Welcome to the June 2017 Newsletter
As Britons head to the ballot box today, the narrowing Conservative Party lead in the opinion polls suggests the Government might be facing a reduced majority or even the prospect of a hung parliament. We shall soon find out.
A reduced parliamentary majority will have dashed Theresa May’s hopes of strengthening her negotiating hand with Brussels, and highlights the political risks of calling snap elections. But a smaller majority also makes for a more uncertain political outlook, and is likely to create a tougher backdrop in which to do business.
With Brexit negotiations about to start in Brussels in a little over a week there are already worrying signs of trouble brewing for the UK economy.
Recent data from the ONS show that GDP growth had slowed to just 0.2% for the first three months of this year, which contrasted with 0.7% for the same quarter in 2016.
Worse still, inflation is now at a four year high. It jumped sharply in recent months to 2.7% – its highest since September 2013 – and is comfortably above the Bank of England’s two percent target.
There is now firm evidence that the rise in inflation is hitting UK consumers. The latest figures, released just two days ago, show that UK retail sales shrank by 0.4% in May, according to figures from the British Retail Consortium, with increases in household essentials such as food reducing the amount people can spend on discretionary items.
A few weeks ago, Governor of the Bank of England Mark Carney warned that growth in 2017 would be lower than expected, as wage growth is outpaced by inflation. He was, however, more optimistic for UK growth in 2018, but with caveats on what happens with Brexit.
The World Bank is rather more optimistic for the global outlook. Its latest research already prices in the uncertainties caused by Brexit, and it is forecasting worldwide GDP to strengthen to 2.7% in 2017 because of stronger manufacturing and trade, rising market confidence, and stabilising commodity prices.
Given the uncertain outlook, particularly for UK businesses, we place our usual emphasis on being forewarned, using the unique forecasting and stress-testing tools in our system to ensure you are always armed with the latest financial information on lending risks or supply chain security.
In this issue, we introduce Jo Kettner who took over from Denis Baker as Chief Executive Officer with effect from April 2017. Denis continues full time with the company and as a board director.
We also briefly preview the release of a completely revised version of our product, and appeal to any would-be early-access testers among you to help us create the product that best meets your needs.
Later in this issue, we give details about our new US database of private companies. We also announce the release of our new credit limits and outline how we have arrived at them, and why these will mostly be set at higher levels. And, as usual, we profile some companies that have been in the news in recent weeks (the eagle-eyed among you will notice that screenshots are taken from our new product).
We hope you enjoy this newsletter and find it interesting. If you have comments or feedback we’d love to hear from you.
A new CEO for Company Watch
We are delighted to have appointed Jo Kettner as our Chief Executive Officer (CEO).
Jo has been with Company Watch for many years, having first joined us in 2003. Over the years, Jo has held a number of key roles, initially working on the research side of the business while completing undergraduate and post-graduate doctoral studies. In 2009, after completing her PhD, Jo became our full time Head of Operations, and in 2014 Director of Finance & Corporate Affairs.
In her new role, Jo intends to spend a lot more of her time meeting clients and industry professionals personally. She will also be playing a more active role at international trade conferences, such as the recent Association of International Credit Directors which she attended in Bratislava and the Lebanese Credit Insurer’s Partners’ Meeting in Beirut.
You can read Jo’s reflections on her appointment in this LinkedIn article.
Finally, we would like to thank Denis Baker for guiding the company over the past 7 years. Denis, one of the founders of Company Watch, is remaining as a board director and full-time member of staff and will continue to furnish Company Watch with his considerable knowledge and experience.
New product nears completion
Jo has many exciting new plans for Company Watch. One of the most important is to deliver a comprehensively-redesigned version of our product.
The new version is being developed using agile techniques to enable us to respond more quickly to our clients’ requirements.
It will be a major rewrite of the current product, with additional features, improved functionality and a much more user-friendly interface that has been designed with mobile users in mind. We are sure you are going to like it.
We’re at the stage where we would very much welcome input on this early test release.
Several clients have had a sneak-preview of the new system and their feedback is helping to further improve usability.
If you would like to be an early-access user of the new system and give us your feedback, we would love to hear from you. To register for the programme, please click here
New database covering private USA firms
We have now launched a new database that covers around 50 million private companies in the USA.
The types of business on the new database include Sole Proprietors, Partnerships (General or Limited), ‘C’ Corporations and ‘S’ Corporations, and Limited Liability Companies (LLCs).
Our new database includes information on suggested credit limits, days beyond terms, tax liens, bankruptcy details and Uniform Commercial Code (UCC) filings. (This is a public notice of security agreements made between a specific debtor and creditor, and describes the collateral involved.)
Because private US firms are typically not required to file financial statements with a public registry, an H-Score® cannot be provided for these companies. We have therefore partnered with a supplier to provide a ‘Business Rating’ which gives an indication of the company’s creditworthiness as a single score. Of course, if you have any financial information or projections for a company you can enter these into our system to generate a Company Watch H-Score® using our model suite.
Company Watch enhances credit limits
We are pleased to announce that we will be releasing enhanced credit limits on 3 July 2017. This is the result of an extensive review of the effectiveness of current credit limit levels and follows requests from some clients for higher limits.
To arrive at our new credit limits, we researched a large sample of live and distressed companies, on which we carried out extensive statistical modelling.
We followed up research and modelling with comprehensive stress testing. We are satisfied that our new approach is more discriminating and will lead to more companies having generally higher credit limits, while being more effective at limiting the limits recommended for very weak companies.
In terms of methodology we continue to use a broadly similar approach as previously: the credit limit continues to be based on a weighted combination of a company’s balance sheet and P&L items combined with a measure of risk we can assign by H-Score® and Probability of Distress (PoD®), and the frequency and scale of County Court Judgments. We also now include elements of a company’s cashflow statement.
The Company Watch credit limit can continue to be used in conjunction with trade credit insurance policies issued by the major insurance companies.
Companies in the news: Diamond Shortbreak Holidays
Leicester holiday firm Diamond Shortbreak Holidays ceased trading on 15 March 2017. This led to the cancellation of around 7,000 forward bookings, affecting up to 16,000 unfortunate customers.
The firm, which had traded for 19 years, sold a range of breaks including coach trips, rail journeys, river cruises, festive and shopping breaks and city breaks mainly in the UK, but also abroad.
Operationally, its performance looked impressive: its sales almost doubled from £10m in 2011 to £19m in 2015. Yet our analysis highlighted fundamental problems – profits have been erratic and the company reported a loss in 2015 due to severely squeezed margins.
With an undercapitalised balance sheet, the company had few solid reserves to fall back on, instead relying on risky short-term finance (primarily from suppliers) to keep it afloat. The September 2015 Accounts sent Diamond Shortbreak into the Company Watch Warning Area with an H-Score® of 15 – nine months after filing these accounts Diamond Shortbreak went into Administration.
Companies in the news: Jaeger bombed
In April, fashion retailer Jaeger, which has been in our Warning Area for years, went into Administration after failing to turn a profit since it was acquired by private equity house Better Capital in 2012. During the 2015/16 financial year, capital was raised to try to strengthen Jaeger’s position, but, as the Strengths and Weakness profile (above) shows this was insufficient to shore up its position and the H-Score® remained deep in the Warning Area.
Although the original Jaeger company dates back to 1884, Jaeger was best known for its stylish clothes in the 50s, 60s and 70s. Sadly it has failed, despite many attempts, to recapture its heyday and capitalise on its well-known brand and reputation.
Turnaround expert and high street mogul Phillip Day confirmed just last week that he is, indeed, the mystery buyer who acquired the Jaeger brand rights in March 2017. This adds to his growing collection of previously failed brands including Peacocks, Austin Reed and Country Casuals, which are owned by his Edinburgh Woollen Mill (EWM) company. With an H-Score® of 95 in the year ending February 2016, Jaeger may have found a good home with EWM.