Tesco’s retreat

Although you can sense an element of inevitableglee in this Guardian piece at Tesco’s troubles, it is quite revealing in the detail of the proposed closures and retrenchment from future developments. Whichever way you look at it, Tescos are now a bit of a mess.

A few questions spring to mind. Firstly what is the cumulative effect going to be on future sales? Negative publicity works across the board and whilst the average shopper will not change supermarkets because of accounting misdemeanors, they will get this image of a company that doesn’t know what its doing.

Coming back to the accounting fraud ( and yes that is what it was), what action is being taken against the auditors who clearly were compliant in this pretty obvious con? I believe that the strongest action is absolutely essential, even if it meant suspending a licence to audit

Lastly, the article does point to the effect on “the communities”. That is to be expected from that paper but if the market is there for a new supermarket or simply a local Metro then surely another chain would step in? Food retailing is not exactly dead on its feet. If the market isn’t there, then the community is suffering not having something it wasn’t really entitled to in the first place.

The shame of Companies House

Few would disagree that companies house is generally a fine and efficient institution but when they make a mistake, the results can be catastrophic

To wrongly strike off a business and thus completely demolish its ability to obtain credit is incompetent enough but when the business is 124 years old with a decent balance sheet, you have to ask what the idiot civil servant was thinking of? To make matters worse they seemingly defended the case and dragged the process out causing misery to entirely innocent parties. Surely a quick admission, settlement and the chance for the business to concentrate on getting up and running once again would have been preferable to rewarding lawyers?

Secondly the mistake was down to another business having a similar name to Taylor and sons. Well I never. Questions that could be asked?

Such an exotic and unusual name would surely not be replicated across the uk would it? And it would have been far too much effort to actual check by company registration number wouldnt it? Lets face it, you have only had the number for 124 years

This has cost the taxpayer £9m in compensation and more in fees. I dare not look at the details of CH’s defence but I suspect the words clueless, arrogant and public sector would quickly come to mind

The bankruptcy threshold

http://www.theguardian.com/money/2015/jan/15/bankruptcy-threshold-rasied-5000-pounds

Many of you will be aware that the minimum amount on which bankruptcy proceedings can be commenced has risen to £5000 from £750. Quite a change

Naturally many vested interests will have their own opinions on this and much comment should be treated with a little scepticism and it is often forgotten that this is not the only method of debt collection

My experience is that when, many years ago, I found that the minimum for issuing winding up proceedings was £750 I was more than surprised. If I had been asked to guess a figure, between £3 and 5k would have been my estimate

Do I think the change is right? I do for the simple practical reason that I believe the statutory demand process is abused and also because I simply find it hard to believe that many of these cases of seen through to a conclusion over such a small amount.

Retail bouncing back?

Administrations were retail were down 35% in 2014. Good news but obviously this is relative to previous rather catastrophic years. Maybe this is simply a levelling out of the new playing field (interesting mix of metaphors) or maybe its a reflection of the gradual recovery but there could be another factor at play

Shopping for many is a leisure activity. Sadly for some perhaps the only one they have and the only reason many find to leave the house. Online activity is fine but its a touch soulless in comparison and maybe some are becoming a little bit cynical and jaundiced about the omnipresent and dominant tax avoiding Amazon.

We shall see but i believe that whether its the local specialist butcher or baker (booming in my part of the world) or the wonderful John Lewis, people will always enjoy genuine service and advice face to face. Retailers that can deliver that will always prosper

Food wars

More than 100 food and drink manufacturers are at risk of collapse because of the brutal price war being fought between Britain’s major supermarkets.

See here

New research shows that the number of food manufacturers in “significant distress” rose by 92pc to 1,410 businesses in the final quarter of 2014.

Julie Palmer, partner at Begbies Traynor, which compiled the research, warned that more than 100 of these companies will fall into administration by the end of the year unless supermarkets treat their suppliers “more fairly” and trading improves.

For many of us who have long experience of credit management, there was always a gentle rule that businesses in the food industry were generally seen as a relatively safe bet. The reasons are obvious. Food is virtually recession proof and once a brand has been established then it was difficult to see what could go wrong. Unfortunately this is fast becoming a rather old fashioned view and food suppliers could soon be joining mid size retailers, construction companies and airlines as being established within the high risk category.

The linked piece is a little alarming and certainly Red Flag Alert does have a good reputation in the market but there is another side to this coin which I will come to

More pertinent I felt were the remarks from Atradius, the credit insurance providers

Atradius claimed suppliers to the “Big Four” risk being delisted and having their payment terms extended as the supermarkets shrink the number of products they sell and try to ease the pressure on their cash flow.

Many might ask how a number of the major supermarkets could possibly extend terms any further but I believe that this is the most likely initial impact.

Of course it is an impact that could lead to companies failing in the manner expected by Begbies but it should be remembered that food providers should be able to finance the debt relatively easily. Certainly it is an attractive sector to lenders and I have completed a couple of significant arrangements in this arena.

However the food market is significantly unbalanced. There are simply too many suppliers and too few buyers but not so few that this could ever come under scrutiny by the authorities. Frankly I cannot realistically see a solution.

So are the concerns real? I will just say one thing. I believe that the concerns over the risk are well founded but at the same time its never a bad idea to find your product in the media. Red Flag alert is a very good product but this is certainly a very decent piece of PR and well done to the agency concerned. I am sure that there are a number of suppliers at risk but I will also say that the number quoted is quite headline grabbing and perhaps just a little rounded?

Bust after the reccession?

It has long been an observation that more businesses experience financial difficulties immediately after a recession rather than before or during. Its a conundrum that is not always easy to grasp

This article in the usually excellent Real Business attempts to explain but for once I found many of the points raised a little muddled. References to Germany’s investment do not look prescient at the present time and the issue of stock was a little contradictory

So why do businesses struggle after a recession?

Some truths were indicated in the article and the most obvious is the simple matter of over trading. I believe this is less a matter of pure numbers as much as sentiment in so far that having come out of a long downturn, business optimism can simply get carried away. The actual truth is that the economy is rarely as bad or as good as many can assume. I have certainly seen this almost bi polar mentality grip enterprises

But more pertinent too is the simple fact that borrowing costs will rise. The cost will hit home before the generated income and its that very gap which can be crucial. But will this be an issue this time around?

Lastly there is of course the very issue of who will take the decision. Banks have been under public pressure over the past few years and have been reluctant to be seen to be trigger happy. HMRC has given a little more welcome leeway too.

Now that we are on a upward swing do we expect to see these factors kick in? I have some doubts.

Firstly I believe that the sluggish period (it hasnt technically been a recession for some time) has been so protracted that psychologically most businesses are not prepared to overreact. Its a guess of course but many published indicators do show a general cautious optimism rather than a manic high

Borrowing costs will eventually increase but from what to what? In past recoveries the borrowing has increased by a number of points. This time it simply will not and not so many businesses will feel the shock

As for the banks and HMRC, I cannot answer. I sense that maybe with less of a focus on their activities then there may well be a few more appointments but friends in the IP sector are less sure

We shall see

Death of the E book? And the end of web browsing?

Probably not, but as has been reported over the past couple of years the sale of printed media is holding up very well against the e book. In fact I will stick my neck out and predict that books will start to reclaim a greater percentage of the market. Like many I have pretty well ditched ebooks and returned to printed matter and the reasons why are explained clearly in this study

Then we have the supposed new year resolution by Mark Zukerberg. Far be it for me to follow or listen to a semi celebrities intentions for 2015 but it does have to be said that the founder of Facebook sounding like the head of BMW espousing the joys of cycling.

Good news. I am a pretty avid reader with about 4 books on the go at anytime and no amount of web browsing compensates for the tactile and rewarding experience of a very good read of a real book

And that does also include the reading of blogs

Turnover Tax. A solution?

The whole issue of large corporations not paying their “fair share” of tax is continuing to hit the headlines. Whether it be from UKIP or the far left there is an increasing demand that “something must be done”.

Understandable of course and the figures look quite horrific when examined in even a cursory manner. A smaller domestic retailer is hamstrung by all the tax demands whilst a global corporation can use its network to “manage” its liabilities. A perfect example of this is Amazon shipping music VAT free from Guernsey but even more pertinent is the corporation tax havens that exist within the EU, namely bailed out Ireland and Luxembourg

First and foremost that is an issue that requires addressing immediately. If the EU cannot harmonise corporation tax then its reputation for obsessing over the small and irrelevant whilst making a mess of the bigger issues is vindicated

But tax havens will always be with us. It will be impossible to have a universal tax regulation.

So what is the solution?

One idea that is frequently promoted is a Turnover Tax. Simply this is a levy against a business’s turnover. This would be easy to collect of course but there are disadvantages.

Perhaps the most striking issue is that of reinvestment of profits. Believe it or not, many businesses do actually reinvest and successfully to. Corporation tax is rightly levied on pure net profit after any investment. Turnover tax will hit regardless.

Secondly certain businesses will collapse. This is not because they are unprofitable or running too tight a margin but because they will quickly become uncompetitive. A small margin in certain businesses is not an overly tight margin. How so?

A perfect example of this would be Media buying. Agencies buy media space on tv, in the press and across all medias and charge a small commission. The nature of the transactions means that the turnovers can be huge. If the tax was say 1% or this businesses turnover then quite frankly that would be close to all its gross margin. The agency would have to double its commission with the natural result that the client will look to other markets for a similar service. Not good and in addition there is the feeling that businesses that are struggling through a difficult time economically really need support rather than taxation. Although some may suggest that turnover tax could be applied selectively (above a certain turnover perhaps) my feeling is this may not be legally enforceable.

Some rather loud mouth and less than intelligent “campaigners” will constantly claim that the profits are going to “the elite” and whoever or whatever is their latest green eyed target. The fact of course is rather different and very mundane. Most corporations are owned by huge numbers of shareholders and many of these are pension and investment trusts. Thats your pension and mine

Is there an answer to this? My feeling is that corporations need to be bullied into paying a reasonable amount. Having seen how revenue and profits can be reported and transferred around the globe Im unsure whether it will ever be possible to nail down taxation completely. It will come down to a bit at a time with perhaps the Starbucks and Amazons of this world being made well aware that the uk market conditions may not always remain entirely favourable to them

My concern is the disadvantage to smaller producers and retailers. Amazon could certainly become too dominant and do we really want to see our high streets disappear?

There was a similar issue with brewers a few years back and to his credit Gordon Brown brought in legislation making it far easier to for small brewers to trade. The result has been an explosion of micro breweries as well as specialist distillers (especially Gin). The customer has benefitted from great and quality choice and the big brewers have been forced onto the back foot

Is this the way forward? Should high street book sellers have certain tax advantages and maybe even truly independent coffee shops?

That would be something for Amazon and Starbucks to ponder

Russia’s exposure

I seem to be starting the new year off on a gloomy note and I assure you that is not my natural state of mind at all. Certainly a glass half full rather than half empty mentality. However this is going to be an interesting year across the globe and one economy that is certainly exposed is Russia

Frankly many will take some pleasure from seeing Putin struggle but whether we like it or not, a struggling significant economy affects us all. The overriding problem with Russia’s economy is of course its over reliance on commodities, most significantly oil and gas.

The price falls have affected Russia badly as have the sanctions. The more worrying news is that the prospects are not looking good in the medium to long term. Oil is now being produced on a huge scale with new technologies such as shale.

So what does this mean? The first issue that could affect us is the exposure to our banks. Luckily for the UK this would appear to be similar to the exposures to the Greek economy. Low.

This however is a summary of where there will be some concern (from this excellent New York Times article)

Largely because of Raiffeisen and Bank Austria, a unit of the Italian bank UniCredit, Austria is the eurozone country most exposed to tumult in Russia. The maximum potential loss is about 4 percent of Austrian gross domestic product, according to Oxford Economics.

French bank exposure to Russia is about 2 percent of G.D.P., according to figures from 2013, while for Italy the figure is about 1 percent. For Germany, Spain and most other eurozone countries, the exposure is well below 1 percent of G.D.P.

In a report in October, the Bank of France estimated that the country’s largest banks had loans and other investments in Russia of 47.3 billion euros, or $59.2 billion, at the end of 2013, a substantial sum but far less than their exposure to Western European countries like Switzerland or Belgium.