Winners buck the trend

Roger Trapp examines the firms that have thrived

THE success of Merlin Publishing and the other leaders in the 1995 Independent 100 is particularly impressive, because it covers the toughest period since the listing was launched in 1990.

Overall growth rates for the five-year period covered by the latest rankings have been held back because the two buoyant years to 30 June 1989 have been followed by the recessionary years of 1991 and 1992. As a result, the average rise in turnover in the whole listing was 43 per cent, compared with 48.1 per cent last time.

This markedly tougher trading environment is clearly demonstrated by Merlin only managing annual sales growth of 104.4 per cent, compared with the 125.5 per cent of last year's winner, Colleagues Direct Marketing. Similarly, the 24.4 per cent annual sales growth achieved by 100th-placed Lotus Leisure was lower than the 29.5 per cent recorded by GRT Holdings, the bus company, last year.

Still, the fifth annual listing, compiled by the Independent on Sunday in collaboration with Price Waterhouse, the accountants, offers further evidence that although many of Britain's largest publicly quoted companies have suffered in the recession, many owner-managed businesses are prospering.

As the figures above demonstrate, they have not been untouched by the economic environment. But they have still expanded strongly - creating wealth and jobs in the process.

Indeed, the companies that have appeared in the Independent 100 and the Middle Market 50 - designed to recognise larger companies' efforts in sustaining growth - have among them created more than 15,250 jobs since the listing was launched. Nigel Crockford, the Price Waterhouse partner responsible for middle-market and growth companies, said this was "a remarkable achievement when one considers that unemployment over the five years to December 1994 has risen by about 50 per cent".

The managers of these companies attribute this performance at least in part to their determination to stick to what they know best - what larger organisations and their consultants have come to refer to as "core competence". Nicholas Read, managing director of Morse Group, the computer integration company that followed up 11th place in last year's main listing to win the Middle Market Award, said: "A narrow focus suits us in the same way banks don't want to get involved in IT; they use us to worry about IT."

Great importance is attached to the role not just of managers but employees as a whole. At Datrontech, the computer components distributor that improved on last year's 28th position to take third place this time, one of the key motives behind last month's flotation was to get the staff more involved by giving them stakes in the company. "It's part of the culture," said Steve King, the managing director.

At Morse, all sales people in effect run their own small businesses, with minimum interference from senior manage- ment. "We hire the best people and pay them well because they take a high degree of responsibility," Mr Read said.

And, although such companies have increased staff numbers markedly since starting up in the mid-1980s, they do not lightly take on extra employees.

Morse, which started as a division of Tecno, the camera shop chain formerly owned by its chairman, John Britten, now has about 120 people working for it. But Mr Read argues that many companies with similar turnover to the £48.3m it reported for last year would have two to three times as many.

Morse avoids this, he says, by being more efficient - through paying people to be more productive - and by not getting into areas that are not central to its main business: reselling both open systems products and personal computers to large institutions and companies, including. investment banks, local authorities and such commercial organisations as J Sainsbury.

As all this suggests, computers and related technology once more figure strongly in the listing. There are 20 such companies in the Top 100, slightly down on last year's 23, but computers play a strong part in the success of many others that are not strictly involved in information technology.

Indeed, Datrontech insists it is not a hi-tech company either. Mr King sees it as a sales and distribution company that happens to deal in computer parts. Consistent service and anticipation of customer needs are the keys to its success, he believes.

The largest sector is in fact that of the second-placed managed catering company, Russell & Brand. The number of companies involved in food, catering, leisure and retail rose strongly, from 17 to 24, over the year and led Mr Crockford to see signs of returning consumer confidence and spending. While the electrical and engineering area rose and media and publishing remained roughly static, with six

representatives, building, property and textiles continue to make little showing.

In geographical terms, the Home Counties have seen their share of the Top 100 grow in the past year, with London and the East Midlands slipping back. Although activity in the north of England remains sluggish, Scotland has grown from nine companies in the listing to 15.

But for all these regional and sectoral shifts, the listing shows a remarkable consistency, suggesting there is a significant number of companies that can raise turnover year after year.

The Middle Market award, for the 50 companies that had grown fastest over five years from a base of at least £5m annual sales, was introduced three years ago to recognise the achievement of sustained growth by larger companies. Remarkably, it was won in the first two years by the computer company Elonex, before handing the prize over to Morse.

Perhaps even more remarkably, many companies have appeared in the main listing more than once. Exactly half of this year's Independent 100 companies appeared last year, and 22 companies have made the ranking for three consecutive years. One company, Loot (see panel), has appeared in all five tables.

Many of these companies are committed to remaining private. Some - particularly those in fast-moving hi-tech areas - claim that being outside the glare of stock market publicity better enables them to respond to new opportunities and threats. But others have a more pragmatic approach to growth, taking the option that best suits their plans.

For example, Datrontech, which had hitherto been "fundamentally self- financing", floated last month because the management felt it was the way to obtain "additional working capital to go into the next century". Past winner Madge Networks has gone for a partial Nasdaq float in the United States, and Vamp, the provider of computer systems to the medical profession that headed the first Independent 100, has sold out to Reuters.

Nor are these exceptions. Around 17 per cent of the 121 separate companies appearing in the Independent 100 and the Middle Market 50 achieved a quotation or trade sale. Eight companies gained full stock market quotations, and a ninth, Independent British Hospitals, obtained a Rule 4.2 listing. There have also been 11 trade sales or management buyouts.

And there is little sign that the change in ownership curbs their expansionary zeal. Stagecoach Holdings, the fast-growing bus company that appeared in early listings, is constantly acquiring rivals around the country.

GRT - formed through a 1989 management buyout of Grampian Regional Transport - has followed suit, with a series of deals and a stock market flotation. Still eligible for the latest awards and placed 13th in the Middle Market, it has announced plans to merge certain operations with those of Badgerline in the south of England.

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