Category: Member News

Due to the unforeseen circumstances that the COVID-19 pandemic has caused, several government support measures have been provided to aid businesses in the UK. As we navigate the pandemic it is inevitable that these measures will end at some point.

The attached article created by DLA Piper explore the key dates which all boards and financial stakeholders must be cognisant of. It also identifies some of the tools which are available to address overburdened balance sheets.

Please use this link to access the article: COVID-19- What next for distressed companies and their stakeholders

In the September edition of Swift, The IFT’s quarterly magazine, you can read about our upcoming IFT events and articles, our National Conference that was held in July 2020, the candidates up for election at this years Annual General Meeting, as well as articles written by members and corporate partners.

To view and download the latest edition of Swift CLICK HERE

If you are interested in contributing to the next edition of Swift please email RDAVIES@THE-IFT.COM

Many businesses have faced financial difficulty as a result of the COVID-19 lockdown, with SMEs being hit particularly hard. We have created a roadmap with IFT corporate partners Playfair Partnerships Ltd, which shows the critical points ahead for SMEs as we enter this new post-lockdown period. You can download the infographic in PDF format here.

Susan Moor, Director of FRP Transition, reviews the current state of play in the interim market, and provides her insight on what the future may hold as we move further out of lockdown.

It goes without saying that for many sectors, the implications of lockdown in the long-term are still unclear. As the situation has progressed and we have begun to gain more clarity since those first initial weeks of uncertainty, clear strengths and limitations have emerged as some industries fare far better – or worse – than others.

Encouragingly, we are working with a number of new government aid schemes and policy changes that are designed to stabilise and stimulate the economy.

It’s similarly encouraging to see that according to the Institute of Interim Management’s (IIM) latest survey, half of all interim managers who had a role at the time of lockdown kept their contracts. However, there was a clear divergence in terms of the scope of that role, and an emerging pressure on them to lower their daily rate.

The IIM suggests that on the whole, a fifth (20%) of all interims had their roles terminated immediately, as some projects were put on pause across many sectors and business sizes. The survey also reported that interim providers saw a 60% drop in the number of roles available and in the Midlands, however according to interim agency Greenwell Gleeson, this was closer to 70%, due to the dominance of the highly impacted automotive and aerospace sectors in the region.

Another influencing factor that many firms reported experiencing was a concern about how appointing an external, paid expert may be interpreted, particularly when many of the business’ employees were enrolled on the government’s furlough scheme.

The interims that we have spoken to are going above and beyond to support their local business communities or ex-clients. This support has included completing the requisite information applications for government support, making sure cashflow forecasts and business plans offer a sensible track back to normality, and ensuring and offering reassurance that payments will be met.

Remarkably, it is touching to see that much of this work appears to have been done at discount or even entirely pro bono.

The interim assignments taken on during lockdown have been of business-critical importance rather than just a request for remote help. The roles have not necessarily been related to Covid-19 but to external factors, such as fraud, dismantling a joint venture (JV) or maintaining a long-planned Systems Applications and Products (SAP) rollout. Turnaround and restructuring roles have not come to the fore as yet, though it is suspected we might see those appearing later on in the last quarter and the first quarter of 2021.

Looking back over the past 12 months, the biggest change in the market has been the origination of interim introductions. In a move away from the traditional avenues of introduction through bank support and instead towards commercial discounters and private equity funds.

So, what does the future hold for the independent interim? Putting aside the historically quieter month of August, and looking ahead at September, we expect we will start to see interim assignments being brought back to life, with shareholders and investors waking up to the issues caused by the circumstances of the past six months.

We can see this manifesting itself firstly in the finance functions, and if they can be stabilised, then operational roles will follow, as businesses begin to change their operating models as they move forwards and adapt to thrive in the new normal we are building around us.

Private equity, distressed and mainstream funds are gearing up for acquisitions to buy or ‘bolt-on’ assets – either capitalising on insolvencies, attractive valuations or the opportunity to create scale. This could mean the creation of more operational and financial due diligence roles, followed by the subsequent introduction of integration and/or further turnaround roles.

This is a tough environment for business all over the world, however we should be encouraged by the signs that the market is coming back, albeit hindered somewhat by a cautiously slower pace of decision-making.

With perseverance and a more brave and forward-thinking approach, we can continue to weather this storm and rebuild for a future with a new perspective on business, restructuring, and the role of the interim manager.

About FRP

http://www.frpadvisory.com

FRP Advisory Trading Limited, which is a whole owned subsidiary of FRP Advisory Group plc, provides a professional and considered approach to problem solving. With 56 partners and more than 380 staff operating from 18 offices across England and Scotland, FRP is one of the UK’s largest independent business advisory firms specialising in corporate restructuring, corporate finance, forensic services, pensions advisory and debt advisory. It has a strong reputation and track record for creating, preserving, and recovering value across a range of complex situations. Its advisers work at board level, with investors, lenders, government and regulatory bodies, plus other professionals and individuals requiring professional support. FRP provides a wide range of services, as well as specialist industry experience to enable the delivery of sector specific solutions.

Contact

Created on behalf of FRP by Citypress.
For more information please contact:
Calum Anderson

Calum.anderson@citypress.co.uk
M: +44 (0)131 460 7922

Property costs are typically the second highest on a Company’s balance sheet and represents a great opportunity for cost reduction initiatives.

The UK Commercial property market has been through turbulent times recently as occupiers have been forced to close their properties and this has resulted in a reluctance by many to pay their rents.

Industrial property seems to have weathered the storm well in terms of rent payments being made to landlords. This is probably because many occupiers were able to maintain some trade/manufacturing from their premises in socially distanced small staff bubbles working shift patterns.

In contrast, retail and hospitality seem to have been the hardest hit with many either entering into insolvency or having ongoing conversations with their landlords about their rent payments. Many are seeking to negotiate moving to turnover rents where the income they generate is shared (as a percentage) with the landlord as rent.

Office occupiers have also had to close their doors and many of the large corporate occupiers (Standard Life, BT and Google) are not expecting their staff to return to the office until next year. The Chief Executive of Barclays recently stated the era of a single office buildings housing several hundred staff members in city centres may be a thing of the past!

So with so much stress what can be achieved if property costs represent a great opportunity to reduce overheads. The first has to be rent.

The Government has stepped in with the Code of Practice for Commercial Property Relationships (published in June 2020). This voluntary code asks landlords to act reasonably, swiftly, transparently and with good faith. It is a useful document that helps occupiers to understand some of the opportunities available including full or partial rent free periods, deferral of rent for a certain number of rent payment periods, monthly as opposed to quarterly rent payments and or conversion from market rents to turnover rents.

Other opportunities include the re-gearing of leases where there is maybe a break clause or lease expiry. This is particularly powerful where there are common landlords and you can negotiate across a portfolio of properties through surrendering a less profitable property location in conjunction to extending the lease to a more profitable property.

The Government has recently announced changes to the Permitted Development Rights for a wider range of properties. This was changed many years ago to permit the change of use from office to residential. It is hoped the relaxation of the rules will allow alternative and higher value uses to be created. This can help unlock value in any landlord negotiations where the tenant can assist in ‘unlocking’ the value from the freehold property in return for a lease surrender.

Property costs are typically the second highest cost on a Company’s balance sheet and one that presents some great opportunity for cost reduction.

 

 

At this years National Conference, Tom Simmons of Deloitte gave his expert insight on the challenges facing the UK economy as a result of the COVID-19 pandemic and what the road to recovery may look like. Here, Tom shares his thoughts from the conference.

The UK economy grew by 1.8% in May from the previous month, a slower recovery than was anticipated after recording an historic 25% contraction between February and April. The easing of the lockdown in June and July should deliver a strong increase in activity, and we are forecasting growth in the third quarter to claw back close to half the loss of GDP sustained in the second quarter.

However, the pace of the recovery to pre-crisis levels of activity is likely to be slow; we do not expect the economy to recover to its pre-pandemic size until the summer of 2022. Concerns about COVID-19 and a highly uncertain economic backdrop mean that many consumers are likely to remain cautious. Production may struggle with supply chain disruption, changes to processes required by social distancing and shifts in demand. Businesses seem likely to remain in defensive mode with a focus on cutting costs. A perception of increased risk is likely to weigh on travel and some leisure activities.

For corporates, the pandemic overshadows all other causes of concern. The 2020 Q2 Deloitte CFO Survey shows CFOs rate it as the greatest risk facing their businesses – and by a wide margin. Against a backdrop of elevated uncertainty and very weak demand, CFOs are firmly focused on protecting their balance sheets by bearing down on costs and building cash. Official data confirm that corporates’ are building cash reserves, and at the fastest pace on record. Views on corporate leverage have changed too. In the last ten years, CFOs have been relaxed about levels of corporate debt. But, following a recent surge in borrowing, the balance of opinion among CFOs is that corporate balance sheets have become overleveraged.

Increased levels of corporate debt and a rise in unemployment will hamper the growth potential of the economy. Much will depend on the behaviour of the virus, with the biggest risk to the outlook being a second wave of infections and further lockdowns. But the vast and unprecedented policy interventions could generate a faster snapback, with pent-up demand surging as restrictions are loosened. The recovery will need more help. Yet, reduced and shaky though it is, the UK economy is starting to recover.

 

 

Here, IFT Member, Phil White discusses the importance of becoming ‘turnaround-ready’ post-Covid and the advantages of seeking external expert help.

Do SME (Small/Medium Enterprise) Boards really have a grip on the scale of:

a)      Post-Covid impact on their business?

b)     The scale of turnaround and transformation needed to rebuild  competitiveness post-Covid?

c)      The speed and effectiveness required to find and get the right expert support to get there?

95% of 632 SME Board respondents to a highly enlightening  Directorbank survey in May reported that Covid-19 had affected their business (40% seriously), and 96% said 2020  trading would be difficult throughout 2020. The survey concluded Covid-19 will have a “devastating effect to the prosperity of UK SMEs”.

Furthermore, 45% said they had made, or are likely to make redundancies, and expected to make redundancies,  and 55% of senior management were already on reduced wages. 72% would need to rewrite their business plans.

Yet very surprisingly, only one fifth of the survey respondents plan to seek external expert help.

Remember the definition of insanity  attributed to Einstein of doing the same thing over and over again (with the same people) and expecting different results?

Without outside help to stimulate new ways of addressing the crisis, the vast majority of our UK Boards surveyed could be left exposed and wanting. 80% surveyed are relying on the same top-level management resources, expertise and creativity to  get them through the most challenging economic and business environment in nearly a century.

It seems the vast majority of Boards understand the impact, but may be under-prepared and under-equipped to find the scale, speed and effectiveness of the turnaround and transformation remedy that businesses may well require.

So how can Boards rapidly bridge the gap of understanding and action, and assess the scale of the turnaround and transformation needed?

A quick internal business health-check across all company workstreams is essential to get Board consensus on what is required before going to the right kind of external help which is highly likely to be required.

The Institute For Turnaround (IFT) is an independent body, free at point of access, which can advise on sourcing facilitators and turnaround specialists to help in this exercise and in the turnaround and transformation work to identify and source beyond.

Getting external and independent leverage and expertise to the Board health-check is vital to avoid the “insanity” of applying same methods and thinking even more so in this time of economic crisis and upheaval.

An informed, independent view is essential to avoid subjectivity, provide fresh thinking, identify and breakthroughs needed in turnaround. New eyes and ears provide fresh dispassionate thinking, insight, impetus and energy, can help ask the “stupid” and simple questions, override vested interests and politics, and provide vital specific and technical expertise and experience. Too much knowledge of the business and status quo at this point can often be a dangerous thing.

The Directorbank survey findings point to a huge “action gap” with only 20% of SME businesses expecting to take on external and interim management or consultancy support to solve what at least 95% of respondents see as a significantly adverse impact on their business Post-Covid.

When we see so many of our SME’s not prepared to take sufficient action we are reminded of Theodore Roosevelt’s words, “the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing”.

Assuming that the alarm bell of a potentially very large post-Covid action gap is now firmly ringing across our SME businesses and beyond, we can start to explore the main “go-to” options for where to seek help. I will follow up with a brief discussion paper on this next week.

Phil White MA (Cantab), FCA – pwcltd1@outlook.com

Institute for Turnaround accredited turnaround professionals ready to deliver business rescue offered in new insolvency legislation

-Legislation provides breathing space to turnaround businesses and avoid unnecessary insolvencies

-New moratorium requires hands-on turnaround skills

-IFT accredited professionals with a successful business turnaround track record are well placed to ensure success

The IFT welcomes the passage of the Corporate Insolvency and Governance Bill, providing a breathing space for struggling but ultimately viable businesses to survive and thrive, during and beyond the unprecedented Covid-19 pandemic.

Steve Swayne, Chair of The Institute for Turnaround said:

“The Government has acted decisively to introduce legislation to respond to the immediate business challenges of Covid-19 and embed a longer-term rescue framework to avoid unnecessary insolvencies.

The UK benefits from world leading turnaround practice and our rescue community is well placed to use the new framework to save struggling businesses for the benefit of workers, shareholders, creditors and customers. With the situational leadership, operational management and financial restructuring skills required to transform struggling businesses, IFT accredited professionals look forward to working with businesses to grasp this opportunity for the benefit of the business and people of the UK”

The ‘monitor’ in the moratorium process, who must be a licensed insolvency practitioner, will be accountable for providing assurance that the rescue of the company is both achievable and on course. The IFT would urge that the skills of accredited professionals, with a proven record in changing the fortunes of distressed companies, are used in this new process. This includes working alongside management teams to deliver the turnaround objective and providing assurance to stakeholders, including the monitor and creditors, that the turnaround is on track.

During the more benign economic conditions of 2019, we estimate that our members saved in excess of 200,000 jobs and £2bn in enterprise value. The new moratorium provides the opportunity for IFT members to take an active role in supporting struggling businesses to turn around, saving jobs and value for all stakeholders. Our accredited turnaround professionals urge early intervention as the best means of securing success and avoiding unnecessary insolvencies, for the benefit of all stakeholders and UK PLC.

You can read and download our full media release here.

For further press information please contact:
Francesca Rivett-Carnac (francesca@standagency.com / 07966 227 390)
Grace French (grace@standagency.com / 07906 630 501)

In the Spring edition of Swift, The IFT’s quarterly magazine, you can read about new IFT members, the forthcoming Societal Impact Project, upcoming IFT events and webinars, as well as articles written by members and corporate partners.

To view and download the latest edition of Swift click here

If you are interested in contributing to the next edition of Swift please email RDavies@the-ift.com

 

David Tilston, listed company CFO and IFT member, shares his insights on a liquidity key lesson at times of crisis: build a rolling cashflow.

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I have dealt with a number of liquidity situations in the past, ranging from the severe to the potentially terminal. I pass on one useful lesson I have learnt.

The lesson

Get a 13 week rolling cashflow forecast started as soon as possible, ideally this week, and update it weekly.

What is a 13 week rolling cashflow forecast?

It is a forecast which starts from a confirmed cash position (normally at the end of the prior week) and forecasts your cash balance at the end of each of the next 13 weeks. It is based on explicit assumptions around the cash receipts (normally from customers) you expect to receive, and the cash payments (including salaries, supplier invoices) you expect to make.

Why is it important?

It gives you a forward looking view as to your liquidity and whether you are in danger of running out of cash in the short term. If you are, then at least you can see when and decide what actions you need to take.

If you want to seek help from your lenders then you will be asked to produce a 13 week rolling cashflow forecast, and they may ask an external firm to review it. If you cannot produce such a forecast, then your lenders will have less confidence in the company being able to manage its liquidity position. In addition, it will give the lenders some perspective on how quickly they need to act and the potential amounts they might need to lend in the short term (possibly whilst a longer term solution is being worked on). If you are asking the lender to put in a large amount of cash next week, they may withdraw their support. The longer the notice period to the lenders, the more opportunity they have to potentially be supportive.

Some typical responses and how to deal with them

“We do not have time to do this” – It is much better to have a blunt forward-looking view of cashflows rather than a detailed backwards-looking analysis of performance, as the latter does not help you take the requisite cash preservation decisions in time. If you are not forecasting cashflows then you are not going to see with clarity an emerging problem which may be approaching rapidly, and this will not be good for credibility with your lenders should you have to speak to them.

“The forecast will be wrong” – this is absolutely correct as some assumptions and all forecasts will be wrong. However, the more you do it the better you will get at it.

“Why do I need to update it weekly?” – Firstly, so you can reconcile your week 1 forecast to the actual outturn 7 days later and understand where your forecasts were wrong (and therefore how to improve them). Secondly, you want to understand how your forecasts are evolving over time, and this is most easily done by graphing several of the forecasts on a weekly basis (as shown in the graph below). If the forecasts are generally consistent over a number of weeks and you project closing cash balances within a reasonable tolerance, then you can have greater confidence in your forecasting ability. If forecasts are continually ahead of reality and being downgraded (as shown in the graph) then that is probably a warning sign your assumptions are too optimistic.

 

Continue reading “Liquidity – a lesson from past crises by David Tilston”