Ultimate Finance Column: As businesses emerge from the recession, all eyes are on which sectors will recover first
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AUSTIN Thorp, Managing Director (North) of ultimate finance, looks at how certain sectors are faring in their efforts to emerge from the recession, and how the growth of these businesses can be supported. As the economy tentatively enters recovery mode, businesses across the SME space are being scrutinised as we wait to see which sectors will recover and on what sort of time frame. In the North West, we are seeing particular improvements in the automotive and aerospace sectors, both of which are well-served in the region, and are showing considerable growth on the back of an export-led recovery. It is widely acknowledged that the automotive sector is one of the first industries to be affected by a recession – but it is interesting to consider whether businesses will emerge from the recession in the order they went into it? A recent Baker Tilly report on the outlook for the automotive sector suggested that whilst the government scrappage scheme ceased in Q2, resulting in a drop in new car registrations of around 20%, the luxury car market has showed a much better rate of recovery then expected, with Land Rover increasing sales in 2010 by over 30% for example. Given the success of the North American International Auto Show held in Detroit earlier this year, which is estimated to have had an economic impact of between $350 – $375 million, and boasted 35 worldwide new model launches, it would appear that the sector is looking much stronger than it has done over the last couple of years. With the VAT increase, motor dealers aimed at retail customers will see more of an impact than corporate dealers, but in terms of the sector as a whole there are still opportunities for growth, including smaller regional businesses that are earlier on in the supply chain. What is interesting is the way that the recovery of a few leaders in the space filters down to other suppliers to the sector, and how, after many months of being in survival mode, companies will now need to find methods of funding growth. In particular, support may be required for tier 1 and tier 2 suppliers into these sectors whose balance sheets will have been affected as a result of recession. As traditional means of funding remain difficult to obtain, companies are turning to asset based lending products such as invoice or asset finance. An invoice finance facility, for example, can be invaluable when a business is using up working capital faster than its customers are paying invoices. Similarly the use of asset finance, either as a hire purchase or leasing facility, can be integral when a business needs to replace, update or acquire new equipment but needs to spread the cost, or alternatively asset finance can be a means of generating additional working capital by refinancing existing unencumbered equipment. The recovery of any sector is highly dependent on SMEs, and their ability to sustain growth is critical. With bank funding still restricted, alternatives such as invoice and asset finance are becoming increasingly recognised as integral to supporting SMEs. Whilst it remains to be seen which sectors will drive growth over the next year, it is interesting to observe that regional businesses such as suppliers to the automotive sector do seem to be leading the way, supported by alternative means of funding. Austin heads the team at ultimate finance’s offices in Manchester. With 24 years’ experience in the finance sector, Austin is also a Manchester City season ticket holder, plays off a handicap of 14 at Worsley Golf Club and enjoys watching rugby. More articles in
Sectors
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