Finance in Cornwall 2015 Segment 1

FFinance in Cornwall 2015

“71% of SMEs approach only one provider of finance”

Richard Wadman – Corporate Finance Director

www.francisclark.co.uk

Presentations and other participants..

And more… (30 presentations in total, covering “full range” of funding and business support

options)


Twitter

Follow us on twitter @francisclarkllp

Tweet about this event using #FCFinanceinCornwall


Structure of morning

• Background, EU “calls” and the Banks (8:30am to 9:42am)

• LEP, Cornwall EU millions and “calls”• Banks and SMEs• Company presentation

• Grants, debt, equity and business support – stratified by age of business (10:02 am to 11:22 am)

• Secured finance, alternative sources of finance, business support (11.42 am to 1.00pm)

• State Aid• Company presentation

• Q&A one to one / Networking (1pm to 2pm)


Scene setting - international

[Chair of US Federal Reserve] said current valuations, which have seen key US and UK indicators reach record levels, were "quite high".

The Greek finance ministry must pay the International Monetary Fund €750m (£544m) on Tuesday…

European stocks slide on Greece concerns, China interest rate cut spurs Asian markets


Scene setting - National

• UK economy

• Recovering since 2013

• Slowdown in growth in 2014 due to problems in Eurozone and geopolitical uncertainties

• GDP growth of 2.5% to 2015 (supported by recent oil price falls) and 2.3% in 2016

• Risks to UK growth “weighted somewhat on the downside in short term”

• Service sector to remain main engine of UK growth

(PwC Economic Outlook – March 2015)


Scene setting - National

Election result “market and business reaction”:

• 2.3% jump in FTSE 100, 2.8% increase in FTSE 250 (all time high); £51.3bn added to FTSE all share

• Sterling up 1.6% against Euro and 2% against US$

“Relief to be short lived as attention” turns to:

• Brexit and Scoxit

• Fiscal tightening

• High current account deficit, widening trade deficit to £7.5bn

• Slow down in manufacturing


Scene setting – Cornwall and Isles of Scilly

Supporting SME Growth

Chris Pomfret ChairmanCornwall & Isles of Scilly LEP

Cornwall & Isles of Scilly is the natural place to grow great business

www.cornwallandislesofscillylep.com @LEPCornwall_IoS

www.erdfconvergence.org.uk/growth-programme @GrowthProgramme

http://www.cornwallandislesofscillylep.com/

http://www.erdfconvergence.org.uk/growth-programme

“We make doing business easier, in Cornwall and Isles of Scilly.”

The View of SMEs

Kim Conchie12th May 2015

Finance in Cornwall


The National Picture 1 - Business Emotions

BBI website reveals business satisfaction with UK banks

LONDON, 28 November 2014 - Business Banking Insight (BBI), an independent website which looks at how well the UK’s small and medium-sized businesses are being served by banks and other finance providers, today unveiled its second wave of research. Commissioned by the Chancellor and driven by the Federation of Small Businesses (FSB) and the British Chambers of Commerce (BCC), the updated BBI website publicly showcases the experiences of more than 15,000 businesses. It shows how they rate their banks and finance providers, with a view to enhancing trust and transparency between the groups.

The research found that 14% of firms (one in seven) are ‘quite likely’ or ‘very likely’ to switch to a different business current account in the next six months. The vast majority (85%) of all businesses said they were ‘not very likely’ or ‘not at all likely’ to switch provider in the same time period. The results were similar acrossall business sizes, although the research found that the figure for businesses likely to change banks was slightly lower for those with over 49 employees (11%).


The National Picture 2 - Business Facts

Access to Finance

• Q1 2015 total lending to businesses rose by £5.9 billion; this compares to a contraction of £4.1 billion over the same period in 2014 (Source: Bank of England)

• Q1 2015 total lending to SMEs rose by £947 million; this compares to a contraction of £1.1 billion over same period in 2014 (Source: Bank of England)

• 44% of would-be loan seekers state ‘discouraged demand’ main reason for not applying (Source: BBI)

• But - Local solution in hand!

The Local Picture 1 – Cornwall Lenders’ Forum (CLF)


The Local Picture 2 – What CLF is doing


Chaired by Cornwall Chamber of Commerce

Implementing British Chambers’ and Cornwall Chamber’s Manifestos, particularly:

Establishment of ‘Get Ready for Investment’ (GR4I) programme for SMEs and Micros

Helping the creation of network of private investorsalongside lenders

CLF is unprecedented! Cornwall leads the way on collaboration between lenders to help businesses.

This is a major step. We applaud the banks’ foresight. Cornwall’s economy, our SMEs and the resilience of our Start-ups will benefit.


Thank You

“Banks are lending”

Tom RoachPartner

May 2015


• Total borrowing facilities £110.7bn

• £29.2bn of new SME borrowing approved 2014

• Facilities: structured term loans (80%); overdraft use (9%) and facilities undrawn but available (11%)

• “Borrowing remained broadly based across industry sectors and geographic regions”

Banks and the SMEs (some more stats)

Source: BBA Bank support for SMEs – 4th Quarter 2014


Rates and TermsIndicative interest rates on lending to SMEs


Case study 1

• Hotel purchase price £2m

• Loan £1.2m

• Mix of LIBOR and fixed rate

• Refurbished out of Cash Flow and additional loan of £150k @ 2.75% over BBR

• Increasing EBITDA: £250k; £350k; £400k


Case study 2

• Building Co

• inconsistent profits of c £200k per annum

• Raising finance for Purchase of Own Shares

• £250k for 50% shareholding

• Personal Guarantees


Case study 3

• Purchase of pub lease from Punch

• Business had gone bust due to high rent being charged

• Purchaser - 2 with prior experience

• Funds from elsewhere

• £10k overdraft @ 3% plus base


Banks…

Overdraft

Term-loan

Mezzanine

Invoice discounting/ factoring

Stock finance

Asset finance

Letters of credit/International Trade

International TradeBusiness

Craig Pascoe

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Typical payment methods

Bills for Collection

Least Secure

Most Secure

EXPORTER / SELLER

Advanced Payment

Documentary Credit

Bills for Collection

Open Account

Most Secure

Least Secure

IMPORTER / BUYER

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The risks

Some of the main risks in international trade are:

Country Risk• Political and economic stability • Transfer risk/currency controls • War and civil disturbance • Import/export regulations

Commercial Risk• Non-payment of invoices • Delayed payment of invoices • Insolvency of buyer

Industry Risk • Demands for particular products • Recession in particular industry • Competitive products/pricing• Fashionable or seasonal goods

Foreign Exchange Risk• Fluctuating exchange rates affect pricing and profit

Performance Risk (Exporter)• Problems in producing correct documentation • Failure to supply goods in accordance with the sales

contract

Transportation Risk• Risks associated with the mode of transport e.g.

marine risks • Storage facilities in ports • Delayed shipment

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Example Trade cycle

Documentary Credit

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Case Study

· Importer of Electronic consumer goods.· Annual purchasing £2m.· Stable Stock requirement throughout the year· Terms of trade 30% deposit with order along with 70% prior to shipping.

0 30 60 120 180

Potential funding solution:

Preshipment loan Clean Import loan Cashflow / Invoice Finance

30% Deposit Paid

Goods shipped 70% Balance paid

Goods arrive UK and Stock

Stock sold invoice raised

Funds received invoice paid

30 day pre-shipment loan 30% £2m *30 Days/365 = £50k

60 day post shipment loan £2m *60 days/365 = £329k

Loan repaid funded by cash flow / invoice finance

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Case study continued

Total required facilities assuming starting from a zero balance £379k:· Structuring the facilities where by the bank has a detailed understanding and control of the

location of the use of the funds.· Supporting non-financial information:

– Manufacturer’s details – understand their track record, alternative providers should if required.– Currency being paid, RMB, USD, Sterling, is there a natural hedge or is there a consideration for forward

contracts.– Whilst there is a total limit each loan is drawn down and repaid over total of 90 day period, so if stock slowed

down and cash not present to repay the loan we can review the structure to establish the cause.

Alternative solutions:· Documentary Credits (LCs) with or without usance terms where by could replace the

requirement for pre-shipment loan and or reduce the term of the import loan requirement.· Negotiate better terms with supplier.· Cash generation from profits of the company self funding the assets.

Security requirements:· Reviewed on a case by case basis, as a minimum Debenture and General Letter of Pledge.· Depends on the quality of information and strength of the trade cycle and business.

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Craig PascoeInternational Commercial Manager

South Devon and Cornwall Commercial Vivian HouseNewham Road, Truro, TR1 2DP, CornwallTel: 07920417665 E-mail: [email protected]

Using your Debtor Book to Fund Business Growth

Bruce Pedrick

Relationship Director, Cornwall

Lloyds Bank

What is Invoice Finance?

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• Funding Unpaid Sales Invoices

for goods delivered and

completed work / services

• Releases cash immediately from

an invoice rather than waiting

30/60/90 days

• The Debtors are the Security for

the Lending

• Businesses operating B to B

only

restructure start-up

maturity growth

Eligibility

• Can only “fund” Business to Business Debtors ie Invoiced Goods & Services

• Your customers must be invoiced after the services are complete or the job is done ie in arrears

• Common sectors using Invoice Finance:» Manufacturers» Engineering» Wholesale, Importers, Distributors» Transport, Haulage, Couriers» Print trade» Cleaning Contractors, Employment Agencies

Challenging sectors/issues:

» Double Glazing – extended warranties» Professional Services – extended credit sometimes offered» Staged payments, contractual obligations

A few Invoice Finance Co’s now offer facilities with no Minimum Agreement Period

Brief History of Invoice Finance

• Introduced to UK in 1960’s from the US where it had been well established for many decades

• Grown rapidly in recent years

• Currently used by c 44,000 businesses in UK

• Approx. £20Bn worth of Advances made by Invoice Finance Co’s to UK Businesses currently – now exceeds Overdraft lending

• Now a popular alternative to “traditional financing” ie loans/overdrafts

• It’s not linked to your Bank and often provided by another bank or freestanding provider

How does Invoice Finance work?

BusinessCustomer(debtor)

Availability

Inv Fin Co

order goods and invoice

invo

ice

deta

ils % of invoice value

invoice paid

remaining % of

invoice paid

payment

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Two Main Types of Facilities

Factoring (also Full Service Factoring)

– More appropriate for start-up/smaller businesses

– Your clients would be aware that you are using this form of finance

– Factoring Company would manage your Debtor Book/Credit control ie send letters of reminder, chase slow payers etc

Invoice Discounting (also Confidential Invoice Discounting)

– Where your business has sound Credit Management, good admin and appropriate accounting systems in place

– Business retains control of Debtor Book with minimal change to your routines

– Confidential – your Debtors (customers) would not be aware that this facility/funding is in place

Key Benefits

36

Invoice finance is a flexible way of providing your business with the working capital it needs by receiving up to 90% of the value of your approved unpaid sales invoices, often within 24 hours. Once your customer settles the invoice, you get the balance

• Allows the Business to grow as the facility is linked to Sales/Debtors and therefore avoids overtrading

• If your business is growing fast but you have few traditional assets such as property to secure increased borrowing requirements you can use Invoice Finance to fund that growth

• Uses a Business asset ie Debtor Book to secure Business borrowing (ie not reliant on the family home as security)

• Instant cash injection or predictable cashflow helping you to plan ahead more confidently

• Access to advice on customer credit ratings and expert help with overseas customers

• Optional Credit Control Support Services/Debtor Insurance to provide additional comfort

• Interest rates are similar to Overdraft rates but additional charges re Credit Management/Invoice auditing

Summary

• Real alternative to traditional Overdraft – potentially higher costs but consider additional profit that could be generated from increased working capital

• Uses business assets rather than personal assets to secure

• Effective way to fund growth in a business

• Often used in restructuring, MBOs etc

• Retain 100% ownership of business/shares

• Eligibility criteria!

All the high street banks will offer these solution so speak to your Bank Manager for further information

A Phoenix…or three!

Mark Sullivan

• Two major turnarounds, three leading brands, safeguarding flagship Cornish businesses

• Cornish Sea Salt, a young, innovative company• Warrens Bakery/Simply Cornish, Cornwall’s

oldest commercial bakery & the World’s oldest pasty producer

• Locally controlled, with stability and growthKey pieces of a new jigsaw

Background

• 2011, in need of repositioning!• Challenges with team, strategy, technology,

products, customers, territory• New team, with international outlook• Diversification, away from UK supermarkets• Development of new, parallel technology• Creation of flake, in addition to granular• 2015, supplying 26 countries across the globe

Cornish Sea Salt

Provenance & purity

• Strong top line growth• Producing 10 tons/week versus 5 tons in 2014• Scope to leverage brand and diversify into

broader range of added value products• Targeting international markets through retail,

wholesale, food manufacture etc.‘Centre of excellence’ for eco commercialisation of the sea

Repositioned

Contemporary brand

Seaweed & Sea Peppers™…Sprinkle the goodness of the Sea

Our seaweed and novel sea pepper ™ blends are truly unique. Innovative and consumer friendly, at the cutting edge of ingredients and seasonings.

• 2012, tired brand, cash depleted, no BRC!• New, winning brand, ‘contemporary heritage’• Upgraded facility and BRC Grade ‘A’• Excellent business leaders - retail and

trade/wholesale - delivering strong growth• Supported by LEP, endorsement at key time• 2014, growth-oriented banking partner,

Santander (‘Breakthrough’ facility)

Warrens Bakery

•World’s oldest pasty producer (1860)•Cornwall’s oldest commercial bakery•Unparalleled provenance •Handcrafted/Master Baker traditions•Full spectrum bakery, not just pasties (savouries, sweet, biscuits, breads, seasonal)•Unique set of tools for expansion•Top line growth 30%+ for rebranded stores

Key strengths

Oldest pasty producer globally

• 50 retail stores: Cornwall, Devon & Somerset• Two production sites, St Just & Plymouth• Approx. 500 jobs saved in turnaround• Three-tier strategy - retail, trade, international• Retail; broadly-based handcrafted bakery, set

to expand locally, but also eastwards/London• The best of the West, representing Cornwall

with quality and integrity

Overview

• Trade & wholesale arm of Warrens Bakery• Different brand for different markets• Not a commodity pasty producer• Breadth - savouries, muffins, tray bakes,

scones, biscuits, seasonal products• Supplying Waitrose, National Trust, Fortnums• Contemporary, innovative and fast-moving!

Set for international expansion

Simply Cornish

• Vision, as well as strategy• Innovation, as well as tradition • Global, as well as domestic• ‘Best in class’, not commodities• Leaders drive growth and profitability• Growth and profitability drive job creation• Focus – innovation, premium skills,

international markets, cross-fertilization

Differentiation

• Platform for growth, able to fund highly skilled staff, innovation and growth

• Means of extracting synergies across a portfolio of businesses – capital, customers, staff, products, strategy etc.

• Growth engine for Cornwall & West Country for the long-term, not a 3-5 year project

‘PROVENANCE BRANDS’

Where next?

Innovation and cross-fertilization

Provenance Brands (rationale)

• SME’s frequently flat-line• Unable to attract breadth/depth of skills• Unable to fund technology/innovation• Unable to attract capital (equity, debt)• Uncertain how to generate value• Unable to realise value without sale • Desire to safeguard legacy/heritage

Provenance Brands (model)

Provenance Brands

?SimplyCornish

Warrens Bakery

ExpansionEastwards

? ?CSS

Ingredients

?

InternationalManagement

FinanceCapital

Provenance Brands (value cycle)

Synergies

Liquidity

Partnerships(preserving heritage)

Value creation

Capital

Senior skills

Scale

• Potential to become a publicly listed flagship• Local HQ, but an international business• Portfolio of exciting brands• Growth agendas, with diversity• Leaders working across a portfolio• Supportive umbrella, driving synergies,

growth, value, capital, liquidity etc. ‘Pride in provenance, purity and performance’

Provenance Brands (vision)


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Finance in Cornwall 2015 Segment 1

Economy & Finance

Transcript of Finance in Cornwall 2015 Segment 1