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Tuesday, 3 January 2012

What will 2012 hold?

2011 was to many people a year to forget. The Royal Wedding wasn't enough to bring back the feel good factor. The economy has slipped back from some growth earlier in the year and a string of retailers failed to make it past Christmas. More are expected to follow. Employment issues are still hurting lots of people, including the young.

I, however, do not share all the gloom and pessimism that is out there for three main reasons.

1. The Queens’ Diamond Jubilee
2. The London 2012 Olympics and Paralympics
3. Manufacturing growth in automotive, aerospace and Hi Tech

The London Olympics; these are huge events on the world stage with the UK putting on a  world class show, it is a  great shop window for UK plc.

Jaguar Land Rover has announced that it is going to have to increase capacity to meet the strong demand for its cars especially the exciting Evoque model. Thousands of new jobs are expected to be created over the next few years. JLR has already announced 8,000 new jobs in the last 15 months. Across the automotive sector significant new investment has been announced and new jobs are on the way at Honda, Nissan, Toyota and BMW (Mini). A recent survey of hi tech manufacturing saw more than two thirds stated they will be growing and taking on more people.

We lead the world in many hi tech sectors and growth is expected in many of these.
Of  course, the pessimists will say that such optimism will be swamped by the Euro zone which may collapse and will contract and therefore harm our prospects. Once the euro politicos make a REAL decision about a controlled break-up of the Euro, with Greece the first to leave it, then uncertainty will reduce over time. Uncertainty holds back investment. I do see a risk that the Euro has a disorderly collapse, that would be frightening for many. However, UK is sitting outside and can control its own destiny to a greater extent.

I see growth returning after half way 2012, we may skirt with recession in the next few months however. I see growth back on trend in 2013 as investment multipliers kick in and hopefully Euro uncertainty is mitigated.

Lack of lending to small businesses may still be holding back growth but a number of new and dynamic entrants into the funding market will hopefully see a more ready supply of credit.  On the flip side expect to see growth in insolvencies of heavily indebted companies that have had their debt "extended and pretended" by the banks.

Rising growth and asset values could lead to banks to believe they can knock these zombie companies down and get money back from the process of asset realisation.

Hawkin's Bazaar is an example of a hugely indebted business. With £46m of debts which are largely unsecured. The banks and PE houses will take a hit on that company’s debts, but I gather that cash was so short wages and rents were not going to be met easily. Many more zombies will fail but thousands of smaller SMEs are surviving without bank debts. Increasing numbers of new entrants into this market include Crowd Funding companies, new banks like Metro Bank will provide some of these companies with finance if they need it to grow.

2012 will see KSA Group continue to grow its business by promoting the use of  rescue tools such as the CVA which can help viable businesses avoid insolvency.  CVAs are still underused in the market place and we aim to educate business leaders and their advisors on its many advantages and help debunk some of the myths. We are also increasingly using informal debt restructuring especially in the legal sector and for other professional firms. This "plan A" approach is based on the CVA, but avoids formal insolvency and is carefully structured and supported by very detailed modelling of the business.

Finally, I guess a lot of the above will turn out to be wrong! But I wish all readers a happy and prosperous 2012.

Keith Steven KSA Group

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