Finance in Cornwall 2015 Segment 1

F
Finance in
Cornwall 2015
“71% of SMEs approach
only one provider of
finance”
Richard Wadman –
Corporate Finance
Director

www.francisclark.co.uk
Presentations and other participants..
And more… (30 presentations in total, covering “full range” of funding and business support options)

Twitter
Follow us on twitter @francisclarkllp
Tweet about this event using
#FCFinanceinCornwall

Structure of morning
• Background, EU “calls” and the Banks (8:30am to 9:42am)
• LEP, Cornwall EU millions and “calls”
• Banks and SMEs
• Company presentation
• Grants, debt, equity and business support –
stratified by age of business (10:02 am to 11:22 am)
• Secured finance, alternative sources of finance,
business support (11.42 am to 1.00pm)
• State Aid
• Company presentation
• Q&A one to one / Networking (1pm to 2pm)

Scene setting - international
[Chair of US Federal
Reserve] said current
valuations, which have
seen key US and UK
indicators reach record
levels, were "quite high".
The Greek finance
ministry must pay
the International
Monetary Fund
€750m (£544m) on
Tuesday…
European stocks slide
on Greece concerns,
China interest rate cut
spurs Asian markets

Scene setting - National
• UK economy
• Recovering since 2013
• Slowdown in growth in 2014 due to
problems in Eurozone and
geopolitical uncertainties
• GDP growth of 2.5% to 2015
(supported by recent oil price falls)
and 2.3% in 2016
• Risks to UK growth “weighted
somewhat on the downside in short
term”
• Service sector to remain main
engine of UK growth
(PwC Economic Outlook – March 2015)

Scene setting - National
Election result “market and business reaction”:
• 2.3% jump in FTSE 100, 2.8% increase in FTSE 250 (all
time high); £51.3bn added to FTSE all share
• Sterling up 1.6% against Euro and 2% against US$
“Relief to be short lived as attention” turns to:
• Brexit and Scoxit
• Fiscal tightening
• High current account deficit, widening trade deficit to
£7.5bn
• Slow down in manufacturing

Scene setting – Cornwall and Isles of Scilly

Supporting SME Growth
Chris Pomfret
Chairman
Cornwall & Isles of Scilly LEP
Cornwall & Isles of Scilly is the natural place
to grow great business
www.cornwallandislesofscillylep.com @LEPCornwall_IoS
www.erdfconvergence.org.uk/growth-programme @GrowthProgramme

“We make doing business easier, in Cornwall and Isles of
Scilly.”
The View of SMEs
Kim Conchie
12th May 2015
Finance in Cornwall

Scilly.”
The National Picture 1 - Business Emotions
BBI website reveals business satisfaction with UK banks
LONDON, 28 November 2014 - Business Banking Insight (BBI), an independent
website which looks at how well the UK’s small and medium-sized businesses are
being served by banks and other finance providers, today unveiled its second
wave of research. Commissioned by the Chancellor and driven by the Federation
of Small Businesses (FSB) and the British Chambers of Commerce (BCC), the
updated BBI website publicly showcases the experiences of more than 15,000
businesses. It shows how they rate their banks and finance providers, with a view
to enhancing trust and transparency between the groups.
The research found that 14% of firms (one in seven) are ‘quite likely’ or ‘very
likely’ to switch to a different business current account in the next six months. The
vast majority (85%) of all businesses said they were ‘not very likely’ or ‘not at all
likely’ to switch provider in the same time period. The results were similar across
all business sizes, although the research found that the figure for
businesses likely to change banks was slightly lower for those with over
49 employees (11%).

Scilly.”
The National Picture 2 - Business Facts
Access to Finance
• Q1 2015 total lending to businesses rose by £5.9 billion; this compares to a
contraction of £4.1 billion over the same period in 2014 (Source: Bank of
England)
• Q1 2015 total lending to SMEs rose by £947 million; this compares to a
contraction of £1.1 billion over same period in 2014 (Source: Bank of England)
• 44% of would-be loan seekers state ‘discouraged demand’ main reason for not
applying (Source: BBI)
• But - Local solution in hand!

The Local Picture 1 – Cornwall Lenders’
Forum (CLF)
Scilly.”

The Local Picture 2 – What CLF is doing
Scilly.”
Chaired by Cornwall Chamber of Commerce
Implementing British Chambers’ and Cornwall Chamber’s
Manifestos, particularly:
Establishment of ‘Get Ready for Investment’ (GR4I)
programme for SMEs and Micros
Helping the creation of network of private investors
alongside lenders
CLF is unprecedented! Cornwall leads the way on collaboration
between lenders to help businesses.
This is a major step. We applaud the banks’ foresight.
Cornwall’s economy, our SMEs and the resilience of our Start-ups
will benefit.

Scilly.”
Thank You

“Banks are
lending”
Tom Roach
Partner
May 2015

• Total borrowing facilities
£110.7bn
• £29.2bn of new SME
borrowing approved 2014
• Facilities: structured term
loans (80%); overdraft use
(9%) and facilities undrawn
but available (11%)
• “Borrowing remained broadly
based across industry sectors
and geographic regions”
Banks and the SMEs (some more stats)
Source: BBA Bank support for SMEs – 4th Quarter 2014

Rates and Terms
Indicative interest rates on lending to SMEs

Case study 1
• Hotel purchase price £2m
• Loan £1.2m
• Mix of LIBOR and fixed rate
• Refurbished out of Cash Flow and additional loan of £150k @
2.75% over BBR
• Increasing EBITDA: £250k; £350k; £400k

Case study 2
• Building Co
• inconsistent profits of c £200k per annum
• Raising finance for Purchase of Own Shares
• £250k for 50% shareholding
• Personal Guarantees

Case study 3
• Purchase of pub lease from Punch
• Business had gone bust due to high rent being charged
• Purchaser - 2 with prior experience
• Funds from elsewhere
• £10k overdraft @ 3% plus base

Banks…
Overdraft
Term-loan
Mezzanine
Invoice discounting/ factoring
Stock finance
Asset finance
Letters of credit/International
Trade

International Trade
Business
Craig Pascoe

24
Typical payment methods
Bills for Collection
Least Secure
Most Secure
EXPORTER /
SELLER
Advanced Payment
Documentary Credit
Bills for Collection
Open Account
Most Secure
Least Secure
IMPORTER /
BUYER

25
The risks
Some of the main risks in international trade are:
Country Risk
• Political and economic stability
• Transfer risk/currency controls
• War and civil disturbance
• Import/export regulations
Commercial Risk
• Non-payment of invoices
• Delayed payment of invoices
• Insolvency of buyer
Industry Risk
• Demands for particular products
• Recession in particular industry
• Competitive products/pricing
• Fashionable or seasonal goods
Foreign Exchange Risk
• Fluctuating exchange rates affect pricing and profit
Performance Risk (Exporter)
• Problems in producing correct documentation
• Failure to supply goods in accordance with the sales
contract
Transportation Risk
• Risks associated with the mode of transport e.g.
marine risks
• Storage facilities in ports
• Delayed shipment

26
Example Trade cycle
Documentary Credit

27
Case Study
 Importer of Electronic consumer goods.
 Annual purchasing £2m.
 Stable Stock requirement throughout the year
 Terms of trade 30% deposit with order along with 70% prior to shipping.
0 30 60 120 180
Potential funding solution:
Preshipment loan Clean Import loan Cashflow / Invoice Finance
30%
Deposit
Paid
Goods shipped
70% Balance paid
Goods arrive UK
and Stock
Stock sold
invoice raised
Funds received
invoice paid
30 day pre-shipment
loan
30% £2m *30
Days/365 = £50k
60 day post shipment loan
£2m *60 days/365 = £329k
Loan repaid funded
by cash flow /
invoice finance

28
Case study continued
Total required facilities assuming starting from a zero balance £379k:
 Structuring the facilities where by the bank has a detailed understanding and control of the
location of the use of the funds.
 Supporting non-financial information:
– Manufacturer’s details – understand their track record, alternative providers should if required.
– Currency being paid, RMB, USD, Sterling, is there a natural hedge or is there a consideration for forward
contracts.
– Whilst there is a total limit each loan is drawn down and repaid over total of 90 day period, so if stock slowed
down and cash not present to repay the loan we can review the structure to establish the cause.
Alternative solutions:
 Documentary Credits (LCs) with or without usance terms where by could replace the
requirement for pre-shipment loan and or reduce the term of the import loan requirement.
 Negotiate better terms with supplier.
 Cash generation from profits of the company self funding the assets.
Security requirements:
 Reviewed on a case by case basis, as a minimum Debenture and General Letter of Pledge.
 Depends on the quality of information and strength of the trade cycle and business.

29
Craig Pascoe
International Commercial Manager
South Devon and Cornwall Commercial
Vivian House
Newham Road, Truro, TR1 2DP, Cornwall
Tel: 07920417665
E-mail: craig.j.pascoe@HSBC.com

Using your Debtor Book to
Fund Business Growth
Bruce Pedrick
Relationship Director, Cornwall
Lloyds Bank

What is Invoice Finance?
31
• Funding Unpaid Sales Invoices
for goods delivered and
completed work / services
• Releases cash immediately from
an invoice rather than waiting
30/60/90 days
• The Debtors are the Security for
the Lending
• Businesses operating B to B
only
restructure start-up
maturity growth

Eligibility
• Can only “fund” Business to Business Debtors ie Invoiced Goods & Services
• Your customers must be invoiced after the services are complete or the job is done ie in arrears
• Common sectors using Invoice Finance:
» Manufacturers
» Engineering
» Wholesale, Importers, Distributors
» Transport, Haulage, Couriers
» Print trade
» Cleaning Contractors, Employment Agencies
 Challenging sectors/issues:
» Double Glazing – extended warranties
» Professional Services – extended credit sometimes offered
» Staged payments, contractual obligations
 A few Invoice Finance Co’s now offer facilities with no Minimum Agreement Period

Brief History of Invoice Finance
• Introduced to UK in 1960’s from the US where it had been well established for
many decades
• Grown rapidly in recent years
• Currently used by c 44,000 businesses in UK
• Approx. £20Bn worth of Advances made by Invoice Finance Co’s to UK
Businesses currently – now exceeds Overdraft lending
• Now a popular alternative to “traditional financing” ie loans/overdrafts
• It’s not linked to your Bank and often provided by another bank or freestanding
provider

How does Invoice Finance work?
Business
Customer
(debtor)
Availability
Inv Fin Co
order goods and invoice
invoicedetails
% of invoice
value
invoicepaid
remaining
% of
invoice paid
34

Two Main Types of Facilities
Factoring (also Full Service Factoring)
– More appropriate for start-up/smaller businesses
– Your clients would be aware that you are using this form of finance
– Factoring Company would manage your Debtor Book/Credit control ie send letters of
reminder, chase slow payers etc
Invoice Discounting (also Confidential Invoice Discounting)
– Where your business has sound Credit Management, good admin and appropriate accounting
systems in place
– Business retains control of Debtor Book with minimal change to your routines
– Confidential – your Debtors (customers) would not be aware that this facility/funding is in
place

Key Benefits
36
Invoice finance is a flexible way of providing your business with the working
capital it needs by receiving up to 90% of the value of your approved unpaid
sales invoices, often within 24 hours. Once your customer settles the
invoice, you get the balance
• Allows the Business to grow as the facility is linked to Sales/Debtors
and therefore avoids overtrading
• If your business is growing fast but you have few traditional assets
such as property to secure increased borrowing requirements you
can use Invoice Finance to fund that growth
• Uses a Business asset ie Debtor Book to secure Business borrowing
(ie not reliant on the family home as security)
• Instant cash injection or predictable cashflow helping you to plan
ahead more confidently
• Access to advice on customer credit ratings and expert help with
overseas customers
• Optional Credit Control Support Services/Debtor Insurance to
provide additional comfort
• Interest rates are similar to Overdraft rates but additional charges re
Credit Management/Invoice auditing

Summary
• Real alternative to traditional Overdraft – potentially higher costs but consider
additional profit that could be generated from increased working capital
• Uses business assets rather than personal assets to secure
• Effective way to fund growth in a business
• Often used in restructuring, MBOs etc
• Retain 100% ownership of business/shares
• Eligibility criteria!
All the high street banks will offer these solution so speak to your Bank Manager for
further information

A Phoenix…or three!
Mark Sullivan

• Two major turnarounds, three leading brands,
safeguarding flagship Cornish businesses
• Cornish Sea Salt, a young, innovative company
• Warrens Bakery/Simply Cornish, Cornwall’s
oldest commercial bakery & the World’s
oldest pasty producer
• Locally controlled, with stability and growth
Key pieces of a new jigsaw
Background

• 2011, in need of repositioning!
• Challenges with team, strategy, technology,
products, customers, territory
• New team, with international outlook
• Diversification, away from UK supermarkets
• Development of new, parallel technology
• Creation of flake, in addition to granular
• 2015, supplying 26 countries across the globe
Cornish Sea Salt

• Strong top line growth
• Producing 10 tons/week versus 5 tons in 2014
• Scope to leverage brand and diversify into
broader range of added value products
• Targeting international markets through retail,
wholesale, food manufacture etc.
‘Centre of excellence’ for eco
commercialisation of the sea
Repositioned

Seaweed & Sea Peppers™
…Sprinkle the goodness of the Sea
Our seaweed and novel sea pepper ™ blends are truly unique. Innovative and
consumer friendly, at the cutting edge of ingredients and seasonings.

• 2012, tired brand, cash depleted, no BRC!
• New, winning brand, ‘contemporary heritage’
• Upgraded facility and BRC Grade ‘A’
• Excellent business leaders - retail and
trade/wholesale - delivering strong growth
• Supported by LEP, endorsement at key time
• 2014, growth-oriented banking partner,
Santander (‘Breakthrough’ facility)
Warrens Bakery

•World’s oldest pasty producer (1860)
•Cornwall’s oldest commercial bakery
•Unparalleled provenance
•Handcrafted/Master Baker traditions
•Full spectrum bakery, not just pasties
(savouries, sweet, biscuits, breads, seasonal)
•Unique set of tools for expansion
•Top line growth 30%+ for rebranded stores
Key strengths

Oldest pasty producer globally

• 50 retail stores: Cornwall, Devon & Somerset
• Two production sites, St Just & Plymouth
• Approx. 500 jobs saved in turnaround
• Three-tier strategy - retail, trade, international
• Retail; broadly-based handcrafted bakery, set
to expand locally, but also eastwards/London
• The best of the West, representing Cornwall
with quality and integrity
Overview

• Trade & wholesale arm of Warrens Bakery
• Different brand for different markets
• Not a commodity pasty producer
• Breadth - savouries, muffins, tray bakes,
scones, biscuits, seasonal products
• Supplying Waitrose, National Trust, Fortnums
• Contemporary, innovative and fast-moving!
Set for international expansion
Simply Cornish

• Vision, as well as strategy
• Innovation, as well as tradition
• Global, as well as domestic
• ‘Best in class’, not commodities
• Leaders drive growth and profitability
• Growth and profitability drive job creation
• Focus – innovation, premium skills,
international markets, cross-fertilization
Differentiation

• Platform for growth, able to fund highly
skilled staff, innovation and growth
• Means of extracting synergies across a
portfolio of businesses – capital, customers,
staff, products, strategy etc.
• Growth engine for Cornwall & West Country
for the long-term, not a 3-5 year project
‘PROVENANCE BRANDS’
Where next?

Innovation and cross-fertilization

Provenance Brands (rationale)
• SME’s frequently flat-line
• Unable to attract breadth/depth of skills
• Unable to fund technology/innovation
• Unable to attract capital (equity, debt)
• Uncertain how to generate value
• Unable to realise value without sale
• Desire to safeguard legacy/heritage

Provenance Brands (model)
Provenance
Brands
?
Simply
Cornish
Warrens
Bakery
Expansion
Eastwards
? ?CSS
Ingredients
?
International
Management
Finance
Capital

Provenance Brands (value cycle)
Synergies
Liquidity
Partnerships
(preserving heritage)
Value creation
Capital
Senior skills
Scale

• Potential to become a publicly listed flagship
• Local HQ, but an international business
• Portfolio of exciting brands
• Growth agendas, with diversity
• Leaders working across a portfolio
• Supportive umbrella, driving synergies,
growth, value, capital, liquidity etc.
‘Pride in provenance, purity and performance’
Provenance Brands (vision)

(c) copyright Francis Clark LLP, 2015
You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within
your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by Francis Clark LLP in any format whatsoever unless you
have obtained prior written consent from Francis Clark LLP to do so and entered into a licence.
To the maximum extent permitted by applicable law Francis Clark LLP excludes all representations, warranties and conditions (including, without limitation, the conditions implied
by law) in respect of these materials and /or any services provided by Francis Clark LLP.
These materials and /or any services provided by Francis Clark LLP are designed solely for the benefit of delegates of Francis Clark LLP. The content of these materials and / or
any services provided by Francis Clark LLP does not constitute advice and whilst Francis Clark LLP endeavours to ensure that the materials and / or any services provided by
Francis Clark LLP are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by Francis Clark LLP; nor do we commit to ensuring
that these materials and / or any services provided by Francis Clark LLP are up-to-date or error or omission-free.
Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations
on the re-use of Crown copyright extracts in England and Wales.
These materials and / or any services provided by Francis Clark LLP are subject to our terms and conditions of business as amended from time to time, a copy of which is available
on request.
Our liability is limited and to the maximum extent permitted under applicable law Francis Clark LLP will not be liable for any direct, indirect or consequential loss or damage arising
in connection with these materials and / or any services provided by Francis Clark LLP, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit,
contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other
liability is not excluded or limited.
Disclaimer & copyright

Finance in Cornwall 2015 Segment 1

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (10)

Similar to Finance in Cornwall 2015 Segment 1

Similar to Finance in Cornwall 2015 Segment 1 (20)

More from PKF Francis Clark

More from PKF Francis Clark (20)

Recently uploaded

Recently uploaded (20)

Finance in Cornwall 2015 Segment 1