06 Feb 2014 |Off Balance
Former Abbey finance chief Stephen Hester can be pretty pleased with himself. After leaving RBS not exactly immune from criticism, but with his reputation intact, he's strolled into another huge turnaround job - this time as RSA chief. With £200m swallowed up by its Irish division, Hester will get another chance to turn that ship 180 degrees.
Speaking of former Abbey finance chiefs (and another ex-RBS man), it hasn't been such a good month for Nathan Bostock. The Prudential Regulation Authority wasn't impressed with plans to name him deputy chief exec and chief risk officer at Santander. The risk role has instead gone to Keiran Foad.
Her Majesty the Queen, of all regal people, took some flak from the Public Accounts Committee. Well, the financial management of the Royal Household did, anyway. The household had dipped into its ‘rainy day' funds, leaving just £1m in its coffers.
But the PAC didn't have it all its way. Chair Margaret Hodge faced verbals from the Treasury for her and other PAC colleagues' "grandstanding", warning that it was impacting foreign investment. The PAC has campaigned against tax avoidance, including many storming meetings with corporate executives. Hodge, typically, hit back, saying the Treasury should "have the guts" to tell her to her face.
29 Jan 2014 |Ken Chigbo, Global Reach Partners
ON TUESDAY, the Office for National Statistics released the Q4 2013 GDP readings for Britain, recording the fastest annual increase in six years in 2013.
On a year-on-year basis the figure grew to an impressive rate of 2.8% from 1.9% in 2012. However, the quarterly reading only posted 0.7%, in line with general market expectations but down marginally from the prior quarter's reading of 0.8%. The reason for the reduction this quarter appears to be because of lower construction output in the UK, which dropped at the back end of 2013.
Given this sharp increase in yearly growth for Britain, it is likely to prompt speculation among market participants about when the Bank of England could look to raise their benchmark interest rate. It is worth noting however that last week BoE governor Carney stated that ‘there is no need for rates to rise anytime soon', despite the fact that the unemployment rate fell sharply to 7.1%. This is very close to the original rate hike threshold that Carney put in place (7.0%) back in August of last year. With this in mind the governor - for the time being at least - will certainly keep the markets guessing about the next course of action from the Bank of England.
No notable reaction was observed in the FX market on the release of the data but long term trends seem to be running out of steam. GBP/USD can expect to continue to hold around the 1.65-1.66 region for the time being, given the overall improvement in UK economy in comparison to 2012, at least until there is further clarity from the Federal Reserve on the pace of their QE tapering.
Current levels for the GBP/USD cross continue to remain favourable for current UK importers, however it is not out of the realms of possibility to see GBP/USD back around the 1.50 mark by the end of the year, if the Fed's tapering picks up dramatically.
Ken Chigbo, Global Reach Partners
24 Jan 2014 |Financial Director staff
IT'S ALL BEEN about ‘social media, business and financial reporting' in the last few days, Off Balance has noted.
OK, so Off Balance stumbled across two columns about businesses' use of Facebook and Twitter...but when those pieces have been written by FTI Consulting senior MD John Waples and senior business journalist Anthony Hilton, that's enough to pique our interest.
Waples talks of "digital corporate pioneers", who will lead the way in facilitating the publication of company financials through Twitter and the like. He pointed out how Tesco had CCed in key contacts (such as George Osborne) into tweets about the launch of its current account. Off Balance reckoned they could have just told the chancellor's comms team - but you get Waples' point.
He flagged up British Land, which recently tweeted through analyst presentation. The flipside, of course, is sticking with your chosen media even if you're conveying bad news. As he rightly points out, how regulators will deal with this is anyone's guess, though Off Balance imagines they'll do it ham-fistedly.
As for Hilton, he points out the possibilities of 'internal social media', where external platforms are copied through and used to drive discussion within the business. Communication from a company to end-users is now impossible to regiment through comms. Breaking down this ‘silo might then occur to other departments, such as finance. Whether this simply means credit control slagging off late payers on Facebook, Off Balance isn't quite sure. But fascinating all the same.
22 Jan 2014 |Off Balance
Chilly response to tax
When is tax ‘fun'? Perhaps when you create constructs that cut your bills to bugger-all, or perhaps even sort out a nice little rebate. These options are often frowned upon, though, or they're outright illegal.
For chill-focused retailer Iceland, the £2.5m ‘fun tax' bill it received for sending 800 staff to Disney World in Florida was anything but fun.
Iceland had a barney with Her Madge's Revenue & Customs over the trip, which the retailer claimed was a tax-deductible business expense. The taxman said it was a holiday for the staff, and therefore a benefit-in-kind.
Iceland chief Malcolm Walker revealed that the bill had been settled, and Iceland was ‘very happy' with the outcome. Perhaps HMRC decided it wasn't a Mickey Mouse claim after all.
Santa levy sleighs
It must be the season for prefixing ‘tax' with a cheeky noun or adjective. Not only did Debenhams FD Simon Herrick quit shortly after another profit warning at the department store chain, but he also made just as many headlines for adding a ‘Santa tax' to suppliers - not something they were looking forward to receiving in their proverbial stockings.
Eight days before Christmas, Herrick sent key suppliers a letter asking for a 2.5% discount on their supply prices. Not really in the spirit of the season of goodwill to all men, mused Off Balance, and not actually a ‘tax' either - but you can't let that stand in the way of a good headline.
Nothing useful to say?
Efforts to deal with trimming the Metropolitan Police's finance, HR and IT budget took a bizarre twist when an interim restructuring expert quit following allegations that he made a racially inappropriate comment during a meeting.
A report by the Daily Mail says that Steve Hodgson, an experienced HR, payroll and shared service change management professional, who had been called in to help make hundreds of millions of pounds in cost savings, allegedly used what Off Balance would charitably call an ‘old-fashioned and inappropriate' expression in front of colleagues. He left the meeting immediately, later issuing a statement saying he didn't recall making the comment, but couldn't be sure that he hadn't.
Off Balance lives by the motto: ‘The less said in meetings, the better.'
It's practically a chapter from Freakonomics. If you're a toy retailer, and selling fewer toys than before, is it due to the product mix? Price point? Economic conditions? Poor advertising and marketing?
For Toys R Us CFO Clay Creasey, it comes down to looking at the fundamentals: there just aren't as many kids around as before.
A declining US birth rate through 2008 and 2009 - following a record high in 2007 - has hit 4th and 5th birthday prezzies and subsequently Christmas gifts.
"That mouse is entering the toy-buying part of the snake, if you will," he reportedly said on a Q3 earnings call, according to BuzzFeed Business.
We don't know how Toys R Us have managed their stock levels, but Off Balance pictures rows of forlorn Woodys and Buzz Lightyears having to make up their own adventures.
27 Nov 2013 |Arbinder Chatwal, BDO
The first in a series of blogs, from BDO, on their take on the way in which business is done in different locations, plus the opportunities and pitfalls - starting with India
REPORTS of India's demise are greatly exaggerated. Despite reports to contrary, opportunities remain for British businesses to continue to invest and succeed in the country.
Having just returned from a two week UKTI-sponsored visit to Mumbai and Delhi, it is clear that neither the recent fall in the value of the rupee nor the slowdown in GDP growth - which, at 5%, remains very attractive by international standards - should discourage British companies from setting up in India.
Rather than a mass exodus of foreign companies, what we're actually seeing is that businesses with a longer term outlook are recognising the value in the rupee right now and investing in the knowledge that they are getting good value for their initial set up and business development costs. In addition, as the business grows and the owners eventually seek to repatriate, they will be able to do so at a much more favourable exchange rate.
Take a sector focus
Investors should also look beyond the headline numbers; they need to consider focusing instead on specific sectors, regions and product categories and trends. Despite the recent economic slowdown, the chemical, food & beverage and healthcare industries, for example, are still growing at double-digit rates. The opportunities are there if you know where to look.
That said, business should not be under the illusion that success in India is somehow guaranteed. Many entrepreneurs have made the mistake of building their business plans on finger-in-the-air calculations about expected future revenues. As the overall numbers are so large, this tends to lead to the unrealistic expectation that a small proportion - but still a large absolute number - of that business will come automatically and immediately. This is rarely the case.
Prepare for paperwork
Moreover, despite the similar legal system and language, doing business in India is inherently difficult. The tremendous amount of paperwork, compliance and regulatory red tape in India are still major headaches. Businesses also need to get used to a rapidly-changing regulatory landscape: the new Companies Act, introduced earlier this year, will have wide ranging implications, and mandatory audit rotation (every five years for a partner and every ten years for a firm) comes into force in 2016 but is already having an impact on companies and their advisers.
India continues to offer attractive opportunities to businesses and potential returns remain impressive if you get it right. However, like with any other major investment, it is vital that decision makers take time to actually understand the market and identify their unique selling point in what has become a highly competitive environment. The days when speculators could pile in and make a quick buck are long gone, if they ever actually existed; the future belongs to more selective, considered investors.
19 Nov 2013 |Ikenna Chigbo, Global Reach Partners
Last week saw the release of the Bank of England's quarterly inflation report which as a whole has been perceived as an upbeat release from the central bank. In terms of the growth estimates, this year is expected to be 1.6% up from 1.4% previously thought, and for next year annual growth is anticipated to be 2.8% rather than the 2.5% predicted in August. These expectations are further signals that the economy is gradually getting back to speed. However, Carney did state headwinds remain and there is a "long way to go" before the crisis aftermath has cleared.
Elsewhere, with regards to the inflation levels in the UK, the BoE have now cut the near term inflation outlook on lower data and see inflation below the target from Q1 2015. If this does actually continue to cool, then the central bank will not need to rush and raise their benchmark rate.
Looking into unemployment, which is important as Carney linked this to rate guidance outlook, the bank believes there is a 2 out of 5 chance that the unemployment rate which currently stands at 7.6%, will fall below 7% by the end of 2014. Recapping back to Carney's first inflation hearing, he did state that the bank would not look at raising rates until the unemployment falls to 7%. However this time round, the governor went on to say that even when the unemployment rate falls below 7%, it does not automatically trigger a hike in rates.
Overall, what to take from this report is the fact that Carney has covered himself in all aspects with regards to the rate guidance and a non-committal approach. GBP has gained against all major currencies on the back of this event, given the upgrade in GDP estimates and prompting of speculation for earlier hikes in interest rates than originally anticipated.
Going forward no real affect expected for the British importers/exporters in the short term, given the current tight range that GBP is trading in against the likes of the EUR and USD. However, with dovish sentiment coming from Washington and a rate cut in Europe, the Pound could march on against major peers into the end of the year.
Ikenna Chigbo is a currency consultant at Global Reach Partners
07 Oct 2013 |Mark Lumsdon-Taylor, Hadlow College
IT'S THE END of the political conference season and everything from taxation to measures reducing the number of young people not in education, employment or training has been covered. Equally, conference season would not be the same without the occasion faux par or media sound byte that gets the News at 10 extremely vexed!
It has however, made me think about the 'day job'. The well used phrase 'well that saving can be deployed to fund that new development' regularly repeated to the extent that the so-called saving has been spent a number of times is more prominent than ever. A new bankers tax anyone?
For example the new government initiative, 'earn or learn' has real merit providing its all joined up. The parallel; ideas come up in business all the time, the finance director needs to ensure it works.....
On a serious note, the role of the finance director is as much an architect of change as a custodian of the finances and a political negotiator. He or she needs to be a consummate politician to ensure that the financial aims of the business are met while ensuring the organisation grows and develops, without being hindered. We manage expansion and we manage contraction.
I have found that some of the best strategies have been those of logical reasoning. When you eliminate the impossible, whatever remains, however improbable, must be the most appropriate course of action. This process can be time consuming, but invariable ensures all accept and buy into the process and most importantly the outcome.
In and out of the boardroom - more so that ever - is a challenging environment and the FD is the hidden negotiator. Like politicians, we are often the first port of call when things go wrong, and are in the public eye increasingly. Some of us have a strong back up team (for politicians read Sir Humphry and his team) that crunch the data, but often it all rests with the leader. Our role is no longer just in the back office, it is far broader keeping the troops in line, ensuring that whatever plan is devised it will work, whilst ensuring critical support to the CEO and the business as a whole.
The role has changed beyond recognition in the last ten years from boom to bust and now the times of economic recovery. It is crucial that we inspire our teams and the wider business as well as giving a confident air despite what may be going on behind the scenes, and making sure the day job is done.
The financial director is the fixer, a 'front man or woman', the negotiator, the number two, and more so than ever the consummate politician. Life is never dull....
Mark Lumsdon-Taylor is finance director at Hadlow College
01 Oct 2013 |Ikenna Chigbo, Global Reach Partners
SO it's actually happened...the US government has shutdown for first time in 17 years.
A stalemate was reached among stubborn US politicians and this has forced the government into a partial shutdown, causing some distress for the US dollar across the board in the foreign exchange markets. President Obama will now have to stop non-essential services, jeopardising just under one million US jobs and forcing many workers onto unpaid leave.
The main disagreement in the budget talks was due to the infamous ‘Obamacare' policy, which has caused a lot of flare ups since its inception in 2010.
If the shutdown continues to drag out it could have a damaging effect on the US economy and its general growth. In real terms, analysts are forecasting that 0.3% could be shaven of the third quarter GDP figure every week that the political turmoil continues. This would obviously have a negative impact on the US dollar.
This issue has already resulted in a fall in the US currency, with the Dollar Index initially moving quickly lower by 0.5% as the news broke. Allied with the no tapering announcement from the Federal Reserve last month, it has been a harsh couple of weeks for the dollar with the USD index falling 1.5%. If the parties finally come to an agreement this should provide some relief for the greenback but there is no indication as to when this might come.
What this means for the US going forward is that the country now has a looming deadline of 17 October before pushing the United States into a default on its debts - which would be an absolute catastrophe and cause a global financial turbulence. We have already seen this "cliff" approached in January this year and the impact on the currency markets was profound.
UK importers and exporters will have to navigate this potentially volatile situation with caution - especially as we approach the time of year when many businesses will be working out budgets for 2014. While markets as a whole continue to expect the dollar to recover, conviction is dwindling. Charts this morning suggest that we are in a new trading range and the outlook got the GBP/USD and EUR/USD crosses in particular are unclear.
Sensible hedging policies will win the day.
Ikenna Chigbo is a currency consultant at Global Reach Partners
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