Corporate late-payers pile pressure on SMEs

A recent report by credit management firm Intrum Justitia found that UK
businesses were now taking 54 days to pay their bills and that the public sector
was only paying its suppliers after 48 days. As a result of this, more than
£22bn a year is lost in the UK because of bad debts.

The figures on late payment in the UK came as private equity-owned clothing
group New Look announced that it was extending its payment period to suppliers
from 60 to 75 days.

The highly controversial move, which will boost revenues at New Look by £15m,
was made just before the retailer was expected to deliver a significant increase
on last year’s operating profits of £160m.

Ahead of its float Debenhams took a similar step in order to strengthen its
balance sheet ahead of listing on the London Stock Exchange, but New Look has
said it has no plans to list.

Owen James, a director at Intrum Justitia, said SME FDs were bearing the
brunt of such delayed payments as they were especially vulnerable. He said:
‘Small businesses are faced with a combination of large players who do not pay
promptly, and other small businesses that delay payment to protect their own
cash flows.’

The growing concern surrounding late payment is just one of a number of
hurdles facing businesses, according to a separate survey conducted by Mandis
Information Services for KPMG.

The report found that the number of negative announcements, including
restructurings, job losses and profit warnings, made by UK companies in the
three months between February and April this year had increased by 36% over the
same period in 2005.

KPMG said that rising energy costs were one of the main reasons for the
financial difficulties, but added that competitive sectors such as the retail
and construction industries also had to cope with difficult trading conditions.

Ann Davies, a partner in restructuring advisory at KPMG, said the Big Four
firm had expected a much brighter picture to emerge from the research and warned
that smaller businesses were the companies most likely to struggle.

‘These figures really took us by surprise. We were not expecting such a high
level of negative announcements,’ Davies said. ‘Larger businesses seem more
resilient, as they can pass pressure down the supply chain.’


FTSE 100

BSkyB chief financial officer Jeremy Darroch will step up to the audit
committee chair of Marks & Spencer in September, following a boardroom
reshuffle. Darroch, who joined M&S as a non-executive director in November
2005, will take over from soon-to-retire Kevin Lomax.

Corus has booked an £11m charge to its income statement for the first quarter
of 2006 as a result of the equity element of its convertible bonds. Corus FD
David Lloyd said the charge was a result of the fair value requirements of IAS32
and IAS39. The steelmaker reported pre-tax profits of £61m for the quarter,
compared with £198m for the same period in 2005. The fall was the result of
exceptional items and lower steel prices.

Tesco has increased its share of the UK grocery market to 31.1% from 30.8%
for the year ended 21 May, according to research by TNS. The supermarket giant
was well ahead of closest rival Asda. Sainsbury’s took third place and Morrisons

Johnson Matthey saw its tax charge for the year ended 31 March 2006 surge
from £16m to £62.5m. The company said the increase reflected a tax relief on
restructuring costs, which was included in the previous financial period. On an
underlying basis, the chemicals company’s tax rate remained steady at 29.3%.

FTSE 250

Sports retailer JJB Sports has been downgraded by analysts at Seymour Pierce
from hold to underperform amid fears of a price war with privately owned JJB
Sports. JJB, founded by Wigan Athletic FC owner Dave Whelan, was recently helped
by a one-off tax break which reduced its tax bill from £17.3m to £3.5m.

FTSE All-share

Investment bank Citigroup has joined the race to bail out Channel Tunnel
operator Eurotunnel. Initial interest from Goldman Sachs and Macquarie helped
Eurotunnel agree a deal with major creditors which aims to cut group debt by
around 54% from £6.2bn to £2.9bn. Citigroup could still play a role in the
rescue package, and has been in discussions with Arco, one of Eurotunnel’s
largest bondholders.


KeyWorld International, the seller of holiday time shares, has had its shares
suspended because of financial difficulties.

The group has been in discussions with an insolvency practitioner. Employees
of the company and subsidairies have been made redundant. Finance director Gus
Orchard has agreed to stay on through the insolvency proceedings on an unpaid
basis. Before its suspension KeyWorld provided access to accommodation in over
3,700 RCI-affiliated resorts in over 95 countries.

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