A local company whose 50 staff make £12m profit, and the dangers of profit per employee metrics
What kind of turnover can a business with 50 employees generate? One such Leicester company reported total sales for the group of £324m in its latest accounts. Pharmaceutical wholesaler Smartway PW Holdings, based in Soar Lane, made gross profit of £12m in the 18 months to 28 February 2014. They are not unique. The fashion company B M Fashions (Holdings), now based in St George’s Way, also has 50 staff. Its turnover last year was £251m.
Such businesses challenge the conventional definition of small and medium-sized enterprises. Judged by employee numbers they’re on the borderline between small and medium. Yet their turnover busts the medium-sized upper limits – around £41m – by a significant multiple.
Some Leicester companies succeed with even fewer employees. Chilled food supplier NCB Foodservice has a turnover of £18m and gross profit over £1m. It achieved this with 13 employees. As the directors’ report declares, in the usual formula, “Close control over costs has been maintained throughout the year”. You bet. The 17 staff of Prince Petroleum generated turnover of £34m and gross profit of £1.2m.
For an extreme that touches on the absurd, there is the financial leasing company Santander Asset Finance, whose head office is in Carlton Park, Narborough. It has an annual turnover in excess of £50m and gross profit in 2013 over £17m. How many staff does it employ? None. Zero. Even the three directors are paid salaries through the intermediate parent UK company.
It would be pointless to make direct comparisons of profit or turnover per employee across industries. Some businesses, such as personal care providers, are labour intensive. Others trade in high value goods or services, or are holding companies, handling finance for other companies in the group. Some companies include salaries as cost of sales, others as an overhead. Even so, it is interesting to look at the other end of the scale in Leicester, if only as reassurance that successful companies can create a lot of jobs, depending on the sector.
Showsec International, the event security company, employed 135 staff and 2,400 casual workers in generating a turnover of 24m. With a gross profit of £6.2m, that means profit per employee was less than £2,500.
The Dunelm Group, now based at Watermead Business Park, employs over 8,000 staff across the country. Its turnover of £730m and gross profit per employee is £44,000. Prime Life, the care home provider, like Showsec, prides itself on directly employing casual staff rather than subcontracting or using agency staff. Its turnover of £45m is generated by 1,700 staff, resulting in gross profits of nearly £10m.
Is the metric of profit per employee just a curiosity, or does it have any practical use? Investors and analysts may look at it as a guide to productivity and operational efficiency. Looked at historically within a company, or in comparison with direct competitors, a high profit per employee value might indicate an efficient company producing good returns for shareholders. Presumably, such thinking is behind the international energy giant Centrica’s decision to axe 6,000 jobs at a time when profits in the UK doubled. It is incomprehensible to most onlookers, but may make sense if profit per employee is a key metric.