UK: Scots succumb to southern comfort.

UK: Scots succumb to southern comfort. - One of history's greatest takeovers was surely the successful Stuart bid for the English throne. When James VI of Scotland became James I of England he brought haggis to the home counties and kilts to the capital.

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Last Updated: 31 Aug 2010

One of history's greatest takeovers was surely the successful Stuart bid for the English throne. When James VI of Scotland became James I of England he brought haggis to the home counties and kilts to the capital. However, the Stuarts eventually got traded in for solid Hanoverian stock, and the latest evidence suggests that the South learned fast. The trend since then has been confirmed, with England's corporate raiders prospering at the expense of the Picts.

In an analysis of Scottish plcs in the industrial and commercial sectors, P-E International's Dennis Henry found that, from 1985 to 1986, Caledonia haemorrhaged, losing control of companies responsible for 53% of the capital employed in January 1985. Between 1987 and October 1990 the bleeding was somewhat staunched, but only because the bigger and better companies had already been acquired.

In the past three years some 23 plcs have been lost from the Scottish scene. Control of Belhaven Brewery first went furth of the forth when Nasmu Virani bought it in 1984. But in 1986 Virani sold the little beer-maker for £25 million - only to buy it back again in 1988 for £8 million less.

Trouble was brewing elsewhere too, as the hard-pressed William Collins went down to Rupert Murdoch. Within months Murdoch had revamped Collins and given its most important author the full hype. The new paperback version of the Bible substitutes a high-rise building for the word "Holy", leaving John Knox to turn in his grave at this testament to the Tower of Babel.

Industrial holding company Thomson T-Line also succumbed to southern comforts when it was sold to Ladbroke, the hotel and high street gambling chain. Horses for courses, it seems.

Yet the news was not all bad on the northern front. William Sommerville was purchased by an American firm which had previously bought Culter Guard Bridge. The parent then hiked turnover at one of the subsidiaries from £6.7 million to £24.2 million in only six years. The fate of Smith and McLaurin, together with the £2.2 million investment which secured it, is surely a promise of good things to come.

Likewise Guinness has established a substantial operation in Edinburgh to manage its distilled products, even though its headquarters remain in London. In this way the boys in the field still get a crack at the business. The same is true of Coats Viyella, which continues to use the Glasgow office formerly housing Coats Paton for a number of the group's services.

But, good news apart, Scotland's corporate base has indeed been eroded. Capital employed is down by nearly 6% and turnover by 5% on the January 1987 figures (see Table 1). This is not merely a matter of Northism, Henry argues. There is a very simple reason for the scotching of the Scots.

Comparing the performance of Scottish companies still locally controlled with those of the 250 largest UK-owned plcs in the relevant sectors shows that Scottish firms must plead guilty to underperformance. Return on total assets is 1.53% less, profit margins are 0.5% less and sales per employee fall short by £12,631 of their UK rivals (see Table 2).

The result is that Scottish firms are likely to remain targets for their lean and acquisitive English cousins, unless they can learn to "make their assets sweat". After all, if they do not, somebody else will be sure to do so.

Table 1: Impact of recent takeovers

As at Lost since Loss %

Dec 86 Jan 87 Dec 86

Capital employed £000 2,277,787 134,726 5.91

Turnover £000 6,924,333 331,853 4.79

Profit before tax £000 477,058 24,641 5.17

Added value £000 2,156,412 35,875 5.46

Employees 196,083 9,068 4.62

Return on capital employed % 20.94 18.29 -2.65

Profit margin % 6.89 7.43 0.54

Added value/pay £ 1.52 1.44 -0.08

Sales per employee £ 35.313 36.597 1,284

Pay per employee £ 6,282 7,881 1,599

Source: P-E International.

Table 2: Performance comparison - medians

Scotland UK250 Difference

Return on total assets % 9.65 11.18 -1.53

Return on capital employed % 21.28 26.64 -5.36

Profit margin % 7.89 8.30 -0.41

Sales to total assets 131.21 133.67 -2.46

Stockturn (times) 5.88 7.00 -1.12

Profit per employee £ 4,375 5,457 -1,082

Sales per employee £ 58,276 70,889 -12,613

Capital employed per employee £ 19,158 20,387 -1,229

Added value/pay £ 1.65 1.66 -0.01

Source: P-E International.

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