On the Spot

We are delighted to once again welcome Kirsten Tompkins back on the show. Kirsten is a Market Analyst and Content Creator in Turnaround and Restructuring at EY-Parthenon, the strategy consulting arm of EY. Kirsten is the coordinating editor and data analyst for EY-Parthenon’s Quarterly Analysis of UK Profit Warnings. Kirsten joins the show to discuss the latest Q1 2023 report, 'On a Knife Edge'. Revised forecasts show that the UK economy is on track to avoid a technical recession in 2023, but EY's profit warning data suggests it could be experiencing a ‘rolling recession,’ where waves of pressure cause individual parts of the economy to contract in turn. Banking stresses and higher-than-expected inflation also serve as a reminder that the recovery is still on a knife edge. Profit warnings rose dramatically in the technology and telecommunications sectors in Q1 2023, as uncertainty and cost pressures continued to pass down supply chains. 35% of profit warnings in Q1 cited contract delays or cancellations. Although recession has moved off the agenda, the range of possible outcomes is wide, and uncertainty remains a significant challenge in 2023.

SCHUMANN, headquartered in Göttingen, is a German family-run company that offers consulting and IT solutions in the areas of credit risk, compliance, and portfolio management systems. Lara Biermann is Head of Sales Credit & Surety at SCHUMANN and advises and supports international credit risk insurers, and surety bond providers, in digitising and automating their risk and business management processes. Craig Evans sat down with Lara to discover more about the role she fills at SCHUMANN, and the winding career that brought her there. Lara speaks about the key risks that her clients are facing, in particular credit insurers, and how SCHUMANN helps to solve them with risk analysis software that makes sense of the vast overload of data in 2023.

Courtney Rickert McCaffrey, Global Insights Leader at EY's Geostrategic Business Group, joins Adam Stones for episode 6 of 'On the Spot'. The EY Geostrategic Business Group uses geopolitical insights and analysis to help clients inform their business operations and strategy. Courtney is a recognised thought leader in the political risk and global macro trends space and is based in Washington, DC. Courtney's role as a Global Insights Leader is to drive research, analysis, and insights for publication, such as the 2023 Geostrategic Outlook - which forms the cornerstone of this episode's discussion. Adam and Courtney explore the current geopolitical environment and discuss how companies can build a more robust strategy for an increasingly volatile world. Geopolitical developments are likely to continue to influence supply chain strategies, shift investment destinations and push up costs for companies throughout the year. Take a look at the top 10 geopolitical developments EY's Geostrategic Business Group have identified to have the most significant impacts on organisations across sectors and geographies in 2023.

Sue Chapple, Chief Executive of the Chartered Institute of Credit Management (CICM), joins Craig Evans for episode 5 of 'On the Spot'. The CICM is the largest recognised professional body in the world for the credit management community and is the trusted leader in its field representing all areas of the credit and collections lifecycle. Sue has over 25 years of experience in operational credit management across finance, utilities and the public sector. We explore the world of credit management with Sue and learn more about her life and career, which has led her to become Chief Executive of the CICM. Good business practices, improving cash flow, and the future role of technology in credit management are all hot topics in this episode. AI-powered credit scoring certainly has a bright future in the credit industry, and Craig shares how Company Watch is leading the way with innovative tools that are making the best use of the technology. Sue explains how the CICM continues to help support businesses in an increasingly difficult economic environment, where risk is becoming harder to predict, and paying on time is still as important as ever.

UK-listed companies issued 83 profit warnings in Q4 2022, bringing the total number of profit warnings to 305 in 2022 (50% higher than in 2021). We were delighted to once again welcome Kirsten Tompkins back On the Spot. Kirsten is a Market Analyst and Content Creator in Turnaround and Restructuring at EY-Parthenon, the strategy consulting arm of EY. As the coordinating editor and data analyst for EY-Parthenon’s Quarterly Analysis of UK Profit Warnings, Kirsten joins us to discuss the latest Q4 report, 'Universally Challenged'. It's clear in the report that profit warnings are coming thick and fast from across the economy, as cost pressures pass through supply chains, falling confidence hits spending and contract renewals, and credit tightens. For the first time since 2009, credit tightening triggered over 10% of warnings in a single quarter in Q4 2022. Unsurprisingly, consumer-facing companies still led profit warnings in Q4 2022. Changing consumer behaviour and the cost-of-living crisis will no doubt keep the pressure on consumer sectors throughout 2023. SMEs have taken the main brunt of economic pressure so far. But in such febrile markets, stress is contagious, and no company or sector can really consider themselves immune...

Kenny McKay, Managing Director at Interpath Advisory, sat down with our CEO, Craig Evans, in the latest episode of On the Spot. Interpath is a financial advisory business with a broad range of specialisms helping clients to face challenges or to find new opportunities to grow. Kenny specialises in the transformation and restructuring of organisations, in both the public and private sectors, and leads their Northern team and industrials practice. Kenny talks about his career and experiences within restructuring. He also discusses where he is seeing stresses and strains across different industries and how Interpath can help businesses ride out the economic cycle. Interestingly, the volume of corporate administrations remains below pre-pandemic levels. Many businesses survived the pandemic utilising government support measures, but it is expected that insolvency figures will continue to rise as businesses are impacted by price pressures, upcoming debt maturities and weakened consumer demand.

Peter Arnold, EY UK Chief Economist, joined Adam Stones for episode 2 of the 'On the Spot' podcast! Peter leads the economic policy team at EY in the UK and has over 20 years of experience in advising both government and private sector clients in the UK and internationally on economic policy impact assessment, regulation, and in interpreting macroeconomic forecasts for business planning. He joins the show to discuss the Winter Forecast of the EY ITEM Club, a leading UK economic forecasting group, whose forecasts are independent of any political, economic or business bias. The Winter Forecast was published in late January. (Link to report in comments). 2022 saw a global energy price shock, inflation running at a four-decade high rate, political turmoil, and the sharpest tightening in monetary policy since 1989… Unsurprisingly there was a lot to cover in the episode! Here are just some of the key talking points from the ITEM Club's forecasts: Recession -  the UK economy is now expected to contract 0.7% in 2023, bigger than the 0.3% contraction predicted in October. Labour market - unemployment is forecast to peak just below 5% this year. Consumer spending - is likely to fall 1.4% this year, with growth of 2.3% expected in 2024. Business investment - likely to remain a relatively weak spot. EY ITEM Club now expects a fall of 0.8% this year. Weaker business investment is one of the factors likely to slow the recovery from the recession.

Kicking off series 3 is Paul Wilson! Paul is the Policy Director at the Federation of Small Businesses. The FSB aims to provide a powerful voice for the UK’s 5.5 million small businesses and the self-employed. Paul’s policy team publishes regular reports on a range of topics, their recent report ‘Credit Where Credit's Due’ is all about small businesses and their need for external finance to grow. 59% of small businesses have applied for external finance over the last five years, and only 37% of those firms found the application for traditional loans easy… There has been an alarming reduction of nearly half a million small businesses over the last two years. Given recent economic turmoil, there is a risk of another credit crunch where the UK financial market may begin squeezing lending to small businesses, reminiscent of the period following the 2008 financial crash. Small businesses sit at the heart of their communities and external finance needs to remain as accessible as possible to help firms in these difficult times. Key talking points: Small business finance market – what is the state of play given the current cost-of-doing-business crisis and interest rate hikes? The demand for capital – why do small businesses need finance and where are they looking to invest? What challenges do small businesses face this year?

UK-listed companies have issued the highest third-quarter total of profit warnings since 2008. 57% of those profit warnings came from companies citing rising costs as a key issue as they struggle to pass on costs to consumers, with over half of all warnings coming from consumer-facing sectors. 'On the Spot' once again is Kirsten Tompkins. Kirsten is a Market Analyst and Content Creator in Turnaround and Restructuring at EY-Parthenon, the strategy consulting arm of EY. As the coordinating editor and data analyst for EY-Parthenon’s Quarterly Analysis of UK Profit Warnings, Kirsten joins us to discuss the Q3 report, 'Predictably unpredictable'. Kirsten returns to the podcast after discussing the Q2 report with us in late July. So far this year, profit warnings have been driven by increasing costs, supply chain and labour market issues, a weakening in consumer confidence over the summer and, more recently, the fall in sterling. With so many uncertainties in the outlook for 2023, management teams should focus on developing resilience to avoid further warnings and more profound consequences…

After a whopping 109 episodes, this is Jo's final episode as host of the 'On the Spot' podcast! What an incredible achievement. Last week, Chancellor Jeremy Hunt revealed his Autumn Statement in the House of Commons. He unveiled tax rises and spending cuts worth billions of pounds, intended to fix the UK's struggling finances. There was some good news for high street retailers with the business rates revaluation. Retailers have long argued that they carry a disproportionate share of the burden of business rates, a tax on commercial property (based on rental value) that penalised high street retailers and advantaged e-commerce companies, as shoppers switched to buying online in recent years. The UK's unemployment rate rose to 3.6% in the three months leading up to September, up from 3.5% in the previous period, according to figures from the Office for National Statistics. There are 330k people less in work now than in pre-pandemic times, this is largely in part down to an increase in the number of people unable to work due citing long-term health issues. The Bank of England has warned that unemployment will nearly double by 2025 as the UK goes through a tough recession. The Office for Budget Responsibility (OBR) also released forecasts warning that real disposable incomes would drop by 7.1% over the next two years, the biggest fall in living memory...

Inflation. Is it transitory? Or, are we inching ever nearer to stagflation? This week, Jo and Nick put inflation 'On the Spot'. It's been the word on everybody's lips for some time, but as we begin 2022 and the numbers are running ever hotter we need to dig deeper and understand the bigger picture... The cost of living is already at its highest rate in over a decade, with UK CPI hitting 5.1% in November 2021, according to the Office for National Statistics. This is up from 4.2% in October 2021. A key driver in the rise in energy costs, which have been climbing steeply, along with ongoing supply chain problems at a time of increased demand for energy and products as the economy tries to rebuild.  December figures have not yet been released, however, they are widely expected to be higher again as they were in the Eurozone where inflation hit a record high of 5%, and the US, which CPI reached a 40 year high of 7%.

On the spot this week is Peter Smith, ex-president of CIPS and former procurement director at Dun & Bradstreet. Peter has extensive experience in procurement and credit management, having been involved in the industry for most of his working life. Peter is now an author and his latest book, Procurement with Purpose, explores how organisations can change the way they spend money to protect the planet and its people.  The beginning of 2022 is a challenging time for procurement teams right now. Inflation is a huge worry, supply chain issues rage on and geopolitical risk factors are becoming ever greater. In this episode, Peter explains how he would mitigate risk if he was still working in procurement and what he believes those risks are. He also highlights why procurement is the driving force behind the commercial capability of a company and why company-wide buy-in is the key to procurement success.

Iron Mountain is a global business dedicated to storing, protecting and managing, information and assets. From critical business information to geological samples, works of fine art, and even the Iron Throne from the hugely popular Game of Thrones series! Nick King is a Senior Order to Cash Integration Manager for the MENAT region focused on billing, cash applications, disputes and cash collection. Nick leads order to cash teams across 12 countries. Craig Evans sits down with Nick to gain insight into his world, the role he fills at Iron Mountain, and the career that brought him there. Nick has a strong background in credit management and sheds light on the ins and outs of the industry, offering a unique perspective gained from years of experience. Learn what the hot topics in credit risk are for Iron Mountain and why spotting risk at the onboarding stage is critical.

The Bank of England (BoE) Monetary Policy Committee met earlier this week and voted by a majority of 7-2 to increase the Bank Rate by 0.75 percentage points. The increase marks the biggest since 1989 and the eighth time in a row the bank has hiked interest rates. Looking back to November 2021, the base rate was just 0.1%... Since the MPC’s previous forecast in August, there have been significant developments in fiscal policy. The Bank's overall forecast for the economy looks grim, output has already begun to contract and will go on falling for the next two years, creating the longest recession of modern times.  The unemployment rate is expected to rise to just under 6.5% by the end of the forecast period (2025) - up from 3.5% in the three months to August, its lowest level since 1974. This would be a considerable rise in unemployment and will affect consumer spending which has multiple adverse impacts on the economy.  Of course, soaring borrowing costs heap more pressure on indebted UK firms. For companies in need of finance to expand, or to just survive, rising interest rates and inflation make a scary combination (especially as recession looms). For British businesses which have loans at a variable rate, or need to refinance, rising interest rates will have a marked effect on costs and profits. At Company Watch we have long warned about “zombie firms” being kept alive by debt while paying low-interest rates... well, these firms could soon face a reckoning. CPI inflation was 10.1% in September and is projected to pick up to around 11% in 2022 Q4.

Prime Minister Liz Truss apologised yesterday for her controversial mini-budget that crashed the country’s currency, rattled financial markets, and led to the sacking of the then Chancellor, Kwasi Kawrteng. Jeremy Hunt, former foreign and health secretary, has succeeded Kwasi Kwarteng as Chancellor. He is the UK's fourth Chancellor so far this year and faces huge challenges with prices soaring and hikes in interest rates. Nearly all the original tax cuts announced in the government's mini-budget are being reversed. In a statement on Monday morning, Hunt said the 20p basic tax rate would remain indefinitely and reversed a swathe of other tax measures, including changes to dividend taxes, a VAT-free shopping scheme, and a freeze on some alcohol duties. The stunning reversal would raise £32 billion. Government bonds, currency, and shares rallied on Monday off the back of the news.

The UK economy unexpectedly declined in August by 0.3%, reinforcing predictions that it will fall into a recession later this year. The surprise drop came as factories and consumer-facing businesses struggled the most. Prices are rising at their fastest rate for 40 years and outpacing growth in pay, so consumer-facing businesses will feel the impact of tightening purse strings the most. The number of companies filing for administration jumped 50% (265) in Q3 2022, as economic headwinds continued to wreak havoc on businesses up and down the UK. Interpath suggests by the end of Q4 this year insolvency levels will have risen even further. Interest rates are highly likely to be above 5% by April next year, putting increased pressure on cashflows for businesses with high debt levels - so increased numbers of administrations are expected...

The Bank of England (BoE) has defended its intervention in the UK government debt market, saying it stepped in to avoid a £50bn fire sale of gilts that would have taken the UK to the brink of a financial crisis. In a letter to the chair of parliament’s Treasury committee, Sir Jon Cunliffe (the BoE’s deputy governor for financial stability) said the bank had feared there would have been a “self-reinforcing spiral” that threatened “severe disruption of core funding markets and consequent widespread financial instability”, had the BoE not stepped in. The letter also shed light on warnings received by the BoE ahead of its intervention. Managers of the liability-driven investment strategies at the centre of a crisis in Britain’s pension fund industry had warned as early as September 23rd that the huge moves in gilt yields would force them to dump large quantities of government debt. Interest rates - more than 40% of all mortgage products were pulled after chancellor Kwasi Kwarteng's 'mini-Budget announcement and the interest rate on a typical two-year fixed-rate mortgage has now breached 6% for the first time in 14 years.

Last week the new chancellor, Kwasi Kwarteng, delivered his mini-budget. One of the tax cuts announced is a cut in the basic rate of income tax (by 1p in the pound) is to be brought forward by a year to April 2023. As a result of the sweeping tax cuts announced last week, the pound has hit a record low against the dollar, sparking a currency crisis. Of course, a sudden drop in the pound immediately creates uncertainty, throwing UK businesses that import and export goods into a panic. A weak pound means price rises for UK consumers who buy foreign goods and less money in holidaymakers' pockets. A key issue is the price of oil, being one of the key goods Britain imports and is priced in dollars. At the beginning of the year, a $100 barrel of oil cost £74. That same $100 barrel now costs £95... an enormous rise and one that will directly hurt consumers at the fuel pump. There were also 1,933 business failures in England & Wales in August, up 42% from pre-pandemic levels. 87% of failures this year have been CVLs, and the total number of insolvencies in 2022 now stands at 14,484. Annualised, 2022 stands to have the highest number of insolvencies on record, ever. All this amounts to deeply worrying times for those of us that manage risk.

Liz Truss won the Conservative Party leadership contest yesterday, with 57% of member votes - and has now been formally appointed the 15th British prime minister. However, there's no time for celebration and Liz Truss will need to sharpen her pencil - with a to-do list as challenging, as it is long, standing in front of her.  The new PM has pledged to cut taxes and 'deliver' on tackling the energy crisis. A plan to help consumers with soaring energy costs is set to be announced this coming Thursday. Business energy fees are a huge problem with no current price cap in place. Pubs, restaurants, shops, and hairdressers, along with all other businesses, are receiving energy bills which, in some cases, show over a 500% increase over previous bills. This is before we even head into winter and temperatures are still mild... Annual growth in credit card borrowing went up 13% in July – the highest rate since October 2005. The average interest rate on credit card borrowing is currently 21.17%... the highest level since 1998. Many consumers are being forced to turn to credit to pay for essential items, with real wage growth being continuously outpaced by inflation.  There were also 1,827 company insolvencies in July, up 27% vs. pre-pandemic July 2019 - the vast bulk of these insolvencies still coming from CVLs. The Bank of England MPC will meet once again this Thursday, with another interest rate hike expected to be announced. 

Yesterday, the Bank of England (BoE) lived up to its promise to act “forcefully” to curb surging inflation, by announcing the biggest increase in interest rates in over 25 years (1.25% to 1.75%). The BoE has also warned that Britain will fall into a recession later this year. The interest rate is now at its highest level since 2008, as the bank grapples to control soaring inflation, (currently at 9.4%) which is well above its 2% target and is forecast to pass 13% this year. The National Institute for Economic and Social Research (NIESR) made a similarly downbeat prediction this week. The NIESR forecast that Britain would now experience a consecutive three quarters of negative growth, with unemployment peaking at 5%.  Company insolvencies are on the rise too, there was an average 30% increase in the number of company insolvencies (across all industry sectors) in Q2 2022, compared to the pre-pandemic Q2 2019...