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John Mitchell

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Britain is facing 'arguably the worst' economic downturn in 60 years which will ... 'To put it bluntly, this year we are probably facing a period of above target ... – PowerPoint PPT presentation

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Title: John Mitchell


1
  • John Mitchell
  • Partner

2
Cornish Business and the Current Economic Climate
The View from here
3
Agenda
  • Context
  • Overall indicators
  • Sector specific information and
  • Conclusion

4
Context
  • Government announcements

Britain is facing arguably the worst economic
downturn in 60 years which will be more profound
and long-lasting than people had expected.
Alistair Darling
5
Context
  • Bank of England

To put it bluntly, this year we are probably
facing a period of above target inflation and a
marked slowdown in growth Mervyn King
6
Context
  • Market indications

Extract from the letter from Mervyn King to the
Chancellor June 2008
7
Context
  • Media hype

8
Overall Indicators Insolvency
  • No Insolvency Practitioner within Winter Rule but
  • Anecdotal evidence
  • One appointment a day
  • Busiest period ever
  • Currently working for more pubs than Allied
    Breweries

9
Overall Indicators Corporate Finance
  • Availability of debt finance
  • Example 1 New business start up
  • One bank would not look at new business
  • One bank expressed interest but then expressed
    no new business
  • Other bankers slower to reply than previously or
    expressed conditional interest

10
Overall Indicators Corporate Finance Activity
  • Availability of debt finance
  • Example 2 Established business
  • Project started Autumn 2007
  • Missing piece in finance puzzle was grant
  • Grant secured
  • Now issue is securing debt Currently client
    being told not available

11
Overall Indicators Corporate Finance Activity
  • Projects slower and/or Purchasers looking
  • to knock down prices, examples
  • Sale due to complete November 2007. Actually
    completed January 2008 for 1m less.
  • Sale due to complete at the end of May. Actually
    completed end of August.
  • Less Deal Flow Generally across CF advisors
    (summer may be a factor?)

12
Raising finance Uncertainties
  • Objective one ceased
  • Convergence on its way uncertainty over exactly
    what Convergence will mean to OMB and if/when
    available
  • Fish processing equivalent to SFI currently
    unavailable
  • Springboard?

13
Sector Specific Information Tourism
  • General points
  • Less disposable income
  • Weak / Strong
  • Were doing well until May
  • Quality providers still doing well
  • Problem Summer

14
Sector Specific Information Tourism
  • Generally down on previous year(s)
  • Its cyclical and
  • Winter Rule maintain database of occupancy rates.

15
Sector Specific Information Tourism
  • Winter Rule Statistics (based on a representative
    sample of hotels covering the whole of Cornwall)

16
Sector Specific Information Construction
  • Nationally large scale redundancies
  • Locally
  • Some redundancies
  • Developer driven projects stopped / next phase
    delayed
  • Builders working for individual projects/ small
    developments still active
  • Move to affordable housing for house builders?
  • At least one fatality
  • Margins squeezed/ cash flow tight (bonds
    refinancing)

17
Sector Specific Information Construction
  • Future stimulus?
  • Stamp Duty threshold increase to 175k
  • "Free" five year loans of up to 30 of a
    property's value for first time buyers of new
    homes in England
  • Extension of powers for councils and housing
    associations to be able to pay off debt for
    homeowners who can no longer afford mortgage
    payments and then charge rent.
  • Shortening from 39 weeks to 13 weeks the period
    before Income Support for Mortgage Interest is
    paid
  • Bringing forward spending from future years to
    encourage more social housing to be built

18
Sector Specific Information Engineering
  • Two examples of success
  • Turnover up 25
  • Turnover up 12 , record orders in August 2008.
  • Both assisted by SFI funding
  • Future?
  • Raw material increases (rubber/oil based)
    increased by 16
  • Goods imported from Euro zone
  • Capability to pass prices on?

19
Sector Specific Information Service sector
  • Housing/ Property related
  • Commercial Agents Turnover 30 down
  • Conveyance (Solicitors) lay offs/ natural
    wastage
  • Estate Agents profit to loss
  • Chartered Surveyors lay offs of qualified
    staff
  • Why
  • 57 reduction in new house starts
  • Mortgage approval down 71

20
Sector Specific Information Agriculture
  • Rising Crop Milk Prices
  • Farmgate prices (i.e. prices received by the
    farmer) between 2006 and 2008
  • Wheat increased by 73
  • Although since July
  • fallen by 30 per tonne
  • Increased cost of drying
  • Milk increased by 49
  • Farmers reasonably optimistic Autumn 2007 Early
    2008..but

21
Sector Specific Information Agriculture
  • Most significant variable costs increased
  • Feed up 55
  • Energy up 44
  • Fertiliser up 144
  • Consequently optimism now dampened

22
Sector Specific Information Agriculture
  • Livestock
  • Beef and Lamb prices increased moderately
  • Farmers still making a gross loss

23
Sector Specific Information Agriculture
  • Land Prices
  • Record levels
  • 1st half of 2008 saw land reach 13,000 per
    hectare/ 5,200 per acre (according to RICS
    statistics)
  • However they are slowing

24
Sector Specific Information Agriculture
  • Land demand
  • Very strong due to shortage
  • Big/ efficient farmers looking to expand by
    increasing land
  • Foreign farmers looking to buy in UK as prices
    still good compared countries like Ireland,
    Holland and Denmark
  • Lifestyle investors (i.e. city money) now
    reducing

25
Sector Specific Information Agriculture
  • Investment in plant machinery
  • Small uplift in farmers investing
  • Difficulty lies in managing the investments from
    a tax perspective
  • Annual Investment Allowance
  • Better to spread investment not always
    possible/ practical

26
Sector Specific Information Agriculture
  • Total farm incomes Total net profit
  • 1995 7bn
  • 2007 3bn
  • Peak in 2005 desperate since

27
Sector Specific Information Renewables
  • The next big thing?
  • Energy prices increasing
  • Government Environmental pressures
  • Big players are getting involved and
    contracting with local agents to fulfil
  • BUT
  • Cost sensitivity?

28
Conclusion
  • Overall Indicators
  • Are we being led into recession?
  • Are we in a recession?
  • Perspective dictates pros and cons e.g. weak
    could lead to export led recovery

29
Conclusion
  • Corporate Finance
  • Still money to be found
  • Still deals to be done

30
Conclusion
  • Business
  • Some difficult decisions being made
  • Budgeting/ projections key
  • Cash is king
  • Good businesses still making profit

31
Conclusion
  • Temptation, is to feel like this

32
Conclusion
  • Better to take longer term view

33
  • Thank you
  • John Mitchell
  • Partner
  • 01872 276477
  • jmitchell_at_winterrule.co.uk
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