Credit Management January February 2024

INSIGHTS
“With medium term UK growth prospects muted, and inflation
and finance costs remaining above historical averages, closer
attention to multiple risks will be required by credit providers.
This will involve more frequent and faster review of ‘red flags’ for
increasing customer volumes.”
Andrew Birkwood maintains that the provision of PGs continues
to be a strong value element of the SME lending value chain:
“Large SME lenders that historically have not required PGs, are
considering their inclusion in 2024 lending,” he explains. “Obliging
a director to provide security for a business loan helps create many
of the right behaviours – such as weeding out frivolous borrowing
and creating a store of value (to repay the credit) in the event of
business insolvency.”
Construction insolvencies
When it comes to business failures, construction industry
insolvencies last year matched the peaks of the last financial
crash. “These were heavily weighted to the drylining, specialist
sub-contractor and modular/offsite sectors,” Simon explains, “the
latter due to investor nervousness.
“The root causes tended to be legacy fixed price contracts rolling
into 2023, additional project delays or re-design (post contract) and
a number of major Tier One and Tier Two contractor insolvencies
(e.g. the £700m turnover Buckingham Group) with the usual supply
chain domino effect that this causes. “Construction will also have
to endure fluctuating order pipelines in various sectors which
could provide some significant turnover challenges for customers,
particularly adding risks to those carrying higher fixed costs. This
can lead customers to start buying work to maintain turnover.
Pressure on businesses is not only limited to those that are
most often in the headlines. Some sectors which have typically
remained below the radar are now coming to the fore. CICM
Think Tank specialist Nigel Fields FCICM, GPO O2C Global
Finance Operations Transformation at NBCUniversal Media and
a former Executive Director of Twentieth Century Fox, believes
that the media entertainment industry could be in for a rough
ride in 2024: “The Hollywood actor and writer strikes that took
place in 2023 will have a significant financial impact on the media
entertainment businesses, both in the US and globally,” he explains.
“Estimates are it could cost the industry at least $4bn globally.
This will affect various businesses that rely upon the movie
industry to make money including set design shops, craft services,
janitorial contractors, transportation services, drivers, catering
companies as an example. This has caused a ripple effect across
the UK film industry, with workers struggling to pay rent and
some smaller support businesses shutting down. The UK film
industry contributed £12.6 billion to the UK economy in 2019
(pre-COVID).”
Strike disruption
As has been widely reported, the strike has disrupted the production
and release of many films and TV shows, resulting in lost revenue
and missed deadlines: “There has already been a decline in the
theatrical (cinema) box office by over 25 percent since 2019,”
Nigel says, “and this has further limited the available funds for
all the studios.
“Cinema operators will be mostly adversely affected by the strike
as it has resulted in the delay or cancellation of many film releases,
which then leads to a decline in cinema attendance and revenue.
“According to a report by the UK Cinema Association, the UK
cinema industry has lost an estimated £1.3bn in revenue due to the
Brave | Curious | Resilient / www.cicm.com / January & February 2024 / PAGE 10