UK Business Leaders Predict No Upturn Until Mid-2010
Battle-damaged by a year of recession and plagued by poor liquidity, the UK’s largest firms will be unable to respond to the economic upturn when it emerges, new research by Roland Berger Strategy Consultants reveals.
Companies do not anticipate recovery until next year, but hit by poor turnover, an ongoing credit shortage, late-paying customers and pressure on interest cover, they will be unable to respond to the upturn for a further half a year after it commences.
A study among board-level managers and financial controllers at major UK corporations, Roland Berger’s Restructuring Survey 2009 also reveals that firms are failing to control costs effectively in the face of these financial woes and are dragging their feet over urgently needed restructuring.
The survey found that:
Klaus Kremers, restructuring partner at Roland Berger Strategy Consultants, said: “Our study clearly demonstrates the extent to which UK companies have been deeply scarred by a year of recession. Firms are still finding it very hard to ease liquidity issues through refinancing or the deferral of interest payments with covenant resetting the most likely available lever.”
The pain is set to continue. Despite the reported emergence of green shoots, the vast majority (85%) do not expect recovery this year. Over half of firms (57%) are not anticipating full upturn for at least another year from now, whilst the largest proportion – around a quarter (23%) – foresee recovery in Q3 of 2010.
Liquidity issues are being exacerbated by late paying customers and the ongoing difficult credit conditions. Nearly all companies (94%) report a rise in late payment, and a similar proportion (95%) expect customer payment behaviour to worsen further in coming months.
Additionally, a third (33%) of firms have suffered a reduction of credit lines to date, and a similar level (31%) are still experiencing difficulty in obtaining new loans. These latest findings indicate the situation has barely improved since January of this year, when a previous Roland Berger study revealed that banks had withdrawn unused credit lines from 34% of firms.
Alarmingly, only 12% of firms are placing top priority on improving liquidity management moving forward. Only 45% of companies have implemented significant cost reduction programmes to date, and only 28% are planning to implement such initiatives in the future, despite forecasting a prolonged recession.
In terms of personnel overheads, for instance, UK firms are planning a reduction of barely 6.7% in staff costs on average over the next five quarters. Additionally, the average restructuring response time – the period between identifying the need and commencing implementation – is a worrying six months, demonstrating a startling lack of urgency among the UK’s largest companies.