It was a year in which almost every whisper of good news was cruelly cancelled out by something bad. A fluctuating, frustrating, but occasionally joyous 12 months are described here by Colin Cardwell, Ron Clark and Rob Stokes
BANKING & FINANCE
IF banks last year were like a boxer on the ropes, this year they resemble nothing more than an old rummy eking out his life in the ring as a convenient punch bag who simply has to continue to take it.
The blows just keep coming. Left hooks from the Libor-rigging scandal, right jabs from money laundering, uppercuts from mis-selling and a rain of blows from a public and a political class whose thirst for banker-bashing remains unslaked. The year drew to a close with news that HSBC is to pay a record $1.9 billion to settle US accusations of moneylaundering on behalf of drugs lords and terrorists.
MPs expressed their reservations last month about whether the public purse would ever recover the £66 billion poured into RBS and Lloyds, fearing that UKFI, which manages the state’s stake, would be unwilling to crystallise another massive loss following the fire sale of Northern Rock.
And talking of fire sales, RBS was backed into the corner of the ring again, when Santander unexpectedly pulled out of a £1.7bn deal to take on the 316-branch network which the Royal had been forced to dispose of under European rules.
RBS is now exploring options including trade buyers, an IPO and private equity-backed MBOs. But even though contenders are said to include Virgin Money, Nationwide, JC Flowers and Corsair – where ex-Standard Chartered chairman Lord Davies is on the board – it will have to fight fast and hard to meet the EU deadline of this time next year.
Lloyds managed to get its troublesome assets away over the year, with back-to-fighting-trim Antonio Horta-Osorio offloading the 632 branches in Project Verde to the Co-op for a bargain basement price of £750 million, well below the anticipated £2bn. But it was Libor-rigging which really landed the heavy punches on RBS, Lloyds, Barclays and a host of other US and European institutions, with claims in some cases that market manipulation was “institutionalised”.
The knock-out blow in the inter-bank rates scandal was landed in the summer on fully paid-up Master of the Universe Bob Diamond, when the Barclays chief executive was hit by a sucker punch from Bank of England heavyweight Mervin King and left the ring feet first.
Add to this mix rogue states such as Iran and Sudan and the ongoing and financially debilitating PPI compensation costs, and a picture emerges of a sector which ends 2012 in need of getting back in to the gym for a bit of serious training.
That may be a job for the new bruiser on the block Mark Carney, the Governor of the Bank of Canada, who has just been named as the new Governor of the Bank of England, taking on one of the most powerful jobs in the country at one of its toughest times.
ENGINEERING & MANUFACTURING
THIS will go down as the year when offshore wind energy started to live up to its promise for Scottish engineering manufacturing. Offshore wind turbine manufacturing projects announced in 2012
included: Spain’s Gamesa, £125m plant at Port of Leith, Edinburgh, up to 800 jobs; France’s AREVA, to locate in the East of Scotland, up to 750 jobs; and Korea’s Samsung Heavy Engineering (SHI), at Methil, Fife, up to 500 jobs.
Steel Engineering, the Renfrew-based fabricator will make wind turbine jackets for SHI. The company also opened a renewables manufacturing skills centre for youngsters.
Aberdeen based Global Energy Group had acquired the mothballed Nigg construction yard in Inverness-shire in hope of attracting oil, gas and offshore wind companies, and promptly set up a skills academy to start training apprentices.
Scottish Renewables, the industry association, estimated that Scotland’s renewable electricity industry had delivered capital investment of some £2.8bn since the beginning of 2009, at a time when many other sectors were in recession.
The United Kingdom’s Green Investment Bank (UK GIB) opened in Edinburgh and the Scottish Green Investment Advisory Group (SGIAG) was set up to help Scottish green energy projects secure funding from UK GIB.
A number of larger engineering companies did well, among them Wood Group, Weir Group, Babcock, Raytheon, Aggreko, Alexander Dennis, SELEX Galileo, and MacTaggart Scott. Aggreko’s new, state-of-art factory at Lomondgate, Dumbarton sent portable electricity generators to clients including the London Olympics 2012.
Industry-academia links were strengthened. For example, Strathclyde University gained planning permission for development of its flagship Technology & Innovation Centre in Glasgow, which is being supported by major companies such as SSE, ScottishPower and Weir Group. Due to open in early 2014, it will house multi-disciplinary researchers equipped with state-ofthe-art facilities for industry-led research.
Industry association Scottish Engineering reported that its members had seen orders surge in the third quarter of the year and that optimism had risen but last week the Office of National Statistics reported that output in October had fallen at its fastest rate since June.
Life Sciences made positive headlines around Scotland. The University of Dundee and the UK Medical Research Council won £14 million new funding over four years from a consortium of drug companies for continuing research into new treatments for diseases including cancer, arthritis, lupus, hypertension and Parkinson’s disease.
The College of Life Sciences at the University is meanwhile adding another 200 research jobs to its 1000-plus scientists, research students and support staff. Firms showing faith in Dundee included Inte- grated Magnetic Systems Ltd, a biotech company that announced expansion and the setting up of a Protein Production Facility.
Edinburgh BioQuarter, the joint venture between Alexandria Real Estate Equities, Inc, the NHS, University of Edinburgh and Scottish Enterprise – had seven tenants and an occupancy rate of 40% in its incubator within six months of the facility opening.
BioQuarter was one of five Life Sciences locations to gain Enterprise Area status in 2012 alongside Irvine, North Ayrshire; Forres Enterprise Park and Inverness Campus, both Highland; and Biocampus, Midlothian.
Drugs giant GlaxoSmithKline announced total investment of £100m in its sites at Irvine, Montrose and Tayside. Bio-pharma company Sigma Aldrich is developing a new powder manufacturing facility at Irvine.
LifeScan Scotland, owned by US healthcare giant Johnson & Johnson, is safeguarding more than 1,000 jobs at its Inverness base through it becoming the group’s base for R&D on blood glucose monitoring, while The University of Aberdeen was awarded £5.1m from Wellcome Trust to lead a major UK collaboration to tackle invasive fungal infections that kill 1.5 million globally each year.
Aquarius Equity Partners, a specialist UK life science investor, made ‘a significant investment’ in GTBiologics, an Aberdeen company developing new drugs from gut bacteria. Contract research organisation Quintiles appointed Scotland as a Prime Site for its research globally in a strategic partnership with the four Scottish teaching health boards.
Select Pharma Group moved testing laboratory services on to the BioCity Scotland business incubator site at Newhouse, Lanarkshire
All told, there will be plenty to enthuse about at the May 2013 BioDundee Conference, Scotland’s largest event exploring current trends, strategies and business models in advancing R&D innovation in the Life Sciences sector.
ANY hopes that Christmas would come early for Scotland’s embattled retailers were dashed as the apparent festive frenzy was not underpinned by sales, whose value in November was down 1.2% on a year earlier. The survey, from the Scottish Retail Consortium (SRC), also demonstrates that the sector remains significantly weaker north of the Border than in other parts of the UK with the high street hit once again in 2012 by a continued consumer spending slump and a seemingly inexorable migration to internet shopping.
Countrywide, more large stores closed than opened with the net decrease rising to 1.4%, against 0.25% last year, as large chains consolidated their portfolios and concentrated on bigger footfall outlets in more populous areas.
The 2012 downturn has claimed some household name scalps, including leisure group Blacks, video games chain Game Group, Clinton Cards, fashion retailer Peacocks, gift company Past Times and JJB Sports – although parts of some companies have been salvaged.
The closure rate – a net loss of 953 town centre chain stores in the UK in the first half of the year – added to fears that shoppers are increasingly falling out of love with the High Street shopping experience and being seduced by the ease of the internet purchasing, backed by fast, reliable delivery. The government, who last year appointed retail guru and TV presenter Mary Portas to investigate reinvigoration of town centres accepted “virtually” all her proposals in March, including establishing dedicated “town teams” and making parking more affordable.
But the longer term threat to retailing as we know it was articulated by John Lewis, the successful, employee-owned department store chain, in the wake of the row over companies such as Amazon, Starbucks and Google diverting profits through other countries, thus paying minimal or no UK corporation tax.
After the Public Accounts Committee blasted Amazon as “immoral” for offshoring profits to Luxembourg, John Lewis warned that UK-based bricks and mortar companies wouldbe “out-invested” and “out-traded” if online companies were not taxed in the country in which their money was earned.
The chain’s Andy Street forecast that if the problem was not addressed it would ultimately erode the core of the UK’s tax base.
WITH a few notable exceptions, the commercial development pipeline in Scotland remains at a standstill and the queue of shiny new Glasgow office buildings with planning permission continue to wait in the wings for a pre-let or a funder bold enough to take the risk.
The long sought after prize of a new 200,000 sq ft HQ for Scottish Power finally landed, not as expected in the city’s waterfront, but in the surprise location of the former Elphinstone site alongside the motorway in St Vincent Street, where its proposed 14 storey building can give it the profile it seeks. Abstract Securities hope to build a speculative block directly opposite.
Investment specialists Brewin Dolphin will be the first tenants of Edinburgh Council’s Atria office scheme in Morrison Street, due for completion in the spring, taking the prime rental beyond the £30 per sq ft mark, too much for rival Blackrock who opted instead for 80,000 sq ft at SWIP’s Exchange Place. But with few rivals, the local authority backed project is expected to do well. With Tesco bank, Virgin Money and the new Green Invesment Bank HQ, the capital is recovering the damage to its financial reputation.
Aberdeen is everybody’s darling and rightly so, DrumProperty Group delivering the stuff of dreams at its £100m Prime Four business park four miles west of the city at Kingswells, where three oil related firms signed up for 100,000 sq ft headquarters even before the scheme got off the ground. Not surprisingly this prospect started a funding battle, won by F&C Reit Asset Management. London certainly now has the Granite City on its investment radar.
Boosted by the proposed V& Aoutpost in Dundee, director of development Mike Galloway toured Scotland to promote opportunities in the city, where the redevelopment aims to reconnect people with their waterfront. Deep water access means it remains a strong contender for offshore wind projects.
Newspeculative industrial schemes don’t stack up financially at present, but the ones which survived have done well. Muse attracted Eddie Stobart, ACS and Stapleton to its giant sheds at Eurocentral (with EZ related advantages) and MEPC/SCOT Sheridan have occupiers for two of the three units at Clyde Gateway East (assisted by local URC).
High street shops remain vulnerable to supermarkets and online sales but Land Securities is completing a 115,000 sq ft scheme in Buchanan Street, with nine, fashion driven stores. Shopping parks are all expanding their leisure offer with new cinema and restaurant complexes being lined up for Fort Kinnaird, Glasgow Fort, Silverburn and Braehead. The Eastgate Centre in Inverness is about to change hands as part of a portfolio.
LOSE one, win a lot. Glasgow suffered a small setback when a business conference scheduled for 2013 switched to London because registrants – mainly from Southern England – objected to the
cost of getting to Scotland. Scotland is nevertheless cited in international surveys as providing value-for-money, particularly to international associations attracted by facilities, attractions and the sterling exchange rate.
Business tourism generated nearly £900m for the Scottish economy in 2011/12 when Glasgow won more than £120 million of conference business. This was 10% higher than in 2010/11 and more than the London’s Convention Bureau’s figure of £103m for London, according to the Glasgow City Marketing Bureau. At the last count, more than 1,100 hotel rooms and luxury serviced apartments are being built or are scheduled before the Commonwealth Games in Glasgow in 2014.
Development of the new 12,000 seat Scottish Hydro Arena, as part of the Scottish Exhibition and Conference Centre (SECC), remained on course for a late 2013 opening. VisitScotland introduced a £2m national bid fund to subsidise conference bids over three years and this is already having an effect, according to the Scottish Government.
Efforts to attract more decision makers to Scotland bore fruit. The Professional Convention Managers Association (PCMA), whose delegates control £600-plus million of event spending held its first global corporate summit in Glasgow. Trailblazers, North America’s leading meetings and incentive organisers, chose to visit Scotland for the first time and the city’s airport last week recorded its busiest November in four years.
Edinburgh Tourism Action Group unveiled a strategy to underpin creation of 6,500 more fulltime jobs in tourism by 2020 to complement 32,000 currently supported by the sector. Investments in Edinburgh included: the revitalised Sheraton Grand Hotel and Spa; the refurbished Caledonian, rebranded as a Waldorf Astoria; the new Hotel Indigo; the £30m Lennox Suite at Edinburgh International Conference Centre and the newly reopened Edinburgh Assembly Rooms.
The job of promoting business tourism in Aberdeen and its shire was taken up by the newly created Visit Aberdeen with support from Aberdeen City Council and VisitScotland. The opening of the £100m Trump International Gold Links north of the city was a highlight of the year in terms of new attractions.
Business tourism in the Highlands was boosted when The Highland Council allocated £40,000 to support conference bids.
GEORGE Washington was re-elected as US president, the King of Sweden was shot and France declared war on Sardinia in 1792, the year that Alexander B McGrigor commenced the practice of law in Scotland.
This year, 220 years later, the venerable firm that bore his name disappeared in a merger with Pinsent Masons in what was probably the most significant deal of the year in professional services.
In a sluggish market, fortunes among the leading players in the legal profession were distinctly mixed. Among the winners was Brodies, which broke into the Big Four with 10% growth to £400,000 profit per equity partner after focusing on its core Scottish market, including expansion in Aberdeen.
Shepherd & Wedderburn, Maclay Murray Spens and Dundas & Wilson turned in more pedestrian performances. Dundas considered merging with another London firm, but reined back and posted a significant turnover slide. Mergers were also the theme outside of the Big Four, with another prestigious Scottish brand disappearing as Fyfe Ireland was hoovered up by Tods Murray. Anderson Strathern’s turnover benefited from its digestion of property firm Bell & Scott last year.
Consolidation was the order of the day in account- ancy as well, with BDO, the UK’s sixth largest firm, and PKF, the 12th largest, announcing last month that they were seriously discussing tying the knot. The merger will create a significant new force in the sector, with 3500 staff and £400m in revenues.
The Scottish mid-tier joined in what many in the profession regard as the “inevitable” process of coalescing, with French Duncan merging with Macfarlane Gray to create a £10 million, 200 staff combination which will retain both brand names.
The 90-year-old name of Ritson Smith of Aberdeen also disappeared in the autumn as a result of a merger with Johnston Carmichael, making the new entity the 20th biggest accountancy firm in the UK, with revenues in excess of £30m.
PEACE and goodwill are commodities that are unlikely to be traded in significant volumes this Christmas, heralded inauspiciously by Israel’s announcement of intent to build more settlements in the occupied Palestinian territories. This was a blow for countries sympathetic to the Jewish state that include the UK, which had hoped that the ceasefire, however ill-natured, after the latest Gaza conflict was the forerunner of compromise.
Conflagration in the Middle East dominated the news again for much of the year, with the overthrow of a disparate gang of dicatators failing to deliver a route-map to lasting stability in the region. Meanwhile, violence spilled on to the streets of Athens as Greek protestors – incensed at the EU’s (and especially Germany’s) insistence on sackcloth and ashes as a penance for previous profligacy – staged riots.
In the US election, the populace resisted the blandishments of Governor Romney, stoically accepting that President Obama, despite a performance less stellar than anticipated, but who had rescued a huge tranche of the nation’s manufacturing industry and handled the fallout of superstorm Sandy in an impressively statesmanlike manner, was the safer pair of hands in a crisis.
The natural disaster was a boost at least for the north-east’s slumping construction sector and as the country moves to become a net exporter of energy, largely fuelled by shale oil and gas fracking, it will renew its clout in the world economic order. In France, Francois Hollande was a much less ostentatious presence in the Elysée Palace than his now legally-embattled predecessor but the old one-upmanship with Germany as to who is the EU’s most influential partner looks set to continue.
In Scotland and the rest of the UK, exporters were looking beyond the troubled EU to further horizons, including China, with its implacably dependable growth (albeit at a slower rate), Turkey and even Brazil.
In June, The Herald reported that Scotland had generated more jobs through direct inward investment than any other part of the UK, with 5,926 jobs created during 2011, the highest figure since 2011.
Scottish Development International announced it was opening an office in Brazil, while in the US, Scotland’s single biggest export market, the agency emphasised the success of high-value Scottish food and drink as well as pointing out that the country provided an increasingly important service for US asset management companies.
The diverse and increasingly prosperous nations of South East Asia retained their appetite for Scottish exports, with the subsea sector well represented by companies such as Wood Group and Subsea 7 – while the energy synergies between Scotland and Norway continue to offer big opportunities for partnerships.
Meanwhile, in India, there has been an in interesting reversal in some trends as the country, once a major location for contact centres used by Scottish companies is now looking to Scotland as a location for some of its companies’ own Business Process Outsourcing.
Greg Hemphill and Sean Biggerstaff in The Wickerman after the Edinburgh Assembly Room’s £9.3m makeover
The Government recognised ‘virtually’ all of retail guru Mary Portas’ recommendations on improving shopping in town centres
Mervyn King, Governor of the Bank of England and scathing critic of the sector as it sought bailouts, announced he would step down
Construction was the only sector to benefit from the economic misery that superstorm Sandy wreaked in the US