Adding more value

The UK’s largest companies continue to perform better than their European counterparts, according to the latest edition of the DTI’s Value Added Scoreboard. The data also shows that those investing more in R&D or capital expenditure tend to be amongst the better performing companies. The Scoreboard is produced annually by the DTI, outlining the value added by companies – defined as the difference between sales and the cost of materials or services. Two ‘league tables’ are published: the top 750 European companies; and the top 800 UK companies. The Scoreboard is produced by Dr Mike Tubbs, senior industrialist within the DTI’s Business, Finance and Investment unit. He said that as wealth creation has been increasing, the UK has remained well ahead of France and Germany. “UK companies also do well in the sectors they’re in,” he added. However, the Scoreboard is skewed by the performance of companies in the oil and gas, banking and pharmaceuticals sectors, where turnovers are huge. As Dr Tubbs noted: “Electronics has not performed that well.” That is partly down to the way the sectors are created. Dr Tubbs explained that companies were classified in a similar way to the approach taken by the FTSE100 and Dow Jones indices. That sees companies such as Halma and Renishaw included in the electronics/electrical sector, where they may be regarded more appropriately as engineering companies. Nevertheless, Dr Tubbs points to the effectiveness of investment. “Renishaw is putting a lot of money into R&D and CapEx, which has resulted in a wealth creation rating of 148.” This compares to the UK’s sector average of 117. A further measure is MC/VA, which relates a company’s market value with the amount of value added generated. For Renishaw, this comes out at 4.8, which Dr Tubbs described as ‘way ahead’. It’s in the technology hardware sector where more recognisable electronics companies can be found. Demonstrating the scale of the problem facing such companies, Dr Tubbs noted: “Only six technology hardware companies make it into the Euro 750.” Despite its leading market position, ARM can only be found in the UK 750 table. But it leads the way in its sector, with a wealth creation rating of 130.3, compared to the sector’s average of 76.8. “It’s clearly the star,” Dr Tubbs noted. Skewed as it is by the multinationals, the Value Added Scoreboard doesn’t analyse the performance of the majority of electronics companies. But Dr Tubbs contends the rankings – along with those published in the DTI’s R&D Scoreboard – highlight the need for innovation and investment. “What I notice when doing this work is that companies that stay ahead tend to invest more than average in R&D. That’s quite important,” he concluded. Secretary of State for Trade and Industry Alastair Darling noted: “Innovation is key to business success. That’s why we’re enhancing R&D funding, raising skills and improving access to world markets for UK based companies.”