Four-in-ten firms considering restructuring over next 12 months

Many companies across the UK are emerging from lockdown with a sense of cautious optimism. While the majority expect top-line revenues to return to pre-pandemic rates within the next two years, more than half also expect to encounter a liquidity shortfall in the next 12 months.

The last year has understandably seen a spike in restructuring and insolvency procedures across UK markets. Firms across all industries have struggled to maintain liquidity amid the coronavirus pandemic, and its deep recession – with consumer-facing businesses relying on bricks-and-mortar presences and the manufacturing and construction sectors having been especially hard hit.

Now, however, a PwC survey of 400 major businesses with revenues between £25 million and £1 billion or more has found that many firms operating in the retail and consumer, financial services, manufacturing, technology and energy and utilities sectors are quietly optimistic about the future.

With a mass vaccine drive across the UK seemingly heralding an end to the pandemic in the country, light appears to be at the end of the tunnel with 67% of companies saying that top line revenue will return to its pre-pandemic rates within the next 24 months. At the same time, 15% already believe their business has reached this level, and 5% say it is even performing better. 

While in the longer term firms may be on the road to recovery though, many are far from being out of the woods yet. Despite reducing costs, companies have still faced challenges around servicing debt – and 55% of those surveyed experienced an inability to service debt payments within the last 12 months. Meanwhile, more than one-third have less than 12 months of liquidity – contributing to an alarming 63% who expect to encounter issues servicing their debt payments in the next year.

Meanwhile, 57% report being unable to meet financial covenants, and 55% have experienced challenges in repaying or refinancing loans.

Steve Russell, Head of Business Restructuring Services at PwC, said, “After a long and challenging year, optimism and confidence are on the rise. Businesses are looking to the signs of recovery on the horizon… However, it’s important not to lose focus on the path ahead. To survive, firms need a dose of realism to balance their optimism.”

In order to safeguard the bottom-lines of many firms, a large portion of those polled by PwC suggested they would take drastic measures in the coming year. One-quarter of firms said that they were planning headcount reductions over the next 12 months, while the same number said ‘rapid cost reduction programmes’ were also on the cards.

More broadly across all of the 400 companies surveyed, 42% said they were considering streamlining the group’s structure in some way. At the same time, almost four-in-10 said they would consider or plan a compromise agreement such as a company voluntary arrangement (CVA) in the coming year. Meanwhile, of the 152 respondents producing a range of forecasts for the next 12 months, six-in-10 have weaved in emerging trends such as hybrid working patterns into their scenario planning to help reduce spending on things like office space.

Russell added, “The use of Restructuring Plans and other restructuring mechanisms is likely to increase as businesses aim to preserve roles and ensure continuity. The greatest value will be achieved by ensuring key stakeholders are not only welcomed to the negotiation table, but encouraged to remain there by being treated fairly.”