Category: Finance

Given the slight easing of Coronavirus-related restrictions a week ago, some businesses are in the very early stages of preparing to return to “normal” but which businesses are likely to emerge as the winners and losers in the future?
The Insolvency Service is now publishing its figures monthly and the April figures were released last week. They reported that “numbers of companies and individuals entering insolvency in April 2020 broadly returned to pre-lockdown March levels for most insolvency types” and their figures showed that total company insolvencies in April 2020 had decreased by 17% when compared to April 2019, with a total of 1,196 company insolvencies of which the majority were CVLs (Company Voluntary Liquidations). These numbers suggest no influence in insolvency from Coronavirus yet.
The figures come with a warning, however, that the operation of courts and tribunals had been much reduced, HMRC had reduced enforcement activity and there were likely to have been delays in documents being provided to Companies House by insolvency practitioners.
There is some illuminating data from Cebr (Centre for Economics and Business Research) which showed lost output figures, which include 50% in construction, 58% in wholesale and retail, 79% in accommodation and food services, and 81% in arts, entertainment and education. Communication and information, however, is down just 7% and professional and scientific activities are down just 10%.
Perhaps worse are the UK Composite PMI figures which are an indicator of health for manufacturing and service sectors and reported 13.8 in April, down from 36 in March which in turn were down from 53.3 in January. A reading of above 50 represents expansion and below 50 represents contraction where the lowest figure in the last three years was 49.2 in July last year when industry was gloomy about Brexit.
Of course, there is a long way to go before the picture becomes any clearer and the above is just a snapshot at a specific point in time.
Nevertheless, there are some clues to possible future businesses winners and losers and some of this depends on how deep-rooted the changes are in people’s behaviour as we emerge from the crisis.
Clearly, the lockdown has particularly affected the travel, holiday, retail and hospitality sectors as well as theatres, cinemas and the like. The question is whether these will be able to survive for much longer despite the various financial support packages, especially when they still have rents and other overheads to pay.
Similarly, commercial landlords may be affected as it has become clear that many businesses can operate with employees working remotely. According to the BBC last week “Many companies are struggling to pay the rent with 63% collected within 10 days in March and early April compared with 94% a year ago.” It also reported “Office and retail landlord Land Securities has said less than 10% of its office sites are being used as people work from home. This is unlikely to lead to a closure of 90% of offices but it highlights scope for huge cost reduction by businesses
In the meantime, such a rent burden is a major factor for the survival on many businesses and most likely will result in many companies going bust.
Another potential longer-term loser may be the cruise industry. Will people feel comfortable taking holidays on a large ship in a confined space in close proximity to hundreds of others?
While there may eventually be some recovery in the travel and holiday sectors once countries open their facilities and airlines are permitted to resume operations, the question is whether they will ever return to their pre-pandemic volumes since this will dependent on consumer confidence as well as affordability given the likely increase in travel costs and the fact that many people will lose their jobs.
To an extent, also, there is a question mark over the viability of airlines if they have to introduce some social distancing measures and cannot cram their cabins to maximum capacity.
The weaknesses that have been exposed in the global supply chain may also have a negative impact on freight transport.
But this last gives a clue to potential future winners among the business winners and losers.
It is possible that manufacturing may be brought back to UK and more stock will be stored here as a result of the exposed supply chain issues, which may well boost various types of local production and by extension the construction industry which will have to build the greater capacity that will be needed. Indeed, this in turn may benefit those parts of the country that were devasted by the closing down of industry during the Thatcher years.
Similarly, the UK’s pharmaceutical industry and research may become a winner as the search for a Coronavirus vaccine continues, not to mention worries about its availability if one is ever devised, and the Government has already announced £93m to help speed up the construction of a not-for-profit Vaccines Manufacturing and Innovation Centre in Oxfordshire.
The lockdown has also exposed the amount of pollution that had been generated previously and may bring an upsurge in greener energy production.
According to the Guardian last week, “Britain’s biggest green energy companies are on track to deliver multibillion-pound windfarm investments across the north-east of England and Scotland to help power a cleaner economic recovery.”
Another loser is likely to be the car industry as I cannot see as many cars being needed in a future if more people work from home and unemployment rises.
Finally, given the exhortations for people to find alternative ways of getting to work, such as cycling or walking, as lockdown is eased it is possible that another winner could be bicycle manufacture and the retail outlets that provide both bikes, accessories and aftercare.
There will undoubtedly be business winners and losers but the scale of fallout will only emerge when the future becomes clearer. The above are just some preliminary suggestions.