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THE INVESTOR
THE INVESTOR CENTRE
All information correct as at 31 December 2015
High-growth small businesses may be few in
number but they are a ‘force for regional revival’
Small but
perfectly formed
T
hey are called‘high-
growth small businesses’
and they certainly live up
to their name. De ned as
businesses with an annual
turnover of between £1 million and £20
million, which is growing by at least
20% over a three-year period, they are a
small group. Octopus Investments, a
fund manager specialising in small
enterprises, counts just 22,470 of them,
accounting for less than 0.5% of the 5.3
million companies in the UK. But they
punch well above their weight.
The
Octopus High Growth Small
Business Report,
produced with the
Centre for Economics and Business
Research, calculates that they were
responsible for creating 4,500 jobs
every week in 2014, one in every three
created during that
year – and three
times the number of
new jobs generated
by all the companies
in the FTSE 100.
That underlines how
crucial they are to
the UK economy:
one worker in 40
works for these
dynamic businesses, and they generated
turnover of £118 billion in 2014.
Perhaps surprisingly, these businesses
are not concentrated in London and
the South-East, with three out of ve of
them located in other UK regions.And,
says Octopus, fostering the conditions
to help them thrive could fuel growth
across the UK and start to rebalance the
economy across geographies. Nor are
they highly concentrated in technology, a
sector often associated with fast-growing
businesses but which accounts for just
one business in 10. Instead, the biggest
sector is construction, with 3,577
companies, followed by administration
and support, with just over 3,000, while
manufacturing and wholesale retail
account for around 2,500 each.
‘It’s time to get behind our high-
growth small businesses,’ said Simon
Rogerson, Chief Executive of Octopus.
‘They’re thriving already, but with the
right framework they can become a
force for regional revival, rebalancing
our national economy, and bringing new
prosperity and optimism to every part
of the UK.’
A survey of 500 companies conducted
for the report by ICM Unlimited shows
that companies are clear about what
they need to continue to ourish.A
key priority is a skilled workforce,
with half saying that the availability of
suitable employees
is a key factor in
their decision on
where to locate.
Access to nance is
also crucial: almost
one in four say
they have found it
di cult to access
suitable funding on
acceptable terms,
and three-quarters of those say this
issue is hindering their ability to grow.
Good business infrastructure, including
IT, accounts and internal processes, is
another key requirement.
The government has made its support
clear in actions such as the reduction
in the CorporationTax rate to 18%,
announced in last summer’s Budget.
But, says Rogerson, more needs to be
done.‘Without continued progressive
change, the UK risks being overtaken
by super-competitive and dynamic
economies elsewhere in the world.’
High-growth small
businesses were
responsible for one
in every three jobs
created in 2014
G
lobal equity markets remained volatile
with nervousness, among other things,
about the rst US interest rate increases
in more than nine years weighing on
sentiment.Markets remained in no mood
for disappointment, with the share price
of any company that fails to meet
expectations being treated very severely.
Oil and metal prices continued to fall
heavily, dragging down the share prices of
commodity-related companies.
Dispersion between the best- and worst-
performing stocks in the market has been
high recently, however, allowing some
strategies to continue to deliver positive
returns in spite of the problems in other
parts of the market.The tobacco sector,
for instance, has continued to deliver a
dependably robust performance, as have the
telecommunications, aerospace & defence
and healthcare sectors.
Our focus on investment opportunities in
these types of sectors is driven by a desire to
invest in businesses that are more in control
of their own destiny, and less vulnerable to
the global economic headwinds.Valuations
in such companies remain compelling, in
our view. In general, this strategy and our
overall investment approach have served the
portfolio well through the recent volatile
conditions.We see no reason to change this
strategy and continue to view the long-term
outlook for the fund positively.
WOODFORD
Income Distribution, UK Equity and
UK High Income
Tobacco, telecoms, aerospace and
health sectors all performed well
Volatility remains as
markets react strongly
to anynegative news
Neil Woodford
