News

Retail, is it really that bad?

Colin Sanders, head of UK operations, Graydon UK Ltd, gives his analysis on the retail industry based on the lastest figures.

The recent and well-publicised failure of BHS and the continuing fallout has seen many a statement regarding the disappearance from our high street of yet another big name, as well as who’s to blame for its demise. Yes, it is another big name and it follows on from the other major chains to disappear in recent years – Woolworths, Comet and MFI to name but three. These were long established businesses, particularly in the case of Woolies, BHS and even Austin Reed. Considering how 2016 has started and the potential further threat to the UK economy following the Brexit vote, no-one should be surprised by further casualties.

The Brexit excuse
The latter is already providing an excuse for some business owners and funders to pull the plug on their operations. Would the now infamous Dominic Chappell, the principal of Retail Acquisitions Ltd (owner of BHS at the death), have been tempted to use the same excuse had the EU referendum taken place just a few months earlier? Pure speculation of course but, already, we’ve seen Brexit blamed for the very recent failure of Lowcost Holidays (placed into administration in Mid-July). Really? The simple fact is that this was the ‘excuse du jour’. It was a loss-making business long before Brexit. Its principal, Lawrence Hunt, also had a widely-reported poor track record linking him to two other company failures in the travel sector (Dreamticket Holiday Company and Silverjet).

Incidentally, when Lloyds bank recently announced a large number of planned branch closures and redundancies, some TV stations and newspapers were quick to suggest that Brexit played a part in this decision. However, these closures and job losses are part of a long-term strategy and not at all linked to the Brexit decision. Sadly you can’t believe everything you read, whether negative or positive.

The reality
In the first half of 2016, job losses in retail numbered more than 22,000, the biggest contributors being BHS (11,000), Mylocal (1,600), Brantano (2,000) and Austin Reed (1,000). These are significant numbers when you consider that the total number of retail jobs lost in the whole of 2015 was 6,800 – less than one third of the 2016 first half figure.

These 2016 job losses are quite shocking but they need to be seen in a broader context. You would assume that, after all these losses, the retail sector was in dire straits and has made a significant impact on job numbers not only in the retail sector but overall unemployment in the UK. Wrong! The fact is that the number of people employed in the UK overall and in retail is higher now that it was in 2009 – the height of the recession and, according to the ONS (Office of National Statistics), is expected to grow even further to 2020. The historical figures don’t lie and rebuff the media-led perception of ‘joe public’.

Let us not forget that, for every Woolworths, BHS and Comet, you can find successful and expanding retailers such as Aldi, Lidl, Amazon, IKEA, eBay and Primark. The official figures clearly support this. If we look at just three of these successful businesses, you can see that the rise in salaries and staffing numbers reflect their growth:

Such demographics are a key essential when rating a business for credit facilities along with a robust and proven scoring system.

Speedboat or supertanker?
As with many businesses, and retail is a prime example, evolving to the needs of the market place is a key factor to growth or survival. Companies need to be robust and flexible to the changing needs of its customers. The public at large simply does not shop in the same way as it did 20, 30 or 40 years ago. A successful business in a crowded marketplace such as retailing, operates as a speedboat, turning quickly to change course as opposed to a supertanker which turns slowly when changing course.

More data has been released into the public domain during the last two years than in the previous 10 and companies need to capture this and use it to understand the current situation as opposed to relying on historical perceptions. You could say Aldi and Lidl are the speedboats in this scenario, Tesco and ASDA the supertankers.

Fresh ideas and a keen pricing structure have benefitted the former. A strong and well known online presence, as with Amazon, has kept pace with the way that many of us shop today and will shop in the future. Outside of our day to day supermarket shopping, simply having a costly building and lots of shop-floor staff waiting for the public to come through the door just isn’t the 21st century way of doing business.

Romance versus reality
Is it a case that emotion and a romantic notion takes over when a major high street brand that we’ve grown up with disappears forever and that our perceptions take over from reality and factual statistics? Not for one minute should we understate the impact that redundancy has on any individual and its devastating effects on hard working people who have lost their jobs through no fault of their own. But, as we can see, employment increases in growth companies in many instances. “As one door closes another one opens,” is a well-used cliché but one which could reflect why employment numbers in retail in particular are still growing. As for the romance and emotion, who’s to say that in 80 or 100 years’ time, Amazon and the like won’t be thought of in the same light as say, Woolies was back in its heyday?

Aldermore’s asset finance lending increases 11% in the first half of 2016

Aldermore, the specialist lender and savings bank, has today released its financial results for the first six months of 2016, revealing positive growth in its asset finance business with net lending increasing by 11% to £1.5bn (31 December 2015: £1.3bn).

This growth was driven by excellent organic origination which increased by 20% to £509m (H1 2015: £424m). The Bank’s asset finance division now lends to around 46,000 SMEs across Britain, an increase of 9% over the first six months of the year.

The business has been particularly successful in attracting wholesale deals during the half and in recognition of this has promoted its head of wholesale Lee Rhodes to commercial director in the wholesale and structured asset finance team.

Lee joined Aldermore in 2014 and has led the wholesale asset finance team since then. Prior to joining Aldermore, Lee spent 10 years in the financial products team at ING Lease (UK) and also held positions within Investec and Dresdner Kleinwort Wasserstein structuring receivables and asset finance transactions.

Lee reports to Carl D’Ammassa, group managing director for business finance.

Overall, Aldermore’s half year 2016 financial results showed that the bank is supporting more UK SMEs, homeowners and landlords than ever before, increasing customer numbers by 8% since the start of the year to around 77,000 with net lending up by £0.7bn or 11% to £6.8bn (31 December 2015: £6.1bn).

Lee Rhodes, commercial director, wholesale & structured asset finance, at Aldermore, said:

“I’m proud of what my team and the Bank as a whole has achieved in the last couple of years. I’m keen to build on this success in my new role and look forward to continuing our efforts to grow and develop our support for Britain’s SMEs.”

Carl D’Ammassa, group managing director, business finance at Aldermore, said:

“Since joining Aldermore, Lee has led the Wholesale team to ever greater success. I’d like to take this opportunity to congratulate him on his new role, which is well deserved. With our experience leadership team, we are well-placed to be able to provide SMEs with the funding they need to grow and in turn boost the vital contribution that smaller businesses make to the UK economy.”

Small business loans through Funding Circle boost UK economy by £2.7bn

Research published by the Centre for Economics and Business Research (CEBR) revealed that small business loans facilitated by Funding Circle, the UK’s leading direct lending platform, have boosted the UK economy by £2.7bn since 2010.

Over the last six years, thousands of investors lending through the platform have helped more than 15,000 businesses to access finance, supporting the creation of approximately 40,000 jobs across the country. Over three fifths (61%) of borrowers saw their revenue increase as a result of taking a loan, while nearly half (47%) reported a rise in profits.

The report finds that businesses are drawn to direct lending platforms by the speed and simplicity of the loan application process. Nearly three quarters (72%) of borrowers found the experience of obtaining a loan faster than other providers they considered. This helps to explain why 77% initially shopped around for finance, but 94% would come back to Funding Circle first in future.

The Funding Circle model, where thousands of investors lend directly to UK small businesses, has proved to be a more efficient way for businesses to access the finance they need to grow and expand. By supporting UK businesses, investors have earned more than £95m of net interest, helping businesses across the country and across all sectors, including high growth areas such as technology. Investors include 50,000 people, local and national government, and a range of financial institutions such as pension funds.

Scott Corfe, director at the centre for economics and business research said:

“Since the financial crisis, UK businesses have increasingly turned to non-bank lending to raise the funds they need to invest, hire new staff and expand to new markets. Companies such as Funding Circle are driving billions of pounds of economic activity and generating tens of thousands of jobs, something that’s set to grow rapidly as the financial landscape continues to evolve.”

James Meekings, co-founder and UK managing director, Funding Circle, said:

“It’s hugely rewarding to see the real and measurable effect that lending through Funding Circle is having on the UK economy. Small business isn’t small – it accounts for half of the UK’s GDP and 60% of employment. That’s why we have created the infrastructure where any investor, whether they’re an individual, financial institution or government body, can lend to small businesses.”

Mike Cherry, national chairman of the Federation of Small Businesses, said:

“Small firms make up 99% of all businesses in the UK so are vital if we want to boost jobs and growth across the economy. It’s clear that direct lending platforms, like Funding Circle, are helping to foster competition in the small business finance market. Our own research shows that, among those applying for credit, usage of these platforms rose from 3.9% to 9.0% in the last year alone. FSB will continue to encourage businesses to explore alternative sources of finance.”

Supporting businesses in the North
Finance generated through Funding Circle is also supporting small businesses in the North – a region that has faced economic hardship and that the government is trying to target with a set of growth-boosting initiatives. A tenth (10%) of loans go to businesses in the North East, a region which accounts for just 3% of all UK businesses.

Unleashing the potential of small housebuilders
Small businesses also include small housebuilders, who play a crucial role in helping to alleviate the ongoing housing crisis yet still struggle to access finance through traditional channels. CEBR found that since Funding Circle launched property finance loans in 2014, lending has helped small property developers to build approximately 2,200 homes across the country.

Launched in 2010, Funding Circle is sparking a global revolution in the way small businesses access finance. By bringing together industry leading risk management policies and cutting edge technology, Funding Circle’s proven model strips out the need for inefficient bank processes, enabling businesses to access finance in a matter of days directly from investors.

Download the full report here

Post referendum uplift in London office take-up

The amount of Central London office space leased by businesses bounced back from a pre-referendum dip to reach 980,400 sq ft in July. This is 24% above the level seen in June and the strongest monthly average since March this year, according to CBRE, the world’s leading global real estate advisor.

Appetite for London office space was validated by three deals over 50,000 sq ft in July, including a major move by Wells Fargo for 220,700 sq ft of space in the City of London, at 33 Central, King William Street, EC4. The move has been widely seen as a vote of confidence from the banking and finance sector after the Leave vote in the EU referendum. The sector accounted for 31% of take-up in July, followed by the business services sector (22%) and creative industries (17%).

July’s office take-up in Central London remained below the 10-year average of 1.1m sq ft per month, but above-trend leasing activity in the City and Southbank suggests that businesses still see London as an attractive place to locate.

Emma Crawford, head of London Leasing at CBRE said:

“Much has been said about the health of the London office market this year, but clearly demand for office space remains buoyant. Businesses are still confident about London’s significant advantages as a global business centre, even when the UK is outside the EU. This continued demand, mostly driven by key lease events, in a market with low supply, is maintaining headline rents at the same rate as in May and June.

“Of course the jump in leasing activity is good news for the market, and whilst this is not universal across all sub-sectors of the London market, even with heightened economic and political uncertainty, longer term prospects remain promising.”

Available office space increased by 2% over the month to stand at 13.6m sq ft, but remained 7% below the 10-year average, as secondhand, completed and pipeline space continues to enter the market. The development pipeline is strong, but much is pre-let, with 46% of the 5.1m sq ft of space expected to complete before the end of the year already pre-committed to occupiers.

Office space under offer fell by 14% over the course of the month to stand at 3m sq ft as a number of large deals completed. However this remains 7% above the 10-year average of 2.8m sq ft; another indicator of strong demand.

Platform Black appoints Richard Whitehouse as new sales director

Platform Black, a leading online business finance marketplace, has appointed Richard Whitehouse as its sales director. Whitehouse will be responsible for leading the company’s sales strategy in order to achieve income targets working with businesses and intermediaries to ensure UK businesses have fast access to the flexible funding solutions they need to grow.

With 18 years’ experience in invoice finance, asset-based lending and trade finance, Whitehouse has held several leadership roles in sales and operations for independent and bank owned funders in the UK, Ireland and Germany most notably with Aldermore Bank, AIB Plc, Royal Bank of Scotland Invoice Finance and Davenham Trade Finance. He also brings with him a wealth of experience in supply chain finance which is a key focus area for Platform Black.

Commenting on his new appointment, Richard Whitehouse said:

“The fintech market is exploding and this opportunity to join a business in the sector, with such strong lending principles and access to large funding pools, was impossible to ignore. Platform Black’s track record and investment from our parent, Sancus BMS Group will allow the business to continue innovating rapidly.”

Platform Black has seen consistent growth, with a turnover of £44m last year. The business attributes this continued growth to delivering fast and flexible finance solutions to clients on their own terms as well as diligent risk management, which is aimed at delivering a transparent and professional service to both funders and clients.

Caroline Langron, managing director at Platform Black, said:

“Our online business finance marketplace allows us to connect clients looking for flexible and competitive finance, with funders who want to support business growth. Our clients find it fast and easy to use, which makes our offering a compelling one for companies looking at innovative ways to finance their growth.”

The company has had a record year, with zero percent defaults in the past 18 months, and is gearing up with new hires to achieve its ambitious growth targets.

With the economy facing some uncertainty in the months ahead, Whitehouse is confident the business will continue to grow and is keen to strategically strengthen Platform Black’s sales operations. A sportsman himself, Richard said:

“Watching my nine-year-old daughter train on a 10 metre diving board is an inspiration. If she can jump off something twice the height of a house with a smile, there shouldn’t be much to hold back the rest of us.”

David Robertson moves out of Platform Black and eyes full time retirement

David Robertson has announced that he will be stepping down from his chairmanship at Platform Black and throwing himself into full time retirement. It is the second time David has retired from the company in five years. This time he says it’s a fact.

The move follows a period of intense activity for Platform Black which has seen significant changes to its shareholding following an internal group restructuring and some new minority shareholders coming on board to invest in its ambitious growth plans.

Caroline Langron, managing director of Platform Black commented:

“It has been really beneficial to have David in the company. His wealth of experience and reputation in the business finance market has been absolutely invaluable. He has been so passionate about Platform Black and its innovative approach to ensuring UK businesses have easy and fast access to flexible finance for their businesses.

Following two successful years, the business is moving quickly to the next level. With new business thriving; nearly 18 months of zero defaults under our belts; a rapidly expanding team and a growing reputation for responsible financing, David felt that the time was right to leave us to it”.

David will be replaced as chairman by John Davey, a co-founder of Sancus BMS Group, who comment:

“We would like to personally thank David for his valuable support and contribution to Platform Black over recent years. As the business moves forward, the strengthened Sancus BMS Group will be able to provide increased support that a larger group can provide to help Platform Black realise its growth potential”.

As part of shareholding changes announced recently, Platform Black has benefitted from its new minority shareholder injecting an additional £50m of funds into the business, which is intended to support future growth and ensure more businesses get the funding they need to grow.

David added:

“Having previously ‘retired’ as CEO of the leading independent invoice financier in 2011, I couldn’t resist having an involvement in this new and upcoming business that was looking to change the face of finance. I have thoroughly enjoyed working with Caroline and her team as she set about positioning the business for future growth. It has been a joy to end my finance career here and I am so proud of Platform Black’s great achievements. I am more than confident that Caroline will continue to steer the business onto great things over the coming years.

“I’ve been told I don’t understand what retirement means, so I am sure it will continue to be busy – I am still involved in a few charities and I’m a keen bike rider having completed a 300 mile ride over six days in Vietnam last year and I am sure my next challenge will require just as much effort”.

CEO takes on the Thames Marathon to raise funds for local families affected by cancer

On Sunday 7 August 2016, the CEO of a Southampton-based business finance group took part in the Thames Marathon Bridge to Bridge 14km swim in support of Wessex Cancer Trust, raising over £1,300 – and donations are still coming in.

Alex Hilton-Baird – who founded the Hilton-Baird Group in 1997 and whose father was diagnosed with bowel cancer in 2013 – completed the 14km stretch of the River Thames between Henley and Marlow in four hours and 42 minutes.

It was an outstanding achievement in testing conditions, and an excellent way to raise awareness of the work Wessex Cancer Trust does in the local community. The Hilton-Baird Group will be matching the final sum raised, taking the total beyond £2,600 as it stands.

Alex commented:

“With cancer affecting more and more of us, the services and support provided by charities such as Wessex Cancer Trust have rarely been so vital. I experienced the impact cancer can have first-hand a few years ago when my dad was diagnosed with bowel cancer. I’m pleased to say that after receiving exceptional care and treatment, he was able to beat it. But not everyone is so fortunate.

“I therefore wanted to do something to inspire people to donate money to Wessex Cancer Trust. We’re delighted as a company to support this wonderful charity and hope that the money we have raised will allow them to extend their services to even more people who need them.”

Head of fundraising of Wessex Cancer Trust, Sofie Bennett, commented:

“I would like to congratulate Alex on his amazing achievement. Wessex Cancer Trust rely on the support of the local business community so we are really grateful that the whole team at the Hilton-Baird got behind this challenge. Thank you!”

If you are interested in fundraising for Wessex Cancer Trust as an individual or as part of a team, please contact the fundraising team on 023 8067 2200 or email fundraising@wessexcancer.org.uk

Aldermore Group PLC – H1 2016 results

Underlying profit before tax(1) up by 45% to £63m (H1 2015: £44m)

– Reported profit before tax increased by 50% to £59m (H1 2015: £40m)
– Net interest margin stable at 3.6% (H1 2015: 3.6%)
– Underlying cost/income ratio(1) further improved by 8pts to 45% (H1 2015: 53%)
– Another excellent credit performance; cost of risk again at 20bps (H1 2015: 20bps) Delivering a high-teens underlying return on equity(1)

– Underlying return on equity(1) of 18.0% (H1 2015: 18.6%)
– Reported return on equity of 16.3% (H1 2015: 16.8%)
– Earnings per share grew by 17% to 10.3p (H1 2015: 8.8p) Continued and balanced growth across the diversified portfolio

– Excellent loan origination; up by 26% to £1.5bn (H1 2015: £1.2bn)
– Net loans up by 11% to £6.8bn (31 December 2015: £6.1bn)
– Asset finance +11%; SME commercial mortgages +12%; Buy-to-Let +12%; residential mortgages +9% Strong capital position is in line with management expectations

– Total capital ratio of 14.0% (31 December 2015: 15.1%)
– CET1 capital ratio of 11.0% (31 December 2015: 11.8%)
Phillip Monks, CEO, said:

“It has been another strong six months of operational and financial performance as we delivered double digit growth and an underlying return on equity in the high teens. New lending increased by more than a quarter compared with the first half of last year as we continue to expand our customer base. I’m very pleased with the strong and balanced growth we have achieved across our diversified portfolio whilst maintaining our prudent underwriting approach.

“We have also driven another significant increase in profits as we have successfully maintained our net interest margin and leveraged the scaleability of our operations, further reducing our cost to income ratio. These actions, combined with our continued focus on prudent lending, have led to a 45% increase in the Group’s underlying profit before tax to £63m for the first six months.

“Following the EU Referendum, we all face a period of heightened political and economic uncertainty. As a purely UK-focused business, we are not directly exposed to potential changes in access to European markets. However, we are exposed to the wider economic effects of the result. To date, we have seen no direct impact on our business but we continue to monitor the situation closely and have a proven ability to react quickly to a changing environment.

“We remain optimistic about our future. We are a diversified business and continue to focus on supporting our customers who are under- or poorly served by the wider banking market. Building on our strong track record of delivery across our prudently constructed portfolio and with our experienced management team, modern systems and efficient operating platform, we remain confident that we will successfully navigate the challenges ahead as well as take advantage of the opportunities that change may bring.”

Why are online-only retailers growing faster than multichannel ones?

The important role that smartphones play within retail has been underlined by a new report from IMRG and Capgemini.

For around a year now (starting July 2015), the IMRG Capgemini Sales Index has been tracking a consistent gap in online retail revenue growth rates – with online-only retailers up +24.8% year-to-date (Jan to June) and multichannel retailers back on +9.5%.

The gap between the two groups reached a record-high in June 2016, when growth for the online-only retailers (+32.4%) was a full 23 percentage-points ahead of the rate for the multichannel retailers compared with June 2015.

The average gap between the two groups in year-on-year growth over the past 12 months is 13 percentage points. Year-to-date in 2016 (January to June), the average basket value for online-only retailers is also £6 higher than that of multichannel retailers.

So what is going on here?

Andy Mulcahy, editor, IMRG, said:

“Another trend that we observed just before this gap emerged was a sharp upturn in sales growth through smartphones – and all the evidence points to this being a significant factor. As smartphones have evolved from being used in retail primarily for research purposes to being major devices for completing purchases too, the gap between online-only and multichannel retailers has grown and remained consistently wide.

“While multichannel retailers have been under pressure to focus on rolling-out services such as click & collect and ensure it operates efficiently it seems that, generally speaking, online-only retailers have been able to invest more in mobile optimisation and are reaping the benefits as these devices continue to grow in importance for shoppers. It shows just how key smartphones have become to the overall retail experience.”

Bhavesh Unadkat, management consultant in retail customer engagement design, Capgemini, said:

“With the e-retail boom showing no signs of abating, there are opportunities for every retailer to capitalise. It’s important that online-only retailers continue their momentum in e-retail, while multichannel retailers do all they can to catch up with their ‘pure play’ counterparts.

“Whether physical, online only or multichannel the retailers that will succeed will be those that best use data and insights together with providing a seamless relevant customer experience to their customers. It will be fierce, it will be competitive and we will have further breakthroughs in technology – may the best retailer win!”