Eurozone problems still mounting.

The Eurozone crisis continues to dominate the economic backdrop.

Latest figures for Spain showed the recession is continuing to deepen. The jobless total topped 19.2 million at the end of March a rise of 1.7 million in the past year. The unemployment rate in Spain is now running at 26.7 percent only a little less than Greece at 27.2 percent. The recent interest rate cut from the ECB is not expected to have an impact.

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

The knock on effects of the Eurozone crisis will be felt globally not least by the Chinese keen to kick start their labouring export sales. China, the world's second largest economy, has relied heavily on its manufacturing and export sector to key markets such as the Eurozone to drive its economic growth.

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 cost control and 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.

 

The Butcher, the Baker et al

Greggs the bakers one of the most dominant forces in the UK High Street (with over 1700 retail outlets) have issued a profit warning stating that like-for-like sales, which exclude newly-opened outlets, were down 4.4% so far this year.

Citing  bad weather and "under pressure" consumers, the Group said it did not expect market conditions to improve in the short term.

It said profits for the year were now likely to come in lower than market expectations.

UK consumers continue to rein in their expenditure in response to increased fuel costs for domestic energy and petrol together with food price inflation .

Greggs have focussed on good cost control but with Consumers under pressure, promotional deals have been particularly popular, which has hit profit margins.

This is a dilemma common to many businesses the need to boost sales whilst protecting the bottom line.

It is a very hard act to get the balance right in the current climate.

 

 

 

The Banks – meaner and definitely leaner

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The major banks continue to reduce their payrolls. In first-quarter earnings announcements, Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs and Morgan Stanley revealed that they have slashed more than 31,000 jobs, or 3.5 percent of their combined workforce, in the past year. For three of those banks, it was the second straight year of cutbacks. This pattern is being repeated at banks globally.
 

These job losses are a reminder of the meltdown and its lingering effects.

 

A slow, halting recovery has reduced the demand for loans. Low interest rates are weakening profits from lending. New regulations have extinguished old sources of revenue, and compliance is expensive. 

The cuts also reflect advances in technology that have made retail banking staff more expendable as customers get increasingly comfortable banking online or by Smartphone. 

The mantra in the banking industry is cost cutting. The CEO of Citigroup

comments that examining costs and improving efficiency should be "business as usual" and "not just an annual event."

It's a far different mood from the pre-crisis years that were fueled by risky trading and complicated investments that eventually backfired. 

Now Citigroup is cutting back in troubled countries in the Euro zone such as Greece and Spain.

Germany's Commerzbank and others are laying off branch workers as customers gravitate toward online banking. Barclays is exiting businesses with "reputational risks" after some of its bankers were caught manipulating global interest rates. 

There are areas where banks are seeking to add staff. For example wealth management perceived as a steady source of income, based mostly on fees, rather than the spectacular gains and losses associated with trading.

Banks are also actively recruiting compliance workers, to help ensure they're in line with stricter regulations that came out of the financial crisis.

 

Antony Jenkins, appointed CEO of Barclays last year after the bank's interest rate-fixing scandal, in February laid out a turnaround plan that included exiting risky businesses, cutting jobs and slashing the proportion of revenue that the bank spends on salaries and bonuses.

"We need to accept," he says, "that society's expectations have changed." 

It’s taken some time but maybe at last the banks are getting it.

Time to lighten up

  

Daily we are seeing clear cut evidence that  2013 will be a difficult time for business as Consumers further reign in their spending. Without doubt now is the time to tackle potential problem areas with some effective housekeeping.

One of the first areas for scrutiny is the level of inventory which you are carrying. Make sure you are achieving the best level of Stock Turn and that you are not carrying any obsolete Stock. Rather than face a “fire sale” it may well be prudent to lighten up now with some innovative marketing strategies.

How is your Company’s cash position? With the ominous backdrop surrounding financial institutions and Governments alike, don’t expect the Banks to readily provide additional finance- it is an absolute priority to maintain positive cash-flow and this can only be achieved by keeping Debtors under control.

Undoubtedly, the casualty rate will climb over the months ahead and now is the time to do everything you can to ensure your Company doesn’t become part of these statistics.

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 economies on a sustained stable footing.

 

The Chinese Dragon catching its breath

Analysts report that growth in China's manufacturing sector slowed in April,  adding to concerns about the country's economic recovery.

A drop in new export orders was blamed for the decline, a sign of weak global demand.

Last year, China's economy grew at its slowest pace in 13 years.

New export orders contracted after a temporary rebound in March, suggesting external demand for China's exporters remains weak.

Banks have cut their full-year growth forecasts for China after an unexpected slowdown in the first quarter.

Growth in gross domestic product for the first three months of the year declined to an annual rate of 7.7%, compared with 7.9% in the previous three months.

The World Bank, as well as private sector banks, said they expected growth to slow to 8% this year, though that is still high by global standards.

The government has said it will take steps to try to support the economy.

European markets are crucially important to China but with European economies in a fragile state the implication for export growth is obvious and the potential for the Euro debt crisis to spread would result in a further decline in export growth in the months ahead.

Triple dip avoided but much still to be done

The Fitch credit ratings agency has downgraded the UK to AA+ owing to a weakened economic outlook.

The move, after Moody's downgrade in February, came as Chancellor George Osborne defended the government's austerity plan.

Fitch said its downgrade primarily reflected a weaker economic and fiscal outlook.

As the UK government wrestles with its 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.