North West sectors most at risk in 2018 revealed by KPMG

Following its analysis of notices in the London Gazette, which showed that corporate insolvencies rose across the region last year, KPMG has revealed the North West sectors most at risk in 2018.

The research found the number of companies falling into administration across the North West increased in 2017, with preliminary year end figures showing 229 companies in the region entered insolvency, up from 189 in 2016.

Of these, 17% were manufacturing businesses, 15% were construction firms and 14% were operating in the leisure and retail sector.

Looking ahead, the advisory firm’s Manchester restructuring team predicts the region’s casual dining and automotive retail businesses will be some of the most at risk during 2018 as they continue to face sector-specific headwinds, in addition to the broader challenges affecting the UK’s business community.

David Costley-Wood, restructuring partner at KPMG in Manchester said: “It’s a difficult time for businesses across the board. The weak exchange rate, rising inflation and the negative effects of uncertainty on consumer and corporate confidence could see the number of insolvencies climb in 2018.

“Alongside the well documented challenges facing the retail, manufacturing and construction industries, there are certain sectors across the North West facing unique challenges. Several new restaurants opened in Manchester this year, for example, signing long leases across multiple sites. They’ve found the climate more competitive than expected and are now struggling to economise. Food trucks, independent ‘gastro-pubs’ and a number of major high street pub groups diversifying and enhancing their food offerings have all added to this pressure.  Supply is simply outstripping demand.

“Automotive retail businesses will also struggle. Car sales continue to slow, thanks in part to an increase in PCP finance deal interest rates and falling consumer confidence. The latest figures from the Society of Motor Manufacturers and Traders (SMMT) showed 2.5 million new cars were registered last year, 5.7% less than in 2016. At the moment, the likes of Ford, Vauxhall and the major French automotive brands are suffering the most.

“However it must be remembered that it’s not all doom and gloom. North West businesses operating in the region’s growing tech sector, for instance, are set to capitalise on a bright outlook for 2018.   Elsewhere, holiday cottage and insurance brokerage firms are also on track to grow. We can also expect the North West’s hotel trade to have a good year, with The Lake District recently gaining UNESCO World Heritage status.”

To navigate the tough trading environment, James Buxton, a director in KPMG’s Manchester restructuring practice, advises businesses that are feeling the pressure to start looking at turnaround strategies now.

He said: “Going in to 2018, we’re helping a lot of clients develop strategies that will improve profitability and prepare their businesses for continued economic and political uncertainty. Traditional lenders are in good shape, so liquidity isn’t as big an issue as it has been. Today, efficiency is the key to unlocking profit and we’re currently conducting numerous strategy reviews for North West companies that look at the streamlining of overhead costs, procurement practices and finance functions. For retailers, this is being driven by increased competition from e-commerce.

“Businesses like certainty, but it’s clear Brexit will continue to muddy the waters in 2018, stifling investment and intensifying the competition for talent in the North West’s traditional engineering and manufacturing sectors. Because the picture isn’t clear, we are increasingly being asked to provide objective challenges to management teams in a strategy setting, to sense check and help them identify a clear way forward for a number of eventualities. It’s an essential exercise that companies in every sector should consider this year, while the environment remains challenging.”

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