Midlands businesses shelve long-term strategy to tackle immediate crisis

• Supply chain, skills shortages and energy costs top the list of concerns for Midlands businesses
  
• Almost half of Midlands businesses say net zero plans have been superseded by more immediate concerns,
• 65% of Midlands businesses intend to improve business performance through digital transformation

With organisations facing an increasing number of economic pressures, findings from a new PwC survey reveal more than half (56%) of Midlands businesses are prioritising short-term operational improvements over long-term strategic solutions.

Of the immediate challenges to business growth, ongoing supply chain issues (20%), skills shortages (17%) and rising energy costs (16%)  are the most immediate threats to Midlands businesses. 

The focus on the immediate has pushed some of the strategic mid to long term priorities of businesses such as ESG down the list with almost half (45%) of Midlands respondents saying net zero strategies are less of a priority than last year. However, the majority of investors in the UK, almost three quarters (74%), say ESG remains a factor in their lending decisions.

Edward Williams, Deals Partner at PwC, said: 

“Businesses across the UK, including the Midlands, are focused on short-term financial positions and tackling the immediate economic challenges. Whilst this is understandable given the current climate, it leaves them less prepared for the issues of tomorrow. Where at all possible, businesses should also implement long-term strategies such as upskilling and digitisation to future-proof and help them to remain attractive to investors now and in the future.

“The latest insolvency stats from R3, the Midlands branch of insolvency and restructuring body of which I am Chair, showed the third highest rate of insolvency since January 2019, which is a sobering reminder of the scale of the challenge facing our economy. The survey results show a mismatch exists between what lenders are looking for and what businesses are focusing on, especially in ESG where this has become less of a priority for businesses. Finding the right support to navigate challenges is critical and corporates must be careful to keep pace with stakeholder requirements in order to maximise value”  

PwC’s Business Restructuring Services team surveyed 400 distressed businesses across the UK, including listed and private companies with revenues spanning £25m to more than £1bn and 165 investors,  to find out how they are responding to the economic downturn with findings showing the majority are highly focused on getting through the short term challenges ahead. 

The report highlights how businesses are planning to respond to the challenges they are facing with many recognising the value of restructuring and introducing operational improvements. When asked what steps Midlands businesses were taking to improve business performance digital transformation (65%) was the most popular followed by supply chain management or optimisation (52%)

Over the next two years, businesses will review personnel, restructure business models and supply chains motivated by improving working capital efficiency and rationalising costs to offset energy costs and other inflationary pressures. Nearly a quarter (20%) of Midlands businesses have said they intend to downsize their workforce through automation, although the report also showed that 65% of Midlands businesses considering automation aren’t planning to reduce their staff numbers. 

The report looked at both companies and investor attitudes towards lending. When corporates were asked what qualities they thought their business needed to secure finance the most common answer was strong liquidity followed by the ability to pass on price increases. From the investor point of view, 41% said they are more likely to lend now compared to a year ago.