3 October 2012

Week ending 28th September 2012

I am now returned from a very relaxing holiday in Mallorca where I managed to remain oblivious to anything that was happening in the world outside of the small area of my hotel pool and nearest beach. Ignorance is indeed bliss and I can thoroughly recommend it.

Party Time

On my return I find we have entered the political party conferences season. People we only ever seem to see or hear from at this time year seize their moment to tell us what they think will be good for the rest of us. The fact that they can actually say some of these things in public without embarrassment is a demonstration of the almost infinite human capacity for self-delusion. But hey that’s what politics is all about!
However I have to give credit to Nick Clegg for going against this political norm in his closing speech to the Lib Dem conference. “If we fail to deal with our debts and tackle the weaknesses in our economy our country will pay a heavy political price. But the human cost would be higher still. Not only would we fall behind internationally, we would leave a trail of victims at home too”. This to my mind is going further than any other politician to date in demonstrating real leadership and being prepared to tell it like it is to both his party and the voters.
However this moment of real leadership did not last long, because when it comes to what we should actually do about it the best he can come up with is the idea of a mansion tax. He is positioning the Lib Dems as the party of “fairness”. So anything that sounds like “fairness”, even if it is of no practical use in dealing with the problems of the economy is going to get his backing. That’s politics Mr. Clegg not leadership and many voters can tell the difference.

Banking on the State

Another highlight of the Lib Dem conference was Vince Cable’s announcement of a £1bn state backed Business Bank. I would bet that when they first took office no member of the coalition government, Tory or Lib Dem, would ever have thought that they would find themselves setting up a state bank. However the government has finally had to accept that there is a failure in the market for finance for small business that is not going to be addressed by the big banks.
Whilst I accept the need the whole idea of a bank run by the government makes me nervous. Danny Alexander, Chief Secretary to the Treasury has promised that the bank will be “fast tracked” into existence. However what he means by this is the legislation required to bring it into existence. I accept he might know how to do that, but I am not at all sure that he or any other politician knows how to run a business bank. We need to know a lot more about how it is actually going to work before we can have any confidence that it will.

Oh BUMi!

Not a good week for Nat Rothschild whose stake in Bumi Resources lost another 25pc having lost 33pc the previous week. Bumi is an Indonesian mining and natural resources business that Rothschild bought in to using a cash shell for which he raised £707m with a London listing in 2010. By changing the name of his cash shell to Bumi, Rothschild achieved a London Stock Exchange listing for the Indonesian Company.
Bumi’s main shareholder is the Indonesian Bakrie family and it is now apparent that their corporate governance fell short to say the least. Missing funds, “development assets” that are nothing of the sort and compensation liabilities are just a few of the problems that have come to light in a document sent to the board by a whistleblower.
Regular readers of these articles might expect me to launch into a scathing criticism of Nat Rothschild. It certainly appears that the words “due diligence” didn’t feature in support of his boasts that investors would make “two or three times their money”. However Rothschild is what he is, a merchant adventurer and they don’t do things like due diligence. If you get involved with this type of business person you might make a lot of money or you might lose the lot. He has lost his own money as well as other people’s in this venture. But the city knows Rothschild and they know what he is like, so why was the London listing allowed? Could it be that the chunky fees involved have once again enabled greed to triumph over common sense?

Nothing is forever

Another company with bad news last week was model train maker Hornby. A combination of disappointing sales of Olympic merchandise and disruptions in delivery of products from a Chinese supplier, will wipe out any profit for this year. Hornby shares fell by a third.
For Chief Exec Frank Martin, following disappointing Christmas sales and poor final results announced in June, this could be the third strike that signals out. However it is the Chinese supply situation I find most interesting.
When Hornby switched all their manufacturing to China they appeared to have solved their cost problems and acquired the ability to produce product with the level of detail that customers wanted. The company went from strength to strength on the back of this strategy. However its Chinese supplier has passed from one owner to another and is now struggling to cope with the problem of rising costs.
The Chinese owners’ response has been to close factories thus reducing supply of Hornby products. So even if they can generate increased demand Hornby won’t be able to meet it. A strategy is that in effect saved the business is now causing serious problems. So the first lesson is that nothing is forever. You cannot stand still, however well it all seems to be going. You have to go on changing and innovating in your business constantly. The second lesson is that forever can be a very short time these days.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

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