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Trading cases
Page 26
Page 27
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A High fuel costs and the current economic downturn put an end to Macfarlane and Innovate. But their fallout resulted in two very different outcomes...
Words: Chris Tindall
TOUGH TRADING conditions and escalating fuel prices recently claimed the scalps a Macfarlane Transport and Innovate Holdings — and analysts warn that there will be plenty more casualties in the future. However, while no buyer could be found to save even part of Macfarlane's stricken business operation, administrators have managed to save more than 1,500 of the 2,000 jobs at Innovate Holdings, following sales to Stobart Group and Harry Yearsley. Accountancy network BDO Stoy Hayward is optimistic that "final stage negotiations" will lead to further purchases of the Innovate empire.
Customers and suppliers of the two companies say they were not surprised by what has happened, but concern is mounting about the knock-on effects of losing these big clients.
For the 300 staff at Leeds-based Macfarlane, the closure of the general haulage company was a bitter pill to swallow. After the company was placed into administration two years ago, Stephen Cooke was seen as a knight in shining armour when he rode into town and bought the company for £430,000 to create Macfarlane Transport Holdings. Cooke told the trade press shortly after his purchase that in order to avoid further pitfalls, it was important not to as sume that volume was always a good thing and that "management information needs to be of the highest quality".
But the firm's demise has angered some subcontractors, who feel they have no chance of being paid. One, general haulier Paul Arthurton, claims he lost £700 the first time Macfarlane was in financial difficulties. This time he's owed £1200, but he doesn't think he will get his money back. "No way, I won't even bother," he says. "It's an absolute joke."
The figures
Macfarlane Transport Holdings' last set of accounts, to December 2007, showed that the £20m company had increased turncwer by £2.4m and turned a £364,000 loss in 2006 into a £225,000 pre-tax profit. But this still represented a profit margin of just 1%.
Its business review was upbeat and mentioned a substantial new contract in the magazine distribution sector, as well as long-term contract renewals with its two largest customers. It described strong competition and increasing fuel prices as concerns, but added that a "large proportion of our major customer accounts" had fuel-matrix mechanisms in place.
However, it is these two factors that the administrators blame on the company's demise. Joint administrator Richard Fleming explains that "lower volumes from contracted customers, due to wider malaise and increased competition due to lower volumes generally" finished off the business. He adds: "Hauliers feel the pain quickly when consumer demand falters and this is what happened here."
Transport Intelligence chief analyst Thomas Cullen is blunt in his judgement of the sector: "Road hauliers are getting a caning." He explains: "Their business model doesn't work very well. There's too much competition; they can't pass on fuel costs or they can't pass it on fast enough."
Cullen adds: "There are too many road hauliers out there in too weak a position and there's competition from cabotage. Entry barriers are low and competition is fierce. There will be a lot more casualties in this area."
Macfarlane's Mercedes-Benz dealer, Northside Truck and Van, is owed £20,000 by the company, but MD Tim Ward says its biggest worry is how it will replace the work. "We knew it had cashflow difficulties," he says. It's dreadful; at the end of the day 300 people have lost their jobs, that's who I feel for.
"It's not the end of the world, but what's going to be the knock-on effect on our mechanics and workshops?"
A spokeswoman for Stohart Group confirms it did look at Macfarlane to see if there was anything worth buying, but she says: "We decided it wasn't the right fit for us operationally, or financially."
Yet this wasn't the case with Innovate Holdings. The sale of the business by its administrator BDO Stoy Hayward reflects the gulf between general road haulage and specialist logistics businesses in the UK. Within days of its administration. Stobart Group bought its chilled and ambient business, saving more than 1,000 jobs, and Harry YearsIcy purchased its frozen unit to the relief of a further 550 employees.
The sole owner of Innovate, Icelandic shipping giant Eimskip, says the assumptions it made when it originally took full control of Innovate in 2007 "significantly changed" and that it blames "lower than expected capacity utilisation of warehouse and transportation network assets.., lease and financial costs... and losses in recent monthsfor weakening the company's financial position.
Negotiations Eimskip's board decided against investing any more into the company in June and decided instead to look for potential buyers.
BDO won't comment on the financial health of innovate Holdings and its individual businesses, or why exactly it had to be placed into administration. However, a spokeswoman tells CM: -We are speaking to interested parties; therefore people wouldn't be speaking to us if they thought it wasn't worth buying."
She adds: "We are continuing to trade the businesses and are in the final stages of negotiations with interested parties to secure other parts of the group."
Cullen says he is unaware of Innovate's specific circumstances, but he explains that a characteristic of the sector in which the company operated is heavy investment in infrastructure in expectation of a large client. He says: "Companies over-invest and can't cover those costs, particularly when you bump into rising fuel costs. In contract logistics it's all about the contract — passing on the fuel costs."
A spokesman for Innovate's Volvo dealer, Crossroads Truck and Bus, claims the writing was on the wall after Innovate's MD Pete Osborne left the firm at the beginning of this year and then Eimskip started making announcements about the group's financial performance. "Innovate had a really good, strong balance sheet," he adds. "It was only as it expanded that it came to lose its way a little. We had some had debt, but as we were its main supplier, it was making sure we were getting paid fairly well to the end, we limped along with it.
"We are now picking our way through things and keeping it running. It's business as usual. We will try to keep those vehicles employed on that contract." •