For financial professionals in the UK

UK businesses are thriving in the new normal

Laura Foll, CFA

Laura Foll, CFA

Portfolio Manager

James Henderson

James Henderson

Portfolio Manager

26 Apr 2022
7 minute read

As Brexit uncertainty abated, the Covid-19 pandemic brought new challenges for consumers and businesses alike. Everything, from the way we work, eat, shop, and entertain ourselves, was upended, and companies were forced to adapt to our new way of life. Here, we look at how these challenges have played out and how companies within the Lowland Investment Company, managed by Laura Foll and James Henderson, have adapted to the new normal.

Playing catch-up

The last few years have been particularly challenging for UK businesses. A protracted Brexit process cast a cloud of operational uncertainty, which led to lower investment and productivity. Then, the pandemic arrived on our shores, disrupting the way we live and how businesses operate. People started working from home, whilst regular shopping trips turned into online grocery orders. At the pandemics peak, UK adults spent more than a quarter of their waking day online – the highest on record – with people seeking new ways to keep connected, informed, entertained, and fit.i

Amidst the great migration online, UK plc was in lockstep trying to solve the difficult challenges presented by the pandemic. Plato said necessity was the mother of invention – and he was right. The pandemic created an imperative for management teams to reconfigure their operations and provided them with an opportunity to transform themselves to deal with changing consumer and structural trends. As the wave of innovation and investment continues, it seems those trends accelerated by Covid are here to stay and could lead to a new leg of prosperity for those British businesses that have adapted to the new normal.

A strategic imperative

It wouldn’t be difficult to guess that shopping behaviours would change, but surveys have found transformations stretching much deeper into business operations – across back office, production & supply chains, and research & development processes.

Beginning with e-commerce, a survey by McKinsey found that two thirds of consumers from 9 major OECD countries had tried new forms of digital shopping on account of the pandemic. This was particularly the case in the UK and the US where in the first half of 2020 alone, increases in e-commerce were equivalent to that of the entire previous decadeii. As a result, businesses have switched to distributing a larger percentage of their products through online channels and boosted their portfolios with new digital goods and services. And they have done this at an incredible pace – with developed Asia for example, showing a leap of at least 10-years (see chart below).


Source: Mckinsey, October 2020 Note: Years ahead of the average rate of adoption from 2017 to 2019

The pandemic also unveiled a host of complexities and vulnerabilities in the supply chains of various organisations – especially those with a high dependence on China to fulfil their need for raw materials and finished products. Broadly, firms realised three things. First, that disruptions are inevitable, especially as the forces of globalisation have fragmented supply chains into fragile processes that criss-cross around the world. Second, that they had been unaware of the vulnerabilities that exist further down their complex chains. And third, that the cost differential between developed and developing countries where many goods are manufactured is narrowing, especially given the efficiencies created by applying technologies such as data analytics, human-machine interactions, advanced robotics, and 3-D printing.

As such, some firms have begun shifting their operations from ‘just in time’ processes, which focused on delivering raw materials at the precise moment they’re needed to maximise operational efficiency; to ‘just in case’ processes, which focus on building greater resilience by anticipating demand thus reducing the risk of stockouts due to large-scale disruptions and complexities such as we are seeing now. For some businesses, this has meant brining certain elements closer to home – often called near-shoring.

Finally, the pandemic has also inspired a green revolution as the costs of polluting and the benefits of environmental sustainability became clearer. The war in Ukraine has also further highlighted why the transition towards cleaner renewable energy is important with soaring energy prices highlighting the volatility of fossil fuel dependency. With governments firmly committed to net-zero targets and consumers increasingly holding companies to account over their impact on the planet, businesses are now seeing the strategic imperative of going green. Though this transition will bring different challenges, it also presents an opportunity. While the past two decades have seen stock markets powered by digital technology firms, green tech could be powering them for decades to come.

How it plays out in the portfolio

Amidst all the uncertainty, companies in Lowland Investment Company’s portfolio have responded with gusto and we have seen businesses across the market spectrum adapt to deal with changing consumer behaviour, whilst addressing long-term structural trends that will drive future growth.

Marks & Spencer is a prime example. The business had long needed to shift its channel mix and improve the e-commerce experience for customers, and the pandemic served as a catalyst for this transformation. With consumer spending more time online, the business is reshaping its store estate and has invested in technology and e-commerce to provide customers with a more encompassing online experience.

Its venture with online supermarket Ocado was also very timely as online delivery orders soared during the pandemic. This was instrumental in bolstering its sales: over the Christmas period – the 13 weeks to January 1st – the group posted record sales of £3.3bn, 8.5% ahead of pre-pandemic levels. Unlike some pandemic trends or fads, online grocery shopping is here to stay as consumers have become used to a smoother omnichannel experience and the convenience of online shopping. According to management consultancy Bainiii , 35-45% of pandemic sales are likely to stick.

Change has also been happening further down the cap scale with Churchill China, the British manufacturer of ceramic tableware, a fine example. Covid pummelled the hospitality industry, meaning the business’s sales to its key market, dropped heavily. None-the-less, the company continued to keep its manufacturing running to bolster its inventories adopting a ‘just in case’ approach. Sure enough, as economies reopened, this enabled the business to bounce back strongly as demand picked up, whilst competitors faced supply constraints. By improving its market leading position, it’s been able to push through price rises at a higher rate and earlier than normal which has helped offset higher costs.

The company has also invested heavily in sustainability and reduced energy costs, thereby improving its production efficiency and capacity. This included increasing floor-space to facilitate the automation of elements of its supply chain and boost its productivity, as well as making investments in solar power to help lower costs and transition from less sustainable forms of energy.

There are large structural changes happening in the global economy and the speed of change is only getting faster. For companies, these changes present both challenges and opportunities. The pandemic

followed by the war in Ukraine have highlighted how unpredictable things can be and how events originating from one region can have wider implications. While inflation has been an issue for some businesses; companies with a differentiated offering have been able to increase prices enabling them to counter rising input costs and preserve margins. Businesses that have transformed their digital offering and streamlined their processes have also seen margin resilience. Though the outlook is uncertain, and challenges remain, we will continue to look for high quality businesses that can innovate and adapt to provide shareholders with sustainable long-term returns no matter the market environment.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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