How do you turn a run-of-the-mill engineering company, one of dozens in its field, into a rapidly-growing, industry-leading success story, with wildly healthy year-on-year growth and a turnover heading towards £200m? In the case of Allam Marine, a generator manufacturer based in the East Riding of Yorkshire, the answer doesn’t involve City investors, a high-risk acquisition binge, or outsourcing to suppliers in the Far East. Its success over the past 20 years has been based on a radical change to its business model.
Allam Marine still builds industrial generator sets, just as it did in 1981, when current owner Assem Allam arrived. The difference is that since 1993 the company has been building generators not for the end user, but for other generator companies. It has become a manufacturer to the industry, selling white label products, fully assembled or in kit form, to the companies that were its competitors.
Allam describes this business model as having turned the company into a cash and carry for the generator industry. By holding a huge amount of stock (worth, on average, about £40m) and investing in state of the art assembly and testing facilities at the company’s base in Melton, Hull, the company claims it is now able to deliver a customised order to any location in the world within 24 hours. “So this is [the clients’] factory,” says Allam. “I save them overheads, the unit leaves here with their design, their specification, their house colour, their name on it.”
He claims the company has found new business almost entirely through word of mouth recommendations and conducts virtually no marketing activity at all. The company’s no-nonsense website is free of the usual marketing blurb. (That said, by the time you read this you should be able to watch a slick new video on the website about the company’s new offices and facilities at Melton. It’s only just been completed at the time of writing, is still the only concession to marketing – and unusually for such things, is quite interesting.)
It doesn’t matter what you know, what matters is that you can manage those who know
Allam Marine now produces about 30,000 diesel generating sets every year for its customers. The equipment is used by a huge variety of organisations, sometimes as a primary means of power generation, sometimes as a back-up generation resource. More than 80% of the generators are exported to non-EU countries, including emerging markets like Vietnam, Bangladesh, Turkey, Egypt and Nigeria. Allam is proud of the fact that a number of the entrepreneurs he has worked with in various overseas markets have gone on to build successful businesses.
The recent history of the company is tightly woven into the story of Allam’s own career. Born into a respectable family in Egypt, he rose to become a senior auditor in the Egyptian ministry of finance during the 1960s, but was then forced to leave the country after publicly criticising the ruling regime. After spending a short period studying in Germany, Allam visited Britain in the summer of 1968 and liked East Yorkshire so much he decided to transfer to study there instead.
During the 1970s he worked for merchant bank Charterhouse while studying for a Masters degree at the University of Hull. The bank owned a number of industrial companies as subsidiaries at the time, including a generator company called Tempest Diesel, originally founded in 1934. Towards the end of the decade Allam was seconded to work there as sales and financial director.
“I was meant to be there for one year,” he recalls. “They must have been happy with what I was doing because I was asked to stay.” In the third year Charterhouse appointed him managing director of Tempest, despite the fact that he had had no experience in the engineering sector prior to his time working there. But, as Allam says today: “It doesn’t matter what you know, what matters is that you can manage those who know.”
In 1981, Charterhouse decided to sell its subsidiaries. With the help of a bank loan, Allam bought the company. Ten years later he moved its headquarters to Hull and changed its name to Allam Marine (the Tempest brand lives on as a fully-owned subsidiary).
Today, all production takes place in the UK, although some components are imported, with assembly and testing at Melton. Turnover was £185m in 2011 and is still rising, according to Allam. “We have been getting increased orders from more markets every year,” he says. “Last year was difficult, because of the eurozone and what happened in the Middle East, but we still did not make any redundancies and things have picked up well again this year.”
Allam believes the company’s success and rapid growth in recent years can all be attributed to that change made to the business model 20 years ago. Allam says he had been reading about the merger of two
You make money from the community. Businessmen have a duty to their communities. I’m trying to do what I can
$500m US pharmaceutical companies when he was struck by the thought that no company working in the generator manufacturing business could grow to that size unless it spent years expensively and riskily buying all of its rivals. The only other way to make the company grow was to change its purpose.
He was a little worried it might take years to convince his competitors that they were, in fact, no longer his competitors, but they all seemed to accept the transformation of Allam Marine into a resource which would be of use to them within six months.
“The business model means we hold large volumes of stock,” he says. “That meant I would not be in a position to work on credit. But I’d rather lose an order because I won’t let you order on credit than lose it because I have no stock. Stock makes people come and pay, rather than use credit.” As a result, he says, the only bad debt lost during the years when the company’s turnover has increased by such a vast margin has been a single £14,000 fraud perpetrated by a client.
Having stock ready to assemble and test on site has allowed huge reductions in lead times. “We have been able to change standard practice in the industry,” says Allam. “The supply of generators lead time used to be three to 10 months. Now we can do one-day delivery.”
One might have assumed that the change in business model would lead to job losses but in fact, says Allam, the company was able to take on more staff as it expanded. In the late 1990s Allam also resisted the trend to move production to countries where labour costs were cheaper. “When everybody was going to the Far East to save on labour costs we took the opposite view and sat tight here,” he says. “We spent a lot of money on equipment and automation to save time. As a result we have been able to reduce the number of hours to build.” As an example, he claims Allam Marine can build a 100Kw generator in 2.5 man hours, compared with 10 to 12 hours in most factories elsewhere.
“Our target is that in five years’ time we will have a turnover of £500m and be the biggest independent company in the world,” says Allam.
To support this growth, the company has completed a £45m refinancing deal and moved its banking to Lloyds Bank’s Commercial, Mid Market Banking Team in North, East & West Yorkshire.
Allam says: “This arrangement provides us with the greater degree of flexibility and support that we need to help sustain our growth. We operate in numerous emerging and newly established international markets and Lloyds Bank’s willingness to support us in these territories was a key part of our decision to move our facilities.”
It has been in preparation for this anticipated further growth that the company has invested in new facilities at Melton. The complex now comprises about 270,000 sq ft covering approximately 16 acres, including a swish new headquarters building. “We can cope with being a company with a £500m turnover,” says Allam. “It may mean we have to use two shifts, but that’s the only thing we might need to change.”
He says much of the credit for the success of the company should go to its staff. “I have a loyal staff and very loyal management team who make this possible,” he says. “I have the same management team who started when we were selling £3m a year. They’re still here and they’re a major contributor to our success.”
Although Allam Marine is prospering, Allam believes both banks and the government could and should be doing more to foster entrepreneurial activity throughout the UK during this difficult economic period. “Banks should be able, with government support, to help young entrepreneurs, because that’s what the country needs,” he says. “The first obstacle entrepreneurs face is the need for help with raising working capital. The second is a need for help with management and marketing; and financial expertise.”
Allam and his company have collected many business awards over the past 20 years, including two Queen’s Awards for Enterprise and membership of the The Sunday Times Fast Track. The individual awards of which Allam seems most proud are the Ernst & Young Award for UK Entrepreneur of the Year, received in 2006; and the title of Yorkshire Business Leader of the year, bestowed upon him in December 2012.
Success has also made Allam and his family very wealthy. In April 2012 the The Sunday Times Rich List estimated them to be worth £417m, up from £287m in 2011, putting them at number 214 in the list. They gave £100,000 to the Labour Party in 2011. Allam says he has not made these donations in an attempt to seek influence, but because he believes wealthy people should help to fund more than one political party in return for tax relief. When the donation to Labour was made public in early 2012, Allam said he intended to make a matching donation to the Conservative party and had only delayed doing so because of a scandal about Conservative fundraising methods which broke at about the same time.
Money doesn’t grow on trees, you make it from the community. Businessmen have a duty to their communities
But while politicians have enjoyed some benefit from the company’s success, much more of the money is being spent in East Yorkshire. The adopted Yorkshireman is keen to give something back to the community that has been his home for more than 40 years. While Allam has a relatively low national profile, in Hull he is known as the man who helped Hull City AFC out of the jaws of administration in 2010 and has since put about £50m into the club.
This money is repeatedly referred to in the press as an investment, but Allam will probably know the old cliché about the best way to make a small fortune in football being to start off with a large one. In January 2013 it was revealed that the club made a loss of £8.7m in the year ending July 2012, down from more than £20m the year before.
Promotion to the Premiership would bring a lot of money into the club, but there is no guarantee that this will happen, or that Premiership status could be maintained.
“I don’t call it investment, I call it a contribution,” says Allam. “Money doesn’t grow on trees, you make it from the community. Businessmen have a duty to their communities. They can choose to ignore that duty, but they can’t make it go away. I’m trying to do what I can.”
Allam also supports a number of local youth football initiatives. And in 2011 he gave Hull Kingston Rovers rugby league club an interest-free loan of £1m. In the same year Allam also signed a deal to sponsor the British Open Squash Championship – now the Allam British Open – for three years. In 2013 and 2014 the tournament will be held in Hull: the first major international sporting championship hosted in the city.
But his contributions to the community have not been restricted to sport. A £1.5m donation to the University of Hull in 2009 paid for a new biomedical research building, to house research teams studying cardiovascular conditions and cancer; and a new PET-CT radiochemistry unit. A further £1m donation was provided by the Hull charity the Daisy Appeal, of which Allam is a trustee.
Other local organisations to have benefitted from Allam’s success include the Children’s University, which supports under-privileged children in the area and to which Allam donated £50,000 in 2012. He has also provided financial support to the Hull Truck Theatre and to the university’s rugby league club.
What is it about this area and its people which has inspired such affection? When Allam loaned the Hull Kingston Rovers rugby league club £1m in 2011 he told BBC Radio Humberside he had done so in part because he realised he had “done nothing for east Hull. Everything I’d done happened to be in west Hull”.
Allam says today that it all goes back to that first visit in 1968. His first impression of Britain had not been good: his first experience was getting stuck in heavy traffic and taking three hours to get from Dover to London by road – but once he reached East Yorkshire he quickly felt much more at home. “I realised that living in Hull, people are much nicer and more friendly,” he says. “That’s when I got myself a place at Hull, to continue my studies there.”
Following the recent political changes in Egypt, would he ever consider returning there? “Oh no,” he replies. “It’s too late.” He is set to stay in East Yorkshire for good.
Allam’s son Ehab now works with him and may one day succeed him at the head of the business. But there is no certainty this will happen soon. “I’ll keep going for as long as I can,” says Allam. “Because the business is still growing and while I can make a contribution, why not?”