Editor: Pat Williams. E-mail pwilliams@creditman.co.uk
John Arnold. E-mail jarnold@creditman.co.uk
Site: Business Credit Management UK
URL: http://www.creditman.co.uk
Issue: 128
Dated: 26 September 1999
Welcome to the Business Credit News UK.
In this weeks edition you will find the following topics.
UKIMPROVED MANUFACTURING ORDERS POINT TO RECOVERY, BUT EXPORTS STILL WEAK - CBI
Manufacturing is coming out of the doldrums as orders continued to improve in September, although export orders remain weak according to a survey by the Confederation of British Industry out last Thursday.
The latest CBI monthly industrial trends survey showed that total orders improved in September, and were the least negative since March 1998. Thirty-two per cent of manufacturers said their orders were below normal, with 18 per cent were above normal, giving a balance of minus 14 per cent. This is up from minus 22 per cent in August, and well above the low point of minus 47 per cent in November 1998.
Although export orders were still weak, they also recovered slightly in September. They were also back to the level last reported in March 1998, with a balance of minus 33 per cent. Forty-three per cent of manufacturers said their export orders were below normal, and 10 per cent were above normal. September's balance was up on the minus 37 per cent a month ago, and compares with minus 55 per cent last October.
Output expectations were unchanged from the level recorded in August, with a balance of plus 17 per cent - the highest reported in a monthly survey since September 1997.
Sudhir Junankar, CBI's Associate Director of Economics, said "Manufacturing is coming out of the doldrums with orders continuing to improve, pointing to a manufacturing recovery. But exports are still weak and remain well below what most firms consider normal.
"Manufacturers are still finding trading conditions tough, with strong competition making it impossible for them to raise domestic prices so continuing the squeeze on their profit margins. The latest rise in interest rates will not have helped, and if sterling remains strong there is a risk that the manufacturing recovery could take a knock. Any further rise in interest an exchange rates this year could seriously damage companies' ability to export."
Manufacturers have run down their stocks of finished goods since August. They still have enough stocks to meet the expected demand, but the level is the lowest in a monthly survey since May 1995. The balance of only plus eight per cent of firms reporting more than enough stocks is below the long-term average and suggests that any increase in demand is likely to lead to an increase in output.
The good news for inflation is that manufacturers still expect domestic prices to fall. For the next four months the balance is minus 13 per cent. This is just slightly up on August's minus 15 per cent, and is the least negative in a monthly survey since March 1998.
CHAMBERS REACT TO AUGUST INFLATION FIGURES
Reacting to the August inflation figures published on the 14 September 1999) Dr Ian Peters, Deputy Director General of the British Chambers of Commerce (BCC) said:
"These figures show the Bank’s decision to raise interest rates last week was misguided and inappropriate. While house prices, particularly in the South, are rising, retailers and manufacturers continue to see their prices squeezed as competition intensifies at home and abroad.
"Last year the MPC made the error of knee-jerk reaction to one potential cause of inflation, namely average earnings, at the expense of focus on the wider economy. It would be careless of them to make the same mistake again. Interest rates must remain on hold at their October meeting."
CHANCELLOR MUST "HOLD FIRM" AGAINST BIG TAX CUTS OR SPENDING INCREASES - ADAIR TURNER
CBI Director-General Adair Turner last week urged Gordon Brown to "hold firm" in his opposition to major tax cuts or spending increases, warning they could be at the expense of jobs in exporting firms. He said the UK economy is in good shape overall but there remains a big imbalance, with exporters still suffering from the strong pound while consumer-based sectors are doing well. Significant tax cuts or increased spending now would simply place more reliance on interest rates as the sole controller of inflation - and higher rates would cause the pound to rise further and create even more difficulty for exporters.
Speaking at Queens' College in Cambridge at the Annual Dinner of the CBI East of England Region, where Trade Secretary Stephen Byers was the other main speaker, Mr Turner said:
"The Chancellor has done well since the election to ensure that tight fiscal control has been maintained, and is reaping the reward now in terms of a stable overall recovery, growth back towards trend levels and a likely budget surplus this year. The Government has aimed to put boom and bust behind us, and it seems on target to achieve that.
"But this good work could be undone if the new found "war-chest" is used to fund major tax cuts or spending increases, as some are now putting pressure on him to do.
"Gordon Brown has said that he has no intention of giving way and I urge him to stick to this. A real benefit of the past few years has been the removal of short-term politics from long-term economic decision making.
"To stray from this approach now would create real problems for the UK economy - fuelling the sectors that are already strong and punishing that which is suffering the most - and would undermine the good things so far achieved. It may seem scrooge-like to oppose tax cuts or a spending bonanza, but big tax cuts would be at the expense of jobs in exporting companies.
"Instead the Chancellor should hold firm and hold fire. Of course, there may be some scope within responsible limits for priority tax and spending adjustments, but if there really is a big surplus in sight the best thing that he can do with most of it is simple - bank it!"
In the course of his speech, Mr Turner recognised the fact that there may be some scope for limited action, and highlighted the areas that would be of most concern to business:
"Within sensible limits, any scope there is for tax cuts must be on the business side, and particularly aimed at helping growth in small firms. It is business that has after all been subjected to tax increases in the past two years - any cuts now would only be redressing the balance. Tax cuts on business feed through more slowly to spending increases and if well targeted can help boost investment.
"Similarly the business priorities for carefully targeted spending increases are on issues like education or transport - areas where increased investment is fundamental to economic growth," he said.
EUROPES STOCK EXCHANGES
Europe's main Stock Exchanges bosses finessed a long dispute over a common trading system for their planned alliance by trying to link their different trading systems instead. The big exchanges have also harmonised their trading hours, so that London and Paris now start trading an hour earlier than before.
Source - The Ecomomist
Stephen Byers, Secretary of State for Trade and Industry published on the 20 September 1999 the interim report of a joint DTI/HM Treasury review of company rescue at an Anglo-German Conference on innovation. The wide-ranging review of UK Company Rescue mechanisms questions the position of the Crown as preferential creditor.
The interim report:
The review suggests that company rescue is preferable to company liquidation in many cases because it saves jobs and is worth more to creditors as a "going concern".
Stephen Byers said:
"People who set up new businesses often find that they are most financially vulnerable in the early years. Many experience short term financial difficulties, but then go from strength to strength.
"Some businesses will always fail. That's the truth of the market system. But if we are to encourage responsible risk-takers, we need mechanisms in place, which allow basically viable businesses to survive any short-term financial difficulties they may encounter.
"I know Germany introduced wide-ranging reforms of its own insolvency laws earlier this year. We've not gone that far yet, but we are looking seriously at this whole area.
"The interim report published today provides an analysis of the issues involved. Given the great complexity of this technical area of the law, we have yet to come to conclusions on how best to proceed. What we need first is as much input as possible from outside Government to ensure that the conclusions reached will offer support to responsible risk-takers whose businesses encounter short term problems.
The Anglo-German Conference follows the Prime Minister and the German Chancellor, Gerhard Schoeder's discussions in the summer at which they agreed the joint statement: "The Way Forward for Europe's Social Democrats". The two leaders identified the creation of dynamic and enterprising economies as an area for close co-operation.
Dr Werner Muller, Federal Minister for Economics and Technology and Siegmar Mosdorf, Parliamentary State Secretary for Economics and Technology will attend from the German Government.
Stephen Byers said:
"From Tony Blair and Gerhard Schroeder down, politicians and officials are increasingly engaged in active and constructive dialogue. There is a genuine appetite to learn from one another and co-operate on issues of mutual interest and importance.
"Today's event is clear evidence of the benefits that can flow from enhanced co-operation. We face many common problems and there is a great deal we can learn from one another."
To emphasise the importance of high-levels of co-operation between the two Governments Stephen Byers will announce the appointment of an additional International Technology Promoter.
Mr Byers said:
"Technological innovation is a key driver of growth in both our economies. I am therefore delighted to announce the appointment of a new International Technology Promoter for Germany. She will have an extremely important role in providing practical support to British companies to identify and access technological developments in Germany."
He added that the German and British Governments need to find ways to link higher education and research work more closely with developments in commerce, saying:
"The DTI been working closely with Dr Mueller's Ministry to develop a joint research project to examine this important issue. In recent years we have taken different approaches. We want to learn from what Germany has done better than us, and to share with our German colleagues experience and insights we have gained in the UK.
"This will increase the potential for innovation in the companies involved and will help integrate young graduates and researchers into the world of work."
Mr Byers will speak at the Anglo-German conference on innovation at the Brewery, Chiswell St, London. Science and Technology Lord Sainsbury will chair the event with the German Technology Minister Seigmar Mosdorf. Energy and Europe Minister Helen Liddell will also attend the event.
Germany is a major investor in the UK: there are around 1,500 German companies here of which around 300 are in manufacturing employing 100,000 people directly and providing another 120,000 through the supply chain. Some 900 British firms have subsidiaries in Germany.
'Review of Company Rescue and Business Reconstruction Mechanisms' are available from Maureen Charles, The Insolvency Service, on 0171 291 6740.
The document is also be available on the Internet: http://www.insolvency.co.uk/legal/corescue.htm
The closing date for responses to the interim report is 12 November 1999. The 'Review of Company Rescue and Business Reconstruction Mechanisms' was announced by Stephen Byers, Secretary of State for Trade and Industry, on 2 July 1999.
The Terms of Reference of the Review are:
"To review aspects of company and insolvency law and practice in the United Kingdom and elsewhere relating to the opportunities for, and the means by which, businesses can resolve short to medium term financial difficulties, so as to preserve maximum economic value; and to make recommendations."
BRITISH CONTRACTOR TO BUILD BRIDGE IN BANGLADESH WITH ECGD BACKING
Richard Caborn, the Minister for Trade, announced last week that ECGD would be underwriting a contract won by a Camberley-based civil engineering company to build a much needed bridge in Bangladesh.
Edmund Nuttall Ltd have been commissioned by the Roads and Highways Department of the Bangladeshi Government's Ministry of Communications to design and construct a 1.16 kilometre four lane concrete bridge over the river Meghna near Bhairab (together with associated approach viaducts, river training works, toll plazas and other buildings).
This bridge will form an essential part of the Government's Asian Development Bank-assisted project to upgrade National Highway 2 between Dhaka and Sylhet in order to improve the commercial capacity of the region. At present the ever-increasing volume of commercial traffic can only cross the river by ferry. Commodities carried on the road include concrete aggregate and tea.
Mr Caborn said: "It is good news that a British company has been chosen to help with this important development project in Bangladesh. I am also delighted that ECGD have been able to play a part in ensuring that the necessary finance is in place to make this happen."
ECGD will be underwriting a £17.8 million loan from Standard Chartered Bank to the Economic Relations Division of the Ministry of Finance of the Government of the People's Republic of Bangladesh. The overall finance package will also include a grant element from the Department for International Development (DFID).
The Secretary of State for Trade & Industry has presented petitions in the High Court of Justice to wind up, in the public interest, Seal Point Limited and six other connected companies following enquiries by the DTI under the provisions of Section 447 of the Companies Act 1985. The six connected companies are:
On the application of the Secretary of State, the Court appointed the Official Receiver as provisional liquidator of all the companies, pending the hearing of the petitions.
Seal Point, Management Services, Orbital, and WPC are, or have been, engaged in the direct selling of masonry coatings to owner occupiers in Northern England and the East Midlands. The business operated a large telephone sales department from the companies' administrative headquarters at Unit 4, Sheepscar Court, Leeds, West Yorkshire, cold-calling customers to arrange home visits by field sales staff, who carried out surveys on their property in order to sell the coating product.
The business was originally carried on by Midland Coating Company Limited ("Midland") until it went into creditors' voluntary liquidation in December 1998 owing in excess of £250,000. Midland was succeeded for a short time by WPC but that company ceased trading in early 1999, when the business was continued jointly by Seal Point, Management Services, and Orbital.
Management Services employed the telephone sales, field sales, and administrative staff, whilst Orbital was responsible for staff recruitment. Sales contracts were carried out by Seal Point, from the proceeds of which, the operations of Management Services and Orbital were supported.
HGP and HGH and HGH England did not take part directly in the sales business.
The role of the Official Receiver as provisional liquidator is to protect and preserve the assets and records of the companies until the hearing of the winding-up petition.
The reasons why the Secretary of State considered that it was in the public interest to petition the Court for the winding up of the companies and appoint a provisional liquidator are summarised as follows:
The Registered Offices of the companies are:
Seal Point - 7-11 Minerva Road, London NW10 6HJ. Management Services, Orbital, and HGH England - Axholme House, North Street, Crowle, North Lincolnshire.
HGH is a company registered in Wyoming, USA but it gives its address in the UK as Axholme House, North Street Crowle, North Lincolnshire.
No information is known about its registered office, place of business, shareholders or directors.
Seal Point used a postal address of Metro House, 57 Pepper Road, Hunslet, Leeds LS10 2RU. This was an accommodation address from which all correspondence addressed to the company was collected and taken to Unit 4, Sheepscar Court, Leeds.
The petition was presented under Section 124A of the Insolvency Act 1986.
All public enquiries concerning the business affairs of the companies should be made to the Official Receiver at the following address:
The Official Receiver
Public Interest Unit
PO Box 203
21 Bloomsbury Street
London WC1B 3QW
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TW LW TW LW
USA 1.6256 1.6264 Canada 2.3955 2.4038
Austria 21.4715 21.5299 Portugal 312.834 313.689
France 10.2355 10.2634 Belgium 62.9470 63.1170
Finland 9.2780 9.3030 Italy 3021.35 3029.56
Germany 3.0529 3.0603 Sweden 13.4298 13.5032
Holland 3.4387 3.3508 Switzerland 2.5035 2.5040
Spain 259.630 260.340 Ireland 1.2289 1.2323
Australia 2.5233 2.5154 Denmark 11.5973 11.6282
Hong Kong 12.6246 12.6270 Euro 1.5605 1.5649
Africa Com 9.9113 9.9668 Saudi Arabia 6.0962 6.0988
India 70.7870 70.7330 Malaysia 6.1770 6.1802
Singapore 2.7602 2.7543 Norway 12.8109 12.8569
Japan 175.540 170.800
TW This week LW Last week.
Dowding and Mills, the electrical and mechanical services group, announced pre-tax profits of 11.7 million pounds, on turnover of 125 million, for the year ending 30th June 1999. Earnings per share stand at 4.87p.
Haden Maclellan, the engineering group, announced pre-tax profits of 8.6 million pounds, after exceptional credit, on turnover of 220.9 million, for the six months ending 30th June 1999. Earnings per share stand at 7.4p.
T & S Stores announced pre-tax profits of 12.1 million pounds, after exceptional charge, on turnover of 348.7 million, for the six months ending 3rd July 1999. Earnings per share stand at 11.1p.
Rolls-Royce, is to acquire Vickers, a maker of marine engines, for 576m pounds ($933m). Rolls derives most of its revenue from aircraft engines, but its small marine-engine business will become a world leader with the acquisition. Vickers's tank division will probably be sold for 100 pounds m.
Source - The Economist
Nomura Securities of Japan is to buy 33% of Radegast, the second-largest Czech brewer, from Britain's BASS, adding to its majority stake in the company. Nomura hopes to merge Radegast with Plezensky Prazdroj, the largest Czech brewer, to create Central Europe's largest brewer, which it might then sell for more than $650m.
Source - The Economist
Voicestream Wireless said that it wants to acquire Aerial Communications, an American mobile telephone firm, for as much as $3.3 billion. Vodafone Airtouch and Bell Atlantic also sealed their planned joint deal to form America's biggest mobile-telephone operator.
Source - The Economist
Shares in Freeserve, a British Internet service provider, fell to below their issue price of 1.50 pounds ($2.40), having risen as high as 2.44 pounds soon after July's launch. Increased competition, doubts about the valuation of Internet shares and trepidation over imminent results have taken the shine off Britain's leading Internet company.
Source - The Economist
QXL, a British online auctioneer that plans an initial public offering in October, announced a price range that will value the company at up to 242m pounds ($396m), roughly half some earlier estimates.
MERGER NEWS
STEPHEN BYERS CLEARS PROPOSED ACQUISITION OF SWALEC BY BRITISH ENERGY
Stephen Byers, Secretary of State for Trade and Industry, has decided not to refer to the Competition Commission British Energy plc's proposed acquisition of the retail electricity and gas supply businesses of SWALEC plc, a subsidiary of Hyder plc.
Mr Byers made his decision in accordance with the advice of the Director General of Fair Trading (DGFT).
Announcing his decision Mr Byers said:
"The DGFT has advised me that this merger does not raise concerns which would warrant reference to the Competition Commission.
"The Director General of Electricity Supply (DGES) was of the view that the merger raised competition concerns in respect of electricity generation and supply through the vertical integration of a major generator and a Regional Electricity Company which were sufficient to justify more detailed investigation by the Competition Commission. While he considered that the complete separation of the distribution and supply businesses could in principle provide important offsetting benefits, he was concerned that in this case these would not be fully achieved because Hyder (which would continue to own the SWALEC distribution business) would be providing customer service functions for the supply business owned by British Energy. The DGES recommended assurances should be sought, similar to those being sought in the case of National Power/Midlands Electricity Supply, were I to decide not to refer the merger."
"I have considered very carefully the differing views of the DGFT and the DGES. I do not believe that vertical integration is in itself objectionable. In some previous cases, the integration of a large generator and a Regional Electricity Company has given rise to competition concerns where there is market power at both ends of the supply chain, i.e. in both the generating market and the market for the supply of electricity to retail customers. In the recent cases involving PowerGen's acquisition of East Midlands and National Power's acquisition of the supply business of Midlands Electricity these concerns were sufficiently serious to require remedy. In both cases it was considered that substantial divestment of generating capacity would reduce market power in the generation market so as to remedy the adverse effects of the mergers.
"In this case, however, I agree with the DGFT that the level of vertical integration does not appear to raise such significant concerns. British Energy's position as a base-load generator means that it does not set prices in the generation market. Its market power is therefore less than those generators which operate in the price-setting part of the market.
"Turning to the arrangements for the separation of distribution and supply, I believe that in this case the concerns can be met by new licence conditions, and related regulatory measures. Both British Energy and SWALEC have given me assurances that they will agree to the necessary changes to their licences. The assurances relate to measures to ensure that the position of customers continues to be safeguarded following the separation of SWALEC's supply and distribution functions, together with measures concerning the financial and management resources of British Energy and SWALEC and the provision of information. These assurances are in line with those recommended by the DGES to address the regulatory issues arising from the merger."
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FORD MOTOR COMPANY announced an alliance with MICROSOFT to sell cars online, taking a minority stake in the software giant's CarPoint website. Ford hopes to speed up its production process and to provide a customising service; buyers will select from a range of options to tailor cars to individual requirements. General Motors and Sun Microsystems have similar plans.
Source - The Economist
APPLE COMPUTER suffered a setback on its path to recovery as it announced that earnings will fall by 20-30% in the third quarter because of a shortage of Motorola microprocessors.
Source - The Economist
8 October ICM Annual Dinner Drapers' Hall, London EC2 Guest speakers: Walter Merricks, Insurance Ombudsman Professor Geoffrey Woodroffe, Solicitor and Funeral Ombudsman Ticket price: #68.00 plus vat To book telephone the Institute on 01780-722907 or fax 01780-721271 12th to the 14th October 1999 Tuesday to Thursday Credit North 1999 at the Royal Armouries, Leeds1 25 October Wessex Branch meeting of the ICM Experian - Non-Ltd database 17 - 19 November 1999 Wednesday to Friday International Credit Exhibition & Conference Raffles City Convention Centre The Westin Stamford, Singapore http://www.internationalcredit99.com Mailto:info@internationalcredit99.com 7 - 9 December 1999 Online Information 1999 Olympia London
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