Archive for January, 2010

Wind Hellas update

For those that are in anyway interested, Wind Hellas’s accounts (see blog entry 11th Jan) are available at the above address.

Were they in trouble?

Well, the balance sheet was strongly boosted by  very substantial “intangiable assets” entry. This most controversial of balance sheet entries is so very difficult for an outsider to value, especially in an industry as complex as telecoms. It is widely abused of course, simply because it is relatively easy to do so. At least one major credit reporting agency will assess balance sheets only when “intangiable assets” are removed. But at the same time, there is a genuine case for value given to “intangiables” in certain sectors.

Which makes credit evaluation easy…..

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Which is (maybe) the highest risk industry?

I’ll give you a few clues…

It is an sector  where the clients often have  a stronger emotional involvement with  the business than the owners.

The clients will often also have a greater knowledge and understanding of the business than the owners

And businesses in this sector have been known to a salary bill that exceeds turnover

No its not banking….

Please post your answers below…

 A Cafe Nero loyalty card to the first correct submission…..

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Britain the “insolvency brothel”

Does he have a point?

Well, it is certainly an interesting development that companies are re-registering in the UK to take advantage of our insolvency laws and pre packed administrations will continue attract controversy. It is entirely understandable that the creditors of Wind Hellas (the Greek telecoms group who recently re-registered in London and then went into pre pack within 14 days) are angry, but if Wind Hellas were insolvent, then what difference did this make? Then again, were they truely “insolvent”? Were they taking advantage of prepack to despatch their no doubt onerous liabilities?

I know at least one experienced insolvency practioner reads this, so would perhaps be interesting to hear some comments….!

And of course, the UK IP industry will not be unhappy with the fees such “re-registering” will produce. Nothing wrong with that…

There is always sympathy for unsecured creditors but on the other hand, companies of this size (and admittedly I havent investigated their record) rarely fail without there being significant warning signs. Clearly it is more difficult for some creditors than others to “get out” but Wind Hellas’s last balance sheet will make for interesting reading. Well, to me anyway…

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And talking about Enron

So many parallels between the collapse of Enron and the recent banking crisis…

There is a well received play running in the west end, but I can thoroughly recommend this documentary and this book. The real interest lies with the human behaviour. Hubris, arrogance and (perhaps most significantly) the herd like instinct. Who dared say “no”?

and of course the book is unputdownable

Old news? No. Timeless. Because this will happen again and again and again..


Well I have yet to read this, but I like the writer and the reviews have been very strong

Optimism is essential for enterprise. A “can do” culture is clearly far more desirable than  a “cant do” (Britain in the 70s?). But from time to time the a step back has to be taken. And the dissenting voice has to listened to.

Dissenting voices were fired or smeared at Lehman Brothers and Enron (there are testimonials to that effect). The businesses acted with a quasi religous fervour which was dangerous and ultimately fatal.

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Auditors face scrutiny?

January 11, 2010 2 comments

A good article from a couple of months back. But has there been any progresss?

We are all aware of the unhealthy relationship that the late unlamented Arthur Anderson group had with Enron, but as we have seen over the past couple of years, little has changed

Audits and auditing will never be the most eye catching of issues and i wonder how many of you have managed to get to this second paragraph, but perhaps that is the very reason that they continually escape public scrutiny? No headlines?

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The collapse of Borders …and other thoughts

 (My pre xmas circular to my contacts)
In my last communication I highlighted the unfortunate collapse of the Borders chain. Following that, some thoughts came to mind regarding credit risk indicators. These are not necessarily applicable purely to “retail” clients. I have generously decided to pass these on to you….
1. Positioning in the market
Lets look at another recent collapse. The Threshers and Wine Rack chain. So where were they in the market? In a tight spot, I would suggest. Squeezed between the overwhelming supermarket competition and also the burgeoning direct deliverers (such as Laithwaites and Times Wine club) who grab the “time poor” clients. And then there is the ever excellent Majestic chain cornering the quality seeking tippler who has half an eye on value, not to mention Oddbins and Adams and others. A few months ago, I visited a Threshers for the first time in years and frankly their wine range was boring and dated. I didnt need to look at the balance sheet to guess they could be in trouble.
Did this mean that the chain will collapse? Of course not, but if you do have concerns, then think hard about your client’s prospects and position in the marketplace. Credit assessment isnt just about numbers.
2. A suprising decision
Borders flagship store was Oxford Street. A couple of months before their collapse, this store was closed. It was constantly busy and (perhaps more importantly), its very prime location and familiarity must have gone along way towards promoting the brand. So why was it closed? I would suggest a desperation for cost savings and more worryingly a psychological “throwing in of the towel”. Very short term and a very dangerous and worrying mix….
Are decisions such as these “forced” or discretionary?
3. Who owns who
Who owns your client? Is it a bottom line driven private equity group or a family firm with deep emotional involvement and commitment? That’  the contrast between Borders and Foyles. Of course, the involvement of the dreaded PE group does not necessarily you will be looking at a nasty bad debt six months down the line, but its worth considering the value of emotional involvement and whether the owners have the appetite to fight (or even think) their way out of trouble. Arguably, its an issue whether they have the experience and imagination too
Question the commitment and the management
And on that note, have a great Christmas and a prosperous New year
Clive Pacey
 Pre xmas thoughts on Borders
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The abolition of cheques

January 10, 2010 1 comment
A copy of my credit management update to clients sent early Jan
Provided you are not entirely snowbound, a Happy New Year to you all
This weather has reminded me of an incident a few years back where the snow and ice badly affected credit management. In the days before bank transfers became widespread, it was customary to send couriers to collect particularly significant high value cheques from clients. I clearly remember one bike carrying a remittance for £1.5m encountering black ice. I regret to say that I cannot recall whether my concern for the courier outweighed my concern about the whereabouts of the that valuable piece of paper….
But it would appear that cheques are soon to be consigned to the dustbin of history. The banks, whos word we really trust of course, tell us that they will be abolished before 2018
Is this a good thing? For credit managers, probably not…
There are two reasons for this and they both relate to very difficult collections.
Firstly it comes down to the very nature of “a collection”. Unfortunately from time to time it is essential to visit a client to recover a debt. Now before anyone sniggers about baseball bats, these visits will be almost invariably agreed beforehand and in my experience cordial and constructive (mostly…). Yes, that is the way it works…
The advantage of doing so is that you get to see the client. It is amazing how you can pick up on the vibe of a business but even more importantly, a face to face meeting will (if handled correctly) be very informative.
So why wouldnt the debtor simply send the funds across and reject a meeting? Time is the answer and they probably wont send the funds across anyway. But companies experiencing cash flow difficulties will welcome the extra couple of days that a cheque payment will bring.
Of course, a cheque isnt a guaranteed payment, but actual “bouncing” of cheques is rarer than sometimes assumed and of course, a ” cheque bouncer” would not have made a bank transfer in the first place. That brings us to the second point, which is tangiable security. If a cheque doesnt clear, you are in a very strong position legally. In fact in the USA and certain other countries, it is technically criminal offence.
And that brings us back to the nature of a meeting and the result you want to achieve. I will keep this brief, but think about whether you would want to come away with a cheque or a promise of “I will transfer it when i get back to my computer”? We need that option dont we?
Lastly there is the issue of “post dated cheques”. What will replace that useful security? Have the banks made a suggestion yet? Given that post dated cheques are technically frowned upon by banks, probably not, but I can see there being a revival in Promisory Notes (which are still prevalent in europe, especially Spain).
There are other reasons to be uncomfortable about this dictat from our beloved financial institutions, but I have some snow to clear….
Have a good weekend
Clive Pacey
CPCM Credit Management
Tel 07956 138895
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