But just hours after Minister for Enterprise, Trade and Innovation, Batt O’Keeffe announced the Government was working on a loan guarantee scheme, one of the key players in the ongoing dispute over the availability of credit to SMEs said he does not favour a loan guarantee scheme.

The Irish Independent reported that John Trethowan, who heads up the Credit Review Office, said he was “sceptical” about how effective a loan guarantee scheme would be and warned it was being portrayed as a cure for all small firms’ problems when this was not the case.

Business lobby groups welcomed such a scheme but Mr Trethowan said: “If a loan guarantee scheme came in tomorrow, then each application for the guarantee would have to be processed on an individual basis and so would effectively replicate what the banks are already doing.

“An application for the guarantee would go through or fail based on the viability of every business. If a business is not viable, then the guarantee is not going to save them, if the business is viable then the guarantee should not be required,” he added.

The Small Firms Association welcomed the plans for the guarantee and urged it be implemented “sooner rather than later”. SFA chairman, Dr Aidan Boyle said: “Unless the lending risk to the banks is reduced by the introduction of a loan guarantee scheme, many small businesses will not survive. We, small business, are the life blood of this country and it is time this was recognised.”

And a new report from the Certified Public Accountants supported a loan guarantee scheme for small business and calls for broadening of the remit of the State enterprise support agencies.

Sadly, while a loan guarantee scheme would certainly broaden options for SMEs to obtain credit, Mr Trethowan’s comments dampen any hope that the criteria for obtaining a loan guarantee would be any different than the banks’.

Roger Brownlie for Vistage

It’s a complex issue and there are plenty of examples of media prophecies becoming self-fulfilling.

According to NCB Stockbrokers, a series of negative news articles from influential publications across the world together with “idiosyncratic” factors are driving Irish Government bond spreads higher.

It noted that Ireland has received a lot of attention in the media over the last couple of weeks with stories about the country’s deficit, debt and banking issues being analysed on Bloomberg, CNBC, the New York Times, the Financial Times, the Economist etc.

They have built an economic model to control for these “idiosyncratic” factors. But for the rest of us we have the Central Statistics Office.

Lies, lies and damn statistics springs to mind. Nevertheless, a couple of CSO releases give hope for optimism.

New figures show that consumer prices rose by 0.2% in August compared with the same time last year – the first annual rise since December 2008. The CSO says that consumer prices rose by 0.7% in August compared with July.

While some economists hailed the rise as an end to deflation, others point out that the rise in the index was largely down to hikes in mortgage rates by banks.

And secondly, on an annual basis, production for manufacturing Industries for July 2010 was 12.4pc higher than in July 2009, the latest figures from the CSO show.

The most significant changes were in the following sectors: Basic pharmaceutical products and preparations (+21.8pc) and Computer, electronic and optical products (-19.5pc).

The seasonally adjusted volume of industrial production for Manufacturing Industries for the three month period May to July 2010 was 7.5pc higher than in the preceding three month period.

The ‘Modern’ Sector, comprising a number of high-technology and chemical sectors, showed an annual increase in production for July 2010 of 17.3pc and an increase of 3.2pc was recorded in the ‘Traditional’ Sector.

But to confuse the situation, Ireland has dropped four places in a list of 139 countries ranked by economic competitiveness and ranks last on the list in terms of the condition of its banks. Overall, Ireland has fallen four places to 29th in the 2010-11 global report from the World Economic Forum. (Click for full listing)

Then to highlight our total reliance on outside economic factors, The Organisation for Economic Co-operation and Development has warned that the world economic recovery is slowing down more quickly than expected, and that extra measures from governments to boost economies may be needed.

The OECD foresaw growth in the US of 2pc in the third quarter this year and 1.2pc in the fourth. For the euro zone – based on an average of the three largest members, Germany, France and Italy – the comparable figures are 0.4pc and 0.6pc.

Its chief economist Pier Carlo Padoan said: “The uncertainty is caused by a combination of both positive and negative factors.”

Really, Mr Padoan? That much I know…

Roger Brownlie for Vistage

Today, Friday, September 3, Brown Thomas on Grafton St opens its Christmas store “complete with Santas, reindeer, twinkling lights and un-seasonal music at its Grafton Street store”. Cork and Limerick stores will be heralding the arrival of baubles and fake snow on Saturday.

But why?

Can it really be true there is customer demand now for Christmas shopping? Of course, Brown Thomas believes there is. They’d better believe it. They have to believe it. After all, doing business is all about banking on your ability to get it right.

Despite the fact it’s still summer (evidenced by shorts, T-shirts, light summer dresses, sun tans etc), Brown Thomas managing director Stephen Sealey believes it.

“From experience we know that this opening date is very popular with our customers, especially those who wish to get first option on the very best Christmas product available,” he said

But he must also spin his sales story too:

“For those of us who each year vow to be super-organised and get the very best and most beautiful decorations when they first arrive to the stores, only to frantically root out the dregs last minute, this is your chance!”

“This is your chance” he says, but between the lines he means is “this is our chance” because for the retail trade here, Christmas may be the last chance for many firms. The statistics don’t look good.

The latest retail figures from the CSO show that the recovery in retail sales evident since the start of this year is stalling, according to Retail Ireland, the IBEC group that represents the Irish retail sector.

The volume of core retail sales, excluding car and bar sales, fell by 0.6pc in May compared with April but increased by 1.9pc when compared with May 2009.

More importantly the value of sales fell in May by 0.7pc compared with April and by 1.7pc when compared with May 2009. This means that the value of sales for the first five months of the year is below  the corresponding 2009 figures due to price reductions.

“It is very troubling that the July figures are so negative. The underlying trend of stabilisation and recovery in retail sales that was emerging earlier this year seems to be stalling. This underlines the fragile state of consumer spending and the retail sector generally,” said Retail Ireland director Torlach Denihan.

“The retail sector is in survival-mode, dealing with a huge decline in sales and a very high cost base. Retailers urgently need sensible behaviour when it comes to pay, rents and service charges,” he added.

After growing for the first three months of 2010, core retail sales experienced a renewed bout of weakness over the following four months.

Dermot O’Leary, an economist with AIB-owned Goodbody Stockbrokers said: “Important too for retail businesses is the fact that the value of retail sales continues to fall as price deflation (-2.5pc annually), albeit at a slowing pace, is widespread. In value terms, core sales are down 4.9pc, but are now close to the low in the downturn, some 18pc below the peak level.”

Only Motor Trades and Fuel showed year-on-year value increases in July 2010. All other sectors showed year-on-year declines in the value of retail sales – these included: Non Specialised Stores, which includes supermarkets, (-1.5pc); Department Stores (-7.3pc); Pharmaceutical Medical and Cosmetics (-10.6pc); Clothing, Footwear and Textiles (-5.7pc); Other Retail (-8.8pc) and Bars (-13.8pc).

As Ian Galvin wrote in the Sunday Tribune: “Not only has the economic recession left us with empty hotels and housing estates, the iconic appearances of some of Dublin’s high streets are also becoming unrecognisable

“The question now is whether something like the Dundrum shopping centre is better positioned to ride out the economic crisis at the expense of Dublin’s traditional high streets?”

“Across Dublin city, the retail locations are losing their appeal, whereas shopping centres such as Dundrum are able to buck the trend by offering their visitors a broad range of tenant mix, providing customers with more choice. The ability of shopping centre landlords to influence the tenant mix to ensure the customer has a balanced and wider choice has enabled them to prosper in comparison to the traditional Dublin shopping destinations,” he said

There is some statistical evidence to back this theory up. Occupancy rates at Ireland’s shopping centres have increased in the past 15 months while rent has reduced by over 4pc on average, according to Retail Excellence Ireland.

However, the report stated that the slight improvement in occupancy levels is a direct result of new tenancy, “somewhatmasking the true closure rate suffered by many scheme owners in the last 15 months”.

“Landlords are compromising existing tenants by letting available units to a weaker tenant mix, resulting in a diluted and confused retail offer to customers,” it said.

The REI Shopping Centre Productivity Review 2010 said this has caused a two tier lease system at most shopping centres throughout the country, with long-term lease holders paying boom-time rent while new leaseholders enjoy current market prices.

Roger Brownlie for Vistage

Vistage would be delighted to hear from both members and non-members of their experiences in obtaining credit. Sharing knowledge is what Vistage is all about. Make sure your comments are general and don’t reveal your identity or company.

We covered this issue in a previous blog (Credit watch) when AIB denied credit rationing and spuriously backed up its claims by quoting the Credit Review Office’s first report.

Now the Cork Chamber of Commerce has called on the Credit Review Office to facilitate greater access to credit for small businesses, and to better publicise the services it provides.

Following a meeting with John Trethowan, head of the Credit Review Office, the business group suggested that SMEs have lost faith in banks as a source of credit.

“Eighty percent of respondents to our recent Q2 Economic Trends Survey have indicated that they are not currently seeking bank finance. We feel that this highlights an underlying trend which could indicate that SME’s may not have an appetite to engage with the banks with regards to accessing credit,” said Conor Healy, chief executive of Cork Chamber.

Killian O’ Sullivan, chairman, Cork Regional Chambers, said there is a general unawareness among businesses that the office has the power to look at cases where banks are revisiting terms or delaying decisions, and said there should be greater marketing of the office’s important services.

The chamber also called for greater transparency by the office, and for it to publish its analysis and reported outcomes published monthly rather than quarterly.

Public Meetings

To get to the bottom of these complaints, the Department of Enterprise, Trade & Innovation organised a series of public meetings.

The overriding message from the meetings was that the banks are not to be trusted and that the information being passed to government about lending policies and practices is in large part misleading.

Enterprise minister Conor Lenihan,(with an absurdly long official job title), makes some excellent observations in his column in the September issue of Business Plus magazine:

“Overall, the participants in these sessions expressed the view that the Irish banking sector is not fit for purpose and that managers in the branch network are virtually powerless to make a lending decision.

“There were also complaints of aggressive phone calls from relatively junior bank staff demanding that accounts be put back in order. 

“The grievances of the owner-managers at these meetings could be categorised into four broad themes.

“The first was that the branch manager is no longer a significant person in terms of the decision making process over a loan. The consensus is that the credit decision is made elsewhere and that branch input is minimal. According to some speakers, the absence of discretion for a local manager now means that banks no longer have the confidence of business people.

“The second complaint related to the long delays before a credit decision on a loan application is made.

“Thirdly, the owner managers complained that bank staff lack the analytical and accounting skills to appraise a local business for a loan. There is a perception that lending staff do not have the skill sets to assess cashflow lending as opposed to asset backed lending. Business and farmer representatives alleged that the banks lack lending officers with sectoral expertise.

“Finally, the speakers felt that there is little or no relationship banking going on. 

“There was also concern expressed at the level of security being sought by the banks for lending (personal guarantees, family home etc) and anxiety that such is the turnover of staff at branch level that it is impossible to get to know someone in the bank who would then get to understand their business.

 “There was severe criticism too of the banks’ practise of converting overdrafts into term loans and then apparently presenting this as new lending into business sector.”

In defence of banks

In defence of the banks, the minister points out that both of the major Irish banks have undertaken to make available E12bn worth of lending to small businesses this year and next year.

Also at the height of the boom, lending by non-Irish banks represented 40pc of the credit market in Ireland. Now those non-Irish banks have scaled back their lending activities, he says.

Another factor, he says, affecting the flow of new credit is that many business people are loaded up with debt, either business wise or personally, as a result of property investments, which are now under water.

John Trethowan is hitting the road soon to get his message out there by attending regional meetings with the business organisations. 

According to Conor Lenihan, there is little doubt that the perception of credit rationing is feeding into a general lack of business confidence.

Whether you are Punch or Judy in this pantomime, the number of company closures shows a lack of credit is too often becoming a tragedy.

Roger Brownlie for Vistage

-  foreign executives assigned to work in the country.

-  firms involved in leasing and fund management

-  owners of intellectual property assets.

-  providers of Islamic finance products.

-  pensions providors

-  people selling land under compulsory purchase orders

However, there are – as one might expect – no shortages of ’stings in the budgetary tail.’

Tax exiles with an Irish domicile will have to pay a ‘domicile levy’ where their worldwide income exceeds €1m and there income tax liability here is less than €200,000

Of greater practical, as opposed to symbolic, significance is the decision to abolish the remittance basis of taxation in the case of Irish citizens who have lived abroad for a period and are returning home. Previously such individuals were only taxed on foreign income to the extent that it was brought back into Ireland. 

These individuals will now be taxed on their worldwide income from the first year of their residence back here. This move may discourage people who have worked abroad from returning home to live, hardly a positive for the property market.

By way of contrast, the Government has completed its reversal of its decision to remove the relief for non-domiciled, non-ordinarily resident individuals to avail of the remittance basis of taxation in respect of non Irish / UK income.

The abolition of this relief by then Finance Minister, Brian Cowen, in 2006, attracted considerable criticism. In 2008, this move was reversed in part.

It has now been relaxed and should assist businesses to attract skilled people from overseas, thereby giving the economy a boost.

In an effort to boost integration across the island, the cross border relief has been amended so that anyone who spends any part of the day in this country can claim the relief.

Previously, they had to be in the country at midnight at least once a week.

The Finance Act brings further encouragement to those owning intellectual property assets in recognition of the increased importance of IP to the economy.

Last year’s Act provided for a tax deduction for those acquiring qualifying IP assets for trade purposes. The list of qualifying assets has been extended while spending on certain forms of software will also now benefit.

By and large, business has benefited from the application of EU competition policy.

However, less welcome is the news that local authorities and public bodies will have to charge VAT on the provision of certain services such as car parking to bring them into line with the private providers and ensure that there is no distortion of competition.

As usual, the Act contains anti-avoidance measures. Of particular interest, is the move to close down schemes under which the value of a company prior to a sale was artificially reduced through the introduction of debt - the aim being to reduce the stamp duty payable by the purchaser.

( the seller would reduce the purchase price by requiring the purchaser to take on debts owed by the company in question )

One injustice appears to have been tackled : a person disposing of land subject to a CPO may have found themselves witha  CGT liability payable before any consideration ( payment ) was received from the acquiring body.

However, anyone making a killing from land rezoning will now be subject to a special 80% rate of tax, though with an exemption where the site has a market value less than €250,000

Another change to Capital Gains Tax law involves a broadening in the scope of the retirement relief aimed at encouraging inter generational transfers of businesses.

Proceeds of share disposals following a purchase by a family company of its own shares are brought within the relief.

The Capital Acquisitions Tax system is amended to remove the secondary liability of professional advisors, except where they are acting for non resident beneficiaries.

Only a person receiving the gift, or a future interest in it, become liable to the tax.

CAT is also removed as a charge on property for twelve years after the date of the gift / inheritance.

Pensions investors should benefit from the removal of the 1% levy on life insurance premiums ( introsduced in 2009 ) . However, this does not apply retrospectively.

Acknowledgements

KPMG.  PriceWaterHouse Cooper.

Written by Kyran Fitzgerald

Firms can do themselves a big favour with their suppliers and financiers where they can prove to everyone’s satsifaction that their accounts present a full and fair picture of the state of the Company.
Writing recently in Finance Dublin, Brendan Sheridan of Deloittes observes that “disclosures should be more detailed than in times of economic growth.”
He notes that the UK Financial Reporting Review Panel recently reviewed 326 financial statements. It found that “the current standard of reporting remains good, with evidence of continuing improvement.” However, it drew attention to a number of areas including principal risk, liquidity and asset impairment as areas requiring particular attention.
As Mr Sheridan observes : “the robustness  of corporate strategies and the fundamental assumptions on which financial statements are produced have been significantly tested and questions do exist as to whether the marketplace has been adequately informed regarding the extent of change that this has brought about.”

The International Accounting Standards Board, meanwhile, is on course to introduce simplified accounting standards for SMEs. The new regime will seek to take account of the fact that users of SME financial statements are more interested in current liquidity issues, and short term cash flows than in longer term forecasts.

PriceWaterhouseCooper has produced an interesting analysis.

According to PWC, under current proposals from the accounting standards board, the current Irish and UK reporting regime may case to exist by 2012.
It warns that the new regime, or IFRS ( international reporting standard ) for SMEs could present a challenge ( not to mention plenty of new opportunities for accountancy firms.
Under IFRS, for example, firms will no longer have an opportunity to revalue tangible fixed assets in their accounts. There will be increased recognition of intenglible assets while the requirement to present cash flow statements will be extended to all companies ( under the current rules, an exemption applies to 90% plus subdidiaires. )
Written by Kyran Fitzgerald

And yet, every CEO has to get up and lead his or her business every day, and find ways of dealing directly and through his/her staff with a myriad of issues, all of which are more complex and time-consuming today:-
- retaining existing customers and maintaining the relevance of service offerings and products……
- finding new customers and products, determining if a revamp of the website be cost-effective….
- dealing with suppliers seeking ever tighter credit terms and sourcing new ones……..
- finding ways of cutting costs and improving operations, maybe logistics, IT, financial management, CRM etc without damanging the business………..
- finding ways of using scarce working capital more effectively……….
- dealing with the banks and shortage of credit…….
- making the right decisions about employees, whether it is deciding to stay on course, cut numbers, reduce pay or taking a risk with new specialist hires….
- and maintain morale in the workforce so that the firm can operate to the best of its capability.

Leadership and management has never been so challenging, nor the stakes so high for businesses.  Whether managing a large organisation with many senior professionals or a smaller organisation with a limited staff, the opportunity that Vistage gives to CEOs to meet in a Vistage designed, confidential setting to thrash out these challenges and identify the opportunities with other experienced CEOs can make all the difference…….

Vistage was set up by an American CEO for CEOs over 50 years ago and it has honed its service to its 15,000 members over the years to provide relevant and reliable support, advice and expertise.  If you would like to know more contact me at 01 4968460/01 2916039.

Kyran Fitzgerald, a well known business journalist will provide monthly articles commenting on business subjects and the first ones are published here. You have the opportunity to tell us what subjects you would like covered, by emailing …… or to post your comment below the articles…