The past few months have been extremely challenging on a personal and business level. Economic uncertainty remains high and decision making in these conditions is not easy. Supporting our portfolio has been our top priority. Utilising government intervention, managing H&S risk, reducing overheads and providing moral support are some of the ways we have tried to ease the significant pressure management teams are under.
Effect on the portfolio
The Office for National Statistics reported the fastest drop in GDP since records began with 5.8% in March and 10.8% in April respectively. The macroeconomic outlook for H2 is bleak. Positively the Bank of England, which injected £200bn into the economy in March and further since through asset purchasing, along with government intervention, reaffirmed that they are prepared to provide the stimulus needed to support the economy.
The pandemics effect on our portfolio reflects that some sectors have been hit and others have so far benefited. We were fortunate to be relatively defensive through not being exposed to leisure, travel and hospitality whilst benefiting from increased demand in some sectors such as food and beverage, IT and e-commerce. Nevertheless, April and May were very tough months on all aspects of business and we expect volatility to be an ongoing theme for the remainder of the year. Thankfully, we are seeing demand pick up in June, particularly in manufacturing and services, as lockdown restrictions ease and businesses reopen.
Liquidity is king during crises. As lockdown unfolded we helped our companies apply for CBILS loans, sector specific grants and rates rebates (where applicable) to increase headroom. Banks were initially slow to respond, inundated with applications. Being able to quickly provide detailed cash flow forecasts, business plans and banking contacts unlocked funding in an efficient manner. Updates and advice on government furlough scheme meant that applications were filled out accurately and timely.
Stakeholder management was key to manage working capital, ensuring good relationships are maintained with suppliers and customers for when demand increases, taking a long term pragmatic view whilst managing bad debt risk. We have been able to share covid-related experiences of portfolio companies on HR, operations and access to funding with the rest of the portfolio to solve challenges as efficiently as possible.
Thinking about the future
Lockdown has also provided a positive opening for reflection and planning for the future. We are seeing chances to better use technology, think more about internal processes and target new areas of product and business development. Several companies are seeking to make acquisitions and we are supporting to search for and qualify relevant opportunities. Pre-Covid we were experiencing the challenges of a tight labour market, with increasing costs in attracting and retaining talent. We are helping think about ways this can be addressed going forward using experience gained from lockdown.
Another area of related importance continues to be incentivisation of management using EMI schemes, option pools and performance related bonus schemes. Our goal is to strengthen the financial and operational position of our portfolio companies for when the economy picks up.
We have seen decreased level of new investment opportunities as business sales and fundraises have been put temporarily on hold. This is against a very high volume of new opportunities pre-COVID. Nevertheless we are still in the investment phase of Fund 2 and actively looking to invest. Homeworking methods have meant very little change in our process of appraising new opportunities. With customer demand increasing across the portfolio, we are similarly seeing investment activity increase which is hopefully a sign of a faster than anticipated recovery – although it’s still too early to tell how things will play out.
In the meantime we are extremely grateful to our portfolio for the exceptional efforts management and employees have gone to in managing through this extremely difficult period. We believe these efforts will make investee companies more resilient for the future and look forward to continuing to play our part in supporting the companies we have backed through the pandemic.