By Aaron Hughes, Managing Director of Equiniti Riskfactor, a leading provider in the commercial finance industry, examines the SME lending market for the coming year and the importance of risk management to lenders.
This time last year,I only made one prediction with any degree of confidence – that at some point, the UK’s future trading relationship with the rest of the world will be settled, and confidence and stable growth would return.
And I still stand by this a year later!
2019 was a tough year – for business and lenders alike. Although final quarter figures are not yet available, annual UK growth to September was just 1%,and both August and September showed a contraction in the economy.
Atradius are predicting 2019 to have had a 10% increase in business insolvencies – the highest rate in Western Europe – with a further 5% increase next year.
Meanwhile the Bank of England have revised downward their forecast for growth for next year to just 1% – and that is dependent on the end of Brexit uncertainty, an orderly transition from the EU, and businesses being properly prepared.
In this context, it is hardly surprising that the EY ITEM Club outlook on business investment shows lending growing by just 2.1% in 2020, the lowest level since 2015.
Away from these dry statistics and speaking to our customers in the Invoice Finance community, I pick up a sense of what these numbers actually mean.
The last 12 months of uncertainty has squeezed SMEs even further.Some of the very limited growth we have seen has come about only because of businesses increasing stock levels to protect themselves against potential Brexit related supply chain issues.
This has been a cause of cash flow issues for some,but in a shrinking economy, for others the increasing cost of materials,and the ever-worsening risk of bad debts,create particularly difficult trading conditions.
Amongst SMEs who use invoice finance,some of the cash flow bottlenecks can be smoothed out with the flexibility a receivables-backed facility can offer. But a bad debt or a drop in turnover can quickly lead to a crisis.
From the lender perspective too, increased competition in a market where lending growth is slowing means some challenging strategic decisions need to be made.
We have seen lenders responding by scaling back their risk profile, some withdrawing from whole sectors. Butothers have taken up the slack, flexing their risk appetite to take market share.
This has led to healthy competition in the market -and not just for the better-quality invoice finance deals. Higher risk,less “traditional” deals are also being chased, and across the board we are seeing some downward pressure on fees.
As a result, everyone is looking to improve their efficiency and safely manage more accounts with the same or reduced headcount. Consequently, we are seeing increased demand for Equiniti Riskfactor services – for our core risk management products from new lenders and for our additional modules from existing customers.
Equiniti Riskfactor products are built to support invoice lenders in these uncertain times. Client failure and fraud are increasing risks, while cost pressures and the need to maintain market share are key strategic drivers.
Having the tools at your disposal to safely support increased lending to the SME sector in 2020, with greater efficiency, will ensure those strategic goals are met,which will in turn help SME’s navigate potentially choppy and uncharted waters ahead.
Siemens Healthineers gains EU nod for $16.4 billion Varian buy
BRUSSELS (Reuters) – EU antitrust regulators on Friday cleared with conditions Siemens Healthineers’ $16.4 billion acquisition of U.S. peer Varian, paving the way for the German health group to become a world leader in cancer care therapy.
The European Commission said Siemens Healthineers pledged to ensure that its medical imaging and radiotherapy equipment will work with rivals in return for its approval, confirming a Reuters story. The pledge is valid for 10 years.
“High quality medical imaging and radiotherapy solutions are crucial to diagnose and treat cancer. The efficiency and safety of treatment relies on the ability of these products to work together,” European Competition Commissioner Margrethe Vestager said in a statement.
Varian is the leader in radiation therapy with a market share of more than 50%. The deal received the U.S. antitrust green light in October last year.
(Reporting by Foo Yun Chee)
Battling Covid collateral damage, Renault says 2021 will be volatile
By Gilles Guillaume
PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.
Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.
“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”
De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.
The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.
Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.
Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.
The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.
The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.
Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.
“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”
Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.
The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.
Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.
The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.
In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.
Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.
Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.
Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.
It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.
De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.
($1 = 0.8269 euros)
(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)
UK delays review of business rates tax until autumn
LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.
Many companies are demanding reductions in their business rates to help them compete with online retailers.
“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.
Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.
($1 = 0.7152 pounds)
(Writing by William Schomberg, editing by David Milliken)
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