News

 

June 2001

UK remains first choice in Europe for inward investment

The UK remains the favourite destination in Europe for inward investment, according to an annual survey by London-based accountants Ernst & Young. The company’s Investment Monitor Report showed an increase of 13 per cent in inward investment in 2000, with the UK registering more than twice the rate of European investment growth and increasing its European market share by 2 per cent to reach 26 per cent. There were a total of 2,243 investments across Europe in 2000, of which 575 came to the UK. Foreign direct investment (FDI) stock in the UK reached a record level in the fourth quarter of the year, standing at $453 billion - up $118 billion, or 35 per cent, on the same quarter of 1999. Trade and Industry Secretary Stephen Byers said the figures were "a ringing endorsement" of the UK.

However, Mr Byers agreed there was "no room for complacency". The survey showed that France, in second place with 15 per cent of the total, had overtaken the UK as first choice for the location of new manufacturing sites, as opposed to the expansion of existing ones. Poland and the Czech Republic also gained substantial new manufacturing investment. After the UK and France, Germany was the most popular investment destination, followed by Spain, Ireland, Belgium and the Netherlands. The US was the biggest investor, accounting for 44 per cent of all European projects, followed by Germany (11 per cent), the UK (6 per cent) and Japan (4 per cent).

US investment in the UK reached a record $10.1 billion in 1999, but Ernst & Young warned of over-reliance on US investment, pointing out that 70 per cent of UK investment projects came from the US, as opposed to 44 per cent in France and Germany. The company warned too that the UK could be vulnerable to a downturn in high-tech growth sectors such as telecoms. Telecoms companies increased their investments by 200 per cent in 2000, but were unlikely to match that figure in 2001.

A separate report by accountancy group Deloitte & Touche commented: "The continuing bias towards investment in the UK by US manufacturers could be attributed to the familiarity with the cultural and legal environments, access to the country’s research institutions and universities, and more flexible labour regulations in the UK, compared to continental Europe." However, recent figures from the Department of Trade and Industry (DTI) indicate, that in terms of exports at least, the UK economy is striking a healthy balance. Government analysis of regional exports shows that more than 60 per cent of the UK’s manufactured exports are destined for markets in Europe, with only 20 per cent going to the Americas as a whole. In every part of the UK, exports to Europe are twice as large as those to the US, while in traditional manufacturing regions their value is up to ten times as large.

 

Economy steady as inflation remains below target

Neither the general election on 7 June nor the recent outbreak of foot-and-mouth disease are expected to worry international investors, says Barclays Bank in its monthly International Financial Outlook. Sterling is expected to remain firm against other leading currencies and the UK’s relative economic performance favourable. However, a small but unexpected rise in the underlying inflation rate makes it less likely that the Bank of England will announce further cuts in interest rates in the short term. The Bank cut target interest rates to 5.25 per cent on 10 May, the third cut of the year.

The underlying rate of inflation, which excludes mortgage repayments, picked up to 2 per cent in April from 1.9 per cent in March. However, this was still the 25th month in succession in which the rate remained below the government’s target rate of 2.5 per cent. Headline inflation, which includes mortgages, fell from 2.3 per cent to 1.8 per cent, its lowest level since November 1999. Prices for services are showing an upward trend, with service inflation rising to 3.8 per cent in April, while prices for goods are falling, with an overall decrease of 0.1 per cent over the year. Food prices showed a sharp rise, largely because of foot-and-mouth, but the price index for clothing fell by 5.5 per cent over the year, its biggest fall since records began in 1947.

 

Private equity investment hits record levels

UK private equity firms invested a record $11.2 billion in 1,431 separate companies worldwide in 2000, making it the seventh year in succession that investment reached a new high, according to the British Venture Capital Association (BVCA)’s annual Report on Investment Activity. The survey revealed the highest amounts ever invested in start-up and early stage companies, with start-ups increasing by more than 50 per cent, both in number and in value.

The report, collated by PricewaterhouseCoopers, details private equity and venture capital investment based on data provided by 96 per cent of BVCA members. It shows that, of total investment, $8.8 billion, or 77 per cent, went into companies based in the UK. However, the industry’s influence overseas continues to grow. The number of overseas companies backed in 2000 rose by 36 per cent to a total of 339, while investment increased by 12 per cent to $2.6 billion. Investment in the US more than doubled to $379 million.

Within the UK, investment in start-ups rose by 55 per cent to $279 million and in early stage companies to $403 million. The number of start-ups financed jumped by 52 per cent to 154, while the number of early stage investments was the highest ever, accounting for 28 per cent of all the companies backed. Just over half of these were at the expansion stage, requiring funds for working capital, new plants or acquisitions. The high-tech sector accounted for the largest number of companies backed - 66 per cent of the total, with a record $2.1 billion invested in 717 companies. Of these, computer-related companies (mostly software and internet) accounted for two-thirds. Other sectors to attract large amounts of investment included general retailers, leisure, hotels and entertainment and health.

Regional investment outside London accounted for $4.4 billion, more than half the total. Investment in the West Midlands doubled, while the East of England and Scotland saw the highest number of companies receive private equity outside the South East and London. The East of England accounted for 14 per cent of early stage companies, compared with 53 per cent in London and the South East.

 

London office developers respond to meet strong demand

Demand for office space in London remains high although more space is becoming available to meet it, according to the Spring 2001 report from property specialists DTZ Research. Availability rose to 6 million sq ft at the end of the first quarter, with the availability ratio in central London rising to 3.1 per cent compared with 2.1 per cent in September 2000. The supply of second-hand space has grown by 40 per cent and the amount of new space has doubled, although this was from a very low base. The amount of new space available stands at 1.1 million sq ft, or 18 per cent of the total.

Take-up increased by 50 per cent over the first quarter to reach 6 million sq ft, with pre-letting in the City, Docklands and fringe markets accounting for over a third of the activity. The amount of space under construction in central London continues to increase and now totals 17.1 million sq ft. Speculative construction is also on the rise, accounting for 4.5 million sq ft. Rental growth in the West End has been static, although strong demand is pushing up prime rents in the City. Overall, demand rose by 10 per cent over the quarter in terms of floorspace, although demand from the IT and telecommunications sectors is starting to level out.

The Docklands area, in the east of the capital, is now an essential part of the London office market, as underlined by a DTZ Research report marking the 20th anniversary of the London Docklands Development Corporation (LDDC). The area is home to a large number of international companies, predominantly in the banking and financial services sectors, but also in professional services and the media. In 2000 there was a record take-up of 3.4 million sq ft of office space, with companies such as Clifford Chance, Morgan Stanley, McGraw Hill and the Northern Trust Company in the vanguard. The early months of 2001 significant pre-lets were taken up by companies such as Lehman Brothers (1 million sq ft) and CSFB (515,000 sq ft).

Significant amounts of new construction is also taking place, both pre-let and speculative, with a number of large buildings due to come on-stream in the next year or two. The latest to be announced are a series of five high-rise tower developments at the Millennium Quarter site, which could provide up to 4 million sq ft of new space. Tower Hamlets council has given the go-ahead for Ballymore’s 25-story Arrowhead Quay development; the 50-acre site is expected to accommodate several other commercial projects on a similar scale as well as a residential zone containing buildings of between three and five storeys.

Outside London, the former Midlands Property Show has been elevated to national status and now stretches over two days rather than one. The Property Show 2001 will take place on 21-22 June at the Nation Exhibition Centre in Birmingham, in the West Midlands, and will bring together dozens of companies from the property and construction industries from all over the UK and beyond. The industrial, commercial, retail, leisure and residential property sectors will all be strongly represented, and a programme of seminars and meetings, culminating in a gala dinner and conference, will ensure the event’s status as the premier property networking event of the year. For more details, contact: miprow@aol.com.

 

Universities lead the way in science spin-outs

A new company in Cambridge, Eastern England is believed to be the UK’s first venture capital-backed spin-off from a Japanese-owned research organisation. The company, TeraView, has been created in order to exploit technology developed at Toshiba’s research laboratory in the city. Its main focus will be technologies based on terahertz light, a part of the electromagnetic spectrum that has so far been largely untapped commercially.

Working closely with Cambridge University’s Cavendish Laboratory over the past three years, Toshiba has developed new ways of detecting and analysing terahertz radiation, the most important application of which is thought to be medical imaging. The company has signed a strategic partnership with Coherent, a leading US-based laser company, and is backed by a consortium of UK venture capital companies led by TTP Ventures. Toshiba will retain a minority stake.

TTP Ventures is also backing a new scientific spin-out venture in Oxford, South East England. Instrumentation and medical equipment group Oxford Instruments is to combine its drug discovery technology with that of Polish X-ray instrument company Kuma Diffraction, and will hold 24 per cent of a new company to be known as Oxford Diffraction. TTP Ventures has provided backing to the tune of $2.8 million. The company will specialise in X-ray crystallography, the technique first used to determine the structure of DNA and now an important method of drug discovery following the completion of the Human Genome Project. Mapping the genome has given scientists thousands of potential new drug targets; X-ray crystallography can be used to determine their structures and functions.

Meanwhile the European Union has awarded a $16.8 million contract to the European Bioinformatics Institute (EBI), near Cambridge, to develop the next generation of bioinformatics tools, which researchers will use to interpret genomics data. The EBI is located on the Wellcome Trust’s Hinxton campus, an out-station of the European Molecular Biology Laboratory in Heidelberg, Germany. The award is intended to help close the gap between European and US research efforts in genomics, the study of how genes work together.

Inspired by the success of Cambridge University’s science park, which has spawned many spin-outs, Bath and Bristol in Western England have become the first UK universities to form a joint venture science park. The two institutions are planning to share a $224 million facility, to be called Qwest, which will be built north-east of Bristol near the M4 motorway. The development has finally been given the go-ahead after the idea was first proposed 14 years ago. Qwest, which is expected to create up to 5,000 jobs, will include an academic innovation centre and will provide floor space and business support for spin-out companies from both universities.

Elsewhere Pfizer Ltd, the UK subsidiary of US pharmaceuticals giant Pfizer Inc, has announced a $187 million expansion of its R&D facility at Sandwich, Kent in South East England. The new facility will employ 400 people of graduate or PhD calibre and is due for completion in 2003. And at Abergele in North Wales outline planning consent has been granted for a new science park. The 323,000 sq ft scheme, earmarked for a 37-acre site alongside the A55 North Wales business corridor, will include a restaurant and a fitness centre.

The government is keen to foster high-tech development and trade and industry secretary Stephen Byers has announced two new initiatives to help companies develop and exploit new ideas effectively. It is urging UK companies to take advantage of a new European Investment Bank fund, which makes $350 million available at favourable rates for loans to invest in R&D. It is also aiming to encourage small firms through a programme that will allocate government R&D contracts under the Small Business Research Initiative. Government departments and research councils will aim to procure at least 2.5 per cent of their R&D contracts from small firms, with a potential value of $72 million.

 

Overseas-owned enterprises honoured in Queen’s Awards

A total of 13 UK enterprises owned by overseas companies have won awards in the Innovation category of the Queen’s Awards for Enterprise 2001. The Queen’s Awards are the highest honour the government can confer on a business, and are made to a company as a whole - management and employees - for its work as a team.

Several were American: Biomet Merck of Bridgend, Wales (owned by Biomet Inc); Geneva Technology, based in Cambridge, Eastern England (Convergys Corp.); LSI Logic (Europe) in Berkshire, South East England; Land Rover’s Gaydon Product Development Centre in the West Midlands (Ford); Pfizer in Kent, South East England; Silberline in Fife, Scotland; and VG Systems of West Sussex, South East England (Thermo Electron Corp.). Others were from Germany, Sweden, Switzerland, Belgium and South Africa.

A number of overseas-owned companies were honoured in the International Trade category. They included Abercrombie & Kent Europe, based in Oxfordshire, South East England (owned by Abercrombie & Kent Group Holdings of Luxembourg); Julius Baer Investments of London (Julius Bär Holdings of Switzerland); and Group 4 Technology of Gloucestershire (Group 4 Falck A/S of Denmark) Two Japanese-owned companies were recognised: AVX Ltd of Londonderry, Northern Ireland (Kyocera Corporation) and NGF Europe of Merseyside, North West England (Nippon Sheet Glass Co).

In addition, ten US-owned organisations were cited in the International Trade category. They included such well-known names as Land Rover, Eli Lilley and JP Morgan, as well as others such as Fibercore, Asset Security Managers, Delaware International Advisers, Pinacl Cables, Shipley Europe, Stoneridge-Pollack and Targus Europe.

A new category - Sustainable Development - was introduced this year, and among those honoured was Southampton Geothermal Heating Company, a subsidiary of Idex SA of France. The company has developed a heating and air-conditioning network using geothermal energy for the city of Southampton, which cuts carbon dioxide emissions by approximately 10,000 tonnes a year in comparison with conventional systems.

 

North Sea power project promises cheaper electricity

Power transmission company National Grid is planning to build the world’s longest sub-sea electricity connector between the North East of England and Norway, in a joint venture with Statnett, its state-owned Norwegian counterpart. The scheme, costing an estimated $576-$719 million, is likely to benefit consumers in both countries by allowing the export of excess capacity at times of low demand. A system of two-way transfers will give Norway greater energy security and could lead to lower electricity prices in the UK.

One of the most technically challenging undersea projects ever undertaken, it involves laying a 450-mile-long direct-current cable along the bed of the North Sea, which at the Norwegian end will involve working at depths of 500 metres. The interconnector will have a capacity of between 800 and 1,300 MW, and will be laid as a single cable rather than the four smaller cables that make up the 2,000 MW interconnector between the UK and France. It will run from a point close to Stavanger in south-west Norway to a point on the north-east coast of Britain. The exact site is yet to be decided, but an early favourite is the former Hawthorn Colliery near Hartlepool, where National Grid already has an electricity sub-station. Work is due to begin early next year and the line could be operational as early as 2005.

 

Labour market holds steady

There was a slight increase in the level of labour turnover in the UK last year, according to an annual survey by the Confederation of British Industry (CBI). As many as 20 per cent of employees in the private sector changed their job in 2000, compared with 14 per cent in the public sector. The biggest turnover rates were in retailing (30 per cent) and construction (25 per cent). However, there was no correlation between turnover and the size of the organisation.

The CBI also found that workplace absenteeism was unchanged from 1999, reflecting a downward trend over the past decade. Workplace absence due to sickness or other causes averaged 7.8 days per employee in 2000, or 3.4 per cent of total working time. Manual workers had higher absence rates (9.5 days a year) than white-collar staff (6.3 days), while workers in the public sector (10.2 days) were more likely to be absent than those in the private sector (7.6 days), although the gap between the two sectors was narrowing. Smaller companies suffered less from absent workers than larger ones - an average rate of 5.9 days per employee compared with 9.3 days for larger organisations. The CBI found that in most cases employers were satisfied that sickness absence was genuine.

A fast-track arbitration scheme has been introduced by the Advisory, Conciliation and Arbitration Service (Acas) to deal with claims for unfair dismissal. It is intended to resolve disputes quickly and fairly and to provide a less expensive alternative to employment tribunals, which can tie up individuals and companies in complex and costly legal procedures. The new system gives those involved in such disputes the option of having an independent arbitrator rule on the case in a way that would be final and binding on both parties. It has been welcomed by groups representing both employers and workers.

 

Bright future for e-commerce despite slow start

The UK’s first official e-commerce survey, carried out by the Office for National Statistics, shows that online trading accounted for just 2 per cent of last year’s total sales across a wide range of sectors. The survey, covering 9,000 businesses in private sector services and manufacturing, indicated that the value of e-commerce in these sectors amounted to $80 billion. However, excluding financial services, the figure was $18.2 billion, or just under 1 per cent of sales. More than 80 per cent of e-commerce was business-to-business, with business-to-consumer sales accounting for $10 billion, most of which was in the financial services sector.

Around 16 per cent of businesses surveyed had e-commerce sales operations and in some sectors - insurance, air travel, computing and office machinery - online trading accounted for 30 to 40 per cent of total sales. However, almost 70 per cent of businesses overall said they had no plans to enter e-commerce in the next year. The survey suggests that e-commerce is taking off in the UK more slowly than previously expected, and some analysts have begun to revise down ambitious estimates of the medium’s future share of the economy. Nonetheless, most believe it still has massive potential. Investment bank UBS Warburg, for example, predicts that by 2010 e-commerce will account for 15 per cent of household sales.

 

Major upgrade planned for rail freight

The Strategic Rail Authority has announced a $5.6 billion plan to upgrade rail freight routes, build more terminals and provide bigger subsidies to help improve the status of freight in relation to passenger rail traffic. The government has set a target of an 80 per cent increase in rail freight business and the ten-year programme will provide more capacity and greater reliability, helping to take 500 million truck miles a year off the roads by 2010. It will also help to restore customer confidence after the rail disruption experienced over the past winter.

The funding will consist of $4.8 billion of government money and $840 million from the private sector. Of the total, $2.1 billion will be spent on infrastructure improvements, including upgrades to routes from the UK’s deep-sea ports to the West Midlands, the North West and Scotland; to routes in and around London; and to the east coast mainline, which runs from London to the North East. Better secondary routes will be put in place to deal with delays or works, and bottlenecks (such as the Felixstowe to Nuneaton link to the west coast mainline and routes around Birmingham) will be eased. Up to four new terminals will be built around London, with two more in the North West and expanded facilities in the Midlands. Higher subsidies and support will also be available for specific contracts and for intermodal freight competing with road traffic.

English Welsh and Scottish Railways (EWS) is currently the UK’s dominant rail freight operator, with 85 per cent of the market. Freightliner has around 10 per cent, while GB Rail and Direct Rail Services account for the remainder.

In a separate initiative, developer Helios is planning to build a $98 million rail freight distribution centre at Sheffield in Northern England, situated in a strategic triangle between the M1 motorway, Sheffield airport and the Meadowhall shopping centre. The Sheffield International Rail Freight Terminal (SIRFT) will feature 1 million sq ft of warehouse space on a 100-acre site at Tinsley, which has been identified by rail operator Railtrack as one of the top 30 locations in the country for a distribution hub. Helios intends to develop the site as a joint venture with EWS, which owns the land.

In London, the government has given the go-ahead to development plans for two major new rail links across the capital. It has allocated $210 million for project definition and design development work for the east-west CrossRail link, while a feasibility study will also be undertaken on a north-east-to-south-west link, stretching from Hackney to Wimbledon. The work will be done by the SRA and Transport for London (TfL).

In the North East of England, development agency One NorthEast has signed an $8.4 million partnership programme with Teesside International Airport, recognising the role the airport has to play in the regeneration of the region. As part of the plan, improvements will be carried out to the infrastructure of the airport, while a major feasibility study will assess its needs over the next 30 years.

In the North West, a more traditional form of transport has received a boost with the re-opening of the Huddersfield Narrow Canal in Yorkshire, the highest canal in the UK. The 20-mile canal stretch of waterway, which closed more than half a century ago, is 645ft above sea level. Its $42 million restoration coincides with the opening of the three-mile-long Standedge Tunnel, which will allow boats to travel under the Pennine hills, all the way from West Yorkshire to Greater Manchester.

 

Around the regions

• Petrofer UK, the UK subsidiary of one of Germany’s leading industrial lubricant and chemicals manufacturers, is investing $700,000 to build a new office, laboratory and warehouse facility at Telford in the West Midlands. The 14,000 sq ft complex will handle sales, distribution and technical support for Petrofer’s UK customers. It will initially house 12 members of staff, increasing to 20 in five years’ time.


Artist's impression of the new Petrofer complex in Telford, West Midlands

• Spanish-owned tile company Porcelanosa is planning to expand its operations in Eastern England, with a move from its existing premises in Peterborough to a purpose-built, $5.6 million warehouse, showroom and office development. Work has already begun on a 52,500 sq ft building on a 2.9-acre site purchased from government regeneration agency English Partnerships. The Valencia-based company has been based in Peterborough for the past 12 years, and operates a number of other distribution sites around the UK.
  
  
  
• Swedish kitchen interior manufacturer Nobia has acquired Magnet Group, based in Guildford, South East England, for around $215 million. Magnet, the building and consumer products division of Enodis, manufactures interior products for kitchens, bathrooms and bedrooms, for both the retail and trade markets. It owns the CP Hart brand of bathroom interiors and has 215 showrooms across the UK.
  
  
  
• Meanwhile, Swedish furniture retailer IKEA has announced plans to open two new stores and a major distribution centre in the UK. One store will be in Sheffield, Northern England with the other at Southampton on the South Coast, while the distribution centre will be located at Peterborough in Eastern England. The $160 million programme will create 1,450 new jobs, with more expected on the supply side. It is part of a major expansion plan announced by the company last year, which will see 20 new stores and two distribution centres built over the next ten years.
  
  
  
• Production of the Vivaro van range, a joint venture between General Motors of the US and Renault of France based at Luton, Eastern England, has been increased to three shifts a day and a maximum capacity of 86,000 units a year. The move follows the transfer of 1,000 employees from GM Vauxhall’s nearby car assembly lines, where production of the Vauxhall Vectra is due to be phased out next spring.
  
  
  
• Ericsson of Sweden and Sony Corporation of Japan have signed a memorandum of understanding with the intention of creating a new company to incorporate their respective mobile phone businesses worldwide. The company will be headquartered in London and will start operations in October. It will take responsibility for product research, design and development, together with marketing, sales, distribution and customer services.
  
  
  
• A new centre for semiconductor technology, the Epson Scotland Design Centre, has opened on the Alba Campus in Livingston, Scotland, a site which is already home to many leading-edge technology companies. The centre, which will employ 30 people by March 2002, will specialise in the development of ‘firmware’, a mixture of hardware and software used for applications such as portable audio equipment and personal digital assistants.
  
  
  
• Specialist labelling company Packem GmbH of Austria is to open an $8.6 million label printing facility at Rhyl in Denbighshire, North Wales. The plant will produce labels for the dairy and beverages industries and will create more than 50 jobs.
  
  
  
• CIGNA Healthcare and Life Group, of Philadelphia, is to extend its European headquarters at Greenock in Scotland, with the addition of a new European Service Centre. The expansion will add a number of new jobs to the existing 265-strong workforce.
  
  
  
• Electronic information provider Pantzel has become the first New Zealand company to invest in Wales. It has opened a new office in Portskewett, near Caldicott, South East Wales to launch its eziTracker set of services across the UK. The hi-tech system is aimed at companies employing large numbers of mobile or remote workers and is based on software that allows telephones to be used as data entry devices, regardless of geographical location.
  
  
  
• Irish company Mulmuf Ltd of Tubercurry, Co Sligo is setting up a subsidiary in Dungannon in Northern Ireland to manufacture its range of fabricated industrial silencers. The $970,000 investment in Mulmuf (Northern Ireland) Ltd will create 20 new jobs over the next three years. Companies based in the Irish Republic have invested around $96 million in Northern Ireland in the past two years, creating 1,200 new jobs. The Northern Ireland Industrial Development Board (IDB) has now opened an office in Dublin to encourage further investment and to strengthen business links. Overall, the IDB promoted 7,596 new jobs, including 3,085 from inward investment, in the year to the end of March, both record levels of achievement.
  
  
  
• Cosmetics company L’Oréal is to develop a new $9.5 million distribution and logistics centre at Llantrisant in South Wales. The centre will be international in scope, exporting goods manufactured in Wales to 22 countries worldwide. The Welsh Development Agency is supporting the project with the construction of a roundabout on the A473 highway, which will improve site access.
  
  
  
• Despite severe winter weather, work on an innovative new business park at Camborne in Cornwall, South West England, is progressing on schedule. The Tolvaddon Energy Park is being built using traditional materials and renewable energy sources, and is the largest project of its kind to date in the UK. Its features include an underfloor heating system based on sealed pipework heated by solar energy and a plumbing system that uses recycled rainwater. The five blocks of the $5.6 million development, housing 19 separate units, will be made available to small businesses producing environmentally sustainable products. The project is due for completion by Christmas.
  
  
  
• Italian internet and telecoms provider Tiscali has acquired UK internet service provider LineOne from its current owners, British Telecom (BT) and United Business Media, for around $100 million. LineOne has approximately 1.85 million registered members and 430,000 active dial-up subscribers. Tiscali is planning to establish itself as one of the top three ISPs in the UK, through a policy of selective acquisition coupled with an intensive programme of investment.
  
  
  

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