For the past nine years Grant Thornton UK LLP has produced the Northamptonshire Limited report, which takes the pulse of the county’s business community and looks at the changes, challenges and opportunities facing the area’s top 100 privately owned companies.
The events of the past 18 months have made this analysis both more difficult and even more crucial in building an understanding of how our business community has adapted and how it plans to embrace the opportunities of the recovery from COVID-19.
This year’s report was presented to business leaders in early November at the University of Northampton’s The Engine Shed. Mike Hughes, Corporate Finance Director at Grant Thornton, presented the findings and explored what the report means for the county while also sharing key insights from regional surveys that the leading business advisers have conducted.
The state of business today
Mike explained that the pressures of the pandemic combined with rising energy prices, supply chain disruption and fuel shortages could be seen in this year’s results and confidence surveys. However, despite these difficult trading conditions, a sense of optimism prevailed amongst the local business community.
Earlier in the summer, four out of five leaders in Northamptonshire and the East Midlands were positive about future revenue growth, even though recent revenue, profits and employment levels had decreased across the board compared with previous years. However, in many cases this dip was not as extensive as might have been anticipated. For example, combined total turnover of the leading 100 privately owned companies was down by just 2.5% and employment was down by only 1.8%, both much healthier statistics than many forecasted during the height of the COVID-19 lockdowns.
While some businesses in the top 100 may be yet to feel the full effects of current challenges, in general this indicates that the overall performance of the county’s leading businesses is in a relatively good shape.
Similarly, when Mike examined the Growth Index for 2021, both revenue and profit recorded a score of -10. This means that for both metrics, 45 businesses delivered growth compared with 55 whose performance declined. While this may represent a downturn on previous years, it’s again not as bad as could have been anticipated.
One reason for this that Mike pointed to is that many businesses identified the likelihood of declining turnover at an early stage and were able to successfully manage their cost base and take advantage of government support in order to maintain profitability.
The road ahead
Being closely connected to Northamptonshire’s business leaders, Mike and the Grant Thornton team have been able to discuss and assess how the local business community is feeling about the future. In general, despite the downturns, most are still confident about the prospects for their businesses as well as for the UK economy as a whole. Even when it came to the much-discussed issue of Brexit, the overall outlook was still more optimistic than pessimistic.
However, recent data has shown that while for much of the year the majority of local businesses have been broadly positive about the future, there have been some sharp falls in confidence since the end of the summer. This was most starkly seen with forecast profit levels, where confidence has been dropping since a mid-summer high. This reflects the many ongoing challenges facing businesses, with a combination of supply chain issues, falling revenue growth expectations, increased energy and other costs as well as the potential for further regulatory requirements being driven by COP26 and the end of Brexit grace periods.
To ensure that 2022 is a year of growth, many Northamptonshire businesses are focused on similar priorities. Interestingly, rather than invest in new facilities, R&D or international expansion, business leaders’ highest priority is the attraction and retention of talent. People strategy is seen as vital, resulting in investment being funnelled into employee rewards, benefits, training and wellbeing programmes.
Another significant difference compared to previous years is that growth is expected to mainly come from businesses’ focus on existing markets rather than new territories or customers. Mike suggested that this was due to firms grasping the opportunity to meet changing customer demands within the markets they already operate in, arising from the challenges over the last 18 months, and pivoting to reassert themselves and gain a stronger position.
Along with changes to investment and growth, the attitude towards mergers and acquisitions has also evolved, with more owners expressing a willingness to sell if the right offer came along. This is definitely a trend that has been witnessed at Grant Thornton, with its Corporate Finance team expecting to work on double the number of transactions in 2021 compared to a regular year. The increased impetus to complete deals is being driven by a number of factors, including pent up demand from buyers to push through sales that couldn’t be completed in 2020 and owners looking to de-risk or take value off the table ahead of potential tax rises.
With these deals, it’s important to note that a focus on ESG principles has shot up the agenda and is now considered a core value driver for many businesses. A genuine commitment to sustain-ability has made it much easier for businesses to both attract investors and buyers. However, a recent Grant Thornton survey suggests that a third of businesses in Northamptonshire and the East Midlands have not set any kind of net zero carbon strategy.
A changing landscape
The environment in which businesses leaders operate has changed drastically over the past 18-24 months. The fact that the results of the Northamptonshire Limited report and the insights gleaned from surveys and real-world interactions show a thriving, growing business community is truly impressive. Those who have remained flexible and open to new ways of doing business have taken advantage of the shifting landscape and created new opportunities for growth.
Read the full report at www.grantthornton.co.uk/Northamptonshire-Limited-league-2021
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