Title: John Mitchell
1 2Cornish Business and the Current Economic Climate
The View from here
3Agenda
- Context
- Overall indicators
- Sector specific information and
- Conclusion
4Context
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
5Context
To put it bluntly, this year we are probably
facing a period of above target inflation and a
marked slowdown in growth Mervyn King
6Context
Extract from the letter from Mervyn King to the
Chancellor June 2008
7Context
8Overall 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
9Overall 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
10Overall 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 -
11Overall 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?)
12Raising 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?
13Sector Specific Information Tourism
- General points
- Less disposable income
- Weak / Strong
- Were doing well until May
- Quality providers still doing well
- Problem Summer
-
14Sector Specific Information Tourism
- Generally down on previous year(s)
- Its cyclical and
- Winter Rule maintain database of occupancy rates.
15Sector Specific Information Tourism
- Winter Rule Statistics (based on a representative
sample of hotels covering the whole of Cornwall)
16Sector 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)
17Sector 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
18Sector 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?
19Sector 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
20Sector 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
21Sector Specific Information Agriculture
- Most significant variable costs increased
- Feed up 55
- Energy up 44
- Fertiliser up 144
- Consequently optimism now dampened
22Sector Specific Information Agriculture
- Livestock
- Beef and Lamb prices increased moderately
- Farmers still making a gross loss
23Sector 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
24Sector 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
25Sector 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
26Sector Specific Information Agriculture
- Total farm incomes Total net profit
- 1995 7bn
- 2007 3bn
- Peak in 2005 desperate since
27Sector 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?
28Conclusion
- 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
29Conclusion
- Corporate Finance
- Still money to be found
- Still deals to be done
30Conclusion
- Business
- Some difficult decisions being made
- Budgeting/ projections key
- Cash is king
- Good businesses still making profit
31Conclusion
- Temptation, is to feel like this
32Conclusion
- Better to take longer term view
33- Thank you
- John Mitchell
- Partner
- 01872 276477
- jmitchell_at_winterrule.co.uk