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midlands corporates remain strong in adversity 01/03/2008 With the exception of financials and high street retailers, companies with Midland connections have continued to deliver a robust profit performance even as the credit crunch has taken hold in the world's financial markets.
On the positive side, our business sectors, virtually across the board, are better prepared to deal with downward pressure on demand than they have ever been before.
Many Midland companies have restructured themselves over the last 25 years to the point where they are market focused in delivering across the world, often using resources from lower cost economies in Europe and the Far East and combining these with added value content from the Midlands to remain competitive.
For many, this is ensuring that market shares are holding up and profits are being generated from this and from innovation and improved productivity.
There are other factors too, including the fact that the weakness of the pound will no doubt help those companies supplying into Europe.
However, on the other side of the coin, we have the challenges of the instability in the financial markets and the fact that listed company share prices do not reflect the underlying profitability of the businesses in question.
Driven initially by irresponsible and excessively high-risk lending in the USA and elsewhere, debt markets have taken fright and businesses will pay the price in terms of borrowings that are not so easily secured at a reasonable cost.
If borrowings, not to mention equity finance, cannot be obtained at reasonable prices, future growth will of course be held back as businesses major on short term cash control and become more risk averse.
There is evidence that profit growth will slow and perhaps reverse at the consumer end of the market, directly or indirectly a result of the financial issues. The recent decision of Woolworths to slash its dividend owed as much or more to its high financing costs as to pressure on revenues.
It's difficult to call the end of the financial instability at present and it does seem that we are looking at a slow down in growth. What is more, there is a real chance of a consumer-induced confidence fall leading to a general problem.
But business has been there before. The cyclical nature of markets means that we go through periods like this and history confirms that most businesses emerge as strong as or stronger than they were before the bad news broke.
This is why it is so encouraging for me that corporate Midlands seems to be in good shape. This means it is competitive and in turn that we have a platform for optimism.
For further information please contact Adam McGiveron on
adam.mcgiveron@martineau-uk.com |
