Managing under extremes

Over the past five years, businesses have faced unprecedented challenges, providing a rigorous test for management teams and an unparalleled training ground.  Few leaders have experienced such prolonged variability in factors impacting their businesses.  If we split the last decade into two halves, this provides a good demonstration of the relative turbulence which we are all continuing to navigate.

From 2015 to 2019:

• Bank of England Base Rate ranged from 0.25% to 0.75%,
• Consumer Price Index peaked at 2.8%,
• Relative stability was seen in container freight and energy prices.

From 2020 to 2025:

• Bank of England Base Rate fluctuated between 0.10% and 5.25%,
• Consumer Price Index ranged from nearly zero to over 10%,
• The Containerised Freight Index peaked at five times the highest point of the previous five years,
• Wholesale energy prices in August 2022 were approximately ten times higher than at the start of 2021.

While these factors are not mutually exclusive or independent of events across the world, we have also seen:

• Higher debt levels due to Covid related borrowing,
• Wars across Europe and the Middle East affecting supply routes,
• Increased political polarisation, and
• Heightened sanctions impacting trade with some customers and suppliers.

The phrase ‘return to normal’ is often heard when referring to the period after the pandemic, however the operating environment since Covid is quite extreme when compared to a lengthy period of stability prior to it.

For any responsible lender, assessing a business’s ability to afford its debt is crucial. This assessment hinges on the business’s historical performance, and the risks to the continuation of its past success. Historical performance is clear and documented, with known past economic and market factors. However, future performance depends on the business’s ability to seize new opportunities and replicate past successes, considering ongoing economic and market conditions. Performance heavily relies on management decisions, and the recent economic backdrop has increased the importance of the experience and performance of the management team when considering a lending decision.

Any management team who has been able to successfully navigate the business environment over the last five years and continue to show even some of the signs of success, has arguably done extremely well.  While lending structures are designed to absorb variations, movement in economic factors and their impact on businesses are more extreme, and the lending decision must therefore consider not only whether they can be absorbed in existing operations, but also how the management team can make changes to mitigate such an impact, and their experience in doing so.

In discussion with Gareth Jones, Head of Virgin Money’s Strategic Finance Team for the Midlands, he stated: “Virgin Money’s relationship management approach is designed to help management teams face ongoing challenges.  This involves working closely with management, ensuring that we understand the unique challenges and opportunities each business faces, and allowing us to provide the right support at the right time.  We develop an in-depth knowledge of the business so we can assist success through specialist support and a package of banking facilities designed specifically for the business and the environment it is facing into.”

Recent economic events may point to an increase in management scrutiny; however the last five years have also provided a set of circumstances that are unrivalled in recent career history, and which have provided management teams and lenders with the experience to operate under extremes, allowing better training through practice, and therefore better decision-making leaning on such experience.

When Virgin Money’s lending and relationship teams are talking to business leaders, conversations are generally much more considered, detailed and example-led than they were prior to the pandemic.  While we may all desire calmer waters, no matter the type of business we lead or business focused profession we operate in, we are more agile, resilient and better prepared as we face into the continued challenges of the future, because of what we have navigated through in the recent past.