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Wales Audit Office - The Welsh Government’s funding of Kancoat Ltd

A review of financial support provided by the Welsh Government to a start-up business, Kancoat Ltd, has found that the company owes the Welsh Government nearly £2.6 million in repayment of the financial support it has received. 

The fact-finding review, conducted by the Auditor General for Wales, details the financial support provided by the Welsh Government for the manufacturing company Kancoat Ltd. In the context of the Welsh Government’s approach to supporting businesses, the review considered the funding package and how the Welsh Government managed the associated risks.

The review details that the Welsh Government provided Kancoat with financial support totalling £3.4 million to purchase and operate a metal coil coating production line near Swansea. This support package was intended to enable Kancoat to secure a sub-lease on its business premises, purchase the coating line, restart manufacturing and weather a period of difficult trading. Welsh Government officials viewed the provision of financial support for the company and its business proposal as contributing to the Programme for Government’s goals of creating growth and sustainable jobs.

The scale of the Welsh Government’s support package increased between August 2013 and February 2014, and eventually comprised:

  • A lease commitment of £1.4 million;
  • Repayable Business Finance of £0.7 million, offered on a non-repayable basis; and
  • Commercial loans of £1.3 million.

The actual cost per job created or safeguarded by Kancoat was nearly three times higher than the Welsh Government’s original expectation and, despite the increased financial support provided, the company entered administration in September 2014.

So instead of the anticipated 33 jobs as per the agreed business plan, only 12 were secured during the life of the Company.

The review found that as of 30 June 2016, Kancoat owed the Welsh Government some £2.6 million in repayment of the financial support that it has received.

Based on the likely proceeds from any future sale of the coating line meeting the lower end of the market valuation available at the time the line was purchased, the maximum potential irrecoverable loss to the public purse is currently estimated to be £1.5 million.

Kancoat’s administrator has yet to receive any bids for the steel coating line.

Alcoa Manufacturing (GB) Ltd, the owner of the industrial park has recently offered the whole of the Waunarlwydd site for sale and Welsh Government officials state they have received an expression of interest for both the plant and the site as a whole from a high profile, well-regarded company with significant steel assets.

The Welsh Government’s Director of Sector and Business recognised that Kancoat was a particularly complex case and commissioned an internal lessons learnt exercise when the company went into administration. As a result of that internal review, and as part of the department’s continuous improvement, Welsh Government officials state that a number of key changes in procedures have since been implemented and these have been reflected in the report.

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