could not get prices close to those on offer in Asia. This is a reminder that international competition remains intense. But there is no doubt that the prospects for British manufacturers – and for manufacturing in Britain – are brighter than for some time.

Nowhere are the hopes higher than in a sector where Britain was almost written off just a few years ago – automotive. The turnaround since the financial crisis has been remarkable and VTL’s Bruno Jouan sees no reason why it should not continue. The big car makers are keen to rebuild the supply chain in Britain and are getting strong support from the government.

Big challenges remain, not least in terms of skills shortages. “There haven’t been enough people going into engineering over the last 20 years,” says Jouan. But the way manufacturing has been put back on the agenda in the last three years has been very helpful in terms of attracting young people into the industry. “Now we are seeing young kids who have better results choosing to go into engineering because it is being promoted and there are so many good stories about people being successful.”

Jouan says the UK is a great place to do business and believes that British manufacturers can confound the critics and take on the best in the world, including the Germans. And that is a Frenchman talking.