Is the death of Thomas Cook a sign of more to come in the travel industry?

travel industry in trouble?Commentators have been quick to predict the death of the package holiday and in some cases of much of the travel industry following the demise of Thomas Cook in September.

But is this really the case?

Johan Lundgren, the chief executive of easyJet, argues that it is too soon to predict the demise of the travel industry, or indeed of package holidays.

In an article in the Daily Telegraph he says: “sales of holiday packages have grown faster than the economy every year for the past 10 years”.

There is no doubt, however, that technology has made a significant difference to the way people search, book and pay for their holidays.

Lundgren acknowledges that requirements and buying methods have changed significantly: “Rapid development in technology and AI, combined with a focus on data now allows the customer to find holidays suited to them online”.

Holiday companies, he said, needed to invest in technology to support customer interactions.

The tour operators trade body ABTA (Association of British Travel Agents) said 51% of people it surveyed in July had taken a package holiday in the past year, up from 48% in 2018.

According to statistics from the Office for National Statistics (ONS), the number of package holidays taken in the UK has been rising steadily since 2014, reaching 18.2m last year.

In its latest quarterly bulletin on overseas travel in general, published in September, the ONS results found that UK residents spent £4.5 billion on visits overseas in June 2019 (1% more than in June 2018), however, they made 6.8 million visits overseas in June 2019 (7% fewer than in June 2018).

There are also plenty of successful small, independent local travel agents offering tailored packages to fit customers’ requirements. We know of at least three in Suffolk alone and there are doubtless many more around the country.

So clearly once people have decided where they want to go and what they want to do, they still feel the need for someone to take care of the details and to have the assurance of having someone available should things go wrong.

Furthermore, the price paid by consumers and amount received by holiday providers might provide a clue to why travel operators and package travel companies ought to survive. Most online purchases, in particular for accommodation, are now handled by firms like booking.com, trivago.co.uk or tripadvisor.co.uk who charge hotels up to 30% of the package. This is a huge margin for travel companies to exploit.

So, what happened to Thomas Cook?

The company was launched in 1841 by a Derbyshire preacher, Thomas Cook, and became one of the world’s biggest companies to offer “integrated holidays” (ie package holidays).

The company issued two profits warnings in 2018 and in May revealed it was carrying huge amounts of debt – around £1.2bn. According to the Financial Times, many of its wounds were self-inflicted: “Successive managements allowed debts to balloon. The company revealed a debt pile of £1.2bn in May and recorded a £1.1bn write-down from its ill-fated acquisition of MyTravel, a UK rival. About one-third of Thomas Cook’s sales was spent just on servicing its loans”.

Generous remuneration to its executives, including an estimated £20m in bonuses and payment of more than £8m over the past five years to chief executive, Peter Fankhauser, have also been cited as excessive.

The company also received, and declined, five offers for its profitable airline operation and as if that were not enough, the FCA (Financial Conduct Authority) is investigating EY’s audit of the company’s accounts.

The German international broadcaster, Deutsche Welle, has speculated that opaque private equity deals amid low interest rates may also have played a part in its collapse.

Arguably an out-dated business model depending too much on high street retail outlets and a failure to adopt modern technology will have contributed too.

But while there will undoubtedly be casualties among travel firms that fail to adapt their business models and practices to modern consumer requirements, and, of course, the whole industry is vulnerable to the volatility of consumer confidence in the context of an eventual post-Brexit future with fears about job security, it would be unwise to predict the death of the travel industry as a result.

 

WeWork reminds us why we should not rely on charismatic leaders and the investment bank advisers who flatter them

WeWork corporate hubrisThis week the new management of WeWork the business space property rental company announced that it was preparing to axe 2,000, or 13%, of its workforce.

It has been calculated that up to 5,000, or a third, of the workforce will ultimately have to go.

This is the latest episode in an increasingly sorry saga, which last month saw its co-founder Adam Neumann step down as chief executive and relinquish control over the company. Mr Neumann also returned $5.9m worth of stock to the firm, which he had controversially received in exchange for his claim over the “We” trademark.

After announcing its intention to launch on the US stock market earlier in the year, the company, which has more than 500 locations in 29 countries, had to postpone its plans when its viability and corporate governance came under closer scrutiny.

The business, which was estimated to be worth some $47bn when the intended float was first unveiled has since had its credit rating downgraded by the ratings company Fitch to CCC+ with a warning that its liquidity position is “precarious”. Earlier in September, Reuters had reported that the We Company could seek a valuation in its initial public offering (IPO) of between $10bn and $12bn, far below the $47bn at the start of the year. This figure is very different to valuations proposed for the IPO work reported in the Financial Times as between $46bn and $63bn by JP Morgan Chase, between $61bn and $96bn by Goldman Sachs and between $43bn and $104bn by Morgan Stanley.

These values were despite WeWork reporting a loss last year of $1.9 billion from revenue of $1.8 billion, these figures almost double those for 2017.

The recent turmoil is no doubt behind the recent announcement by two of its large landlords in London who have said they will not be signing new leases with WeWork for the foreseeable future.

Yet, there are other companies operating similar business models, such as the UK listed IWG group that owns the Regus brand which reported a net profit of £106 million from revenue £2.5bn. Two other similar business would also seem to be doing well: The Office Group and The Argyll Club formerly London Executive Offices.

As for valuations, IWG’s market capitalisation is about £3.5bn which is far lower than those proposed for WeWork but as a listed company might be more realistic.

Another example of value for a similar business model is the sale in October 2018 for £475 of London Executive Offices that had been up for sale for two year sale after an initial valuation in 2016 of £700m.

Hubris eventually catches up

Much has been made of the character and lifestyle of Adam Neumann, not least the mixing of work and pleasure, which was also part of the WeWork culture, one that offered that will offered employees “every millennial-style benefit under the sun”, which may not be right for a property letting company.

He was famous for statements like “Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.”

Clearly his character initially charmed the company’s Japanese investor SoftBank, which owns 30% of the company and whose reputation arguably contributed to the initial IPO valuation of $47bn.

However, since then, potential investors have questioned its opaque corporate structure, governance and profitability. They have also questioned the links between Mr Neumann’s personal finances and WeWork.

The whole sorry saga, I would argue, is more about the initial credulous nature of the company’s investors and their belief in Mr Neumann, and less about a business model which has worked well for other similar companies. And the investment banks haven’t helped.

‘Caveat Emptor’ Is peer to peer lending too risky for peers?

peer to peer lending house of cardsPeer to peer lending (P2P) enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman.

As such, the lack of trust in middlemen has seen the emergence of peer to peer lending platforms as an attractive proposition for retail investors in a climate of low interest rates because they can offer better rates thanks to the lower overheads associated with online businesses. The lower overheads are also related to not having to pay a middleman!

The platforms are generally a website or app that facilitates this alternate method of financing, where the first emerged in 2005 and was brought under FCA (Financial Conduct Authority) regulation in 2014.

However, the FCA has been criticised as being too “light touch” in its oversight following the collapse in May this year of UK property finance peer to peer firm Lendy with £160m in outstanding loans of which it has been calculated more than £90m are in default.

According to CityAM, Lendy was placed on a FCA watchlist last year amid concerns about its inability to meet the standards required of regulated firms. Its subsequent failure is believed likely to result in retail investors losing £millions.

The demise of Lendy came a year after the peer to peer platform Collateral UK went into administration, reportedly, according to the website crowd funder insider, after it was discovered that it had wrongly believed it was authorized and regulated by the FCA under interim permission.

FCA chief Andrew Bailey has been reported as saying that the decision to authorise Lendy had been taken to reduce consumer harm, as refusing authorisation may have risked greater damage.

However, Adam Bunch of the Lendy Action Group, which claims to represent about 900 investors, said: “FCA authorisation was seen by investors as a stamp of credibility. Only now, after the platform has failed, do we learn that the regulator in fact saw authorisation as a way to contain a badly run business”.

I would add that the reference to ‘investors’ worries me since there seems to be no distinction between shareholders, secured lenders and unsecured lenders nor any understanding of ‘caveat emptor’.

Indeed, Lendy was a lending platform and there is no mention of the peers as retail lenders who have a prior ranking claim over investors (shareholders) but I am sure it highlights the ignorance among retail investors and lenders who might be better off seeking advice from professionally qualified middlemen.

Not surprisingly, there have been growing calls for tighter FCA regulation of peer to peer lenders and in June, following consultations, the FCA launched new, tighter regulations, most of which will come into effect in December this year.

They include introducing more explicit requirements to clarify what governance arrangements, systems and controls platforms need to have in place to support the outcomes they advertise and a requirement that an appropriateness assessment (to assess an investor’s knowledge and experience of P2P investments) be undertaken, where no advice has been given to the investors and lenders.

In September the FCA also warned peer to peer lenders to clean up poor practices or face a “strong and rapid” crackdown.

Whether this will be enough to stem the reported exodus of investors’ money from peer to peer lending and to better protect them remains to be seen.

However, the warning to potential investors remains as it has always been to not invest any money you can’t afford to lose.

Recession, imminent or not is it time to ban the word?

recession storm cloudsRecession is a word that has immense power, striking apprehension into the hearts of businesses, politicians and consumers alike.

Talk of a recession can also precipitate the very economic conditions that are so feared and it is worrying that the word is currently appearing regularly in the daily news media.

But is recession a useful concept especially in the context of increasing pressure to move to sustainable, rather than perpetual, economic growth, in order to combat climate change and global warming?

Should we keep growing?

The generally-accepted definition of a recession is, according to the Business Dictionary: a contraction in the GDP for six months (two consecutive quarters) or longer. It goes on to say: “Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression. Although [they] are considered a normal part of a capitalist economy, there is no unanimity of economists on its causes.”

So, by these measures, the UK has its highest ever employment and rising wages and is not in recession. On the other hand, it is suffering from falling retail sales, apparently now online as well as on the High Street, as a result, we are told, of declining consumer confidence and worries over future job stability.

Clearly, an imminent recession has been a worry for some time, at least as far as the media has been concerned.

Over the course of the last two months, every time the latest confidence and productivity figures have been announced it has prompted speculation.

In early September, the Sunday Times reported data from MakeUK and BDO who both indicated falls in factory output and from the CBI (Confederation of British Industry) whose latest growth indicator showed a continued decline in services and distribution volumes.

Later in the month these same two bodies were reporting that domestic orders in the UK manufacturing sector had declined in the third quarter for the first time in three years as well as reporting weakening export orders.

Purchasing managers’ monthly indexes from IHS Markit/CIPS throughout the month showed declining confidence in the services, manufacturing and construction sectors.

And so it went on until by the start of October, the Guardian was claiming that a recession was on the way.

In view of the persistent pessimistic data one might wonder how we are not in a recession.

It might be explained by the alternative views based on other data. For example, the Economist carried an opinion piece that pointed out that the last two recessions, between August 2000 and September 2001, and then in 2008, had been as a result of “epic financial crisis” accompanied by stock market crashes.

It then argued that a recession was as much a matter of mood as it was of any reliable economic signals and signs.

Meanwhile on September 27 David Blanchflower, Professor of economics at Dartmouth College in the US and member of the MPC (Monetary Policy Committee at the Bank of England) from 2006-09, argued that the UK was already in recession, even though the conditions for the technical definition had not yet been fulfilled.

Ah, so it is down to the definition of recession. Is a recession now like news: fake or real? And what is a technical recession?

Blanchflower based his argument on the fall in “how businesses are doing on turnover, capacity constraints, employment and investment intentions” arguing that since GDP figures are actually regularly revised after their initial announcement they cannot be used as an indicator of recession.

Confused? That’s no surprise!

This is why I am suggesting that the widespread use of the term is less than helpful to businesses trying to navigate their way through the admittedly uncertain landscapes of imminent Brexit, global trade wars and political mayhem.

They would be much better served by focusing on their cash flow, balance sheets, growth plans and other data in order to remain sustainable and profitable, whatever the surrounding, feverish “mood music” of recession talk.

Sector update: have there been improvements in care home viability?

care home viabilityIt hardly seems any time since I last assessed the viability of the UK’s care home sector, but in the light of recent developments with one of the UK’s largest providers it’s time for an update.

The last blog in December 2018 focused on the implications of the collapse of Southern Cross in 2011. This time it has been prompted by reports this month that Four Seasons, Britain’s second-largest private care home provider with around 320 sites and 22,000 staff, has confirmed it has failed to pay rent on time. It is being seen as a negotiating tactic in order to cut bills, but is this really the case?

Its latest troubles began in 2017 when its owner Terra Firma was unable to pay interest on its debts, most of which are owned by private equity firm H/2 Capital Partners who took control and have overseen the group since then.

The business, which has more than £700 million in debts, appointed Alvarez & Marsal as administrators in April 2019. While the administrators have sought a buyer, it would seem most likely that H/2 will end up cherry picking the best homes and roll its debt into a new vehicle.

An estimated 70% of the care homes in England are small, mainly family-run businesses, while around 30% are owned by overseas investors, according to information published by the LSE in May this year.

In the LSE’s view many of the latter group of owners: “view them as assets for extracting large sums in the form of interest payments, rent and profit”.

In 2014 after the Southern Cross debacle the sector regulator CQC (Care Quality Commission) introduced a new requirement – a statement of financial viability, in a bid to ensure there were no repeats of the situation.

However, it clearly has not worked.

In August this year the insurance provider RMP published an assessment of the current state of care home viability, in which it quoted findings by Manchester University that “the financial models for nearly all the larger private equity-owned care home chains carry significant external debt and interest repayments”.

In addition, it said that spending by local authorities on social care had fallen while at the same time as costs have risen. This rise is attributed to a number of factors several of which are being related to Brexit: difficulties in staff recruitment and retention, restrictions on immigration numbers and, increases of the minimum wage.

Indeed, the GMB Union cites concern from the newly-published Operation Yellowhammer documents regarding the sector: “The adult social care market is already fragile due to declining financial viability of providers. An increase in inflation following EU exit would significantly impact adult social care providers due to increasing staff and support costs, and may lead to provider failure, with smaller providers impacted within 2 – 3 months and larger providers 4 – 6 months after exit”.

The Yellowhammer document, it says, therefore advises planning for potential closures and the handing back of contracts.

Despite these problems, demand outstrips supply in most local authorities, with an estimated current shortage of 65,000 care home beds, while a recent report by Newcastle University finds that an additional 71,000 care home spaces will be needed in the next eight years.

Clearly, funding the cost of care homes is itself in need of urgent attention and support. Call in the restructuring advisors?

High Court CVA clarification for landlords

High Court ruling for landlords on CVARecently in the High Court landlords challenged the validity of the CVA (Company Voluntary Arrangement) that was approved for the High Street Debenhams retail chain.

The store chain had announced that its restructuring plan based on the closure of 50 stores and rent reductions for up to 100 others.

Major shareholder Mike Ashley, owner of Sports Direct, had sought to challenge the CVA after the board of Debenhams rejected his offer to buy the chain for £200 million. His shareholding was wiped out when the company went private as part of the rescue and restructuring deal, which was approved by 80% of its landlords.

Although Ashley withdrew his own challenge to the CVA, he continued by backing a legal challenge from Combined Property Control Group (CPC) as landlords who owned several properties.

According to CMS Law the five grounds of the CPC challenge were:

  1. Future rent is not a “debt” and so the landlords are not creditors, such that the CVA cannot bind them;
  2. A CVA cannot operate to reduce rent payable under leases: it is automatically unfairly prejudicial;
  3. The right to forfeiture is a proprietary right that cannot be altered by a CVA;
  4. The CVA treats the landlords less favourably than other unsecured creditors without any proper justification;
  5. There is a material irregularity: the CVA fails to adequately disclose the existence of potential “claw back” claims in an administration.

Items 1, 2, 4 and 5 were rejected by the High Court, although item 3 was upheld, meaning that the landlord retains the right of re-entry and to forfeit a lease and therefore this right cannot be modified by a CVA.

This means that if they choose to, landlords can take back their property, although in the current perilous circumstances in the retail sector it is questionable if this would be in their interests given the difficulties they might have in finding an alternative tenant and their liability for rates even when the property is vacant.

The findings did however leave open the prospect of a challenge over the reduction in the rent value if it could be proven that it was below the current market value.

Given the growth in the use of CVAs to exit unwanted leases and reduce rent in the struggling High Street retail sector, the High Court judgement is to be welcomed, both for those retailers hoping to survive by restructuring their businesses onto a hopefully more sustainable footing by reducing their overheads, and for landlords, who now have some clarity about their position in such cases.

The state of manufacturing in the UK and globally – October Key Indicator

the state of manufacturing - redundant machinesThis month’s Key Indicator looks at the state of manufacturing in the UK and globally and by all indications, it is struggling everywhere.

While the proportion of manufacturing as a part of individual national economies varies all economies depend on trade with each other and in an interconnected world a slowdown in one place can have a significant impact on others.

China is currently the No 1 in the world in terms of manufacturing output valued at $2,010 billion representing 27% of national output. USA is second ($1,867, 12%); Japan third  ($1,063, 19%); followed by Germany ($700, 23%); South Korea ($372, 29%); India ($298, 16%); France ($274, 11%) and Italy ($264, 16%).  The UK trails these countries in ninth place with $244 billion manufacturing output representing 10% of national output.

Poland meanwhile has the highest percentage of its workforce employed in manufacturing, followed by Germany, Italy, Turkey, and South Korea.

In the UK, manufacturing makes up 11% of GVA, 44% of total UK exports and directly employs 2.6 million people. In fact, in August according to IHS Markit/CIPS the UK manufacturing sector fell to a seven-year low.

The CBI (Confederation of British Industry) monthly survey showed that manufacturing order books fell in September to -28 from -13, well below consensus expectations of -16%. While food, drink and tobacco and mechanical engineering drove positive growth, metal manufacture, metal products and textiles and clothing pulled in the opposite direction.

However, figures everywhere over the last few months make grim reading.

IHS Markit’s latest snapshot for September of Germany’s manufacturing growth, where a score under 50 signals contraction, slid to 41.4, the worst reading since June 2009. In fact, the entire Eurozone is experiencing a contraction, according to official data from Eurostat, the statistical office of the European Union in Luxembourg.

In China, Reuters reports that growth in industrial production in August was at its weakest in more than 17 years while in the USA, too, the New York Times reported that in August the manufacturing sector contracted again as it had in July, albeit manufacturing accounts for just 11-12 percent of the country’s gross domestic product.

What is causing the current state of manufacturing in the UK and globally?

In a word, uncertainty is the theme everywhere, but while the primary causes may differ around the world, in many ways the underlying reasons are politics and market economics.

There are two ongoing conflicts: 1. between those who advocate stimulating economies and those who believe we should live within our means; and 2. between those who believe in market forces and those who seek to control them whether by tariffs, duty, currency control or exchange rates.

In September the USA introduced yet another set of trade tariffs on Chinese imports as part of the ongoing trade war launched by US president Donald Trump. The question is what next as tariff talks between the two are due to resume in October.

In the UK, clearly, the ongoing uncertainty is primarily over when, if or whether the country will finally resolve its various dilemmas over leaving the EU at the end of October as Prime Minister Boris Johnson continues to promise.

Manufacturers anticipate that output volumes will fall briskly over the next quarter and that output price inflation will accelerate in the next three months, above the long-run average. Anna Leach, deputy chief economist at the CBI, said: “UK manufacturers have become noticeably gloomier in September.”

However, arguably the three-year Brexit wrangle has had its repercussions well beyond the UK as manufacturing supply chains are so closely interwoven across the EU. The effects of the reduced value of £Sterling against the Euro and other currencies has added significant costs to importing of raw materials and components, which has had a significant impact on the automotive industry particularly.

There is little sign that the politicians will shift their stance on the big issues but the one element that so far does not seem to have been factored into the arguments is the effect of climate change and the damage to the environment.

This is an issue that has become so pressing that it is just faintly possible that it could prompt a radical rethink in the way businesses trade globally, the way goods are manufactured and what goods will, or should, be made in the future, and above all on how national and global economies should measure economic success.

Perhaps this presents an opportunity for SMEs to come up with new and innovative ideas that will promote sustainable growth without the endless competition that currently seems to dominate the discussion?

Can SMEs afford to wait any longer for a business rates review?

business rates review is urgent for businessesRetailers have been calling for months for a business rates review as the decimation of the UK’s High Street continues.

In early August more than 50 leading retailers wrote to the Chancellor urging him to change tax rules to boost the UK High Street and the business law firm RPC has reported that there has been a 65% increase in the number of businesses challenging their rates bill in the last quarter, with 4,000 challenges made in the first quarter of 2019, up from 2,430 challenges in Q4 2018.

RPC explains that the increase in challenges shows broadening dissatisfaction with business rates. Jeremy Drew, Co-Head of Retail at RPC, explains that the property tax is so complex that each new ratings review sees thousands of challenges lodged by businesses.

The retailers’ call was reinforced later in the month by the CBI (Confederation of British Industry), whose chief economist Rain Newton Smith said reform would be an enormous help to companies facing uncertainty and rising costs.

So, it is not only retail businesses that are struggling as new figures from an investigation by the real estate adviser Altus Group revealed earlier this week.

Using the Freedom of Information Act, it asked all the councils in England to provide details of how many business premises had been referred to Bailiffs.

It found that during the financial year 2018/19 councils appointed Bailiffs to visit 78,000 non-domestic properties including shops, restaurants, pubs and factories to collect overdue business rates.

What are the chances of a business rates review in the near future?

There are worries that in the light of politicians’ and Government’s ongoing tunnel-vision focus on Brexit urgent domestic concerns are being forgotten.

A total of 10 trade bodies have written to the Treasury Select Committee to express concern that the recent ministerial reshuffle has risked delaying urgent business rates reform.

Robert Hayton, head of UK business rates at Altus, said: “It’s not the mechanics of the rating system that is of primary concern to business but the level of the actual rates bills.”

“Commercial property is already making a significant contribution to overall UK tax revenues…with the highest property taxes across the EU…”

And John Webber, Head of Business Rates at commercial real estate advisers Colliers International, has said that a Government promise to carry out business rates reviews every three years, rather than every five, “ will merely scrape the surface of a current business rates system that needs much more drastic reform”.

This includes a revamped appeals system, which has been made so complicated that at first SMEs were deterred from using it. Also, a lack of staff at the VOA (Valuations Office Appeals), Colliers argues, has created an enormous backlog of appeals being settled.

The Times recently reported that the number of outstanding appeals has risen six-fold.

It is clear that if the UK economy, which relies heavily on SMEs, is to survive and thrive once Brexit is finally settled (if it ever is) the conditions in which they operate will have to be vastly improved, and quickly, if they are to be able to manage their cash flows, create sustainable business plans and grow in the future.

Perhaps the most urgent element of this is a business rates review given that the present system is far from fit for purpose.

What is AIM and is it beneficial to SMEs to apply for AIM listing?

aim for growing businessIt is coming up to 25 years since AIM (Alternative Investments Market), the London Stock Exchange’s junior stock market, was launched and it now lists around 3,600 businesses.

According to the accounting firm BDO, “AIM is the most successful growth market of its type in the world” and in the last five years AIM-listed businesses “have created an additional 76% jobs, now employing almost 390,000 people”.

The London Stock Exchange website explains that AIM is targeted at smaller, and growing, businesses and offers them “the benefits of a world-class public market within a regulatory environment designed specifically to meet their needs”.

It is a multilateral trading facility, operated and regulated by the London Stock Exchange under FCA rules.

Candidates for AIM listing do not have to have a trading track record, but they must abide by the rules. There are very clear guidelines on how to apply for AIM listing on the Stock Exchange website.

They must appoint and maintain an AIM approved Nominated Advisor, also known as a NOMAD, who is responsible to the Exchange for assessing the appropriateness of an applicant for AIM. The NOMAD also advises and guides their client through the AIM listing process and once listed ensures it complies with its ongoing responsibilities.

The Stock Exchange will suspend trading of the company if it ceases to retain a nominated advisor and if a new NOMAD is not appointed within a month, its AIM listing is cancelled and its shares can no longer be publicly bought or sold.

Albeit with advice from a NOMAD, application for AIM listing is relatively straightforward but listing does cost an estimated £400,000 to £600,000 a year. This covers the NOMAD and other adviser and broker fees, plus AIM membership at around £100,000 per year, according to the website startups.co.uk.

Startups lists some of the pros and cons of AIM listing, the main advantage being future access to raising further funds after the IPO (Initial Public Offering). It says, “AIM listing is being seen as an increasingly attractive investment class to institutions such as pension funds”.

“It also raises the profile of a business, as does having Plc status”, it says. While Plc status requires a minimum of £50,000 share capital, AIM companies tend to have much more and there is the attraction of having publicly tradeable shares.

The downsides according to Startups, are not only the financial cost but also the difference between running a Plc as opposed to a privately-owned business, plus the business will be vulnerable to the ups and downs of share values.

I would add another downside, the need to make public disclosures about matters that influence the share price. This may be great when an AIM company is doing well but can be disastrous for one that isn’t, especially one that needs restructuring.

Late payments situation getting worse for some SMEs

late payments penalty?According to the ICAEW (Independent Chartered Accountants of England and Wales) late payments to SMEs are a bigger problem than they were a year ago.

Of the nine SME industries analysed, it said, six had reported that the problem of late payments was worsening.

The FSB (Federation of Small Businesses) too, has said that while there have been some improvements thanks to the efforts of the Small Business Commissioner Paul Uppal, late payments remain a major problem and research by Lloyds Bank Commercial released at the end of last month found that last year almost two thirds (62%) of SMEs that were being paid late “failed to chase up for fear of harming customer relationships” also cited time constraints as a significant factor.

The cost to small businesses has been considerable, according to research published by Hitachi Capital earlier this month. It estimates late payments have cost SMEs £51.5bn in the last year.

Its survey of 1000 businesses found that 31% have experienced late payments costing their business at least £10,000 in the last 12 months.

It said that 27% reported that late payments have hit profits, while 12% said the issue had forced them to defer pay to staff. Around 40% have had to use their own money to fund cash flow in their business, with 80% using personal savings to keep their business operational.

Mr Uppal has meanwhile continued to investigate SME complaints and published reports since I last provided an update on the situation.

In mid-July he suspended 18 companies from the Prompt Payment Code, including BT Plc, British American Tobacco and Centrica.

He investigated several complaints and has published reports naming and shaming the companies involved.

They included Bupa Insurance Services Ltd who had failed to pay an invoice for £29,403.76 on 2 November 2018 based on 45-day end of month payment terms. Payment was eventually made 30 days late on January 15 2019 after the SME and Mr Uppal had chased on several occasions.

Also named and shamed in separate reports were Zurich Insurance PLC which eventually paid a claim 65 days later than its agreed payment terms.

Another company, Sambro International failed to pay a small graphic design company within its promised 30 days, for two invoices submitted in November and December 2018. Eventually following Mr Uppal’s investigation, one was paid 56 days late and the second 23 days outside their contracted terms.

Clearly, Mr Uppal and the Chartered Institute of Credit Management (CICM), which administers the system of removal of businesses from the Prompt Payment Code are doing their best, but in the current uncertain economic climate SMEs have enough to worry about without this constant and relentless mistreatment by larger customers and it is well past time the Small Business Commissioner was given stronger powers of enforcement.