Why the Top 100 private sector companies give us optimism for the future
Does the private sector have a strong enough dynamic to generate an economy that begins to catch up with performance in other UK regions or with the Republic of Ireland? There is now significant evidence that a major part of the private sector - the part that is locally controlled - has been performing better than expected.
In recent years the trading results of companies registered in Northern Ireland have been analysed individually to identify the businesses registering the largest pre-tax profits and compare their results with those of previous years. These analyses form the building blocks for the Top 100, free with this newspaper today.
Identification of the largest, locally-controlled, profit makers has only been possible by looking at the fortunes of a bigger group. The records of over 500 companies have been examined. Mainly, the focus is on registered businesses controlled from within Northern Ireland. There are about three exceptions to that question of control. The three exceptions have been made either because a Northern Ireland company owns a business but predominantly the business is conducted outside NI or because there is a company registered in England mainly controlled by NI managers and shareholders.
Where a business is organised through a parent company which owns subsidiary companies, then the research has focused only on the parent company and the consolidated results.
The important headline made possible by this work is that there is firm evidence that Northern Ireland has a group of mainly successful businesses whose performances have been improving. In contrast to other frequent statistical comments on the strength of the local private sector, there is a large and significant group of businesses which are trading, on average, modestly successfully.
Two pieces of evidence underpin that conclusion.
First, in a comparison with the evidence a year ago, for a business to qualify within the Top 100 this year, their pre-tax profits had to exceed £3.2m. A year ago, pre-tax profits of above £2.2m brought a business into the selected group. The very significant increase in the minimum qualifying level tells of, on average, improving pre-tax profits.
In the list comprising the Top 100, there is a wide range of changes; some reporting higher profits (65 businesses) and others, lower profits (35). The research has tabulated how the results for each business have changed. For clarity the analysis focuses on only one key variable: pre-tax profits. There are credible arguments that, for some businesses in a particular year, pre-tax profits may have been influenced by unusual, exceptional or other impairment costs, which makes the figure for pre-tax profits not a good reflection of the underlying strength of the firm. Nevertheless, for consistency of presentation, pre-tax profits as registered in the reported accounts have been quoted.
The median level of pre-tax profits in the most recent year was over 20% better than a year ago. An interesting aspect of this review was that, of the 100 businesses included, eight recovered from a reported loss a year ago and had now converted into a reported profit.
Indeed, our records have identified just over 250 Northern Ireland companies this year which have registered pre-tax profits of more than £0.5m. Of course, absolute measures of pre-tax profits do not confirm that there has been a good return on the capital invested, partly because there is no easily accepted yardstick by which to put a value on the capital employed. Perhaps the clue to an assessment of profitability lies in the recent history of successful local businesses. Success for a local company has (too) often been the precursor to takeover. Look around: what has happened to Andor Technology, UTV, Moy Park and the Northern (now Danske) Bank? Good news can come with new external owners.