Readers of a certain age may remember the John Bull Printing Outfit in their Christmas stockings: a set of rubber letters to be lined up in a red holder for stamping words, via an inkpad, on to paper. Quintessentially British in its DIY-ness and optimism, this toy may have been far from what Caxton had in mind when he introduced the printing press to these shores 500 years earlier; nonetheless, the ‘smudged ransom note’ appearance of the John Bull end-result was part of the fun for children as they soon realised that a career in typesetting may not be for them.
Fast forward another 50 years and many would say that physical print is firmly on the way out as digital products and services continue to displace printed materials. The two largest markets, advertising and publishing, have accelerated their online footprint, reducing printing demand dramatically. UK trade magazine Print Week has, in recent editions, reported several administrations, pre-packs and personal bankruptcies related to continued challenging times in the sector: Graphic Print Services, Charlesworth Press, RNB Group, Gemini Print, DecTek, Big Bang and Northwolds Richardson, to name but a few.
As in many industries, there will always be ways for traditional print to coexist, even complement, digital media. After all, video didn’t quite kill the radio star. Reinvention and a willingness to adapt are key to survival, and many business are making inevitable change work for them. Digital print enhancement, managed print services, e-commerce packaging innovation, on-demand printing models (look at Amazon publishing) – it’s possible to balance leading-edge technologies with sustainable practices to develop new revenue streams.
According to Radixweb, the global commercial print industry isn’t shrinking overall. It’s expected to show modest annual growth of nearly 2% for the 2022-27 period, reaching $484.2bn. Against this background, jobs will still be lost in the print sector and investment to pivot will remain costly, but it seems there are returns for those prepared to take the risk.
UK manufacturing
A general easing of inflationary pressure and a tentative recovery in UK manufacturing output are being accompanied by fierce lobbying of the new government to ensure a sustainable industrial base amid ongoing dramatic change.
Manufacturing’s share of the UK economy is around 10% today, half of what it was in 1990. Everyone knows that our manufacturers face perennial competition from emerging economies in Asia, primarily China and India, which are able to produce goods more cheaply. Fewer realise that well over 90% of UK manufacturers are SMEs or even microenterprises; relative to larger business in all sectors, they have poorer access to funding, skills, physical space and exporting.
Nonetheless, the tide may be turning. According to the latest S&P Purchasing Managers Index (PMI), manufacturing output improved to a 26-month high in August. The PMI hit 52.5, up from 52.1 in July – exceeding 50 indicates expansion. Domestic demand for manufactured goods has picked up, but businesses continue to experience global difficulties that have restricted foreign orders. Conflict in the Middle East and disrupted shipping in the Red Sea remains a concern.
Manufacturing and engineering are sectors undergoing dramatic change, which can also bring significant opportunities for UK businesses ready to exploit well-established strengths in electronics, chemicals, pharmaceuticals and aerospace. The industry is no longer about merely turning raw materials into physical products. Increasingly, manufacturers derive revenues from other activities which are really services, for example specialist engineering, retooling used parts or even some forms of equipment leasing.
The value chain is increasingly complex and manufacturers are adapting, some quicker than others. In addition, technology in production requires fewer jobs, meaning new forms of training for different skills and a need for companies, the education sector and government to work together delivering them.
Trade body Make UK says we can compete on innovation, as long as government helps to develop a joined-up strategy on tech, robotisation, renewable energies and training to give us the best chance. It also urges big changes to address Brexit’s effects on the manufacturing sector. EU trade deals usually feature “diagonal cumulation” clauses that allow components processed in a third country such as Japan that are then exported to the bloc to still be considered to have originated in the EU. Manufacturers say the lack of such an arrangement in the Brexit deal is severely damaging cross-border production industries.
In any event, businesses need to re-engineer themselves, in an operational or financial restructuring sense, if they want to capitalise on opportunities and protect themselves against a chill wind. The obvious areas for attention might include:
- Cash flow and working capital
- Leasing and funding of production lines
- Asset finance
- Factory premises and their purchase or rent
- Assessing available financial support for R&D
- Grant application support
- Managing exchange rate fluctuation
- Operational efficiency
- Invoice financing
Advisory businesses
Thousands of new graduates – the lucky ones, in today’s challenging climate for first jobs – will be starting office life in city centres this week, even if they don’t plan to be in every day. Although most workplaces have ‘gone hybrid’ or even left town for good, many businesses based on daily relationships and meetings with clients are staying put. Buchler Phillips staff are certainly in the office much of the week, although working flexibly.
Our own Professional Services sector has historically meant firms of formally qualified advisers in areas clearly defined over generations: accountants, solicitors, surveyors, architects, engineers. However, the changing needs of businesses and individuals in the 21st century has widened this sector considerably to include all manner of people-based businesses, with revenue models based largely on consulting fee income or commissions.
‘Modern’ Professional Services firms now include marketing, public relations, recruitment, design and several disciplines that did not exist when the Magic Circle law firms or Big Four accountants began life as Victorian partnerships.
The people-based, consulting revenue model brings with it financial features and associated challenges that are unusual in many other sectors: relatively low levels of borrowing; disproportionately high staff and office costs; a highly competitive market for income-generating senior practitioners; and client relationships that are often too closely linked to individuals, rather than to the firm itself.
In ‘new’ professional services, in particular, barriers to entry for operators may be low, partly a result of fewer formal qualifications, lack of official regulation and debatable ‘professionalism’. Nonetheless, these and more established services share challenges of differentiation from their competitors and a need for regular reinvention to remain relevant to clients.
The economic aftermath of Covid/Brexit/Ukraine has been as unkind to many advisory businesses as to other more obvious casualties such as hospitality and leisure, or construction. Consultancies will now, understandably, be focused on developing billable work, keeping clients happy and running teams of staff. They might also, however, give some thought to getting expert help in futureproofing their businesses and keeping them on a safe footing.
Areas to consider might range from important everyday issues, such as cash flow management, remuneration models and regulatory affairs, to taking bigger strategic steps on due diligence for acquisitions, merger integration, operational assessments or even dissolving partnerships.
It’s inevitable that sometimes busy practitioners are less than speedy in keeping their own houses in order. They are probably a stone’s throw from other, very relevant advisers who are well placed to understand the challenges, opportunities and complexities of owning, working within and managing a successful professional services business. Independence allows them to offer commercial insight and business sense that is sometimes a difficult area on which to focus. Even consultants need consultancy services.
Inflation outlook
One thing’s certain about the Bank of England’s UK inflation target: it’s more flexible than the ‘Old Lady’ had previously led us to believe. After a near-three year descent to the critical 2%, and a quarter-point base rate cut to 5%, inflation edged back up to 2.2% in August, dampening expectations of a steady decline in the cost of borrowing. Many economists believe the Bank is now broadly comfortable in the 2-3% range, while fund managers seem to be assuming a long-run average of 2.5% on a 10 year view.
Markets have priced in one more rate cut, but not until November or even December. House prices are the only consumer barometer looking anywhere near positive, running at a two-year high after the last rate cut, but the general feeling is gloomy ahead of heavily tipped tax rises in the late October budget. Wage increases are finally slowing, but are still firmly ahead of inflation, while the energy price cap will rise again in October. In any event, the Bank feels under no pressure to loosen monetary policy anytime soon, itself forecasting interest rates being around 3.5% in the latter half of 2027 – three years away.
As ever, the Buchler Phillips approach to business challenges is ‘workout, not bail out’. Don’t hesitate to get in touch for an exploratory chat if your business needs help. Addressing the cracks now will, in many cases, avoid the need to start again.
Our helplines below are open for free initial consultations.
Jo Milner 07990 816904
David Buchler 07836 777748
Let’s get to work!
About Buchler Phillips
Buchler Phillips is an independent, UK based corporate recovery and restructuring firm, with an impeccable Mayfair heritage dating back to the 1930s.
Led by David Buchler, former Europe and Africa chairman of global consultancy Kroll Inc, our senior team is equally comfortable advising large corporations, Small & Medium Enterprises (SMEs) or individuals. In addition to decades of experience, each of our Partners brings to any given assignment unique independent insight, free from conflicts of interest, that is often sought but rarely found by clients or co-advisors.
The firm is sector-agnostic, but has particularly strong credentials in property; financial services; professional services; leisure and hospitality; retail and consumer; UK sports; media and entertainment; transport and logistics; manufacturing and engineering; technology and telecoms
Our activities fall broadly, though by no means exclusively, into financial restructuring, including fraud and forensic investigations; operational restructuring and turnaround; expert witness services and recovery solutions for corporates and individuals.
This newsletter is published for the purposes of general information only and does not constitute advice. Any action taken by readers upon the information above is entirely at their own risk.