Tag: Investment

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Key Indicator – Stock Market behaviour predictable or not?

stock market predictionsAt the start of the new decade predicting stock market behaviour is anything but an easy task.
A year ago, the pundits variously predicted that the year-end valuation of the FTSE 100 would be anywhere between 7200 and 8400 points. In the end, at close of business on 31st December it was in the mid-7000s at 7542 below most predictions but it was still a stonking year.
Over the last year, stock market values, including the UK’s FTSE 100 and 250, have risen an astonishing amount to make 2019 one of the strongest years ever, despite a sluggish global and EU economy, US and China trade wars and Brexit uncertainty.
According to the business news two days ago the Dow Jones industrial average has seen  a rise of almost 25% having reached record highs day after day, the broader S&P500 is up 30% and the tech-heavy Nasdaq has grown 40% in value. The FTSE100 in London is also close to its record high, as is the Dax30 in Germany.
In so-called “normal” times the stock markets traditionally go down when the interest rates go up which may explain the stock market values given the unprecedented period of low interest rates set by Central Banks that have done everything they could to support their countries’ weakening economies in their attempt at stimulating growth or more accurately avoiding recession.
But what is “normal” given that some Central Banks including European Central Bank, Japan, Sweden, Denmark and Switzerland have set negative interest rates?
To make predictions more difficult, this has been going on now for more than 10 years, since the 2008 Financial Crisis, and growth/recovery is still pretty sluggish despite the stimulus.
Usually, over a 10-year period there is a natural economic cycle from “boom” to “bust”, but the “bust” has yet to come, and nor is it being predicted. More of the same seems to be the view of most economists.
However a few pundits, notably the economist Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business, argue that the stock markets are far too optimistic, while the business writer Rana Foroohar, author of Don’t Be Evil: The Case Against Big Tech and associate editor at the Financial Times, predicts that the next crash will be brought about by the concentration of power in the hands of big tech companies like Apple, which have built up huge amounts of debt in their quest for power. She says: “Rapid growth in debt levels is historically the best predictor of a crisis.”

So, why have stock market valuations continued to climb?

In my view, two things have driven the value of companies listed on the stock market.
Firstly, businesses have broadly maintained their profitability by reducing overheads through slimming down management and not reinvesting. This has hidden their decline in productivity because profitability has been maintained. I believe that the cutting out of swathes of management has made many businesses extremely lean but left them without scope for responding to growth, with little experience for investing in new technology and for implementing the changes necessary to remain competitive.
Secondly, the numbers of listed companies have declined leaving fewer in which to invest money. Given that investors want to invest in profitable businesses this has meant that the pool of investable companies has also shrunk driving up the value of those that should be part of an investment portfolio. This distortion is likely to encourage a shift from the growth investment strategy preferred by long-term investors to one of value investment preferred by those with a higher appetite for risk. Indeed, picking winners is difficult as those who backed Neil Woodford will attest.
You could argue that UK based companies exporting abroad with foreign investors have benefited from exchange rates problems due to Brexit to make more locally focussed companies more attractive but this should only be part of a value investment strategy and still leaves the long-term investors looking for fundamentally sound businesses.
It’s possible that once Brexit is under way after January 31, there will be a re-rating because the companies that import from abroad have suffered disproportionately.
It will only take the Central Banks raising interest rates to more normal levels for a major stock market crash to become inevitable.
 

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Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Rescue, Restructuring & Recovery

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?

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Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance Insolvency

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.

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Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting

Key Indicator – a snapshot of the current state of commodity prices

minerals among the commodity prices going downOngoing fears of a global economic recession, not to mention the escalating trade war between the USA and China, are having an impact on commodity prices.
August has been a particularly torrid month, according to analysts, with iron ore prices in particular suffering a sharp drop – up to 30% according to a report in the Financial Times, although other sources also back this up.
The ongoing uncertainty has also had its effect on oil prices, with OPEC cutting production while the USA has increased theirs. This has had its impact on the futures price of oil, with Brent Crude for October falling 31 cents, or 0.5%, to $60.18 a barrel.
According to the latest analysis from Marketwatch.com, published on August 30, “Commodities will end August with a second straight monthly loss”.
It says that the S & P GSCI index, which tracks 24 commodities across five sectors was down by more than 4% at the end of August, following a fall of 7% in July.
Gold and Silver prices, on the other hand have been steadily rising, with Silver reaching a 1-year peak last week, breaking $17 per ounce and Gold prices rising by almost 7% in August.
In the grain sector, Marketwatch reports the biggest decline in corn, of more than 0.9% over the year. Corn futures prices for August were also down, by 9%.
Bloomberg publishes a useful summary of commodity prices covering three sectors, energy, precious and industrial metals and Agriculture here.
Stability is not yet in sight with the ongoing uncertainties over global trade, fears that Germany will soon fall into recession, the outcome of Brexit still unknown and the latest set of USA-imposed tariffs on Chinese goods kicking in from September 1. As a consequence, predicting what will happen to commodity prices is going to be increasingly difficult for the foreseeable future.
This is not likely to be something businesses will be happy to hear as it makes planning more risky.
 

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Banks, Lenders & Investors Cash Flow & Forecasting Finance

November 2018 Key Indicator – investment and asset classes

choosing asset classes is like crystal ball gazingIn such a febrile market it takes nerves to make investment decisions about which asset class to follow when there is the danger that an asset’s value can reduce. At the moment it seems as if choosing between asset classes is a bit like consulting a fortune teller.
Why? Because the global, regional and national economies are beset by influences that are making them very volatile for a variety of reasons.
In October, the IMF (International Monetary Fund) forecast that global growth would remain at its 2017 level but that “expansion has become less balanced and may have peaked in some major economies”. It notes also “the negative effects of the trade measures implemented or approved between April and mid-September”.
However, this is as much political as it is economic, notably, the USA’s imposition of trade tariffs particularly on China, but also its threats of sanctions on Iran.
The prospect of a trade war with China is particularly alarming and has wide-reaching implications in that the Chinese economy has been slowing and its currency, the Yuan, has been devalued substantially over recent months. While this should make Chinese exports more competitive, tariffs might reverse this. It must also be remembered that China holds some $1.2 trillion worth of US government bonds and should it decide to dump them, this would cause a rise in US interest rates triggering a knock on impact on inflation which would reduce the demand for Chinese goods.
Similarly, in the UK as the Brexit negotiations near their endgame with little or no clarity in sight, businesses and investors have been holding back on investment with some setting up outposts in Europe, as a precaution against the absence of any sensible agreement.
Growth and productivity in the UK economy have been anaemic for some time, arguably since the 2008 Great Recession.  In Europe, too, growth is slowing.
The result has been huge volatility in share prices across the world’s stock markets and in exchange rates, not least £Sterling, which has been yo-yoing in response.

What asset classes to invest in?

There are four main asset classes:
* Equities, or shares
* Bonds, debt or fixed-income securities
* Cash, or marketable securities
* Commodities such as agricultural products, metals, including gold, energy supplies such as oil
Alternative asset classes include real estate, or valuable inventory, such as artwork, stamps and other tradable collectibles.
While the advice is always to invest in a range of assets to spread the risk and it is often argued that one investor’s loss is another’s gain, in this climate it is difficult to determine which asset classes are the safer option and which offer growth prospects.
After a long period of share price growth, here in the UK at least, the appetite for buying equity in a business is low. The recent stock market declines and volatility are an indication of the uncertainty investors are currently feeling. Another concern that has been emerging is that businesses in the technology sector have been over-valued or will be unable to sustain their current profit levels in the future.
The equally volatile currency exchange rates has made the buying bonds, debt and fixed-income securities somewhat risky although they are being seen as a medium-term safety investment until the stability and predictability of other asset classes is restored.
With commodities, again there is a political dimension.  Oil prices have been rising, partly out of concern for supply from Iran given Donald Trump’s threatened sanctions, and partly because the Opec countries have been keeping prices high in the light of this. Also, commodities rely on consumption and growth which have stalled.
Gold, on the other hand, has been plummeting since February according to quarterly reports published on the website investingnews.com. it were down by 6% in Q2 this year (April to June) and by a further 5% in Q3 (the three months to August). Their analysis attributed this to investors switching to the $US as a safe haven against geopolitical concerns. This is apparently consistent across the metals and mining sectors, they say.
The underlying theme seems to be that the future income and growth of most asset classes are uncertain, at least for the moment, making it harder to decide what, if anything it is relatively safe to invest in.
STOP PRESS: In the light of the above it is no surprise that the Bank of England today voted unanimously to keep interest rates unchanged at 0.75% “because of rising uncertainty among UK businesses” about the outcome of the Brexit negotiations.

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Banks, Lenders & Investors Cash Flow & Forecasting Debt Collection & Credit Management Finance

Is debt your master or your slave?

Debt mastery

Since the 2008 Great Financial Crash, and perhaps even before, we have had a peculiar attitude to debt.Most of the Western, developed economies have relied on debt to keep developing and growing, but that is hardly a sustainable way to carry on.If you think about it the whole notion of usury debt is unacceptable. Despite lenders being open and telling borrowers how much they are charging, whether 10% or 1,000% interest, does that make it acceptable?
And what about the fees: assessment fee, valuation fee, arrangement fee, introduction fee, securitisation fee, documentation fee, monitoring fee, review fee, default fee, termination fee, early termination fee.
Again, even if transparent, are they reasonable?Debt has been crucial to the survival of the current economic model. Central banks make $trillions from debt using zero interest rate policies and purchasing corporate debt, as the European Central Bank (ECB) has been doing in order to keep the post-crash economic show on the road.

Are we living in a Through the Looking Glass post-capitalist world?

Is all this just adding more fuel to the fire? Is keeping inflation artificially low for so long merely extending a creeping market in zombie companies, even zombie countries?
Originally, zero rate policies were seen as a temporary measure post 2008 to stave off a global recession but was the objective really saving jobs or saving the banks?
At the time the argument was that the banks were “too big to fail” and if not helped the consequences for all of us would be dire.
Eight years on and nothing much seems to have changed. Governments are still buying bank debts and how does this relate to the bonuses paid to professional executives and bankers?
There have been few prosecutions over the speculation and risks that were taken and there is not much evidence that the culture of institutional fraud does not still prevail.
While some debt is deemed acceptable, a lot of debt is not. The appetite for investment in the businesses that we need to support to sustain our economy is not there due to the distortions of the market that have arisen from flawed policies aimed at preserving bankrupt countries, banks and businesses. The stock market too is being driven by the whole issue of where to go to put money in a safe place.
So businesses remain starved of investment funds for their medium and longer term growth, productivity remains below what it should be and the public goods, such as education, remain starved of funds to produce the skilled workforce that will be needed for the future.
But the banks, the rent seekers and the professional executives protect their interests and stay safe.
Feel free to disagree.

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Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

January planning – Re:fresh

RefreshYou’ve done your research and consulted with staff and others and should now have outlined your business goals for the coming year. Now it is time to refresh your business plan.
The big question in this phase is how to achieve your goals.
If your goals are ambitious, achieving them will require additional resources.
New products or services require investment of time and most likely money in R&D, in testing and refining, in design and packaging, in recruiting and training production staff, in plant and machinery, in stock, in marketing literature, in promotion and many more aspects that are key to the success of a new product.
New clients or markets require investment in time and most likely money in market research, in market testing, in advertising and promotion, in sales and marketing, in recruiting and training sales staff, in finding distributors, in learning about foreign markets and many more aspects that are key to establishing new markets.
Once you have a plan, then the plan needs to be resourced. Indeed the availability of resources and finance normally influence the plan. It may be possible to find it with reserves or borrowings but other options should be considered such as partnering with manufacturers, suppliers, distributors or clients who may be prepared to use their own resources for a slice of the benefits. Manufacturers may fund tooling and production and suppliers may fund stock and distribution or both might provide extended credit in return for higher margins. Distributors and clients may pay deposits or prepayments to fund production.
Whatever your plan, an accurate picture of the financial health of the business and projected cash flow will be needed as part of the planning process. Indeed it is often necessary to use the planning process to reorganise aspects of your existing business and restructure its balance sheet.
Having a plan is also necessary to monitor progress throughout the year and provide valuable insights for future goal setting and planning.
Having a refresh stage in the annual planning process will ensure your business remains competitive, even if you do not want to grow. Re:fresh can be used to reinforce a culture of continuous business improvement

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Creative thinking and innovation are crucial to manufacturing growth

Addressing the challenges facing UK manufacturing requires creative thinking, innovation and fundamentally investment if it is grow in the medium and longer term. Especially where real growth can only be achieved by exporting those products and services we provide.
Unfortunately, too many of the analyses published in the media focus only on the short term and are often also simplistic.
Where one commentator suggests that manufacturing is benefiting from the reduction in oil and raw materials prices, another focuses on the difficulties that the high value of sterling causes for exports. Where one analyst sees a continuing downward trend from the first two quarters of 2015, another focuses on the expansion in trade shown by an increase in trade and orders in October.
All this suggests that it is foolish to draw conclusions for the whole sector and that what may be helpful to one manufacturer can be a problem for another.
For example a manufacturer of specialist equipment for the oil industry is likely to see a contraction in orders due to the contraction in the oil industry whereas a manufacturer that relies on fossil fuels for energy may actually benefit from energy cost reductions.
However, these are relatively short term fluctuations and in the longer term all UK manufacturers need to play to their strengths, which are their reputation for high-quality, precision and speed of supply.
UK manufacturing cannot hope to compete in the mass market with competitors from places like Asia where wages are lower.
It may be that their most sustainable route to success and growth is to focus on using doing things differently and using innovative technology such as robotics, on supplying high-quality short run products, and on offering support and maintenance services that all rely on their valuing skilled engineers and technicians.
All this means investing much more in R & D, technology, plant & machinery and employee skills.
Essentially we need to invest in manufacturing if it is to grow and in particular if we want to grow exports.

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Banks, Lenders & Investors Finance General

Investor Visas offer another source of finance for UK businesses

Businesses looking for investors may be able to take advantage of another avenue of finance, as a result of revised rules of access to the UK for overseas investors.
Tier 1 Investor Visas allow people from outside the European Economic Area and Switzerland to live and work or study in the UK for up to three years and four months on certain conditions.
The visas are conditional on applicants investing at least £2 million in either UK Government bonds, share capital or loan capital in UK-registered active & trading companies. The money has to be held in a regulated financial institution such as a bank, building society or stock brokerage for 90 consecutive days before making a visa application.
Tier 1 Visa investors cannot invest in companies mainly engaged in property investment, property management or property development companies.
Investors can apply to settle in the UK if they make further significant investment, of £10 million after two years, or of £5 million after three years of living in the UK on a Tier 1 visa.
UK Government data has revealed that there has been a significant increase in the numbers of Chinese applying for the Tier 1 Visa doubled in 2014 compared with 2013, with 357 visas granted, while 184 Russians were granted Tier 1 visas in 2014.

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Banks, Lenders & Investors Finance General Turnaround

Is patience being used to justify a lack of investment in productivity?

It would be a mistake to expect business activity to take off immediately after the UK election, although some will have hoped it would.
Three key processes will have to be completed and, whatever SMEs and others might wish, they are going to take time.
So although there is a growing clamour of business voices on the subject of the UK’s continued EU membership, patience is going to be needed. Rushing the negotiations over revamping various regulations is not likely to lead to a result all can live with.
Similarly, there are two more months to go before the Chancellor delivers a promised additional budget in July, which has contained promises to help SMEs. Again patience is going to be needed not only to find out what the proposals are but also until those proposals are enacted.
Finally, there is the much discussed issue of low UK productivity. Bank of England Governor Mark Carney added further weight to the argument that it is in part the result of businesses failing to invest in more up to date technology and equipment, preferring instead to put off investment and in the short-term use low-skill workers, some of them from other EU countries, who can be more easily got rid of should the need arise.
To improve productivity means not only investment in new kit, it also requires investment in developing a skilled workforce.
While it could be argued that this is at least something SMEs could risk investing in now, assuming they can raise the finance, it will still require patience before they see the fruits of that investment in productivity.
So should business be at least starting to take some risks and start investing, or is it wiser to tread water and remain patient for a while yet?

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Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Now the election is out of the way, what are your business priorities?

Before the election last week, the main business worries were the lack of orders due to uncertainty, and the lack of finance for small businesses.
Almost as soon as the results were in, John Longworth, the Director General of the British Chambers of Commerce, among others was calling for “bold, ambitious” action from the newly-formed government.
His open letter to the Government asked for an emphasis on growth, not austerity and on measures to help businesses to export.
Meanwhile, the Daily Telegraph’s Matthew Lynn identified four business priorities that the government needs to address with some dispatch to help businesses and economic growth.
They are reducing both capital gains and top rate income tax, actually delivering on promises to remove red tape (partly by renegotiating some of the EU regulations affecting businesses), helping entrepreneurs by exempting them from some employment and capital gains regulations for their first five years in business and by recognising that the property market is broken.
While the election has introduced a level of certainty, the uncertainty about an in/out EU referendum remains and time will tell if government initiatives stimulate investment since the EU regulations on banks will discourage risky lending which for most UK banks means lending to SMEs.
We invite you to tell us what measures would most help your business to grow, and also what you think the Government should do to support them.

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Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

How do we improve productivity?

Output per worker, ie productivity, in the UK has been stagnant for some years since the 2008 economic crisis.
It shows no signs of recovery, in fact in the last three months of 2014 output per hour actually fell in manufacturing by 1.3%.
The causes have been: a lack of innovation, a shortage of skilled people and a failure to invest in plant and machinery.
It would seem that businesses are focused on maximising their profits in the short-term to either repay banks and other creditors or pay dividends. Despite the low interest rates and poor returns for lenders and investors, there seems to be very little interest in improving productivity through investment.
It is assumed that this is either cultural or a rational fear of losing money due to market uncertainty.
In the last couple of years there has been some attention paid to the skills shortage, with a focus on increasing the numbers of apprenticeships, but investment in businesses is still declining, despite various initiatives by Government and banks to encourage more lending.
Regretfully bank loans and in particular Government backed loan schemes all require directors and shareholders to provide personal guarantees. The effect of this has been to deter SME businesses from seeking funds to grow.
Productivity matters because over time we become less competitive making it harder for UK companies to compete in a global market.
The political rhetoric doesn’t help as the focus on soliciting votes results in a focus on minimum wages rather than one on the productivity which is necessary to justify any increase.
Growth will continue to be sluggish while there continues to be a lack of investment in productivity.
What can we do to justify investment in productivity rather than simply talk about improving it?

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Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

How do you stay ahead of your competition?

In the choppy and uncertain economic climate of early 2015, while the outcomes of the UK election, Eurozone QE and the new Greek Government’s efforts to renegotiate its debts are still uncertain, investment in business and consumer spending are likely to remain muted.
Currencies fluctuate, commodity prices, not only oil, yoyo and business margins continue to be squeezed.
In these circumstances what can a small business to develop and grow rather than simply survive?
While it will be necessary to continue to keep a tight control on cash flow and to have a clear marketing strategy, the three main opportunities for growth are improving employee productivity, looking to new markets such as overseas, and innovation to offer a ground-breaking new product or service.
These drivers of growth rely on investment in marketing, equipment and R&D, but your competitors can copy this if they see it working.
Culture, however is more difficult to copy where getting it right is key to implementing change. People really are the greatest asset in a business.
In today’s highly competitive world change is the new normal and standing still is no longer an option.
Investing in people, their training, development and welfare is the best way of achieving growth as they are needed to implement the changes necessary to stay ahead of your competition.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

Inequality stifling growth?

With an election due soon and party conference season in the UK almost completed, it is no surprise that there has been some focus on the widening inequality between society’s poorest and richest.
However it seems it is not only on the politicians’ minds.
Income inequality is on the agenda for annual meetings of the IMF and the World Bank, and it has also been the subject of a discussion on BBC’s Radio 4 between economics editor Robert Peston and two US economists, Amir Sufi and Prof Atif Mian, whose book House of Debt explores the issues of widening inequality making us all poorer.
Why?  Because there is a theory developing that there is a link between the debts of the poorest in the economy and recession, which argues that because the poor have little or no spare disposable income and when there is a slump, and debts outweigh the value of property this group spends much less.
When millions do this, as consumers did following the 2008 Crash, the result is recession.
Could there also be a link between this and the anaemic wage growth that has hit most working people since then? And could this be an argument for boosting their spending power to stimulate economic growth, – either through wage increases at least in line with inflation or by reducing taxation?
Of course SME employers will argue that wage increases are unaffordable given global competition and narrowing margins – so what can be done to break the deadlock?
My own view is that we need to stimulate investment in productivity so that in turn employers can share the gains. What’s yours?

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Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

Risk taking? Fat chance

This week the independent UK body researching issues related to pay, The High Pay Centre, published its annual analysis of CEO pay to reveal they are now paid 143 times as much as their staff.
Meanwhile, the Telegraph business pages report that corporate giants and PE (Private Equity) firms have accumulated capital reserves amounting to £4.1 trillion.
At the same time earnings in the UK have fallen by 10-12% in real terms since 2008, according to the Bank of England, and the Fawcett Society has released findings after questioning 1000 low-paid women that indicate that the gap between men’s and women’s pay has widened for the first time in five years.
Is there any relationship between these facts?
Possibly. Despite reports that the UK economy has recovered from the 2008 Great Recession, business and economic commentators, among them the Daily Telegraph’s Allister Heath, are arguing that it is still not sufficiently dynamic.
Heath points to a combination of factors including that Government measures introduced to mitigate the recession’s effects have frozen parts of the economy so that people fear moving jobs, businesses are not investing and so-called zombie companies are being allowed to survive well past their effective life.
He argues that a little “creative destruction” is required to really get things moving and that economies need to be in a state of permanent revolution in order to be successful.
He may have a point, but while there is uncertainty about future direction of policy in the run-up to an election, not to mention so much unfinished bank and financial sector regulatory reform, an ongoing unease about the fairness and morality of the way our economic system is structured and currently operates and so much uncertainty about a possibly stagnating Eurozone ( the UK’s biggest export market) there are likely to continue to be more questions than answers and precious little appetite for risk taking of any sort. Those who have will hang on to what they have accumulated.
Why should CEOs put their own salaries at risk by taking risks for the benefit of apathetic shareholders?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Private Equity, investment and retail

 

Earlier this year we asked whether Private Equity should be involved in High Street retail after several well-known chains had indicated their intention to float on the Stock Market.

They included Fat Face (77% owned by PE firm Bridgepoint), Card Factory (owned by PE firm Charterhouse) and Poundland (76% owned by Warburg Pincus).

Several of these IPOs have now taken place, and one has been cancelled.  Fat Face has withdrawn its proposed IPO after deciding that it would be unlikely to raise money at the level it had hoped.

This was after shares in Card Factory fell 10% a week after its launch and Pets at Home losing 3% since its float in March 2014, and despite Fat Face having increased sales to February 2014 by 8.2% following the previous year’s pre-tax losses.

Plainly PE investors are adopting a more cautious approach to the old financially driven model for realising value. The old model often involved a public to private acquisition, repaying private equity owners by loading the company with debt, and then flipping it back into public ownership.

While the prospect of a quick exit has focused the attention of Private Equity owners on public markets, all too often the valuations don’t leave much for new shareholders. The recent decline in shares shortly after being floated is a reminder of the old model that made Private Equity owners so wealthy, often at the expense of public owners who sold cheap and bought back expensive.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Are SMEs really MSMEs and what is the squeezed Middle?

 

We all use it without really thinking and assume we know what it means.

The acronym SME provokes puzzlement in some quarters and ire in others, according to Daily Telegraph business writer  Michael Hayman, who quotes King of Shaves founder Will King: “Get rid of this casual piece of profanity…It needs to be removed from the Oxford English Dictionary.”

So what is the problem? 

SME is short for Small and Medium Sized Enterprises and that, according to CBI director general John Cridland, means the M in the middle is a “forgotten army”, the middle-sized businesses on which the economy is relying for growth.

But it’s actually a bit more complicated than that since no-one agrees on the definition of small.

The UK and the EU use the same definitions for businesses, based on number of employees and turnover – Micro, Small and Medium – which actually would give us the acronym MSME!

Micro Businesses are those with fewer than 10 employees and turnover under £2 million, Small Businesses consists of fewer than 50 employees / turnover under £10 million and a Medium Business has fewer than 250 employees / turnover under £50 million.

It is argued that 95% of UK companies qualify as Micro Businesses. This has led to the setting up of a parliamentary group, the All-Party Parliamentary Group (APPG) for Micro Businesses, chaired by Anne Marie Morris, Conservative MP for Newton Abbot.

The CBI has calculated that middle-sized companies contain between £20billion and £50billion of unrealised economic output, and are best placed, unlike their smaller brethren, to take advantage of export opportunities in the emerging markets of the world.

The argument is that by lumping them all together the M, Medium, businesses in SMEs are neglected and don’t get the support they deserve.  Equally the other M, Micro Businesses, lose out by being lumped in with Small but actually can’t take advantage of government support aimed at the Small.

What do you think? Do you see yourself as Micro, Small or Medium?  Do you feel neglected? And should we replace SME with MSME?

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Accounting & Bookkeeping Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Further evidence that a safe pare of hands is not enough for growth

Some new figures on attitudes to innovation from Price Waterhouse Cooper reinforce the point that growth will not come from being risk averse and hoarding cash.
In the UK the most innovative top fifth of companies grew 50% faster than the bottom fifth and, more alarmingly, the survey found that in the UK just 32% of companies regarded innovation as very important, compared with 46% of German and 59% of Chinese companies. Just 16% of UK companies planned to prioritise product innovation in the coming year compared with almost 33% globally.
Further proof, if it were needed, that, while it would of course be foolish to be complacent about economic recovery, the risk-taking, innovative manager is needed more at this point in the cycle than the risk-averse accountant.
 

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Accounting & Bookkeeping Banks, Lenders & Investors Business Development & Marketing Rescue, Restructuring & Recovery Turnaround

A safe pair of hands does not include plans for growth

UK companies are reportedly hoarding as much as £700 billion in cash. Despite this, business investment grew by just 1.7% in June, according to Bank of England Governor Mark Carney, in his first speech to businesses in Nottingham.
It appears that businesses are still not confident of sustained economic recovery, and this may be understandable following the shock waves after the onset of the global economic crisis in 2008.
When times are hard the general rule is to put an accountant in charge as they will basically hoard a company’s cash.  Accountants are generally pretty risk averse and when the emphasis is on controlling cash flow they are a mainstay of business survival.
But at what point in the cycle should companies start to look at investment and growth for future profits? And at what point should accountants take a back seat and hand over to someone else?
In UK we tend to be slow to adapt to changes in the market. Let’s face it no one will criticise managers for not losing money. Only too late will shareholders realise they have been left behind.
We are still pursuing a strategy of hoarding cash when perhaps the time has come to shift from pessimism to optimism and at the very least we should be planning for growth. Now is the time for carrying out market research, modest investments, testing markets and building capacity for growth. 
We need managers with courage, managers who value mistakes and will learn from them, managers who know how to grow businesses.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery

Culture Shock

If all the recommendations in the Banking Commission’s long-awaited report on banking standards are implemented the banking industry will undergo a profound change in its operating culture.
We would argue that it is not only in banking and finance that a change in culture is long overdue following the 2008 credit crunch.
Businesses and consumers have already had to rethink the way they manage their finances. Businesses have been paying down debt and larger companies with comfortable capital reserves are not spending or investing. Consumers, too, are trying to repair their finances while coping with rising inflation and falling incomes.
Depending on which audience they are speaking to, however, Government seems to be wedded to austerity, sustainability or growth, as the solution to the UK’s economic ills.  
Every new monthly statistic is used to herald imminent recovery.  Most recently, new figures showing a 17% rise in mortgage lending in May 2013, compared to May 2012, will doubtless be seized on as evidence of success for schemes like Funding for Lending and the newer Help to Buy in stimulating home ownership.
Yet all the “experts” warn that without massive additional home building, they risk precipitating another housing bubble because the lack of affordable small homes will overinflate house prices.
With the homeless charity Shelter estimating that a first time buyer may have to spend 14 years raising the deposit to get on the property ladder, the chances are that consumers are already facing a massive culture change from home ownership to long-term renting, but without the tenancy protections that used to provide some security and continuity in living arrangements.
Is it time that politicians stopped grasping at short term electioneering straws and underwent their own cultural revolution to get real about economic life in the 21st Century?

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General Rescue, Restructuring & Recovery Turnaround

UK Business Growth

There are indications of consumer confidence in the UK. One the sale of new cars where during the first three months of 2013 the sale of new cars in UK was up 7.4%, while elsewhere in Europe they were down in Germany 12.9%,  France 15.6%, Italy 13%, Spain 11.5% and Cyprus 41.6%. In March alone new car sales in UK were 394,806, against 281,184 in Germany, 165,829 in France, 132,020 in Italy and 72,677 in Spain.
This would suggest that we in UK are emerging from a long-term malaise if not depression while it would appear that Europe remains mired in a torpor with declining confidence.
So where is the engine for business growth? the above evidence would suggest it won’t be Europe which some eminent economists such as Professor Nick Crafts at Warwick University argue will be approximately 1% a year until 2030.
I don’t believe we want it to be driven by consumer confidence due to property inflation as this will become another bubble.
We need industrial, manufacturing, service and professional businesses that add value and we need export sales. These require investment in developing ideas, training people, building capacity and marketing them.
I would urge everyone to get this message across to every politician you come across as we need policies that stimulate and justify investment in such businesses.
As for the increase in car sales, how many UK manufacturers are benefiting from the new sales? The lack of a UK car industry is down to short-sighted and weak politicians who supported fundamentally flawed restructuring plans like the Phoenix Four’s failed attempt to save Rover.

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Banks, Lenders & Investors General Turnaround

Norman Tebbitt said “Get on Your Bikes”, we Say “Get on a Plane”

Optimism has been in short supply as 2011 comes to its end and businesses will need to be even more innovative and proactive if they are to survive and grow in the face of the gloomy economic predictions of stagnation for the next few years.
The ONS says industrial production fell by 0.7% in October in contrast to a rise of 1.7% in October 2010. The OBS downgraded its growth forecast for this year from 1.7 per cent to 0.9 per cent and from 2.5 per cent to 0.7 per cent for 2012 and the OECD predicted that the eurozone economy will shrink by 1% in the fourth quarter of 2011 and then by 0.4% in the first quarter of next year.
By contrast to the above, HMRC’s latest figures for UK exports show non-EU exports grew in September by £0.4 billion (3.4%) more than August while exports for the EU increased by £1.6 billion (13.4%).  September’s non EU exports were worth £11.3 billion and the month’s exports to the eurozone were worth £13.6 billion.
Although both figures show a slight improvement on August 50% of UK exports go to the eurozone.  Given the ongoing turmoil in the eurozone it would be foolish for UK business to continue to rely so heavily on Europe being able to continue taking such a large share of UK exports, let alone support any growth.
Currently the UK imports more than it exports and the trade gap with areas both inside and outside the eurozone is increasing both monthly and year on year.
Investing in UK businesses has become too much like bank lending. Instead we need a culture that rewards risk-taking and celebrates those who profit from risking their own capital. Most people in the UK want to invest in land and property as a long-term safe haven for their capital. Neither the culture, nor the tax incentives encourage us to invest in exciting business ventures. We are not encouraged to be adventurous for the future of UK plc. Ideally set up some meetings before travelling but you really do need to get on a plane if you want to find new customers.
UK businesses in both manufacturing and service sectors have become too reliant on the domestic market and need to look overseas, well beyond Europe. We should revive some of the spirit of our Victorian forefathers.
In an echo of former MP Norman Tebbitt’s famous advice to the unemployed to “get on your bikes” K2 says businesses should “get on a plane”.
We need pioneering Business Heroes prepared to explore foreign lands and open up new markets to sell our goods and services to countries that have potential for real economic growth. Are we still hoping that business will come to us? The world has changed and we must go out and start finding it.
Regime change in North Africa and the Middle East offers some terrific opportunities, while elsewhere, such as the BRIC countries, people are thirsting for the standard of living that we take for granted.
To those readers who are saying “yes, but…” to this argument, the reply is: “our forefathers conquered the world.  They took risks and it’s time we started taking some ourselves. We need to rediscover our spirit of adventure.”

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