6 minute read
Shaping your future
TOP EXPORT MARKETS, SOUTH EAST
Rank Market Weight Output Index, Oct ‘21 1 USA 16.4% 57.6 2 Germany 12.0% 52.0 3 Netherlands 6.3% 58.0 4 France 6.1% 54.7 5 Ireland 6.0% 62.5
Sources: Natwest, IHS Markit
EXPORT CONDITIONS IMPROVE SHARPLY IN OCTOBER
The South East Export Climate Index is calculated by weighting together national PMI output data according to their importance to the manufacturing exports of the South East. This produces an indicator for the economic health of the region’s export markets.
The Export Climate Index rose from 55.0 in September to 55.1 in October, signalling another marked rate of growth.
Expansions were seen across all five of the key export markets with Ireland recording the strongest uptick, and for the fourth month running. Netherlands and the US saw rates of expansion in output accelerate, while growth in France slowed, but was still solid overall. Germany meanwhile registered only a modest upturn, which was the softest since February.
EXPORT CLIMATE INDEX
sa, >50=growth since previous month
70
60
50
40
30
20
10 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Sources: Natwest, IHS Markit
INPUT PRICES INDEX
sa, >50=growth since previous month
85 80 75 70 65 60 55 50 45 40 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Sources: Natwest, IHS Markit
INPUT PRICE INFLATION ACCELERATES TO RECORD RATE
South East companies continued to report historically elevated rates of input price inflation during October. In fact, the rate of increase accelerated to a fresh series high. Firms mentioned that higher costs stemmed from raw material scarcity, Brexit, supply-chain issues as well as higher fuel, energy, and staff costs. The overall rate of inflation was substantial and well above July’s previous peak. Sector data revealed manufacturers noted a quicker increase in input prices than service providers.
UK SECTOR FOCUS:
FOOD & DRINK
The UK’s Food & Drink manufacturers recorded a sustained strong upturn in new orders in the three months to October, following near-record growth in order books in the second quarter. Key to this was stronger domestic demand, with new export orders falling slightly over the period.
However, data pointed to an unprecedented build-up of backlogs across the sector as inflows of new work rose at a far quicker rate than production levels, which were constrained by a combination of staff shortages and supply bottlenecks.
Employment fell slightly in the three months to October owing to difficulties retaining and recruiting staff, while lead times on inputs lengthened to the greatest extent on record.
The tightness in supply chains was further reflected in a near-record increase in input costs. In turn, this pushed output price inflation to an all-time high.
Business optimism is high despite challenging months ahead, finds Andrew Griggs, Senior Partner, Kreston Reeves
SHAPING YOUR FUTURE
The business environment has never been so uncertain. The impact of the global pandemic and Brexit is likely to be felt for many years to come, bringing new challenges, opportunities and change. So too will the mitigation of climate change, the continuing impact of technology and changing working patterns. For many businesses, it is difficult to know what tomorrow might hold.
That is why we have conducted a nationwide research project where we explore the issues, constraints on growth, priorities and plans for the future of 652 business leaders across the UK. Businesses must continue to look ahead and shape their future.
Our research, published in a report called Shaping your future, suggests businesses are incredibly confident for their future but are facing significant challenges over the next two years, with reduced cash reserves, stressed supply chains, and a tough recruitment environment. The headline findings from our Shaping your future report include:
n 36% of businesses surveyed report lower cash reserves now than at the beginning of the COVID pandemic. n 20% of businesses that have borrowed from Government-backed loan schemes do not expect to repay that money. n Despite this, businesses are upbeat for their future – 39% expect to see turnover increase by up to 25% in the next 12 months, and 27% expect turnover to increase by between 26% and 50%. n 52% of businesses are experiencing supply chain delays of up to six months, with a third (32%) looking to reduce output and orders as a result. n 62% of businesses experiencing supply chain delays expect profitability to fall by up to 10%; 29% expect profitability to fall by 11-25%. n 23% of businesses are prioritising training and upskilling their workforce and 20% on staff retention to address recruitment challenges. n 27% of businesses offer no incentive programme to their employees at all. n A third of businesses surveyed expect to fund future growth through retained profits and organic company growth. n Over half (56%) say they are exploring merger and acquisition (M&A) opportunities over the next 12 months.
The current economic and business environment is incredibly tough for businesses: in some ways coming out of the pandemic feels harder than it did when COVID first began to bite. The shared common experiences of the first lockdown, where all businesses had to adapt to new working patterns, no longer exist as businesses return to whatever their ‘new normal’ might be.
It is encouraging, therefore, to see businesses so confident for their future – 87% of the businesses we spoke to are ‘confident’ or ‘very confident’ about the future of their business. There is much to celebrate.
This does not hide worrying signs on the horizon. Supply chains are causing serious problems for businesses and are predicted to do so for two or more years. That is, say businesses in our research, hitting bottom line profits. A fifth (20%) of businesses surveyed do not believe they will be able to repay COVID borrowing and then there is the threat of rising inflation having risen to a 10-year high of 4.2%.
Finding and retaining staff are also very real issues across many industry sectors and show no signs of abating. A key component of attracting and keeping staff are the incentive programmes offered over and above pay, and over a quarter (27%) of businesses surveyed offer no such programme, leaving them at a disadvantage.
FUNDING GROWTH
Funding business growth is also likely to be challenging. Our survey suggests that future plans will be funded primarily through retained profit (33%) and via organic growth (30%). Both are sensible approaches to business growth but are uniquely vulnerable to changing trading conditions, can add stress to cash flow, and are likely to lead to much slower growth.
Debt remains cheaper than equity when looking to fund growth, with most of the world’s fastest-growing businesses achieving that through borrowing. Businesses should explore all funding options before making decisions.
M&A activity has also picked up, with over half (56%) suggesting they will explore growth through mergers or acquisitions over the next two years.
Deals put on hold in early 2020 began to move forward again in mid-2020 and in 2021. Some business owners have found the pandemic has caused them to retire earlier than anticipated, and those who have done well out of the pandemic and with cash reserves are looking for strategic acquisitions. It is buoyed by plenty of cash from private equity and Family Offices investors.
It is important, now more so than ever, that business leaders take stock, understand those pressures facing their business, identify and plan for future pinch points, and shape the future they want for their business.
