Intelligence Forums’ Second Scotland Webinar

Intelligence Forums’ (“IF”) second Scotland webinar on 22 July 2021, was chaired by Robert Drysdale of Henwick Park Distribution.

Our first speaker, the Right Hon. the Lord Campbell of Pittenweem CH CBE QC FRSE, often known as Ming Campbell, needed no introduction. He is a British Liberal Democrat politician, advocate and former athlete (who from 1967 to 1974, held the British record for the 100 m sprint). MP for North East Fife from 1987 to 2015, he was the Leader of the Liberal Democrats from March 2006 until 15 October 2007.

Lord Campbell set out two of his core beliefs:

The UK should be in the EU,  both politically and economically

We only have to look outwardly, he said, to see a world in which democracy is under siege. The oppressive regime China has achieved extraordinary economic success, but does not, he believes pose a military threat. Russia on the contrary has not been economic success but Putin’s regime “meddles “ in the affairs of the EU and other NATO countries, and its deployment of troops along the border with Ukraine is potentially dangerous if badly managed. In this unstable world, retaining close links with the EU will therefore be good for both the EU and the UK. 

Scotland should remain within the UK 

The Scottish election did not deliver what the main political parties had hoped for. The SNPwon no overall majority; the Scottish Conservatives simply held ground (and he believes will mourn the loss of Ruth Davidson to the House of Lords); the number of Liberal Democratseats was reduced from 5 to 4, by dint of the voting system; and Labour, which is no longer the party of John Smith and Donald Dewar remains in the political wilderness. 

The question of Independence for Scotland has, he believes, gone off the boil. Opinion polls currently show no majority for independence. The SNP government continues to fail in education and health care, numerous practising GPs are simply retiring, and while Nicola Sturgeon’s response to the pandemic has been generally good, she is currently presiding over COVID statistics which indicate that Scotland is not in a good place. 

Although negotiations for power sharing continue between the SNP and the Scottish Greens, not much has been heard recently of an alliance, said Lord Campbell adding that the Greens have never won a constituency seat in the Scottish parliament, and their influence may not, perhaps, be as strong as some might think. He further noted that simply dumping the North Sea Oil revenues as rapidly as the Greens would like to, would be catastrophic for an independent Scotland. (Note: at the time of writing Nicola Sturgeon has urged the PM to crack down on North Sea oil and gas extraction in an apparent turn against an industry once regarded as vital for the SNP aspiration for independence).  

In summary, he said there are three significant issues that undermine the Scottish government’s desire for independence. 

·      Firstly, the Scottish First Minister has said that if Scottish independence was to be won the country would apply for EU membership. In this case there would need to be a border between Scotland and England. The current CTA would simply not satisfy the EU, as is only too evident with the issues surrounding the Northern Ireland protocol. 

·      Secondly, the issue of a Scottish currency remains unresolved. The adoption of Sterling, would mean taking on the politics of the Bank of England and this simply would not be appropriate for a newly independent Scottish government making when the economy of the rest of the UK might be going in a different direction. 

·      Finally, the self-discipline of the SNP is under siege.  Alex Salmond has formed an alternative party and two former SNP members have already defected to it. In-fighting within the SNP has, for example, resulted in the talented Joanna Cherry, former close ally of Alec Salmond, being dropped from the SNP front bench team.  

He suggested that in the wake of the pandemic there has been a recognition of the extent of Scotland’s financial reliance on London. Post pandemic, the SNP government has pressing issues to address, such as the implementation of appropriate public transportation, healthcare and education strategies. The issue of an independence referendum is in the doldrums he believes, and there is no favourable political wind for one. 

Alistair Winter, an economist, agreed that Scottish independence would be a disaster, but asked whether the Prime Minister’s brand of English nationalism means that the government simply doesn't care? 

Lord Campbell answered that Boris Johnston will not last forever. There is already debate about repealing the Fixed-term Parliament Act, which would enable a General Election in 2023. The Prime Minister would then, he expected, step down. Whilst out canvasing in the recent Chesham and Amersham by-election Lord Campbell had been surprised by the extent of opposition to English nationalism (the cutting of the overseas aid budget being an example) and believed that this had been a significant factor in the Lib-Dem victory.  He is not convinced, however, that the notion of English nationalism will die when the current PM leaves office.

Next to speak was Mark Walker, Managing Director of Walker Precision Engineering (“WPE”), a privately owned high-precision component manufacturer headquartered in Glasgow with premises in Basildon and Poland. Its 250 employees manufacture and assemble complex parts for the aerospace, defence, space and industrial sectors.  Both Mark and his brother Gary are directors and shareholders of the business established by their late father in 1979.

Mark outlined the growth of WPE over the past four decades. With a start-up loan and a couple of manual milling and grinding machines, father Ian was soon supplying fixtures and tooling for the electronics industry , and working for clients such as  IBM and Burroughs, then  at the forefront of the digital revolution. By the mid-nineties, WPE had become a specialist in radio frequency equipment, and was supplying all of the test equipment for Motorola’s analogue mobile phones. This represented around 90% of WPE’s then £10m turnover, but as the mobile phone giant lost its competitive advantage, and transferred work from the WPE to Germany and thence to China, WPE’s dependence on a single client could have proved fatal.  

Faced with a dramatic decline in revenues and through sheer perseverance, hard work and good technical capabilities, Mark said, WPE sought and won contracts with companies such as Rolls Royce to break into the aerospace and defence market. This was the company’s main focus from 2001 onwards and in 2007 it opened a manufacturing plant in Poland.

Short-term contracts however, made investment difficult and its informal small company culture lacked real role definition, and had resulted in an inefficient crossover of responsibilities. In 2015, with a fragmented organisational structure, lengthy lead times and delivery challenges, the company applied to join Sharing in Growth (“SiG”), the productivity and competitiveness programme for aerospace and advanced manufacturing.

WPE then went from strength to strength and in late 2016 established Walker Guidance Systems (“WGS”) , to support its growth ambitions within the airborne and space market sectors. WGS acquired an environmentally temperature-controlled, high precision machining and assembly centre, based in Basildon, Essex from Leonardo, the global aerospace, and defence and security company. The Basildon plant also produced gyroscope, seeker and optronics components, and WGS subsequently won its first contract for critical airborne and guidance products from Leonardo.

Mark told us that WPE opened talks with Business Growth Fund (“BGF”), to explore financing of its ambitions to grow and diversify. BGF provides growth capital to small and mid-sized businesses in return for a minority, non-controlling stake. Sometimes described as the “modern 3i” it was established in 2011 by government and  five of the UK's main banking groups - Barclays, HSBC, Lloyds, RBS and Standard Chartered.  In early 2018, after the best part of six years getting to know one another, BGF invested £4 million for a 20% stake in WPE, and made a further £2.75m investment later that year. 

The funding has allowed further investment in specialist machinery at its Glasgow HQ, the move of its Basildon operations to a new purpose-built facility and a doubling of its manufacturing capacity in Tychy in Poland.

With its more advanced capability, WPE has moved into the latest generation of satellite and satellite constellation programmes and is now supplying Thales Alenia Space, Clyde Space and Teledyne for the Airbus/ OneWeb Satellites joint venture for the OneWeb constellation of 650 Gen One satellites. Mark is hopeful that the next generation will bring several thousand new satellites. 

Mark told us that WPEhas been forging closer links with the International Space Agency and academic institutions, and has been involved in the Galileo Satellite System, the European high accuracy positioning system, and itsaspiration is to double its £20 million turnover in the coming three years.

Our third speaker was Elspeth Macdonald, who was appointed Chief Executive Officer of the Scottish Fishermen's Federation (“SFF”) in August 2019. SFF was formed in 1973 to preserve and promote the collective interests of Scotland’s fishermen’s associations. Under its umbrella are 8 geographical/ sectoral associations which themselves represent around 500 vessels from inshore creel boats to pelagic trawlers. 

SFF plays an active role in advancing the interests of Scottish fishermen at national and international levels by lobbying government officials in Edinburgh, London and Brussels. The Federation also plays a key role in helping to inform: fisheries science; the management of the marine environment; inshore fisheries management; marine spatial planning; marine safety regulations and industry recruitment and training programme.

Before joining SFF Elspeth was the deputy Chief Executive of Food Standards Agency in Scotland (FSAS) which she joined in April 2001, having previously worked in the Scottish Government’s Marine Laboratory in Aberdeen. Her first two years with SFF, however, have coincided with the turmoil of Brexit then COVID, and as a result she has spent only a handful of days in her in Aberdeen office. 

SFF members account for the majority of fish caught in Scotland (2019 market value > £600m) and represents 60% of all UK fishing. Four of the five largest fishing ports in the UK are in Scotland and Peterhead is the largest whitefish port in Europe. It is not just the value of the fish that is important to the local economy but all the ancillary businesses from transportation, chandleries engineering supplies etc. which are part of the support and supply chain. 

The seafood industry is hugely complex being dependent on wild natural resources, over which it has no control while being impacted by scientific and regulatory issues. 

Elspeth outlined some of the challenges faced by SFF, namely: 

·      Brexit. There has been only a modest uplift in quotas as a result of Brexit, and while this might change in 2026, it is small by comparison to that achieved by other countries.

·      Control over access to its own economic zone. Norway and Iceland for example catch 95% of their fish in their own waters. 

·      The pandemic. Few sectors of industry that have been unaffected, but the fishing industry’s dependency on hospitality is significant.  There is a limited demand for fish to eat at home, and species such as shellfish, for example, go predominantly to the hospitality industry, making 2020 a particularly hard year for shell-fishermen. Some however, have established direct sales to the public, and other have looked further afield. There are alternative markets in SE Asia, for example, but with a perishable product, and the recent the lack of airfreight capacity it has been difficult and expensive to compete in such markets. 

·      The science utilised to models fish behaviour and distribution is far from exact. Species are adapting to climate change and (to steal a health warning) past behaviour is no guide for the future. Modelling has been slow to predict the clear movement of Cod to the north the North Sea, and the greater density of Hake in its south, for example.  

·      Displacement.  Seabed space has been lost to the industry through wind turbine farms, subsea cabling, and the 30,000 miles of pipeline North Sea oil and gas pipelines all of which displace fishing activities. Floating turbines, tidal and wave power generators will add to the challenges, but the fishing industry has to learn to coexist within the blue economy. 

·      The risks for human lives of which six have tragically been lost this year.

There are positives she said. Mackerel and herring are low carbon stocks which contribute to an overall low carbon industry. In addition, fishing fleets at sea can also contribute useful data for scientific modelling.

Richard Angus is the Head of Business Development at Hardman & Co. (“Hardman”) a rapidly growing, innovative corporate research & consultancy business, serving the needs of both public and private companies. 

Based in London and keen to develop throughout the UK, Hardman employs a team of thirty researchers which analyse companies. It also helps companies disseminate their investment message to interested investors, as well as advising on strategy. 

Richard has previously worked for M&G as a fund manager, and US investment banks Alex Brown & Sons and Furman Selz. He was latterly, MD and Head of Institutional Sales for Europe at FBR & Co. 

Having previously addressed IF about the valuation of small companies, Richard chose this time, to outline how Hardman has responded to its challenges over the past 18 months. 

The lease on Hardman’s London offices coincidentally expired when the first COVID lockdown was imposed and employees began to work from home. No new lease had been negotiated so as a result the organisation become “somewhat nomadic”. This combination of circumstances caused the company to undertake a review of the way that it operated. 

While the pandemic raged the huge quest for knowledge and information in the financial market continued unabated. COVID accelerated the Hardman’s use of technology, particularly in communications, to the extent that Richard now described the company as having been transformed from a “2D business” to a “3D business”. 

With 50% of its employees engaged in Research he realised that the new “nomadic” environment meant that the company had to work harder to communicate in order to satisfy its clients. He had for some time been frustrated at the difficulty that UK-based entrepreneurs faced in winning investment, noting that the US the markets were “steaming away” while those in the UK appeared to be stuck in second gear.  

So the company tested different forms of communication such as podcasts and interviews, and the use of platforms such as LinkedIn and Twitter, through which to introduce and articulate business investment cases to a much wider audience.  

This in turn highlighted a further challenge in that many CEO’s, while competent in presenting their business, products and markets, simply don't know how to present the business investment case to potential investors. Hardman has been able to assist here, too. 

When questioned, Richard disclosed that the revenues that come from public company clients who pay for on-going research, essentially covers the cost of running Hardman’s business, and its profit now comes from its now fast growing but shorter term advisory projects.

Overall the company’s response to COVID has resulted in Hardman significantly developing its international reach.