The next 18 months is set to bring significant challenge. The Bank of England has warned the UK is facing its longest recession since records began, with a recession forecast until mid-2024. Leaders must navigate the potential for base interest rates to peak at four to five percent, together with inflation at over 10%, supply chain disruptions, high energy costs and restricted labour supply. The priority will be to chart a course through the recession – and this journey will be different for every business. But there are both general and sector-specific actions that can help build your organisation's resilience.
Plotting a course that both preserves value and allows your business to be strongly positioned on the other side of recession requires a proactive combination of: planning and forecasting, action, and maintaining trust with customers, suppliers, people, investors and lenders. A virtuous circle of credible financial forecasts, early and transparent conversations with key stakeholders, and delivering actions as promised will build the trust needed to navigate the next 18 months.
Each sector faces its own series of challenges – highlighted below – and will need sector understanding and specialist support to navigate the turbulence ahead.
Each sector faces its own series of challenges:
The retail sector is facing significant pressures due to the inflationary environment, increasing interest rates and an uncertain geopolitical outlook. Reduced consumer spending in the Cut Back Economy and rising input costs are leading retailers to experience a significant squeeze on profit margins.
The construction sector has weathered supply chain disruption, significant price increases, labour shortages, project delays and ongoing uncertainty surrounding the cladding crisis. It's no wonder that a number of businesses have been placed under significant cashflow pressure – and unfortunately a number haven't survived. For those that have, spotting opportunities to reassess how they operate and to reposition the sector for the future will be key.
Food and beverage
The food and beverage industry has experienced some fundamental shifts and changes in consumer behaviour over the past decade, as well as significant disruption from the pandemic and Brexit. What this highlights is the need for every part of the sector – food growers, producers, retailers – to be able to react quickly to ensure they are able to respond to macro-economic uncertainty and changes in consumer demands and expectation.
Care home profitability has been on a downward trajectory for the last decade with the pandemic piling on the pressure, even for those with a healthy operating model. Years of long-term funding constraints, COVID-19 impacts, spiralling costs and a staffing crisis are combining to create one of the most challenging years the healthcare sector has ever experienced.
The automotive industry has been through significant disruption over the last five years. It has seen increased emissions regulations, a shift from internal combustion engine vehicles to battery electric vehicles (BEVs) and broader disruption from both the pandemic and geopolitical forces.
Despite upstream challenges, disruption to original equipment manufacturer (OEM) supply and distribution chains has also led to a shortage in the supply of vehicles, which has driven prices up for both new and used vehicles (temporarily boosting OEM and retailer profitability). With intensifying global inflationary cost pressures and the further investment needed in new technologies, however, OEMs are looking hard for further cost reductions across retail networks, distribution and an already strained supply chain.
Private equity (PE) sponsors and their portfolio companies are facing downward pressures in revenue and earnings growth and valuation multiples from macroeconomic and geopolitical factors. Debt service costs are also rising and regulatory requirements take both time and resource. Improving the operational performance and resilience of portfolio companies will be a priority – but is something that many may not be used to doing at the levels likely to be required.
As higher interest rates impact the debt markets and operators are faced with sustained macroeconomic headwinds, we're seeing greater disparity between the expectations of buyers and sellers in the market, leading to deals falling over.
The impact of societal changes, accelerated by the pandemic and changing working patterns, is also starting to impact the market for commercial office space. Businesses are looking to reduce their footprint but are increasingly demanding grade A, environmental, social, and governance (ESG) compliant space in prime locations. This is leading to a divergence in value between market sectors.
Business resilience and agility
Helping your business preserve value
There are steps you can take now to build resilience within your organisation to help navigate these challenges and preserve business value. Our Cut Back Economy research shows that many of you are already embarking on this journey. And in October, our Business Outlook Tracker surveyed 605 mid-sized businesses and found that one in three has already restructured operations as cost pressures mount, with a further 38% having plans to do so.
To help steer your course through the next 18 months, we are ready to assist in all aspects of the creation and execution of your turnaround plan and long-term strategic plans, including:
- Real estate advisory
- Restructuring tax
- Financial reporting advisory
- Global compliance partnering
- Back office outsourcing
- Business process outsourcing and Shared services centres
- Enterprise risk management
- Pension scheme solvency
- Corporate insolvency
- Asset recovery and tracing
- Exit strategy services
- Debt advisory
- Operational and financial restructuring
- Valuations to support asset-backed lending decisions, restructuring and transactions
- Operational consulting
- M&A support