Businesses shelve long-term strategy to tackle immediate problems- PwC Survey

• Supply chain issues top the list of concerns for businesses

• Almost half of businesses say net zero plans have been superseded by more immediate concerns, however ESG remains an important metric for lenders

• More than half of businesses intend to improve business performance through digital transformation

With distressed businesses facing an increasing number of economic pressures, findings from a new PwC survey reveal more than half (55%) are prioritising short-term operational improvements over long-term strategic solutions.

PwC’s Business Restructuring Services team surveyed 400 distressed businesses including listed and private companies with revenues spanning £25m to more than £1bn and 165 investors across the UK 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. 

Of the immediate challenges to business growth ongoing supply chain issues are of most concern with almost half (47%) saying it is an immediate threat to their business. To further compound the threat, just over a third of respondents say they have done no preparation for supply chain issues and 33% said they lack sufficient data to understand the risks in their supply chain. As well as supply chain issues the winding down of Covid-19 support measures (40%), skills shortages (35%), rising inflation (32%) and energy costs (31%) made up the five biggest challenges to business growth in the survey.

The focus on these immediate challenges has pushed some of the strategic mid-to-long-term priorities of businesses such as ESG down the list, with almost half (47%) of respondents saying net zero strategies are less of a priority than last year. However, the majority of investors, almost three quarters (74%), are clear that ESG remains a factor in their lending decisions.

Steve Russell, Head of Business Restructuring Services at PwC, said: 

“Businesses are understandably focusing on securing their financial position today, leaving them less prepared for the issues of tomorrow. While dealing with pressing concerns such as supply chain issues or skills shortages, businesses should consider the longer-term impact of challenges such as sustainability and digitisation. Doing so will help them remain attractive to investors and more competitive both now and in the future.”

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 businesses were taking to improve business performance digital transformation (58%) was the most popular followed by supply chain management or optimisation (56%).

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 (23%) of businesses have said they intend to downsize their workforce through automation, although the report also showed that 60% of 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.

Steve Russell, continued:

“Finding the right support to navigate the challenges businesses are facing is critical. These economic challenges are set to become more acute and those who fail to act now will fall further behind as the picture looks to worsen in the months and years to come.”

Issy Gross, restructuring and insolvency partner at PwC, said: 

“The statistics around companies unable to assess credit issues in their supply chains are concerning. Those who are choosing not to check their financial resilience also raises red flags. Pressures will continue to ramp up for all corporates over the next few months - cost of debt, wage inflation and energy to name a few will apply more pressure still. We estimate October energy contract renewals will still lead to at least a doubling in prices for businesses, even after the application of the government's corporate price cap and support available post April is not clear.

“The cost of borrowing is rising at rates not seen in decades, with many corporates and individuals already carrying high levels of debt. Companies need to act now to preserve cash and get their forecasting in order, conducting scenario planning to understand what kind of changes might ‘break’ the economics.”

Ends

Notes to editors

*Survey methodology

The survey was based on a sample of 400 respondents, collating their views on the impact of the past 12 months and their views looking forward.Respondents generated a minimum annual turnover of £25m, with two thirds generating £50m-£1bn+, Almost half (45%) generated £100m- £1bn+. The survey ran from 4 July 2022 - 29 July 2022.