News

Freddie Salinger

Noel Ruddy advises us that Freddie passed away on Sunday 30 October 2016, aged 98.

Business Money will publish a tribute to this great pioneer of factoring in its November edition.

German SMEs most optimistic as international economy responds to Brexit

Germany’s small businesses are the most optimistic about their own economy according to the inaugural Global Business Monitor report from international business funder, Bibby Financial Services.

Nearly three-quarters (73%) of German SMEs say their national economy is performing well in the global study that surveyed business owners in the US, Germany, UK, Poland, Hong Kong and Ireland.

More than two thirds (67%) of Irish SMEs are confident about the local economy. German and Irish SMEs are also most confident about the future with 57% of SMEs in both markets expecting sales to grow in the year ahead.

Conversely, less than one in five businesses in Hong Kong (15%) say they are confident about their local economy, with less than a quarter (24%) expecting sales to increase in the next 12 months.

Steve Box, International CEO, Bibby Financial Services, said:

“Germany is often seen as the industrial beating heart of Europe. Our research underlines the confidence of the small businesses in Europe’s largest economy as the EU looks to agree its shape post-Brexit.

“It is a different picture for the economy in Hong Kong where the majority of business owners are pessimistic about future sales and the local and global economies.”

The study reveals the sentiment of global SMEs in areas such as investment, confidence, challenges and opportunities, overseas trade and payment terms. In relation to international trade, findings show that small businesses in Hong Kong are three times as likely (69%) to export as those in the UK (22%) and seven times as likely as in the US (10%).

Steve said:

“Due to its geographical location, Hong Kong is an important gateway to trading activities between China, the US and Europe. Its economy is highly export driven and this may explain why confidence is subdued during a time of economic change and significant currency fluctuation.”

Across the study, almost a quarter of businesses (24%) said that foreign exchange fluctuations are the biggest challenges they face in relation to international trade. For SMEs in Poland and Hong Kong, figures rose to 46% and 37% respectively.

Despite pockets of confidence in their local economies, the research reveals that nearly three-quarters (73%) of all SMEs have concerns about the global economy, with those in the US (83%) and Ireland (82%) the most concerned.

Steve concluded:

“It’s clear that confidence in the global economy has suffered due to macro-economic and geo-political events in the last six months. The real question is for how long will confidence be affected?

“It is likely that the UK’s formal exit from the EU – commencing with the triggering of Article 50 by the end of March next year – will have further economic consequences that will be felt around the world.

“As the world shapes itself with a new US president and an EU without the UK, it is those small businesses that can adapt to changing domestic and international trading conditions that will be best placed to profit and grow in 2017.”

Other key findings of the Global Business Monitor report include:

Challenges

– Rising costs are a challenge for half of all SMEs surveyed (50%) – the most frequently cited.
– One in five businesses describe the availability of finance as poor. Investment

– Despite concerns over the global economy, 95% of SMEs plan to invest in their business in the next 12 months, with staff training, promotional activity and technology the most popular areas.
– SMEs in Germany and the US are most likely to invest (98%). Payment terms

– Irish SMEs wait longest for payment from customers (38 days) followed by those in Hong Kong (37 days).
– In contrast, US SMEs are paid two weeks quicker (24 days).
– Manufacturing (39 days) and construction (40 days) businesses typically wait longest for payment when compared to other industry sectors.

Nottinghamshire engineering firm steels itself for growth following machinery upgrade

ECS Engineering Services Ltd, a leading engineering company in Huthwaite near Mansfield, has put in place the means to grow its business through the purchase of a new metal plate machine. Funding for the machine was provided by Aldermore, the specialist lender and savings bank, and arranged by Newark-based finance broker FUNDINGROUND Ltd.

The purchase and import of the plate machine from American manufacturer Peddinghaus Corporation was supported by £500k in asset finance funding. The new machine replaces an older unit and enables the engineering company to increase capacity, providing better efficiency, more flexibility and the ability to work with a variety of different materials with a much faster turnaround. As a result, ECS will be able to provide enhanced products to existing clients and take on new contracts.

FUNDINGROUND worked closely with Aldermore to structure an appropriate asset finance facility to meet the company’s needs.

Established over 20 years ago, ECS Engineering manufactures products for large-scale developments such as bridges, steel frames for buildings as well as for infrastructure and water control projects. The company currently employs 130 staff.

ECS Engineering has long-standing client relationships with various government agencies, UK water companies and building and fabrication companies. In the last few months, it has won several high-profile contracts where this new investment will play a key part in the successful delivery of projects.

Neil Smith, technical director at ECS, said:

“We urgently required the new plate machine to improve versatility, efficiency and quality whilst reducing our manufacturing costs and staying competitive in the market place. The new machine gives us a flexibility both with throughput capacity and the components we can now manufacture on a single machine rather than the multiple processes carried out previously. We were really grateful for both FUNDINGROUND’s proactive approach and Aldermore’s flexibility and speed of delivery. Both parties were extremely flexible in accommodating the many variations to the original proposal needed to secure the deal.”

Ray Purvis, director at FUNDINGROUND, said:

“We worked closely with Aldermore to put in place the most appropriate finance structure for the new machine. This was a complex deal involving part and pre-payments to meet ECS requirements and supplier terms, negotiations over title and import procedures. Like us, Aldermore demonstrated throughout a willingness to be innovative and customer-focussed, and ensure the deal worked for all parties. We are delighted that ECS has taken delivery of the new machine and it is now in full production.”

Mike Kilford, business development manager, asset finance at Aldermore, said:

“ECS is a well-established business and this purchase will enable them to continue their success. At Aldermore we pride ourselves on our ability to lend against a variety of assets – both hard assets such as heavy engineering machinery, as well as soft assets – so we were pleased to be able to finance the new machine for ECS. It represents a significant investment for the company so it was imperative that they found the right finance solution. We are grateful to FUNDINGROUND for introducing us to them.”

Dun & Bradstreet drops the UK’s risk rating and assigns overall outlook to ‘deteriorating’

Commenting on the UK Country Insight Report, senior economist from Dun & Bradstreet, Markus Kuger said:

“The value of the pound has fallen, counterbalancing some of the immediate adverse impacts of June’s Brexit vote. Worryingly, the UK’s preliminary GDP growth figures for Q3 slowed to 0.5%, and the weaker currency will prompt rising inflation figures and reduce opportunities for exporters selling to the UK. However, while it’s true that uncertainty from the EU referendum is clouding the medium- to long-term outlook, this is not a time for panic or rash decision-making. The outcome of Brexit remains unclear, and it will not be clarified until at least two years after Article 50 is invoked.”

“Theresa May has confirmed that Article 50 will be invoked in the first quarter of 2017, giving the UK until the first quarter of 2019 to fully exit the European Union. As the government appears to be leading the UK towards a ‘hard Brexit’, and with the pound having already fallen to a six-year low against the Euro, companies should be taking the appropriate risk management measures. Businesses must carefully assess growth opportunities while preparing for the changes that Brexit will bring.”

Factors Chain International adopts new name, logo, vision and mission

Following the council meeting of the 48th Annual Meeting of Factors Chain International in Cape Town in South Africa, some key decisions have been made which define the members’ view of the future of the combined organisation.

The organisation will now be simply be known by the three letters FCI and its new logo will comprise a global icon together with the letters FCI and a strapline “Facilitating Open Account – Receivables Finance.”

Also adopted is the new vision statement “FCI’s Vision is to be the Global Association for the Open Account Receivables Finance Industry.”

The new mission is defined as:

– Receivables finance is the core focus of the association and includes factoring, invoice discounting and other supply chain finance solutions.

– FCI has two main activities and value propositions:
1. FCI facilitates and promotes international factoring through a correspondent factoring platform.
2. FCI is the Global Industry Association for Open Account Receivables Finance.
– FCI actively supports the growth of the industry and works jointly with policy makers and stakeholders worldwide.
– FCI promotes best industry practices through education.
– FCI publishes information and statistics about the industry.
– FCI endorses financial stability, the prevention of financial crime and respect for regulatory compliance and conduct.
These changes together set FCI clearly on its road to meeting its new goals. As Michel Leblanc, chairman of FCI said:

“We have a new, clear vision, mission and logo for our combined organisation; the real work now continues to achieve our aims in developing and representing our industry.”

HSBC serves up £25m of funding for Wasabi sushi and bento

Japanese sushi and bento outlet Wasabi has secured a funding package worth £25m from HSBC to help fund its ambitious expansion plans in the UK and New York.

The funding is primarily made up of a £20m three-year revolving credit facility which will be used to fund the roll out of 20 new sites. In addition, HSBC has provided £4m of asset finance to develop Wasabi’s 65,000 square feet warehouse which houses the new Central Processing Unit.

The new CPU will enhance Wasabi’s in-house food production capability to further improve its service and food quality, as part of Wasabi’s commitment to retaining as much control over food production as possible.

HSBC is also providing a £1m overdraft facility to support Wasabi in the ongoing development of its business.

Scott Etherington, finance director, Wasabi said:

“This is a very important moment in the development of our business. With a well-established presence in London, successful outlets in major regional cities and two branches in New York, this deal provides us with the backing to push on to the next stage of our expansion plans in the UK and internationally. HSBC’s sector knowledge and global footprint gives us the support we need to achieve our ambitions.”

James Sawley, head of retail and leisure UK, HSBC said:

“The growing popularity of sushi and the ‘food to go’ market across the UK has enabled Wasabi to grow quickly but organically, ensuring each new outlet is adapted for its local market. We worked closely with the business to ensure this deal was tailored to Wasabi’s growth strategy and provided the business with a solid platform for growth here and overseas.”

Wasabi was founded by Korean Dong Hyun Kim in London in 2003. Today the business, with its mission to deliver fast, flavoursome and affordable food, operates 41 outlets across London, seven outside London and two in New York.

SME manufacturing companies forced to hold onto nearly £5bn in unsold stock

The value of the unsold stock held by SME manufacturing companies has risen to £4.94bn, putting cash flow under greater strain, reveals research by the ABFA the body representing the asset-based finance industry in the UK and the Republic of Ireland.

The ABFA notes that this figure is up from £4.87bn last year, with the value tied up in unsold stock remaining stubbornly high over the last five years despite hopes that the fragile economic recovery would allow businesses to clear unsold stock.

The value of this inventory currently amounts to 16% of the £81bn annual turnover of SME manufacturers. Quickly moving on stock in order to access finance can be difficult, which can cause issues for companies requiring finance in a short timeframe.

Money tied up in unsold stock is money that could have been used for business development or R&D, putting a brake on growth.

However, the ABFA says that businesses can unlock the value tied up in their stock through asset-based finance, releasing funding to develop their businesses.

As that finance is in effect a type of secured lending, with the inventory acting as the security, it can often be a more cost-effective financing solution than unsecured lending.

Demand from businesses for this kind of alternative finance is growing, with the value of funding secured against stock by ABFA members standing at £584m at the end of June – up 56% over the last five years (£373m in 2011).

Jeff Longhurst, chief executive of the ABFA said:

“SMEs are finding it hard to reduce their inventory levels as customer demand remains subdued.

“But asset-based finance can be used as a form of security to unlock the value tied up in stock.

“Asset-based finance can complement an invoice finance facility as well, allowing a business to improve their cash flow – which is especially important for SMEs.

“By allowing companies to access vital finance, it gives them the opportunity to invest in their business and means that growth doesn’t end up stalled by cash being tied up in unsold stock.”

Corporate and personal insolvencies increase over the summer

Commenting on a rise in both corporate and personal insolvencies, president of insolvency and restructuring trade body R3, Andrew Tate, said:

“A quarterly rise in corporate insolvency numbers is not necessarily an indicator of ‘Brexit’-related financial problems for UK companies. At least, not yet. While companies dependent on imports are struggling with the falling value of the pound, anecdotal evidence from our members suggests the vote to leave the EU has not led to more insolvency procedures due to factors other than the exchange rate. However, we are hearing that more companies have been coming to restructuring experts for advice.

“According to R3 research, UK companies remain in good shape. Only 21% of businesses – close to a record low – surveyed by R3 and BDRC for our most recent Business Distress Index report a key indicator of distress, while 62% report at least one sign of growth.

“So long as the economy continues to grow steadily insolvency numbers are unlikely to rise too much, but, of course, that all depends on what impact ‘Brexit’ has on the economy.

“Corporate insolvency numbers stabilised earlier in the year around pre-financial crisis levels following a prolonged downward trend, and insolvency numbers are pretty much in line with where they were this time last year. Occasional quarterly increases are not unexpected.

“The rising cost of living and reforms to make personal insolvency procedures more accessible have combined to push insolvency numbers sharply up over the last quarter and in comparison to this time last year.

“Individual Voluntary Arrangement numbers, which make up the bulk of personal insolvencies, are sensitive to the cost of living. IVAs fell rapidly from 2014 onwards as wage growth finally overtook inflation after the financial crisis. Having plummeted towards 0% in 2015, inflation has been rising again this year and IVA numbers have followed.

“Consumer debts are on the rise and savings rates are incredibly low so it’s very easy for even a small financial shock to make someone insolvent. Although wages are outpacing inflation in the economy overall, there are people on the financial edge for whom any increase in the cost of living could cause problems. When people do run into financial difficulties now, there is very little room for manoeuvre unless they act quickly and seek advice.

“The falling value of the pound post-‘Brexit’ referendum will continue to put pressure on wages and IVA numbers could be a useful indicator for how the vote to leave the EU is affecting personal finances.

“Meanwhile, access to bankruptcy and Debt Relief Orders has been reformed. The welcome increase of the debt and asset limits for DROs in late 2015 means more people have been able to sort out problem debts through the formal insolvency regime than ever before. Access to bankruptcy is not so straightforward – accessing bankruptcy has been made easier by the government’s decision to switch to an online adjudicator process for some cases rather than require people to petition for their own bankruptcy through the courts. The government, however, increased the basic fees it charges for every bankruptcy case by over 30% in July 2016 which may deter those for whom bankruptcy is the best solution.”

Growth figures slow amidst Brexit uncertainty

Comment from credit and risk specialist from Dun & Bradstreet, Markus Kuger said:

“The preliminary real GDP growth figures for Q3 came in at 0.5% quarter on quarter, down from the 0.7% seen in Q2. As the consensus forecast stood at 0.3%, Q3 figures performed surprisingly well and the economy continues to show some resilience to the uncertainty of Brexit. However, things will be expected to fall in the coming quarters as the UK edges closer to invoking Article 50. We will have to wait many more quarters to assess the true impact of Brexit, but businesses should be completely frank in understanding that the figures are not as positive as they appear.

“Deeper analysis shows that output in three out of four sectors declined: construction (1.4%), agriculture (0.7%) and production (0.4%) all shrank. Meanwhile, the services industry posted a strong performance that offset the aforementioned industries. Worryingly, as the UK government moves towards a ‘hard Brexit’, financial services should prepare for the potential of leaving the single market and losing passporting rights, which will undoubtedly further drag down the services-led GDP-growth.”

Non-EU destinations accounting for a greater share of online orders post-Brexit

Online retail order growth was up 10% year-on-year in September, according to the latest data from the IMRG MetaPack Delivery Index. This puts year-to-date (Jan – Sep) growth at 12.8%, slightly ahead of the full-year forecast (12%), as we approach the peak trading period.

The volume of orders going cross-border has slowed marginally this month but, as has consistently been the case since June when the Brexit result was announced, this is still well up on the same period last year. In September the percentage of orders going to international destinations was 27.5% – slightly down on the August volume (which was 27.8%), but still up against the 23.8% from September last year.

The most obvious driver for this trend is the fall in the value of sterling since the Brexit vote – and this may also be influencing a trend for increasing numbers of orders going to non-EU destinations. Over the past 12 months, the higher percentage have always been going to EU destinations but, for two months running now, the greatest proportion of cross-border orders have gone to non-EU destinations.

Andrew Starkey, head of e-logistics, IMRG, said:

“We typically see cross-border orders slow down between October and December as peak trading kicks in, but it seems possible that a higher volume may be sustained this year. The EU usually accounts for the higher percentage of cross-border volumes, but the past two months have seen non-EU destinations account for a greater share. This may well be due to the relative strength of the currencies in various markets around the world – while the euro has gained 13% against sterling since Brexit, the US dollar has gained 15.5% and the Australian dollar 16.5%. It’s quite possible that further falls in the value of sterling may continue to drive this trend.”

Kees de Vos, chief product officer at MetaPack, said:

“Cross-border ecommerce is providing a positive impact on volume growth. Retailers trading overseas are able to reap the dividends of the fluctuating value of sterling, and this is likely to continue, contributing to the 12% growth that is forecast for 2016. As we enter the peak period, we know a rise in online volumes is already underway, so continued carrier delivery performance and retail operational efficiency is vital to ensuring customer satisfaction.”