The overhead monster getting hungrier by the day

The UK offers a very attractive market for companies wishing to export their products. Counter party risk is identifiable and can be successfully managed.

However one barrier may be the perception of high operating costs.

There is no doubt that to commission and run a UK operation can prove a costly commitment. The lists of outgoings such as rent, communications, staffing costs are daunting, particularly in a start up situation where income streams are lagging far behind these costs.

This is where we can assist you, as an established independent company, we have experience of representing overseas organisations in marketing product into the UK.

In addition to opening up new markets for your products and services we can also police the all important areas of logistics and payment of your invoices.

An introduction to our activities can be seen on our web site www.glbconsulting.co.uk or alternatively why not contact me at gordon.blackburn1@btinternet.com to arrange a meeting to discuss how we assist you in entering the UK market.

Hamstrung by leverage

As a legacy of the private equity boom an increasing number of companies are now finding their activities largely targeted to satisfying their repayment obligations to the Banks. Companies are finding their growth restricted as money which is needed for new projects is swallowed up in servicing debt.

Over the next four years British companies owned by private equity firms must repay or refinance £100 billion of debt.

The Banks that formerly were willing to take a more lenient attitude and renegotiate loans are playing by much harder rules.

As more and more companies find their ability to borrow restricted, they have to revisit their own payment terms with their customers. It becomes a vicious circle from which very few are immune.

The key is to make the most of available cash resources which inevitably leads to some hard commercial decisions. Late payers are a luxury that no company can afford in this climate. Stock must be turned as efficiently as possible.

Those who either will not or cannot adapt to the demands of today’s business  will join the growing list of casualties.

Funding squeeze getting tighter

The Bank of England has drawn attention yet again to the difficulties of firms to obtain finance against the current economic backdrop. In its latest dire assessment it cites that many companies (particularly SME’s) are “unable to obtain credit at any cost”.

Long term funding is especially hard to secure requiring the renegotiations of existing facilities with the accompanying charges. It is not unusual that overdrafts are being reduced or even withdrawn with the subsequent knock-on effect.

Latest figures for April show 1,564 companies failed with SME’s hardest hit.

The Banks are still trying to repair their balance sheets at the same time that the problems in the Eurozone take centre stage and against this background they will not change their current operating procedures.

It is imperative that all Debtors are rigorously policed, Stock holdings kept to a minimum and the utmost scrutiny is applied to all elements of operating costs.

Expect some very inventive tactics from Debtors to delay their payment obligations and the damage done to your own cash-flow should they be allowed to do so.

 

The pain is Spain – it’s the Banks who are to blame (2)

Spain's fourth-largest bank, Bankia, has asked the government for a bailout worth 19bns Euros ($24bn; £15bn).

In addition Bankia has restated its results now saying it made a 2.98bn-euro loss for 2011 rather than the 309m Euros in profit it announced in February.

On Friday, trading in Bankia shares was suspended on the Madrid stock exchange while its management put together a restructuring plan.

The woes of the Spanish housing market are well documented but this latest development has far wider implications.

Time and again we are seeing reports coming from the Banking sector where massive losses have been established and yet it would appear nobody was monitoring these developments. It is all rather reminiscent of the old variety act where a performer started to spin a sequence of plates as long as he could keep running and adjusting the spinning plates all was well but as soon as he stopped the whole scenario collapsed. So it is with the Banking system.

Apart from the ineptitude of the senior personnel at the Banks whose total pre-occupation would appear to have been the size of their bonus pot one also has to question the role of the Auditors in all of these debacles.

The tragedy is that we all remain in thrall to the architects of these disasters. 

Everything but the squeal

The UK has agreed a £50m trade deal to sell British pork to China, the world's biggest market for pig meat.

Much of the pork will be in the form of parts that are popular in China but not with British diners, such as offal and trotters.

"China is the most lucrative grocery market in the world," said Agriculture Minister Jim Paice.

The deal comes after five years of talks, and negotiations over lamb and beef exports may soon follow.

This is just another signal of the growing emergence of China in the international commodity markets.

That influence continues to grow as Chinese import demand tied to population growth and increased annual income broadens into corn, meat, nuts, dairy and other food products.

It is the leading producer of many ag-ricultural commodities, supplying more than half of the world’s pork; one-third of the world’s horticultural products, rice and cotton; and close to 20 percent of the world’s wheat, corn and poultry.

With about one-fifth of the world’s population, China is also the largest consumer of many agricultural products; its current share of global pork consumption is 50 percent, 40 percent for cotton, 30 percent for rice and more than 25 percent for soybeans and soybean oil.

A burgeoning middle class population and a shift in dietary patterns will combine to produce widespread buying of agri products. Sales to this destination will become a rapidly increasingly important price determinant in the coming years.

Hang on, I think I’ve seen this one before

Rarely in life either privately or in a commercial environment do we come across an entirely unique or new situation.


The current situation facing the world markets and business has parallels with previous financial crises such as the 18th century South Sea Bubble, the Victorian Banking crisis of Overend & Gurney, the Great Depression which followed the 1929 Wall St Crash, the Dot Com Crash. In all of these episodes the common denominators were reckless pursuit of profit whilst fundamentals were ignored, the so called “get rich quick” school of business.


Following each of these debacles there was a collective reigning in and return to the principles of sound business.


However memories are short and it is not long before the blurring starts again and risky practices again become more and more the norm.


Complacency has resulted in the demise of numerous organisations.
As George Santayana commented “those who cannot remember the past are condemned to repeat it”.

A question of trust

As the various pressures increase on businesses the integrity of financial reporting has never been more crucial.

With companies and individuals desperate to achieve profit targets the potential for abuse may prove to be too much of a temptation.

It is important that systems are in place to prevent misreporting and in worse case scenarios fraud and these systems should be reviewed and rigorously checked.

It is hardly surprising that “independent” auditors have now been called into Banks in Spain to verify the true value of the property portfolio which form such an important element of the banking systems assets and capital structure.

At the same time the current events at JP Morgan underscore how vulnerable institutions are if their personnel choose or are allowed to camouflage the extent of their exposure to unanticipated market movements.

Nobody has devised a fail-safe system which affords 100% comfort but in many instances a closer objective scrutiny would have given sufficient warning to have averted a train wreck.

Unserviceable debt – who carries the can?

“If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem” the famous quotation from JP Getty neatly sums up the dilemma faced by the international community in dealing with the Greek debt problem.

During the first meeting between Germany’s Chancellor Merkel and France’s President Hollande both expressed the desire that Greece should stick to the terms of the existing bail out agreement. The harsh reality being that the consequences of Greece exiting the Euro would have extremely damaging repercussions.

In spite of the hard line talk from organisations like the IMF it will come as no surprise to see real politik coming into play following the Greek election of June 17th and a fresh compromise being offered to the Greeks, in effect kicking the problem further down the road.

The fact is the international community will have to learn to accommodate the spectre of countries failing to grapple effectively with their debt burdens. In turn this will inhibit growth and limit the speed and strength of global economic recovery.

It will be an uncertain time but one undisputable outcome of the above will be the hard ball attitude of the Banks towards companies seeking funding. It will become ever more necessary to demonstrate effective control over all areas of cost and exposure as the banks will undoubtedly remain reluctant lenders.

The Eurozone crisis – waiting for the axe to fall

The Eurozone crisis continues to dominate the economic backdrop. The main focus over that past week has been the situation in Greece but other countries in the Eurozone such as Spain are beginning to come more under the spotlight.

The latest development has seen US credit ratings agency Moody’s downgraded the long-term debt and deposit ratings for 26 Italian banks this week, citing the country’s recession and rising bad debt levels. Ratings agency Moody's has cut the credit ratings of 16 Spanish banks, a further blow to a country that is struggling to deal with the bad debts of its banking sector.

It also cut the debt rating on Santander UK, a subsidiary of the Spanish banking giant.

It comes after shares in struggling lender Bankia fell another 14%. They have almost halved in value this month.

As governments wrestle with their respective debt burdens the only certainty is there is no silver bullet.

The all pervading sense of nervousness will continue to impact on all business sectors. The days of easy access to finance are long gone. Companies need to focus on their exposure at every level ranging from inventory levels, rate of stock turn and the integrity of the debtor’s book.

Operating in this current climate of austerity will provide the ultimate challenge for those managing companies, be it an SME or a large multi-national corporation.

Nothing to do with me Guv

Yesterday the Governor of the Bank of England issued another doom laden forecast warning that the euro area posed the greatest threat to the UK recovery, and there was a "risk of a storm heading our way from the continent".



He joins a growing band of Doomsayers made up of high profile members of the international Banking world and senior politicians who seem oblivious to the fact that the problems we now face were created on “their watch”.



It is the ultimate irony that politicians with the so called “light touch” and institutions such as the Bank of England/ US Fed were all too willing not to look too closely into the ways that the markets and sovereign economies were being structured for fear of rocking the boat.



There is a certain black humour that these very architects of disaster now turn round and pontificate about the dangers that the world faces.

As the crisis in the Euro zone unfolds it is also worth noting the number of high profile cheer leaders for the Euro who are now conspicuous by their silence on the matter.



The reality is the man in the street is told to prepare for more belt tightening whilst businesses find themselves desperate for funding as Banks are reluctant lenders as they look to repair their damaged balance sheets.

Plus ça change.

Everyone needs to feel recognition

Against the current economic background everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

It is a paradox that as times become tougher and business harder to win the level of service offered by many Suppliers is falling very short of acceptable standards.

From the frustrations of automated answering (devised surely to test anyone’s patience to the ultimate degree) to the failure to meet agreed delivery schedules Customers are left feeling that their business is not valued.

Little wonder that they choose to vote with their feet. Customer service is not a difficult act to pull off – in reality all that is required is to give the Customer the feeling that their business is important and they are valued not just “one of a number” or even worse a nuisance.

Those businesses that master the art of Customer service will emerge from this current difficult period all the stronger.

 

May you live in interesting times

A combination of recent market volatility, the continuing spectre of failure in
the Eurozone coupled with latest pronouncements from politicians and economists alike have done little to restore confidence and now more than ever is the time for good housekeeping and firm controls.

Rigorous monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guarantee as to future performance. Very few businesses fail overnight
and there are usually enough warning signals which should enable a supplier to reduce its risk. Be on the lookout for early warning indicators such as unusual ordering patterns, delays in payments etc.

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised
companies. Make sure that when the dust eventually settles that your company emerges in a stronger position.

That’s not the way to do it!

There’s a sense of déjà vu about the latest debacle to surface from the Banking industry. This time it’s the US Bank JPMorgan under the spot light having ran up a staggering loss of £1.2 billion in 6 weeks with an estimated £750 million of further losses to be recognised in the coming weeks.

The comment from the Bank’s CEO was truly astonishing “In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored” he added “The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought. There are many errors, sloppiness and bad judgements. It puts egg on our faces and we deserve any criticism that we get”. As a mea culpa that statement takes some beating!

Despite the havoc that their action caused to the global economies, these self appointed “Masters of the Universe” are still trying to control the world through their own form of financial engineering.



By developing trading instruments and programmes of ever increasing complexity they have created monsters which just like Dr Frankenstein they cannot control.



Unfortunately the implications of their misplaced arrogance go far beyond the damage done to their own bottom line. Contrast the position of the senior personnel at JPMorgan with the owner of a cash-starved SME operating against the current backdrop.



It is ironic that the Banks are reluctant to fund legitimate operations at a time when their own activities have in so many instances been so damaging.

The pain in Spain - it’s the Banks who are to blame

 

According to El Mundo the 2011 Audit of Bankia’s 2011 accounts show that the Banks assets were overvalued by 3,500 million Euros.

Shares in Bankia (a Spanish conglomerate formed in December 2010, consolidating the operations of seven regional savings banks) have fallen 15 percent since Monday when it emerged that Spain was readying a bailout for the bank, which holds 10 percent of the Spanish banking system's deposits.

This is not an isolated event, think of the recent problems with losses incurred by various Banks. However it highlights how vital it is that Senior Management set clear defined operational and reporting procedures.



In many companies the Directors simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.

In trading environments it is not uncommon that totally unrealistic profit targets have been passed from Board level to trading departments. No cognisance having been given to the disproportionate risks which need to be taken to achieve these targets.



Some of the most spectacular financial flame outs have followed a period of ostensibly highly successful trading. In their desire to recognise these “profits” no thought were given as to how they were being made. In such instances it would be well to take note of the old adage that is something looks to be too good it usually is!



If your company is bucking the trend in these difficult times it may well be that you are implementing a winning formula.



However history tells us that it is often a prudent course of action to look under a few stones – just in case.

Wake up and smell the Coffee – whilst you can

The rise of the developing world is really just a return to business as usual.

After all, until the 18th Century, India and China were the richest countries on the planet. For 18 of the past 20 centuries China had the largest economy in the world until the 19^thcentury and the industrial revolution.

Chinese companies will continue to make international acquisitions such as the purchase by Bright Food of the controlling stake in Weetabix, which owns the breakfast cereal brand as well as Alpen and Ready Brek.

Bright Food will take a 60% stake in Weetabix in a deal that values the company at £1.2bn.

Meantime as evidenced by the recent purchases of Corn from the US, China will continue to be a major buyer in the international agri markets in response to demand from its burgeoning middle classes.

With a population in excess of 1.3 billion (approximately 20% of the world’s population) imagine the implication for Western consumers should an early morning cup of coffee become the beverage of choice! 

Greek tragedy- turning from a Drachma to a crisis

Following the Greek election results the left wing party Syriza is trying to form an alternative coalition government. This appears unlikely to happen.

However, If this were to succeed and there was a rejection of the austerity measures already agreed to reduce the country's deficit in exchange for international support, it would leave its bailout in jeopardy.

The rest of the Eurozone and the International Monetary Fund, who pledged bailouts worth a total of 240bn Euros (£190bn; $310). would have to decide if the bailout would continue. If not, Greece could conceivably end up leaving the euro.
In many ways the Greek crisis is a metaphor for our times. A customer develops a pattern of late payments but far from being called to order the supplier fearful of alienating the customer allows this to become the norm.

When the inevitable tipping point is reached there is no alternative to continue to support the errant buyer or risk realise a loss.

There is a growing realisation that the problem is just being kicked down the road.

However as the international banking community prepares for another serious blow to its capital structure the UK banking community will not be immune. At the very least there will be a renewed focus on exposure and this will impact on their willingness to lend.

Now more than ever businesses must demonstrate that they have full control over all aspects of their operations. Reporting procedures must be strictly observed and any potential problem areas or customers brought quickly into line. As it becomes harder to borrow, positive cash-flow is critical.

You can only win it if you’re in it

Some years ago whilst working for an international corporation I attended one of the bi-annual strategic reviews for senior Group executives. Each executive was required to give a presentation in respect of his/her business unit. One colleague addressed the audience with his one word objective namely “survival”.

At the time this was met with a fairly frosty response but current events show that it is probably a suitable watchword for the present time. As the machinations continue in the Euro zone and the commentaries become even more emotional with phrases such as “disintegration” and “meltdown” then to survive these times would seem to be a very laudable objective.

So many factors are coming into play over which individual companies can do little to protect their interests other than ensure that they react appropriately.

However the one certainty is that the global economies will survive and business will continue. In the coming months there will undoubtedly be casualties but by adopting a controlled and rational response to these challenges businesses can ride out these difficult times.

Hard sledging for SME’s

During March UK insolvency figures show that 2112 companies went into liquidation. SME’s are finding it particularly hard to survive against the current economic backdrop.

Funding as always is the main problem and the rejection of applications for bank loans makes for stark reading – in the North East 46% were turned down, West Midlands 47% and in the South West 41%.

With the marked reluctance of the Banks to lend, it becomes imperative that all businesses focus on their areas of exposure – rigorous policing of the Debtors book must be a priority and Stocks must be kept at a minimum.

More companies will try and improve their cash-flow by dragging their feet with payments and trying to put more of the burden of carrying stock onto their suppliers.

Those that adopt a passive approach to these issues will find themselves increasingly vulnerable and heading down a slippery slope.

When China wakes up, the world will shake

 The above quotation which is attributed to Napoleon during his exile at St Helena is almost 200 years old. It was an extremely prescient view and certainly resonates today.

During the last decade we all saw the results of the dynamic Chinese export programme as goods poured into the US and EU markets.

There has been a marked step up in acquisition of assets following the recent economic problems particularly in the US.

However there is another factor emerging as China steps up its demand for raw materials particularly agri commodities

 In the past week US Grain Exporters sold 2.84 million tonnes of Corn to China. Everything from grains to soybeans is being shipped to China, as we’re seeing an emerging middle class. Demand is very much there.”

As we near the tipping point

Current economic data economy returned to recession, shrinking by 0.2% in the first three months of 2012 illustrates the very real danger that the fragile economic recovery could be derailed.

It is vital to maximise your profits whilst avoiding locking your company into increased overheads

This is a time for a root and branch analysis of your business. As an independent Consultant I can give your business a full evaluation and provide you with a range of successful sales strategies and cost saving efficiencies.

Why not check out my profile at http://uk.linkedin.com/in/gordonblackburn

Toughing it out

Viewing the general air of gloom that now prevails in the current climate it is hard to remember the halcyon days of easy money (credit) and the all pervading feeling that the party would never stop.

There is no doubt the world and his wife embarked upon a collective spree for which we are now picking up the bill. With the benefit of hindsight the warning signs were there to see but these were readily ignored. One quotation springs to mind “They that sow the wind, shall reap the whirlwind"

The problem now is that as always there is an over-reaction and just as we never saw the top there is also the certainty that we will not see the bottom.

What is needed is a clear and unemotional assessment of the current climate, whilst few would dispute that difficult times lie ahead we are far from a financial Armageddon.

As always the markets are driven by fear and greed but the importance of sentiment should not be overlooked. Until and unless the Doomsayers gain a sense of perspective it will be hard to imagine business and markets on a sustained stable footing.