Yorkshire business leaders must shift their mind-set if they are to turn the prevailing feeling of optimism into investment and growth in 2014.
This is according to Steve Harris, Area Director, North, East and West Yorkshire in the Mid Markets team at Lloyds Bank Commercial Banking.
A survey gathered at Lloyds Bank’s Big Picture event at York’s National Railway Museum in November, which was attended by more than 350 business leaders, showed that 90 per cent of respondents felt more optimistic about future growth prospects, while over three quarters planned to finance expansion opportunities next year.
Despite these results, many businesses’ behaviour suggests that they remain cautious – at least for now – says Harris, who is also a board member of the Leeds City Region LEP.
Mr Harris said:
“Confidence amongst our region’s businesses is unquestionably growing as we look to 2014.
“Supported by improving conditions in employment, the manufacturing and services sectors, and the broader economy.
“However, we are currently looking at a trend of around nine per cent growth in cash deposits on balance with us nationally, which shows that cash is still on balance sheets and not yet beginning to be invested.”
While many of the region’s firms are already planning investment by engaging bankers and advisors around ways in which they can deliver organic and acquisitive growth in 2014, Harris believes that some will only benefit from the continued recovery by shifting their strategies.
“Up until recently finance director and treasurers’ strategies were focused on conserving cash and managing expenditure in the downturn.
“Now they need to focus on expansion and preparing for growth to take advantage of recovery opportunities in 2014. That’s a big change for many.
“Working capital management is one obvious area. Yorkshire companies will need to concentrate on finding working capital enhancements that improve the long-term health of the company, and its competitiveness in the recovery.
“New and alternative forms of funding, such as supplier finance or invoice finance, can help businesses and firms in their wider supply chains to realise working capital benefits.”
“Exploring new, value accretive acquisitions will be another core focus. Yorkshire is home to a number of mid-market corporates operating in fragmented sub-sectors, which present the ideal opportunity to launch acquisitive growth strategies that increase their exposure to new geographical regions, product markets or vertical sectors.”
“What’s more funding conditions are favourable; there is positive appetite from banks, funders and equity sponsors to support company growth strategies and the underlying cost of funding remains comparatively low.
“The hurdle remains that of confidence with those businesses wanting to grow being sufficiently confident to take the initiative now.”
In response to Lloyds Bank’s survey, business leaders also agreed that companies in the region need to look beyond their home markets if they are to expand in 2014.
Harris feels this will be another popular route to growth, but that barriers remain.
Mr Harris said:
“Bureaucracy, differing tax regimes, political instability, and the escalating costs of travel mean companies need to engage experienced partners if their export initiatives are to succeed.
“We expect to see more Yorkshire firms using export and trade finance solutions which help to ensure that their working capital remains uninhibited by trading with overseas firms.”
Despite these challenges, Harris predicts that wider confidence will be reflected in companies’ behaviour in 2014 as they invest for sustained growth.
“We expect the level of corporate investment in Yorkshire to gradually increase throughout 2014, supported by better visibility of revenues, evidence of growth as a result of operational improvements made during the downturn, an uptick in the regional M&A market and a supportive financing environment for traditional term debt and a host of other products such as asset based finance and acquisition finance.
“The rate of this expansion for individual businesses in Yorkshire however will depend on them preparing for growth now, both in terms of their business strategy and financing position.”