Archive for September, 2014

Rotten Apple in Ireland

At long last attention is being paid by the ever ponderous EU to the laxity of tax regulations for corporations within the EU. Ireland is a particularly damning example given that this state has been the benefit of huge aid due to its chronic economic mismanagement.

Quite how it is justifiable for a so called single market to not have at least a degree of tax harmonisation over corporation tax is impossible to understand. Surely given that the whole edifice wobbled badly on the lack of fiscal harmonisation (which i do not believe will ever be adequately achieved) you would have assumed that corporation tax is an obvious starting place. To have a failed economy undercutting more prudently runs states with the supposed same economic zone is both damning of the whole concept and irresponsible of the parties involved

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Tescos explained

Perhaps the clearest explanation for the mess Tescos find themselves is within this well written article

To quote

Take a situation where managers face a £50m shortfall. They “encourage” suppliers to offer extra rebates, in effect pulling forward income from the following period. If the slump is temporary, all may yet be well. The “borrowed” rebates and discounts can be repaid with investors no wiser. But if the following year brings another £50m hole, the total shortfall of £100m must then be borrowed from the next period and so on. It is double or quits.

However, as I understand it, “encourage” is a very diplomatic term. Allegedly they would simply deduct substantial sums from payments to suppliers, to be subsequently fought over. Most especially close to the end of each quarter I would suspect

The question yet again arises has to how clear disputed sums with suppliers could be booked into profit? At even a very basic level you would have thought that there was a requirement for credit note at least?

The finger has to strongly be pointed at their so called auditors. PWC

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Nadav Kander. Dust

The Aral Sea, by Nadav Kander


This quite stunning exhibition is currently showing at Flowers Gallery in Shoreditch. The theme is the lost cities of the old Soviet union. Some of these locations were not even disclosed until the advent of Google maps. Frequently they were used as weapons and ecological test sites.

Moving and quietly dramatic, this is an unmissable show

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Rotten Tescos

Tesco-harlescott-shrewsburyThe news today has wiped 11% off the value of the business.

The crux of the problem was within the accounting as detailed by this quote. Many will rightly ask where the auditors, PWC, were to be found when this was occuring

Cantor Fitzgerald said it had already warned last November that it believed Tesco was “demanding/taking money from suppliers trading accounts”.

“We believed Tesco had been overstating its UK commercial gross profit by £200m+ per annum, via deducting monies from suppliers’ trading accounts or extending payment dates without notice,” it added.

If i have read this right, they have effectively accounted invoices not paid on time as well as various unilateral clawbacks as profits during any quarter

I may have to look a little closer into this seedy business but if that is how I read it then heads must roll. Not least at PWC.

And should we not forget the suppliers in this unseemly business? It has long be known that Tescos treat their suppliers in a very dismissive manner.

One cant help coming back to that well known saying. “What goes round comes around ”

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Phones 4u. Where did it all go wrong?

168132-1The owners of Phones4u have put the blame for the recent collapse firmly on the shoulders on the firms suppliers. Is that fair?

Julie Palmer, partner at restructuring company Begbies Traynor, said: “This is a classic case of Phones 4U being over reliant on just three major suppliers and, ultimately, not being able to justify its existence in the face of those suppliers becoming more adept at dealing directly with customers.”

A problem of their own making perhaps? It does surprise me a little that with quite a wide range of suppliers the phone shops haven’t extended their reach and effectively become a broker across the whole market. Surely that is the way forward? Either that of a wider diversity of products such as those available at Carphone Warehouse

The other side of the coin was that Phones4u apparently had a difficult relationship with suppliers. They demanded the commission for whole two year contracts up front whereas other retailers were accommodating in spreading the payments over the term of the contract. Also there was some rumblings about their quality of service

Perhaps more pertinently the market is on the slide. Developments in phones have reached a peak and people are changing their handsets less frequently. Simply put, it is a mature market

And does that now leave Dixons Carphone at risk? This is from an excellent article linked below

So is even Dixons Carphone, the £3.8bn merged company from the high street chains of Dixons and Carphone Warehouse, at risk from carriers seeking to claw back profit?

There are two signs that it should be worried. First, the Three network stopped selling its handsets through Carphone Warehouse in 2013; it had done the same with Phones 4u in April 2012. Second, EE has not yet completed its negotiations on a new deal – exactly the problem that eventually led to the domino effect that killed Phones 4u.

What do we take from this?

For me it re-emphasises the lesson that credit management is not simply about numbers. The balance sheet and profit and loss are the starting points but an understanding of a businesses place and status on the market is essential to understanding risk. The whole picture has to be formed

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Scotland and the 100% tax rate

Sir James Mirlees has advised the Scottish “yes” vote that they would be entitled to default on their share of the UK debt in the event of independence. Good idea? I dont think so. And few, if any economists would agree

This is an economist who has won the Nobel Prize

But that is perhaps not as barmy as this suggestion

here are situations where marginal tax rates of 100% or nearly 100% may be justified. Three models will be sketched, using indifference curves. One, which makes unusual assumptions about preferences for labour, can justify income subsidies of low incomes with implicit marginal tax rate of 100%. The second, assuming high substitutability between consumption and work, might justify marginal tax rates approaching 100% on the highest incomes. The last, with competition between skilled workers (such as sportsmen or inventors) for market share, might justify marginal rates of 100% on high incomes of a particular type. The assumptions under which these conclusions follow may not hold in actual economies, but they might sometimes. In any case, extreme results, and the reasons for them, can help us understand how incentives work and their implications for taxation.

Put simply, he is stating that a 100% tax rate is justified and that “competition” would ensure that workers would keep working


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The Great Giveaway

At a recent networking event I was discussing a particularly challenging invoice financing deal which i had managed to broker. Nothing unusual in that. We all like to discuss the market but the response I received was one which is quite usual but probably indicative of a malaise in the market

“who did you give it to?”

I did not “give it” to anyone. It is not a birthday present

Ok. Maybe its just a turn of phrase but it is well known that too many “brokers” and introducers simply pass leads to one or two lenders that they happen to be familiar with.

There are over 40 lenders in the market. Needless to say this is hardly acting in the borrowers interest. is that putting it mildly?

Finding the right lender can be a complicated process. An enjoyable challenge for sure and one where unconsidered elements are often revealed.

Furthermore there is the somewhat more sinister angle whereby leads are passed in expectation of return work. In other words screw the client. I have been offered such an arrangement and even though it was at some cost to myself, I gladly walked away

Brokering is about trust. The borrowers trust in the broker.

That cannot and must not be abused.

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