It’s official – we are out of recession , albeit not very convincingly, with growth of only 0.1%. This is of course subject to revision because the Office For National Statistics (ONS) have so far only received 40% of the information that is required to make the necessary calculations. Therefore it could go up (hooray!), or it could go down (boo!), which then means the recession is not over after all.
I am not an economist but growth of 0.1% doesn’t appear to be particularly impressive, particularly given all of the stimulus that has taken place so far, and the fact that we have had Christmas and a pre-VAT increase spending splurge as well.
Anyway time will tell as to where we are statistically, but in the real world there remains a lot of uncertainty, which is not going to go away whatever the figures say.
However something else recently caught my eye, which is a little more concerning, and probably has a greater bearing on our long term growth prospects. According to research from Manchester’s Centre for Research in Socio-Cultural Change (CRESC) the expansion of public sector activities has been the main engine of growth in the economy since 1998, and has largely masked the decline of the private sector .
Quoting from the abstract of their report, their argument is that “the UK has an undisclosed model of using publicly supported employment to cover the continuing failure of the private sector to generate and distribute welfare through job creation”. In essence, according to CRESC, even the increase in private sector jobs over the past twelve years has primarily been the result of public sector activities.
Strong stuff but is it fair? We are all aware of the continued jibes about the growth in public sector “non jobs” over the past few years, but the thought that all those “productive” private sector jobs owe their existence to the state as well takes some getting used to.
Perhaps it is time for the “entrepreneurial” private sector to fight back and show how it can efficiently and effectively “generate and distribute welfare through job creation”. The country certainly needs it to happen.
Thursday, 28 January 2010
Friday, 22 January 2010
Cadbury and some "flakey" logic…..
“We can run this better without you!” “No you can’t!” “You want us on the cheap!” “It’s a fair offer!” “Isn’t Isn’t Isn’t!” “Is, Is, Is!” “Oh OK, we’ll pay a bit more then.” “Oh fine we’ll accept.”
And thus another “hard fought” takeover battle limps to its predictable conclusion. A victory for market driven capitalism and an injection of new ideas and energy into the UK economy, or a sad case of yet another key British company being sold into foreign ownership with the inevitable consequences for jobs and investment?
I will leave that for you, dear reader, to decide, although the opposing viewpoints are well presented by John Stepek of Money Week, and Alex Brummer of the Daily Mail.
What I would say is that whole Cadbury issue has been a sideshow, and a symptom of the post war British focus on job preservation over job creation. Of Cadbury’s 45,000 odd employees, less than 5,000 were based in the UK. Whoever had owned Cadbury, it is unlikely that this number would have increased significantly, and it is more than likely that it would have declined over time.
The UK needs to create over a million new jobs if it is to get back to the peak employment levels of 2007-2008. These new jobs are not going to come from businesses like Cadbury. Aside from the public sector (which for obvious reasons is not going to go on a recruiting spree anytime soon), the only way that we are going to get what is in effect an exponential increase in jobs is by developing high growth entrepreneurial companies providing goods and services to growth markets.
To be fair, the government often makes the right noises about creating the right environment for such businesses, but sadly as it is easier to regulate and dabble in showcase schemes, than create a cultural change, that is what tends to happen.
However, we have to accept that the economic conditions of the noughties are unlikely to return, and that if we want to get back to the levels of confidence and prosperity that we enjoyed during that period, then we need a business culture where concerns about takeover battles such as Cadbury take second place to the real issues surrounding job and wealth creation.
And thus another “hard fought” takeover battle limps to its predictable conclusion. A victory for market driven capitalism and an injection of new ideas and energy into the UK economy, or a sad case of yet another key British company being sold into foreign ownership with the inevitable consequences for jobs and investment?
I will leave that for you, dear reader, to decide, although the opposing viewpoints are well presented by John Stepek of Money Week, and Alex Brummer of the Daily Mail.
What I would say is that whole Cadbury issue has been a sideshow, and a symptom of the post war British focus on job preservation over job creation. Of Cadbury’s 45,000 odd employees, less than 5,000 were based in the UK. Whoever had owned Cadbury, it is unlikely that this number would have increased significantly, and it is more than likely that it would have declined over time.
The UK needs to create over a million new jobs if it is to get back to the peak employment levels of 2007-2008. These new jobs are not going to come from businesses like Cadbury. Aside from the public sector (which for obvious reasons is not going to go on a recruiting spree anytime soon), the only way that we are going to get what is in effect an exponential increase in jobs is by developing high growth entrepreneurial companies providing goods and services to growth markets.
To be fair, the government often makes the right noises about creating the right environment for such businesses, but sadly as it is easier to regulate and dabble in showcase schemes, than create a cultural change, that is what tends to happen.
However, we have to accept that the economic conditions of the noughties are unlikely to return, and that if we want to get back to the levels of confidence and prosperity that we enjoyed during that period, then we need a business culture where concerns about takeover battles such as Cadbury take second place to the real issues surrounding job and wealth creation.
Friday, 15 January 2010
I got the Haçienda business blues….
Having ploughed through a number of worthy, if slightly dull, business books in my time it was quite refreshing find one that combined business with another one of my favourite subjects, music.
OK, “The Haçienda – How Not To Run A Club” by former Joy Division and New Order bassist Peter Hook probably wasn’t intended to be a business book, but as it covers the rise and fall of a business venture, including issues such as personnel, management, marketing, finance and internal controls, it does as good a job as any that I have read recently.
I can hear you all saying now “Oh well, it was a business run by rock stars, no wonder it failed. Obviously no planning or review processes or proper management”. Well, no actually, what the book reveals is that they did have regular management meetings, they did prepare accounts and forecasts, and they did do their best to get the right people.
Indeed Peter Hook comes across as fairly switched on in terms of the shortcomings of the business, perhaps not unreasonably so, given that he, as a member of New Order was unwittingly bankrolling the whole thing. Sadly the same could not be said for some of his fellow directors, including the late and very lamented Tony Wilson, whose entrepreneurial zeal created the iconic Factory Records empire, and it was their shortcomings in cost control and cash flow management, along with some external factors such as drugs and crime, which eventually sunk the club.
Yes it was the fact that I consider Joy Division to be the best group ever to emerge from Manchester (it’s a generational thing – other people will cite The Hollies or 10cc or The Smiths or The Stone Roses or Oasis – no doubt Delphic who have been placed third in the list of the BBC’s Sound Of 2010 artists will be somebody’s choice in the future) that drew me to the book in the first place, but given that the history of the modern music business has many excellent examples of entrepreneurship, it was a valuable business case study in its own right.
Meanwhile Peter Hook is clearly a glutton for punishment – he has just announced that he is opening a new live music venue at the old offices of Factory Records in Manchester. He says it will differ from the Haçienda, and he aims to make money this time. Right. Well good luck with that one then Pete….
OK, “The Haçienda – How Not To Run A Club” by former Joy Division and New Order bassist Peter Hook probably wasn’t intended to be a business book, but as it covers the rise and fall of a business venture, including issues such as personnel, management, marketing, finance and internal controls, it does as good a job as any that I have read recently.
I can hear you all saying now “Oh well, it was a business run by rock stars, no wonder it failed. Obviously no planning or review processes or proper management”. Well, no actually, what the book reveals is that they did have regular management meetings, they did prepare accounts and forecasts, and they did do their best to get the right people.
Indeed Peter Hook comes across as fairly switched on in terms of the shortcomings of the business, perhaps not unreasonably so, given that he, as a member of New Order was unwittingly bankrolling the whole thing. Sadly the same could not be said for some of his fellow directors, including the late and very lamented Tony Wilson, whose entrepreneurial zeal created the iconic Factory Records empire, and it was their shortcomings in cost control and cash flow management, along with some external factors such as drugs and crime, which eventually sunk the club.
Yes it was the fact that I consider Joy Division to be the best group ever to emerge from Manchester (it’s a generational thing – other people will cite The Hollies or 10cc or The Smiths or The Stone Roses or Oasis – no doubt Delphic who have been placed third in the list of the BBC’s Sound Of 2010 artists will be somebody’s choice in the future) that drew me to the book in the first place, but given that the history of the modern music business has many excellent examples of entrepreneurship, it was a valuable business case study in its own right.
Meanwhile Peter Hook is clearly a glutton for punishment – he has just announced that he is opening a new live music venue at the old offices of Factory Records in Manchester. He says it will differ from the Haçienda, and he aims to make money this time. Right. Well good luck with that one then Pete….
Thursday, 7 January 2010
2010 and all that
So what will 2010 mean for business? Yesterday, in the first day of trading this year, the London stock market moved strongly up with the FTSE reaching 5,500. This buoyant mood was apparently driven by new optimism about the strength of the economic recovery, which seemed to be backed up by a number of positive economic indicators. Two examples of this were manufacturing activity, which accelerated in December, and unemployment, which is now forecast by the Chartered Institute of Personnel and Development to peak at under 3 million. Even CFOs appear to be in a confident mood. Then yesterday came the news that John Lewis and Next had achieved impressive trading performances over the Christmas period.
Anything that creates a “feel good” factor and improves business confidence can only be good for business prospects. However this optimism has to be tempered by the opening salvos (for this year at any rate) in what is likely to be a very long drawn out election campaign, with all the uncertainty that brings. Whatever politicians might promise, and whoever wins, there is going to be an unsustainable gap between government income and expenditure, which means tax increases and spending cuts are inevitable. Even the star retail performers above are preaching caution in their outlook for 2010, something which the disappointing figures from Marks and Spencer seems to bear out.
We remain of the view that businesses will not be able to be rely on economic recovery to achieve better results in 2010, and will need to put in place their own plans and initiatives if they are to move forward. However, good news can only help, so let’s keep looking for it and highlighting it wherever we can.
Anything that creates a “feel good” factor and improves business confidence can only be good for business prospects. However this optimism has to be tempered by the opening salvos (for this year at any rate) in what is likely to be a very long drawn out election campaign, with all the uncertainty that brings. Whatever politicians might promise, and whoever wins, there is going to be an unsustainable gap between government income and expenditure, which means tax increases and spending cuts are inevitable. Even the star retail performers above are preaching caution in their outlook for 2010, something which the disappointing figures from Marks and Spencer seems to bear out.
We remain of the view that businesses will not be able to be rely on economic recovery to achieve better results in 2010, and will need to put in place their own plans and initiatives if they are to move forward. However, good news can only help, so let’s keep looking for it and highlighting it wherever we can.
Tuesday, 15 December 2009
Of course we are lending! Oh no you’re not!
Like the heading? Well it is Panto time of course (ours went very well since you ask) and it is nice to be seasonal occasionally, even if at times there is not much to smile about.
One area that is definitely causing frowns to form in a number of places is the subject of bank lending. “Banks must lend more” cry politicians and business organisations. “We want to lend and we are lending” say the banks. “Oh no you are not”, comes back the reply (see, this Panto lark is catching). And so the circle of claim and counter claim goes on.
So what is the truth? I recently went to a Surrey Chamber of Commerce event, where four representatives from each of the main high street banks braved the local professional services community for an enjoyable question and answer session. What became clear during the discussions was that there was a definite flight to quality, and businesses boasting good management teams, strong security and organic growth potential in attractive sectors were the ones they were looking to develop long term relationships with. There was an admission that there was limited appetite at present for smaller deals.
Although cash flow based lending was had been substantially reduced, banks were now looking to ensure they understood the cash flows in the business. There was a definite move away from traditional loans and overdrafts towards more asset based lending products, such as invoice finance. Covenants would be tighter, and these would be regularly monitored. They claimed that they had used the recession to get a lot closer to their clients.
The banks emphasised that they did want to lend, as that is their business. However they were finding that many of their clients were reluctant to borrow, even if offered a good opportunity, preferring where possible to pay down debt. Much of their recent “new” lending activity has often been refinancing and restructuring. However they said that the new Enterprise Finance Guarantee Scheme (EFG) was being used more widely than its predecessor, the Small Firms Loan Guarantee Scheme (SFLG).
On the thorny issue of pricing, they said that it was inevitable that spreads would increase, particularly compared to the current low Bank of England base rate, not least because the banks’ own funding costs were higher than this. Other factors currently influencing pricing were scarcities caused by the withdrawal of many foreign banks from the UK market, regulatory requirements, such as Basle II, and more focus on risk based pricing models.
The banks have been at pains to emphasise that their lending criteria have not changed and that they remain open for business. Anecdotal evidence however suggests that it is still extremely difficult to get money out of a bank for anything other than a “sure thing”.
This is not a “bash the bankers" piece as, in the main, the banks have been much more supportive of businesses battling the recession than they have been given credit for. Also, we probably don’t want to go back to the “cash machine” mentality that existed in those halcyon pre credit crunch days. However a little more pragmatism in bank lending in the current climate would be nice.
One area that is definitely causing frowns to form in a number of places is the subject of bank lending. “Banks must lend more” cry politicians and business organisations. “We want to lend and we are lending” say the banks. “Oh no you are not”, comes back the reply (see, this Panto lark is catching). And so the circle of claim and counter claim goes on.
So what is the truth? I recently went to a Surrey Chamber of Commerce event, where four representatives from each of the main high street banks braved the local professional services community for an enjoyable question and answer session. What became clear during the discussions was that there was a definite flight to quality, and businesses boasting good management teams, strong security and organic growth potential in attractive sectors were the ones they were looking to develop long term relationships with. There was an admission that there was limited appetite at present for smaller deals.
Although cash flow based lending was had been substantially reduced, banks were now looking to ensure they understood the cash flows in the business. There was a definite move away from traditional loans and overdrafts towards more asset based lending products, such as invoice finance. Covenants would be tighter, and these would be regularly monitored. They claimed that they had used the recession to get a lot closer to their clients.
The banks emphasised that they did want to lend, as that is their business. However they were finding that many of their clients were reluctant to borrow, even if offered a good opportunity, preferring where possible to pay down debt. Much of their recent “new” lending activity has often been refinancing and restructuring. However they said that the new Enterprise Finance Guarantee Scheme (EFG) was being used more widely than its predecessor, the Small Firms Loan Guarantee Scheme (SFLG).
On the thorny issue of pricing, they said that it was inevitable that spreads would increase, particularly compared to the current low Bank of England base rate, not least because the banks’ own funding costs were higher than this. Other factors currently influencing pricing were scarcities caused by the withdrawal of many foreign banks from the UK market, regulatory requirements, such as Basle II, and more focus on risk based pricing models.
The banks have been at pains to emphasise that their lending criteria have not changed and that they remain open for business. Anecdotal evidence however suggests that it is still extremely difficult to get money out of a bank for anything other than a “sure thing”.
This is not a “bash the bankers" piece as, in the main, the banks have been much more supportive of businesses battling the recession than they have been given credit for. Also, we probably don’t want to go back to the “cash machine” mentality that existed in those halcyon pre credit crunch days. However a little more pragmatism in bank lending in the current climate would be nice.
Monday, 7 December 2009
Breakfast with Bankers
I went off to a breakfast with Clydesdale Bank in Richmond last week to hear the views of Tom Vosa, who is the National Australia Banking (NAB) Group's Head of Market Economics, Europe. As NAB is one of the few remaining AA rated banks in the world, clearly they have been doing some things right, and it was a good opportunity to hear what one of their senior economists had to say, as well as renew acquaintances with our Clydesdale contacts, and meet other local business people.
Tom has a refreshing approach to all matters economic, and it is testimony to his communication skills that not only did a 72 slide presentation packed with detailed economic statistics and analysis seem to fly by, but we were all able to leave the room fully understanding what his views were for the economy in 2010 and beyond, and how they might affect our businesses and those of our clients.
In essence he believed that the recovery in 2010 would be patchy and would most likely resemble a W in shape than any of the other letters or symbols that have bandied about. While each quarter would show some growth, it would not feel like a recovery. There was still a significant wholesale funding gap, which along with the regulatory tightening that was taking place, would continue to limit the availability of finance. Unemployment and earnings would hold back any real increase in consumer spending, and the need to close the gap in the public sector deficit, through spending cuts and tax increases, would also be a dampener on recovery. Nonetheless, there would be a recovery in 2010, mainly led by the public sector activities currently in force, with the real economy taking up the slack in 2011.
In short the deepest recession since the 1930s, would be followed by the weakest of recoveries. London itself would remain the engine room for national recovery, not least because of the Olympics in 2012, although as with most Olympic cities, there will be a negative reaction in the following year.
Clydesdale very kindly makes available much of its research, which you can look at by clicking here . However, the presentation reinforced our view that businesses will have to create their own recovery stories rather than wait for any pick up in the economy.
Tom has a refreshing approach to all matters economic, and it is testimony to his communication skills that not only did a 72 slide presentation packed with detailed economic statistics and analysis seem to fly by, but we were all able to leave the room fully understanding what his views were for the economy in 2010 and beyond, and how they might affect our businesses and those of our clients.
In essence he believed that the recovery in 2010 would be patchy and would most likely resemble a W in shape than any of the other letters or symbols that have bandied about. While each quarter would show some growth, it would not feel like a recovery. There was still a significant wholesale funding gap, which along with the regulatory tightening that was taking place, would continue to limit the availability of finance. Unemployment and earnings would hold back any real increase in consumer spending, and the need to close the gap in the public sector deficit, through spending cuts and tax increases, would also be a dampener on recovery. Nonetheless, there would be a recovery in 2010, mainly led by the public sector activities currently in force, with the real economy taking up the slack in 2011.
In short the deepest recession since the 1930s, would be followed by the weakest of recoveries. London itself would remain the engine room for national recovery, not least because of the Olympics in 2012, although as with most Olympic cities, there will be a negative reaction in the following year.
Clydesdale very kindly makes available much of its research, which you can look at by clicking here . However, the presentation reinforced our view that businesses will have to create their own recovery stories rather than wait for any pick up in the economy.
Monday, 30 November 2009
The wonder of a Woolworths administration – part three
Further to our recent blog on the challenges facing insolvency practitioners (ISPs) in the current business climate, it now seems that the corporate insolvency market is to be the subject of an Office of Fair Trading (OFT) enquiry .
Some of you will find it hard to have any sympathy for these under fire ISPs, reasoning that as they must be so rushed off their feet at present, a squeeze on their fees would not seem out of order. However it is not all sweetness and light in the world of insolvency. Yes, there may be rich pickings at the top end of the scale, which deserve to be scrutinised (Lehman Brothers anybody?) but at the lower end the picture is much less rosy. Due to the reluctance of the banks and HMRC, the two organisations most likely to put a business into insolvency, to pull the plug on businesses, ISPs, while busy, are not that busy.
Also, as so many businesses now operate on a virtual basis, there are very few, if any, realisable assets available. These barely cover the costs of insolvency never mind leave anything left to pay out to creditors.
I still have my doubts about the way the Woolworths administration was handled, but somebody has to clear up the mess that poorly managed businesses leave behind, and in that regard the insolvency profession in general still does a pretty good job.
Some of you will find it hard to have any sympathy for these under fire ISPs, reasoning that as they must be so rushed off their feet at present, a squeeze on their fees would not seem out of order. However it is not all sweetness and light in the world of insolvency. Yes, there may be rich pickings at the top end of the scale, which deserve to be scrutinised (Lehman Brothers anybody?) but at the lower end the picture is much less rosy. Due to the reluctance of the banks and HMRC, the two organisations most likely to put a business into insolvency, to pull the plug on businesses, ISPs, while busy, are not that busy.
Also, as so many businesses now operate on a virtual basis, there are very few, if any, realisable assets available. These barely cover the costs of insolvency never mind leave anything left to pay out to creditors.
I still have my doubts about the way the Woolworths administration was handled, but somebody has to clear up the mess that poorly managed businesses leave behind, and in that regard the insolvency profession in general still does a pretty good job.
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