EUROPEAN VALUATIONS AUTUMN 2017 NEWSLETTER

Greetings to you all and a very warm welcome to our Autumn newsletter.

2017 to date has been very busy for us and we have continued to grow and develop our business. At the time of writing we have completed a significant number of assignments in 2017 where we have valued in excess of £1.0 billion in assets for lending and restructuring purposes in the UK and across Europe, USA, Canada and Hong Kong.

Our ambition and growth is reflected in new team members joining us in our London office and the recent opening of our office in Mumbai, India. We have also updated and launched our new website...more about these below.

These are exciting times for us and we could not have achieved what we have, without the great support of our clients.

We look forward to continuing our working relationships with you over the reminder of 2017 and into 2018.

Peter, Dan and Gordon. 
Mumbai

The latest addition to our growth and expansion is the opening of our office in Mumbai, India.

Gordon comments "The opening of this office and subsequent recruitment reflects our commitment and constant drive to be innovative in order to provide, you, our clients with best in class service and reporting. The office will support our valuation teams in the UK with financial analytical support and up-to-date market research."

Website

We are excited to announce that our refreshed and updated website is now live. The website includes changes to content, and navigation and it can also be viewed on both mobile and desktop devices.

As mentioned we have improved and updated the content, so you’ll get better information about our full range of services and it includes a "live chat" service, so we can interact in real time and deal with inquiries promptly with whomever is looking at the website.

Andrew comments " We are really thrilled and pleased with the look of the website and we really hope you like the changes. If you have any feedback, please let us know on on Twitter , LinkedIn or Facebook " .
Spotlight on...the UK Alcohol Beverage Industry.
UK Wine Market Highlights
According to a report from the USDA Foreign Agriculture Service, the UK is a key market for the global wine trade, particularly in terms of sales value. The UK was the sixth biggest wine consuming country in the world in 2014. The United States remains the number one wine consuming nation followed by France, Italy, Germany and China. International Wine & Spirit Research (IWSR) predicts that by 2018, the top "still wine" markets by value will be the U.S. and UK, worth USD 33 billion and USD 26 billion respectively.

The majority of UK wine sales (over 80 percent) are through retail outlets. The remaining sales take place in bars, restaurants, hotels and other foodservice venues. The UK wine market is a vibrant, ever-changing, and competitively challenging environment. Given the low margins in the main-stream sectors, most opportunities for U.S. wine are to be found with importers who service the high-end independent stores and the less price-conscious foodservice sector. White wine is consumed in slightly greater volume overall than red wine, while rosé continues to be around 10 percent of the market. Fruit flavored wine and lower alcohol wine are new style products with growth potential. Balancing the negative effect on consumption of the health agenda, the upturn in the UK economy will encourage consumers to drink wine more frequently, particularly in foodservice channels.

Beer Market
The amount of beer drunk in the UK last year was 44m hectoliters and has remained close to that level for the last four years. Of the 44m hectoliters (7.74bn pints) of beer sold in the UK during 2015, 51% was sold in the off-trade, which is dominated by large supermarkets, according to the British Beer and Pub Association (BBPA). The remaining 49% was sold through pubs, clubs and other licensed premises.

Britain’s 145,000 pubs, clubs, hotels and restaurants sold less beer than supermarkets and off- licenses last year – for the first time since industry records began.

Venues where drinkers can buy and consume beer have been steadily losing ground to supermarkets for many years. This is due to being unable to compete with aggressive promotions, especially on popular lager brands. In 2000, more than two-thirds of beer was drunk in pubs and other on-trade locations, while the figure was almost 80% in 1990. ( Source: theguardian.com)

Quarterly beer sales hit a low in 2013, recovered throughout 2014 and then trended slightly down throughout 2015 and into the first quarter of 2016. Quarter 2 of 2016 saw 1.2% growth, followed by a decrease of 0.9% in the third quarter.

Retailers, Pubs and Restaurants
According to a report from “The Morning Advertiser” , from October to December 2016, pubs sold 3,325,000 barrels of beer compared to 3,426,000 barrels sold in the same months in 2015- a decline of 2.9% in UK.

However, this drop in the volume sales is slower than previously experienced in the on-trade market over the past decade with a slump of 26.5% seen in volume sales between the final months of 2006 and the end of 2010.

‘A Worry to Pubs’
The British Pub Confederation agreed that the decline in on-trade beer sales should be seen against the backdrop of increased operating costs for licensees.

Off-licenses & Supermarkets
Despite the on-trade market experiencing a reduction in beer sales, sales of beer continues to grow in off-trade market with the report showing that 0.7% more beer was sold at the end of 2016 in the off- trade market compared with the year before. The Association of Licensed Multiple Retailers (AMLR) said that this showed a “completely unfair disparity in operating costs for on and off-trade business”.

According to a website “historyandpolicy” recent concerns over cheap drink have led to a policy debate on minimum unit pricing and the banning of the 'below-cost' sale of alcohol. Such interventions target off-licenses and supermarkets, since alcohol in pubs is generally sold above proposed minimum prices.
While pricing interventions often target high-strength beers, cider and spirits, concern has also been expressed over price promotions and three-for-two offers on wine.

Alcohol Consumption Trend
Alcohol consumption in Great Britain has risen per head of the adult population during the post-war years, more than doubling between the mid-1950s and late 1990s, when it hit double figures for the first time.

The latest available data estimates total alcohol consumption in the UK at 10 litres per capita for those aged 15 years and older and 8.3 litres per capita on average throughout the entire population in 2011. This forms part of a recent downward trend from a peak of 11.5 and 9.5 litres per capita respectively in 2004.

UK alcohol consumption per capita for drinkers 15 years of age and over first reached double figures in 1997, rising to a peak of 11.5 litres in 2004 and remaining above 10 litres per head since 1998. UK alcohol consumption in total has remained broadly in line with trends in adult consumption, also peaking in 2004 at a high of 9.5 litres per capita, before declining to 8.3 litres in 2011.

European Valuations is now approved to sell, market and advertise the sale of alcohol under the Alcohol Wholesaler Registration Scheme (AWRS) on a wholesale basis, and to act as agent. The AWRS scheme is managed and overseen by HM Revenue and Customs (HMRC) and enables European Valuations to trade/sell to other alcohol wholesalers approved under the AWRS scheme.
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Focus on Retail

The latest news from the high street according to the Office of National Statistics states that UK retail sales fell sharply in September by 0.8% reversing a positive jump in August.

Since January 2017, in the retail sector alone, European Valuations has been engaged to value over £250 million in inventory across more than 1,000 retail store and concession outlets, here in the UK and internationally.
We have also advised on several retail restructurings ranging from clothing to soft furnishings.

Dan comments "the biggest issue over the past year has been the decline of the pound and that has caused importers to raise prices, but they have not been able to pass along price increases quickly enough and have had their margins squeezed. Also, the retail sector is having a tough time, between competition from online shopping, and the decline in the pound affecting margins, and as a result many retailers are struggling to rationalise their store base. Those with a strong brand and value proposition will still find the holiday season challenging but those without may face some major decisions come the New Year." 

In addition to providing valuation and exit strategy advice European Valuations has the capability and experience to assist with and manage full store closures of national and international retail stores, clearance sale of excess goods or distribution centers, sale of fittings & fixtures including IT, and store & warehouse cleanup.
Noteworthy Assignments

  • ABL: Aerospace & Automotive Assets: Property; Plant & Equipment; Inventory, Accounts Receivable in UK, France & Germany.

  • Disposal/Asset Sale: Printing. Assets Plant & Equipment in UK.
  • ABL: Portable Accommodation Hire. Assets Plant & Equipment, Accounts Receivable in UK

  • ABL: Aerospace Precision Casting. Assets: Plant & Equipment; Inventory in UK

  • ABL: Dairy. Assets: Plant & Equipment in UK.

  • ABL: Frozen Seafood. Assets: Plant & Equipment

  • ABL: Precision Engineering. Assets: Plant & Equipment; Inventory; Accounts Receivable

  • ABL: Pharmaceutical. Assets Inventory in UK.

  • Restructuring: Beverage Industry. Assets: Inventory.

  • ABL: Manufacturer of Plastic Cards. Assets Plant & Equipment.

  • Restructuring: Food. Assets Plant & Equipment.

  • Restructuring: High Street Retail - Soft Furnishings. Assets inventory; fixtures & fittings; goodwill.

  • Restructuring: High Street Retail - Fashion. Assets inventory; fixtures & fittings; work-out advice.

  • ABL: Toy Manufacturer & Distributor. Assets: Inventory; Accounts Receivable in UK, Germany, France & Hong Kong.

  • ABL: Retail Home Goods. Assets: Inventory in UK across 40+ locations.

  • ABL: Retail Fashion. Assets: Inventory in UK, Europe & USA across 220+ locations.

  • ABL: Software & Games. Assets: Inventory in UK & Europe 300+ locations.
Risk Associated with Changes in Asset Portfolio Mix  

Although all the traditional risk factors that asset based lenders are exposed to remain relevant, there is one in particular that has risen in importance in the last 18 months that is changes in the asset portfolio mix which is offered for loan collateral.

With more and more lenders linking their facilities directly to a company’s Net Book Value (NBV), any changes in the mix of the asset portfolio could leave a lender exposed.
Although the new assets may have little or no effect on the subject companies' NBV, they can result in a significant reduction in the Market Value and therefore the lenders headroom and position.

We have seen a number of cases where these changes in asset mix has dramatically reduced the headroom available, to the point, in at least one case, of the company entering administration.

A sale of slow depreciating assets, replacing them with faster depreciating assets will have a significant negative effect on the overall Market Value of the portfolio. This effect will then be exaggerated each of the following years.

John comments "We are recommending our lending clients keep a close eye on the addition and disposal of assets at regular points through the term of the facility and not wait until the annual revaluation, at which point the damage may already have been done".
Insolvency & Restructuring

...for Q2 2017 the number of company insolvencies fell to the lowest quarterly level since comparable records began in 2000*.

Although the insolvency market remains challenging with on-going uncertainty around the government's Brexit strategy and the drop in the value of the pound have been noted as some of the reasons that some high profile companies have entered Administration, with Monarch Airlines being the latest.

The latest official statics from the insolvency service for Q2 state that total company insolvencies increased by 12.6% compared to Q1 2017.
However this was caused by a one off event of 1,131 connected personal service companies (PSCs) entering Creditors Voluntary Liquidation (CVL) in Q2 2017 following changes to claimable expense rules*. 

Creditors’ voluntary liquidations comprised most of company insolvencies. Excluding these PSCs, it is interesting to read that the underlying number of companies entering insolvency in Q2 2017 actually fell by 15.4% compared to Q1 2017 and by 4.0% compared with the same quarter in 2016*.

Peter comments "All that being said recent news on high street sales suggests that tougher times might be ahead and since January 2017 we have experienced a slightly more fluid insolvency & restructuring market. We have been involved in assignments relating to the retail, printing, food and plastics sectors which have included disposition of assets, sale of businesses and advisory support so are very well placed and ready to provide support and advice when required".

*insolvency statistics https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/632527/Insolvency_Statistics_Q2_2017_-_web.pdf
Peter's Dick Whittington Walk: 27 April - 4 May 2018 Gloucester to London.

Peter will be embarking on an epic 130 mile walk in aid of Prostrate Cancer UK and the Queen Elizabeth Hospital Charity Birmingham on 4 May 2018.
Peter comments "Trying to repay the fantastic treatment and the strong, kind and positive care I have received is almost impossible but I would like to give something back hence why i decided to do this walk. I would love it if you could join me for some or all of the walk...or alternatively please visit the website and donate what you can for what are two excellent and worthwhile causes."

You can read Peter's story, register your interest and find more details, by clicking on the link here .

Stay tuned as more details will follow as we will be cheering Peter on and celebrating at the finish line at Mansion House in London!
GET IN TOUCH...

Gordon Titley
E:gtitley@eurovals.co.uk
M:07734 388785

Peter Bache
E:pbache@eurovals.co.uk
M:07774 174811


Dan Edgar
E:dedgar@eurovals.co.uk
M:07827 999332


John Lawrence
E:jlawrence@eurovals.co.uk
M:07775 444796


Andrew Dunbar         
E:adunbar@eurovals.co.uk
M:07967 302675
Offices: London, Birmingham and Mumbai