‘Trading in an Uncertain Economic Climate ’ June 2009 Mike Copson Director - Barclays Business Support Company Confidential 6/09.

‘Trading in an Uncertain Economic Climate’

June 2009

Mike Copson

Director - Barclays Business Support

Company Confidential 6/09

• Sharp decline in GDP and asset values

• Liquidity crisis in financial sector

• Job losses / impact on consumer confidence and discretionary spending.

• £ weakness – impact on cost base and margins.

• Government led initiatives – both monetary and fiscal.

• A GLOBAL PROBLEM


Current state of the economy ….

• Sharp decline in GDP and asset values – 1990 (NEGATIVE EQUITY)

• Liquidity crisis in financial sector – BUT NOT TO THE SAME EXTENT

• Job losses / impact on consumer confidence and discretionary spending. – GEOGRAPHICAL DISTRIBUTION?

• £ weakness – impact on cost base and margins. - £ EXITING ERM :

STG BASE PEAKED AT 15% vs 0.50% NOW

• RECOVERY PROMPTED BY….. INTEREST RATE CUTS, CYCLICAL UPTURN AND NEW INDUSTRIES (INTERNET, FINANCIAL SERVICES, GLOBALISATION AND GROWTH IN CHINA / INDIA)


How does this compare with early 90s….?

Winners..?

And losers?

•Outdated High St Retail.

•Motor assembly

•Pubs / Clubs

•Out of step with consumer trends

•Locked into high costs…Company Confidential 6/09

What’s happened since?

http://www.camelotgroup.co.uk/index.html

http://www.lastminute.com/

http://www.tesco.com/

Sales led turnarounds

Poor Leadership

High cost structure

Poor products or marketing

Overtrading

Big projects

Economic Cycle

Supplier costs

Competition Loss of licences

Superficial forecasting

Changes in the market place

Loss of key contract/custo

mer Poor Cash Control


Causes of Corporate failure

•Cash flowCash flow

•Loss of revenues / Margins & profitability squeezedLoss of revenues / Margins & profitability squeezed

•Failure of key customers or suppliers – ‘knock on effect’Failure of key customers or suppliers – ‘knock on effect’

•LitigationLitigation

•Fall in asset valuesFall in asset values

•Loss of key staffLoss of key staff

•Management team unequipped to deal with situation??Management team unequipped to deal with situation??

……. Relationship Team engages Business Support…. Relationship Team engages Business Support…

!


. . . What goes wrong…..?

Barclays Business Support : A risk specialist team whose main objective is to :

Support customers in financial difficulty

Provide expert advice to help them stay in business and banking with Barclays.. or exit the situation in an orderly manner..

Working with the business to try and find solutions to their problems

Timely intervention - Average support process takes 12 months

Providing additional resource to their Barclays Relationship, not a substitute one

Winners of IFT Turnaround Awards in 2008.


What is Barclays Business Support?

TimeTime

Healt

hH

ealt

h

Earnings Earnings DeclineDecline

Balance Balance Sheet Sheet StrainStrain

Cash CrisisCash Crisis

InsolvencyInsolvencyOptionsOptions

Need to changeNeed to changeConsensualConsensual CoerciveCoercive

The ‘Decline Curve’

• Position of the business in the industry / market place – power of suppliers and customers?

• Industry dynamics

•Legislation / socio – economic developments?


Understand Business Risk

- Well motivated?

- Structural and functional expertise?

- Experience in turnaround?

- Receptive to external advice?

- Ability to react to industry developments. Analyse risk and sensitivities?

- Internal / external communications?

- Succession


Management Team:

Bills paid on time?

• Crown Creditors

• Headroom?

• Sensitivities?

• Appropriate working capital financing?


Understand Cash Flow

• Up to date?

• Reliable?

• Audits filed?

• Budgeting and re-forecasting realistic?

•‘What if’ scenarios?

• Covenant forecasting?

• Provided to relevant stakeholders in timely manner?


Management Information

• engage in profitable and cash generative business activities.

• quality, retention and enhancement

• Provide brilliant customer service.

•Margin management

Exchange rates Raw material / consumable costs Fuel / transport costs National Minimum Wage / pay structure


Focus on Revenue and Margin

• Review of overheads

• Staff costs

• Premises costs / rent reviews

• Review Standing orders and direct debits

• What operational expenditure can be trimmed?


Cost Control

• Non core assets?

• Disposals?

• Return on capital? Are assets performing as the should be…

• Impact on banking covenants (loan to value)?


Asset Values

• New products / markets?.

• Acquisitions / strategic alliances?.

• What shape will your industry be in say 5 years time?

• Winners / losers?

• Is the team / resource equipped to fulfil strategies?


Planning of the future

• Essential to keep stakeholders informed.

• Use of lawyers and accountants to advise on strategies at early stage.

• Tell your bank manager what is going on – even if it is bad news…

Keep the bank informed!


Advice and communication

Questions and Answers


‘Trading in an uncertain economic environment’ . . .

‘Trading in an Uncertain Economic Climate ’ June 2009 Mike Copson Director - Barclays Business Support Company Confidential 6/09.

Documents

business risk slide

support customers

decline curve slide

barclays relationship

asset values liquidity

sharp decline

weakness impact

cost base