Construction not the most vulnerable sector, report reveals
METAL products, financial services, hotels and restaurants are the sectors most vulnerable to the downturn, according to a new industry ranking.
Research by accountants PricewaterhouseCoopers (PwC) shows that metal products such as steel and aluminium is the sector most likely to suffer in the recession, with financial services and hotels and restaurants not far behind.
The pharmaceuticals, food retailing and utilities sectors are ranked as the least vulnerable.
The PwC Sector Vulnerability Index, which was last compiled in 2001 but now expanded and updated for the latest available data in 2009, looks at 15 major UK industry sectors and how they are affected by ten key economic and financial factors reflect current financial strength, historical cyclicality and future growth potential.
Ron McMillan, northern chairman of PwC, said: “While UK industry is unlikely to escape the downturn entirely unscathed, we can make some distinctions between sector prospects.
“Our research shows that the most vulnerable sectors are those that are highly cyclical without enjoying the buffer of strong financial positions. But there is a positive message for those in industries including pharmaceuticals, food retailing and utilities.”
He continued: “There is always an opportunity, however, for individual companies within vulnerable sectors to outperform and improve their market positions.
“Recessions tend to be Darwinian processes, in which the strongest and fittest companies survive and indeed prosper, while weaker players fall by the wayside. The current downturn is unlikely to be an exception to this rule.”
The research found that the hotel and restaurant sector is comparatively exposed to deteriorating conditions in the credit markets and the economy due to the fact it is relatively highly geared and tends to be very sensitive to the economic cycle.
Unsurprisingly the construction industry has above average vulnerability overall. However it ranks less highly than might be expected because the sector was more highly geared in the past.
While some parts of the sector (e.g. housebuilding) are clearly highly exposed to the downturn, other parts (e.g. civil engineering companies working on large public sector projects) are less exposed.
The construction sector is also, on average, less highly geared than it was in the early 1990s recession.
Relatively low in the index and less vulnerable to the downturn is the chemicals sector, which in the UK is dominated by pharmaceuticals companies.
The latter are insulated from the economic turbulence as the pharmaceuticals industry can rely on a steady flow of orders from the NHS to help support it.
