It's been a while

Thursday, March 4 2010

Apologies for the interruption in service – I have recently returned from my honeymoon and I rather suspect that my wife would have taken a dim view of me making a blog entry!

2010 is well underway then, and I hope the business landscape is looking brighter for you. Talking with banks and asset based lenders, it certainly seems as if the mood has lifted, with credit committees actually sanctioning loans and other facilities at sensible rates of interest. We were delighted to see some competition between banks in providing facilities to some of our clients in the last couple of months. Don’t get me wrong, we are not out of the woods yet, and it will be a while before banks are ready to taken on, shall we say, more risky businesses, but it is probably worth highlighting what I believe were the key features of the clients that attracted interest from the banks:

• Excellent systems and reporting framework
• Revenues secured by contracts
• Clear vision and leadership at the top of the business

You will see these features time and again within most successful organisations – so are you able to identify them in your business? If not, then we will be able to help. As always if there is any aspect of your business finances that is not working for you then get in touch.

I know people take a keen interest in how the UK taxpayer’s investment portfolio is progressing. RBS and Lloyds Banking Group have announced results for the 2009 calendar year, both banks lost just over a no longer staggering £6bn. In the context of the 2008 results this is relatively OK and the markets will have factored these losses into the share price some time ago. To my mind there are some positives to be taken from the fact that the core banking business in both banks are still producing strong results. I maintain my position that these are fundamentally good businesses that became too bloated. I haven’t analysed the numbers in depth but RBS’s loss will have been exaggerated by issues still cropping up from the disastrous ABN Amro acquisition, it is to be hoped that the bulk of the bad news there is now out of the way. If you’re really interested you can get more on the results at the following sites:

http://www.rbs.com/media/key-facts.ashx?DCMP=ILC-mediainfo4

http://www.lloydsbankinggroup.com/investors.asp

If you want to monitor the share price of the respective banks, and indeed other equities, I recommend the excellent Yahoo Finance.

It is with some trepidation that I step into the world of politics, but I was sad to note the death of Michael Foot yesterday. Whatever your politics, he was a reminder of a time when the UK electorate were presented with real choices by principled politicians – seems like a lifetime ago…

News Round Up

Tuesday, January 19 2010

Krafty changes turn Cadbury Sweet

No doubt as to the main topic of conversation in the business world today. Kraft appear to have convinced the board of Cadbury to recommend a revised takeover offer to the shareholders. This story has been something of a drifter with the original bid having been made back in August. It certainly hasn't been a picnic for Kraft to get to this stage, with rival bidders such as Hershey in the background but being rather flakey on what they were offering. Personally, I am encouraged that the banks are supporting a now mostly cash offer from Kraft - wispa it quitely, but could the Cadbury deal signal the beginning of end of the credit crunchie?

Base Rate Debate

A number of economists are predicting a hike in the Bank of England base rate over the coming months (although a similar number are predicting no rise). Much would seem to depend on the inflation data due to be released later today. If inflation continues to be below target it is difficult to see a case for raising the base rate, other than the chance such a move would strengthen sterling. Even this has a negative side, as it will be bad news for exporters and for tourism which now seems to be a mainstay of the UK economy.

HMRC Debt Timebomb

More commentators are picking up on the likely flood of corporate insolvencies when HMRC's Business Payment Support Service reaches its natural end. Whilst I have applauded the scheme and can point to good businesses that have only survived to this stage because of the payment flexibility, I am also aware of weak businesses that have been given licence to continue to trade at a loss with no propsect of recovery, amassing ever greater liabilities. I fear that when HMRC return to their normal modus operandi these business will find themselves very quickly subject to winding up orders, and HMRC among others will be severely out of pocket.

Meanwhile, in its infinite wisdom, HMRC have announced the closure of 130 tax offices. Whilst I don't for a moment think that all of the staff at those offices were providing the tax payer with value for money, I think it's safe to say that we can now look forward to a further distintegration in customer service and the ability to correctly assess and collect tax.

Tactics seem to have changed rather with HMRC hinting at information they hold on certain groups of taxpayers, offering an amnesty, and hoping for a rush of errant citizens. My suspicion is that head honcho Dave Hartnett has been studying the power of suggestion with a Derren Brown DVD that someone bought him for Christmas.

PS - Can anyone get the correct number of chocolate bar puns in the first news item? I'll get a bottle of wine to the person with the correct answer. Answers on a postcard - well e-mail - to jprice@wkhca.co.uk

Happy New Year

Friday, January 8 2010

Happy New Year everybody, hope you had an enjoyable festive period. Apologies for the long break in blog entries, this was due to getting married, Christmas, and, what the heck, the wrong kind of snow (well, that excuse seems to work for everyone else).

Perhaps the wrong kind of snow will be the explanation for any further delay in the economic recovery - it's got to be worth a try. On a serious note I hope that these wintry conditions have not impacted to severely on trading levels for SMEs.

Over the last month or so, I have continued to observe trends in two sectors that interest me hugely, the banking sector and the pub/restaurant sector.

In respect of the former, the RBS share price is stubbonly sticking at below 40p. Difficult to see an exit for the UK taxpayer until it's double that price and who knows when it will get there. It seemed almost inevitable that RBS would have an exposure to the Dubai World debacle, with several billion owed. Abu Dhabi seem to have come to the rescue, at least for the time being. The Government appear determined to make a hash of selling Northern Rock back to the private sector, so we probably won't realise full value there.

Better news, in my view, comes with the prospect of new banks entering the sector. Whilst Richard Branson's Virgin Group purchasing a small private bank in Somerset will not, in itself, impact greatly on the sector, given Dicky's track record it is safe to say he will not be leaving it there. I have heard naysayers asking "what does Branson know about banking? Well, erm, clearly not as much as the great industry leaders like Fred Goodwin. Tesco also look to be expanding their horizons, but selfishly I am looking for change in lending practices to businesses and it will be a fair while before either Virgin or Tesco can influence that.

The large pubcos continue to dominate the headlines, with the GMB threatening strike action by pub landlords who, I firmly believe, are getting a raw deal from the pubcos. There seems to be an inherent problem though with self employed individuals threatening strike action. Still, it has at least brought the public spotlight on to these issues. There are one or two signs of movement from certain pubcos, at least those who brew their own beer and can adjust their business model to accomodate price freezes and price cuts. For the likes of Punch, Enterprise and Admiral though, the huge debt servicing cost will restrict their ability to offer any assistance to landlords, and, as a result, I can still see these companies imploding in the not too distant future.

News Round Up

Friday, December 4 2009

Apologies for the hiatus in blog entries. Strategic thinking and my stag do have rather pre-occupied me in recent weeks. As usual though, you can always rely on the Government and RBS to provide enough of a talking point.

Bonus Balls

I am not privy to the extent to which RBS’s investment bankers are the same group as pre credit crunch, but I am going to make the rather large assumption that, with the exception of one or two sacrificial lambs (not of the poor little variety), the guys who apparently need to be rewarded for achieving…well, actually I’m not at all sure what they have achieved…are the same group that took their organisation to the brink of collapse. I really don’t think that the full course of medicine has been taken yet, and we wouldn’t want the illness to make a swift return would we?

I guess I have some sympathy in as much as the rivals that managed (just) to survive without state aid, will be waving their wads around the City, but surely these high calibre investment bankers realise that life in the public sector is very different to the private sector when it comes to rewards – the consolation has always been relatively high job security.

If I were able to send a message to the senior bankers in RBS it would be to focus on achieving results – this is the way to drive the share price up and offer the Government an exit route from what is a very uneasy relationship for both sides.

Time Gentleman

As a keen promoter of UK pubs, I have observed with some unease the way that the sector has developed over recent years. The massive PubCos – Punch Taverns, Enterprise Inns, Admiral Taverns to name a few – have been massively acquisitive using bank debt to create extensive freehold estates. What has been left behind is essentially a franchising model leading to an increasing homogeneity in the pub going experience, and a pool of landlords who are unable to offer their clientele much in the way of flexibility, and a cost structure that makes earning a decent living nigh on impossible.

In response to this situation the Campaign for Real Ale (CAMRA) made a super complaint to the OFT, claiming that the “beer tie” adversely affected consumers. The OFT, perhaps unsurprisingly given the Government’s close relationship with big business, rejected the complaint. At a pure consumer level I can kind of accept the point that there is no evidence that a landlord’s capacity to source from numerous suppliers will positively impact on consumers, but they seemed to gloss over the imbalance in power between PubCos and the landlords. I suspect that we haven’t seen the last of this.

Notwithstanding the stance of the OFT, I anticipate that over the coming months there will be an automatic correction in the pub market. All of these PubCos (Admiral Taverns has already effectively been taken over by Lloyds in a debt for equity swap) will find it incredibly difficult to re-finance some or all of its current arrangements. This is borne out by some first, and second, hand experience of PubCos accepting what you would have to call “silly offers” for parts of their freehold estates – in some cases 50%-60% of what would have been the asking price 12 months ago.

The speculation is that bankers are prepared to write off around £2 for every £1 repaid on the massive debts – that would explain the willingness to discuss almost any offer. So, if you’re a landlord looking to rid yourself of the beer tie and can pull together a decent business case, now might be the perfect time to snap up a bargain.

Credit where it's due?

Tuesday, November 10 2009

I increasingly find people frustrated at the freezing of the credit system in the UK, not just in respect of an inability to access bank funding, but also the disappearance of trade credit insurance.

Credit rating agencies are running scared, and so are the insurance underwriters. Without this insurance the risk attached to many SME balance sheets has skewed sharply upwards, and many business owners are palpably worried about this exposure. It is a fact of life that SMEs tend to be more reliant on a few customers than they would like, and it is also a fact that those customers are, on the whole, taking more time to pay right now - cue many sleepless nights and crossing of fingers.

With results covering the 2008 and 2009 recessionary years now making their way into the public domain at Companies House, for many firms the situation will only get worse. Credit ratings are likely to be downgraded again, and insurers will retrench accordingly.

In truth, much as we would like to wave a magic wand there is not an awful lot that can be done to influence events, but I would encourage business owners to think about the small things that they can control. I have looked at a couple of examples below:

Abbreviated Accounts - It has become almost a default position for small companies to disclose as little information as possibe. An understandable stance certainly, though consider a company that had retained profit reserves coming into a financial period, but was only able to achieve break even for 2008/9. The owner manager still requires a dividend to cover living expenses and uses retained reserves to pay that dividend. All the abbreviated accounts report is a negative movement in profit reserves - this is interpreted by credit rating agencies as a loss for the year. Full accounts would report the actual break even performance so there are positives as well as negatives in being transparent in reporting financial performance.

Tax Planning - Although it may be tempting, and completely legitimate, to use tax planning schemes to mitigate corporation tax liabilities, reducing the profits subject to corporation tax will generally only be achieved with a similar reduction in your reported accounting profit. Again, business owners need to anticipate what that might mean for their ability to access credit further down the line.