Scottish company well placed to flourish, but only with appropriate capital in place – Commentary by Jamie Grant

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Companies across the country and across industries have shown incredible resilience and an impressive ability to adapt and reinvent business models to rapidly changing market conditions.

Last year, SME management teams tackled the challenges of the Covid pandemic by looking at different ways of doing business. In some ways, a unique opportunity for leaders to rethink how to keep their businesses moving forward – and many have seized the opportunity to review their strategies, optimize their operations, streamline their cost base and make their more efficient supply chains.

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This strategic approach, backed by government support programs and a greater focus on working capital, means that many SMEs now probably have more cash than they ever had. Many will be in a strong position to invest in new equipment and facilities, products, people and markets in 2022.

“There is an air of optimism that our economy is starting to kick into high gear,” says Barclays’ Jamie Grant. Photo: Neil Hanna Photography.

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One sector showing confidence and leading the way is whisky, which has continued to thrive despite severe challenges from the pandemic. Along with pivoting operations to produce much-needed sanitizers and gels, the industry has reaped the rewards of investing in premium brands and even new distilleries to generate strong sales in its global market.

Barclays has extensive experience and expertise in supporting Scotland’s whiskey industry throughout the supply chain. It was only recently that we announced a major multi-million pound funding package with Kilchoman Distillery, on Islay, allowing them to invest in new production facilities. Kilchoman aims to produce 40% more whiskey over the next 12 months and increase its presence in major markets such as the United States and China.

Despite difficult economic conditions, the production of our national drink remains a booming industry and there is still a huge appetite for single malts, and many people are still willing to pay high prices.

Our teams in Scotland have a vast knowledge and understanding of how the different levels of investment are essential to supporting distilleries, where in most cases the whiskey produced today will not be on the market until several years.

Elsewhere, with the gradual easing of restrictions, hotels and other hospitality and leisure businesses can hopefully wait out Easter and beyond with the start of the tourist season. The industry has had to adapt to meet growing demand for vacations, and recent research has shown this is set to continue into 2022.

Stay

VisitScotland reports figures showing that 53% of Scots are planning a stay in the country. The North of Scotland and the Highlands continue to be among the UK’s most popular holiday destinations.

In manufacturing, we should see more investment in machinery and technology to drive automation, and as the continued demand for whiskey shows, the food and beverage industry should continue to see a strong appetite for its products. Consumers are increasingly sophisticated in their tastes and place more importance on where food comes from. Scotland is well placed to tap into this market with a worldwide reputation for producing quality seafood, beef, fruit and vegetables, not to mention our passion for sweets such as shortbread.

Exploring new markets is now a priority for many SMEs, as evidenced by the partnership between Scottish Development International, Scotland Food & Drink and a multinational supermarket chain in the Middle East to promote a range of Scottish products in the shops of United Arab Emirates.

Of course, there will be challenges to overcome. Covid aside, one of the main issues for SMEs in the coming year will be rising costs across the board, as evidenced by the latest inflation figures, with research from the British Retail Consortium showing a 0.9% increase in non-food items. Although it may pull back, it is unlikely to return to the low levels we have grown accustomed to.

Ravaged

Some sectors are still likely to struggle with labor and skills shortages, and resulting wage inflation, as well as the challenge of fragile supply chains. The devastation caused by the fuel supply crisis last fall clearly demonstrated the vulnerabilities of just-in-time supply chains and this is a global problem that is not expected to go away any time soon.

Many SMEs may be in good shape right now from a liquidity perspective, but I think we will see more pressure on working capital over the coming months of next year as we enter a higher GDP growth environment, at a time when government support loans will need to be repaid and accumulated tax debts will become due.

Companies will need to ensure they have the capital structures in place to deal with these pressures – even if we don’t expect a significant increase in corporate failures.

Despite these challenges and the continued uncertainty of Covid, I am quite optimistic about the outlook for the months ahead. The lessons businesses have learned throughout the pandemic and their ability to quickly adapt to market trends positions them to take full advantage of the robust economic growth forecast for 2022.

Jamie Grant, Managing Director for Scotland and Head of Midsize Business (North), Corporate Banking, Barclays

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