COVID-19 – why businesses should be looking to the future

July 29, 2020

Adam Barraclough, associate partner for EY’s Transaction Advisory Services team in the North East, discusses the impact of COVID-19 on businesses in the region and how those that look to the future and embrace emerging opportunities will inevitably survive and thrive

There is no doubt that businesses are facing unprecedented challenges from the effects of COVID-19 and are having to make some difficult choices; either adapting or reducing their business, temporarily pausing trade, or sadly closing.

The current crisis has already seen a number of businesses fail and the latest EY research looking into profit warnings from listed companies saw a spike across the North East and Yorkshire with 75 per cent of those warnings attributed directly to COVID-19.

Thirty-one profit warnings were recorded in the first quarter of 2020 in the region, more than three times the number issued in the same quarter last year.

Clearly, those sectors and businesses issuing the highest number of profit warnings were those most exposed to the impact of COVID-19 and the associated national lockdown which had a significant effect on sales and cashflow.

‘Cash is king’ in business so companies ultimately fail because they run out of cash, meaning even a profitable business can get into trouble.

As we began to move through the crisis, there was inevitably a period of re-evaluation with some businesses struggling with the ‘new normal’, but there were others who looked to the immediate future and embraced the opportunities created by the crisis.

Some entrepreneurial businesses reacted quickly to the situation as it unfolded, adapting their operations. For example, manufacturers across the region put their skills and technology to work, manufacturing PPE and other essential consumables and equipment for front-line workers; and other companies quickly embraced new technology and ways of working to keep
their business moving and stay in touch with their employees.

Unfortunately, despite their best efforts, this isn’t an option for everyone, and as the profit warnings data has shown, many, especially in the retail and hospitality sectors, will face difficult decisions as the unparalleled level of business support measures offered by the Government starts to be withdrawn.

As restrictions are further eased over the coming weeks and months, this will again be a critical period for all companies across the North East, regardless of whether they are an OMB or FTSE-listed.

Those that look to the future and embrace new technology and emerging opportunities will inevitably survive and thrive.

Standing still will not be an option and it’s encouraging to see businesses already changing, especially in their attitudes towards supporting their employees, their supply chains and the communities in which they operate.

Companies across the region are realising that, as we emerge from the crisis, we are in this together and that the whole is indeed greater than the sum of its parts.

This agile and visionary approach will be essential for the future of the region’s bottom line. Despite its challenges, the North East is a great place to do business and one that is still attracting a steady flow of foreign direct investment projects, EY according to the EY 2020 UK Attractiveness Survey.

The survey showed that the digital sector generated the largest number of investment projects into the North East – accounting for 27 per cent of the region’s total. Definitely a thriving sector in the region and one to watch for the future as businesses place greater emphasis on digital technology, post-COVID-19.

For more information, contact Adam Barraclough on 07385 344471/0113 236 4365
adam.barraclough@uk.ey.com
www.ey.com

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