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AIM is at the crossroads

crossroads

06 Feb 2013 | Tim Ward, QCA

IF CURRENT TRENDS continue we will wait a long time to see a substantial rise in IPOs, fundraisings and general corporate activity.

But AIM could be starting to see a growth spell after a period of clear-out. The number of UK companies on AIM has fallen from a high of 1,347 to 870 at the end of 2012. Many of the departing companies had a market capitalisation below £10m.

This creates space for better structured and better capitalised companies to join; ones which are more suitable to be a public company.

With Nomad numbers falling from over 80 in 2007 to just over 50 now, perhaps we are seeing a concentration of better financed and more competent advisers.

I am hearing advisers and fund managers saying that we are already 18 months into a seven-year bull market for small and mid-caps. If these words start turning into positive actions, by investors, companies and advisers, then this will further help to accelerate the recent turning point where, for the first time in 20 years, net new money is being allocated to small and mid-cap investment. If we can foster the flotation of more technology companies, such as the AIM growth company WANdisco, this will send a strong message to other sectors

Even more money could start to flow into the small and mid-size quoted company space through the inclusion of AIM shares into ISAs. The government will be shortly consulting on this.

This regeneration of AIM could be a fantastic opportunity to provide more finance to growing companies so that they can continue to expand their business and create more jobs.

For me I'm sensing zoom rather than gloom.

Tim Ward is chief executive of the Quoted Companies Alliance, the independent membership organisation that champions the interests of small to mid-size quoted companies. His past roles have included head of issuer services and head of marketing at the London Stock Exchange and finance director at FTSE, the index company.

 

Psyched in the workplace: The Hobbit - an unmotivated employee

hobbit hole

24 Jan 2013 | Gavin Hinks

CHRISTMAS may seem like a dim and distant memory now, but perhaps the season's big cinema release is not. The Hobbit: An Unexpected Journey, the latest Tolkien movie from Peter Jackson, was the blockbuster that dominated the silver screen.

Watching Bilbo Baggins (the Hobbit of the title) team up with a group of peeved dwarves, I couldn't help but wonder: why does he do it? What's his motivation?

One way of asking this question is by casting Bilbo in the role of a slightly unenthusiastic employee who needs geeing up a bit. You know the kind: they turn up each day, but their Twitter habit tends to suggest their hearts are not quite in it.

For those who don't know, Bilbo's story is that he persuaded to go on a quest with 13 dwarves to recapture their lost kingdom from a bad tempered dragon.

Bilbo makes his decision to sign up knowing he will confront more dangers than your average High Street on a Saturday night. Orcs, wargs, goblins and and dragons are all on the opposition's team sheet. So, why sign up for all this agony?

Psychologists have something to teach us here. Last year US academic Teresa Amabile wrote in the Harvard Business Review about her research looking at the diaries of hundreds of project workers. She wrote: "We discovered the progress principle. Of all the things that can boost emotions, motivation, and perceptions during a workday, the single most important is making progress in meaningful work."

Amabile goes a little further, however, and proposes that motivation is also fostered by catalyst events (help from colleagues) or nourishing events (respect and encouragement). Gandalf, a wizard, not only tells Bilbo he is useful but frequently lauds him for prompt action to save the group of dwarves (especially in a nasty incident with trolls).

But I couldn't help but feel that wasn't enough to explain Bilbo's willingness. So I turned to military thinkers. Why not? Bilbo and the dwarves are effectively engaged in a military campaign.

Research during the last Iraq war from the US Army War College concluded that "unit cohesion" was the secret to keeping someone motivated. In other words, people form strong bonds with their colleagues, or fellow soldiers, and keep working or fighting to fulfill an unspoken commitment to them.

Bilbo takes a while to do it, but eventually forms a powerful bond with the dwarves who recognise his worth and come to see him as one of their own. the dwarves leader is the last to change his mind about Bilbo but even he has to see the Hobbit's worth eventually.

But I think the lesson from The Hobbit is that both workplace and military psychologists have something to offer to managers leading teams. Employees need to see progress and be reminded they are making progress. Catalyst events (aid from fellow workers) boost morale and so do respect and encouragement. But they seem to be part of the process of forming strong bonds with colleagues. Commanding officers sports team coaches understand this intuitively and business managers should too.

All these things keep Bilbo going, but it's entirely likely that if you can find skillful ways of employing these factors at work, they'll keep your staff motivated and productive. You can be a Gandalf too. Though, forget the beard.

This column is based on an article on The Profits and Loss blog

Gavin Hinks is a journalist and leadership advisor

City celebrates, but fiscal cliff deal far from conclusive

party-streamers

16 Jan 2013 | Torrie Callander, Global Reach Partners

2013 STARTED with a bang in The City! Positivity dominated the first trading days of the year as investors welcomed the New Years day resolution of the "fiscal cliff" issue.

A special meeting of US Congress managed to come to an agreement late on 1 January that postponed public spending cuts and extended some Bush era tax cuts. Had these measures not been taken then the likelihood of a return to another recession in the US was very real, markets were showing signs of considerable strain in the lead up to the deal.

As a result of the resolution the indices breathed a sigh of relief and investors bought risk assets. This meant that traditional safe haven assets - which investors flock to in a time of uncertainty - weakened heavily. The US dollar was the biggest loser with sterling posting a 12 month high against the the dollar and the euro gaining ground alongside. The Japanese yen, the safe haven choice of 2011/12, was also sold heavily amid threats from the new Japanese prime minister to aggressively weaken the currency in order to boost exports.

This trend has continued thus far throughout January. The S&P 500, America's premier equity market, has posted five year highs and the dollar and the yen have continued to weaken. Positive comments from the European Central Bank have also given strength to the single currency. The euro has gained across the board - a move that would not have been predicted amidst the Greek debt crisis of 2012.

Now that the dust is settling, investors are looking further ahead. The "fiscal cliff" deal, while important, was far from conclusive. Public spending cuts have only been extended until the end of February and, with the US debt ceiling very close to breaching point, this creates a problem.

It is law in America that the US government cannot issue bonds if their value would increase US debt above the agreed debt ceiling. This means that, unless this new issue is resolved, the US government may run out of money in mid-February.

While this is extremely unlikely, it is concerning for investors and in particular those holding US government debt. Most people expect the same old story to unfold - a lot of tension in the build up to a deal but ultimately a deal will be done.

Markets don't tend to take that chance however and many risk assets could be sold off around this type of uncertainty. This may lead to a reversal of the gains made so far this year.

Therefore, while 2013 has started positively, the next obstacle is only weeks away. Momentum is to the upside, but we are not out of the woods yet.

Torrie Callander is a corporate dealer at Global Reach Partners

Aim Higher: Politics or Networking - now you see it, now you don't

Networkig

20 Dec 2012 | Stuart Pickles, AimHigherLeadership.com

I ASKED A CFO recently: "What's the biggest mistake that people make in organisations which holds them back from success?" His answer was: "To hold the belief that stuff only gets done through formal channels and visible systems". Another one said: "Lack of political savvy".

Of course we've known for years that the coffee machine and corridor conversations are where a lot of important things happen. Many people judge that this reality is still "wrong" - that's not how it should be, it's not fair, it's not visible, not everyone (including me!) is involved, it's not following the right process etc. But let's face it - this is reality, it's not just your organisation, your boss, or your colleagues - it happens everywhere, and it's what humans do. The best thing to do is "get over it" and work out how to live with it and make it work for you.

A manager asked me: "How do you deal with office politics"? My first response to this is: Start by refusing to admit it exists. Politics is just a word used to describe the stuff that's going on around us with other people that we don't understand. It is the fact that different people have different agendas, they have skin in the game and they do what they can with whoever they can to advance their agendas. The question is: How do you deal with this?

It's about relationships - try getting to know and understand the people that are most important to you, and find out what their agendas are. Then see how you can help them, put some credit in the "relationship account" without expecting an immediate return - people want to work with you more if you are not always asking for something, and trust that over time they will repay you. Is this "playing the political game" ... or is it just effective relationships building and networking?

Networking can come in many forms, some more visible than others. The advent of the online world has raised everyone's awareness of what networking is - and for the new generations (Y and Z) it is an integral part of their existence. Interestingly, the online world is quite a structured networking environment (albeit not all is visible to all).

What will remain unchanged is that the more informal networking (offline and online) will continue to be a vital hub of activity, networking is much more than what happens in the formal/visible channels of communication. Don't think that by going on Facebook and LinkedIn and finding a few more friends, that you have cracked networking. The bar has been raised now - everyone has increasing numbers of online contacts, the question is what you do with them.

Regardless of where and how you network, there is always one fundamental principle: you will have a spectrum of extremes from (1) many/far/shallow relationships to (2) few/near/deep (the ones that know, like and trust you). The questions are: how do you increase your few/near/deep, and how can they help you? Who do they know that can help you, because they'll be prepared to ask on your behalf? And then how do you "skim" the many/far/shallow relationships in a way that gives them a positive experience of you (however brief) and allows you to spot the ones that might be worth investing more time in?

For aspiring leaders, another increasingly important factor is internal vs. external networking - an organisation can no longer afford or hope to have internally all the resources it requires. One major multi-national corporation states that a minimum of 30% of leadership time should engaging with external networks (not just in the sales context). How does this reconcile with your reality?

The truth is, we all know how to network and build relationships, be it online, face to face or other contexts. But some of us are better at it than others and some invest more time and energy than others. There are ways to improve technique, it does take time and you have to be selective and focused - but the return on investment is your longer term success. If you don't, it will be a case of "now you see it, now you don't."

Stuart Pickles is the former FD of Foster's EMEA. He now runs AimHigherLeadership.com and is blogging regularly for Financial Director

Image credit: Shutterstock

 

How the US election will affect the risk-on/risk-off trade?

Obama Romney second debate

29 Oct 2012 | Jamie Jemmeson, Global Reach Partners

THE US PRESIDENTIAL election will take place on November 6 2012 and will as always, play an important factor in the financial markets. The upcoming election will set the tone to demonstrate if risk-off trading, synonymous with the 2008 crash recognising peo-ple selling investment into cash to reduce loss, has been changed to risk-on trading where people capitalise to develop a likely return from investments. Given the current economic climate, this could have a large effect on this risk-on/risk-off theme that has been driving sentiment - something that will affect the dollar and ultimately all businesses involved in international trade through the exchange rates.

The election brings with it the potential for change in how the US economy is run. If we cross-examine the financial agenda of the two candidates - it is obvious why markets will be cautious going into the result as they are polar opposites. Obama advocates a tax and spend agenda, arguing that austerity would harm a recovery. Conversely, Romney wants to cut the deficit and vows to cut spending to 20% of GDP from 24%.

Romney is not an advocate of quantitative easing. Should Romney become President, one outcome could be the removal of Federal Chairman Ben Bernanke. Given this, it will be no surprise to see the US Dollar strengthen before the election as the prospect of change and uncertainty will play on the mind of investors. Of course, if Bernanke were to be removed, the policy of on-going QE would come under close scrutiny, as it could be argued the unofficial policy of the Federal Reserve since 2009 has been to weaken the US Dollar via QE.

Meanwhile, outside the US there are global ramifications which could further aid the "flight to safety" which is causing a stronger US Dollar. For those nations (such as China- a big market for the UK) that have their currency pegged to the US Dollar, the election is important because in effect they are importing US monetary policy.

China is also a big issue for the US elections, and particularly what is perceived as its currency being undervalued (causing harm to US producers). Given the timing of recent comments from Beijing that signalled little likelihood of further Yuan appreciation in the near future, there are concerns whether there will be further political gamesmanship ahead of the US elections that will further strengthen the US's currency.

At the time of writing (October 23rd), the Gallup tracking poll reported Romney had extended his lead to 6 points. Markets hate uncertainty and as we approach November 6th it seems likely that risk aversion may once again come into play. This is only one of several opinion polls, but 6 weeks previously it appeared that Obama seemed likely to maintain a lead, but now it appears to be more of a coin toss.

Historical research suggests that when we have seen high returns in the stock markets it is unlikely that the leadership will change in a US Presidential Election. In contrast, when the stock market had been doing badly, change is normally anticipated. If the theory holds true then it suggests Obama will be re-elected given he has presided over a strong bull market in stocks for the last three years.

Whatever happens, it is likely that we will see the US Dollar strengthen as uncertainty will continue to circulate the market prior to the polls closing. It is plausible that US Dollar strength will continue whoever wins according to the well-known cyclical study, the Yale Hirsch Presidential Election Cycle Theory.

This report suggests that after all the pre-election hype it is common for the President to introduce his least popular policies so as to get them ‘out of the way' in the hope they will be forgotten by the time the next election comes round. Given the inverse relationship with the US Dollar, this suggests a rise in the Dollar as the most probable outcome following the election.

Financial directors which are keen to avoid the fluctuations that are accustomed with the risk on/risk off trade should speak to their currency dealer or a currency specialist about the best instruments available to them to suit their risk needs.US politics and foreign policy implication are going to influence import/export prices, causing uncertainty in the FX markets after the elections. It will take time for the markets to settle once the unpopular policies have been implemented. This is likely to continue into the Christmas period, where volatility will be around the corner due to lower liquidity, holding the rocky road for the currency markets into the New Year.

Jamie Jemmeson is a trader and foreign exchange expert at Global Reach Partners

Power games - playing life and death in the sandpit

Throwing a dice

19 Oct 2012 | Stuart Pickles, AimHigherLeadership.com

LETTING GO of the power to make decisions is the hardest thing you have to do as a leader, and yet it's the most important.

Not only is it vital if we, as leaders, are ever going to get away from the detail and focus on the most critical strategic questions, it's also the only way that we will ever develop our future leaders.

Of course we already know all this. So how's it going for you? Most CFO's and leaders I speak with continue to struggle with it. Why? The most common answer I hear is "we have a talent gap - we just can't find the talent quickly enough".

Yes, this is part of the answer - there has to be some talent to work with. But there is another side to the equation which is often eclipsed by the "talent gap" argument. Let's face it - most organisations do have some pretty decent talent. If there is a gap, it is because leaders are not creating the stepping stones to cross the divide; not creating a sandpit or playground where emerging talent can "play with power" to make decisions, and make mistakes.

In the medical profession, we don't hear about a shortage of talent - every year there is a constant stream of doctors and surgeons moving from being students to taking responsibility for life and death situations - the ultimate power game. Similarly in the military, there are literally controlled explosions in their playground, and these power games are absolutely life and death on the front line and in the theatre of war. In business we rarely have to deal with life and death situations, and yet we seem to find it harder to create a path for leaders to grow and take power.

What's stopping us? Ultimately our reputation as leaders is on the line and we are not tolerant of mistakes - even if it is not life and death, it feels like it to us. It's difficult to have belief in people who have not yet proved themselves. It takes a lot of time, and energy, and patience to create power sandpits and playgrounds, freedom within defined boundaries, where power can be handed over, and where mistakes can be made without total disaster - where we can manage controlled explosions.

In reality what it means is defining work projects, putting boundaries around specific work areas, ring-fencing aspects of work, and breaking down work into bite size chunks. It's about giving open briefs, but then making the time to review frequently, to ask questions and to coach the learnings and course correction - whilst avoiding the temptation to tell, to give the answers and make the decisions.

It is putting in place the building blocks of trust, one at a time like with a child playing with wooden bricks. These building blocks of trust are firm foundations and even if they are built in a sandpit, they are not built on sand. The payback and return on the investment is always there in the longer run - this is the solution to the talent gap. We just have to come out and play more.

Stuart Pickles is the former FD of Foster's EMEA. He now runs AimHigherLeadership.com and is blogging regularly for Financial Director

Public companies want to be public

exchange-screen

15 Oct 2012 | Tim Ward

WHY SHOULD ANY COMPANY want to be listed on the London Stock Exchange? We often hear about the costs of a listing - estimated at £500,000 yearly - together with the burdens of disclosure and corporate governance. But rarely do we hear quoted company directors extolling the benefits of a listing.

Recently I was at a dinner for quoted company directors who were asked - if they knew what they knew now when they listed - would they still have gone through the listing process. The unanimous opinion was that they would still want to be publicly quoted.

It was generally agreed that the markets are not functioning well; it is difficult for many companies to raise money; the costs are high and time spent on investor relations takes up about a third of senior management's time. But these directors all acknowledged that public-company status brought distinct commercial advantages over staying private. The listed designation brings the advantage of a kite mark, an endorsement that a company is fit and proper, with published information for all to see. Customers, suppliers and other stakeholders do not have to make lengthy enquiries as to the probity and financial health of a company; so in tendering situations and contract negotiations listed status is a huge advantage.

A London listing in particular brings valuable prestige. One of our adviser members tells me of a non-UK corporate client that was able to borrow at lower bank rates immediately following its AIM flotation.

Having a share price also cuts short the debate on company value. A recent arrival to the stock market told me that his company had been trying to negotiate an acquisition for some years before going public. The deal had foundered on the relative values of the companies. Once listed this argument fell away and the company was able to issue shares as the currency for the deal. The director was adamant that the deal only happened because the company was listed.

So we should not forget the benefits that having a share price and a listing brings to a company. It's too easy to dwell on the negatives and take the positives for granted.

We should all be doing more to promote the public equity markets as a key route to enable companies to raise money, grow, create jobs and add long-term value for shareholders.

Tim Ward is chief executive of the Quoted Companies Alliance. His past roles have included head of issuer services and head of marketing at the London Stock Exchange and finance director at FTSE, the index company.

Can the “Olympic Effect” jump-start our faltering economy?

Digital Olympic rings

20 Sep 2012 | Eimear Daly

LONDON IS STILL REELING from the success of the Olympics. The initial scepticism that the Games would turn into urban carnage was quickly replaced with optimism, excitement and pride. The city performed admirably, proving it was able to hold a world-class event. Now we are waiting to see how our economy will perform, as the effects of those two weeks of activity trickle into economic indicators.

The bidding process for potential host cities has become increasingly competitive because of the perception that the Games help attract tourists and generates income. But will the "Olympic Effect" be the economic stimulus to counteract austerity and lift us from the doldrums?

Host Cities - Winners or Losers?

In 1976, Montreal hosted the Summer Olympic Games, predicting they would cost $124 million. In fact, the city incurred a debt of $2.8bn (£1.7bn) that was only paid off in 2005. As a result, cities did not want to host the 1984 Games and they only went ahead when Los Angeles agreed to host on the strict condition that it was under no financial obligation. The LA Games were a relative success, incurring minimal construction costs by using existing facilities and raising substantial funds by selling sponsorship to corporates. From then on, the Games became more commercialised and the financing model had a new focus on private contributions.

But the LA Games proved to be the exception and not the rule. Other nations failed to raise significant private financing and budgets overran. The Olympic Committee only funds operating costs. Capital expenditure for building and infrastructure falls entirely on the local and national government. Budgets consistently overrun. Athens initially projected that its Games would cost $1.6bn, but ended up costing 10 times that. Beijing's initial estimate was $1.6bn, this overran by $38.4bn. Vancover's turn to host the game nearly came to a screeching halt after overspending. The city was bailed-out by the Olympics Committee and Standard & Poor's lowered the city's credit rating as a result.

100m Sprint vs. a Marathon

The question is whether the economic benefits of the Games are pragmatic and, if in fact, the long and short term benefits out-weigh the upfront costs.

The most obvious short-term benefits come from ticket sales, TV rights, tourism, increased sales and spending on construction and infrastructure. UK retail sales were the first indicator that included the Olympic period, showing a sharp uptick in July. The improvement was largely a result of increased non-specialised stores such as department stores, a likely beneficiary of increased tourism. However, retailers noted no extra activity as a result of the Olympics and the increase in retail trade is more likely a result of falling inflation and rising employment. House prices saw their biggest fall ever in August as potential buyers deserted the market, distracted by the Games.

The long-term benefits of the Olympics are even harder to quantify, including newly constructed facilities and infrastructure, event facilities, urban revival, enhanced international reputation, business opportunities and corporate relocation.

The UK tried to capitalise on the opportunities presented by the Olympics. Cameron held a record 12 international business summits during the Games, hoping to build trade opportunities. The Olympic committee also made gallant efforts to ensure the legacy of the facilities with plans to lease the Olympic stadium to football clubs and planning permission to convert the village into private sector housing.

However, plans for the Olympic legacy are not the sound of dollar signs ringing: they are strategies in damage limitation. The Olympics has historically left its host cities with big white elephants: buildings go unused and governments have to foot the maintenance costs. Twenty-one out of the twenty-two stadiums built for the 2004 Summer Games in Athens were unoccupied in 2010.

Economic impact analysis of the Summer Olympics of Los Angeles and Atlanta (Baade & Matheson, 2002) show the effect of the Olympics on the long-term economy is insignificant. The economy virtually returned to its normal pattern afterwards. Any increase in economic activity is temporary at best.

The real result of the Olympics will be determined by the success of the urban regeneration. We could argue that investing in London's East side could have gone ahead without the Games and at a much lower price tag. But political gridlock often means these projects are indefinitely delayed in red tape. The Olympics gave the occasion and incentive to finally invest in London's poorer areas.

The Cost of Gold, Silver and Bronze

The official figure for the cost of the Olympics is £9bn, but it is hard to determine exactly how much has been spent because costs are accounted for in three separate budgets and many are hidden away on the balance sheet of government bodies. Recent reports have put this figure at £11bn, after the cost of buying the Olympic Park land and legacy projects are factored in.

It is with sad irony that we compare the Government's initial £6.2bn austerity plan in 2010 with the £11bn spent on the Olympics. The Government put up taxes and cut welfare and benefits and all the while spent money on arenas and sculptures that have a questionable future once the Olympics finishes.

On the surface the figures are deplorable. But the drive to fiscal austerity is a long-term shift. For years, the UK spent more than it earned and leveraged itself to the hilt. Irrespective of the Olympics, our fiscal policy needed a change of tact. Spending £11bn on the Olympics is pennies compared to the UK's £1.2tn debt burden.

Team Goodwill

The Olympics may have been a temporary escape from reality in what has been a grim few years for many but the economy now faces the hangover after the party - stomach the financial costs and try to do something with the Olympic facilities.

However, we shouldn't feel too downtrodden. The Games creates something known in accounting as "goodwill". It's the intangible improvement in reputation, morale boost and pride that accounts for the discrepancy between what we spent on the Games and what we earned.

Our economy is suffering from high uncertainty from the Eurozone crisis and a government-driven austerity policy. This has culminated in constraints in supply, low consumer confidence and a credit crunch. "Goodwill" is exactly what the UK economy needs. Successful austerity programmes only work when implemented with high levels of confidence. The UK needs the self-belief to start businesses investing again, consumers spending and banking lending. The Bank of England's governor put it eloquently in a recent press conference:

"It is to our Olympic team that we should look for inspiration. They have shown us the importance of total commitment when trying to achieve a goal that may lie years ahead".

The "Team GB" ethos may be the greatest benefit of the Olympics.

Eimear Daly is a market analyst at Monex Europe

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